CAPSTEAD MORTGAGE CORP (Form: 8-K, Received: 01/04/2018 17:23:50)

CAPSTEAD MORTGAGE CORPORATION

January 4, 2018

/s/ Lance J. Phillips

Lance J. Phillips

Senior Vice President and Chief Financial Officer

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

January 3, 2018

CAPSTEAD MORTGAGE CORPORATION

(Exact Name of Registrant as Specified in its Charter)


MARYLAND	001-08896	75-2027937
(State or other jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification Number)

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

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

ITEM 5.02

DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS.

Adjustments to 2018 Base Salaries

On January 3, 2018, the Compensation Committee (the “Committee”) of the Board of Directors of Capstead Mortgage Corporation (the “Company”) increased the base salary of certain executive officers of the Company, effective January 1, 2018, as follows:


Executive Officer	2017 Annual Base Salary		Annual Base Salary Effective January 1, 2018
Phillip A. Reinsch, President and Chief Executive Officer	$	600,000	$	625,000
Robert R. Spears, Jr., Executive Vice President and Chief Investment Officer	$	575,000	$	600,000
Roy S. Kim, Senior Vice President - Asset and Liability Management	$	375,000	$	400,000

2018 Annual Incentive Compensation Program Awards

On January 3, 2018, the Committee also adopted the 2018 Annual Incentive Compensation Program applicable to the Company’s executive officers (the “2018 Annual Incentive Program”). The 2018 Annual Incentive Program is structurally the same as the 2017 Annual Incentive Compensation Program, providing defined metrics against which the Company’s performance is to be measured, specifically relative economic return, absolute economic return, relative operating efficiency as well as individual goals and objectives for each of the executive officers. Payouts are determined formulaically, defining threshold, target and maximum performance levels based on multiples of base salary, thereby limiting the maximum annual incentive payout for each executive officer.

The 2018 Annual Incentive Program is filed with this Form 8-K as Exhibit 10.1 and is incorporated by reference herein. This summary does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.1.

Award of Dividend Equivalent Rights (“DERs”)

In 2008 the Committee instituted an additional performance-based short-term incentive compensation program for executives that provides for quarterly cash payments equal to per share dividends declared on the Company’s common stock multiplied by a notional amount of non-vesting or “phantom” shares of common stock, referred to as DERs. DERs are not attached to any stock or option awards. DERs outstanding during 2017 totaling 600,000 expired December 31, 2017. On January 3, 2018 the Committee awarded DERs expiring December 31, 2018 as follows:


Executive Officer	DERs
Phillip A. Reinsch, President and Chief Executive Officer		200,000
Robert R. Spears, Jr., Executive Vice President and Chief Investment Officer		200,000
Roy S. Kim, Senior Vice President - Asset and Liability Management		125,000
Lance J. Phillips, Senior Vice President and Chief Financial Officer		75,000

2018 Long-Term Awards

Pursuant to the Amended and Restated 2014 Flexible Incentive Plan, on January 3, 2018, the Committee granted two forms of incentive compensation awards to the executive officers of the Company based on the closing price of the Company’s common stock on January 2, 2018, consisting of (a) restricted common stock and (b) performance units (the “Performance Units”).

Restricted Stock Awards

The restricted common stock awards vest in full on January 2, 2021 and were granted in the following share amounts determined by reference to the closing stock price on the date of grant with a value equal to 60% of each grantee’s effective salary (except for Mr. Phillips, whose award equals to 37.5% of his effective salary) on January 1, 2018:


Executive Officer	Number of shares of Restricted Common Stock
Phillip A. Reinsch, President and Chief Executive Officer		43,604
Robert R. Spears, Jr., Executive Vice President and Chief Investment Officer		41,860
Roy S. Kim, Senior Vice President - Asset and Liability Management		27,906
Lance J. Phillips, Senior Vice President and Chief Financial Officer		13,081

Each executive officer will enter into a Restricted Stock Agreement with the Company in the form filed with this Form 8-K as Exhibit 10.2.

Performance Units

Prior to granting Performance Units, the Committee adopted long-term performance unit award criteria (the “2018 Long-Term Performance Unit Award Criteria”). The 2018 Long-Term Performance Unit Award Criteria are the same as the long-term performance unit award criteria adopted by the Committee in 2017, providing specific metrics against which the Company’s performance is to be measured, specifically relative economic return, absolute economic return and relative total stockholder return.

The Performance Units are convertible into shares of common stock of the Company following a three-year performance period ending December 31, 2020. The number of shares of common stock into which the Performance Units are convertible is dependent on satisfaction of the performance metrics outlined in the 2018 Long-Term Performance Unit Award Criteria during the performance period.

For example, if the targeted performance levels are achieved over the three-year period, the Performance Units will convert into shares of common stock equal to the number of Performance Units granted. If the Company exceeds the targeted performance levels and reaches maximum performance levels, the Performance Units will convert into shares of common stock equal to twice the number of Performance Units granted. If the Company does not achieve the targeted performance levels but does achieve exactly the threshold performance levels, the Performance Units will convert into shares of common stock equal to one-half the number of Performance Units granted. If the Company does not achieve the threshold performance levels, the Performance Units will expire without converting into any shares of common stock. The conversion ratio will be adjusted to interpolate the appropriate conversion factor if performance levels are above the thresholds but below the maximums. Accordingly, the Performance Units could expire without converting into any shares of common stock or could be convertible into as many as 200% of the number of Performance Units granted.

