<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1998
REGISTRATION NO. 333-50569
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
SOVEREIGN BANCORP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 6720 23-2453088
(State or other jurisdiction of (Primary Standard Industrial I.R.S. Employer Identification No.)
incorporation or organization) Classification Code No.)
</TABLE>
1130 BERKSHIRE BOULEVARD
WYOMISSING, PENNSYLVANIA 19610
(610) 320-8400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------------
JAY S. SIDHU
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SOVEREIGN BANCORP, INC.
1130 BERKSHIRE BOULEVARD
WYOMISSING, PENNSYLVANIA 19610
(610) 320-8400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------
Copies to:
DAVID W. SWARTZ, ESQUIRE BARRY H. GENKIN, ESQUIRE
STEVENS & LEE BLANK ROME COMISKY &
111 North Sixth Street MCCAULEY LLP
P.O. Box 679 One Logan Square
Reading, PA 19603 Philadelphia, PA 19103-6998
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
[LETTERHEAD OF FIRST HOME BANCORP INC.]
June 26, 1998
Dear Shareholder:
You are cordially invited to attend the special meeting of shareholders
(the "Special Meeting") of First Home Bancorp Inc. ("First Home") to be held on
Tuesday, July 28, 1998, at 10:30 a.m., local time, at the Holiday Inn, Exit 10,
I-295, Pureland Industrial Complex, Bridgeport, New Jersey.
At the Special Meeting, shareholders will consider and vote upon the
Agreement and Plan of Merger dated as of December 18, 1997, as amended (the
"Merger Agreement"), between First Home and Sovereign Bancorp, Inc.
("Sovereign"), providing for the merger of First Home with and into Sovereign
(the "Merger") and the conversion of each outstanding share of common stock of
First Home into shares of common stock of Sovereign, based on an exchange ratio
to be determined in accordance with the Merger Agreement, all as more fully
described in the accompanying Proxy Statement/Prospectus. Sovereign will pay
cash to First Home 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 First Home and the approval of the Merger by the Office of Thrift
Supervision.
The attached Proxy Statement/Prospectus contains important information
concerning the Merger. We urge you to give it your careful attention.
The Board of Directors of First Home has carefully considered and approved
the Merger Agreement and believes that the Merger is in the best interests of
First Home and its shareholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS
UNANIMOUSLY HAS APPROVED AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, THE BOARD OF DIRECTORS OF FIRST
HOME 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 SPECIAL MEETING BUT WILL ENSURE 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 (I.E. SHARES ARE HELD IN A BROKERAGE ACCOUNT),
YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER IN ORDER TO VOTE
IN PERSON AT THE SPECIAL 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,
Stephen D. Miller
Chairman of the Board,
President and Chief Executive Officer
<PAGE>
FIRST HOME BANCORP INC.
125 SOUTH BROADWAY
PENNSVILLE, NEW JERSEY 08070
------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 28, 1998
------------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (including
any adjournment or postponement, the "Special Meeting") of First Home Bancorp
Inc. ("First Home"), a New Jersey corporation, will be held on Tuesday, July 28,
1998, at 10:30 a.m., local time, at the Holiday Inn, Exit 10, I-295, Pureland
Industrial Complex, Bridgeport, New Jersey, to consider and vote upon the
following matters, all as more fully described in the accompanying Proxy
Statement/Prospectus:
1. The approval and adoption of the Agreement and Plan of Merger dated as
of December 18, 1997, as amended (the "Merger Agreement"), between Sovereign
Bancorp, Inc. ("Sovereign") and First Home, which provides, among other things,
for (i) the merger of First Home with and into Sovereign (the "Merger") and (ii)
the conversion of each share of common stock of First Home outstanding
immediately prior to the Merger (other than any shares owned by Sovereign, First
Home or any subsidiary of First Home) into the right to receive a number of
shares of Sovereign common stock determined in the manner set forth in the
Merger Agreement, plus cash in lieu of any fractional share interest.
2. The adjournment of the Special Meeting, if necessary, to permit
further solicitation of proxies in the event there are not sufficient votes at
the time of the Special Meeting to approve the Merger Agreement.
3. The transaction of such other business as may properly be brought
before the Special Meeting.
The Board of Directors of First Home has determined that an affirmative
vote on each proposal to be considered at the Special Meeting is in the best
interests of First Home and its shareholders and unanimously recommends a vote
"FOR" each proposal.
The Board of Directors of First Home has fixed the close of business on
June 22, 1998 as the record date for determining shareholders entitled to notice
of, and to vote at, the Special Meeting.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, THE BOARD OF DIRECTORS OF FIRST
HOME URGES YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS
SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL NOT PREVENT
YOU FROM VOTING IN PERSON AT THE SPECIAL 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 SPECIAL MEETING.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT A. DIVALERIO,
Secretary
Pennsville, New Jersey
June 26, 1998
<PAGE>
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FIRST HOME BANCORP INC.
PROXY STATEMENT
------------------------------
SOVEREIGN BANCORP, INC.
PROSPECTUS
5,896,262 SHARES
COMMON STOCK
WITHOUT PAR VALUE
- --------------------------------------------------------------------------------
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is being
furnished to shareholders of First Home Bancorp Inc. ("First Home"), a New
Jersey corporation, in connection with the solicitation of proxies by the Board
of Directors of First Home for use at the Special Meeting of Shareholders of
First Home (including any adjournments or postponements thereof, the "Special
Meeting") to be held on July 28, 1998.
This Proxy Statement/Prospectus also relates to up to 5,896,262 shares of
common stock, no par value, of Sovereign (together with the Sovereign Rights, as
hereinafter defined, attached thereto, the "Sovereign Common Stock") which may
be issued upon the merger of First Home with and into Sovereign (the "Merger"),
pursuant to an Agreement and Plan of Merger, dated as of December 18, 1997, as
amended, (the "Merger Agreement"). In the Merger, each outstanding share of
common stock, no par value, of First Home ("First Home Common Stock") (other
than shares, if any, then owned by Sovereign, First Home or any subsidiary of
First Home ("Excluded Shares")), will be converted into and become the right to
receive such number of shares of Sovereign Common Stock, as shall equal $31.25
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 Stock
Market 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 greater than or equal to $15.00 per share and less than or
equal to $18.33 per share. If, however, the Sovereign Market Value as of the
Effective Date is less than $15.00 per share or greater than $18.33 per share,
shareholders of First Home 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 is less than $15.00 per share, each share of First Home Common
Stock (other than Excluded Shares) will be converted into 2.083 shares of
Sovereign Common Stock, and if the Sovereign Market Value as of the Effective
Date is greater than $18.33 per share, each share of First Home Common Stock
will be converted into 1.705 shares of Sovereign Common Stock. In addition, as
further described herein, in the event that First Home elects to terminate the
Merger Agreement as a result of a decline in the Sovereign Market Value as of
the date immediately preceding the Effective Date to less than $11.25, Sovereign
can override such termination by increasing the number of shares issuable in
exchange for each share of First Home Common Stock from 2.083 shares to such
number of shares of Sovereign Common Stock as shall have an aggregate value of
$23.44 based on the Sovereign Market Value determined as of the Effective Date.
Each certificate representing a share of Sovereign Common Stock issued to a
shareholder of First Home will also evidence a corresponding percentage of stock
purchase rights ("Sovereign Rights") under Sovereign's Shareholder Rights Plan.
See "DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES -- Shareholder Rights Plan."
The number of shares of Sovereign Common Stock into which each share of
First Home Common Stock (other than Excluded Shares) will be converted in the
Merger has been adjusted for the 6-for-5 stock split effected on April 15, 1998
("Stock Split"). Further adjustments shall be made to prevent dilution in the
event of additional stock splits, reclassifications or other similar events.
Sovereign will pay cash to First Home shareholders in lieu of issuing fractional
shares of Sovereign Common Stock.
This Proxy Statement/Prospectus constitutes both (i) the proxy statement of
First Home relating to the solicitation of proxies by the Board of Directors of
First Home for use at the Special Meeting 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 Stock
Market National Market. On June 24, 1998, the last sale price of Sovereign
Common Stock as reported on the Nasdaq Stock Market National Market (symbol:
SVRN) was $16.625.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed on or about June 26, 1998.
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.
------------------------------
The date of this Proxy Statement/Prospectus is June 26, 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION....................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 2
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING
INFORMATION............................................... 3
SUMMARY..................................................... 4
The Companies............................................. 4
The Special Meeting....................................... 5
The Merger................................................ 6
Certain Related Transactions.............................. 9
Interests of Certain Persons in the Merger................ 10
Comparative Per Common Share Data......................... 10
Recent Developments....................................... 13
SELECTED FINANCIAL DATA..................................... 15
PRO FORMA COMBINED FINANCIAL INFORMATION.................... 17
Pro Forma Combined Condensed Consolidated Balance Sheet as
of March 31, 1998...................................... 18
Pro Forma Unaudited Combined Condensed Statements of
Income for the Three Months Ended March 31, 1998, and
the Years Ended December 31, 1997, 1996 and 1995....... 19
THE SPECIAL MEETING......................................... 23
Date, Time and Place...................................... 23
Matters To Be Considered at the Special Meeting........... 23
Votes Required............................................ 23
Voting of Proxies......................................... 23
Revocability of Proxies................................... 24
Record Date; Stock Entitled to Vote; Quorum............... 24
Solicitation of Proxies................................... 24
THE MERGER.................................................. 24
Background of and Reasons for the Merger; Recommendations
of the Board of Directors.............................. 24
Terms of the Merger....................................... 28
Opinion of First Home's Financial Advisor................. 29
Effective Date of the Merger.............................. 33
Exchange of First Home Stock Certificates................. 34
Conditions to the Merger.................................. 34
Subsidiary Bank Merger.................................... 36
Regulatory Approvals...................................... 36
Representations and Warranties............................ 36
Business Pending the Merger............................... 37
Dividends................................................. 38
No Solicitation of Transactions........................... 38
Amendment; Waivers........................................ 39
Termination; Effect of Termination........................ 39
Management and Operations after the Merger................ 40
Employee Benefits and Severance........................... 41
Accounting Treatment...................................... 41
Certain Federal Income Tax Consequences................... 42
Expenses.................................................. 43
Resale of Sovereign Common Stock.......................... 43
No Dissenters' Rights of Appraisal........................ 43
Dividend Reinvestment Plan................................ 43
i
<PAGE>
PAGE
----
INTERESTS OF CERTAIN PERSONS IN THE MERGER.................. 43
Shares Owned by Management and the Board.................. 43
Indemnification; Directors' and Officers' Insurance....... 44
Employment Agreements..................................... 44
First Home Advisory Board................................. 45
CERTAIN RELATED TRANSACTIONS................................ 45
Stock Option Agreement.................................... 45
INFORMATION WITH RESPECT TO SOVEREIGN....................... 48
General................................................... 48
Market Price of and Dividends on Sovereign Common Stock
and Related Shareholder Matters........................ 48
INFORMATION WITH RESPECT TO FIRST HOME...................... 49
Market Price of and Dividends on First Home Common Stock
and Related Shareholder Matters........................ 49
DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES................. 50
Common Stock.............................................. 50
Preferred Stock........................................... 51
Shareholder Rights Plan................................... 52
Special Charter and Pennsylvania Corporate Law
Provisions............................................. 52
COMPARISON OF SHAREHOLDER RIGHTS............................ 54
Directors................................................. 54
Shareholder Meetings...................................... 56
Action by Shareholders Without a Meeting.................. 57
Inspection Rights......................................... 57
Shareholder Rights Plan................................... 57
Antitakeover Provisions................................... 57
Required Shareholder Vote................................. 59
Amendment of Bylaws....................................... 60
Mandatory Tender Offer Provision.......................... 60
Dissenters' Rights........................................ 61
Dividends................................................. 61
Voluntary Dissolution..................................... 62
Preemptive Rights......................................... 62
ADJOURNMENT................................................. 62
EXPERTS..................................................... 62
LEGAL MATTERS............................................... 63
OTHER MATTERS............................................... 63
SHAREHOLDER PROPOSALS....................................... 63
ANNEXES
A. Agreement and Plan of Merger, between Sovereign and First
Home dated as of December 18, 1997, as amended........... A-1
B. Stock Option Agreement between Sovereign and First Home,
dated December 18, 1997.................................. B-1
C. Opinion of RP Financial, LC.............................. C-1
ii
<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 FIRST HOME. 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 FIRST HOME 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 First Home and its subsidiaries
contained herein, incorporated herein by reference or supplied herewith, has
been furnished by First Home.
