EX-10.1 EMPLOYMENT AGREEMENT DATED 5-23-06



 






	 	 	 	 	 



Exhibit 10.1

EXECUTION VERSION




EMPLOYMENT AGREEMENT




          AGREEMENT between DORAL FINANCIAL CORPORATION, a corporation organized under the laws of the
Commonwealth of Puerto Rico (together with its successors and assigns, the “Company”), and GLEN
WAKEMAN (the “Executive”) dated as of May 23, 2006.




          WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is in the best
interests of the Company to employ the Executive on the terms set forth herein;




          WHEREAS, the Executive has agreed to be employed by the Company on the terms set forth herein;




          WHEREAS, the Executive and the Company wish to set forth the terms and conditions of the
Executive’s employment in this Agreement;




          NOW THEREFORE, in consideration of the mutual promises and covenants made herein and the mutual
benefits to be derived from this Agreement, the parties hereto agree as follows:





     1. Employment Period. Subject to the terms of this Agreement, the Company hereby agrees
to employ the Executive, and the Executive hereby agrees to serve the Company and its affiliates,
for the period commencing on the Commencement Date (as defined herein) and ending on the fourth
anniversary of the Commencement Date; provided that the Executive’s employment by the Company will
automatically be extended by twelve (12) additional months on the fourth anniversary of the
Commencement Date and each annual anniversary thereafter unless either party provides written
notice to the other party no less than one hundred and eighty (180) days prior to the date of any
such scheduled extension of its or his intention not to extend the term of the Executive’s
employment (the original employment term plus any extension thereof being referred to herein as the
“Employment Period”). For purposes hereof, the Commencement Date means the date the Executive
commences employment with the Company which in all events shall be no later than June 26, 2006.
Notwithstanding
the foregoing, the Employment Period shall end on the date on which the Executive’s employment is
terminated by either party in accordance with the provisions of this Agreement.



     2. Position and Duties.



          (a) During the Employment Period, the Executive shall serve as President and Chief Executive
Officer of the Company, with overall responsibility for the business and affairs of the Company
(including hire and termination authority regarding employees and officers of the Company, to the
fullest extent customary for a chief executive officer, consistent with the Company’s personnel
policies, Certificate of Incorporation and By-Laws, including consultation with the Board regarding
hiring and termination decisions involving officers), subject to the Board’s direction, and shall
have such other duties and responsibilities as are commensurate with




 









 







such positions. During the Employment Period, the Executive shall report directly to the
Board and shall be a member of the Board, but shall not participate in any deliberations or
determinations regarding his own compensation. Notwithstanding the foregoing, until the Company’s
annual report for the fiscal year ending December 31, 2005 is filed, the Executive shall be
President and Chief Operating Officer of the Company and shall not be a member of the Board. As
soon as practicable following the filing of such annual report, the Executive shall be appointed
President and Chief Executive Officer of the Company and a member of the Board.




          (b) The Executive’s principal work location, subject to travel on Company business, shall be the
Company’s headquarters in Puerto Rico. Beginning no later than December 31, 2006, and at all times
thereafter during the Employment Period, the primary place of residence of the Executive and his
family shall be Puerto Rico.




          (c) During the Employment Period, and excluding any periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote his full business attention and time to the
business and affairs of the Company, and to use his best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period, the Executive shall be entitled
to engage in charitable and educational activities and to manage his personal and family
investments, to the extent such activities are not competitive with the business of the Company or
its affiliates and do not interfere in any way, in the reasonable judgment of the Board (or a
committee
thereof), with the performance of his duties for the Company and are otherwise consistent with the
Company’s governance policies.




     3. Compensation.



          (a) Annual Base Salary. During the Employment Period, the Executive shall receive an
annual base salary (“Annual Base Salary”) at a rate of $1,000,000, payable in accordance with the
Company’s normal payroll policies. The Executive’s Annual Base Salary shall be prorated for 2006
and for any other partial year of employment during the Employment Period based upon the portion of
the year that the Executive is employed by the Company. The Executive’s Annual Base Salary shall
be subject to review for increase in the sole discretion of the Board (or a committee thereof).
Annual Base Salary, however, shall not be subject to reduction without the Executive’s prior
written consent.




          (b) Annual Bonus. With respect to each fiscal year completed during the Employment Period, the
Executive shall have a target annual bonus opportunity equal to 150% of his Annual Base Salary
(“Target Bonus”); provided that the maximum bonus payable for any fiscal year shall not exceed 200%
of Target Bonus. The Board shall establish, in its sole discretion, the performance and payment
conditions applicable to such annual bonuses. Notwithstanding the foregoing, (i) on or about the
first anniversary of the Commencement Date, if the Executive is employed on such date, the Company
shall make a cash payment to the Executive equal to $1.5 million minus the annual bonus payable
(including any amounts deferred by the Executive) to the Executive in respect of fiscal year 2006
and (ii) on or about the second




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anniversary of the Commencement Date, if the Executive is employed on such date, the Company
shall make a cash payment to the Executive in an amount equal to $1.5 million minus the annual
bonus payable (including any amounts deferred by the Executive) in respect of fiscal year 2007.




          (c) Sign-On Equity Awards. Effective as of the Commencement Date, the Company shall grant
the Executive 200,000 restricted stock units (the “Restricted Stock Unit Award”). Accrued
dividends, if any, shall be deemed reinvested in restricted stock units which shall vest at the
same time and on the same schedule as do the other restricted stock
units. The Restricted Stock Unit Award shall vest and the restrictions shall lapse with respect to
one-fourth of the Units on each of the first four (4) anniversaries of the Commencement Date (that
is, 50,000 units, plus units attributable to related accrued dividends, if any, on each of the
first, second, third and fourth anniversaries of the Commencement Date); provided that, except as
otherwise provided in Section 5, the Executive is employed by the Company on each such vesting
date. Upon vesting, Shares representing the vested units shall be delivered to the Executive,
unless the Executive files a written election to defer such receipt within 30 days of the
Commencement Date. Effective as of the Commencement Date, the Company shall grant the Executive a
stock option (the “Option”) to purchase an aggregate of 400,000 shares of the Company’s common
stock, par value $0.01 (the “Shares”). The Option shall have a term of ten years from the date of
grant, subject to earlier expiration as provided herein. The per Share exercise price of the
Shares underlying the Option shall be equal to the closing price of a Share on the New York Stock
Exchange on the date of grant. The Option shall vest and become exercisable with respect to
one-fourth of the Shares on each of the first four (4) anniversaries of the Commencement Date (that
is, 100,000 shares on each the first, second, third and fourth anniversaries of the Commencement
Date); provided that, except as otherwise provided in Section 5, the Executive is employed by the
Company on each such vesting date. Except as otherwise provided in Section 5, any vested and
outstanding portion of the Option shall remain exercisable for 90 days following any termination of
employment (but in no event beyond the original term of the Option) and the unvested portion of the
Restricted Stock Unit Award shall be forfeited as of the Date of Termination.