Each executive officer of the Company was granted the following Performance Units in amounts determined by reference to the closing stock price on the date of grant with a value equal to 90% of each grantee’s effective salary (except for Mr. Phillips, whose award equals to 37.5% of his effective salary) on January 1, 2018. These units are convertible into the indicated number of shares of common stock:


Executive Officer	Number of Performance Units		Number of shares of Common Stock into which the Performance Units are Convertible
			Below Threshold		Threshold		Target		Maximum
Phillip A. Reinsch, President and Chief Executive Officer		65,406		0		32,703		65,406		130,812
Robert R. Spears, Jr., Executive Vice President and Chief Investment Officer		62,790		0		31,395		62,790		125,580
Roy S. Kim, Senior Vice President - Asset and Liability Management		41,860		0		20,930		41,860		83,720
Lance J. Phillips, Senior Vice President and Chief Financial Officer		13,081		0		6,541		13,081		26,162

The common stock into which the Performance Units are convertible will be issued by the Company following the end of the three-year performance period and on or prior to March 15, 2021. Dividends accrue from the date of grant and will be paid in cash when and if the units convert into shares of common stock based on the number of shares ultimately issued.

The 2018 Long-Term Performance Unit Award Criteria is filed with this Form 8-K as Exhibit 10.3 and is incorporated by reference herein. This summary does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.3.

Each executive officer will enter into a Performance Unit Agreement with the Company in the form filed with this Form 8-K as Exhibit 10.4.

ITEM 9.01.

FINANCIAL STATEMENTS AND EXHIBITS

(d)

Exhibits.

The following exhibits are filed herewith:


Exhibit No.		Description

10.1		2018 Annual Incentive Compensation Program

10.2		Form of Restricted Stock Agreement

10.3		2018 Long-Term Performance Unit Award Criteria

10.4		Form of Performance Unit Agreement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit 10.1

CAPSTEAD MORTGAGE CORPORATION

2018 ANNUAL INCENTIVE COMPENSATION PROGRAM


Purpose:		Capstead Mortgage Corporation (the “ Company ”) has established the 2018 Annual Incentive Compensation Program (the “ 2018 Short Term Program” ) to implement the Company’s short-term incentive pay program in an effort to: (i) align executive variable cash compensation with the annual objectives of the Company, (ii) motivate executives to create sustained stockholder value, and (iii) ensure retention of key executives by ensuring that cash compensation remains competitive.

Participants:		Executive officers of the Company designated by the Compensation Committee.

Payout Criteria:		The formula and performance-based methodology for determining annual incentive compensation is adopted effective January 1, 2018. The “target” payment under the 2018Short Term Program for each executive officer other than the Chief Financial Officer (the “CFO” ) will be 125% (75% for the CFO) of his base salary at January 1, 2018, with the award, if any, payable in cash. The criteria for payment to participants under the 2018 Short Term Program and the weighting of such criteria is as follows:

		Performance Metrics and Weighting

		• 45% of the payout is calculated based on Relative Economic Return metrics (30% measured against Peer Agency mREITs, as defined below) (15% measured against Peer mREITs, as defined below) • 10% of the payout is calculated based on a Relative Operating Efficiency metric, as measured against Peer mREITs • 30% of the payout is calculated based on an Absolute Economic Return metric • 15% of payout is calculated based on performance against Individual Objectives

Payout Factors:		The payout factor for each of the Relative Economic Return and the Absolute Economic Return metrics is 0% - 200%, rounded to the nearest whole percentage, based on actual performance against approved objectives, as more fully described below. The payout factor for the Relative Operating Efficiency metric is 0% - 150%, rounded to the nearest whole percentage, based on actual performance against approved objectives, as more fully described below. The payout factor for the Individual Objectives metric is 0% - 150%, based on actual individual performance as measured against approved individual objectives.


Relative Economic Return, as Measured against Peer Agency mREITs:		A portion of the payout of each participant’s total award pursuant to the 2018 Short Term Program will be based on the relative economic performance of the Company, as compared with the Company’s peers which invest primarily in residential mortgage pass-through securities issued and guaranteed by government-sponsored entities, either Fannie Mae or Freddie Mac, or an agency of the federal government, Ginnie Mae, as selected by the Compensation Committee (“ Peer Agency mREITs ”). The economic performance for the Company and each of the Peer Agency mREITs will be calculated as the respective change in book value per share of common stock plus dividends declared per share of common stock during 2018, divided by beginning per share book value for each such entity (“ Relative Economic Return ”). The Company will then be ranked against each of the Peer Agency mREITs and assigned a percentile of relative performance. The portion of each participant’s total payout attributable to Relative Economic Return as measured against Peer Agency mREITs will equal 30% of the target award multiplied by the applicable payout factor.

