EMPLOYMENT AGREEMENT
Exhibit 10.34
This EMPLOYMENT AGREEMENT (“Agreement”) is entered into as of this 1st day of February 2007
(the “Effective Date”), by and between CapitalSource Inc., a Delaware corporation (the “Employer”
or the “Company”), and Xxxxxx X. Xxxxxxx, an individual (the “Executive”).
WHEREAS, the Executive is currently employed as Executive Vice President and Chief Legal
Officer; and
WHEREAS, the Employer and the Executive desire to enter into this Agreement to set out the
terms and conditions for the continued employment relationship of the Executive with the Employer.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto agree as follows:
1. Employment Agreement. On the terms and conditions set forth in this Agreement, the
Employer agrees to continue to employ the Executive and the Executive agrees to continue to be
employed by the Employer for the Employment Period set forth in Section 2 and in the positions and
with the duties set forth in Section 3. Terms used herein with initial capitalization not
otherwise defined are defined in Section 25.
2. Term. The initial term of employment under this Agreement shall be for a five-year
period commencing on the Effective Date (the “Initial Term”). The term of employment shall be
automatically extended for an additional consecutive 12-month period (the “Extended Term”) on
February 1, 2012 and each subsequent February 1, unless and until the Employer or Executive
provides written notice to the other party in accordance with Section 13 hereof not less than 60
days before such anniversary date that such party is electing not to extend the term of employment
under this Agreement (“Non-Renewal”), in which case the term of employment hereunder shall end as
of the end of such Initial Term or Extended Term, as the case may be, unless sooner terminated as
hereinafter set forth. Such Initial Term and all such Extended Terms are collectively referred to
herein as the “Employment Period.” Anything herein to the contrary notwithstanding, if on the date
of a Change in Control the remaining term of the Employment Period is less than 24 months, the
Employment Period shall be automatically extended to the end of the 24-month period following such
Change in Control.
3. Position and Duties. During the Employment Period, the Executive shall serve as
Executive Vice President, Chief Legal Officer, Secretary and General Counsel, and as a member of
the Employer’s Credit and Executive Committees (or any successor committees thereto). In such
capacities, prior to a Change in Control the Executive shall report to the Chief Executive Officer
and, in a dual reporting role, the President of the Employer. Subsequent to a Change in Control,
the Executive shall report exclusively to the Chief Executive Officer. In any publications, news
releases, and public filings of the Employer in which the position of the Executive is described,
the Executive shall be referred to as a senior executive, a member of senior management, or other
comparable language. The Executive shall devote the Executive’s reasonable best efforts
and full business time to the performance of the Executive’s duties hereunder and the
advancement of the business and affairs of the Employer; provided that the Executive shall be
entitled to serve as a member of the board of directors of a reasonable number of other companies,
to serve on civic, charitable, educational, religious, public interest or public service boards,
and to manage the Executive’s personal and family investments, in each case, to the extent such
activities do not materially interfere with the performance of the Executive’s duties and
responsibilities hereunder.
4. Place of Performance. During the Employment Period, the Executive shall be based
primarily at a principal office of the Employer designated by the Employer (currently in Chevy
Chase, Maryland) except for reasonable travel on the Employer’s business consistent with the
Executive’s position.
5. Compensation and Benefits.
(a) Base Salary. During the Employment Period, the Employer shall pay to the
Executive a base salary (the “Base Salary”) at the rate of no less than $364,000 per calendar year,
less applicable deductions, and prorated for any partial year. The Base Salary shall be reviewed
for increase by the Employer no less frequently than annually and shall be increased in the
discretion of the Employer, provided however, that such Base Salary shall be increased annually by
at least the same amount as the median base salary increase of the other executive officers of the
Employer. Any such adjusted Base Salary shall constitute the “Base Salary” for purposes of this
Agreement. The Base Salary shall be paid in substantially equal installments in accordance with
the Employer’s regular payroll procedures. The Executive’s Base Salary may not be decreased during
the Employment Period.
(b) Annual Bonus. For each calendar year that ends prior to a Change in Control, the
Executive shall receive an annual cash bonus in an amount determined reasonably and in good faith
by the Employer based upon Employer’s overall performance and business prospects and the
performance of the Executive. For each calendar year that ends after a Change in Control, the
Executive shall be paid in cash an annual bonus in an amount not less than two times the
Executive’s Base Salary as in effect on the last day of such calendar year. Any annual bonus
payable to the Executive hereunder shall be paid at the time bonuses are otherwise paid to other
executive officers of the Employer, but in any event, by March 15 of the calendar year following
the year with respect to which such annual bonus is earned.
(c) Vacation; Benefits. During the Employment Period, the Executive shall be entitled
to at least four weeks of vacation annually. In addition, the Employer shall provide to the
Executive all employee and executive benefit plans, practices, perquisites and programs maintained
by the Employer and made generally available to employees or executives including, without
limitation, all investment opportunities, pension, retirement, profit sharing, incentive
compensation, savings, medical, hospitalization, disability, dental, life or travel accident
insurance, benefit plans, and sick leave on a basis that (i) prior to a Change in Control is
comparable in all material respects to that provided to any other member of the Employer’s
Executive Committee (or successor committee performing substantially similar functions), excluding
the Chief Executive Officer and Chief Investment Officer of the Employer and (ii) following a
Change in Control is comparable in all material respects to that provided to other senior
executives of the
Employer. Subject to the terms of this Agreement, all benefits are provided at the Employer’s sole
discretion. Subject to the terms of this Agreement, the Employer shall have the right to change
insurance carriers and to adopt, amend, terminate or modify employee benefit plans and arrangements
at any time and without the consent of the Executive.
