[LOGO]
SOVEREIGN BANCORP, INC.
1130 BERKSHIRE BOULEVARD
WYOMISSING, PENNSYLVANIA 19610
July 22, 1997
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders
of Sovereign Bancorp, Inc. ("Sovereign") which will be held at The Sheraton
Berkshire Inn, located at Route 422 West, Papermill Road Exit, Wyomissing,
Pennsylvania, at 10:00 a.m., local time, on August 28, 1997.
At the special meeting, shareholders will be asked to approve and adopt an
Agreement and Plan of Merger providing for the merger of Bankers Corp. with and
into Sovereign. This combination will create a banking services company with
over $12 billion in total assets and leading geographic markets in Pennsylvania
and New Jersey. Your Board of Directors believes that the combination of Bankers
Corp. with Sovereign represents a unique and major opportunity to bring
substantial benefits to both organizations.
The proposed merger is described in the accompanying Joint Proxy
Statement/Prospectus and its annexes. Please read all of these materials
carefully.
SOVEREIGN'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF SOVEREIGN AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD HAS, BY
UNANIMOUS VOTE OF ALL DIRECTORS, APPROVED THE MERGER AND RECOMMENDS THAT YOU
VOTE IN FAVOR OF THE MERGER AT THE SPECIAL MEETING.
Because of the significance of these matters to Sovereign, your
participation in the special meeting, in person or by proxy, is especially
important. We hope you will be able to attend the meeting. However, whether or
not you anticipate attending in person, we urge you to complete, sign and return
the enclosed proxy card promptly to ensure that your shares will be represented
at the special meeting. If you attend the special meeting, you will, of course,
be entitled to vote in person.
Thank you very much for your continued interest and support. We look
forward to seeing you at the meeting.
Sincerely,
/s/ Richard E. Mohn
----------------------------------------
Richard E. Mohn
Chairman of the Board
/s/ Jay S. Sidu
----------------------------------------
Jay S. Sidhu
President and Chief Executive Officer
<PAGE>
SOVEREIGN BANCORP, INC.
1130 BERKSHIRE BOULEVARD
WYOMISSING, PENNSYLVANIA 19610
(610) 320-8400
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 28, 1997
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (including
any adjournment or postponement, the "Sovereign Special Meeting") of SOVEREIGN
BANCORP, INC. ("Sovereign") will be held at The Sheraton Berkshire Inn, located
at Route 422 West, Papermill Road Exit, Wyomissing, Pennsylvania, at 10:00 a.m.,
local time, on Thursday, August 28, 1997, to consider the following matters:
1. To vote on the approval and adoption of the Agreement and Plan of
Merger dated February 5, 1997 (the "Merger Agreement"), between Sovereign
and Bankers Corp. ("Bankers"), providing for the Merger of Bankers with and
into Sovereign (the "Merger"). Pursuant to the Merger Agreement, if the
average value of a share of common stock, no par value, of Sovereign (the
"Sovereign Common Stock"), determined in accordance with the Merger
Agreement over a fifteen-day period immediately prior to the effective date
of the Merger (the "Sovereign Market Value") is between $9.17 and $13.75,
then each share of common stock, $0.01 par value, of Bankers ("Bankers
Common Stock"), other than shares owned by Sovereign, Bankers or any
subsidiary of Bankers, will be converted into and become the right to
receive such number of shares of Sovereign Common Stock, and corresponding
percentage of Sovereign stock purchase rights, as shall equal $25.50 in
value based on the Sovereign Market Value as of the effective date of the
Merger. If, however, the Sovereign Market Value as of the effective date of
the Merger is less than $9.17 or greater than $13.75, shareholders of
Bankers will be entitled to receive a fixed number of shares of Sovereign
Common Stock, as follows: if the Sovereign Market Value as of the effective
date of the Merger is less than $9.17 per share, each share of Bankers
Common Stock will be converted into 2.782 shares of Sovereign Common Stock,
and corresponding percentage of Sovereign stock purchase rights, and (ii)
if the Sovereign Market Value as of the effective date of the Merger is
greater than $13.75 per share, each share of Bankers Common Stock will be
converted into 1.854 shares of Sovereign Common Stock, and corresponding
percentage of Sovereign stock purchase rights. In addition, as further
described in the accompanying Joint Proxy Statement/Prospectus, in the
event that Bankers elects to terminate the Merger Agreement as a result of
a decline in the price of Sovereign Common Stock to $8.59 or less in the
absence of a specified decline in the weighted average prices of a
comparable group of fifteen thrift holding companies, Sovereign can
override such termination by increasing the number of shares issuable in
exchange for each share of Bankers Common Stock from 2.782 shares to such
number of shares of Sovereign Common Stock as shall have an aggregate value
of $23.90 based on the Sovereign Market Value as of the date immediately
preceding the effective date of the Merger. Sovereign will pay cash to
Bankers shareholders in lieu of issuing fractional shares of Sovereign
Common Stock.
2. To vote on adjournment of the Sovereign Special Meeting, if
necessary, to permit further solicitation of proxies in the event there are
not sufficient votes at the time of the Sovereign Special Meeting to
constitute a quorum or approve the Merger Agreement.
3. To consider such other matters as may properly be brought before
the Sovereign Special Meeting.
Only those Sovereign shareholders of record at the close of business on
July 11, 1997, shall be entitled to notice of, and to vote at, the Sovereign
Special Meeting.
Each share of Sovereign Common Stock outstanding will entitle the holder
thereof to one vote on each matter which may properly come before the Sovereign
Special Meeting.
By order of the Board of Directors
/s/ Lawrence M. Thompson, Jr.
----------------------------------------
Lawrence M. Thompson, Jr.
Secretary
July 22, 1997
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. IF YOU ATTEND THE SOVEREIGN SPECIAL MEETING,
YOU MAY VOTE IN PERSON EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY
CARD.
<PAGE>
[LOGO]
July 22, 1997
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders (the
"Bankers Annual Meeting") of Bankers Corp. ("Bankers") to be held on Thursday,
August 28, 1997, at 10:30 a.m., local time, at the Woodbridge Hilton, 120 Wood
Ave. South, Metro Park, Iselin, New Jersey.
At the Bankers Annual Meeting, shareholders will consider and vote upon (i)
the election of two directors to serve on the Bankers Board of Directors for a
term of three years each, (ii) the ratification of the appointment of the firm
of KPMG Peat Marwick LLP as independent auditors of Bankers for the year ending
December 31, 1997 and (iii) the Agreement and Plan of Merger dated February 5,
1997 (the "Merger Agreement"), between Bankers and Sovereign Bancorp, Inc.
("Sovereign"), providing for the merger of Bankers with and into Sovereign (the
"Merger") and the conversion of each outstanding share of common stock, $0.01
par value per share, of Bankers (other than shares, if any, then owned by
Sovereign, Bankers or any subsidiary of Bankers) into shares of common stock, no
par value, of Sovereign ("Sovereign Common Stock") and corresponding percentage
of Sovereign stock purchase rights, based on an exchange ratio to be determined
in accordance with the Merger Agreement, all as more fully described in the
accompanying Joint Proxy Statement/Prospectus. Sovereign will pay cash to
Bankers shareholders in lieu of issuing fractional shares of Sovereign Common
Stock. Completion of the Merger is subject to certain conditions, including the
approval of the Merger Agreement by the shareholders of Bankers and Sovereign
and the approval of the Merger by various regulatory agencies.
The attached Joint Proxy Statement/Prospectus contains important
information concerning the Merger. We urge you to give it your careful
attention. Also enclosed is a copy of the Bankers Annual Report to Shareholders
and Form 10-K for the fiscal year ended December 31, 1996.
The Board of Directors of Bankers has carefully considered and approved the
Merger Agreement and believes that the Merger is in the best interests of
Bankers and its shareholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER
AGREEMENT, FOR THE PROPOSED SLATE OF DIRECTORS NAMED HEREIN AND FOR THE
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER
OR NOT YOU PLAN TO ATTEND THE BANKERS ANNUAL MEETING, THE BOARD OF DIRECTORS OF
BANKERS URGES YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL NOT PREVENT YOU FROM
VOTING IN PERSON AT THE BANKERS ANNUAL MEETING BUT WILL ASSURE THAT YOUR VOTE IS
COUNTED IF YOU ARE UNABLE TO ATTEND. IF YOU ARE A SHAREHOLDER WHOSE SHARES ARE
NOT REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM
YOUR RECORD HOLDER IN ORDER TO VOTE PERSONALLY AT THE BANKERS ANNUAL MEETING.
On behalf of the Board of Directors and our employees, I wish to thank you
for your continued support. We appreciate your interest.
Sincerely yours,
/s/ Joseph P. Gemmell
---------------------------------------
Joseph P. Gemmell
Chairman of the Board,
President and Chief Executive Officer
210 Smith Street, Perth Amboy, NJ 08861 o Telephone: 908/442-4100 o Fax:
908/442-8244
Since 1869
<PAGE>
BANKERS CORP.
210 SMITH STREET
PERTH AMBOY, NEW JERSEY 08861
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 28, 1997
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (including
any adjournment or postponement, the "Bankers Annual Meeting") of Bankers Corp.
("Bankers"), a New Jersey corporation, will be held on Thursday, August 28,
1997, at 10:30 a.m., local time, at the Woodbridge Hilton, 120 Wood Ave. South,
Metro Park, Iselin, New Jersey, to consider and vote upon the following matters,
all as more fully described in the accompanying Joint Proxy
Statement/Prospectus:
1. The election of two directors for a term of three years each.
2. The ratification of the appointment of the firm of KPMG Peat Marwick
LLP as independent auditors of Bankers for the year ending December 31,
1997.
3. The approval and adoption of the Agreement and Plan of Merger dated
February 5, 1997 (the "Merger Agreement"), between Bankers and Sovereign
Bancorp, Inc. ("Sovereign"), which is attached as Annex A to the
accompanying Joint Proxy Statement/Prospectus, providing for the merger of
Bankers with and into Sovereign (the "Merger"). Pursuant to the Merger
Agreement, if the average value of a share of common stock, no par value, of
Sovereign (the "Sovereign Common Stock"), determined in accordance with the
Merger Agreement over a fifteen-day period immediately prior to the
effective date of the Merger (the "Sovereign Market Value") is between $9.17
and $13.75, then each share of common stock, $0.01 par value, of Bankers
("Bankers Common Stock"), other than shares owned by Sovereign, Bankers or
any subsidiary of Bankers, will be converted into and become the right to
receive such number of shares of Sovereign Common Stock, and corresponding
percentage of Sovereign stock purchase rights, as shall equal $25.50 in
value based on the Sovereign Market Value as of the effective date of the
Merger. If, however, the Sovereign Market Value as of the effective date of
the Merger is less than $9.17 or greater than $13.75, shareholders of
Bankers will be entitled to receive a fixed number of shares of Sovereign
Common Stock, as follows: if the Sovereign Market Value as of the effective
date of the Merger is less than $9.17 per share, each share of Bankers
Common Stock will be converted into 2.782 shares of Sovereign Common Stock,
and corresponding percentage of Sovereign stock purchase rights, and (ii) if
the Sovereign Market Value as of the effective date of the Merger is greater
than $13.75 per share, each share of Bankers Common Stock will be converted
into 1.854 shares of Sovereign Common Stock, and corresponding percentage of
Sovereign stock purchase rights. In addition, as further described in the
accompanying Joint Proxy Statement/Prospectus, in the event that Bankers
elects to terminate the Merger Agreement as a result of a decline in the
price of Sovereign Common Stock to $8.59 or less in the absence of a
specified decline in the weighted average prices of a comparable group of
fifteen thrift holding companies, Sovereign can override such termination by
increasing the number of shares issuable in exchange for each share of
Bankers Common Stock from 2.782 shares to such number of shares of Sovereign
Common Stock as shall have an aggregate value of $23.90 based on the
Sovereign Market Value as of the date immediately preceding the effective
date of the Merger. Sovereign will pay cash to Bankers shareholders in lieu
of issuing fractional shares of Sovereign Common Stock.
4. The adjournment of the Bankers Annual Meeting, if necessary, to
permit further solicitation of proxies in the event there are not sufficient
votes at the time of the Bankers Annual Meeting to constitute a quorum or
approve the Merger Agreement.
5. The transaction of such other business as may properly be brought
before the Bankers Annual Meeting.
The Board of Directors of Bankers has determined that an affirmative vote on
each proposal to be considered at the Bankers Annual Meeting is in the best
interests of Bankers and its shareholders and unanimously recommends a vote
"FOR" each proposal.
The Board of Directors of Bankers has fixed the close of business on July 3,
1997 as the record date for determining shareholders entitled to notice of, and
to vote at, the Bankers Annual Meeting. A list of shareholders entitled to vote
at the Bankers Annual Meeting will be available for inspection at Bankers Corp.,
210 Smith Street, Perth Amboy, New Jersey, for a period of ten days prior to the
Bankers Annual Meeting and also will be available for inspection at the Bankers
Annual Meeting.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Margaret L. Paronich
--------------------------------------
Margaret L. Paronich,
Corporate Secretary
Perth Amboy, New Jersey
July 22, 1997
IF YOU HAVE ANY QUESTIONS, PLEASE CALL BANKERS AT (908) 442-4100.
Attention: Margaret L. Paronich
<PAGE>
SOVEREIGN BANCORP, INC. AND BANKERS CORP.
JOINT PROXY STATEMENT
------------------------
SOVEREIGN BANCORP, INC.
PROSPECTUS
------------------------
This Joint Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is
being furnished to shareholders of Sovereign Bancorp, Inc. ("Sovereign"), a
Pennsylvania corporation, and to shareholders of Bankers Corp. ("Bankers"), a
New Jersey corporation, in connection with the solicitation of proxies by the
respective Boards of Directors of Sovereign and Bankers for use at the Special
Meeting of Shareholders of Sovereign to be held on August 28, 1997 (including
any adjournments or postponements thereof, the "Sovereign Special Meeting") and
the Annual Meeting of Shareholders of Bankers to be held on August 28, 1997
(including any adjournments or postponements thereof, the "Bankers Annual
Meeting" and, together with the Sovereign Special Meeting, the "Meetings").
This Proxy Statement/Prospectus relates to up to 35,448,210 shares of
common stock, no par value, of Sovereign ("Sovereign Common Stock") which may be
issued upon the merger of Bankers with and into Sovereign (the "Merger"),
pursuant to an Agreement and Plan of Merger, dated February 5, 1997 (the "Merger
Agreement"). In the Merger, each outstanding share of common stock, par value
$0.01 per share, of Bankers ("Bankers Common Stock") (other than shares, if any,
then owned by Sovereign, Bankers or any subsidiary of Bankers ("Excluded
Shares")), will be converted into and become the right to receive such number of
shares of Sovereign Common Stock, and corresponding percentage of Sovereign
stock purchase rights, as shall equal $25.50 divided by the average of the mean
between the closing high bid and low asked prices of a share of Sovereign Common
Stock (as reported on the Nasdaq National Market) for the 15 consecutive trading
days immediately preceding the effective date (the "Effective Date") of the
Merger (the "Sovereign Market Value"), provided that the Sovereign Market Value
as of the Effective Date is between $9.17 and $13.75 per share. If, however, the
Sovereign Market Value is less than $9.17 per share or greater than $13.75 per
share, shareholders of Bankers will be entitled to receive a fixed number of
shares of Sovereign Common Stock, and corresponding percentage of Sovereign
stock purchase rights, as follows: if the Sovereign Market Value is less than
$9.17 per share, each share of Bankers Common Stock (other than Excluded Shares)
will be converted into 2.782 shares of Sovereign Common Stock, and corresponding
percentage of Sovereign stock purchase rights, and if the Sovereign Market Value
is greater than $13.75 per share, each share of Bankers Common Stock will be
converted into 1.854 shares of Sovereign Common Stock, and corresponding
percentage of Sovereign stock purchase rights. In addition, as further described
herein, in the event that Bankers elects to terminate the Merger Agreement as a
result of a decline in the price of Sovereign Common Stock to $8.59 or less in
the absence of a specified decline in the weighted average prices of a
comparable group of fifteen thrift holding companies, Sovereign can override
such termination by increasing the number of shares issuable in exchange for
each share of Bankers Common Stock from 2.782 shares to such number of shares of
Sovereign Common Stock as shall have an aggregate value of $23.90 based on the
Sovereign Market Value as of the date immediately preceding the Effective Date.
The number of shares of Sovereign Common Stock into which each share of Bankers
Common Stock (other than Excluded Shares) will be converted in the Merger will
be further adjusted to prevent dilution in the event of any stock split,
reclassification or other similar event. Sovereign will pay cash to Bankers
shareholders in lieu of issuing fractional shares of Sovereign Common Stock.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JULY 22, 1997.
(Continued on next page)
<PAGE>
(Continued from previous page)
This Proxy Statement/Prospectus constitutes both the proxy statement of
each of Sovereign and Bankers relating to (i) the solicitation of proxies by
their respective Boards of Directors for use at the Meetings to be held for the
purpose of considering and voting upon a proposal to approve the Merger
Agreement and (ii) the prospectus of Sovereign with respect to the Sovereign
Common Stock to be issued in the Merger. Sovereign Common Stock is quoted on the
Nasdaq National Market. On July 18, 1997, the last sale price of Sovereign
Common Stock as reported on the Nasdaq National Market (symbol: SVRN) was
$15-7/8.
This Proxy Statement/Prospectus is also being furnished to holders of
Bankers Common Stock in connection with the solicitation of proxies to be used
at the Bankers Annual Meeting to elect two directors for a term of three years
each and to ratify the appointment of independent auditors of Bankers for the
year ending December 31, 1997. For convenience of reference, matters common to
both Sovereign and Bankers are addressed first in this Proxy
Statement/Prospectus. Matters relating to the other matters to be considered at
the Bankers Annual Meeting can be found in this Proxy Statement/Prospectus under
the caption "BANKERS ANNUAL MEETING -- OTHER MATTERS."
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed on or about July 22, 1997.
THE SHARES OF SOVEREIGN COMMON STOCK OFFERED HEREBY 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 PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF SOVEREIGN COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
<PAGE>
TABLE OF CONTENTS
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AVAILABLE INFORMATION..................................................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................... 2
SUMMARY................................................................................................... 3
The Companies........................................................................................... 3
The Meetings............................................................................................ 3
The Merger.............................................................................................. 5
Interests of Certain Persons in the Merger.............................................................. 8
Certain Related Transactions............................................................................ 9
Comparison of Shareholder Rights........................................................................ 9
Comparative Per Common Share Data....................................................................... 10
Recent Developments..................................................................................... 12
SELECTED FINANCIAL DATA................................................................................... 14
PRO FORMA COMBINED FINANCIAL INFORMATION.................................................................. 18
Pro Forma Unaudited Combined Condensed Balance Sheet as of March 31, 1997............................... 18
Pro Forma Unaudited Combined Condensed Statements of Income for the Three Months Ended March 31, 1997
and 1996 and the Years Ended December 31, 1996, 1995 and 1994........................................ 20
THE MEETINGS.............................................................................................. 25
Date, Time and Place.................................................................................... 25
Matters to be Considered at the Meetings................................................................ 25
Votes Required.......................................................................................... 25
Voting of Proxies....................................................................................... 26
Revocability of Proxies................................................................................. 27
Record Date; Stock Entitled to Vote; Quorum............................................................. 27
Solicitation of Proxies................................................................................. 27
THE MERGER................................................................................................ 28
Background of and Reasons for the Merger; Recommendations of the Boards of
Directors............................................................................................ 28
Terms of the Merger..................................................................................... 31
Opinions of Financial Advisors.......................................................................... 33
Effective Date of the Merger............................................................................ 44
Exchange of Bankers Stock Certificates.................................................................. 44
Conditions to the Merger................................................................................ 45
Subsidiary Bank Merger.................................................................................. 46
Regulatory Approvals.................................................................................... 46
Representations and Warranties.......................................................................... 47
Business Pending the Merger............................................................................. 47
Dividends............................................................................................... 48
No Solicitation of Transactions......................................................................... 49
Amendment; Waivers...................................................................................... 49
Termination; Effect of Termination...................................................................... 49
Management and Operations after the Merger.............................................................. 51
Employee Benefits and Severance......................................................................... 52
Accounting Treatment.................................................................................... 52
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Certain Federal Income Tax Consequences................................................................. 53
Expenses................................................................................................ 54
Resale of Sovereign Common Stock........................................................................ 54
No Dissenters' Rights of Appraisal...................................................................... 54
Dividend Reinvestment Plan.............................................................................. 54
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................................................ 55
Stock Options........................................................................................... 55
Indemnification; Directors and Officers Insurance....................................................... 55
Consulting Agreement.................................................................................... 55
Employment Agreement.................................................................................... 56
Special Termination Agreements.......................................................................... 56
Outside Directors' Deferred Compensation Plan........................................................... 57
Sovereign Bank Board of Directors....................................................................... 57
CERTAIN RELATED TRANSACTIONS.............................................................................. 58
Stock Option Agreement.................................................................................. 58
INFORMATION WITH RESPECT TO SOVEREIGN..................................................................... 60
General................................................................................................. 60
Market Price of and Dividends on Sovereign Common Stock and Related Shareholder Matters................. 60
INFORMATION WITH RESPECT TO BANKERS....................................................................... 61
General................................................................................................. 61
Market Price of and Dividends on Bankers Common Stock and Related Shareholder Matters................... 61
DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES............................................................... 62
Common Stock............................................................................................ 62
Preferred Stock......................................................................................... 63
Shareholder Rights Plan................................................................................. 66
Special Charter and Pennsylvania Corporate Law Provisions............................................... 66
COMPARISON OF SHAREHOLDER RIGHTS.......................................................................... 68
Directors............................................................................................... 68
Shareholder Meetings.................................................................................... 69
Action by Shareholders Without a Meeting................................................................ 70
Inspection Rights....................................................................................... 70
Shareholder Rights Plan................................................................................. 71
Antitakeover Provisions................................................................................. 71
Required Shareholder Vote............................................................................... 72
Amendment of Bylaws..................................................................................... 74
Mandatory Tender Offer Provision........................................................................ 74
Dissenters' Rights...................................................................................... 74
Dividends............................................................................................... 75
Voluntary Dissolution................................................................................... 75
Preemptive Rights....................................................................................... 75
ADJOURNMENT............................................................................................... 76
BANKERS ANNUAL MEETING -- OTHER MATTERS................................................................... 76
General................................................................................................. 76
</TABLE>
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Security Ownership of Certain Beneficial Owners......................................................... 77
Stock Ownership of Management........................................................................... 78
Election of Directors................................................................................... 79
Information with Respect to Nominees and Continuing Directors........................................... 80
Nominees for Election as Directors...................................................................... 80
Continuing Directors.................................................................................... 80
Board and Committee Meetings............................................................................ 81
Directors' Compensation................................................................................. 81
Compensation Committee Report on Executive Compensation................................................. 82
Compensation Committee Interlocks and Insider Participation............................................. 83
Performance Graph....................................................................................... 84
Executive Compensation.................................................................................. 85
Employment Agreement.................................................................................... 85
Special Termination Agreement........................................................................... 86
Incentive Stock Option Plan and Long-Term Incentive Stock Benefit Plan.................................. 86
Retirement Plan......................................................................................... 87
Supplemental Retirement Plan............................................................................ 88
Certain Relationships and Related Transactions.......................................................... 88
Compliance With Section 16(a) of the Securities Exchange Act of 1934.................................... 88
Ratification of Bankers' Independent Auditors........................................................... 89
EXPERTS................................................................................................... 89
LEGAL MATTERS............................................................................................. 89
OTHER MATTERS............................................................................................. 90
SHAREHOLDER PROPOSALS..................................................................................... 90
ANNEXES
A. Agreement and Plan of Merger between Sovereign Bancorp, Inc. and Bankers Corp., dated February 5,
1997................................................................................................ A-1
B. Stock Option Agreement................................................................................. B-1
C. Opinion of Ryan, Beck & Co., Inc....................................................................... C-1
D. Opinion of Alex. Brown & Sons Incorporated............................................................. D-1
</TABLE>
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<PAGE>
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY SOVEREIGN OR BANKERS. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF SOVEREIGN OR BANKERS SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
All information concerning Sovereign and its subsidiaries contained herein,
incorporated herein by reference or supplied herewith, has been furnished by
Sovereign, and all information concerning Bankers and its subsidiaries contained
herein, incorporated herein by reference or supplied herewith, has been
furnished by Bankers.
AVAILABLE INFORMATION
Sovereign and Bankers are each subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Sovereign and Bankers with the
Commission can be inspected and copied at the offices of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at Seven World Trade Center, New York, New
York 10048, and Citicorp Center, 500 West Madison Avenue, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material also can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, and from the web site that the
Commission maintains at http://www.sec.gov.
Sovereign has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Sovereign Common Stock to be issued pursuant to the Merger Agreement. This
Proxy Statement/Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits thereto. Such additional information may
be obtained from the Commission's principal office in Washington, D.C.
Statements contained in this Proxy Statement/Prospectus or in any document
incorporated in this Proxy Statement/Prospectus by reference or supplied
herewith as to the contents of any contract or other document referred to herein
or therein are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Sovereign (File No.
0-16533) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement/Prospectus:
1. Sovereign's Annual Report on Form 10-K for the year ended December
31, 1996 (as amended on July 10, 1997).
2. Sovereign's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997 (as amended on July 10, 1997).
3. Sovereign's Current Reports on Form 8-K dated February 5, 1997,
February 6, 1997, February 13, 1997, March 18, 1997 and June 17, 1997.
4. Sovereign's Registration Statement on Form 8-A, filed August 14,
1989, pursuant to which Sovereign registered certain stock purchase rights
under the Exchange Act and any amendments or reports filed for the purpose
of updating such Registration Statement.
The following documents filed with the Commission by Bankers (File No.
0-18187) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement/Prospectus:
1. Bankers' Annual Report on Form 10-K for the year ended December 31,
1996.
2. Bankers' Quarterly Report on Form 10-Q for the quarter ended March
31, 1997.
3. Bankers' Current Reports on Form 8-K dated February 11, 1997 and
March 11, 1997.
In addition, all documents filed by Sovereign and Bankers pursuant to
Section 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of
this Proxy Statement/Prospectus and prior to the date of the Meetings shall be
deemed to be incorporated by reference in this Proxy Statement/Prospectus and to
be a part hereof from the dates of filing of such documents. Any
statement contained herein or in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as modified or superseded, to constitute
a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST. DOCUMENTS RELATING TO SOVEREIGN MAY BE REQUESTED FROM
SOVEREIGN BANCORP, INC., 1130 BERKSHIRE BOULEVARD, WYOMISSING, PENNSYLVANIA
19610 (TELEPHONE NUMBER (610) 320-8400), ATTENTION: LAWRENCE M. THOMPSON, JR.,
SECRETARY. DOCUMENTS RELATING TO BANKERS MAY BE REQUESTED FROM BANKERS CORP.,
210 SMITH STREET, PERTH AMBOY, NEW JERSEY 08861 (TELEPHONE NUMBER (908)
442-4100), ATTENTION: MARGARET L. PARONICH, CORPORATE SECRETARY. IN ORDER TO
ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE APPLICABLE MEETING REQUESTS SHOULD
BE RECEIVED BY AUGUST 21, 1997.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/ Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained or
incorporated by reference in this Proxy Statement/Prospectus and the Annexes
hereto. A copy of the Merger Agreement is set forth in Annex A to this Proxy
Statement/Prospectus and reference is made thereto for a complete description of
the terms of the Merger. Shareholders of Sovereign and Bankers are urged to read
carefully this entire Proxy Statement/Prospectus, including the Annexes hereto.
Except as otherwise specifically indicated, all ratios and share data
relating to Sovereign and all share price information relating to the Merger
Agreement have been adjusted to reflect Sovereign's 6-for-5 stock split effected
on March 14, 1997 (the "Stock Split").
THE COMPANIES
Sovereign
Sovereign, a Pennsylvania business corporation, is the holding company for
Sovereign Bank, a federal savings bank ("Sovereign Bank"). At March 31, 1997,
Sovereign and its subsidiaries had total consolidated assets, deposits and
shareholders' equity of approximately $10.3 billion, $5.7 billion and $512
million, respectively. The primary operating entity of Sovereign is Sovereign
Bank. Sovereign Bank's primary business consists of attracting deposits from its
network of 134 community banking offices, and originating commercial, consumer
and residential mortgage loans and home equity lines of credit in the
communities served by those offices. Those offices are located largely in the
Pennsylvania counties of Berks, Lancaster, Bucks, Montgomery, Philadelphia,
Lehigh and Northampton, the New Jersey counties of Essex, Mercer, Ocean,
Monmouth and Union and New Castle county in Delaware.
The principal executive offices of Sovereign are located at 1130 Berkshire
Boulevard, Wyomissing, Pennsylvania 19610, and its telephone number is (610)
320-8400. For further information concerning Sovereign and its subsidiaries, see
"AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE,"
"SELECTED FINANCIAL DATA," "INFORMATION WITH RESPECT TO SOVEREIGN" and
"DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES."
Bankers
Bankers, a New Jersey corporation, is the holding company for Bankers
Savings, a New Jersey state-chartered stock savings bank ("Bankers Savings"). At
March 31, 1997, Bankers had total consolidated assets, deposits and
shareholders' equity of approximately $2.5 billion, $1.7 billion and $198
million, respectively. The sole active subsidiary of Bankers is Bankers Savings,
which has 15 branches located in Middlesex, Monmouth and Ocean counties, New
Jersey. Bankers Savings is principally engaged in the business of taking
deposits and making residential mortgage loans, extending home equity lines of
credit and making consumer and commercial loans.
The principal executive offices of Bankers are located at 210 Smith Street,
Perth Amboy, New Jersey 08861, and its telephone number is (908) 442-4100. For
additional information concerning Bankers, see "AVAILABLE INFORMATION,"
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "SELECTED FINANCIAL DATA" and
"INFORMATION WITH RESPECT TO BANKERS."
THE MEETINGS
General
The Sovereign Special Meeting will be held at The Sheraton Berkshire Inn,
located at 422 West, Papermill Road Exit, Wyomissing, Pennsylvania, at 10:00
a.m., local time, on August 28, 1997.
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The Bankers Annual Meeting will be held at the Woodbridge Hilton, located
at 120 Wood Ave. South, Metro Park, Iselin, New Jersey, at 10:30 a.m., local
time, on August 28, 1997.
Record Dates
The record date for the Sovereign Special Meeting is July 11, 1997 (the
"Sovereign Record Date"). The record date for the Bankers Annual Meeting is July
3, 1997 (the "Bankers Record Date"). Only shareholders of record at the close of
business on the Sovereign Record Date or the Bankers Record Date, as applicable,
will be entitled to receive notice of, and to vote at, the Meetings.
Matters to be Considered at the Meetings
Sovereign. At the Sovereign Special Meeting, holders of Sovereign Common
Stock will consider and vote upon a proposal to approve and adopt the Merger
Agreement attached as Annex A to this Proxy Statement/Prospectus and
incorporated herein by reference. In addition, shareholders of Sovereign are
being asked to approve a proposal to adjourn the Sovereign Special Meeting, if
necessary, to permit further solicitation of proxies in the event there are not
sufficient votes at the Sovereign Special Meeting to constitute a quorum or
approve the Merger Agreement (the "Sovereign Adjournment Proposal").
Shareholders will also consider and vote upon any other matter that may properly
come before the Sovereign Special Meeting.
Bankers. At the Bankers Annual Meeting, holders of Bankers Common Stock
will consider and vote upon a proposal to approve and adopt the Merger Agreement
attached as Annex A to this Proxy Statement/Prospectus and incorporated herein
by reference. Shareholders of Bankers will also consider and vote upon the
election of two directors to serve for a term of three years each and the
ratification of the appointment of independent auditors for the year ending
December 31, 1997. See "BANKERS ANNUAL MEETING -- OTHER MATTERS." In addition,
shareholders of Bankers are being asked to approve a proposal to adjourn the
Bankers Annual Meeting, if necessary, to permit further solicitation of proxies
in the event there are not sufficient votes at the Bankers Annual Meeting to
constitute a quorum or approve the Merger Agreement (the "Bankers Adjournment
Proposal"). Shareholders will also consider and vote upon any other matter that
may properly come before the Bankers Annual Meeting.
See "THE MEETINGS -- Matters to be Considered at the Meetings."
Votes Required
Sovereign. Shareholders entitled to cast at least a majority of the votes
which all shareholders are entitled to cast on the Sovereign Record Date must be
represented in person or by proxy at the Sovereign Special Meeting for a quorum
to be present for purposes of voting on the Merger Agreement and the other
matters to be considered at the Sovereign Special Meeting (other than the
Sovereign Adjournment Proposal). The approval and adoption of the Merger
Agreement and the approval of the Sovereign Adjournment Proposal will each
require the affirmative vote of a majority of the votes cast at the Sovereign
Special Meeting. On the Sovereign Record Date, directors and executive officers
of Sovereign owned approximately 2,836,000 shares of Sovereign Common Stock, or
approximately 4.0% of the then outstanding shares of Sovereign Common Stock; it
is expected that all or substantially all of these shares will be voted in favor
of the Merger Agreement.
Bankers. Shareholders entitled to cast at least a majority of the votes
which all shareholders are entitled to cast on the Bankers Record Date must be
represented in person or by proxy at the Bankers Annual Meeting for a quorum to
be present for purposes of voting on the Merger Agreement and on the other
matters to be considered at the Bankers Annual Meeting (other than the Bankers
Adjournment Proposal). The approval and adoption of the Merger Agreement, the
ratification of the appointment of independent auditors and the approval of the
Bankers Adjournment Proposal will each require the affirmative vote of a
majority of the votes cast, in person or by proxy, at the Bankers Annual
Meeting. Directors are elected by a plurality of the votes cast in person or by
proxy at the Bankers Annual Meeting. Accordingly, the two nominees who receive
the greatest number of votes cast at the Bankers Annual Meeting will be elected
as directors. Each
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holder of shares of Bankers Common Stock outstanding on the Bankers Record Date
will be entitled to one vote for each share held of record (except for shares
held in excess of the Limit, as described below) on each matter to be considered
at the Bankers Annual Meeting. As provided in Bankers' Certificate of
Incorporation, record holders of Bankers Common Stock who beneficially own in
excess of 10% of the outstanding shares of Bankers Common Stock (the "Limit")
are not entitled to any vote with respect to shares held in excess of the Limit.
A person or entity is deemed to beneficially own shares owned by an affiliate
of, as well as persons acting in concert with, such person or entity. Bankers'
Certificate of Incorporation authorizes the Board of Directors of Bankers to
construe and apply the provisions regarding the Limit and to make all
determinations necessary or desirable to implement such provisions.
The directors and executive officers of Bankers have agreed to vote all
shares of Bankers Common Stock that they own on the Bankers Record Date in favor
of the approval and adoption of the Merger Agreement. On the Bankers Record
Date, directors and executive officers of Bankers owned approximately 2,341,086
shares of Bankers Common Stock, or approximately 18.9% of the then outstanding
shares of Bankers Common Stock.
See "THE MEETINGS -- Votes Required."
THE MERGER
Recommendations of the Boards of Directors
Sovereign. The Board of Directors of Sovereign believes that the terms of
the Merger are fair and in the best interests of the shareholders of Sovereign
and has unanimously approved the Merger Agreement. The Board of Directors of
Sovereign unanimously recommends that the shareholders of Sovereign approve the
Merger Agreement.
Bankers. The Board of Directors of Bankers believes that the terms of the
Merger are fair and in the best interests of the shareholders of Bankers and has
unanimously approved the Merger Agreement. The Board of Directors of Bankers
unanimously recommends that the shareholders of Bankers approve the Merger
Agreement.
Terms of the Merger
At the Effective Date of the Merger, each outstanding share of Bankers
Common Stock (other than Excluded Shares) will be automatically converted into,
and become the right to receive, such number of shares of Sovereign Common
Stock, and corresponding percentage of Sovereign stock purchase rights, as shall
equal $25.50 divided by the average of the mean between the closing high bid and
low asked prices of a share of Sovereign Common Stock (as reported on the Nasdaq
National Market) for the 15 consecutive trading days immediately preceding the
Effective Date (the "Sovereign Market Value"), provided that such Sovereign
Market Value as of the Effective Date is between $9.17 and $13.75 per share. If,
however, the Sovereign Market Value as of the Effective Date is less than $9.17
per share or greater than $13.75 per share, shareholders of Bankers will be
entitled to receive a fixed number of shares of Sovereign Common Stock, and
corresponding percentage of Sovereign stock purchase rights, as described in the
following paragraphs:
If, on the Effective Date, the Sovereign Market Value is less than $9.17
per share, each outstanding share of Bankers Common Stock (other than Excluded
Shares) will be converted into and become the right to receive 2.782 shares of
Sovereign Common Stock and corresponding percentage of Sovereign stock purchase
rights.
If, on the Effective Date, the Sovereign Market Value is greater than
$13.75 per share, each outstanding share of Bankers Common Stock (other than
Excluded Shares) will be converted into and become the right to receive 1.854
shares of Sovereign Common Stock and corresponding percentage of Sovereign stock
purchase rights.
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In addition, in the event that Bankers elects to terminate the Merger
Agreement as a result of a decline in the price of Sovereign Common Stock to
$8.59 or less in the absence of a specified decline in the weighted average
prices of a comparable group of fifteen thrift holding companies, Sovereign can
override such election by increasing the number of shares issuable in exchange
for each share of Bankers Common Stock from 2.782 shares to such number of
shares of Sovereign Common Stock as shall have an aggregate value of $23.90
based on the Sovereign Market Value as of the date immediately preceding the
Effective Date. See "THE MERGER -- Termination; Effect of Termination."
The number of shares of Sovereign Common Stock issuable in exchange for
shares of Bankers Common Stock (as finally determined, the "Exchange Ratio")
will be further adjusted to prevent dilution in the event of additional stock
splits, reclassifications or other similar events.
Sovereign will in all events pay cash to Bankers shareholders in lieu of
issuing fractional shares of Sovereign Common Stock.
In connection with the Merger, all outstanding options to purchase shares
of Bankers Common Stock under Bankers' preexisting employee and director stock
option plans will be converted on the Effective Date into options to acquire
that number of shares of Sovereign Common Stock equal to the number of shares of
Bankers Common Stock covered by the option multiplied by the applicable Exchange
Ratio, and the exercise price for a whole share of Sovereign Common Stock shall
be the stated exercise price for such option divided by the applicable Exchange
Ratio, such shares to be issuable upon exercise in accordance with the terms of
the respective plans and grant agreements of Bankers under which they were
issued. See "THE MERGER -- Terms of the Merger."
The Effective Date will be designated by Sovereign and will occur within
the thirty-day period following the first day on which all conditions precedent
are fulfilled or waived. See "THE MERGER -- Effective Date of the Merger."
The Merger Agreement permits Bankers to pay its regular quarterly cash
dividend in an amount not to exceed $.16 per share. See "THE MERGER --
Dividends."
In connection with the Merger, Bankers Savings will merge with and into
Sovereign Bank as soon as practicable following the Merger, pursuant to a Bank
Plan of Merger (the "Bank Plan of Merger") dated February 5, 1997 (the "Bank
Merger"). See "THE MERGER -- Subsidiary Bank Merger."
Opinions of Financial Advisors
Ryan, Beck & Co., Inc. ("Ryan, Beck") has rendered its oral opinion as of
February 5, 1997, and its written opinion, dated July 18, 1997, to the Board of
Directors of Sovereign that, as of the respective dates of such opinions, and
subject to the assumptions and considerations set forth therein, the Exchange
Ratio is fair from a financial point of view to the holders of Sovereign Common
Stock. A copy of the opinion of Ryan, Beck, dated July 18, 1997, is attached
hereto as Annex C.
Alex. Brown & Sons Incorporated ("Alex. Brown") has rendered its written
opinion, dated February 5, 1997, and updated as of July 18, 1997, to the Board
of Directors of Bankers that, as of the respective dates of such opinions, and
subject to the assumptions and considerations set forth therein, the
consideration to be received is fair from a financial point of view to the
holders of Bankers Common Stock. A copy of the opinion of Alex. Brown, dated
July 18, 1997, is attached hereto as Annex D.
Sovereign has agreed to pay fees to Ryan, Beck for services in connection
with the Merger, a substantial portion of which is contingent upon completion of
the Merger. Bankers has agreed to pay fees to Alex. Brown for its services in
connection with the Merger, a substantial portion of which is contingent upon
completion of the Merger.
For information on the assumptions made, matters considered and limits of
the reviews by Ryan, Beck and Alex. Brown, see "THE MERGER -- Opinions of
Financial Advisors."
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Exchange of Certificates
After the Effective Date, Sovereign will send to Bankers shareholders
transmittal materials for use in effecting the exchange of their certificates
representing whole shares of Bankers Common Stock for certificates representing
shares of Sovereign Common Stock. Sovereign will pay holders of Bankers Common
Stock cash in lieu of issuing fractional shares of Sovereign Common Stock. See
"THE MERGER -- Exchange of Bankers Stock Certificates."
Conditions to the Merger; Regulatory Approvals
The obligations of Sovereign and Bankers to complete the Merger are subject
to various conditions usual and customary in transactions similar to the Merger,
including, without limitation, obtaining requisite regulatory approvals and
obtaining approvals of the shareholders of both Sovereign and Bankers.
Application has been made to obtain required regulatory approvals. No assurance
can be given that all required approvals will be received or as to the timing or
conditions of such approvals. See "THE MERGER --Regulatory Approvals." The
obligation of Sovereign to complete the Merger is also subject to certain other
conditions, including, among other things, receipt of an opinion from
Sovereign's independent auditors to the effect that the Merger will be treated
as a pooling of interests for financial accounting purposes. No assurances can
be given that all such conditions will be met. See "THE MERGER -- Conditions to
the Merger."
No Solicitation of Transactions
Bankers has agreed in the Merger Agreement that, during the term of the
Merger Agreement, neither it nor any of its subsidiaries, affiliates or
representatives will solicit or engage in any discussions with any person other
than Sovereign concerning any acquisition of Bankers or any of its subsidiaries,
except that Bankers may respond to inquiries from analysts, regulatory
authorities and shareholders in the ordinary course of business. See "THE MERGER
- -- No Solicitation of Transactions."
Termination; Effect of Termination
The Merger Agreement may be terminated at any time prior to the Effective
Date by mutual consent of Sovereign and Bankers or by either party if (i) the
other party breaches any representation, warranty, covenant or other obligation
contained in the Merger Agreement which results in a Material Adverse Effect (as
defined in the Merger Agreement; see "THE MERGER -- Conditions to the Merger")
to the nonbreaching party, and such breach has not or cannot be cured within
thirty days from the date written notice of such breach was given to such party
committing the breach, (ii) the closing date (the "Closing Date," which, under
the terms of the Merger Agreement, is the same date as the Effective Date) of
the Merger shall not have occurred by November 30, 1997 or (iii) either party is
notified by a regulatory authority that a necessary approval is unlikely to be
granted unless the failure of such occurrence shall be due to the failure of the
party seeking to terminate the Merger Agreement to perform or observe any
agreements required to be performed by such party by the Effective Date.
In addition, Bankers may terminate the Merger Agreement if both (a) the
Sovereign Market Value on the Determination Date (i.e., the date immediately
preceding the Closing Date) is less than $8.59 and (b) the quotient obtained by
dividing the Sovereign Market Value as of the Determination Date by $11.46
(being the closing sale price of Sovereign Common Stock immediately preceding
public announcement of the Merger) is less than the quotient obtained by
dividing the weighted average closing price per share (the "Index Price") of the
common stocks of a group of 15 specified thrift holding companies (the "Index
Group") on the Determination Date by $31.90 (being the Index Price on February
4, 1997) and subtracting 0.15 from such latter number; provided, however, that
if Bankers elects to terminate the Merger Agreement in accordance with these
provisions, such termination will not occur if Sovereign elects to increase the
Exchange Ratio to an amount which equals the quotient obtained by dividing
$23.90 by the Sovereign Market Value on the Determination Date.
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See "THE MERGER -- Termination; Effect of Termination."
Management and Operations after the Merger
The Board of Directors and executive officers of Sovereign in office
immediately prior to completion of the Merger will remain as Sovereign's Board
of Directors and executive officers upon completion of the Merger. The Board of
Directors and executive officers of Sovereign Bank in office immediately prior
to completion of the Bank Merger will remain as Sovereign Bank's Board of
Directors and executive officers, except that, upon completion of the Bank
Merger, Joseph P. Gemmell, Chairman of the Board of Directors, President and
Chief Executive Officer of Bankers, will become a director of Sovereign Bank
until the 1998 annual reorganization meeting of the Board of Directors of
Sovereign Bank. Sovereign has agreed to use its best efforts to cause Mr.
Gemmell to be renominated as a director of Sovereign Bank for election at the
1998 and 1999 annual reorganization meetings of Sovereign Bank, respectively,
and to vote its shares of Sovereign Bank in favor of such election at such
meetings. See "THE MERGER -- Subsidiary Bank Merger" and "-- Management and
Operations after the Merger."
Accounting Treatment and Certain Federal Income Tax Consequences
The Merger is intended to qualify as a pooling of interests for financial
accounting purposes and is expected to constitute a tax-free reorganization for
federal income tax purposes. It is a condition to completion of the Merger that
Sovereign receive an opinion from its independent auditors that the Merger will
be treated as a pooling of interests for financial accounting purposes and that
both parties receive an opinion from Sovereign's counsel that the Merger will
constitute a tax-free reorganization for federal income tax purposes. As of the
date of this Proxy Statement/Prospectus, Sovereign has no reason to believe that
its independent auditors or its counsel will be unable to deliver such opinions.
See "THE MERGER -- Certain Federal Income Tax Consequences," "-- Accounting
Treatment" and "-- Conditions to the Merger."
No Dissenters' Rights of Appraisal
Record holders of Sovereign Common Stock and Bankers Common Stock will not
be entitled to dissenters' rights enabling such holders to obtain a cash payment
for the "fair value" of their shares in connection with the matters to be acted
on at the Meetings. See "THE MERGER -- No Dissenters' Rights of Appraisal" and
"COMPARISON OF SHAREHOLDER RIGHTS -- Dissenters' Rights."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of Bankers are the holders of
stock options to acquire Bankers Common Stock, which will be converted into
options to acquire Sovereign Common Stock. See "INTERESTS OF CERTAIN PERSONS IN
THE MERGER -- Stock Options."
Mr. Joseph P. Gemmell, the Chairman of the Board, President and Chief
Executive Officer of Bankers, is a party to an employment agreement with Bankers
which provides, among other things, that upon his voluntary or involuntary
termination of employment following a "change in control" of Bankers (which
would include the Merger) he would be entitled to receive a lump-sum severance
payment determined in accordance with his agreement. Assuming a change in
control occurred on June 30, 1997, followed by Mr. Gemmell's termination of
employment, he would receive severance payments, including the value of non-cash
benefits, having a present value of approximately $2,420,000, under his
employment agreement. In addition, in connection with the Merger Agreement, Mr.
Gemmell entered into a consulting agreement with Sovereign Bank pursuant to
which Mr. Gemmell will provide consulting services for a period of three years
following the Effective Date for an annual retainer of $150,000. Mr. Gemmell
will also be appointed to the Sovereign Bank Board of Directors following the
Effective Date. See "INTERESTS OF CERTAIN PERSONS IN THE MERGER -- Employment
Agreement."
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Howard S. Garfield, II, Senior Vice President and Chief Financial Officer
of Bankers, Michael Ghabrial, Senior Vice President and Chief of Operations of
Bankers, and Margaret Paronich, Senior Vice President and Corporate Secretary of
Bankers, are each parties to special termination agreements with Bankers which
provide that if, at any time following a "change in control" of Bankers (which
would include the Merger), the executive's employment is terminated without
cause or the executive resigns for specified events of good reason, the
executive will be entitled to receive a lump-sum severance payment equal to
three times the executive's highest annual base salary paid for the three
previous years. Assuming a change in control occurred on June 30, 1997, followed
by termination of the executive's employment without cause or the executive's
resignation for one of the specified events of good reason, Messrs. Garfield and
Ghabrial and Ms. Paronich would receive severance payments, including the value
of non-cash benefits, of approximately $360,923, $318,345 and $273,747,
respectively. See "INTERESTS OF CERTAIN PERSONS IN THE MERGER -- Special
Termination Agreements."
Each director of Bankers will be entitled to an immediate lump-sum payment
equal to the present value of his benefit under the Bankers Savings Outside
Directors' Deferred Compensation Plan. Also, Sovereign has agreed to indemnify
persons who served as directors and officers of Bankers and Bankers Savings to
the same extent as such persons would be indemnified by Bankers or Bankers
Savings as of the date of the Merger Agreement. See "INTERESTS OF CERTAIN
PERSONS IN THE MERGER -- Indemnification; Directors and Officers Insurance" and
"-- Outside Directors Deferred Compensation Plan."
CERTAIN RELATED TRANSACTIONS
As a condition to Sovereign entering into the Merger Agreement, Bankers
granted Sovereign an option under certain circumstances to purchase up to
2,463,258 shares of Bankers Common Stock pursuant to a Stock Option Agreement,
dated February 5, 1997 (the "Stock Option Agreement"), a copy of which is
included as Annex B to this Proxy Statement/Prospectus. The option may be
exercised by Sovereign only upon the occurrence of specified events that have
the potential for a third party to effect an acquisition of control of Bankers
prior to the termination of the Merger Agreement. The exercise price per share
to purchase Bankers Common Stock under the Stock Option Agreement is equal to
the lower of $22.50 or the lowest price per share that a person or group, other
than Sovereign or an affiliate of Sovereign, paid or offers to pay for Bankers
Common Stock upon the occurrence of one of the specified events that triggers
the ability of Sovereign to exercise the option. None of such triggering events
has occurred as of the date hereof. Acquisitions of shares of Bankers Common
Stock pursuant to an exercise of the option would be subject to prior regulatory
approval under certain circumstances. See "CERTAIN RELATED TRANSACTIONS -- Stock
Option Agreement."
The directors and executive officers of Bankers have agreed not to sell
their shares of Bankers Common Stock and to vote such shares in favor of the
Merger Agreement. See "THE MEETINGS -- Votes Required."
The Stock Option Agreement and the agreements of Bankers' directors and
executive officers to vote in favor of the Merger may have the effect of
precluding or discouraging persons who might now or prior to the Effective Date
be interested in acquiring all of or a significant interest in Bankers from
considering or proposing such an acquisition, even if such persons were prepared
to pay a higher price per share for Bankers Common Stock than the price per
share being paid by Sovereign under the Merger Agreement, or might result in a
potential acquiror proposing to pay a lower price per share to acquire Bankers
than it might otherwise have proposed to pay. See "CERTAIN RELATED TRANSACTIONS
- -- Stock Option Agreement."
COMPARISON OF SHAREHOLDER RIGHTS
Sovereign is a Pennsylvania corporation subject to the provisions of the
Pennsylvania Business Corporation Law of 1988, as amended (the "Pennsylvania
BCL"). Bankers is a New Jersey corporation subject to the provisions of the New
Jersey Business Corporation Act (the "New Jersey
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BCA"). Upon completion of the Merger, shareholders of Bankers will become
shareholders of Sovereign, and their rights as such will be governed by
Sovereign's Articles of Incorporation and Bylaws and by the Pennsylvania BCL.
The rights of shareholders of Sovereign are different in certain respects from
the rights of shareholders of Bankers. The most significant of these differences
include the following: the absence of the ability of shareholders of Sovereign
to call a special meeting of shareholders (under New Jersey law, shareholders
owning 10% or more of all shares entitled to vote at a meeting may petition the
court to order, for good cause shown, a special meeting of shareholders); the
ability of Sovereign shareholders to remove directors without cause (directors
of Bankers can be removed only for cause and only by the affirmative vote of
holders of at least 80% of Bankers' total voting power); broader indemnification
rights generally available to directors, officers and employees of Sovereign as
a Pennsylvania business corporation; the adoption by Sovereign of a shareholder
rights plan, pursuant to which holders of Sovereign Common Stock are entitled
under certain circumstances relating to an attempt to acquire control of
Sovereign to acquire Sovereign Common Stock or stock of a potential acquiror at
a substantially reduced price (Bankers has not adopted a similar shareholder
rights plan); the existence of a provision in Bankers' Certificate of
Incorporation prohibiting record holders of Bankers Common Stock who
beneficially own in excess of 10% of the outstanding shares of Bankers Common
Stock from voting shares held in excess of such 10% limit (Sovereign's Articles
of Incorporation do not include a similar limitation); and certain statutory
provisions of Pennsylvania law and of Sovereign's Articles of Incorporation
designed to deter a nonnegotiated attempt to obtain control of Sovereign. See
"COMPARISON OF SHAREHOLDER RIGHTS."
COMPARATIVE PER COMMON SHARE DATA
The following table sets forth certain unaudited comparative per share data
relating to book value per common share, cash dividends paid per common
share and income from continuing operations per common share (i) on an
historical basis for Sovereign and Bankers, (ii) on a pro forma basis per share
of Sovereign Common Stock to reflect completion of the Merger and (iii) on an
equivalent pro forma basis per share of Bankers Common Stock to reflect
completion of the Merger. The pro forma information has been prepared giving
effect to the Merger using the pooling of interests accounting method. For a
description of the effect of pooling of interests accounting, see "THE MERGER --
Accounting Treatment." The following equivalent per share data assume an
Exchange Ratio of 1.854 shares of Sovereign Common Stock for each share of
Bankers Common Stock (based on a closing sale price per share for Sovereign
Common Stock on July 18, 1997 in excess of $13.75); the Exchange Ratio is
subject to adjustment based on the Sovereign Market Value as of the Effective
Date. See "THE MERGER -- Terms of the Merger." This information should be read
in conjunction with the consolidated financial statements of Sovereign and
Bankers, including the notes thereto, incorporated by reference in this Proxy
Statement/Prospectus, and the other financial data appearing elsewhere in this
Proxy Statement/Prospectus. See "AVAILABLE INFORMATION" and "CORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
The following information is not necessarily indicative of the results of
operations of future periods or future combined financial position.
<TABLE>
<CAPTION>
AT MARCH 31, 1997 AT DECEMBER 31, 1996
----------------- --------------------
<S> <C> <C>
Book Value Per Common Share:
Historical:
Sovereign.............................................................. $ 6.56 $ 6.57
Bankers................................................................ 15.98 15.58
Pro Forma(1) (see footnotes on following page):
Pro forma per share of Sovereign Common Stock.......................... 7.03 6.99
Equivalent pro forma per share of Bankers Common Stock................. 13.03 12.96
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED -------------------------------
MARCH 31, 1997 1996 1995 1994
------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash Dividends Paid Per Common Share:
Historical:
Sovereign........................................ $0.023 $0.076 $0.078 $0.095
Bankers.......................................... 0.160 0.600 0.500 0.367
Pro Forma(2):
Pro forma per share of Sovereign Common Stock.... 0.023 0.076 0.078 0.095
Equivalent pro forma per share of Bankers Common
Stock......................................... 0.043 0.141 0.145 0.176
Income from Continuing Operations Per Common Share:
Historical:
Sovereign........................................ 0.12 0.59 0.82 0.74
Bankers.......................................... 0.56 1.90 1.51 1.56
Pro Forma(3):
Pro forma per share of Sovereign Common Stock.... 0.16 0.69 0.82 0.77
Equivalent pro forma per share of Bankers Common
Stock......................................... 0.30 1.28 1.52 1.43
</TABLE>
- ------------------
(1) Pro forma book value per share of Sovereign Common Stock was calculated by
dividing total pro forma combined shareholders' equity amounts as of the
applicable date by the sum of (i) the total shares of Sovereign Common Stock
outstanding as of the applicable date assuming conversion of all Sovereign's
outstanding 6 1/4% Cumulative Convertible Preferred Stock, Series B ("Series
B Preferred Stock"), or 77,734,600 shares at March 31, 1997 and 77,390,600
shares at December 31, 1996, respectively, and (ii) the total shares of
Bankers Common Stock outstanding as of the applicable date, 12,378,184 at
March 31, 1997 and December 31, 1996, respectively, multiplied by an
Exchange Ratio of 1.854 shares of Sovereign Common Stock for each share of
Bankers Common Stock. Equivalent pro forma book value per share of Bankers
Common Stock represents the pro forma book value per share of Sovereign
Common Stock multiplied by an Exchange Ratio of 1.854. The Exchange Ratio is
subject to adjustment based on the Sovereign Market Value as of the
Effective Date. See "THE MERGER -- Terms of the Merger."
(2) Sovereign pro forma dividends per share represent historical dividends paid
by Sovereign. Bankers pro forma equivalent dividends per share represent
such amounts multiplied by an Exchange Ratio of 1.854 shares of Sovereign
Common Stock for each share of Bankers Common Stock. The Exchange Ratio is
subject to adjustment based on the Sovereign Market Value as of the
Effective Date. See "THE MERGER -- Terms of the Merger."
(3) Sovereign pro forma income from continuing operations per common share
represents historical net income from continuing operations for Sovereign
and Bankers combined on the assumption that Sovereign and Bankers had been
combined for the periods presented on a pooling of interests basis, divided
by the number of shares of Sovereign Common Stock which will be issued and
outstanding following completion of the Merger based on an Exchange Ratio of
1.854 shares of Sovereign Common Stock for each share of Bankers Common
Stock. Bankers equivalent pro forma income from continuing operations per
common share represents such amounts multiplied by an Exchange Ratio of
1.854 shares of Sovereign Common Stock for each share of Bankers Common
Stock. The Exchange Ratio is subject to adjustment based on the Sovereign
Market Value as of the Effective Date. See "THE MERGER -- Terms of the
Merger."
11
<PAGE>
Market Value of Securities
The following table sets forth the market value per share of Sovereign
Common Stock, the market value per share of Bankers Common Stock and the
equivalent market value per share of Bankers Common Stock on February 4, 1997
(the last business day preceding public announcement of the Merger) and July 18,
1997 (the latest practicable trading day before the printing of this Proxy
Statement/Prospectus). The equivalent market value per share of Bankers Common
Stock indicated in the table is based upon the Exchange Ratio applicable on the
specified date (2.125 at February 4, 1997 and 1.854 at July 18, 1997) multiplied
by the closing sale price of Sovereign Common Stock on the specified date. The
Exchange Ratio is subject to adjustment based on the Sovereign Market Value as
of the Effective Date. See "THE MERGER -- Terms of the Merger."
The historical market values per share of Sovereign Common Stock and
Bankers Common Stock and the historical market value of Sovereign Common Stock
used to determine the equivalent market value per share of Bankers Common Stock
are the per share last sale prices on February 4, 1997, and July 18, 1997,
respectively, as reported on the Nasdaq National Market with respect to both
Sovereign Common Stock and Bankers Common Stock.
<TABLE>
<CAPTION>
BANKERS
-------------------------
<S> <C> <C> <C>
SOVEREIGN EQUIVALENT
HISTORICAL HISTORICAL MARKET VALUE
---------- ---------- ------------
February 4, 1997................................................... $11.50 $24.25 $25.50
July 18, 1997...................................................... 15.8750 28.8125 29.43
</TABLE>
For information concerning cash dividends paid by Sovereign, see
"INFORMATION WITH RESPECT TO SOVEREIGN -- Market Price of and Dividends on
Sovereign Common Stock and Related Shareholder Matters."
