10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___to ___

Commission File Number: 1-8996

CAPSTEAD MORTGAGE CORPORATION

(Exact name of Registrant as specified in its Charter)

Maryland
(State or other jurisdiction of
incorporation or organization) 75-2027937
(I.R.S. Employer
Identification No.)

8401 North Central Expressway, Suite 800, Dallas, TX
(Address of principal executive offices) 75225
(Zip Code)

Registrant’s telephone number, including area code: (214) 874-2323

Indicate by check mark whether the Registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES þ NO o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.

Common Stock ($0.01 par value) 19,043,297 as of July 29, 2005

CAPSTEAD MORTGAGE CORPORATION

FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2005

INDEX

	Page
PART I. ¾ FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets ¾ June 30, 2005 and December 31, 2004		3
Consolidated Statements of Operations ¾ Quarter and Six Months Ended June 30, 2005 and 2004		4
Consolidated Statements of Cash Flows ¾ Six Months Ended June 30, 2005 and 2004		5
Notes to Consolidated Financial Statements		6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
ITEM 3. Qualitative and Quantitative Disclosure of Market Risk		33
ITEM 4. Controls and Procedures		33
PART II. ¾ OTHER INFORMATION
ITEM 5. Other Information		33
ITEM 6. Exhibits and Reports on Form 8-K		34
SIGNATURES		35
Form of Master Agreement
Forms of Non-Qualified Stock Option & Restricted Stock Agreements - Non-Employee
Forms of Non-Qualified Stock Option & Restricted Stock Agreements - Employees
2005 Non-Qualified Stock Option
Computation of Ratio of Earnings to Combined Fixed Charges
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906

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ITEM 1. FINANCIAL STATEMENTS

PART I. ¾ FINANCIAL INFORMATION

CAPSTEAD MORTGAGE CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

	June 30, 2005			December 31, 2004
	(unaudited)			(NOTE 2)
Assets
Mortgage securities and similar investments ($3.4 billion pledged under repurchase arrangements in 2005)	$	3,486,161		$	3,382,372
CMO collateral		22,657			56,187
		3,508,818			3,438,559
Real estate held for lease, net of accumulated depreciation		127,851			129,705
Receivables and other assets		52,873			46,688
Cash and cash equivalents		181			73,030
	$	3,689,723		$	3,687,982
Liabilities
Repurchase arrangements and similar borrowings	$	3,206,954		$	3,166,059
Collateralized mortgage obligations (“CMOs”)		22,366			55,735
Borrowings secured by real estate		119,884			120,001
Common stock dividend payable		1,903			4,151
Accounts payable and accrued expenses		10,074			9,497
		3,361,181			3,355,443
Stockholders’ equity
Preferred stock — $0.10 par value; 100,000 shares authorized:
$1.60 Cumulative Preferred Stock, Series A, 202 shares issued and outstanding at June 30, 2005 and December 31, 2004 ($3,317 aggregate liquidation preference)		2,827			2,827
$1.26 Cumulative Convertible Preferred Stock, Series B, 15,819 shares issued and outstanding at June 30, 2005 and December 31, 2004 ($180,025 aggregate liquidation preference)		176,705			176,705
Common stock — $0.01 par value; 100,000 shares authorized; 19,043 and 18,867 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively		191			189
Paid-in capital		514,969			516,704
Accumulated deficit		(387,718	)		(387,718	)
Accumulated other comprehensive income		21,568			23,832
		328,542			332,539
	$	3,689,723		$	3,687,982

See accompanying notes to consolidated financial statements.

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CAPSTEAD MORTGAGE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Quarter Ended						Six Months Ended
	June 30						June 30
	2005			2004			2005			2004
Interest income:
Mortgage securities and similar investments	$	30,214		$	19,279		$	58,395		$	38,716
CMO collateral		375			1,866			717			4,372
Total interest income		30,589			21,145			59,112			43,088
Interest and related expense:
Repurchase arrangements and similar borrowings		23,445			6,967			43,185			12,797
CMO borrowings		303			1,659			546			3,952
Mortgage insurance and other		46			67			96			114
Total interest and related expense		23,794			8,693			43,827			16,863
Net margin on financial assets		6,795			12,452			15,285			26,225
Real estate lease income		2,890			2,434			5,540			4,959
Real estate-related expense:
Interest		1,501			1,061			2,778			2,146
Depreciation		927			927			1,854			1,854
Total real estate-related expense		2,428			1,988			4,632			4,000
Net margin on real estate held for lease		462			446			908			959
Other revenue (expense):
Other revenue		215			249			411			316
Other operating expense		(1,482	)		(1,332	)		(3,012	)		(3,331	)
Total other revenue (expense)		(1,267	)		(1,083	)		(2,601	)		(3,015	)
Net income	$	5,990		$	11,815		$	13,592		$	24,169
Net income	$	5,990		$	11,815		$	13,592		$	24,169
Less cash dividends paid on preferred shares		(5,064	)		(5,064	)		(10,128	)		(10,131	)
Net income available to common stockholders	$	926		$	6,751		$	3,464		$	14,038
Net income per common share:
Basic	$	0.05		$	0.44		$	0.18		$	0.95
Diluted		0.05			0.44			0.18			0.94
Cash dividends declared per share:
Common	$	0.100		$	0.500		$	0.280		$	1.030
Series A Preferred		0.400			0.400			0.800			0.800
Series B Preferred		0.315			0.315			0.630			0.630

See accompanying notes to consolidated financial statements.

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CAPSTEAD MORTGAGE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended
	June 30
	2005			2004
Operating activities:
Net income	$	13,592		$	24,169
Noncash items:
Amortization of discount and premium		10,131			5,510
Depreciation and other amortization		2,238			2,302
Net change in receivables, other assets, accounts payable and accrued expenses		(3,586	)		(2,942	)
Net cash provided by operating activities		22,375			29,039
Investing activities:
Purchases of mortgage securities and similar investments		(710,966	)		(787,353	)
Principal collections on mortgage securities and similar investments		592,442			350,408
CMO collateral:
Principal collections		32,690			61,358
Decrease in accrued interest receivable		242			392
Net cash used in investing activities		(85,592	)		(375,195	)
Financing activities:
Net increase in repurchase arrangements and similar borrowings		40,895			410,893
Principal payments on borrowings secured by real estate		(117	)		(105	)
CMO borrowings:
Principal payments on securities		(32,543	)		(60,975	)
Decrease in accrued interest payable		(217	)		(364	)
Capital stock transactions		26			30,314
Dividends paid		(17,676	)		(26,767	)
Net cash (used in) provided by financing activities		(9,632	)		352,996
Net change in cash and cash equivalents		(72,849	)		6,840
Cash and cash equivalents at beginning of period		73,030			16,340
Cash and cash equivalents at end of period	$	181		$	23,180

See accompanying notes to consolidated financial statements.

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CAPSTEAD MORTGAGE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2005

(unaudited)

NOTE 1 ¾ BUSINESS

Capstead Mortgage Corporation (together with its subsidiaries, “Capstead” or the “Company”) operates as a real estate investment trust (“REIT”) headquartered in Dallas, Texas. Capstead earns income from investing in real estate-related assets on a leveraged basis and from other investment strategies. These investments currently consist primarily of, but are not limited to, residential financial assets, specifically adjustable-rate mortgage (“ARM”) securities issued and guaranteed by government-sponsored entities, either Fannie Mae or Freddie Mac, or by an agency of the federal government, Ginnie Mae (collectively, “Agency Securities”). Capstead also seeks to opportunistically invest a portion of its equity in credit-sensitive commercial real estate-related assets, including, but not limited to, direct ownership interests in commercial real estate as well as mezzanine loans and other junior liens on commercial real estate. Management believes such investments, when available at favorable prices and combined with the prudent use of leverage, can produce attractive risk-adjusted returns over the long term with relatively low sensitivity to changes in interest rates.

The earning capacity of Capstead’s financial asset portfolios is influenced by the overall size and composition of the portfolios, which depends on investment strategies being implemented by management, the availability of attractively-priced investments and overall market conditions. Market conditions are influenced by, among other things, current levels of, and expectations for future levels of, short-term interest rates and mortgage prepayments. Financing spreads (the difference between yields earned on these investments and interest rates charged on related borrowings) have declined from the historically wide levels achieved the last several years when short-term interest rates were lower and are expected to continue declining before beginning to recover once the Federal Reserve Open Market Committee slows its pace of raising short-term interest rates.

NOTE 2 ¾ BASIS OF PRESENTATION

Interim Financial Reporting

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 2005. For further information refer to the consolidated financial statements and footnotes thereto incorporated by reference in the Company’s annual report on Form 10-K for the year ended December 31, 2004.

Stock-Based Compensation

Capstead currently accounts for stock-based awards for employees and directors under the recognition and measurement principles of the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations (“APB25”). Under APB25 compensation cost for stock-based awards for employees and directors is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of grant over the amount to be paid to acquire the stock and is recognized in Other operating expense as the awards vest and restrictions lapse on a straight-line basis. If

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the Company had expensed stock-based compensation costs determined using the fair value-based methodology prescribed by Statement of Financial Accounting Standards No. 123 “Accounting for Stock-based Compensation” (“SFAS 123”), such expense would have been higher by less than $25,000 for the three and six months ended June 30, 2005, respectively, which would have had no effect on reported diluted net income per common share for the periods presented.

In December 2004 the Financial Accounting Standards Board revised SFAS 123 to supercede APB25 and require the use of a fair value-based methodology (similar to the original SFAS 123 methodology) to measure and record liabilities associated with stock-based compensation. The revised standard is required to be adopted by Capstead beginning January 1, 2006 and is applicable to any new awards and to all existing awards for which the requisite service to earn the award has not yet been rendered. The effect of adopting the revised standard is not expected to be material to Capstead’s earnings or financial condition.

NOTE 3 ¾ NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing net income, after deducting preferred share dividends, by the weighted average number of common shares outstanding. Diluted net income per common share is computed by dividing net income, after deducting preferred share dividends for antidilutive convertible preferred shares, if any, by the weighted average number of common shares and common share equivalents outstanding, giving effect to dilutive stock options and dilutive convertible preferred shares. The components of the computation of basic and diluted net income per share were as follows (in thousands, except per share data):

	Quarter Ended June 30						Six Months Ended June 30
	2005			2004			2005			2004
Numerator for basic net income per common share:
Net income	$	5,990		$	11,815		$	13,592		$	24,169
Less all preferred share dividends		(5,064	)		(5,064	)		(10,128	)		(10,131	)
Net income available to common stockholders	$	926		$	6,751		$	3,464		$	14,038
Weighted average common shares outstanding		18,869			15,237			18,865			14,752
Basic net income per common share	$	0.05		$	0.44		$	0.18		$	0.95
Numerator for diluted net income per common share:
Net income	$	5,990		$	11,815		$	13,592		$	24,169
Less dividends on antidilutive convertible preferred shares		(5,064	)		(4,983	)		(10,128	)		(9,966	)
	$	926		$	6,832		$	3,464		$	14,203
Denominator for diluted net income per common share:
Weighted average common shares outstanding		18,869			15,237			18,865			14,752
Net effect of dilutive stock options		39			30			40			35
Net effect of dilutive Series A preferred shares		—			311			—			313
		18,908			15,578			18,905			15,100
Diluted net income per common share	$	0.05		$	0.44		$	0.18		$	0.94

For dilutive net income per common share purposes, the Series A and B preferred shares are considered dilutive whenever annualized basic net income per common share exceeds each Series’ annualized dividend divided by the conversion rate applicable for that period.

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NOTE 4 ¾ MORTGAGE SECURITIES AND SIMILAR INVESTMENTS

The Company classifies its investments in mortgage securities and similar financial assets by collateral type and interest rate characteristics. Agency Securities are AAA-rated and are considered to have limited credit risk. Non-agency securities consist of private mortgage pass-through securities originally formed prior to 1995 when the Company operated a mortgage conduit. These securities are backed by residential mortgage loans whereby the related credit risk of the underlying loans is borne by the Company or by AAA-rated private mortgage insurers (“Non-agency Securities”). Included in Receivables and other assets as restricted cash at June 30, 2005 was $6.0 million in related reserve funds for special hazards (e.g. earthquake or mudslide-related losses) and certain bankruptcy losses. Commercial mortgage securitizations generally have senior, mezzanine and subordinate classes of bonds with the lower bond classes providing credit enhancement to the more senior classes. Commercial mortgage-backed securities (“CMBS”) held by the Company as of June 30, 2005 are mezzanine classes and therefore carry credit risk associated with the underlying pools of commercial mortgage loans that is mitigated by subordinate bonds held by other investors. The maturity of mortgage securities is directly affected by the rate of principal prepayments on the underlying loans.

Fixed-rate investments generally are mortgage securities backed by mortgage loans that have fixed rates of interest over the life of the loans. Adjustable-rate investments generally are mortgage securities backed by mortgage loans that have interest rates that adjust at least annually to more current interest rates (“current-reset ARM securities”) or begin doing so after an initial fixed-rate period (“longer-to-reset ARM securities”). Mortgage loans underlying current-reset ARM securities either (i) adjust annually based on a specified margin over the one-year Constant Maturity U.S. Treasury Note Rate or the one-year London Interbank Offered Rate (“LIBOR”), (ii) adjust semiannually based on a specified margin over six-month LIBOR, or (iii) adjust monthly based on a specific margin over an index such as LIBOR or the Eleventh District Federal Reserve Bank Cost of Funds Index, usually subject to periodic and lifetime limits on the amount of such adjustments during any single interest rate adjustment period and over the life of the loan. Mortgage loans underlying longer-to-reset ARM securities generally have initial fixed rates of interest of three to five years before beginning to adjust in rate as described above. The average period until initial reset for the $571 million in longer-to-reset ARM securities held by the Company as of June 30, 2005 was 25 months compared to less than 6 months to the next reset date for the Company’s current-reset ARM securities. CMBS held as of June 30, 2005 adjust monthly based on a specified margin over 30-day LIBOR. Mortgage securities and similar investments and related weighted average rates were as follows (dollars in thousands):

									Average			Average
	Principal		Premiums				Carrying		Coupon			Effective
	Balance		(Discounts)		Basis		Amount(a)		Rate(b)			Rate(b)
June 30, 2005
Agency Securities:
Fannie Mae/Freddie Mac:
Fixed-rate	$	28,090	$	109	$	28,199	$	28,241		6.62	%		6.23	%
ARMs		2,313,752		44,431		2,358,183		2,369,209		4.48			3.47
Ginnie Mae ARMs		945,275		5,879		951,154		961,272		3.98			3.35
		3,287,117		50,419		3,337,536		3,358,722		4.35			3.46
Non-agency Securities:
Fixed-rate		27,237		7		27,244		27,281		6.77			6.38
ARMs		48,359		487		48,846		49,292		4.78			4.34
		75,596		494		76,090		76,573		5.50			5.08
CMBS — adjustable-rate		50,834		7		50,841		50,866		4.26			4.08
	$	3,413,547	$	50,920	$	3,464,467	$	3,486,161		4.38			3.51

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									Average			Average
	Principal		Premiums				Carrying		Coupon			Effective
	Balance		(Discounts)		Basis		Amount(a)		Rate(b)			Rate(b)
December 31, 2004
Agency Securities:
Fannie Mae/Freddie Mac:
Fixed-rate	$	35,538	$	146	$	35,684	$	35,739		6.63	%		6.19	%
ARMs		2,116,454		39,572		2,156,026		2,170,766		3.96			3.11
Ginnie Mae ARMs		1,017,517		7,583		1,025,100		1,033,506		3.87			3.01
		3,169,509		47,301		3,216,810		3,240,011		3.96			3.11
Non-agency Securities:
Fixed-rate		34,338		24		34,362		34,415		6.78			6.27
ARMs		55,615		646		56,261		56,739		4.12			3.49
		89,953		670		90,623		91,154		5.14			4.55
CMBS — adjustable-rate		51,159		10		51,169		51,207		3.44			3.10
	$	3,310,621	$	47,981	$	3,358,602	$	3,382,372		3.98			3.16

(a)	Includes mark-to-market for securities classified as available-for-sale, if applicable (see NOTE 10).
(b)	Average Coupon Rate is presented net of servicing and other fees as of the indicated balance sheet date. Average Effective Rate is presented for the quarter then ended, calculated including the amortization of premiums (discounts), mortgage insurance costs on Non-agency Securities and excluding unrealized gains and losses.

NOTE 5 ¾ CMO COLLATERAL AND INVESTMENTS

Collateral pledged to secure CMOs consists of Non-agency Securities and related accrual interest. The components of CMO collateral were as follows (in thousands):

	June 30, 2005		December 31, 2004
Non-agency Securities	$	22,178	$	54,996
Accrued interest receivable		148		390
		22,326		55,386
Unamortized premium		331		801
	$	22,657	$	56,187

Subsequent to quarter-end, the Company exercised its right to redeem one of its three outstanding CMOs and transfer the $12 million in released collateral to the Non-agency Securities portfolio. Credit risk associated with the remaining collateral is borne by subordinated bonds within the related CMO series to which the collateral is pledged, none of which were retained by the Company. The related weighted average effective interest rate was 5.76% during the quarter ended June 30, 2005.

NOTE 6 ¾ REAL ESTATE HELD FOR LEASE

In May 2002 Capstead acquired six “independent” senior living facilities wherein the operator of the facility provides tenants little, if any, medical care (collectively, the “Properties”). The aggregate purchase price of the Properties was $139.7 million including approximately $3.1 million in closing costs and the assumption by Capstead of $19.7 million of related mortgage debt and $101.1 million of tax-exempt bond debt. The Properties were acquired pursuant to purchase agreements initially negotiated and executed by an affiliate of Brookdale Living Communities, Inc. (collectively with its subsidiaries, “Brookdale”) and subsequently assigned to Capstead. Concurrent with the acquisition, the Company entered into a long-term “net-lease” arrangement with Brookdale, under which Brookdale is responsible for the ongoing operation and management of the Properties. Brookdale, an owner, operator, developer and manager of senior living facilities, is a majority-owned affiliate of Fortress Investment Group, LLC which, together with its affiliates, is referred to as Fortress. Fortress is a former affiliate of the Company.

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The lease arrangement consists of a master lease covering all of the Properties and individual property-level leases (referred to collectively as the “Lease”). The Lease has a remaining term of approximately 17 years and provides for two 10-year renewal periods. Beginning May 1, 2007, Brookdale will have the option of purchasing all of the Properties from Capstead at the greater of fair value (unencumbered by the Lease) or Capstead’s original cost, after certain adjustments. Brookdale is responsible for paying all expenses associated with the operation of the Properties, including real estate taxes, other governmental charges, insurance, utilities and maintenance, and an amount representing an attractive cash return on Capstead’s equity in the Properties after payment of monthly debt service, subject to annual increases based upon increases (capped at 3%) in the Core Consumer Price Index. Brookdale is responsible for changes in related debt service requirements under the terms of the Lease; therefore, earnings from this investment are generally not affected by changes in interest rates. Included in Receivables and other assets at June 30, 2005 was $2.9 million in unamortized rent abatements and $1.2 million of rent and other receivables due from Brookdale. Carrying amounts of the Properties were as follows (in thousands):

	June 30, 2005			December 31, 2004
Land	$	16,450		$	16,450
Buildings		119,550			119,550
Equipment and fixtures		3,600			3,600
		139,600			139,600
Accumulated depreciation		(11,749	)		(9,895	)
	$	127,851		$	129,705

NOTE 7 ¾ REPURCHASE ARRANGEMENTS AND SIMILAR BORROWINGS

Capstead borrows under uncommitted repurchase arrangements with well-established investment banking firms. Repurchase arrangements pursuant to which the Company pledges mortgage securities as collateral generally have maturities of less than 31 days, although from time to time the Company may extend maturities on a portion of its borrowings. From time to time the Company may obtain similar borrowings from other parties such as commercial banks to finance investments in financial assets that are not mortgage-backed securities. The terms and conditions of repurchase arrangements and any similar borrowings are negotiated on a transaction-by-transaction basis. These borrowings consisted solely of repurchase arrangements as of June 30, 2005. Related weighted average interest rates, classified by type of collateral and maturities, were as follows for the dates indicated (dollars in thousands):

	June 30, 2005					December 31, 2004
	Borrowings		Average			Borrowings		Average
	Outstanding		Rate			Outstanding		Rate
Agency Securities (less than 31 days)	$	2,392,050		3.21	%	$	2,340,755		2.28	%
Agency Securities (31 to 90 days)		50,803		2.30			54,021		1.98
Agency Securities (91 to 360 days)		625,924		2.52			204,983		2.19
Agency Securities (greater than 360 days)		30,153		3.83			446,744		2.61
Non-agency Securities (less than 31 days)		59,914		3.66			71,140		2.76
CMBS (less than 31 days)		48,110		3.29			48,416		2.54
	$	3,206,954		3.08		$	3,166,059		2.33

The weighted average effective interest rate on Repurchase arrangements and similar borrowings was 2.91% during the quarter ended June 30, 2005.

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NOTE 8 ¾ CMO BORROWINGS

Each series of CMOs issued consists of various classes of fixed-rate and adjustable-rate bonds. Interest is payable monthly at specified rates for all classes. The components of CMOs, along with selected other information, were as follows for the dates indicated (dollars in thousands):

	June 30, 2005		December 31, 2004
CMOs	$	22,049	$	54,739
Accrued interest payable		75		292
Total obligation		22,124		55,031
Unamortized premium		242		704
	$	22,366	$	55,735
Range of average interest rates	3.45% to 8.44%		2.29% to 9.60%
Range of stated maturities	2025 to 2027		2025 to 2030
Number of series		3		5

Typically, principal payments on each series are made to each class in the order of their stated maturities so that no payment of principal is made on any class of bonds until all classes having an earlier stated maturity have been paid in full. The maturity of each CMO series is directly affected by the rate of principal prepayments on the related CMO collateral. Each series is also subject to redemption provided certain requirements specified in the related indenture have been met (referred to as “Clean-up Calls”); therefore, the actual maturity of any series is likely to occur earlier than its stated maturity. Subsequent to quarter-end, the Company exercised its Clean-up Call rights for one of the three outstanding CMOs, retiring $12 million of the bonds outstanding at June 30, 2005. The weighted average effective interest rate for CMO borrowings was 4.67% during the quarter ended June 30, 2005.

NOTE 9 ¾ BORROWINGS SECURED BY REAL ESTATE

The components of Borrowings secured by real estate and related weighted average interest rates (calculated including bond issue cost amortization) were as follows for the dates indicated (dollars in thousands):

	June 30, 2005					December 31, 2004
	Borrowings		Average			Borrowings		Average
	Outstanding		Rate			Outstanding		Rate
Mortgage borrowings	$	19,043		7.92	%	$	19,160		7.92	%
Tax-exempt bonds		100,841		4.62			100,841		2.98
	$	119,884		5.15		$	120,001		3.77

Mortgage borrowings consist of a fixed-rate mortgage secured by one senior living facility that matures in 2009. The tax-exempt bonds are credit-enhanced by Fannie Mae and secured by mortgages on the remaining five senior living facilities. Interest rates on the bonds adjust weekly based on the Bond Market Association Municipal Swap Index (“BMA Index”). Interest rate cap agreements with notional amounts aggregating $100.8 million, five-year terms, and cap rates equal to a 6% BMA Index, are held to provide funds to pay interest on the bonds in excess of a 6% BMA Index, should that occur. Monthly interest rate cap and principal reserve fund payments are made to the trustee for the purchase of new cap agreements in 2007 and the eventual retirement of the bonds by 2032. Held in escrow by the bond trustee as of June 30, 2005 were a total of $4.9 million in interest rate cap reserves, principal reserves and repair and replacement reserves. These funds are included in Receivables and other assets as restricted cash. Also included in Receivables and other assets are $2.7 million in bond issue costs.

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The weighted average effective interest rate for all Borrowings secured by real estate (calculated including bond issue cost amortization) was 5.02% for the quarter ended June 30, 2005.

NOTE 10 ¾ DISCLOSURES REGARDING FAIR VALUES OF DEBT SECURITIES

Fair values of the Company’s investments are influenced by changes in, and market expectations for changes in, interest rates and levels of mortgage prepayments as well as other factors beyond the control of management. Fluctuations in fair value caused by changes in interest rates are generally offset in a relatively short period of time because most of the Company’s investments adjust to more current rates at least annually. As of June 30, 2005, $1.2 billion of the Company’s investments in mortgage securities carried unrealized losses totaling $5.8 million. Approximately $200 million of these securities have been carried at an unrealized loss for 12 months or longer. Given that managing a large portfolio of mortgage securities remains the core focus of Capstead’s investment strategy, it is likely that these securities will be held to maturity. Consequently, temporary declines in value because of increases in interest rates would not constitute other-than-temporary impairments in value necessitating writedowns, absent a major shift in the Company’s investment focus.

The following tables summarize fair value disclosures for available-for-sale debt securities (in thousands):

			Gross		Gross
	Cost		Unrealized		Unrealized		Fair
	Basis		Gains		Losses		Value
As of June 30, 2005
Agency Securities:
Fixed-rate	$	487	$	42	$	—	$	529
ARMs		3,309,337		26,931		5,787		3,330,481
		3,309,824		26,973		5,787		3,331,010
Non-agency Securities		35,198		497		14		35,681
CMBS		50,841		26		1		50,866
CMO collateral		8,778		124		—		8,902
	$	3,404,641	$	27,620	$	5,802	$	3,426,459
As of December 31, 2004
Agency Securities:
Fixed-rate	$	606	$	55	$	—	$	661
ARMs		3,181,126		26,467		3,321		3,204,272
		3,181,732		26,522		3,321		3,204,933
Non-agency Securities		41,166		564		33		41,697
CMBS		51,169		39		1		51,207
CMO collateral		12,214		253		—		12,467
	$	3,286,281	$	27,378	$	3,355	$	3,310,304

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Held-to-maturity debt securities consist of CMO collateral and collateral released from the related CMO indentures pursuant to Clean-up Calls and held as Agency Securities and Non-agency Securities. Fair value disclosures for debt securities held-to-maturity were as follows (in thousands):

			Gross		Gross
	Cost		Unrealized		Unrealized		Fair
	Basis		Gains		Losses		Value
As of June 30, 2005
Released CMO Collateral:
Agency Securities	$	27,712	$	1,067	$	—	$	28,779
Non-agency Securities		40,892		876		—		41,768
CMO Collateral		13,755		44		—		13,799
	$	82,359	$	1,987	$	—	$	84,346
As of December 31, 2004
Released CMO Collateral:
Agency Securities	$	35,078	$	1,723	$	—	$	36,801
Non-agency Securities		49,457		1,345		97		50,705
CMO Collateral		43,720		84		—		43,804
	$	128,255	$	3,152	$	97	$	131,310

Sales of released CMO collateral classified as held-to-maturity occasionally occur provided the collateral has paid down to within 10% of its original issuance amounts. There were no dispositions of debt securities for the periods presented.

NOTE 11 ¾ COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is net income plus other comprehensive income (loss), which, for the periods presented, consists primarily of the change in unrealized gain on debt securities classified as available-for-sale. The following table provides information regarding comprehensive income (loss) (in thousands):

	Quarter Ended						Six Months Ended
	June 30						June 30
	2005			2004			2005			2004
Net income	$	5,990		$	11,815		$	13,592		$	24,169
Other comprehensive income (loss):
Unrealized loss on derivative financial Instruments held as cash flow hedges:
Change in unrealized loss during period		13			(50	)		3			(178	)
Reclassification adjustment for amounts included in net income		(25	)		(30	)		(62	)		(81	)
		(12	)		(80	)		(59	)		(259	)
Unrealized gain on debt securities:
Change in unrealized gain during period		2,916			(14,117	)		(2,205	)		(11,445	)
Other comprehensive income (loss)		2,904			(14,197	)		(2,264	)		(11,704	)
Comprehensive income (loss)	$	8,894		$	(2,382	)	$	11,328		$	12,465

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NOTE 12 ¾ NET INTEREST INCOME ANALYSIS

The following tables summarize interest income and interest expense and weighted average interest rates pertaining to the Company’s investments in financial assets (excludes Real estate held for lease and related borrowings) (dollars in thousands):

	Quarter Ended June 30
	2005					2004
			Average					Average
	Amount		Rate			Amount		Rate
Interest income:
Mortgage securities and other investments	$	30,214		3.51	%	$	19,279		3.10	%
CMO collateral		375		5.76			1,866		6.46
Total interest income		30,589					21,145
Interest expense:
Repurchase arrangements and similar borrowings		23,445		2.91			6,967		1.20
CMO borrowings		303		4.67			1,659		5.74
Total interest expense		23,748					8,626
	$	6,841				$	12,519

	Six Months Ended June 30
	2005					2004
	Amount		Average			Amount		Average
Interest income:
Mortgage securities and similar investments	$	58,395		3.42	%	$	38,716		3.25	%
CMO collateral		717		4.13			4,372		6.55
Total interest income		59,112					43,088
Interest expense:
Repurchase arrangements and similar borrowings		43,185		2.71			12,797		1.16
CMOs borrowings		546		3.15			3,952		5.93
Total interest expense		43,731					16,749
	$	15,381				$	26,339

Changes in interest income and interest expense due to changes in interest rates versus changes in volume were as follows (in thousands):

	Quarter Ended June 30, 2005
	Rate*			Volume*			Total
Interest income:
Mortgage securities and similar investments	$	2,791		$	8,144		$	10,935
CMO collateral		(181	)		(1,310	)		(1,491	)
Total interest income		2,610			6,834			9,444
Interest expense:
Repurchase arrangements and similar borrowings		12,962			3,516			16,478
CMOs		(264	)		(1,092	)		(1,356	)
Total interest expense		12,698			2,424			15,122
	$	(10,088	)	$	4,410		$	(5,678	)

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	Six Months Ended June 30, 2005
	Rate*			Volume*			Total
Interest income:
Mortgage securities and similar investments	$	2,112		$	17,567		$	19,679
CMO collateral		(1,218	)		(2,437	)		(3,655	)
Total interest income		894			15,130			16,024
Interest expense:
Repurchase arrangements and similar borrowings		22,759			7,629			30,388
CMOs		(1,319	)		(2,087	)		(3,406	)
Total interest expense		21,440			5,542			26,982
	$	(20,546	)	$	9,588		$	(10,958	)

* The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

NOTE 13 ¾ SUBSEQUENT EVENT — FORMATION
OF MEZZANINE LOAN JOINT VENTURE

Pursuant to a previously announced master agreement with Crescent Real Estate Equities Company (NYSE: CEI), on July 26, 2005 Capstead and CEI formed Redtail Capital Partners, L.P. (“Redtail Capital”), the first of two limited partnerships to be owned and capitalized 75% by Capstead and 25% by CEI, for the purpose of investing in a leveraged portfolio of select mezzanine loans and other junior liens on commercial real estate. The parties have committed up to $100 million in equity capital to Redtail Capital to be invested over the next two years. Once this initial partnership is fully invested, the master agreement contemplates an additional partnership with similar terms can be formed to invest another $100 million in capital over the following two-year period. Total investments to be made over four years, assuming leverage, could exceed $600 million and each partnership is expected to have a seven to nine year existence, depending upon the timing of payoff of related investments. CEI is responsible for identifying investment opportunities and managing the loan portfolio and, as a result, will earn a management fee and incentives based on portfolio performance. Capstead expects to account for its investments in the partnerships as unconsolidated affiliates using the equity method of accounting wherein it will record its share in the earnings of the partnerships in its statement of income. The partnership is expected to make its first investment during the third quarter of 2005.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

FINANCIAL CONDITION

Overview

Capstead Mortgage Corporation (together with its subsidiaries, “Capstead” or the “Company”) operates as a real estate investment trust (“REIT”) headquartered in Dallas, Texas. Capstead earns income from investing in real estate-related assets on a leveraged basis and from other investment strategies. These investments currently consist primarily of, but are not limited to, residential financial assets, specifically adjustable-rate mortgage (“ARM”) securities issued and guaranteed by government-sponsored entities, either Fannie Mae or Freddie Mac, or by an agency of the federal government, Ginnie Mae (collectively, “Agency Securities”). Capstead also seeks to opportunistically invest a portion of its equity in credit-sensitive commercial real estate-related assets, including, but not limited to, direct ownership interests in commercial real estate as well as mezzanine loans and other junior liens on commercial real estate. Management believes such investments, when available at favorable prices and combined with the prudent use of leverage, can produce attractive risk-adjusted returns over the long term with relatively low sensitivity to changes in interest rates.

Capstead’s financing spreads (the difference between yields earned on the Company’s mortgage securities and similar investments and interest rates charged on related borrowings) have declined considerably in recent quarters despite increasing yields on most of the Company’s adjustable-rate investments and are expected to decline further in the third quarter due to higher borrowing rates. Additionally, mortgage prepayments increased considerably during the second quarter due primarily to a flattening of the yield curve, with short-term interest rates having increased without a corresponding rise in long-term interest rates. This has put added pressure on ARM security yields because it has created opportunities for many homeowners with ARM loans to refinance and lock-in attractive longer-term interest rates. After absorbing increases in the federal funds rate by the Federal Reserve’s Federal Open Market Committee (the “Federal Reserve”) totaling 225 basis points since June 2004 to the current level of 3.25%, the financial markets currently anticipate that the Federal Reserve may slow its pace of increasing rates during the latter half of the year. Once borrowing rates begin to stabilize, ARM security yield increases should allow for improving financing spreads.

The size and composition of Capstead’s investment portfolios depend on investment strategies being implemented by management, the availability of attractively-priced investments and overall market conditions. Market conditions are influenced by, among other things, current levels of, and expectations for future levels of, short-term interest rates and mortgage prepayments. During the first six months of 2005 the Company acquired sufficient ARM securities to replace portfolio runoff and increase the size of the mortgage securities and similar investments portfolio to $3.5 billion from $3.4 billion the previous year-end. The Company intends to continue pursuing the acquisition of attractively-priced ARM securities, while also initiating investment activity in its newly-formed mezzanine loan joint venture with Crescent Real Estate Equities Company (NYSE: CEI).

Risk Factors and Critical Accounting Policies

Under the captions “Effects of Interest Changes,” “Risks Associated with Credit-Sensitive Investments,” “Risks Associated with Owning Real Estate,” “Regulatory Matters” and “Critical Accounting Policies” are discussions of risk factors and critical accounting policies affecting Capstead’s financial condition and results of operations that are an integral part of this discussion and analysis. Readers are strongly urged to consider the potential impact of these factors and accounting policies on the Company while reading this document.

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Book Value per Common Share

As of June 30, 2005, Capstead’s book value per common share was $7.62, an increase of $0.03 from March 31, 2005 and a decline of $0.29 from December 31, 2004. The year-to-date decrease was caused by declines in the aggregate unrealized gain on the Company’s mortgage securities portfolio, dividend payments in excess of GAAP net income and the recent issuance of equity-based incentive compensation to directors and employees. The aggregate unrealized gain on the Company’s mortgage investments (most of which are carried at fair value with changes in fair value reflected in stockholders’ equity) declined primarily because of portfolio runoff. This decline along with declines in other elements of accumulated other comprehensive income lowered book value by $0.12 per share. Dividend payments in excess of GAAP net income, which results primarily because the Company currently distributes all cash flow from its net-leased real estate, lowered book value by $0.10 per share. Unvested stock grants made to directors and employees in May 2005 totaling 172,600 shares lowered book value by $0.07 per share.

The unrealized gain on the Company’s mortgage investments can be expected to fluctuate with changes in portfolio size and composition as well as changes in interest rates and market liquidity, and such changes will largely be reflected in book value per common share. Book value will also be affected by other factors, including capital stock transactions and the level of dividend distributions relative to quarterly net income; however, temporary changes in fair value of investments not held in the form of securities, such as mezzanine loans and other junior liens on commercial real estate and real estate held for lease, generally will not affect book value.

Mortgage Securities and Similar Investments

As of June 30, 2005, the mortgage securities and similar investments portfolio consisted primarily of ARM Agency Securities. ARM securities held by the Company are backed by mortgage loans that have interest rates that adjust at least annually to more current interest rates (“current-reset ARM securities”) or begin doing so after initial fixed-rate periods generally ranging from three to five years (“longer-to-reset ARM securities”). Agency Securities are AAA-rated and are considered to have limited credit risk. Non-agency securities are private mortgage pass-through securities whereby the related credit risk of the underlying loans is borne by the Company or by AAA-rated private mortgage insurers (“Non-agency Securities”). Commercial mortgage-backed securitizations generally have senior, mezzanine and subordinate classes of bonds with the lower classes providing credit enhancement to the more senior classes. Commercial mortgage-backed securities (“CMBS”) held by the Company at June 30, 2005 are adjustable-rate mezzanine classes and therefore carry credit risk associated with the underlying pools of commercial mortgage loans that is mitigated by subordinate bonds held by other investors. Mortgage securities held by Capstead are financed under repurchase arrangements with investment banking firms pursuant to which specific securities are pledged as collateral. Should the Company acquire financial assets that are not mortgage-backed securities, similar financing arrangements with other parties, such as commercial banks, may be employed (see “Liquidity and Capital Resources”).

During the second quarter of 2005, the Company increased the mortgage securities and similar investments portfolio marginally to approximately $3.5 billion by acquiring ARM securities totaling $399 million which offset $329 million in portfolio runoff. Year-to-date acquisitions totaled $695 million while runoff totaled $592 million. Annualized portfolio runoff rates increased considerably to 33% during the second quarter from 27% during the first quarter of 2005 and are expected to remain at elevated levels at least for the third quarter of 2005, in part due to the portfolio consisting of more newly issued and therefore less seasoned ARM securities than in the past, but primarily related to short-term interest rates rising 100 basis points without a corresponding rise in long-term interest rates thus far in 2005. This flattening of the yield curve has created opportunities for many homeowners with ARM loans to refinance and lock-in attractive longer-term interest rates. The Company anticipates that it will

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continue to pursue acquisitions of ARM securities to replace portfolio runoff during 2005; however, there can be no assurance that attractively-priced ARM securities will continue to be available. To the extent the proceeds of mortgage prepayments and other maturities are not reinvested or cannot be reinvested at a rate of return on invested capital at least equal to the return earned on previous investments, earnings and common dividends may decline. The future size and composition of the Company’s investment portfolios will depend on market conditions, including levels of mortgage prepayments and the availability of attractively-priced investments.

The following yield and cost analysis illustrates results achieved during the second quarter of 2005 for components of the mortgage securities and similar investments portfolio and anticipated third quarter 2005 asset yields and borrowing rates based on interest rates in effect on July 21, 2005 (the date second quarter 2005 results were released) (dollars in thousands):

	2ndQuarter Average(a)								As of June 30, 2005				Projected			Lifetime
			Actual			Actual			Premiums				3rdQuarter			Runoff
	Basis		Yield/Cost			Runoff			(Discounts)		Basis(a)		Yield/Cost(b)			Assumptions
Agency Securities:
Fannie Mae/Freddie Mac:
Fixed-rate	$	29,766		6.23	%		30	%	$	109	$	28,199		6.34	%		39	%
ARMs		2,292,170		3.47			33			44,431		2,358,183		3.71			32
Ginnie Mae ARMs		987,902		3.35			33			5,879		951,154		3.72			29
		3,309,838		3.46			33			50,419		3,337,536		3.73			31
Non-agency Securities:
Fixed-rate		28,464		6.38			28			7		27,244		6.53			38
ARMs		50,276		4.34			22			487		48,846		4.71			37
		78,740		5.08			25			494		76,090		5.36			37
CMBS — adjustable-rate		50,913		4.08			1			7		50,841		4.70			1
		3,439,491		3.51			33		$	50,920		3,464,467		3.78			31
Borrowings:
30-day LIBOR		2,490,356		3.00								2,500,074		3.48
>30-day LIBOR		702,241		2.55								706,880		2.56
		3,192,597		2.91								3,206,954		3.28
Capital employed/ financing spread	$	246,894		0.60							$	257,513		0.50
Return on assets(c)				0.78										0.67

(a)	Basis represents Capstead’s investment before unrealized gains and losses. Actual asset yields, runoff rates, borrowing rates and resulting financing spread are presented on an annualized basis.
(b)	Projected annualized yields for the third quarter of 2005 reflect ARM coupon resets and lifetime runoff assumptions as adjusted for expected runoff for this quarter only, as of July 21, 2005. Actual yields realized in future periods will largely depend upon (i) changes in portfolio composition, (ii) ARM coupon resets, (iii) actual runoff and (iv) any changes in lifetime runoff assumptions. Interest rates on borrowings that reset every 30 days at the 30-day London Interbank offered Rate (“LIBOR”) reflect the estimated effects of the 25 basis point increase in the federal funds rate on June 30, 2005 and expectations for 25 basis point increases in the federal funds rate at the August 9 and September 20, 2005 Federal Reserve meetings.
(c)	The Company uses its liquidity to pay down borrowings. Return on assets is calculated on an annualized basis assuming the use of this liquidity to reduce borrowing costs (see “Utilization of Capital and Potential Liquidity”).

Financing spreads averaged 0.60% during the second quarter of 2005 and 0.71% year-to-date, a decline of 21 basis points over the prior quarter and 48 basis points over average financing spreads for the fourth quarter of 2004 as higher mortgage investment yields were more than offset by increases in borrowing rates. The overall yield earned on the portfolio averaged 3.51% during the second quarter, a 18 basis point improvement over the prior quarter and a 35 basis point improvement over average yields earned the fourth quarter 2004 primarily reflecting the benefit of higher coupon interest rates on underlying mortgage loans that reset during the period. This benefit was partially offset by relatively high mortgage

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prepayments in recent months, which reduced portfolio yields for the current quarter nine basis points more than projected by management when first quarter results were release in April. The level of mortgage prepayments impacts how quickly purchase premiums are amortized to earnings as yield adjustments. Yields on current-reset ARM securities fluctuate as coupon interest rates on the underlying mortgage loans reset periodically to a margin over a current short-term interest rate index (typically, a one-year index), subject to periodic and lifetime limits or caps. Coupon interest rate resets are expected to continue trending higher, contributing to improving portfolio yields in the coming quarters. For example, if one-year interest rates remain at current levels, overall portfolio yields are expected to improve 27 basis points to 3.78% for the third quarter of 2005 and the average yield on the existing portfolio will likely exceed 4.75% by the second quarter of 2006. Actual yields will depend on portfolio composition as well as fluctuations in, and market expectations for fluctuations in, interest rates and mortgage prepayment rates.

Interest rates on borrowings secured by the mortgage securities portfolio averaged 2.91% during the second quarter of 2005 and 2.71% year-to-date, an increase of 39 basis points over the prior quarter and 83 basis points over average borrowing rates for the fourth quarter 2004. These borrowings generally reset monthly and are expected to increase further by year-end, particularly given the likelihood that the Federal Reserve will continue to increase the federal funds rate at upcoming meetings. Borrowings with initial terms of up to 24 months entered into beginning early last year that primarily support the Company’s modest position in fixed-rate securities and longer-to-reset ARM securities averaged $702 million at a favorable rate of 2.55% during the second quarter. These longer-term borrowings begin maturing during the fourth quarter. In addition to being dependent on actions by the Federal Reserve to change short-term interest rates, interest rates on the Company’s borrowings that reset monthly are also dependent on market expectations of future changes in short-term interest rates and the extent of changes in financial market liquidity.

CMO Collateral and Investments

Since exiting the residential mortgage loan conduit business in 1995, Capstead has maintained finance subsidiaries with capacity to issue CMOs and other securitizations backed by residential mortgage loans. The last CMO issued by the Company was in 2000 and the Company does not currently anticipate issuing additional CMOs. In prior years, the Company periodically exercised its right to redeem previously issued CMOs (referred to as “Clean-up Calls”). Subsequent to quarter-end the Company exercised its Clean-up Call rights on one of its three remaining CMOs and intends to hold the released collateral within its Non-agency Securities portfolio. Capstead does not hold the Clean-up Call rights on the remaining two CMOs. CMO collateral net of related bonds totaled $291,000 at June 30, 2005, compared to $452,000 at December 31, 2004. Without the issuance of new CMOs in which the Company retains significant residual interests, contributions to future operating results from this portfolio are expected to be minimal.

Real Estate Held For Lease

In May 2002 Capstead acquired six “independent” senior living properties wherein the operator of the facility provides tenants little, if any, medical care (the “Properties”). Concurrent with the acquisition of the Properties, the Company entered into a long-term “net-lease” arrangement (the “Lease”) with Brookdale Living Communities, Inc., (“Brookdale”), under which Brookdale is responsible for the ongoing operation and management of the Properties. Brookdale, an owner, operator, developer and manager of senior living facilities, is a majority-owned affiliate of Fortress Investment Group LLC, a former affiliate. Real estate held for lease and related assets, net of accumulated depreciation, related

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borrowings and other related liabilities, totaled $19.7 million at June 30, 2005 compared to $20.9 million at December 31, 2004. The following table summarizes information about the Properties:

							Year
Property	Location	Units (a)		Occupancy (b)			Opened
Chambrel at Roswell	Roswell, GA	280(256 IL; 24 AL	)		98.6	%		1987
Chambrel at Pinecastle	Ocala, FL	161(120 IL; 41 AL	)		97.5			1987
Chambrel at Island Lake	Longwood, FL	269(229 IL; 40 AL	)		96.7			1985
Chambrel at Montrose	Akron, OH	169(137 IL; 32 AL	)		94.1			1987
Chambrel at Williamsburg	Williamsburg, VA	255(200 IL; 55 AL	)		99.6			1987
Chambrel at Club Hill	Garland, TX	260(192 IL; 68 AL	)		91.5			1987
Total		1,394(1,134 IL; 260 AL	)		96.4

(a)	IL refers to independent living units. AL refers to assisted living units.
(b)	As of June 30, 2005.

The Lease has a remaining term of approximately 17 years and provides for two 10-year renewal periods. Beginning in May 2007, Brookdale will have the option of purchasing all of the Properties from Capstead at the greater of fair value (unencumbered by the Lease) or Capstead’s original cost, after certain adjustments. Under the terms of the Lease, Brookdale is responsible for paying all expenses associated with operating the Properties, including real estate taxes, other government charges, insurance, utilities and maintenance, and an amount representing an attractive cash return on Capstead’s equity in the Properties after payment of monthly debt service. In keeping with Capstead’s strategy of investing in assets that can produce attractive returns over the long term with less sensitivity to changes in interest rates, changes in monthly debt service requirements are the responsibility of Brookdale under the terms of the Lease.

Utilization of Capital and Potential Liquidity

The Company generally finances its mortgage securities and similar investments with well-established investment banking firms using repurchase arrangements and similar borrowings. Assuming potential liquidity is available, these borrowings can be increased or decreased on a daily basis to meet cash flow requirements and otherwise manage capital resources efficiently. Consequently, the actual level of unrestricted cash and cash equivalents carried on the Capstead’s balance sheet is significantly less important than the potential liquidity inherent in the Company’s investment portfolios. CMO collateral is pledged to secure CMO bonds. Real estate held for lease and related assets are pledged to secure long-term borrowings. Although Capstead has no responsibility for CMO bonds or borrowings secured by real estate beyond these assets, the Company’s equity in these investments does not provide a daily source of liquidity, as do unpledged or partially pledged investments in mortgage securities, that can easily be accessed to meet cash flow needs as they arise. Therefore, any additional borrowings that could be secured by this equity (including any unrecorded appreciation of the related assets) are not included in potential liquidity at this time. Potential liquidity is affected by, among other things, changes in market value of assets pledged under borrowing arrangements, principal prepayments and general conditions in the investment banking, mortgage finance and real estate industries. Future levels of financial leverage will be dependent upon many factors, including the size and composition of the Company’s investment portfolios (see “Liquidity and Capital Resources”).

The Company establishes targeted liquidity reserves reflecting management’s determination of the level of capital necessary to hold in reserve to fund margin calls (requirements to pledge additional collateral or pay down borrowings) required by principal payments (that are not remitted to the Company for 25 to 45 days after any given month-end) and potential declines in market value of pledged assets under stressed market conditions.

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The following table illustrates Capstead’s utilization of capital and potential liquidity as of June 30, 2005 in comparison with December 31, 2004 (in thousands):

					Capital			Potential
	Assets (a)		Borrowings		Employed			Liquidity (a)
Mortgage securities and similar investments:
Agency Securities	$	3,358,722	$	3,098,930	$	259,792		$	157,545
Non-agency Securities		76,573		59,914		16,659			11,815
CMBS		50,866		48,110		2,756			(145	)
		3,486,161		3,206,954		279,207			169,215
CMO collateral		22,657		22,366		291			—
Real estate held for lease (b)		139,541		119,884		19,657			—
	$	3,648,359	$	3,349,204		299,155			169,215
Other assets, net of other liabilities						31,290			6,177	(c)
Second quarter common dividend						(1,903	)		(1,903	)(d)
Targeted liquidity reserves for funding principal payments and margin calls						—			(168,055	)
					$	328,542		$	5,434
Balances as of December 31, 2004	$	3,579,480	$	3,341,795	$	332,539		$	9,783

(a)	Assets are stated at carrying amounts on the Company’s balance sheet which, particularly related to real estate held for lease and certain other assets, does not reflect fair value. Potential liquidity is based on maximum borrowings available under existing uncommitted repurchase arrangements considering the fair value of related collateral as of the indicated dates, adjusted separately for targeted liquidity reserves.
(b)	Real estate held for lease includes related assets and is net of accumulated depreciation and other related liabilities.
(c)	Represents unrestricted cash and cash equivalents as of June 30, 2005 and $6.0 million of bankruptcy and special hazard reserve funds expected to be released by the trustee in August 2005.
(d)	The second quarter 2005 common dividend was declared June 16, 2005 and paid July 21, 2005 to stockholders of record as of June 30, 2005.

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RESULTS OF OPERATIONS

Comparative net operating results (interest income or lease revenue, net of related interest expense) by source were as follows (in thousands, except per share amounts):

	Quarter Ended						Six Months Ended
	June 30						June 30
	2005			2004			2005			2004
Mortgage securities and similar investments:
Agency Securities	$	6,116		$	11,156		$	13,865		$	22,829
Non-agency Securities		475			927			996			2,628
CMBS		144			180			280			362
CMO collateral		60			189			144			406
Net margin on financial assets		6,795			12,452			15,285			26,225
Real estate held for lease:
Lease revenue net of related interest expense		1,389			1,373			2,762			2,813
Real estate depreciation		(927	)		(927	)		(1,854	)		(1,854	)
Net margin on real estate held for lease		462			446			908			959
Other revenue (expense):
Other revenue		215			249			411			316
Other operating expense		(1,482	)		(1,332	)		(3,012	)		(3,331	)
Total other revenue (expense)		(1,267	)		(1,083	)		(2,601	)		(3,015	)
Net income		5,990			11,815			13,592			24,169
Less cash dividends paid on preferred shares		(5,064	)		(5,064	)		(10,128	)		(10,131	)
Net income available to common stockholders	$	926		$	6,751		$	3,464		$	14,038
Operating income *	$	1,853		$	7,759		$	5,318		$	16,057
Weighted average shares outstanding:
Basic		18,869			15,237			18,865			14,752
Diluted and operating		18,908			15,578			18,905			15,100
Net income per common share:
Basic	$	0.05		$	0.44		$	0.18		$	0.95
Diluted		0.05			0.44			0.18			0.94
Operating *		0.10			0.50			0.28			1.06
Regular common dividends declared per share	$	0.10		$	0.50		$	0.28		$	1.03

* Capstead reports operating income per common share (a non-GAAP financial measure calculated excluding depreciation on real estate, any gain on asset sales and the dilutive effects, if present, of the Series B preferred shares) under the belief it provides investors with a useful supplemental measure of the Company’s operating performance. Operating income represents a measure of the amount of funds generated by operations, which may, at the discretion of Capstead’s Board of Directors, be used for reinvestment or distributed to common stockholders as dividends. Depreciation on real estate, although an expense deductible for federal income tax purposes and therefore an item that reduces Capstead’s REIT distribution requirements, is added back to arrive at operating income because it is a noncash expense. Gains are excluded because they are considered non-operating in nature and the amount and timing of any such gains are dependent upon investment strategies and market conditions. The Series B preferred shares are considered dilutive, for diluted net income per common share purposes only, whenever annualized basic net income per common share exceeds $2.13 (the Series B preferred share annualized dividend of $1.26 divided by the current conversion rate of 0.5903). Operating income per common share excludes the dilutive effects, if present, of the Series B preferred shares because it is not economically advantageous to convert these shares at market prices of both the common shares and Series B preferred shares; therefore few, if any, Series B preferred share conversions are expected.

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Net margins on financial assets and related financing spreads benefited significantly in prior years from actions taken by the Federal Reserve beginning in 2001 to lower short-term interest rates, which resulted in significantly lower interest rates on the Company’s borrowings even as lower interest rates also led to steadily declining yields on the Company’s adjustable-rate assets and relatively high mortgage prepayment rates. This trend of declining asset yields reversed during the fourth quarter of 2004 leading to three consecutive quarter-over-quarter increases in overall portfolio yields. Given current expectations for interest rates, portfolio yields are expected to continue trending higher in the coming quarters.

Short-term interest rates began increasing in June 2004 in response to Federal Reserve actions to raise the federal funds rate. These higher rates resulted in significantly higher borrowing rates contributing to declining net margins and financing spreads for the Company. This illustrates how the Company is impacted immediately when short-term interest rates rise (and fall) while ARM security yields change slowly in comparison because coupon interest rates on the underlying mortgage loans generally reset only once a year and the amount of each reset can be limited or capped.

Although rising short-term interest rates and higher mortgage prepayments have put continued pressure on near-term quarterly earnings, the portfolio has performed well from a valuation perspective and management believes that Capstead’s core investment strategy of maintaining a large portfolio of ARM securities will generate attractive returns over the longer term and that the Company is in a strong position to augment this portfolio with other real estate-related investments that can provide attractive risk-adjusted returns with less sensitivity to changes in interest rates over the long term. See “Financial Condition – “Overview” and “Mortgage Securities and Similar Investments” for further discussion of the current operating environment. Key operating statistics for each component of the mortgage securities and similar investments portfolio were as follows for the indicated periods (dollars in millions):

	Quarter Ended						Six Months Ended
	June 30						June 30
	2005			2004			2005			2004
Agency Securities:
Portfolio	$	3,310		$	2,290		$	3,276		$	2,148
Yields		3.46	%		3.07	%		3.38	%		3.19	%
Borrowing rates		2.89			1.19			2.70			1.13
Financing spreads		0.57			1.88			0.68			2.06
Portfolio runoff rates (annualized)		33.14			29.02			30.38			25.34
Non-agency Securities:
Portfolio	$	79		$	115		$	82		$	152
Yields		5.08	%		4.37	%		4.89	%		4.69	%
Borrowing rates		3.35			1.44			3.12			1.49
Financing spreads		1.73			2.93			1.77			3.20
Portfolio runoff rates (annualized)		24.72			33.80			29.10			39.52
CMBS:
Portfolio	$	51		$	73		$	51		$	73
Yields		4.08	%		2.19	%		3.85	%		2.19	%
Borrowing rates		3.13			1.30			2.91			1.29
Financing spreads		0.95			0.89			0.94			0.90
Portfolio runoff rates (annualized)		1.28			0.82			1.27			3.31

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The Agency Securities portfolio continues to be the primary contributor to Capstead’s operating results. However, the impact of lower financing spreads was evident in current quarter and year-to-date results, which were less than in the same periods in 2004. Non-agency Securities contributed less to operating results during these periods primarily because of a lower average portfolio outstanding but results were also negatively affected by lower financing spreads. This portfolio declined with runoff and the March 2004 securitization and transfer of $53 million of high coupon fixed-rate Non-agency Securities into Fannie Mae Agency Securities. Unlike residential ARM securities, Capstead’s CMBS holdings adjust monthly to changes in 30-day LIBOR. Consequently, financing spreads have held relatively steady. However, results from this portfolio have been impacted by declining portfolio balances.

CMO collateral balances have declined significantly the last several years primarily because of high mortgage prepayments and the exercise of Clean-up Calls. With continued runoff of this portfolio and the July call of the remaining CMO in which the Company held a significant economic interest, related contributions to future operating results are expected to be minimal.

Other operating revenue (expense) was higher in the current quarter compared to the same period in 2004 primarily due to a modification to the incentive compensation formula during the second quarter of 2004, which reversed a portion of the related accrual recorded earlier in 2004. Other operating revenue (expense) was lower year-to-date compared to the same period in 2004 primarily because of lower current year incentive compensation accruals reflecting expectations for lower 2005 dividends and the effects on book value of current year declines in unrealized gains on mortgage securities.

LIQUIDITY AND CAPITAL RESOURCES

Capstead’s primary sources of funds are borrowings under repurchase arrangements and monthly principal and interest payments on mortgage securities and similar investments. Other sources of funds include proceeds from other borrowing arrangements, proceeds from asset sales, unrestricted payments received on real estate held for lease and proceeds from equity offerings. The Company generally uses its liquidity to pay down borrowings under repurchase arrangements to reduce borrowing costs and otherwise efficiently manage its capital. Because the level of these borrowings can be adjusted on a daily basis, the level of unrestricted cash and cash equivalents carried on the balance sheet is significantly less important than the Company’s potential liquidity available under its borrowing arrangements. The table included under “Financial Condition – Utilization of Capital and Potential Liquidity” and accompanying discussion illustrates additional funds potentially available to the Company as of June 30, 2005, as adjusted for targeted liquidity reserves. The Company currently believes that it has ample liquidity and capital resources available for the acquisition of additional investments, repayments on borrowings and the payment of cash dividends as required for Capstead’s continued qualification as a REIT. It is the Company’s policy to remain strongly capitalized and conservatively leveraged.

Borrowings under repurchase arrangements secured by mortgage securities totaled $3.2 billion at June 30, 2005. Most of these borrowings have maturities of less than 31 days, although from time to time the Company may enter into longer-term arrangements as it has done on a portion of its borrowings totaling $702 million as of quarter end (see discussion above under “Mortgage Securities and Similar Investments”). Capstead has uncommitted repurchase facilities with investment banking firms to finance its investments in mortgage securities, subject to certain conditions. Interest rates on these borrowings are generally based on 30-day London Interbank Offered Rate (“LIBOR”) (or a corresponding benchmark rate for longer-term arrangements) and related terms and conditions are negotiated on a transaction-by-transaction basis. Amounts available to be borrowed under these arrangements are dependent upon the

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fair value of the securities pledged as collateral, which fluctuates with changes in interest rates, credit quality, and liquidity conditions within the investment banking, mortgage finance and real estate industries.

CMO borrowings totaled $22 million at June 30, 2005 and are secured by CMO collateral pledged to the related indentures. As such, recourse is limited to this collateral and therefore has a limited impact on Capstead’s liquidity and capital resources. Mortgage prepayments and Clean-up Calls affect the maturity of each CMO series.

With its acquisition of senior living properties in May 2002, Capstead assumed $19 million in fixed-rate mortgage financing from a commercial bank that matures in 2009 and $101 million in tax-exempt bond debt. In November 2002, the tax-exempt bonds were refunded with proceeds from issuing new 30-year adjustable-rate tax-exempt bonds. Under the terms of the Lease, changes in interest rates on this debt are the responsibility of the lessee and as such, have a limited effect on the Company’s liquidity.

After having raised over $64 million of new common equity during 2004 through limited open market sales, no such sales occurred during the first half of 2005 but may resume later in 2005 if market conditions allow.

EFFECTS OF INTEREST RATE CHANGES

Interest Rate Sensitivity on Operating Results

Capstead performs earnings sensitivity analysis using an income simulation model to estimate the effects that specific interest rate changes can reasonably be expected to have on future earnings. All financial assets and derivative financial instruments (“Derivatives”) held are included in this analysis. The sensitivity of components of Other revenue (expense) to changes in interest rates is included as well, although no asset sales are assumed. Because under the terms of the Lease the lessee is responsible for changes in related debt service requirements, earnings from the Company’s investment in real estate held for lease are generally not affected by changes in interest rates. The model incorporates management assumptions regarding the level of mortgage prepayments for a given interest rate change using market-based estimates of prepayment speeds for purposes of amortizing investment premiums and discounts. These assumptions are developed through a combination of historical analysis and future expected pricing behavior. Capstead had the following estimated earnings sensitivity profile as of June 30, 2005 and December 31, 2004, respectively (dollars in thousands):

				10-year
	30-day			U.S.
	LIBOR			Treasury
	Rate			Rate			Immediate Change In:*
30-day LIBOR rate							Flat			Up 1.00%			Up 1.00		%	Up 2.00		%
10-year U.S. Treasury rate							Down 1.00		%	Flat			Up 1.00		%	Up 2.00		%
Projected 12-month earnings change:
June 30, 2005		3.34	%		3.92	%	$	(2,419	)	$	(15,533	)	$	(14,691	)	$	(33,647	)
December 31, 2004		2.40			4.22			(2,297	)		(12,760	)		(11,793	)		(29,259	)

* Sensitivity of earnings to changes in interest rates is determined relative to the actual rates at the applicable date. Note that the projected 12-month earnings change is predicated on acquisitions of similar assets sufficient to replace runoff. There can be no guarantee that suitable investments will be available for purchase at attractive prices or if investments made will behave in the same fashion as assets currently held.

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Income simulation modeling is the primary tool used by management to assess the direction and magnitude of changes in net margins on financial assets resulting from changes in interest rates. Key assumptions in the model include mortgage prepayment rates, changes in market conditions and management’s financial capital plans. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net margins or precisely predict the impact of higher or lower interest rates on net margins. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and other changes in market conditions, management strategies and other factors.

General Discussion of Effects of Interest Rate Changes

Changes in interest rates may affect Capstead’s earnings in various ways. Earnings currently depend, in large part, on the difference between the interest received on mortgage securities and similar investments, and the interest paid on related borrowings, most of which are based on 30-day LIBOR. The resulting financing spread may be reduced or even turn negative in a rising short-term interest rate environment. Because the mortgage securities and similar investments portfolio currently consists primarily of current-reset ARM securities, the effects of rising short-term interest rates on borrowing costs can eventually be mitigated by increases in the rates of interest earned on the underlying ARM loans, which generally reset periodically to a margin over a current short-term interest rate index (typically a one-year index) subject to periodic and lifetime limits, referred to as caps. Additionally, the Company has extended maturities on a portion of its borrowings, which has effectively locked in attractive financing spreads on the Company’s modest position in fixed-rate and longer-to-reset ARM securities over the average expected fixed-rate terms of these investments. As of June 30, 2005 the Company’s ARM securities featured the following average coupon rates, and average periodic and lifetime caps (dollars in thousands):

			Average			Average			Average			Months
			Coupon			Periodic			Lifetime			To
ARM Type	Basis *		Rate			Cap			Cap			Roll
Agency Securities:
Fannie Mae/Freddie Mac:
Current-reset	$	1,787,405		4.38	%		2.37	%		10.90	%		5.7
Longer-to-reset		570,778		4.77			4.52			10.71			24.8
Ginnie Mae		951,154		3.98			1.00			9.95			5.1
Non-agency Securities		48,846		4.78			1.73			11.24			6.1
	$	3,358,183		4.34			2.34			10.60			8.8

* Basis represents the Company’s investment before unrealized gains and losses.

Since only a portion of the ARM loans underlying these securities reset each month subject to periodic and lifetime caps, interest rates on related borrowings can rise to levels that may exceed the interest rates on the underlying loans, contributing to lower or even negative financing spreads. At other times, declines in these indices during periods of relatively low short-term interest rates will negatively effect yields on ARM securities as the underlying ARM loans reset at lower rates. If declines in these indices exceed declines in the Company’s borrowing rates, earnings would be adversely affected. To provide some protection to financing spreads against rising interest rates, the Company may from time to time enter into longer-term repurchase arrangements on a portion of its borrowings (as it has done currently on borrowings related to its fixed-rate and longer-to-reset ARM securities) or invest in Derivatives such as interest rate swap or cap agreements. At June 30, 2005, the Company did not own any Derivatives for this purpose.

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Another effect of changes in interest rates is that as long-term interest rates decrease, the rate of principal prepayments on mortgage loans underlying mortgage securities and similar investments generally increases. During periods of relatively low interest rates, prolonged periods of high prepayments can significantly reduce the expected life of these investments; therefore, the actual yields realized can be lower due to faster amortization of premiums. Further, to the extent the proceeds of prepayments are not reinvested or cannot be reinvested at a rate of interest at least equal to the rate previously earned on that capital, earnings may be adversely affected. There can be no assurance that suitable investments at attractive pricing will be available on a timely basis to replace runoff as it occurs or that the current composition of investments (consisting primarily of ARM Agency Securities) will be maintained.

Capstead periodically sells assets, which may increase income volatility because of the recognition of transactional gains or losses. Such sales may become attractive as asset values fluctuate with changes in interest rates. At other times, asset sales may become prudent to shift the Company’s investment focus. During periods of rising interest rates or contracting market liquidity, asset values can decline, leading to increased margin calls and reducing the Company’s liquidity. A margin call means that a lender requires a borrower to pledge additional collateral to re-establish the agreed-upon ratio of the value of the collateral to the amount of the borrowing. If the Company is unable or unwilling to pledge additional collateral, lenders can liquidate the collateral under adverse market conditions, likely resulting in losses.

RISKS ASSOCIATED WITH CREDIT-SENSITIVE INVESTMENTS

Commercial mortgage assets may be viewed as exposing an investor to greater risk of loss than residential mortgage assets since such assets are typically secured by larger loans to fewer obligors than residential mortgage assets. Commercial property values and related net operating income are often subject to volatility, and net operating income may be sufficient or insufficient to cover debt service on the related financing at any given time. The repayment of loans secured by income-producing properties is typically dependent upon the successful operation of the related real estate project and the ability of the applicable property to produce net operating income rather than upon the liquidation value of the underlying real estate. Even when the current net operating income is sufficient to cover debt service, there can be no assurance that this will continue to be the case in the future.

