TRANSITION AND SEPARATION
AGREEMENT
This Transition
and Separation Agreement (this “Agreement”) made as of
this 10th day of October 2008, between ROYAL BANCSHARES OF
PENNSYLVANIA, INC., a Pennsylvania business corporation
(“Corporation”), ROYAL BANK AMERICA (“Bank”
and, collectively with Corporation, “Royal”), a
Pennsylvania state-chartered bank, and JOSEPH P. CAMPBELL, an
individual (“Executive”).
WHEREAS ,
Executive has been employed by Corporation and Bank in the capacity
of President and Chief Executive Officer under the employment
agreement dated September 11, 2006 (the “Employment
Agreement”); and
WHEREAS ,
Executive has announced his intention to step down as President and
Chief Executive Officer of Corporation and Bank as of
December 31, 2008, and to resign and retire from Corporation
and Bank, effective December 31, 2009; and
WHEREAS ,
Corporation and Bank desire to provide for the orderly separation
of Executive and a smooth transition in the positions of President
and Chief Executive Officer; and
WHEREAS ,
Corporation and Bank believe it is in the best interests of
Corporation, Bank, and all of Corporation’s shareholders to
enter into this Agreement.
NOW
THEREFORE , in consideration of the promises and the covenants
herein, the sufficiency of which is hereby acknowledged, Executive,
Corporation, and Bank agree as follows:
1.
Cessation as President and Chief Executive Officer; Subsequent
Resignation and Retirement . The parties acknowledge that,
effective as of December 31, 2008, or such earlier date upon
which Executive’s employment with Royal terminates (the
“Step-Down Date”), Executive shall no longer serve as
President and Chief Executive Officer of Corporation and Bank and,
unless Executive’s employment with Royal terminates sooner,
effective December 31, 2009 (the “Retirement
Date”), Executive shall resign and retire as an employee of
Corporation and Bank on such date. Executive and Royal agree that
the public announcement of such transition and separation shall be
substantially similar to the form attached hereto as
Exhibit B.
2.
Employment until the Step-Down Date .
(a) Executive
shall remain as a Tier 1 employee and President and Chief Executive
Officer of Corporation and Bank from the date of this Agreement
through the Step-Down Date (the “Continuation Period”)
and shall assist the Chairman of the Board of Directors of
Corporation in transitioning Chief Executive Officer duties in an
orderly manner to the Corporation-designated executives.
(b) During
the Continuation Period, Executive shall remain an active full-time
employee of Royal and shall continue to:
(i) receive
his current base salary in normal pay intervals (less applicable
withholdings and deductions); and
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(ii) be
eligible for and enrolled in his current benefits, on that basis,
including, but not limited to:
A. discretionary
bonuses;
B. accrual
of vacation and sick leave in accordance with the policies as
established from time to time by the Boards of Directors of
Corporation and Bank;
C. participation
in Corporation’s Long-Term Incentive Plan;
D. the
ability to exercise outstanding and vested options to purchase
Corporation common stock;
E. continuation
of all life, disability, medical insurance and other normal health
and welfare benefits;
F. use
of existing Corporation-provided vehicle;
G. country
club membership reimbursement of up to $5,000 per annum;
and
H.
office space and administrative and technical support at 732
Montgomery Ave., Narberth, PA (the benefits set forth in
Sections 2(b)(ii)(A) through (H), collectively, the
“Executive Benefits”).
(c) During
the Continuation Period, Executive shall perform and discharge well
and faithfully such duties as may reasonably be assigned to him
from time to time by the Board of Directors or Corporation or
Bank.
