EXECUTION COPY
AGREEMENT
     THIS AGREEMENT (“Agreement”) made as of this 3rd day of March, 2008,
between SOVEREIGN BANCORP, INC., a Pennsylvania corporation (“SBI”), and KIRK W.
WALTERS, an individual (the “Executive”).
WITNESSETH:
     WHEREAS, Sovereign Bank (the “Bank”) is a wholly-owned subsidiary of SBI;
and
     WHEREAS, SBI and the Executive desire to enter into an agreement regarding,
among other things, the employment of the Executive by SBI, as Chief Financial
Officer of SBI reporting to Joseph P. Campanelli, President and Chief Executive
Officer of SBI.
AGREEMENT:
     NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
     1. Employment. SBI hereby employs the Executive, and the Executive hereby
accepts employment with SBI, on the terms and conditions set forth in this
Agreement, effective as of the date first set forth above.
     2. Duties of Employee. The Executive shall perform and discharge such
duties as may be reasonably assigned to the Executive from time to time by the
Chief Executive Officer of SBI. The Executive’s duties shall be consistent with
his title and shall not be unreasonably or materially changed, considering his
role in the Company; provided, however, that nothing herein shall preclude his
promotion. The Executive shall devote his full business time to the business of
SBI and shall not, during the Employment Period (as defined in Section 3), be
employed or involved in any other business activity. However, this Section 2
shall not be construed as preventing the Executive from (a) investing the
Executive’s personal assets or (b) being involved in any other activity with the
prior approval of the Chief Executive Officer of SBI. The

1

--------------------------------------------------------------------------------

 

EXECUTION COPY
Executive shall have the title of Chief Financial Officer of SBI, reporting
directly to the Chief Executive Officer of SBI.
     3. Term of Employment. The Executive’s employment under this Agreement
shall be for a period (the “Employment Period”) commencing on the date of this
Agreement and ending on the date that is two (2) years subsequent thereto,
provided that on the first and each subsequent annual anniversary date of this
Agreement (an “Anniversary Date”), and unless a party has given the other party
written notice at least sixty (60) days prior to such anniversary date that such
party does not agree to renew this Agreement, the term of this Agreement and the
Employment Period shall be deemed renewed for a term ending two (2) years
subsequent to such anniversary date (or such longer term approved by the SBI
Board of Directors) (a “Scheduled Extension”), unless sooner terminated in
accordance with one of the following provisions:
     (a) The Executive’s employment under this Agreement may be terminated at
any time during the Employment Period for “Cause,” by action of the board of
directors of SBI. As used in this Agreement, “Cause” means any of the following
events:
     (i) the Executive is convicted of or enters a plea of guilty or nolo
contendere to a felony or a crime involving fraud or moral turpitude;
     (ii) the Executive repeatedly fails to follow the lawful instructions of
the Chief Executive Officer of SBI;
     (iii) a government regulatory agency recommends that SBI relieve the
Executive of his duties;
     (iv) the Executive willfully violates any material statute or regulation
(other than traffic violations or similar offenses), or any final cease and
desist order applicable to SBI or the Bank;
     (v) the Executive engages in an activity that results in a breach of
fiduciary duty involving receipt of personal profit by the Executive at the
expense of SBI;

2

--------------------------------------------------------------------------------

 

