PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Section 240.14a-12
SOVEREIGN BANCORP, INC.
(Name of Registrant as Specified in its Charter)
_________________________________________________________________
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<PAGE>
SOVEREIGN BANCORP
March 17, 1997
Dear Shareholder:
Sovereign Bancorp's Annual Meeting of Shareholders will be
held on Thursday, April 17, 1997, at 10:00 a.m. in the Baron Room
of The Sheraton Berkshire Inn, Route 422 West, Papermill Road
Exit, Wyomissing, Pennsylvania. For your convenience, directions
to The Sheraton Berkshire Inn are included on the back cover of
this Proxy Statement.
Sovereign's Board of Directors believes that it is important
for Sovereign's shareholders to participate personally in the
process by which Sovereign's directors are elected. The election
of diligent, active, involved, and responsible directors is the
linchpin of corporate governance at Sovereign. Sovereign's Board
actively chooses, directs and compensates Sovereign's senior
management, establishes programs to oversee Sovereign's
compliance with laws and reviews corporate plans, policies and
commitments with a view to representing all of Sovereign's
shareholders, including its shareholders, customers, team members
and the communities Sovereign serves.
The Notice and Proxy Statement, which are contained in the
following pages, describe the business to be conducted at the
meeting. Proposals 1, 2, and 3 to be acted on at the Meeting
have been unanimously approved and recommended by Sovereign's
Board of Directors. We urge you to read carefully the
description of the proposals and to vote for their adoption.
If you cannot attend the Meeting, your shares should still
be represented at the Meeting. We urge you to sign and date the
enclosed proxy card and return it in the enclosed envelope as
soon as possible. Please indicate and return the enclosed proxy
card and the enclosed ticket if you intend to be present at the
meeting.
We urge you to participate in the Meeting in person or by
proxy. Thank you very much for your continued interest in
Sovereign.
Sincerely,
Richard E. Mohn
Chairman of the Board
Jay S. Sidhu
President
and Chief Executive Officer
<PAGE>
SOVEREIGN
BANCORP
_____________________
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
to be held April 17, 1997
_____________________
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Shareholders (the "Meeting") of Sovereign Bancorp, Inc.
("Sovereign") will be held on April 17, 1997, at 10:00 a.m.
(Eastern Time) at The Sheraton Berkshire Inn, Wyomissing,
Pennsylvania, for the following purposes:
(1) To elect three (3) Class I directors of Sovereign
to serve for a term of three years and until their
successors shall have been elected and qualified;
(2) To consider and act upon a proposal to amend
Sovereign's Articles of Incorporation to increase the number
of authorized shares of common stock from 100,000,000 shares
to 200,000,000 shares;
(3) To ratify the appointment by Sovereign's Board of
Directors of Ernst & Young LLP as Sovereign's independent
auditors for the fiscal year ending December 31, 1997; and
(4) To transact such other business as may properly be
presented at the Meeting.
Shareholders of record at the close of business on March 3,
1997, are entitled to notice of, and to vote at the Meeting.
WHETHER OR NOT YOU PLAN ON ATTENDING THE MEETING IN PERSON,
PLEASE SIGN, DATE, AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED.
BY ORDER OF THE BOARD OF DIRECTORS
LAWRENCE M. THOMPSON, JR.
Secretary
Wyomissing, Pennsylvania
March 17, 1997
<PAGE>
SOVEREIGN BANCORP, INC
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
(610) 320-8400
_______________________________
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 17, 1997
_______________________________
GENERAL INFORMATION
Solicitation of Proxies. This Proxy Statement is furnished
in connection with the solicitation of proxies by the Board of
Directors of Sovereign Bancorp, Inc. ("Sovereign"), parent
company of Sovereign Bank and Sovereign Community Bank, for use
at Sovereign's annual meeting of shareholders to be held
April 17, 1997, or any adjournment thereof (the "Meeting"). The
Proxy Statement and the accompanying proxy are first being mailed
to shareholders of Sovereign on or about March 17, 1997. The
expense of soliciting proxies will be borne by Sovereign. It is
expected that the solicitation of proxies will be made primarily
by mail. Sovereign's directors, officers and team members may
also solicit proxies personally, by telephone and by telegraph.
In addition, Sovereign has retained Georgeson & Company Inc. to
assist with the solicitation of proxies at an estimated cost of
$8,000 plus reasonable out-of-pocket expenses.
Voting and Revocation of Proxies. The execution and return
of the enclosed proxy will not affect a shareholder's right to
attend the Meeting and vote in person. Any shareholder giving a
proxy may revoke it at any time before it is exercised by
submitting written notice of its revocation or a subsequently
executed proxy bearing a later date to the Secretary of
Sovereign, or by attending the Meeting and electing to vote in
person. Shareholders of record at the close of business on
March 3, 1997 (the "Record Date"), are entitled to notice of, and
to vote at, the Meeting. On the Record Date, there were
57,961,683 (unadjusted for the 6-for-5 stock split effected on
March 14, 1997) shares of Sovereign common stock outstanding,
each of which will be entitled to one vote at the Meeting.
If the enclosed proxy is appropriately marked, signed and
returned in time to be voted at the Meeting, the shares
represented by the proxy will be voted in accordance with the
instructions marked thereon. Signed proxies not marked to the
contrary will be voted "FOR" the election, as directors, of the
Board of Directors' nominees; "FOR" the proposal to amend
Sovereign's Articles of Incorporation to increase the number of
authorized shares of common stock from 100,000,000 to 200,000,000
shares; and "FOR" the ratification of Ernst & Young LLP as
Sovereign's independent auditors for 1997. Signed proxies will
be voted "FOR" or "AGAINST" any other matter that properly comes
before the Meeting or any adjournment thereof, in the discretion
of the persons named as proxyholders.
Quorum. The presence, in person or by proxy, of
shareholders entitled to cast at least a majority of the votes
that all shareholders are entitled to cast shall constitute a
quorum at the Meeting. Abstentions and broker nonvotes with
respect to one or more proposals voted upon at the Meeting will
be included for purposes of determining the presence of a quorum
at the Meeting.
INFORMATION CONCERNING THE BOARD OF DIRECTORS,
SOVEREIGN'S GOVERNANCE PROCEDURES
AND COMMITTEES OF THE BOARD OF DIRECTORS
Sovereign's Articles of Incorporation provide that the
number of Sovereign directors shall consist of not less than six
nor more than twenty members, as fixed by the Board of Directors
from time to time. The Articles also provide that the Board
shall be divided into three classes, which under applicable law,
must be, in terms of the number of directors in each class, as
nearly equal as possible. The Board presently consists of eight
members.
Consistent with what it perceives to be good principles of
corporate governance, Sovereign's historic practice has been to
require that the preponderance of its Board consists of outside,
non-employee directors, presently eight, and to delegate
important policy making and oversight functions to committees
which also consist predominantly of outside directors. A
description of the committees which possess significant corporate
governance responsibilities is set forth below.
- - Sovereign's Audit Committee consists of five directors, all
of whom are outside directors. Sovereign's Audit Committee
serves as the principal liaison among the Board of
Directors, Sovereign's independent certified public
accountants and Sovereign's internal audit function. It is
responsible, among other things, for reporting to
Sovereign's Board on the results of the annual audit. The
Committee reviews and evaluates the scope of the audit,
accounting policies and reporting practices, internal
auditing, internal controls, security procedures and other
matters considered appropriate. The Committee also reviews
the performance of Sovereign's independent certified public
accountants in connection with their audit of Sovereign's
financial statements. Importantly, from a corporate
governance perspective, it also regularly evaluates their
independence from Sovereign and Sovereign's management.
Depending on the nature of matters under review, the outside
auditors, and such officers and other team members, as
necessary, attend all or part of the meetings of the
Committee. Sovereign's Audit Committee met twice during
1996.
- - Sovereign's Nominating Committee consists of five directors,
all of whom are outside directors. Sovereign's by-laws
provide for both shareholder and Board nomination of
director candidates. The Committee has the important task
of taking the first step toward assuring good corporate
governance by identifying, reviewing and recommending, to
the full Board, potential nominees for submission to
Sovereign's shareholders for election as directors of
Sovereign or for election to fill vacancies on the Board.
