As filed with the Securities and Exchange Commission on July 29,
1996
Registration No. 333-09113
SECURITIES AND EXCHANGE COMMISSION
____________________
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
____________________
REGISTRATION STATEMENT
Under
The Securities Act of 1933
____________________
SOVEREIGN BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2453088
(State or other jurisdiction (I.R.S. employer
of Incorporation) identification no.)
1130 Berkshire Boulevard Jay S. Sidhu, President
Wyomissing, Pennsylvania 19610 and Chief Executive Officer
(610) 320-8400 1130 Berkshire Boulevard
(Address, including zip code, Wyomissing, Pennsylvania 19610
and telephone number, including (610)320-8400
area code, of Registrant's (Name, address, including
executive principal offices) zip code, and telephone
number, including area code,
of agent for service)
____________________
Copy to:
Joseph M. Harenza, Esquire
Stevens & Lee
111 North Sixth Street
Reading, PA 19601
(610) 478-2160
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration
Statement, as determined by market conditions and other factors.
If the only securities being registered on this Form are
being offered pursuant to dividend or interest reinvestment
plans, please check the following box. [ ]
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, other than securities
offered only in connection with dividend or interest reinvestment
plans, please check the following box. [x]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
[ ] ________________.
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________.
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [x]
___________________
The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.<PAGE>
Subject to Completion, Dated August 12, 1996
Prospectus
SOVEREIGN BANCORP, INC.
Common Stock and Common Stock Warrants
Debt Securities and Debt Warrants
Preferred Shares and Preferred Share Warrants
Sovereign Bancorp, Inc. (the "Corporation" or "Sovereign")
may from time to time offer (i) shares of its Common Stock, no
par value (the "Common Stock"), (ii) in one or more series its
unsecured debt securities, which may be either senior (the
"Senior Securities") or subordinated (the "Subordinated
Securities", the Senior Securities and the Subordinated
Securities being referred to collectively as the "Debt
Securities"), (iii) warrants to purchase the Debt Securities
("Debt Warrants"), (iv) shares of preferred stock (the "Preferred
Shares") (v) warrants to purchase the Preferred Shares
("Preferred Share Warrants"), and (iv) warrants to purchase
Common Stock ("Common Stock Warrants," the Debt Warrants,
Preferred Share Warrants and Common Stock Warrants being referred
to collectively as the "Securities Warrants") with an aggregate
initial public offering price (including the exercise price of
any Securities Warrants) of up to $200,000,000 or the equivalent
thereof in one or more foreign currencies or composite
currencies, including European Currency Units ("ECU"), on terms
to be determined at the time of sale.
The Common Stock, Debt Securities, Preferred Shares and
Securities Warrants (collectively, the "Offered Securities") may
be offered separately or together in units, in separate series,
in amounts, at prices, and on terms and conditions to be set
forth in a supplement to this Prospectus (a "Prospectus
Supplement").
The Senior Securities will rank equally with all other
unsubordinated and unsecured indebtedness of the Corporation.
The Subordinated Securities will be subordinated to all existing
and future Senior Debt of the Corporation, as defined. See
"Description of Debt Securities."
The Securities Warrants may be issued independently or
together with Common Stock, Debt Securities, or Preferred Shares
offered by any Prospectus Supplement and may be attached to or
separate from such Common Stock, Debt Securities, or Preferred
Shares.
The specific terms of the Offered Securities in respect of
which this Prospectus is being delivered, such as, where
applicable, (i) in the case of Debt Securities, the specific
designation, original issue discount or premium, aggregate
principal amount, currency, denominations, maturity, rate and
time of payment of interest, terms for redemption at the option
of the Corporation or repayment at the option of the holder and
the redemption premium (if any), terms for sinking fund payments,
terms for conversion into Common Stock or Preferred Shares or
exchange into capital securities and the initial public offering
price; (ii) in the case of Preferred Shares, the specific title
and stated value, any dividend, liquidation, redemption,
conversion, exchange, voting and other rights, and the initial
public offering price; and (iii) in the case of Securities
Warrants, where applicable, the duration, offering price,
exercise price and detachability.
Each of the Offered Securities may be issued separately or
together with Securities Warrants as a unit (a "Unit"). If any
of the Offered Securities are issued as a Unit, the Prospectus
Supplement relating thereto will describe the specific terms
relating to such Unit including, where applicable: (i) if the
Securities Warrant will be detachable from the accompanying
Offered Security and when, if ever, such Securities Warrant may
be separately transferred; (ii) the allocation of the public
offering price between the Securities Warrant and the
accompanying Offered Security; (iii) the qualification of the
Units and its composite Offered Securities for trading on any
securities exchange or automated dealers' quotation reporting
system, and (iv) any United States federal income tax
considerations relating to the Unit and the Offered Securities
comprising the Unit.
The Prospectus Supplement will also contain information,
where applicable, about certain United States federal income tax
considerations relating to, and any listing on a securities
exchange of, the Offered Securities covered by the Prospectus
Supplement.
The Offered Securities may be offered directly by the
Corporation to purchasers, through agents designated from time to
time, or to or through underwriters or dealers. If any agents or
underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable fee, commission,
purchase price or discount arrangements with them will be set
forth, or will be calculable from the information set forth, in
the Prospectus Supplement. The Corporation may also issue
contracts under which the counterparty may be required to
purchase Common Stock, Debt Securities, or Preferred Stock. Such
contracts would be issued with the Common Stock, Debt Securities,
Preferred Stock, and/or Securities Warrants in amounts, at prices
and on terms to be set forth in a Prospectus Supplement. See
"Plan of Distribution."
Except for the Common Stock and any 6-1/4% Cumulative
Convertible Preferred Stock, Series B that may be offered hereby,
the Offered Securities are a new issue of securities with no
established trading market. In the event that Offered Securities
of a series offered hereby are not listed on a national
securities exchange, certain broker-dealers may make a market in
the Offered Securities, but will not be obligated to do so and
may discontinue any market making any time without notice. No
assurance can be given that any broker-dealer will make a market
in the Offered Securities of any series or as to the liquidity of
the trading market for the Offered Securities. Any such market
making may be discontinued at any time.
____________________
The Offered Securities are not savings accounts, deposits or
other obligations of any bank or nonbank subsidiary of the
Corporation and are not insured by the Federal Deposit Insurance
Corporation, Bank Insurance Fund, Savings Association Insurance
Fund, or any other government agency.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
____________________
This Prospectus may not be used to consummate sales of Offered
Securities unless accompanied by a Prospectus Supplement.
____________________
The date of this Prospectus is August 12, 1996.
<PAGE>
No dealer, salesman or other person has been authorized to
give any information or to make any representation not contained
or incorporated by reference in this Prospectus or any Prospectus
Supplement and, if given or made, such information or
representation must not be relied upon as having been authorized
by the Corporation, or any underwriter or agent. This Prospectus
and any Prospectus Supplement do not constitute an offer to sell
or a solicitation of an offer to buy any Offered Securities in
any jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction. Neither the delivery of this
Prospectus or any Prospectus Supplement nor any sale made
hereunder and thereunder shall, under any circumstances, create
any implication that the information contained or incorporated by
reference herein or therein is correct as of any time subsequent
to the date of such information or that there has been no change
in the affairs of the Corporation since such date.
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
<PAGE>
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files proxy statements,
reports and other information with the Securities and Exchange
Commission (the "Commission"). This filed material can be
inspected and copied at the Commission's office at 450 Fifth
Street, N.W., Washington, D.C. 20549 and the Commission's
Regional Offices in New York (7 World Trade Center, Suite 1300, ,
New York, New York 10048) and Chicago (500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511) and copies of such
materials can be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission
by the Corporation are incorporated in this Prospectus by
reference and made a part hereof:
(1) The Corporation's Annual Report on Form 10-K for the
year ended December 31, 1995.
(2) The Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996.
(3) The Corporation's Current Reports on Form 8-K filed
January 22, 1996, February 6, 1996, February 16, 1996, June 3,
1996, and July 29, 1996.
(4) The Corporation's Registration Statement on Form 8-A,
dated October 12, 1989, as amended on Form 8-A/A, dated
January 8, 1996, pursuant to which the Corporation registered
certain stock purchase rights under the Exchange Act.
(5) The Corporation's Registration Statement on Form 8-A,
dated May 16, 1995, pursuant to which the Corporation registered
its 6-1/4% Cumulative Convertible Preferred Stock, Series B under
the Exchange Act.
Financial and other information included in the reports
incorporated by reference herein do not reflect stock splits or
dividends declared subsequent to the respective dates of such
reports.
Each document or report subsequently filed by the
Corporation with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the termination of the offering of the Offered
Securities shall be deemed to be incorporated by reference into
this Prospectus and to be a part of this Prospectus from the date
of filing of such document. Any statement contained herein, or
in the document all or a portion of which is incorporated or
deemed to be incorporated by reference herein, shall be deemed to
be modified or superseded for purposes of the Registration
Statement and this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Registration Statement
or this Prospectus.
The Corporation will provide without charge to any person to
whom this Prospectus is delivered, on the written or oral request
of such person, a copy of any or all of the foregoing documents
incorporated by reference, other than certain exhibits to such
documents. Written requests should be directed to Sovereign
Bancorp, Inc., P.O. Box 12646, Reading, Pennsylvania 19612;
Attention: Investor Relations Officer (telephone: 610 320-8400).
SOVEREIGN BANCORP, INC.
Sovereign Bancorp, Inc. ("Sovereign" or the "Corporation")
is a Pennsylvania multi-thrift holding corporation headquartered
in a suburb of Reading, Pennsylvania. Sovereign's subsidiaries
consist of Sovereign Bank, a Federal Savings Bank ("Sovereign
Bank"), Sovereign Community Bank ("Community Bank") and Sovereign
Investment Corporation. At June 30, 1996, Sovereign and its
subsidiaries had total consolidated assets, deposits, and
shareholders' equity of $9.2 billion, $5.0 billion and
$461 million, respectively. Based on total assets at June 30,
1996, Sovereign is the largest thrift holding corporation and
fourth largest financial institution headquartered in
Pennsylvania. (Sovereign Bank and Community Bank are
collectively referred to herein as the "Banks.")
Sovereign's primary business consists of attracting deposits
from its network of 122 community banking offices, located in
Pennsylvania, New Jersey and Delaware, and originating
residential mortgage loans and home equity lines of credit in
those communities. The Banks originate mortgage loans through
their community banking offices, commissioned employees who
conduct business out of loan production offices, and a network of
independent mortgage bankers and brokers. Substantially all loan
underwriting is performed by the Banks.
Sovereign's operating strategy emphasizes consistent
profitability and growth. Accordingly, Sovereign seeks to
(1) maintain superior asset quality through emphasis on the
origination of single family mortgage loans; (2) limit interest
rate risk through the origination of adjustable rate mortgages
for retention in its portfolio; (3) maintain low overhead expense
and high employee productivity; and (4) encourage a strong sales
and service culture. In addition, Sovereign intends, over the
course of the next 5 years, to increase the size of its
commercial loan portfolio and consumer loan portfolio to
approximately 10% and 25%, respectively, of Sovereign's total
loan portfolio. In its effort to increase the size of the
commercial loan and consumer loan portfolios, Sovereign will
endeavor to maintain its emphasis on superior asset quality, low
interest rate risk, low overhead expense and strong sales and
service culture.
Sovereign operates in a heavily regulated environment.
Changes in laws and regulations affecting it and its subsidiaries
may have an impact on its operations. See "Supervision and
Regulation."
The principal executive offices of Sovereign are located at
1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610,
telephone (610) 320-8400.
Holding Company Structure
Sovereign is a legal entity separate and distinct from its
subsidiaries. Accordingly, the right of Sovereign, and
consequently the right of creditors of Sovereign, to participate
in any distribution of the assets or earnings of any subsidiary
is necessarily subject to the prior claims of creditors of the
subsidiary, except to the extent that claims of Sovereign in its
capacity as a creditor may be recognized. The principal source
of Sovereign's revenue and cash flow is dividends from its
subsidiaries. See "Supervision and Regulation -- Restrictions on
Capital Distributions" for a discussion of regulatory and other
restrictions on the ability of the subsidiaries to pay dividends
to Sovereign.
SUPERVISION AND REGULATION
General
Sovereign is a "savings and loan holding company" registered
with the Office of Thrift Supervision (the "OTS") under the Home
Owners' Loan Act (the "HOLA") and, as such, Sovereign is subject
to OTS regulations, examinations, supervision and reporting. The
Banks are subject to examination and comprehensive regulation by
the OTS. The deposits of Sovereign Bank are insured by the
Savings Association Insurance Fund (the "SAIF") of the Federal
Deposit Insurance Corporation (the "FDIC"). The deposits of
Community Bank are insured by the Bank Insurance Fund (the "BIF")
of the FDIC, and the Banks are subject to FDIC regulation. The
Banks are members of the Federal Home Loan Bank (the "FHLB")
system. The Banks are also subject to regulation by the Board of
Governors of the Federal Reserve System with respect to reserves
maintained against deposits and certain other matters.
Sovereign
The HOLA prohibits a registered savings and loan holding
company from directly or indirectly acquiring control, including
through an acquisition by merger, consolidation or purchase of
assets, of any savings association (as defined to include a
federal savings bank) or any other savings and loan holding
company, without prior OTS approval. Generally, a savings and
loan holding company may not acquire more than 5% of the voting
shares of any savings association unless by merger, consolidation
or purchase of assets. Certain regulations of the OTS describe
standards for control under the HOLA (see "Control of
Sovereign").
Federal law empowers the Director of OTS to take substantive
action when it determines that there is reasonable cause to
believe that the continuation by a savings and loan holding
company of any particular activity constitutes a serious risk to
the financial safety, soundness, or stability of a savings and
loan holding company's subsidiary savings institution. The
Director of OTS has oversight authority for all holding company
affiliates, not just the insured institution. Specifically, the
Director of OTS may, as necessary, (i) limit the payment of
dividends by the savings institution; (ii) limit transactions
between the savings institution, the holding company and the
subsidiaries or affiliates of either; or (iii) limit any
activities of the savings institution that might create a serious
risk that the liabilities of the holding company and its
affiliates may be imposed on the savings institution. Any such
limits would be issued in the form of a directive having the
legal efficacy of a cease and desist order.
Control of Sovereign
Under the Savings and Loan Holding Company Act and the
related Change in Bank Control Act (the "Control Act"),
individuals, corporations or other entities acquiring shares of
Sovereign's common stock may, alone or "in concert" with other
investors, be deemed to control Sovereign and thereby the Banks.
If deemed to control Sovereign, such person or group will be
required to obtain OTS approval to acquire shares of Sovereign's
common stock and will be subject to certain ongoing reporting
procedures and restrictions under federal law and regulations.
Under the regulations, ownership of 25% of the capital stock of
Sovereign will be deemed to constitute "control," and ownership
of more than 10% of the capital stock may also be deemed to
constitute "control" if certain other control factors are
present. It is possible that even lower levels of ownership of
such securities could constitute "control" under the regulations.
Sovereign Bank and Community Bank
The Banks are members of the FHLB system and are required to
file reports with the OTS describing their activities and
financial condition and are periodically examined to test
compliance with various regulatory requirements. The Banks are
also subject to examination by the FDIC. Such examinations are
conducted with the purpose of protecting depositors and the
insurance fund and not with the purpose of protecting holders of
equity or debt securities of Sovereign, Sovereign Bank, or
Community Bank.
Regulatory Capital Requirements
OTS regulations require savings associations to maintain a
minimum tangible capital ratio of not less than 1.5%, a minimum
core capital, or "leverage", ratio of not less than 3% of
tangible assets and 4% of risk-adjusted assets, and a minimum
risk-based capital ratio (based upon credit risk) of not less
than 8%. These standards are the same as the capital standards
that are applicable to other insured depositary institutions,
such as banks. Regulations adopted by the OTS require a minimum
leverage capital requirement of 3% for associations rated
composite 1 under the OTS MACRO rating system. For all other
savings associations, the minimum leverage capital requirement is
3% plus at least an additional 100 to 200 basis points.
In August, 1995, the federal banking agencies, including the
OTS, issued a rule modifying their then-existing risk-based
capital standards to provide for consideration of interest rate
risk when assessing the capital adequacy of an institution. The
new rule does not establish a measurement framework for assessing
an institution's interest rate risk exposure level. Examiners
will use data collected by the banking agencies to determine the
adequacy of an individual institution's capital in light of
interest rate risk. Examiners will also consider historical
financial performance, earnings exposure to interest rate
movements and the adequacy of internal interest rate risk
management, among other things.
The federal banking agencies, including the OTS, also
adopted final rules relating to concentration of credit risk and
risks of non-traditional activities effective on January 17,
1995. The agencies declined to adopt a quantitative test for
concentrations of credit risk and, instead, provided that such
risk would be considered in addition to other risks in assessing
an institution's overall capital adequacy. Institutions with
higher concentration of credit risk will be required to maintain
greater levels of capital. Similarly, the federal agencies
incorporated the evaluation of the risks of non-traditional
activities into the overall assessment of capital adequacy. The
agencies also indicated that proposed rules regarding specific
types of non-traditional activities will be promulgated from time
to time.