EXECUTION COPY
     (vi) the Executive commits an act of willful misconduct, intentionally
fails to perform stated lawful duties, or performs his duties under this
Agreement in an incompetent manner; or
     (vii) the Executive materially breaches any material provision of this
Agreement.
If the Executive’s employment is terminated under the provisions of this
Section 3(a), then all rights of the Executive under Section 4 shall cease as of
the effective date of such termination.
     (b) The Executive’s employment under this Agreement may be terminated at
any time during the Employment Period without Cause, by action of the Chief
Executive Officer of SBI, upon giving written notice of such termination to the
Executive at least thirty (30) days prior to the date upon which such
termination shall take effect. If the Executive’s employment is terminated under
the provisions of this Section 3(b), then the Executive shall be entitled to
receive the compensation and benefits set forth in Section 5. For purposes of
this Section 3(b), (i) a material adverse change in the Executive’s duties or
responsibilities following a Change in Control of SBI, or (ii) a violation by
SBI of the last sentence of Section 2 hereof shall be deemed to be a termination
of the Executive’s employment without Cause. Upon the occurrence of any of the
events listed in this Section 3(b), the Executive shall be permitted, within
ninety (90) days of the occurrence of such event, to resign from employment by a
notice in writing delivered to SBI, whereupon he will become entitled to receive
the compensation and benefits set forth in Section 5, provided, however, that
SBI shall be given thirty (30) days from the day it receives the notice of
termination to remedy any such event. Notwithstanding the foregoing, any amounts
payable upon a termination under this Section 3(b) shall be paid only if the
Executive actually terminates employment within two (2) years following the
initial existence of the events listed in this Section.

3

--------------------------------------------------------------------------------

 

EXECUTION COPY
     (c) If the Executive retires or dies, the Executive’s employment under this
Agreement shall be deemed terminated as of the date of the Executive’s
retirement or death, and all rights of the Executive under Section 4 shall cease
and any other amounts or benefits payable to the Executive shall be determined
in accordance with the retirement and insurance programs of SBI then in effect
for senior executive officers. For purposes of this Agreement, the term
“retirement” shall mean voluntary termination on or after age sixty-five (65).
     (d) If the Executive is incapacitated by accident, sickness, or otherwise
so as to render the Executive mentally or physically incapable of performing the
services required under this Agreement, notwithstanding reasonable
accommodation, for a continuous period of six (6) months, then, upon the
expiration of such period or at any time thereafter, by action of the Chief
Executive Officer of SBI, the Executive’s employment under this Agreement may be
terminated immediately. If the Executive’s employment is terminated under the
provisions of this Section 3(d), then all rights of the Executive under
Section 4 shall cease as of the last business day of the week in which such
termination occurs and any other amounts or benefits payable to the Executive
shall be determined in accordance with the retirement and insurance programs of
SBI then in effect for senior executive officers.
     (e) The Executive’s employment under this Agreement may be terminated by
the Executive at any time during the Employment Period for any or no reason, by
giving written notice of such termination to the Chief Executive Officer of SBI
at least thirty (30) days prior to the date upon which such termination is to
take effect. If the Executive terminates his employment under the provisions of
this Section 3(e), then all rights of the Executive under Section 4 hereof shall
cease as of the effective date of such termination.
     (f) Notwithstanding anything in this Section 3 to the contrary, if a
Scheduled Extension of the Employment Period is required to be approved by the
SBI Board of Directors (the “Board”) by then applicable provisions of Office of
Thrift Supervision (“OTS”) regulation or policy, such Scheduled Extension shall
be presented for

4

--------------------------------------------------------------------------------

 

EXECUTION COPY
consideration by the Board in advance of the applicable Anniversary Date, and no
Scheduled Extension shall become effective unless formally approved by the Board
in the manner required from time to time by the OTS.
     4. Employment Period Compensation. The Executive shall be entitled to all
benefits offered by SBI to executives holding comparable positions to those of
the Executive, including, but not limited to, the following:
     (a) Salary. SBI shall pay the Executive a salary, during the Employment
Period, at an annualized rate of Five Hundred Thousand Dollars ($500,000.00) per
year, payable bi-weekly (or in such manner as other senior bank executive
officers are paid). Effective April 1, 2009, and annually thereafter, the
Executive shall be considered for increases, but not decreases, based on
exemplary performance since the last review of his salary level. Any increases
in the Executive’s salary shall be considered amendments to this Section 4(a) to
reflect the increased amount, effective as of the date established for such
increase.
     (b) Bonus. SBI shall pay the Executive bonuses, during the Employment
Period, in such amounts and at such times as may be approved by the Board of
Directors of SBI in its discretion, provided that in no event shall any bonus be
paid later than March 15 of the calendar year next following the year to which
the bonus relates.. For the purpose of determining any annual bonus to which the
Executive may become entitled under a bonus plan maintained from time to time
for senior bank executive officers, the Executive shall be deemed to have a
“target incentive amount” equal to eight-five percent (85%) of his salary as
established under Section 4(a).
     (c) Auto Allowance. So long as Executive is employed by SBI pursuant to
this Agreement, Executive shall be entitled to an auto allowance of $750 per
month (less statutory withholdings) to be applied towards the use or lease of an
automobile used in part for SBI business. Executive shall be responsible for the
costs of purchasing or