The Committee strives to identify, review and recommend only
those nominees who appear to possess (i) the highest
personal and professional ethics, integrity and values;
(ii) sufficient education and breadth of experience to
understand, evaluate and suggest solutions to the many
problems facing financial institutions in an increasingly
competitive environment; (iii) a reasoned and balanced
commitment to Sovereign's social responsibilities; (iv) an
interest in and the availability of time to be involved in
Sovereign's affairs over a sustained period; (v) the
reputation and stature required to represent Sovereign in
the communities Sovereign serves, as well as before
Sovereign's shareholders and other stakeholders; (vi) a
willingness to objectively appraise management performance
in the interest of Sovereign and its stakeholders; (vii) an
open mind on all policy issues affecting the overall
interests of Sovereign and its stakeholders, and
(viii) involvement only in other activities or interests
which do not create a conflict, or the appearance of a
conflict, with the director's responsibilities to Sovereign
and its stakeholders. The Committee's review of candidates
is performed without regard to gender, race or religious
affiliation. One of the objectives of this review is to
have a Board which consists of members with a mix of diverse
backgrounds, skills, experiences and personalities which
will foster, not only good decision making, but also the
chemistry to create an environment encouraging active,
constructive, and informed participation among Board
members. The Committee met once during 1996.
- - Sovereign's Corporate Governance and Ethics Committee, which
Sovereign believes to be one of the few such Board
committees in the United States, consists of five directors,
all but one of whom are outside directors. The Chairman of
the Committee also serves as Chairman of Sovereign Bank's
Ethics Committee. The Committee monitors, oversees and
reviews compliance, by Sovereign's directors, officers and
team members with Sovereign's Code of Conduct. Sovereign's
Code of Conduct regulates potential conflicts of interest
and transactions between Sovereign and its affiliates, the
possible misuse or abuse of confidential information by
Sovereign affiliates, and trading in Sovereign stock by
Sovereign affiliates. The Committee function, therefore, is
to assure, to the extent practicable, that Sovereign's
directors, management, other affiliates and team members act
in accordance with the highest standards of professional and
ethical conduct. When exercising its authority, the
Committee is required to consider Sovereign's mission,
vision and values, including the impact of its actions on
Sovereign's stakeholders, including Sovereign's
shareholders, customers and team members, and the
communities Sovereign serves. The Committee also is
required to periodically review Sovereign's Code of Conduct
and to make recommendations to the Board with respect to
modification. During 1996 Sovereign expanded the scope of
the responsibility of this Committee to specifically include
corporate governance matters. The Committee met once during
1996.
- - Sovereign's Compensation Committee consists of five
directors, all of whom are outside directors. This
Committee is responsible for the important task of studying
and making recommendations to the Board on compensating and
providing incentive to executive management, principally
Sovereign's Chief Executive Officer. Among other
responsibilities, the Committee makes appraisals of the
performance of the Chief Executive Officer. In addition,
the Committee reviews Sovereign's executive compensation
structure in an effort to insure that executive compensation
(i) is competitive and (ii) is closely linked to Sovereign's
financial performance. The committee also attempts to
assure, through programs which are substantially weighted in
favor of the use of Sovereign stock as a compensation
medium, that the interests of executive management are
aligned, to the extent practicable, with the interests of
Sovereign's shareholders. This Committee met once during
1996.
- - Sovereign's Community Reinvestment and Public Responsibility
Committee consists of five directors, three of whom are
outside directors and two of whom are employee directors.
The Committee reviews Sovereign's programs, which strive to
meet Sovereign's social responsibilities to the communities
which it serves by, among other things, providing credit to
all segments of such communities, including low to moderate
income individuals. The Committee reviews Sovereign's
pursuit of opportunities which contribute to the growth and
vitality of these communities while conforming to safe and
sound lending practices and to the many laws and regulations
which are applicable to financial institutions. The
Committee reviews and recommends to the Board Sovereign's
annual Community Reinvestment Act Plan, including a review
of Sovereign Bank's credit programs and results, in an
effort to assure that they are socially useful, economically
sound and nondiscriminatory. The Committee met once during
1996.
Sovereign also maintains a number of other important
committees, including Sovereign's Merger and Acquisition
Committee, Sovereign's Pension Committee, Sovereign's Risk
Management Committee, and Sovereign's Executive Committee.
Sovereign's Merger and Acquisition Committee, which met once
during 1996, consists of four directors, three of whom are
outside directors. The Committee reviews and recommends to
Sovereign's Board of Directors candidates for acquisition by
Sovereign. Sovereign's Pension Committee, which met twice during
1996, consists of five directors, two of whom are outside
directors. This Committee administers Sovereign's Pension Plan,
Employee Stock Ownership Plan, Stock Purchase Plan,
401(k) Retirement Savings Plan and Sovereign's Long Term Deferred
Compensation Plan. This Committee also approves Sovereign's
investment policy and guidelines, reviews investment performance,
and appoints and retains trustees and investment managers for
Sovereign's retirement plans. Sovereign's Risk Management
Committee assesses the major risks which impact on Sovereign's
earnings, asset quality, operations, as well as interest rate
risk. The Committee consists of six directors, five of whom are
outside directors. The Risk Management Committee met twice
during 1996. The Board of Directors also has an Executive
Committee, which has the ability to exercise all of the powers of
the Board in the management and direction of the business and
affairs of Sovereign between Board meetings, except those, which
by statute, are reserved to the Board of Directors. This
Committee, which met once during 1996, consists of six directors,
five of whom are outside directors.
____________________
Also consistent with the principles of what it perceives to
be good corporate governance, Sovereign's Board, working with
management, has established a series of practices and procedures
to assure a flow of information about Sovereign's business to its
directors in an effort to maximize continued active interest,
involvement and participation by Board members, as well as
diligent and effective Board decision making.
New Sovereign directors receive manuals which include
information on Sovereign's vision, mission, values and style, as
well as copies of Sovereign's by-laws, policies, procedures and
guidelines. They are also provided with an opportunity to meet
with Sovereign's management and visit Sovereign's facilities.
Pre-meeting materials are routinely distributed to Board
members in advance of meetings. These materials include in-depth
reports on each of Sovereign's critical success factors,
including reports on asset quality, cost containment, interest
rate and other risks. These materials also include reports for
each of Sovereign's divisions, consisting not only of financial
data, but also production, sales and marketing data and
information on market and industry trends, as well. These
materials also include background and write-ups on items coming
before the Board. In an effort to be informed, directors also
periodically visit sites of new branches and acquisitions, as
well as other Sovereign locations germane to the decision making
process.
Senior and executive officers routinely attend at least a
portion of every Board meeting and they, and other members of
management, frequently brief and seek advice from the Board, not
only on items coming before the Board, but also on new products,
marketing strategies and human resource initiatives. The Board
periodically invites professionals and representatives of
securities firms to make presentations to the Board in order to
make the Board more aware, among other things, of investor
perceptions of Sovereign. The Board also holds periodic meetings
with Sovereign's senior regulators in order for these regulators
to make the Board more aware of the changing regulatory
environment, and industry trends, as well as to discuss their
assessment of Sovereign. Board members take these and other
opportunities to actively discuss Sovereign specific and industry
specific information and trends with these officers and other
visitors.
Sovereign's Board meets once or twice each year, over a
two-day period, with Sovereign's executive management team to
review Sovereign's business plans, discuss corporate strategy and
evaluate Sovereign's strengths, weaknesses, opportunities and
threats, as well as to review Sovereign's progress against
Sovereign's vision, mission, values and critical success factors.
Sovereign's Board also extensively studies Sovereign's
strategic alternatives including sale, continuing its current
strategy, or engaging in a merger of equals at least once a year.
Sovereign has pursued this policy for the past three years and
expects to continue it in the future, particularly in light of
rapidly changing competitive conditions. Investment banking
firms are usually asked to provide material for and/or to make
presentations to or otherwise assist the Board at these sessions.