RECENT DEVELOPMENTS
On July 2, 1997 Sovereign Bank entered into an Asset Purchase Agreement
with Fleet Financial Group, Inc. and certain of its affiliates ("Fleet") to
purchase certain assets of Fleet's automobile finance division. Fleet's
automobile finance division consists principally of loan portfolios and related
assets acquired by Fleet in connection with Fleet's 1995 acquisition of Shawmut
National Corp. and Fleet's 1996 acquisition of NatWest Bancorp. The assets
consist principally of (i) approximately $2.0 billion of indirect automobile
loans, other indirect consumer loans, dealer floor plan loans and loans to
automobile leasing companies at 98.7% of principal amount or a cash purchase
price of approximately $1.964 billion (less approximately $65 million of certain
assumed liabilities), and (ii) miscellaneous furniture, fixtures and equipment
for approximately $1 million in cash.
At April 30, 1997, the combined weighted average maturity and weighted
average coupon of the portfolios of indirect automobile loans, other indirect
consumer loans and the loans to automobile leasing companies was approximately
36 months and 8.3%, respectively. Chargeoffs for these loan portfolios from
January 1, 1997 through April 30, 1997 amounted to approximately 0.61% of the
aggregate principal balance of these loans on an annualized basis, and
approximately 4.48% of the loans were 30 days or more past due. At April 30,
1997, the weighted average coupon of the portfolio of dealer floor plan loans
was 8.47%. There were no chargeoffs in the portfolio of dealer floor plan loans
from January 1, 1997 through April 30, 1997 and none of the floor plan loans
were delinquent. Sovereign intends to use $19.2 million of the $36 million
discount for initial loan loss reserves.
As part of the transaction, Sovereign has agreed to offer employment to
approximately 180 employees of Fleet's automobile finance division. Sovereign,
during a transition period, is also leasing certain Fleet owned or leased
facilities in Melville, New York and Hartford, Connecticut.
Sovereign expects that its new automobile finance division will serve over
2,000 automotive dealerships and 225,000 customers principally throughout New
Jersey, New York, Pennsylvania and several New England states.
12
<PAGE>
The transaction will be treated as a purchase for financial accounting
purposes and, after taking into account loan loss reserves, will result in
approximately $10 million of goodwill. Fleet and its affiliates have the
obligation, if Sovereign so elects, to cause Fleet to sell a portfolio of
approximately $325 million aggregate principal amount of loans to Bankers, or an
affiliate of Bankers, or, with the consent of Fleet, to others. The transaction
is subject to approval of the Office of Thrift Supervision ("OTS") and is
expected to close in the third quarter, 1997.
Historical pro forma financial information giving effect to the transaction
described above is not presented herein because the assets and liabilities
acquired by Sovereign would not constitute a "significant subsidiary" of
Sovereign, as such term is defined in the Commission's accounting regulations,
and because reliable, meaningful historic, Shawmut, NatWest and Fleet financial
information is not available.
Based on Sovereign's due diligence review, Sovereign expects that its new
automotive finance division will result in earnings per share accretion of $0.02
in 1997, $0.08 in 1998, $0.12 in 1999 and $0.18 in 2000, after giving pro forma
effect to Sovereign's combination with Bankers.
13
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth (i) certain historical consolidated summary
financial data for Sovereign, (ii) certain historical consolidated summary
financial data for Bankers and (iii) certain unaudited pro forma combined
selected financial data giving effect to the Merger assuming that shareholders
of Bankers will receive 1.854 shares of Sovereign Common Stock for each share of
Bankers Common Stock they own. These data are derived from, and should be read
in conjunction with, among other things, the consolidated financial statements
of Sovereign and of Bankers, and supplemental consolidated financial statements
of Sovereign, including the notes thereto, incorporated by reference in this
Proxy Statement/Prospectus, and the pro forma combined financial information,
including the notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus. See "AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "PRO FORMA COMBINED FINANCIAL INFORMATION." Interim
unaudited data at or for the three months ended March 31, 1997 and 1996
reflects, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of such data. Results
for the three months ended March 31, 1997, are not necessarily indicative of
results which may be expected for any other interim period or for the year as a
whole.
14
<PAGE>
SOVEREIGN SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
AT OR FOR
THE THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992(2)
----------- ---------- ----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets.......................... $10,284,394 $9,008,377 $10,041,359 $8,715,307 $7,117,565 $5,353,536 $4,169,604
Loans................................. 6,563,717 5,425,065 6,649,537 5,142,140 4,800,484 3,271,623 2,691,166
Allowance for possible loan losses.... (50,537) (39,997) (46,093) (40,938) (42,640) (41,210) (33,561)
Investment and mortgage-backed
securities available-for-sale....... 559,599 394,075 494,997 901,308 104,767 0 0
Investment and mortgage-backed
securities held-to-maturity......... 2,756,105 2,701,720 2,487,615 2,117,062 1,855,360 1,743,472 1,065,384
Deposits.............................. 5,736,579 5,503,141 5,606,333 5,606,853 4,506,483 3,615,119 3,389,460
Borrowings............................ 3,831,292 2,770,241 3,862,194 2,553,761 2,194,325 1,372,780 433,437
Shareholders' equity.................. 510,286 481,463 508,839 468,617 341,873 293,300 251,909
SUMMARY STATEMENT OF OPERATIONS DATA
Total interest income................. $ 175,060 $ 151,769 $ 665,489 $ 537,380 $ 389,076 $ 317,414 $ 235,910
Total interest expense................ 113,373 94,932 423,594 340,570 212,189 168,719 139,059
---------- --------- ---------- --------- --------- --------- ---------
Net interest income................... 61,687 56,837 241,895 196,810 176,887 148,695 96,851
Provision for possible loan losses.... 8,700 800 11,416 2,650 5,992 11,090 12,757
---------- --------- ---------- --------- --------- --------- ---------
Net interest income after provision
for possible loan losses............ 52,987 56,037 230,479 194,160 170,895 137,605 84,094
---------- --------- ---------- --------- --------- --------- ---------
Other income.......................... 7,367 8,328 44,163 32,197 18,704 19,372 14,846
Other expenses........................ 44,102 36,792 171,075 135,280 109,870 95,825 64,033
Non-recurring SAIF assessment......... 0 0 27,818 0 0 0 0
---------- --------- ---------- --------- --------- --------- ---------
Income before income taxes and
cumulative effect of change in
accounting principle................ 16,252 27,573 75,749 91,077 79,729 61,152 34,907
Income tax provision.................. 7,045 10,387 29,935 30,671 29,830 23,013 14,553
---------- --------- ---------- --------- --------- --------- ---------
Income before cumulative effect of
change in accounting principle...... 9,207 17,186 45,814 60,406 49,899 38,139 20,354
Cumulative effect of change in
accounting principle................ 0 0 0 0 0 4,800 0
Net income............................ $ 9,207 $ 17,186 $ 45,814 $ 60,406 $ 49,899 $ 42,939 $ 20,354
---------- --------- ---------- --------- --------- --------- ---------
---------- --------- ---------- --------- --------- --------- ---------
Net income applicable to common stock. $ 7,645 $ 15,624 $ 39,564 $ 55,717 $ 49,899 $ 42,939 $ 20,354
---------- --------- ---------- --------- --------- --------- ---------
---------- --------- ---------- --------- --------- --------- ---------
SHARE DATA (3)
Common shares outstanding at end of
period (in thousands)............... 65,761 63,123 65,417 60,253 60,321 55,296 54,486
Preferred shares outstanding at end of
period (in thousands)............... 2,000 2,000 2,000 2,000 0 0 0
Earnings per common and common
equivalent share:
Before cumulative effect of change
in accounting principle........... $ 0.12 $ 0.22 $ 0.59 $ 0.82 $ 0.74 $ 0.57 $ 0.40
After cumulative effect of change in
accounting principle.............. 0.12 0.22 0.59 0.82 0.74 0.65 0.40
Book value per common and common
equivalent share at end of
period(4)........................... 6.56 6.41 6.57 6.49 5.67 5.30 4.62
Common share price at end of period... 12 9-5/16 10-15/16 8-1/16 5-7/8 9 5-1/8
Dividends paid per common share....... 0.023 0.019 0.076 0.078 0.095 0.083 0.055
Dividend payout ratio................. 19.22% 8.67% 12.91% 9.53% 12.85% 14.54% 13.80%
Return on average assets.............. 0.78 0.79 0.49 0.76 0.80 0.90 0.59
Return on average stockholders'
equity.............................. 15.34 14.23 9.37 14.91 15.71 15.75 9.70
Equity to assets...................... 4.96 5.34 5.07 5.38 4.80 5.48 6.04
</TABLE>
- ------------------
(1) The acquisitions of First State Financial Services, Inc. ("First State") in
February 1997, Valley Federal Savings ("Valley Federal") in November 1993
and Charter Bancorp, Inc. ("Charter") in November 1994 were each accounted
for as a pooling of interests, and, accordingly, the consolidated financial
statements have been restated to include the accounts of First State, Valley
Federal and Charter for all periods presented.
(2) The acquisition of Harmonia Bancorp, Inc. ("Harmonia") was accounted for as
a purchase at the close of business on December 31, 1992. Sovereign's
consolidated balance sheet at December 31, 1992 includes Harmonia.
Sovereign's 1992 consolidated results of operations do not include
Harmonia's results.
(3) All per share data have been adjusted to reflect all stock dividends and
stock splits declared or effected through the date of this Proxy
Statement/Prospectus, including the Stock Split.
(4) Book value is calculated using equity divided by common shares and assuming
conversion of all outstanding shares of Series B Preferred Stock. As of the
date of this Proxy Statement/Prospectus, the conversion rate for Sovereign's
Series B Preferred Stock is 5.9868 shares of Sovereign Common Stock for each
share of Series B Preferred Stock.
15
<PAGE>
BANKERS SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR
THE THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets..................... $2,541,672 $1,915,528 $2,459,784 $1,901,915 $1,756,717 $1,622,262 $1,509,010
Total loans, net................. 1,570,751 1,326,705 1,665,638 1,313,259 1,220,855 1,117,419 1,013,871
Mortgage and asset-backed
securities, net................ 842,309 437,807 681,518 460,574 396,198 330,732 299,530
Securities available for sale.... 33,600 34,128 34,181 0 0 0 4,906
Investment securities............ 44,411 65,759 25,961 66,831 82,271 117,804 126,987
Total deposits................... 1,642,231 1,633,665 1,629,062 1,631,254 1,453,534 1,375,989 1,339,720
Short-term borrowings............ 668,805 72,457 614,090 67,245 115,766 68,952 0
Total shareholders' equity....... 197,796 187,899 192,877 186,938 172,005 161,126 152,392
SUMMARY STATEMENT OF
OPERATIONS DATA
Total interest income............ $ 43,595 $ 34,410 $ 153,105 $ 129,265 $ 106,602 $ 100,965 $ 112,728
Total interest expense........... 26,752 19,400 90,879 73,818 51,123 47,840 58,594
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income.............. 16,843 15,010 62,226 55,447 55,479 53,125 54,134
Provisions for loan losses....... (1,150) (900) (3,950) (5,500) (3,970) (2,040) (5,600)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses...... 15,693 14,110 58,276 49,947 51,509 51,085 48,534
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total other income............... 684 527 2,141 739 1,683 3,894 5,890
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total other expense.............. 5,207 4,936 22,591 19,999 21,130 21,444 19,883
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before tax expense and
cumulative effect of accounting
changes........................ 11,170 9,701 37,826 30,687 32,062 33,535 34,541
Income tax expense............... 4,057 3,494 13,501 10,683 11,058 12,067 12,326
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect
of accounting changes.......... $ 7,113 $ 6,207 $ 24,325 $ 20,004 $ 21,004 $ 21,468 $ 22,215
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income....................... $ 7,113 $ 6,207 $ 24,325 $ 20,004 $ 21,004 $ 21,468 $ 20,357
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
SHARE DATA (2)
Earnings (fully diluted) (3)
Before cumulative effect of
change in accounting
principle.................... $ 0.56 $ 0.47 $ 1.90 $ 1.51 $ 1.56 $ 1.56 $ 1.50
After cumulative effect of
change in accounting
principle.................... 0.56 0.47 1.90 1.51 1.56 1.56 1.38
Book value per common share...... 15.98 14.69 15.58 14.47 13.30 12.22 11.19
Common stock closing price at
year-end....................... 24.875 16.875 20.125 16.25 13.375 13.75 11.23
Return on average assets......... 1.15% 1.31% 1.13% 1.11% 1.25% 1.38% 1.48%
Return on average equity......... 14.66 13.30 13.04 11.23 12.56 14.09 15.18
Average equity to average
assets......................... 7.82 9.85 8.65 9.87 9.99 9.76 9.75
Equity to assets at period end... 7.78 9.81 7.84 9.83 9.79 9.93 10.10
Interest rate spread for
period......................... 2.27 2.66 2.48 2.64 3.03 3.14 3.24
Net yield on average interest-
earning assets................. 2.75 3.23 2.96 3.16 3.42 3.52 3.72
Non-performing assets to total
assets at period end........... 1.20 1.59 1.18 1.71 2.05 2.50 2.77
Average interest-earning assets
to average interest-bearing
liabilities.................... 1.11x 1.13x 1.11x 1.12x 1.12x 1.12x 1.12x
Other expenses to average
assets......................... 0.84% 1.04% 1.05% 1.11% 1.26% 1.37% 1.32%
Net interest income, after
provision for loan losses, to
other expenses................. 3.01 2.86 2.58x 2.50x 2.44x 2.38x 2.44x
Number of full service offices... 15 14 15 14 14 13 13
</TABLE>
- ------------------
(1) The 1992 results are before the cumulative effect of change in accounting
principles resulting from adoption of SFAS No. 109 and No. 106 in 1992.
(2) Per share data and closing price are computed and/or restated to give effect
to the 10% stock dividend declared in November 1992, the 2-for-1 stock split
declared in October 1993 and the 20% stock dividend declared in June 1994.
(3) Primary and fully diluted earnings per share are the same for all periods
presented, except for 1992 when primary earnings per share exceeded fully
diluted earnings per share by $0.01.
16
<PAGE>
PRO FORMA COMBINED SELECTED FINANCIAL DATA*
<TABLE>
<CAPTION>
AT OR FOR
THE THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets................ $12,825,775 $10,923,905 $12,501,143 $10,617,222 $8,874,282 $6,975,798 $5,678,614
Loans, net.................. 8,083,931 6,711,773 8,269,082 6,414,461 5,978,699 4,347,832 3,671,476
Investment securities and
mortgage-backed
securities................ 4,235,733 3,633,489 3,724,272 3,545,775 2,438,596 2,192,008 1,496,807
Deposits.................... 7,378,810 7,136,806 7,235,395 7,238,107 5,960,017 4,991,108 4,729,180
Borrowings.................. 4,500,097 2,842,698 4,476,284 2,621,006 2,310,091 1,441,732 433,437
Shareholders' equity........ 707,791 669,362 701,716 655,555 513,878 454,426 404,301
Interest income............. 218,655 186,179 818,594 666,645 495,678 418,379 348,638
Interest expense............ 140,125 114,332 514,473 414,388 263,312 216,559 197,653
----------- ----------- ----------- ----------- ---------- ---------- ----------
Net interest income before
provision for loan
losses.................... 78,530 71,847 304,121 252,257 232,366 201,820 150,985
Provision for loan losses... 9,850 1,700 15,366 8,150 9,962 13,130 18,357
----------- ----------- ----------- ----------- ---------- ---------- ----------
Net interest income after
provision for loan
losses.................... 68,680 70,147 288,755 244,107 222,404 188,690 132,628
Other income................ 8,051 8,855 46,304 32,936 20,387 23,266 20,736
Other expenses.............. 49,309 41,728 221,484 155,279 131,000 117,269 83,916
----------- ----------- ----------- ----------- ---------- ---------- ----------
Income before income taxes
and cumulative effect of
change in accounting
method.................... 27,422 37,274 113,575 121,764 111,791 94,687 69,448
Income taxes................ 11,102 13,881 43,436 41,354 40,888 35,080 26,879
----------- ----------- ----------- ----------- ---------- ---------- ----------
Net income before cumulative
effect of change in
accounting method......... 16,320 23,393 70,139 80,410 70,903 59,607 42,569
Cumulative effect of change
in accounting method...... 0 0 0 0 0 4,800 1,858
----------- ----------- ----------- ----------- ---------- ---------- ----------
Net income.................. $ 16,320 $ 23,393 $ 70,139 $ 80,410 $ 70,903 $ 64,407 $ 40,711
----------- ----------- ----------- ----------- ---------- ---------- ----------
----------- ----------- ----------- ----------- ---------- ---------- ----------
Earnings per common share... $ 0.16 $ 0.23 $ 0.69 $ 0.82 $ 0.77 $ 0.64 $ 0.52
----------- ----------- ----------- ----------- ---------- ---------- ----------
----------- ----------- ----------- ----------- ---------- ---------- ----------
Dividends per common
share..................... $ 0.023 $ 0.019 $ 0.076 $ 0.078 $ 0.095 $ 0.083 $ 0.055
----------- ----------- ----------- ----------- ---------- ---------- ----------
----------- ----------- ----------- ----------- ---------- ---------- ----------
</TABLE>
- ------------------
*See "PRO FORMA COMBINED FINANCIAL INFORMATION."
17
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables set forth selected unaudited pro forma financial data
reflecting the Merger. The pro forma information has been prepared assuming that
shareholders of Bankers will receive in the Merger 1.854 shares of Sovereign
Common Stock for each share of Bankers Common Stock they own (based on a closing
sale price per share of Sovereign Common Stock on July 18, 1997 in excess of
$13.75). The Exchange Ratio is subject to adjustment based on the Sovereign
Market Value as of the Effective Date. See "THE MERGER -- Terms of the Merger."
The pro forma financial information included in this Proxy Statement/Prospectus
is presented for illustrative purposes only. Such pro forma financial
information does not necessarily reflect what the actual results of Sovereign
would be following completion of the Merger.
The following pro forma information does not give effect to any potential
cost savings or any merger-related expenses which may be realized or incurred as
a result of the Merger. See "THE MERGER -- Management and Operations after the
Merger."
PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET AS OF MARCH 31, 1997
The following unaudited pro forma combined condensed balance sheet
information reflects (i) the historical consolidated balance sheets of Sovereign
and Bankers as of March 31, 1997 and (ii) the pro forma combined condensed
balance sheet of Sovereign as of such date, after giving effect to the Merger.
The Merger has been reflected as a pooling of interests effective as of March
31, 1997. The unaudited information should be read in conjunction with the
historical consolidated financial statements of Sovereign and Bankers, including
the notes thereto, incorporated by reference in this Proxy Statement/Prospectus.
See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
18
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SOVEREIGN
PRO AND
FORMA BANKERS
SOVEREIGN BANKERS ADJUSTMENTS COMBINED
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash and amounts due from depository
institutions.............................. $ 106,168 $ 12,964 $ $ 119,132
Investment and mortgage-backed securities... 3,315,704 920,320 (291)(2) 4,235,733
Loans....................................... 6,563,717 1,577,988 8,141,705
Allowance for possible loan losses.......... (50,537) (7,237) (57,774)
Goodwill and other intangible assets........ 110,795 3,169 113,964
Other assets................................ 238,547 34,468 273,015
----------- ---------- -------- -----------
Total assets................................ $10,284,394 $2,541,672 (291) $12,825,775
----------- ---------- -------- -----------
----------- ---------- -------- -----------
Deposits.................................... $ 5,736,579 $ 1,642,231 $ $ 7,378,810
Borrowings.................................. 3,831,292 668,805 4,500,097
Other liabilities........................... 206,237 32,840 239,077
----------- ---------- -------- -----------
Total liabilities........................... 9,774,108 2,343,876 12,117,984
Preferred stock............................. 96,446 0 0 96,446
Common stock(1)............................. 299,161 101,281 (25,501)(2),(3) 374,941
Unallocated common stock held by ESOP....... (33,091) (150) 150(3) (33,091)
Treasury stock.............................. (149) (25,060) 25,060(3) (149)
Unrecognized gain on investments............ 1,926 (932) 0 994
Retained earnings........................... 145,993 122,657 0 268,650
----------- ---------- -------- -----------
Total shareholders' equity.................. 510,286 197,796 (291) 707,791
----------- ---------- -------- -----------
Total liabilities and shareholders'
equity.................................... $10,284,394 $2,541,672 $ (291) $12,825,775
----------- ---------- -------- -----------
----------- ---------- -------- -----------
</TABLE>
- ------------------
(1) Sovereign Common Stock has no par value; accordingly, amounts shown include
surplus.
(2) Represents cancellation of Sovereign's investment in Bankers Common Stock.
(3) Represents cancellation of treasury shares of Bankers and termination of
Bankers' Employee Stock Ownership Plan.
19
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 AND THE YEARS ENDED DECEMBER 31, 1996, 1995 AND
1994
The following unaudited pro forma combined condensed statements of income
reflect the historical consolidated statements of income of Sovereign and
Bankers, as indicated below, for each period presented and the pro forma
combined condensed statements of income of Sovereign, after giving effect to the
Merger. The Merger has been reflected as a pooling of interests. See "THE MERGER
- -- Accounting Treatment." The pro forma combined condensed statements of income
for the three months ended March 31, 1997 and 1996 and the years ended December
31, 1996, 1995 and 1994 were prepared on the assumption that the Merger had been
effected as of the beginning of the applicable three-month or annual period for
Sovereign or Bankers, as the case may be. The unaudited information should be
read in conjunction with the historical consolidated financial statements of
Sovereign and Bankers, including the notes thereto, incorporated by reference in
this Proxy Statement/Prospectus. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
AND
BANKERS
SOVEREIGN BANKERS COMBINED
--------- ------- ---------
<S> <C> <C> <C>
Interest income ............................................ $175,060 $43,595 $218,655
Interest expense ........................................... 113,373 26,752 140,125
-------- ------- --------
Net interest income ........................................ 61,687 16,843 78,530
Provision for possible loan losses ......................... 8,700 1,150 9,850
-------- ------- --------
Net interest income after provision for possible loan losses 52,987 15,693 68,680
-------- ------- --------
Other non-interest income .................................. 7,367 684 8,051
Non-interest expense ....................................... 44,102 5,207 49,309
-------- ------- --------
Income before taxes ........................................ 16,252 11,170 27,422
Income taxes ............................................... 7,045 4,057 11,102
Net income ................................................. $ 9,207 $ 7,113 $ 16,320
-------- ------- --------
-------- ------- --------
Earnings per share ......................................... $ 0.12 $ 0.56 $ 0.16
-------- ------- --------
-------- ------- --------
</TABLE>
20
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
AND
BANKERS
SOVEREIGN BANKERS COMBINED
--------- ------- ---------
<S> <C> <C> <C>
Interest income ............................................ $151,769 $34,410 $186,179
Interest expense ........................................... 94,932 19,400 114,332
-------- ------- --------
Net interest income ........................................ 56,837 15,010 71,847
Provision for possible loan losses ......................... 800 900 1,700
-------- ------- --------
Net interest income after provision for possible loan losses 56,037 14,110 70,147
-------- ------- --------
Other non-interest income .................................. 8,328 527 8,855
Non-interest expense ....................................... 36,792 4,936 41,728
-------- ------- --------
Income before taxes ........................................ 27,573 9,701 37,274
Income taxes ............................................... 10,387 3,494 13,881
-------- ------- --------
Net income ................................................. $ 17,186 $ 6,207 $ 23,393
-------- ------- --------
-------- ------- --------
Earnings per share ......................................... $ 0.22 $ 0.47 $ 0.23
-------- ------- --------
-------- ------- --------
</TABLE>
21
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
AND
BANKERS
SOVEREIGN BANKERS COMBINED
--------- -------- --------
<S> <C> <C> <C>
Interest income................................................ $665,489 $153,105 $818,594
Interest expense............................................... 423,594 90,879 514,473
-------- -------- --------
Net interest income............................................ 241,895 62,226 304,121
Provision for possible loan losses............................. 11,416 3,950 15,366
-------- -------- --------
Net interest income after provision for possible loan losses... 230,479 58,276 288,755
-------- -------- --------
Other non-interest income...................................... 44,163 2,141 46,304
Non-interest expense........................................... 198,893 22,591 221,484
-------- -------- --------
Income before taxes............................................ 75,749 37,826 113,575
Income taxes................................................... 29,935 13,501 43,436
-------- -------- --------
Net income..................................................... $ 45,814 $ 24,325 $ 70,139
-------- -------- --------
-------- -------- --------
Earnings per share............................................. $ 0.59 $ 1.90 $ 0.69
-------- -------- --------
-------- -------- --------
</TABLE>
22
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
AND
BANKERS
SOVEREIGN BANKERS COMBINED
--------- -------- --------
<S> <C> <C> <C>
Interest income ............................................... $537,380 $129,265 $666,645
Interest expense .............................................. 340,570 73,818 414,388
-------- -------- --------
Net interest income ........................................... 196,810 55,447 252,257
Provision for possible loan losses ............................ 2,650 5,500 8,150
-------- -------- --------
Net interest income after provision for possible loan losses... 194,160 49,947 244,107
-------- -------- --------
Other non-interest income ..................................... 32,197 739 32,936
Non-interest expense .......................................... 135,280 19,999 155,279
-------- -------- --------
Income before taxes ........................................... 91,077 30,687 121,764
Income taxes .................................................. 30,671 10,683 41,354
-------- -------- --------
Net income .................................................... $ 60,406 $ 20,004 $ 80,410
-------- -------- --------
-------- -------- --------
Earnings per share ............................................ $ 0.82 $ 1.51 $ 0.82
-------- -------- --------
-------- -------- --------
</TABLE>
23
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
AND
BANKERS
SOVEREIGN BANKERS COMBINED
--------- -------- ---------
<S> <C> <C> <C>
Interest income .............................................. $389,076 $106,602 $495,678
Interest expense ............................................. 212,189 51,123 263,312
-------- -------- --------
Net interest income .......................................... 176,887 55,479 232,366
Provision for possible loan losses ........................... 5,992 3,970 9,962
-------- -------- --------
Net interest income after provision for possible loan losses.. 170,895 51,509 222,404
-------- -------- --------
Other non-interest income .................................... 18,704 1,683 20,387
Non-interest expense ......................................... 109,870 21,130 131,000
-------- -------- --------
Income before taxes .......................................... 79,729 32,062 111,791
Income taxes ................................................. 29,830 11,058 40,888
-------- -------- --------
Net income ................................................... $ 49,899 $ 21,004 $ 70,903
-------- -------- --------
-------- -------- --------
Earnings per share ......................................... $ 0.74 $ 1.56 $ 0.77
-------- -------- --------
-------- -------- --------
</TABLE>
24
<PAGE>
THE MEETINGS
DATE, TIME AND PLACE
Sovereign. The Sovereign Special Meeting will be held at The Sheraton
Berkshire Inn, located at Route 422 West, Papermill Road Exit, Wyomissing,
Pennsylvania, at 10:00 a.m. local time, on August 28, 1997.
Bankers. The Bankers Annual Meeting will be held at the Woodbridge Hilton,
located at 120 Wood Ave. South, Metro Park, Iselin, New Jersey, at 10:30 a.m.
local time, on August 28, 1997.
MATTERS TO BE CONSIDERED AT THE MEETINGS
Sovereign. At the Sovereign Special Meeting, holders of Sovereign Common
Stock will be asked to consider and vote upon the approval and adoption of the
Merger Agreement and the approval of the Sovereign Adjournment Proposal.
Shareholders may also consider and vote upon such other matters as may properly
be brought before the Sovereign Special Meeting.
THE BOARD OF DIRECTORS OF SOVEREIGN HAS, BY UNANIMOUS VOTE, APPROVED THE
MERGER AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. THE BOARD OF DIRECTORS HAS ALSO, BY UNANIMOUS VOTE, APPROVED, AND
RECOMMENDS A VOTE FOR APPROVAL OF, THE SOVEREIGN ADJOURNMENT PROPOSAL.
Bankers. At the Bankers Annual Meeting, holders of Bankers Common Stock
will be asked to consider and vote upon the approval and adoption of the Merger
Agreement and the approval of the Bankers Adjournment Proposal. In addition,
holders of Bankers Common Stock will be asked to elect two directors for a term
of three years each and to ratify the appointment of KPMG Peat Marwick LLP as
independent auditors of Bankers for the year ending December 31, 1997.
Shareholders may also consider such other matters as may properly be brought
before the Bankers Annual Meeting.
THE BOARD OF DIRECTORS OF BANKERS HAS, BY UNANIMOUS VOTE, APPROVED THE
MERGER AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. THE BOARD OF DIRECTORS HAS ALSO, BY UNANIMOUS VOTE, APPROVED, AND
RECOMMENDS A VOTE FOR THE ELECTION, AS DIRECTORS, OF THE NOMINEES OF THE BOARD
OF DIRECTORS, FOR THE RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
AND FOR APPROVAL OF THE BANKERS ADJOURNMENT PROPOSAL.
VOTES REQUIRED
Sovereign. The approval and adoption of the Merger Agreement and the
approval of the Sovereign Adjournment Proposal will each require the affirmative
vote of a majority of the votes cast in person or by proxy at the Sovereign
Special Meeting.
Holders of record of Sovereign Common Stock on the Sovereign Record Date
are each entitled to one vote per share on each matter to be voted on at the
Sovereign Special Meeting.
As of the Sovereign Record Date, directors and executive officers of
Sovereign and their affiliates beneficially owned and were entitled to vote
2,836,000 shares of Sovereign Common Stock, which represents approximately 4.0%
of the shares of Sovereign Common Stock outstanding on the Sovereign Record
Date. Each Sovereign director has indicated his or her present intention to vote
the Sovereign Common Stock so owned by him or her for approval of the Merger
Agreement and the Sovereign Adjournment Proposal. As of the Sovereign Record
Date, Sovereign and its subsidiaries, as fiduciaries, custodians or agents, did
not have sole or shared voting power with respect to any shares of Sovereign
Common Stock.
Bankers. The approval and adoption of the Merger Agreement, the
ratification of the appointment of independent auditors and the approval of the
Bankers Adjournment Proposal will each require the affirmative vote of a
majority of the votes cast in person or by proxy at the Bankers Annual Meeting.
Directors are elected by a plurality of the votes cast in person or by proxy at
the Bankers Annual Meeting. Accordingly, the two nominees who receive the
greatest number of votes cast at the Bankers Annual Meeting will be elected as
directors.
Each holder of shares of Bankers Common Stock outstanding on the Bankers
Record Date will be entitled to one vote for each share held of record (except
for shares held in excess of the Limit, as
25
<PAGE>
defined below) on each matter to be considered at the Bankers Annual Meeting. As
provided in Bankers' Certificate of Incorporation, record holders of Bankers
Common Stock who beneficially own in excess of 10% of the outstanding shares of
Bankers Common Stock (the "Limit") are not entitled to any vote with respect to
shares held in excess of the Limit. A person or entity is deemed to beneficially
own shares owned by an affiliate of, as well as persons acting in concert with,
such person or entity. Bankers' Certificate of Incorporation authorizes the
Board of Directors of Bankers to construe and apply the provisions regarding the
Limit and to make all determinations necessary or desirable to implement such
provisions.
As of the Bankers Record Date, directors and executive officers of Bankers
and their affiliates beneficially owned and were entitled to vote 2,341,086
shares of Bankers Common Stock, which represents approximately 18.9% of the
shares of Bankers Common Stock outstanding on the Bankers Record Date. Each
Bankers director and executive officer has agreed to vote the Bankers Common
Stock so owned by him or her for approval and adoption of the Merger Agreement.
VOTING OF PROXIES
Shares represented by all properly executed proxies received in time for
the Meetings will be voted at such Meetings in the manner specified therein by
the holders thereof. In the case of Sovereign, properly executed proxies that do
not contain voting instructions will be voted in favor of the Merger Agreement
and in favor of the Sovereign Adjournment Proposal. In the case of Bankers,
properly executed proxies that do not contain voting instructions will be voted
in favor of the Merger Agreement, in favor of the election, as directors, of the
nominees of the Board of Directors, in favor of the ratification of the
appointment of independent auditors and in favor of the Bankers Adjournment
Proposal.
Sovereign and Bankers each intend to count shares of Sovereign Common Stock
or Bankers Common Stock, as the case may be, present in person at the Meetings
but not voting, and shares of Sovereign Common Stock or Bankers Common Stock, as
the case may be, for which they have received proxies but with respect to which
holders of shares have abstained on any matter, as present at the Meetings for
purposes of determining the presence or absence of a quorum for the transaction
of business.
Under Pennsylvania law, Sovereign's Articles of Incorporation and the rules
of the National Association of Securities Dealers, Inc. ("NASD") applicable to
Sovereign, the affirmative vote of a majority of all votes cast in person or by
proxy at the Sovereign Special Meeting is required to approve the Merger
Agreement and the Sovereign Adjournment Proposal. The abstention from voting
with respect to any proposal by any shareholder who is present in person or by
proxy at the Sovereign Special Meeting will not constitute or be counted as a
"vote cast" for purposes of the Sovereign Special Meeting. In addition, under
the applicable rules of the New York Stock Exchange and the NASD, brokers and/or
members, as the case may be, who hold shares in street name for customers who
are the beneficial owners of such shares are prohibited from giving a proxy to
vote such customers' shares with respect to the approval and adoption of the
Merger Agreement or approval of the Sovereign Adjournment Proposal in the
absence of specific instructions from such customers ("broker non-votes").
Broker non-votes also will not constitute or be counted as "votes cast" for
purposes of the Sovereign Special Meeting.
Under New Jersey law, Bankers' Certificate of Incorporation and the rules
of the NASD applicable to Bankers, the affirmative vote of a majority of votes
cast in person or by proxy at the Bankers Annual Meeting is required to approve
the Merger Agreement, the ratification of the appointment of independent
auditors and the Bankers Adjournment Proposal. Abstentions and broker non-votes
relating to shares of Bankers Common Stock will not constitute or be counted as
"votes cast" for purposes of the Bankers Annual Meeting. Directors are elected
by a plurality of the votes cast in person or by proxy at the Bankers Annual
Meeting. Accordingly, the two nominees who receive the greatest number of votes
cast at the Bankers Annual Meeting will be elected as directors.
It is not expected that any matter other than those referred to herein will
be brought before either of the Meetings. If, however, other matters are
properly presented for a vote, the persons named as proxies will vote in
accordance with their judgment with respect to such matters.
26
<PAGE>
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed Sovereign or Bankers form does not
preclude a Sovereign shareholder or a Bankers shareholder from voting in person.
A Sovereign shareholder or a Bankers shareholder may revoke a proxy at any time
prior to its exercise by filing with the Secretary of Sovereign (in the case of
a Sovereign shareholder) or the Secretary of Bankers (in the case of a Bankers
shareholder) a duly executed revocation of proxy, by submitting a duly executed
proxy bearing a later date or by appearing at the applicable Meeting and voting
in person at such Meeting. Attendance at the applicable Meeting will not, in and
of itself, constitute revocation of a proxy.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Sovereign. Only holders of record of Sovereign Common Stock on the
Sovereign Record Date will be entitled to notice of, and to vote at, the
Sovereign Special Meeting. On the Sovereign Record Date, 70,012,292 shares of
Sovereign Common Stock were issued and outstanding and held by approximately
9,700 holders of record.
Shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast on the Sovereign Record Date must be present
in person or by proxy at the Sovereign Special Meeting in order for a quorum to
be present for purposes of voting on approval of the Merger Agreement.
Bankers. Only holders of record of Bankers Common Stock on the Bankers
Record Date will be entitled to notice of, and to vote at, the Bankers Annual
Meeting. On the Bankers Record Date, 12,391,848 shares of Bankers Common Stock
were issued and outstanding and held by approximately 1,000 holders of record.
Shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast on the Bankers Record Date must be present in
person or by proxy at the Bankers Special Meeting in order for a quorum to be
present for purposes of voting on approval of the Merger Agreement and the other
matters to be considered at the Bankers Annual Meeting (other than the Bankers
Adjournment Proposal).
SOLICITATION OF PROXIES
Each of Sovereign and Bankers will bear the cost of the solicitation of
proxies from its own shareholders, except that Sovereign and Bankers will share
equally the cost of printing this Proxy Statement/Prospectus and, under the
Merger Agreement, Sovereign has agreed to bear the expense of the proxy
solicitor engaged by Bankers. In addition to solicitation by mail, the
directors, officers and employees of each of Sovereign and Bankers and their
subsidiaries may solicit proxies from shareholders of such company by telephone
or telegram or in person. Arrangements will also be made with brokerage houses
and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of stock held of record by such
persons, and Sovereign and Bankers will reimburse such custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in connection therewith.
Georgeson & Co., Inc. will assist in the solicitation of proxies by
Sovereign for a fee of $8,000, plus reasonable out-of-pocket expenses. Corporate
Investor Communications, Inc. will assist in the solicitation of proxies by
Bankers for a fee of $4,500, plus reasonable out-of-pocket expenses.
BANKERS SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. AS DESCRIBED BELOW UNDER THE CAPTION "THE MERGER -- EXCHANGE OF BANKERS
STOCK CERTIFICATES," EACH BANKERS SHAREHOLDER WILL BE PROVIDED WITH MATERIALS
FOR EXCHANGING SHARES OF BANKERS COMMON STOCK AS PROMPTLY AS PRACTICABLE AFTER
THE EFFECTIVE DATE.
27
<PAGE>
THE MERGER
BACKGROUND OF AND REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF
DIRECTORS
Background of the Merger
The Board of Directors of Bankers, and management, with their significant
equity position in Bankers, have focused on enhancing shareholder value since
Bankers Savings' conversion to a stock company in March 1990 and the formation
of Bankers as the publicly-owned holding company for Bankers Savings. After the
conversion, management's strategy was to grow Bankers through the acquisition of
other financial institutions or branches thereof in order to take advantage of
Bankers' strong capital position and highly efficient operations. Though the
strategy met with initial success, it became apparent that, as the industry
recapitalized and market multiples for bank stocks improved, merger and
acquisition activity would be stock rather than cash based. Because Bankers was
a thrift, it had historically traded at lower multiples than commercial banks,
which resulted in a significant disadvantage in merger and acquisition activity.
As the result, Bankers experienced curtailed growth, and earnings for the years
1993 through 1995 were flat. This caused the Board of Directors of Bankers to
consider an alternate strategy involving the possible sale of Bankers.
Unfortunately, a premature announcement of discussions that Bankers was having
with Summit Bancorp was made in October 1994, and, subsequently, because of
changing market conditions and other factors, both parties mutually agreed to
discontinue discussions. As a result, Bankers' coverage by the major brokerage
analysts was dropped on the basis that Bankers no longer traded on fundamentals
but, rather, on acquisition speculation. In spite of continuing efforts,
including the retention of Alex. Brown as its buy-side advisor, Bankers
continued to be unsuccessful with its strategy to acquire other financial
institutions or branches thereof.
In August 1996, the Board of Directors of Bankers requested Alex. Brown to,
among other things, review and analyze the various strategic alternatives
available to Bankers, including, but not limited to, maintaining or modifying
Bankers' existing business plan in pursuit of a long-term internal growth
strategy or pursuing a possible merger partner or sale of Bankers.
In September 1996, upon completion of this strategic alternatives review,
the Board of Directors of Bankers engaged Alex. Brown to serve as Bankers'
financial advisor to embark upon a process designed to lead to a possible sale
of Bankers to a third party. In this context, the Board of Directors of Bankers
authorized Alex. Brown to identify potential merger partners and acquirors of
Bankers and to prepare and distribute information packages to those parties that
expressed interest in reviewing the Bankers acquisition opportunity in order to
obtain expressions of interest as to a potential transaction with Bankers.
Beginning in October 1996, Alex. Brown contacted a total of 12 national and
super-regional banks and thrifts headquartered in New Jersey, Pennsylvania,
California, Massachusetts, North Carolina and New York that were identified by
Alex. Brown as parties potentially interested in acquiring or merging with
Bankers and as the most likely candidates to pay a high premium to acquire or
merge with Bankers. Of these 12, nine entered into confidentiality agreements
with Bankers and were furnished with information packages. In November 1996,
Bankers received written or oral preliminary indications of interest from seven
of these parties and subsequently selected three parties, Sovereign, a regional
bank (the "Regional") and a mutual thrift (the "Mutual"), as potential
transaction candidates. The preliminary indication of interest from each party
was for an acquisition transaction in which the shareholders of Bankers would
receive either common or preferred stock, cash or a combination thereof. In each
case, the preliminary indication of interest was subject to, among other things,
the completion of an on-site due diligence review of Bankers. Sovereign's
preliminary indication of interest was $23.50 per share in a 100% stock
transaction; the Regional's preliminary indication of interest was $21.50 per
share in a 100% stock transaction; and the Mutual's preliminary indication of
interest was $24.00 per share in a 50% stock and 50% cash transaction, which
would have required the Mutual to convert to the stock form either prior to or
simultaneously with the Mutual's acquisition of Bankers.
28
<PAGE>
During December 1996 and January 1997, meetings were held with the three
interested parties to address specific questions regarding the information
package that they had been provided and as to other information regarding
Bankers that they might require. The Chief Executive Officer and the Head of
Strategic Planning of the Regional met with Mr. Gemmell of Bankers and a
representative of Alex. Brown on December 11, 1996; the Chief Executive Officer
and the Chief Financial Officer of the Mutual, together with a representative of
the financial advisor of the Mutual, met with Mr. Gemmell of Bankers and a
representative of Alex. Brown on December 11 and December 27, 1996; and the
Chief Executive Officer of Sovereign, together with a representative of Ryan,
Beck, met with Mr. Gemmell, another representative of Bankers and a
representative of Alex. Brown on January 29, 1997. Each of the parties was given
the opportunity to resubmit its proposal on the basis that its initial
indication of interest was one of three being considered and at this point was
not high enough for Bankers to grant it an exclusive right to submit another
proposal. All three parties subsequently indicated higher indications but,
again, none was high enough to be considered preemptive. Sovereign's preliminary
indication was revised to $25.50 per share; the Regional's preliminary
indication was revised to $23.00 per share; and the Mutual's preliminary
indication was revised to $25.50 per share. Consequently, all three parties were
given the opportunity to perform due diligence reviews of and related management
interviews with Bankers. The Mutual conducted its due diligence on January 7, 8
and 9, 1997; the Regional conducted its due diligence on January 21, 22, and 23,
1997; and Sovereign conducted its due diligence on February 1 and 2, 1997. Each
of the three parties that conducted due diligence confirmed its revised
preliminary indication of value after due diligence. However, prior to
February 3, 1997, the Mutual elected to withdraw from the acquisition process.
Based upon its evaluation of the two final proposals, on February 3, 1997,
the Board of Directors of Bankers authorized senior management of Bankers and
Alex. Brown to proceed with the negotiation of an acquisition agreement with
Sovereign on the basis that Sovereign had furnished the bid with the highest
value. On February 5, 1997, after consideration of the strategic alternatives
available to Bankers and reviewing the fairness of the offer, the Bankers Board
of Directors approved the acquisition of Bankers by Sovereign and authorized the
execution and delivery by Bankers of the Merger Agreement.
Sovereign's Reasons for the Merger
Sovereign's acquisition strategy consists of identifying financial
institutions with business philosophies that are similar to those of Sovereign,
which operate in strong markets that are geographically compatible with
Sovereign, are financially sound and can be acquired at reasonable cost.
Acquisitions are also evaluated in terms of asset quality, interest rate risk,
potential operating efficiencies and management capabilities.
In determining the terms of its offer for Bankers and whether to enter into
the Merger Agreement, Sovereign's Board of Directors considered a number of
factors, including the following: (i) the financial condition, operating results
and future prospects of Sovereign and Bankers, (ii) historical pro forma
financial information on the Merger, including, among other things, pro forma
book value and earnings per share information, dilution analysis and capital
ratio impact information, (iii) a comparison of the price being paid in this
Merger to other comparable financial institution mergers, based on, among other
things, multiples of book value and earnings, (iv) the historical trading prices
for Bankers Common Stock and Sovereign Common Stock and (v) the recommendation
of Ryan, Beck, Sovereign's financial advisor, as to the fairness, from a
financial point of view, of the Exchange Ratio to the holders of Sovereign
Common Stock.
In the view of Sovereign's Board of Directors, the Merger is a strategic
acquisition for Sovereign that significantly enhances Sovereign's central New
Jersey franchise.
In approving the transaction, the Sovereign Board of Directors did not
specifically identify any one factor or group of factors as being more
significant than any other factor in the decision making process, although
individual directors may have given one or more factors more weight than other
factors.
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The emphasis of the Sovereign Board of Directors' discussion in considering
the transaction, however, was on the financial aspects of the transaction,
particularly (i) the strategic fit and enhanced franchise value discussed above,
including pro forma market share information relating to deposits in Monmouth,
Ocean and Middlesex counties, New Jersey, (ii) perceived opportunities to reduce
operating expenses relating to Bankers' operations, (iii) the ability to
increase Sovereign's capital base thereby increasing operating flexibility, (iv)
Bankers' asset quality, (v) the absence of earnings per share dilution and the
accretion to tangible book value, (vi) pricing provisions of the Merger
Agreement, which provide for a fixed price of $25.50 in value of Sovereign
Common Stock for each share of Bankers Common Stock in the event Sovereign
Common Stock is trading between $9.17 and $13.75 per share and a fixed exchange
ratio in the event Sovereign Common Stock is trading outside such range and
(vii) a right, in the event that Bankers elects to terminate the Merger
Agreement as a result of a decline in the Sovereign Market Value to $8.59 per
share or less in the absence of a specified decline in the average price of a
comparable group of fifteen thrift holding companies, to override such
termination by increasing the number of shares of Sovereign Common Stock
issuable in the Merger to a number of shares having an aggregate value of $23.90
based on the Sovereign Market Value as of the date immediately preceding the
Effective Date.
Bankers' Reasons for the Merger
The Board of Directors of Bankers believes that the Merger will enable all
holders of Bankers Common Stock to realize significant value when compared to
the market value per share and book value per share of Bankers Common Stock
prior to the announcement of the transaction. The market value per share of
Bankers Common Stock, as represented by the closing sale price on July 18, 1997,
as reported on the Nasdaq National Market, was $28.8125, and the stated book
value per share of Bankers Common Stock as of March 31, 1997 was $15.98. See "--
Opinions of Financial Advisors" and "INTERESTS OF CERTAIN PERSONS IN THE
MERGER."
In reaching its determination that the Merger is fair to, and in the best
interests of, Bankers and its shareholders, the Board of Directors of Bankers
considered a number of factors, both from a short-term and longer-term
perspective, including, but not limited to, the following:
(i) the Bankers Board of Directors' familiarity with and review of the
business, financial condition, results of operations and future prospects,
including, but not limited to, the potential growth, development,
productivity and profitability of Bankers;
(ii) the current and prospective environment in which Bankers
operates, including national and local economic conditions, the competitive
environment for savings and other financial institutions generally, the
increased regulatory burden on financial institutions generally, the trend
toward consolidation in the financial services industry and the likely
effect of the foregoing factors on Bankers' potential growth, development,
productivity and profitability;
(iii) pro forma financial information on the Merger, including, among
other things, the pro forma book value and earnings per share to Bankers'
shareholders;
(iv) a comparison of the price being paid in the Merger to that paid
in other comparable thrift mergers;
(v) the tax free nature of the transaction to Bankers shareholders
(see, generally, "-- Certain Federal Income Tax Consequences");
(vi) the historical trading prices for Bankers Common Stock and
Sovereign Common Stock;
(vii) the price protection afforded to Bankers' shareholders due to
the method of calculation of the Exchange Ratio and the ability of Bankers
to terminate the Merger Agreement under certain circumstances if the
Sovereign Market Value is less than $8.59 per share;
(viii) Bankers' alternatives to the Merger, including the range of
possible values of those alternatives and the timing and likelihood of
actually receiving those values;
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(ix) the extensive process followed by Alex. Brown to obtain
acquisition proposals and preliminary bids and the conclusion that
Sovereign's bid was more favorable than any of the other indications of
interest from the other companies that also conducted due diligence
examinations of Bankers;
(x) the presentation of Alex. Brown to the Bankers Board of Directors
on February 5, 1997 and Alex. Brown's opinion that, as of such date, the
consideration to be received by the shareholders of Bankers is fair to the
shareholders of Bankers from a financial point of view;
(xi) the expectations that the Merger would provide holders of Bankers
Common Stock with an opportunity to receive a premium over the then current
market and book value of such stock and that the consideration received by
Bankers shareholders in the Merger would constitute a favorable premium
compared to expected future values of Bankers Common Stock under a variety
of circumstances and assumptions;
(xii) the review by the Board with its legal and financial advisors of
the provisions of the Merger Agreement, the Stock Option Agreement and
other related documents; and
(xiii) the compatibility of the respective business and management
philosophies of Sovereign and Bankers.
The foregoing does not purport to be a complete list of the matters
considered by the Board of Directors of Bankers in approving the Merger. In
approving the Merger, the Bankers Board of Directors did not identify any one
factor or group of factors as being more important or significant than any other
factor in the decision making process, although individual directors may have
given one or more factors more weight than other factors.
Recommendation of the Sovereign Board of Directors
THE BOARD OF DIRECTORS OF SOVEREIGN BELIEVES THAT THE TERMS OF THE MERGER
ARE FAIR TO, AND IN THE BEST INTERESTS OF, SOVEREIGN AND ITS SHAREHOLDERS AND
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT. THE BOARD OF DIRECTORS OF
SOVEREIGN UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF SOVEREIGN APPROVE THE
MERGER AGREEMENT.
Recommendation of the Bankers Board of Directors
THE BOARD OF DIRECTORS OF BANKERS BELIEVES THAT THE TERMS OF THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, BANKERS AND ITS SHAREHOLDERS AND HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT. THE BOARD OF DIRECTORS OF BANKERS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF BANKERS APPROVE THE MERGER
AGREEMENT.
TERMS OF THE MERGER
Upon completion of the Merger, the separate legal existence of Bankers will
cease. All property, rights, powers, duties, obligations, debts and liabilities
of Bankers will automatically be taken and deemed to be transferred to and
vested in Sovereign, in accordance with Pennsylvania and New Jersey law.
Sovereign, as the surviving corporation, will be governed by the Articles of
Incorporation and Bylaws of Sovereign in effect immediately prior to completion
of the Merger. The directors and executive officers of Sovereign prior to the
Merger will continue, in their respective capacities, as the directors and
executive officers of Sovereign after the Merger.
Upon completion of the Merger, each outstanding share of Sovereign Common
Stock and related stock purchase rights will continue to be outstanding as an
identical share of Sovereign Common Stock and related stock purchase rights.
Under the Merger Agreement, each outstanding share of Bankers Common Stock on
the Effective Date (other than Excluded Shares) will be converted into and
become the right to receive such number of shares of Sovereign Common Stock, and
corresponding percentage of Sovereign stock purchase rights, as shall equal
$25.50 divided by the average of the mean between the closing high bid and low
asked prices of a share of Sovereign Common Stock (as reported on the
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Nasdaq National Market) for the 15 consecutive trading days immediately
preceding the Effective Date of the Merger (the "Sovereign Market Value"),
provided that such Sovereign Market Value as of the Effective Date is between
$9.17 and $13.75 per share. If, however, the Sovereign Market Value as of the
Effective Date is less than $9.17 per share or greater than $13.75 per share,
shareholders of Bankers will be entitled to receive a fixed number of shares of
Sovereign Common Stock, and corresponding percentage of Sovereign stock purchase
rights, as described in the following paragraphs:
If, on the Effective Date, the Sovereign Market Value is less than $9.17
per share, each outstanding share of Bankers Common Stock (other than Excluded
Shares) will be converted into and become the right to receive 2.782 shares of
Sovereign Common Stock, and corresponding percentage of Sovereign stock purchase
rights.
If, on the Effective Date, the Sovereign Market Value is greater than
$13.75 per share, each outstanding share of Bankers Common Stock (other than
Excluded Shares) will be converted into and become the right to receive 1.854
shares of Sovereign Common Stock, and corresponding percentage of Sovereign
stock purchase rights.
In addition, in the event that Bankers elects to terminate the Merger
Agreement as a result of a decline in the price of Sovereign Common Stock to
$8.59 or less in the absence of a specified decline in the weighted average
prices of a comparable group of fifteen thrift holding companies, Sovereign can
override such election by increasing the number of shares issuable in exchange
for each share of Bankers Common Stock from 2.782 shares to such number of
shares of Sovereign Common Stock as shall have an aggregate value of $23.90
based on the Sovereign Market Value as of the date immediately preceding the
Effective Date. See "-- Termination; Effect of Termination."
The number of shares of Sovereign Common Stock issuable in exchange for
shares of Bankers Common Stock (as finally determined, the "Exchange Ratio")
will be further adjusted to prevent dilution in the event of additional stock
splits, reclassifications or other similar events.
Shareholders of Bankers will receive cash in lieu of fractional shares of
Sovereign Common Stock. See "-- Exchange of Bankers Stock Certificates."
As of the Bankers Record Date, directors and executive officers of Bankers
and/or Bankers Saving have been granted options to purchase 274,755 shares of
Bankers Common Stock (the "Management Options"). On the Effective Date, each
Management Option, whether or not such Management Option is exercisable on the
Effective Date, will cease to be outstanding and will be converted on the
Effective Date into and become an option to acquire that number of shares of
Sovereign Common Stock equal to the number of shares of Bankers Common Stock
covered by the Management Option multiplied by the Exchange Ratio, at an
exercise price equal to the present stated exercise price of such option divided
by the Exchange Ratio. Shares issuable upon the exercise of such options to
acquire Sovereign Common Stock will be issuable in accordance with the terms of
the respective plans and grant agreements of Bankers under which they were
issued.
Neither the Merger nor consummation of the Bank Merger will require
Sovereign, Bankers or any subsidiary of either to distribute to depositors the
liquidation account established by Bankers Savings in connection with its
conversion from mutual to stock form.
The Sovereign Common Stock and cash to be received by the holders of
Bankers Common Stock (including the holders of options to acquire Bankers Common
Stock) in exchange for each share (other than Excluded Shares) of Bankers Common
Stock (including shares subject to options) are referred to herein as the
"Merger Consideration."
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OPINIONS OF FINANCIAL ADVISORS
Opinion of Sovereign's Financial Advisor
On December 18, 1996, Sovereign retained Ryan, Beck to advise Sovereign on
the acquisition of Bankers. Ryan, Beck is regularly engaged in the valuation of
banks, bank holding companies, savings and loan associations and savings and
loan holding companies in connection with mergers, acquisitions and other
securities-related transactions. Ryan, Beck has knowledge of, and experience
with, the New Jersey banking market and banking organizations operating in that
market, and was selected by Sovereign because of its knowledge of, experience
with, and reputation in the financial services industry.
In its capacity as Sovereign's financial advisor, Ryan, Beck participated
in the negotiations with respect to the pricing and other terms and conditions
of the Merger, but the decision as to whether to acquire Bankers and the final
pricing of the Merger was ultimately made by the Board of Directors of
Sovereign. Ryan, Beck rendered its oral opinion to the Sovereign Board on
February 5, 1997 and rendered its formal written opinion on July 18, 1997, that
the Exchange Ratio is "fair" to Sovereign's shareholders from a financial point
of view. No limitations were imposed by the Sovereign Board upon Ryan, Beck with
respect to the investigations made or procedures followed by it in arriving at
its opinion.
THE FULL TEXT OF THE OPINION OF RYAN, BECK DATED AS OF JULY 18, 1997, WHICH
SETS FORTH ASSUMPTIONS MADE AND MATTERS CONSIDERED, IS ATTACHED AS ANNEX C TO
THIS PROXY STATEMENT/PROSPECTUS. SHAREHOLDERS OF SOVEREIGN ARE URGED TO READ
THIS OPINION IN ITS ENTIRETY. RYAN, BECK'S OPINION IS DIRECTED ONLY TO THE
EXCHANGE RATIO AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SOVEREIGN
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SOVEREIGN SPECIAL
MEETING. THE SUMMARY OF THE OPINION OF RYAN, BECK SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION. RYAN, BECK'S ORAL OPINION AS OF FEBRUARY 5, 1997 WAS TO THE
SAME EFFECT AS ITS WRITTEN OPINION.
In connection with its analysis, Ryan, Beck: (i) reviewed the Merger
Agreement and related documents; (ii) reviewed this Proxy Statement/Prospectus;
(iii) reviewed Sovereign's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the years ended December 31, 1996, 1995, and 1994, and Sovereign's
Quarterly Reports on Form 10-Q for the periods ended March 31, 1997, September
30, 1996, June 30, 1996 and March 31, 1996; (iv) reviewed Bankers' financial
statements for the years ended December 31, 1996, 1995, and 1994, and Bankers'
Quarterly Reports on Form 10-Q for the periods ended March 31, 1997, September
30, 1996, June 30, 1996 and March 31, 1996; (v) reviewed the historical stock
prices and trading volume of Sovereign's Common Stock; (vi) reviewed the
historical stock prices and trading volume of Bankers' Common Stock; (vii) as
more particularly described below, reviewed the publicly available financial
data of thrift organizations which Ryan, Beck deemed generally comparable to
Sovereign; (viii) as more particularly described below, reviewed the publicly
available financial data of thrift organizations which Ryan, Beck deemed
generally comparable to Bankers; (ix) as more particularly described below,
reviewed the terms of recent acquisitions of thrift organizations which Ryan,
Beck deemed generally comparable to Bankers; and (x) conducted such other
studies, analyses, inquiries and examinations as Ryan, Beck deemed appropriate.
Ryan, Beck also reviewed certain projections provided by Bankers for the year
ending December 31, 1997 and met with certain members of Bankers' senior
management to discuss Bankers' past and current business operations, financial
condition, strategic plan and future prospects. Ryan, Beck also reviewed
Sovereign's budget for the year ending December 31, 1997, and met with certain
members of Sovereign's senior management to discuss Sovereign's past and current
business operations, financial condition, strategic plan and future prospects.
In connection with its review, Ryan, Beck relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information regarding Sovereign and Bankers provided to Ryan, Beck by
Sovereign and Bankers and their representatives. Ryan, Beck is not an expert in
the evaluation of allowances for loan losses. Therefore, Ryan, Beck has not
assumed
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any responsibility for making an independent evaluation of the adequacy of the
allowances for loan losses as set forth on Bankers' and Sovereign's balance
sheets at March 31, 1997, and Ryan, Beck assumed such allowances were adequate
and complied fully with applicable law, regulatory policy and sound banking
practice as of the date of such financial statements. Ryan, Beck has reviewed
certain historical financial data and financial projections (and the assumptions
and bases therefor) provided by Sovereign and Bankers. Ryan, Beck assumed that
such forecasts and projections reflected the best currently available estimates
and judgments of the respective managements. In certain instances, for the
purposes of its analyses, Ryan, Beck made adjustments to such financial and
operating forecasts which in Ryan, Beck's judgment were appropriate under the
circumstances. Ryan, Beck was not retained to nor did it make any independent
evaluation or appraisal of the assets or liabilities of Sovereign or Bankers nor
did Ryan, Beck review any loan files of Sovereign or Bankers or their respective
subsidiaries. Ryan, Beck also assumed that the Merger in all respects is, and
will be, undertaken and consummated in compliance with all laws and regulations
that are applicable to Sovereign and Bankers.
The preparation of a fairness opinion on a transaction such as the Merger
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, the opinion of Ryan, Beck is not readily
susceptible to summary description. In arriving at its opinion, Ryan, Beck
performed a variety of financial analyses. Ryan, Beck believes that its analyses
must be considered as a whole and the consideration of portions of such analyses
and the factors considered therein, without considering all factors and
analyses, could create an incomplete view of the analyses and the process
underlying Ryan, Beck's opinion. No one of the analyses was assigned a greater
significance than any other.
The projections furnished to Ryan, Beck were prepared by the respective
managements of Sovereign and Bankers. Sovereign and Bankers do not publicly
disclose internal management projections of the type provided to Ryan, Beck in
connection with the review of the Merger. Such projections were not prepared
with a view towards public disclosure. The public disclosure of such projections
could be misleading since the projections were based on numerous variables and
assumptions which are inherently uncertain, including, without limitation,
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in such
projections.
