AMENDMENT TO JOHN K. DELANEY EMPLOYMENT AGREEMENT

Exhibit 10.40.1

AMENDMENT TO
JOHN K. DELANEY
EMPLOYMENT AGREEMENT

     THIS AMENDMENT TO THE EMPLOYMENT AGREEMENT (“Amendment”) is made, effective as of December 31, 2008, by and between CapitalSource Inc., a Delaware corporation (the “Company”), and John K. Delaney (the “Executive”).

Recitals :

      WHEREAS, the Executive and the Company previously entered into the Employment Agreement, effective as of June 6, 2006 (the “Employment Agreement”); 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.

Agreement :

      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 9(d) of the Employment Agreement is hereby amended by adding a new sentence at the end of said Section 9(d) to read as follows:

“ The Executive will forfeit all rights to the Severance Payments if the Executive fails to execute and deliver the release within 30 days of delivery of the release to the Executive. ”

          2. Section 9(g) of the Employment Agreement is hereby deleted in its entirety and amended and restated to read as follows:

“(g) Section 409A . To the extent the Executive would be subject to the additional 20% tax imposed on certain deferred compensation arrangements pursuant to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), as a result of any provision of this Agreement, such provision shall be deemed amended to the minimum extent necessary to avoid application of such tax and preserve to the maximum extent possible the original intent and economic benefit to the Executive and the Company, and the parties shall promptly execute any amendment reasonably necessary to implement this Section 9(g).

               (i) For purposes of Section 409A, the Executive’s right to receive installment payments pursuant to this Agreement including, without limitation, each severance payment and COBRA continuation reimbursement shall be treated as a right to receive a series of separate and distinct payments.

               (ii) The Executive will be deemed to have a Date of Termination for purposes of determining the timing of any payments or benefits hereunder that are classified as deferred compensation only upon a “separation from service” within the meaning of Code Section 409A.

    &nbs