In addition, Sovereign's Board has identified the following
areas of Board and Board Committee involvement and responsibility
as its principal areas of focus in its effort to achieve good
corporate governance and to represent Sovereign's stakeholders
effectively:
1. Ongoing active and participatory review of
Sovereign's strategic plan and its long range
goals and of Sovereign's performance against such
plan and goals, and the evaluation of the
desirability, as appropriate, of modifications to
such plans and goals;
2. Monitoring of Sovereign's activities which may
pose significant risks to Sovereign and of
Sovereign's programs to respond to and contain
such risks;
3. Ongoing review and monitoring of Sovereign's
progress in achieving its critical success
factors;
4. Periodic, independent and objective review of the
performance and development of the Chief Executive
Officer and other members of executive management
and their compensation relative to such
performance, as well as succession planning;
5. Ongoing review of Sovereign's adherence to its
corporate "Mission," "Vision" and "Values," which
include Sovereign's articulation of its
responsibilities to its stakeholders, including
its shareholders, customers, team members, and the
communities Sovereign serves;
6. Regular, periodic study, with outside assistance,
of Sovereign's strategic alternatives, including
sales;
7. Ongoing review of, and compliance with,
Sovereign's policies and procedures, particularly
its Code of Conduct, and other policies designed
to assure compliance by Sovereign with law and
regulation;
8. The selection process for nominees for election to
Sovereign's Board and the overall quality,
interest, diligence, participation and
contribution of its members; and
9. The availability, dissemination and explanation of
the information which the Board and management
believe is needed for the Board to perform its
duties diligently and effectively in the interest
of Sovereign's stakeholders.
The Board met 14 times during 1996. Each director attended
at least 75% of the total number of meetings of the Board and its
Committees on which the director served.
In addition to consisting principally of outside directors,
Sovereign's Board occasionally excludes management directors from
meetings. It also otherwise acts in an independent manner and
considers itself to be interested, diligent, actively involved in
Sovereign's affairs and otherwise dedicated to principles of good
corporate governance.
ELECTION OF DIRECTORS
Sovereign's Board of Directors consists of eight members and
is divided into three classes: Class II directors, whose term
expires in 1998; Class III directors, whose term expires in 1999;
and Class I directors, whose present term expires in 1997 at the
Meeting and, if and when elected at the Meeting, whose term will
expire in 2000.
The Board of Directors has unanimously nominated Fred D.
Hafer, Patrick J. Petrone and Cameron C. Troilo, Sr. for election
as Class I directors of Sovereign. Mr. Hafer was appointed a
Class I director by the Board of Directors in January 1997 to
fill a vacancy created as a result of an increase by the Board in
the size of Class I. Mr. Troilo was nominated as a Class I
director to succeed Theodore Zialek, who will retire from the
Board of Directors at the conclusion of his term at the Meeting.
Harold D. Mackey, a Class II member of the Board of Directors
will retire effective March 31, 1997. Each of the nominees has
consented to being named in this Proxy Statement and to serve if
elected. If any of the nominees become unable to accept
nomination or election, the persons named in the proxy may vote
for a substitute nominee selected by the Board of Directors.
Sovereign's management, however, has no present reason to believe
that any nominee listed below will be unable to serve as a
director, if elected.
The three nominees who receive the highest number of votes
cast at the Meeting will be elected Class I directors. Shares
represented by properly executed proxies in the accompanying form
will be voted for the Class I nominees named below unless
otherwise specified in the proxy by the shareholder. Any
shareholder who wishes to withhold authority from the
proxyholders to vote for the election of directors or to withhold
authority to vote for any individual nominee may do so by marking
his or her proxy to that effect. Shareholders cannot cumulate
their votes for the election of directors. No proxy may be voted
for a greater number of persons than the number of nominees
named.
The following table sets forth certain information
concerning the nominees for election as Class I directors of
Sovereign, the continuing Class II and Class III directors of
Sovereign, each named present or former executive officer of
Sovereign set forth in the summary compensation table on page
___, and all Sovereign directors and executive officers as a
group, including their ownership of shares of common stock of
Sovereign as of March 3, 1997. Unless otherwise indicated in a
footnote, each such Sovereign director and each such named
executive officer holds sole voting and investment power over the
shares listed as beneficially owned. Unless otherwise indicated
in a footnote, shares indicated as being subject to options are
shares issuable pursuant to options outstanding and vested under
the Sovereign's stock option plans.
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Director Beneficial of Common
Name Age Since Ownership(1) Stock
<S> <C> <C> <C> <C>
NOMINEES AS CLASS I DIRECTORS
TO SERVE UNTIL 2000
Fred D. Hafer ................... 56 1997 300(2) --
Patrick J. Petrone .............. 67 1987 164,013(3) .3
Cameron C. Troilo, Sr. .......... 74 1979 364,180(4) .6
CONTINUING AS CLASS II DIRECTORS
TO SERVE UNTIL 1998
Rhoda S. Oberholtzer ............ 66 1979 24,833(5) --
Daniel K. Rothermel ............. 58 1976 34,550(6) --
CONTINUING CLASS III DIRECTORS
TO SERVE UNTIL 1999
Richard E. Mohn ................. 66 1981 371,842(7) .6
Jay S. Sidhu .................... 45 1987 1,593,882(8) 2.7
G. Arthur Weaver ................ 64 1971 74,820(9) .1
EXECUTIVE OFFICERS
Karl D. Gerhart ................. 43 N/A 318,441(10) .5
Lawrence M. Thompson, Jr. ....... 43 N/A 225,469(11) .4
All Sovereign Directors and
executive officers as a group
(10 persons) .................... 3,172,320(12) 5.4
_______________
</TABLE>
(1) The table reflects data supplied by each director and
executive officer. The table has also been adjusted to
reflect a 6-for-5 stock split announced on January 16, 1997,
and payable March 14, 1997, to shareholders of record on
March 3, 1997. The table also reflects shares of Sovereign
stock owned by the trustee of Sovereign's Employee Stock
Ownership Plan which have been allocated to the accounts of
the executive officers identified in the table and as a
group.
(2) Mr. Hafer holds shared voting and investment power over all
of such shares.
(3) Mr. Petrone holds shared voting and investment power over
62,974 shares. Time in service includes years Mr. Petrone
served as director of Sovereign's and Sovereign Bank's
predecessor institutions.
(4) Shares and percent include 42,905 shares subject to options.
(5) Shares and percent include 348 shares held by
Mrs. Oberholtzer's spouse.
(6) Shares and percent include ________ shares held by
Mr. Rothermel's spouse with respect to which Mr. Rothermel
disclaims beneficial ownership.
(7) Shares and percent include 103,454 shares held by Mr. Mohn's
spouse and Mr. Mohn holds 38,419 shares subject to options.
(8) Mr. Sidhu holds shared voting and investment power over
___________ shares. Shares and percent include 692,883
shares subject to options, [118,934] shares held by
Mr. Sidhu's spouse and ________ shares held by Sovereign's
401(k) Retirement Savings Plan that are allocated to
Mr. Sidhu's account. Shares and percent include 11,464
shares purchased and held by the Sovereign Employee Stock
Ownership Plan (the "Sovereign ESOP") which are allocated to
Mr. Sidhu's account and over which he exercises voting
power.
(9) Mr. Weaver holds shared voting and investment power over
47,229 shares.
(10) Mr. Gerhart holds shared voting and investment power over
10,052 shares. Mr. Gerhart's shares and percent include
54,512 shares subject to options and ________ shares held by
Sovereign's 401(k) Retirement Savings Plan which are
allocated to Mr. Gerhart's account. Shares and percent
include ________ shares purchased and held by the Sovereign
ESOP which are allocated to Mr. Gerhart's account and over
which he exercises voting power.
(11) Mr. Thompson holds shared voting and investment power over
________ shares. Mr. Thompson's shares and percent include
154,929 shares subject to options and ________ shares held
by Sovereign's 401(k) Retirement Savings Plan which are
allocated to Mr. Thompson's account. Shares and percent
include ________ shares purchased and held by the Sovereign
ESOP that are allocated to Mr. Thompson's account and over
which he exercises voting power.
(12) In the aggregate, these persons hold shared voting and
investment power over ________ shares. Shares and percent
include ________ shares subject to options and ________
shares held by Sovereign's 401(k) Retirement Savings Plan
allocated to the executive officers' accounts. Shares and
percent include ________ shares purchased and held by the
Sovereign ESOP that are allocated to participant accounts
and over which they exercise voting power.
________________
The principal occupation and business experience during the
last five years of, and other information with respect to, each
nominee for election as a director of Sovereign and of each
continuing director of Sovereign is as follows:
[PHOTO INSERT Fred D. Hafer. Mr. Hafer was appointed President
TO COME] and Chief Operating Officer of GPU, Inc. (public
utility company) in 1996. Prior thereto, he
served as President and Chief Operating Officer of
Metropolitan Edison Co. ("Met-Ed") and
Pennsylvania Electric Co. from 1994. Prior
thereto, he served as President and Chief
Operating Officer of Met-Ed from 1986. Mr. Hafer
has served as a director of GPU, Inc. since 1996.