In its analyses, Ryan, Beck made numerous assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which are beyond the control of Sovereign or Bankers. Any estimates contained
in Ryan, Beck's analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than such estimates.
Estimates of values of companies do not purport to be appraisals nor do they
necessarily reflect the prices at which companies or their securities may
actually be sold.
The following is a brief summary of the analyses and procedures performed
by Ryan, Beck in the course of arriving at its opinion.
Analysis of Selected Publicly Traded Companies: Ryan, Beck compared
Bankers' financial data as of December 31, 1996 to a peer group of thirteen
selected thrifts located in the New England and Mid Atlantic regions of the
United States with assets between $1.5 billion and $5.0 billion. The peer group
consisted of ALBANK Financial Corporation, CFX Corporation, Commonwealth
Bancorp, Inc., Greater New York Savings Bank, Haven Bancorp, Inc., JSB
Financial, Inc., ML Bancorp, Inc., New York Bancorp, Inc., RCSB Financial, Inc.,
Reliance Bancorp, Inc., TR Financial Corp., Roslyn Bancorp, Inc. and Webster
Financial Corporation. Ryan, Beck deemed this group to be generally comparable
to Bankers. At or for the twelve months ended December 31, 1996, Bankers had
tangible equity to tangible assets of 7.72%, a return on average assets of 1.21%
adjusted to exclude the one-time SAIF assessment, a return on average equity of
13.99% adjusted to exclude the one-time SAIF assessment, a net interest margin
of 3.03%, a ratio of non-interest expenses to average assets of 1.04%, a ratio
of non-performing loans to total loans of 2.12%, a ratio of non-performing
assets to total assets of 1.63%, a ratio of loan loss reserves to non-performing
loans of 18.65%, and an efficiency ratio of
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37.40%. These ratios were compared to the median ratios of the thirteen selected
thrift organizations, which were, as calculated, a tangible equity to tangible
assets ratio of 7.09%, a return on average assets of 0.93% adjusted to exclude
the one-time SAIF assessment, a return on average equity of 11.33% adjusted to
exclude the one-time SAIF assessment, a net interest margin of 3.50%, a ratio of
non-interest expense to average assets of 2.09%, a ratio of non-performing loans
to total loans of 0.95%, a ratio of non-performing assets to total assets of
0.65%, a ratio of loan loss reserves to non performing loans of 125.39%, and an
efficiency ratio of 55.16%. Ryan, Beck noted that the performance of Bankers as
measured by return on average assets and return on average equity exceeded that
of the peer group and that Bankers' efficiency ratio, non-interest expenses to
average assets, and loan loss reserves to non-performing loans were
significantly less than that of the peer group.
Ryan, Beck also compared Sovereign's financial data as of December 31, 1996
with that of a group of thirteen selected thrift organizations with assets
between $5.5 billion and $20 billion for which public trading and pricing
information was available. The peer group consisted of Commercial Federal
Corporation, TCF Financial Corp., Collective Bancorp, Inc., First Financial
Corp., Long Island Bancorp, Inc., Washington Federal, Inc., Astoria Financial
Corporation, Coast Savings Financial, BankUnited Corp., GreenPoint Financial
Corp., Charter One Financial, Glendale Federal Bank, FSB, and Dime Bancorp, Inc.
Ryan, Beck deemed this group to be generally comparable to Sovereign. At or for
the twelve months ending December 31, 1996, Sovereign (balance sheet ratios are
pro-forma for the then pending acquisition of First State Financial Services)
had tangible equity to tangible assets of 3.90%, a return on average assets of
0.78% adjusted to exclude the one-time SAIF assessment, a return on average
equity of 15.14% adjusted to exclude the one-time SAIF assessment, a dividend
yield of 0.69%, a net interest margin of 2.56%, an efficiency ratio of 49.77%, a
ratio of non-performing assets to total assets of 0.51% and a ratio of reserves
to non-performing loans of 121.03%. These ratios were compared to the median
ratios of the thirteen selected thrift organizations, which were, as calculated,
a tangible equity to tangible assets ratio of 6.58%, a return on average assets
ratio of 1.03% adjusted to exclude the one-time SAIF assessment, a return on
average equity ratio of 15.71% adjusted to exclude the one-time SAIF assessment,
a dividend yield of 1.64%, a net interest margin of 2.92%, an efficiency ratio
of 49.92%, a ratio of non-performing assets to total assets of 1.02% and a ratio
of reserves to non-performing loans of 101.44%. Using a ten day average trading
price for Sovereign's Common Stock, its price to latest twelve month earnings
adjusted to exclude the one-time SAIF assessment was 12.30 times, price to book
value was 175.66% and price to tangible book value was 248.67%. The peer group's
median price to latest twelve month earnings was 13.74 times, price to book
value was 170.43% and price to tangible book value was 188.54%.
Analysis of Selected Transactions: Ryan, Beck compared Bankers' financial
data at or for the twelve months ended December 31, 1996 with that of a group of
seven selected thrift organizations being acquired in announced transactions
since September 30, 1995 and for which pricing data pertaining to the
transactions was publicly available. The criteria for this group was thrifts
with assets between $1.0 billion and $5 billion, with a return on average assets
greater than 0.65% and a tangible equity to tangible assets ratio of less than
10%. The peer group of acquired organizations consisted of DS Bancor, Inc.,
Walden Bancorp, Inc., North Side Savings Bank, TAC Bancshares, Leader Financial
Corp., Bankers First Corp. and Boston Bancorp. Ryan, Beck deemed this group to
be generally comparable to Bankers. The median ratios of the seven selected
companies, as calculated, represented a 7.97% tangible equity to tangible assets
ratio, a non-performing assets to assets ratio of 0.91%, an annualized
year-to-date return on average assets of 1.14% and an annualized year-to-date
return on average equity of 13.44%. These ratios were compared to Bankers'
ratios, which were, as calculated, a 7.71% tangible equity to tangible assets
ratio, a non-performing assets to assets ratio of 1.11%, a SAIF adjusted return
on average assets of 1.12%, and a SAIF adjusted return on average equity of
12.46%.
Ryan, Beck also calculated certain ratios based on the $25.50 of Sovereign
Common Stock to be received for each share of Bankers Common Stock based upon an
average Sovereign stock price, as defined, between $9.17 and $13.75 per share
(as adjusted for the Stock Split). The median ratios for the comparable
transactions, as calculated, represented a price to fully diluted book value of
168.46%, a price to fully diluted tangible book value of 170.07%, a price to
latest twelve month earnings of 13.05
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times and a core deposit premium of 7.98%. The imputed value of Bankers based on
the median multiples of the above mentioned acquisition peer group was $26.25
based on price to fully diluted book value, $26.04 based on price to fully
diluted tangible book value, $26.62 based on price to latest twelve month
earnings and $25.49 based on the core deposit premium to tangible book value.
No company or transaction used in the Analysis of Selected Publicly Traded
Companies and Transactions sections is identical to Bankers, Sovereign or the
Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies involved
and other factors that could affect the trading values of the securities of the
company or companies to which they are being compared.
Impact Analysis: Ryan, Beck analyzed the Merger in terms of its effect on
Sovereign's projected earnings per share, current book value, tangible book
value, and capital ratios. Ryan, Beck based its analysis on Sovereign and
Bankers' projected 1997 and 1998 earnings and certain assumptions with respect
to cost savings and other synergies from the Merger. Based upon the stand alone
earnings projections provided by Sovereign and Bankers and a Sovereign stock
price of $11.46 per share (adjusted for the Stock Split), the analysis showed
that the Merger would be accretive to Sovereign's estimated 1997 earnings per
share by approximately 1.37% and accretive to 1998 earnings per share by
approximately 2.01%. Based upon Sovereign and Bankers' December 31, 1996
financial statements (Sovereign's December 31, 1996 financial statements were
pro-forma for the pending acquisition of First State Financial Services), the
Merger would be accretive to fully diluted book value per share by approximately
0.18%, and would be accretive to Sovereign's fully diluted tangible book value
by approximately 7.11%. Sovereign's pro-forma total equity to total assets would
increase from 4.98% to 5.40%, its tangible equity to tangible assets would
increase from 3.90% to 4.51%, and its intangible assets to total equity would be
reduced from 22.69% to 17.34%. The actual results achieved may vary from the
projected results and the variations may be material.
Discounted Dividend Analysis: Using a discounted dividend analysis, Ryan,
Beck estimated the net present value of the future dividend streams that Bankers
could produce in perpetuity. Projection ranges for Bankers' five-year balance
sheet and income statement were provided by Bankers' management. Management's
projections were based upon various factors and assumptions, many of which are
beyond the control of Bankers. These projections are, by their nature,
forward-looking and may differ materially from the actual values or actual
future results which may be significantly more or less favorable than suggested
by such projections. In producing a range of per share Bankers values, Ryan,
Beck utilized the following assumptions: discount rates range from 14.0% to
16.0%, terminal price/earnings multiples range from 9.0x to 10.0x (which when
applied to terminal year estimated earnings produces a value which approximates
the net present value of the dividends in perpetuity, given certain assumptions
regarding growth rates and discount rates) and earnings that include estimated
savings in Bankers' non-interest expense equal to 16.21% in 1997 and 40.0% in
1998, with an assumed 5% growth in synergies in years thereafter. The discounted
dividend analysis produced a range of net present values per share of Bankers
Common Stock from $27.60 to $31.81. These analyses do not purport to be
indicative of actual values or expected values or an appraisal range of the
shares of Bankers Common Stock. Ryan, Beck noted that the discounted dividend
analysis is a widely used valuation methodology, but noted that it relies on
numerous assumptions, including expense savings levels, dividend payout rates,
terminal values and discount rates, the future values of which may be
significantly more or less than such alternatives.
In connection with its written opinion dated as of July 18, 1997, Ryan,
Beck confirmed the appropriateness of its reliance on the analyses used to
render its February 5, 1997 oral opinion by performing procedures to update
certain of such analyses and by reviewing the assumptions and conclusions
contained in its opinion.
RYAN, BECK'S WRITTEN OPINION DATED JULY 18, 1997 WAS BASED SOLELY UPON THE
INFORMATION AVAILABLE TO IT AND THE ECONOMIC, MARKET AND OTHER CIRCUMSTANCES AS
THEY EXISTED AS OF THE DATE OF SUCH OPINION. RYAN, BECK DID NOT EXPRESS ANY
OPINION AS TO THE PRICE OR RANGE OF PRICES AT WHICH
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SOVEREIGN COMMON STOCK MIGHT TRADE SUBSEQUENT TO THE MERGER. EVENTS OCCURRING
AFTER SUCH DATE COULD MATERIALLY AFFECT THE ASSUMPTIONS AND CONCLUSIONS
CONTAINED IN SUCH OPINION. RYAN, BECK HAS NOT UNDERTAKEN TO REAFFIRM OR REVISE
ITS OPINION OR OTHERWISE COMMENT UPON ANY EVENTS OCCURRING AFTER THE DATE
HEREOF.
The opinion of Ryan, Beck that the Exchange Ratio is fair to Sovereign's
shareholders from a financial point of view does not include situations in which
Bankers elects to terminate the Merger Agreement as a result of a decline in the
price of Sovereign Common Stock to $8.59 or less in the absence of a specified
decline in the weighted average price of a group of fifteen comparable thrift
holding companies. Under such circumstances, Sovereign can override such
termination by increasing the number of shares of Sovereign Common Stock
issuable for each share of Bankers Common Stock from 2.782 shares to such number
of shares of Sovereign Common Stock having an aggregate market value of $23.90
based on the Sovereign Market Value as of the date immediately preceding the
Effective Date. Whether or not Sovereign would agree to increase the Exchange
Ratio would have to be evaluated by Sovereign's Board of Directors at the time
of any such termination by Bankers based on the facts and circumstances existing
at that time. In connection with any such evaluation by Sovereign's Board of
Directors, Ryan, Beck would reevaluate the transaction to determine whether the
revised Exchange Ratio was fair to Sovereign's shareholders from a financial
point of view. Ryan, Beck has been advised by Sovereign that it would be
requested to update its opinion under such circumstances and that, in the event
that Ryan, Beck is unable to deliver an opinion under such circumstances and
Sovereign nonetheless elects to override Bankers' termination of the Merger
Agreement and proceed with the Merger, Sovereign would resolicit its
shareholders to advise them of such facts. See "-- Termination; Effect of
Termination."
The summary set forth above does not purport to be a complete description,
but is a brief summary of the material analyses and procedures performed by
Ryan, Beck in the course of arriving at its opinion.
With regard to Ryan, Beck's services in connection with the Merger
Agreement, Sovereign has agreed to pay Ryan, Beck an advisory fee of $250,000. A
portion of Ryan, Beck's advisory fee equal to $50,000 was paid upon execution of
the definitive agreement and the remainder will be paid at the time of the
closing of the merger. In addition, Sovereign has agreed to reimburse Ryan, Beck
for its reasonable out-of-pocket expenses, which shall not exceed $5,000 without
the prior consent of Sovereign. Sovereign has also agreed to indemnify Ryan,
Beck and certain related persons against certain liabilities, including
liabilities under federal securities law, incurred in connection with its
services. The amounts of Ryan, Beck's fees were determined by negotiation
between Sovereign and Ryan, Beck. On March 19, 1997, Sovereign's subsidiary
Sovereign Capital Trust I issued $100 million of 9.00% Subordinated Capital
Income Securities. Ryan, Beck acted as a co-manager on this transaction.
Ryan, Beck has previously represented Sovereign in various investment
banking transactions including issuing a fairness opinion with respect to
Sovereign's acquisition of Charter FSB Bancorp on November 1, 1994 and
representing Sovereign in the sale of its English Village and Pottsville branch
offices in November, 1995. Additionally, Ryan, Beck has represented various
financial institutions which have been acquired by Sovereign, including the
acquisition of Colonial State Bank on November 16, 1995, West Jersey Bancshares
on May 31, 1996 and Harmonia Bancorp on January 15, 1993.
Ryan, Beck's research department actively follows Sovereign and regularly
produces earnings estimates on Sovereign. Additionally, Ryan, Beck's trading
department maintains a trading market in Sovereign's Common Stock.
Ryan, Beck acted as co-manager of Bankers' conversion from mutual to stock
form in March, 1990. Additionally, Ryan, Beck has previously acted as investment
banker to Bankers in transactions involving the potential sale of Bankers.
However, Ryan, Beck provided no services to Bankers in this transaction. Ryan,
Beck's research department actively follows Bankers and regularly produces
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earnings estimates on Bankers. Additionally, Ryan, Beck's trading department
maintains a trading market in Bankers' common stock.
As of January 31, 1997, Ryan, Beck did not have a material position in
either Sovereign Common Stock or Bankers Common Stock.
Opinion of Bankers' Financial Advisor
Pursuant to a letter agreement dated September 3, 1996, Bankers retained
Alex. Brown to act as Bankers' financial advisor in connection with the Merger,
including rendering its opinion to the Board of Directors of Bankers as to the
fairness, from a financial point of view, of the consideration payable to
Bankers' shareholders. Alex. Brown has provided, and continues to provide,
certain other financial advisory services to Bankers. Alex. Brown was selected
to act as Bankers' financial advisor based upon its qualifications, expertise
and reputation, as well as Alex. Brown's prior investment banking relationship
and familiarity with Bankers. Alex. Brown regularly publishes research reports
regarding the financial services industry and the businesses and securities of
publicly owned companies in that industry.
On February 5, 1997, at the meeting at which the Bankers Board of Directors
approved and adopted the Merger Agreement, Alex. Brown delivered a written
opinion to the Bankers Board of Directors that, as of such date, the
consideration to be received by the shareholders of Bankers was fair to the
shareholders of Bankers from a financial point of view. Pursuant to the Merger
Agreement, each share of Bankers Common Stock (other than Excluded Shares) will
be converted into and exchangeable for that number of shares of Sovereign Common
Stock to be determined by dividing $25.50 by the Sovereign Market Value. The
Exchange Ratio is subject to certain adjustments (as set forth in the Merger
Agreement) which include, but are not limited to, a provision that (i) if the
Sovereign Market Value is greater than $13.75 (as adjusted for the Stock Split),
the Exchange Ratio will be 1.854 (as adjusted for the Stock Split) and (ii) if
the Sovereign Market Value is less than $9.17 (as adjusted for the Stock Split),
the Exchange Ratio will be 2.782 (as adjusted for the Stock Split). No
limitations were imposed by the Bankers Board of Directors upon Alex. Brown with
respect to the investigations made or procedures followed by it in rendering its
opinion. Alex. Brown also delivered an updated opinion dated July 18, 1997 which
is substantially identical to the February 5, 1997 opinion.
THE FULL TEXT OF THE ALEX. BROWN OPINION, WHICH SETS FORTH ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO
AS ANNEX D AND IS INCORPORATED HEREIN BY REFERENCE. BANKERS SHAREHOLDERS ARE
URGED TO READ THE ALEX. BROWN OPINION IN ITS ENTIRETY. ALEX. BROWN'S OPINION IS
DIRECTED ONLY TO THE CONSIDERATION TO BE RECEIVED BY THE SHAREHOLDERS OF BANKERS
AND DOES NOT CONSTITUTE A RECOMMENDATION AS TO HOW SUCH SHAREHOLDERS SHOULD VOTE
AT THE BANKERS ANNUAL MEETING. THE FOLLOWING SUMMARY OF THE ALEX. BROWN OPINION
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
In rendering its opinion, Alex. Brown (i) reviewed the Merger Agreement,
certain publicly available business and financial information concerning Bankers
and Sovereign and certain internal financial analyses and forecasts for Bankers
and Sovereign prepared by their respective managements; (ii) held discussions
with members of senior management of Bankers and Sovereign regarding the past
and current business operations, financial condition and future prospects of
their organizations; (iii) reviewed the reported price and trading activity for
Bankers Common Stock and Sovereign Common Stock and compared certain financial
and stock market information for each of Bankers and Sovereign with similar
information for certain other financial institutions, the securities of which
are publicly traded; (iv) reviewed the financial terms of certain recent
business combinations in the financial institutions industry which Alex. Brown
deemed comparable in whole or in part; and (v) performed such other studies and
analyses as Alex. Brown considered appropriate.
Alex. Brown relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinion. With respect to the financial
forecasts reviewed by Alex. Brown in rendering its opinion, Alex. Brown
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assumed that such financial forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of each of Bankers and Sovereign as to the future
financial performance of Bankers and Sovereign. Alex. Brown did not make an
independent evaluation or appraisal of the assets or liabilities of Bankers or
Sovereign nor was it furnished with any such appraisal.
The summary set forth below, while not purporting to be a complete
description, sets forth all material factors considered and analyses performed
by Alex. Brown. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Accordingly, Alex. Brown believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, would
create an incomplete view of the evaluation process underlying its opinion. No
one of the analyses performed by Alex. Brown was assigned a greater significance
than any other. In performing its analyses, Alex. Brown made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond Bankers' or Sovereign's
control. The analyses performed by Alex. Brown are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Additionally, analyses relating to
the values of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
No company used in the analysis of selected publicly traded companies nor
any transaction used in the analysis of selected precedent transactions
summarized below is identical to Bankers or the Merger. Accordingly, such
analyses must take into account differences in the financial and operating
characteristics of the selected companies and the selected transactions and
other factors that would affect the public trading value and acquisition value
of the selected companies and the selected transactions, respectively.
The opinion of Alex. Brown that the Exchange Ratio is fair to Bankers'
shareholders from a financial point of view includes situations in which Bankers
elects to terminate the Merger Agreement as a result of a decline in the price
of Sovereign Common Stock to $8.59 or less in the absence of a specified decline
in the weighted average price of a group of fifteen comparable thrift holding
companies and Sovereign overrides such termination by increasing the number of
shares of Sovereign Common Stock issuable for each share of Bankers Common Stock
from 2.782 shares to such number of shares of Sovereign Common Stock having an
aggregate market value of $23.90 based on the Sovereign Market Value as of the
date immediately preceding the Effective Date. The opinion of Alex. Brown does
not cover situations in which Bankers does not elect to terminate the Merger
Agreement under circumstances in which it would have the right to do so as a
result of such a decline in the price of Sovereign Common Stock. It is
anticipated that, if the price of Sovereign Common Stock declines to $8.59 or
less under circumstances giving Bankers the right to terminate the Merger
Agreement, Alex. Brown would meet with the Board of Directors of Bankers to
determine a course of action and consider rendering a new fairness opinion in
the event that Sovereign did not elect to increase the Exchange Ratio as
described above and Bankers did not elect to terminate the Merger Agreement. See
"-- Termination; Effect of Termination."
Analysis of Selected Publicly Traded Companies. In preparing its opinion,
Alex. Brown, using publicly available information, compared selected financial
information, including book value, tangible book value, latest twelve months
("LTM") earnings, 1997 estimated earnings, 1998 estimated earnings, asset
quality ratios and loan loss reserve levels, for Bankers and selected peer
groups of thrift institutions.
The first peer group was comprised of selected thrift institutions in the
United States that possessed asset bases between $1 billion and $5 billion (the
"Bankers National Peer Group"). This peer group was then segmented into those
thrift institutions headquartered in the Mid-Atlantic Region (New Jersey, New
York, Pennsylvania, Maryland and Delaware) (the "Bankers Regional Peer
39
<PAGE>
Group"). The Bankers Regional Peer Group included ALBANK Financial Corporation
(NY), Commonwealth Bancorp, Inc. (PA), Dime Community Bancorp, Inc. (NY), The
Greater New York Savings Bank (NY), Haven Bancorp, Inc. (NY), JSB Financial,
Inc. (NY), Maryland Federal Bancorp (MD), ML Bancorp, Inc. (PA), New York
Bancorp Inc. (NY), Ocean Financial Corp. (NJ), PennFed Financial Services, Inc.
(NJ), Queens County Bancorp, Inc. (NY), RCSB Financial, Inc. (NY), Reliance
Bancorp, Inc. (NY), TR Financial Corp. (NY), WSFS Financial Corporation (DE) and
York Financial Corp. (PA). As of February 4, 1997, the relative multiples
implied by the market price of Bankers Common Stock and the mean market
multiples implied by the market prices of the common stock of the companies in
the Bankers National Peer Group and Bankers Regional Peer Group, respectively,
to such selected financial data was: to LTM earnings (excluding the effect of
non-recurring SAIF insurance charges), 11.9x for Bankers and 13.9x and 13.2x for
the Bankers National Peer Group and Bankers Regional Peer Group, respectively;
to 1997 I/B/E/S (Institutional Brokerage Estimation Service) estimated earnings
per share, 11.5x for Bankers and 12.1x and 12.9x for the Bankers National Peer
Group and Bankers Regional Peer Group, respectively; to stated book value, 156%
for Bankers and 147% and 132% for the Bankers National Peer Group and Bankers
Regional Peer Group, respectively; to tangible book value, 158% for Bankers and
159% and 142% for the Bankers National Peer Group and Bankers Regional Peer
Group, respectively; and to total assets, 12.2% for Bankers and 12.1% and 13.8%
for the Bankers National Peer Group and Bankers Regional Peer Group,
respectively.
Alex. Brown also compared certain financial information relating to
Sovereign to corresponding information from a peer group comprised of selected
thrift institutions in the United States that possessed asset bases between $5
billion and $20 billion (the "Sovereign National Peer Group"). This peer group
was also segmented into those thrift institutions headquartered in the
Mid-Atlantic Region (New Jersey, New York, Pennsylvania, Maryland and Delaware)
(the "Sovereign Regional Peer Group"), which included Astoria Financial
Corporation (NY), Collective Bancorp, Inc. (NJ), Dime Bancorp, Inc. (NY),
GreenPoint Financial Corp. (NY) and Long Island Bancorp, Inc. (NY). As of
February 4, 1997, the relative multiples implied by the market price of
Sovereign Common Stock and the mean market multiples implied by the market
prices of the common stock of the companies in the Sovereign National Peer Group
and Sovereign Regional Peer Group, respectively, to such selected financial data
was: to LTM earnings (excluding the effect of non-recurring SAIF insurance
charges), 12.0x for Sovereign and 17.2x and 16.8x for the Sovereign National
Peer Group and Sovereign Regional Peer Group, respectively; to 1997 I/B/E/S
estimated earnings per share, 10.6x for Sovereign and 13.9x and 14.5x for the
Sovereign National Peer Group and Sovereign Regional Peer Group, respectively;
to stated book value, 173% for Sovereign and 190% and 169% for the Sovereign
National Peer Group and Sovereign Regional Peer Group, respectively; to tangible
book value, 225% for Sovereign and 211% and 203% for the Sovereign National Peer
Group and Sovereign Regional Peer Group, respectively; and to total assets, 8.7%
for Sovereign and 13.8% and 14.0% for the Sovereign National Peer Group and
Sovereign Regional Peer Group, respectively.
Analysis of Selected Acquisition Transactions. In preparing its opinion,
Alex. Brown analyzed certain selected merger and acquisition transactions for
thrift institutions based upon the acquisition price relative to stated book
value, tangible book value, LTM earnings, forward one year earnings (based on
I/B/E/S estimates) and total assets, and the market price and core deposit
premiums based upon the acquisition price. The market price premium was
calculated based on a comparison of the acquisition price and the market price
of the selling institution's common stock one month prior to the announcement of
the acquisition. The analysis included a review and comparison of the mean
multiples represented by a sample of recently effected or pending nationwide
thrift institution acquisitions having a transaction value greater than $200
million and less than $750 million which were announced since January 1, 1994 (a
total of 22 transactions) ("National Transactions"), as segmented into: (i)
transactions in which the selling institution was headquartered in the
Mid-Atlantic Region (4) ("Regional Transactions"); (ii) transactions in which
the selling institution achieved a return on average assets ("ROAA") between
1.0% and 1.5% in the year of its announced acquisition (6) ("Profitability
Segmented Transactions"); and (iii) transactions announced on or after January
1, 1996 (6) ("Most Recent Transactions"). Bankers' annualized ROAA was 1.21% for
the 12 months
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ended December 31, 1996 (excluding the effect of the non-recurring SAIF
insurance charge incurred in the third quarter of 1996). The parties to the
National Transactions were as follows: First FSLA-Rochester/HSBC Holdings Plc;
North Side Savings Bank/North Fork Bancorp; Center Financial Corp./ First Union
Corp.; Home Financial Corp./First Union Corp.; TAC Bancshares/NationsBank Corp.;
Leader Financial Corp./Union Planters Corp.; Bell Bancorp/Standard Federal Bank;
N.S. Bancorp/MAF Bancorp; Boston Bancorp/Bank of Boston; Brooklyn
Bancorp/Republic New York; SFFed Corp/MacAndrews & Forbes; CSF
Holdings/NationsBank Corp.; First Fed Michigan/Charter One Financial; Loyola
Capital Corp./Crestar Financial; Columbia First FSB/First Union Corp.; Coral
Gables Fedcorp/First Union Corp.; America Savings of Florida/First Union Corp.;
Great Lakes Bancorp/TCF Financial Corp.; Anchor Bancorp, Inc./Dime Bancorp;
Sacramento Savings Bank/First Interstate; NBB Bancorp, Inc./Fleet Financial
Group; and Germantown Savings Bank/CoreStates Financial Corp.
The relative multiples implied by the Exchange Ratio ($25.50 implied per
share value to Bankers shareholders as of February 4, 1997) and each of the
selected acquisition transaction segmentations, respectively, are provided in
the following table:
<TABLE>
<CAPTION>
PURCHASE PRICE TO:
----------------------------
CORE
BOOK TNG. BOOK LTM FORWARD DEPOSIT MARKET
TRANSACTION GROUP VALUE VALUE ASSETS EPS EPS(1) PREMIUM PREMIUM
- ----------------- ----- ----- ------ ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSIDERATION ($25.50 PER SHARE) 163.7% 166.5% 13.1% 12.5x 12.1x 8.5% 22.5%
Selected Acquisition Transactions:
(A) NATIONAL-MEAN 147.2% 153.9% 13.0% 14.3x 14.9x 6.7% 27.9%
High 192.5% 192.5% 27.8% 27.6x 24.2x 18.5% 63.2%
Low 106.0% 106.0% 6.6% 10.9x 8.5x 2.8% -3.4%
(B) REGIONAL-MEAN 145.6% 153.0% 10.5% 12.6x 13.6x 5.4% 21.8%
High 168.5% 170.1% 13.7% 14.5x 20.9x 8.0% 29.2%
Low 110.3% 136.3% 6.6% 11.4x 8.5x 2.8% 16.5%
(C) PROFITABILITY SEGMENTED-MEAN 166.4% 168.8% 16.4% 13.6x 14.7x 10.0% 25.3%
High 192.5% 192.5% 20.9% 14.8x 20.9x 18.5% 57.6%
Low 139.4% 139.4% 12.8% 11.8x 11.2x 4.8% 7.8%
(D) MOST RECENT-MEAN 161.3% 166.3% 14.5% 13.8x 12.1x 8.6% 24.6%
High 192.5% 192.5% 27.8% 15.1x 14.0x 18.5% 50.8%
Low 106.0% 106.0% 8.9% 11.8x 11.2x 3.6% -3.4%
</TABLE>
- ------------------
(1) Forward one year earnings per share based on I/B/E/S estimates.
Historical Stock Price Performance. Alex. Brown reviewed and analyzed the
weekly closing per share market prices and trading volume for Bankers Common
Stock and Sovereign Common Stock from January 1, 1995 to January 31, 1997. Alex.
Brown also reviewed the weekly closing per share market prices of Bankers Common
Stock and Sovereign Common Stock and compared the movement of such weekly
closing prices with the movement of the NASDAQ Bank Index (the "NBI") and the
Standard & Poors 500 Index (the "S&P 500") during the period between January 1,
1995 and January 31, 1997. Alex. Brown noted that, on a relative basis, Bankers
underperformed Sovereign, the NBI and the S&P 500 and that Sovereign
outperformed the S&P 500 but slightly underperformed the NBI over this period.
Alex. Brown further noted that over the six month period between August 1, 1996
and January 31, 1997, both Bankers and Sovereign outperformed the NBI and the
S&P 500 and that Bankers underperformed Sovereign though the prices of Bankers
Common Stock and Sovereign
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Common Stock exhibited similar directional trends. The data that Alex. Brown
used in making these comparisons are summarized below.
1/1/95- 8/1/96-
1/31/97 1/31/97
--------- -------
Bankers.............................................. +65.9% +25.9%
Sovereign............................................ +84.3% +40.0%
NBI.................................................. +88.9% +24.4%
S&P 500.............................................. +70.6% +18.7%
Alex. Brown also reviewed the weekly closing per share market prices of
Bankers Common Stock and Sovereign Common Stock and compared the movement of
such closing prices with the movement of a composite average consisting of each
company's regional peer group over the period from January 1, 1995 through
January 31, 1997. Alex. Brown noted that, on a relative basis, Bankers slightly
underperformed its peer group over this period, increasing 65.9% in price versus
a 72.9% increase for the Bankers Regional Peer Group. Sovereign's
underperformance versus its peer group was slightly more pronounced, as
Sovereign increased 84.3% versus a 138.1% increase for the Sovereign Regional
Peer Group. Alex. Brown also noted that the average weekly trading volume of
Bankers Common Stock and Sovereign Common Stock during the period between
January 1, 1995 and January 31, 1997 was approximately 147,400 shares and
997,900 shares, respectively, and that Sovereign would issue approximately 23.5
million shares to Bankers shareholders in the Merger (based on the Exchange
Ratio as of February 4, 1997).
Contribution Analysis. Alex. Brown determined the contribution by Bankers
of key historical balance sheet items (including assets, loans, deposits, stated
equity and tangible equity) and selected historical and estimated income
statement items (including LTM net income, 1997 I/B/E/S estimated earnings and
1998 I/B/E/S estimated earnings) to the resulting pro forma entity, as compared
to the ownership percentage of the pro forma entity's common stock that would be
received by Bankers shareholders in the aggregate as a result of the acquisition
(based on the Exchange Ratio as of February 4, 1997).
The relative levels of contribution by Bankers in these selected areas and
the level of pro forma ownership that would be received by current Bankers
shareholders in aggregate are presented in the following table:
BANKERS
BALANCE SHEET ITEMS CONTRIBUTION
- ------------------- ------------
Assets............................................................. 19.7%
Loans.............................................................. 20.0%
Deposits........................................................... 22.5%
Equity............................................................. 27.8%
Tangible Equity.................................................... 32.9%
INCOME STATEMENT ITEMS
- ----------------------
LTM Net Income..................................................... 27.5%
I/B/E/S 1997E Earnings............................................. 25.2%
I/B/E/S 1998E Earnings............................................. 25.1%
Bankers pro forma ownership of Sovereign........................... 26.2%
Pro Forma Combined Earnings Analysis. Alex. Brown analyzed certain pro
forma effects of the Merger. Based on such analysis, Alex. Brown computed the
resulting accretion or dilution to the combined company's earnings per share
estimate for the calendar years ending December 31, 1997 and December 31, 1998
pursuant to the Merger after taking into account the assumed potential cost
savings and other synergies that Bankers and Sovereign could achieve if the
Merger were consummated and before taking into account non-recurring costs
relating to the Merger. Alex. Brown noted that after
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taking into account potential cost savings and other synergies and before taking
into account certain non-recurring costs relating to the Merger, the Merger
would be approximately 0.4% dilutive and 1.2% accretive to the combined
company's earnings per share estimate for the calendar years ending December 31,
1997 and December 31, 1998, respectively. Alex. Brown also noted that on a pro
forma basis, before certain non-recurring costs relating to the Merger, the
Merger would be approximately 2.2% accretive to the combined company's
fully-diluted book value per share and 9.8% accretive to the combined company's
fully-diluted tangible book value per share as of December 31, 1996. There can
be no assurance that the combined company will be able to realize cost savings
and synergies in the amounts assumed, or at all, following the Merger.
Impact on Bankers Shareholders. Based on the Exchange Ratio as of February
4, 1997, Alex. Brown calculated the expected effect of the transaction to the
current holders of Bankers Common Stock as described below. On a pro forma
basis, 1998 estimated earnings per equivalent share of Bankers Common Stock
would be $2.70 if the Merger were consummated, representing a 7.6% increase from
Bankers' stand alone 1998 estimated earnings per share (from Bankers management)
of $2.51. Fully-diluted book value per share on a pro forma basis as of December
31, 1996 would be $14.39 per equivalent share of Bankers Common Stock,
representing a 5.6% decline from Bankers' stand alone fully-diluted book value
of $15.25. Dividends per equivalent share of Bankers Common Stock would decrease
72.2% from Bankers' stand alone dividend of $0.64 per share to $0.18 per current
share of Bankers Common Stock on a pro forma basis. These pro forma values and
their resulting implications to current Bankers shareholders are based on
historical Bankers and Sovereign financials and the assumption that the combined
entity will realize certain cost savings and synergies in calendar year 1998 and
do not reflect any adjustments for restructuring costs that may be incurred. The
values discussed above are not necessarily indicative of actual values, which
may be significantly more or less than such estimates.
Discounted Dividend Analysis. Using discounted cash flow analysis, Alex.
Brown estimated the present value of Bankers' future dividend stream on a per
share basis over a five year period under the assumption that Bankers would
perform in accordance with management's forecasts, and certain variants thereof.
Alex. Brown also estimated the terminal value per share of Bankers Common Stock
at the end of the five year period by applying LTM earnings acquisition
multiples (12 to 14 times) currently being received by thrift institutions which
are generating profitability ratios similar to those projected by Bankers'
management for the calendar year ending December 31, 2001. The range of
multiples used reflected a variety of scenarios regarding the growth and
profitability prospects of Bankers. The dividend streams and terminal value were
then discounted to present value using discount rates ranging from 14% to 16%,
which reflect different assumptions regarding the required rates of returns of
holders or prospective buyers of Bankers Common Stock. Alex. Brown noted that
the discounted dividend stream analysis indicated a reference range of between
$20.50 and $25.50 per share of Bankers Common Stock. The foregoing reference
range was based in part on the application of economic and financial models and
is not necessarily indicative of actual value, which may be significantly more
or less than such estimates.
Compensation of Financial Advisor. Pursuant to the terms of a letter
agreement dated September 3, 1996, Bankers has paid Alex. Brown a fee of
$200,000 for acting as its financial advisor in connection with the Merger,
including rendering its opinion. In addition, and assuming that the per share
consideration paid to Bankers shareholders is $25.50 at the consummation of the
Merger, Bankers has agreed to pay Alex. Brown a fee of 0.90% of the aggregate
consideration received by Bankers shareholders in the Merger less the fees
already paid to Alex. Brown. This fee is payable to Alex. Brown upon
consummation of the Merger, and is estimated to be approximately $2.9 million.
Whether or not the Merger is consummated, Bankers also has agreed to reimburse
Alex. Brown for its reasonable out-of-pocket expenses incurred in connection
with rendering financial advisory services and to indemnify Alex. Brown and
certain related persons for certain costs, expenses, losses, claims, damages and
liabilities related to or arising out of its rendering of services under its
engagement as financial advisor.
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EFFECTIVE DATE OF THE MERGER
Under the Merger Agreement, the Effective Date is the date determined by
Sovereign, in its sole discretion, upon five days prior written notice to
Bankers, but in no event shall the Effective Date be later than 30 days after
the last condition precedent to the completion of the Merger set forth in the
Merger Agreement has been fulfilled or waived. The parties presently expect that
the Effective Date will occur on or about August 29, 1997. See "-- Conditions to
the Merger."
On or prior to the Effective Date, Articles of Merger between Sovereign and
Bankers will be filed with the Pennsylvania Department of State and the New
Jersey Secretary of State, and each such document will set forth the Effective
Date. The Merger Agreement may be terminated by either party if, among other
reasons, the Merger closing does not occur on or before November 30, 1997 and
the terminating party is not in breach of or has not failed to perform or
observe any of the agreements under the Merger Agreement to be performed or
observed by it. See "-- Termination; Effect of Termination."
EXCHANGE OF BANKERS STOCK CERTIFICATES
The conversion of Bankers Common Stock into Sovereign Common Stock will
occur automatically at the Effective Date. As soon as practicable after the
Effective Date, Sovereign, or a bank or trust company designated by Sovereign,
in the capacity of exchange agent (the "Exchange Agent"), will send a
transmittal form to each Bankers shareholder of record. The transmittal form
will contain instructions with respect to the surrender of certificates
representing Bankers Common Stock to be exchanged for Sovereign Common Stock.
Under the Merger Agreement, certificates representing shares of Sovereign Common
Stock and checks for cash in lieu of fractional shares must be mailed to former
shareholders of Bankers as soon as reasonably possible, but in no event later
than 15 business days following the receipt of certificates representing former
shares of Bankers Common Stock (except in the case of share certificates
containing a restrictive legend or with respect to which stop transfer
instructions pertain) duly endorsed.
BANKERS SHAREHOLDERS SHOULD NOT FORWARD BANKERS STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. BANKERS SHAREHOLDERS
SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Until the certificates representing Bankers Common Stock are surrendered
for exchange after completion of the Merger, holders of such certificates will
not receive, and will not be paid dividends on, the Sovereign Common Stock into
which such shares have been converted. When such certificates are surrendered,
any unpaid dividends will be paid without interest. For all other purposes,
however, each certificate which represents shares of Bankers Common Stock
outstanding at the Effective Date (other than Excluded Shares) will be deemed to
evidence ownership of and the right to receive the shares of Sovereign Common
Stock (and cash in lieu of fractional shares) into which those shares have been
converted by virtue of the Merger. Neither Sovereign nor Bankers will be liable
to any holder of shares of Bankers Common Stock for any amount paid in good
faith to a public official pursuant to any applicable abandoned property,
escheat or similar law.
All shares of Sovereign Common Stock issued upon conversion of shares of
Bankers Common Stock shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Bankers Common Stock, subject, however,
to Sovereign's obligation to pay any dividends or make any other distributions
with a record date on or prior to the Effective Date, which may have been
declared or made by Bankers on such shares of Bankers Common Stock in accordance
with the Merger Agreement and which remain unpaid at the Effective Date.
No fractional shares of Sovereign Common Stock will be issued to any
shareholder of Bankers upon completion of the Merger. For each fractional share
that would otherwise be issued, Sovereign will pay by check an amount equal to
the product obtained by multiplying the fractional share interest to which such
holder would otherwise be entitled by the Sovereign Market Value.
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CONDITIONS TO THE MERGER
The obligations of Sovereign and Bankers to effect the Merger are subject
to various conditions, which include, among other customary provisions for
transactions of this type, the following:
(a) the Merger Agreement shall have been duly approved by the holders
of Sovereign Common Stock and Bankers Common Stock;
(b) all necessary governmental approvals for the Merger shall have
been obtained, and all waiting periods required by law or imposed by any
governmental authority with respect to the Merger shall have expired (see
"-- Regulatory Approvals");
(c) there shall not be any order, decree or injunction in effect
preventing the completion of the transactions contemplated by the Merger
Agreement;
(d) there shall have been delivered to each of Sovereign and Bankers
an opinion of counsel that, among other things, the Merger will be treated
for federal income tax purposes as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code") (see "-- Certain Federal Income Tax Consequences"); and
(e) there shall not have been any material adverse effect on the
consolidated assets, financial condition or results of operations of the
other since December 31, 1996, except for any material adverse effect
caused by any change in the value of the respective investment portfolios
of Sovereign or Bankers resulting from a change in interest rates generally
or any change occurring after the date of the Merger Agreement in any
federal or state law, rule or regulation or in GAAP, which change affects
banking institutions generally, including any change affecting the Bank
Insurance Fund (the "BIF") or the Savings Association Insurance Fund (the
"SAIF") of the Federal Deposit Insurance Corporation (a "Material Adverse
Effect").
In addition, Sovereign's obligation to effect the Merger is subject to,
among others, the following additional conditions:
(a) Sovereign shall have received an opinion from its independent
certified public accountant that the Merger will be treated as a pooling of
interests for financial accounting purposes (see "-- Accounting
Treatment");
(b) the results of any "phase I environmental audit" that Sovereign
shall have had performed at its expense at any physical location owned or
occupied by Bankers or Bankers Savings shall be reasonably satisfactory to
Sovereign; provided that (i) any such environmental audit was commenced
prior to March 22, 1997, (ii) Sovereign elects to terminate the Merger
Agreement within 15 days of receiving the results of any environmental
audit and (iii) Sovereign cannot terminate the Merger Agreement in
accordance with the applicable section thereof unless the results of such
audit results in a Material Adverse Effect; as of March 22, 1997, no such
environmental audit had been commenced;
(c) neither the Merger nor the Bank Merger shall require Sovereign,
Bankers or any subsidiary to distribute to depositors the liquidation
account established by Bankers Savings in connection with the conversion of
Bankers Savings from mutual to stock form; and
(d) with respect to each pension plan of Bankers subject to Title IV
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the present value of the accrued benefits of such plan do not,
as of the Effective Date, exceed the then current value of the assets of
such plan allocable to such accrued benefits and no amounts shall have been
contributed by Bankers or any Bankers subsidiary to any such pension plan
in the year preceding the Effective Date.
Except for the requirements of shareholder approval, regulatory approvals
and the absence of any order, decree or injunction preventing the transactions
contemplated by the Merger Agreement, each of the conditions described above may
be waived in the manner and to the extent described in "--Amendment; Waivers"
herein. Sovereign does not, however, anticipate waiving the condition that it
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receive an opinion from its independent auditors that the Merger will be treated
as a pooling of interests for financial accounting purposes. As of the date of
this Proxy Statement/Prospectus, Sovereign has no reason to believe that it will
not receive such an opinion from its independent auditors.
SUBSIDIARY BANK MERGER
In connection with the Merger, Sovereign Bank and Bankers Savings entered
into the Bank Plan of Merger. Pursuant to the Bank Plan of Merger, concurrently
with or as soon as practicable after completion of the Merger, Bankers Savings
will merge with and into Sovereign Bank, with Sovereign Bank surviving.
Sovereign and Bankers anticipate that the Bank Merger will be completed
concurrently with the completion of the Merger.
REGULATORY APPROVALS
The Bank Merger is subject to the prior approval of the OTS under the Bank
Merger Act and the OTS regulations adopted thereunder. An application for
approval of the Bank Merger was filed with the OTS on or about May 1, 1997. The
OTS deemed the application complete by letter dated July 2, 1997. Under
applicable OTS regulations, the OTS will review the financial, managerial,
competitive, legal, disclosure, accounting and tax aspects of the transaction,
as well as the insurance risk to the BIF and the SAIF and the convenience and
needs of the community to be served. In addition, the OTS may not approve any
proposed acquisition (i) which would result in a monopoly or which would be in
furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the savings and loan business in any part of the United States or
(ii) which in any section of the country may have the effect of substantially
lessening competition or tending to create a monopoly or which in any other
manner would be in restraint of trade, unless the OTS finds that the
anticompetitive effects of the proposed acquisition are clearly outweighed in
the public interest by the probable effect of the proposed acquisition in
meeting the convenience and needs of the community to be served.
In addition, the OTS has the responsibility by statute and regulation to
review the performance of all involved institutions in meeting their
responsibilities under the Community Reinvestment Act ("CRA"), which includes
the record of performance of the existing institutions in meeting the credit
needs of the entire community, including low- and moderate-income neighborhoods.
Both Bankers Savings and Sovereign Bank received ratings of "satisfactory" in
their last CRA examinations. No protest of the Merger has been filed with the
OTS under the CRA as of the date of this Proxy Statement/Prospectus.
The Bank Merger also requires the approval of the New Jersey Department of
Banking. An application was filed with the New Jersey Department of Banking on
or about May 1, 1997. In connection with its review of the application, the
Department may conduct such investigation as it deems necessary.
Because Bankers is presently a bank holding company and Sovereign is not,
and will not be after the Merger, and because the Bank Merger is expected to be
completed concurrently with the Merger, Sovereign has requested confirmation
from the Federal Reserve Bank of New York that no application is necessary under
the Bank Holding Company Act in connection with the Merger. Sovereign has
received such confirmation in the past in similar transactions.
There can be no assurance that the regulatory authorities described above
will approve the Bank Merger, and, if approved, there can be no assurance as to
the date of such approvals. The Bank Merger may not be consummated until 30 days
(15 days if the Attorney General does not object) after the date of the OTS
approval, during which time the Department of Justice has the opportunity to
challenge the Bank Merger on antitrust grounds. The commencement of an antitrust
action by the Department of Justice would stay the effectiveness of OTS approval
unless a court specifically orders otherwise. In reviewing the Bank Merger, the
Department of Justice could analyze the Bank Merger's effect on competition
differently than the OTS, and thus it is possible that the Department of Justice
could reach a different conclusion than the OTS regarding the Bank Merger's
competitive effects. Failure of the
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Department of Justice to object to the Bank Merger does not prevent the filing
of antitrust actions by private persons.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties
relating to, among other things, (a) the corporate organization of Sovereign,
Sovereign Bank, Bankers and Bankers Savings; (b) the capital structure of
Sovereign and Bankers; (c) the due authorization, execution, delivery,
performance and enforceability of the Merger Agreement and the Bank Plan of
Merger; (d) consents or approvals of regulatory authorities or third parties
necessary to complete the Merger and the Bank Merger; (e) the consistency of
financial statements with generally accepted accounting principles and, where
appropriate, applicable regulatory accounting principles; (f) the absence of
material adverse changes, since December 31, 1996, in the consolidated assets,
business, financial condition or results of operations of Sovereign or Bankers;
(g) the filing of tax returns and payment of taxes; (h) the absence of
undisclosed material pending or threatened litigation; (i) compliance with
applicable laws and regulations; (j) retirement and other employee plans and
matters relating to ERISA; (k) the quality of title to assets and properties;
(l) the maintenance of adequate insurance; (m) the absence of undisclosed
brokers' or finders' fees; (n) the absence of material environmental violations,
actions or liabilities; (o) the consistency of the allowance for loan losses
with generally accepted accounting principles and all applicable regulatory
criteria; (p) the accuracy of information supplied by Sovereign and Bankers in
connection with the Registration Statement on Form S-4 filed with the Commission
in connection with the issuance of Sovereign Common Stock in the Merger, this
Proxy Statement/Prospectus and all applications filed with regulatory
authorities for approval of the Merger and the Bank Merger; and (q) documents
filed with the Commission and the accuracy of information contained therein.
The Merger Agreement also contains other representations and warranties by
Bankers relating to, among other things, (a) certain contracts relating to
employment, consulting and benefits matters; (b) the validity and binding nature
of loans reflected as assets in the financial statements of Bankers; (c) the
inapplicability of certain antitakeover provisions of New Jersey law to the
Merger; and (d) transactions with affiliates.
BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, Sovereign and Bankers have each agreed to
use their best efforts to preserve their business organizations intact, to
maintain good relationships with employees and to preserve the goodwill of
customers and others with whom business relationships exist. In addition,
Bankers has agreed to conduct its business and to engage in transactions only in
the ordinary course of business, consistent with past practice, except as
otherwise required by the Merger Agreement or with the written consent of
Sovereign.
In addition, Bankers has agreed in the Merger Agreement that neither it nor
Bankers Savings may, without the written consent of Sovereign, among other
things, (i) change its certificate of incorporation, charter or bylaws; (ii)
change the number of authorized or issued shares of its capital stock, except
for the possible issuance of up to 363,804 shares of Bankers Common Stock upon
the exercise of then outstanding stock options; (iii) grant options or similar
rights with respect to its capital stock or any securities convertible into its
capital stock; (iv) split, combine or reclassify any shares of its capital
stock; (v) declare, set aside or pay any dividend or other distribution in
respect of its capital stock, except as otherwise specifically set forth in the
Merger Agreement (see "-- Dividends"); (vi) grant any severance pay, except in
accordance with written policies or written agreements in effect on the date of
the Merger Agreement (see "-- Employee Benefits and Severance"), or enter into
or amend any employment agreement; (vii) grant any pay increase except for
routine periodic increases in accordance with past practice; (viii) engage in
any merger, acquisition or similar transaction; (ix) dispose of any assets other
than in the ordinary course of business; (x) change any accounting practices,
except as may be required by generally accepted accounting principles (without
regard to any optional early adoption date); (xi) implement any new employee
benefit or welfare plan, or amend
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any such plan, unless such amendment does not result in an increase in cost
except as expressly permitted by the Merger Agreement; (xii) purchase any
security for its investment portfolio not rated "A" or higher by either Standard
& Poor's Corporation or Moody's Investor Services, Inc.; (xiii) make, enter
into, renew, extend, modify or compromise any transaction (including loans and
commitments to lend) with any affiliate of Bankers; (xiv) enter into any
interest rate swap or similar arrangement; (xv) take any action which would give
rise to a right of payment to any individual under any employment agreement;
(xvi) intentionally and knowingly take any action that would preclude the
treatment of the Merger as a pooling of interests for financial accounting
purposes; (xvii) make any loan or other credit facility commitment to any
borrower in excess of $1,000,000, or compromise, extend, renew or modify any
such loan or commitment outstanding in excess of $1,000,000; (xviii) waive,
release, grant or transfer any rights of value, or modify or change in any
material respect any existing agreement to which Bankers or any Bankers
subsidiary is a party, other than in the ordinary course of business, consistent
with past practice; (xix) take any action which would cause any of the
representations and warranties of Bankers set forth in the Merger Agreement to
be untrue or the conditions set forth in the Merger Agreement to be unsatisfied;
or (xx) agree to do any of the foregoing.
Bankers has also agreed in the Merger Agreement, among other things, (i) to
permit Sovereign, if Sovereign elects to do so at its own expense, to cause a
"phase I environmental audit" to be performed at any physical site owned or
occupied by Bankers or any subsidiary of Bankers; (ii) to permit a
representative of Sovereign to attend committee meetings of the management of
Bankers and Bankers Savings, and to reasonably consider Sovereign's requests
that its representatives be permitted to attend meetings of Bankers' Board of
Directors or Executive Committee; (iii) if Sovereign requests and agrees to bear
the expense, to retain a proxy solicitor in connection with the solicitation of
Bankers shareholder approval of the Merger Agreement; (iv) if Sovereign
requests, to cause its independent certified public accountants to perform a
review of its unaudited consolidated financial statements as of the end of any
calendar quarter, in accordance with Statement of Auditing Standards No. 36, and
to issue their report on such financial statements; (v) if Sovereign requests,
to use its best efforts to obtain an extension of any contract with an outside
service bureau or other vendor of services to Bankers or any Bankers subsidiary,
on terms and conditions mutually acceptable to Bankers and Sovereign; (vi) to
submit the Merger Agreement to its shareholders for approval at a meeting to be
held as soon as practicable, and use its best efforts to cause its Board of
Directors to unanimously recommend approval of the Merger Agreement to Bankers'
shareholders; (vii) to provide to Sovereign copies of the minutes of all
meetings of the Board of Directors of Bankers and its subsidiaries, and of any
of their respective committees or of any senior management committee; and (viii)
to approve the Bank Merger as sole shareholder of Bankers Savings.
Sovereign and Bankers have jointly agreed, among other things, (i) to
prepare all applications for, and use their best efforts to obtain, all required
regulatory consents; (ii) to take all actions necessary to complete the
transactions contemplated by the Merger Agreement; (iii) to maintain adequate
insurance; (iv) to maintain accurate books and records; (v) to file all tax
returns and pay all taxes when due; (vi) to cooperate with each other and use
their best efforts to identify those persons who may be deemed to be affiliates
of Bankers; (vii) to agree upon the form and substance of any press release or
public disclosure related to the Merger Agreement, the Merger and the Bank
Merger; and (viii) to deliver to the other copies of all securities documents
when filed.
DIVIDENDS
The Merger Agreement permits Bankers to pay a regular quarterly cash
dividend not to exceed $.16 per share of Bankers Common Stock outstanding.
Bankers agreed in the Merger Agreement to cause, as promptly as practicable, the
regular quarterly dividend record dates and payment dates with respect to
Bankers Common Stock to be the same as Sovereign's regular quarterly dividend
record dates and payment dates with respect to Sovereign Common Stock. The
Merger Agreement provides that nothing contained therein shall be construed to
permit shareholders of Bankers to receive two dividends either from Bankers or
Sovereign in any quarter or to deny or prohibit shareholders of
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Bankers from receiving one dividend from Bankers or Sovereign in any quarter.
Bankers Savings may pay cash dividends sufficient to permit payment of the
dividends permitted to be paid by Bankers. No other dividends may be paid by
Bankers or Bankers Savings without the prior written consent of Sovereign.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that, during the term of the Merger
Agreement, Bankers shall not, nor shall it permit any Bankers subsidiary or any
other affiliate of Bankers or any officer, director or employee of any of them,
or any investment banker, attorney, accountant or other representative retained
by Bankers, any Bankers subsidiary or any other Bankers affiliate to, directly
or indirectly, solicit, encourage, initiate or engage in discussions or
negotiations with, or respond to requests for information, inquiries, or other
communications from, any person other than Sovereign concerning the fact of, or
the terms and conditions of, the Merger Agreement, or concerning any acquisition
of Bankers, any Bankers subsidiary, or any assets or business thereof, except
that Bankers' officers may respond to inquiries from analysts, regulatory
authorities and holders of Bankers Common Stock in the ordinary course of
business. The Merger Agreement provides that Bankers shall notify Sovereign
immediately if any such discussions or negotiations are sought to be initiated
with Bankers by any person other than Sovereign or if any such requests for
information, inquiries, proposals or communications are received from any person
other than Sovereign.
The directors and executive officers of Bankers have executed a letter
agreement containing provisions similar to those described above relating to
Bankers, and such directors and executive officers have also agreed not to sell
their shares of Bankers Common Stock and to vote such shares of Bankers Common
Stock in favor of the Merger Agreement. A copy of the form of letter agreement
executed by the directors and executive officers of Bankers is included as
Exhibit 1 to the Merger Agreement attached hereto as Annex A.
AMENDMENT; WAIVERS
Subject to applicable law, at any time prior to the consummation of the
transactions contemplated by the Merger Agreement, Sovereign and Bankers may (a)
amend the Merger Agreement, (b) extend the time for the performance of any of
the obligations or other acts of Sovereign and Bankers required in the Merger
Agreement, (c) waive any inaccuracies in the representations and warranties
contained in the Merger Agreement or (d) waive compliance with any of the
agreements or conditions contained in the Merger Agreement
TERMINATION; EFFECT OF TERMINATION
The Merger Agreement may be terminated on or at any time prior to the
Effective Date, which Sovereign and Bankers presently anticipate to occur on or
about August 29, 1997, (a) by the mutual written consent of Sovereign and
Bankers; or (b) by Sovereign or Bankers (i) if there shall have been any breach
of any representation, warranty, covenant or other obligation of Sovereign which
results in a Material Adverse Effect with respect to Sovereign, on the one hand,
or of Bankers which results in a Material Adverse Effect with respect to
Bankers, on the other hand, and such breach cannot be, or shall not have been,
remedied within 30 days after receipt by such other party of notice in writing
specifying the nature of such breach and requesting that it be remedied; (ii) if
the Closing Date shall not have occurred on or before November 30, 1997, unless
the failure of such occurrence shall be due to the failure of the party seeking
to terminate the Merger Agreement to perform or observe its agreements set forth
in the Merger Agreement required to be performed or observed by such party on or
before the Effective Date; or (iii) if either party has been informed in writing
by any banking agency or department of any federal or state government whose
approval or consent has been requested that such approval or consent is unlikely
to be granted, unless the failure of such occurrence shall be due to the failure
of the party seeking to terminate the Merger Agreement to perform or observe its
agreements set forth in the Merger Agreement and required to be performed or
observed by such party on or before the Effective Date.
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In addition, the Merger Agreement may be terminated by Bankers Board of
Directors at its sole option, if both:
(a) the Sovereign Market Value as of the Determination Date (i.e., the
date immediately preceding the Closing Date) is less than $8.59; and
(b) the quotient obtained by dividing the Sovereign Market Value as of
the close of business on the Determination Date by $11.46 (being the
closing sale price of Sovereign Common Stock immediately prior to public
announcement of the Merger) (the "Sovereign Ratio") is less than the
quotient obtained by dividing the weighted average closing price per share
(the "Index Price") of the common stocks of a group of fifteen specified
thrift holding companies (the "Index Group"), which are identified below,
on the Determination Date by $31.90 (being the Index Price on February 4,
1997) and subtracting 0.15 from such latter number (after such subtraction,
the "Index Ratio");
provided, however, that the Merger Agreement would not be so terminated if
Sovereign elects, at its sole option, to increase the Exchange Ratio as set
forth in the Merger Agreement and as illustrated below. There can be no
assurance that the Bankers Board of Directors would exercise its right to
terminate the Merger Agreement if a Termination Event (i.e., the conditions
described above) exists, and if the Bankers Board of Directors does elect to so
terminate the Merger Agreement, there can be no assurance that Sovereign will
elect to increase the Exchange Ratio as provided in the Merger Agreement and as
illustrated below.
Certain possible effects of the above provisions of the Exchange Ratio may
be illustrated by the following three scenarios:
(1) If the Sovereign Market Value on the Determination Date is not
less than $8.59, there would be no Termination Event and no adjustment to
the Exchange Ratio.
(2) If the Sovereign Market Value on the Determination Date is less
than $8.59, but the Sovereign Ratio is equal to or greater than the Index
Ratio, there would be no Termination Event and no increase in the Exchange
Ratio.
(3) If the Sovereign Market Value on the Determination Date is less
than $8.59 and the Sovereign Ratio is less than the Index Ratio, there
would be a Termination Event and the Bankers Board of Directors could, at
its sole option, elect to terminate the Merger Agreement; provided that
Sovereign could, at its sole option, override such termination by electing
to increase the Exchange Ratio to equal the quotient obtained by dividing
$23.90 by the Sovereign Market Value on the Determination Date.