          (d) Long-Term Incentive Plans. During the Employment Period, the Executive shall be eligible
to participate in the ongoing equity and other long-term awards and programs of the Company as
determined in the sole discretion of the Board or a committee thereof.




          (e) SERP Replacement Award. As soon as reasonably practicable following the Commencement Date,
but in no event more than 45 days
following the Commencement Date, the Company shall deposit $6 million with an escrow agent mutually
agreed upon by the parties (“Escrow Fund”). The parties agree that $375,000 (adjusted for
investment results as set forth in the Escrow Trust Agreement described in Exhibit B attached
hereto) in the escrow account shall be released to the Executive on each of the first sixteen
quarterly anniversaries of the Commencement Date, with the first installment released three (3)
months following the Commencement Date, and each subsequent installment released three (3) months
after the





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immediately prior installment (each a “Release Date”); provided that the Executive is
still employed by the Company on such Release Date. If the Executive ceases to be employed by the
Company prior to any Release Date, the Company shall be entitled to the remaining funds (including
any investment results) in the escrow account. Notwithstanding the foregoing, if the Executive’s
employment is terminated by the Company without Cause or by the Executive for Good Reason, the
Escrow Fund shall be released to the Executive immediately following the Date of Termination (as
defined in Section 4(e) hereof). The Escrow Agent shall invest the Escrow Fund as directed by the
Executive, subject to the consent of the Company which consent shall not be unreasonably withheld.
The parties agree that, promptly following the execution of this Agreement, they shall negotiate in
good faith the terms of an escrow agreement governing the terms of this arrangement consistent with
Exhibit B attached hereto.




          (f) Other Benefits and Perquisites. During the Employment Period, the Executive shall be
entitled to participate in the Company’s employee benefit plans, programs and arrangements
(including, without limitation, life insurance, 401(k), and disability insurance, vacation and sick
leave programs) and perquisite programs and arrangements, if any, in each case, on the same basis
as generally provided to other similarly-situated executives of the Company. In all events, during
the Employment Period, the Executive shall be entitled to 5 weeks of vacation per calendar year
(pro-rated for any partial year of employment), a Company-provided car and driver, and
reimbursement for reasonable expenses associated with one club membership in Puerto Rico.




          (g) Certain Expenses.





     (i) The Company shall reimburse the Executive for all appropriate business expenses in
accordance with the terms of the Company’s policies and procedures in effect from time to time.




     (ii) The Company shall reimburse the Executive for the following relocation expenses: (i) cost of
moving household goods from his current residence to Puerto Rico, (ii) cost of two (2) trips from
Mexico City to Puerto Rico for the Executive and his family to find suitable housing and (iii) cost
of temporary living expenses in Puerto Rico until the Executive finds suitable housing, but in no
event longer than three (3) months.




     (iii) Subject to review of time entries and other documentation, the Company shall pay reasonable
legal fees incurred by the Executive in connection with the negotiation and documentation of this
Agreement (and the preceding term sheet) up to a maximum of $25,000.



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     (iv) In the event the Executive is subject to federal, Puerto Rico, state or local tax on all or
any portion of the Company’s reimbursement of relocation expenses and/or legal fees to the extent
set forth in clauses (ii) and (iii) of this Section 3(g), the Company shall pay the Executive an
additional amount equal to the amount of federal, Puerto Rico, state and local taxes the Executive
is required to pay, after taking into account any deductions he is entitled to, with respect to the
Company’s reimbursement for such costs and/or fees.



     4. Termination of Employment.



          (a) Death or Disability. The Executive’s employment shall terminate automatically upon
the Executive’s death during the Employment Period. In the event of the Executive’s Disability (as
defined in Exhibit A attached hereto), the Company may provide the Executive with written notice in
accordance with Section 12(c) of this Agreement of its intention to terminate the Executive’s
employment due to Disability. In such event, the Executive’s employment with the Company shall
terminate effective on the date the Company sends such notice to the Executive (the “Disability
Commencement Date”);
provided that the Executive’s employment hereunder shall immediately terminate on the first date
the Executive incurs a Disability as defined in clause (i) of the definition of Disability set
forth on Exhibit A.




          (b) With or Without Cause. The Executive is an employee at will and the Company may terminate
the Executive’s employment either with or without Cause (as defined in Exhibit A attached hereto).
For purposes of this Agreement, a termination “without Cause” shall mean a termination by the
Company of the Executive’s employment other than due to Cause, death or Disability.




          (c) With or Without Good Reason. The Executive’s employment may be terminated by the Executive
voluntarily with or without Good Reason (as defined in Exhibit A attached hereto).




          (d) Notice of Termination. Any termination of the Executive’s employment by the Company or the
Executive (other than death) shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 12(c) of this Agreement. For purposes of this Agreement, a
“Notice of Termination” means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of the Executive’s
employment under the provision so indicated and (iii) if necessary, specifies the Date of
Termination consistent with this Agreement (which date shall be not more than thirty (30) days
after the giving of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or
Cause shall not waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively,




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from asserting such fact or circumstance in
enforcing the Executive’s or the Company’s rights hereunder.




          (e) Date of Termination. “Date of Termination” means (i) if the Executive’s employment is
terminated by the Company for Cause, the date of receipt of the Notice of Termination or any later
date specified
therein within thirty (30) days of such notice, as the case may be; provided that if the event
giving rise to a termination for Cause is pursuant to clauses (i), (iv), (v) or (vi) of the
definition of Cause, the date on which there is delivered to the Executive written notice of the
requisite Board vote as set forth in the definition of “Cause” in Exhibit A, (ii) if the
Executive’s employment is terminated by the Company without Cause, the date of receipt of the
Notice of Termination or any later date specified therein within thirty (30) days of such notice,
as the case may be, (iii) if the Executive’s employment is terminated by the Executive for Good
Reason, 30 days after the Company receives the Notice of Termination unless the Company has cured
the alleged grounds for such termination within 30 days after such receipt or if the Executive’s
employment is terminated by the Executive without Good Reason, 30 days after the Company receives
the Notice of Termination, provided however, in either case the Company may accelerate the Date of
Termination to an earlier date by providing the Executive notice of such action, and (iv) if the
Executive’s employment is terminated by reason of death or Disability, the date of the Executive’s
death or the Disability Commencement Date, as the case may be.