AVAILABLE INFORMATION
Sovereign and First Home 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 First Home 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.
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, 1997.
2. Sovereign's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
3. Sovereign's Current Reports on Form 8-K dated June 23, 1998
(including restated financial statements of Sovereign), April 20,
1998, February 20, 1998 and February 19, 1998.
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 First Home (File No.
0-28700) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement/Prospectus:
2
<PAGE>
1. First Home's Annual Report on Form 10-K for the year ended December
31, 1997 delivered with this Proxy Statement/Prospectus.
2. First Home's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 delivered with this Proxy Statement/Prospectus.
3. The description of the First Home Common Stock contained in First
Home's Current Report on Form 8-K 12g-3 dated May 31, 1996 filed
pursuant to the Exchange Act.
In addition, all documents filed by Sovereign and First Home 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 Special Meeting
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 or reports. 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. THESE 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 FIRST HOME MAY BE REQUESTED FROM FIRST HOME
BANCORP INC., 125 SOUTH BROADWAY, PENNSVILLE, NEW JERSEY 08070 (TELEPHONE NUMBER
(609) 678-4400), ATTENTION: ROBERT A. DIVALERIO, SECRETARY. IN ORDER TO ENSURE
DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING OF FIRST HOME, REQUESTS
SHOULD BE RECEIVED BY JULY 14, 1998.
Copies of First Home's 1997 Annual Report on Form 10-K and Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998 are delivered together with
the Proxy Statement/Prospectus.
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING INFORMATION
Except for historical information, this Proxy Statement/Prospectus may be
deemed to contain "forward looking" information. Examples of forward looking
information include, but are not limited to (a) projections of or statements
regarding future earnings, interest income, other income, earnings or loss per
share, cost savings and synergies expected in connection with the Merger, asset
mix and quality, growth prospects, capital structure and other financial terms,
(b) statements of plans and objectives of management or economic conditions in
the market areas served by Sovereign and First Home, underlying other statements
and statements about Sovereign or First Home or their respective businesses.
Such forward looking information can be identified by the use of forward looking
terminology such as "believes," "expects," "may," "intends," "will," "should,"
"anticipates," or the negative of any of the foregoing or other variations
thereon or comparable terminology, or by discussion of strategy. No assurance
can be given that the future results, covered by the forward-looking information
will be achieved. Such statements are subject to risks, uncertainties, and other
factors which could cause actual results to differ materially from future
results expressed or implied by such forward looking information. Important
factors that could impact operating results include, but are not limited to, (i)
the effects of changing economic conditions in both the market areas served by
Sovereign and First Home and nationally, (ii) credit risks of commercial, real
estate, consumer and other lending activities, (iii) significant changes in
interest rates, (iv) changes in federal and state banking laws and regulations
which could affect operations, (v) funding costs, and (vi) other external
developments which could materially affect business and operations.
3
<PAGE>
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 First Home 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 April 15, 1998 (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, 1998,
Sovereign and its subsidiaries had total consolidated assets, deposits and
shareholders' equity of approximately $18.1 billion, $9.2 billion and $987.3
million, respectively. The primary operating entity of Sovereign is Sovereign
Bank. Sovereign Bank's primary business consists of attracting deposits from its
network of approximately 190 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,
Middlesex, Monmouth, Morris, Ocean and Union, and in 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,"
"SOVEREIGN SELECTED FINANCIAL DATA," "INFORMATION WITH RESPECT TO SOVEREIGN" and
"DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES."
First Home
First Home, a New Jersey corporation, is the holding company for First Home
Savings Bank, F.S.B., a federally chartered savings bank ("First Home Savings").
At March 31, 1998, First Home had total consolidated assets, deposits and
shareholders' equity of approximately $545.8 million, $328.2 million and $38.2
million, respectively. The sole direct subsidiary of First Home is First Home
Savings, which has 10 branches located in Carneys Point, Elmer, Gibbstown,
Newfield, Pennsauken, Penns Grove, Pennsville and Westmont, New Jersey and
Stanton and Wilmington, Delaware. First Home Savings' principal business
consists of attracting deposits from the general public through its offices and
investing such deposits, together with funds from borrowings and operations,
primarily in permanent loans (including construction loans) secured by
single-family residential real estate, consumer loans and, to a lesser extent,
loans secured by commercial real estate. At present, First Home Savings also
maintains a portfolio of mortgage-backed securities and other permissible
investments, and, through its service corporation, engages primarily in the sale
of insurance annuities.
The principal executive offices of First Home are located at 125 South
Broadway, Pennsville, New Jersey 08070 and its telephone number is (609)
678-4400. For additional information concerning First Home, see "AVAILABLE
INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "FIRST HOME
SELECTED FINANCIAL DATA," "INFORMATION WITH RESPECT TO FIRST HOME" and
"FINANCIAL STATEMENTS OF FIRST HOME."
4
<PAGE>
THE SPECIAL MEETING
General
The Special Meeting will be held at the Holiday Inn, located at Exit 10,
I-295, Pureland Industrial Complex, Bridgeport, New Jersey, at 10:30 a.m., local
time, on July 28, 1998.
Record Date
The record date for the Special Meeting is June 22, 1998 (the "Record
Date"). Only shareholders of record at the close of business on the Record Date
will be entitled to receive notice of, and to vote at, the Special Meeting.
Matters to be Considered at the Special Meeting
At the Special Meeting, holders of First Home 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 First Home are being asked to approve a
proposal to adjourn the Special Meeting, if necessary, to permit further
solicitation of proxies in the event there are not sufficient votes at the
Special Meeting to approve the Merger Agreement (the "Adjournment Proposal").
Shareholders will also consider and vote upon any other matter that may properly
come before the Special Meeting. See "THE SPECIAL MEETING -- Matters to be
Considered at the Special Meeting."
Votes Required
Shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast on the Record Date must be represented in
person or by proxy at the Special Meeting for a quorum to be present for
purposes of voting on the Merger Agreement and on the Adjournment Proposal. The
approval and adoption of the Merger Agreement and the approval of the
Adjournment Proposal will each require the affirmative vote of a majority of the
votes cast, in person or by proxy, at the Special Meeting. Each holder of shares
of First Home Common Stock outstanding on the Record Date will be entitled to
one vote for each share held of record on each matter to be considered at the
Special Meeting.
The directors and executive officers of First Home have agreed to vote all
shares of First Home Common Stock that they own on the Record Date in favor of
the approval and adoption of the Merger Agreement. On the Record Date, directors
and executive officers of First Home owned approximately 731,830 shares of First
Home Common Stock (including options to purchase 13,330 shares which are
exercisable within 60 days of the record date), or approximately 26.4% of the
then outstanding shares of First Home Common Stock. Management of First Home is
not aware of any person or entity owning 5% or more of the outstanding shares of
First Home Common Stock as of the Record Date, except for (1) 160,530 shares of
First Home Common Stock (approximately 5.8% of outstanding shares) held of
record by the First Home Savings Bank, FSB Employee Stock Ownership Plan (the
"First Home ESOP"), (2) 135,632 shares of First Home Common Stock (approximately
5.0% of outstanding shares) reported as beneficially owned by Wellington
Management Company, LLP and (3) 225,576 shares, including presently exercisable
stock options, of First Home Common Stock (approximately 8.2% of outstanding
shares) reported as beneficially owned by Rodger D. Shay, a director of First
Home, and his wife, Grace D. Shay. The First Home ESOP has voting power with
respect to 150,473 shares of First Home ESOP only if voting of these shares is
not directed by the participants of the ESOP. See "THE SPECIAL MEETING -- Votes
Required."
5
<PAGE>
THE MERGER
Terms of the Merger
At the Effective Date of the Merger, each outstanding share of First Home
Common Stock (other than Excluded Shares) will be automatically converted into,
and become a right to receive, such number of shares of Sovereign Common Stock
(including the corresponding number of Sovereign Rights) as shall equal $31.25
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 Stock
Market 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 greater than or equal to
$15.00 per share and less than or equal to $18.33 per share. If, however, the
Sovereign Market Value as of the Effective Date is less than $15.00 per share or
greater than $18.33 per share, shareholders of First Home will be entitled to
receive a fixed number of shares of Sovereign Common Stock as described in the
following paragraphs:
If, as of the Effective Date, the Sovereign Market Value is less than
$15.00 per share, each outstanding share of First Home Common Stock (other than
Excluded Shares) will be converted into and become a right to receive 2.083
shares of Sovereign Common Stock.
If, as of the Effective Date, the Sovereign Market Value is greater than
$18.33 per share, each outstanding share of First Home Common Stock (other than
Excluded Shares) will be converted into and become a right to receive 1.705
shares of Sovereign Common Stock.
In addition, in the event that First Home elects to terminate the Merger
Agreement as a result of a decline in the Sovereign Market Value as of the
Effective Date to less than $11.25 (as adjusted to reflect the Stock Split),
Sovereign can override such election by increasing the number of shares issuable
in exchange for each share of First Home Common Stock from 2.083 shares to such
number of shares of Sovereign Common Stock as shall have an aggregate value of
$23.44 based on the Sovereign Market Value as of the Effective Date. See "THE
MERGER -- Termination; Effect of Termination."
The number of shares of Sovereign Common Stock issuable in exchange for
shares of First Home Common Stock (as finally determined, the "Exchange Ratio")
reflects the Stock Split. Further adjustments will be made to prevent dilution
in the event of additional stock splits, reclassifications or other similar
events.
Each certificate representing a share of Sovereign Common Stock issued to a
shareholder of First Home will also evidence a corresponding percentage of stock
purchase rights ("Sovereign Rights") under Sovereign's Shareholder Rights Plan.
See "DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES -- Shareholder Rights Plan."
Sovereign will in all events pay cash to First Home shareholders in lieu of
issuing fractional shares of Sovereign Common Stock.
In connection with the Merger, all outstanding options to purchase shares
of First Home Common Stock under First Home's 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 First Home 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
Exchange Ratio, such shares to be issuable upon exercise in accordance with the
terms of the respective plans and grant agreements of First Home under which
they were issued. See "THE MERGER -- Terms of the Merger" and "-- Accounting
Treatment."
The Effective Date, which shall be the same date as the Closing Date, will
be designated by Sovereign and will occur within 30 days after all conditions
precedent are fulfilled or waived following five (5) days prior notice to First
Home. See "THE MERGER -- Effective Date."
6
<PAGE>
The Merger Agreement permits First Home to pay its regular quarterly cash
dividend in an amount not to exceed $.10 per share. See "THE MERGER --
Dividends."
In connection with the Merger, First Home 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 December 18, 1997 (the "Bank
Merger"). See "THE MERGER -- Subsidiary Bank Merger."
No Dissenters' Rights of Appraisal
Record holders of First Home 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
Special Meeting. See "THE MERGER -- No Dissenters' Rights of Appraisal" and
"COMPARISON OF SHAREHOLDER RIGHTS -- Dissenters' Rights."
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 the 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."
Recommendation of Board of Directors and Reasons for the Merger
The Board of Directors of First Home believes that the terms of the Merger
are fair and in the best interests of the shareholders of First Home and has
unanimously approved the Merger Agreement. The Board of Directors of First Home
unanimously recommends that the shareholders of First Home approve the Merger
Agreement.
Opinion of Financial Advisor
RP Financial, LC ("RP Financial") has rendered its written opinion, dated
December 18, 1997, and updated as of the date of this Proxy
Statement/Prospectus, to the Board of Directors of First Home 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 First Home Common Stock. A copy of
the opinion of RP Financial, dated the date of this Proxy Statement/Prospectus,
is attached hereto as Annex C.
First Home has agreed to pay fees in the amount of $175,000 to RP Financial
for its services in connection with the Merger, $60,000 of which is contingent
upon completion of the Merger.
For information on the assumptions made, matters considered and limits of
the review by RP Financial, see "THE MERGER -- Opinion of Financial Advisor."
Conditions to the Merger; Regulatory Approvals
The obligations of Sovereign and First Home 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 approval of the shareholders of First Home. 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
7
<PAGE>
Sovereign's independent auditors to the effect that the Merger will be treated
as a pooling of interests for financial accounting purposes and that the
transaction will qualify as a tax free reorganization. No assurances can be
given that all such conditions will be met. See "THE MERGER -- Conditions to the
Merger."