The above scenarios are for illustrative purposes only and are not intended
to, and do not, reflect the value of the Sovereign Common Stock that may
actually be received by holders of Bankers Common Stock in the Merger, nor do
they reflect all possible termination/increase scenarios.
Bankers shareholders should be aware that the Sovereign Market Value as of
the Determination Date, on which the occurrence of a Termination Event and the
subsequent increase, if any, in the Exchange Ratio may be determined, will be
based on the average of the closing sale prices of Sovereign Common Stock during
a 15-day trading period ending on the Determination Date. Accordingly, because
the market price of Sovereign Common Stock between the Determination Date and
the Effective Date, as well as on the date certificates representing shares of
Sovereign Common Stock are delivered in exchange for shares of Bankers Common
Stock following consummation of the Merger, will fluctuate and possibly decline,
the value of the Sovereign Common Stock actually received by holders of Bankers
Common Stock may be more or less than (i) the Sovereign Market Value on the
Determination Date, or (ii) the value of the Sovereign Common Stock on the
Closing Date resulting from the Exchange Ratio or any possible adjustment to the
Exchange Ratio as illustrated above.
The Index Group consists of fifteen thrift holding companies selected by
Sovereign and Bankers as being directly relevant for purposes of distinguishing
changes in Sovereign's stock prices that are
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unique from those reflective of general changes in comparable companies. The
fifteen thrift holding companies are GreenPoint Financial Corp., Charter One
Financial, Dime Bancorp, Inc., TCF Financial Corp., Glendale Federal Bank, FSB,
Washington Federal, Inc., First Financial Corp., Long Island Bancorp, Inc., Bank
United Corp., Astoria Financial Corporation, Peoples Heritage Financial Group,
Coast Savings Financial, Commercial Federation Corporation, Collective Bancorp,
Inc. and Downey Financial Corp. If Sovereign or any company belonging to the
Index Group undergoes a reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between February 4, 1997
and the Determination Date, the prices of Sovereign Common Stock or such other
common stocks shall be appropriately adjusted. In the event the common stock of
any such company ceases to be publicly traded or there has been an announcement
of a proposal for the acquisition or sale of such company, such company will be
removed from the Index Group and the weights will be redistributed
proportionately for purposes of determining whether there has been a Termination
Event.
It is not possible to know whether a Termination Event will occur until
after the Determination Date. The Bankers Board of Directors has made no
decision as to whether it would exercise its right to terminate the Merger
Agreement if there is a Termination Event. In considering whether to exercise
its termination right in such situation, the Bankers Board of Directors would,
consistent with its fiduciary duties, take into account all relevant facts and
circumstances that exist at such time and would consult with its financial
advisors and legal counsel. Approval of the Merger Agreement by the shareholders
of Bankers at the Bankers Annual Meeting will confer on the Bankers Board of
Directors the power, consistent with its fiduciary duties, to elect to
consummate the Merger in the event of a Termination Event whether or not there
is any increase in the Exchange Ratio and without any further action by, or
resolicitation of, the shareholders of Bankers. If the Bankers Board of
Directors elects to exercise its termination right, Bankers must give Sovereign
prompt notice of that decision on the Closing Date. Sovereign has the option, in
its sole discretion, to increase the Exchange Ratio in the manner set forth in
the Merger Agreement and as illustrated above and thereby avoid such termination
of the Merger Agreement. Sovereign is under no obligation to increase the
Exchange Ratio, and there can be no assurance that Sovereign would elect to
increase the Exchange Ratio if the Bankers Board of Directors were to exercise
its right to terminate the Merger Agreement as set forth above. Any such
decision would be made by Sovereign in light of the circumstances existing at
the time Sovereign has the opportunity to make such an election.
The foregoing discussion is qualified in its entirety by reference to the
applicable provisions in the Merger Agreement (a copy of which is set forth as
Annex A to this Proxy Statement/Prospectus) relating to the possible increase of
the Exchange Ratio as the result of a Termination Event.
In the event of termination of the Merger Agreement by either Sovereign or
Bankers, there will be no liability or obligation on the part of Sovereign or
Bankers other than the obligation dealing with confidentiality and other than
any liabilities or damages incurred as a result of the willful breach by a party
of any of its representations, warranties, covenants or agreements set forth in
the Merger Agreement.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Directors and Executive Officers
The Board of Directors and executive officers of Sovereign in office
immediately prior to the Effective Date of the Merger will constitute
Sovereign's Board of Directors and executive officers after completion of the
Merger.
The Board of Directors and executive officers of Sovereign Bank in office
immediately prior to the Effective Date of the Bank Merger will constitute
Sovereign Bank's Board of Directors and executive officers after completion of
the Bank Merger, except that Joseph P. Gemmell, Chairman, President and Chief
Executive Officer of Bankers, will become a director of Sovereign Bank to hold
office until the 1998 annual reorganization meeting of the Board of Directors of
Sovereign Bank and
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until his successor is elected and qualified or otherwise in accordance with the
Charter and Bylaws of Sovereign Bank. Sovereign has agreed to use its best
efforts to cause Mr. Gemmell to be renominated as a director of Sovereign Bank
for election at the 1998 and 1999 annual reorganization meetings of the Board of
Directors of Sovereign Bank and has agreed to vote its shares of Sovereign Bank
in favor of such election at such meetings.
Consolidation of Operations
Sovereign expects to achieve certain cost savings and operating synergies
as a result of the Merger. These costs savings and operating synergies are
anticipated to aggregate approximately 35-40% of Bankers' recurring operating
expenses, and are expected to be substantially realized within six months
following the Effective Date. Sovereign expects that such cost savings and
operating synergies will be realized primarily as the result of the elimination
of duplicative administrative and back office functions. Because of the
uncertainties inherent in merging two financial institutions, changes in the
regulatory environment and changes in economic conditions, no assurances can be
given that any particular level of cost savings will be realized, that any such
cost savings will be realized over the time period currently anticipated or that
such cost savings will not be offset to some degree by increases in other
expenses, including expenses relating to integrating the two companies.
Any such expected cost savings or synergies do not give effect to an
expected one-time after-tax charge of approximately $18 to $20 million, relating
to Merger expenses, which will be incurred upon completion of the Merger. Such
expenses will be incurred principally as a result of an addition to the
allowance for possible loan losses which Sovereign has determined will be
necessary in connection with a change in strategy related to problem assets,
losses on sales of assets, payments to executive officers of Bankers under
existing employment contracts containing change in control related obligations,
other severance payments and asset writedowns and transaction costs directly
related to the Merger.
EMPLOYEE BENEFITS AND SEVERANCE
Sovereign intends to maintain employee benefits for Bankers and Bankers
Savings employees at levels which, in the aggregate, are at least as favorable
as such benefits which existed as of March 31, 1997. On and after the Effective
Date, so long as such benefits are so maintained, the employee pension and
welfare benefit plans of Sovereign and Bankers may, at Sovereign's election,
continue to be maintained separately or consolidated. In the event of a
consolidation of any or all of such plans, Bankers and Bankers Savings employees
shall receive credit for service with Bankers or Bankers Savings under any
Sovereign benefit plan or new Sovereign benefit plan in which such employees
would be eligible to enroll, for purposes of eligibility and vesting
determination.
Pursuant to the Merger Agreement, to the extent that the employment of any
employee of Bankers Savings (other than any officer with an employment agreement
or special termination agreement, see "INTERESTS OF CERTAIN PERSONS IN THE
MERGER -- Employment Agreement" and "--Special Termination Agreements") is
terminated voluntarily or involuntarily within the three-month period following
the Merger for any reason other than for cause, such employee will be entitled
to a severance payment equal to one week's pay for each full year of service
with Bankers Savings; provided, however, that all officers of Bankers Savings
will receive no less than 14 weeks' pay.
ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of Sovereign and Bankers will be carried forward to the
combined corporation at their recorded amounts; income of the combined
corporation will include income of both Sovereign and Bankers for the entire
fiscal year of Sovereign in which the Merger occurs; and the reported income of
the separate corporations for prior periods will be combined and restated as
income of the combined corporation. Expenses incurred in connection with the
Merger will constitute expenses for the accounting periods to which such
expenses
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relate. The receipt of a letter from Sovereign's independent auditors confirming
that the Merger will qualify for pooling of interests accounting is a condition
to Sovereign's obligation to complete the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Completion of the Merger is conditioned upon there being delivered to
Sovereign and to Bankers an opinion of Stevens & Lee, P.C., counsel to
Sovereign, that for federal income tax purposes, under current law, assuming
that the Merger and related transactions will take place as described in the
Merger Agreement, among other things, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and Sovereign
and Bankers will each be a party to the reorganization within the meaning of
Section 368(b) of the Code.
In that case, in the opinion of Stevens & Lee, P.C., the following would be
the material federal income tax consequences of the Merger:
(i) no gain or loss will be recognized by Sovereign or Bankers in the
Merger;
(ii) no gain or loss will be recognized by holders of shares of
Bankers Common Stock upon their receipt of Sovereign Common Stock in
exchange for their Bankers Common Stock, except that shareholders who
receive cash proceeds for fractional interests in Sovereign Common Stock
will recognize gain or loss equal to the difference between such proceeds
and the tax basis allocated to their fractional share interests, and such
gain or loss will constitute capital gain or loss if their Bankers Common
Stock is held as a capital asset at the Effective Date;
(iii) the tax basis of the shares of Sovereign Common Stock (including
fractional share interests) received by the shareholders of Bankers will be
the same as the tax basis of their Bankers Common Stock exchanged therefor;
and
(iv) the holding period of the Sovereign Common Stock in the hands of
the Bankers shareholders will include the holding period of their Bankers
Common Stock exchanged therefor, provided such Bankers Common Stock is held
as a capital asset at the Effective Date.
Under the Merger Agreement, the condition that Stevens & Lee deliver the
opinion described above can be waived by Sovereign and Bankers. However, in the
event that the delivery of such opinion of counsel is waived, or such opinion
would otherwise set forth tax consequences materially different to a shareholder
than those described above, Sovereign and Bankers intend to resolicit proxies as
required in accordance with the rules and regulations of the Commission.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND
IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED
TREASURY REGULATIONS THEREUNDER, AND CURRENT ADMINISTRATIVE RULINGS AND COURT
DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD
AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. THE DISCUSSION IS NOT A
COMPLETE DESCRIPTION OF ALL THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
AND, IN PARTICULAR, DOES NOT ADDRESS TAX CONSIDERATIONS THAT MAY AFFECT THE
TREATMENT OF SHAREHOLDERS WHO ACQUIRED THEIR BANKERS COMMON STOCK PURSUANT TO
THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, OR
SHAREHOLDERS WHICH ARE EXEMPT ORGANIZATIONS OR WHO ARE NOT CITIZENS OR RESIDENTS
OF THE UNITED STATES. EACH SHAREHOLDER'S INDIVIDUAL CIRCUMSTANCES MAY AFFECT THE
TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. IN ADDITION, NO INFORMATION
IS PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER UNDER
APPLICABLE STATE, LOCAL, OR FOREIGN LAWS. ACCORDINGLY, EACH BANKERS SHAREHOLDER
IS ADVISED TO CONSULT A TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO SUCH SHAREHOLDER.
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<PAGE>
EXPENSES
Sovereign and Bankers will each pay all costs and expenses incurred by it
in connection with the transactions contemplated by the Merger Agreement,
including fees and expenses of financial consultants, accountants and legal
counsel, except that (i) the cost of printing and mailing this Proxy
Statement/Prospectus will be shared equally by Sovereign and Bankers and (ii) if
Sovereign requests Bankers to retain a proxy solicitor in connection with the
solicitation of Bankers shareholder approval of the Merger Agreement, Sovereign
will bear the expense of such proxy solicitor.
RESALE OF SOVEREIGN COMMON STOCK
The Sovereign Common Stock issued pursuant to the Merger will be freely
transferable under the Securities Act except for shares issued to any Bankers
shareholder who may be deemed to be an "affiliate" of Bankers or Sovereign for
purposes of Rule 145 under the Securities Act. Each director and executive
officer of Bankers has entered into an agreement with Sovereign providing that,
as an affiliate, he or she will not transfer any Sovereign Common Stock received
in the Merger except in compliance with the Securities Act and will make no
dispositions of any Sovereign Common Stock or Bankers Common Stock (or any
interest therein) during the period commencing 30 days prior to the Effective
Date through the date on which financial results covering at least 30 days of
combined operations of Sovereign and Bankers after the Merger have been made
public (which, under the Merger Agreement, Sovereign has agreed to use
reasonable efforts to publish as soon as possible, but no later than 30 days
after the end of the first month after the Effective Date in which there are at
least 30 days of post-Merger combined operations, combined revenues and net
income figures as contemplated by applicable Commission accounting releases,
provided that Sovereign may delay publishing such information for such period of
time as it, in its good faith reasonable judgment, deems necessary or desirable
to achieve a bona fide business purpose). This Proxy Statement/Prospectus does
not cover resales of Sovereign Common Stock received by any person who may be
deemed an affiliate of Bankers or Sovereign.
NO DISSENTERS' RIGHTS OF APPRAISAL
Holders of shares of Sovereign Common Stock and holders of shares of
Bankers Common Stock will not be entitled to dissenters' rights under the
Pennsylvania BCL or the New Jersey BCA in connection with the matters to be
acted on at the Meetings. See "COMPARISON OF SHAREHOLDER RIGHTS -- Dissenters'
Rights" for a more detailed discussion.
DIVIDEND REINVESTMENT PLAN
Sovereign currently maintains a Dividend Reinvestment and Stock Purchase
Plan. This plan provides shareholders of Sovereign with a simple and convenient
method of investing cash dividends, as well as voluntary cash payments, in
additional shares of Sovereign Common Stock, without payment of any brokerage
commission or service charge. It is anticipated that, after the Effective Date,
Sovereign will continue to offer this plan, and shareholders of Bankers who
become shareholders of Sovereign will be eligible to participate therein.
54
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Bankers' management, Bankers Savings' management, the
Board of Directors of Bankers and the Board of Directors of Bankers Savings may
be deemed to have interests in the Merger in addition to their interests, if
any, in Bankers Common Stock. The Bankers Board of Directors was aware of these
factors and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
STOCK OPTIONS
As of the Bankers Record Date, the directors and executive officers of
Bankers beneficially own approximately 2,615,841 shares of Bankers Common Stock,
including Management Options to purchase 274,755 shares of Bankers Common Stock.
On the Effective Date, each Management Option, whether or not such Management
Option is exercisable on the Effective Date, shall cease to be outstanding and
shall be converted on the Effective Date into and become an option to acquire
that number of shares of Sovereign Common Stock equal to the number of shares of
Bankers Common Stock covered by the Management Option multiplied by the Exchange
Ratio, at an exercise price equal to the present stated exercise price of such
option divided by the Exchange Ratio. Shares issuable upon the exercise of such
options to acquire Sovereign Common Stock shall be issuable in accordance with
the terms of the respective plans and grant agreements of Bankers under which
they were issued.
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE
Sovereign has agreed in the Merger Agreement that, on or after the
Effective Date, Sovereign shall indemnify, defend and hold harmless all prior
and then-existing directors and officers of Bankers and Bankers Savings against
(i) all losses, claims, damages, costs, expenses, liabilities or judgments or
amounts that are paid in settlement (with the approval of Sovereign, which
approval shall not be unreasonably withheld) of or in connection with any claim,
action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer or employee of Bankers or any Bankers subsidiary, whether
pertaining to any matter existing or occurring at or prior to the Effective Date
and whether asserted or claimed prior to, or at or after, the Effective Date
("Indemnified Liabilities") and (ii) all Indemnified Liabilities based in whole
or in part on, or arising in whole or in part out of, or pertaining to the
Merger Agreement or the transactions contemplated by the Merger Agreement, to
the same extent as such officer, director or employee would be indemnified by
Bankers or Bankers Savings as of February 5, 1997, including the right to
advancement of expenses; provided, however, that any such officer, director or
employee of Bankers or Bankers Savings may not be indemnified by Sovereign
and/or Bankers Savings if such indemnification is prohibited by applicable law.
Sovereign has agreed to maintain Bankers' existing directors' and officers'
liability insurance policy, or a policy providing comparable coverage amounts on
terms no less favorable, including Sovereign's existing policy if it meets the
foregoing standard, covering persons currently covered by such insurance for a
period of five years after the Effective Date, subject to certain maximum
cost limits.
CONSULTING AGREEMENT
In connection with the execution of the Merger Agreement, Mr. Gemmell
entered into a consulting agreement ("Consulting Agreement") with Sovereign
Bank, pursuant to which Mr. Gemmell will provide consulting services for a
period of three years beginning on the Effective Date, which services shall
include, but are not limited to, assisting Sovereign Bank in the conversion of
the Bankers Savings' data processing system, assisting in the conversion of
Bankers Savings' branch offices, assisting in the integration of Bankers
Savings' employees with those of Sovereign Bank, preserving the franchise of
Bankers Savings by promoting Sovereign Bank and its products and services in
communities previously served by Bankers Savings, promoting the recognition and
acceptance of Sovereign Bank as the successor of Bankers Savings among Bankers
Savings' customers
55
<PAGE>
and advising Sovereign Bank with respect to the management of the loan and
investment portfolios assumed from Bankers Savings. Under the Consulting
Agreement, Mr. Gemmell will receive an annual retainer for his services equal to
$150,000.
EMPLOYMENT AGREEMENT
In the Merger Agreement, Sovereign has agreed to honor the employment
agreement ("Employment Agreement") between Bankers, Bankers Savings and Mr.
Gemmell, effective as of March 23, 1990, and amended effective as of January 22,
1996. The Employment Agreement provides for an initial five year term.
Commencing on the third anniversary of the effective date of the Employment
Agreement, the Employment Agreement provides for automatic annual extensions so
that the remaining term will be three years. For purposes of the Employment
Agreement, a "change in control" is generally defined to mean: (i) a change in
control of a nature that would be required to be reported in response to Item 1
of the Current Report on Form 8-K or as defined by the Rules and Regulations of
the Federal Reserve Board; (ii) the acquisition by a person or group of persons
of beneficial ownership of 20% or more of the common stock of Bankers Savings or
Bankers during the term of the Employment Agreement; (iii) a tender offer for
20% or more of the voting securities of Bankers or Bankers Savings or an
exchange offer, business combination, sale of assets; or (iv) a contested
election which results in a change of a majority of the Bankers Board of
Directors.
Upon a change in control of Bankers Savings or Bankers followed by the
voluntary or involuntary termination of Mr. Gemmell, he would be entitled to a
severance payment equal to the sum of (i) the greater of thirty-six times his
highest monthly rate of base salary or the salary payable to him under the
remaining term of the Employment Agreement and (ii) the aggregate amount of the
bonuses that would have been paid to him during the thirty-six months following
his termination. In addition, he would receive an amount equal to the other cash
compensation and benefits that he would have received during the remaining term
of his Employment Agreement. Payments made under the Employment Agreement in the
event of a change in control may constitute an "excess parachute payment" under
Section 280G of the Code for Mr. Gemmell, resulting in the imposition of an
excise tax on him. The Employment Agreement provides that Mr. Gemmell will be
indemnified for any excise taxes imposed due to such excess parachute payments
and any additional income and employment taxes imposed as a result of such
indemnification of excise taxes.
It is anticipated that the Merger will constitute a change in control for
purposes of the Employment Agreement. The current annual rate of salary for Mr.
Gemmell is $455,000. It is not expected that under current circumstances,
payments made to or benefits provided for Mr. Gemmell could result in the
imposition of excise taxes under Section 4999 of the Code. If such payments
would result in an excise tax, part of the payments and the indemnification
payments will not be deductible compensation expenses for Bankers or Bankers
Savings. Whether such an excise tax will be due and the amount of any such tax
will be determined on the basis of circumstances prevailing on the Effective
Date. Assuming a change in control were to occur on June 30, 1997, followed by
Mr. Gemmell's termination of employment, he would receive severance payments,
including the value of non-cash benefits, having a present value of
approximately $2,420,000 under the Employment Agreement.
SPECIAL TERMINATION AGREEMENTS
In the Merger Agreement, Sovereign has agreed to honor the special
termination agreements ("Special Termination Agreements") between Bankers,
Bankers Savings and each of Mr. Garfield, Mr. Ghabrial and Ms. Paronich,
respectively, each effective as of March 23, 1990. Each Special Termination
Agreement provides for an initial three-year term. Commencing on the first
anniversary of the effective date of the Special Termination Agreements, the
Special Termination Agreements provide for automatic annual extensions so that
the remaining term will be three years. The Special Termination Agreements also
provide that any time following a change in control, as generally defined above,
of Bankers or Bankers Savings, if Bankers, Bankers Savings or their successors
were to terminate the executive's employment for any reason other than "cause,"
as defined in the Special
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<PAGE>
Termination Agreements, or if the executive were to terminate his or her own
employment following the executive's demotion or loss of title, office or
significant authority, a reduction in the executive's compensation, or a
relocation of the executive's principal place of employment, the executive or,
in the event of death, his or her beneficiaries, would be entitled to receive a
payment in an amount equal to three times the highest annual base salary paid
for the three previous years of his or her employment with Bankers Savings. In
addition, Bankers Savings and Bankers would also continue life, health and
disability insurance coverage for the lesser of the remaining term of the
Special Termination Agreements or until each executive's full-time employment by
another employer.
It is anticipated that the Merger will constitute a change in control for
purposes of the Special Termination Agreements. The current annual salary rate
for Mr. Garfield, Mr. Ghabrial and Ms. Paronich is $115,000, $101,000 and
$89,000, respectively. The Special Termination Agreements provide that, if
payments thereunder constitute an "excess parachute payment" under Section 280G
of the Code for the executives, the aggregate amount payable under the Special
Termination Agreements will be reduced to one dollar below the amount which
would subject each executive to the payment of an excise tax. Assuming a change
in control were to occur on June 30, 1997, the amounts payable, including the
value of non-cash benefits, to Mr. Garfield, Mr. Ghabrial and Ms. Paronich
pursuant to their respective Special Termination Agreements would be
approximately $360,923, $318,345 and $273,747, respectively.
OUTSIDE DIRECTORS' DEFERRED COMPENSATION PLAN
The Bankers Savings Outside Directors' Deferred Compensation Plan, as
amended and restated March 11, 1996 (the "Deferred Compensation Plan"), was
adopted to provide deferred compensation benefits to outside directors of
Bankers Savings. Following the date a participant of the Deferred Compensation
Plan ceases to be an outside director, such participant will be eligible to
receive an annual amount equal to one-half the sum of the average of the last
three years' annual retainer fee paid to directors plus the average of the last
three years' fee paid for attendance at the regular meetings of the Bankers
Savings Board of Directors. In the event of a change in control, as defined in
the Deferred Compensation Plan, all directors will be eligible for a benefit
under the Deferred Compensation Plan, regardless of their period of service.
Additionally, a participant may elect to require Bankers Savings or its
successor to purchase an annuity contract from an insurance company to provide
such participant's benefit or to receive an immediate lump-sum payment equal to
the present value of the sum of such participant's monthly benefit payments.
SOVEREIGN BANK BOARD OF DIRECTORS
Upon the consummation of the Merger, Mr. Gemmell will be appointed to the
Sovereign Bank Board of Directors. As compensation for service on the Sovereign
Bank Board of Directors, Mr. Gemmell will receive fees and other compensation,
remuneration and benefits equal to the fees, compensation, remuneration and
benefits received by other members of the Sovereign Bank Board of Directors. See
"THE MERGER -- Management and Operations after the Merger."
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<PAGE>
CERTAIN RELATED TRANSACTIONS
STOCK OPTION AGREEMENT
General. As a condition to Sovereign entering into the Merger Agreement,
Bankers executed and delivered to Sovereign the Stock Option Agreement, dated as
of February 5, 1997 (the "Stock Option Agreement"), which permits Sovereign to
purchase Bankers Common Stock under certain circumstances. Pursuant to the Stock
Option Agreement, Sovereign was granted an option (the "Option") to purchase up
to 2,463,258 shares of Bankers Common Stock (representing approximately 19.9% of
the issued and outstanding shares of Bankers Common Stock on February 4, 1997).
The exercise price per share to purchase Bankers Common Stock under the Stock
Option Agreement is equal to the lower of $22.50 or the lowest price per share
that a person or group, other than Sovereign or an affiliate of Sovereign, paid
or offers to pay for Bankers Common Stock upon the occurrence of one of the
specified events that trigger exercise of the Option. The Option may only be
exercised, in whole or in part, upon the occurrence of certain events
(collectively, "Triggering Events"), which are described below (none of which
have occurred to the best of Sovereign's or Bankers' knowledge as of the date of
this Proxy Statement/Prospectus).
Effect of Stock Option Agreement. The Stock Option Agreement, together
with (i) Bankers' agreement to not solicit other transactions relating to the
acquisition of Bankers by a third party and (ii) the agreement of Bankers'
directors and executive officers to vote their shares in favor of the Merger
Agreement (see "THE MERGER -- No Solicitation of Transactions"), may have the
effect of discouraging persons who might now or prior to the Effective Date be
interested in acquiring all of or a significant interest in Bankers from
considering or proposing such an acquisition, even if such persons were prepared
to pay a higher price per share for Bankers Common Stock than the price per
share implicit in the Merger Consideration. Certain attempts to acquire Bankers
or an interest in Bankers would cause the Option to become exercisable as
described below. Sovereign's exercise of such Option would significantly
increase a potential acquiror's cost of acquiring Bankers compared to the cost
that would be incurred without the Stock Option Agreement. Such increased cost
might discourage a potential acquiror from considering or proposing an
acquisition or might result in a potential acquiror proposing to pay a lower per
share price to acquire Bankers than it might otherwise have proposed to pay. In
addition, the management of Sovereign and Bankers believe that the existence of
the Stock Option Agreement is likely to prohibit any acquiror of Bankers from
accounting for any acquisition of Bankers using the pooling of interests
accounting method. In addition, exercise of the Option would increase the
ability of Sovereign to obtain the approval of Bankers' shareholders necessary
to complete the Merger and adversely affect the ability of a third party to
obtain any necessary approval of such shareholders to complete an alternative
transaction.
Terms of Stock Option Agreement. The following is a brief summary of
certain provisions of the Stock Option Agreement, a complete copy of which is
included as Annex B to this Proxy Statement/Prospectus. The following summary is
qualified in its entirety by reference to the Stock Option Agreement.
The Option is exercisable only upon the occurrence of a Triggering Event.
As used in the Stock Option Agreement, the term "Triggering Event" means the
occurrence of any of the following events:
(a) a person or group, other than Sovereign or an affiliate of
Sovereign, acquires beneficial ownership of 10% or more of the then
outstanding shares of Bankers Common Stock (excluding any shares eligible
to be reported on Schedule 13G of the Commission); or
(b) a person or group, other than Sovereign or an affiliate of
Sovereign, enters into an agreement or letter of intent with Bankers
pursuant to which such person or group or any affiliate of such person or
group would (i) merge or consolidate, or enter into any similar
transaction, with Bankers, (ii) acquire all or substantially all of the
assets or liabilities of Bankers or all or substantially all of the assets
or liabilities of Bankers Savings or (iii) acquire beneficial ownership of
securities representing, or the right to acquire beneficial ownership or to
vote securities representing, 10% or more of the then outstanding shares of
Bankers Common Stock (excluding
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any shares eligible to be reported on Schedule 13G of the Commission) or
the then outstanding shares of common stock of Bankers Savings, or
(c) a person or group, other than Sovereign or an affiliate of
Sovereign, publicly announces a bona fide proposal (including a written
communication that is or becomes the subject of public disclosure) for (i)
any merger, consolidation or acquisition of all or substantially all the
assets or liabilities of Bankers or all or substantially all the assets or
liabilities of Bankers Savings, or any other business combination involving
Bankers or Bankers Savings or (ii) a transaction involving the transfer of
beneficial ownership of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 10% or more of the
then outstanding shares of Bankers Common Stock or the then outstanding
shares of common stock of Bankers Savings (collectively, a "Proposal"), and
thereafter, if such Proposal has not been Publicly Withdrawn (as defined in
the Stock Option Agreement) at least 30 days prior to the meeting of
shareholders of Bankers called to vote on the Merger, Bankers' shareholders
fail to approve the Merger by the vote required by applicable law at the
meeting of shareholders called for such purpose or such meeting has been
cancelled; or
(d) a person or group, other than Sovereign or an affiliate of
Sovereign, makes a bona fide Proposal and thereafter, but before such
Proposal has been Publicly Withdrawn, Bankers willfully takes any action in
a manner which would likely result in the failure of either party to
satisfy a material condition to the closing of the Merger or materially
reduce the value of the transaction to Sovereign; or
(e) Bankers breaches, in any material respect, any binding term of the
Merger Agreement or the Stock Option Agreement after a Proposal is made and
before it is Publicly Withdrawn or Bankers publicly announces an intention
to authorize, recommend or accept any such Proposal.
The Option expires on the earlier of (i) the Effective Date of the Merger
or (ii) termination of the Merger Agreement in accordance with its terms, except
that if (A) the Merger Agreement is terminated by Sovereign as a result of a
breach by Bankers of any representation, warranty, covenant or other obligation
of Bankers which results in a Material Adverse Effect with respect to Bankers
(and such breach cannot be or shall not have been remedied by Bankers within 30
days after written notice of such breach) or (B) the Closing Date shall not have
occurred by November 30, 1997 and such failure to close by November 30, 1997
shall be due to the failure by Bankers to perform or observe its agreements set
forth in the Merger Agreement required to be performed or observed by Bankers,
then the Stock Option Agreement shall not terminate until one year after the
date of termination of the Merger Agreement. The closing of a purchase of shares
pursuant to the Stock Option Agreement will be deferred until receipt of all
governmental or regulatory approvals (including applicable waiting periods)
necessary for Bankers to issue the shares subject to the Option.
In the event of any change in Bankers Common Stock by reason of stock
dividends, split-ups, recapitalizations, combinations, conversions, divisions,
exchanges of shares or the like, the number and kind of shares issuable pursuant
to the Option will be adjusted appropriately.
Bankers has granted Sovereign certain registration rights with respect to
shares of Bankers Common Stock issuable upon exercise of the Option.
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INFORMATION WITH RESPECT TO SOVEREIGN
GENERAL
Financial and other information relating to Sovereign, including
information relating to Sovereign's directors and executive officers, is
incorporated herein by reference. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
MARKET PRICE OF AND DIVIDENDS ON SOVEREIGN COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Sovereign Common Stock is listed on the Nasdaq National Market under
the symbol SVRN. As of June 30, 1997, Sovereign had approximately 9,700
shareholders of record. The table below sets forth for the periods indicated the
amount of dividends paid per share and the quarterly ranges of high and low
sales prices for Sovereign Common Stock as reported by the Nasdaq National
Market and does not necessarily reflect mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
QUARTERLY
---------------------------------
QUARTER ENDED DIVIDEND HIGH LOW
- ------------- ----------- --------- ---------
<S> <C> <C> <C>
September 30, 1997(1).............................................. $ -- $ 16.25 $ 15.00
June 30, 1997...................................................... 0.0200 16.00 15.00
March 31, 1997..................................................... 0.0200 14.00 10.75
December 31, 1996.................................................. 0.0175 10.90 8.70
September 30, 1996................................................. 0.0175 8.80 7.70
June 30, 1996...................................................... 0.0175 9.00 8.00
March 31, 1996..................................................... 0.0175 8.90 7.40
December 31, 1995.................................................. 0.0175 8.20 7.40
September 30, 1995................................................. 0.0175 8.20 7.20
June 30, 1995...................................................... 0.0174 7.30 6.10
March 31, 1995..................................................... 0.0174 6.90 5.70
December 31, 1994.................................................. 0.0174 7.20 5.60
</TABLE>
- ------------------
(1) Through July 18, 1997.
On February 4, 1997, the last business day preceding public announcement of
the Merger, the last sale price for Sovereign Common Stock was $11.50 per share.
On July 18, 1997, the last sale price for the Sovereign Common Stock was $15.875
per share. The average weekly trading volume for the Sovereign Common Stock
during the quarter ended June 30, 1997 was 1,599,830 shares.
For certain limitations on the ability of Sovereign Bank to pay dividends
to Sovereign, see Sovereign's Annual Report on Form 10-K for the year ended
December 31, 1996, which is incorporated herein by reference. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
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INFORMATION WITH RESPECT TO BANKERS
GENERAL
Financial and other information concerning Bankers, including information
relating to Bankers' directors and executive officers, is incorporated herein by
reference. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE."
MARKET PRICE OF AND DIVIDENDS ON BANKERS COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Bankers Common Stock is listed on the Nasdaq National Market under the
symbol BKCO. As of March 31, 1997, there were approximately 1,000 shareholders
of record. The table below sets forth for the periods indicated the amount of
dividends paid per share and the quarterly ranges of high and low closing
sales prices as reported on the Nasdaq National Market for the periods
indicated. Such prices do not necessarily reflect mark-ups, mark-downs or
commissions.
<TABLE>
<CAPTION>
QUARTERLY
-----------------------------
QUARTER ENDED DIVIDEND HIGH LOW
- ------------- --------- --------- -------
<S> <C> <C> <C>
September 30, 1997(1).............................................. $ -- $ 29.38 $ 27.63
June 30, 1997...................................................... 0.16 28.00 24.38
March 31, 1997..................................................... 0.16 25.50 20.38
December 31, 1996.................................................. 0.16 20.63 18.25
September 30, 1996................................................. 0.16 19.50 17.25
June 30, 1996...................................................... 0.14 17.50 16.88
March 31, 1996..................................................... 0.14 17.38 16.38
December 31, 1995.................................................. 0.14 18.25 16.25
September 30, 1995................................................. 0.12 18.78 16.25
June 30, 1995...................................................... 0.12 17.50 16.13
March 31, 1995..................................................... 0.12 16.38 13.25
December 31, 1994.................................................. 0.10 17.00 12.50
September 30, 1994................................................. 0.10 17.75 13.63
</TABLE>
- ------------------
(1) Through July 18, 1997.
On February 4, 1997, the last business day preceding public announcement of
the Merger, the last sale price for Bankers Common Stock was $24.25 per share.
On July 18, 1997, the last sale price for Bankers Common Stock was $28.8125 per
share. The average weekly trading volume for the Bankers Common Stock during the
quarter ended June 30, 1997 was approximately 116,000 shares.
The Merger Agreement permits Bankers to pay a regular quarterly cash
dividend not to exceed $.16 per share of Bankers Common Stock outstanding.
Bankers agreed in the Merger Agreement to cause, as promptly as practicable, the
regular quarterly dividend record dates and payment dates with respect to
Bankers Common Stock to be the same as Sovereign's regular quarterly dividend
record dates and payment dates with respect to Sovereign Common Stock. The
Merger Agreement provides that nothing contained therein shall be construed to
permit shareholders of Bankers to receive two dividends either from Bankers or
Sovereign in any quarter or to deny or prohibit shareholders of Bankers from
receiving one dividend from Bankers or Sovereign in any quarter. Bankers Savings
may pay cash dividends sufficient to permit payment of the dividends permitted
to be paid by Bankers. No other dividends may be paid by Bankers or Bankers
Savings without the prior written consent of Sovereign. See "THE MERGER --
Dividends." Bankers' ability to continue to pay dividends may be dependent upon
its receipt of dividends from Bankers Savings. See "REGULATION AND SUPERVISION,"
set forth in Bankers' Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, which is incorporated herein by reference. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
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<PAGE>
DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES
The authorized capital stock of Sovereign consists of 200,000,000 shares of
common stock, no par value ("Sovereign Common Stock"), and 7,500,000 shares of
authorized preferred stock ("Sovereign Preferred Stock"). As of March 31, 1997,
there were 65,764,711 shares of Sovereign Common Stock issued and outstanding,
7,934 shares held by Sovereign as treasury stock and 2,000,000 shares of 6 1/4%
Cumulative Convertible Preferred Stock, Series B ($50 liquidation preference)
issued and outstanding. There are no other shares of capital stock of Sovereign
authorized, issued or outstanding. Sovereign has no options, warrants, or other
rights authorized, issued or outstanding, other than as described herein under
"Shareholder Rights Plan" and options granted under Sovereign's stock option
plans.
COMMON STOCK
The holders of Sovereign Common Stock are entitled to share ratably in
dividends when and if declared by the Sovereign Board of Directors from funds
legally available therefor. Declaration and payment of cash dividends by
Sovereign depends upon dividend payments by Sovereign Bank, which are
Sovereign's primary source of revenue and cash flow. Sovereign is a legal entity
separate and distinct from its subsidiaries. Accordingly, the right of
Sovereign, and consequently the right of creditors and shareholders 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.
Sovereign Bank will not be permitted to pay dividends on its capital stock
or repurchase shares of its stock if its shareholders' equity would be reduced
below the amount required for the liquidation accounts established in the
respective conversions from mutual to stock form of the predecessors of
Sovereign Bank or applicable regulatory capital requirements. Current OTS
regulations require a holding company's insured institutions to give the OTS 30
days advance notice of any proposed declaration of dividends to the holding
company, and the OTS has the authority under its supervisory powers to prohibit
the payment of dividends to the holding company.
The OTS capital distribution rule, which became effective on August 1,
1990, 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 fully phased-in capital
requirements (the requirements applicable at December 31, 1994) 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 fully phased-in 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. At March 31, 1997, Sovereign Bank is
a "Tier 1 association" both historically and on a pro forma basis after giving
effect to the Bank Merger. Under the OTS capital distribution rule, a Tier 1
association may make capital distributions of up to the greater of (a) 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 fully phased-in capital
requirements to its assets) at the beginning of the calendar year or (b) 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. A Tier 2 association is authorized 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.
For certain limitations on the ability of Sovereign Bank to pay dividends
to Sovereign, see Sovereign's Annual Report on Form 10-K for the year ended
December 31, 1996, which is
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incorporated herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
Prior to the issuance of any Sovereign Preferred Stock which possesses
voting rights (see "Preferred Stock" below), the holders of shares of Sovereign
Common Stock will possess exclusive voting rights in Sovereign. Each holder of
shares of Sovereign Common Stock will be entitled to one vote for each share
held on matters upon which shareholders have the right to vote. Sovereign
shareholders are not entitled to cumulate votes in the election of directors.
The Sovereign Board of Directors is divided into three classes, each
serving three-year terms, so that approximately one-third of the directors of
Sovereign are elected at each annual meeting of shareholders of Sovereign.
Classification of the Sovereign Board of Directors has the effect of decreasing
the number of directors that could be elected in a single year by any person who
seeks to elect its designees to a majority of the seats on the Sovereign Board
of Directors and thereby could impede a change in control of Sovereign.
The holders of Sovereign Common Stock have no preemptive rights to acquire
any additional shares of Sovereign. In addition, the Sovereign Common Stock is
not subject to redemption.
Sovereign's Articles of Incorporation authorize the Sovereign Board of
Directors to issue authorized shares of Sovereign Common Stock without
shareholder approval. Sovereign Common Stock is included for quotation on the
Nasdaq National Market. As a result, in order to maintain such inclusion,
approval of Sovereign's shareholders is required for the issuance of additional
shares of Sovereign Common Stock or securities convertible into Sovereign Common
Stock if the issuance of such securities (1) is in connection with the
acquisition of a company, is not in connection with a public offering for cash,
and the securities issued have or will have voting power equal to or in excess
of 20% of the voting power outstanding before such issuance; (2) is in
connection with the acquisition of a company in which a director, officer or
substantial shareholder of Sovereign has a 5% or greater interest and the
issuance of the securities could result in an increase in outstanding common
stock or voting power of 5% or more; (3) is in connection with a transaction,
other than a public offering, at a price less than the greater of book or market
value in which the shares issued will equal 20% or more of the shares of
Sovereign Common Stock or 20% or more of the voting power outstanding before
issuance; or (4) would result in a change in control of Sovereign. Under Nasdaq
National Market rules, shareholder approval is also required for the
establishment of a stock option or purchase plan in which stock may be acquired
by officers and directors other than pursuant to a broadly-based plan in which
other security holders of Sovereign or employees of Sovereign participate. For a
discussion of the approval of Sovereign shareholders required for the issuance
of the shares of Sovereign Common Stock issuable to Bankers shareholders in the
Merger, see "THE MEETING -- Votes Required."
In the event of liquidation, dissolution or winding-up of Sovereign,
whether voluntary or involuntary, holders of Sovereign Common Stock will be
entitled to share ratably in any of its assets or funds that are available for
distribution to its shareholders after the satisfaction of its liabilities (or
after adequate provision is made therefor) and after payment of any liquidation
preferences of any outstanding Sovereign Preferred Stock.
PREFERRED STOCK
General
Sovereign's Board of Directors is authorized to approve the issuance of
Sovereign Preferred Stock, without any required approval of shareholders. The
rights, qualifications, limitations and restrictions on each series of Sovereign
Preferred Stock issued will be determined by the Sovereign Board of Directors at
the time of issuance and may include, among other things, rights to
participating dividends, voting and convertibility into shares of Sovereign
Common Stock. Shares of Sovereign Preferred Stock may be issued with dividend,
redemption, voting, and liquidation rights taking priority over Sovereign Common
Stock, and may be convertible into Sovereign Common Stock, as determined by the
Sovereign Board of Directors at the time of issuance.
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<PAGE>
On May 17, 1995, Sovereign issued 2,000,000 shares of 6 1/4% Cumulative
Convertible Preferred Stock, Series B (the "Series B Preferred Stock").
Description of Series B Preferred Stock
Ranking. The Series B Preferred Stock will rank prior to Sovereign Common
Stock and Series A Junior Participating Preferred Stock, and on a parity with
all other Sovereign Preferred Stock (unless such other Sovereign Preferred Stock
is expressly made junior to the Series B Preferred Stock), with respect to the
payment of dividends and amounts payable upon any voluntary or involuntary
liquidation, dissolution or winding up of Sovereign.
Dividends. Holders of record of shares of Series B Preferred Stock are
entitled to receive, when and as declared by the Board of Directors of
Sovereign, cash dividends payable quarterly at the rate of 6 1/4% per annum.
Dividends on the Series B Preferred Stock, calculated as a percentage of the
liquidation preference, are payable quarterly on February 15, May 15, August 15
and November 15 of each year. Dividends will be cumulative from the date of
issue of the Series B Preferred Stock. So long as any Series B Preferred Stock
is outstanding, Sovereign may not declare any dividends on the Sovereign Common
Stock or any other stock ranking as to dividends or distribution of assets
junior to the Series B Preferred Stock (the Sovereign Common Stock and any such
other stock being herein referred to as "Junior Stock"), or make any payment on
account of, or set apart money for, a sinking or other analogous fund for the
purchase, redemption or other retirement of any shares of Junior Stock, or make
any distribution in respect thereof, whether in cash or property or in
obligations or stock of Sovereign, other than Junior Stock, unless (i) full
cumulative dividends shall have been paid or declared and set apart for payment
upon all outstanding shares of Sovereign Preferred Stock other than Junior Stock
and (ii) Sovereign is not in default or in arrears with respect to any sinking
or other analogous fund or any call for tenders, obligation or other agreement
for the purchase, redemption or other retirement of any shares of Sovereign
Preferred Stock other than Junior Stock. If dividends on shares of the Series B
Preferred Stock are in arrears, and there shall be outstanding shares of any
other series of Sovereign Preferred Stock ranking on a parity as to dividends
with the shares of the Series B Preferred Stock, Sovereign, in making any
dividend payment on account of such arrears, is required to make payments
ratably upon all outstanding shares of the Series B Preferred Stock and shares
of such other series of Sovereign Preferred Stock in proportion to the
respective amounts of dividends in arrears on such shares of Series B Preferred
Stock and shares of such other series of Sovereign Preferred Stock.
Conversion Rights. Holders of shares of Series B Preferred Stock have the
right, at their option, to convert shares of Series B Preferred Stock into
shares of Sovereign Common Stock at any time at an initial conversion rate of
5.987 shares of Sovereign Common Stock for each share of Series B Preferred
Stock, provided that, if any of the Series B Preferred Stock is called for
redemption, the conversion rights pertaining thereto will terminate at the close
of business on the date fixed for redemption. The conversion rate is subject to
adjustment in certain events, including: (i) the issuance of capital stock as a
dividend or distribution on the Sovereign Common Stock; (ii) subdivisions and
combinations of the Sovereign Common Stock; (iii) the issuance to all holders of
Sovereign Common Stock of certain rights or warrants entitling them to subscribe
for or purchase Sovereign Common Stock (or securities convertible into Sovereign
Common Stock) within 45 days after the date fixed for the determination of the
shareholders entitled to receive such rights or warrants, at less than the
current market price per share of the Sovereign Common Stock; and (iv) the
distribution to all holders of Sovereign Common Stock of evidences of
indebtedness or assets of Sovereign (excluding those referred to above).
In the case of (i) any reclassification or change of the Sovereign Common
Stock, or (ii) a consolidation or merger involving Sovereign, or (iii) a sale or
conveyance to another corporation of the property and assets of Sovereign as an
entirety or substantially as an entirety, in each case as a result of which
holders of Sovereign Common Stock will be entitled to receive stock, securities,
other property or assets (including cash) with respect to or in exchange for
such Sovereign Common Stock, the holders of the Series B Preferred Stock then
outstanding will be entitled thereafter to convert such Series B Preferred Stock
into the kind and amount of shares of stock and other securities or property
64
<PAGE>
which they would have received upon such reclassification, change,
consolidation, merger, combination, sale or conveyance had such Series B
Preferred Stock been converted into Sovereign Common Stock immediately prior to
such reclassification, change, consolidation, merger, combination, sale or
conveyance.
Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of Sovereign, the holders of shares of
Series B Preferred Stock are entitled to receive out of the assets of Sovereign
available for distribution to shareholders, before any distribution of assets is
made to holders of Sovereign Common Stock or of any other stock of Sovereign
ranking as to such distribution junior to the Series B Preferred Stock,
liquidating distributions in the amount of $50 per share plus accrued and unpaid
dividends. If upon any voluntary or involuntary liquidation, dissolution or
winding up of Sovereign, the amounts payable with respect to the Series B
Preferred Stock and any other shares of stock of Sovereign ranking as to any
such distribution on a parity with the Series B Preferred Stock are not paid in
full, the holders of the Series B Preferred Stock and of such other shares will
share ratably in any such distribution of assets of Sovereign in proportion to
the full respective preferential amounts to which they are entitled. After
payment of the full amount of the liquidating distribution to which they are
entitled, the holders of shares of Series B Preferred Stock will not be entitled
to any further participation in any distribution of assets by Sovereign. A
consolidation or merger of Sovereign with or into any other corporation or
corporations or a sale of all or substantially all of the assets of Sovereign
will not be deemed to be a liquidation, dissolution or winding up of Sovereign.
Redemption. The shares of Series B Preferred Stock are not redeemable
prior to May 15, 1998. On or after May 15, 1998, at any time or from time to
time, each share of Series B Preferred Stock will be redeemable in whole or in
part at the option of Sovereign, upon not less than 30 nor more than 60 days'
notice, at a redemption price as set forth below plus, in each case, accrued and
unpaid dividends to the redemption date.
<TABLE>
<CAPTION>
IF REDEEMED DURING THE REDEMPTION
TWELVE MONTHS BEGINNING MAY 15, PRICE
- ------------------------------- -----------
<S> <C>
1998.......................................................................... $ 52.188
1999.......................................................................... 51.875
2000.......................................................................... 51.563
2001.......................................................................... 51.250
2002.......................................................................... 50.938
2003.......................................................................... 50.625
2004.......................................................................... 50.313
</TABLE>
and at $50 per share thereafter.
The Series B Preferred Stock may not be redeemed and Sovereign may not
otherwise purchase or acquire any shares of the Series B Preferred Stock unless
full cumulative dividends on the Series B Preferred Stock or on any series of
Sovereign Preferred Stock ranking on a parity with or senior to the Series B
Preferred Stock have been paid or declared and set apart for payment and unless
all matured obligations of Sovereign with respect to all sinking funds or
purchase funds applicable to any other series of Sovereign Preferred Stock then
outstanding have been met.
Voting Rights. Except as indicated below, or except as expressly required
by applicable law, the holders of the Series B Preferred Stock are not entitled
to vote.
If the equivalent of six quarterly dividends payable on any series of
Sovereign Preferred Stock are in default (whether or not declared and whether or
not consecutive), the holders of record of all outstanding shares of any series
of Sovereign Preferred Stock, voting as a single class without regard to series,
will be entitled to elect two directors until all dividends in default have been
paid or declared and set apart for payment. The affirmative vote or consent of
the holders of at least two-thirds of the outstanding shares of Series B
Preferred Stock and any other series of Sovereign 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 Sovereign) or Bylaws which will materially
and adversely change the preferences, privileges, rights or
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<PAGE>
powers of the Sovereign Preferred Stock, but, in any case in which one or more,
but not all, series of Sovereign Preferred Stock would be affected as to their
preferences, privileges, rights or powers, only the consent of holders of at
least two-thirds of the shares of all such series that would be so affected,
voting separately as a class, will be required; or (ii) to issue any class of
stock which shall have preference as to dividends or distribution of assets over
any outstanding series of Sovereign Preferred Stock.
SHAREHOLDER RIGHTS PLAN
Sovereign maintains a Shareholder Rights Plan (the "Rights Plan") designed
to protect shareholders from attempts to acquire control of Sovereign at an
inadequate price. Under the Rights Plan, each outstanding share of Sovereign
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. The rights can also be exercised if a person or group who has become a
beneficial owner of at least 4.9% of Sovereign 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% beneficial owner or an "adverse
person") will entitle the holders to purchase either Sovereign Common Stock or
the common stock of the potential acquiror, in lieu of the junior participating
preferred stock, at a substantially reduced price.
Sovereign is generally entitled to redeem the rights at $.001 per right at
any time until the tenth business day following public announcement that a 9.9%
position has been acquired. At any time prior to the date the rights have become
nonredeemable, the Sovereign Board of Directors can extend the redemption
period. Rights are not redeemable following an "adverse person" determination.
SPECIAL CHARTER AND PENNSYLVANIA CORPORATE LAW PROVISIONS
Sovereign's Articles of Incorporation and Bylaws contain certain provisions
which may have the effect of deterring or discouraging, among other things, a
nonnegotiated tender or exchange offer for Sovereign stock, a proxy contest for
control of Sovereign, the assumption of control of Sovereign by a holder of a
large block of Sovereign stock and the removal of Sovereign's management. These
provisions: (1) empower the Sovereign Board of Directors, without shareholder
approval, to issue Sovereign Preferred Stock the terms of which, including
voting power, are set by the Sovereign Board of Directors; (2) divide the
Sovereign 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
Sovereign 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 Sovereign's
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 voting stock at the highest price paid by such
person for shares of Sovereign voting stock during the preceding year; (8)
eliminate cumulative voting in elections of directors; (9) require an
affirmative vote of at least two-thirds of Sovereign's total voting power in
order for shareholders to repeal or amend Sovereign's Bylaws; (10) require
advance notice of nominations for the election of directors and the presentation
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.
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<PAGE>
The Pennsylvania BCL also contains certain provisions applicable to
Sovereign which may have the effect of impeding a change in control of
Sovereign. These provisions, among other things: (1) require that, following any
acquisition by any person or group of 20% of a public corporation's voting
power, the remaining shareholders have the right to receive payment for their
shares, in cash, from such person or group in an amount equal to the "fair
value" of the shares, including an increment representing a proportion of any
value payable for control of the corporation and (2) prohibit for five years,
subject to certain exceptions, a "business combination" (which includes a merger
or consolidation of the corporation or a sale, lease or exchange of assets) with
a shareholder or group of shareholders beneficially owning 20% or more of a
public corporation's voting power.
In 1990, Pennsylvania adopted legislation amending the Pennsylvania BCL. To
the extent applicable to Sovereign at the present time, this legislation
generally: (1) expands the factors and groups (including shareholders) which the
Sovereign Board of Directors can consider in determining whether a certain
action is in the best interests of the corporation; (2) provides that the
Sovereign Board of Directors need not consider the interests of any particular
group as dominant or controlling; (3) provides that Sovereign's directors, in
order to satisfy the presumption that they have acted in the best interests of
the corporation, need not satisfy any greater obligation or higher burden of
proof with respect to actions relating to an acquisition or potential
acquisition of control; (4) provides that actions relating to acquisitions of
control that are approved by a majority of "disinterested directors" are
presumed to satisfy the directors' standard, unless it is proven by clear and
convincing evidence that the directors did not assent to such action in good
faith after reasonable investigation; and (5) provides that the fiduciary duty
of Sovereign's 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.
The 1990 amendments to the Pennsylvania BCL explicitly provide that the
fiduciary duty of directors shall not be deemed to require directors (1) to
redeem any rights under, or to modify or render inapplicable, any shareholder
rights plan; (2) to render inapplicable, or make determinations under,
provisions of the Pennsylvania BCL relating to control transactions, business
combinations, control-share acquisitions or disgorgement by certain controlling
shareholders following attempts to acquire control (See "COMPARISON OF
SHAREHOLDER RIGHTS -- Antitakeover Provisions"); or (3) to act as the board of
directors, a committee of the board or an individual director solely because of
the effect such action might have on an acquisition or potential or proposed
acquisition of control of the corporation or the consideration that might be
offered or paid to shareholders in such an acquisition. One of the effects of
the 1990 fiduciary duty statutory provisions may be to make it more difficult
for a shareholder to successfully challenge the actions of the Sovereign Board
of Directors in a potential change in control context. Pennsylvania case law
appears to provide that the fiduciary duty standard under the 1990 amendments to
the Pennsylvania BCL grants directors the statutory authority to reject or
refuse to consider any potential or proposed acquisition of the corporation.
Sovereign opted out of coverage by the "disgorgement" and "control-share
acquisition" statutes included in the 1990 legislation, pursuant to a Bylaw
amendment as permitted by the legislation. To the extent applicable to a
Pennsylvania corporation, the "disgorgement" statute generally requires
disgorgement by any person or group who or which has acquired or publicly
disclosed an intent to acquire 20% or more of a corporation's voting power of
any profit realized from the sale of any shares acquired within specified time
periods of such acquisition or disclosure if the shares are sold within eighteen
months thereafter. The "control share acquisition" statute generally prohibits a
person or group who or which exceeds certain stock ownership thresholds (20%,
33 1/3% and 50%) for the first time from voting the "control shares" (i.e., the
shares owned in excess of the applicable threshold) unless voting rights are
restored by a vote of disinterested shareholders. As a result of Sovereign's
opt-out from coverage by these statutes, neither the "disgorgement" nor the
"control share acquisition" statute would apply to a nonnegotiated attempt to
acquire control of Sovereign, although such an attempt would still be subject to
the special charter and other provisions described in the preceding paragraphs.
Sovereign can reverse this action, and thereby cause the "disgorgement" and
"control share acquisition" statutes to apply to an attempt to acquire control
of Sovereign, by means of an amendment to Sovereign's Bylaws, which could be
adopted by the Sovereign Board of Directors, without shareholder approval,
rescinding the Bylaw provision by which Sovereign originally opted out of
coverage by these statutes.
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<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
At the Effective Date, shareholders of Bankers will automatically become
shareholders of Sovereign, and their rights as shareholders will be determined
by the Pennsylvania BCL and by Sovereign's Articles of Incorporation and Bylaws.
The following is a summary of material differences between the rights of holders
of Sovereign Common Stock and the rights of holders of Bankers Common Stock.
These differences arise from various provisions of the Pennsylvania BCL and the
New Jersey BCA, the Articles of Incorporation, Bylaws and Rights Plan of
Sovereign and the Certificate of Incorporation and Bylaws of Bankers.
This summary does not purport to be a complete statement of the rights of
Bankers shareholders under the applicable New Jersey law, Bankers' Certificate
of Incorporation or Bankers' Bylaws or a comprehensive comparison with the
rights of Sovereign's shareholders under the applicable Pennsylvania law,
Sovereign's Articles of Incorporation and Sovereign's Bylaws, or a complete
description of the specific provisions referred to herein. This summary is not
meant to be relied upon as an exhaustive list or a detailed description of the
provisions discussed and is qualified in its entirety by reference to the New
Jersey BCA and the governing corporate instruments of Bankers and to the
Pennsylvania BCL and the governing corporate instruments of Sovereign. Copies of
such governing corporate instruments of Bankers and Sovereign are available,
without charge, to any person, including any beneficial owner to whom this Proxy
Statement/Prospectus is delivered, by following the instructions listed under
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
DIRECTORS
Removal
Pursuant to Sovereign's Articles of Incorporation, Sovereign directors may
be removed from office without cause by the affirmative vote of a majority of
the outstanding voting shares.
Under Bankers' Certificate of Incorporation, directors may be removed from
office only for cause and only by the affirmative vote of the holders of at
least 80% of the voting power of all shares of Bankers entitled to vote for the
election of directors.
Nomination
Shareholders of both Sovereign and Bankers are required to submit to their
respective companies, in writing and in advance, any nomination of a candidate
for election as a director.
Sovereign's Bylaws provide that such nominations generally must be
submitted not more than 120 days, and not less than 90 days, prior to a
scheduled meeting for the election of directors (unless less than 21 days'
notice of the meeting is given to shareholders in which case such nominations
must be submitted within 7 days following the mailing of the notice to
shareholders).
Bankers' Bylaws provide that its shareholders must submit written
nominations not less than 90 days prior to the date that is one year after the
date of the proxy statement used in connection with the annual meeting held in
the preceding year (except that if no annual meeting was held in the preceding
year or if the date of the annual meeting has been delayed by more than 30
calendar days from the date of the preceding year's annual meeting, any
stockholder nomination must be made at least 90 days in advance of the annual
meeting to which the nominations relate). Bankers' stockholders submitting
nominations must also supply information regarding the identity and background
of the proposed nominee as further set forth in the Bylaws of Bankers.
Election of Directors
Sovereign's Articles of Incorporation and Bylaws provide that its Board of
Directors shall be composed of not less than six nor more than 25 directors, the
number of which may be determined by the Sovereign Board of Directors.
Presently, the Sovereign Board of Directors is composed of eight members. The
Sovereign Board of Directors is divided into three classes, each serving
three-year terms, so that approximately one-third of the directors are elected
at each annual meeting of
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shareholders. Classification of the Board of Directors has the effect of
decreasing the number of directors that could be elected in a single year by any
person who seeks to elect its designees to a majority of the seats on the
Sovereign Board of Directors and thereby could impede a change in control of
Sovereign.
Bankers' Certificate of Incorporation provides that the Board of Directors
shall be composed of eight directors which number may be increased or decreased
by resolution of the Bankers Board of Directors. Presently, the Bankers Board of
Directors is composed of seven members. The Board of Directors of Bankers is
also divided into three classes, each serving three-year terms.
Cumulative Voting
Neither Sovereign's nor Bankers' shareholders are permitted to cumulate
votes in the election of directors.
Limited Liability
As permitted by the Pennsylvania BCL, Sovereign's Bylaws provide that
directors of Sovereign are not personally liable to Sovereign, its shareholders
or others for any action taken or any failure to take any action unless the
director breached or failed to perform the duties of his or her office as set
forth under Pennsylvania law and such breach or failure constitutes
self-dealing, willful misconduct or recklessness; provided, however, that there
is no such elimination of liability arising under any criminal statute or with
respect to the payment of taxes pursuant to local, state or federal law.
As permitted by the New Jersey BCA, Bankers' Certificate of Incorporation
provides that directors or officers of Bankers are not personally liable to
Bankers or its shareholders for breach of any duty owed to Bankers or its
shareholders, unless such breach of duty is based on an act or omission (i) in
breach of such person's duty of loyalty to Bankers or its shareholders, (ii) not
in good faith or involving a knowing violation of law or (iii) resulting in
receipt by such person of an improper personal benefit.
