Document:

exv10w23w1

 

EXHIBIT 10.23.1

JPMorgan Chase Bank

P.O. Box 161

60 Victoria Embankment

London EC4Y 0JP

England

March 16, 2004

To: CapitalSource Inc.

4445 Willard Avenue, 12th Floor

Chevy Chase, MD 20815

Attention: Chief Financial Officer

Telephone No.: 301-841-2866

Facsimile No.: 301-841-2375

Re: Call Option Transaction

Reference:

     The purpose of this letter agreement is to confirm the terms and
conditions of the Transaction entered into between JPMorgan Chase Bank, London
Branch (“JPMorgan”) and CapitalSource Inc. (“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”) issued by the Counterparty pursuant to an
Indenture to be 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 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.

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

 

 

	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, 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 the number of Convertible Notes in
denominations of USD 1,000 principal amount issued by the
Counterparty (each such USD 1,000 principal amount, a “Convertible
Note”). 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
	 
	 	 	 	 
	

	 	Premium:
	 	USD 49,797,160.37
	 
	 	 	 	 
	

	 	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

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

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	 	 	 	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 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.

 A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

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	 	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:	 	 
	 
	 	 	 	 
	

	 	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

 A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

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	 	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, New York

ABA: 021 000 021

Favour: JPMorgan Chase Bank – London

A/C: 0010962009 CHASUS33

	 	 	Account for delivery of Shares from JPMorgan:

	 	 	DTC 060

	6.	 	Offices:

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

	 	 	JP Morgan Chase Bank

London Branch

P.O. Box 161

60 Victoria Embankment

London EC4Y 0JP

England

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

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	7.	 	Notices: For purposes of this Confirmation:

	(a)	 	Address for notices or communications to Counterparty:

	 	 	CapitalSource Inc.

4445 Willard Avenue

Chevy Chase, MD 20815

Attention: Chief Financial Officer

Telephone No.: 301-841-2866

Facsimile No.: 301-841-2375
	 
	 	 	Address for notices or communications to JPMorgan:
	 
	 	 	JPMorgan Chase Bank

	 	 	277 Park Avenue, 11th Floor

New York, NY 10172

Attention: Kevin J. Moran

EDG Corporate Marketing

Telephone No.: (212) 622-6707

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 Offering Memorandum; 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 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.

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

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	(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 certificate of incorporation 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 the significant subsidiaries filed as exhibits to
the Counterparty’s Annual Report on Form 10-K for the year ended
December 31, 2003, incorporated by reference in the Offering
Memorandum.
	 
	(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
Offering Memorandum, 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 Company’s knowledge, threatened or
contemplated.
	 
	(f)	 	The Counterparty hereby represents and warrants to JPMorgan
that the Offering Memorandum and the documents incorporated by
reference therein do not, as of the Trade Date, 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)	 	The Counterparty shall deliver an opinion of counsel, dated
as of the Trade Date, to JPMorgan with respect to the matters set
forth in clauses (a) to (d) and (h) of this Section 8.
	 
	(j)	 	If the Initial Purchasers party to the Purchase Agreement
among the Counterparty and J.P. Morgan Securities Inc., as
representative of the Initial Purchasers, dated as of March 16,
2004, relating to the purchase of the Convertible Notes exercises
their right to receive additional Convertible Notes pursuant to the
Initial Purchasers’ option to purchase additional Convertible Notes,
then, at the discretion of the Counterparty, JPMorgan and the
Counterparty will either enter into a new confirmation or amend this
Confirmation to

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

7

 

	 	 	provide for such increase in Convertible Notes (but on pricing
terms acceptable to JPMorgan and the Counterparty) (such
additional confirmation or amendment to this Confirmation to
provide for the payment by the Counterparty to JPMorgan of the
additional premium related thereto).

	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 or the NASDAQ
National Market System (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 accordance with
Calculation Agent Adjustment method as defined under Section 9.1(c)
of the Equity Definitions.
	 
	(c)	 	Repurchase Notices. Counterparty shall, on any day on which
Counterparty effects any repurchase of Shares, promptly give
JPMorgan a written notice of such repurchase (a “Repurchase Notice”)
on such day if following such repurchase, the Options Equity
Percentage as determined on such day is (i) equal to or greater than
8.0% and (ii) greater by 0.5% than the Options Equity Percentage
included in the immediately preceding Repurchase Notice (or, in the
case of the first such Repurchase Notice, greater than the Options
Equity Percentage as of the date hereof). The “Options Equity
Percentage” as of any day is the fraction (A) the numerator of which
is the product of the Number of Options and the Option Entitlement
and (B) the denominator of which is the number of Shares outstanding
on such day. Counterparty agrees to indemnify and hold harmless
JPMorgan and its affiliates and their respective officers, directors
and controlling persons (each, an “Indemnified Person”) from and
against any and all losses (including losses relating to JPMorgan’s
hedging activities as a consequence of becoming, or of the risk of
becoming, a Section 16 “insider”, including without limitation, any
forbearance from hedging activities or cessation of hedging
activities and any losses in connection

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

8

 

	 	 	therewith with respect to this Transaction), claims, damages,
judgments, liabilities and expenses (including reasonable
attorney’s fees), joint or several, to which an Indemnified Person
may become subject, as a result of Counterparty’s failure to
provide JPMorgan with a Repurchase Notice on the day and in the
manner specified in this Section 9(c), and to reimburse, 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, such Indemnified Person
shall promptly notify the Counterparty in writing, and the
Counterparty, upon request of the Indemnified Person, shall retain
counsel reasonably satisfactory to the Indemnified Person to
represent the Indemnified Person and any others the Counterparty
may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. Counterparty
shall be relieved from liability to the extent that the
Indemnified Person fails to promptly notify Counterparty of any
action commenced against it in respect of which indemnity may be
sought hereunder; provided, that failure to notify Counterparty
(i) shall not relieve Counterparty from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and
(ii) shall not, in any event, relieve Counterparty from any
liability which it may have otherwise than on account of this
indemnity agreement. Counterparty shall not be liable for any
settlement of any proceeding 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 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 paragraph (c) is
unavailable to an Indemnified Person or insufficient in respect of
any losses, claims, damages or liabilities referred to therein,
then Counterparty, in lieu of indemnifying such Indemnified Person
thereunder, shall contribute to the amount paid or payable by such
Indemnified Person as a result of such losses, claims, damages or
liabilities. The remedies provided for in this paragraph (c) are
not exclusive and shall not limit any rights or remedies that may
otherwise be available to any Indemnified Party at law or in
equity. The indemnity and contribution agreements contained in
this paragraph (c) shall remain operative and in full force and
effect regardless of the termination of this Transaction.
	 
