Exhibit 10.40


Exhibit
10.40

EXECUTIVE
AGREEMENT




THIS
AGREEMENT is made as of this 22nd day of July, 2004, among NATIONAL PENN
BANCSHARES, INC., a Pennsylvania business corporation having its principal place
of business in Boyertown, Pennsylvania ("NPB"), NATIONAL PENN BANK, a national
banking association having its principal place of business in Boyertown,
Pennsylvania ("Bank"), and SANDRA L. SPAYD, an individual residing at 153 Laurel
Road, Boyertown, Pennsylvania ("Executive").




W I T N E S S E T H :




WHEREAS,
Executive is employed by Bank as a Group Executive Vice President and by NPB as
Corporate Secretary; and




WHEREAS,
the Boards of Directors of NPB and Bank deem it advisable to provide Executive
with certain additional benefits in the event of certain changes in control of
NPB or Bank so that Executive will continue to attend to the business of NPB and
Bank without distraction in the face of the potentially disturbing circumstances
arising therefrom.




AGREEMENT




NOW,
THEREFORE, in consideration of the mutual covenants and promises set forth
herein, and each intending to be legally bound, NPB, Bank and Executive agree as
follows:




1. Definitions. The
following terms have the meanings specified below:




a. "Affiliate"
means any corporation which is included within a "controlled group of
corporations" including NPB, as determined under Code Section 1563.




b. "Base
Amount" means Executive's average annualized taxable compensation for the five
(5) years prior to the year in which a Change in Control occurs, determined in
accordance with the provisions of Code Section 280G and regulations promulgated
thereunder.




c. "Cause"
has the meaning set forth in Section 4 hereof.




d. "Change
in Control" means:




i. An
acquisition by any "person" or "group" (as those terms are defined or used in
Section 13(d) of the Exchange Act) of "beneficial ownership" (within the meaning
of Rule 13d-3 under the Exchange Act) of securities of NPB representing 24.99%
or more of the combined voting power of NPB's securities then
outstanding;




ii. A merger,
consolidation or other reorganization of Bank, except where the resulting entity
is controlled, directly or indirectly, by NPB;




iii. A merger,
consolidation or other reorganization of NPB, except where shareholders of NPB
immediately prior to consummation of any such transaction continue to hold at
least a majority of the voting power of the outstanding voting securities of the
legal entity resulting from or existing after any transaction and a
majority of the members of the Board of Directors of the legal entity resulting
from or existing after any such transaction are former members of NPB's Board of
Directors;




iv. A sale,
exchange, transfer or other disposition of substantially all of the assets of
the Employer to another entity, except to an entity controlled, directly or
indirectly, by NPB;




v. A sale,
exchange, transfer or other disposition of substantially all of the assets of
NPB to another entity, or a corporate division involving NPB; or




vi. A
contested proxy solicitation of the shareholders of NPB that results in the
contesting party obtaining the ability to cast 25% or more of the votes entitled
to be cast in an election of directors of NPB.




e. "Code"
means the Internal Revenue Code of 1986, as amended, and as the same may be
amended from time to time.




f. "Employer"
means Bank, NPB or any Affiliate which employs Executive at any particular
time.




g. "Employment"
means Executive's employment by Bank, NPB or any Affiliate at any particular
time.




h. "Exchange
Act" means the Securities Exchange Act of 1934, as amended.




i. "Salary"
means the Executive's annual base salary, established either by contract or by
the Board of Directors of Employer, prior to any reduction of such salary
pursuant to any contribution to a tax-qualified plan under Section 401(k) of the
Code.




