Filed by Bowne Pure Compliance





Exhibit 10.1




EMPLOYMENT AGREEMENT




EMPLOYMENT AGREEMENT (this “Agreement”), dated October 2, 2008, between Sovereign
Bancorp, Inc., a Pennsylvania Corporation (the “Company” or “SBI”), and Kirk W.
Walters (the “Executive”).



W I T N E S S E T H:




WHEREAS, the Executive is employed by the Company as the Interim Chief Executive Officer
(“Interim CEO”), Interim President, and Chief Financial Officer (“CFO”) of the Company
pursuant to the terms of an Employment Agreement by and between the Company and the Executive dated
March 3, 2008 (as supplemented by a letter to the Executive from Thomas McAuliffe dated February
20, 2008, and as amended effective September 30, 2008 (collectively, the “Prior Employment
Agreement”);



WHEREAS, the Executive and the Company entered into an Employment Agreement dated September
30, 2008 to be effective January 3, 2009 employing the Executive as Senior Executive Vice
President, Chief Administrative Officer and Chief Financial Officer (the “New Employment
Agreement”);



WHEREAS, the Company and the Executive desire to enter into this Agreement, which shall
supersede the terms of the Prior Employment Agreement and the New Employment Agreement;



WHEREAS, effective as of the date hereof (the “Effective Date”) the employment of the
Executive by the Company as Interim CEO, Interim President and CFO will continue upon the terms and
conditions hereinafter set forth; and



WHEREAS, effective as of the earlier of (i) January 3, 2009 and (ii) Mr. Paul A. Perrault’s
commencement of employment with the Company (the “Transition Date”), the Company and the
Executive desire for certain changes to the Executive’s positions, duties and responsibilities
hereunder to take effect such that the Executive will serve, as of such date, as the Senior
Executive Vice President, Chief Administrative Officer and Chief Financial Officer of the Company,
upon the terms and conditions hereinafter set forth.



NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby covenant and agree as follows:




1. Employment of Executive



(a) The Company hereby agrees to continue to employ the Executive as Interim CEO, Interim
President and CFO of the Company from the Effective Date through the date immediately preceding the
Transition Date (the “Interim Period”) and the Executive hereby agrees to be employed in
such capacities on, and subject to, the terms and conditions of this Agreement.


 


 









 





(b) The Company hereby agrees to employ the Executive as the Senior Executive Vice President,
Chief Administrative Officer, and Chief Financial Officer of the Company on the Transition Date and
the Executive hereby agrees to be employed by the Company in such capacities on, and subject to,
the terms and conditions of this Agreement.




2. Term and Employment Period



(a) The term of this Agreement shall commence on the Effective Date and shall expire on the
date that is the third anniversary of the Effective Date, provided, however, that
on the first anniversary of the Effective Date and on each anniversary date thereof, unless
previously terminated, the term of this Agreement shall be automatically extended for successive
one-year periods unless the Company or the Executive has provided notice in writing to the other
party of its intention not to extend the term of this Agreement no later than 90 days prior to the
expiration of the then-applicable expiration date. The initial term of this Agreement and any
extensions thereof in accordance with the preceding sentence are hereinafter referred to
collectively as the “Agreement Term.” The portion of the Agreement Term during which the
Executive is actually employed by the Company is hereinafter referred to as the “Employment
Period.”




3. Position, Duties and Responsibilities



(a) During the Interim Period, the Executive shall perform and discharge such duties as may be
reasonably assigned by the Board of Directors of the Company (the “Board”) to the Executive
from time to time as the Interim CEO, Interim President, and CFO of the Company. For the Interim
Period, the Company shall cause the Executive to be appointed to the office of, and the Executive
shall serve during the Interim Period as, Interim Chief Executive Officer, Interim President, and
CFO of Sovereign Bank, a Federal Savings Bank and wholly-owned subsidiary of the Company (the
“Bank”), unless otherwise precluded by a governing bank or regulatory authority. The
Executive’s duties shall be consistent with his title and shall not be unreasonably or materially
changed, considering his role in the Company. During the Interim Period, the Executive shall have
the title of Interim CEO, Interim President and CFO of the Company, reporting directly to the
Board.



(b) At the end of the Interim Period, the Executive shall cease providing services in the
capacities described in Section 3(a) hereof, and, effective as of the Transition Date,
shall serve as, and with the title, offices and authority of the Senior Executive Vice President,
Chief Administrative Officer and, Chief Financial Officer of the Company. The Executive’s duties
shall be consistent with his title and shall not be unreasonably or materially changed, considering
his role in the Company. As of the Transition Date, the Company shall also cause the Executive to
be appointed to the offices of Senior Executive Vice President and Chief Administrative Officer and
Chief Financial Officer of the Bank unless otherwise precluded by a governing bank or regulatory
authority. Further, the Executive shall have such other executive titles as may be given to him
from time to time by the Board of Directors of the Bank or of any affiliate. As of the Transition
Date, the Executive shall report directly to the Chief Executive Officer.



(c) The Executive agrees to devote substantially all of his business time, efforts and skills
to the performance of his duties and responsibilities under this Agreement; provided,
however, that nothing in this Agreement shall preclude the Executive from devoting
reasonable
periods required for participating in professional, educational, philanthropic, or community
activities or managing his personal investments or other personal business. The Executive shall
be permitted to serve on the boards of directors of other corporations, subject to the prior
written approval of the Board.


 


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(d) The Executive shall perform his duties at the offices of the Company located in Boston,
Massachusetts, but from time to time the Executive may be required to travel to other locations in
the proper conduct of his responsibilities under this Agreement. The Executive shall be reimbursed
for all business and travel expenses in accordance with Company’s policies for expense
reimbursement.




4. Compensation and Benefits



In consideration of the services rendered by the Executive during the Employment Period, the
Company shall provide the Executive with the compensation and benefits set forth below.



(a) Base Salary. The Company shall pay the Executive a base salary (the
“Base Salary”) at the rate of $700,000 per annum. The Board will review the Base Salary at
least annually for possible increases as it deems appropriate. The Base Salary shall be paid in
accordance with the normal payroll practices of the Company.



(b) Annual Bonus. Contingent upon the Company achieving the annual bonus
objectives established for it by the Board in consultation with Executive (which objectives may be
based on Company or individual performance objectives), the Company shall provide the Executive
with the opportunity to earn an annual performance bonus (“Annual Bonus”) under the terms
of any bonus plan maintained from time to time for senior bank executive officers of the Company as
in effect from time to time, with a target bonus percentage of at least 100% of the Executive’s
Base Salary for each calendar year; but in no event shall the Annual Bonus be more than 200% of
Executive’s Base Salary for the calendar year. Notwithstanding the foregoing, for purposes of this
Section 4(b), for the 2008 calendar year, the Executive’s Base Salary shall be $550,000,
which represents the salary paid to the Executive during the 2008 calendar year taking into account
the increased salary provided under Section 4(a) hereof. The Annual Bonus shall be paid in
such amounts and at such times as may be approved by the Board in its discretion.