	(d)	 	Regulation M. The Counterparty was not on the Trade Date and
is not on the date hereof engaged in a distribution, as such term is
used in Regulation M under the Securities Exchange Act of 1934, as
amended (“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.
	 
	(e)	 	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.

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

9

 

	(f)	 	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.
	 
	(g)	 	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, its “beneficial ownership”
(within the meaning of Section 16 of the Exchange Act and rules
promulgated thereunder) exceeds 8.0% of Counterparty’s outstanding
Shares, JPMorgan may transfer or assign a number of Options
sufficient to reduce such “beneficial ownership” to 8.0% 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. 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.
	 
	(h)	 	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”.
	 
	(i)	 	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.
	 
	(j)	 	Early Unwind. In the event the sale of Convertible Notes is
not consummated with the initial purchasers for any reason (other
than as a result of a breach by the initial purchasers) by the close
of business in New York on March 19, 2004 (or such later date as
agreed upon by the parties) (March 19, 2004 or such later date as
agreed upon being the “Early Unwind Date”), this Transaction shall
automatically terminate (the “Early Unwind”), on the Early Unwind
Date and (i) the Transaction and all of the respective rights and
obligations of JPMorgan and Counterparty under the Transaction shall
be cancelled and terminated and (ii) each party shall be released
and discharged by the other party from and agrees not to make any
claim against the other party with respect to any obligations or
liabilities of the other party arising out of and to be performed in
connection with the Transaction either prior to or after the Early
Unwind Date; provided that Counterparty shall purchase from JPMorgan
on the Early Unwind Date all Shares purchased by JPMorgan or one or
more of its affiliates and assume, or reimburse the cost of,
derivatives entered into by JPMorgan or one or more of its
affiliates in connection with hedging this Transaction. The
purchase price paid by the Counterparty shall be JPMorgan’s actual
cost of such Shares and derivatives as JPMorgan informs Counterparty
and shall be paid in immediately available funds on the Early Unwind
Date. JPMorgan and Counterparty represent and acknowledge to the
other that, subject to the proviso included in the preceding
sentence, upon an Early Unwind, all obligations with respect to the
Transaction shall be deemed fully and finally discharged.

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

10

 

	(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.
	 
	(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

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

11

 

	 	 	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 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

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

12

 

	 	 	 	 	 
	

	 	 	 	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)	 	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.

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

13

 

     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 on 212 622 8519.

Very truly yours,

	 	 	 	 	 
	 	J.P. Morgan Securities Inc., as

agent for JPMorgan Chase Bank

 	 
	 	By:  	/s/ STEPHEN L. ROTI
 	 
	 	Authorized Signatory 	 
	 	Name: Stephen L. Roti 	 
	 

	 	 	 	 	 	 	 	 	 
	 	 	Accepted and confirmed
	 	 	as of the Trade Date:
	

	 	 	 	 
	 	 	CapitalSource Inc.
	

	 	 	 	 
	

	 	By:
	 	/s/ THOMAS A. FINK
	

	 	 	 	
 
	

	 	Authorized Signatory
	

	 	Name: Thomas A. Fink

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.exv10w23w2

 

Exhibit 10.23.2

	 	 	 
	JPMorgan Chase Bank
	 	 
	P.O. Box 161
	 	 
	60 Victoria Embankment
	 	 
	London EC4Y 0JP
	 	 
	England
	 	 
	

	 	March 16, 2004
	To: CapitalSource Inc.
	 	 
	4445 Willard Avenue, 12th Floor
	 	 
	Chevy Chase, MD 20815
	 	 
	Attention: Chief Financial Officer
	 	 
	Telephone No.:  301-841-2866
	 	 
	Facsimile No.:     301-841-2375
	 	 

Re: Warrants

Reference:

     The purpose of this letter agreement is to confirm the terms and
conditions of the Warrants issued by CapitalSource Inc. (the “Company”) to
JPMorgan Chase Bank, London Branch (“JPMorgan”) 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. This
Transaction shall be deemed to be a Share Option Transaction within the meaning
set forth in the Equity Definitions.

     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 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 Company 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 Company 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

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

 

 

	 	 	 	 	 
	

	 	Warrants:
	 	Equity call warrants to be issued by the Company to JPMorgan,
each giving the holder the right to purchase one Share at the Strike
Price, subject to the Settlement Terms set forth below. For the
purposes of Equity Definitions, each reference to a Warrant shall be
deemed to be a reference to a Call Option.
	 
	 	 	 	 
	

	 	Warrant Style:
	 	American
	 
	 	 	 	 
	

	 	Buyer:
	 	JPMorgan
	 
	 	 	 	 
	

	 	Seller:
	 	Company
	 
	 	 	 	 
	

	 	Shares:
	 	The common stock of Company, par value USD 0.01 per Share
(Exchange symbol “CSE”)
	 
	 	 	 	 
	

	 	Number of Warrants:
	 	7,401,420
	 
	 	 	 	 
	

	 	Warrant Entitlement:
	 	One Share per Warrant
	 
	 	 	 	 
	

	 	Multiple Exercise:
	 	Applicable
	 
	 	 	 	 
	

	 	Minimum Number
of Warrants:
	 	1
	 
	 	 	 	 
	

	 	Maximum Number of
Warrants:
	 	7,401,420
	 
	 	 	 	 
	

	 	Strike Price:
	 	USD 40.3025
	 
	 	 	 	 
	

	 	Premium:
	 	USD 24,220,377.30
	 
	 	 	 	 
	

	 	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:	 	 
	 
	 	 	 	 
	

	 	Expiration Time:
	 	The Valuation Time
	 
	 	 	 	 
	

	 	Expiration Date:
	 	For any Daily Number of Warrants, each date specified as
such in Annex A hereto.
	 
	 	 	 	 
	

	 	Automatic Exercise:
	 	Applicable; and means that, a number of unexercised
Warrants for each Expiration Date equal to the Daily Number of
Warrants (as adjusted pursuant to the terms hereof) for such
Expiration Date will be deemed to be automatically exercised.
	 
