PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
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SOVEREIGN BANCORP, INC.
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<PAGE>
LOGO
March 15, 1996
Dear Shareholder:
Sovereign Bancorp's Annual Meeting of Shareholders will be held on
Thursday, April 18, 1996, at 10:00 a.m. in the Baron Room of The Sheraton
Berkshire Inn, Route 422 West, Papermill Road Exit, Wyomissing, Pennsylvania.
For your convenience, directions to The Sheraton Berkshire Inn are included on
the back cover of this Proxy Statement.
Sovereign's Board of Directors believes that it is important for
Sovereign's shareholders to participate personally in the process by which
Sovereign's directors are elected. The election of diligent, active, involved
and responsible directors is the linchpin of corporate governance at Sovereign.
Sovereign's Board actively chooses, directs and compensates Sovereign's senior
management, establishes programs to oversee Sovereign's compliance with laws and
reviews corporate plans, policies and commitments with a view to representing
all of Sovereign's stakeholders, including its shareholders, customers, team
members and the communities Sovereign serves.
THE NOTICE AND PROXY STATEMENT, WHICH ARE CONTAINED IN THE FOLLOWING PAGES,
DESCRIBE THE BUSINESS TO BE CONDUCTED AT THE MEETING. PROPOSALS 1, 2, 3 AND 4 TO
BE ACTED ON AT THE MEETING HAVE BEEN UNANIMOUSLY APPROVED AND RECOMMENDED BY
SOVEREIGN'S BOARD OF DIRECTORS. WE URGE YOU TO READ CAREFULLY THE DESCRIPTION OF
THE PROPOSALS AND TO VOTE FOR THEIR ADOPTION. PROPOSAL 5 TO BE ACTED ON AT THE
MEETING IS A SHAREHOLDER PROPOSAL AND SOVEREIGN'S BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
If you cannot attend the Meeting, your shares should still be represented
at the Meeting. We urge you to sign and date the enclosed proxy card and return
it in the enclosed envelope as soon as possible. Please return the enclosed
ticket if you intend to be present at the meeting.
We urge you to participate in the Meeting in person or by proxy. Thank you
very much for your continued interest in Sovereign.
Sincerely,
[ SIGNATURE ]
Richard E. Mohn
Chairman of the Board
[ SIGNATURE ]
Jay S. Sidhu
President and Chief Executive Officer
<PAGE>
[ LOGO ]
------------------------
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 18, 1996
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
'Meeting') of Sovereign Bancorp, Inc. ('Sovereign') will be held on April 18,
1996, at 10:00 a.m. (Eastern Time) at The Sheraton Berkshire Inn, Wyomissing,
Pennsylvania, for the following purposes:
(1) To elect three (3) Class III directors of Sovereign to serve for a
term of three years and until their successors shall have been elected and
qualified;
(2) To act upon the Sovereign Bancorp, Inc. Non-Employee Director
Compensation Plan (the 'Compensation Plan');
(3) To act upon the Sovereign Bancorp, Inc. 1996 Stock Option Plan
(the '1996 Stock Option Plan');
(4) To ratify the appointment by Sovereign's Board of Directors of
Ernst & Young LLP as Sovereign's independent auditors for the fiscal year
ending December 31, 1996;
(5) To consider a shareholder proposal to change independent certified
public accountants; and
(6) To transact such other business as may properly be presented at
the Meeting.
Shareholders of record at the close of business on March 4, 1996, are
entitled to notice of, and to vote at the Meeting.
WHETHER OR NOT YOU PLAN ON ATTENDING THE MEETING IN PERSON, PLEASE SIGN,
DATE, AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
BY ORDER OF THE BOARD OF DIRECTORS
[ SIGNATURE ]
LAWRENCE M. THOMPSON, JR.
SECRETARY
Wyomissing, Pennsylvania
March 15, 1996
<PAGE>
SOVEREIGN BANCORP, INC.
1130 BERKSHIRE BOULEVARD
WYOMISSING, PENNSYLVANIA 19610
(610) 320-8400
------------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 18, 1996
------------------------------------
GENERAL INFORMATION
SOLICITATION OF PROXIES. This Proxy Statement is furnished in connection
with the solicitation of proxies by the Board of Directors of Sovereign Bancorp,
Inc. ('Sovereign'), parent company of Sovereign Bank, a Federal Savings Bank
('Sovereign Bank') and Colonial Bank for Savings, a Federal Savings Bank
('Colonial Bank'), for use at Sovereign's annual meeting of shareholders to be
held April 18, 1996, or any adjournment thereof (the 'Meeting'). The Proxy
Statement and the accompanying proxy are first being mailed to shareholders of
Sovereign on or about March 15, 1996. The expense of soliciting proxies will be
borne by Sovereign. It is expected that the solicitation of proxies will be made
primarily by mail. Sovereign's directors, officers and team members may also
solicit proxies personally, by telephone and by telegraph. In addition,
Sovereign has retained Georgeson & Company Inc. to assist with the solicitation
of proxies at an estimated cost of $5,500 plus reasonable out-of-pocket
expenses.
VOTING AND REVOCATION OF PROXIES. The execution and return of the enclosed
proxy will not affect a shareholder's right to attend the Meeting and vote in
person. Any shareholder giving a proxy may revoke it at any time before it is
exercised by submitting written notice of its revocation or a subsequently
executed proxy bearing a later date to the Secretary of Sovereign, or by
attending the Meeting and electing to vote in person. Shareholders of record at
the close of business on March 4, 1996 (the 'Record Date'), are entitled to
notice of, and to vote at, the Meeting. On the Record Date, there were
47,835,620 shares of Sovereign's common stock outstanding, each of which will be
entitled to one vote at the Meeting.
If the enclosed proxy is appropriately marked, signed and returned in time
to be voted at the Meeting, the shares represented by the proxy will be voted in
accordance with the instructions marked thereon. Signed proxies not marked to
the contrary will be voted 'FOR' the election, as directors, of the Board of
Directors' nominees; 'FOR' the approval of the Compensation Plan; 'FOR' the
approval of the 1996 Stock Option Plan; 'FOR' the ratification of Ernst & Young
LLP as Sovereign's independent auditors for 1996 and 'AGAINST' the shareholder
proposal. Signed proxies will be voted 'FOR' or 'AGAINST' any other matter that
properly comes before the Meeting or any adjournment thereof, in the discretion
of the persons named as proxyholders.
QUORUM. The presence, in person or by proxy, of shareholders entitled to
cast at least a majority of the votes that all shareholders are entitled to cast
shall constitute a quorum at the Meeting. Abstentions with respect to one or
more proposals voted upon at the Meeting will be included for purposes of
determining a quorum at the Meeting.
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<PAGE>
INFORMATION CONCERNING THE BOARD OF DIRECTORS,
SOVEREIGN'S GOVERNANCE PROCEDURES
AND COMMITTEES OF THE BOARD OF DIRECTORS
Sovereign's Articles of Incorporation provide that the number of Sovereign
directors shall consist of not less than six nor more than twenty members, as
fixed by the Board of Directors from time to time. The Articles also provide
that the Board shall be divided into three classes, which under applicable law,
must be, in terms of the number of directors in each class, as nearly equal as
possible. The Board presently consists of eight members.
Consistent with what it perceives to be good principles of corporate
governance, Sovereign's historic practice has been to require that the
preponderance of its Board consists of outside, non-employee directors,
presently six in number, and to delegate important policy making and oversight
functions to committees which also consist predominantly of outside directors. A
description of the committees which possess significant corporate governance
responsibilities is set forth below.
o Sovereign's Audit Committee consists of six directors, all of whom are
outside directors. Sovereign's Audit Committee serves as the principal
liaison among the Board of Directors, Sovereign's independent certified
public accountants and Sovereign's internal audit function. It is
responsible, among other things, for reporting to Sovereign's Board on
the results of the annual audit. The Committee reviews and evaluates the
scope of the audit, accounting policies and reporting practices, internal
auditing, internal controls, security procedures and other matters
considered appropriate. The Committee also reviews the performance of
Sovereign's independent certified public accountants in connection with
their audit of Sovereign's financial statements. Importantly, from a
corporate governance perspective, the Committee also regularly evaluates
their independence from Sovereign and Sovereign's management. Depending
on the nature of matters under review, the outside auditors, and such
officers and other team members, as necessary, attend all or part of the
meetings of the Committee. Sovereign's Audit Committee met twice during
1995.
o Sovereign's Nominating Committee consists of five directors, all of whom
are outside directors. Sovereign's by-laws provide for both shareholder
and Board nomination of director candidates. The Committee has the
important task of taking the first step toward assuring good corporate
governance by identifying, reviewing and recommending, to the full Board,
potential nominees for submission to Sovereign's shareholders for
election as directors of Sovereign or for election to fill vacancies on
the Board. The Committee strives to identify, review and recommend only
those nominees who appear to possess (i) the highest personal and
professional ethics, integrity and values; (ii) sufficient education and
breadth of experience to understand, evaluate and suggest solutions to
the many problems facing financial institutions in an increasingly
competitive environment; (iii) a reasoned and balanced commitment to
Sovereign's social responsibilities; (iv) an interest in and the
availability of time to be involved in Sovereign's affairs over a
sustained period; (v) the reputation and stature required to represent
Sovereign in the communities Sovereign serves, as well as before
Sovereign's shareholders and other stakeholders; (vi) a willingness to
objectively appraise management performance in the interest of Sovereign
and its stakeholders; (vii) an open mind on all policy issues affecting
the overall interests of Sovereign and its stakeholders, and (viii)
involvement only in other activities or interests which do not create a
conflict, or the appearance of a conflict, with the director's
responsibilities to Sovereign and its stakeholders. The Committee's
review of candidates is performed without regard to gender, race or
religious affiliation. One of the objectives of this review is to have a
Board which consists of members with a mix of diverse backgrounds,
skills, experiences and personalities which will foster, not only good
decision making, but also the chemistry to create an environment
encouraging active, constructive, and informed participation among Board
members. The Committee met two times during 1995.
o Sovereign's Ethics Committee, which Sovereign believes to be one of the
few such Board committees in the United States, consists of five
directors, all but one of whom are outside directors. The Committee
monitors, oversees and reviews compliance, by Sovereign's directors,
officers and team members with Sovereign's Code of Conduct. Sovereign's
Code of Conduct regulates potential conflicts of interest and
transactions between Sovereign and its affiliates, the possible misuse or
abuse of confidential information by Sovereign affiliates and trading in
Sovereign stock by Sovereign affiliates. The Committee function,
2
<PAGE>
therefore, is to assure, to the extent practicable, that Sovereign's
directors, management, other affiliates and team members act in
accordance with the highest standards of professional and ethical
conduct. When exercising its authority, the Committee is required to
consider Sovereign's mission, vision and values, including the impact of
its actions on Sovereign's stakeholders, including Sovereign's
shareholders, customers, team members and the communities Sovereign
serves. The Committee also is required to periodically review Sovereign's
Code of Conduct and to make recommendations to the Board with respect to
modification. Sovereign is in the process of expanding the scope of the
responsibility of this Committee to specifically include corporate
governance matters. The Committee met twice during 1995.
o Sovereign's Compensation Committee consists of five directors, all of
whom are outside directors. This Committee is responsible for the
important tasks of appraising the performance of Sovereign's Chief
Executive Officer and studying and making recommendations to the Board on
compensating and providing incentives to executive management,
principally Sovereign's Chief Executive Officer. In addition, the
Committee reviews Sovereign's executive compensation structure in an
effort to insure that executive compensation (i) is competitive and (ii)
is closely linked to Sovereign's financial performance. The committee
also attempts to assure, through programs which are substantially
weighted in favor of the use of Sovereign stock as a compensation medium,
that the interests of executive management are aligned, to the extent
practicable, with the interests of Sovereign's shareholders. This
Committee met three times during 1995.
o Sovereign's Community Reinvestment and Public Responsibility Committee
consists of five directors, three of whom are outside directors and two
of whom are employee directors. The Committee reviews Sovereign's
programs, which strive to meet Sovereign's social responsibilities to the
communities which it serves by, among other things, providing credit to
all segments of such communities, including low to moderate income
individuals. The Committee reviews Sovereign's pursuit of opportunities
which contribute to the growth and vitality of these communities while
conforming to safe and sound lending practices and to the many laws and
regulations which are applicable to financial institutions. The Committee
reviews and recommends Sovereign's annual Community Reinvestment Act Plan
to the Board and reviews Sovereign Bank's credit programs and results, in
an effort to assure that they are socially useful, economically sound and
nondiscriminatory. The Committee met once during 1995.
Sovereign also maintains a number of other important committees, including
Sovereign's Merger and Acquisition Committee, Sovereign's Pension Committee,
Sovereign's Risk Management Committee, and Sovereign's Executive Committee.
Sovereign's Merger and Acquisition Committee, which met twice during 1995,
consists of four directors, two of whom are outside directors. The Committee
reviews and recommends to Sovereign's Board of Directors candidates for
acquisition by Sovereign. Sovereign's Pension Committee, which also met two
times during 1995, consists of four directors, two of whom are outside
directors. This Committee administers Sovereign's Pension Plan, Employee Stock
Ownership Plan, Stock Purchase Plan, 401(k) Retirement Savings Plan and
Sovereign's Long Term Deferred Compensation Plan. This Committee also approves
Sovereign's investment policy and guidelines, reviews investment performance,
and appoints and retains trustees and investment managers for Sovereign's
retirement plans. Sovereign's Risk Management Committee assesses the major risks
which affect Sovereign's earnings, asset quality and operations, as well as
interest rate risk. The Committee consists of five directors, four of whom are
outside directors. The Risk Management Committee met once during 1995. The Board
of Directors also has an Executive Committee, which has the ability to exercise
all of the powers of the Board in the management and direction of the business
and affairs of Sovereign between Board meetings, except those, which by statute,
are reserved to the Board of Directors. This Committee consists of five
directors, three of whom are outside directors. Because all corporate matters
and related actions were considered by the entire Board, the Committee did not
meet during 1995.
Also consistent with the principles of what it perceives to be good
corporate governance, Sovereign's Board, working with management, has
established a series of practices and procedures to assure a flow of information
about Sovereign's business to its directors in an effort to maximize continued
active interest, involvement and participation by Board members, as well as
diligent and effective Board decision making.
3
<PAGE>
New Sovereign directors receive materials which include information on
Sovereign's vision, mission, values and style, as well as copies of Sovereign's
by-laws, policies, procedures and guidelines. They are also provided with an
opportunity to meet with Sovereign's management and visit Sovereign's
facilities.
Pre-meeting materials are routinely distributed to Board members in advance
of meetings. These materials include in-depth reports on each of Sovereign's
critical success factors, including reports on asset quality, cost containment,
interest rate and other risks. These materials also include reports for each of
Sovereign's divisions, consisting not only of financial data, but also
production, sales and marketing data and information on market and industry
trends. These materials also include background and write-ups on items coming
before the Board. In an effort to be informed, directors also periodically visit
sites of new branches and acquisitions, as well as other Sovereign locations
germane to the decision making process.
Senior and executive officers routinely attend at least a portion of every
Board meeting and they, and other members of management, frequently brief and
seek advice from the Board, not only on items coming before the Board, but also
on new products, marketing strategies and human resource initiatives. In order
to make the Board more aware, among other things, of investor perceptions of
Sovereign, the Board periodically invites professionals and representatives of
securities firms to make presentations to the Board. The Board also holds
periodic meetings with Sovereign's senior regulators in order for these
regulators to make the Board more aware of the changing regulatory environment
and industry trends, as well as to discuss their assessment of Sovereign. Board
members take these and other opportunities to actively discuss Sovereign
specific and industry specific information and trends with these officers and
other visitors.