Additionally, commercial properties may not be readily convertible to alternative uses if such properties were to become unprofitable due to competition, age of improvements, decreased demand, regulatory changes or other factors. The conversion of commercial properties to alternate uses often requires substantial capital expenditures, the funding for which may or may not be available.

The availability of credit for commercial mortgage loans may be dependent upon economic conditions in the markets where such properties are located, as well as the willingness and ability of lenders to make such loans. The availability of funds in the credit markets fluctuates and there can be no assurance that the availability of such funds will increase above, or will not contract below, current levels. In addition, the availability of similar commercial properties, and the competition for available credit, may affect the ability of potential purchasers to obtain financing for the acquisition of properties. This could affect the repayment of commercial mortgages.

Credit-sensitive residential mortgage assets differ from commercial mortgage assets in several important ways yet can still carry substantial credit risk. Residential mortgage securities typically are secured by smaller loans to more obligors than CMBS, thus spreading the risk of mortgagor default. However, most of the mortgages supporting credit-sensitive residential securities are made to homeowners that do not qualify for Agency loan programs for reasons including loan size, financial condition, or work or credit history that may be indicative of higher risk of default than loans qualifying for such programs. As with commercial mortgages, in instances of default the Company may incur losses if proceeds from sales of

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the underlying residential collateral are less than the unpaid principal balances of the residential mortgage loans and related foreclosure costs. However, with residential mortgages this risk may be mitigated by various forms of credit enhancements including, but not limited to, primary mortgage insurance.

Through the process of securitizing both commercial and residential mortgages, credit risk can be heightened or minimized. Senior classes in multi-class securitizations generally have first priority over cash flows from a pool of mortgages and, as a result, carry the least risk, highest investment ratings and the lowest yields. Typically, a securitization will also have mezzanine classes and subordinated classes. Mezzanine classes will generally have lower credit ratings, higher yields and may have average lives that are longer than the senior classes. Subordinate classes are junior in the right to receive cash flow from the underlying mortgages, thus providing credit enhancement to the senior and mezzanine classes. As a result, subordinated securities will have even lower credit ratings and higher yields because of the elevated risk of credit loss inherent in these securities.

Similarly, junior liens and other forms of subordinated financing on single commercial properties carry greater credit risk than senior lien financing, including a substantially greater risk of non-payment of interest or principal. A decline in the value of the underlying real estate could be large enough such that the aggregate outstanding balances of senior liens could exceed the value of the real estate. In the event of default on a senior loan, the junior lienholder may need to make payments on the senior loans in order to prevent foreclosure. Because the senior lienholders generally have priority on proceeds from liquidating the underlying real estate, junior lienholders may not recover all or any of their investment. To compensate for this heightened credit risk, these loans generally earn substantially higher yields.

The availability of capital from external sources to finance investments in credit-sensitive commercial and residential mortgage assets may be diminished during periods of mortgage finance market illiquidity. Additionally, if market conditions deteriorate resulting in substantial declines in value of these assets, sufficient capital may not be available to support the continued ownership of such investments, requiring these assets to be sold at a loss.

RISKS ASSOCIATED WITH OWNING REAL ESTATE

The direct ownership of commercial real estate involves a number of risks. With its current real estate holdings, Capstead has attempted to mitigate these risks by entering into a long-term ‘net-lease’ arrangement whereby the lessee is responsible for the ongoing operation and management of the properties and for paying all expenses associated with the operation of the properties. Although reduced by this net-lease arrangement, risks of ownership remain, including:

• The risk that changes in economic conditions or real estate markets may adversely affect the value of the properties.

• During inflationary periods, which are generally accompanied by rising interest rates, increases in operating costs and borrowing rates may be greater than increases in lessee revenues from operating properties. Over an extended period of time, this could result in lessee defaults.

• The risk that a deterioration of local conditions could adversely affect the ability of a lessee to profitably operate a property. For instance, an oversupply of senior living properties could hamper the leasing of senior living units at favorable rates. This could ultimately affect the value of the properties.

• Changes in tax, zoning or other laws could make properties less attractive or less profitable.

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• An owner cannot be assured that lessees will elect to renew their leases when the terms expire. If a lessee does not renew its lease or otherwise defaults on its lease obligations, there is no assurance the owner can obtain a substitute lessee on acceptable terms. If the owner cannot obtain another qualified operator to lease a property, the owner may be required to modify the property for a different use, which may involve significant capital expenditures and delays in re-leasing the property.

• The risk that lessees will not perform under their leases, reducing the owner’s income from the leases or requiring the owner to assume costs (such as real estate taxes, insurance, utilities and maintenance) that are the lessees’ responsibility under net-leases. In the case of special-purpose real estate such as senior living facilities, compliance with licensing requirements could complicate or delay the transfer of operational control of such properties. This could lead to a significant cash flow burden for the owner to service the debt and otherwise maintain the properties.

• Net-leases generally require the lessee to carry comprehensive liability, casualty, workers’ compensation and rental loss insurance. The required coverage is typical of the type and amount customarily obtained by an owner of similar properties. However, there are some types of losses, such as catastrophic acts of nature, for which insurance cannot be obtained at a commercially reasonable cost. If there is an uninsured loss or a loss in excess of insurance limits, the owner could lose both the revenues generated by the affected property and the capital invested in the property. The owner would, however, remain obligated to repay any mortgage indebtedness or other obligations related to the property.

• Investments in real estate are subject to various federal, state and local regulatory requirements including the Americans with Disabilities Act (the “ADA”). The ADA requires that public accommodations reasonably accommodate individuals with disabilities and that new construction or alterations be made to commercial facilities to conform to accessibility guidelines. Failure to comply with the ADA can result in injunctions, fines, damage awards to private parties and additional capital expenditures to remedy noncompliance. Existing requirements may change and compliance with future requirements may involve significant unanticipated expenditures. Typically these expenditures would be the responsibility of the lessee under the terms of net-leases; however, if lessees fail to perform these obligations, the owner may be required to do so.

• Under federal, state and local environmental laws, the owner may be required to investigate and clean up any release of hazardous or toxic substances or petroleum products at its properties, regardless of its knowledge or actual responsibility, simply because of current or past ownership of the real estate. If unidentified environmental problems arise, the owner may have to make substantial payments, which could adversely affect cash flow and the ability to make distributions to stockholders. This is because:

1.	The owner may have to pay for property damage and for investigation and clean-up costs incurred in connection with the contamination.
2.	The law may impose clean-up responsibility and liability regardless of whether the owner or operator knew of or caused the contamination. Even if more than one person is responsible for the contamination, each person who shares legal liability under environmental laws may be held responsible for all of the clean-up costs.
3.	Governmental entities and third parties may sue the owner or operator of a contaminated site for damages and costs.

• In investigating the acquisition of real estate, environmental studies are typically performed to establish the existence of any contamination. In addition, net-leases generally require lessees to operate properties in compliance with environmental laws and to indemnify the owner against environmental liability arising from the operation of such properties.

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• An owner may desire to sell a property in the future because of changes in market conditions or poor lessee performance or to avail itself of other opportunities. An owner may also be required to sell a property to meet debt obligations or avoid a default. Unlike investments in mortgage securities, real estate cannot always be sold quickly, and there can be no assurance that a property can be sold at a favorable price or that a prospective buyer will view existing lease or operating arrangements favorably. In addition, a property may require restoration or modification before it is sold.

REGULATORY MATTERS

Tax Status

As used herein, “Capstead REIT” refers to Capstead and the entities that are consolidated with Capstead for federal income tax purposes. Capstead REIT has elected to be taxed as a REIT for federal income tax purposes and intends to continue to do so. As a result of this election, Capstead REIT will not be taxed at the corporate level on taxable income distributed to stockholders, provided that certain requirements concerning the nature and composition of its income and assets are met and that at least 90% of its REIT taxable income is distributed.

If Capstead REIT were to fail to qualify as a REIT in any taxable year, it would be subject to federal income tax at regular corporate rates and would not receive a deduction for dividends paid to stockholders. If this were the case, the amount of after-tax income available for distribution to stockholders would decrease substantially. As long as Capstead REIT qualifies as a REIT, it will generally be taxable only on its undistributed taxable income, if any. Distributions out of current or accumulated taxable earnings and profits will be taxed to stockholders as ordinary income or capital gain, as the case may be, and will not qualify for the dividend tax rate reduction to 15% enacted as part of the Jobs and Growth Tax Relief Act of 2002, except as discussed below. Distributions in excess of Capstead REIT’s current or accumulated earnings and profits will constitute a non-taxable return of capital to the stockholders (except insofar as such distributions exceed the cost basis of a stockholder’s investment in Capstead shares). Distributions by the Company will not be eligible for the dividends received deduction for corporations. Should the Company incur losses, stockholders will not be entitled to include such losses in their individual income tax returns.

Capstead may find it advantageous from time-to-time to elect taxable REIT subsidiary status for certain of its subsidiaries. All taxable income of Capstead’s taxable REIT subsidiaries, if any, is subject to federal and state income taxes, where applicable. Capstead REIT’s taxable income will include the income of its taxable REIT subsidiaries only upon distribution of such income to Capstead REIT, and only if these distributions are made out of current or accumulated earnings and profits of a taxable REIT subsidiary. Should this occur, a portion of Capstead’s distributions to its stockholders could qualify for the 15% dividend tax rate provided by the Jobs and Growth Tax Relief Act of 2002.

Investment Company Act of 1940

The Investment Company Act of 1940, as amended (the “Investment Company Act”), exempts from regulation as an investment company any entity that is primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on, and interests in, real estate. Capstead conducts its business so as not to become regulated as an investment company. If it were to be regulated as an investment company, Capstead’s ability to use leverage would be substantially reduced and it would be unable to conduct its business as described herein.

Under the current interpretation of the staff of the Securities and Exchange Commission (“SEC”), in order to be exempted from regulation as an investment company, a REIT must, among other things, maintain at least 55% of its assets directly in qualifying real estate interests. In satisfying this 55% requirement, a REIT may treat mortgage-backed securities issued with respect to an underlying pool to which it holds all

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issued certificates as qualifying real estate interests. If the SEC or its staff adopts a contrary interpretation of such treatment, the REIT could be required to sell a substantial amount of these securities or other non-qualified assets under potentially adverse market conditions.

CRITICAL ACCOUNTING POLICIES

Management’s discussion and analysis of financial condition and results of operations is based upon Capstead’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates and judgments that can affect the reported amounts of assets, liabilities (including contingencies), revenues and expenses as well as related disclosures. These estimates are based on available internal and market information and appropriate valuation methodologies believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the expected useful lives and carrying values of assets and liabilities which can materially affect the determination of net income and book value per common share. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following are critical accounting policies in the preparation of Capstead’s consolidated financial statements that involve the use of estimates requiring considerable judgment:

• Amortization of Premiums and Discounts on Financial Assets and Borrowings — Premiums and discounts on financial assets and borrowings are recognized in earnings as adjustments to interest income or interest expense by the interest method over the estimated lives of the related assets or borrowings. For most of Capstead’s financial assets, estimates and judgments related to future levels of mortgage prepayments are critical to this determination. Mortgage prepayment expectations can vary considerably from period to period based on current and projected changes in interest rates and other factors such as portfolio composition.

• Fair Value and Impairment Accounting for Financial Assets — Most of Capstead’s financial assets are classified as held available-for-sale and recorded at fair value on the balance sheet with unrealized gains and losses recorded in stockholders’ equity as a component of Accumulated other comprehensive income. As such, these unrealized gains and losses enter into the calculation of book value per common share. Fair values fluctuate with current and projected changes in interest rates, prepayment expectations and other factors, such as market liquidity. Considerable judgment is required interpreting market data to develop estimated fair values, particularly in circumstances of deteriorating credit quality and market liquidity (see “NOTE 10” to the accompanying consolidated financial statements for discussion of how Capstead values its financial assets). Generally, gains or losses are recognized in earnings only if sold; however, if a decline in fair value of an individual asset below its amortized cost occurs that is determined to be other than temporary, the difference between amortized cost and fair value would be included in Other revenue (expense) as an impairment charge.

• Depreciation and Impairment Accounting for Real Estate held for Lease — Real estate is carried at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of buildings, equipment and fixtures. If a significant adverse event or change in circumstances occurs, management would assess if the values of the Company’s real estate properties have become impaired. If estimated operating cash flows (undiscounted and without interest charges) of a property over its remaining useful life are less than its net carrying value, the difference between net carrying value and fair value would be included in Other revenue (expense) as an impairment charge. Considerable judgment is required in determining useful lives of components of real estate properties and in estimating operating cash flows, particularly during periods of changing circumstances.

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FORWARD LOOKING STATEMENTS

This document contains “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) that inherently involve risks and uncertainties. Capstead’s actual results and liquidity can differ materially from those anticipated in these forward-looking statements because of changes in the level and composition of the Company’s investments and unforeseen factors. These factors may include, but are not limited to, changes in general economic conditions, the availability of suitable investments from both an investment return and regulatory perspective, the availability of new equity capital, fluctuations in, and market expectations for fluctuations in, interest rates and levels of mortgage prepayments, deterioration in credit quality and ratings, the effectiveness of risk management strategies, the impact of leverage, liquidity of secondary markets and credit markets, increases in costs and other general competitive factors. In addition to the above considerations, actual results and liquidity related to investments in loans secured by commercial real estate and direct investments in real estate are affected by lessee performance under lease agreements, changes in general as well as local economic conditions and real estate markets, increases in competition and inflationary pressures, changes in the tax and regulatory environment including zoning and environmental laws, uninsured losses or losses in excess of insurance limits and the availability of adequate insurance coverage at reasonable costs, among other factors.

COMPARISON OF OPERATING INCOME AND DILUTED INCOME PER SHARE

The following table compares the calculation of operating income and operating income per common share to net income and diluted net income per share (in thousands, except per share amounts):

	Quarter Ended
	June 30, 2005						June 30, 2004
	Operating			Diluted			Operating			Diluted
Net income	$	5,990		$	5,990		$	11,815		$	11,815
Adjustments for:
Depreciation on real estate		927			—			927			—
Dividends on antidilutive preferred shares		(5,064	)		(5,064	)		(4,983	)		(4,983	)
	$	1,853		$	926		$	7,759		$	6,832
Weighted average common shares outstanding		18,869			18,869			15,237			15,237
Net effect of dilutive securities:
Stock options		39			39			30			30
Preferred A shares		—			—			311			311
		18,908			18,908			15,578			15,578
Per common share	$	0.10		$	0.05		$	0.50		$	0.44

-32-

	Six Months Ended
	June 30, 2005						June 30, 2004
	Operating			Diluted			Operating			Diluted
Net income	$	13,592		$	13,592		$	24,169		$	24,169
Adjustments for:
Depreciation on real estate		1,854			—			1,854			—
Dividends on antidilutive preferred shares		(10,128	)		(10,128	)		(9,966	)		(9,966	)
	$	5,318		$	3,464		$	16,057		$	14,203
Weighted average common shares outstanding		18,865			18,865			14,752			14,752
Net effect of dilutive securities:
Stock options		40			40			35			35
Preferred A shares		—			—			313			313
		18,905			18,905			15,100			15,100
Per common share	$	0.28		$	0.18		$	1.06		$	0.94

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISKS

The information required by this Item is incorporated by reference to the information included in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ITEM 4. CONTROLS AND PROCEDURES

As of June 30, 2005, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2005. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to June 30, 2005.

PART II. ¾ OTHER INFORMATION

ITEM 5. OTHER INFORMATION

Formation of Mezzanine Joint Venture

Pursuant to a previously announced master agreement with CEI, on July 26, 2005 Capstead and CEI formed Redtail Capital Partners, L.P. (“Redtail Capital”), the first of two limited partnerships to be owned and capitalized 75% by Capstead and 25% by CEI, for the purpose of investing in a leveraged portfolio of select mezzanine loans and other junior liens on commercial real estate. The parties have committed up to $100 million in equity capital to Redtail Capital to be invested over the next two years. Once this initial partnership is fully invested, the master agreement contemplates an additional partnership with similar terms can be formed to invest another $100 million in capital over the following two-year period.

-33-

Total investments to be made over four years, assuming leverage, could exceed $600 million and each partnership is expected to have a seven to nine year existence, depending upon the timing of payoff of related investments. CEI is responsible for identifying investment opportunities and managing the loan portfolio and, as a result, will earn a management fee and incentives based on portfolio performance. Capstead expects to account for its investments in the partnerships as unconsolidated affiliates using the equity method of accounting wherein it will record its share in the earnings of the partnerships in its operating results. The partnership is expected to make its first investment during the third quarter of 2005.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)	Exhibits: The following Exhibits are presented herewith:
	Exhibit 10.1 — Form of master agreement dated as of May 10, 2005 between Crescent Real Estate Capital, L.P. and CMC Real Estate Capital L.P., including a form of limited partnership agreement between Crescent Redtail Management LLC, Crescent Real Estate Capital L.P. and CMC Real Estate Capital L.P.
	Exhibit 10.2 — Forms of nonqualified stock option and restricted stock agreements for non-employee directors.
	Exhibit 10.3 — Forms of nonqualified stock option and restricted stock agreements for employees.
	Exhibit 10.4 — 2005 nonqualified stock option and restricted stock agreements for non-employee directors and named executives.
	Exhibit 12 — Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
	Exhibit 31.1 — Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
	Exhibit 31.2 — Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
	Exhibit 32 — Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b)	Reports on Form 8-K:
	Current Report on Form 8-K dated April 21, 2005 furnishing the press release announcing first quarter 2005 financial results.
	Current Report of Form 8-K dated May 10, 2005 announcing Capstead entered into a master agreement with CEI to co-invest in mezzanine loan opportunities.
	Current Report on Form 8-K dated May 10, 2005 furnishing the press release announcing the execution of the above-mentioned master agreement with CEI.
	Current Report on Form 8-K dated May 13, 2005 announcing the issuance of grants of options and restricted stock to the Company’s directors and employees.

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Current Report on Form 8-K dated June 16, 2005 announcing the election of two new members of the Board of Directors and related compensation matters.

Current Report on Form 8-K dated June 16, 2005 furnishing the press release announcing second quarter 2005 common dividend.

Current Report on Form 8-K dated July 21, 2005 furnishing the press release announcing second quarter 2005 financial results.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CAPSTEAD MORTGAGE CORPORATION
	Registrant
Date: July 29, 2005	By:	/s/ ANDREW F. JACOBS
		Andrew F. Jacobs
		President and Chief Executive Officer
Date: July 29, 2005	By:	/s/ PHILLIP A. REINSCH
		Phillip A. Reinsch
		Senior Vice President and
		Chief Financial Officer

-35-

EX-10.1

                                                                    EXHIBIT 10.1

                        CONFIDENTIAL TREATMENT REQUESTED.
          CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND
                 HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.

                                MASTER AGREEMENT

      THIS MASTER AGREEMENT (this "Agreement"), dated as of May 10, 2005, is
made by and between Crescent Real Estate Capital, L.P., a Delaware limited
partnership ("Crescent Capital") and CMC Real Estate Capital, L.P., a Delaware
limited partnership ("Capstead").

                                    RECITALS

      WHEREAS, Crescent Capital and Capstead desire to combine Crescent
Capital's real estate operating and investment experience with Capstead's
capital markets and investment experience to invest jointly in high quality real
estate debt that meets specified criteria;

      WHEREAS, Crescent Capital and Capstead desire to form one or more
investment partnerships through which they will make certain investments; and

      WHEREAS, Crescent Capital and Capstead desire to set forth their agreement
regarding certain of the terms under which they will invest in and through the
investment partnerships.

      NOW, THEREFORE, in consideration of the promises and upon the terms and
conditions set forth below, the parties hereto agree as follows.

                                   ARTICLE I.
                                 INTERPRETATION

      SECTION 1.01 DEFINITIONS

      "Additional Capital Contributions" means the additional Capital
Contributions to be made to any Investment Partnership pursuant to Section 2.05
hereof.

      "Additional Investor" has the meaning set forth in Section 2.03 hereof.

      "Advance Leverage Ratio" means, with respect to any Target Investment, the
ratio of acquisition debt to the investment amount of such Target Investment.

      "Advisory Committee" means the advisory committee to be established by any
Investment Partnership pursuant to Section 4.02 hereof.

      "Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under common control with such Person.

      "Agreement" has the meaning set forth in the Preamble of this Agreement.

      "Appraised Value" means the value assigned to collateral by the applicable
lender(s) to an Investment Partnership, or in the absence of such, a third party
appraisal prepared by a



nationally recognized appraisal company within the preceding four (4) months. If
the above noted indications of value are not available, a value assigned by
Crescent may be used, provided however, that such investment shall not be
considered a Target Investment.

      "Business Day" means any day other than a Saturday, Sunday or any other
day on which federal banks are authorized by law to close.

      "Buy-Sell Election" has the meaning set forth in Section 6.02 hereof.

      "Buy-Sell Price" has the meaning set forth in Section 6.02 hereof.

      "Buy-Sell Terms" has the meaning set forth in Section 6.02 hereof.

      "Capital Commitment" means, with respect to any Limited Partner, the
obligation to make the Capital Contributions to an Investment Partnership that
are specified in the Partnership Agreement of such Investment Partnership.

      "Capital Contributions" means, with respect to any Limited Partner, any
cash, cash equivalents or the book value of any Target Investment contributed to
an Investment Partnership by such Partner. "Capital Contributions" shall include
any Additional Capital Contributions.

      "Capstead" has the meaning set forth in the Preamble of this Agreement.

      "Capstead Veto Right" has the meaning set forth in Section 5.03 hereof.

      "Change In Control" means (i) the acquisition by any "person," as such
term is used in Sections 13(d) and 14(d) of the Exchange Act (other than a
Formation Partner, any trustee or other fiduciary holding securities under any
employee benefit plan of a Formation Partner, or any company owned, directly or
indirectly, by the equity holders of a Formation Partner), directly or
indirectly, of securities of a Formation Partner representing fifty percent
(50%) or more of the combined voting power of a Formation Partner's then
outstanding securities; (ii) the approval by the equity holders or general
partner of a Formation Partner of a merger or consolidation of the Formation
Partner with any other entity, other than a merger or consolidation that would
result in the voting securities of a Formation Partner outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than eighty
percent (80%) of the combined voting power of the voting securities of a
Formation Partner or such surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a merger or consolidation
effected to implement a reorganization or recapitalization of a Formation
Partner, or a similar transaction, in which no "person" acquires more than
twenty percent (20%) of the combined voting power of a Formation Partner's then
outstanding securities shall not constitute a Change in Control of a Formation
Partner; or (iii) the approval of the equity holders or general partner of a
Formation Partner of a plan of complete liquidation of a Formation Partner or an
agreement for the sale or disposition by a Formation Partner of all or
substantially all of the Formation Partner's assets.

      "Crescent" means Crescent GP and Crescent Capital.

      "Crescent Capital" has the meaning set forth in the Preamble of this
Agreement.

                                       2


      "Crescent GP" means the entity that Crescent Capital or its Affiliates
shall caused to be formed to serve as General Partner of the Investment
Partnerships.

      "Debt Service Coverage Ratio" means the ratio obtained by dividing (i) the
sum of the underwritten measure of the net operating income of any Target
Investment, but including leasing commissions, tenant improvements, interest
reserves, reserves for leasing commissions, reserves for tenant improvements,
reserves for capital expenditures and any guarantees of any such reserves, over
the initial term of such Target Investment, by (ii) the sum of all interest
payments including capitalized interest and mandatory principal payments due and
payable by such Target Investment during such applicable measurement period
excluding any payments due upon maturity of any indebtedness.

      "Declined Additional Capital Contribution" has the meaning set forth in
Section 2.05 hereof.

      "Election Notice" has the meaning set forth in Section 6.03(b) hereof.

      "Election Period" has the meaning set forth in Section 6.02 hereof.

      "Exchange Act" means the Securities Exchange Act of 1934, as amended.

      "Exercising Partner" has the meaning set forth in Section 6.02 hereof.

      "Fair Market Value" has the meaning set forth in Section 6.03(f) hereof.

      "Formation Partner" means Crescent or Capstead. Crescent GP and Crescent
Capital shall be treated as one consolidated entity in all matters involving the
Formation Partners, with Crescent GP controlling all decisions and actions to be
taken by Crescent in respect thereto.

      "Fully Invested" means, with respect to any Investment Partnership, the
point at which such Investment Partnership has invested the Investment
Partnership's maximum Capital Commitment.

      "Initial Investment Partnership" has the meaning set forth in Section 2.01
hereof.

      "Investment Partnership" has the meaning set forth in Section 2.01 hereof.

      "Investment Period" has the meaning set forth in Section 2.07 hereof.

      "Limited Partner" means any Person that is a limited partner of any
Investment Partnership and shall initially include Crescent Capital and
Capstead.

      "Loan to Value Ratio" means the ratio of the unpaid principal balance of
the Target Investment plus all indebtedness senior thereto, divided by the
Appraised Value.

      "Major Decision" means any of the decisions set forth in Section 4.03
hereof.

      "Minimum Monthly Management Fee" means the minimum monthly management fee
payable by each Investment Partnership to Crescent GP for Crescent GP's service
as general

                                       3


partner of such Investment Partnership. During each Investment Partnership's
Investment Period, the related Minimum Monthly Management Fee shall equal
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. After
the termination of each Investment Partnership's Investment Period, the related
Minimum Monthly Management Fee shall be reduced to [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION].

      "Mortgage" has the meaning set forth in Section 5.04 hereof.

      "Net Cash Flow" means, with respect to any Investment Partnership, any
excess of (i) the sum of (A) cash receipts of the Investment Partnership during
a given calendar month from all sources whatsoever (including the net cash
proceeds received by the Investment Partnership from the sale of an Investment
Partnership asset) other than Unused Capital Contributions or repayments during
an Investment Partnership's Reinvestment Period, plus (B) the amount of any
reduction during the applicable calendar month in Investment Partnership
reserves for anticipated expenses previously established pursuant to (ii)(C)
below, over (ii) the sum of (A) all operational expenditures of the Investment
Partnership, including all financing and hedging expenses, during such related
calendar month, plus (B) in the case of refinancing proceeds, the amount applied
in payment or reduction of the refinanced obligation(s), plus (C) the amount of
any increase during the calendar month in Investment Partnership reserves for
reasonably anticipated expenses to provide for accrued or anticipated expenses
of the Partnership.

      "Non-Cash Consideration" has the meaning set forth in Section 6.03(d)
hereof.

      "Non-Exercising Partner" has the meaning set forth in Section 6.02 hereof.

      "Non-Selling Partner" has the meaning set forth in Section 6.03(a) hereof.

      "Notice of Buy-Sell" has the meaning set forth in Section 6.02 hereof.

      "Offer Notice" has the meaning set forth in Section 6.03(a) hereof.

      "Offer Period" means a period commencing upon delivery of an Offer Notice
and expiring at 5:00 p.m., Fort Worth time, on the tenth (10th) Business Day
following delivery of such Offer Notice; provided, however, if the Proposed
Transfer involves Non-Cash Consideration, the Offer Period shall not expire
until the tenth (10th) Business Day after a binding determination of the Fair
Market Value of such Non-Cash Consideration has been made in accordance with
Section 6.03(f) hereof.

      "Original Closing Date" means, with respect to any Investment Partnership,
the date on which one or more of the Formation Partners are first admitted to
such Investment Partnership.

      "Partner" means any Person that is admitted to an Investment Partnership
as a limited partner or a general partner.

      "Partnership Agreement" means, with respect to any Investment Partnership,
the agreement among the Investment Partnership and its Partners that sets forth
the terms governing the relationship among such Partners and the Investment
Partnership. The Partnership

                                       4


Agreement of the Initial Investment Partnership shall be in substantially the
form attached hereto as Exhibit B.

      "Partnership Interest" means, with respect to any Investment Partnership,
an ownership interest in the Investment Partnership representing a Capital
Contribution by a Partner and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled as provided in the relevant
Partnership Agreement, together with all obligations of such Person to comply
with the terms and provisions of such Partnership Agreement.

      "Percentage Interest" means, with respect to any Partner in any Investment
Partnership, the ratio of such Partner's Capital Commitment to the total Capital
Commitments of all of the Partners in such Investment Partnership.

      "Person" means any individual, general partnership, limited partnership,
limited liability company, corporation, trust, estate, association, nominee or
other entity.

      "Prime Rate" means the prime rate reported from time to time in The Wall
Street Journal under "Money Rates" as of the relevant date(s), and if more than
one prime rate shall be reported therein, the average of all such rates.

      "Proposed Transfer" has the meaning set forth in Section 6.03(a) hereof.

      "Reinvestment Period" has the meaning set forth in Section 2.08 hereof.

      "Right of First Refusal" has the meaning set forth in Section 6.03(a)
hereof.

      "Selling Partner" has the meaning set forth in Section 6.03(a) hereof.

      "Successor Investment Partnership" has the meaning set forth in Section
2.01 hereof.

      "Take-down Notice" has the meaning set forth in Section 2.04 hereof.

      "Target Investments" has the meaning set forth in Section 2.02(b) hereof.

      "Target IRR" has the meaning set forth in Section 2.02(c) hereof.

      "Third Party Purchaser" has the meaning set forth in Section 6.03(c)
hereof.

      "Transfer" means a sale, assignment, transfer or other disposition, gift,
hypothecation or encumbrance by a partner in an Investment Partnership of its
partnership interest.

      "Trigger Event" means (i) any change in any law, rule or regulation
applicable to a Formation Partner, including any change made by governing
authorities of tax, regulatory or accounting rules and procedures, (ii) any
significant market liquidity event, (iii) any other event the occurrence of
which would make an investment by the Formation Partner in an Investment
Partnership ill-advised from a legal or economic perspective, or (iv) a Change
In Control of a Formation Partner.

                                       5


      "Unresolved Deadlock" means an inability of the members of the Advisory
Committee to reach unanimous agreement on a Major Decision, which inability
continues for a period of one hundred twenty (120) calendar days (except with
respect to the inability to elect a replacement General Partner pursuant to
Section 4.04, which shall only be subject to a thirty (30) calendar day
resolution period) after written notice by a representative of the Advisory
Committee to the General Partner. The Formation Partners shall cause their
respective designees to the Advisory Committee to negotiate in good faith and
use their respective commercially reasonable efforts to reach agreement on any
Major Decision.

      "Unused Capital Contributions" has the meaning set forth in Section 2.04
hereof.

      SECTION 1.02 CONSTRUCTION.

  (a) The Recitals set forth at the beginning of this Agreement are incorporated
      in and made a part of this Agreement.

  (b) Unless the language specifies or the context implies that a term of this
      Agreement is a condition, all of the terms of this Agreement shall be
      deemed and construed to be covenants to be performed by the designated
      party.

  (c) Unless the context clearly indicates otherwise, in this Agreement the use
      of the terms "including," "include," and "includes" followed by one or
      more examples is intended to be illustrative and shall not be deemed or
      construed to limit the scope of the classification or category to the
      examples listed.

  (d) Unless the context clearly indicates otherwise, in this Agreement
      references to Sections shall be construed as references to Sections of
      this Agreement.

  (e) Titles and captions are inserted for convenience of reference only and
      shall not affect the interpretation of this Agreement.

  (f) Terms stated in either the singular or plural shall include the singular
      and the plural, and pronouns stated in either the masculine or the neuter
      gender shall include the masculine, the feminine and the neuter genders.

  (g) Unless the context clearly indicates otherwise, in this Agreement, words
      such as "herein," "hereinafter," "hereof," "hereto," and "hereunder" refer
      to this Agreement as a whole.

  (h) Unless the context clearly indicates otherwise, references to any statute
      or any provision thereof shall be deemed to include a reference to any
      statute that amends, extends, consolidates or replaces the same and shall
      include any orders, regulations, instruments, official government
      interpretations or other subordinate legislation made under the relevant
      statute.

  (i) References to "General Partner" herein shall be deemed to include any
      successor general partner of the Investment Partnerships.

                                       6


                                  ARTICLE II.
                             INVESTMENT PARTNERSHIPS

SECTION 2.01 FORMATION OF INVESTMENT PARTNERSHIPS.

      The parties hereto shall form one or more limited partnerships (the first
of which shall be referred to herein as the "Initial Investment Partnership,"
the second of which shall be referred to herein as the "Successor Investment
Partnership," and each sometimes shall be referred to herein as an "Investment
Partnership") under the Delaware Revised Uniform Limited Partnership Act, as
amended, for the purpose of investing in certain investments as hereinafter
defined. If the Formation Partners do not agree to form the Successor Investment
Partnership within thirty (30) calendar days after the Initial Investment
Partnership has become Fully Invested, then either of the Formation Partners may
immediately elect to terminate this Agreement, subject to the survival
provisions as set forth in Section 10.12. The Successor Investment Partnership
shall not be formed until after the Initial Investment Partnership has become
Fully Invested, unless otherwise agreed to by the Formation Partners.

SECTION 2.02 INVESTMENT OBJECTIVE; TARGET INVESTMENTS.

   (a) It shall be the objective of each of the Investment Partnerships to
utilize leverage prudently in an effort to achieve optimal returns on its
investments. Crescent Capital shall cause the General Partner to seek to
mitigate the Investment Partnerships' exposure to credit risk through prudent
underwriting practices and by diversifying the Target Investments by property
type, borrower and geographic region. In addition, Crescent Capital shall cause
the General Partner to seek to mitigate the Investment Partnerships' exposure to
interest rate risk by attempting to match the Investment Partnerships' assets
and liabilities or otherwise hedge such risk where and to the extent practicable
taking into consideration, among other things, costs and desired returns.

   (b) The Investment Partnerships shall target investments consisting of
B-notes, first mortgages (excluding residential), subordinated notes, mezzanine
loans and bridge loans, or participations thereof, other than notes or other
loans related to Crescent-owned assets and healthcare facilities (the "Target
Investments"). Target Investments shall specifically exclude preferred equity,
bonds and securities offered pursuant to Rule 144A under the Securities Act of
1933, as amended. Each of the Target Investments shall have (i) a minimum dollar
value of Ten Million Dollars ($10,000,000), (ii) a maximum dollar value of Fifty
Million Dollars ($50,000,000), (iii) a Loan to Value Ratio that is less than or
equal to eighty percent (80%), and (iv) a term of not more than five (5) years,
including extensions. Target Investments shall constitute "real estate assets,"
within the meaning of Section 856(c)(5)(B) of the Internal Revenue Code of 1986,
as amended. The Investment Partnerships may, from time to time, acquire assets
that do not constitute Target Investments.

   (c) Target Investments may be collateralized by office, hotel, retail,
multi-family, industrial and residential properties, as well as unimproved land.
Each Target Investment shall have a targeted internal rate of return of at least
[CONFIDENTIAL MATERIAL REDACTED

                                       7


AND FILED SEPARATELY WITH THE COMMISSION] for the term of the investment
(including extensions), which return shall be calculated by including the amount
of the origination fee associated with such investment and the management fee
payable by the Investment Partnership (the "Target IRR"). In addition, the
minimum Debt Service Coverage Ratio for each Target Investment shall be 1.10.
The Advance Leverage Ratio shall not exceed seventy-five percent (75%) for any
Target Investment.

SECTION 2.03 CAPITAL COMMITMENTS TO THE INVESTMENT PARTNERSHIPS.

      Except as otherwise provided in this Section 2.03, the maximum Capital
Commitment to each Investment Partnership shall be One Hundred Million Dollars
($100,000,000). Capstead and Crescent Capital shall have Capital Commitments of
Seventy-five Million Dollars ($75,000,000) and Twenty-five Million Dollars
($25,000,000), respectively, to the Initial Investment Partnership. The General
Partner shall make no Capital Contribution to the Investment Partnerships.

      Capstead and Crescent Capital shall have Capital Commitments of
Seventy-five Million Dollars ($75,000,000) and Twenty-five Million Dollars
($25,000,000), respectively, to the Successor Investment Partnership; provided,
that this Agreement has not terminated pursuant to Section 7.01.

      Crescent may, at its option, cause the Successor Investment Partnership to
admit an additional equity investor (an "Additional Investor") whose Capital
Commitment shall not exceed One Hundred Fifty Million Dollars ($150,000,000), in
which case the maximum Capital Commitment to the Successor Investment
Partnership may be increased to Two Hundred Fifty Million Dollars
($250,000,000). The Additional Investor shall be permitted to invest in the
Successor Investment Partnership only if the admission of such investor would
not be expected to delay significantly the investment of the Capital
Contributions that Crescent Capital and Capstead have committed to make to the
Successor Investment Partnership during its Investment Period. Capstead shall
have the right to opt out of such participation in the Successor Investment
Partnership or may elect to invest in the Successor Investment Partnership on
proportionally the same terms and conditions as Capstead's investment in the
Initial Investment Partnership, taking into account any admission of an
Additional Investor to the Successor Investment Partnership; provided, that if
the Additional Investor invests in the Successor Investment Partnership on terms
that Capstead reasonably believes would be more favorable economically to
Capstead than the terms on which Capstead has invested or proposes to invest,
Capstead shall be entitled to invest on exactly the same economic terms as the
Additional Investor, taking into account their relative Capital Commitments. The
Partnership Agreement of the Successor Investment Partnership shall be modified
to reflect the modified structure that includes the Additional Investor and the
terms on which the Additional Investor and Capstead have elected to invest.

SECTION 2.04 CAPITAL CONTRIBUTIONS.

         At any time after the Original Closing Date of an Investment
Partnership, the Limited Partners in such Investment Partnership shall make
Capital Contributions from time to time on the date specified by the General
Partner in a written notice requesting the same (a "Takedown Notice"). The date
specified for the payment of the requested Capital Contributions shall not be

                                       8


less than three (3) Business Days after the Takedown Notice is deemed delivered
as required by the applicable Partnership Agreement. Capital Contributions shall
be requested from all Limited Partners on the basis of their relative Capital
Commitments. The Limited Partners' Capital Contributions shall be payable in
cash; provided, however, that Crescent Capital may pay its Capital Contributions
in cash or with property that meets the criteria for Target Investments. Any
such property shall be valued at Crescent Capital's adjusted cost (to be defined
in the Partnership Agreements) for purposes of determining the value of Crescent
Capital's Capital Contributions. To the extent that Capital Contributions
(excluding Additional Capital Contributions) are not used to acquire investments
within forty-five (45) calendar days of the payment date specified in the
Takedown Notice calling for such Capital Contributions, Crescent Capital shall
cause the General Partner to cause the Investment Partnership to return to the
Limited Partners the amount of the unused Capital Contributions (the "Unused
Capital Contributions"), which amounts shall (as of the date such return of
Unused Capital Contributions is made) be deemed to reduce the amount of Capital
Contributions made by such Limited Partners and correspondingly increase the
amounts of such Limited Partners' unpaid Capital Commitments.

SECTION 2.05 ADDITIONAL FUNDING FOR INVESTMENT PARTNERSHIPS.

      If at any time or from time to time after all Capital Commitments to an
Investment Partnership have been called and paid, the General Partner determines
that such Investment Partnership requires additional capital to satisfy the
obligations of the Investment Partnership to third parties, the General Partner
may request Additional Capital Contributions from the Limited Partners. Any
Additional Capital Contributions shall be called on a pro rata basis, based upon
the Limited Partners' total Capital Contributions to the Investment Partnership
as of the date on which the Additional Capital Contributions are requested by
the General Partner. In the event that a Limited Partner notifies the General
Partner in writing that it declines to make an Additional Capital Contribution
(the "Declined Additional Capital Contribution"), Crescent Capital shall cause
the General Partner to send a written notice to any contributing Limited Partner
informing such Limited Partner of its right to make (i) a further Additional
Capital Contribution in an amount equal to the amount of the Declined Additional
Capital Contribution, or (ii) a loan to the Investment Partnership in the amount
of such Declined Additional Capital Contribution. To the extent that the Limited
Partner makes a further Additional Capital Contribution pursuant to the
immediately preceding sentence (and the other Limited Partner declines to make
an Additional Capital Contribution), the contributing Limited Partner's
Percentage Interest shall be increased and the Percentage Interest of the
declining Limited Partner shall be proportionately decreased as provided in the
applicable Partnership Agreement. In addition, the General Partner shall be
permitted, but shall not be obligated, to make one or more loans to any
Investment Partnership if the General Partner determines that the Investment
partnership requires capital and both Limited Partners have declined to make
Additional Capital Contributions. Any loan made by a Limited Partner to an
Investment Partnership shall accrue interest at the Prime Rate plus five percent
(5%) per annum and shall be made on such other terms as shall be agreed at such
time.

                                       9


SECTION 2.06 DEFAULT IN PAYMENT OF CAPITAL CONTRIBUTIONS.

      Upon any Limited Partner's failure to make any installment of its Capital
Commitment or Additional Capital Contributions when due, such installment shall
bear interest at the Prime Rate plus five percent (5%) per annum from the date
on which such installment was due up to the date of actual payment, and in
addition, such Limited Partner shall be liable for any costs incurred by the
Investment Partnership or the General Partner in collecting or attempting to
collect such late payment. Each Limited Partner shall grant each Investment
Partnership in which it owns a Partnership Interest a security interest in such
Partnership Interest to secure the payment of amounts owed by such Limited
Partner to the Investment Partnership.

SECTION 2.07 INVESTMENT PERIOD.

      The investment period for any Investment Partnership shall commence with
the closing of the Investment Partnership's initial investment and end on the
second anniversary thereof (the "Investment Period"); provided, however, that in
any event the Investment Period shall commence no later than sixty (60) calendar
days after the date on which the certificate of limited partnership for such
Investment Partnership is filed with the Secretary of State of the State of
Delaware and; provided further that the Investment Period shall end eighteen
months following the closing of the Investment Partnership's initial investment
if all of the Capital Commitments to the Investment Partnership shall have been
paid as of such date and the Investment Partnership is Fully Invested. The
Investment Period for any Investment Partnership may be extended upon the mutual
agreement of the Formation Partners. In the event an Investment Partnership is
not Fully Invested upon the termination of the Investment Period (as the same
may be extended by the Formation Partners), the Limited Partners' unpaid Capital
Commitments shall terminate as of the end of the Investment Period and the
Formation Partners shall then elect to invest in the Successor Investment
Partnership or terminate this Agreement. Following the termination of the
Investment Period, no further investments or reinvestments shall be made by the
Investment Partnership, unless otherwise agreed to by the Formation Partners.

SECTION 2.08 REINVESTMENTS AND THE REINVESTMENT PERIOD.

      The reinvestment period for any Investment Partnership shall commence with
the closing of the Investment Partnership's initial investment and end eighteen
(18) months thereafter (the "Reinvestment Period"). During the Reinvestment
Period, any amounts received from the repayment of an investment shall be
reinvested; provided, however, that any such reinvestment shall be made after
the repayment of all related debt and shall be made or otherwise committed to be
made within ninety (90) calendar days following receipt of any repayment,
otherwise such repayment shall be returned to the Limited Partners, pro rata, in
accordance with their respective Percentage Interests. Notwithstanding the
return of any repayment to the Limited Partners in an Investment Partnership,
that Investment Partnership shall remain obligated to reinvest any such amount
during the remaining Investment Period. During the remaining Investment Period,
repayment amounts that have been distributed to the Partners in an Investment
Partnership shall be added back to any Limited Partner's unpaid Capital
Commitment and the Investment Partnership shall not be deemed to be Fully
Invested until such time as all such repayments are reinvested, except where the
Advisory Committee determines that there are no further feasible opportunities
for the applicable Investment Partnership to invest in Target Investments.

                                       10


SECTION 2.09 TERM OF THE INVESTMENT PARTNERSHIPS.

      Each Investment Partnership shall terminate on the seventh (7th)
anniversary of the closing of such Investment Partnership's initial investment,
which date may be extended by the General Partner for up to two (2) consecutive
one (1)-year periods.

                                  ARTICLE III.
                        INVESTMENT PARTNERSHIP ECONOMICS

SECTION 3.01 DISTRIBUTIONS.

      Crescent Capital shall cause the General Partner of each of the Investment
Partnerships to distribute Net Cash Flow to the Limited Partners within fifteen
(15) calendar days following the end of any calendar month. The Net Cash Flow of
the Initial Investment Partnership shall be distributed in the following order
of priority. All distributions shall be made on a cumulative basis, taking into
account any and all previous distributions.

  (a) First, one hundred percent (100%) to Crescent Capital and Capstead, pro
      rata, based upon their relative Percentage Interests, until Capstead has
      achieved an internal rate of return equal to [CONFIDENTIAL MATERIAL
      REDACTED AND FILED SEPARATELY WITH THE COMMISSION];

  (b) Second, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
      COMMISSION] to Crescent Capital and [CONFIDENTIAL MATERIAL REDACTED AND
      FILED SEPARATELY WITH THE COMMISSION] to Capstead until Capstead has
      received an internal rate of return equal to [CONFIDENTIAL MATERIAL
      REDACTED AND FILED SEPARATELY WITH THE COMMISSION];

  (c) Thereafter, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
      COMMISSION] to Crescent Capital and [CONFIDENTIAL MATERIAL REDACTED AND
      FILED SEPARATELY WITH THE COMMISSION] to Capstead.

      Any proceeds from the repayment of investments or from any other source
that are not reinvested shall be distributed in accordance with the distribution
provisions set forth in subsections (a) through (c) above.

      The Net Cash Flow of the Successor Investment Partnership shall be
distributed in accordance with the provisions set forth in this Section 3.01,
unless Crescent has exercised its option to admit an Additional Investor
pursuant to Section 2.03, whereby the distributions shall be modified to reflect
the structure that includes the Additional Investor and the terms on which the
Additional Investor and Capstead have elected to invest.

                                       11


SECTION 3.02 INTENTIONALLY LEFT BLANK.

SECTION 3.03 MANAGEMENT FEES.

      Each Investment Partnership shall pay the Minimum Monthly Management Fee
to the General Partner. Each Investment Partnership also shall pay to the
General Partner an additional monthly management fee, which amount shall be
calculated by multiplying the cumulative weighted average daily Capital
Contributions (calculated consistently with a 30/360 convention) made to such
Investment Partnership by an annualized rate of [CONFIDENTIAL MATERIAL REDACTED
AND FILED SEPARATELY WITH THE COMMISSION] basis points, and subtracting
therefrom cumulative amounts previously paid to the General Partner in respect
of its services (including previous cumulative payments of the Minimum Monthly
Management Fee and the additional monthly management fee paid during such
previous twelve (12) month period). The Minimum Monthly Management Fee and the
additional monthly management fee shall accrue daily and shall be paid to the
General Partner as provided in the Partnership Agreements.

SECTION 3.04 INVESTMENT PARTNERSHIP COSTS.

      Each Investment Partnership shall bear its own funding, administrative and
transaction costs; provided, that in the event Crescent or Capstead invests in
an asset or entity along with an Investment Partnership, all expenses associated
with the investment shall be allocated between Crescent or Capstead and the
Investment Partnership on a pro rata basis, based upon the relative amounts
invested by Crescent or Capstead and the Investment Partnership in such
investment. The General Partner shall prepare, for unanimous approval by the
Advisory Committee, an annual budget for each Investment Partnership's
administrative expenses, which shall include the annual management fee,
franchise taxes and third-party payments for audit, tax preparation,
non-transaction-related legal fees and investor reporting expenses. Transaction
costs shall include third-party payments for legal, due diligence and other
costs, including the General Partner's out-of-pocket travel and other expenses.
The General Partner's out of pocket travel expenses shall not exceed $7,500 per
transaction, unless approved unanimously by the Advisory Committee.

      Crescent and Capstead shall each bear its own costs in connection with the
negotiation and drafting of this Agreement and the Partnership Agreement for the
Initial Investment Partnership. The Successor Investment Partnership shall bear
the costs associated with structuring and negotiating the terms of an investment
therein and drafting the Partnership Agreement for the Successor Investment
Partnership.

                                  ARTICLE IV.
           RESPONSIBILITIES OF GENERAL PARTNER AND ADVISORY COMMITTEE

SECTION 4.01 RESPONSIBILITIES OF THE GENERAL PARTNER.

      Except as otherwise expressly provided in any Partnership Agreement, the
General Partner shall be vested with the full, exclusive and complete right,
power and discretion to operate, manage and control the affairs of the
Investment Partnerships and to make all decisions affecting the affairs of the
Investment Partnerships. Among other matters, the General Partner shall be
responsible for (i) identifying investment opportunities for the Investment
Partnerships, (ii) making recommendations regarding prospective investments and
divestitures by the

                                       12


Investment Partnerships and providing underwriting and other documentation with
respect thereto, (iii) managing the Investment Partnerships' portfolio of
investments, (iv) identifying, negotiating and entering into authorized
financing and hedging arrangements on behalf of the Investment Partnerships, (v)
entering into authorized transactions and agreements on behalf of the Investment
Partnerships, and (vi) overseeing the general administration of the Investment
Partnerships. The General Partner shall have the authority to delegate any or
all of its duties under this Section 4.01 to any of its Affiliates, without the
consent of any other Partner.

SECTION 4.02 ADVISORY COMMITTEE.

      Each of the Formation Partners shall appoint two Persons to act as an
advisory committee (the "Advisory Committee") to oversee the operations of each
of the Investment Partnerships. Except as otherwise expressly provided in this
Agreement and the Partnership Agreements, the Advisory Committee shall have no
power to vote, approve, disapprove or otherwise influence the management of the
Investment Partnerships.

      Members of the Advisory Committee shall be entitled to receive on at least
a monthly basis information regarding the investments and operations of the
Investment Partnerships and shall meet at least once every three (3) months to
discuss matters relating to the Investment Partnerships. The times and locations
of such meetings shall be determined by the members of the Advisory Committee in
their sole discretion. The Advisory Committee also shall hold special meetings
as required to consider Major Decisions in a timely manner. Members of the
Advisory Committee shall consult with and receive voting instructions from the
Partners they represent prior to making any Major Decision and shall notify the
General Partner, who shall then notify the Partners, in writing of actions taken
by the Advisory Committee within two (2) Business Days after any such action has
been taken.

      The Partnership Agreements may set forth processes and procedures, as
necessary, for the operation of the Advisory Committee.

SECTION 4.03 MAJOR DECISIONS.

      The following major decisions relating to an Investment Partnership shall
require the unanimous approval of the Advisory Committee before becoming
effective: (i) the bifurcation of investments, (ii) the sale or other
disposition of investments, (iii) the conversion of an Investment Partnership
into a different legal form, including, but not limited to, a real estate
investment trust, (iv) the incurrence of indebtedness or hedging arrangements
and the terms thereof, (v) the approval of each annual budget of the Investment
Partnership, (vi) the engagement or replacement of the Investment Partnership's
audit firm, (vii) the sale or other Transfer by Crescent or Capstead of any
portion of its interest in the Investment Partnership to an entity that is not
its Affiliate (other than in connection with a Change in Control), (viii) the
sale, merger or other business combination of the Investment Partnership and
(ix) the replacement of the General Partner. Prior to approving or declining to
approve any of the aforementioned actions, the Advisory Committee shall be
provided (i) any material information that is in the possession of or reasonably
attainable by the General Partner and that would assist the Advisory Committee
in rendering a decision in respect of such action and (ii) a recommendation from
the General Partner regarding such action. The Advisory Committee shall notify
the General Partner of the

                                       13


approval or disapproval of any action within five (5) Business Days of the
Advisory Committee's receipt of the General Partner's recommendation.

SECTION 4.04 BREACH BY THE GENERAL PARTNER; REMOVAL OF THE GENERAL PARTNER FOR
BREACH.

      The General Partner shall be in breach of its obligations to an Investment
Partnership upon a final determination by a court of competent jurisdiction or
an admission by the General Partner that it has (i) committed a material breach
of this Agreement or the Partnership Agreement of the Investment Partnership,
(ii) engaged in willful misconduct, (iii) acted in bad faith, (iv) beached its
fiduciary duty to the Partners in the Investment Partnership, or (v) managed the
Investment Partnership in a grossly negligent manner. In the event a court
determines that any such breach can be remedied, or if the Formation Partners
otherwise mutually agree upon a remedy, the General Partner shall have a
reasonable period (to be agreed by the Formation Partners) in which to cure such
breach. In the event a court determines that a breach cannot be remedied, or if
the General Partner fails to cure the breach within the agreed-upon time period
or a time period established by the court, the Advisory Committee shall remove
the General Partner and elect a replacement General Partner by unanimous
consent.

SECTION 4.05 REMOVAL OF THE GENERAL PARTNER FOR OTHER THAN BREACH.

      In the event the General Partner and/or its Affiliates cease to own and
control at least fifty-one percent (51%) of the Partnership Interest in an
Investment Partnership that was initially issued to the General Partner and/or
its Affiliates, the General Partner shall be removed and the Capstead Advisory
Committee members shall elect a replacement General Partner, unless the Capstead
Advisory Committee members elect to waive such removal right.

                                   ARTICLE V.
                          TRANSACTION APPROVAL PROCESS

SECTION 5.01 INVESTMENT PARTNERSHIP OPPORTUNITIES.

      Except as otherwise provided in Section 5.04 hereof, neither the General
Partner nor Capstead shall pursue a Target Investment unless such Target
Investment is first offered to the Investment Partnerships and the Investment
Partnerships determine not to pursue such investment. Such opportunities shall
be presented pursuant to Sections 5.02 and 5.03 hereof.

      Crescent and Capstead hereby agree that, throughout the term of this
Agreement, each Limited Partner shall be entitled to invest in and maintain for
its own account or jointly with other Persons, and without restriction, an
active portfolio of B-notes, first mortgages, subordinated notes, mezzanine
loans and bridge loans, or participations thereof, that have a loan to value
ratio in excess of eighty percent (80%). Crescent and Capstead further agree
that, from time to time each Limited Partner shall be entitled to, but shall
have no obligation to, offer to the Investment Partnerships opportunities to
invest, or participate, in assets with a loan to value ratio in excess of eighty
percent (80%).

                                       14


SECTION 5.02 APPROVAL PROCESS FOR INVESTMENTS.

   (a) Investments Proposed by the General Partner. Before an Investment
Partnership shall be permitted to acquire an investment that is proposed by the
General Partner, Crescent Capital shall cause the General Partner to submit a
written proposal to Capstead recommending the acquisition of the investment by
the Investment Partnership. Crescent Capital shall cause the General Partner to
provide Capstead such documentation relating to the proposed investment as
Capstead shall reasonably request. With respect to investments by the Investment
Partnerships in Target Investments, the General Partner shall be permitted to
submit a recommendation to Capstead for its approval prior to obtaining the
approval of the General Partner's investment committee (or other Persons
authorized by the General Partner to approve its investment decisions). Such
written recommendation shall evidence the approval of the Target Investment by
at least two members of the General Partner's investment committee, as such
individuals may be identified from time-to-time. Within three (3) Business Days
following receipt from the General Partner of its written recommendation to
acquire a Target Investment, Capstead shall notify the General Partner in
writing of its decision to accept or reject such recommendation. If Capstead
does not approve the recommended investment, Crescent and its Affiliates shall
have the right to acquire the investment for its own account, or jointly with
another Person on terms not materially different from those presented to the
Investment Partnership. If Capstead notifies Crescent in writing of its approval
of a recommended Target Investment, Crescent shall have five (5) Business Days
following such notification from Capstead to submit and receive all necessary
approvals from Crescent for the Investment Partnership to proceed with such
investment.

      With respect to the recommendation of investments that are not Target
Investments, Crescent Capital shall cause the General Partner to provide
Capstead formal notice that such investment has been approved by the General
Partner's investment committee (or other Persons authorized by the General
Partner to approve its investment decisions) at the time that the General
Partner makes a written recommendation in favor of the investment. Within five
(5) Business Days following receipt from the General Partner of such written
recommendation and notice of approval, Capstead's designees to the Advisory
Committee shall notify the General Partner in writing of the decision to accept
or reject such recommendation. If the Capstead designees do not approve the
investment, Crescent and its Affiliates shall have the right to acquire the
investment for its own account or jointly with another Person on terms not
materially different from those presented to the Investment Partnership.

      The parties hereto agree that, with respect to an investment to be
acquired by Crescent or its Affiliates, an increase in the Target IRR in an
amount that is less than four percent (4%) shall not be deemed a material
difference in the terms of the proposed acquisition.

      Any failure by the Capstead designees to provide notice in the time period
provided herein shall be deemed to indicate such designee's rejection of the
proposed investment, after which Crescent or its Affiliates may individually
pursue such proposed investment without recourse under this Agreement.

                                       15


   (b) Investments Proposed by Capstead. Before an Investment Partnership
shall be permitted to acquire an investment that is proposed by Capstead,
Capstead shall submit a written proposal to the General Partner recommending the
acquisition of the investment by the Investment Partnership. Capstead shall
provide the General Partner such documentation relating to the proposed
investment as the General Partner shall reasonably request. Within three (3)
Business Days following receipt from Capstead of its written recommendation to
acquire a Target Investment, Crescent Capital shall cause the General Partner to
notify Capstead in writing of its decision to accept or reject such
recommendation. If the General Partner does not approve the recommended
investment, Capstead and its Affiliates shall have the right to acquire the
investment for its own account, or jointly with another Person, on terms not
materially different from those presented to the Investment Partnership.

      With respect to the recommendation of investments that are not Target
Investments, Capstead shall provide the General Partner formal notice that such
investment has been approved by Capstead's investment committee (or other
Persons authorized by Capstead to approve its investment decisions) at the time
that Capstead makes a written recommendation in favor of the investment. Within
five (5) Business Days following receipt from Capstead of such written
recommendation and the notice of approval, Crescent Capital shall cause the
General Partner to notify Capstead in writing of its decision to accept or
reject such recommendation. If the General Partner does not approve the
investment, Capstead and its Affiliates shall be entitled to acquire the
investment for its own account or with another Person on terms not materially
different from those presented to the Investment Partnership.

      The parties hereto agree that, with respect to an investment to be
acquired by Capstead or its Affiliates, an increase in the Target IRR in an
amount that is less than four percent (4%) shall not be deemed a material
difference in the terms of the proposed acquisition.

      Any failure by Crescent to provide notice of its decision to accept or
reject a recommendation in the time period provided herein shall be deemed to
indicate Crescent's designee's rejection of the proposed investment, after which
Capstead or its Affiliates may individually pursue such proposed investment
without recourse under this Agreement.

      No Partner other than the General Partner or Capstead shall be permitted
to propose investments to be made by any Investment Partnership.

SECTION 5.03 CAPSTEAD'S VETO RIGHT.

      In connection with the approval process set forth in Section 5.02,
Capstead shall have the right to reject any investments proposed by the General
Partner, as such right may be limited below (the "Capstead Veto Right"). In the
event that Capstead exercises the Capstead Veto Right [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION] times during any consecutive
twelve (12)-month period with respect to Target Investments, Crescent GP shall
have the immediate right to terminate this Agreement and Crescent shall have no
further obligation to offer Target Investments to the Investment Partnerships.
Capstead's veto of an investment that is not a Target Investment, or of an
in-kind contribution (other than cash or cash equivalents) to any Investment
Partnership, shall not be considered in connection with any

                                       16


limitation set forth in this Section 5.03. Capstead shall notify the General
Partner of the exercise of the Capstead Veto Right within the time period set
forth in Section 5.02.

SECTION 5.04 CAPSTEAD'S UNILATERAL RIGHT TO FORECLOSE ON CERTAIN INVESTMENTS.

      Capstead shall have the unilateral right to foreclose on any investment
held by an Investment Partnership (excluding any investment that is secured by
the equity interest in any Person) that is in default under the terms of a
mortgage, deed of trust or similar instrument where real property secures the
indebtedness to which the investment is subject (each, a "Mortgage"). The
"unilateral right to foreclose," as referenced herein shall mean, with respect
to a defaulted investment that is subject to a Mortgage, the right to (i) make
the sole determination to commence foreclosure proceedings, (ii) establish the
bid price upon foreclosure on the investment and (iii) make the sole
determination as to the disposition of any third party disputes related to the
foreclosure. Upon commencement of foreclosure, Crescent Capital shall cause the
General Partner to assume all other ministerial and procedural rights and duties
related to the foreclosure proceedings. For purposes of determining whether a
unilateral right to foreclose exists, an investment shall be in default if one
or more scheduled payments on the Mortgage to which such investment is subject
is not paid within thirty (30) days after the date on which such payment is due
and such nonpayment shall have not been cured prior to the time that notice of
commencement of foreclosure is given by the General Partner.

      At any time after an investment goes into default, either Crescent or
Capstead may submit an offer to purchase the defaulted investment from the
Investment Partnership at a price and on the terms specified by the offering
Partner (which price shall include the amount necessary to repay indebtedness
relating to the defaulted investment being purchased) and the non-offering
Partner shall have the right to authorize the General Partner to accept such
offer on behalf of the Partnership or the non-offering Partner may submit an
offer to purchase the defaulted investment from the Partnership at the price and
on the terms offered by the offering Partner, which offer Crescent Capital shall
be required to cause the General Partner to accept. Either Crescent or Capstead
shall have the right to consummate the purchase of the defaulted investment as
set forth herein prior to the consummation of the foreclosure on such
investment; provided, however, that any such purchase shall be conditioned upon
the purchasing Partner's satisfaction of the Investment Partnership's
outstanding indebtedness relating to the defaulted investment. The purchase
price of any defaulted investment shall be paid to the Partnership by the
purchasing Partner in cash upon the consummation of the closing of the purchase,
which closing shall occur on such date as shall be determined by the General
Partner and the purchasing Partner.

SECTION 5.05 FORMATION PARTNERS' RIGHT TO INVEST IN SAME ENTITIES AS INVESTMENT
PARTNERSHIPS.

      Capstead and Crescent hereby acknowledge and agree that, subject to the
right of first offer set forth in Section 5.01 of this Agreement, each Formation
Partner shall have the right to acquire the debt securities of any entity in
which an Investment Partnership invests, where appropriate opportunities exist
and such investment would not be detrimental to the interests of any Investment
Partnership. In the event any Formation Partner and an Investment Partnership
acquire debt securities in the same transaction, all expenses associated with
the acquisition shall

                                       17


be allocated between the Formation Partner and the Investment Partnership on a
pro rata basis, based upon the relative amounts of securities purchased by the
Formation Partner and the Investment Partnership.

                                  ARTICLE VI.
                               TRANSFER PROVISIONS

SECTION 6.01 RESTRICTIONS ON TRANSFER OF PARTNERSHIP INTERESTS.

      Except as otherwise provided herein, no Partner may Transfer all or any
portion of its Partnership Interest without the prior unanimous written consent
of the Advisory Committee. Notwithstanding the foregoing, each Partner shall be
permitted to Transfer all or any portion of its Partnership Interest to an
Affiliate of such Partner. In addition, any Formation Partner shall be entitled
to Transfer all or any portion of its Partnership Interest to the other
Formation Partner. A Change in Control of a Formation Partner shall not be
deemed a Transfer for purposes of this Agreement.

SECTION 6.02 BUY-SELL RIGHTS - UNRESOLVED DEADLOCK.

      If there is an Unresolved Deadlock, either Formation Partner (the
"Exercising Partner") may exercise a buy-sell right by delivering to the other
Formation Partner (the "Non-Exercising Partner") a written notice (the "Notice
of Buy-Sell"), which shall state (a) the price at which the Exercising Partner
is willing to sell its Partnership Interest (the "Buy-Sell Price") and (b) the
other terms on which the Exercising Partner is willing to sell its Partnership
Interest (the "Buy-Sell Terms"). Upon receipt of the Notice of Buy-Sell, the
Non-Exercising Partner shall have the right, in its sole discretion and at such
Non-Exercising Partner's option, to either (a) purchase the Exercising Partner's
Partnership Interest at the Buy-Sell Price and on the Buy-Sell Terms or (b) sell
to the Exercising Partner the Non-Exercising Partner's Partnership Interest at
the Buy-Sell Price and on the Buy-Sell Terms, as adjusted to reflect any
differences in relative distribution rights. The Non-Exercising Partner shall
deliver to the Exercising Partner within fifteen (15) Business Days after
receipt of the Notice of Buy-Sell (the "Election Period"), a written notice of
its election to either purchase the Exercising Partner's Partnership Interest or
to sell to the Exercising Partner the Non-Exercising Partner's Partnership
Interest (the "Buy-Sell Election"). The purchase or sale of such Partnership
Interest shall be consummated no later than thirty (30) Business Days after
receipt by the Exercising Partner of the Buy-Sell Election. Settlement of a sale
pursuant to this Section 6.02 shall be in cash, to the extent that settlement
terms are not otherwise specified in the Buy-Sell Terms. If the Non-Exercising
Partner fails to deliver a Buy-Sell Election to the Exercising Partner within
the Election Period, the Non-Exercising Partner shall be deemed to have given
notice of its election to sell all of its Partnership Interest to the Exercising
Partner pursuant to the provisions hereof. If the purchase or sale of such
Partnership Interest is (without breach by the selling Partner) not consummated
as provided herein, the action as to which the Unresolved Deadlock relates shall
be deemed to have been approved if the Partner required to sell its Partnership
Interest pursuant hereto had voted to approve such action, and shall be deemed
to have been disapproved if such selling Partner had voted to disapprove such
action, and in such case, the Unresolved Deadlock will be resolved in favor of
the Partner required to sell its Partnership Interest and the Investment
Partnership shall continue without interruption.

                                       18


SECTION 6.03 RIGHT OF FIRST REFUSAL - TRIGGER EVENT.