(c) Employee Benefits. The Executive shall be entitled to participate in all
employee benefit plans and programs of the Company in which other senior management of the Company
generally are eligible to participate from time to time, including, without limitation, any
qualified or non-qualified pension or savings plans, any death benefit or disability benefit plans,
any medical, dental, health or other welfare plans that are provided by the Company.



(d) Auto Allowance. During the Employment Period, Executive shall be entitled to
an auto allowance of $750 per month to be applied towards the use or lease of an automobile used in
part for Company business. Executive shall be responsible for the costs of purchasing or leasing
an automobile as well as for paying all costs related to such automobile, including without
limitation maintenance, registration costs, fuel and insurance.


 


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(e) Parking. During the Employment Period, the Company shall pay for the cost of
Executive’s parking at 75 State Street or such other mutually agreeable location.



(f) Temporary Housing; Relocation Costs. The Company shall pay for the cost of
temporary housing in the Greater Boston Metropolitan Area for Executive in a two-bedroom furnished
apartment at Devonshire (or comparable arrangement) until the earlier of a period of seventeen (17)
months from the Effective Date or until the Executive’s permanent relocation to the Greater Boston
Metropolitan Area. Notwithstanding anything contained herein, the Company shall provide “tax
assistance” as that term is used in the Company Executive Relocation Policy with respect
to such temporary housing payments made pursuant to this Section 4(f) until the earlier of
a period of seventeen (17) months from the Effective Date or until the Executive’s permanent
relocation to the Greater Boston Metropolitan Area. Upon Executive’s relocation to the Greater
Boston Metropolitan Area from his current principal residence, the Company shall also provide
Executive a “Miscellaneous Expense Allowance” in accordance with the Company’s Relocation Policy,
as amended (except that any provision thereunder that benefits are available only within twelve
(12) months of hire shall not apply), to be paid within the first two (2) months of the Transition
Date. For the avoidance of doubt, the Executive shall be entitled to (i) all payments and benefits
of the Company Executive Relocation Policy applicable to the Executive’s level and (ii) “tax
assistance” pursuant to the Executive Relocation Policy with respect to all expenses that
constitute taxable income to the Executive except to the extent that such expenses are tax
deductible.



(g) Certain Club Dues and Expenses. Executive shall be paid or reimbursed for
country club dues or other social club dues at two (2) such clubs during the Employment Period.
The identity of each club will be mutually agreed upon by the Company and the Executive.




5. Equity Incentive Grants



(a) The Company will provide Equity Incentive Grants to the Executive as described in Appendix
A of this Agreement.



(b) The Executive shall also be eligible to receive additional grants of equity incentives
pursuant to the Company’s equity incentive plans, at such times and on such terms and conditions as
may be approved by the Board. However, it is not contemplated that the Executive shall receive
additional grants of equity incentives during the first three years of the Agreement Term, other
than as may be granted pursuant to the Company’s equity incentive plans, at such times and on such
terms and conditions as may be approved by the Board.


 


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6. Termination of Employment



The Employment Period may be terminated during the Agreement Term upon the occurrence of any
of the following events:



(a) Termination for Cause. The Company may terminate the Executive’s employment
hereunder for Cause. For purposes of this Agreement, “Cause” shall mean the occurrence of
one or more of the following events: (i) the Executive’s willful failure or refusal to perform his
material duties to the Company or its affiliates, (ii) the Executive’s willful disregard of any
lawful
instructions of the Board that are consistent with the Company’s By-laws and the Executive’s
positions with the Company or its affiliates, (iii) the Executive’s willful misconduct or gross
negligence in the performance of his material duties to the Company, (iv) the Executive’s
conviction of, or plea of nolo contendere to, a felony or other crime involving moral turpitude,
(v) the commission by the Executive of a willful act of fraud or material dishonesty with respect
to any material matter involving the Company, its affiliates or any of the Company’s customers or
clients, (vi) the Executive fails or refuses to meaningfully cooperate with any internal or
external investigation involving the Company or its affiliates or their business, without good
cause, or (vii) any government regulatory agency recommends or orders, in either case in writing,
that the Company of the Bank terminate the employment of Executive or relieve him of his duties
(other than solely as a result of any future legislation, regulations or judicial decision which
makes Executive ineligible to hold certain offices at both the Company and the Bank).



Notwithstanding the foregoing, in no event shall the Executive’s employment be considered to have
been terminated for “Cause” unless and until the Executive receives a copy of a resolution adopted
by the Board finding that, in the good faith opinion of the Board, the Executive is guilty of acts
or omissions constituting Cause, which resolution has been duly adopted by an affirmative vote of a
majority of the Board. Any such vote shall be taken at a meeting of the Board called and held for
such purpose, after reasonable written notice is provided to the Executive setting forth in
reasonable detail the facts and circumstances claimed to provide a basis of termination for Cause
and specifically referencing applicable provision(s) of this Section 6(a), and the
Executive is given an opportunity, together with counsel, to be heard before the Board. In the
case of the first occurrence of any of the above enumerated “Cause” events, the Executive shall
have the opportunity to cure, if curable, any such acts or omissions within 15 days following the
Executive’s receipt of such resolution. Where used in this Section 6(a), the term
“willful” shall require that the action or omission was done in bad faith and without reasonable
belief that such action or omission was in the best interests of the Company.



(b) Termination without Cause. The Company shall have the right to terminate the
Executive’s employment hereunder other than for Cause, upon 30 days advance written notice to the
Executive, subject to the consequences of such termination as set forth in this Agreement.


 


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(c) Resignation for Good Reason. The Executive may voluntarily terminate his
employment hereunder for Good Reason. For purposes of this Agreement, “Good Reason” shall
mean: (i) any reduction in Base Salary by the Company, or any other material breach by the Company
of the compensation and benefits provisions set forth in Sections 4 and 5 hereof;
(ii) prior to the Transition Date, any removal of the Executive from the position of Interim CEO,
Interim President, and CFO of the Company; (iii) on or after the Transition Date, any removal of
the Executive from the position of Senior Executive Vice President or Chief Administrative Officer
of the Company or Chief Financial Officer, or any requirement that the Executive report to anyone
other than the Chief Executive Officer; (iv) any material diminution in the Executive’s authority
or responsibilities with the Company or the Bank from that provided in the applicable provisions of
Section 3 hereof, provided, however, that the change in the Executive’s
role with the Company as of the Transition Date, shall not be considered a material diminution of
the Executive’s authority or responsibilities with the Company; (v) the occurrence of a Change in
Control during the Interim Period in which (A) the Executive does not become CEO, President and CFO
of the ultimate parent company of the company or companies that result from the
transaction for the remainder of the Interim Period, and (B) the Executive does not become the
Senior Executive Vice President, Chief Administrative Officer and Chief Financial Officer of the
ultimate parent company of the company or companies that result from the transaction beginning on
the Transition Date; (vi) the occurrence of a Change in Control after the Transition Date in which
the Executive does not become the Senior Executive Vice President, Chief Administrative Officer and
Chief Financial Officer of the ultimate parent company of the company or companies that result from
the transaction; or (vii) any relocation by the Company, without the Executive’s consent, of the
Executive’s principal business office outside of the Boston, Massachusetts metropolitan area.