Termination; Effect of Termination
The Merger Agreement may be terminated at any time prior to the Effective
Date by mutual consent of Sovereign and First Home or by either party if (i) the
other party breaches, in any material respect, any material covenant or
undertaking, representation or warranty contained in the Merger Agreement which
results in a Material Adverse Effect (as defined in the Merger Agreement; see
"THE MERGER -- Termination; Effect of Termination") on the breaching party, and
such breach has not been substantially cured by the earlier of 30 days after the
date written notice of such breach was given to such party committing the breach
or the Effective Date, (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 September 30, 1998 or (iii) either party
receives a final unappealable administrative order from a regulatory authority
that the necessary approval will not 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 Closing Date or in the case of Sovereign such approval will
not be granted without the imposition of a condition which would have a material
adverse effect on Sovereign.
In addition, First Home may terminate the Merger Agreement if the Sovereign
Market Value as of the Closing Date is less than $11.25; provided, however, that
if First Home elects to terminate the Merger Agreement in accordance with this
provision, such termination will not occur if Sovereign elects to increase the
Exchange Ratio to an amount which equals the quotient obtained by dividing
$23.44 by the Sovereign Market Value as of the Closing Date.
See "THE MERGER -- Termination; Effect of Termination."
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"). First Home is a New Jersey corporation subject to the provisions of the
New Jersey Business Corporation Act (the "New Jersey BCA"). Upon completion of
the Merger, shareholders of First Home 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 First Home. 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); 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 (First Home has not adopted a similar shareholder
rights plan); 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."
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
8
<PAGE>
immediately prior to completion of the Bank Merger will remain as Sovereign
Bank's Board of Directors and executive officers upon completion of the Bank
Merger. For a period of one year subsequent to the Effective Date, Sovereign
will establish a First Home Advisory Board consisting of all of the members of
the First Home Board of Directors immediately prior to the Effective Date.
Thereafter, Sovereign has agreed to use its best efforts to cause the members of
the Advisory Board to be re-appointed for at least an additional one-year term.
See "THE MERGER -- Subsidiary Bank Merger," and "-- Management and Operations
after the Merger."
No Solicitation
Under the Merger Agreement, the Board of Directors of First Home generally
was permitted to respond to unsolicited inquiries relating to any acquisition of
First Home, any First Home subsidiary or any assets or business thereof for a
30-day period ending January 17, 1998 to the extent required in order to fulfill
its fiduciary duties. No inquiries were received by First Home in this regard
during this period (or, as of the date hereof, thereafter). The Merger Agreement
provides that after such 30-day period, First Home shall not, nor shall it
permit any of its subsidiaries, affiliates or representatives to solicit or
engage in any discussions with any person other than Sovereign concerning any
acquisition of First Home or any of its subsidiaries, except that (i) the Board
of Directors of First Home may respond to unsolicited inquiries from third
parties to the extent required in order to fulfill its fiduciary duty and (ii)
First Home may respond to inquiries from analysts, regulatory authorities and
shareholders in the ordinary course of business. See "THE MERGER -- No
Solicitation of Transactions."
Exchange of Certificates
After the Effective Date, Sovereign will send to First Home shareholders
transmittal materials for use in effecting the exchange of their certificates
representing whole shares of First Home Common Stock for certificates
representing shares of Sovereign Common Stock. Sovereign will pay holders of
First Home Common Stock cash in lieu of issuing fractional shares of Sovereign
Common Stock. See "THE MERGER -- Exchange of First Home Stock Certificates."
Each certificate representing a share of Sovereign Common Stock issued to a
shareholder of First Home will also evidence a corresponding percentage of stock
purchase rights ("Sovereign Rights") under Sovereign's Shareholder Rights Plan.
See "DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES -- Shareholder Rights Plan."
CERTAIN RELATED TRANSACTIONS
As a condition to Sovereign entering into the Merger Agreement, First Home
granted Sovereign an option under certain circumstances to purchase up to
538,975 shares of First Home Common Stock pursuant to a Stock Option Agreement,
dated December 18, 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 First
Home prior to the termination of the Merger Agreement. The exercise price per
share to purchase First Home Common Stock under the Stock Option Agreement is
equal to $30.00. No triggering event has occurred as of the date hereof.
Acquisitions of shares of First Home 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 First Home have agreed not to sell
their shares of First Home Common Stock and to vote such First Home Common Stock
in favor of the Merger Agreement. See "THE MERGER -- Matters to be Considered at
the Meeting."
The Stock Option Agreement and the agreements of First Home's 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 First Home from
considering or proposing such an acquisition, even if such persons were prepared
to pay a
9
<PAGE>
higher price per share for First Home 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 First
Home than it might otherwise have proposed to pay. See "CERTAIN RELATED
TRANSACTIONS -- Stock Option Agreement."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of First Home are the holders of
stock options to acquire First Home Common Stock, which will be converted into
options to acquire Sovereign Common Stock.
Messrs. Stephen D. Miller, Robert A. DiValerio, Duff P. O'Connor and
Stephen R. Selverian are each a party to an employment agreement with First Home
which provides, among other things, that upon his voluntary or involuntary
termination of employment following a "change in control" of First Home (which
would include the Merger) he would be entitled to receive for the duration of
the agreement's term (as if the employee's employment had not terminated) (i)
annually, 100% of the employee's annual salary at the time of termination; (ii)
annually, an amount equal to the average of three highest annual incentive
compensation payments paid to the terminated employee; and (iii) medical,
pension and similar benefits comparable to those furnished to the employee
immediately prior to the termination. Assuming a change in control occurred on
May 30, 1998, followed by termination of each of the employment agreements,
Messrs. Miller, DiValerio, O'Connor and Selverian would receive payments,
including the value of non-cash benefits, having a present value of
approximately $715,544, $472,921, $365,660 and $391,148, respectively, under the
employment agreements. These amounts reflect further limitations set forth in
the agreements. See "INTERESTS OF CERTAIN PERSONS IN THE MERGER -- Employment
Agreements."
In the Merger Agreement, Sovereign agreed that Messrs. Miller, DiValerio,
O'Connor and Selverian may elect to be paid out under the terms of their
respective employment agreements or receive a lump-sum payment of the present
value (based on a 6% per annum discount factor) of the payments required to be
made thereunder. In the Merger Agreement, Sovereign also agreed that the terms
of such agreements would be for a period of three years from the Closing Date.
On the Effective Date, Sovereign has agreed to establish for a period of
one year the First Home Advisory Board (the "Advisory Board"), which shall
consist of all the members of the First Home Board of Directors immediately
prior to the Effective Date. In addition, Sovereign has agreed to use its best
efforts to have the members of the Advisory Board re-appointed for a second
one-year term. The members of the Advisory Board shall be paid an annual
retainer of $9,000. Sovereign has also agreed to maintain Mr. Miller's
employment status until his 62nd birthday in August 1998 so that options granted
under the First Home Stock Option Plans will not expire until five years
following the termination of his employment.
Also, Sovereign has agreed to indemnify, after the Effective Date, persons
who served as directors and officers of First Home and First Home Savings. See
"THE MERGER -- Management and Operations After the Merger" and "INTERESTS OF
CERTAIN PERSONS IN THE MERGER."
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 declared per common
share and income from continuing operations per common share (i) on an
historical basis for Sovereign and First Home, (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 First Home Common Stock to reflect
completion of the Merger, assuming the Merger was effective for the periods
presented. 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
1.833 shares of Sovereign Common Stock for each share of First Home Common Stock
(the applicable Exchange Ratio assuming the Sovereign Market Value as of the
Effective Date is equal to the Sovereign Market Value of $17.05 as of June
10
<PAGE>
22, 1998). The Exchange Ratio is subject to adjustment based on the actual
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 First Home, 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
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "AVAILABLE INFORMATION" and
"PRO FORMA COMBINED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
AT DECEMBER
AT MARCH 31, 1998 31, 1997
----------------- -----------
<S> <C> <C>
BOOK VALUE PER COMMON SHARE(1)(2)(3)
Historical:
Sovereign................................................ $ 6.70 $ 6.70
First Home............................................... 14.10 13.80
Pro Forma:
Pro forma per share of Sovereign Common Stock............ 6.74 6.73
Equivalent pro forma per share of First Home Common
Stock................................................. 12.35 12.34
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE THREE MONTHS ENDED DECEMBER 31,
-------------------------- ---------------------
MARCH 31, 1998 1997 1996 1995
-------------------------- ----- ----- -----
<S> <C> <C> <C> <C>
CASH DIVIDENDS PAID PER COMMON SHARE:
Historical(4):
Sovereign............................... $0.02 $0.10 $0.13 $0.11
First Home.............................. 0.10 0.40 0.37 0.36
Pro Forma:
Pro forma per share of Sovereign Common
Stock................................ 0.02 0.10 0.13 0.11
Equivalent pro forma per share of First
Home Common Stock.................... 0.03 0.19 0.25 0.21
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS PER
COMMON SHARE(2)(5):
BASIC EARNINGS PER SHARE:
Historical:
Sovereign............................... $0.09 $0.69 $0.62 $0.68
First Home.............................. 0.45 1.75 1.58 1.74
Pro Forma:
Pro forma per share of Sovereign Common
Stock................................ 0.09 0.70 0.63 0.69
Equivalent pro forma per share of First
Home Common Stock.................... 0.16 1.28 1.15 1.26
DILUTED EARNINGS PER SHARE:
Historical:
Sovereign............................... 0.09 0.65 0.59 0.65
First Home.............................. 0.43 1.72 1.57 1.74
Pro Forma:
Pro forma per share of Sovereign Common
Stock................................ 0.09 0.66 0.60 0.66
Equivalent pro forma per share of First
Home Common Stock.................... 0.16 1.21 1.10 1.21
</TABLE>
11
<PAGE>
- ------------------
(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 (132,925,323 as of March 31, 1998 and
130,835,695 as of December 31, 1997) plus the additional amount of shares
that would be issued assuming conversion of all of Sovereign's outstanding 6
1/4% Cumulative Convertible Preferred Stock, Series B ("Series B Preferred
Stock") (14,336,513 shares at March 31, 1998 and 14,342,621 as of December
31, 1997) and (ii) the total of 2,708,426 shares of First Home Common Stock
outstanding as of March 31, 1998 and December 31, 1997 multiplied by an
Exchange Ratio of 1.833 shares of Sovereign Common Stock for each share of
First Home Common Stock (the applicable Exchange Ratio assuming the
Sovereign Market Value as of the Effective Date is equal to the Sovereign
Market Value of $17.05 as of June 22, 1998). Equivalent pro forma book value
per share of First Home Common Stock represents the pro forma book value per
share of Sovereign Common Stock multiplied by an Exchange Ratio of 1.833
(the applicable Exchange Ratio assuming the Sovereign Market Value as of the
Effective Date is equal to the Sovereign Market Value of $17.05 as of June
22, 1998). The Exchange Ratio is subject to adjustment based on the actual
Sovereign Market Value as of the Effective Date. See "THE MERGER -- Terms of
the Merger."
(2) Sovereign historical information includes financial information relating to
ML Bancorp, Inc. ("ML Bancorp"), which Sovereign acquired in a transaction
accounted for as a pooling of interests on February 27, 1998. Sovereign's
audited financial statements as of December 31, 1997 and for the three years
then ended were restated in a Current Report on Form 8-K, dated June 23,
1998, to reflect the ML Bancorp transaction. The proposed merger of Carnegie
Bancorp with and into Sovereign is not reflected in Sovereign's historical
information. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "--
Recent Developments."
(3) The pro forma information does not reflect any of the anticipated operating
cost savings from or one-time costs associated with the Merger. See "THE
MERGER -- Management and Operations After the Merger."
(4) Sovereign pro forma dividends per share represent historical dividends paid
by Sovereign. First Home pro forma equivalent dividends per share represent
such amounts multiplied by an Exchange Ratio of 1.833 shares of Sovereign
Common Stock for each share of First Home Common Stock (the applicable
Exchange Ratio assuming the Sovereign Market Value as of the Effective Date
is equal to the Sovereign Market Value of $17.05 as of June 22, 1998).
The Exchange Ratio is subject to adjustment based on the actual Sovereign
Market Value as of the Effective Date. See "THE MERGER -- Terms of the
Merger."