6. Expenses. The Executive is expected and is authorized to incur reasonable expenses
in the performance of his duties hereunder. The Employer shall reimburse the Executive for all
such expenses reasonably and actually incurred in accordance with policies which may be adopted
from time to time by the Employer promptly upon periodic presentation by the Executive of an
itemized account, including reasonable substantiation, of such expenses.
7. Confidentiality, Non-Disclosure and Non-Competition Agreement. The Employer and
the Executive acknowledge and agree that during the Executive’s employment with the Employer, the
Executive will have access to and may assist in developing Company Confidential Information and
will occupy a position of trust and confidence with respect to the Employer’s affairs and business
and the affairs and business of the Company Affiliates. The Executive agrees that the following
obligations are necessary to preserve the confidential and proprietary nature of Company
Confidential Information and to protect the Employer and the Company Affiliates against harmful
solicitation of employees and customers, harmful competition and other actions by the Executive
that would result in serious adverse consequences for the Employer and the Company Affiliates:
(a) Non-Disclosure. During and after the Executive’s employment with the Employer,
the Executive will not knowingly use, disclose or transfer any Company Confidential Information
other than as authorized in writing by the Employer or within the scope of the Executive’s duties
with the Employer as determined reasonably and in good faith by the Executive. Anything herein to
the contrary notwithstanding, the provisions of this Section 7(a) shall not apply (i) when
disclosure is required by law or by any court, arbitrator, mediator or administrative or
legislative body (including any committee thereof) with actual or apparent jurisdiction to order
the Executive to disclose or make accessible any information; (ii) with respect to any other
litigation, arbitration or mediation involving this Agreement, including, but not limited to, the
enforcement of this Agreement; (iii) as to information that becomes generally known to the public
or within the relevant trade or industry other than due to the Executive’s violation of this
Section 7(a); (iv) as to information that is or becomes available to the Executive on a
non-confidential basis from a source which is entitled to disclose it to the Executive; or (v) as
to information that the Executive possessed prior to the commencement of employment with the
Employer.
(b) Materials. The Executive will not remove any Company Confidential Information or
any other property of the Employer or any Company Affiliate from the Employer’s premises or make
copies of such materials except for normal and customary use in the Employer’s business as
determined reasonably and in good faith by the Executive. The Employer acknowledges that the
Executive, in the ordinary course of his duties, routinely uses and stores Company Confidential
Information at home and other locations. The Executive will return to the Employer all Company
Confidential Information and copies thereof and all other property of the Employer or any Company
Affiliate at any time upon the request of the Employer and in any event promptly after termination
of Executive’s employment. The Executive agrees to attempt in good
faith to identify and return to the Employer any copies of any Company Confidential Information
after the Executive ceases to be employed by the Employer. Anything to the contrary
notwithstanding, nothing in this Section 7 shall prevent the Executive from retaining a home
computer, papers and other materials of a personal nature, including diaries, calendars and
Rolodexes, information relating to his compensation or relating to reimbursement of expenses,
information that he reasonably believes may be needed for tax purposes, and copies of plans,
programs and agreements relating to his employment.
(c) No Solicitation or Hiring of Employees. During the Non-Compete Period, the
Executive shall not solicit, entice, persuade or induce any individual who is employed by the
Employer or the Company Affiliates (or who was so employed within 180 days prior to the Executive’s
action) to terminate or refrain from continuing such employment or to become employed by or enter
into contractual relations with any other individual or entity other than the Employer or the
Company Affiliates, and the Executive shall not hire, directly or indirectly, as an employee,
consultant or otherwise, any such person. Anything to the contrary notwithstanding, the Employer
agrees that (i) the Executive’s responding to an unsolicited request from any former employee of
the Employer for advice on employment matters; and (ii) the Executive’s responding to an
unsolicited request for an employment reference regarding any former employee of the Employer from
such former employee, or from a third party, by providing a reference setting forth his personal
views about such former employee, shall not be deemed a violation of this Section 7(c).
Notwithstanding the foregoing, this Section 7(c) shall not preclude the Executive from soliciting
for employment or hiring any person who has been discharged by the Employer or any Company
Affiliate without cause.
(d) Non-Competition.