Notwithstanding the foregoing, in no event shall the Executive be considered to have terminated his
employment for “Good Reason” unless and until (i) the Company receives written notice from the
Executive, within 30 days following the occurrence of the event alleged to constitute Good Reason,
and setting forth in reasonable detail the facts and circumstances claimed to provide a basis of
termination for Good Reason and specifically referencing applicable provisions of this Section
6(c), and (ii) such acts or omissions are not cured by the Company within 15 days following the
Company’s receipt of such notice.



(d) Resignation without Good Reason. The Executive may voluntarily terminate his
employment hereunder for any reason, including for any reason that does not constitute Good Reason,
upon 30 days advance written notice to the Company.



(e) Change in Control. 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;




(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;


 


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(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




(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;




(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; or




(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.


 


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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 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.



(f) Disability. The Executive’s employment hereunder shall terminate upon his
Disability. For purposes of this Agreement, “Disability” shall mean that the Executive is
incapacitated or disabled by accident, sickness or otherwise so as to render him mentally or
physically incapable of performing the services required to be performed by him for a period of 180
consecutive days or longer, or for an aggregate of 270 days or more during any 12-month period.



(g) Death. The Executive’s employment hereunder shall terminate automatically upon
his death.




7. Rights upon Termination of Employment



In the event the Executive’s employment by the Company is terminated during the Agreement
Term, the Executive shall be entitled to the payments and benefits specified below:



(a) Resignation for Good Reason; Termination without Cause in the Absence of Change
in Control. In the event the Executive voluntarily terminates his employment hereunder for
Good Reason, or the Executive’s employment hereunder is terminated by the Company other than for
Cause, death or Disability, and no Change in Control shall have occurred on or prior to the
effective date of termination of employment (“Termination Date”), the Company shall provide
the Executive with the payments and benefits set forth below:




(i) Accrued Rights. The Company shall pay the Executive the “Accrued
Rights” as follows: (A) any accrued, but unpaid Base Salary through the Termination
Date, payable in accordance with the normal payroll practices of the Company, (B) any earned
but unpaid Annual Bonus in accordance with the terms of the Company’s annual bonus plan for
any completed calendar year prior to the Termination Date, payable in accordance with terms
of the annual bonus plan, (C) any unreimbursed business expenses as of the Termination Date,
payable in accordance with Company policy; and (D) all payments, rights and benefits due as
of the Termination Date under the terms of the Company’s employee and fringe benefit plans
and programs in which the Executive participated during the Employment Period, in addition
to any rights or benefits required by statute; and


 


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(ii) Severance Benefit. In addition to the Accrued Rights, and subject to (A)
Executive’s continuing compliance with the restrictive covenants set forth in Section
9 hereof, and (B) the execution and delivery by the Executive of a release of claims in
the form set forth in Appendix B hereto within 21 days after the Termination Date, and the
non-revocation thereof, the Company shall provide the Executive with severance payments and
benefits (“Severance Benefits”) as follows:




(A) the Company shall pay the Executive an amount equal to two (2) times the
Executive’s then-current Base Salary, payable in a lump-sum on the 30th
day after the Termination Date;




(B) the Company shall pay the Executive an amount equal to two (2) times the
greater of (i) the Annual Bonus amount earned by the Executive for the most
recently completed calendar year prior to the Termination Date, or (ii) the
average of
the Annual Bonus amounts earned by the Executive for the three (3) most recently
completed calendar years prior to the Termination Date (or if not applicable, the
target Annual Bonus amount), payable in a lump-sum on the 30th day after the
Termination Date;




(C) for the year in which the Termination Date occurs, the Executive shall be
entitled to receive a pro-rata Annual Bonus, based on the number of days during the
calendar year prior to the Termination Date, and based upon the actual performance
of the Company under the terms of the annual bonus plan, which shall otherwise be
applied on the same basis as applied to members of the senior management generally,
payable in cash at the time bonuses are paid under the annual bonus plan generally;
and




(D) during the three year period following the Termination Date (the
“Severance Period”), the Company shall continue to provide, for the benefit
of the Executive and his eligible dependents, the medical and health care coverage
that is provided to employees of the Company generally during such period, with the
same employee cost sharing as applies to active employees of the Company during such
period.



(b) Resignation for Good Reason; Termination without Cause After Change in
Control. In the event the Executive voluntarily terminates his employment hereunder for Good
Reason, or the Executive’s employment hereunder is terminated by the Company other than for Cause,
death or Disability, in either case, on or after a Change in Control shall have occurred or during
the 3 month period prior thereto, the Company shall provide the Executive with the payments and
benefits set forth below:




(i) Accrued Rights. The Company shall pay the Executive the Accrued Rights as
described in Section 7(a)(i); and


 


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(ii) Severance Benefit. In addition to the Accrued Rights, and subject to (A)
Executive’s continuing compliance with the restrictive covenants set forth in Section
9 hereof, and (B) the execution and delivery by the Executive of a release of claims in
the
form set forth in Appendix B hereto within 21 days after the Termination Date, and the
non-revocation thereof, the Company shall provide the Executive with severance payments and
benefits (“CIC Severance Benefits”) as follows:




(A) the Company shall pay the Executive an amount equal to three (3) times the
Executive’s then-current Base Salary, payable in a lump-sum on the 30th
day after the Termination Date;




(B) the Company shall pay the Executive an amount equal to three (3) times the
greater of (i) the Annual Bonus amount earned by the Executive for the most recently
completed calendar year prior to the Termination Date; or (ii) the average of the
Annual Bonus amounts earned by the Executive for the three (3) most recently
completed calendar years prior to the Termination Date (or if not applicable, the
target Annual Bonus amount), payable in a lump-sum on the 30th day after
the Termination Date;




(C) for the year in which the Termination Date occurs, the Executive shall be
entitled to receive a pro-rata Annual Bonus, based on the number of days during the
calendar year prior to the Termination Date, and based upon the actual performance
of the Company under the terms of the annual bonus plan, which shall otherwise be
applied on the same basis as applied to members of the senior management generally,
payable in cash at the time bonuses are paid under the annual bonus plan generally;
and




(D) during the three year period following the Termination Date (the “CIC
Severance Period”), the Company shall continue to provide, for the benefit of
the Executive and his eligible dependents, the medical and health care coverage that
is provided to employees of the Company generally during such period, with the same
employee cost sharing as applies to active employees of the Company during such
period.



(c) Termination for other Reasons. In the event the Executive voluntarily
terminates his employment hereunder other than for Good Reason, the Company terminates the
Executive’s employment for Cause, or the Executive’s employment is terminated by reason of death or
Disability, the Executive shall not be entitled to the Severance Benefits or the CIC Severance
Benefits, but shall be entitled to the payment and benefits provided by the Accrued Rights.


