AMENDMENT #2 TO EMPLOYMENT AGREEMENT
AMENDMENT #2 TO EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 10th day of October, 2006, by and between Sovereign Bancorp, Inc., a
Pennsylvania corporation (“SBI”), and Xxxxxx X. Xxxxxxxxxx, an individual (the “Executive”).
WHEREAS, the Executive and SBI entered into an Agreement, dated January 30, 2003 (the
“Employment Agreement”); and
WHEREAS, the Executive and SBI amended the Employment Agreement by instrument dated May 30,
2006 (the “Amended Agreement”); and
WHEREAS, the Executive and SBI desire to further amend the Amended Agreement, to cover, among
other things, the Executive’s appointment as interim (i) President and Chief Executive Officer
(“CEO”) of SBI and (ii) CEO of Sovereign Bank, a federal savings bank (the “Bank”).
NOW, THEREFORE, in consideration of the premises and intending to be legally bound hereby, the
parties agree that the Amended Agreement, be further amended and interpreted as follows (the
Amended Agreement, as amended hereby, being hereinafter sometimes referred to as the “Agreement”):
1. Interim Appointment. Effective October 10, 2006 and in lieu of the titles
presently provided in the Amended Agreement, the Executive is appointed as interim (i) President
and CEO of SBI and (ii) CEO of the Bank, to serve in such capacities until the earliest of the
following to occur: (A) his permanent1 appointment to the position of CEO of SBI by the
Board of Directors of SBI, (B) the appointment by the Board of Directors of SBI of another
individual to serve as CEO of SBI in an interim or permanent capacity, and (C) his termination of
employment as CEO of SBI (the “Interim Period”). In such interim positions, the Executive shall
report, with respect to SBI, directly to the co-lead directors of SBI and, with respect to the
Bank, to directors P. Xxxxxxx Xxxxxxxx, Xxxx Xxxxxxxxx Xxxxxxxx or otherwise as the Bank Board
shall designate, and shall have such duties and responsibilities and be granted such authority as
are customarily imposed on a CEO, except to the extent otherwise set forth in the by-laws of SBI
and the Bank and applicable controlling law or except as otherwise reasonably imposed upon him by
the respective Boards of SBI and the Bank. In the event the Executive is not permanently
appointed to the position of CEO of SBI, his appointment to the positions he held prior to his
interim appointments (or more senior positions) with the same titles and reporting lines shall not
result in a change in title, duties, or responsibilities or otherwise constitute “Good Reason”
under the Section 5(a) of the Agreement, unless his titles, duties, responsibilities, authority or
reporting lines are reduced or otherwise adversely affected relative to such titles, duties,
responsibilities, authority and reporting lines as in effect immediately prior to his appointments
to such interim positions. Except as otherwise explicitly set forth in this Amendment #2, if
Executive’s titles, duties, responsibilities, authority or reporting lines are
| 1 | For purposes of this Amendment #2, the reference to a “permanent” appointment is not intended to mean an appointment for life, but rather as an appointment for a limited term of at least three years. |
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reduced or otherwise adversely affected relative to such titles, duties, responsibilities,
authority and reporting lines as in effect immediately prior to his appointments to such interim
positions, Executive’s rights (including Executive’s rights upon a Change in Control) shall be
determined under the Amended Agreement.
2. Salary During Interim Period. During the Interim Period described in Paragraph 1
and in lieu of the amount provided in Section 4(a) of the Amended Agreement, the Executive’s salary
shall be fixed at an annual rate of $750,000. Such annual salary shall not be reduced if the
Executive’s positions described in Paragraph 1 are not made permanent after the Interim Period and
shall constitute his salary under Section 4(a) of the Agreement.
