UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. ___)*
First State Financial Services, Inc.
(Name of Issuer)
Common Stock ($.01 Par Value)
(Title of Class of Securities)
336906102
(CUSIP Number)
B. Tyler Lincoln, Esquire, Stevens & Lee, 111 North Sixth Street,
Reading, Pennsylvania 19603 (610-478-2000)
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
June 24, 1996
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject of
this Schedule 13D, and is filing this schedule because of
Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the
statement [x]. (A fee is not required only if the reporting
person: (1) has a previous statement on file reporting
beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment
subsequent thereto reporting beneficial ownership of five percent
or less of such class.) (See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits,
should be filed with the Commission. See Rule 13d-1(a) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with respect to
the subject class of securities, and for any subsequent amendment
containing information which would alter disclosures provided in
a prior cover page.
The information required on the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section 18
of the Securities Exchange Act of 1934 ("Act") or otherwise
subject to the liabilities of that section of the Act but shall
be subject to all other provisions of the Act (however, see the
Notes).<PAGE>
SCHEDULE 13D
CUSIP NO. 336906102
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Sovereign Bancorp, Inc.
IRS Identification No.: 23-2453088
2. Check the appropriate box is a member of a group (a) [ ]
(b) [ ]
3. SEC use only
4. Source of Funds
BK AF WC
5. Check box if disclosure of legal proceedings is required
pursuant to Items 2(d) or 2(e) [ ]
6. Citizenship or place of organization
Commonwealth of Pennsylvania
Number of Shares Beneficially Owned by Each Reporting Person With
7. Sole Voting Power
783,500
8. Shared Voting Power
0
9. Sole Dispositive Power
783,500
10. Shared Dispositive Power
0
11. Aggregate amount beneficially owned by each reporting person
783,500
12. Check box if the aggregate amount in row (11) excludes
certain shares [ ]
13. Percent of class represented by amount in row (11)
16.6%
14. Type of reporting person
HC CO
<PAGE>
SCHEDULE 13D
ITEM 1. Security and Issuer.
This Schedule 13D relates to shares of common stock,
$0.01 par value, of First State Financial Services, Inc.
("FSFS"), a business corporation incorporated under the laws of
the State of Delaware. The principal executive offices of FSFS
are located at 1120 Bloomfield Avenue, West Caldwell, New Jersey
07007-2449.
ITEM 2. Identity and Background.
(a), (b), and (c). This Schedule 13D is filed by
Sovereign Bancorp, Inc. ("Sovereign"), a business corporation
incorporated under the laws of the Commonwealth of Pennsylvania.
Sovereign is a holding company that owns all of the outstanding
capital stock of Sovereign Bank, a Federal Savings Bank
("Sovereign Bank"), and Sovereign Community Bank ("Sovereign
Community"). Sovereign's and Sovereign Bank's principal
executive offices are located at 1130 Berkshire Boulevard,
Wyomissing, Pennsylvania 19610. Sovereign Community's principal
executive office is located at 521 Park Avenue, Freehold,
New Jersey 07728.
The name, business address and present principal
occupation or employment (including the name, principal business
and address of any corporation or other organization in which
such employment is conducted) of each executive officer, director
and controlling person of Sovereign are as follows:
<TABLE>
<CAPTION>
Present Principal
Name Business Address Occupation or Employment
<S> <C> <C>
Howard D. Mackey 191 N. Main Street Retired Chairman
Boonton, NJ 07005 Charter FSB Bancorp, Inc.
(Residence Address)
Richard E. Mohn 1600 Comet Drive President and Chief
Lancaster, PA 17601 Executive Officer
Cloister Spring Water
Company
1600 Comet Drive
Lancaster, PA 17601
Rhoda S. Oberholtzer 807 Lititz Pike Retired Owner
P.O. Box 325 Stouffers of Kissel Hill
Lititz, PA 17543 (Grocery store chain)
807 Lititz Pike
P.O. Box 325
Lititz, PA 17543
Patrick J. Petrone 430 Route 10 President
Randolph, NJ 07864 Charter Federal Savings
Bank division of
Sovereign Bank
430 Route 10
Randolph, NJ 07864
Daniel K. Rothermel c/o Cumru Associates President and Chief
P. O. Box 6573 Executive Officer
Wyomissing, PA 19610 Cumru Associates, Inc.
P. O. Box 6573
Wyomissing, PA 19610
G. Arthur Weaver c/o George A. Weaver Real estate and
Company insurance executive
116 East Main Street George A. Weaver
New Holland, PA 17557 Company
116 East Main Street
New Holland, PA 17557
Theodore Ziaylek, Jr. 10 West College Ave. President
Yardley, PA 19067 Ziamatic Corp.
10 West College Avenue
P.O. Box 337
Yardley, PA 19067
Jay S. Sidhu 1130 Berkshire Blvd. President and Chief
Wyomissing, PA 19610 Executive Officer
Sovereign
President and Chief
Executive Officer
Sovereign Bank
Lawrence M. Thompson, 1130 Berkshire Blvd. Chief Administrative
Jr. Wyomissing, PA 19610 Officer and Secretary
Sovereign
Chief Administrative
Officer and Secretary
Sovereign Bank
Karl D. Gerhart 1130 Berkshire Blvd. Chief Financial Officer
Wyomissing, PA 19610 and Treasurer
Sovereign
Chief Financial
Officer and Treasurer
Sovereign Bank
</TABLE>
(d) and (e). Neither Sovereign nor any person
identified in Item 2(a), (b) and (c) hereof has ever been
convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors) or has been a party to any civil
proceeding of any judicial or administrative body which resulted
in a judgment, decree or final order against such person
enjoining him against future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws.
(f). Each natural person identified in Item 2(a), (b)
and (c) is a citizen of the United States of America.
ITEM 3. Source and Amount of Funds or Other Consideration.
The source of funds to be used by Sovereign in making a
purchase of shares of common stock of FSFS, upon exercise of the
Option (defined in Item 4 hereof) to which this Schedule 13D
relates, if and to the extent the Option is exercised, will be
either cash on hand at Sovereign, dividends from Sovereign Bank,
Sovereign Community and/or nonbank subsidiaries of Sovereign, a
loan from an unaffiliated bank or other financial service
company, or other borrowings. Sovereign has not made, as of the
date hereof, any definitive plans or arrangements regarding the
source of such funds.
Assuming the number of shares of FSFS common stock
outstanding remains unchanged from the number issued and
outstanding on June 24, 1996 (i.e., 3,938,815 shares), the
exercise of the Option in full, at an Option Price (defined in
Item 4 hereof) of $10.00 per share, will result in the purchase
of 783,500 shares for an aggregate purchase price of $7,835,000.
ITEM 4. Purpose of Transaction.
On June 24, 1996, Sovereign and FSFS entered into a
Stock Option Agreement (the "Stock Option Agreement") in which
FSFS granted to Sovereign the option (the "Option") (under
certain circumstances, described in this Item 4) to purchase up
to 783,500 shares of FSFS common stock at an exercise price per
share (the "Option Price") equal to the lower of (i) $10.00 or
(ii) the lowest price per share that a person or group, other
than Sovereign or an affiliate of Sovereign, paid or offers to
pay after June 24, 1996 for FSFS common stock in a transaction
constituting a Triggering Event (defined in this Item 4). The
Option was granted in connection with the execution by Sovereign
and FSFS of a definitive Agreement and Plan of Merger dated as of
June 24, 1996 (the "Merger Agreement"), a copy of which is
attached hereto as Exhibit 4.1 and incorporated by reference
herein. The Merger Agreement provides for Sovereign's
acquisition of FSFS through the merger of FSFS with and into
Sovereign (the "Merger"). Upon consummation of the Merger, the
registration of FSFS common stock under Section 12(g) of the
Securities Exchange Act of 1934 will be terminated. At closing
or as soon thereafter as practicable, First DeWitt Bank, a
wholly-owned subsidiary of FSFS and a federal savings bank
("First DeWitt"), will merge with and into Sovereign Bank, with
Sovereign Bank surviving the merger (the "Bank Merger").
Sovereign required FSFS to grant the Option as a
condition to Sovereign entering into the Merger Agreement for the
purpose of (i) providing some measure of compensation to
Sovereign for loss of the benefits expected from the Merger
and/or loss of the opportunity to explore other transactions
while the Merger is pending, in the event that a third party
acquires control of FSFS and (ii) increasing the likelihood that
the Merger and the Bank Merger will be completed. The Option is
exercisable only upon the occurrence of certain events that would
jeopardize completion of the Merger, none of which has occurred
as of the date hereof. These events (collectively, the
"Triggering Events") are the following:
(1) A person or group, other than Sovereign or an affiliate
of Sovereign, (a) acquires beneficial ownership of 10%
or more of the then outstanding shares of FSFS common
stock (excluding any shares eligible to be reported on
Schedule 13G of the Securities and Exchange
Commission); (b) enters into an agreement or letter of
intent with FSFS pursuant to which such person, group
or any affiliate thereof would merge or consolidate, or
enter into any similar transaction with FSFS, acquire
all or substantially all of the assets or liabilities
of FSFS or First DeWitt or acquire beneficial ownership
of securities representing, or the right to acquire
beneficial ownership or to vote securities
representing, 10% or more of the then outstanding
shares of common stock of FSFS or First DeWitt
(excluding any shares eligible to be reported on
Schedule 13G of the Securities and Exchange
Commission); (c) publicly announces a bona fide
Proposal (as defined in Section 2 of the Stock Option
Agreement) for any transaction of the type referred to
in clause (b) hereof, and such Proposal is not Publicly
Withdrawn (as defined in Section 2 of the Stock Option
Agreement) at least 30 days prior to the meeting of
stockholders of FSFS called to vote on the Merger, and
stockholders of FSFS fail to approve the Merger by the
vote required by applicable law or such meeting is
canceled; or (d) makes a bona fide Proposal for any
transaction of the type referred to in clause (b)
hereof, and thereafter, but before such Proposal has
been Publicly Withdrawn, FSFS willfully takes any
action that would likely result in the failure of
either Sovereign or FSFS to satisfy a material
condition to the completion of the Merger or materially
reduce the value of the transaction to Sovereign.
(2) FSFS breaches, in any material respect, any binding
term of the Merger Agreement or the Stock Option
Agreement after a Proposal is made and before it is
Publicly Withdrawn or publicly announces an intention
to authorize, recommend or accept any such Proposal.
The Stock Option Agreement provides that it will
terminate upon completion of the transactions contemplated by the
Merger Agreement.
The foregoing description of the Stock Option Agreement
does not purport to be complete and is qualified in its entirety
by the text of such Stock Option Agreement which is incorporated
herein by reference and attached hereto as Exhibit 4.2.
ITEM 5. Interest in Securities of the Issuer.
(a). Based on 3,938,815 shares of FSFS common stock
outstanding on June 24, 1996, Sovereign may be deemed the
beneficial owner, in the aggregate, of 783,500 shares of FSFS
common stock, all being shares which, though presently unissued,
are issuable in accordance with the terms and conditions of the
Option. These 783,500 shares would represent approximately 16.6%
of shares of FSFS common stock outstanding upon issuance,
assuming that no other shares are issued by FSFS, including
shares issuable upon exercise of options outstanding for FSFS
common stock. No person identified in Item 2(a), (b) or (c)
hereof is the beneficial owner of any shares of common stock of
FSFS.
(b). Sovereign will have sole power to vote or to
direct the vote and sole power to dispose or to direct the
disposition of any shares of FSFS common stock that Sovereign may
acquire upon exercise of the Option.
(c). There were no transactions in the common stock of
FSFS effected by Sovereign or by any person identified in
Item 2(a), (b) or (c) hereof during the sixty days preceding the
date of this Schedule 13D.
(d). No person other than Sovereign has the right to
receive or the power to direct the receipt of dividends from, or
the proceeds from the sale of, any shares of common stock of FSFS
that may be deemed beneficially owned by Sovereign on account of
this Option.
(e). Not applicable.
ITEM 6. Contracts, Arrangements, Understandings or Relationships
with Respect to Securities of the Issuer.
Except for the Merger Agreement and the Stock Option
Agreement, neither Sovereign nor any person identified in
Item 2(a), (b) or (c) hereof is a party to any contract,
arrangement, understanding or relationship (legal or otherwise)
with any person with respect to any securities of FSFS,
including, but not limited to, transfer or voting of any of the
securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of
profits or loss, or the giving or withholding of proxies.
ITEM 7. Material to be Filed as Exhibits.
4.1 Agreement and Plan of Merger, dated as of June 24,
1996, between Sovereign Bancorp, Inc. and First State Financial
Services, Inc.
4.2 Stock Option Agreement, dated June 24, 1996,
between Sovereign Bancorp, Inc. and First State Financial
Services, Inc. (Attached as Exhibit 2 to the Agreement and Plan
of Merger, which is attached hereto as Exhibit 4.1.)
<PAGE>
Signature
After reasonable inquiry and to the best of my knowledge
and belief, I certify that the information set forth in this
statement is true, complete and correct.
July 10, 1996 SOVEREIGN BANCORP, INC.
By /s/ Lawrence M. Thompson, Jr.
Lawrence M. Thompson, Jr., Esquire
Chief Administrative Officer
and Secretary
AGREEMENT AND PLAN
OF MERGER
between
SOVEREIGN BANCORP, INC.
and
FIRST STATE FINANCIAL SERVICES, INC.
June 24, 1996<PAGE>
AGREEMENT
TABLE OF CONTENTS
Page
BACKGROUND................................................... 1
AGREEMENT.................................................... 1
ARTICLE I
THE MERGERS
Section 1.01 Definitions.................................... 1
Section 1.02 The Merger..................................... 6
Section 1.03 The Bank Merger................................ 12
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FSFS
Section 2.01 Organization.................................... 12
Section 2.02 Capitalization.................................. 13
Section 2.03 Authority; No Violation......................... 14
Section 2.04 Consents........................................ 16
Section 2.05 Financial Statements............................ 16
Section 2.06 Taxes........................................... 17
Section 2.07 No Material Adverse Effect...................... 17
Section 2.08 Contracts....................................... 17
Section 2.09 Ownership of Property; Insurance Coverage....... 19
Section 2.10 Legal Proceedings............................... 20
Section 2.11 Compliance With Applicable Law.................. 20
Section 2.12 ERISA........................................... 21
Section 2.13 Brokers, Finders and Financial Advisors......... 22
Section 2.14 Environmental Matters........................... 22
Section 2.15 Loan Portfolio.................................. 23
Section 2.16 Information to be Supplied...................... 23
Section 2.17 Securities Documents............................ 23
Section 2.18 Related Party Transactions...................... 23
Section 2.19 Schedule of Termination Benefits................ 24
Section 2.20 Loans........................................... 24
Section 2.21 Quality of Representations...................... 24
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOVEREIGN
Section 3.01 Organization.................................... 25
Section 3.02 Capital Structure............................... 25
Section 3.03 Authority; No Violation......................... 26
Section 3.04 Consents........................................ 27
Section 3.05 Financial Statements............................ 28
Section 3.06 Taxes........................................... 28
Section 3.07 No Material Adverse Effect...................... 28
Section 3.08 Legal Proceedings............................... 28
Section 3.09 Ownership of Property; Insurance Coverage....... 29
Section 3.10 Compliance With Applicable Law.................. 29
Section 3.11 Information to be Supplied...................... 30
Section 3.12 ERISA........................................... 30
Section 3.13 Securities Documents............................ 32
Section 3.14 Environmental Matters........................... 32
Section 3.15 Loan Portfolio.................................. 32
Section 3.16 Brokers and Finders............................. 32
Section 3.17 Quality of Representations...................... 32
ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.01 Conduct of FSFS's Business..................... 32
Section 4.02 Access; Confidentiality........................ 36
Section 4.03 Regulatory Matters and Consents................ 37
Section 4.04 Taking of Necessary Action..................... 38
Section 4.05 Certain Agreements............................. 39
Section 4.06 No Other Bids and Related Matters.............. 39
Section 4.07 Duty to Advise; Duty to Update FSFS's
Disclosure Schedule..................................... 40
Section 4.08 Conduct of Sovereign's Business................ 40
Section 4.09 Board and Committee Minutes.................... 40
Section 4.10 Undertakings by Sovereign and FSFS............. 40
Section 4.11 Employee Benefits and Termination Benefits..... 43
ARTICLE V
CONDITIONS
Section 5.01 Conditions to FSFS's Obligations under this
Agreement............................................... 45
Section 5.02 Conditions to Sovereign's Obligations under this
Agreement............................................... 46
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
Section 6.01 Termination.................................... 49
Section 6.02 Effect of Termination.......................... 50
ARTICLE VII
MISCELLANEOUS
Section 7.01 Expenses....................................... 51
Section 7.02 Non-Survival of Representations and Warranties. 51
Section 7.03 Amendment, Extension and Waiver................ 51
Section 7.04 Entire Agreement............................... 51
Section 7.05 No Assignment.................................. 52
Section 7.06 Notices........................................ 52
Section 7.07 Captions....................................... 53
Section 7.08 Counterparts................................... 53
Section 7.09 Severability................................... 53
Section 7.10 Consent to Service of Process.................. 53
Section 7.11 Governing Law.................................. 54
Exhibit 1 FSFS Affiliate Agreement
Exhibit 2 Stock Option Agreement
Exhibit 3 Bank Plan of Merger
Exhibit 4 Form of Agreement Re: Benefits
Exhibit 5 Form of Opinion of Sovereign's Counsel
Exhibit 6 Form of Tax Opinion of Sovereign's
Counsel
Exhibit 7 Form of Opinion of FSFS's Counsel
<PAGE>
AGREEMENT
THIS AGREEMENT AND PLAN OF MERGER, dated as of June 24,
1996, is made by and between SOVEREIGN BANCORP, INC.
("Sovereign"), a Pennsylvania corporation, having its principal
place of business at 1130 Berkshire Boulevard, Wyomissing,
Pennsylvania 19610, and FIRST STATE FINANCIAL SERVICES, INC.
("FSFS"), a Delaware corporation, having its principal place of
business at 1120 Bloomfield Avenue, CN 2449, West Caldwell, New
Jersey 07007-2449.
BACKGROUND
1. Sovereign and FSFS desire for FSFS to merge with
and into Sovereign, with Sovereign surviving such merger, in
accordance with the applicable laws of the Commonwealth of
Pennsylvania and the State of Delaware, and in accordance with
the plan of merger set forth herein.
2. At or prior to the execution and delivery of this
Agreement, and as a condition and inducement to Sovereign's
execution of this Agreement (a) certain directors and officers of
FSFS and affiliates of FSFS, each have executed in favor of
Sovereign, a Letter Agreement dated June 24, 1996, in the form
attached hereto as Exhibit 1, and (b) FSFS granted to Sovereign
an option to acquire, under certain circumstances, FSFS's common
stock (the "Sovereign Option") pursuant to a Stock Option
Agreement between Sovereign and FSFS dated June 24, 1996,
attached hereto as Exhibit 2.
3. Sovereign desires to merge First DeWitt Bank, a
federal savings bank and a wholly-owned subsidiary of FSFS
("First DeWitt") into and with Sovereign Bank, FSB, a federal
savings bank and a wholly-owned subsidiary of Sovereign
("Sovereign Bank"), with Sovereign Bank surviving such merger in
accordance with the Bank Plan of Merger in the form attached
hereto as Exhibit 3.
4. Sovereign and FSFS desire to provide the terms and
conditions governing the transactions contemplated herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of
the mutual covenants, agreements, representations and warranties
herein contained, the parties hereto, intending to be legally
bound, do hereby agree as follows:
ARTICLE I
THE MERGERS
Section 1.01 Definitions. As used in this Agreement,
the following terms shall have the indicated meanings (such
meanings to be equally applicable to both the singular and plural
forms of the terms defined):
Affiliate means, with respect to any Person, any
Person who directly, or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under
common control with, such Person and, without limiting the
generality of the foregoing, includes any executive officer
or director of such Person and any Affiliate of such
executive officer or director.
Agreement means this agreement, and any amendment
or supplement hereto, which constitutes a "plan of merger"
between Sovereign and FSFS.
Applicable Exchange Ratio shall have the meaning
given to such term in Section 1.02(e)(ii)(A).
Applications means the applications for regulatory
approval which are required by the transactions contemplated
hereby.
Articles of Merger means the articles of merger to
be executed by Sovereign and FSFS and to be filed in the
PDS, in accordance with the applicable laws of the
Commonwealth of Pennsylvania.
Bank Merger means the merger of First DeWitt with
and into Sovereign Bank, with Sovereign Bank surviving such
merger, contemplated by Section 1.03 of this Agreement.
Bank Plan of Merger has the meaning given to that
term in Section 1.03 of this Agreement.
BCL means the Pennsylvania Business Corporation
Law of 1988, as amended.
Certificate of Merger means the certificate of
merger to be executed by Sovereign and FSFS and to be filed
in the DOSS, in accordance with the applicable laws of the
State of Delaware.
Closing Date means the date determined by
Sovereign, in its sole discretion, upon five (5) days prior
written notice to FSFS, but in no event later than thirty
(30) days after the last condition precedent pursuant to
this Agreement has been fulfilled or waived (including the
expiration of any applicable waiting period), or such other
date as Sovereign and FSFS shall agree.
DGCL means the Delaware General Corporation Law,
as amended.
DOSS means the Delaware Office of the Secretary of
State.
Effective Date means the date upon which the
Articles of Merger shall be filed in the PDS and the
Certificate of Merger shall be filed in the DOSS, and shall
be the same as the Closing Date.
Environmental Law means any federal, state, local
or foreign law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, order,
judgment, decree, injunction or agreement with any
Regulatory Authority relating to (i) the protection,
preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface
soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of any substance presently
listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated,
whether by type or by quantity, including any material
containing any such substance as a component.
ERISA means the Employee Retirement Income
Security Act of 1974, as amended.
Exchange Act means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
from time to time thereunder.
FDIC means the Federal Deposit Insurance
Corporation.
FFIEC means the Federal Financial Institutions
Examination Council.
FSFS Common Stock means the common stock of FSFS
described in Section 2.02(a).
FSFS Disclosure Schedule means a disclosure
schedule delivered by FSFS to Sovereign pursuant to
Article II of this Agreement.
FSFS Financials means (i) the audited consolidated
financial statements of FSFS as of September 30, 1995 and
for the three years ended September 30, 1995, including the
notes thereto, and (ii) the unaudited interim consolidated
financial statements of FSFS as of each calendar quarter
thereafter included in Securities Documents filed by FSFS.
FSFS Regulatory Reports means the Annual Reports
of FSFS on Form H(b)-11, any Current Report of FSFS on Form
H(b)-11 filed with the OTS from September 30, 1994 through
the Closing Date and the Thrift Financial Reports of First
DeWitt and accompanying schedules for each calendar quarter,
beginning with the quarter ended September 30, 1994, through
the Closing Date.
FSFS Subsidiaries means any corporation, 50% or
more of the capital stock of which is owned, either directly
or indirectly, by FSFS, except any corporation the stock of
which is held in the ordinary course of the lending
activities of First DeWitt.
GAAP means generally accepted accounting
principles as in effect.
HOLA means the Home Owners' Loan Act, as amended.
IRC means the Internal Revenue Code of 1986, as
amended.
IRS means the Internal Revenue Service.
Material Adverse Effect shall mean, with respect
to Sovereign or FSFS, any adverse effect on its assets,
financial condition or results of operations which is
material to its assets, financial condition or results of
operations on a consolidated basis, except for any material
adverse effect caused by any change occurring after the date
hereof in any federal or state law, rule or regulation or in
GAAP, which change affects banking institutions generally,
including any changes affecting the Bank Insurance Fund or
the Savings Association Insurance Fund.
Merger means the merger of FSFS with and into
Sovereign, with Sovereign surviving such merger,
contemplated by this Agreement.
OTS means the Office of Thrift Supervision.
PDB means the Department of Banking of the
Commonwealth of Pennsylvania.
PDS means the Department of State of the
Commonwealth of Pennsylvania.
Person means any individual, corporation,
partnership, joint venture, association, trust or "group"
(as that term is defined under the Exchange Act).
Prospectus/Proxy Statement means the
prospectus/proxy statement, together with any supplements
thereto, to be transmitted to holders of FSFS Common Stock
in connection with the transactions contemplated by this
Agreement.