Under the Federal Deposit Insurance Act ("FDIA") insured
depository institutions must be classified in one of five defined
categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized). Under OTS regulations, an institution will be
considered "well capitalized" if it has (i) a total risk-based
capital ratio of 10% or greater, (ii) a Tier 1 risk-based capital
ratio of 6% or greater, (iii) a leverage ratio of 5% or greater
and (iv) is not subject to any order or written directive to meet
and maintain a specific capital level. An "adequately
capitalized" institution is one that has (i) a total risk-based
capital ratio of 8% or greater, (ii) a Tier 1 risk-based capital
ratio of 4% or greater, (iii) a leverage ratio of 4% or greater
(or 3% or greater in the case of a bank with the highest
composite regulatory examination rating) and (iv) does not meet
the definition of a well capitalized institution. An institution
will be considered (A) "undercapitalized" if it has (i) a total
risk-based capital ratio of less than 8%, (ii) a Tier 1 risk-
based capital ratio of less than 4% or (iii) a leverage ratio of
less than 4% (or 3% in the case of an institution with the
highest regulatory examination rating); (B) "significantly
undercapitalized" if the institution has (i) a total risk-based
capital ratio of less than 6%, (ii) a Tier 1 risk-based capital
ratio of less than 3% or (iii) a leverage ratio of less than 3%;
and (C) "critically undercapitalized" if the institution has a
ratio of tangible equity to total assets of equal to or less than
2%. The OTS may, under certain circumstances, reclassify a "well
capitalized" institution as "adequately capitalized" or require
an "adequately capitalized" or "undercapitalized" institution to
comply with supervisory actions as if it were in the next lower
category. Such a reclassification could be made if the OTS
determines that the institution is in an unsafe or unsound
condition (which could include unsatisfactory examination
ratings). A savings institution's capital category is determined
with respect to its most recent thrift financial report filed
with the OTS. In the event an institution's capital deteriorates
to the undercapitalized category or below, the FDIA and OTS
regulations prescribe an increasing amount of regulatory
intervention, including the adoption by the institution of a
capital restoration plan, a guarantee of the plan by its parent
holding company and the placement of a hold on increases in
assets, number of branches and lines of business.
If capital has reached the significantly or critically
undercapitalized levels, further material restrictions can be
imposed, including restrictions on interest payable on accounts,
dismissal of management and (in critically undercapitalized
situations) appointment of a receiver or conservator. Critically
undercapitalized institutions generally may not, beginning 60
days after becoming critically undercapitalized, make any payment
of principal or interest on their subordinated debt. All but
well capitalized institutions are prohibited from accepting
brokered deposits without prior regulatory approval. Pursuant to
the FDIA and OTS regulations, savings associations which are not
categorized as well capitalized or adequately capitalized are
restricted from making capital distributions which include cash
dividends, stock redemptions or repurchases, cash-out mergers,
interest payments on certain convertible debt and other
transactions charged to the capital account of a savings
association. At March 31, 1996, Sovereign Bank and Community
Bank each met the criteria to be classified as "well
capitalized."
Standards for Safety and Soundness.
The federal banking agencies adopted, effective in August
1995, certain operational and managerial standards for depository
institutions, including internal audit system components, loan
documentation requirements, asset growth parameters, and
compensation standards for officers, directors and employees.
Sovereign does not anticipate that the implementation or
enforcement of these guidelines will have a material adverse
effect on its results of operations.
Restrictions on Capital Distributions
OTS regulations govern capital distributions by savings
associations, which include cash dividends, stock redemptions or
repurchases, cash-out mergers, interest payments on certain
convertible debt and other transactions charged to the capital
account of a savings association. Generally, the regulation
creates a safe harbor for specified levels of capital
distributions from associations meeting at least their minimum
capital requirements, so long as such associations notify the OTS
and receive no objection to the distribution from the OTS.
Associations that do not qualify for the safe harbor are required
to obtain prior OTS approval before making any capital
distributions.
The OTS rule generally provides for three tiers of savings
associations: (i) Tier 1 associations, associations that have
capital ("total capital" as calculated under the OTS capital
regulations) equal to or greater than their capital requirements
prior to, and on a pro forma basis after giving effect to, a
proposed capital distribution; (ii) Tier 2 associations,
associations that have capital equal to or greater than their
minimum capital requirements, but less than their Tier 1 capital
requirements prior to, and on a pro forma basis after giving
effect to, a proposed capital distribution; and (iii) Tier 3
associations, associations that do not meet their minimum capital
requirements, either before or after giving effect to a proposed
capital distribution. Under the OTS capital distributions rule,
a Tier 1 association may make capital distributions without OTS
approval of up to the greater of 100% of its net income during a
calendar year plus the amount that would reduce by one-half its
surplus capital ratio (the percentage by which the association's
capital-to-assets ratio exceeds the ratio of its Tier 1 capital
requirements to its assets) at the beginning of the calendar
year, or 75% of its net income over the most recent four-quarter
period. A Tier 1 association may make capital distributions in
excess of the foregoing limits if the OTS does not object after
receiving notice thereof. At December 31, 1995, each of the
Banks was a "Tier 1 association." A Tier 2 association is
authorized without OTS approval to make distributions of up to
75% of net income over the most recent four-quarter period if it
satisfies its fully phased-in risk-based capital requirement, or
up to 50% of such net income if it satisfies its interim (90% of
fully phased-in amount) risk-based capital requirement. A Tier 2
association may, through a written approval process, obtain OTS
approval to make distributions in excess of these amounts.
Tier 3 associations are not authorized to make any capital
distributions without prior written OTS approval unless, in the
case of an association operating in compliance with an approved
capital plan, the capital distribution is consistent with the
association's capital plan. The OTS has supervisory authority to
prohibit the payment of capital distributions for Tier 1 and
Tier 2 associations.
As a condition of obtaining approval from the OTS for the
reorganization whereby Sovereign was formed as a "savings and
loan holding company" Sovereign agreed that Sovereign Bank would
not pay cash dividends in an amount in excess of 50% of Sovereign
Bank's net income for any year. Amounts not used in any one year
may be accumulated and used in subsequent years.
Insurance of Deposit Accounts
The FDIC has implemented a risk-related premium schedule for
all insured depository institutions that results in the
assessment of premiums based on capital and supervisory measures.
Under the risk-related premium schedule, the FDIC assigns, on a
semiannual basis, each institution to one of three capital groups
(well-capitalized, adequately capitalized or undercapitalized)
and further assigns such institution to one of three subgroups
within a capital group. The institution's subgroup assignment is
based upon the FDIC's judgment of the institution's strength in
light of supervisory evaluations, including examination reports,
statistical analyses and other information relevant to measuring
the risk posed by the institution. Only institutions with a
total capital to risk-adjusted assets ratio of 10.00% or greater,
a Tier 1 capital to risk-based assets ratio of 6% or greater, and
a Tier 1 leverage ratio of 5.0% or greater, are assigned to the
well-capitalized group. As of December 31, 1995, Sovereign Bank
and Colonial Bank were classified as well capitalized for
purposes of calculating insurance assessments. Institutions are
prohibited from disclosing the risk classification to which they
have been assigned. As of December 31, 1995, the FDIC calculated
deposit insurance assessments at the rate of $.23 for every $100
of deposits for the members of SAIF in the lowest risk-based
premium category and $0.31 for every $100 of insured deposits for
members of SAIF in the highest risk-based premium category.
In August 1995, the FDIC adopted an amendment to the BIF
risk-based assessment schedule that lowers the deposit insurance
assessment rate for most (90% or more) commercial banks and other
depository institutions with deposits insured by BIF to $.04 per
$100 of insured deposits. On November 14, 1995, the FDIC further
reduced the BIF assessment rates to a range of $.00 per $100 of
insured deposits (subject to a minimum annual premium of $2,000)
for those institutions with the least risk to $0.27 for every
$100 of insured deposits for institutions deemed to have the
highest risk, beginning January 1, 1996. At the same time, the
FDIC voted to retain the existing assessment rates for SAIF-
insured institutions. The reduced BIF assessment rates result in
a substantial disparity in the deposit insurance premiums paid by
BIF and SAIF members and could place SAIF-insured savings
associations at a significant competitive disadvantage to
BIF-insured institutions.
Sovereign Bank is subject to FDIC deposit insurance
assessments at the rate applicable to SAIF-insured institutions
except, however, that the deposits acquired, on January 15, 1993
and May 31, 1996, when Sovereign acquired Harmonia Bancorp, Inc.
("Harmonia") and West Jersey Bancshares, Inc. ("WJB"),
respectively, remain subject to BIF insurance assessment rates.
The balance of these Harmonia and WJB deposits were estimated to
be approximately $756.0 million and $88.3, respectively, at
June 30, 1996. Community Bank, acquired by Sovereign on
November 15, 1995, is subject to FDIC deposit insurance
assessments at the rate applicable to BIF insured institutions.
Federal savings banks like the Banks are required by OTS
regulations to pay assessments to the OTS to fund the operations
of the OTS. The general assessment is paid on a quarterly basis
and is computed based on total assets of the institution,
including subsidiaries.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the Corporation
including its consolidated subsidiaries is computed by dividing
earnings by fixed charges. The ratio of earnings to combined
fixed charges and preferred stock dividends is computed by
dividing earnings by the sum of fixed charges and preferred stock
dividend requirements. Earnings consist primarily of income
(loss) before income taxes adjusted for fixed charges. Fixed
charges consist primarily of interest expense on short-term and
long-term borrowings.
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings
to Fixed Charges
Excluding interest
on deposits 1.68x 1.79x 1.97x 2.30x 2.58x 2.13x
Including interest
on deposits 1.28x 1.27x 1.38x 1.38x 1.29x 1.17x
Ratio of Earnings to
Combined Fixed
Charges and
Preferred Stock
Dividends
Excluding interest
on deposits 1.51x 1.68x 1.97x 2.30x 2.58x 2.13x
Including interest
on deposits 1.23x 1.24x 1.38x 1.38x 1.29x 1.17x
</TABLE>
USE OF PROCEEDS
The net proceeds of the Offered Securities will be used for
general corporate purposes, which may include without limitation
funding investments in, or extensions of credit to, the
Corporation's subsidiaries, repayment of obligations, redemption
of outstanding indebtedness and financing possible future
acquisitions. Pending such use, the Corporation may temporarily
invest the net proceeds or may use them to reduce short-term
indebtedness.
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt
Securities sets forth certain general terms and provisions of the
Debt Securities to which any Prospectus Supplement may relate.
The particular terms of the Debt Securities offered by any
Prospectus Supplement and the extent, if any, to which such
general provisions may apply to the Debt Securities so offered
will be described in the Prospectus Supplement relating to such
Debt Securities. Except where specifically noted, the following
description applies to both Senior Securities and Subordinated
Securities.
General
The Debt Securities will be unsecured obligations of the
Corporation and will not be insured by the Savings Association
Insurance Fund or the Bank Insurance Fund of the Federal Deposit
Insurance Corporation.
The Debt Securities will be issued either as Senior
Securities or Subordinated Securities. The Senior Securities
will be issued under an Indenture dated as of February 1, 1994
(the "Senior Indenture"), between the Corporation and Harris
Trust and Savings Bank, as Trustee. The Subordinated Securities
will be issued under an Indenture dated as of February 1, 1994
(the "Subordinated Indenture"), between the Corporation and
Harris Trust and Savings Bank, as Trustee. The Senior Indenture
and the Subordinated Indenture are collectively referred to
herein as the "Indentures." Copies of the Indentures have been
filed with the Commission. References to the "Trustee" shall
mean Harris Trust and Savings Bank as trustee under the Senior
Indenture or the Subordinated Indenture, as applicable.
The statements which follow under this caption are brief
summaries of certain provisions contained in the Indentures, do
not purport to be complete and are qualified in their entirety by
reference to all the provisions of the applicable Indenture,
copies of which have been filed with the Commission as exhibits
to the Registration Statement. Whenever defined terms are used
but not defined herein, such terms shall have the meanings
ascribed to them in the applicable Indenture, it being intended
that such defined terms shall be incorporated herein by
reference. References to Sections are references to Sections in
both Indentures unless otherwise indicated.
Neither Indenture limits the aggregate principal amount of
Debt Securities that may be issued thereunder and each Indenture
provides that Debt Securities of any series may be issued
thereunder up to the aggregate principal amount which may be
authorized from time to time by the Corporation. Except as may
be set forth in a Prospectus Supplement, neither the Indentures
nor the Debt Securities will limit or otherwise restrict the
amount of other indebtedness which may be incurred or the other
securities which may be issued by the Corporation or any of its
affiliates.
Because the Corporation is a holding company, the rights of
its creditors, including the holders of the Debt Securities, to
share in the distribution of the assets of any subsidiary upon
the subsidiary's liquidation or recapitalization, will be subject
to the prior claims of the subsidiary's creditors (including in
the case of the Corporation's banking subsidiaries, their
depositors), except to the extent that the Corporation may itself
be a creditor with recognized claims against the subsidiary. In
addition, there are certain regulatory limitations on the payment
of dividends and on loans and other transfers to the Corporation
by its banking subsidiaries. See "Supervision and Regulation."
The amount of Debt Securities offered by this Prospectus
will be limited to the amounts described on the cover of this
Prospectus. Each indenture provides that Debt Securities in an
unlimited amount may be issued thereunder from time to time in
one or more series. (Section 301)
The Senior Securities will be unsecured and will rank
pari passu with other unsecured Senior Debt of the Corporation.
The Subordinated Securities will be unsecured and, except as may
be set forth in a Prospectus Supplement, will rank pari passu
with other Subordinated Debt of the Corporation and, together
with such other Subordinated Debt, will be subordinate and junior
in right of payment to the prior payment in full of the Senior
Debt of the Corporation as described below under "Subordination."
Reference is hereby made to the Prospectus Supplement
relating to the particular series of Debt Securities for the
terms of such Debt Securities, including, where applicable:
(i) the designation and any limit on the aggregate principal
amount of such Debt Securities; (ii) the price (expressed as a
percentage of the aggregate principal amount thereof) at which
such Debt Securities will be issued; (iii) the date or dates on
which such Debt Securities will mature or method by which such
dates can be determined; (iv) the currency or currencies in which
such Debt Securities are being sold and are denominated and the
circumstances, if any, under which any Debt Securities may be
payable in a currency other than the currency in which such Debt
Securities are denominated, and if so, the exchange rate, the
exchange rate agent and, if the Holder of any such Debt
Securities may elect the currency in which payments thereon are
to be made, the manner of such election; (v) the denomination in
which any Debt Securities which are Registered Securities will be
issuable, if other than denominations of $1,000 and any integral
multiple thereof, and the denomination or denominations in which
any Debt Securities which are Bearer Securities will be issuable,
if other than the denomination of $5,000; (vi) the rate or rates
(which may be fixed or variable) at which such Debt Securities
will bear interest, which rate may be zero in the case of certain
Debt Securities issued at an issue price representing a discount
from the principal amount payable at maturity; (vii) the date
from which interest on such Debt Securities will accrue, the
dates on which such interest will be payable or method by which
such dates can be determined, the date on which payment of such
interest will commence and the circumstances, if any, in which
the Corporation may defer interest payments; (viii) the dates on
which, and the price or prices at which, such Debt Securities
will, pursuant to any mandatory sinking fund provision, or may,
pursuant to any optional redemption or required repayment
provisions, be redeemed or repaid and the other terms and
provisions of any such optional redemption or required repayment;
(ix) any terms by which such Debt Securities may be convertible
into Common Stock (see "Description of Common Stock"), Preferred
Shares (see "Description of Preferred Shares"), or any other
Capital Securities (see "Description of Capital Securities") of
the Corporation and, in case of Debt Securities convertible into
Preferred Shares, the terms of such Preferred Shares, (x) any
terms by which the principal of such Debt Securities will be
exchangeable for Capital Securities and any terms creating a fund
(the "Securities Fund") pursuant to which the proceeds of sales
of Capital Securities may be designated on the books of the
Corporation for the payment of any of the principal of such Debt
Securities; (xi) whether such Debt Securities are to be issuable
as Bearer Securities and/or Registered Securities and, if
issuable as Bearer Securities, the terms upon which any Bearer
Securities may be exchanged for Registered Securities;
(xii) whether such Debt Securities are to be issued in the form
of one or more temporary or permanent Global Securities and, if
so, the identity of the depositary for such Global Security or
Securities; (xiii) if a temporary global Debt Security is to be
issued with respect to such series, the extent to which, and the
manner in which, any interest thereon payable on an interest
payment date prior to the issuance of a permanent Global Security
or definitive Bearer Securities will be credited to the accounts
of the persons entitled thereto on such interest payment date;
(xiv) if a temporary Global Security is to be issued with respect
to such series, the terms upon which interests in such temporary
Global Security may be exchanged for interests in a permanent
Global Security or for definitive Debt Securities of the series
and the terms upon which interests in a permanent Global
Security, if any, may be exchanged for definitive Debt Securities
of the Series; (xv) any additional restrictive covenants included
for the benefit of Holders of such Debt Securities; (xvi) any
additional Events of Default provided with respect to such Debt
Securities; (xvii) information with respect to book-entry
procedures, if any; (xviii) whether the Debt Securities will be
repayable at the option of the Holder in the event of a change in
control of the Corporation; (xix) any other terms of the Debt
Securities not inconsistent with the provisions of the applicable
indenture; (xx) the terms of any securities being offered
together with or separately from the Debt Securities; and
(xxi) if such Debt Securities are Original Issue Discount
Securities, the accreted or notational value thereof (or method
of determining such amount) upon acceleration of maturity. Such
Prospectus Supplement will also describe any special provisions
for the payment of additional amounts with respect to the Debt
Securities and certain United States federal income tax
consequences and other special considerations applicable to such
series of Debt Securities. If a Debt Security is denominated in
a foreign currency, such Debt Security may not trade on a U.S.
national securities exchange unless and until the Commission has
approved appropriate rule changes pursuant to the Act to
accommodate the trading of such Debt Security.