(d) Notwithstanding
the previous provision of Section 2(a) of this Agreement, this
Agreement and Executive’s employment with Corporation and
Bank shall terminate automatically for Cause (as defined herein)
upon written notice from the Board of Directors of Corporation and
Bank to Executive. As used in this Agreement, “Cause”
shall mean any of the following:
(i) Executive’s
conviction of or plea of guilty or nolo contendere to a
felony a crime of falsehood or a crime involving moral turpitude,
or the actual incarceration of Executive for a period of sixty
(60) consecutive days or more;
(ii) Executive’s
willful failure to follow the good faith lawful, written
instructions of the Board of Directors of Corporation or Bank with
respect to their operations, after written notice from Corporation
or Bank and a failure to cure such violation within ten
(10) days of said written notice;
(iii) Executive’s
willful failure to substantially perform Executive’s duties
to Corporation or Bank (other than a failure resulting from
Executive’s incapacity because of physical or mental illness)
after written notice from Corporation or Bank and a failure to cure
such violation within ten (10) days of said written notice,
unless it is apparent under the
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circumstances
that Executive is unable to cure such violation, which failure
results in injury to Corporation or Bank, monetarily or
otherwise;
(iv) Executive’s
intentional violation of the provisions of this Agreement, after
written notice from Corporation or Bank and a failure to cure such
violation within ten (10) days of said written
notice;
(v) dishonesty
of Executive in the performance of his duties, as reasonably
determined by a vote of seventy-five percent (75%) of the directors
of the Board of Directors;
(vi) Executive’s
removal or prohibition from being an institutional-affiliated party
by a final order of an appropriate federal banking agency pursuant
to Section 9(e) of the Federal Deposit Insurance Act or any
applicable Regulatory Agency;
(vii) the
willful engaging by Executive in misconduct injurious to the
Corporation or Bank after written notice from Corporation or Bank,
and a failure to cure such conduct within twenty
(20) days;
(viii) the
breach of Executive’s fiduciary duty to the Corporation or
Bank involving personal profit;
(ix) the
willful violation of (1) any material law, rule or regulation
applicable to Corporation or Bank or (2) any final cease and
desist order issued by an applicable regulatory agency;
(x) conduct
on the part of Executive that brings public discredit to
Corporation or Bank or that is clearly contrary to the best
interests of Corporation or Bank as reasonably determined by a vote
of seventy-five percent (75%) of the directors of the Board of
Directors;
(xi) unlawful
harassment by Executive against employees, customers, business
associates, contractors or vendors of Corporation or Bank as
reasonably determined by seventy-five percent (75%) of the
disinterested members of the Board of Directors following an
investigation of the claims by a third party;
(xii) any
act of fraud or misappropriation against the Corporation, the Bank,
or their customers, employees, contractors or business
associates;
(xiii) intentional
misrepresentation of a material fact, or intentional omission of
information necessary to make the information supplied materially
misleading, in application or other information provided by
Executive to Corporation or Bank in connection with
Executive’s employment with Corporation or Bank;
or
(xiv) the
existence of any material conflict between the interests of
Corporation or Bank and Executive that is not disclosed in writing
by Executive to Corporation or Bank prior to action and approved in
writing by the Board of Directors, and, after notice from
Corporation or Bank, a failure to cure such conflict within twenty
(20) days of said notice.
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Notwithstanding
the foregoing, Executive’s employment under this Agreement
shall not be deemed to have been terminated for “Cause”
under this Section 2(d) above if such termination took place solely
as a result of:
(i) questionable
judgment on the part of Executive;
(ii) any
act or omission believed by Executive, in good faith, to have been
in, or not opposed to, the best interests of Corporation or Bank
(or its affiliated companies); or
(iii) any
act or omission in respect of which a determination could properly
be made that Executive met the applicable standard of conduct
prescribed for indemnification or reimbursement or payment of
expenses under the Charter or By-laws of Corporation or Bank or the
directors’ and officers’ liability insurance of
Corporation or Bank, in each case as in effect at the time of such
act or omission.
If this Agreement
is terminated for Cause, all of Executive’s rights under this
Agreement, including, but not limited to, the benefits provided
under Sections 2, 3, and 4, shall cease as of the effective
date of such termination.
(e) Executive’s
employment may be terminated at any time by mutual written
agreement of Corporation, Bank, and Executive. If this Agreement is
terminated by mutual written agreement, all of Executive’s
rights under this Agreement, including, but not limited to, the
benefits provided under Sections 2, 3, and 4, shall cease as
of the effective date of such termination.