   (a) In the event that any Formation Partner has a binding, written offer
from any Person to acquire all or a portion of such Formation Partner's
Partnership Interest in connection with the occurrence of a Trigger Event and a
determination by such Formation Partner that a sale of all or a portion of its
Partnership Interest is necessary or advisable under the circumstances (a
"Proposed Transfer"), such Formation Partner (the "Selling Partner") shall
deliver to the Investment Partnership and the other Formation Partner (the
"Non-Selling Partner") written notice of the material terms of such Proposed
Transfer, including the proposed purchaser thereof, the amount, nature and
payment schedule of the consideration to be received, the conditions, if any,
associated therewith and any other material terms of such offer (an "Offer
Notice"). The Offer Notice shall constitute an irrevocable offer by the Selling
Partner to sell its Partnership Interest (or portion thereof) on the terms of
the Proposed Transfer to the Non-Selling Partner (the "Right of First Refusal"),
except that a purchaser under this Section 6.03 shall have the right to pay cash
in an amount equal to the Fair Market Value of any Non-Cash Consideration (as
hereafter defined).

   (b) During the Offer Period, the Non-Selling Partner may elect to purchase
all, but not less than all of the Partnership Interest that is the subject of
the Proposed Transfer by delivering written notice of such election (an
"Election Notice") to the Investment Partnership and the Selling Partner prior
to the expiration of the Offer Period. The failure by the Non-Selling Partner to
deliver an Election Notice during the Offer Period shall be deemed to be an
election by such Partner not to purchase the Partnership Interest subject to the
Proposed Transfer.

   (c) If the Non-Selling Partner does not elect to purchase all of the
Partnership Interest (or portion thereof) that is the subject of the Proposed
Transfer, the Selling Partner may Transfer to the purchaser named in the Offer
Notice (the "Third Party Purchaser") all (but not less than all) of the
Partnership Interest (or portion thereof) that is the subject of the Proposed
Transfer on terms and conditions that are not materially different from those
set forth in the Offer Notice; provided, however, that if the Selling Partner
has not consummated the Transfer of such Partnership Interest within ninety (90)
calendar days following the end of the Offer Period (subject to extension in
accordance with Section 6.03(f)), all of the restrictions on Transfer contained
in this Agreement shall again be in effect with respect to such Partnership
Interest. For purposes of this Section 6.03, a five percent (5%) reduction in
the price at which a Percentage Interest will be sold shall not be deemed a
material difference in the terms of the Proposed Transfer.

   (d) If the consideration for the sale of a Partnership Interest pursuant
to this Right of First Refusal is cash consideration, the purchase price to be
paid by the Non-Selling Partner shall be equal to the total consideration set
forth in the Offer Notice. If the consideration for the Proposed Transfer
consists of consideration that is other than cash consideration payable in
immediately available funds at the closing thereunder ("Non-Cash Consideration")
or consists of a combination of cash consideration and Non-Cash Consideration,
the purchase price shall be payable in cash in an amount equal to the sum

                                       19


of (i) the total of the cash consideration, if any, and (ii) the Fair Market
Value of the Non-Cash Consideration as determined in accordance with Section
6.03(f) hereof.

   (e) The purchase and sale of all or any portion of a Formation Partner's
Partnership Interest pursuant to this Right of First Refusal shall be
consummated at a closing that shall occur at the principal business office of
the Investment Partnership within twenty (20) Business Days following the
expiration of the Offer Period (subject to extension in accordance with Section
6.03(f)), or at such other place or time as may be mutually acceptable to the
parties. At such closing, the Selling Partner shall Transfer the Partnership
Interest being purchased, free and clear of all liens, claims, encumbrances
(other than as a result of this Agreement or the relevant Partnership Agreement)
and defects in title and duly endorsed for Transfer to the appropriate purchaser
and, in exchange therefor, the purchaser of such Partnership Interest shall pay
the purchase price at such closing by bank wire transfer of immediately
available funds to a bank account designated in writing by the Selling Partner
at least three Business Days prior to such closing.

   (f) In the event that a determination of the fair market value of Non-Cash
Consideration is required pursuant to the Right of First Refusal, the Selling
Partner shall specify in the applicable Offer Notice its good faith estimate of
the fair market value of any Non-Cash Consideration to be paid in connection
with the Proposed Transfer. If the Formation Partners are in agreement on the
estimated fair market value of such Non-Cash Consideration, the estimate shall
be deemed to be the Fair Market Value (the "Fair Market Value") thereof for
purposes of this Agreement. If the Formation Partners do not agree on the
estimated fair market value, the Formation Partners shall for a period of five
(5) Business Days negotiate with each other for the purpose of determining the
fair market value of the Non-Cash Consideration that is acceptable to each of
them. If the Formation Partners are unable to agree on a fair market value
during such five (5)-day negotiation period and there is a variance of ten
percent (10%) or less in the estimates of the fair market value prior to the
commencement of such five (5)-day negotiation period, the average of such
estimates shall be the Fair Market Value of such Non-Cash Consideration and
shall be final and binding on the Partners. If there is a variance of more than
ten percent (10%) in such estimates, then the Formation Partners shall within
twenty (20) Business Days after the date of the Offer Notice submit their
respective estimates, together with all supporting data upon which such
estimates were based, to a mutually agreeable arbitrator; provided that if they
cannot agree upon a mutually agreeable arbitrator within twenty (20) calendar
days after the date of the Offer Notice they shall each select one arbitrator
with recognized standing and experience and who is a member of the American
Arbitration Association and those two arbitrators shall select a third such
arbitrator and such third arbitrator acting alone shall determine such
arbitrator's estimate of the fair market value of the Non-Cash Consideration and
shall select from the estimates presented by the Formation Partners the estimate
that is closest to such arbitrator's estimate, and such selected estimate shall
be the Fair Market Value of the Non-Cash Compensation. The foregoing arbitration
proceedings, including any discovery and any hearings, shall be conducted in
accordance with the rules of the American Arbitration Association then in
effect, and the Formation Partners shall cooperate fully in promptly furnishing
any relevant information requested by the

                                       20


arbitrator. If a party fails to timely select an arbitrator as provided herein,
the other party's estimate shall be deemed to be the Fair Market Value of the
Non-Cash Consideration. If the two selected arbitrators cannot agree upon a
third arbitrator, the third shall be selected in accordance with the rules of
the American Arbitration Association. The determination of Fair Market Value
pursuant to this Section 6.03(f) shall be final and binding on the Partners and
may be enforced by a court of competent jurisdiction. The cost of the
arbitrators and the arbitration proceeding shall be paid by the party whose
estimate was not selected. The time period for any closing pursuant to this
Section 6.03 shall be extended by the number of Business Days required to
establish the Fair Market Value of any Non-Cash Consideration pursuant to this
Section 6.03(f). The General Partner shall keep the Non-Selling Partner
reasonably informed of the status of the determination of such Fair Market
Value.

                                  ARTICLE VII.
                             TERMINATION PROVISIONS

SECTION 7.01 TERMINATION.

   (a) This Agreement and each of Crescent's and Capstead's rights and
obligations hereunder shall terminate and be of no further force and effect upon
the earlier to occur of (i) the fourth anniversary of the closing of the Initial
Investment Partnership, (ii) the date on which the total Capital Contributions
made to the Initial Investment Partnership and the Successor Investment
Partnership equals Two Hundred Million Dollars ($200,000,000), or, if an
Additional Investor is admitted to the Successor Investment Partnership, up to
Three Hundred Fifty Million Dollars ($350,000,000), (iii) the date on which
either Formation Partner delivers written notice to the other of its termination
of this Agreement pursuant to Section 2.01, following the date on which Crescent
and Capstead have fulfilled their respective Capital Commitments to the Initial
Investment Partnership, or (iv) such other date determined by mutual agreement
of the Formation Partners. For purposes of clause (ii) of this Section 7.01,
amounts reinvested during the Reinvestment Period of any Investment Partnership
shall not be included in the Capital Contributions made to such Investment
Partnership.

   (b) In the event either of the Formation Partners (i) exercises its right
to terminate this Agreement pursuant to Section 7.01(a)(iii), (ii) enters into
negotiations for the acquisition of Target Investments with a different capital
partner within the 6-month period following the date on which written notice of
termination is given by the terminating Formation Partner to the non-terminating
Formation Partner and (iii) enters into a definitive agreement for the
acquisition of one or more Target Investments with such different capital
partner within nine (9) months following the date such written notice of
termination is given, then the non-terminating party would have the right to
participate in the new venture.

   (c) In the event that, within twelve (12) months following the termination
of this Agreement by Crescent GP pursuant to Section 7.01(a)(iii), Crescent
conducts a public offering of interests in an investment fund or an offering of
such interests under Rule 144 A under the Securities Act of 1933, as amended (a
"Public Offering"), and the investment

                                       21


strategy of the investment fund or other investment vehicle includes, to a
material extent, investments in Target Investments, then Capstead shall have the
right to purchase common equity interests in such Public Offering, subject to
any ownership limits that shall be determined prior to the closing of the
offering.

                                 ARTICLE VIII.
                                 INDEMNIFICATION

SECTION 8.01 INDEMNIFICATION OF THE GENERAL PARTNER.

      To the fullest extent permitted by law but limited to the assets of each
Investment Partnership, each Investment Partnership shall indemnify the General
Partner (including the owners, officers, partners, and agents of the General
Partner) (the "Indemnified Parties"), and save and hold each Indemnified Party
harmless from and in respect of (i) all claims, actions, demands or threats
thereof, against the Investment Partnership or such Indemnified Party that arise
out of, or in any way relate to the Investment Partnership, the business of the
Investment Partnership or the assets of the Investment Partnership, and any
losses or damages resulting therefrom, including amounts paid in settlement or
compromise of any such claim, action, demand or threat thereof, and (ii) all
fees, costs, and expenses, including reasonable attorneys' fees, incurred in
connection with, or resulting from, any such claim, action, demand or threat
thereof; provided, however, that this indemnification shall not extend to acts
of gross negligence, breach of fiduciary duty, a material, uncured breach of
this Agreement or any Partnership Agreement or willful misconduct of such
Indemnified Party. This indemnity is intended to apply regardless of the
negligence of any Indemnified Party. The right to indemnification set forth in
this Section 8.01 shall be a contract right and shall include the right of each
indemnitee to be paid by the applicable Investment Partnership the expenses
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that the payment of such expenses in advance of the final
disposition of a proceeding shall be made only upon delivery to the Investment
Partnership of (i) a written affirmation of the indemnitee of his or her good
faith belief that the standard of conduct necessary for indemnification by the
Investment Partnership has been met, and (ii) a written undertaking by or on
behalf of the indemnitee to repay all amounts so advanced if it shall ultimately
be determined that the standard of conduct has not been met.

SECTION 8.02 INDEMNIFICATION OF MEMBERS OF THE ADVISORY COMMITTEE.

      Each member of the Advisory Committee shall be entitled, to the fullest
extent permitted by law, to exculpation from liability and indemnification from
the assets of the relevant Investment Partnership with respect to the activities
of such member on the Advisory Committee, if such member's activities are
carried out in good faith. To the fullest extent permitted by applicable law, no
member of the Advisory Committee shall have any fiduciary duties to any
Investment Partnership or any Partner, but shall be required to act in
accordance with the contractual covenant of good faith and fair dealing.

                                       22


                                  ARTICLE IX.
                     PARTNER REPRESENTATIONS AND WARRANTIES

SECTION 9.01 REPRESENTATIONS AND WARRANTIES.

      Each Formation Partner represents and warrants, severally and not jointly,
solely on behalf of itself, to the other Partner as follows:

   (a) Organization. Such Partner is duly formed and validly existing and is
qualified to do business and in good standing in the jurisdictions in which it
does business.

   (b) Due Authorization; Binding Agreement. This Agreement has been duly
executed and delivered by such Partner, or an authorized representative of such
Partner, and constitutes a legal, valid and binding obligation of such Partner,
enforceable against such Partner in accordance with the terms hereof.

   (c) Consents and Approvals. No consent, waiver, approval or authorization of,
or filing, registration or qualification with, or notice to, any governmental
unit or any other Person is required to be made, obtained or given by such
Partner in connection with the execution, delivery and performance of this
Agreement other than consents, waivers, approvals, authorizations, filings,
registrations, qualifications or notices which have been obtained prior to the
date hereof.

   (d) No Conflict with Other Documents or Violation of Law. The execution of
this Agreement by such Partner and such Partner's performance of the
transactions contemplated herein will not violate any document, instrument,
agreement, stipulation, judgment, order, or any applicable federal, state or
local law, ordinance or regulation to which such Partner is a party or by which
such Partner is bound.

                                   ARTICLE X.
                            MISCELLANEOUS PROVISIONS

SECTION 10.01 ADDRESSES AND NOTICE.

      All notices, requests, demands and other communications hereunder to a
Partner shall be in writing and shall be deemed to have been duly given if
delivered by hand or if sent by certified mail, return receipt requested,
properly addressed and postage prepaid, or transmitted by commercial overnight
courier to the Partner at the address set forth in Exhibit A to the Partnership
Agreement of the Initial Investment Partnership or at such other address as the
Partner shall notify the General Partner in writing, or sent by facsimile to the
facsimile number set forth in Exhibit A to the Partnership Agreement of the
Initial Investment Partnership or to such other facsimile number as the Partner
shall notify the General Partner in writing. Such communications shall be deemed
sufficiently given, served, sent or received for all purposes at such time as
delivered to the addressee (with the return receipt, facsimile confirmation or
delivery receipt being deemed conclusive evidence of such delivery) or at such
time as delivery is refused by the addressee upon presentation.

                                       23


SECTION 10.02 FURTHER ACTION.

      The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purpose of this Agreement.

SECTION 10.03 BINDING EFFECT.

      This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.

SECTION 10.04 CREDITORS.

      None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of any Investment Partnership.

SECTION 10.05 WAIVER.

      No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.

SECTION 10.06 NO AGENCY.

      Nothing contained herein shall be construed to constitute any Partner the
agent of another Partner, except as specifically provided herein, or in any
manner to limit the Partners in the carrying on of their own respective
businesses or activities.

SECTION 10.07 ENTIRE UNDERSTANDING.

      This Agreement and the Partnership Agreements shall constitute the entire
agreement and understanding among the Partners relating to the subject matter
hereof and supersedes any prior understanding and/or written or oral agreements
among them respecting the subject matter herein. In the event of any conflict
between this Agreement and any Partnership Agreement, the terms of such
Partnership Agreement shall govern.

SECTION 10.08 COUNTERPARTS.

      This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all of the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.

SECTION 10.09 APPLICABLE LAW.

      This Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware, without regard to the principles of conflicts of
law.

                                       24


SECTION 10.10 INVALIDITY OF PROVISIONS.

      If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.

SECTION 10.11 TELEGRAMS AND FACSIMILE SIGNATURES.

      A telegram, telex, cablegram or similar transmission by a Person, or a
photographic, photostatic, facsimile or similar reproduction of a writing signed
by a Person, shall be regarded as signed by the Person for all purposes of this
Agreement.

SECTION 10.12 SURVIVAL.

      The following provisions shall survive the termination or expiration of
this Agreement: Section 7.01(b) and Section 7.01(c).

                                       25


      IN WITNESS WHEREOF, the parties have signed and delivered this Agreement
as of the date first above written.

                                     CRESCENT:

                                     Crescent Real Estate Capital, L.P.,
                                     a Delaware limited partnership

                                     By: Crescent Real Estate Capital GP, LLC
                                         a Delaware limited liability company
                                         its general partner

                                         By: Crescent Real Estate Equities, Ltd.
                                             a Delaware corporation,
                                             its manager

                                             By: _______________________________
                                                 Name:
                                                 Title:

                                     CAPSTEAD:

                                     CMC Real Estate Capital, L.P.
                                     a Delaware limited partnership

                                     By: CMC Real Estate Capital GP, LLC
                                         its general partner

                                         By: Capstead Mortgage Corporation,
                                             its sole member

                                             By: _______________________________
                                             Andrew F. Jacobs
                                             President and Chief Executive
                                             Officer



                                                                       EXHIBIT A

                            Intentionally Left Blank



                                                                       EXHIBIT B

                      Form of Limited Partnership Agreement

                              [Begins on Next Page]



                          LIMITED PARTNERSHIP AGREEMENT

                                       OF

                              [NAME OF PARTNERSHIP]

                               DATED AS OF [DATE]



                               TABLE OF CONTENTS

                                     - i -


                          LIMITED PARTNERSHIP AGREEMENT
                                       OF
                              [NAME OF PARTNERSHIP]

      THIS LIMITED PARTNERSHIP AGREEMENT (the "Agreement"), dated as of [DATE],
is entered into by and among Crescent Redtail Management, LLC, a Delaware
limited liability company ("Crescent Redtail" or the "General Partner"),
Crescent Real Estate Capital, L.P., a Delaware limited partnership ("Crescent
Capital," and together with Crescent Redtail, "Crescent") and CMC Real Estate
Capital, L.P., a Delaware limited partnership ("Capstead").

                                   WITNESSETH

      WHEREAS, Crescent and Capstead desire to combine Crescent's real estate
operating and investment experience with Capstead's capital markets and
investment experience to invest jointly in high quality real estate debt that
meets specified criteria;

      WHEREAS, Crescent and Capstead desire to form an investment partnership
through which they will make certain investments; and

      WHEREAS, Crescent and Capstead desire to set forth their agreement
regarding the terms under which they will invest in and through the investment
partnership.

      NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, agree as follows:

                                  DEFINED TERMS

      Except as otherwise herein expressly provided, the following terms and
phrases shall have the meanings set forth below:

      "Act" means the Delaware Revised Uniform Limited Partnership Act, as
amended from time to time (or any corresponding provisions of succeeding law).

      "Adjusted Capital Account" means the Capital Account of a Partner,
increased by such Partner's share of any "minimum gain," as defined in
Regulations sections 1.704-2(g)(1) and 1.704-2(i)(5).

      "Additional Capital Contribution" means any additional Capital
Contribution to be made by the Limited Partners pursuant to Section 3.2.E
hereof.

      "Adjusted Cost" means, with respect to any contributed investment, the
adjusted acquisition cost of such investment as reflected on the tax books and
records of the contributing Partner.



      "Advance Leverage Ratio" means, with respect to any Target Investment, the
ratio of acquisition debt to the investment amount of such Target Investment.

      "Advisory Committee" means the Advisory Committee established pursuant to
Section 6.2.A hereof.

      "Affiliate" means, with respect to any Person, any Person directly or
indirectly Controlling, Controlled by or under common Control with such Person.

      "Agreement" means this Limited Partnership Agreement, as it may be
amended, supplemented or restated from time to time.

      "Appraised Value" means the value assigned to collateral by the applicable
lender(s) to the Partnership, or in the absence of such, a third party appraisal
prepared by a nationally recognized appraisal company within the preceding four
(4) months. If the above noted indications of value are not available, a value
assigned by Crescent may be used, provided however, that such investment shall
not be considered a Target Investment.

      "Book Value" means the adjusted basis of an investment for federal income
tax purposes; provided, however, that in the event that such investment is
revalued pursuant to Regulations Section 1.704-1(b)(2)(iv)(f), Book Value means
the fair market value of the property at the time that the investment is
revalued, as subsequently adjusted (e.g., for depreciation or amortization) in
accordance with federal income tax principles.

      "Business Day" means any day other than a Saturday, Sunday or any other
day on which federal banks are authorized by law to close.

      "Buy-Sell Election" has the meaning set forth in Section 10.2 hereof.

      "Buy-Sell Price" has the meaning set forth in Section 10.2 hereof.

      "Buy-Sell Terms" has the meaning set forth in Section 10.2 hereof.

      "Capital Account" means the Capital Account maintained for a Partner in
accordance with the provisions of Regulations section 1.704-1(b)(2)(iv).

      "Capital Commitment" means, with respect to any Limited Partner, the
obligation to make the Capital Contributions to the Partnership that are
specified in Exhibit A to this Agreement.

      "Capital Contribution" means, with respect to any Limited Partner, any
cash, cash equivalents or the Adjusted Cost of any investment contributed to the
Partnership by such Partner. "Capital Contribution" shall include any Additional
Capital Contribution that a Limited Partner makes.

      "Capstead" means CMC Real Estate Capital, L.P., a Delaware limited
partnership.

                                     - 2 -


      "Certificate" means the Certificate of Limited Partnership of the
Partnership filed in the Office of the Secretary of State of the State of
Delaware, and as further amended from time to time in accordance with the terms
hereof and the Act.

      "Change In Control" means (i) the acquisition by any "person," as such
term is used in Sections 13(d) and 14(d) of the Exchange Act (other than a
Formation Partner, any trustee or other fiduciary holding securities under any
employee benefit plan of a Formation Partner, or any company owned, directly or
indirectly, by the equity holders of a Formation Partner), directly or
indirectly, of securities of a Formation Partner representing fifty percent
(50%) or more of the combined voting power of a Formation Partner's then
outstanding securities; (ii) the approval by the equity holders or general
partner of a Formation Partner of a merger or consolidation of the Formation
Partner with any other entity, other than a merger or consolidation that would
result in the voting securities of a Formation Partner outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than eighty
percent (80%) of the combined voting power of the voting securities of a
Formation Partner or such surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a merger or consolidation
effected to implement a reorganization or recapitalization of a Formation
Partner, or a similar transaction, in which no "person" acquires more than
twenty percent (20%) of the combined voting power of a Formation Partner's then
outstanding securities shall not constitute a Change In Control of a Formation
Partner; or (iii) the approval of the equity holders or general partner of a
Formation Partner of a plan of complete liquidation of a Formation Partner or an
agreement for the sale or disposition by a Formation Partner of all or
substantially all of the Formation Partner's assets.

      "Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.

      "Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether by ownership of voting securities, by contract or otherwise.

      "Crescent" means Crescent Capital and Crescent Redtail.

      "Crescent Capital" means Crescent Real Estate Capital, L.P., a Delaware
limited partnership.

      "Crescent Redtail" means Crescent Redtail Management, LLC, a Delaware
limited liability company, the general partner of the Partnership.

      "Debt Service Coverage Ratio" means the ratio obtained by dividing (i) the
sum of the underwritten measure of the net operating income of any Target
Investment, subtracting or adding back, as applicable, leasing commissions,
tenant improvements, interest reserves, reserves for leasing commissions,
reserves for tenant improvements, reserves for capital expenditures and any
guarantees of any such reserves, over the initial term of such Target
Investment, by (ii) the sum of all interest payments including capitalized
interest and mandatory

                                     - 3 -


principal payments due and payable by such Target Investment during such
applicable measurement period excluding any payments due upon maturity of any
indebtedness.

      "Declined Additional Capital Contribution" has the meaning set forth in
Section 3.2.E hereof.

      "Delinquent Limited Partner" has the meaning set forth in Section 3.3.A
hereof.

      "Election Notice" has the meaning set forth in Section 10.3.B hereof.

      "Election Period" has the meaning set forth in Section 10.2 hereof.

      "Exchange Act" means the Securities Exchange Act of 1934, as amended.

      "Exercising Partner" has the meaning set forth in Section 10.2 hereof.

      "Fair Market Value" has the meaning set forth in Section 10.3.F hereof.

      "Formation Partner" means Crescent or Capstead. Crescent Redtail and
Crescent Capital shall be treated as one consolidated entity in all matters
involving the Formation Partners, with Crescent Redtail controlling all
decisions and actions to be taken by Crescent in respect thereto.

      "Fully Invested" means the point at which the Partnership has invested the
Partnership's maximum Capital Commitment less amounts expended or reserved for
the Minimum Monthly Management Fee and other Partnership Expenses.

      "General Partner" means Crescent Redtail and includes any Person that
becomes an additional or successor general partner of the Partnership pursuant
to the provisions of this Agreement, each in its capacity as a general partner
of the Partnership.

      "ICA" means the Investment Company Act of 1940, as it may be amended from
time to time.

      "Indemnified Party" and "Indemnified Parties" have the meaning set forth
in Section 6.13.A hereof.

      "Investment Period" means the period during which the Partnership is
permitted to acquire new investments.

      "IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.

      "Limited Partner" means any Person listed as a Limited Partner in Exhibit
A or any Person admitted to the Partnership as a Limited Partner as provided in
this Agreement, in each case, solely in such Person's capacity as a limited
partner of the Partnership.

      "Liquidating Event(s)" has the meaning set forth in Section 12.1 hereof.

      "Liquidator" means the General Partner or, in the event there is no
remaining General Partner, any Person selected by the Limited Partners, as set
forth in Section 12.2. hereof.

                                     - 4 -


      "Loan to Value Ratio" means the ratio of the unpaid principal balance of
the Target Investment plus all indebtedness senior thereto, divided by the
Appraised Value.

      "Major Decision" means any of the decisions set forth in Section 6.3
hereof.

      "Master Agreement" means that certain Master Agreement, dated as of May
10, 2005, by and among the parties hereto.

      "Minimum Monthly Management Fee" means the minimum monthly management fee
payable by the Partnership to Crescent Redtail for Crescent Redtail's service as
general partner of the Partnership. During the Investment Period, the Minimum
Monthly Management Fee shall equal $___________. After the termination of the
Investment Period, the Minimum Monthly Management Fee shall be reduced to
$____________.

      "Mortgage" has the meaning set forth in Section 6.12.A hereof.

      "Net Cash Flow" means any excess of (i) the sum of (A) cash receipts of
the Partnership during a given calendar month from all sources whatsoever
(including the net cash proceeds received by the Partnership from the sale of a
Partnership asset), other than Unused Capital Contributions or repayments during
the Reinvestment Period, plus (B) the amount of any reduction during the
applicable calendar month in Partnership reserves for anticipated expenses
previously established pursuant to (ii)(C) below, over (ii) the sum of (A) all
operational expenditures of the Partnership, including all financing and hedging
expenses, during such related calendar month, plus (B) in the case of
refinancing proceeds, the amount applied in payment or reduction of the
refinanced obligation(s), plus (C) the amount of any increase during the
calendar month in Partnership reserves for reasonably anticipated expenses to
provide for accrued or anticipated expenses of the Partnership.

      "Non-Cash Consideration" has the meaning set forth in Section 10.3.D
hereof.

      "Non-Exercising Partner" has the meaning set forth in Section 10.2 hereof.

      "Non-Selling Partner" has the meaning set forth in Section 10.3.A hereof.

      "Notice of Buy-Sell" has the meaning set forth in Section 10.2 hereof.

      "Offer Notice" has the meaning set forth in Section 10.3.A hereof.

      "Offer Period" means a period commencing upon delivery of an Offer Notice
and expiring at 5:00 p.m., Fort Worth time, on the tenth (10th) Business Day
following delivery of such Offer Notice; provided, however, if the Proposed
Transfer involves Non-Cash Consideration, the Offer Period shall not expire
until the tenth (10th) Business Day after a binding determination of the Fair
Market Value of such Non-Cash Consideration has been made in accordance with
Section 10.3.F hereof.

      "Original Closing Date" means July 26, 2005.

      "Partner" means any General Partner or Limited Partner, and "Partners"
refers to all of the partners in the Partnership.

                                     - 5 -


      "Partnership" means the limited partnership formed hereby, as such limited
partnership may from time to time be constituted.

      "Partnership Expenses" has the meaning set forth in Section 6.8 hereof.

      "Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by a Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided herein, together with all obligations of such Person to comply with the
terms and provisions hereof.

      "Percentage Interest" means, with respect to any Partner, the ratio of
such Partner's Capital Commitment to the total Capital Commitments of all of the
Partners.

      "Person" means any individual, general partnership, limited partnership,
limited liability company, corporation, trust, estate, association, nominee or
other entity.

      "Prime Rate" means the prime rate reported from time to time in The Wall
Street Journal under "Money Rates" as of the relevant date(s), and if more than
one prime rate shall be reported therein, the average of all such rates.

      "Proposed Transfer" has the meaning set forth in Section 10.3.A hereof.

      "Reinvestment Period" means the period during which the Partnership is
permitted to reinvest repayments it receives in respect of its investments.

      "Right of First Refusal" has the meaning set forth in Section 10.3.A
hereof.

      "Regulations" means the income tax regulations promulgated under the Code,
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).

      "Securities Act" means the Securities Act of 1933, as it may be amended
from time to time.

      "Selling Partner" has the meaning set forth in Section 10.3 hereof.

      "Short-term Investment" means commercial paper, government obligations,
money market instruments, certificates of deposit and other similar obligations
and securities, in each case maturing in ninety (90) days or less at the time of
investment by the Partnership.

      "Successor Partnership" means any partnership that is formed by the
Formation Partners after the Original Closing Date and that has substantially
identical investment strategies and objectives as the Partnership.

      "Take-down Notice" has the meaning set forth in Section 3.2.C hereof.

      "Target Investments" has the meaning set forth in Section 2.1.A hereof.

      "Target IRR" has the meaning set forth in Section 2.1C hereof.

                                     - 6 -


      "Termination Date" means the seventh anniversary of the closing of the
Partnership's initial investment, which date may be extended by the General
Partner for up to two (2) consecutive one-year periods.

      "Third Party Purchaser" has the meaning set forth in Section 10.3.C
hereof.

      "Transfer" means a sale, assignment, transfer or other disposition, gift,
hypothecation or encumbrance by a Partner of its Partnership Interest.

      "Trigger Event" means (i) any change in any law, rule or regulation
applicable to a Formation Partner, including any change made by governing
authorities of tax, regulatory or accounting rules and procedures (e.g., the
IRS, Securities and Exchange Commission or the Public Company Accounting
Oversight Board), (ii) any significant market liquidity event, (iii) any other
event the occurrence of which would make an investment by the Formation Partner
in the Partnership ill-advised from a legal or economic perspective, or (iv) a
Change In Control of a Formation Partner.

      "UCC" has the meaning set forth in Section 3.3.B hereof.

      "Unresolved Deadlock" means an inability of the members of the Advisory
Committee to reach unanimous agreement on a Major Decision, which inability
continues for a period of one hundred twenty (120) calendar days (except with
respect to the inability to elect a replacement General Partner pursuant to
Section 6.15.C or Section 12.1.B, which shall only be subject to a thirty (30)
calendar day resolution period) after written notice by a representative of the
Advisory Committee to the General Partner. The Formation Partners shall cause
their respective designees to the Advisory Committee to negotiate in good faith
and use their respective commercially reasonable efforts to reach agreement on
any Major Decision.

      "Unused Capital Contributions" has the meaning set forth in Section 3.2.F
hereof.

                                   ARTICLE I
                             ORGANIZATIONAL MATTERS

Section 1.1 Formation of Partnership

      The Partners hereby form a limited partnership pursuant to the provisions
of the Act and upon the terms and conditions set forth in this Agreement. Except
as expressly provided herein to the contrary, the rights and obligations of the
Partners and the administration and termination of the Partnership shall be
governed by the Act. The Partnership Interest of each Partner shall be personal
property for all purposes.

Section 1.2 Name

      The name of the Partnership is [NAME OF PARTNERSHIP]. The Partnership's
business may be conducted under any other name or names deemed advisable by the
General Partner.

                                     - 7 -


Section 1.3 Principal Office and Registered Agent

      The initial principal office of the Partnership is 777 Main Street, Fort
Worth, Texas 76102, or such other place as the General Partner may from time to
time designate by notice to the Limited Partners. The registered agent of the
Partnership is Corporation Service Company, and the registered office of the
Partnership within the State of Delaware is 2711 Centerville Road, Suite 400,
Wilmington, Delaware 19808. The Partnership may maintain offices at such other
place or places within or outside the State of Delaware as the General Partner
deems advisable.

Section 1.4 Term

      The term of the Partnership commenced upon filing of the Certificate in
the Office of the Secretary of State of Delaware, and shall continue until the
Termination Date, unless it is dissolved sooner pursuant to the provisions of
Article XII or as otherwise provided by law.

                                   ARTICLE II
                                     PURPOSE

Section 2.1 Purpose and Business

            A. The purpose and nature of the business to be conducted by the
Partnership is to (a) acquire, invest in, own, manage, enter into participation
arrangements with respect to, transfer, sell or otherwise dispose of B-notes,
first mortgages (excluding residential), subordinated notes, mezzanine loans and
bridge loans ("Target Investments") and (b) engage in any other lawful
activities determined by the General Partner to be necessary or appropriate.

            B. Target Investments shall specifically exclude preferred equity,
bonds and securities offered pursuant to Rule 144A under the Securities Act and
notes or other loans related to Crescent-owned assets and healthcare facilities.
Each of the Target Investments shall have (i) a minimum dollar value of Ten
Million Dollars ($10,000,000), (ii) a maximum dollar value of Fifty Million
Dollars ($50,000,000), (iii) a Loan to Value Ratio that is less than or equal to
eighty percent (80%), and (iv) a term of not more than five (5) years, including
extensions. Target Investments shall constitute "real estate assets," within the
meaning of Section 856(c)(5)(B) of the Code. The Partnership may, from time to
time, acquire assets that do not constitute Target Investments.

            C. Target Investments may be collateralized by office, hotel,
retail, multi-family, industrial and residential properties, as well as
unimproved land. Each Target Investment shall have a target internal rate of
return of at least __________ percent (___%) for the term of the investment
(including extensions), which return shall be calculated by taking into
consideration the amount of the origination fee associated with such investment,
the Partnership's projected unreimbursed legal and due diligence costs and the
management fee payable by the Partnership, and further defined to be the
discount rate at which the present value of a Target Investment's future cash
flows equals the Capital Contributions associated with such Target Investment
(the "Target IRR"). The Target IRR shall be computed in accordance with the
following formula:

                                      - 8 -



      NPV = 0 = -Capital Contribution + origination fee (if any) - unreimbursed
      legal and due diligence costs (if any) + [cash flow year 1 / (1+Target
      IRR)1] + [cash flow year 2 / (1+Target IRR) 2] + ... + [cash flow year n
      / (1+Target IRR) n]

The current applicable reset index at the time of acquisition will be used for
purposes of estimating future annual interest revenues and expenses. In
addition, the minimum Debt Service Coverage Ratio for each Target Investment
shall be 1.10. The Advance Leverage Ratio shall not exceed seventy-five percent
(75%) for any Target Investment. An investment shall not be deemed a Target
Investment if it does not meet the criteria for Target Investments set forth in
this Agreement.

            D. The Partnership shall conduct its acquisitions and operations so
as not to adversely affect the ability of Crescent Real Estate Equities Company,
an indirect owner of Crescent, and Capstead Mortgage Corporation, an indirect
owner of Capstead, to qualify as real estate investment trusts under Section 856
of the Code and so as to eliminate or minimize any additional taxes under
Sections 857 or 4981 or otherwise to which they could become subject.

            E. The Partners acknowledge and agree that, in determining whether
to approve investments to be made by the Partnership, the Partners shall
consider whether the investment is suitable in light of (i) the Partnership's
exposure to credit risk, (ii) the degree of diversification of the Target
Investments by property type, borrower and geographic region and (iii) the
Partnership's exposure to interest rate risk and the degree to which the
Partnership is able to hedge such risk.

Section 2.2 Powers

      Subject to all of the terms, covenants, conditions and limitations
contained in this Agreement or the Master Agreement, the Partnership shall have
full power and authority to do any and all acts and things necessary,
appropriate, proper, advisable, desirable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, full power and authority, directly or through its ownership interest
in other entities, to enter into, perform and carry out contracts of any kind,
borrow money and provide guarantees in connection with a borrowing by or other
transaction involving an entity in which the Partnership has a direct or
indirect interest.

                                  ARTICLE III
                      CAPITAL COMMITMENTS AND CONTRIBUTIONS

Section 3.1 Total Committed Capital

            The total Capital Commitments to the Partnership shall equal One
Hundred Million Dollars ($100,000,000). No additional Partnership Interests may
be offered, sold or issued by the Partnership after the date hereof.

                                     - 9 -


Section 3.2 Capital Contributions of the Partners

            A. The General Partner is hereby admitted as the general partner of
the Partnership. The name and address of the General Partner are as set forth in
Exhibit A hereto. The General Partner shall not make any Capital Contribution to
the Partnership.

            B. Each of the Persons listed in Exhibit A as a Limited Partner is
hereby admitted as a limited partner of the Partnership. The name, address,
Capital Commitment and Percentage Interest of each Limited Partner are set out
in Exhibit A hereto.

            C. At any time after the Original Closing Date, the Limited Partners
shall make Capital Contributions from time to time on the date specified by the
General Partner in a written notice requesting the same (a "Takedown Notice").
Each Takedown Notice shall describe the proposed use of the funds requested and
shall specify the date on which the Capital Contribution is due. Each Takedown
Notice also shall indicate the aggregate amount being drawn and the amount of
each Limited Partner's Capital Contribution in respect thereof. The date
specified for the payment of the requested Capital Contributions shall not be
less than three (3) Business Days after the Takedown Notice is deemed delivered
in accordance with Section 14.2 hereof.

            D. Capital Contributions shall be requested from all Limited
Partners on the basis of their relative Capital Commitments. Capital
Contributions shall be payable in cash; provided, however, that Crescent Capital
may pay its Capital Contributions in cash or by contributing certain of its
existing investments that meet the criteria for Target Investments. Any such
contributed investments shall be valued at Crescent Capital's Adjusted Cost,
determined as of the date that the Target Investment is contributed to the
Partnership by Crescent Capital.

            E. If at any time or from time to time after all Capital Commitments
have been called and paid, the General Partner determines that the Partnership
requires additional capital to satisfy the Partnership's obligations to third
parties, the General Partner may request Additional Capital Contributions from
the Limited Partners. Any Additional Capital Contributions shall be called on a
pro rata basis, based upon the Limited Partners' total Capital Contributions as
of the date on which the Additional Capital Contributions are requested by the
General Partner. In the event that a Limited Partner fails to make an Additional
Capital Contribution when due (the "Declined Additional Capital Contribution"),
the General Partner shall send a written notice to any contributing Limited
Partner informing such Limited Partner of its right to make a loan to the
Partnership in the amount of such Declined Additional Capital Contribution and
in addition that the Additional Capital Contribution made by such contributing
Limited Partner shall also be converted into a loan to the Partnership from such
contributing Limited Partner. Any loan made by a Limited Partner to the
Partnership shall accrue interest at the lesser of the Prime Rate plus five
percent (5%) per annum and the maximum interest rate permitted by applicable law
and shall be made on such other terms as shall be agreed by the General Partner
and the lending Limited Partner at such time.

                                     - 10 -



            F. To the extent that Capital Contributions (excluding Additional
Capital Contributions) are not used to acquire investments or to fund the
Minimum Monthly Management Fee or other expenses of the Partnership within
forty-five (45) calendar days of the payment date specified in the Takedown
Notice calling for such Capital Contributions, the General Partner shall cause
the Partnership to return to the Limited Partners the amount of the unused
Capital Contributions (the "Unused Capital Contributions"), which amounts shall
(as of the date such return of Unused Capital Contributions is made) be deemed
to reduce the amount of Capital Contributions made by such Limited Partners and
correspondingly increase the amounts of such Limited Partners' unpaid Capital
Commitments. All amounts returned in accordance with this Section 3.2.F shall be
distributed to the Limited Partners based upon the amount of such Capital
Contributions made by each Limited Partner.

            G. The General Partner may cause the Partnership to invest Capital
Contributions in Short-Term Investments pending use.

Section 3.3 Failure to Make Required Capital Contributions

            A. Upon any Limited Partner's failure to make any installment of its
Capital Commitment or any Additional Capital Contributions when due, the
Advisory Committee members appointed by the non-defaulting Limited Partner may
cause the General Partner to cause the Partnership to exercise, on notice to
that defaulting Limited Partner (the "Delinquent Limited Partner"), one or more
of the following remedies:

                    (1)  taking such action (including court proceedings), at
                         the cost and expense of the Delinquent Limited Partner,
                         as the General Partner may deem appropriate to obtain
                         payment by the Delinquent Limited Partner of the
                         portion of the Delinquent Limited Partner's Capital
                         Commitment and/or Additional Capital Contribution that
                         is in default, together with interest thereon from the
                         date that the payment was due until the date that it is
                         made, at a rate per annum equal to the lesser of (A)
                         the maximum rate permitted by applicable law and (B)
                         the Prime Rate plus five percent (5%), plus costs
                         incurred by the Partnership or the General Partner in
                         collecting or attempting to collect amounts due,
                         including reasonable attorney's fees and expenses;

                    (2)  exercising the rights of a secured party under the
                         Uniform Commercial Code of Delaware, as more fully set
                         forth in Section 3.3.B below; or

                    (3)  exercising any other rights and remedies available at
                         law or in equity or under this Agreement.

            B. Each Limited Partner hereby grants to the Partnership, as
security for the payment of all Capital Contributions and Additional Capital
Contributions that such Limited Partner is required to make, a security interest
in and a general lien on such Limited Partner's Partnership Interest and the
proceeds thereof, all under the Uniform

                                     - 11 -


Commercial Code of Delaware (the "UCC"). On any default in the payment of a
Capital Contribution or Additional Capital Contribution, the Partnership is
entitled to all the rights and remedies of a secured party under the UCC with
respect to the security interest granted in this Section 3.3.B. Each Limited
Partner shall execute and deliver to the Partnership all other instruments that
the General Partner may request to effectuate and carry out the preceding
provisions of this Section 3.3.B. This Agreement or a photographic, or other
copy hereof may serve as a financing statement. Each Partnership Interest shall
be a security governed by Article 8 of the UCC, and the General Partner, on
behalf of the Partnership, shall register the Partnership as a registered owner
for purposes of Article 8-301 of the UCC upon each original issue or Transfer of
any Partnership Interest.

Section 3.4 Additional Funding

      If the Partnership requires funds for any Partnership purpose in excess of
any other funds determined by the General Partner to be available to the
Partnership, the General Partner (i) may cause the Partnership to borrow such
funds from third parties, (ii) may cause the Partnership to borrow such funds
from the General Partner at the Prime Rate plus five percent (5%) (or, if less,
the maximum rate permitted by applicable law), or (iii) may obtain such funds
through Additional Capital Contributions from one or more Limited Partners as
provided in Section 3.2.E hereof.

Section 3.5 Withdrawal of Capital

      A Limited Partner shall not be entitled to withdraw any part of such
Limited Partner's Capital Account or to receive any distribution from the
Partnership, except as provided in this Agreement.

Section 3.6 Additional Capital Contributions

      Except as provided in Section 3.2.E above, no Limited Partner shall be
required to make any Capital Contribution (other than the Additional Capital
Contribution as provided in Section 3.2.E) to the Partnership in excess of its
Capital Commitment.

Section 3.7 Interest on Capital Contributions

      No interest shall be due from the Partnership on any Capital Contribution
of any Limited Partner.

                                   ARTICLE IV
                                  DISTRIBUTIONS

Section 4.1 Distribution Policy

            A. Except as otherwise provided in this Section 4.1 and subject to
the availability of cash after paying Partnership Expenses and setting aside
appropriate reserves for reasonably anticipated liabilities, obligations and
commitments of the Partnership, the General Partner shall cause Net Cash Flow to
be distributed to the

                                     - 12 -



Limited Partners within fifteen (15) calendar days following the end of any
calendar month.

            B. All distributions of Net Cash Flow shall be made to the Limited
Partners as follows:

               (1)   First, one hundred percent (100%) to the Limited Partners,
                     in proportion to their Percentage Interests, until Capstead
                     has received distributions pursuant to this Section
                     4.1.B(1) in amount sufficient to achieve an internal rate
                     of return equal to _____ percent (___%);

               (2)   Second, _____ percent (___%) to Crescent Capital and _____
                     percent (___%) to Capstead until Capstead has received
                     distributions pursuant to Section 4.1.B(1) and this Section
                     4.1.B(2) in an amount sufficient to achieve an internal
                     rate of return equal to _____ percent (___%); and

               (3)   Thereafter, _____ percent (___%) to Crescent Capital and
                     _____ percent (___%) to Capstead.

            C. Any proceeds from the repayment of investments or from any other
source that are not reinvested shall be distributed in accordance with the
distribution provisions set forth in Section 4.1(B) above, subject to such
reasonable reserves as may be established in the discretion of the General
Partner.

            D. For purposes of Section 4.1.B, "internal rate of return" shall be
defined and computed as follows:

      The internal rate of return is defined as the discount rate at which the
      present value of all distributions of Net Cash Flow to Capstead equals the
      present value of all Capital Contributions made by Capstead. The internal
      rate of return shall be a cumulative calculation computed monthly
      (annualized using a factor of 12). The calculation shall be computed by
      the General Partner commencing with the first day of the Investment Period
      and ending on the date on which the Partnership is dissolved.

Section 4.2 Distributions Upon Liquidation

      Liquidating proceeds shall be distributed to the Limited Partners in
accordance with Section 12.2 below.

                                    ARTICLE V
                                   ALLOCATIONS

Section 5.1 Allocations of Profits and Losses - General

            A. The terms "net profits" and "net losses" of the Partnership shall
mean the net profits or net losses of the Partnership as determined in
accordance with Regulations section 1.704-1(b)(2)(iv).

                                     - 13 -



            B. After giving effect to the special allocations set forth below in
this Article V, the Partnership's net profits and net losses shall be allocated
among the Partners in each taxable year (or portion thereof) in a manner so as
to cause the Adjusted Capital Account balance of each Partner to equal, to the
maximum extent possible, the amount that would be payable to such Partner (or
for which such Partner would be liable to the Partnership) if the Partnership
(i) sold the assets of the Partnership for an amount equal to their respective
Book Values (or, in the case of any asset subject to a liability for which the
creditor's right is limited to such asset, the amount of such liability, if
greater than the Book Value of such asset, (ii) paid off all outstanding debts
and liabilities of the Partnership, and (iii) distributed the net proceeds as
provided in Section 4.1.B hereof.

            C. The Partners hereby acknowledge that it is their intent that,
prior to a distribution of liquidating proceeds pursuant to Section 12.2, the
positive Capital Account balance of each Partner shall be equal to the amount
such Partner would receive if such liquidating proceeds were distributed as
provided in Section 4.1.B, and that the allocations set forth in Section 5.1.B
above are intended and shall be interpreted, to the maximum extent possible, to
accomplish this result. In no event shall Section 4.1.B or 4.1.C be interpreted
to allow a modification of an allocation of net profits, net losses or any item
thereof with respect to a taxable year for which the federal income tax return
has already been filed with the IRS, unless such modification has been consented
to by each of the Partners.

Section 5.2 Book/Tax Differences

      Notwithstanding anything to the contrary contained in this Article V, any
portion of any income, gain, loss or deduction with respect to property revalued
by the Partnership pursuant to Regulations section 1.704-1(b)(2)(iv)(f) shall,
solely for tax purposes, be allocated among the Partners in accordance with Code
section 704(c) and Regulations section 1.704-3 so as to take account of the
variation, if any, between the adjusted tax basis of such property to the
Partnership and its fair market value at the time of the revaluation.

Section 5.3 Nonrecourse Debt Allocations

      Notwithstanding anything to the contrary contained above in this Article
V, the Partnership shall comply with Regulations section 1.704-2, as amended,
with respect to the allocation of deductions and the chargeback of minimum gain
on nonrecourse debts of the Partnership. For purposes of allocating Partnership
nonrecourse liabilities among the Partners pursuant to Regulations section
1.752-3, the Partners' interests in Partnership profits shall be determined
based on their respective Percentage Interests.

Section 5.4 Limitation on Loss Allocations; Qualified Income Offset

      Notwithstanding anything to the contrary contained in Section 5.1 hereof,
no Partner shall be allocated net losses which would cause or increase a deficit
balance in its Capital Account in excess of any actual or deemed obligation of
such Partner to restore deficits (as defined in Regulations section
1.704-1(b)(2)(ii)(c)). If any Partner shall receive with respect to the
Partnership an adjustment, allocation or distribution in the nature described in
Regulations section 1.704-1(b)(2)(ii)(d)(4)-(6) which causes or increases a
deficit in such Partner's Capital

                                     - 14 -



Account in excess of any actual or deemed obligation of such Partner to restore
deficits (as defined in Regulations section 1.704-1(b)(2)(ii)(c)), such Partner
shall be allocated items of income and gain in an amount and manner as will
eliminate such deficit balance as quickly as possible; it being intended that
this Section 5.4 shall constitute a "qualified income offset" within the meaning
of Regulations section 1.704-1(b)(2)(ii)(d)(3).

Section 5.5 Transfer During Year

      In the event of the Transfer of all or any part of a Partnership Interest
(in accordance with the provisions of this Agreement) at any time other than the
end of a fiscal year, the share of income or loss (in respect of the Partnership
Interest so Transferred) shall be allocated between the transferor and the
transferee in the same ratio as the number of days in such fiscal year before
and after such Transfer. The provisions of this Section 5.5 shall not apply to
any profit or loss attributable to a sale or other disposition of all or
substantially all of the Partnership's assets, or to other extraordinary
non-recurring items. Such profit and loss shall be allocated to the owner of the
Partnership Interest as of the date of closing of the sale or other disposition,
or, with respect to other extraordinary non-recurring items, the date the profit
is realized or the loss is incurred, as the case may be.

                                   ARTICLE VI
                      MANAGEMENT AND OPERATIONS OF BUSINESS

Section 6.1 Powers of General Partner

            A. Except as otherwise expressly provided in this Agreement,
including without limitation the provisions of Section 6.3 of this Agreement,
which require the prior approval of the Advisory Committee for certain actions,
the General Partner shall be vested with the full, exclusive and complete right,
power and discretion to operate, manage and control the affairs of the
Partnership and to make all decisions affecting the affairs of the Partnership.
Subject to the terms of this Agreement and to limitations imposed by law,
including, without limiting the foregoing, the Act, and provided the same shall
not be prohibited under this Agreement, the General Partner shall have full
power and authority to do all things and perform all acts specified in this
Agreement or otherwise deemed necessary or desirable by it to conduct the
business of the Partnership, to exercise all Partnership powers set forth in
Section 2.2 hereof and to effectuate the Partnership purposes set forth in
Section 2.1 hereof.

            B. Among other matters, the General Partner shall be responsible for
(i) identifying investment opportunities for the Partnership, (ii) making
recommendations regarding prospective investments and divestitures by the
Partnership and providing underwriting and other documentation with respect
thereto, (iii) managing the Partnership's portfolio of investments, (iv)
identifying, negotiating and entering into authorized financing and hedging
arrangements on behalf of the Partnership, (v) entering into authorized
transactions and agreements on behalf of the Partnership, and (vi) overseeing
the general administration of the Partnership. The General Partner shall have

                                     - 15 -


the authority to delegate any or all of its duties under this Section 6.1.B to
any of its Affiliates, without the consent of any other Partner.

            C. It shall be an objective of the Partnership to utilize leverage
prudently in an effort to achieve maximum returns on its investments.

Section 6.2 Advisory Committee

            A. The Partnership shall have an advisory committee to oversee the
operations of the Partnership (the "Advisory Committee"). The Advisory Committee
shall consist of four (4) members. Crescent Redtail and Capstead each shall be
entitled to appoint, from time to time, two of the members of the Advisory
Committee. The initial Crescent Redtail representatives will be ______________
and _____________. The initial Capstead representatives will be ______________
and ______________. Any Advisory Committee member appointed by Crescent Redtail
may be removed and replaced by Crescent Redtail (and only by Crescent Redtail)
for any reason or no reason. Any Advisory Committee member appointed by Capstead
may be removed and replaced by Capstead (and only by Capstead) for any reason or
no reason.

            B. Crescent Redtail and Capstead shall fill any vacancy created by
the departure of their respective Advisory Committee members within ten (10)
Business Days following the date on which the vacancy occurs.

            C. Except as otherwise expressly provided in this Agreement, the
Advisory Committee shall have no power to vote, approve, disapprove or otherwise
influence the management of the Partnership.

            D. Members of the Advisory Committee shall be entitled to receive on
at least a monthly basis information regarding the investments and operations of
the Partnership and shall meet (in person or telephonically) at least once every
three (3) months to discuss matters relating to the Partnership. The times and
locations of such meetings shall be determined by the members of the Advisory
Committee in their sole discretion. The Advisory Committee also shall hold
special meetings as required to consider Major Decisions in a timely manner.
Members of the Advisory Committee shall consult with and receive voting
instructions from the Partners they represent prior to making any Major Decision
and shall notify the General Partner, who shall notify the Partners, in writing
of actions taken by the Advisory Committee within five (5) Business Days after
any such action has been taken.

            E. Notice of all Advisory Committee meetings shall be given to each
member not less than five (5) calendar days before the date of such meeting.
Notice of any meeting may be waived in writing, either before or after the
meeting and shall be deemed to be waived by any member in attendance. Members of
the Advisory Committee may vote and participate in meetings in person, by proxy
or delegate, or by means of conference telephone or similar communications
equipment.

            F. Any action that may be taken at a meeting of the Advisory
Committee may be taken without a meeting, if a consent in writing setting forth
the action so taken is signed and delivered to the General Partner by all of the
Advisory

                                     - 16 -



Committee members. Any such unanimous written consent of the Advisory Committee
members shall be fully effective and notice of such written consent shall be
provided to all Partners as soon as reasonably practicable after the consent has
been duly executed.

            G. The Partnership shall reimburse each Advisory Committee member
for his or her reasonable out-of-pocket expenses incurred in connection with the
member's duties relating to the proceedings of the Advisory Committee.

            H. No member of the Advisory Committee shall, except as required by
law, owe any fiduciary duty to the Partnership or any of the Partners in
connection with such member's discharge of his or her responsibilities as a
member of the Advisory Committee. Neither the Advisory Committee nor any member
of the Advisory Committee shall have the power to bind or act for or on behalf
of the Partnership in any manner. In no event shall a member of the Advisory
Committee be considered a general partner of the Partnership by agreement,
estoppel, or otherwise.

Section 6.3 Major Decisions Requiring Unanimous Approval of the Advisory
Committee Members

      Notwithstanding the provisions of Section 6.1, the following major
decisions relating to the Partnership shall require the unanimous approval of
the Advisory Committee before becoming effective: (i) the bifurcation of
investments, (ii) the sale or other disposition of investments, (iii) the
conversion of the Partnership into a different legal form, including, but not
limited to, a real estate investment trust, (iv) the incurrence of indebtedness
or entrance into hedging arrangements and the terms thereof, (v) the approval of
each annual budget of the Partnership, (vi) the engagement or replacement of the
Partnership's audit firm, (vii) the sale or other Transfer by Crescent or
Capstead of any portion of its Partnership Interest to an entity that is not its
Affiliate (other than in connection with a Change In Control), (viii) the sale,
merger or other business combination of the Partnership and (ix) the replacement
of the General Partner. Prior to approving or declining to approve any of the
aforementioned actions, the Advisory Committee shall be provided (y) any
material information that is in the possession of or reasonably attainable by
the General Partner and that would assist the Advisory Committee in rendering a
decision in respect of such action and (z) a recommendation from the General
Partner regarding such action. The Advisory Committee shall notify the General
Partner of the approval or disapproval of any action within five (5) Business
Days of the Advisory Committee's receipt of the General Partner's recommendation
and the other material regarding such action.

Section 6.4 Certificate of Limited Partnership

      To the extent that such action is determined by the General Partner to be
necessary or appropriate, the Partnership shall file amendments to and
restatements of the Certificate and do all things necessary or appropriate to
maintain the Partnership as a limited partnership under the laws of the State of
Delaware and each other jurisdiction in which the Partnership may elect to do
business or own property. The General Partner shall not be required, before or
after filing, to deliver or mail a copy of the Certificate or any amendment
thereto to any Limited Partner.

Section 6.5 Investment Period

                                     - 17 -



      The Investment Period shall commence on the earlier to occur of (i) the
closing of the Partnership's initial investment and (ii) the sixtieth (60th)
calendar day after the date on which the Certificate is filed with the Secretary
of State of the State of Delaware. The Investment Period shall end on the second
anniversary of the closing of the Partnership's initial investment; provided,
however, that the Investment Period shall end eighteen (18) months following the
closing of the Partnership's initial investment if all of the Capital
Commitments to the Partnership shall have been paid as of such date and the
Partnership is Fully Invested. The Investment Period for the Partnership may be
extended upon the mutual agreement of the Formation Partners. In the event the
Partnership is not Fully Invested upon the termination of the Investment Period
(as the same may be extended by the Formation Partners), the Limited Partners'
unpaid Capital Commitments shall terminate as of the end of the Investment
Period. Following the termination of the Investment Period, no further
investments or reinvestments shall be made by the Partnership, unless otherwise
agreed to by the Formation Partners.

Section 6.6 Reinvestments and the Reinvestment Period

      The Reinvestment Period shall commence with the closing of the
Partnership's initial investment and end eighteen (18) months thereafter. During
the Reinvestment Period, any amounts received from the repayment of the
principal or sale of an investment shall be reinvested; provided, however, that
any such reinvestment shall be made after the repayment of all related debt and
shall be made or otherwise committed to be made within ninety (90) calendar days
following receipt of any repayment, otherwise such repayment shall be returned
to the Limited Partners, pro rata, in accordance with their respective
Percentage Interests. Notwithstanding the return of any repayment to the Limited
Partners, the Partnership shall remain obligated to reinvest any such amount
during the remaining Reinvestment Period. During the remaining Investment
Period, repayment amounts that have been distributed to the Partners shall be
added back to the Limited Partners' unpaid Capital Commitments and the
Partnership shall not be deemed to be Fully Invested until such time as all such
repayments are reinvested, except where the Advisory Committee determines that
there are no further feasible opportunities for the Partnership to invest in
Target Investments. Any such determination shall be made only with the approval
of at least a majority of the Advisory Committee members, upon recommendation of
the General Partner.

Section 6.7 Remuneration

            A. Except as provided in Section 6.2.G, this Section 6.7 and
elsewhere in this Agreement (including the provisions of Articles IV and V
regarding distributions, payments, and allocations to which they may be
entitled) and except with respect to services rendered by the General Partner,
the Partners and Advisory Committee members shall not be compensated for their
services as such.

            B. The General Partner shall be reimbursed on a monthly basis for
all expenses it incurs pursuant to the provisions of this Agreement in its
capacity as General Partner or otherwise relating to the operation of, or for
the benefit of, the Partnership, including all Partnership Expenses; provided,
however, that the General Partner shall not be reimbursed for ordinary overhead
and operating administrative expenses of the General Partner in connection with
maintaining its offices (including salaries and other

                                     - 18 -



compensation, rent, utilities, routine office equipment expenses and liability
and other insurance premiums).

            C. The Partnership shall pay the Minimum Monthly Management Fee to
the General Partner. The Partnership also shall pay to the General Partner an
additional monthly management fee, which amount shall be calculated by
multiplying the cumulative weighted average daily Capital Contributions
(calculated consistently with a 30/360 convention) made to the Partnership by an
annualized rate of ____ basis points, and subtracting therefrom cumulative
amounts previously paid to the General Partner in respect of its services
(including previous cumulative payments of the Minimum Monthly Management Fee
and the additional monthly management fee paid during such previous twelve (12)
month period). The Minimum Monthly Management Fee and the additional monthly
management fee shall accrue daily and shall be paid to the General Partner in
arrears on the first day of each calendar month of the fiscal year (except in
the first year of the Partnership, in which case such payments shall commence on
the first day of the calendar month following the Original Closing Date), based
upon information in existence as of the last day of the immediately preceding
calendar month. The Partners acknowledge and agree that the General Partner
shall be entitled to restructure the Minimum Monthly Management Fee and any
additional management fee as a priority special distribution to the General
Partner, if such restructuring would not place Capstead in a less favorable
economic position than it would be in if the Minimum Monthly Management Fee and
any additional management fee were not treated as a priority special
distribution.

Section 6.8 Partnership Expenses

      The Partnership shall bear its own funding, administrative and transaction
costs (collectively, the "Partnership Expenses"). The General Partner shall
prepare, for unanimous approval by the Advisory Committee, an annual budget for
the Partnership's administrative expenses, which shall include the annual
management fee, franchise taxes and third-party payments for audit, tax
preparation, non-transaction-related legal fees and investor reporting expenses.
Transaction costs shall include third-party payments for legal, due diligence
and other costs, including the General Partner's out-of-pocket travel and other
expenses. The General Partner's out-of-pocket travel expenses shall not exceed
$7,500 per transaction, unless approved unanimously by the Advisory Committee.
Crescent and Capstead shall each bear its own expenses incurred in connection
with the negotiation and drafting of this Agreement and the Master Agreement.

Section 6.9 Partnership Opportunities

      Neither the General Partner nor Capstead shall pursue a Target Investment
unless such Target Investment is first offered to the Partnership and the
Partnership determines not to pursue such investment. Such opportunities shall
be presented pursuant to Section 6.10 hereof.

      Crescent and Capstead hereby agree that, throughout the term of this
Agreement, each Limited Partner shall be entitled to invest in and maintain for
its own account or jointly with other Persons, and without restriction, an
active portfolio of B-notes, first mortgages, subordinated notes, mezzanine
loans and bridge loans, or participations thereof, that do not meet

                                     - 19 -



the criteria of Target Investments. Crescent and Capstead further agree that,
from time to time each Limited Partner shall be entitled to, but shall not have
an obligation to, offer to the Partnership opportunities to invest, or
participate, in assets that do not meet the criteria of Target Investments.

Section 6.10 Approval Process for Investments

            A. Before the Partnership shall be permitted to acquire an
investment that is proposed by the General Partner, the General Partner shall
submit a written proposal to Capstead recommending the acquisition of the
investment by the Partnership. The General Partner shall provide Capstead such
documentation relating to the proposed investment as Capstead shall reasonably
request. With respect to investments in Target Investments, the General Partner
shall be permitted to submit a recommendation to Capstead for its approval prior
to obtaining the approval of the General Partner's investment committee (or
other Persons authorized by the General Partner to approve its investment
decisions). Such written recommendation shall evidence the approval of the
Target Investment by at least two members of the General Partner's investment
committee (or other Persons authorized by the General Partner to approve its
investment decisions), as such individuals may be identified from time to time.
Within three (3) Business Days following receipt from the General Partner of its
written recommendation to acquire a Target Investment, Capstead shall notify the
General Partner in writing of its decision to accept or reject such
recommendation. If Capstead does not approve the recommended investment,
Crescent and its Affiliates shall have the right to acquire the investment for
its own account, or jointly with another Person on terms not materially
different from those presented to the Partnership. If Capstead notifies Crescent
in writing of its approval of a recommended Target Investment, Crescent shall
have five (5) Business Days following such notification from Capstead to submit
and receive all necessary approvals from Crescent for the Partnership to proceed
with such investment.

            B. With respect to the recommendation of investments that are not
Target Investments, the General Partner shall provide Capstead formal notice
that such investment has been approved by the General Partner's investment
committee (or other Persons authorized by the General Partner to approve its
investment decisions) at the time that the General Partner makes a written
recommendation in favor of the investment. Within five (5) Business Days
following receipt from the General Partner of such written recommendation and
notice of approval, Capstead's designees to the Advisory Committee shall notify
the General Partner in writing of the decision to accept or reject such
recommendation. If the Capstead designees do not approve the investment,
Crescent and its Affiliates shall have the right to acquire the investment for
its own account or jointly with another Person on terms not materially different
from those presented to the Partnership.

            C. The parties hereto agree that, with respect to an investment to
be acquired by Crescent or its Affiliates, an increase in the Target IRR in an
amount that is less than four percent (4%) shall not be deemed a material
difference in the terms of the proposed acquisition.

                                     - 20 -



      Any failure by the Capstead designees to provide notice within the time
period provided herein shall be deemed to indicate such designee's rejection of
the proposed investment, after which Crescent or its Affiliates may individually
pursue such proposed investment without recourse under this Agreement.

            D. If Capstead wishes to present an investment opportunity to the
Partnership, Capstead shall submit a written proposal to the General Partner
recommending the acquisition of the investment by the Partnership. Capstead
shall provide the General Partner such documentation relating to the proposed
investment as the General Partner shall reasonably request. Within three (3)
Business Days following receipt from Capstead of its written recommendation to
acquire a Target Investment, the General Partner shall notify Capstead in
writing of its decision to accept or reject such recommendation. If the General
Partner does not approve the recommended investment, Capstead and its Affiliates
shall have the right to acquire the investment for its own account, or jointly
with another Person, on terms not materially different from those presented to
the Partnership.

            E. With respect to the recommendation of investments that are not
Target Investments, Capstead shall provide the General Partner formal notice
that such investment has been approved by Capstead's investment committee (or
other Persons authorized by Capstead to approve its investment decisions) at the
time that Capstead makes a written recommendation in favor of the investment.
Within five (5) Business Days following receipt from Capstead of such written
recommendation and the notice of approval, the General Partner shall notify
Capstead in writing of its decision to accept or reject such recommendation. If
the General Partner does not approve the investment, Capstead and its Affiliates
shall be entitled to acquire the investment for its own account or with another
Person on terms not materially different from those presented to the
Partnership.

            F. The parties hereto agree that, with respect to an investment to
be acquired by Capstead or its Affiliates, an increase in the Target IRR in an
amount that is less than four (4%) shall not be deemed a material difference in
the terms of a proposed acquisition.

            G. Any failure by Crescent to provide notice of its decision to
accept or reject a recommendation in the time period provided herein shall be
deemed to indicate Crescent's designee's rejection of the proposed investment,
after which Capstead or its Affiliates may individually pursue such proposed
investment without recourse under this Agreement.

Section 6.11 Capstead's Veto Right

      If Capstead fails to accept a proposed Target Investment as contemplated
by Section 6.10 hereof ________ times during any consecutive twelve (12)-month
period, Crescent shall have the immediate right to terminate the Master
Agreement and Crescent shall no longer be obligated to offer any Target
Investments to the Partnership. Capstead's failure to approve an investment that
is not a Target Investment, or an in-kind contribution (other than cash or cash
equivalents) to

                                     - 21 -



the Partnership, shall not be considered in connection with any limitation set
forth in this Section 6.11.

