SEPARATION AND CONSULTING
AGREEMENT
This SEPARATION AND CONSULTING AGREEMENT
(the “ Agreement ”) is entered into on
September 30, 2008, by and between Sovereign Bancorp, Inc., a
Pennsylvania corporation (the “ Company ”), and
Joseph P. Campanelli (the “ Executive
”).
WHEREAS , the Executive has served as President and
Chief Executive Officer of the Company and as President and Chief
Executive Officer of Sovereign Bank, a Federal Savings Bank, and a
wholly owned subsidiary of the Company (the “ Bank
”) pursuant to an Employment Agreement dated January 16,
2007 (the “ Employment Agreement ”);
and
WHEREAS , the parties hereto wish to conclude the
Executive’s employment in accordance with the Employment
Agreement and on the terms set forth in this Agreement.
NOW THEREFORE , in consideration of the premises and the
covenants herein, the sufficiency of which is hereby acknowledged,
the Executive and the Company agree as follows:
1.
Separation from Employment
The Executive’s employment with the
Company shall cease effective on the date that is thirty
(30) days following the date hereof (the “
Termination Date ”). The termination of the
Executive’s employment with the Company shall be treated as
an involuntary termination without “Cause” (as defined
in the Employment Agreement). The Executive shall continue to be
entitled to receive his current base salary and employee benefits
through the Termination Date. Notwithstanding the foregoing,
effective as of the date hereof, the Executive has resigned from
his positions as President and Chief Executive Officer of the
Company, President and Chief Executive Officer of the Bank and from
his position as a member of the Board of Directors of the Company
(the “ Board ”), and from the board of directors
of all subsidiaries of the Company, including without limitation
the Bank. Except as provided in Section 3 hereof, from
and after the date hereof, the Executive shall not hold any office
or title with the Company or any subsidiary or affiliate of the
Company.
2.
Separation Payments and Benefits
(a) Severance Payment . Pursuant to
Section 7(b)(i) of the Employment Agreement, on the first
business day following the date that is six (6) months
following the Termination Date (the “ Payment Date
”), the Company shall make a lump sum cash payment to the
Executive in the amount of $3,253,624, representing the
compensation due to the Executive for the remainder of the term of
the Employment Agreement and the interest accruing thereon from the
Termination Date to the Payment Date.
(b) 2008 Bonus Payment . In
settlement of the Company’s obligations
under Section 3(b) of the Employment Agreement, the
Executive shall be eligible to receive an annual bonus for the
2008 calendar year, calculated using his target bonus
percentage of 133% for the year, but prorated to reflect the period
of employment during such year, but prior to the Termination
Date. The amount of such bonus, if
any, shall be based on the same company
performance targets and other business criteria as shall apply
to such bonuses for the 2008 calendar year for executive officers
of the Company generally, and shall be paid in cash in 2009 at
the same time that such bonuses are paid to the Company’s
executive officers generally, but in any event no later than
March 15, 2009.
(c) Medical Benefits . In
accordance with Section 7(b) of the Employment Agreement, for the
remainder of the Employment Period (as defined in the Employment
Agreement), the Executive shall receive continuation of all life,
disability, and medical insurance and other normal benefits in
effect with respect to Executive and dependents on the Termination
Date, or, if the Company cannot provide such benefits because the
Executive is no longer an employee of the Company, a dollar amount
such that, after all taxes thereon, the Executive has an after-tax
amount remaining equal to the cost to the Executive of obtaining
such benefits (or substantially similar benefits). The amounts
payable to the Executive pursuant to the preceding sentence with
respect to any costs incurred by him during any calendar quarter
ending after the Termination Date shall be paid to him by no
later than 30 days after the close of such calendar quarter;
provided, however, that any payments to be made during the period
ending six months from the Termination Date that are treated as
deferred compensation amounts subject to the requirements of
section 409A of the Internal Revenue Code and the regulations,
rulings and other guidance issued by the IRS thereunder
(“Section 409A”), after taking into account all
exclusions applicable to such payments under the regulations issued
under Section 409A, shall not be made to the Executive until
the first business day after the expiration of such six month
period, and on such day all payments so delayed shall be paid to
the Executive in a cash lump sum with interest thereon at the short
term applicable federal rate, as in effect on the Termination
Date.
(d) Enhanced Executive Retirement
Plan . In accordance with Section 7(b) of the Employment
Agreement, the Executive is fully vested under the Sovereign
Bancorp, Inc. Enhanced Executive Retirement Plan (“
EERP ”). The Executive will be paid the amount of
$4,328,076 in a cash lump sum on the Payment Date, in full
satisfaction of his EERP benefit. Executive acknowledges and agrees
that no other benefits shall accrue to him and no other payments
shall be made to him with respect to the EERP.
(e) Bonus Recognition and Retention
Program . The Executive and the Company acknowledge and agree
that, as of the Termination Date, (i) the Executive is fully
vested under the Bonus Recognition and Retention Program (the
“ BRRP ”); and (iii) the total number
shares of Company common stock in the Executive’s BRRP
account, as of the Termination Date, is 29,125. The foregoing
number of shares shall be distributed to the Executive on the
Payment Date. Executive acknowledges and agrees that no other
benefits shall accrue to him under the BRRP and no other payments
shall be made to him with respect to the BRRP.