Indemnification
The Bylaws of Sovereign and the Certificate of Incorporation of Bankers
each provide for indemnification of directors, officers and agents for certain
litigation-related liabilities and expenses to the maximum extent provided by
Pennsylvania or New Jersey laws, as the case may be.
Directors, officers, employees and agents of Sovereign are entitled to
indemnification in both third party actions and derivative actions unless there
is a court finding that the act or failure to act giving rise to the claim for
indemnification constitutes willful misconduct or recklessness. There is no
requirement of a case-by-case determination that the applicable standard of
conduct has been met for a person to be entitled to indemnification.
Generally, current and former directors, officers, employees and agents of
Bankers are entitled to indemnification (i) in third party actions, if the
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of Bankers and, as to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful and (ii)
in derivative or corporate actions, if the person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Bankers, provided the person has not been adjudged to be liable to Bankers.
Indemnification in both third party actions and derivative or corporate actions
can be made only as authorized in a specific case upon a finding that the
appropriate standard for indemnification has been met. Such finding must be made
by (i) a majority vote of a quorum of disinterested directors, (ii) independent
legal counsel in a written opinion, or (iii) by the shareholders if the Bankers'
Certificate of Incorporation or Bylaws or a resolution of the Board of Directors
or the shareholders so directs.
SHAREHOLDER MEETINGS
Special meetings of Sovereign shareholders may be called at any time by the
Sovereign Board of Directors at a duly called and held meeting of the Sovereign
Board of Directors or upon the unanimous
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written consent of the members of the Sovereign Board of Directors or by the
Chairman of the Board or the Chief Executive Officer, but only upon receiving
written direction of at least a majority of directors then in office. Sovereign
shareholders are not entitled to call a special meeting of shareholders.
The Bylaws of Bankers provide that special meetings of shareholders may be
called only by the Chief Executive Officer, by the Bankers Board of Directors or
as provided by New Jersey law. Under New Jersey law, shareholders owning 10% or
more of all shares entitled to vote at a meeting can petition the court to
order, for good cause shown, a special meeting of shareholders.
Shareholders of Sovereign are required to submit to Sovereign, in writing
and in advance, any matter desired to be placed on the agenda of an annual
meeting of shareholders. Such proposal generally must be submitted not more than
150 days and not less than 90 days prior to the meeting (or 7 days if less than
21 days' notice of the annual meeting is given to shareholders).
Bankers' Bylaws require that its shareholders submit to Bankers written
notice of any matter desired to be placed on the agenda of an annual meeting of
shareholders not less than 90 days prior to the date that is one year after the
date of the proxy statement used in connection with the annual meeting held in
the preceding year, except that if no annual meeting was held in the preceding
year or if the date of the annual meeting has been changed by more than 30
calendar days from the date of the preceding year's annual meeting, any new
business shall be stated in writing and filed with the secretary of Bankers at
least 90 days in advance of the annual meeting to which the proposal relates.
ACTION BY SHAREHOLDERS WITHOUT A MEETING
Sovereign's Bylaws provide that no action required or permitted to be taken
at any annual or special meeting of Sovereign shareholders may be taken without
a meeting, and the power of Sovereign shareholders to consent in writing to
action without a meeting is expressly denied.
Bankers' Bylaws allow shareholders of Bankers to act without a meeting only
if, prior or subsequent to such action, each shareholder who would have been
entitled to vote upon such action consents in writing to such action. The New
Jersey BCA provides that if the action of shareholders is being taken pursuant
to Chapter 10 of the New Jersey BCA (relating to merger, consolidation,
acquisition of all capital shares and sale of assets), such action may be taken
without a meeting only if all shareholders consent thereto in writing or if all
shareholders entitled to vote thereon consent thereto in writing and the
corporation notifies all other shareholders of the action consented to, the
proposed effective date of such action and any conditions precedent to the
action. Such notification must be given at least 20 days in advance of the
effective date of such action.
INSPECTION RIGHTS
The Pennsylvania BCL and Sovereign's Bylaws provide that every shareholder
of Sovereign, upon written demand under oath stating the purpose thereof, shall
have the right, for any proper purpose, to examine during usual business hours
Sovereign's share register, books or records of account and records of the
proceedings of the shareholders and directors, and make copies or extracts
therefrom.
The New Jersey BCA provides that any person who shall have been a
shareholder of record of a corporation for at least six months immediately
preceding his or her demand, or any person holding, or so authorized in writing
by the holders of, at least 5% of the outstanding shares of any class or series,
upon at least 5 days' written demand, shall have the right, for any proper
purpose, to examine during usual business hours the corporation's minutes of the
proceedings of shareholders and record of shareholders and to make extracts
therefrom; provided, however, that a court may, upon proof by a shareholder of a
proper purpose, irrespective of the period of time during which the shareholder
shall have been a shareholder of record, and irrespective of the number of
shares held by such shareholder, compel the production of the books and records
of account, minutes and record of shareholders of the corporation for
examination by such shareholder.
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SHAREHOLDER RIGHTS PLAN
Sovereign has adopted a shareholder rights plan pursuant to which holders
of Sovereign Common Stock are entitled, under certain circumstances generally
involving an accumulation of Sovereign Common Stock, to purchase Sovereign
Common Stock or common stock of the potential acquiror at a substantially
reduced price. See "DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES -- Shareholder
Rights Plan."
Bankers does not have a shareholder rights plan.
ANTITAKEOVER PROVISIONS
Sovereign
Sovereign is subject to some, but not all, of various provisions of the
Pennsylvania BCL which are triggered, in general, if any person or group
acquires, or discloses an intent to acquire, 20% or more of the voting power of
a covered corporation, other than pursuant to a registered firm commitment
underwriting or, in certain cases, pursuant to the approving vote of the board
of directors. The relevant provisions are contained in Subchapters 25E-H of the
Pennsylvania BCL.
Subchapter 25E of the Pennsylvania BCL (relating to control transactions)
provides that if any person or group acquires 20% or more of the voting power of
a covered corporation, the remaining shareholders may demand from such person or
group the fair value of their shares, including a proportionate amount of any
control premium.
Subchapter 25F of the Pennsylvania BCL (relating to business combinations)
delays for five years and imposes conditions upon "business combinations"
between an "interested shareholder" and the corporation. The term "business
combination" is defined broadly to include various transactions utilizing a
corporation's assets for purchase price amortization or refinancing purposes.
For this purpose, an "interested shareholder" is defined generally as the
beneficial owner of at least 20% of a corporation's voting shares.
Subchapter 25G of the Pennsylvania BCL (relating to control share
acquisitions) prevents a person who has acquired 20% or more of the voting power
of a covered corporation from voting such shares unless the "disinterested"
shareholders approve such voting rights. Failure to obtain such approval exposes
the owner to the risk of a forced sale of the shares to the issuer. Even if
shareholder approval is obtained, the corporation is also subject to Subchapters
25I and J of the Pennsylvania BCL. Subchapter 25I provides for a minimum
severance payment to certain employees terminated within two years of the
approval. Subchapter 25J prohibits the abrogation of certain labor contracts
prior to their stated date of expiration.
Subchapter 25H of the Pennsylvania BCL (relating to disgorgement) applies
in the event that (i) any person or group publicly discloses that the person or
group may acquire control of the corporation or (ii) a person or group acquires
(or publicly discloses an offer or intent to acquire) 20% or more of the voting
power of the corporation and, in either case, sells shares within 18 months
thereafter. Any profits from sales of equity securities of the corporation by
the person or group during the 18-month period belong to the corporation if the
securities that were sold were acquired during the 18-month period or within 24
months prior thereto.
Subchapters 25E-H of the Pennsylvania BCL contain a wide variety of
transactional and status exemptions, exclusions and safe harbors. As permitted
under the Pennsylvania BCL, Sovereign has opted out of the provisions of
Subchapters 25G and H but is subject to the provisions of Subchapters 25E and F.
Such action can be reversed under certain circumstances.
In addition, the fiduciary duty standards applicable to the Board of
Directors of Sovereign under the Pennsylvania BCL and certain provisions of
Sovereign's Articles of Incorporation and Bylaws may have the effect of
deterring or discouraging, among other things, a nonnegotiated tender or
exchange offer for Sovereign stock, a proxy contest for control of Sovereign,
the assumption of control of Sovereign by a holder of a large block of
Sovereign's stock and the removal of Sovereign's
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management. See "DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES -- Special Charter
and Pennsylvania Corporate Law Provisions."
Bankers
The New Jersey Shareholders Protection Act ("NJSPA") provides that no
corporation organized under the laws of New Jersey with its principal executive
offices or significant operations located in New Jersey (a "New Jersey Resident
Domestic Corporation") may engage in any "business combination" (as defined in
the NJSPA, a "Business Combination") with any interested shareholder (as defined
in the NJSPA, an "Interested Shareholder") of that New Jersey Resident Domestic
Corporation for a period of five years following that Interested Shareholder's
stock acquisition unless that Business Combination is approved by the board of
directors of that New Jersey Resident Domestic Corporation prior to that
Interested Shareholder's stock acquisition date. The term Business Combination,
as defined in the NJSPA, includes, among other things, certain mergers,
consolidations, asset transfers, stock issuances, plans of liquidation and
recapitalizations. Interested Shareholder, as defined in the NJSPA, includes
certain persons holding, directly or indirectly, 10% or more of the voting power
of the outstanding voting stock of the New Jersey Resident Domestic Corporation
and certain affiliates of the New Jersey Resident Domestic Corporation that, at
any time within the five year period immediately prior to the date in question,
were the beneficial owners, directly or indirectly, of 10% or more of the voting
power of the then outstanding stock of the New Jersey Resident Domestic
Corporation.
Pursuant to the NJSPA, no New Jersey Resident Domestic Corporation may
engage, at any time, in any Business Combination with any Interested Stockholder
of that New Jersey Resident Domestic Corporation other than: (i) a Business
Combination approved by the board of directors of that New Jersey Resident
Domestic Corporation prior to that Interested Stockholder's stock acquisition
date, (ii) a Business Combination approved by the affirmative vote of the
holders of two-thirds of the voting stock not beneficially owned by that
Interested Shareholder at a meeting called for such purpose or (iii) a Business
Combination where the Interested Shareholder pays a formula price designed to
ensure that all holders (other than the Interested Shareholder) of stock of the
New Jersey Resident Domestic Corporation receive at least the highest price per
share paid by that Interested Shareholder for any shares of capital stock
acquired by it. The NJSPA does not apply to certain inadvertent acquisitions,
provided the Interested Shareholder divests itself of a sufficient number of
shares in accordance with the NJSPA. A New Jersey Resident Domestic Corporation
may not opt out of the NJSPA.
Under the New Jersey BCA, directors of a New Jersey corporation may
consider, in discharging their duties to the corporation and in determining what
he or she reasonably believes to be in the best interest of the corporation, any
of the following (in addition to considering the effects of any action on
shareholders): (i) the effects of the action on the corporation's employees,
suppliers, creditors and customers, (ii) the effects of the action on the
community in which the corporation operates and (iii) the long-term as well as
the short-term interests of the corporation and its shareholders, including the
possibility that these interests may be best served by the continued
independence of the corporation. If, on the basis of the foregoing factors, the
board of directors determines that any proposal or offer to acquire the
corporation is not in the best interest of the corporation, it may reject such
proposal or offer, in which event the board of directors will have no duty to
facilitate, remove any obstacles to, or refrain from impeding such proposal or
offer.
REQUIRED SHAREHOLDER VOTE
General
Subject to the voting rights of any series of Sovereign Preferred Stock
then outstanding (see "DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES -- Preferred
Stock"), the holders of Sovereign Common Stock possess exclusive voting rights
of Sovereign. Each holder of Sovereign Common Stock is entitled to one vote for
each share owned of record. For general corporate action of the shareholders of
Sovereign, the affirmative vote of a majority of the votes cast at a meeting of
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shareholders is required for approval (abstentions with respect to any matter
are not considered votes "cast" under Pennsylvania law).
The holders of Bankers Common Stock possess exclusive voting rights of
Bankers. Except as provided in the following paragraph, each holder of Bankers
Common Stock is entitled to one vote for each share owned of record. For general
corporate action of the shareholders of Bankers, the affirmative vote of a
majority of the votes cast at a shareholders' meeting is required for approval.
As provided in the Bankers' Certificate of Incorporation, record holders of
Bankers Common Stock who beneficially own in excess of 10% of the outstanding
shares of Bankers Common Stock (the "Limit") are not entitled to any vote with
respect to the shares held in excess of the Limit. A person or entity is deemed
to beneficially own shares owned by an affiliate of, as well as persons acting
in concert with, such person or entity. Bankers' Certificate of Incorporation
authorizes the Board of Directors (i) to make all determinations necessary to
implement and apply the Limit, including determining whether persons or entities
are acting in concert and (ii) to demand that any person who is reasonably
believed to beneficially own Bankers Common Stock in excess of the Limit supply
information to Bankers to enable the Bankers Board of Directors to implement and
apply the Limit. The Board of Directors of Bankers is not aware of any person
who beneficially owns shares of Bankers Common Stock in excess of the Limit with
respect to the matters to be considered at the Bankers Annual Meeting.
Fundamental Changes
Sovereign's Articles of Incorporation require that a plan of merger,
consolidation, share exchange, division, conversion or asset transfer (in
respect of a sale, lease, exchange or other disposition of all, or substantially
all, the assets of Sovereign other than in the usual and regular course of
business) must be approved by the affirmative vote of shareholders entitled to
cast at least a majority of the votes which all shareholders are entitled to
cast, except that shareholder approval of any such transaction which is approved
in advance by at least 66 2/3% of the members of Sovereign's Board of Directors
requires only the affirmative vote of a majority of the votes cast. In the
absence of prior approval by Sovereign's Board of Directors, Sovereign's
Articles of Incorporation require a vote of shareholders with at least 80% of
Sovereign's total voting power to approve any merger, consolidation, share
exchange, asset transfer (in respect of a sale, lease, exchange or other
disposition of all, or substantially all, the assets of Sovereign) or similar
transactions involving a shareholder holding 5% or more of Sovereign's voting
power. The Merger has been unanimously approved by Sovereign's Board of
Directors.
Bankers' Certificate of Incorporation requires an 80% vote of shareholders
to approve transactions covered by Chapter 10 of the New Jersey BCA (relating to
merger, consolidation, acquisition of all capital shares, and sale of assets) or
Chapter 12 of the New Jersey BCA (relating to dissolution) unless the action is
recommended by a majority of the entire Bankers Board of Directors, in which
event the action will require only such affirmative vote as required by law.
Under the New Jersey BCA, such matters would, in the case of Bankers, generally
require the affirmative vote of a majority of the votes cast at the meeting at
which the matter is considered. The Merger has been unanimously approved by
Bankers' Board of Directors.
Amendment of Articles or Certificate of Incorporation
Sovereign's Articles of Incorporation contain various provisions that
require a supermajority vote of shareholders to amend or repeal particular
sections of such Articles. Amendment or repeal of the provisions of Sovereign's
Articles of Incorporation relating to noncumulative voting, the classification
of directors, the approval of fundamental changes, the requirement of holding
meetings for shareholder action, the amendment of Sovereign's Bylaws generally,
and the consideration of non-economic factors by Sovereign's Board of Directors
if evaluating a tender offer, merger, consolidation or similar transaction all
require (i) the affirmative vote of 80% of the shares entitled to vote or (ii)
the affirmative vote of 80% of the members of Sovereign's Board of Directors and
the affirmative vote of shareholders entitled to cast at least a majority of
votes which all shareholders are entitled to cast.
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A supermajority vote of the holders of at least 80% of Bankers' total
voting power is required to amend or repeal any provisions of Bankers'
Certificate of Incorporation unless the amendment is recommended for adoption by
a majority of the entire Bankers Board of Directors, in which case such
amendment or repeal shall require the affirmative vote of a majority of the
votes cast by shareholders entitled to vote generally in the election of
directors, voting together as a single class, unless a greater or lesser vote is
required by law.
AMENDMENT OF BYLAWS
The authority to amend or repeal Sovereign's Bylaws is vested in the
Sovereign Board of Directors, subject always to the power of the shareholders of
Sovereign to change such action by the affirmative vote of shareholders holding
at least two-thirds of Sovereign's total voting power (except that any amendment
to the indemnification and limitation of director liability provisions set forth
in Sovereign's Bylaws shall require the affirmative vote of two-thirds of the
entire Sovereign Board of Directors or shareholders holding 80% of the votes
that all shareholders are entitled to cast).
The authority to amend or repeal Bankers' Bylaws is vested in the Bankers
Board of Directors and the shareholders. In the case of an amendment or repeal
of Bankers' Bylaws by shareholders, however, Bankers' Certificate of
Incorporation requires the affirmative vote of at least 80% of Bankers' total
voting power unless the amendment or repeal proposed by the shareholders is
recommended for adoption by a majority of the entire Bankers Board of Directors,
in which case such action requires the affirmative vote of a majority of the
votes cast by shareholders entitled to vote generally in the election of
directors, voting together as a single class, unless a greater or lesser vote is
required by law.
MANDATORY TENDER OFFER PROVISION
Sovereign's Articles of Incorporation provide that any person or entity
acquiring Sovereign capital stock with 25% or more of Sovereign's total voting
power is required to offer to purchase, for cash, all shares of Sovereign's
voting stock, at a price per share equal to the highest price paid by such
person for each respective class of Sovereign's voting stock within the
preceding twelve months. Such provision is inapplicable if at least 80% of
Sovereign's Board of Directors approves in advance such acquisition of 25% or
more of Sovereign's total voting power. The Pennsylvania BCL also provides that
following any acquisition by a person or group of more than 20% of a
publicly-held corporation's voting stock, the remaining shareholders have the
right to receive payment, in cash, for their shares from such person or group of
an amount equal to the "fair value" of their shares, including a proportionate
amount for any control premium.
Neither Bankers' Certificate of Incorporation or Bylaws nor the New Jersey
BCA provide Bankers' shareholders with similar rights.
DISSENTERS' RIGHTS
Under the Pennsylvania BCL, a shareholder of a corporation is generally
entitled to receive payment of the fair value of such shareholder's shares if
such shareholder duly exercises its dissenters' rights with respect to a plan of
merger or consolidation, share exchange, asset transfer, division or conversion
to which such corporation is a party, unless the shares are (i) listed on a
national securities exchange or (ii) held of record by more than 2,000
shareholders. The foregoing market exceptions do not apply, and dissenters'
rights generally are available in respect of, (i) shares that are not converted
solely into shares of the acquiring, surviving, new or other corporation or
solely into such shares and money in lieu of fractional shares, (ii) shares of
any preferred or special class unless the shareholders of the class are entitled
to vote on the plan and such class vote is required for the adoption of the plan
or to effectuate the transaction and (iii) shares which under the plan are
treated differently from shares of the same class or series and which are not
entitled to vote as a special class under Pennsylvania BCL Section1906(c). The
Pennsylvania BCL allows a corporation to provide dissenters' rights
notwithstanding the statutory exceptions, but Sovereign's Articles of
Incorporation and Bylaws do not require such optional dissenters' rights. Under
the Pennsylvania BCL, if a plan of merger or consolidation, share exchange,
asset transfer, division or conversion is adopted by the directors only, without
any shareholder approvals required, the shareholders have no statutory
dissenters' rights in
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respect of the plan other than optional dissenters' rights, if any. Sovereign's
shareholders have no dissenters' rights with respect to the Merger.
The New Jersey BCA generally provides for dissenters' rights in connection
with any merger or consolidation or any sale, lease, exchange or other
disposition of all or substantially all of the assets of the corporation not in
the usual or ordinary course of business. However, no such right to dissent
exists with respect to (i) any class or series of shares that is listed on a
national securities exchange or is held of record by not less than 1,000 holders
on the record date fixed to determine the shareholders entitled to vote on the
transaction, or, generally, (ii) any transaction in connection with which the
shareholders of the corporation will receive only (a) cash, (b) securities that,
upon consummation of the transaction, will be listed on a national securities
exchange or held of record by not less than 1,000 holders, or (c) cash and such
securities. A shareholder of a corporation may also dissent from any acquisition
of shares owned by such shareholder in connection with the acquisition by
another New Jersey corporation, in exchange for its shares, of all the shares of
a class or series of securities of such corporation. Any shareholder who
perfects dissenters' rights under the New Jersey BCA is entitled to receive the
"fair value" of such shares as determined either by agreement between such
shareholder and the corporation or by a court of competent jurisdiction.
Bankers' shareholders have no dissenters' rights with respect to the Merger.
DIVIDENDS
Under the Pennsylvania BCL, a corporation may pay dividends unless, after
giving effect thereto, (i) the corporation would be unable to pay its debts as
they become due in the usual course of its business or (ii) the total assets of
the corporation would be less than the sum of its total liabilities plus the
amount that would be needed, if the corporation were to be dissolved at the time
as of which the distribution is measured, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
Subject to any restrictions contained in a corporation's certificate of
incorporation, the New Jersey BCA provides that a corporation may pay dividends
unless, after giving effect thereto, (i) the corporation would be unable to pay
its debts as they become due in the usual course of its business or (ii) the
corporation's total assets would be less than its total liabilities. There are
no restrictions included in Bankers' Certificate of Incorporation with respect
to the payment of dividends.
VOLUNTARY DISSOLUTION
Under the Pennsylvania BCL, if Sovereign's Board of Directors recommends
that Sovereign be dissolved and directs that the question be submitted to a vote
at a meeting of shareholders, Sovereign may be dissolved upon the affirmative
vote of a majority of the votes cast by all shareholders entitled to vote
thereon and, if any class of shares is entitled to vote thereon as a class, the
affirmative vote of a majority of the votes cast in each class vote. Under
Sovereign's Articles of Incorporation, if at least 66 2/3% of Sovereign's Board
of Directors has not recommended that Sovereign be dissolved, Sovereign may be
dissolved only upon the affirmative vote of shareholders entitled to cast at
least 80% of the votes which all shareholders are entitled to cast.
Under the New Jersey BCA and Bankers' Certificate of Incorporation, Bankers
may be dissolved upon the affirmative vote of at least 80% of its total voting
power or, alternatively, if the Bankers Board of Directors recommends that
Bankers be dissolved and directs that the question be submitted to a vote at a
meeting of shareholders, Bankers may be dissolved upon the affirmative vote of a
majority of the votes cast by the shareholders entitled to vote thereon and, if
any class or series of securities of Bankers is entitled to vote thereon as a
class, upon the affirmative vote of a majority of the votes cast by each such
class. If the dissolution is proposed by, on behalf of or pursuant to any
agreement, arrangement or understanding with an Interested Stockholder, the
NJSPA will apply. See " -- Antitakeover Provisions" above.
PREEMPTIVE RIGHTS
Neither the holders of Sovereign Common Stock nor Bankers Common Stock are
entitled to preemptive rights.
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ADJOURNMENT
In the event that there are not sufficient votes to constitute a quorum or
approve the adoption of the Merger Agreement at the time of one or both of the
Meetings, such proposal could not be approved unless the Meetings were adjourned
in order to permit further solicitation of proxies. In order to allow proxies
which have been received by Sovereign or Bankers, as the case may be, at the
time of the applicable Meeting to be voted for such adjournment, if necessary,
each of Sovereign and Bankers has submitted the question of adjournment under
such circumstances to its shareholders as a separate matter for their
consideration.
If it is necessary to adjourn one or both of the Meetings, no notice of the
time and place of the adjourned Meeting is required to be given to shareholders
other than an announcement of such time and place at the Meeting.
THE BOARDS OF DIRECTORS OF EACH OF SOVEREIGN AND BANKERS RECOMMEND THAT
SHAREHOLDERS VOTE THEIR PROXIES IN FAVOR OF THE SOVEREIGN ADJOURNMENT PROPOSAL
OR THE BANKERS ADJOURNMENT PROPOSAL, AS THE CASE MAY BE, SO THAT THEIR PROXIES
MAY BE USED FOR SUCH PURPOSES IN THE EVENT IT BECOMES NECESSARY. PROPERLY
EXECUTED PROXIES WILL BE VOTED IN FAVOR OF THE SOVEREIGN ADJOURNMENT PROPOSAL OR
THE BANKERS ADJOURNMENT PROPOSAL, AS THE CASE MAY BE, UNLESS OTHERWISE INDICATED
THEREON.
BANKERS ANNUAL MEETING -- OTHER MATTERS
GENERAL
In addition to voting on the approval and adoption of the Merger Agreement
and the Bankers Adjournment Proposal, the shareholders of Bankers will also be
asked to consider and vote upon the following matters: (i) the election of two
directors; (ii) the ratification of the appointment of KPMG Peat Marwick LLP as
Bankers' independent auditors for the fiscal year ending December 31, 1997; and
(iii) the transaction of such other business as may properly come before the
Bankers Annual Meeting.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as to those persons
believed by management to be beneficial owners of more than 5% of Bankers Common
Stock as of April 1, 1997. Persons and groups owning in excess of 5% of Bankers
Common Stock outstanding are required to file certain reports regarding such
ownership with Bankers and with the Commission, in accordance with Sections
13(d) and 13(g) of the Exchange Act. Other than those persons listed below,
Bankers is not aware of any person or group who is the beneficial owner of more
than 5% of Bankers Common Stock as of April 1, 1997.
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND OWNERSHIP
NATURE OF COMMON
NAME AND ADDRESS BENEFICIAL STOCK
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING(1)
- ------------------ ------------------- ----------- ---------------
<S> <C> <C> <C>
Common Stock Bankers Savings 1,090,735(2) 8.8%
Employee Stock Ownership Plan and Trust
(the "ESOP")
210 Smith Street
Perth Amboy, New Jersey
Common Stock Joseph P. Gemmell 895,085 7.2%
Chairman of the Board,
President and Chief Executive Officer
Bankers Corp.
210 Smith Street
Perth Amboy, New Jersey
</TABLE>
- ------------------
(1) The percentage ownership has been calculated based upon 12,378,184 shares
outstanding as of April 1, 1997, except that the percentage with respect to
Mr. Gemmell has been calculated on the basis of such number of shares of
Bankers Common Stock outstanding, plus 137,647 shares which Mr. Gemmell has
the right to acquire within 60 days after April 1, 1997 by the exercise of
stock options.
(2) The entire Bankers Savings Board of Directors, which acts as the trustee for
the ESOP (the "ESOP Trustee"), may be deemed to share investment and voting
power of the shares of Bankers Common Stock held by the ESOP Trust. Each
member of the Bankers Board of Directors disclaims beneficial ownership of
the shares of Bankers Common Stock held by the ESOP Trust. Bankers Common
Stock purchased by the ESOP is released from a suspense account and
allocated to participants annually based on contributions made to the ESOP
by Bankers. Shares released from the suspense account are allocated among
participants in proportion to their compensation, as defined in the ESOP,
for the year the contributions are made, up to the limits permitted under
the Code. The ESOP Trustee must vote all allocated shares held in the ESOP
in accordance with the instructions of participants. Shares of Bankers
Common Stock are allocated to participants under the ESOP as of December
31st of each year. As of December 31, 1996, 1,020,291 shares of Bankers
Common Stock in the ESOP had been allocated, but not distributed, to
participants. Under the ESOP, unallocated shares will be voted by the ESOP
Trustee in a manner calculated to most accurately reflect the voting
instructions received from participants regarding the allocated shares so
long as such vote is in accordance with the requirements of ERISA.
77
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the shares of
Bankers Common Stock beneficially owned by each director of Bankers, by each
Named Executive Officer of Bankers identified in the Summary Compensation Table
included under "-- Executive Compensation" and all directors and executive
officers of Bankers or Bankers Savings as a group as of April 1, 1997. Except as
otherwise indicated, each person and each group shown in the table has sole
voting and investment power with respect to the shares of Bankers Common Stock
indicated.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OWNERSHIP
OWNERSHIP OF COMMON STOCK
NAME TITLE(1) (2)(3)(4)(5)(6) OUTSTANDING
- ---- -------------------------------------- --------------- -----------------
<S> <C> <C> <C>
Joseph P. Gemmell..................... Chairman of the Board, President and 895,085 7.2%
Chief Executive Officer
Howard S. Garfield.................... Senior Vice President and 126,383 1.0%
Chief Financial Officer
Andrew P. Arbes....................... Director 147,657 1.2%
James J. Elek......................... Director 416,241 3.4%
George Gundrum........................ Director 43,032 *
Joseph H. Harrigan.................... Director 88,854 *
Michael J. McMahon.................... Director 329,136 2.7%
Ralph Mendez.......................... Director 353,388 2.8%
All directors and executive
officers as a group
(10 persons)........................ 2,615,841(7) 20.7%
</TABLE>
- ------------------
* Less than 1% of outstanding Bankers Common Stock.
(1) Titles are for both Bankers and Bankers Savings.
(2) The figures shown include shares with the right to acquire beneficial
ownership by the exercise of stock options as follows: Mr. Gemmell, 137,647
shares; Mr. Harrigan, 71,344 shares; Mr. McMahon, 35,344 shares; and all
directors and executive officers as a group, 274,099 shares.
(3) The figures shown include shares held in trust pursuant to the ESOP that
have been allocated as of December 31, 1996 to individual accounts as
follows: Mr. Gemmell, 98,993 shares; Mr. Garfield, 38,022 shares; and all
directors and executive officers as a group, 190,221 shares. Such persons
have sole voting power but no investment power, except in limited
circumstances, as to such shares. The figures shown do not include 88,278
shares held in trust pursuant to the ESOP that have not been allocated to
any individual's account and as to which the members of the Board of
Directors of Bankers Savings, as the ESOP Trustee, may be deemed to share
investment and voting power, and as to which each of the participants
identified in the table may be deemed to share voting power, thereby causing
each such person to be deemed a beneficial owner of such shares. Each of the
members of the Board of Directors of Bankers Savings and each of the ESOP
participants included in the table disclaims beneficial ownership of the
unallocated stock held by the ESOP Trust.
(4) The figures shown include shares over which individuals share voting and
investment power (other than as disclosed in notes 3 and 5) as follows: Mr.
McMahon, 34,956 shares; and Mr. Mendez, 4,491 shares.
(5) Includes 194,618 shares held by the Employee Profit Sharing Plan of J.J.
Elek Realty over which Mr. Elek has sole voting power.
(6) Excludes 14,320 shares with respect to all executive officers which may be
acquired pursuant to options which are not exercisable within 60 days.
Includes 274,099 shares subject to options awarded to directors and officers
which are presently exercisable.
(7) Percentages with respect to each person or group of persons have been
calculated on the basis of 12,378,184 shares outstanding as of April 1,
1997, plus the number of shares of Bankers Common Stock which such person or
group of persons has the right to acquire within 60 days after April 1, 1997
by the exercise of stock options.
78
<PAGE>
ELECTION OF DIRECTORS
Pursuant to the Bylaws of Bankers, the number of directors of Bankers is
set at seven. Each of the seven members of the Board of Directors of Bankers
also serve as a director of Bankers Savings. Directors are elected for staggered
terms of three years each, with a term of office of only one class of directors
expiring in each year. Directors serve until their successors are elected and
qualified. Under Article 3.13 of the Bylaws of Bankers, no person shall be
eligible for election to the Bankers Board of Directors after attaining his or
her seventieth birthday. Accordingly, George Gundrum will be retiring from the
Bankers Board of Directors effective as of the date of the Bankers Annual
Meeting. It is the intention of the Bankers Board of Directors to amend the
By-laws to reduce the number of members of the Bankers Board of Directors to
six.
The two nominees proposed for election at the Bankers Annual Meeting are
Messrs. Andrew P. Arbes and Joseph H. Harrigan. In the event that any such
nominee is unable or declines to serve for any reason, it is intended that
proxies will be voted for the election of the remaining nominee and for such
other person as shall be designated by the present Bankers Board of Directors.
The Bankers Board of Directors has no reason to believe that any of the persons
named will be unable or unwilling to serve. UNLESS AUTHORITY TO VOTE FOR THE
DIRECTORS IS WITHHELD, IT IS INTENDED THAT THE SHARES REPRESENTED BY THE
ENCLOSED PROXY, IF SIGNED AND RETURNED, WILL BE VOTED FOR THE ELECTION OF THE
TWO NOMINEES.
THE BANKERS BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ELECTION OF ALL NOMINEES NAMED IN THIS PROXY STATEMENT/PROSPECTUS.
79
<PAGE>
INFORMATION WITH RESPECT TO NOMINEES AND CONTINUING DIRECTORS
The following table sets forth certain information with respect to each
nominee for election as a director and each continuing director whose term does
not expire at the Bankers Annual Meeting. No person being nominated as a
director is being nominated for election pursuant to any agreement or
understanding between any such person and Bankers. For information with respect
to the security ownership of directors, see "-- Stock Ownership of Management."
<TABLE>
<CAPTION>
END OF DIRECTOR
NAME AGE(1) TERM POSITION HELD WITH BANKERS SINCE(2)
- ---- ------- ------- -------------------------- ---------
<S> <C> <C> <C> <C>
NOMINEES FOR A THREE-YEAR TERM
EXPIRING IN 2000
Andrew P. Arbes 66 1997 Director 1979
Joseph H. Harrigan 53 1997 Director 1985
CONTINUING DIRECTORS
Joseph P. Gemmell 61 Chairman of the Board, President and Chief 1983
1999 Executive Officer
James J. Elek 59 1999 Director 1989
Michael J. McMahon 53 1998 Director 1986
Ralph Mendez 60 1998 Director 1989
RETIRING DIRECTOR
George Gundrum 72 1997 Director 1972
</TABLE>
- ------------------
(1) At April 1, 1997.
(2) Includes service as a director of Bankers Savings prior to the conversion of
Bankers Savings from mutual to stock form and the issuance of Bankers
Savings' stock to Bankers.
The principal occupation and business experience of each nominee for
election as director and each continuing director is set forth below.
NOMINEES FOR ELECTION AS DIRECTORS
Andrew P. Arbes is the former President and owner-operator of Clare &
Coby's Restaurant in Old Bridge, New Jersey.
Joseph H. Harrigan serves as President of J.J. Harrigan & Co. Inc., a real
estate, insurance and appraisal firm. He is a director of South Amboy Memorial
Hospital and serves as chairman of Garden State Hospitalization Plan.
CONTINUING DIRECTORS
Joseph P. Gemmell has served as President and Chief Executive Officer of
Bankers and Bankers Savings since 1983 and Chairman of the Bankers Board of
Directors since 1989. His prior banking experience spans some 40 years with
thrift and commercial banking organizations. Mr. Gemmell has been the state
chairman of the Federal Reserve Bank of New York Thrift Institutions Advisory
Panel, Conference of State Bank Supervisors, since 1992. He is a member of the
Federal Reserve Bank of New York Thrift Institution Advisory Panel. He is also a
member of the board of directors of each of the following: Retirement System
Group of New York, Middlesex County College Foundation, Garden State
Hospitalization Plan, Blue Badge Association of Middlesex County and Vice
Chairman of the Woodbridge Economic Development Corp.
James J. Elek serves as the President and owner of J.J. Elek Realty
Company, an independent real estate firm in Middlesex County, New Jersey.
80
<PAGE>
Michael J. McMahon serves as Chairman and Chief Executive Officer of
Boynton Brothers & Company, an independent insurance agency. He is also a member
of the board of directors of Raritan Bay Medical Center.
Ralph Mendez serves as President of Mendez Dairy, Inc., the distributor of
Ideal Dairy Products in the tri-state area, and is President and Chief Executive
Officer of Tropical Cheese Industries, a cheese manufacturing company. Mr.
Mendez previously served as a member of the Board of Directors of First Jersey
National Bank/Central.
RETIRING DIRECTOR
George Gundrum is the owner of Gundrum Service Home for Funerals.
BOARD AND COMMITTEE MEETINGS
During fiscal 1996, the Bankers Board of Directors met 12 times. The
Bankers Board of Directors generally meets quarterly but may have additional
special meetings upon request of the Chairman of the Board or a member of the
Board. The Audit Committee is comprised solely of outside directors, namely
Messrs. Harrigan, Gundrum, McMahon and Mendez. In 1996, the Audit Committee met
four times to review the independent auditor's report, regulatory examination
reports and internal audit reports. During 1996, no director attended fewer than
99% in the aggregate of the total number of Bankers' Board meetings and the
total number of committee meetings on which such director served.
The Bankers Board of Directors as a whole reviews and selects the nominees
to stand for election at the Bankers Annual Meeting of Shareholders. While the
Bankers Board of Directors will consider nominees recommended by shareholders,
it has not actively solicited recommendations from shareholders for nominees.
Nominations by shareholders must comply with certain procedural and
informational requirements set forth in Bankers' Bylaws. See "SHAREHOLDER
PROPOSALS." The Bankers Board of Directors met one time during the past fiscal
year in its capacity as the nominating committee.
DIRECTORS' COMPENSATION
Fee Arrangements. In 1996, Directors of Bankers who were not employees of
Bankers Savings or Bankers received a $12,000 annual retainer fee and a fee of
$600 for each meeting of the Bankers Board of Directors attended. The Vice
Chairman of the Board received an additional retainer fee of $12,000. In
addition, each Committee chairperson received a $3,000 annual retainer fee and
members of the Committees received $450 for each meeting attended. Officers of
Bankers Savings or Bankers who are Directors did not receive fees for attending
meetings.
Deferred Compensation Plan. Bankers Savings maintains the Bankers Savings
Outside Directors' Deferred Compensation Plan (the "Deferred Compensation
Plan"). Under the Deferred Compensation Plan, members of the Bankers Board of
Directors become participants following the completion of 84 months of service,
except that in the event of a change in control, as defined in the Deferred
Compensation Plan, all directors will be eligible for a benefit under the
Deferred Compensation Plan regardless of their period of service. Following the
date a participant ceases to be an outside director, such participant will be
eligible to receive an annual amount equal to one-half the sum of the average of
the last three years' annual retainer fee paid to directors plus the average of
the last three years' fee paid for attendance at the regular meetings of the
Bankers Board of Directors. Such amount will be paid in equal monthly
installments for a period not to exceed the lesser of the number of months of
the participant's service or 180 months. In the event of a change in control, as
defined in the Deferred Compensation Plan, a participant may elect to require
the company or its successor to purchase an annuity contract from an insurance
company to provide such participant's benefit or to receive an immediate
lump-sum payment equal to the present value of the sum of such participant's
monthly benefit payments. Two former directors received benefits under the
Deferred Compensation Plan in 1996, which totaled $16,704.
Directors' Stock Option Plan. Bankers maintains the 1993 Stock Option Plan
for Outside Directors ("Directors' Stock Option Plan"). Under the Directors'
Stock Option Plan, each outside
81
<PAGE>
director who began service as a member of the Bankers Board of Directors after
April 30, 1993 may be granted non-statutory stock options to purchase up to
24,000 shares of Bankers Common Stock (as adjusted to reflect stock splits and
dividends). The exercise price of such options will be equal to the fair market
value of the Bankers Common Stock on the date of grant. All options granted
under the Directors' Stock Option Plan vest at a rate of 20% per year. Each
option granted will expire upon the earlier of 10 years following the date of
grant, or 30 days following the date on which the Director ceases to serve on
the Bankers Board of Directors, except in the event of a Director's death, in
which case the option must be exercised within 6 months. No options have been
granted under the Directors' Option Plan.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Under rules established by the Commission, Bankers is required to provide
certain data and information with regard to compensation and benefits provided
to Bankers' Chief Executive Officer ("CEO") and other executive officers whose
salary and bonus were in excess of $100,000 for the most recent fiscal year. The
disclosure requirements for the CEO include the use of tables and a report
explaining the rationale and considerations that led to the fundamental
compensation decisions affecting the executive officers. The Bankers Board of
Directors, as a committee of the whole, constitutes the Compensation Committee
(the "Committee"). In fulfillment of this requirement, the Committee has
prepared the following report for inclusion in this Proxy Statement/Prospectus.
The Committee finalizes the review process of Bankers' CEO and executive
officers early in January of each year and makes the appropriate changes in
compensation and/or grants, bonuses or awards predicated on the preceding year's
performance. To assure that compensation is adequate to attract and retain
competent executives, the Committee determines salary ranges after reviewing
several peer group analyses of compensation paid to executives performing
similar duties for depository institutions and their holding companies, with
particular focus on the level of compensation paid by comparable institutions in
Bankers Savings' market. Changes in compensation are predicated on an
individual's job performance and his or her contribution to the overall
financial performance of Bankers and Bankers Savings. Each officer is required
to participate in establishing goals and objectives for the coming year, e.g.,
loan production, cost containment or reduction, return on investment improvement
and market share improvement. At the same time, a critique of the past year's
performance is done which provides the basis for any change in compensation. A
substantial portion of senior executive compensation is in the form of long-term
incentives tied to the performance of Bankers' stock. As an executive's level of
responsibility increases, a greater portion of his or her potential total
compensation is in the form of stock based incentives rather than salary and
employee benefits, causing greater variability in the individual's absolute
compensation level from year-to-year.
The CEO's compensation is largely based on Bankers' overall performance
measured in terms of the relative market performance of its stock, which is
substantially driven by profitability. During 1996, the FDIC made a one time
assessment on Bankers Savings to recapitalize the SAIF -- an event beyond the
CEO's control. This had an after tax negative impact on earnings of $1.8 million
or $0.14 earnings per share ("EPS"). Net income for 1996 was $24.3 million
($1.90 EPS) compared with $20.0 million ($1.51 EPS) for 1995. Excluding the
effect of the one-time FDIC insurance assessment, such increase in net income
reflects an improvement for the year 1996 compared to 1995 of 31% in earnings
and 35% in EPS. However, the market value of Bankers' stock did not fully
reflect such improvements until the operating results were publicly announced
early in 1997. Bankers' stock price at year end 1996 was $20.125 per share,
compared with $16.25 per share at the end of 1995, reflecting a 24% increase.
Stockholders' equity also increased by $5.9 million during 1996 even though
there was a $10.4 million charge to capital attributable to the repurchase of
shares offset to a lesser degree by the exercise of stock options. Book value
per share was $15.58 at December 31, 1996, compared with $14.47 the previous
year, reflecting a $1.11 per share increase, even with a 14% increase in
dividends declared during the year. In addition, Bankers Savings, with an
efficiency ratio of 28.4% for the year ended December 31, 1996, outperformed all
but one bank in the nation in its peer group. A good part of such performance is
attributable to the superior management of Bankers Savings' general and
82
<PAGE>
administrative ("G&A") expenses, which, when eliminating the FDIC assessment,
were 92 basis points of Bankers Savings' total assets for 1996. In general,
other banks have a G&A ratio more than double that of Bankers Savings.
In view of Bankers Savings' 1996 performance, the Committee, in January
1997, granted the CEO a $150,000 bonus, 4,000 Incentive Stock Options at an
exercise price of $21.75 and increased his salary by 7.0% to $455,000 per annum.
The CEO's compensation for 1996, as shown in the Summary Compensation Table
below, was based similarly on the 1995 results. Furthermore, the CEO was
rewarded for Bankers' performance by way of long-term incentives granted in
1990, namely, Incentive Stock Options and Management Recognition Plan awards as
detailed in the Summary Compensation Table below and under "-- Incentive Stock
Option Plan and Long-Term Stock Benefit Plan" below.
COMPENSATION COMMITTEE
Andrew P. Arbes Joseph H. Harrigan
James J. Elek Michael J. McMahon
Joseph P. Gemmell Ralph Mendez
George Gundrum
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Committee is responsible for establishing the compensation levels and
benefits for executive officers and other officers and employees. Except for the
Chairman, who is also the President and CEO, the Board is composed entirely of
outside directors, most of whom have a substantial position in Bankers' stock.
The Chairman has significant input as to evaluating the performance of the
senior executive officers, but does not participate in the evaluation of his own
performance and decisions pertaining to his compensation. There are no
interlocks, as defined under the rules and regulations of the SEC, between
members of the Committee or executive officers of Bankers and corporations with
respect to which such persons are affiliated, or otherwise.
83
<PAGE>
PERFORMANCE GRAPH
The graph below compares cumulative total return inclusive of the quarterly
reinvestment of dividends of Bankers Corp., Nasdaq Stock Market (US Companies)
and the Savings Institutions peer index. Bankers believes that this information
demonstrates that the compensation earned by its executive officers compares
very favorably to Bankers' stockholder value.
[In the printed version of this document a graph appears here that depicts
the following plot points.]
<TABLE>
<CAPTION>
CRSP TOTAL RETURNS INDEX FOR: 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96
----------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Bankers Corp................................. 100.0 160.0 200.3 199.6 250.1 320.5
Nasdaq Stock Market (US Companies)........... 100.0 116.4 133.6 130.6 184.7 227.2
NYSE/AMEX/NASDAQ Stocks
(SIC 6030-6039 US + Foreign)
Savings Institutions....................... 100.0 155.7 211.5 218.5 336.0 448.4
</TABLE>
The Performance Graph shall not be deemed incorporated by reference by any
general statement in this Proxy Statement/Prospectus or into any filing under
the Securities Act or under the Exchange Act, except to the extent Bankers
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
THERE CAN BE NO ASSURANCE THAT STOCK PERFORMANCE WILL CONTINUE INTO THE
FUTURE WITH THE SAME OR SIMILAR TRENDS DEPICTED IN THE GRAPH ABOVE.
84
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table shows, for the fiscal
years ended December 31, 1996, December 31, 1995 and December 31, 1994, the cash
compensation paid by Bankers Savings, as well as certain other compensation paid
or accrued for those years, to the CEO and the highest paid executive officer
whose base salary and bonus exceeded $100,000 in 1996 (the "Named Executive
Officers") of Bankers. Bankers Corp. has not paid any cash compensation to the
Named Executive Officers. No other officers received total compensation in
excess of $100,000 in fiscal 1996.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------------------------
PAYOUTS
----------------------
AWARDS ALL OTHER
ANNUAL COMPENSATION OTHER ---------------------- ANNUAL
------------------------------- ANNUAL STOCK RESTRICTED LTP COMPEN-
SALARY BONUS COMPEN- AWARDS OPTIONS/ PAYOUTS SATION
NAME AND PRINCIPAL POSITION(1) YEAR $ $ SATION(2)($) ($) SARS(3) (4)($) (4)($)
- ------------------------------- --------- --------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph P. Gemmell.............. 1996 425,000 125,000 -- -- -- -- 52,746
Chairman of the Board, 1995 400,000 125,000 -- -- -- -- 66,979
President and Chief Executive 1994 365,000 150,000 -- -- -- -- 56,399
Officer
Howard S. Garfield II.......... 1996 108,000 -- -- -- -- -- 41,694
Senior Vice President 1995 101,000 -- -- -- -- -- 41,716
and Chief Financial Officer 1994 94,000 -- -- -- -- -- 33,602
</TABLE>
- ------------------
(1) Titles are for both Bankers and Bankers Savings.
(2) Perquisites for the years ended December 31, 1996, December 31, 1995 and
December 31, 1994 did not exceed the lesser of $50,000 or 10% of the total
of salary and bonus as reported for the Named Executive Officer.
(3) No options were awarded under the Bankers Corp. 1989 Incentive Stock Option
Plan ("Incentive Stock Option Plan") and the Bankers Corp. 1993 Long-Term
Incentive Stock Benefit Plan (the "Long-Term Incentive Stock Benefit Plan")
for the years ending December 31, 1996, December 31, 1995 and December 31,
1994. For a discussion of the terms of the grants and vesting of options
awarded in prior years, see "-- Incentive Stock Option Plan and Long-Term
Stock Benefit Plan" below and the corresponding tables.
(4) Includes allocations of shares of Bankers Common Stock with a total market
value of $46,428, $60,661 and $52,349 as of December 31, 1996, 1995 and
1994, respectively, under the ESOP for the account of Mr. Gemmell, and
allocations of shares of Bankers Common Stock with a market value of
$40,814, $40,836 and $32,795 as of December 31, 1996, 1995 and 1994,
respectively, under the ESOP for the account of Mr. Garfield. Includes term
life insurance paid by Bankers Savings for Mr. Gemmell of $6,318, $6,318 and
$4,050 for the years ending December 31, 1996, 1995, and 1994, respectively,
and for Mr. Garfield of $880, $880 and $807 for the years ending December
31, 1996, 1995, and 1994, respectively.
EMPLOYMENT AGREEMENT
Bankers and Bankers Savings entered into the Employment Agreement with Mr.
Gemmell, effective as of March 23, 1990, which was subsequently amended
effective as of January 22, 1996. Such Employment Agreement is designed to
establish Mr. Gemmell's duties and compensation, to assure his continued
employment and to assure that Bankers and Bankers Savings will be able to
maintain a stable and experienced management base.
The Employment Agreement provides for an initial five year term. Commencing
on the third anniversary of the effective date of the Employment Agreement, the
Employment Agreement provides for automatic annual extensions so that the
remaining term will be three years, unless either Mr. Gemmell or Bankers gives
timely written notice of termination.
The Employment Agreement provides for an annual base salary of $425,000 to
be reviewed and increased annually in an amount not less than the percentage
increase in the cost-of-living as measured by the Consumer Price Index for the
preceding twelve (12) months. In addition to base salary, the Employment
Agreement provides, among other things, for participation in stock and other
employee benefit plans and other fringe benefits for executive personnel.
85
<PAGE>
The Employment Agreement provides for Termination for Cause, as defined in
the Employment Agreement, by Bankers Savings and Bankers at any time. In the
event that Bankers Savings and Bankers terminate Mr. Gemmell's employment for
reasons other than a Termination for Cause, or in the event of Mr. Gemmell's
resignation from Bankers Savings and Bankers upon (i) a failure to reappoint him
to his current offices, (ii) a material reduction of his functions, duties or
responsibilities, or a relocation of his principal place of employment, (iii) a
liquidation, dissolution, consolidation or merger in which Bankers Savings or
Bankers is not the resulting entity or (iv) a breach of the Employment Agreement
by Bankers Savings or Bankers, Mr. Gemmell or, in the event of death, his
beneficiary, would be entitled to a severance payment equal to the greater of
thirty-six times Mr. Gemmell's highest monthly rate of base salary during the
term of the Employment Agreement or the remaining salary payments due under the
Employment Agreement, and other benefits that would have been received by Mr.
Gemmell during the remaining term of the Employment Agreement. Bankers Savings
and Bankers would also continue life, health and disability insurance coverage
for the earlier of the remaining unexpired term of the Employment Agreement or
until Mr. Gemmell's full-time employment by another employer.
For a discussion of the payments the executive would be entitled to receive
under the Employment Agreement upon a change in control of Bankers Savings or
Bankers followed by the voluntary or involuntary termination of the executive,
see "INTERESTS OF CERTAIN PERSONS IN THE MERGER -- Employment Agreement."
SPECIAL TERMINATION AGREEMENT
Bankers and Bankers Savings have entered into the Special Termination
Agreement with Mr. Garfield, effective as of March 23, 1990. The Special
Termination Agreement provides for an initial three-year term. Commencing on the
first anniversary of the effective date of the Special Termination Agreement,
the Special Termination Agreement provides for automatic annual extensions so
that the remaining term will be three years, unless either the executive or
Bankers gives timely written notice of termination. For a discussion of the
payments Mr. Garfield would be entitled to under the Special Termination
Agreement in the event of a change in control of Bankers or Bankers Savings
followed by his voluntary or involuntary termination, see "INTERESTS OF CERTAIN
PERSONS IN THE MERGER -- Special Termination Agreements."
INCENTIVE STOCK OPTION PLAN AND LONG-TERM INCENTIVE STOCK BENEFIT PLAN
Bankers maintains the Incentive Stock Option Plan and the Long-Term
Incentive Stock Benefit Plan, which provide for discretionary awards of stock
options to officers and key employees as determined by the committee that
administers the plan. No options were granted in 1996. The following table
provides certain information with respect to the number of shares of Bankers
Common Stock represented by outstanding options held by the Named Executive
Officers as of December 31, 1996. Also reported are the values for
"in-the-money" options which represents positive spread between the exercise
price of any such existing stock options and the year-end price of Bankers
Common Stock.
86
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN- THE-MONEY
SHARES VALUE OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
ACQUIRED ON REALIZED ON YEAR-END (#) YEAR-END ($)(2)
NAME EXERCISE(#) EXERCISE($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- ------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Joseph P. Gemmell................... 25,000 325,688 137,647/0 2,300,770/0
Howard S. Garfield.................. 13,983 182,164 0/0 0/0
</TABLE>
- ------------------
(1) Based upon the difference between the average market price of Bankers Common
Stock as reported on the Nasdaq National Market on the date of exercise and
the $3.41 exercise price of the options.
(2) Based upon the difference between $20.125, the closing price of Bankers
Common Stock as reported on the Nasdaq National Market on December 31, 1996,
and the $3.41 exercise price of the options.
RETIREMENT PLAN
Bankers Savings maintains and funds a tax-qualified non-contributory
defined benefit plan for its employees, which is jointly administered by Bankers
Savings and RSI Retirement Fund, a full-service pension trust that serves the
thrift industry (the "Retirement Plan"). All full-time employees age 21 or older
who have completed at least one year of service participate in the plan. The
plan provides an annual benefit payable at age 65, equal to 2.0% of the
participant's three-year average annual earnings, as defined in the Retirement
Plan, multiplied by credited service, reduced by 1 2/3% of the annual primary
social security benefit multiplied by years of credited service after January 1,
1977.
PENSION PLAN TABLE(1)
<TABLE>
<CAPTION>
AVERAGE YEARS OF CREDITED SERVICE
ANNUAL -----------------------------------------------------------------------
EARNINGS 15 20 25 30 35(2)
- ----------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$100,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000 $ 60,000
150,000 45,000 60,000 75,000 90,000 90,000
175,000(4) 52,500 70,000 87,500 105,000 105,000
200,000(4) 60,000 80,000 100,000 120,000(3) 120,000(3)
250,000(4) 75,000 100,000 125,000(3) 150,000(3) 150,000(3)
300,000(4) 90,000 120,000(3) 150,000(3) 180,000(3) 180,000(3)
350,000(4) 105,000 140,000(3) 175,000(3) 210,000(3) 210,000(3)
400,000(4) 120,000(3) 160,000(3) 200,000(3) 240,000(3) 240,000(3)
450,000(4) 135,000(3) 180,000(3) 225,000(3) 270,000(3) 270,000(3)
500,000(4) 150,000(3) 200,000(3) 250,000(3) 300,000(3) 300,000(3)
525,000(4) 157,500(3) 210,000(3) 262,500(3) 315,000(3) 315,000(3)
</TABLE>
- ------------------
(1) The annual benefits shown in the table above assume the participant would
receive his benefits under the Retirement Plan in the form of a straight
life annuity at normal retirement age, without reduction for Social Security
benefits. Benefit payments are based on the employee's base salary. See " --
Executive Compensation -- Summary Compensation Table."
(2) Normal retirement benefits are limited to 60% of average annual earnings not
to exceed 30 years.
(3) The benefits shown are hypothetical benefits based upon the Retirement
Plan's normal retirement benefit formula. The maximum annual benefit
permitted under Section 415 of the Code in 1996 is $120,000 and in 1997 is
$125,000, or if higher, a member's current accrued benefit as of December
31, 1982 (but not more than $136,425). The $125,000 ceiling will be adjusted
to reflect
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<PAGE>
cost of living increases after 1997 in accordance with Section 415 of the
Code. Bankers Savings' Supplemental Retirement Plan ("SERP") will provide
the difference between the amounts appearing in this table and the maximum
amount allowed by the Code.
(4) The benefits shown corresponding to these compensation ranges are
hypothetical benefits based upon the Retirement Plan's normal retirement
benefit formula. Under Section 401(a)(17) of the Code, a participant's
compensation in excess of $150,000 (as adjusted to reflect cost-of-living
increases) is disregarded for purposes of determining average annual
earnings. The limitation is $160,000 for plan years beginning in 1997. The
limitation will be adjusted to reflect cost of living increases after 1997
in accordance with Section 401(a)(17) of the Code. The table reflects
amounts payable in conjunction with the SERP.
As of December 31, 1996, Mr. Gemmell had 23 years and 5 months of credited
service and Mr. Garfield had 15 years and 5 months of credited service.
SUPPLEMENTAL RETIREMENT PLAN
Bankers Savings has adopted the SERP, which provides for a retirement
benefit payable to a participant equal to the difference between the annual
benefit such participant would have been entitled to under the Retirement Plan
if such benefits were computed without giving effect to the limitations on
benefits payable imposed by Sections 415 and 401(a)(17) of the Code, and the
annual amount payable to the employee under the Retirement Plan. Benefits
commence under the SERP on the same date as payments under the Retirement Plan.
Benefits under the SERP are paid directly by Bankers Savings. The SERP is
unfunded.
As of December 31, 1996, only Mr. Gemmell is eligible for a benefit under
the SERP in an annual amount of $82,061. At age 65, based on actuarial
assumptions, Mr. Gemmell would be eligible for an annual benefit of $137,963
under the SERP.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time Bankers Savings makes mortgage loans and consumer loans
to its executive officers and to members of the immediate families of its
executive officers and directors, to the extent consistent with applicable laws
and regulations. Such loans are made in the ordinary course of business and on
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons, and do not and will not
involve more than the normal risk of collectibility or present other unfavorable
features.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires Bankers' directors and certain
officers, and persons who own more than ten percent of a registered class of
Bankers' equity securities to file reports of ownership and changes in ownership
with the Commission and the National Association of Securities Dealers, Inc.
Officers, directors and greater than ten percent stockholders are required by
Commission regulations to furnish Bankers with copies of all Section 16(a) forms
they file.
Based solely on a review of copies of such reports of ownership furnished
to Bankers, or written representations that no forms were necessary, Bankers
believes that, during the last fiscal year, all filing requirements applicable
to its officers, directors and greater than ten percent shareholders were
complied with.
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<PAGE>
RATIFICATION OF BANKERS' INDEPENDENT AUDITORS
KPMG Peat Marwick LLP served as Bankers' independent auditors for the
fiscal year ended December 31, 1996. The Bankers Board of Directors has
reappointed KPMG Peat Marwick LLP to continue as independent auditors for
Bankers and Bankers Savings for the fiscal year ending December 31, 1997,
subject to ratification of such appointment by the shareholders. Representatives
of KPMG Peat Marwick LLP are expected to attend the Bankers Annual Meeting. They
will be given an opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions from shareholders present
at the Bankers Annual Meeting. UNLESS MARKED TO THE CONTRARY, THE SHARES
REPRESENTED BY THE ENCLOSED PROXY WILL BE VOTED FOR RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT AUDITORS OF BANKERS.
THE BANKERS BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP
AS THE INDEPENDENT AUDITORS OF BANKERS.
EXPERTS
The consolidated financial statements of Sovereign, at December 31, 1996
and for each of the three years in the period ended December 31, 1996, included
in Sovereign's Annual Report on Form 10-K for the year ended December 31, 1996,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The supplemental consolidated financial statements of Sovereign at December
31, 1996 and 1995 and for each of the three years in the period ended December
31, 1996 appearing in Sovereign's Current Report on Form 8-K, dated June 17,
1997, and incorporated by reference herein and in the Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon incorporated herein by reference, which is based in part on
the report of KPMG Peat Marwick LLP, independent auditors. The consolidated
financial statements referred to above are incorporated herein by reference in
reliance upon such reports given upon the authority of such firms as experts in
accounting and auditing.
The consolidated financial statements of Bankers as of December 31, 1996
and 1995 and for each of the years in the three-year period ended December 31,
1996 and the consolidated financial statements of First State Financial
Services, Inc. as of September 30, 1996 and 1995 and for each of the years in
the three-year period ended September 30, 1996, have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the Sovereign Common Stock to be issued in the Merger,
certain federal income tax consequences of the Merger, and certain other legal
matters relating to the Merger are being passed upon for Sovereign by the law
firm of Stevens & Lee, counsel to Sovereign. Joseph E. Lewis, a director of
Sovereign Bank, is a principal of the firm of Stevens & Lee. Stevens & Lee and
its attorneys own an aggregate of approximately 215,000 shares of Sovereign
Common Stock, including shares issuable upon the exercise of options owned by
Mr. Lewis.