(5) Sovereign pro forma income from continuing operations per common share
represents historical net income from continuing operations for Sovereign
and First Home combined on the assumption that Sovereign and First Home 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 1.833 shares of Sovereign Common Stock for each share of
First Home Common Stock (the applicable Exchange Ratio assuming the
Sovereign Market Value as of the Effective Date is equal to the Sovereign
Market Value of $17.05 as of June 22, 1998). First Home equivalent pro
forma income from continuing operations per common share represents such
amounts multiplied by an Exchange Ratio of 1.833 shares of Sovereign Common
Stock for each share of First Home Common Stock (the applicable Exchange
Ratio assuming the Sovereign Market Value as of the Effective Date is equal
to the Sovereign Market Value of $17.05 as of June 22, 1998). The
Exchange Ratio is subject to adjustment based on the actual Sovereign Market
Value as of the Effective Date. See "THE MERGER -- Terms of the Merger."
12
<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 First Home Common Stock and the
equivalent market value per share of First Home Common Stock on December 18,
1997 (the last business day preceding public announcement of the Merger) and
June 22, 1998 (the latest practicable trading day before the printing of this
Proxy Statement/Prospectus). The equivalent market value per share of First Home
Common Stock indicated in the table (i) at December 18, 1997 is based on an
Exchange Ratio of 1.863 shares of Sovereign Common Stock for each share of First
Home Common Stock (the applicable Exchange Ratio assuming the Sovereign Market
Value as of the Effective Date is equal to the Sovereign Market Value of $16.77
as of December 18, 1997, as adjusted for Stock Split) and (ii) at June 22, 1998
is based on an Exchange Ratio of 1.833 shares of Sovereign Common Stock for each
share of First Home Common Stock (the applicable Exchange Ratio assuming the
Sovereign Market Value as of the Effective Date is equal to the Sovereign Market
Value of $17.05 as of June 22, 1998). 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 First
Home Common Stock and the historical market value of Sovereign Common Stock used
to determine the equivalent market value per share of First Home Common Stock
are the per share last sale prices on December 18, 1997, and June 22, 1998,
respectively, as reported on the Nasdaq Stock Market National Market with
respect to both Sovereign Common Stock and First Home Common Stock.
<TABLE>
<CAPTION>
SOVEREIGN FIRST HOME
---------- ----------------------------
EQUIVALENT
MARKET VALUE
HISTORICAL HISTORICAL PER SHARE
---------- ---------- ------------
<S> <C> <C> <C>
December 18, 1997.................................. $ 16.77(1) $30.00 $ 31.25(2)
June 22, 1998...................................... 17.05 30.56 $ 31.25(3)
</TABLE>
- ------------------
(1) As adjusted for the Stock Split.
(2) Based on assumed Exchange Ratio of 1.863.
(3) Based on assumed Exchange Ratio of 1.833.
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
Proposed Acquisition of Carnegie Bancorp. On December 12, 1997, Sovereign
and Carnegie Bancorp ("Carnegie"), parent company of Carnegie Bank, N.A.
("Carnegie Bank"), entered into an Agreement and Plan of Merger (the "Carnegie
Agreement") pursuant to which Carnegie has agreed to merge with and into
Sovereign (the "Carnegie Merger"). Carnegie is a bank holding company
headquartered in Princeton, New Jersey, whose principal operating subsidiary,
Carnegie Bank, is a national bank operating seven community banking offices in
central New Jersey and one community banking office in Pennsylvania. At December
31, 1997, Carnegie had total unaudited consolidated assets, deposits and
shareholders' equity of approximately $431.9 million, $332.9 million and $35.2
million, respectively.
The terms of the Carnegie Agreement call for Sovereign to exchange $35.50
in Sovereign Common Stock for each outstanding share of Carnegie common stock or
approximately $94.0 million in Sovereign Common Stock based on approximately
2,733,108 shares of Carnegie common stock outstanding. The purchase price will
remain fixed at $35.50 per share of Carnegie common stock if the average price
of Sovereign's Common Stock remains between $15.00 and $18.33 per share during
the 15-day period prior to the closing of the transaction. If the average price
of Sovereign's Common
13
<PAGE>
Stock declines below $15.00 per share during the pricing period, Carnegie
shareholders would receive fixed ratio of 2.366 shares of Sovereign Common Stock
for each share of Carnegie common stock. Conversely, if the average price of
Sovereign's Common Stock is higher than $18.33 per share, Carnegie shareholders
would receive a fixed exchange ratio of 1.937 shares of Sovereign Common Stock
for each share of Carnegie common stock.
Acquisition of ML Bancorp, Inc. On February 27, 1998, Sovereign acquired
ML Bancorp, Inc. ("ML Bancorp"), a Pennsylvania corporation pursuant to which ML
Bancorp merged with and into Sovereign, with Sovereign surviving the merger. On
the effective date of the merger, each outstanding share of ML Bancorp common
stock was automatically converted into 1.944 shares of Sovereign Common Stock
(as adjusted for the Stock Split). The merger was treated as a pooling of
interest for financial accounting purposes. As part of the ML Bancorp merger,
Main Line Bank, a federal savings bank and a wholly owned subsidiary of ML
Bancorp, was merged with and into Sovereign Bank. Sovereign issued a total of
24,600,000 shares of Common Stock in the ML Bancorp transaction.
Redemption of Series B Preferred Stock. On April 15, 1998, Sovereign
announced that it would redeem all outstanding shares of its 6 1/4% Cumulative
Convertible Preferred Stock, Series B ("Series B Preferred Stock") on May 15,
1998. Substantially all holders of the Series B Preferred Stock converted their
stock to Sovereign Common Stock on or prior to the redemption date. Sovereign
issued 14,361,954 shares of Sovereign Common Stock upon conversion of
outstanding shares of Series B Preferred Stock.
Acquisition of First Union Corporation/CoreStates Bank, N.A. Assets. On
April 27, 1998, Sovereign announced that it had agreed to acquire 95 branch
offices, approximately $2.3 billion in associated deposits and approximately
$800 million in selected loans from CoreStates Bank, N.A. ("CoreStates") for a
purchase price of $318 million. The branches are located in 20 counties in
Pennsylvania, including 23 branches in the Philadelphia area, nine branches in
the Lehigh Valley and 42 branches in central and north-central Pennsylvania and
nine counties in New Jersey. The transaction will be accounted for as a purchase
and is expected to close in the third quarter of 1998.
14
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth (i) certain historical consolidated summary
financial data for Sovereign and (ii) certain historical consolidated summary
financial data for First Home. These data are derived from, and should be read
in conjunction with, among other things, the consolidated financial statements
of Sovereign and First Home, 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 "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE," "AVAILABLE INFORMATION" and "PRO FORMA COMBINED FINANCIAL
INFORMATION."
SOVEREIGN SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTH AT OR FOR THE
PERIOD ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FINANCIAL CONDITION DATA
Total assets.......................... $18,096,121 $14,873,999 $16,685,771 $14,456,934
Loans................................. 10,410,727 8,877,077 10,756,785 9,067,039
Allowance for possible loan losses.... 111,908 73,288 110,251 67,422
Investment and mortgage-backed
securities.......................... 6,302,333 5,275,299 5,005,026 4,735,405
Deposits.............................. 9,247,612 8,235,001 8,856,651 8,068,203
Borrowings............................ 7,159,562 5,400,209 6,630,089 5,410,536
Shareholders' equity.................. 987,254 847,762 975,186 833,364
INCOME STATEMENT DATA
Total interest income................. $ 305,761 $ 255,445 $ 1,107,395 $ 955,912
Total interest expense................ 193,162 161,294 706,978 597,612
----------- ----------- ----------- -----------
Net interest income................... 112,599 94,151 400,417 358,300
Provision for possible loan losses.... 6,500 10,900 40,279 20,676
----------- ----------- ----------- -----------
Net interest income after provision
for possible loan losses............ 106,099 83,251 360,138 337,624
Other income.......................... 22,300 12,314 56,472 61,175
Other expenses........................ 106,225 61,454 259,322 269,509
----------- ----------- ----------- -----------
Income before income taxes and
cumulative effect of change in
accounting principle................ 22,174 34,111 157,288 129,290
Income tax provision.................. 9,147 14,037 $ 63,100 45,341
----------- ----------- ----------- -----------
Income before cumulative effect of
change in accounting principle...... 13,027 20,074 94,188 83,949
Cumulative effect of change in
accounting principle................ -- -- -- --
----------- ----------- ----------- -----------
Net income............................ $ 13,027 $ 20,074 $ 94,188 $ 83,949
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income applicable to common
stock............................... $ 11,468 $ 18,512 $ 87,944 $ 77,699
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
PER SHARE DATA (2)
Common shares outstanding at end of
period (in thousands)............... 132,925 125,988 130,836 125,258
Preferred shares outstanding at end of
period (in thousands)............... 1,996 2,000 1,996 2,000
Basic Earnings per share:
Before cumulative effect of change
in accounting principle........... $ 0.09 $ 0.15 $ 0.69 $ 0.62
After cumulative effect of change in
accounting principle.............. 0.09 0.15 0.69 0.62
Diluted earnings per share:
Before cumulative effect of change
in accounting principle........... 0.09 0.14 0.65 0.59
After cumulative effect of change in
accounting principle.............. 0.09 0.14 0.65 0.59
Book value per share at end of
period(3)........................... 6.70 6.04 6.70 5.97
Common share price at end of period... 18 3/16 10 17 5/16 9 1/8
Dividends paid per common share....... 0.017 0.036 0.103 0.134
SELECTED FINANCIAL RATIOS
Dividend payout ratio................. 18.89% 25.71% 15.85% 22.71%
Return on average assets.............. 0.76 0.76 0.60 0.62
Return on average stockholders'
equity.............................. 13.37 13.13 10.62 10.22
Equity to assets...................... 5.46 5.70 5.83 5.76
<CAPTION>
AT OR FOR THE
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
FINANCIAL CONDITION DATA
Total assets.......................... $12,378,978 $10,437,443 $7,976,835
Loans................................. 7,168,405 6,588,692 4,688,423
Allowance for possible loan losses.... 62,199 59,896 57,445
Investment and mortgage-backed
securities.......................... 4,443,847 3,367,758 2,858,846
Deposits.............................. 8,068,720 6,648,538 5,670,639
Borrowings............................ 3,399,231 3,020.632 1,698,365
Shareholders' equity.................. 791,836 654,887 508,404
INCOME STATEMENT DATA
Total interest income................. $ 787,066 $ 585,911 $ 480,278
Total interest expense................ 491,047 316,796 255,638
----------- ----------- ----------
Net interest income................... 296,019 269,115 224,640
Provision for possible loan losses.... 12,150 13,362 14,243
----------- ----------- ----------
Net interest income after provision
for possible loan losses............ 283,869 255,753 210,397
Other income.......................... 40,106 23,188 29,248
Other expenses........................ 184,319 153,482 135,635
----------- ----------- ----------
Income before income taxes and
cumulative effect of change in
accounting principle................ 139,656 125,459 104,010
Income tax provision.................. 47,626 45,862 42,541
----------- ----------- ----------
Income before cumulative effect of
change in accounting principle...... 92,030 79,597 61,469
Cumulative effect of change in
accounting principle................ -- -- 4,800
----------- ----------- ----------
Net income............................ $ 92,030 $ 79,597 $ 66,269
----------- ----------- ----------
----------- ----------- ----------
Net income applicable to common
stock............................... $ 87,342 $ 79,597 $ 66,269
----------- ----------- ----------
----------- ----------- ----------
PER SHARE DATA (2)
Common shares outstanding at end of
period (in thousands)............... 122,399 125,053 94,724
Preferred shares outstanding at end of
period (in thousands)............... 2,000 -- --
Basic Earnings per share:
Before cumulative effect of change
in accounting principle........... $ 0.68 $ 0.60 $ 0.58
After cumulative effect of change in
accounting principle.............. 0.68 0.60 0.63
Diluted earnings per share:
Before cumulative effect of change
in accounting principle........... 0.65 0.58 0.56
After cumulative effect of change in
accounting principle.............. 0.65 0.58 0.61
Book value per share at end of
period(3)........................... 5.79 5.24 5.37
Common share price at end of period... 6 11/16 4 7/8 7 1/2
Dividends paid per common share....... 0.113 0.083 0.079
SELECTED FINANCIAL RATIOS
Dividend payout ratio................. 17.38% 14.31% 13.04%
Return on average assets.............. 0.82 0.88 0.89
Return on average stockholders'
equity.............................. 12.47 13.47 13.63
Equity to assets...................... 6.40 6.27 6.37
</TABLE>
- ------------------
(1) All selected financial data has been restated to reflect all acquisitions
which have been accounted for under the pooling-of-interests method of
accounting, including the acquisition of ML Bancorp on February 27, 1998.
