PROSPECTUS
SOVEREIGN BANCORP, INC.
Dividend Reinvestment and
Stock Purchase Plan
This Prospectus relates to the 831,600 shares of common
stock, no par value, of Sovereign Bancorp, Inc. registered for
sale under its Dividend Reinvestment and Stock Purchase Plan.
Of these shares, 312,120 were purchased prior to the date of
this Prospectus. This Prospectus relates to the remaining
519,480 of such shares. It is suggested that this Prospectus be
retained for future reference.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
____________________
The date of this Prospectus is October 16, 1995.<PAGE>
TABLE OF CONTENTS
Page
Available Information................................... 5
Incorporation of Certain Information by Reference....... 5
Highlights of the Plan.................................. 6
Sovereign............................................... 7
The Plan................................................ 7
Purpose............................................ 7
Advantages......................................... 8
Administration..................................... 8
Participation...................................... 9
Purchases and Price of Shares...................... 11
Reports to Participants............................ 12
Dividends on Fractions............................. 12
Certificates for Shares............................ 12
Custody Service.................................... 13
Withdrawals........................................ 13
Other Information.................................. 14
Employees.......................................... 14
Federal Income Tax Consequences.................... 15
Use of Proceeds......................................... 16
Description of Capital Stock............................ 16
Legal Matters........................................... 21
Experts................................................. 21
Indemnification......................................... 21<PAGE>
SOVEREIGN BANCORP LETTERHEAD
Fellow Shareholders:
As a holder of Sovereign Bancorp, Inc. Common Stock, you are
able to participate in Sovereign's Dividend Reinvestment and
Stock Purchase Plan. Under this Plan, you may elect to have your
Sovereign Bancorp dividends automatically reinvested in
additional shares of Common Stock through voluntary cash
payments.
We are pleased to inform you that as of October 12, 1995,
Chemical Mellon Shareholder Services is acting as transfer agent,
registrar and dividend distribution agent for Sovereign Bancorp's
Common Stock. Accordingly, all dividend reinvestment and stock
purchase correspondence should now be directed to Chemical Mellon
Shareholder Services. The new addresses are as follows:
By Regular Mail: By Hand, Courier or
Registered Mail:
Mellon Securities Trust Company Mellon Securities Trust Company
Dividend Reinvestment Commerce Court
P.O. Box 750 4 Station Square - 3rd Floor
Pittsburgh, PA 15230 Pittsburgh, PA 15219
Please mention Sovereign Bancorp, Inc. in all your
correspondence. If you prefer, you may call Chemical Mellon
Shareholder Services at 1-800-756-3353.
Participation in this plan is entirely voluntary and you
can, at any time, discontinue it. Details of the Plan, including
information on Chemical Mellon Shareholder Services, the new
agent for the Plan, are provided in this updated Prospectus.
Please note that, if you are presently a participant in the Plan,
you need not take any additional action at this time to continue
your participation.
We hope you will find this a convenient and inexpensive way
to increase your ownership of Sovereign Bancorp, Inc.
Sincerely,
Richard E. Mohn Jay S. Sidhu
Chairman of the Board President and Chief Executive
Officer<PAGE>
No person has been authorized to give any information
or to make any representations, other than those contained in this
Prospectus in connection with the offer made by this Prospectus,
and, if given or made, such information or representations must
not be relied upon. This Prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any jurisdiction in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities law of any
such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of
Sovereign Bancorp, Inc. ("Sovereign") since the date hereof.
AVAILABLE INFORMATION
Sovereign is subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other
information can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices located at 230 South Dearborn Street, Chicago, Illinois
60604, and 75 Park Place, New York, New York 10007. Copies of
such material can be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
Sovereign has filed with the Commission a Registration
Statement on Form S-3 under the Securities Act of 1933 (the
"Act") with respect to the common stock being offered pursuant to
this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and
regulations of the Commission. In addition, certain documents
filed by Sovereign with the Commission have been incorporated in
this Prospectus by reference. See "Incorporation of Certain
Documents by Reference." For further information with respect to
Sovereign and the Common Stock offered hereby, reference is made
to the Registration Statement, including the exhibits thereto,
and the documents incorporated herein by reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Sovereign with
the Securities and Exchange Commission are incorporated in this
Prospectus by reference:
(a) Sovereign's Annual Report on Form 10-K for the year
ended December 31, 1994;
(b) Sovereign's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1995 and June 30, 1995;
(c) Sovereign's Current Reports on Form 8-K dated
January 28, 1995, March 24, 1995, April 20, 1995, May 1, 1995,
May 17, 1995, July 10, 1995, and July 13, 1995; and
(d) Sovereign's Registration Statement on Form 8-A, filed
August 14, 1989, pursuant to which Sovereign registered certain
stock purchase rights under the Exchange Act.
In addition, all documents filed by Sovereign pursuant to
Section 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent
to the date of this Prospectus and prior to the termination of
the offering of the shares of Common Stock offered hereby shall
be deemed to be incorporated by reference in this Prospectus.
Any statement contained herein or in a document all or a portion
of which is incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus.
Sovereign hereby undertakes to provide without charge to
each person to whom this Prospectus is delivered, on the written
or oral request of such person, a copy of any and all of the
documents incorporated by reference in this Prospectus (other
than exhibits to such documents unless such exhibits are
specifically incorporated by reference into the documents that
this Prospectus incorporates). Written or oral requests for such
copies should be directed to: Investor Relations Officer,
Sovereign Bancorp, Inc., 1130 Berkshire Boulevard, Wyomissing,
Pennsylvania 19610 (Telephone: 610-320-8498).
HIGHLIGHTS OF THE PLAN
Sovereign's Dividend Reinvestment and Stock Purchase Plan
(the "Plan") provides holders of record of shares of Sovereign's
common stock, no par value (the "Common Stock"), with a simple
and convenient way to purchase additional shares without any
brokerage commissions or other fees.
Participants in the Plan may:
- Automatically reinvest cash dividends on all of their
shares of Common Stock.
- Automatically reinvest cash dividends on fewer than all
of their shares of Common Stock and continue to receive
cash dividends on their remaining shares.
- Invest by making optional cash payments up to specified
limits in any quarter, whether or not any dividends on
shares of Common Stock are being reinvested. Shares
purchased with optional cash payments will
automatically be enrolled in the Plan.
- Avoid brokerage commissions, service charges or other
fees in connection with purchases under the Plan.
- Provide for safekeeping, free of charge, for all
certificates representing shares of Common Stock
through the Plan's free custodial service.
- Avoid record keeping requirements and costs for any and
all shares held by the Agent through the free custodial
service and reporting provision of the Plan.
