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                                                                    EXHIBIT 10.4

                               ADVISORY AGREEMENT

     ADVISORY AGREEMENT made as of _______, 2006 between NNN Apartment REIT,
Inc., a Maryland corporation (the "Company"), and NNN Apartment REIT Advisor,
LLC, a Virginia limited liability company (the "Advisor").

                                   WITNESSETH:

     WHEREAS, the Company intends to qualify as a real estate investment trust
(a "REIT") as defined in Sections 856 through 860 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to make investments of the type permitted
to qualified REITs under the Code and not inconsistent with the Charter of the
Company (the "Charter"), and the Bylaws of the Company; and

     WHEREAS, the Company desires to avail itself of the experience, sources of
information, advice and assistance of the Advisor and to have the Advisor
undertake the duties and responsibilities hereinafter set forth, on behalf of
and subject to the supervision of the Board of Directors of the Company (the
"Board of Directors"), as provided herein; and

     WHEREAS, the Advisor is willing to undertake to render such services,
subject to the supervision of the Board of Directors, on the terms and
conditions herein set forth;

     NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
the parties hereto agree as follows:

     1.   DEFINITIONS.

     As used herein, the following terms shall have the meanings set forth
below:

          (a) "Acquisition Expenses" shall mean any and all expenses related to
     the Company's selection, evaluation and acquisition of, and investment in
     properties, whether or not acquired or made, including, but not limited to,
     legal fees and expenses, travel and communications expenses, cost of
     appraisals and surveys, nonrefundable option payments on property not
     acquired, accounting fees and expenses, computer use related expenses,
     architectural, engineering and other property reports, environmental and
     asbestos audits, title insurance and escrow fees, loan fees or points or
     any fee of a similar nature paid to a third party, however designated,
     transfer taxes, and personnel and miscellaneous expenses related to the
     selection, evaluation and acquisition of properties.

          (b) "Advisor" shall mean NNN Apartment REIT Advisor, LLC, a Virginia
     limited liability company, any successor advisor to the Company, the
     Partnership or any person or entity to which NNN Apartment REIT Advisor,
     LLC or any successor advisor subcontracts substantially all of its
     functions.

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          (c) "Affiliate" shall mean: (i) any Person directly or indirectly
     owning, controlling or holding, with the power to vote 10% or more of the
     outstanding voting securities of such other Person; (ii) any Person 10% or
     more of whose outstanding voting securities are directly or indirectly
     owned, controlled or held, with the power to vote, by such other Person;
     (iii) any Person directly or indirectly controlling, controlled by or under
     common control with such other Person; (iv) any executive officer,
     director, trustee or general partner of such other Person; and (v) any
     legal entity for which such Person acts as an executive officer, director,
     trustee or general partner.

          (d) "Asset Management Fee" shall mean an annual amount equal to the
     percentage of the Company's Average Invested Assets set forth in Section
     9(b).

          (e) "Average Invested Assets" shall mean, for any period, the average
     of the aggregate Book Value of the assets of the Company invested, directly
     or indirectly, in real estate assets or equity interests in and loans
     secured by real estate, before deducting depreciation, bad debts or other
     similar non-cash reserves, computed by taking the average of such values at
     the end of each month during such period.

          (f) "Book Value" of an asset shall mean the value of such asset on the
     books of the Company, before allowance for depreciation or amortization.

          (g) "Common Stock" shall mean the common stock, par value $.01 per
     share, of the Company.

          (h) "Company" shall have the meaning set forth in the preamble of this
     Agreement.

          (i) "Competitive Real Estate Commission" shall mean the real estate or
     brokerage commission paid for the purchase or sale of a property which is
     reasonable, customary and competitive in light of the size, type and
     location of such property.

          (j) "Contract Purchase Price" shall mean the amount actually paid or
     allocated to the purchase or improvement of Real Estate Assets, exclusive
     of Real Estate Commissions and Acquisition Expenses.

          (k) "Contract Sales Price" shall mean the amount actually paid or
     allocated to the Sale of a Property or Properties, exclusive of Disposition
     Fees.

          (l) "Cumulative Return" shall mean a cumulative, non-compounded return
     equal to 8% per annum on Invested Capital commencing upon acceptance by the
     Company of an investor's subscription.

          (m) "Director" shall mean a member of the Board of Directors of the
     Company.

          (n) "Fiscal Year" shall mean any period for which any income tax
     return is submitted by the Company to the Internal Revenue Service and
     which is treated by the Internal Revenue Service as a reporting period.

          (o) "Funds from Operations" shall mean the Company's net income,
     computed in accordance with GAAP, excluding gains (or losses) from sales of
     property, plus depreciation and amortization, and after adjustments for
     unconsolidated partnerships and joint ventures.

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          (p) "GAAP" means accounting principles generally accepted in the
     United States of America.

          (q) "Gross Offering Proceeds" shall mean the total proceeds from the
     sale of Shares before deductions for Organizational and Offering Expenses.
     For purposes of calculating Gross Offering Proceeds, the purchase price for
     all Shares issued in the Company's initial public offering, including those
     for which volume discounts apply, shall be deemed to be $10.00 per Share.

          (r) "Gross Income From Properties" shall mean all cash receipts
     derived from the operation of the Company's Property, excluding (i) tenant
     security deposits unless and until such deposits are forfeited upon a
     tenant default, and (ii) proceeds from insurance claims, condemnation
     proceedings, sales or refinancings.

          (s) "Incentive Distribution Upon Listing" shall mean an amount equal
     to 15.0% of the amount, if any, by which (1) the market value of the
     outstanding Shares at Listing, measured by taking the average closing price
     or the average of the bid and asked price, as the case may be, over a
     period of 30 days during which the Shares are traded, with such period
     beginning 180 days after Listing (the "Market Value"), plus the total
     distributions paid to Stockholders prior to Listing exceeds (2) the sum of
     the Invested Capital plus the Cumulative Return.

          (t) "Incentive Distribution Upon Sales" shall mean an amount equal to
     15% of the net proceeds from the sale of a Property after the Company has
     received and paid to Stockholders the sum of (i) Invested Capital initially
     allocated to that Property, and (ii) any remaining shortfall in the
     recovery of Invested Capital with respect to prior sales of Properties, and
     (iii) any remaining shortfall in the Cumulative Return as described in
     Section 9(e).

          (u) "Independent Directors" shall mean a Director who is not, and
     within the last two (2) years has not been, directly or indirectly
     associated with a Sponsor or the Advisor by virtue of (i) ownership of an
     interest in a Sponsor, the Advisor or their Affiliates, (ii) employment by
     a Sponsor, the Advisor or their Affiliates, (iii) service as an officer or
     director of a Sponsor, the Advisor or their Affiliates, (iv) performance of
     services, other than as a Director, for the Company, (v) service as a
     director or trustee of more than three (3) real estate investment trusts
     organized by a Sponsor or advised by the Advisor, or (vi) maintenance of a
     material business or professional relationship with a Sponsor, the Advisor
     or any of their Affiliates. An indirect relationship shall include
     circumstances in which a Director's spouse, parents, children, siblings,
     mothers- or fathers-in-law, sons- or daughters-in-law or brothers- or
     sisters-in-law is or has been associated with a Sponsor, the Advisor, any
     of their Affiliates or the Company. A business or professional relationship
     is considered material if the gross revenue derived by the Director from a
     Sponsor, the Advisor and Affiliates exceeds five percent (5%) of either the
     Director's annual gross revenue during either of the last two (2) years or
     the Director's net worth on a fair market value basis.

          (v) "Invested Capital" shall mean the total proceeds from the sale of
     Shares. When a Property is sold, Invested Capital shall be reduced by the
     lesser of (i) the net sale proceeds available for distribution from such
     sale or (ii) the sum of (A) the portion of Invested Capital that initially
     was allocated to that Property and (B) any remaining shortfall in the
     recovery of Invested Capital with respect to prior sales of Properties.

          (w) "Joint Venture" shall mean any partnership, limited liability
     company, business trust or other unincorporated organization through or by
     means of which the Company acts jointly with any Person or Affiliate to
     make an investment in Real Estate Assets.

          (x) "Listing" shall mean the listing of the Shares on a national
     securities exchange or quotation on a national market system. Upon such
     Listing, the Shares shall be deemed Listed.

          (y) "Net Income" shall mean, for any period, total revenues applicable
     to such period, less the operating expenses applicable to such period other
     than additions to or allowances

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     for reserves for depreciation, amortization or bad debts or other similar
     noncash reserves; provided, however, that Net Income shall not include any
     gain from the sale of the Company's assets.

          (z) "Organizational and Offering Expenses" shall mean those expenses
     incurred by and to be paid from the assets of the Company in connection
     with and in preparing the Company for registration and subsequently
     offering and distributing Shares to the public, including, but not limited
     to, total underwriting and brokerage discounts and commissions (including
     fees of the underwriters' attorneys), expenses for printing, engraving and
     mailing, salaries of employees while engaged in sales activities, charges
     of transfer agents, registrars, trustees, escrow holders, depositaries and
     experts, expenses of qualification of the sale of the securities under
     federal and state laws, including taxes and fees, and accountants',
     consultants' and attorneys' fees and expenses.

          (aa) "Partnership" shall mean NNN Apartment REIT Holdings, L.P., a
     Virginia limited partnership.

          (ab) "Property" or "Properties" shall mean any, or all, respectively,
     of the real property and improvements thereon owned or to be owned by the
     Company, directly or indirectly.

          (ac) "Property Disposition Fee" shall mean a real estate disposition
     fee, payable (under certain conditions) to the Advisor and its Affiliates
     upon the sale of the Company's Property as described in Section 9(e).

          (ad) "Property Management Fee" shall mean any fee paid to an Affiliate
     or third party as compensation for management of the Company's Properties
     as described in Section 9(c).

          (ae) "Property Manager" shall mean an entity that provides property
     rental, leasing, operation and management services to the Properties owned
     by the Company, directly or indirectly. The Property Manager may be the
     Advisor, an Affiliate or a third-party property management firm.

          (af) "Person" shall mean any natural person, partnership, corporation,
     association, trust, limited liability company or other legal entity.

          (ag) "Prospectus" shall mean the final prospectus of the Company in
     connection with the initial registration of Shares filed with the
     Securities and Exchange Commission on Form S-11, as supplemented and
     amended from time to time.

          (ah) "Real Estate Assets" shall mean any and all investments in: (i)
     Property whether directly or indirectly through owned or controlled
     subsidiaries and including amounts invested in Joint Ventures; and (ii)
     loans, or other evidence of indebtedness secured, directly or indirectly,
     by interests in Property.

          (ai) "Real Estate Commission" shall mean the real estate or brokerage
     commission paid in connection with the purchase of a Property as described
     in Section 9(a).

          (aj) "Return Ratio" shall mean the ratio of the Funds from Operations
     of the Company to the Gross Offering Proceeds of the Company calculated
     quarterly.

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          (ak) "Sale" or "Sales" shall mean any transaction or series of
     transactions whereby: (A) the Company or the Partnership directly or
     indirectly (except as described in other subsections of this definition)
     sells, grants, transfers, conveys or relinquishes its ownership of any
     Property or portion thereof, including the lease of any Property consisting
     of a building only, and including any event with respect to any Property
     which results in the payment to the Company or the Partnership, directly or
     indirectly, of a significant amount of insurance proceeds or condemnation
     or similar award related to a Property; (B) the Company or the Partnership
     directly or indirectly (except as described in other subsections of this
     definition) sells, grants, transfers, conveys or relinquishes its ownership
     of all or substantially all of the interests of the Company or the
     Partnership in any Joint Venture in which it is a co-venturer or partner;
     (C) any Joint Venture directly or indirectly (except as described in other
     subsections of this definition) in which the Company or the Partnership as
     a co-venturer or partner sells, grants, transfers, conveys or relinquishes
     its ownership of any Property or portion thereof, including any event with
     respect to any Property which results in the payment to the Joint Venture,
     directly or indirectly, of a significant amount of insurance proceeds or
     condemnation or similar award related to a Property; or (D) the Company or
     the Partnership directly or indirectly (except as described in other
     subsections of this definition) sells, grants, conveys or relinquishes its
     interest in any loan or mortgage or any portion thereof (including with
     respect to any mortgage or loan, all payments thereunder or in satisfaction
     thereof other than regularly scheduled interest payments) of amounts owed
     pursuant to such loan or mortgage and any event which gives rise to the
     payment of a significant amount of insurance proceeds or condemnation or
     similar award; or (E) the Company or the Partnership directly or indirectly
     (except as described in other subsections of this definition) sells,
     grants, transfers, conveys or relinquishes its ownership of any other Real
     Estate Asset not previously described in this definition or any portion
     thereof.

          (al) "Shares" shall mean the shares of Common Stock of the Company.