[PHOTO INSERT Richard E. Mohn. Mr. Mohn became Chairman of the
TO COME] Board of Sovereign Bank in November, 1989, and
Chairman of Sovereign in April, 1995. He is
Chairman of Cloister Spring Water Company,
Lancaster, Pennsylvania, a bottler and distributor
of spring water. Mr. Mohn serves as a member of
Sovereign's Executive, Compensation, Community
Reinvestment and Public Responsibility Committee,
Ethics, Merger and Acquisition, Pension and Risk
Management Committees and also serves as Chairman
and as a member of Sovereign's Nominating
Committee.
[PHOTO INSERT Rhoda S. Oberholtzer. Mrs. Oberholtzer is
TO COME] retired. Prior to her retirement she was Floral
Manufacturing Manager of Stauffer's of Kissel
Hill, Lititz, Pennsylvania. Mrs. Oberholtzer
serves on Sovereign's Audit, Community
Reinvestment and Public Responsibility Committee,
Ethics and Risk Management Committees.
[PHOTO INSERT Patrick J. Petrone. Mr. Petrone retired as
TO COME] President of the Charter Federal Savings Bank
Division of Sovereign Bank and as Vice Chairman of
Sovereign Bank in October 1996. Prior to the
merger of Charter Federal Savings Bank into
Sovereign Bank in 1994, he served as President and
Chief Executive Officer of Charter and of Charter
Federal. Mr. Petrone previously served as
President and Chief Executive Officer of Charter
since 1990 and President and Chief Executive
Officer of Charter Federal since 1989.
Mr. Petrone serves on Sovereign's Executive,
Ethics, Merger and Acquisition, and Risk
Management Committees, and also serves as Chairman
and as a member of Sovereign's Community
Reinvestment and Public Responsibility Committee.
[PHOTO INSERT Daniel K. Rothermel. Mr. Rothermel became
TO COME] President and Chief Executive Officer of Cumru
Associates, Inc., a private holding company in
1989. He retired, in 1989, as Vice President,
General Counsel and Secretary of Carpenter
Technology Corporation, a publicly held specialty
steel manufacturer, a position he held for more
than ten years. Mr. Rothermel is a member of
Sovereign's Audit, Compensation, Merger and
Acquisition, Nominating and Pension Committees,
and also serves as Chairman and as a member of
Sovereign's Executive and Ethics Committees.
[PHOTO INSERT Jay S. Sidhu. Mr. Sidhu became President and
TO COME] Chief Executive Officer of Sovereign in November
1989, and was named President and Chief Executive
Officer of Sovereign Bank in March 1989.
Mr. Sidhu previously served as Treasurer and Chief
Financial Officer of Sovereign since the
organization of Sovereign in 1987. Mr. Sidhu
serves as a member of Sovereign's Executive,
Community Reinvestment and Public Responsibility
Committee, Ethics, Pension, and Risk Management
Committees, and also serves as Chairman and a
member of Sovereign's Merger and Acquisition
Committee.
[PHOTO INSERT Cameron C. Troilo, Sr. Mr. Troilo is the owner
TO COME] and President of Cameron C. Troilo, Inc., a
holding company for entities engaged in the
construction, building material supply, and real
estate management businesses.
[PHOTO INSERT G. Arthur Weaver. Mr. Weaver is a real estate and
TO COME] insurance executive with the George A. Weaver
Company, New Holland, Pennsylvania. Mr. Weaver
serves on Sovereign's Executive, Audit, Ethics,
Nominating and Risk Management Committees, and
also serves as Chairman and a member of
Sovereign's Compensation Committee.
Compensation Paid to Directors
Sovereign believes that the amount, form and methods used to
determine compensation are an important ingredient in
(i) attracting and maintaining directors who are independent,
interested, diligent and actively involved in Sovereign's
affairs, and (ii) more substantially aligning the interests of
Sovereign's directors with the interests of Sovereign's
stakeholders.
In 1996, shareholders approved the Non-Employee Director
Compensation Plan as a means of compensating non-employee
directors of Sovereign and Sovereign Bank for all services
rendered as directors. The Plan requires that, on a quarterly
basis, all persons serving as directors of Sovereign and/or
Sovereign Bank receive a fixed number of shares of Sovereign
common stock, plus cash equal to the difference between the value
of Sovereign common stock received and the individual's quarterly
compensation. Sovereign's Chairman must receive the total amount
of his compensation in Sovereign common stock. For 1996,
directors of Sovereign who also served as directors of Sovereign
Bank received 675 shares of Sovereign common stock quarterly plus
cash sufficient to provide total quarterly compensation of $9,500
and directors of Sovereign only received 500 shares of Sovereign
common stock quarterly plus cash sufficient to provide total
quarterly compensation of $7,500. Sovereign's Chairman received
Sovereign common stock with a value sufficient to provide
quarterly compensation of $25,000.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
Sovereign Bancorp, Inc.'s Executive Compensation Program is
administered by the Compensation Committee of the Board of
Directors. The Compensation Committee is composed entirely of
non-employee Directors. The Executive Compensation Program is
structured and administered to support Sovereign's mission, which
is to be a highly focused, quality driven, market led and results
oriented company, seeking continually to outperform the market in
terms of consistency, growth in earnings, quality of earnings and
return on equity. The program is also structured to link
executive compensation to Sovereign's performance and, through
programs which are substantially weighted in favor of the use of
Sovereign stock as a compensation medium, to more closely align
the interests of executive management with those of Sovereign's
shareholders.
The Compensation Committee evaluates and recommends, to the
Board of Directors, compensation and awards for the Chief
Executive Officer. The Chief Executive Officer, Jay S. Sidhu,
evaluates and approves compensation and awards for the other
executive officers. Such compensation and awards are based upon
Sovereign's performance and each individual's performance in
meeting personal and team objectives.
Compensation Philosophy
The Executive Compensation Program of Sovereign has been
designed to:
- Align the interests of executives with the long-
term interests of shareholders through award
opportunities which result in ownership of common
stock;
- Motivate key team members to achieve a superior
level of quality performance and financial results
by rewarding them for their achievement; and
- Support a pay-for-performance policy that
supplements overall company compensation amounts
based on company-wide results, team oriented
results and individual performance.
Components of Compensation
At present, the Executive Compensation Program is comprised
of salary, annual cash incentive opportunities, long-term
incentive opportunities in the form of options to acquire
Sovereign stock and employee benefits, which are also
significantly stock based. As an executive's level of
responsibility increases, a greater portion of his or her
potential total compensation opportunity is based on performance
incentives and less on salary and employee benefits, causing
greater variability in the individual's absolute compensation
from year-to-year. Base salary levels for the executive officers
of Sovereign are set below average compared to other companies
within its peer group, which consists of other thrifts and thrift
holding companies in the $5 billion to $15 billion asset range.
The peer group used in determining compensation is different from
and broader than the peer group (the three (3) largest
Pennsylvania bank holding companies) used in the performance
graph (see "Performance Graph") because, although Sovereign is
the fourth (4th) largest financial institution headquartered in
Pennsylvania, it is smaller in asset size than all of the
companies in the performance graph peer group. Executives can
have the opportunity for total cash compensation to exceed the
average salary for peer group companies upon Sovereign's
achievement of predetermined financial goals and objectives set
by the Compensation Committee and the Board of Directors. The
intent is to have incentive compensation tied to performance
results.
The Chief Executive Officer's base salary increased in
January 1997 from $245,000 to $295,000. The Compensation
Committee based the Chief Executive Officer's base salary in 1995
and 1996 on a variety of factors, including the salaries of the
chief executive officers of comparable companies in the financial
services industry to which it compares its financial results.
The salary increase granted to the Chief Executive Officer in
1997 was not based on any mathematical formula and did not
directly relate to any quantitative factors. The increase was
determined in the Compensation Committee's sole discretion after
its consideration of competitive data, the Board of Directors'
assessment of his performance during 1995 and 1996 and
recognition of Sovereign's performance, which for 1995 and 1996
was generally above its peer group in terms of return on equity,
net income and growth in assets through mergers and acquisitions.