(2) 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.
(3) Book Value is calculated using equity divided by common shares and assuming
conversion of all outstanding shares of Series B Preferred Stock at a
conversion rate of 7.184 shares of Sovereign Common Stock for each share of
Series B Preferred Stock.
15
<PAGE>
FIRST HOME SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA
Total assets(1)...................................... $545,775 $508,243 $537,798 $498,399 $453,039 $388,621 $351,600
Loans receivable, net................................ 275,098 263,348 276,286 258,909 255,217 240,168 216,044
Mortgage-backed securities........................... 233,794 196,425 215,896 188,607 146,760 94,333 95,979
Investment securities................................ 23,246 33,623 30,320 34,732 34,621 39,676 23,121
Deposits............................................. 328,249 295,237 326,043 290,298 270,176 239,108 227,327
FHLB and other borrowed funds........................ 175,928 176,692 171,829 173,148 150,126 123,633 98,331
Total shareholders' equity(2)........................ 38,176 33,482 37,385 32,645 30,103 23,075 23,097
Book value per share(3).............................. 14.10 12.36 13.80 12.05 11.12 8.58 8.86
INCOME STATEMENT DATA
Total interest income................................ $ 9,967 $ 9,441 $ 38,968 $ 36,450 $ 32,489 $ 26,775 $ 24,570
Total interest expense............................... 6,076 5,613 23,680 21,364 18,972 13,901 12,152
-------- -------- -------- -------- -------- -------- --------
Net interest income.................................. 3,891 3,828 15,288 15,086 13,517 12,874 12,418
Provision for credit losses.......................... 100 100 400 400 600 550 700
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for credit
losses............................................. 3,791 3,728 14,888 14,686 12,917 12,324 11,718
Other income......................................... 357 357 1,333 1,387 2,307 1,240 1,784
SAIF recapitalization assessment..................... -- -- -- 1,564 -- -- --
Other expenses....................................... 2,302 2,125 9,127 9,189 7,853 6,866 7,020
-------- -------- -------- -------- -------- -------- --------
Income before income taxes........................... 1,846 1,960 7,094 5,320 7,371 6,698 6,482
Income taxes......................................... 640 662 2,366 1,035 2,660 2,495 2,426
-------- -------- -------- -------- -------- -------- --------
Net income before cumulative effect of a change in
accounting principle............................... 1,206 1,298 4,728 4,285 4,711 4,203 4,056
Cumulative effect of a change in accounting
principle.......................................... -- -- -- -- -- -- 543
-------- -------- -------- -------- -------- -------- --------
Net income........................................... $ 1,206 $ 1,298 $ 4,728 $ 4,285 $ 4,711 $ 4,203 $ 4,599
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA
Earnings per share:
Income before cumulative effect of a change in
accounting principle............................... $ .45 $ .48 $ 1.75 $ 1.58 $ 1.74 $ 1.56 $ 1.55
Cumulative effect of a change in accounting
principle.......................................... -- -- -- -- -- -- .21
-------- -------- -------- -------- -------- -------- --------
Basic net income per share(3)........................ $ .45 $ .48 $ 1.75 $ 1.58 $ 1.74 $ 1.56 $ 1.76
======== ======== ======== ======== ======== ======== ========
Diluted net income per share......................... $ .43 $ .47 $ 1.72 $ 1.57 $ 1.74 $ 1.56 $ 1.72
Dividends per share(3)............................... $ .10 $ .10 $ .40 $ .37 $ .36 .32 .24
OTHER DATA(4)
Return on average assets before cumulative effect of
a change in accounting principle................... .90% 1.03% .92% .91% 1.11% 1.12% 1.23%
Return on average assets after cumulative effect of a
change in accounting principle..................... .90 1.03 .92 .91 1.11 1.12 1.40
Return on average equity before cumulative effect of
a change in accounting principle................... 12.83 15.57 13.67 13.79 17.52 17.79 19.05
Return on average equity after cumulative effect of a
change in accounting principle..................... 12.83 15.57 13.67 13.79 17.52 17.79 21.60
Dividend payout ratio................................ 22.22 20.83 22.86 23.42 20.69 20.51 13.64
Average shareholder's equity to average assets....... 7.00 6.62 6.72 6.56 6.34 6.31 6.47
Capital ratios:
GAP................................................ 6.80 6.59 6.74 6.43 6.64 5.94 6.56
Tangible and core(2)............................... 6.69 6.50 6.60 6.45 6.47 6.69 6.49
Risk-based(2)...................................... 17.18 16.49 16.55 16.84 15.68 15.65 14.92
Average interest rate spread......................... 2.72 2.93 2.82 3.07 3.09 3.42 3.80
Net yield on average interest-earning assets......... 2.97 3.13 3.05 3.28 3.29 3.56 3.94
Ratio of average interest-earning assets to average
interest-bearing liabilities....................... 105.41 104.52 104.83 104.55 104.22 103.61 103.58
General and administrative expense to average
assets............................................. 1.62 1.65 1.71 1.84 1.79 1.75 1.94
Asset quality ratios:
Non-performing loans to total loans................ 1.41 1.23 1.20 1.22 1.13 1.64 1.07
Non-performing assets to total assets.............. .77 .79 .78 .83 .75 1.25 1.26
Allowance for possible credit losses to
non-performing assets............................ 86.49 93.39 85.84 90.38 104.52 68.02 60.01
Full service banking offices at end of period........ 10 10 10 10 10 8 8
</TABLE>
- ------------------
(1) On January 23, 1995, two retail-banking offices located in Elmer and
Newfield, New Jersey were acquired and, in connection therewith, assumed
deposits of $15.9 million. On June 25, 1993, White Eagle Federal Savings
Bank was acquired in a merger transaction accounted for as a pooling-of-
interests.
(2) First Home Savings exceeds all required regulatory capital requirements. For
additional information, see Note 15 of the Company's accompanying
consolidated financial statements.
(3) First Home's book value, earnings per share and dividends per share have
been adjusted to give effect to four-for-three stock splits effected in
February 1993, February 1994 and February 1997. In addition, net income per
share calculations have been restated to conform to Financial Accounting
Statement 128 "Earnings Per Share."
(4) Based on average balances beginning in 1996. Prior years are based on month
end balances where averages are indicated.
16
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables set forth selected unaudited pro forma financial data
reflecting the Merger (accounted for using the pooling of interests method of
accounting). The unaudited pro forma combined financial statements also give
effect to the acquisition by Sovereign of ML Bancorp which closed on February
27, 1998, and Sovereign's proposed acquisition of Carnegie Bancorp which is
pending and considered probable of closing. See "SUMMARY -- Recent
Developments."
NO ASSURANCE CAN BE GIVEN THAT ANY OF THE TRANSACTIONS INCLUDED IN THE
FOLLOWING PRO FORMA FINANCIAL INFORMATION NOT CLOSED ON THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS WILL BE COMPLETED ON THE TERMS AND CONDITIONS DESCRIBED
HEREIN.
THE PRO FORMA FINANCIAL INFORMATION DOES NOT NECESSARILY REFLECT WHAT THE
ACTUAL RESULTS OF SOVEREIGN WOULD BE FOLLOWING COMPLETION OF THE TRANSACTIONS
INCLUDED IN THE FOLLOWING PRO FORMA FINANCIAL INFORMATION.
The pro forma information has been prepared based upon an Exchange Ratio of
1.833 shares of Sovereign Common Stock for each share of First Home Common Stock
outstanding (the applicable Exchange Ratio assuming the Sovereign Market Value
as of the Effective Date is equal to the Sovereign Market Value of $17.05 as
of June 22, 1998). The Exchange Ratio is subject to adjustment based on the
actual Sovereign Market Value as of the Effective Date. See "THE MERGER -- Terms
of the Merger."
Sovereign expects to achieve certain cost savings principally through the
consolidation of certain back office and support functions and through
elimination of redundant costs. No assurance can be given that any cost savings
will be realized. The pro forma information does not reflect any of these
anticipated operating costs savings. See "THE MERGER -- Management and
Operations After the Merger."
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998
The following unaudited pro forma combined condensed consolidated balance
sheet information combines the historical consolidated balance sheets of
Sovereign and First Home as of March 31, 1998. The Merger has been reflected as
a pooling of interests. The pro forma combined condensed consolidated balance
sheet also gives effect, as of March 31, 1998, (i) under the caption --
"Sovereign" to the acquisition, by Sovereign, of ML Bancorp (accounted for as a
pooling of interests) and (ii) under the caption -- "Sovereign -- First Home --
Carnegie Combined" to the Merger and the probable acquisition of Carnegie
(accounted for as a pooling of interests). (The Merger and these closed and
probable transactions are referred to collectively as the "Transactions.") This
pro forma information should be read in conjunction with the historical
consolidated financial statements of Sovereign and First Home, including the
notes thereto, incorporated by reference in this Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "RECENT DEVELOPMENTS."
17
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SOVEREIGN
FIRST HOME
PRO FORMA CARNEGIE
SOVEREIGN FIRST HOME CARNEGIE ADJUSTMENTS COMBINED
----------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash and amounts due from depository
institutions............................. $ 362,704 $ 5,464 $ 17,960 -- $ 386,128
Investment and mortgage-backed
securities............................... 6,302,333 257,040 110,764 -- 6,670,137
Loans...................................... 10,704,728 278,724 288,967 -- 11,272,419
Allowance for possible loan losses......... (111,908) (3,626) (2,891) -- (118,425)
Goodwill and other intangible assets....... 126,534 487 -- -- 127,021
Other assets............................... 711,730 7,686 8,741 -- 728,157
----------- -------- -------- -------- -----------
Total assets............................. $18,096,121 $545,775 $423,541 -- $19,065,437
=========== ======== ======== ======== ===========
Deposits................................... $ 9,247,612 $328,249 $317,188 -- $ 9,893,049
Borrowings................................. 7,159,562 175,928 68,675 -- 7,404,165
Other liabilities.......................... 572,708 3,422 1,968 -- 578,098
----------- -------- -------- -------- -----------
Total liabilities........................ 16,979,882 507,599 387,831 -- 17,875,312
----------- -------- -------- -------- -----------
Trust Preferred Securities............... 128,985 -- -- -- 128,985
Preferred Stock............................ 96,235 -- -- -- 96,235
Common Stock(1)............................ 491,889 8,923 33,260 -- 534,072
Unallocated common stock held by ESOP...... (31,194) -- -- -- (31,194)
Treasury Stock............................. (171) -- -- -- (171)
Unrecognized gain on investments........... 8,969 82 26 -- 9,077
Retained Earnings.......................... 421,526 29,171 2,424 -- 453,121
----------- -------- -------- -------- -----------
Total shareholders' equity................. 987,254 38,176 35,710 -- 1,061,140
----------- -------- -------- -------- -----------
Total liabilities and shareholders'
equity................................... $18,096,121 $545,775 $423,541 $ -- $19,065,437
=========== ======== ======== ======== ===========
</TABLE>
- ------------------
(1) Sovereign Common Stock has no par value; accordingly, amounts shown include
surplus.
18
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The following unaudited pro forma combined condensed consolidated
statements of income for the three months ended March 31, 1998 and the years
ended December 31, 1997, 1996, and 1995 give effect to the Transactions as if
they had occurred on January 1, 1998, 1997, 1996 and 1995, respectively. The
Transactions have been reflected as poolings of interests. This pro forma
information should be read in conjunction with the historical consolidated
financial statements of Sovereign and First Home, including the notes thereto,
incorporated by reference in this Proxy Statement/Prospectus. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE" and "SUMMARY -- Recent Developments."