 


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8. Additional Payments following a Change in Control



(a) If it shall be determined that any amount paid, distributed or treated as paid or
distributed by the Company to or for the Executive’s benefit (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this Section 8) (a
“Payment”) would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the “Code”), 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, being hereinafter collectively referred to as the “Excise Tax”), then the
Executive shall be entitled to receive an
additional payment (a “Gross-Up Payment”) to be paid to the relevant taxing authority
on the Executive’s behalf in an amount such that after payment by the Executive of all federal,
state and local taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.



(b) All determinations required to be made under this Section 8, 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 a nationally recognized accounting
firm designated by the Company (the “Accounting Firm”), which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business days of the
receipt of notice from the Company that there has been a Payment, or such earlier time as is
requested by the parties. The Accounting Firm shall not be an accounting firm serving as
accountant or auditor for the Company or for the individual, entity or group affecting the Change
of Control. All fees and expenses of the Accounting Firm shall be borne by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to
the relevant taxing authority on Executive’s behalf on the date that any relevant payment is
otherwise payable to the Executive. Any determination by the Accounting Firm shall be binding upon
the Company 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 Gross-Up Payments which will not have been made by the Company should have been made
(“Underpayment”), consistent with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to this Section 8 and the Executive
thereafter 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 Company to or for the Executive’s benefit.



(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no later then thirty business days
after the Executive is informed in writing of such claim and shall apprise the Company 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 Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest such claim, the Executive shall: (i)
give the Company any information reasonably requested by the Company relating to such claim; (ii)
take such action in connection with contesting such claim as the Company 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 Company; (iii) cooperate with the
Company in good faith in order to effectively contest such claim; and (iv) permit the Company to
participate in any proceeding relating to such claim; provided, however, that the
Company 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, from any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such


 


11









 





representation and payment of costs and
expense. Without limitation on the foregoing provisions of this Section 8, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as the Company shall determine;
provided, however, that if the Company directs the Executive to pay such claim and
sue for a refund, the Company shall advance the amount of such payment to the Executive, on an
interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating to payment of taxes
for the Executive’s taxable year with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company’s control of the contest
shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority, so long as such action does not have a
material adverse effect on the contest being pursued by the Company.



(d) If, after the Executive’s receipt of an amount advanced by the Company pursuant to this
Section 8, the Executive becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company’s complying with the requirements of this Section
8) promptly pay to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the Executive’s receipt of an amount
advanced by the Company pursuant to this Section 8, a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.




9. Restrictive Covenants



(a) Confidential Information. The Executive acknowledges that during the course of
his employment by the Company he has or will have access to and knowledge of certain information
and data which the Company considers confidential and the release of such information or data to
unauthorized persons would be extremely detrimental to the Company. As a consequence, the
Executive hereby agrees and acknowledges that he owes a duty to the Company not to disclose, and
agrees that without the prior written consent of the Company, at any time, either during or after
his employment with the Company, he will not communicate, publish or disclose, to any person
anywhere or use, any Confidential Information (as hereinafter defined), except as may be necessary
or appropriate to conduct his duties hereunder, provided the Executive is acting in good faith and
in the best interest of the Company, or as may be required by law or judicial process. The
Executive will use his best efforts at all times to hold in confidence and to safeguard any
Confidential Information from falling into the hands of any unauthorized person and,


 


12









 





in particular,
will not permit any Confidential Information to be read, duplicated or copied. The Executive will return to the Company all Confidential Information in the Executive’s
possession or under the Executive’s control whenever the Company shall so request, and in any event
will promptly return all such Confidential Information if the Executive’s relationship with the
Company is terminated for any or no reason and will not retain any copies thereof. For purposes
hereof, the term “Confidential Information” shall mean any information or data used by or
belonging or relating to the Company or any of its affiliates that is not known generally to the
industry in which the Company is or may be engaged and which the Company maintains on a
confidential basis, including, without limitation, any and all trade secrets, proprietary data and
information relating to the Company’s business and products, price list, customer lists, processes,
procedures or standards, manuals, business strategies, records, drawings, specifications, designed,
financial information, whether or not reduced to writing, or information or data which the Company
advises the Executive should be treated as confidential information.



(b) Non-Competition. The Executive acknowledges that he is expected to establish
favorable relations with the customers, clients and accounts of the Company and will have access to
trade secrets of the Company. Therefore, in consideration of the foregoing and the rights and
benefits provided to the Executive under this Agreement, including the Severance Benefits or the
CIC Severance Benefits, as applicable, the Executive agrees that, during the Employment Period and
six (6) months following termination of the Executive’s employment for any reason, the Executive
shall not, without the express written consent of the Company, become employed by, provide services
to, or be affiliated in any way with, whether as an officer, employee, consultant, advisor or in
any other capacity, directly or indirectly, any bank that offers products and services similar or
equivalent to those offered by the Bank (i) in the following states: New Hampshire, Massachusetts,
Rhode Island, Connecticut, New Jersey, and Pennsylvania, (ii) in the New York metropolitan area,
(iii) on Long Island and (iv) if such bank has a banking branch office within fifty (50) miles of a
banking branch of the Company or any subsidiaries of the Company as of the Termination Date. If
any court determines that the covenant not to compete, or any part thereof, is unenforceable
because of the duration of such provision or the geographic area or scope covered thereby, such
court shall have the power to reduce the duration, area or scope of such provisions and, in its
reduced form, such provision shall then be enforceable and shall be enforced.



(c) Non-Solicitation. The Executive further agrees that, during the Employment Period
and for one (1) year following termination of the Executive’s employment for any reason, the
Executive shall not, without the express written consent of the Company, (i) solicit any employees
of the Company or its affiliates to terminate their employment with the Company or any affiliate,
or (ii) solicit any customers or client of the Company or its affiliates to cease doing business,
in whole or in part, with the Company or any affiliate.



(d) Specific Performance. Recognizing that irreparable damage will result to the
Company in the event of the breach or threatened breach of any of the foregoing covenants, and that
the Company’s remedies at law for any such breach or threatened breach will be inadequate, the
Company, in addition to such other remedies which may be available to it, shall be entitled to an
injunction, including a mandatory injunction, to be issued by any court of competent jurisdiction
ordering compliance with this Agreement or enjoining and restraining the Executive from the
continuation of such breach.


 


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(e) Survival of Covenants. Any termination of the Employment Period or the Agreement
Term hereunder shall not affect the provisions of this Section 9, which shall survive any
such termination and remain in full force and effect in accordance with their respective terms.




10. Indemnification



The Company shall indemnify and hold harmless the Executive to the fullest extent permitted by
applicable law, the Company’s By-laws and for any action or inaction of the Executive while serving
as an officer or director of the Company. In addition, the Company shall cover the Executive under
directors’ and officers’ liability insurance both during and, while potential liability exists,
after the term of employment in the same amount and to the same extent as the Company.




11. No Mitigation or Offset



The Executive shall not be required to seek other employment or to reduce any Severance
Benefit payable to him hereunder, and, subject to Section 9 hereof, no Severance Benefit
shall be reduced by any compensation received by the Executive from other employment. The
Company’s obligation to provide any payment or benefit to the Executive under this Agreement shall
not be reduced, or otherwise offset, by any amount owed by the Executive to the Company.




