Exhibit 10.17.3

         
NOTICE OF GRANT OF STOCK OPTIONS
  CapitalSource Inc.    
 
  ID: 35-2206895    
 
  4445 Willard Avenue    
 
  Twelfth Floor    
 
  Chevy Chase, MD 20815    
 
       
[Name]
  Option Number:    
[Address]
  Plan:   Y2KB
 
  ID:    

Effective [DATE], you have been granted a Non-Qualified Stock Option (the
“Option”) to buy [NUMBER] shares of CapitalSource Inc. (the “Company”) common
stock at [PRICE] per share.
The Option shall vest as follows:

              Shares   Vest Type   Vest Date   Expiration              

By your signature and the Company’s signature below, you and the Company agree
that this Option is granted under and governed by the terms and conditions of
the attached Option Agreement and the Company’s Third Amended and Restated
Equity Incentive Plan, as amended, all of which are available on the Company’s
intranet.

             
 
           
CapitalSource Inc.
      Date    
 
           
 
           
 
           
[NAME]
      Date    

 

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Exhibit 10.17.3
CAPITALSOURCE INC.
THIRD AMENDED AND RESTATED EQUITY INCENTIVE PLAN
NON-QUALIFIED OPTION AGREEMENT

     
Non-qualified Option
  This Agreement evidences an award of a Stock Option exercisable for that
number of shares of Stock set forth on your Notice of Grant of Stock Options to
which this Agreement is attached (“Grant Notice”) and subject to the vesting and
other conditions set forth herein, in the Plan and on the Grant Notice. This
option is not intended to be an incentive option under Section 422 of the
Internal Revenue Code and will be interpreted accordingly.
 
   
Transfer of Stock Option
  During your lifetime, only you (or, in the event of your legal incapacity or
incompetency, your guardian or legal representative) may exercise the Stock
Option. The Stock Option may not be sold, assigned, transferred, pledged,
hypothecated or otherwise encumbered, whether by operation of law or otherwise,
nor may the Stock Option be made subject to execution, attachment or similar
process.
 
   
 
  If you attempt to do any of these things, this Stock Option will immediately
become forfeited.
 
   
 
  Notwithstanding these restrictions on transfer, the Board or the Committee may
authorize, in its sole discretion, the transfer of a vested Stock Option (in
whole or in part) to a member of your immediate family or a trust for the
benefit of your immediate family.
 
   
Vesting
  Your Stock Option shall vest in accordance with the vesting schedule shown in
the Grant Notice so long as you continue in Service on the vesting dates set
forth on the Grant Notice and is exercisable only as to its vested portion.
 
   
Forfeiture of Unvested Stock Options / Term
  Unless the termination of your Service triggers accelerated vesting of your
Stock Option pursuant to the terms of this Agreement, the Plan, or any other
written agreement between the Company (or any Affiliate) and you, you will
automatically forfeit to the Company those portions of the Stock Option that
have not yet vested in the event your Service terminates for any reason.
 
   
Expiration of Vested Options After Service Terminates
  If your Service terminates for any reason, other than death, Disability or
Cause, then the vested portion of your Stock Option will expire at the close of
business at Company headquarters on the 90th day after your termination date.

 

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  If your Service terminates because of your death or Disability, or if you die
during the 90-day period after your termination for any reason (other than
Cause), then the vested portion of your Stock Option will expire at the close of
business at Company headquarters on the date twelve (12) months after the date
of your death or termination for Disability. During that twelve (12) month
period, your estate or heirs may exercise the vested portion of your Stock
Option.
 
   
 
  If your Service is terminated for Cause, then you shall immediately forfeit
all rights to your entire Stock Option and the Stock Option shall immediately
expire.
 
   
 
  In all events, your Stock Option will expire on the Expiration Date shown on
the Grant Notice. Your Stock Option will expire earlier if your Service
terminates, as described herein.
 
   
Forfeiture of Rights
  If you should take actions in violation or breach of or in conflict with any
non-competition agreement, any agreement prohibiting solicitation of employees
or clients of the Company or any Affiliate thereof or any confidentiality
obligation with respect to the Company or any Affiliate thereof or otherwise in
competition with the Company or any Affiliate thereof, the Company has the right
to cause an immediate forfeiture of your rights to this Stock Option and the
Stock Option shall immediately expire.
 
   
 
  In addition, if you have exercised any options during the two year period
prior to your actions, you will owe the Company a cash payment (or forfeiture of
shares) in an amount determined as follows: (1) for any Shares that you have
sold prior to receiving notice from the Company, the amount will be the proceeds
received from the sale(s), less the option exercise price, and (2) for any
Shares that you still own, the amount will be the number of Shares owned times
the Fair Market Value of the Shares on the date you receive notice from the
Company, less the option exercise price (provided, that the Company may require
you to satisfy your payment obligations hereunder either by forfeiting and
returning to the Company the shares or any other shares or making a cash payment
or a combination of these methods as determined by the Company in its sole
discretion).
 