		The specific payout factor for Relative Economic Return, as measured against Peer Agency mREITs, will be calculated as follows:


Performance Level	Relative Economic Return Percentile, as Measured Against Peer Agency mREITs	Payout Factor, as a Percentage of Target
Below Threshold	<40 ^th Percentile	0%
Threshold	40 ^th Percentile	50%
Target	60 ^th Percentile	100%
Maximum	³ 80 ^th Percentile	200%


		If the Company’s Relative Economic Return, as measured against Peer Agency mREITs, equals or exceeds the 40 ^th percentile when ranked against the Peer Agency mREITs, the payout factor as a percentage of the target payout will be determined using a straight-line interpolation between the threshold and target performance levels or the target and maximum performance levels, as the case may be, depending upon the actual percentile ranking of the Company relative to the Peer Agency mREIT peer group. By way of example, a ranking in the 50 ^th percentile would result in a payout factor of 75%, and a ranking in the 70 ^th percentile would result in a payout factor of 150%.

Relative Economic Return, as Measured against Peer mREITs:

A portion of the payout of each participant’s total award pursuant to the 2018 Short Term Program will be based on the relative economic performance of the Company, as compared with each of the Company’s peers which invest in a variety of mortgage securities, not limited to Peer Agency mREITs, as selected by the Compensation Committee (the “ Peer mREITs ”). The relative economic performance of the Company and each of the Peer mREITs will be calculated consistent with the calculation for Relative Economic Return as measured against Peer Agency mREITs described above. The portion of each participant’s total payout attributable to Relative Economic Return as measured against Peer mREITs will equal 15% of the target award multiplied by the applicable payout factor.

The specific payout factor for Relative Economic Return, as measured against Peer mREITs, will be calculated as follows:


Performance Level	Relative Economic Return Percentile, as Measured Against Peer mREITs	Payout Factor, as a Percentage of Target
Below Threshold	<40 ^th Percentile	0%
Threshold	40 ^th Percentile	50%
Target	60 ^th Percentile	100%
Maximum	³ 80 ^th Percentile	200%


		If the Company’s Relative Economic Return, as measured against Peer mREITs, equals or exceeds the 40 ^th percentile when ranked against each of the Peer mREITs, the payout factor as a percentage of the target payout will be determined using a straight-line interpolation between the threshold and target performance levels or the target and maximum performance levels, as the case may be, depending upon the actual percentile ranking of the Company relative to the Peer mREIT group. By way of example, a ranking in the 50 ^th percentile would result in a payout factor of 75%, and a ranking in the 70 ^th percentile would result in a payout factor of 150%.

Relative Operating Efficiency, as measured against Peer mREITs:

A portion of the payout of each participant’s total award pursuant to the 2018 Short Term Program will be based on relative operating efficiency of the Company, as compared with each of the Peer mREITs. The operating efficiency will be calculated based on the ratio of total general and administrative costs, including management fees, to long-term investment capital (defined as average stockholders’ equity plus average long-term unsecured borrowings), calculated for the 2018 calendar year. The portion of each participant’s total payout attributable to Relative Operating Efficiency as measured against Peer mREITs will equal 10% of the target award multiplied by the applicable payout factor.

The specific payout factor for Relative Operating Efficiency, as measured against Peer mREITs will be calculated as follows:


Performance Level	Relative Operating Efficiency Percentile, as Measured Against Peer Agency mREITs	Payout Factor, as a Percentage of Target
Below Threshold	<85 ^th Percentile	0%
Threshold	85 ^th Percentile	50%
Target	90 ^th Percentile	100%
Maximum	³ 95 ^th Percentile	150%



		If the Company’s Relative Operating Efficiency, as measured against Peer mREITs, equals or exceeds the 85th percentile when ranked against each of the Peer mREITs, the payout factor as a percentage of the target payout will be determined using a straight-line interpolation between the threshold and target performance levels or the target and maximum performance levels, as the case may be, based on the actual percentile ranking of the Company relative to the Peer mREIT group. By way of example, a ranking in the 87 ^th percentile would result in a payout factor of 70%, and a ranking in the 92 ^th percentile would result in a payout factor of 120%.

Absolute Economic Return:		A portion of the payout of each participant’s total award pursuant to the 2018 Short Term Program will be based on absolute economic return of the Company. The absolute economic return for the Company will be calculated as the respective change in book value per share of common stock of the Company plus dividends declared per share of common stock during 2017, divided by beginning per share book value (“ Absolute Economic Return ”). The portion of each participant’s total payout attributable to Absolute Economic Return will equal 30% of the target award multiplied by the applicable payout factor.

		The specific payout factor for Absolute Economic Return will be calculated as follows:


Performance Level	Absolute Economic Return	Payout Factor, as a Percentage of Target
Below Threshold	<6.0%	0%
Threshold	6.0%	50%
Target	9.0%	100%
Maximum	³ 12.0%	200%


		If the Company’s Absolute Economic Return equals or exceeds 6.0%, the payout factor as a percentage of the target payout will be determined using a straight-line interpolation between the threshold and target performance levels or the target and maximum performance levels, as the case may be, depending upon the actual Absolute Economic Return of the Company. By way of example, an Absolute Economic Return of 7.5% would result in a payout factor of 75% of the target award, and an Absolute Economic Return or 10.5% would result in a payout factor of 150% of the target award.