12. Representations by Parties



The Executive represents to the Company and the Bank that his execution of and performance
under this Agreement will not constitute a violation by him of any written or other contract,
understanding, arrangement, duties or other obligation to a former employer or any other third
party pertaining to his performance of personal services, solicitation of employees or customers,
or other conduct on his part contemplated by this Agreement. The Company represents to the
Executive that this Agreement has been fully authorized by all necessary corporate action and is
fully enforceable in accordance with its terms.




13. Cooperation Covenant



Both during and after the Employment Period, the Executive shall cooperate fully with the
Company at mutually convenient times and places, in connection with any ongoing administrative,
regulatory, or litigation proceedings or such like matters that may arise in the future, as to
matters regarding which the Executive may have personal knowledge because of his employment with
the Company; provided that in no event will the Executive be required to provide any such
cooperation if such cooperation is materially adverse to the Executive’s legal interests. Such
cooperation will include being interviewed by representatives of the Company, and participating in
such proceedings by deposition and testimony at trial. To the extent possible, the Company will
limit the Executive’s cooperation to regular business hours. In any event, following the Employment
Period, (i) in any matter subject to this Section 13, the Executive will not be required to
act against the reasonable best interests of any new employer or new business venture in which the
Executive is an employee, partner or active participant and (ii) any request for the Executive’s
cooperation will take into account the Executive’s other personal and business commitments. The
Company will reimburse the Executive for all reasonable expenses and costs the Executive may
incur as a result of providing such assistance, including travel costs and reasonable legal
fees to the extent the Executive reasonably believes, based upon the advice of counsel, that
separate representation is warranted, provided the Company receives proper documentation with
respect to all claimed expenses and costs. Following the Employment Period, the Executive will be
entitled to an hourly fee (which fee will be mutually determined by the Company and the Executive
prior to Executive’s providing any cooperation hereunder, it being agreed that such fee will be
fair and reasonable in light of Executive’s compensation history) for time spent by the Executive
furnishing such cooperation (other than for time spent by the Executive actually providing
testimony in any legal matter), including, without limitation, for time taken in travel undertaken
in connection with such cooperation, such fee to be paid promptly following the Executive’s
submission of a statement setting forth the number of hours spent. Commencing on the fifth
anniversary of the termination of the Employment Period, Executive will not be obligated to make
more than three days (or portions thereof) per calendar year available for the purpose of providing
cooperation to the Company pursuant to this paragraph.


 


14









 






14. Tax Withholding



All compensation payable pursuant to this Agreement shall be subject to reduction by all
applicable withholding, social security and other federal, state and local taxes and deductions.




15. Section 409A Compliance



The intent of the parties is that payments and benefits under this Agreement comply with
Section 409A of the Code and applicable guidance promulgated thereunder (collectively, “Section
409A”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted
to be in compliance therewith. To the extent that any provision of this Agreement would cause the
Executive to be subject to the payment of interest or any additional tax under Section 409A, the
parties agree, to reform such provision to try to comply with Section 409A through good faith
modifications to the minimum extent reasonably appropriate to conform with Section 409A, including,
but not limited to, delaying the commencement of any payment under this Agreement for six (6)
months following the Termination Date if it is determined that as of such Termination Date, the
Executive is a “specified employee” under Section 409A and applicable guidance thereunder, and such
amounts are deemed as deferred compensation subject to the requirements of Section 409A. Any
payment that would have been made to the Executive during the six-month delay period but for the
operation of this section shall be made to the Executive in the seventh month following the
Termination Date. In no event whatsoever shall the Company be liable for any additional tax,
interest or penalties that may be imposed on the Executive by Section 409A or any damages for
failing to comply with Section 409A.




16. Successors



(a) This Agreement shall be binding upon and shall inure to the benefit of the Company,
its successors and any person, firm, corporation or other entity which succeeds to all or
substantially all of the business, assets or property of the Company. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business, assets or property of the Company, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the Company
would be required to perform if no such succession had taken place. As used in this
Agreement, the “Company” shall mean the Company as hereinbefore defined and any successor to its
business, assets or property as aforesaid which executes and delivers an agreement provided for in
this Section 16 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law. Notwithstanding the foregoing provisions of this Section
16(a), this Agreement shall not be assignable by the Company without the prior written consent
of the Executive.


 


15









 





(b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and
be enforceable by the Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should die while any
amounts are due and payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid to the Executive’s designated beneficiary or, if there be no such designated
beneficiary, to the legal representatives of the Executive’s estate.




17. Entire Agreement



This Agreement contains the entire understanding of the parties with respect to the subject
matter hereof and, effective as of the Effective Date, cancels and supersedes any and all other
agreements between the parties with respect to the subject matter hereof, including without
limitation the Prior Employment Agreement and the New Employment Agreement. Notwithstanding the
foregoing, the Executive shall continue to be entitled to any accrued but unpaid compensation
(including bonus compensation) under the Prior Employment Agreement or other arrangement that has
not been paid as of the Effective Date and shall continue to be entitled to participation in the
Company’s long-term incentive program as described in the letter to the Executive from Thomas
McAuliffe dated February 20, 2008. Any amendment or modification of this Agreement shall not be
binding unless in writing and signed by the Company and the Executive.




18. Severability



In the event that any provision of this Agreement is determined to be invalid or
unenforceable, the remaining terms and conditions of this Agreement shall be unaffected and shall
remain in full force and effect, and any such determination of invalidity or unenforceability shall
not affect the validity or enforceability of any other provision of this Agreement.




19. Notices



All notices which may be necessary or proper for either the Company or the Executive to give
to the other shall be in writing and shall be delivered by hand or sent by registered or certified
mail, return receipt requested, or by air courier, to the Executive at the address on record with
the Company, and shall be sent in the manner described above to the Secretary of the Company at the
Company’s principal executive offices or delivered by hand to the Secretary of the Company, and
shall be deemed given when sent, provided that any notice given under Section 2 or
Section 6 hereof shall be deemed given only when received.


 


16









 






20. Governing Law



This Agreement shall be governed by and enforceable in accordance with the laws of the
Commonwealth of Massachusetts, without giving effect to the principles of conflict of laws thereof.




21. Arbitration



The Company and the Executive recognize that in the event a dispute should arise between them
concerning the interpretation or implementation of this Agreement, litigation will not afford a
practical resolution of the issues within a reasonable period of time. Consequently, each party
agrees that all disputes, disagreements and questions of interpretation concerning this Agreement
are to be submitted for resolution to the American Arbitration Association (“Association”)
in Boston, Massachusetts. The Company, or the Executive, may initiate an arbitration proceeding at
any time by giving written notice to the others in accordance with the rules of the Association.
The arbitrator shall be selected and proceedings conducted in accordance with the Commercial
Dispute Resolution Procedures of the Association. The arbitrator shall not be bound by the rules of
evidence and procedure of the courts of the Commonwealth of Massachusetts but shall be bound by the
substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress,
incompetence or gross and obvious error of fact, shall be final and binding upon the parties and
shall be enforceable in courts of proper jurisdiction. Following written notice of a request for
arbitration, the Company, and the Executive, shall be entitled to an injunction restraining all
further proceedings in any pending or subsequently filed litigation concerning this Agreement,
except as otherwise provided herein.