Sovereign's Board meets once or twice each year, over a two-day period,
with Sovereign's executive management team to review Sovereign's business plans,
discuss corporate strategy and evaluate Sovereign's strengths, weaknesses,
opportunities and threats, as well as to review Sovereign's progress against
Sovereign's vision, mission, values and critical success factors.
Sovereign's Board also extensively studies, at least once a year, all of
Sovereign's strategic alternatives including sale, continuing its current
strategy, or engaging in a merger of equals. Sovereign has pursued this policy
for the past three years and expects to continue it in the future, particularly
in light of rapidly changing competitive conditions. Investment banking firms
are usually asked to provide material for and/or to make presentations to or
otherwise assist the Board at these sessions.
In addition, Sovereign's Board has identified the following areas of Board
and Board Committee involvement and responsibility as its principal areas of
focus in its effort to enhance good corporate governance and to represent
Sovereign's stakeholders effectively:
1. Ongoing active and participatory review of Sovereign's strategic plan
and its long range goals and of Sovereign's performance against such
plan and goals, and the evaluation of the desirability, as appropriate,
of modifications to such plans and goals;
2. Monitoring and review of Sovereign's activities which may pose
significant risks to Sovereign and of Sovereign's programs to respond to
and contain such risks;
3. Ongoing review and monitoring of Sovereign's progress in achieving its
critical success factors, including assessment of the development of
Sovereign's key team members;
4. Periodic, independent and objective review of the performance of the
Chief Executive Officer and other members of executive management and
their compensation relative to such performance;
5. Ongoing review of Sovereign's adherence to its corporate 'Mission,'
'Vision' and 'Values,' which include Sovereign's articulation of its
responsibilities to its stakeholders, including its shareholders,
customers, team members, and the communities Sovereign serves;
6. Periodic study, using outside resources, of all of Sovereign's strategic
alternatives, including sale, continuing its current strategy, or
engaging in a merger of equals;
7. Ongoing review of, and compliance with, Sovereign's policies and
procedures, particularly its Code of Conduct, and other policies
designed to assure compliance by Sovereign with law and regulation;
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<PAGE>
8. Review of the selection process for nominees for election to Sovereign's
Board and the overall quality, interest, diligence, participation and
contribution of its members; and
9. The availability, dissemination and explanation of the information which
the Board and management believe is needed for the Board to perform its
duties diligently and effectively in the interest of Sovereign's
stakeholders.
The Board met fourteen times during 1995. Each director attended at least
75% of the total number of meetings of the Board and its Committees on which the
director served.
In addition to consisting principally of outside directors, Sovereign's
Board occasionally meets without its management directors where appropriate to
maintain independence. It also otherwise acts in an independent manner and
considers itself to be interested, diligent, actively involved in Sovereign's
affairs and otherwise dedicated to principles of good corporate governance.
ELECTION OF DIRECTORS
Sovereign's Board of Directors consists of eight members and is divided
into three classes: Class I directors, whose term expires in 1997; Class II
directors, whose term expires in 1998; and Class III directors, whose present
term expires in 1996, at the 1996 annual meeting of shareholders to which this
proxy statement relates, and, if and when elected at the 1996 annual meeting of
shareholders, whose term will expire in 1999.
During 1995 and early 1996, directors Frederick J. Jaindl and Lawrence W.
O'Neill resigned, and director Samuel R. Willard, Jr. retired, as members of
Sovereign's Board of Directors, thereby creating two vacancies in Class III of
Sovereign's Board of Directors and one vacancy in Class II. In order to comply
with applicable law and provisions of Sovereign's Articles of Incorporation
which require that Class I, Class II and Class III be as equal in number as
possible, the Board of Directors appointed (i) Rhoda S. Oberholtzer, a director
of Sovereign Bank, to complete the unexpired term of director Jaindl as a Class
II director and (ii) Jay S. Sidhu and Richard E. Mohn, then existing Class I
Directors, to complete the unexpired terms of Messrs. O'Neill and Willard,
respectively, as Class III directors. Mr. Mohn was also appointed Chairman of
Sovereign.
The Board of Directors has unanimously nominated G. Arthur Weaver, Richard
E. Mohn and Jay S. Sidhu for election as Class III directors of Sovereign. Each
of the nominees has consented to being named in this proxy statement and to
serve, if elected. If any of the nominees become unable to accept nomination or
election, the persons named in the proxy may vote for a substitute nominee
selected by the Board of Directors. Sovereign's management, however, has no
present reason to believe that any nominee listed below will be unable to serve
as a director, if elected.
The three nominees who receive the highest number of votes cast at the
Meeting will be elected Class III directors. Abstentions and broker non-votes,
although counted for the purpose of determining whether a quorum is present at
the Meeting, will not constitute or be counted as 'votes' cast at the Meeting.
Shares represented by properly executed proxies in the accompanying form will be
voted for the Class III nominees named below unless otherwise specified in the
proxy by the shareholder. Any shareholder who wishes to withhold authority from
the proxyholders to vote for the election of directors or to withhold authority
to vote for any individual nominee may do so by marking his or her proxy to that
effect. Shareholders cannot cumulate their votes for the election of directors.
No proxy may be voted for a greater number of persons than the number of
nominees named.
The following table sets forth certain information concerning the nominees
for election as Class III directors of Sovereign, the continuing Class I and
Class II directors of Sovereign, each named executive officer of Sovereign set
forth in the compensation tables beginning on page 11, and all Sovereign
directors and executive officers as a group, including their ownership of shares
of common stock of Sovereign as of March 4, 1996. Unless otherwise indicated in
a footnote, each such Sovereign director and each such named executive officer
holds sole voting and investment power over the shares listed as beneficially
owned. Unless otherwise indicated in a footnote, shares indicated as being
subject to options are shares issuable pursuant to options outstanding and
vested under the Sovereign Bancorp, Inc. Stock Option Plan (the '1986 Stock
Option Plan') or the Sovereign Bancorp, Inc. 1993 Stock Option Plan (the '1993
Stock Option Plan').
5
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<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
DIRECTOR BENEFICIAL OF COMMON
NAME AGE SINCE OWNERSHIP(1) STOCK
- ------------------------------------------------------------ --- ----------- --------------- -----------
<S> <C> <C> <C> <C>
NOMINEES AS CLASS III DIRECTORS
TO SERVE UNTIL 1999
G. Arthur Weaver............................................ 63 1971 74,459(2) .16%
Richard E. Mohn............................................. 65 1981 330,948(3) .69%
Jay S. Sidhu................................................ 44 1987 1,278,438(4) 2.67%
CONTINUING AS CLASS II DIRECTORS
TO SERVE UNTIL 1998
Rhoda S. Oberholtzer........................................ 65 1979 20,878(5) .04%
Howard D. Mackey............................................ 69 1973 183,583(6) .38%
Daniel K. Rothermel......................................... 57 1976 28,170(7) .06%
CONTINUING CLASS I DIRECTORS
TO SERVE UNTIL 1997
Patrick J. Petrone.......................................... 66 1987 208,088(8) .44%
Theodore Ziaylek, Jr........................................ 73 1979 275,265(9) .58%
EXECUTIVE OFFICERS
Karl D. Gerhart............................................. 42 N/A 315,109(10) .66%
Lawrence M. Thompson, Jr.................................... 42 N/A 193,685(11) .40%
All Sovereign Directors and executive officers as a
group (11 persons)........................................ 2,936,812(12) 6.14%
</TABLE>
- ------------------
(1) The table reflects data supplied by each director and executive officer.
The table also has been adjusted to reflect a 5% stock dividend declared on
December 20, 1995, and payable February 15, 1996, to shareholders of record
on February 1, 1996. The table also reflects shares of Sovereign stock held
by the trustee of Sovereign's Employee Stock Ownership Plan which have been
allocated to the accounts of Mr. Sidhu, Mr. Petrone and the other executive
officers identified in the table and executive officers as a group. The
table does not reflect shares issuable under Sovereign's Non-Employee
Compensation Plan proposed for adoption at the Meeting.
(2) Mr. Weaver holds shared voting and investment power over 14,435 shares.
(3) Mr. Mohn holds shared voting and investment power over 37,948 shares.
(4) Mr. Sidhu holds shared voting and investment power over 669,132 shares.
Shares and percent include 461,883 shares subject to options, 114,468
shares held by Mr. Sidhu's wife and 19,755 shares held by Sovereign's
401(k) Retirement Savings Plan which are allocated to Mr. Sidhu's account.
Shares and percent include 9,682 shares purchased and held by the Sovereign
Employee Stock Ownership Plan (the 'Sovereign ESOP') which are allocated to
Mr. Sidhu's account and over which he exercises voting power.
(5) Shares and percent include 348 shares held by Mrs. Oberholtzer's spouse.
(6) Shares and percent include 7,496 shares held by Mr. Mackey's wife and
24,123 shares subject to options granted pursuant to the Charter FSB
Bancorp, Inc. Stock Option Plan (the 'Charter Stock Option Plan'), which
plan was assumed by Sovereign in connection with Sovereign's acquisition of
Charter FSB Bancorp, Inc. ('Charter') and Charter Federal Savings Bank
('Charter Federal') in November, 1994. Time in service includes years Mr.
Mackey served as a director of Sovereign's and Sovereign Bank's predecessor
institutions.
(7) Shares and percent include 826 shares held by Mr. Rothermel's wife with
respect to which Mr. Rothermel disclaims beneficial ownership.
(8) Mr. Petrone holds shared voting and investment power over 49,980 shares.
Shares and percent include 103,084 shares subject to options granted
pursuant to the Charter FSB Bancorp, Inc. Stock Incentive Plan
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(the 'Charter Incentive Plan'), which plan was assumed by Sovereign in
connection with Sovereign's acquisition of Charter in November, 1994. Time
in service includes years Mr. Petrone served as director of Sovereign's and
Sovereign Bank's predecessor institutions.
(9) Mr. Ziaylek's shares and percent include 42,905 shares subject to options.
(10) Mr. Gerhart holds shared voting and investment power over 220,572 shares.
Mr. Gerhart's shares and percent include 44,100 shares subject to options,
and 43,618 shares held by Sovereign's 401(k) Retirement Savings Plan which
are allocated to Mr. Gerhart's account. Shares and percent include 6,819
shares purchased and held by the Sovereign ESOP which are allocated to Mr.
Gerhart's account and over which he exercises voting power.
(11) Mr. Thompson holds shared voting and investment power over 62,138 shares.
Mr. Thompson's shares and percent include 121,072 shares subject to
options, and 3,855 shares held by Sovereign's 401(k) Retirement Savings
Plan which are allocated to Mr. Thompson's account. Shares and percent
include 6,620 shares purchased and held by the Sovereign ESOP which are
allocated to Mr. Thompson's account and over which he exercises voting
power.
(12) In the aggregate, these persons hold shared voting and investment power
over 1,054,205 shares. Shares and percent include 753,067 shares subject to
options, and 70,359 shares held by Sovereign's 401(k) Retirement Savings
Plan allocated to the executive officers' accounts. Shares and percent
include 23,121 shares purchased and held by the Sovereign ESOP which are
allocated to participant accounts and over which they exercise voting
power.
The principal occupation and business experience during the last five years
of, and other information with respect to, each nominee for election as a
director of Sovereign and of each continuing director of Sovereign is as
follows:
Howard D. Mackey. Mr. Mackey is retired. Prior to the merger of Charter
with and into Sovereign, and the related merger of Charter Federal, Charter's
wholly-owned subsidiary, with and into Sovereign Bank, Mr. Mackey served as an
outside director since 1973 and as Chairman of the Board of Charter and Charter
Federal since 1984. Prior to his retirement in 1986, Mr. Mackey was owner and
president of Mackey Funeral Home. Mr. Mackey is a member of Sovereign's
Compensation, Nominating and Pension Committees, and serves as Chairman and as a
member of Sovereign's Audit Committee.
Richard E. Mohn. Mr. Mohn became Chairman of the Board of Sovereign Bank
in November, 1989, and Chairman of Sovereign in April, 1995. He is Chairman of
Cloister Spring Water Company, Lancaster, Pennsylvania, a bottler and
distributor of spring water. Mr. Mohn serves as a member of Sovereign's
Executive, Compensation, Community Reinvestment and Public Responsibility
Committee, Ethics, Merger and Acquisition, Pension and Risk Management
Committees and also serves as Chairman and as a member of Sovereign's Nominating
Committee.
Rhoda S. Oberholtzer. Mrs. Oberholtzer is retired. Prior to her retirement
she was Floral Manufacturing Manager of Stauffer's of Kissel Hill, Lititz,
Pennsylvania. Mrs. Oberholtzer serves on Sovereign's Audit, Community
Reinvestment and Public Responsibility, Ethics and Risk Management Committees.
Patrick J. Petrone. Mr. Petrone is President of the Charter Federal
Savings Bank Division of Sovereign Bank. He became Vice Chairman of Sovereign
Bank, upon the merger of Charter Federal into Sovereign Bank in 1994. Prior to
the merger, he served as President and Chief Executive Officer of Charter and of
Charter Federal. Mr. Petrone previously served as President and Chief Executive
Officer of Charter since 1990 and President and Chief Executive Officer of
Charter Federal since 1989. Mr. Petrone serves on Sovereign's Executive, Ethics,
Merger and Acquisition, and Risk Management Committees, and also serves as
Chairman and as a member of Sovereign's Community Reinvestment and Public
Responsibility.
Daniel K. Rothermel. Mr. Rothermel became President and Chief Executive
Officer of Cumru Associates, Inc., a private holding company in 1989. He
retired, in 1989, as Vice President, General Counsel and Secretary of Carpenter
Technology Corporation, a publicly held specialty steel manufacturer, a position
he held for more than ten years. Mr. Rothermel is a member of Sovereign's Audit,
Compensation, Merger and Acquisition, Nominating and Pension Committees, and
also serves as Chairman and as a member of Sovereign's Executive and Ethics
Committees.
7
<PAGE>
Jay S. Sidhu. Mr. Sidhu became President and Chief Executive Officer of
Sovereign in November, 1989, and was named President and Chief Executive Officer
of Sovereign Bank in March, 1989. Mr. Sidhu previously served as Treasurer and
Chief Financial Officer of Sovereign since the organization of Sovereign in
1987. Mr. Sidhu serves as a member of Sovereign's Executive, Community
Reinvestment and Public Responsibility, Ethics, Pension and Risk Management
Committees, and also serves as Chairman and a member of Sovereign's Merger and
Acquisition Committee.
G. Arthur Weaver. Mr. Weaver is a real estate and insurance executive with
the George A. Weaver Company, New Holland, Pennsylvania. Mr. Weaver serves on
Sovereign's Executive, Audit, Ethics, Nominating and Risk Management Committees,
and also serves as Chairman and a member of Sovereign's Compensation Committee.
Theodore Ziaylek, Jr. Mr. Ziaylek has served, since 1973, as Chairman of
Ziamatic Corp. in Yardley, Pennsylvania, a manufacturer of fire, safety and
marine equipment. Mr. Ziaylek serves on Sovereign's Executive, Audit,
Compensation and Ethics Committees, and also serves as Chairman of Sovereign's
Risk Management Committee.
COMPENSATION PAID TO DIRECTORS
Sovereign believes that the amount, form and methods used to determine
compensation are an important ingredient in (i) attracting and maintaining
directors who are independent, interested, diligent and actively involved in
Sovereign's affairs, and (ii) more substantially aligning the interests of
Sovereign's directors with the interests of Sovereign's stakeholders.