Individual Objectives:		A portion of the payout of each participant’s total award pursuant to the 2018 Short Term Program will be based on attaining individual objectives set by the Compensation Committee. The individual performance metric will be measured against the attainment of certain specified individual objectives. The portion of each participant’s total payout attributable to Individual Objectives will equal 15% of the target award multiplied by the applicable payout factor. The specific payout factor for the Individual Objective metric will range from 0% to 150%, based on the individual’s performance rating measured against specific individual objectives as determined by the Compensation Committee.

Plan Year:		The 2018 Short Term Program will correspond with the Company’s 2018 fiscal year.

Eligibility:		Eligibility is limited to the executive officers of the Company. Participants must be actively employed by the Company on the last working day of the Plan Year to receive an incentive award, except as otherwise provided below or by regulatory provisions. If a participant dies, becomes disabled, or retires prior to the payment of awards, or if a participant’s job is eliminated and such job elimination makes the participant eligible to receive benefits under a Company severance plan or policy, the participant may receive a payout, at the time other incentive awards are paid, based on actual time in the position and actual results of the Company. Eligibility and individual target amounts may be prorated. A participant’s year-end base salary will be used to calculate the incentive award in the case of those individuals actively employed by the Company on the last working day of the Plan Year. A participant’s base salary at the time of death, disability, retirement, or job elimination will be used to calculate the pro-rated incentive award in those specific circumstances. All proration of incentive awards will be calculated based on whole month participation.

Definitions:		“Disability” is defined as permanent and total disability (within the meaning of Section 22(e)(3) of the Internal Revenue Service Code (“Code”). “Retirement” is defined as (i) age fifty-five (55), so long as the participant has completed at least ten (10) years of continuous service immediately prior to retirement, or (ii) age sixty-five (65). “Actively Employed” is defined as the participant must not have been terminated prior to the identified date.

Repayment Provision:		The Participant in the 2018 Short Term Program agrees and acknowledges that this program is subject to any policies that the Compensation Committee of the Board of Directors may adopt from time to time with respect to the repayment to the Company of any benefit received pursuant to the program, including “clawback” policies.

Exhibit 10.2

CAPSTEAD MORTGAGE CORPORATION

RESTRICTED STOCK AGREEMENT

FOR EXECUTIVE EMPLOYEES

THIS RESTRICTED STOCK 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 Amended and Restated 2014 Flexible 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; DIVIDENDS . The Grantee, for the duration of this Agreement, shall be the record owner of, and shall be entitled to vote, the Award Shares but shall not be entitled to receive dividends or any other distributions declared on the Award Shares until such time as the Award Shares have vested pursuant to the provisions of Section 3.1, 3.2, 3.3 or 3.4 as applicable. From the date of this Agreement until the applicable vesting date of the Award Shares, the Company shall accrue dividends and any other distributions declared with respect to its common stock as if each Award Share were entitled to the same dividend as a share of Company common stock. To the extent Award Shares vest pursuant to the provisions of Section 3, all such amounts representing accrued dividends and distributions shall be payable to Grantee on the Applicable Vesting Date (as defined below). If Award Shares are forfeited pursuant to Section 3.1, Grantee is not entitled to receive any such amounts representing accrued dividends or distributions. Subsequent to vesting, the Award Shares will be entitled to receive dividends or any other distributions declared with respect to the Company’s common stock.

SECTION 3. VESTING .

3.1 Vesting . The Award Shares shall vest (become nonforfeitable) on , 20[ ] (the “Vesting Date”); provided, however, that notwithstanding the foregoing, and except as otherwise provided in Sections 3.2, 3.3 and 3.4 below, the Award Shares shall not 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 the 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 the Committee’s discretion, forfeit all right, title and interest in and to the 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 the Committee’s discretion, forfeit all right, title and interest in and to the 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 . If there is a Change in Control (as defined in the Plan) prior to the Vesting Date, the Grantee’s employment is terminated at any time within 24 months of the Change of Control (but before the Vesting Date) and such termination is by the Company without Cause or by the Grantee with Good Reason, any and all outstanding Award Shares not fully vested shall automatically vest in full. For purposes of this Agreement, “Good Reason” shall include: (i) a material diminution in Grantee’s annual base salary; (ii) a material diminution in the nature or scope of Grantee’s authority, duties, responsibilities, or title from those applicable to Grantee as of the Award Date; (iii) the Company requiring Grantee to be based at any office or location more than 50 miles from Grantee’s principal place of employment as of the Award Date; or (iv) a material breach by the Company of any term or provision of this Agreement; provided, however, that no event or condition shall constitute Good Reason unless, (x) within 90 days from Grantee first acquiring actual knowledge of the existence of the Good Reason condition described in this Section, Grantee provides the Board of Directors of the Company (the “Board”) written notice of Grantee’s intention to terminate Grantee’s employment for Good Reason and the grounds for such termination; (y) such grounds for termination (if susceptible to correction) are not corrected by

the Board within 30 days of the Board’s receipt of such notice (or, in the event that such grounds cannot be corrected within such 30-day period, the Board has not taken all reasonable steps within such 30-day period to correct such grounds as promptly as practicable thereafter); and (z) the Grantee terminates Grantee’s employment with the Company immediately following expiration of such 30-day period. Any attempt by the Board to correct a stated Good Reason shall not be deemed an admission by the Board that the Grantee’s assertion of Good Reason is valid.