Registration Statement means the registration
statement on Form S-4, including any pre-effective or
post-effective amendments or supplements thereto, as filed
with the SEC under the Securities Act with respect to the
Sovereign Common Stock and Sovereign Stock Purchase Rights
to be issued in connection with the transactions
contemplated by this Agreement.
Regulatory Agreement has the meaning given to that
term in Section 2.11 of this Agreement.
Regulatory Authority means any banking agency or
department of any federal or state government, including
without limitation the OTS, the FDIC, the PDB or the
respective staffs thereof.
Rights means warrants, options, rights,
convertible securities and other capital stock equivalents
which obligate an entity to issue its securities.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933,
as amended, and the rules and regulations promulgated from
time to time thereunder.
Securities Documents means all registration
statements, schedules, statements, forms, reports, proxy
material, and other documents required to be filed under the
Securities Laws.
Securities Laws means the Securities Act and the
Exchange Act and the rules and regulations promulgated from
time to time thereunder.
Sovereign Common Stock has the meaning given to
that term in Section 3.02(a) of this Agreement.
Sovereign Disclosure Schedule means a disclosure
schedule delivered by Sovereign to FSFS pursuant to
Article III of this Agreement.
Sovereign Financials means (i) the audited
consolidated financial statements of Sovereign as of
December 31, 1995 and for the three years ended December 31,
1995, including the notes thereto, and (ii) the unaudited
interim consolidated financial statements of Sovereign as of
each calendar quarter thereafter included in Securities
Documents filed by Sovereign.
Sovereign Market Value means, as of any date, the
average of the mean between the closing high bid and low
asked prices of a share of Sovereign Common Stock, as
reported on the National Association of Securities Dealers
Automated Quotation System (Nasdaq) National Market System,
for the ten consecutive trading days commencing eleven (11)
trading days prior to the date of determination.
Sovereign Option means the option granted to
Sovereign to acquire shares of FSFS Common Stock referenced
in the recitals to this Agreement.
Sovereign Regulatory Reports means the Annual
Reports of Sovereign on Form H(b)-11, any Current Report of
Sovereign on Form H(b)-11 filed with the OTS from
September 30, 1994 through the Closing Date and the Thrift
Financial Reports of Sovereign and accompanying schedules
for each calendar quarter, beginning with the quarter ended
September 30, 1994, through the Closing Date.
Sovereign Rights Agreement means the Rights
Agreement dated as of September 19, 1989, as amended
September 27, 1995, between Sovereign and Chemical Bank, as
rights agent, relating to Sovereign's Series A Junior
Participating Preferred Stock.
Sovereign Stock Purchase Rights means Rights to
purchase a unit of Sovereign's Series A Junior Participating
Preferred Stock in accordance with the terms of the
Sovereign Rights Agreement.
Sovereign Subsidiaries means any corporation, 50%
or more of the capital stock of which is owned, either
directly or indirectly, by Sovereign, except any corporation
the stock of which is held in the ordinary course of the
lending activities of a bank.
Subsidiary means any corporation, 50% or more of
the capital stock of which is owned, either directly or
indirectly, by another entity, except any corporation the
stock of which is held in the ordinary course of the lending
activities of a bank.
Section 1.02 The Merger.
(a) Closing. The closing will take place at
10:00 a.m. on the Closing Date at the offices of Stevens & Lee,
111 North Sixth Street, Reading, Pennsylvania, unless another
time and place are agreed to by the parties hereto; provided, in
any case, that all conditions to closing set forth in Article V
have been satisfied or waived at or prior to the Closing Date.
On the Closing Date, FSFS and Sovereign shall cause the Articles
of Merger to be duly executed and to be filed in the PDS and the
Certificate of Merger to be duly executed and filed in the DOSS.
(b) The Merger. Subject to the terms and
conditions of this Agreement, on the Effective Date: FSFS shall
merge with and into Sovereign; the separate existence of FSFS
shall cease; Sovereign shall be the surviving corporation in the
Merger; and all of the property (real, personal and mixed),
rights, powers and duties and obligations of FSFS shall be taken
and deemed to be transferred to and vested in Sovereign, as the
surviving corporation in the Merger, without further act or deed;
all debts, liabilities and duties of each of FSFS and Sovereign
shall thereafter be the responsibility of Sovereign as the
surviving corporation; all in accordance with the applicable laws
of the Commonwealth of Pennsylvania and the State of Delaware.
(c) Sovereign's Articles of Incorporation and
Bylaws. On and after the Effective Date, the articles of
incorporation and the bylaws of Sovereign, as in effect
immediately prior to the Effective Date, shall automatically be
and remain the articles of incorporation and bylaws of Sovereign,
as the surviving corporation in the Merger, until thereafter
altered, amended or repealed.
(d) Board of Directors and Officers of Sovereign
and Sovereign Bank.
(i) On the Effective Date, the Board of
Directors of Sovereign, as the surviving corporation in the
Merger, shall consist of those persons holding such office
immediately prior to the Effective Date.
(ii) On the Effective Date, the officers of
Sovereign duly elected and holding office immediately prior to
the Effective Date shall be the officers of Sovereign, as the
surviving corporation in the Merger, existing on such Effective
Date.
(iii) On the effective date of the Bank
Merger, the directors of Sovereign Bank as the surviving
institution in the Bank Merger shall consist of (i) those persons
holding such office immediately prior to the Effective Date, and
(ii) Michael J. Quigley, III. Sovereign shall cause Mr. Quigley
to be appointed as a director of Sovereign Bank effective as of
the effective date of the Bank Merger. Mr. Quigley shall be
appointed to hold office until the 1997 annual reorganization
meeting of the Board of Directors of Sovereign Bank and until his
successor is elected and qualified or otherwise in accordance
with Sovereign Bank's charter and bylaws.
(iv) On the effective date of the Bank
Merger, the officers of Sovereign Bank duly elected and holding
office immediately prior to such effective date shall be the
officers of Sovereign Bank, as the surviving corporation in the
Bank Merger.
(v) On the effective date of the Bank
Merger, Sovereign will create an advisory board of directors of
Sovereign Bank for the market area served by First DeWitt which
shall consist of all existing directors of First DeWitt.
Sovereign shall cause such persons to be elected as advisory
directors of Sovereign Bank effective as of the effective date of
the Bank Merger, and each shall hold office for at least one year
from such effective date. Such advisory board shall meet
quarterly and each member shall receive $250 per meeting
attended.
(e) Conversion of Shares.
(i) Sovereign Common Stock.
(A) Each share of Sovereign Common
Stock issued and outstanding immediately prior to the
Effective Date shall, on and after the Effective Date,
continue to be issued and outstanding as an identical share
of Sovereign Common Stock. Shares of Sovereign Common Stock
owned by FSFS (other than shares held in trust, managed,
custodial or nominee accounts and the like or held by mutual
funds for which a subsidiary of FSFS acts as investment
advisor, that in any such case are beneficially owned by
third parties (any such shares, "trust account shares") and
shares acquired in respect of debts previously contracted
(any such shares, "DPC shares")) shall become treasury stock
of Sovereign.
(B) Each share of Sovereign Common
Stock issued and held in the treasury of Sovereign as of the
Effective Date, if any, shall, on and after the Effective
Date, continue to be issued and held in the treasury of
Sovereign.
(ii) FSFS Common Stock.
(A) Subject to the provisions of
subparagraphs (B), (C) and (D) of this Section 1.02(e)(ii),
each share of FSFS Common Stock issued and outstanding
immediately prior to the Effective Date (other than shares
of FSFS Common Stock, if any, then owned by Sovereign or
FSFS or any FSFS Subsidiary) shall, on the Effective Date,
by reason of the Merger and without any action on the part
of the holder thereof, be converted into and become a right
to receive:
(i) if the Sovereign Market Value
determined as of the Effective Date is greater than or
equal to $9.00 (88% of the Sovereign Market Value
determined as of the date of this Agreement) and less
than or equal to $11.45 (112% of the Sovereign Market
Value determined as of the date of this Agreement),
then that number of shares of fully paid and
nonassessable shares of Sovereign Common Stock, and the
corresponding percentage of Sovereign Stock Purchase
Rights pursuant to the Sovereign Rights Agreement,
equal to $14.75 divided by the Sovereign Market Value
determined as of the Effective Date;
(ii) if the Sovereign Market Value
determined as of the Effective Date is less than $9.00,
then 1.64 shares of fully paid and nonassessable shares
of Sovereign Common Stock, and the corresponding
percentage of Sovereign Stock Purchase Rights pursuant
to the Sovereign Rights Agreement; or
(iii) if the Sovereign Market
Value determined as of the Effective Date is greater
than $11.45, then 1.29 shares of fully paid and
nonassessable shares of Sovereign Common Stock, and the
corresponding percentage of Sovereign Stock Purchase
Rights pursuant to the Sovereign Rights Agreement (as
determined pursuant to either Sections
1.02(e)(ii)(A)(i), 1.02(e)(ii)(A)(ii) or
1.02(a)(ii)(A)(iii), the "Applicable Exchange Ratio").
(B) Each share of FSFS Common Stock
(other than trust account shares or DPC shares) owned by
Sovereign or a Sovereign Subsidiary on the Effective Date,
if any, shall be cancelled.
(C) Each share of FSFS Common Stock
issued and held in the treasury of FSFS or owned by FSFS or
any FSFS Subsidiary (other than trust account shares or DPC
shares) as of the Effective Date, if any, shall be
cancelled, and no cash, stock or other property shall be
delivered in exchange therefor.
(D) No fraction of a whole share of
Sovereign Common Stock and no scrip or certificates therefor
shall be issued in connection with the Merger. Any former
holder of FSFS Common Stock who would otherwise be entitled
to receive a fraction of a share of Sovereign Common Stock
shall receive, in lieu thereof, cash in an amount equal to
such fraction of a share multiplied by the market value of
Sovereign Common Stock (determined in accordance with the
provisions of Section 1.02(e)(iii) hereof).
(f) Stock Options. Each option to acquire FSFS
Common Stock shall be converted into and become an option to
acquire that number of shares of Sovereign Common Stock equal to
the number of shares of FSFS Common Stock covered by the option
multiplied by the Applicable Exchange Ratio and the exercise
price for a whole share of Sovereign Common Stock shall be the
present stated exercise price of such option divided by the
Applicable Exchange Ratio, such shares to be issuable upon
exercise of such options in accordance with the terms of the
respective plans and grant agreements under which they were
issued.
(g) Surrender and Exchange of FSFS Stock
Certificates.
(i) Exchange of Certificates. Each holder
of shares of FSFS Common Stock who surrenders to Sovereign
the certificate or certificates representing such shares
will be entitled to receive, as soon as practicable after
the Effective Date, in exchange therefor a certificate or
certificates for the number of whole shares of Sovereign
Common Stock into which such holder's shares of FSFS Common
Stock have been converted pursuant to the Merger, together
with a check for cash in lieu of any fractional share in
accordance with Section 1.02(e)(ii)(D) hereof.
(ii) Rights Evidenced by Certificates. Each
certificate for shares of Sovereign Common Stock issued in
exchange for certificates for FSFS Common Stock pursuant to
Section 1.02(g)(i) hereof will be dated the Effective Date
and be entitled to dividends and all other rights and
privileges pertaining to such shares of stock from the
Effective Date. Until surrendered, each certificate
theretofore evidencing shares of FSFS Common Stock will,
from and after the Effective Date, evidence solely the right
to receive certificates for shares of Sovereign Common Stock
pursuant to Section 1.02(g)(i) hereof and a check for cash
in lieu of any fractional share in accordance with
Section 1.02(e)(ii)(D) hereof. If certificates for shares
of FSFS Common Stock are exchanged for Sovereign Common
Stock at a date following one or more record dates for the
payment of dividends or of any other distribution on the
shares of Sovereign Common Stock, Sovereign will pay cash in
an amount equal to dividends theretofore payable on such
Sovereign Common Stock and pay or deliver any other
distribution to which holders of shares of Sovereign Common
Stock have theretofore become entitled. No interest will
accrue or be payable in respect of dividends or cash
otherwise payable under this Section 1.02(g) upon surrender
of certificates for shares of FSFS Common Stock.
Notwithstanding the foregoing, no party hereto will be
liable to any holder of FSFS Common Stock for any amount
paid in good faith to a public official or agency pursuant
to any applicable abandoned property, escheat or similar
law. Until such time as certificates for shares of FSFS
Common Stock are surrendered by a FSFS shareholder to
Sovereign for exchange, Sovereign shall have the right to
withhold dividends or any other distributions on the shares
of Sovereign Common Stock issuable to such shareholder.
(iii) Exchange Procedures. Each certificate
for shares of FSFS Common Stock delivered for exchange under
this Section 1.02(g) must be endorsed in blank by the
registered holder thereof or be accompanied by a power of
attorney to transfer such shares endorsed in blank by such
holder. If more than one certificate is surrendered at one
time and in one transmittal package for the same shareholder
account, the number of whole shares of Sovereign Common
Stock for which certificates will be issued pursuant to this
Section 1.02(g) will be computed on the basis of the
aggregate number of shares represented by the certificates
so surrendered. If shares of Sovereign Common Stock or
payments of cash are to be issued or made to a person other
than the one in whose name the surrendered certificate is
registered, the certificate so surrendered must be properly
endorsed in blank, with signature(s) guaranteed, or
otherwise in proper form for transfer, and the person to
whom certificates for shares of Sovereign Common Stock is to
be issued or to whom cash is to be paid shall pay any
transfer or other taxes required by reason of such issuance
or payment to a person other than the registered holder of
the certificate for shares of FSFS Common Stock which are
surrendered. As promptly as practicable after the Effective
Date, Sovereign shall send or cause to be sent to each
shareholder of record of FSFS Common Stock transmittal
materials for use in exchanging certificates representing
FSFS Common Stock for certificates representing Sovereign
Common Stock into which the former have been converted in
the Merger.
(iv) Closing of Stock Transfer Books;
Cancellation of FSFS Certificates. Upon the Effective Date,
the stock transfer books for FSFS Common Stock will be
closed and no further transfers of shares of FSFS Common
Stock will thereafter be made or recognized. All
certificates for shares of FSFS Common Stock surrendered
pursuant to this Section 1.02(g) will be cancelled by
Sovereign.
(h) Payment Procedures. As soon as practicable
after the Effective Date, Sovereign shall make payment of the
cash consideration provided for in Section 1.02(e)(ii)(D) to each
person entitled thereto.
(i) Anti-Dilution Provisions. If, on the
Effective Date, the Applicable Exchange Ratio is determined
pursuant to either Section 1.02(e)(ii)(A)(ii) or
1.02(e)(ii)(A)(iii) and Sovereign has, at any time after the date
hereof and before the Effective Date, (A) issued a dividend in
shares of Sovereign Common Stock, (B) combined the outstanding
shares of Sovereign Common Stock into a smaller number of shares,
(C) subdivided the outstanding shares of Sovereign Common Stock,
or (D) reclassified the shares of Sovereign Common Stock, then,
in any such event, the number of shares of Sovereign Common Stock
to be delivered pursuant to Sections 1.02(e)(ii)(A)(ii) or
1.02(e)(ii)(A)(iii) to FSFS shareholders who are entitled to
receive shares of Sovereign Common Stock in exchange for shares
of FSFS Common Stock shall be adjusted so that each FSFS
shareholder shall be entitled to receive such number of shares of
Sovereign Common Stock as such shareholder would have been
entitled to receive if the Effective Date had occurred prior to
the happening of such event. (By way of illustration, if
Sovereign shall declare a stock dividend of 7% payable with
respect to a record date on or prior to the Effective Date, the
Applicable Exchange Ratio determined pursuant to
Sections 1.02(e)(ii)(A)(ii) and 1.02(e)(ii)(A)(iii) shall be
adjusted upward by 7%).
Section 1.03 The Bank Merger. Sovereign and FSFS
shall use their best efforts to cause First DeWitt to merge with
and into Sovereign Bank, with Sovereign Bank surviving such
merger, as soon as practicable after the Effective Date.
Concurrently with, or as soon as practicable after, the execution
and delivery of this Agreement, Sovereign shall cause Sovereign
Bank, and FSFS shall cause First DeWitt, to execute and deliver
the Bank Plan of Merger attached hereto as Exhibit 3.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FSFS
FSFS hereby represents and warrants to Sovereign that,
except as specifically set forth in the FSFS Disclosure Schedule
delivered to Sovereign by FSFS on the date hereof:
Section 2.01 Organization.
(a) FSFS is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and is duly qualified and licensed to do business under
the laws of the State of New Jersey. FSFS is a savings and loan
holding company duly registered under the HOLA. FSFS has the
corporate power and authority to carry on its business and
operations as now being conducted and to own and operate the
properties and assets now owned and being operated by it. Except
for the State of New Jersey, FSFS is not qualified or licensed to
do business as a foreign corporation in any other jurisdiction
and is not required to be so qualified or licensed as the result
of the ownership or leasing of property or the conduct of its
business except where the failure to be so qualified or licensed
would not have a Material Adverse Effect.
(b) First DeWitt is a federal savings bank duly
organized and validly existing under the laws of the United
States of America. First DeWitt has the corporate power and
authority to carry on its business and operations as now being
conducted and to own and operate the properties and assets now
owned and being operated by it. Except for the State of
New Jersey, neither First DeWitt nor any FSFS subsidiary is
qualified or licensed to do business as a foreign corporation in
any other jurisdiction and are not required to be so qualified or
licensed as the result of the ownership or leasing of property or
the conduct of its business except where the failure to be so
qualified or licensed would not have a Material Adverse Effect.
(c) There are no FSFS Subsidiaries other than
First DeWitt and those identified in the FSFS Disclosure
Schedule. There are no First DeWitt Subsidiaries other than
those identified in the FSFS Disclosure Schedule.
(d) The deposits of First DeWitt are insured by
the FDIC to the extent provided in the Federal Deposit Insurance
Act.
(e) The respective minute books of FSFS and First
DeWitt and each other FSFS Subsidiary accurately record, in all
material respects, all material corporate actions of their
respective shareholders and boards of directors (including
committees) through the date of this Agreement.
(f) Prior to the date of this Agreement, FSFS has
delivered to Sovereign true and correct copies of the certificate
of incorporation and bylaws of FSFS and the charter and bylaws of
First DeWitt as in effect on the date hereof.
Section 2.02 Capitalization.
(a) The authorized capital stock of FSFS consists
of (a) 8,000,000 shares of common stock, $0.01 par value ("FSFS
Common Stock"), of which 3,938,815 shares are outstanding,
validly issued, fully paid and nonassessable and free of
preemptive rights, and (b) 2,000,000 shares of preferred stock,
$0.01 par value, none of which are issued or outstanding.
Neither FSFS nor First DeWitt nor any other FSFS Subsidiary has
or is bound by any subscription, option, warrant, call,
commitment, agreement, plan or other Right of any character
relating to the purchase, sale or issuance or voting of, or right
to receive dividends or other distributions on any shares of FSFS
Common Stock, FSFS preferred stock or any other security of FSFS
or any securities representing the right to vote, purchase or
otherwise receive any shares of FSFS Common Stock, FSFS preferred
stock or any other security of FSFS, other than for (i) shares
issuable under the Sovereign Option and (ii) 385,600 shares which
FSFS is obligated to issue, under FSFS's 1987 Stock Option Plan,
FSFS's 1993 Long-term Incentive Stock Benefit Plan and FSFS's
1993 Stock Option Plan for Outside Directors (the "FSFS Stock
Option Plans"), at a weighted average exercise price of $7.66, to
its directors, officers and employees and officers and employees
of FSFS Subsidiaries, including First DeWitt. As of March 31,
1996, FSFS had approximately 1,150 shareholders of record.
(b) The authorized capital stock of First DeWitt
consists of (i) 750,000 shares of common stock, par value
$1.00 per share ("First DeWitt Common Stock"), of which
1,000 shares are outstanding, validly issued, fully paid,
nonassessable, free of preemptive rights and owned by FSFS and
(ii) 250,000 shares of preferred stock, par value $1.00 per
share, none of which are issued or outstanding. Neither FSFS nor
any other FSFS Subsidiary has or is bound by any subscription,
option, warrant, call, commitment, agreement or other Right of
any character relating to the purchase, sale or issuance or
voting of, or right to receive dividends or other distributions
on any shares of the capital stock of any FSFS Subsidiary or any
other security of any FSFS Subsidiary or any securities
representing the right to vote, purchase or otherwise receive any
shares of the capital stock or any other security of any FSFS
Subsidiary. Either FSFS or First DeWitt owns all of the
outstanding shares of capital stock of each FSFS Subsidiary free
and clear of all liens, security interests, pledges, charges,
encumbrances, agreements and restrictions of any kind or nature.
(c) Except as set forth in the FSFS Disclosure
Schedule, neither (i) FSFS, (ii) First DeWitt or (iii) any other
FSFS Subsidiary, owns any equity interest, directly or
indirectly, in any other company or controls any other company,
except for equity interests held in the investment portfolios of
FSFS Subsidiaries, equity interests held by FSFS Subsidiaries in
a fiduciary capacity, and equity interests held in connection
with the commercial loan activities of FSFS Subsidiaries. There
are no subscriptions, options, warrants, calls, commitments,
agreements or other Rights outstanding and held by FSFS or First
DeWitt with respect to any other company's capital stock or the
equity of any other person.
(d) No person or "group" (as that term is used in
Section 13(d)(3) of the Exchange Act), to the best of FSFS's
knowledge, is the beneficial owner (as defined in Section 13(d)
of the Exchange Act) of 5% or more of the outstanding shares of
FSFS Common Stock, except as disclosed in FSFS's proxy statement
for use in connection with its January 17, 1996 annual meeting of
shareholders, previously delivered to Sovereign or in the FSFS
Disclosure Schedule.
(e) Neither Austin Bernet, Inc. ("ABI"), Basswood
Partners, L.P. ("Basswood"), nor FMR Corp. ("FMR") is an
Affiliate or is or will be deemed to be an affiliate of FSFS
within the meaning of SEC Staff Accounting Bulletin No. 65, SEC
Accounting Series Release No. 130 or SEC Accounting Series
Release No. 135.
Section 2.03 Authority; No Violation.
(a) FSFS has full corporate power and authority
to execute and deliver this Agreement and to complete the
transactions contemplated hereby. First DeWitt has full
corporate power and authority to execute and deliver the Bank
Plan of Merger and to consummate the Bank Merger. The execution
and delivery of this Agreement by FSFS and the completion by FSFS
of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of FSFS and, except
for approval by the shareholders of FSFS as required under the
DGCL, FSFS's certificate of incorporation and bylaws and Nasdaq
requirements applicable to it, no other corporate proceedings on
the part of FSFS are necessary to complete the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by FSFS, subject to approval of the
shareholders of FSFS as required under the DGCL, FSFS's
certificate of incorporation and bylaws and Nasdaq requirements
applicable to it, and constitutes the valid and binding
obligation of FSFS, enforceable against FSFS in accordance with
its terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity. The Bank
Plan of Merger, upon its execution and delivery by First DeWitt,
will constitute the valid and binding obligation of First DeWitt,
enforceable against First DeWitt in accordance with its terms,
subject to applicable conservatorship, receivership, insolvency
and similar laws affecting creditors' rights generally and
institutions the deposits of which are insured by the FDIC, and
subject, as to enforceability, to general principles of equity.
(b) (A) The execution and delivery of this
Agreement by FSFS, (B) the execution and delivery of the Bank
Plan of Merger by First DeWitt, (C) subject to receipt of
approvals from the Regulatory Authorities referred to in
Section 3.04 hereof and FSFS's and Sovereign's compliance with
any conditions contained therein, the completion of the
transactions contemplated hereby, and (D) compliance by FSFS or
First DeWitt with any of the terms or provisions hereof or of the
Bank Plan of Merger, will not (i) conflict with or result in a
breach of any provision of the certificate of incorporation or
bylaws of FSFS or any FSFS Subsidiary or the charter and bylaws
of First DeWitt; (ii) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction
applicable to FSFS or any FSFS Subsidiary or any of their
respective properties or assets; or (iii) except as set forth in
the FSFS Disclosure Schedule, violate, conflict with, result in a
breach of any provisions of, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of, accelerate the
performance required by, or result in a right of termination or
acceleration or the creation of any lien, security interest,
charge or other encumbrance upon any of the properties or assets
of FSFS or any FSFS Subsidiary under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement, commitment or other
instrument or obligation to which FSFS or any FSFS Subsidiary is
a party, or by which they or any of their respective properties
or assets may be bound or affected, except for such violations,
conflicts, breaches or defaults under clause (ii) or (iii) hereof
which, either individually or in the aggregate, will not have a
material adverse effect on the assets, business, financial
condition, results of operations or business prospects of FSFS
and the FSFS Subsidiaries taken as a whole or the ability of FSFS
to perform any of its obligations under this Agreement.