Employee directors receive no compensation for service as directors of
Sovereign. During 1995, Directors of Sovereign who were not employees of
Sovereign received $700 for each regular meeting of Sovereign's Board of
Directors which they attended and $350 for each special meeting which they
attended. No fees were paid for attendance at Board Committee meetings. During
1995, in addition to payment of regular directors' fees for attendance at
meetings, the Chairman of the Board of Directors of Sovereign received an annual
retainer fee of $15,000. Former Chairman Frederick J. Jaindl, who resigned April
24, 1995, received approximately $3,500.00, of the annual retainer fee and
Richard E. Mohn, who was elected Chairman upon former Director Jaindl's
resignation, received approximately $11,500.
Through December 31, 1995, Sovereign maintained the Sovereign Non-employee
Directors' Incentive Plan ('NDIP') for its non-employee directors. The NDIP
provided for cash compensation to non-employee directors if Sovereign's return
on its beginning equity at January 1, 1995, exceeded 15% for the plan year ended
December 31, 1995. Because Sovereign reached this goal, each non-employee
director, in office on December 31, 1995, received $12,000 in addition to fees
for attendance at meetings and the annual retainer, if applicable. These
payments were in addition to payment of regular directors' fees for attendance
at meetings.
8
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
Sovereign Bancorp, Inc.'s Executive Compensation Program is administered by
the Compensation Committee of the Board of Directors. The Compensation Committee
is composed entirely of non-employee Directors. The Executive Compensation
Program is structured and administered to support Sovereign's mission, which is
to be a highly focused, quality driven, market led and results oriented company,
seeking continually to outperform the market in terms of consistency, growth in
earnings, quality of earnings and return on equity. The program is also
structured to link executive compensation to Sovereign's performance and,
through programs which are substantially weighted in favor of the use of
Sovereign stock as a compensation medium, to more closely align the interests of
executive management with those of Sovereign's shareholders.
The Compensation Committee evaluates and recommends to the Board of
Directors compensation and awards for the Chief Executive Officer. The Chief
Executive Officer, Jay S. Sidhu, evaluates and approves compensation and awards
for the other executive officers. Such compensation and awards are based upon
Sovereign's performance and each individual's performance in meeting personal
and team objectives.
COMPENSATION PHILOSOPHY
The Executive Compensation Program of Sovereign has been designed to:
o Align the interests of executives with the long-term interests of
shareholders through award opportunities which result in ownership of
common stock;
o Motivate key team members to achieve a superior level of quality
performance and financial results by rewarding them for their
achievement; and
o Support a pay-for-performance policy that supplements overall company
compensation amounts based on company-wide results, team oriented results
and individual performance.
COMPONENTS OF COMPENSATION
At present, the Executive Compensation Program is comprised of salary,
annual cash incentive opportunities, long-term incentive opportunities in the
form of options to acquire Sovereign stock and employee benefits, which are also
significantly stock based. As an executive's level of responsibility increases,
a greater portion of his or her potential total compensation opportunity is
based on performance incentives and less on salary and employee benefits,
causing greater variability in the individual's absolute compensation from
year-to-year. Base salary levels for the executive officers of Sovereign are set
below average compared to other companies within its peer group, which consists
of other thrifts and thrift holding companies in the $5 billion to $15 billion
asset range. The peer group used in determining compensation is different from
and broader than the peer group (the three (3) largest Pennsylvania bank holding
companies) used in the performance graph (see 'Performance Graph') because,
although Sovereign is the fifth (5th) largest financial institution
headquartered in Pennsylvania, it is smaller in asset size than all of the
companies in the performance graph peer group. Executives can have the
opportunity for total cash compensation to exceed the average salary for peer
group companies upon Sovereign's achievement of predetermined financial goals
and objectives set by the Compensation Committee and the Board of Directors. The
intent is to have incentive compensation tied to performance results.
The Chief Executive Officer's base salary increased in January 1996 from
$195,000 to $245,000, the first base salary increase granted to the Chief
Executive Officer since July, 1992. The Compensation Committee based the Chief
Executive Officer's base salary in 1994 and 1995 on a variety of factors,
including the salaries of the chief executive officers of comparable companies
in the financial services industry to which it compares its financial results.
The salary increase granted to the Chief Executive Officer in 1996 was not based
on any mathematical formula and did not directly relate to any quantitative
factors. The increase was determined in the Compensation Committee's sole
discretion after its consideration of competitive data, the Board of Directors'
assessment of his performance during 1994 and 1995 and recognition of
Sovereign's performance, which for 1994 and 1995 was generally above its peer
group in terms of return on equity, net income and growth in assets through
mergers and acquisitions. The other named executive officers were granted salary
increases each year based on individual performance, contributions to Sovereign
and level of responsibility.
9
<PAGE>
SHORT-TERM INCENTIVE COMPENSATION
Incentive compensation awards in 1996 were based on a review of Sovereign's
1995 performance. This review included an assessment of Sovereign's results of
operations for 1995 and of how Sovereign met and exceeded financial goals, set
in early 1995, for return on equity, earnings and capital levels for 1995. The
goals reflected the Board of Directors' determination of the appropriate goals
for a growth oriented company. No bonuses would have been paid to executive
management if Sovereign's return on beginning equity at January 1, 1995, was
less than 15% for the year ended December 31, 1995. Pursuant to a formula
recommended by the Compensation Committee and approved by the Board early in
1995, if Sovereign's return on beginning equity was 15% or better for 1995, Mr.
Sidhu was entitled to a bonus for 1995 based on a sliding scale of various
percentages of Sovereign's profits beginning at 0.7% for a 15% return on
beginning equity to 0.9% for a 17% or better return on beginning equity. Mr.
Sidhu was also entitled to receive special bonuses for 1995 if Sovereign's
profits exceeded $48 million and if Sovereign's equity-to-assets ratio exceeded
5% by December 31, 1995, and Sovereign Bank was considered well capitalized by
December 31, 1995.
The Compensation Committee determined the amount of bonus paid to Mr. Sidhu
and Mr. Sidhu determined the bonuses paid to the other named executives. In a
continuing effort to align the interests of executive management with the
interests of shareholders by making a higher percentage of compensation stock
based, Mr. Sidhu's bonus increases by 5% if he agrees to use his bonus to
increase his stake in Sovereign by purchasing shares of Sovereign common stock
with the bonus. The bonuses of certain executive officers, from time-to-time,
are likewise increased if they agree to purchase stock. Because Sovereign's
return on beginning equity and profits exceeded Sovereign's targets and Mr.
Sidhu agreed to purchase stock with his bonus, he was paid an incentive
compensation award of $460,479 for 1995 representing 0.82% of Sovereign's
profits for 1995.
LONG-TERM INCENTIVE COMPENSATION
Sovereign's 1986 Stock Option Plan and 1993 Stock Option Plan are long-term
plans designed not only to provide incentive to management, but also to align a
significant portion of the Executive Compensation Program with shareholder
interests. The 1986 Stock Option Plan was adopted by shareholders in 1986 and
permits Sovereign to grant certain officers a right to purchase shares of stock
over a ten (10) year period, at the fair market value per share at the date the
option is granted. The 1986 plan expires by its terms in August, 1996. The 1993
Stock Option Plan was adopted by shareholders in 1993 and permits Sovereign to
grant eligible employees a similar right to purchase shares of stock at a price
equal to at least the fair market value per share on the date the option is
granted. Upon adoption, non-employee directors of Sovereign were automatically
granted non-qualified stock options on a one-time basis. In granting incentive
stock options to Mr. Sidhu and the other executive officers, the Compensation
Committee took into account Sovereign's financial performance, Sovereign's long-
term strategic goal of increasing shareholder value, the executive's level of
responsibility and his continuing contributions to Sovereign.
The following tables, and the accompanying narrative and footnotes, reflect
the decisions covered by the above discussion. This report has been furnished by
the Compensation Committee whose members are:
G. Arthur Weaver, Chairman
Howard D. Mackey Richard E. Mohn
Daniel K. Rothermel Theodore Ziaylek, Jr.
10
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to Sovereign for the
fiscal years ended December 31, 1995, 1994 and 1993, of those persons who during
1995, (i) served as Sovereign's chief executive officer or (ii) were executive
officers (other than the chief executive officer) whose total annual salary and
bonus exceeded $100,000 (collectively with the chief executive officer, the
'Executive Officers'). The table also gives effect to the 5% stock dividend
declared on December 30, 1995, and payable February 15, 1996, to shareholders of
record on February 1, 1996.
TABLE I
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- -------------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND SALARY BONUS OPTIONS/SARS COMPENSATION(2)(3)(4)
PRINCIPAL POSITION YEAR ($) ($)(1) (#) ($)
------------------ ---- --------- --------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Jay S. Sidhu 1995 195,000 460,479 0 4,725
President and 1994 195,000 422,158 0 4,710
Chief Executive Officer 1993 195,000 351,422 261,954 4,497
Karl D. Gerhart 1995 114,038 85,555 0 4,065
Chief Financial 1994 103,846 40,000 0 3,115
Officer and Treasurer 1993 100,500 50,000 34,927 4,497
Lawrence M. Thompson, Jr. 1995 114,038 85,555 0 3,859
Chief Administrative 1994 103,462 40,000 0 3,104
Officer and Secretary 1993 96,833 50,000 34,927 3,863
Patrick J. Petrone 1995 210,000 0 0 4,344
Vice Chairman, 1994 200,000 0 0 4,344
Sovereign Bank 1993 177,404 0 0 4,790
</TABLE>
- ------------------
(1) Mr. Sidhu's bonus for 1995 was increased by 5% because Mr. Sidhu agreed to
purchase Sovereign common stock with the proceeds of such bonus.
(2) Does not include the value of 9,682, 6,819 and 6,620 shares of Sovereign
Common Stock allocated to the accounts of Messrs. Sidhu, Gerhart and
Thompson, respectively, under the terms of Sovereign's Employee Stock
Ownership Plan as of December 31, 1995.
(3) Amounts appearing in this column are Sovereign's contributions on behalf of
each named person to the Sovereign Bancorp, Inc. 401(k) Retirement Savings
Plan.
(4) Mr. Petrone's compensation includes a term life insurance premium of $1,344.
Stock options were not granted to Executive Officers during the fiscal years
ended December 31, 1994, and 1995.
11
<PAGE>
The following table sets forth information concerning exercised and
unexercised options to purchase Sovereign's common stock. The following table
also gives effect to the 5% stock dividend declared on December 30, 1995, and
payable February 15, 1996, to shareholders of record on February 1, 1996.
TABLE III
AGGREGATED OPTIONS EXERCISED IN LAST YEAR AND
DECEMBER 31, 1995 OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, DECEMBER 31, 1995($)
1995(#)
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
---- --------------- -------------- -------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Jay S. Sidhu................. 0 0 461,883/261,954 3,619,638/874,926
Karl D. Gerhart.............. 42,000 268,400 44,100/34,927 0/116,656
Lawrence M. Thompson, Jr..... 37,392 281,505 121,072/34,927 643,589/116,656
Patrick J. Petrone........... 0 0 103,084/0 727,302/0
</TABLE>
PENSION PLAN
Sovereign maintains a defined benefit retirement plan ('Pension Plan') for
all employees who have attained age 21 and have completed one year of
eligibility service. The following table sets forth the estimated annual
benefits payable upon retirement to participants at normal retirement age, in
the average annual salary and years of service classifications specified.
SOVEREIGN BANCORP, INC. PENSION PLAN
ILLUSTRATION OF BENEFITS AT DECEMBER 31, 1995
FIVE YEAR BENEFITS PAYABLE PER YEARS OF SERVICE(1)(2)
AVERAGE -----------------------------------------------------
REMUNERATION(3) 15 20 25 30 35
--------------- --------- --------- --------- --------- ---------
$ 60,000 $11,671 $15,562 $19,452 $23,342 $27,232
80,000 17,371 23,162 28,952 34,742 40,533
100,000 23,071 30,762 38,452 46,142 53,833
120,000 28,771 38,362 47,952 57,542 67,133
140,000 34,471 45,962 57,452 68,942 80,433
160,000 37,321(4) 49,762(4) 62,202(4) 74,642(4) 87,083(4)
180,000 37,321(4) 49,762(4) 62,202(4) 74,642(4) 87,083(4)
200,000 37,321(4) 49,762(4) 62,202(4) 74,642(4) 87,083(4)
220,000 37,321(4) 49,762(4) 62,202(4) 74,642(4) 87,083(4)
240,000 37,321(4) 49,762(4) 62,202(4) 74,642(4) 87,083(4)
- ------------------
(1) The following are the years of credited service under Sovereign's Pension
Plan for the persons named in the cash compensation table: Mr. Sidhu -- 9
years; Mr. Thompson -- 10 years; Mr. Gerhart -- 19 years; Mr. Petrone -- 1
year.
(2) Benefits are computed in single life annuity amounts on the basis of an
assumed year of birth of 1950 and without any deduction for Social Security
or other offset amounts.
(3) Represents the highest average remuneration received over a consecutive
five-year period during the last ten years, excluding deferred compensation
other than 401(k) Retirement Savings Plan contributions, subject in the case
of each Executive Officer to a compensation limit of $150,000 in 1995.
(4) The 1995 maximum annual benefit permitted when the Internal Revenue Code's
annual compensation limit of $150,000 and maximum annual benefit limit are
applied to the Pension Plan's benefit formula.
12
<PAGE>
CERTAIN TRANSACTIONS
EMPLOYMENT AGREEMENTS
Sovereign entered into an employment agreement, dated September 15, 1992,
with Jay S. Sidhu, which superseded, in its entirety, Mr. Sidhu's then existing
employment agreement. Mr. Sidhu's agreement had an initial term of three years
and, unless terminated as set forth therein, is automatically extended at
designated dates to provide a new term of three years except that, at certain
times, notice of nonextension may be given, in which case the agreement will
expire at the end of its then current term. No such notice has been given.
The agreement provides a base salary which, if increased by action of the
Board of Directors, becomes the new base salary provided thereafter by the
agreement. In addition, the agreement provides, among other things, a right to
participate in any bonus plan approved by the Board of Directors and insurance,
vacation, pension and other fringe benefits for Mr. Sidhu.
If Mr. Sidhu's employment is terminated without 'Cause' (as defined in the
Agreement) or if Mr. Sidhu voluntarily terminates employment for 'Good Reason'
(as defined in the agreement), Mr. Sidhu becomes entitled to severance benefits
under the agreement. 'Good Reason' includes the assignment of duties and
responsibilities inconsistent with Mr. Sidhu's status as President and Chief
Executive Officer, a reduction in salary or benefits or a reassignment which
requires Mr. Sidhu to move his principal residence more than 100 miles from
Sovereign's principal executive office. If any such termination occurs prior to
September 15, 1997, the benefits are monthly cash payments in the aggregate
amount of $1.5 million, plus insurance and other fringe benefits, payable for
the longer of 36 months or the end of the contract term. If any such termination
occurs on or after September 15, 1997, the benefits are monthly cash payments in
the aggregate amount of the greater of (i) $1.5 million or (ii) three times base
salary and bonus (equal to the average bonus for the prior three years), plus
insurance and other fringe benefits, payable for the longer of 36 months or the
end of the contract term. Cash benefits payable upon any such termination are
reduced by an amount equal to 25% of any compensation earned from another
employer. The agreement contains a provision restricting the executive's right
to compete after a voluntary termination of employment without 'Good Reason' or
any termination for 'Cause;' in all other circumstances, after termination of
employment, there is no covenant not to compete.
Sovereign has also entered into employment agreements with Karl D. Gerhart
and Lawrence M. Thompson, Jr., each dated September 15, 1992, which superseded
in their entirety the executives' then existing employment agreements. Each
agreement, has an initial term of two years and, unless terminated as set forth
therein, is automatically extended at certain dates to provide a new term of two
years except that at certain times notice of nonextension may be given, in which
case the agreement will expire at the end of its then current term. Each
agreement provides a base salary which, if increased by action of the Board of
Directors, becomes the new base salary provided thereafter by the agreement. In
addition, each agreement provides, among other things, a right to participate in
any bonus plan approved by the Board of Directors and insurance, vacation,
pension and other fringe benefits for the executive.