2. Resignation
of Executive. If a
Change in Control shall occur and if thereafter, at any time, there shall
be:




a. Any
involuntary termination of Executive's employment (other than for
Cause);




b. Any
reduction in Executive's title, responsibilities or authority, including such
title, responsibilities or authority as such may be increased from time to
time;




c. Any
reduction in Executive's Salary in effect immediately prior to a Change in
Control, or any failure to provide Executive with benefits at least as favorable
as those enjoyed by Executive under any of the pension, life insurance, medical,
health and accident, disability or other employee plans of NPB or an Affiliate
in which Executive participated immediately prior to a Change in Control, or the
taking of any action that would materially reduce any of such compensation or
benefits in effect at the time of the Change in Control, unless such reduction
relates to a reduction applicable to all employees generally;




d. Any
reassignment of Executive beyond a thirty (30) minute commute by automobile from
Boyertown, Pennsylvania; or




e. Any
requirement that Executive travel in performance of his duties on behalf of NPB
or an Affiliate for a greater period of time during any year than was required
of Executive during the year preceding the year in which the Change in Control
occurred;




then, at
the option of Executive, exercisable by Executive within one hundred eighty
(180) days of the occurrence of any of the foregoing events, the Executive may
resign from employment (or, if involuntarily terminated, give notice of
intention to collect benefits hereunder) by delivering a notice in writing (the
"Notice of Termination") to NPB, and the Continuing Compensation and Benefits'
provisions of this Agreement shall apply.




3. Continuing
Compensation and Benefits.




a. At the
time of termination of Executive's employment in accordance with Section 2
hereof, Employer shall make a lump-sum cash payment to Executive no later than
thirty (30) days following the date of such termination in an amount equal to
200% of Executive's Base Amount.




b. Notwithstanding
the foregoing or any other provision of this Agreement to the contrary, in no
event shall any payment to Executive pursuant to Subsection 3.a. above be
greater than an amount equal to an amount ("X") determined pursuant to the
following formula:




X =
(2.99A - B) x (1 + C)D.




For
purposes of the foregoing formula:





	
      
	
      
	
      A
      =
	
      Executive's
      Base Amount (determined pursuant to Internal Revenue Code Section
      280G(b)(3)(A)) on the date of the Change in
Control;








	
      
	
      
	
      B
      =
	
      The
      present value of all other amounts which qualify as parachute payments
      under Code Section 280G(b)(2)(A) or (B) (without regard to the provisions
      of Code Section 280G(b)(2)(A)(ii)), such present value to be determined
      pursuant to the provisions of Code Section
280G;








	
      
	
      
	
      C
      =
	
      120%
      times 0.5 times the lowest of the semiannual applicable federal rates
      (determined pursuant to Code Section 1274(d)) in effect on the date of the
      Change in Control; and








	
      
	
      
	
      D
      =
	
      The
      number of whole semiannual periods plus any fraction of a semiannual
      period from the date of the Change in Control to the date of termination
      of the Executive's employment.







c. Executive
shall not be required to mitigate the amount of any payment provided for in
Subsection 3.a. by seeking other employment or otherwise, nor shall the amount
of any payment or benefit provided for in subsection 3.a. be reduced by any
compensation earned by Executive as the result of employment by another employer
or by reason of Executive's receipt of or right to receive any retirement or
other benefits after the date of termination of employment or otherwise, except
as otherwise provided therein.




4. Termination
for Cause. The
Employer may terminate Executive's Employment for "Cause". For purposes of this
Agreement, "Cause" means the occurrence of either of the following:




a. Executive's
conviction of, or plea of guilty or nolo contendere to, a felony or a crime of
falsehood or involving moral turpitude; or




b. the
willful failure by Executive to substantially perform his duties to the
Employer, other than a failure resulting from Executive's incapacity as a result
of the Executive's disability, which willful failure results in demonstrable
material injury and damage to the Employer. Notwithstanding the foregoing,
Executive's Employment shall not be deemed to have been terminated for Cause if
such termination took place as a result of:




i. questionable
judgment on the part of Executive;




ii. any act
or omission believed by Executive in good faith, to have been in or not opposed
to the best interests of the Employer; or




iii. any act
or omission in respect of which a determination could properly be made that
Executive met the applicable standard of conduct prescribed for indemnification
or reimbursement or payment of expenses under the By-laws of NPB or the laws of
the Commonwealth of Pennsylvania, or the directors and officers' liability
insurance of NPB or any Employer, in each case as in effect at the time of such
act or omission.