Section 2.04 Consents. Except for the consents,
approvals, filings and registrations from or with the Regulatory
Authorities referred to in Section 3.04 hereof and compliance
with any conditions contained therein, and the approval of this
Agreement by the shareholders of FSFS under the DGCL, and of the
Bank Plan of Merger by FSFS as sole shareholder of First DeWitt
under the HOLA, and by the First DeWitt Board of Directors, no
consents or approvals of, or filings or registrations with, any
public body or authority are necessary, and no consents or
approvals of any third parties are necessary, or will be, in
connection with (a) the execution and delivery of this Agreement
by FSFS or the Bank Plan of Merger by First DeWitt, and (b) the
completion by FSFS of the transactions contemplated hereby or by
First DeWitt of the Bank Merger. FSFS has no reason to believe
that (i) any required consents or approvals will not be received
or will be received with conditions, limitations or restrictions
unacceptable to it or which would adversely impact FSFS's ability
to consummate the transactions contemplated by this Agreement or
that (ii) any public body or authority, the consent or approval
of which is not required or any filing with which is not
required, will object to the consummation of the transactions
contemplated by this Agreement.
Section 2.05 Financial Statements.
(a) FSFS has previously delivered, or will
deliver, to Sovereign the FSFS Regulatory Reports. The FSFS
Regulatory Reports have been, or will be, prepared in all
material respects in accordance with applicable regulatory
accounting principles and practices applied on a consistent basis
throughout the periods covered by such statements, and fairly
present, or will fairly present in all material respects, the
financial position, results of operations and changes in
shareholders' equity of FSFS as of and for the periods ended on
the dates thereof, in accordance with applicable regulatory
accounting principles applied on a consistent basis.
(b) FSFS has previously delivered to Sovereign
the FSFS Financials. The FSFS Financials have been, or will be,
prepared in accordance with generally accepted accounting
principles and practices applied on a consistent basis throughout
the periods covered by such statements, and fairly present, or
will fairly present, the consolidated financial position, results
of operations and cash flows of FSFS as of and for the periods
ending on the dates thereof, in accordance with generally
accepted accounting principles applied on a consistent basis.
(c) At the date of each balance sheet included in
the FSFS Financials or the FSFS Regulatory Reports, neither FSFS
nor First DeWitt (as the case may be) had, or will have any
liabilities, obligations or loss contingencies of any nature
(whether absolute, accrued, contingent or otherwise) of a type
required to be reflected in such FSFS Financials or FSFS
Regulatory Reports or in the footnotes thereto which are not
fully reflected or reserved against therein or fully disclosed in
a footnote thereto, except for liabilities, obligations and loss
contingencies which are not material in the aggregate and which
are incurred in the ordinary course of business, consistent with
past practice and except for liabilities, obligations and loss
contingencies which are within the subject matter of a specific
representation and warranty herein and subject, in the case of
any unaudited statements, to normal, recurring audit adjustments
and the absence of footnotes.
Section 2.06 Taxes.
(a) FSFS and the FSFS Subsidiaries are members of
the same affiliated group within the meaning of IRC
Section 1504(a). FSFS has duly filed, and will file, all
federal, state and local tax returns required to be filed by or
with respect to FSFS and all FSFS Subsidiaries on or prior to the
Closing Date (all such returns being accurate and correct in all
material respects) and has duly paid or will pay, or made or will
make, provisions for the payment of all federal, state and local
taxes which have been incurred by or are due or claimed to be due
from FSFS and any FSFS Subsidiary by any taxing authority or
pursuant to any tax sharing agreement or arrangement (written or
oral) on or prior to the Closing Date other than taxes which
(i) are not delinquent or (ii) are being contested in good faith.
(b) No consent pursuant to IRC Section 341(f) has
been filed (or will be filed prior to the Closing Date) by or
with respect to FSFS or any FSFS Subsidiary.
Section 2.07 No Material Adverse Effect. FSFS has not
suffered any Material Adverse Effect since March 31, 1996.
Section 2.08 Contracts.
(a) Except as described in FSFS's proxy statement
for its January 17, 1996 annual meeting of shareholders and
Annual Reports on Form 10-K for the fiscal years ended
September 30, 1993, 1994 and 1995, previously delivered to
Sovereign, in the footnotes to the audited consolidated financial
statements of FSFS as of September 30, 1995 and for the three
years ended September 30, 1995 or in the FSFS Disclosure
Schedule, neither FSFS nor any FSFS Subsidiary is a party to or
subject to: (i) any employment, consulting or severance contract
or arrangement with any past or present officer, director or
employee of FSFS or any FSFS Subsidiary, except for "at will"
arrangements; (ii) any plan, arrangement or contract providing
for bonuses, pensions, options, deferred compensation, retirement
payments, profit sharing or similar arrangements for or with any
past or present officers, directors or employees of FSFS or any
FSFS Subsidiary; (iii) any collective bargaining agreement with
any labor union relating to employees of FSFS or any FSFS
Subsidiary; (iv) any agreement which by its terms limits the
payment of dividends by any FSFS Subsidiary; (v) any instrument
evidencing or related to indebtedness for borrowed money whether
directly or indirectly, by way of purchase money obligation,
conditional sale, lease purchase, guaranty or otherwise, in
respect of which FSFS or any FSFS Subsidiary is an obligor to any
person, which instrument evidences or relates to indebtedness
other than deposits, repurchase agreements, bankers acceptances
and "treasury tax and loan" accounts established in the ordinary
course of business and transactions in "federal funds" or which
contains financial covenants or other restrictions (other than
those relating to the payment of principal and interest when due)
which would be applicable on or after the Closing Date to
Sovereign or any Sovereign Subsidiary; or (vi) any contract
(other than this Agreement) limiting the freedom of any FSFS
Subsidiary to engage in any type of banking or bank-related
business permissible under law.
(b) True and correct copies of agreements, plans,
arrangements and instruments referred to in Section 2.08(a) or
described in the FSFS proxy statement for its January 17, 1996
annual meeting of shareholders or in a footnote to such audited
consolidated financial statements, have been provided to
Sovereign on or before the date hereof, are listed on the FSFS
Disclosure Schedule and are in full force and effect on the date
hereof and neither FSFS nor any FSFS Subsidiary (nor, to the
knowledge of FSFS, any other party to any such contract, plan,
arrangement or instrument) has breached any provision of, or is
in default in any respect under any term of, any such contract,
plan, arrangement or instrument which breach has resulted in or
will result in a Material Adverse Effect with respect to FSFS.
Except as set forth in the FSFS Disclosure Schedule, no party to
any material contract, plan, arrangement or instrument will have
the right to terminate any or all of the provisions of any such
contract, plan, arrangement or instrument as a result of the
transactions contemplated by this Agreement. None of the
employees (including officers) of FSFS or any FSFS Subsidiary,
except for Michael J. Quigley, III, possess the right to
terminate their employment as a result of the execution of this
Agreement. Except as set forth in the FSFS Disclosure Schedule,
no plan, employment agreement, termination agreement, or similar
agreement or arrangement to which FSFS or any FSFS Subsidiary is
a party or under which FSFS or any FSFS Subsidiary may be liable
contains provisions which permit an employee or independent
contractor to terminate it without cause and continue to accrue
future benefits thereunder. Except as set forth in the FSFS
Disclosure Schedule, no such agreement, plan or arrangement
(x) provides for acceleration in the vesting of benefits or
payments due thereunder upon the occurrence of a change in
ownership or control of FSFS or any FSFS Subsidiary absent the
occurrence of a subsequent event; (y) provides for benefits which
may cause the disallowance of a federal income tax deduction
under IRC Section 280G; or (z) requires FSFS or any FSFS
Subsidiary to provide a benefit in the form of FSFS Common Stock
or determined by reference to the value of FSFS Common Stock.
Section 2.09 Ownership of Property; Insurance
Coverage.
(a) Except as disclosed in the FSFS Disclosure
Schedule, FSFS and the FSFS Subsidiaries have, or will have as to
property acquired after the date hereof, good and, as to real
property, marketable title to all assets and properties owned by
FSFS or any FSFS Subsidiary in the conduct of their businesses,
whether such assets and properties are real or personal, tangible
or intangible, including assets and property reflected in the
balance sheets contained in the FSFS Regulatory Reports and in
the FSFS Financials or acquired subsequent thereto (except to the
extent that such assets and properties have been disposed of for
fair value, in the ordinary course of business, since the date of
such balance sheets), subject to no encumbrances, liens,
mortgages, security interests or pledges, except (i) those items
which secure liabilities for borrowed money from a Federal Home
Loan Bank, (ii) statutory liens for amounts not yet delinquent or
which are being contested in good faith and (iii) items permitted
under Article IV. FSFS and the FSFS Subsidiaries, as lessee,
have the right under valid and subsisting leases of real and
personal properties used by FSFS and its Subsidiaries in the
conduct of their businesses to occupy or use all such properties
as presently occupied and used by each of them. Except as
disclosed in the FSFS Disclosure Schedule, such existing leases
and commitments to lease constitute or will constitute operating
leases for both tax and financial accounting purposes and the
lease expense and minimum rental commitments with respect to such
leases and lease commitments are as disclosed in the Notes to the
FSFS Financials.
(b) With respect to all agreements pursuant to
which FSFS or any FSFS Subsidiary has purchased securities
subject to an agreement to resell, if any, FSFS or such FSFS
Subsidiary, as the case may be, has a valid, perfected first lien
or security interest in the securities or other collateral
securing the repurchase agreement, and the value of such
collateral equals or exceeds the amount of the debt secured
thereby.
(c) FSFS and the FSFS Subsidiaries currently
maintain insurance considered by FSFS to be reasonable for their
respective operations and similar in scope and coverage to that
maintained by other businesses similarly engaged. Neither FSFS
nor any FSFS Subsidiary has received notice from any insurance
carrier that (i) such insurance will be cancelled or that
coverage thereunder will be reduced or eliminated, or
(ii) premium costs with respect to such policies of insurance
will be substantially increased. There are presently no material
claims pending under such policies of insurance and no notices
have been given by FSFS or First DeWitt under such policies. All
such insurance is valid and enforceable and in full force and
effect, and within the last three years FSFS has received each
type of insurance coverage for which it has applied and during
such periods has not been denied indemnification for any material
claims submitted under any of its insurance policies.
Section 2.10 Legal Proceedings. Except as disclosed
in the FSFS Disclosure Schedule, neither FSFS nor any FSFS
Subsidiary is a party to any, and there are no pending or, to the
best of FSFS's knowledge, threatened legal, administrative,
arbitration or other proceedings, claims (whether asserted or
unasserted), actions or governmental investigations or inquiries
of any nature (i) against FSFS or any FSFS Subsidiary, (ii) to
which FSFS or any FSFS Subsidiary's assets are or may be subject,
(iii) challenging the validity or propriety of any of the
transactions contemplated by this Agreement, or (iv) which could
adversely affect the ability of FSFS to perform under this
Agreement, except for any proceedings, claims, actions,
investigations or inquiries referred to in clauses (i) or (ii)
which, if adversely determined, individually or in the aggregate,
could not be reasonably expected to have a Material Adverse
Effect.
Section 2.11 Compliance With Applicable Law.
(a) FSFS and FSFS Subsidiaries hold all licenses,
franchises, permits and authorizations necessary for the lawful
conduct of their businesses under, and have complied in all
material respects with, applicable laws, statutes, orders, rules
or regulations of any federal, state or local governmental
authority relating to them, other than where such failure to hold
or such noncompliance will neither result in a limitation in any
material respect on the conduct of their businesses nor otherwise
have a Material Adverse Effect on the assets, business, financial
condition, the results of operations or business prospects of
FSFS and its Subsidiaries taken as a whole.
(b) Except as disclosed in the FSFS Disclosure
Schedule, neither FSFS nor any FSFS Subsidiary has received any
notification or communication from any Regulatory Authority
(i) asserting that FSFS or any FSFS Subsidiary is not in
compliance with any of the statutes, regulations or ordinances
which such Regulatory Authority enforces; (ii) threatening to
revoke any license, franchise, permit or governmental
authorization which is material to FSFS or any FSFS Subsidiary;
(iii) requiring or threatening to require FSFS or any FSFS
Subsidiary, or indicating that FSFS or any FSFS Subsidiary may be
required, to enter into a cease and desist order, agreement or
memorandum of understanding or any other agreement restricting or
limiting, or purporting to restrict or limit, in any manner the
operations of FSFS or any FSFS Subsidiary, including without
limitation any restriction on the payment of dividends; or
(iv) directing, restricting or limiting, or purporting to direct,
restrict or limit, in any manner the operations of FSFS or any
FSFS Subsidiary, including without limitation any restriction on
the payment of dividends (any such notice, communication,
memorandum, agreement or order described in this sentence is
hereinafter referred to as a "Regulatory Agreement"). Neither
FSFS nor any FSFS Subsidiary has consented to or entered into any
Regulatory Agreement, except as heretofore disclosed to
Sovereign.
Section 2.12 ERISA. FSFS has previously delivered to
Sovereign true and complete copies of all employee pension
benefit plans within the meaning of ERISA Section 3(2), profit
sharing plans, stock purchase plans, deferred compensation and
supplemental income plans, supplemental executive retirement
plans, employment agreements, annual or long term incentive
plans, settlement plans, policies and agreements, group insurance
plans, and all other employee welfare benefit plans within the
meaning of ERISA Section 3(1) (including vacation pay, sick
leave, short-term disability, long-term disability, and medical
plans) and all other employee benefit plans, policies, agreements
and arrangements, all of which are set forth in the FSFS
Disclosure Schedule, maintained or contributed to for the benefit
of the employees or former employees (including retired
employees) and any beneficiaries thereof or directors or former
directors of FSFS or any FSFS Subsidiary, together with (i) the
most recent actuarial (if any) and financial reports relating to
those plans which constitute "qualified plans" under IRC
Section 401(a), (ii) the most recent annual reports relating to
such plans filed by them, respectively, with any government
agency, and (iii) all rulings and determination letters which
pertain to any such plans. The pension plan has not incurred,
directly or indirectly, within the past six (6) years any
liability under Title IV of ERISA (including to the Pension
Benefit Guaranty Corporation) or to the IRS except liabilities to
the Pension Benefit Guaranty Corporation pursuant to ERISA
Section 4007, all of which have been fully paid, nor has any
reportable event under ERISA Section 4043(b) occurred with
respect to any such pension plan. Neither FSFS, any FSFS
Subsidiary nor any other pension plan maintained by FSFS or any
FSFS Subsidiary, has incurred, directly or indirectly, within the
past six (6) years any liability under Title IV of ERISA
(including to the Pension Benefit Guaranty Corporation) or to the
IRS with respect to any pension plan qualified under IRC
Section 401(a) which liability has resulted in or will result in
a Material Adverse Effect with respect to FSFS, except
liabilities to the Pension Benefit Guaranty Corporation pursuant
to ERISA Section 4007, all of which have been fully paid, nor has
any reportable event under ERISA Section 4043(b) occurred with
respect to any such pension plan. With respect to each of such
plans that is subject to Title IV of ERISA, the present value of
the accrued benefits under such plan, based upon the actuarial
assumptions used for funding purposes in the plan's most recent
actuarial report dated _________ __, ____, did not, as of its
latest valuation date, exceed the then current value of the
assets of such plan allocable to such accrued benefits by more
than $200,000, and FSFS estimates that by the Closing Date such
liabilities will not exceed such assets. Neither FSFS nor any
FSFS Subsidiary has incurred or is subject to any liability under
ERISA Section 4201 for a complete or partial withdrawal from a
multi-employer plan. All "employee benefit plans," as defined in
ERISA Section 3(3), comply and within the past six (6) years have
complied in all material respects with (i) relevant provisions of
ERISA and (ii) in the case of plans intended to qualify for
favorable income tax treatment, provisions of the IRC relevant to
such treatment. Neither FSFS nor any FSFS Subsidiary has a
material liability under any such plan which pursuant to GAAP is
required to be reflected on or disclosed in (pursuant to a
footnote or otherwise) the FSFS Financials and which is not so
reflected or disclosed thereon. No prohibited transaction,
breach of fiduciary duty or other transaction has occurred within
the past six (6) years with respect to (i) any pension plan,
employment agreement, supplemental executive retirement plan or
special termination agreement maintained by FSFS or any FSFS
Subsidiary which would result in the imposition, directly or
indirectly, of an excise tax or other penalty under ERISA or the
IRC or (ii) any other employee benefit plan maintained by FSFS or
any FSFS Subsidiary which would result in the imposition,
directly or indirectly, of an excise tax or other penalty under
ERISA or the IRC, which, individually or in the aggregate, has
resulted in or will result in a Material Adverse Effect with
respect to FSFS. FSFS and the FSFS Subsidiaries provide
continuation coverage under group health plans for separating
employees and "qualified beneficiaries" in accordance with the
provisions of IRC Section 4980B(f). Such group health plans are
in compliance with Section 1862(b)(1) of the Social Security Act.
Section 2.13 Brokers, Finders and Financial Advisors.
Except for FSFS's engagement of McConnell, Budd & Downes, Inc. in
connection with transactions contemplated by this Agreement,
neither FSFS nor any FSFS Subsidiary, nor any of their respective
officers, directors, employees or agents, has employed any
broker, finder or financial advisor in connection with the
transactions contemplated by this Agreement or in connection with
any transaction other than the Merger, or, except for a
commitment to pay McConnell, Budd & Downes, Inc. in connection
with the transactions contemplated by this Agreement, incurred
any liability or commitment for any fees or commissions to any
such person in connection with the transactions contemplated by
this Agreement or in connection with any transaction other than
the Merger, which has not been reflected in the FSFS Financials.
The FSFS Disclosure Schedule shall contain as an exhibit the
engagement letter between FSFS and McConnell, Budd & Downes, Inc.
Section 2.14 Environmental Matters. To the knowledge
of FSFS, neither FSFS nor any FSFS Subsidiary, nor any properties
owned or operated by FSFS or any FSFS Subsidiary has been or is
in violation of or liable under any Environmental Law which
violation or liability, individually or in the aggregate,
resulted in, or will result, in a Material Adverse Effect with
respect to FSFS. There are no actions, suits or proceedings, or
demands, claims, notices or investigations (including without
limitation notices, demand letters or requests for information
from any environmental agency) instituted or pending, or to the
knowledge of FSFS, threatened, relating to the liability of any
property owned or operated by FSFS or any FSFS Subsidiary under
any Environmental Law.
Section 2.15 Loan Portfolio. The allowance for loan
losses reflected, and to be reflected, in the FSFS Regulatory
Reports, and shown, and to be shown, on the balance sheets
contained in the FSFS Financials have been, and will be,
established in accordance with the requirements of generally
accepted accounting principles and all applicable regulatory
criteria.
Section 2.16 Information to be Supplied. The
information to be supplied by FSFS and First DeWitt for inclusion
in the Registration Statement will not, at the time the
Registration Statement is declared effective pursuant to the
Securities Act, contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein not misleading. The information supplied, or
to be supplied, by FSFS for inclusion in the Applications will,
at the time such documents are filed with any Regulatory
Authority, be accurate in all material aspects.
Section 2.17 Securities Documents. FSFS has delivered
to Sovereign copies of its (i) annual reports on SEC Form 10-K
for the years ended September 30, 1995, 1994 and 1993,
(ii) quarterly reports on SEC Form 10-Q for the quarters ended
December 31, 1995, and March 31, 1996, and (iii) proxy materials
used or for use in connection with its meetings of shareholders
held in 1996, 1995 and 1994. Such reports and such proxy
materials complied, at the time filed with the SEC, in all
material respects, with the Exchange Act and all applicable rules
and regulations of the SEC.
Section 2.18 Related Party Transactions. Except as
disclosed (i) in the FSFS Disclosure Schedule, (ii) in the proxy
statement for use in connection with FSFS's 1996 annual meeting
of shareholders or (iii) in the footnotes to the FSFS Financials,
FSFS is not a party to any transaction (including any loan or
other credit accommodation) with any Affiliate of FSFS (except a
FSFS Subsidiary). Except as disclosed in the FSFS Disclosure
Schedule or in the proxy statement for use in connection with
FSFS's 1995 annual meeting of shareholders, all such transactions
(a) were made in the ordinary course of business, (b) 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 (c) did not involve more
than the normal risk of collectability or present other
unfavorable features. Except as set forth on the FSFS Disclosure
Schedule, no loan or credit accommodation to any Affiliate of
FSFS is presently in default or, during the three year period
prior to the date of this Agreement, has been in default or has
been restructured, modified or extended. Neither FSFS nor First
DeWitt has been notified that principal and interest with respect
to any such loan or other credit accommodation will not be paid
when due or that the loan grade classification accorded such loan
or credit accommodation by First DeWitt is inappropriate.
Section 2.19 Schedule of Termination Benefits. The
FSFS Disclosure Schedule includes a schedule of termination
benefits and related payments payable to the individuals
identified thereon, excluding any options to acquire FSFS Common
Stock granted to such individuals, under any and all employment
agreements, special termination agreements, supplemental
executive retirement plans, deferred bonus plans, deferred
compensation plans, salary continuation plans, or any other
pension benefit or welfare benefit plan maintained by FSFS solely
for the benefit of officers of FSFS or FSFS Subsidiaries (the
"Benefits Schedule"), in the event their employment had been
terminated as of March 31, 1996. No other individuals are
entitled to benefits under any such plans. The present value of
the termination benefits and related payments specified,
including required gross-up payments under Section 280G of the
IRC, on the Benefit Schedule with respect to each named
individual (based on a 6% per annum discount factor) is true and
correct in all material respects and the aggregate amount of the
present value of such termination benefits and related payments
(based on a 6% per annum discount factor) does not exceed the
amount set forth on the Benefits Schedule included in the FSFS
Disclosure Schedule, excluding any amounts accrued through
March 31, 1996, assuming all individuals entitled to receive
termination benefits under any and all agreements providing for
such termination benefits terminated their employment on
March 31, 1996.
Section 2.20 Loans. Each loan reflected as an asset
in the FSFS Financial Statements (i) is evidenced by notes,
agreements or other evidences of indebtedness which are true,
genuine and correct (ii) to the extent secured, has been secured
by valid liens and security interests which have been perfected,
and (ii) is the legal, valid and binding obligation of the
obligator named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent conveyance
and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles, in each case
other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on FSFS.
Section 2.21 Quality of Representations. The
representations made by FSFS in this Agreement are true, correct
and complete in all material respects.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOVEREIGN
Sovereign hereby represents and warrants to FSFS that,
except as set forth in the Sovereign Disclosure Schedule
delivered by Sovereign to FSFS on or prior to the date hereof:
Section 3.01 Organization.
(a) Sovereign is a corporation duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Each Sovereign Subsidiary is duly
organized, validly existing, and in good standing under the laws
of the jurisdiction of its incorporation and each possesses full
corporate power and authority to carry on its respective business
and to own, lease and operate its properties as presently
conducted. Neither Sovereign nor any Sovereign Subsidiary is
required by the conduct of its business or the ownership or
leasing of its assets to qualify to do business as a foreign
corporation in any jurisdiction other than the Commonwealth of
Pennsylvania and the states of Delaware and New Jersey, except
where the failure to be so qualified would not have a Material
Adverse Effect. Sovereign is a savings and loan holding company
duly registered under the HOLA.
(b) Sovereign Bank is a federal savings bank,
duly organized and validly existing under the laws of the United
States of America. Sovereign Bank has the corporate power and
authority to carry on its business and operations as now being
conducted and to own and operate the properties and assets now
owned and being operated by it.
(c) The deposits of Sovereign Bank are insured by
the FDIC to the extent provided in the Federal Deposit Insurance
Act.
(d) The respective minute books of Sovereign and
Sovereign Bank accurately record in all material respects all
material corporate action of their respective shareholders and
boards of directors (including committees) through the date of
this Agreement.