If Mr. Gerhart's or Mr. Thompson's employment is terminated without 'Cause'
(as defined in the agreements), whether or not a 'Change in Control' (as defined
in the agreements) of Sovereign has occurred, or if Mr. Gerhart or Mr. Thompson
voluntarily terminates employment for 'Good Reason' (as defined in the
agreements) following a 'Change in Control,' the executive becomes entitled to
severance benefits under the agreement. The benefits are continuation of salary,
bonus (equal to the average bonus for the three prior years), and insurance and
other fringe benefits for two years. If, in the absence of a 'Change in
Control,' Mr. Gerhart's or Mr. Thompson's employment is terminated without
'Cause,' cash benefits payable under the agreement are reduced by an amount
equal to 25% of any compensation received from another employer. Each agreement
contains a provision restricting the executive's right to compete after a
voluntary termination of employment without 'Good Reason' or any termination for
'Cause'; in all other circumstances, after termination of employment, there is
no covenant not to compete.
In connection with the acquisition of Charter and Charter Federal,
Sovereign assumed Patrick J. Petrone's employment agreement. The employment
agreement has an initial term of three years and, unless terminated as set forth
therein, is automatically extended on January 1 of each year for a 36 month
period. The agreement may be terminated at the end of the then remaining term by
either party giving written notice prior to January 1 of each succeeding year,
after which notice, the agreement will no longer automatically be extended each
January 1. No such notice has been given.
13
<PAGE>
Mr. Petrone may terminate his employment upon or after the occurrence of a
'Change in Control' if, within the period of two years following such 'Change in
Control' (as defined in the agreement), (i) he is assigned to a position of
lesser rank or status or to a different base employment area, (ii) his base
salary is reduced, or (iii) Sovereign breaches the agreement.
In the event of any such termination or in the event of termination without
'Just Cause' (as defined in the agreement), within two years following a 'Change
in Control,' Mr. Petrone is entitled to receive as severance pay a lump sum
payment equal to the aggregate amount of the future base salary payments that he
would have received if he continued in the employ of Sovereign until the later
of (a) the expiration of the then current term of the agreement, or (b) 36
months following the termination date. The lump sum payment is to be calculated
at the highest rate of base salary paid to him at any time under the agreement,
with such payments discounted to present value at an annual rate of 5%.
Sovereign may terminate the employment of Mr. Petrone at any time for 'Just
Cause,' as defined. In the event of a termination for 'Just Cause,' Sovereign's
obligation to Mr. Petrone terminates.
The employment agreement provides that, after termination of employment
with Sovereign, Mr. Petrone will not be employed by, control, manage or
otherwise participate in the business of a 'significant competitor' (as defined
in the agreement), for a period of two (2) years after termination of
employment. If, within two (2) years after a 'Change in Control,' Mr. Petrone
terminates his employment or is terminated by Sovereign and is entitled to
receive as severance pay a lump sum payment as described above, then the
noncompetition provisions of the agreement are inoperative.
INDEMNIFICATION
The by-laws of Sovereign provide for (1) indemnification of directors,
officers, employees and agents of Sovereign and its subsidiaries and (2) the
elimination of a director's liability for monetary damages, each to the fullest
extent permitted by Pennsylvania law. 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 by-law
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.
Directors and officers of Sovereign are also insured against certain
liabilities for their actions, as such, by an insurance policy obtained by
Sovereign. The premium for 1995 was $249,940.
On December 21, 1993, Sovereign Bank entered into an Indemnification
Agreement (the 'Indemnification Agreement') with Mr. Sidhu. The Indemnification
Agreement provides that Sovereign Bank will indemnify Mr. Sidhu to the fullest
extent permitted by applicable law and regulation for all expenses, judgments,
fines and penalties incurred in connection with, and amounts paid in settlement
of, any claim relating to, among other things, the fact that Mr. Sidhu is or was
a director or officer of Sovereign or Sovereign Bank (an 'Indemnifiable Claim').
Sovereign Bank will also advance expenses upon Mr. Sidhu's request in connection
with any Indemnifiable Claim.
Sovereign Bank's indemnification obligations are subject to the condition
that a Reviewing Party (as defined in the Indemnification Agreement) shall not
have determined that Mr. Sidhu would not be permitted to be indemnified under
applicable law. To the extent that it is subsequently determined that Mr. Sidhu
is not entitled to indemnification, he shall reimburse Sovereign Bank for any
amounts previously paid.
Upon a Change in Control (as defined in the Indemnification Agreement) of
Sovereign or Sovereign Bank, all determinations regarding Sovereign Bank's
indemnification obligations under the Agreement shall be made by Independent
Legal Counsel (as defined in the Indemnification Agreement). Upon a Potential
Change in Control (as defined in the Indemnification Agreement) of Sovereign or
Sovereign Bank, Sovereign Bank shall, upon written request by Mr. Sidhu, create
and fund a trust for the benefit of Mr. Sidhu in order to ensure satisfaction of
Sovereign Bank's indemnification obligations under the Indemnification
Agreement.
14
<PAGE>
INDEBTEDNESS OF MANAGEMENT
Prior to August, 1989, Sovereign Bank offered consumer and residential
mortgage loans to directors of Sovereign and its subsidiaries, full-time
employees with six months continuous service at Sovereign Bank, and part-time
employees with one year of continuous service at Sovereign Bank, at preferential
terms with respect to interest rates and loan fees. Specifically, interest rates
offered to such persons were up to 1% lower than rates offered to nonaffiliated
persons for similar transactions, and certain loan origination fees were waived.
As a result of the enactment in August, 1989 of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, which made Section 22(h) of the
Federal Reserve Act applicable to Sovereign and Sovereign Bank, any credit
extended by Sovereign Bank to executive officers and directors of Sovereign Bank
and Sovereign, and to the extent otherwise permitted, principal shareholders of
Sovereign or any related interest of the foregoing must be (i) on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions by Sovereign Bank with non-affiliated
parties, and (ii) not involve more than the normal risk of repayment or present
other unfavorable features.
The following table sets forth certain information with respect to the one
director and executive officer of Sovereign, whose aggregate indebtedness to
Sovereign Bank exceeded $60,000 as of December 31, 1995, and whose loan was
granted on preferential terms applicable to directors, officers and employees of
Sovereign Bank and Sovereign at the time the loan was made.
<TABLE>
<CAPTION>
HIGHEST
PRINCIPAL
BALANCE FROM
JAN. 1 1995 BALANCE AT
TO DEC. 31, INTEREST YEAR
NAME TYPE OF LOAN DEC. 31, 1995 1995 RATE MADE
- ----- ------------ ------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Jay S. Sidhu......... Consumer Loan $ 96,458 $ 95,104 1.0% 1987
above
prime rate
</TABLE>
Except as set forth above, all loans made by Sovereign Bank to directors
and executive officers of Sovereign (i) were made in the ordinary course of
business, (ii) were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and (iii) did not involve more than the normal
risk of collectability or present other unfavorable features.
ADDITIONAL INFORMATION REGARDING DIRECTORS AND OFFICERS.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
'Exchange Act'), requires Sovereign's officers and directors, and any persons
owning ten percent or more of Sovereign's common stock, to file in their
personal capacities initial statements of beneficial ownership, statements of
changes in beneficial ownership and annual statements of beneficial ownership
with the Securities and Exchange Commission (the 'SEC'). Persons filing such
beneficial ownership statements are required by SEC regulation to furnish
Sovereign with copies of all such statements filed with the SEC. The rules of
the SEC regarding the filing of such statements require that 'late filings' of
such statements be disclosed in Sovereign's proxy statement. Based solely on
Sovereign's review of any copies of such statements received by it, and on
written representations from Sovereign's existing directors and officers that no
annual statements of beneficial ownership were required to be filed by such
persons, Sovereign believes that all such statements were timely filed in 1995.
15
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph and table comparing the yearly percentage change
in the cumulative total shareholder return on Sovereign's common stock against
(i) the cumulative total return on the S&P 500 Index (ii) the cumulative total
return on the NASDAQ Combination Bank Index and (iii) the cumulative total
return on the largest three Pennsylvania bank holding companies (CoreStates
Financial Corp, Mellon Bank Corp. and PNC Bank Corp.) for the five-year period
commencing January 1, 1991, and ending December 31, 1995.
Cumulative total return on Sovereign's common stock, the S&P 500 Index, the
NASDAQ Combination Bank Index and the common stock of the largest three
Pennsylvania bank holding companies equals the total increase in value since
January 1, 1991, assuming reinvestment of all dividends. The graph and table
were prepared assuming that $100 was invested on January 1, 1991, in Sovereign's
common stock, the S&P 500, the NASDAQ Combination Bank Index and the common
stock of the largest three Pennsylvania bank holding companies.
SOVEREIGN BANCORP
PLOT POINTS FOR GRAPH
---------------------
TOP THREE
S&P 500 NASDAQ SOVEREIGN BANKS IN PA
------- ------ --------- -----------
1991 120 130 215 180
1992 125 210 410 240
1993 140 280 730 230
1994 130 280 490 210
1995 190 390 690 350
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
S&P 500.................................. $126.91 $131.95 $145.25 $139.08 $186.52
NASDAQ Combination Bank Index............ $137.52 $209.07 $270.46 $273.46 $396.00
Sovereign................................ $220.53 $412.70 $737.64 $493.33 $684.25
Top 3 Banks in PA(1)..................... $179.12 $246.52 $243.80 $216.33 $356.12
</TABLE>
- ------------------
(1) Includes CoreStates Financial Corp, Mellon Bank Corp. and PNC Bank Corp. In
prior years, this peer group included Integra Financial Corp. and Meridian
Bancorp, Inc. They are not included in the peer group this year because they
each entered, in 1995, into agreements to be acquired.
16
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding persons known by
Sovereign to own more than 5% of the outstanding shares of Sovereign's common
stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIARY PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP COMMON STOCK
------------------- ------------------ -------------
<S> <C> <C>
York Bank & Trust Company.............
P.O. Box 869 3,700,754 7.7%
21 East Market Street
York, Pennsylvania 17401
</TABLE>
- ------------------
(1) As of March 4, 1996, 3,700,754 shares of Common Stock (approximately 7.7% of
outstanding shares of Common Stock) were held of record by a nominee for
York Bank & Trust Company, trustee for the Sovereign Bancorp, Inc. Employee
Stock Ownership Plan (the 'ESOP'). Under the terms of the ESOP, shares held
by the ESOP are allocated to individual employee accounts as the debt
incurred to purchase the shares is repaid. Once allocated to an individual
employee account, shares are voted in the manner directed by the employee.
Prior to allocation, the trustee is required to vote the shares in its
discretion. As of March 4, 1996, 577,134 shares were allocated to the
accounts of Sovereign employees and 3,123,620 shares were unallocated.
17
<PAGE>
PROPOSAL TO APPROVE SOVEREIGN
NON-EMPLOYEE DIRECTOR COMPENSATION PLAN
Sovereign's Board has established, subject to shareholder approval, the
1996 Non-Employee Director Compensation Plan (the 'Compensation Plan'). The
purposes of the Compensation Plan are to (i) attract, retain and compensate, as
directors of Sovereign and its subsidiaries, highly qualified individuals, who
are not employees of Sovereign, Sovereign Bank or any other direct or indirect
subsidiary of Sovereign, and (ii) more significantly align the interests of the
members of the Boards with those of Sovereign's shareholders by requiring that
all or a substantial portion of director compensation be paid in the form of
Sovereign stock.
Compensation is payable for all services as members of the Board of
Directors and Committees of Sovereign, Sovereign Bank or any direct or indirect
subsidiary of Sovereign. Compensation payable under the Plan will be in
substitution for and not in addition to other methods or forms of compensation.
The Compensation Plan is intended to require Sovereign Directors to
increase their ownership of Sovereign's common stock. The Compensation Plan is
intended to be beneficial to Sovereign and to its shareholders because it will
require directors to have a greater personal financial stake in Sovereign
through the ownership of Sovereign's common stock, in addition to underscoring
the directors' common interest with shareholders in increasing the long-term
value of Sovereign's stock.
The principal features of the Compensation Plan are summarized below. This
summary is qualified in its entirety by reference to the full text of the
Compensation Plan which is appended as Exhibit 'A' to this Proxy Statement.
The Compensation Plan requires that all of the annual compensation payable
to Sovereign's Chairman in his capacity as such and as a director of Sovereign
and Sovereign Bank and the Committees thereof be paid solely in shares of
Sovereign's Common Stock. The Compensation Plan also requires, in effect, that a
preponderant portion of each other non-employee director's annual compensation
for membership on the Board of Directors of Sovereign, Sovereign Bank and the
committees thereof be paid in shares of Sovereign's common stock. The
Compensation Plan will be administered by Sovereign's Board of Directors. A
maximum of 500,000 shares of Sovereign's common stock may be issued under the
Compensation Plan, which stock may be authorized or unissued shares, treasury
shares or shares purchased in the open market.
The Compensation Plan provides benefits to five classes of non-employee
directors: (i) Sovereign non-employee directors, who are not also directors of
Sovereign Bank; (ii) Sovereign Bank non-employee directors who are not also
directors of Sovereign; (iii) directors who are both Sovereign and Sovereign
Bank non-employee directors; (iv) Sovereign's Chairman, in all capacities; and,
(v) if, when and to the extent designated by the Sovereign Board of Directors,
non-employee directors of Sovereign's direct and indirect subsidiaries, other
than Sovereign Bank. As of the date hereof, Sovereign's Board of Directors has
not designated the non-employee directors of any other subsidiary to participate
in the Compensation Plan.
Under the Plan, the Sovereign Board of Directors annually establishes the
dollar amount of compensation to be payable to each class of non-employee
director. Compensation is payable to each class of non-employee director on a
quarterly basis in a combination of both cash and shares of Sovereign common
stock.
The Compensation Plan provides that, on a quarterly basis, each class of
non-employee director (except the Sovereign Chairman) will receive a fixed
number of shares of Sovereign common stock, plus cash equal to the difference
between the value of the Sovereign common stock and the individual participant's
aggregate quarterly compensation. The value of Sovereign common stock granted
under the Plan is defined in the plan to equal (i) the average closing price for
the last 10 days of the quarter with respect to which the compensation is paid
(the 'Sovereign Market Price') multiplied by the number of shares granted for
such quarter. The Compensation Plan provides that if Sovereign's common stock
does not trade on any day, the average of the high and low bid and asked prices
for that day will be used. The Compensation Plan also provides that if the value
of the common stock payable in any quarter exceeds the aggregate compensation
payable to a non-employee director in such quarter, the non-employee director
will not receive quarterly cash compensation, however the individual participant
is entitled to the number of shares of Sovereign common stock authorized under
the plan for such quarter. The Compensation Plan also provides that the
Sovereign Chairman will receive, quarterly, that number of shares of Sovereign
Common Stock equal to the dollar amount of quarterly aggregate compensation set
annually by the Board, divided by the Sovereign Market Price.
18
<PAGE>
The following table sets forth the benefits which will be received by
Sovereign's non-employee directors pursuant to the Compensation Plan, on a
quarterly basis in 1996, assuming that the Market Price for Sovereign Common
Stock is $10.63 per share, its Market Price at March 4, 1996.
