EXHIBIT
10.7
 
 CAPITALSOURCE INC.
AMENDED AND RESTATED DEFERRED COMPENSATION PLAN
  ARTICLE I: DEFINITIONS
  1.1.
    
    Account means the book entry account established under the Plan for each Participant (i) to
which shall be credited such amounts as the Company shall determine and the Participants
Credited Investment Return (Loss) determined under Article IV and (ii) which shall be reduced
by any distributions made to a Participant.1.2.
    
    Beneficiary those persons, trusts or other entities entitled to receive Benefits which may
be payable hereunder upon a Participants death as determined under Article VI.1.3.
    
    Benefits means the amounts credited to a Participants Account pursuant to such
Participants Deferred Compensation Agreements, plus or minus all Credited Investment Return
(Loss).1.4.
    
    Board of Directors or Board means the Board of Directors of CapitalSource Inc.1.5.
    
    Change of Control means (i) the dissolution or liquidation of the Company or a merger,
consolidation, or reorganization of the Company with one or more other entities in which the
Company is not the surviving entity, (ii) a sale of substantially all of the assets of the
Company to another person or entity, or (iii) any transaction (including without limitation a
merger or reorganization in which the Company is the surviving entity) which results in any
person or entity owning 50% or more of the combined voting power of all classes of Shares of
the Company or its successor. Notwithstanding the
 - 1 -




---



##### 



foregoing, a transaction described in clause (i) or clause (ii) of the preceding sentence
shall not be a Change of Control if persons who are shareholders of the Company or its
Affiliates immediately prior to the transaction continue to own 50% or more of the combined
voting power of the Company or the resulting entity immediately following the transaction.
Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred if a
change of control within the meaning of Section 409A of the Code (Section 409A) has not
occurred.1.6.
    
    Code means the Internal Revenue Code of 1986, as amended, and references to particular
sections of the Code are deemed to refer to such sections or any successor sections thereto.1.7.
    
    Committee means the Compensation Committee of the Board.1.8.
    
    Company means CapitalSource and any past, present or future parent corporation or
subsidiary corporation of CapitalSource or other legal entity under common control with
CapitalSource within the meaning of Section 414(c) of the Code. For purposes of the Plan, the
terms parent corporation and subsidiary corporation shall be defined as set forth in Sections
424(e) and 424(f) of the Code.1.9.
    
    Credited Investment Return (Loss) means the hypothetical investment return which shall be
credited to the Participants Account pursuant to Article IV.1.10.
    
    Deferred Compensation Agreement means an agreement to participate and to defer
compensation between a Participant and the Company in such form and consistent with terms of
the Plan as the Company may prescribe from time to time.1.11.
    
    Distribution Date means the date on which distribution of a Participants Benefits is made
or commenced pursuant to Article V.1.12.
    
    Distribution Election means the election described in Section 5.2(b).1.13.
    
    Early Benefit Distribution Date means the date in a different calendar year than the year
in which the Eligible Compensation to which the Deferred Compensation Agreement relates is
earned that the Participant has elected as a Distribution Date.1.14.
    
    Effective Date means November 26, 2003.1.15.
    
    Eligible Compensationmeans, with regard to non-employee directors of the Company, annual
board or committee retainers, equity awards and, effective with regard to meeting fees earned
on or after the 2004 Annual Meeting,
 - 2 -




---



##### 



board or committee meeting fees, and with regard to employees, annual bonuses and
restricted stock unit grants.1.16.
    
    Financial Hardship means one or more of the following events:
 a.
    
    A sudden and unexpected illness or accident of the Participant or a dependent
(as defined in Section 152(a) of the Code) of the Participant;b.
    
    A loss of the Participants property due to casualty; orc.
    
    Other similar and extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant, as determined by the Company.d.
    
    The need to pay for funeral expenses of a spouse, Beneficiary, or a dependent
(as defined in Section 152(a) of the Code)
 1.17.
    
    CapitalSource means CapitalSource Inc., a Delaware corporation.1.18.
    
    Participant means a non-employee director of the Company or an officer of the Company who
has been designated by the Company as eligible to participate in this Plan.1.19.
    
    Plan shall mean this CapitalSource Inc. Deferred Compensation Plan, as it may be amended
from time to time.1.20.
    