PRO FORMA UNAUDITED COMBINED CONDENSED
INCOME STATEMENT FOR THE THREE MONTHS
ENDED MARCH 31, 1998(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
FIRST HOME
CARNEGIE
SOVEREIGN FIRST HOME CARNEGIE COMBINED
--------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Interest income........................... $305,761 $9,967 $8,384 $324,112
Interest expense.......................... 193,162 6,076 4,257 203,495
-------- ------ ------ --------
Net interest income....................... 112,599 3,891 4,127 120,617
Provision for possible loan losses........ 6,500 100 160 6,760
-------- ------ ------ --------
Net interest income after provision for
possible loan losses.................... 106,099 3,791 3,967 113,857
-------- ------ ------ --------
Other non-interest income................. 22,300 357 166 22,823
Non-interest expense...................... 106,225 2,302 2,853 111,380
-------- ------ ------ --------
Income before taxes....................... 22,174 1,846 1,280 25,300
Income taxes.............................. 9,147 640 413 10,200
-------- ------ ------ --------
Net income................................ $ 13,027 $1,206 $ 867 $ 15,100
======== ====== ====== ========
Net income applicable to common stock..... $ 11,468 $1,206 $ 867 $ 13,541
======== ====== ====== ========
Basic earnings per share.................. $ 0.09 $ 0.45 $ 0.31 $ 0.10
======== ====== ====== ========
Diluted earnings per share................ $ 0.09 $ 0.43 $ 0.30 $ 0.09
======== ====== ====== ========
</TABLE>
- ------------------
(1) The unaudited pro forma financial information does not include any
non-recurring material expenses for the Merger or the Carnegie acquisition.
Sovereign currently estimates after-tax merger-related charges in the range
of (i) $4.0 million to $5.0 million, or $.02 to $.03 per share, related
to the Merger, expected to be taken in the third quarter of 1998 and (ii)
$7.0 million to $8.0 million, or $.04 to $.05 per share, related to the
Carnegie acquisition, expected to be taken in the third quarter of 1998.
19
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
FIRST HOME
CARNEGIE
SOVEREIGN FIRST HOME CARNEGIE COMBINED
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Interest income........................ $1,107,395 $38,968 $32,414 $1,178,777
Interest expense....................... 706,978 23,680 16,037 746,695
---------- ------- ------- ----------
Net interest income.................... 400,417 15,288 16,377 432,082
Provision for possible loan losses..... 40,279 400 446 41,125
---------- ------- ------- ----------
Net interest income after provision for
possible loan losses................. 360,138 14,888 15,931 390,957
---------- ------- ------- ----------
Other non-interest income.............. 56,472 1,333 1,034 58,839
Non-interest expense................... 259,322 9,127 11,482 279,931
---------- ------- ------- ----------
Income before taxes.................... 157,228 7,094 5,483 169,865
Income taxes........................... 63,100 2,366 1,858 67,324
---------- ------- ------- ----------
Net income............................. $ 94,188 $ 4,728 $ 3,625 $ 102,541
========== ======= ======= ==========
Net income applicable to common
stock................................ $ 87,944 $ 4,728 $ 3,625 $ 96,297
========== ======= ======= ==========
Basic earnings per share............... $ 0.69 $ 1.75 $ 1.55 $ 0.70
========== ======= ======= ==========
Diluted earnings per share............. $ 0.65 $ 1.72 $ 1.42 $ 0.66
========== ======= ======= ==========
</TABLE>
- ------------------
(1) The unaudited pro forma financial information does not include any
non-recurring material expenses for the Merger or the Carnegie acquisition.
Sovereign currently estimates after-tax merger-related charges in the range
of (i) $4.0 million to $5.0 million, or $.02 to $.03 per share, related
to the Merger, expected to be taken in the third quarter of 1998 and (ii)
$7.0 million to $8.0 million, or $.04 to $.05 per share, related to the
Carnegie acquisition, expected to be taken in the third quarter of 1998.
20
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
FIRST HOME
CARNEGIE
SOVEREIGN FIRST HOME CARNEGIE COMBINED
--------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Interest income......................... $955,912 $36,450 $24,464 $1,016,826
Interest expense........................ 597,612 21,364 10,884 629,860
-------- ------- ------- ----------
Net interest income..................... 358,300 15,086 13,580 386,966
Provision for possible loan losses...... 20,676 400 1,609 22,685
-------- ------- ------- ----------
Net interest income after provision for
possible loan losses.................. 337,624 14,686 11,971 364,281
-------- ------- ------- ----------
Other non-interest income............... 61,175 1,387 1,360 63,922
Non-interest expense.................... 269,509 10,753 10,054 290,316
-------- ------- ------- ----------
Income before taxes..................... 129,290 5,320 3,277 137,887
Income taxes............................ 45,341 1,035 1,133 47,509
-------- ------- ------- ----------
Net income.............................. $ 83,949 $ 4,285 $ 2,144 $ 90,378
======== ======= ======= ==========
Net income applicable to common stock... $ 77,699 $ 4,285 $ 2,144 $ 84,128
======== ======= ======= ==========
Basic earnings per share................ $ 0.62 $ 1.58 $ 1.10 $ 0.63
======== ======= ======= ==========
Diluted earnings per share.............. $ 0.59 $ 1.57 $ 1.00 $ 0.60
======== ======= ======= ==========
</TABLE>
- ------------------
(1) The unaudited pro forma financial information does not include any
non-recurring material expenses for the Merger or the Carnegie acquisition.
Sovereign currently estimates after-tax merger-related charges in the range
of (i) $4.0 million to $5.0 million, or $.02 to $.03 per share, related
to the Merger, expected to be taken in the third quarter of 1998 and (ii)
$7.0 million to $8.0 million, or $.04 to $.05 per share, related to the
Carnegie acquisition, expected to be taken in the third quarter of 1998.
21
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
FIRST HOME
CARNEGIE
SOVEREIGN FIRST HOME CARNEGIE COMBINED
--------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Interest income........................... $787,066 $32,489 $18,706 $838,261
Interest expense.......................... 491,047 18,972 8,464 518,483
-------- ------- ------- --------
Net interest income....................... 296,019 13,517 10,242 319,778
Provision for possible loan losses........ 12,150 600 369 13,119
-------- ------- ------- --------
Net interest income after provision for
possible loan losses.................... 283,869 12,917 9,873 306,659
-------- ------- ------- --------
Other non-interest income................. 40,106 2,307 744 43,157
Non-interest expense...................... 184,319 7,853 7,724 199,896
-------- ------- ------- --------
Income before taxes....................... 139,656 7,371 2,893 149,920
Income taxes.............................. 47,626 2,660 765 51,051
-------- ------- ------- --------
Net income................................ $ 92,030 $ 4,711 $ 2,128 $ 98,869
======== ======= ======= ========
Net income applicable to common stock..... $ 87,342 $ 4,711 $ 2,128 $ 94,181
======== ======= ======= ========
Basic earnings per share.................. $ 0.68 $ 1.74 $ 1.11 $ 0.68
======== ======= ======= ========
Diluted earnings per share................ $ 0.65 $ 1.74 $ 1.08 $ 0.66
======== ======= ======= ========
</TABLE>
- ------------------
(1) The unaudited pro forma financial information does not include any
non-recurring material expenses for the Merger or the Carnegie acquisition.
Sovereign currently estimates after-tax merger-related charges in the range
of (i) $4.0 million to $5.0 million, or $.02 to $.03 per share, related
to the Merger, expected to be taken in the third quarter of 1998 and (ii)
$7.0 million to $8.0 million, or $.04 to $.05 per share, related to the
Carnegie acquisition, expected to be taken in the third quarter of 1998.
22
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE
The Special Meeting will be held at the Holiday Inn, located at Exit 10,
I-295, Pureland Industrial Complex, Bridgeport, New Jersey, at 10:30 a.m. local
time, on July 28, 1998.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of First Home Common Stock will be asked to
consider and vote upon the approval and adoption of the Merger Agreement and the
approval of the Adjournment Proposal. Shareholders may also consider such other
matters as may properly be brought before the Special Meeting.
THE BOARD OF DIRECTORS OF FIRST HOME HAS (WITH ALL DIRECTORS PRESENT), BY
UNANIMOUS VOTE, APPROVED THE MERGER AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND FOR APPROVAL OF THE ADJOURNMENT
PROPOSAL.
VOTES REQUIRED
The approval and adoption of the Merger Agreement and the approval of the
Adjournment Proposal will each require the affirmative vote of a majority of the
votes cast in person or by proxy at the Special Meeting.
Each holder of shares of First Home Common Stock outstanding on the Record
Date will be entitled to one vote for each share held of record on each matter
to be considered at the Special Meeting.
The directors and executive officers of First Home have agreed to vote all
shares of First Home Common Stock that they own on the Record Date for approval
and adoption of the Merger Agreement. As of the Record Date, directors and
executive officers of First Home and their affiliates beneficially owned and
were entitled to vote 731,830 shares of First Home Common Stock, which
represented approximately 26.4% of the shares of First Home Common Stock
outstanding on the Record Date. Management of First Home is not aware of any
person or entity owning 5% or more of the outstanding shares of First Home
Common Stock as of the Record Date, except for (1) 160,530 shares of First Home
Common Stock (approximately 5.8% of outstanding shares) held of record by the
First Home ESOP, (2) 135,632 shares of First Home Common Stock (approximately
5.0% of outstanding shares) reported as beneficially owned by Wellington
Management Company, LLP and (3) 225,576 shares, including options of First Home
Common Stock (approximately 8.2% of outstanding shares) reported as beneficially
owned by Rodger D. Shay, a director of First Home, and his wife, Grace D. Shay.
The First Home ESOP has voting power with respect to 150,473 shares of First
Home Common Stock held by the First Home ESOP only if voting of these shares is
not directed by the participants of the ESOP.
VOTING OF PROXIES
Shares represented by all properly executed proxies received in time for
the Special Meeting will be voted at the Special Meeting in the manner specified
therein by the holders thereof. Properly executed proxies that do not contain
voting instructions will be voted in favor of the Merger Agreement and in favor
of the Adjournment Proposal.
First Home intends to count shares of First Home Common Stock present in
person at the Special Meeting but not voting, and shares of First Home Common
Stock for which it had received proxies but with respect to which holders of
shares have abstained on any matter, as present at the Special Meeting for
purposes of determining the presence or absence of a quorum for the transaction
of business.
Under New Jersey Law, First Home's Certificate of Incorporation and the
rules of the NASDAQ Marketplace Rules applicable to First Home, the affirmative
vote of a majority of votes cast in person or by proxy at the Special Meeting is
required to approve the Merger Agreement and the First Home Adjournment
Proposal. Abstentions and broker non-votes relating to shares of First Home
Common Stock will not constitute or be counted as votes "cast" for purposes of
the Special Meeting.
23
<PAGE>
It is not expected that any matter other than those referred to herein will
be brought before the Special Meeting. 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.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed First Home form does not preclude a
First Home shareholder from voting in person. A First Home shareholder may
revoke a proxy at any time prior to its exercise by filing with the Secretary of
First Home a duly executed revocation of proxy, by submitting a duly executed
proxy bearing a later date or by appearing at the Special Meeting and voting in
person at such Meeting. Attendance at the Special Meeting will not, in and of
itself, constitute revocation of a proxy.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of First Home Common Stock on the Record Date will
be entitled to notice of, and to vote at, the Special Meeting. On the Record
Date, 2,753,969 shares of First Home Common Stock were issued and outstanding
and held by approximately 925 holders of record.
Shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast on the First Home Record Date must be
represented in person or by proxy at the First Home Special Meeting in order for
a quorum to be present for purposes of voting on approval of the Merger
Agreement and the Adjournment Proposal at the Special Meeting.
SOLICITATION OF PROXIES
First Home will bear the cost of the solicitation of proxies from its
shareholders. Sovereign and First Home 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 First Home at
Sovereign's request. In addition to solicitation by mail, the directors,
officers and employees of First Home and its subsidiaries may solicit proxies
from shareholders 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 First Home will reimburse such custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses in
connection therewith.
FIRST HOME SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. AS DESCRIBED BELOW UNDER THE CAPTION "THE MERGER -- EXCHANGE OF FIRST
HOME STOCK CERTIFICATES," EACH FIRST HOME SHAREHOLDER WILL BE PROVIDED WITH
MATERIALS FOR EXCHANGING SHARES OF FIRST HOME COMMON STOCK AS PROMPTLY AS
PRACTICABLE AFTER THE EFFECTIVE DATE.
THE MERGER
BACKGROUND OF AND REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARD OF
DIRECTORS
Background of the Merger
In connection with its normal strategic planning process, First Home
continuously reviewed its strategic business alternatives, devoting particular
attention to the continuing consolidation and increasing competition in the
banking and financial services industries in the Mid-Atlantic regional market
and New Jersey in particular. The Mid-Atlantic regional market is home to
several large, aggressive regional commercial banking entities, and the banking
market in New Jersey in particular has been subject to significant consolidation
in recent years. As a result, competition in the local banking and financial
services industries has intensified, especially for smaller institutions like
First Home.
As part of the normal planning process, beginning in May 1991, First Home's
Board of Directors periodically consulted with RP Financial and other advisors
regarding current market and operating conditions for financial institutions.