3. Bonus. During the Interim Period, the Executive’s annual bonuses referred to in
the first sentence of Section 4(b) of the Amended Agreement shall be fixed at a maximum of 133% of
his salary for each year, payable 1/3 in cash and 2/3 in SBI common stock in the manner and at the
time specified by the SBI Board for executives generally. Such annual bonus shall not be reduced
if the Executive’s positions described in Paragraph 1 are not made permanent after the Interim
Period and shall constitute his maximum bonus under Section 4(b) of the Agreement. Notwithstanding
the foregoing, for calendar year 2006 the Executive’s annual bonus shall not be less than
$225,000.2
4. Long-Term Incentive Grant. In lieu of any provision of the Amended Agreement, for
the three calendar year period 2007 through 2009, the Executive shall be awarded a long-term
incentive grant in restricted stock equal to 51,932 shares of SBI common stock.3 The
specific terms of the award (including reasonable performance goals and provision for cliff vesting
on the third anniversary of the date of grant, subject to acceleration of vesting as provided
herein) under this paragraph shall be consistent with terms of a plan or program to be adopted by
SBI’s Board of Directors in 2006 and implemented in 2007.
5. Stay Bonus. In the event the Executive remains employed by SBI and/or the Bank on
October 9, 2007, he shall be paid a lump-sum amount of $1,250,000, in cash, within 30 days
thereafter. If, on or before October 9, 2007, the Executive’s employment is terminated by SBI for
any reason other than for Cause or the Executive terminates his employment for Good Reason after a
Change in Control under Section 5 of the Agreement, he shall be paid a lump-sum amount of
$1,250,000, in cash, within 30 days thereafter.
6. Special Additional Provisions Relating Directly or Indirectly to the Executive’s
Interim Appointments.
(a) Certain Terminations of Employment if the Executive is not Appointed Permanent
CEO of SBI. In the event (i) the Executive’s interim status as the holder of the
position of CEO of SBI (with the duties, responsibilities, authority and reporting lines
associated with such position as of the date of execution of this Amendment #2) is not made
permanent by October 9, 2007 (or if, prior to that date, the Board of Directors of
| 2 | The number “$225,000” is an approximate proration of the number “$1,000,000” over the period of October 10, 2006 through December 31, 2006. | |
| 3 | The number of shares referred to in Paragraph 4 is equal to $1,250,000 divided by the 10/10/06 price per share of $24.07. |
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SBI appoints another individual to serve as CEO of SBI in an interim or permanent
capacity) and he elects to terminate his employment by means of a writing delivered to the
SBI Board of Directors within 90 days after the earlier to occur of such events, or (ii) he
is terminated for any reason other than for Cause before or within 90 days after another
individual is named to the position of CEO of SBI in an interim or permanent capacity, then
he shall be entitled to the benefits set forth below:
(1) The Executive shall be paid a lump-sum cash payment in the amount of
$1,750,000 within 30 days following his termination of employment.
(2) The long-term incentive described in Paragraph 4 shall become immediately
vested on a pro-rated basis (without regard to the achievement of financial or other
goals), so that the Executive will have released to him, free of further
restrictions (other than those required by law, if any), a number of shares of SBI
common stock equal to the maximum number of shares that he could have earned
thereunder times a fraction, the numerator of which is the number of days from
January 1, 2007 through the day of termination of employment, and the denominator of
which is 1,096. Notwithstanding the foregoing, the vested percentage determined in
accordance with the preceding sentence shall not be less than 33-1/3.
(3) To the extent permitted by the relevant SBI plans, all outstanding SBI
stock options then held by the Executive shall vest upon termination of employment,
and he shall thereafter have three months to exercise the same (or, if less, the
maximum period permitted under Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”) and any guidance issued by the United States Treasury
Department thereunder). To the extent any SBI plan does not permit such accelerated
vesting or continued exercisability, the Executive shall be paid, in cash, within 30
days after termination of employment , the excess of the aggregate fair market value
of the shares of SBI stock subject to all of the affected stock options over such
options’ aggregate exercise price.