(i) During the Non-Compete Period, the Executive shall not, directly or indirectly, (A)
solicit or encourage any client or customer of the Employer or a Company Affiliate, or any person
or entity who was a client or customer within 180 days prior to Executive’s action to terminate,
reduce or alter in a manner adverse to the Employer, any existing business arrangements with the
Employer or a Company Affiliate or to transfer existing business from the Employer or a Company
Affiliate to any other person or entity, or (B) provide services to any entity if (i) during the
preceding 12 months more than 5% of the revenues of such entity and its affiliates is derived from
any business from which the Employer derived more than 5% of its revenues during such period (a
“Material Business”) or (ii) the services to be provided by the Executive are competitive with a
Material Business and substantially similar to those previously provided by the Executive to the
Employer; provided, however, that following a Change in Control this Section 7(d)(i)(B)(i) shall
not apply to the Executive, or (C) own an interest in any entity described in subsection (B)(i)
immediately above; provided, however, that Executive may own, as a passive investor, securities of
any such entity. For purposes of this Section 7(d), a “client or customer” shall be limited to any
actual borrower of the Employer (as set forth in the Employer’s CAM or substantially similar
successor or related system) and any other entity in the “term sheet issued,” “term sheet executed”
or “credit committee approved” categories listed in the Employer’s DealTracker or substantially
similar successor or related system. The Executive agrees that, before providing services, whether
as an employee or consultant, to any entity during the Non-Compete Period, he will provide a copy
of this Agreement to such entity, and such entity
shall acknowledge to the Employer in writing that it has read this Agreement. The Executive
acknowledges that this covenant has a unique, very substantial and immeasurable value to the
Employer, that the Executive has sufficient assets and skills to provide a livelihood for the
Executive while such covenant remains in force and that, as a result of the foregoing, in the event
that the Executive breaches such covenant, monetary damages would be an insufficient remedy for the
Employer and equitable enforcement of the covenant would be proper.
(ii) If the restrictions contained in Section 7(d)(i) shall be determined by any court of
competent jurisdiction to be unenforceable by reason of their extending for too great a period of
time or over too great a geographical area or by reason of their being too extensive in any other
respect, Section 7(d)(i) shall be modified to be effective for the maximum period of time for which
it may be enforceable and over the maximum geographical area as to which it may be enforceable and
to the maximum extent in all other respects as to which it may be enforceable.
(e) Non-Disparagement. Neither the Company nor the Executive shall initiate,
participate or engage in any communication whatsoever with any current or former customer,
supplier, vendor or competitor of the Company or any Company Affiliate or any of their respective
shareholders, partners, members, directors, managers, officers, employees or agents, or with any
current or former shareholder, director, manager, officer, employee or agent of the Company or any
Company Affiliate, or with any third party, which communication could reasonably be interpreted as
derogatory or disparaging to the Executive or the Company or any Company Affiliate, including but
not limited to the business, practices, policies, shareholders, partners, members, directors,
managers, officers, employees, agents, advisors and attorneys of the Company or any Company
Affiliate.
(f) Publicity. During the Employment Period, the Executive hereby grants to the
Employer the right to use, in a reasonable and appropriate manner, the Executive’s name and
likeness, without additional consideration, on, in and in connection with technical, marketing or
disclosure materials, or any combination thereof, published by or for the Employer or any Company
Affiliate.
(g) Conflicting Obligations and Rights. The Executive agrees to inform the Employer
of any apparent conflicts between the Executive’s work for the Employer and any obligations the
Executive may have to preserve the confidentiality of another’s proprietary information or related
materials before using the same on the Employer’s behalf. The Employer shall receive such
disclosures in confidence and consistent with the objectives of avoiding any conflict of
obligations and rights or the appearance of any conflict of interest.
(h) Enforcement. The Executive acknowledges that in the event of any breach of this
Section 7, the business interests of the Employer and the Company Affiliates will be irreparably
injured, the full extent of the damages to the Employer and the Company Affiliates will be
impossible to ascertain, monetary damages will not be an adequate remedy for the Employer
and the Company Affiliates, and the Employer will be entitled to enforce this Agreement by a
temporary, preliminary and/or permanent injunction or other equitable relief, without the necessity
of posting bond or security, which the Executive expressly waives. The Executive understands that
the Employer may waive some of the requirements expressed in this Agreement, but that such
a waiver to be effective must be made in writing and should not in any way be deemed a waiver of
the Employer’s right to enforce any other requirements or provisions of this Agreement. The
Executive agrees that each of the Executive’s obligations specified in this Agreement is a separate
and independent covenant and that the unenforceability of any of them shall not preclude the
enforcement of any other covenants in this Agreement. The Executive further agrees that any breach
of this Agreement by the Employer prior to the Date of Termination shall not release the Executive
from compliance with his obligations under this Section 7, so along as the Employer fully complies
with Sections 9, 10, 11, and 12. The Employer further agrees that any breach of this Agreement by
the Executive that does not result in the Executive’s being terminated for Cause, other than a
willful (as defined in the definition of “Cause”) and material breach of Sections 7(d)(i)(B) or
7(d)(i)(C) after his employment has terminated, shall not release the Employer from compliance with
its obligations under this Agreement. Notwithstanding the foregoing two sentences, neither party
shall be precluded from pursuing judicial remedies as a result of any such breaches.
8. Termination of Employment.
(a) Permitted Terminations. The Executive’s employment hereunder may be terminated
during the Employment Period under the following circumstances:
(i) Death. The Executive’s employment hereunder shall terminate upon the Executive’s
death;
(ii) By the Employer. The Employer may terminate the Executive’s employment for:
(A) Disability. If the Executive shall have been substantially unable to perform,
despite reasonable accommodation, the Executive’s material duties hereunder by reason of illness,
physical or mental disability or other similar incapacity, which inability shall continue for 180
consecutive days or 270 days in any 24-month period (a “Disability”) (provided, that until such
termination, the Executive shall continue to receive his compensation and benefits hereunder,
reduced by any benefits payable to him under any Employer-provided disability insurance policy or
plan applicable to him or her); or
(B) Cause. For Cause or without Cause;
(iii) By the Executive. The Executive may terminate his employment for any reason
(including Good Reason) or for no reason.