          (f) Resignation. Upon termination of the Executive’s employment for any reason, the Executive
agrees to resign, effective as of the Date of Termination, from any positions that the Executive
holds with the Company and its affiliates, the Board (and any committees thereof) and the board of
directors (and any committees thereof) of any of the Company’s affiliates. The Executive hereby
agrees to execute any and all documentation of such resignations upon request by the Company, but
he shall be treated for all purposes as having so resigned upon termination of his employment,
regardless of when or whether he executes any such documentation.




     5
Obligations of the Company upon Termination of Employment.



          (a) Good Reason; Without Cause. If, during the Employment Period, the Company terminates
the Executive’s employment without Cause, or the Executive terminates his employment for Good
Reason and
provided Section 6(b) is not applicable, the Company shall have no further obligations to the
Executive under this Agreement or otherwise other than to pay or provide to the Executive the
following amounts and benefits (provided the Executive has executed, delivered to the Company and
not revoked a general release of claims against the Company in a form satisfactory to the Company
(the “Release”) and subject to Section 9(h) hereof):





     (i) an amount equal to the Executive’s unpaid Annual Base Salary for services through the
Date of Termination;



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     (ii) an amount equal to the sum of Annual Base Salary plus Target Bonus divided by 12, with such
amount payable each month for 24 months following the Date of Termination;




     (iii) immediate vesting as of the Date of Termination of that portion of the Option (as defined in
Section 3(c) hereof), if any, that would have vested if the Executive had been employed on the
vesting date immediately following the Date of Termination, with continued exercisability of the
outstanding and vested portion of the Option for twelve (12) months following the Date of
Termination (but in no event beyond the original term of the Option);




     (iv) immediate vesting as of the Date of Termination of that portion of the Restricted Stock Unit
Award (as defined in Section 3(c) hereof) that would have vested if the Executive had been employed
on the vesting date immediately following the Date of Termination;




     (v) continued participation until the second anniversary of the Date of Termination in all Company
medical and dental plans in which the Executive and his eligible dependents were participating
immediately prior to the Date of Termination (subject to offset as set forth in Section 8 hereof);




     (vi) as long as the Executive uses such services prior to the first anniversary of the Date of
Termination, up to $20,000 in outplacement service; and




     (vii) payment of other amounts, entitlements or benefits, if any, in accordance with applicable
plans, programs, arrangement or other agreements of the Company.




In addition, the Executive shall be entitled to the funds remaining, if any, in the
Escrow Fund (adjusted for any returns or losses thereon) immediately following the Date of
Termination.



          (b) Death or Disability. If the Executive’s employment is terminated by reason of the
Executive’s death or Disability during the Employment Period, the Company shall have no further
obligations to the Executive or his legal representatives, as applicable, under this Agreement or
otherwise other than for the payment of the amounts and provision of the benefits set forth below:





     (i) payment of Annual Base Salary through the end of the month in which the Executive’s Date
of Termination occurs;



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     (ii) full vesting as of the Date of Termination of the unvested portion of the Option (as defined
in Section 3(c) hereof), with continued exercisability of the outstanding portion of the Option for
twelve (12) months following the Date of Termination (but in no event beyond the end of the
original term of the Option);




     (iii) full vesting of the Restricted Stock Unit Award (as defined in Section 3(c) hereof); and




     (iv) payment of other amounts, entitlements or benefits, if any, in accordance with applicable
plans, programs, arrangement or other agreements of the Company.




In addition, the Company shall be entitled to the funds remaining, if any, in the
Escrow Fund (adjusted for any returns or losses thereon) immediately following the Date of
Termination; provided that in the event that the Executive’s employment is terminated due to
his death, the Executive’s legal representatives shall be entitled to four (4) quarterly
installments from the escrow account following his death, payable at such times and in such
amounts as if the Executive’s employment with the Company had continued for one year
following his death, in accordance with Section 3(e) hereof.



          (c) Cause or Voluntary Resignation Without Good Reason. If the Executive’s employment
shall be terminated by the Company for Cause or by the Executive for any reason other than Good
Reason at any time during the Employment Period, the Company shall have no further obligations to
the Executive under this Agreement or otherwise other than for the payment of the amounts and
provision of the benefits set forth below:





     (i) an amount equal to the Executive’s unpaid Annual Base Salary for services through the
Date of Termination;




     (ii) for a voluntary resignation (without Good Reason), continued exercisability for 90 days
following the Date of Termination for the portion of the Option, if any, that was vested and
outstanding as of the Date of Termination (but in no event beyond the expiration of the original
term of the Option);




     (iii) for a termination for Cause, forfeiture and cancellation of the Option (whether vested or
unvested) as of the Date of Termination;




     (iv) forfeiture and cancellation of the unvested portion of the Option or the Restricted Stock Unit
Award as of the Date of Termination; and



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     (v) payment of other amounts, entitlements or benefits, if any, in accordance with applicable
plans, programs, arrangement or other agreements of the Company.




In addition, the Company shall be entitled to the funds remaining, if any, in the
Escrow Fund (adjusted for any returns or losses thereon) immediately following the Date of
Termination.



     6. Change in Control Protections.



          (a) Upon the occurrence of a Change in Control (as defined in Exhibit A attached hereto), the
Option (as defined in Section 3(c) hereof) shall immediately vest and become exercisable and the
Restricted Stock Unit Award (as defined in Section 3(c) hereof) shall immediately vest and all
restrictions thereon shall immediately lapse.




          (b) In the event during the Employment Period, the Company terminates the Executive’s employment
without Cause or the Executive terminates his employment for Good Reason, in both cases upon or
within two (2) years immediately following a Change in Control, the Company shall have no further
obligations to the Executive under this Agreement or otherwise (including pursuant to Section 5(a)
hereof) other than to pay or provide to the Executive the following amounts and benefits (provided
he has executed and not revoked a Release (as defined in Section 5(a)) and subject to Section
9(h)):





     (i) an amount equal to the Executive’s unpaid Annual Base Salary for services through the
Date of Termination;




     (ii) an amount equal to 3 times the sum of Annual Base Salary plus Target Bonus; payable in a lump
sum no later than 30 days after the Date of Termination;




     (iii) immediate vesting as of the Date of Termination of that portion of any outstanding options and
restricted stock units which would have vested if the Executive had been employed on the vesting
date immediately following the Date of Termination, with continued exercisability of the
outstanding and vested portion of any options for twelve (12) months following the Date of
Termination (but in no event beyond the original term of the Option);




     (iv) continued participation until the third anniversary of the Date of Termination in all Company
medical and dental coverages in which the Executive and his eligible dependents were participating
immediately prior to the Date of Termination (subject to offset as set forth in Section 8 hereof);



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     (v) as long as the Executive uses such services prior to the first anniversary of the Date of
Termination, up to $20,000 in outplacement services; and




     (vi) payment of other amounts, entitlements or benefits, if any, in accordance with applicable
plans, programs, arrangement or other agreements of the Company.