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(i) Stock Options . All stock
options granted to the Executive pursuant to the Company’s
equity incentive plan(s) that are outstanding as of the Termination
Date (416,777 outstanding options as of the date hereof) shall
become fully vested (to the extent not already vested) and
exercisable as of the Termination Date. All nonqualified stock
options granted under the Company’s 2001 Stock Incentive Plan
that are outstanding as of the Termination Date (258,323 of such
outstanding options) shall remain exercisable until the second
(2 nd
) anniversary of the Termination
Date . A schedule of the Executive’s outstanding stock
options as of the date hereof is set forth on Exhibit A
hereto. Except as modified hereby, all other terms and provisions
of the stock options as set forth in the applicable stock option
award agreements and plans shall remain in full force and effect,
and to the extent any of the foregoing actions require the
amendment of outstanding agreements for the stock options, by
execution of this Agreement, the parties hereto consent to such
amendments.
(ii) Restricted Stock . All shares
of restricted stock (341,495 shares as of the date hereof) granted
to the Executive pursuant to the Company’s equity incentive
plan(s) that are unvested as of the Termination Date shall be
forfeited as of the Termination Date, in accordance with the
applicable restricted stock awards, share certificates and plans.
Pursuant to Section 7(b) of the Employment Agreement, because the
Company does not have the discretion to accelerate the vesting of
the Executive’s restricted stock under the applicable
incentive plans (which the Company hereby represents), on the
Payment Date, the Company shall make a lump sum cash payment to the
Executive in an amount equal to the fair market value (which shall
be determined as the average of the closing trading prices of the
Company’s common stock on the New York Stock Exchange for
each of the trading dates from and including October 15, 2008
through and including November 14, 2008) of the forfeited
shares as of the Termination Date.
(g) No Additional Benefits .
Executive acknowledges and agrees that except as expressly provided
herein, Executive’s participation under any benefit plan,
program, policy or arrangement sponsored or maintained by the
Company shall cease and be terminated as of the Termination Date,
and the Executive’s entitlement to benefits under any plan,
program, policy or arrangement shall be governed by the terms
thereof. Executive further acknowledges and agrees that no payment
made by the Company pursuant hereto is subject to any employer
matching obligation or any other employer contribution under any
benefit or deferred compensation plan, whether or not any such
payment is characterized as wages or compensation.
(a) Duration . Until the first
(1 st
) anniversary following the
Termination Date (the “ Consulting Period ”),
the Executive shall consult with the Company and the Board at such
times as mutually agreeable to the Company and the Executive,
provided , however , that the Executive’s
duties shall not exceed ten (10) hours per month of
consultation by the Executive.
(b) Scope . In connection with
providing services hereunder, the Executive shall comply in full
with all applicable law, and rules and regulations and with the
Company’s Code of Conduct (including the following documents:
(i) the Sovereign Bancorp, Inc. Code of Conduct and Ethics,
(ii) the Sovereign Bancorp, Inc. Policy on Personal Securities
Transactions, and (iii) the policies and procedures related to
employment of Team Members by the Company or a Subsidiary set forth
in the Sovereign Bank Team Member Handbook) during the Consulting
Period. The Executive may engage in activities on the
Executive’s own behalf or on behalf of entities other than
the Company or any subsidiary thereof, including, but not limited
to, private equity firms or investment funds or hedge funds
(subject to the restrictive covenants set forth in this Agreement),
and may allocate the Executive’s time between the
Executive’s obligations under this Agreement and such other
activities in any manner the Executive deems appropriate, so long
as the Executive’s obligations under this Agreement are
satisfied.
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(c) Duties . The Executive’s
duties shall include: (i) representing the Company with key
community, civic, charitable and industry constituents,
(ii) consulting with the Company and its officers, as and when
requested by the Company, regarding corporate development strategy
and mergers and acquisitions, and (iii) assisting the Company
with respect to customer relations, bank regulatory and related
matters.
(d) Status as Independent
Contractor . During the Consulting Period, the Company will
retain the Executive in the capacity of an independent contractor
and not as an employee or agent of the Company or any subsidiary
thereof, and neither the Executive nor the Company shall represent
otherwise to any third party.