As of the date of this Prospectus, purchases of shares of
Common Stock with reinvested dividends are made at a 5% discount
(the "Dividend Reinvestment Discount") from the "Current Market
Price" as defined in the answer to Question 10. The Dividend
Reinvestment Discount may be changed or eliminated, however, at
Sovereign's discretion. Purchases of shares of Common Stock with
optional cash are made at the Current Market Price. Sovereign
may in its discretion permit purchases of shares of Common Stock
with optional cash at a 5% discount from the Current Market Price
(the "Optional Cash Payment Discount"), which Optional Cash
Payment Discount may then be changed or eliminated at any time.
As of the date of this Prospectus, optional cash purchases
may be made in any amount from a minimum payment of $50 up to a
maximum total of $5,000 per quarter. The minimum and maximum
amounts of quarterly optional cash purchases may be changed (or
optional cash purchases may be eliminated), however, at
Sovereign's discretion. Upon request to Sovereign, a participant
may be permitted to make a larger investment as described in the
answer to Question 12.
Sovereign may, at its discretion, as to reinvested dividends
on shares of Common Stock or optional cash payments or both,
direct the purchase of treasury or newly-issued shares of Common
Stock from Sovereign, or direct the purchase of shares of Common
Stock in market transactions. Market transactions may be
conducted in the over-the-counter market or by negotiated
transactions and may be on such terms as to price, delivery and
otherwise as Chemical Mellon Shareholder Services (the "Agent")
may determine. Market transactions would provide no new funds
for Sovereign.
A complete description of the Plan is included below under
the caption, "THE PLAN." Please read it carefully.
To enroll in the Plan, a holder of shares of Common Stock
need only complete the Plan Authorization Card which accompanies
this Prospectus and return it to the Agent. To participate in
the Plan's free custodial service, a holder of shares of Common
Stock need only complete the Safekeeping Authorization Card which
is included with this Prospectus and return the card and
certificate(s) to the Agent.
Holders of shares of Common Stock who do not choose to
participate in the Plan will continue to receive cash dividends,
as declared, by check in the usual manner.
IF YOU HAVE QUESTIONS CONCERNING THE PLAN
By Regular Mail: By Hand, Courier or
Registered Mail:
Mellon Securities Trust Company Mellon Securities Trust Company
Dividend Reinvestment Commerce Court
P.O. Box 750 4 Station Square - 3rd Floor
Pittsburgh, PA 15230 Pittsburgh, PA 15219
Please mention Sovereign Bancorp, Inc. in all your
correspondence and, if you are a participant in the Plan, give
the number of your account. If you prefer, you may call Chemical
Mellon Shareholder Services at 1-800-756-3353.
SOVEREIGN
Sovereign is a registered thrift holding company
incorporated under the laws of the Commonwealth of Pennsylvania.
Sovereign, through its wholly-owned subsidiary, Sovereign Bank, a
Federal Savings Bank ("Sovereign Bank"), originates single
family, owner occupied, adjustable rate mortgage loans for its
portfolio and fixed rate mortgage loans for sale in the secondary
markets and retains servicing on the loans it sells. Sovereign
also originates adjustable rate home equity lines of credit and
offers a full range of deposit services.
Sovereign's principal executive offices are located at
1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610, and its
telephone number at that address is (610) 320-8400.
THE PLAN
The following is a question and answer statement of the
provisions of the Plan.
Purpose
1. What is the purpose of the Plan?
The purpose of the Plan is to provide holders of shares of
Common Stock with a simple and convenient method of reinvesting
their cash dividends and/or making optional cash payments toward
the purchase of additional shares of Common Stock without payment
of any brokerage commissions, service charges or other fees.
Such additional shares will be purchased either from Sovereign or
in market transactions. To the extent that such additional
shares are purchased from Sovereign, Sovereign will receive
additional funds for general corporate purposes.
The Plan offers eligible holders an opportunity to invest
conveniently for long-term growth. The Plan is not intended to
provide holders of shares of Common Stock with a mechanism for
generating assured short-term profits through rapid turnover of
shares acquired at a discount. The intended purpose of the Plan
precludes any person, organization or other entity from
establishing a series of related accounts for the purpose of
conducting arbitrage operations and/or exceeding the optional
cash payment limit. Sovereign accordingly reserves the right to
modify, suspend or terminate participation by a shareholder who
is using the Plan for purposes inconsistent with the intended
purpose of the Plan.
Advantages
2. What are the advantages of the Plan?
Participants in the Plan may:
- Automatically reinvest cash dividends on all of their
shares of Common Stock.
- Automatically reinvest cash dividends on less than all
of their shares of Common Stock and continue to receive
cash dividends on their remaining shares.
- Invest by making optional cash payments up to specified
limits in any quarter, whether or not any dividends on
shares of Common Stock are being reinvested. Shares
purchased with optional cash payments will
automatically be enrolled in the Plan.
- Avoid brokerage commissions, service charges or other
fees in connection with purchases under the Plan.
- Provide for safekeeping, free of charge, for all
certificates representing shares of Common Stock,
including shares not participating in the Plan, through
the Plan's free custodial service.
- Avoid record keeping requirements and costs for any and
all shares held by the Agent through the free custodial
service and reporting provision of the Plan.
As of the date of this Prospectus, purchases of shares of
Common Stock with reinvested dividends are made at a 5% discount
(the "Dividend Reinvestment Discount") from the "Current Market
Price" as defined in the answer to Question 10. The Dividend
Reinvestment Discount may be changed or eliminated, however, at
Sovereign's discretion. Purchases of shares of Common Stock with
optional cash are made at the Current Market Price. Sovereign
may in its discretion permit purchases of shares of Common Stock
with optional cash at a 5% discount from the Current Market Price
(the "Optional Cash Payment Discount"), which Optional Cash
Payment Discount may then be changed or eliminated at any time.
As of the date of this Prospectus, optional cash purchases
may be made in any amount from a minimum of $50 up to a maximum
of $5,000 per quarter. The minimum and maximum amounts of
quarterly optional cash purchases may be changed (or optional
cash purchases may be eliminated), however, at Sovereign's
discretion. Upon request to Sovereign, a participant may be
permitted to make a larger investment as described in the answer
to Question 12.
Full investment of funds is possible under the Plan because
it permits a participant's account to be credited not only with
full shares but also with fractional shares. Such fractional
shares participate ratably in subsequent dividends. Statements
reflecting each purchase will be sent to you as soon as
practicable after each purchase for your account.
Administration
3. Who administers the Plan for participants?
Chemical Mellon Shareholder Services (the "Agent"), as
designated agent for each participating shareholder, administers
the Plan, keeps records, sends statements of account activity to
each participant and performs other duties relating to the Plan.
The Agent holds for safekeeping the shares purchased for you
together with shares forwarded by you to the Agent for
safekeeping until termination of your participation in the Plan
or receipt of your written request for a certificate for all or
part of your shares. Shares purchased under the Plan and held by
the Agent will be registered in the Agent's name or the name of
its nominee, as your agent. In the event that the Agent should
resign or otherwise cease to act as agent, Sovereign will appoint
a new agent to administer the Plan.