(e) Prior to the execution of this Agreement,
Sovereign has delivered to FSFS true and correct copies of the
articles of incorporation and the bylaws of Sovereign and
Sovereign Bank, respectively, as in effect on the date hereof.
Section 3.02 Capital Structure.
(a) Sovereign is authorized, by its articles of
incorporation, to issue (a) 100,000,000 shares of common stock,
no par value ("Sovereign Common Stock"), of which, at the date of
this Agreement, no shares were issued and held by Sovereign as
treasury stock and 52,769,815 shares are issued and outstanding,
and (b) 7,500,000 shares of preferred stock, no par value, of
which, at the date of this Agreement, 2,000,000 shares of 61/4%
Cumulative, Convertible Preferred Stock, Series B, are issued and
outstanding. All shares of Sovereign Common Stock issued and
outstanding are fully paid and nonassessable and none were issued
in violation of any preemptive rights. Sovereign has no Rights
authorized, issued or outstanding, other than (i) the Sovereign
Stock Purchase Rights, and (ii) options to acquire
1,578,902 shares of Sovereign Common Stock as authorized under
Sovereign's employee benefit plans, stock option plans, non-
employee directors compensation plan, employee stock ownership
plan, employee stock purchase plan, and dividend reinvestment and
stock purchase plan. As of March 31, 1996, Sovereign had
approximately 8,500 shareholders of record.
(b) To the best of Sovereign's knowledge, except
as disclosed in Sovereign's proxy statement dated March 15, 1996,
no person or "group" (as that term is used in Section 13(d)(3) of
the Exchange Act) is the beneficial owner of 5% or more of the
outstanding shares of Sovereign Common Stock.
(c) Sovereign owns all of the capital stock of
Sovereign Bank, free and clear of any lien or encumbrance.
Except for the Sovereign Subsidiaries, Sovereign does not
possess, directly or indirectly, any material equity interest in
any corporation, except for equity interests held in the
investment portfolios of Sovereign Subsidiaries, equity interests
held by Sovereign Subsidiaries in a fiduciary capacity, and
equity interests held in connection with the commercial loan
activities of Sovereign Subsidiaries.
Section 3.03 Authority; No Violation.
(a) Sovereign has full corporate power and
authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. Sovereign Bank has full
corporate power and authority to execute and deliver the Bank
Plan of Merger and to consummate the Bank Merger. The execution
and delivery of this Agreement by Sovereign and the consummation
by Sovereign of the transactions contemplated hereby have been
duly and validly approved by the Board of Directors of Sovereign
and no other corporate proceedings on the part of Sovereign are
necessary to consummate the transactions contemplated hereby.
The execution and delivery of the Bank Plan of Merger by
Sovereign Bank and the consummation by Sovereign Bank of the Bank
Merger have been duly and validly approved by the Board of
Directors of Sovereign Bank and by Sovereign as sole shareholder
of Sovereign Bank, and no other corporate proceedings on the part
of Sovereign Bank are necessary to consummate the transactions
contemplated by the Bank Plan of Merger. This Agreement has been
duly and validly executed and delivered by Sovereign and, subject
to receipt of the required approvals of Regulatory Authorities
described in Section 3.04 hereof, constitutes the valid and
binding obligation of Sovereign, enforceable against Sovereign in
accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of
equity. The Bank Plan of Merger, upon its execution and delivery
by Sovereign Bank concurrently with the execution and delivery of
this Agreement, will constitute the valid and binding obligation
of Sovereign Bank, enforceable against Sovereign Bank in
accordance with its terms, subject to applicable conservatorship
and receivership provisions of the Federal Deposit Insurance Act,
or insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general
principles of equity.
(b) (A) The execution and delivery of this
Agreement by Sovereign, (B) the execution and delivery of the
Bank Plan of Merger by Sovereign Bank, (C) subject to receipt of
approvals from the Regulatory Authorities referred to in
Section 3.04 hereof and FSFS's and Sovereign's compliance with
any conditions contained therein, the consummation of the
transactions contemplated hereby, and (D) compliance by Sovereign
or Sovereign Bank with any of the terms or provisions hereof or
of the Bank Plan of Merger will not (i) conflict with or result
in a breach of any provision of the articles of incorporation or
bylaws of Sovereign or the charter and bylaws of Sovereign Bank;
(ii) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to
Sovereign or Sovereign Bank or any of their respective properties
or assets; or (iii) violate, conflict with, result in a breach of
any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default),
under, result in the termination of, accelerate the performance
required by, or result in a right of termination or acceleration
or the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of Sovereign or
Sovereign Bank under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other investment or obligation to which
Sovereign or Sovereign Bank is a party, or by which they or any
of their respective properties or assets may be bound or
affected, except for such violations, conflicts, breaches or
defaults under clause (ii) or (iii) hereof which, either
individually or in the aggregate, will not have a Material
Adverse Effect on Sovereign.
Section 3.04 Consents. Except for consents and
approvals of or filings with the OTS, the PDB, the SEC, and state
"blue sky" authorities, no consents or approvals of, or filings
or registrations with, any public body or authority are necessary
in connection with the execution and delivery of this Agreement
by Sovereign or the Bank Plan of Merger by Sovereign Bank, or the
consummation by Sovereign of the transactions contemplated hereby
or by Sovereign Bank of the Bank Merger. Sovereign has no reason
to believe that (i) any required consents or approvals will not
be received or will be received with conditions, limitations or
restrictions unacceptable to it or which would adversely impact
Sovereign's ability to consummate the transactions contemplated
by this Agreement or that (ii) any public body or authority, the
consent or approval of which is not required or any filing with
which is not required, will object to the consummation of the
transactions contemplated by this Agreement.
Section 3.05 Financial Statements.
(a) Sovereign has previously delivered, or will
deliver, to FSFS the Sovereign Financials. The Sovereign
Financials have been, or will be, prepared in accordance with
generally accepted accounting principles, and fairly present, or
will fairly present, the consolidated financial position, results
of operations and cash flows of Sovereign as of and for the
periods ending on the dates thereof, in accordance with generally
accepted accounting principles. Sovereign will make the
Sovereign Regulatory Reports available to FSFS for inspection.
(b) At the date of any balance sheet included in
the Sovereign Financials, Sovereign did not have any liabilities
or obligations of any nature (whether absolute, accrued,
contingent or otherwise) of a type required to be reflected in
such Sovereign Financials or in the footnotes thereto which are
not fully reflected or reserved against therein or disclosed in a
footnote thereto, except for liabilities and obligations which
are not material in the aggregate and which are incurred in the
ordinary course of business, consistent with past practice, and
except for liabilities and obligations which are within the
subject matter of a specific representation and warranty herein.
Section 3.06 Taxes. Sovereign and the Sovereign
Subsidiaries are members of the same affiliated group within the
meaning of IRC Section 1504(a). Sovereign has duly filed in
correct form all federal, state and local tax returns required to
be filed by or with respect to Sovereign and all Sovereign
Subsidiaries on or prior to the date hereof (all such returns
being accurate and correct in all material respects) and has duly
paid or made provisions for the payment of all federal, state and
local taxes which have been incurred by or are due or claimed to
be due from Sovereign and any Sovereign Subsidiary by any taxing
authority or pursuant to any tax sharing agreement or arrangement
(written or oral) on or prior to the date hereof other than taxes
which (i) are not delinquent or (ii) are being contested in good
faith.
Section 3.07 No Material Adverse Effect. Sovereign
has not suffered any Material Adverse Effect since March 31,
1996.
Section 3.08 Legal Proceedings. Neither Sovereign nor
any Sovereign Subsidiary is a party to any, and there are no
pending or, to the best of Sovereign's knowledge, threatened
legal, administrative, arbitration or other proceedings, claims,
actions or governmental investigations or inquiries of any nature
(i) against Sovereign or any Sovereign Subsidiary, (ii) to which
Sovereign's or any Sovereign Subsidiary's assets are subject,
(iii) challenging the validity or propriety of any of the
transactions contemplated by this Agreement, or (iv) which could
adversely affect the ability of Sovereign to perform under this
Agreement, except for any proceedings, claims, actions,
investigations or inquiries referred to in clauses (i) or (ii)
which, individually or in the aggregate, could not be reasonably
expected to materially and adversely affect the assets, business,
financial condition or results of operations of Sovereign and its
Subsidiaries taken as a whole.
Section 3.09 Ownership of Property; Insurance
Coverage.
(a) Sovereign and the Sovereign Subsidiaries have
good and, as to real property, marketable title to all assets and
properties owned by Sovereign or any of its Subsidiaries, whether
real or personal, tangible or intangible, including assets and
property reflected in the balance sheets contained in the
Sovereign Financials or acquired subsequent thereto (except to
the extent that such assets and properties have been disposed of
for fair value, in the ordinary course of business, since the
date of such balance sheets), subject to no encumbrances, liens,
mortgages, security interests or pledges, except (i) those items
that secure liabilities for borrowed money and that are described
in the Sovereign Disclosure Schedule or permitted under
Article IV hereof, and (ii) statutory liens for amounts not yet
delinquent or which are being contested in good faith. Sovereign
and the Sovereign Subsidiaries, as lessee, have the right under
valid and subsisting leases of properties used by Sovereign and
its Subsidiaries in the conduct of their businesses to occupy and
use all such properties as presently occupied and used by each of
them.
(b) Sovereign and the Sovereign Subsidiaries
currently maintain insurance in amounts considered by Sovereign
to be reasonable for their respective operations, and such
insurance is similar in scope and coverage to that maintained by
other businesses similarly engaged. Neither Sovereign nor any
Sovereign Subsidiary has received notice from any insurance
carrier that (i) such insurance will be cancelled or that
coverage thereunder will be reduced or eliminated or (ii) premium
costs with respect to such insurance will be substantially
increased.
Section 3.10 Compliance With Applicable Law.
(a) Sovereign and the Sovereign Subsidiaries hold
all licenses, franchises, permits and authorizations necessary
for the lawful conduct of their businesses under, and have
complied in all material respects with, applicable laws,
statutes, orders, rules or regulations of any federal, state or
local governmental authority relating to them, other than where
such failure to hold or such noncompliance will neither result in
a limitation in any material respect on the conduct of their
businesses nor otherwise have a Material Adverse Effect on the
assets, business, financial condition, business prospects or
results of operations of Sovereign and its Subsidiaries taken as
a whole.
(b) Neither Sovereign nor any Sovereign
Subsidiary has received any notification or communication from
any Regulatory Authority (i) asserting that Sovereign or any
Sovereign Subsidiary is not in compliance with any of the
statutes, regulations or ordinances which such Regulatory
Authority enforces; (ii) threatening to revoke any license,
franchise, permit or governmental authorization which is material
to Sovereign or any Sovereign Subsidiary; (iii) requiring or
threatening to require Sovereign or any Sovereign Subsidiary, or
indicating that Sovereign or any Sovereign Subsidiary may be
required, to enter into a cease and desist order, agreement or
memorandum of understanding or any other agreement restricting or
limiting, or purporting to restrict or limit, in any manner the
operations of Sovereign or any Sovereign Subsidiary, including
without limitation any restriction on the payment of dividends;
or (iv) directing, restricting or limiting, or purporting to
direct, restrict or limit, in any manner the operations of
Sovereign or any Sovereign Subsidiary, including without
limitation any restriction on the payment of dividends (any such
notice, communication, memorandum, agreement or order described
in this sentence is hereinafter referred to as a "Regulatory
Agreement"). Neither Sovereign nor any Sovereign Subsidiary has
consented to or entered into any Regulatory Agreement, except as
heretofore disclosed to FSFS.
Section 3.11 Information to be Supplied. The
information to be supplied by Sovereign for inclusion in the
Registration Statement will not, at the time the Registration
Statement is declared effective pursuant to the Securities Act,
contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements
therein not misleading. The information supplied, or to be
supplied, by Sovereign for inclusion in the Applications will, at
the time such documents are filed with any Regulatory Authority,
be accurate in all material aspects.
Section 3.12 ERISA. Sovereign has previously made
available to FSFS true and complete copies of the employee
pension benefit plans within the meaning of ERISA Section 3(2),
profit sharing plans, stock purchase plans, deferred compensation
and supplemental income plans, supplemental executive retirement
plans, annual incentive plans, group insurance plans, and all
other employee welfare benefit plans within the meaning of ERISA
Section 3(1) (including vacation pay, sick leave, short-term
disability, long-term disability, and medical plans), and all
other employee benefit plans, policies, agreements and
arrangements, all of which are set forth on the Sovereign
Disclosure Schedule, maintained or contributed to for the benefit
of the employees or former employees (including retired
employees) and any beneficiaries thereof or directors or former
directors of Sovereign or any Sovereign Subsidiary, together with
(i) the most recent actuarial (if any) and financial reports
relating to those plans which constitute "qualified plans" under
IRC Section 401(a), (ii) the most recent annual reports relating
to such plans filed by them, respectively, with any government
agency, and (iii) all rulings and determination letters which
pertain to any such plans. Neither Sovereign nor any Sovereign
Subsidiary, and no pension plan maintained by Sovereign or any
Sovereign Subsidiary, has incurred, directly or indirectly,
within the past six (6) years any liability under Title IV of
ERISA (including to the Pension Benefit Guaranty Corporation) or
to the IRS with respect to any pension plan qualified under IRC
Section 401(a) which liability has resulted in or will result in
a Material Adverse Effect with respect to Sovereign, except
liabilities to the Pension Benefit Guaranty Corporation pursuant
to ERISA Section 4007, all of which have been fully paid, nor has
any reportable event under ERISA Section 4043(b) occurred with
respect to any such pension plan. With respect to each of such
plans that is subject to Title IV of ERISA, the present value of
the accrued benefits under such plan, based upon the actuarial
assumptions used for funding purposes in the plan's most recent
actuarial report did not, as of its latest valuation date, exceed
the then current value of the assets of such plan allocable to
such accrued benefits. Neither Sovereign nor any Sovereign
Subsidiary has incurred any liability under ERISA Section 4201
for a complete or partial withdrawal from a multi-employer plan.
All "employee benefit plans," as defined in ERISA Section 3(3),
comply and in the past six (6) years have complied in all
material respects with (i) relevant provisions of ERISA, and
(ii) in the case of plans intended to qualify for favorable
income tax treatment, provisions of the IRC relevant to such
treatment. Except as disclosed in the Sovereign Disclosure
Schedule, neither Sovereign nor any Sovereign Subsidiary has a
material liability under any such plan which is not reflected on
the Sovereign Financials. No prohibited transaction (which shall
mean any transaction prohibited by ERISA Section 406 and not
exempt under ERISA Section 408 or any transaction prohibited
under IRC Section 4975) has occurred within the past six (6)
years with respect to any employee benefit plan maintained by
Sovereign or any Sovereign Subsidiary that would result in the
imposition, directly or indirectly, of an excise tax under IRC
Section 4975 or other penalty under ERISA or the IRC, which
individually or in the aggregate, has resulted in or will result
in a Material Adverse Effect with respect to Sovereign.
Sovereign and the Sovereign Subsidiaries provide continuation
coverage under group health plans for separating employees in
accordance with the provisions of IRC Section 4980B(f). Such
group health plans are in compliance with Section 1862(b)(1) of
the Social Security Act.
Section 3.13 Securities Documents. Sovereign has
delivered, or will deliver, to FSFS copies of its (i) annual
reports on SEC Form 10-K for the years ended December 31, 1995,
1994, and 1993, (ii) quarterly reports on SEC Form 10-Q for the
quarter ended March 31, 1996, and (iii) proxy statement dated
March 15, 1996 used in connection with its annual meeting of
shareholders held in April 1996. Such reports and such proxy
materials complied, at the time filed with the SEC, in all
material respects, with the Exchange Act and the applicable rules
and regulations of the SEC.
Section 3.14 Environmental Matters. To the knowledge
of Sovereign, neither Sovereign nor any Sovereign Subsidiary, nor
any properties owned or operated by Sovereign or any Sovereign
Subsidiary has been or is in violation of or liable under any
Environmental Law which violation or liability, individually or
in the aggregate, resulted in or will result in a Material
Adverse Effect with respect to Sovereign. There are no actions,
suits or proceedings, or demands, claims, notices or
investigations (including without limitation notices, demand
letters or requests for information from any environmental
agency) instituted or pending, or to the knowledge of Sovereign,
threatened, relating to the liability of any property owned or
operated by Sovereign or any Sovereign Subsidiary under any
Environmental Law.
Section 3.15 Loan Portfolio. The allowance for loan
losses reflected, and to be reflected, in the Sovereign
Regulatory Reports, and shown, and to be shown, on the balance
sheets contained in the Sovereign Financials have been, and will
be, established in accordance with the requirements of generally
accepted accounting principles and all applicable regulatory
criteria.
Section 3.16 Brokers and Finders. Neither Sovereign
nor any Sovereign Subsidiary, nor any of their respective
officers, directors, employees or agents, has employed any
broker, finder or financial advisor, or incurred any liability
for any fees or commissions to any such person, in connection
with the transactions contemplated by this Agreement.
Section 3.17 Quality of Representations. The
representations made by Sovereign in this Agreement are true,
correct and complete in all material respects.
ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.01 Conduct of FSFS's Business.
(a) From the date of this Agreement to the
Closing Date, FSFS and each FSFS Subsidiary will conduct its
business and engage in transactions, including extensions of
credit, only in the ordinary course and consistent with past
practice and policies, except as otherwise required by this
Agreement or with the written consent of Sovereign. FSFS will
use its best efforts, and will cause First DeWitt to use its best
efforts, to (i) preserve its business organizations intact,
(ii) maintain good relationships with employees, and
(iii) preserve for itself the good will of customers of FSFS and
FSFS Subsidiaries and others with whom business relationships
exist. From the date hereof to the Closing Date, except as
otherwise consented to or approved by Sovereign in writing or as
permitted or required by this Agreement, FSFS will not, and FSFS
will not permit any FSFS Subsidiary to:
(i) amend or change any provision of its
certificate or articles of incorporation, charter, or
bylaws;
(ii) change the number of authorized or
issued shares of its capital stock or issue or grant any
option, warrant, call, commitment, subscription, Right or
agreement of any character relating to its authorized or
issued capital stock or any securities convertible into
shares of such stock, or split, combine or reclassify any
shares of capital stock, or declare, set aside or pay any
dividend or other distribution in respect of capital stock,
or redeem or otherwise acquire any shares of capital stock,
except that (A) FSFS may issue shares of FSFS Common Stock
upon the valid exercise, subject to the terms of the letter
agreement attached hereto as Exhibit 1, of presently
outstanding options to acquire FSFS Common Stock under the
FSFS Stock Option Plans and (B) FSFS may pay a regular
quarterly cash dividend, not to exceed $0.055 per share of
FSFS Common Stock outstanding. As promptly as practicable
following the date of this Agreement, the Board of Directors
of FSFS shall cause its regular quarterly dividend record
dates and payment dates to be the same as Sovereign's
regular quarterly dividend record dates and payment dates
for Sovereign Common Stock, and FSFS shall not change its
regular dividend payment dates and record dates without
prior written consent of Sovereign. Nothing contained in
this Section 4.01(ii) or in any other Section of this
Agreement shall be construed to permit FSFS shareholders to
receive two dividends in any quarter. Subject to applicable
regulatory restrictions, if any, First DeWitt may pay a cash
dividend, in the aggregate, sufficient to fund any dividend
by FSFS permitted hereunder;
(iii) grant any severance or termination pay
(other than pursuant to written policies or written
agreements of FSFS or FSFS Subsidiaries in effect on the
date hereof and provided to Sovereign prior to the date
hereof) to, or enter into any new or amend any existing
employment agreement with, or increase the compensation of,
any employee, officer or director of FSFS or any FSFS
Subsidiary, except for routine periodic increases,
individually and in the aggregate, in accordance with past
practice;
(iv) merge or consolidate FSFS or any FSFS
Subsidiary with any other corporation; sell or lease all or
any substantial portion of the assets or business of FSFS or
any FSFS Subsidiary; make any acquisition of all or any
substantial portion of the business or assets of any other
person, firm, association, corporation or business
organization other than in connection with the collection of
any loan or credit arrangement between any FSFS Subsidiary
and any other person; enter into a purchase and assumption
transaction with respect to deposits and liabilities; permit
the revocation or surrender by any FSFS Subsidiary of its
certificate of authority to maintain, or file an application
for the relocation of, any existing branch office, or file
an application for a certificate of authority to establish a
new branch office;
(v) sell or otherwise dispose of the capital
stock of First DeWitt or sell or otherwise dispose of any
asset of FSFS or of any FSFS Subsidiary other than in the
ordinary course of business consistent with past practice;
subject any asset of FSFS or of any FSFS Subsidiary to a
lien, pledge, security interest or other encumbrance (other
than in connection with deposits, repurchase agreements,
bankers acceptances, "treasury tax and loan" accounts
established in the ordinary course of business and
transactions in "federal funds" and the satisfaction of
legal requirements in the exercise of trust powers) other
than in the ordinary course of business consistent with past
practice; incur any indebtedness for borrowed money (or
guarantee any indebtedness for borrowed money), except in
the ordinary course of business consistent with past
practice;
(vi) take any action which would result in
any of the representations and warranties of FSFS set forth
in this Agreement becoming untrue as of any date after the
date hereof or in any of the conditions set forth in
Article V hereof not being satisfied;
(vii) change any method, practice or
principle of accounting, except as may be required from time
to time by GAAP (without regard to any optional early
adoption date) or any Regulatory Authority responsible for
regulating FSFS or First DeWitt;
(viii) waive, release, grant or transfer any
rights of value or modify or change in any material respect
any existing material agreement to which FSFS or any FSFS
Subsidiary is a party, other than in the ordinary course of
business, consistent with past practice;
(ix) implement any pension, retirement,
profit sharing, bonus, welfare benefit or similar plan or
arrangement that was not in effect on the date of this
Agreement, or materially amend any existing plan or
arrangement except to the extent such amendments do not
result in an increase in cost; provided, however, that FSFS
may contribute to the FSFS pension plan an amount not to
exceed the minimum amount required under ERISA or the IRC
only if (A) such amount is usual and ordinary, consistent
with past practice and (B) FSFS obtains an opinion of legal
counsel that the full amount of such contribution will be
deductible by FSFS for federal tax purposes, and further
provided that in no event will FSFS contribute to the FSFS
pension plan an amount in excess of $200,000 without
Sovereign's prior written consent;
(x) purchase any security for its investment
portfolio not rated "A" or higher by either Standard &
Poor's Corporation or Moody's Investor Services, Inc.;
(xi) make any loan or other credit facility
commitment (including without limitation, lines of credit
and letters of credit) to any borrower or group of
affiliated borrowers in excess of $600,000 in the aggregate,
or compromise, extend, renew or modify any such loan or
commitment outstanding in excess of $600,000, except for any
commitment disclosed on the FSFS Disclosure Schedule;
provided that Sovereign will not unreasonably withhold its
consent with respect to any request by FSFS for permission
to compromise, extend, renew or modify any loan in excess of
$600,000;
(xii) except as set forth on the FSFS
Disclosure Schedule, enter into, renew, extend or modify any
other transaction with any Affiliate;
(xiii) enter into any interest rate swap or
similar commitment, agreement or arrangement;
(xiv) except for the execution of this
Agreement, take any action that would give rise to a right
of payment to any individual under any employment agreement;
(xv) intentionally and knowingly take any
action that would preclude satisfaction of the condition to
closing contained in Section 5.02(k) relating to financial
accounting treatment of the Merger; or
(xvi) agree to do any of the foregoing.
