AMENDMENT NO. 3
TO
DEAN C. GRAHAM
EMPLOYMENT AGREEMENT
THIS AMENDMENT NO.
3 TO THE EMPLOYMENT AGREEMENT (“Amendment No. 3”)
is made, effective as of December 31, 2008, by and between
CapitalSource Inc., a Delaware corporation (the
“Company”), and Dean C. Graham (the
“Executive”).
WHEREAS,
the Executive and the Company previously entered into the
Employment Agreement, effective as of April 4, 2005, and
previously amended on each of November 22, 2005 and
February 1, 2007 (collectively, the “Employment
Agreements”); and
WHEREAS,
the Executive and the Company desire to further amend the
Employment Agreement to comply with the requirements of
Section 409A of the Internal Revenue Code of 1986, as
amended.
NOW,
THEREFORE, in consideration of the agreements contained herein
and of such other good and valuable consideration, the sufficiency
of which the Executive acknowledges, the Company and the Executive,
intending to be legally bound, agree as follows:
1.
Section 5(f)(1)(b) is hereby amended and restated to read as
follows:
“(b) Prior
to the occurrence of a Change in Control, the Employer shall
establish a trust with an independent institutional third party
trustee selected by the Executive (the “Trust”). The
agreement governing the Trust shall be in a form mutually agreed
upon by the parties and in any event shall be consistent with the
intent of this Section 5(f). The assets of the Trust shall not
be used for any purpose other than to satisfy certain liabilities
to the Executive described herein, except that if the Trust is
dissolved in accordance with this Section 5(f)(1)(b) the
Employer shall retain the Trust assets. For the avoidance of doubt,
the Trust shall be a “secular” trust, the assets of
which shall not be subject to the claims of the Employer’s
creditors. Trust assets shall be invested in short-term money
market securities until distribution hereunder. Immediately prior
to the occurrence of a Change in Control and contingent upon a
Change in Control, the Employer shall deposit
into the Trust
cash in an amount equal to the sum of (i) the Value (as
defined below) of restricted shares of Stock previously granted to
the Executive that are not vested on the date of the Change in
Control, (ii) the post-tax value of the spread with respect to
any options to acquire Stock held by the Executive as of the Change
in Control (based on the difference between the Value of a share of
Stock and the applicable option exercise price) that are not vested
and exercisable on the date of the Change in Control (it being
understood that the Executive will include the gross amount of the
option spread in income at the time and the Employer will pay the
Executive the amount of taxes due on such amount subject to the
Employer’s obligation to withhold and deposit such tax
amounts) and (iii) the value of any other equity-related award
(based on the Value of a share of Stock) held by the Executive that
are not vested as of the Change in Control (such awards
collectively being referred to herein as the “Applicable
Awards”). Upon contribution of the cash to the Trust, the
related Applicable Awards described in clauses (i), (iii) and
(iv), above, shall be canceled and no longer outstanding. For
purposes hereof, the Value of a share of Stock shall be the per
share price of Stock immediately before the Change in Control as
listed on the principal exchange on which such Stock trades. Upon
the earlier of the first anniversary of the Change in Control if
the Executive is employed by the Employer or any Company Affiliate
on such date and the termination of the Executive’s
employment in a manner that entitles him to benefits under
Section 9(a), (b), (d) or (e) (as applicable, the
“Distribution Date”), the Executive (or his estate)
shall be paid, based on an election made by the Executive or his
estate to the Employer at the time of such payment, (X) the
amount required to be held in Trust on his behalf hereunder
(including any earnings on such amount) (the “Cash Based
Value”) or (Y) the value the Applicable Awards, other
than the value of Applicable Awards that are stock options, if any,
would have had on the Distribution Date if such Applicable Awards
were outstanding on such date based on the value of Stock on such
date (or the value on such date of the stock of any publicly traded
parent company of the Employer assuming the aggregate cash
contributed to the Trust had been invested in such stock on the
date of the Change in Control) (the “Stock Based
Value”). With regard to stock options that are includible in
Applicable Awards, if the Change in Control transaction is not
described in the following sentence, the Executive shall be granted
a stock appreciation right that will be settled in cash within
10 days of the Distribution Date for the increase in the
value, as of the Distribution Date, of the shares of stock into
which the stock subject to the stock option would have been
converted if assumed by the acquirer over fair market value of such
shares on the date of the Change in Control. Notwithstanding the
foregoing, in any Change in Control transaction pursuant to which
100% of the Stock holdings of shareholders of the Employer
immediately prior to the transaction are exchanged solely for cash,
the Stock Based Value shall be $0. If the Executive fails to make
such an
2
election by the
Distribution Date, the Executive shall be paid the greater of the
Cash Based Value or the Stock Based Value. If the Executive is paid
the Stock Based Value, the Executive shall be paid shares of stock
of the Employer (or the stock of any publicly-traded parent company
of the Employer) that are freely and immediately transferable by
the Executive and the Trust shall be dissolved and all amounts
required to be kept in the Trust shall be returned to the Employer.
If the Executive is paid the Cash Based Value, the Executive shall
be paid in cash. Notwithstanding the foregoing, if any Applicable
Award would have vested before the applicable Distribution Date,
the Executive shall be entitled to a payment of the value of such
Applicable Award, and stock appreciation right, if any, in the form
(cash or stock) and amount as determined in accordance with the
principles of the five preceding sentences (but using the vesting
date rather than the Distribution Date for purposes of determining
such value) and
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