The Agent also acts as dividend disbursing agent, transfer
agent and registrar for shares of Common Stock.
Participation
4. Who is eligible to participate?
All holders of record of at least one whole share of Common
Stock are eligible to participate in the Plan. If you hold your
shares in your own name, you may participate in the Plan. If you
are a beneficial owner whose shares are registered in any name
other than your own (e.g., in a broker's "street name" or in the
name of a bank nominee), you must become a shareholder of record
by having shares transferred into your own name or you must
arrange with your record holder to participate in the Plan on
your behalf.
To facilitate participation by beneficial owners, Sovereign
has made alternative arrangements with the Agent to reinvest
dividends under the Plan by record holders such as brokers and
bank nominees, on a per-dividend basis on behalf of beneficial
owners (see answer to Question 9). However, beneficial owners
who are not record holders may not make optional cash payments
under the Plan.
In addition, each employee of Sovereign or Sovereign Bank
who participates in Sovereign's Employee Stock Purchase Plan
automatically participates in the Plan with respect to shares of
Common Stock held in the employee's Employee Stock Purchase Plan
account. See answer to Question 27 for more details.
5. Is partial participation possible under the Plan?
Yes. If you desire that the dividends on only some of your
shares held of record be reinvested under the Plan, you may
indicate such number of shares on the Plan Authorization Card.
Dividends will thereafter be reinvested on the number of shares
you specify, and you will continue to receive cash dividends on
the remainder of your shares. If, however, Sovereign effects a
stock split or declares a stock dividend, all shares issuable as
a result thereof will be deposited into your account and subject
to reinvestment under the Plan.
6. How does an eligible shareholder participate?
You may join the Plan by completing and signing the
Authorization Card which accompanies this Prospectus and
returning it to the Agent. A postage-paid envelope is provided
for this purpose. You may obtain an Authorization Card at any
time by written request to the Agent, Chemical Mellon Shareholder
Services, Dividend Reinvestment Dept., P.O. Box 750, Pittsburgh,
PA 15230 or by telephoning the Agent at 1-800-756-3353.
A broker or bank nominee may participate in the Plan on
behalf of beneficial owners by signing and returning the
Authorization Card, or may reinvest dividends on their behalf
(but not make optional cash purchases) by signing and returning
the Broker and Nominee Authorization Form (the "B & N Form") to
the Agent. (See answer to Question 9.)
7. When may an eligible shareholder join the Plan?
If you are a shareholder of record, you may join the Plan at
any time.
8. When will dividends be reinvested and/or additional optional
cash purchases be made?
When shares of Common Stock are purchased from Sovereign
through the reinvestment of dividends, such purchases will be
made on the "Investment Date" in each quarter. The Investment
Date will be the fifteenth day of each of February, May, August
and November if a business day and, if not a business day, the
Investment Date will be the next preceding business day; provided
that, in its discretion, Sovereign may defer the sale of shares
to the Agent to a later date if necessary or advisable under
applicable securities laws. Except in the case of such deferral,
the Investment Date will coincide with the expected dividend
payment date in those quarters in which a dividend is payable
and, with respect to those quarters, the terms "Investment Date"
and "dividend payment date" are used interchangeably in this
Prospectus. In the event of any such deferral, the Investment
Date will be the first date that sales may be made under
applicable securities laws.
Where market transactions are made, the Agent will make
every effort to make the purchases promptly, beginning on the
Investment Date and completing such purchases no later than
30 days from such date, except where completion at a later date
is necessary or advisable under applicable securities laws. Such
purchases may be made in the over-the-counter market or in
negotiated transactions, and may be subject to such terms with
respect to price, delivery and other terms as agreed to by the
Agent. Neither Sovereign nor any participant shall have any
authorization or power to direct the time or price at which
shares may be so purchased, or the selection of the broker or
dealer through or from whom purchases are to be made.
If the Authorization Card is received prior to the record
date for a dividend payment, your election to reinvest dividends
will begin with that dividend payment. If the Authorization Card
is received on or after any such record date, reinvestment of
dividends will begin on the dividend payment date following the
next record date if you are still a shareholder of record.
Record dates for payment of dividends will normally precede
payment dates by approximately two weeks.
See the answer to Question 12 for information concerning
limitations on the minimum and maximum amounts of optional cash
purchases that may be made each quarter and the answer to
Question 13 for information as to when optional cash payments
must be received to be invested on the Investment Date.
Shares will be allocated and credited to participants'
accounts as follows: (1) shares purchased from Sovereign will be
allocated and credited on the appropriate Investment Date; and
(2) shares purchased in market transactions will be allocated and
credited as of the date on which the Agent completes the
purchases of the aggregate number of shares to be purchased.
Depending on Sovereign's election, participants may be credited
with shares purchased from Sovereign, shares purchased in market
transactions or a combination of both.
9. What does the Plan Authorization Card provide?
- If you elect "Full Dividend Reinvestment," the Plan
Authorization Card directs the Agent to apply toward
the purchase of additional shares of Common Stock all
your cash dividends on all the shares then or
subsequently registered in your name, together with any
optional cash payments.
- If you elect to reinvest dividends on only a portion of
your shares held of record, the Plan Authorization Card
directs the Agent to apply all your cash dividends on
the number of shares you specify on the Plan
Authorization Card, together with any optional cash
payments, toward the purchase of additional shares of
Common Stock.
- If the "Optional Cash Payments Only" box on the Plan
Authorization Card is checked, you will continue to
receive cash dividends on shares registered in your
name in the usual manner, but the Agent will apply any
optional cash payment received with the Plan
Authorization Card to the purchase of additional shares
under the Plan.
Also, by signing the Plan Authorization Card, you further
direct the Agent to:
- Reinvest automatically any subsequent dividends on
shares accumulated and held in your Plan account. The
Plan, in other words, operates so as to reinvest
dividends on a cumulative basis, until you withdraw
from the Plan, or until the Plan is terminated.
- Automatically deposit into your Plan account any
subsequent stock dividends and/or stock splits on all
shares of Common Stock, including shares not
participating in the Plan.
The B & N Form provides that the broker or nominee who is
the record holder of the shares which you beneficially own will
provide the Agent, each time Sovereign declares a cash dividend,
with written instructions on an appropriate form, identifying one
or more beneficial owners and specifying as to each owner the
number of full shares with respect to which the dividend is to be
reinvested. The B & N Form, therefore, unlike the Plan
Authorization Card, contemplates new instructions to the Agent
each time a dividend is declared. The Agent, on the Investment
Date, will reinvest the dividend payable with respect to the
number of shares specified in the record holder's instructions
for each identified owner in as many whole shares of Sovereign
Common Stock as can be purchased with the total dividend paid
with respect to each specified number of shares at the purchase
price computed in accordance with the Plan. The remaining
dividend, if any, will be paid in cash to the record holder. As
soon as practicable following the Investment Date, the Agent will
transmit to the record holder a listing containing the
identification of each owner furnished by the record holder in
its instructions and showing as to each such owner: (a) the
number of shares specified for reinvestment of the dividend,
(b) the total dividend paid with respect to such shares, (c) the
number of whole shares purchased, (d) the total cost of the
shares purchased, (e) the amount of the total dividend not
reinvested, and (f) the total dividend reportable for federal
income tax purposes. Accompanying the listing will be a share
certificate, registered in the name of the record holder, for the
total number of shares purchased for each of the beneficial
owners identified on the listing, and one check for the aggregate
amount of the dividend not reinvested for such owners.