(e) Compensation as Consultant . In
consideration for the Executive’s services as a consultant to
the Company in accordance with the terms hereof, the Company shall
make the following payments to the Executive:
(i) Consultant Fees . During the
Consulting Period, the Company shall pay the Executive at the rate
of $300,000 per annum for services performed as a
consultant. The fees so payable shall be paid in two equal
installments of $150,000 each. The first such installment
shall be paid on May 1, 2009, and the second such installment
shall be paid on October 30, 2009. Each of such dates is
hereinafter referred to as a “Payment Date”, and the
period from the start of the Consulting Period to April 30,
2009, and the period from May 1, 2009 through October 30,
2009, are each hereinafter referred to as an “Installment
Payment Period”. At the Executive’s election and
written notice to the Company, the Executive may terminate his
services as a consultant at any time prior to the end
of the Consulting Period and, as of the date of termination of
such services, the Executive shall be relieved of his obligations
under the Sovereign Bancorp, Inc. Policy on Personal Securities
Transactions ,other than with respect to any material non-public
information that he may posses, and on any other restriction
imposed by the Company on his ability to buy or sell the
Company’s securities. In the event of such termination
of the Executive’s services as a consultant, or if his
services as a consultant terminates by reason of his death, the
Executive, or his estate in the event of his death, shall be
entitled to receive, on the Payment Date for the Installment
Payment Period in which such termination of the Executive’s
services as a consultant occurs, a pro rata portion of the
installment amount otherwise payable to him on such date,
determined by multiplying such installment amount by a fraction,
the numerator of which is the number of days from the start of
such Installment Payment Period to the date on which the
Executives services as a consultant so terminates, and the
denominator of which is the total number of days in such
Installment Payment Period. The Executive or his estate shall
not be entitled to receive any payment with respect to any
installment amount payable in respect of any Installment
Payment Period beginning after the date of such termination of the
Executive’s services as a consultant.
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(ii) Expenses . The Company shall
reimburse the Executive, in accordance with the Company’s
then-current travel and business expense policy, for all reasonable
out-of-pocket expenses incurred by him in connection with the
performance of the Executive’s services during the Consulting
Period within thirty (30) days following Executive’s
delivery of an accounting of those expenses to the
Company.
(f) Office Space . During the
Consulting Period, the Company shall provide to the Executive
office space that is reasonably suitable for the Executive’s
provision of consulting services to the Company during the
Consulting Period. Such office space shall be located within
fifteen (15) miles of the Executive’s personal
residence.
(g) Taxable Reimbursements and In-Kind
Benefits . To the extent any taxable expense reimbursement or
in-kind benefits under this Section 3 or under
Section 2(c) is subject to Section 409A, the amount thereof
eligible in any calendar year shall not affect the amount
eligible for any other calendar year, in no event shall any
expenses be reimbursed after the last day of the calendar year
following the year in which the Executive incurred
such expenses, and in no event shall any right to reimbursement or
receipt of in-kind benefits be subject to liquidation or exchange
for another benefit.
In the event that the Executive dies or becomes
disabled prior to the payment of the compensation and benefits set
forth in Section 2 hereof, the Executive’s heirs,
representatives or the Executive’s estate shall be entitled
to such compensation and benefits described in such section. In the
event that the Executive dies or becomes disabled prior to the
expiration of the Consulting Period, the Consulting Period shall
terminate and no further payments shall be made pursuant to
Section 3 hereof.
Notwithstanding anything contained in this
Agreement to the contrary, all compensation and benefits provided
under this Agreement are subject to the Executive’s execution
and nonrevocation of the release of claims attached hereto as
Exhibit B (the “ Release
”).
Except as otherwise provided herein, the
Executive agrees that the execution of this Agreement and the
payments made hereunder shall constitute satisfaction in full of
the Company’s obligations to the Executive under the
Employment Agreement. Notwithstanding the foregoing, the following
provisions of the Employment Agreement are hereby incorporated
herein by reference: Section 4(j), Section 6(d), Section
7(c) and Section 10.
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7. Covenants
of Executive
In consideration of his rights and benefits
under this Agreement, the Executive agrees as follows:
(a) Non-Competition . Until the
first (1 st
) anniversary following the
Termination Date (the “ Restricted Period ”),
the Executive shall not become employed by, provide services to, or
be affiliated in any way with, whether as an officer, director,
employee, consultant, advisor or in any other capacity, directly or
indirectly, any bank that offers products and services similar or
equivalent to those offered by the Bank (a “ Competitive
Bank ”) in (i) the following states (the “
Non-Competition Area ”): New Hampshire, Massachusetts,
Rhode Island, Connecticut, New Jersey, and Pennsylvania,
(ii) the New York metropolitan area, (iii) Long Island
and (iv) any geographic area that has a banking branch office
within fifty (50) miles of a banking branch of the Company or
any subsidiaries of the Company as of the Termination Date;
provided , however , nothing set forth herein shall
restrict the Executive from engaging, directly or indirectly, for
his own account or as a consultant, employee, partner, officer,
director, or investor with respect to any investment company or
private equity, hedge, or similar fund (a “ Financial
Services Fund ”) that makes portfolio or similar
investments in Competitive Banks if the Executive does not provide
any services to any such Competitive Bank in the Non-Competition
Area (or to such Financial Services Fund with respect to any such
Competitive Bank) of any kind, including, but not limited to, in
connection with the acquisition, disposition, and the management,
business development or ownership of, or with respect to, any such
Competitive Bank.
(b) Non-Solicitation . During the
Restricted Period, the Executive shall not, either directly or
indirectly, through one or more intermediaries or otherwise, on
Executive’s own behalf or on
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