Quarterly
Compensation Plan Benefits
<TABLE>
<CAPTION>
AGGREGATE
DOLLAR NUMBER OF SHARES
CLASS OF VALUE TOTAL OF OF COMMON STOCK CASH
NON-EMPLOYEE DIRECTOR(1) BENEFITS ($) PER PARTICIPANT(2) COMPONENT
--------------------- --------------- ------------------- ----------
<S> <C> <C> <C>
Sovereign Bank (8 Persons)........................ $ 2,500 175 $ 639.75
Sovereign and Sovereign Bank (6 Persons).......... 9,500 675 2,324.75
Sovereign Chairman................................ 25,000 2,351(2) --
</TABLE>
- ------------------
(1) There are, at present, no directors of Sovereign who are not also directors
of Sovereign Bank.
(2) Determined by dividing the quarterly compensation amount by the Sovereign
Market Price.
The Compensation Plan provides that, if Sovereign at any time increases or
decreases the number of its outstanding shares of common stock or changes in any
way rights and privileges of such shares through a stock dividend or other
distribution upon such shares in common stock, or through a stock split, reverse
stock split, subdivision, consolidation, combination, reclassification or
recapitalization involving Sovereign's common stock, then the numbers, rights
and privileges of shares issuable under the Compensation Plan shall be
increased, decreased or changed in like manner.
The Board may amend the Compensation Plan at any time without shareholder
approval, subject to requirements under applicable securities and tax laws;
provided, however, that amendment of the plan may not materially and adversely
affect any right of a participant with respect to shares of common stock
previously issued without the participant's written consent.
The Compensation Plan will terminate upon the earlier of the Board's
adoption of a resolution terminating the Compensation Plan or 10 years from the
date the Compensation Plan is approved and adopted by shareholders of Sovereign.
If the Compensation Plan is approved by shareholders, it will cover all
compensation payable to directors beginning January 1, 1996. Sovereign
anticipates that the Compensation Plan will be registered with the Securities
and Exchange Commission and with any applicable state securities commission
where registration is required. The cost of registration will be borne by
Sovereign.
As provided above, only non-employee directors of Sovereign or its
subsidiaries will be eligible to receive stock under the Compensation Plan.
Therefore, executive officers who are also directors will not be eligible to
receive, and will not receive, benefits thereunder.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR ADOPTION OF
THE COMPENSATION PLAN. THE BOARD BELIEVES THAT THE EXISTENCE OF THE PLAN WILL
ASSIST IN ATTRACTING AND RETAINING QUALIFIED MEMBERS OF THE BOARDS OF SOVEREIGN
AND SOVEREIGN BANK AND WILL HAVE THE EFFECT OF MORE SIGNIFICANTLY ALIGNING THE
INTERESTS OF THESE BOARDS WITH THOSE OF SOVEREIGN'S SHAREHOLDERS. The
affirmative vote of a majority of all votes cast at the Meeting is required to
adopt the Compensation Plan. Abstentions and broker non-votes will not
constitute or be counted as 'votes' cast for purposes of the Meeting. All
proxies will be voted 'FOR' adoption of the Compensation Plan unless a
shareholder specifies to the contrary on such shareholder's proxy card.
PROPOSAL TO APPROVE THE SOVEREIGN BANCORP, INC.
1996 STOCK OPTION PLAN
DESCRIPTION OF THE 1996 STOCK OPTION PLAN
The Board of Directors believes that Sovereign's stock option programs
constitute an important ingredient in Sovereign's policy of encouraging its
executive management to increase their stake in Sovereign and, thus, to more
significantly align the interests of management with those of Sovereign's
shareholders. Accordingly, Sovereign has adopted a new 1996 Stock Option Plan,
subject to shareholder approval.
19
<PAGE>
Shareholders have previously authorized grants of options to employees
under the 1986 Stock Option Plan and the 1993 Stock Option Plan. After the
expiration of the 1986 Stock Option Plan and the 1993 Stock Option Plan, no
further options may be granted thereunder. The 1986 Stock Option Plan will
expire by its terms on August 19, 1996. The 1993 plan is outdated in a number of
respects and the number of shares available for option grants thereunder is
insufficient (particularly in the event such shares become issuable to employees
of institutions merged into Sovereign pursuant to the terms of such transaction)
to provide options in accordance with Sovereign's policies. Therefore, subject
to shareholder approval, Sovereign has adopted the 1996 Stock Option Plan.
The 1996 Stock Option Plan is designed to improve the performance of
Sovereign and its subsidiaries and, by doing so, to serve the interests of
Sovereign and its shareholders. By encouraging ownership of Sovereign shares by
those who play significant roles in Sovereign's success, shareholder approval
and implementation of the 1996 Stock Option Plan will have the effect of more
closely aligning the interests of Sovereign's executive management team with
those of its shareholders by relating capital accumulation to increases in
shareholder value. Moreover, adoption of the 1996 Stock Option Plan should have
a positive effect on Sovereign's ability to attract, motivate and retain team
members of outstanding leadership and management ability.
The principal features of the 1996 Stock Option Plan are summarized below.
The summary is qualified in its entirety by reference to the full text of the
1996 Stock Option Plan which is appended as Exhibit 'B' to this proxy statement.
The 1996 Stock Option Plan authorizes the Compensation Committee (the
'Committee') of the Board of Directors to grant options for the purchase of up
to Five Million shares of Sovereign's common stock. Sovereign's policy is to
have outstanding, at any one time, options to acquire no more than 10% of
Sovereign's shares outstanding at such time, including options issued under all
Sovereign stock option plans and options issued under the plans of institutions
which have merged with or who have been acquired by Sovereign. At December 31,
1995, options to acquire 1,659,187 shares of Sovereign common stock were
outstanding, representing less than 3.5% of Sovereign's outstanding common
stock, as of such date.
Under the 1996 Stock Option Plan, both incentive stock options (as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the 'Code'))
and nonqualified stock options may be granted to eligible employees of Sovereign
and its subsidiaries. No person who owns immediately before the grant of an
incentive stock option, directly or indirectly, more than 10 percent of the
total combined voting power of all classes of Sovereign's common stock, is
eligible for the grant of an incentive stock option. As of March 4, 1996,
Sovereign had approximately 25 key team members who would be eligible to
participate in the 1996 Stock Option Plan.
Option grants to eligible team members are anticipated to be made annually.
Eligible team members generally include all key employees of Sovereign and its
subsidiaries. Eligible team members will be selected to receive a grant of
options based upon the recommendation of Sovereign's chief executive officer.
The grant of an option must be approved by a majority of the disinterested
members of the Board.
The Committee has the authority to grant options under the 1996 Stock
Option Plan, subject to the approval of a majority of the disinterested members
of the Board. The Committee is composed of at least three members of the Board,
who serve at the discretion of the Board. The 1996 Stock Option Plan authorizes
the Committee to administer and interpret the 1996 Stock Option Plan. Members of
the Committee are each 'disinterested persons' as such term is defined under the
rules and regulations adopted by the Securities and Exchange Commission. Any
shares as to which an option expires, lapses unexercised, or is terminated or
canceled, may be subject to a new option.
The exercise price for options granted under the 1996 Stock Option Plan
will be the fair market value of the stock underlying the option on the date the
option is granted. Therefore no dollar value or gain to the optionee is possible
without appreciation in the stock price after the date the option is granted.
Incentive stock options granted under the 1996 Stock Option Plan may be
exercised for 10 years after the date of grant. Nonqualified stock options
granted under the 1996 Stock Option Plan may be exercised for 10 years and 1
month after the date of grant. The aggregate fair market value (determined at
the time the option is granted) of the shares of common stock with respect to
which incentive stock options are exercisable for the first time by an optionee
during any calendar year may not exceed $100,000. No team member may receive
option grants in excess of 300,000 shares under the 1996 Stock Option Plan in
any twelve month period. No option may
20
<PAGE>
be transferred by the optionee other than by will or by the laws of descent and
distribution, and each option is exercisable during the optionee's lifetime only
by the optionee.
Under the 1996 Stock Option Plan, options may not be exercised during the
12 month period following the date of grant, unless there occurs a 'change in
control' of Sovereign during such period. In that event the options become
immediately exercisable. The term 'Change in Control' is defined in the 1996
Stock Option Plan to mean, among other things, the execution of a binding
written agreement (which is approved, if legally required, by Sovereign's
shareholders) to sell Sovereign in a transaction in which (i) Sovereign's
shareholders do not own, after the transaction, at least 51% of the voting
securities of the surviving institution, and (ii) persons who were members of
Sovereign's Board do not constitute at least 51% of the members of the board of
the surviving institution.
Under the 1996 Stock Option Plan, in the event of an optionee's retirement,
incentive stock options lapse at the earlier of three months from the date of
retirement or the term of the option, while nonqualified options may continue to
be exercised during the term of the option up to 24 months, at the discretion of
the Committee, from the date of retirement. An optionee whose employment
terminates due to death or disability may exercise an option until the earlier
of the term of the option or one year after such termination of employment.
If an optionee's employment is terminated for 'Cause,' all options granted
to such person terminate upon the date employment is terminated. Under the 1996
Stock Option Plan, termination for 'Cause' is defined as termination of
employment resulting from (i) the optionee's conviction of or plea of guilty to
a felony, a crime of falsehood, or a crime involving fraud or moral turpitude,
or the actual incarceration of the optionee for a period of forty-five (45)
consecutive days, (ii) the optionee's willful failure to follow the lawful
instructions of the Board after receipt by the optionee of written notice of
such instructions, or (iii) any government regulatory agency recommending or
ordering that the optionee be terminated or relieved of his duties. If an
optionee's employment is involuntarily terminated other than as a result of
death, disability or retirement and the optionee is not terminated for 'Cause,'
the optionee may exercise all options granted to him under the 1996 Stock Option
Plan until the earlier of the term of the option or three months after such
termination of employment. If an optionee voluntarily terminates his employment,
all unexercised options lapse as of the date of termination.
At the election of the holder of a nonqualified option and subject to the
rules established by the Committee, any required withholding taxes may be
satisfied by Sovereign withholding shares of common stock issued on the exercise
of a nonqualified stock option which have a fair market value equal to or less
than any required withholding taxes, delivery by the holder to Sovereign of
sufficient common stock to satisfy the withholding obligation, or delivery by
the holder to Sovereign of sufficient cash to satisfy the withholding
obligations.
The Board may amend, suspend or terminate the 1996 Stock Option Plan at any
time without shareholder approval, subject to the requirements of applicable
securities and tax laws; provided, however, that the Board may not, without
shareholder approval, amend the 1996 Stock Option Plan so as to (i) increase the
number of shares subject to the 1996 Stock Option Plan, (ii) change the class of
eligible employees, or (iii) otherwise change the 1996 Stock Option Plan in any
manner deemed material under applicable federal securities laws. In addition,
the Board may not modify or amend the 1996 Stock Option Plan with respect to any
outstanding option or impair or cancel any outstanding option without the
consent of the affected optionee.
The Board does not intend to issue additional options to employees under
either the 1986 Stock Option Plan or the 1993 Stock Option Plan.
TAX CONSEQUENCES
The 1996 Stock Option Plan permits eligible team members of Sovereign and
its subsidiaries to receive grants of incentive stock options, which qualify for
certain tax benefits. In addition, the 1996 Stock Option Plan permits eligible
team members of Sovereign to receive grants of nonqualified stock options, which
do not qualify for such tax benefits.
The 1996 Stock Option Plan is not a qualified plan under Code Section
401(a). Sovereign has been advised that under the Code, the following federal
income tax consequences will result when incentive stock options or nonqualified
stock options, or any combination thereof, are granted or exercised, although
the following is not intended to be a complete statement of the applicable law.
INCENTIVE STOCK OPTIONS. An optionee generally will not be deemed to
receive any income for federal tax purposes at the time an incentive stock
option is granted, nor will Sovereign be entitled to a tax deduction at that
21
<PAGE>
time. Upon the sale or exchange of the shares at least two years after the grant
of the option and one year after receipt of the shares by the optionee upon
exercise, the optionee will recognize long-term capital gain or loss upon the
sale of such shares equal to the difference between the amount realized on such
sale and the exercise price.
If the foregoing holding periods are not satisfied or the option is
exercised more than three months after the optionee's employment with Sovereign
has terminated, the optionee will recognize ordinary income equal to the
difference between the exercise price and the lower of the fair market value of
the stock at the date of the option exercise or the sale price of the stock. If
the sale price exceeds the fair market value on the date of exercise, the gain
in excess of the ordinary income portion will be treated as either long-term or
short-term capital gain, depending on whether the stock has been held for more
than 12 months on the date of sale. Any loss on disposition is a long-term or
short-term capital loss, depending upon whether the optionee had held the stock
for more than 12 months. A different rule for measuring ordinary income upon
such a premature disposition may apply if the optionee is a director or 10
percent shareholder of Sovereign or an officer of Sovereign subject to Section
16(b) of the Securities Exchange Act of 1934. If Sovereign cancels an option,
the optionee recognizes income to the extent of the amount paid by Sovereign to
cancel the option over the optionee's basis in such option, if any.
No income tax deduction will be allowed Sovereign with respect to shares
purchased by an optionee upon the exercise of an incentive stock option,
provided that such shares are held at least two years after the date of grant
and at least one year after the date of exercise. However, if those holding
periods are not satisfied, Sovereign may deduct an amount equal to the ordinary
income recognized by the optionee upon disposition of the shares.
The exercise of an incentive stock option and the sale of stock acquired by
such exercise could subject an optionee to alternative minimum tax liability for
federal income tax purposes.
NONQUALIFIED STOCK OPTIONS. An optionee will not be deemed to receive any
income for federal tax purposes at the time a nonqualified stock option is
granted, nor will Sovereign be entitled to a tax deduction at that time. At the
time of exercise, however, the optionee will realize ordinary income in an
amount equal to the excess of the market value of the shares at the time of
exercise of the option over the option price of such shares. Sovereign is
allowed a federal income tax deduction in an amount equal to the ordinary income
recognized by the optionee due to the exercise of a non-qualified stock option
at the time of such recognition by the optionee.
STOCK-FOR-STOCK EXCHANGE. An optionee who exchanges 'statutory option
stock' of Sovereign in payment of the purchase price upon the exercise of an
incentive stock option will be deemed to make a 'disqualifying disposition' of
the statutory option stock so transferred unless the applicable holding
requirements (two years from the date of the grant and one year after the
exercise of an incentive option) with respect to such statutory option stock are
met after the exercise of incentive stock options but also upon the exercise of
qualified stock options and stock acquired under certain other stock purchase
plans. If an optionee exercises nonqualified stock options by exchanging
previously-owned statutory option stock, the Internal Revenue Service has ruled
that the optionee will not recognize gain on the disposition of the statutory
option stock (assuming the holding period requirements applicable to such
statutory option stock have been satisfied) because of the non-recognition rule
of Code Section 1036.
No grant of options under the proposed 1996 Stock Option Plan has been
made.
If the 1996 Stock Option Plan is approved by the shareholders, Sovereign
anticipates that the Plan will be registered with the Securities and Exchange
Commission and with any applicable state securities commission where
registration is required. The cost of such registrations will be borne by
Sovereign.
As provided above, only key team members of Sovereign or its subsidiaries
will be eligible to receive stock options under the 1996 Stock Option Plan at
the discretion of the Board. This would include the executive officers listed in
the Summary Compensation Table included under the section entitled 'COMPENSATION
OF EXECUTIVE OFFICERS' in this proxy statement.
The stock options previously granted to senior officers of Sovereign and
its subsidiaries under the prior employee stock option plans, and information on
options exercised during the last fiscal year, are reflected in tables contained
in the section of this proxy statement entitled 'COMPENSATION OF EXECUTIVE
OFFICERS.'
22
<PAGE>
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR ADOPTION OF
THE 1996 STOCK OPTION PLAN. The affirmative vote of a majority of all votes cast
at the Meeting is required to adopt the 1996 Stock Option Plan. Abstentions and
broker non-votes will not constitute or be counted as 'votes' cast for purposes
of the Meeting. All proxies will be voted 'FOR' adoption of the 1996 Stock
Option Plan unless a shareholder specifies to the contrary on such shareholder's
proxy card.
PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of Sovereign has appointed Ernst & Young LLP,
certified public accountants, as Sovereign's independent auditors for the fiscal
year ending December 31, 1996, subject to ratification of such appointment by
shareholders. No determination has been made as to what action Sovereign's Board
of Directors would take if shareholders do not ratify the appointment.
Ernst & Young LLP has conducted the audit of the financial statements of
Sovereign and its subsidiaries for the year ended December 31, 1995.
Representatives of Ernst & Young LLP are expected to be present at the Meeting,
will be given an opportunity to make a statement if they desire to do so, and
will be available to answer appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
APPOINTMENT OF ERNST & YOUNG LLP AS SOVEREIGN'S INDEPENDENT AUDITORS FOR THE
1996 FISCAL YEAR. Abstentions and broker non-votes, although counted for the
purpose of determining whether a quorum is present at the Meeting, will not
constitute or be counted as 'votes' cast for purposes of the Meeting. All
proxies will be voted 'FOR' ratification of the appointment unless a
shareholder specifies to the contrary on such shareholder's proxy card.
SHAREHOLDER PROPOSAL
The Secretary of Sovereign Bancorp, Inc. received the following shareholder
proposal by letter dated on January 4, 1996, from Edward Meglis, Jr., a joint
record holder of 614 shares of Sovereign's common stock:
'Resolved, that the shareholders recommend to the Board of Directors
of Sovereign Bancorp, Inc. that the auditors for Sovereign Bancorp, Inc. be
changed from Ernst & Young LLP to Deloitte & Touche or another nationally
recognized accounting firm.'
REASONS
I believe that an auditor must be independent and objective. A long term
association between an auditor and a client can compromise this independence and
objectivity and therefore it is appropriate to periodically change auditors.
Deloitte & Touche or another nationally recognized firm should be engaged to
perform the 1996 audit.
RESPONSE OF THE SOVEREIGN BOARD OF DIRECTORS
The proposal is well-intentioned and has merit; continued independence and
objectivity are essential. However, the Sovereign Board believes that
appropriate safeguards have been established to preserve independence and
objectivity including the following:
o An annual review of the performance of the auditors by the Audit
Committee of the Board of Directors, which consists only of non-employee
directors. This review includes an evaluation of independence;
o Accounting profession requirements that the individual in charge of the
audit for a client be rotated periodically to insure continued
independence and objectivity; and
o Regulations of the Securities and Exchange Commission which specify
stringent standards for an auditor to meet in order to maintain
'independent' status.
For the foregoing reasons, the Sovereign Board does not believe the
independence and objectivity of Sovereign's auditors have been jeopardized in
any manner. Nevertheless, the Sovereign Board, and particularly the Audit
Committee of the Board, will continue to evaluate Sovereign's auditors to insure
continued independence and objectivity and to satisfy itself that the audit
function is being provided on a cost-effective basis.
23
<PAGE>
THE SOVEREIGN BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE 'AGAINST'
THE SHAREHOLDER PROPOSAL. Abstentions and broker non-votes, although counted for
the purpose of determining whether a quorum is present at the Meeting, will not
constitute or be counted as 'votes' cast for purposes of the Meeting. All
proxies will be voted 'AGAINST' the shareholder proposal unless a shareholder
specifies to the contrary in such shareholder's proxy card.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Sovereign's 1997 Annual Meeting of Shareholders will be held on or about
April 17, 1997.
In accordance with the by-laws of Sovereign, shareholders may propose
matters for consideration at annual meetings of shareholders by notice in
writing, delivered or mailed by first-class United States mail, postage prepaid,
to the Secretary of Sovereign, not less than 90 days nor more than 150 days
prior to such annual meeting (i.e., November 18, 1996 through January 17, 1997,
if the Annual Meeting of shareholders is held on April 17, 1997, as presently
expected).
Sovereign's Annual Meeting of Shareholder for 1996 will be held on or about
April 17, 1997. Any shareholder who desires to submit a proposal to be
considered for inclusion in Sovereign's 1997 proxy materials must submit such
proposal or proposals in writing, addressed to Sovereign Bancorp, Inc. at 1130
Berkshire Boulevard, Wyomissing, Pennsylvania 19610 (Attn: Secretary), on or
before November 14, 1996.
DIRECTOR NOMINATIONS BY SHAREHOLDER
In accordance with the by-laws of Sovereign, any shareholder, entitled to
vote for the election of directors, may nominate candidates for election to the
Board by providing notice thereof in writing and delivered or mailed to
Sovereign not less than 90 days prior to the date of the 1997 Annual Meeting of
Shareholders.
Any shareholder who desires to submit a candidate for nomination to the
Board of Directors for inclusion in Sovereign's proxy materials relating to its
1997 Annual Meeting of Shareholders must submit the same information as that
required to be stated by Sovereign in its proxy statement with respect to
nominees of the Board of Directors. The shareholder nomination should be
submitted in writing, addressed to Sovereign Bancorp, Inc. at 1130 Berkshire
Boulevard, Wyomissing, Pennsylvania 19610 (Attn: Secretary), on or before
January 17, 1997.
24
<PAGE>
ANNUAL REPORT
Sovereign's Annual Report to the Shareholders for the year ended December
31, 1995, is enclosed herewith. Sovereign's Annual Report is furnished to
shareholders for their information. No part thereof is incorporated by reference
herein.
UPON WRITTEN REQUEST OF ANY SHAREHOLDER, A COPY OF SOVEREIGN'S ANNUAL
REPORT ON FORM 10-K FOR ITS FISCAL YEAR ENDED DECEMBER 31, 1995, INCLUDING A
LIST OF THE EXHIBITS THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 13a-1 UNDER THE SECURITIES EXCHANGE ACT OF
1934, MAY BE OBTAINED, WITHOUT CHARGE, FROM LAWRENCE M. THOMPSON, JR.,
SECRETARY, SOVEREIGN BANCORP, INC., 1130 BERKSHIRE BOULEVARD, WYOMISSING,
PENNSYLVANIA 19610. EACH REQUEST MUST SET FORTH A GOOD FAITH REPRESENTATION
THAT, AS OF THE RECORD DATE, THE PERSON MAKING THE REQUEST WAS A BENEFICIAL
OWNER OF SOVEREIGN'S COMMON STOCK ENTITLED TO VOTE AT THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
[ SIGNATURE ]
LAWRENCE M. THOMPSON, JR.
SECRETARY
PLEASE REMEMBER TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR IMPORTANT VOTE WILL BE COUNTED AT
THE ANNUAL MEETING.
25
<PAGE>
EXHIBIT A
SOVEREIGN BANCORP, INC.
NON-EMPLOYEE DIRECTORS COMPENSATION PLAN
A-1
<PAGE>
1. Purpose. The purpose of the Sovereign Bancorp, Inc. Non-Employee
Director Compensation Plan (the 'Plan') is to advance the interests of Sovereign
Bancorp, Inc. (the 'Company') and its shareholders by closely aligning the
interests of the Company and its shareholders with (i) members of the Board of
Directors of the Company who are not employees of the Company, Sovereign Bank
(the 'Bank') or any other Subsidiary, (ii) members of the Board of Directors of
the Bank who are not employees of the Company, the Bank or any other Subsidiary,
and (iii) members of the Board of Directors of any Subsidiary designated by
resolution of the Board of Directors of the Company to participate in this Plan
who are not employees of the Company, the Bank or any Subsidiary (collectively,
the 'Non-Employee Directors'). Therefore, this Plan requires the payment of a
material portion of an annually established dollar amount of compensation
payable to Non-Employee Directors for membership on the Board and committees in
shares of the Company's common stock, no par value per share ('Common Stock').
Common Stock issuable under this Plan may be either authorized but unissued
shares, treasury shares, or shares purchased in the open market.
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the 'Board'). The Board shall, subject to the
provisions of the Plan, have the power to construe the Plan, to determine all
questions arising thereunder and to adopt and amend such rules and regulations
for the administration of the Plan as it may deem desirable. Any decisions of
the Board in the administration of the Plan, as described herein, shall be final
and conclusive. The Board may authorize any one or more of its members or the
secretary of the Board or any Officer, appointed vice president or employee of
the Company to execute and deliver documents on behalf of the Board. No member
of the Board shall be liable for anything done or omitted to be done by him or
her or by any other member of the Board in connection with the Plan, except for
his or her own willful misconduct or as expressly provided by statute.
3. Definition of Subsidiaries. As used herein, the term 'Subsidiary' means
any corporation, joint venture or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by the Company or one or more of the other Subsidiaries
of the Company or a combination thereof, or (ii) if a joint venture or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
the Company or one or more Subsidiaries of the Company or a combination thereof.
4. Participation; Amount of Non-Employee Director Compensation. Each
Non-Employee Director shall participate in the Plan. The Board annually shall
establish a dollar amount of quarterly compensation payable for services
(including the annual retainer fee, meeting attendance fees and any fees payable
for services on the Board or any committee thereof) to be performed by the
following classes of Non-Employee Director: Company Non-Employee Director, Bank
Non-Employee Director, Company and Bank Non-Employee Director, Company Chairman
and, if applicable, Subsidiary Non-Employee Director. Such fees will be payable
in cash and shares of Common Stock as follows:
(a) Each Company Non-Employee Director, on a quarterly basis, shall
receive:
(i) 500 shares of Common Stock; plus
(ii) cash equal to the dollar amount of aggregate quarterly
compensation set annually by the Board for Company Non-Employee
Directors, minus the dollar value of 500 shares of Common Stock
multiplied by the Sovereign Market Price (as hereinafter defined).
(b) Each Bank Non-Employee Director, on a quarterly basis, shall
receive:
(i) 175 shares of Common Stock; plus
(ii) cash equal to the dollar amount of aggregate quarterly
compensation set annually by the Board for Bank Non-Employee Directors,
minus the dollar value of 175 shares of Common Stock multiplied by the
Sovereign Market Price.
(c) Each Company and Bank Non-Employee Director, on a quarterly basis,
shall receive:
(i) 675 shares of Common Stock; plus
(ii) cash equal to the dollar amount of aggregate quarterly
compensation set annually by the Board for Company and Bank Non-Employee
Directors, minus the dollar value of 675 shares multiplied by the
Sovereign Market Price.
A-2
<PAGE>
Notwithstanding anything contained herein to the contrary, the amount of cash
payable to any Non-Employee Director may be reduced or withheld by the Chairman
or President of the Company for failure to attend meetings of any Board of
Directors or failure to otherwise perform the duties of such Non-Employee
Director's office.
(d) The Company Chairman shall receive that number of shares of Common
Stock equal to the dollar amount of quarterly aggregate compensation set
annually by the Board for the Company Chairman, divided by the Sovereign
Market Price. The Company Chairman shall not receive additional
compensation for service as a director of the Bank or any other Subsidiary.
(e) If the directors of any other Subsidiary are designated by
resolution of the Board of Directors of the Company to participate in the
Plan, then each such Subsidiary Non-Employee Director, on a quarterly
basis, shall receive such number of shares of Common Stock and cash as
shall be specified by resolution of the Board of Directors of the Company.
(f) Sovereign Market Price shall mean the average closing sale price
of Sovereign Common Stock for the ten trading days ended on the last
trading day of the quarter with respect to which the determination is being
made; provided, however, if the Common Stock does not trade on any such
day, the average of the high and low bid and asked prices for such day
shall be used.
(g) In the event the value determined by multiplying the number of
shares of Common Stock to which a Non-Employee Director is entitled by the
Sovereign Market Price exceeds the aggregate quarterly compensation payable
to a Non-Employee Director, then such Non-Employee Director shall receive
no quarterly cash compensation but the number of shares of Common Stock to
which such Non-Employee Director is entitled shall not be reduced.
5. Payment of Non-Employee Director Compensation. There shall be issued to
each Non-Employee Director on the last business day of each calendar quarter,
the number of shares of Common Stock payable to such Non-Employee Director as
determined pursuant to Section 4 above. There shall be paid to each Non-Employee
Director on the last business day of each calendar quarter the cash compensation
payable to such Non-Employee Director as determined pursuant to Section 4 above.
6. Number of Shares of Common Stock Issuable Under the Plan. The maximum
number of shares of Common Stock that may be issued under the Plan shall be
500,000, provided, however, that if the Company shall at any time increase or
decrease the number of its outstanding shares of Common Stock or change in any
way the rights and privileges of such shares by means of a payment of a stock
dividend or any other distribution upon such shares payable in Common Stock, or
through a stock split, reverse stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving Common Stock, then
the numbers, rights and privileges of the shares issuable under Section 4 and
this Section 6 of Plan shall be increased, decreased or changed in like manner.
To the extent that the application of this Section would result in fractional
shares of Common Stock being issuable, cash will be paid to the Non-Employee
Director in lieu of such fractional shares based upon the Sovereign Market
Value.
7. Miscellaneous Provisions.
(a) Neither the Plan nor any action taken hereunder shall be construed
as giving any Non-Employee Director any right to be elected as a director
of the Company or the Bank.
(b) A participant's rights and interest under the Plan may not be
assigned or transferred, hypothecated or encumbered in whole or in part
either directly or by operation of law or otherwise (except in the event of
a participant's death, by will or the laws of descent and distribution),
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner, and no such right or
interest of any participant in the Plan shall be subject to any obligation
or liability of such participant.
(c) No shares of Common Stock shall be issued hereunder unless counsel
for the Company shall be satisfied that such issuance will be in compliance
with applicable federal, state, local and foreign securities, securities
exchange and other applicable laws and requirements. All certificates
representing shares of Common Stock issued under this Plan shall bear the
following legend:
The shares of Sovereign Bancorp, Inc. common stock, no par value
(the 'Common Stock') evidenced by this certificate were issued under the
Sovereign Bancorp, Inc. Non-Employee Director Compensation Plan which is
intended to comply with the provisions of Rule 16b-3 promulgated by the
Securities and Exchange Commission. Accordingly, no shares of Common
Stock evidenced by this
A-3
<PAGE>
certificate shall be transferred on or before the expiration of six
months from the date of issuance of such shares of Common Stock.
(d) It shall be a condition to the obligation of the Company to issue
shares of Common Stock hereunder, that the participant pay to the Company,
to the extent required by law and upon its demand, such amount as may be
requested by the Company for the purpose of satisfying any liability to
withhold federal, state, local or foreign income or other taxes. A
Non-Employee Director may satisfy the withholding obligation, in whole or
in part, by electing to have the Company withhold shares of Common Stock,
otherwise issuable under the Plan, having a fair market value equal to the
amount required to be withheld. If the amount requested is not paid, the
Company shall have no obligation to issue, and the participant shall have
no right to receive, shares of Common Stock.
(e) The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the issuance of shares hereunder.
(f) By accepting any Common Stock hereunder or other benefit under the
Plan, each participant and each person claiming under or through him or her
shall be conclusively deemed to have indicated his or her acceptance and
ratification of, and consent to, any action taken under the Plan by the
Company or the Board.
(g) The appropriate officers of the Company shall cause to be filed
any registration statement required by the Securities Act of 1933, as
amended, and any reports, returns or other information regarding any shares
of Common Stock issued pursuant hereto as may be required by Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the 'Exchange
Act'), or any other applicable statute, rule or regulation.
(h) The provisions of this Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
(i) Headings are given to the sections of this Plan solely as a
convenience to facilitate reference. Such headings, numbering and
paragraphing shall not in any case be deemed in any way material or
relevant to the construction of this Plan or any provisions thereof. The
use of the singular shall also include within its meaning the plural, where
appropriate, and vice versa.