(4) To the extent applicable, all nonperformance-based restricted SBI stock
awards (other than the Long-Term Incentive Grant described in Section 4 of this
Amendment #2) that would otherwise vest before October 9, 2007 shall vest, and be
released free from restriction (other than any restriction that may be imposed by
law) upon his termination of employment. In addition, in the case of a voluntary
termination of employment by Executive under this Paragraph 6(a), an amount
attributable to otherwise unvested amounts under the Sovereign Bancorp, Inc. Bonus
Recognition and Retention Plan (the “BRRP”) and attributable solely to the
Executive’s deferred Bonus under Section 4.1 of the BRRP and earnings thereon (but
not amounts attributable to the Matching Amounts under Section 4.3 of the BRRP nor
earnings thereon) shall be deemed vested and shall be payable to the Executive in
accordance with the Executive’s prior election under the BRRP.
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As a condition of the payment to the Executive of the benefits under this paragraph, he
shall execute a release (in the form set forth in Exhibit A hereto) in favor of SBI, its
affiliates and directors, officers, employees and agents with respect to any
employment-related claims or alleged claims he may then have against any or all of them,
excluding the payments and benefits required to be provided to him under the Amended
Agreement, this Amendment #2 and any other plan, policy or arrangement of SBI or any of its
affiliates in which he is then a vested participant and containing the other exclusions set
forth in Exhibit A. The payments and benefits under this Paragraph 6(a) are (i) the
exclusive payments and benefits to which he will be entitled in the case of a termination
described in this Paragraph 6(a), and (ii) therefore are in lieu of any benefits to which he
would otherwise be entitled under the Amended Agreement, except for (y) the provision of the
welfare and related benefits described in Section 6(b) or 7(b) (as the case may be) of the
Amended Agreement and (z) the Executive’s eligibility for indemnification and contribution
in accordance with applicable laws or the certificate of incorporation or by-laws of SBI, or
under any applicable insurance policy with respect to any liability the Executive incurs or
has incurred as a director, officer or employee of SBI or the Bank. Further, the provisions
of Section 6(c) of the Amended Agreement shall continue to apply in the event they otherwise
become applicable.
(b) Other Terminations. In the event the Executive’s employment terminates
under the Agreement, his entitlement to compensation, benefits and/or severance payments
shall, except as otherwise provided in this Amendment #2, be determined as provided under
the Amended Agreement; provided, however, that, in the case of the termination of his
employment following a Change in Control for a reason other than for Cause (including a
termination by the Executive for Good Reason under Section 5 of the Agreement), his Enhanced
Executive Retirement Plan benefit shall (i) be determined by reference to a percentage of 45
rather than the current percentage of 35 or 40, as applicable, (ii) his severance payments
(but not in kind benefits) shall be included in determining the amount of his benefit, and
(iii) the benefit will commence at age 55 if his termination occurs before such age and SBI
agrees to enter into an amendment to the Enhanced Executive Retirement Plan to implement
such change.
7. Future Contract. In the event the Executive is permanently named to the offices
described in Paragraph 1, the parties agree to negotiate in good faith and promptly enter into a
new, restated employment agreement setting forth their respective rights and obligations with
regard to the Executive’s employment in such capacities.
8. Effect of This Agreement on Employment Agreement Generally. Except as otherwise
provided herein, the Amended Agreement shall continue in full force and effect, including, without
limitation, the covenant not to compete and the non-solicitation of customers and employees
provisions of Section 8 of the Agreement. Further, in the case of doubt, the Amended Agreement
shall prospectively be reasonably construed in a manner consistent with the intent of this
Amendment #2. By way of example and without limitation, the provisions of the Amended Agreement
relating to the required maintenance of the Executive’s titles following a Change in Control shall
not be applicable to the changes in titles contemplated in Paragraph 1 of this Amendment #2 in
connection with his appointment to the positions contemplated in Paragraph 1. Notwithstanding the
foregoing, in no event during the Interim Period, shall SBI or
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the Bank demand, as a condition to his continued employment, for the Executive to move his
principal residence, and any such demand shall provide the Executive the right to terminate his
employment under Paragraph 6(a)(i) and entitle the Executive to the benefits set forth in such
Paragraph 6(a) in accordance with its terms. Notwithstanding the foregoing, SBI will reimburse the
Executive (on a reasonably tax-effected basis) for reasonable out-of-pocket expenses (including,
but not limited to, temporary housing, other lodging and individual and spousal travel expenses)
that he may incur in connection with his assumption of the positions described in Paragraph 1.