(b) Termination. Any termination of the Executive’s employment by the Employer or the
Executive (other than because of the Executive’s death) shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 13 hereof. For purposes of this
Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon, if any, and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of the Executive’s
employment under the provision so indicated. Termination of the Executive’s employment shall take
effect on the Date of Termination. The Executive agrees, in the event of
any dispute under Section 8(a)(ii)(A) as to whether a Disability exists, and if requested by the
Employer, to submit to a physical examination by a licensed physician selected by mutual consent of
the Employer and the Executive, the cost of such examination to be paid by the Employer. The
written medical opinion of such physician shall be conclusive and binding upon each of the parties
hereto as to whether a Disability exists and the date when such Disability arose. This Section
shall be interpreted and applied so as to comply with the provisions of the Americans with
Disabilities Act and any applicable state or local laws.
9. Compensation Upon Termination.
(a) Death. If the Executive’s employment is terminated during the Employment Period
as a result of the Executive’s death, this Agreement and the Employment Period shall terminate
without further notice or any action required by the Employer or the Executive’s legal
representatives. Upon the Executive’s death, the Employer shall pay or provide the following:
(i) Base Salary. The Employer shall pay to the Executive’s legal representative or
estate, as applicable, a cash lump sum amount equal to one year’s Base Salary within thirty days
following the Executive’s death;
(ii) Accrued Benefits. The Employer shall pay to the Executive’s legal representative
or estate, as applicable, the Accrued Benefits and the rights of the Executive’s legal
representative or estate with respect to equity or equity-related awards shall be governed by the
applicable terms of the related plan or award agreement; and
(iii) Equity Awards. All outstanding equity awards held by the Executive immediately
prior to his death shall immediately vest (with outstanding options remaining exercisable for the
length of their remaining term).
The Employer shall pay to the Executive’s estate, or as may be directed by the legal
representatives of such estate, the Executive’s Accrued Benefits due pursuant to Section 9(a)(ii),
at the time such payments are due. Any payments by the Employer pursuant to this Section 9(a)
shall be reduced by the amount of any payments to the Executive’s beneficiaries or estate paid on
account of any life insurance plan or policy provided by the Employer for the benefit of the
Executive. Except as set forth herein, the Employer shall have no further obligation to the
Executive under this Agreement.
(b) Disability. If the Employer terminates the Executive’s employment during the
Employment Period because of the Executive’s Disability pursuant to Section 8(a)(ii)(A), (i) the
Employer shall pay to the Executive the Executive’s Base Salary due through the Date of
Termination, (ii) all Accrued Benefits, if any, to which the Executive is entitled as of the Date
of Termination at the time such payments are due, and (iii) all outstanding equity awards held by
the Executive immediately prior to his termination shall immediately vest (with outstanding options
remaining exercisable for the length of their remaining term). Except as set forth herein, the
Employer shall have no further obligations to the Executive under this Agreement.
(c) Termination by the Employer for Cause or by the Executive without Good Reason.
If, during the Employment Period, the Employer terminates the Executive’s employment for Cause
pursuant to Section 8(a)(ii)(B) or the Executive terminates his employment without Good Reason, the
Employer shall pay to the Executive the Executive’s Base Salary due through the Date of Termination
and all Accrued Benefits, if any, to which the Executive is entitled as of the Date of Termination,
at the time such payments are due, and the Executive’s rights with respect to equity or
equity-related awards shall be governed by the applicable terms of the related plan or award
agreement. In addition, if the Executive voluntarily terminates his employment without Good Reason
after a Change in Control, the Employer shall: (i) continue to pay the Executive his Base Salary
in effect on his Date of Termination (without giving any effect to reductions thereto after a
Change in Control) during the Non-Compete Period; and (ii) immediately pay the Executive in a cash
lump sum an amount equal to a pro rata portion (based upon the number of days that the Executive
was employed during the calendar year in which the Date of Termination occurs) of the minimum cash
bonus required to be paid by the Employer under Section 5(b) for the year of his termination.
Except as set forth herein, the Employer shall have no further obligations to the Executive under
this Agreement.
(d) Termination by the Employer without Cause or by the Executive with Good
Reason. If the Employer terminates the Executive’s employment during the Employment Period
other than for Cause or Disability pursuant to Section 8(a) or if the Executive terminates his
employment hereunder with Good Reason, (i) the Employer shall pay the Executive (A) the Executive’s
Base Salary due through the Date of Termination, (B) a cash lump sum in an amount equal to a pro
rata portion (based upon the number of days the Executive was employed during the calendar year in
which the Date of Termination occurs) of the higher of (1) the average amount of the annual
bonuses, if any, that were earned by the Executive for the two calendar years immediately preceding
the year of the Date of Termination and (2) $750,000, (C) a cash lump sum in an amount equal to the
greater of (i) two times the sum of the Executive’s Base Salary and the average of the annual
bonuses earned by the Executive for the two calendar years immediately preceding the year of the
Date of Termination, if any, and (ii) $1.8 million (D) all Accrued Benefits, if any, to which the
Executive is entitled as of the Date of Termination, in each case at the time such payments are
due; and (ii) (A) all deferred compensation credited on the Executive’s behalf and all equity or
equity-related awards held by, or credited to, the Executive (including, without limitation, stock
options, stock appreciation rights, restricted stock awards, dividend equivalent rights, restricted
stock units or deferred stock awards) shall immediately vest and, if applicable, become
exercisable, (B) all stock options, stock appreciation rights or other similar rights held by the
Executive shall remain exercisable for the remainder of their originally scheduled terms, and (C)
all deferred compensation or other equity or equity-related awards will be transferred or
distributed to the Executive within 10 days of the Executive’s Date of Termination; and (iii) the
Executive and his covered dependents shall be entitled to continued participation on the same terms
and conditions as applicable immediately prior to the Executive’s Date of Termination for the
greater of (A) 24 months or (B) the balance of the Employment Period in such medical, dental,
hospitalization and life insurance coverages in which the Executive and his eligible dependents
were participating immediately prior to the Date of Termination; provided that if such continued
coverage is not permitted under the terms of such benefit plans, the Employer shall pay Executive
an additional grossed up amount that, on an after-tax basis, such payment is equivalent to the cost
of comparable coverage obtained by Executive.