The B & N Form and appropriate instructions must be received
by the Agent not later than the record date for such dividend or
no dividends will be reinvested based on such B & N Form.
Purchases and Price of Shares
10. How will the price of shares of Common Stock purchased under
the Plan be determined?
If Sovereign directs the purchase of treasury or authorized
but unissued shares of Common Stock under the Plan from
Sovereign, the "Current Market Price" is defined as the average
of the mean between the daily high and low sales prices of the
shares of Common Stock as published in the Wall Street Journal
report of the NASDAQ National Market System for the ten trading
days immediately preceding the Investment Date (as defined in the
answer to Question 8), as the case may be, or, if no trading
occurs in the shares of Common Stock on one or more of such
trading days, for the ten trading days immediately preceding the
Investment Date during which the shares of Common Stock were
traded in the NASDAQ National Market System (the "Pricing
Period"). If Sovereign directs the purchase of shares of Common
Stock under the Plan in market transactions, the "Current Market
Price" is defined as the weighted average of the actual price
paid for shares of Common Stock purchased by the Agent.
The purchase price of shares of Common Stock purchased with
reinvested dividends will be the Current Market Price less the
Dividend Reinvestment Discount, if any, then in effect. The
purchase price of shares of Common Stock purchased with optional
cash will be the Current Market Price less the Optional Cash
Payment Discount, if any, then in effect. Sovereign, in its sole
discretion, may change or eliminate the Dividend Reinvestment
Discount or the Optional Cash Payment Discount upon sending Plan
participants not less than 30 days' prior written notice thereof.
As of the date of this Prospectus there is no Optional Cash
Payment Discount.
11. How many shares of Common Stock will be purchased for
participants?
The number of shares to be purchased for your account
depends on the amount of your dividend and/or optional cash
payment and the purchase price of the shares. Your account will
be credited with that number of shares, including fractions
computed to four decimal places, equal to the amount you invest
divided by the purchase price per share.
12. How are optional cash purchases made?
The option to make cash purchases is available to
shareholders of record at any time. Each such purchase, however,
must be at least a minimum quarterly amount and purchases cannot
exceed a total maximum quarterly amount, both as determined by
Sovereign.
As of the date of this Prospectus, optional cash purchases
may be made in any amount from a minimum payment of $50 up to a
maximum total of $5,000 per quarter. The minimum and maximum
amounts of quarterly optional cash purchases, however, may be
changed (or optional cash purchases may be eliminated) at
Sovereign's discretion upon sending Plan participants not less
than 30 days' prior written notice thereof.
For purposes of the limitation on the maximum quarterly
amount, all Plan accounts deemed by Sovereign to be under common
control or management will be aggregated. Unless Sovereign
grants prior permission to make a larger investment, Sovereign
reserves the right to return to participants amounts which exceed
the maximum quarterly amount. Participants may be permitted to
invest amounts in excess of the maximum quarterly amount with the
prior approval of Sovereign. Requests for such approval should
be made during the five business day period beginning seven
business days preceding the Pricing Period (as defined in the
answer to Question 10), and such requests should be directed to
the Company's Chief Financial Officer (610-320-8437) or Corporate
Secretary (610-320-8412).
An optional cash purchase may be made by you when joining
the Plan by enclosing a check or money order payable in United
States dollars (payable to "Chemical Mellon Shareholder
Services") with the Authorization Card. Thereafter, optional
cash purchases may be made through the use of the Cash Payment
Forms which will be attached to each statement of account you
receive.
13. When will your optional cash payments received by the Agent
be invested?
The Agent will apply any optional cash payment received
during the 15 days immediately preceding each Pricing Period (as
defined in the answer to Question 10) to the purchase of shares
of Common Stock on the Investment Date which is the next business
day following the Pricing Period. Any optional cash payment
received after the first day of a Pricing Period will be applied
to the purchase of Common Stock for your account on the
Investment Date immediately following the next Pricing Period.
Optional cash payments made by check or other draft will not be
applied to the purchase of shares of Common Stock on the
Investment Date unless such check or draft has cleared prior to
such Investment Date. Under no circumstances will interest be
paid on optional cash payments.
Optional cash payments received by the Agent will be
returned to you upon your written request if such request is
received by the Agent not later than two business days prior to
the first day of the Pricing Period.
14. Are there any out-of-pocket costs to participants in
connection with purchases under the Plan?
No. All costs of administration of the Plan and all
brokerage fees or commissions on shares purchased under the Plan
are paid by Sovereign. There are no expenses in connection with
withdrawal from the Plan unless you request that you receive
certificates or that shares be sold upon your withdrawal from the
Plan in both of which cases you will be charged fees. (See
answers to Questions 17 and 21).
Reports to Participants
15. What kind of reports will be sent to you as a participant in
the Plan?
As soon as practicable after each purchase for your account,
a statement will be mailed to you advising you of your cumulative
investments for the current calendar year. These statements are
your continuing record of the cost of your purchases and should
be retained for income tax purposes. In addition, you will
receive copies of other communications sent to holders of shares
of Common Stock, including Sovereign's annual and quarterly
reports to its shareholders, the notice of annual meeting and
proxy statement in connection with its annual meeting of
shareholders and Internal Revenue Service information for
reporting dividends paid.
Dividends on Fractions
16. Will you be credited with dividends on fractions of shares?
Yes.
Certificates for Shares
17. Will certificates be issued for shares purchased?
Shares of Common Stock purchased for your account will be
held in the name of the Agent or its nominee for your account.
No certificates will be issued to you for shares in your account
unless you so request the Agent in writing, or until your account
is terminated. At any time, you may request the Agent to send
you a certificate for some or all of the whole shares credited to
your account. This request should be mailed to the Agent at the
address set forth in the answer to Question 6. A $5.00 check
payable to "Chemical Mellon Shareholder Services" for this
service must accompany each request for certificates. Any
remaining whole shares and any fraction of a share will remain
credited to your account.
Certificates for fractional shares will not be issued under
any circumstances.
18. In whose name will certificates be registered when issued to
you?
Your account under the Plan will be maintained in the name
or names in which your certificates were registered at the time
you entered the Plan. Consequently, certificates for whole
shares will be similarly registered when issued.