    Plan Year means the calendar year or such other period of time as may be designated by the
Committee.1.21.
    
    Separation from Service means a termination of services provided by a Participant to his
or her employer, whether voluntarily or involuntarily, other than by reason of death or
Disability, as determined by the Committee in accordance with Treas. Reg. §1.409A-1(h). In
determining whether a Participant has experienced a Separation from Service, the following
provisions shall apply:For a Participant who provides services to an employer as an employee, except as otherwise
provided in part (c) of this Section, a Separation from Service shall occur when such
Participant has experienced a termination of employment with such employer. A Participant
shall be considered to have experienced a termination of employment when the facts and
circumstances indicate that the Participant and his or her employer reasonably anticipate
that either (i) no further services will be performed for the employer after a certain date,
or (ii) that the level of bona fide services the Participant will perform for the employer
after such date (whether as an employee or as an independent contractor) will permanently
decrease to no more than 20% of the average level of bona fide services performed by such
Participant
 - 3 -




---



##### 



(whether as an employee or an independent contractor) over the immediately preceding
36-month period (or the full period of services to the employer if the Participant has been
providing services to the employer less than 36 months).
   ,
  - 4 -




---



##### 



1.22.
    
    Shares means shares of common stock of CapitalSource.1.23.
    
    Stock Unit means an unfunded right to receive one share of Company common stock at a
future date. Stock Units do not have voting rights.1.24.
    
    Termination Event means the Participants Separation from Service with the Company (within
the meaning of Section 409A) for any reason.
 ARTICLE II: ELIGIBILITY
 2.1.
    
    Eligibility. Eligibility for participation in the Plan shall be limited to
non-employee directors of the Company and to officers of the Company who are selected by the
Company, in its sole discretion, to participate in the Plan. No employee may be designated as
eligible unless the employee belongs to a select group of management or highly compensated
employees as defined in Title I of the Employee Retirement Income Security Act of 1974, as
amended (ERISA). Non-employee directors and individuals who are in this select group shall
be notified as to their eligibility to participate in the Plan and shall be eligible to defer
Eligible Compensation in accordance with this Plan and rules established by the Committee.
 2.2.
    
    Cessation of Participation. Participation in the Plan shall continue until all of
the Benefits to which the Participant is entitled thereunder have been paid in full.
 2.3.
    
    Time of Election of Deferral. Except as otherwise provided in Section 2.3, an
election to defer Eligible Compensation must be made before the year in which the Eligible
Compensation is earned. In the case of a bonus, except with regard to bonuses relating to
2005 performance or performance-based bonuses, the election to defer must be made prior to
the year in which the bonus is earned. Notwithstanding the foregoing, in his or her first
year of eligibility a Participant may make a deferral election within 30 days of first
becoming eligible. This initial deferral may relate only to Eligible Compensation
attributable to the period following the deferral election.
 (i)
    
    Special Rule for 2005 Bonuses. For bonuses earned in 2005, but
paid 2006, in accordance with Notice 2005-1 elections to defer such bonuses may
be made no later than March 15, 2005.
 - 5 -




---



##### 



(ii)
    
    Special Rule for Performance-bases Bonuses. If a bonus is
performance-based within the meaning of Section 409A, an election to defer
such bonus may be made no later than six months before the end of the service
period to which such bonus relates and while achievement of the performance
goals is substantially uncertain.
 ARTICLE III: PARTICIPANTS ACCOUNTS
 3.1.
    
    Establishment of Accounts. The Company shall cause an Account to be kept in the name
of each Participant and each Beneficiary of a deceased Participant which shall reflect the
value of such Participants Benefits as adjusted from time to time to reflect Credited
Investment Return (Loss). Each such Account initially shall be credited with the number of
Stock Units calculated in accordance with the Deferred Compensation Agreement.
 3.2.
    
    Vesting. Accounts shall be 100% vested at all times, except that any vesting
restrictions applicable to an award of Restricted Stock Units deferred under the Plan shall
apply to the portion of the Participants Account attributable to such award until such
restrictions lapse in accordance with the original terms of the award.
 ARTICLE IV: CREDITED INVESTMENT RETURN (LOSS)
 4.1.
    