The other named executive officers were granted salary increases
each year based on individual performance, contributions to
Sovereign and level of responsibility.
Short-Term Incentive Compensation
Incentive compensation awards in 1997 were based on a review
of Sovereign's 1996 performance. This review included an
assessment of Sovereign's results of operations for 1996 and of
how Sovereign met and exceeded financial goals, set in early
1996, for return on equity, earnings and capital levels for 1996.
The goals reflected the Board of Directors' determination of the
appropriate goals for a growth oriented company. No bonuses
would have been paid to executive management if Sovereign's
return on beginning equity at January 1, 1996 was less than 15%
for the year ended December 31, 1996. Pursuant to a formula
recommended by the Compensation Committee and approved by the
Board early in 1996, if Sovereign's return on beginning equity
was 15% or better for 1996, Mr. Sidhu was entitled to a bonus for
1996 based on a sliding scale of various percentages of
Sovereign's profits beginning at 0.65% for a 15% return on
beginning equity to 0.9% for a 16.5% or better return on
beginning equity. Mr. Sidhu was also entitled to receive special
bonuses for 1996 if Sovereign's profits exceeded $65.5 million
and if Sovereign closed or announced an acquisition of $400
million or greater by December 31, 1996.
The Compensation Committee determined the amount of bonus
paid to Mr. Sidhu and Mr. Sidhu determined the bonuses paid to
the other named executives. In a continuing effort to align the
interests of executive management with the interests of
shareholders by making a higher percentage of compensation stock
based, Mr. Sidhu's bonus increases by 5% if he agrees to use his
bonus to increase his stake in Sovereign by purchasing shares of
Sovereign common stock with the bonus. The bonuses of certain
executive officers, from time-to-time, are likewise increased if
they agree to purchase stock. Because Sovereign's return on
beginning equity and profits exceeded Sovereign's targets and
Mr. Sidhu agreed to purchase stock with his bonus, he was paid an
incentive compensation award of $567,000 for 1996 representing
1.10% of Sovereign's profits for 1996.
Long-Term Incentive Compensation
Sovereign's shareholders approved the 1996 Stock Option Plan
at the 1996 Annual Meeting of Shareholders. The 1996 Plan, like
its predecessor plans, is a long-term plan designed not only to
provide incentive to management, but also to align a significant
portion of the Executive Compensation Program with shareholder
interests. The 1996 Stock Option Plan permits Sovereign to grant
certain officers a right to purchase shares of stock over a ten
(10) year period, at the fair market value per share at the date
the option is granted. In granting incentive stock options to
Mr. Sidhu and the other executive officers, the Compensation
Committee took into account Sovereign's financial performance,
Sovereign's long-term strategic goal of increasing shareholder
value, the executive's level of responsibility and his continuing
contributions to Sovereign. In 1996, shareholders also approved
the Non-Employee Director Compensation Plan, which is designed to
more closely align the interests of directors with those of
shareholders by requiring that a preponderant portion of a non-
employee director's annual compensation for Board membership be
paid in shares of Sovereign common stock.
The following tables, and the accompanying narrative and
footnotes, reflect the decisions covered by the above discussion.
This report has been furnished by the Compensation Committee
whose members are:
G. Arthur Weaver, Chairman
Richard E. Mohn
Daniel K. Rothermel
Theodore Ziaylek, Jr.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the
annual and long-term compensation for services in all capacities
to Sovereign for the fiscal years ended December 31, 1996, 1995
and 1994, of those persons who during 1995, (i) served as
Sovereign's chief executive officer or (ii) were executive
officers (other than the chief executive officer) whose total
annual salary and bonus exceeded $100,000 (collectively with the
chief executive officer, the "Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
Securities
Underlying All Other
Options/ Compensa-
Name and Salary Bonus SARs(2) tion(3)(4)
Principal Position Year ($) ($)(1) (#) ($)
<S> <C> <C> <C> <C> <C>
Jay S. Sidhu 1996 $245,000 $567,000 26,250 4,500
President and 1995 195,000 460,479 0 4,725
Chief Executive Officer 1994 195,000 422,158 0 4,710
Karl D. Gerhart 1996 125,000 86,055 10,500 4,500
Chief Financial 1995 114,038 85,555 0 4,065
Officer and Treasurer 1994 103,846 40,000 0 3,115
Lawrence M. Thompson, Jr. 1996 125,000 88,315 10,500 2,548
Chief Administrative 1995 114,038 85,555 0 3,859
Officer and Secretary 1994 103,462 40,000 0 3,104
</TABLE>
(1) Mr. Sidhu's bonus for 1996 was increased by 5% because
Mr. Sidhu agreed to purchase Sovereign common stock with the
proceeds of such bonus.
(2) Does not reflect 6-for-5 stock split effected through
March 14, 1997 to shareholders of record on March 3, 1997.
(3) Does not include the value of 11,633, 8,550, and 8,335
shares of Sovereign Common Stock allocated to the accounts
of Messrs. Sidhu, Gerhart and Thompson, respectively, under
the terms of Sovereign's Employee Stock Ownership Plan as of
December 31, 1996.
(4) Amounts appearing in this column are Sovereign's
contributions on behalf of each named person to the
Sovereign Bancorp, Inc. 401(k) Retirement Savings Plan, and,
in the case of Messrs. Sidhu and Thompson, include
Sovereign's contributions to the Sovereign Bancorp, Inc.
Nonqualified Deferred Compensation Plan.
____________________
The following table sets forth information concerning grants
of stock options during the fiscal year ended December 31, 1996
to the named executive officers.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Annual Rates of
Underlying Granted to Exercise Price Appreciation
Options Employees or Base for Option Term
Granted(1) in Fiscal Price(2) Expiration
Name (#) Year ($/Sh) Date 5%(%)(3) 10%($)(3)
<S> <C> <C> <C> <C> <C> <C>
Jay S. Sidhu 26,250 39.29% $ 9.40 1/24/06 $ 154,875 $ 393,488
Karl D. Gerhart 10,500 15.71 9.40 1/24/06 61,950 157,395
Lawrence M. Thompson, Jr. 10,500 15.71 9.40 1/24/06 61,950 157,395
_________________________
</TABLE>
(1) All amounts represent nonqualified stock options. Terms of
outstanding options are for a period of ten years and one
month from the date the option is granted. An option may
only be exercised after the holder has been an employee of
Sovereign or one of its subsidiaries for one full year from
the date the option is granted or one full year from the
date the employee's employment is terminated "at the
convenience of the employer." Options are not exercisable
following an optionee's voluntary termination of employment
other than by reason of retirement or disability.
(2) Under the terms of the plan, the exercise price per share
must equal the fair market value on the date the option is
granted. The exercise price may be paid in cash, in shares
of Sovereign common stock valued at fair market value on the
date of exercise or pursuant to a cashless exercise
procedure under which the optionee provides irrevocable
instructions to a brokerage firm to sell the purchased
shares and to remit to Sovereign, out of the sale proceeds,
an amount equal to the exercise price plus all applicable
withholding taxes.
(3) The dollar amounts set forth under these columns are the
result of calculations made at the 5% and 10% appreciation
rates set forth in Securities and Exchange Commission
regulations and are not intended to indicate future price
appreciation, if any, of Sovereign common stock.
The following table sets forth information concerning
exercised and unexercised options to purchase Sovereign common
stock:
<TABLE>
<CAPTION>
AGGREGATED OPTIONS EXERCISED IN LAST YEAR AND DECEMBER 31, 1996 OPTION VALUE
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
December 31, December 31,
1996 (#) 1996 ($)
Shares
Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Jay S. Sidhu 57,204 $516,981 430,929/261,954 $4,656,365/$1,787,836
Karl D. Gerhart 0 0 10,500/34,927 39,113/238,377
Lawrence M. Thompson, Jr. 0 0 94,180/34,927 974,327/238,377
____________________
</TABLE>
(1) Table does not reflect 6-for-5 stock split effected on
March 14, 1997 to shareholders of record on March 3, 1997.
Pension Plan
Sovereign maintains a defined benefit retirement plan
("Pension Plan") for all employees who have attained age 21 and
have completed one year of eligibility service. The following
table sets forth the estimated annual benefits payable upon
retirement to participants at normal retirement age, in the
average annual salary and years of service classifications
specified.