Custody Service
19. May I send my certificates to the Agent for safekeeping?
As an additional service to Plan participants, you may
deposit with the Agent, free of charge, any or all certificates
representing shares of Common Stock held by you. If you wish to
use this service, you should elect the "safekeeping
authorization" box on the Plan Authorization Card and return it
to the Agent together with the certificate or certificates.
Delivery of stock certificates is at the risk of the shareholder
and, in the event of delivery by mail, insured registered mail
with return receipt requested is recommended. The receipt by the
Agent of any shares delivered for safekeeping will be shown on
your account statement.
Participating shareholders may withdraw some or all of their
shares from the Agent's custody at any time by requesting in
writing that a certificate(s) be issued for some or all of the
full shares held by the Agent. To do so, you must follow the
procedures and pay the fee described in the answer to
Question 17.
Withdrawals
20. When may you withdraw from the Plan?
You may withdraw from the Plan at any time. If your request
to withdraw is received prior to a dividend record date set by
the Board of Directors for determining shareholders of record
entitled to receive a dividend, your request will be processed on
the day following receipt of the request by the Agent.
If your request to withdraw is received by the Agent on or
after a dividend record date but before the payment date, the
Agent, in its sole discretion may either pay such dividend in
cash or reinvest it in shares for your account. The request for
withdrawal will then be processed as promptly as possible
following such dividend payment date. Any optional cash payments
which you may have sent to the Agent prior to a request for
withdrawal will also be invested on the next Investment Date
unless you expressly request return of that payment in your
request for withdrawal and your request for withdrawal is
received by the Agent at least two business days prior to the
first day of the Pricing Period. All dividends subsequent to
such dividend payment date will be paid in cash to you unless and
until you re-enroll in the Plan, which you may do at any time.
21. How do you withdraw from the Plan?
In order to withdraw from the Plan, you must notify the
Agent in writing, at its address set forth in the answer to
Question 6, that you wish to withdraw. When you withdraw from
the Plan (subject to the answer to Question 20), or upon any
termination of the Plan by Sovereign, you may request that a
certificate for whole shares of Common Stock credited to your
account under the Plan and all certificates held for safekeeping
be issued to you. To do so, you must follow the procedure and
pay the fee described in the answer to Question 17. A cash
payment, based upon the sale price received by the Agent, will be
made to you for any fraction of a share.
Upon your withdrawal from the Plan, you may also request in
writing that all or part of the shares of Common Stock credited
to your account in the Plan be sold. If you request such sale,
the Agent will make such sale for your account as soon as
practicable after processing your request for withdrawal. You
will receive the proceeds, less any brokerage fees or commissions
and any applicable stock transfer tax, from the sale of the
shares sold at your request.
Other Information
22. What happens if you sell or transfer all the shares
registered in your name and held by you?
If you dispose of all shares of Common Stock registered in
your name and held by you, the shares purchased under the Plan
and held in your account are unaffected. The Agent will continue
to reinvest the dividends on shares remaining in your account
unless and until you withdraw from the Plan or the Plan is
terminated.
23. What happens if Sovereign declares a dividend payable in
shares or declares a stock split?
Any dividend payable in shares of Common Stock, and any
additional shares of Common Stock distributed by Sovereign in
connection with a stock split, with respect to shares credited to
your Plan account will be added to your Plan account. Also, any
dividends payable in shares of Common Stock, and any additional
shares of Common Stock resulting from a stock split which are
attributable to shares registered in your own name and not in
your Plan account will be added to your Plan account in the same
manner as shares credited to your Plan account.
The total number of shares of Common Stock to be offered
under the Plan will also be adjusted proportionately to take into
account any stock splits, stock dividends or similar
transactions.
24. How will your shares held by the Agent be voted at meetings
of shareholders?
Shares of Common Stock held by the Agent for you will be
voted as you direct. A proxy card will be sent to you in
connection with any annual or special meeting of shareholders, as
in the case of shareholders not participating in the Plan. This
card will cover all shares of Common Stock registered in your own
name as well as all full and fractional shares held by the Agent
for your account or held by the Agent for safekeeping under the
Plan.
As in the case of nonparticipating shareholders, if no
instructions are indicated by you on a properly signed and
returned proxy card, all your shares -- those registered in your
own name and those held by the Agent for your account under the
Plan -- will be voted in accordance with recommendations of
Sovereign's management, unless otherwise provided. If the proxy
card is not returned, or if it is returned unsigned or improperly
signed, none of the shares covered by such proxy card (including
those held by the Agent under the Plan) will be voted.
25. What are the responsibilities of Sovereign and the Agent
under the Plan?
Sovereign and the Agent will not be liable in administering
the Plan for any act done in good faith or as required by
applicable securities laws or for any good faith omission to act
including, without limitation, any claim or liability arising out
of failure to terminate your account upon your death, or with
respect to the prices at which shares are purchased for your
account and the times when such purchases are made or with
respect to any fluctuation in the market value after purchase or
sale of shares.
26. May the Plan be changed or discontinued?
Yes. Sovereign may suspend, terminate, modify or amend the
Plan at any time. Notice will be sent to you of any such
suspension or termination, or of any modification or amendment
that alters its terms and conditions, as soon as possible after
such action by Sovereign.
Employees
27. May employees of Sovereign and Sovereign Bank participate in
the Plan?
Yes. Employees who participate in Sovereign's Employee
Stock Purchase Plan (the "ESPP") automatically participate in the
Plan with respect to shares of Common Stock held in the
employee's ESPP account. Employees who wish to participate in
the Plan with respect to shares of Common Stock held otherwise
than under the ESPP may do so in the manner provided for
shareholders of record, provided they are record holders of at
least one whole share of Common Stock.
Federal Income Tax Consequences
28. What are the federal income tax consequences of
participation in the Plan?
Reinvested Dividends.
In the case of reinvested dividends, when shares are
acquired for a participant's account directly from Sovereign, the
participant will be considered to have received a dividend equal
to the fair market value of the shares purchased (i.e., the
number of shares purchased on his behalf multiplied by the fair
market value per share on the Investment Date). The tax basis of
such shares will also equal the fair market value of the shares
on the Investment Date. The holding period of such shares will
begin on the day following the Investment Date.
In the case of reinvested dividends, when shares are
acquired for a participant's account on the open market, the
participant will be considered to have received a dividend equal
to (i) the amount of cash used to purchase shares on his behalf
(i.e., the number of shares so purchased multiplied by the
average price per share paid by the Agent), plus (ii) that
portion of the brokerage commissions paid by Sovereign which are
attributable to such shares. The tax basis of such shares will
also equal the amount of cash used to purchase the shares plus
the allocable portion of the brokerage fees paid by Sovereign.
The holding period of such shares will begin on the day following
the date on which the shares are credited to the participant's
account.
Optional Cash Payments.
