Exhibit 10.40
CapitalSource Bank
Compensation for Non-Employee Directors
     The compensation program for directors of CapitalSource Bank (the “Bank”)
who are not employees of the Bank, CapitalSource Inc. (the “Company”) or any of
their respective affiliates (“Non-employee Directors”) consists of an annual
retainer and an initial long-term equity award of the Company’s common stock. To
the extent any of the compensation is payable in the form of the Company’s
equity, the grant of such equity is subject to appropriate action by the
Company’s Board of Directors or a committee thereof.
     Annual Retainer

  •   For service as Bank directors, including on committees of the Bank Board
and attendance at Board and committee meetings, the Bank pays Non-employee
Directors an annual retainer of $75,000 payable in four quarterly installments
of $18,750 on the last business day of each calendar quarter for service
relating to such completed calendar quarter.     •   With respect to directors
who begin service in the middle of a calendar quarter, the retainer for that
quarter will be pro-rated based on the number of days from the time service
begins to the end of the calendar quarter.     •   Directors may elect to
receive retainer payments in whole or in part in the form of cash or fully
vested shares of the Company’s common stock and/or immediately exercisable
options to purchase shares of the Company’s common stock.     •   Stock is
valued based on the closing market price of the Company’s common stock on the
grant date, and options are valued in an amount equal to five times the number
of shares that would have been payable had the director elected to receive
payment in the form of the Company’s common stock.     •   Options have a
ten-year term and an exercise price equal to the closing market price of the
Company’s common stock on the grant date.     •   The grant date for retainer
payments made in the form of equity will be the last trading day of each
quarter.

     Long-Term Equity Award

  •   Each Non-employee Director joining the Board of Directors receives a
one-time long-term equity award of $50,000, payable, at the election of each
such director, in whole or in part, in restricted shares of the Company’s common
stock and/or stock options calculated in the same manner as described above.    
•   Unlike retainer payments, restricted stock and options granted as long-term
equity awards will vest or become exercisable, as applicable, in three equal
installments on the first, second and third anniversaries of the director’s
first day of service as a Bank director if the director is still serving as a
Bank director on such anniversary dates.     •   The grant date for long-term
equity awards will be the last trading day of the quarter during which the
joining director begins his or her service as a Bank director (e.g., last
trading day of the month of December for service beginning at any time between
October 1 and December 31).     •   Cash dividends, if any, paid during the
vesting periods on unvested restricted stock are credited in the form of
additional shares of unvested restricted stock with the same vesting dates as
the restricted stock to which they relate.     •   Unexercised options do not
get any cash dividends and are not adjusted in any way for the payment of cash
dividends. Options have a ten-year term and an exercise price equal to the
closing market price of the Company’s common stock on the grant date.

 

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     Deferring Compensation

  •   Pursuant to CapitalSource Inc.’s Amended and Restated Deferred
Compensation Plan, as amended from time to time (the “DCP”) and applicable rules
and regulations under the Internal Revenue Code, Non-employee Directors may be
eligible to defer retainer payments and long-term equity awards into restricted
stock units. A restricted stock unit is an unfunded right to receive one share
of the Company’s common stock at a future date.     •   Restricted stock units
will be vested or unvested to the extent that the payment or award that is being
deferred into restricted stock units would have been vested or unvested.     •  
Restricted stock units are credited with dividend equivalents in the form of
additional restricted stock units that have the same vesting and conversion
features as the restricted stock units to which they relate.     •   Restricted
stock units are payable in the form of the Company’s common stock at the earlier
of a future date selected by the director (which must be no earlier than the
later of (A) the year following the year (i) for which compensation has been
deferred if no vesting is applicable, or (ii) in which the restricted stock
units vest, and (B) the termination of the director’s service as a Bank
director).

     Form and Election of Non-Cash Awards

  •   All non-cash awards (i.e., payments in the forms of the Company’s common
stock, options or restricted stock units) will be evidenced by the form
agreements adopted from time to time by the CapitalSource Inc. Board of
Directors or a committee thereof, and shall be subject in all respects to the
terms of the Company’s Third Amended and Restated Equity Incentive Plan and the
DCP, as applicable, in each case as amended from time to time.     •   All
elections of the form of payment of retainers and long-term equity awards must
be made prior to each calendar year in which the compensation is earned. Each
director’s election as to the form of payment in effect as of December 31 of
each year shall be effective for all compensation earned by such director during
the next calendar year. There may be certain exceptions to these rules for
directors who commence service in the middle of a calendar year.

     Expenses

  •   No Bank directors (whether they are Non-employee Directors or otherwise)
shall receive any perquisites or above-market nonqualified deferred compensation
plan earnings.     •   Directors are reimbursed for their reasonable expenses
incurred in connection with performing their duties as directors of the Bank,
i.e., attending Board and committee meetings, attending Bank-approved
educational seminars, and other activities approved by the Bank.