Document:

exv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This Employment Agreement (the “Agreement”) is made between Global Telecom & Technology, Inc.,
a Delaware corporation (the “Company”), and Richard D. Calder, Jr. (the “Executive”), is entered
into as of May 7, 2007 and shall become effective immediately upon approval of this Agreement by
the Compensation Committee of the Company’s Board of Directors (the “Effective Date”).

     1. Employment; Scheduled Term. Subject to the terms and conditions of this Agreement,
Company agrees to employ Executive, and Executive accepts employment and agrees to be employed by
Company during the time period commencing on the Effective Date and ending on the termination of
this Agreement as provided in Section 7 below. The obligations of Executive set forth in the
Executive Assignment of Inventions and Confidentiality Agreement referred to in Section 6 below
shall survive the Scheduled Term and shall survive the termination of Executive’s employment,
regardless of the cause of such termination. Executive hereby represents and warrants to Company
that Executive is free to enter into and fully perform this Agreement and the agreements referred
to herein without breach or violation of any agreement or contract to which Executive is a party or
by which Executive is bound.

     2. Duties. Executive shall serve as President and Chief Executive Officer of Company
with such duties and responsibilities as may from time to time be assigned to Executive by the
Board of Directors of Company (the “Board”), commensurate with and customarily assigned to
Executive’s title and position described in this sentence. The duties and services to be performed
by Executive under this Agreement are collectively referred to herein as the “Services”. Executive
shall report directly to the Executive Chairman and the Board. Executive agrees that to the best
of his ability and experience he shall at all times conscientiously perform all of the duties and
obligations assigned to him under the terms of this Agreement. At Company’s option, it will be
entitled to reasonable use of Executive’s name in promotional, advertising and other materials used
in the ordinary course of its business without additional compensation unless prohibited by law.
Executive shall report to the offices located in McLean, Virginia; provided that
Executive’s duties will include reasonable travel, including but not limited to travel to offices
of Company, its subsidiaries and affiliates and current and prospective customers as is reasonably
necessary and appropriate to the performance of Executive’s duties hereunder. Executive will
comply with and be bound by Company’s operating policies, procedures, and practices from time to
time in effect during Executive’s employment.

     3. Exclusive Service. During the term of employment, Executive will not perform
services for any other entity if such service would be in conflict with the Company’s business
interests. Executive will apply his skill and experience to the performance of his duties and
advancing Company’s interests in accordance with Executive’s experience and skills. Accordingly,
Executive shall not engage in any outside work, business, consulting activity or render any
commercial or professional services, directly or indirectly, for or on behalf of himself or any
other person or organization, whether for compensation or otherwise, if such services would be in
conflict with the Company’s business interests, except with the prior written
approval of Company and Executive shall otherwise do nothing inconsistent with the performance
of Executive’s duties hereunder.

1

 

     4. Non-Competition and Other Covenants.

          4.1 Non-Competition Agreement. Beginning the Effective Date and continuing for so long
thereafter as Executive is employed by Company or a subsidiary or affiliate of Company, and for the
later of: (i) two (2) years from the Effective Date; or (ii) one (1) year following the termination
of Executive’s employment with Company (collectively, the “Restricted Period”), Executive will not,
directly or indirectly, individually or as an employee, partner, officer, director, or shareholder
of five percent (5%) or more of the issued and outstanding stock of (except to the extent permitted
in Section 3 above) or in any other capacity whatsoever of or for any person, firm, partnership,
company or corporation other than Company or its subsidiaries:

               (a) Own, manage, operate, sell, control or participate in the ownership, management,
operation, sales or control of or be connected in any manner with any business engaged, in the
geographical areas referred to in Section 4.2 below, in the design, research, development,
marketing, sale, or licensing of managed data network services that are substantially similar to or
competitive with the business of Company and any of its affiliates; or

               (b) Recruit, attempt to hire, solicit, or assist others in recruiting or hiring, in or with
respect to the geographical areas referred to in Section 4.2 below, any person who is an employee
of Company or any of its subsidiaries or induce or attempt to induce any such employee to terminate
his employment with Company or any of its subsidiaries.

Notwithstanding the foregoing, if Company terminates Executive without Cause, or if Executive
terminates his employment for Good Reason (as each such term is defined herein), the Restricted
Period shall continue for 1 year following the termination of Executive’s employment with Company.

          4.2 Geographical Areas. The geographical areas in which the restrictions provided for
in this Section 4 apply include all cities, counties and states of the United States, and all other
countries in which Company (or any of its subsidiaries) are conducting business or are
contemplating conducting business at the time. Executive acknowledges that the scope and period of
restrictions and the geographical area to which the restrictions imposed in this Section 4 applies
are fair and reasonable and are reasonably required for the protection of Company and that this
Agreement accurately describes the business to which the restrictions are intended to apply.
Executive acknowledges that the covenants set forth in this Section 4 have been granted in
consideration for his employment by the Company.

          4.3 Non-Solicitation of Customers. In addition to, and not in limitation of, the
non-competition covenants of Executive set forth above in this Section 4, Executive agrees with
Company that, for the Restricted Period, Executive will not, either for Executive or for any other
person or entity, directly or indirectly (other than for Company and any of its subsidiaries or
affiliates), solicit business from, or attempt to sell, license or provide the same or similar
products or services as are then provided, or are then contemplated of being provided, by Company
or any subsidiary or affiliate of Company to any customer of Company.

 

 

          4.4 Non-Solicitation of Executives or Consultants. In addition to, and not in
limitation of, the non-competition covenants of Executive set forth above in this Section 4,
Executive agrees with Company that, for the Restricted Period, Executive will not, either for
Executive or for any other person or entity, directly or indirectly, solicit, induce or attempt to
induce any employee, consultant or contractor of Company or any affiliate of Company, to terminate
his or her employment, or his, her or its services, with Company or any subsidiary or affiliate of
Company, or to take employment with another party.

          4.5 Amendment to Retain Enforceability. It is the intent of the parties that the
provisions of this Section 4 will be enforced to the fullest extent permissible under applicable
law. If any particular provision or portion of this Section is adjudicated to be invalid or
unenforceable, this Agreement will be deemed amended to revise that provision or portion to the
minimum extent necessary to render it enforceable. Such amendment will apply only with respect to
the operation of this paragraph in the particular jurisdiction in which such adjudication was made.

          4.6 Injunctive Relief. Executive acknowledges that any breach of the covenants of
this Section 4 will result in immediate and irreparable injury to Company and, accordingly,
consents that the Company shall have the right to seek injunctive relief and such other equitable
remedies for the benefit of Company as may be appropriate in the event such a breach occurs or is
threatened. The foregoing remedies will be in addition to all other legal remedies to which
Company may be entitled hereunder, including, without limitation, monetary damages.

     5. Compensation and Benefits.

          5.1 Salary. During the term of this Agreement, Company shall pay Executive an initial
salary of $250,000 per annum. Executive’s salary shall be payable as earned at Company’s customary
payroll periods in accordance with Company’s customary payroll practices. Executive’s salary shall
be subject to review and adjustment in accordance with Company’s customary practices concerning
salary review for similarly situated employees of Company or its subsidiaries.

          5.2 Benefits. Executive will be eligible to participate in Company’s employee benefit
plans of general application as they may exist from time to time, including without limitation
those plans covering pension and profit sharing, executive bonuses, stock purchases, stock options,
and those plans covering life, health, and dental insurance in accordance with the rules
established for individual participation in any such plan and applicable law. Executive will
receive such other benefits, including vacation (initially accruing at a rate of four (4) weeks per
year), holidays and sick leave, as Company generally provides to its employees holding similar
positions as that of Executive. Executive has received a summary of Company’s standard employee
benefits policies in effect as of the date hereof. The Company reserves the right to change or
otherwise modify, in its sole discretion, the benefits offered herein to conform to the Company’s
general policies as may be changed from time to time during the term of this Agreement.