From time to time, First Home's Board of Directors requested that RP Financial
provide assistance in evaluating First Home's then-current strategic plan, with
the
24
<PAGE>
objective of evaluating the merits of remaining independent versus pursuing a
strategic merger transaction or sale of First Home. On this specific issue, RP
Financial met with First Home's Board of Directors on September 26, 1994 to
present an analysis of the strategic plan beginning in June 1994; and met on
October 23, 1995 to present an analysis of the strategic plan beginning in June
1995. In these meetings, First Home's Board of Directors sought to evaluate
whether or not the proposed strategic plan provided sufficient shareholder
value, on a present value basis, to warrant remaining independent. After
considering the RP Financial analyses and other relevant factors, First Home's
Board of Directors concluded that the proposed strategic plans beginning in June
1994 and June 1995, respectively, warranted remaining independent. First Home's
Board of Directors again retained RP Financial in late 1996 to provide strategic
planning assistance, including an overview of the market for bank and thrift
mergers, an assessment of First Home's then current strategic business plan, and
a preliminary estimate of First Home's market value were it to pursue a
strategic merger transaction. On January 27, 1997, RP Financial presented to
First Home's Board of Directors the results of its analysis, including an
assessment of First Home's then current strategic plan and a preliminary
estimate of First Home's merger value. On the basis of this analysis, First
Home's Board of Directors authorized executive management and RP Financial to
further refine First Home's strategic plan, specifically quantifying the
potential shareholder value that could be anticipated to be created under a
stand-alone business plan. On February 24, 1997, at a meeting of First Home's
Board of Directors, RP Financial reviewed the strategic planning analysis,
including a description of the alternative stand-alone business strategies
available to First Home, a quantification of the potential shareholder value
that could be anticipated under each scenario, and a risk analysis of the
alternative strategies. At this meeting, First Home's Board of Directors
authorized RP Financial to initiate, in conjunction with the ongoing planning
efforts, a limited market review to ascertain the level of interest in a
potential business combination that would enable First Home to, among other
things, retain its name, maintain a degree of independence, preserve its
community banking presence in its markets and retain autonomy over internal
operations (the "community banking strategy"). In late March 1997, RP Financial
contacted five (5) institutions that were believed to have an interest in
expanding through community bank mergers. Of the institutions contacted, two
initially provided preliminary verbal expressions of interest. After providing
further information and conducting more detailed discussions, one institution
("Interested BHC #1") indicated preliminary transaction terms, including
corporate structure and form and amount of merger consideration, which First
Home's Board of Directors concluded were sufficiently attractive to warrant
further consideration. In late April 1997, First Home, RP Financial, and
Interested BHC #1 exchanged detailed due diligence materials, conducted on-site
due diligence and continued to negotiate the potential transaction terms. After
conducting on-site due diligence, Interested BHC #1 revised its expression of
interest by reducing the aggregate amount of merger consideration and materially
revising certain of the other potential transaction terms. After consultations
with RP Financial, First Home's Board of Directors considered the revised level
of merger consideration being offered by Interested BHC #1 to be insufficient
relative to First Home's prospects under its stand-alone business plan. In early
May 1997, First Home's Board of Directors requested that RP Financial terminate
discussions with Interested BHC #1, opting to remain independent at that time
and pursue its stand-alone business plan.
Periodically during the summer of 1997, at the request of First Home's
Board of Directors, RP Financial provided verbal updates to First Home's Board
of Directors on trends in the market for bank and thrift mergers. Also during
this time period, executive management of First Home revised the stand-alone
business plan to reflect additional costs anticipated to remain competitive in
the future. The revisions to the stand-alone business plan included additional
costs to consolidate operations in a single facility, upgrading peripheral
computer systems (hardware and software), additional costs for training branch
personnel, additional costs for staffing new management positions, and the costs
of developing and implementing new products and services. At a meeting on
September 18, 1997, First Home's Board of Directors met with RP Financial to
review First Home's strategic options, particularly in light of the continued
strong prices associated with bank and thrift combinations and First Home's
revised stand-alone business plan which reflected the anticipated costs to be
incurred were First Home to remain independent. At that meeting, First Home's
Board of Directors authorized RP Financial to initiate, in conjunction with the
ongoing planning efforts, a second market review to ascertain the level of
interest in a potential business combination with First Home, without regard to
preserving First
25
<PAGE>
Home's community banking strategy. In October and November 1997, RP Financial
formally and informally contacted fifteen (15) institutions that were believed
to have an interest in expansion within First Home's market area and had
sufficient financial resources to complete such a business combination. Nine (9)
of the institutions contacted executed formal confidentiality agreements and
reviewed detailed financial data. After providing further information and
conducting more detailed discussions, two institutions (Sovereign and
"Interested BHC #2") indicated preliminary expressions of interest in pursuing a
business combination with First Home. Based on several factors, including the
form and amount of consideration indicated, the relative market capitalization
and liquidity in the shares to be exchanged, and other financial and
non-financial considerations, First Home's Board of Directors authorized
executive management to continue negotiating with Sovereign in an effort to
ascertain whether or not mutually agreeable merger terms could be reached.
During November and early December 1997, at the direction of First Home's
Board of Directors, executive management of First Home and RP Financial
continued to discuss with representatives of Sovereign the financial and other
terms of a Merger, including the form and amount of consideration to be offered,
the Exchange Ratio, the treatment of First Home stock options, the termination
provisions, and issues relating to the management and operations of First Home
following the Merger. During this period, First Home, its legal counsel and RP
Financial conducted a due diligence analysis of Sovereign and Sovereign
conducted a due diligence analysis with respect to First Home. During this
period, the form and amount of consideration and the Exchange Ratio was
determined on the basis of arms-length-negotiations between First Home's
representatives and RP Financial and the Sovereign representatives.
On December 15, 1997, at a meeting of First Home's Board of Directors,
executive management of First Home reviewed with First Home's Board of Directors
the details of the aforementioned negotiations, and the benefits of the Merger;
First Home's legal counsel reviewed the terms of the Merger Agreement, related
agreements and the transactions contemplated thereby; and RP Financial made a
presentation regarding the financial terms of the Merger Agreement and the
fairness, from a financial point of view, of the Merger Consideration to holders
of First Home Common Stock. After a discussion and consideration of the factors
discussed below under "The Merger -- Reasons for the Merger; Recommendation of
the First Home Board of Directors", First Home's Board of Directors authorized
management to continue to negotiate with Sovereign and authorized execution of
the Merger Agreement, subject to agreement on certain terms and conditions
relating to the Merger Agreement. On December 18, 1997, executive management of
First Home, First Home's legal advisors and RP Financial successfully completed
their negotiations, satisfying the Board of Directors' conditions. The Merger
Agreement was entered into on December 18, 1997.
Reasons for the Merger
In reaching its determination that the Merger and the Merger Agreement are
fair to, and in the best interest of, First Home and its shareholders, the Board
of Directors of First Home consulted with its outside financial and legal
advisors as well as First Home's management, and evaluated the financial, legal
and market conditions bearing on its determination. The terms of the Merger,
including the price, were the result of arm's length negotiations between
representatives of First Home and Sovereign. In reaching its determination that
the Merger and the Merger Agreement are fair to, and in the best interest of,
First Home and its shareholders, the Board of Directors considered a number of
factors, both from a short and long-term perspective, including but not limited
to the following:
(i) the Board of Directors' belief that in the rapidly changing and
increasingly competitive market for financial services, First Home can
compete more effectively as part of a larger banking organization which has
greater resources and a wider range of product offerings and services than
those presently offered by First Home;
(ii) the Board of Directors' further belief that through the Merger it
can better maximize shareholder return by affiliating with a larger, more
diversified financial institution. In light of market forces experienced
over the last couple of years, First Home has found it increasingly
difficult to grow through the acquisition of other financial institutions
and branches. It appears that competing acquirors which have higher
capitalizations and greater stock liquidity have shown a greater ability to
pay than has First Home. Accordingly, this avenue of expansion has not
proven to be realistically available to First Home;
26
<PAGE>
(iii) the liquidity provided by Sovereign Common Stock is
significantly greater, compared to the liquidity of First Home's Common
Stock;
(iv) the familiarity of the Board of Directors with First Home's
business, financial condition, results of operation, management, strategic
plans and alternatives, future prospects, including but not limited to, its
potential growth, development, productivity and profitability,
opportunities for expansion and the business risks associated therewith;
(v) the pro forma financial information, including the pro forma book
value and earnings per share;
(vi) a comparison of the value of the consideration proposed to be
paid in the Merger to that of comparable thrift mergers;
(vii) the historical trading prices for Sovereign Common Stock and
First Home Common Stock;
(viii) First Home's alternatives to the Merger, including the range of
possible values of those alternatives and the timing and likelihood of
actually receiving those values;
(ix) the expectation that the Merger would provide stockholders of
First Home with an opportunity to receive a premium over the market and
book value of First Home Common Stock and that the consideration received
by First Home shareholders in the Merger would constitute a favorable
premium compared to expected future values of First Home Common Stock,
based upon a variety of circumstances and assumptions;
(x) the compatibility of the business and management philosophies of
Sovereign and First Home;
(xi) the current and prospective environment in which First Home
operates, including national and local economic conditions, the competitive
environment for financial institutions generally, the regulatory burden on
financial institutions and the trend towards consolidation in the financial
services industry, particularly in First Home's market area.
(xii) information concerning the business, operations, asset quality,
reputation, completed bank acquisition transactions, the perceptions of
Sovereign by the investment community as expressed in research reports,
future prospects of Sovereign and the recent performance of Sovereign
Common Stock;
(xiii) the oral and written presentations and written opinions, of
First Home's financial advisor, RP Financial, that the consideration is
fair to the holders of First Home Common Stock from a financial point of
view and discussions with legal counsel;
(xiv) the Board of Directors' belief that the terms of the proposed
Merger and Merger Agreement with Sovereign would allow First Home
shareholders to receive Sovereign Common Stock in the Merger, thus
permitting shareholders to defer any tax liability associated with the
increase in the value of their stock as a result of the Merger, and to
become shareholders of Sovereign, a company with strong operations,
management, earnings performance and stock liquidity; and
(xv) since Sovereign shares First Home's philosophy of community
banking, it is contemplated that after the Merger the combined entity's
branch offices will maintain their community orientation. Therefore, the
Board of Directors of First Home believes that the Merger should enhance
the ability of the combined entity to be more competitive and to better
satisfy the needs of First Home's customer base.
Recommendation of the First Home Board of Directors
THE BOARD OF DIRECTORS OF FIRST HOME BELIEVES THAT THE TERMS OF THE MERGER
ARE FAIR TO, AND IN THE BEST INTERESTS OF, FIRST HOME AND ITS SHAREHOLDERS AND
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT. THE BOARD OF DIRECTORS OF FIRST
HOME UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF FIRST HOME APPROVE THE
MERGER AGREEMENT.
27
<PAGE>
TERMS OF THE MERGER
Upon completion of the Merger, the separate legal existence of First Home
will cease. All property, rights, powers, duties, obligations, debts and
liabilities of First Home will automatically be taken and deemed to be
transferred to and vested in Sovereign, in accordance with the requirements of
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 First Home Common
Stock (other than Excluded Shares) will be automatically converted into, and
become a right to receive, such number of shares of Sovereign Common Stock as
shall equal $31.25 divided by the average of the mean between closing high bid
and low asked prices of a share of Sovereign Common Stock (as reported on the
Nasdaq Stock Market 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 greater
than or equal to $15.00 per share and less than or equal to $18.33 per share.
If, however, the Sovereign Market Value as of the Effective Date is less than
$15.00 per share or greater than $18.33 per share, shareholders of First Home
will be entitled to receive a fixed number of shares of Sovereign Common Stock
as described in the following paragraphs:
If, as of the Effective Date, the Sovereign Market Value is less than
$15.00 per share, each outstanding share of First Home Common Stock (other than
Excluded Shares) will be converted into and become a right to receive 2.083
shares of Sovereign Common Stock.
If, as of the Effective Date, the Sovereign Market Value is greater than
$18.33 per share, each outstanding share of First Home Common Stock (other than
Excluded Shares) will be converted into and become a right to receive 1.705
shares of Sovereign Common Stock.