Form, Exchange, Registration and Transfer
Debt Securities of a series may be issuable in definitive
form solely as Registered Securities, solely as Bearer Securities
or as both Registered Securities and Bearer Securities. Unless
otherwise indicated in the Prospectus Supplement, Bearer
Securities other than Bearer Securities in temporary or permanent
global form will have interest coupons attached. (Section 201)
Each Indenture also provides that Bearer Securities or Registered
Securities of a series may be issuable in permanent global form.
(Section 203) See "Permanent Global Securities."
Registered Securities of any series will be exchangeable for
other Registered Securities of the same series of authorized
denominations and of a like aggregate principal amount, tenor and
terms. In addition, if Debt Securities of any series are
issuable as both Registered Securities and Bearer Securities, at
the option of the Holder upon request confirmed in writing, and
subject to the terms of the applicable Indenture, Bearer
Securities (with all unmatured coupons, except as provided below,
and all matured coupons in default) of such series will be
exchangeable into Registered Securities of the same series of any
authorized denominations and of a like aggregate principal
amount, tenor and terms. Bearer Securities surrendered in
exchange for Registered Securities between the close of business
on a Regular Record Date or a Special Record Date and the
relevant date for payment of interest shall be surrendered
without the coupon relating to such date for payment of interest,
and interest will not be payable in respect of the Registered
Security issued in exchange for such Bearer Security, but will be
payable only to the Holder of such coupon when due in accordance
with the terms of the applicable Indenture. Bearer Securities
will not be issued in exchange for Registered Securities.
(Section 305) Each Bearer Security, other than a temporary
global Bearer Security, and each interest coupon will bear the
following legend: "Any United States Person who holds this
obligation will be subject to limitations under the United States
federal income tax laws including the limitations provided in
Sections 165(j) and 1287(a) of the Internal Revenue Code."
Debt Securities may be presented for exchange as provided
above, and Registered Securities may be presented for
registration of transfer (duly endorsed or accompanied by a
satisfactory written instrument of transfer), at the office of
the Security Registrar or at the office of any transfer agent
designated by the Corporation for such purpose with respect to
such series of Debt Securities, without service charge and upon
payment of any taxes and other governmental charges.
(Section 305) If the applicable Prospectus Supplement refers to
any transfer agent (in addition to the Security Registrar)
initially designated by the Corporation with respect to any
series of Debt Securities, the Corporation may at any time
rescind the designation of any such transfer agent or approve a
change in the location through which any such transfer agent (or
Security Registrar) acts, except that, if Debt Securities of a
series are issuable solely as Registered Securities, the
Corporation will be required to maintain a transfer agent in each
Place of Payment for such series and, if Debt Securities of a
series are issuable as Bearer Securities, the Corporation will be
required to maintain (in addition to the Security Registrar) a
transfer agent in a Place of Payment for such series located
outside the United States. The Corporation may at any time
designate additional transfer agents with respect to any series
of Debt Securities. (Section 1002)
The Corporation shall not be required (i) to issue, register
the transfer of or exchange Debt Securities of any particular
series to be redeemed or exchanged for Capital Securities for a
period of fifteen days preceding the first publication of the
relevant notice of redemption or, if Registered Securities are
outstanding and there is no publication, the mailing of the
relevant notice of redemption, (ii) to register the transfer of
or exchange any Registered Security so selected for redemption or
exchange in whole or in part, except the unredeemed or
unexchanged portion of any Registered Security being redeemed or
exchanged in part, or (iii) to exchange any Bearer Security so
selected for redemption or exchange except that such a Bearer
Security may be exchanged for a Registered Security of like tenor
and terms of that series, provided that such Registered Security
shall be surrendered for redemption or exchange. (Section 305)
Additional information regarding restrictions on the issuance,
exchange and transfer of, and special United States federal
income tax considerations relating to Bearer Securities will be
set forth in the applicable Prospectus Supplement.
Temporary Global Securities
If so specified in the applicable Prospectus Supplement, all
or any portion of the Debt Securities of a series which are
issuable as Bearer Securities will initially be represented by
one or more temporary Global Securities, without interest
coupons, to be deposited with a common depositary in London for
Morgan Guaranty Trust Corporation of New York, Brussels Office,
as operator of the Euroclear System ("Euroclear") and Cedel S.A.
("Cedel") for credit to designated accounts. On and after the
date determined as provided in any such temporary Global Security
and described in the applicable Prospectus Supplement, but within
a reasonable time, each such temporary Global Security will be
exchangeable for definitive Bearer Securities, definitive
Registered Securities or all or a portion of a permanent global
Bearer Security, or any combination thereof, as specified in such
Prospectus Supplement. No definitive Bearer Security or
permanent global Bearer Security delivered in exchange for a
portion of a temporary Global Security shall be mailed or
otherwise delivered to any location in the United States in
connection with such exchange.
Additional information regarding restrictions on and special
United States federal income tax consequences relating to
temporary Global Securities will be set forth in the Prospectus
Supplement relating thereto.
Permanent Global Securities
If any Debt Securities of a series are issuable in permanent
global form, the applicable Prospectus Supplement will describe
the circumstances, if any, under which beneficial owners of
interest in any such permanent Global Security may exchange such
interests for Debt Securities of such series and of like tenor
and principal amount of any authorized form and denomination.
Principal of and any premium and interest on a permanent Global
Security will be payable in the manner described in the
Prospectus Supplement relating thereto.
Payments and Paying Agents
Unless otherwise indicated in the applicable Prospectus
Supplement, payments of principal of and premium, if any, and
interest, if any, on Bearer Securities will be payable in the
currency designated in the Prospectus Supplement, subject to any
applicable laws and regulations, at such paying agencies outside
the United States as the Corporation may appoint from time to
time. Unless otherwise provided in the Prospectus Supplement,
such payments may be made, at the option of the Holder, by a
check in the designated currency or by transfer to an account in
the designated currency maintained by the payee with a bank
located outside the United States. Unless otherwise indicated in
the applicable Prospectus Supplement, payment of interest on
Bearer Securities on any Interest Payment Date will be made only
against surrender of the coupon relating to such Interest Payment
Date to a paying agent outside the United States. (Section 1001)
No payment with respect to any Bearer Security will be made at
any office or paying agency maintained by the Corporation in the
United States nor will any such payment be made by transfer to an
account, or by mail to an address, in the United States.
Notwithstanding the foregoing, payments of principal of and
premium, if any, and interest, if any, on Bearer Securities
denominated and payable in U.S. dollars will be made in U.S.
dollars at an office or agency of, and designated by, the
Corporation located in the United States, if payment of the full
amount thereof in U.S. dollars at all paying agencies outside the
United States is illegal or effectively precluded by exchange
controls or other similar restrictions, and the Trustee receives
an opinion of counsel that such payment within the United States
is legal. (Section 1002) As used in this Prospectus, "United
States" means the United States of America (including the States
and the District of Columbia) and its possessions including
Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake
Island and the Northern Marianas Islands.
Unless otherwise indicated in the applicable Prospectus
Supplement, payment of principal of and premium, if any, and
interest, if any, on a Registered Security will be payable in the
currency designated in the Prospectus Supplement, and interest
will be payable at the office of such paying agent or paying
agents as the Corporation may appoint from time to time, except
that at the option of the Corporation payment of any interest may
be made by a check in such currency mailed to the Holder at such
Holder's registered address or by wire transfer to an account in
such currency designated by such Holder in writing not less than
ten days prior to the date of such payment. Unless otherwise
indicated in the applicable Prospectus Supplement, payment of any
installment of interest on a Registered Security will be made to
the Person in whose name such Registered Security is registered
at the close of business on the Regular Record Date for such
payments. (Section 307) Unless otherwise indicated in the
applicable Prospectus Supplement, principal payable at maturity
will be paid to the registered holder upon surrender of the
Registered Security at the office of a duly appointed paying
agent.
The paying agents outside the United States initially
appointed by the Corporation for a series of Debt Securities will
be named in the applicable Prospectus Supplement. The
Corporation may terminate the appointment of any of the paying
agents from time to time, except that the Corporation will
maintain at least one paying agent outside the United States so
long as any Bearer Securities are outstanding where Bearer
Securities may be presented for payment and may be surrendered
for exchange, provided that so long as any series of Debt
Securities is listed on The Stock Exchange of the United Kingdom
and the Republic of Ireland or the Luxembourg Stock Exchange or
any other stock exchange located outside the United States and
such stock exchange shall so require, the Corporation will
maintain a paying agent in London or Luxembourg or any other
required city located outside the United States, as the case may
be, for such series of Debt Securities. (Section 1002)
All moneys paid by the Corporation to a paying agent for the
payment of principal of or premium, if any, or interest, if any,
on any Debt Security that remains unclaimed at the end of two
years after such principal, premium or interest shall have become
due and payable will, at request of the Corporation, be repaid to
the Corporation, and the Holder of such Debt Security or any
coupon appertaining thereto will thereafter look only to the
Corporation for payment thereof. (Section 1003)
Covenants Contained in Indentures
The Indentures provide that the Corporation (a) will not
sell, transfer, or otherwise dispose of any shares of Voting
Stock of Sovereign Bank or permit Sovereign Bank to issue, sell,
or otherwise dispose of any shares of its Voting Stock unless
Sovereign Bank remains a Controlled Subsidiary, and (b) will not
permit Sovereign Bank to (i) merge or consolidate unless the
surviving corporation is a Controlled Subsidiary or (ii) convey
or transfer its properties and assets substantially as an
entirety to any person, except to a Controlled Subsidiary.
(Section 1005) "Controlled Subsidiary" means any corporation
more than 80% of the outstanding shares of "Voting Stock" (except
for directors' qualifying shares) of which is at the time owned
directly by the Corporation. With the consent of the Holders of
a majority in aggregate principal amount of the Outstanding Debt
Securities of each series issued under the Indentures, such
definition in the Indentures may be modified so as to reduce the
required percentage of ownership from 80% to a majority.
(Section 902) The term "Voting Stock" of Sovereign Bank refers
to stock of any class or classes, however designated, having
ordinary voting power for the election of a majority of the Board
of Directors of Sovereign Bank, other than stock having such
power only by reason of the happening of a contingency.
(Section 101)
The Senior Indenture also prohibits the Corporation from
creating, assuming, incurring or suffering to exist, as security
for indebtedness for borrowed money, any mortgage, pledge,
encumbrance or lien or charge of any kind upon the Voting Stock
of Sovereign Bank (other than directors' qualifying shares)
without effectively providing that the Senior Securities shall be
secured equally and ratably with (or prior to) such indebtedness;
provided, however, that the Corporation may create, assume, incur
or suffer to exist any such mortgage, pledge, encumbrance or lien
or charge without regard to the foregoing provisions so long as
after giving effect thereto, the Corporation will own at least
80% of the Voting Stock of Sovereign Bank then issued and
outstanding, free and clear of any such mortgage, pledge,
encumbrance, or lien or charge. (Section 1004 of the Senior
Indenture) The Subordinated Indenture does not contain this
covenant.
The Corporation is not restricted by the Indentures from
incurring, assuming or becoming liable for any type of debt or
other obligations, from creating liens on its property (other
than in the case of the Senior Indentures, the Voting Stock of
Sovereign Bank as described above) for any purposes or from
paying dividends or making distributions on its capital stock or
purchasing or redeeming its capital stock. The Indentures do not
require the maintenance of any financial ratios or specified
levels of net worth or liquidity. In addition, the Indentures do
not contain any provision which would require the Corporation to
repurchase or redeem or otherwise modify the terms of any of its
Debt Securities upon a change in control or other events
involving the Corporation which may adversely affect the
creditworthiness of the Debt Securities.
Modification and Waiver
Except as to the definition of Controlled Subsidiary in the
Senior Indenture and certain other modifications and amendments
not adverse to Holders of Debt Securities, modifications and
amendments of and waivers of compliance with certain restrictive
provisions under each Indenture may be made only with the consent
of the Holders of not less than 66-2/3% in principal amount of
the Outstanding Debt Securities of each series thereunder
affected by such modification, amendment or waiver; provided that
no such modification or amendment may, without the consent of the
Holder of each Outstanding Debt Security or coupon affected
thereby; (i) change the Stated Maturity of the principal or any
installment of principal or any installment of interest, if any;
(ii) reduce the amount of principal or interest thereon, or any
premium payable upon redemption or repayment thereof or in the
case of an Original Issue Discount Security the amount of
principal payable upon acceleration of the Maturity thereof;
(iii) change the place of payment or the currency in which
principal or interest is payable, if any; (iv) impair the right
to institute suit for the enforcement of any payment of the
principal, premium, if any, and interest, if any, or adversely
affect the right of repayment, if any, at the option of the
Holder; (v) reduce the percentage in principal amount of
Outstanding Debt Securities of any series, the consent of whose
Holders is required for modification or amendment of the
applicable Indenture or for waiver of compliance with certain
provisions of the applicable Indenture or for waiver of certain
defaults; (vi) reduce the requirements contained in the
applicable Indenture for quorum or voting; (vii) in the case of
Debt Securities exchangeable for Capital Securities, impair any
right to the delivery of Capital Securities in exchange for such
Debt Securities or the right to institute suit for the
enforcement of any such delivery or, in the case of Debt
Securities convertible into Common Stock or Preferred Shares,
impair any right to convert such Debt Securities; or
(viii) modify any of the above provisions. (Section 902)
Each Indenture contains provisions for convening meetings of
the Holders of Debt Securities of a series issued thereunder if
Debt Securities of that series are issuable in whole or in part
as Bearer Securities. (Section 1601) A meeting may be called at
any time by the Trustee for such Debt Securities, or upon the
request of the Corporation or the Holders of at least 10% in
principal amount of the Outstanding Debt Securities of such
series, in any such case upon notice given in accordance with the
Indenture with respect thereto. (Section 1602) Except as
limited by the proviso in the preceding paragraph, any resolution
presented at a meeting or adjourned meeting at which a quorum is
present may be adopted by the affirmative vote of the Holders of
a majority in principal amount of the Outstanding Debt Securities
of that series; provided, however, that, except as limited by the
proviso in the preceding paragraph, any resolution with respect
to any consent or waiver which may be given by the Holders of not
less than 66-2/3% in principal amount of the Outstanding Debt
Securities of a series issued under an Indenture may be adopted
at a meeting or an adjourned meeting at which a quorum is present
only by the affirmative vote of the Holders of 66-2/3% in
principal amount of such Outstanding Debt Securities of that
series; and provided further, that, except as limited by the
proviso in the preceding paragraph, any resolution with respect
to any demand, consent, waiver or other action which may be made,
given or taken by the Holders of a specified percentage, which is
less than a majority, in principal amount of the Outstanding Debt
Securities of a series issued under an Indenture may be adopted
at a meeting or adjourned meeting at which a quorum is present by
the affirmative vote of the Holders of such specified percentage
in principal amount of the Outstanding Debt Securities of that
series. (Section 1604)
Any resolution passed or decision taken at any meeting of
Holders of Debt Securities of any series duly held in accordance
with the applicable Indenture with respect thereto will be
binding on all Holders of Debt Securities of that series and the
related coupons issued under that Indenture. The quorum at any
meeting of Holders of a series of Debt Securities called to adopt
a resolution, and at any reconvened meeting, will be persons
holding or representing a majority in principal amount of the
Outstanding Debt Securities of such series; provided, however,
that if any action is to be taken at such meeting with respect to
a consent or waiver which may be given by the Holders of not less
than 66-2/3% in principal amount of the Outstanding Debt
Securities of a series, the Persons holding or representing
66-2/3% in principal amount of the Outstanding Debt Securities of
such series issued under that Indenture will constitute a quorum.