(e) Liquidated Damages. The parties acknowledge and agree that damages which will
result to the Executive for termination by the Employer of the Executive’s employment without Cause
or by the Executive for Good Reason shall be extremely difficult or impossible to establish or
prove, and agree that the amounts payable to the Executive under Section 9(d) (the “Severance
Payments”) shall constitute liquidated damages for any such termination. The Executive agrees
that, except for such other payments and benefits to which the Executive may be entitled as
expressly provided by the terms of this Agreement or any other applicable benefit plan, such
liquidated damages shall be in lieu of all other claims that the Executive may make by reason of
any such termination of his employment and that, as a condition to receiving the Severance
Payments, the Executive will execute a release of claims substantially in the form of the release
attached hereto as Exhibit A. Within two business days of the Date of Termination, the Employer
shall deliver to the Executive the release for the Executive to execute. Subject to Section 9(g)
below, the Severance Payments shall be made within three business days of the expiration of the
revocation period without the release being revoked. In addition, the Employer will execute a
release of claims substantially in the form of the release attached hereto as Exhibit B and will
deliver such release to the Executive along with the Severance Payments.
(f) No Offset. In the event of termination of his employment, the Executive shall be
under no obligation to seek other employment and there shall be no offset against amounts due to
him on account of any remuneration or benefits provided by any subsequent employment he may obtain.
The Employer’s obligation to make any payment pursuant to, and otherwise to perform its
obligations under, this Agreement shall not be affected by any offset, counterclaim or other right
that the Employer or its affiliates may have against him for any reason.
(g) 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 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 the parties shall promptly execute any
amendment reasonably necessary to implement this Section 9(g). The Executive and the Employer agree
to cooperate to make such amendments to the terms of this Agreement as may be necessary to avoid
the imposition of penalties and additional taxes under Section 409A of the Code to the extent
possible; provided however, that the Employer agrees that any such amendment shall provide the
Executive with economically equivalent payments and benefits, and the Executive agrees that any
such amendment will not materially increase the cost to, or liability of, the Employer with respect
to any payments.
(10). Certain Additional Payments by the Employer.
(a) If it shall be determined that any benefit provided to the Executive or payment or
distribution by or for the account of the Employer to or for the benefit of the Executive, whether
provided, paid or payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (a “Payment”) would be subject to the excise tax imposed by Section 4999, or any
interest or penalties are incurred by the Executive with respect to such excise tax (such excise
tax, together with any such interest and penalties, collectively, the “Excise Tax”), then the
Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an
amount such that after payment by the Executive of the Excise Tax and all other U.S. federal,
state, and local income, employment, excise and other taxes that are imposed on the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the sum of (A) the Excise
Tax imposed upon the Payments and (B) the product of any deductions disallowed because of the
inclusion of the Gross-Up Payment in the Executive’s adjusted gross income and the highest
applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up
Payment is to be made.
(b) All determinations required to be made under this Section 10, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by the Employer’s independent, certified
public accounting firm or such other certified public accounting firm as may be designated by the
Executive and shall be reasonably acceptable to the Employer (the “Accounting Firm”) which shall
provide detailed supporting calculations both to the Employer and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment, or such earlier
time as is requested by the Employer. If the Accounting Firm is serving as accountant or auditor
for the individual, entity or group effecting a change in the ownership or effective control (as
defined for purposes of Section 280G of the Code) of the Employer, the Executive shall appoint
another nationally recognized accounting firm which is reasonably acceptable to the Employer to
make the determinations required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by
the Employer. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by
the Employer to the Executive within five days of the receipt of the Accounting Firm’s
determination. Any determination by the Accounting Firm shall be binding upon the Employer and the
Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is possible that additional
Gross-Up Payments shall be required to be made to compensate the Executive for amounts of Excise
Tax later determined to be due, consistent with the calculations required to be made hereunder (an
“Underpayment”). If the Employer exhausts its remedies pursuant to Section 10(c) and the Executive
is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Employer
to or for the benefit of the Executive.