Legal matters in connection with the Merger will be passed upon for Bankers
by the law firm of Thacher Proffitt & Wood, counsel to Bankers.
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<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Boards of Directors
of Sovereign and Bankers know of no matters which will be presented for
consideration at the Meetings other than as set forth in this Proxy
Statement/Prospectus. However, if any other matters shall come before either of
the Meetings or any adjournments or postponements thereof and be voted upon, the
forms of proxy shall be deemed to confer discretionary authority to the
individuals named as proxies therein to vote the shares represented by such
proxy as to any such matters.
SHAREHOLDER PROPOSALS
Sovereign's 1998 Annual Meeting of Shareholders will be held on or about
April 16, 1998. In accordance with the ByLaws 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.
The Bylaws of Bankers provide an advance notice procedure for certain
business to be brought before an annual meeting. In order for a shareholder to
properly bring business before an annual meeting, the shareholder must give
written notice to the Secretary of Bankers not less than 90 days prior to the
date that is one year after the date of the proxy statement used in connection
with the annual meeting held in the preceding year, except that if no annual
meeting was held in the preceding year or if the date of the annual meeting has
been changed by more than 30 calendar days from the date of the preceding year's
annual meeting, any new business shall be stated in writing and filed with the
Secretary of Bankers at least 90 days in advance of the annual meeting to which
the proposal relates. The notice must include a brief description of the
proposal desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, the name and address, as they
appear on Bankers' books, of the shareholder proposing such business and any
other shareholders known by such shareholder to be supporting such proposal, the
class and number of shares of Bankers' capital stock that are beneficially owned
by the shareholder on the date of such shareholder notice and by any other
shareholders known by such shareholder to be supporting such proposal on the
date of such shareholder notice and any financial interest of the shareholder in
such proposal. In case of the nominations to the Bankers Board of Directors,
certain information regarding the nominee must be provided. To be eligible for
inclusion in Bankers' proxy materials relating to the 1998 Annual Meeting of
Shareholders, if the Merger has not been completed prior to the date such
meeting is to be held, a shareholder proposal must be received by the Secretary
of Bankers at 210 Smith Street, Perth Amboy, New Jersey 08861, not later than
November 29, 1997. Any such proposal will be subject to Rule 14a-8 of the rules
and regulations of the Commission.
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ANNEX A
AGREEMENT AND PLAN
OF MERGER
BETWEEN
SOVEREIGN BANCORP, INC.
AND
BANKERS CORP.
FEBRUARY 5, 1997
(All share price information set forth herein
has been adjusted for Sovereign's 6-for-5 stock split
effected on March 14, 1997.)
<PAGE>
AGREEMENT
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 5, 1997, is made by
and between SOVEREIGN BANCORP, INC. ("Sovereign"), a Pennsylvania corporation,
having its principal place of business in Wyomissing, Pennsylvania, and BANKERS
CORP. ("Bankers"), a New Jersey corporation, having its principal place of
business in Perth Amboy, New Jersey.
BACKGROUND
1. Sovereign and Bankers desire for Bankers to merge with and into
Sovereign, with Sovereign surviving such merger, in accordance with the
applicable laws of the Commonwealth of Pennsylvania and the State of New Jersey,
and in accordance with the plan of merger set forth herein.
2. At or prior to the execution and delivery of this Agreement, (a) certain
directors and officers of Bankers and affiliates of Bankers, each have executed
in favor of Sovereign, a Letter Agreement dated February 5, 1997, in the form
attached hereto as Exhibit 1, and (b) Bankers granted to Sovereign an option to
acquire, under certain circumstances, Bankers' common stock (the "Sovereign
Option") pursuant to a Stock Option Agreement between Sovereign and Bankers
dated February 5, 1997, attached hereto as Exhibit 2.
3. Sovereign desires to merge Bankers Savings, a New Jersey chartered
savings bank and a wholly-owned subsidiary of Bankers ("Bankers Savings"), into
and with Sovereign Bank, FSB, a federal savings bank and a wholly-owned
subsidiary of Sovereign ("Sovereign Bank"), with Sovereign Bank surviving such
merger in accordance with the Bank Plan of Merger in the form attached hereto as
Exhibit 3.
4. Sovereign and Bankers desire to provide the terms and conditions
governing the transactions contemplated herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
parties hereto, intending to be legally bound, do hereby agree as follows:
ARTICLE I
THE MERGERS
Section 1.01 Definitions. As used in this Agreement, the following terms
shall have the indicated meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
Affiliate means, with respect to any Person, any Person who directly,
or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person and, without
limiting the generality of the foregoing, includes any executive officer or
director of such Person and any Affiliate of such executive officer or
director.
Agreement means this agreement, and any amendment or supplement
hereto, which constitutes a "plan of merger" between Sovereign and Bankers.
Applicable Exchange Ratio shall have the meaning given to such term in
Section 1.02(e)(ii)(A).
Applications means the applications for regulatory approval which are
required by the transactions contemplated hereby.
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Articles of Merger means the articles of merger to be executed by
Sovereign and Bankers and to be filed in the PDS and the NJSOS, in
accordance with the applicable laws of the Commonwealth of Pennsylvania and
the State of New Jersey.
Bank Merger means the merger of Bankers Savings with and into
Sovereign Bank, with Sovereign Bank surviving such merger, contemplated by
Section 1.03 of this Agreement.
Bank Plan of Merger has the meaning given to that term in Section 1.03
of this Agreement.
Bankers Common Stock means the common stock of Bankers described in
Section 2.02(a).
Bankers Disclosure Schedule means a disclosure schedule delivered by
Bankers to Sovereign pursuant to Article II of this Agreement.
Bankers Financials means (i) the audited consolidated financial
statements of Bankers as of December 31, 1995 and for the three years ended
December 31, 1995, including the notes thereto, (ii) the unaudited interim
consolidated financial statements of Bankers as of each calendar quarter
thereafter included in Securities Documents filed by Bankers and (iii) the
unaudited preliminary consolidated financial statements of Bankers as of
December 31, 1996, and for the twelve-month period then ended, including
the preliminary notes thereto.
Bankers Regulatory Reports means the Annual Reports of Bankers on Form
FR Y-6, any Current Report of Bankers on Form FR Y-9C and FR Y-LP filed
with the FRB and the NJDB from December 31, 1994 through the Closing Date
and the Reports of Condition and Income of Bankers Savings and accompanying
schedules for each calendar quarter, beginning with the quarter ended
December 31, 1994, through the Closing Date.
Bankers Subsidiaries means any corporation, 50% or more of the capital
stock of which is owned, either directly or indirectly, by Bankers, except
any corporation the stock of which is held in the ordinary course of the
lending activities of Bankers Savings.
BCL means the Pennsylvania Business Corporation Law of 1988, as
amended.
BHC Act means the Bank Holding Company Act of 1956, as amended.
Closing Date means the date determined by Sovereign, in its sole
discretion, upon five (5) days prior written notice to Bankers, but in no
event later than thirty (30) days after the last condition precedent
pursuant to this Agreement has been fulfilled or waived (including the
expiration of any applicable waiting period), or such other date as
Sovereign and Bankers shall agree.
Effective Date means the date upon which the Articles of Merger shall
be filed in the PDS and the NJSOS, and shall be the same as the Closing
Date.
Environmental Law means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with
any Regulatory Authority relating to (i) the protection, preservation or
restoration of the environment (including, without limitation, air, water
vapor, surface water, groundwater, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or
disposal of any substance presently listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, whether by type or by quantity, including any material
containing any such substance as a component.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
Exchange Act means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated from time to time thereunder.
FDIA means the Federal Deposit Insurance Act, as amended.
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<PAGE>
FDIC means the Federal Deposit Insurance Corporation.
FRB means the Federal Reserve Board.
GAAP means generally accepted accounting principles as in effect at
the relevant date.
HOLA means the Home Owners' Loan Act of 1933, as amended.
IRC means the Internal Revenue Code of 1986, as amended.
IRS means the Internal Revenue Service.
Material Adverse Effect shall mean, with respect to Sovereign or
Bankers, any adverse effect on its assets, financial condition or results
of operations which is material to its assets, financial condition or
results of operations on a consolidated basis, except for any material
adverse effect caused by (i) any change in the value of the respective
investment portfolios of Sovereign or Bankers resulting from a change in
interest rates generally or (ii) any change occurring after the date hereof
in any federal or state law, rule or regulation or in GAAP, which change
affects banking institutions generally, including any changes affecting the
Bank Insurance Fund or the Savings Association Insurance Fund.
Merger means the merger of Bankers with and into Sovereign, with
Sovereign surviving such merger, contemplated by this Agreement.
NJBCA means the New Jersey Business Corporation Act, as amended.
NJDB means the Department of Banking of the State of New Jersey.
NJSOS means the Office of the Secretary of State of the State of New
Jersey.
OTS means the Office of Thrift Supervision.
PDS means the Department of State of the Commonwealth of Pennsylvania.
Person means any individual, corporation, partnership, joint venture,
association, trust or "group" (as that term is defined under the Exchange
Act).
Prospectus/Proxy Statement means the prospectus/proxy statement,
together with any supplements thereto, to be transmitted to holders of
Bankers Common Stock and Sovereign Common Stock in connection with the
transactions contemplated by this Agreement.
Registration Statement means the registration statement on Form S-4,
including any pre-effective or post-effective amendments or supplements
thereto, as filed with the SEC under the Securities Act with respect to the
Sovereign Common Stock and Sovereign Stock Purchase Rights to be issued in
connection with the transactions contemplated by this Agreement.
Regulatory Agreement has the meaning given to that term in Section
2.11 of this Agreement.
Regulatory Authority means any banking agency or department of any
federal or state government, including without limitation the OTS, the
FDIC, the NJDB, the FRB, or the respective staffs thereof.
Rights means warrants, options, rights, convertible securities and
other capital stock equivalents which obligate an entity to issue its
securities.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended, and the
rules and regulations promulgated from time to time thereunder.
Securities Documents means all registration statements, schedules,
statements, forms, reports, proxy material, and other documents required to
be filed under the Securities Laws.
Securities Laws means the Securities Act and the Exchange Act and the
rules and regulations promulgated from time to time thereunder.
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Sovereign Common Stock has the meaning given to that term in Section
3.02(a) of this Agreement.
Sovereign Disclosure Schedule means a disclosure schedule delivered by
Sovereign to Bankers pursuant to Article III of this Agreement.
Sovereign Financials means (i) the audited consolidated financial
statements of Sovereign as of December 31, 1995 and for the three years
ended December 31, 1995, including the notes thereto, (ii) the unaudited
interim consolidated financial statements of Sovereign as of each calendar
quarter thereafter included in Securities Documents filed by Sovereign, and
(iii) the preliminary unaudited consolidated financial statements of
Sovereign as of December 31, 1996 and for the twelve month period then
ended, including the preliminary notes thereto.
Sovereign Market Price means, as of any date, the average of the mean
between the closing high bid and low asked prices of a share of Sovereign
Common Stock, as reported on the National Association of Securities Dealers
Automated Quotation System (Nasdaq) National Market System.
Sovereign Market Value means, as of any date, the average of the mean
between the closing high bid and low asked prices of a share of Sovereign
Common Stock, as reported on the National Association of Securities Dealers
Automated Quotation System (Nasdaq) National Market System, for the fifteen
consecutive trading days commencing sixteen (16) trading days prior to the
date of determination.
Sovereign Option means the option granted to Sovereign to acquire
shares of Bankers Common Stock referenced in the recitals to this
Agreement.
Sovereign Regulatory Reports means the Annual Reports of Sovereign on
Form H(b)-11, any Current Report of Sovereign on Form H(b)-11 filed with
the OTS from December 31, 1994 through the Closing Date and the Thrift
Financial Reports of Sovereign and accompanying schedules for each calendar
quarter, beginning with the quarter ended December 31, 1994, through the
Closing Date.
Sovereign Rights Agreement means the Rights Agreement dated as of
September 19, 1989, as amended September 27, 1995, between Sovereign and
Chemical Bank, as rights agent, relating to Sovereign's Series A Junior
Participating Preferred Stock.
Sovereign Stock Purchase Rights means Rights to purchase a unit of
Sovereign's Series A Junior Participating Preferred Stock in accordance
with the terms of the Sovereign Rights Agreement.
Sovereign Subsidiaries means any corporation, 50% or more of the
capital stock of which is owned, either directly or indirectly, by
Sovereign, except any corporation the stock of which is held in the
ordinary course of the lending activities of a bank.
Subsidiary means any corporation, 50% or more of the capital stock of
which is owned, either directly or indirectly, by another entity, except
any corporation the stock of which is held in the ordinary course of the
lending activities of a bank.
Section 1.02 The Merger.
(a) Closing. The closing will take place at 10:00 a.m. on the Closing Date
at the offices of Stevens & Lee, 111 North Sixth Street, Reading, Pennsylvania,
unless another time and place are agreed to by the parties hereto; provided, in
any case, that all conditions to closing set forth in Article V have been
satisfied or waived at or prior to the Closing Date. On the Closing Date,
Bankers and Sovereign shall cause the Articles of Merger to be duly executed and
to be filed in the PDS and the NJSOS.
(b) The Merger. Subject to the terms and conditions of this Agreement, on
the Effective Date: Bankers shall merge with and into Sovereign; the separate
existence of Bankers shall cease; Sovereign
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<PAGE>
shall be the surviving corporation in the Merger; and all of the property (real,
personal and mixed), rights, powers and duties and obligations of Bankers shall
be taken and deemed to be transferred to and vested in Sovereign, as the
surviving corporation in the Merger, without further act or deed; all debts,
liabilities and duties of each of Bankers and Sovereign shall thereafter be the
responsibility of Sovereign as the surviving corporation; all in accordance with
the applicable laws of the Commonwealth of Pennsylvania and the State of New
Jersey.
(c) Sovereign's Articles of Incorporation and Bylaws. On and after the
Effective Date, the articles of incorporation and the bylaws of Sovereign, as in
effect immediately prior to the Effective Date, shall automatically be and
remain the articles of incorporation and bylaws of Sovereign, as the surviving
corporation in the Merger, until thereafter altered, amended or repealed.
(d) Board of Directors and Officers of Sovereign and Sovereign Bank.
(i) On the Effective Date, the Board of Directors of Sovereign, as the
surviving corporation in the Merger, shall consist of those persons holding
such office immediately prior to the Effective Date.
(ii) On the Effective Date, the officers of Sovereign duly elected and
holding office immediately prior to the Effective Date shall be the
officers of Sovereign, as the surviving corporation in the Merger, existing
on such Effective Date.
(iii) On the effective date of the Bank Merger, the directors of
Sovereign Bank as the surviving institution in the Bank Merger shall
consist of (i) those persons holding such office immediately prior to the
Effective Date and (ii) Joseph P. Gemmell. Sovereign shall cause Mr.
Gemmell to be appointed as a director of Sovereign Bank effective as of the
effective date of the Bank Merger. Mr. Gemmell shall be appointed to hold
office until the 1998 annual reorganization meeting of the Board of
Directors of Sovereign Bank and until his successor is elected and
qualified or otherwise in accordance with Sovereign Bank's charter and
bylaws. Sovereign agrees to use its best efforts to cause Mr. Gemmell to be
renominated as a director of Sovereign Bank for election at the 1998 and
1999 annual reorganization meetings of the Board of Directors of Sovereign
Bank and agrees to vote its shares of Sovereign Bank in favor of such
election at such meetings.
(iv) On the effective date of the Bank Merger, the officers of
Sovereign Bank duly elected and holding office immediately prior to such
effective date shall be the officers of Sovereign Bank, as the surviving
corporation in the Bank Merger.
(e) Conversion of Shares.
(i) Sovereign Common Stock.
(A) Each share of Sovereign Common Stock issued and outstanding
immediately prior to the Effective Date shall, on and after the
Effective Date, continue to be issued and outstanding as an
identical share of Sovereign Common Stock. Shares of Sovereign
Common Stock owned by Bankers (other than shares held in trust,
managed, custodial or nominee accounts and the like or held by
mutual funds for which a subsidiary of Bankers acts as investment
advisor, that in any such case are beneficially owned by third
parties (any such shares, "trust account shares") and shares
acquired in respect of debts previously contracted (any such shares,
"DPC shares")) shall become treasury stock of Sovereign.
(B) Each share of Sovereign Common Stock issued and held in the
treasury of Sovereign as of the Effective Date, if any, shall, on
and after the Effective Date, continue to be issued and held in the
treasury of Sovereign.
(ii) Bankers Common Stock.
(A) Subject to the provisions of subparagraphs (B), (C) and (D)
of this Section 1.02(e)(ii), each share of Bankers Common Stock
issued and outstanding immediately
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<PAGE>
prior to the Effective Date (other than shares of Bankers Common
Stock, if any, then owned by Sovereign or Bankers or any Bankers
Subsidiary) shall, on the Effective Date, by reason of the Merger
and without any action on the part of the holder thereof, be
converted into and become a right to receive:
(i) if the Sovereign Market Value determined as of the
Effective Date is greater than or equal to $9.17 and less than
or equal to $13.75, then that number of shares of fully paid
and nonassessable shares of Sovereign Common Stock, and the
corresponding percentage of Sovereign Stock Purchase Rights
pursuant to the Sovereign Rights Agreement, equal to $25.50
divided by the Sovereign Market Value determined as of the
Effective Date;
(ii) if the Sovereign Market Value determined as of the
Effective Date is less than $9.17, then 2.782 shares of fully
paid and nonassessable shares of Sovereign Common Stock, and
the corresponding percentage of Sovereign Stock Purchase Rights
pursuant to the Sovereign Rights Agreement; or
(iii) if the Sovereign Market Value determined as of the
Effective Date is greater than $13.75, then 1.854 shares of
fully paid and nonassessable shares of Sovereign Common Stock,
and the corresponding percentage of Sovereign Stock Purchase
Rights pursuant to the Sovereign Rights Agreement (as
determined pursuant to any of Sections 1.02(e)(ii)(A)(i),
1.02(e)(ii)(A)(ii) or 1.02(e)(ii)(A)(iii), the "Applicable
Exchange Ratio").
(B) Each share of Bankers Common Stock (other than trust
account shares or DPC shares) owned by Sovereign or a Sovereign
Subsidiary on the Effective Date, if any, shall be cancelled.
(C) Each share of Bankers Common Stock issued and held in the
treasury of Bankers or owned by Bankers or any Bankers Subsidiary
(other than trust account shares or DPC shares) as of the Effective
Date, if any, shall be cancelled, and no cash, stock or other
property shall be delivered in exchange therefor.
(D) No fraction of a whole share of Sovereign Common Stock and
no scrip or certificates therefor shall be issued in connection with
the Merger. Any former holder of Bankers Common Stock who would
otherwise be entitled to receive a fraction of a share of Sovereign
Common Stock shall receive, in lieu thereof, cash in an amount equal
to such fraction of a share multiplied by the Sovereign Market Price
determined as of the Effective Date.
(f) Stock Options. Each option to acquire Bankers Common Stock shall be
converted into and become an option to acquire that number of shares of
Sovereign Common Stock equal to the number of shares of Bankers Common Stock
covered by the option multiplied by the Applicable Exchange Ratio and the
exercise price for a whole share of Sovereign Common Stock shall be the present
stated exercise price of such option divided by the Applicable Exchange Ratio,
such shares to be issuable upon exercise of such options in accordance with the
terms of the respective plans and grant agreements under which they were issued.
(g) Surrender and Exchange of Bankers Stock Certificates.
(i) Exchange of Certificates. Each holder of shares of Bankers Common
Stock who surrenders to Sovereign (or its agent) the certificate or
certificates representing such shares will be entitled to receive, as soon
as practicable after the Effective Date, in exchange therefor a certificate
or certificates for the number of whole shares of Sovereign Common Stock
into which such holder's shares of Bankers Common Stock have been converted
pursuant to the Merger, together with a check for cash in lieu of any
fractional share in accordance with Section 1.02(e)(ii)(D) hereof.
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(ii) Rights Evidenced by Certificates. Each certificate for shares of
Sovereign Common Stock issued in exchange for certificates for Bankers
Common Stock pursuant to Section 1.02(g)(i) hereof will be dated the
Effective Date and be entitled to dividends and all other rights and
privileges pertaining to such shares of stock from and after the Effective
Date. Until surrendered, each certificate theretofore evidencing shares of
Bankers Common Stock will, from and after the Effective Date, evidence
solely the right to receive certificates for shares of Sovereign Common
Stock pursuant to Section 1.02(g)(i) hereof and a check for cash in lieu of
any fractional share in accordance with Section 1.02(e)(ii)(D) hereof. If
certificates for shares of Bankers Common Stock are exchanged for Sovereign
Common Stock at a date following one or more record dates for the payment
of dividends or of any other distribution on the shares of Sovereign Common
Stock, Sovereign will pay cash in an amount equal to dividends theretofore
payable on such Sovereign Common Stock and pay or deliver any other
distribution to which holders of shares of Sovereign Common Stock have
theretofore become entitled. No interest will accrue or be payable in
respect of dividends or cash otherwise payable under this Section 1.02(g)
upon surrender of certificates for shares of Bankers Common Stock.
Notwithstanding the foregoing, no party hereto will be liable to any holder
of Bankers Common Stock for any amount paid in good faith to a public
official or agency pursuant to any applicable abandoned property, escheat
or similar law. Until such time as certificates for shares of Bankers
Common Stock are surrendered by a Bankers shareholder to Sovereign for
exchange, Sovereign shall have the right to withhold dividends or any other
distributions on the shares of Sovereign Common Stock issuable to such
shareholder.
(iii) Exchange Procedures. Each certificate for shares of Bankers
Common Stock delivered for exchange under this Section 1.02(g) must be
endorsed in blank by the registered holder thereof or be accompanied by a
power of attorney to transfer such shares endorsed in blank by such holder.
If more than one certificate is surrendered at one time and in one
transmittal package for the same shareholder account, the number of whole
shares of Sovereign Common Stock for which certificates will be issued
pursuant to this Section 1.02(g) will be computed on the basis of the
aggregate number of shares represented by the certificates so surrendered.
If shares of Sovereign Common Stock or payments of cash are to be issued or
made to a person other than the one in whose name the surrendered
certificate is registered, the certificate so surrendered must be properly
endorsed in blank, with signature(s) guaranteed, or otherwise in proper
form for transfer, and the person to whom certificates for shares of
Sovereign Common Stock is to be issued or to whom cash is to be paid shall
pay any transfer or other taxes required by reason of such issuance or
payment to a person other than the registered holder of the certificate for
shares of Bankers Common Stock which are surrendered. As promptly as
practicable after the Effective Date, Sovereign shall send or cause to be
sent to each shareholder of record of Bankers Common Stock transmittal
materials for use in exchanging certificates representing Bankers Common
Stock for certificates representing Sovereign Common Stock into which the
former have been converted in the Merger. Certificates representing shares
of Sovereign Common Stock and checks for cash in lieu of fractional shares
shall be mailed to former shareholders of Bankers as soon as reasonably
possible but in no event later than fifteen (15) business days following
the receipt of certificates representing former shares of Bankers Common
Stock (except in the case of share certificates containing a restrictive
legend or with respect to which stop transfer instructions pertain) duly
endorsed or accompanied by the materials referenced herein and delivered by
certified mail, return receipt requested (but in no event earlier than the
second business day following the Effective Date).
(iv) Closing of Stock Transfer Books; Cancellation of Bankers
Certificates. Upon the Effective Date, the stock transfer books for
Bankers Common Stock will be closed and no further transfers of shares of
Bankers Common Stock will thereafter be made or recognized. All
certificates for shares of Bankers Common Stock surrendered pursuant to
this Section 1.02(g) will be cancelled by Sovereign.
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(h) Intentionally omitted.
(i) Anti-Dilution Provisions. If, on the Effective Date, (i) the
Applicable Exchange Ratio is determined pursuant to either Section
1.02(e)(ii)(A)(ii) or 1.02(e)(ii)(A)(iii), (ii) Sovereign has, at any time after
the date hereof and before the Effective Date, (A) issued a dividend in shares
of Sovereign Common Stock, (B) combined the outstanding shares of Sovereign
Common Stock into a smaller number of shares, (C) subdivided the outstanding
shares of Sovereign Common Stock, or (D) reclassified the shares of Sovereign
Common Stock, and (iii) the Applicable Exchange Ratio would have been determined
under the same section if such dividend, combination, subdivision or
reclassification had not occurred (determined by appropriate mathematical
adjustment of the actual Applicable Exchange Ratio), then the number of shares
of Sovereign Common Stock to be delivered pursuant to Sections
1.02(e)(ii)(A)(ii) or 1.02(e)(ii)(A)(iii) to Bankers shareholders who are
entitled to receive shares of Sovereign Common Stock in exchange for shares of
Bankers Common Stock shall be adjusted so that each Bankers shareholder shall be
entitled to receive such number of shares of Sovereign Common Stock as such
shareholder would have been entitled to receive if the Effective Date had
occurred prior to the happening of such event. (By way of illustration, if
Sovereign shall declare a stock dividend of 7% payable with respect to a record
date on or prior to the Effective Date and the conditions set forth above are
satisfied, the Applicable Exchange Ratio determined pursuant to Sections
1.02(e)(ii)(A)(ii) or 1.02(e)(ii)(A)(iii) shall be adjusted upward by 7%). If,
on the Effective Date, (i) the exchange ratio preliminarily would be determined
pursuant to Section 1.02(e)(ii)(A)(i), 1.02(e)(ii)(A)(ii), or
1.02(e)(ii)(A)(iii) (the "Tentative Exchange Ratio"), (ii) Sovereign has, at any
time after the date hereof and before the Effective Date, (A) issued a dividend
in shares of Sovereign Common Stock, (B) combined the outstanding shares of
Sovereign Common Stock into a smaller number of shares, (C) subdivided the
outstanding shares of Sovereign Common Stock, or (D) reclassified the shares of
Sovereign Common Stock, and (iii) the Tentative Exchange Ratio would have been
determined under a different section if such dividend, combination, subdivision,
or reclassification had not occurred (determined by appropriate mathematical
adjustment of the Sovereign Market Value), then the actual Applicable Exchange
Ratio shall be determined by giving effect to such mathematical adjustment and
by changing, if relevant, the otherwise determined exchange ratio amount set
forth in Section 1.02(e)(ii)(A)(ii) or 1.02(e)(ii)(A)(iii). (By way of
illustration, if Sovereign shall declare a two-for-one stock split payable with
respect to a record date on or prior to the Effective Date and the Sovereign
Market Value determined as of the Effective Date is $6.00, then the Applicable
Exchange Ratio shall be determined under Section 1.02(e)(ii)(A)(i) as though
such Sovereign Market Value were $12.00. In such event, each Bankers shareholder
would receive 4.25 shares of Sovereign Common Stock in exchange for each share
of Bankers Common Stock, so that the aggregate market value of the Sovereign
Common Stock received would be $25.50.)
Section 1.03 The Bank Merger. Sovereign and Bankers shall use their best
efforts to cause Bankers Savings to merge with and into Sovereign Bank, with
Sovereign Bank surviving such merger, as soon as practicable after the Effective
Date. Concurrently with, or as soon as practicable after, the execution and
delivery of this Agreement, Sovereign shall cause Sovereign Bank, and Bankers
shall cause Bankers Savings, to execute and deliver the Bank Plan of Merger
attached hereto as Exhibit 3.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF BANKERS
Bankers hereby represents and warrants to Sovereign that, except as
specifically set forth in the Bankers Disclosure Schedule delivered to Sovereign
by Bankers on the date hereof:
Section 2.01 Organization.
(a) Bankers is a corporation duly organized, validly existing and in good
standing under the laws of the State of New Jersey. Bankers is a bank holding
company duly registered under the BHC. Bankers has the corporate power and
authority to carry on its business and operations as now being conducted and to
own and operate the properties and assets now owned and being operated by it.
Bankers is not qualified or licensed to do business as a foreign corporation in
any other jurisdiction and
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is not required to be so qualified or licensed as the result of the ownership or
leasing of property or the conduct of its business except where the failure to
be so qualified or licensed would not have a Material Adverse Effect.
(b) Bankers Savings is a New Jersey state-chartered savings bank duly
organized and validly existing under the laws of the State of New Jersey.
Bankers Savings has the corporate power and authority to carry on its business
and operations as now being conducted and to own and operate the properties and
assets now owned and being operated by it. Neither Bankers Savings nor any other
Bankers subsidiary is qualified or licensed to do business as a foreign
corporation in any other jurisdiction and neither is required to be so qualified
or licensed as the result of the ownership or leasing of property or the conduct
of its business except where the failure to be so qualified or licensed would
not have a Material Adverse Effect.
(c) There are no Bankers Subsidiaries other than Bankers Savings and those
identified in the Bankers Disclosure Schedule. There are no Bankers Savings
Subsidiaries other than those identified in the Bankers Disclosure Schedule.
(d) The deposits of Bankers Savings are insured by the FDIC to the extent
provided in the Federal Deposit Insurance Act.
(e) The respective minute books of Bankers and Bankers Savings and each
other Bankers Subsidiary accurately record, in all material respects, all
material corporate actions of their respective shareholders and boards of
directors (including committees) through the date of this Agreement.
(f) Prior to the date of this Agreement, Bankers has delivered to Sovereign
true and correct copies of the articles of incorporation and bylaws of Bankers
and the charter and bylaws of Bankers Savings as in effect on the date hereof.
Section 2.02 Capitalization.
(a) The authorized capital stock of Bankers consists of (a) 20,000,000
shares of common stock, $0.01 par value ("Bankers Common Stock"), of which
12,378,184 shares are outstanding, validly issued, fully paid and nonassessable
and free of preemptive rights, and (b) 10,000,000 shares of preferred stock,
$0.01 par value, none of which are issued or outstanding. Neither Bankers nor
Bankers Savings nor any other Bankers Subsidiary has or is bound by any
subscription, option, warrant, call, commitment, agreement, plan or other Right
of any character relating to the purchase, sale or issuance or voting of, or
right to receive dividends or other distributions on any shares of Bankers
Common Stock, Bankers preferred stock or any other security of Bankers or any
securities representing the right to vote, purchase or otherwise receive any
shares of Bankers Common Stock, Bankers preferred stock or any other security of
Bankers, other than shares issuable under the Sovereign Option and as set forth
in reasonable detail in the Bankers Disclosure Schedule.
(b) The authorized capital stock of Bankers Savings consists of (i)
10,000,000 shares of common stock, par value $5.00 per share ("Bankers Savings
Common Stock"), of which 500,000 shares are outstanding, validly issued, fully
paid, nonassessable, free of preemptive rights and owned by Bankers. Neither
Bankers nor any Bankers Subsidiary has or is bound by any subscription, option,
warrant, call, commitment, agreement or other Right of any character relating to
the purchase, sale or issuance or voting of, or right to receive dividends or
other distributions on any shares of the capital stock of any Bankers Subsidiary
or any other security of any Bankers Subsidiary or any securities representing
the right to vote, purchase or otherwise receive any shares of the capital stock
or any other security of any Bankers Subsidiary. Either Bankers or Bankers
Savings owns all of the outstanding shares of capital stock of each Bankers
Subsidiary free and clear of all liens, security interests, pledges, charges,
encumbrances, agreements and restrictions of any kind or nature.
(c) Except as set forth in the Bankers Disclosure Schedule, neither (i)
Bankers, (ii) Bankers Savings nor (iii) any other Bankers Subsidiary, owns any
equity interest, directly or indirectly, treasury stock, in any other company or
controls any other company, except for equity interests held in the investment
portfolios of Bankers Subsidiaries, equity interests held by Bankers
Subsidiaries in a
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fiduciary capacity, and equity interests held in connection with the commercial
loan activities of Bankers Subsidiaries. There are no subscriptions, options,
warrants, calls, commitments, agreements or other Rights outstanding and held by
Bankers or Bankers Savings with respect to any other company's capital stock or
the equity of any other person.
(d) To the best of Bankers' knowledge, no person or "group" (as that term
is used in Section 13(d)(3) of the Exchange Act), is the beneficial owner (as
defined in Section 13(d) of the Exchange Act) of 5% or more of the outstanding
shares of Bankers Common Stock, except as disclosed in the Bankers Disclosure
Schedule.
Section 2.03 Authority; No Violation.
(a) Bankers has full corporate power and authority to execute and deliver
this Agreement and to complete the transactions contemplated hereby. Bankers
Savings has full corporate power and authority to execute and deliver the Bank
Plan of Merger and to consummate the Bank Merger. The execution and delivery of
this Agreement by Bankers and the completion by Bankers of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of Bankers and, except for approval by the shareholders of Bankers as
required under the NJBCA, Bankers' articles of incorporation and bylaws and
Nasdaq requirements applicable to it, no other corporate proceedings on the part
of Bankers are necessary to complete the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Bankers and,
subject to approval of the shareholders of Bankers as required under the NJBCA,
Bankers' articles of incorporation and bylaws and Nasdaq requirements applicable
to it and receipt of the required approvals from Regulatory Authorities
described in Section 3.04 hereof, constitutes the valid and binding obligation
of Bankers, enforceable against Bankers in accordance with its terms, subject to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of equity.
The Bank Plan of Merger, upon its execution and delivery by Bankers Savings
concurrently with the execution and delivery of this Agreement, will constitute
the valid and binding obligation of Bankers Savings, enforceable against Bankers
Savings in accordance with its terms, subject to applicable conservatorship or
receivership provisions of the FDIA, or insolvency and similar laws affecting
creditors' rights generally and subject, as to enforceability, to general
principles of equity.
(b)(A) The execution and delivery of this Agreement by Bankers, (B) the
execution and delivery of the Bank Plan of Merger by Bankers Savings, (C)
subject to receipt of approvals from the Regulatory Authorities referred to in
Section 3.04 hereof and Bankers' and Sovereign's compliance with any conditions
contained therein, the completion of the transactions contemplated hereby, and
(D) compliance by Bankers or Bankers Savings with any of the terms or provisions
hereof or of the Bank Plan of Merger, will not (i) conflict with or result in a
breach of any provision of the articles of incorporation or bylaws of Bankers or
any Bankers Subsidiary or the charter and bylaws of Bankers Savings; (ii)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to Bankers or any Bankers Subsidiary or any of
their respective properties or assets; or (iii) except as set forth in the
Bankers Disclosure Schedule, violate, conflict with, result in a breach of any
provisions of, constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in a right of termination or
acceleration or the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of Bankers or any Bankers
Subsidiary under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement, commitment or
other instrument or obligation to which Bankers or any Bankers Subsidiary is a
party, or by which they or any of their respective properties or assets may be
bound or affected, except for such violations, conflicts, breaches or defaults
under clause (ii) or (iii) hereof which, either individually or in the
aggregate, will not have a Material Adverse Effect on Bankers.
Section 2.04 Consents. Except for the consents, approvals, filings and
registrations from or with the Regulatory Authorities referred to in Section
3.04 hereof and compliance with any conditions
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contained therein, and the approval of this Agreement by the shareholders of
Bankers under the NJBCA, and the approval of the Bank Plan of Merger by Bankers
as sole shareholder of Bankers Savings under the FDIA, and by the Bankers
Savings Board of Directors, no consents or approvals of, or filings or
registrations with, any public body or authority are necessary, and no consents
or approvals of any third parties are necessary, or will be, in connection with
(a) the execution and delivery of this Agreement by Bankers or the Bank Plan of
Merger by Bankers Savings, and (b) the completion by Bankers of the transactions
contemplated hereby or by Bankers Savings of the Bank Merger. Bankers has no
reason to believe that (i) any required consents or approvals will not be
received or will be received with conditions, limitations or restrictions
unacceptable to it or which would adversely impact Bankers' ability to complete
the transactions contemplated by this Agreement or that (ii) any public body or
authority, the consent or approval of which is not required or any filing with
which is not required, will object to the completion of the transactions
contemplated by this Agreement. Shareholders of Bankers are not entitled to
exercise dissenters' rights in connection with the transactions contemplated by
this Agreement under federal or New Jersey law.
Section 2.05 Financial Statements.
(a) Bankers has previously delivered, or will deliver, to Sovereign the
Bankers Regulatory Reports. The Bankers Regulatory Reports have been, or will
be, prepared in all material respects in accordance with applicable regulatory
accounting principles and practices throughout the periods covered by such
statements, and fairly present, or will fairly present in all material respects,
the financial position, results of operations and changes in shareholders'
equity of Bankers as of and for the periods ended on the dates thereof, in
accordance with applicable regulatory accounting principles applied on a
consistent basis.
(b) Bankers has previously delivered to Sovereign the Bankers Financials.
The Bankers Financials have been, or will be, prepared in accordance with
generally accepted accounting principles and practices applied on a consistent
basis throughout the periods covered by such statements, and fairly present, or
will fairly present, the consolidated financial position, results of operations
and cash flows of Bankers as of and for the periods ending on the dates thereof,
in accordance with generally accepted accounting principles applied on a
consistent basis.
(c) At the date of each balance sheet included in the Bankers Financials or
the Bankers Regulatory Reports, neither Bankers nor Bankers Savings (as the case
may be) had, or will have any liabilities, obligations or loss contingencies of
any nature (whether absolute, accrued, contingent or otherwise) of a type
required to be reflected in such Bankers Financials or Bankers Regulatory
Reports or in the footnotes thereto which are not fully reflected or reserved
against therein or fully disclosed in a footnote thereto, except for
liabilities, obligations and loss contingencies which are not material in the
aggregate and which are incurred in the ordinary course of business, consistent
with past practice and except for liabilities, obligations and loss
contingencies which are within the subject matter of a specific representation
and warranty herein and subject, in the case of any unaudited statements, to
normal, recurring audit adjustments and the absence of footnotes.
Section 2.06 Taxes.
(a) Bankers and the Bankers Subsidiaries are members of the same affiliated
group within the meaning of IRC Section 1504(a). Bankers has duly filed, and
will file, all federal, state and local tax returns required to be filed by or
with respect to Bankers and all Bankers Subsidiaries on or prior to the Closing
Date (all such returns being accurate and correct in all material respects) and
has duly paid or will pay, or made or will make, provisions for the payment of
all federal, state and local taxes which have been incurred by or are due or
claimed to be due from Bankers and any Bankers Subsidiary by any taxing
authority or pursuant to any tax sharing agreement or arrangement (written or
oral) on or prior to the Closing Date other than taxes which (i) are not
delinquent or (ii) are being contested in good faith.
(b) No consent pursuant to IRC Section 341(f) has been filed (or will be
filed prior to the Closing Date) by or with respect to Bankers or any Bankers
Subsidiary.
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Section 2.07 No Material Adverse Effect. Bankers has not suffered any
Material Adverse Effect since December 31, 1996.
Section 2.08 Contracts.
(a) Except as described in Bankers' proxy statement for its April 26, 1996
annual meeting of shareholders and Annual Reports on Form 10-K for the years
ended December 31, 1993, 1994 and 1995, previously delivered to Sovereign, in
the footnotes to the audited consolidated financial statements of Bankers as of
December 31, 1995, and for the three years ended December 31, 1995, or in the
Bankers Disclosure Schedule, neither Bankers nor any Bankers Subsidiary is a
party to or subject to: (i) any employment, consulting or severance contract or
arrangement with any past or present officer, director or employee of Bankers or
any Bankers Subsidiary, except for "at will" arrangements; (ii) any plan,
arrangement or contract providing for bonuses, pensions, options, deferred
compensation, retirement payments, profit sharing or similar arrangements for or
with any past or present officers, directors or employees of Bankers or any
Bankers Subsidiary; (iii) any collective bargaining agreement with any labor
union relating to employees of Bankers or any Bankers Subsidiary; (iv) any
agreement which by its terms limits the payment of dividends by any Bankers
Subsidiary; (v) any instrument evidencing or related to indebtedness for
borrowed money whether directly or indirectly, by way of purchase money
obligation, conditional sale, lease purchase, guaranty or otherwise, in respect
of which Bankers or any Bankers Subsidiary is an obligor to any person, which
instrument evidences or relates to indebtedness other than deposits, repurchase
agreements, bankers acceptances and "treasury tax and loan" accounts established
in the ordinary course of business and transactions in "federal funds" or which
contains financial covenants or other restrictions (other than those relating to
the payment of principal and interest when due) which would be applicable on or
after the Closing Date to Sovereign or any Sovereign Subsidiary; or (vi) any
contract (other than this Agreement) limiting the freedom of any Bankers
Subsidiary to engage in any type of banking or bank-related business permissible
under law.
(b) True and correct copies of agreements, plans, arrangements and
instruments referred to in Section 2.08(a) or described in the Bankers proxy
statement for its April 26, 1996 annual meeting of shareholders or in a footnote
to such audited consolidated financial statements, have been provided to
Sovereign on or before the date hereof, are listed on the Bankers Disclosure
Schedule and are in full force and effect on the date hereof and neither Bankers
nor any Bankers Subsidiary (nor, to the knowledge of Bankers, any other party to
any such contract, plan, arrangement or instrument) has breached any provision
of, or is in default in any respect under any term of, any such contract, plan,
arrangement or instrument which breach has resulted in or will result in a
Material Adverse Effect with respect to Bankers. Except as set forth in the
Bankers Disclosure Schedule, no party to any material contract, plan,
arrangement or instrument will have the right to terminate any or all of the
provisions of any such contract, plan, arrangement or instrument as a result of
the transactions contemplated by this Agreement. Except as set forth in the
Bankers Disclosure Schedule, none of the employees (including officers) of
Bankers or any Bankers Subsidiary, possess the right to terminate their
employment as a result of the execution of this Agreement. Except as set forth
in the Bankers Disclosure Schedule, no plan, employment agreement, termination
agreement, or similar agreement or arrangement to which Bankers or any Bankers
Subsidiary is a party or under which Bankers or any Bankers Subsidiary may be
liable contains provisions which permit an employee or independent contractor to
terminate it without cause and continue to accrue future benefits thereunder.
Except as set forth in the Bankers Disclosure Schedule, no such agreement, plan
or arrangement (x) provides for acceleration in the vesting of benefits or
payments due thereunder upon the occurrence of a change in ownership or control
of Bankers or any Bankers Subsidiary absent the occurrence of a subsequent
event; (y) provides for benefits which may cause the disallowance of a federal
income tax deduction under IRC Section 280G; or (z) requires Bankers or any
Bankers Subsidiary to provide a benefit in the form of Bankers Common Stock or
determined by reference to the value of Bankers Common Stock.
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Section 2.09 Ownership of Property; Insurance Coverage.
(a) Except as disclosed in the Bankers Disclosure Schedule, Bankers and the
Bankers Subsidiaries have, or will have as to property acquired after the date
hereof, good and, as to real property, marketable title to all assets and
properties owned by Bankers or any Bankers Subsidiary in the conduct of their
businesses, whether such assets and properties are real or personal, tangible or
intangible, including assets and property reflected in the balance sheets
contained in the Bankers Regulatory Reports and in the Bankers Financials or
acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value, in the ordinary course of
business, since the date of such balance sheets), subject to no encumbrances,
liens, mortgages, security interests or pledges, except (i) those items which
secure liabilities for borrowed money from a Federal Home Loan Bank, (ii)
statutory liens for amounts not yet delinquent or which are being contested in
good faith and (iii) items permitted under Article IV. Bankers and the Bankers
Subsidiaries, as lessee, have the right under valid and subsisting leases of
real and personal properties used by Bankers and its Subsidiaries in the conduct
of their businesses to occupy or use all such properties as presently occupied
and used by each of them. Except as disclosed in the Bankers Disclosure
Schedule, such existing leases and commitments to lease constitute or will
constitute operating leases for both tax and financial accounting purposes and
the lease expense and minimum rental commitments with respect to such leases and
lease commitments are as disclosed in the Notes to the Bankers Financials.
(b) With respect to all agreements pursuant to which Bankers or any Bankers
Subsidiary has purchased securities subject to an agreement to resell, if any,
Bankers or such Bankers Subsidiary, as the case may be, has a valid, perfected
first lien or security interest in the securities or other collateral securing
the repurchase agreement, and the value of such collateral equals or exceeds the
amount of the debt secured thereby.
(c) Bankers and the Bankers Subsidiaries currently maintain insurance
considered by Bankers to be reasonable for their respective operations and
similar in scope and coverage to that maintained by other businesses similarly
engaged. Neither Bankers nor any Bankers Subsidiary has received notice from any
insurance carrier that (i) such insurance will be cancelled or that coverage
thereunder will be reduced or eliminated, or (ii) premium costs with respect to
such policies of insurance will be substantially increased. There are presently
no material claims pending under such policies of insurance and no notices have
been given by Bankers or Bankers Savings under such policies. All such insurance
is valid and enforceable and in full force and effect, and within the last three
years Bankers has received each type of insurance coverage for which it has
applied and during such periods has not been denied indemnification for any
material claims submitted under any of its insurance policies.
Section 2.10 Legal Proceedings. Except as disclosed in the Bankers
Disclosure Schedule, neither Bankers nor any Bankers Subsidiary is a party to
any, and there are no pending or, to the best of Bankers' knowledge, threatened
legal, administrative, arbitration or other proceedings, claims (whether
asserted or unasserted), actions or governmental investigations or inquiries of
any nature (i) against Bankers or any Bankers Subsidiary, (ii) to which Bankers
or any Bankers Subsidiary's assets are or may be subject, (iii) challenging the
validity or propriety of any of the transactions contemplated by this Agreement,
or (iv) which could adversely affect the ability of Bankers to perform under
this Agreement, except for any proceedings, claims, actions, investigations or
inquiries referred to in clauses (i) or (ii) which, if adversely determined,
individually or in the aggregate, could not be reasonably expected to have a
Material Adverse Effect.
Section 2.11 Compliance With Applicable Law.
(a) Bankers and Bankers Subsidiaries hold all licenses, franchises, permits
and authorizations necessary for the lawful conduct of their businesses under,
and have complied in all material respects with, applicable laws, statutes,
orders, rules or regulations of any federal, state or local governmental
authority relating to them, other than where such failure to hold or such
noncompliance will neither result in a limitation in any material respect on the
conduct of their businesses nor otherwise have a Material Adverse Effect.
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(b) Except as disclosed in the Bankers Disclosure Schedule, neither Bankers
nor any Bankers Subsidiary has received any notification or communication from
any Regulatory Authority (i) asserting that Bankers or any Bankers Subsidiary is
not in compliance with any of the statutes, regulations or ordinances which such
Regulatory Authority enforces; (ii) threatening to revoke any license,
franchise, permit or governmental authorization which is material to Bankers or
any Bankers Subsidiary; (iii) requiring or threatening to require Bankers or any
Bankers Subsidiary, or indicating that Bankers or any Bankers Subsidiary may be
required, to enter into a cease and desist order, agreement or memorandum of
understanding or any other agreement restricting or limiting, or purporting to
restrict or limit, in any manner the operations of Bankers or any Bankers
Subsidiary, including without limitation any restriction on the payment of
dividends; or (iv) directing, restricting or limiting, or purporting to direct,
restrict or limit, in any manner the operations of Bankers or any Bankers
Subsidiary, including without limitation any restriction on the payment of
dividends (any such notice, communication, memorandum, agreement or order
described in this sentence is hereinafter referred to as a "Regulatory
Agreement"). Neither Bankers nor any Bankers Subsidiary has consented to or
entered into any Regulatory Agreement, except as heretofore disclosed to
Sovereign.
Section 2.12 ERISA. Bankers has previously delivered to Sovereign true and
complete copies of all employee pension benefit plans within the meaning of
ERISA Section 3(2), profit sharing plans, stock purchase plans, deferred
compensation and supplemental income plans, supplemental executive retirement
plans, employment agreements, annual or long term incentive plans, settlement
plans, policies and agreements, group insurance plans, and all other employee
welfare benefit plans within the meaning of ERISA Section 3(1) (including
vacation pay, sick leave, short-term disability, long-term disability, and
medical plans) and all other employee benefit plans, policies, agreements and
arrangements, all of which are set forth in the Bankers Disclosure Schedule,
maintained or contributed to for the benefit of the employees or former
employees (including retired employees) and any beneficiaries thereof or
directors or former directors of Bankers or any Bankers Subsidiary, together
with (i) the most recent actuarial (if any) and financial reports relating to
those plans which constitute "qualified plans" under IRC Section 401(a), (ii)
the most recent annual reports relating to such plans filed by them,
respectively, with any government agency, and (iii) all rulings and
determination letters which pertain to any such plans. The pension plan has not
incurred, directly or indirectly, within the past six (6) years any liability
under Title IV of ERISA (including to the Pension Benefit Guaranty Corporation)
or to the IRS except liabilities to the Pension Benefit Guaranty Corporation
pursuant to ERISA Section 4007, all of which have been fully paid, nor has any
reportable event under ERISA Section 4043(b) occurred with respect to any such
pension plan. Neither Bankers, any Bankers Subsidiary nor any other pension plan
maintained by Bankers or any Bankers Subsidiary, has incurred, directly or
indirectly, within the past six (6) years any liability under Title IV of ERISA
(including to the Pension Benefit Guaranty Corporation) or to the IRS with
respect to any pension plan qualified under IRC Section 401(a) which liability
has resulted in or will result in a Material Adverse Effect with respect to
Bankers, except liabilities to the Pension Benefit Guaranty Corporation pursuant
to ERISA Section 4007, all of which have been fully paid, nor has any reportable
event under ERISA Section 4043 occurred with respect to any such pension plan.
With respect to each of such plans that is subject to Title IV of ERISA, the
present value of the accrued benefits under such plan, based upon the actuarial
assumptions used for funding purposes in the plan's most recent actuarial report
did not, as of its latest valuation date, exceed the then current value of the
assets of such plan allocable to such accrued benefits. Neither Bankers nor any
Bankers Subsidiary has incurred or is subject to any liability under ERISA
Section 4201 for a complete or partial withdrawal from a multi-employer plan.
All "employee benefit plans," as defined in ERISA Section 3(3), comply and
within the past six (6) years have complied in all material respects with (i)
relevant provisions of ERISA and (ii) in the case of plans intended to qualify
for favorable income tax treatment, provisions of the IRC relevant to such
treatment. No prohibited transaction (which shall mean any transaction
prohibited by ERISA Section 406 and not exempt under ERISA Section 408 or any
transaction prohibited under IRC Section 4975) has occurred within the past six
(6) years with respect to any employee benefit plan maintained by Bankers or any
Bankers Subsidiary which would result in the imposition, directly or indirectly,
of an excise tax under IRC 4975 or other penalty under ERISA or the IRC, which,
individually or in the
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aggregate, has resulted in or will result in a Material Adverse Effect with
respect to Bankers. Bankers and the Bankers Subsidiaries provide continuation
coverage under group health plans for separating employees and "qualified
beneficiaries" in accordance with the provisions of IRC Section 4980B(f). Such
group health plans are in compliance with Section 1862(b)(1) of the Social
Security Act. With respect to the outstanding loan to Bankers' employee stock
ownership plan, only one payment remains to be made in an amount not to exceed
$300,000 and such payment is due and payable in 1997.
Section 2.13 Brokers, Finders and Financial Advisors. Except for Bankers'
engagement of Alex. Brown & Sons Incorporated ("Alex. Brown") in connection with
transactions contemplated by this Agreement, neither Bankers nor any Bankers
Subsidiary, nor any of their respective officers, directors, employees or
agents, has employed any broker, finder or financial advisor in connection with
the transactions contemplated by this Agreement or in connection with any
transaction other than the Merger, or, except for its commitments disclosed in
Bankers Disclosure Schedule, incurred any liability or commitment for any fees
or commissions to any such person in connection with the transactions
contemplated by this Agreement or in connection with any transaction other than
the Merger, which has not been reflected in the Bankers Financials. The Bankers
Disclosure Schedule shall contain as an exhibit the engagement letter between
Bankers and Alex. Brown.
Section 2.14 Environmental Matters. To the knowledge of Bankers, neither
Bankers nor any Bankers Subsidiary, nor any properties owned or operated by
Bankers or any Bankers Subsidiary has been or is in violation of or liable under
any Environmental Law which violation or liability, individually or in the
aggregate, resulted in, or will result, in a Material Adverse Effect with
respect to Bankers. There are no actions, suits or proceedings, or demands,
claims, notices or investigations (including without limitation notices, demand
letters or requests for information from any environmental agency) instituted or
pending, or to the knowledge of Bankers, threatened, relating to the liability
of any property owned or operated by Bankers or any Bankers Subsidiary under any
Environmental Law.
Section 2.15 Loan Portfolio. The allowance for loan losses reflected, and
to be reflected, in the Bankers Regulatory Reports, and shown, and to be shown,
on the balance sheets contained in the Bankers Financials have been, and will
be, established in accordance with the requirements of generally accepted
accounting principles and all applicable regulatory criteria.
Section 2.16 Information to be Supplied. The information to be supplied by
Bankers and Bankers Savings for inclusion in the Registration Statement
(including the Prospectus/Proxy Statement) will not, at the time the
Registration Statement is declared effective pursuant to the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein not misleading. The
information supplied, or to be supplied, by Bankers for inclusion in the
Applications will, at the time such documents are filed with any Regulatory
Authority, be accurate in all material aspects.
Section 2.17 Securities Documents. Bankers has delivered to Sovereign
copies of its (i) annual reports on SEC Form 10-K for the years ended December
31, 1995, 1994 and 1993, (ii) quarterly reports on SEC Form 10-Q for the
quarters ended March 31, 1996, June 31, 1996 and September 30, 1996 and (iii)
proxy materials used or for use in connection with its meetings of shareholders
held in 1996, 1995 and 1994. Such reports and such proxy materials complied, at
the time filed with the SEC, in all material respects, with the Exchange Act and
all applicable rules and regulations of the SEC.
Section 2.18 Related Party Transactions. Except as disclosed (i) in the
Bankers Disclosure Schedule, (ii) in the proxy statement for use in connection
with Bankers' 1996 annual meeting of shareholders or (iii) in the footnotes to
the Bankers Financials, Bankers is not a party to any transaction (including any
loan or other credit accommodation) with any Affiliate of Bankers (except a
Bankers Subsidiary). Except as disclosed in the Bankers Disclosure Schedule or
in Bankers' proxy statement for its April 26, 1996 annual meeting of
shareholders, all such transactions (a) were made in the ordinary course of
business, (b) were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other Persons, and (c) did not involve more than the normal
risk of collectability or present other unfavorable features. Except as
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set forth on the Bankers Disclosure Schedule, no loan or credit accommodation to
any Affiliate of Bankers is presently in default or, during the three year
period prior to the date of this Agreement, has been in default or has been
restructured, modified or extended. Neither Bankers nor Bankers Savings has been
notified that principal and interest with respect to any such loan or other
credit accommodation will not be paid when due or that the loan grade
classification accorded such loan or credit accommodation by Bankers Savings is
inappropriate.
Section 2.19 Schedule of Termination Benefits. The Bankers Disclosure
Schedule includes a schedule of the present value as of June 30, 1997 of
termination benefits and related payments that would be payable to the
individuals identified thereon, excluding any options to acquire Bankers Common
Stock granted to such individuals, under any and all employment agreements,
special termination agreements, supplemental executive retirement plans,
deferred bonus plans, deferred compensation plans, salary continuation plans, or
any other pension benefit or welfare benefit plan maintained by Bankers solely
for the benefit of officers of Bankers or Bankers Subsidiaries (the "Benefits
Schedule"), assuming their employment is terminated as of June 30, 1997 and the
Closing Date occurs prior to such termination. No other individuals are entitled
to benefits under any such plans. The present value of the termination benefits
and related payments specified, including required gross-up payments under
Section 280G of the IRC, on the Benefit Schedule with respect to each named
individual (based on a 6% per annum discount factor) is true and correct in all
material respects. As of December 31, 1995, amounts payable under any Bankers
directors deferred compensation plan was $465,000 and all amounts payable
thereunder have been accrued.
Section 2.20 Loans. Each loan reflected as an asset in the Bankers
Financial Statements (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and correct (ii) to the extent secured, has
been secured by valid liens and security interests which have been perfected,
and (iii) is the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles, in
each case other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on Bankers.
Section 2.21 Antitakeover Provisions Inapplicable. The provisions of
Sections 14A:10A-4 and 14A:10A-5 of the NJBCA do not and will not apply to this
Agreement or the transactions contemplated hereby.
Section 2.22 Quality of Representations. The representations made by
Bankers in this Agreement are true, correct and complete in all material
respects, and do not omit statements necessary to make them not misleading under
all facts and circumstances.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOVEREIGN
Sovereign hereby represents and warrants to Bankers that, except as set
forth in the Sovereign Disclosure Schedule delivered by Sovereign to Bankers on
or prior to the date hereof:
Section 3.01 Organization.
(a) Sovereign is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. Sovereign is a
savings and loan holding company duly registered under the HOLA. Sovereign has
the corporate power and authority to carry on its business and operations as now
being conducted and to own and operate the properties and assets now owned and
being operated by it. Each Sovereign Subsidiary is duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation and each possesses full corporate power and authority to carry on
its respective business and to own, lease and operate its properties as
presently conducted. Neither Sovereign nor any Sovereign Subsidiary is required
by the conduct of its business or the ownership or leasing of its assets to
qualify to do business as a foreign corporation in
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any jurisdiction other than the Commonwealth of Pennsylvania and the states of
Delaware and New Jersey, except where the failure to be so qualified would not
have a Material Adverse Effect.
(b) Sovereign Bank is a federal savings bank, duly organized and validly
existing under the laws of the United States of America. Sovereign Bank has the
corporate power and authority to carry on its business and operations as now
being conducted and to own and operate the properties and assets now owned and
being operated by it.
(c) The deposits of Sovereign Bank are insured by the FDIC to the extent
provided in the Federal Deposit Insurance Act.
(d) The respective minute books of Sovereign and Sovereign Bank accurately
record in all material respects all material corporate action of their
respective shareholders and boards of directors (including committees) through
the date of this Agreement.
(e) Prior to the execution of this Agreement, Sovereign has delivered to
Bankers true and correct copies of the articles of incorporation and the bylaws
of Sovereign and Sovereign Bank, respectively, as in effect on the date hereof.
Section 3.02 Capital Structure.
(a) The authorized capital stock of Sovereign consists of (a) 100,000,000
shares of common stock, no par value ("Sovereign Common Stock"), of which, at
the date of this Agreement, no shares were issued and held by Sovereign as
treasury stock and 53,096,912 shares are outstanding, validly issued, fully paid
and nonassessable, and (b) 7,500,000 shares of preferred stock, no par value, of
which, at the date of this Agreement, 2,000,000 shares of 6 1/4% Cumulative,
Convertible Preferred Stock, Series B, are outstanding, validly issued, fully
paid and nonassessable. No shares of Sovereign Common Stock were issued in
violation of any preemptive rights. Sovereign has no Rights authorized, issued
or outstanding, other than (i) the Sovereign Stock Purchase Rights, (ii) options
to acquire 1,378,672 shares of Sovereign Common Stock authorized under
Sovereign's employee benefit plans, stock option plans, non-employee directors
compensation plan, employee stock ownership plan, employee stock purchase plan,
and dividend reinvestment and stock purchase plan, (iii) the deemed rights to
acquire Sovereign Stock possessed by holders of the common stock of First State
Financial Services, Inc. under the Agreement and Plan of Merger between
Sovereign and First State Financial Services, Inc. dated June 24, 1996, as
amended, contingent upon completion of the transactions contemplated thereby and
(iv) shares issuable as a result of the 6-for-5 stock split to be effected by
Sovereign on March 14, 1997. As of December 31, 1996, Sovereign had
approximately 8,500 shareholders of record.