22. Legal Fees



The Company shall pay to Executive all reasonable legal fees and expenses incurred by the
Executive in attempting to obtain or enforce rights or benefits provided by this Agreement, if,
with respect to any such right or benefit, he is successful in obtaining or enforcing such right or
benefit (including by negotiated settlement). In the event that the Company contends at any time
that the Executive has violated any of the Executive’s obligations under this Agreement, the
Company shall pay all reasonable legal fees and expenses incurred by the Executive in defending
against any such claim, if the Executive is successful in defending against such claim, or unless
otherwise agreed, the matter is resolved by a negotiated settlement. All legal fees and expenses
incurred by Executive as aforesaid shall be paid by the Company as incurred by Executive, subject
to repayment by the Executive of the portion of such fees and expenses which relate to an
ultimately unsuccessful attempt by him either to obtain or enforce a particular right or benefit
under the Agreement or to defend against a claim that the Executive violated his obligations under
the Agreement. Further, the Company shall reimburse Executive for his reasonable legal fees and
expenses in negotiating this Agreement.


 


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IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date
first above written.



	 	 	 	 	 
	 

	 	EXECUTIVE	 	 
	 
	 	 	 	 
	 

	 	 

KIRK W. WALTERS
	 	 
	 
	 	 	 	 
	 

	 	SOVEREIGN BANCORP INC	 	 
	 
	 	 	 	 
	 

	 	 

By:
	 	 
	 

	 	Title:	 	 







 


18









 







APPENDIX A





Equity Incentive Grants




(a) Restricted Stock




(i) On October 2, 2008, the Company shall grant 19,045 shares of restricted Company
common stock (the “Restricted Stock”) to Executive subject to (A) the terms of the
Company’s equity incentive plan or plans, as determined by the Board in its discretion
(each an “Incentive Compensation Plan”) and the terms of the applicable award
agreement, and (B) the conditions below. The vesting schedule for the Restricted Stock
shall be as follows:





	 	(1)	 	6,349 shares of Restricted Stock shall become vested on October 2, 2009, subject
to the continued employment of Executive through such date.

	 
	 	(2)	 	6,348 shares of Restricted Stock shall become vested October 2, 2010, subject
to the continued employment of Executive through such date; and

	 
	 	(3)	 	6,348 shares of Restricted Stock shall become vested on October 2, 2011 ,
subject to the continued employment of Executive through such date.







(ii) Any shares of Restricted Stock that have not become vested prior to the
termination of Executive’s employment shall, upon such termination, be automatically
forfeited and shall never vest. In the event of a Change in Control (as defined in Section
6(e) hereof), all shares of Restricted Stock that have not previously vested and that have
not been forfeited in accordance with the foregoing shall become automatically vested upon
the effective date of the Change in Control.




(b) Restricted Stock Units




(i) On October 6, 2008, the Company shall grant restricted stock units with respect to
180,955 shares of the Company’s common stock (the “RSUs”) to Executive, subject to (A) the
terms of the applicable award agreement, and (B) the conditions below. The vesting
schedule for the RSUs shall be as follows:





	 	(1)	 	60,319 RSUs shall become vested on October 2, 2009, subject to the
continued employment of Executive through such date.

	 
	 	(2)	 	60,318 RSUs shall become vested on October 2, 2010, subject to the
continued employment of Executive through such date; and

	 
	 	(3)	 	60,318 RSUs shall become vested on October 2, 2011, subject to the
continued employment of Executive through such date.






 


 









 






(ii) Any RSUs that have not become vested prior to the termination of Executive’s
employment shall, upon such termination, be automatically forfeited and shall never vest.
In the event of a Change in Control (as defined in Section 6(e) hereof), RSUs that have not
previously vested and that have not been forfeited in accordance with the foregoing shall
become automatically vested upon the effective date of the Change in Control.




(iii) All RSUs shall be payable upon the vesting date in cash, based on the closing
trading price of the Company’s common stock on the date of vesting, reduced by any amount
required for withholding of taxes; provided, however, that if the
shareholders of the Company approve an appropriate amendment (as determined by the Company)
to a Company Incentive Compensation Plan, all RSUs will be payable in shares of Company
common stock.




(c) Stock Options 




(i) On October 2, 2008, the Company shall grant to Executive an option to purchase
300,000 shares of the Company’s common stock (the Option”) subject to (A) the terms
of the Company’s Incentive Compensation Plan and the terms of the applicable award
agreement, and (B) the conditions below. The exercise price of the Option shall be equal to
the closing trading price of Company’s common stock on the date of grant. The vesting
schedule of the Option shall be as follows:




Tranche A (150,000 Shares) — Time Vested




	 	(1)	 	50,000 shares of the Option shall become vested on October 2,
2009, subject to the continued employment of Executive through such date.

	 
	 	(2)	 	50,000 shares of the Option shall become vested on October 2,
2010, subject to the continued employment of Executive through such date

	 
	 	(3)	 	50,000 shares of the Option shall become vested on October 2,
2011, subject to the continued employment of Executive through such date.







Tranche B (150,000 Shares) — Performance Vested




	 	(1)	 	50,000 shares of the Option shall become vested on October 2,
2009, subject to (A) the continued employment of Executive through such vesting
date, and (B) the Stock Price (as defined below) equaling at least 25% more
than the closing trade price of the Company’s common stock on the New York
Stock Exchange (or other exchange or NASDAQ, as applicable) on October 2, 2008
(the “Grant Price”).

	 
	 	(2)	 	50,000 shares of the Option shall become vested on October 2,
2010, subject to (A) the continued employment of Executive through the such
vesting date, and (B) the Stock Price equaling at least 50% more than the Grant
Price.

	 
	 	(3)	 	50,000 shares of the Option shall become vested on October 2,
2011, subject to (A) the continued employment of Executive through the such
vesting date, and (B) the Stock Price equaling at least 75% more than the Grant
Price.





 


2









 





	 	(4)	 	On October 2, 2013, a number of shares equal to 150,000 less
the number of shares that have previously become vested in accordance with (1)
through (3) above, subject to (A) the continued employment of Executive through
the such vesting date, and (B) the Stock Price having attained a level
representing at least 40% more than the Grant Price.







For purposes hereof, “Stock Price” shall mean the average of the closing trade prices of the
Company’s common stock on the New York Stock Exchange (or other exchange or NASDAQ, as
applicable) on each trading day during the 60 consecutive calendar day period prior to the
respective vesting dates.




(ii) Any Options that have not vested prior to the termination of Executive’s
employment shall, upon such termination, be automatically forfeited and shall never vest.
In the event of a Change in Control (as defined in Section 6(e) hereof), all Options that
have not previously vested and that have not been forfeited in accordance with the foregoing
shall become automatically vested upon the effective date of the Change in Control.




