exv10w40







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.




 









 











     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.