	 	 	 	 
	Valuation applicable
to each Warrant:	 	 
	 
	 	 	 	 
	

	 	Valuation Time:
	 	At the close of trading of the regular trading session on
the Exchange; provided that if the principal trading session is

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

2

 

	 	 	 	 	 
	

	 	 	 	extended, the Calculation Agent shall
determine the Valuation Time in its sole
discretion.
	 
	 	 	 	 
	

	 	Valuation Date:
	 	Each Exercise Date. Notwithstanding anything to the
contrary in the Equity Definitions, if there is a Market Disruption
Event on any Valuation Date, then the Calculation Agent shall
determine the Settlement Price for such Valuation Date, as the case
may be, on the basis of its good faith estimate of the trading value
for the relevant Shares.
	 
	 	 	 	 
	Settlement Terms
applicable to the
Transaction:	 	 
	 
	 	 	 	 
	Method of Settlement:	 	Net Share Settlement; and means that, on each Settlement
Date, Company shall deliver to JPMorgan, the Share Delivery Quantity of
Shares for such Settlement Date to the account specified hereto free of
payment through the Clearance System.
	 
	 	 	 	 
	Share Delivery Quantity:	 	For any Settlement Date, a number of Shares, as
calculated by the Calculation Agent, equal to the Net Share Settlement
Amount for such Settlement Date divided by the Settlement Price on the
Valuation Date in respect of such Settlement Date, plus cash in lieu of
any fractional shares (based on such Settlement Price).
	 
	 	 	 	 
	Net Share Settlement Amount:	 	For any Settlement Date, any amount equal to (i)
the Number of Warrants being exercised on the relevant Exercise Date (or
in the case of any exercise (including any Automatic Exercise) on an
Expiration Date, the Daily Number of Warrants for such Expiration Date)
multiplied by (ii) the Strike Price Differential for such Settlement Date.
For avoidance of doubt, if any Warrants are exercised prior to the first
Expiration Date, the Calculation Agent will proportionately adjust each
Daily Number of Warrants to reflect such exercise.
	 
	 	 	 	 
	Strike Price Differential:	 	(a) If the Settlement Price for any Valuation Date
is greater than the Strike Price, an amount equal to the excess of such
Settlement Price over the Strike Price; or
	 
	 	 	 	 
	

	 	 	 	(b) If such Settlement Price is less than or
equal to the Strike Price, zero.
	 
	 	 	 	 
	Settlement Price:	 	For any Valuation Date, the closing sale price per Share
quoted by the Exchange (or, if no closing sale price is so quoted, the
last reported sale price) as of the Valuation Time on the Valuation Date.
	 
	 	 	 	 
	Settlement Date:	 	For any Exercise Date, the date defined as such in Section 6.2
of the Equity Definitions, subject to Section 9(r)(i) hereof.
	 
	 	 	 	 
	Failure to Deliver:	 	Applicable
	 
	 	 	 	 
	Other Applicable Provisions:	 	The provisions of Sections 6.6, 6.7, 6.8, 6.9 and
6.10 of the Equity Definitions will be applicable, except that all
references in such provisions to “Physically-Settled” shall be read as
references

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

3

 

	 	 	 	 	 
	

	 	 	 	to “Net Share Settled”. “Net Share Settled”
in relation to any Warrant means that Net
Share Settlement is applicable to that
Warrant.
	 
	 	 	 	 
	3. Additional Terms applicable
to the Transaction:	 	 
	 
	 	 	 	 
	

	Adjustments applicable
to the Warrants:	 	 
	 
	 	 	 	 
	

	Method of Adjustment:
	 	Calculation Agent Adjustment. For avoidance of doubt,
in making any adjustments under the Equity Definitions, the Calculation
Agent may adjust the Daily Number of Warrants.
	 
	 	 	 	 
	Extraordinary Events applicable
to the Transaction:	 	 
	 
	 	 	 	 
	

	 	Consequence of Merger
Events	 	 
	 
	 	 	 	 
	

	 	(a) Share-for-Share:
	 	Alternative Obligation; provided that the
Calculation Agent will determine if the Merger Event affects the
theoretical value of the Transaction and if so JPMorgan in its sole
discretion may elect to make adjustments to the Strike Price and any
other term necessary to reflect the characteristics (including
volatility, dividend practice and policy and liquidity) of the New
Shares. Notwithstanding the foregoing, Cancellation and Payment shall
apply in the event the New Shares are not publicly traded on a United
States national securities exchange or quoted on the NASDAQ National
Market System.
	 
	 	 	 	 
	

	 	(b) Share-for-Other:
	 	Cancellation and Payment
	 
	 	 	 	 
	

	 	(c) Share-for-Combined:
	 	Cancellation and Payment
	 
	 	 	 	 
	Nationalization or Insolvency:	 	Cancellation and Payment
	 
	 	 	 	 
	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 Company:
	 
	 	 	  Bank of America, New York
  ABA:
026009593
  Acct
Name: CapitalSource Finance LLC
  Acct
No.: 003930250176
	 
	 	 	Account for delivery of Shares to Company:
	 
	 	 	  To be determined in advance of any such delivery.

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

4

 

	(b)	 	Account for payments to JPMorgan:

	 	 	JPMorgan Chase Bank, New York

ABA: 021 000 021

Favour: JPMorgan Chase Bank – London

A/C: 0010962009

CHASUS33

	 	 	Account for delivery of Shares from JPMorgan:

     DTC 060

	6.	 	Offices:

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

The Office of JPMorgan for the Transaction is: New York

	 	 	JPMorgan Chase Bank

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 Company:

	 	 	CapitalSource Inc.

4445 Willard Avenue

Chevy Chase, MD 20815

Attention: Chief Financial Officer

Telephone No.: 301-841-2866

Facsimile No.: 301-841-2375

     Address for notices or communications to JPMorgan:

     JPMorgan notice information to follow:

	 	 	JPMorgan Chase Bank

277 Park Avenue, 11th Floor

New York, NY 10172

Attention: Kevin J. Moran

EDG Corporate Marketing

Telephone No: (212) 622-6707

Facsimile No: (212) 622-8534

	8.	 	Representations, Warranties of the Company

	(a)	 	The Company hereby represents and warrants to JPMorgan that the
Company has been duly incorporated and is an existing corporation in
good standing under the laws of the State of

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

5

 

	 	 	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 Company’s Annual Report on Form 10-K for
the year ended December 31, 2003 (the “Company’s 2003 10-K”); and
the Company 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 Company and its subsidiaries, taken as a whole
(“Material Adverse Effect”).
	 