          (am) "Sponsor" shall mean any Person directly or indirectly
     instrumental in organizing, wholly or in part, the Company or any Person
     who will control, manage or participate in the management of the Company,
     and any Affiliate of such Person. Not included is any Person whose only
     relationship with the Company is that of an independent property manager of
     Company assets, and whose only compensation is as such. Sponsor does not
     include wholly independent third parties such as attorneys, consultants,
     accountants and underwriters whose only compensation is for professional
     services. A Person also may be deemed a Sponsor of the Company by:

               (i) taking the initiative, directly or indirectly, in founding or
          organizing the business or enterprise of the Company, either alone or
          in conjunction with one or more other Persons;

               (ii) receiving a material participation in the Company in
          connection with the founding or organizing of the business of the
          Company, in consideration of services or property, or both services
          and property;

               (iii) having a substantial number of relationships and contacts
          with the Company;

               (iv) possessing significant rights to control Company properties;

               (v) receiving fees for providing services to the Company which
          are paid on a basis that is not customary in the industry; or

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               (vi) providing goods or services to the Company on a basis which
          was not negotiated at arms length with the Company.

          (an) "Stockholders" shall mean holders of the Shares.

          (ao) "Total Development Cost" shall mean, with regard to any Property
     acquired by the Company prior to or during the development or acquisition
     stages, all costs and expenses paid or incurred by the Company that are in
     any way related to the development of such Property, including, but not
     limited to, land and construction costs.

          (ap) "Total Operating Expenses" shall mean the aggregate expenses of
     every character paid or incurred by the Company as determined under
     generally accepted accounting principles, including fees paid to the
     Advisor, but excluding:

               (i) the expenses of raising capital such as Organizational and
          Offering Expenses, legal, audit, accounting, underwriting, brokerage,
          listing, registration and other fees, printing and other such
          expenses, and taxes incurred in connection with the issuance,
          distribution, transfer, registration and Listing of the Shares;

               (ii) interest payments;

               (iii) taxes;

               (iv) non-cash expenditures such as depreciation, amortization and
          bad debt reserves;

               (v) the Incentive Distribution upon Sales and the Incentive
          Distribution upon Listing; and

               (vi) Acquisition Expenses, real estate commissions on resale of
          property and other expenses connected with the acquisition,
          disposition (whether by sale, exchange or condemnation) and ownership
          of real estate interests, mortgage loans or other property (such as
          the costs of foreclosure, insurance premiums, legal services,
          maintenance, repair and improvement of property).

     2.   DUTIES OF ADVISOR.

     The Advisor shall consult with the Company and shall, at the request of the
Board of Directors or the officers of the Company, furnish advice and
recommendations with respect to all aspects of the business and affairs of the
Company. In general, the Advisor shall inform the Board of Directors of factors
that come to its attention which could influence the policies of the Company.
Subject to the supervision of the Board of Directors and consistent with the
provisions of the Charter, the Advisor undertakes to use its reasonable efforts
to:

          (a) Present to the Company a continuing and suitable investment
     program and opportunities to make investments consistent with the
     investment policies of the Company and the investment program adopted by
     the Board of Directors and in effect at the time and furnish the Company
     with advice with respect to the making, acquisition, holding and
     disposition of investments and commitments therefor. The Advisor is also
     obligated to provide the Company with the first opportunity to purchase any
     Class A income producing multi-family property which satisfies the
     Company's investment objectives placed under contract by the Advisor or its

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     Affiliates. If the Board of Directors of the Company does not vote to make
     such purchase within seven (7) days of being offered such property, the
     Advisor is free to offer such opportunity to any other Affiliates or
     non-Affiliates, as it so chooses. The Advisor shall use commercially
     reasonable efforts to identify potential investment opportunities
     consistent with the Company's investment objectives and policies including
     but not limited to:

               (i)  locating, analyzing and selecting potential investments in
                    Real Estate Assets;

               (ii) structuring and negotiating the terms and conditions of
                    acquisition and disposition transactions;

               (iii) arranging for financing and refinancing and making other
                    changes in the asset or capital structure of the Company and
                    disposing of and reinvesting the proceeds from the sale of,
                    or otherwise deal with the investments in, Real Estate
                    Assets; and

               (iv) entering into leases and service contracts, on the Company's
                    behalf, for Real Estate Assets and, to the extent necessary,
                    performing all functions necessary to maintain and
                    administer the Company's assets.

          (b) Manage the Company's day-to-day operations to effect the
     investment program adopted by the Board of Directors and perform or
     supervise the performance of such other administrative functions necessary
     in connection with the management of the Company as may be agreed upon by
     the Advisor and the Company;

          (c) Serve as the Company's investment advisor in connection with
     policy decisions to be made by the Board of Directors and, as requested,
     furnish reports to the Board of Directors and provide research, economic
     and statistical data in connection with the Company's investments and
     investment policies;

          (d) On behalf of the Company, investigate, select and conduct
     relations with lenders, consultants, accountants, brokers, property
     managers, attorneys, underwriters, appraisers, insurers, corporate
     fiduciaries, banks, builders and developers, sellers and buyers of
     investments and persons acting in any other capacity specified by the
     Company from time to time, and enter into contracts with, retain and
     supervise services performed by such parties in connection with investments
     which have been or may be acquired or disposed of by the Company;

          (e) Act as property manager or cooperate with a third party or
     affiliated Property Manager in connection with property management services
     and other activities relating to the Company's assets, subject to the
     requirement that the Advisor, its Affiliate or the Property Manager, as the
     case may be, qualifies as an "independent contractor" as the phrase is used
     in connection with applicable laws, rules and regulations affecting REITs
     that own real property;

          (f) Conduct periodic on-site property visits to some or all (as the
     Advisor deems reasonably necessary) of the Properties to inspect the
     physical condition of the Properties and to evaluate the performance of the
     Property Manager;

          (g) Review, analyze and comment on the operating budgets, capital
     budgets and leasing plans prepared and submitted by the Property Manager
     and aggregate these property budgets into the Company's overall budget;

          (h) Review and analyze on-going financial information pertaining to
     each Property and the overall portfolio of Properties;

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          (i) Upon request of the Company, act, or obtain the services of others
     to act, as attorney-in-fact or agent of the Company in making, acquiring
     and disposing of investments, disbursing and collecting the funds, paying
     the debts and fulfilling the obligations of the Company and handling,
     prosecuting and settling any claims of the Company, including foreclosing
     and otherwise enforcing mortgage and other liens and security interests
     securing investments;

          (j) Assist in negotiations on behalf of the Company with investment
     banking firms and other institutions or investors for public or private
     sales of securities of the Company or for other financing on behalf of the
     Company, but in no event in such a way that the Advisor shall be acting as
     a broker, dealer or underwriter of securities of the Company;

          (k) On behalf of the Company, maintain, with respect to any Real
     Estate Assets and to the extent available, title insurance or other
     assurance of title and customary fire, casualty and public liability
     insurance;

          (l) At the direction of the Board of Directors, invest and reinvest
     any money of the Company;

          (m) Provide the Company with all necessary cash management services;

          (n) Supervise the preparation and filing and distribution of returns
     and reports to governmental agencies and to investors and act on behalf of
     the Company in connection with investor relations;

          (o) Provide office space, equipment and personnel as required for the
     performance of the foregoing services as advisor;

          (p) Advise the Company of the operating results of the Company's
     properties, prepare on a timely basis, and review, for such properties,
     operating budgets, maintenance and improvement schedules, projections of
     operating results and such other reports as may be requested by the Board
     of Directors;

          (q) As requested by the Company, make reports to the Company of its
     performance of the foregoing services and furnish advice and
     recommendations with respect to other aspects of the business of the
     Company;

          (r) Prepare on behalf of the Company, or engage independent
     professionals to prepare, all reports and returns required by the
     Securities and Exchange Commission, Internal Revenue Service and other
     state or federal governmental agencies, provided that the Company shall be
     responsible for the fees of such independent professionals;

          (s) Undertake and perform all services or other activities necessary
     and proper to carry out the investment objectives of the Company;

          (t) Undertake communications with Stockholders in accordance with
     applicable law and the Charter; and

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          (u) Enter into ancillary agreements with the Sponsor and its
     Affiliates to arrange for the services to be provided by the Advisor
     hereunder in accordance with this Agreement;

provided, however, that Affiliates of the Advisor have no obligations to the
Company other than as expressly stated herein, and the Advisor and its
Affiliates have no obligations to present to the Company any specific investment
opportunity except as described herein and in the Prospectus. Notwithstanding
the foregoing, the Advisor hereby represents and acknowledges that it will have
fiduciary duties to the Stockholders and that the Company is making a statement
to that effect in its registration statement filed with the Securities and
Exchange Commission.

     3.   NO PARTNERSHIP OR JOINT VENTURE.

     The Company and the Advisor are not, and shall not be deemed to be,
partners or joint venturers with each other.

     4.   RECORDS.

     The Advisor shall maintain appropriate books of account and records
relating to services performed hereunder, which shall be accessible for
inspection by the Company at any time during ordinary business hours.

     5.   ACTIONS RELATING TO REIT QUALIFICATION.

     Notwithstanding any other provision of this Agreement to the contrary, the
Advisor shall refrain from any action which, in its reasonable judgment or in
any judgment of the Board of Directors of which the Advisor has written notice,
would adversely affect the qualification of the Company as a REIT under the Code
or which would violate any law, rule or regulation of any governmental body or
agency having jurisdiction over the Company or its securities, or which would
otherwise not be permitted by the Charter. If any such action is ordered by the
Board of Directors, the Advisor shall promptly notify the Board of Directors of
the Advisor's judgment that such action would adversely affect such status or
violate any such law, rule or regulation or the Charter, and shall thereafter
refrain from taking such action pending further clarification or instruction
from the Board of Directors.

     6.   BANK ACCOUNTS.

     At the direction of the Board of Directors, the Advisor may establish and
maintain bank accounts in the name of the Company, and may collect and deposit
into and disburse from such accounts any money on behalf of the Company, under
such terms and conditions as the Board of Directors may approve, provided that
no funds in any such account shall be commingled with funds of the Advisor. The
Advisor shall from time to time, as the Company may require, render appropriate
accountings of such collections, deposits and disbursements to the Board of
Directors and to the auditors of the Company.

     7.   FIDELITY BOND.

     The Advisor shall not be required to obtain or maintain a fidelity bond in
connection with the performance of its services hereunder.

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     8.   INFORMATION FURNISHED TO THE ADVISOR.

     The Board of Directors will keep the Advisor informed in writing concerning
the investment and financing policies of the Company. The Board of Directors
shall notify the Advisor promptly in writing of its intention to make any
investments or to sell or dispose of any existing investments. The Company shall
furnish the Advisor with a certified copy of all financial statements, a signed
copy of each report prepared by independent certified public accountants, and
such other information with regard to its affairs as the Advisor may reasonably
request.

     9.   COMPENSATION.

     The Advisor and its Affiliates shall be paid for services rendered by the
Advisor under this Agreement as follows:

          (a) The Advisor or its Affiliates shall receive as compensation for
     services rendered in connection with the investigation, selection and
     acquisition of Real Estate Assets (by purchase, investment or exchange) a
     Real Estate Commission payable by the Company. The total Real Estate
     Commissions paid to the Advisor or its Affiliates shall not exceed (i) 3.0%
     of the Contract Purchase Price of Real Estate Assets acquired directly or
     indirectly by the Company, and (ii) 4.0% of the Total Development Cost of
     Properties developed by or on behalf of the Company for services provided
     by the Advisor, its Affiliates or sub-contractors thereof. At the Advisor's
     discretion, a portion of the Real Estate Commission may be paid to
     third-party developers for services rendered. Real Estate Commissions shall
     be payable on the acquisition of a specific Property, on the acquisition of
     a portfolio of Properties through a purchase of assets, controlling
     securities or by Joint Venture, by a merger or similar business combination
     or other comparable transaction, or on the completion of development of a
     Property or Properties for the Company. However, the total of all Real
     Estate Commissions and Acquisition Expenses payable with respect to any
     Real Estate Assets shall not exceed 6% of the Contract Purchase Price or
     the Total Development Cost (as applicable) of such Real Estate Assets
     unless fees in excess of such amount are approved by a majority of the
     Directors not interested in such transaction and by a majority of the
     Independent Directors not interested in such transaction and which
     transaction is determined to be commercially competitive, fair and
     reasonable to the Company.

          (b) The Advisor shall receive as compensation for services rendered in
     connection with the management of the Company's assets the Asset Management
     Fee. The Asset Management Fee shall be payable monthly in arrears by the
     Company in cash or in shares at the option of the Advisor, and may be
     deferred, in whole or in part, from time to time, by the Advisor (without
     interest). The Asset Management Fee shall be equal to:

               (i) 0.75% of Average Invested Assets if the Return Ratio for the
     calculation period is 6% or less;

               (ii) 1.0% of Average Invested Assets if the Return Ratio for the
     calculation period is more than 6%.

     The Asset Management Fee shall be calculated monthly not to exceed
     one-twelfth of the applicable percentage of the Average Invested Assets of
     the Company as the last day of the immediately preceding quarter.

          (c) The Advisor, an Affiliate or an unaffiliated third party shall
     receive a monthly Property Management Fee equal to 4.0% of the monthly
     Gross Income from Properties.