Section 6.12 Capstead's Unilateral Right to Foreclose on Certain Investments

            A. Capstead shall have the unilateral right to foreclose on any
investment held by the Partnership (excluding any investment that is secured by
the equity interest in any Person) that is in default under the terms of a
mortgage, deed of trust or similar instrument where real property secures the
indebtedness to which the investment is subject (each, a "Mortgage"). The
"unilateral right to foreclose," as referenced herein shall mean, with respect
to a defaulted investment that is debt secured by a Mortgage, the right to (i)
make the sole determination to commence foreclosure proceedings, (ii) establish
the bid price upon foreclosure on the investment and (iii) make the sole
determination as to the disposition of any third party disputes related to the
foreclosure. Upon commencement of foreclosure, the General Partner shall assume
all other ministerial and procedural rights and duties related to the
foreclosure proceedings. For purposes of determining whether a unilateral right
to foreclose exists, an investment shall be in default if a default exists under
the applicable documentation and one or more scheduled payments on the Mortgage
to which such investment is subject is not paid within thirty (30) days after
the date on which such payment is due and such nonpayment shall have not been
cured prior to the time that notice of default is given by the General Partner.

            B. At any time after an investment that is secured by a Mortgage
goes into default, either Crescent Capital or Capstead may submit an offer to
purchase the defaulted investment from the Partnership at a price and on the
terms specified by the offering Partner (which price shall include the amount
necessary to repay indebtedness relating to the defaulted investment being
purchased) and the non-offering Partner shall have the right to authorize the
General Partner to accept such offer on behalf of the Partnership, or the
non-offering Partner may submit an offer to purchase the defaulted investment
from the Partnership at the price and on the terms offered by the offering
Partner, which offer the General Partner shall be required to accept. Either
Crescent Capital or Capstead shall have the right to consummate the purchase of
the defaulted investment as set forth herein prior to the consummation of the
foreclosure on such investment; provided, however, that any such purchase shall
be conditioned upon the purchasing Partner's satisfaction of the Partnership's
outstanding indebtedness relating to the defaulted investment. The purchase
price of any defaulted investment shall be paid to the Partnership by the
purchasing Partner in cash upon the consummation of the closing of the purchase,
which closing shall occur on such date as shall be determined by the General
Partner and the purchasing Partner.

Section 6.13 Indemnification

            A. To the fullest extent permitted by law but limited to the assets
of the Partnership, the Partnership shall indemnify the General Partner
(including the owners, officers, partners, and agents of the General Partner)
(each, an "Indemnified Party" and together, the "Indemnified Parties"), and save
and hold each Indemnified Party harmless from and in respect of (i) all claims,
actions, demands or threats thereof,

                                     - 22 -



against the Partnership or such Indemnified Party that arise out of, or in any
way relate to the Partnership, the business of the Partnership or the assets of
the Partnership, and any losses or damages resulting therefrom, including
amounts paid in settlement or compromise of any such claim, action, demand or
threat thereof, and (ii) all fees, costs, and expenses, including reasonable
attorneys' fees, incurred in connection with, or resulting from, any such claim,
action, demand or threat thereof; provided, however, that this indemnification
shall not extend to acts of gross negligence, breach of fiduciary duty, a
material, uncured breach of this Agreement or the Master Agreement or willful
misconduct of such Indemnified Party. This indemnity is intended to apply
regardless of the negligence of any Indemnified Party.

            B. Each member of the Advisory Committee shall be entitled, to the
fullest extent permitted by law, to exculpation from liability and
indemnification from the assets of the Partnership with respect to the
activities of such member on the Advisory Committee, if such member's activities
are carried out in good faith. To the fullest extent permitted by applicable
law, no member of the Advisory Committee shall have any fiduciary duties to the
Partnership or any Partner, but shall be required to act in accordance with the
contractual covenant of good faith and fair dealing.

            C. The right to indemnification conferred in this Section 6.13 shall
be a contract right and shall include the right of each indemnitee to be paid by
the Partnership the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that the payment of such
expenses in advance of the final disposition of a proceeding shall be made only
upon delivery to the Partnership of (i) a written affirmation of the indemnitee
of his or her good faith belief that the standard of conduct necessary for
indemnification by the Partnership pursuant to this Section 6.13 has been met,
and (ii) a written undertaking by or on behalf of the indemnitee to repay all
amounts so advanced if it shall ultimately be determined that the standard of
conduct has not been met.

            D. The Partnership may purchase and maintain insurance, at its
expense, on its own behalf and on behalf of any indemnitee provided for in this
Agreement and of such other Persons as the General Partner shall determine,
against any liability (including expenses) that may be asserted against and
incurred by such Person in connection with the Partnership's activities pursuant
to this Agreement, whether or not the Partnership would have the power to
indemnify such Person against such liability under the terms of this Agreement.
In addition, the Partnership may enter into indemnification agreements with one
or more of the indemnitees pursuant to which the Partnership shall agree to
indemnify such indemnitee(s) to the fullest extent permitted by law, and advance
to such indemnitee(s) all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted.

            E. In no event may an indemnitee subject any Limited Partner to
personal liability by reason of the indemnification provisions set forth in this
Agreement.

            F. An indemnitee shall not be denied indemnification in whole or in
part pursuant to this Section 6.13 because such indemnitee has an interest in
the

                                     - 23 -



transaction to which the indemnification relates if the transaction otherwise
was permitted by the terms of this Agreement.

            G. The provisions of this Section 6.13 are for the benefit of the
indemnitees, their heirs, successors, assigns, executors and administrators, and
shall not be deemed to create any rights for the benefit of any other Person.
Any amendment, modification or repeal of this Section 6.13 or any provision
hereof shall be prospective only and shall not in any way affect the limitations
of the Partnership's liability to any indemnitee under this Section 6.13 as in
effect immediately prior to such amendment, modification or repeal with respect
to claims arising from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such claims
may arise or be asserted.

Section 6.14 Liability of Certain Parties

            A. Notwithstanding anything to the contrary set forth in this
Agreement, no Limited Partner, Advisory Committee member, nor any officer,
employee or agent of the Partnership or the General Partner acting in such
capacity shall be liable for monetary damages to the Partnership or any Limited
Partner for losses sustained or liabilities incurred as a result of errors in
judgment or of any act or omission unless such Person acted in bad faith.

            B. The General Partner may exercise any of the powers granted to it
by this Agreement and perform any of the duties imposed upon it hereunder either
directly or by or through its officers, employees, and agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by the General Partner in good faith.

            C. Any amendment, modification or repeal of this Section 6.14 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability of any Person to the Partnership and the Partners
under this Section 6.14 as in effect immediately prior to such amendment,
modification or repeal with respect to claims arising from or relating to
matters occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when such claims may arise or be asserted.

Section 6.15 Other Matters Concerning the General Partner

            A. The General Partner may rely, and shall be protected in acting or
refraining from acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties.

            B. In accordance with Section 6.15.A hereof, the General Partner may
consult with legal counsel, accountants, appraisers, management consultants,
investment bankers and other consultants and advisers selected by the General
Partner, and any act taken or omitted to be taken in reliance upon the opinion
of such Persons as to matters which the General Partner reasonably believes to
be within such Person's professional or

                                     - 24 -



expert competence shall be conclusively presumed to have been done or omitted in
good faith.

            C. The General Partner shall be in breach of its obligations to the
Partnership upon a final determination by a court of competent jurisdiction or
an admission by the General Partner that it has (i) committed a material breach
of this Agreement or the Master Agreement, (ii) engaged in willful misconduct,
(iii) acted in bad faith, (iv) beached its fiduciary duty to the Partners, or
(v) managed the Partnership in a grossly negligent manner. In the event a court
determines that any such breach can be remedied, or if the Formation Partners
otherwise mutually agree upon a remedy, the General Partner shall have a
reasonable period (to be agreed by the Formation Partners) in which to cure such
breach. In the event a court determines that a breach cannot be remedied, or if
the General Partner fails to cure the breach within the agreed-upon time period
or a time period established by the court, the Advisory Committee shall remove
the General Partner and elect a replacement General Partner by unanimous
consent.

            D. In the event the General Partner and/or its Affiliates cease to
own and control at least fifty-one percent (51%) of the Partnership Interest
that was initially issued to the General Partner and/or its Affiliates, the
General Partner shall be removed and the Capstead Advisory Committee members
shall elect a replacement General Partner, unless the Capstead Advisory
Committee members elect to waive such removal right.

Section 6.16 Title to Partnership Assets

      Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets shall be held in the name of the Partnership.

Section 6.17 Reliance by Third Parties

      Any Person dealing with the Partnership shall be entitled to assume that
the General Partner has full power and authority to acquire, sell or otherwise
deal with the assets of the Partnership and to enter into any contracts on
behalf of the Partnership. Each and every certificate, document or other
instrument executed on behalf of the Partnership by the General Partner shall be
conclusive evidence in favor of any and every Person relying thereon or claiming
thereunder that (i) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full force and
effect, (ii) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Partnership, and (iii) such certificate, document or instrument was duly
executed and delivered in accordance with the terms and provisions of this
Agreement and is binding upon the Partnership.

                                   ARTICLE VII
                       RIGHTS AND OBLIGATIONS OF PARTNERS

                                     - 25 -



Section 7.1 Limitation of Liability

      The Limited Partners shall have no liability under this Agreement except
as expressly provided in this Agreement, including Section 9.4 hereof, or under
the Act.

Section 7.2 Management of Business

      No Partner (other than the General Partner or an officer, employee or
agent of the Partnership or the General Partner acting in such capacity) shall
take part in the operation, management or control (within the meaning of the
Act) of the Partnership's business, transact any business in the Partnership's
name or have the power to sign documents for or otherwise bind the Partnership.
The transaction of any such business by the General Partner or any officer,
employee or agent of the Partnership or the General Partner, in their capacity
as such, shall not affect, impair or eliminate the limitations on the liability
of the Limited Partners under this Agreement.

Section 7.3 Duties and Conflicts

            A. Crescent and Capstead hereby acknowledge and agree that, subject
to the right of first offer set forth in Section 6.9 hereof, the Formation
Partners shall not be restricted in their ability to acquire the debt securities
of any entity in which the Partnership invests, so long as such investment would
not be detrimental to the interests of the Partnership. In the event any
Formation Partner and the Partnership acquire debt securities in the same
transaction, all expenses associated with the acquisition shall be allocated
between the Formation Partner and the Partnership on a pro rata basis, based
upon the relative amounts of securities purchased by the Formation Partner and
the Partnership.

            B. The General Partner will commit such time as is reasonably
necessary, in its judgment, to effectively manage the Partnership.

                                  ARTICLE VIII
                     BOOKS, RECORDS, ACCOUNTING AND REPORTS

Section 8.1 Records and Accounting

      The General Partner shall keep or cause to be kept at the principal office
of the Partnership appropriate books and records with respect to the
Partnership's business, including, without limitation, all books and records
necessary to provide to the Partners any information, lists and copies of
documents required to be provided pursuant to the Act.

Section 8.2 Fiscal Year

      The fiscal year of the Partnership shall be the calendar year.

Section 8.3 Financial Statements and Reports

      The General Partner shall cause to be provided to the Limited Partners:

                                     - 26 -



            A. As soon as available, and in any event within ten (10) days after
the end of each month, the unaudited balance sheet as of the end of such period
and the related unaudited statement of income, statement of capital accounts and
statement of cash flows for such period and for the portion of the calendar year
through the end of such period setting forth in each case in comparative form
the figures for the corresponding periods in the previous fiscal year;

            B. As soon as available and in any event within twenty-five (25)
days after the end of each calendar quarter (including the fourth quarter) the
unaudited balance sheet as of the end of such period and the related unaudited
statement of income, statement of capital accounts and statement of cash flows
for such period and the portion of the calendar year through the end of such
period, setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year;

            C. As soon as available and in any event within fifty (50) days
after the end of each calendar year, commencing with the period from inception
of the Partnership to _______________, the financial statements as of the end of
such calendar year, prepared in accordance with generally accepted accounting
principles, including the balance sheets and related statement of income,
statement of capital accounts and statement of cash flows for the Partnership
for such year, setting forth in each case in comparative form the figures for
the previous fiscal year, if applicable, accompanied by the appropriate
financial statement notes and by an opinion thereon of independent certified
public accountants of recognized national standing, which opinion shall not be
qualified as to scope of audit or going concern, and shall state that said
annual financial statements fairly present the financial condition and results
of operations of the Partnership as of the end of, and for, such fiscal year in
accordance with generally accepted accounting principles;

            D. Concurrent with submissions of reports required to be provided by
the Partnership to any lender, a copy of any and all such reports; and

            E. Any additional reports as may reasonably be required to meet
management, financial reporting and/or regulatory requirements of the Limited
Partners.

                                   ARTICLE IX
                                   TAX MATTERS

Section 9.1 Preparation of Tax Returns

      The General Partner shall arrange for the preparation and timely filing of
all returns required of the Partnership for federal, state and local income tax
purposes, and the delivery to the Limited Partners of all tax information
reasonably required by the Limited Partners for federal, state and local income
tax reporting purposes.

Section 9.2 Tax Elections

      The General Partner shall, in its sole and absolute discretion, determine
whether to make any available election (including, without limitation, the
election under section 754 of the Code) or choose any available reporting method
pursuant to the Code or state or local tax law. The

                                     - 27 -



General Partner shall in its sole and absolute discretion have the right to seek
to revoke any such election (including, without limitation, the election under
section 754 of the Code) or change any reporting method.

Section 9.3 Tax Matters Partner

            A. The General Partner shall be the initial "tax matters partner" of
the Partnership for federal income tax purposes. Pursuant to section 6223(c)(3)
of the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address and profits interest of
each of the Partners, provided that such information is provided to the
Partnership by the Partners.

            B. The tax matters partner is authorized, but not required:

                        (1)   to enter into any settlement with the IRS with
                              respect to any administrative or judicial
                              proceedings for the adjustment of Partnership
                              items required to be taken into account by a
                              Partner for income tax purposes (such
                              administrative proceedings being referred to as a
                              "tax audit" and such judicial proceedings being
                              referred to as "judicial review"), and in the
                              settlement agreement the tax matters partner may
                              expressly state that such agreement shall bind all
                              Partners, except that such settlement agreement
                              shall not bind any Partner (i) who (within the
                              time prescribed pursuant to the Code and
                              Regulations) files a statement with the IRS
                              providing that the tax matters partner shall not
                              have the authority to enter into a settlement
                              agreement on behalf of such Partner or (ii) who is
                              a "notice partner" (as defined in section 6231 of
                              the Code) or a member of a "notice group" (as
                              defined in section 6223(b)(2) of the Code);

                        (2)   in the event that a notice of a final
                              administrative adjustment at the Partnership level
                              of any item required to be taken into account by a
                              Partner for tax purposes (a "final adjustment") is
                              mailed to the tax matters partner, to seek
                              judicial review of such final adjustment,
                              including the filing of a petition for
                              readjustment with the Tax Court or the United
                              States Claims Court, or the filing of a complaint
                              for refund with the District Court of the United
                              States for the district in which the Partnership's
                              principal place of business is located;

                        (3)   to intervene in any action brought by any other
                              Partner for judicial review of a final adjustment;

                        (4)   to file a request for an administrative adjustment
                              with the IRS at any time and, if any part of such
                              request is not allowed by the IRS, to file an
                              appropriate pleading (petition or complaint) for
                              judicial review with respect to such request;

                                     - 28 -



                        (5)   to enter into an agreement with the IRS to extend
                              the period for assessing any tax which is
                              attributable to any item required to be taken into
                              account by a Partner for tax purposes, or an item
                              affected by such item; and

                        (6)   to take any other action on behalf of the Partners
                              of the Partnership in connection with any tax
                              audit or judicial review proceeding to the extent
                              permitted by applicable law or regulations.

      The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification set forth in
Section 6.13 of this Agreement shall be fully applicable to the tax matters
partner in its capacity as such.

            C. The tax matters partner shall receive no compensation for its
services. All third party costs and expenses incurred by the tax matters partner
in performing its duties as such (including legal and accounting fees) shall be
borne by the Partnership. Nothing herein shall be construed to restrict the
Partnership from engaging an accounting firm to assist the tax matters partner
in discharging its duties hereunder.

Section 9.4 Withholding

      Each Partner hereby authorizes the Partnership to withhold from or pay on
behalf of or with respect to such Partner any amount of federal, state, local,
or foreign taxes that the General Partner determines that the Partnership is
required to withhold or pay with respect to any amount distributable or
allocable to such Partner pursuant to this Agreement, including, without
limitation, any taxes required to be withheld or paid by the Partnership
pursuant to sections 1441, 1442, 1445, or 1446 of the Code. Any amount paid on
behalf of or with respect to a Partner shall constitute a loan by the
Partnership to such Partner, which loan shall be repaid by such Partner within
ten (10) days after notice from the General Partner that such payment must be
made unless (i) the Partnership withholds such payment from a distribution which
would otherwise be made to the Partner, or (ii) the General Partner determines,
in its sole and absolute discretion, that such payment may be satisfied out of
the available funds of the Partnership which would, but for such payment, be
distributed to the Partner. Any amounts withheld pursuant to the foregoing
clauses (i) or (ii) shall be treated as having been distributed to such Partner.
Each Partner hereby unconditionally and irrevocably grants to the Partnership a
security interest in such Partner's Partnership Interest to secure such
Partner's obligation to pay to the Partnership any amounts required to be paid
pursuant to this Section 9.4 and agrees to take such actions as the General
Partner shall request in order to perfect or enforce the security interest
created hereunder. In the event that a Partner fails to pay any amounts owed to
the Partnership pursuant to this Section 9.4 when due (i.e., ten (10) days after
demand), the Partnership may exercise any and all rights and remedies the
Partnership may have against such Partner, including foreclosing on its security
interest and/or instituting a lawsuit to collect the unpaid amount (together
with interest thereon from the date such amount is due (i.e., ten (10) days
after demand) calculated at five percentage points over the Prime Rate, but not
in excess of the highest rate permitted by law).

                                     - 29 -



                                    ARTICLE X
                        TRANSFER OF PARTNERSHIP INTERESTS

Section 10.1 Restrictions on Transfer of Partnership Interests

      Except as otherwise provided herein, no Partner may Transfer all or any
portion of its Partnership Interest without the prior unanimous written consent
of the Advisory Committee. Notwithstanding the foregoing, each Partner shall be
permitted to Transfer all or any portion of its Partnership Interest to an
Affiliate of such Partner. In addition, any Formation Partner shall be entitled
to Transfer all or any portion of its Partnership Interest to any other
Formation Partner. A Change In Control of a Formation Partner shall not be
deemed a Transfer for purposes of this Agreement. The General Partner shall have
the authority to impose additional limits on Transfers of Partnership Interests
to the extent that the General Partner deems such limitations to be necessary or
desirable in order to ensure that the Partnership will not (a) be treated as a
"publicly traded partnership" within the meaning of Code section 7704 and the
Regulations issued thereunder, (b) be treated as terminated for income tax
purposes under Section 708 of the Code and the Regulations issued thereunder or
(c) become subject to registration under the ICA or any other federal, state or
local securities statutes and the rules and regulations issued thereunder. Any
Transfer of a Partnership Interest shall comply with applicable federal, state
and local securities laws.

Section 10.2 Buy-Sell Rights-Unresolved Deadlock

      If there is an Unresolved Deadlock, any Formation Partner (the "Exercising
Partner") may exercise a buy-sell right by delivering to the other Formation
Partner (the "Non-Exercising Partner") a written notice (the "Notice of
Buy-Sell"), which shall state (a) the price at which the Exercising Partner is
willing to sell its Partnership Interest (the "Buy-Sell Price") and (b) the
other terms on which the Exercising Partner is willing to sell its Partnership
Interest (the "Buy-Sell Terms"). Upon receipt of the Notice of Buy-Sell, the
Non-Exercising Partner shall have the right, in its sole discretion and at such
Non-Exercising Partner's option, to either (a) purchase the Exercising Partner's
Partnership Interest at the Buy-Sell Price and on the Buy-Sell Terms or (b) sell
to the Exercising Partner the Non-Exercising Partner's Partnership Interest at
the Buy-Sell Price and on the Buy-Sell Terms, as adjusted to reflect any
differences in relative distribution rights. The Non-Exercising Partner shall
deliver to the Exercising Partner within fifteen (15) Business Days after
receipt of the Notice of Buy-Sell (the "Election Period"), a written notice of
its election to either purchase the Exercising Partner's Partnership Interest or
to sell to the Exercising Partner the Non-Exercising Partner's Partnership
Interest (the "Buy-Sell Election"). The purchase or sale of such Partnership
Interest shall be consummated no later than thirty (30) Business Days after
receipt by the Exercising Partner of the Buy-Sell Election. If the
Non-Exercising Partner fails to deliver a Buy-Sell Election to the Exercising
Partner within the Election Period, the Non-Exercising Partner shall be deemed
to have given notice of its election to sell all of its Partnership Interest to
the Exercising Partner pursuant to the provisions hereof. If the purchase or
sale of such Partnership Interest is (without breach by the selling Partner) not
consummated as provided herein, the action as to which the Unresolved Deadlock
relates shall be deemed to have been approved if the Partner required to sell
its Partnership Interest pursuant hereto had voted to approve such action, and
shall be deemed to have been disapproved if such selling Partner had voted to
disapprove such action, and in such case, the Unresolved Deadlock will be
resolved in favor of the Partner required to sell its Partnership Interest and
the Partnership

                                     - 30 -



shall continue without interruption. Settlement of a sale pursuant to this
Section 10.2 shall be in cash, to the extent that settlement terms are not
otherwise specified in the Buy-Sell Terms.

Section 10.3 Right of First Refusal - Trigger Event

            A. If a Trigger Event occurs with respect to a Formation Partner and
the Formation Partner notifies the General Partner of the occurrence of the
Trigger Event within twenty (20) Business Days after the Formation Partner has
knowledge of the Trigger Event, such Formation Partner shall be entitled to
Transfer its Partnership Interest in accordance with the provisions of this
Section 10.3. If such Formation Partner does not satisfy the notice requirement
set forth in the immediately preceding sentence, the Formation Partner shall
only be authorized to Transfer its interest in the Partnership with the express
written consent of the General Partner, which consent may be given or withheld
in its reasonable discretion. Following the occurrence of a Trigger Event and a
determination by such Formation Partner that a sale of all or a portion of its
Partnership Interest is necessary or advisable under the circumstances (a
"Proposed Transfer"), in the event that any Formation Partner has a binding,
written offer from any Person to acquire all or a portion of such Formation
Partner's Partnership Interest , such Formation Partner (the "Selling Partner")
shall deliver to the Partnership and the other Formation Partner (the
"Non-Selling Partner") written notice of the material terms of such Proposed
Transfer, including the proposed purchaser thereof, the amount, nature and
payment schedule of the consideration to be received, the conditions, if any,
associated therewith and any other material terms of such offer (an "Offer
Notice"). The Offer Notice shall constitute an irrevocable offer by the Selling
Partner to sell its Partnership Interest (or portion thereof) on the terms of
the Proposed Transfer to the Non-Selling Partner (the "Right of First Refusal"),
except that a purchaser under this Section 10.3 shall have the right to pay cash
in an amount equal to the Fair Market Value of any Non-Cash Consideration (as
hereafter defined).

            B. During the Offer Period, the Non-Selling Partner may elect to
purchase all, but not less than all of the Partnership Interest that is the
subject of the Proposed Transfer by delivering written notice of such election
(an "Election Notice") to the Partnership and the Selling Partner prior to the
expiration of the Offer Period. The failure by the Non-Selling Partner to
deliver an Election Notice during the Offer Period shall be deemed to be an
election by such Partner not to purchase the Partnership Interest subject to the
Proposed Transfer.

            C. If the Non-Selling Partner does not elect to purchase all of the
Partnership Interest (or portion thereof) that is the subject of the Proposed
Transfer, the Selling Partner may Transfer to the purchaser named in the Offer
Notice (the "Third Party Purchaser") all (but not less than all) of the
Partnership Interest (or portion thereof) that is the subject of the Proposed
Transfer on terms and conditions that are not materially different from those
set forth in the Offer Notice; provided, however, that if the Selling Partner
has not consummated the Transfer of such Partnership Interest within ninety (90)
calendar days following the end of the Offer Period (subject to extension in
accordance with Section 10.3.F), all of the restrictions on and conditions to
Transfer contained in this Agreement shall again be in effect with respect to
such Partnership Interest. For purposes of this Section 10.3, a five percent
(5%) reduction in the price at

                                     - 31 -



which a Percentage Interest will be sold shall not be deemed a material
difference in the terms of the Proposed Transfer.

            D. If the consideration for the sale of a Partnership Interest
pursuant to this Right of First Refusal is cash consideration, the purchase
price to be paid by the Non-Selling Partner shall be equal to the total
consideration set forth in the Offer Notice. If the consideration for the
Proposed Transfer consists of consideration that is other than cash
consideration payable in immediately available funds at the closing thereunder
("Non-Cash Consideration") or consists of a combination of cash consideration
and Non-Cash Consideration, the purchase price shall be payable in cash in an
amount equal to the sum of (i) the total of the cash consideration, if any, and
(ii) the Fair Market Value of the Non-Cash Consideration as determined in
accordance with Section 10.3.F hereof.

            E. The purchase of all or any portion of a Formation Partner's
Partnership Interest by the Non-Selling Partner pursuant to this Right of First
Refusal shall be consummated at a closing that shall occur at the principal
business office of the Partnership within twenty (20) Business Days following
the Non-Selling Partner's notification to the Selling Partner of the Non-Selling
Partner's election to exercise its Right of First Refusal, or at such other
place or time as may be mutually acceptable to the parties. At such closing, the
Selling Partner shall Transfer the Partnership Interest being purchased, free
and clear of all liens, claims, encumbrances (other than as a result of this
Agreement or the Master Agreement) and defects in title and duly endorsed for
Transfer to the appropriate purchaser and, in exchange therefor, the purchaser
of such Partnership Interest shall pay the purchase price at such closing by
bank wire transfer of immediately available funds to a bank account designated
in writing by the Selling Partner at least three Business Days prior to such
closing.

            F. In the event that a determination of the fair market value of
Non-Cash Consideration is required pursuant to the Right of First Refusal, the
Selling Partner shall specify in the applicable Offer Notice its good faith
estimate of the fair market value of any Non-Cash Consideration to be paid in
connection with the Proposed Transfer. If the Formation Partners are in
agreement on the estimated fair market value of such Non-Cash Consideration, the
estimate shall be deemed to be the Fair Market Value (the "Fair Market Value")
thereof for purposes of this Agreement. If the Formation Partners do not agree
on the estimated fair market value, each of the Formation Partners shall provide
the other its estimate of the fair market value and any and all materials
reasonably requested by the other Formation Partner in support of the proposed
fair market values. For a period of five (5) Business Days, the Formation
Partners shall negotiate with each other for the purpose of determining the fair
market value of the Non-Cash Consideration that is acceptable to each of them.
If the Formation Partners are unable to agree on a fair market value during such
five (5)-day negotiation period and there is a variance of ten percent (10%) or
less in the estimates of the fair market value prior to the commencement of such
five (5)-day negotiation period, the average of such estimates shall be the Fair
Market Value of such Non-Cash Consideration and shall be final and binding on
the Partners. If there is a variance of more than ten percent (10%) in such
estimates, then the Formation Partners shall within twenty (20) Business Days
after the date of the Offer Notice submit their respective estimates, together
with all supporting data upon which such estimates were based, to a mutually
agreeable arbitrator; provided that if they cannot

                                     - 32 -



agree upon a mutually agreeable arbitrator within twenty (20) calendar days
after the date of the Offer Notice they shall each select one arbitrator with
recognized standing and experience and who is a member of the American
Arbitration Association and those two arbitrators shall select a third such
arbitrator and such third arbitrator acting alone shall determine such
arbitrator's estimate of the fair market value of the Non-Cash Consideration and
shall select from the estimates presented by the Formation Partners the estimate
that is closest to such arbitrator's estimate, and such selected estimate shall
be the Fair Market Value of the Non-Cash Compensation. The foregoing arbitration
proceedings, including any discovery and any hearings, shall be conducted in
accordance with the rules of the American Arbitration Association then in
effect, and the Formation Partners shall cooperate fully in promptly furnishing
any relevant information requested by the arbitrator. If a party fails to timely
select an arbitrator as provided herein, the other party's estimate shall be
deemed to be the Fair Market Value of the Non-Cash Consideration. If the two
selected arbitrators cannot agree upon a third arbitrator, the third shall be
selected in accordance with the rules of the American Arbitration Association.
The determination of Fair Market Value pursuant to this Section 10.3.F shall be
final and binding on the Partners and may be enforced by a court of competent
jurisdiction. The cost of the arbitrators and the arbitration proceeding shall
be paid by the party whose estimate was not selected. The time period for any
closing pursuant to this Section 10.3 shall be extended by the number of
Business Days required to establish the Fair Market Value of any Non-Cash
Consideration pursuant to this Section 10.3.F. The General Partner shall keep
the Non-Selling Partner reasonably informed of the status of the determination
of such Fair Market Value.

Section 10.4 Withdrawal or Resignation of a Partner

      No Partner has the right to withdraw or otherwise resign from the
Partnership, unless such withdrawal or resignation is in connection with a
Transfer in accordance with the preceding sections of this Article X.

                                   ARTICLE XI
                              ADMISSION OF PARTNERS

Section 11.1 Admission of Substituted or Additional Partners

      No Person not a Partner on the date of this Agreement shall become a
Partner hereunder under any of the provisions hereof unless such Person shall
expressly assume and agree to be bound by all of the terms and conditions of
this Agreement. Each such Person shall also cause to be delivered to the
Partnership, at his, her or its sole cost and expense such documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an additional Partner. Upon compliance with
all provisions hereof applicable to such Person becoming a Partner, the General
Partner is authorized to execute and deliver such amendments hereto as are
necessary to constitute such Person or entity a Partner of the Partner. Any
transferee of a Partnership Interest that has not been admitted as a substituted
Partner shall be an "assignee," entitled only to allocations of net profits, net
losses and other tax items of the Partnership and to distributions from the
Partnership, and shall not be entitled to vote or participate in the affairs and
management of the Partnership. The Partnership Interest of

                                     - 33 -



any assignee shall be deemed to be voted on all matters in the same proportion
as the remaining Partnership Interests were voted.

Section 11.2 Amendment of Agreement and Certificate

      For the admission to the Partnership of any Partner in accordance with the
provisions of this Agreement, the General Partner shall take all steps necessary
and appropriate under the Act to amend the records of the Partnership and, if
necessary, to prepare as soon as practicable an amendment of this Agreement
(including an amendment of Exhibit A) and, if required by law, shall prepare and
file an amendment to the Certificate.

                                  ARTICLE XII
                           DISSOLUTION AND LIQUIDATION

Section 12.1 Dissolution

      The Partnership shall not be dissolved by the withdrawal of any Partner or
by the admission of any additional or substituted Partner in accordance with the
terms of this Agreement. The Partnership shall dissolve, and its affairs shall
be wound up, upon the first to occur of any of the following ("Liquidating
Events"):

            A. the Termination Date;

            B. the bankruptcy or termination of the General Partner, but only if
the Limited Partners unanimously elect in writing to dissolve the Partnership
(otherwise, the Partnership shall not be dissolved but shall continue provided
that the Advisory Committee elects a new General Partner within thirty (30) days
after the bankruptcy or termination of the General Partner);

            C. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act; or

            D. the sale of all or substantially all of the assets and properties
of the Partnership (including without limitation the merger or other
consolidation of the Partnership into another Person or a roll-up into a
corporate form), unless the General Partner elects to continue the Partnership
business for the purpose of the receipt and the collection of indebtedness or
the collection of other consideration to be received in exchange for the assets
of the Partnership (which activities shall be deemed to be part of the winding
up of the Partnership).

Section 12.2 Winding Up

      Upon the occurrence of a Liquidating Event, the Partnership shall continue
solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner (or, in the event there is no remaining General Partner, any
Person selected by the Limited Partners) (the "Liquidator") shall be responsible
for overseeing the winding up and dissolution of the Partnership and shall take
full account of the Partnership's liabilities and

                                     - 34 -



property. The Partnership property shall be liquidated as promptly as is
consistent with obtaining the fair market value thereof (provided that the
Liquidator in its discretion may distribute assets in kind in lieu of
liquidating the assets of the Partnership), and the proceeds therefrom shall be
applied and distributed in the following order:

                        (1)   First, to the payment and discharge of all of the
                              Partnership's debts and liabilities to creditors
                              other than the Partners;

                        (2)   Second, to the payment and discharge of all of the
                              Partnership's debts and liabilities to the
                              Partners; and

                        (3)   The balance, if any, to the Partners in accordance
                              with their positive Capital Account balances,
                              after giving effect to all contributions,
                              distributions and allocations for all periods.

Section 12.3 Compliance with Timing Requirements of Regulations

      In the event the Partnership is "liquidated" within the meaning of
Regulations section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article XII to the Partners who have positive Capital Accounts in
compliance with Regulations section 1.704-1(b)(2)(ii)(b)(2). If any Partner has
a deficit balance in its Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which such liquidation occurs), such Partner shall have no
obligation to make any contribution to the capital of the Partnership with
respect to such deficit, and such deficit shall not be considered a debt owed to
the Partnership or to any other Person for any purpose whatsoever. In the
discretion of the Liquidator, a pro rata portion of the distributions that would
otherwise be made to the Partners pursuant to this Article XII may be:

            A. distributed to a trust established for the benefit of the
Partners for the purposes of liquidating Partnership assets, collecting amounts
owed to the Partnership, and paying any contingent or unforeseen liabilities or
obligations of the Partnership arising out of or in connection with the
Partnership. The assets of any such trust shall be distributed to the Partners
from time to time, in the reasonable discretion of the Liquidator, in the same
proportions as the amount distributed to such trust by the Partnership would
otherwise have been distributed to the Partners pursuant to this Agreement; or

            B. withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such withheld
amounts shall be distributed to the Partners as soon as practicable.

Section 12.4 Rights of Partners

      Except as otherwise provided in this Agreement, each Partner shall look
solely to the assets of the Partnership for the return of its Capital
Contribution and shall have no right or power to demand or receive property
other than cash from the Partnership. No Partner shall have priority over any
other Partner as to the return of its Capital Contributions, distributions, or
allocations, except as expressly provided in this Agreement.

                                     - 35 -



Section 12.5 Documentation of Liquidation

      Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 12.2 hereof, the Partnership shall be terminated
and the Certificate and all qualifications of the Partnership as a foreign
Partnership in jurisdictions shall be canceled and such other actions as may be
necessary to terminate the Partnership shall be taken. The Liquidator shall have
the authority to execute and record any and all documents or instruments
required to effect the dissolution, liquidation and termination of the
Partnership.

Section 12.6 Reasonable Time for Winding-Up

      A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 12.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.

Section 12.7 Liability of the Liquidator

      The Liquidator shall be indemnified and held harmless by the Partnership
from and against any and all claims, demands, liabilities, costs, damages and
causes of action of any nature whatsoever arising out of or incidental to the
Liquidator's taking of any action authorized under or within the scope of this
Agreement; provided, however, that the Liquidator shall not be entitled to
indemnification, and shall not be held harmless, where the claim, demand,
liability, cost, damage or cause of action at issue arises out of:

                        (1)   a matter entirely unrelated to the Liquidator's
                              action or conduct pursuant to the provisions of
                              this Agreement; or

                        (2)   the proven willful misconduct or gross negligence
                              of the Liquidator.

Section 12.8 Waiver of Partition

      Each Partner hereby waives any right to partition of the Partnership
property.

                                  ARTICLE XIII
                       AMENDMENT OF PARTNERSHIP AGREEMENT

Section 13.1 Amendments

      This Agreement shall not be amended without the prior written consent of
each Partner; provided, however, that this Agreement may be amended by the
General Partner without the approval of any other Partner to (i) reflect the
admission, substitution, termination or withdrawal of Partners made in
accordance with the provisions of this Agreement (including without limitation
amendments to the tax allocation and distribution provisions made in connection
with any such admission, substitution, termination or withdrawal of Partners),
(ii) reflect changes made to the name of the Partnership, (iii) make changes to
ensure that the Partnership will not be treated as an association taxable as a
corporation for federal income tax purposes or to prevent the Partnership from
in any manner being deemed an "investment company" subject to the

                                     - 36 -



requirements of the ICA, (iv) make a change that is necessary or desirable to
cure any ambiguity or inconsistency in this Agreement, or (v) satisfy any
requirements, conditions, or guidelines contained in any opinion, directive,
order, ruling, regulation, or statute of any governmental body.

                                  ARTICLE XIV
                               GENERAL PROVISIONS

Section 14.1 Other Activities

      Except as expressly provided otherwise in this Agreement or in the Master
Agreement, any of the Partners or their Affiliates may engage in, or possess an
interest in, other business ventures of every nature and description,
independently or with others, whether or not such other enterprises shall be in
competition with any activities of the Partnership; and neither the Partnership
nor the other Partners shall have any right by virtue of this Agreement in and
to such independent ventures or to the income or profits derived therefrom.
Nothing herein shall be construed to constitute any Partner hereof the agent of
any other Partner hereof or to limit the Partners in any manner in the carrying
on of their own respective businesses or activities.

Section 14.2 Addresses and Notice

      All notices, requests, demands and other communications hereunder to a
Partner shall be in writing and shall be deemed to have been duly given if
delivered by hand or if sent by certified mail, return receipt requested,
properly addressed and postage prepaid, or transmitted by commercial overnight
courier to the Partner at the address set forth in Exhibit A or at such other
address as the Partner shall notify the General Partner in writing, or sent by
facsimile to the facsimile number set forth in Exhibit A or to such other
facsimile number as the Partner shall notify the General Partner in writing.
Such communications shall be deemed sufficiently given, served, sent or received
for all purposes at such time as delivered to the addressee (with the return
receipt or delivery receipt being deemed conclusive evidence of such delivery)
or at such time as delivery is refused by the addressee upon presentation.

Section 14.3 Titles and Captions

      All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, (i) references to "Articles" and
"Sections" are to Articles and Sections of this Agreement, and (ii) references
to "Exhibits" are to the Exhibits attached to this Agreement. Each Exhibit
attached hereto and referred to herein is hereby incorporated by reference.

Section 14.4 Pronouns and Plurals

      Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa. Any
references in this Agreement to "including" shall be deemed to mean "including
without limitation."

                                     - 37 -



Section 14.5 Further Action

      The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purpose of this Agreement.

Section 14.6 Binding Effect

      This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.

Section 14.7 Creditors

      None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Partnership.

Section 14.8 Waiver

      No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.

Section 14.9 No Agency

      Nothing contained herein shall be construed to constitute any Partner the
agent of another Partner, except as specifically provided herein, or in any
manner to limit the Partners in the carrying on of their own respective
businesses or activities.

Section 14.10 Entire Understanding

      This Agreement and the Master Agreement constitute the entire agreement
and understanding among the Partners and supersedes any prior understanding
and/or written or oral agreements among them respecting the subject matter
herein. To the extent that there is any inconsistency between this Agreement and
the Master Agreement, the terms of this Agreement shall govern.

Section 14.11 Counterparts

      This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.

Section 14.12 Applicable Law

      This Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware, without regard to the principles of conflicts of
law.

                                      - 38 -



Section 14.13 Invalidity of Provisions

      If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respects, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.

Section 14.14 Securities Law Representations, Warranties and Agreements

            A. Each Partner represents and warrants to the Partnership and the
other Partners as follows:

                        (1)   Such Partner has such knowledge and experience in
                              financial and business matters that he, she or it
                              is capable of evaluating the merits and risks of
                              the investment involved in the purchase of a
                              Partnership Interest in the Partnership and he,
                              she or it has so evaluated this purchase.

                        (2)   Such Partner is able to bear the economic risk of
                              this investment.

                        (3)   In connection with the purchase of its Partnership
                              Interest, such Partner has been fully informed as
                              to the circumstances under which it is required to
                              take and hold the Partnership Interest pursuant to
                              the requirements of the Securities Act and
                              applicable state securities laws.

                        (4)   Such Partner understands that the Partnership
                              Interest is not registered under the Securities
                              Act or any state securities laws and may not be
                              transferred, assigned or otherwise disposed of
                              unless the Partnership Interest is so registered
                              or unless an exemption from registration is
                              available.

                        (5)   Such Partner understands that the Partnership will
                              not register under the ICA in reliance on the
                              exception provided under Section 3(c)(7) of the
                              ICA, which requires that all Partners be
                              "qualified purchasers" as defined under Section
                              2(a)(51) of the ICA.

            B. Each Partner agrees as follows:

                        (1)   The Partnership is not under any obligation to
                              register any Partnership Interest under the
                              Securities Act or any state securities laws.

                        (2)   The Partnership will not be required to supply any
                              Partner or other Person with any information
                              necessary to enable any Partner to make a sale of
                              its Partnership Interest under Rule 144 under the
                              Securities Act or any corresponding rule under any
                              state securities law.

                                     - 39 -


            C. Each Partner shall indemnify and hold harmless the Partnership
and the other Partners from and against any and all loss, damage, liability,
cost or expense, including costs of defense and attorneys' fees, arising or
resulting from or attributable to any breach of his representations, warranties
or agreements set forth in this Section 14.14.

Section 14.15 Certification of Nonforeign Status

      Each Partner hereby acknowledges that the Partnership will be obligated to
pay a withholding tax to the IRS with respect to a Partner if the Partner is not
able to certify to the Partnership that it is not a foreign person. Each Partner
hereby agrees to provide a certification as to its foreign status to the
Partnership from time to time upon the request of the General Partner.

                          [Signatures on attached page]

                                     - 40 -


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


                         GENERAL PARTNER:
                         ---------------

                         Crescent Redtail Management, LLC,
                         a Delaware limited liability company

                         By:  Crescent Real Estate Equities, Ltd, a Delaware
                         corporation, its manager

                         By:    ______________________________________________
                         Name:  ______________________________________________
                         Title: ______________________________________________

                         LIMITED PARTNERS:
                         ----------------

                         Crescent Real Estate Capital, L.P.,
                         a Delaware limited partnership

                         By:  Crescent Real Estate Capital GP, LLC, a Delaware
                         limited liability company, its general partner

                              By:  Crescent Real Estate Equities, Ltd., a
                         Delaware corporation, its manager

                         By:    ______________________________________________
                         Name:  ______________________________________________
                         Title: ______________________________________________

                         CMC Real Estate Capital, L.P.,
                         a Delaware limited partnership

                         By: CMC Real Estate Capital GP, LLC

                              By: Capstead Mortgage Corporation, its sole member

                         By:    ______________________________________________
                         Name:  ______________________________________________
                         Title: ______________________________________________



                                    EXHIBIT A
             PARTNERS, CAPITAL COMMITMENTS AND PERCENTAGE INTERESTS



                                             Total Capital   Percentage
      Name and Address of Partner             Commitment      Interests
- ----------------------------------------     -------------   ----------
                                                       
GENERAL PARTNER:

Crescent Redtail Management, LLC,                 N/A             0%
a Delaware limited liability company
777 Main Street, Fort Worth, Texas 76102

LIMITED PARTNERS:

Crescent Real Estate Capital, L.P.,          $  25,000,000       25%
a Delaware limited partnership
777 Main Street, Fort Worth, Texas 76102

CMC Real Estate Capital, L.P.,               $  75,000,000       75%
a Delaware limited partnership
[8401 N. Central Expressway
Suite 800
Dallas, TX 75225-4410


                                      A-1

EX-10.2

EXHIBIT 10.2

CAPSTEAD MORTGAGE CORPORATION

NONQUALIFIED STOCK OPTION AGREEMENT
FOR NON-EMPLOYEE DIRECTORS

     THIS AGREEMENT, made as of this [___]day of [_________], 20[___] (hereinafter called the “Date of Grant”), between Capstead Mortgage Corporation, a Maryland corporation (hereinafter called the “Company”), and [____________] (hereinafter called the “Optionee”):

R E C I T A L S:

     The Company has adopted the 2004 Flexible Long-Term Incentive Plan (the “Plan”), which Plan is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan.

     The Company has determined that it is in the best interests of the Company and its stockholders to grant the option provided for herein to the Optionee pursuant to the Plan on the terms set forth herein as an inducement to become or remain a director of the Company, to enable the Optionee to participate in the long-term growth and financial success of the Company and as an increased incentive to contribute to the Company’s future success and prosperity.

     NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows:

     1. Grant of the Option. (a) The Company hereby grants to the Optionee the right and option to purchase, on the terms and conditions hereinafter set forth, [___] Shares (the “Option”). The purchase price of the Shares subject to this Option shall be $[___] per Share (the “Exercise Price”). This Option is not intended to be treated as an option that complies with Section 422 of the Code, or any successor provision thereto.

     2. Option Term. The term of the Option shall begin immediately and continue until the tenth anniversary of the Date of Grant, subject to earlier termination as hereinafter provided.

     (a) If the Optionee ceases to be a director of the Company or any Affiliate by reason of the Optionee’s discharge for cause, all rights of the Optionee to exercise the Option shall terminate, lapse and be forfeited immediately at the time of the Optionee’s discharge for cause.

     (b) If the Optionee ceases to be a director of the Company or any Affiliate by reason of death, the personal representatives, heirs, legatees or distributees of the Optionee, as appropriate, shall have the right to exercise the Option up to the earlier of (i) six months from the Optionee’s death or (ii) the remaining term of the Option.

     (c) If the Optionee ceases to be a director of the Company or any Affiliate by reason of the Optionee’s resignation, Retirement, Disability or for any reason other than the Optionee’s death or discharge for cause, all rights of the Optionee to exercise the Option shall terminate,

lapse, and be forfeited upon the earlier of (i) six months after the date Optionee’s service as a director of the Company terminates by reason of such director’s resignation, Retirement, Disability or such other reason or (ii) the remaining term of the Option, except that in case the Optionee shall die within six months after the date Optionee’s service as an Eligible Director of the Company terminates by reason of such director’s resignation, Retirement, Disability or such other reason, the personal representatives, heirs, legatees or distributees of the Optionee, as appropriate, shall have the right up to an additional three months from the date of the Optionee’s death to exercise the Option.

     3. Exercise of Option.

     (a) This Option is immediately exercisable. Each exercise of the Option, or any part thereof, shall be evidenced by a notice in writing to the Company. The Exercise Price of the Shares as to which the Option shall be exercised shall be paid in full at the time of exercise, and may be paid to the Company either:

     (1) in cash (including check, bank draft or money order); or

     (2) by the delivery of Shares having a Fair Market Value equal to the aggregate Exercise Price; provided, however, that such Shares, if acquired by the exercise of an Option shall have been owned by the Optionee for more than six months prior to exercise; or

     (3) by a combination of cash and Shares as described above; or

     (4) by arrangement with a broker acceptable to the Committee in which payment of the Exercise Price is made pursuant to an irrevocable direction from the Optionee to the broker to deliver the Company proceeds from the sale of the option Shares in an amount equal to the exercise price of the Shares.

     (b) The Optionee shall not have any of the rights of a stockholder of the Company with respect to the Shares covered by this Agreement except to the extent that one or more certificates of such Shares shall have been delivered to the Optionee, or the Optionee has been determined to be a stockholder of record by the Company’s Transfer Agent, upon due exercise of the Option granted hereunder.

     4. Adjustments Upon Changes in Capitalization or Reorganization. The number of Shares subject to the Option shall be adjusted from time to time as follows:

     (a) Subject to any required action by stockholders, the number of Shares subject to the option granted hereunder, and the Exercise Price, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of the Company resulting from a subdivision or consolidation of Shares or the payment of a stock dividend (but only in Shares) or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company.

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     (b) Subject to any required action by stockholders, if the Company shall be the surviving corporation in any Reorganization, merger or consolidation, the Option granted hereunder shall pertain to and apply to the securities to which a holder of the number of Shares subject to the Option granted hereunder would have been entitled, and if a plan or agreement reflecting any such event is in effect that specifically provides for the change, conversion or exchange of Shares, then any adjustment to Shares subject to the Option granted hereunder shall not be inconsistent with the terms of any such plan or agreement.

     (c) In the event of a change in the Shares of the Company as presently constituted, which is limited to a change of par value into the same number of Shares with a different par value or without par value, the Shares resulting from any such change shall be deemed to be the Shares within the meaning of the Plan.

     To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Committee, whose determination shall be final, binding and conclusive.

     Except as otherwise specifically provided in this Agreement, the Optionee shall have no rights by reason of any subdivision or consolidation of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, reorganization, merger or consolidation or spin-off of assets or stock of another corporation, and any issued by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to the Option granted hereunder.

     5. Non-Transferability of the Option. This Agreement, and the Option granted hereunder, shall not be transferable otherwise than by will or the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee; provided, however, that this Agreement, and the Option granted hereunder, may be transferred to one or more members of the immediate family of the Optionee or to a trust for the benefit of such person or as directed under a qualified domestic relations order. Any attempted assignment, transfer, pledge, hypothecation or other disposition of this Agreement and the Option granted hereunder contrary to the provisions hereof, or the levy of any execution, attachment or similar process upon this Agreement, and the Option granted hereunder, shall be null and void and without effect.

     6. Compliance with Securities and other Laws. In no event shall the Company be required to issue Shares under the Option granted hereunder, if the issuance thereof would constitute a violation of applicable federal or state securities laws or regulations or a violation of any other law or regulation of any governmental or regulatory agency or authority or any national securities exchange. As a condition to any issuance of Shares, the Company may place legends on shares, issue stop transfer orders and require such agreements or undertakings as the Company may deem necessary or advisable to assure compliance with any such laws or regulations, including, if the Company or its counsel deems it appropriate, representations from the Optionee that the Optionee is acquiring the Shares solely for investment and not with a view to distribution

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and that no distribution of the Shares will be made unless such shares are registered pursuant to applicable federal and state securities laws, or in the opinion of counsel of the Company, such registration is unnecessary.

     7. Issuance of Shares. Upon the Company’s determination that the Option granted hereunder has been validly exercised as to any of the Shares, the Committee shall, at its sole discretion, cause the Secretary of the Company to issue certificates in the Optionee’s name for such Shares. The Company shall not be liable to the Optionee for damages relating to any delays in issuing the certificates, if any, to the Optionee, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves.

     8. Alternative Award for Cancellation of the Option. For purposes of this Agreement, the payment to the Optionee of an alternative award or an amount in cash pursuant to the terms of Section 16 of the Plan in consideration of the cancellation of the Option granted hereunder shall extinguish any rights of the Optionee in connection with this Agreement.

     9. Notices. Any notice necessary under this Agreement shall be in writing, signed by the party giving or making the same, and addressed (a) to the Company in the care of its President or Secretary at the principal executive office of the Company in Dallas, Texas, (b) to the Optionee at the address appearing in the personnel records of the Company for such Optionee or (c) to either party at such other address as either party hereto may hereafter designate in writing to the other. Except as otherwise provided herein, any such notice shall be deemed effective upon receipt thereof by the addressee.

     10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

     11. Option Subject to Plan. The Option is subject to the Plan. The terms and provisions of the Plan as it may be amended from time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.

     12. Amendment of Agreement. This Agreement may be amended, altered, suspended, discontinued or terminated by the Committee; provided that no such amendment, alteration suspension or termination shall materially impair the rights of the Optionee hereunder without the consent of the Optionee.

     13. Administration of Plan and Agreement. Any determinations or decisions made or actions taken arising out of or in connection with the interpretation and administration of the Plan and this Agreement by the Committee shall be final and conclusive.

     14. Execution in Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original for all purposes and both of which taken together shall constitute but one and the same instrument.

[Signature Page Follows]

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Date of Grant. By execution of this Agreement, the Optionee acknowledges receipt of a copy of the Plan, the Company’s Annual Report on Form 10-K for the year ended December 31, 20[___] and the informational supplement required by Rule 428(b)(1) under the Securities Act of 1933.

CAPSTEAD MORTGAGE CORPORATION
By:
	Andrew F. Jacobs
	President and Chief Executive Officer

[OPTIONEE]
	[_____________________]

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CAPSTEAD MORTGAGE CORPORATION

RESTRICTED STOCK AGREEMENT
FOR NON-EMPLOYEE DIRECTORS

     THIS AGREEMENT made and entered into as of the [___] day of [______], 20[___] (hereinafter called the “Award Date”), by and between Capstead Mortgage Corporation, a Maryland corporation (the “Company”), and [____________] (the “Grantee”).

     WHEREAS, the Company, having determined that its interests will be advanced by providing an incentive to the Grantee to increase the performance of the Company and its Affiliates, has awarded to the grantee a restricted stock award conditioned upon the execution by the Company and the Grantee of a Restricted Stock Agreement.

     THEREFORE, in consideration of the mutual promise(s) and covenant(s) contained herein, the parties hereby agree as follows:

     SECTION 1. GRANT.

     1.1 Grant and Acceptance. The Company does hereby grant and transfer to the Grantee, for no cash consideration from the Grantee, and the Grantee does hereby accept from the Company, an aggregate of [___] shares (the “Award Shares”) of the Common Stock, $0.01 par value per share, of the Company (the “Common Stock”) according to the terms and conditions and subject to the restrictions hereinafter set forth.

     1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock and this grant shall constitute an Award, each as defined in the Company’s 2004 Flexible Long-Term Incentive Plan (the “Plan”). This Agreement is expressly subject to the terms and provisions of the Plan and in the event there is a conflict between the terms of the Plan and this Agreement, the terms of the Plan shall control. All undefined capitalized terms used herein shall have the meanings assigned in the Plan. The Award is subject to all laws, approvals, requirements and regulations of any governmental authority which may be applicable thereto.

     SECTION 2. RIGHTS IN SHARES. The Grantee, for the duration of this Agreement, shall be the record owner of, and shall be entitled to vote, the Award Shares and shall be entitled to receive all dividends and any other distributions declared on the Award Shares (provided, however, that nothing contained herein shall cause the Company to declare any such dividends or to make any such distributions).

     SECTION 3. VESTING.

     3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in accordance with the schedule set forth below:

	Percentage of Shares	Cumulative
Date	Vested on Specified Date	Percentage of Shares
[_________]	[___]	[___]
[_________]	[___]	[___]
[_________]	[___]	[___]
[_________]	[___]	[___]

provided, however, that notwithstanding the foregoing schedule, and except as otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award Shares shall vest after termination of Grantee’s directorship with the Company or any Affiliate for any reason (including termination by reason of voluntary or involuntary discharge, Disability or Retirement) in which case the Grantee shall, at the time of termination, forfeit all right, title and interest in and to any Award Shares not then vested.

     3.2 Effect of Grantee’s Death. If the Grantee ceases to be a director of the Company or any Affiliate by reason of death, any and all outstanding Award Shares not fully vested shall automatically vest in full and the personal representatives heirs, legatees or distributees of the Grantee, as appropriate, shall become fully vested in the Award Shares effective on the date of the Grantee’s death.

     3.3 Effect of Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company, any and all outstanding Award Shares not fully vested shall automatically vest in full immediately prior to such dissolution or liquidation.

     3.4 Effect of Change of Control. In the event of a Change in Control (as defined in the Plan), any and all outstanding Award Shares not fully vested shall automatically vest in full. The date on which such accelerated vesting shall occur shall be the date of the occurrence of the Change in Control.

     3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to Section 3.1 shall revert to the Company.

     SECTION 4. STOCK CERTIFICATES. Upon grant of the Award Shares, the Company shall cause its Transfer Agent to record Grantee’s ownership of such Award Shares in book entry form. As Award Shares vest hereunder, such Award Shares shall be transferred into an unrestricted account in the name of the Grantee or, at the request of the Grantee, issued in stock certificate form. Any such certificates shall be unencumbered by any of the restrictions enumerated herein other than such restrictions as may be imposed by applicable federal or state securities laws and regulations.

     SECTION 5. TRANSFER AND REPURCHASES UPON TERMINATION.

     5.1 The unvested Award Shares shall not be offered, sold, transferred, assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a “Transfer”) for any purpose whatsoever, other than to the Company, and shall not be subject, in whole or in part, to execution, attachment, or similar process in all such cases until the date of vesting. Any attempted Transfer of

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the unvested Award Shares, other than in accordance with the terms set forth herein, shall be void and of no effect.

     5.2 Grantee acknowledges that any sale, assignment, transfer or other disposition of vested Award Shares may be subject to restrictions contained in applicable federal or state securities laws and regulations and that any such sale, assignment, transfer or other disposition of Award Shares by him or her will be in compliance with such laws and regulations.

     SECTION 6. WITHHOLDINGS. The Company and each Affiliate shall have the right to retain and withhold from any payment (including the vesting) of Award Shares (and any dividends on Award Shares) any amounts required to be withheld or otherwise deducted and paid with respect to such payment (including the vesting thereof). At its discretion, the Company and each Affiliate may require the Grantee receiving Award Shares to reimburse the Company or any Affiliate for any such taxes required to be withheld by the Company or the Affiliate and withhold any distribution in whole or in part until the Company and each Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate shall have the right to withhold from any other cash amounts due or to become due from the Company or the Affiliate to the Grantee an amount equal to such taxes required to be withheld by the Company or the Affiliate as reimbursement for any such taxes or retain and withhold a number of shares having a market value not less than the amount of such taxes in order to reimburse the Company or the Affiliate for any such taxes.

     SECTION 7. ADJUSTMENTS TO AWARD SHARES.

     7.1 Stock Dividends and Splits and Similar Transactions. Subject to any required action by the Company’s Board of Directors and stockholders, the number of Award Shares shall be proportionately adjusted for any increase or decrease in the number of issued Shares of the Company resulting from the payment of a Share dividend, a Share split, a Share reverse-split or any similar transaction.

     7.2 Change in Par Value. In the event of a change in the Company’s Shares which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be shares within the meaning of the Plan.

     7.3 Other Capital Adjustments. Except as hereinbefore expressly provided in Section 7.1 and except for rights that all holders of Common Stock shall have, Grantee shall have no rights by reason of any subdivision or consolidation of Shares of any class or payment of any share dividend or any other increase or decrease in the number of shares of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or stock of another corporation; any issuance by the Company of Shares of any class, or securities convertible into Shares of any class, shall not affect the Award, and no adjustment by reason thereof shall be made with respect to the number or price of the Company’s Shares subject to the Award. An Award of Restricted Stock shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell or transfer all or any part of its business or assets.

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     SECTION 8. GRANTEE’S REPRESENTATIONS AND WARRANTIES. Grantee represents and warrants that:

     (a) such Grantee has not and will not, directly or indirectly, Transfer any Award Shares except in accordance with the terms of this Agreement;

     (b) such Grantee has, or such Grantee together with such Grantee’s advisors, if any, have such knowledge and experience in financial, business and tax matters that such Grantee is, or such Grantee together with such Grantee’s advisors, if any, are capable of evaluating the merits and risks relating to such Grantee’s investment in the Award Shares and making an investment decision with respect to the Company;

     (c) such Grantee has been given the opportunity to obtain information and documents relating to the Company and to ask questions of and receive answers from representatives of the Company concerning the Company and such Grantee’s investment in the Award Shares; and

     (d) such Grantee realizes that there are substantial risks incident to an investment in the Award Shares.

     SECTION 9. IMPACT ON OTHER BENEFITS. The value of the Award Shares (either on the Award Date or at the time the shares are vested) shall not be includable as compensation or earnings for purposes of any other benefit plan offered by the Company.

     SECTION 10. ADMINISTRATION. The Committee shall have full authority and discretion (subject only to the express provisions of the Plan) to decide all matters relating to the administration and interpretation of the Plan and this Agreement. All such Committee determinations shall be final, conclusive, and binding upon the Company, the Grantee, and any and all interested parties.

     SECTION 11. AMENDMENT(S). This Agreement shall be subject to the terms of the Plan, as amended from time to time, except that the Award that is the subject of this Agreement may not in any way be restricted or limited by any amendment or termination approved after the Award Date without the Grantee’s written consent.

     SECTION 12. FORCE AND EFFECT. The various provisions of this Agreement are severable in their entirety. Any determination of invalidity or unenforceability of any one provision shall have no effect on the continuing force and effect of the remaining provisions.

     SECTION 13. GOVERNING LAWS. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Maryland.

     SECTION 14. MISCELLANEOUS.

     14.1 Any notice necessary under this Agreement shall be in writing, signed by the party giving or making the same, and addressed (a) to the Company in the care of its President or Secretary at the principal executive office of the Company in Dallas, Texas, (b) to the Grantee at the address appearing in the personnel records of the Company for such Grantee or (c) to either party at

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such other address as either party hereto may hereafter designate in writing to the other. Except as otherwise provided herein, any such notice shall be deemed effective upon receipt thereof by the addressee.

     14.2 This Agreement may be executed in counterparts, each of which shall be deemed an original for all purposes and both of which taken together shall constitute but one and the same instrument.

[Signature Page Follows]

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date hereof. By execution of this Agreement, the Grantee acknowledges receipt of a copy of the Plan, the Company’s Annual Report on Form 10-K for the year ended December 31, 20[___] and the informational supplement required by Rule 428(b)(1) under the Securities Act of 1933.

CAPSTEAD MORTGAGE CORPORATION
By:
	Andrew F. Jacobs
	President and Chief Executive Officer

[GRANTEE]
	[_____________________]

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EX-10.3

EXHIBIT 10.3

CAPSTEAD MORTGAGE CORPORATION

NONQUALIFIED STOCK OPTION AGREEMENT
FOR EMPLOYEES

     THIS AGREEMENT, made as of this [___] day of [___], 20[___], (hereinafter called the “Date of Grant”) between Capstead Mortgage Corporation, a Maryland corporation (hereinafter called the “Company”), and [___] (hereinafter called the “Optionee”):

R E C I T A L S:

     The Company has adopted the [1997][2004] Flexible Long Term Incentive Plan (the “Plan”), which Plan is incorporated herein by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan.

     The Company has determined that it is in the best interests of the Company and its stockholders to grant the Optionee the option provided for in this Agreement pursuant to the Plan on the terms set forth therein as an inducement to enter into or remain in the employment of the Company or one of its Affiliates, to enable the Optionee to participate in the long-term growth and financial success of the Company and as an increased incentive to contribute to the Company’s future success and prosperity.

     NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows:

     1. Grant of the Option. The Company hereby grants to the Optionee the right and option to purchase, on the terms and conditions hereinafter set forth, [___] Shares (the “Option”). The purchase price of the Shares subject to this Option shall be $[___] per Share (the “Exercise Price”). The Option is not intended to be treated as an option that complies with Section 422 of the Code or any successor provision thereto.

     2. Option Term. The term of the Option shall begin immediately and continue until the tenth anniversary of the Date of Grant, subject to earlier termination as hereinafter provided.

     (a) If the Optionee ceases to be an officer or employee of the Company or any Affiliate by reason of the Optionee’s discharge for cause, all rights of the Optionee to exercise the Option shall terminate, lapse and be forfeited immediately at the time of the Optionee’s discharge for cause.

     (b) If the Optionee ceases to be an employee of the Company or any Affiliate by reason of death, the personal representatives, heirs, legatees or distributees of the

Optionee, as appropriate, shall have the right to exercise the Option up to the earlier of (i) six months from the Optionee’s death or (ii) the remaining term of the Option.

     (c) If the Optionee ceases to be an employee of the Company or any Affiliate by reason of the Optionee’s resignation, Retirement, Disability or for any reason other than the Optionee’s death or discharge for cause, all rights of the Optionee to exercise the Option shall terminate, lapse, and be forfeited upon the earlier of (i) six months after the date of the Optionee’s termination of employment by reason of such employee’s resignation, Retirement, Disability or such other reason or (ii) the remaining term of the Option, except that in case the Optionee shall die within six months after the date of termination of employment by reason of such employee’s resignation, Retirement, Disability or such other reason, the personal representatives, heirs, legatees or distributees of the Optionee, as appropriate, shall have the right up to an additional three months from the date of the Optionee’s death to exercise the Option.

     3. Vesting of Stock Options.

     (a) The Options shall vest (become nonforfeitable) in accordance with the schedule set forth below:

	Percentage of Shares	Cumulative
Date	Vested on Specified Date	Percentage of Shares
[                                        ]	[___]	[___]
[                                        ]	[___]	[___]
[                                        ]	[___]	[___]
[                                        ]	[___]	[___]

provided, however, that notwithstanding the foregoing schedule, and except as otherwise provided below in paragraphs (b), (c), (d) or (e) below, no additional Options shall vest after:

     (i) termination of Optionee’s employment with the Company or any Affiliate for any reason (including voluntary and involuntary discharge, Disability or Retirement), in which case the Optionee shall, at the time of termination, forfeit all right, title and interest in and to any Options not then vested;

     (ii) an Optionee working full-time at the Date of Grant reduces his/her scheduled hours worked per week below a standard 40-hour work week, in which case the Optionee shall, at the time of such reduction and subject to management’s discretion, forfeit all right, title and interest in and to any Options not then vested; or

     (iii) an Optionee working part-time at the Date of Grant reduces his/her scheduled hours worked per week below a standard 20-hour work week, in which case the Optionee shall, at the time of such reduction and subject to management’s discretion, forfeit all right, title and interest in and to any Options not then vested.

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     (b) If the Optionee ceases to be an employee of the Company or any Affiliate by reason of death, the personal representatives heirs, legatees or distributees of the Optionee, as appropriate, shall become fully vested in the Option effective on the date of the Optionee’s death and shall have the immediate right to exercise the Option to the extent not previously exercised.

     (c) In the event of the dissolution or liquidation of the Company, the Option shall terminate as of a date to be fixed by the Board; provided, however, that not less than 30 days’ written notice of the date so fixed shall be given to the Optionee and the Optionee shall be fully vested in and shall have the right during such period to exercise the Option even though the Option would not otherwise be exercisable under the Vesting Schedule. At the end of such period, any unexercised portion of the Option shall terminate and be of no further effect.