          5.3 Cash Bonus. Executive will be eligible to earn up to a $250,000 cash bonus during
his first year of employment with Company. Fifty percent (50%) of the bonus will be based upon
Executive’s performance against criteria to be defined by the Board’s
Compensation Committee, and the remaining fifty percent (50%) of the bonus may be awarded at
the sole discretion of the Compensation Committee. Subsequent bonuses, and the criteria applicable
thereto, shall be as determined by the Compensation Committee in its sole discretion.

 

 

          5.4 Equity-Based Grants. Executive will be granted 200,000 shares of restricted stock
of Company effective on the actual first day of his employment (i.e., May 14, 2007) under Company’s
2006 Employee, Director & Consultant Stock Plan (the “Plan”) and subject to the terms of the
Company’s standard restricted stock grant agreement. The first 50,000 shares of restricted stock
in the initial grant shall vest on the first anniversary of the actual first day of his employment.
Thereafter, the remaining 150,000 shares of the initial grant shall vest in equal amounts (i.e.,
12,500 shares) every three (3) months over the following three (3) years. In addition to the
foregoing equity awards, Executive may be eligible to receive additional restricted stock, option,
or other equity-based grants in such amounts, at such times and with such vesting schedules and
other terms as are determined from time to time by the Board.

          5.5 Expenses. Company will reimburse Executive for all reasonable and necessary
expenses incurred by Executive in connection with Company’s business which are in accordance with
Company’s applicable policy and are properly documented and accounted for in accordance with the
requirements of the Internal Revenue Service.

     6. Proprietary Rights. Executive hereby agrees to execute an Executive Invention
Assignment and Confidentiality Agreement with Company in substantially the form attached hereto as
Exhibit A.

     7. Termination.

          7.1 Upon Death. The Executive’s employment hereunder shall terminate automatically
upon the death of the Executive. The Company shall pay to the Executive’s beneficiaries or estate,
as appropriate, the compensation to which he is entitled pursuant to Section 5.1 through the end of
the month in which death occurs.

          7.2 Upon Disability. If, in the opinion of a medical doctor specializing in the
appropriate medical specialty, the Executive is prevented from properly performing his duties
hereunder by reason of any physical or mental incapacity for a period of more than 180 days in the
aggregate in any twelve month period, then, to the extent permitted by law, the Executive’s
employment hereunder shall terminate and Executive shall receive all compensation due him pursuant
to Section 5.1 through the date of termination, as well as the continuation of health benefits for
a period of twelve (12) months after the termination of his employment. Nothing in this Section
7.2 shall affect the Executive’s rights under any Company sponsored disability plan in which he is
a participant.

          7.3 By Company for Cause. Company may terminate the Executive’s employment hereunder
for Cause (as defined below) at any time by giving written notice to the Executive. The Company
shall pay Executive the compensation to which he is entitled pursuant to Section 5.1 through the
end of the day of such termination. For purposes of this Agreement, the Company shall have “Cause”
to terminate the Executive’s employment during the term of this Agreement only if: (i) the
Executive materially breaches any provision of this Agreement after written notice identifying the
substance of the material breach; (ii) Executive fails or refuses

 

 

to comply with any lawful direction or instruction of Company’s Board of Directors, which
failure or refusal is not timely cured (if curable), (iii) the Executive commits an act of fraud,
embezzlement, misappropriation of funds, or dishonesty, (iv) the Executive commits a breach of his
fiduciary duty based on a good faith determination by the Board and after reasonable opportunity to
cure if such breach is curable, (v) the Executive is grossly negligent or engages in willful
misconduct in the performance of his duties hereunder, and fails to remedy such breach within ten
(10) days of receiving written notice thereof from the Board, provided, however, that no act, or
failure to act, by the Executive shall be considered “grossly negligent” or an act of “willful
misconduct” unless committed without good faith and without a reasonable belief that the act or
omission was in or not opposed to the Company’s best interest; (vi) the Executive is convicted of a
felony or a crime of moral turpitude; or (vi) Executive has a drug or alcohol dependency.

          7.4 By Company without Cause; By Executive for Good Reason. The Company may terminate
the Executive’s employment hereunder at any time, without any Cause, and Executive may resign for
Good Reason (as hereinafter defined), without any liability other than to: (i) pay to the Executive
his base salary through the effective date of termination; (ii) pay to the Executive the
continuation of base salary and health benefits for a period of twelve (12) months after the
termination of his employment; and (iii) vest the initial grant of restricted stock granted to
Executive pursuant to Section 5.4 hereof immediately upon the effective date of termination.

          7.5 Definition of Good Reason. For purposes hereof, “Good Reason” shall mean a
termination by the Executive within ninety (90) days following (i) the relocation of the primary
office of the Executive more than ten (10) miles from McLean, Virginia, without the consent of
Executive, (ii) a material change in the Executive’s duties such that he is no longer the Chief
Executive Officer of the Company or its successor; (iii) the assignment to the Executive of duties
that are inconsistent with his position or that materially alter his ability to function as Chief
Executive Officer; or (iv) a reduction in the Executive’s base salary as set forth in Section 5.1
or as periodically revised from time to time thereafter in the course of annual performance reviews
or otherwise.

          7.6 By Executive without Cause. The Executive may terminate his employment hereunder
with thirty (30) days notice at any time.

          7.7 Surrender of Records and Property. Upon termination of his employment with
Company for any reason, the Executive shall deliver promptly to Company all records, manuals,
books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables,
calculations or copies thereof, whether in tangible or electronic format or media, which are the
property of Company or which relate in any way to the business, products, practices or techniques
of Company, and all other property, trade secrets and confidential information of Company,
including, but not limited to, all documents or electronic records which in whole or in part
contain any trade secrets or confidential information of Company, which in any of these cases are
in his possession or under his control.

          7.8 Survival. Notwithstanding any termination of the Executive’s employment
hereunder, and unless specifically provided therein, the Executive shall remain bound by the
provisions of this Agreement which specifically relate to periods, activities or obligations upon
or subsequent to the termination of the Executive’s employment. Further,
Company’s obligation to pay severance upon termination of the Executive’s employment without
cause or by Executive for good reason shall survive termination of this Agreement.

 

 

     8. Miscellaneous.

          8.1 Severability. If any provision of this Agreement shall be found by any arbitrator
or court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive
such provision to the extent that it is found to be invalid or unenforceable and to the extent that
to do so would not deprive one of the parties of the substantial benefit of its bargain. Such
provision shall, to the extent allowable by law and the preceding sentence, be modified by such
arbitrator or court so that it becomes enforceable and, as modified, shall be enforced as any other
provision hereof, all the other provisions continuing in full force and effect.

          8.2 Remedies. Company and Executive acknowledge that the service to be provided by
Executive is of a special, unique, unusual, extraordinary and intellectual character, which gives
it peculiar value the loss of which cannot be reasonably or adequately compensated in damages in an
action at law. Accordingly, Executive and Company hereby consent and agree that for any breach or
violation by Executive of any of the provisions of this Agreement including, without limitation,
Section 3 and 4, a restraining order and/or injunction may be sought against either of the parties,
in addition to any other rights and remedies the parties may have, at law or equity, including
without limitation the recovery of money damages.