(Section 1604)
Events of Default
Unless otherwise provided in the applicable Prospectus
Supplement, any series of Senior Securities issued under the
Senior Indenture will provide that the following shall constitute
Events of Default with respect to such series: (i) default in
payment of principal of or premium, if any, on any Senior
Security of such series when due; (ii) default for 30 days in
payment of interest, if any, on any Senior Security of such
series or related coupon, if any, when due; (iii) default in the
deposit of any sinking fund payment on any Senior Security of
such series when due; (iv) default in the performance of any
other covenant in such Indenture, continued for 90 days after
written notice thereof by the Trustee thereunder or the Holders
of at least 25% in principal amount of the Outstanding Senior
Securities of such series issued under that Indenture; and
(v) certain events of bankruptcy, insolvency or reorganization of
the Corporation or Sovereign Bank. (Section 501 of the Senior
Indenture)
Unless otherwise provided in the applicable Prospectus
Supplement, any series of Subordinated Securities issued under
the Subordinated Indenture will provide that the only Event of
Default will be certain events of bankruptcy of the Corporation.
(Section 501 of the Subordinated Indenture) Unless specifically
stated in the applicable Prospectus Supplement for a particular
series of Subordinated Securities, there is no right of
acceleration of the payment of principal of the Subordinated
Securities upon a default in the payment of principal, premium,
if any, or interest, if any, or in the performance of any
covenant or agreement in the Subordinated Securities or
Subordinated Indenture. In the event of a default in the payment
of principal, premium, if any, or interest, if any, or the
performance of any covenant (including, if applicable, any
covenant to deliver any Capital Securities required to be
delivered or any covenant to sell Capital Securities in a
Secondary Offering) or agreement in the Subordinated Securities
or Subordinated Indenture, the Trustee, subject to certain
limitations and conditions, may institute judicial proceedings to
enforce payment of such principal, premium, if any, or interest,
if any, or to obtain the performance of such covenant or
agreement or any other proper remedy, including, in the case of
the failure to deliver Capital Securities, a proceeding to
collect money equal to the principal amount of any Subordinated
Securities for which Capital Securities were to be exchanged.
(Section 503 of the Subordinated Indenture)
The Corporation is required to file with each Trustee
annually an Officers' Certificate as to the absence of certain
defaults under the terms of the Indentures. (Section 1007 of the
Senior Indenture, Section 1004 of the Subordinated Indenture)
Each Indenture provides that if an Event of Default specified
therein shall occur and be continuing, either the Trustee
thereunder or the Holders of not less than 25% in principal
amount of the Outstanding Debt Securities of such series issued
under that Indenture may declare the principal of all such Debt
Securities (or in the case of Original Issue Discount Series,
such portion of the principal amount thereof as may be specified
in the terms thereof) to be due and payable. (Section 502) In
certain cases, the Holders of a majority in principal amount of
the Outstanding Debt Securities of any series may, on behalf of
the Holders of all Debt Securities of any such series and any
related coupons, waive any past default or Event of Default
except a default (i) in payment of the principal of or premium,
if any, on any of the Debt Securities of such series and (ii) in
respect of a covenant or provision of the Indenture which cannot
be modified or amended without the consent of the Holder of each
Outstanding Debt Security of such series or coupons affected.
(Section 513)
Each Indenture contains a provision entitling the Trustee
thereunder subject to the duty of such Trustee during default to
act with the required standard of care, to be indemnified by the
Holders of the Debt Securities of any series thereunder or any
related coupons before proceeding to exercise any right or power
under such Indenture with respect to such series at the request
of such Holders. (Section 603) Each Indenture provides that no
Holder of any Debt Securities of any series thereunder or any
related coupons may institute any proceeding, judicial or
otherwise, to enforce such Indenture except in the case of
failure of the Trustee thereunder, for 60 days, to act after it
is given notice of default, a request to enforce such Indenture
by the Holders of not less than 25% in aggregate principal amount
of the Outstanding Debt Securities of such series and an offer of
indemnity reasonable to the Trustee. (Section 507) This
provision will not prevent any Holder of Debt Securities or any
related coupons from enforcing payment of the principal thereof
and premium, if any, and interest, if any, thereon at the
respective due dates thereof. (Section 508) The Holders of a
majority in aggregate principal amount of the Outstanding Debt
Securities of any series issued under an Indenture may direct the
time, method and place of conducting any proceedings for any
remedy available to the Trustee for such Debt Securities or
exercising any trust or power conferred on it with respect to the
Debt Securities of such series. However, such Trustee may refuse
to follow any direction that conflicts with law or the Indenture
under which it serves or which would be unjustly prejudicial to
Holders not joining therein. (Section 512)
Each Indenture provides that the Trustee thereunder will,
within 90 days after the occurrence of a default with respect to
any series of Debt Securities thereunder known to it, give to the
Holders of Debt Securities of such series notice of such default
if not cured or waived, but, except in the case of a default in
the payment of principal of or premium, if any, or interest, if
any, on any Debt Securities of such series or any related coupons
or in the payment of any sinking fund installment with respect to
Debt Securities of such series or in the exchange of Capital
Securities for Debt Securities of such series, the Trustee for
such Debt Securities shall be protected in withholding such
notice if it determines in good faith that the withholding of
such notice is in the interest of the Holders of such Debt
Securities. (Section 602)
Defeasance
The Corporation may terminate certain of its obligations
under each Indenture with respect to the Debt Securities of any
series thereunder, including its obligations to comply with the
covenants described under the heading "Covenants Contained in
Indentures" above, with respect to such Debt Securities, on the
terms and subject to the conditions contained in such Indentures,
by depositing in trust with the Trustee money and/or, to the
extent such Debt Securities are denominated and payable in U.S.
dollars only, Eligible Instruments which, through the payment of
principal and interest in accordance with their terms, will
provide money in an amount sufficient to pay the principal and
premium, if any, and interest, if any, on such Debt Securities,
and any mandatory sinking fund, repayment or analogous payments
thereon, on the scheduled due dates therefor. Such deposit and
termination is conditioned upon the Corporation's delivery of an
opinion of counsel that the Holders of such Debt Securities will
have no federal income tax consequences as a result of such
deposit and termination. Such termination will not relieve the
Corporation of its obligation to pay when due the principal of or
interest on such Debt Securities if such Debt Securities of such
series are not paid from the money or Eligible Instruments held
by the Trustee for the payment thereof. (Section 401) The
applicable Prospectus Supplement may further describe the
provisions, if any, permitting or restricting such defeasance
with respect to the Debt Securities of a particular series.
Subordination
The Subordinated Securities shall be subordinate and junior
in right of payment, to the extent set forth in the Subordinated
Indenture, to all Senior Debt (as defined below) of the
Corporation. In the event that the Corporation shall default in
the payment of any principal, premium, if any, or interest, if
any, on any Senior Debt when the same becomes due and payable,
whether at Maturity or at a date fixed for prepayment or by
declaration of acceleration or otherwise, then, unless and until
such default shall have been cured or waived or shall have ceased
to exist, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) shall be made or agreed to
be made for principal, premium, if any, or interest, if any, on
the Subordinated Securities, or in respect of any redemption,
repayment, retirement, purchase or other acquisition of any of
the Subordinated Securities. (Section 1801 of the Subordinated
Indenture) "Senior Debt" means any obligation of the Corporation
to its creditors, whether now outstanding or subsequently
incurred other than (i) any obligation as to which it is provided
that such obligation is not Senior Debt and (ii) the Subordinated
Securities. (Section 101 of the Subordinated Indenture). A
series of Subordinated Debt Securities may be issued that is
subordinate to the Senior Debt, but is senior as to right of
payment to some or all other series of Subordinated Debt
Securities.
In the event of (i) any insolvency, bankruptcy,
receivership, liquidation, reorganization, readjustment,
composition or other similar proceeding relating to the
Corporation, its creditors or its property, (ii) any proceeding
for the liquidation, dissolution or other winding up of the
Corporation, voluntary or involuntary, whether or not involving
insolvency or bankruptcy proceedings, (iii) any assignment by the
Corporation for the benefit of creditors or (iv) any other
marshalling of the assets of the Corporation, all Senior Debt
(including any interest thereon accruing after the commencement
of any such proceedings) shall first be paid in full before any
payment or distribution, whether in cash, securities or other
property, shall be made on account of the principal or interest
on the Subordinated Securities. In such event, any payment or
distribution on account of the principal of or interest on the
Subordinated Securities, whether in cash, securities or other
property (other than securities of the Corporation or any other
corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the
extent provided in the subordination provisions with respect to
the Subordinated Securities, to the payment of all Senior Debt at
the time outstanding, and to any securities issued in respect
thereof under any such plan of reorganization or adjustment),
which would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Subordinated Securities
shall be paid or delivered directly to the holders of Senior Debt
in accordance with the priorities then existing among such
holders until all Senior Debt (including any interest thereon
accruing after the commencement of any such proceedings) shall
have been paid in full. (Section 1801 of the Subordinated
Indenture)
In the event of any such proceeding, after payment in full
of all sums owing with respect to Senior Debt, the Holders of
Subordinated Securities, together with the holders of any
obligations of the Corporation ranking on a parity with the
Subordinated Securities, shall be entitled to be repaid from the
remaining assets of the Corporation the amounts at the time due
and owing on account of unpaid principal, premium, if any, and
interest, if any, on the Subordinated Securities and such other
obligations before any payment or other distribution, whether in
cash, property or otherwise, shall be made on account of any
capital stock or obligations of the Corporation ranking junior to
the Subordinated Securities and such other obligations. If any
payment or distribution on account of the principal of or
interest on the Subordinated Securities of any character or any
security, whether in cash, securities or other property (other
than securities of the Corporation or any other corporation
provided for by a plan of reorganization or readjustment the
payment of which is subordinate, at least to the extent provided
in the subordination provisions with respect to the Subordinated
Securities, to the payment of all Senior Debt at the time
outstanding and to any securities issued in respect thereof under
any such plan of reorganization or readjustment) shall be
received by any Holder of any Subordinated Securities in
contravention of any of the terms hereof and before all the
Senior Debt shall have been paid in full, such payment or
distribution or security shall be received in trust for the
benefit of, and shall be paid over or delivered and transferred
to, the holders of the Senior Debt at the time outstanding in
accordance with the priorities then existing among such holders
for application to the payment of all Senior Debt remaining
unpaid to the extent necessary to pay all such Senior Debt in
full. (Section 1801 of the Subordinated Indenture) By reason of
such subordination, in the event of the insolvency of the
Corporation, holders of Senior Debt may receive more, ratably,
and holders of the Subordinated Securities having a claim
pursuant to such securities may receive less, ratably, than the
other creditors of the Corporation. Such subordination will not
prevent the occurrence of any Event of Default in respect of the
Subordinated Securities.
The Subordinated Indenture may be modified or amended as
provided under "Modification and Waiver" above, provided that no
such modification or amendment may, without the consent of the
holders of all Senior Debt outstanding, modify any of the
provisions of the Subordinated Indenture relating to the
subordination of the Subordinated Securities and any related
coupons in a manner adverse to such holders. (Section 902 of the
Subordinated Indenture)
Conversion of Convertible Debt Securities
The Holders of Debt Securities of a specified series that
are convertible into Common Stock or Preferred Shares of the
Corporation ("Convertible Debt Securities") will be entitled at
certain times specified in the applicable Prospectus Supplement,
subject to prior redemption, repayment or repurchase, to convert
any Convertible Debt Securities of such series (in denominations
set forth in the applicable Prospectus Supplement) into Common
Stock or Preferred Shares, as the case may be, at the conversion
price set forth in the applicable Prospectus Supplement, subject
to adjustment as described below and in the applicable Prospectus
Supplement. Except as described below, no adjustment will be
made on conversion of any Convertible Debt Securities for
interest accrued thereon or for dividends on any Common Stock or
Preferred Shares issued. (Section 1803 of the Senior Indenture,
Section 1903 of the Subordinated Indenture) If any Convertible
Debt Securities not called for redemption are converted between a
Regular Record Date for the payment of interest and the next
succeeding Interest Payment Date, such Convertible Debt
Securities must be accompanied by funds equal to the interest
payable on such succeeding Interest Payment Date on the principal
amount so converted. (Section 1803 of the Senior Indenture,
Section 1903 of the Subordinated Indenture) The Corporation is
not required to issue fractional shares of Common Stock upon
conversion of Convertible Debt Securities that are convertible
into Common Stock and, in lieu thereof, will pay a cash
adjustment based upon the Closing Price (as defined in the
Indenture) of the Common Stock on the last business day prior to
the date of conversion. (Section 1804 of the Senior Indenture,
Section 1904 of the Subordinated Indenture) In the case of
Convertible Debt Securities called for redemption, conversion
rights will expire at the close of business on the redemption
date. (Section 1802 of the Senior Indenture, Section 1902 of the
Subordinated Indenture)
Unless otherwise indicated in the applicable Prospectus
Supplement, the conversion price for Convertible Debt Securities
that are convertible into Common Stock is subject to adjustment
under formulas set forth in the applicable Indenture in certain
events, including: the issuance of the Corporation's capital
stock as a dividend or distribution on the Common Stock;
subdivisions and combinations of the Common Stock; the issuance
to all holders of Common Stock of certain rights or warrants
entitling them to subscribe for or purchase Common Stock within
45 days after the date fixed for the determination of the
stockholders entitled to receive such rights or warrants, at less
than the current market price (as defined in the Indenture); and
the distribution to all holders of Common Stock of evidences of
indebtedness or assets of the Corporation (excluding certain cash
dividends and distributions described in the next paragraph) or
rights or warrants (excluding those referred to above).
(Section 1806 of the Senior Indenture, Section 1906 of the
Subordinated Indenture) In the event that the Corporation shall
distribute any rights or warrants to acquire capital stock
("Capital Stock Rights") pursuant to which separate certificates
representing such Capital Stock Rights will be distributed
subsequent to the initial distribution of such Capital Stock
Rights (whether or not such distribution shall have occurred
prior to the date of the issuance of a series of Convertible Debt
Securities), such subsequent distribution shall be deemed to be
the distribution of such Capital Stock Rights; provided that the
Corporation may, in lieu of making any adjustment in the
conversion price upon a distribution of separate certificates
representing such Capital Stock Rights, make proper provision so
that each Holder of such a Convertible Debt Security who converts
such Convertible Debt Security (or any portion thereof)
(a) before the record date for such distribution of separate
certificates shall be entitled to receive upon such conversion
shares of Common Stock issued with Capital Stock Rights and
(b) after such record date and prior to the expiration,
redemption or termination of such Capital Stock Rights shall be
entitled to receive upon such conversion, in addition to the
shares of Common Stock issuable upon such conversion, the same
number of such Capital Stock Rights as would a holder of the
number of shares of Common Stock that such Convertible Debt
Security so converted would have entitled the holder thereof to
acquire in accordance with the terms and provisions applicable to
the Capital Stock Rights if such Convertible Debt Security were
converted immediately prior to the record date for such
distribution. Common Stock owned by or held for the account of
the Corporation or any majority owned subsidiary shall not be
deemed outstanding for the purpose of any adjustment.
No adjustment in the conversion price of Convertible Debt
Securities that are convertible into Common Stock will be made
for regular quarterly or other periodic or recurring cash
dividends or distributions or for cash dividends or distributions
to the extent paid from retained earnings. No adjustment in the
conversion price of Convertible Debt Securities that are
convertible into Common Stock will be required unless such
adjustment would require a change of at least 1% in the
conversion price then in effect, provided, that any such
adjustment not so made will be carried forward and taken into
account in any subsequent adjustment; and provided further that
any such adjustment not so made shall be made no later than three
years after the occurrence of the event requiring such adjustment
to be made or carried forward. The Corporation reserves the
right to make such reductions in the conversion price in
addition to those required in the foregoing provisions as the
Corporation in its discretion shall determine to be advisable in
order that certain stock-related distributions hereafter made by
the Corporation to its stockholders shall not be taxable.
(Section 1806 of the Senior Indenture, Section 1906 of the
Subordinated Indenture) Except as stated above, the conversion
price will not be adjusted for the issuance of Common Stock or
any securities convertible into or exchangeable for Common Stock
or securities carrying the right to purchase any of the
foregoing.