In addition, the Executive shall be entitled to the funds remaining, if any, in the
Escrow Fund (adjusted for any returns or losses thereon) immediately following the Date of
Termination.



     7. Certain Additional Payments by the Company.



          (a) Anything in this Agreement to the contrary notwithstanding, it is determined that any payment,
distribution, benefit or other entitlement provided by the Company to or for the benefit of the
Executive (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 7) on or after the second anniversary of the Commencement Date (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 imposed with respect
thereto (but excluding any tax, penalties or interest under Section 409A of the Code), are
hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to
receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the
Executive of all 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. For the avoidance of
doubt, this Section 7 shall not become effective until the second anniversary of the Commencement
Date and shall only apply if there is a Change in Control of the Company on or after such date.
For purposes of this Section 7(a), “Parachute Value” of a Payment means the present value as of the
date of the change of control for purposes of Section 280G of the Code of the portion of such
Payment that constitutes a “parachute payment” under Section 280G(b)(2), as determined by the
Accounting Firm (as defined below in clause (b)) for purposes of determining whether and to what
extent the Excise Tax will apply to such Payment. Notwithstanding the foregoing provisions of this
Section 7(a), if it shall be determined that the Executive is entitled to the Gross-Up Payment but
that the Parachute Value of all Payments does not exceed 110% of the Safe Harbor
Amount, then no Gross-Up Payment shall be made to the Executive and the amounts payable under this
Agreement shall be reduced so that the Parachute Value of all Payments, in the aggregate, equals
the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be
made by first reducing any cash payment, unless an alternative method of reduction is elected




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by
the Executive and, in any event, shall be made in such a manner so as to maximize the value of all
Payments actually made to the Executive. For purposes of this Section 7(a), “Parachute Value” of a
Payment means the present value as of the date of the change of control for purposes of Section
280G of the Code of the portion of such Payment that constitutes a “parachute payment” under
Section 280G(b)(2), as determined by the Accounting Firm (as defined below in clause (b)) for
purposes of determining whether and to what extent the Excise Tax will apply to such Payment, and
“Safe Harbor Amount” means 2.99 times the Executive’s “base amount” within the meaning of Section
280G(b)(3) of the Code.




          (b) Subject to the provisions of Section 7(c), all determinations required to be made under this
Section 7, including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be
made by the Company’s auditors or such other nationally recognized certified public accounting firm
designated by the Company (the “Accounting Firm”). All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section
7, shall be paid by the Company directly to the Internal Revenue Service within five days of the
later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting
Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company
and the Executive, subject to the provisions of this Section 7. 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 Section 7(c) 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 benefit of the Executive.




          (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 than ten (10) 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 ninety (90) day period following the date on which he
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,



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     (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 proceedings 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, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this Section 7(c),
the Company shall control all proceedings taken in connection with such contest,
and, at its sole option, may pursue or forgo 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 pay the tax claimed to the appropriate
taxing authority on behalf of the Executive and direct the Executive to 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 pays such claim and directs
the Executive to sue for a refund, the Company shall indemnify and hold the
Executive harmless, on an after-tax basis, from any attorneys’ fees and costs
incurred by the Executive in connection therewith and any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to such
payment or with respect to any imputed income in connection with such payment or
suit for a refund.



          (d) If, after the receipt by the Executive of a payment by the Company of an amount on the
Executive’s behalf pursuant to Section 7(c), the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall promptly after his receipt pay to the Company the
amount of such refund (together with any interest paid or credited thereon after taxes applicable
thereto). If, after payment by the Company of an amount on the Executive’s behalf pursuant to
Section 7(c), 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 thirty





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(30) days after such determination, then the amount of such payment shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.




     8. No Duplication; No Mitigation. In no event shall the Executive be entitled to
duplicate payments or benefits under different provisions of this Agreement or pursuant to the
terms of any other plan, program or arrangement of the Company or its affiliates. In the event of
any termination of the Executive’s employment, the Executive shall be under no obligation to seek
other employment, and, there shall be no offset against amounts due the Executive under this
Agreement on account of any remuneration attributable to any subsequent employment except with
respect to the continuation of benefits under Sections 5(a)(v) and Section 6(b)(iv), which shall
terminate immediately upon obtaining comparable coverage from another employer.



     9. Restrictive Covenants.



          (a) Confidentiality. During the Employment Period and thereafter, other than in the
ordinary course of performing his duties for the Company, the Executive agrees that he shall not
disclose to anyone or make use of any trade secret or proprietary or confidential information of
the Company or any affiliate of the Company, including such trade secret or proprietary or
confidential information of any customer or other entity to which the Company owes an obligation
not to disclose such information, which he acquires during the course of his employment, including,
but not limited to, records kept in the ordinary course of business, except when required to do so
by a court of law, by any governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee thereof) with apparent
or actual jurisdiction to order him to divulge, disclose or make accessible such information. In
the event the Executive is requested to disclose information as contemplated in the preceding
sentence, the Executive agrees, unless otherwise prohibited by law, to use his best efforts to give
the Company’s General Counsel prompt written notice of any request for disclosure in advance of the
Executive making such disclosure in order to permit the Company a reasonable opportunity to
challenge such disclosure. The foregoing shall not apply to information that (i) was known to the
public prior to its disclosure by the Executive, or (ii) becomes known to the public through no
wrongful disclosure by or act of the Executive or any representative of the Executive.