          8.3 No Waiver. The failure by either party at any time to require performance or
compliance by the other of any of its obligations or agreements shall in no way affect the right to
require such performance or compliance at any time thereafter. The waiver by either party of a
breach of any provision hereof shall not be taken or held to be a waiver of any preceding or
succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind
shall be effective or binding, unless it is in writing and is signed by the party against whom such
waiver is sought to be enforced.

          8.4 Assignment. This Agreement and all rights hereunder are personal to Executive and
may not be transferred or assigned by Executive at any time. Company may assign its rights,
together with its obligations hereunder, to any subsidiary, affiliate or successor of Company, or
in connection with any sale, transfer or other disposition of all or substantially all the business
and assets of Company or any of their respective subsidiaries or affiliates, whether by sale of
stock, sale of assets, merger, consolidation or otherwise; provided, that any such
assignee assumes Company’s obligations hereunder. This Agreement shall be binding upon, and inure
to the benefit of, the persons or entities who are permitted, by the terms of this Agreement, to be
successors, assigns and personal representatives of the respective parties hereto.

          8.5 Withholding. All sums payable to Executive hereunder shall be reduced by all
federal, state, local and other withholding and similar taxes and payments required by applicable
law to be withheld by Company.

          8.6 Entire Agreement. This Agreement (and the exhibit(s) hereto) constitutes the
entire and only agreement and understanding between the parties relating to employment of Executive
with Company and this Agreement supersedes and cancels any and all
previous contracts, arrangements or understandings with respect to Executive’s employment;
except that the Executive Invention Assignment and Confidentiality Agreement shall
remain as an independent contract and shall remain in full force and effect according to its terms.

 

 

          8.7 Amendment. This Agreement may be amended, modified, superseded, cancelled,
renewed or extended only by an agreement in writing executed by both parties hereto.

          8.8 Notices. All notices and other communications required or permitted under this
Agreement shall be in writing and hand delivered, sent by telecopier, sent by certified first class
mail, postage pre-paid, or sent by nationally recognized express courier service. Such notices and
other communications shall be effective upon receipt if hand delivered or sent by telecopier, five
(5) days after mailing if sent by mail, and one (l) day after dispatch if sent by express courier,
to the following addresses, or such other addresses as any party shall notify the other parties:

	 	 	 	 	 
	 

	 	If to Company:
	 	Global Telecom & Technology, Inc.
	 

	 	 	 	8484 Westpark Drive, Suite720
	 

	 	 	 	McLean, VA 22102
	 

	 	 	 	Attn: Vice President & General Counsel
	 
	 	 	 	 
	 

	 	If to Executive:
	 	To Executive’s home address as
then on file in the Company’s employment records.

          8.9 Binding Nature. This Agreement shall be binding upon, and inure to the benefit
of, the successors and personal representatives of the respective parties hereto.

          8.10 Headings. The headings contained in this Agreement are for reference purposes
only and shall in no way affect the meaning or interpretation of this Agreement. In this
Agreement, the singular includes the plural, the plural included the singular, the masculine gender
includes both male and female referents, and the word “or” is used in the inclusive sense.

          8.11 Counterparts. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original but all of which, taken together, constitute one and the
same agreement.

          8.12 Governing Law. This Agreement and the rights and obligations of the parties
hereto shall be construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflict of laws.

     IN WITNESS WHEREOF, Company and Executive have executed this Agreement as of the date first
above written.

	 	 	 	 	 	 	 	 	 
	“COMPANY”	 	“EMPLOYEE”	 	 
	 
	 	 	 	 	 	 	 	 
	/s/ H. Brian Thompson	 	/s/ Richard D. Calder, Jr.	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	H. Brian Thompson
	 	By:
	 	Richard D. Calder, Jr.
	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	Executive Chairman
 

	 	 	 	 	 	 

 

 

Attachment

Exhibit A: Executive Assignment of Inventions and Confidentiality Agreementexv10w23w1

 

Exhibit 10.23.1

JPMorgan Chase Bank, National Association

P.O. Box 161

60 Victoria Embankment

London EC4Y 0JP

England

April 4, 2007

To: CapitalSource Inc.

4445 Willard Avenue, 12th Floor

Chevy Chase, MD 20815

Attention: Chief Financial Officer

Telephone No.: 301-841-2866

Facsimile No.: 301-841-2307

Re: Call Option Transaction

Reference Number: 2480433

     If a Release Notice (as defined in the Letter Agreement (the “Letter Agreement”) dated as of
February 13, 2007 between JPMorgan Chase Bank, National Association, London Branch (“JPMorgan”),
and CapitalSource Inc. (“Counterparty”)) has been delivered to JPMorgan pursuant to Section 2(a) of
the Letter Agreement, this Confirmation shall become effective and shall, along with the letter
agreement Reference Number 2741570 dated as of the date hereof between JPMorgan and Counterparty,
amend and supersede all prior Confirmations regarding the Transaction (as defined herein),
including, without limitation, the ISDA confirmation dated March 16, 2004 between Counterparty and
JPMorgan (the “Original Confirmation”).

     The purpose of this letter agreement is to confirm the terms and conditions of the Transaction
entered into between JPMorgan and Counterparty on the Trade Date specified below (the
“Transaction”). This letter agreement constitutes a “Confirmation” as referred to in the ISDA
Master Agreement specified below. This Confirmation shall replace any previous letter and serve as
the final documentation for this Transaction.

     The definitions and provisions contained in the 1996 ISDA Equity Derivatives Definitions (the
“Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc.,
are incorporated into this Confirmation. In the event of any inconsistency between the Equity
Definitions and this Confirmation, this Confirmation shall govern. Certain defined terms used
herein have the meanings assigned to them in the Offering Memorandum dated March 16, 2004 (the
“Offering Memorandum”) relating to the USD 225,000,000 principal amount of Senior Convertible
Debentures due March 15, 2034, (the “Convertible Notes” and each USD 1,000 principal amount of
Convertible Notes, a “Convertible Note”) issued by the Counterparty pursuant to an Indenture dated
March 19, 2004 between Counterparty and U.S. Bank National Association, as trustee (the
“Indenture”). In the event of any inconsistency between the terms defined in the Offering
Memorandum and this Confirmation, the Confirmation shall govern.

     Each party is hereby advised, and each such party acknowledges, that the other party has
engaged in, or refrained from engaging in, substantial financial transactions and has taken other
material actions in

JPMorgan Chase Bank, National Association

Organised under the laws of the United States as a National Banking Association.

Main Office 1111 Polaris Parkway, Columbus, Ohio 43271

Registered as a branch in England & Wales branch No. BR000746. Registered

Branch Office 125 London Wall, London EC2Y 5AJ

Authorised and regulated by the Financial Services Authority

 

 

reliance upon the parties’ entry into the Transaction to which this
Confirmation relates on the terms and conditions set forth below.

1. This Confirmation evidences a complete and binding agreement between JPMorgan and the
Counterparty as to the terms of the Transaction to which this Confirmation relates. This
Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the
2002 ISDA Master Agreement (the “Agreement”) as if JPMorgan and the Counterparty had executed an
agreement in such form (but without any Schedule except for the election of the laws of the State
of New York as the governing law and United States dollars as the Termination Currency) on the
Trade Date. In the event of any inconsistency between provisions of that Agreement and this
Confirmation, this Confirmation will prevail for the purpose of the Transaction to which this
Confirmation relates. The parties hereby agree that no Transaction other than the Transaction to
which this Confirmation relates shall be governed by the Agreement.

2. The terms of the particular Transaction to which this Confirmation relates are as follows:

	 	 	 
	General Terms:
	 	 
	 
	 	 
	Trade Date:
	 	March 16, 2004
	 
	 	 
	Option Style:
	 	“Modified American”, as set forth under “Exercise and Valuation” below.
	 