In the case of (i) a reclassification or change of the
Common Stock, (ii) a consolidation or merger involving the
Corporation or (iii) a sale or conveyance to another corporation
of the property and assets of the Corporation as an entirety or
substantially as an entirety, in each case as a result of which
holders of Common Stock shall be entitled to receive stock,
securities, other property or assets (including cash) with
respect to or in exchange for such Common Stock, the Holders of
the Convertible Debt Securities then outstanding that are
convertible into Common Stock will be entitled thereafter to
convert such Convertible Debt Securities into the kind and amount
of shares of stock and other securities or property which they
would have received upon such reclassification, change,
consolidation, merger, sale or conveyance had such Convertible
Debt Securities been converted into Common Stock immediately
prior to such reclassification, change, consolidation, merger,
sale or conveyance. (Section 1807 of the Senior Indenture,
Section 1907 of the Subordinated Indenture)
In the event of a taxable distribution to holders of Common
Stock (or other transaction) which results in any adjustment of
the conversion price of Convertible Debt Securities that are
convertible into Common Stock, the Holders of such Convertible
Debt Securities may, in certain circumstances, be deemed to have
received a distribution subject to United States income tax as a
dividend; in certain other circumstances, the absence of such an
adjustment may result in a taxable dividend to the holders of
Common Stock or such Convertible Debt Securities.
Exchange for Capital Securities
To the extent set forth in a Prospectus Supplement, a
specified series of Debt Securities may be mandatorily
exchangeable for Capital Securities as described under
"Description of Capital Securities" below.
Information Concerning the Trustees
The Trustee serves as trustee under indentures for other
debt of the Corporation and as Rights Agent under the
Corporation's Rights Agreement, described in "Description of
Common Stock -- Shareholder Rights Plan," below.
The Trustee may, from time to time make loans to the
Corporation and perform other services for the Corporation in the
normal course of business. Under the provisions of the Trust
Indenture Act of 1939, as recently amended (the "Trust Indenture
Act"), upon the occurrence of a default under an indenture, if a
trustee has a conflicting interest (as defined in the Trust
Indenture Act) the trustee must, within 90 days, either eliminate
such conflicting interest or resign. Under the provisions of the
Trust Indenture Act, an indenture trustee shall be deemed to have
a conflicting interest if the trustee is a creditor of the
obligor. If the trustee fails either to eliminate the
conflicting interest or to resign within 10 days after the
expiration of such 90-day period, the trustee is required to
notify debt holders to this effect and any debt holder who has
been a bona fide holder for at least six months may petition a
court to remove the trustee and to appoint a successor trustee.
DESCRIPTION OF CAPITAL SECURITIES
The following description of Capital Securities is included
in this Prospectus because a Prospectus Supplement may provide
that Capital Securities will be issuable in exchange for a series
of mandatory convertible Debt Securities or upon conversion of a
series of mandatory convertible Preferred Shares. Whenever
Capital Securities are exchangeable for Debt Securities, the
Corporation will be obligated to deliver Capital Securities with
a Market Value (as defined below) equal to the principal amount
of such Debt Securities. In addition, the Corporation will
unconditionally undertake to sell the Capital Securities in a
sale (the "Secondary Offering") on behalf of any Holders who
elect to receive cash for the Capital Securities. The
Corporation will bear all expenses of the Secondary Offering,
including underwriting discounts and commissions. However, there
is no assurance that there will be a market for the Capital
Securities when issued or at any time thereafter. If the
Corporation fails to deliver any Capital Securities when
required to be delivered, the Trustee may institute judicial
proceedings for (i) specific performance, (ii) money equal to the
principal amount of the Debt Securities for which Capital
Securities were to be exchanged or (iii) any other proper remedy.
(Section 503) If the Corporation fails to effect the Secondary
Offering, it will deliver to the Holders Capital Securities, and
not cash, upon exchange of the Debt Securities. In such event,
the Corporation will have no specifically enforceable obligation
to effect the Secondary Offering, but will not be relieved of any
liability for money damages it would have for breach of its
obligation to effect a Secondary Offering of sufficient amounts
of Capital Securities. The "Market Value" of any Capital
Securities means their sale price in the Secondary Offering. If
the Corporation does not effect the Secondary Offering, the
Market Value of such Capital Securities shall be their fair value
when exchanged as determined by three independent nationally
recognized investment banking firms selected by the Corporation.
Whenever Preferred Shares are mandatorily convertible into
Capital Securities, the Corporation will be obligated to deliver
Capital Securities in an amount either based upon a conversion
price or with a required conversion value. The conversion value
will be determined by then market prices, by an auction or
bidding procedure or by such other method as set forth in the
applicable Prospectus Supplement.
The staff of the Commission has advised that Rules 13e-4 and
14e-1 of the Commission's rules and regulations relating to
tender offers by issuers, as currently in effect and interpreted,
would be applicable to the exchange of Capital Securities for
Debt Securities of any series and the Secondary Offering. If, at
the time of the exchange of Capital Securities for Debt
Securities of any series and the Secondary Offering, Rule 13e-4
or Rule 14e-1 (or any successor rule or rules) applies to such
transactions, the Corporation will comply with such rule (or any
successor rule or rules) and will afford holders of such Debt
Securities all rights and will make all filings required by such
rule (or successor rule or rules). Rule 13e-4 and Rule 14e-1 may
also be deemed to apply to mandatorily convertible Preferred
Shares.
The Capital Securities may consist of Common Stock,
Perpetual Preferred Stock (as defined below) or other capital
securities of the Corporation acceptable to its primary federal
regulator. All Capital Securities which will be exchangeable for
Debt Securities or issuable upon conversion of Preferred Shares
will, upon issuance, be duly authorized, validly issued and, if
applicable, fully paid and nonassessable. The Common Stock of
the Corporation is described below under "Description of Common
Stock."
The Corporation may select any preferred stock ("Perpetual
Preferred Stock") that is not mandatorily, or at the option of
the holder, redeemable or repayable, otherwise than in shares of
Common Stock or Perpetual Preferred Stock of another class or
series or with the proceeds of the sale of Common Stock or
Perpetual Preferred Stock, as Capital Securities to be exchanged
for Debt Securities or issued upon conversion of Preferred
Shares. Any shares of Perpetual Preferred Stock to be so issued
will have such designations, preferences, dividend and other
rights, qualifications, limitations and restrictions as may be
determined by the Corporation and approved by the Board of
Directors. A general description of the preferred stock of the
Corporation is set forth below under "Description of Preferred
Shares."
The Corporation may also select any other securities to be
exchanged for Debt Securities or issued upon conversion of
Preferred Shares which qualify at the time of exchange or
conversion as Capital Securities as determined by the
Corporation's primary federal regulator. Such other Capital
Securities will have such terms as may be determined by the
Corporation.
DESCRIPTION OF PREFERRED SHARES
The following description of the terms of the Preferred
Shares sets forth certain general terms and provisions of the
Preferred Shares offered by any Prospectus Supplement, and the
extent, if any, to which such general provisions may apply to the
Preferred Shares so offered will be described in the Prospectus
Supplement relating to such Preferred Shares. The description of
certain provisions of the Preferred Shares set forth below and in
the Prospectus Supplement does not purport to be complete and is
subject to and qualified in its entirety by reference to the
Certificate of Designation relating to the particular series of
Preferred Shares, which will be filed with the Commission at or
prior to the time of the sale of such Preferred Shares.
General
Under the Corporation's Certificate of Incorporation, the
Board of Directors of the Corporation is authorized without
further stockholder action to adopt resolutions providing for the
issuance of up to 7,500,000 shares of preferred stock (the
"Preferred Stock"), in one or more series, with such voting
powers, full or limited, and with such par value, designations,
preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions,
as may be determined by the Board of Directors. As of June 30,
1996, the Corporation had 2,000,000 shares of its 6-1/4%
Cumulative Convertible Preferred Stock, Series B issued and
outstanding.
The Preferred Shares shall have the dividend, liquidation
redemption, voting rights and, if applicable, conversion rights
set forth below unless otherwise provided in the Prospectus
Supplement relating to a particular series of Preferred Shares.
Reference is made to the Prospectus Supplement relating to the
particular series of Preferred Shares offered thereby for
specific terms, including, where applicable: (i) the title of
such Preferred Shares; (ii) the price at which such Preferred
Shares will be issued; (iii) the dividend rates and dates on
which dividends shall be payable, as well as the dates from which
dividends shall commence to cumulate; (iv) the dates on which the
Preferred Shares will be subject to redemption and the redemption
price, (v) any mandatory redemption or sinking fund provisions;
(vi) any rights on the part of the holder to convert the
Preferred Shares into shares of Common Stock; (vii) any
provisions for the mandatory conversion of such Preferred Shares
into Capital Securities; and (viii) any additional dividend,
liquidation, redemption, sinking fund, voting and other rights,
preferences, privileges, limitations and restrictions; and
(ix) the terms of any securities being offered together with or
separately from such Preferred Shares. The Preferred Shares will
be fully paid and nonassessable, and for each share issued, a sum
equal to the par value (if any) will be credited to the
Corporation's preferred stock account.
Dividends
Holders of Preferred Shares will be entitled to receive cash
dividends, when and as declared by the Board of Directors of the
Corporation out of assets of the Corporation legally available
for payment, at such rates and on such dates as will be set forth
in the applicable Prospectus Supplement. Each dividend will be
payable to holders of record as they appear on the stock books of
the Corporation on the record dates fixed by the Board of
Directors of the Corporation. Dividends will be cumulative from
and after the date set forth in the applicable Prospectus
Supplement. If, for any dividend period or periods, full
cumulative dividends on any shares of preferred stock have not
been paid or declared and set apart for payment or the
Corporation is in default or in arrears with respect to any
sinking fund or other arrangement for the purchase or redemption
of any shares of preferred stock, the Corporation may not declare
any dividends on, or make any payment on account of the purchase,
redemption or other retirement of, its Common Stock or any other
stock of the Corporation ranking as to dividends or distribution
of assets junior to the preferred stock. If dividends on
Preferred Shares are in arrears, and there shall be outstanding
shares of any other series of preferred stock ranking on a parity
as to dividends with the Preferred Shares, the Corporation, in
making any dividend payment on account of such arrears, is
required to make payments ratably upon all outstanding Preferred
Shares and shares of such other series of preferred stock in
proportion to the respective amounts of dividends in arrears on
such Preferred Shares and shares of such other series of
preferred stock. See "Supervision and Regulation" for a
description of certain legal restrictions placed on the ability
of the Corporation's banking subsidiaries to provide funds to the
Corporation.
Liquidation Rights
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of
Preferred Shares will be entitled to receive out of assets of the
Corporation available for distribution to stockholders, before
any distribution of assets is made to holders of Common Stock,
liquidating distributions in the amount of the par value per
share (as set forth in the applicable Prospectus Supplement) plus
all accrued and unpaid dividends. If, upon any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the amounts payable with respect to the Preferred
Shares and any other shares of stock of the Corporation ranking
as to any such distribution on a parity with the Preferred Shares
are not paid in full, the holders of the Preferred Shares and of
such other shares will share ratably in any such distribution of
assets of the Corporation in proportion to the full respective
preferential amounts to which they are entitled. After payment
of the full amount of the liquidating distribution to which they
are entitled, the holder of Preferred Shares will not be entitled
to any further participation in any distribution of assets by the
Corporation. A consolidation or merger of the Corporation with
or into any other corporation or corporations or a sale of all or
substantially all of the assets of the Corporation shall not be
deemed to be liquidation, dissolution or winding up of the
Corporation.
Redemption
The Preferred Shares will be redeemable in whole or in part,
at the option of the Corporation, at the times and at the
redemption prices set forth in the applicable Prospectus
Supplement.
The Corporation may not redeem less than all the outstanding
shares of any series of Preferred Shares unless full cumulative
dividends have been paid or declared and set apart for payment
upon all outstanding shares of such series of Preferred Shares
for all past dividend periods, and unless all matured obligations
of the Corporation with respect to all sinking funds, retirement
funds or purchase funds for all series of preferred stock then
outstanding have been met.
Voting Rights
Except as indicated below or in the applicable Prospectus
Supplement, or except as expressly required by applicable law,
the holders of the Preferred Shares will not be entitled to vote.
If the equivalent of six quarterly dividends payable on any
series of the Preferred Shares or any other series of preferred
stock are in default (whether or not declared or consecutive),
the holders of all outstanding series of preferred stock, voting
as a single class with regard to series, will be entitled to
elect two directors until all dividends in default have been paid
or declared and set apart for payment.
The affirmative vote of the holders of at least two-thirds
of the outstanding shares of the Preferred Shares and any other
series of preferred stock, voting as a single class without
regard to series, will be required (i) for any amendment of the
Corporation's Certificate of Incorporation (or any certificate
supplemental thereto providing for the capital stock of the
Corporation) or Bylaws that will materially and adversely change
the preferences, privileges, rights, or powers of the preferred
stock, but, in any case in which one or more, but not all, series
of preferred stock would be so affected as to their preferences,
privileges, rights or powers, only the consent of holders of at
least two-thirds of the shares of each series that would be so
affected, voting separately as a class, shall be required or
(ii) to issue any class of stock that shall have preference as to
dividends or distribution of assets over any outstanding series
of preferred stock.
All stockholder action must be taken at a meeting.
Stockholder action by written consent is not permitted.
The Corporation's Certificate of Incorporation may be
amended to increase the number of authorized shares of the
preferred stock without the vote of the holders of outstanding
Preferred Shares.
Preferred Stock Conversion Rights
The Prospectus Supplement for any series of Preferred Shares
will state whether shares in that series are convertible into
Common Stock. See "Description of Capital Stock," below. Unless
otherwise provided in the applicable Prospectus Supplement, if a
series of Preferred Shares is convertible into shares of Common
Stock ("Convertible Preferred Shares"), holders of such
Convertible Preferred Shares will have the right, at their option
and at any time, to convert any of such Convertible Preferred
Shares, initially at the conversion rate set forth in the
Prospectus Supplement relating to such Convertible Preferred
Shares, provided that if such series of Convertible Preferred
Shares is called for redemption, the conversion rights pertaining
thereto will terminate at the close of business on the date fixed
for redemption. No fractional shares will be issued upon
conversion of the Convertible Preferred Shares, but if such
conversion results in a fraction, an equivalent amount will be
paid in cash by the Corporation, based on the Closing Price, as
defined in the Certificate of Designation for such series of
Convertible Preferred Shares, of the Common Stock on the business
day immediately preceding the day on which the Convertible
Preferred Shares are converted.
Unless otherwise indicated in the applicable Prospectus
Supplement, the conversion rate is subject to adjustment in
certain events, including: the issuance of capital stock as a
dividend or distribution on the Common Stock; subdivisions and
combinations of the Common Stock; the issuance to all holders of
Common Stock of certain rights or warrants entitling them to
subscribe for or purchase Common Stock (or securities convertible
into Common Stock) within 45 days after the date fixed for the
determination of the stockholders entitled to receive such rights
or warrants, at less than the current market price (as defined in
the Certificate of Designation for such series of Convertible
Preferred Shares); and the distribution to all holders of Common
Stock of evidences of indebtedness or assets of the Corporation
(excluding certain cash dividends and distributions described
below) or rights or warrants (excluding those referred to above).
In the event that the Corporation shall distribute any Rights
pursuant to which separate certificates representing such Rights
will be distributed subsequent to the initial distribution of
such Rights (whether or not such distribution shall have occurred
prior to the date of the issuance of a series of Convertible
Preferred Shares), such subsequent distribution shall be deemed
to be the distribution of such Rights; provided, that the
Corporation may, in lieu of making any adjustment in the
conversion rate upon a distribution of separate certificates
representing such Rights, make proper provision so that each
holder of such a Convertible Preferred Share who converts such
Convertible Preferred Share (or any portion thereof) (a) before
the record date for such distribution of separate certificates
shall be entitled to receive upon such conversion shares of
Common Stock issued with Rights and (b) after such record date
and prior to the expiration, redemption or termination of such
Rights shall be entitled to receive upon such conversion, in
addition to the shares of Common Stock issuable upon such
conversion, the same number of such Rights as would a holder of
the number of shares of Common Stock that such Convertible
Preferred Share so converted would have entitled the holder
thereof to acquire in accordance with the terms and provisions
applicable to the Rights if such Convertible Preferred Share were
converted immediately prior to the record date for such
distribution. Common Stock owned by or held for the account of
the Corporation or any majority owned subsidiary shall not be
deemed outstanding for the purpose of any adjustment.
No adjustment in conversion rate will be made for regular
quarterly or other periodic or recurring cash dividends or
distributions or for cash distributions to the extent paid from
retained earnings. No adjustment in the Conversion Price will be
required unless such adjustment would require a change of at
least 1% in the Conversion Price then in effect or a period of
three years shall have elapsed from the date of occurrence of any
event requiring any such adjustment; provided, that any
adjustment that would otherwise be required to be made shall be
carried forward and taken into account in any subsequent
adjustment. Notwithstanding any of the foregoing, neither the
issuance of Common Stock under the Corporation's Dividend
Reinvestment Plan or any successor plans providing for the
purchase of shares of Common Stock by the Corporation's
securityholders or employees at a price not less than 90% of the
"fair market value" of the Common Stock as such term, or
equivalent term, is defined in, and as calculated pursuant to,
such plans from time to time, nor the granting of any rights
thereunder, shall require an adjustment to the conversion rate.