5

--------------------------------------------------------------------------------

 

EXECUTION COPY
leasing an automobile as well as for paying all costs related to such
automobile, including without limitation maintenance, registration costs, fuel
and insurance.
     (d) Parking. So long as Executive is employed by SBI pursuant to this
Agreement, SBI shall pay for the cost of Executive’s parking at 75 State Street
or such other mutually agreeable location.
     (e) Temporary Housing; Relocation Costs. SBI shall pay for the cost of for
temporary housing in the Greater Boston Metropolitan Area for Executive in a
two-bedroom furnished apartment at Devonshire (or comparable arrangement) for a
period of six (6) months from the date of this Agreement. Upon Executive’s
relocation to the Greater Boston Metropolitan Area from his current principal
residence, SBI shall also provide Executive a relocation allowance in accordance
with SBI’s Relocation Policy, as amended. Notwithstanding the foregoing, in the
event of a termination of Executive’s employment pursuant to Sections 3(a) or
(e), within one (1) year from the date of this Agreement, Executive shall
reimburse SBI for the cost of such temporary housing and relocation, prorated
for the number of days that Executive is actually employed by SBI during such
one-year period.
     (f) Other Benefits. The Executive shall be entitled to participate in SBI’s
tax-qualified employee benefit plans and SBI shall provide the Executive, during
the Employment Period, with insurance, vacation, pension, and other fringe
benefits in the aggregate not less favorable than those received by other senior
executive officers of SBI.
     (g) Grade Level. Until further increased by appropriate corporate action,
the Executive shall be considered to be within Salary Grade 22 for Human
Resources and related purposes.
     (h) Certain Club Dues and Expenses. Executive shall be paid or reimbursed
for country club dues and business-related expenses at one such club. The
identity of such club will be mutually agreed upon by SBI and the Executive.

6

--------------------------------------------------------------------------------

 

EXECUTION COPY
     5. Rights in Event of Certain Termination of Employment Before Change in
Control Announcement.
     (a) In the event that the Executive’s employment is terminated by SBI
without Cause during the Employment Period, before the occurrence of the
announcement of a transaction involving an actual or potential Change in
Control, the Executive shall be entitled to receive the amounts and benefits set
forth in this Section 5:
     (i) annual salary otherwise accrued or payable through the date of
termination of employment;
     (ii) the greater of (A) continued payments of base salary then in effect
through the end of the Employment Period or a period of twenty-four (24) months,
whichever is longer, or (B) a lump sum severance payment equal to the severance
payment due under SBI’s or the Bank’s Severance Pay Plan applicable to the
Executive at the time of termination; provided, in either case, that the
Executive executes SBI’s standard form of release and waiver; and
     (iii) through the end of the Employment Period or for twenty four
(24) months, whichever is longer, at no charge, continuation of health and
medical benefits substantially similar to the most favorable of such benefits
provided to him at employer’s cost during the two year period immediately prior
to such termination. Executive acknowledges that to the extent such benefits can
not be provided under a plan on a tax free basis because the Executive is no
longer an employee of the Employer, SBI shall treat the value of the monthly
premium cost for such coverage as taxable income to Executive. Nothing herein
shall be deemed to reduce or eliminate SBI’s obligation to provide COBRA
coverage to the Executive.
     (b) All payments required by Section 5(a) shall be paid in a lump sum cash
payment not later than the thirtieth (30th) day following the date of
termination of employment.