	 	 
	Option Type:
	 	Call
	 
	 	 
	Buyer:
	 	Counterparty
	 
	 	 
	Seller:
	 	JPMorgan
	 
	 	 
	Shares:
	 	The common stock of Counterparty, par value USD 0.01 per Share  (Exchange symbol “CSE”).
	 
	 	 
	Number of Options:
	 	As of any date, a number equal to the  Conversion  Rate (as defined in the Offering  Memorandum,
as adjusted but without  regard to any  provision in the  Indenture  allowing the
Counterparty  to unilaterally  increase the Conversion  Rate,  without the occurrence of a Potential  Adjustment  Event),  multiplied by
47,620 (which is the number of Convertible Notes in  denominations  of USD 1,000 issued by the  Counterparty  and  outstanding,  if any after the Exchange Offer Closing Date (as defined in the Letter  Agreement)).
 For the avoidance  of doubt,  the Number of Options  shall be reduced by (i) any Options  exercised by the  Counterparty  upon an Early  Exercise  (as defined  below)
 and (ii) any Options exercised by the Counterparty in respect of an Exercise Period (as defined below) relating to the Convertible Notes.  In no event shall the Number of
Options be less than zero.
	 
	 	 
	Option Entitlement:
	 	One Share per Option
	 
	 	 
	Strike Price:
	 	USD 30.3996 (which represents the Strike Price as of the Trade Date; the Strike Price has been subsequently adjusted since the Trade Date and is as of April 4, 2007 USD 24.6136)

2

 

	 	 	 
	Premium:
	 	A portion of the USD 49,797,160.37 (which Premium was paid to JPMorgan on the Premium Payment Date pursuant to the terms of the Original Confirmation).
	 
	 	 
	Premium Payment Date:
	 	March 19, 2004
	 
	 	 
	Exchange:
	 	The New York Stock Exchange
	 
	 	 
	Related Exchange(s):
	 	The principal exchange(s) for options contracts or futures contracts, if any, with respect to the Shares.
	 
	 	 
	Exercise and Valuation:
	 	 
	 
	 	 
	Exercise Period:
	 	Notwithstanding  the Equity  Definitions,  the Exercise Period shall be, in respect of the Exercise
Options (as defined below),  each period  commencing from the date a notice of conversion is submitted to the Counterparty by a holder of Convertible  Notes to and including the fifth Exchange  Business Day following the Conversion
Date for such Convertible Notes.
	 
	 	 
	Exercise Options:
	 	The  lesser of (i) the  Number of Options  and (ii) a number of  Options  equal to the  Conversion
Rate (but  without  regard to any  provision  in the  Indenture  allowing  the Counterparty  to  unilaterally  increase the Conversion  Rate,  without the occurrence of a Potential  Adjustment  Event) of Convertible  Notes  surrendered to
Counterparty  for conversion times the number of such Convertible Notes.
	 
	 	 
	Expiration Time:
	 	The Valuation Time
	 
	 	 
	Expiration Date:
	 	In respect of any Exercise  Options,  the earlier of (i) March 15, 2009,  (ii) the final day of
the Exercise  Period in respect of such Exercise  Options,  and (iii) the day the Number of Options is zero.
	 
	Multiple Exercise:
	 	Applicable, as described herein.
	 
	 	 
	Automatic Exercise:
	 	Applicable;  and means that in respect of any  Exercise  Period a number of Options  not  previously
 exercised  hereunder  equal to the  Exercise  Options  shall be deemed to be exercised on the Expiration  Date for the Exercise  Period  relating to such Exercise  Options;  provided that  Counterparty  has notified  JPMorgan
(in writing or orally) of the Conversion Date and the number of such Exercise Options one Exchange Business Day prior to such Expiration Date.
	 
	 	 
	Valuation Time:
	 	At the close of trading of the regular trading session on the Exchange
	 
	 	 
	Early Exercise:
	 	The  Counterparty  may at any time, and from time to time, from the Trade Date to and including  February 14, 2009,  exercise all or any portion of the unexercised

3

 

	 	 	 
	 
	 	Options as set forth in its notice of exercise to JPMorgan.
	 
	 	 
	Settlement Terms:
	 	 
	 
	 	 
	Physical Settlement:
	 	Applicable;  provided that if and to the extent  Counterparty is required to deliver cash in lieu
of fractional Shares (or any fractional Shares) with respect to the settlement of Convertible  Notes, the Calculation  Agent shall adjust the settlement terms hereunder to account for delivery by JPMorgan to Counterparty of such cash or fractional
 Shares in the amount of such required delivery obligation.
	 
	 	 
	Settlement Date:
	 	For any Exercise  Options  relating to the conversion of Convertible  Notes,
the settlement  date for Shares to be delivered under such  Convertible  Notes under the terms of the Indenture.  For any Early Exercise, the Settlement Date shall be third Exchange Business Day following the delivery of a notice of exercise to
JPMorgan.
	 
	 	 
	Failure to Deliver:
	 	Applicable
	 
	 	 
	3. Additional Terms applicable to the Transaction:
	 	 
	 
	 	 
	Adjustments applicable to the Transaction:
	 	 
	 
	 	 
	Potential Adjustment Events:
	 	Notwithstanding  Section 9.1(e) of the Equity  Definitions,  a “Potential  Adjustment  Event”
 means any occurrence of any event or condition,  as set forth in Section 14.06(a) to Section  14.06(g) of the Indenture that would result in an adjustment to the Conversion  Rate of the  Convertible  Notes;  provided that in no event shall there be

any adjustment hereunder as a result of an adjustment to the Conversion Rate pursuant to any provision in the Indenture  allowing the Counterparty to unilaterally  increase
the Conversion Rate, without the occurrence of a Potential Adjustment Event.
	 
	 	 
	Method of Adjustment:
	 	Calculation  Agent  Adjustment,  and means that,  notwithstanding  Section 9.1(c) of the Equity
Definitions,  upon any adjustment to the Conversion Rate of the Convertible  Notes pursuant to the Indenture (other than any provision in
the Indenture allowing the Counterparty to unilaterally increase the Conversion Rate, without the occurrence of a
Potential Adjustment Event), the Calculation Agent will make a corresponding  adjustment to any one or more of the Strike Price,
Number of Options, the Option Entitlement and any other variable relevant to the exercise, settlement or payment for the Transaction.
	 
	 	 
	Extraordinary Events applicable to the Transaction:

4

 

	 	 	 
	Merger Events:
	 	Notwithstanding Section 9.2(a) of the Equity Definitions, a “Merger Event” means the occurrence of any event or condition set forth in Section 14.07 of the Indenture.
	 
	 	 
	Consequence of Merger Events:
	 	Notwithstanding  Section 9.3 of the Equity  Definitions,  upon the occurrence of a Merger Event,
the Calculation  Agent shall make a  corresponding  adjustment in respect of any adjustment under the Indenture to any one or more of the nature of the Shares,  Strike Price,  Number of Options,  the Option  Entitlement and any other variable
relevant
to the exercise, settlement or payment for the Transaction.
	 
	 	 
	Additional Termination Events:
	 	If an event of default with respect to Counterparty  shall occur under the terms of the Convertible
Notes as set forth in Section 6.01 of the Indenture,  then such event shall  constitute an Additional  Termination  Event applicable to this  Transaction  and, with respect to such event (i) Counterparty  shall be deemed to be Affected Party and
JPMorgan shall
 be deemed to be the party that is not the Affected Party and (ii) JPMorgan shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement.
	 