	(b)	 	The Company hereby represents and warrants to JPMorgan that the
Company 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 Company’s part; and this
Confirmation has been duly and validly executed and delivered by the
Company and constitutes its valid and binding obligation, enforceable
against the Company 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 Company hereby represents and warrants to JPMorgan that
neither the execution and delivery of this Confirmation nor the
incurrence or performance of obligations of the Company hereunder
will conflict with or result in a breach of the Delaware General
Corporation Law, the certificate of incorporation or by-laws (or any
equivalent documents) of the Company, 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 Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which the
Company 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 Company and the significant
subsidiaries filed as exhibits to the Company’s 2003 10-K.
	 
	(d)	 	The Company 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 Company of this
Confirmation, except such as have been obtained or made and such as
may be required under the Securities Act of 1933 (the “Securities
Act”) or state securities laws.
	 
	(e)	 	The Company hereby represents and warrants to JPMorgan that the
Shares of the Company initially issuable upon exercise of the Warrant
by the net share settlement method (the “Warrant Shares”) have been
reserved for issuance by all required corporate action of the
Company. The Warrant Shares have been duly authorized and, when
delivered against payment therefor (which may include Net Share
Settlement in lieu of cash) and otherwise as contemplated by the
terms of the Warrant following the exercise of the Warrant in
accordance with the terms and conditions of the Warrant, will be
validly issued, fully-paid and non-assessable, and the issuance of
the Warrant Shares will not be subject to any preemptive or similar
rights.
	 
	(f)	 	The Company hereby represents and warrants to JPMorgan that
except as set forth or incorporated by reference in the Company’s
2003 10-K, there are no pending actions, suits or proceedings against
or affecting the Company, any of its subsidiaries or any of their
respective properties that, if

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

6

 

	 	 	determined adversely to the Company 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 Company to perform its
obligations under this Confirmation; and no such actions, suits or
proceedings are, to the Company’s knowledge, threatened or
contemplated.
	 
	(g)	 	The Company hereby represents and warrants to JPMorgan that the
Company’s 2003 10-K does not, as of the Trade Date, 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.
	 
	(h)	 	The Company hereby represents and warrants to JPMorgan that it
is an “eligible contract participant” (as such term is defined in
Section 1(a)(12) of the Commodity Exchange Act, as amended).
	 
	(i)	 	The Company hereby represents and warrants to JPMorgan that the
Company 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.
	 
	(j)	 	The Company shall deliver an opinion of counsel, dated as of
the Trade Date, to JPMorgan with respect to the matters set forth in
clauses (a) to (e) and (i) of this Section 8.
	 
	(k)	 	If the Initial Purchasers party to the Purchase Agreement among
the Company and J.P. Morgan Securities Inc., as representative of the
Initial Purchasers, dated as of March 16, 2004, relating to the
purchase of the Convertible Notes exercises their right to receive
additional Convertible Notes pursuant to the Initial Purchasers’
option to purchase additional Convertible Notes, then, at the
discretion of the Company, JPMorgan and the Company will either enter
into a new confirmation or amend this Confirmation to provide for
such increase in Convertible Notes (but on pricing terms acceptable
to JPMorgan and the Company) (such additional confirmation or
amendment to this Confirmation to provide for the payment by the
Company to JPMorgan of the additional premium related thereto).

	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 the final
Valuation Date, 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 or the NASDAQ National Market System (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

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

7

 

	 	 	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 accordance with Calculation Agent Adjustment
method as defined under Section 9.1(c) of the Equity Definitions.
	 
	(c)	 	Repurchase Notices. Company shall, on any day on which
Company effects any repurchase of Shares, promptly give JPMorgan a
written notice of such repurchase (a “Repurchase Notice”) on such
day if following such repurchase, the Warrants Equity Percentage as
determined on such day is (i) equal to or greater than 8.0% and (ii)
greater by 0.5% than the Warrants Equity Percentage included in the
immediately preceding Repurchase Notice (or, in the case of the
first such Repurchase Notice, greater than the Warrants Equity
Percentage as of the date hereof). The “Warrants Equity Percentage”
as of any day is the fraction (A) the numerator of which is the
product of the Number of Warrants and the Warrant Entitlement and
(B) the denominator of which is the number of Shares outstanding on
such day. Company agrees to indemnify and hold harmless JPMorgan
and its affiliates and their respective officers, directors and
controlling persons (each, an “Indemnified Person”) from and against
any and all losses (including losses relating to JPMorgan’s hedging
activities as a consequence of becoming, or of the risk of becoming,
a Section 16 “insider”, including without limitation, any
forbearance from hedging activities or cessation of hedging
activities 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,
to which an Indemnified Person actually may become subject, a result
of Company’s failure to provide JPMorgan with a Repurchase Notice on
the day and in the manner specified in this Section 9(c), and to
reimburse, 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, such Indemnified Person
shall promptly notify the Company in writing, and the Company, upon
request of the Indemnified Person, shall retain counsel reasonably
satisfactory to the Indemnified Person to represent the Indemnified
Person and any others the Company may designate in such proceeding
and shall pay the fees and expenses of such counsel related to such
proceeding. Company shall be relieved from liability to the extent
that the Indemnified Person fails to promptly notify Company of any
action commenced against it in respect of which indemnity may be
sought hereunder; provided, that failure to notify Company (i) shall
not relieve Company from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and (ii) shall not, in
any event, relieve Company from any liability which it may have
otherwise than on account of this indemnity agreement. Company
shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, Company agrees to
indemnify any Indemnified Person from and against any loss or
liability by reason of such settlement or judgment. Company shall
not, without the prior written consent of the Indemnified Person,
effect any settlement of any pending or threatened proceeding 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 paragraph (c) is unavailable to an Indemnified
Person or insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then Company, in lieu of
indemnifying such Indemnified Person thereunder, shall contribute to
the amount paid or payable by such Indemnified Person as a result of
such losses,

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

8

 

	 	 	claims, damages or liabilities. The remedies provided for in this
paragraph (c) are not exclusive and shall not limit any rights or
remedies that may otherwise be available to any Indemnified
JPMorgan at law or in equity. The indemnity and contribution
agreements contained in this paragraph (c) shall remain operative
and in full force and effect regardless of the termination of this
Transaction.
	 
	(d)	 	Regulation M. The Company was not on the Trade Date and is
not on the date hereof engaged in a distribution, as such term is
used in Regulation M under the Securities Exchange Act of 1934, as
amended (“Exchange Act”), of any securities of Company, 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 Company
shall not, until the fifth Exchange Business Day immediately
following the Trade Date, engage in any such distribution.
	 