          (b) Property Rights. Whether during the Employment Period or thereafter, the
Executive agrees to hereby sell, assign and transfer to the Company all of his right, title and
interest in and to all inventions, discoveries, improvements and copyrightable subject matter (the
“Rights”) which during the period of his employment are made or conceived by him, alone or with
others, and which are within or arise out of any general field of the Company’s business or arise
out of any work he performs, or information he receives regarding the business of the Company,
while employed by the Company. The Executive shall fully disclose to the Company as promptly as
available all information known or possessed by him concerning any Rights, and upon request by the
Company and without any further remuneration in any form to him by the




13









 







Company, but at the expense of the Company, execute all applications for patents and for copyright
registration, assignments thereof and other instruments and do all things which the Company may
deem necessary to vest and maintain in it the entire right, title and interest in and to all such
Rights. The Executive agrees that at the time of the termination of employment, whether at the
instance of the Executive or the Company, and regardless of the reasons therefore, he will promptly
deliver to the Company’s General Counsel, and not keep or deliver to anyone else, any and all of
the following which is in his possession or control: (i) Company property (including, without
limitation, credit cards, computers, communication devices, home office equipment and other Company
tangible property) and (ii) notes, files, memoranda, papers and, in general, any and all physical
matter and computer files containing confidential or proprietary information of the Company or any
of its affiliates, including any and all documents relating to the conduct of the business of the
Company or any of its affiliates and any and all documents containing confidential or proprietary
information of the customers of the Company or any of its affiliates, except for (x) any documents
for which the Company’s General Counsel has given written consent to removal at the time of
termination of the Executive’s employment and (y) any information necessary for the Executive to
retain for his tax purposes.




          (c) Non-Competition. The Executive acknowledges that in his capacity in management
the Executive has had or will have a great deal of exposure and access of the Company’s trade
secrets and confidential and proprietary information. Therefore, during the Executive’s employment
and for twelve (12) months following termination of such employment (whether during the Employment
Period or thereafter) (the “Restricted Period”) to protect the Company’s trade secrets and other
confidential and proprietary information, the Executive agrees that he shall not, other than in the
ordinary course of performing his duties hereunder or as agreed by the Company in writing, engage
in a “Competitive Business,” directly or indirectly, as an individual, partner, shareholder,
director, officer, principal, agent, employee, trustee, consultant, or in any relationship or
capacity. The Executive shall not be deemed to be in violation of this Section 9(c) by reason of
the fact that he owns or acquires, solely as an investment, two percent (2%) or less of the
outstanding equity securities (measured by value) of any publicly traded company. “Competitive
Business” shall mean (x) the Executive’s participation in any unsolicited offer to purchase the
stock or assets of the Company or its affiliates or (y) any financial institution with a
substantial presence in the mortgage origination business in Puerto Rico. Notwithstanding the
foregoing, if the Company provides the Executive with notice that it is not renewing the Employment
Period in accordance with Section 1 hereof, the provisions of this Section 9(c) shall no longer be
effective upon the expiration of the Employment Period.




          (d) Non-Interference. The Executive acknowledges that information regarding the
Company’s business and financial relations with its vendors and customers is Confidential
Information and proprietary to the Company and that any interference with such relations based
directly or indirectly on the use of such information would cause irreparable damage to the
Company. The Executive acknowledges that by virtue of his employment with the Company, he has
gained or may gain knowledge of such information concerning the Company’s vendors and customers
(respectively “Vendor Information” or “Customer Information”), and that he would





14









 







inevitably have to draw on this Vendor Information and Customer Information and on other
Confidential Information if he were to solicit or service the Company’s vendors or customers on
behalf of a competing business enterprise. Accordingly, and subject to the immediately following
sentence, the Executive agrees that, other than in the ordinary course of performing his duties for
the Company, during the Restricted Period, the Executive will not, on behalf of himself or any
other person or entity, directly or indirectly seek to encourage or induce any vendor or customer
of the Company to cease doing business with, or lessen its business with, the Company, or otherwise
interfere with or damage (or attempt to interfere with or damage) any of the Company’s
relationships with its vendors and customers. No action by another person or entity shall be
deemed to be a breach of this provision unless the Executive directly or indirectly assisted,
encouraged or otherwise counseled such person or entity to engage in such activity.




          (e) No Hire; Non-Solicitation. The Executive agrees that, during the Restricted
Period (other than in the ordinary course of performing his duties for the Company), he will not,
without the prior written consent of the Company, directly or indirectly, (i) hire any employee of
the Company or any of its affiliates who is then an employee of the Company or such affiliate or
was an employee during the prior six (6) month period, or (ii) solicit or encourage any such
employee to leave the employ of the Company or such affiliate, as the case may be. No action by
another person or entity shall be deemed to be a breach of this provision unless the Executive
directly or indirectly assisted, encouraged or otherwise counseled such person or entity to engage
in such activity.




          (f) Public Comment. Following the Employment Period, the Executive shall not at any
time (i) make any public derogatory comment concerning the Company or its affiliates or anyone whom
the Executive knows to be a current or former director, officer, stockholder or employee of the
Company or (ii) without the prior written consent of the Company, which consent shall not be
unreasonably withheld, publish or produce any information or write any book, article, screenplay,
teleplay or similar type of publication relating to the Company or its affiliates or anyone whom
the Executive knows to be a current or former director, officer, stockholder or employee; provided
that no such consent shall be necessary for an academic work relating to Executive’s employment
with the Company. Following the Employment Period, the Company shall not at any time make any
public derogatory comment concerning the Executive. Notwithstanding the foregoing, nothing in this
Section 9(f) shall prohibit any person from (x) responding publicly to incorrect, disparaging or
derogatory public statements about the Company or the Executive relating to his employment with the
Company, (y) providing truthful testimony in any judicial or administrative matter, or (z) making
truthful statements required by law, by any regulatory authority or organization, or in connection
with any public filing required by the Securities and Exchange Commission or any other regulatory
authority.




          (g) Blue Penciling. If any restrictions on competitive or other activities contained
in this Section 9 shall for any reason be held by a court of competent jurisdiction to be
excessively broad as to duration, geographical scope, activity or subject, such restrictions shall
be construed so as thereafter to be limited or reduced to be enforceable to the extent compatible





15









 







with the applicable law; it being understood that by the execution of this Agreement, (i) the
parties hereto regard such restrictions as reasonable and compatible with their respective rights
and (ii) the Executive acknowledges and agrees that the restrictions will not prevent him from
obtaining gainful employment subsequent to the termination of his employment.




          (h) Remedies; Injunctive Relief.