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          (d) If the Advisor or an Affiliate provides a substantial amount of
     the services in connection with the Sale of one or more Properties the
     Advisor or an Affiliate shall receive a Disposition Fee equal to the lesser
     of (i) one-half of a Competitive Real Estate Commission or (ii) 3% of the
     Contract Sales Price of such Property or Properties. The Disposition Fee
     may be paid in addition to real estate commissions paid to non-Affiliates;
     provided, however, that the total real estate commissions paid to all
     Persons by the Company with respect to the Sale of such Property or
     Properties shall not exceed an amount equal to the lesser of (i) 6% of the
     Contract Sales Price of the Property or Properties or (ii) the Competitive
     Real Estate Commission.

          (e) Upon the Sale of a Property by the Company, the Partnership will
     pay an Incentive Distribution upon Sale equal to 15% of the net proceeds
     from the Sale after the Company has received and paid to the Stockholders
     the sum of (i) the Invested Capital that initially was allocated to that
     property, (ii) any remaining shortfall in the recovery of Invested Capital
     with respect to prior Sales of Properties, and (iii) any remaining
     shortfall in the Cumulative Return. If the Company, and in turn the
     Stockholders, have not received a return of Invested Capital or if there is
     a shortfall in the Cumulative Return after the Sale of the last Property
     and the Advisor previously has received Incentive Distributions, other than
     Incentive Distributions that have been repaid previously, the Advisor will
     repay to the Partnership a portion of those distributions sufficient to
     cause the Company, and in turn the Stockholders, to receive a full return
     of Invested Capital and the full Cumulative Return. In no event will the
     aggregate amount repaid by the Advisor to the Partnership exceed the
     aggregate amount of Incentive Distributions upon Sales that the Advisor
     previously received.

          (f) To the extent the Advisor or an Affiliate provides a substantial
     amount of services in connection with the construction management of a
     Property, the Advisor or an Affiliate will receive a Construction
     Management Fee equal to 5% of any amount (including professional services)
     up to $25,000, 4% of any amount over $25,000 but less than $50,000 and 3%
     of any amount in excess of $50,000 which is expended in any calendar year
     for construction or repair at any Company Property.

     10.  Expenses.

          (a) In addition to the compensation paid to the Advisor pursuant to
     Section 9 hereof, the Company or the Partnership shall pay directly or
     reimburse the Advisor for all of the expenses paid or incurred by the
     Advisor in connection with the services it provides to the Company and the
     Partnership pursuant to this Agreement, including, but not limited to:

               (i) the Company's Organizational and Offering Expenses; provided,
          however, that within 60 days after the end of the month in which the
          Offering terminates, the Advisor shall reimburse the Company for any
          Organizational and Offering Expenses reimbursement received by the
          Advisor pursuant to this Section 10, to the extent that such
          reimbursement exceeds the maximum amount permitted or, at the option
          of the Company, such excess shall be subtracted from the next
          reimbursement of expenses to be made by the Company pursuant to this
          Section 10. The Advisor shall be responsible for the payment of all
          the Company's Organizational and Offering Expenses in excess of the
          maximum amount permitted;

               (ii) Acquisition Expenses incurred in connection with the
          selection, evaluation and acquisition of Properties;

                                       11

<PAGE>

               (iii) the actual cost of goods and services used by the Company
          and obtained from entities not affiliated with the Advisor, other than
          Acquisition Expenses;

               (iv) interest and other costs for borrowed money, including
          discounts, points and other similar fees;

               (v) taxes and assessments on income of the Company or its Real
          Estate Assets;

               (vi) costs associated with insurance required in connection with
          the business of the Company or by the Directors;

               (vii) expenses of managing and operating Properties owned by the
          Company, payable to the Property Manager, whether the Property Manager
          is an Affiliate of the Company or a non-affiliated Person.

               (viii) all compensation and expenses payable to the Independent
          Directors and all expenses payable to the non-Independent Directors in
          connection with their services to the Company and the Stockholders and
          their attendance at meetings of the Directors and Stockholders;

               (ix) expenses associated with a Listing, if applicable, or with
          the issuance and distribution of Shares, such as selling commissions
          and fees, marketing and advertising expenses, taxes, legal and
          accounting fees, Listing and registration fees, and other
          Organizational and Offering Expenses;

               (x) expenses connected with payments of distributions in cash or
          otherwise made or caused to be made by the Company to the
          Stockholders;

               (xi) expenses of amending, converting, liquidating or terminating
          the Company or the Charter;

               (xii) expenses of maintaining communications with Stockholders,
          including the cost of preparation, printing and mailing annual and
          other Stockholder reports, proxy statements and other reports required
          by governmental entities;

               (xiii) administrative services expenses (including personnel
          costs; provided, however, that no reimbursement shall be made for
          costs of personnel to the extent that such personnel perform services
          for which the Advisor receives a separate fee);

               (xiv) transfer agent and registrar's fees and charges paid to
          third parties; and

               (xv) audit, accounting, legal and other professional fees.

          (b) Expenses incurred by the Advisor on behalf of the Company and the
     Partnership and payable pursuant to this Section 10 shall be reimbursed no
     less than monthly to the Advisor. The Advisor shall prepare a statement
     documenting the expenses of the Company and the Partnership and the
     calculation of the Asset Management Fee during each quarter, and shall
     deliver such statement to the Company and the Partnership within 45 days
     after the end of each quarter.

                                       12

<PAGE>

     11.  COMPENSATION FOR ADDITIONAL SERVICES, CERTAIN LIMITATIONS.

          (a) If the Company shall request the Advisor or its Affiliates to
     render services for the Company other than those required to be rendered by
     the Advisor hereunder, such additional services, if the Advisor elects to
     perform them, will be compensated separately on terms to be agreed upon
     between such party and the Company from time to time in accordance with
     this Section. The rate of compensation for such services shall be approved
     by a majority of the Board of Directors, including a majority of the
     Independent Directors, and shall not exceed an amount that would be paid to
     nonaffiliated third parties for similar services.

          (b) In extraordinary circumstances, the Advisor and its Affiliates may
     provide other goods and services to the Company if all of the following
     criteria are met: (i) the goods or services must be necessary to the
     prudent operation of the Company; or (ii) the compensation, price or fee
     must be equal to the lesser of 90% of the compensation, price or fee the
     Company would be required to pay to independent parties who are rendering
     comparable services or selling or leasing comparable goods on competitive
     terms in the same geographic location, or 90% of the compensation, price or
     fee charged by the Advisor or its Affiliates for rendering comparable
     services or selling or leasing comparable goods on competitive terms. In
     addition, any such payment will be subject to the further limitation
     described in paragraph (c) below. Extraordinary circumstances shall be
     presumed only when there is an emergency situation requiring immediate
     action by the Advisor or its Affiliates and the goods or services are not
     immediately available from unaffiliated parties. Services which may be
     performed in such extraordinary circumstances include emergency maintenance
     of Company Properties, janitorial and other related services due to strikes
     or lock-outs, emergency tenant evictions and repair services which require
     immediate action, as well as operating and re-leasing properties with
     respect to which the leases are in default or have been terminated.

          (c) No reimbursement will be permitted to the Advisor or its
     Affiliates under Section 10(a) above for the salaries, fringe benefits,
     travel expenses and other administrative items of any controlling persons
     of the Advisor, its Affiliates or any other supervisory personnel except in
     those instances in which the Company believes it to be in the best interest
     of the Company that the Advisor or its Affiliates operate or otherwise deal
     with, for an interim period, a property with respect to which the lease is
     in default or terminated. Permitted reimbursements, except as set forth
     above, include salaries and related salary expenses for non-supervisory
     services which could be performed directly for the Company by independent
     parties such as legal, accounting, transfer agent, data processing and
     duplication. Controlling persons, for purposes of this Section, include,
     but are not limited to, those entities or individuals holding 5% or more of
     the ownership interests of the Advisor or a person having the power to
     direct or cause the direction of the Advisor, whether through ownership of
     voting securities, by contract or otherwise, and any person, irrespective
     of his or her title, who performs functions for the Advisor similar to
     those of: (a) chairman or member of the board of directors; or (b)
     president or executive vice president.

     Notwithstanding the foregoing, and subject to the approval of the Board of
Directors, the Company may reimburse the Advisor for expenses related to the
activities of controlling persons undertaken in capacities other than those
which cause them to be controlling persons. The Advisor believes that the
employees of the Advisor, its Affiliates and controlling persons who perform
services for the Company for which reimbursement is allowed pursuant to Section
11(b) have the experience and educational background, in their respective fields
of expertise, appropriate for the performance of such services.

                                       13

<PAGE>

     The Advisor and its Affiliates may not be reimbursed by the Company for
their overhead, nor can overhead costs or expenses of the Advisor or its
Affiliates be allocated to or paid by the Company. The foregoing reimbursements
of expenses, as limited by this Agreement, will be made regardless of whether
any cash distributions are made to the Stockholders.

     12.  STATEMENTS.

     The Advisor shall furnish to the Company not later than the 30th day
following the end of each Fiscal Year, a statement showing a computation of the
fees or other compensation payable to the Advisor or an Affiliate of the Advisor
with respect to such Fiscal Year under Sections 9 and 11 hereof. The final
settlement of compensation payable under Sections 9 and 11 hereof for each
Fiscal Year shall be subject to adjustments in accordance with, and upon
completion of, the annual audit of the Company's financial statements.

     13.  INTERNALIZATION OF THE ADVISOR.

     The Company shall consider becoming a self-administered REIT once the
Company's assets and income are, in the view of the Board of Directors,
including a majority of the Independent Directors, of sufficient size such that
internalizing the management functions by the Advisor and the Property Manager
is in the best interests of the Stockholders. The compensation payable to the
Advisor upon such internalization shall be agreed upon by a special committee
comprised of all of the Independent Directors (the "Special Committee") and the
Advisor. In determining such compensation, the Special Committee will be
authorized to engage its own independent financial advisor and legal counsel and
will consider factors including, but not limited to, the Advisor's performance
compared to the performance of other advisors for similar entities that the
special committee believes are relevent in making the determination, any
available valuations for such advisors and independent legal and financial
advice.

     14.  LISTING OF THE SHARES.

     If this Agreement is terminated in connection with a Listing, the Advisor
will receive, in exchange for terminating this Agreement and the giving up or
waiving of its fees then earned but not paid and all future fees, the Incentive
Distribution Upon Listing equal to 15.0% of the amount, if any, by which (1) the
market value of the outstanding Shares at Listing measured by taking the average
closing price or the average of the bid and asked price, as the case may be,
over a period of 30 days during which the Shares are traded, with such period
beginning 180 days after Listing (the "Market Value"), plus the total
distributions paid to Stockholders prior to Listing exceeds (2) the sum of the
Invested Capital plus the Cumulative Return. Upon payment of the Incentive
Distribution upon Listing the Advisor's "Incentive Limited Partnership
Interests" (as defined in the Partnership's Agreement of Limited Partnership)
will be redeemed and the Advisor will not be entitled to any further Incentive
Distributions upon Sales. In the event of such a termination of this Agreement,
the Company shall thereafter be relieved of its obligation to pay the fees
contemplated by this Agreement.

                                       14

<PAGE>

     15.  REIMBURSEMENT BY ADVISOR.

     The parties acknowledge that pursuant to the "Statement of Policy Regarding
Real Estate Investment Trusts," as revised and adopted by the North American
Securities Administrators Association on September 29, 1993, Total Operating
Expenses of the Company shall be deemed to be excessive if in any Fiscal Year
they exceed the greater of (a) 2% of the Company's Average Invested Assets for
such Fiscal Year; or (b) 25% of the Net Income for such Fiscal Year. The
Independent Directors shall have the fiduciary responsibility of limiting such
expenses to amounts that do not exceed such limitations. Within 60 days after
the end of any fiscal quarter of the Company for which Total Operating Expenses
(for the 12 months then ended) exceed 2% of Average Invested Assets or 25% of
Net Income, whichever is greater, the Company shall send to the Stockholders
written notice of such fact together with the determination of the Independent
Directors as to whether such higher operating expenses were justified and if so
justified, an explanation of the facts the Independent Director considered in
arriving at that conclusion also shall be included. If the Independent Directors
determine that such excess expenses are not justified, then the Advisor shall
reimburse the Company the amount by which the aggregate expenses incurred by the
Company exceed the limitations described above at the end of the Fiscal Year;
provided, however, that the Company may instead permit such reimbursements to be
effected by a reduction in the amount of the next payments of compensation under
Section 9.