	(e)	 	No Manipulation. The Company 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.
	 
	(f)	 	Board Authorization. Company represents that it is entering
into the Transaction, solely for the purposes stated in the board
resolution authorizing this Transaction and in its public
disclosure. Company further represents that there is no internal
policy, whether written or oral, of Company that would prohibit
Company from entering into any aspect of this Transaction,
including, but not limited to, the purchases of Shares to be made
pursuant hereto.
	 
	(g)	 	Transfer or Assignment. Company may not transfer any of its
rights or obligations under this Transaction without the prior
written consent of JPMorgan. JPMorgan may transfer or assign all or
any portion of its rights or obligations under this Transaction
without consent of the Company. 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 Company, 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 Company to the
extent of any such performance.
	 
	(h)	 	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”.
	 
	(i)	 	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.
	 
	(j)	 	Early Unwind. In the event the sale of Convertible Notes is
not consummated with the initial purchasers for any reason by the
close of business in New York on March 19, 2004 (or such later date
as agreed upon by the parties) (March 19, 2004 or such later date as
agreed upon being the “Early Unwind Date”), this Transaction shall
automatically terminate (the “Early Unwind”), on the Early Unwind
Date and (i) the Transaction and all of the respective rights and
obligations of JPMorgan and Company under the Transaction shall be
cancelled and terminated and (ii) each party shall be released and
discharged by the other party from and agrees not to make any claim
against the other party with respect to any obligations or
liabilities of the other party arising out of and to be performed in
connection with the Transaction either prior to or after the Early
Unwind Date; provided that Company shall purchase from JPMorgan on
the Early Unwind Date all Shares purchased by JPMorgan or one or
more of its affiliates and assume, or reimburse the cost of,
derivatives entered into by JPMorgan or one or more of its
affiliates in connection with hedging

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

9

 

	 	 	this Transaction. The Purchase price paid by the Company shall be
JPMorgan’s actual cost of such Shares and derivatives as JPMorgan
informs Company and shall be paid in immediately available funds on
the Early Unwind Date. JPMorgan and Company represent and
acknowledge to the other that, subject to the proviso included in
the preceding sentence, upon an Early Unwind, all obligations with
respect to the Transaction shall be deemed fully and finally
discharged.
	 
	(k)	 	Dividends. If at any time during the period from and
including the Trade Date, to but excluding the Expiration Date, an
ex-dividend date for a cash dividend occurs with respect to the
Shares (an “Ex-Dividend Date”), and that dividend is greater than
the Regular Dividend on a per share basis, then the Calculation
Agent will adjust the Strike Price to preserve the fair value of the
Warrant to JPMorgan after taking into account such dividend.
“Regular Dividend” shall mean USD 0.00 per Share per quarter. Ray.
I am not sure what I should write in the footnotes, hence, I have
left them blank.
	 
	(l)	 	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.
	 
	(m)	 	Additional Provisions.
	 
	 	 	(i)The first paragraph of Section 9.1(c) of the Equity Definitions
is hereby amended to read as follows: (c) ‘If “Calculation Agent
Adjustment” is specified as the method of adjustment in the
Confirmation of a Share Option Transaction, then following the
declaration by the Issuer of the terms of any Potential Adjustment
Event, the Calculation Agent will determine whether such Potential
Adjustment Event has a material effect on the theoretical value of
the relevant Shares or Warrants and, if so, will (i) make
appropriate adjustment(s), if any, to any one or more of:’ and,
the sentence immediately preceding Section 9.1(c)(ii) is hereby
amended by deleting the words “diluting or concentrative”.
	 
	 	 	(ii)Section 9.1(e)(vi) of the Equity Definitions is hereby amended
by deleting the words “other similar” between “any” and “event”;
deleting the words “diluting or concentrative” and replacing them
with “material”; and adding the following words at the end of the
sentence “or Warrants”.
	 
	 	 	(iii)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.”
	 
	 	 	(iv)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 Merger
Event, Nationalization, Insolvency or De-Listing Event, as the case
may be.”

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

10

 

	 	 	(v)Any provision in the Agreement with respect to (1) the netting
of obligations of the Company or (2) the satisfaction of the
Company’s payment obligations to the extent of JPMorgan’s payment
obligations to the Company in the same currency and in the same
Transaction (including, without limitation Section 2(c) thereof),
in each case as applied solely to this Transaction, shall not apply
to the Company and, for the avoidance of doubt, the Company shall
fully satisfy such payment obligations notwithstanding any payment
obligation to the Company by JPMorgan in the same currency and in
the same Transaction. In calculating any amounts under Section 6(e)
of the Agreement, notwithstanding anything to the contrary in the
Agreement, clause (i) of the foregoing sentence shall apply as
follows: (1) separate amounts shall be calculated as set forth in
such Section 6(e) with respect to (a) this Transaction and (b) all
other Transactions, and (2) such separate amounts shall be payable
pursuant to Section 6(d)(ii) of the Agreement.
	 
	(n)	 	No Collateral or Setoff. Notwithstanding any provision of
the Agreement or any other agreement between the parties to the
contrary, the obligations of the Company 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. Any provision in the
Agreement with respect to the satisfaction of the Company’s payment
obligations to the extent of JPMorgan’s payment obligations to the
Company in the same currency and in the same Transaction (including,
without limitation Section 2(c) thereof) shall not apply to the
Company and, for the avoidance of doubt, the Company shall fully
satisfy such payment obligations notwithstanding any payment
obligation to the Company by JPMorgan in the same currency and in
the same Transaction. In calculating any amounts under Section 6(e)
of the Agreement, notwithstanding anything to the contrary in the
Agreement, (i) separate amounts shall be calculated as set forth in
such Section 6(e) with respect to (a) this Transaction and (ii) all
other Transactions, and (2) such separate amounts shall be payable
pursuant to Section 6(d)(ii) of the Agreement.
	 