8. Amendment. The Plan may be amended at any time and from time to time by
resolution of the Board as the Board shall deem advisable; provided, however,
that no amendment shall become effective without shareholder approval if such
shareholder approval is required by law, rule or regulation, and provided
further, to the extent required by Rule 16b-3 under Section 16 of the Exchange
Act, in effect from time to time, Plan provisions shall not be amended more than
once every six months, except that the foregoing shall not preclude any
amendment to comport with changes in the Internal Revenue Code of 1986, the
Employee Retirement Income Security Act of 1974 or the rules thereunder in
effect from time to time. No amendment of the Plan shall materially and
adversely affect any right of any participant with respect to any shares of
Common Stock theretofore issued without such participant's written consent.
9. Termination. This Plan shall terminate upon the earlier of the
following dates or events to occur:
(a) upon the adoption of a resolution of the Board terminating the
Plan; or
(b) ten years from the date the Plan is initially approved and adopted
by the shareholders of the Company in accordance with Paragraph 10 below.
No termination of the Plan shall materially and adversely affect any of the
rights or obligations of any person without his or her consent with respect to
any shares of Common Stock theretofore earned and issuable under the Plan.
10. Shareholder Approval and Adoption. The Plan shall be effective as of
January 1, 1996, contingent upon shareholder approval and adoption at the 1996
annual meeting of shareholders of the Company. The shareholders shall be deemed
to have approved and adopted the Plan only if it is approved and adopted at a
meeting of the shareholders duly held by vote taken in the manner required by
the laws of the Commonwealth of Pennsylvania.
A-4
<PAGE>
EXHIBIT B
SOVEREIGN BANCORP, INC.
1996 STOCK OPTION PLAN
B-1
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
- ------------ ---------
Article 1. PURPOSE OF THE PLAN.................................. B-3
Article 2. DEFINITIONS.......................................... B-3
Article 3. ADMINISTRATION OF THE PLAN........................... B-5
Article 4. COMMON STOCK SUBJECT TO THE PLAN..................... B-5
Article 5. STOCK OPTIONS........................................ B-6
Article 6. ELIGIBILITY.......................................... B-6
Article 7. TERM AND EXERCISE OF OPTIONS......................... B-7
Article 8. TERMINATION OF EMPLOYMENT............................ B-7
Article 9. ADJUSTMENT PROVISIONS................................ B-8
Article 10. GENERAL PROVISIONS................................... B-9
B-2
<PAGE>
ARTICLE 1. PURPOSE OF THE PLAN
1.1 Purpose -- The Sovereign Bancorp, Inc. 1996 Stock Option Plan (the
'Plan') is intended to provide key employees of Sovereign Bancorp, Inc. (the
'Corporation') and its Subsidiaries an opportunity to acquire Common Stock of
the Corporation. The Plan is designed to help the Corporation attract, retain
and motivate key employees to make substantial contributions to the success of
the business. Stock Options are granted under the Plan based on the
Participant's level of responsibility and performance within the Corporation.
1.2 Stock Options to be Granted -- Incentive Stock Options within the
meaning of Code Section 422(b) and Nonqualified Stock Options may be granted
within the limitations of the Plan herein described.
ARTICLE 2. DEFINITIONS
2.1 'Agreement' -- The written instrument evidencing the grant of an
Option. A Participant may be issued one or more Agreements from time to time,
reflecting one or more Options.
2.2 'Board' -- The Board of Directors of the Corporation.
2.3 'Change in Control' -- means the first to occur of any of the following
events:
(a) any 'Person' (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), except for any of the Corporation's employee benefit
plans, or any entity holding the Corporation's voting securities for, or
pursuant to, the terms of any such plan (or any trust forming a part
thereof) (the 'Benefit Plan(s)'), is or becomes the beneficial owner,
directly or indirectly, of the Corporation's securities representing 19.9%
or more of the combined voting power of the Corporation's then outstanding
securities other than pursuant to a transaction described in (d) below;
(b) there occurs a contested proxy solicitation of the Corporation's
shareholders that results in the contesting party obtaining the ability to
vote securities representing 19.9% or more of the combined voting power of
the Corporation's then outstanding securities;
(c) a binding written agreement is executed (and, if legally required,
approved by the Corporation's shareholders) providing for a sale, exchange,
transfer or other disposition of substantially all of the assets of the
Corporation or of Sovereign Bank, a Federal Savings Bank to another entity,
except to an entity controlled directly or indirectly by the Corporation;
(d) the shareholders of the Corporation approve a merger,
consolidation, or other reorganization of the Corporation, unless:
(i) under the terms of the agreement approved by the Corporation's
shareholders providing for such merger, consolidation or reorganization,
the shareholders of the Corporation immediately before such merger,
consolidation or reorganization, will own, directly or indirectly
immediately following such merger, consolidation or reorganization at
least 51% of the combined voting power of the outstanding voting
securities of the Corporation resulting from such merger, consolidation
or reorganization (the 'Surviving Corporation') in substantially the
same proportion as their ownership of the voting securities immediately
before such merger, consolidation or reorganization;
(ii) under the terms of the agreement approved by the Corporation's
shareholders providing for such merger, consolidation or reorganization,
the individuals who were members of the Board immediately prior to the
execution of such agreement will constitute at least 51% of the members
of the board of directors of the Surviving Corporation after such
merger, consolidation or reorganization; and
(iii) based on the terms of the agreement approved by the
Corporation's shareholders providing for such merger, consolidation or
reorganization, no Person (other than (A) the Corporation or any
Subsidiary of the Corporation, (B) any Benefit Plan, (C) the Surviving
Corporation or any Subsidiary of the Surviving Corporation, or (D) any
Person who, immediately prior to such merger, consolidation or
reorganization had beneficial ownership of 19.9% or more of the then
outstanding voting securities) will have beneficial ownership of 19.9%
or more of the combined voting power of the Surviving Corporation's then
outstanding voting securities;
B-3
<PAGE>
(e) a plan of liquidation or dissolution of the Corporation, other
than pursuant to bankruptcy or insolvency laws, is adopted;
(f) during any period of two consecutive years, individuals, who at
the beginning of such period, constituted the Board cease for any reason to
constitute at least a majority of the Board unless the election, or the
nomination for election by the Corporation's shareholders, of each new
director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period; or
(g) the occurrence of a Triggering Event within the meaning of the
Rights Agreement dated as of September 19, 1989 between the Corporation and
Harris Trust Company of New York, as amended.
Notwithstanding clause (a) of the preceding paragraph, a Change in Control
shall not be deemed to have occurred if a Person becomes the beneficial owner,
directly or indirectly, of the Corporation's securities representing 19.9% or
more of the combined voting power of the Corporation's then outstanding
securities solely as a result of an acquisition by the Corporation of its voting
securities which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 19.9% or
more of the combined voting power of the Corporation's then outstanding
securities; provided, however, that if a Person becomes a beneficial owner of
19.9% or more of the combined voting power of the Corporation's then outstanding
securities by reason of share purchases by the Corporation and shall, after such
share purchases by the Corporation, become the beneficial owner, directly or
indirectly, of any additional voting securities of the Corporation (other than
as a result of a stock split, stock dividend or similar transaction), then a
Change in Control of the Corporation shall be deemed to have occurred with
respect to such Person under clause (a) of the preceding paragraph. In no event
shall a Change in Control of the Corporation be deemed to occur under such
clause (a) above with respect to Benefit Plans.
2.4 'Code' -- The Internal Revenue Code of 1986, as amended.
2.5 'Committee' -- The Committee which the Board appoints to administer the
Plan.
2.6 'Common Stock' -- The common stock of the Corporation (no par value) as
described in the Corporation's Articles of Incorporation, or such other stock as
shall be substituted therefor.
2.7 'Corporation' -- Sovereign Bancorp, Inc., a Pennsylvania corporation.
2.8 'Employee' -- Any key employee (including officers) of the Corporation
or a Subsidiary.
2.9 'Exchange Act' -- The Securities Exchange Act of 1934, as amended.
2.10 'Incentive Stock Option' -- A stock option intended to satisfy the
requirements of Code Section 422(b).
2.11 'Nonqualified Stock Option' -- A stock option other than an incentive
stock option.
2.12 'Optionee' -- A Participant who is awarded a Stock Option pursuant to
the provisions of the Plan.
2.13 'Participant' -- An Employee selected by the Committee to receive a
grant of an Option under the Plan.
2.14 'Plan' -- Sovereign Bancorp, Inc. 1996 Stock Option Plan.
2.15 'Retirement' -- The attainment of age sixty-five as provided in the
Sovereign Bancorp, Inc. Pension Plan.
2.16 'Securities Act' -- The Securities Act of 1933, as amended.
2.17 'Stock Option' or 'Option' -- An award of a right to purchase Common
Stock pursuant to the provisions of the Plan.
2.18 'Subsidiary' -- A subsidiary corporation as defined in Code Section
424(f) that is a subsidiary of the Corporation.
B-4
<PAGE>
ARTICLE 3. ADMINISTRATION OF THE PLAN
3.1 The Committee -- The Plan shall be administered by a committee of the
Board (the 'Committee') composed of three or more members of the Board, all of
whom are (a) 'disinterested persons' as such term is defined under the rules and
regulations adopted from time to time by the Securities and Exchange Commission
pursuant to Section 16(b) of the Exchange Act, and (b) 'outside directors'
within the meaning of Code Section 162(m). The Board may from time to time
remove members from, or add members to, the Committee. Vacancies on the
Committee, howsoever caused, shall be filled by the Board.
3.2 Powers of the Committee --
(a) The Committee shall be vested with full authority to make such
rules and regulations as it deems necessary or desirable to administer the
Plan and to interpret the provisions of the Plan, unless otherwise
determined by a majority of the disinterested members of the Board. Any
determination, decision or action of the Committee in connection with the
construction, interpretation, administration or application of the Plan
shall be final, conclusive and binding upon all Optionees and any person
claiming under or through an Optionee, unless otherwise determined by a
majority of the disinterested members of the Board.
(b) Subject to the terms, provisions and conditions of the Plan and
subject to review and approval by a majority of the disinterested members
of the Board, the Committee shall have exclusive jurisdiction to:
(i) determine and select, based upon the recommendation of the
Corporation's Chief Executive Office, the key Employees to be granted
Options (it being understood that more than one Option may be granted to
the same person);
(ii) determine the number of shares subject to each Option;
(iii) determine the date or dates when the Options will be granted;
(iv) determine the purchase price of the shares subject to each
Option in accordance with Article 5 of the Plan;
(v) determine the date or dates when each Option may be exercised
within the term of the Option specified pursuant to Article 7 of the
Plan;
(vi) determine whether or not an Option constitutes an Incentive
Stock Option; and
(vii) prescribe the form, which shall be consistent with the Plan,
of the Agreement evidencing any Options granted under the Plan.
3.3 Terms -- The grant of an Option under the Plan shall be evidenced by an
Agreement and may include any terms and conditions consistent with this Plan, as
the Committee may determine.
3.4 Liability -- No member of the Board or the Committee shall be liable
for any action or determination made in good faith by the Board or the Committee
with respect to this Plan or any Options granted under this Plan.
ARTICLE 4. COMMON STOCK SUBJECT TO THE PLAN
4.1 Common Stock Authorized -- The aggregate number of shares of Common
Stock for which Options may be granted under the Plan shall not exceed 5,000,000
shares. The limitation established by the preceding sentence shall be subject to
adjustment as provided in Article 9 of the Plan.
4.2 Shares Available -- The Common Stock to be issued upon exercise of
Options granted under the Plan shall be the Corporation's Common Stock which
shall be made available at the discretion of the Board, either from authorized
but unissued Common Stock or from Common Stock acquired by the Corporation,
including shares purchased in the open market. In the event that any outstanding
Option under the Plan for any reason expires or is terminated, the shares of
Common Stock allocable to the unexercised portion of such Option may thereafter
be regranted subject to option under the Plan.
B-5
<PAGE>
ARTICLE 5. STOCK OPTIONS
5.1 Exercise Price -- The exercise price of Common Stock shall be, in the
case of an Incentive Stock Option, 100 percent of the fair market value of one
share of Common Stock on the date the Option is granted, except that the
purchase price per share shall be 110 percent of such fair market value in the
case of an Incentive Stock Option granted to any individual described in Section
6.2 of the Plan. The exercise price of Common Stock shall be, in the case of a
Nonqualified Stock Option, not less than 100 percent of the fair market value of
one share of Common Stock on the date the Option is granted. The exercise price
shall be subject to adjustment only as provided in Article 9 of the Plan.
5.2 Limitation on Incentive Stock Options -- The aggregate fair market
value (determined as of the date an Option is granted) of the stock with respect
to which Incentive Stock Options are exercisable for the first time by any
individual in any calendar year (under the Plan and all other plans maintained
by the Corporation and Subsidiaries) shall not exceed $100,000.
5.3 Determination of Fair Market Value --
(a) During such time as Common Stock is not listed on an established
stock exchange or exchanges but is listed on the NASDAQ Stock Market, the
fair market value per share shall be the closing sale price for the Common
Stock on the day the Option is granted. If no sale of Common Stock has
occurred on that day, the fair market value shall be determined by
reference to such price for the next preceding day on which a sale
occurred.
(b) During such time as the Common Stock is not listed on an
established stock exchange or on the NASDAQ Stock Market, fair market value
per share shall be the mean between the closing dealer 'bid' and 'asked'
prices for the Common Stock for the day of the grant, and if no 'bid' and
'asked' prices are quoted for the day of the grant, the fair market value
shall be determined by reference to such prices on the next preceding day
on which such prices were quoted.
(c) If the Common Stock is listed on an established stock exchange or
exchanges, the fair market value shall be deemed to be the closing price of
Common Stock on such stock exchange or exchanges on the day the Option is
granted or, if no sale of Common Stock has been made on any stock exchange
on that day, the fair market value shall be determined by reference to such
price for the next preceding day on which a sale occurred.
(d) In the event that the Common Stock is not traded on an established
stock exchange or in the NASDAQ Stock Market, and no closing dealer 'bid'
and 'asked' prices are available on the date of a grant, then fair market
value will be the price established by the Committee in good faith.
5.4 Limitation on Grants -- Commencing January 1, 1996, grants to any
Employee under this Plan shall not exceed in the aggregate 300,000 Options
during any period of 12 consecutive months. Such limitation shall be subject to
adjustment in the manner described in Article 9.
ARTICLE 6. ELIGIBILITY
6.1 Participation -- Options shall be granted only to persons who are
Employees, as determined by the Committee, based upon the recommendation of the
Chief Executive Officer (except as to himself) and ratified by a majority of the
disinterested members of the Board.
6.2 Incentive Stock Option Eligibility -- Notwithstanding any other
provision of the Plan, an individual who owns more than 10 percent of the total
combined voting power of all classes of outstanding stock of the Corporation
shall not be eligible for the grant of an Incentive Stock Option, unless the
special requirements set forth in Sections 5.1 and 7.1 of the Plan are
satisfied. For purposes of this Section 6.2, in determining stock ownership, an
individual shall be considered as owning the stock owned, directly or
indirectly, by or for his brothers and sisters (whether by the whole or half
blood), spouse, ancestors and lineal descendants. Stock owned, directly or
indirectly, by or for a corporation, partnership, estate or trust shall be
considered as being owned proportionately by or for its shareholders, partners
or beneficiaries. 'Outstanding stock' shall include all stock actually issued
and outstanding immediately before the grant of the Option. 'Outstanding stock'
shall not include shares authorized for issue under outstanding Options held by
the Optionee or by any other person.