     16.  NAME.

     Triple Net Properties, LLC has a proprietary interest in the name "NNN."
Accordingly, and in recognition of this right, if, at any time the Company or
the Partnership ceases to retain Triple Net Properties, LLC or an Affiliate
thereof to perform the services of Advisor, the Company or the Partnership, as
the case may be, will, promptly after receipt of written request from Triple Net
Properties, LLC, cease to conduct business under or use the name "NNN" or any
derivative thereof and the Company or the Partnership shall use its best efforts
to change the name of the Company to a name that does not contain the name "NNN"
or any other word or words that might, in the sole discretion of the Advisor, be
susceptible of indication of some form of relationship between the Company and
the Advisor or any Affiliate thereof. Consistent with the foregoing, it is
specifically recognized that the Advisor or one or more of its Affiliates has in
the past and may in the future organize, sponsor or otherwise permit to exist
other investment entities (including entities for investment in real estate) and
financial and service organizations having "NNN" as a part of their name, all
without the need for any consent (and without the right to object thereto) by
the Company or its Board of Directors.

     17.  OTHER ACTIVITIES OF THE ADVISOR.

     Subject to the provisions specifically set forth herein, the Advisor and
its Affiliates currently engage, and may engage in the future, in other
businesses or activities including the rendering of services and investment
advice with respect to real estate investment opportunities to other persons or
entities and may manage other investments (including the investments of the
Advisor and its Affiliates), including those in competition with the Company.
The Advisor or its Affiliates may, with respect to any investment in which the
Company is a participant, also render advice and service to each and every other
participant therein. The Advisor shall report to the Board of Directors the
existence of any condition or circumstance, existing or anticipated, of which it
has knowledge, which creates or could create a conflict of interest between the
Advisor's obligations to the Company and its obligations to or its interest in
any other Person. The Advisor or its Affiliates shall promptly disclose to the
Board of Directors knowledge of such condition or circumstance.

     Directors, officers, employees and agents of the Advisor or of Affiliates
of the Advisor may serve as directors, officers, employees or agents of the
Company.

                                       15

<PAGE>

     18.  TERM; TERMINATION OF AGREEMENT.

     This Agreement will have an initial term of one year from its date, subject
to successive one year renewals with the written mutual consent of the parties
including approval of a majority of the Independent Directors.

     Notwithstanding any other provision of this Agreement to the contrary,
either the Company or the Advisor may terminate this Agreement, or any extension
hereof, or the parties by mutual consent or a majority of the Independent
Directors may do so, in each case upon 60 days written notice without cause or
penalty. In the event of the termination of this Agreement, the Advisor will
cooperate with the Company and take all reasonable steps requested to assist the
Board of Directors in making an orderly transition of the advisory function.

     If this Agreement is terminated pursuant to this Section, such termination
shall be without any further liability or obligation of either parry to the
other, except as provided in Section 21.

     If this Agreement is terminated for any reason other than the Listing of
the Shares as contemplated in Section 14, all obligations of the Advisor and its
Affiliates to offer property to the Company for purchase, as described in
Section 2(a), also shall terminate.

     19.  ASSIGNMENTS.

     The Company may terminate this Agreement immediately in the event of its
assignment by the Advisor except an assignment to a successor organization which
acquires substantially all of the property and carries on the affairs of the
Advisor, provided that following such assignment the persons who controlled the
operations of the Advisor immediately prior thereto shall control the operations
of the successor organization, including the performance of its duties under
this Agreement; however, if at any time subsequent to such assignment such
persons shall cease to control the operations of the successor organization, the
Company may thereupon immediately terminate this Agreement. This Agreement shall
not be assignable by the Company without the consent of the Advisor, except in
the case of assignment by the Company to a corporation, trust or other
organization which is a successor to the Company. Any assignment of this
Agreement shall bind the assignee hereunder in the same manner as the assignor
is bound hereunder.

     20.  DEFAULT, BANKRUPTCY, ETC.

     At the sole option of the Company, this Agreement shall be terminated
immediately upon written notice of termination from the Board of Directors to
the Advisor if any of the following events occur:

          (a) The Advisor violates any material provisions of this Agreement
     and, after receipt of written notice of violation, such violation is not
     cured within 30 days; or

          (b) A court of competent jurisdiction enters a decree or order for
     relief in respect of the Advisor in any involuntary case under the
     applicable bankruptcy, insolvency or other similar law now or hereafter in
     effect, or appoints a receiver, liquidator, assignee, custodian, trustee,
     sequestrator (or similar official) of the Advisor or for any substantial
     part of its property or orders the winding up or liquidation of the
     Advisor's affairs; or

                                       16

<PAGE>

          (c) The Advisor commences a voluntary case under any applicable
     bankruptcy, insolvency or other similar law now or hereafter in effect, or
     consents to the entry of an order for relief in an involuntary case under
     any such law, or consents to the appointment of or taking possession by a
     receiver, liquidator, assignee, custodian, trustee, sequestrator (or
     similar official) of the Advisor or for any substantial part of its
     property, or makes any general assignment for the benefit of creditors, or
     fails generally to pay its debts as they become due.

               The Advisor agrees that if any of the events specified in
     subsections (b) and (c) of this Section 20 occur, it will give written
     notice thereof to the Company within 7 days after the occurrence of such
     event.

     21.  ACTION UPON TERMINATION.

     The Advisor shall not be entitled to compensation after the date of
termination of this Agreement for further services hereunder, but shall be paid
all compensation accruing to the date of termination. Subject to the provisions
of Sections 13 and 14, the Advisor shall forthwith upon a termination:

          (a) Pay over to the Company all monies collected and held for the
     account of the Company pursuant to this Agreement, after deducting any
     accrued compensation and reimbursement for its expenses to which it is then
     entitled;

          (b) Deliver to the Board of Directors a full accounting, including a
     statement showing all payments collected by it and a statement of all
     monies held by it, covering the period following the date of the last
     accounting furnished to the Board of Directors;

          (c) Deliver to the Board of Directors all property and documents of
     the Company then in the custody of the Advisor; and

          (d) Cooperate with the Company and take all reasonable steps requested
     by the Company to assist the Board of Directors in making an orderly
     transition of the advisory function.

     22.  AMENDMENTS.

     This Agreement shall not be amended, changed, modified, terminated or
discharged in whole or in part except by an instrument in writing signed by both
parties hereto, or their respective successors or assigns.

     23.  SUCCESSORS AND ASSIGNS.

     This Agreement shall bind any successors or permitted assigns of the
parties hereto as herein provided.

     24.  GOVERNING LAW.

     The provisions of this Agreement shall be governed, construed and
interpreted in accordance with the laws of the Commonwealth of Virginia, without
regard to its conflict of laws provisions.

                                       17

<PAGE>

     25.  LIABILITY AND INDEMNIFICATION.

          (a) The Company shall, to the fullest extent permitted by Virginia
     statutory or decisional law, as amended or interpreted, indemnify and pay
     or reimburse reasonable expenses to the Advisor and its Affiliates,
     provided, that: (i) the Advisor or other party seeking indemnification has
     determined, in good faith, that the course of conduct which cased the loss
     or liability was in the best interest of the Company; (ii) the Advisor or
     other person seeking indemnification was acting on behalf of or performing
     services on the part of the Company; (iii) such liability or loss was not
     the result of negligence, misconduct or a knowing violation of the criminal
     law or any federal or state securities laws on the part of the indemnified
     party; and (iv) such indemnification or agreement to be, held harmless is
     recoverable only out of the net assets of the Company and not from the
     Stockholders.

          (b) The Company shall not indemnify the Advisor or its Affiliates for
     losses, liabilities or expenses arising from or out of an alleged violation
     of federal or state securities laws by such party unless one or more of the
     following conditions are met: (i) there has been a successful adjudication
     on the merits of each count involving alleged securities law violations as
     to the particular indemnitee; (ii) such claims have been dismissed with
     prejudice on the merits by a court of competent jurisdiction as to the
     particular indemnitee; or (iii) a court of competent jurisdiction approves
     a settlement of the claims and finds that indemnification of the settlement
     and related costs should be made and the court considering the request has
     been advised of the position of the Securities and Exchange Commission and
     the published opinions of any state securities regulatory authority in
     which securities of the Company were offered and sold as to indemnification
     for securities law violations.

          (c) The Company may advance amounts to persons entitled to
     indemnification hereunder for legal and other expenses and costs incurred
     as a result of any legal action for which indemnification is being sought
     only if all of the following conditions are satisfied: (i) the legal action
     relates to acts or omissions with respect to the performance of duties or
     services by the indemnified party for or on behalf of the Company; (ii) the
     legal action is initiated by a third party and a court of competent
     jurisdiction specifically approves such advancement; and (iii) the
     indemnified party receiving such advances undertakes to repay the advanced
     funds to the Company, together with the applicable legal rate of interest
     thereon, in which such party would not be entitled to indemnification.

     26.  NOTICES.

     Any notice, report or other communication required or permitted to be given
hereunder shall be in writing unless some other method of giving such notice,
report or other communication is accepted by the party to whom it is given and
shall be given by being delivered at the following addresses of the parties
hereto:

          THE COMPANY AND/OR THE BOARD OF DIRECTORS:

          NNN Apartment REIT, Inc.
          Suite 200
          1551 N. Tustin Avenue
          Santa Ana, CA 92705

                                       18

<PAGE>

          THE ADVISOR:

          NNN Apartment REIT Advisor, LLC
          Suite 200
          1551 N. Tustin Avenue
          Santa Ana, CA 92705

     Either party may at any time give notice in writing to the other party of a
change of its address for the purpose of this Section 24.

     25.  HEADINGS.

     The section headings hereof have been inserted for convenience of reference
only and shall not be construed to affect the meaning, construction or effect of
this Agreement.

                                       19

<PAGE>

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

COMPANY:

NNN Apartment REIT, Inc., a Maryland
corporation

By:
    ---------------------------------
Title:
       ------------------------------

ADVISOR:

NNN Apartment REIT Advisor, LLC, a
Virginia limited liability company

By: Triple Net Properties, LLC, a
    Virginia limited liability
    company, its Manager

By:
    ---------------------------------
Title:
       ------------------------------

                                       20exv10w1

 

Exhibit 10.1

EXECUTION COPY

SETTLEMENT AGREEMENT

     SETTLEMENT AGREEMENT, dated as of March 22, 2006 (“Agreement”), by and among
Relational Holdings, LLC, a Delaware limited liability company (“Holdings”), Relational
Group, LLC, a Delaware limited liability company (“Group”), Relational Investors LLC, a
Delaware limited liability company (“Relational”), Ralph V. Whitworth
(“Whitworth”), David H. Batchelder (“Batchelder”), and each of the investment
partnerships controlled by Relational and identified on Annex A hereto (collectively, the
“Funds” and, together with Holdings, Group, Relational, Whitworth and Batchelder, the
“Relational Group”), on the one hand, and Sovereign Bancorp, Inc., a Pennsylvania
corporation (“Sovereign” or the “Company”), on the other.

     WHEREAS, Relational has submitted to the Company notices (the “Notices”) of its
intention to (i) nominate Whitworth and Batchelder to stand for election to the Company’s Board of
Directors (the “Board”) at the Company’s 2006 annual meeting of shareholders (the “2006
Annual Meeting”) and to solicit proxies in support of their election, and (ii) solicit proxies
to seek the removal of Jay S. Sidhu, the Company’s Chairman, President and Chief Executive Officer,
as a director of the Company at the 2006 Annual Meeting (collectively, the “Proxy
Contest”);

     WHEREAS, (i) Relational has made numerous complaints, submissions and filings (collectively,
the “Relational Protests”) in opposition to the Transactions (as such term is hereinafter
defined) and (ii) the Company has made numerous complaints, submissions and filings (collectively,
the “Company Protests”, and together with the Relational Protests, the “Protests”)
opposed to Relational, Whitworth, Batchelder and their affiliates, in each case with Governmental
Authorities (as such term is hereinafter defined);

     WHEREAS, the following lawsuits currently are pending involving the Company and certain
members of the Relational Group: (i) Relational Investors LLC vs. Sovereign Bancorp, Inc., No. 05
CV 10394 (AKH) (S.D.N.Y.) (the “Southern District Lawsuit”); (ii) Sovereign Bancorp, Inc.
vs. Relational Investors LLC, No. 05-15977 (including Relational’s third party complaint), and
Relational Investors LLC vs. Sovereign Bancorp, Inc. et. al, No. 05-17011 (Court of Common Pleas,
Berks County, Pa.) (the “Berks County Lawsuits”); (iii) Relational Investors LLC vs.
Commonwealth of Pennsylvania, et. al (Commonwealth Court of Pennsylvania) (the “Commonwealth
Court Lawsuit”) (collectively, the “Pending Litigation”); and

     WHEREAS, the Company has determined that the interests of the Company, its shareholders and
other constituencies would best be served by, and Relational has determined

 

 

that the interests of the members of the Relational Group would best be served by, (i)
avoiding the substantial expense and disruption that would be expected to result from the Proxy
Contest and the Pending Litigation, (ii) avoiding the substantial expense and potential delays in
consummating the Transactions that may result from the Protests, (iii) adding certain persons to
the Board as provided herein and nominating the persons as set forth herein for election as
directors of the Company as provided herein, (iv) terminating the Pending Litigation and (v) the
receipt of other agreements, covenants, rights and benefits as provided herein.