7

--------------------------------------------------------------------------------

 

EXECUTION COPY
     (c) The Executive shall not be required to mitigate the amount of any
payment provided for in this section by seeking employment or otherwise nor
shall the amount of any payment provided for in this section be reduced or
offset by the Executive’s subsequent employment.
     (d) The Executive agrees that the amounts set forth in this Section 5
constitute the Executive’s sole and exclusive remedy, contractual or otherwise,
in the event of a termination by SBI of the Executive’s employment without Cause
before the announcement of a transaction involving an actual or potential Change
in Control.
     5A. Rights in Event of Certain Terminations of Employment on or After the
Occurrence of a Change in Control Announcement.
     (a) Events Giving Right to Terminate for Good Reason. If a public
announcement of a transaction involving an actual or potential Change in Control
occurs, and concurrently therewith, or during a period of three (3) months prior
thereto, or during a period of eighteen (18) months thereafter, an event
constituting Good Reason also occurs with respect to the Executive, he may
terminate his employment in accordance with the provisions of Section 5A(b) (or
Section 5A(c) as applicable) and, thereupon, will become entitled to the
payments and benefits described in Sections 5A(f) and 5A(g). As used in this
Agreement, the term “Good Reason” means any of the following events:
     (i) the involuntary termination of the Executive’s employment, other than
an involuntary termination permitted in Sections 3(a) and (d);
     (ii) a material reduction in the Executive’s base and/or annual target
incentive compensation below a level that was in effect immediately prior to the
public announcement;
     (iii) the failure to provide the Executive with a total compensation
package (salary, welfare and pension benefits, and short-term and long-term

8

--------------------------------------------------------------------------------

 

EXECUTION COPY
incentive programs) reasonably comparable to the compensation package provided
to the Executive immediately prior to the public announcement;
     (iv) the permanent reassignment of the Executive to a principal office
which is more than fifty (50) miles from Boston, Massachusetts; and
     (v) any material breach of this Agreement by the Executive’s employer at
any relevant time, coupled with the failure to cure the same within thirty
(30) days after receipt of written notice of such breach from the Executive; and
     (vi) any reduction in title or any material reduction in Executive’s
responsibilities or authority as they exist immediately prior to the public
announcement.
     For purposes of interpreting Clause (v) above, an uncured change in
reporting responsibility, as then in effect under Section 2, shall be deemed a
material breach of this Agreement.
     (b) Notice of Termination. Upon the occurrence of an event of Good Reason
subject to Section 5A(a), the Executive may, within ninety (90) days of the
occurrence of any such event, resign from employment by a notice in writing
(“Notice of Termination”) delivered to SBI, whereupon he will become entitled to
the payments and benefits described in Sections 5A(f) and 5A(g), provided,
however, that SBI shall be given thirty (30) days from the date it receives the
Notice of Termination to remedy such event. Notwithstanding the foregoing, any
amounts payable upon a termination for Good Reason shall be paid only if the
Executive actually terminates employment within two (2) years following the
initial existence of the event constituting Good Reason.
     (c) Notice of Termination (Santander Transaction). Notwithstanding the
foregoing, if a Change of Control occurs to which Banco Santander Central
Hispano SA or one of its affiliates is a party, this subsection (c) shall
replace subsection (b) above. Upon the occurrence of an event of Good Reason
subject to Section 5A(a), the Executive

9

--------------------------------------------------------------------------------

 