3.
Recovery Services . Unless Executive’s employment with
Royal terminates sooner, for the period commencing on
January 1, 2009, and ending on the earlier of: (i) the
Retirement Date; (ii) the date upon which Executive’s
employment with Royal terminates for any reason; or (iii) such
other date that is mutually agreed to in writing by Executive and
Royal (the “Recovery Period”), Executive shall be
employed by and provide recovery services to Corporation as
follows:
(a)
Title . During the Recovery Period, Executive shall have the
title of “Special Consultant to Senior
Management.”
(b)
Time of Performance . During the Recovery Period,
Executive’s duties shall require at least one hundred fifty
(150) hours per annum of recovery services by Executive, which
shall be performed at such times and from such locations that are
mutually acceptable to Executive and Corporation.
(c)
Services . During the Recovery Period, Executive agrees that
he shall work directly with the Vice President of Special Assets to
assist Royal in recovering all identified impaired and special
asset loans of Bank, attend at least one (1) Special Assets
Committee meeting per month (the prevailing standard Special Assets
Committee fee shall be paid for such attendance), and provide other
such services that are reasonably consistent with Executive’s
former status as President and Chief Executive Officer of
Corporation and Bank.
(d)
Manner of Performance . In connection with providing
recovery services during the Recovery Period, Executive shall
report directly to the Chairman of the Board of Directors
of
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Corporation and
shall comply in full with all applicable law, and rules and
regulations and with Royal’s Code of Conduct. Subject to the
restrictive covenants set forth in the Employment Agreement,
including those described in Section 8, during the Recovery
Period, Executive may: (i) serve on a maximum of two
(2) corporate, civic or charitable boards or committees;
(ii) manage personal investments; or (iii) engage in
activities permitted by the policies of Royal or as specifically
permitted by Royal, so long as such activities do not significantly
interfere with the performance of Executive’s
responsibilities in accordance with this Agreement. Subject to the
restrictive covenants set forth in the Employment Agreement,
including those described in Section 8, Executive may also deliver
lectures, fulfill speaking engagements or teach at educational
institutions; provided, however, that Royal shall partake in any
remuneration received by Executive in connection therewith in a
proportion to be mutually determined by Royal and Executive.
Notwithstanding the foregoing, Royal shall not participate in any
remuneration for such teaching engagements that occur outside of
normal business hours or at other mutually agreeable times that do
not otherwise conflict with Executive’s responsibilities
described in this Agreement.
(e)
Compensation during Recovery Period . In consideration for
Executive’s recovery services to Corporation during the
Recovery Period, Executive shall be entitled to earn a bonus equal
to five percent (5%) of any amounts recovered to Bank in excess of
Bank’s “Net Book Balance” (as defined below) on
those loans designated as “Impaired Loans” or
“Special Assets” (such bonus, the “Approved
Recovery Commission”). Net Book Balance as used herein is
defined as the “Net Book Balance” as is published on
the “Royal Bank America Special Asset Loans” list
maintained by Bank which lists the carrying values on specifically
identified “Senior Debt” and/or “Mezzanine
Debt” loans which have been reduced by the amount of a
specific “Charge-Off” and/or a specific “Loss
Reserve” as published on such list and which have been
approved in accordance with Bank’s policies and procedures.