For purposes of this Agreement, “Cause” means:

(i) gross negligence in the performance of Grantee’s duties and responsibilities, which negligence results in material harm to the business, interests or reputation of the Company;

(ii) a violation of any material Company policy, including, without limitation, the theft, embezzlement or misappropriation or material misuse of any Company funds or property;

(iii) any criminal or civil conviction for a crime involving moral turpitude;

(iv) willful and continued failure by Grantee to perform his or her duties and responsibilities; or

(v) any misconduct that, in the Company’s good faith determination, is materially harmful to the business, interests or reputation of the Company.

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 OF AWARD SHARES.

5.1 Except as otherwise provided in the Plan, 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 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.

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]

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:
		Phillip A. Reinsch
		President and Chief Executive Officer

[GRANTEE]


		[ ]

Exhibit 10.3


CAPSTEAD MORTGAGE CORPORATION 2014 FLEXIBLE INCENTIVE PLAN 2018 LONG-TERM PERFORMANCE UNIT AWARD CRITERIA

Purpose:		Capstead Mortgage Corporation (the “ Company ”) has established the Amended and Restated 2014 Flexible Incentive Plan (the “ 2014 Plan ”) to implement a key element of the Company’s long-term incentive pay program, in an effort to: (i) align executive equity compensation with the long-term objectives of the Company and (ii) motivate executives to create sustained stockholder value.

Participants:		Executive officers of the Company designated by the Compensation Committee.

Payout Criteria:		This performance-based methodology is adopted effective January 1, 2018. The performance metrics will be assessed for a three-year period commencing January 1, 2018 and ending December 31, 2020. The award will be in the form of performance units that are potentially convertible, following the end of the performance period, into shares of the Company’s common stock (the “Performance Units”). Provided some or all of the performance criteria are satisfied, the conversion will be automatic on a date determined by the Compensation Committee after the end of the performance period but no later than March 15, 2021. The “target award” for each executive officer other than the Chief Financial Officer (the “CFO”) will be a number of Performance Units that, if converted to common stock on the date of grant on a one-for-one basis, would have a value equal to 90% (37.5% for the CFO) of such executive officer’s effective base salary at January 1, 2018. However, the actual number of shares into which the Performance Units convert will be a function of the payout factors described in each performance metric below. The 2018 long-term Performance Unit award criteria and the weighting of such criteria is as follows:

		Performance Metrics and Weighting

		• 50% of the economic value of the total 2018 award is calculated based on Relative Economic Return metrics (30% measured against Peer Agency mREITs, as defined below) (20% measured against Peer mREITs, as defined below) • 30% of the economic value of the total 2018 award is calculated based on an Absolute Economic Return metric • 20% of the economic value of the total 2018 award is calculated based on a Relative Total Stockholder Return metric

Payout Factors:		The payout factor for each metric is 0% - 200% of the target award, rounded to the nearest whole percentage, based on actual performance against approved objectives, as more fully described below.


Relative Economic Return, as Measured against Peer Agency mREITs:		A portion of the payout of each participant’s total Performance Units will be based on the relative economic performance of the Company, as compared with the Company’s peers which invest primarily in residential mortgage pass-through securities issued and guaranteed by government-sponsored entities, either Fannie Mae or Freddie Mac, or an agency of the federal government, Ginnie Mae, as selected by the Compensation Committee (“ Peer Agency mREITs ”). The economic performance for the Company and each of the Peer Agency mREITs will be calculated as the respective change in book value per share of common stock from January 1, 2018 to December 31, 2020, plus dividends declared per share of common stock during such three-year period, divided by beginning per share book value at January 1, 2018 for each such entity (“ Relative Economic Return ”). The Company will then be ranked against each of the Peer Agency mREITs and assigned a percentile of relative performance. The portion of each participant’s Performance Units attributable to Relative Economic Return as measured against Peer Agency mREITs will convert into a number of shares of common stock equal to 30% of the target award multiplied by the applicable payout factor.