(c) The Executive shall notify the Employer in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Employer of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no later than 10 business days after
the Executive is informed in writing of such claim and shall apprise the Employer of the nature of
such claim and the date on which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on which it gives such
notice to the Employer (or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Employer notifies the Executive in writing prior to the
expiration of such period that they desire to contest such claim, the Executive shall:
(i) give the Employer any information reasonably requested by the Employer relating to such
claim;
(ii) take such action in connection with contesting such claim as the Employer shall
reasonably request in writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by the Employer;
(iii) cooperate with the Employer in good faith effectively to contest such claim; and
(iv) permit the Employer to participate in any proceedings relating to such claim; provided,
however, that the Employer shall bear and pay directly all costs and expenses (including additional
interest and penalties incurred in connection with such contest) and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and payment of costs and
expenses.
11. Indemnification. During the Employment Period and thereafter, the Employer agrees
to indemnify and hold the Executive and the Executive’s heirs and representatives harmless, to the
maximum extent permitted by law, against any and all damages, costs, liabilities, losses and
expenses (including reasonable attorneys’ fees) as a result of any claim or proceeding (whether
civil, criminal, administrative or investigative), or any threatened claim or proceeding (whether
civil, criminal, administrative or investigative), against the Executive that arises out of or
relates to the Executive’s service as an officer, director or employee, as the case may be, of the
Employer, or the Executive’s service in any such capacity or similar capacity with an affiliate of
the Employer or other entity at the request of the Employer, both prior to and after the Effective
Date, and promptly to advance to the Executive or the Executive’s heirs or representatives any and
all such expenses upon written request with appropriate documentation of such expense and upon
receipt of an undertaking by the Executive or on the Executive’s behalf to repay such amount if it
shall ultimately be determined that the Executive is not entitled to be indemnified by the
Employer. During the Employment Period and thereafter, the Employer also shall provide the
Executive with coverage under its current directors’ and officers’ liability policy to the same
extent that it provides such coverage to its other executive officers. If the Executive has any
knowledge of any actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, as to which the Executive may request indemnity under this
provision, the Executive will give the Employer prompt written notice thereof; provided that the
failure to give such notice shall not affect the Executive’s right to indemnification. The
Employer shall be entitled to assume the defense of any such proceeding and the Executive will use
reasonable efforts to cooperate with such defense. To the extent that the Executive in good faith
determine that there is an actual or potential conflict of interest between the Employer and the
Executive in connection with the defense of a proceeding, the Executive shall so notify the
Employer and shall be entitled to separate representation at the Employer’s expense by counsel
selected by the Executive (provided that the Employer may reasonably object to the selection of
counsel within ten (10) business days after notification thereof) which counsel shall cooperate,
and coordinate the defense, with the Employer’s counsel and minimize the expense of such separate
representation to the extent
consistent with the Executive’s separate defense and to the extent possible and consistent with all
applicable rules of legal ethics. This Section 11 shall continue in effect after the termination
of the Executive’s employment or the termination of this Agreement.
12. Attorney’s Fees. The Employer shall advance the Executive (and his beneficiaries)
any and all costs and expenses (including without limitation attorneys’ fees and other charges of
counsel) incurred by the Executive (or any of his beneficiaries) in resolving any controversy,
dispute or claim arising out of or relating to this Agreement, any other agreement or arrangement
between the Executive and the Employer, the Executive’s employment with the Employer, or the
termination thereof; provided that the Executive shall reimburse the Employer any advances on a net
after-tax basis to cover expenses incurred by the Executive for claims (a) brought by the Employer
on account of the Executive’s alleged breach of Section 7 of this Agreement, breach of the
Executive’s fiduciary duty of loyalty, or fraud or material misconduct, if it is judicially
determined that the Employer is the prevailing party, or (b) brought by the Executive that are
judicially determined to be frivolous or advanced in bad faith. Pending the resolution of any such
claim, the Executive (and his beneficiaries) shall continue to receive all payments and benefits
described in Section 5 of this Agreement. This Section 12 shall continue in effect after the
termination of the Executive’s employment or the termination of this Agreement.
13. Notices. All notices, demands, requests, or other communications which may be or
are required to be given or made by any party to any other party pursuant to this Agreement shall
be in writing and shall be hand delivered, mailed by first-class registered or certified mail,
return receipt requested, postage prepaid, delivered by overnight air courier, or transmitted by
facsimile transmission addressed as follows:
| (i) | If to the Employer: |
CapitalSource Inc.
0000 Xxxxxxx Xxxxxx
12th Floor
Chevy Chase, Maryland 20815
Attn: Chief Executive Officer
Facsimile Number: 000-000-0000
0000 Xxxxxxx Xxxxxx
12th Floor
Chevy Chase, Maryland 20815
Attn: Chief Executive Officer
Facsimile Number: 000-000-0000
| (ii) | If to the Executive: |
Xxxxxx X. Xxxxxxx
Address last shown on the Employer’s Records
Address last shown on the Employer’s Records
Each party may designate by notice in writing a new address to which any notice, demand,
request or communication may thereafter be so given, served or sent. Each notice, demand, request,
or communication that shall be given or made in the manner described above shall be deemed
sufficiently given or made for all purposes at such time as it is delivered to the addressee (with
the return receipt, the delivery receipt, confirmation of facsimile transmission or the affidavit
of messenger being deemed conclusive but not exclusive evidence of such delivery) or at such time
as delivery is refused by the addressee upon presentation.