     (d) In the event of a Reorganization:

     (1) If there is no plan or agreement respecting the Reorganization or if such plan or agreement does not specifically provide for the change, conversion or exchange of the Shares under the unexercised portion of the Option for other securities, then the provisions of the above paragraph (c) of this Section 3 shall apply as if the Company had dissolved or been liquidated on the effective date of the Reorganization; or

     (2) If there is a plan or agreement respecting the Reorganization and if such plan or agreement specifically provides for the change, conversion or exchange of the Shares under the unexercised portion of the Option for securities of another corporation, then the Board shall adjust the Shares under the unexercised portion of the Option in a manner not inconsistent with the provisions of such plan or agreement for the adjustment, change, conversion or exchange of such Shares and the Option.

     (e) In the event of a Change in Control of the Company, the Option shall become fully vested and immediately exercisable.

     4. Exercise of the Option.

     (a) This Option may be exercised as to Shares only in amounts and at intervals of time specified in this Agreement. Each exercise of the Option, or any part thereof, shall be evidenced by a notice in writing to the Company. The Exercise Price of the Shares as to which the Option shall be exercised shall be paid in full at the time of exercise, and may be paid to the Company either:

     (1) in cash (including check, bank draft or money order); or

     (2) by the delivery of Shares having a Fair Market Value equal to the aggregate Exercise Price; provided, however, that such Shares, if acquired by the

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exercise of an Option shall have been owned by the Optionee for more than six months prior to exercise; or

     (3) by a combination of cash and Shares as described above; or

     (4) by arrangement with a broker acceptable to the Committee in which payment of the Exercise Price is made pursuant to an irrevocable direction from the Optionee to the broker to deliver the Company proceeds from the sale of the option Shares in an amount equal to the exercise price of the Shares.

     (b) The amount, as determined by the Committee, of any federal, state or local tax required to be withheld by the Company due to the exercise of the Option granted hereunder shall be satisfied either (i) by payment by the Optionee to the Company of the amount of such withholding obligation in cash or (ii) through either the retention by the Company of a number of shares out of the Shares being acquired through the exercise of the Option granted hereunder or the delivery of already owned Shares having a Fair Market Value equal to the amount of the withholding obligation. The cash payment or the amount equal to the Fair Market Value of the Shares so withheld, as the case may be, shall be remitted by the Company to the appropriate taxing authorities.

     (c) The Optionee shall not have any of the rights of a stockholder of the Company with respect to the Shares covered by this Agreement except to the extent that one or more certificates of such Shares shall have been delivered to the Optionee, or the Optionee has been determined to be a stockholder of record by the Company’s Transfer Agent, upon due exercise of the Option granted hereunder.

     5. No Right to Continued Employment. This Agreement shall not confer on the Optionee any right to continue serving as an employee of the Company nor shall this Agreement limit in any way the Company’s right to terminate or change the terms of the Optionee’s employment.

     6. Adjustments Upon Changes in Capitalization or Reorganization. The number of Shares subject to the Option shall be adjusted from time to time as follows:

     (a) Subject to any required action by stockholders, the number of Shares subject to the option granted hereunder, and the Exercise Price, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of the Company resulting from a subdivision or consolidation of Shares or the payment of a stock dividend (but only in Shares) or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company.

     (b) Subject to any required action by stockholders, if the Company shall be the surviving corporation in any Reorganization, merger or consolidation, the Option granted hereunder shall pertain to and apply to the securities to which a holder of the number of Shares subject to the Option granted hereunder would have been entitled, and if a plan or agreement reflecting any such event is in effect that specifically provides for the change,

4

conversion or exchange of Shares, then any adjustment to Shares subject to the Option granted hereunder shall not be inconsistent with the terms of any such plan or agreement.

     (c) In the event of a change in the Shares of the Company as presently constituted, which is limited to a change of par value into the same number of Shares with a different par value or without par value, the Shares resulting from any such change shall be deemed to be the Shares within the meaning of the Plan.

     To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Board, whose determination shall be final, binding and conclusive.

     Except as otherwise specifically provided in this Agreement, the Optionee shall have no rights by reason of any subdivision or consolidation of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, reorganization, merger or consolidation or spin-off of assets or stock of another corporation, and any issued by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to the Option granted hereunder.

     7. Non-Transferability of the Option. This Agreement, and the Option granted hereunder, shall not be transferable otherwise than by will or the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee; provided, however, that this Agreement, and the Option granted hereunder, may be transferred to one or more members of the immediate family of the Optionee or to a trust for the benefit of such person or as directed under a qualified domestic relations order. Any attempted assignment, transfer, pledge, hypothecation or other disposition of this Agreement and the Option granted hereunder contrary to the provisions hereof, or the levy of any execution, attachment or similar process upon this Agreement, and the Option granted hereunder, shall be null and void and without effect.

     8. Compliance with Securities and other Laws. In no event shall the Company be required to issue Shares under the Option granted hereunder, if the issuance thereof would constitute a violation of applicable federal or state securities laws or regulations or a violation of any other law or regulation of any governmental or regulatory agency or authority or any national securities exchange. As a condition to any issuance of Shares, the Company may place legends on shares, issue stop transfer orders and require such agreements or undertakings as the Company may deem necessary or advisable to assure compliance with any such laws or regulations, including, if the Company or its counsel deems it appropriate, representations from the Optionee that the Optionee is acquiring the Shares solely for investment and not with a view to distribution and that no distribution of the Shares will be made unless such shares are registered pursuant to applicable federal and state securities laws, or in the opinion of counsel of the Company, such registration is unnecessary.

5

     9. Issuance of Shares. Upon the Company’s determination that the Option granted hereunder has been validly exercised as to any of the Shares, the Committee shall, at its sole discretion, cause the Secretary of the Company to issue certificates in the Optionee’s name for such Shares. The Company shall not be liable to the Optionee for damages relating to any delays in issuing the certificates, if any, to the Optionee, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves.

     10. Alternative Award for Cancellation of the Option. For purposes of this Agreement, the payment to the Optionee of an alternative award or an amount in cash pursuant to the terms of Section 16 of the Plan in consideration of the cancellation of the Option granted hereunder shall extinguish any rights of the Optionee in connection with this Agreement.

     11. Notices. Any notice necessary under this Agreement shall be in writing, signed by the party giving or making the same, and addressed (a) to the Company in the care of its President or Secretary at the principal executive office of the Company in Dallas, Texas, (b) to the Optionee at the address appearing in the personnel records of the Company for such Optionee or (c) to either party at such other address as either party hereto may hereafter designate in writing to the other. Except as otherwise provided herein, any such notice shall be deemed effective upon receipt thereof by the addressee.

     12. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

     13. Option Subject to Plan. The Option is subject to the Plan. The terms and provisions of the Plan as it may be amended from time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.

     14. Amendment of Agreement. This Agreement may be amended, altered, suspended, discontinued or terminated by the Committee; provided that no such amendment, alteration, suspension or termination shall materially impair the rights of the Optionee hereunder without the consent of the Optionee.

     15. Administration of Plan and Agreement. Any determinations or decisions made or actions taken arising out of or in connection with the interpretation and administration of the Plan and this Agreement by the Committee shall be final and conclusive.

     16. Execution in Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original for all purposes and both of which taken together shall constitute but one and the same instrument.

6

[Signature Page Follows]

7

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Date of Grant. By execution of this Agreement the Optionee acknowledges receipt of a copy of the Plan, the Company’s Annual Report on Form 10-K for the year ended December 31, 20[___] and the informational supplement required by Rule 428(b)(1) under the Securities Act of 1933.

CAPSTEAD MORTGAGE CORPORATION
By:
	Andrew F. Jacobs
	President and Chief Executive
Officer
[OPTIONEE]
	[                                        ]

8

CAPSTEAD MORTGAGE CORPORATION

RESTRICTED STOCK AGREEMENT
FOR EMPLOYEES

     THIS AGREEMENT made and entered into as of the [___] day of [___], 20[___] (hereinafter called the “Award Date”), by and between Capstead Mortgage Corporation, a Maryland corporation (the “Company”), and [___] (the “Grantee”).

     WHEREAS, the Company, having determined that its interests will be advanced by providing an incentive to the Grantee to increase the performance of the Company and its Affiliates, has awarded to the grantee a restricted stock award conditioned upon the execution by the Company and the Grantee of a Restricted Stock Agreement.

     THEREFORE, in consideration of the mutual promise(s) and covenant(s) contained herein, the parties hereby agree as follows:

     SECTION 1. GRANT.

     1.1 Grant and Acceptance. Pursuant to the [___], 20[___] authorization to grant shares of restricted stock to the current employees, the Company does hereby grant and transfer to the Grantee, for no cash consideration from the Grantee, and the Grantee does hereby accept from the Company, an aggregate of [___] shares (the “Award Shares”) of the Common Stock, $0.01 par value per share, of the Company (the “Common Stock”) according to the terms and conditions and subject to the restrictions hereinafter set forth.

     1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock and this grant shall constitute an Award, each as defined in the Company’s [1997][2004] Flexible Long Term Incentive Plan (the “Plan”). This Agreement is expressly subject to the terms and provisions of the Plan and in the event there is a conflict between the terms of the Plan and this Agreement, the terms of the Plan shall control. All undefined capitalized terms used herein shall have the meanings assigned in the Plan. The Award is subject to all laws, approvals, requirements and regulations of any governmental authority which may be applicable thereto.

     SECTION 2. RIGHTS IN SHARES. The Grantee, for the duration of this Agreement, shall be the record owner of, and shall be entitled to vote, the Award Shares and shall be entitled to receive all dividends and any other distributions declared on the Award Shares (provided, however, that nothing contained herein shall cause the Company to declare any such dividends or to make any such distributions).

     SECTION 3. VESTING.

     3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in accordance with the schedule set forth below:

	Percentage of Shares	Cumulative
Date	Vested on Specified Date	Percentage of Shares
[                                        ]	[___]	[___]
[                                        ]	[___]	[___]
[                                        ]	[___]	[___]
[                                        ]	[___]	[___]

provided, however, that notwithstanding the foregoing schedule, and except as otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award Shares shall vest after:

     (i) termination of Grantee’s employment with the Company or any Affiliate for any reason (including termination by reason of voluntary or involuntary discharge, Disability or Retirement) in which case the Grantee shall, at the time of termination, forfeit all right, title and interest in and to any Award Shares not then vested, or

     (ii) a Grantee working full-time at the Award Date reduces his/her scheduled hours worked per week below a standard 40-hour work week, in which case the Grantee shall, at the time of such reduction and subject to management’s discretion, forfeit all right, title and interest in and to any Award Shares not then vested; or

     (iii) a Grantee working part-time at the Award Date reduces his/her scheduled hours worked per week below a standard 20-hour work week, in which case the Grantee shall, at the time of such reduction and subject to management’s discretion, forfeit all right, title and interest in and to any Award Shares not then vested.

     3.2 Effect of Grantee’s Death. If the Grantee ceases to be an employee of the Company or any Affiliate by reason of death, any and all outstanding Award Shares not fully vested shall automatically vest in full and the personal representatives heirs, legatees or distributees of the Grantee, as appropriate, shall become fully vested in the Award Shares effective on the date of the Grantee’s death.

     3.3 Effect of Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company, any and all outstanding Award Shares not fully vested shall automatically vest in full immediately prior to such dissolution or liquidation.

     3.4 Effect of Change of Control. In the event of a Change in Control (as defined in the Plan), any and all outstanding Award Shares not fully vested shall automatically vest in full. The date on which such accelerated vesting shall occur shall be the date of the occurrence of the Change in Control.

     3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to Section 3.1 shall revert to the Company.

     SECTION 4. STOCK CERTIFICATES. Upon grant of the Award Shares, the Company shall cause its Transfer Agent to record Grantee’s ownership of such Award Shares in book entry

2

form. As Award Shares vest hereunder, such Award Shares shall be transferred into an unrestricted account in the name of the Grantee or, at the request of the Grantee, issued in stock certificate form. Any such certificates shall be unencumbered by any of the restrictions enumerated herein other than such restrictions as may be imposed by applicable federal or state securities laws and regulations.

     SECTION 5. TRANSFER AND REPURCHASES UPON TERMINATION.

     5.1 The unvested Award Shares shall not be offered, sold, transferred, assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a “Transfer”) for any purpose whatsoever, other than to the Company, and shall not be subject, in whole or in part, to execution, attachment, or similar process in all such cases until the date of vesting. Any attempted Transfer of the unvested Award Shares, other than in accordance with the terms set forth herein, shall be void and of no effect.

     5.2 Grantee acknowledges that any sale, assignment, transfer or other disposition of vested Award Shares may be subject to restrictions contained in applicable federal or state securities laws and regulations and that any such sale, assignment, transfer or other disposition of Award Shares by him or her will be in compliance with such laws and regulations.

     SECTION 6. WITHHOLDINGS. The Company and each Affiliate shall have the right to retain and withhold from any payment (including the vesting) of Award Shares (and any dividends on Award Shares) any amounts required to be withheld or otherwise deducted and paid with respect to such payment (including the vesting thereof). At its discretion, the Company and each Affiliate may require the Grantee receiving Award Shares to reimburse the Company or any Affiliate for any such taxes required to be withheld by the Company or the Affiliate and withhold any distribution in whole or in part until the Company and each Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate shall have the right to withhold from any other cash amounts due or to become due from the Company or the Affiliate to the Grantee an amount equal to such taxes required to be withheld by the Company or the Affiliate as reimbursement for any such taxes or retain and withhold a number of shares having a market value not less than the amount of such taxes in order to reimburse the Company or the Affiliate for any such taxes.

     SECTION 7. ADJUSTMENTS TO AWARD SHARES.

     7.1 Stock Dividends and Splits and Similar Transactions. Subject to any required action by the Company’s Board of Directors and stockholders, the number of Award Shares shall be proportionately adjusted for any increase or decrease in the number of issued Shares of the Company resulting from the payment of a Share dividend, a Share split, a Share reverse-split or any similar transaction.

     7.2 Change in Par Value. In the event of a change in the Company’s Shares which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be shares within the meaning of the Plan.

3

     7.3 Other Capital Adjustments. Except as hereinbefore expressly provided in Section 7.1 and except for rights that all holders of Common Stock shall have, Grantee shall have no rights by reason of any subdivision or consolidation of Shares of any class or payment of any share dividend or any other increase or decrease in the number of shares of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or stock of another corporation; any issuance by the Company of Shares of any class, or securities convertible into Shares of any class, shall not affect the Award, and no adjustment by reason thereof shall be made with respect to the number or price of the Company’s Shares subject to the Award. An Award of Restricted Stock shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell or transfer all or any part of its business or assets.

     SECTION 8. GRANTEE’S REPRESENTATIONS AND WARRANTIES. Grantee represents and warrants that:

     (a) such Grantee has not and will not, directly or indirectly, Transfer any Award Shares except in accordance with the terms of this Agreement;

     (b) such Grantee has, or such Grantee together with such Grantee’s advisors, if any, have such knowledge and experience in financial, business and tax matters that such Grantee is, or such Grantee together with such Grantee’s advisors, if any, are capable of evaluating the merits and risks relating to such Grantee’s investment in the Award Shares and making an investment decision with respect to the Company;

     (c) such Grantee has been given the opportunity to obtain information and documents relating to the Company and to ask questions of and receive answers from representatives of the Company concerning the Company and such Grantee’s investment in the Award Shares; and

     (d) such Grantee realizes that there are substantial risks incident to an investment in the Award Shares.

     SECTION 9. IMPACT ON OTHER BENEFITS. The value of the Award Shares (either on the Award Date or at the time the shares are vested) shall not be includable as compensation or earnings for purposes of any other benefit plan offered by the Company.

     SECTION 10. ADMINISTRATION. The Committee shall have full authority and discretion (subject only to the express provisions of the Plan) to decide all matters relating to the administration and interpretation of the Plan and this Agreement. All such Committee determinations shall be final, conclusive, and binding upon the Company, the Grantee, and any and all interested parties.

     SECTION 11. NO AGREEMENT TO CONTINUE IN EMPLOYMENT. Nothing in the Plan or this Agreement shall confer on the Grantee any right to continue in the employ of the Company or any Affiliate or interfere in any way with the right of the Company and any Affiliate to terminate the Grantee’s employment at any time.

4

     SECTION 12. AMENDMENT(S). This Agreement shall be subject to the terms of the Plan, as amended from time to time, except that the Award that is the subject of this Agreement may not in any way be restricted or limited by any amendment or termination approved after the Award Date without the Grantee’s written consent.

     SECTION 13. FORCE AND EFFECT. The various provisions of this Agreement are severable in their entirety. Any determination of invalidity or unenforceability of any one provision shall have no effect on the continuing force and effect of the remaining provisions.

     SECTION 14. GOVERNING LAWS. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Maryland.

     SECTION 15. MISCELLANEOUS.

     15.1 Any notice necessary under this Agreement shall be in writing, signed by the party giving or making the same, and addressed (a) to the Company in the care of its President or Secretary at the principal executive office of the Company in Dallas, Texas, (b) to the Grantee at the address appearing in the personnel records of the Company for such Grantee or (c) to either party at such other address as either party hereto may hereafter designate in writing to the other. Except as otherwise provided herein, any such notice shall be deemed effective upon receipt thereof by the addressee.

     15.2 This Agreement may be executed in counterparts, each of which shall be deemed an original for all purposes and both of which taken together shall constitute but one and the same instrument.

[Signature Page Follows]

5

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date hereof. By execution of this Agreement, the Grantee acknowledges receipt of a copy of the Plan, the Company’s Annual Report on Form 10-K for the year ended December 31, 20[___] and the informational supplement required by Rule 428(b)(1) under the Securities Act of 1933.

CAPSTEAD MORTGAGE CORPORATION
By:
	Andrew F. Jacobs
	President and Chief Executive Officer
[GRANTEE]
	[                                        ]

6

EX-10.4

                                                                               .
                                                                               .
                                                                               .

                          CAPSTEAD MORTGAGE CORPORATION

                              INDEX TO EXHIBIT 10.4

NON-QUALIFIED STOCK OPTION AGREEMENTS:



EXHIBIT NO.       GRANTEE
- -----------       -------
               
  10.4(a)         Michael W. Brown, Vice President - Asset and Liability
                  Management and Treasurer
  10.4(b)         Andrew F. Jacobs, President and Chief Executive Officer
  10.4(c)         Amar R. Patel, Senior Vice President - Asset and Liability
                  Management
  10.4(d)         Phillip A. Reinsch, Senior Vice President, Chief Financial
                  Officer and Secretary
  10.4(e)         Robert R. Spears, Jr., Senior Vice President - Asset and
                  Liability Management
  10.4(f)         Jack Biegler, Director
  10.4(g)         Gary Keiser, Director
  10.4(h)         Paul M. Low, Chairman of the Board
  10.4(i)         Christopher W. Mahowald, Director
  10.4(j)         Michael G. O'Neil, Director
  10.4(k)         Howard Rubin, Director
  10.4(l)         Mark S. Whiting, Director


RESTRICTED STOCK AGREEMENTS:



EXHIBIT NO.       GRANTEE
- -----------       -------
               
  10.4(m)         Michael W. Brown, Vice President - Asset and Liability
                  Management and Treasurer
  10.4(n)         Andrew F. Jacobs, President and Chief Executive Officer
  10.4(o)         Amar R. Patel, Senior Vice President - Asset and Liability
                  Management
  10.4(p)         Phillip A. Reinsch, Senior Vice President, Chief Financial
                  Officer and Secretary
  10.4(q)         Robert R. Spears, Jr., Senior Vice President - Asset and
                  Liability Management
  10.4(r)         Jack Biegler, Director
  10.4(s)         Gary Keiser, Director
  10.4(t)         Paul M. Low, Chairman of the Board
  10.4(u)         Christopher W. Mahowald, Director
  10.4(v)         Michael G. O'Neil, Director
  10.4(w)         Howard Rubin, Director
  10.4(x)         Mark S. Whiting, Director




                                                                 EXHIBIT 10.4(a)

                          CAPSTEAD MORTGAGE CORPORATION

                       NONQUALIFIED STOCK OPTION AGREEMENT
                                  FOR EMPLOYEES

      THIS AGREEMENT, made as of this 13th day of May, 2005, (hereinafter called
the "Date of Grant") between Capstead Mortgage Corporation, a Maryland
corporation (hereinafter called the "Company"), and Michael W. Brown
(hereinafter called the "Optionee"):

                                R E C I T A L S:

      The Company has adopted the 2004 Flexible Long-Term Incentive Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the same
meanings as in the Plan.

      The Company has determined that it is in the best interests of the Company
and its stockholders to grant the Optionee the option provided for in this
Agreement pursuant to the Plan on the terms set forth therein as an inducement
to enter into or remain in the employment of the Company or one of its
Affiliates, to enable the Optionee to participate in the long-term growth and
financial success of the Company and as an increased incentive to contribute to
the Company's future success and prosperity.

      NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

      1. Grant of the Option. The Company hereby grants to the Optionee the
right and option to purchase, on the terms and conditions hereinafter set forth,
30,000 Shares (the "Option"). The purchase price of the Shares subject to this
Option shall be $7.82 per Share (the "Exercise Price"). The Option is not
intended to be treated as an option that complies with Section 422 of the Code
or any successor provision thereto.

      2. Option Term. The term of the Option shall begin immediately and
continue until the tenth anniversary of the Date of Grant, subject to earlier
termination as hereinafter provided.

      (a) If the Optionee ceases to be an officer or employee of the Company or
any Affiliate by reason of the Optionee's discharge for cause, all rights of the
Optionee to exercise the Option shall terminate, lapse and be forfeited
immediately at the time of the Optionee's discharge for cause.

      (b) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of death, the personal representatives, heirs, legatees or
distributees of the Optionee, as appropriate, shall have the right to exercise
the Option up to the earlier of (i) six months from the Optionee's death or (ii)
the remaining term of the Option.

      (c) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of the Optionee's resignation, Retirement, Disability or for
any reason other than the

                                        2


Optionee's death or discharge for cause, all rights of the Optionee to exercise
the Option shall terminate, lapse, and be forfeited upon the earlier of (i) six
months after the date of the Optionee's termination of employment by reason of
such employee's resignation, Retirement, Disability or such other reason or (ii)
the remaining term of the Option, except that in case the Optionee shall die
within six months after the date of termination of employment by reason of such
employee's resignation, Retirement, Disability or such other reason, the
personal representatives, heirs, legatees or distributees of the Optionee, as
appropriate, shall have the right up to an additional three months from the date
of the Optionee's death to exercise the Option.

      3. Vesting of Stock Options.

      (a) The Options shall vest (become nonforfeitable) in accordance with the
schedule set forth below:



                      Percentage of Shares              Cumulative
    Date            Vested on Specified Date       Percentage of Shares
- -------------       ------------------------       --------------------
                                             
May 13, 2006                   25                           25
May 13, 2007                   25                           50
May 13, 2008                   25                           75
May 13, 2009                   25                          100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided below in paragraphs (b), (c), (d) or (e) below, no additional
Options shall vest after:

            (i) termination of Optionee's employment with the Company or any
      Affiliate for any reason (including voluntary and involuntary discharge,
      Disability or Retirement), in which case the Optionee shall, at the time
      of termination, forfeit all right, title and interest in and to any
      Options not then vested;

            (ii) an Optionee working full-time at the Date of Grant reduces
      his/her scheduled hours worked per week below a standard 40-hour work
      week, in which case the Optionee shall, at the time of such reduction and
      subject to management's discretion, forfeit all right, title and interest
      in and to any Options not then vested; or

            (iii) an Optionee working part-time at the Date of Grant reduces
      his/her scheduled hours worked per week below a standard 20-hour work
      week, in which case the Optionee shall, at the time of such reduction and
      subject to management's discretion, forfeit all right, title and interest
      in and to any Options not then vested.

      (b) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of death, the personal representatives heirs, legatees or
distributees of the Optionee, as appropriate, shall become fully vested in the
Option effective on the date of the Optionee's death and shall have the
immediate right to exercise the Option to the extent not previously exercised.

      (c) In the event of the dissolution or liquidation of the Company, the
Option shall terminate as of a date to be fixed by the Board; provided, however,
that not less than 30 days'

                                        3


written notice of the date so fixed shall be given to the Optionee and the
Optionee shall be fully vested in and shall have the right during such period to
exercise the Option even though the Option would not otherwise be exercisable
under the Vesting Schedule. At the end of such period, any unexercised portion
of the Option shall terminate and be of no further effect.

      (d) In the event of a Reorganization:

            (1) If there is no plan or agreement respecting the Reorganization
      or if such plan or agreement does not specifically provide for the change,
      conversion or exchange of the Shares under the unexercised portion of the
      Option for other securities, then the provisions of the above paragraph
      (c) of this Section 3 shall apply as if the Company had dissolved or been
      liquidated on the effective date of the Reorganization; or

            (2) If there is a plan or agreement respecting the Reorganization
      and if such plan or agreement specifically provides for the change,
      conversion or exchange of the Shares under the unexercised portion of the
      Option for securities of another corporation, then the Board shall adjust
      the Shares under the unexercised portion of the Option in a manner not
      inconsistent with the provisions of such plan or agreement for the
      adjustment, change, conversion or exchange of such Shares and the Option.

      (e) In the event of a Change in Control of the Company, the Option shall
become fully vested and immediately exercisable.

      4. Exercise of the Option.

      (a) This Option may be exercised as to Shares only in amounts and at
intervals of time specified in this Agreement. Each exercise of the Option, or
any part thereof, shall be evidenced by a notice in writing to the Company. The
Exercise Price of the Shares as to which the Option shall be exercised shall be
paid in full at the time of exercise, and may be paid to the Company either:

            (1) in cash (including check, bank draft or money order); or

            (2) by the delivery of Shares having a Fair Market Value equal to
      the aggregate Exercise Price; provided, however, that such Shares, if
      acquired by the exercise of an Option shall have been owned by the
      Optionee for more than six months prior to exercise; or

            (3) by a combination of cash and Shares as described above; or

            (4) by arrangement with a broker acceptable to the Committee in
      which payment of the Exercise Price is made pursuant to an irrevocable
      direction from the Optionee to the broker to deliver the Company proceeds
      from the sale of the option Shares in an amount equal to the exercise
      price of the Shares.

                                        4


      (b) The amount, as determined by the Committee, of any federal, state or
local tax required to be withheld by the Company due to the exercise of the
Option granted hereunder shall be satisfied either (i) by payment by the
Optionee to the Company of the amount of such withholding obligation in cash or
(ii) through either the retention by the Company of a number of shares out of
the Shares being acquired through the exercise of the Option granted hereunder
or the delivery of already owned Shares having a Fair Market Value equal to the
amount of the withholding obligation. The cash payment or the amount equal to
the Fair Market Value of the Shares so withheld, as the case may be, shall be
remitted by the Company to the appropriate taxing authorities.

      (c) The Optionee shall not have any of the rights of a stockholder of the
Company with respect to the Shares covered by this Agreement except to the
extent that one or more certificates of such Shares shall have been delivered to
the Optionee, or the Optionee has been determined to be a stockholder of record
by the Company's Transfer Agent, upon due exercise of the Option granted
hereunder.

      5. No Right to Continued Employment. This Agreement shall not confer on
the Optionee any right to continue serving as an employee of the Company nor
shall this Agreement limit in any way the Company's right to terminate or change
the terms of the Optionee's employment.

      6. Adjustments Upon Changes in Capitalization or Reorganization. The
number of Shares subject to the Option shall be adjusted from time to time as
follows:

      (a) Subject to any required action by stockholders, the number of Shares
subject to the option granted hereunder, and the Exercise Price, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Company resulting from a subdivision or consolidation of Shares or
the payment of a stock dividend (but only in Shares) or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company.

      (b) Subject to any required action by stockholders, if the Company shall
be the surviving corporation in any Reorganization, merger or consolidation, the
Option granted hereunder shall pertain to and apply to the securities to which a
holder of the number of Shares subject to the Option granted hereunder would
have been entitled, and if a plan or agreement reflecting any such event is in
effect that specifically provides for the change, conversion or exchange of
Shares, then any adjustment to Shares subject to the Option granted hereunder
shall not be inconsistent with the terms of any such plan or agreement.

      (c) In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of par value into the same number of
Shares with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be the Shares within the meaning of the
Plan.

      To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Board, whose determination
shall be final, binding and conclusive.

                                        5


      Except as otherwise specifically provided in this Agreement, the Optionee
shall have no rights by reason of any subdivision or consolidation of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, reorganization, merger or consolidation or spin-off of assets or
stock of another corporation, and any issued by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to the Option granted hereunder.

      7. Non-Transferability of the Option. This Agreement, and the Option
granted hereunder, shall not be transferable otherwise than by will or the laws
of descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee; provided, however, that this Agreement, and the
Option granted hereunder, may be transferred to one or more members of the
immediate family of the Optionee or to a trust for the benefit of such person or
as directed under a qualified domestic relations order. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of this
Agreement and the Option granted hereunder contrary to the provisions hereof, or
the levy of any execution, attachment or similar process upon this Agreement,
and the Option granted hereunder, shall be null and void and without effect.

      8. Compliance with Securities and other Laws. In no event shall the
Company be required to issue Shares under the Option granted hereunder, if the
issuance thereof would constitute a violation of applicable federal or state
securities laws or regulations or a violation of any other law or regulation of
any governmental or regulatory agency or authority or any national securities
exchange. As a condition to any issuance of Shares, the Company may place
legends on shares, issue stop transfer orders and require such agreements or
undertakings as the Company may deem necessary or advisable to assure compliance
with any such laws or regulations, including, if the Company or its counsel
deems it appropriate, representations from the Optionee that the Optionee is
acquiring the Shares solely for investment and not with a view to distribution
and that no distribution of the Shares will be made unless such shares are
registered pursuant to applicable federal and state securities laws, or in the
opinion of counsel of the Company, such registration is unnecessary.

      9. Issuance of Shares. Upon the Company's determination that the Option
granted hereunder has been validly exercised as to any of the Shares, the
Committee shall, at its sole discretion, cause the Secretary of the Company to
issue certificates in the Optionee's name for such Shares. The Company shall not
be liable to the Optionee for damages relating to any delays in issuing the
certificates, if any, to the Optionee, any loss of the certificates, or any
mistakes or errors in the issuance of the certificates or in the certificates
themselves.

      10. Alternative Award for Cancellation of the Option. For purposes of this
Agreement, the payment to the Optionee of an alternative award or an amount in
cash pursuant to the terms of Section 16 of the Plan in consideration of the
cancellation of the Option granted hereunder shall extinguish any rights of the
Optionee in connection with this Agreement.

      11. Notices. Any notice necessary under this Agreement shall be in
writing, signed by the party giving or making the same, and addressed (a) to the
Company in the care of its

                                        6


President or Secretary at the principal executive office of the Company in
Dallas, Texas, (b) to the Optionee at the address appearing in the personnel
records of the Company for such Optionee or (c) to either party at such other
address as either party hereto may hereafter designate in writing to the other.
Except as otherwise provided herein, any such notice shall be deemed effective
upon receipt thereof by the addressee.

      12. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

      13. Option Subject to Plan. The Option is subject to the Plan. The terms
and provisions of the Plan as it may be amended from time to time are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan, the applicable
terms and provisions of the Plan will govern and prevail.

      14. Amendment of Agreement. This Agreement may be amended, altered,
suspended, discontinued or terminated by the Committee; provided that no such
amendment, alteration, suspension or termination shall materially impair the
rights of the Optionee hereunder without the consent of the Optionee.

      15. Administration of Plan and Agreement. Any determinations or decisions
made or actions taken arising out of or in connection with the interpretation
and administration of the Plan and this Agreement by the Committee shall be
final and conclusive.

      16. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original for all purposes and
both of which taken together shall constitute but one and the same instrument.

                            [Signature Page Follows]

                                        7


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Date of Grant. By execution of this Agreement the Optionee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                   CAPSTEAD MORTGAGE CORPORATION

                                   By: /s/ ANDREW F. JACOBS
                                       ---------------------------------------
                                           Andrew F. Jacobs
                                           President and Chief Executive Officer

                                   [OPTIONEE]

                                   /s/ MICHAEL W. BROWN
                                   -------------------------------------------
                                         Michael W. Brown

                                        8



                                                                 EXHIBIT 10.4(b)

                          CAPSTEAD MORTGAGE CORPORATION

                       NONQUALIFIED STOCK OPTION AGREEMENT
                                  FOR EMPLOYEES

      THIS AGREEMENT, made as of this 13th day of May, 2005, (hereinafter called
the "Date of Grant") between Capstead Mortgage Corporation, a Maryland
corporation (hereinafter called the "Company"), and Andrew F. Jacobs
(hereinafter called the "Optionee"):

                                R E C I T A L S:

      The Company has adopted the 2004 Flexible Long-Term Incentive Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the same
meanings as in the Plan.

      The Company has determined that it is in the best interests of the Company
and its stockholders to grant the Optionee the option provided for in this
Agreement pursuant to the Plan on the terms set forth therein as an inducement
to enter into or remain in the employment of the Company or one of its
Affiliates, to enable the Optionee to participate in the long-term growth and
financial success of the Company and as an increased incentive to contribute to
the Company's future success and prosperity.

      NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

      1. Grant of the Option. The Company hereby grants to the Optionee the
right and option to purchase, on the terms and conditions hereinafter set forth,
100,000 Shares (the "Option"). The purchase price of the Shares subject to this
Option shall be $7.82 per Share (the "Exercise Price"). The Option is not
intended to be treated as an option that complies with Section 422 of the Code
or any successor provision thereto.

      2. Option Term. The term of the Option shall begin immediately and
continue until the tenth anniversary of the Date of Grant, subject to earlier
termination as hereinafter provided.

      (a) If the Optionee ceases to be an officer or employee of the Company or
any Affiliate by reason of the Optionee's discharge for cause, all rights of the
Optionee to exercise the Option shall terminate, lapse and be forfeited
immediately at the time of the Optionee's discharge for cause.

      (b) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of death, the personal representatives, heirs, legatees or
distributees of the Optionee, as appropriate, shall have the right to exercise
the Option up to the earlier of (i) six months from the Optionee's death or (ii)
the remaining term of the Option.

      (c) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of the Optionee's resignation, Retirement, Disability or for
any reason other than the



Optionee's death or discharge for cause, all rights of the Optionee to exercise
the Option shall terminate, lapse, and be forfeited upon the earlier of (i) six
months after the date of the Optionee's termination of employment by reason of
such employee's resignation, Retirement, Disability or such other reason or (ii)
the remaining term of the Option, except that in case the Optionee shall die
within six months after the date of termination of employment by reason of such
employee's resignation, Retirement, Disability or such other reason, the
personal representatives, heirs, legatees or distributees of the Optionee, as
appropriate, shall have the right up to an additional three months from the date
of the Optionee's death to exercise the Option.

      3. Vesting of Stock Options.

      (a) The Options shall vest (become nonforfeitable) in accordance with the
schedule set forth below:



                    Percentage of Shares           Cumulative
   Date           Vested on Specified Date    Percentage of Shares
- ------------      ------------------------    --------------------
                                        
May 13, 2006                 25                        25
May 13, 2007                 25                        50
May 13, 2008                 25                        75
May 13, 2009                 25                       100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided below in paragraphs (b), (c), (d) or (e) below, no additional
Options shall vest after:

            (i) termination of Optionee's employment with the Company or any
      Affiliate for any reason (including voluntary and involuntary discharge,
      Disability or Retirement), in which case the Optionee shall, at the time
      of termination, forfeit all right, title and interest in and to any
      Options not then vested;

            (ii) an Optionee working full-time at the Date of Grant reduces
      his/her scheduled hours worked per week below a standard 40-hour work
      week, in which case the Optionee shall, at the time of such reduction and
      subject to management's discretion, forfeit all right, title and interest
      in and to any Options not then vested; or

            (iii) an Optionee working part-time at the Date of Grant reduces
      his/her scheduled hours worked per week below a standard 20-hour work
      week, in which case the Optionee shall, at the time of such reduction and
      subject to management's discretion, forfeit all right, title and interest
      in and to any Options not then vested.

      (b) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of death, the personal representatives heirs, legatees or
distributees of the Optionee, as appropriate, shall become fully vested in the
Option effective on the date of the Optionee's death and shall have the
immediate right to exercise the Option to the extent not previously exercised.

      (c) In the event of the dissolution or liquidation of the Company, the
Option shall terminate as of a date to be fixed by the Board; provided, however,
that not less than 30 days'

                                        2


written notice of the date so fixed shall be given to the Optionee and the
Optionee shall be fully vested in and shall have the right during such period to
exercise the Option even though the Option would not otherwise be exercisable
under the Vesting Schedule. At the end of such period, any unexercised portion
of the Option shall terminate and be of no further effect.

      (d) In the event of a Reorganization:

            (1) If there is no plan or agreement respecting the Reorganization
      or if such plan or agreement does not specifically provide for the change,
      conversion or exchange of the Shares under the unexercised portion of the
      Option for other securities, then the provisions of the above paragraph
      (c) of this Section 3 shall apply as if the Company had dissolved or been
      liquidated on the effective date of the Reorganization; or

            (2) If there is a plan or agreement respecting the Reorganization
      and if such plan or agreement specifically provides for the change,
      conversion or exchange of the Shares under the unexercised portion of the
      Option for securities of another corporation, then the Board shall adjust
      the Shares under the unexercised portion of the Option in a manner not
      inconsistent with the provisions of such plan or agreement for the
      adjustment, change, conversion or exchange of such Shares and the Option.

      (e) In the event of a Change in Control of the Company, the Option shall
become fully vested and immediately exercisable.

      4. Exercise of the Option.

      (a) This Option may be exercised as to Shares only in amounts and at
intervals of time specified in this Agreement. Each exercise of the Option, or
any part thereof, shall be evidenced by a notice in writing to the Company. The
Exercise Price of the Shares as to which the Option shall be exercised shall be
paid in full at the time of exercise, and may be paid to the Company either:

            (1) in cash (including check, bank draft or money order); or

            (2) by the delivery of Shares having a Fair Market Value equal to
      the aggregate Exercise Price; provided, however, that such Shares, if
      acquired by the exercise of an Option shall have been owned by the
      Optionee for more than six months prior to exercise; or

            (3) by a combination of cash and Shares as described above; or

            (4) by arrangement with a broker acceptable to the Committee in
      which payment of the Exercise Price is made pursuant to an irrevocable
      direction from the Optionee to the broker to deliver the Company proceeds
      from the sale of the option Shares in an amount equal to the exercise
      price of the Shares.

                                        3


      (b) The amount, as determined by the Committee, of any federal, state or
local tax required to be withheld by the Company due to the exercise of the
Option granted hereunder shall be satisfied either (i) by payment by the
Optionee to the Company of the amount of such withholding obligation in cash or
(ii) through either the retention by the Company of a number of shares out of
the Shares being acquired through the exercise of the Option granted hereunder
or the delivery of already owned Shares having a Fair Market Value equal to the
amount of the withholding obligation. The cash payment or the amount equal to
the Fair Market Value of the Shares so withheld, as the case may be, shall be
remitted by the Company to the appropriate taxing authorities.

      (c) The Optionee shall not have any of the rights of a stockholder of the
Company with respect to the Shares covered by this Agreement except to the
extent that one or more certificates of such Shares shall have been delivered to
the Optionee, or the Optionee has been determined to be a stockholder of record
by the Company's Transfer Agent, upon due exercise of the Option granted
hereunder.

      5. No Right to Continued Employment. This Agreement shall not confer on
the Optionee any right to continue serving as an employee of the Company nor
shall this Agreement limit in any way the Company's right to terminate or change
the terms of the Optionee's employment.

      6. Adjustments Upon Changes in Capitalization or Reorganization. The
number of Shares subject to the Option shall be adjusted from time to time as
follows:

      (a) Subject to any required action by stockholders, the number of Shares
subject to the option granted hereunder, and the Exercise Price, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Company resulting from a subdivision or consolidation of Shares or
the payment of a stock dividend (but only in Shares) or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company.

      (b) Subject to any required action by stockholders, if the Company shall
be the surviving corporation in any Reorganization, merger or consolidation, the
Option granted hereunder shall pertain to and apply to the securities to which a
holder of the number of Shares subject to the Option granted hereunder would
have been entitled, and if a plan or agreement reflecting any such event is in
effect that specifically provides for the change, conversion or exchange of
Shares, then any adjustment to Shares subject to the Option granted hereunder
shall not be inconsistent with the terms of any such plan or agreement.

      (c) In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of par value into the same number of
Shares with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be the Shares within the meaning of the
Plan.

      To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Board, whose determination
shall be final, binding and conclusive.

                                        4


      Except as otherwise specifically provided in this Agreement, the Optionee
shall have no rights by reason of any subdivision or consolidation of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, reorganization, merger or consolidation or spin-off of assets or
stock of another corporation, and any issued by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to the Option granted hereunder.

      7. Non-Transferability of the Option. This Agreement, and the Option
granted hereunder, shall not be transferable otherwise than by will or the laws
of descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee; provided, however, that this Agreement, and the
Option granted hereunder, may be transferred to one or more members of the
immediate family of the Optionee or to a trust for the benefit of such person or
as directed under a qualified domestic relations order. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of this
Agreement and the Option granted hereunder contrary to the provisions hereof, or
the levy of any execution, attachment or similar process upon this Agreement,
and the Option granted hereunder, shall be null and void and without effect.

      8. Compliance with Securities and other Laws. In no event shall the
Company be required to issue Shares under the Option granted hereunder, if the
issuance thereof would constitute a violation of applicable federal or state
securities laws or regulations or a violation of any other law or regulation of
any governmental or regulatory agency or authority or any national securities
exchange. As a condition to any issuance of Shares, the Company may place
legends on shares, issue stop transfer orders and require such agreements or
undertakings as the Company may deem necessary or advisable to assure compliance
with any such laws or regulations, including, if the Company or its counsel
deems it appropriate, representations from the Optionee that the Optionee is
acquiring the Shares solely for investment and not with a view to distribution
and that no distribution of the Shares will be made unless such shares are
registered pursuant to applicable federal and state securities laws, or in the
opinion of counsel of the Company, such registration is unnecessary.

      9. Issuance of Shares. Upon the Company's determination that the Option
granted hereunder has been validly exercised as to any of the Shares, the
Committee shall, at its sole discretion, cause the Secretary of the Company to
issue certificates in the Optionee's name for such Shares. The Company shall not
be liable to the Optionee for damages relating to any delays in issuing the
certificates, if any, to the Optionee, any loss of the certificates, or any
mistakes or errors in the issuance of the certificates or in the certificates
themselves.

      10. Alternative Award for Cancellation of the Option. For purposes of this
Agreement, the payment to the Optionee of an alternative award or an amount in
cash pursuant to the terms of Section 16 of the Plan in consideration of the
cancellation of the Option granted hereunder shall extinguish any rights of the
Optionee in connection with this Agreement.

      11. Notices. Any notice necessary under this Agreement shall be in
writing, signed by the party giving or making the same, and addressed (a) to the
Company in the care of its

                                        5


President or Secretary at the principal executive office of the Company in
Dallas, Texas, (b) to the Optionee at the address appearing in the personnel
records of the Company for such Optionee or (c) to either party at such other
address as either party hereto may hereafter designate in writing to the other.
Except as otherwise provided herein, any such notice shall be deemed effective
upon receipt thereof by the addressee.

      12. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

      13. Option Subject to Plan. The Option is subject to the Plan. The terms
and provisions of the Plan as it may be amended from time to time are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan, the applicable
terms and provisions of the Plan will govern and prevail.

      14. Amendment of Agreement. This Agreement may be amended, altered,
suspended, discontinued or terminated by the Committee; provided that no such
amendment, alteration, suspension or termination shall materially impair the
rights of the Optionee hereunder without the consent of the Optionee.

      15. Administration of Plan and Agreement. Any determinations or decisions
made or actions taken arising out of or in connection with the interpretation
and administration of the Plan and this Agreement by the Committee shall be
final and conclusive.

      16. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original for all purposes and
both of which taken together shall constitute but one and the same instrument.

                            [Signature Page Follows]

                                        6


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Date of Grant. By execution of this Agreement the Optionee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                     CAPSTEAD MORTGAGE CORPORATION

                                     By: /s/ PHILLIP A. REINSCH
                                         ---------------------------------------
                                             Phillip A. Reinsch
                                             Senior Vice President and Chief
                                             Financial Officer

                                     [OPTIONEE]

                                     /s/ ANDREW F. JACOBS
                                     -------------------------------------------
                                          Andrew F. Jacobs

                                       7


                                                                 EXHIBIT 10.4(c)

                          CAPSTEAD MORTGAGE CORPORATION

                       NONQUALIFIED STOCK OPTION AGREEMENT
                                  FOR EMPLOYEES

      THIS AGREEMENT, made as of this 13th day of May, 2005, (hereinafter called
the "Date of Grant") between Capstead Mortgage Corporation, a Maryland
corporation (hereinafter called the "Company"), and Amar R. Patel (hereinafter
called the "Optionee"):

                                R E C I T A L S:

      The Company has adopted the 2004 Flexible Long-Term Incentive Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the same
meanings as in the Plan.

      The Company has determined that it is in the best interests of the Company
and its stockholders to grant the Optionee the option provided for in this
Agreement pursuant to the Plan on the terms set forth therein as an inducement
to enter into or remain in the employment of the Company or one of its
Affiliates, to enable the Optionee to participate in the long-term growth and
financial success of the Company and as an increased incentive to contribute to
the Company's future success and prosperity.

      NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

      1. Grant of the Option. The Company hereby grants to the Optionee the
right and option to purchase, on the terms and conditions hereinafter set forth,
50,000 Shares (the "Option"). The purchase price of the Shares subject to this
Option shall be $7.82 per Share (the "Exercise Price"). The Option is not
intended to be treated as an option that complies with Section 422 of the Code
or any successor provision thereto.

      2. Option Term. The term of the Option shall begin immediately and
continue until the tenth anniversary of the Date of Grant, subject to earlier
termination as hereinafter provided.

      (a) If the Optionee ceases to be an officer or employee of the Company or
any Affiliate by reason of the Optionee's discharge for cause, all rights of the
Optionee to exercise the Option shall terminate, lapse and be forfeited
immediately at the time of the Optionee's discharge for cause.

      (b) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of death, the personal representatives, heirs, legatees or
distributees of the Optionee, as appropriate, shall have the right to exercise
the Option up to the earlier of (i) six months from the Optionee's death or (ii)
the remaining term of the Option.

      (c) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of the Optionee's resignation, Retirement, Disability or for
any reason other than the



Optionee's death or discharge for cause, all rights of the Optionee to exercise
the Option shall terminate, lapse, and be forfeited upon the earlier of (i) six
months after the date of the Optionee's termination of employment by reason of
such employee's resignation, Retirement, Disability or such other reason or (ii)
the remaining term of the Option, except that in case the Optionee shall die
within six months after the date of termination of employment by reason of such
employee's resignation, Retirement, Disability or such other reason, the
personal representatives, heirs, legatees or distributees of the Optionee, as
appropriate, shall have the right up to an additional three months from the date
of the Optionee's death to exercise the Option.

      3. Vesting of Stock Options.

      (a) The Options shall vest (become nonforfeitable) in accordance with the
schedule set forth below:



                      Percentage of Shares               Cumulative
    Date            Vested on Specified Date        Percentage of Shares
- ------------        ------------------------        --------------------
                                              
May 13, 2006                 25                            25
May 13, 2007                 25                            50
May 13, 2008                 25                            75
May 13, 2009                 25                           100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided below in paragraphs (b), (c), (d) or (e) below, no additional
Options shall vest after:

            (i) termination of Optionee's employment with the Company or any
      Affiliate for any reason (including voluntary and involuntary discharge,
      Disability or Retirement), in which case the Optionee shall, at the time
      of termination, forfeit all right, title and interest in and to any
      Options not then vested;

            (ii) an Optionee working full-time at the Date of Grant reduces
      his/her scheduled hours worked per week below a standard 40-hour work
      week, in which case the Optionee shall, at the time of such reduction and
      subject to management's discretion, forfeit all right, title and interest
      in and to any Options not then vested; or

            (iii) an Optionee working part-time at the Date of Grant reduces
      his/her scheduled hours worked per week below a standard 20-hour work
      week, in which case the Optionee shall, at the time of such reduction and
      subject to management's discretion, forfeit all right, title and interest
      in and to any Options not then vested.

      (b) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of death, the personal representatives heirs, legatees or
distributees of the Optionee, as appropriate, shall become fully vested in the
Option effective on the date of the Optionee's death and shall have the
immediate right to exercise the Option to the extent not previously exercised.

      (c) In the event of the dissolution or liquidation of the Company, the
Option shall terminate as of a date to be fixed by the Board; provided, however,
that not less than 30 days'

                                       2


written notice of the date so fixed shall be given to the Optionee and the
Optionee shall be fully vested in and shall have the right during such period to
exercise the Option even though the Option would not otherwise be exercisable
under the Vesting Schedule. At the end of such period, any unexercised portion
of the Option shall terminate and be of no further effect.

      (d) In the event of a Reorganization:

            (1) If there is no plan or agreement respecting the Reorganization
      or if such plan or agreement does not specifically provide for the change,
      conversion or exchange of the Shares under the unexercised portion of the
      Option for other securities, then the provisions of the above paragraph
      (c) of this Section 3 shall apply as if the Company had dissolved or been
      liquidated on the effective date of the Reorganization; or

            (2) If there is a plan or agreement respecting the Reorganization
      and if such plan or agreement specifically provides for the change,
      conversion or exchange of the Shares under the unexercised portion of the
      Option for securities of another corporation, then the Board shall adjust
      the Shares under the unexercised portion of the Option in a manner not
      inconsistent with the provisions of such plan or agreement for the
      adjustment, change, conversion or exchange of such Shares and the Option.

      (e) In the event of a Change in Control of the Company, the Option shall
become fully vested and immediately exercisable.

      4. Exercise of the Option.

      (a) This Option may be exercised as to Shares only in amounts and at
intervals of time specified in this Agreement. Each exercise of the Option, or
any part thereof, shall be evidenced by a notice in writing to the Company. The
Exercise Price of the Shares as to which the Option shall be exercised shall be
paid in full at the time of exercise, and may be paid to the Company either:

            (1) in cash (including check, bank draft or money order); or

            (2) by the delivery of Shares having a Fair Market Value equal to
      the aggregate Exercise Price; provided, however, that such Shares, if
      acquired by the exercise of an Option shall have been owned by the
      Optionee for more than six months prior to exercise; or

            (3) by a combination of cash and Shares as described above; or

            (4) by arrangement with a broker acceptable to the Committee in
      which payment of the Exercise Price is made pursuant to an irrevocable
      direction from the Optionee to the broker to deliver the Company proceeds
      from the sale of the option Shares in an amount equal to the exercise
      price of the Shares.

                                       3


      (b) The amount, as determined by the Committee, of any federal, state or
local tax required to be withheld by the Company due to the exercise of the
Option granted hereunder shall be satisfied either (i) by payment by the
Optionee to the Company of the amount of such withholding obligation in cash or
(ii) through either the retention by the Company of a number of shares out of
the Shares being acquired through the exercise of the Option granted hereunder
or the delivery of already owned Shares having a Fair Market Value equal to the
amount of the withholding obligation. The cash payment or the amount equal to
the Fair Market Value of the Shares so withheld, as the case may be, shall be
remitted by the Company to the appropriate taxing authorities.

      (c) The Optionee shall not have any of the rights of a stockholder of the
Company with respect to the Shares covered by this Agreement except to the
extent that one or more certificates of such Shares shall have been delivered to
the Optionee, or the Optionee has been determined to be a stockholder of record
by the Company's Transfer Agent, upon due exercise of the Option granted
hereunder.

      5. No Right to Continued Employment. This Agreement shall not confer on
the Optionee any right to continue serving as an employee of the Company nor
shall this Agreement limit in any way the Company's right to terminate or change
the terms of the Optionee's employment.

      6. Adjustments Upon Changes in Capitalization or Reorganization. The
number of Shares subject to the Option shall be adjusted from time to time as
follows:

      (a) Subject to any required action by stockholders, the number of Shares
subject to the option granted hereunder, and the Exercise Price, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Company resulting from a subdivision or consolidation of Shares or
the payment of a stock dividend (but only in Shares) or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company.

      (b) Subject to any required action by stockholders, if the Company shall
be the surviving corporation in any Reorganization, merger or consolidation, the
Option granted hereunder shall pertain to and apply to the securities to which a
holder of the number of Shares subject to the Option granted hereunder would
have been entitled, and if a plan or agreement reflecting any such event is in
effect that specifically provides for the change, conversion or exchange of
Shares, then any adjustment to Shares subject to the Option granted hereunder
shall not be inconsistent with the terms of any such plan or agreement.

      (c) In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of par value into the same number of
Shares with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be the Shares within the meaning of the
Plan.

      To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Board, whose determination
shall be final, binding and conclusive.

                                       4


      Except as otherwise specifically provided in this Agreement, the Optionee
shall have no rights by reason of any subdivision or consolidation of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, reorganization, merger or consolidation or spin-off of assets or
stock of another corporation, and any issued by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to the Option granted hereunder.

      7. Non-Transferability of the Option. This Agreement, and the Option
granted hereunder, shall not be transferable otherwise than by will or the laws
of descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee; provided, however, that this Agreement, and the
Option granted hereunder, may be transferred to one or more members of the
immediate family of the Optionee or to a trust for the benefit of such person or
as directed under a qualified domestic relations order. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of this
Agreement and the Option granted hereunder contrary to the provisions hereof, or
the levy of any execution, attachment or similar process upon this Agreement,
and the Option granted hereunder, shall be null and void and without effect.

      8. Compliance with Securities and other Laws. In no event shall the
Company be required to issue Shares under the Option granted hereunder, if the
issuance thereof would constitute a violation of applicable federal or state
securities laws or regulations or a violation of any other law or regulation of
any governmental or regulatory agency or authority or any national securities
exchange. As a condition to any issuance of Shares, the Company may place
legends on shares, issue stop transfer orders and require such agreements or
undertakings as the Company may deem necessary or advisable to assure compliance
with any such laws or regulations, including, if the Company or its counsel
deems it appropriate, representations from the Optionee that the Optionee is
acquiring the Shares solely for investment and not with a view to distribution
and that no distribution of the Shares will be made unless such shares are
registered pursuant to applicable federal and state securities laws, or in the
opinion of counsel of the Company, such registration is unnecessary.

      9. Issuance of Shares. Upon the Company's determination that the Option
granted hereunder has been validly exercised as to any of the Shares, the
Committee shall, at its sole discretion, cause the Secretary of the Company to
issue certificates in the Optionee's name for such Shares. The Company shall not
be liable to the Optionee for damages relating to any delays in issuing the
certificates, if any, to the Optionee, any loss of the certificates, or any
mistakes or errors in the issuance of the certificates or in the certificates
themselves.

      10. Alternative Award for Cancellation of the Option. For purposes of this
Agreement, the payment to the Optionee of an alternative award or an amount in
cash pursuant to the terms of Section 16 of the Plan in consideration of the
cancellation of the Option granted hereunder shall extinguish any rights of the
Optionee in connection with this Agreement.

      11. Notices. Any notice necessary under this Agreement shall be in
writing, signed by the party giving or making the same, and addressed (a) to the
Company in the care of its

                                       5


President or Secretary at the principal executive office of the Company in
Dallas, Texas, (b) to the Optionee at the address appearing in the personnel
records of the Company for such Optionee or (c) to either party at such other
address as either party hereto may hereafter designate in writing to the other.
Except as otherwise provided herein, any such notice shall be deemed effective
upon receipt thereof by the addressee.

      12. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

      13. Option Subject to Plan. The Option is subject to the Plan. The terms
and provisions of the Plan as it may be amended from time to time are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan, the applicable
terms and provisions of the Plan will govern and prevail.

      14. Amendment of Agreement. This Agreement may be amended, altered,
suspended, discontinued or terminated by the Committee; provided that no such
amendment, alteration, suspension or termination shall materially impair the
rights of the Optionee hereunder without the consent of the Optionee.

      15. Administration of Plan and Agreement. Any determinations or decisions
made or actions taken arising out of or in connection with the interpretation
and administration of the Plan and this Agreement by the Committee shall be
final and conclusive.

      16. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original for all purposes and
both of which taken together shall constitute but one and the same instrument.

                            [Signature Page Follows]

                                       6


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Date of Grant. By execution of this Agreement the Optionee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                   CAPSTEAD MORTGAGE CORPORATION

                                   By: /s/ ANDREW F. JACOBS
                                       -----------------------------------------
                                           Andrew F. Jacobs
                                           President and Chief Executive Officer

                                   [OPTIONEE]

                                   /s/ AMAR R. PATEL
                                   ---------------------------------------------
                                          Amar R. Patel

                                       7


                                                                 EXHIBIT 10.4(d)

                          CAPSTEAD MORTGAGE CORPORATION

                       NONQUALIFIED STOCK OPTION AGREEMENT
                                  FOR EMPLOYEES

      THIS AGREEMENT, made as of this 13th day of May, 2005, (hereinafter called
the "Date of Grant") between Capstead Mortgage Corporation, a Maryland
corporation (hereinafter called the "Company"), and Phillip A. Reinsch
(hereinafter called the "Optionee"):

                               R E C I T A L S:

      The Company has adopted the 2004 Flexible Long-Term Incentive Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the same
meanings as in the Plan.

      The Company has determined that it is in the best interests of the Company
and its stockholders to grant the Optionee the option provided for in this
Agreement pursuant to the Plan on the terms set forth therein as an inducement
to enter into or remain in the employment of the Company or one of its
Affiliates, to enable the Optionee to participate in the long-term growth and
financial success of the Company and as an increased incentive to contribute to
the Company's future success and prosperity.

      NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

      1. Grant of the Option. The Company hereby grants to the Optionee the
right and option to purchase, on the terms and conditions hereinafter set forth,
50,000 Shares (the "Option"). The purchase price of the Shares subject to this
Option shall be $7.82 per Share (the "Exercise Price"). The Option is not
intended to be treated as an option that complies with Section 422 of the Code
or any successor provision thereto.

      2. Option Term. The term of the Option shall begin immediately and
continue until the tenth anniversary of the Date of Grant, subject to earlier
termination as hereinafter provided.

      (a) If the Optionee ceases to be an officer or employee of the Company or
any Affiliate by reason of the Optionee's discharge for cause, all rights of the
Optionee to exercise the Option shall terminate, lapse and be forfeited
immediately at the time of the Optionee's discharge for cause.

      (b) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of death, the personal representatives, heirs, legatees or
distributees of the Optionee, as appropriate, shall have the right to exercise
the Option up to the earlier of (i) six months from the Optionee's death or (ii)
the remaining term of the Option.

      (c) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of the Optionee's resignation, Retirement, Disability or for
any reason other than the



Optionee's death or discharge for cause, all rights of the Optionee to exercise
the Option shall terminate, lapse, and be forfeited upon the earlier of (i) six
months after the date of the Optionee's termination of employment by reason of
such employee's resignation, Retirement, Disability or such other reason or (ii)
the remaining term of the Option, except that in case the Optionee shall die
within six months after the date of termination of employment by reason of such
employee's resignation, Retirement, Disability or such other reason, the
personal representatives, heirs, legatees or distributees of the Optionee, as
appropriate, shall have the right up to an additional three months from the date
of the Optionee's death to exercise the Option.

      3. Vesting of Stock Options.

      (a) The Options shall vest (become nonforfeitable) in accordance with the
schedule set forth below:



                Percentage of Shares            Cumulative
     Date      Vested on Specified Date     Percentage of Shares
- ------------   ------------------------     --------------------
                                      
May 13, 2006            25                           25
May 13, 2007            25                           50
May 13, 2008            25                           75
May 13, 2009            25                          100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided below in paragraphs (b), (c), (d) or (e) below, no additional
Options shall vest after:

            (i) termination of Optionee's employment with the Company or any
      Affiliate for any reason (including voluntary and involuntary discharge,
      Disability or Retirement), in which case the Optionee shall, at the time
      of termination, forfeit all right, title and interest in and to any
      Options not then vested;

            (ii) an Optionee working full-time at the Date of Grant reduces
      his/her scheduled hours worked per week below a standard 40-hour work
      week, in which case the Optionee shall, at the time of such reduction and
      subject to management's discretion, forfeit all right, title and interest
      in and to any Options not then vested; or

            (iii) an Optionee working part-time at the Date of Grant reduces
      his/her scheduled hours worked per week below a standard 20-hour work
      week, in which case the Optionee shall, at the time of such reduction and
      subject to management's discretion, forfeit all right, title and interest
      in and to any Options not then vested.

      (b) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of death, the personal representatives heirs, legatees or
distributees of the Optionee, as appropriate, shall become fully vested in the
Option effective on the date of the Optionee's death and shall have the
immediate right to exercise the Option to the extent not previously exercised.

      (c) In the event of the dissolution or liquidation of the Company, the
Option shall terminate as of a date to be fixed by the Board; provided, however,
that not less than 30 days'

                                        2


written notice of the date so fixed shall be given to the Optionee and the
Optionee shall be fully vested in and shall have the right during such period to
exercise the Option even though the Option would not otherwise be exercisable
under the Vesting Schedule. At the end of such period, any unexercised portion
of the Option shall terminate and be of no further effect.

      (d) In the event of a Reorganization:

            (1) If there is no plan or agreement respecting the Reorganization
      or if such plan or agreement does not specifically provide for the change,
      conversion or exchange of the Shares under the unexercised portion of the
      Option for other securities, then the provisions of the above paragraph
      (c) of this Section 3 shall apply as if the Company had dissolved or been
      liquidated on the effective date of the Reorganization; or

            (2) If there is a plan or agreement respecting the Reorganization
      and if such plan or agreement specifically provides for the change,
      conversion or exchange of the Shares under the unexercised portion of the
      Option for securities of another corporation, then the Board shall adjust
      the Shares under the unexercised portion of the Option in a manner not
      inconsistent with the provisions of such plan or agreement for the
      adjustment, change, conversion or exchange of such Shares and the Option.

      (e) In the event of a Change in Control of the Company, the Option shall
become fully vested and immediately exercisable.

      4. Exercise of the Option.

      (a) This Option may be exercised as to Shares only in amounts and at
intervals of time specified in this Agreement. Each exercise of the Option, or
any part thereof, shall be evidenced by a notice in writing to the Company. The
Exercise Price of the Shares as to which the Option shall be exercised shall be
paid in full at the time of exercise, and may be paid to the Company either:

            (1) in cash (including check, bank draft or money order); or

            (2) by the delivery of Shares having a Fair Market Value equal to
      the aggregate Exercise Price; provided, however, that such Shares, if
      acquired by the exercise of an Option shall have been owned by the
      Optionee for more than six months prior to exercise; or

            (3) by a combination of cash and Shares as described above; or

            (4) by arrangement with a broker acceptable to the Committee in
      which payment of the Exercise Price is made pursuant to an irrevocable
      direction from the Optionee to the broker to deliver the Company proceeds
      from the sale of the option Shares in an amount equal to the exercise
      price of the Shares.

                                       3


      (b) The amount, as determined by the Committee, of any federal, state or
local tax required to be withheld by the Company due to the exercise of the
Option granted hereunder shall be satisfied either (i) by payment by the
Optionee to the Company of the amount of such withholding obligation in cash or
(ii) through either the retention by the Company of a number of shares out of
the Shares being acquired through the exercise of the Option granted hereunder
or the delivery of already owned Shares having a Fair Market Value equal to the
amount of the withholding obligation. The cash payment or the amount equal to
the Fair Market Value of the Shares so withheld, as the case may be, shall be
remitted by the Company to the appropriate taxing authorities.

      (c) The Optionee shall not have any of the rights of a stockholder of the
Company with respect to the Shares covered by this Agreement except to the
extent that one or more certificates of such Shares shall have been delivered to
the Optionee, or the Optionee has been determined to be a stockholder of record
by the Company's Transfer Agent, upon due exercise of the Option granted
hereunder.

      5. No Right to Continued Employment. This Agreement shall not confer on
the Optionee any right to continue serving as an employee of the Company nor
shall this Agreement limit in any way the Company's right to terminate or change
the terms of the Optionee's employment.

      6. Adjustments Upon Changes in Capitalization or Reorganization. The
number of Shares subject to the Option shall be adjusted from time to time as
follows:

      (a) Subject to any required action by stockholders, the number of Shares
subject to the option granted hereunder, and the Exercise Price, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Company resulting from a subdivision or consolidation of Shares or
the payment of a stock dividend (but only in Shares) or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company.

      (b) Subject to any required action by stockholders, if the Company shall
be the surviving corporation in any Reorganization, merger or consolidation, the
Option granted hereunder shall pertain to and apply to the securities to which a
holder of the number of Shares subject to the Option granted hereunder would
have been entitled, and if a plan or agreement reflecting any such event is in
effect that specifically provides for the change, conversion or exchange of
Shares, then any adjustment to Shares subject to the Option granted hereunder
shall not be inconsistent with the terms of any such plan or agreement.

      (c) In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of par value into the same number of
Shares with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be the Shares within the meaning of the
Plan.

      To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Board, whose determination
shall be final, binding and conclusive.

                                       4


      Except as otherwise specifically provided in this Agreement, the Optionee
shall have no rights by reason of any subdivision or consolidation of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, reorganization, merger or consolidation or spin-off of assets or
stock of another corporation, and any issued by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to the Option granted hereunder.

      7. Non-Transferability of the Option. This Agreement, and the Option
granted hereunder, shall not be transferable otherwise than by will or the laws
of descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee; provided, however, that this Agreement, and the
Option granted hereunder, may be transferred to one or more members of the
immediate family of the Optionee or to a trust for the benefit of such person or
as directed under a qualified domestic relations order. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of this
Agreement and the Option granted hereunder contrary to the provisions hereof, or
the levy of any execution, attachment or similar process upon this Agreement,
and the Option granted hereunder, shall be null and void and without effect.