		The specific payout factor for Relative Economic Return, as measured against Peer Agency mREITs, will be calculated as follows:


Performance Level	Relative Economic Return Percentile, as Measured Against Peer Agency mREITs	Payout Factor, as a Percentage of Target
Below Threshold	<40 ^th Percentile	0%
Threshold	40 ^th Percentile	50%
Target	60 ^th Percentile	100%
Maximum	> 80 ^th Percentile	200%


		If the Company’s Relative Economic Return, as measured against Peer Agency mREITs, equals or exceeds the 40th percentile when ranked against the Peer Agency mREITs, the payout factor as a percentage of the target payout will be determined using a straight line interpolation between the threshold and target performance levels or the target and maximum performance levels, as the case may be, depending upon the actual percentile ranking of the Company relative to the Peer Agency mREIT peer group. By way of example, a ranking in the 50 ^th percentile would result in a payout factor of 75% of the target award, and a ranking in the 70 ^th percentile would result in a payout factor of 150% of the target award.

Relative Economic Return, as Measured against Peer mREITs:

A portion of the payout of each participant’s total Performance Units will be based on the relative economic performance of the Company, as compared with each of the Company’s peers which invest in a variety of mortgage instruments, not limited to Peer Agency mREITs, as selected by the Compensation Committee (the “ Peer mREITs ”). The relative economic performance of the Company and each of the Peer mREITs will be calculated consistent with the calculation for Relative Economic Return as measured against Peer Agency mREITs described above. The portion of each participant’s Performance Units attributable to Relative Economic Return as measured against Peer mREITs will convert into a number of shares of common stock equal to 20% of the target award multiplied by the applicable payout factor.

The specific payout factor for Relative Economic Return, as measured against Peer mREITs, will be calculated as follows:


Performance Level	Relative Economic Return Percentile, as Measured Against Peer mREITs	Payout Factor, as a Percentage of Target
Below Threshold	<40 ^th Percentile	0%
Threshold	40 ^th Percentile	50%
Target	60 ^th Percentile	100%
Maximum	> 80 ^th Percentile	200%


		If the Company’s Relative Economic Return, as measured against Peer mREITs, equals or exceeds the 40th percentile when ranked against each of the Peer mREITs, the payout factor as a percentage of the target payout will be determined using a straight line interpolation between the threshold and target performance levels or the target and maximum performance levels, as the case may be, depending upon the actual percentile ranking of the Company relative to the Peer mREIT group. By way of example, a ranking in the 50 ^th percentile would result in a payout factor of 75% of the target award, and a ranking in the 70 ^th percentile would result in a payout factor of 150% of the target award.

Absolute Economic Return:		A portion of the payout of each participant’s total Performance Units will be based on absolute economic return of the Company. The absolute economic return for the Company will be calculated as the respective change in book value per share of common stock of the Company from January 1, 2018 to December 31, 2020, plus dividends declared per share of common stock during such three-year period, divided by beginning per share book value at January 1, 2018 and then divided by three (“ Absolute Economic Return ”). The portion of each participant’s Performance Units attributable to Absolute Economic Return will convert into a number of shares of common stock equal to 30% of the target award multiplied by the applicable payout factor.


		The specific payout factor for Absolute Economic Return will be calculated as follows:


Performance Level	Absolute Economic Return	Payout Factor, as a Percentage of Target
Below Threshold	<6.0%	0%
Threshold	6.0%	50%
Target	9.0%	100%
Maximum	> 12.0%	200%


		If the Company’s Absolute Economic Return equals or exceeds 6.0%, the payout factor as a percentage of the target payout will be determined using a straight line interpolation between the threshold and target performance levels or the target and maximum performance levels, as the case may be, depending upon the actual Absolute Economic Return of the Company. By way of example, an Absolute Economic Return of 7.5% would result in a payout factor of 75% of the target award, and an Absolute Economic Return or 10.5% would result in a payout factor of 150% of the target award.

Relative Total Stockholder Return:		A portion of the payout of each participant’s total Performance Units will be based on relative total stockholder return of the Company, as compared with the Peer mREITs. The total stockholder return for the Company and each of the Peer mREITs will be calculated based on the ratio of (x) the average closing stock price for the last 20 business days of 2020 to (y) the average closing stock price for the last 20 business days of 2017, assuming additional fractional shares accumulated as dividends are re-invested on the ex-dividend date with the resulting ratio expressed as an annual equivalent return (“ Relative Total Stockholder Return ”). The Company will then be ranked against each of the Peer mREITs and assigned a percentile of relative performance. The portion of each participant’s Performance Units attributable to Relative Total Stockholder Return will convert into a number of shares of common stock equal to 20% of the target award multiplied by the applicable payout factor.

		The specific payout factor for Relative Total Stockholder Return will be calculated as follows:


Performance Level	Relative Total Stockholder Return Percentile, as Measured Against Peer mREITs	Payout Factor, as a Percentage of Target
Below Threshold	<40 ^th Percentile	0%
Threshold	40 ^th Percentile	50%
Target	60 ^th Percentile	100%
Maximum	> 80 ^th Percentile	200%


		If the Company’s Relative Total Stockholder Return, as measured against Peer mREITs, equals or exceeds the 40th percentile when ranked against each of the Peer mREITs, the payout factor as a percentage of the target payout will be determined using a straight line interpolation between the threshold and target performance levels or the target and maximum performance levels, as the case may be, depending upon the actual percentile ranking of the Company relative to the Peer mREIT group. By way of example, a ranking in the 50 ^th percentile would result in a payout factor of 75% of the target award, and a ranking in the 70 ^th percentile would result in a payout factor of 150% of the target award.