(b) To the best of Sovereign's knowledge, except as disclosed in
Sovereign's proxy statement dated March 15, 1996, no person or "group" (as that
term is used in Section 13(d)(3) of the Exchange Act) is the beneficial owner
(as defined in Section 13(d) of the Exchange Act) of 5% or more of the
outstanding shares of Sovereign Common Stock.
(c) Sovereign owns all of the capital stock of Sovereign Bank, free and
clear of any lien or encumbrance. Except for the Sovereign Subsidiaries,
Sovereign does not possess, directly or indirectly, any material equity interest
in any corporation, except for equity interests held in the investment
portfolios of Sovereign Subsidiaries, equity interests held by Sovereign
Subsidiaries in a fiduciary capacity, and equity interests held in connection
with the commercial loan activities of Sovereign Subsidiaries.
Section 3.03 Authority; No Violation.
(a) Sovereign has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. Sovereign
Bank has full corporate power and authority to execute and deliver the Bank Plan
of Merger and to consummate the Bank Merger. The execution and delivery of this
Agreement by Sovereign and the completion by Sovereign of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of Sovereign and, except for approval of the shareholders of Sovereign
under Nasdaq requirements
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applicable to it, no other corporate proceedings on the part of Sovereign are
necessary to complete the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by Sovereign and, subject to
approval by the shareholders of Sovereign under Nasdaq requirements applicable
to it and receipt of the required approvals of Regulatory Authorities described
in Section 3.04 hereof, constitutes the valid and binding obligation of
Sovereign, enforceable against Sovereign in accordance with its terms, subject
to applicable bankruptcy, insolvency and similar laws affecting creditors'
rights generally and subject, as to enforceability, to general principles of
equity. The Bank Plan of Merger, upon its execution and delivery by Sovereign
Bank concurrently with the execution and delivery of this Agreement, will
constitute the valid and binding obligation of Sovereign Bank, enforceable
against Sovereign Bank in accordance with its terms, subject to applicable
conservatorship and receivership provisions of the FDIA, or insolvency and
similar laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity.
(b)(A) The execution and delivery of this Agreement by Sovereign, (B) the
execution and delivery of the Bank Plan of Merger by Sovereign Bank, (C) subject
to receipt of approvals from the Regulatory Authorities referred to in Section
3.04 hereof and Bankers' and Sovereign's compliance with any conditions
contained therein, the consummation of the transactions contemplated hereby, and
(D) compliance by Sovereign or Sovereign Bank with any of the terms or
provisions hereof or of the Bank Plan of Merger will not (i) conflict with or
result in a breach of any provision of the articles of incorporation or bylaws
of Sovereign or any Sovereign Subsidiary or the charter and bylaws of Sovereign
Bank; (ii) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Sovereign or any Sovereign
Subsidiary or any of their respective properties or assets; or (iii) violate,
conflict with, result in a breach of any provisions of, constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default), under, result in the termination of, accelerate the performance
required by, or result in a right of termination or acceleration or the creation
of any lien, security interest, charge or other encumbrance upon any of the
properties or assets of Sovereign or Sovereign Bank under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other investment or obligation to which Sovereign
or Sovereign Bank is a party, or by which they or any of their respective
properties or assets may be bound or affected, except for such violations,
conflicts, breaches or defaults under clause (ii) or (iii) hereof which, either
individually or in the aggregate, will not have a Material Adverse Effect on
Sovereign.
Section 3.04 Consents. Except for consents, approvals, filings and
registrations from or with the OTS, the FRB, the FDIC and the NJDB, the SEC, and
state "blue sky" authorities, and compliance with any conditions contained
therein, and the approval of this Agreement by the shareholders of Sovereign in
accordance with Nasdaq requirements applicable to it, and the approval of the
Bank Plan of Merger by Sovereign as sole shareholder of Sovereign Bank under the
FDIA, and by the Sovereign Bank Board of Directors no consents or approvals of,
or filings or registrations with, any public body or authority are necessary,
and no consents or approvals of any third parties are necessary, or will be, in
connection with (a) the execution and delivery of this Agreement by Sovereign or
the Bank Plan of Merger by Sovereign Bank, and (b) the completion by Sovereign
of the transactions contemplated hereby or by Sovereign Bank of the Bank Merger.
Sovereign has no reason to believe that (i) any required consents or approvals
will not be received or will be received with conditions, limitations or
restrictions unacceptable to it or which would adversely impact Sovereign's
ability to complete the transactions contemplated by this Agreement or that (ii)
any public body or authority, the consent or approval of which is not required
or any filing with which is not required, will object to the completion of the
transactions contemplated by this Agreement.
Section 3.05 Financial Statements.
(a) Sovereign has previously delivered, or will deliver, to Bankers the
Sovereign Financials. The Sovereign Financials have been, or will be, prepared
in accordance with generally accepted accounting principles and practices and
fairly present, or will fairly present, the consolidated financial position,
results of operations and cash flows of Sovereign as of and for the periods
ending on the dates thereof,
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in accordance with generally accepted accounting principles. Sovereign will make
the Sovereign Regulatory Reports available to Bankers for inspection.
(b) At the date of each balance sheet included in the Sovereign Financials,
Sovereign did not have any liabilities, obligations or loss contingencies of any
nature (whether absolute, accrued, contingent or otherwise) of a type required
to be reflected in such Sovereign Financials or in the footnotes thereto which
are not fully reflected or reserved against therein or disclosed in a footnote
thereto, except for liabilities, obligations or loss contingencies which are not
material in the aggregate and which are incurred in the ordinary course of
business, consistent with past practice, and except for liabilities, obligations
or loss contingencies which are within the subject matter of a specific
representation and warranty herein and subject, in the case of any unaudited
statements, to normal recurring audit adjustments and the absence of footnotes.
Section 3.06 Taxes. Sovereign and the Sovereign Subsidiaries are members
of the same affiliated group within the meaning of IRC Section 1504(a).
Sovereign has duly filed, and will file, all federal, state and local tax
returns required to be filed by or with respect to Sovereign and all Sovereign
Subsidiaries on or prior to the Closing Date (all such returns being accurate
and correct in all material respects) and has duly paid or will pay, or made or
will make, provisions for the payment of all federal, state and local taxes
which have been incurred by or are due or claimed to be due from Sovereign and
any Sovereign Subsidiary by any taxing authority or pursuant to any tax sharing
agreement or arrangement (written or oral) on or prior to the Closing Date other
than taxes which (i) are not delinquent or (ii) are being contested in good
faith.
Section 3.07 No Material Adverse Effect. Sovereign has not suffered any
Material Adverse Effect since December 31, 1996.
Section 3.08 Ownership of Property; Insurance Coverage.
(a) Sovereign and the Sovereign Subsidiaries have good and, as to real
property, marketable title to all assets and properties owned by Sovereign or
any of its Subsidiaries in the conduct of their businesses, whether such assets
and properties are real or personal, tangible or intangible, including assets
and property reflected in the balance sheets contained in the Sovereign
Financials or acquired subsequent thereto (except to the extent that such assets
and properties have been disposed of for fair value, in the ordinary course of
business, since the date of such balance sheets), subject to no encumbrances,
liens, mortgages, security interests or pledges, except (i) those items that
secure liabilities for borrowed money and that are described in the Sovereign
Disclosure Schedule or permitted under Article IV hereof, and (ii) statutory
liens for amounts not yet delinquent or which are being contested in good faith.
Sovereign and the Sovereign Subsidiaries, as lessee, have the right under valid
and subsisting leases of real and personal properties used by Sovereign and its
Subsidiaries in the conduct of their businesses to occupy and use all such
properties as presently occupied and used by each of them.
(b) Sovereign and the Sovereign Subsidiaries currently maintain insurance
in amounts considered by Sovereign to be reasonable for their respective
operations, and such insurance is similar in scope and coverage to that
maintained by other businesses similarly engaged. Neither Sovereign nor any
Sovereign Subsidiary has received notice from any insurance carrier that (i)
such insurance will be cancelled or that coverage thereunder will be reduced or
eliminated or (ii) premium costs with respect to such insurance will be
substantially increased.
Section 3.09 Legal Proceedings. Neither Sovereign nor any Sovereign
Subsidiary is a party to any, and there are no pending or, to the best of
Sovereign's knowledge, threatened legal, administrative, arbitration or other
proceedings, claims, actions or governmental investigations or inquiries of any
nature (i) against Sovereign or any Sovereign Subsidiary, (ii) to which
Sovereign's or any Sovereign Subsidiary's assets are or may be subject, (iii)
challenging the validity or propriety of any of the transactions contemplated by
this Agreement, or (iv) which could adversely affect the ability of Sovereign to
perform under this Agreement, except for any proceedings, claims, actions,
investigations or inquiries referred to in clauses (i) or (ii) which,
individually or in the aggregate, could not be reasonably expected to have a
Material Adverse Effect.
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Section 3.10 Compliance With Applicable Law.
(a) Sovereign and the Sovereign Subsidiaries hold all licenses, franchises,
permits and authorizations necessary for the lawful conduct of their businesses
under, and have complied in all material respects with, applicable laws,
statutes, orders, rules or regulations of any federal, state or local
governmental authority relating to them, other than where such failure to hold
or such noncompliance will neither result in a limitation in any material
respect on the conduct of their businesses nor otherwise have a Material Adverse
Effect on the assets, business, financial condition, business prospects or
results of operations of Sovereign and its Subsidiaries taken as a whole.
(b) Neither Sovereign nor any Sovereign Subsidiary has received any
notification or communication from any Regulatory Authority (i) asserting that
Sovereign or any Sovereign Subsidiary is not in compliance with any of the
statutes, regulations or ordinances which such Regulatory Authority enforces;
(ii) threatening to revoke any license, franchise, permit or governmental
authorization which is material to Sovereign or any Sovereign Subsidiary; (iii)
requiring or threatening to require Sovereign or any Sovereign Subsidiary, or
indicating that Sovereign or any Sovereign Subsidiary may be required, to enter
into a cease and desist order, agreement or memorandum of understanding or any
other agreement restricting or limiting, or purporting to restrict or limit, in
any manner the operations of Sovereign or any Sovereign Subsidiary, including
without limitation any restriction on the payment of dividends; or (iv)
directing, restricting or limiting, or purporting to direct, restrict or limit,
in any manner the operations of Sovereign or any Sovereign Subsidiary, including
without limitation any restriction on the payment of dividends (any such notice,
communication, memorandum, agreement or order described in this sentence is
hereinafter referred to as a "Regulatory Agreement"). Neither Sovereign nor any
Sovereign Subsidiary has consented to or entered into any Regulatory Agreement,
except as heretofore disclosed to Bankers.
Section 3.11 Information to be Supplied. The information to be supplied by
Sovereign for inclusion in the Registration Statement (including the
Prospectus/Proxy Statement) will not, at the time the Registration Statement is
declared effective pursuant to the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein not misleading. The information supplied, or to be
supplied, by Sovereign for inclusion in the Applications will, at the time such
documents are filed with any Regulatory Authority, be accurate in all material
aspects.
Section 3.12 ERISA. Sovereign has previously made available to Bankers
true and complete copies of the employee pension benefit plans within the
meaning of ERISA Section 3(2), profit sharing plans, stock purchase plans,
deferred compensation and supplemental income plans, supplemental executive
retirement plans, annual incentive plans, group insurance plans, and all other
employee welfare benefit plans within the meaning of ERISA Section 3(1)
(including vacation pay, sick leave, short-term disability, long-term
disability, and medical plans), and all other employee benefit plans, policies,
agreements and arrangements, all of which are set forth on the Sovereign
Disclosure Schedule, maintained or contributed to for the benefit of the
employees or former employees (including retired employees) and any
beneficiaries thereof or directors or former directors of Sovereign or any
Sovereign Subsidiary, together with (i) the most recent actuarial (if any) and
financial reports relating to those plans which constitute "qualified plans"
under IRC Section 401(a), (ii) the most recent annual reports relating to such
plans filed by them, respectively, with any government agency, and (iii) all
rulings and determination letters which pertain to any such plans. Neither
Sovereign nor any Sovereign Subsidiary, and no pension plan maintained by
Sovereign or any Sovereign Subsidiary, has incurred, directly or indirectly,
within the past six (6) years any liability under Title IV of ERISA (including
to the Pension Benefit Guaranty Corporation) or to the IRS with respect to any
pension plan qualified under IRC Section 401(a) which liability has resulted in
or will result in a Material Adverse Effect with respect to Sovereign, except
liabilities to the Pension Benefit Guaranty Corporation pursuant to ERISA
Section 4007, all of which have been fully paid, nor has any reportable event
under ERISA Section 4043 occurred with respect to any such pension plan. With
respect to each of such plans that is subject to Title IV of ERISA, the present
value of the accrued benefits under such plan, based upon the actuarial
assumptions used for funding purposes in the plan's most recent actuarial report
did not, as of its latest valuation date, exceed the then current value of the
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assets of such plan allocable to such accrued benefits. Neither Sovereign nor
any Sovereign Subsidiary has incurred any liability under ERISA Section 4201 for
a complete or partial withdrawal from a multi-employer plan. All "employee
benefit plans," as defined in ERISA Section 3(3), comply and in the past six (6)
years have complied in all material respects with (i) relevant provisions of
ERISA, and (ii) in the case of plans intended to qualify for favorable income
tax treatment, provisions of the IRC relevant to such treatment. No prohibited
transaction (which shall mean any transaction prohibited by ERISA Section 406
and not exempt under ERISA Section 408 or any transaction prohibited under IRC
Section 4975) has occurred within the past six (6) years with respect to any
employee benefit plan maintained by Sovereign or any Sovereign Subsidiary that
would result in the imposition, directly or indirectly, of an excise tax under
IRC Section 4975 or other penalty under ERISA or the IRC, which individually or
in the aggregate, has resulted in or will result in a Material Adverse Effect
with respect to Sovereign. Sovereign and the Sovereign Subsidiaries provide
continuation coverage under group health plans for separating employees in
accordance with the provisions of IRC Section 4980B(f). Such group health plans
are in compliance with Section 1862(b)(1) of the Social Security Act.
Section 3.13 Securities Documents. Sovereign has delivered, or will
deliver, to Bankers copies of its (i) annual reports on SEC Form 10-K for the
years ended December 31, 1995, 1994, and 1993, (ii) quarterly reports on SEC
Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 and September 30,
1996, (iii) current reports on SEC Form 8-K dated February 15, 1996, June 3,
1996, October 31, 1996 and November 26, 1996, and (iv) proxy statement dated
March 15, 1996 used in connection with its annual meeting of shareholders held
in April 1996. Such reports and such proxy materials complied, at the time filed
with the SEC, in all material respects, with the Exchange Act and the applicable
rules and regulations of the SEC.
Section 3.14 Environmental Matters. To the knowledge of Sovereign, neither
Sovereign nor any Sovereign Subsidiary, nor any properties owned or operated by
Sovereign or any Sovereign Subsidiary has been or is in violation of or liable
under any Environmental Law which violation or liability, individually or in the
aggregate, resulted in or will result in a Material Adverse Effect with respect
to Sovereign. There are no actions, suits or proceedings, or demands, claims,
notices or investigations (including without limitation notices, demand letters
or requests for information from any environmental agency) instituted or
pending, or to the knowledge of Sovereign, threatened, relating to the liability
of any property owned or operated by Sovereign or any Sovereign Subsidiary under
any Environmental Law.
Section 3.15 Loan Portfolio. The allowance for loan losses reflected, and
to be reflected, in the Sovereign Regulatory Reports, and shown, and to be
shown, on the balance sheets contained in the Sovereign Financials have been,
and will be, established in accordance with the requirements of generally
accepted accounting principles and all applicable regulatory criteria.
Section 3.16 Brokers and Finders. Neither Sovereign nor any Sovereign
Subsidiary, nor any of their respective officers, directors, employees or
agents, has employed any broker, finder or financial advisor, or incurred any
liability for any fees or commissions to any such person, in connection with the
transactions contemplated by this Agreement.
Section 3.17 Loans. Each loan reflected as an asset in the Sovereign
Financial Statements (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and correct (ii) to the extent secured, has
been secured by valid liens and security interests which have been perfected,
and (iii) is the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles, in
each case other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on Sovereign.
Section 3.18 Quality of Representations. The representations made by
Sovereign in this Agreement are true, correct and complete in all material
respects and do not omit statements necessary to make the representations not
misleading under the circumstances.
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ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.01 Conduct of Bankers' Business.
(a) From the date of this Agreement to the Closing Date, Bankers and each
Bankers Subsidiary will conduct its business and engage in transactions,
including extensions of credit, only in the ordinary course and consistent with
past practice and policies, except as otherwise required by this Agreement or
with the written consent of Sovereign. Bankers will use its reasonable good
faith efforts, and will cause Bankers Savings to use its reasonable good faith
efforts, to (i) preserve its business organizations intact, (ii) maintain good
relationships with employees, and (iii) preserve for itself the good will of
customers of Bankers and Bankers Subsidiaries and others with whom business
relationships exist. From the date hereof to the Closing Date, except as
otherwise consented to or approved by Sovereign in writing or as permitted or
required by this Agreement, Bankers will not, and Bankers will not permit any
Bankers Subsidiary to:
(i) amend or change any provision of its certificate or articles of
incorporation, charter, or bylaws;
(ii) change the number of authorized or issued shares of its capital
stock or issue or grant any option, warrant, call, commitment,
subscription, Right or agreement of any character relating to its
authorized or issued capital stock or any securities convertible into
shares of such stock, or split, combine or reclassify any shares of capital
stock, or declare, set aside or pay any dividend or other distribution in
respect of capital stock, or redeem or otherwise acquire any shares of
capital stock, except that (A) Bankers may issue shares of Bankers Common
Stock upon the valid exercise, subject to the terms of the letter agreement
attached hereto as Exhibit 1, of presently outstanding options to acquire
Bankers Common Stock under the Bankers Stock Option Plans and (B) Bankers
may pay a regular quarterly cash dividend, not to exceed $.16 per share of
Bankers Common Stock outstanding. As promptly as practicable following the
date of this Agreement, the Board of Directors of Bankers shall cause its
regular quarterly dividend record dates and payment dates to be the same as
Sovereign's regular quarterly dividend record dates and payment dates for
Sovereign Common Stock, and Bankers shall not change its regular dividend
payment dates and record dates without prior written consent of Sovereign.
Nothing contained in this Section 4.01(ii) or in any other Section of this
Agreement shall be construed to permit Bankers shareholders to receive two
dividends either from Bankers or from Bankers and Sovereign in any quarter
or to deny or prohibit them from receiving one dividend from Bankers or
Sovereign in any quarter. Subject to applicable regulatory restrictions, if
any, Bankers Savings may pay a cash dividend, in the aggregate, sufficient
to fund any dividend by Bankers permitted hereunder;
(iii) grant any severance or termination pay (other than pursuant to
written policies or written agreements of Bankers or Bankers Subsidiaries
in effect on the date hereof and provided to Sovereign prior to the date
hereof) to, or enter into any new or amend any existing employment
agreement with, or increase the compensation of, any employee, officer or
director of Bankers or any Bankers Subsidiary, except for routine periodic
increases, individually and in the aggregate, in accordance with past
practice;
(iv) merge or consolidate Bankers or any Bankers Subsidiary with any
other corporation; sell or lease all or any substantial portion of the
assets or business of Bankers or any Bankers Subsidiary; make any
acquisition of all or any substantial portion of the business or assets of
any other person, firm, association, corporation or business organization
other than in connection with the collection of any loan or credit
arrangement between any Bankers Subsidiary and any other person; enter into
a purchase and assumption transaction with respect to deposits and
liabilities; permit the revocation or surrender by any Bankers Subsidiary
of its certificate of authority to maintain, or file an application for the
relocation of, any existing branch office, or file an application for a
certificate of authority to establish a new branch office;
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(v) sell or otherwise dispose of the capital stock of Bankers Savings
or sell or otherwise dispose of any asset of Bankers or of any Bankers
Subsidiary other than in the ordinary course of business consistent with
past practice; subject any asset of Bankers or of any Bankers Subsidiary to
a lien, pledge, security interest or other encumbrance (other than in
connection with deposits, repurchase agreements, bankers acceptances,
"treasury tax and loan" accounts established in the ordinary course of
business and transactions in "federal funds" and the satisfaction of legal
requirements in the exercise of trust powers) other than in the ordinary
course of business consistent with past practice; incur any indebtedness
for borrowed money (or guarantee any indebtedness for borrowed money),
except in the ordinary course of business consistent with past practice;
(vi) take any action which would result in any of the representations
and warranties of Bankers set forth in this Agreement becoming untrue as of
any date after the date hereof or in any of the conditions set forth in
Article V hereof not being satisfied;
(vii) change any method, practice or principle of accounting, except
as may be required from time to time by GAAP (without regard to any
optional early adoption date) or any Regulatory Authority responsible for
regulating Bankers or Bankers Savings;
(viii) waive, release, grant or transfer any rights of value or modify
or change in any material respect any existing material agreement to which
Bankers or any Bankers Subsidiary is a party, other than in the ordinary
course of business, consistent with past practice;
(ix) implement any pension, retirement, profit sharing, bonus, welfare
benefit or similar plan or arrangement that was not in effect on the date
of this Agreement, or materially amend any existing plan or arrangement
except to the extent such amendments do not result in an increase in cost;
provided, however, that Bankers may contribute to the Bankers pension plan
an amount not to exceed the minimum amount required under ERISA or the IRC
only if (A) such amount is usual and ordinary, consistent with past
practice and (B) Bankers obtains an opinion of legal counsel that the full
amount of such contribution will be deductible by Bankers for federal tax
purposes, and further provided that in no event will Bankers make any
contribution to the Bankers pension plan; and provided, further, that
Bankers Savings may (C) contribute to its Employee Stock Ownership Plan
("ESOP") an amount sufficient to repay all outstanding loans obtained by
the ESOP to finance the purchase of Bankers Common Stock for the ESOP,
allocate any Bankers Common Stock released from a suspense account as a
result of such repayment among the participants eligible for such
allocation and terminate the ESOP (with full vesting of all participants'
accounts as required by ERISA) prior to the Closing Date and (D) amend The
Retirement Plan of Bankers Savings in RSI Retirement Trust ("Retirement
Plan") to provide that participants in the Retirement Plan whose
termination of service occurs subsequent to the Closing Date under
circumstances entitling them to severance benefits in accordance with the
severance policy described in Section 4.11(c) shall be entitled to elect to
receive payment of their retirement benefits under the Retirement Plan in
the form of an immediate lump sum (determined in accordance with the
requirements of the IRC) as of the date of their termination of service;
(x) purchase any security for its investment portfolio not rated "A"
or higher by either Standard & Poor's Corporation or Moody's Investor
Services, Inc.;
(xi) make any new loan or other credit facility commitment (including
without limitation, lines of credit and letters of credit) to any borrower
or group of affiliated borrowers in excess of $1,000,000 in the aggregate,
or increase, compromise, extend, renew or modify any existing loan or
commitment outstanding in excess of $1,000,000, except for any commitment
disclosed on the Bankers Disclosure Schedule; provided that Sovereign will
not unreasonably withhold its consent with respect to any request by
Bankers for permission to increase, compromise, extend, renew or modify any
loan subject to this provision;
(xii) except as set forth on the Bankers Disclosure Schedule, enter
into, renew, extend or modify any other transaction with any Affiliate;
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(xiii) enter into any interest rate swap or similar commitment,
agreement or arrangement;
(xiv) except for the execution of this Agreement, take any action that
would give rise to a right of payment to any individual under any
employment agreement;
(xv) intentionally and knowingly take any action that would preclude
satisfaction of the condition to closing contained in Section 5.02(k)
relating to financial accounting treatment of the Merger; or
(xvi) agree to do any of the foregoing.
For purposes of this Section 4.01, it shall not be considered in the
ordinary course of business for Bankers or any Bankers Subsidiary to do any of
the following: (i) make any capital expenditure of $100,000 or more not
disclosed on Bankers Disclosure Schedule 4.01, without the prior written consent
of Sovereign; (ii) make any sale, assignment, transfer, pledge, hypothecation or
other disposition of any assets having a book or market value, whichever is
greater, in the aggregate in excess of $1,000,000, other than pledges of assets
to secure government deposits, to exercise trust powers, sales of assets
received in satisfaction of debts previously contracted in the normal course of
business, issuance of loans, or transactions in the investment securities
portfolio by Bankers or a Bankers Subsidiary or repurchase agreements made, in
each case, in the ordinary course of business; or (iii) undertake or enter any
lease, contract or other commitment for its account, other than in the normal
course of providing credit to customers as part of its banking business,
involving a payment by Bankers or any Bankers Subsidiary of more than $100,000
annually, or containing a material financial commitment and extending beyond 12
months from the date hereof.
Section 4.02 Access; Confidentiality.
(a) From the date of this Agreement through the Closing Date, Bankers or
Sovereign, as the case may be, shall afford to, and shall cause each Bankers
Subsidiary or Sovereign Subsidiary to afford to, the other party and its
authorized agents and representatives, complete access to their respective
properties, assets, books and records and personnel, at reasonable hours and
after reasonable notice; and the officers of Bankers and Sovereign will furnish
any person making such investigation on behalf of the other party with such
financial and operating data and other information with respect to the
businesses, properties, assets, books and records and personnel as the person
making such investigation shall from time to time reasonably request.
(b) Bankers and Sovereign each agree to conduct such investigation and
discussions hereunder in a manner so as not to interfere unreasonably with
normal operations and customer and employee relationships of the other party.
(c) In addition to the access permitted by subparagraph (a) above, from the
date of this Agreement through the Closing Date, Bankers shall permit employees
of Sovereign reasonable access to and participation in matters relating to
problem loans, loan restructurings and loan work-outs of Bankers and the Bankers
Subsidiaries, provided that nothing contained in this subparagraph shall be
construed to grant Sovereign or any Sovereign employee any final decision-making
authority with respect to such matters. Sovereign shall have the right, however,
at Sovereign's expense, to cause Bankers or any Bankers Subsidiary to obtain an
appraisal by an independent third party experienced in such matters, and
mutually satisfactory to Sovereign and Bankers, of the assets or property
securing any loan made by Bankers or any Bankers Subsidiary.
(d) If the transactions contemplated by this Agreement shall not be
consummated, Bankers and Sovereign will each destroy or return all documents and
records obtained from the other party or its representatives, during the course
of its investigation and will cause all information with respect to the other
party obtained pursuant to this Agreement or preliminarily thereto to be kept
confidential, except to the extent such information becomes public through no
fault of the party to whom the information was provided or any of its
representatives or agents and except to the extent disclosure of any such
information is legally required. Bankers and Sovereign shall each give prompt
notice to the other party of any contemplated disclosure where such disclosure
is so legally required.
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Section 4.03 Regulatory Matters and Consents.
(a) Sovereign and Bankers will prepare all Applications and make all
filings for, and use their best efforts to obtain as promptly as practicable
after the date hereof, all necessary permits, consents, approvals, waivers and
authorizations of all Regulatory Authorities necessary or advisable to
consummate the transactions contemplated by this Agreement.
(b) Bankers will furnish Sovereign with all information concerning Bankers
and Bankers Subsidiaries as may be necessary or advisable in connection with any
Application or filing made by or on behalf of Sovereign to any Regulatory
Authority in connection with the transactions contemplated by this Agreement.
(c) Sovereign will promptly furnish Bankers with copies of all material
written communications to, or received by Sovereign or any Sovereign Subsidiary
from, any Regulatory Authority in respect of the transactions contemplated
hereby, except information which is filed by Sovereign which is designated as
confidential or contains an earnings projection.
(d) Sovereign will furnish Bankers with (i) copies of all Applications
prior to filing with any Regulatory Authority and provide Bankers a reasonable
opportunity to suggest changes to such Applications, which suggested changes
Sovereign may, in its reasonable discretion accept or reject, (ii) copies of all
Applications filed by Sovereign and (iii) copies of all documents filed by
Sovereign under the Securities Exchange Act of 1934, as amended.
(e) Bankers will cooperate with Sovereign in the foregoing matters and will
furnish Sovereign with all information concerning Bankers and Bankers
Subsidiaries as may be necessary or advisable in connection with any Application
or filing (including the Registration Statement and any report filed with the
SEC) made by or on behalf of Sovereign to any Regulatory Authority in connection
with the transactions contemplated by this Agreement, and such information will
be accurate and complete in all material respects. In connection therewith,
Bankers will provide certificates and other documents reasonably requested by
Sovereign.
Section 4.04 Taking of Necessary Action.
(a) Sovereign and Bankers shall each use its best efforts in good faith,
and each of them shall cause its Subsidiaries to use their best efforts in good
faith, to (i) furnish such information as may be required in connection with the
preparation of the documents referred to in Section 4.03 of this Agreement, and
(ii) take or cause to be taken all action necessary or desirable on its part
using its best efforts so as to permit completion of the Merger and the Bank
Merger including, without limitation, (A) obtaining the consent or approval of
each individual, partnership, corporation, association or other business or
professional entity whose consent or approval is required or desirable for
consummation of the transactions contemplated hereby (including assignment of
leases without any change in terms), provided that neither Bankers nor any
Bankers Subsidiary shall agree to make any payments or modifications to
agreements in connection therewith without the prior written consent of
Sovereign, and (B) requesting the delivery of appropriate opinions, consents and
letters from its counsel and independent auditors. No party hereto shall take,
or cause, or to the best of its ability permit to be taken, any action that
would substantially impair the prospects of completing the Merger and the Bank
Merger pursuant to this Agreement and the Bank Plan of Merger; provided that
nothing herein contained shall preclude Sovereign or Bankers or from exercising
its rights under this Agreement or the Option Agreement.
(b) Bankers and Sovereign shall promptly prepare a Prospectus/Proxy
Statement to be mailed to their respective shareholders in connection with the
meetings of their respective shareholders and transactions contemplated hereby,
and to be filed by Sovereign with the SEC in the Registration Statement, which
Prospectus/Proxy statement shall conform to all applicable legal requirements.
Sovereign shall, as promptly as practicable following the preparation thereof,
file the Registration Statement with the SEC and Bankers and Sovereign shall use
all reasonable efforts to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after such filing. Sovereign
will advise Bankers, promptly after Sovereign receives notice thereof, of the
time
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when the Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order or the suspension of
the qualification of the shares of capital stock issuable pursuant to the
Registration Statement, or the initiation or threat of any proceeding for any
such purpose, or of any request by the SEC for the amendment or supplement of
the Registration Statement or for additional information. Sovereign shall use
its best efforts to obtain, prior to the effective date of the Registration
Statement, all necessary state securities laws or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by this Agreement.
Sovereign will provide Bankers with as many copies of such Registration
Statement and all amendments thereto promptly upon the filing thereof as Bankers
may reasonably request.
Section 4.05 Certain Agreements.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative, in which
any person who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Date, a director or officer or
employee of Bankers or any of its Subsidiaries (the "Indemnified Parties") is,
or is threatened to be, made a party to a suit based in whole or in part on, or
arising in whole or in part out of, or pertaining to (i) the fact that he is or
was a director, officer or employee of Bankers, any of the Bankers' Subsidiaries
or any of their respective predecessors or (ii) this Agreement or any of the
transactions contemplated hereby, whether in any case asserted or arising before
or after the Effective Date, the parties hereto agree to cooperate and use their
best efforts to defend against and respond thereto to the extent permitted by
the NJBCA and the Articles of Incorporation and By-Laws of Bankers. On or after
the Effective Date, Sovereign shall indemnify, defend and hold harmless all
prior and then-existing directors and officers of Bankers and Bankers Savings,
against (i) all losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement (with the approval of Sovereign
which approval shall not be unreasonably withheld) of or in connection with any
claim, action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer or employee of Bankers or any Bankers Subsidiary, whether
pertaining to any matter existing or occurring at or prior to the Effective Date
and whether asserted or claimed prior to, or at or after, the Effective Date
("Indemnified Liabilities") and (ii) all Indemnified Liabilities based in whole
or in part on, or arising in whole or in part out of, or pertaining to this
Agreement or the transactions contemplated hereby, to the same extent as such
officer, director or employee may be indemnified by Bankers or Bankers Savings
as of the date hereof including the right to advancement of expenses, provided,
however, that any such officer, director or employee of Bankers or Bankers
Savings may not be indemnified by Sovereign and/or Sovereign Bank if such
indemnification is prohibited by applicable law.
(b) Sovereign shall maintain Bankers' existing directors' and officers'
liability insurance policy (or a policy providing comparable coverage amounts on
terms generally no less favorable, including Sovereign's existing policy if it
meets the foregoing standard) covering persons who are currently covered by such
insurance for a period of five years after the Effective Date; provided,
however, that in no event shall Sovereign be obligated to expend, in order to
maintain or provide insurance coverage pursuant to this Section 4.05(b), any
amount per annum in excess of 150% of the amount of the annual premiums paid as
of the date hereof by Bankers for such insurance (the "Maximum Amount"). If the
amount of the annual premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, Sovereign shall use all reasonable efforts
to maintain the most advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to the Maximum Amount. In the event that
Sovereign acts as its own insurer for all of its directors and officers with
respect to matters typically covered by a directors' and officers' liability
insurance policy, Sovereign's obligations under this Section 4.05(b) may be
satisfied by such self insurance, so long as its senior debt ratings by Standard
& Poor's Corporation and Moody's Investors Services, Inc. are not lower than
such ratings as of the date hereof.
(c) Sovereign agrees to honor and Sovereign agrees to cause Sovereign Bank
to honor all terms and conditions of all existing employment contracts and
special termination agreements disclosed in the Bankers Disclosure Schedule.
Sovereign further agrees to honor (i) the "pay-to-stay" bonus
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provisions of certain confidentiality agreements in an amount not to exceed
$160,000 in the aggregate, and (ii) the Non-Executive Severance Plan, in
accordance with the terms of the relevant agreement or plan document as
summarized in Section 4.11(c). With respect to individuals with the title of
Vice President or higher who are not otherwise covered by an employment contract
or a special termination agreement, the aggregate amount of payments under the
Non-Executive Severance Plan will not exceed $175,000.
Section 4.06 No Other Bids and Related Matters. So long as this Agreement
remains in Effect, Bankers shall not, nor shall it permit any Bankers Subsidiary
or any other Affiliate of Bankers or any officer, director or employee of any of
them, or any investment banker, attorney, accountant or other representative
retained by Bankers, any Bankers Subsidiary or any other Bankers Affiliate to,
directly or indirectly, solicit, encourage, initiate or engage in discussions or
negotiations with, or respond to requests for information, inquiries, or other
communications from, any person other than Sovereign concerning the fact of, or
the terms and conditions of, this Agreement, or concerning any acquisition of
Bankers, any Bankers Subsidiary, or any assets or business thereof (except that
Bankers' officers may respond to inquiries from analysts, Regulatory Authorities
and holders of Bankers Common Stock in the ordinary course of business). Bankers
shall notify Sovereign immediately if (i) any such discussions or negotiations
are sought to be initiated with Bankers by any person other than Sovereign, or
(ii) if any such requests for information, inquiries, proposals or
communications are received from any person other than Sovereign, or analysts,
Regulatory Authorities and holders of Bankers Common Stock in the ordinary
course of business.
Section 4.07 Duty to Advise; Duty to Update Bankers' Disclosure
Schedule. Bankers shall promptly advise Sovereign of any change or event having
a Material Adverse Effect on it or on any Bankers Subsidiary or which it
believes would or would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants set forth herein.
Bankers shall update Bankers' Disclosure Schedule as promptly as practicable
after the occurrence of an event or fact which, if such event or fact had
occurred prior to the date of this Agreement, would have been disclosed in the
Bankers Disclosure Schedule. The delivery of such updated Schedule shall not
relieve Bankers from any breach or violation of this Agreement and shall not
have any effect for the purposes of determining the satisfaction of the
condition set forth in Sections 5.02(c) hereof.
Section 4.08 Conduct of Sovereign's Business. From the date of this
Agreement to the Closing Date, Sovereign will use its best efforts to (x)
preserve its business organizations intact, (y) maintain good relationships with
employees, and (z) preserve for itself the goodwill of customers of Sovereign
and Sovereign Subsidiaries and others with whom business relationships exist.
Section 4.09 Board and Committee Minutes. Bankers shall provide to
Sovereign, within 30 days after any meeting of the Board of Directors of Bankers
or any Bankers Subsidiary, or any committee thereof, or any senior management
committee, a copy of the minutes of such meeting, except that with respect to
any meeting held within 30 days of the Closing Date, such minutes shall be
provided to Sovereign prior to the Closing Date.
Section 4.10 Undertakings by Sovereign and Bankers.
(a) From and after the date of this Agreement, Bankers shall:
(i) Voting by Directors. Recommend to all members of Bankers' Board
of Directors to vote all shares of Bankers' Common Stock beneficially owned
by each such director in favor of this Agreement;
(ii) Phase I Environmental Audit. Permit Sovereign, if Sovereign
elects to do so, at its own expense, to cause a "phase I environmental
audit" to be performed at any physical location owned or occupied by
Bankers or any Bankers Subsidiary on the date hereof;
(iii) Approval of Bank Plan of Merger. Approve the Bank Plan of
Merger as sole shareholder of Bankers Savings and obtain the approval of,
and cause the execution and delivery of, the Bank Plan of Merger by Bankers
Savings;
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(iv) Proxy Solicitor. If Sovereign requests and agrees to bear the
expense thereof, retain a proxy solicitor in connection with the
solicitation of Bankers shareholder approval of this Agreement;
(v) Timely Review. If requested by Sovereign at Sovereign's sole
expense, cause its independent certified public accountants to perform a
review of its unaudited consolidated financial statements as of the end of
any calendar quarter, in accordance with Statement of Auditing Standards
No. 36, and to issue their report on such financial statements as soon as
is practicable thereafter;
(vi) Outside Service Bureau Contracts. If requested to do so by
Sovereign, use its best efforts to obtain an extension of any contract with
an outside service bureau or other vendor of services to Bankers or any
Bankers Subsidiary, on terms and conditions mutually acceptable to Bankers
and Sovereign;
(vii) Committee Meetings. Permit a representative of Sovereign, who
is reasonably acceptable to Bankers, to attend all committee meetings of
Bankers and Bankers Savings management including, without limitation, any
loan or asset/liability committee. Bankers shall respond reasonably and in
good faith to any request of Sovereign to permit a representative of
Sovereign, who is reasonably acceptable to Bankers, to attend any meeting
of Bankers' Board of Directors or the Executive Committee thereof;
(viii) List of Nonperforming Assets. Provide Sovereign, within ten
(10) days of the end of each calendar month, a written list of
nonperforming assets (as defined in Section 5.02(q)) as of the end of such
month; and
(ix) Reserves and Merger-Related Costs. On or before the Effective
Date, establish such additional accruals and reserves as may be necessary
to conform the accounting reserve practices and methods (including credit
loss practices and methods) of Bankers to those of Sovereign (as such
practices and methods are to be applied to Bankers from and after the
Closing Date) and Sovereign's plans with respect to the conduct of the
business of Bankers following the Merger and otherwise to reflect
Merger-related expenses and costs incurred by Bankers, provided, however,
that Bankers shall not be required to take such action (A) more than thirty
days prior to the Effective Date; and (B) unless Sovereign agrees in
writing that all conditions to closing set forth in Section 5.02 have been
satisfied or waived (except for the expiration of any applicable waiting
periods); prior to the delivery by Sovereign of the writing referred to in
the preceding clause, Bankers shall provide Sovereign a written statement,
certified without personal liability by the chief executive officer of
Bankers and dated the date of such writing, that the representation made in
Section 2.15 hereof is true as of such date or, alternatively, setting
forth in detail the circumstances that prevent such representation from
being true as of such date; and no accrual or reserve made by Bankers or
any Bankers Subsidiary pursuant to this subsection, or any litigation or
regulatory proceeding arising out of any such accrual or reserve, shall
constitute or be deemed to be a breach or violation of any representation,
warranty, covenant, condition or other provision of this Agreement or to
constitute a termination event within the meaning of Section 6.01(d)
hereof.
(b) From and after the date of this Agreement, Sovereign and Bankers shall
each:
(i) Shareholders Meetings. Submit this Agreement to its shareholders
for approval at a meeting to be held as soon as practicable, and use their
respective best efforts to cause their Boards of Directors to unanimously
recommend approval of this Agreement to their respective shareholders;
(ii) Filings and Approvals. Cooperate with the other in the
preparation and filing, as soon as practicable, of (A) the Applications,
(B) the Registration Statement and related filings under state securities
laws covering the Sovereign Common Stock and related Sovereign Stock
Purchase Rights to be issued pursuant to the Merger, (C) all other
documents necessary to obtain any other
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approvals and consents required to effect the completion of the Merger and
the Bank Merger, and (D) all other documents contemplated by this
Agreement;
(iii) Identification of Bankers' Affiliates. Cooperate with the other
and use its best efforts to identify those persons who may be deemed to be
Affiliates of Bankers;
(iv) Public Announcements. Cooperate and cause its respective
officers, directors, employees and agents to cooperate in good faith,
consistent with their respective legal obligations, in the preparation and
distribution of, and agree upon the form and substance of, any press
release related to this Agreement and the transactions contemplated hereby,
and any other public disclosures related thereto, including without
limitation communications to Bankers shareholders, Bankers' internal
announcements and customer disclosures, but nothing contained herein shall
prohibit either party from making any disclosure which its counsel deems
necessary;
(v) Maintenance of Insurance. Maintain, and cause their respective
Subsidiaries to maintain, insurance in such amounts as are reasonable to
cover such risks as are customary in relation to the character and location
of its properties and the nature of its business;
(vi) Maintenance of Books and Records. Maintain, and cause their
respective Subsidiaries to maintain, books of account and records in
accordance with generally accepted accounting principles applied on a basis
consistent with those principles used in preparing the financial statements
heretofore delivered;
(vii) Delivery of Securities Documents. Deliver to the other, copies
of all Securities Documents simultaneously with the filing thereof;
(viii) Taxes. File all federal, state, and local tax returns required
to be filed by them or their respective Subsidiaries on or before the date
such returns are due (including any extensions) and pay all taxes shown to
be due on such returns on or before the date such payment is due; or
Section 4.11 Employee Benefits and Termination Benefits.
(a) Employee Benefits. On and after the Effective Date, the employee
pension and welfare benefit plans of Sovereign and Bankers may, at Sovereign's
election and subject to the requirements of the IRC, continue to be maintained
separately or consolidated, provided, however, that Bankers employees shall
receive benefits at least as favorable, in the aggregate, as the benefits to
which they were entitled on December 31, 1996. In the event of a consolidation
of any or all of such plans or in the event of termination of the Bankers
benefit plans, Bankers and Bankers Savings employees shall receive credit for
service with Bankers or Bankers Savings under any Sovereign benefit plan, or new
Sovereign benefit plan in which such employees would be eligible to enroll for
purposes of eligibility and vesting determination. In the event of any
termination of or consolidation of any Bankers or Bankers Savings health plan
with any Sovereign health plan, all employees of Bankers or Bankers Savings and
all retired employees at Bankers and Bankers Savings who were eligible for
continued coverage under the terminated plan shall have immediate coverage under
any successor health plan without the necessity of satisfying a waiting period
for coverage of any pre-existing condition. Except as provided in Section
4.11(c) below, in the event of a termination or consolidation of any Bankers or
Bankers Savings health plan, terminated Bankers or Bankers Savings employees
will have the right to continue coverage under group health plans of Sovereign
and/or the Sovereign subsidiaries in accordance with the IRC Section 4980B(f).
(b) Termination Benefits. Bankers shall cause to be delivered to Sovereign
concurrently with the execution of this Agreement with respect to each
individual named on the Benefits Schedule included in the Bankers Disclosure
Schedule, the written acknowledgment of each such individual in the form
attached hereto as Exhibit 4 pursuant to which each such individual agrees and
acknowledges that the dollar amount set forth opposite such individual's name on
such Benefits Schedule is the entire amount that would be due to such individual
under any employment agreement, special termination agreement, supplemental
executive retirement plan, deferred bonus plan, deferred compensation plan,
salary continuation plan, or any other benefit or welfare plan maintained by
Bankers solely for the
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benefit of officers of Bankers or Bankers Subsidiaries assuming a termination of
such individual's employment on June 30, 1997, subsequent to the Closing Date.
Bankers and Sovereign acknowledge and agree that the amounts shown on the
Benefits Schedule and the letter of acknowledgement for each officer named
herein reflect a good faith estimate of the amounts that will be payable to such
individuals under the circumstances described and may be subject to adjustment
upon an actual termination of employment in order to reflect increases in such
individuals' compensation and benefit plans consistent with past practices for
routine periodic increases.
(c) Severance Policy. Sovereign Bank will follow the Banker Savings
severance policy as to any employee of Bankers Savings whose employment is
terminated in connection with the Merger either because such employee's position
is eliminated or such employee is not offered comparable employment (i.e., not
offered employment for a position of generally similar job description or
responsibilities or in a location within 50 miles from Bankers' headquarters,
within three (3) months of the Effective Date (excluding any employee who has an
existing employment or special termination agreement or whose employment is
terminated for non-performance or other cause)). Payment under such policy shall
be equal to one week's pay for each year of service, but no less than 14 weeks'
pay for officers with the rank of vice president or above and no less than four
weeks' pay for non-officers. Part-time employees' payments shall be determined
based on an average week's pay based on their annual compensation for the most
recent full year. An employee entitled to payment under the foregoing severance
policy shall also be eligible for continued participation in the health
insurance plan maintained by Bankers Savings or Sovereign that such employee
would have been eligible for if such employee's employment had not been
terminated, or similar health insurance coverage to be provided by Sovereign, at
the same level of coverage and employee co-payment requirements as applicable to
such employee immediately prior to such termination. Such health insurance
coverage shall continue for (i) one month in the case of an employee with less
than six years of service, (ii) two months in the case of an employee with at
least (6) six, but not more than 10, years of service, (iii) three months in the
case of an employee with at least 11, but not more than 15, years of service and
(iv) four months in the case of an employee with 16 or more years of service.
The benefits provided to terminated Bankers and Bankers Savings employees under
this subsection are the only severance benefits payable by Bankers or Bankers
Savings under any plan or policy and shall be in lieu of any termination
benefits to which such employees would otherwise be entitled under Sovereign's
or Sovereign Bank's severance policies or programs then in effect.
(d) Intention Regarding Future Employment. It is the intent of Sovereign
Bank in connection with reviewing applicants for employment positions to give
any Bankers Savings employee who is terminated within three (3) months of the
Effective Date the same consideration as is afforded Sovereign Bank employees
for such positions in accordance with existing formal or informal polices for a
period of three (3) months from such date of termination.
Section 4.12 Duty to Advise; Duty to Update Sovereign's Disclosure
Schedule. Sovereign shall promptly advise Bankers of any change or event having
a Material Adverse Effect on it or on any Sovereign Subsidiary or which it
believes would or would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants set forth herein.
Sovereign shall update Sovereign's Disclosure Schedule as promptly as
practicable after the occurrence of an event or fact which, if such event or
fact had occurred prior to the date of this Agreement, would have been disclosed
in the Sovereign Disclosure Schedule. The delivery of such updated Schedule
shall not relieve Sovereign from any breach or violation of this Agreement and
shall not have any effect for the purposes of determining the satisfaction of
the condition set forth in Section 5.01(c) hereof.
Section 4.13 Affiliate Letter. No later than five days after the date of
this Agreement, Bankers shall cause to be delivered to Sovereign the Letter
Agreement attached hereto as Exhibit 1, executed by each director and officer
set forth thereon.
Section 4.14 Publication of Combined Financial Results. Sovereign shall
use reasonable efforts to publish as soon as possible, but no later than 30 days
after the end of the first month after the Effective Date in which there are at
least 30 days of post-Merger combined operations (which month
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may be the month in which the Effective Date occurs), combined revenues and net
income figures as contemplated by and in accordance with the terms of SEC
Accounting Series Release No. 135, provided, however, that Sovereign may delay
publishing such information for such period of times as it, in its good faith
reasonable judgment, deems necessary or desirable to achieve a bona fide
corporate purpose.
ARTICLE V
CONDITIONS
Section 5.01 Conditions to Bankers' Obligations under this Agreement. The
obligations of Bankers hereunder shall be subject to satisfaction at or prior to
the Closing Date of each of the following conditions, unless waived by Bankers
pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on the
part of, Sovereign and Sovereign Bank to authorize the execution, delivery and
performance of this Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement and the Bank
Plan of Merger, shall have been duly and validly taken by Sovereign and
Sovereign Bank; and Bankers shall have received certified copies of the
resolutions evidencing such authorizations;
(b) Covenants. The obligations and covenants of Sovereign required by this
Agreement to be performed by Sovereign at or prior to the Closing Date shall
have been duly performed and complied with in all respects, except where the
failure to perform or comply with any obligation or covenant would not, either
individually or in the aggregate, result in a Material Adverse Effect with
respect to Sovereign;
(c) Representations and Warranties. The representations and warranties of
Sovereign set forth in this Agreement shall be true and correct, as of the date
of this Agreement, and as of the Closing Date as though made on and as of the
Closing Date, except as to any representation or warranty (i) which specifically
relates to an earlier date or (ii) where the breach of the representation or
warranty would not, either individually or in the aggregate, constitute a
Material Adverse Effect with respect to Sovereign;
(d) Approvals of Regulatory Authorities. Sovereign shall have received all
required approvals of Regulatory Authorities of the Merger, and delivered copies
thereof to Bankers; and all notice and waiting periods required thereunder shall
have expired or been terminated;
(e) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby;
(f) No Material Adverse Effect. Since December 31, 1996, there shall not
have occurred any Material Adverse Effect with respect to Sovereign;
(g) Officer's Certificate. Sovereign shall have delivered to Bankers a
certificate, dated the Closing Date and signed, without personal liability, by
its chairman or president, to the effect that the conditions set forth in
subsections (a) through (e) of this Section 5.01 have been satisfied, to the
best knowledge of the officer executing the same;
(h) Opinion of Sovereign's Counsel. Bankers shall have received an opinion
of Stevens & Lee, counsel to Sovereign, dated the Closing Date, in form and
substance reasonably satisfactory to Bankers and its counsel to the effect set
forth on Exhibit 5 attached hereto;
(i) Registration Statement. The Registration Statement shall be effective
under the Securities Act and no proceedings shall be pending or threatened by
the SEC to suspend the effectiveness of the Registration Statement; and all
required approvals by state securities or "blue sky" authorities with respect to
the transactions contemplated by this Agreement, shall have been obtained;
(j) Tax Opinion. Bankers shall have received an opinion of Stevens & Lee,
substantially to the effect set forth on Exhibit 6 attached hereto;
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(k) Approval of Bankers' Shareholders. This Agreement shall have been
approved by the shareholders of Bankers by such vote as is required under
Bankers' articles of incorporation and bylaws or under Nasdaq requirements
applicable to it; and
(l) Investment Banking Opinion. Bankers shall have received an oral
opinion from Alex. Brown on or before the date of this Agreement and updated in
writing as of a date within five (5) days of mailing the Prospectus/Proxy
Statement, to the effect that the consideration to be received by shareholders
of Bankers pursuant to this Agreement is fair, from a financial point of view,
to such shareholders.
Section 5.02 Conditions to Sovereign's Obligations under this
Agreement. The obligations of Sovereign hereunder shall be subject to
satisfaction at or prior to the Closing Date of each of the following
conditions, unless waived by Sovereign pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on the
part of, Bankers and Bankers Savings to authorize the execution, delivery and
performance of this Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement and the Bank
Plan of Merger, shall have been duly and validly taken by Bankers and Bankers
Savings; and Sovereign shall have received certified copies of the resolutions
evidencing such authorizations;
(b) Covenants. The obligations and covenants of Bankers, required by this
Agreement to be performed by it at or prior to the Closing Date shall have been
duly performed and complied with in all respects, except where the failure to
perform or comply with any obligation or covenant would not, either individually
or in the aggregate, result in a Material Adverse Effect with respect to
Bankers;
(c) Representations and Warranties. The representations and warranties of
Bankers set forth in this Agreement shall be true and correct as of the date of
this Agreement, and as of the Closing Date as though made on and as of the
Closing Date, except as to any representation or warranty (i) which specifically
relates to an earlier date or (ii) where the breach of the representation or
warranty would not, either individually or in the aggregate, result in a
Material Adverse Effect with respect to Bankers;
(d) Approvals of Regulatory Authorities. Sovereign shall have received all
required approvals of Regulatory Authorities for the Merger, without the
imposition of any term or condition that would have a Material Adverse Effect on
Sovereign upon completion of the Merger; and all notice and waiting periods
required thereunder shall have expired or been terminated;
(e) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby;
(f) No Material Adverse Effect. Since December 31, 1996, there shall not
have occurred any Material Adverse Effect with respect to Bankers;
(g) Officer's Certificate. Bankers shall have delivered to Sovereign a
certificate, dated the Closing Date and signed, without personal liability, by
its chairman of the board or president, to the effect that the conditions set
forth in subsections (a) through (e) of this Section 5.02 have been satisfied,
to the best knowledge of the officer executing the same;
(h) Opinions of Bankers' Counsel. Sovereign shall have received an opinion
of Thacher Proffitt & Wood, counsel to Bankers, dated the Closing Date, in form
and substance reasonably satisfactory to Sovereign and its counsel to the effect
set forth on Exhibit 7 attached hereto;
(i) Registration Statement. The Registration Statement shall be effective
under the Securities Act and no proceedings shall be pending or threatened by
the SEC to suspend the effectiveness of the Registration Statement; and all
required approvals by state securities or "blue sky" authorities with respect to
the transactions contemplated by this Agreement, shall have been obtained;
(j) Tax Opinion. Sovereign shall have received an opinion of Stevens &
Lee, its counsel, substantially to the effect set forth on Exhibit 6 attached
hereto;
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(k) Pooling Letter. Sovereign shall have received an opinion from Ernst &
Young to the effect that the Merger will be treated as a "pooling of interests"
for financial accounting purposes;
(l) Phase I Environmental Audit Results. The results of any "phase I
environmental audit" conducted pursuant to Section 4.11(a)(ii) with respect to
owned or occupied bank premises shall be reasonably satisfactory to Sovereign;
provided, however, that (i) any such environmental audit must be initiated
within 45 days of the date of this Agreement, (ii) Sovereign must elect to
terminate this Agreement or waive its right to terminate the Agreement under
this Section 5.02(l) within 15 days of receiving the results of such
environmental audit and (iii) Sovereign may not terminate this Agreement under
this Section 5.02(l) unless the results of such audits result in a Material
Adverse Effect;
(m) Liquidation Account. Neither the Merger or consummation of the Bank
Plan of Merger shall require Sovereign, Bankers or any Subsidiary of either to
distribute to depositors the liquidation account established by Bankers Savings
in connection with its conversion from mutual to stock form;
(n) Pension Plans. With respect to each pension plan subject to Title IV
of ERISA, (i) the present value of the accrued benefits under such plan shall
not, as of the Closing Date, exceed the then current value of the assets of such
plan allocable to such accrued benefits and (ii) no amounts shall be contributed
by Bankers or any Bankers Subsidiary to any such pension plan in the one year
period preceding the Closing Date;
(o) Approval of Sovereign's Shareholders. This Agreement shall have been
approved by the shareholders of Sovereign by such vote as is required under
Sovereign's articles of incorporation and bylaws or under Nasdaq requirements
applicable to it; and
(p) Investment Banking Opinion. Sovereign shall have received an oral
opinion from Ryan, Beck & Co., Inc. on or before the date of this Agreement and
updated in writing as of a date within five (5) days of mailing the
Prospectus/Proxy Statement to the effect that the Merger is fair to Sovereign.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
Section 6.01 Termination. This Agreement may be terminated on or at any
time prior to the Closing Date:
(a) By the mutual written consent of the parties hereto;
(b) By Sovereign or Bankers:
(i) if there shall have been any breach of any representation,
warranty, covenant or other obligation of Sovereign which results in a
Material Adverse Effect with respect to Sovereign, on the one hand, or of
Bankers which results in a Material Adverse Effect with respect to Bankers,
on the other hand, and such breach cannot be, or shall not have been,
remedied within 30 days after receipt by such other party of notice in
writing specifying the nature of such breach and requesting that it be
remedied;
(ii) if the Closing Date shall not have occurred on or before November
30, 1997, unless the failure of such occurrence shall be due to the failure
of the party seeking to terminate this Agreement to perform or observe its
agreements set forth in this Agreement required to be performed or observed
by such party on or before the Closing Date; or
(iii) if either party has been informed in writing by a Regulatory
Authority whose approval or consent has been requested that such approval
or consent is unlikely to be granted, unless the failure of such occurrence
shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe its agreements set forth herein required to
be performed or observed by such party on or before the Closing Date; or
(c) By Bankers, on the Closing Date if both of the following conditions are
satisfied:
(1) the Sovereign Market Value as of the close of business on the
Determination Date shall be less than $8.59; and
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(2) (i) the quotient obtained by dividing the Sovereign Market Value
as of the close of business on the Determination Date by $11.46 (such
number being referred to herein as the "Sovereign Ratio") shall be less
than (ii) the quotient obtained by dividing the Index Price on the
Determination Date by the Index Price on the Starting Date and subtracting
0.15 from the quotient in this clause (2)(ii).
subject, however, to the following: If Bankers shall elect to terminate this
Agreement pursuant to this Section 6.01(c), it shall give written notice thereof
to Sovereign on the Closing Date; but provided further, that Sovereign shall
have the option to elect to increase the Exchange Ratio to equal the quotient
obtained by dividing $23.90 by the Sovereign Market Value determined as of the
close of business on the Determination Date, whereupon no termination shall have
occurred pursuant to this Section 6.01(c) and this Agreement shall remain in
effect in accordance with its terms (except as the Exchange Ratio shall have
been so modified), and any references in this Agreement to "Exchange Ratio" or
"Applicable Exchange Ratio" shall thereafter be deemed to refer to the Exchange
Ratio as adjusted pursuant to this Section 6.01(c).
For purposes of this Section 6.01(c), the following terms shall have the
meanings indicated.
"Determination Date" shall mean the date immediately preceding the Closing
Date.
"Index Group" shall mean the fifteen thrift holding companies listed below,
the common stocks of all of which shall be publicly traded and as to which there
shall not have been, since the Starting Date and before the Determination Date,
any public announcement of a proposal for such company to be acquired or for
such company to acquire another company or companies in transactions with a
value exceeding 25% of the acquiror's market capitalization. In the event that
any such company or companies are removed from the Index Group, the weights
(which have been determined based upon the number of shares of outstanding
common stock) redistributed proportionately for purposes of determining the
Index Price. The fifteen thrift holding companies and the weights attributed to
them are as follows:
THRIFT HOLDING COMPANIES % WEIGHTING
- ------------------------ -----------
GreenPoint Financial Corp.................................... 8.56%
Charter One Financial........................................ 8.37%
Dime Bancorp, Inc............................................ 18.88%
TCF Financial Corp........................................... 6.26%
Glendale Federal Bank, FSB................................... 8.98%
Washington Federal, Inc...................................... 7.77%
First Financial Corp......................................... 6.63%
Long Island Bancorp, Inc..................................... 4.41%
Bank United Corp............................................. 5.69%
Astoria Financial Corporation................................ 3.87%
Peoples Heritage Finl Group.................................. 5.09%
Coast Savings Financial...................................... 3.35%
Commercial Federal Corporation............................... 3.87%
Collective Bancorp, Inc...................................... 3.68%
Downey Financial Corp........................................ 4.59%
Total................................................... 100.00%
---------
---------
"Index Price" on a given date shall mean the weighted average (weighted in
accordance with the factors listed above) of the closing sales prices of the
companies composing the Index Group (reported as provided with respect to the
Sovereign Market Value).
"Starting Date" shall mean February 4, 1997.
If any company belonging to the Index Group or Sovereign declares or effects a
stock dividend, reclassification, recapitalization, split-up, combination,
exchange of shares, or similar transaction
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between the Starting Date and the Determination Date, the prices for the common
stock of such company or Sovereign shall be appropriately adjusted for the
purposes of applying this Section 6.01(c).