In the case of shares acquired directly from Sovereign with
optional cash payments, a participant will be considered to have
received a dividend equal to the excess, if any, of the fair
market value of the purchased shares on the Investment Date over
the amount of the optional cash payment. The tax basis of such
shares will equal the amount of such excess, if any, plus the
amount of the optional payment. The holding period of such
shares will begin on the day following the Investment Date.
In the case of shares acquired on the open market with
optional cash payments, a participant will be considered to have
received a dividend equal to that portion of the brokerage
commissions paid by Sovereign which are attributable to such
shares. The tax basis of such shares will equal the sum of
(i) the amount of the optional payment and (ii) the allocable
portion of the brokerage fees paid by Sovereign. The holding
period of such shares will begin on the day following the date on
which the shares are credited to the participant's account.
Additional Information.
The foregoing discussion assumes that Sovereign will, from
time to time, have earnings and profits (for federal tax
purposes) in excess of its distributions to shareholders, and
such is expected to be the case. A prospective participant
should also note that the "fair market value" of a share of
Common Stock on any relevant Investment Date is not necessarily
equal to the Current Market Price of such share.
The dividend income received by a corporate shareholder
generally is eligible for a 70% dividends-received deduction if
the shares are held for more than 45 days. The allowance of the
dividends-received deduction, however, is limited when the
corporate shareholder incurs any debt which is directly
attributable to an investment in such stock.
A participant will not realize any taxable income upon the
receipt of certificates for whole shares credited to the
participant's account under the Plan, either upon the
participant's request for certificates for certain of those
shares or upon withdrawal from or termination of the Plan. A
participant who receives, upon withdrawal from or termination of
the Plan, a cash adjustment for a fractional share credited to
the participant's account, however, will realize a gain or loss.
Gain or loss will also be realized by the shareholder upon the
sale or exchange of shares after withdrawal from the Plan. The
amount of such gain or loss will be the difference between the
amount which the shareholder receives for each whole or
fractional share, and the shareholder's tax basis therefor. Any
such gain or loss will be a capital gain or loss if the shares
sold were held as a capital asset. Such capital gain or loss
will be long-term if the participant held the shares sold for
more than one year, and otherwise will be short-term.
A foreign shareholder who is a participant and whose
dividends are subject to United States income tax withholding
will have the amount of the tax to be withheld deducted from such
dividends before reinvestment in additional shares for such
participant's Plan account. The statements confirming purchases
made for a foreign participant will indicate that tax has been
withheld.
The final statement received from the Agent during any
calendar year will include tax information for the year.
The foregoing discussion is only a brief summary of certain
federal income tax provisions applicable to participation in the
Plan based on current law and is for general information only.
It is not a complete enumeration or analysis of all the tax
consequences of participating in the Plan and may not describe
the tax consequences to a particular participant in light of
individual circumstances. The law and interpretational
authorities on which such summary is based are subject to change
at any time, which could change the tax consequences described
above. Accordingly, participants are urged to consult their own
tax advisors for advice relating to the federal, state, local and
foreign tax consequences of participation in the Plan.
USE OF PROCEEDS
Sovereign knows neither the number of shares that will
ultimately be purchased under the Plan nor the prices at which
such shares will be purchased. To the extent that shares
are purchased from Sovereign, Sovereign intends to add the
proceeds from such purchases to the general funds of Sovereign
for general corporate purposes.
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital of Sovereign consists of 100,000,000
shares of Common Stock, no par value, and 7,500,000 shares of
preferred stock, such preferred stock to be issuable, in series
and classes having such par value, rights, preferences,
privileges and restrictions as the Board of Directors of
Sovereign may determine. Except as described below, each share
of Common Stock will have the same relative rights as, and will
be identical in all respects with, each other share of Common
Stock.
The following summaries of Sovereign's Articles of
Incorporation, Bylaws and the Rights Plan (defined below) do not
purport to be complete and are qualified in their entirety by
reference to such instruments.
Common Stock
Voting Rights.
Prior to the issuance of any preferred stock which possesses
voting rights (see "Preferred Stock" below), the holders of
shares of Common Stock will possess exclusive voting rights in
Sovereign. Each holder of shares of Common Stock will be
entitled to one vote for each share held on matters upon which
shareholders have the right to vote. Shareholders will not be
entitled to cumulate their votes for the election of directors.
Dividends.
Holders of shares of Common Stock are entitled to share
ratably in dividends when and if declared by the Board of
Directors of Sovereign from funds legally available therefor.
The timing and amount of any future dividends will depend on
earnings, capital requirements, federal and state laws,
regulations and policies and other factors deemed relevant by the
Board of Directors. Declaration and payment of cash dividends by
Sovereign depends upon dividend payments by Sovereign Bank, which
are Sovereign's primary source of income. Payments of dividends
by Sovereign Bank are subject to, among other things, regulations
of the Office of Thrift Supervision governing capital
distributions, which include cash dividends, by savings
associations.
Liquidation.
In the event of any liquidation, dissolution or winding up
of Sovereign, after payment of all debts and liabilities of
Sovereign and payment of any liquidation preference plus accrued
dividends applicable to any outstanding shares of preferred
stock, holders of shares of Common Stock will be entitled to
receive all assets of Sovereign available for distribution in
cash or in kind.
Preemptive Rights; Redemption.
Holders of shares of Common Stock will not be entitled to
preemptive rights with respect to any shares of Sovereign which
may be issued. The Common Stock will not be subject to
redemption. Upon receipt by Sovereign of the full specified
purchase price therefor, shares of Common Stock will be fully
paid and nonassessable.
Preferred Stock
General.
Sovereign's Board of Directors is authorized to approve the
issuance of preferred stock, without any required approval of
shareholders. The rights, qualifications, limitations and
restrictions on each series of preferred stock issued will be
determined by the Board of Directors at the time of issuance and
may include, among other things, rights to participating
dividends, voting and convertibility into shares of Common Stock.
Shares of preferred stock may be issued with dividend,
redemption, voting, and liquidation rights taking priority over
Common Stock, and may be convertible into common stock, as
determined by the Board of Directors at the time of issuance.
On May 17, 1995, Sovereign issued 2,000,000 shares of 6-1/4%
Cumulative, Convertible Preferred Stock, Series B (the "Series B
Preferred Stock").
Description of Series B Preferred Stock.
Ranking. The Series B Preferred Stock will rank prior to
Common Stock and Series A Junior Participating Preferred Stock,
and on a parity with all other preferred stock of Sovereign
(unless such other preferred stock is expressly made junior to
the Series B Preferred Stock), with respect to the payment of
dividends and amounts payable upon any voluntary or involuntary
liquidation, dissolution or winding up of Sovereign.