If
Executive's Employment is terminated for Cause, all rights of Executive under
this Agreement shall cease as of the effective date of such termination, except
that Executive (i) shall be entitled to receive accrued Salary through the date
of such termination and (ii) shall be entitled to receive the payments and
benefits to which he is then entitled under the employee benefit plans of the
Employer or any affiliate thereof as of the date of such
termination.




5. Arbitration. Any
dispute or controversy arising out of or relating to this Agreement and any
controversy as to a termination for Cause shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators, in Reading,
Pennsylvania, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrators' award in
any court having jurisdiction.




6. Exclusive
Benefit.
Executive shall have no right to commute, sell, assign, transfer or otherwise
convey the right to receive any payments hereunder, which payment and the right
thereto are expressly declared to be non-assignable and non-transferrable. In
the event of any attempted assignment or transfer, Employer shall have no
further liability hereunder.




7. Notices. Any
notice required or permitted to be given under this Agreement shall be properly
given if in writing and if mailed by registered or certified mail, postage
prepaid with return receipt requested, to Executive's residence in the case of
any notice to Executive, or to the principal office of Bank, in the case of any
notice to the Employer.




8. Entire
Agreement. This
Agreement contains the entire agreement relating to the subject matter hereof
and may not be modified, amended or changed orally but only by an agreement in
writing, consented to in writing by NPB, and signed by the party against whom
enforcement of any modification, amendment or change is sought.




9. Benefits.




a. This
Agreement shall be binding upon and inure to the benefit of NPB and Bank and
their respective successors and assigns. Each of NPB and Bank shall require any
successor (whether direct or indirect, by purchase, merger, consolidation, or
otherwise) to all or substantially all of the business and/or assets of NPB or
Bank to expressly assume and agree to perform this Agreement in the same manner
and to the same extent that NPB or Bank would be required to perform it if no
such succession had taken place. Failure to obtain such assumption and agreement
prior to the effectiveness of any such succession shall constitute a breach of
this Agreement and the provisions of Section 2 of this Agreement shall apply. As
used in this Agreement, "NPB" or "Bank" shall mean NPB or Bank as defined
previously and any successor to the business and/or assets of NPB or Bank as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.




b. This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by Executive's personal or legal representatives, executors, administrators,
heirs, distributees, devisees and legatees.




10. Applicable
Law. This
Agreement shall be governed by and construed in accordance with the domestic
internal law (but not the law of conflicts of law) of the Commonwealth of
Pennsylvania.




11. Headings. The
headings of the sections and subsections hereof are for convenience only and
shall not control or affect the meaning or construction or limit the scope or
intent of any of the sections or subsections of this Agreement.




12. Termination
of Executive Agreement.
Effective concurrently with the execution and delivery of this Agreement, the
Executive Agreement dated July 23, 1997 and amended on August 26, 1998, among
NPB, Bank and Executive is terminated and of no further force and
effect.




IN
WITNESS WHEREOF, NPB and Bank have each duly caused this Agreement to be
executed on its behalf by its duly authorized officers, and Executive has
hereunto set his hand and seal, as of the day and year first above
written.






	 	 NATIONAL PENN BANCSHARES,
  INC.











	
      (SEAL)
	
      By:
      /s/
      Wayne R. Weidner

	 	
      Title:
      Chairman











	 	
      Attest:
      /s/
      Glenn E. Moyer

	 	
      Title:
      President





 



	 	 NATIONAL PENN
BANK




 

 


	
      (SEAL)
	
      By:
      /s/
      Glenn E. Moyer

	 	
      Title:
      President











	 	
      Attest:_______________________

	 	
      Title:







Witness:

 


	
      /s/
      Michael R. Reinhard
	
      /s/
      Sandra L. Spayd (SEAL)

	 	
      Sandra
      L. Spayd