    Credited Investment Return (Loss). All amounts credited to an Account shall be
deemed to be invested in Stock Units. Accounts shall be credited with dividend equivalents to
the extent dividends are paid on Company common stock.
 ARTICLE V: BENEFITS
 5.1.
    
    (a) Timing of Distribution. The vested amounts credited
to a Participants Account shall be paid (or payment
shall commence) within 60 days after the earlier of
(i) the Early Benefit Distribution Date, if the
Participant has made a valid election for early
distribution of Benefits pursuant to Section 5.1(b),
or (ii) a Termination Event.
  - 6 -




---



##### 



Early Benefit Distribution
  5.2.
    
    (a) Method of Distribution. A Participants Account shall be paid in one of the
following methods specified in his or her most recent valid document or agreement providing
for a distribution method: (i) a single lump sum payment; or (ii) in the case of Participants
who are employees of the Company, substantially equal annual installments over up to a ten
year period. Accounts, adjusted for applicable investment gains and losses, shall be divided
by the number of years remaining under the election to determine the amount of such annual
installment. For purposes of this Plan, the right to receive a benefit payment in annual
installments shall be treated as the entitlement to a single payment. All payments from the
Plan shall be in the form of CapitalSource common stock.
 - 7 -




---



##### 



Distribution Election for Method of Distribution
 Death Benefits
 Non-Election
 Valuation of Accounts
 5.3.
    
    Financial Hardship. Notwithstanding the foregoing, with the consent of the Company,
a Participant who is an employee of the Company may withdraw up to one hundred percent (100%)
of the vested amount credited to his or her Account to the extent such withdrawal is required
to meet an unforeseeable emergency of the Participant constituting a Financial Hardship,
provided that the entire amount requested by the Participant is not reasonably available from
other resources of the Participant, and provided further that:
  - 8 -




---



##### 



5.4.
    
    Limitation on Distributions to Covered Employees. Notwithstanding any other
provision of this Article V, in the event that the Participant is a covered employee as
defined in Section 162(m)(3) of the Code, or would be a covered employee if the Benefits were
distributed in accordance with his or her Distribution Election or withdrawal request, the
maximum amount which may be distributed from the Participants Account, in any Plan Year,
shall not exceed one million dollars ($1,000,000) less the amount of compensation paid to the
Participant in such Plan Year which is not performance-based (as defined in Code Section
162(m)(4)(C)), which amount shall be reasonably determined by the Company at the time of the
proposed distribution. Any amount which is not distributed to the Participant in a Plan Year
as a result of the limitation set forth in this Section 5.4 shall be distributed to the
Participant in the next Plan Year, subject to compliance with the foregoing limitation set
forth in this Section 5.4. This Section 5.4 shall not be given effect if its application
would result in the imposition of the 20% penalty tax under Section 409A.
 5.5.
    
    Tax Withholding. All payments under this Article V shall be subject to all
applicable withholding for state and federal income tax and to any other federal, state or
local tax which may be applicable thereto. In the event any taxes become due prior to payment,
including but not limited to, taxes under Section 3121(v) of the Code, such taxes shall be the
sole responsibility of the Participant.
 ARTICLE VI: BENEFICIARIES
 6.1.
    
    Designation of Beneficiary. The Participant shall have the right to designate, on
such form as may be prescribed by the Company, a Beneficiary to receive any Benefits due under
Article V which may remain unpaid at the
 - 9 -




---



##### 



Participants death and shall have the right at any time to revoke such designation and to
substitute another such Beneficiary.
 6.2.
    
    No Designated Beneficiary. If, upon the death of the Participant, there is no valid
designation of a Beneficiary, the Beneficiary shall be the Participants estate.
 ARTICLE VII: ADMINISTRATION OF THE PLAN
 7.1.
    