Dividends. Holders of shares of Series B Preferred Stock
are entitled to receive, when and as declared by the Board of
Directors, cash dividends payable quarterly at the rate of 61/4%
per annum. Dividends on the Series B Preferred Stock, calculated
as a percentage of the liquidation preference, are payable
quarterly on February 15, May 15, August 15 and November 15 of
each year. Dividends will be cumulative from the date of issue
of the Series B Preferred Stock. So long as any Series B
Preferred Stock is outstanding, Sovereign may not declare any
dividends on the Common Stock or any other stock ranking as to
dividends or distribution of assets junior to the Series B
Preferred Stock (the Common Stock and any such other stock being
herein referred to as "Junior Stock"), or make any payment on
account of, or set apart money for, a sinking or other analogous
fund for the purchase, redemption or other retirement of any
shares of Junior Stock, or make any distribution in respect
thereof, whether in cash or property or in obligations or stock
of Sovereign, other than Junior Stock, unless (i) full cumulative
dividends shall have been paid or declared and set apart for
payment upon all outstanding shares of preferred stock other than
Junior Stock, and (ii) Sovereign is not in default or in arrears
with respect to any sinking or other analogous fund or any call
for tenders, obligation or other agreement for the purchase,
redemption or other retirement of any shares of preferred stock
other than Junior Stock. If dividends on shares of the Series B
Preferred Stock are in arrears, and there shall be outstanding
shares of any other series of preferred stock ranking on a parity
as to dividends with the shares of the Series B Preferred Stock,
Sovereign in making any dividend payment on account of such
arrears, is required to make payments ratably upon all
outstanding shares of the Series B Preferred Stock and shares of
such other series of preferred stock in proportion to the
respective amounts of dividends in arrears on such shares of
Series B Preferred Stock and shares of other series of preferred
stock.
Conversion Rights. Holders of shares of Series B Preferred
Stock have the right, at their option, to convert shares of
Series B Preferred Stock into shares of Common Stock at any time
at an initial conversion rate of 4.752 shares of Common Stock for
each share of Series B Preferred Stock (equivalent to a
conversion price of $10.523 per share of Common Stock), provided
that if any of the Preferred Stock is called for redemption, the
conversion rights pertaining thereto will terminate at the close
of business on the date fixed for redemption. The conversion
rate is subject to adjustment in certain events, including:
(i) the issuance of capital stock as a dividend or distribution
on the Common Stock; (ii) subdivisions and combinations of the
Common Stock; (iii) the issuance to all holders of Common Stock
of certain rights or warrants entitling them to subscribe for or
purchase Common Stock (or securities convertible into Common
Stock) within 45 days after the date fixed for the determination
of the shareholders entitled to receive such rights or warrants,
at less than the current market price; and (iv) the distribution
to all holders of Common Stock of evidences of indebtedness or
assets of Sovereign (excluding those referred to above).
In the case of (i) any reclassification or change of the
Common Stock, or (ii) a consolidation or merger involving
Sovereign, or (iii) a sale or conveyance to another corporation
of the property and assets of Sovereign as an entirety or
substantially as an entirety, in each case as a result of which
holders of Common Stock will be entitled to receive stock,
securities, other property or assets (including cash) with
respect to or in exchange for such Common Stock, the holders of
the Series B Preferred Stock then outstanding will be entitled
thereafter to convert such Series B Preferred Stock into the kind
and amount of shares of stock and other securities or property
which they would have received upon such reclassification,
change, consolidation, merger, combination, sale or conveyance
had such Series B Preferred Stock been converted into Common
Stock immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance.
Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of Sovereign,
the holders of shares of Series B Preferred Stock are entitled to
receive out of assets of Sovereign available for distribution to
shareholders, before any distribution of assets is made to
holders of Common Stock or of any other stock of Sovereign
ranking as to such distribution junior to the Series B Preferred
Stock, liquidating distributions in the amount of $50 per share
plus accrued and unpaid dividends. If upon any voluntary or
involuntary liquidation, dissolution or winding up of Sovereign,
the amounts payable with respect to the Series B Preferred Stock
and any other shares of stock of Sovereign ranking as to any such
distribution on a parity with the Series B Preferred Stock are
not paid in full, the holders of the Series B Preferred Stock and
of each other share will share ratably in any such distribution
of assets of Sovereign in proportion to the full respective
preferential amounts to which they are entitled. After payment
of the full amount of the liquidating distribution to which they
are entitled, the holders of shares of Series B Preferred Stock
will not be entitled to any further participation in any
distribution of assets by Sovereign. A consolidation or merger
of Sovereign with or into any other corporation or corporations
or a sale of all or substantially all of the assets of Sovereign
will not be deemed to be a liquidation, dissolution or winding up
of Sovereign.
Redemption. The shares of Series B Preferred Stock are not
redeemable prior to May 15, 1998. On or after May 15, 1998, at
any time or from time to time, the shares of Series B Preferred
Stock will be redeemable in whole or in part at the option of
Sovereign, upon not less than 30 nor more than 60 days' notice,
at a redemption price as set forth below plus, in each case,
accrued and unpaid dividends to the redemption date.
If Redeemed During the
Twelve Months Beginning May 15, Redemption Price
1998........................... $52.188
1999........................... 51.875
2000........................... 51.563
2001........................... 51.250
2002........................... 50.938
2003........................... 50.625
2004........................... 50.313
and at $50 per share thereafter
The Series B Preferred Stock may not be redeemed and
Sovereign may not otherwise purchase or acquire any shares of the
Series B Preferred Stock unless full cumulative dividends on the
Series B Preferred Stock or on any series of preferred stock
ranking on a parity with or senior to the Series B Preferred
Stock have been paid or declared and set apart for payment and
unless all matured obligations of Sovereign with respect to all
sinking funds or purchase funds applicable to any other series of
preferred stock then outstanding have been met.
Voting Rights. Except as indicated below, or except as
expressly required by applicable law, the holders of the Series B
Preferred Stock are not entitled to vote.
If the equivalent of six quarterly dividends payable on any
series of preferred stock of Sovereign are in default (whether or
not declared consecutive), the holders of all outstanding series
of preferred stock, voting as a single class without regard to
series, will be entitled to elect two directors until all
dividends in default have been paid or declared and set apart for
payment. The affirmative vote or consent of the holders of at
least two-thirds of the outstanding shares of Series B Preferred
Stock and any other series of preferred stock, voting as a single
class without regard to series, will be required (i) for any
amendment to Sovereign's Articles of Incorporation (or any
certificate supplemental thereto providing for the capital stock
of the Corporation) or Bylaws which will materially and adversely
change the preferences, privileges, rights or powers of the
preferred stock, but, in any case in which one or more, but not
all, series of preferred stock would be affected as to their
preferences, privileges, rights or powers, only the consent of
holders of at least two-thirds of the shares of all such series
that would be so affected, voting separately as a class, will be
required; or (ii) to issue any class of stock which shall have
preference as to dividends or distribution of assets over any
outstanding series of preferred stock.