For purposes of this Section 4.01, it shall not be
considered in the ordinary course of business for FSFS or any
FSFS Subsidiary to do any of the following: (i) make any capital
expenditure of $50,000 or more not disclosed on FSFS Disclosure
Schedule 4.01, without the prior written consent of Sovereign;
(ii) make any sale, assignment, transfer, pledge, hypothecation
or other disposition of any assets having a book or market value,
whichever is greater, in the aggregate in excess of $1,000,000,
other than pledges of assets to secure government deposits, to
exercise trust powers, sales of assets received in satisfaction
of debts previously contracted in the normal course of business,
issuance of loans, or transactions in the investment securities
portfolio by FSFS or a FSFS Subsidiary or repurchase agreements
made, in each case, in the ordinary course of business; or
(iii) undertake or enter any lease, contract or other commitment
for its account, other than in the normal course of providing
credit to customers as part of its banking business, involving a
payment by FSFS or any FSFS Subsidiary of more than $100,000
annually, or containing a material financial commitment and
extending beyond 24 months from the date hereof. Notwithstanding
anything in this Section 4.01 to the contrary, (i) FSFS shall be
permitted to sell, exchange or otherwise dispose of nonperforming
assets (as defined in Section 5.02(q)), except that sales,
exchanges or other dispositions of nonperforming assets with a
principal balance exceeding $500,000 shall require the prior
written consent of Sovereign, which consent shall not be
unreasonably withheld, and (ii) FSFS shall be permitted to sell
and transfer an aggregate of $59,900,000 in credit card
receivables, previously identified to Sovereign, to Cross Country
Bank (or its designee) at no less than the book value (exclusive
of any reserves) thereof.
Section 4.02 Access; Confidentiality.
(a) From the date of this Agreement through the
Closing Date, FSFS or Sovereign, as the case may be, shall afford
to, and shall cause each FSFS Subsidiary or Sovereign Subsidiary
to afford to, the other party and its authorized agents and
representatives, complete access to their respective properties,
assets, books and records and personnel, at reasonable hours and
after reasonable notice; and the officers of FSFS and Sovereign
will furnish any person making such investigation on behalf of
the other party with such financial and operating data and other
information with respect to the businesses, properties, assets,
books and records and personnel as the person making such
investigation shall from time to time reasonably request.
(b) FSFS and Sovereign each agree to conduct such
investigation and discussions hereunder in a manner so as not to
interfere unreasonably with normal operations and customer and
employee relationships of the other party.
(c) In addition to the access permitted by
subparagraph (a) above, from the date of this Agreement through
the Closing Date, FSFS shall permit employees of Sovereign
reasonable access to and participation in matters relating to
problem loans, loan restructurings and loan work-outs of FSFS and
the FSFS Subsidiaries, provided that nothing contained in this
subparagraph shall be construed to grant Sovereign or any
Sovereign employee any final decision-making authority with
respect to such matters. Sovereign shall have the right,
however, at Sovereign's expense, to cause FSFS or any FSFS
Subsidiary to obtain an appraisal by an independent third party
experienced in such matters, and mutually satisfactory to
Sovereign and FSFS, of the assets or property securing any loan
made by FSFS or any FSFS Subsidiary.
(d) If the transactions contemplated by this
Agreement shall not be consummated, FSFS and Sovereign will each
destroy or return all documents and records obtained from the
other party or its representatives, during the course of its
investigation and will cause all information with respect to the
other party obtained pursuant to this Agreement or preliminarily
thereto to be kept confidential, except to the extent such
information becomes public through no fault of the party to whom
the information was provided or any of its representatives or
agents and except to the extent disclosure of any such
information is legally required. FSFS and Sovereign shall each
give prompt notice to the other party of any contemplated
disclosure where such disclosure is so legally required.
Section 4.03 Regulatory Matters and Consents.
(a) Sovereign and FSFS will prepare all
Applications and make all filings for, and use their best efforts
to obtain as promptly as practicable after the date hereof, all
necessary permits, consents, approvals, waivers and
authorizations of all Regulatory Authorities necessary or
advisable to consummate the transactions contemplated by this
Agreement.
(b) FSFS will furnish Sovereign with all
information concerning FSFS and FSFS Subsidiaries as may be
necessary or advisable in connection with any Application or
filing made by or on behalf of Sovereign to any Regulatory
Authority in connection with the transactions contemplated by
this Agreement.
(c) Sovereign will promptly furnish FSFS with
copies of all material written communications to, or received by
Sovereign or any Sovereign Subsidiary from, any Regulatory
Authority in respect of the transactions contemplated hereby,
except information which is filed by Sovereign which is
designated as confidential or contains an earnings projection.
(d) Sovereign will furnish FSFS with (i) copies
of all Applications prior to filing with any Regulatory Authority
and provide FSFS a reasonable opportunity to suggest changes to
such Applications, which suggested changes Sovereign may, in its
sole discretion accept or reject, (ii) copies of all Applications
filed by Sovereign and (iii) copies of all documents filed by
Sovereign under the Securities Exchange Act of 1934, as amended.
(e) FSFS will cooperate with Sovereign in the
foregoing matters and will furnish Sovereign with all information
concerning FSFS and FSFS Subsidiaries as may be necessary or
advisable in connection with any Application or filing (including
the Registration Statement and any report filed with the SEC)
made by or on behalf of Sovereign to any Regulatory Authority in
connection with the transactions contemplated by this Agreement,
and such information will be accurate and complete in all
material respects. In connection therewith, FSFS will provide
certificates and other documents reasonably requested by
Sovereign.
Section 4.04 Taking of Necessary Action.
(a) Sovereign and FSFS shall each use its best
efforts in good faith, and each of them shall cause its
Subsidiaries to use their best efforts in good faith, to
(i) furnish such information as may be required in connection
with the preparation of the documents referred to in Section 4.03
of this Agreement, and (ii) take or cause to be taken all action
necessary or desirable on its part using its best efforts so as
to permit completion of the Merger and the Bank Merger including,
without limitation, (A) obtaining the consent or approval of each
individual, partnership, corporation, association or other
business or professional entity whose consent or approval is
required for consummation of the transactions contemplated
hereby, provided that neither FSFS nor any FSFS Subsidiary shall
agree to make any payments or modifications to agreements in
connection therewith without the prior written consent of
Sovereign, and (B) requesting the delivery of appropriate
opinions, consents and letters from its counsel and independent
auditors. No party hereto shall take, or cause, or to the best
of its ability permit to be taken, any action that would
substantially impair the prospects of completing the Merger and
the Bank Merger pursuant to this Agreement and the Bank Plan of
Merger; provided that nothing herein contained shall preclude
Sovereign or FSFS or from exercising its rights under this
Agreement or the Option Agreement.
(b) FSFS and Sovereign shall promptly prepare a
Prospectus/Proxy Statement to be mailed to shareholders of FSFS
in connection with the meeting of FSFS shareholders and
transactions contemplated hereby, and to be filed by Sovereign
with the SEC in the Registration Statement, which
Prospectus/Proxy statement shall conform to all applicable legal
requirements. Sovereign shall, as promptly as practicable
following the preparation thereof, file the Registration
Statement with the SEC and FSFS and Sovereign shall use all
reasonable efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable
after such filing. Sovereign will advise FSFS, promptly after
Sovereign receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order or
the suspension of the qualification of the shares of capital
stock issuable pursuant to the Registration Statement, or the
initiation or threat of any proceeding for any such purpose, or
of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information. Sovereign
shall use its best efforts to obtain, prior to the effective date
of the Registration Statement, all necessary state securities
laws or "Blue Sky" permits and approvals required to carry out
the transactions contemplated by this Agreement. Sovereign will
provide FSFS with as many copies of such Registration Statement
and all amendments thereto promptly upon the filing thereof as
FSFS may reasonably request.
Section 4.05 Certain Agreements.
(a) On or after the Effective Date, Sovereign
shall indemnify, defend and hold harmless all prior and then-
existing directors and officers of FSFS and First DeWitt, against
(i) all losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement (with the
approval of Sovereign which approval shall not be unreasonably
withheld) of or in connection with any claim, action, suit,
proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is
or was a director, officer or employee of FSFS or any FSFS
Subsidiary, whether pertaining to any matter existing or
occurring at or prior to the Effective Date and whether asserted
or claimed prior to, or at or after, the Effective Date
("Indemnified Liabilities") and (ii) all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out
of, or pertaining to this Agreement or the transactions
contemplated hereby, to the same extent as such officer, director
or employee may be indemnified by FSFS or First DeWitt as of the
date hereof including the right to advancement of expenses,
provided, however, that any such officer, director or employee of
FSFS or First DeWitt may not be indemnified by Sovereign and/or
Sovereign Bank if such indemnification is prohibited by
applicable law.
(b) Sovereign agrees to honor and Sovereign
agrees to cause Sovereign Bank to honor all terms and conditions
of all existing employment contracts and special termination
agreements disclosed in the FSFS Disclosure Schedule.
Section 4.06 No Other Bids and Related Matters. So
long as this Agreement remains in Effect, FSFS shall not, nor
shall it permit any FSFS Subsidiary or any other Affiliate of
FSFS or any officer, director or employee of any of them, or any
investment banker, attorney, accountant or other representative
retained by FSFS, any FSFS Subsidiary or any other FSFS Affiliate
to, directly or indirectly, solicit, encourage, initiate or
engage in discussions or negotiations with, or respond to
requests for information, inquiries, or other communications
from, any person other than Sovereign concerning the fact of, or
the terms and conditions of, this Agreement, or concerning any
acquisition of FSFS, any FSFS Subsidiary, or any assets or
business thereof (except that FSFS's officers may respond to
inquiries from analysts, Regulatory Authorities and holders of
FSFS Common Stock in the ordinary course of business). FSFS
shall notify Sovereign immediately if any such discussions or
negotiations are sought to be initiated with FSFS by any person
other than Sovereign or if any such requests for information,
inquiries, proposals or communications are received from any
person other than Sovereign.
Section 4.07 Duty to Advise; Duty to Update FSFS's
Disclosure Schedule. FSFS shall promptly advise Sovereign of any
change or event having a Material Adverse Effect on it or on any
FSFS Subsidiary or which it believes would or would be reasonably
likely to cause or constitute a material breach of any of its
representations, warranties or covenants set forth herein. FSFS
shall update FSFS's Disclosure Schedule as promptly as
practicable after the occurrence of an event or fact which, if
such event or fact had occurred prior to the date of this
Agreement, would have been disclosed in the FSFS Disclosure
Schedule. The delivery of such updated Schedule shall not
relieve FSFS from any breach or violation of this Agreement and
shall not have any effect for the purposes of determining the
satisfaction of the condition set forth in Sections 5.02(b)
hereof.
Section 4.08 Conduct of Sovereign's Business. From
the date of this Agreement to the Closing Date, Sovereign will
use its best efforts to (x) preserve its business organizations
intact, (y) maintain good relationships with employees, and
(z) preserve for itself the goodwill of customers of Sovereign
and Sovereign Subsidiaries and others with whom business
relationships exist.
Section 4.09 Board and Committee Minutes. FSFS shall
provide to Sovereign, within 30 days after any meeting of the
Board of Directors of FSFS or any FSFS Subsidiary, or any
committee thereof, or any senior management committee, a copy of
the minutes of such meeting, except that with respect to any
meeting held within 30 days of the Closing Date, such minutes
shall be provided to Sovereign prior to the Closing Date.
Section 4.10 Undertakings by Sovereign and FSFS.
(a) From and after the date of this Agreement,
FSFS shall:
(i) Voting by Directors. Use its best
efforts to cause all members of FSFS's Board of Directors to
vote all shares of FSFS's Common Stock beneficially owned by
each such director in favor of this Agreement;
(ii) Phase I Environmental Audit. Permit
Sovereign, if Sovereign elects to do so, at its own expense,
to cause a "phase I environmental audit" to be performed at
any physical location owned or occupied by FSFS or any FSFS
Subsidiary on the date hereof;
(iii) Approval of Bank Plan of Merger.
Approve the Bank Plan of Merger as sole shareholder of First
DeWitt and obtain the approval of, and cause the execution
and delivery of, the Bank Plan of Merger by First DeWitt;
(iv) Proxy Solicitor. If Sovereign requests
and agrees to bear the expense thereof, retain a proxy
solicitor in connection with the solicitation of FSFS
shareholder approval of this Agreement;
(v) Timely Review. If requested by
Sovereign at Sovereign's sole expense, cause its independent
certified public accountants to perform a review of its
unaudited consolidated financial statements as of the end of
any calendar quarter, in accordance with Statement of
Auditing Standards No. 36, and to issue their report on such
financial statements as soon as is practicable thereafter;
(vi) Outside Service Bureau Contracts. If
requested to do so by Sovereign, use its best efforts to
obtain an extension of any contract with an outside service
bureau or other vendor of services to FSFS or any FSFS
Subsidiary, on terms and conditions mutually acceptable to
FSFS and Sovereign;
(vii) Committee Meetings. Permit a
representative of Sovereign, who is reasonably acceptable to
FSFS, to attend all committee meetings of FSFS and First
DeWitt management including, without limitation, any loan
committee or asset/liability committee. FSFS shall respond
reasonably and in good faith to any request of Sovereign to
permit a representative of Sovereign, who is reasonably
acceptable to FSFS, to attend any meeting of FSFS's Board of
Directors or the Executive Committee thereof;
(viii) Shareholders' Meeting. Submit this
Agreement to its shareholders for approval at a meeting to
be held as soon as practicable, and use its best efforts to
cause its Board of Director to unanimously recommend
approval of this Agreement to its shareholders; and
(ix) Certain Shareholders. Use its best
efforts to cause ABI and Basswood to execute the Letter
Agreement dated June 24, 1996, in the form attached hereto
as Exhibit 1.
(x) List of Nonperforming Assets. Provide
Sovereign, within ten (10) days of the end of each calendar
month, a written list of nonperforming assets (as defined in
Section 5.02(q)) as of the end of such month.
(xi) Reserves and Merger-Related Costs. On
or before the Effective Date, establish such additional
accruals and reserves as may be necessary to conform the
accounting reserve practices and methods (including credit
loss practices and methods) of FSFS to those of Sovereign
(as such practices and methods are to be applied to FSFS
from and after the Closing Date) and Sovereign's plans with
respect to the conduct of the business of FSFS following the
Merger and otherwise to reflect Merger-related expenses and
costs incurred by FSFS, provided, however, that FSFS shall
not be required to take such action (A) more than thirty
days prior to the Effective Date; and (B) unless Sovereign
agrees in writing that all conditions to closing set forth
in Section 5.02 have been satisfied or waived (except for
the expiration of any applicable waiting periods); prior to
the delivery by Sovereign of the writing referred to in the
preceding clause, FSFS shall provide Sovereign a written
statement, certified without personal liability by the chief
executive officer of FSFS and dated the date of such
writing, that the representation made in Section 2.15 hereof
is true as of such date or, alternatively, setting forth in
detail the circumstances that prevent such representation
from being true as of such date; and no accrual or reserve
made by FSFS or any FSFS Subsidiary pursuant to this
subsection, or any litigation or regulatory proceeding
arising out of any such accrual or reserve, shall constitute
or be deemed to be a breach or violation of any
representation, warranty, covenant, condition or other
provision of this Agreement or to constitute a termination
event within the meaning of Section 6.01(d) hereof.
(b) From and after the date of this Agreement,
Sovereign and FSFS shall each:
(i) Filings and Approvals. Cooperate with
the other in the preparation and filing, as soon as
practicable, of (A) the Applications, (B) the Registration
Statement and related filings under state securities laws
covering the Sovereign Common Stock and related Sovereign
Stock Purchase Rights to be issued pursuant to the Merger,
(C) all other documents necessary to obtain any other
approvals and consents required to effect the completion of
the Merger and the Bank Merger, and (D) all other documents
contemplated by this Agreement;
(ii) Identification of FSFS's Affiliates.
Cooperate with the other and use its best efforts to
identify those persons who may be deemed to be Affiliates of
FSFS;
(iii) Public Announcements. Cooperate and
cause its respective officers, directors, employees and
agents to cooperate in good faith, consistent with their
respective legal obligations, in the preparation and
distribution of, and agree upon the form and substance of,
any press release related to this Agreement and the
transactions contemplated hereby, and any other public
disclosures related thereto, including without limitation
communications to FSFS shareholders, FSFS's internal
announcements and customer disclosures, but nothing
contained herein shall prohibit either party from making any
disclosure which its counsel deems necessary;
(iv) Maintenance of Insurance. Maintain,
and cause their respective Subsidiaries to maintain,
insurance in such amounts as are reasonable to cover such
risks as are customary in relation to the character and
location of its properties and the nature of its business;
(v) Maintenance of Books and Records.
Maintain, and cause their respective Subsidiaries to
maintain, books of account and records in accordance with
generally accepted accounting principles applied on a basis
consistent with those principles used in preparing the
financial statements heretofore delivered;
(vi) Delivery of Securities Documents.
Deliver to the other, copies of all Securities Documents
simultaneously with the filing thereof;
(vii) Taxes. File all federal, state, and
local tax returns required to be filed by them or their
respective Subsidiaries on or before the date such returns
are due (including any extensions) and pay all taxes shown
to be due on such returns on or before the date such payment
is due; or
Section 4.11 Employee Benefits and Termination
Benefits.
(a) Employee Benefits. On and after the
Effective Date, the employee pension and welfare benefit plans of
Sovereign and FSFS may, at Sovereign's election and subject to
the requirements of the IRC, continue to be maintained separately
or consolidated, provided, however, that FSFS employees shall
receive benefits at least as favorable, in the aggregate, as the
benefits to which they were entitled on March 31, 1996. In the
event of a consolidation of any or all of such plans or in the
event of termination of the FSFS benefit plans, FSFS and First
DeWitt employees shall receive credit for service with FSFS or
First DeWitt under any Sovereign benefit plan, or new Sovereign
benefit plan in which such employees would be eligible to enroll
for purposes of eligibility and vesting determination. In the
event of any termination of or consolidation of any FSFS or First
DeWitt health plan with any Sovereign health plan, all employees
of FSFS or First DeWitt shall have immediate coverage under any
successor health plan without the necessity of satisfying a
waiting period for coverage of any pre-existing condition. In
the event of a termination or consolidation of any FSFS or First
DeWitt health plan, terminated FSFS or First DeWitt employees
will have the right to continue coverage under group health plans
of Sovereign and/or the Sovereign subsidiaries in accordance with
the IRC Section 4980B(f).
(b) Termination Benefits. FSFS shall cause to be
delivered to Sovereign concurrently with the execution of this
Agreement with respect to Michael J. Quigley, III and Emil J.
Butchko and within 30 days after the date of this Agreement with
respect to each other individual named on the Benefits Schedule
included in the FSFS Disclosure Schedule, the written agreement
of each such individual in the form attached hereto as Exhibit 4
pursuant to which each such individual agrees and acknowledges
that the dollar amount set forth opposite such individual's name
on such Benefits Schedule is the entire amount due to such
individual under any employment agreement, special termination
agreement, supplemental executive retirement plan, deferred bonus
plan, deferred compensation plan, salary continuation plan, or
any other benefit or welfare plan maintained by FSFS solely for
the benefit of officers of FSFS or FSFS Subsidiaries in the event
of termination of such individual's employment on March 31, 1996.
Section 4.12 Duty to Advise; Duty to Update
Sovereign's Disclosure Schedule. Sovereign shall promptly advise
FSFS of any change or event having a Material Adverse Effect on
it or on any Sovereign Subsidiary or which it believes would or
would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants set
forth herein. Sovereign shall update Sovereign's Disclosure
Schedule as promptly as practicable after the occurrence of an
event or fact which, if such event or fact had occurred prior to
the date of this Agreement, would have been disclosed in the
Sovereign Disclosure Schedule. The delivery of such updated
Schedule shall not relieve Sovereign from any breach or violation
of this Agreement and shall not have any effect for the purposes
of determining the satisfaction of the condition set forth in
Sections 5.02(b) hereof.
Section 4.13 Affiliate Letter. No later than five
days after the date of this Agreement, FSFS shall cause to be
delivered to Sovereign the Letter Agreement attached hereto as
Exhibit 1, executed by each director and officer set forth
thereon.
ARTICLE V
CONDITIONS
Section 5.01 Conditions to FSFS's Obligations under
this Agreement. The obligations of FSFS hereunder shall be
subject to satisfaction at or prior to the Closing Date of each
of the following conditions, unless waived by FSFS pursuant to
Section 7.03 hereof:
(a) Corporate Proceedings. All action required
to be taken by, or on the part of, Sovereign and Sovereign Bank
to authorize the execution, delivery and performance of this
Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement
and the Bank Plan of Merger, shall have been duly and validly
taken by Sovereign and Sovereign Bank; and FSFS shall have
received certified copies of the resolutions evidencing such
authorizations;
(b) Covenants. The obligations and covenants of
Sovereign required by this Agreement to be performed by Sovereign
at or prior to the Closing Date shall have been duly performed
and complied with in all respects, except where the failure to
perform or comply with any obligation or covenant would not,
either individually or in the aggregate, result in a Material
Adverse Effect with respect to FSFS;
(c) Representations and Warranties. The
representations and warranties of Sovereign set forth in this
Agreement shall be true and correct, as of the date of this
Agreement, and as of the Closing Date as though made on and as of
the Closing Date, except as to any representation or warranty
(i) which specifically relates to an earlier date or (ii) where
the breach of the representation or warranty would not, either
individually or in the aggregate, constitute a Material Adverse
Effect with respect to Sovereign;
(d) Approvals of Regulatory Authorities.
Sovereign shall have received all required approvals of
Regulatory Authorities of the Merger, and delivered copies
thereof to FSFS; and all notice and waiting periods required
thereunder shall have expired or been terminated;
(e) No Injunction. There shall not be in effect
any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby;
(f) No Material Adverse Effect. Since March 31,
1996, there shall not have occurred any Material Adverse Effect
with respect to Sovereign;
(g) Officer's Certificate. Sovereign shall have
delivered to FSFS a certificate, dated the Closing Date and
signed, without personal liability, by its chairman or president,
to the effect that the conditions set forth in subsections (a)
through (e) of this Section 5.01 have been satisfied, to the best
knowledge of the officer executing the same;
(h) Opinion of Sovereign's Counsel. FSFS shall
have received an opinion of Stevens & Lee, counsel to Sovereign,
dated the Closing Date, in form and substance reasonably
satisfactory to FSFS and its counsel to the effect set forth on
Exhibit 5 attached hereto;
(i) Registration Statement. The Registration
Statement shall be effective under the Securities Act and no
proceedings shall be pending or threatened by the SEC to suspend
the effectiveness of the Registration Statement; and all required
approvals by state securities or "blue sky" authorities with
respect to the transactions contemplated by this Agreement, shall
have been obtained;
(j) Tax Opinion. The Merger shall qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the
IRC and FSFS shall have received an opinion of Stevens & Lee,
substantially to the effect set forth on Exhibit 6 attached
hereto;
(k) Approval of FSFS's Shareholders. This
Agreement shall have been approved by the holders of at least a
majority of the outstanding shares of FSFS Common Stock entitled
to vote thereon; and
(l) Investment Banking Opinion. FSFS shall have
received an oral opinion from McConnell, Budd & Downes, Inc.,
received on or before the date of this Agreement and updated in
writing as of a date within five (5) days of mailing the
Prospectus/Proxy Statement, to the effect that the consideration
to be received by shareholders of FSFS pursuant to this Agreement
is fair, from a financial point of view, to such shareholders.
Section 5.02 Conditions to Sovereign's Obligations
under this Agreement. The obligations of Sovereign hereunder
shall be subject to satisfaction at or prior to the Closing Date
of each of the following conditions, unless waived by Sovereign
pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required
to be taken by, or on the part of, FSFS and First DeWitt to
authorize the execution, delivery and performance of this
Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement
and the Bank Plan of Merger, shall have been duly and validly
taken by FSFS and First DeWitt; and Sovereign shall have received
certified copies of the resolutions evidencing such
authorizations;
(b) Covenants. The obligations and covenants of
FSFS, required by this Agreement to be performed by it at or
prior to the Closing Date shall have been duly performed and
complied with in all respects, except where the failure to
perform or comply with any obligation or covenant would not,
either individually or in the aggregate, result in a Material
Adverse Effect with respect to FSFS;
(c) Representations and Warranties. The
representations and warranties of FSFS set forth in this
Agreement shall be true and correct as of the date of this
Agreement, and as of the Closing Date as though made on and as of
the Closing Date, except as to any representation or warranty
(i) which specifically relates to an earlier date or (ii) where
the breach of the representation or warranty would not, either
individually or in the aggregate, result in a Material Adverse
Effect with respect to FSFS;
(d) Approvals of Regulatory Authorities.