	 	 
	4. Calculation Agent:
	 	JPMorgan,  whose calculations and determinations  shall be made in good faith and in a
commercially  reasonable manner,  including with respect to calculations and determinations  that are made in its sole discretion.

5. Account Details:

	 	(a)	 	Account for payments to Counterparty:

Bank of America, New York

ABA: 026009593

Acct Name: CapitalSource Finance LLC

Acct No.: 003930250176

Account for delivery of Shares to Counterparty:

To be determined in advance of any such delivery.

	 	(b)	 	Account for payments to JPMorgan:

JPMorgan Chase Bank, National Association, New York

ABA: 021 000 021

Favour: JPMorgan Chase Bank, National Association – London

A/C: 0010962009 CHASUS33

Account for delivery of Shares from JPMorgan:

DTC 0060

6. Offices:

5

 

The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is not a Multibranch
Party.

The Office of JPMorgan for the Transaction is: New York

JPMorgan Chase Bank, National Association

London Branch

P.O. Box 161

60 Victoria Embankment

London EC4Y 0JP

England

7. Notices: For purposes of this Confirmation:

	 	(a)	 	Address for notices or communications to Counterparty:

CapitalSource Inc.

4445 Willard Avenue, 12th Floor

Chevy Chase, MD 20815

Attention: Chief Financial Officer

Telephone No.: 301-841-2866

Facsimile No.: 301-841-2307

Address for notices or communications to JPMorgan:

JPMorgan Chase Bank, National Association

277 Park Avenue, 11th Floor

New York, NY 10172

Attention: Eric Stefanik

Title: Operations Analyst

EDG Corporate Marketing

Telephone No: (212) 622-5814

Facsimile No: (212) 622-8534

8. Representations, Warranties of the Counterparty

	 	(a)	 	The Counterparty hereby represents and warrants to JPMorgan that the
Counterparty has been duly incorporated and is an existing corporation in good
standing under the laws of the State of Delaware, with corporate power and authority
to own its properties and conduct its business as set forth or incorporated by
reference in or contemplated by the Counterparty’s Form S-4 Registration Statement
(file number 333-140650) filed February 13, 2007, as the same may be amended (the
“Form S-4”), related to the Exchange Offer (as defined in the Letter Agreement); and
the Counterparty is duly authorized, qualified or registered, as the case may be, to
do business as a foreign corporation in all other jurisdictions in which its ownership
or lease of property or the conduct of its business requires such authorization,
qualification or registration, except where the failure to obtain such authorization,
qualification or registration would not, individually or in the aggregate, have a
material adverse effect on the business, financial condition, management or results of
operations of the Counterparty and its subsidiaries, taken as a whole (“Material
Adverse Effect”).
	 
	 	(b)	 	The Counterparty hereby represents and warrants to JPMorgan that the
Counterparty has all necessary corporate power and authority to execute, deliver and
perform its obligations in respect of this Transaction; such execution, delivery and
performance have been duly authorized by all necessary corporate action on the
Counterparty’s part; and this Confirmation has been duly and validly executed and
delivered by the Counterparty

6

 

	 	 	 	and constitutes its valid and binding obligation, enforceable against the
Counterparty in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors’ rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether enforcement is
sought in a proceeding at law or in equity) and except that rights to
indemnification and contribution thereunder may be limited by federal or state
securities laws or public policy relating thereto.
	 
	 	(c)	 	The Counterparty hereby represents and warrants to JPMorgan that neither the
execution and delivery of this Confirmation nor the incurrence or performance of
obligations of the Counterparty hereunder will conflict with or result in a breach of
the Delaware General Corporation Law, the Counterparty’s Second Amended and Restated
Certificate of Incorporation, as amended from time to time (the “Charter”), or by-laws
(or any equivalent documents) of the Counterparty, or any applicable law or
regulation, or any order, writ, injunction or decree of any court or governmental
authority or agency, or any agreement or instrument to which the Counterparty or any
of its subsidiaries is a party or by which the Counterparty or any of its subsidiaries
is bound or to which the Counterparty or any of its subsidiaries is subject, or
constitute a default under, or result in the creation of any lien under, any such
agreement or instrument, or breach or constitute a default under any agreements and
contracts of the Counterparty and its subsidiaries filed as exhibits to the
Counterparty’s annual, quarterly and current reports filed and other filings made
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are
incorporated by reference in the Form S-4 (such reports and filings, collectively, the
“Incorporated Documents”).
	 
	 	(d)	 	The Counterparty hereby represents and warrants to JPMorgan that no consent,
approval, authorization, or order of, or filing with, any governmental agency or body
or any court is required in connection with the execution, delivery or performance by
the Counterparty of this Confirmation, except such as have been obtained or made and
such as may be required under the Securities Act of 1933 or state securities laws.
	 
	 	(e)	 	The Counterparty hereby represents and warrants to JPMorgan that except as
set forth or incorporated by reference in the Form S-4, there are no pending actions,
suits or proceedings against or affecting the Counterparty, any of its subsidiaries or
any of their respective properties that, if determined adversely to the Counterparty
or any of its subsidiaries, would individually or in the aggregate have, or reasonably
be expected to have, a Material Adverse Effect, or would materially and adversely
affect the ability of the Counterparty to perform its obligations under this
Confirmation; and no such actions, suits or proceedings are, to the Counterparty’s
knowledge, threatened or contemplated.
	 
	 	(f)	 	The Counterparty hereby represents and warrants to JPMorgan that the Form S-4
and the documents incorporated by reference therein do not contain an untrue statement
of a material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not misleading.
	 
	 	(g)	 	The Counterparty hereby represents and warrants to JPMorgan that the
Counterparty is an “eligible contract participant” (as such term is defined in Section
1(a)(12) of the Commodity Exchange Act, as amended).
	 
	 	(h)	 	The Counterparty hereby represents and warrants to JPMorgan that the
Counterparty is not an “investment company” or a company “controlled” by an
“investment company,” in each case within the meaning of the Investment Company Act of
1940, as amended.
	 
	 	(i)	 	Counterparty has all necessary corporate power and authority to execute,
deliver and perform its obligations in respect of the letter agreement (the “Waiver”)
dated as of

7

 

	 	 	 	February 13, 2007 delivered by Counterparty to JPMorgan and entitled “Waiver of
Ownership Limit”; such execution, delivery and performance have been duly
authorized by all necessary corporate action on Counterparty’s part; and the Waiver
has been duly and validly executed and delivered by Counterparty and constitutes
its valid and binding obligation, enforceable against Counterparty in accordance
with its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors’ rights
and remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or in
equity).
	 
	 	(j)	 	Assuming the accuracy of the representations made by JPMorgan in the certain
letter to the Counterparty dated February 13, 2007, neither the execution and delivery
of the Waiver nor the incurrence or performance of obligations of Counterparty
thereunder will conflict with or result in a breach of the Charter or by-laws (or any
equivalent documents) of Counterparty, or any applicable law or regulation, or any
order, writ, injunction or decree of any court or governmental authority or agency, or
any agreement or instrument to which Counterparty or any of its subsidiaries is a
party or by which Counterparty or any of its subsidiaries is bound or to which
Counterparty or any of its subsidiaries is subject, or constitute a default under, or
result in the creation of any lien under, any such agreement or instrument, or breach
or constitute a default under any agreements and contracts of Counterparty or any of
its subsidiaries filed as exhibits to the Incorporated Documents.