The Corporation reserves the right to make such increases in the
conversion rate in addition to those required in the foregoing
provisions as the Corporation, in its discretion, shall determine
to be advisable in order that certain stock related distributions
hereafter made by the Corporation to its stockholders shall not
be taxable. Except as stated above, the conversion rate will not
be adjusted for the issuance of Common Stock or any securities
convertible into or exchangeable for Common Stock, or securities
carrying the right to purchase any of the foregoing.
In the case of (i) any reclassification or change of the
Common Stock, or (ii) a consolidation or merger involving the
Corporation, or (iii) a sale or conveyance to another corporation
of the property and assets of the Corporation as an entirety or
substantially as an entirety, in each case as a result of which
holders of Common Stock shall be entitled to receive stock,
securities, other property or assets (including cash) with
respect to or in exchange for such Common Stock, the holders of
the Convertible Preferred Shares then outstanding will be
entitled thereafter to convert such Convertible Preferred Shares
into the kind and amount of shares of stock and other securities
or property which they would have received upon such
reclassification, change, consolidation, merger, combination,
sale or conveyance.
If at any such time the Corporation makes a distribution of
property to its shareholders that would be taxable to such
shareholders as a dividend for federal income tax purposes (for
example, distributions of evidences of indebtedness or assets of
the Corporation, but generally not stock dividends or rights to
subscribe to capital stock) and, pursuant to the antidilution
provisions described above, the conversion rate of the
Convertible Preferred Shares is increased, such increase may be
deemed to be the receipt of taxable income by Holders of the
Convertible Preferred Shares.
Outstanding Preferred Stock
The Preferred Shares will rank on a parity in all respects
with the outstanding preferred stock of the Corporation. The
Common Stock, including Common Stock that may be issued upon
conversion of the Preferred Shares or in exchange for or upon
conversion of Subordinated Debt Securities, will be subject to
any prior rights of the preferred stock then outstanding.
Therefore, the rights of any other preferred stock that may be
subsequently issued may limit the rights of the holders of the
Preferred Shares.
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital of Sovereign consists of 100,000,000
shares of Common Stock, no par value, and 7,500,000 shares of
preferred stock, such preferred stock to be issuable, in series
and classes having such par value, rights, preferences,
privileges and restrictions as the Board of Directors of
Sovereign may determine. Except as described below, each share
of Common Stock will have the same relative rights as, and will
be identical in all respects with, each other share of Common
Stock.
The following summaries of certain provisions of the
Corporation's Articles of Incorporation, as amended, and Bylaws
and the Rights Agreement (defined below) do not purport to be
complete and are qualified in their entirety by reference to such
instruments, each of which is an exhibit to the Registration
Statement of which this Prospectus forms a part.
Common Stock
Voting Rights. Prior to the issuance of any preferred stock
which possesses voting rights (see "Preferred Stock" below), the
holders of the Common Stock will possess exclusive voting rights
in Sovereign. Each holder of shares of Common Stock will be
entitled to one vote for each share held on matters upon which
stockholders have the right to vote. Stockholders will not be
entitled to cumulate their votes for the election of directors.
The holders of Common Stock are entitled to share ratably in
dividends when and if declared by the Board of Directors of
Sovereign from funds legally available therefor. Payment of
dividends by Sovereign is dependent upon dividend payments to
Sovereign by its subsidiaries, which payments are subject to
regulatory restrictions. See "Supervision and Regulation --
Restrictions on Capital Distributions." Payment of dividends by
Sovereign is also subject to certain limitations imposed by a
loan agreement between Sovereign and an institutional lender.
See "Supervision and Regulation -- Restrictions on Capital
Distributions."
Liquidation. In the event of any liquidation, dissolution,
or winding up of Sovereign, after payment of all debts and
liabilities of Sovereign and payment of any liquidation
preference plus accrued dividends applicable to any outstanding
shares of preferred stock, the holders of the Common Stock will
be entitled to receive all assets of Sovereign available for
distribution in cash or in kind.
Preemptive Rights; Redemption. Holders of the Common Stock
will not be entitled to preemptive rights with respect to any
shares of Sovereign which may be issued. The Common Stock will
not be subject to redemption. Upon receipt by Sovereign of the
full specified purchase price therefor, the Common Stock will be
fully paid and nonassessable.
Preferred Stock
Sovereign's Board of Directors is authorized to approve the
issuance of preferred stock, without any required approval of
stockholders. The rights, qualifications, limitations and
restrictions of each series of preferred stock issued will be
determined by the Board of Directors at the time of issuance and
may include, among other things, rights to participating
dividends, voting and convertibility into the Common Stock.
Shares of preferred stock may be issued with dividend,
redemption, voting, and liquidation rights taking priority over
Common Stock, and may be convertible into Common Stock, as
determined by the Board of Directors at the time of issuance.
At June 30, 1996, the only series of Sovereign Preferred
Stock outstanding was Sovereign's 6-1/4% Cumulative Convertible
Preferred Stock, Series B (the "Series B Preferred"), of which
2,000,000 shares were outstanding at June 30, 1996. The Series B
Preferred is convertible at the option of the holder at any time,
unless previously redeemed, into Common Stock. The Series B
Preferred may not be redeemed prior to May 15, 1998. Thereafter,
the Series B Preferred is redeemable at the option of Sovereign
in whole or in part. The Series B Preferred has a liquidation
preference of $50 per share.
Holders of Series B Preferred are not entitled to vote
except in limited circumstances.
If the equivalent of six quarterly dividends payable on any
series of preferred stock of Sovereign are in default (whether or
not declared or consecutive), the holders of all outstanding
series of preferred stock, voting as a single class without
regard to series, will be entitled to elect two directors until
all dividends in default have been paid or declared and set apart
for payment. The affirmative vote or consent of the holders of
at least two-thirds of the outstanding shares of preferred stock,
voting as a single class without regard to series, will be
required (i) for any amendment to Sovereign's Articles of
Incorporation (or any certificate supplemental thereto providing
for the capital stock of the Corporation) or Bylaws which will
materially and adversely change the preferences, privileges,
rights or powers of the preferred stock, but, in any case in
which one or more, but not all, series of preferred stock would
be affected as to their preferences, privileges, rights or
powers, only the consent of holders of at least two-thirds of the
shares of all such series that would be so affected, voting
separately as a class, shall be required or (ii) to issue any
class of stock which shall have preference as to dividends or
distribution of assets over any outstanding series of preferred
stock.
Sovereign's Articles of Incorporation may be amended to
increase the number of authorized shares of preferred stock
without the vote of the holders of outstanding preferred stock.
The brief description of the terms of the Series B Preferred
set forth above does not purport to be complete and is subject to
and qualified in its entirety by reference to the Statement with
Respect to Shares for the Series B Preferred, a form of which is
filed with the Commission pursuant to Sovereign's Registration
Statement on Form 8-A dated May 16, 1995.
Sovereign's Shareholder Rights Plan provides for the
issuance of a series of junior participating preferred stock.
See the description of such series of preferred stock under
"Shareholder Rights Plan" below.
Shareholder Rights Plan
Sovereign maintains a Shareholder Rights Plan (the "Rights
Plan") designed to protect shareholders from attempts to acquire
control of Sovereign at an inadequate price. Under the Rights
Plan, each outstanding share of the Common Stock has attached to
it one right to purchase one one-hundredth of a share of a series
of junior participating preferred stock at an initial exercise
price of $40. The rights are not currently exercisable or
transferable, and no separate certificates evidencing such rights
will be distributed, unless certain events occur.
The rights become exercisable to purchase shares of the
junior participating preferred stock if a person, group or other
entity acquires or commences a tender offer or an exchange offer
for 9.9% or more of total voting power. They can also be
exercised if a person or group who has become a beneficial owner
of at least 4.9% of the Common Stock or total voting power is
declared by Sovereign's Board of Directors to be an "adverse
person," as defined in the Rights Plan.
After the rights become exercisable, under certain
circumstances, the rights (other than rights held by a 9.9% or an
"adverse person") will entitle the holders to purchase either the
Common Stock or the common stock of the potential acquirer, in
lieu of the junior participating preferred stock, at a
substantially reduced price.
Sovereign is generally entitled to redeem the rights at
$.001 per right at any time until the tenth business day
following the public announcement that a 9.9% position has been
acquired. At any time prior to the date the rights have become
nonredeemable, the Board can extend the redemption period.
Rights are not redeemable following an "adverse person"
determination.
Articles of Incorporation and Bylaws
Sovereign's Articles of Incorporation and Bylaws contain
certain provisions which may have the effect of deterring or
discouraging, among other things, a non-negotiated tender or
exchange offer for the Common Stock, a proxy contest for control
of Sovereign, the assumption of control of Sovereign by a holder
of a large block of the Common Stock and the removal of
Sovereign's management. These provisions: (1) empower the Board
of Directors, without shareholder approval, to issue preferred
stock the terms of which, including voting power, are set by the
Board; (2) divide the Board of Directors into three classes
serving staggered three-year terms; (3) restrict the ability of
shareholders to remove directors; (4) require that shares with at
least 80% of total voting power approve mergers and other similar
transactions with a person or entity holding stock with more than
5% of Sovereign's voting power, if the transaction is not
approved, in advance, by the Board of Directors; (5) prohibit
shareholders' actions without a meeting; (6) require that shares
with at least 80%, or in certain instances a majority, of total
voting power approve the repeal or amendment of the Articles of
Incorporation; (7) require any person who acquires stock of
Sovereign with voting power of 25% or more to offer to purchase
for cash all remaining shares of Sovereign's voting stock at the
highest price paid by such person for shares of Sovereign's
voting stock during the preceding year; (8) eliminate cumulative
voting in elections of directors; (9) require that shares with at
least 66-2/3% of total voting power approve, repeal or amend the
Bylaws; (10) require advance notice of nominations for the
election of directors and the presenting of shareholder proposals
at meetings of shareholders; and (11) provide that officers,
directors, employees, agents and persons who own 5% or more of
the voting securities of any other corporation or other entity
that owns 66-2/3% or more of Sovereign's outstanding voting stock
cannot constitute a majority of the members of Sovereign's Board
of Directors.
Pennsylvania Law
The Pennsylvania Business Corporation Law contains certain
provisions applicable to Sovereign which may have similar
effects. These provisions, among other things: (1) require
that, following any acquisition by any person or group of 20% of
a public corporation's voting power, the remaining stockholders
have the right to receive payment for their shares, in cash, from
such person or group in an amount equal to the "fair value" of
the shares, including an increment representing a proportion of
any value payable for control of the corporation; and
(2) prohibit for five years, subject to certain exceptions, a
"business combination" (which includes a merger or consolidation
of the corporation or a sale, lease or exchange of assets) with a
stockholder or group of stockholders beneficially owning 20% or
more of a public corporation's voting power.
In April 1990, Pennsylvania adopted legislation further
amending the Pennsylvania Business Corporation Law. To the
extent applicable to Sovereign at the present time, this
legislation generally (1) expands the factors and groups
(including shareholders) which the Board of Directors can
consider in determining whether a certain action is in the best
interests of the corporation, (2) provides that the Board need
not consider the interests of any particular group as dominant or
controlling, (3) provides that directors, in order to satisfy the
presumption that they have acted in the best interests of the
corporation, need not satisfy any greater obligation or higher
burden of proof with respect to actions relating to an
acquisition or potential acquisition of control, (4) provides
that actions relating to acquisitions of control that are
approved by a majority of "disinterested directors" are presumed
to satisfy the directors' standard unless it is proved by clear
and convincing evidence that the directors did not assent to such
action in good faith after reasonable investigation, and
(5) provides that the fiduciary duty of directors is solely to
the corporation and may be enforced by the corporation or by a
shareholder in a derivative action, but not by a shareholder
directly. One of the effects of the new fiduciary duty
provisions may be to make it more difficult for a shareholder to
successfully challenge the actions of the Board of Directors in a
potential change in control context. Sovereign opted out of
coverage by the disgorgement and control-share acquisition
statutes, also adopted in April 1990, pursuant to a Bylaw
amendment as permitted by the legislation. Sovereign can reverse
this action under certain circumstances.
DESCRIPTION OF SECURITIES WARRANTS
The Corporation may issue Securities Warrants for the
purchase of Debt Securities, Preferred Shares or Common Stock.
Securities Warrants may be issued independently or together with
Common Stock, Debt Securities or Preferred Shares offered by any
Prospectus Supplement and may be attached to or separate from
such Common Stock, Debt Securities or Preferred Shares. Each
series of Securities Warrants will be issued under a separate
warrant agreement (a "Securities Warrant Agreement") to be
entered into between the Corporation and a bank or trust
corporation, as Securities Warrant Agent, all as set forth in the
Prospectus Supplement relating to the particular issue of offered
Securities Warrants. The Securities Warrant Agent will act
solely as an agent of the Corporation in connection with the
Securities Warrant Certificates and will not assume any
obligation or relationship of agency or trust for or with any
holders of Securities Warrant Certificates or beneficial owners
of Securities Warrants. Copies of the forms of Securities
Warrant Agreements, including the forms of Securities Warrant
Certificates representing the Securities Warrants, are filed as
exhibits to the Registration Statement to which this Prospectus
pertains. The following summaries of certain provisions of the
forms of Securities Warrant Agreements and Securities Warrant
Certificates do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all the
provisions of the Securities Warrant Agreements and the
Securities Warrant Certificates.
General
If Securities Warrants are offered, the applicable
Prospectus Supplement will describe the terms of such Securities
Warrants, including, in the case of Securities Warrants for the
purchase of Debt Securities, the following where applicable:
(i) the offering price; (ii) the currencies in which such
Securities Warrants are being offered; (iii) the designation,
aggregate principal amount, currencies, denominations and terms
of the series of Debt Securities purchasable upon exercise of
such Securities Warrants; (iv) the designation and terms of any
series of Debt Securities or Preferred Shares with which such
Securities Warrants are being offered and the number of such
Securities Warrants being offered with each such share of Common
Stock, Debt Security or Preferred Share; (v) the date on and
after which such Securities Warrants and the related Common Stock
or series of Debt Securities or Preferred Shares will be
transferable separately; (vi) the principal amount of the series
of Debt Securities purchasable upon exercise of each such
Securities Warrant and the price at which and currencies in which
such principal amount of Debt Securities of such series may be
purchased upon such exercise; (vii) the date on which the right
to exercise such Securities Warrants shall commence and the date
(the "Expiration Date") on which such right shall expire;
(viii) whether the Securities Warrants will be issued in
registered or bearer form; (ix) United States federal income tax
consequences; and (x) any other terms of such Securities
Warrants.
In the case of Securities Warrants for the purchase of
Preferred Shares or Common Stock, the applicable Prospectus
Supplement will describe the terms of such Securities Warrants,
including the following where applicable: (i) the offering
price; (ii) the aggregate number of shares purchasable upon
exercise of such Securities Warrants and, in the case of
Securities Warrants for Preferred Shares, the designation,
aggregate number and terms of the series of Preferred Shares
purchasable upon exercise of such Securities Warrants; (iii) the
designation and terms of the series of Common Stock, Debt
Securities or Preferred Shares with which such Securities
Warrants are being offered and the number of such Securities
Warrants being offered with each share of Common Stock or such
Debt Security or Preferred Share; (iv) the date on and after
which such Securities Warrants and the related Common Stock or
series of Debt Securities or Preferred Shares will be
transferable separately; (v) the number of Preferred Shares or
shares of Common Stock purchasable upon exercise of each such
Securities Warrant and the price at which such number of
Preferred Shares of such series or shares of Common Stock may be
purchased upon such exercise; (vi) the date on which the right to
exercise such Securities Warrants shall commence and the
Expiration Date on which such right shall expire; (vii) United
States federal income tax consequences; and (viii) any other
terms of such Securities Warrants. Securities Warrants for the
purchase of Preferred Shares, or Common Stock will be offered and
exercisable for U.S. dollars only and will be in registered form
only.
Securities Warrant Certificates may be exchanged for new
Securities Warrant Certificates of different denominations, may
(if in registered form) be presented for registration of
transfer, and may be exercised at the corporate trust office of
the Securities Warrant Agent or any other office indicated in the
applicable Prospectus Supplement. Prior to the exercise of any
Securities Warrant to purchase Debt Securities, holders of such
Securities Warrants will not have any of the rights of Holders of
the Debt Securities purchasable upon such exercise, including the
right to receive payments of principal of, premium, if any, or
interest, if any, on the Debt Securities purchasable upon such
exercise or to enforce covenants in the applicable indenture.
Prior to the exercise of any Securities Warrants to purchase
Preferred Shares or Common Stock, holders of such Securities
Warrants will not have any rights of holders of the Preferred
Shares or Common Stock purchasable upon such exercise, including
the right to receive payments of dividends, if any, on the
Preferred Shares or Common Stock purchasable upon such exercise
or to exercise any applicable right to vote.