Sovereign shall have received all required approvals of
Regulatory Authorities for the Merger, without the imposition of
any term or condition that would have a Material Adverse Effect
on Sovereign upon completion of the Merger; and all notice and
waiting periods required thereunder shall have expired or been
terminated;
(e) No Injunction. There shall not be in effect
any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby;
(f) No Material Adverse Effect. Since March 31,
1996, there shall not have occurred any Material Adverse Effect
with respect to FSFS; provided, however, that neither (i) an
increase in the provision for loan losses for the period ended
June 30, 1996 in an amount not to exceed $5,000,000 nor (ii) the
incurrence by FSFS of aggregate losses on the sale, exchange or
other disposition of nonperforming assets up to the amount
permitted by Section 6.01(d) of the Agreement shall be considered
a Material Adverse Effect for purposes of this subsection;
(g) Officer's Certificate. FSFS shall have
delivered to Sovereign a certificate, dated the Closing Date and
signed, without personal liability, by its chairman of the board
or president, to the effect that the conditions set forth in
subsections (a) through (e) of this Section 5.02 have been
satisfied, to the best knowledge of the officer executing the
same;
(h) Opinions of FSFS's Counsel. Sovereign shall
have received an opinion of Luse Lehman Gorman Pomerenk & Schick,
counsel to FSFS, dated the Closing Date, in form and substance
reasonably satisfactory to Sovereign and its counsel to the
effect set forth on Exhibit 7 attached hereto;
(i) Registration Statement. The Registration
Statement shall be effective under the Securities Act and no
proceedings shall be pending or threatened by the SEC to suspend
the effectiveness of the Registration Statement; and all required
approvals by state securities or "blue sky" authorities with
respect to the transactions contemplated by this Agreement, shall
have been obtained;
(j) Tax Opinion. Sovereign shall have received
an opinion of Stevens & Lee, its counsel, substantially to the
effect set forth on Exhibit 6 attached hereto;
(k) Pooling Letter. Sovereign shall have
received an opinion from Ernst & Young to the effect that the
Merger will be treated as a "pooling of interests" for financial
accounting purposes;
(l) Phase I Environmental Audit Results. The
results of any "phase I environmental audit" conducted pursuant
to Section 4.11(a)(ii) with respect to owned or occupied bank
premises shall be reasonably satisfactory to Sovereign; provided,
however, that (i) any such environmental audit must be initiated
within 45 days of the date of this Agreement and (ii) Sovereign
must elect to terminate this Agreement or waive its right to
terminate the Agreement under this Section 5.02(k) within 15 days
of receiving the results of such environmental audit;
(m) Liquidation Account. Neither the Merger or
consummation of the Bank Plan of Merger shall require Sovereign,
FSFS or any Subsidiary of either to distribute to depositors the
liquidation account established by First DeWitt in connection
with its conversion from mutual to stock form;
(n) Nationar Payment. First DeWitt shall have
received all amounts due from Nationar (approximately $3,000,000
at the date of this Agreement), or a conservator or receiver of
Nationar, with respect to checks cleared by that correspondent
institution;
(o) Pension Plans. With respect to each pension
plan subject to Title IV of ERISA, (i) the present value of the
accrued benefits under such plan shall not, as of the Closing
Date, exceed the then current value of the assets of such plan
allocable to such accrued benefits and (ii) the amount
contributed by FSFS or any FSFS Subsidiary to any such pension
plan in the one year period preceding the Closing Date will not
exceed $500,000;
(p) Approval of Sovereign's Shareholders. This
Agreement shall have been approved by the shareholders of
Sovereign by such vote as is required under Sovereign's articles
of incorporation and bylaws if such shareholder approval is
required under the listing requirements of the National
Association of Securities Dealers; and
(q) Nonperforming Assets. The amount of
nonperforming assets of FSFS and the FSFS Subsidiaries, on a
consolidated basis, on the Closing Date shall not exceed
$26,100,000. (The term "nonperforming assets," for purposes of
this subsection, means (i) loans that are "troubled debt
restructurings" as defined in Statement of Financial Accounting
Standards No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings," excluding restructured loans the
terms and conditions of which were approved in writing in advance
by Sovereign, (ii) loans on nonaccrual, including loans placed on
nonaccrual that may have been previously restructured with
Sovereign's approval, (iii) real estate owned, and (iv) all loans
90 days or more past due), except that the term "nonperforming
assets" shall not include loans originated to finance the
purchase of any one-to-four-family residential property.) FSFS
has previously delivered to Sovereign a list of nonperforming
assets as of March 31, 1996.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
Section 6.01 Termination. This Agreement may be
terminated on or at any time prior to the Closing Date:
(a) By the mutual written consent of the parties
hereto;
(b) By Sovereign or FSFS:
(i) if there shall have been any breach of
any representation, warranty, covenant or other
obligation of Sovereign which results in a Material
Adverse Effect with respect to Sovereign, on the one
hand, or of FSFS which results in a Material Adverse
Effect with respect to FSFS, on the other hand, and
such breach cannot be, or shall not have been, remedied
within 30 days after receipt by such other party of
notice in writing specifying the nature of such breach
and requesting that it be remedied;
(ii) if the Closing Date shall not have
occurred on or before March 31, 1997, unless the failure of
such occurrence shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe
its agreements set forth in this Agreement required to be
performed or observed by such party on or before the Closing
Date; or
(iii) if either party has been informed in
writing by a Regulatory Authority whose approval or consent
has been requested that such approval or consent is unlikely
to be granted, unless the failure of such occurrence shall
be due to the failure of the party seeking to terminate this
Agreement to perform or observe its agreements set forth
herein required to be performed or observed by such party on
or before the Closing Date; or
(c) By FSFS if, on the Closing Date, the
Sovereign Market Value is less than $8.00 (as adjusted for any
stock splits or stock dividends); provided, however, that if
Sovereign delivers to FSFS on the Closing Date a written notice
increasing the Applicable Exchange Ratio to an amount which, when
multiplied by the Sovereign Market Value determined as of the
Closing Date, equals $13.12 ($8.00 multiplied by the Applicable
Exchange Ratio determined pursuant to Section
1.02(e)(ii)(A)(ii)), then no termination of this Agreement shall
occur and the Merger shall be completed pursuant to the terms
hereof.
(d) By Sovereign, at any time prior to the
Closing Date, if (i) the aggregate amount of nonperforming assets
(as defined in Section 5.02(g)) exceeds $26,100,000, (ii) the
aggregate amount of loss on the sale, exchange or other
disposition of any nonperforming assets (as defined in
Section 5.02(g)) after the date of this Agreement exceeds
$1,000,000 (for purposes of this subsection, loss will be
calculated net of any portion of the allowance for loan losses
allocable to the nonperforming asset which is sold, exchanged or
otherwise disposed of by FSFS) or (iii) the aggregate amount of
the provisions for loan losses taken or recognized by FSFS after
the date of this Agreement exceeds $5,750,000.
(e) By Sovereign, at any time prior to the
Closing Date, if the aggregate amount of deficiencies in the
current appraised values of any assets or properties securing or
serving as collateral for commercial real estate loans made by
FSFS or any FSFS Subsidiary necessary to maintain an 80% loan to
value ratio for each loan exceeds $1,000,000; such appraised
values being determined after the date of this Agreement at the
request of Sovereign from independent third party appraisers
experienced in such matters.
Section 6.02 Effect of Termination. If this Agreement
is terminated pursuant to Section 6.01 hereof, this Agreement
shall forthwith become void (other than Section 4.02(d), Section
4.10(b)(iii) and Section 7.01 hereof, which shall remain in full
force and effect), and there shall be no further liability on the
part of Sovereign or FSFS to the other, except for any liability
arising out of any uncured willful breach of any covenant or
other agreement contained in this Agreement or any fraudulent
breach of a representation or warranty.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Expenses. Except for the cost of
printing and mailing the Proxy Statement/Prospectus which shall
be shared equally, each party hereto shall bear and pay all costs
and expenses incurred by it in connection with the transactions
contemplated hereby, including fees and expenses of its own
financial consultants, accountants and counsel.
Section 7.02 Non-Survival of Representations and
Warranties. All representations, warranties and, except to the
extent specifically provided otherwise herein, agreements and
covenants, other than those covenants set forth in
Sections 1.02(d)(iii) and (v), 4.05(a) and (b), and 4.11(a) which
will survive the Merger, shall terminate on the Closing Date.
Section 7.03 Amendment, Extension and Waiver. Subject
to applicable law, at any time prior to the consummation of the
transactions contemplated by this Agreement, the parties may
(a) amend this Agreement, (b) extend the time for the performance
of any of the obligations or other acts of either party hereto,
(c) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or
(d) waive compliance with any of the agreements or conditions
contained in Articles IV and V hereof or otherwise. This
Agreement may not be amended except by an instrument in writing
authorized by the respective Boards of Directors and signed, by
duly authorized officers, on behalf of the parties hereto. Any
agreement on the part of a party hereto to any extension or
waiver shall be valid only if set forth in an instrument in
writing signed by a duly authorized officer on behalf of such
party, but such waiver or failure to insist on strict compliance
with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
Section 7.04 Entire Agreement. This Agreement,
including the documents and other writings referred to herein or
delivered pursuant hereto, contains the entire agreement and
understanding of the parties with respect to its subject matter.
This Agreement supersedes all prior arrangements and
understandings between the parties, both written or oral with
respect to its subject matter. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their
respective successors; provided, however, that nothing in this
Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto and their respective
successors, any rights, remedies, obligations or liabilities
other than pursuant to Sections 1.02(d)(iii) and (v), 4.05(a) and
(b), and 4.11(a) with respect to indemnification and certain
other matters.
Section 7.05 No Assignment. Neither party hereto may
assign any of its rights or obligations hereunder to any other
person, without the prior written consent of the other party
hereto.
Section 7.06 Notices. All notices or other
communications hereunder shall be in writing and shall be deemed
given if delivered personally, mailed by prepaid registered or
certified mail (return receipt requested), or sent by telecopy,
addressed as follows:
(a) If to Sovereign, to:
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Attention: Jay S. Sidhu, President and Chief
Executive Officer
Telecopy No.: (610) 320-8448
with a copy to:
Stevens & Lee
111 North Sixth Street
Reading, Pennsylvania 19601
Attention: Joseph M. Harenza, Esquire and
David W. Swartz, Esquire
Telecopy No.: (610) 376-5610
(b) If to FSFS, to:
First State Financial Services, Inc.
1120 Bloomfield Avenue
West Caldwell, New Jersey 07007-2449
Attention: Michael J. Quigley, III,
Chairman, President and Chief
Executive Officer
Telecopy No.: (201) 244-9831
with copies to:
Luse Lehman Gorman Pomerenk & Schick
Franklin Square
5335 Wisconsin Avenue, N.W., Suite 400
Washington, D.C. 20015
Attention: John J. Gorman, Esquire
Eric Luse, Esquire
Telecopy No.: (202) 362-2902
Section 7.07 Captions. The captions contained in this
Agreement are for reference purposes only and are not part of
this Agreement.
Section 7.08 Counterparts. This Agreement may be
executed in any number of counterparts, and each such counterpart
shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
Section 7.09 Severability. If any provision of this
Agreement or the application thereof to any person or
circumstance shall be invalid or unenforceable to any extent, the
remainder of this Agreement and the application of such
provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent
permitted by law.
Section 7.10 Consent to Service of Process. In
accordance with the provisions of Section 252(d) of the DGCL,
Sovereign hereby consents to service of process in the State of
Delaware in any proceeding for enforcement of any obligation of
Sovereign arising from the Merger, including any suit or
proceeding to enforce the right of any stockholder as determined
in appraisal proceedings pursuant to the provisions of
Section 262 of the DGCL. Sovereign irrevocably appoints the
Secretary of State of Delaware as its agent to accept service of
process in any such suit or other proceedings. A copy of any
process served upon the Secretary of State shall be forwarded to
the address of Sovereign specified in Section 7.06.
Section 7.11 Governing Law. This Agreement shall be
governed by and construed in accordance with the domestic
internal law (including the law of conflicts of law) of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their duly authorized officers as of
the day and year first above written.
SOVEREIGN BANCORP, INC.
By:/s/ Jay S. Sidhu
Jay S. Sidhu
President and Chief
Executive Officer
Attest:/s/ Dana J. Albera
Dana J. Albera
Assistant Secretary
FIRST STATE FINANCIAL SERVICES,
INC.
By:/s/ Michael J. Quigley, III
Michael J. Quigley, III,
Chairman, President and
Chief Executive Officer
Attest:/s/ Marie G. Martino
Marie G. Martino,
Secretary
<PAGE>
Exhibit 1
June 24, 1996
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Ladies and Gentlemen:
Sovereign Bancorp, Inc. ("Sovereign") and First State
Financial Services, Inc. ("FSFS") desire to enter into an
agreement dated June 24, 1996 ("Agreement"), pursuant to which,
subject to the terms and conditions set forth therein, (a) FSFS
will merge with and into Sovereign with Sovereign surviving the
merger, and (b) shareholders of FSFS will receive common stock of
Sovereign in exchange for common stock of FSFS outstanding on the
closing date (the foregoing, collectively, referred to herein as
the "Merger").
Sovereign has required, as a condition to its execution and
delivery to FSFS of the Agreement, that the undersigned, being
directors, executive officers and major shareholders of FSFS,
execute and deliver to Sovereign this Letter Agreement.
Each of the undersigned, in order to induce Sovereign to
execute and deliver to FSFS the Agreement, hereby irrevocably:
(a) Agrees to be present (in person or by proxy) at
all meetings of shareholders of FSFS called to vote for approval
of the Merger so that all shares of common stock of FSFS then
owned by the undersigned will be counted for the purpose of
determining the presence of a quorum at such meetings and to vote
all such shares (i) in favor of approval and adoption of the
Agreement and the transactions contemplated thereby (including
any amendments or modifications of the terms thereof approved by
the Board of Directors of FSFS), and (ii) against approval or
adoption of any other merger, business combination,
recapitalization, partial liquidation or similar transaction
involving FSFS;
(b) Agrees not to vote or execute any written consent
to rescind or amend in any manner any prior vote or written
consent, as a shareholder of FSFS, to approve or adopt the
Agreement;
(c) Agrees to use reasonable best efforts to cause the
Merger to be consummated;
(d) Agrees not to sell, transfer or otherwise dispose
of any common stock of FSFS on or prior to the record date for
the meeting of FSFS shareholders to vote on the Merger;
(e) Except as permitted by Section 4.06 of the
Agreement, agrees not to solicit, initiate or engage in any
negotiations or discussions with any party other than Sovereign
with respect to any offer, sale, transfer or other disposition
of, any shares of common stock of FSFS now or hereafter owned by
the undersigned;
(f) Agrees not to offer, sell, transfer or otherwise
dispose of any shares of common stock of Sovereign received in
the Merger, except (i) at such time as a registration statement
under the Securities Act of 1933, as amended ("Securities Act")
covering sales of such Sovereign common stock is effective and a
prospectus is made available under the Securities Act,
(ii) within the limits, and in accordance with the applicable
provisions of, Rule 145(d) under the Securities Act, or (iii) in
a transaction which, in the opinion of counsel satisfactory to
Sovereign or as described in a "no-action" or interpretive letter
from the staff of the Securities and Exchange Commission ("SEC"),
is not required to be registered under the Securities Act; and
acknowledges and agrees that Sovereign is under no obligation to
register the sale, transfer or other disposition of Sovereign
common stock by the undersigned or on behalf of the undersigned,
or to take any other action necessary to make an exemption from
registration available;
(g) Notwithstanding the foregoing, agrees not to sell,
or in any other way reduce the risk of the undersigned relative
to, any shares of common stock of FSFS or of common stock of
Sovereign, during the period commencing thirty days prior to the
effective date of the Merger and ending on the date on which
financial results covering at least thirty days of post-Merger
combined operations of Sovereign and FSFS have been published
within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies;
(h) Agrees that Sovereign shall not be bound by any
attempted sale of any shares of Sovereign common stock, and
Sovereign's transfer agent shall be given an appropriate stop
transfer order and shall not be required to register any such
attempted sale, unless the sale has been effected in compliance
with the terms of this Letter Agreement; and further agrees that
the certificate representing shares of Sovereign common stock
owned by the undersigned may be endorsed with a restrictive
legend consistent with the terms of this Letter Agreement;
(i) Acknowledges and agrees that the provisions of
subparagraphs (f), (g) and (h) hereof also apply to shares of
Sovereign common stock received in the Merger (or any shares of
FSFS common stock or of Sovereign common stock, whether or not
received in the Merger, for the period referred to in
subparagraph (g) above) owned by (i) his or her spouse, (ii) any
of his or her relatives or relatives of his or her spouse
occupying his or her home, (iii) any trust or estate in which he
or she, his or her spouse, or any such relative owns at least a
10% beneficial interest or of which any of them serves as
trustee, executor or in any similar capacity, and (iv) any
corporation or other organization in which the undersigned, any
affiliate of the undersigned, his or her spouse, or any such
relative owns at least 10% of any class of equity securities or
of the equity interest;
(j) Represents that the undersigned has no plan or
intention to sell, exchange, or otherwise dispose of any shares
of common stock of Sovereign to be received in the Merger prior
to expiration of the time period referred to in subparagraph (g)
hereof; and
(k) Represents that the undersigned has the capacity
to enter into this Letter Agreement and that it is a valid and
binding obligation enforceable against the undersigned in
accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights and general equitable
principles.
The obligations set forth herein shall terminate
concurrently with any termination of the Agreement.
________________________
This Letter Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an
original, but all of which together shall constitute one and the
same Letter Agreement.
________________________
This Letter Agreement shall terminate concurrently with any
termination of the Agreement in accordance with its terms.
________________________
The undersigned intend to be legally bound hereby.
Sincerely,
__________________________________
Henry F. Albinson
__________________________________
Frank H. Bridge
__________________________________
Emil J. Butchko
__________________________________
Patrick N. Ciccone, M.D.
__________________________________
Theodore F. Cox
__________________________________
Walter J. Davis
__________________________________
John M. Fields, Jr.
__________________________________
John H. Isemann
__________________________________
Clarence R. Lommerin
__________________________________
Marie G. Martino
__________________________________
Michael J. Quigley, III
__________________________________
Ralph M. Riefolo
__________________________________
John A. Rogers
<PAGE>
Exhibit 2
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Stock Option Agreement")
dated June 24, 1996, is by and between SOVEREIGN BANCORP, INC., a
Pennsylvania corporation ("Sovereign") and FIRST STATE FINANCIAL
SERVICES, INC., a Delaware corporation ("FSFS").
BACKGROUND
1. Sovereign and FSFS desire to enter into a
Agreement and Plan of Merger, dated June 24, 1996 (the
"Agreement"), providing, among other things, for the acquisition
by Sovereign of FSFS through the merger of FSFS with and into
Sovereign, with Sovereign surviving the merger (the "Merger").
2. As a condition to Sovereign to enter into the
Plan, FSFS is granting to Sovereign an option to purchase up to
that number of shares of common stock of FSFS as shall equal
19.9% of FSFS's shares of common stock issued and outstanding
immediately prior to such purchase, on the terms and conditions
hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual
covenants and agreements set forth herein, Sovereign and FSFS,
intending to be legally bound hereby, agree:
1. Grant of Option. FSFS hereby grants to Sovereign,
on the terms and conditions set forth herein, the option to
purchase (the "Option") up to 783,500 shares (as adjusted as set
forth herein, the "Option Shares") of common stock, par value
$.01 per share (the "Common Stock"), of FSFS at a price per share
(as adjusted as set forth herein, the "Option Price") equal to
the lower of (i) $10.00 or (ii) the lowest price per share that a
person or a group, other than Sovereign or an affiliate of
Sovereign, paid or offers to pay after the date hereof for Common
Stock in a transaction constituting a Triggering Event under
Section 2 hereof.
2. Exercise of Option. Provided that (i) Sovereign
shall not be in breach of the agreements or covenants contained
in this Agreement or the Plan, and (ii) no preliminary or
permanent injunction or other order against the delivery of
shares covered by the Option issued by any court of competent
jurisdiction in the United States shall be in effect, upon or
after the occurrence of a Triggering Event (as such term is
hereinafter defined) and until termination of this Stock Option
Agreement in accordance with the provisions of Section 21,
Sovereign may exercise the Option, in whole or in part, at any
time or one or more times, from time to time. As used herein,
the term "Triggering Event" means the occurrence of any of the
following events:
(a) a person or group (as such terms are defined
in the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder),
other than Sovereign or an affiliate of Sovereign, acquires
beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act) of 10% or more of the then outstanding
shares of Common Stock (excluding any shares eligible to be
reported on Schedule 13G of the Securities and Exchange
Commission);
(b) a person or group, other than Sovereign or an
affiliate of Sovereign, enters into an agreement or letter
of intent with FSFS pursuant to which such person or group
or any affiliate of such person or group would (i) merge or
consolidate, or enter into any similar transaction, with
FSFS, (ii) acquire all or substantially all of the assets or
liabilities of FSFS or all or substantially all of the
assets or liabilities of First DeWitt Bank ("First DeWitt"),
or (iii) acquire beneficial ownership of securities
representing, or the right to acquire beneficial ownership
or to vote securities representing, 10% or more of the then
outstanding shares of Common Stock (excluding any shares
eligible to be reported on Schedule 13G of the Securities
and Exchange Commission) or the then outstanding shares of
common stock of First DeWitt; or
(c) a person or group, other than Sovereign or an
affiliate of Sovereign, publicly announces a bona fide
proposal (including a written communication that is or
becomes the subject of public disclosure) for (i) any
merger, consolidation or acquisition of all or substantially
all the assets or liabilities of FSFS or all or
substantially all the assets or liabilities of First DeWitt,
or any other business combination involving FSFS or First
DeWitt, or (ii) a transaction involving the transfer of
beneficial ownership of securities representing, or the
right to acquire beneficial ownership or to vote securities
representing, 10% or more of the then outstanding shares of
Common Stock or the then outstanding shares of common stock
of First DeWitt (collectively, a "Proposal"), and
thereafter, if such Proposal has not been Publicly Withdrawn
(as such term is hereinafter defined) at least 30 days prior
to the meeting of shareholders of FSFS called to vote on the
Merger, FSFS's shareholders fail to approve the Merger by
the vote required by applicable law at the meeting of
shareholders called for such purpose or such meeting has
been cancelled; or
(d) a person or group, other than Sovereign or an
affiliate of Sovereign, makes a bona fide Proposal and
thereafter, but before such Proposal has been Publicly
Withdrawn, FSFS willfully takes any action in a manner which
would likely result in the failure of either party to
satisfy a material condition to the closing of the Merger or
materially reduce the value of the transaction to Sovereign;
or
(e) FSFS breaches, in any material respect, any
binding term of the Agreement with respect to the Merger, or
this Stock Option Agreement after a Proposal is made and
before it is Publicly Withdrawn or publicly announces an
intention to authorize, recommend or accept any such
Proposal;
provided, however, that any purchase of shares upon exercise of
the Option shall be subject to compliance with applicable law.
If more than one of the transactions giving rise to a
Triggering Event under this Section is undertaken or effected,
then all such transactions shall give rise only to one Triggering
Event, which Triggering Event shall be deemed continuing for all
purposes hereunder until all such transactions are abandoned.
"Publicly Withdrawn" for purposes of this Section 2
shall mean an unconditional bona fide withdrawal of the Proposal
coupled with a public announcement of no further interest in
pursuing such Proposal or in acquiring any controlling influence
over FSFS or in soliciting or inducing any other person (other
than Sovereign or an affiliate of Sovereign) to do so.
Notwithstanding the foregoing, the obligation of FSFS
to issue Option Shares upon exercise of the Option shall be
deferred (but shall not terminate) (i) until the receipt of all
required governmental or regulatory approvals or consents
necessary for FSFS to issue the Option Shares, or Sovereign to
exercise the Option, or until the expiration or termination of
any waiting period required by law, or (ii) so long as any
injunction or other order, decree or ruling issued by any federal
or state court of competent jurisdiction is in effect which
prohibits the sale or delivery of the Option Shares, and, in each
case, notwithstanding any provision to the contrary set forth
herein, the Option shall not expire or otherwise terminate.
