NONQUALIFIED STOCK OPTION AGREEMENT FOR EMPLOYEES

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:

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’ 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.

     (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.

     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 hereu