   
Leaves of Absence
  For purposes of this Agreement, your Service does not terminate when you go on
a bona fide employee leave of absence that was approved by the Company in
writing if the terms of the leave provide for continued Service crediting, or
when continued Service crediting

 

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  is required by applicable law. Your Service terminates in any event when the
approved leave ends unless you immediately return to active employee work.
 
   
 
  The Company determines, in its sole discretion, which leaves count for this
purpose, and when your Service terminates for all purposes under the Plan.
 
   
Notice of Exercise
  The Stock Option may be exercised, in whole or in part, to purchase a whole
number of vested shares of Stock of not less than 100 shares, unless the number
of vested shares purchased is the total number available for purchase under the
option, by following the procedures set forth in the Plan and in this Agreement.
 
   
 
  When you wish to exercise this Stock Option, you must exercise in a manner
required or permitted by the Company.
 
   
 
  If someone else wants to exercise this Stock Option after your death, that
person must prove to the Company’s satisfaction that he or she is entitled to do
so.
 
   
Form of Payment
  When you exercise your Stock Option, you must include payment of the option
price indicated on the Grant Notice for the shares you are purchasing. Payment
may be made in one (or a combination) of the following forms:
 
   
 
  • Cash, your personal check, a cashier’s check, a money order or another cash
equivalent acceptable to the Company.
 
   
 
  • Shares of Stock which have already been owned by you for more than six
months and which are surrendered to the Company. The Fair Market Value of the
shares as of the effective date of the option exercise will be applied to the
option price.
 
   
 
  • To the extent a public market exists for the shares of Stock as determined
by the Company, delivery (in a form prescribed or accepted by the Company) of an
irrevocable direction to a licensed securities broker acceptable to the Company
to sell shares and to deliver all or part of the sale proceeds to the Company in
payment of the aggregate option price and any withholding taxes.
 
   
Evidence of Issuance
  The issuance of the shares upon exercise of this Stock Option shall be
evidenced in such a manner as the Company, in its discretion, will deem
appropriate, including, without limitation, book-entry, registration or issuance
of one or more share certificates.

 

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Withholding Taxes
  You agree as a condition of this grant that you will make acceptable
arrangements to pay any withholding or other taxes that may be due as a result
of the Stock Option exercise or sale of Stock acquired under this Stock Option.
In the event that the Company determines that any federal, state, local or
foreign tax or withholding payment is required relating to the exercise of this
Stock Option or sale of Stock arising from this Stock Option, the Company shall
have the right to require such payments from you, or withhold such amounts from
other payments due to you from the Company or any Affiliate (including
withholding the delivery of vested shares of Stock otherwise deliverable under
this Agreement).
 
   
Retention Rights
  This Agreement and this Stock Option do not give you the right to be retained
by the Company (or any Affiliate) in any capacity. Unless otherwise specified in
an employment or other written agreement between the Company (or any Affiliate)
and you, the Company (and any Affiliate) reserve the right to terminate your
Service at any time and for any reason.
 
   
Stockholder Rights
  You, or your estate or heirs, have no rights as a shareholder of the Company
until the Stock has been issued upon exercise of your Stock Option and either a
certificate evidencing your Stock has been issued or an appropriate entry has
been made on the Company’s books. No adjustments are made for dividends,
distributions or other rights if the applicable record date occurs before your
certificate is issued (or an appropriate book entry is made), except as
described in the Plan.
 
   
 
  Your Stock Option shall be subject to the terms of any applicable agreement of
merger, liquidation or reorganization in the event the Company is subject to
such corporate activity.
 
   
Applicable Law
  This Agreement will be interpreted and enforced under the laws of the State of
Delaware, other than any conflicts or choice of law rule or principle that might
otherwise refer construction or interpretation of this Agreement to the
substantive law of another jurisdiction.
 
   
The Plan
  The text of the Plan is incorporated in this Agreement by reference.

Certain capitalized terms used in this Agreement are defined in the Plan, and
have the meaning set forth in the Plan.
 
   
 
  This Agreement, the associated Grant Notice and the Plan constitute the entire
understanding between you and the Company regarding this Stock Option. Any prior
agreements, commitments or negotiations concerning this grant are superseded;
except that any written employment, consulting, confidentiality, non-competition
and/or severance agreement between you and the Company (or any Affiliate) shall
supersede this Agreement with respect to its subject matter.

 

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Data Privacy
  In order to administer the Plan, the Company may process personal data about
you. Such data includes, but is not limited to, information provided in this
Agreement or the Grant Notice and any changes thereto, other appropriate
personal and financial data about you such as your contact information, payroll
information and any other information that might be deemed appropriate by the
Company to facilitate the administration of the Plan.
 
   
 
  By accepting this grant, you give explicit consent to the Company to process
any such personal data.
 
   
Code Section 409A
  It is intended that this Award comply with Section 409A of the Code
(“Section 409A”) or an exemption to Section 409A. To the extent that the Company
determines that you would be subject to the additional 20% tax imposed on
certain non-qualified deferred compensation plans pursuant to Section 409A 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 additional
tax. The nature of any such amendment shall be determined by the Company.

     By signing the Grant Notice, you agree to all of the terms and conditions
described above and in the Plan.