     NOW, THEREFORE, in consideration of the foregoing and the mutual agreements and
representations set forth herein, intending to be legally bound hereby, the parties hereby agree as
follows:

     1. Settlement of Pending Litigation; Shareholder List; Advance Notices; Books and Records
Demands.

          (a) Within three business days after the appointment of the Relational Designee (as such term
is hereinafter defined) to the Board (the “Appointment Date”) the parties will take all
measures reasonably necessary to dismiss, as against both Sovereign and Santander, in each case
with prejudice (regardless of whether any such claims were previously dismissed without prejudice)
and without costs or fees: (i) the Berks County Lawsuits; (ii) the Commonwealth Court Lawsuit; and
(iii) all claims in the Southern District Lawsuit that were not resolved by the decision issued by
the Court on March 2, 2006 and any related orders (collectively, the “Decision”). The
Company shall irrevocably waive the award of expenses in the Berks County Lawsuits. In respect of
the Decision, Relational agrees on behalf of itself and the other members of the Relational Group
(x) not to oppose any motion or request by the Company made to such Court in the Southern District
Lawsuit to vacate the Decision, and (y) not to oppose any effort by the Company to seek appellate
review of the Decision in the event the Court determines not to vacate the Decision, provided,
however, that in the event the Company seeks appellate review of the Decision, Relational shall be
free to oppose the appeal on the merits and seek affirmance of the Decision.

          (b) Relational shall within three business days following the Appointment Date (i) comply with
the terms of paragraph 13 of the confidentiality order in effect in the Southern District
Litigation, except for materials required to be submitted to third parties pursuant to outstanding
subpoenas, (ii) deliver to the Company any and all lists of the Company’s shareholders and other
information provided to Relational by the Company or the Company’s representatives or agents (in
whatever form) in connection with Relational’s demands for the Company’s shareholder list and
related information (collectively, the “Shareholder List Information”). In addition,
within three business days following the Appointment Date, (x) Relational will destroy or cause to
be destroyed all copies, including permanently erasing or deleting any electronic copies, of the
Shareholder List Information and all information derived therefrom (e.g., e-mail addresses and
phone numbers) or derived from communications with shareholders of the Company in the possession of
any member of the Relational Group or any of their respective Affiliates (as such term is
hereinafter defined), Associates (as such term is hereinafter defined), advisors, employees, agents or
representatives, including, without limitation, any Person (as such term is hereinafter defined)
soliciting proxies

2

 

or otherwise communicating with the Company’s shareholders for or on behalf of
Relational and (y) certify such destruction to the Company in writing.

          (c) The Company shall, within three business days following the Appointment Date, comply with
the terms of paragraph 13 of the confidentiality order in effect in the Southern District Lawsuit,
except for materials required to be submitted to third parties pursuant to outstanding subpoenas.

          (d) Relational shall, within three business days following the Appointment Date, withdraw in
writing any and all of its books and records demands under Pennsylvania law or otherwise, its
demand for Shareholder List Information, the Notices and any and all other advance notice
submissions under the Company’s bylaws or otherwise with respect to director nominations and other
business in connection with the 2006 Annual Meeting or otherwise.

     2. Board Representation; Related Matters.

          (a) The Relational Group agrees and acknowledges that (i) pursuant to the terms of the
investment agreement (the “Investment Agreement”) between the Company and Banco Santander
Central Hispano, S.A. (“Santander”), following consummation of the pending transactions
contemplated by the Investment Agreement (the “Santander Transaction”), the Company shall
appoint individuals designated by Santander to the Board (the “Santander Designees”) and
(ii) pursuant to the terms of the merger agreement (the “Merger Agreement”) among the
Company, a subsidiary of the Company and Independence Community Bank Corp.
(“Independence”), following consummation of the pending transactions contemplated by the
Merger Agreement (the “Independence Transaction”, and together with the Santander
Transaction, the “Transactions”), the Company shall appoint one individual designated by
Independence to the Board (the “ICBC Designee”, and together with the Santander Designees,
the “Transaction Designees”).

          (b) (i) The Company and the Relational Group agree that (A) immediately upon execution of
this Agreement, the Board, at a duly convened meeting of directors, will take all necessary action
to increase the size of the Board by one and contemporaneously fill such vacancy on the Board with
Whitworth (the “Relational Designee”), and (B) within ten business days following the
consummation of the Transactions, the Board, at a duly convened meeting of directors, will take all
necessary action to increase the size of the Board as necessary to appoint the Transaction
Designees and to contemporaneously fill such vacancies on the Board with the Transaction Designees.

          (ii) (A) Within a reasonable period of time following the execution hereof,
Relational shall supply the Nominating Committee of the Board with a list of not
less than five persons for consideration by the Nominating Committee for appointment
to the Board (the “Nominee List”). The Nominating Committee shall, within
20 business days after receipt of the Nominee List, either recommend a candidate for
appointment by the Board or inform Relational by written notice that it has no such recommendation for the Board (a “No
Recommendation Notice”).

3

 

          (B) Upon receipt of a No Recommendation Notice, Relational may,
within a reasonable period of time following receipt of such No
Recommendation Notice, supply the Nominating Committee with a second
Nominee List. The Nominating Committee shall, within 20 business
days after receipt of a second Nominee List, either recommend a
candidate from such Nominee List for appointment by the Board or
deliver to Relational a No Recommendation Notice.

          (C) Upon receipt of a second No Recommendation Notice,
Relational shall, within 20 business days following receipt of such
No Recommendation Notice, supply the Nominating Committee with a
third Nominee List. The Nominating Committee shall, within 20
business days after receipt of a third Nominee List, either
recommend a candidate from such Nominee List for appointment by the
Board or deliver to Relational a No Recommendation Notice.

          (D) Upon receipt of a third No Recommendation Notice,
Relational shall within 90 days following receipt of such No
Recommendation Notice, supply the Nominating Committee with a new
Nominee List. The obligation set forth in the preceding sentence
shall continue every 90 days from receipt of a No Recommendation
Notice until such time as the Nominating Committee recommends a
candidate to the Board for appointment or the parties agree
otherwise.

          (E) The Board, at a duly convened meeting of directors, will
take all necessary action to increase the size of the Board by one
and contemporaneously fill such vacancy with the candidate
recommended by the Nominating Committee (the “Independent
Director Designee”) within five business days after
recommendation thereof.

          (F) Effective as of the date of delivery of the second No
Recommendation Notice, the size of the Board shall be increased by
one and such vacancy shall be contemporaneously filled with
Batchelder, who shall serve on the Board until such time as an
Independent Director Designee is appointed by the Board. While
serving as a director in accordance with this clause (F), Batchelder
shall be deemed to be the Independent Director Designee for all
purposes of this Agreement. The second No Recommendation Notice
shall be accompanied by
a certified resolution of the Board taking the actions set
forth in this clause (F).

4

 

          (G) In the event the Company fails, within 20 business days
following receipt of a second Nomination List, either to (i) appoint
an Independent Director Designee in accordance with this Section, or
(ii) appoint Batchelder as the Independent Director Designee,
Relational shall, without waiver of any other legal remedies, be
released from any and all of its obligations and covenants under
this Agreement until such time as the Board appoints an Independent
Director Designee or Batchelder in accordance with the terms hereof.

          (H) Relational shall not include any candidate (a
“Candidate”) on any Nominee List furnished pursuant to
Section 2(b)(ii) of this Agreement unless (i) such Candidate has
business experience appropriate for service on the board of
directors of a public company, (ii) such Candidate is an individual
of high caliber and national reputation (to the extent reasonably
available) and (iii) such Candidate has no previous material
business or personal relationship with the Company, Relational or,
to Relational’s knowledge, any of their respective Affiliates or
Associates. No person shall be on any Nominee List if any member of
the Relational Group has reason to believe that it is unlikely that
such person would serve as a director if requested. In addition,
all Candidates included on the first three Nominee Lists shall be
individuals with whom no member of the Relational Group or any of
their Affiliates, Associates or representatives has had any contact,
directly or indirectly, since January 1, 2006.

          (iii) The Relational Designee shall be appointed to the Board in the class of
directors with a term expiring at the 2006 Annual Meeting and the Independent
Director Designee (or Batchelder if appointed in accordance with Section
2(b)(ii)(F)) shall be appointed to the Board in the class of directors with the
longest term expiring within two years from the date of such appointment. In the
event that the Relational Designee is not elected to the Board at the 2006 Annual
Meeting (other than as a consequence of a proxy contest to replace a majority of the
Board), then the Company shall take all action necessary to appoint the Relational
Designee to the Board in the class of directors with a term expiring at the
Company’s 2009 annual meeting of shareholders (the “2009 Annual Meeting”).
The composition of the Board’s classes of directors shall be modified to accomplish
the appointment of the Relational Designee and the Independent Director Designee;
provided that Jay S. Sidhu shall remain in his current class of directors (with a
current term expiring in 2008) during the term of this Agreement.

          (iv) The Nominating Committee of the Board will, with respect to the
Relational Designee and the Independent Director Designee, waive the requirements of
its policies requiring (A) prior service on the board of the Company’s bank
subsidiary, Sovereign Bank (the “Bank Board”), (B) other

5

 

banking experience
prior to being appointed a member of the Board and (C) prior Board approval of
service on the boards of other public companies. Both the Relational Designee and
the Independent Director Designee shall agree in writing to comply with all other
Board policies, procedures, processes, codes, rules, standards and guidelines
applicable to directors as a condition to their appointment to the Board, copies of
which shall have been delivered to Relational prior to the execution hereof.
Whitworth’s execution of this Agreement shall constitute such an agreement in
writing pursuant to the preceding sentence.

          (v) During the term of this Agreement, the Board and Bank Board shall each
meet at least eight times per calendar year. The Relational Designee and the
Independent Director Designee will enjoy the same rights, privileges, powers and
duties as all other directors, and receive the same compensation and benefits as all
other directors, including indemnification rights, exculpation protections
associated with service on the Board and Bank Board and directors’ and officers’
liability insurance to the extent set forth in existing or future policies for
directors generally. The Relational Designee and Independent Director Designee will
be reimbursed for expenses incurred in connection with Board service to the same
extent and on the same basis as all other directors. For the avoidance of doubt,
the Relational Designee and Independent Director Designee shall be entitled to
separate counsel at the Company’s expense in the event that the counsel retained to
represent other directors declines to represent them.

          (c) The Board’s nominees to stand for election at the 2006 Annual Meeting are referred to
herein as the “2006 Nominees”. The 2006 Nominees shall be (i) the Relational Designee, and
(ii) three other candidates nominated in the sole discretion of the Board (and who, if the Board so
determines, may be current members of the Board). The 2006 Nominees shall stand for election to
serve on the Board for a term expiring at the Company’s 2009 Annual Meeting.

          (d) In the Board’s sole discretion, it may, but shall not be required to, nominate the
Relational Designee to stand for election to the Board at the 2009 Annual Meeting (which shall not
be held before April 2009) for a term expiring at the Company’s 2012 annual meeting of shareholders
(the “2012 Annual Meeting”). In the event that the Board determines, in its sole
discretion, not to nominate the Relational Designee to stand for election at the 2009 Annual
Meeting for a term expiring at the 2012 Annual Meeting, the Company shall provide written notice of
such determination to the Relational Designee and to Relational not later than the twentieth
business day prior to the last day on which shareholders are permitted, under the terms of the
Company’s bylaws as then in effect, to nominate candidates to stand for election to the Board (the
“2009 Nomination Deadline”).

          (e) The members of the Relational Group and their Affiliates and Associates, and the Company,
shall support and recommend that the Company’s shareholders vote for the election of each of the
2006 Nominees at the 2006 Annual Meeting, and the members of the Relational Group shall vote, and
shall cause their Affiliates and Associates to vote, all Voting Securities (as such term is
hereinafter defined) which they are entitled to vote at

6

 

the 2006 Annual Meeting in favor of the
election of each of the 2006 Nominees. The members of the Relational Group and their Affiliates
and Associates shall not, directly or indirectly, sell, transfer or otherwise dispose of, or
pledge, hypothecate or otherwise encumber, or transfer or convey in any manner any voting rights
with respect to, any Voting Securities beneficially owned by any of them at the time of the
execution of this Agreement until after the date which is the record date fixed by the Board for
determining the Company’s shareholders entitled to vote at the 2006 Annual Meeting.

          (f) If the Relational Designee is nominated by the Board to stand for election to the Board at
the 2009 Annual Meeting for a term expiring at the 2012 Annual Meeting, the members of the
Relational Group and their Affiliates and Associates, and the Company, shall support and recommend
that the Company’s shareholders vote for the election of each of the Board’s nominees (including
the Relational Designee) at the 2009 Annual Meeting, and the members of the Relational Group shall
vote, and shall cause their Affiliates and Associates to vote, all Voting Securities which they are
entitled to vote at the 2009 Annual Meeting in favor of the election of each such nominee.

          (g) Until the Termination Date, the members of the Relational Group shall support and
recommend that the Company’s shareholders vote for the election of each of the Board’s nominees at
each meeting of the Company’s shareholders at which directors are to be elected, and the members of
the Relational Group shall vote, and shall cause their Affiliates and Associates to vote, all
Voting Securities which they are entitled to vote at each such shareholders’ meeting in favor of
the election of each of the Board’s nominees.