<TABLE>
<CAPTION>
SOVEREIGN BANCORP, INC. PENSION PLAN
ILLUSTRATION OF BENEFITS AT DECEMBER 31, 1996
Five Year
Average Benefits Payable Per Years of Service(1)(2)
Remuneration(3) 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 60,000 $11,583 $15,445 $19,306 $23,167 $27,028
80,000 17,283 23,045 28,806 34,567 40,328
100,000 22,983 30,645 38,306 45,967 53,628
120,000 28,683 38,245 47,806 57,367 66,928
140,000 34,383 45,845 57,306 68,767 80,228
160,000 37,233(4) 49,645(4) 62,056(4) 74,467(4) 86,878(4)
180,000 37,233(4) 49,645(4) 62,056(4) 74,467(4) 86,878(4)
200,000 37,233(4) 49,645(4) 62,056(4) 74,467(4) 86,878(4)
220,000 37,233(4) 49,645(4) 62,056(4) 74,467(4) 86,878(4)
240,000 37,233(4) 49,645(4) 62,056(4) 74,467(4) 86,878(4)
____________________
</TABLE>
(1) The following are the years of credited service under
Sovereign's Pension Plan for the persons named in the cash
compensation table: Mr. Sidhu -- 10 years; Mr. Thompson --
11 years; Mr. Gerhart -- 20 years.
(2) Benefits are computed in single life annuity amounts on the
basis of an assumed year of birth of 1950 and without any
deduction for Social Security or other offset amounts.
(3) Represents the highest average remuneration received over a
consecutive five-year period during the last ten years,
excluding deferred compensation other than 401(k) Retirement
Savings Plan contributions, subject in the cases of Messrs.
Sidhu, Gerhart and Thompson to a compensation limit of
$150,000 in 1996.
(4) The 1996 maximum annual benefit permitted when the Internal
Revenue Code's annual compensation limit of $150,000 and
maximum annual benefit limit are applied to the Pension
Plan's benefit formula.
CERTAIN TRANSACTIONS
Employment Agreements
Sovereign entered into an employment agreement, dated
September 15, 1992, with Jay S. Sidhu, which superseded, in its
entirety, Mr. Sidhu's then existing employment agreement.
Mr. Sidhu's agreement had an initial term of three years and,
unless terminated as set forth therein, is automatically extended
at designated dates to provide a new term of three years except
that, at certain times, notice of nonextension may be given, in
which case the agreement will expire at the end of its then
current term. No such notice has been given.
The agreement provides a base salary which, if increased by
action of the Board of Directors, becomes the new base salary
provided thereafter by the agreement. In addition, the agreement
provides, among other things, a right to participate in any bonus
plan approved by the Board of Directors and insurance, vacation,
pension and other fringe benefits for Mr. Sidhu.
If Mr. Sidhu's employment is terminated without "Cause," or
if Mr. Sidhu voluntarily terminates employment for "Good Reason"
(as defined in the agreement), Mr. Sidhu becomes entitled to
severance benefits under the agreement. "Good Reason" includes
the assignment of duties and responsibilities inconsistent with
Mr. Sidhu's status as President and Chief Executive Officer, a
reduction in salary or benefits or a reassignment which requires
Mr. Sidhu to move his principal residence more than 100 miles
from Sovereign's principal executive office. If any such
termination occurs prior to September 15, 1997, the benefits are
monthly cash payments in the aggregate amount of $1.5 million,
plus insurance and other fringe benefits, payable for the longer
of 36 months or the end of the contract term. If any such
termination occurs on or after September 15, 1997, the benefits
are monthly cash payments in the aggregate amount of the greater
of (i) $1.5 million or (ii) three times base salary and bonus
(equal to the average bonus for the prior three years), plus
insurance and other fringe benefits, payable for the longer of 36
months or the end of the contract term. Cash benefits payable
upon any such termination are reduced by an amount equal to 25%
of any compensation earned from another employer. The agreement
contains a provision restricting the executive's right to compete
after a voluntary termination of employment without "Good Reason"
or any termination for "Cause;" in all other circumstances, after
termination of employment, there is no covenant not to compete.
Sovereign has also entered into employment agreements with
Karl D. Gerhart and Lawrence M. Thompson, Jr., each dated
September 15, 1992, which superseded in their entirety the
executives' then existing employment agreements. Each agreement,
has an initial term of two years and, unless terminated as set
forth therein, is automatically extended at certain dates to
provide a new term of two years except that at certain times
notice of nonextension may be given, in which case the agreement
will expire at the end of its then current term. Each agreement
provides a base salary which, if increased by action of the Board
of Directors, becomes the new base salary provided thereafter by
the agreement. In addition, each agreement provides, among other
things, a right to participate in any bonus plan approved by the
Board of Directors and insurance, vacation, pension and other
fringe benefits for the executive.
If Mr. Gerhart's or Mr. Thompson's employment is terminated
without "Cause" (as defined in the agreements), whether or not a
"Change in Control" (as defined in the agreements) of Sovereign
has occurred, or if Mr. Gerhart or Mr. Thompson voluntarily
terminates employment for "Good Reason" (as defined in the
agreements) following a "Change in Control," the executive
becomes entitled to severance benefits under the agreement. The
benefits are continuation of salary, bonus (equal to the average
bonus for the three prior years), and insurance and other fringe
benefits for two years. If, in the absence of a "Change in
Control," Mr. Gerhart's or Mr. Thompson's employment is
terminated without "Cause," cash benefits payable under the
agreement are reduced by an amount equal to 25% of any
compensation received from another employer. Each agreement
contains a provision restricting the executive's right to compete
after a voluntary termination of employment without "Good Reason"
or any termination for "Cause"; in all other circumstances, after
termination of employment, there is no covenant not to compete.
Indemnification
The by-laws of Sovereign provide for (1) indemnification of
directors, officers, employees and agents of Sovereign and its
subsidiaries and (2) the elimination of a director's liability
for monetary damages, each to the fullest extent permitted by
Pennsylvania law. Pennsylvania law provides that a Pennsylvania
corporation may indemnify directors, officers, employees and
agents of the corporation against liabilities they may incur in
such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify
the person under any provision of law, unless such action or
failure to act is determined by a court to have constituted
recklessness or willful misconduct. Pennsylvania law also
permits the adoption of a by-law amendment, approved by
shareholders, providing for the elimination of a director's
liability for monetary damages for any action taken or any
failure to take any action unless (1) the director has breached
or failed to perform the duties of his office and (2) the breach
or failure to perform constitutes self-dealing, willful
misconduct or recklessness.
Directors and officers of Sovereign are also insured against
certain liabilities for their actions, as such, by an insurance
policy obtained by Sovereign. The premium for 1995 was $249,940.
On December 21, 1993, Sovereign Bank entered into an
Indemnification Agreement (the "Indemnification Agreement") with
Mr. Sidhu. The Indemnification Agreement provides that Sovereign
Bank will indemnify Mr. Sidhu to the fullest extent permitted by
applicable law and regulation for all expenses, judgments, fines
and penalties incurred in connection with, and amounts paid in
settlement of, any claim relating to, among other things, the
fact that Mr. Sidhu is or was a director or officer of Sovereign
or Sovereign Bank (an "Indemnifiable Claim"). Sovereign Bank
will also advance expenses upon Mr. Sidhu's request in connection
with any Indemnifiable Claim.
Sovereign Bank's indemnification obligations are subject to
the condition that a Reviewing Party (as defined in the
Indemnification Agreement) shall not have determined that
Mr. Sidhu would not be permitted to be indemnified under
applicable law. To the extent that it is subsequently determined
that Mr. Sidhu is not entitled to indemnification, he shall
reimburse Sovereign Bank for any amounts previously paid.
Upon a Change in Control (as defined in the Indemnification
Agreement) of Sovereign or Sovereign Bank, all determinations
regarding Sovereign Bank's indemnification obligations under the
Agreement shall be made by Independent Legal Counsel (as defined
in the Indemnification Agreement). Upon a Potential Change in
Control (as defined in the Indemnification Agreement) of
Sovereign or Sovereign Bank, Sovereign Bank shall, upon written
request by Mr. Sidhu, create and fund a trust for the benefit of
Mr. Sidhu in order to ensure satisfaction of Sovereign Bank's
indemnification obligations under the Indemnification Agreement.