      8. Compliance with Securities and other Laws. In no event shall the
Company be required to issue Shares under the Option granted hereunder, if the
issuance thereof would constitute a violation of applicable federal or state
securities laws or regulations or a violation of any other law or regulation of
any governmental or regulatory agency or authority or any national securities
exchange. As a condition to any issuance of Shares, the Company may place
legends on shares, issue stop transfer orders and require such agreements or
undertakings as the Company may deem necessary or advisable to assure compliance
with any such laws or regulations, including, if the Company or its counsel
deems it appropriate, representations from the Optionee that the Optionee is
acquiring the Shares solely for investment and not with a view to distribution
and that no distribution of the Shares will be made unless such shares are
registered pursuant to applicable federal and state securities laws, or in the
opinion of counsel of the Company, such registration is unnecessary.

      9. Issuance of Shares. Upon the Company's determination that the Option
granted hereunder has been validly exercised as to any of the Shares, the
Committee shall, at its sole discretion, cause the Secretary of the Company to
issue certificates in the Optionee's name for such Shares. The Company shall not
be liable to the Optionee for damages relating to any delays in issuing the
certificates, if any, to the Optionee, any loss of the certificates, or any
mistakes or errors in the issuance of the certificates or in the certificates
themselves.

      10. Alternative Award for Cancellation of the Option. For purposes of this
Agreement, the payment to the Optionee of an alternative award or an amount in
cash pursuant to the terms of Section 16 of the Plan in consideration of the
cancellation of the Option granted hereunder shall extinguish any rights of the
Optionee in connection with this Agreement.

      11. Notices. Any notice necessary under this Agreement shall be in
writing, signed by the party giving or making the same, and addressed (a) to the
Company in the care of its

                                       5


President or Secretary at the principal executive office of the Company in
Dallas, Texas, (b) to the Optionee at the address appearing in the personnel
records of the Company for such Optionee or (c) to either party at such other
address as either party hereto may hereafter designate in writing to the other.
Except as otherwise provided herein, any such notice shall be deemed effective
upon receipt thereof by the addressee.

      12. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

      13. Option Subject to Plan. The Option is subject to the Plan. The terms
and provisions of the Plan as it may be amended from time to time are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan, the applicable
terms and provisions of the Plan will govern and prevail.

      14. Amendment of Agreement. This Agreement may be amended, altered,
suspended, discontinued or terminated by the Committee; provided that no such
amendment, alteration, suspension or termination shall materially impair the
rights of the Optionee hereunder without the consent of the Optionee.

      15. Administration of Plan and Agreement. Any determinations or decisions
made or actions taken arising out of or in connection with the interpretation
and administration of the Plan and this Agreement by the Committee shall be
final and conclusive.

      16. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original for all purposes and
both of which taken together shall constitute but one and the same instrument.

                            [Signature Page Follows]

                                       6


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Date of Grant. By execution of this Agreement the Optionee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                  CAPSTEAD MORTGAGE CORPORATION

                                  By: /s/ ANDREW F. JACOBS
                                     --------------------------------------
                                          Andrew F. Jacobs
                                          President and Chief Executive Officer

                                  [OPTIONEE]

                                  /s/ PHILLIP A. REINSCH
                                  -----------------------------------------
                                         Phillip A. Reinsch

                                       7


                                                                 EXHIBIT 10.4(e)

                          CAPSTEAD MORTGAGE CORPORATION

                       NONQUALIFIED STOCK OPTION AGREEMENT
                                  FOR EMPLOYEES

      THIS AGREEMENT, made as of this 13th day of May, 2005, (hereinafter called
the "Date of Grant") between Capstead Mortgage Corporation, a Maryland
corporation (hereinafter called the "Company"), and Robert R. Spears, Jr.
(hereinafter called the "Optionee"):

                                    RECITALS:

      The Company has adopted the 2004 Flexible Long-Term Incentive Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the same
meanings as in the Plan.

      The Company has determined that it is in the best interests of the Company
and its stockholders to grant the Optionee the option provided for in this
Agreement pursuant to the Plan on the terms set forth therein as an inducement
to enter into or remain in the employment of the Company or one of its
Affiliates, to enable the Optionee to participate in the long-term growth and
financial success of the Company and as an increased incentive to contribute to
the Company's future success and prosperity.

      NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

      1. Grant of the Option. The Company hereby grants to the Optionee the
right and option to purchase, on the terms and conditions hereinafter set forth,
50,000 Shares (the "Option"). The purchase price of the Shares subject to this
Option shall be $7.82 per Share (the "Exercise Price"). The Option is not
intended to be treated as an option that complies with Section 422 of the Code
or any successor provision thereto.

      2. Option Term. The term of the Option shall begin immediately and
continue until the tenth anniversary of the Date of Grant, subject to earlier
termination as hereinafter provided.

      (a) If the Optionee ceases to be an officer or employee of the Company or
any Affiliate by reason of the Optionee's discharge for cause, all rights of the
Optionee to exercise the Option shall terminate, lapse and be forfeited
immediately at the time of the Optionee's discharge for cause.

      (b) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of death, the personal representatives, heirs, legatees or
distributees of the Optionee, as appropriate, shall have the right to exercise
the Option up to the earlier of (i) six months from the Optionee's death or (ii)
the remaining term of the Option.

      (c) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of the Optionee's resignation, Retirement, Disability or for
any reason other than the



Optionee's death or discharge for cause, all rights of the Optionee to exercise
the Option shall terminate, lapse, and be forfeited upon the earlier of (i) six
months after the date of the Optionee's termination of employment by reason of
such employee's resignation, Retirement, Disability or such other reason or (ii)
the remaining term of the Option, except that in case the Optionee shall die
within six months after the date of termination of employment by reason of such
employee's resignation, Retirement, Disability or such other reason, the
personal representatives, heirs, legatees or distributees of the Optionee, as
appropriate, shall have the right up to an additional three months from the date
of the Optionee's death to exercise the Option.

      3. Vesting of Stock Options.

      (a) The Options shall vest (become nonforfeitable) in accordance with the
schedule set forth below:



                        Percentage of Shares                 Cumulative
    Date              Vested on Specified Date         Percentage of Shares
- ------------          ------------------------         --------------------
                                                 
May 13, 2006                     25                             25
May 13, 2007                     25                             50
May 13, 2008                     25                             75
May 13, 2009                     25                            100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided below in paragraphs (b), (c), (d) or (e) below, no additional
Options shall vest after:

            (i) termination of Optionee's employment with the Company or any
      Affiliate for any reason (including voluntary and involuntary discharge,
      Disability or Retirement), in which case the Optionee shall, at the time
      of termination, forfeit all right, title and interest in and to any
      Options not then vested;

            (ii) an Optionee working full-time at the Date of Grant reduces
      his/her scheduled hours worked per week below a standard 40-hour work
      week, in which case the Optionee shall, at the time of such reduction and
      subject to management's discretion, forfeit all right, title and interest
      in and to any Options not then vested; or

            (iii) an Optionee working part-time at the Date of Grant reduces
      his/her scheduled hours worked per week below a standard 20-hour work
      week, in which case the Optionee shall, at the time of such reduction and
      subject to management's discretion, forfeit all right, title and interest
      in and to any Options not then vested.

      (b) If the Optionee ceases to be an employee of the Company or any
Affiliate by reason of death, the personal representatives heirs, legatees or
distributees of the Optionee, as appropriate, shall become fully vested in the
Option effective on the date of the Optionee's death and shall have the
immediate right to exercise the Option to the extent not previously exercised.

      (c) In the event of the dissolution or liquidation of the Company, the
Option shall terminate as of a date to be fixed by the Board; provided, however,
that not less than 30 days'

                                       2


written notice of the date so fixed shall be given to the Optionee and the
Optionee shall be fully vested in and shall have the right during such period to
exercise the Option even though the Option would not otherwise be exercisable
under the Vesting Schedule. At the end of such period, any unexercised portion
of the Option shall terminate and be of no further effect.

      (d) In the event of a Reorganization:

            (1) If there is no plan or agreement respecting the Reorganization
      or if such plan or agreement does not specifically provide for the change,
      conversion or exchange of the Shares under the unexercised portion of the
      Option for other securities, then the provisions of the above paragraph
      (c) of this Section 3 shall apply as if the Company had dissolved or been
      liquidated on the effective date of the Reorganization; or

            (2) If there is a plan or agreement respecting the Reorganization
      and if such plan or agreement specifically provides for the change,
      conversion or exchange of the Shares under the unexercised portion of the
      Option for securities of another corporation, then the Board shall adjust
      the Shares under the unexercised portion of the Option in a manner not
      inconsistent with the provisions of such plan or agreement for the
      adjustment, change, conversion or exchange of such Shares and the Option.

      (e) In the event of a Change in Control of the Company, the Option shall
become fully vested and immediately exercisable.

      4. Exercise of the Option.

      (a) This Option may be exercised as to Shares only in amounts and at
intervals of time specified in this Agreement. Each exercise of the Option, or
any part thereof, shall be evidenced by a notice in writing to the Company. The
Exercise Price of the Shares as to which the Option shall be exercised shall be
paid in full at the time of exercise, and may be paid to the Company either:

            (1) in cash (including check, bank draft or money order); or

            (2) by the delivery of Shares having a Fair Market Value equal to
      the aggregate Exercise Price; provided, however, that such Shares, if
      acquired by the exercise of an Option shall have been owned by the
      Optionee for more than six months prior to exercise; or

            (3) by a combination of cash and Shares as described above; or

            (4) by arrangement with a broker acceptable to the Committee in
      which payment of the Exercise Price is made pursuant to an irrevocable
      direction from the Optionee to the broker to deliver the Company proceeds
      from the sale of the option Shares in an amount equal to the exercise
      price of the Shares.

                                       3


      (b) The amount, as determined by the Committee, of any federal, state or
local tax required to be withheld by the Company due to the exercise of the
Option granted hereunder shall be satisfied either (i) by payment by the
Optionee to the Company of the amount of such withholding obligation in cash or
(ii) through either the retention by the Company of a number of shares out of
the Shares being acquired through the exercise of the Option granted hereunder
or the delivery of already owned Shares having a Fair Market Value equal to the
amount of the withholding obligation. The cash payment or the amount equal to
the Fair Market Value of the Shares so withheld, as the case may be, shall be
remitted by the Company to the appropriate taxing authorities.

      (c) The Optionee shall not have any of the rights of a stockholder of the
Company with respect to the Shares covered by this Agreement except to the
extent that one or more certificates of such Shares shall have been delivered to
the Optionee, or the Optionee has been determined to be a stockholder of record
by the Company's Transfer Agent, upon due exercise of the Option granted
hereunder.

      5. No Right to Continued Employment. This Agreement shall not confer on
the Optionee any right to continue serving as an employee of the Company nor
shall this Agreement limit in any way the Company's right to terminate or change
the terms of the Optionee's employment.

      6. Adjustments Upon Changes in Capitalization or Reorganization. The
number of Shares subject to the Option shall be adjusted from time to time as
follows:

      (a) Subject to any required action by stockholders, the number of Shares
subject to the option granted hereunder, and the Exercise Price, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Company resulting from a subdivision or consolidation of Shares or
the payment of a stock dividend (but only in Shares) or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company.

      (b) Subject to any required action by stockholders, if the Company shall
be the surviving corporation in any Reorganization, merger or consolidation, the
Option granted hereunder shall pertain to and apply to the securities to which a
holder of the number of Shares subject to the Option granted hereunder would
have been entitled, and if a plan or agreement reflecting any such event is in
effect that specifically provides for the change, conversion or exchange of
Shares, then any adjustment to Shares subject to the Option granted hereunder
shall not be inconsistent with the terms of any such plan or agreement.

      (c) In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of par value into the same number of
Shares with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be the Shares within the meaning of the
Plan.

      To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Board, whose determination
shall be final, binding and conclusive.

                                       4


      Except as otherwise specifically provided in this Agreement, the Optionee
shall have no rights by reason of any subdivision or consolidation of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, reorganization, merger or consolidation or spin-off of assets or
stock of another corporation, and any issued by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to the Option granted hereunder.

      7. Non-Transferability of the Option. This Agreement, and the Option
granted hereunder, shall not be transferable otherwise than by will or the laws
of descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee; provided, however, that this Agreement, and the
Option granted hereunder, may be transferred to one or more members of the
immediate family of the Optionee or to a trust for the benefit of such person or
as directed under a qualified domestic relations order. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of this
Agreement and the Option granted hereunder contrary to the provisions hereof, or
the levy of any execution, attachment or similar process upon this Agreement,
and the Option granted hereunder, shall be null and void and without effect.

      8. Compliance with Securities and other Laws. In no event shall the
Company be required to issue Shares under the Option granted hereunder, if the
issuance thereof would constitute a violation of applicable federal or state
securities laws or regulations or a violation of any other law or regulation of
any governmental or regulatory agency or authority or any national securities
exchange. As a condition to any issuance of Shares, the Company may place
legends on shares, issue stop transfer orders and require such agreements or
undertakings as the Company may deem necessary or advisable to assure compliance
with any such laws or regulations, including, if the Company or its counsel
deems it appropriate, representations from the Optionee that the Optionee is
acquiring the Shares solely for investment and not with a view to distribution
and that no distribution of the Shares will be made unless such shares are
registered pursuant to applicable federal and state securities laws, or in the
opinion of counsel of the Company, such registration is unnecessary.

      9. Issuance of Shares. Upon the Company's determination that the Option
granted hereunder has been validly exercised as to any of the Shares, the
Committee shall, at its sole discretion, cause the Secretary of the Company to
issue certificates in the Optionee's name for such Shares. The Company shall not
be liable to the Optionee for damages relating to any delays in issuing the
certificates, if any, to the Optionee, any loss of the certificates, or any
mistakes or errors in the issuance of the certificates or in the certificates
themselves.

      10. Alternative Award for Cancellation of the Option. For purposes of this
Agreement, the payment to the Optionee of an alternative award or an amount in
cash pursuant to the terms of Section 16 of the Plan in consideration of the
cancellation of the Option granted hereunder shall extinguish any rights of the
Optionee in connection with this Agreement.

      11. Notices. Any notice necessary under this Agreement shall be in
writing, signed by the party giving or making the same, and addressed (a) to the
Company in the care of its

                                       5


President or Secretary at the principal executive office of the Company in
Dallas, Texas, (b) to the Optionee at the address appearing in the personnel
records of the Company for such Optionee or (c) to either party at such other
address as either party hereto may hereafter designate in writing to the other.
Except as otherwise provided herein, any such notice shall be deemed effective
upon receipt thereof by the addressee.

      12. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

      13. Option Subject to Plan. The Option is subject to the Plan. The terms
and provisions of the Plan as it may be amended from time to time are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan, the applicable
terms and provisions of the Plan will govern and prevail.

      14. Amendment of Agreement. This Agreement may be amended, altered,
suspended, discontinued or terminated by the Committee; provided that no such
amendment, alteration, suspension or termination shall materially impair the
rights of the Optionee hereunder without the consent of the Optionee.

      15. Administration of Plan and Agreement. Any determinations or decisions
made or actions taken arising out of or in connection with the interpretation
and administration of the Plan and this Agreement by the Committee shall be
final and conclusive.

      16. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original for all purposes and
both of which taken together shall constitute but one and the same instrument.

                            [Signature Page Follows]

                                       6


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Date of Grant. By execution of this Agreement the Optionee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                             CAPSTEAD MORTGAGE CORPORATION

                             By: /s/ ANDREW F. JACOBS
                                 -----------------------------------------
                                 Andrew F. Jacobs
                                 President and Chief Executive Officer

                             [OPTIONEE]

                             /s/ ROBERT R. SPEARS, JR.
                             --------------------------------------------
                                 Robert R. Spears, Jr.

                                       7


                                                                 EXHIBIT 10.4(f)

                          CAPSTEAD MORTGAGE CORPORATION

                       NONQUALIFIED STOCK OPTION AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

      THIS AGREEMENT, made as of this 21st day of June, 2005 (hereinafter called
the "Date of Grant"), between Capstead Mortgage Corporation, a Maryland
corporation (hereinafter called the "Company"), and Jack Biegler (hereinafter
called the "Optionee"):

                                    RECITALS:

      The Company has adopted the 2004 Flexible Long-Term Incentive Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the same
meanings as in the Plan.

      The Company has determined that it is in the best interests of the Company
and its stockholders to grant the option provided for herein to the Optionee
pursuant to the Plan on the terms set forth herein as an inducement to become or
remain a director of the Company, to enable the Optionee to participate in the
long-term growth and financial success of the Company and as an increased
incentive to contribute to the Company's future success and prosperity.

      NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

      1. Grant of the Option. (a) The Company hereby grants to the Optionee the
right and option to purchase, on the terms and conditions hereinafter set forth,
10,000 Shares (the "Option"). The purchase price of the Shares subject to this
Option shall be $8.57 per Share (the "Exercise Price"). This Option is not
intended to be treated as an option that complies with Section 422 of the Code,
or any successor provision thereto.

      2. Option Term. The term of the Option shall begin immediately and
continue until the tenth anniversary of the Date of Grant, subject to earlier
termination as hereinafter provided.

      (a) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's discharge for cause, all rights of the
Optionee to exercise the Option shall terminate, lapse and be forfeited
immediately at the time of the Optionee's discharge for cause.

      (b) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of death, the personal representatives, heirs, legatees or
distributees of the Optionee, as appropriate, shall have the right to exercise
the Option up to the earlier of (i) six months from the Optionee's death or (ii)
the remaining term of the Option.

      (c) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's resignation, Retirement, Disability or for
any reason other than the Optionee's death or discharge for cause, all rights of
the Optionee to exercise the Option shall terminate, lapse, and be forfeited
upon the earlier of (i) six months after the date Optionee's service as a



director of the Company terminates by reason of such director's resignation,
Retirement, Disability or such other reason or (ii) the remaining term of the
Option, except that in case the Optionee shall die within six months after the
date Optionee's service as an Eligible Director of the Company terminates by
reason of such director's resignation, Retirement, Disability or such other
reason, the personal representatives, heirs, legatees or distributees of the
Optionee, as appropriate, shall have the right up to an additional three months
from the date of the Optionee's death to exercise the Option.

      3. Exercise of Option.

      (a) This Option is immediately exercisable. Each exercise of the Option,
or any part thereof, shall be evidenced by a notice in writing to the Company.
The Exercise Price of the Shares as to which the Option shall be exercised shall
be paid in full at the time of exercise, and may be paid to the Company either:

            (1) in cash (including check, bank draft or money order); or

            (2) by the delivery of Shares having a Fair Market Value equal to
      the aggregate Exercise Price; provided, however, that such Shares, if
      acquired by the exercise of an Option shall have been owned by the
      Optionee for more than six months prior to exercise; or

            (3) by a combination of cash and Shares as described above; or

            (4) by arrangement with a broker acceptable to the Committee in
      which payment of the Exercise Price is made pursuant to an irrevocable
      direction from the Optionee to the broker to deliver the Company proceeds
      from the sale of the option Shares in an amount equal to the exercise
      price of the Shares.

      (b) The Optionee shall not have any of the rights of a stockholder of the
Company with respect to the Shares covered by this Agreement except to the
extent that one or more certificates of such Shares shall have been delivered to
the Optionee, or the Optionee has been determined to be a stockholder of record
by the Company's Transfer Agent, upon due exercise of the Option granted
hereunder.

      4. Adjustments Upon Changes in Capitalization or Reorganization. The
number of Shares subject to the Option shall be adjusted from time to time as
follows:

      (a) Subject to any required action by stockholders, the number of Shares
subject to the option granted hereunder, and the Exercise Price, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Company resulting from a subdivision or consolidation of Shares or
the payment of a stock dividend (but only in Shares) or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company.

      (b) Subject to any required action by stockholders, if the Company shall
be the surviving corporation in any Reorganization, merger or consolidation, the
Option granted

                                      2



hereunder shall pertain to and apply to the securities to which a holder of the
number of Shares subject to the Option granted hereunder would have been
entitled, and if a plan or agreement reflecting any such event is in effect that
specifically provides for the change, conversion or exchange of Shares, then any
adjustment to Shares subject to the Option granted hereunder shall not be
inconsistent with the terms of any such plan or agreement.

      (c) In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of par value into the same number of
Shares with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be the Shares within the meaning of the
Plan.

      To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Committee, whose
determination shall be final, binding and conclusive.

      Except as otherwise specifically provided in this Agreement, the Optionee
shall have no rights by reason of any subdivision or consolidation of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, reorganization, merger or consolidation or spin-off of assets or
stock of another corporation, and any issued by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to the Option granted hereunder.

      5. Non-Transferability of the Option. This Agreement, and the Option
granted hereunder, shall not be transferable otherwise than by will or the laws
of descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee; provided, however, that this Agreement, and the
Option granted hereunder, may be transferred to one or more members of the
immediate family of the Optionee or to a trust for the benefit of such person or
as directed under a qualified domestic relations order. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of this
Agreement and the Option granted hereunder contrary to the provisions hereof, or
the levy of any execution, attachment or similar process upon this Agreement,
and the Option granted hereunder, shall be null and void and without effect.

      6. Compliance with Securities and other Laws. In no event shall the
Company be required to issue Shares under the Option granted hereunder, if the
issuance thereof would constitute a violation of applicable federal or state
securities laws or regulations or a violation of any other law or regulation of
any governmental or regulatory agency or authority or any national securities
exchange. As a condition to any issuance of Shares, the Company may place
legends on shares, issue stop transfer orders and require such agreements or
undertakings as the Company may deem necessary or advisable to assure compliance
with any such laws or regulations, including, if the Company or its counsel
deems it appropriate, representations from the Optionee that the Optionee is
acquiring the Shares solely for investment and not with a view to distribution
and that no distribution of the Shares will be made unless such shares are
registered pursuant to applicable federal and state securities laws, or in the
opinion of counsel of the Company, such registration is unnecessary.

                                       3



      7. Issuance of Shares. Upon the Company's determination that the Option
granted hereunder has been validly exercised as to any of the Shares, the
Committee shall, at its sole discretion, cause the Secretary of the Company to
issue certificates in the Optionee's name for such Shares. The Company shall not
be liable to the Optionee for damages relating to any delays in issuing the
certificates, if any, to the Optionee, any loss of the certificates, or any
mistakes or errors in the issuance of the certificates or in the certificates
themselves.

      8. Alternative Award for Cancellation of the Option. For purposes of this
Agreement, the payment to the Optionee of an alternative award or an amount in
cash pursuant to the terms of Section 16 of the Plan in consideration of the
cancellation of the Option granted hereunder shall extinguish any rights of the
Optionee in connection with this Agreement.

      9. Notices. Any notice necessary under this Agreement shall be in writing,
signed by the party giving or making the same, and addressed (a) to the Company
in the care of its President or Secretary at the principal executive office of
the Company in Dallas, Texas, (b) to the Optionee at the address appearing in
the personnel records of the Company for such Optionee or (c) to either party at
such other address as either party hereto may hereafter designate in writing to
the other. Except as otherwise provided herein, any such notice shall be deemed
effective upon receipt thereof by the addressee.

      10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

      11. Option Subject to Plan. The Option is subject to the Plan. The terms
and provisions of the Plan as it may be amended from time to time are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan, the applicable
terms and provisions of the Plan will govern and prevail.

      12. Amendment of Agreement. This Agreement may be amended, altered,
suspended, discontinued or terminated by the Committee; provided that no such
amendment, alteration suspension or termination shall materially impair the
rights of the Optionee hereunder without the consent of the Optionee.

      13. Administration of Plan and Agreement. Any determinations or decisions
made or actions taken arising out of or in connection with the interpretation
and administration of the Plan and this Agreement by the Committee shall be
final and conclusive.

      14. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original for all purposes and
both of which taken together shall constitute but one and the same instrument.

                            [Signature Page Follows]

                                       4



      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Date of Grant. By execution of this Agreement, the Optionee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                             CAPSTEAD MORTGAGE CORPORATION

                             By: /s/ ANDREW F. JACOBS
                             --------------------------------------------
                                 President and Chief Executive Officer

                             [OPTIONEE]

                             /s/ JACK BIEGLER
                             ----------------------------------------------
                                 Jack Biegler

                                       5



                                                                 EXHIBIT 10.4(g)

                          CAPSTEAD MORTGAGE CORPORATION

                       NONQUALIFIED STOCK OPTION AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

      THIS AGREEMENT, made as of this 13th day of May, 2005 (hereinafter called
the "Date of Grant"), between Capstead Mortgage Corporation, a Maryland
corporation (hereinafter called the "Company"), and Gary Keiser (hereinafter
called the "Optionee"):

                                    RECITALS:

      The Company has adopted the 2004 Flexible Long-Term Incentive Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the same
meanings as in the Plan.

      The Company has determined that it is in the best interests of the Company
and its stockholders to grant the option provided for herein to the Optionee
pursuant to the Plan on the terms set forth herein as an inducement to become or
remain a director of the Company, to enable the Optionee to participate in the
long-term growth and financial success of the Company and as an increased
incentive to contribute to the Company's future success and prosperity.

      NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

      1. Grant of the Option. (a) The Company hereby grants to the Optionee the
right and option to purchase, on the terms and conditions hereinafter set forth,
10,000 Shares (the "Option"). The purchase price of the Shares subject to this
Option shall be $7.82 per Share (the "Exercise Price"). This Option is not
intended to be treated as an option that complies with Section 422 of the Code,
or any successor provision thereto.

      2. Option Term. The term of the Option shall begin immediately and
continue until the tenth anniversary of the Date of Grant, subject to earlier
termination as hereinafter provided.

      (a) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's discharge for cause, all rights of the
Optionee to exercise the Option shall terminate, lapse and be forfeited
immediately at the time of the Optionee's discharge for cause.

      (b) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of death, the personal representatives, heirs, legatees or
distributees of the Optionee, as appropriate, shall have the right to exercise
the Option up to the earlier of (i) six months from the Optionee's death or (ii)
the remaining term of the Option.

      (c) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's resignation, Retirement, Disability or for
any reason other than the Optionee's death or discharge for cause, all rights of
the Optionee to exercise the Option shall terminate, lapse, and be forfeited
upon the earlier of (i) six months after the date Optionee's service as a



director of the Company terminates by reason of such director's resignation,
Retirement, Disability or such other reason or (ii) the remaining term of the
Option, except that in case the Optionee shall die within six months after the
date Optionee's service as an Eligible Director of the Company terminates by
reason of such director's resignation, Retirement, Disability or such other
reason, the personal representatives, heirs, legatees or distributees of the
Optionee, as appropriate, shall have the right up to an additional three months
from the date of the Optionee's death to exercise the Option.

      3. Exercise of Option.

      (a) This Option is immediately exercisable. Each exercise of the Option,
or any part thereof, shall be evidenced by a notice in writing to the Company.
The Exercise Price of the Shares as to which the Option shall be exercised shall
be paid in full at the time of exercise, and may be paid to the Company either:

            (1) in cash (including check, bank draft or money order); or

            (2) by the delivery of Shares having a Fair Market Value equal to
      the aggregate Exercise Price; provided, however, that such Shares, if
      acquired by the exercise of an Option shall have been owned by the
      Optionee for more than six months prior to exercise; or

            (3) by a combination of cash and Shares as described above; or

            (4) by arrangement with a broker acceptable to the Committee in
      which payment of the Exercise Price is made pursuant to an irrevocable
      direction from the Optionee to the broker to deliver the Company proceeds
      from the sale of the option Shares in an amount equal to the exercise
      price of the Shares.

      (b) The Optionee shall not have any of the rights of a stockholder of the
Company with respect to the Shares covered by this Agreement except to the
extent that one or more certificates of such Shares shall have been delivered to
the Optionee, or the Optionee has been determined to be a stockholder of record
by the Company's Transfer Agent, upon due exercise of the Option granted
hereunder.

      4. Adjustments Upon Changes in Capitalization or Reorganization. The
number of Shares subject to the Option shall be adjusted from time to time as
follows:

      (a) Subject to any required action by stockholders, the number of Shares
subject to the option granted hereunder, and the Exercise Price, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Company resulting from a subdivision or consolidation of Shares or
the payment of a stock dividend (but only in Shares) or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company.

      (b) Subject to any required action by stockholders, if the Company shall
be the surviving corporation in any Reorganization, merger or consolidation, the
Option granted

                                        2



hereunder shall pertain to and apply to the securities to which a holder of the
number of Shares subject to the Option granted hereunder would have been
entitled, and if a plan or agreement reflecting any such event is in effect that
specifically provides for the change, conversion or exchange of Shares, then any
adjustment to Shares subject to the Option granted hereunder shall not be
inconsistent with the terms of any such plan or agreement.

      (c) In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of par value into the same number of
Shares with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be the Shares within the meaning of the
Plan.

      To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Committee, whose
determination shall be final, binding and conclusive.

      Except as otherwise specifically provided in this Agreement, the Optionee
shall have no rights by reason of any subdivision or consolidation of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, reorganization, merger or consolidation or spin-off of assets or
stock of another corporation, and any issued by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to the Option granted hereunder.

      5. Non-Transferability of the Option. This Agreement, and the Option
granted hereunder, shall not be transferable otherwise than by will or the laws
of descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee; provided, however, that this Agreement, and the
Option granted hereunder, may be transferred to one or more members of the
immediate family of the Optionee or to a trust for the benefit of such person or
as directed under a qualified domestic relations order. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of this
Agreement and the Option granted hereunder contrary to the provisions hereof, or
the levy of any execution, attachment or similar process upon this Agreement,
and the Option granted hereunder, shall be null and void and without effect.

      6. Compliance with Securities and other Laws. In no event shall the
Company be required to issue Shares under the Option granted hereunder, if the
issuance thereof would constitute a violation of applicable federal or state
securities laws or regulations or a violation of any other law or regulation of
any governmental or regulatory agency or authority or any national securities
exchange. As a condition to any issuance of Shares, the Company may place
legends on shares, issue stop transfer orders and require such agreements or
undertakings as the Company may deem necessary or advisable to assure compliance
with any such laws or regulations, including, if the Company or its counsel
deems it appropriate, representations from the Optionee that the Optionee is
acquiring the Shares solely for investment and not with a view to distribution
and that no distribution of the Shares will be made unless such shares are
registered pursuant to applicable federal and state securities laws, or in the
opinion of counsel of the Company, such registration is unnecessary.

                                       3



      7. Issuance of Shares. Upon the Company's determination that the Option
granted hereunder has been validly exercised as to any of the Shares, the
Committee shall, at its sole discretion, cause the Secretary of the Company to
issue certificates in the Optionee's name for such Shares. The Company shall not
be liable to the Optionee for damages relating to any delays in issuing the
certificates, if any, to the Optionee, any loss of the certificates, or any
mistakes or errors in the issuance of the certificates or in the certificates
themselves.

      8. Alternative Award for Cancellation of the Option. For purposes of this
Agreement, the payment to the Optionee of an alternative award or an amount in
cash pursuant to the terms of Section 16 of the Plan in consideration of the
cancellation of the Option granted hereunder shall extinguish any rights of the
Optionee in connection with this Agreement.

      9. Notices. Any notice necessary under this Agreement shall be in writing,
signed by the party giving or making the same, and addressed (a) to the Company
in the care of its President or Secretary at the principal executive office of
the Company in Dallas, Texas, (b) to the Optionee at the address appearing in
the personnel records of the Company for such Optionee or (c) to either party at
such other address as either party hereto may hereafter designate in writing to
the other. Except as otherwise provided herein, any such notice shall be deemed
effective upon receipt thereof by the addressee.

      10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

      11. Option Subject to Plan. The Option is subject to the Plan. The terms
and provisions of the Plan as it may be amended from time to time are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan, the applicable
terms and provisions of the Plan will govern and prevail.

      12. Amendment of Agreement. This Agreement may be amended, altered,
suspended, discontinued or terminated by the Committee; provided that no such
amendment, alteration suspension or termination shall materially impair the
rights of the Optionee hereunder without the consent of the Optionee.

      13. Administration of Plan and Agreement. Any determinations or decisions
made or actions taken arising out of or in connection with the interpretation
and administration of the Plan and this Agreement by the Committee shall be
final and conclusive.

      14. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original for all purposes and
both of which taken together shall constitute but one and the same instrument.

                            [Signature Page Follows]

                                       4



      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Date of Grant. By execution of this Agreement, the Optionee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                CAPSTEAD MORTGAGE CORPORATION

                                By: /s/ ANDREW F. JACOBS
                                ----------------------------------------------
                                  Andrew F. Jacobs

                                  President and Chief Executive Officer

                                [OPTIONEE]

                                /s/ GARY KEISER
                                -----------------------------------------------
                                  Gary Keiser

                                       5


                                                                 EXHIBIT 10.4(h)

                          CAPSTEAD MORTGAGE CORPORATION

                       NONQUALIFIED STOCK OPTION AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

      THIS AGREEMENT, made as of this 13th day of May, 2005 (hereinafter called
the "Date of Grant"), between Capstead Mortgage Corporation, a Maryland
corporation (hereinafter called the "Company"), and Paul M. Low (hereinafter
called the "Optionee"):

                                    RECITALS:

      The Company has adopted the 2004 Flexible Long-Term Incentive Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the same
meanings as in the Plan.

      The Company has determined that it is in the best interests of the Company
and its stockholders to grant the option provided for herein to the Optionee
pursuant to the Plan on the terms set forth herein as an inducement to become or
remain a director of the Company, to enable the Optionee to participate in the
long-term growth and financial success of the Company and as an increased
incentive to contribute to the Company's future success and prosperity.

      NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

      1. Grant of the Option. (a) The Company hereby grants to the Optionee the
right and option to purchase, on the terms and conditions hereinafter set forth,
10,000 Shares (the "Option"). The purchase price of the Shares subject to this
Option shall be $7.82 per Share (the "Exercise Price"). This Option is not
intended to be treated as an option that complies with Section 422 of the Code,
or any successor provision thereto.

      2. Option Term. The term of the Option shall begin immediately and
continue until the tenth anniversary of the Date of Grant, subject to earlier
termination as hereinafter provided.

      (a) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's discharge for cause, all rights of the
Optionee to exercise the Option shall terminate, lapse and be forfeited
immediately at the time of the Optionee's discharge for cause.

      (b) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of death, the personal representatives, heirs, legatees or
distributees of the Optionee, as appropriate, shall have the right to exercise
the Option up to the earlier of (i) six months from the Optionee's death or (ii)
the remaining term of the Option.

      (c) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's resignation, Retirement, Disability or for
any reason other than the Optionee's death or discharge for cause, all rights of
the Optionee to exercise the Option shall terminate, lapse, and be forfeited
upon the earlier of (i) six months after the date Optionee's service as a



director of the Company terminates by reason of such director's resignation,
Retirement, Disability or such other reason or (ii) the remaining term of the
Option, except that in case the Optionee shall die within six months after the
date Optionee's service as an Eligible Director of the Company terminates by
reason of such director's resignation, Retirement, Disability or such other
reason, the personal representatives, heirs, legatees or distributees of the
Optionee, as appropriate, shall have the right up to an additional three months
from the date of the Optionee's death to exercise the Option.

      3. Exercise of Option.

      (a) This Option is immediately exercisable. Each exercise of the Option,
or any part thereof, shall be evidenced by a notice in writing to the Company.
The Exercise Price of the Shares as to which the Option shall be exercised shall
be paid in full at the time of exercise, and may be paid to the Company either:

            (1) in cash (including check, bank draft or money order); or

            (2) by the delivery of Shares having a Fair Market Value equal to
      the aggregate Exercise Price; provided, however, that such Shares, if
      acquired by the exercise of an Option shall have been owned by the
      Optionee for more than six months prior to exercise; or

            (3) by a combination of cash and Shares as described above; or

            (4) by arrangement with a broker acceptable to the Committee in
      which payment of the Exercise Price is made pursuant to an irrevocable
      direction from the Optionee to the broker to deliver the Company proceeds
      from the sale of the option Shares in an amount equal to the exercise
      price of the Shares.

      (b) The Optionee shall not have any of the rights of a stockholder of the
Company with respect to the Shares covered by this Agreement except to the
extent that one or more certificates of such Shares shall have been delivered to
the Optionee, or the Optionee has been determined to be a stockholder of record
by the Company's Transfer Agent, upon due exercise of the Option granted
hereunder.

      4. Adjustments Upon Changes in Capitalization or Reorganization. The
number of Shares subject to the Option shall be adjusted from time to time as
follows:

      (a) Subject to any required action by stockholders, the number of Shares
subject to the option granted hereunder, and the Exercise Price, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Company resulting from a subdivision or consolidation of Shares or
the payment of a stock dividend (but only in Shares) or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company.

      (b) Subject to any required action by stockholders, if the Company shall
be the surviving corporation in any Reorganization, merger or consolidation, the
Option granted

                                       2


hereunder shall pertain to and apply to the securities to which a holder of the
number of Shares subject to the Option granted hereunder would have been
entitled, and if a plan or agreement reflecting any such event is in effect that
specifically provides for the change, conversion or exchange of Shares, then any
adjustment to Shares subject to the Option granted hereunder shall not be
inconsistent with the terms of any such plan or agreement.

      (c) In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of par value into the same number of
Shares with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be the Shares within the meaning of the
Plan.

      To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Committee, whose
determination shall be final, binding and conclusive.

      Except as otherwise specifically provided in this Agreement, the Optionee
shall have no rights by reason of any subdivision or consolidation of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, reorganization, merger or consolidation or spin-off of assets or
stock of another corporation, and any issued by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to the Option granted hereunder.

      5. Non-Transferability of the Option. This Agreement, and the Option
granted hereunder, shall not be transferable otherwise than by will or the laws
of descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee; provided, however, that this Agreement, and the
Option granted hereunder, may be transferred to one or more members of the
immediate family of the Optionee or to a trust for the benefit of such person or
as directed under a qualified domestic relations order. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of this
Agreement and the Option granted hereunder contrary to the provisions hereof, or
the levy of any execution, attachment or similar process upon this Agreement,
and the Option granted hereunder, shall be null and void and without effect.

      6. Compliance with Securities and other Laws. In no event shall the
Company be required to issue Shares under the Option granted hereunder, if the
issuance thereof would constitute a violation of applicable federal or state
securities laws or regulations or a violation of any other law or regulation of
any governmental or regulatory agency or authority or any national securities
exchange. As a condition to any issuance of Shares, the Company may place
legends on shares, issue stop transfer orders and require such agreements or
undertakings as the Company may deem necessary or advisable to assure compliance
with any such laws or regulations, including, if the Company or its counsel
deems it appropriate, representations from the Optionee that the Optionee is
acquiring the Shares solely for investment and not with a view to distribution
and that no distribution of the Shares will be made unless such shares are
registered pursuant to applicable federal and state securities laws, or in the
opinion of counsel of the Company, such registration is unnecessary.

                                       3


      7. Issuance of Shares. Upon the Company's determination that the Option
granted hereunder has been validly exercised as to any of the Shares, the
Committee shall, at its sole discretion, cause the Secretary of the Company to
issue certificates in the Optionee's name for such Shares. The Company shall not
be liable to the Optionee for damages relating to any delays in issuing the
certificates, if any, to the Optionee, any loss of the certificates, or any
mistakes or errors in the issuance of the certificates or in the certificates
themselves.

      8. Alternative Award for Cancellation of the Option. For purposes of this
Agreement, the payment to the Optionee of an alternative award or an amount in
cash pursuant to the terms of Section 16 of the Plan in consideration of the
cancellation of the Option granted hereunder shall extinguish any rights of the
Optionee in connection with this Agreement.

      9. Notices. Any notice necessary under this Agreement shall be in writing,
signed by the party giving or making the same, and addressed (a) to the Company
in the care of its President or Secretary at the principal executive office of
the Company in Dallas, Texas, (b) to the Optionee at the address appearing in
the personnel records of the Company for such Optionee or (c) to either party at
such other address as either party hereto may hereafter designate in writing to
the other. Except as otherwise provided herein, any such notice shall be deemed
effective upon receipt thereof by the addressee.

      10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

      11. Option Subject to Plan. The Option is subject to the Plan. The terms
and provisions of the Plan as it may be amended from time to time are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan, the applicable
terms and provisions of the Plan will govern and prevail.

      12. Amendment of Agreement. This Agreement may be amended, altered,
suspended, discontinued or terminated by the Committee; provided that no such
amendment, alteration suspension or termination shall materially impair the
rights of the Optionee hereunder without the consent of the Optionee.

      13. Administration of Plan and Agreement. Any determinations or decisions
made or actions taken arising out of or in connection with the interpretation
and administration of the Plan and this Agreement by the Committee shall be
final and conclusive.

      14. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original for all purposes and
both of which taken together shall constitute but one and the same instrument.

                            [Signature Page Follows]

                                       4


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Date of Grant. By execution of this Agreement, the Optionee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                      CAPSTEAD MORTGAGE CORPORATION

                                      By: /s/ ANDREW F. JACOBS
                                         ----------------------------
                                          Andrew F. Jacobs
                                          President and Chief Executive Officer

                                      [OPTIONEE]

                                      /s/ PAUL M. LOW
                                      -------------------------------
                                        Paul M. Low

                                       5


                                                                 EXHIBIT 10.4(i)

                          CAPSTEAD MORTGAGE CORPORATION

                       NONQUALIFIED STOCK OPTION AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

      THIS AGREEMENT, made as of this 21st day of June, 2005 (hereinafter called
the "Date of Grant"), between Capstead Mortgage Corporation, a Maryland
corporation (hereinafter called the "Company"), and Christopher W. Mahowald
(hereinafter called the "Optionee"):

                                    RECITALS:

      The Company has adopted the 2004 Flexible Long-Term Incentive Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the same
meanings as in the Plan.

      The Company has determined that it is in the best interests of the Company
and its stockholders to grant the option provided for herein to the Optionee
pursuant to the Plan on the terms set forth herein as an inducement to become or
remain a director of the Company, to enable the Optionee to participate in the
long-term growth and financial success of the Company and as an increased
incentive to contribute to the Company's future success and prosperity.

      NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

      1. Grant of the Option. (a) The Company hereby grants to the Optionee the
right and option to purchase, on the terms and conditions hereinafter set forth,
10,000 Shares (the "Option"). The purchase price of the Shares subject to this
Option shall be $8.57 per Share (the "Exercise Price"). This Option is not
intended to be treated as an option that complies with Section 422 of the Code,
or any successor provision thereto.

      2. Option Term. The term of the Option shall begin immediately and
continue until the tenth anniversary of the Date of Grant, subject to earlier
termination as hereinafter provided.

      (a) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's discharge for cause, all rights of the
Optionee to exercise the Option shall terminate, lapse and be forfeited
immediately at the time of the Optionee's discharge for cause.

      (b) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of death, the personal representatives, heirs, legatees or
distributees of the Optionee, as appropriate, shall have the right to exercise
the Option up to the earlier of (i) six months from the Optionee's death or (ii)
the remaining term of the Option.

      (c) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's resignation, Retirement, Disability or for
any reason other than the Optionee's death or discharge for cause, all rights of
the Optionee to exercise the Option shall terminate, lapse, and be forfeited
upon the earlier of (i) six months after the date Optionee's service as a



director of the Company terminates by reason of such director's resignation,
Retirement, Disability or such other reason or (ii) the remaining term of the
Option, except that in case the Optionee shall die within six months after the
date Optionee's service as an Eligible Director of the Company terminates by
reason of such director's resignation, Retirement, Disability or such other
reason, the personal representatives, heirs, legatees or distributees of the
Optionee, as appropriate, shall have the right up to an additional three months
from the date of the Optionee's death to exercise the Option.

      3. Exercise of Option.

      (a) This Option is immediately exercisable. Each exercise of the Option,
or any part thereof, shall be evidenced by a notice in writing to the Company.
The Exercise Price of the Shares as to which the Option shall be exercised shall
be paid in full at the time of exercise, and may be paid to the Company either:

            (1) in cash (including check, bank draft or money order); or

            (2) by the delivery of Shares having a Fair Market Value equal to
      the aggregate Exercise Price; provided, however, that such Shares, if
      acquired by the exercise of an Option shall have been owned by the
      Optionee for more than six months prior to exercise; or

            (3) by a combination of cash and Shares as described above; or

            (4) by arrangement with a broker acceptable to the Committee in
      which payment of the Exercise Price is made pursuant to an irrevocable
      direction from the Optionee to the broker to deliver the Company proceeds
      from the sale of the option Shares in an amount equal to the exercise
      price of the Shares.

      (b) The Optionee shall not have any of the rights of a stockholder of the
Company with respect to the Shares covered by this Agreement except to the
extent that one or more certificates of such Shares shall have been delivered to
the Optionee, or the Optionee has been determined to be a stockholder of record
by the Company's Transfer Agent, upon due exercise of the Option granted
hereunder.

      4. Adjustments Upon Changes in Capitalization or Reorganization. The
number of Shares subject to the Option shall be adjusted from time to time as
follows:

      (a) Subject to any required action by stockholders, the number of Shares
subject to the option granted hereunder, and the Exercise Price, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Company resulting from a subdivision or consolidation of Shares or
the payment of a stock dividend (but only in Shares) or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company.

      (b) Subject to any required action by stockholders, if the Company shall
be the surviving corporation in any Reorganization, merger or consolidation, the
Option granted

                                       2


hereunder shall pertain to and apply to the securities to which a holder of the
number of Shares subject to the Option granted hereunder would have been
entitled, and if a plan or agreement reflecting any such event is in effect that
specifically provides for the change, conversion or exchange of Shares, then any
adjustment to Shares subject to the Option granted hereunder shall not be
inconsistent with the terms of any such plan or agreement.

      (c) In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of par value into the same number of
Shares with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be the Shares within the meaning of the
Plan.

      To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Committee, whose
determination shall be final, binding and conclusive.

      Except as otherwise specifically provided in this Agreement, the Optionee
shall have no rights by reason of any subdivision or consolidation of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, reorganization, merger or consolidation or spin-off of assets or
stock of another corporation, and any issued by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to the Option granted hereunder.

      5. Non-Transferability of the Option. This Agreement, and the Option
granted hereunder, shall not be transferable otherwise than by will or the laws
of descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee; provided, however, that this Agreement, and the
Option granted hereunder, may be transferred to one or more members of the
immediate family of the Optionee or to a trust for the benefit of such person or
as directed under a qualified domestic relations order. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of this
Agreement and the Option granted hereunder contrary to the provisions hereof, or
the levy of any execution, attachment or similar process upon this Agreement,
and the Option granted hereunder, shall be null and void and without effect.

      6. Compliance with Securities and other Laws. In no event shall the
Company be required to issue Shares under the Option granted hereunder, if the
issuance thereof would constitute a violation of applicable federal or state
securities laws or regulations or a violation of any other law or regulation of
any governmental or regulatory agency or authority or any national securities
exchange. As a condition to any issuance of Shares, the Company may place
legends on shares, issue stop transfer orders and require such agreements or
undertakings as the Company may deem necessary or advisable to assure compliance
with any such laws or regulations, including, if the Company or its counsel
deems it appropriate, representations from the Optionee that the Optionee is
acquiring the Shares solely for investment and not with a view to distribution
and that no distribution of the Shares will be made unless such shares are
registered pursuant to applicable federal and state securities laws, or in the
opinion of counsel of the Company, such registration is unnecessary.

                                       3


      7. Issuance of Shares. Upon the Company's determination that the Option
granted hereunder has been validly exercised as to any of the Shares, the
Committee shall, at its sole discretion, cause the Secretary of the Company to
issue certificates in the Optionee's name for such Shares. The Company shall not
be liable to the Optionee for damages relating to any delays in issuing the
certificates, if any, to the Optionee, any loss of the certificates, or any
mistakes or errors in the issuance of the certificates or in the certificates
themselves.

      8. Alternative Award for Cancellation of the Option. For purposes of this
Agreement, the payment to the Optionee of an alternative award or an amount in
cash pursuant to the terms of Section 16 of the Plan in consideration of the
cancellation of the Option granted hereunder shall extinguish any rights of the
Optionee in connection with this Agreement.

      9. Notices. Any notice necessary under this Agreement shall be in writing,
signed by the party giving or making the same, and addressed (a) to the Company
in the care of its President or Secretary at the principal executive office of
the Company in Dallas, Texas, (b) to the Optionee at the address appearing in
the personnel records of the Company for such Optionee or (c) to either party at
such other address as either party hereto may hereafter designate in writing to
the other. Except as otherwise provided herein, any such notice shall be deemed
effective upon receipt thereof by the addressee.

      10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

      11. Option Subject to Plan. The Option is subject to the Plan. The terms
and provisions of the Plan as it may be amended from time to time are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan, the applicable
terms and provisions of the Plan will govern and prevail.

      12. Amendment of Agreement. This Agreement may be amended, altered,
suspended, discontinued or terminated by the Committee; provided that no such
amendment, alteration suspension or termination shall materially impair the
rights of the Optionee hereunder without the consent of the Optionee.

      13. Administration of Plan and Agreement. Any determinations or decisions
made or actions taken arising out of or in connection with the interpretation
and administration of the Plan and this Agreement by the Committee shall be
final and conclusive.

      14. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original for all purposes and
both of which taken together shall constitute but one and the same instrument.

                            [Signature Page Follows]

                                       4


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Date of Grant. By execution of this Agreement, the Optionee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                      CAPSTEAD MORTGAGE CORPORATION

                                      By: /s/ ANDREW F. JACOBS
                                         --------------------------------------
                                           Andrew F. Jacobs
                                           President and Chief Executive Officer

                                      [OPTIONEE]

                                      /s/ CHRISTOPHER W. MAHOWALD
                                      -----------------------------------------
                                        Christopher W. Mahowald

                                       5


                                                                 EXHIBIT 10.4(j)

                          CAPSTEAD MORTGAGE CORPORATION

                       NONQUALIFIED STOCK OPTION AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

      THIS AGREEMENT, made as of this 13th day of May, 2005 (hereinafter called
the "Date of Grant"), between Capstead Mortgage Corporation, a Maryland
corporation (hereinafter called the "Company"), and Michael G. O'Neil
(hereinafter called the "Optionee"):

                                    RECITALS:

      The Company has adopted the 2004 Flexible Long-Term Incentive Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the same
meanings as in the Plan.

      The Company has determined that it is in the best interests of the Company
and its stockholders to grant the option provided for herein to the Optionee
pursuant to the Plan on the terms set forth herein as an inducement to become or
remain a director of the Company, to enable the Optionee to participate in the
long-term growth and financial success of the Company and as an increased
incentive to contribute to the Company's future success and prosperity.

      NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

      1. Grant of the Option. (a) The Company hereby grants to the Optionee the
right and option to purchase, on the terms and conditions hereinafter set forth,
10,000 Shares (the "Option"). The purchase price of the Shares subject to this
Option shall be $7.82 per Share (the "Exercise Price"). This Option is not
intended to be treated as an option that complies with Section 422 of the Code,
or any successor provision thereto.

      2. Option Term. The term of the Option shall begin immediately and
continue until the tenth anniversary of the Date of Grant, subject to earlier
termination as hereinafter provided.

      (a) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's discharge for cause, all rights of the
Optionee to exercise the Option shall terminate, lapse and be forfeited
immediately at the time of the Optionee's discharge for cause.

      (b) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of death, the personal representatives, heirs, legatees or
distributees of the Optionee, as appropriate, shall have the right to exercise
the Option up to the earlier of (i) six months from the Optionee's death or (ii)
the remaining term of the Option.

      (c) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's resignation, Retirement, Disability or for
any reason other than the Optionee's death or discharge for cause, all rights of
the Optionee to exercise the Option shall terminate, lapse, and be forfeited
upon the earlier of (i) six months after the date Optionee's service as



a director of the Company terminates by reason of such director's resignation,
Retirement, Disability or such other reason or (ii) the remaining term of the
Option, except that in case the Optionee shall die within six months after the
date Optionee's service as an Eligible Director of the Company terminates by
reason of such director's resignation, Retirement, Disability or such other
reason, the personal representatives, heirs, legatees or distributees of the
Optionee, as appropriate, shall have the right up to an additional three months
from the date of the Optionee's death to exercise the Option.

      3. Exercise of Option.

      (a) This Option is immediately exercisable. Each exercise of the Option,
or any part thereof, shall be evidenced by a notice in writing to the Company.
The Exercise Price of the Shares as to which the Option shall be exercised shall
be paid in full at the time of exercise, and may be paid to the Company either:

            (1) in cash (including check, bank draft or money order); or

            (2) by the delivery of Shares having a Fair Market Value equal to
      the aggregate Exercise Price; provided, however, that such Shares, if
      acquired by the exercise of an Option shall have been owned by the
      Optionee for more than six months prior to exercise; or

            (3) by a combination of cash and Shares as described above; or

            (4) by arrangement with a broker acceptable to the Committee in
      which payment of the Exercise Price is made pursuant to an irrevocable
      direction from the Optionee to the broker to deliver the Company proceeds
      from the sale of the option Shares in an amount equal to the exercise
      price of the Shares.

      (b) The Optionee shall not have any of the rights of a stockholder of the
Company with respect to the Shares covered by this Agreement except to the
extent that one or more certificates of such Shares shall have been delivered to
the Optionee, or the Optionee has been determined to be a stockholder of record
by the Company's Transfer Agent, upon due exercise of the Option granted
hereunder.

      4. Adjustments Upon Changes in Capitalization or Reorganization. The
number of Shares subject to the Option shall be adjusted from time to time as
follows:

      (a) Subject to any required action by stockholders, the number of Shares
subject to the option granted hereunder, and the Exercise Price, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Company resulting from a subdivision or consolidation of Shares or
the payment of a stock dividend (but only in Shares) or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company.

      (b) Subject to any required action by stockholders, if the Company shall
be the surviving corporation in any Reorganization, merger or consolidation, the
Option granted

                                       2



hereunder shall pertain to and apply to the securities to which a holder of the
number of Shares subject to the Option granted hereunder would have been
entitled, and if a plan or agreement reflecting any such event is in effect that
specifically provides for the change, conversion or exchange of Shares, then any
adjustment to Shares subject to the Option granted hereunder shall not be
inconsistent with the terms of any such plan or agreement.

      (c) In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of par value into the same number of
Shares with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be the Shares within the meaning of the
Plan.

      To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Committee, whose
determination shall be final, binding and conclusive.

      Except as otherwise specifically provided in this Agreement, the Optionee
shall have no rights by reason of any subdivision or consolidation of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, reorganization, merger or consolidation or spin-off of assets or
stock of another corporation, and any issued by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to the Option granted hereunder.

      5. Non-Transferability of the Option. This Agreement, and the Option
granted hereunder, shall not be transferable otherwise than by will or the laws
of descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee; provided, however, that this Agreement, and the
Option granted hereunder, may be transferred to one or more members of the
immediate family of the Optionee or to a trust for the benefit of such person or
as directed under a qualified domestic relations order. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of this
Agreement and the Option granted hereunder contrary to the provisions hereof, or
the levy of any execution, attachment or similar process upon this Agreement,
and the Option granted hereunder, shall be null and void and without effect.

      6. Compliance with Securities and other Laws. In no event shall the
Company be required to issue Shares under the Option granted hereunder, if the
issuance thereof would constitute a violation of applicable federal or state
securities laws or regulations or a violation of any other law or regulation of
any governmental or regulatory agency or authority or any national securities
exchange. As a condition to any issuance of Shares, the Company may place
legends on shares, issue stop transfer orders and require such agreements or
undertakings as the Company may deem necessary or advisable to assure compliance
with any such laws or regulations, including, if the Company or its counsel
deems it appropriate, representations from the Optionee that the Optionee is
acquiring the Shares solely for investment and not with a view to distribution
and that no distribution of the Shares will be made unless such shares are
registered pursuant to applicable federal and state securities laws, or in the
opinion of counsel of the Company, such registration is unnecessary.

                                       3



      7. Issuance of Shares. Upon the Company's determination that the Option
granted hereunder has been validly exercised as to any of the Shares, the
Committee shall, at its sole discretion, cause the Secretary of the Company to
issue certificates in the Optionee's name for such Shares. The Company shall not
be liable to the Optionee for damages relating to any delays in issuing the
certificates, if any, to the Optionee, any loss of the certificates, or any
mistakes or errors in the issuance of the certificates or in the certificates
themselves.

      8. Alternative Award for Cancellation of the Option. For purposes of this
Agreement, the payment to the Optionee of an alternative award or an amount in
cash pursuant to the terms of Section 16 of the Plan in consideration of the
cancellation of the Option granted hereunder shall extinguish any rights of the
Optionee in connection with this Agreement.

      9. Notices. Any notice necessary under this Agreement shall be in writing,
signed by the party giving or making the same, and addressed (a) to the Company
in the care of its President or Secretary at the principal executive office of
the Company in Dallas, Texas, (b) to the Optionee at the address appearing in
the personnel records of the Company for such Optionee or (c) to either party at
such other address as either party hereto may hereafter designate in writing to
the other. Except as otherwise provided herein, any such notice shall be deemed
effective upon receipt thereof by the addressee.

      10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

      11. Option Subject to Plan. The Option is subject to the Plan. The terms
and provisions of the Plan as it may be amended from time to time are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan, the applicable
terms and provisions of the Plan will govern and prevail.

      12. Amendment of Agreement. This Agreement may be amended, altered,
suspended, discontinued or terminated by the Committee; provided that no such
amendment, alteration suspension or termination shall materially impair the
rights of the Optionee hereunder without the consent of the Optionee.

      13. Administration of Plan and Agreement. Any determinations or decisions
made or actions taken arising out of or in connection with the interpretation
and administration of the Plan and this Agreement by the Committee shall be
final and conclusive.

      14. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original for all purposes and
both of which taken together shall constitute but one and the same instrument.

                            [Signature Page Follows]

                                       4



      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Date of Grant. By execution of this Agreement, the Optionee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                  CAPSTEAD MORTGAGE CORPORATION

                                  By: /s/ ANDREW F. JACOBS
                                     ------------------------------------------
                                      Andrew F. Jacobs
                                      President and Chief Executive Officer

                                  [OPTIONEE]

                                  /s/ MICHAEL G. O'NEIL
                                  ---------------------------------------------
                                    Michael G. O'Neil

                                       5



                                                                 EXHIBIT 10.4(k)

                          CAPSTEAD MORTGAGE CORPORATION

                       NONQUALIFIED STOCK OPTION AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

      THIS AGREEMENT, made as of this 13th day of May, 2005 (hereinafter called
the "Date of Grant"), between Capstead Mortgage Corporation, a Maryland
corporation (hereinafter called the "Company"), and Howard Rubin (hereinafter
called the "Optionee"):

                                    RECITALS:

      The Company has adopted the 2004 Flexible Long-Term Incentive Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the same
meanings as in the Plan.

      The Company has determined that it is in the best interests of the Company
and its stockholders to grant the option provided for herein to the Optionee
pursuant to the Plan on the terms set forth herein as an inducement to become or
remain a director of the Company, to enable the Optionee to participate in the
long-term growth and financial success of the Company and as an increased
incentive to contribute to the Company's future success and prosperity.

      NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

      1. Grant of the Option. (a) The Company hereby grants to the Optionee the
right and option to purchase, on the terms and conditions hereinafter set forth,
10,000 Shares (the "Option"). The purchase price of the Shares subject to this
Option shall be $7.82 per Share (the "Exercise Price"). This Option is not
intended to be treated as an option that complies with Section 422 of the Code,
or any successor provision thereto.

      2. Option Term. The term of the Option shall begin immediately and
continue until the tenth anniversary of the Date of Grant, subject to earlier
termination as hereinafter provided.

      (a) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's discharge for cause, all rights of the
Optionee to exercise the Option shall terminate, lapse and be forfeited
immediately at the time of the Optionee's discharge for cause.

      (b) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of death, the personal representatives, heirs, legatees or
distributees of the Optionee, as appropriate, shall have the right to exercise
the Option up to the earlier of (i) six months from the Optionee's death or (ii)
the remaining term of the Option.

      (c) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's resignation, Retirement, Disability or for
any reason other than the Optionee's death or discharge for cause, all rights of
the Optionee to exercise the Option shall terminate, lapse, and be forfeited
upon the earlier of (i) six months after the date Optionee's service as a



director of the Company terminates by reason of such director's resignation,
Retirement, Disability or such other reason or (ii) the remaining term of the
Option, except that in case the Optionee shall die within six months after the
date Optionee's service as an Eligible Director of the Company terminates by
reason of such director's resignation, Retirement, Disability or such other
reason, the personal representatives, heirs, legatees or distributees of the
Optionee, as appropriate, shall have the right up to an additional three months
from the date of the Optionee's death to exercise the Option.

      3. Exercise of Option.

      (a) This Option is immediately exercisable. Each exercise of the Option,
or any part thereof, shall be evidenced by a notice in writing to the Company.
The Exercise Price of the Shares as to which the Option shall be exercised shall
be paid in full at the time of exercise, and may be paid to the Company either:

            (1) in cash (including check, bank draft or money order); or

            (2) by the delivery of Shares having a Fair Market Value equal to
      the aggregate Exercise Price; provided, however, that such Shares, if
      acquired by the exercise of an Option shall have been owned by the
      Optionee for more than six months prior to exercise; or

            (3) by a combination of cash and Shares as described above; or

            (4) by arrangement with a broker acceptable to the Committee in
      which payment of the Exercise Price is made pursuant to an irrevocable
      direction from the Optionee to the broker to deliver the Company proceeds
      from the sale of the option Shares in an amount equal to the exercise
      price of the Shares.

      (b) The Optionee shall not have any of the rights of a stockholder of the
Company with respect to the Shares covered by this Agreement except to the
extent that one or more certificates of such Shares shall have been delivered to
the Optionee, or the Optionee has been determined to be a stockholder of record
by the Company's Transfer Agent, upon due exercise of the Option granted
hereunder.

      4. Adjustments Upon Changes in Capitalization or Reorganization. The
number of Shares subject to the Option shall be adjusted from time to time as
follows:

      (a) Subject to any required action by stockholders, the number of Shares
subject to the option granted hereunder, and the Exercise Price, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Company resulting from a subdivision or consolidation of Shares or
the payment of a stock dividend (but only in Shares) or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company.

      (b) Subject to any required action by stockholders, if the Company shall
be the surviving corporation in any Reorganization, merger or consolidation, the
Option granted

                                       2



hereunder shall pertain to and apply to the securities to which a holder of the
number of Shares subject to the Option granted hereunder would have been
entitled, and if a plan or agreement reflecting any such event is in effect that
specifically provides for the change, conversion or exchange of Shares, then any
adjustment to Shares subject to the Option granted hereunder shall not be
inconsistent with the terms of any such plan or agreement.

      (c) In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of par value into the same number of
Shares with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be the Shares within the meaning of the
Plan.

      To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Committee, whose
determination shall be final, binding and conclusive.

      Except as otherwise specifically provided in this Agreement, the Optionee
shall have no rights by reason of any subdivision or consolidation of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, reorganization, merger or consolidation or spin-off of assets or
stock of another corporation, and any issued by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to the Option granted hereunder.

      5. Non-Transferability of the Option. This Agreement, and the Option
granted hereunder, shall not be transferable otherwise than by will or the laws
of descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee; provided, however, that this Agreement, and the
Option granted hereunder, may be transferred to one or more members of the
immediate family of the Optionee or to a trust for the benefit of such person or
as directed under a qualified domestic relations order. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of this
Agreement and the Option granted hereunder contrary to the provisions hereof, or
the levy of any execution, attachment or similar process upon this Agreement,
and the Option granted hereunder, shall be null and void and without effect.

      6. Compliance with Securities and other Laws. In no event shall the
Company be required to issue Shares under the Option granted hereunder, if the
issuance thereof would constitute a violation of applicable federal or state
securities laws or regulations or a violation of any other law or regulation of
any governmental or regulatory agency or authority or any national securities
exchange. As a condition to any issuance of Shares, the Company may place
legends on shares, issue stop transfer orders and require such agreements or
undertakings as the Company may deem necessary or advisable to assure compliance
with any such laws or regulations, including, if the Company or its counsel
deems it appropriate, representations from the Optionee that the Optionee is
acquiring the Shares solely for investment and not with a view to distribution
and that no distribution of the Shares will be made unless such shares are
registered pursuant to applicable federal and state securities laws, or in the
opinion of counsel of the Company, such registration is unnecessary.

                                       3



      7. Issuance of Shares. Upon the Company's determination that the Option
granted hereunder has been validly exercised as to any of the Shares, the
Committee shall, at its sole discretion, cause the Secretary of the Company to
issue certificates in the Optionee's name for such Shares. The Company shall not
be liable to the Optionee for damages relating to any delays in issuing the
certificates, if any, to the Optionee, any loss of the certificates, or any
mistakes or errors in the issuance of the certificates or in the certificates
themselves.

      8. Alternative Award for Cancellation of the Option. For purposes of this
Agreement, the payment to the Optionee of an alternative award or an amount in
cash pursuant to the terms of Section 16 of the Plan in consideration of the
cancellation of the Option granted hereunder shall extinguish any rights of the
Optionee in connection with this Agreement.

      9. Notices. Any notice necessary under this Agreement shall be in writing,
signed by the party giving or making the same, and addressed (a) to the Company
in the care of its President or Secretary at the principal executive office of
the Company in Dallas, Texas, (b) to the Optionee at the address appearing in
the personnel records of the Company for such Optionee or (c) to either party at
such other address as either party hereto may hereafter designate in writing to
the other. Except as otherwise provided herein, any such notice shall be deemed
effective upon receipt thereof by the addressee.

      10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

      11. Option Subject to Plan. The Option is subject to the Plan. The terms
and provisions of the Plan as it may be amended from time to time are hereby
incorporated herein by reference. In the event of a conflict between any term or
provision contained herein and a term or provision of the Plan, the applicable
terms and provisions of the Plan will govern and prevail.

