AMENDMENT NO. 3 TO DEAN C. GRAHAM EMPLOYMENT AGREEMENT
Exhibit
10.43.3
THIS AMENDMENT NO. 3 TO THE EMPLOYMENT AGREEMENT (“Amendment No. 3”) is made, effective as of
December 31, 2008, by and between CapitalSource Inc., a Delaware corporation (the “Company”), and
Xxxx X. Xxxxxx (the “Executive”).
Recitals:
WHEREAS, the Executive and the Company previously entered into the Employment Agreement,
effective as of April 4, 2005, and previously amended on each of November 22, 2005 and February 1,
2007 (collectively, the “Employment Agreements”); and
WHEREAS, the Executive and the Company desire to further amend the Employment Agreement to
comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended.
Agreement:
NOW, THEREFORE, in consideration of the agreements contained herein and of such other good and
valuable consideration, the sufficiency of which the Executive acknowledges, the Company and the
Executive, intending to be legally bound, agree as follows:
1. Section 5(f)(1)(b) is hereby amended and restated to read as follows:
“(b) Prior to the occurrence of a Change in Control, the Employer shall establish a
trust with an independent institutional third party trustee selected by the Executive (the
“Trust”). The agreement governing the Trust shall be in a form mutually agreed upon by the
parties and in any event shall be consistent with the intent of this Section 5(f). The
assets of the Trust shall not be used for any purpose other than to satisfy certain
liabilities to the Executive described herein, except that if the Trust is dissolved in
accordance with this Section 5(f)(1)(b) the Employer shall retain the Trust assets. For the
avoidance of doubt, the Trust shall be a “secular” trust, the assets of which shall not be
subject to the claims of the Employer’s creditors. Trust assets shall be invested in
short-term money market securities until distribution hereunder. Immediately prior to the
occurrence of a Change in Control and contingent upon a Change in Control, the Employer
shall deposit
into the Trust cash in an amount equal to the sum of (i) the Value (as defined below) of
restricted shares of Stock previously granted to the Executive that are not vested on the
date of the Change in Control, (ii) the post-tax value of the spread with respect to any
options to acquire Stock held by the Executive as of the Change in Control (based on the
difference between the Value of a share of Stock and the applicable option exercise price)
that are not vested and exercisable on the date of the Change in Control (it being
understood that the Executive will include the gross amount of the option spread in income
at the time and the Employer will pay the Executive the amount of taxes due on such amount
subject to the Employer’s obligation to withhold and deposit such tax amounts) and (iii)
the value of any other equity-related award (based on the Value of a share of Stock) held by
the Executive that are not vested as of the Change in Control (such awards collectively
being referred to herein as the “Applicable Awards”). Upon contribution of the cash to the
Trust, the related Applicable Awards described in clauses (i), (iii) and (iv), above, shall
be canceled and no longer outstanding. For purposes hereof, the Value of a share of Stock
shall be the per share price of Stock immediately before the Change in Control as listed on
the principal exchange on which such Stock trades. Upon the earlier of the first
anniversary of the Change in Control if the Executive is employed by the Employer or any
Company Affiliate on such date and the termination of the Executive’s employment in a manner
that entitles him to benefits under Section 9(a), (b), (d) or (e) (as applicable, the
“Distribution Date”), the Executive (or his estate) shall be paid, based on an election made
by the Executive or his estate to the Employer at the time of such payment, (X) the amount
required to be held in Trust on his behalf hereunder (including any earnings on such amount)
(the “Cash Based Value”) or (Y) the value the Applicable Awards, other than the value of
Applicable Awards that are stock options, if any, would have had on the Distribution Date if
such Applicable Awards were outstanding on such date based on the value of Stock on such
date (or the value on such date of the stock of any publicly traded parent company of the
Employer assuming the aggregate cash contributed to the Trust had been invested in such
stock on the date of the Change in Control) (the “Stock Based Value”). With regard to stock
options that are includible in Applicable Awards, if the Change in Control transaction is
not described in the following sentence, the Executive shall be granted a stock appreciation
right that will be settled in cash within 10 days of the Distribution Date for the increase
in the value, as of the Distribution Date, of the shares of stock into which the stock
subject to the stock option would have been converted if assumed by the acquirer over fair
market value of such shares on the date of the Change in Control. Notwithstanding the
foregoing, in any Change in Control transaction pursuant to which 100% of the Stock holdings
of shareholders of the Employer immediately prior to the transaction are exchanged solely
for cash, the Stock Based Value
shall be $0. If the Executive fails to make such an
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election by the Distribution Date, the
Executive shall be paid the greater of the Cash Based Value or the Stock Based Value. If
the Executive is paid the Stock Based Value, the Executive shall be paid shares of stock of
the Employer (or the stock of any publicly-traded parent company of the Employer) that are
freely and immediately transferable by the Executive and the Trust shall be dissolved and
all amounts required to be kept in the Trust shall be returned to the Employer. If the
Executive is paid the Cash Based Value, the Executive shall be paid in cash.