	(o)	 	Alternative Calculations and Payment on Early Termination and
on Certain Extraordinary Events. If, in respect of this
Transaction, an amount is payable by the Company to JPMorgan, (i)
pursuant to Section 9.7 of the Equity Definitions (except in the
event of a Nationalization or Insolvency or a Merger Event, in each
case, in which the consideration to be paid to holders of Shares
consists solely of cash) or (ii) pursuant to Section 6(d)(ii) of the
Agreement (except in the event of an Event of Default in which
Company is the Defaulting Party or a Termination Event in which
Company is the Affected Party, other than an Event of Default of the
type described in Section 5(a)(iii), (v), (vi) or (vii) of the
Agreement or a Termination Event of the type described in Section
5(b)(i), (ii), (iii), (iv), or (v) or (vi) of the Agreement that
resulted from an event or events outside Company’s control) (a
“Payment Obligation”), Company may, in its sole discretion, satisfy
any such Payment Obligation by the Share Termination Alternative (as
defined below) and shall give irrevocable telephonic notice to
JPMorgan, 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, the date of the occurrence of the Nationalization
or Insolvency, 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, the date of the occurrence of the Nationalization or
Insolvency, or Early Termination Date, as applicable, the following
provisions shall apply:

	 	 	 	 	 
	

	 	Share Termination Alternative:
	 	Applicable and means
that Company shall deliver to JPMorgan the Share Termination
Delivery Property on the date (the “Share Termination Payment

 A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

11

 

	 	 	 	 	 
	

	 	 	 	Date”) when the Payment Obligation
would otherwise be due, subject to
paragraph (r)(i) below, in
satisfaction, subject to paragraph
(r)(ii) below, of the Payment
Obligation in the manner reasonably
requested by JPMorgan 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 Company at the time of notification of the Payment
Obligation. In the case of a Private Placement of Share
Termination Delivery Units that are Restricted Shares (as
defined below) as set forth in paragraph (r)(i) below, the
Share Termination Unit Price shall be determined by the
discounted price applicable to such Share Termination Delivery
Units. In the case of a Registered Settlement of Share
Termination Delivery Units that are Restricted Shares (as
defined below) as set forth in paragraph (r)(ii) below, the
Share Termination Unit Price shall be the Settlement Price on
the Merger Date, the date of the occurrence of the
Nationalization or Insolvency, or Early Termination Date, as
applicable.
	 
	 	 	 	 
	

	 	Share Termination Delivery Unit:
	 	In the case of a
Termination Event or Event of Default, one Share or, in the
case of Nationalization or Insolvency or a Merger Event, 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 of any securities)
in such Nationalization or Insolvency or such Merger Event. If
a Share Termination Delivery Unit consists of property other
than cash or New Shares, the Calculation Agent will replace
such property with cash, New Shares or a combination thereof
as components of a Share Termination Delivery Unit in such
amounts, as determined by the Calculation Agent in its
discretion by commercially

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

12

 

	 	 	 	 	 
	

	 	 	 	reasonable means, as shall have a
value equal to the value of the
property so replaced. If such
Merger Event involves a choice of
consideration to be received by
holders, such holder shall be deemed
to have elected to receive the
maximum possible amount of cash.
	 
	 	 	 	 
	

	 	Failure to Deliver:
	 	Applicable
	 
	 	 	 	 
	

	 	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.

	(p)	 	Registration/Private Placement Procedures. If, in the
reasonable opinion of JPMorgan, following any delivery of Shares or
Share Termination Delivery Property to JPMorgan hereunder, such
Shares or Share Termination Delivery Property would be in the hands
of JPMorgan subject to any applicable restrictions with respect to
any registration or qualification requirement or prospectus delivery
requirement for such Shares or Share Termination Delivery Property
pursuant to any applicable federal or state securities law
(including, without limitation, any such requirement arising under
Section 5 of the Securities Act as a result of such Shares or Share
Termination Delivery Property being “restricted securities”, as such
term is defined in Rule 144 under the Securities Act, or as a result
of the sale of such Shares or Share Termination Delivery Property
being subject to paragraph (c) of Rule 145 under the Securities Act)
(such Shares or Share Termination Delivery Property, “Restricted
Shares”), then delivery of such Restricted Shares shall be effected
pursuant to either clause (i) or (ii) below at the election of
Company, unless waived by JPMorgan. Notwithstanding the foregoing,
solely in respect of any Daily Number of Warrants exercised or
deemed exercised on any Expiration Date, the Company shall elect,
prior to the first Settlement Date for the first Expiration Date, a
Private Placement Settlement or Registered Settlement for all
deliveries of Restricted Shares for all such Expiration Dates, which
election shall be applicable to all Settlement Dates for such Daily
Number of Warrants and the procedures in clause (i) or clause (ii)
below shall apply for all such delivered Restricted Shares on an
aggregate basis commencing after the final Settlement Date for such
Daily Number of Warrants. The Calculation Agent shall make
reasonable adjustments to settlement terms and provisions under this
Confirmation to reflect a single Private Placement or Registered
Settlement for such aggregate Restricted Shares delivered hereunder.

	(i)	 	If the Company elects to settle the Transaction
pursuant to this clause (i) (a “Private Placement
Settlement”), then delivery of Restricted Shares by the
Company shall be effected in customary private placement
procedures with respect to such Restricted Shares reasonably
acceptable to JPMorgan; provided that the Company may not
elect a Private Placement Settlement if, on the date of its
election, it has taken, or caused to be taken, any action that
would make unavailable either the exemption pursuant to
Section 4(2) of the Securities Act for the sale by the Company
to JPMorgan (or any affiliate designated by JPMorgan) of the
Restricted Shares or the exemption pursuant to Section 4(1) or
Section 4(3) of the Securities Act for resales of the
Restricted Shares by JPMorgan (or any such

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

13

 

	 	 	affiliate of JPMorgan). The Private Placement Settlement of
such Registered Shares shall include customary
representations, covenants, blue sky and other governmental
filings and/or registrations, indemnities to JPMorgan, due
diligence rights (for JPMorgan or any designated buyer of the
Restricted Shares by JPMorgan), opinions and certificates,
and such other documentation as is customary for private
placement agreements, all reasonably acceptable to JPMorgan.
In the case of a Private Placement Settlement, JPMorgan shall
determine the appropriate discount to the Share Termination
Unit Price (in the case of settlement of Share Termination
Delivery Units pursuant to paragraph (q) above) or any
Settlement Price (in the case of settlement of Shares
pursuant to Section 2 above) applicable to such Restricted
Shares in a commercially reasonable manner and appropriately
adjust the amount of such Restricted Shares to be delivered
to JPMorgan hereunder; provided that in no event such number
shall be greater than the five times the Number of Warrants
(the “Maximum Amount”). Notwithstanding the Agreement or
this Confirmation, the date of delivery of such Restricted
Shares shall be the Exchange Business Day following notice by
JPMorgan to the Company, of such applicable discount and the
number of Restricted Shares to be delivered pursuant to this
clause (i). For the avoidance of doubt, delivery of
Restricted Shares shall be due as set forth in the previous
sentence and not be due on the Share Termination Payment Date
(in the case of settlement of Share Termination Delivery
Units pursuant to paragraph (q) above) or on the Settlement
Date for such Restricted Shares (in the case of settlement of
Shares pursuant to Section 2 above).
	 