      12. Amendment of Agreement. This Agreement may be amended, altered,
suspended, discontinued or terminated by the Committee; provided that no such
amendment, alteration suspension or termination shall materially impair the
rights of the Optionee hereunder without the consent of the Optionee.

      13. Administration of Plan and Agreement. Any determinations or decisions
made or actions taken arising out of or in connection with the interpretation
and administration of the Plan and this Agreement by the Committee shall be
final and conclusive.

      14. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original for all purposes and
both of which taken together shall constitute but one and the same instrument.

                            [Signature Page Follows]

                                       4



      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Date of Grant. By execution of this Agreement, the Optionee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                  CAPSTEAD MORTGAGE CORPORATION

                                  By: /s/ ANDREW F. JACOBS
                                     ------------------------------------------
                                       Andrew F. Jacobs
                                       President and Chief Executive Officer

                                  [OPTIONEE]

                                  /s/ HOWARD RUBIN
                                  ---------------------------------------------
                                       Howard Rubin

                                       5


                                                                 EXHIBIT 10.4(l)

                          CAPSTEAD MORTGAGE CORPORATION

                       NONQUALIFIED STOCK OPTION AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

         THIS AGREEMENT, made as of this 13th day of May, 2005 (hereinafter
called the "Date of Grant"), between Capstead Mortgage Corporation, a Maryland
corporation (hereinafter called the "Company"), and Mark S. Whiting (hereinafter
called the "Optionee"):

                                R E C I T A L S:

         The Company has adopted the 2004 Flexible Long-Term Incentive Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement. Capitalized terms not otherwise defined herein shall have the same
meanings as in the Plan.

         The Company has determined that it is in the best interests of the
Company and its stockholders to grant the option provided for herein to the
Optionee pursuant to the Plan on the terms set forth herein as an inducement to
become or remain a director of the Company, to enable the Optionee to
participate in the long-term growth and financial success of the Company and as
an increased incentive to contribute to the Company's future success and
prosperity.

         NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

         1. Grant of the Option. (a) The Company hereby grants to the Optionee
the right and option to purchase, on the terms and conditions hereinafter set
forth, 10,000 Shares (the "Option"). The purchase price of the Shares subject to
this Option shall be $7.82 per Share (the "Exercise Price"). This Option is not
intended to be treated as an option that complies with Section 422 of the Code,
or any successor provision thereto.

         2. Option Term. The term of the Option shall begin immediately and
continue until the tenth anniversary of the Date of Grant, subject to earlier
termination as hereinafter provided.

         (a) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's discharge for cause, all rights of the
Optionee to exercise the Option shall terminate, lapse and be forfeited
immediately at the time of the Optionee's discharge for cause.

         (b) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of death, the personal representatives, heirs, legatees or
distributees of the Optionee, as appropriate, shall have the right to exercise
the Option up to the earlier of (i) six months from the Optionee's death or (ii)
the remaining term of the Option.

         (c) If the Optionee ceases to be a director of the Company or any
Affiliate by reason of the Optionee's resignation, Retirement, Disability or for
any reason other than the Optionee's death or discharge for cause, all rights of
the Optionee to exercise the Option shall terminate, lapse, and be forfeited
upon the earlier of (i) six months after the date Optionee's service as a



director of the Company terminates by reason of such director's resignation,
Retirement, Disability or such other reason or (ii) the remaining term of the
Option, except that in case the Optionee shall die within six months after the
date Optionee's service as an Eligible Director of the Company terminates by
reason of such director's resignation, Retirement, Disability or such other
reason, the personal representatives, heirs, legatees or distributees of the
Optionee, as appropriate, shall have the right up to an additional three months
from the date of the Optionee's death to exercise the Option.

         3. Exercise of Option.

         (a) This Option is immediately exercisable. Each exercise of the
Option, or any part thereof, shall be evidenced by a notice in writing to the
Company. The Exercise Price of the Shares as to which the Option shall be
exercised shall be paid in full at the time of exercise, and may be paid to the
Company either:

                  (1) in cash (including check, bank draft or money order); or

                  (2) by the delivery of Shares having a Fair Market Value equal
         to the aggregate Exercise Price; provided, however, that such Shares,
         if acquired by the exercise of an Option shall have been owned by the
         Optionee for more than six months prior to exercise; or

                  (3) by a combination of cash and Shares as described above; or

                  (4) by arrangement with a broker acceptable to the Committee
         in which payment of the Exercise Price is made pursuant to an
         irrevocable direction from the Optionee to the broker to deliver the
         Company proceeds from the sale of the option Shares in an amount equal
         to the exercise price of the Shares.

         (b) The Optionee shall not have any of the rights of a stockholder of
the Company with respect to the Shares covered by this Agreement except to the
extent that one or more certificates of such Shares shall have been delivered to
the Optionee, or the Optionee has been determined to be a stockholder of record
by the Company's Transfer Agent, upon due exercise of the Option granted
hereunder.

         4. Adjustments Upon Changes in Capitalization or Reorganization. The
number of Shares subject to the Option shall be adjusted from time to time as
follows:

         (a) Subject to any required action by stockholders, the number of
Shares subject to the option granted hereunder, and the Exercise Price, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of the Company resulting from a subdivision or consolidation of Shares or
the payment of a stock dividend (but only in Shares) or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company.

         (b) Subject to any required action by stockholders, if the Company
shall be the surviving corporation in any Reorganization, merger or
consolidation, the Option granted

                                       2


hereunder shall pertain to and apply to the securities to which a holder of the
number of Shares subject to the Option granted hereunder would have been
entitled, and if a plan or agreement reflecting any such event is in effect that
specifically provides for the change, conversion or exchange of Shares, then any
adjustment to Shares subject to the Option granted hereunder shall not be
inconsistent with the terms of any such plan or agreement.

         (c) In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of par value into the same number of
Shares with a different par value or without par value, the Shares resulting
from any such change shall be deemed to be the Shares within the meaning of the
Plan.

         To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Committee,
whose determination shall be final, binding and conclusive.

         Except as otherwise specifically provided in this Agreement, the
Optionee shall have no rights by reason of any subdivision or consolidation of
stock of any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by reason of any
dissolution, liquidation, reorganization, merger or consolidation or spin-off of
assets or stock of another corporation, and any issued by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or Exercise Price of Shares subject to the Option granted
hereunder.

         5. Non-Transferability of the Option. This Agreement, and the Option
granted hereunder, shall not be transferable otherwise than by will or the laws
of descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee; provided, however, that this Agreement, and the
Option granted hereunder, may be transferred to one or more members of the
immediate family of the Optionee or to a trust for the benefit of such person or
as directed under a qualified domestic relations order. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of this
Agreement and the Option granted hereunder contrary to the provisions hereof, or
the levy of any execution, attachment or similar process upon this Agreement,
and the Option granted hereunder, shall be null and void and without effect.

         6. Compliance with Securities and other Laws. In no event shall the
Company be required to issue Shares under the Option granted hereunder, if the
issuance thereof would constitute a violation of applicable federal or state
securities laws or regulations or a violation of any other law or regulation of
any governmental or regulatory agency or authority or any national securities
exchange. As a condition to any issuance of Shares, the Company may place
legends on shares, issue stop transfer orders and require such agreements or
undertakings as the Company may deem necessary or advisable to assure compliance
with any such laws or regulations, including, if the Company or its counsel
deems it appropriate, representations from the Optionee that the Optionee is
acquiring the Shares solely for investment and not with a view to distribution
and that no distribution of the Shares will be made unless such shares are
registered pursuant to applicable federal and state securities laws, or in the
opinion of counsel of the Company, such registration is unnecessary.

                                       3


         7. Issuance of Shares. Upon the Company's determination that the Option
granted hereunder has been validly exercised as to any of the Shares, the
Committee shall, at its sole discretion, cause the Secretary of the Company to
issue certificates in the Optionee's name for such Shares. The Company shall not
be liable to the Optionee for damages relating to any delays in issuing the
certificates, if any, to the Optionee, any loss of the certificates, or any
mistakes or errors in the issuance of the certificates or in the certificates
themselves.

         8. Alternative Award for Cancellation of the Option. For purposes of
this Agreement, the payment to the Optionee of an alternative award or an amount
in cash pursuant to the terms of Section 16 of the Plan in consideration of the
cancellation of the Option granted hereunder shall extinguish any rights of the
Optionee in connection with this Agreement.

         9. Notices. Any notice necessary under this Agreement shall be in
writing, signed by the party giving or making the same, and addressed (a) to the
Company in the care of its President or Secretary at the principal executive
office of the Company in Dallas, Texas, (b) to the Optionee at the address
appearing in the personnel records of the Company for such Optionee or (c) to
either party at such other address as either party hereto may hereafter
designate in writing to the other. Except as otherwise provided herein, any such
notice shall be deemed effective upon receipt thereof by the addressee.

         10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.

         11. Option Subject to Plan. The Option is subject to the Plan. The
terms and provisions of the Plan as it may be amended from time to time are
hereby incorporated herein by reference. In the event of a conflict between any
term or provision contained herein and a term or provision of the Plan, the
applicable terms and provisions of the Plan will govern and prevail.

         12. Amendment of Agreement. This Agreement may be amended, altered,
suspended, discontinued or terminated by the Committee; provided that no such
amendment, alteration suspension or termination shall materially impair the
rights of the Optionee hereunder without the consent of the Optionee.

         13. Administration of Plan and Agreement. Any determinations or
decisions made or actions taken arising out of or in connection with the
interpretation and administration of the Plan and this Agreement by the
Committee shall be final and conclusive.

         14. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original for all purposes and
both of which taken together shall constitute but one and the same instrument.

                            [Signature Page Follows]

                                       4


         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Date of Grant. By execution of this Agreement, the Optionee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                     CAPSTEAD MORTGAGE CORPORATION

                                     By: /s/ ANDREW F. JACOBS
                                         ---------------------------------------
                                           Andrew F. Jacobs
                                           President and Chief Executive Officer

                                     [OPTIONEE]

                                         /s/ MARK S. WHITING
                                         ---------------------------------------
                                               Mark S. Whiting

                                       5


                                                                 EXHIBIT 10.4(m)

                          CAPSTEAD MORTGAGE CORPORATION

                           RESTRICTED STOCK AGREEMENT
                                  FOR EMPLOYEES

         THIS AGREEMENT made and entered into as of the 13th day of May, 2005
(hereinafter called the "Award Date"), by and between Capstead Mortgage
Corporation, a Maryland corporation (the "Company"), and Michael W. Brown (the
"Grantee").

         WHEREAS, the Company, having determined that its interests will be
advanced by providing an incentive to the Grantee to increase the performance of
the Company and its Affiliates, has awarded to the grantee a restricted stock
award conditioned upon the execution by the Company and the Grantee of a
Restricted Stock Agreement.

         THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, the parties hereby agree as follows:

         SECTION 1. GRANT.

         1.1 Grant and Acceptance. Pursuant to the May 13, 2005 authorization to
grant shares of restricted stock to the current employees, the Company does
hereby grant and transfer to the Grantee, for no cash consideration from the
Grantee, and the Grantee does hereby accept from the Company, an aggregate of
12,000 shares (the "Award Shares") of the Common Stock, $0.01 par value per
share, of the Company (the "Common Stock") according to the terms and conditions
and subject to the restrictions hereinafter set forth.

         1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock
and this grant shall constitute an Award, each as defined in the Company's 2004
Flexible Long-Term Incentive Plan (the "Plan"). This Agreement is expressly
subject to the terms and provisions of the Plan and in the event there is a
conflict between the terms of the Plan and this Agreement, the terms of the Plan
shall control. All undefined capitalized terms used herein shall have the
meanings assigned in the Plan. The Award is subject to all laws, approvals,
requirements and regulations of any governmental authority which may be
applicable thereto.

         SECTION 2. RIGHTS IN SHARES. The Grantee, for the duration of this
Agreement, shall be the record owner of, and shall be entitled to vote, the
Award Shares and shall be entitled to receive all dividends and any other
distributions declared on the Award Shares (provided, however, that nothing
contained herein shall cause the Company to declare any such dividends or to
make any such distributions).

         SECTION 3. VESTING.

         3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in
accordance with the schedule set forth below:





                Percentage of Shares         Cumulative
    Date      Vested on Specified Date  Percentage of Shares
- ------------  ------------------------  --------------------
                                  
May 13, 2006             25                      25
May 13, 2007             25                      50
May 13, 2008             25                      75
May 13, 2009             25                      100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award
Shares shall vest after:

                  (i) termination of Grantee's employment with the Company or
         any Affiliate for any reason (including termination by reason of
         voluntary or involuntary discharge, Disability or Retirement) in which
         case the Grantee shall, at the time of termination, forfeit all right,
         title and interest in and to any Award Shares not then vested, or

                  (ii) a Grantee working full-time at the Award Date reduces
         his/her scheduled hours worked per week below a standard 40-hour work
         week, in which case the Grantee shall, at the time of such reduction
         and subject to management's discretion, forfeit all right, title and
         interest in and to any Award Shares not then vested; or

                  (iii) a Grantee working part-time at the Award Date reduces
         his/her scheduled hours worked per week below a standard 20-hour work
         week, in which case the Grantee shall, at the time of such reduction
         and subject to management's discretion, forfeit all right, title and
         interest in and to any Award Shares not then vested.

         3.2 Effect of Grantee's Death. If the Grantee ceases to be an employee
of the Company or any Affiliate by reason of death, any and all outstanding
Award Shares not fully vested shall automatically vest in full and the personal
representatives heirs, legatees or distributees of the Grantee, as appropriate,
shall become fully vested in the Award Shares effective on the date of the
Grantee's death.

         3.3 Effect of Dissolution or Liquidation. In the event of the
dissolution or liquidation of the Company, any and all outstanding Award Shares
not fully vested shall automatically vest in full immediately prior to such
dissolution or liquidation.

         3.4 Effect of Change of Control. In the event of a Change in Control
(as defined in the Plan), any and all outstanding Award Shares not fully vested
shall automatically vest in full. The date on which such accelerated vesting
shall occur shall be the date of the occurrence of the Change in Control.

         3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to
Section 3.1 shall revert to the Company.

         SECTION 4. STOCK CERTIFICATES. Upon grant of the Award Shares, the
Company shall cause its Transfer Agent to record Grantee's ownership of such
Award Shares in book entry

                                       2


form. As Award Shares vest hereunder, such Award Shares shall be transferred
into an unrestricted account in the name of the Grantee or, at the request of
the Grantee, issued in stock certificate form. Any such certificates shall be
unencumbered by any of the restrictions enumerated herein other than such
restrictions as may be imposed by applicable federal or state securities laws
and regulations.

         SECTION 5. TRANSFER AND REPURCHASES UPON TERMINATION.

         5.1 The unvested Award Shares shall not be offered, sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a
"Transfer") for any purpose whatsoever, other than to the Company, and shall not
be subject, in whole or in part, to execution, attachment, or similar process in
all such cases until the date of vesting. Any attempted Transfer of the unvested
Award Shares, other than in accordance with the terms set forth herein, shall be
void and of no effect.

         5.2 Grantee acknowledges that any sale, assignment, transfer or other
disposition of vested Award Shares may be subject to restrictions contained in
applicable federal or state securities laws and regulations and that any such
sale, assignment, transfer or other disposition of Award Shares by him or her
will be in compliance with such laws and regulations.

         SECTION 6. WITHHOLDINGS. The Company and each Affiliate shall have the
right to retain and withhold from any payment (including the vesting) of Award
Shares (and any dividends on Award Shares) any amounts required to be withheld
or otherwise deducted and paid with respect to such payment (including the
vesting thereof). At its discretion, the Company and each Affiliate may require
the Grantee receiving Award Shares to reimburse the Company or any Affiliate for
any such taxes required to be withheld by the Company or the Affiliate and
withhold any distribution in whole or in part until the Company and each
Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate
shall have the right to withhold from any other cash amounts due or to become
due from the Company or the Affiliate to the Grantee an amount equal to such
taxes required to be withheld by the Company or the Affiliate as reimbursement
for any such taxes or retain and withhold a number of shares having a market
value not less than the amount of such taxes in order to reimburse the Company
or the Affiliate for any such taxes.

         SECTION 7. ADJUSTMENTS TO AWARD SHARES.

         7.1 Stock Dividends and Splits and Similar Transactions. Subject to any
required action by the Company's Board of Directors and stockholders, the number
of Award Shares shall be proportionately adjusted for any increase or decrease
in the number of issued Shares of the Company resulting from the payment of a
Share dividend, a Share split, a Share reverse-split or any similar transaction.

         7.2 Change in Par Value. In the event of a change in the Company's
Shares which is limited to a change of all of its authorized shares with par
value into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be shares
within the meaning of the Plan.

         7.3 Other Capital Adjustments. Except as hereinbefore expressly
provided in Section 7.1 and except for rights that all holders of Common Stock
shall have, Grantee shall have no rights by reason of any subdivision or
consolidation of Shares of any class or payment of any share dividend

                                       3


or any other increase or decrease in the number of shares of any class or by
reason of any dissolution, liquidation, merger or consolidation or spin-off of
assets or stock of another corporation; any issuance by the Company of Shares of
any class, or securities convertible into Shares of any class, shall not affect
the Award, and no adjustment by reason thereof shall be made with respect to the
number or price of the Company's Shares subject to the Award. An Award of
Restricted Stock shall not affect in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge or to consolidate or to dissolve,
liquidate or sell or transfer all or any part of its business or assets.

         SECTION 8. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee represents
and warrants that:

         (a) such Grantee has not and will not, directly or indirectly, Transfer
any Award Shares except in accordance with the terms of this Agreement;

         (b) such Grantee has, or such Grantee together with such Grantee's
advisors, if any, have such knowledge and experience in financial, business and
tax matters that such Grantee is, or such Grantee together with such Grantee's
advisors, if any, are capable of evaluating the merits and risks relating to
such Grantee's investment in the Award Shares and making an investment decision
with respect to the Company;

         (c) such Grantee has been given the opportunity to obtain information
and documents relating to the Company and to ask questions of and receive
answers from representatives of the Company concerning the Company and such
Grantee's investment in the Award Shares; and

         (d) such Grantee realizes that there are substantial risks incident to
an investment in the Award Shares.

         SECTION 9. IMPACT ON OTHER BENEFITS. The value of the Award Shares
(either on the Award Date or at the time the shares are vested) shall not be
includable as compensation or earnings for purposes of any other benefit plan
offered by the Company.

         SECTION 10. ADMINISTRATION. The Committee shall have full authority and
discretion (subject only to the express provisions of the Plan) to decide all
matters relating to the administration and interpretation of the Plan and this
Agreement. All such Committee determinations shall be final, conclusive, and
binding upon the Company, the Grantee, and any and all interested parties.

         SECTION 11. NO AGREEMENT TO CONTINUE IN EMPLOYMENT. Nothing in the Plan
or this Agreement shall confer on the Grantee any right to continue in the
employ of the Company or any Affiliate or interfere in any way with the right of
the Company and any Affiliate to terminate the Grantee's employment at any time.

         SECTION 12. AMENDMENT(S). This Agreement shall be subject to the terms
of the Plan, as amended from time to time, except that the Award that is the
subject of this Agreement may not in any way be restricted or limited by any
amendment or termination approved after the Award Date without the Grantee's
written consent.

                                       4


         SECTION 13. FORCE AND EFFECT. The various provisions of this Agreement
are severable in their entirety. Any determination of invalidity or
unenforceability of any one provision shall have no effect on the continuing
force and effect of the remaining provisions.

         SECTION 14. GOVERNING LAWS. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Maryland.

         SECTION 15. MISCELLANEOUS.

         15.1 Any notice necessary under this Agreement shall be in writing,
signed by the party giving or making the same, and addressed (a) to the Company
in the care of its President or Secretary at the principal executive office of
the Company in Dallas, Texas, (b) to the Grantee at the address appearing in the
personnel records of the Company for such Grantee or (c) to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Except as otherwise provided herein, any such notice shall be deemed
effective upon receipt thereof by the addressee.

         15.2 This Agreement may be executed in counterparts, each of which
shall be deemed an original for all purposes and both of which taken together
shall constitute but one and the same instrument.

                            [Signature Page Follows]

                                       5


         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date hereof. By execution of this Agreement, the Grantee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                       CAPSTEAD MORTGAGE CORPORATION

                                       By: /s/ ANDREW F. JACOBS
                                           -------------------------------------
                                           Andrew F. Jacobs
                                           President and Chief Executive Officer

                                       [GRANTEE]

                                       /s/ MICHAEL W. BROWN
                                       -----------------------------------------
                                             Michael W. Brown

                                       6


                                                                 EXHIBIT 10.4(n)

                          CAPSTEAD MORTGAGE CORPORATION

                           RESTRICTED STOCK AGREEMENT
                                  FOR EMPLOYEES

      THIS AGREEMENT made and entered into as of the 13th day of May, 2005
(hereinafter called the "Award Date"), by and between Capstead Mortgage
Corporation, a Maryland corporation (the "Company"), and Andrew F. Jacobs (the
"Grantee").

      WHEREAS, the Company, having determined that its interests will be
advanced by providing an incentive to the Grantee to increase the performance of
the Company and its Affiliates, has awarded to the grantee a restricted stock
award conditioned upon the execution by the Company and the Grantee of a
Restricted Stock Agreement.

      THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, the parties hereby agree as follows:

      SECTION 1. GRANT.

      1.1 Grant and Acceptance. Pursuant to the May 13, 2005 authorization to
grant shares of restricted stock to the current employees, the Company does
hereby grant and transfer to the Grantee, for no cash consideration from the
Grantee, and the Grantee does hereby accept from the Company, an aggregate of
40,000 shares (the "Award Shares") of the Common Stock, $0.01 par value per
share, of the Company (the "Common Stock") according to the terms and conditions
and subject to the restrictions hereinafter set forth.

      1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock and
this grant shall constitute an Award, each as defined in the Company's 2004
Flexible Long-Term Incentive Plan (the "Plan"). This Agreement is expressly
subject to the terms and provisions of the Plan and in the event there is a
conflict between the terms of the Plan and this Agreement, the terms of the Plan
shall control. All undefined capitalized terms used herein shall have the
meanings assigned in the Plan. The Award is subject to all laws, approvals,
requirements and regulations of any governmental authority which may be
applicable thereto.

      SECTION 2. RIGHTS IN SHARES. The Grantee, for the duration of this
Agreement, shall be the record owner of, and shall be entitled to vote, the
Award Shares and shall be entitled to receive all dividends and any other
distributions declared on the Award Shares (provided, however, that nothing
contained herein shall cause the Company to declare any such dividends or to
make any such distributions).

      SECTION 3. VESTING.

      3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in
accordance with the schedule set forth below:

                                       1




                  Percentage of Shares           Cumulative
    Date        Vested on Specified Date    Percentage of Shares
- ------------    ------------------------    --------------------
                                      
May 13, 2006               25                        25
May 13, 2007               25                        50
May 13, 2008               25                        75
May 13, 2009               25                       100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award
Shares shall vest after:

            (i) termination of Grantee's employment with the Company or any
      Affiliate for any reason (including termination by reason of voluntary or
      involuntary discharge, Disability or Retirement) in which case the Grantee
      shall, at the time of termination, forfeit all right, title and interest
      in and to any Award Shares not then vested, or

            (ii) a Grantee working full-time at the Award Date reduces his/her
      scheduled hours worked per week below a standard 40-hour work week, in
      which case the Grantee shall, at the time of such reduction and subject to
      management's discretion, forfeit all right, title and interest in and to
      any Award Shares not then vested; or

            (iii) a Grantee working part-time at the Award Date reduces his/her
      scheduled hours worked per week below a standard 20-hour work week, in
      which case the Grantee shall, at the time of such reduction and subject to
      management's discretion, forfeit all right, title and interest in and to
      any Award Shares not then vested.

      3.2 Effect of Grantee's Death. If the Grantee ceases to be an employee of
the Company or any Affiliate by reason of death, any and all outstanding Award
Shares not fully vested shall automatically vest in full and the personal
representatives heirs, legatees or distributees of the Grantee, as appropriate,
shall become fully vested in the Award Shares effective on the date of the
Grantee's death.

      3.3 Effect of Dissolution or Liquidation. In the event of the dissolution
or liquidation of the Company, any and all outstanding Award Shares not fully
vested shall automatically vest in full immediately prior to such dissolution or
liquidation.

      3.4 Effect of Change of Control. In the event of a Change in Control (as
defined in the Plan), any and all outstanding Award Shares not fully vested
shall automatically vest in full. The date on which such accelerated vesting
shall occur shall be the date of the occurrence of the Change in Control.

      3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to Section
3.1 shall revert to the Company.

      SECTION 4. STOCK CERTIFICATES. Upon grant of the Award Shares, the Company
shall cause its Transfer Agent to record Grantee's ownership of such Award
Shares in book entry

                                       2


form. As Award Shares vest hereunder, such Award Shares shall be transferred
into an unrestricted account in the name of the Grantee or, at the request of
the Grantee, issued in stock certificate form. Any such certificates shall be
unencumbered by any of the restrictions enumerated herein other than such
restrictions as may be imposed by applicable federal or state securities laws
and regulations.

      SECTION 5. TRANSFER AND REPURCHASES UPON TERMINATION.

      5.1 The unvested Award Shares shall not be offered, sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a
"Transfer") for any purpose whatsoever, other than to the Company, and shall not
be subject, in whole or in part, to execution, attachment, or similar process in
all such cases until the date of vesting. Any attempted Transfer of the unvested
Award Shares, other than in accordance with the terms set forth herein, shall be
void and of no effect.

      5.2 Grantee acknowledges that any sale, assignment, transfer or other
disposition of vested Award Shares may be subject to restrictions contained in
applicable federal or state securities laws and regulations and that any such
sale, assignment, transfer or other disposition of Award Shares by him or her
will be in compliance with such laws and regulations.

      SECTION 6. WITHHOLDINGS. The Company and each Affiliate shall have the
right to retain and withhold from any payment (including the vesting) of Award
Shares (and any dividends on Award Shares) any amounts required to be withheld
or otherwise deducted and paid with respect to such payment (including the
vesting thereof). At its discretion, the Company and each Affiliate may require
the Grantee receiving Award Shares to reimburse the Company or any Affiliate for
any such taxes required to be withheld by the Company or the Affiliate and
withhold any distribution in whole or in part until the Company and each
Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate
shall have the right to withhold from any other cash amounts due or to become
due from the Company or the Affiliate to the Grantee an amount equal to such
taxes required to be withheld by the Company or the Affiliate as reimbursement
for any such taxes or retain and withhold a number of shares having a market
value not less than the amount of such taxes in order to reimburse the Company
or the Affiliate for any such taxes.

      SECTION 7. ADJUSTMENTS TO AWARD SHARES.

      7.1 Stock Dividends and Splits and Similar Transactions. Subject to any
required action by the Company's Board of Directors and stockholders, the number
of Award Shares shall be proportionately adjusted for any increase or decrease
in the number of issued Shares of the Company resulting from the payment of a
Share dividend, a Share split, a Share reverse-split or any similar transaction.

      7.2 Change in Par Value. In the event of a change in the Company's Shares
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be shares within the
meaning of the Plan.

      7.3 Other Capital Adjustments. Except as hereinbefore expressly provided
in Section 7.1 and except for rights that all holders of Common Stock shall
have, Grantee shall have no rights by reason of any subdivision or consolidation
of Shares of any class or payment of any share dividend

                                       3


or any other increase or decrease in the number of shares of any class or by
reason of any dissolution, liquidation, merger or consolidation or spin-off of
assets or stock of another corporation; any issuance by the Company of Shares of
any class, or securities convertible into Shares of any class, shall not affect
the Award, and no adjustment by reason thereof shall be made with respect to the
number or price of the Company's Shares subject to the Award. An Award of
Restricted Stock shall not affect in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge or to consolidate or to dissolve,
liquidate or sell or transfer all or any part of its business or assets.

      SECTION 8. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee represents
and warrants that:

      (a) such Grantee has not and will not, directly or indirectly, Transfer
any Award Shares except in accordance with the terms of this Agreement;

      (b) such Grantee has, or such Grantee together with such Grantee's
advisors, if any, have such knowledge and experience in financial, business and
tax matters that such Grantee is, or such Grantee together with such Grantee's
advisors, if any, are capable of evaluating the merits and risks relating to
such Grantee's investment in the Award Shares and making an investment decision
with respect to the Company;

      (c) such Grantee has been given the opportunity to obtain information and
documents relating to the Company and to ask questions of and receive answers
from representatives of the Company concerning the Company and such Grantee's
investment in the Award Shares; and

      (d) such Grantee realizes that there are substantial risks incident to an
investment in the Award Shares.

      SECTION 9. IMPACT ON OTHER BENEFITS. The value of the Award Shares (either
on the Award Date or at the time the shares are vested) shall not be includable
as compensation or earnings for purposes of any other benefit plan offered by
the Company.

      SECTION 10. ADMINISTRATION. The Committee shall have full authority and
discretion (subject only to the express provisions of the Plan) to decide all
matters relating to the administration and interpretation of the Plan and this
Agreement. All such Committee determinations shall be final, conclusive, and
binding upon the Company, the Grantee, and any and all interested parties.

      SECTION 11. NO AGREEMENT TO CONTINUE IN EMPLOYMENT. Nothing in the Plan or
this Agreement shall confer on the Grantee any right to continue in the employ
of the Company or any Affiliate or interfere in any way with the right of the
Company and any Affiliate to terminate the Grantee's employment at any time.

      SECTION 12. AMENDMENT(S). This Agreement shall be subject to the terms of
the Plan, as amended from time to time, except that the Award that is the
subject of this Agreement may not in any way be restricted or limited by any
amendment or termination approved after the Award Date without the Grantee's
written consent.

                                       4


      SECTION 13. FORCE AND EFFECT. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or unenforceability
of any one provision shall have no effect on the continuing force and effect of
the remaining provisions.

      SECTION 14. GOVERNING LAWS. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Maryland.

      SECTION 15. MISCELLANEOUS.

      15.1 Any notice necessary under this Agreement shall be in writing, signed
by the party giving or making the same, and addressed (a) to the Company in the
care of its President or Secretary at the principal executive office of the
Company in Dallas, Texas, (b) to the Grantee at the address appearing in the
personnel records of the Company for such Grantee or (c) to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Except as otherwise provided herein, any such notice shall be deemed
effective upon receipt thereof by the addressee.

      15.2 This Agreement may be executed in counterparts, each of which shall
be deemed an original for all purposes and both of which taken together shall
constitute but one and the same instrument.

                            [Signature Page Follows]

                                       5


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereof. By execution of this Agreement, the Grantee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                CAPSTEAD MORTGAGE CORPORATION

                                 By: /s/ PHILLIP A. REINSCH
                                     -----------------------------------
                                         Phillip A. Reinsch
                                         Senior Vice President and Chief
                                         Financial Officer

                                [GRANTEE]

                                /s/ ANDREW F. JACOBS
                                ----------------------------------------
                                      Andrew F. Jacobs

                                       6


                                                                 EXHIBIT 10.4(o)

                          CAPSTEAD MORTGAGE CORPORATION

                           RESTRICTED STOCK AGREEMENT
                                  FOR EMPLOYEES

      THIS AGREEMENT made and entered into as of the 13th day of May, 2005
(hereinafter called the "Award Date"), by and between Capstead Mortgage
Corporation, a Maryland corporation (the "Company"), and Amar R. Patel (the
"Grantee").

      WHEREAS, the Company, having determined that its interests will be
advanced by providing an incentive to the Grantee to increase the performance of
the Company and its Affiliates, has awarded to the grantee a restricted stock
award conditioned upon the execution by the Company and the Grantee of a
Restricted Stock Agreement.

      THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, the parties hereby agree as follows:

      SECTION 1. GRANT.

      1.1 Grant and Acceptance. Pursuant to the May 13, 2005 authorization to
grant shares of restricted stock to the current employees, the Company does
hereby grant and transfer to the Grantee, for no cash consideration from the
Grantee, and the Grantee does hereby accept from the Company, an aggregate of
20,000 shares (the "Award Shares") of the Common Stock, $0.01 par value per
share, of the Company (the "Common Stock") according to the terms and conditions
and subject to the restrictions hereinafter set forth.

      1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock and
this grant shall constitute an Award, each as defined in the Company's 2004
Flexible Long-Term Incentive Plan (the "Plan"). This Agreement is expressly
subject to the terms and provisions of the Plan and in the event there is a
conflict between the terms of the Plan and this Agreement, the terms of the Plan
shall control. All undefined capitalized terms used herein shall have the
meanings assigned in the Plan. The Award is subject to all laws, approvals,
requirements and regulations of any governmental authority which may be
applicable thereto.

      SECTION 2. RIGHTS IN SHARES. The Grantee, for the duration of this
Agreement, shall be the record owner of, and shall be entitled to vote, the
Award Shares and shall be entitled to receive all dividends and any other
distributions declared on the Award Shares (provided, however, that nothing
contained herein shall cause the Company to declare any such dividends or to
make any such distributions).

      SECTION 3. VESTING.

      3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in
accordance with the schedule set forth below:

                                       1




                  Percentage of Shares           Cumulative
    Date        Vested on Specified Date    Percentage of Shares
- ------------    ------------------------    --------------------
                                      
May 13, 2006               25                        25
May 13, 2007               25                        50
May 13, 2008               25                        75
May 13, 2009               25                       100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award
Shares shall vest after:

            (i) termination of Grantee's employment with the Company or any
      Affiliate for any reason (including termination by reason of voluntary or
      involuntary discharge, Disability or Retirement) in which case the Grantee
      shall, at the time of termination, forfeit all right, title and interest
      in and to any Award Shares not then vested, or

            (ii) a Grantee working full-time at the Award Date reduces his/her
      scheduled hours worked per week below a standard 40-hour work week, in
      which case the Grantee shall, at the time of such reduction and subject to
      management's discretion, forfeit all right, title and interest in and to
      any Award Shares not then vested; or

            (iii) a Grantee working part-time at the Award Date reduces his/her
      scheduled hours worked per week below a standard 20-hour work week, in
      which case the Grantee shall, at the time of such reduction and subject to
      management's discretion, forfeit all right, title and interest in and to
      any Award Shares not then vested.

      3.2 Effect of Grantee's Death. If the Grantee ceases to be an employee of
the Company or any Affiliate by reason of death, any and all outstanding Award
Shares not fully vested shall automatically vest in full and the personal
representatives heirs, legatees or distributees of the Grantee, as appropriate,
shall become fully vested in the Award Shares effective on the date of the
Grantee's death.

      3.3 Effect of Dissolution or Liquidation. In the event of the dissolution
or liquidation of the Company, any and all outstanding Award Shares not fully
vested shall automatically vest in full immediately prior to such dissolution or
liquidation.

      3.4 Effect of Change of Control. In the event of a Change in Control (as
defined in the Plan), any and all outstanding Award Shares not fully vested
shall automatically vest in full. The date on which such accelerated vesting
shall occur shall be the date of the occurrence of the Change in Control.

      3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to Section
3.1 shall revert to the Company.

      SECTION 4. STOCK CERTIFICATES. Upon grant of the Award Shares, the Company
shall cause its Transfer Agent to record Grantee's ownership of such Award
Shares in book entry

                                       2


form. As Award Shares vest hereunder, such Award Shares shall be transferred
into an unrestricted account in the name of the Grantee or, at the request of
the Grantee, issued in stock certificate form. Any such certificates shall be
unencumbered by any of the restrictions enumerated herein other than such
restrictions as may be imposed by applicable federal or state securities laws
and regulations.

      SECTION 5. TRANSFER AND REPURCHASES UPON TERMINATION.

      5.1 The unvested Award Shares shall not be offered, sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a
"Transfer") for any purpose whatsoever, other than to the Company, and shall not
be subject, in whole or in part, to execution, attachment, or similar process in
all such cases until the date of vesting. Any attempted Transfer of the unvested
Award Shares, other than in accordance with the terms set forth herein, shall be
void and of no effect.

      5.2 Grantee acknowledges that any sale, assignment, transfer or other
disposition of vested Award Shares may be subject to restrictions contained in
applicable federal or state securities laws and regulations and that any such
sale, assignment, transfer or other disposition of Award Shares by him or her
will be in compliance with such laws and regulations.

      SECTION 6. WITHHOLDINGS. The Company and each Affiliate shall have the
right to retain and withhold from any payment (including the vesting) of Award
Shares (and any dividends on Award Shares) any amounts required to be withheld
or otherwise deducted and paid with respect to such payment (including the
vesting thereof). At its discretion, the Company and each Affiliate may require
the Grantee receiving Award Shares to reimburse the Company or any Affiliate for
any such taxes required to be withheld by the Company or the Affiliate and
withhold any distribution in whole or in part until the Company and each
Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate
shall have the right to withhold from any other cash amounts due or to become
due from the Company or the Affiliate to the Grantee an amount equal to such
taxes required to be withheld by the Company or the Affiliate as reimbursement
for any such taxes or retain and withhold a number of shares having a market
value not less than the amount of such taxes in order to reimburse the Company
or the Affiliate for any such taxes.

      SECTION 7. ADJUSTMENTS TO AWARD SHARES.

      7.1 Stock Dividends and Splits and Similar Transactions. Subject to any
required action by the Company's Board of Directors and stockholders, the number
of Award Shares shall be proportionately adjusted for any increase or decrease
in the number of issued Shares of the Company resulting from the payment of a
Share dividend, a Share split, a Share reverse-split or any similar transaction.

      7.2 Change in Par Value. In the event of a change in the Company's Shares
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be shares within the
meaning of the Plan.

      7.3 Other Capital Adjustments. Except as hereinbefore expressly provided
in Section 7.1 and except for rights that all holders of Common Stock shall
have, Grantee shall have no rights by reason of any subdivision or consolidation
of Shares of any class or payment of any share dividend

                                       3


or any other increase or decrease in the number of shares of any class or by
reason of any dissolution, liquidation, merger or consolidation or spin-off of
assets or stock of another corporation; any issuance by the Company of Shares of
any class, or securities convertible into Shares of any class, shall not affect
the Award, and no adjustment by reason thereof shall be made with respect to the
number or price of the Company's Shares subject to the Award. An Award of
Restricted Stock shall not affect in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge or to consolidate or to dissolve,
liquidate or sell or transfer all or any part of its business or assets.

      SECTION 8. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee represents
and warrants that:

      (a) such Grantee has not and will not, directly or indirectly, Transfer
any Award Shares except in accordance with the terms of this Agreement;

      (b) such Grantee has, or such Grantee together with such Grantee's
advisors, if any, have such knowledge and experience in financial, business and
tax matters that such Grantee is, or such Grantee together with such Grantee's
advisors, if any, are capable of evaluating the merits and risks relating to
such Grantee's investment in the Award Shares and making an investment decision
with respect to the Company;

      (c) such Grantee has been given the opportunity to obtain information and
documents relating to the Company and to ask questions of and receive answers
from representatives of the Company concerning the Company and such Grantee's
investment in the Award Shares; and

      (d) such Grantee realizes that there are substantial risks incident to an
investment in the Award Shares.

      SECTION 9. IMPACT ON OTHER BENEFITS. The value of the Award Shares (either
on the Award Date or at the time the shares are vested) shall not be includable
as compensation or earnings for purposes of any other benefit plan offered by
the Company.

      SECTION 10. ADMINISTRATION. The Committee shall have full authority and
discretion (subject only to the express provisions of the Plan) to decide all
matters relating to the administration and interpretation of the Plan and this
Agreement. All such Committee determinations shall be final, conclusive, and
binding upon the Company, the Grantee, and any and all interested parties.

      SECTION 11. NO AGREEMENT TO CONTINUE IN EMPLOYMENT. Nothing in the Plan or
this Agreement shall confer on the Grantee any right to continue in the employ
of the Company or any Affiliate or interfere in any way with the right of the
Company and any Affiliate to terminate the Grantee's employment at any time.

      SECTION 12. AMENDMENT(S). This Agreement shall be subject to the terms of
the Plan, as amended from time to time, except that the Award that is the
subject of this Agreement may not in any way be restricted or limited by any
amendment or termination approved after the Award Date without the Grantee's
written consent.

                                       4


      SECTION 13. FORCE AND EFFECT. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or unenforceability
of any one provision shall have no effect on the continuing force and effect of
the remaining provisions.

      SECTION 14. GOVERNING LAWS. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Maryland.

      SECTION 15. MISCELLANEOUS.

      15.1 Any notice necessary under this Agreement shall be in writing, signed
by the party giving or making the same, and addressed (a) to the Company in the
care of its President or Secretary at the principal executive office of the
Company in Dallas, Texas, (b) to the Grantee at the address appearing in the
personnel records of the Company for such Grantee or (c) to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Except as otherwise provided herein, any such notice shall be deemed
effective upon receipt thereof by the addressee.

      15.2 This Agreement may be executed in counterparts, each of which shall
be deemed an original for all purposes and both of which taken together shall
constitute but one and the same instrument.

                            [Signature Page Follows]

                                       5


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereof. By execution of this Agreement, the Grantee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                     CAPSTEAD MORTGAGE CORPORATION

                                     By: /s/ ANDREW F. JACOBS
                                        --------------------------------------
                                         Andrew F. Jacobs
                                         President and Chief Executive Officer

                                     [GRANTEE]

                                     /s/ AMAR R. PATEL
                                     -------------------------------------------
                                          Amar R. Patel

                                       6


                                                                 EXHIBIT 10.4(p)

                          CAPSTEAD MORTGAGE CORPORATION

                           RESTRICTED STOCK AGREEMENT
                                  FOR EMPLOYEES

      THIS AGREEMENT made and entered into as of the 13th day of May, 2005
(hereinafter called the "Award Date"), by and between Capstead Mortgage
Corporation, a Maryland corporation (the "Company"), and Phillip A. Reinsch (the
"Grantee").

      WHEREAS, the Company, having determined that its interests will be
advanced by providing an incentive to the Grantee to increase the performance of
the Company and its Affiliates, has awarded to the grantee a restricted stock
award conditioned upon the execution by the Company and the Grantee of a
Restricted Stock Agreement.

      THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, the parties hereby agree as follows:

      SECTION 1. GRANT.

      1.1 Grant and Acceptance. Pursuant to the May 13, 2005 authorization to
grant shares of restricted stock to the current employees, the Company does
hereby grant and transfer to the Grantee, for no cash consideration from the
Grantee, and the Grantee does hereby accept from the Company, an aggregate of
20,000 shares (the "Award Shares") of the Common Stock, $0.01 par value per
share, of the Company (the "Common Stock") according to the terms and conditions
and subject to the restrictions hereinafter set forth.

      1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock and
this grant shall constitute an Award, each as defined in the Company's 2004
Flexible Long-Term Incentive Plan (the "Plan"). This Agreement is expressly
subject to the terms and provisions of the Plan and in the event there is a
conflict between the terms of the Plan and this Agreement, the terms of the Plan
shall control. All undefined capitalized terms used herein shall have the
meanings assigned in the Plan. The Award is subject to all laws, approvals,
requirements and regulations of any governmental authority which may be
applicable thereto.

      SECTION 2. RIGHTS IN SHARES. The Grantee, for the duration of this
Agreement, shall be the record owner of, and shall be entitled to vote, the
Award Shares and shall be entitled to receive all dividends and any other
distributions declared on the Award Shares (provided, however, that nothing
contained herein shall cause the Company to declare any such dividends or to
make any such distributions).

      SECTION 3. VESTING.

      3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in
accordance with the schedule set forth below:

                                       1




                  Percentage of Shares           Cumulative
    Date        Vested on Specified Date    Percentage of Shares
- ------------    ------------------------    --------------------
                                      
May 13, 2006               25                        25
May 13, 2007               25                        50
May 13, 2008               25                        75
May 13, 2009               25                       100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award
Shares shall vest after:

            (i) termination of Grantee's employment with the Company or any
      Affiliate for any reason (including termination by reason of voluntary or
      involuntary discharge, Disability or Retirement) in which case the Grantee
      shall, at the time of termination, forfeit all right, title and interest
      in and to any Award Shares not then vested, or

            (ii) a Grantee working full-time at the Award Date reduces his/her
      scheduled hours worked per week below a standard 40-hour work week, in
      which case the Grantee shall, at the time of such reduction and subject to
      management's discretion, forfeit all right, title and interest in and to
      any Award Shares not then vested; or

            (iii) a Grantee working part-time at the Award Date reduces his/her
      scheduled hours worked per week below a standard 20-hour work week, in
      which case the Grantee shall, at the time of such reduction and subject to
      management's discretion, forfeit all right, title and interest in and to
      any Award Shares not then vested.

      3.2 Effect of Grantee's Death. If the Grantee ceases to be an employee of
the Company or any Affiliate by reason of death, any and all outstanding Award
Shares not fully vested shall automatically vest in full and the personal
representatives heirs, legatees or distributees of the Grantee, as appropriate,
shall become fully vested in the Award Shares effective on the date of the
Grantee's death.

      3.3 Effect of Dissolution or Liquidation. In the event of the dissolution
or liquidation of the Company, any and all outstanding Award Shares not fully
vested shall automatically vest in full immediately prior to such dissolution or
liquidation.

      3.4 Effect of Change of Control. In the event of a Change in Control (as
defined in the Plan), any and all outstanding Award Shares not fully vested
shall automatically vest in full. The date on which such accelerated vesting
shall occur shall be the date of the occurrence of the Change in Control.

      3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to Section
3.1 shall revert to the Company.

      SECTION 4. STOCK CERTIFICATES. Upon grant of the Award Shares, the Company
shall cause its Transfer Agent to record Grantee's ownership of such Award
Shares in book entry

                                       2


form. As Award Shares vest hereunder, such Award Shares shall be transferred
into an unrestricted account in the name of the Grantee or, at the request of
the Grantee, issued in stock certificate form. Any such certificates shall be
unencumbered by any of the restrictions enumerated herein other than such
restrictions as may be imposed by applicable federal or state securities laws
and regulations.

      SECTION 5. TRANSFER AND REPURCHASES UPON TERMINATION.

      5.1 The unvested Award Shares shall not be offered, sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a
"Transfer") for any purpose whatsoever, other than to the Company, and shall not
be subject, in whole or in part, to execution, attachment, or similar process in
all such cases until the date of vesting. Any attempted Transfer of the unvested
Award Shares, other than in accordance with the terms set forth herein, shall be
void and of no effect.

      5.2 Grantee acknowledges that any sale, assignment, transfer or other
disposition of vested Award Shares may be subject to restrictions contained in
applicable federal or state securities laws and regulations and that any such
sale, assignment, transfer or other disposition of Award Shares by him or her
will be in compliance with such laws and regulations.

      SECTION 6. WITHHOLDINGS. The Company and each Affiliate shall have the
right to retain and withhold from any payment (including the vesting) of Award
Shares (and any dividends on Award Shares) any amounts required to be withheld
or otherwise deducted and paid with respect to such payment (including the
vesting thereof). At its discretion, the Company and each Affiliate may require
the Grantee receiving Award Shares to reimburse the Company or any Affiliate for
any such taxes required to be withheld by the Company or the Affiliate and
withhold any distribution in whole or in part until the Company and each
Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate
shall have the right to withhold from any other cash amounts due or to become
due from the Company or the Affiliate to the Grantee an amount equal to such
taxes required to be withheld by the Company or the Affiliate as reimbursement
for any such taxes or retain and withhold a number of shares having a market
value not less than the amount of such taxes in order to reimburse the Company
or the Affiliate for any such taxes.

      SECTION 7. ADJUSTMENTS TO AWARD SHARES.

      7.1 Stock Dividends and Splits and Similar Transactions. Subject to any
required action by the Company's Board of Directors and stockholders, the number
of Award Shares shall be proportionately adjusted for any increase or decrease
in the number of issued Shares of the Company resulting from the payment of a
Share dividend, a Share split, a Share reverse-split or any similar transaction.

      7.2 Change in Par Value. In the event of a change in the Company's Shares
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be shares within the
meaning of the Plan.

      7.3 Other Capital Adjustments. Except as hereinbefore expressly provided
in Section 7.1 and except for rights that all holders of Common Stock shall
have, Grantee shall have no rights by reason of any subdivision or consolidation
of Shares of any class or payment of any share dividend

                                       3


or any other increase or decrease in the number of shares of any class or by
reason of any dissolution, liquidation, merger or consolidation or spin-off of
assets or stock of another corporation; any issuance by the Company of Shares of
any class, or securities convertible into Shares of any class, shall not affect
the Award, and no adjustment by reason thereof shall be made with respect to the
number or price of the Company's Shares subject to the Award. An Award of
Restricted Stock shall not affect in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge or to consolidate or to dissolve,
liquidate or sell or transfer all or any part of its business or assets.

      SECTION 8. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee represents
and warrants that:

      (a) such Grantee has not and will not, directly or indirectly, Transfer
any Award Shares except in accordance with the terms of this Agreement;

      (b) such Grantee has, or such Grantee together with such Grantee's
advisors, if any, have such knowledge and experience in financial, business and
tax matters that such Grantee is, or such Grantee together with such Grantee's
advisors, if any, are capable of evaluating the merits and risks relating to
such Grantee's investment in the Award Shares and making an investment decision
with respect to the Company;

      (c) such Grantee has been given the opportunity to obtain information and
documents relating to the Company and to ask questions of and receive answers
from representatives of the Company concerning the Company and such Grantee's
investment in the Award Shares; and

      (d) such Grantee realizes that there are substantial risks incident to an
investment in the Award Shares.

      SECTION 9. IMPACT ON OTHER BENEFITS. The value of the Award Shares (either
on the Award Date or at the time the shares are vested) shall not be includable
as compensation or earnings for purposes of any other benefit plan offered by
the Company.

      SECTION 10. ADMINISTRATION. The Committee shall have full authority and
discretion (subject only to the express provisions of the Plan) to decide all
matters relating to the administration and interpretation of the Plan and this
Agreement. All such Committee determinations shall be final, conclusive, and
binding upon the Company, the Grantee, and any and all interested parties.

      SECTION 11. NO AGREEMENT TO CONTINUE IN EMPLOYMENT. Nothing in the Plan or
this Agreement shall confer on the Grantee any right to continue in the employ
of the Company or any Affiliate or interfere in any way with the right of the
Company and any Affiliate to terminate the Grantee's employment at any time.

      SECTION 12. AMENDMENT(S). This Agreement shall be subject to the terms of
the Plan, as amended from time to time, except that the Award that is the
subject of this Agreement may not in any way be restricted or limited by any
amendment or termination approved after the Award Date without the Grantee's
written consent.

                                       4


      SECTION 13. FORCE AND EFFECT. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or unenforceability
of any one provision shall have no effect on the continuing force and effect of
the remaining provisions.

      SECTION 14. GOVERNING LAWS. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Maryland.

      SECTION 15. MISCELLANEOUS.

      15.1 Any notice necessary under this Agreement shall be in writing, signed
by the party giving or making the same, and addressed (a) to the Company in the
care of its President or Secretary at the principal executive office of the
Company in Dallas, Texas, (b) to the Grantee at the address appearing in the
personnel records of the Company for such Grantee or (c) to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Except as otherwise provided herein, any such notice shall be deemed
effective upon receipt thereof by the addressee.

      15.2 This Agreement may be executed in counterparts, each of which shall
be deemed an original for all purposes and both of which taken together shall
constitute but one and the same instrument.

                            [Signature Page Follows]

                                       5


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereof. By execution of this Agreement, the Grantee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                     CAPSTEAD MORTGAGE CORPORATION

                                     By: /s/ ANDREW F. JACOBS
                                        ----------------------------------------
                                         Andrew F. Jacobs
                                         President and Chief Executive Officer

                                     [GRANTEE]

                                     /s/ PHILLIP A. REINSCH
                                     -------------------------------------------
                                          Phillip A. Reinsch

                                       6


                                                                 EXHIBIT 10.4(q)

                          CAPSTEAD MORTGAGE CORPORATION

                           RESTRICTED STOCK AGREEMENT
                                  FOR EMPLOYEES

      THIS AGREEMENT made and entered into as of the 13th day of May, 2005
(hereinafter called the "Award Date"), by and between Capstead Mortgage
Corporation, a Maryland corporation (the "Company"), and Robert R. Spears, Jr.
(the "Grantee").

      WHEREAS, the Company, having determined that its interests will be
advanced by providing an incentive to the Grantee to increase the performance of
the Company and its Affiliates, has awarded to the grantee a restricted stock
award conditioned upon the execution by the Company and the Grantee of a
Restricted Stock Agreement.

      THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, the parties hereby agree as follows:

      SECTION 1. GRANT.

      1.1 Grant and Acceptance. Pursuant to the May 13, 2005 authorization to
grant shares of restricted stock to the current employees, the Company does
hereby grant and transfer to the Grantee, for no cash consideration from the
Grantee, and the Grantee does hereby accept from the Company, an aggregate of
20,000 shares (the "Award Shares") of the Common Stock, $0.01 par value per
share, of the Company (the "Common Stock") according to the terms and conditions
and subject to the restrictions hereinafter set forth.

      1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock and
this grant shall constitute an Award, each as defined in the Company's 2004
Flexible Long-Term Incentive Plan (the "Plan"). This Agreement is expressly
subject to the terms and provisions of the Plan and in the event there is a
conflict between the terms of the Plan and this Agreement, the terms of the Plan
shall control. All undefined capitalized terms used herein shall have the
meanings assigned in the Plan. The Award is subject to all laws, approvals,
requirements and regulations of any governmental authority which may be
applicable thereto.

      SECTION 2. RIGHTS IN SHARES. The Grantee, for the duration of this
Agreement, shall be the record owner of, and shall be entitled to vote, the
Award Shares and shall be entitled to receive all dividends and any other
distributions declared on the Award Shares (provided, however, that nothing
contained herein shall cause the Company to declare any such dividends or to
make any such distributions).

      SECTION 3. VESTING.

      3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in
accordance with the schedule set forth below:

                                       1




                  Percentage of Shares           Cumulative
    Date        Vested on Specified Date     Percentage of Shares
- ------------    ------------------------     --------------------
                                       
May 13, 2006               25                        25
May 13, 2007               25                        50
May 13, 2008               25                        75
May 13, 2009               25                       100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award
Shares shall vest after:

            (i) termination of Grantee's employment with the Company or any
      Affiliate for any reason (including termination by reason of voluntary or
      involuntary discharge, Disability or Retirement) in which case the Grantee
      shall, at the time of termination, forfeit all right, title and interest
      in and to any Award Shares not then vested, or

            (ii) a Grantee working full-time at the Award Date reduces his/her
      scheduled hours worked per week below a standard 40-hour work week, in
      which case the Grantee shall, at the time of such reduction and subject to
      management's discretion, forfeit all right, title and interest in and to
      any Award Shares not then vested; or

            (iii) a Grantee working part-time at the Award Date reduces his/her
      scheduled hours worked per week below a standard 20-hour work week, in
      which case the Grantee shall, at the time of such reduction and subject to
      management's discretion, forfeit all right, title and interest in and to
      any Award Shares not then vested.

      3.2 Effect of Grantee's Death. If the Grantee ceases to be an employee of
the Company or any Affiliate by reason of death, any and all outstanding Award
Shares not fully vested shall automatically vest in full and the personal
representatives heirs, legatees or distributees of the Grantee, as appropriate,
shall become fully vested in the Award Shares effective on the date of the
Grantee's death.

      3.3 Effect of Dissolution or Liquidation. In the event of the dissolution
or liquidation of the Company, any and all outstanding Award Shares not fully
vested shall automatically vest in full immediately prior to such dissolution or
liquidation.

      3.4 Effect of Change of Control. In the event of a Change in Control (as
defined in the Plan), any and all outstanding Award Shares not fully vested
shall automatically vest in full. The date on which such accelerated vesting
shall occur shall be the date of the occurrence of the Change in Control.

      3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to Section
3.1 shall revert to the Company.

      SECTION 4. STOCK CERTIFICATES. Upon grant of the Award Shares, the Company
shall cause its Transfer Agent to record Grantee's ownership of such Award
Shares in book entry

                                       2


form. As Award Shares vest hereunder, such Award Shares shall be transferred
into an unrestricted account in the name of the Grantee or, at the request of
the Grantee, issued in stock certificate form. Any such certificates shall be
unencumbered by any of the restrictions enumerated herein other than such
restrictions as may be imposed by applicable federal or state securities laws
and regulations.

      SECTION 5. TRANSFER AND REPURCHASES UPON TERMINATION.

      5.1 The unvested Award Shares shall not be offered, sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a
"Transfer") for any purpose whatsoever, other than to the Company, and shall not
be subject, in whole or in part, to execution, attachment, or similar process in
all such cases until the date of vesting. Any attempted Transfer of the unvested
Award Shares, other than in accordance with the terms set forth herein, shall be
void and of no effect.

      5.2 Grantee acknowledges that any sale, assignment, transfer or other
disposition of vested Award Shares may be subject to restrictions contained in
applicable federal or state securities laws and regulations and that any such
sale, assignment, transfer or other disposition of Award Shares by him or her
will be in compliance with such laws and regulations.

      SECTION 6. WITHHOLDINGS. The Company and each Affiliate shall have the
right to retain and withhold from any payment (including the vesting) of Award
Shares (and any dividends on Award Shares) any amounts required to be withheld
or otherwise deducted and paid with respect to such payment (including the
vesting thereof). At its discretion, the Company and each Affiliate may require
the Grantee receiving Award Shares to reimburse the Company or any Affiliate for
any such taxes required to be withheld by the Company or the Affiliate and
withhold any distribution in whole or in part until the Company and each
Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate
shall have the right to withhold from any other cash amounts due or to become
due from the Company or the Affiliate to the Grantee an amount equal to such
taxes required to be withheld by the Company or the Affiliate as reimbursement
for any such taxes or retain and withhold a number of shares having a market
value not less than the amount of such taxes in order to reimburse the Company
or the Affiliate for any such taxes.

      SECTION 7. ADJUSTMENTS TO AWARD SHARES.

      7.1 Stock Dividends and Splits and Similar Transactions. Subject to any
required action by the Company's Board of Directors and stockholders, the number
of Award Shares shall be proportionately adjusted for any increase or decrease
in the number of issued Shares of the Company resulting from the payment of a
Share dividend, a Share split, a Share reverse-split or any similar transaction.

      7.2 Change in Par Value. In the event of a change in the Company's Shares
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be shares within the
meaning of the Plan.

      7.3 Other Capital Adjustments. Except as hereinbefore expressly provided
in Section 7.1 and except for rights that all holders of Common Stock shall
have, Grantee shall have no rights by reason of any subdivision or consolidation
of Shares of any class or payment of any share dividend

                                       3


or any other increase or decrease in the number of shares of any class or by
reason of any dissolution, liquidation, merger or consolidation or spin-off of
assets or stock of another corporation; any issuance by the Company of Shares of
any class, or securities convertible into Shares of any class, shall not affect
the Award, and no adjustment by reason thereof shall be made with respect to the
number or price of the Company's Shares subject to the Award. An Award of
Restricted Stock shall not affect in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge or to consolidate or to dissolve,
liquidate or sell or transfer all or any part of its business or assets.

      SECTION 8. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee represents
and warrants that:

      (a) such Grantee has not and will not, directly or indirectly, Transfer
any Award Shares except in accordance with the terms of this Agreement;

      (b) such Grantee has, or such Grantee together with such Grantee's
advisors, if any, have such knowledge and experience in financial, business and
tax matters that such Grantee is, or such Grantee together with such Grantee's
advisors, if any, are capable of evaluating the merits and risks relating to
such Grantee's investment in the Award Shares and making an investment decision
with respect to the Company;

      (c) such Grantee has been given the opportunity to obtain information and
documents relating to the Company and to ask questions of and receive answers
from representatives of the Company concerning the Company and such Grantee's
investment in the Award Shares; and

      (d) such Grantee realizes that there are substantial risks incident to an
investment in the Award Shares.

      SECTION 9. IMPACT ON OTHER BENEFITS. The value of the Award Shares (either
on the Award Date or at the time the shares are vested) shall not be includable
as compensation or earnings for purposes of any other benefit plan offered by
the Company.

      SECTION 10. ADMINISTRATION. The Committee shall have full authority and
discretion (subject only to the express provisions of the Plan) to decide all
matters relating to the administration and interpretation of the Plan and this
Agreement. All such Committee determinations shall be final, conclusive, and
binding upon the Company, the Grantee, and any and all interested parties.

      SECTION 11. NO AGREEMENT TO CONTINUE IN EMPLOYMENT. Nothing in the Plan or
this Agreement shall confer on the Grantee any right to continue in the employ
of the Company or any Affiliate or interfere in any way with the right of the
Company and any Affiliate to terminate the Grantee's employment at any time.

      SECTION 12. AMENDMENT(S). This Agreement shall be subject to the terms of
the Plan, as amended from time to time, except that the Award that is the
subject of this Agreement may not in any way be restricted or limited by any
amendment or termination approved after the Award Date without the Grantee's
written consent.

                                       4


      SECTION 13. FORCE AND EFFECT. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or unenforceability
of any one provision shall have no effect on the continuing force and effect of
the remaining provisions.

      SECTION 14. GOVERNING LAWS. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Maryland.

      SECTION 15. MISCELLANEOUS.

      15.1 Any notice necessary under this Agreement shall be in writing, signed
by the party giving or making the same, and addressed (a) to the Company in the
care of its President or Secretary at the principal executive office of the
Company in Dallas, Texas, (b) to the Grantee at the address appearing in the
personnel records of the Company for such Grantee or (c) to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Except as otherwise provided herein, any such notice shall be deemed
effective upon receipt thereof by the addressee.

      15.2 This Agreement may be executed in counterparts, each of which shall
be deemed an original for all purposes and both of which taken together shall
constitute but one and the same instrument.

                            [Signature Page Follows]

                                       5


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereof. By execution of this Agreement, the Grantee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                     CAPSTEAD MORTGAGE CORPORATION

                                     By: /s/ ANDREW F. JACOBS
                                        ----------------------------------------
                                         Andrew F. Jacobs
                                         President and Chief Executive Officer

                                     [GRANTEE]

                                     /s/ ROBERT R. SPEARS, JR.
                                     -------------------------------------------
                                           Robert R. Spears, Jr.

                                       6


                                                                 EXHIBIT 10.4(r)

                          CAPSTEAD MORTGAGE CORPORATION

                           RESTRICTED STOCK AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

      THIS AGREEMENT made and entered into as of the 21st day of June, 2005
(hereinafter called the "Award Date"), by and between Capstead Mortgage
Corporation, a Maryland corporation (the "Company"), and Jack Biegler (the
"Grantee").

      WHEREAS, the Company, having determined that its interests will be
advanced by providing an incentive to the Grantee to increase the performance of
the Company and its Affiliates, has awarded to the grantee a restricted stock
award conditioned upon the execution by the Company and the Grantee of a
Restricted Stock Agreement.

      THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, the parties hereby agree as follows:

      SECTION 1. GRANT.

      1.1 Grant and Acceptance. The Company does hereby grant and transfer to
the Grantee, for no cash consideration from the Grantee, and the Grantee does
hereby accept from the Company, an aggregate of 5,000 shares (the "Award
Shares") of the Common Stock, $0.01 par value per share, of the Company (the
"Common Stock") according to the terms and conditions and subject to the
restrictions hereinafter set forth.

      1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock and
this grant shall constitute an Award, each as defined in the Company's 2004
Flexible Long-Term Incentive Plan (the "Plan"). This Agreement is expressly
subject to the terms and provisions of the Plan and in the event there is a
conflict between the terms of the Plan and this Agreement, the terms of the Plan
shall control. All undefined capitalized terms used herein shall have the
meanings assigned in the Plan. The Award is subject to all laws, approvals,
requirements and regulations of any governmental authority which may be
applicable thereto.

      SECTION 2. RIGHTS IN SHARES. The Grantee, for the duration of this
Agreement, shall be the record owner of, and shall be entitled to vote, the
Award Shares and shall be entitled to receive all dividends and any other
distributions declared on the Award Shares (provided, however, that nothing
contained herein shall cause the Company to declare any such dividends or to
make any such distributions).

      SECTION 3. VESTING.

      3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in
accordance with the schedule set forth below:

                                       1




                     Percentage of Shares           Cumulative
    Date           Vested on Specified Date    Percentage of Shares
- -------------      ------------------------    --------------------
                                         
June 21, 2006                 25                        25
June 21, 2007                 25                        50
June 21, 2008                 25                        75
June 21, 2009                 25                       100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award
Shares shall vest after termination of Grantee's directorship with the Company
or any Affiliate for any reason (including termination by reason of voluntary or
involuntary discharge, Disability or Retirement) in which case the Grantee
shall, at the time of termination, forfeit all right, title and interest in and
to any Award Shares not then vested.

      3.2 Effect of Grantee's Death. If the Grantee ceases to be a director of
the Company or any Affiliate by reason of death, any and all outstanding Award
Shares not fully vested shall automatically vest in full and the personal
representatives heirs, legatees or distributees of the Grantee, as appropriate,
shall become fully vested in the Award Shares effective on the date of the
Grantee's death.

      3.3 Effect of Dissolution or Liquidation. In the event of the dissolution
or liquidation of the Company, any and all outstanding Award Shares not fully
vested shall automatically vest in full immediately prior to such dissolution or
liquidation.

      3.4 Effect of Change of Control. In the event of a Change in Control (as
defined in the Plan), any and all outstanding Award Shares not fully vested
shall automatically vest in full. The date on which such accelerated vesting
shall occur shall be the date of the occurrence of the Change in Control.

      3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to Section
3.1 shall revert to the Company.

      SECTION 4. STOCK CERTIFICATES. Upon grant of the Award Shares, the Company
shall cause its Transfer Agent to record Grantee's ownership of such Award
Shares in book entry form. As Award Shares vest hereunder, such Award Shares
shall be transferred into an unrestricted account in the name of the Grantee or,
at the request of the Grantee, issued in stock certificate form. Any such
certificates shall be unencumbered by any of the restrictions enumerated herein
other than such restrictions as may be imposed by applicable federal or state
securities laws and regulations.