Shareholder Rights Plan
Sovereign maintains a Shareholder Rights Plan (the "Rights
Plan") designed to protect shareholders from attempts to acquire
control of Sovereign at an inadequate price. Under the Rights
Plan, each outstanding share of Common Stock has attached to it
one right to purchase one one-hundredth of a share of a series of
junior participating preferred stock at an initial exercise price
of $40. The rights are not currently exercisable or
transferable, and no separate certificates evidencing such rights
will be distributed, unless certain events occur.
The rights become exercisable to purchase shares of the
junior participating preferred stock if a person, group or other
entity acquires or commences a tender offer or an exchange offer
for 19.9% or more of total voting power. They can also be
exercised if a person or group who has become a beneficial owner
of at least 4.9% of the Common Stock or total voting power is
declared by Sovereign's Board of Directors to be an "adverse
person," as defined in the Rights Plan.
After the rights become exercisable, under certain
circumstances, the rights (other than rights held by a 19.9% or
an "adverse person") will entitle the holders to purchase either
the Common Stock or the common stock of the potential acquirer,
in lieu of the junior participating preferred stock, at a
substantially reduced price.
Sovereign is generally entitled to redeem the rights at
$.001 per right at any time until the tenth business day
following public announcement that a 19.9% position has been
acquired. At any time prior to the date the rights have become
nonredeemable, the Board can extend the redemption period.
Rights are not redeemable following an "adverse person"
determination.
Articles of Incorporation and Bylaws
Sovereign's Articles of Incorporation and Bylaws contain
certain provisions which may have the effect of deterring or
discouraging, among other things, a non-negotiated tender or
exchange offer for the Common Stock, a proxy contest for control
of Sovereign, the assumption of control of Sovereign by a holder
of a large block of the Common Stock and the removal of
Sovereign's management. These provisions: (1) empower the Board
of Directors, without shareholder approval, to issue preferred
stock the terms of which, including voting power, are set by the
Board; (2) divide the Board of Directors into three classes
serving staggered three-year terms; (3) restrict the ability of
shareholders to remove directors; (4) require that shares with at
least 80% of total voting power approve mergers and other similar
transactions with a person or entity holding stock with more than
5% of Sovereign's voting power, if the transaction is not
approved, in advance, by the Board of Directors; (5) prohibit
shareholders' actions without a meeting; (6) require that shares
with at least 80%, or in certain instances a majority, of total
voting power approve the repeal or amendment of the Articles of
Incorporation; (7) require any person who acquires stock of
Sovereign with voting power of 25% or more to offer to purchase
for cash all remaining shares of Sovereign's voting stock at the
highest price paid by such person for shares of Sovereign's
voting stock during the preceding year; (8) eliminate cumulative
voting in elections of directors; (9) require that shares with at
least 66-2/3% of total voting power approve the repeal or
amendment of the Bylaws; (10) require advance notice of
nominations for the election of directors and the presenting of
shareholder proposals at meetings of shareholders; and
(11) provide that officers, directors, employees, agents and
persons who own 5% or more of the voting securities of any other
corporation or other entity that owns 66-2/3% or more of
Sovereign's outstanding voting stock cannot constitute a majority
of the members of Sovereign's Board of Directors.
Pennsylvania Law
The Pennsylvania Business Corporation Law contains
provisions applicable to Sovereign which may have similar
effects. These provisions, among other things: (1) require
that, following any acquisition by any person or group of 20% of
a public corporation's voting power, the remaining shareholders
have the right to receive payment for their shares, in cash, from
such person or group in an amount equal to the "fair value" of
the shares, including an increment representing a proportion of
any value payable for control of the corporation; and
(2) prohibit for five years, subject to certain exceptions, a
"business combination" (which includes a merger or consolidation
of the corporation or a sale, lease or exchange of assets) with a
shareholder or group of shareholders beneficially owing 20% or
more of a public corporation's voting power.
In 1990, Pennsylvania adopted legislation further amending
the Pennsylvania Business Corporation Law. To the extent
applicable to Sovereign at the present time, this legislation
generally (1) expands the factors and groups (including
shareholders) which the Board of Directors can consider in
determining whether a certain action is in the best interests of
the corporation, (2) provides that the Board need not consider
the interests of any particular group as dominant or controlling,
(3) provides that directors, in order to satisfy the presumption
that they have acted in the best interests of the corporation,
need not satisfy any greater obligation or higher burden of proof
with respect to actions relating to an acquisition or potential
acquisition of control, (4) provides that actions relating to
acquisitions of control that are approved by a majority of
"disinterested directors" are presumed to satisfy the directors'
standard unless it is proven by clear and convincing evidence
that the directors did not assent to such action in good faith
after reasonable investigation, and (5) provides that the
fiduciary duty of directors is solely to the corporation and may
be enforced by the corporation or by a shareholder in a
derivative action, but not by a shareholder directly. One of the
effects of the new fiduciary duty provisions may be to make it
more difficult for a shareholder to successfully challenge the
actions of the Board of Directors in a potential change in
control context. Sovereign opted out of coverage by the
disgorgement and control-share acquisition statutes, also adopted
in 1990, pursuant to a Bylaw amendment as permitted by the
legislation; Sovereign can reverse this action under certain
circumstances.
LEGAL MATTERS
The legality of the shares of the Common Stock offered
hereby will be passed upon for Sovereign by Stevens & Lee,
111 North Sixth Street, Reading, Pennsylvania 19603, counsel to
Sovereign.
EXPERTS
The consolidated balance sheets of Sovereign and
subsidiaries as of December 31, 1994 and 1993 and the related
consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the three-year period
ended December 31, 1994 incorporated by reference in this
Prospectus from Sovereign's Annual Report on Form 10-K for the
year ended December 31, 1994, have been audited by Ernst & Young,
independent auditors, as set forth in their report thereon.
The audited consolidated financial statements of Sovereign
and subsidiaries have been so incorporated by reference in
reliance upon the reports of Ernst & Young, which reports,
incorporated by reference in this Prospectus, have been given
upon the authority of such firms as experts in accounting and
auditing.
INDEMNIFICATION
Pennsylvania law provides that a Pennsylvania corporation
may indemnify directors, officers, employees and agents of the
corporation against liabilities they may incur in such capacities
for any action taken or any failure to act, whether or not the
corporation would have the power to indemnify the person under
any provision of law, unless such action or failure to act is
determined by a court to have constituted recklessness or willful
misconduct. Pennsylvania law also permits the adoption of a
bylaw amendment, approved by shareholders, providing for the
elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the
director has breached or failed to perform the duties of his
office and (2) the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.
The Bylaws of Sovereign provide for (1) indemnification of
directors, officers, employees and agents of Sovereign and of its
subsidiaries and (2) the elimination of a director's liability
for monetary damages, to the fullest extent permitted by
Pennsylvania law.
Directors and officers are also insured against certain
liabilities for their actions, as such, by an insurance policy
obtained by Sovereign.