Moreover, in the event the Executive is not permanently appointed to the positions described in
Paragraph 1, his appointment to the positions he held prior to his interim appointments (or to more
senior positions) shall not result in an event of Good Reason or otherwise give him the right to
terminate his employment and receive severance benefits under the Agreement (except as specifically
provided in Paragraph 6 of this Amendment #2) unless his titles, duties, responsibilities,
authority or reporting lines are reduced or otherwise adversely affected relative to such titles,
duties, responsibilities, authority and reporting lines as in effect immediately prior to his
appointments to such interim positions. By execution of this Amendment #2, Executive agrees and
acknowledges that as of the date of this Amendment #2, no Change in Control has occurred under the
terms of his Amended Agreement.
9. Application of Section 409A of Internal Revenue Code. Notwithstanding anything in
this Amendment #2 or the Amended Agreement to the contrary, the provisions of this Amendment #2 and
the Agreement shall be interpreted and applied in a manner that is consistent with Code Section
409A and any guidance issued by the United States Treasury Department thereunder. This means that,
unless the parties shall otherwise agree, (i) to the extent that any amount payable in connection
with the termination of Executive’s employment cannot be paid until six months following such
termination to avoid subjecting Executive to the additional income taxes imposed under Code Section
409A, such payments will be so delayed and paid, with interest at the short-term applicable federal
rate, as in effect at the date of termination of employment, in a single lump-sum payment six
months thereafter and (ii) with respect to medical benefits and other welfare benefits, the
Executive shall bear the full cost of such benefits for six months following such termination date
and shall be reimbursed for costs that Executive would not have otherwise incurred during such
period in a single lump-sum payment six months thereafter (unless guidance issued by the United
States Treasury Department permits benefit continuation through such six-month period), and SBI
shall continue to provide such benefits to Executive and his eligible dependents for the period
that they would otherwise have been provided, starting on the six-month anniversary of the
termination date.
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment #2, or caused it to be
executed, on the date indicated below.
| SOVEREIGN BANCORP, INC. |
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| By: | /s/ P. Xxxxxxx Xxxxxxxx | |||
| P. Xxxxxxx Xxxxxxxx | ||||
Date: November 7, 2006 |
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| EXECUTIVE |
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| /s/ Xxxxxx X. Xxxxxxxxxx | ||||
| Xxxxxx X. Xxxxxxxxxx | ||||
| Date: November 7, 2006 | ||||
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EXHIBIT A
FORM OF SEVERANCE RELEASE
THIS SEVERANCE RELEASE (the “Release”) is entered into between Xxxxxx X. Xxxxxxxxxx (the
“Executive”) and Sovereign Bancorp, Inc., a Pennsylvania corporation (together with its successors
and assigns, “SBI”).
WHEREAS, the Executive and SBI entered into an employment agreement dated January 30, 2003, as
amended by instruments dated May 30, 2006 and October 10, 2006 (the “Employment Agreement”); and
WHEREAS, the Executive’s employment has terminated pursuant to Paragraph 6 of Amendment #2 to
the Employment Agreement and as such the Executive is due certain payments and entitlements
pursuant to the Employment Agreement subject to the Executive’s executing this Release.