      SECTION 5. TRANSFER AND REPURCHASES UPON TERMINATION.

      5.1 The unvested Award Shares shall not be offered, sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a
"Transfer") for any purpose whatsoever, other than to the Company, and shall not
be subject, in whole or in part, to execution, attachment, or similar process in
all such cases until the date of vesting. Any attempted Transfer of

                                       2


the unvested Award Shares, other than in accordance with the terms set forth
herein, shall be void and of no effect.

      5.2 Grantee acknowledges that any sale, assignment, transfer or other
disposition of vested Award Shares may be subject to restrictions contained in
applicable federal or state securities laws and regulations and that any such
sale, assignment, transfer or other disposition of Award Shares by him or her
will be in compliance with such laws and regulations.

      SECTION 6. WITHHOLDINGS. The Company and each Affiliate shall have the
right to retain and withhold from any payment (including the vesting) of Award
Shares (and any dividends on Award Shares) any amounts required to be withheld
or otherwise deducted and paid with respect to such payment (including the
vesting thereof). At its discretion, the Company and each Affiliate may require
the Grantee receiving Award Shares to reimburse the Company or any Affiliate for
any such taxes required to be withheld by the Company or the Affiliate and
withhold any distribution in whole or in part until the Company and each
Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate
shall have the right to withhold from any other cash amounts due or to become
due from the Company or the Affiliate to the Grantee an amount equal to such
taxes required to be withheld by the Company or the Affiliate as reimbursement
for any such taxes or retain and withhold a number of shares having a market
value not less than the amount of such taxes in order to reimburse the Company
or the Affiliate for any such taxes.

      SECTION 7. ADJUSTMENTS TO AWARD SHARES.

      7.1 Stock Dividends and Splits and Similar Transactions. Subject to any
required action by the Company's Board of Directors and stockholders, the number
of Award Shares shall be proportionately adjusted for any increase or decrease
in the number of issued Shares of the Company resulting from the payment of a
Share dividend, a Share split, a Share reverse-split or any similar transaction.

      7.2 Change in Par Value. In the event of a change in the Company's Shares
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be shares within the
meaning of the Plan.

      7.3 Other Capital Adjustments. Except as hereinbefore expressly provided
in Section 7.1 and except for rights that all holders of Common Stock shall
have, Grantee shall have no rights by reason of any subdivision or consolidation
of Shares of any class or payment of any share dividend or any other increase or
decrease in the number of shares of any class or by reason of any dissolution,
liquidation, merger or consolidation or spin-off of assets or stock of another
corporation; any issuance by the Company of Shares of any class, or securities
convertible into Shares of any class, shall not affect the Award, and no
adjustment by reason thereof shall be made with respect to the number or price
of the Company's Shares subject to the Award. An Award of Restricted Stock shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.

                                       3


      SECTION 8. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee represents
and warrants that:

      (a) such Grantee has not and will not, directly or indirectly, Transfer
any Award Shares except in accordance with the terms of this Agreement;

      (b) such Grantee has, or such Grantee together with such Grantee's
advisors, if any, have such knowledge and experience in financial, business and
tax matters that such Grantee is, or such Grantee together with such Grantee's
advisors, if any, are capable of evaluating the merits and risks relating to
such Grantee's investment in the Award Shares and making an investment decision
with respect to the Company;

      (c) such Grantee has been given the opportunity to obtain information and
documents relating to the Company and to ask questions of and receive answers
from representatives of the Company concerning the Company and such Grantee's
investment in the Award Shares; and

      (d) such Grantee realizes that there are substantial risks incident to an
investment in the Award Shares.

      SECTION 9. IMPACT ON OTHER BENEFITS. The value of the Award Shares (either
on the Award Date or at the time the shares are vested) shall not be includable
as compensation or earnings for purposes of any other benefit plan offered by
the Company.

      SECTION 10. ADMINISTRATION. The Committee shall have full authority and
discretion (subject only to the express provisions of the Plan) to decide all
matters relating to the administration and interpretation of the Plan and this
Agreement. All such Committee determinations shall be final, conclusive, and
binding upon the Company, the Grantee, and any and all interested parties.

      SECTION 11. AMENDMENT(S). This Agreement shall be subject to the terms of
the Plan, as amended from time to time, except that the Award that is the
subject of this Agreement may not in any way be restricted or limited by any
amendment or termination approved after the Award Date without the Grantee's
written consent.

      SECTION 12. FORCE AND EFFECT. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or unenforceability
of any one provision shall have no effect on the continuing force and effect of
the remaining provisions.

      SECTION 13. GOVERNING LAWS. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Maryland.

      SECTION 14. MISCELLANEOUS.

      14.1 Any notice necessary under this Agreement shall be in writing, signed
by the party giving or making the same, and addressed (a) to the Company in the
care of its President or Secretary at the principal executive office of the
Company in Dallas, Texas, (b) to the Grantee at the address appearing in the
personnel records of the Company for such Grantee or (c) to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Except as

                                       4


otherwise provided herein, any such notice shall be deemed effective upon
receipt thereof by the addressee.

      14.2 This Agreement may be executed in counterparts, each of which shall
be deemed an original for all purposes and both of which taken together shall
constitute but one and the same instrument.

                            [Signature Page Follows]

                                       5


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereof. By execution of this Agreement, the Grantee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                 CAPSTEAD MORTGAGE CORPORATION

                                 By: /s/ ANDREW F. JACOBS
                                    -------------------------------------------
                                     Andrew F. Jacobs
                                     President and Chief Executive Officer

                                 [GRANTEE]

                                 /s/ JACK BIEGLER
                                 ---------------------------------------------
                                       Jack Biegler

                                       6


                                                                 EXHIBIT 10.4(s)

                          CAPSTEAD MORTGAGE CORPORATION

                           RESTRICTED STOCK AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

      THIS AGREEMENT made and entered into as of the 13th day of May, 2005
(hereinafter called the "Award Date"), by and between Capstead Mortgage
Corporation, a Maryland corporation (the "Company"), and Gary Keiser (the
"Grantee").

      WHEREAS, the Company, having determined that its interests will be
advanced by providing an incentive to the Grantee to increase the performance of
the Company and its Affiliates, has awarded to the grantee a restricted stock
award conditioned upon the execution by the Company and the Grantee of a
Restricted Stock Agreement.

      THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, the parties hereby agree as follows:

      SECTION 1. GRANT.

      1.1 Grant and Acceptance. The Company does hereby grant and transfer to
the Grantee, for no cash consideration from the Grantee, and the Grantee does
hereby accept from the Company, an aggregate of 5,000 shares (the "Award
Shares") of the Common Stock, $0.01 par value per share, of the Company (the
"Common Stock") according to the terms and conditions and subject to the
restrictions hereinafter set forth.

      1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock and
this grant shall constitute an Award, each as defined in the Company's 2004
Flexible Long-Term Incentive Plan (the "Plan"). This Agreement is expressly
subject to the terms and provisions of the Plan and in the event there is a
conflict between the terms of the Plan and this Agreement, the terms of the Plan
shall control. All undefined capitalized terms used herein shall have the
meanings assigned in the Plan. The Award is subject to all laws, approvals,
requirements and regulations of any governmental authority which may be
applicable thereto.

      SECTION 2. RIGHTS IN SHARES. The Grantee, for the duration of this
Agreement, shall be the record owner of, and shall be entitled to vote, the
Award Shares and shall be entitled to receive all dividends and any other
distributions declared on the Award Shares (provided, however, that nothing
contained herein shall cause the Company to declare any such dividends or to
make any such distributions).

      SECTION 3. VESTING.

      3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in
accordance with the schedule set forth below:

                                       1




                     Percentage of Shares            Cumulative
    Date           Vested on Specified Date     Percentage of Shares
- ------------       ------------------------     --------------------
                                          
May 13, 2006                    25                         25
May 13, 2007                    25                         50
May 13, 2008                    25                         75
May 13, 2009                    25                        100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award
Shares shall vest after termination of Grantee's directorship with the Company
or any Affiliate for any reason (including termination by reason of voluntary or
involuntary discharge, Disability or Retirement) in which case the Grantee
shall, at the time of termination, forfeit all right, title and interest in and
to any Award Shares not then vested.

      3.2 Effect of Grantee's Death. If the Grantee ceases to be a director of
the Company or any Affiliate by reason of death, any and all outstanding Award
Shares not fully vested shall automatically vest in full and the personal
representatives heirs, legatees or distributees of the Grantee, as appropriate,
shall become fully vested in the Award Shares effective on the date of the
Grantee's death.

      3.3 Effect of Dissolution or Liquidation. In the event of the dissolution
or liquidation of the Company, any and all outstanding Award Shares not fully
vested shall automatically vest in full immediately prior to such dissolution or
liquidation.

      3.4 Effect of Change of Control. In the event of a Change in Control (as
defined in the Plan), any and all outstanding Award Shares not fully vested
shall automatically vest in full. The date on which such accelerated vesting
shall occur shall be the date of the occurrence of the Change in Control.

      3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to Section
3.1 shall revert to the Company.

      SECTION 4. STOCK CERTIFICATES. Upon grant of the Award Shares, the Company
shall cause its Transfer Agent to record Grantee's ownership of such Award
Shares in book entry form. As Award Shares vest hereunder, such Award Shares
shall be transferred into an unrestricted account in the name of the Grantee or,
at the request of the Grantee, issued in stock certificate form. Any such
certificates shall be unencumbered by any of the restrictions enumerated herein
other than such restrictions as may be imposed by applicable federal or state
securities laws and regulations.

      SECTION 5. TRANSFER AND REPURCHASES UPON TERMINATION.

      5.1 The unvested Award Shares shall not be offered, sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a
"Transfer") for any purpose whatsoever, other than to the Company, and shall not
be subject, in whole or in part, to execution, attachment, or similar process in
all such cases until the date of vesting. Any attempted Transfer of

                                       2


the unvested Award Shares, other than in accordance with the terms set forth
herein, shall be void and of no effect.

      5.2 Grantee acknowledges that any sale, assignment, transfer or other
disposition of vested Award Shares may be subject to restrictions contained in
applicable federal or state securities laws and regulations and that any such
sale, assignment, transfer or other disposition of Award Shares by him or her
will be in compliance with such laws and regulations.

      SECTION 6. WITHHOLDINGS. The Company and each Affiliate shall have the
right to retain and withhold from any payment (including the vesting) of Award
Shares (and any dividends on Award Shares) any amounts required to be withheld
or otherwise deducted and paid with respect to such payment (including the
vesting thereof). At its discretion, the Company and each Affiliate may require
the Grantee receiving Award Shares to reimburse the Company or any Affiliate for
any such taxes required to be withheld by the Company or the Affiliate and
withhold any distribution in whole or in part until the Company and each
Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate
shall have the right to withhold from any other cash amounts due or to become
due from the Company or the Affiliate to the Grantee an amount equal to such
taxes required to be withheld by the Company or the Affiliate as reimbursement
for any such taxes or retain and withhold a number of shares having a market
value not less than the amount of such taxes in order to reimburse the Company
or the Affiliate for any such taxes.

      SECTION 7. ADJUSTMENTS TO AWARD SHARES.

      7.1 Stock Dividends and Splits and Similar Transactions. Subject to any
required action by the Company's Board of Directors and stockholders, the number
of Award Shares shall be proportionately adjusted for any increase or decrease
in the number of issued Shares of the Company resulting from the payment of a
Share dividend, a Share split, a Share reverse-split or any similar transaction.

      7.2 Change in Par Value. In the event of a change in the Company's Shares
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be shares within the
meaning of the Plan.

      7.3 Other Capital Adjustments. Except as hereinbefore expressly provided
in Section 7.1 and except for rights that all holders of Common Stock shall
have, Grantee shall have no rights by reason of any subdivision or consolidation
of Shares of any class or payment of any share dividend or any other increase or
decrease in the number of shares of any class or by reason of any dissolution,
liquidation, merger or consolidation or spin-off of assets or stock of another
corporation; any issuance by the Company of Shares of any class, or securities
convertible into Shares of any class, shall not affect the Award, and no
adjustment by reason thereof shall be made with respect to the number or price
of the Company's Shares subject to the Award. An Award of Restricted Stock shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.

                                       3


      SECTION 8. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee represents
and warrants that:

      (a) such Grantee has not and will not, directly or indirectly, Transfer
any Award Shares except in accordance with the terms of this Agreement;

      (b) such Grantee has, or such Grantee together with such Grantee's
advisors, if any, have such knowledge and experience in financial, business and
tax matters that such Grantee is, or such Grantee together with such Grantee's
advisors, if any, are capable of evaluating the merits and risks relating to
such Grantee's investment in the Award Shares and making an investment decision
with respect to the Company;

      (c) such Grantee has been given the opportunity to obtain information and
documents relating to the Company and to ask questions of and receive answers
from representatives of the Company concerning the Company and such Grantee's
investment in the Award Shares; and

      (d) such Grantee realizes that there are substantial risks incident to an
investment in the Award Shares.

      SECTION 9. IMPACT ON OTHER BENEFITS. The value of the Award Shares (either
on the Award Date or at the time the shares are vested) shall not be includable
as compensation or earnings for purposes of any other benefit plan offered by
the Company.

      SECTION 10. ADMINISTRATION. The Committee shall have full authority and
discretion (subject only to the express provisions of the Plan) to decide all
matters relating to the administration and interpretation of the Plan and this
Agreement. All such Committee determinations shall be final, conclusive, and
binding upon the Company, the Grantee, and any and all interested parties.

      SECTION 11. AMENDMENT(S). This Agreement shall be subject to the terms of
the Plan, as amended from time to time, except that the Award that is the
subject of this Agreement may not in any way be restricted or limited by any
amendment or termination approved after the Award Date without the Grantee's
written consent.

      SECTION 12. FORCE AND EFFECT. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or unenforceability
of any one provision shall have no effect on the continuing force and effect of
the remaining provisions.

      SECTION 13. GOVERNING LAWS. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Maryland.

      SECTION 14. MISCELLANEOUS.

      14.1 Any notice necessary under this Agreement shall be in writing, signed
by the party giving or making the same, and addressed (a) to the Company in the
care of its President or Secretary at the principal executive office of the
Company in Dallas, Texas, (b) to the Grantee at the address appearing in the
personnel records of the Company for such Grantee or (c) to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Except as

                                       4


otherwise provided herein, any such notice shall be deemed effective upon
receipt thereof by the addressee.

      14.2 This Agreement may be executed in counterparts, each of which shall
be deemed an original for all purposes and both of which taken together shall
constitute but one and the same instrument.

                            [Signature Page Follows]

                                       5


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereof. By execution of this Agreement, the Grantee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                    CAPSTEAD MORTGAGE CORPORATION

                                    By: /s/ ANDREW F. JACOBS
                                       -----------------------------------------
                                        Andrew F. Jacobs
                                        President and Chief Executive Officer

                                    [GRANTEE]

                                    /s/ GARY KEISER
                                    --------------------------------------------
                                          Gary Keiser

                                       6


                                                                 EXHIBIT 10.4(t)

                          CAPSTEAD MORTGAGE CORPORATION

                           RESTRICTED STOCK AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

      THIS AGREEMENT made and entered into as of the 13th day of May, 2005
(hereinafter called the "Award Date"), by and between Capstead Mortgage
Corporation, a Maryland corporation (the "Company"), and Paul M. Low (the
"Grantee").

      WHEREAS, the Company, having determined that its interests will be
advanced by providing an incentive to the Grantee to increase the performance of
the Company and its Affiliates, has awarded to the grantee a restricted stock
award conditioned upon the execution by the Company and the Grantee of a
Restricted Stock Agreement.

      THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, the parties hereby agree as follows:

      SECTION 1. GRANT.

      1.1 Grant and Acceptance. The Company does hereby grant and transfer to
the Grantee, for no cash consideration from the Grantee, and the Grantee does
hereby accept from the Company, an aggregate of 5,000 shares (the "Award
Shares") of the Common Stock, $0.01 par value per share, of the Company (the
"Common Stock") according to the terms and conditions and subject to the
restrictions hereinafter set forth.

      1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock and
this grant shall constitute an Award, each as defined in the Company's 2004
Flexible Long-Term Incentive Plan (the "Plan"). This Agreement is expressly
subject to the terms and provisions of the Plan and in the event there is a
conflict between the terms of the Plan and this Agreement, the terms of the Plan
shall control. All undefined capitalized terms used herein shall have the
meanings assigned in the Plan. The Award is subject to all laws, approvals,
requirements and regulations of any governmental authority which may be
applicable thereto.

      SECTION 2. RIGHTS IN SHARES. The Grantee, for the duration of this
Agreement, shall be the record owner of, and shall be entitled to vote, the
Award Shares and shall be entitled to receive all dividends and any other
distributions declared on the Award Shares (provided, however, that nothing
contained herein shall cause the Company to declare any such dividends or to
make any such distributions).

      SECTION 3. VESTING.

      3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in
accordance with the schedule set forth below:

                                       1




                         Percentage of Shares                    Cumulative
    Date               Vested on Specified Date             Percentage of Shares
- ------------           ------------------------             --------------------
                                                      
May 13, 2006                      25                                 25
May 13, 2007                      25                                 50
May 13, 2008                      25                                 75
May 13, 2009                      25                                100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award
Shares shall vest after termination of Grantee's directorship with the Company
or any Affiliate for any reason (including termination by reason of voluntary or
involuntary discharge, Disability or Retirement) in which case the Grantee
shall, at the time of termination, forfeit all right, title and interest in and
to any Award Shares not then vested.

      3.2 Effect of Grantee's Death. If the Grantee ceases to be a director of
the Company or any Affiliate by reason of death, any and all outstanding Award
Shares not fully vested shall automatically vest in full and the personal
representatives heirs, legatees or distributees of the Grantee, as appropriate,
shall become fully vested in the Award Shares effective on the date of the
Grantee's death.

      3.3 Effect of Dissolution or Liquidation. In the event of the dissolution
or liquidation of the Company, any and all outstanding Award Shares not fully
vested shall automatically vest in full immediately prior to such dissolution or
liquidation.

      3.4 Effect of Change of Control. In the event of a Change in Control (as
defined in the Plan), any and all outstanding Award Shares not fully vested
shall automatically vest in full. The date on which such accelerated vesting
shall occur shall be the date of the occurrence of the Change in Control.

      3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to Section
3.1 shall revert to the Company.

      SECTION 4. STOCK CERTIFICATES. Upon grant of the Award Shares, the Company
shall cause its Transfer Agent to record Grantee's ownership of such Award
Shares in book entry form. As Award Shares vest hereunder, such Award Shares
shall be transferred into an unrestricted account in the name of the Grantee or,
at the request of the Grantee, issued in stock certificate form. Any such
certificates shall be unencumbered by any of the restrictions enumerated herein
other than such restrictions as may be imposed by applicable federal or state
securities laws and regulations.

      SECTION 5. TRANSFER AND REPURCHASES UPON TERMINATION.

      5.1 The unvested Award Shares shall not be offered, sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a
"Transfer") for any purpose whatsoever, other than to the Company, and shall not
be subject, in whole or in part, to execution, attachment, or similar process in
all such cases until the date of vesting. Any attempted Transfer of

                                       2


the unvested Award Shares, other than in accordance with the terms set forth
herein, shall be void and of no effect.

      5.2 Grantee acknowledges that any sale, assignment, transfer or other
disposition of vested Award Shares may be subject to restrictions contained in
applicable federal or state securities laws and regulations and that any such
sale, assignment, transfer or other disposition of Award Shares by him or her
will be in compliance with such laws and regulations.

      SECTION 6. WITHHOLDINGS. The Company and each Affiliate shall have the
right to retain and withhold from any payment (including the vesting) of Award
Shares (and any dividends on Award Shares) any amounts required to be withheld
or otherwise deducted and paid with respect to such payment (including the
vesting thereof). At its discretion, the Company and each Affiliate may require
the Grantee receiving Award Shares to reimburse the Company or any Affiliate for
any such taxes required to be withheld by the Company or the Affiliate and
withhold any distribution in whole or in part until the Company and each
Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate
shall have the right to withhold from any other cash amounts due or to become
due from the Company or the Affiliate to the Grantee an amount equal to such
taxes required to be withheld by the Company or the Affiliate as reimbursement
for any such taxes or retain and withhold a number of shares having a market
value not less than the amount of such taxes in order to reimburse the Company
or the Affiliate for any such taxes.

      SECTION 7. ADJUSTMENTS TO AWARD SHARES.

      7.1 Stock Dividends and Splits and Similar Transactions. Subject to any
required action by the Company's Board of Directors and stockholders, the number
of Award Shares shall be proportionately adjusted for any increase or decrease
in the number of issued Shares of the Company resulting from the payment of a
Share dividend, a Share split, a Share reverse-split or any similar transaction.

      7.2 Change in Par Value. In the event of a change in the Company's Shares
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be shares within the
meaning of the Plan.

      7.3 Other Capital Adjustments. Except as hereinbefore expressly provided
in Section 7.1 and except for rights that all holders of Common Stock shall
have, Grantee shall have no rights by reason of any subdivision or consolidation
of Shares of any class or payment of any share dividend or any other increase or
decrease in the number of shares of any class or by reason of any dissolution,
liquidation, merger or consolidation or spin-off of assets or stock of another
corporation; any issuance by the Company of Shares of any class, or securities
convertible into Shares of any class, shall not affect the Award, and no
adjustment by reason thereof shall be made with respect to the number or price
of the Company's Shares subject to the Award. An Award of Restricted Stock shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.

                                       3


      SECTION 8. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee represents
and warrants that:

      (a) such Grantee has not and will not, directly or indirectly, Transfer
any Award Shares except in accordance with the terms of this Agreement;

      (b) such Grantee has, or such Grantee together with such Grantee's
advisors, if any, have such knowledge and experience in financial, business and
tax matters that such Grantee is, or such Grantee together with such Grantee's
advisors, if any, are capable of evaluating the merits and risks relating to
such Grantee's investment in the Award Shares and making an investment decision
with respect to the Company;

      (c) such Grantee has been given the opportunity to obtain information and
documents relating to the Company and to ask questions of and receive answers
from representatives of the Company concerning the Company and such Grantee's
investment in the Award Shares; and

      (d) such Grantee realizes that there are substantial risks incident to an
investment in the Award Shares.

      SECTION 9. IMPACT ON OTHER BENEFITS. The value of the Award Shares (either
on the Award Date or at the time the shares are vested) shall not be includable
as compensation or earnings for purposes of any other benefit plan offered by
the Company.

      SECTION 10. ADMINISTRATION. The Committee shall have full authority and
discretion (subject only to the express provisions of the Plan) to decide all
matters relating to the administration and interpretation of the Plan and this
Agreement. All such Committee determinations shall be final, conclusive, and
binding upon the Company, the Grantee, and any and all interested parties.

      SECTION 11. AMENDMENT(S). This Agreement shall be subject to the terms of
the Plan, as amended from time to time, except that the Award that is the
subject of this Agreement may not in any way be restricted or limited by any
amendment or termination approved after the Award Date without the Grantee's
written consent.

      SECTION 12. FORCE AND EFFECT. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or unenforceability
of any one provision shall have no effect on the continuing force and effect of
the remaining provisions.

      SECTION 13. GOVERNING LAWS. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Maryland.

      SECTION 14. MISCELLANEOUS.

      14.1 Any notice necessary under this Agreement shall be in writing, signed
by the party giving or making the same, and addressed (a) to the Company in the
care of its President or Secretary at the principal executive office of the
Company in Dallas, Texas, (b) to the Grantee at the address appearing in the
personnel records of the Company for such Grantee or (c) to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Except as

                                       4


otherwise provided herein, any such notice shall be deemed effective upon
receipt thereof by the addressee.

      14.2 This Agreement may be executed in counterparts, each of which shall
be deemed an original for all purposes and both of which taken together shall
constitute but one and the same instrument.

                            [Signature Page Follows]

                                       5


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereof. By execution of this Agreement, the Grantee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                 CAPSTEAD MORTGAGE CORPORATION

                                 By: /s/ ANDREW F. JACOBS
                                     -------------------------------------
                                     Andrew F. Jacobs
                                     President and Chief Executive Officer

                                 [GRANTEE]

                                 /s/ PAUL M. LOW
                                 ------------------------------------------
                                        Paul M. Low

                                       6


                                                                 EXHIBIT 10.4(u)

                          CAPSTEAD MORTGAGE CORPORATION

                           RESTRICTED STOCK AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

      THIS AGREEMENT made and entered into as of the 21st day of June, 2005
(hereinafter called the "Award Date"), by and between Capstead Mortgage
Corporation, a Maryland corporation (the "Company"), and Christopher W. Mahowald
(the "Grantee").

      WHEREAS, the Company, having determined that its interests will be
advanced by providing an incentive to the Grantee to increase the performance of
the Company and its Affiliates, has awarded to the grantee a restricted stock
award conditioned upon the execution by the Company and the Grantee of a
Restricted Stock Agreement.

      THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, the parties hereby agree as follows:

      SECTION 1. GRANT.

      1.1 Grant and Acceptance. The Company does hereby grant and transfer to
the Grantee, for no cash consideration from the Grantee, and the Grantee does
hereby accept from the Company, an aggregate of 5,000 shares (the "Award
Shares") of the Common Stock, $0.01 par value per share, of the Company (the
"Common Stock") according to the terms and conditions and subject to the
restrictions hereinafter set forth.

      1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock and
this grant shall constitute an Award, each as defined in the Company's 2004
Flexible Long-Term Incentive Plan (the "Plan"). This Agreement is expressly
subject to the terms and provisions of the Plan and in the event there is a
conflict between the terms of the Plan and this Agreement, the terms of the Plan
shall control. All undefined capitalized terms used herein shall have the
meanings assigned in the Plan. The Award is subject to all laws, approvals,
requirements and regulations of any governmental authority which may be
applicable thereto.

      SECTION 2. RIGHTS IN SHARES. The Grantee, for the duration of this
Agreement, shall be the record owner of, and shall be entitled to vote, the
Award Shares and shall be entitled to receive all dividends and any other
distributions declared on the Award Shares (provided, however, that nothing
contained herein shall cause the Company to declare any such dividends or to
make any such distributions).

      SECTION 3. VESTING.

      3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in
accordance with the schedule set forth below:

                                       1




                           Percentage of Shares                  Cumulative
    Date                 Vested on Specified Date           Percentage of Shares
- -------------            ------------------------           --------------------
                                                      
June 21, 2006                       25                               25
June 21, 2007                       25                               50
June 21, 2008                       25                               75
June 21, 2009                       25                              100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award
Shares shall vest after termination of Grantee's directorship with the Company
or any Affiliate for any reason (including termination by reason of voluntary or
involuntary discharge, Disability or Retirement) in which case the Grantee
shall, at the time of termination, forfeit all right, title and interest in and
to any Award Shares not then vested.

      3.2 Effect of Grantee's Death. If the Grantee ceases to be a director of
the Company or any Affiliate by reason of death, any and all outstanding Award
Shares not fully vested shall automatically vest in full and the personal
representatives heirs, legatees or distributees of the Grantee, as appropriate,
shall become fully vested in the Award Shares effective on the date of the
Grantee's death.

      3.3 Effect of Dissolution or Liquidation. In the event of the dissolution
or liquidation of the Company, any and all outstanding Award Shares not fully
vested shall automatically vest in full immediately prior to such dissolution or
liquidation.

      3.4 Effect of Change of Control. In the event of a Change in Control (as
defined in the Plan), any and all outstanding Award Shares not fully vested
shall automatically vest in full. The date on which such accelerated vesting
shall occur shall be the date of the occurrence of the Change in Control.

      3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to Section
3.1 shall revert to the Company.

      SECTION 4. STOCK CERTIFICATES. Upon grant of the Award Shares, the Company
shall cause its Transfer Agent to record Grantee's ownership of such Award
Shares in book entry form. As Award Shares vest hereunder, such Award Shares
shall be transferred into an unrestricted account in the name of the Grantee or,
at the request of the Grantee, issued in stock certificate form. Any such
certificates shall be unencumbered by any of the restrictions enumerated herein
other than such restrictions as may be imposed by applicable federal or state
securities laws and regulations.

      SECTION 5. TRANSFER AND REPURCHASES UPON TERMINATION.

      5.1 The unvested Award Shares shall not be offered, sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a
"Transfer") for any purpose whatsoever, other than to the Company, and shall not
be subject, in whole or in part, to execution, attachment, or similar process in
all such cases until the date of vesting. Any attempted Transfer of

                                       2

the unvested Award Shares, other than in accordance with the terms set forth
herein, shall be void and of no effect.

      5.2 Grantee acknowledges that any sale, assignment, transfer or other
disposition of vested Award Shares may be subject to restrictions contained in
applicable federal or state securities laws and regulations and that any such
sale, assignment, transfer or other disposition of Award Shares by him or her
will be in compliance with such laws and regulations.

      SECTION 6. WITHHOLDINGS. The Company and each Affiliate shall have the
right to retain and withhold from any payment (including the vesting) of Award
Shares (and any dividends on Award Shares) any amounts required to be withheld
or otherwise deducted and paid with respect to such payment (including the
vesting thereof). At its discretion, the Company and each Affiliate may require
the Grantee receiving Award Shares to reimburse the Company or any Affiliate for
any such taxes required to be withheld by the Company or the Affiliate and
withhold any distribution in whole or in part until the Company and each
Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate
shall have the right to withhold from any other cash amounts due or to become
due from the Company or the Affiliate to the Grantee an amount equal to such
taxes required to be withheld by the Company or the Affiliate as reimbursement
for any such taxes or retain and withhold a number of shares having a market
value not less than the amount of such taxes in order to reimburse the Company
or the Affiliate for any such taxes.

      SECTION 7. ADJUSTMENTS TO AWARD SHARES.

      7.1 Stock Dividends and Splits and Similar Transactions. Subject to any
required action by the Company's Board of Directors and stockholders, the number
of Award Shares shall be proportionately adjusted for any increase or decrease
in the number of issued Shares of the Company resulting from the payment of a
Share dividend, a Share split, a Share reverse-split or any similar transaction.

      7.2 Change in Par Value. In the event of a change in the Company's Shares
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be shares within the
meaning of the Plan.

      7.3 Other Capital Adjustments. Except as hereinbefore expressly provided
in Section 7.1 and except for rights that all holders of Common Stock shall
have, Grantee shall have no rights by reason of any subdivision or consolidation
of Shares of any class or payment of any share dividend or any other increase or
decrease in the number of shares of any class or by reason of any dissolution,
liquidation, merger or consolidation or spin-off of assets or stock of another
corporation; any issuance by the Company of Shares of any class, or securities
convertible into Shares of any class, shall not affect the Award, and no
adjustment by reason thereof shall be made with respect to the number or price
of the Company's Shares subject to the Award. An Award of Restricted Stock shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.

                                       3


      SECTION 8. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee represents
and warrants that:

      (a) such Grantee has not and will not, directly or indirectly, Transfer
any Award Shares except in accordance with the terms of this Agreement;

      (b) such Grantee has, or such Grantee together with such Grantee's
advisors, if any, have such knowledge and experience in financial, business and
tax matters that such Grantee is, or such Grantee together with such Grantee's
advisors, if any, are capable of evaluating the merits and risks relating to
such Grantee's investment in the Award Shares and making an investment decision
with respect to the Company;

      (c) such Grantee has been given the opportunity to obtain information and
documents relating to the Company and to ask questions of and receive answers
from representatives of the Company concerning the Company and such Grantee's
investment in the Award Shares; and

      (d) such Grantee realizes that there are substantial risks incident to an
investment in the Award Shares.

      SECTION 9. IMPACT ON OTHER BENEFITS. The value of the Award Shares (either
on the Award Date or at the time the shares are vested) shall not be includable
as compensation or earnings for purposes of any other benefit plan offered by
the Company.

      SECTION 10. ADMINISTRATION. The Committee shall have full authority and
discretion (subject only to the express provisions of the Plan) to decide all
matters relating to the administration and interpretation of the Plan and this
Agreement. All such Committee determinations shall be final, conclusive, and
binding upon the Company, the Grantee, and any and all interested parties.

      SECTION 11. AMENDMENT(S). This Agreement shall be subject to the terms of
the Plan, as amended from time to time, except that the Award that is the
subject of this Agreement may not in any way be restricted or limited by any
amendment or termination approved after the Award Date without the Grantee's
written consent.

      SECTION 12. FORCE AND EFFECT. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or unenforceability
of any one provision shall have no effect on the continuing force and effect of
the remaining provisions.

      SECTION 13. GOVERNING LAWS. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Maryland.

      SECTION 14. MISCELLANEOUS.

      14.1 Any notice necessary under this Agreement shall be in writing, signed
by the party giving or making the same, and addressed (a) to the Company in the
care of its President or Secretary at the principal executive office of the
Company in Dallas, Texas, (b) to the Grantee at the address appearing in the
personnel records of the Company for such Grantee or (c) to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Except as

                                       4


otherwise provided herein, any such notice shall be deemed effective upon
receipt thereof by the addressee.

      14.2 This Agreement may be executed in counterparts, each of which shall
be deemed an original for all purposes and both of which taken together shall
constitute but one and the same instrument.

                            [Signature Page Follows]

                                       5


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereof. By execution of this Agreement, the Grantee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                 CAPSTEAD MORTGAGE CORPORATION

                                 By: /s/ ANDREW F. JACOBS
                                     -------------------------------------
                                     Andrew F. Jacobs
                                     President and Chief Executive Officer

                                 [GRANTEE]

                                 /s/ CHRISTOPHER W. MAHOWALD
                                 -----------------------------------------
                                        Christopher W. Mahowald

                                       6


                                                                 EXHIBIT 10.4(v)

                          CAPSTEAD MORTGAGE CORPORATION

                           RESTRICTED STOCK AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

      THIS AGREEMENT made and entered into as of the 13th day of May, 2005
(hereinafter called the "Award Date"), by and between Capstead Mortgage
Corporation, a Maryland corporation (the "Company"), and Michael G. O'Neil (the
"Grantee").

      WHEREAS, the Company, having determined that its interests will be
advanced by providing an incentive to the Grantee to increase the performance of
the Company and its Affiliates, has awarded to the grantee a restricted stock
award conditioned upon the execution by the Company and the Grantee of a
Restricted Stock Agreement.

      THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, the parties hereby agree as follows:

      SECTION 1. GRANT.

      1.1 Grant and Acceptance. The Company does hereby grant and transfer to
the Grantee, for no cash consideration from the Grantee, and the Grantee does
hereby accept from the Company, an aggregate of 5,000 shares (the "Award
Shares") of the Common Stock, $0.01 par value per share, of the Company (the
"Common Stock") according to the terms and conditions and subject to the
restrictions hereinafter set forth.

      1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock and
this grant shall constitute an Award, each as defined in the Company's 2004
Flexible Long-Term Incentive Plan (the "Plan"). This Agreement is expressly
subject to the terms and provisions of the Plan and in the event there is a
conflict between the terms of the Plan and this Agreement, the terms of the Plan
shall control. All undefined capitalized terms used herein shall have the
meanings assigned in the Plan. The Award is subject to all laws, approvals,
requirements and regulations of any governmental authority which may be
applicable thereto.

      SECTION 2. RIGHTS IN SHARES. The Grantee, for the duration of this
Agreement, shall be the record owner of, and shall be entitled to vote, the
Award Shares and shall be entitled to receive all dividends and any other
distributions declared on the Award Shares (provided, however, that nothing
contained herein shall cause the Company to declare any such dividends or to
make any such distributions).

      SECTION 3. VESTING.

      3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in
accordance with the schedule set forth below:

                                       1




                   Percentage of Shares             Cumulative
    Date         Vested on Specified Date       Percentage of Shares
- ------------     ------------------------       --------------------
                                          
May 13, 2006               25                            25
May 13, 2007               25                            50
May 13, 2008               25                            75
May 13, 2009               25                           100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award
Shares shall vest after termination of Grantee's directorship with the Company
or any Affiliate for any reason (including termination by reason of voluntary or
involuntary discharge, Disability or Retirement) in which case the Grantee
shall, at the time of termination, forfeit all right, title and interest in and
to any Award Shares not then vested.

      3.2 Effect of Grantee's Death. If the Grantee ceases to be a director of
the Company or any Affiliate by reason of death, any and all outstanding Award
Shares not fully vested shall automatically vest in full and the personal
representatives heirs, legatees or distributees of the Grantee, as appropriate,
shall become fully vested in the Award Shares effective on the date of the
Grantee's death.

      3.3 Effect of Dissolution or Liquidation. In the event of the dissolution
or liquidation of the Company, any and all outstanding Award Shares not fully
vested shall automatically vest in full immediately prior to such dissolution or
liquidation.

      3.4 Effect of Change of Control. In the event of a Change in Control (as
defined in the Plan), any and all outstanding Award Shares not fully vested
shall automatically vest in full. The date on which such accelerated vesting
shall occur shall be the date of the occurrence of the Change in Control.

      3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to Section
3.1 shall revert to the Company.

      SECTION 4. STOCK CERTIFICATES. Upon grant of the Award Shares, the Company
shall cause its Transfer Agent to record Grantee's ownership of such Award
Shares in book entry form. As Award Shares vest hereunder, such Award Shares
shall be transferred into an unrestricted account in the name of the Grantee or,
at the request of the Grantee, issued in stock certificate form. Any such
certificates shall be unencumbered by any of the restrictions enumerated herein
other than such restrictions as may be imposed by applicable federal or state
securities laws and regulations.

      SECTION 5. TRANSFER AND REPURCHASES UPON TERMINATION.

      5.1 The unvested Award Shares shall not be offered, sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a
"Transfer") for any purpose whatsoever, other than to the Company, and shall not
be subject, in whole or in part, to execution, attachment, or similar process in
all such cases until the date of vesting. Any attempted Transfer of

                                        2


the unvested Award Shares, other than in accordance with the terms set forth
herein, shall be void and of no effect.

      5.2 Grantee acknowledges that any sale, assignment, transfer or other
disposition of vested Award Shares may be subject to restrictions contained in
applicable federal or state securities laws and regulations and that any such
sale, assignment, transfer or other disposition of Award Shares by him or her
will be in compliance with such laws and regulations.

      SECTION 6. WITHHOLDINGS. The Company and each Affiliate shall have the
right to retain and withhold from any payment (including the vesting) of Award
Shares (and any dividends on Award Shares) any amounts required to be withheld
or otherwise deducted and paid with respect to such payment (including the
vesting thereof). At its discretion, the Company and each Affiliate may require
the Grantee receiving Award Shares to reimburse the Company or any Affiliate for
any such taxes required to be withheld by the Company or the Affiliate and
withhold any distribution in whole or in part until the Company and each
Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate
shall have the right to withhold from any other cash amounts due or to become
due from the Company or the Affiliate to the Grantee an amount equal to such
taxes required to be withheld by the Company or the Affiliate as reimbursement
for any such taxes or retain and withhold a number of shares having a market
value not less than the amount of such taxes in order to reimburse the Company
or the Affiliate for any such taxes.

      SECTION 7. ADJUSTMENTS TO AWARD SHARES.

      7.1 Stock Dividends and Splits and Similar Transactions. Subject to any
required action by the Company's Board of Directors and stockholders, the number
of Award Shares shall be proportionately adjusted for any increase or decrease
in the number of issued Shares of the Company resulting from the payment of a
Share dividend, a Share split, a Share reverse-split or any similar transaction.

      7.2 Change in Par Value. In the event of a change in the Company's Shares
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be shares within the
meaning of the Plan.

      7.3 Other Capital Adjustments. Except as hereinbefore expressly provided
in Section 7.1 and except for rights that all holders of Common Stock shall
have, Grantee shall have no rights by reason of any subdivision or consolidation
of Shares of any class or payment of any share dividend or any other increase or
decrease in the number of shares of any class or by reason of any dissolution,
liquidation, merger or consolidation or spin-off of assets or stock of another
corporation; any issuance by the Company of Shares of any class, or securities
convertible into Shares of any class, shall not affect the Award, and no
adjustment by reason thereof shall be made with respect to the number or price
of the Company's Shares subject to the Award. An Award of Restricted Stock shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.

                                       3


      SECTION 8. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee represents
and warrants that:

      (a) such Grantee has not and will not, directly or indirectly, Transfer
any Award Shares except in accordance with the terms of this Agreement;

      (b) such Grantee has, or such Grantee together with such Grantee's
advisors, if any, have such knowledge and experience in financial, business and
tax matters that such Grantee is, or such Grantee together with such Grantee's
advisors, if any, are capable of evaluating the merits and risks relating to
such Grantee's investment in the Award Shares and making an investment decision
with respect to the Company;

      (c) such Grantee has been given the opportunity to obtain information and
documents relating to the Company and to ask questions of and receive answers
from representatives of the Company concerning the Company and such Grantee's
investment in the Award Shares; and

      (d) such Grantee realizes that there are substantial risks incident to an
investment in the Award Shares.

      SECTION 9. IMPACT ON OTHER BENEFITS. The value of the Award Shares (either
on the Award Date or at the time the shares are vested) shall not be includable
as compensation or earnings for purposes of any other benefit plan offered by
the Company.

      SECTION 10. ADMINISTRATION. The Committee shall have full authority and
discretion (subject only to the express provisions of the Plan) to decide all
matters relating to the administration and interpretation of the Plan and this
Agreement. All such Committee determinations shall be final, conclusive, and
binding upon the Company, the Grantee, and any and all interested parties.

      SECTION 11. AMENDMENT(S). This Agreement shall be subject to the terms of
the Plan, as amended from time to time, except that the Award that is the
subject of this Agreement may not in any way be restricted or limited by any
amendment or termination approved after the Award Date without the Grantee's
written consent.

      SECTION 12. FORCE AND EFFECT. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or unenforceability
of any one provision shall have no effect on the continuing force and effect of
the remaining provisions.

      SECTION 13. GOVERNING LAWS. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Maryland.

      SECTION 14. MISCELLANEOUS.

      14.1 Any notice necessary under this Agreement shall be in writing, signed
by the party giving or making the same, and addressed (a) to the Company in the
care of its President or Secretary at the principal executive office of the
Company in Dallas, Texas, (b) to the Grantee at the address appearing in the
personnel records of the Company for such Grantee or (c) to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Except as

                                       4


otherwise provided herein, any such notice shall be deemed effective upon
receipt thereof by the addressee.

      14.2 This Agreement may be executed in counterparts, each of which shall
be deemed an original for all purposes and both of which taken together shall
constitute but one and the same instrument.

                            [Signature Page Follows]

                                       5


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereof. By execution of this Agreement, the Grantee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                     CAPSTEAD MORTGAGE CORPORATION

                                     By: /s/ ANDREW F. JACOBS
                                         -------------------------------------
                                         Andrew F. Jacobs
                                         President and Chief Executive Officer

                                    [GRANTEE]

                                    /s/ MICHAEL G. O'NEIL
                                    ------------------------------------------
                                         Michael G. O'Neil

                                       6


                                                                 EXHIBIT 10.4(w)

                          CAPSTEAD MORTGAGE CORPORATION

                           RESTRICTED STOCK AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

      THIS AGREEMENT made and entered into as of the 13th day of May, 2005
(hereinafter called the "Award Date"), by and between Capstead Mortgage
Corporation, a Maryland corporation (the "Company"), and Howard Rubin (the
"Grantee").

      WHEREAS, the Company, having determined that its interests will be
advanced by providing an incentive to the Grantee to increase the performance of
the Company and its Affiliates, has awarded to the grantee a restricted stock
award conditioned upon the execution by the Company and the Grantee of a
Restricted Stock Agreement.

      THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, the parties hereby agree as follows:

      SECTION 1. GRANT.

      1.1 Grant and Acceptance. The Company does hereby grant and transfer to
the Grantee, for no cash consideration from the Grantee, and the Grantee does
hereby accept from the Company, an aggregate of 5,000 shares (the "Award
Shares") of the Common Stock, $0.01 par value per share, of the Company (the
"Common Stock") according to the terms and conditions and subject to the
restrictions hereinafter set forth.

      1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock and
this grant shall constitute an Award, each as defined in the Company's 2004
Flexible Long-Term Incentive Plan (the "Plan"). This Agreement is expressly
subject to the terms and provisions of the Plan and in the event there is a
conflict between the terms of the Plan and this Agreement, the terms of the Plan
shall control. All undefined capitalized terms used herein shall have the
meanings assigned in the Plan. The Award is subject to all laws, approvals,
requirements and regulations of any governmental authority which may be
applicable thereto.

      SECTION 2. RIGHTS IN SHARES. The Grantee, for the duration of this
Agreement, shall be the record owner of, and shall be entitled to vote, the
Award Shares and shall be entitled to receive all dividends and any other
distributions declared on the Award Shares (provided, however, that nothing
contained herein shall cause the Company to declare any such dividends or to
make any such distributions).

      SECTION 3. VESTING.

      3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in
accordance with the schedule set forth below:

                                       1




                     Percentage of Shares              Cumulative
    Date           Vested on Specified Date       Percentage of Shares
- ------------       ------------------------       --------------------
                                            
May 13, 2006                  25                            25
May 13, 2007                  25                            50
May 13, 2008                  25                            75
May 13, 2009                  25                           100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award
Shares shall vest after termination of Grantee's directorship with the Company
or any Affiliate for any reason (including termination by reason of voluntary or
involuntary discharge, Disability or Retirement) in which case the Grantee
shall, at the time of termination, forfeit all right, title and interest in and
to any Award Shares not then vested.

      3.2 Effect of Grantee's Death. If the Grantee ceases to be a director of
the Company or any Affiliate by reason of death, any and all outstanding Award
Shares not fully vested shall automatically vest in full and the personal
representatives heirs, legatees or distributees of the Grantee, as appropriate,
shall become fully vested in the Award Shares effective on the date of the
Grantee's death.

      3.3 Effect of Dissolution or Liquidation. In the event of the dissolution
or liquidation of the Company, any and all outstanding Award Shares not fully
vested shall automatically vest in full immediately prior to such dissolution or
liquidation.

      3.4 Effect of Change of Control. In the event of a Change in Control (as
defined in the Plan), any and all outstanding Award Shares not fully vested
shall automatically vest in full. The date on which such accelerated vesting
shall occur shall be the date of the occurrence of the Change in Control.

      3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to Section
3.1 shall revert to the Company.

      SECTION 4. STOCK CERTIFICATES. Upon grant of the Award Shares, the Company
shall cause its Transfer Agent to record Grantee's ownership of such Award
Shares in book entry form. As Award Shares vest hereunder, such Award Shares
shall be transferred into an unrestricted account in the name of the Grantee or,
at the request of the Grantee, issued in stock certificate form. Any such
certificates shall be unencumbered by any of the restrictions enumerated herein
other than such restrictions as may be imposed by applicable federal or state
securities laws and regulations.

      SECTION 5. TRANSFER AND REPURCHASES UPON TERMINATION.

      5.1 The unvested Award Shares shall not be offered, sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a
"Transfer") for any purpose whatsoever, other than to the Company, and shall not
be subject, in whole or in part, to execution, attachment, or similar process in
all such cases until the date of vesting. Any attempted Transfer of

                                        2


the unvested Award Shares, other than in accordance with the terms set forth
herein, shall be void and of no effect.

      5.2 Grantee acknowledges that any sale, assignment, transfer or other
disposition of vested Award Shares may be subject to restrictions contained in
applicable federal or state securities laws and regulations and that any such
sale, assignment, transfer or other disposition of Award Shares by him or her
will be in compliance with such laws and regulations.

      SECTION 6. WITHHOLDINGS. The Company and each Affiliate shall have the
right to retain and withhold from any payment (including the vesting) of Award
Shares (and any dividends on Award Shares) any amounts required to be withheld
or otherwise deducted and paid with respect to such payment (including the
vesting thereof). At its discretion, the Company and each Affiliate may require
the Grantee receiving Award Shares to reimburse the Company or any Affiliate for
any such taxes required to be withheld by the Company or the Affiliate and
withhold any distribution in whole or in part until the Company and each
Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate
shall have the right to withhold from any other cash amounts due or to become
due from the Company or the Affiliate to the Grantee an amount equal to such
taxes required to be withheld by the Company or the Affiliate as reimbursement
for any such taxes or retain and withhold a number of shares having a market
value not less than the amount of such taxes in order to reimburse the Company
or the Affiliate for any such taxes.

      SECTION 7. ADJUSTMENTS TO AWARD SHARES.

      7.1 Stock Dividends and Splits and Similar Transactions. Subject to any
required action by the Company's Board of Directors and stockholders, the number
of Award Shares shall be proportionately adjusted for any increase or decrease
in the number of issued Shares of the Company resulting from the payment of a
Share dividend, a Share split, a Share reverse-split or any similar transaction.

      7.2 Change in Par Value. In the event of a change in the Company's Shares
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be shares within the
meaning of the Plan.

      7.3 Other Capital Adjustments. Except as hereinbefore expressly provided
in Section 7.1 and except for rights that all holders of Common Stock shall
have, Grantee shall have no rights by reason of any subdivision or consolidation
of Shares of any class or payment of any share dividend or any other increase or
decrease in the number of shares of any class or by reason of any dissolution,
liquidation, merger or consolidation or spin-off of assets or stock of another
corporation; any issuance by the Company of Shares of any class, or securities
convertible into Shares of any class, shall not affect the Award, and no
adjustment by reason thereof shall be made with respect to the number or price
of the Company's Shares subject to the Award. An Award of Restricted Stock shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.

                                       3


      SECTION 8. GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee represents
and warrants that:

      (a) such Grantee has not and will not, directly or indirectly, Transfer
any Award Shares except in accordance with the terms of this Agreement;

      (b) such Grantee has, or such Grantee together with such Grantee's
advisors, if any, have such knowledge and experience in financial, business and
tax matters that such Grantee is, or such Grantee together with such Grantee's
advisors, if any, are capable of evaluating the merits and risks relating to
such Grantee's investment in the Award Shares and making an investment decision
with respect to the Company;

      (c) such Grantee has been given the opportunity to obtain information and
documents relating to the Company and to ask questions of and receive answers
from representatives of the Company concerning the Company and such Grantee's
investment in the Award Shares; and

      (d) such Grantee realizes that there are substantial risks incident to an
investment in the Award Shares.

      SECTION 9. IMPACT ON OTHER BENEFITS. The value of the Award Shares (either
on the Award Date or at the time the shares are vested) shall not be includable
as compensation or earnings for purposes of any other benefit plan offered by
the Company.

      SECTION 10. ADMINISTRATION. The Committee shall have full authority and
discretion (subject only to the express provisions of the Plan) to decide all
matters relating to the administration and interpretation of the Plan and this
Agreement. All such Committee determinations shall be final, conclusive, and
binding upon the Company, the Grantee, and any and all interested parties.

      SECTION 11. AMENDMENT(S). This Agreement shall be subject to the terms of
the Plan, as amended from time to time, except that the Award that is the
subject of this Agreement may not in any way be restricted or limited by any
amendment or termination approved after the Award Date without the Grantee's
written consent.

      SECTION 12. FORCE AND EFFECT. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or unenforceability
of any one provision shall have no effect on the continuing force and effect of
the remaining provisions.

      SECTION 13. GOVERNING LAWS. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Maryland.

      SECTION 14. MISCELLANEOUS.

      14.1 Any notice necessary under this Agreement shall be in writing, signed
by the party giving or making the same, and addressed (a) to the Company in the
care of its President or Secretary at the principal executive office of the
Company in Dallas, Texas, (b) to the Grantee at the address appearing in the
personnel records of the Company for such Grantee or (c) to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Except as

                                       4


otherwise provided herein, any such notice shall be deemed effective upon
receipt thereof by the addressee.

      14.2 This Agreement may be executed in counterparts, each of which shall
be deemed an original for all purposes and both of which taken together shall
constitute but one and the same instrument.

                            [Signature Page Follows]

                                       5


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereof. By execution of this Agreement, the Grantee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                     CAPSTEAD MORTGAGE CORPORATION

                                     By: /s/ ANDREW F. JACOBS
                                         -------------------------------------
                                         Andrew F. Jacobs
                                         President and Chief Executive Officer

                                     [GRANTEE]

                                     /s/ HOWARD RUBIN
                                     -----------------------------------------
                                           Howard Rubin

                                       6


                                                                 EXHIBIT 10.4(x)

                          CAPSTEAD MORTGAGE CORPORATION

                           RESTRICTED STOCK AGREEMENT
                           FOR NON-EMPLOYEE DIRECTORS

      THIS AGREEMENT made and entered into as of the 13th day of May, 2005
(hereinafter called the "Award Date"), by and between Capstead Mortgage
Corporation, a Maryland corporation (the "Company"), and Mark S. Whiting (the
"Grantee").

      WHEREAS, the Company, having determined that its interests will be
advanced by providing an incentive to the Grantee to increase the performance of
the Company and its Affiliates, has awarded to the grantee a restricted stock
award conditioned upon the execution by the Company and the Grantee of a
Restricted Stock Agreement.

      THEREFORE, in consideration of the mutual promise(s) and covenant(s)
contained herein, the parties hereby agree as follows:

      SECTION 1.GRANT.

      1.1 Grant and Acceptance. The Company does hereby grant and transfer to
the Grantee, for no cash consideration from the Grantee, and the Grantee does
hereby accept from the Company, an aggregate of 5,000 shares (the "Award
Shares") of the Common Stock, $0.01 par value per share, of the Company (the
"Common Stock") according to the terms and conditions and subject to the
restrictions hereinafter set forth.

      1.2 Effect of Plan. The Award Shares shall constitute Restricted Stock and
this grant shall constitute an Award, each as defined in the Company's 2004
Flexible Long-Term Incentive Plan (the "Plan"). This Agreement is expressly
subject to the terms and provisions of the Plan and in the event there is a
conflict between the terms of the Plan and this Agreement, the terms of the Plan
shall control. All undefined capitalized terms used herein shall have the
meanings assigned in the Plan. The Award is subject to all laws, approvals,
requirements and regulations of any governmental authority which may be
applicable thereto.

      SECTION 2.RIGHTS IN SHARES. The Grantee, for the duration of this
Agreement, shall be the record owner of, and shall be entitled to vote, the
Award Shares and shall be entitled to receive all dividends and any other
distributions declared on the Award Shares (provided, however, that nothing
contained herein shall cause the Company to declare any such dividends or to
make any such distributions).

      SECTION 3.VESTING.

      3.1 Vesting. The Award Shares shall vest (become nonforfeitable) in
accordance with the schedule set forth below:

                                       1





                                 Percentage of Shares                  Cumulative
    Date                       Vested on Specified Date           Percentage of Shares
- ------------                   ------------------------           --------------------
                                                            
May 13, 2006                              25                                25
May 13, 2007                              25                                50
May 13, 2008                              25                                75
May 13, 2009                              25                               100


provided, however, that notwithstanding the foregoing schedule, and except as
otherwise provided in Sections 3.2, 3.3 and 3.4 below, no additional Award
Shares shall vest after termination of Grantee's directorship with the Company
or any Affiliate for any reason (including termination by reason of voluntary or
involuntary discharge, Disability or Retirement) in which case the Grantee
shall, at the time of termination, forfeit all right, title and interest in and
to any Award Shares not then vested.

      3.2 Effect of Grantee's Death. If the Grantee ceases to be a director of
the Company or any Affiliate by reason of death, any and all outstanding Award
Shares not fully vested shall automatically vest in full and the personal
representatives heirs, legatees or distributees of the Grantee, as appropriate,
shall become fully vested in the Award Shares effective on the date of the
Grantee's death.

      3.3 Effect of Dissolution or Liquidation. In the event of the dissolution
or liquidation of the Company, any and all outstanding Award Shares not fully
vested shall automatically vest in full immediately prior to such dissolution or
liquidation.

      3.4 Effect of Change of Control. In the event of a Change in Control (as
defined in the Plan), any and all outstanding Award Shares not fully vested
shall automatically vest in full. The date on which such accelerated vesting
shall occur shall be the date of the occurrence of the Change in Control.

      3.5 Effect of Forfeiture. Any Award Shares forfeited pursuant to Section
3.1 shall revert to the Company.

      SECTION 4.STOCK CERTIFICATES. Upon grant of the Award Shares, the Company
shall cause its Transfer Agent to record Grantee's ownership of such Award
Shares in book entry form. As Award Shares vest hereunder, such Award Shares
shall be transferred into an unrestricted account in the name of the Grantee or,
at the request of the Grantee, issued in stock certificate form. Any such
certificates shall be unencumbered by any of the restrictions enumerated herein
other than such restrictions as may be imposed by applicable federal or state
securities laws and regulations.

      SECTION 5.TRANSFER AND REPURCHASES UPON TERMINATION.

      5.1 The unvested Award Shares shall not be offered, sold, transferred,
assigned, exchanged, pledged, encumbered or otherwise disposed of (each, a
"Transfer") for any purpose whatsoever, other than to the Company, and shall not
be subject, in whole or in part, to execution, attachment, or similar process in
all such cases until the date of vesting. Any attempted Transfer of

                                       2



the unvested Award Shares, other than in accordance with the terms set forth
herein, shall be void and of no effect.

      5.2 Grantee acknowledges that any sale, assignment, transfer or other
disposition of vested Award Shares may be subject to restrictions contained in
applicable federal or state securities laws and regulations and that any such
sale, assignment, transfer or other disposition of Award Shares by him or her
will be in compliance with such laws and regulations.

      SECTION 6.WITHHOLDINGS. The Company and each Affiliate shall have the
right to retain and withhold from any payment (including the vesting) of Award
Shares (and any dividends on Award Shares) any amounts required to be withheld
or otherwise deducted and paid with respect to such payment (including the
vesting thereof). At its discretion, the Company and each Affiliate may require
the Grantee receiving Award Shares to reimburse the Company or any Affiliate for
any such taxes required to be withheld by the Company or the Affiliate and
withhold any distribution in whole or in part until the Company and each
Affiliate is so reimbursed. In lieu thereof, the Company and each Affiliate
shall have the right to withhold from any other cash amounts due or to become
due from the Company or the Affiliate to the Grantee an amount equal to such
taxes required to be withheld by the Company or the Affiliate as reimbursement
for any such taxes or retain and withhold a number of shares having a market
value not less than the amount of such taxes in order to reimburse the Company
or the Affiliate for any such taxes.

      SECTION 7.ADJUSTMENTS TO AWARD SHARES.

      7.1 Stock Dividends and Splits and Similar Transactions. Subject to any
required action by the Company's Board of Directors and stockholders, the number
of Award Shares shall be proportionately adjusted for any increase or decrease
in the number of issued Shares of the Company resulting from the payment of a
Share dividend, a Share split, a Share reverse-split or any similar transaction.

      7.2 Change in Par Value. In the event of a change in the Company's Shares
which is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be shares within the
meaning of the Plan.

      7.3 Other Capital Adjustments. Except as hereinbefore expressly provided
in Section 7.1 and except for rights that all holders of Common Stock shall
have, Grantee shall have no rights by reason of any subdivision or consolidation
of Shares of any class or payment of any share dividend or any other increase or
decrease in the number of shares of any class or by reason of any dissolution,
liquidation, merger or consolidation or spin-off of assets or stock of another
corporation; any issuance by the Company of Shares of any class, or securities
convertible into Shares of any class, shall not affect the Award, and no
adjustment by reason thereof shall be made with respect to the number or price
of the Company's Shares subject to the Award. An Award of Restricted Stock shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.

                                       3



      SECTION 8.GRANTEE'S REPRESENTATIONS AND WARRANTIES. Grantee represents and
warrants that:

      (a) such Grantee has not and will not, directly or indirectly, Transfer
any Award Shares except in accordance with the terms of this Agreement;

      (b) such Grantee has, or such Grantee together with such Grantee's
advisors, if any, have such knowledge and experience in financial, business and
tax matters that such Grantee is, or such Grantee together with such Grantee's
advisors, if any, are capable of evaluating the merits and risks relating to
such Grantee's investment in the Award Shares and making an investment decision
with respect to the Company;

      (c) such Grantee has been given the opportunity to obtain information and
documents relating to the Company and to ask questions of and receive answers
from representatives of the Company concerning the Company and such Grantee's
investment in the Award Shares; and

      (d) such Grantee realizes that there are substantial risks incident to an
investment in the Award Shares.

      SECTION 9.IMPACT ON OTHER BENEFITS. The value of the Award Shares (either
on the Award Date or at the time the shares are vested) shall not be includable
as compensation or earnings for purposes of any other benefit plan offered by
the Company.

      SECTION 10. ADMINISTRATION. The Committee shall have full authority and
discretion (subject only to the express provisions of the Plan) to decide all
matters relating to the administration and interpretation of the Plan and this
Agreement. All such Committee determinations shall be final, conclusive, and
binding upon the Company, the Grantee, and any and all interested parties.

      SECTION 11. AMENDMENT(S). This Agreement shall be subject to the terms of
the Plan, as amended from time to time, except that the Award that is the
subject of this Agreement may not in any way be restricted or limited by any
amendment or termination approved after the Award Date without the Grantee's
written consent.

      SECTION 12. FORCE AND EFFECT. The various provisions of this Agreement are
severable in their entirety. Any determination of invalidity or unenforceability
of any one provision shall have no effect on the continuing force and effect of
the remaining provisions.

      SECTION 13. GOVERNING LAWS. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Maryland.

      SECTION 14. MISCELLANEOUS.

      14.1 Any notice necessary under this Agreement shall be in writing, signed
by the party giving or making the same, and addressed (a) to the Company in the
care of its President or Secretary at the principal executive office of the
Company in Dallas, Texas, (b) to the Grantee at the address appearing in the
personnel records of the Company for such Grantee or (c) to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Except as

                                       4



otherwise provided herein, any such notice shall be deemed effective upon
receipt thereof by the addressee.

      14.2 This Agreement may be executed in counterparts, each of which shall
be deemed an original for all purposes and both of which taken together shall
constitute but one and the same instrument.

                            [Signature Page Follows]

                                       5



      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereof. By execution of this Agreement, the Grantee acknowledges
receipt of a copy of the Plan, the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 and the informational supplement required by Rule
428(b)(1) under the Securities Act of 1933.

                                     CAPSTEAD MORTGAGE CORPORATION

                                     By: /s/ ANDREW F. JACOBS
                                        ---------------------------------------
                                         Andrew F. Jacobs
                                         President and Chief Executive Officer

                                     [GRANTEE]

                                     /s/ MARK S. WHITING
                                     ------------------------------------------
                                          Mark S. Whiting

                                       6

EX-12

EXHIBIT 12

CAPSTEAD MORTGAGE CORPORATION

COMPUTATION OF RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(In thousands, except ratios)
(Unaudited)

(a) Computation of ratio of earnings to combined fixed charges and preferred stock dividends (including CMO debt):

	Six Months
	Ended		Year Ended December 31
	June 30, 2005		2004		2003		2002		2001		2000
Fixed charges	$	46,509	$	49,179	$	62,859	$	169,148	$	362,327	$	540,605
Preferred stock dividends		10,128		20,259		20,273		20,362		20,446		24,260
Combined fixed charges and preferred stock dividends	$	56,637	$	69,438	$	83,132	$	189,510	$	382,773	$	564,865
Fixed charges	$	46,509	$	49,179	$	62,859	$	169,148	$	362,327	$	540,605
Net income (loss)		13,592		41,805		60,659		96,123		106,276		(51,486	)
	$	60,101	$	90,984	$	123,518	$	265,271	$	468,603	$	489,119
Ratio of earnings to combined fixed charges and preferred stock dividends		1.06:1		1.31:1		1.49:1		1.40:1		1.22:1		0.87:1

(b) Computation of ratio of earnings to combined fixed charges and preferred stock dividends (excluding CMO debt):

	Six Months
	Ended		Year Ended December 31
	June 30, 2005		2004		2003		2002		2001		2000
Fixed charges	$	45,963	$	43,167	$	28,933	$	53,079	$	164,422	$	303,126
Preferred stock dividends		10,128		20,259		20,273		20,362		20,446		24,260
Combined fixed charges and preferred stock dividends	$	56,091	$	63,426	$	49,206	$	73,441	$	184,868	$	327,386
Fixed charges	$	45,963	$	43,167	$	28,933	$	53,079	$	164,422	$	303,126
Net income (loss)		13,592		41,805		60,659		96,123		106,276		(51,486	)
	$	59,555	$	84,972	$	89,592	$	149,202	$	270,698	$	251,640
Ratio of earnings to combined fixed charges and preferred stock dividends		1.06:1		1.34:1		1.82:1		2.03:1		1.46:1		0.77:1

EX-31.1

EXHIBIT 31.1

CAPSTEAD MORTGAGE CORPORATION

CERTIFICATION PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002

I, Andrew F. Jacobs, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Capstead Mortgage Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 29, 2005	By:	/s/ ANDREW F. JACOBS
		Andrew F. Jacobs
		President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CAPSTEAD MORTGAGE CORPORATION

CERTIFICATION PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002

I, Phillip A. Reinsch, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Capstead Mortgage Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 29, 2005	By:	/s/ PHILLIP A. REINSCH
		Phillip A. Reinsch
		Senior Vice President and Chief Financial Officer

EX-32

EXHIBIT 32

CAPSTEAD MORTGAGE CORPORATION

CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

We, Andrew F. Jacobs, President and Chief Executive Officer, and Phillip A. Reinsch, Senior Vice President and Chief Financial Officer of Capstead Mortgage Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 that:

1.	The Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2005 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 29, 2005	By:	/s/ ANDREW F. JACOBS
		Andrew F. Jacobs
		President and Chief Executive Officer
Date: July 29, 2005	By:	/s/ PHILLIP A. REINSCH
		Phillip A. Reinsch
		Senior Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.