Section 6.02 Effect of Termination. If this Agreement is terminated
pursuant to Section 6.01 hereof, this Agreement shall forthwith become void
(other than Section 4.02(d), Section 4.10(b)(iii) and Section 7.01 hereof, which
shall remain in full force and effect), and there shall be no further liability
on the part of Sovereign or Bankers to the other, except for any liability
arising out of any uncured willful breach of any covenant or other agreement
contained in this Agreement or any fraudulent breach of a representation or
warranty.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Expenses. Except for the cost of printing and mailing the
Proxy Statement/Prospectus which shall be shared equally, each party hereto
shall bear and pay all costs and expenses incurred by it in connection with the
transactions contemplated hereby, including fees and expenses of its own
financial consultants, accountants and counsel.
Section 7.02 Non-Survival of Representations and Warranties. All
representations, warranties and, except to the extent specifically provided
otherwise herein, agreements and covenants, other than those covenants set forth
in Sections 1.02(d)(i) and (iii), 1.02(g), 4.05, and 4.11(a) and (c) which will
survive the Merger, shall terminate on the Closing Date; provided, however, that
the covenants contained in Sections 4.11(a) and (c) shall survive the Merger
only for a period of one (1) year.
Section 7.03 Amendment, Extension and Waiver. Subject to applicable law,
at any time prior to the consummation of the transactions contemplated by this
Agreement, the parties may (a) amend this Agreement, (b) extend the time for the
performance of any of the obligations or other acts of either party hereto, (c)
waive any inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto, or (d) waive compliance with any of
the agreements or conditions contained in Articles IV and V hereof or otherwise.
This Agreement may not be amended except by an instrument in writing authorized
by the respective Boards of Directors and signed, by duly authorized officers,
on behalf of the parties hereto. Any agreement on the part of a party hereto to
any extension or waiver shall be valid only if set forth in an instrument in
writing signed by a duly authorized officer on behalf of such party, but such
waiver or failure to insist on strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
Section 7.04 Entire Agreement. This Agreement, including the documents and
other writings referred to herein or delivered pursuant hereto, contains the
entire agreement and understanding of the parties with respect to its subject
matter. This Agreement supersedes all prior arrangements and understandings
between the parties, both written or oral with respect to its subject matter.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors; provided, however, that nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto and their respective successors, any rights, remedies,
obligations or liabilities other than pursuant to Sections 1.02(d)(i) and (iii),
1.02(g), 4.05, and 4.11(a) and (c) with respect to indemnification, employee
benefits and certain other matters, and provided, further, that any such rights,
remedies, obligations or liabilities conferred pursuant to Sections 4.11(a) and
(c) shall terminate and expire one (1) year from the Effective Date.
Section 7.05 No Assignment. Neither party hereto may assign any of its
rights or obligations hereunder to any other person, without the prior written
consent of the other party hereto.
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Section 7.06 Notices. All notices or other communications hereunder shall
be in writing and shall be deemed given if delivered personally, mailed by
prepaid registered or certified mail (return receipt requested), or sent by
telecopy, addressed as follows:
(a) If to Sovereign, to:
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Attention: Jay S. Sidhu, President and Chief
Executive Officer
Telecopy No.: (610) 320-8448
with a copy to:
Stevens & Lee
111 North Sixth Street
Reading, Pennsylvania 19601
Attention: Joseph M. Harenza, Esquire and
David W. Swartz, Esquire
Telecopy No.: (610) 376-5610
(b) If to Bankers, to:
Bankers Corp.
210 Smith Street
Perth Amboy, New Jersey 08861
Attention: Joseph P. Gemmell
Chairman, President and Chief
Executive Officer
Telecopy No.: (908) 324-7813
with copies to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Omer S.J. Williams, Esquire
Telecopy No.: (212) 432-7152
Section 7.07 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 7.08 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
Section 7.09 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
Section 7.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic internal law (including the law of
conflicts of law) of the Commonwealth of Pennsylvania.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
SOVEREIGN BANCORP, INC.
By: /s/ JAY S. SIDHU
----------------------------------
Jay S. Sidhu
President and Chief Executive
Officer
BANKERS CORP.
By: /s/ JOSEPH P. GEMMELL
----------------------------------
Joseph P. Gemmell,
Chairman, President and
Chief Executive Officer
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EXHIBIT 1
February 5, 1997
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Ladies and Gentlemen:
Sovereign Bancorp, Inc. ("Sovereign") and Bankers Corp. ("Bankers") desire
to enter into an agreement dated February 5, 1997 ("Agreement"), pursuant to
which, subject to the terms and conditions set forth therein, (a) Bankers will
merge with and into Sovereign with Sovereign surviving the Merger, and (b)
shareholders of Bankers will receive common stock of Sovereign in exchange for
common stock of Bankers outstanding on the closing date (the foregoing,
collectively, referred to herein as the "Merger").
Sovereign has required, as a condition to its execution and delivery to
Bankers of the Agreement, that the undersigned, being directors, executive
officers and major shareholders of Bankers, execute and deliver to Sovereign
this Letter Agreement.
Each of the undersigned, in order to induce Sovereign to execute and
deliver to Bankers the Agreement, hereby irrevocably:
(a) Agrees to be present (in person or by proxy) at all meetings of
shareholders of Bankers called to vote for approval of the Merger so that
all shares of common stock of Bankers then owned by the undersigned will be
counted for the purpose of determining the presence of a quorum at such
meetings and to vote all such shares (i) in favor of approval and adoption
of the Agreement and the transactions contemplated thereby (including any
amendments or modifications of the terms thereof approved by the Board of
Directors of Bankers), and (ii) against approval or adoption of any other
merger, business combination, recapitalization, partial liquidation or
similar transaction involving Bankers;
(b) Agrees not to vote or execute any written consent to rescind or
amend in any manner any prior vote or written consent, as a shareholder of
Bankers, to approve or adopt the Agreement;
(c) Agrees to use reasonable best efforts to cause the Merger to be
consummated;
(d) Agrees not to sell, transfer or otherwise dispose of any common
stock of Bankers on or prior to the record date for the meeting of Bankers
shareholders to vote on the Merger;
(e) Except as permitted by Section 4.06 of the Agreement, agrees not
to solicit, initiate or engage in any negotiations or discussions with any
party other than Sovereign with respect to any offer, sale, transfer or
other disposition of, any shares of common stock of Bankers now or
hereafter owned by the undersigned;
(f) Agrees not to offer, sell, transfer or otherwise dispose of any
shares of common stock of Sovereign received in the Merger, except (i) at
such time as a registration statement under the Securities Act of 1933, as
amended ("Securities Act") covering sales of such Sovereign common stock is
effective and a prospectus is made available under the Securities Act, (ii)
within the limits, and in accordance with the applicable provisions of,
Rule 145(d) under the Securities Act, or (iii) in a transaction which, in
the opinion of counsel satisfactory to Sovereign or as described in a
"no-action" or interpretive letter from the staff of the Securities and
Exchange Commission ("SEC"), is not required to be registered under the
Securities Act; and acknowledges and agrees that Sovereign is under no
obligation to register the sale, transfer or other disposition of Sovereign
common stock by the undersigned or on behalf of the undersigned, or to take
any other action necessary to make an exemption from registration
available;
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(g) Notwithstanding the foregoing, agrees not to sell, or in any other
way reduce the risk of the undersigned relative to, any shares of common
stock of Bankers or of common stock of Sovereign, during the period
commencing thirty days prior to the effective date of the Merger and ending
on the date on which financial results covering at least thirty days of
post-Merger combined operations of Sovereign and Bankers have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies;
(h) Agrees that Sovereign shall not be bound by any attempted sale of
any shares of Sovereign common stock, and Sovereign's transfer agent shall
be given an appropriate stop transfer order and shall not be required to
register any such attempted sale, unless the sale has been effected in
compliance with the terms of this Letter Agreement; and further agrees that
the certificate representing shares of Sovereign common stock owned by the
undersigned may be endorsed with a restrictive legend consistent with the
terms of this Letter Agreement;
(i) Acknowledges and agrees that the provisions of subparagraphs (f),
(g) and (h) hereof also apply to shares of Sovereign common stock received
in the Merger (or any shares of Bankers common stock or of Sovereign common
stock, whether or not received in the Merger, for the period referred to in
subparagraph (g) above) owned by (i) his or her spouse, (ii) any of his or
her relatives or relatives of his or her spouse occupying his or her home,
(iii) any trust or estate in which he or she, his or her spouse, or any
such relative owns at least a 10% beneficial interest or of which any of
them serves as trustee, executor or in any similar capacity, and (iv) any
corporation or other organization in which the undersigned, any affiliate
of the undersigned, his or her spouse, or any such relative owns at least
10% of any class of equity securities or of the equity interest;
(j) Represents that the undersigned has no plan or intention to sell,
exchange, or otherwise dispose of any shares of common stock of Sovereign
to be received in the Merger prior to expiration of the time period
referred to in subparagraph (g) hereof; and
(k) Represents that the undersigned has the capacity to enter into
this Letter Agreement and that it is a valid and binding obligation
enforceable against the undersigned in accordance with its terms, subject
to bankruptcy, insolvency and other laws affecting creditors' rights and
general equitable principles.
The obligations set forth herein shall terminate concurrently with any
termination of the Agreement.
------------------------
This Letter Agreement may be executed in two or more counterparts, each of
which shall be deemed to constitute an original, but all of which together shall
constitute one and the same Letter Agreement.
------------------------
This Letter Agreement shall terminate concurrently with any termination of
the Agreement in accordance with its terms.
------------------------
The undersigned intend to be legally bound hereby.
Sincerely,
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<PAGE>
EXHIBIT 2
STOCK OPTION AGREEMENT
[SEE ANNEX B]
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<PAGE>
EXHIBIT 3
BANK PLAN OF MERGER
THIS BANK PLAN OF MERGER ("Plan of Merger") dated February 5, 1997, is by
and between SOVEREIGN BANK, a Federal Savings Bank ("Sovereign Bank"), and
BANKERS SAVINGS ("Bankers Savings").
BACKGROUND
1. Sovereign Bank is a federal savings bank and a wholly-owned subsidiary
of Sovereign Bancorp, Inc., a Pennsylvania corporation ("Sovereign"). The
authorized capital stock of Sovereign Bank consists of 1,000 shares of common
stock, par value $1.00 per share ("Sovereign Bank Common Stock"), of which at
the date hereof 1,000 shares are issued and outstanding.
2. Bankers Savings is a New Jersey state-chartered savings bank and a
wholly-owned subsidiary of Bankers Corp., a New Jersey corporation ("Bankers").
The authorized capital stock of Bankers Savings consists of 10,000,000 shares of
common stock, par value $5.00 per share ("Bankers Savings Common Stock"), of
which at the date hereof 500,000 shares are issued and outstanding.
3. The respective Boards of Directors of Sovereign Bank and Bankers Savings
deem the Merger of Bankers Savings with and into Sovereign Bank, pursuant to the
terms and conditions set forth or referred to herein, to be desirable and in the
best interests of the respective corporations and their respective shareholders.
4. The respective Boards of Directors of Sovereign Bank and Bankers Savings
have adopted resolutions approving this Plan of Merger. The respective Boards of
Directors of Sovereign and Bankers have adopted resolutions approving an
Agreement dated February 5, 1997 (the "Agreement") between Sovereign and
Bankers, pursuant to which this Plan of Merger is being executed by Sovereign
Bank and Bankers Savings.
AGREEMENT
In consideration of the premises and of the mutual covenants and agreements
herein contained, and in accordance with the applicable laws and regulations of
the United States of America, the Commonwealth of Pennsylvania, and the State of
New Jersey Sovereign Bank and Bankers Savings, intending to be legally bound
hereby, agree:
ARTICLE I
MERGER
Subject to the terms and conditions of this Plan of Merger and in
accordance with the applicable laws and regulations of the United States of
America, the Commonwealth of Pennsylvania, and the State of New Jersey on the
Effective Date (as that term is defined in Article V hereof): Bankers Savings
shall merge with and into Sovereign Bank; the separate existence of Bankers
Savings shall cease; and Sovereign Bank shall be the surviving corporation (such
transaction referred to herein as the "Merger" and Sovereign Bank, as the
surviving corporation in the Merger, referred to herein as the "Surviving
Bank"). Sovereign Bank will have its home office at 1130 Berkshire Boulevard,
Wyomissing, Pennsylvania 19610 and its branch offices at the locations listed on
Exhibit "A."
ARTICLE II
CHARTER AND BYLAWS
On and after the Effective Date, the Charter and Bylaws of Sovereign Bank,
as in effect immediately prior to the Effective Date, shall automatically be and
remain the Charter and Bylaws of the Surviving Bank, until altered, amended or
repealed.
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ARTICLE III
BOARD OF DIRECTORS AND OFFICERS
3.1 Board of Directors. On and after the Effective Date, the directors of
the Surviving Bank shall consist of the directors of Sovereign Bank duly elected
and holding office immediately prior to the Effective Date and Joseph P.
Gemmell. The names and residence addresses of the directors are:
NAME RESIDENCE ADDRESS*
---- ------------------
Joseph P. Gemmell......................
Brian Hard.............................
Stewart B. Kean........................
Joseph E. Lewis........................
Howard D. Mackey.......................
Richard E. Mohn........................
Rhoda S. Oberholtzer...................
Patrick J. Petrone.....................
Michael J. Quigley, III................
Daniel K. Rothermel....................
Elizabeth B. Rothermel.................
Robert A. Sadler.......................
Jay S. Sidhu...........................
Cameron C. Troilo......................
G. Arthur Weaver.......................
Dr. Paul B. Wieand.....................
Theodore Ziaylek, Jr...................
- ------------------
* Intentionally omitted.
3.2 Officers. On and after the Effective Date, the officers of the
Surviving Bank shall consist of the officers of Sovereign Bank duly elected and
holding office immediately prior to the Effective Date. The names and titles of
the officers are:
NAME TITLE
---- -----
Jay S. Sidhu..................... President and Chief Executive Officer
Karl D. Gerhart.................. Treasurer and Chief Financial Officer
Lawrence M. Thompson, Jr......... Secretary and Chief Administrative Officer
Dana J. Albera................... Assistant Secretary
ARTICLE IV
CONVERSION OF SHARES
4.1 Stock of Sovereign Bank. Each share of Sovereign Bank Common Stock
issued and outstanding immediately prior to the Effective Date shall, on and
after the Effective Date, continue to be issued and outstanding as a share of
common stock of the Surviving Bank.
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4.2 Stock of Bankers Savings. Each share of Bankers Savings Common Stock
issued and outstanding immediately prior to the Effective Date, and each share
of Bankers Savings Common Stock issued and held in the treasury of Bankers as of
the Effective Date, if any, shall, on the Effective Date, be cancelled, and no
cash, stock or other property shall be delivered in exchange therefor.
ARTICLE V
EFFECTIVE DATE OF THE MERGER
The Merger shall be effective on the date on which all filings with
government agencies, as may be required under applicable laws and regulations
for the Merger to become effective, are made and accepted by the applicable
agencies (the "Effective Date").
ARTICLE VI
EFFECT OF THE MERGER
6.1 Separate Existence. On the Effective Date: the separate existence of
Bankers Savings shall cease; and all of the property (real, personal and mixed),
rights, powers, duties and obligations of Bankers Savings shall be taken and
deemed to be transferred to and vested in the Surviving Bank, without further
act or deed, as provided by applicable laws and regulations.
6.2 Savings Accounts. After the Effective Date, Sovereign Bank will
continue to issue savings accounts on the same basis as immediately prior to the
Effective Date.
6.3 Liquidation Account. After the Effective Date, Sovereign Bank will
continue to maintain the Sovereign Bank liquidation account for the benefit of
eligible account holders on the same basis as immediately prior to the Effective
Date, and Bankers Savings' liquidation account for the benefit of eligible
account holders shall automatically be deemed assumed by Sovereign Bank, as of
the Effective Date, on the same basis as it existed immediately prior to the
Effective Date.
ARTICLE VII
CONDITIONS PRECEDENT
The obligations of Sovereign Bank and Bankers Savings to effect the Merger
shall be subject to satisfaction, unless duly waived by the party permitted to
do so, of the conditions precedent set forth in the Agreement.
ARTICLE VIII
TERMINATION
This Plan of Merger shall terminate upon any termination of the Agreement
in accordance with its terms; provided, however, that any such termination of
this Plan of Merger shall not relieve any party hereto from liability on account
of a breach by such party of any of the terms hereof or thereof.
ARTICLE IX
AMENDMENT
Subject to applicable law, this Plan of Merger may be amended, by action of
the respective Boards of Directors of the parties hereto, at any time prior to
consummation of the Merger, but only by an instrument in writing signed by duly
authorized officers on behalf of the parties hereto.
ARTICLE X
MISCELLANEOUS
10.1 Extensions; Waivers. Each party, by a written instrument signed by a
duly authorized officer, may extend the time for the performance of any of the
obligations or other acts of the other
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party hereto and may waive compliance with any of the covenants, or performance
of any of the obligations, of the other party contained in this Plan of Merger.
10.2 Notices. Any notice or other communication required or permitted
under this Plan of Merger shall be given, and shall be effective, in accordance
with the provisions of Section 7.06 of the Agreement.
10.3 Captions. The headings of the several Articles and Sections herein
are inserted for convenience of reference only and are not intended to be part
of, or to affect the meaning or interpretation of, this Plan of Merger.
10.4 Counterparts. For the convenience of the parties hereto, this Plan of
Merger may be executed in several counterparts, each of which shall be deemed
the original, but all of which together shall constitute one and the same
instrument.
10.5 Governing Law. This Plan of Merger shall be governed by and construed
in accordance with the laws of the United States of America and, in the absence
of controlling Federal law, in accordance with the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, Sovereign Bank and Bankers Savings have caused this
Bank Plan of Merger to be executed by their duly authorized officers and their
corporate seals to be hereunto affixed on the date first written above.
SOVEREIGN BANK,
a Federal Savings Bank
By: /s/ JAY S. SIDHU
----------------------------------
Jay S. Sidhu, President
BANKERS SAVINGS
By: /s/ JOSEPH P. GEMMELL
----------------------------------
Joseph P. Gemmell,
Chairman of the Board, President and
Chief Executive Officer
A-44
<PAGE>
EXHIBIT "A"
TO PLAN OF MERGER
SOVEREIGN BANK
BRANCH LOCATIONS
[INTENTIONALLY OMITTED.]
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<PAGE>
EXHIBIT 4
FORM OF AGREEMENT RE: BENEFITS
February 5, 1997
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Gentlemen:
I, the undersigned, hereby acknowledge and agree that an amount not to
exceed $______ is the maximum amount that I would be entitled to receive from
Bankers, any Bankers subsidiary or any of their respective successors or assigns
pursuant to any employment agreement, special termination agreement,
supplemental executive retirement plan, deferred compensation plan, salary
continuation plan, or any other benefit or welfare plan assuming that my
employment with Bankers or any Bankers subsidiary (or any of their respective
successors or assigns) is terminated for any reason, whether voluntarily or
involuntarily, on June 30, 1997, and following the Closing Date of the
transaction described in the Agreement and Plan of Merger dated as of February
5, 1997 between Sovereign Bancorp, Inc. and Bankers Corp. (the "Agreement"). All
capitalized terms used herein but not defined herein shall have the meanings
given to them in the Agreement. The amount shown above represents the total of
all amounts available for payment in an immediate lump sum upon termination and
the present value, as of June 30, 1997 (based on a 6% per annum discount factor)
of all payments to be made on a date or dates subsequent to the date of
termination.
This letter is subject to the acknowledgement and agreement of Sovereign
Bancorp, Inc., as evidenced below, that the amount shown above reflects a good
faith estimate of the amounts that will be payable to me in the event of my
termination of employment on or after the Closing Date, as defined in the
Agreement, and may be subject to adjustment upon an actual termination of my
employment to reflect increases in my compensation and benefits due to the
passage of time or in accordance with the terms of Bankers' employee benefit
plans and past practices for routine increases.
Sincerely,
Acknowledged and Agreed to:
SOVEREIGN BANCORP, INC.
By
------------------------------------
Title
--------------------------------
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<PAGE>
EXHIBIT 5
FORM OF OPINION OF COUNSEL TO SOVEREIGN
Bankers shall have received from counsel to Sovereign, an opinion, dated as
of the Closing Date, substantially to the effect that, subject to normal
exceptions and qualifications:
(a) Sovereign and Sovereign Bank have full corporate power to carry
out the transactions contemplated in the Agreement and the Plan of Merger,
respectively. The execution and delivery of the Agreement and the Plan of
Merger and the consummation of the transactions contemplated thereunder
have been duly and validly authorized by all necessary corporate action on
the part of Sovereign and Sovereign Bank, and the Agreement and the Plan
constitute valid and legally binding obligations of Sovereign and Sovereign
Bank, respectively, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, receivership, conservatorship, and other laws
affecting creditors' rights generally and institutions the deposits of
which are insured by the FDIC, and as may be limited by the exercise of
judicial discretion in applying principles of equity. Subject to
satisfaction of the conditions set forth in the Agreement, neither the
transactions contemplated in the Agreement or the Plan, nor compliance by
Sovereign and Sovereign Bank with any of the respective provisions thereof,
will (i) conflict with or result in a breach or default under (A) the
articles of incorporation or bylaws of Sovereign or the charter or bylaws
of Sovereign Bank, or, (B) to the knowledge of such counsel, any note,
bond, mortgage, indenture, license, agreement or other material instrument
or obligation to which Sovereign or Sovereign Bank is a party; or (ii)
based on certificates of officers and without independent verification, to
the knowledge of such counsel, result in the creation or imposition of any
material lien or encumbrance upon the property of Sovereign or Sovereign
Bank, except such material lien, instrument or obligation that has been
disclosed pursuant to the Agreement or the Plan; or (iii) violate in any
material respect any order, writ, injunction or decree known to such
counsel, or any federal or Pennsylvania statute, rule or regulation
applicable to Sovereign or Sovereign Bank.
(b) Sovereign Bank is a validly existing federally-chartered savings
bank organized and in good standing under the laws of the United States of
America. The deposits of Sovereign Bank are insured to the maximum extent
provided by law by the Federal Deposit Insurance Corporation.
(c) There is, to the knowledge of such counsel, no legal,
administrative, arbitration or governmental proceeding or investigation
pending or threatened to which Sovereign or Sovereign Bank is a party which
would, if determined adversely to Sovereign or Sovereign Bank, have a
material adverse effect on the financial condition or results of operation
of Sovereign and Sovereign Bank taken as a whole, or which presents a claim
to restrain or prohibit the transactions contemplated by the Agreement and
the Plan, respectively.
(d) No consent, approval, authorization or order of any federal or
state court or federal or state governmental agency or body is required for
the consummation by Sovereign or Sovereign Bank of the transactions
contemplated by the Agreement and the Plan, except for such consents,
approvals, authorizations or orders as have been obtained.
(e) Upon the filing and effectiveness of the Articles of Merger with
the PDS, the Articles of Merger with the NJSOS, and Articles of Combination
with the OTS [and the NJDOB] in accordance with the Agreement and the Plan,
the mergers of Sovereign and Bankers and of Sovereign Bank and Bankers
Savings contemplated by the Agreement and the Plan, respectively, will have
been effected in compliance with all applicable federal and Pennsylvania
laws and regulations in all material respects.
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(f) The shares of Sovereign Common Stock to be issued in connection
with the merger of Bankers and Sovereign contemplated by the Agreement have
been duly authorized and will, when issued in accordance with the terms of
the Agreement, be validly issued, fully paid and nonassessable, free and
clear of any mortgage, pledge, lien, encumbrance or claim (legal or
equitable).
(g) On the sole basis of such counsel's participation in conferences
with officers and employees of Sovereign in connection with the Proxy
Statement/Prospectus, and without other independent investigation or
inquiry, such counsel has no reason to believe that the Proxy
Statement/Prospectus, including any amendments or supplements thereto
(except for the financial information, financial schedules and other
financial or statistical data contained therein and except for any
information supplied by Bankers or Bankers Savings for inclusion therein,
as to which counsel need express no belief), as of the date of mailing
thereof, contained any untrue statement of a material fact with respect to
Sovereign or omitted to state any material fact with respect to Sovereign
necessary to make any statement therein with respect to Sovereign, in light
of the circumstances under which it was made, not misleading. Counsel may
state in delivering such opinion, that such counsel has not independently
verified and does not assume the responsibility for the accuracy,
completeness or fairness of any information or statements contained in the
Proxy Statement/Prospectus, except with respect to identified statements of
law or regulations or legal conclusions relating to Sovereign or the
transactions contemplated in the Agreement and the Plan.
A-48
<PAGE>
EXHIBIT 6
FORM OF TAX OPINION OF STEVENS & LEE
Sovereign and Bankers shall have received an opinion of Stevens & Lee
substantially to the effect that, under the provisions of the IRC:
1. Provided the merger qualifies as a statutory merger under
applicable law, the transfer by Bankers of all of its assets to Sovereign
in exchange for Sovereign Common Stock (including fractional share
interests) and the assumption by Sovereign of all of Bankers' liabilities
will constitute a reorganization within the meaning of Section 368(a)(1)(A)
of the IRC.
2. Bankers and Sovereign will each be "a party to a reorganization"
within the meaning of Section 368(b) of the IRC.
3. Neither Bankers nor Sovereign will recognize any gain or loss upon
the transfer of Bankers' assets to Sovereign in exchange solely for
Sovereign Common Stock (including fractional share interests) and the
assumption by Sovereign of the liabilities of Bankers.
4. The basis of the Bankers assets in the hands of Sovereign will be
the same as the basis of such assets in the hands of Bankers immediately
prior to the merger.
5. The holding period of the assets of Bankers to be received by
Sovereign will include the period during which the assets were held by
Bankers.
6. No gain or loss will be recognized by the shareholders of Bankers
on the receipt of Sovereign Common Stock (including fractional share
interests) solely in exchange for their shares of Bankers Common Stock.
7. The basis of the Sovereign Common Stock (including fractional share
interests) to be received by the Bankers shareholders in the merger will be
the same as the basis of the Bankers Common Stock surrendered in exchange
therefor.
8. The holding period of the Sovereign Common Stock (including
fractional share interests) to be received by the Bankers shareholders in
the merger will include the period during which the Bankers shareholders
held their Bankers Common Stock, provided the shares of Bankers Common
Stock are held as a capital asset on the Effective Date.
9. The payment of cash in lieu of fractional share interests of
Sovereign Common Stock will be treated as if the fractional share interests
were distributed as part of the merger and then redeemed by Sovereign. Such
cash payments will be treated as having been received as distribution in
full payment in exchange for the fractional share interests redeemed, as
provided in Section 302(a) of the IRC.
10. The Sovereign Stock Purchase Rights transferred with the shares of
Sovereign Common Stock will not constitute "other property" within the
meaning of Section 356(a)(1)(B) of the IRC.
11. As provided in Section 381(c)(2) of the IRC and related Treasury
regulations, Sovereign will succeed to and take into account the earnings
and profits, or deficit in earnings and profits, of Bankers as of the
Effective Date. Any deficit in the earnings and profits of Sovereign or
Bankers will be used only to offset the earnings and profits accumulated
after the merger.
12. Pursuant to Section 381(a) of the IRC and related Treasury
regulations, Sovereign will succeed to and take into account the items of
Bankers described in Section 381(c) of the IRC. Such items will be taken
into account by Sovereign subject to the conditions and limitations of
Sections 381, 382, 383, and 384 of the IRC and the Treasury regulations
thereunder.
13. Provided the Bank Merger constitutes a statutory merger under
applicable law, the Bank Merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) of the IRC.
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14. Bankers Savings and Sovereign Bank will each be "a party to a
reorganization" within the meaning of Section 368(b) of the IRC.
15. Neither Bankers Savings nor Sovereign Bank will recognize any gain
or loss upon the transfer of Bankers Savings' assets to Sovereign Bank in
constructive exchange solely for Sovereign Bank common stock and the
assumption by Sovereign Bank of the liabilities of Bankers Savings.
16. The basis of the Bankers Savings assets in the hands of Sovereign
Bank will be the same as the basis of such assets in the hands of Bankers
Savings immediately prior to the Bank Merger.
17. The holding period of the Bankers Savings assets in the hands of
Sovereign Bank will include the period during which such assets were held
by Bankers Savings.
18. No gain or loss will be recognized by Sovereign, as the
shareholder of Bankers Savings, upon the constructive receipt of shares of
Sovereign Bank common stock in exchange for the Bankers Savings common
stock surrendered in exchange therefor in the Bank Merger.
19. The basis of the Sovereign Bank common stock to be held by
Sovereign after the Bank Merger will equal the basis of such stock
immediately before the Bank Merger, increased by the basis of the Bankers
Savings common stock surrendered in the constructive exchange.
20. As provided in Section 381(c)(2) of the IRC and related Treasury
regulations, Sovereign Bank will succeed to and take into account the
earnings and profits, or deficit in earnings and profits, of Bankers
Savings as of the effective date of the Bank Merger. Any deficit in the
earnings and profits of Sovereign Bank or Bankers Savings will be used only
to offset the earnings and profits accumulated after the Bank Merger.
21. Pursuant to Section 381(a) of the IRC and related Treasury
regulations, Sovereign Bank will succeed to and take into account the items
of Bankers Savings described in Section 381(c) of the IRC. Such items will
be taken into account by Sovereign Bank subject to the conditions and
limitations of Sections 381, 382, 383, and 384 of the IRC and the Treasury
regulations thereunder.
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EXHIBIT 7
FORM OF OPINION OF COUNSEL TO BANKERS
Sovereign shall have received from counsel to Bankers, an opinion, dated as
of the Closing Date, substantially to the effect that, subject to normal
exceptions and qualifications:
(a) Bankers and Bankers Savings have full corporate power to carry out
the transactions contemplated in the Agreement and the Plan of Merger,
respectively. The execution and delivery of the Agreement and the Plan of
Merger and the consummation of the transactions contemplated thereunder
have been duly and validly authorized by all necessary corporate action on
the part of Bankers and Bankers Savings, and the Agreement and the Plan
constitute a valid and legally binding obligation, in accordance with their
respective terms, of Bankers and Bankers Savings, respectively, except as
may be limited by bankruptcy, insolvency, reorganization, moratorium,
receivership, conservatorship, and other laws affecting creditors' rights
generally and institutions the deposits of which are insured by the FDIC,
and as may be limited by the exercise of judicial discretion in applying
principles of equity. Subject to satisfaction of the conditions set forth
in the Agreement, neither the transactions contemplated in the Agreement
and the Plan, nor compliance by Bankers and Bankers Savings with any of the
respective provisions thereof, will (i) conflict with or result in a breach
or default under (A) the certificate of incorporation or bylaws of Bankers
or the charter or bylaws of Bankers Savings, or (B) based on certificates
of officers and without independent verification, to the knowledge of such
counsel, any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which Bankers or Bankers Savings is a party; or
(ii) to the knowledge of such counsel, result in the creation or imposition
of any material lien, instrument or encumbrance upon the property of
Bankers or Bankers Savings, except such material lien, instrument or
obligation that has been disclosed to Sovereign pursuant to the Agreement
and the Plan, or (iii) violate in any material respect any order, writ,
injunction, or decree known to such counsel, or any statute, rule or
regulation applicable to Bankers or Bankers Savings.
(b) Bankers Savings is a validly existing state-chartered bank
organized and in good standing under the laws of the State of New Jersey.
The deposits of Bankers Savings are insured to the maximum extent provided
by law by the Federal Deposit Insurance Corporation.
(c) There is, to the knowledge of such counsel, no legal,
administrative, arbitration or governmental proceeding or investigation
pending or threatened to which Bankers or Bankers Savings is a party which
would, if determined adversely to Bankers or Bankers Savings, have a
material adverse effect on the business, properties, results of operations,
or condition, financial or otherwise, of Bankers or Bankers Savings taken
as a whole or which presents a claim to restrain or prohibit the
transactions contemplated by the Agreement and the Plan, respectively.
(d) No consent, approval, authorization, or order of any federal or
state court or federal or state governmental agency or body, or of any
third party, is required for the consummation by Bankers or Bankers Savings
of the transactions contemplated by the Agreement and the Plan, except for
such consents, approvals, authorizations or orders as have been obtained.
(e) On the sole basis of such counsel's participation in conferences
with officers and employees of Bankers in connection with the preparation
of the Prospectus/Proxy Statement and without other independent
investigation or inquiry, such counsel has no reason to believe that the
Prospectus/Proxy Statement, including any amendments or supplements thereto
(except for the financial information, financial statements, financial
schedules and other financial or statistical data contained therein and
except for any information supplied by Sovereign for inclusion therein, as
to which counsel need express no belief), as of the date of mailing thereof
and as of the date of the meeting of shareholders of Bankers to approve the
merger, contained any untrue statement of a material fact or omitted to
state a material fact necessary to make any statement therein, in light of
the circumstances under which it was made, not misleading. Counsel may
state in delivering such opinion, that such counsel has not independently
verified and does not assume any responsibility for the accuracy,
completeness or fairness of any information or statements contained in the
Prospectus/Proxy Statement, except with respect to identified statements of
law or regulations or legal conclusions relating to Bankers or Bankers
Savings or the transactions contemplated in the Agreement and the Plan.
A-51
<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Stock Option Agreement") dated February 5,
1997, is by and between SOVEREIGN BANCORP, INC., a Pennsylvania corporation
("Sovereign") and BANKERS CORP. a New Jersey corporation ("Bankers").
BACKGROUND
1. Sovereign and Bankers desire to enter into a Agreement and Plan of
Merger, dated February 5, 1997 (the "Agreement"), providing, among other things,
for the acquisition by Sovereign of Bankers through the merger of Bankers with
and into Sovereign, with Sovereign surviving the merger (the "Merger").
2. As a condition to Sovereign to enter into the Plan, Bankers is granting
to Sovereign an option to purchase up to that number of shares of common stock
of Bankers as shall equal 19.9% of shares of common stock of Bankers issued and
outstanding immediately prior to such purchase, on the terms and conditions
hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual covenants and agreements
set forth herein, Sovereign and Bankers, intending to be legally bound hereby,
agree:
1. Grant of Option. Bankers hereby grants to Sovereign, on the terms and
conditions set forth herein, the option to purchase (the "Option") up to
2,463,258 shares (as adjusted as set forth herein, the "Option Shares") of
common stock, par value $.01 per share (the "Common Stock"), of Bankers at a
price per share (as adjusted as set forth herein, the "Option Price") equal to
the lower of (i) $22.50 or (ii) the lowest price per share that a person or a
group, other than Sovereign or an affiliate of Sovereign, paid or offers to pay
after the date hereof for Common Stock in a transaction constituting a
Triggering Event under Section 2 hereof.
2. Exercise of Option. Provided that (i) Sovereign shall not be in breach
of the agreements or covenants contained in this Agreement or the Plan, and (ii)
no preliminary or permanent injunction or other order against the delivery of
shares covered by the Option issued by any court of competent jurisdiction in
the United States shall be in effect, upon or after the occurrence of a
Triggering Event (as such term is hereinafter defined) and until termination of
this Stock Option Agreement in accordance with the provisions of Section 21,
Sovereign may exercise the Option, in whole or in part, at any time or one or
more times, from time to time. As used herein, the term "Triggering Event" means
the occurrence of any of the following events:
(a) a person or group (as such terms are defined in the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder), other than Sovereign or an affiliate of Sovereign,
acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of 10% or more of the then outstanding shares of Common Stock
(excluding any shares eligible to be reported on Schedule 13G of the
Securities and Exchange Commission);
(b) a person or group, other than Sovereign or an affiliate of
Sovereign, enters into an agreement or letter of intent with Bankers
pursuant to which such person or group or any affiliate of such person or
group would (i) merge or consolidate, or enter into any similar
transaction, with Bankers, (ii) acquire all or substantially all of the
assets or liabilities of Bankers or all or substantially all of the assets
or liabilities of Bankers Savings the wholly-owned subsidiary of Bankers
("Bankers Savings"), or (iii) acquire beneficial ownership of securities
representing, or the right to acquire beneficial ownership or to vote
securities representing, 10% or more of the then outstanding shares of
Common Stock (excluding any shares eligible to be reported on Schedule 13G
of the Securities and Exchange Commission) or the then outstanding shares
of common stock of Bankers Savings, or
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<PAGE>
(c) a person or group, other than Sovereign or an affiliate of
Sovereign, publicly announces a bona fide proposal (including a written
communication that is or becomes the subject of public disclosure) for (i)
any merger, consolidation or acquisition of all or substantially all the
assets or liabilities of Bankers or all or substantially all the assets or
liabilities of Bankers Savings, or any other business combination involving
Bankers or Bankers Savings, or (ii) a transaction involving the transfer of
beneficial ownership of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 10% or more of the
then outstanding shares of Common Stock or the then outstanding shares of
common stock of Bankers Savings (collectively, a "Proposal"), and
thereafter, if such Proposal has not been Publicly Withdrawn (as such term
is hereinafter defined) at least 30 days prior to the meeting of
shareholders of Bankers called to vote on the Merger, Bankers' shareholders
fail to approve the Merger by the vote required by applicable law at the
meeting of shareholders called for such purpose or such meeting has been
cancelled; or
(d) a person or group, other than Sovereign or an affiliate of
Sovereign, makes a bona fide Proposal and thereafter, but before such
Proposal has been Publicly Withdrawn, Bankers willfully takes any action in
a manner which would likely result in the failure of either party to
satisfy a material condition to the closing of the Merger or materially
reduce the value of the transaction to Sovereign; or
(e) Bankers breaches, in any material respect, any binding term of the
Agreement with respect to the Merger, or this Stock Option Agreement after
a Proposal is made and before it is Publicly Withdrawn or publicly
announces an intention to authorize, recommend or accept any such Proposal;
provided, however, that any purchase of shares upon exercise of the Option shall
be subject to compliance with applicable law.
If more than one of the transactions giving rise to a Triggering Event
under this Section is undertaken or effected, then all such transactions shall
give rise only to one Triggering Event, which Triggering Event shall be deemed
continuing for all purposes hereunder until all such transactions are abandoned.
"Publicly Withdrawn" for purposes of this Section 2 shall mean an
unconditional bona fide withdrawal of the Proposal coupled with a public
announcement of no further interest in pursuing such Proposal or in acquiring
any controlling influence over Bankers or in soliciting or inducing any other
person (other than Sovereign or an affiliate of Sovereign) to do so.
Notwithstanding the foregoing, the obligation of Bankers to issue Option
Shares upon exercise of the Option shall be deferred (but shall not terminate)
(i) until the receipt of all required governmental or regulatory approvals or
consents necessary for Bankers to issue the Option Shares, or Sovereign to
exercise the Option, or until the expiration or termination of any waiting
period required by law, or (ii) so long as any injunction or other order, decree
or ruling issued by any federal or state court of competent jurisdiction is in
effect which prohibits the sale or delivery of the Option Shares, and, in each
case, notwithstanding any provision to the contrary set forth herein, the Option
shall not expire or otherwise terminate.
Bankers shall notify Sovereign promptly in writing of the occurrence of any
Triggering Event known to it, it being understood that the giving of such notice
by Bankers shall not be a condition to the right of Sovereign to exercise the
Option. Bankers will not take any action which would have the effect of
preventing or disabling Bankers from delivering the Option Shares to Sovereign
upon exercise of the Option or otherwise performing its obligations under this
Stock Option Agreement. In the event Sovereign wishes to exercise the Option,
Sovereign shall send a written notice to Bankers (the date of which is
hereinafter referred to as the "Notice Date") specifying the total number of
Option Shares it wishes to purchase and a place and date between two and ten
business days inclusive from the Notice Date for the closing of such a purchase
(a "Closing"); provided, however, that a Closing shall not
B-2
<PAGE>
occur prior to two days after the later of receipt of any necessary regulatory
approvals or the expiration of any legally required notice or waiting period, if
any.
3. Payment and Delivery of Certificates. At any Closing hereunder, (a)
Sovereign will make payment to Bankers of the aggregate price for the Option
Shares so purchased by wire transfer of immediately available funds to an
account designated by Bankers, (b) Bankers will deliver to Sovereign a stock
certificate or certificates representing the number of Option Shares so
purchased, registered in the name of Sovereign or its designee, in such
denominations as were specified by Sovereign in its notice of exercise, and (c)
Sovereign will pay any transfer or other taxes required by reason of the
issuance of the Option Shares so purchased.
A legend will be placed on each stock certificate evidencing Option Shares
issued pursuant to this Stock Option Agreement, which legend will read
substantially as follows:
"The shares of stock evidenced by this certificate have not been the
subject of a registration statement filed under the Securities Act of 1933,
as amended (the "Act"), and declared effective by the Securities and
Exchange Commission. These shares may not be sold, transferred or otherwise
disposed of prior to such time unless Bankers Corp. receives an opinion of
counsel stating that an exemption from the registration provisions of the
Act is available for such transfer."
4. Registration Rights. Upon or after the occurrence of a Triggering Event
and upon receipt of a written request from Sovereign, Bankers shall prepare and
file as soon as practicable a registration statement under the Securities Act of
1933, as amended, with the Securities and Exchange Commission covering the
Option and such number of Option Shares as Sovereign shall specify in its
request, and Bankers shall use its best efforts to cause such registration
statement to be declared effective in order to permit the sale or other
disposition of the Option and the Option Shares, provided that Sovereign shall
in no event have the right to have more than one such registration statement
become effective, and provided further that Bankers shall not be required to
prepare and file any such registration statement in connection with any proposed
sale with respect to which counsel to Bankers delivers to Bankers and to
Sovereign its opinion to the effect that no such filing is required under
applicable laws and regulations with respect to such sale or disposition;
provided, however, that Bankers may delay any registration of Option Shares
above for a period not exceeding 90 days provided Bankers shall in good faith
determine that any such registration would adversely affect an offering or
contemplated offering of other securities by Bankers. Sovereign shall provide
all information reasonably requested by Bankers for inclusion in any
registration statement to be filed hereunder. In connection with such filing,
Bankers shall use its best efforts to cause to be delivered to Sovereign such
certificates, opinions, accountant's letters and other documents as Sovereign
shall reasonably request and as are customarily provided in connection with
registration of securities under the Securities Act of 1933, as amended. Bankers
shall provide to Sovereign such number of copies of the preliminary prospectus
and final prospectus and any amendments and supplements thereto as Sovereign may
reasonably request. All reasonable expenses incurred by Bankers in complying
with the provisions of this Section 4, including, without limitation, all
registration and filing fees, reasonable printing expenses, reasonable fees and
disbursements of counsel for Bankers and blue sky fees and expenses, shall be
paid by Bankers. Underwriting discounts and commissions to brokers and dealers
relating to the Option Shares, fees and disbursements of counsel to Sovereign
and any other expenses incurred by Sovereign in connection with such filing
shall be borne by Sovereign. In connection with such filing, Bankers shall
indemnify and hold harmless Sovereign against any losses, claims, damages or
liabilities, joint or several, to which Sovereign may become subject, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any preliminary or final registration
statement or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and Bankers will reimburse Sovereign for any legal or other expense reasonably
incurred by Sovereign in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that Bankers will
not be liable in any case to the extent that any
B-3
<PAGE>
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such preliminary or final registration statement or such amendment or supplement
thereto in reliance upon and in conformity with written information furnished by
or on behalf of Sovereign specifically for use in the preparation thereof.
Sovereign will indemnify and hold harmless Bankers to the same extent as set
forth in the immediately preceding sentence but only with reference to written
information furnished by or on behalf of Sovereign for use in the preparation of
such preliminary or final registration statement or such amendment or supplement
thereto; and Sovereign will reimburse Bankers for any legal or other expense
reasonably incurred by Bankers in connection with investigating or defending any
such loss, claim, damage, liability or action.
5. Adjustment Upon Changes in Capitalization. In the event of any change
in the Common Stock by reason of stock dividends, split-ups, recapitalizations,
combinations, conversions, divisions, exchanges of shares or the like, then the
number and kind of Option Shares and the Option Price shall be appropriately
adjusted.
6. Filings and Consents. Each of Sovereign and Bankers will use its best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary to the consummation of the transactions
contemplated by this Stock Option Agreement. Within 10 days from the date
hereof, Sovereign shall file a report of beneficial ownership on Form 13D with
the Securities and Exchange Commission under the Exchange Act which discloses
the rights of Sovereign hereunder.
7. Representations and Warranties of Bankers. Bankers hereby represents
and warrants to Sovereign as follows:
(a) Due Authorization. Bankers has full corporate power and authority
to execute, deliver and perform this Stock Option Agreement and all
corporate action necessary for execution, delivery and performance of this
Stock Option Agreement has been duly taken by Bankers. This Stock Option
Agreement constitutes a legal, valid and binding obligation of Bankers,
enforceable against Bankers in accordance with its terms (except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to
or affecting creditors' rights or by general equity principles).
(b) Authorized Shares. Bankers has taken all necessary corporate
action to authorize and reserve for issuance all shares of Common Stock
that may be issued pursuant to any exercise of the Option.
8. Representations and Warranties of Sovereign. Sovereign hereby
represents and warrants to Bankers that Sovereign has full corporate power and
authority to execute, deliver and perform this Stock Option Agreement and all
corporate action necessary for execution, delivery and performance of this Stock
Option Agreement has been duly taken by Sovereign. This Stock Option Agreement
constitutes a legal, valid and binding obligation of Sovereign, enforceable
against Sovereign in accordance with its terms (except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles).
9. Specific Performance. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Stock Option Agreement and that the
obligations of the parties hereto shall be specifically enforceable.
10. Entire Agreement. This Stock Option Agreement and the Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof.
11. Assignment or Transfer. Sovereign may not sell, assign or otherwise
transfer its rights and obligations hereunder, in whole or in part, to any
person or group of persons other than to a subsidiary of Sovereign. Sovereign
represents that it is acquiring the Option for Sovereign's own account and not
with a view to, or for sale in connection with, any distribution of the Option
or the Option Shares.
B-4
<PAGE>
Sovereign is aware that neither the Option nor the Option Shares is the subject
of a registration statement filed with, and declared effective by, the
Securities and Exchange Commission pursuant to Section 5 of the Securities Act
of 1933, as amended, but instead each is being offered in reliance upon the
exemption from the registration requirement provided by Section 4(2) thereof and
the representations and warranties made by Sovereign in connection therewith.
12. Amendment of Stock Option Agreement. By mutual consent of the parties
hereto, this Stock Option Agreement may be amended in writing at any time, for
the purpose of facilitating performance hereunder or to comply with any
applicable regulation of any governmental authority or any applicable order of
any court or for any other purpose.
13. Validity. The invalidity or unenforceability of any provision of this
Stock Option Agreement shall not affect the validity or enforceability of any
other provisions of this Stock Option Agreement, which shall remain in full
force and effect.
14. Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered personally, by telegram or telecopy, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
(i) If to Sovereign, to:
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Attention: Jay S. Sidhu, President and Chief
Executive Officer
Telecopy No.: (610) 320-8448
with a copy to:
Stevens & Lee
111 North Sixth Street
P.O. Box 679
Reading, Pennsylvania 19603
Attention: Joseph M. Harenza, Esquire and
David W. Swartz, Esquire
Telecopy No.: (610) 376-5610
B-5
<PAGE>
(ii) If to Bankers, to:
Bankers Corp.
210 Smith Street
Perth Amboy, New Jersey 08861
Attention: Joseph P. Gemmell
Chairman of the Board, President and Chief
Executive Officer
Telecopy No.: (908) 324-7813
with copies to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Omer S.J. Williams, Esquire
Telecopy No.: (212) 432-7152
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
15. Governing Law. This Stock Option Agreement shall be governed by and
construed in accordance with the domestic internal law (but not the law of
conflicts of law) of the Commonwealth of Pennsylvania.
16. Captions. The captions in this Stock Option Agreement are inserted for
convenience and reference purposes, and shall not limit or otherwise affect any
of the terms or provisions hereof.
17. Waivers and Extensions. The parties hereto may, by mutual consent,
extend the time for performance of any of the obligations or acts of either
party hereto. Each party may waive (i) compliance with any of the covenants of
the other party contained in this Stock Option Agreement and/or (ii) the other
party's performance of any of its obligations set forth in this Stock Option
Agreement.
18. Parties in Interest. This Stock Option Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, nothing in this Stock
Option Agreement, express or implied, is intended to confer upon any other
person any rights or remedies of any nature whatsoever under or by reason of
this Stock Option Agreement.
19. Counterparts. This Stock Option Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
20. Expenses. Subject to the terms of the Plan and except as otherwise
provided herein, all costs and expenses incurred by the parties hereto in
connection with the transactions contemplated by this Stock Option Agreement or
the Option shall be paid by the party incurring such cost or expense.
21. Termination. This Stock Option Agreement shall terminate and be of no
further force or effect upon the earliest to occur of (A) the Effective Time or
(B) termination of the Agreement in accordance with the terms thereof, except
that if the Agreement is terminated by Sovereign pursuant to Section 6.01(b)(i)
of the Agreement or pursuant to Section 6.01(b)(ii) of the Agreement (provided
the failure of the occurrence of the event specified in Section 6.01(b)(ii) of
the Agreement shall be due to the failure of Bankers to perform or observe its
agreements set forth in the Agreement required to be performed or observed by
Bankers prior to the Closing Date (as defined in the Agreement)), this Stock
Option Agreement shall not terminate until one year after the date of
termination of the Agreement.
B-6
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto, pursuant to resolutions
adopted by its Board of Directors, has caused this Stock Option Agreement to be
executed by its duly authorized officer and has caused its corporate seal to be
affixed hereunto and to be duly attested, all as of the day and year first above
written.
SOVEREIGN BANCORP, INC.
By: /s/ JAY S. SIDHU
----------------------------------
Jay S. Sidhu
President and Chief Executive
Officer
BANKERS CORP.
By: /s/ JOSEPH P. GEMMELL
----------------------------------
Joseph P. Gemmell,
Chairman of the Board,
President and Chief
Executive Officer
B-7
<PAGE>
[LOGO]
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EXCELLENCE IN INVESTMENT BANKING 80 MAIN STREET
WEST ORANGE, NJ 07052
TEL: (201) 325-3000
CORPORATE FINANCE DEPARTMENT FAX: (201) 325-7201
ANNEX C
July 18, 1997
The Board of Directors
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Members of the Board:
Sovereign Bancorp ("Sovereign") and Bankers Corp.
("Bankers") have entered into an Agreement and Plan of Merger
dated February 5, 1997 (the "Agreement"). Pursuant to the
Agreement, among other things, Bankers shall merge with and into
Sovereign (the "Merger"), and each share of Bankers' issued and
outstanding common stock will be converted into and become the
right to receive $25.50 divided by the market value determined as
of the effective date (the "Exchange Ratio"), provided that
Sovereign's market value remains between $9.17 and $13.75 (as
adjusted to reflect Sovereign's 6-for-5 stock split effected on
March 14, 1997 (the "Stock Split")). If Sovereign's market value
determined as of the effective date is less than $9.17, then
Bankers' shareholders shall receive 2.782 shares of Sovereign
stock (adjusted for the Stock Split)). If Sovereign's market value
determined as of the effective date is greater than $13.75, then
Bankers' shareholders shall receive 1.854 shares of Sovereign
stock (adjusted for the Stock Split). You have requested our
opinion as to whether the Exchange Ratio in the Merger is fair,
from a financial point of view, to the holders of Sovereign Common
Stock. We have assumed that the Merger will be accounted for as a
pooling of interests transaction by Sovereign.
Ryan, Beck & Co., as a customary part of its investment
banking business, is engaged in the valuation of banking and
savings institutions and their securities in connection with
mergers and acquisitions. In conducting our investigation and
analysis of this transaction, we have met separately with members
of senior management of Sovereign and Bankers to discuss their
respective operations, historical financial statements, strategic
plans and future prospects. We have reviewed and analyzed material
prepared in connection with the Merger, including but not limited
to the following: (i) the Merger Agreement and related documents;
(ii) drafts of the Proxy Statement/Prospectus prepared in
connection with the Merger; (iii) Sovereign's Annual Reports to
Shareholders and Annual Reports on Form 10-K for the years ended
December 31, 1996, 1995, and 1994, and Sovereign's Quarterly
Reports on Form 10-Q for the periods ended March 31, 1997,
September 30, 1996, June 30, 1996, and March 31, 1996; (iv)
Bankers' Annual Reports to Shareholders and Annual Reports on Form
10-K for the years ended December 31, 1996, 1995, and 1994, and
Bankers' Quarterly Reports on Form 10-Q for the periods ended
March 31, 1997, September 30, 1996, June 30, 1996 and March 31,
1996; (v) certain operating and financial information provided to
us by the managements of Sovereign and Bankers relating to their
business and prospects; (vi) the potential pro forma impact of the
Merger on Sovereign's financial condition, operating results and
per share figures; (vii) the historical stock prices and trading
volume of Sovereign's Common Stock; (viii) the historical stock
prices and trading volume of Bankers' Common Stock; (ix) the
publicly available financial data of thrift organizations which
Ryan, Beck deemed generally comparable to Sovereign; (x) the
publicly available financial data of
Bala Cynwyd, PA/West Palm Beach, FL
<PAGE>
thrift organizations which Ryan, Beck deemed generally comparable
to Bankers; and (xi) the terms of recent acquisitions of thrift
organizations which Ryan, Beck deemed generally comparable to
Bankers. We also conducted or reviewed such other studies,
analyses, inquiries and examinations as we deemed appropriate.
Ryan, Beck as part of its review of the Merger, also analyzed
Sovereign's ability to consummate the Merger.
While we have taken care in our investigation and analyses,
we have relied upon and assumed the accuracy, completeness and
fairness of the financial and other information provided to us by
the respective institutions or which was publicly available and
have not assumed any responsibility for independently verifying
such information. We have also relied upon the managements of
Sovereign and Bankers as to the reasonableness and achievability
of the financial and operating forecasts and projections (and the
assumptions and bases therefor) provided to us and in certain
instances we have made certain adjustments to such financial and
operating forecasts which in our judgment were appropriate under
the circumstances. In addition, we have assumed with your consent
that such forecasts and projections reflect the best currently
available estimates and judgments of the respective managements.
We are not experts in the evaluation of allowances for loan
losses. Therefore, we have not assumed any responsibility for
making an independent valuation of the adequacy of the allowances
for loan losses set forth in the balance sheets of Sovereign and
Bankers at March 31, 1997, and we assumed such allowances were
adequate and comply fully with applicable law, regulatory policy
and sound banking practice as of the date of such financial
statements. We also assumed that the Merger in all respects is,
and will be consummated in compliance with all laws and
regulations applicable to Sovereign and Bankers. We have not made
or obtained any independent evaluations or appraisals of the
assets and liabilities of either Sovereign or Bankers or their
respective subsidiaries, nor have we reviewed any individual loan
files of Sovereign, Bankers or their respective subsidiaries.
In conducting our analysis and arriving at our opinion as
expressed herein, we have considered such financial and other
factors as we have deemed appropriate in the circumstances. In
rendering our opinion, we have assumed that in the course of
obtaining the necessary regulatory approvals for the Merger, no
conditions will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger to Sovereign.
Our opinion is necessarily based on economic, market and other
conditions and projections as they exist and can be evaluated on
the date hereof. Ryan, Beck did not express any opinion as to the
price or range of prices at which Sovereign Common Stock might
trade subsequent to the Merger.
We have been retained by the Board of Directors of Sovereign
as an independent contractor to act as financial advisor to
Sovereign with respect to the Merger and will receive a fee for
our services. We have, in the past, provided financial advisory
services to Bankers and have received fees for the rendering of
such services. In addition, we may actively trade debt and/or
equity securities of Sovereign and Bankers and its respective
affiliates for our own account and the account of our customers,
and we therefore may from time to time hold a long or short
position in such securities.
Our opinion is directed to the Board of Directors of
Sovereign and does not constitute a recommendation to any
shareholder of Sovereign as to how such shareholder should vote at
any shareholder meeting held in connection with the Merger.
Based upon and subject to the foregoing it is our opinion as
investment bankers that the Exchange Ratio in the Merger as
provided and described in the Merger Agreement is fair to the
holders of Sovereign Common Stock from a financial point of view.
Very truly yours,
/s/ RYAN, BECK & CO. INC.
------------------------------
Ryan, Beck & Co., Inc.
C-2
<PAGE>
ANNEX D
[ALEX. BROWN LETTERHEAD]
July 18, 1997
The Board of Directors of Bankers Corp.
210 Smith Street
Perth Amboy, New Jersey 08861
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, of the consideration to be received by shareholders of Bankers Corp.
("Bankers" or the "Company") from Sovereign Bancorp, Inc. ("Sovereign") pursuant
to the Agreement and Plan of Merger, dated as of February 5, 1997, between
Sovereign Bancorp, Inc. and Bankers Corp. (the "Agreement"). Pursuant to the
Agreement, each share of Common Stock, par value $0.01 per share, of Bankers
("Bankers Common Stock") shall be converted into and exchangeable for that
number of shares of Common Stock of Sovereign, no par value ("Sovereign Common
Stock"), determined by dividing $25.50 by the Sovereign Market Value (as defined
in the Agreement), subject to certain adjustments (the "Exchange Ratio"). We
have assumed, with your consent, that the transaction described above (the
"Merger") will qualify for pooling-of-interests accounting treatment and as a
tax-free transaction for federal income tax purposes.
Alex. Brown & Sons Incorporated ("Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to the Board of Directors of the
Company in connection with the transactions described above and will receive a
fee for our services, a significant portion of which is contingent upon the
consummation of the transaction contemplated by the Agreement. Alex. Brown
regularly publishes research reports regarding the financial services industry
and the businesses and securities of publicly owned companies in that industry.
In connection with this opinion, we have reviewed certain publicly
available financial information concerning the Company and Sovereign and certain
internal financial analyses and other information furnished to us by the Company
and Sovereign. We have also held discussions with members of the senior
management of the Company and Sovereign regarding the business and prospects of
the Company and Sovereign, respectively. In addition, we have (i) reviewed the
reported price and trading activity for Bankers Common Stock and Sovereign
Common Stock, (ii) compared certain financial and stock market information for
the Company and Sovereign, respectively, with similar information for selected
financial institutions whose securities are publicly traded, (iii) reviewed the
Agreement and compared the financial terms of the Agreement with those of
certain recent business combinations of other savings banks and commercial banks
which we deemed comparable in whole or in part and (iv) performed such other
studies and analyses and considered such other factors as we deemed appropriate.
We have not independently verified the information described above and for
the purposes of this opinion have assumed the accuracy, completeness and
fairness thereof. With respect to information relating to the prospects of the
Company and Sovereign, we have assumed that such information reflects the best
currently available estimates and judgments of the managements of the Company
and Sovereign, respectively, as to the likely future financial performance of
their respective companies. In addition, we have not made an independent
evaluation or appraisal of the assets or liabilities of the
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Company or Sovereign, nor have we been furnished with any such evaluation or
appraisal. We are not expressing our opinion as to the value of Sovereign Common
Stock when issued pursuant to the Merger or the prices at which Sovereign Common
Stock will trade subsequent to such issuance. Our opinion is based on market,
economic and other conditions as they exist and can be evaluated as of the date
of this letter.
Our advisory services and the opinion expressed herein were prepared for
the use of the Board of Directors of Bankers and do not constitute a
recommendation to any stockholder as to how such stockholder should vote. We
hereby consent to the inclusion of this opinion in its entirety as an exhibit to
any proxy or registration statement distributed in connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the consideration to be received by the holders of Bankers
Common Stock is fair from a financial point of view.
Very truly yours,
/s/ ALEX. BROWN & SONS INCORPORATED
-----------------------------------
Alex. Brown & Sons Incorporated
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