NOW, THEREFORE, in consideration of the payments set forth in the Employment Agreement and
other good and valuable consideration, the Executive and SBI agree as follows:
1. The Executive, on behalf of himself and his dependents, heirs, administrators, agents,
executors, successors and assigns (the “Executive Releasees”), hereby irrevocably and
unconditionally releases, waives, and forever discharges SBI and its affiliated companies and their
past and present parents, subsidiaries, affiliated corporations, partnerships, joint ventures, and
their successors and assigns (the “SBI Affiliated Parties”) and all of SBI Affiliated Parties’
respective past and present directors, officers, employees, agents and their representatives,
successors and assigns (but as to any such individual, agent or representative, only in connection
with, or in relationship to, his or its capacity as a director, officer, employee, agent,
representative, successor or assign of any SBI Affiliated Party and not in connection with, or in
relationship to, his or its personal or professional capacity unrelated to any SBI Affiliated
Party) (collectively, the “SBI Releasees”), from any and all actions, claims, demands, obligations,
liabilities and causes of action of any kind or description whatsoever, in law, equity or
otherwise, whether known or unknown, whether past, present, or future, that any Executive Releasee
had, may have had, now has, or may hereafter have against SBI or any other SBI Releasee, as of the
date of the execution of this Release by the Executive, arising out of or relating to the
Executive’s employment relationship, or the termination of that relationship, with SBI or any
affiliate, including, but not limited to, any action, claim, demand, obligation, liability or cause
of action arising under any Federal, state, or local employment law or ordinance creating or
recognizing employment-related causes of action, and all amendments of any of these laws
(including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Acts of
1866, 1871, 1964 and 1991, the Equal Pay Act, the Americans with Disabilities Act of 1990, the
National Labor Relations Act, the Fair Labor Standards Act of 1938, the Workers Adjustment and
Retraining Notification Act, the Employee Retirement Income Security Act of 1974, as amended (other
than any claim for vested benefits), the Family and Medical Leave Act of 1993, the Age
Discrimination in Employment Act of 1967, as amended, the Older Workers’ Benefit Protection Act of
1990, the Consolidated Omnibus Budget Reconciliation Act of 1985, the
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Pennsylvania Human Relations Act, the Pennsylvania Wage Payment and Collection Law, and Mass.
Gen. Laws Ch. 12, §§11H and 11I, Mass. Gen. Laws Ch. 151B), tort, contract or any alleged violation
of any other legal obligation. Anything to the contrary notwithstanding in this Release or the
Employment Agreement, nothing herein shall release any SBI Releasee from any claims or damages
based on (i) any right or claim that arises exclusively from events occurring after the date the
Executive executes this Release, (ii) any right the Executive may have to payments, benefits or
entitlements under the Employment Agreement or any applicable plan, policy, program or arrangement
of, or other agreement with, SBI or any affiliate, (iii) the Executive’s eligibility for
indemnification in accordance with applicable laws or the certificate of incorporation or by-laws
of SBI, or under any applicable insurance policy with respect to any liability the Executive incurs
or has incurred as a director, officer or employee of SBI or (iv) any right the Executive may have
to obtain contribution as permitted by law in the event of entry of judgment against the Executive
as a result of any act or failure to act for which the Executive and any SBI Releasee are jointly
liable.
2. The Executive represents that as of the date he has executed this Release he has not
assigned to any other party, and agrees not to assign, any claim released by the Executive herein.
In addition, the Executive promises never to file a lawsuit or an arbitration claim against SBI or
any other SBI Releasee asserting any claim released by any Executive Releasee herein. If any
federal, state or local administrative agency or court has now assumed or later assumes
jurisdiction of any complaint or charge on behalf of the Executive against any SBI Releasee
alleging or asserting unlawful employment discrimination in connection with the Executive’s
employment with SBI or the termination of that employment, the Executive will disclaim entitlement
to any relief and, to the extent that the Executive has commenced such a proceeding prior to the
execution of this Release by the Executive, the Executive agrees to withdraw such proceeding with
prejudice on or before the date on which the Executive executes this Release.