     (i) The Executive acknowledges and agrees that the covenants and
obligations of the Executive set forth in this Section 9 relate to special,
unique and extraordinary services rendered by the Executive to the Company
and that a violation of any of the terms of such covenants and obligations
will cause the Company irreparable injury for which adequate remedies are
not available at law. Therefore, the Executive agrees that the Company
shall be entitled to seek an injunction, restraining order or other
temporary or permanent equitable relief (without the requirement to post
bond) restraining the Executive from committing any violation of the
covenants and obligations contained herein. These injunctive remedies are
cumulative and are in addition to any other rights and remedies the Company
may have at law or in equity. The existence of any claim or cause of action
by the Executive against the Company shall not constitute a defense to the
enforcement by the Company of the foregoing restrictive covenants, but such
claim or cause of action shall be determined separately.




     (ii) If at any time the Executive materially breaches any of the
covenants in Section 9, then (x) the Company shall have the right to cease
to pay or provide to the Executive any payment, benefit or entitlement due
(or accrued) under this Agreement and (y) the Executive shall be required to
repay to the Company the net after-tax amount (such after-tax amount to be
determined after taking into account tax deductions, tax credits, and the
like attributable to the repayment) of both any severance paid to the
Executive under this Agreement and the amount of the Escrow Fund released to
him under Section 5(a), such repayment to be made within 15 days after
written notice from the Company to the Executive requesting such repayment;
provided, however, that the amounts paid/payable to the Executive pursuant
to Section 3(e) shall be subject to forfeiture/repayment only in the event
that the Executive materially breaches one or more of the covenants set
forth in Sections 9(c), (d), or (e)(ii) or knowingly breaches the covenant
set forth in Section 9(e)(i).




     (iii) If at any time following the Restricted Period but prior to the
second anniversary of the termination of the Executive’s



16









 






employment, the Executive takes any action or engages in any conduct
that would have constituted a material breach of Section 9(d) or 9(e) if it
had occurred during the Restricted Period, then clauses (x) and (y) of
Section 9(h)(ii) — as limited by the proviso to Section 9(h)(ii) — shall
apply as if such material breach had occurred during the Restricted Period.



          (i) Survival. The provisions of this Section 9 shall remain in full force and effect
until the expiration of the periods specified herein notwithstanding the earlier termination of the
Executive’s employment hereunder or the expiration of the Employment Period. For purposes of this
Section 9, “Company” shall mean the Company and any affiliate of the Company or any successor
thereto.




     10. Mandatory Arbitration. Except to the extent necessary to enforce the provisions
of Section 9 hereof in accordance with Section 9(g) or 9(h), the Executive (on behalf of himself
and his beneficiaries) and the Company agree that any controversy or claim arising out of, or
relating to this Agreement, or the breach thereof, or the Executive’s employment with the Company
or any affiliate, or any termination of such employment, shall be settled by confidential
arbitration in Puerto Rico in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. Any award entered shall be final, binding and nonreviewable except on
such limited grounds for review of arbitration awards as may be permitted by applicable law.
Judgment upon the award rendered by the arbitrator(s) may be entered into any court having
jurisdiction thereof.



     11. Successors.



          (a) This Agreement is personal to the Executive and without the prior written consent of the
Company shall not be assignable by the Executive. This Agreement shall inure to the benefit of and
be enforceable by the Executive’s legal representatives, heirs or legatees.




          (b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns. No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company without the Executive’s prior written consent except that
such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in
which the Company is not the continuing entity, or a sale, liquidation or other disposition of all
or substantially all of the assets of the Company, provided that the assignee or transferee is the
successor to all or substantially all of the assets of the Company and assumes the liabilities,
obligations and duties of the Company under this Agreement, either contractually or as a matter of
law.




     12. Miscellaneous.



          (a) The Executive represents and warrants that he has the free and unfettered right to enter
into this Agreement and to perform his obligations under it and that he knows of no agreement
between him and any other person, firm or organization, or any law or regulation, that

17









 








would be violated by the performance of his obligations under this Agreement. The Executive
agrees that he will not use or disclose any confidential or proprietary information of any prior
employer in the course of performing his duties for the Company or any of its affiliates.




          (b) This Agreement shall be governed by and construed in accordance with its express terms,
and otherwise in accordance with the laws of the Commonwealth of Puerto Rico, without reference to
principles of conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective successors and legal
representatives. In the event of any conflict or inconsistency between the provisions of this
Agreement and any other Company plan, program, policy or agreement, the provisions of this
Agreement shall control.




          (c) All notices and other communications hereunder shall be in writing and shall be given by
(i) when delivered personally (provided that a written acknowledgement of receipt is obtained),
(ii) three (3) days after being sent by certified or registered mail, postage prepaid, return
receipt requested or (iii) two (2) days after being sent by overnight courier (provided that a
written acknowledgement of receipt is obtained by the overnight courier), with any such notice duly
addressed to the party concerned at the address indicated below:




	 	 	 	 	 
	 

	 	If to the Executive:
	 	At the most recent address
	 

	 	 	 	on file at the Company
	 
	 	 	 	 
	 

	 	If to the Company:
	 	At the address of its principal
	 

	 	 	 	executive offices
	 

	 	 	 	Attention: General Counsel







or to such other address as either party shall have furnished to the other in writing in
accordance herewith.



          (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.




          (e) The Company may withhold from any amounts payable under this Agreement such federal,
Puerto Rico, state, local or foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation. In addition, this Agreement is intended to comply with the
requirements of Section 409A of the Code and the regulations promulgated thereunder (“Section
409A”) so as not to subject the Executive to the payment of interest or any additional tax under
Section 409A. In furtherance thereof, if payment or provision of any amount or benefit hereunder
at the time specified in this Agreement would subject such amount or benefit to any additional tax
under Section 409A, the payment or provision of such amount or benefit shall be postponed to the
earliest commencement date on which the payment or the provision of such amount or benefit could be
made without incurring such additional tax (including paying any

18









 








severance that is delayed in a lump sum upon the earliest possible payment date which is
consistent with Section 409A).




          (f) Following the Executive’s termination of employment for any reason (whether during or
after the expiration of the Employment Period), upon reasonable request of the Company, the
Executive shall cooperate with the Company or any of its affiliates with respect to any legal or
investigatory proceeding, including any government or regulatory investigation, or any litigation
or other dispute relating to matters in which he was involved or had knowledge (or reasonably
should have had knowledge) during his employment with the Company, subject to his reasonable
personal and business schedules. The Company shall reimburse the Executive for all reasonable
out-of-pocket travel and meal expenses associated with any cooperation provided hereunder.




          (g) No waiver shall be valid unless in writing signed by the party against whom the waiver is
being enforced (that is, by the Executive or an authorized officer of the Company, as the case may
be).