          (h) Except in the event that the Relational Designee resigns as a member of the Board in
accordance with the provision of Section 2(i) below, (i) if the Relational Designee shall be unable
or unwilling to serve as a nominee or a director for any reason prior to his appointment as a
director in accordance with Section 2(b) above or, if nominated by the Board to stand for election
as a director at the 2009 Annual Meeting, prior to his election as a director at the 2009 Annual
Meeting, or, if after his appointment or election as a director, shall cease to be a member of the
Board by reason of his death, disability or resignation, or (ii) Relational determines, in its sole
discretion, to replace the Relational Designee, then Relational shall be entitled to designate
another person reasonably acceptable to a majority of the members of the entire Board, and any such
person shall become the “Relational Designee” for all purposes under this Agreement and
shall be deemed to be a member of the Relational Group for all purposes under this Agreement. The
parties agree that each of Batchelder, Jay Winship and any other person who is then a Member of
Relational shall be deemed reasonably acceptable to a majority of the entire Board. Any such new
Relational Designee shall be required to execute an instrument agreeing to be bound by all the
provisions of this Agreement applicable to the Relational Designee and the Relational Group. If
the Independent Director Designee shall be unable or unwilling to serve as a nominee or a director
for any reason prior to his appointment as a director or prior to his election as a director, or,
if after his appointment or election as a director,
shall cease to be a member of the Board by reason of his death, disability or resignation, the
Nominating Committee of the Board and Relational shall nominate and the Board shall appoint another
person reasonably acceptable to Relational (it being agreed that any person on any Nominee List
shall be reasonably acceptable to Relational), and any such person shall become the
“Independent Director Designee” for all purposes under this Agreement; provided
that, until

7

 

such other person is appointed by the Board, Batchelder shall be appointed to fill such
vacancy, effective within ten business days after the Independent Director Designee ceases to be a
member of the Board, it being understood and agreed that under the foregoing circumstances
Batchelder is intended to serve only until such time that another person is appointed as the
Independent Director Designee pursuant to this sentence.

          (i) Notwithstanding any provision to the contrary contained in this Agreement, the Company
shall not be required to appoint the Relational Designee to the Board in accordance with Section
2(b) above unless at all times after the date hereof and prior to such appointment the members of
the Relational Group shall have beneficially owned in the aggregate shares of the Company’s Common
Stock (the “Common Stock”) equal to at least the Minimum Condition. The “Minimum
Condition” shall equal 19,000,000 shares (unless Santander has acquired at least 19.8% of the
outstanding shares of Common Stock pursuant to the Santander Transaction, in which case the Minimum
Condition shall equal 23,000,000 shares), adjusted proportionally in all cases to reflect any stock
dividend or distribution, split, reverse split, combination, recapitalization or similar
transaction affecting the Common Stock after the date hereof (excluding the 5% stock dividend
declared by the Company on March 15, 2006 (the “March 15 Stock Dividend”)). If, while the
Relational Designee is a member of the Board, the Relational Group shall at any time fail to
satisfy the Minimum Condition, the Relational Designee shall resign immediately as a member of the
Board, and the Relational Designee, by his execution of an irrevocable resignation as a member of
the Board upon failure of the Relational Group to satisfy the Minimum Condition, shall agree to do
so. Such irrevocable resignation shall be delivered to the Company concurrently with the execution
of this Agreement. Relational shall notify the Company promptly (and in any event within three
business days) in the event that, at any time, the Relational Group shall fail to satisfy the
Minimum Condition. At the request of the Company, the Relational Group shall certify to the
Company in writing its compliance with the Minimum Condition prior to the time the Board formally
nominates its director nominee for the 2009 Annual Meeting and prior to the 2009 Annual Meeting.
The provisions in this Section 2(i) shall not in any way affect or limit the covenants and
agreements of the parties set forth elsewhere in this Agreement (other than those agreements of the
Company contained in this Section 2).

          (j) Upon their appointment as directors (i) the Relational Designee shall be appointed to the
following committees of the Board: the Executive Committee (so long as such committee shall
continue in existence), the Audit Committee and the Compensation Committee, and (ii) the
Independent Director Designee shall be appointed to the following committees of the Board: the
Ethics and Corporate Governance Committee and the Compensation Committee; provided,
however, that neither the Relational Designee nor the Independent Director Designee shall
be appointed to any such committee of the Board if counsel to the Board (who shall not be counsel
to the Company) advises the Board that the appointment of such director to any such committee of
the Board would violate applicable law or applicable stock exchange rules or regulations
(collectively, the “Applicable Rules”). Any additional
committee assignments for the Relational Designee and the Independent Director Designee shall
be in the discretion of the Board. The Company shall promptly following the execution of this
Agreement seek all necessary approvals from all requisite Governmental Authorities in order to
increase the size of the Bank Board and appoint the Relational Designee to the Bank Board, and,
upon the earliest of the receipt of such necessary approvals, the date on which any director

8

 

nominated by Santander is appointed to the Bank Board or the expiration of 90 days from the date
hereof, the Company shall (x) if receipt of such approvals is the earliest to occur of the
foregoing events, appoint the Relational Designee to the Bank Board or (y) if the earliest to occur
is either the appointment to the Bank Board of a Santander nominee or the expiration of such 90 day
period, cause one current director on the Bank Board to resign, and shall cause the Bank Board to
appoint the Relational Designee to fill such vacancy on the Bank Board. The Bank Board shall not
appoint any new directors until the Relational Designee has been first appointed (other than a
Santander Designee appointed contemporaneously in accordance with the preceding sentence). Subject
to compliance with the Applicable Rules, the Independent Director Designee and the Relational
Designee shall be permitted to attend all meetings of the Bank Board and of any committee of the
Board on which they do not serve. The Board and Bank Board members will receive at least three
business days’ advance notice of all Board, Bank Board and committee meetings, except in
circumstances requiring more immediate action. The Company shall use reasonable efforts (but shall
not be required) to schedule all meetings of the Board, Board committees and Bank Board so as to
accommodate the schedules of all directors, including the Relational Designee and Independent
Director Designee. Upon appointment or election to the Bank Board, subject to requirements of law,
the Relational Designee shall be entitled to serve as a member of the Executive Committee (so long
as such committee shall continue in existence) and two other committees of his or her choice.

          (k) Except to the extent otherwise expressly required by applicable law, until the Termination
Date, the members of the Relational Group shall vote, and shall cause their Affiliates and
Associates to vote, all Voting Securities which they are entitled to vote, in accordance with the
Board’s recommendation with respect to any shareholder proposals, whether made pursuant to Rule
14a-8 or Rule 14a-4 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), or otherwise.

          (l) By their execution of this Agreement, each of Batchelder and Whitworth irrevocably agree
to resign from the Board at such times and under such circumstances as may be required pursuant to
this Agreement.

     3. Support by Relational.

          (a) During the term of this Agreement, the Relational Group, Whitworth and Batchelder shall
not take any action, and shall not permit any of their respective Affiliates or any of the
advisors, consultants, agents or other representatives of Relational, Whitworth, Batchelder or such
Affiliates (collectively the “Relational Persons”) to take, any action that reasonably
would be expected to be inconsistent with any of the terms or conditions of the Investment
Agreement or the Merger Agreement, to interfere in any manner with the consummation of any of the
transactions contemplated by the Investment Agreement or the
Merger Agreement or to delay the timely closing of the Transactions. Without limiting the
generality of the foregoing, each of the Relational Group, Whitworth, Batchelder and the Relational
Designee agree not to, and not to permit any Relational Person to:

          (i) challenge in any manner, or make any public statements or any public or
other statements before any Governmental Authority against, (A) the authority of the
Board, or any member thereof, to authorize and

9

 

approve the Investment Agreement, the Merger Agreement or the Transactions, (B)
any decision taken prior to the date hereof by the Board, the Company, Santander or
Independence in connection with the Investment Agreement, the Merger Agreement or
the Transactions, (C) the election of any individual who is a member of the Board as
of the date hereof or who may become a member of the Board as a result of the terms
or conditions of the Investment Agreement or the Merger Agreement, or (D) the
Transactions;

               (ii) advise or encourage the Company or any member of the Board, directly or
indirectly, to rescind, repudiate, renounce, terminate or intentionally breach any
of the agreements relating to the Transactions to which the Company is a party; or

               (iii) advise or encourage, directly or indirectly, any Person to take any
action that Relational, Whitworth, Batchelder, or any Relational Person would be
prohibited from taking under the terms of this Section 3(a).

          (b) If reasonably requested by the Company, Whitworth will clarify to Sovereign shareholders
with whom Relational is in contact that (i) Relational is no longer taking steps to oppose the
Transactions and (ii) Relational believes that, in view of the Company’s decision to take the
actions contemplated by this Agreement, it is now in the interest of the Company to focus time and
attention on the Company’s business without the diversion of resources that are implicit in a
continuation of the Proxy Contest, the Pending Litigation, challenges to the Transactions, and
protests, petitions and submissions to Governmental Authorities.

          (c) After the Appointment Date, Relational shall promptly withdraw in writing each and all of
the complaints, objections, protests, petitions, applications, submissions and filings which have
been made by or on behalf of any member of the Relational Group or any Relational Person with
Governmental Authorities (other than with respect to Pending Litigation, which shall be governed by
Section 1(a)) seeking action or investigation with respect to the Company, the Company’s
management, the Board, the Transactions or seeking to delay, restrain or prohibit the consummation
of the Transactions. For purposes of this Agreement, “Governmental Authorities” means any
nation or government, any state or other political subdivision thereof, any entity, authority or
body exercising executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including any domestic (federal, state or local), foreign or
supranational governmental or regulatory authority, agency, department, board, commission,
administration or instrumentality, any court, tribunal or arbitrator or any self-regulatory
organization, including without limitation the New York Stock Exchange, the Securities and Exchange
Commission (the “SEC”), the Board of Governors of the Federal Reserve System, the Office of
Thrift Supervision, the Pennsylvania Department of Banking and the New York State Banking
Department. Relational shall promptly provide copies of any documents to the Company submitted in
order to effect any such withdrawal.

10

 

     4. Covenants of the Relational Group.

          (a) Each of the members of the Relational Group agrees that, during the period commencing on
the date of execution of this Agreement and ending on the Termination Date, without the prior
written consent of the Board as specifically expressed in a resolution adopted by a majority of the
entire membership of the Board (other than the Relational Designee), no member of the Relational
Group, nor any of their Affiliates or Associates nor any Person acting at their direction or on
their behalf, will, directly or indirectly:

               (i) with respect to the Company or its Voting Securities, make, engage or in
any way participate in, directly or indirectly, any “solicitation” (as such term is
used in the proxy rules of the SEC) of proxies or consents (whether or not relating
to the election or removal of directors); seek to advise, encourage or influence any
Person with respect to the voting of any Voting Securities (other than Affiliates or
Associates); initiate, propose or otherwise “solicit” (as such term is used in the
proxy rules of the SEC) shareholders of the Company for the approval of shareholder
proposals whether made pursuant to Rule 14a-8 or Rule 14a-4 under the Exchange Act,
or otherwise, or cause or encourage or attempt to cause or encourage any other
Person to initiate any such shareholder proposal; otherwise communicate with the
Company’s shareholders or others pursuant to Rule 14a-1(l)(2)(iv) under the Exchange
Act; or participate in, or take any action pursuant to, any “shareholder access”
proposal which may be adopted by the SEC, whether in accordance with previously
proposed Rule 14a-11 or otherwise;

               (ii) seek, propose, or make any statement with respect to any merger,
consolidation, business combination, tender or exchange offer, sale or purchase of
assets, sale or purchase of securities, dissolution, liquidation, restructuring,
recapitalization or similar transactions of or involving the Company or any of its
Affiliates or Associates;

               (iii) acquire, offer or propose to acquire, or agree to acquire (except by way
of stock dividends, stock splits, reverse stock splits or other distributions or
offerings made available to holders of any Voting Securities generally), directly or
indirectly, whether by purchase, tender or exchange offer, through the acquisition
of control of another Person, by joining a partnership, limited partnership,
syndicate or other “group” (within the meaning of Section 13(d)(3) of the Exchange
Act) or otherwise, any Voting Securities if as a result of such acquisition the
members of the Relational Group and their respective Affiliates and Associates would
beneficially own in the aggregate in excess of 9.9% of the Company’s Voting
Securities; provided, however, that the Relational Designee may
receive Voting Securities as compensation for his service on the Board in accordance
with the Company’s policies applied to all directors;

               (iv) form, join or in any way participate in a “group” (within the meaning of
Section 13(d)(3) of the Exchange Act) with respect to any

11

 

Voting Securities, other than a group composed solely of members of the
Relational Group and its clients;

               (v) deposit any Voting Securities in any voting trust or subject any Voting
Securities to any arrangement or agreement with respect to the voting of any Voting
Securities;

               (vi) act alone or in concert with others to control or seek to control, or
influence or seek to influence, the management, the Board or policies of the
Company;

               (vii) make any demand or request for any Shareholder List Information, or any
related material, or for the books and records of the Company or its Affiliates;

               (viii) except as specifically and expressly set forth in this Agreement, seek,
alone or in concert with others, election or appointment to or representation on, or
nominate or propose the nomination of any candidate to, the Board, or seek the
removal of any member of the Board;

               (ix) have any discussions or communications, or enter into any arrangements,
understanding or agreements (whether written or oral) with, or advise, finance,
assist or encourage, any other Person in connection with any of the foregoing
(including by granting any waiver to any legal, financial, public relations, proxy
solicitation or other firm that represented or was engaged by Relational, its
Affiliates, Associates or any of their legal counsel with respect to the Company or
the Transactions, which waiver would permit any such firm to represent any Person in
connection with matters relating to the Company), or make any investment in or enter
into any arrangement with any other Person that engages, or offers or proposes to
engage, in any of the foregoing;

               (x) make or disclose any statement regarding any intent, purpose, plan or
proposal with respect to the Board, the Company, its management, policies or affairs
or any of its securities or assets or this Agreement that is inconsistent with the
provisions of this Agreement, including any intent, purpose, plan or proposal that
is conditioned on, or would require waiver, amendment, nullification or invalidation
of, any provision of this Agreement or take any action that could require the
Company to make any public disclosure relating to any such intent, purpose, plan,
proposal or condition; or

               (xi) otherwise take, or solicit, cause or encourage others to take, any action
inconsistent with any of the foregoing.