EXECUTION COPY
may, within ninety (90) days of the occurrence of any such event, give notice of
his resignation from employment effective as of a date no earlier than 6 months
after the date of the Change in Control by a notice in writing (“Notice of
Termination”) delivered to SBI, whereupon he will become entitled to the
payments and benefits described in Sections 5A(f) and 5A(g), provided, however,
that SBI shall be given thirty (30) days from the date it receives the Notice of
Termination to remedy such event. Notwithstanding the foregoing, any amounts
payable upon a termination for Good Reason shall be paid only if the Executive
actually terminates employment no earlier than 6 months after the date of the
Change in Control and in all events within two (2) years following the initial
existence of the event constituting Good Reason. In the case of a termination
described in Section 5A(a)(i), the 6 month delay described in the preceding
sentence shall not apply.
     (d) Change in Control Defined. As used in this Agreement, “Change in
Control” means the first to occur of any of the following events:
     (i) any “Person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), except for any of SBI’s employee
benefit plans, or any entity holding SBI’s voting securities for, or pursuant
to, the terms of any such plan (or any trust forming a part thereof) (the
“Benefit Plan(s)”), is or becomes the beneficial owner, directly or indirectly,
of SBI’s securities representing 19.9% or more of the combined voting power of
SBI’s then outstanding securities, other than: (A) pursuant to a transaction
excepted in Clause (iii) or (iv); or (B) pursuant to a Buyer Acquisition
Transaction (as defined in the Investment Agreement (the “Investment
Agreement”), between SBI and Banco Santander Central Hispano, S.A., dated as of
October 24, 2005, as amended as of November 22, 2005) effectuated in accordance
with the terms of the Investment Agreement other than a Buyer Acquisition
Transaction contemplated in Sections 8.06 through 8.08 and 8.10 of the
Investment Agreement;

10

--------------------------------------------------------------------------------

 

EXECUTION COPY
     (ii) there occurs a contested proxy solicitation of SBI’s shareholders that
results in the contesting party obtaining the ability to vote securities
representing 19.9% or more of the combined voting power of SBI’s then
outstanding securities;
     (iii) a binding written agreement is executed (and, if legally required,
approved by SBI’s shareholders) providing for a sale, exchange, transfer or
other disposition of all or substantially all of the assets of SBI or of the
Bank to another entity, except to an entity controlled directly or indirectly by
SBI;
     (iv) the shareholders of SBI approve a merger, consolidation, or other
reorganization of SBI, unless:
     (A) under the terms of the agreement approved by SBI’s shareholders
providing for such merger, consolidation or reorganization, the shareholders of
SBI immediately before such merger, consolidation or reorganization, will own,
directly or indirectly immediately following such merger, consolidation or
reorganization, at least 51% of the combined voting power of the outstanding
voting securities of SBI resulting from such merger, consolidation or
reorganization (the “Surviving Corporation”) in substantially the same
proportion as their ownership of the voting securities immediately before such
merger, consolidation or reorganization;
     (B) under the terms of the agreement approved by SBI’s shareholders
providing for such merger, consolidation or reorganization, the individuals who
were members of the Board of Directors of SBI immediately prior to the execution
of such agreement will constitute at least 51% of the members of the board of
directors of the Surviving Corporation after such merger, consolidation or
reorganization; and

11

--------------------------------------------------------------------------------

 

EXECUTION COPY
     (C) based on the terms of the agreement approved by SBI’s shareholders
providing for such merger, consolidation or reorganization, no Person (other
than (A) SBI or any Subsidiary of SBI, (B) any Benefit Plan, (C) the Surviving
Corporation or any Subsidiary of the Surviving Corporation, or (D) any Person
who, immediately prior to such merger, consolidation or reorganization had
beneficial ownership of 19.9% or more of the then outstanding voting securities)
will have beneficial ownership of 19.9% or more of the combined voting power of
the Surviving Corporation’s then outstanding voting securities;
     (v) a plan of liquidation or dissolution of SBI, other than pursuant to
bankruptcy or insolvency laws, is adopted;
     (vi) during any period of two consecutive years, individuals, who at the
beginning of such period, constituted the Board of Directors of SBI cease for
any reason to constitute at least a majority of the Board of Directors of SBI
unless the election, or the nomination for election by SBI’s shareholders, of
each new director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period; or
     (vii) the occurrence of a Triggering Event within the meaning of the Second
Amended and Restated Rights Agreement, between SBI and Mellon Investor Services
LLC, as rights agent, dated as of January 19, 2005, as amended on October 24,
2005, and as it may be further amended from time to time.
     (viii) the occurrence of any other event which is irrevocably designated as
a “change in control” for purposes of this Agreement by resolution adopted by a
majority of the then non-employee directors of SBI.
Notwithstanding Clause (i), a Change in Control shall not be deemed to have
occurred if a Person becomes the beneficial owner, directly or indirectly, of
SBI’s securities representing 19.9% or more of the combined voting power of
SBI’s