9. Other Provisions:

	 	(a)	 	No Reliance, etc. Each party represents that (i) it is entering
into the Transaction evidenced hereby as principal (and not as agent or in any other
capacity); (ii) neither the other party nor any of its agents is acting as a fiduciary
for it; (iii) it is not relying upon any representations except those expressly set
forth in the Agreement or this Confirmation; (iv) it has not relied on the other party
for any legal, regulatory, tax, business, investment, financial, and accounting
advice, and it has made its own investment, hedging, and trading decisions based upon
its own judgment and not upon any view expressed by the other party or any of its
agents; and (v) it is entering into this Transaction with a full understanding of the
terms, conditions and risks thereof and it is capable of and willing to assume those
risks.
	 
	 	(b)	 	Share De-listing Event. If at any time during the period from and
including the Trade Date, to and including March 15, 2009, the Shares cease to be
listed or quoted on the Exchange for any reason (other than a Merger Event as a result
of which the shares of common stock underlying the Options are listed or quoted on The
New York Stock Exchange, The American Stock Exchange, The NASDAQ Global Market or The
NASDAQ Global Select Market (or their respective successors) (the “Successor
Exchange”)) and are not immediately re-listed or quoted as of the date of such
de-listing on the Successor Exchange, then Cancellation and Payment (as defined in
Section 9.6 of the Equity Definitions treating the “Announcement Date” as the date of
first public announcement that the Share De-Listing will occur and the “Merger Date”
as the date of the Share De-Listing) shall apply, and the date of the de-listing shall
be deemed the date of termination for purposes of calculating any payment due from one
party to the other in connection with the cancellation of this Transaction. If the
Shares are immediately re-listed on a Successor Exchange upon their de-listing from
the Exchange, this Transaction shall continue in full force and effect, provided that
the Successor Exchange shall be deemed to be the Exchange for all purposes hereunder.
In addition, the Calculation Agent shall make any adjustments it deems necessary to
the terms of the Transaction in

8

 

	 	 	 	accordance with Calculation Agent Adjustment method as defined under Section 9.1(c)
of the Equity Definitions.
	 
	 	(c)	 	Repurchase Notices. Counterparty shall give JPMorgan written notice
of any repurchase of Shares (a “Repurchase Notice”) at least ten Exchange Business
Days prior to effecting such repurchase if, after giving effect to such repurchase,
the fraction (x) the numerator of which is the sum of (A) the product of (a) the
Number of Options multiplied by (b) the Option Entitlement; plus (B) the product of
(a) the Number of Options for the Call Option Transaction between Counterparty and
JPMorgan relating to the Counterparty’s Senior Subordinated Convertible Debentures due
2034 issued in accordance with the exchange offer pursuant to the Form S-4 (the “Other
Call Option Transaction”) multiplied by (b) the Option Entitlement for the Other Call
Option Transaction; plus (C) the product of (a) the Number of Warrants for the Warrant
Transaction Reference Number 2480428 between Counterparty and JPMorgan (the “Warrant
Transaction”) multiplied by (b) the Warrant Entitlement for the Warrant Transaction
and (y) the denominator of which is the number of Counterparty’s Shares outstanding on
such day (such fraction expressed as a percentage, the “Option Equity Percentage”)
would be greater than 10.14%. Such Repurchase Notice shall set forth the number of
Shares to be outstanding after giving effect to the relevant Share repurchase. In
connection with any delivery of any Repurchase Notice to JPMorgan, Counterparty shall
(x) concurrently with or prior to such delivery, publicly announce and disclose the
relevant repurchase or (y) represent and warrant in such Repurchase Notice that the
information set forth in such Repurchase Notice does not constitute material
non-public information with respect to Counterparty or the Shares.
	 
	 	(d)	 	Conversion Rate Adjustments. Counterparty shall provide to JPMorgan
written notice (such notice, a “Conversion Rate Adjustment Notice”) at least ten
Exchange Business Days prior to consummating or otherwise executing or engaging in any
transaction or event, other than a publicly announced cash dividend payment (a
“Conversion Rate Adjustment Event”), that would lead to an increase in the Conversion
Rate (as such term is defined in the Indenture), other than an increase pursuant to
Section 14.06(a) of the Indenture, which Conversion Rate Adjustment Notice shall set
forth the new, adjusted Conversion Rate after giving effect to such Conversion Rate
Adjustment Event (the “New Conversion Rate”); provided that no such Conversion Rate
Adjustment Notice needs to be provided unless, after giving effect to such Conversion
Rate Adjustment Event, the Option Equity Percentage would be greater than 10.14%. In
connection with the delivery of any Conversion Rate Adjustment Notice to JPMorgan,
Counterparty shall (x) concurrently with or prior to such delivery, publicly announce
and disclose the Conversion Rate Adjustment Event or (y) concurrently with such
delivery, represent and warrant that the information set forth in such Conversion Rate
Adjustment Notice does not constitute material non-public information with respect to
Counterparty or the Shares.
	 
	 	(e)	 	Regulation M. The Counterparty was not on the Trade Date engaged in
a distribution, as such term is used in Regulation M under the Exchange Act, of any
securities of Counterparty, other than a distribution meeting the requirements of the
exception set forth in sections 101(b)(10) and 102(b)(7) of Regulation M. The
Counterparty shall not, until the fifth Exchange Business Day immediately following
the Trade Date, engage in any such distribution.
	 
	 	(f)	 	No Manipulation. The Counterparty is not entering into this
Transaction for the purpose of (i) creating actual or apparent trading activity in the
Shares (or any security convertible into or exchangeable for the Shares) or (ii)
raising or depressing or otherwise manipulating the price of the Shares (or any
security convertible into or exchangeable for the Shares), in either case in violation
of Section 9 of the Exchange Act.

9

 

	 	(g)	 	Board Authorization. Each of this Transaction and the issuance of
the Convertible Notes was approved by its board of directors and publicly announced,
solely for the purposes stated in such board resolution and public disclosure and,
prior to any exercise of Options hereunder, Counterparty’s board of directors will
have duly authorized any repurchase of Shares pursuant to this Transaction.
Counterparty further represents that there is no internal policy, whether written or
oral, of Counterparty that would prohibit Counterparty from entering into any aspect
of this Transaction, including, but not limited to, the purchases of Shares to be made
pursuant hereto.
	 