	(ii)	 	If the Company elects to settle the Transaction
pursuant to this clause (ii) (a “Registration Settlement”),
then the Company shall promptly (but in any event no later
than the beginning of the Resale Period (as defined below))
file and use its reasonable best efforts to make effective
under the Securities Act a registration statement or
supplement or amend an outstanding registration statement in
form and substance reasonably satisfactory to JPMorgan, to
cover the resale of such Restricted Shares in accordance with
a customary underwriting agreement that includes covenants,
conditions, representations, underwriting discounts (if
applicable), commissions (if applicable), indemnities, due
diligence rights, opinions and certificates, and such other
documentation, all mutually acceptable to the Company and
JPMorgan. If JPMorgan is satisfied with such procedures and
documentation, it shall sell the Restricted Shares pursuant to
such registration statement during a period (the “Resale
Period”) commencing on the Exchange Business Day following
delivery of such Restricted Shares (which, for the avoidance
of doubt, shall be (x) any Settlement Date in the case of an
exercise of Warrants prior to the first Expiration Date
pursuant to Section 2 above, (y) the Share Termination Payment
Date in case of settlement of Share Termination Delivery Units
pursuant to paragraph (q) above or (z) the Settlement Date in
respect of the final Expiration Date for all Daily Number of
Warrants) and ending on the earliest of (i) the Exchange
Business Day on which JPMorgan completes the sale of all
Restricted Shares or, in the case of settlement of Share
Termination Delivery Units, a sufficient number of Restricted
Shares so that the realized net proceeds of such sales exceed
the Payment Obligation (as defined above), (ii) the date upon
which all Restricted Shares have been sold or transferred
pursuant to Rule 144 (or similar provisions then in force) or
Rule 145(d)(1) or (2) (or any similar provision then in force)
under the Securities Act and (iii) the date upon which all
Restricted Shares may be sold or transferred by a
non-affiliate pursuant to Rule 144(k) (or any similar
provision then in force) or Rule 145(d)(3) (or any similar
provision then in force under the Securities Act. If the
Payment Obligation exceeds the realized net proceeds from such
resale, Company shall transfer to JPMorgan by the open of the
regular trading session on the Exchange on the Exchange
Trading Day immediately following the last day of the Resale
Period the amount of such excess (the “Additional Amount”) in
cash or in a number of Shares (“Make-whole Shares”) in an

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

14

 

	 	 	amount that, based on the Settlement Price on the last day of
the Resale Period (as if such day was the “Valuation Date”
for purposes of computing such Settlement Price), has a
dollar value equal to the Additional Amount. The Resale
Period shall continue to enable the sale of the Make-whole
Shares. If Company elects to pay the Additional Amount in
Shares, the requirements and provisions for Registration
Settlement shall apply. This provision shall be applied
successively until the Additional Amount is equal to zero.
In no event shall the Company deliver a number of Restricted
Shares greater than the Maximum Amount.
	 
	(iii)	 	Without limiting the generality of the
foregoing, Company agrees that any Restricted Shares delivered
to JPMorgan, as purchaser of such Restricted Shares, (i) may
be transferred by and among JPMorgan Chase Bank and its
affiliates and Company shall effect such transfer without any
further action by JPMorgan and (ii) after the minimum “holding
period” within the meaning of Rule 144(d) under the Securities
Act has elapsed after any Settlement Date for such Restricted
Shares, Company shall promptly remove, or cause the transfer
agent for such Restricted Shares to remove, any legends
referring to any such restrictions or requirements from such
Restricted Shares upon delivery by JPMorgan (or such affiliate
of JPMorgan) to Company or such transfer agent of seller’s and
broker’s representation letters customarily delivered by
JPMorgan in connection with resales of restricted securities
pursuant to Rule 144 under the Securities Act, without any
further requirement for the delivery of any certificate,
consent, agreement, opinion of counsel, notice or any other
document, any transfer tax stamps or payment of any other
amount or any other action by JPMorgan (or such affiliate of
JPMorgan).

	 	 	If the Private Placement Settlement or the Registration Settlement
shall not be effected as set forth in clauses (i) or (ii), as
applicable, then failure to effect such Private Placement
Settlement or such Registration Settlement shall constitute an
Event of Default with respect to which Company shall be the
Defaulting Party.
	 
	(q)	 	Limit on Beneficial Ownership. Notwithstanding any other
provisions hereof, JPMorgan may not exercise any Warrant hereunder,
and Automatic Exercise shall not apply with respect thereto, to the
extent (but only to the extent) that such receipt would result in
JPMorgan directly or indirectly beneficially owning (as such term is
defined for purposes of Section 13(d) of the Exchange Act) at any
time in excess of 9.9% of the outstanding Shares. Any purported
delivery hereunder shall be void and have no effect to the extent
(but only to the extent) that such delivery would result in JPMorgan
directly or indirectly so beneficially owning in excess of 9.9% of
the outstanding Shares. If any delivery owed to JPMorgan hereunder
is not made, in whole or in part, as a result of this provision, the
Company’s obligation to make such delivery shall not be extinguished
and the Company shall make such delivery as promptly as practicable
after, but in no event later than one Business Day after, JPMorgan
gives notice to the Company that such delivery would not result in
JPMorgan directly or indirectly so beneficially owning in excess of
9.9% of the outstanding Shares.
	 