12

--------------------------------------------------------------------------------

 

EXECUTION COPY
then outstanding securities solely as a result of an acquisition by SBI of its
voting securities which, by reducing the number of shares outstanding, increases
the proportionate number of shares beneficially owned by such Person to 19.9% or
more of the combined voting power of SBI’s then outstanding securities;
provided, however, that if a Person becomes a beneficial owner of 19.9% or more
of the combined voting power of SBI’s then outstanding securities by reason of
share purchases by SBI and shall, after such share purchases by SBI, become the
beneficial owner, directly or indirectly, of any additional voting securities of
SBI (other than as a result of a stock split, stock dividend or similar
transaction), then a Change in Control of SBI shall be deemed to have occurred
with respect to such Person under Clause (a). In no event shall a Change in
Control of SBI be deemed to occur under Clause (a) with respect to Benefit
Plans.
     (e) Termination of Proposed Change in Control Transaction. If, following a
public announcement described in Subsection (a), a proposed transaction is
terminated without completion, this Agreement shall thereafter be construed as
though no such announcement had ever been made; provided, however, that the
rights associated with any termination of employment or the giving of a Notice
of Termination during the interim period shall be determined without regard to
this subsection.
     (f) Rights Under This Section. In the event the Executive validly and
timely delivers a Notice of Termination to SBI, he will be entitled to receive
the following payments and benefits:
     (i) Basic Payments. The Executive will be paid an amount equal to two
(2) times the sum of (A) the highest annualized base salary paid to him during
the year of termination or the immediately preceding two (2) calendar years, and
(B) the greater of (i) the target bonus in the year of termination or (ii) the
highest bonus paid to him with respect to one of the three (3) calendar years
immediately preceding the year of termination. Such amount will be paid to the
Executive in a lump sum cash payment not later than the thirtieth (30th) day
following the date

13

--------------------------------------------------------------------------------

 

EXECUTION COPY
of termination of employment. For purposes of this Paragraph (i), to the extent
necessary, base salary and bonuses with any predecessor of SBI or an affiliate
thereof shall be taken into account.
     (ii) Health and Medical Benefits. For a period of two (2) years from the
day of termination of employment, the Executive shall be provided, at no charge,
with a continuation of health and medical benefits substantially similar to the
most favorable of such benefits provided to him at his employer’s cost during
the two year period immediately preceding such termination. Executive
acknowledges that to the extent such benefits can not be provided under a plan
on a tax free basis because the Executive is longer an employee of the Employer,
SBI shall treat the value of the monthly premium cost for such coverage as
taxable income to Executive. Nothing herein shall be deemed to reduce or
eliminate SBI’s obligation to provide COBRA coverage to the Executive.
     (g) Legal Expenses. The Executive shall be paid all reasonable legal fees
and expenses when incurred by the Executive in seeking to obtain or enforce any
right or benefit provided by this Section 5A, provided he acts in good faith
with respect to issues raised.
     (h) No Mitigation or Offset. The provisions of Section 5(c) shall apply to
payments made and benefits provided under Section 5A.
     (i) Exclusive Remedy. The Executive agrees that the payments made and
benefits provided under Section 5A shall constitute the Executive’s sole and
exclusive remedy, contractual or otherwise, in the event of a termination for
Good Reason under this section.
     6. No Disclosure of Confidential Information. The Executive agrees that all
customer lists, dealer lists, files and records now or hereafter used by SBI are
the property of SBI and are its trade secrets. Accordingly, the Executive
acknowledges that SBI’s trade secrets as they may exist from time to time and
other confidential information concerning SBI’s business, products,

14

--------------------------------------------------------------------------------

 