    Administration by the Company. This Plan shall be administered by the Committee.
The Committee has the authority to amend the Plan and the sole discretion to interpret the
Plan and to determine all questions arising in the administration, interpretation, and
application of the Plan. The Committees powers include the power, in its sole discretion and
consistent with the terms of the Plan, to determine who is eligible to participate in this
Plan, to determine the eligibility for and the amount of benefits payable under the Plan, to
determine when and how amounts are allocated to a Participants Account, to establish rules
for determining when and how elections can be made, to adopt any rules relating to
administering the Plan and to take any other action it deems appropriate to administer the
Plan. The Committee may delegate its authority hereunder to one or more officers of the
Company. Whenever the value of an Account is to be determined under this Plan as of a
particular date, the Committee may determine such value using any method that is reasonable,
in its discretion. Whenever payments are to be made under this Plan, such payments shall be
made or begin within 60 days and no interest shall be paid on such amounts for any reasonable
delay in making the payments.7.3
    
    Claims Procedures. (a) The Committee shall maintain procedures with respect to the
filing of claims for benefits under the Plan. Pursuant to such procedures, any Participant or
beneficiary (hereinafter called claimant) whose claim for benefits under the Plan is denied
shall receive written notice of such denial. The notice shall set forth:
     - 10 -




---



##### 



Right to a Review of the Denial
 Decision of the Committee on Appeal
 - 11 -




---



##### 



ARTICLE VIII: MISCELLANEOUS
 8.1.
    
    The right of a Participant or his or her designated Beneficiary to receive a distribution
hereunder shall be an unsecured claim against the general assets of the Company, and neither
the Participant nor a designated Beneficiary shall have any rights in or against any specific
assets of the Company. Notwithstanding the previous sentence, the Company reserves the right
to establish a grantor trust, the assets of which shall remain subject to claims of creditors
of the Company, to which Company assets may be invested to fund some or all of the liabilities
represented by this Plan. This Plan shall not be construed to require the Company to fund,
prior to payment, any of the Benefits payable under this Plan.
 8.2.
    
    If, in the Companys opinion, a Participant or Beneficiary for any reason is unable to handle
properly any property distributable to him or her under the Plan, then the Company may make
such arrangements which it determines to be beneficial to such Participant or Beneficiary, to
the extent such arrangements have not been made by such Participant or Beneficiary, for the
distribution of such property, including (without limitation) the distribution of such
property to the guardian, conservator, spouse or dependent(s) of such Participant or
Beneficiary.
 8.3.
    
    The right of any Participant, any Beneficiary, or any other person to the payment of any
Benefits under this Plan shall not be assigned, transferred, pledged or encumbered.
 8.4.
    
    This Plan shall be binding upon and inure to the benefit of the Company, its successors and
assigns and the Participant and his or her heirs, executors, administrators and legal
representatives.
 8.5.
    
    Nothing contained herein shall be construed as conferring upon any Participant the right to
continue in the employ or service of the Company as an employee or otherwise.
 8.6.
    
    If the Company, the Participant, any Beneficiary, or a successor in interest to any of the
foregoing, brings legal action to enforce any of the provisions of this Plan, the prevailing
party in such legal action shall be reimbursed by the other party for the prevailing partys
costs of such legal action including, without limitation, reasonable fees of attorneys,
accountants and similar advisors and expert witnesses.
 8.7.
    
    This Plan shall be construed in accordance with and governed by the laws of the State of
Maryland, without reference to the principles of conflicts of law thereof, to the extent such
construction is not pre-empted by any applicable federal law.
 - 12 -




---



##### 



8.8.
    
    This Plan constitutes the entire understanding and agreement with respect to the subject
matter contained herein, and there are no agreements, understandings, restrictions,
representations or warranties among any Participant and the Company other than those set forth
or provided for herein.
 8.9.
    
    (a) This Plan may be amended or terminated by CapitalSource at any time in its sole
discretion by resolution of its Board, the Committee or any other committee to which its Board
has delegated such authority to amend; provided, however, that no amendment
may be made which would alter the irrevocable nature of an election or which would reduce the
amount credited to a Participants Account on the date of such amendment. If the Plan is
terminated, Compensation shall prospectively cease to be deferred as of the date of the
termination. Each Participant will be paid the value of his or her Account at the time and in
the manner provided for in Article V; provided, that if such payment would result in the
imposition of the 20% penalty tax under Section 409A, payment will instead be made in
accordance with Section 5.1 and Section 5.2.
   th
 CAPITALSOURCE INC.By:
    
    /s/ JOSEPH TURITZAs its:
    
    Assistant Secretary
 - 13 -