          (b) Notwithstanding any other provision of this Agreement, the Relational Designee, during the
term of his or her service as a director of the Company, shall not be prohibited from acting as a
director and complying with his or her fiduciary duties as a director of the Company.

12

 

     5. Sale of Voting Securities. From and after the date following the record date for
determining shareholders entitled to vote at the 2006 Annual Meeting and until the Termination
Date, unless the Relational Group no longer beneficially owns shares equal to or greater than the
Minimum Condition, each of the members of the Relational Group agrees that it and its Affiliates or
Associates will not engage in any sale, transfer or other disposition of Voting Securities other
than (i) open market sales not exceeding in any one trading day 20% of the Company’s average daily
volume for the previous 30 trading days, (ii) privately negotiated sales, provided that the
transferee immediately following any such transaction would not, together with such transferee’s
Affiliates and Associates, beneficially own in the aggregate 2% or more of the Company’s
outstanding Voting Securities or (iii) any other sales, transfers or dispositions with the prior
approval of the majority of the entire Board (excluding the Relational Designee).

     6. Company Covenants.

          (a) The Company shall promptly after the Appointment Date withdraw in writing each and all of
the complaints, objections, protests, petitions, applications, submissions and filings which have
been made by or on behalf of the Company with Governmental Authorities seeking action or
investigation with respect to any member of the Relational Group or any person supporting the
position of the Relational Group and shall not support or encourage similar efforts by others. The
Company shall promptly provide copies of any documents to Relational submitted in order to effect
any such withdrawal.

          (b) Promptly after the date hereof, the Ethics and Corporate Governance Committee shall engage
a nationally recognized consulting or law firm with no relationship (current or previous) with the
Company or any member of the Relational Group or any of their respective Affiliates to study the
Company’s policies and practices regarding related-party transactions (i.e. transaction with
directors, officers and similar insiders), disclosure, and corporate governance against the
policies and practices of the financial industry’s largest 20 institutions by asset size. Such
study shall be completed within 90 days after the retention of such firm. The Board shall, within
30 days thereafter, take action with respect to implementation of the findings or recommendations
of such study as shall be determined by a majority of the Board (at a meeting at which the
Relational Designee and the Independent Director Designee are present), to be in the best interests
of the Company.

          (c) The Company will hold its 2006 Annual Meeting at such time as is determined by the Board
to be prudent; provided that in no event shall the meeting be held later than September 30,
2006.

          (d) During the term of this Agreement (i) the Board shall not determine or declare any member
of the Relational Group to be an “Adverse Person” under the Company’s Second Amended and
Restated Rights Agreement, dated as of January 19, 2005, as amended (or any similar rights plan
that becomes effective during the term of this Agreement) (the “Rights Plan”) and (ii) the
Company shall not amend the Rights Plan to reduce the threshold percentage required to become an
“Acquiring Person” to below 9.9% without the prior written consent of Relational.

13

 

          (e) If reasonably requested by Relational, the Company shall (i) clarify to Governmental
Authorities that it is no longer seeking to have any such Governmental Authorities investigate or
take any action against Relational or any Relational Person and (ii) inform Relational orally of
the contents of non-written communications with such Governmental Authorities, which may be used by
Relational for the sole purpose of addressing any inquiries from any such Governmental Authorities.

     7. Representations and Warranties of the Relational Group.

          (a) Each member of the Relational Group which is not a natural person represents and warrants
on its own behalf that it has the corporate or other power and authority to execute, deliver and
carry out the provisions of this Agreement and to consummate the transactions contemplated hereby.

          (b) Each member of the Relational Group which is not a natural person represents and warrants
on its own behalf that this Agreement has been duly and validly authorized, executed, and delivered
by such member and constitutes a valid and binding obligation of such member, and is enforceable
against it in accordance with its terms.

          (c) Each member of the Relational Group who is a natural person represents and warrants on his
own behalf that he has the power and authority to execute, deliver and carry out the provisions of
this Agreement and to consummate the transactions contemplated hereby.

          (d) Each member of the Relational Group who is a natural person represents and warrants on his
own behalf that this Agreement has been duly executed and delivered, constitutes his valid and
binding obligation, and is enforceable against him in accordance with its terms.

          (e) The members of the Relational Group represent and warrant that, as of the date of this
Agreement, they, together with their Affiliates and Associates, beneficially own an aggregate of
29,976,294 shares of Common Stock as set forth by beneficial owner and amount in its most recently
filed Schedule 13D and such Common Stock constitutes all of the Voting Securities of the Company
beneficially owned by the members of the Relational Group and their Affiliates and Associates.

          (f) Relational represents and warrants that each of the Funds is controlled by it.

     8. Representations and Warranties of the Company.

          (a) The Company represents and warrants that it has the corporate power and authority to
execute, deliver and carry out the terms and provisions of this Agreement and to consummate the
transactions contemplated hereby.

          (b) The Company represents and warrants that this Agreement has been duly and validly
authorized, executed and delivered by the Company and constitutes a valid and binding agreement of
the Company, enforceable against it in accordance with its terms.

14

 

     9. Non-Disparagement; Releases; No Litigation.

          (a) Until the Termination Date, the Company (on its own behalf and on behalf of its and
Sovereign Bank’s current directors, current executive officers, and representatives (insofar as
they are acting for or on behalf of the Company), while they are serving as such, and on behalf of
its Affiliates which it controls (individually, a “Company Party” and collectively, the
“Company Parties”)) agrees that the Company and the Company Parties shall not directly or
indirectly, individually or in concert with others, engage in any conduct or make, or cause to be
made, any statement, observation or opinion, or communicate any information (whether oral or
written) that is calculated to or is likely to have the effect of in any way (i) undermining,
impugning, disparaging or otherwise in any way reflecting adversely or detrimentally upon any
member of the Relational Group or its Affiliates or (ii) accusing or implying that any member of
the Relational Group or its Affiliates engaged in any wrongful, unlawful or improper conduct;
except, in each case, with respect to any Company Excluded Claim (as such term is hereinafter
defined). The foregoing shall not apply to (x) non-public oral statements made by the Company or
its executive officers or directors directly to any member of the Relational Group or to any of
their directors, officers, members, employees or representatives, or (y) any compelled testimony,
either by legal process, subpoena or otherwise or to any response to any request for information
from any Governmental Authorities having jurisdiction over the Company.

          (b) Until the Termination Date, each of the members of the Relational Group (on its own behalf
and on behalf of its respective current directors, executive officers, members, partners, managers
and representatives (insofar as they are acting for or on behalf of Relational), while they are
serving as such, and on behalf of their Affiliates which any member of the Relational Group
controls (individually, a “Relational Party” and collectively, the “Relational
Parties”)) agrees that it shall not directly or indirectly, individually or in concert with
others, engage in any conduct or make, or cause to be made, any statement, observation or opinion,
or communicate any information (whether oral or written) that is calculated to or is likely to have
the effect of in any way (i) undermining, impugning, disparaging or otherwise in any way reflecting
adversely or detrimentally upon the Company, its Affiliates and their respective directors and
officers (the “Company Group”) or (ii) accusing or implying that the Company or any member
of the Company Group engaged in any wrongful, unlawful or improper conduct; except, in each case,
with respect to any Relational Excluded Claim (as such term is hereinafter defined). The foregoing
shall not apply to (x) non-public oral statements made by any member of the Relational Group
directly to the Company or to its directors, officers, employees or representatives, (y) any
compelled testimony, either by legal process, subpoena or otherwise or (z) to respond to any
request for information from any Governmental Authorities having jurisdiction over any member of
the Relational Group.

          (c) Subject to the further provisions of this Section 9(c), the Company, on behalf of itself
and the Company Parties, hereby irrevocably and unconditionally releases, acquits, and fully and
forever discharges the members of each Relational Party and the members of the Relational Group,
including Relational’s employees, agents, attorneys and other representatives, to the maximum
extent permitted by applicable law, from and with respect to any and all disputes, complaints,
claims, counterclaims, actions, causes of action, liabilities, suits or damages, whether at law or
in equity, statutory or otherwise, whether known or unknown,

15

 

asserted or unasserted, of every kind and nature whatsoever, that any Company Party ever had,
now has, or hereafter can, will or may have against any Relational Party or any member of the
Relational Group for, upon, or by reason of any matter, cause of action, or thing, whatsoever from
the beginning of the world to the date hereof, but expressly excluding (i) any claim relating to
the performance of obligations under this Agreement or for breach of or to enforce this Agreement
and (ii) any claim arising out of banking or lending relationships with any member of the
Relational Group (collectively, the “Company Excluded Claims”). The claims released
pursuant to this Section 9(c) are referred to herein as “Company Claims”. The Company, on
behalf of itself and the Company Parties, hereby irrevocably covenants to refrain from asserting
any claim or demand, or commencing, instituting or causing to be commenced, any proceeding of any
kind against any Relational Party or any member of the Relational Group based upon any Company
Claim. The Company represents and warrants to the Relational Group that there has been no
assignment or other transfer of any interest in any Company Claim.

          (d) Subject to the further provisions of this Section 9(d), the members of the Relational
Group, on their own behalf and on behalf of the Relational Parties, hereby irrevocably and
unconditionally releases, acquits, and fully and forever discharges the Company, each member of the
Company Group, and the Company’s employees, agents, attorneys and other representatives, to the
maximum extent permitted by applicable law, from and with respect to any and all disputes,
complaints, claims, counterclaims, actions, causes of action, liabilities, suits or damages,
whether at law or in equity, statutory or otherwise, whether known or unknown, asserted or
unasserted, of every kind and nature whatsoever, that any member of the Relational Group or any
Relational Party ever had, now has, or hereafter can, will or may have against any member of the
Company Group or any of the Company’s employees, agents, attorneys or other representatives for,
upon, or by reason of any matter, cause of action, or thing, whatsoever from the beginning of the
world to the date hereof, but expressly excluding (i) any claim relating to the performance of
obligations under this Agreement or for breach of or to enforce this Agreement, (ii) any claim
arising out of banking or lending relationships with any member of the Company Group and (iii) any
rights to dividends or other incidents of their ownership of Common Stock (collectively, the
“Relational Excluded Claims”). The claims released pursuant to this Section 9(d) are
referred to herein as the “Relational Claims”. The members of the Relational Group on
their own behalf and on behalf of the Relational Parties hereby irrevocably covenant to refrain
from asserting any claim or demand, or commencing, instituting or causing to be commenced, any
proceeding of any kind against any member of the Company Group or any of the Company’s employees,
agents, attorneys or other representatives based upon any Relational Claim. Each member of the
Relational Group represents and warrants to the Company that there has been no assignment or other
transfer of any interest in any Relational Claim.

          (e) Until the Termination Date, Relational agrees that neither Relational nor any Relational
Party will (i) initiate any litigation or other legal proceedings against any member of the Company
Group or any of the Company’s employees, agents, attorneys or other representatives, other than
with respect to any Relational Excluded Claim and (ii) solicit, cause or encourage others to
initiate or continue litigation or other legal proceedings against any member of the Company Group
or any of the Company’s employees, agents, attorneys or other representatives. So long as Albert
Boscov shall not, after the date hereof, make any derogatory statements about the Relational Group,
or take any action adverse to the Relational Group,

16

 

Relational covenants not to sue Albert Boscov based upon the publication by The Reading
Eagle of a “Viewpoint” article on or about February 14, 2006 authored by Mr. Boscov.