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<PAGE>
ARTICLE 7. TERM AND EXERCISE OF OPTIONS
7.1 Termination --
(a) Each Option granted under the Plan shall terminate on the date
determined by the Committee and approved by a majority of the disinterested
members of the Board, and specified in the Agreement; provided, however,
that (i) each intended Incentive Stock Option granted to an individual
described in Section 6.2 of the Plan shall terminate not later than five
years after the date of the grant, (ii) each other intended Incentive Stock
Option shall terminate not later than ten years after the date of grant,
and (iii) each Option granted under the Plan which is intended to be a
Nonqualified Stock Option shall terminate not later than ten years and one
month after the date of grant. Each Option granted under the Plan shall be
exercisable only after the earlier of the date on which (i) the Optionee
has completed one year of continuous employment with the Corporation or a
Subsidiary immediately following the date of the grant of the Option or
(ii) a Change in Control occurs. An Option may be exercised only during the
continuance of the Optionee's employment, except as provided in Article 8.
7.2 Exercise --
(a) A person electing to exercise an Option shall give written notice
to the Corporation of such election and of the number of shares he has
elected to purchase, in such form as the Committee shall have prescribed or
approved, and shall at the time of exercise tender the full purchase price
of the shares he has elected to purchase. The purchase price shall be paid
in full, in cash, upon the exercise of the Option, provided, however, that
in lieu of cash, with the approval of the Committee at or prior to
exercise, an Optionee may exercise his Option by tendering to the
Corporation shares of Common Stock owned by him and having a fair market
value equal to the cash exercise price applicable to his Option (with the
fair market value of such stock to be determined in the manner provided in
Section 5.3 hereof) or by delivering such combination of cash and such
shares as the Committee in its sole discretion may approve. Notwithstanding
the foregoing, Common Stock acquired pursuant to the exercise of an
Incentive Stock Option may not be tendered as payment unless the holding
period requirements of Code Section 422(a)(1) have been satisfied, and
Common Stock not acquired pursuant to the exercise of an Incentive Stock
Option may not be tendered as payment unless it has been held, beneficially
and of record, for at least one year.
(b) A person holding more than one Option at any relevant time may, in
accordance with the provisions of the Plan, elect to exercise such Options
in any order.
(c) In addition, at the request of the Participant and to the extent
permitted by applicable law, the Corporation may, in its sole discretion,
selectively approve arrangements with a brokerage firm under which such
brokerage firm, on behalf of the Participant, shall pay to the Corporation
the exercise price of the Stock Options being exercised, and the
Corporation, pursuant to an irrevocable notice from the Participant, shall
promptly deliver the shares being purchased to such firm.
ARTICLE 8. TERMINATION OF EMPLOYMENT
8.1 Retirement -- In the event of Retirement, an Option shall lapse at the
earlier of the term of the Option or:
(a) In the case of an Incentive Stock Option, three months from the
date of Retirement; and
(b) in the case of Options other than Incentive Stock Options, up to
24 months, at the discretion of the Committee, from the date of Retirement.
8.2 Death or Total and Permanent Disability -- In the event of termination
of employment due to death or 'Total and Permanent Disability,' as defined in
Code Section 72m(7), the Option shall lapse at the earlier of (a) the term of
the Option, or (b) one year after termination due to such causes.
8.3 Other Termination -- Except as otherwise provided in Section 8.4, in
the event of termination of employment at the election of the Corporation, all
Options shall lapse as of the earlier of (a) the term of the Option, or (b)
three months after the date of termination of employment. In the event of
termination of
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<PAGE>
employment at the election of the Employee, all options granted to such Employee
shall lapse as of the date of termination of employment.
8.4 Termination For Cause -- In the event of termination of employment 'for
cause,' all Options granted to such Employee shall lapse on the date of
termination of employment. Termination 'for cause' shall mean the Employee was
terminated after
(a) the Office of Thrift Supervision or any other government
regulatory agency recommends or orders in writing that the Corporation or
any Subsidiary terminate the employment of the Employee or relieve him of
his duties;
(b) the Employee is convicted of or enters a plea of guilty or nolo
contendere to a felony, a crime of falsehood, or a crime involving fraud or
moral turpitude, or the actual incarceration of the Employee for a period
of forty-five consecutive days; or
(c) the Employee wilfully fails to follow the lawful instructions of
the Board after the Employee's receipt of written notice of such
instructions, other than a failure resulting from the Employee's incapacity
because of physical or mental illness.
ARTICLE 9. ADJUSTMENT PROVISIONS
9.1 Share Adjustments --
(a) In the event that the shares of Common Stock of the Corporation,
as presently constituted, shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the
Corporation or of another corporation (whether by reason of merger,
consolidation, recapitalization, reclassification, split-up, combination of
shares or otherwise) or if the number of such shares of stock shall be
increased through the payment of a stock dividend, then, subject to the
provisions of Subsection (c) below, there shall be substituted for or added
to each share of stock of the Corporation which was theretofore
appropriated, or which thereafter may become subject to an option under the
Plan, the number and kind of shares of stock or other securities into which
each outstanding share of the stock of the Corporation shall be so changed
or for which each such share shall be exchanged or to which each such share
shall be entitled, as the case may be. Outstanding Options shall also be
appropriately amended as to price and other terms, as may be necessary to
reflect the foregoing events.
(b) If there shall be any other change in the number or kind of the
outstanding shares of the stock of the Corporation, or of any stock or
other securities in which such stock shall have been changed, or for which
it shall have been exchanged, and if a majority of the disinterested
members of the Board shall, in its sole discretion, determine that such
change equitably requires an adjustment in any Option which was theretofore
granted or which may thereafter be granted under the Plan, then such
adjustment shall be made in accordance with such determination.
(c) The grant of an Option pursuant to the Plan shall not affect in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge, to consolidate, to dissolve, to liquidate or to sell
or transfer all or any part of its business or assets.
9.2 Corporate Changes -- A dissolution or liquidation of the Corporation,
or a merger or consolidation in which the Corporation is not the surviving
Corporation, shall cause each outstanding Option to terminate, except to the
extent that another corporation may and does in the transaction assume and
continue the Option or substitute its own options.
9.3 Fractional Shares -- Fractional shares resulting from any adjustment in
Options pursuant to this Article 9 may be settled as a majority of the
disinterested members of the Board or the Committee (as the case may be) shall
determine.
9.4 Binding Determination -- To the extent that the foregoing adjustments
relate to stock or securities of the Corporation, such adjustments shall be made
by a majority of the disinterested members of the Board, whose
B-8
<PAGE>
determination in that respect shall be final, binding and conclusive. Notice of
any adjustment shall be given by the Corporation to each holder of an Option
which shall have been so adjusted.
ARTICLE 10. GENERAL PROVISIONS
10.1 Effective Date -- The Plan shall become effective upon its adoption by
the Board, provided that any grant of Options is subject to the approval of the
Plan by the shareholders of the Corporation within 12 months of adoption by the
Board.
10.2 Termination of the Plan -- Unless previously terminated by the Board
of Directors, the Plan shall terminate on, and no Options shall be granted
after, the tenth anniversary of its adoption by the Board.
10.3 Limitation on Termination, Amendment or Modification
(a) The Board may at any time terminate, amend, modify or suspend the
Plan, provided that without the approval of the shareholders of the
Corporation no amendment or modification shall be made by the Board which:
(i) increases the maximum number of shares of Common Stock as to
which Options may be granted under the Plan;
(ii) changes the class of eligible Employees; or
(iii) otherwise requires the approval of shareholders in order to
maintain the exemption available under Rule 16b-3 (or any similar rule)
under the Exchange Act.
(b) No amendment, modification, suspension or termination of the Plan
shall in any manner affect any Option theretofore granted under the Plan
without the consent of the Optionee or any person validly claiming under or
through the Optionee.
10.4 No Right to Employment -- Neither anything contained in the Plan or in
any instrument under the Plan nor the grant of any Option hereunder shall confer
upon any Optionee any right to continue in the employ of the Corporation or of
any Subsidiary or limit in any respect the right of the Corporation or of any
Subsidiary to terminate the Optionee's employment at any time and for any
reason.
10.5 Withholding Taxes --
(a) Subject to the provisions of Subsection (b), the Corporation will
require that an Optionee as a condition of the exercise of an Option (other
than an Incentive Stock Option), or any other person or entity receiving
Common Stock upon exercise of an Option, pay or reimburse any taxes which
the Corporation is required to withhold in connection with the exercise of
the Option.
(b) An Optionee may satisfy the withholding obligation described in
Subsection (a), in whole or in part, by electing to have the Corporation
withhold shares of Common Stock (otherwise issuable upon the exercise of an
Option) having a fair market value equal to the amount required to be
withheld. An election by an Optionee to have shares withheld for this
purpose shall be subject to the following restrictions:
(i) it must be made prior to the date on which the amount of tax to
be withheld is determined (the 'Tax Date');
(ii) it shall be irrevocable;
(iii) it shall be subject to disapproval by the Committee;
(iv) if the Optionee is an officer of the Corporation within the
meaning of Section 16 of the Exchange Act (an 'Officer'), such election
may not be made within six months of the grant of the Option (except
that this restriction shall not apply in the event of the death or
disability of the Optionee prior to the expiration of the six-month
period);
(v) if the Optionee is an Officer, such election must be made
either at least six months prior to the Tax Date or in the ten-day
'window period' beginning on the third day following the release of the
Corporation's quarterly or annual summary statement of revenues and
earnings; and
B-9
<PAGE>
(vi) where the Tax Date of an Officer is deferred up to six months
after the exercise of an Option, the full number of Option shares will
be issued or transferred to him upon exercise, but he will be
unconditionally obligated to tender back to the Corporation the proper
number of shares of Common Stock on the Tax Date.
10.6 Listing and Registration of Shares --
(a) No Option granted pursuant to the Plan shall be exercisable in
whole or in part if at any time a majority of the disinterested members of
the Board shall determine in its discretion that the listing, registration
or qualification of the shares of Common Stock subject to such Option on
any securities exchange or under any applicable law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as
a condition of, or in connection with, the granting of such Option or the
issue of shares thereunder, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to a majority of the disinterested
members of the Board.
(b) If a registration statement under the Securities Act with respect
to the shares issuable upon exercise of any Option granted under the Plan
is not in effect at the time of exercise, as a condition of the issuance of
the shares the person exercising such Option shall give the Committee a
written statement, satisfactory in form and substance to the Committee,
that he is acquiring the shares for his own account for investment and not
with a view to their distribution. The Corporation may place upon any stock
certificate for shares issuable upon exercise of such Option the following
legend or such other legend as the Committee may prescribe to prevent
disposition of the shares in violation of the Securities Act or other
applicable law:
'THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 ('ACT') AND MAY NOT BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THEM
UNDER THE ACT OR A WRITTEN OPINION OF COUNSEL FOR THE CORPORATION THAT
REGISTRATION IS NOT REQUIRED.'
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<PAGE>
DIRECTIONS TO THE SHERATON BERKSHIRE
(ROUTE 422 WEST & PAPER MILL ROAD EXIT), 1741 PAPER MILL ROAD
WYOMISSING (READING), PA 19610-1207
FROM:
MANHATTAN, NY -- Take Lincoln Tunnel to NJ Tpk S to exit 14. Take I-78W to 222S.
Continue 35 miles on 222S to exit marked 222S, 176S, 422W Lancaster Exit here,
continue 2 miles thru 1st traffic light (do not follow signs to 422E or 222S
which exits just before the traffic light). After light, exit onto Paper Mill
Road, Sheraton is straight ahead.
ASBURY PARK/TRENTON, NJ -- Take I-95W to NJ Turnpike S to PA Turnpike W to Exit
22 Morgantown. Follow signs to I-176. Take I-176N to 422W to Paper Mill Road
exit. Exit onto Paper Mill Road, Sheraton is straight ahead.
PHILADELPHIA, PA -- Take I-76W to PA Tpk W to Exit 22 Morgantown. Follow signs
to I-176N 9 miles to 422W to the Paper Mill Road Exit. Exit onto Paper Mill
Road, Sheraton is straight ahead.
PITTSBURGH/HARRISBURG, PA -- Take PA Tpk E to Exit 21 Denver. Follow signs to
222N to 422W to Paper Mill Road Exit. Exit onto Paper Mill Road, Sheraton is
straight ahead.
SCRANTON/WILKES-BARRE, PA -- Take I-81S to 61S to 222S. Exit here, continue 2
miles thru 1st traffic light (do not follow signs to 422E or 222S which exits
just before the traffic light). After light, exit onto Paper Mill Road, Sheraton
is straight ahead.
DOVER, DE -- Take 13N to Wilmington to 141N to I-95N to 202N to 100N to PA Tpk W
to Exit 22 Morgantown. Follow signs I-176N, 9 miles to 422W to Paper Mill Road
Exit. Exit onto Paper Mill Road, Sheraton is straight ahead.
<PAGE>
SOVEREIGN BANCORP, INC.
I/We hereby appoint Karl D. Gerhart, Dana J. Albera and Patricia A. Zong, or any
one of them acting in the absence of others, as proxyholders, each with the
power to appoint his or her substitute, and hereby authorize them to represent
and to vote, as designated on the reverse side, all the shares of common stock
of Sovereign Bancorp, Inc. held of record by me/us on March 4, 1996, at the
Annual Meeting of Shareholders to be held on April 18, 1996, or any adjournment
thereof.
This proxy when properly executed will be voted in the manner directed on the
reverse side. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION
---
OF DIRECTORS, FOR THE SOVEREIGN BANCORP, INC. NON-EMPLOYEE DIRECTOR COMPENSATION
---
PLAN, FOR THE SOVEREIGN BANCORP, INC. 1996 STOCK OPTION PLAN, FOR THE
--- ---
RATIFICATION OF INDEPENDENT AUDITORS AND AGAINST THE SHAREHOLDER PROPOSAL TO
-------
CHANGE AUDITORS. This proxy will be voted, in the discretion of the
proxyholders, upon such other business as may properly come before the Annual
Meeting of Shareholders or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF TO THE BOARD OF DIRECTORS.
Please vote and sign on the other side.
*FOLD AND DETACH HERE*
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING MATTERS 1 THROUGH 4
Please mark
your vote as
indicated in
this example /X/
<TABLE>
<CAPTION>
MATTER NO. 1
ELECTION OF CLASS III DIRECTORS
<S> <C> <C>
FOR all nominees WITHHOLD G. Arthur Weaver; Richard E. Mohn; Jay S. Sidhu
listed to the right AUTHORITY
(except as marked to to vote for all nominees
the contrary listed to the right (INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
/ / / / NOMINEE STRIKE A LINE THROUGH THE NAME IN THE LIST ABOVE.)
</TABLE>
MATTER NO. 2
SOVEREIGN BANCORP, INC.
NON-EMPLOYEE DIRECTOR
COMPENSATION PLAN
FOR AGAINST ABSTAIN
/ / / / / /
MATTER NO. 3
SOVEREIGN BANCORP, INC. 1995
STOCK OPTION PLAN
FOR AGAINST ABSTAIN
/ / / / / /
MATTER NO. 4
RATIFICATION OF INDEPENDENT
AUDITORS
FOR AGAINST ABSTAIN
/ / / / / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THE FOLLOWING
- ----------------------------------------------------------------
MATTER NO. 5
SHAREHOLDER PROPOSAL TO CHANGE AUDITORS
FOR AGAINST ABSTAIN
/ / / / / /
Please check this box if
you plan to attend the
1996 Annual Meeting. / /
The undersigned hereby acknowledges receipt of the Proxy Statement
dated March 15, 1996 and hereby revokes any proxy or proxies heretofore
given to vote share at said meeting or any adjournment thereof.
Dated: ____________________________________________________________1995
_______________________________________________________________________
Signature
_______________________________________________________________________
Signature if held jointly. Please sign exactly as name appears hereon.
(PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ADDRESSED ENVELOPE)
*FOLD AND DETACH HERE*