	(r)	 	Share Deliveries. The Company acknowledges and agrees that,
to the extent the holder of this Warrant is not then an affiliate
and has not been an affiliate for 90 days (it being understood that
JPMorgan will not be considered an affiliate under this Section 9(r)
solely by reason of its receipt of Shares pursuant to this
Transaction), and otherwise satisfies all holding period and other
requirements of Rule 144 of the Securities Act applicable to it, any
delivery of Shares or Share Termination Property hereunder at any
time after 2 years from the Trade Date shall be eligible for resale
under Rule 144(k) of the Securities Act and the Company agrees to
promptly remove, or cause the transfer agent for such Shares or
Share Termination Property, to remove, any legends referring to any
restrictions on resale under the Securities Act from the Shares or
Share Termination Property. The Company further agrees, for any
delivery of Shares or Share Termination Property hereunder at any
time after 1 year from the Trade Date but within 2 years of

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

15

 

	 	 	the Trade Date, to the to the extent the holder of this Warrant
then satisfies the holding period and other requirements of Rule
144 of the Securities Act, to promptly remove, or cause the
transfer agent for such Restricted Share to remove, any legends
referring to any such restrictions or requirements from such
Restricted Shares. Such Restricted Shares will be de-legended upon
delivery by JPMorgan (or such affiliate of JPMorgan) to the Company
or such transfer agent of customary seller’s and broker’s
representation letters in connection with resales of restricted
securities pursuant to Rule 144 of the Securities Act, without any
further requirement for the delivery of any certificate, consent,
agreement, opinion of counsel, notice or any other document, any
transfer tax stamps or payment of any other amount or any other
action by JPMorgan (or such affiliate of JPMorgan). The Company
further agrees that any delivery of Shares or Share Termination
Delivery Property prior to the date that is 1 year from the Trade
Date, may be transferred by and among JPMorgan and its affiliates
and the Company shall effect such transfer without any further
action by JPMorgan. Notwithstanding anything to the contrary
herein, the Company agrees that any delivery of Shares or Share
Termination Delivery Property shall be effected by book-entry
transfer through the facilities of DTC, or any successor
depositary, if at the time of delivery, such class of Shares or
class of Share Termination Delivery Property is in book-entry form
at DTC or such successor depositary. Notwithstanding anything to
the contrary herein, to the extent the provisions of Rule 144 of
the Securities Act or any successor rule are amended, or the
applicable interpretation thereof by the Securities Exchange
Commission or any court change after the Trade Date, the agreements
of the Company herein shall be deemed modified to the extent
necessary, in the opinion of outside counsel of the Company, to
comply with Rule 144 of the Securities Act, including Rule 144(k)
as in effect at the time of delivery of the relevant Shares or
Share Termination Property.
	 
	(s)	 	Governing Law. New York law (without reference to choice of
law doctrine).
	 
	(t)	 	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.

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

16

 

               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 on 212 622 8519.

Very truly yours,

	 	 	 	 	 
	 	J.P. Morgan Securities Inc., as

agent for JPMorgan Chase Bank

 	 
	 	By:  	/s/ STEPHEN L. ROTI
 	 
	 	 	Authorized Signatory 	 
	 	 	Name: Stephen L. Roti 	 
	 

	 	 	 	 	 

	 	 	 	 	 
	 	Accepted and confirmed

as of the Trade Date:

CapitalSource Inc.

 	 
	 	By:  	/s/ THOMAS A.
FINK

	 
	 	 	Authorized Signatory 	 
	 	 	Name: Thomas A. Fink 	 

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

17

 

	 	 	 	 	 

Annex A

	 	 	 	 	 
	Number
	 	Expiration Date
	 	Daily Number of Warrants

	1.
	 	March 16, 2009	 	123,357
	2.
	 	March 17, 2009	 	123,357
	3.
	 	March 18, 2009	 	123,357
	4.
	 	March 19, 2009	 	123,357
	5.
	 	March 20, 2009	 	123,357
	6.
	 	March 23, 2009	 	123,357
	7.
	 	March 24, 2009	 	123,357
	8.
	 	March 25, 2009	 	123,357
	9.
	 	March 26, 2009	 	123,357
	10.
	 	March 27, 2009	 	123,357
	11.
	 	March 30, 2009	 	123,357
	12.
	 	March 31, 2009	 	123,357
	13.
	 	April 1, 2009	 	123,357
	14.
	 	April 2, 2009	 	123,357
	15.
	 	April 3, 2009	 	123,357
	16.
	 	April 6, 2009	 	123,357
	17.
	 	April 7, 2009	 	123,357
	18.
	 	April 8, 2009	 	123,357
	19.
	 	April 9, 2009	 	123,357
	20.
	 	April 13, 2009	 	123,357
	21.
	 	April 14, 2009	 	123,357
	22.
	 	April 15, 2009	 	123,357
	23.
	 	April 16, 2009	 	123,357
	24.
	 	April 17, 2009	 	123,357
	25.
	 	April 20, 2009	 	123,357
	26.
	 	April 21, 2009	 	123,357
	27.
	 	April 22, 2009	 	123,357
	28.
	 	April 23, 2009	 	123,357
	29.
	 	April 24, 2009	 	123,357
	30.
	 	April 27, 2009	 	123,357
	31.
	 	April 28, 2009	 	123,357
	32.
	 	April 29, 2009	 	123,357
	33.
	 	April 30, 2009	 	123,357
	34.
	 	May 1, 2009	 	123,357
	35.
	 	May 4, 2009	 	123,357
	36.
	 	May 5, 2009	 	123,357
	37.
	 	May 6, 2009	 	123,357
	38.
	 	May 7, 2009	 	123,357
	39.
	 	May 8, 2009	 	123,357
	40.
	 	May 11, 2009	 	123,357
	41.
	 	May 12, 2009	 	123,357
	42.
	 	May 13, 2009	 	123,357
	43.
	 	May 14, 2009	 	123,357
	44.
	 	May 15, 2009	 	123,357
	45.
	 	May 18, 2009	 	123,357
	46.
	 	May 19, 2009	 	123,357
	47.
	 	May 20, 2009	 	123,357
	48.
	 	May 21, 2009	 	123,357
	49.
	 	May 22, 2009	 	123,357
	50.
	 	May 26, 2009	 	123,357
	51.
	 	May 27, 2009	 	123,357
	52.
	 	May 28, 2009	 	123,357
	53.
	 	May 29, 2009	 	123,357
	54.
	 	June 1, 2009	 	123,357
	55.
	 	June 2, 2009	 	123,357
	56.
	 	June 3, 2009	 	123,357
	57.
	 	June 4, 2009	 	123,357
	58.
	 	June 5, 2009	 	123,357
	59.
	 	June 8, 2009	 	123,357
	60.
	 	June 9, 2009	 	123,357

A subsidiary of J.P. Morgan Chase & Co.

Incorporated with Limited Liability as a New York State chartered commercial bank.

Registered in England branch number BR000746. Authorised by the FSA.

Registered branch address 125 London Wall, London, EC2Y 5AJ. Head office 270 Park Avenue, New York, USA.

18

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