FSFS shall notify Sovereign promptly in writing of the
occurrence of any Triggering Event known to it, it being
understood that the giving of such notice by FSFS shall not be a
condition to the right of Sovereign to exercise the Option. FSFS
will not take any action which would have the effect of
preventing or disabling FSFS from delivering the Option Shares to
Sovereign upon exercise of the Option or otherwise performing its
obligations under this Stock Option Agreement. In the event
Sovereign wishes to exercise the Option, Sovereign shall send a
written notice to FSFS (the date of which is hereinafter referred
to as the "Notice Date") specifying the total number of Option
Shares it wishes to purchase and a place and date between two and
ten business days inclusive from the Notice Date for the closing
of such a purchase (a "Closing"); provided, however, that a
Closing shall not occur prior to two days after the later of
receipt of any necessary regulatory approvals or the expiration
of any legally required notice or waiting period, if any.
3. Payment and Delivery of Certificates. At any
Closing hereunder, (a) Sovereign will make payment to FSFS of the
aggregate price for the Option Shares so purchased by wire
transfer of immediately available funds to an account designated
by FSFS, (b) FSFS will deliver to Sovereign a stock certificate
or certificates representing the number of Option Shares so
purchased, registered in the name of Sovereign or its designee,
in such denominations as were specified by Sovereign in its
notice of exercise, and (c) Sovereign will pay any transfer or
other taxes required by reason of the issuance of the Option
Shares so purchased.
A legend will be placed on each stock certificate
evidencing Option Shares issued pursuant to this Stock Option
Agreement, which legend will read substantially as follows:
"The shares of stock evidenced by this
certificate have not been the subject of a registration
statement filed under the Securities Act of 1933, as
amended (the "Act"), and declared effective by the
Securities and Exchange Commission. These shares may
not be sold, transferred or otherwise disposed of prior
to such time unless First State Financial Services,
Inc. receives an opinion of counsel stating that an
exemption from the registration provisions of the Act
is available for such transfer."
4. Registration Rights. Upon or after the occurrence
of a Triggering Event and upon receipt of a written request from
Sovereign, FSFS shall prepare and file as soon as practicable a
registration statement under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission covering the
Option and such number of Option Shares as Sovereign shall
specify in its request, and FSFS shall use its best efforts to
cause such registration statement to be declared effective in
order to permit the sale or other disposition of the Option and
the Option Shares, provided that Sovereign shall in no event have
the right to have more than one such registration statement
become effective, and provided further that FSFS shall not be
required to prepare and file any such registration statement in
connection with any proposed sale with respect to which FSFS's
counsel delivers to FSFS and to Sovereign its opinion to the
effect that no such filing is required under applicable laws and
regulations with respect to such sale or disposition; provided,
however, that FSFS may delay any registration of Option Shares
above for a period not exceeding 90 days provided FSFS shall in
good faith determine that any such registration would adversely
affect an offering or contemplated offering of other securities
by FSFS. Sovereign shall provide all information reasonably
requested by FSFS for inclusion in any registration statement to
be filed hereunder. In connection with such filing, FSFS shall
use its best efforts to cause to be delivered to Sovereign such
certificates, opinions, accountant's letters and other documents
as Sovereign shall reasonably request and as are customarily
provided in connection with registration of securities under the
Securities Act of 1933, as amended. FSFS shall provide to
Sovereign such number of copies of the preliminary prospectus and
final prospectus and any amendments and supplements thereto as
Sovereign may reasonably request. All reasonable expenses
incurred by FSFS in complying with the provisions of this
Section 4, including, without limitation, all registration and
filing fees, reasonable printing expenses, reasonable fees and
disbursements of counsel for FSFS and blue sky fees and expenses,
shall be paid by FSFS. Underwriting discounts and commissions
to brokers and dealers relating to the Option Shares, fees and
disbursements of counsel to Sovereign and any other expenses
incurred by Sovereign in connection with such filing shall be
borne by Sovereign. In connection with such filing, FSFS shall
indemnify and hold harmless Sovereign against any losses, claims,
damages or liabilities, joint or several, to which Sovereign may
become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of
any material fact contained in any preliminary or final
registration statement or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and FSFS
will reimburse Sovereign for any legal or other expense
reasonably incurred by Sovereign in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided, however, that FSFS will not be liable in any case to
the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such
preliminary or final registration statement or such amendment or
supplement thereto in reliance upon and in conformity with
written information furnished by or on behalf of Sovereign
specifically for use in the preparation thereof. Sovereign will
indemnify and hold harmless FSFS to the same extent as set forth
in the immediately preceding sentence but only with reference to
written information furnished by or on behalf of Sovereign for
use in the preparation of such preliminary or final registration
statement or such amendment or supplement thereto; and Sovereign
will reimburse FSFS for any legal or other expense reasonably
incurred by FSFS in connection with investigating or defending
any such loss, claim, damage, liability or action.
5. Adjustment Upon Changes in Capitalization. In the
event of any change in the Common Stock by reason of stock
dividends, split-ups, recapitalizations, combinations,
conversions, divisions, exchanges of shares or the like, then the
number and kind of Option Shares and the Option Price shall be
appropriately adjusted.
6. Filings and Consents. Each of Sovereign and FSFS
will use its best efforts to make all filings with, and to obtain
consents of, all third parties and governmental authorities
necessary to the consummation of the transactions contemplated by
this Stock Option Agreement. Within 10 days from the date
hereof, Sovereign shall file a report of beneficial ownership on
Form 13D with the Securities and Exchange Commission under the
Exchange Act which discloses the rights of Sovereign hereunder.
7. Representations and Warranties of FSFS. FSFS
hereby represents and warrants to Sovereign as follows:
(a) Due Authorization. FSFS has full corporate
power and authority to execute, deliver and perform this
Stock Option Agreement and all corporate action necessary
for execution, delivery and performance of this Stock Option
Agreement has been duly taken by FSFS. This Stock Option
Agreement constitutes a legal, valid and binding obligation
of FSFS, enforceable against FSFS in accordance with its
terms (except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer
and similar laws of general applicability relating to or
affecting creditors' rights or by general equity
principles).
(b) Authorized Shares. FSFS has taken all
necessary corporate action to authorize and reserve for
issuance all shares of Common Stock that may be issued
pursuant to any exercise of the Option.
8. Representations and Warranties of Sovereign.
Sovereign hereby represents and warrants to FSFS that Sovereign
has full corporate power and authority to execute, deliver and
perform this Stock Option Agreement and all corporate action
necessary for execution, delivery and performance of this Stock
Option Agreement has been duly taken by Sovereign. This Stock
Option Agreement constitutes a legal, valid and binding
obligation of Sovereign, enforceable against Sovereign in
accordance with its terms (except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles).
9. Specific Performance. The parties hereto
acknowledge that damages would be an inadequate remedy for a
breach of this Stock Option Agreement and that the obligations of
the parties hereto shall be specifically enforceable.
10. Entire Agreement. This Stock Option Agreement and
the Agreement constitute the entire agreement between the parties
with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, among
the parties or any of them with respect to the subject matter
hereof.
11. Assignment or Transfer. Sovereign may not sell,
assign or otherwise transfer its rights and obligations
hereunder, in whole or in part, to any person or group of persons
other than to a subsidiary of Sovereign. Sovereign represents
that it is acquiring the Option for Sovereign's own account and
not with a view to, or for sale in connection with, any
distribution of the Option or the Option Shares. Sovereign is
aware that neither the Option nor the Option Shares is the
subject of a registration statement filed with, and declared
effective by, the Securities and Exchange Commission pursuant to
Section 5 of the Securities Act of 1933, as amended, but instead
each is being offered in reliance upon the exemption from the
registration requirement provided by Section 4(2) thereof and the
representations and warranties made by Sovereign in connection
therewith.
12. Amendment of Stock Option Agreement. By mutual
consent of the parties hereto, this Stock Option Agreement may be
amended in writing at any time, for the purpose of facilitating
performance hereunder or to comply with any applicable regulation
of any governmental authority or any applicable order of any
court or for any other purpose.
13. Validity. The invalidity or unenforceability of
any provision of this Stock Option Agreement shall not affect the
validity or enforceability of any other provisions of this Stock
Option Agreement, which shall remain in full force and effect.
14. Notices. All notices, requests, consents and
other communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given when
delivered personally, by telegram or telecopy, or by registered
or certified mail (postage prepaid, return receipt requested) to
the respective parties as follows:
(i) If to Sovereign, to:
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Attention: Jay S. Sidhu, President
and Chief Executive Officer
Telecopy No.: (610) 320-8448
with a copy to:
Stevens & Lee
111 North Sixth Street
P.O. Box 679
Reading, Pennsylvania 19603
Attention: Joseph M. Harenza, Esquire
David W. Swartz, Esquire
Telecopy No.: (610) 376-5610
(ii) If to FSFS, to:
First State Financial Services, Inc.
1120 Bloomfield Avenue, CN 2449
West Caldwell, New Jersey 07007-2449
Attention: Michael J. Quigley, III
Chairman of the Board, President
and Chief Executive Officer
Telecopy No.: (201) 244-9831
with copies to:
Luse Lehman Gorman Pomerenk & Schick
Franklin Square
5335 Wisconsin Avenue, N.W., Suite 400
Washington, D.C. 20015
Attention: John J. Gorman, Esquire
Eric Luse, Esquire
Telecopy No.: (202) 362-2902
or to such other address as the person to whom notice is to be
given may have previously furnished to the others in writing in
the manner set forth above (provided that notice of any change of
address shall be effective only upon receipt thereof).
15. Governing Law. This Stock Option Agreement shall
be governed by and construed in accordance with the domestic
internal law (but not the law of conflicts of law) of the
Commonwealth of Pennsylvania.
16. Captions. The captions in this Stock Option
Agreement are inserted for convenience and reference purposes,
and shall not limit or otherwise affect any of the terms or
provisions hereof.
17. Waivers and Extensions. The parties hereto may,
by mutual consent, extend the time for performance of any of the
obligations or acts of either party hereto. Each party may waive
(i) compliance with any of the covenants of the other party
contained in this Stock Option Agreement and/or (ii) the other
party's performance of any of its obligations set forth in this
Stock Option Agreement.
18. Parties in Interest. This Stock Option Agreement
shall be binding upon and inure solely to the benefit of each
party hereto, and, nothing in this Stock Option Agreement,
express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by
reason of this Stock Option Agreement.
19. Counterparts. This Stock Option Agreement may be
executed in two or more counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one
and the same agreement.
20. Expenses. Subject to the terms of the Plan and
except as otherwise provided herein, all costs and expenses
incurred by the parties hereto in connection with the
transactions contemplated by this Stock Option Agreement or the
Option shall be paid by the party incurring such cost or expense.
21. Termination. This Stock Option Agreement shall
terminate and be of no further force or effect upon the earliest
to occur of (A) the Effective Time or (B) termination of the
Agreement in accordance with the terms thereof, except that if
the Agreement is terminated by Sovereign pursuant to
Section 6.01(b)(i) of the Agreement or pursuant to
Section 6.01(b)(ii) of the Agreement (provided the failure of the
occurrence of the event specified in Section 6.01(b)(ii) of the
Agreement shall be due to the failure of FSFS to perform or
observe its agreements set forth in the Agreement required to be
performed or observed by FSFS prior to the Closing Date (as
defined in the Agreement)), this Stock Option Agreement shall not
terminate until one year after the date of termination of the
Agreement.
IN WITNESS WHEREOF, each of the parties hereto,
pursuant to resolutions adopted by its Board of Directors, has
caused this Stock Option Agreement to be executed by its duly
authorized officer and has caused its corporate seal to be
affixed hereunto and to be duly attested, all as of the day and
year first above written.
SOVEREIGN BANCORP, INC.
By/s/ Jay S. Sidhu
Jay S. Sidhu,
President and Chief
Executive Officer
(CORPORATE SEAL)
Attest:/s/ Dana J. Albera
Dana J. Albera,
Assistant Secretary
FIRST STATE FINANCIAL SERVICES, INC.
By/s/ Michael J. Quigley, III
Michael J. Quigley, III,
Chairman of the Board,
President and Chief Executive
Officer
(CORPORATE SEAL)
Attest:/s/ Marie G. Martino
Marie G. Martino, Secretary
<PAGE>
Exhibit 3
BANK PLAN OF MERGER
THIS BANK PLAN OF MERGER ("Plan of Merger") dated
June 24, 1996, is by and between SOVEREIGN BANK, a Federal
Savings Bank ("Sovereign Bank"), and FIRST DEWITT BANK ("First
DeWitt").
BACKGROUND
1. Sovereign Bank is a federal savings bank and a
wholly-owned subsidiary of Sovereign Bancorp, Inc., a
Pennsylvania corporation ("Sovereign"). The authorized capital
stock of Sovereign Bank consists of 1,000 shares of common stock,
par value $1.00 per share ("Sovereign Bank Common Stock"), of
which at the date hereof 1,000 shares are issued and outstanding.
2. First DeWitt is a federal savings bank and a
wholly-owned subsidiary of FSFS Financial Services, Inc., a
Delaware corporation ("FSFS"). The authorized capital stock of
First DeWitt consists of 750,000 shares of common stock, par
value $1.00 per share ("First DeWitt Common Stock"), of which at
the date hereof 1,000 shares are issued and outstanding and
250,000 shares of preferred stock, par value $1.00 per share,
none of which are issued or outstanding.
3. The respective Boards of Directors of Sovereign
Bank and First DeWitt deem the merger of First DeWitt with and
into Sovereign Bank, pursuant to the terms and conditions set
forth or referred to herein, to be desirable and in the best
interests of the respective corporations and their respective
shareholders.
4. The respective Boards of Directors of Sovereign
Bank and First DeWitt have adopted resolutions approving this
Plan of Merger. The respective Boards of Directors of Sovereign
and FSFS have adopted resolutions approving an Agreement dated
June 24, 1996 (the "Agreement") between Sovereign and FSFS,
pursuant to which this Plan of Merger is being executed by
Sovereign Bank and First DeWitt.
AGREEMENT
In consideration of the premises and of the mutual
covenants and agreements herein contained, and in accordance with
the applicable laws and regulations of the United States of
America and the Commonwealth of Pennsylvania, Sovereign Bank and
First DeWitt, intending to be legally bound hereby, agree:
ARTICLE I
MERGER
Subject to the terms and conditions of this Plan of
Merger and in accordance with the applicable laws and regulations
of the United States of America and the Commonwealth of
Pennsylvania, on the Effective Date (as that term is defined in
Article V hereof): First DeWitt shall merge with and into
Sovereign Bank; the separate existence of First DeWitt shall
cease; and Sovereign Bank shall be the surviving corporation
(such transaction referred to herein as the "Merger" and
Sovereign Bank, as the surviving corporation in the Merger,
referred to herein as the "Surviving Bank"). Sovereign Bank will
have its home office at 1130 Berkshire Boulevard, Wyomissing,
Pennsylvania 19610 and its branch offices at the locations listed
on Exhibit "A."
ARTICLE II
CHARTER AND BYLAWS
On and after the Effective Date, the Charter and Bylaws
of Sovereign Bank, as in effect immediately prior to the
Effective Date, shall automatically be and remain the Charter and
Bylaws of the Surviving Bank, until altered, amended or repealed.
ARTICLE III
BOARD OF DIRECTORS AND OFFICERS
3.1 Board of Directors. On and after the Effective
Date, the directors of the Surviving Bank shall consist of the
directors of Sovereign Bank duly elected and holding office
immediately prior to the Effective Date and Michael J.
Quigley, III. The names and residence addresses of the directors
are:
Name Residence Address
Joseph M. Conroy 4475 Charles Street
Easton, Pennsylvania 18042
James N. Esbenshade 218 Overland Lane
Lancaster, Pennsylvania 17601
Stewart B. Kean Liberty Hall, Morris Avenue
Union, New Jersey 07083
Harry Kraft Claridge House One
Apartment 928
Verona, New Jersey 07044
Joseph E. Lewis 819 Apple Drive, Drexelwood
Wyomissing, Pennsylvania 19610
Howard D. Mackey 191 North Main Street
Boonton, New Jersey 07005
Richard E. Mohn 2630 Old Orchard Road
Lancaster, Pennsylvania 17601
Rhoda S. Oberholtzer 807 Lititz Pike
Lititz, Pennsylvania 17543
Michael J. Quigley, III ____________________________
____________________________
Patrick J. Petrone 27 Harold Place
Clifton, New Jersey 07013
Daniel K. Rothermel R.D. #11, Box 359C
Reading, Pennsylvania 19610
Elizabeth B. Rothermel Four Trent Place
Wyomissing, Pennsylvania 19610
Jay S. Sidhu 12 Quail Ridge
Reading, Pennsylvania 19607
Cameron C. Troilo Sandy Run and Afton Avenues
Yardley, Pennsylvania 19067
Ronald E. Vaughn 4 Morton Court
Lawrenceville, New Jersey 08648
G. Arthur Weaver 63 Heister Avenue
New Holland, Pennsylvania 17557
Samuel R. Willard, Jr. Taylorville Road
Washington Crossing, Pennsylvania
18977
Theodore Ziaylek, Jr. 140 Riverview Drive
Yardley, Pennsylvania 19067
3.2 Officers. On and after the Effective Date, the
officers of the Surviving Bank shall consist of the officers of
Sovereign Bank duly elected and holding office immediately prior
to the Effective Date. The names and titles of the officers are:
Name Title
Jay S. Sidhu President and Chief Executive
Officer
Karl D. Gerhart Treasurer and Chief Financial
Officer
Lawrence M. Thompson, Jr. Secretary
ARTICLE IV
CONVERSION OF SHARES
4.1 Stock of Sovereign Bank. Each share of Sovereign
Bank Common Stock issued and outstanding immediately prior to the
Effective Date shall, on and after the Effective Date, continue
to be issued and outstanding as a share of common stock of the
Surviving Bank.
4.2 Stock of First DeWitt. Each share of First DeWitt
Common Stock issued and outstanding immediately prior to the
Effective Date, and each share of First DeWitt Common Stock
issued and held in the treasury of FSFS as of the Effective Date,
if any, shall, on the Effective Date, be cancelled, and no cash,
stock or other property shall be delivered in exchange therefor.
ARTICLE V
EFFECTIVE DATE OF THE MERGER
The Merger shall be effective on the date on which all
filings with government agencies, as may be required under
applicable laws and regulations for the Merger to become
effective, are made and accepted by the applicable agencies (the
"Effective Date").
ARTICLE VI
EFFECT OF THE MERGER
6.1 Separate Existence. On the Effective Date: the
separate existence of First DeWitt shall cease; and all of the
property (real, personal and mixed), rights, powers, duties and
obligations of First DeWitt shall be taken and deemed to be
transferred to and vested in the Surviving Bank, without further
act or deed, as provided by applicable laws and regulations.
6.2 Savings Accounts. After the Effective Date,
Sovereign Bank will continue to issue savings accounts on the
same basis as immediately prior to the Effective Date.
6.3 Liquidation Account. After the Effective Date,
Sovereign Bank will continue to maintain the Sovereign Bank
liquidation account for the benefit of eligible account holders
on the same basis as immediately prior to the Effective Date, and
First DeWitt's liquidation account for the benefit of eligible
account holders shall automatically be deemed assumed by
Sovereign Bank, as of the Effective Date, on the same basis as it
existed immediately prior to the Effective Date.
ARTICLE VII
CONDITIONS PRECEDENT
The obligations of Sovereign Bank and First DeWitt to
effect the Merger shall be subject to satisfaction, unless duly
waived by the party permitted to do so, of the conditions
precedent set forth in the Agreement.
ARTICLE VIII
TERMINATION
This Plan of Merger shall terminate upon any
termination of the Agreement in accordance with its terms;
provided, however, that any such termination of this Plan of
Merger shall not relieve any party hereto from liability on
account of a breach by such party of any of the terms hereof or
thereof.
ARTICLE IX
AMENDMENT
Subject to applicable law, this Plan of Merger may be
amended, by action of the respective Boards of Directors of the
parties hereto, at any time prior to consummation of the Merger,
but only by an instrument in writing signed by duly authorized
officers on behalf of the parties hereto.
ARTICLE X
MISCELLANEOUS
10.1 Extensions; Waivers. Each party, by a written
instrument signed by a duly authorized officer, may extend the
time for the performance of any of the obligations or other acts
of the other party hereto and may waive compliance with any of
the covenants, or performance of any of the obligations, of the
other party contained in this Plan of Merger.
10.2 Notices. Any notice or other communication
required or permitted under this Plan of Merger shall be given,
and shall be effective, in accordance with the provisions of
Section 7.06 of the Agreement.
10.3 Captions. The headings of the several Articles
and Sections herein are inserted for convenience of reference
only and are not intended to be part of, or to affect the meaning
or interpretation of, this Plan of Merger.
10.4 Counterparts. For the convenience of the parties
hereto, this Plan of Merger may be executed in several
counterparts, each of which shall be deemed the original, but all
of which together shall constitute one and the same instrument.
10.5 Governing Law. This Plan of Merger shall be
governed by and construed in accordance with the laws of the
United States of America and, in the absence of controlling
Federal law, in accordance with the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, Sovereign Bank and First DeWitt
have caused this Bank Plan of Merger to be executed by their duly
authorized officers and their corporate seals to be hereunto
affixed on the date first written above.