14. Severability. The invalidity or unenforceability of any one or more provisions of
this Agreement shall not affect the validity or enforceability of the other provisions of this
Agreement, which shall remain in full force and effect.
15. Effect on Other Agreements. The provisions of this Agreement shall supersede the
terms of any plan, policy, agreement, award or other arrangement of the Employer (whether entered
into before or after the Effective Date) to the extent application of the terms of this Agreement
is more favorable to the Executive.
16. Survival. It is the express intention and agreement of the parties hereto that
the provisions of Sections 7, 9, 10, 11, 12, 13, 15, 17, 18, 19, 21, 22 and 24 hereof and this
Section 16 shall survive the termination of employment of the Executive. In addition, all
obligations of the Employer to make payments hereunder shall survive any termination of this
Agreement on the terms and conditions set forth herein.
17. Assignment. The rights and obligations of the parties to this Agreement shall not
be assignable or delegable, except that (i) in the event of the Executive’s death, the personal
representative or legatees or distributees of the Executive’s estate, as the case may be, shall
have the right to receive any amount owing and unpaid to the Executive hereunder and (ii) the
rights and obligations of the Employer hereunder shall be assignable and delegable in connection
with any subsequent merger, consolidation, sale of all or substantially all of the assets or equity
interests of the Employer or similar transaction involving the Employer or a successor corporation.
The Employer shall require any successor to the Employer to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Employer would be required to
perform it if no such succession had taken place.
18. Binding Effect. Subject to any provisions hereof restricting assignment, this
Agreement shall be binding upon the parties hereto and shall inure to the benefit of the parties
and their respective heirs, devisees, executors, administrators, legal representatives, successors
and assigns.
19. Amendment; Waiver. This Agreement shall not be amended, altered or modified
except by an instrument in writing duly executed by the party against whom enforcement is sought.
Neither the waiver by either of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure of either of the parties, on one or more occasions,
to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder,
shall thereafter be construed as a waiver of any subsequent breach or default of a similar nature,
or as a waiver of any such provisions, rights or privileges hereunder.
20. Headings. Section and subsection headings contained in this Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of this Agreement for
any purpose, and shall not in any way define or affect the meaning, construction or scope of any of
the provisions hereof.
21. Governing Law. This Agreement, the rights and obligations of the parties hereto,
and any claims or disputes relating thereto, shall be governed by and construed in accordance with
the laws of the State of Maryland (but not including any choice of law rule thereof that would
cause the laws of another jurisdiction to apply).
22. Entire Agreement. This Agreement constitutes the entire agreement between the
parties respecting the employment of the Executive, there being no representations, warranties or
commitments except as set forth herein.
23. Counterparts. This Agreement may be executed in two counterparts, each of which
shall be an original and all of which shall be deemed to constitute one and the same instrument.
24. Withholding. The Employer may withhold from any benefit payment under this
Agreement all federal, state, city or other taxes as shall be required pursuant to any law or
governmental regulation or ruling; provided that any withholding obligation arising in connection
with the exercise of a stock option or the transfer of stock or other property shall be satisfied
through withholding an appropriate number of shares of stock or appropriate amount of such other
property.
25. Definitions.
“Accrued Benefits” means (i) any compensation deferred by the Executive prior to the Date of
Termination and not paid by the Employer or otherwise specifically addressed by this Agreement;
(ii) any amounts or benefits owing to the Executive or to the Executive’s beneficiaries under the
then applicable benefit plans of the Employer; (iii) any amounts owing to the Executive for
reimbursement of expenses properly incurred by the Executive prior to the Date of Termination and
which are reimbursable in accordance with Section 6; and (iv) any other benefits or amounts due and
owing to the Executive under the terms of any plan, program or arrangement of the Employer.
“Cause” shall be limited to the following events (i) the Executive’s conviction of, or plea of
nolo contendere to, a felony (other than in connection with a traffic violation) under any state or
federal law; (ii) the Executive’s willful and continued failure to substantially perform his
essential job functions hereunder after receipt of written notice from the Employer that
specifically identifies the manner in which the Executive has substantially failed to perform his
essential job functions and specifying the manner in which the Executive may substantially perform
his essential job functions in the future; (iii) a material act of fraud or willful and material
misconduct with respect, in each case, to the Employer, by the Executive; (iv) a willful and
material breach of Section 7(d)(i) of this Agreement, or (v) the hiring of any person who was an
employee of the Employer within 180 days prior to such hiring, other than to perform services for
the benefit of the Employer. For purposes of this provision, no act or failure to act, on the part
of the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the
Executive in bad faith or without reasonable belief that the Executive’s action or omission was in
the best interests of the Employer. Anything herein to the contrary notwithstanding, the Executive
shall not be terminated for “Cause” hereunder unless (A) written notice stating the basis for the
termination is provided to
the Executive, and (B) as to clauses (ii), (iii) or (iv) of this paragraph, he is given 30 days to
cure the neglect or conduct that is the basis of such claim (it being understood that any errors in
expense reimbursement may be cured by repayment), (C) if he fails to cure such neglect or conduct,
the Executive has an opportunity to be heard with counsel of his choosing before the full Board
prior to any vote regarding the existence of Cause and (D) there is a vote of a majority of the
members of the Board to terminate him for Cause.