	 	(h)	 	Transfer or Assignment. Neither party may transfer any of its rights
or obligations under this Transaction without the prior written consent of the
non-transferring party; provided that if, as determined at JPMorgan’s sole discretion,
(i) its “beneficial ownership” (within the meaning of Section 13 of the Exchange Act
and rules promulgated thereunder) exceeds 8.0% of Counterparty’s outstanding Shares,
(ii) the Option Equity Percentage exceeds 10.14% or (iii) J.P. Morgan Chase & Co’s
(“Bank”) Beneficial Ownership (as such term is defined in the Charter) of Shares (as
such term is defined in the Charter) exceeds 18% JPMorgan may transfer or assign a
number of Options sufficient to reduce (i) such “beneficial ownership” to 8.0% or
less, (ii) the Option Equity Percentage to 10.14% or less or (iii) the Bank’s
Beneficial Ownership (as such term is defined in the Charter) of Shares (as such term
is defined in the Charter) to 18% or less to any third party with a rating for its
long term, unsecured and unsubordinated indebtedness of A+ or better by Standard and
Poor’s Rating Group, Inc. or its successor (“S&P”), or A1 or better by Moody’s
Investor Service, Inc. (“Moody’s”) or, if either S&P or Moody’s ceases to rate such
debt, at least an equivalent rating or better by a substitute agency rating mutually
agreed by Counterparty and JPMorgan. If after JPMorgan’s commercially reasonable
efforts, JPMorgan is unable to effect such a transfer or assignment on pricing terms
reasonably acceptable to JPMorgan and within a time period reasonably acceptable to
JPMorgan of a sufficient number of Options to reduce (i) JPMorgan’s “beneficial
ownership” (within the meaning of Section 13 of the Exchange Act and rules promulgated
thereunder) to 8.0% of Counterparty’s outstanding Shares or less, (ii) the Option
Equity Percentage to 10.14% or less or (iii) Bank’s Beneficial Ownership (as such term
is defined in the Charter) of Shares (as such term is defined in the Charter) to 18%
or less, JPMorgan may designate any Exchange Business Day as an Early Termination Date
with respect to a portion (the “Terminated Portion”) of this Transaction, such that
(i) its “beneficial ownership” following such partial termination will be equal to or
less than 8.0%, (ii) the Option Equity Percentage following such partial termination
will be equal to or less than 10.14% or (iii) Bank’s Beneficial Ownership (as such
term is defined in the Charter) of Shares (as such term is defined in the Charter)
following such partial termination will be equal to or less than 18%. Solely for
purposes of this subsection, following receipt of any Repurchase Notice or Conversion
Rate Adjustment Notice, (i) JPMorgan’s “beneficial ownership” (within the meaning of
Section 13 of the Exchange Act and rules promulgated thereunder) with respect to
Shares, (ii) the Options Equity Percentage and (iii) Bank’s Beneficial Ownership (as
such term is defined in the Charter) with respect to the Shares (as such term is
defined in the Charter), as the case may be, shall incorporate the deemed effect of
the relevant Share repurchase (in the case of a Repurchase Notice) or New Conversion
Rate (in the case of a Conversion Rate Adjustment Notice). In the event that JPMorgan
so designates an Early Termination Date with respect to a portion of this Transaction,
a payment shall be made pursuant to Section 6 of the Agreement as if (i) an Early
Termination Date had been designated in respect of a Transaction having terms
identical to this Transaction and a Number of Options equal to the Terminated Portion,
(ii) Counterparty shall be the sole Affected Party with respect to such partial
termination and (iii) such Transaction shall be the only Terminated Transaction (and,
for the avoidance of doubt, the provisions of Section 9(n) shall apply to any amount
that is payable by JPMorgan to Counterparty pursuant to this sentence as if
Counterparty was not the Affected Party).

10

 

	 	 	 	Notwithstanding any other provision in this Confirmation to the contrary requiring
or allowing JPMorgan to purchase, sell, receive or deliver any shares or other
securities to or from Counterparty, JPMorgan may designate any of its affiliates to
purchase, sell, receive or deliver such shares or other securities and otherwise to
perform JPMorgan’s obligations in respect of this Transaction and any such designee
may assume such obligations. JPMorgan shall be discharged of its obligations to
Counterparty to the extent of any such performance.
	 
	 	(i)	 	Amendment. Paragraph (i) of Section 9.7(b) of the Equity Definitions
is hereby amended for purposes of this Transaction by replacing “two-year” with “90
calendar day”.
	 
	 	(j)	 	Damages. Neither party shall be liable under Section 6.10 of the
Equity Definitions for special, indirect or consequential damages, even if informed of
the possibility thereof.
	 
	 	(k)	 	Role of Agent. Each party agrees and acknowledges that (i) J.P.
Morgan Securities Inc., an affiliate of JPMorgan (“JPMSI”), has acted solely as agent
and not as principal with respect to this Transaction and (ii) JPMSI has no obligation
or liability, by way of guaranty, endorsement or otherwise, in any manner in respect
of this Transaction (including, if applicable, in respect of the settlement thereof).
Each party agrees it will look solely to the other party (or any guarantor in respect
thereof) for performance of such other party’s obligations under this Transaction.
	 
	 	(l)	 	Additional Provisions.
	 
	 		 	(i) Section 9.6(a)(ii) of the Equity Definitions is hereby amended by (1) deleting
from the third line thereof the word “or” after the word “official” and inserting a
comma therefor, and (2) deleting the period at the end of subsection (ii) thereof
and inserting the following words therefor “ or (C) at JPMorgan’s option, the
occurrence of any of the events specified in Section 5(a)(vii) (1) through (9) of
the ISDA Master Agreement with respect to that Issuer.”
	 
	 		 	(ii) Notwithstanding Section 9.7 of the Equity Definitions, everything in the first
paragraph of Section 9.7(b) of the Equity Definitions after the words “Calculation
Agent” in the third line through the remainder of such Section 9.7 shall be deleted
and replaced with the following:
	 
	 	 	 	“and based on an amount representing the Calculation Agent’s commercially
reasonable, good faith determination of the fair value to Buyer of an option with
terms that would preserve for Buyer the economic equivalent of any payment or
delivery (assuming satisfaction of each applicable condition precedent) by the
parties in respect of the relevant Transaction that would have been required after
that date but for the occurrence of the Nationalization or De-Listing Event, as the
case may be.”
	 
	 	(m)	 	No Collateral or Setoff. Notwithstanding any provision of the
Agreement or any other agreement between the parties to the contrary, the obligations
of Counterparty hereunder are not secured by any collateral. Obligations under this
Transaction shall not be set off against any other obligations of the parties, whether
arising under the Agreement, this Confirmation, under any other agreement between the
parties hereto, by operation of law or otherwise, and no other obligations of the
parties shall be set off against obligations under this Transaction, whether arising
under the Agreement, this Confirmation, under any other agreement between the parties
hereto, by operation of law or otherwise, and each party hereby waives any such right
of setoff. In calculating any amounts under Section 6(e) of the Agreement,
notwithstanding anything to the contrary in the Agreement, (1) separate amounts shall
be calculated as set forth in such Section 6(e) with respect to (i) this Transaction
and (ii) all other Transactions, and (2) such separate amounts shall be payable
pursuant to Section 6(d)(ii) of the Agreement.

11

 

	 	(n)	 	Alternative Calculations and Payment on Early Termination and on Certain
Extraordinary Events. If in respect of this Transaction, an amount is payable by
JPMorgan to Counterparty (i) pursuant to Section 9.7 of the Equity Definitions or (ii)
pursuant to Section 6(d)(ii) of the Agreement (a “Payment Obligation”), JPMorgan may,
in its sole discretion, satisfy any such Payment Obligation by the Share Termination
Alternative (as defined below) by giving irrevocable telephonic notice to
Counterparty, confirmed in writing within one Currency Business Day, between the hours
of 9:00 a.m. and 4:00 p.m. New York local time on the Merger Date or Early Termination
Date, as applicable (“Notice of Share Termination”). Upon Notice of Share Termination
no later than 8:00 a.m. on the Exchange Business Day immediately following the Merger
Date or Early Termination Date, as applicable, the following provisions shall apply:

	 	 	 	 	 
	 

	 	Share Termination Alternative:
	 	Applicable and means that JPMorgan
shall deliver to Counterparty the Share Termination Delivery Property on the
date when the Payment Obligation would otherwise be due pursuant to Section
9.7 of the Equity Definitions or Section 6(d)(ii) of the Agreement, as
applicable (the “Share Termination Payment Date”), in satisfaction of the
Payment Obligation in the manner reasonably requested by Counterparty free of
payment.
	 
	 	 	 	 
	 

	 	Share Termination Delivery Property:
	 	A number of Share Termination
Delivery Units, as calculated by the Calculation Agent, equal to the Payment
Obligation divided by the Share Termination Unit Price. The Calculation Agent
shall adjust the Share Termination Delivery Property by replacing any
fractional portion of a security therein with an amount of cash equal to the
value of such fractional security based on the values used to calculate the
Share Termination Unit Price.
	 