          (h) This Agreement contains the entire agreement between the parties concerning the subject
matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the parties with respect thereto (including, without
limitation, the term sheet previously negotiated by the parties). In the event of any
inconsistency between the provisions of this Agreement and the provisions of any other agreement or
plan relating to the Option and/or Restricted Stock Unit Award, the provisions of this Agreement
shall control. Any provision of this Agreement, to the extent necessary to carry out the intent of
such provision, shall survive after the expiration of the Employment Period.




          (i) The Executive shall be entitled to indemnification in connection with any litigation or
proceeding arising out of the Executive’s acting as President and Chief Executive Officer or as an
employee, officer or director of the Company, to the fullest extent permitted under the Company’s
charter and by-laws and by applicable law. In addition, the Executive shall, during the Employment
Period and for ten (10) years thereafter, be entitled to liability insurance coverage pursuant to a
Company-purchased directors’ and officers’ liability insurance policy on the same basis as other
directors and officers of the Company to whom such coverage (if any) is then provided.




          (j) Notwithstanding any other provision of this Agreement or otherwise, the Company will make
no payment pursuant to this Agreement or otherwise which would be prohibited by 12 USC Section
1828(k) or any implementing regulations thereunder.




          (k) This Agreement may be executed in one or more counterparts, each of which shall be deemed
to be an original but all of which together shall constitute one and the same instrument.
Signatures delivered by facsimile shall be effective for all purposes.




19









 





          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day
and year first above written.




	 	 	 	 	 	 	 
	 	 	DORAL FINANCIAL CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ John A. Ward	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	John A. Ward	 	 
	 

	 	Title:
	 	Chairman of the Board and Chief	 	 
	 	 	Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	   /s/ Glen Wakeman	 	 
	 	 	 	 	 
	 	 	GLEN WAKEMAN	 	 







20









 








EXHIBIT A




          For all purposes of this Agreement, the following terms shall have the meanings set forth
below:




          “affiliate” of a person or other entity shall mean a person or other entity controlled by,
controlling or under common control with the person or other entity specified.




          “Disability” shall mean (i) the Executive becomes eligible for full benefits under a long-term
disability policy provided by the Company or (ii) the Executive has been unable, due to physical or
mental illness or incapacity, to substantially perform the essential duties of his employment with
reasonable accommodation for a continuous period of ninety (90) days or an aggregate of one-hundred
eighty (180) days during any consecutive twelve (12)-month period.




          “Cause” shall mean:





          (i) the Executive’s act of fraud, misappropriation, or embezzlement
with respect to the Company or any material affiliate;




          (ii) the Executive’s indictment for, conviction of, or plea of guilty
or no contest to any felony (other than a minor traffic violation);




          (iii) the Executive’s admission of liability of, or a finding by a
court or the applicable regulatory agency or body of liability for, the
violation of any “Securities Laws” (but excluding any technical violations
of any Securities Laws which are not criminal in nature) or the violation of
any “Banking Laws” (but excluding any technical violations of any Banking
Laws which are not criminal in nature); as used herein, the term “Securities
Laws” means any federal or state law, rule or regulation governing the
issuance or exchange of securities, including without limitation the
Securities Act of 1933, the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder and “Banking Laws” means any federal
or state banking law, rule or regulation governing the Company or its
affiliates;




          (iv) the Executive engages in conduct that constitutes willful gross
neglect or willful misconduct, in either case, resulting in significant harm
to the Company’s or its affiliates’ business or reputation;




          (v) the Executive’s intentional failure after reasonable prior written
notice from the Company to comply with any valid and legal directive of the
Board; or



21









 






          (vi) the Executive’s material breach of any covenant set forth in
Section 9 of this Agreement.



          For purposes of this definition of “Cause,” an action or failure to act by the Executive shall
not be considered “willful” if the Executive believed in good faith that his action or failure to
act was in, or not opposed to, the best interests of the Company and its affiliates.




          Anything notwithstanding to the contrary, the Executive’s employment shall not be terminated
for “Cause” within the meaning of clauses (i), (iv), (v) or (vi) above, unless the Executive has
been given written notice by the Board stating the basis for such termination and he is given
fifteen (15) days to cure the neglect or conduct that is the basis of any such claim and, if he
fails to cure such conduct, or such conduct cannot be cured, the Executive has an opportunity to be
heard before the full Board and after such hearing, the Board gives the Executive written notice
confirming that in the judgment of a majority of the members of the Board (other than the
Executive, if applicable) “Cause” for terminating the Executive’s employment exists.




          “Good Reason” shall mean the occurrence of any of the following without the Executive’s
written consent:





(i) a reduction in the Executive’s then current Annual Base Salary
or target bonus opportunity;




(ii) failure to appoint Executive as President and Chief Executive
Officer as soon as practicable following the date on which the
Company’s annual report for the fiscal year ending December 31, 2005
is filed with the Securities and Exchange Commission;




(iii) following his appointment consistent with Section 2(a) of this
Agreement as President and Chief Executive Officer of the Company, a
material diminution in the Executive’s positions, duties or
authorities as President and Chief Executive Officer of the Company,
including, without limitation, removing him from such positions;
provided, that Good Reason shall also exist if at any time following
a Change in Control involving an entity of smaller or similar size
to the Company (measured on the basis of assets), Executive is not
the President and Chief Executive Officer of the ultimate parent
entity resulting from such Change in Control;



22









 






(iv) following his appointment as a member of the Board consistent
with Section 2(a) of this Agreement, failure to elect or reelect the
Executive as a member of the Board;




(v) following his appointment as President and Chief Executive
Officer of the Company consistent with Section 2(a) hereof, a change
in reporting structure so that the Executive reports to someone
other than the Board; or




(vi) the failure of any successor to all or substantially all of the
Company’s assets to assume this Agreement, whether in writing or by
operation of law.



          Anything notwithstanding to the contrary, the Executive may only terminate his employment for
“Good Reason” upon thirty (30) days’ written notice to the Company (provided the Company does not
cure the event or events giving rise to Good Reason prior to the expiration of such thirty (30)-day
notice period).