Exercise of Securities Warrants
Each Securities Warrant will entitle the holder thereof to
purchase such principal amount of Debt Securities or number of
Preferred Shares or shares of Common Stock, as the case may be,
at such exercise price as shall in each case be set forth in, or
calculable from the Prospectus Supplement relating to the offered
Securities Warrants. After the close of business on the
Expiration Date (or such later date to which such Expiration Date
may be extended by the Corporation), unexercised Securities
Warrants will become void.
Securities Warrants may be exercised by delivering to the
Securities Warrant Agent payment as provided in the applicable
Prospectus Supplement of the amount required to purchase the Debt
Securities, Preferred Shares or Common Stock, as the case may be,
purchasable upon such exercise together with certain information
set forth on the reverse side of the Securities Warrant
Certificate. Securities Warrants will be deemed to have been
exercised upon receipt of payment of the exercise price, subject
to the receipt, within five business days, of the Securities
Warrant Certificate evidencing such Securities Warrants. Upon
receipt of such payment and the Securities Warrant Certificate
properly completed and duly executed at the corporate trust
office of the Securities Warrant Agent or any other office
indicated in the applicable Prospectus Supplement, the
Corporation will, as soon as practicable, issue and deliver the
Debt Securities, Preferred Shares or Common Stock, as the case
may be, purchasable upon such exercise. If fewer than all of the
Securities Warrants represented by such Securities Warrant
Certificate are exercised, a new Securities Warrant Certificate
will be issued for the remaining amount of Securities Warrants.
Amendments and Supplements to Securities Warrant Agreements
The Securities Warrant Agreements may be amended or
supplemented without the consent of the holders of the Securities
Warrants issued thereunder to effect changes that are not
inconsistent with the provisions of the Securities Warrants and
that do not adversely affect the interests of the holders of the
Securities Warrants.
Common Stock Warrant Adjustments
Unless otherwise indicated in the applicable Prospectus
Supplement, the exercise price of, and the number of shares of
Common Stock covered by, a Common Stock Warrant are subject to
adjustment in certain events, including: (i) the issuance of
Common Stock as a dividend or distribution on the Common Stock;
(ii) subdivisions and combinations of the Common Stock; (iii) the
issuance to all holders of Common Stock of certain rights or
warrants entitling them to subscribe for or purchase Common Stock
within 45 days after the date fixed for the determination of the
stockholders entitled to receive such rights or warrants, at less
than the current market price (as defined in the Warrant
Agreement for such series of Common Stock Warrants); and (iv) the
distribution to all holders of Common Stock of evidences of
indebtedness or assets of the Corporation (excluding certain cash
dividends and distributions described below) or rights or
warrants (excluding those referred to above). In the event that
the Corporation shall distribute any rights or warrants to
acquire capital stock pursuant to clause (iii) above (the
"Capital Stock Rights"), pursuant to which separate certificates
representing such Capital Stock Rights will be distributed
subsequent to the initial distribution of such Capital Stock
Rights (whether or not such distribution shall have occurred
prior to the date of the issuance of a series of Common Stock
Warrants), such subsequent distribution shall be deemed to be the
distribution of such Capital Stock Rights; provided that the
Corporation may, in lieu of making any adjustment in the exercise
price of, and the number of shares of Common Stock covered by, a
Common Stock Warrant upon a distribution of separate certificates
representing such Capital Stock Rights, make proper provision so
that each holder of such a Common Stock Warrant who exercises
such Common Stock Warrant (or any portion thereof) (a) before the
record date for such distribution of separate certificates shall
be entitled to receive upon such exercise shares of Common Stock
issued with Capital Stock Rights and (b) after such record date
and prior to the expiration, redemption or termination of such
Capital Stock Rights shall be entitled to receive upon such
exercise, in addition to the shares of Common Stock issuable upon
such exercise, the same number of such Capital Stock Rights as
would a holder of the number of shares of Common Stock that such
Common Stock Warrants so exercised would have entitled the holder
thereof to acquire in accordance with the terms and provisions
applicable to the Capital Stock Rights if such Common Stock
Warrant was exercised immediately prior to the record date for
such distribution. Common Stock owned by or held for the account
of the Corporation or any majority owned subsidiary shall not be
deemed outstanding for the purpose of any adjustment.
No adjustment in the exercise price of, and the number of
shares of Common Stock covered by, a Common Stock Warrant will be
made for regular quarterly or other periodic or recurring cash
dividends or distributions or for cash dividends or distributions
to the extent paid from retained earnings. No adjustment will be
required unless such adjustment would require a change of at
least 1% in the exercise price then in effect; provided that any
such adjustment not so made will be carried forward and taken
into account in any subsequent adjustment; and provided further
that any such adjustment not so made shall be made no later than
three years after the occurrence of the event requiring such
adjustment to be made or carried forward. Except as stated
above, the exercise price of, and the number of shares of Common
Stock covered by, a Common Stock Warrant will not be adjusted for
the issuance of Common Stock or any securities convertible into
or exchangeable for Common Stock, or securities carrying the
right to purchase any of the foregoing.
In the case of (i) a reclassification or change of the
Common Stock, (ii) a consolidation or merger involving the
Corporation or (iii) sale or conveyance to another corporation of
the property and assets of the Corporation as an entirety or
substantially as an entirety, in each case as a result of which
holders of the Corporation's Common Stock shall be entitled to
receive stock, securities, other property or assets (including
cash) with respect to or in exchange for such Common Stock, the
holders of the Common Stock Warrants then outstanding will be
entitled thereafter to convert such Common Stock Warrants into
the kind and amount of shares of stock and other securities or
property which they would have received upon such
reclassification, change, consolidation, merger, sale or
conveyance had such Common Stock Warrants been exercised
immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance.
CERTAIN TAX CONSIDERATIONS
The Prospectus Supplement may contain information concerning
certain tax considerations relating to the Offered Securities.
Holders of Offered Securities should consult their tax advisors
as to the applicability to the Offered Securities and interest or
dividends, if any, payable thereon of federal, state and local
taxes.
PLAN OF DISTRIBUTION
The Corporation may offer and sell the Offered Securities in
any of three ways: (i) through agents; (ii) through underwriters
or dealers; or (iii) directly to one or more purchasers. The
Prospectus Supplement with respect to any of the Offered
Securities will set forth the terms of the offering of such
Offered Securities, including the name or names of any
underwriters or agents, the purchase price of such Offered
Securities, the proceeds to the Corporation from such sale, any
underwriting discounts or agency fees and other items
constituting underwriters' or agents' compensation, the initial
public offering price, any discounts or concessions allowed or
reallowed or paid to dealers, and any securities exchanges on
which such Offered Securities may be listed.
The distribution of the Offered Securities may be effected
from time to time in one or more transactions at a fixed price or
prices, which may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices
or at negotiated prices.
The Corporation may also issue contracts under which the
counterparty may be required to purchase Common Stock, Debt
Securities, or Preferred Shares. Such contracts would be issued
with Common Stock, Debt Securities, Preferred Shares, and/or
Securities Warrants in amounts, at prices and on terms to be set
forth in a Prospectus Supplement. See "Plan of Distribution."
If so indicated in the Prospectus Supplement relating to any
Offered Securities, the Corporation will authorize underwriters,
dealers and agents to solicit offers by certain specified
institutions to purchase such Offered Securities from the
Corporation at the public offering price set forth in such
Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the
future. Such contracts will be subject only to those conditions
set forth in such Prospectus Supplement, and such Prospectus
Supplement will set forth the commission payable for solicitation
of such contracts.
Underwriters, dealers and agents may be entitled, under
agreements entered into with the Corporation, to indemnification
by the Corporation against certain civil liabilities, including
liabilities under the Securities Act of 1933, or to contributions
with respect to payments which the underwriters or agents may be
required to make in respect thereof. Underwriters and agents,
and affiliates thereof, may be customers of, engage in
transactions with, or perform services for the Corporation and
its affiliates in the ordinary course of business.
Each underwriter, dealer and agent participating in the
distribution of any Debt Securities that are issuable as Bearer
Securities will agree that, in connection with the original
issuance of such Bearer Securities, it will not offer, sell or
deliver, directly or indirectly, Bearer Securities to a United
States person or to any person within the United States, except
to the extent permitted under United States Treasury Regulations.
Except for Common Stock, all Offered Securities will be new
issues of securities with no established trading market. Any
underwriters to whom Offered Securities are sold by the
Corporation for public offering and sale may make a market in
such Offered Securities, but such underwriters will not be
obligated to do so and may discontinue any market making at any
time without notice. No assurance can be given as to the
liquidity of the trading market for any Offered Securities.
LEGAL MATTERS
The legality of the Offered Securities and, if any Offered
Securities are by their terms convertible into Common Stock, the
Common Stock into which the Offered Securities may be converted,
will be passed upon for the Corporation by Stevens & Lee,
111 North Sixth Street, Reading, Pennsylvania 19601, special
counsel to the Corporation. Joseph E. Lewis, a director of the
Sovereign Bank, is a principal of the firm of Stevens & Lee. At
June 30, 1996, certain attorneys at Stevens & Lee and members of
their immediate families owned or had investment discretion with
respect to an aggregate of less than 300,000 shares of Common
Stock. Unless otherwise indicated in the Prospectus Supplement
relating thereto, if the Offered Securities are being distributed
in an underwritten offering, certain legal matters with respect
to the Offered Securities and, if the Offered Securities are by
their terms convertible or exchangeable, the securities into
which the Offered Securities may be converted or exchanged, will
be passed upon for the underwriters by the law firm named in such
Prospectus Supplement as representing the underwriters.
EXPERTS
The consolidated financial statements of Sovereign Bancorp,
Inc. appearing in Sovereign Bancorp, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1995 have been audited
by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by
reference which, as to the year 1993 is based in part on the
report of B.D.O. Seidman, LLP, independent auditors. Such
consolidated financial statements are incorporated herein by
reference in reliance upon such reports given upon the authority
of such firms as experts in accounting and auditing.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission
registration fee $ 68,966
Printing 15,000
Trustees' fees and expenses 5,000
Accountant's fees and expenses 15,000
Rating agencies' fees 50,000
Attorneys' fees and expenses 20,000
Blue sky and legal investment fees
and expenses 10,000
Miscellaneous $ 1,034
Total $185,000
____________
* Estimated except for the registration fee.
Item 15. Indemnification of Directors and Officers.
Pennsylvania law provides that a Pennsylvania corporation
may indemnify directors, officers, employees, and agents of the
corporation against liabilities they may incur in such capacities
for any action taken or any failure to act, whether or not the
corporation would have the power to indemnify the person under
any provision of law, unless such action or failure to act is
determined by a court to have constituted recklessness or willful
misconduct. Pennsylvania law also permits the adoption of a
bylaw amendment, approved by shareholders, providing for the
elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the
director has breached or failed to perform the duties of his
office and (2) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.
The Bylaws of the Corporation provide for
(1) indemnification of directors, officers, employees, and agents
of the Corporation and its subsidiaries and (2) the elimination
of a director's liability for monetary damages to the fullest
extent permitted by Pennsylvania law.
Directors and officers are also insured against certain
liabilities for their actions, as such, by an insurance policy
obtained by the Corporation.
Item 16. Exhibits.
The following exhibits are filed herewith or incorporated by
reference herein as part of this Registration Statement:
Number Description
1.1 Form of Underwriting Agreement.*
1.2 Form of Underwriting Agreement Standard Provisions for
Senior Debt Securities, Subordinated Debt Securities,
Preferred Stock, Common Stock, Warrants to Purchase
Debt Securities, Warrants to Purchase Common Stock, and
Warrants to Purchase Preferred Stock.*
1.3 Form of Distribution Agreement.*
3.1 Articles of Incorporation of Sovereign Bancorp, Inc.
(Incorporated by reference to Exhibit 3.1 to
Sovereign's Annual Report on Form 10-K for the year
ended December 31, 1995.)
3.2 Bylaws of Sovereign Bancorp, Inc. (Incorporated by
reference to Exhibit 2.3 to Sovereign's Registration
Statement on Form 8-A dated May 9, 1995.)
4.1 Subordinated Trust Indenture dated as of February 1,
1994, between Sovereign Bancorp, Inc. and Harris Trust
and Savings Bank, as Trustee. (Incorporated by
reference to Exhibit 4.1 to Sovereign's Registration
Statement No. 33-75472 on Form S-3.)
4.2 Senior Trust Indenture dated as of February 1, 1994,
between Sovereign Bancorp, Inc. and Harris Trust and
Savings Bank, as Trustee. (Incorporated by reference
to Exhibit 4.2 to Sovereign's Registration Statement
No. 33-75472 on Form S-3.)
4.3 Indenture dated as of September 15, 1992, relating to
$20,000,000 8/1-2% Subordinated Debentures due
September 15, 2002 of Sovereign Bancorp, Inc.
(Incorporated by reference to Exhibit 4.1 to
Sovereign's Registration Statement No. 33-50734 on
Form S-2).
4.4 Subordinated Trust Indenture dated as of March 5, 1993,
between Sovereign Bancorp, Inc. and Harris Trust and
Savings Bank, as Trustee (Incorporated by reference to
Exhibit 4.1 to Sovereign's Registration Statement
No. 33-56264 on Form S-3).
4.5 Senior Trust Indenture dated as of March 5, 1993,
between Sovereign Bancorp, Inc. and Harris Trust and
Savings Bank, as Trustee (Incorporated by reference to
Exhibit 4.2 to Sovereign's Registration Statement
No. 33-56264 on Form S-3).
4.6 First Supplemental Indenture to the Subordinated Trust
Indenture dated as of March 5, 1993 between Sovereign
Bancorp, Inc. and Harris Trust and Savings Bank, as
Trustee (Incorporated by reference to Exhibit 4.5 to
Sovereign's Registration Statement No. 33-56264 on
Form S-3).
4.7 Second Supplemental Indenture to the Subordinated Trust
Indenture dated as of March 5, 1993 between Sovereign
Bancorp, Inc. and Harris Trust and Savings Bank, as
Trustee (Incorporated by reference to Exhibit 4.6 to
Sovereign's Registration Statement No. 33-56264 on
Form S-3).
4.8 Form of Registered Medium-Term Note.*
4.9 Rights Agreement, dated September 19, 1989, between
Sovereign Bancorp, Inc. and Harris Trust Corporation of
New York. (Incorporated by reference to Exhibit 4 to
Sovereign's Current Report on Form 8-K dated
October 12, 1989).
4.10 Form of Certificate of Designations relating to
Preferred Shares.*
4.11 Form of Debt Warrant Agreement (including form of Debt
Warrant certificate).*
4.12 Form of Preferred Stock Warrant Agreement (including
form of Preferred Stock Warrant certificate).*
4.13 Form of Common Stock Warrant Agreement (including form
of Common Stock Warrant certificate).*
4.14 Sovereign Bancorp, Inc. has outstanding certain long-
term debt. None of such debt exceeds 10% of the total
assets of Sovereign Bancorp, Inc. and its consolidated
subsidiaries; therefore, copies of the constituent
instruments defining the rights of the holders of such
debt are not included as exhibits to this Registration
Statement. Sovereign Bancorp, Inc. agrees to furnish
copies of such instruments to the Commission upon
request.
4.15 Amendment to Rights Agreement dated as of September 27,
1995, between Sovereign Bancorp, Inc. and Chemical
Bank, as successor to Harris Trust Company of New York,
as Rights Agent (Incorporated by reference to
Exhibit 4.1 to Sovereign's Current Report on Form 8-K/A
No. 1 dated January 8, 1996).
5.1 Opinion and Consent of Stevens & Lee as to the legality
of the Debt Securities and Capital Stock being
registered.
12.1 Computation of Ratios of Earnings to Fixed Charges.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of B.D.O. Seidman, LLP.
23.3 Consent of Stevens & Lee (included in Exhibit 5.1).
24.1 Powers of Attorney of Directors and Officers (included
on signature page hereof).*
25.1 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939 with respect to the Subordinated
Trust Indenture.*
25.2 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939 with respect to the Senior Trust
Indenture.*
- ---------------------
* Previously Filed
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
Registration Statement: (i) to include any prospectus
required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
Registration Statement; and (iii) to include any material
information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any
material change to such information in the Registration
Statement; provided, however, that the undertakings in
clauses (i) and (ii) shall not apply if the information
required to be included in a post-effective amendment by
those clauses is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(4) That, for purposes of determining any liability
under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating
to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) For purposes of determining any liability under
the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as
of the time it was declared effective.
(6) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment
that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
provisions described under Item 15 above or otherwise, the
registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted against
the registrant by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on
Form S-3 and that it has duly caused this Pre-Effective Amendment
No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Borough of
Wyomissing, Commonwealth of Pennsylvania, on August 12, 1996
SOVEREIGN BANCORP, INC.
By /s/ Jay S. Sidhu*
Jay S. Sidhu,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Pre-Effective Amendment No. 1 to Registration Statement has
been signed by the following persons in the capacities and on the
dates indicated.