Notwithstanding the foregoing, if any Applicable Award would have vested before the
applicable Distribution Date, the Executive shall be entitled to a payment of the value of
such Applicable Award, and stock appreciation right, if any, in the form (cash or stock) and
amount as determined in accordance with the principles of the five preceding sentences (but
using the vesting date rather than the Distribution Date for purposes of determining such
value) and such payment shall reduce the amount otherwise payable under this Section
5(f)(1). The Employer shall be responsible for making any payments required under this
Section 5(f). The Executive shall forfeit his right to any future payment under this
Section 5(f) and his interest in the Trust (the assets of which shall revert to the
Employer) only if his employment is terminated after the occurrence of a Change in Control
and before the Distribution Date in a manner described in Section 9(c); provided that he
shall not forfeit his right to any payment due him under this Section 5(f) with respect to
Applicable Awards that would have vested prior to his date of termination. Payments under
this Section 5(f)(1)(b) shall be delayed for six months following the Executive’s separation
from service if so required by Section 409A. To the extent permitted under Section 409A of
the Code, if the Executive shall be entitled to a payment pursuant to this Section
5(f)(1)(b) prior to the date at which a payment can be made to the Executive solely because
of the Code Section 409A six month delay in payment rule for key employees, to the extent
permitted by Section 409A the Executive shall be entitled to payment by the Employer of the
applicable employee portion of the withholding taxes due on such payment. Such a payment by
the Employer of withholding taxes shall reduce the amount otherwise payable to the Executive
under this Section 5(f)(1).”
2. Section 9(f) of the Employment Agreement is hereby amended by adding a new sentence after
the third sentence of said Section 9(f) to read as follows:
“The Executive will forfeit all rights to the Severance Payments if the Executive fails to
execute and deliver the release within 30 days of delivery of the release to the Executive.
”
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3. Section 9(h) of the Employment Agreement is hereby deleted in its entirety and amended and
restated to read as follows:
“(h) Section 409A. To the extent the Executive would be subject to the additional
20% tax imposed on certain deferred compensation arrangements pursuant to Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”), as a result of any provision of
this Agreement, such provision shall be deemed amended to the minimum extent necessary to
avoid application of such tax and preserve to the maximum extent possible the original
intent and economic benefit to the Executive and the Company, and the parties shall promptly
execute any amendment reasonably necessary to implement this Section 9(h).
(i) For purposes of Section 409A, the Executive’s right to receive installment payments
pursuant to this Agreement including, without limitation, each severance payment and COBRA
continuation reimbursement shall be treated as a right to receive a series of separate and
distinct payments.
(ii) The Executive will be deemed to have a Date of Termination for purposes of
determining the timing of any payments or benefits hereunder that are classified as deferred
compensation only upon a “separation from service” within the meaning of Code Section 409A.
(iii) Notwithstanding any other provision of this Agreement to the contrary, if at the
time of the Executive’s separation from service, (i) the Executive is a specified employee
(within the meaning of Section 409A and using the identification methodology selected by the
Company from time to time), and (ii) the Company makes a good faith determination that an
amount payable on account of such separation from service to the Executive constitutes
deferred compensation (within the meaning of Section 409A) the payment of which is required
to be delayed pursuant to the six-month delay rule set forth in Section 409A in order to
avoid taxes or penalties under Section 409A (“the Delay Period”), then the Company will not
pay such amount on the otherwise scheduled payment date but will instead pay it in a lump
sum on the first business day after such six-month period (or upon the Executive’s death, if
earlier), together with interest for the period of delay, compounded annually, equal to the
prime rate (as published in the Wall Street Journal) in effect as of the dates the payments
should otherwise have been provided. To the extent that any benefits to be provided during
the Delay Period is considered deferred compensation under Code Section 409A provided on
account of a “separation from service,” and such benefits are not otherwise exempt from Code
Section 409A, the Executive shall pay the cost of such benefit during the Delay
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Period, and the Company shall reimburse the Executive,
to the extent that such costs would otherwise have been paid by the Company or to the extent
that such benefits would otherwise have been provided by the Company at no cost to the
Executive, the Company’s share of the cost of such benefits upon expiration of the Delay
Period, and any remaining benefits shall be reimbursed or provided by the Company in
accordance with the procedures specified herein.
