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”).
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.
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.
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.
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.
(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.
(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.
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.
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.
(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.
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.
| (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.
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).
“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.
| CAPITALSOURCE INC. |
||||
| /s/ Xxxx X. Xxxxxxx | ||||
| Name: | Xxxx X. Xxxxxxx | |||
| Title: | CEO | |||
| EXECUTIVE |
||||
| /s/ Xxxxxx X. Xxxxxxx | ||||
| Xxxxxx X. Xxxxxxx | ||||