(d) Stock Appreciation Rights 




(i) On October 6, 2008, the Company shall grant stock appreciation rights with respect
to 700,000 shares of the Company’s common stock (the “SARs”) to Executive, subject to (A)
the terms of the applicable award agreement, and (B) the conditions below. The exercise
price of the SARs shall be equal to the closing trading price of the Company’s common stock
on the date of grant. The vesting schedule of the SARs shall be as follows:




	 	(1)	 	233,334 SARs shall become vested on October 2, 2009, subject to
(A) the continued employment of Executive through such vesting date, and (B)
the Stock Price (as defined above) equaling at least 25% more than the Grant
Price (as defined above).

	 
	 	(2)	 	233,333 SARs shall become vested on October 2, 2010, subject to
(A) the continued employment of Executive through the such vesting date, and
(B) the Stock Price equaling at least 50% more than the Grant Price.

	 
	 	(3)	 	233,333 SARs shall become vested on October 2, 2011, subject to
(A) the continued employment of Executive through the such vesting date, and
(B) the Stock Price equaling at least 75% more than the Grant Price.

	 
	 	(4)	 	On October 2, 2013, a number of SARs equal to 700,000 less the
number of shares that have previously become vested in accordance with (1)
through (3) above, subject to (A) the continued employment of Executive through
the such vesting date, and (B) the Stock Price having attained a level
representing at least 40% more than the Grant Price.







(ii) Any SARs that have not become vested prior to the termination of Executive’s
employment shall, upon such termination, be automatically forfeited and shall never vest.
In the event of a Change in Control (as defined in Section 6(e) hereof), all SARs that have
not previously vested and that have not been forfeited in accordance
with the foregoing shall become automatically vested upon the effective date of the
Change in Control.




(iii) All SARs shall be payable upon the date of exercise in cash, based on the closing
trading price of the Company common stock on the date of exercise, reduced by any amount
required for withholding of taxes; provided, however, that if the
shareholders of the Company approve an appropriate amendment (as determined by the Company)
to a Company Incentive Compensation Plan, all SARs will be payable in shares of Company
common stock.


 


3









 





APPENDIX B




FORM OF SEVERANCE RELEASE




THIS SEVERANCE RELEASE (“Release”) is entered into between Kirk W. Walters (“Executive”) and
Sovereign Bancorp, Inc., a Pennsylvania corporation (together with its successors and assigns,
“SBI”).



WHEREAS, Executive and SBI entered into an employment agreement dated October 2, 2008
(“Employment Agreement”); and



WHEREAS, Executive’s employment has terminated under the Employment Agreement under
circumstances that provide him with certain significant benefits, subject to Executive’s executing
this Release.



NOW, THEREFORE, in consideration of the payments set forth in the Employment Agreement and
other good and valuable consideration, Executive and SBI agree as follows: Executive, on behalf of
himself and his dependents, heirs, administrators, agents, executors, successors and assigns
(“Executive Releasors”), hereby irrevocably and unconditionally releases, waives, and forever
discharges SBI and its affiliated companies and their past and present parents, subsidiaries,
affiliated corporations, partnerships, joint ventures, and their successors and assigns (“SBI
Affiliated Parties”) and all of SBI Affiliated Parties’ respective past and present directors,
officers, employees, agents and their representatives, successors and assigns (but as to any such
individual, agent or representative, only in connection with, or in relationship to, his or its
capacity as a director, officer, employee, agent, representative, successor or assign of any SBI
Affiliated Party and not in connection with, or in relationship to, his or its personal or
professional capacity unrelated to any SBI Affiliated Party) (collectively, “SBI Releasees”), from
any and all actions, claims, demands, obligations, liabilities and causes of action of any kind or
description whatsoever, in law, equity or otherwise, whether known or unknown, whether past,
present,, or future that any Executive Releasor had, may have had, or now has, or may hereafter
have against SBI or any other SBI Releasee, as of the date of the execution of this Release by
Executive, arising out of or relating to Executive’s employment relationship, or the termination of
that relationship, with SBI or any affiliate, including, but not limited to, any action, claim,
demand, obligation, liability or cause of action arising under any Federal, state, or local
employment law or ordinance creating or recognizing employment-related causes of action, and all
amendments of any of these laws (including, but not limited to, Title VII of the Civil Rights Act
of 1964, the Civil Rights Acts of 1866, 1871, 1964 and 1991, the Equal Pay Act, the Americans with
Disabilities Act of 1990, the National Labor Relations Act, the Fair Labor Standards Act of 1938,
the Workers Adjustment and Retraining Notification Act, the Employee Retirement Income Security Act
of 1974, as amended (other than any claim for vested benefits), the Family and Medical Leave Act of
1993, the Age Discrimination in Employment Act of 1967, as amended, the Older Workers’ Benefit
Protection Act of 1990, the Pennsylvania Human Relations Act, the Pennsylvania Wage Payment and
Collection Law, and Mass. Gen. Laws Ch. 12, §§11H and 11I, Mass. Gen. Laws Ch. 151B), tort,
contract or any alleged violation of any other legal obligation. Anything to the contrary
notwithstanding in this Release or the Employment Agreement, nothing herein shall release any SBI
Releasee from any claims or damages based on (i) any right or claim that arises exclusively from
events occurring after


 


 









 





the date Executive executes this Release, (ii) any right Executive may have to payments, benefits or
entitlements under the Employment Agreement or any applicable plan, policy, program or arrangement
of, or other agreement with, SBI or any affiliate, (iii) Executive’s eligibility for
indemnification in accordance with applicable laws or the certificate of incorporation or by-laws
of SBI, or under any applicable insurance policy with respect to any liability Executive incurs or
has incurred as a director, officer or employee of SBI, (iv) any right any Executive Releasor may
have under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), it being
acknowledged by SBI that for purposes of the Employment Agreement, the end of the Severance Period
or the CIC Severance Period (whichever is applicable) shall be treated as a qualifying event for
purposes of COBRA; provided any such event is permitted to be treated as a qualifying event
under the applicable insurance program of the Company or (v) any right Executive may have to obtain
contribution as permitted by law in the event of entry of judgment against Executive as a result of
any act or failure to act for which Executive and any SBI Releasee are jointly liable.
Notwithstanding the foregoing, if any SBI Releasee commences any action or proceeding in law or
equity against any Executive Releasor with respect to any claim or cause of action that arose on or
before the termination of Executive’s employment or otherwise asserts any such claim or cause of
action against any Executive Releasor in the course of any action or proceeding in law or equity,
such Executive Releasor’s release of claims pursuant to the foregoing shall not preclude the
Executive Releasor from raising any affirmative defense or counterclaim directly relating to the
matters asserted by the Releasee in any such action or proceeding. For the avoidance of doubt, the
voiding of such release of claims shall have no effect on Executive’s right to Severance Benefits
or CIC Severance Benefits pursuant to the Employment Agreement.