(iv) (A) Any amount that the Executive is entitled to be reimbursed under this
Agreement will be reimbursed to the Executive as promptly as practical and in any event not
later than the last day of the calendar year after the calendar year in which the expenses
are incurred, (B) any right to reimbursement or in kind benefits will not be subject to
liquidation or exchange for another benefit, and (C) the amount of the expenses eligible for
reimbursement during any taxable year will not affect the amount of expenses eligible for
reimbursement in any other taxable year.
(v) Whenever a payment under this Agreement specifies a payment period with reference
to a number of days (e.g., “payment shall be made within thirty (30) days following the date
of termination”), the actual date of payment within the specified period shall be within the
sole discretion of the Company.
4. The fourth sentence of Section 10(b) of the Employment Agreement is hereby amended and
restated to read as follows:
“Any Gross-Up Payment, as determined pursuant to this Section 10 shall be paid by the
Employer to the Executive within five days of receipt of the Accounting Firm’s
determination, but in no event later than the end of the taxable year following the taxable
year in which the related taxes are remitted by the Executive.”
5. The Employment Agreement is hereby amended by adding a new last sentence to the definition
of Change in Control in Section 25 of the Employment Agreement to read as follows:
“Notwithstanding the foregoing, for purposes of the payment of any deferred compensation
under Section 5(f)(1)(a)(C) hereof and the corresponding clause (C) of Schedule III to
Exhibit A of this Agreement, an event shall not be considered to be a Change in Control
hereunder unless such event is also a “change in ownership,” a “change in effective control”
or a “change in the ownership of a substantial portion of the assets” of the Company within
the meaning of Code Section 409A.”
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6. The definition of Good Reason in Section 25 of the Employment Agreement is hereby deleted
in its entirety and amended and restated to read as follows:
“Good Reason” means, unless otherwise agreed to in writing by the Executive, (i) any
diminution or adverse change in the Executive’s titles; (ii) a material reduction in the
Executive’s Base Salary or, after a Change in Control, the annual bonus payable to the
Executive under Section 5(b); (iii) a requirement that the Executive report to someone other
than the Employer’s Chief Executive Officer; (iv) a material diminution in the Executive’s
authority, responsibilities or duties or material interference with the Executive’s carrying
out his duties; (v) the assignment of duties inconsistent with the Executive’s position or
status with the Employer as of the date hereof; (vi) a relocation of the Executive’s primary
place of employment to a location more than 25 miles further from the Executive’s primary
residence than the current location of the Employer’s offices; (vii) any other material
breach of the terms of this Agreement or any other agreement that breach; (viii) the failure
of the Employer to obtain the assumption in writing of its obligations under this Agreement
by any successor to all or substantially all of the assets of the Employer within 15 days
after a merger, consolidation, sale or similar transaction; or (ix) the delivery of a notice
of Non-Renewal by the Employer at any time up to and including April 4, 2023. In order to
invoke a termination for Good Reason, the Executive must deliver a written notice of such
breach to the Employer within 60 days of the occurrence of the breach which shall have 30
days to cure the breach. In order to terminate his employment, if at all, for Good Reason,
Executive must terminate employment within 30 days of the end of the cure period if the
breach has not been cured.
7. The second release in Exhibit B is hereby deleted.
8. The provisions of this Amendment No. 3 may be amended and waived only with the prior
written consent of the parties hereto. This Amendment No. 3 may be executed and delivered in one
or more counterparts, each of which shall be deemed an original and together shall constitute one
and the same instrument.
9. Except as set forth in this Amendment No. 3, the Employment Agreement shall remain
unchanged and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment No. 3 on the
date first written above.
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| CAPITALSOURCE INC. |
||||
| By: | /s/ XXXXXX X. XXXXXXX | |||
| Name: | Xxxxxx X. Xxxxxxx | |||
| Title: | Chief Legal Officer | |||
| EXECUTIVE |
||||
| By: | /s/ XXXX X. XXXXXX | |||
| Xxxx X. Xxxxxx | ||||
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