EXECUTION COPY
promotion, pricing techniques, business plans, customer lists and credit and
financial data concerning customers are valuable, special and unique assets of
SBI, access to and knowledge of which are essential to the performance of the
Executive’s duties under this Agreement. The Executive further agrees that all
knowledge and information described in the preceding sentence not in the public
domain and heretofore or in the future obtained by the Executive as a result of
employment by SBI shall be considered confidential information and shall not be
disclosed without SBI’s consent. The provisions of the preceding sentence shall
apply during the Executive’s employment and following the termination thereof
for any reason. The provisions of this section may be enforced in the same
manner as described in Section 19. Nothing contained herein shall be deemed to
preclude the Executive from responding to requests for information or inquiries
from the Office of Thrift Supervision or the Federal Deposit Insurance
Corporation.
     6A. Non-Solicitation of Employees - In General. If the Executive
voluntarily leaves employment hereunder during the term of this Agreement, but
before the announcement of a transaction involving an actual or potential Change
in Control, or in the event of his termination under circumstances not
qualifying for payments and benefits under Section 5A, he agrees that, for a
period of twelve (12) months following the date of the termination of his
employment, he shall not solicit employees of SBI or any of its affiliates,
including SBI, to cease employment with SBI or any of its affiliates, including
SBI. To the extent the restrictions in this Section 6A are legally held to be
unreasonable, they shall not be void, but shall be modified to the extent
necessary to make such restrictions reasonable. The provisions of this section
may be enforced in the same manner as described in Section 19.
     7. Notwithstanding anything contained herein to the contrary, if the
Executive is suspended and/or temporarily prohibited from participating in the
conduct of SBI’s affairs by a notice served under Section 8(c)(3) or (g)(1) of
the Federal Deposit Insurance Act (the “FDIA”), SBI’s obligations hereunder
shall be suspended as of the date of service unless stayed by appropriate
judicial proceedings; provided, however, that, if the charges are dismissed, SBI
shall (i) pay the Executive all of the compensation withheld during such
suspension and (ii) reinstate all of its obligations hereunder which were
suspended.

15

--------------------------------------------------------------------------------

 

EXECUTION COPY
     8. Notwithstanding anything contained herein to the contrary, if the
Executive is removed or permanently prohibited from participating in SBI’s
affairs by an order issued under Section 8(a)(4) or (g)(1) of the FDIA, all
obligations of SBI hereunder shall terminate as of the effective date of such
order; provided, however, that any rights of the Executive that have already
vested shall not be affected by such action.
     9. (a) If SBI is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this Section 9(a) shall not affect any vested rights of the Executive.
     (b) All obligations under this Agreement shall terminate, except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of SBI (i) by the Director (the “Director”) of the Office of
Thrift Supervision, or his or her designee, at the time the FDIC enters into an
agreement to provide assistance to or on behalf of SBI under the authority
contained in Section 13(c) of the FDIA or (ii) by the Director, or his or her
designee, at the time the Director, or his or her designee, approves a
supervisory merger to resolve problems related to operation of SBI or when SBI
is determined by the Director to be in an unsafe or unsound condition; provided,
however, that any rights of the Executive that have already vested shall not be
affected by such action.
     10. All payments made to the Executive pursuant to this Employment
Agreement or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. § 1828(k) and any regulations promulgated thereunder.
Notwithstanding the preceding sentence, but only to the extent permitted under
12 U.S.C. §1828(k), in the event that the amounts and benefit payable under this
Agreement, when added to other amounts and benefits which may become payable to
the Executive by SBI and relevant affiliates of SBI, are such that the Executive
becomes subject to the excise tax provisions of Section 280G of the Internal
Revenue Code of 1986, as amended (the “Code”), SBI shall pay him such additional
amount or amounts as will result in his retention (after the payment of all
federal, state and local excise, employment and income taxes on the amount of
such payments and the value of such benefits) of a net amount equal to the net
amount

16

--------------------------------------------------------------------------------

 