Dividends:		To the extent the Performance Units are ultimately convertible into Common Stock, the executive officer shall be entitled to receive all dividends and any other distributions declared during the performance period with respect to the shares of Common Stock into which the Performance Units are ultimately converted, as if such Common Stock had been issued on the first day of the performance period (provided, however, that nothing contained herein shall cause the Company to declare any such dividends or to make any such distributions). If the Performance Units expire without converting into any Common Stock, the executive officer is not entitled to receive any such amounts representing accrued dividends or distributions.

2014 Plan:		Each participant who is eligible for awards pursuant to Performance Units set forth herein shall agree and acknowledge that awards made are governed by the terms and provisions of the 2014 Plan.

Exhibit 10.4

CAPSTEAD MORTGAGE CORPORATION

PERFORMANCE UNIT AGREEMENT

FOR EXECUTIVE EMPLOYEES

THIS PERFORMANCE UNIT AGREEMENT (this “ Agreement ”) made and entered into as of the [ ] day of [ ], 20[ ], effective as of the date hereof (hereinafter called the “ Award Date ”), by and between Capstead Mortgage Corporation, a Maryland corporation (“ Capstead ” or the “ Company ”), and « Name» (the “ Grantee ”).

WHEREAS, the compensation committee of Capstead’s board of directors (the “ Committee ”) believes employees of the Company should have an ongoing stake in the long-term success of the Company, and

WHEREAS, the Committee believes that providing a long-term equity-based award appropriately linked to the Company’s performance over a multiple year period will better align the employees’ long-term interests with those of our stockholders.

THEREFORE, the Committee has awarded to the Grantee a performance unit award conditioned upon the execution by the Company and the Grantee of this Performance Unit Agreement that contains certain performance criteria set forth herein. 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 performance units to current executive officers, 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 «Target» performance units (the “ Performance Units ”), which are convertible into shares of 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, forfeiture risks and other terms and conditions hereinafter set forth.

1.2 Effect of Plan . The Performance Units shall constitute a Performance Award, as defined in the Company’s Amended and Restated 2014 Flexible 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. CONVERSION RIGHTS; DIVIDENDS . Provided the Performance Criteria are satisfied, each Performance Unit is automatically convertible into Common Stock following the end of the Performance Period, but no later than March 15, 20[ ], with the conversion factor determined formulaically based on the stated performance criteria, as set forth in the 2014 Flexible Incentive Plan Long-Term Award Criteria attached hereto as Exhibit A (the “ Long-Term Award Criteria ”). The Grantee, for the duration of this Agreement shall not be entitled to vote or receive

dividends or any other distributions declared on the Common Stock into which the Performance Units are ultimately convertible. During the Performance Period, the Company shall accrue dividends and any other distributions declared with respect to its Common Stock, initially as if each Performance Unit were entitled to the same dividend as a single share of Common Stock. The Company shall have discretion to accrue additional or lesser amounts if management has a reasonable basis to believe that the conversion ratio will result in automatic conversion into Common Stock on something other than a one-to-one basis (based on the actual performance criteria during the Performance Period). To the extent the Performance Units are ultimately convertible into Common Stock, the Grantee shall be entitled to receive all dividends and any other distributions declared during the Performance Period with respect to the shares of Common Stock into which the Performance Units are ultimately converted, as if such Common Stock had been issued on the first day of the Performance Period (provided, however, that nothing contained herein shall cause the Company to declare any such dividends or to make any such distributions). If Performance Units are forfeited pursuant to Section 3.3, 3.4 or 3.5, Grantee is not entitled to receive any such amounts representing accrued dividends or distributions.

SECTION 3. PERFORMANCE CRITERIA, PERFORMANCE PERIOD AND VESTING .

3.1 Performance Criteria . The “ Performance Criteria ” with respect to the Performance Units shall be comprised of the performance metrics, and each performance metric shall be weighted, as described in the Long-Term Award Criteria. Based on the “Payout Factors” and weighting described in the Long-Term Award Criteria, the Performance Units could expire without converting into any shares of Common Stock or could be convertible into as many as 200% of the number of Performance Units granted to each Grantee.

3.2 Performance Period . Performance shall be measured for a single three-year period beginning January 1, 20[ ] and ending December 31, 20[ ].

3.3 Conversions .

(a) Pursuant to the Plan, after the end of the Performance Period, the Committee shall determine whether, and to what degree, the Performance Criteria were satisfied. If any of the Performance Criteria were satisfied at or above the “Threshold” level (as described in the Long-Term Award Criteria) with respect to the Performance Period, the Committee shall establish a “ Conversion Date ” with respect to such Performance Period. The determination by the Committee as to the satisfaction of the Performance Criteria with respect to the Performance Period shall be deemed to be final.

(b) Provided the Grantee remains continuously employed by the Company throughout the Performance Period and some or all of the Performance Criteria for the Performance Period have been satisfied and acknowledged by the Committee at or above the “Threshold” level, then on the Conversion Date, the Performance Units shall automatically convert into the number of shares of Common Stock calculated consistent with the Payout Factors shown on the Long-Term Award Criteria.