          (f) Until the Termination Date, the Company agrees that neither the Company nor any Company
Party will (i) initiate any litigation or other legal proceedings against any member of the
Relational Group, other than with respect to any Company Excluded Claim and (ii) will not solicit,
cause or encourage others to initiate or continue litigation or other legal proceedings against any
member of the Relational Group.

          (g) The parties to this Agreement waive any and all rights (to the extent permitted by state
law, federal law, principles of common law or any other law) which may have the effect of limiting
the releases as set forth in this Section 9. In this regard, the parties waive their rights, to
the extent permitted by law, to any benefits of the provisions of section 1542 of the California
Civil Code or any other similar state law, federal law, principle of common law or to the law,
which may have the effect of limiting the releases set forth above. Section 1542 of the California
Civil Code provides:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE
MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

     10. Termination Date. The date on which this Agreement, including the covenants and
agreements contained in Section 4 above, shall terminate is referred to herein as the
“Termination Date”. The Termination Date shall be the earliest of (i) the date on which
the Relational Designee (or his properly appointed replacement under the terms hereof) ceases to be
a member of the Board and either (A) at Relational’s option following 10 business days’ prior
written notice, the appointment of Batchelder to the Board pursuant to the terms hereof does not
occur to the extent required hereby (unless cured within such 10 business day period), (B) not more
than 60 days remain prior to the 2009 Nomination Deadline, or (C) the Board has notified Relational
that the Relational Designee will not be nominated for reelection at an applicable meeting of the
Company’s shareholders, (ii) the date of the certification of the results of the Company’s 2012
Annual Meeting, or (iii) Relational has beneficially owned shares less than the Minimum Condition
for a period of at least 365 consecutive days; provided, however, that no Termination Date shall
occur pursuant to this clause (iii) prior to the 60th day prior to the 2009 Nomination
Deadline.

     11. Press Release. Upon execution of this Agreement, the Company and Relational shall
issue a joint press release substantially in the form attached hereto as Exhibit 1 with such
changes as may be mutually agreed to by the Company and the Representative (as such term is
hereinafter defined). None of the parties hereto will make any public statements other than as
required by law and none of such statements shall be inconsistent with, or are otherwise contrary
to, the statements in the press release. Nothing shall preclude or prevent either the Company or
any member of the Relational Group from making public statements that are neither contrary to nor
inconsistent with the statements in the press release, provided that all

17

 

such public statements shall be in
compliance with applicable securities laws and consistent with any such party’s fiduciary duties.

     12. No Admission. This Agreement constitutes a compromise and settlement entered into
by each party hereto without any admission of liability to the others, but solely for the purpose
of avoiding litigation, uncertainty, controversy, and legal expense. Nothing contained herein
shall constitute or be taken or construed to be an admission by any party or as evidencing or
indicating the truth or correctness of any allegations, claims or defenses asserted by any party.

     13. Specific Performance. The Company and each member of the Relational Group
acknowledge and agree that the other party would be irreparably injured by a breach of this
Agreement by such party and that money damages are an inadequate remedy for an actual or threatened
breach of this Agreement because of the difficulty of ascertaining the amount of damage that will
be suffered in the event that this Agreement is breached. Accordingly, the Company and each member
of the Relational Group agree to the granting of specific performance of this Agreement and
injunctive or other equitable relief as a remedy for any such breach, without proof of actual
damages, and further agree to waive any requirement for the securing or posting of any bond in
connection with any such remedy. Such remedy shall not be deemed to be the exclusive remedy for a
breach of this Agreement, but shall be in addition to all other remedies available at law or
equity. In the event of litigation relating to this Agreement, if a court of competent
jurisdiction determines in a final, nonappealable order that this Agreement has been breached by
either party, then the breaching party will reimburse the other party for its costs and expenses
(including, without limitation, reasonable legal fees and expenses) incurred in connection with all
such litigation.

     14. No Waiver. Any waiver by any party hereto of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of such provision or of any
breach of any other provision of this Agreement. The failure of a party hereto to insist upon
strict adherence to any term of this Agreement on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Agreement.

     15. Certain Definitions. As used in this Agreement, (a) the term “Person” as used
herein shall be interpreted broadly to include, among others, any individual, partnership,
corporation, limited liability company, joint venture, group, syndicate, trust, government or
agency thereof, or any other association or entity;
(b) the terms “Affiliates” and “Associates” shall have the meanings set forth in
Rule 12b-2 under the Exchange Act and shall include persons who become Affiliates or Associates of
any Person subsequent to the date hereof; provided that a client of Relational that is not
controlled by Relational shall not be deemed an “Associate” based upon its ownership of membership
or partnership interests in any Fund; (c) the term “Voting Securities” shall mean the
shares of Common Stock and any other securities of the Company entitled to vote in the election of
directors, or securities convertible into, or exercisable or exchangeable for, such Common Stock or
other securities, whether or not subject to the passage of time or other contingencies; (d) the
Company and the Relational Group will be referred to herein individually as a “party” and
collectively as “parties”; and (e) the term “business day” means any day other than a
Saturday, Sunday or a day on which banks in New

18

 

York City are authorized or obligated by applicable
law or executive order to close or are otherwise generally closed.

     16. Severability. If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby be consummated as originally contemplated to the
fullest extent possible.

     17. Successors and Assigns. All the terms and provisions of this Agreement shall inure to the
benefit of and shall be enforceable by the successor and assigns of the parties hereto.

     18. Third Party Beneficiaries. Except for the provisions of Section 9 which are
intended for the benefit of, and to be enforceable by, the Persons described therein, nothing
contained in this Agreement shall create any rights in, or be deemed to have been executed for the
benefit of, any Person or entity that is not a party hereto or a successor or permitted assign of
such a party.

     19. Survival of Representations. All representations, warranties and agreements made by the
parties in this Agreement or pursuant hereto shall survive the date hereof.

     20. Entire Agreement; Amendments. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties with respect to the subject matter hereof
and is not intended to confer upon any person other than the parties hereto any rights or remedies
hereunder. This Agreement may be amended only by a written instrument duly executed by the parties
hereto or their respective successors or assigns.

     21. Headings. The section headings contained in this Agreement are for reference purposes only and shall not
effect in any way the meaning or interpretation of this Agreement.

     22. Notices. All notices, requests, claims, demands and other communications hereunder shall be
in writing and shall be given (and shall be deemed to have been duly given if so given) by hand
delivery, cable, telecopy (confirmed in writing) or telex, or by mail (registered or certified,
postage prepaid, return receipt requested) to the respective parties hereto as follows:

19

 

If to the Company:

Sovereign Bancorp, Inc.

1130 Berkshire Boulevard

Wyomissing, Pennsylvania 19610

Attention: Mr. Jay S. Sidhu, Chairman, President and Chief Executive Officer

Telecopier: (610) 208-6143

with copies to:

Sovereign Bancorp, Inc.

1130 Berkshire Boulevard

Wyomissing, Pennsylvania 19610

Attention: General Counsel

Telecopier: (610) 320-8448

and

Stevens & Lee

111 North Sixth Street

P.O. Box 679

Reading, Pennsylvania 19603

Attention: Joseph M. Harenza, Esq.

Telecopier: (610) 376-5610

and

Skadden, Arps, Slate, Meagher & Flom, LLP

Four Times Square

New York, New York 10036

Attention: William S. Rubenstein, Esq.

Telecopier: (212) 735-2000

If to the Relational Group:

c/o Relational Investors, LLC

12400 High Bluff Drive, Suite 600

San Diego, California 92130

Attention: Mr. Ralph V. Whitworth

Telecopier: (858) 704-3345

20

 

with a copy to:

Sullivan & Cromwell LLP

125 Broad Street

New York, New York 10004

Attention: H. Rodgin Cohen, Esq. and Mitchell S. Eitel, Esq.

Telecopier: (212) 558-3588

or to such other address as the person to whom notice is given may have previously furnished to the
others in writing in the manner set forth above.

     23. Governing Law. This Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of New York applicable to contracts made and performed in such State,
without giving effect to choice of law principles thereof, that would cause the application of the
laws of any other jurisdiction, provided, however, that any issue related to the
duties (and compliance therewith) of any member of the Board as such shall be governed by the laws
of Pennsylvania, including the Pennsylvania Business Corporation Law. Nothing in this Agreement
shall affect the obligation of any party to testify truthfully if called to testify under oath.

     24. Submission to Jurisdiction. Each of the parties irrevocably submits to the
exclusive jurisdiction and service and venue in any federal or state court sitting in the State of
New York for the purposes of any action, suit or proceeding relating to this Agreement. Each of
the parties irrevocably and unconditionally waives any objections to the laying of venue of any
action, suit or proceeding relating to this Agreement in any federal or state court sitting in the
State of New York, and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.

     25. Counterparts; Facsimile. This Agreement may be executed in counterparts, including by
facsimile, each of which shall be an original, but each of which together shall constitute one and
the same Agreement.

     26. Relational Group Representative. Each member of the Relational Group hereby irrevocably
appoints Whitworth as such member’s attorney-in-fact and representative (the
“Representative”), in such member’s place and stead, to do any and all things and to
execute any and all documents and give and receive any
and all notices or instructions in connection with this Agreement and the transactions contemplated
hereby. The Company shall be entitled to rely, as being binding on each member of the Relational
Group, upon any action taken by the Representative or upon any document, notice, instruction or
other writing given or executed by the Representative. Each of the parties hereto acknowledges and
agrees that the Representative shall have no liability to, and shall not be liable for any losses
or liabilities of, any party hereto in connection with any obligations or actions of the
Representative under this Agreement in his or her capacity as the Representative, except to the
extent such losses or liabilities are proven to be the direct result of willful misconduct by the
Representative in connection with the performance of his or her obligations hereunder. Each member
of the Relational Group agrees that, until the Termination Date, in the event and at the time the
Representative appointed hereby shall no

21

 

longer be the Representative for any reason, he, she or it
will execute a power of attorney appointing a successor Representative as his, her or its
attorney-in-fact with the same authority and power as granted under this Section 26.

     27. Further Actions. Upon and subject to the terms of this Agreement, each of the
parties hereto agrees to use its or his reasonable best efforts to cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the other party in doing, all
things necessary, proper or advisable to consummate or make effective, in the most expeditious
manner practicable, the matters contemplated by this Agreement.

     28. Investment Agreement. The parties agree and acknowledge that nothing in this
Agreement shall be construed to limit the Company’s ability to perform the Investment Agreement
(including entry into an amendment in order to make adjustments required by the March 15 Stock
Dividend) in accordance with its terms and no action taken by the Company pursuant to the terms of
the Investment Agreement shall result in or be deemed to be a breach of this Agreement.

[Next page is a signature page.]

22

 

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

	 	 	 	 	 
	 	 	SOVEREIGN BANCORP, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Jay S. Sidhu
	 

	 	 	 	 
	 

	 	Name:
	 	Jay S. Sidhu
	 

	 	Title:
	 	Chairman, President and

Chief Executive Officer
	 
	 	 	 	 
	 	 	RELATIONAL HOLDINGS, LLC
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RELATIONAL GROUP, LLC
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RELATIONAL INVESTORS LLC
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 

	 	Title:
	 	Managing Member
	 
	 	 	 	 
	 	 	RELATIONAL INVESTORS, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RELATIONAL FUND PARTNERS, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RELATIONAL COAST PARTNERS, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth

23

 

	 	 	 	 	 
	 	 	RELATIONAL PARTNERS, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RH FUND 1, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RH FUND 2, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RH FUND 4, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RH FUND 6, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RH FUND 7, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RELATIONAL INVESTORS III, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RELATIONAL INVESTORS VIII, L.P.
	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth

24

 

	 	 	 	 	 
	 	 	RELATIONAL INVESTORS IX, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RELATIONAL INVESTORS X, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RELATIONAL INVESTORS XI, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RELATIONAL INVESTORS XII, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RELATIONAL INVESTORS XIV, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	RELATIONAL INVESTORS XV, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ralph V. Whitworth
	 

	 	 	 	 
	 

	 	Name:
	 	Ralph V. Whitworth
	 
	 	 	 	 
	 	 	/s/ Ralph V. Whitworth
	 	 	 
	 	 	RALPH V. WHITWORTH
	 
	 	 	 	 
	 	 	/s/ David H. Batchelder
	 	 	 
	 	 	DAVID H. BATCHELDER

25

 

ANNEX A

INVESTMENT PARTNERSHIPS

RELATIONAL INVESTORS, L.P.

RELATIONAL FUND PARTNERS, L.P.

RELATIONAL COAST PARTNERS, L.P.

RELATIONAL PARTNERS, L.P.

RH FUND 1, L.P.

RH FUND 2, L.P.

RH FUND 4, L.P.

RH FUND 6, L.P.

RH FUND 7, L.P.

RELATIONAL INVESTORS III, L.P.

RELATIONAL INVESTORS VIII, L.P.

RELATIONAL INVESTORS IX, L.P.

RELATIONAL INVESTORS X, L.P.

RELATIONAL INVESTORS XI, L.P.

RELATIONAL INVESTORS XII, L.P.

RELATIONAL INVESTORS XIV, L.P.

RELATIONAL INVESTORS XV, L.P.

26

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