“Change in Control” means the occurrence of one or more of the following events: (i) any
“person” (as such terms is used in Sections 3(a)(9) and 13(d) of the Securities Exchange Act of
1934 as amended (the “Act”)) or “group” (as such term is used in Section 14(d)(d) of the Act) is or
becomes a “beneficial owner” (as such term is used in Rule 13d-3 promulgated under the Act) of more
than 30% of the voting Stock of the Employer; (ii) the majority of the Board of Directors of the
Employer (the “Board”) consists of individuals other than Incumbent Directors, which term means the
members of the Board on the Effective Date; provided that any person becoming a director subsequent
to such date whose election or nomination for election was supported by two-thirds of the directors
who then comprised the Incumbent Directors shall be considered to be an Incumbent Director; (iii)
the Employer adopts any plan of liquidation providing for the distribution of all or substantially
all of its assets; (iv) the Employer transfers all or substantially all of its assets or business
(unless the shareholders of the Employer immediately prior to such transaction beneficially own,
directly or indirectly, in substantially the same proportion as they owned the Voting Stock of the
Employer, all of the Voting Stock or other ownership interests of the entity or entities, if any,
that succeed to the business of the Employer); or (v) any merger, reorganization, consolidation or
similar transaction unless, immediately after consummation of such transaction, the shareholders of
the Employer immediately prior to the transaction hold, directly or indirectly, more than 50% of
the Voting Stock of the Employer or the Employer’s ultimate parent company if the Employer is a
subsidiary of another corporation (there being excluded from the number of shares held by such
shareholders, but not from the Voting Stock of the combined company, any shares received by
Affiliates of such other company in exchange for stock of such other company). For purposes of
this Change in Control definition, the “Employer” shall include any entity that succeeds to all or
substantially all of the business of the Employer and “Voting Stock” shall mean securities of any
class or classes having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
“Company Affiliate” means any entity controlled by, in control of, or under common control
with, the Employer.
“Company Confidential Information” means information known to the Executive to constitute
trade secrets or proprietary information belonging to the Employer or other confidential financial
information, operating budgets, strategic plans or research methods, personnel data, projects or
plans, or non-public information regarding the terms of any existing or pending lending transaction
between Employer and an existing or pending client or customer (as the phrase “client or customer”
is defined in Section 7(d)(i) hereof), in each case, received by the Executive in the course of his
employment by the Employer or in connection with his duties with the Employer. Notwithstanding
anything to the contrary contained herein, the general skills, knowledge and experience gained
during the Executive’s employment with the Employer, information publicly available or generally
known within the industry or trade in which the Employer competes and
information or knowledge possessed by the Executive prior to his employment by the Employer, shall
not be considered Company Confidential Information.
“Date of Termination” means (i) if the Executive’s employment is terminated by the Executive’s
death, the date of the Executive’s death; (ii) if the Executive’s employment is terminated because
of the Executive’s Disability pursuant to Section 8(a)(ii)(A), 30 days after Notice of Termination,
provided that the Executive shall not have returned to the performance of the Executive’s duties on
a full-time basis during such 30-day period; (iii) if the Executive’s employment is terminated by
the Employer for Cause pursuant to Section 8(a)(ii)(B) or by the Executive pursuant to Section
8(a)(iii), the date specified in the Notice of Termination; or (iv) if the Executive’s employment
is terminated during the Employment Period other than pursuant to Section 8(a), the date on which
Notice of Termination is given.
“Extended Term” shall have the meaning set forth in Section 2.
“Good Reason” means, unless otherwise agreed to in writing by the Executive, (i) any
diminution or adverse change in any of the Executive’s titles; (ii) 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) prior to a Change in Control a requirement that the Executive report to someone other
than the Employer’s Chief Executive Officer and, in a dual reporting role, President; (iv)
subsequent to a Change in Control a requirement that the Executive report to someone other than the
Employer’s Chief Executive Officer; (v) a material diminution in the Executive’s authority,
responsibilities or duties or material interference with the Executive’s carrying out his duties;
(vi) the assignment of duties inconsistent with the Executive’s position or status with the
Employer as of the date hereof; (vii) 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; (viii) any other material breach of the terms of this Agreement
or any other agreement that breach is not cured within ten days after the Executive’s delivery of a
written notice of such breach to the Employer; (ix) any purported termination of the Executive’s
employment by the Employer that is not effected in accordance with the applicable provisions of
this Agreement; (x) 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 (xi) the
delivery of a notice of Non-Renewal by the Employer at any time up to and including February 1,
2024. In order to invoke a termination for Good Reason, the Executive must terminate his
employment, if at all, within 30 days of the occurrence of any event of “Good Reason.”
Notwithstanding anything to the contrary herein, after a Change of Control, “Good Reason” shall
include Employer no longer having its equity securities trading on the New York Stock Exchange or
the NASDAQ Stock Market.
“Non-Compete Period” means the period commencing on the Effective Date and ending twelve
months after the earlier of the expiration of the Employment Period or the Executive’s Date of
Termination.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement, or have
caused this Agreement to be duly executed and delivered on their behalf.
| CAPITALSOURCE INC. |
||||
| /s/ Xxxx X. Xxxxxxx | ||||
| Name: | Xxxx X. Xxxxxxx | |||
| Title: | CEO | |||
| EXECUTIVE |
||||
| /s/ Xxxxxx X. Xxxxxxx | ||||
| Xxxxxx X. Xxxxxxx | ||||