Indebtedness of Management
Prior to August 1989, Sovereign Bank offered consumer and
residential mortgage loans to directors of Sovereign and its
subsidiaries, full-time employees with six months continuous
service at Sovereign Bank, and part-time employees with one year
of continuous service at Sovereign Bank, at preferential terms
with respect to interest rates and loan fees. Specifically,
interest rates offered to such persons were up to 1% lower than
rates offered to nonaffiliated persons for similar transactions,
and certain loan origination fees were waived. As a result of
the enactment in August 1989 of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, which made certain
provisions of the Federal Reserve Act applicable to Sovereign and
Sovereign Bank, any credit extended by Sovereign Bank to
executive officers and directors of Sovereign Bank and Sovereign,
and to the extent otherwise permitted, principal shareholders of
Sovereign or any related interest of the foregoing must be (i) on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions by Sovereign Bank with non-affiliated parties, and
(ii) not involve more than the normal risk of repayment or
present other unfavorable features.
The following table sets forth certain information with
respect to the one director and executive officer of Sovereign,
whose aggregate indebtedness to Sovereign Bank exceeded $60,000
as of December 31, 1996, and whose loan was granted on
preferential terms applicable to directors, officers and
employees of Sovereign Bank and Sovereign at the time the loan
was made.
<TABLE>
<CAPTION>
Highest
Principal
Balance from
Jan. 1, 1996 to Balance at Interest Year
Name Type of Loan Dec. 31, 1996 Dec. 31, 1995 Rate Made
<S> <C> <C> <C> <C> <C>
Jay S. Sidhu Consumer Loan $95,104 $21,270 1.0% 1987
above
prime rate
</TABLE>
Except as set forth above, all loans made by Sovereign Bank
to directors and executive officers of Sovereign (i) were made in
the ordinary course of business, (ii) were made on substantially
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other
persons, and (iii) did not involve more than the normal risk of
collectability or present other unfavorable features.
Additional Information Regarding Directors and Officers.
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires Sovereign's officers and
directors, and any persons owning ten percent or more of
Sovereign's common stock, to file in their personal capacities
initial statements of beneficial ownership, statements of changes
in beneficial ownership and annual statements of beneficial
ownership with the Securities and Exchange Commission (the
"SEC"). Persons filing such beneficial ownership statements are
required by SEC regulation to furnish Sovereign with copies of
all such statements filed with the SEC. The rules of the SEC
regarding the filing of such statements require that "late
filings" of such statements be disclosed in Sovereign's proxy
statement. Based solely on Sovereign's review of any copies of
such statements received by it, and on written representations
from Sovereign's existing directors and officers that no annual
statements of beneficial ownership were required to be filed by
such persons, Sovereign believes that all such statements were
timely filed in 1996.
Performance Graph
Set forth below is a graph and table comparing the yearly
percentage change in the cumulative total shareholder return on
Sovereign's common stock against (1) the cumulative total return
on the S&P 500 Index, (2) the cumulative total return on the
NASDAQ Combination Bank Index, and (3) the cumulative total
return on the largest three Pennsylvania bank holding companies
(CoreStates Financial Corp, Mellon Bank Corp. and PNC Bank Corp.)
for the five-year period commencing January 1, 1992, and ending
December 31, 1996.
Cumulative total return on Sovereign's common stock, the S&P
500 Index, the NASDAQ Combination Bank Index and the common stock
of the largest three Pennsylvania bank holding companies equals
the total increase in value since January 1, 1992, assuming
reinvestment of all dividends. The graph and table were prepared
assuming that $100 was invested on January 1, 1992, in
Sovereign's common stock, the S&P 500, the NASDAQ Combination
Bank Index and the common stock of the largest three Pennsylvania
bank holding companies.
<TABLE>
<CAPTION>
Sovereign Bancorp, Inc.
Performance Graph
[Graph to be inserted separately]
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
S&P 500 $100 $103.97 $111.30 $109.59 $146.97 $176.75
NASDAQ Combination 100 152.02 196.67 198.84 287.95 363.26
Bank Index
Sovereign 100 197.66 350.84 231.25 319.85 438.23
Top 3 Banks in PA(1) 100 139.73 136.80 123.69 204.68 273.95
____________
</TABLE>
(1) Includes CoreStates Financial Corp, Mellon Bank Corp. and
PNC Bank Corp.
Principal Shareholders
The following table sets forth information regarding persons
known by Sovereign to own more than 5% of the outstanding shares
of Sovereign's common stock.
Amount and Nature
Name and Address of Beneficiary Percent of
of Beneficial Owner Ownership Common Stock
York Bank & Trust Company 4,140,622 7.1%
P.O. Box 869
21 East Market Street
York, Pennsylvania 17401
(1) As of March 3, 1997, 4,140,622 shares of Common Stock
(approximately 7.1% of outstanding shares of Common Stock)
were held of record by a nominee for York Bank & Trust
Company, trustee for the Sovereign Bancorp, Inc. Employee
Stock Ownership Plan (the "ESOP"). Under the terms of the
ESOP, shares held by the ESOP are allocated to individual
employee accounts as the debt incurred to purchase the
shares is repaid. Once allocated to an individual employee
account, shares are voted in the manner directed by the
employee. Prior to allocation, the trustee is required to
vote the shares in its discretion. As of March 3, 1997,
735,860 shares were allocated to the accounts of Sovereign
employees and 3,404,762 shares were unallocated.
PROPOSAL TO AMEND SOVEREIGN'S ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 100,000,000 SHARES TO 200,000,000 SHARES
The Board of Directors has approved an amendment to Article
Fifth of the Articles of Incorporation which, if adopted, would
increase the number of authorized shares of Sovereign common
stock from 100,000,000 to 200,000,000 shares. The Board of
Directors recommends that shareholders approve this amendment.
At March 3, 1997, there were 57,961,683 shares of Sovereign
common stock issued and outstanding (unadjusted for the 20% stock
split effected on March 14, 1997). Of the remaining
42,038,317 shares of authorized common stock on such date, in
excess of 25,000,000 shares may be issued in connection with
Sovereign's pending acquisition of Bankers Corp. (the exact
number dependent on the value of Sovereign common stock at the
closing) and approximately 15,000,000 shares are reserved for
issuance under Sovereign's dividend reinvestment and various
employee benefit plans and for conversions of Sovereign's
outstanding cumulative convertible preferred stock, leaving only
approximately 2,000,000 shares of common stock available for
issuance.
Matter No. 2 is being proposed because the Board of
Directors believes that it is advisable to have a greater number
of authorized but unissued shares of common stock available for
various corporate programs and purposes. Sovereign may from time
to time consider acquisitions, stock dividends or stock splits,
and public or private financings to provide Sovereign with
capital, which may involve the issuance of additional shares of
common stock or securities convertible into common stock. Also,
additional shares of common stock may be necessary to meet
anticipated future obligations under Sovereign's dividend
reinvestment and stock purchase plan and under Sovereign's
employee benefit plans. The Board of Directors believes that
having authority to issue additional shares of common stock will
avoid the possible delay and significant expense of calling and
holding a special meeting of shareholders to increase authorized
capital.
Sovereign has no present plan, agreement or understanding
involving the issuance of its common stock except for shares
required or permitted to be issued under employee benefit plans,
upon exercise of outstanding stock options, upon conversion of
Sovereign's outstanding cumulative convertible preferred stock,
under Sovereign's shareholder rights plan, and in connection with
Sovereign's pending acquisition of Bankers Corp. It is possible,
however, that additional merger and acquisition opportunities
involving the issuance of shares of common stock will develop.
It is also possible that an increase in the market price for
common stock, and conditions in the capital markets generally,
may make a stock dividend, a stock split or a public offering of
Sovereign's stock desirable. Sovereign believes that an increase
in the number of authorized shares of Sovereign's common stock
will enhance its ability to respond promptly to any such
opportunities.
If Matter No. 2 is approved, the Board of Directors will not
solicit shareholder approval to issue additional authorized
shares of common stock, except to the extent that such approval
may be required by law, and such shares may be issued for such
consideration, cash or otherwise, at such times and in such
amounts as the Board of Directors may determine. Under the rules
of the National Association of Securities Dealers, Inc.
applicable to Sovereign, shareholder approval must be obtained
prior to the issuance of shares for certain purposes, including
the issuance of greater than 20% of Sovereign's then outstanding
shares in connection with an acquisition by Sovereign.