          “Change in Control” will be deemed to have taken place if:





(i) any “person” (as such term is used in Sections 3(a)(9) and
Section 13(d) of the Securities Exchange Act of 1934) other than the
Company or any employee benefit plan of the Company or any of its
subsidiaries, (x) becomes the “beneficial owner” (as such term is
used in Rule 13d-3 promulgated under the Securities Exchange Act of
1934) of Company securities having more than 50% of the combined
voting power of the then outstanding securities of the Company that
may be cast for the election of directors of the Company (other than
as a result of the issuance of securities initiated by the Company
in the ordinary course of business) (“Voting Securities”) or (y)
becomes the “beneficial owner” of Company of 25% or more of the
Voting Securities of the Company and such person has the power to
appoint or elect a majority of the members of the Board; or




(ii) persons who, as of the effective date of this Agreement
constitute the Board (the “Incumbent Directors”) cease for any
reason, including without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at least
a majority thereof, provided that any person becoming a director of
the Company subsequent to the effective date of this Agreement shall
be considered an Incumbent Director if such person’s election or
nomination for election was approved by a vote of at least 50%



23









 







of the Incumbent Directors; but provided further, that any such
person whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of
members of the Board or other actual or threatened solicitation of
proxies or consents by or on behalf of a “person” (as defined in
Section 13(d) and 14(d) of the Exchange Act) other than the Board,
including by reason of agreement intended to avoid or settle any
such actual or threatened contest or solicitation, shall not be
considered an Incumbent Director; or




(iii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, or any
combination of the foregoing transactions, the holders of all the
Company’s securities entitled to vote generally in the election of
directors of the Company immediately prior to such transaction
constitute, following such transaction, less than a majority of the
combined voting power of the then-outstanding securities of the
surviving entity (or in the event each entity survives, the ultimate
parent entity resulting from such transaction) (the “Surviving
Entity”) entitled to vote generally in the election to elect
directors of the Surviving Entity after such transactions.




24









 








EXHIBIT B




     1. The Escrow Trust Agreement shall be governed by the laws of the State of New York without
regard to the conflict of law principles thereof and any disputes with respect to the Escrow Fund
shall be subject to binding arbitration pursuant to an arbitration provision that is the same as
the arbitration provision contained in Section 10 of the employment agreement between the Company
and the Executive dated as of May 23, 2006 (the “Employment Agreement”). All notices in respect of
the Escrow Fund shall be given in accordance with Section 12(c) of the Employment Agreement or a
substantially identical provision in the Escrow Agreement.



     2. Escrow Fund



          (a) Automatic Release





	 	(i)	 	Except as provided below, the Escrow Agent
shall automatically release to the Executive the Escrow Fund as
provided in Section 3(e) of the Employment Agreement.





          (b) The Company Claims





	 	(i)	 	Certain Defined Terms:






	 	(1)	 	“Company Escrow Claim Notice”
shall mean a written notice by the Company setting forth the
Company’s good faith reasons for making a claim against the
Escrow Fund.
	 
	 	(2)	 	“Objection Period” shall mean the
period commencing on the Business Day on which the Escrow Agent
and the Executive or the Company, as applicable, received the
Company Escrow Claim Notice or the Executive Escrow Claim
Notice, as applicable, and ending on the day that is 45 calendar
days thereafter (if such 45th day is not a business day then the
Objection Period shall end on the business day following such
45th day).
	 
	 	(3)	 	“Executive Objection Notice”
shall mean a notice given by the Executive disputing in good
faith the Company’s right to make a claim against the Escrow
Fund as described in the Company Escrow Claim Notice and the
Executive’s good faith reasons for disputing such right.
	 
	 	(4)	 	“Joint Written Direction” shall
mean a written direction, executed by the Executive and the
Company, (a) directing the




 









 






	 	 	 	Escrow Agent to release the Escrow Fund as set forth in such
Joint Written Direction or (b) stating that the Company or the
Executive, as applicable, is not entitled to the Escrow Fund in
connection with the Company Escrow Claim Notice or the Executive
Escrow Claim Notice, as applicable.






	 	(5)	 	“Company Payment Certificate”
shall mean a certificate from the Company certifying that the
Company is entitled to the Escrow Fund pursuant to a final
arbitration ruling conducted in accordance with the terms of the
Employment Agreement and a copy of such ruling shall be included
in such certificate.






	 	(ii)	 	For the Company to make a claim against the
Escrow Fund, the Company must, prior to the applicable “Release Date”
(as defined in Section 3(e) of the Employment Agreement), transmit a
copy of a Company Escrow Claim Notice to the Escrow Agent and the
Executive. The Escrow Agent shall, within 10 days after receipt of
the Company Escrow Claim Notice, deliver a second copy of such Notice
to the Executive.
	 
	 	(iii)	 	If the Escrow Agent:






	 	(1)	 	shall not, during the Objection
Period, have received from the Executive an Executive Objection
Notice; or
	 
	 	(2)	 	shall have received an Executive
Objection Notice during the Objection Period and shall
thereafter have received (x) a Joint Written Direction directing
the Escrow Agent to release the Escrow Fund to the Company or
(y) a Company Payment Certificate,






then the Escrow Agent shall release to the Company the Escrow Fund.



          (c) Executive Claims





	 	(i)	 	Certain defined terms:






	 	(1)	 	“Executive Escrow Claim Notice”
shall mean a written notice by the Executive setting forth the
Executive’s good faith reasons for making a claim against the
Escrow Fund.
	 
	 	(2)	 	“Company Objection Notice” shall
mean a notice given by the Company disputing in good faith the
Executive’s right to make




26









 






	 	 	 	a claim against the Escrow Fund as described in the Executive
Escrow Claim Notice and the Company’s good faith reasons for
disputing such right.






	 	(3)	 	“Executive Payment Certificate”
shall mean a certificate from the Executive certifying that the
Executive is entitled to the Escrow Fund pursuant to a final
arbitration ruling conducted in accordance with the terms of the
Employment Agreement and copy of such ruling shall be included
in such certificate.






	 	(ii)	 	For the Executive to make a claim against
the Escrow Fund, the Executive must transmit a copy of an Executive
Escrow Claim Notice to the Escrow Agent and the Company. The Escrow
Agent shall, within 10 days after receipt of the Executive Escrow
Claim Notice, deliver a second copy of such Notice to the Company.
	 
	 	(iii)	 	If the Escrow Agent:






	 	(1)	 	shall not, during the Objection
Period, have received from the Company a Company Objection
Notice; or
	 
	 	(2)	 	shall have received a Company
Objection Notice during the Objection Period and shall
thereafter have received (x) a Joint Written Direction directing
the Escrow Agent to release the Escrow Fund to the Executive or
(y) an Executive Payment Certificate






then the Escrow Agent shall release to the Executive the Escrow Fund.



          (d) The funds deposited by the Company into the Escrow Fund shall
be invested in 3 month U.S. Treasuries on a rolling basis (subject to change by
the Executive, with the prior written consent of the Company, which consent
shall not be unreasonably withheld).




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