SOVEREIGN BANK, a Federal Savings
Bank
By________________________________
Jay S. Sidhu,
President
(CORPORATE SEAL)
Attest:___________________________
Dana J. Albera,
Assistant Secretary
FIRST DEWITT BANK
By________________________________
Michael J. Quigley, III,
Chairman of the Board,
(CORPORATE SEAL) President and Chief
Executive Officer
Attest:___________________________
Marie G. Martino,
Secretary
<PAGE>
EXHIBIT "A"
to Plan of Merger
SOVEREIGN BANK
BRANCH LOCATIONS
<TABLE>
<CAPTION>
ADDRESS COUNTY MSA
PENNSYLVANIA
<S> <C> <C>
1. 61 Constitution Boulevard
Kutztown, Pennsylvania Berks Reading 6680
2. 3401 N. 5th Street Highway
at Elizabeth Avenue
Laureldale, Pennsylvania Berks Reading 6680
3. 840 Penn Avenue at Park Road
Wyomissing, Pennsylvania Berks Reading 6680
4. 15 North Sixth Street
Reading, Pennsylvania Berks Reading 6680
5. Reading Mall
4260 Perkiomen Avenue
Reading, Pennsylvania Berks Reading 6680
6. K-Mart Shopping Center
11 Parkside Avenue
Shillington, Pennsylvania Berks Reading 6680
7. Berkshire Mall
Wyomissing, Pennsylvania Berks Reading 6680
8. 329 South Main Street
Doylestown, Pennsylvania 18901 Bucks Philadelphia 6160
9. Rte. 532 & Taylorsville Road
Washington Crossing, Pennsylvania 18977 Bucks Philadelphia 6160
10. 95 S. Main Street
Yardley, Pennsylvania 19067 Bucks Philadelphia 6160
11. Pine Watson Plaza
Langhorne, Pennsylvania Bucks Philadelphia 6160
12. 131 Wilmington West Chester Pike
Glen Mills, Pennsylvania 19342 Delaware Philadelphia 6160
13. 23 East King Street
Lancaster, Pennsylvania Lancaster Lancaster 4000
14. 194 N. Reading Road at Grandview Drive
Ephrata, Pennsylvania Lancaster Lancaster 4000
15. 46 E. Main Street
Lititz, Pennsylvania Lancaster Lancaster 4000
16. 100 East Main Street
New Holland, Pennsylvania Lancaster Lancaster 4000
17. K-Mart Shopping Center
1846 Fruitville Pike
Lancaster, Pennsylvania Lancaster Lancaster 4000
18. 519-A Leaman Avenue
Millersville, Pennsylvania Lancaster Lancaster 4000
19. Sears Mall
Park City
Lancaster, Pennsylvania Lancaster Lancaster 40000
20. East Towne Mall
Lincoln Highway East
Lancaster, Pennsylvania Lancaster Lancaster 4000
21. 3147 College Heights Boulevard
Allentown, Pennsylvania Lehigh Allentown- 0240
Bethlehem
22. 2181 West Union Boulevard
Bethlehem, Pennsylvania Lehigh Allentown-0240
Bethlehem
23. 258 High Street
Pottstown, Pennsylvania Montgomery Philadelphia 6160
24. 800 East Willow Grove Avenue
Wyndomoor, Pennsylvania Montgomery Philadelphia 6160
25. 618 Germantown Pike
Lafayette Hill, Pennsylvania Montgomery Philadelphia 6160
26. 1401 Bruce Road
Oreland, Pennsylvania Montgomery Philadelphia 6160
27. Old York and Church Roads
Elkins Park, Pennsylvania Montgomery Philadelphia 6160
28. 1401 Easton Avenue
Bethlehem, Pennsylvania Northampton Allentown- 0240
Bethlehem
29. 2022 Lehigh Street
Easton, Pennsylvania Northampton Allentown- 0240
Bethlehem
30. 100 North Third Street
P.O. Box 230
Easton, Pennsylvania Northampton Allentown- 0240
Bethlehem
31. 3120 William Penn Highway
Easton, Pennsylvania Northampton Allentown- 0240
Bethlehem
32. 71 Bangor Junction Road
Bangor, Pennsylvania Northampton Allentown- 0240
Bethlehem
33. 8623 Germantown Avenue
Philadelphia, Pennsylvania Philadelphia Philadelphia 6160
34. 9856 Bustleton Avenue
Philadelphia, Pennsylvania Philadelphia Philadelphia 6160
NEW JERSEY
35. 165 Passaic Avenue
Fairfield, New Jersey Essex Newark 5640
36. 378 Bloomfield Avenue
Caldwell, New Jersey Essex Newark 5640
37. 270 S. Livingston Avenue
Livingston, New Jersey Essex Newark 5640
38. 555 Milburn Avenue
Short Hills, New Jersey Essex Newark 5640
39. 667 Bloomfield Avenue
Bloomfield, New Jersey(1) Essex Newark 5640
40. 463 Washington Avenue
Belleville, New Jersey(1) Essex Newark 5640
41. 60 Belleville Avenue
Bloomfield, New Jersey(1) Essex Newark 5640
42. 1072 Broad Street
Bloomfield, New Jersey(1) Essex Newark 5640
43. 532 Pompton Avenue
Cedar Grove, New Jersey(1) Essex Newark 5640
44. 1120 Bloomfield Avenue, CN 2449
West Caldwell, New Jersey(1) Essex Newark 5640
45. 121 Franklin Corner Road
Lawrenceville, New Jersey Mercer Trenton 8480
46. 952 Parkway Avenue
Trenton, New Jersey Mercer Trenton 8480
47. 2730 Nottingham Way
Mercerville, New Jersey Mercer Trenton 8480
48. 44 Hightstown Road
Princeton Junction, New Jersey Mercer Trenton 8480
49. 188 Nassau Street
Princeton, New Jersey Mercer Trenton 8480
50. 1700 Kuser Road
Hamilton, New Jersey Mercer Trenton 8480
51. 525 Inman Avenue
Colonia, New Jersey Middlesex Middlesex-
Somerset- 5015
Hunterdon
52. Applegarth & Cranbury Roads
Cranbury, New Jersey Middlesex Middlesex-
Somerset-
Hunterdon- 5015
53. 660 Plainsboro Road
Plainsboro, New Jersey Middlesex Middlesex-
Somerset-
Hunterdon- 5015
54. 712 Tenth Avenue
Belmar, New Jersey 07719 Monmouth Monmouth-Ocean 5190
55. 44 Main Street & Holmdel Road
Holmdel, New Jersey 07733 Monmouth Monmouth-Ocean 5190
56. 43 Main Street
Keyport, New Jersey 07735 Monmouth Monmouth-Ocean 5190
57. 3600 Rt. 9 South & Redwood Road
Howell, New Jersey Monmouth Monmouth-Ocean 5190
58. 57 Monmouth Road
Oakhurst, New Jersey 07755 Monmouth Monmouth-Ocean 5190
59. 1215 Highway 35 & New Monmouth Road
Middletown, New Jersey 07748 Monmouth Monmouth-Ocean 5190
60. 1 Schanck Road
Freehold, New Jersey Monmouth Monmouth-Ocean 5190
61. Broad Street & Bergen Place
Red Bank, New Jersey 07701 Monmouth Monmouth-Ocean 5190
62. Monmouth & Parker Roads
West Long Branch, New Jersey 07764 Monmouth Monmouth-Ocean 5190
63. Marlboro Mall
Route 79 & School Road West
Marlboro, New Jersey 07746 Monmouth Monmouth-Ocean 5190
64. Yorktowne Shopping Center
303 Gordons Corner Road
Manalapan, New Jersey 07726 Monmouth Monmouth-Ocean 5190
65. 600 Broadway
Long Branch, New Jersey 07740 Monmouth Monmouth-Ocean 5190
66. Covered Bridge
345 Union Hill Road
Manalapan, New Jersey 07726 Monmouth Monmouth-Ocean 5190
67. 18 Sycamore Avenue
Little Silver, New Jersey 07739 Monmouth Monmouth-Ocean 5190
68. 201 Harmony Road
Middleton, New Jersey Monmouth Monmouth-Ocean 5190
69. Highway 9 & Taylor Mills Road
Manalapan, New Jersey 07726 Monmouth Monmouth-Ocean 5190
70. 1600 Corlies Avenue
Neptune, New Jersey 07753 Monmouth Monmouth-Ocean 5190
71. Middlebrook Shopping Center
Deal Road and Highway 35
Ocean Township, New Jersey Monmouth Monmouth-Ocean 5190
72. 342 Lloyd Road
Aberdeen, New Jersey Monmouth Monmouth-Ocean 5190
73. 440 Cookman Avenue
Asbury Park, New Jersey 07712 Monmouth Monmouth-Ocean 5190
74. 14 Main Street
Englishtown, New Jersey(1) Monmouth Monmouth-Ocean 5190
75. 110 East Main Street
Rockaway, New Jersey Morris Newark 5640
76. 430 Route 10
Randolph, New Jersey Morris Newark 5640
77. 1 Basset Highway
Dover, New Jersey Morris Newark 5640
78. 239 Littleton Road
Parsippany, New Jersey Morris Newark 5640
79. 73 Diamond Spring Road
Denville, New Jersey Morris Newark 5640
80. 405 Main Street
Boonton, New Jersey Morris Newark 5640
81. 977 Valley Road
Gillette, New Jersey Morris Newark 5640
82. 620 Main Road
Towaco, New Jersey Morris Newark 5640
83. 40 South Main Street
Wharton, New Jersey Morris Newark 5640
84. 434 Ridgedale Avenue
East Hanover, New Jersey Morris Newark 5640
85. 1980 Route 10 West
Morris Plains, New Jersey(1) Morris Newark 5640
86. 2560 Route 37 West
Lakehurst, New Jersey 08733 Ocean Monmouth-Ocean 5190
87. 36 Washington Street
Toms River, New Jersey 08753 Ocean Monmouth-Ocean 5190
88. 1071 Route 37 West
Toms River, New Jersey 08757 Ocean Monmouth-Ocean 5190
89. Town & Country Shopping Center
Route 70
Lakewood, New Jersey 08701 Ocean Monmouth-Ocean 5190
90. 940 Fischer Boulevard
Toms River, New Jersey 08753 Ocean Monmouth-Ocean 5190
91. 1850 Highway 35 North
Ortley Beach, New Jersey 08751 Ocean Monmouth-Ocean 5190
92. 69 Madison Avenue
Lakewood, New Jersey 08701 Ocean Monmouth-Ocean 5190
93. 1866 Hooper Avenue
Toms River, New Jersey 08753 Ocean Monmouth-Ocean 5190
94. Whiting Shopping Center, Unit #27
Lacey Road & Cherry Street
Whiting, New Jersey Ocean Monmouth-Ocean 5190
95. Route 9 & Motor Road
Pine Beach, New Jersey 08741 Ocean Monmouth-Ocean 5190
96. 190 Route 37 East
Toms River, New Jersey Ocean Monmouth-Ocean 5190
97. Brook Plaza Shopping Center
W. County Line Road & New Prospect Road
Jackson, New Jersey Ocean Monmouth-Ocean 5190
98. 1100 Burnt Tavern Road
Brick, New Jersey 08724 Ocean Monmouth-Ocean 5190
99. 490 Route 530
Whiting, New Jersey Ocean Ocean-Monmouth 5190
100. 2000 Route 70
Lakehurst, New Jersey Ocean Ocean-Monmouth 5190
101. 17 Beaverson Boulevard
Brick, New Jersey Ocean Ocean-Monmouth 5190
102. 2518 Old Hooper Avenue
Brick, New Jersey(1) Ocean Ocean-Monmouth 5190
103. 1161 Burnt Tavern Road
Brick, New Jersey(1) Ocean Ocean-Monmouth 5190
104. 901 West Park Avenue
Ocean, New Jersey(1) Ocean Ocean-Monmouth 5190
105. 1325 Route 206
Silkman, New Jersey 08558
Rocky Hill, New Jersey Somerset Middlesex-
Somerset- 5015
Hunterdon
106. 34 East Main Street
Somerville, New Jersey Somerset Middlesex- Somerset-
5015 Hunterdon
107. 2 Waterloo Road
Byram Township, New Jersey Sussex Newark 5640
108. 197 Main Street
Newton, New Jersey Sussex Newark 5640
109. 110 River Styx Road
Hopatcong, New Jersey(1) Sussex Newark 5640
110. 540 Morris Avenue
Elizabeth, New Jersey Union Newark 5640
111. 726 W. St. George Avenue
Linden, New Jersey Union Newark 5640
112. 1224 Stuyvesant Avenue
Union, New Jersey Union Newark 5640
113. 1 Union Square
Elizabeth, New Jersey Union Newark 5640
114. 2253 North Avenue
Scotch Plains, New Jersey Union Newark 5640
115. 18 North Avenue West
Cranford, New Jersey Union Newark 5640
116. 201 Chestnut Street
Roselle, New Jersey Union Newark 5640
117. 5 Westfield Avenue
Clark, New Jersey Union Newark 5640
118. 324 Chestnut Street
Union, New Jersey Union Newark 5640
DELAWARE
119. 1812 Marsh Road, Suite 401
Wilmington, Delaware New Castle Wilmington 9160
120. 281 E. Main & Tyre Streets
Newark, Delaware New Castle Wilmington 9160
121. 3812 Kirkwood Highway
Wilmington, Delaware New Castle Wilmington 9160
122. 201 West Ninth Street
Wilmington, Delaware New Castle Wilmington 9160
_______________
<FN>
(1) Presently a branch of First DeWitt.
</TABLE>
<PAGE>
EXHIBIT 4
Form of Agreement Re: Benefits
June __, 1996
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Gentlemen:
I, the undersigned, hereby acknowledge and agree that an
amount not to exceed a present value of $__________ (based on a
6% per annum discount factor), exclusive of any amounts accrued
through March 31, 1996, is the maximum amount that I would be
entitled to receive from FSFS, any FSFS subsidiary or any of
their respective successors or assigns pursuant to any employment
agreement, special termination agreement, supplemental executive
retirement plan, deferred compensation plan, salary continuation
plan, or any other benefit or welfare plan in the event my
employment with FSFS or any FSFS subsidiary had been terminated
for any reason, whether voluntarily or involuntarily, on
March 31, 1996. All capitalized terms used herein but not
defined herein shall have the meanings given to them in the
Agreement and Plan of Merger dated as of June 24, 1996 between
Sovereign Bancorp, Inc. and First State Financial Services, Inc.
Sincerely,
<PAGE>
EXHIBIT 5
FORM OF OPINION OF COUNSEL TO SOVEREIGN
FSFS shall have received from counsel to Sovereign, an
opinion, dated as of the Closing Date, substantially to the
effect that, subject to normal exceptions and qualifications:
(a) Sovereign and Sovereign Bank have full corporate
power to carry out the transactions contemplated in the Agreement
and the Plan of Merger, respectively. The execution and delivery
of the Agreement and the Plan of Merger and the consummation of
the transactions contemplated thereunder have been duly and
validly authorized by all necessary corporate action on the part
of Sovereign and Sovereign Bank, and the Agreement and the Plan
constitute valid and legally binding obligations of Sovereign and
Sovereign Bank, respectively, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship, and other laws affecting creditors' rights
generally and institutions the deposits of which are insured by
the FDIC, and as may be limited by the exercise of judicial
discretion in applying principles of equity. Subject to
satisfaction of the conditions set forth in the Agreement,
neither the transactions contemplated in the Agreement or the
Plan, nor compliance by Sovereign and Sovereign Bank with any of
the respective provisions thereof, will (i) conflict with or
result in a breach or default under (A) the articles of
incorporation or bylaws of Sovereign or the charter or bylaws of
Sovereign Bank, or, (B) to the knowledge of such counsel, any
note, bond, mortgage, indenture, license, agreement or other
material instrument or obligation to which Sovereign or Sovereign
Bank is a party; or (ii) based on certificates of officers and
without independent verification, to the knowledge of such
counsel, result in the creation or imposition of any material
lien or encumbrance upon the property of Sovereign or Sovereign
Bank, except such material lien, instrument or obligation that
has been disclosed pursuant to the Agreement or the Plan; or
(iii) violate in any material respect any order, writ, injunction
or decree known to such counsel, or any federal or Pennsylvania
statute, rule or regulation applicable to Sovereign or Sovereign
Bank.
(b) Sovereign Bank is a validly existing
federally-chartered savings bank organized and in good standing
under the laws of the United States of America. The deposits of
Sovereign Bank are insured to the maximum extent provided by law
by the Federal Deposit Insurance Corporation.
(c) There is, to the knowledge of such counsel, no
legal, administrative, arbitration or governmental proceeding or
investigation pending or threatened to which Sovereign or
Sovereign Bank is a party which would, if determined adversely to
Sovereign or Sovereign Bank, have a material adverse effect on
the financial condition or results of operation of Sovereign and
Sovereign Bank taken as a whole, or which presents a claim to
restrain or prohibit the transactions contemplated by the
Agreement and the Plan, respectively.
(d) No consent, approval, authorization or order of
any federal or state court or federal or state governmental
agency or body is required for the consummation by Sovereign or
Sovereign Bank of the transactions contemplated by the Agreement
and the Plan, except for such consents, approvals, authorizations
or orders as have been obtained.
(e) Upon the filing and effectiveness of the Articles
of Merger with the PDS, the Articles of Merger with the DOSS, and
Articles of Combination with the OTS in accordance with the
Agreement and the Plan, the mergers of Sovereign and FSFS and of
Sovereign Bank and First DeWitt contemplated by the Agreement and
the Plan, respectively, will have been effected in compliance
with all applicable federal and Pennsylvania laws and regulations
in all material respects.
(f) The shares of Sovereign Common Stock to be issued
in connection with the merger of FSFS and Sovereign contemplated
by the Agreement have been duly authorized and will, when issued
in accordance with the terms of the Agreement, be validly issued,
fully paid and nonassessable, free and clear of any mortgage,
pledge, lien, encumbrance or claim (legal or equitable).
(g) On the sole basis of such counsel's participation
in conferences with officers and employees of Sovereign in
connection with the Proxy Statement/Prospectus, and without other
independent investigation or inquiry, such counsel has no reason
to believe that the Proxy Statement/Prospectus, including any
amendments or supplements thereto (except for the financial
information, financial schedules and other financial or
statistical data contained therein and except for any information
supplied by FSFS or First DeWitt for inclusion therein, as to
which counsel need express no belief), as of the date of mailing
thereof, contained any untrue statement of a material fact with
respect to Sovereign or omitted to state any material fact with
respect to Sovereign necessary to make any statement therein with
respect to Sovereign, in light of the circumstances under which
it was made, not misleading. Counsel may state in delivering
such opinion, that such counsel has not independently verified
and does not assume the responsibility for the accuracy,
completeness or fairness of any information or statements
contained in the Proxy Statement/Prospectus, except with respect
to identified statements of law or regulations or legal
conclusions relating to Sovereign or the transactions
contemplated in the Agreement and the Plan.
<PAGE>
EXHIBIT 6
FORM OF TAX OPINION OF STEVENS & LEE
Sovereign and FSFS shall have received an opinion of
Stevens & Lee substantially to the effect that, under the
provisions of the IRC:
1. Provided the Merger qualifies as a statutory merger
under applicable law, the transfer by FSFS of all of its assets
to Sovereign in exchange for Sovereign Common Stock (including
fractional share interests) and the assumption by Sovereign of
all of FSFS's liabilities will constitute a reorganization within
the meaning of Section 368(a)(1)(A) of the IRC.
2. FSFS and Sovereign will each be "a party to a
reorganization" within the meaning of Section 368(b) of the IRC.
3. Neither FSFS nor Sovereign will recognize any gain or
loss upon the transfer of FSFS's assets to Sovereign in exchange
solely for Sovereign Common Stock (including fractional share
interests) and the assumption by Sovereign of the liabilities of
FSFS.
4. The basis of the FSFS assets in the hands of Sovereign
will be the same as the basis of such assets in the hands of FSFS
immediately prior to the Merger.
5. The holding period of the assets of FSFS to be received
by Sovereign will include the period during which the assets were
held by FSFS.
6. No gain or loss will be recognized by the shareholders
of FSFS on the receipt of Sovereign Common Stock (including
fractional share interests) solely in exchange for their shares
of FSFS Common Stock.
7. The basis of the Sovereign Common Stock (including
fractional share interests) to be received by the FSFS
shareholders in the Merger will be the same as the basis of the
FSFS Common Stock surrendered in exchange therefor.
8. The holding period of the Sovereign Common Stock
(including fractional share interests) to be received by the FSFS
shareholders in the Merger will include the period during which
the FSFS shareholders held their FSFS Common Stock, provided the
shares of FSFS Common Stock are held as a capital asset on the
Effective Date.
9. The payment of cash in lieu of fractional share
interests of Sovereign Common Stock will be treated as if the
fractional share interests were distributed as part of the Merger
and then redeemed by Sovereign. Such cash payments will be
treated as having been received as distribution in full payment
in exchange for the fractional share interests redeemed, as
provided in Section 302(a) of the IRC.
10. The Sovereign Stock Purchase Rights transferred with
the shares of Sovereign Common Stock will not constitute "other
property" within the meaning of Section 356(a)(1)(B) of the IRC.
11. As provided in Section 381(c)(2) of the IRC and related
Treasury regulations, Sovereign will succeed to and take into
account the earnings and profits, or deficit in earnings and
profits, of FSFS as of the Effective Date. Any deficit in the
earnings and profits of Sovereign or FSFS will be used only to
offset the earnings and profits accumulated after the Merger.
12. Pursuant to Section 381(a) of the IRC and related
Treasury regulations, Sovereign will succeed to and take into
account the items of FSFS described in Section 381(c) of the IRC.
Such items will be taken into account by Sovereign subject to the
conditions and limitations of Sections 381, 382, 383, and 384 of
the IRC and the Treasury regulations thereunder.
13. Provided the Bank Merger constitutes a statutory merger
under applicable law, the Bank Merger will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the
IRC.
14. First DeWitt and Sovereign Bank will each be "a party
to a reorganization" within the meaning of Section 368(b) of the
IRC.
15. Neither First DeWitt nor Sovereign Bank will recognize
any gain or loss upon the transfer of First DeWitt's assets to
Sovereign Bank in constructive exchange solely for Sovereign Bank
common stock and the assumption by Sovereign Bank of the
liabilities of First DeWitt.
16. The basis of the First DeWitt assets in the hands of
Sovereign Bank will be the same as the basis of such assets in
the hands of First DeWitt immediately prior to the Bank Merger.
17. The holding period of the First DeWitt assets in the
hands of Sovereign Bank will include the period during which such
assets were held by First DeWitt.
18. No gain or loss will be recognized by Sovereign, as the
shareholder of First DeWitt, upon the constructive receipt of
shares of Sovereign Bank common stock in exchange for the First
DeWitt common stock surrendered in exchange therefor in the Bank
Merger.
19. The basis of the Sovereign Bank common stock to be held
by Sovereign after the Bank Merger will equal the basis of such
stock immediately before the Bank Merger, increased by the basis
of the First DeWitt common stock surrendered in the constructive
exchange.
20. As provided in Section 381(c)(2) of the IRC and related
Treasury regulations, Sovereign Bank will succeed to and take
into account the earnings and profits, or deficit in earnings and
profits, of First DeWitt as of the effective date of the Bank
Merger. Any deficit in the earnings and profits of Sovereign
Bank or First DeWitt will be used only to offset the earnings and
profits accumulated after the Bank Merger.
21. Pursuant to Section 381(a) of the IRC and related
Treasury regulations, Sovereign Bank will succeed to and take
into account the items of First DeWitt described in
Section 381(c) of the IRC. Such items will be taken into account
by Sovereign Bank subject to the conditions and limitations of
Sections 381, 382, 383, and 384 of the IRC and the Treasury
regulations thereunder.
<PAGE>
EXHIBIT 7
FORM OF OPINION OF COUNSEL TO FSFS
Sovereign shall have received from counsel to FSFS, an
opinion, dated as of the Closing Date, substantially to the
effect that, subject to normal exceptions and qualifications:
(a) FSFS and First DeWitt have full corporate power to
carry out the transactions contemplated in the Agreement and the
Plan of Merger, respectively. The execution and delivery of the
Agreement and the Plan of Merger and the consummation of the
transactions contemplated thereunder have been duly and validly
authorized by all necessary corporate action on the part of FSFS
and First DeWitt, and the Agreement and the Plan constitute a
valid and legally binding obligation, in accordance with their
respective terms, of FSFS and First DeWitt, respectively, except
as may be limited by bankruptcy, insolvency, reorganization,
moratorium, receivership, conservatorship, and other laws
affecting creditors' rights generally and institutions the
deposits of which are insured by the FDIC, and as may be limited
by the exercise of judicial discretion in applying principles of
equity. Subject to satisfaction of the conditions set forth in
the Agreement, neither the transactions contemplated in the
Agreement and the Plan, nor compliance by FSFS and First DeWitt
with any of the respective provisions thereof, will (i) conflict
with or result in a breach or default under (A) the certificate
of incorporation or bylaws of FSFS or the charter or bylaws of
First DeWitt, or (B) based on certificates of officers and
without independent verification, to the knowledge of such
counsel, any note, bond, mortgage, indenture, license, agreement
or other instrument or obligation to which FSFS or First DeWitt
is a party; or (ii) to the knowledge of such counsel, result in
the creation or imposition of any material lien, instrument or
encumbrance upon the property of FSFS or First DeWitt, except
such material lien, instrument or obligation that has been
disclosed to Sovereign pursuant to the Agreement and the Plan, or
(iii) violate in any material respect any order, writ,
injunction, or decree known to such counsel, or any statute, rule
or regulation applicable to FSFS or First DeWitt.
(b) First DeWitt is a validly existing federally-
chartered bank organized and in good standing under the laws of
the United States of America. The deposits of First DeWitt are
insured to the maximum extent provided by law by the Federal
Deposit Insurance Corporation.
(c) There is, to the knowledge of such counsel, no
legal, administrative, arbitration or governmental proceeding or
investigation pending or threatened to which FSFS or First DeWitt
is a party which would, if determined adversely to FSFS or First
DeWitt, have a material adverse effect on the business,
properties, results of operations, or condition, financial or
otherwise, of FSFS or First DeWitt taken as a whole or which
presents a claim to restrain or prohibit the transactions
contemplated by the Agreement and the Plan, respectively.
(d) No consent, approval, authorization, or order of
any federal or state court or federal or state governmental
agency or body, or of any third party, is required for the
consummation by FSFS or First DeWitt of the transactions
contemplated by the Agreement and the Plan, except for such
consents, approvals, authorizations or orders as have been
obtained.
(e) On the sole basis of such counsel's participation
in conferences with officers and employees of FSFS in connection
with the preparation of the Prospectus/Proxy Statement and
without other independent investigation or inquiry, such counsel
has no reason to believe that the Prospectus/Proxy Statement,
including any amendments or supplements thereto (except for the
financial information, financial statements, financial schedules
and other financial or statistical data contained therein and
except for any information supplied by Sovereign for inclusion
therein, as to which counsel need express no belief), as of the
date of mailing thereof and as of the date of the meeting of
shareholders of FSFS to approve the merger, contained any untrue
statement of a material fact or omitted to state a material fact
necessary to make any statement therein, in light of the
circumstances under which it was made, not misleading. Counsel
may state in delivering such opinion, that such counsel has not
independently verified and does not assume any responsibility for
the accuracy, completeness or fairness of any information or
statements contained in the Prospectus/Proxy Statement, except
with respect to identified statements of law or regulations or
legal conclusions relating to FSFS or First DeWitt or the
transactions contemplated in the Agreement and the Plan.