EXECUTION COPY
he would have retained had the initially calculated payments and benefits been
subject only to potential income and employment taxation. For purposes of the
preceding sentence, the Executive shall be deemed to be subject to the highest
marginal federal, relevant state and relevant local tax rates. All calculations
required to be made under this section shall be made by independent accountants
of SBI’s choice, subject to the right of the Executive’s representative to
review the same. All such amounts required to be paid shall be paid at the time
any withholding may be required (or, if earlier, the time Executive shall be
required to pay such amounts), and any additional amounts to which Executive may
be entitled shall be paid or reimbursed no later than fifteen (15) days
following confirmation of such amount by SBI’s accountants, but in no event
shall any such amounts be paid later than the end of the Executive’s taxable
year next following the taxable year in which the Executive remits the related
taxes. In the event any amount paid hereunder is subsequently determined to be
in error because estimates were required or otherwise, the parties agree to
reimburse each other to correct such error, as appropriate, and to pay interest
thereon at the applicable federal rate (as determined under Code Section 1274
for the period of time such erroneous amount remained outstanding and
unreimbursed). The parties recognize that the actual implementation of the
provisions of this section are complex and agree to deal with each other in good
faith to resolve any questions or disagreements arising hereunder.
     11. Notices. Any notice required or permitted to be given under this
Agreement shall be deemed properly given if in writing and if mailed by
registered or certified mail, postage prepaid with return receipt requested, to
the residence of the Executive, in the case of notices to the Executive, and to
the principal office of SBI, in the case of notices to SBI.
     12. Waiver. No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by the Executive and an executive officer of SBI specifically
designated by the Board of Directors of SBI. No waiver by any party hereto at
any time of any breach by any other party hereto of, or Compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.

17

--------------------------------------------------------------------------------

 

EXECUTION COPY
     13. Assignment. This Agreement shall not be assignable by either party
hereto, except by SBI to any successor in interest to the business of SBI,
provided that SBI (if it remains a separate entity) shall remain fully liable
under this Agreement for all obligations, payments and otherwise.
     14. Entire Agreement; Other Arrangements Superseded. This Agreement
contains the entire agreement of the parties relating to the subject matter of
this Agreement and, except to the extent not addressed herein and specifically
provided in the letter to the Executive dated February 20, 2008, supersedes any
prior agreement of the parties to which the Executive is a party.
     15. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
     16. Applicable Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the Commonwealth of Massachusetts without
regard to its conflicts of laws principles, unless and to the extent preempted
by the laws of the United States of America.
     17. Headings. The headings of the sections of this Agreement are for
convenience only and shall not control or affect the meaning or construction or
limit the scope or intent of any of the provisions of this Agreement.
     18. Other Rights. Except as otherwise provided herein, nothing herein shall
be construed as limiting, restricting or eliminating any rights the Executive
may have under any plan, contract or arrangement to which he is a party or in
which he is a vested participant; provided, however, that no severance benefits
shall be paid to him under any severance benefit plan of SBI or the Bank unless
they become payable under Section 5(a)(ii).
     19. Nonsolicitation of Employees - Section 5A Applicable. In the event the
Executive becomes entitled to benefits under Section 5A, rather than Section 5,
for a period of one (1) year following his termination of employment, he shall
refrain from directly or indirectly soliciting,

18

--------------------------------------------------------------------------------

 

EXECUTION COPY
for employment or business relationship purposes, employees of SBI, the Bank or
any affiliate of either as of the date of his termination of employment. In the
event of a breach of this section, the Executive’s right to payments and
benefits under Section 5A shall immediately terminate. SBI shall be entitled to
recover any payments or benefits made following commencement of the prohibited
conduct, but before discovery of the same, and may commence an action in any
court of competent jurisdiction for such additional legal and equitable relief
as it may deem necessary or appropriate to recover damages incurred by reason of
such conduct and to precluded continued violation of this section.
     IN WITNESS WHEREOF, the parties have executed this Agreement, or caused it
to be executed, as of the date first above written.

            SOVEREIGN BANCORP, INC.
      By:   /s/ Joseph P. Campanelli               Date: 2/20/2008     

          (SEAL)        Attest:  /s/ Thomas J. McAuliffe             Date:
2/20/2008     

            EXECUTIVE
      By:   /s/ Kirk W. Walters           Kirk W. Walters        Date:
2/20/2008   

19