(c) Except as otherwise provided in Sections 3.4, 3.5 and 3.6 below, no Performance Units shall become convertible after:

(i) termination of Grantee’s employment with the Company or any Affiliate for any reason other than death (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 Performance Units and the Common Stock into which such Performance Units may have been convertible following the Performance Period; or

3.4 Effect of Grantee’s Death . If the Grantee ceases to be an employee of the Company or any Affiliate by reason of death prior to the end of a Performance Period, the personal representatives, heirs, legatees or distributees of the Grantee, as appropriate, shall be entitled to the Performance Units, which shall be convertible into the same number of shares of Common Stock that would have otherwise been applicable for the Performance Period multiplied by a fraction, the numerator of which is the number of years during the related Performance Period in which the Grantee was alive and employed by the Company for any portion of such year and the denominator of which is three. Such beneficiary shall have no further rights under this Agreement.

3.5 Effect of Dissolution or Liquidation . In the event of the dissolution or liquidation of the Company, all performance goals with respect to the Performance Units shall be deemed to have been met at the Targeted Amount set forth in the Long-Term Award Criteria for the entire Performance Period under the terms of the Long-Term Award Criteria and the Performance Period shall immediately end.

3.6 Effect of Change of Control . If there is a Change in Control (as defined in the Plan) during the Performance Period, the Grantee’s employment is terminated at any time within 24 months of the Change of Control (but before the end of the Performance Period) and such termination is by the Company without Cause or by the Grantee with Good Reason, all performance goals with respect to the Performance Units shall be deemed to have been met at the Targeted Amount set forth in the Long-Term Award Criteria for the entire Performance Period under the terms of the Long-Term Award Criteria and the Performance Period shall immediately end. In such an event, the Conversion Date shall be the date of the occurrence of the Change in Control. For purposes of this Agreement, “Good Reason” shall include: (i) a material diminution in Grantee’s annual base salary; (ii) a material diminution in the nature or scope of Grantee’s authority, duties, responsibilities, or title from those applicable to Grantee as of the Award Date; (iii) the Company requiring Grantee to be based at any office or location more than 50 miles from Grantee’s principal

place of employment as of the Award Date; or (iv) a material breach by the Company of any term or provision of this Agreement; provided, however, that no event or condition shall constitute Good Reason unless, (x) within 90 days from Grantee first acquiring actual knowledge of the existence of the Good Reason condition described in this Section, Grantee provides the Board of Directors of the Company (the “Board”) written notice of Grantee’s intention to terminate Grantee’s employment for Good Reason and the grounds for such termination; (y) such grounds for termination (if susceptible to correction) are not corrected by the Board within 30 days of the Board’s receipt of such notice (or, in the event that such grounds cannot be corrected within such 30-day period, the Board has not taken all reasonable steps within such 30-day period to correct such grounds as promptly as practicable thereafter); and (z) the Grantee terminates Grantee’s employment with the Company immediately following expiration of such 30-day period. Any attempt by the Board to correct a stated Good Reason shall not be deemed an admission by the Board that the Grantee’s assertion of Good Reason is valid.

For purposes of this Agreement, “Cause” means:

(i) gross negligence in the performance of Grantee’s duties and responsibilities, which negligence results in material harm to the business, interests or reputation of the Company;

(ii) a violation of any material Company policy, including, without limitation, the theft, embezzlement or misappropriation or material misuse of any Company funds or property;

(iii) any criminal or civil conviction for a crime involving moral turpitude;

(iv) willful and continued failure by Grantee to perform his or her duties and responsibilities; or

(v) any misconduct that, in the Company’s good faith determination, is materially harmful to the business, interests or reputation of the Company.

3.7 Effect of Forfeiture . Any Performance Units forfeited pursuant to Section 3.3 shall revert to the Company.

SECTION 4. FORM OF PERFORMANCE UNITS . The Performance Units shall not be certificated. On the Conversion Date, the Company shall cause its Transfer Agent to record Grantee’s ownership of the Common Stock of the Company (into which the Performance Units are converted) in unrestricted book entry form 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 OF PERFORMANCE UNITS .

5.1 Except as otherwise provided in the Plan, the Performance Units 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 Conversion Date. Any attempted Transfer of the Performance Units, 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 Performance Units 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 Performance Units 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 of Performance Units, Common Stock into which Performance Units are convertible (and any dividends on such Common Stock) any amounts required to be withheld or otherwise deducted and paid with respect to such payment. At its discretion, the Company and each Affiliate may require the Grantee receiving Performance Units or Common Stock into which Performance Units are convertible 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 PERFORMANCE UNITS .

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 Performance Units 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 Performance Units subject to the Award. An Award of Performance Units 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 Performance Units 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 Performance Units and making an investment decision with respect to the Company;

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

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

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 .

15.2 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]


CAPSTEAD MORTGAGE CORPORATION

By:
		Phillip A. Reinsch
		President & Chief Officer

GRANTEE


		«Name»