Signature Title
/s/ Richard E. Mohn* Chairman of the August 12, 1996
Richard E. Mohn Board and Director
/s/ Jay S. Sidhu* President, Chief August 12, 1996
Jay S. Sidhu Executive Officer
and Director
/s/ Howard D. Mackey* Director August 12, 1996
Howard D. Mackey
/s/Rhoda S. Oberholtzer* Director August 12, 1996
Rhoda S. Oberholtzer
/s/ Patrick J. Petrone* Director August 12, 1996
Patrick J. Petrone
/s/ Daniel K. Rothermel* Director August 12, 1996
Daniel K. Rothermel
/s/ G. Arthur Weaver* Director August 12, 1996
G. Arthur Weaver
________________________ Director August 12, 1996
Theodore Ziaylek, Jr.
/s/ Karl D. Gerhart* Chief Financial August 12, 1996
Karl D. Gerhart Officer
/s/ Mark R. McCollom* Chief Accounting August 12, 1996
Mark R. McCollom Officer
*By/s/ Lawrence M. Thompson, Jr.
Lawrence M. Thompson, Jr.
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Number Description
1.1 Form of Underwriting Agreement.*
1.2 Form of Underwriting Agreement Standard
Provisions for Senior Debt Securities,
Subordinated Debt Securities, Preferred
Stock, Common Stock, Warrants to Purchase
Debt Securities, Warrants to Purchase
Common Stock and Warrants to Purchase
Preferred Stock.*
1.3 Form of Distribution Agreement.*
3.1 Articles of Incorporation of Sovereign Bancorp,
Inc. (Incorporated by reference to Exhibit 3.1
to Sovereign's Annual Report on Form 10-K for
the year ended December 31, 1995.)
3.2 Bylaws of Sovereign Bancorp, Inc. (Incorporated
by reference to Exhibit 2.3 to Sovereign's
Registration Statement on Form 8-A dated
May 9, 1995.)
4.1 Subordinated Trust Indenture dated as of
February 1, 1994, between Sovereign Bancorp,
Inc. and Harris Trust and Savings Bank, as
Trustee. (Incorporated by reference to
Exhibit 4.1 to Sovereign's Registration
Statement No. 33-75472 on Form S-3.)
4.2 Senior Trust Indenture dated as of February 1,
1994, between Sovereign Bancorp, Inc. and Harris
Trust and Savings Bank, as Trustee.
(Incorporated by reference to Exhibit 4.2
to Sovereign's Registration Statement
No. 33-75472 on Form S-3.)
4.3 Indenture dated as of September 15, 1992,
relating to $20,000,000 8/1-2% Subordinated
Debentures due September 15, 2002 of Sovereign
Bancorp, Inc. (Incorporated by reference to
Exhibit 4.1 to Sovereign's Registration Statement
No. 33-50734 on Form S-2).
4.4 Subordinated Trust Indenture dated as of March 5,
1993, between Sovereign Bancorp, Inc. and Harris
Trust and Savings Bank, as Trustee (Incorporated
by reference to Exhibit 4.1 to Sovereign's
Registration Statement No. 33-56264 on Form S-3).
4.5 Senior Trust Indenture dated as of March 5, 1993,
between Sovereign Bancorp, Inc. and Harris Trust
and Savings Bank, as Trustee (Incorporated by
reference to Exhibit 4.2 to Sovereign's
Registration Statement No. 33-56264 on Form S-3).
4.6 First Supplemental Indenture to the Subordinated
Indenture dated as of March 5, 1993 between
Sovereign Bancorp, Inc. and Harris Trust and
Savings Bank, as Trustee (Incorporated by
reference to Exhibit 4.5 to Sovereign's
Registration Statement No. 33-56264 on Form S-3).
4.7 Second Supplemental Indenture to the Subordinated
Indenture dated as of March 5, 1993 between
Sovereign Bancorp, Inc. and Harris Trust and
Savings Bank, as Trustee (Incorporated by
reference to Exhibit 4.6 to Sovereign's
Registration Statement No. 33-56264 on Form S-3).
4.8 Form of Registered Medium-Term Note.*
4.9 Rights Agreement, dated September 19, 1989,
between Sovereign Bancorp, Inc. and Harris
Trust Corporation of New York. (Incorporated
by reference to Exhibit 4 to Sovereign's
Current Report on Form 8-K dated October 12, 1989).
4.10 Form of Certificate of Designations relating
to Preferred Shares.*
4.11 Form of Debt Warrant Agreement (including form
of Debt Warrant certificate).*
4.12 Form of Preferred Stock Warrant Agreement
(including form of Preferred Stock Warrant
certificate).*
4.13 Form of Common Stock Warrant Agreement
(including form of Common Stock Warrant
certificate).*
4.14 Sovereign Bancorp, Inc. has outstanding certain
long-term debt. None of such debt exceeds 10%
of the total assets of Sovereign Bancorp, Inc.
and its consolidated subsidiaries; therefore,
copies of the constituent instruments defining
the rights of the holders of such debt are not
included as exhibits to this Registration
Statement. Sovereign Bancorp, Inc. agrees to
furnish copies of such instruments to the
Commission upon request.
4.15 Amendment to Rights Agreement dated as of
September 27, 1995, between Sovereign
Bancorp, Inc. and Chemical Bank, as successor
to Harris Trust Company of New York, as
Rights Agent (Incorporated by reference to
Exhibit 4.1 to Sovereign's Current Report on
Form 8-K/A No. 1 dated January 8, 1996).
5.1 Opinion and Consent of Stevens & Lee as to the
legality of the Debt Securities and Capital
Stock being registered.
12.1 Computation of Ratios of Earnings to Fixed
Charges.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of B.D.O. Seidman, LLP.
23.3 Consent of Stevens & Lee (included in
Exhibit 5.1).
24.1 Powers of Attorney of Directors and Officers
(included on signature page).*
25.1 Form T-1 Statement of Eligibility under the
Trust Indenture Act of 1939 with respect to
the Subordinated Trust Indenture.*
25.2 Form T-1 Statement of Eligibility under the
Trust Indenture Act of 1939 with respect to
the Senior Trust Indenture.*
- ---------------------------
* Previously Filed
August 12, 1996
Board of Directors
Sovereign Bancorp, Inc.
P.O. Box 12646
Reading, Pennsylvania 19612
Re: Registration Statement on Form S-3
(No. 333-09113)
Ladies and Gentlemen:
In connection with the registration of Common Stock, Debt
Securities, Preferred Stock and Securities Warrants, with an
aggregate initial public offering price of up to $200,000,000, by
Sovereign Bancorp, Inc. (the "Company"), covered by the Company's
Registration Statement on Form S-3 (No. 333-09113) (together with
any pre-effective amendments thereto, the "Registration
Statement"), we, as counsel to the Company, have reviewed:
(1) the Articles of Incorporation of the Company;
(2) the Bylaws of the Company;
(3) the minute books of the Company;
(4) a subsistence certificate with respect to the Company
issued by the Pennsylvania Department of State on
July 11, 1996;
(5) resolutions adopted by the Company's Board of Directors
on July 24, 1996; and
(6) the Registration Statement.
The documents listed above are hereinafter collectively
referred to as the Corporate Documents. All capitalized terms
used herein but not defined herein shall have the meaning given
to them in the Registration Statement.
_______________________
Based upon our review of the Corporate Documents, and
subject to the limitations, qualifications, exceptions and
assumptions stated hereafter, it is our opinion that:
(1) The Company has been duly incorporated under the laws
of the Commonwealth of Pennsylvania and is validly
existing and in good standing under the laws of such
Commonwealth.
(2) The Subordinated Indenture and the Senior Indenture,
both dated as of February 1, 1994 (the "Indentures")
between the Company and Harris Trust and Savings Bank,
as trustee (the "Trustee"), have been duly authorized,
executed, and delivered by the Company and the Trustee,
and constitute valid and legally binding obligations of
the Company, enforceable in accordance with their
respective terms.
(3) The Debt Securities covered by the Registration
Statement have been duly authorized for registration
under the Securities Act of 1933, as amended (the
"Act"), and when (a) the Board of Directors has
authorized the issuance thereof and established the
terms thereof, (b) Officers' Certificates have been
duly executed and delivered in accordance with the
applicable Indenture, (c) the Debt Securities have been
executed and authenticated in the manner set forth in
the applicable Indenture, (d) the pertinent provisions
of such state securities and "blue sky" laws as are
applicable have been complied with, and (e) the Debt
Securities have been issued, sold, and delivered in
accordance with the Registration Statement, the
Prospectus and any Prospectus Supplement relating
thereto against payment therefor as contemplated by the
Underwriting Agreement, the Debt Securities will be
validly executed, authenticated, issued, sold, and
delivered, and will constitute valid and legally
binding obligations of the Company enforceable in
accordance with their respective terms and the terms of
the Indenture.
(4) The Common Stock covered by the Registration Statement
has been duly authorized for registration under the
Act, and when (a) the Board of Directors has authorized
the issuance thereof, (b) the pertinent provisions of
such state securities and "blue sky" laws as are
applicable have been complied with, and (c) such shares
are duly executed, issued, sold and delivered against
payment therefor as contemplated by the Underwriting
Agreement, pursuant to and in accordance with the terms
described in the Registration Statement, the
Prospectus, and any Prospectus Supplement related
thereto, such Common Stock will be validly issued by
the Company and fully paid and nonassessable.
(5) The Preferred Stock covered by the Registration
Statement has been duly authorized for registration
under the Act, and when (a) the Board of Directors has
authorized the issuance thereof and established the
terms thereof, (b) a Certificate of Designation has
been duly filed with the Secretary of State of the
Commonwealth of Pennsylvania, (c) the pertinent
provisions of such state securities and "blue sky" laws
as are applicable have been complied with, and (d) such
shares have been duly executed, issued, sold and
delivered against payment therefor as contemplated by
the Underwriting Agreement pursuant to and in
accordance with the terms described in the Registration
Statement, the Prospectus and any Prospectus Supplement
relating thereto, such Preferred Stock will be validly
issued by the Company and fully paid and nonassessable.
(6) The Securities Warrants covered by the Registration
Statement have been duly authorized for registration
under the Act, and when (a) the Board of Directors has
authorized the issuance thereof and established the
terms thereof, (b) the Securities Warrant Agreement has
been duly executed and delivered by the Company to the
Security Warrant Agent, (c) the Securities Warrants
have been executed and authenticated in the manner set
forth in the Securities Warrant Agreement, (d) the
pertinent provisions of such state securities and "blue
sky" laws as are applicable have been complied with,
and (e) the Securities Warrants have been issued, sold
and delivered against payment therefor in accordance
with the Registration Statement, the Prospectus and any
Prospectus Supplement relating thereto, such Securities
Warrants will be validly executed, authenticated,
issued, and delivered and will constitute valid and
legally binding obligations of the Company enforceable
in accordance with their respective terms and the terms
of the Warrant Agreement.
(7) Assuming (a) appropriate corporate action has been
taken to authorize the issuance of Debt Securities,
Preferred Stock or Common Stock upon exercise of any
Securities Warrants and to establish the terms thereof,
(b) the Securities Warrants have been duly executed,
delivered, authenticated, issued and exercised in
accordance with their terms and the terms of the
Warrant Agreement and in the manner described in the
Registration Statement, the Prospectus and any
Prospectus Supplement relating thereto, and (c) no
change occurs in any applicable law or pertinent facts,
when (i) the pertinent provisions of all securities
laws, including state "blue sky" laws, as may be
applicable have been complied with, (ii) the Securities
Warrants are exercised in accordance with their terms
and the terms of the Warrant Agreement, and (iii) the
Debt Securities, Preferred Stock or Common Stock, as
the case may be, have been duly executed, authenticated
and delivered, the Debt Securities issuable upon the
exercise of any Securities Warrants will constitute
legal and valid obligations of the Company, enforceable
in accordance with their respective terms and entitled
to the benefit of the applicable Indenture, and the
Preferred Stock or Common Stock, as the case may be,
issuable upon the exercise of any Securities Warrants
will be duly authorized, validly issued and fully paid
and nonassessable.
(8) Assuming (a) a sufficient number of shares of Common
Stock or Preferred Stock is authorized under the
Company's articles of incorporation on the date of
conversion of any convertible Preferred Stock,
(b) appropriate corporate action has been taken to
authorize the issuance of any shares of Common Stock or
Capital Securities upon conversion of any convertible
Preferred Stock and to establish the terms thereof,
(c) the Preferred Stock have been duly issued and
converted in accordance with their terms and in the
manner described in the Registration Statement, the
Prospectus and any Prospectus Supplement relating
thereto, (d) no change occurs in any applicable law or
pertinent facts, when (i) the pertinent provisions of
all securities laws, including state "blue sky" laws,
as may be applicable have been complied with, (ii) the
Preferred Stock are converted in accordance with their
terms, and (iii) the Common Stock or Capital
Securities, as the case may be, have been duly
executed, authenticated and delivered, such shares of
Common Stock or Capital Securities, as the case may be,
will be duly authorized, legally issued and fully paid
and nonassessable and valid obligations of the Company
enforceable in accordance with their respective terms.
(9) Assuming (a) a sufficient number of shares of Common
Stock or Preferred Stock is authorized under the
Company's articles of incorporation on the date of
conversion or exchange of any Debt Securities,
(b) appropriate corporate action has been taken to
authorize the issuance of any shares of Common Stock,
Preferred Stock or Capital Securities upon conversion
or exchange of any Debt Securities and to establish the
terms thereof, (c) the Debt Securities have been duly
issued and converted or exchanged, as the case may be,
in accordance with their terms and the terms of the
applicable Indenture and in the manner described in the
Registration Statement, the Prospectus and any
Prospectus Supplement relating thereto, and (d) no
change occurs in any applicable law or fact, when
(i) the pertinent provisions of all securities laws,
including state "blue sky" laws, as may be applicable
have been complied with, (ii) the Debt Securities are
converted or exchanged in accordance with their terms
and the terms of the applicable Indenture, and
(iii) such shares of Common Stock, Preferred Stock, or
Capital Securities, as the case may be, have been duly
executed, authenticated, and delivered, such shares of
Common Stock, Preferred Stock or Capital Securities, as
the case may be, will be duly authorized, legally
issued and fully paid and nonassessable and valid
obligations of the Company enforceable in accordance
with their respective terms.
The opinions expressed in Paragraph 2 relating to the
Indentures constituting valid and legally binding obligations of
the Company and in Paragraphs 3, 6, 7, 8 and 9 above, relating to
whether the securities described therein will constitute valid
and legal obligations of the Company that will be enforceable in
accordance with their terms, are subject to the exception that
enforcement thereof may be limited by (a) applicable bankruptcy,
insolvency, reorganization, liquidation, receivership,
conservatorship, readjustment of debt, arrangement, moratorium or
other laws relating to or affecting the rights of creditors
generally, (b) any laws, regulations, or judicial decisions
affecting the rights of creditors of a savings and loan holding
company and any power granted to the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation (the
"FDIC"), or any successor thereto in the event of bankruptcy or
insolvency of any subsidiary of the Company whose deposits are
insured by the FDIC or in the event the FDIC or any other person
is appointed conservator or receiver for any such subsidiary, and
(c) general principles of equity, including without limitation,
concepts of materiality, reasonableness, good faith and fair
dealing, and the possible unavailability of specific performance,
injunctive relief or other equitable remedies, regardless of
whether such enforceability is considered in a proceeding in
equity or at law.
We consent to the filing of this opinion as an exhibit to
the Registration Statement, and to the references to us under the
heading "Legal Matters" in the related Prospectus. In giving
this consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the Rules and
Regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
STEVENS & LEE
/s/ Stevens & Lee
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption
"Experts" in the Registration Statement (Form S-3 No. 333-09113)
for the registration of Common Stock, Common Stock Warrants, Debt
Securities, Debt Warrants, Preferred Shares and Preferred Share
Warrants with an aggregate initial public offering price of up to
$200,000,000 and to the incorporation by reference therein of our
report dated January 17, 1996, with respect to the consolidated
financial statements of Sovereign Bancorp, Inc. included in its
Annual Report on Form 10-K for the year ended December 31, 1995,
filed with the Securities and Exchange Commission.
Reading, Pennsylvania
July 31, 1996 /s/ Ernst & Young LLP
EXHIBIT 23.2
Consent of Independent Certified Public Accountants
The Board of Directors
Sovereign Bancorp, Inc.
We hereby consent to the incorporation in Registration
Statement on Form S-3 of Sovereign Bancorp, Inc. relating to
Registration No. 333-09113 to be filed on or about August 1, 1996
of our report dated November 23, 1994, with respect to the
consolidated statements of income, changes in shareholders'
equity and cash flows for the year ended September 30, 1993 of
Charter FSB Bancorp, Inc. and subsidiary, which report appears in
the Annual Report on Form 10-K of Sovereign Bancorp, Inc. for the
year ended December 31, 1995.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Woodbridge, New Jersey
July 31, 1996