Any Approved Recovery Commission shall be paid only upon the
successful recovery to Bank of those funds which are in excess of
the above defined Net Book Balance and which are collected by Bank
during the Recovery Period. The Approved Recovery Commission shall
apply to the recovery by Executive of any Special Assets that were
in existence prior to the Retirement Date, provided that such
recovered amounts are received by Bank by March 31, 2010. The
Approved Recovery Commission, if any, shall be paid in a lump sum
no later than fifteen (15) days following receipt of such
recovered amounts by Bank. The list of “Impaired Loans”
and “Special Assets” as of August 31, 2008, and related
Net Book Balance for each related loan as of such date, on which
the Approved Recovery Commission shall be paid for amounts
collected by the Bank during the Recovery Period has been
previously agreed to by the parties. Any additional “Impaired
Loans” or “Special Assets” to which the Approved
Recovery Commission is applicable for dates after August 31,
2008, and the amount of the specific “Charge-Off”
and/or specific “Loss Reserve” applicable to each such
“Impaired Loan” or “Special Asset,” are
subject to the approval of the Special Assets Committee which
includes the Chairman and Chief Executive Officer, the President
and Chief Operating Officer, the Chairman of the Special Assets
Committee, the Chief Financial Officer, the Chief Credit Officer
and the Senior Vice President of Special Assets.
(f)
Continuation of Benefits . During the Recovery Period,
Executive shall remain an active employee of Royal and shall
continue to receive the Executive Benefits, on that basis;
provided, however, that the office space and administrative and
technical support as provided in
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Section 2(b)(ii)(H) shall be moved to 1230
Walnut Street, Philadelphia, PA or other mutually agreeable
facilities, and notwithstanding the foregoing, Executive shall no
longer be eligible to:
(i) receive
discretionary bonuses;
(ii) accrue
vacation or sick leave in accordance with the policies as
established from time to time by the Boards of Directors of
Corporation and Bank; and
(iii) participate
in Corporation’s Long-Term Incentive Plan.
(g)
Director Compensation . After the Step-Down Date, or such
earlier date if terminated pursuant to Sections 2(c) and (d),
Executive shall be considered an outside director of the Board of
Directors of Corporation and Bank and shall be entitled to receive
the same compensation and benefits as other outside directors of
the Board of Directors of Corporation and Bank, for as long as
Executive serves on the Board of Directors of Corporation and
Bank.
4.
Payments and Benefits Due To Resignation and Retirement
.
(a)
Severance Benefits . Unless Executive’s employment is
terminated pursuant to Sections 2(d) or (e), Executive shall
receive:
(i) a
lump sum cash payment of $2,119,730, less required tax withholding,
payable on or within thirty (30) days before December 31,
2008; and;
(ii) for
a period of three (3) years, commencing on the Retirement
Date, or such earlier date upon which Executive’s employment
with Royal terminates, continuation of all life, disability,
medical insurance and other normal health and welfare benefits in
effect with respect to Executive during the prior two
(2) calendar years, as required under Section 7(a) of the
Employment Agreement. If, after the Retirement Date, or such
earlier date upon which Executive’s employment with Royal
terminates, Corporation cannot provide any of the foregoing
benefits because Executive is no longer an employee, Executive
shall receive, on or within thirty (30) days of the Retirement
Date, a lump sum cash payment equal to the cost to Executive of
obtaining such benefits (or substantially similar benefits);
provided, however, that such amount shall not exceed 120% of
Corporation’s cost to provide such benefits to an
employee.
(b)
Equity Grants . For purposes of the Royal Bancshares of
Pennsylvania, Inc. Stock Option and Appreciation Right Plan and the
Royal Bancshares of Pennsylvania, Inc. 2007 Long-Term Incentive
Plan, Executive shall be considered an employee participant during
the Continuation Period and the Recovery Period. The vesting,
exercisability, lapsing and forfeiture of Executive’s options
to purchase Corporation common stock shall be governed by the
provisions of various equity plans of Corporation and the equity
award agreements between Executive and Corporation. Likewise, the
vesting of Executive’s restricted stock awards shall be
governed by the provisions of various equity plans of Corporation
and the equity award agreements between Executive and
Corporation.
(c)
Supplemental Executive Retirement Plan . Executive and Bank
acknowledge and agree that:
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(i) Executive
is fully vested under the Royal Bank America Supplemental Executive
Retirement Plan (the “SERP”);
(ii) no
additional benefits shall accrue under the SERP after the Step-Down
Date; and
(iii) in
accordance with the SERP and the SERP participation agreement
between Bank and Executive dated January 1, 2007, a
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