	 	 	 	 
	 

	 	Share Termination Unit Price:
	 	The value to JPMorgan of property
contained in one Share Termination Delivery Unit on the date such Share
Termination Delivery Units are to be delivered as Share Termination Delivery
Property, as determined by the Calculation Agent in its discretion by
commercially reasonable means and notified by the Calculation Agent to
JPMorgan at the time of notification of the Payment Obligation.
	 
	 	 	 	 
	 

	 	Share Termination Delivery Unit:
	 	One Share or, if a Merger Event
has occurred and a corresponding adjustment to this Transaction has been made,
a unit consisting of the number or amount of each type of property received by
a holder of one Share (without consideration of any requirement to pay cash or
other consideration in lieu of fractional amounts

12

 

	 	 	 	 	 
	 

	 	 	 	of any securities) in such Merger Event,
as determined by the Calculation Agent.
	 
	 	 	 	 
	 

	 	Other applicable provisions:
	 	If this Transaction is to be Share
Termination Settled, the provisions of Sections 6.6, 6.7, 6.8, 6.9 and 6.10
(as modified above) of the Equity Definitions will be applicable, except that
all references in such provisions to “Physically-Settled” shall be read as
references to “Share Termination Settled” and all references to “Shares” shall
be read as references to “Share Termination Delivery Units”. “Share
Termination Settled” in relation to this Transaction means that Share
Termination Settlement is applicable to this Transaction.

	 	(o)	 	Indemnification. Counterparty agrees to indemnify and hold harmless
JPMorgan and its affiliates and their respective officers, directors, employees,
affiliates, advisors, agents and controlling persons (each, an “Indemnified Person”)
from and against any and all losses (including, without limitation, losses relating to
JPMorgan’s hedging or trading activities, losses relating to JPMorgan’s hedging
activities as a consequence of becoming, or of the risk of becoming, a Section 16
“insider,” any losses resulting from the operation of any ownership limitations
contained in the Charter and any losses in connection therewith with respect to this
Transaction), claims, damages, judgments, liabilities and expenses (including
reasonable attorney’s fees), joint or several, which an Indemnified Person may become
subject to, as a result of (i) Counterparty’s failure to publicly announce and
disclose the contents of any Repurchase Notice or Conversion Rate Adjustment Notice,
as the case may be, or (ii) Counterparty’s failure to provide JPMorgan with a
Repurchase Notice on the day and in the manner specified in Section 9(c); and to
reimburse, within 30 days, upon written request, each of such Indemnified Persons for
any reasonable legal or other expenses incurred in connection with investigating,
preparing for, providing testimony or other evidence in connection with or defending
any of the foregoing. If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against the
Indemnified Person as a result of Counterparty’s failure to publicly announce and
disclose the contents of any Repurchase Notice or Conversion Rate Adjustment Notice,
as the case may be, such Indemnified Person shall promptly notify Counterparty in
writing, and Counterparty, upon request of the Indemnified Person, shall retain
counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified
Person and any others Counterparty may designate in such proceeding and shall pay the
fees and expenses of such counsel related to such proceeding. Counterparty shall not
be liable for any settlement of any proceeding contemplated by this subsection that is
effected without its written consent, but if settled with such consent or if there be
a final judgment for the plaintiff, Counterparty agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Counterparty shall not, without the prior written consent of the
Indemnified Person, effect any settlement of any pending or threatened proceeding
contemplated by this subsection that is in respect of which any Indemnified Person is
or could have been a party and indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement includes an unconditional release of such
Indemnified Person from all liability on claims that are the subject matter of such
proceeding on terms reasonably satisfactory to such Indemnified Person. If the
indemnification provided for in this subsection is unavailable to an Indemnified
Person or insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then Counterparty hereunder, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by such
Indemnified Person as a result of

13

 

	 	 	 	such losses, claims, damages or liabilities. The remedies provided for in this
subsection are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any Indemnified Party at law or in equity. The indemnity
and contribution agreements contained in this subsection shall remain operative and
in full force and effect regardless of the termination of this Transaction.
	 
	 	(p)	 	Tax Disclosure. Effective from the date of commencement of
discussions concerning the Transaction, Counterparty and each of its employees,
representatives, or other agents may disclose to any and all persons, without
limitation of any kind, the tax treatment and tax structure of the Transaction and all
materials of any kind (including opinions or other tax analyses) that are provided to
Counterparty relating to such tax treatment and tax structure.
	 
	 	(q)	 	Right to Extend. JPMorgan may delay any Settlement Date or any other
date of delivery by JPMorgan, with respect to some or all of the Options hereunder, if
JPMorgan reasonably determines, in its discretion, that such extension is reasonably
necessary to enable JPMorgan to effect purchases of Shares in connection with its
hedging activity or settlement activity hereunder in a manner that would, if JPMorgan
were Counterparty or an affiliated purchaser of Counterparty, be in compliance with
applicable legal and regulatory requirements.
	 
	 	(r)	 	Securities Contract; Swap Agreement. The parties hereto intend for:
(a) the Transaction to be a “securities contract” and a “swap agreement” as defined in
the Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”), and
the parties hereto to be entitled to the protections afforded by, among other
Sections, Sections 362(b)(6), 362(b)(17), 546(e), 546(g), 555 and 560 of the
Bankruptcy Code; (b) a party’s right to liquidate the Transaction and to exercise any
other remedies upon the occurrence of any Event of Default under the Agreement with
respect to the other party to constitute a “contractual right” as described in the
Bankruptcy Code; and (c) each payment and delivery of cash, securities or other
property hereunder to constitute a “margin payment” or “settlement payment” and a
“transfer” as defined in the Bankruptcy Code.
	 
	 	(s)	 	Waiver of Jury Trial. Each party waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in respect of
any suit, action or proceeding relating to this Transaction. Each party (i) certifies
that no representative, agent or attorney of the other party has represented,
expressly or otherwise, that such other party would not, in the event of such a suit,
action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that
it and the other party have been induced to enter into this Transaction, as
applicable, by, among other things, the mutual waivers and certifications provided
herein.

14

 

     Please confirm that the foregoing correctly sets forth the terms of our agreement by executing
this Confirmation and returning it to EDG Confirmation Group, J.P. Morgan Securities Inc., 277 Park
Avenue, 11th Floor, New York, NY 10172-3401, or by fax to (212) 622 8519.

Very truly yours,

	 	 	 	 	 	 	 
	 	 	J.P. Morgan Securities Inc., as agent for	 	 
	 	 	JPMorgan Chase Bank, National Association	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 /s/ JEFF ZAJKOWSKI	 	 
	 

	 	 	 	 

	 	 
	 	 	Authorized Signatory	 	 
	 	 	Name: Jeff Zajkowski	 	 

	 	 	 	 	 
	Accepted and confirmed	 	 
	as of the Trade Date:	 	 
	 
	 	 	 	 
	CapitalSource Inc.	 	 
	 
	 	 	 	 
	By:
	 	/s/ JEFFREY LIPSON	 	 
	 

	 	 

	 	 
	Authorized Signatory	 	 
	Name: Jeffrey Lipson

            Vice
President & Treasurer	 	 

JPMorgan Chase Bank, National Association

Organised under the laws of the United States as a National Banking Association.

Main Office 1111 Polaris Parkway, Columbus, Ohio 43271

Registered as a branch in England & Wales branch No. BR000746. Registered

Branch Office 125 London Wall, London EC2Y 5AJ

Authorised and regulated by the Financial Services Authority

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