Executive represents that as of the date he has executed this Release he has not assigned to
any other party, and agrees not to assign, any claim released by Executive herein. In addition,
Executive promises never to file a lawsuit or an arbitration claim against SBI or any other SBI
Releasee asserting any claim released by any Executive Releasor herein. If any federal, state or
local administrative agency or court has now assumed or later assumes jurisdiction of any complaint
or charge on behalf of Executive against any SBI Releasee alleging or asserting unlawful employment
discrimination in connection with Executive’s employment with SBI or the termination of that
employment, Executive will disclaim entitlement to any relief and, to the extent that Executive has
commenced such a proceeding prior to the execution of this Release by Executive, Executive agrees
to withdraw such proceeding with prejudice on or before the date on which Executive executes this
Release.



Executive acknowledges that he has waived his and Executive Releasors’ Claims knowingly and
voluntarily in exchange for the severance benefits set forth in the Employment Agreement, and that
Executive would not otherwise have been entitled to those benefits. Executive acknowledges that he
has been provided a period of at least 21 calendar days in which to consider and execute this
Release. Executive further acknowledges and understands that he has seven calendar days from the
date on which he executes this Release to revoke his agreement by delivering to SBI written
notification (in accordance with Section 19 of the Employment Agreement) of his intention to revoke
this Release. This Release becomes effective when signed by Executive unless revoked in writing by
Executive in accordance with this seven-day
provision. To the extent that Executive has not otherwise done so, Executive is advised to consult
with an attorney prior to executing this Release.


 


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During Executive’s employment with SBI, Executive may have obtained information regarding SBI
or SBI Affiliated Parties of a confidential nature or which is a trade secret. Executive agrees
that he will not use, and he will not disclose to any person or entity, other than on behalf of or
for SBI’s benefit, such confidential information or any trade secret, except (i) as Executive may
be authorized in writing to do so by SBI’s Board of Directors or an officer of SBI designated by
such Board for such purpose or (ii) to the extent such information has entered the public domain.
The parties agree that nothing in this paragraph shall preclude Executive from fulfilling any duty
or obligation that he may have at law, from responding to any subpoena or official inquiry from any
court or government agency, including providing truthful testimony, documents, subpoenaed or
requested, or otherwise cooperating in good faith with any proceeding or investigation or from
taking any reasonable actions to enforce Executive’s rights against SBI or the Bank, including
under this Agreement. Executive further certifies that he has not and agrees that he will not,
during the period of time between his receipt of a written notice of termination of employment and
his termination date, remove from SBI or transfer by electronic or other means, documents or copies
thereof relating to Executive’s duties, without the express written approval of SBI’s Board of
Directors or an officer of SBI designated by it for such purpose. Notwithstanding anything to the
contrary contained herein, Executive will be entitled to remove, transfer and retain (i) papers and
other materials of a personal nature, including without limitation photographs, personal
correspondence, personal diaries, personal calendars and rolodexes, personal phone books and files
relating exclusively to his personal affairs, (ii) information showing Executive’s compensation or
relating to Executive’s reimbursement of business related expenses, (iii) information Executive
reasonably believes may be needed for the planning and preparation of Executive’s personal tax
returns and (iv) copies of SBI and Bank compensation and benefit plans and agreements relating to
Executive’s employment with or termination from SBI and/or the Bank.



Executive agrees that he remains subject to the non-competition and non-solicitation
provisions of Section 9 of the Employment Agreement. SBI agrees, except as may be required by law,
to refrain from performing any act, engaging in any course of conduct or course of action or making
or publishing any statements, claims, allegations or assertions which it believes have, or may
reasonably be expected to have, the effect of demeaning the name or business reputation of
Executive and shall cause its employees, officers, directors, agents or advisors to be similarly
bound when serving in such capacity. Executive agrees to refrain from performing any act, engaging
in any conduct or course of action or making or publishing any statements, claims, allegations or
assertions which have or may reasonably have the effect of demeaning the name or business
reputation of SBI or any SBI Affiliated Party or any of its or their employees, officers,
directors, agents or advisors in their capacities as such. The parties agree that nothing in this
paragraph shall preclude either party or any other person referenced in this paragraph from
fulfilling any duty or obligation that he, she or it may have at law, from responding to any
subpoena or official inquiry from any court or government agency, including providing truthful
testimony, documents, subpoenaed or requested, or otherwise cooperating in good faith with any
proceeding or investigation, or from taking any reasonable actions to enforce such party’s rights
against the other party, including under this Agreement, or from responding publicly to correct
any incorrect, disparaging or demeaning statements, claims, allegations or assertions by the other
party or any other person referenced in this paragraph.


 


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Executive agrees to cooperate with SBI, at mutually convenient times and places, in connection
with any ongoing administrative, regulatory, or litigation proceedings or such like matters that
may arise in the future, as to matters regarding which the Executive may have personal knowledge
because of his employment with SBI; provided that in no event will Executive be required to provide
any such cooperation if such cooperation is materially adverse to Executive’s legal interests. Such
cooperation will include being interviewed by representatives of SBI, and participating in such
proceedings by deposition and testimony at trial. To the extent possible, SBI will limit
Executive’s cooperation to regular business hours. In any event, (i) in any matter subject to this
paragraph, Executive will not be required to act against the reasonable best interests of any new
employer or new business venture in which Executive is an employee, partner or active participant
and (ii) any request for Executive’s cooperation will take into account Executive’s other personal
and business commitments. SBI will reimburse Executive for all reasonable expenses and costs
Executive may incur as a result of providing such assistance, including travel costs and reasonable
legal fees to the extent Executive reasonably believes, based upon the advice of counsel, that
separate representation is warranted, provided SBI receives proper documentation with respect to
all claimed expenses and costs. Executive will be entitled to an hourly fee (which fee will be
mutually determined by SBI and Executive prior to Executive’s providing any cooperation hereunder,
it being agreed that such fee will be fair and reasonable in light of Executive’s compensation
history) for time spent by Executive furnishing such cooperation (other than for time spent by
Executive actually providing testimony in any legal matter), including, without limitation, for
time taken in travel undertaken in connection with such cooperation, such fee to be paid promptly
following Executive’s submission of a statement setting forth the number of hours spent. Commencing
on the fifth anniversary hereof, Executive will not be obligated to make more than three days (or
portions thereof) per calendar year available for the purpose of providing cooperation to SBI
pursuant to this paragraph.



This Release shall be governed by and construed and interpreted in accordance with the laws of
the Commonwealth of Pennsylvania without reference to principles of conflicts of law. Should any
provision of this Release be determined by any court of competent jurisdiction to be illegal or
invalid, the validity of the remaining parts, terms or provisions shall not be affected and the
illegal or invalid part, term, or provision will be deemed not to be a part of this Release.



IN WITNESS WHEREOF, Executive and SBI have executed this Release as of the date indicated
below.



	 	 	 	 	 
	 

	 	KIRK W. WALTERS	 	 
	 
	 	 	 	 
	 

	 	 

Date:
	 	 
	 
	 	 	 	 
	 

	 	SOVEREIGN BANCORP, INC.	 	 
	 
	 	 	 	 
	 

	 	 

By:
	 	 
	 

	 	Its:	 	 
	 

	 	Date:	 	 







 


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