Although the Board of Directors presently intends to employ
the additional shares of Common Stock solely for the purposes set
forth above, such shares could be used by the Board of Directors
to dilute the stock ownership of persons seeking to obtain
control of Sovereign, thereby possibly discouraging or deterring
a nonnegotiated attempt to obtain control of Sovereign and making
removal of incumbent management more difficult. The proposal,
however, is not a result of, nor does the Board of Directors have
knowledge of, any effort to accumulate Sovereign capital stock or
to obtain control of Sovereign by means of a merger, tender
offer, solicitation in opposition to the Board of Directors or
otherwise.
Article Fifth of Sovereign's Articles of Incorporation also
authorizes the issuance of 7,500,000 shares of preferred stock,
which the Board of Directors has the power to issue as a class or
in series and to determine the voting power, if any, dividend
rates, conversion or redemption prices, designations, rights,
preferences and limitations of the shares in the class or in each
series. The proposed amendment to Article Fifth of Sovereign's
Articles of Incorporation will not increase or otherwise affect
Sovereign's authorized preferred stock. As of March 3, 1997,
there were 2,000,000 shares of Sovereign's cumulative convertible
preferred stock outstanding and no shares of any other series of
preferred stock outstanding.
The amendment of the Articles of Incorporation to increase
the number of authorized shares of common stock from 100,000,000
to 200,000,000 will consist of a revision of Article Fifth of the
Articles of Incorporation to provide as follows:
"FIFTH. The aggregate number of shares of capital
stock which the Corporation shall have authority to
issue is 207,500,000 shares, divided into two classes
consisting of 200,000,000 shares of common stock
without par value ("Common Stock") and 7,500,000 shares
of preferred stock having such par value as the board
of directors shall fix and determine, as provided in
Article Sixth below ("Preferred Stock").
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS
AMENDMENT. The affirmative vote of a majority of all votes cast
at the Meeting is required to approve this amendment.
Abstentions and broker non-votes will not constitute or be
counted as "votes" cast for purposes of the Meeting. All proxies
will be voted "FOR" approval of the amendment unless a
shareholder specifies to the contrary on such shareholder's proxy
card.
PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of Sovereign has appointed Ernst &
Young LLP, certified public accountants, as Sovereign's
independent auditors for the fiscal year ending December 31,
1997. No determination has been made as to what action
Sovereign's Board of Directors would take if shareholders do not
ratify the appointment.
Ernst & Young LLP has conducted the audit of the financial
statements of Sovereign and its subsidiaries for the year ended
December 31, 1996. Representatives of Ernst & Young LLP are
expected to be present at the Meeting, will be given an
opportunity to make a statement if they desire to do so, and will
be available to answer appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE APPOINTMENT OF ERNST & YOUNG LLP AS SOVEREIGN'S
INDEPENDENT AUDITORS FOR THE 1997 FISCAL YEAR. The affirmative
vote of a majority of all votes cast at the Meeting is required
to ratify the appointment. Abstentions and broker non-votes will
not constitute or be counted as "votes" cast for purposes of the
Meeting. All proxies will be voted "FOR" ratification of the
appointment unless a shareholder specifies to the contrary on
such shareholder's proxy card.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Sovereign's 1998 Annual Meeting of Shareholders will be held
on or about April 16, 1998.
In accordance with the By-Laws of Sovereign, a shareholder
who desires to propose a matter for consideration at an annual
meeting of shareholders must provide notice thereof in writing,
delivered or mailed by first-class United States mail, postage
prepaid, to the Secretary of Sovereign, not less than 90 days nor
more than 120 days prior to such annual meeting.
Any shareholder who desires to submit a proposal to be
considered for inclusion in Sovereign's proxy materials relating
to its 1998 Annual Meeting of Shareholders must submit such
proposal in writing, addressed to Sovereign Bancorp, Inc. at
1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610 (Attn:
Secretary), on or before November 17, 1997.
DIRECTOR NOMINATIONS BY SHAREHOLDER
In accordance with the by-laws of Sovereign, any shareholder
entitled to vote for the election of directors may nominate
candidates for election to the Board by providing notice thereof
in writing and delivered or mailed to Sovereign not less than
90 days prior to the date of the 1998 Annual Meeting of
Shareholders.
Any shareholder who desires to submit a candidate to be
considered for nomination to the Board of Directors for inclusion
in Sovereign's proxy materials relating to its 1998 Annual
Meeting of Shareholders must submit the same information as that
required to be stated by Sovereign in its Proxy Statement with
respect to nominees of the Board of Directors. The shareholder
nomination should be submitted in writing, addressed to Sovereign
Bancorp, Inc. at 1130 Berkshire Boulevard, Wyomissing,
Pennsylvania 19610 (Attn: Secretary), on or before January 16,
1998.
ANNUAL REPORT
Sovereign's Annual Report to the Shareholders for the year
ended December 31, 1996, is enclosed herewith. Sovereign's
Annual Report is furnished to shareholders for their information.
No part thereof is incorporated by reference herein.
UPON WRITTEN REQUEST OF ANY SHAREHOLDER, A COPY OF
SOVEREIGN'S ANNUAL REPORT ON FORM 10-K FOR ITS FISCAL YEAR ENDED
DECEMBER 31, 1996, INCLUDING A LIST OF THE EXHIBITS THERETO,
REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 13a-1 UNDER THE SECURITIES EXCHANGE ACT OF 1934,
MAY BE OBTAINED, WITHOUT CHARGE, FROM LAWRENCE M. THOMPSON, JR.,
SECRETARY, SOVEREIGN BANCORP, INC., 1130 BERKSHIRE BOULEVARD,
WYOMISSING, PENNSYLVANIA 19610. EACH REQUEST MUST SET FORTH A
GOOD FAITH REPRESENTATION THAT, AS OF THE RECORD DATE, THE PERSON
MAKING THE REQUEST WAS A BENEFICIAL OWNER OF SOVEREIGN'S COMMON
STOCK ENTITLED TO VOTE AT THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
LAWRENCE M. THOMPSON, JR.
Secretary
PLEASE REMEMBER TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR IMPORTANT
VOTE WILL BE COUNTED AT THE ANNUAL MEETING.
<PAGE>
SOVEREIGN BANCORP, INC.
I/We hereby appoint Karl D. Gerhart, Dana J. Albera and
Patricia A. Zong, or any one of them acting in the absence of
others, as proxyholders, each with the power to appoint his or
her substitute, and hereby authorize them to represent and to
vote, as designated on the reverse side, all the shares of common
stock of Sovereign Bancorp, Inc. held of record by me/us on
March 3, 1997, at the Annual Meeting of Shareholders to be held
on April 17, 1997, or any adjournment thereof.
This proxy when properly executed will be voted in the
manner directed on the reverse side. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE
PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF SOVEREIGN
COMMON STOCK, AND FOR THE RATIFICATION OF INDEPENDENT AUDITORS.
This proxy will be voted, in the discretion of the proxyholders,
upon such other business as may properly come before the Annual
Meeting of Shareholders or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS.
Please vote and sign on the other side.<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING
MATTERS 1 THROUGH 3
Please mark your votes as [X]
indicated in this example
MATTER NO. 1
ELECTION OF CLASS I DIRECTORS
PROPOSAL TO INCREASE AUTHORIZED
Fred D. Hafer [ ] FOR all nominees
Patrick J. Petrone listed to the right
Cameron C. Troilo, Sr. (except as marked
to the contrary)
Fred D. Hafer [ ] WITHHOLD AUTHORITY
Patrick J. Petrone to vote for all nominees
Cameron C. Troilo, Sr. listed to the right
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE STRIKE A LINE THROUGH THE NAME IN THE
LIST ABOVE.)
MATTER NO. 2
PROPOSAL TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MATTER NO. 3
RATIFICATION OF INDEPENDENT
AUDITORS
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Please check this box if
you plan to attend the [ ]
1997 Annual Meeting.
The undersigned hereby acknowledges
receipt of the Proxy Statement
dated March 17, 1997 and hereby
revokes any proxy or proxies
heretofore given to vote share at
said meeting or any adjournment
thereof.
Dated:_________________, 1997
________________________________
Signature
________________________________
Signature if held jointly. Please
sign exactly as name appears
hereon.
(PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED
ADDRESSED ENVELOPE)