3. The Executive acknowledges that he has waived his and Executive Releasees’ Claims knowingly
and voluntarily in exchange for the severance benefits set forth in the Employment Agreement, and
that the Executive would not otherwise have been entitled to those benefits. The Executive
acknowledges that he has been provided a period of at least 21 calendar days in which to consider
and execute this Release. The Executive further acknowledges and understands that he has seven
calendar days from the date on which he executes this Release to revoke his agreement by delivering
to SBI written notification (in accordance with Section 11 of the Employment Agreement) of his
intention to revoke this Release. This Release becomes effective when signed by the Executive
unless revoked in writing by the Executive in accordance with this seven-day provision. To the
extent that the Executive has not otherwise done so, the Executive is advised to consult with an
attorney prior to executing this Release.
4. During the Executive’s employment with SBI the Executive may have obtained information of a
confidential nature or which is a trade secret. The Executive agrees that he will not use, and he
will not disclose to any person or entity, other than on behalf of or for SBI’s benefit, such
confidential information or any trade secret, except as the Executive may be authorized in writing
to do so by the SBI’s Chief Executive Officer or an officer of SBI Designated by him.
The Executive further certifies that he has not and agrees that he will not, during the period
of time between when he has been offered this Release for consideration and his termination date,
remove from SBI or transfer by electronic or other means, documents or
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copies thereof relating to the Executive’s duties, without the express written approval of
SBI’s Chief Executive Officer or an officer of SBI designated by him. Notwithstanding anything to
the contrary contained herein, Executive will be entitled to remove, transfer and retain (i) papers
and other materials of a personal nature, including without limitation photographs, personal
correspondence, personal diaries, personal calendars and rolodexes, personal phone books and files
relating exclusively to his personal affairs, (ii) information showing Executive’s compensation or
relating to Executive’s reimbursement of business related expenses, (iii) information Executive
reasonably believes may be needed for the planning and preparation of Executive’s personal tax
returns and (iv) copies of SBI and compensation and benefit plans and agreements relating to
Executive’s employment with or termination from SBI and/or the Bank.
5. The Executive agrees that he remains subject to the non-competition and non-solicitation
provisions of Section 8 of the Employment Agreement. SBI agrees, except as may be required by law,
to refrain from performing any act, engaging in any course of conduct or course of action or making
or publishing any statements, claims, allegations or assertions which it believes have, or may
reasonably be expected to have, the effect of demeaning the name or business reputation of
Executive and shall cause its employees, officers, directors, agents or advisors to be similarly
bound when serving in such capacity. Executive agrees to refrain from performing any act, engaging
in any conduct or course of action or making or publishing any statements, claims, allegations or
assertions which have or may reasonably have the effect of demeaning the name or business
reputation of SBI or any SBI Affiliated Party or any of its or their employees, officers,
directors, agents or advisors in their capacities as such. The parties agree that nothing in this
Section 5 shall preclude either party or any other person referenced in this Section 5 from
fulfilling any duty or obligation that he, she or it may have at law, from responding to any
subpoena or official inquiry from any court or government agency, including providing truthful
testimony, documents subpoenaed or requested or otherwise cooperating in good faith with any
proceeding or investigation, or from taking any reasonable actions to enforce such party’s rights
against the other party, including under this Agreement, or from responding publicly to correct any
incorrect, disparaging or demeaning statements, claims, allegations or assertions by the other
party or any other person referenced in this paragraph.
6. This Release shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania without reference to principles of conflicts of law. Should
any provision of this Release be determined by any court of competent jurisdiction to be illegal or
invalid, the validity of the remaining parts, terms or provisions shall not be affected and the
illegal or invalid part, term, or provision will be deemed not to be a part of this Release.
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IN WITNESS WHEREOF, the Executive and SBI have executed this Release as of the date indicated
below.
| XXXXXX X. XXXXXXXXXX | ||||||
| Date: | ||||||
| SOVEREIGN BANCORP, INC. | ||||||
| By: | ||||||
| Its: | ||||||
| Date: | ||||||
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