In addition, in the event that First Home elects to terminate the Merger
Agreement as a result of a decline in the Sovereign Market Value as of the date
immediately preceding the Effective Date to less than $11.25, Sovereign can
override such election by increasing the number of shares issuable in exchange
for each share of First Home Common Stock from 2.083 shares to such number of
shares of Sovereign Common Stock as shall have an aggregate value of $23.44
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 First Home Common Stock (as finally determined, the "Exchange Ratio")
accounts for the Stock Split. Further adjustments will be made to prevent
dilution in the event of additional stock splits, reclassifications or other
similar events.
Shareholders of First Home will receive cash in lieu of fractional shares
of Sovereign Common Stock. See "-- Exchange of First Home Stock Certificates"
herein.
As of the Record Date, directors and executive officers of First Home
and/or First Home Savings have been granted options to purchase 68,151 shares of
First Home 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 First Home 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 First Home under which they were
issued.
The Sovereign Common Stock and cash to be received by the holders of First
Home Common Stock (including the holders of options to acquire First Home Common
Stock) in exchange for each share (other than Excluded Shares) of First Home
Common Stock (including shares subject to options) are referred to herein as the
"Merger Consideration."
28
<PAGE>
OPINION OF FIRST HOME'S FINANCIAL ADVISOR
First Home's Board of Directors retained RP Financial in November 1997 to
provide certain financial advisory and investment banking services to First Home
in conjunction with the Merger, including the rendering of an opinion with
respect to the fairness of the Merger Consideration from a financial point of
view to holders of First Home Common Stock. In requesting RP Financial's advice
and opinion, First Home's Board of Directors did not give any special
instructions to, or impose any limitations upon the scope of the investigation
which RP Financial might wish to conduct to enable it to give its opinion. RP
Financial was selected by First Home to act as its financial advisor because of
RP Financial's expertise in the valuation of businesses and their securities for
a variety of purposes including its expertise in connection with mergers and
acquisitions of savings and loans, savings banks, and savings and loan holding
companies.
On December 15, 1997, at the meeting in which First Home's Board of
Directors reviewed the Merger Agreement and the transactions contemplated
thereby, RP Financial rendered its opinion to First Home's Board of Directors
that, as of such date, the Merger Consideration was fair to holders of First
Home Common Stock from a financial point of view. The opinion was first updated
as of December 18, 1997, the date at which the Board of Directors approved and
adopted the Merger Agreement. The opinion was subsequently updated as of the
date of this Proxy Statement/Prospectus to reflect financial results through
March 31, 1998. In connection with its opinion dated as the date of this Proxy
Statement/Prospectus, RP Financial also confirmed the appropriateness of its
reliance on the analysis used to render its December 18, 1997 opinion by
performing procedures to confirm the appropriateness of such analyses and by
reviewing the assumptions on which such analyses were based and the factors
considered in connection therewith.
The full text of the opinion of RP Financial, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as Annex C to this Proxy Statement/Prospectus and is incorporated
herein by reference. Holders of First Home Common Stock are urged to read the
opinion in its entirety.
THE OPINION OF RP FINANCIAL IS DIRECTED TO FIRST HOME'S BOARD OF DIRECTORS
IN ITS CONSIDERATION OF THE MERGER CONSIDERATION AS DESCRIBED IN THE MERGER
AGREEMENT, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF FIRST
HOME AS TO ANY ACTION THAT SUCH SHAREHOLDER SHOULD TAKE IN CONNECTION WITH THE
MERGER AGREEMENT, OR OTHERWISE. IT IS FURTHER UNDERSTOOD THAT THE OPINION OF RP
FINANCIAL IS BASED ON MARKET CONDITIONS AND OTHER CIRCUMSTANCES EXISTING ON THE
DATE HEREOF.
The opinion states that RP Financial reviewed the following material: (1)
the Merger Agreement; (2) the draft of the Proxy Statement/Prospectus and
related Annexes included in the Form S-4 Registration Statement filed with the
SEC on June 25, 1998; (3) financial and other information for First
Home, all with regard to balance sheet and off-balance sheet composition,
profitability, interest rates, volumes, maturities, trends, credit risk,
interest rate risk, liquidity risk and operations including: (a) audited
financial statements for the fiscal years ended December 31, 1994 through 1997,
(b) Form 10-K as of December 31, 1997 and Form 10-Q for the quarter ended March
31, 1998, (c) shareholder, regulatory and internal financial and other reports
through March 31, 1998, (d) the two most recent proxy statements for First Home,
(e) internal budgets, financial projections and earnings per share forecasts
prepared by management, and (f) First Home's management comments regarding past
and current business, operations, financial condition, and future prospects; and
(g) financial and other information for Sovereign including: (i) audited
financial statements for the fiscal years ended December 31, 1994 through 1997,
incorporated in Annual Reports to shareholders and Form 10-Ks, (ii) Form 10-Q
for the quarter ended March 31, 1998 and interim results and developments
through June 24, 1998, including regulatory filings and press releases, (iii)
regulatory and internal financial and other reports through March 31, 1998, (iv)
internal budgets and financial projections prepared by management of Sovereign
and third parties, inclusive of the anticipated pro forma impact of recent
previously announced merger transactions, (v) Sovereign's management
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comments regarding past and current business, operations, financial condition,
and future prospects, and (vi) analysts' reports.
In addition, RP Financial stated that it reviewed financial, operational,
market area and stock price and trading characteristics for First Home and
Sovereign relative to publicly-traded savings institutions with comparable
resources, financial condition, earnings, operations and markets. RP Financial
also considered the economic and demographic characteristics in the local market
area, and the potential impact of the regulatory, legislative and economic
environments on operations for First Home and Sovereign and the public
perception of the thrift industry. In rendering its opinion, RP Financial stated
that it relied, without independent verification, on the accuracy and
completeness of the information concerning First Home and Sovereign furnished by
the respective institutions to RP Financial for review, as well as
publicly-available information regarding other financial institutions and
economic and demographic data. RP Financial stated that First Home and Sovereign
did not restrict RP Financial as to the material it was permitted to review. The
opinion further states that RP Financial did not perform or obtain any
independent appraisals or evaluations of the assets and liabilities and
potential and/or contingent liabilities of First Home or Sovereign. RP Financial
further indicated that the financial forecasts and budgets reviewed by RP
Financial were prepared by the managements of First Home and Sovereign; that
neither First Home nor Sovereign publicly discloses internal management
forecasts or budgets of the type provided to RP Financial in connection with the
review of the Merger; and such financial forecasts were not prepared with a view
towards public disclosure. The financial forecasts and budgets were based upon
numerous variables and assumptions which are inherently uncertain, including
without limitation factors related to general economic and competitive
conditions, as well as trends in asset quality. Accordingly, RP Financial
cautioned that actual results could vary significantly from those set forth in
such financial forecasts.
In connection with rendering its opinion dated December 18, 1997 and
updated as of the date of this Proxy Statement/Prospectus, RP Financial
performed a variety of analyses, which are summarized below. The preparation of
a fairness opinion is a complex process involving subjective judgments and is
not necessarily susceptible to partial analyses or summary description. RP
Financial stated that its analyses must be considered as a whole and that
selecting portions of such analyses and of the factors considered by RP
Financial without considering all such analyses and factors could create an
incomplete view of the process underlying RP Financial's opinion. In its
analyses, RP Financial made numerous assumptions with respect to industry
performance, business and economic conditions, applicable laws and regulations,
and other matters, many of which are beyond the control of First Home. Any
estimates contained in RP Financial's analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable than
such estimates. No company or transaction utilized in RP Financial's analyses
was identical to First Home, Sovereign or the Merger. None of the analyses
performed by RP Financial was assigned a greater significance by RP Financial
than any other.
The following is a summary of the material financial analyses performed by
RP Financial in connection with providing its opinion of December 18, 1997 and
updated as of the date of this Proxy Statement/Prospectus.
(a) Transaction Summary. RP Financial summarized the terms of the Merger,
including the conversion of each share of First Home Common Stock into the right
to receive Sovereign Common Stock pursuant to the Exchange Ratio. RP Financial
also summarized the formula for calculating the Exchange Ratio, the treatment of
the outstanding options to acquire First Home Common Stock, the termination
provisions incorporated in the Merger Agreement, and the pricing ratios
indicated by the Merger Consideration relative to the tangible book value,
historical earnings, projected earnings, assets and deposits of First Home.
(b) Comparable Transactions Analysis. In this analysis, RP Financial
conducted an evaluation of the financial terms, financial and operating
condition and market area of recent business combinations among comparable
thrift institutions both pending and completed. In conjunction with its
analysis, RP Financial considered the multiples of tangible-book value, earnings
and asset size implied
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by the terms in such completed and pending transactions involving selling
companies whose financial characteristics were comparable to those of First Home
including two comparable groups: (1) companies operating in the MidAtlantic
region with total assets between $250 million and $750 million, companies
operating in New Jersey with assets between $100 million and $3 billion, and
completed/announced transactions since 1996, representing a total of seven
transactions ("Comparable Group #1"); and (2) companies operating throughout the
U.S. with total assets between $250 million and $750 million, equity-to-assets
ratios of less than 10%, reporting positive net income, completed/announced
transactions during 1997 and 1998, and excluding transactions considered to be
merger of equals transactions where no control premium was paid by either
merging party ("Comparable Group #2"). The median tangible price-to-book value
ratios indicated by Comparable Group #1 and Comparable Group #2 were 169% and
200%, respectively, versus a tangible price-to-book value ratio of approximately
226% indicated by the Merger Consideration based on March 31, 1998 financial
data adjusted to reflect the full dilutive impact of stock options. The median
price-to-assets ratios indicated by the Comparable Group #1 and Comparable Group
#2 were 14.3% and 15.2%, respectively, versus a price-to-assets ratio of
approximately 16.2% indicated by the Merger Consideration based on March 31,
1998 financial data adjusted to reflect the impact of stock options. The median
price-to-earnings multiples indicated by the Comparable Group #1 and Comparable
Group #2 were 15.6 times and 18.6 times, respectively, based on trailing twelve
month earnings (with trailing twelve month earnings and price-to-earnings
multiples adjusted to eliminate the impact of the one time SAIF assessment where
applicable), versus a price-to-earnings multiple of approximately 18.9 times
indicated by the Merger Consideration relative to First Home's March 31, 1998
trailing twelve month earnings. The pricing ratios based on tangible book value,
assets and trailing twelve month earnings indicated by the Merger Consideration
were comparable to or exceeded the median pricing ratios indicated by the
Comparable Group #1 and #2, which RP Financial cited in support of its fairness
conclusions.
(c) Discounted Cash Flow Analysis. RP Financial prepared several
discounted cash flow ("DCF") analyses, all of which incorporated a five year
financial projection and cash flow analysis to shareholders. The DCF analyses
incorporated several specific factors reflecting the operating environment of
First Home on a stand-alone basis, including growth prospects in the local
market, the level of competition from other financial institutions, and future
earnings estimates for First Home under a stand-alone business plan reflective
of expenses that First Home anticipated to be incurred to remain competitive and
without the benefits of the Merger. The projections of future cash flows to
shareholders included the continued payment of cash dividends during interim
years and the receipt of consideration at the end of five years of operations,
assuming a terminal value for First Home Common Stock equal to an assumed merger
value. The merger value reflected an estimate of the price that could be
received for First Home Common Stock assuming First Home's Board of Directors
sought to pursue a merger transaction at the end of five years, including an
orderly marketing of First Home to potential merger partners and receipt of a
control premium by the holders of First Home Common Stock. In the "base case"
operating scenario, the projections of future cash flows assumed continued
payment of cash dividends, asset growth of 10.0% annually, a return on average
assets ranging from 0.76% of average assets to 0.83% of average assets, and
realization of a terminal value at the end of five years of operations equal to
190% of book value per share (assumed to be the "current market merger value,"
based on comparable group transaction data). The cash flow represented by the
dividends and terminal value was discounted to present value using a discount
rate of 10%. The "base case" DCF analysis indicated a present value to
stockholders of $26.89 per share (assuming a current market merger value of 190%
of book value). In addition to the "base case" operating scenario, RP Financial
prepared DCF analyses assuming different operating scenarios. Under the
conservative operating scenario, in which earnings were projected at 90% of the
"base case", the DCF analysis indicated a present value to stockholders of
$25.96 per share. Under the aggressive operating scenario, in which earnings
were projected at 110% of the "base case", the DCF analysis indicated a present
value to stockholders of $27.82 per share. Assuming a terminal value of 220% of
book value per share (the "aggressive merger value"), the DCF analysis indicated
a present value to stockholders of $30.90 per share, $29.82 per share, and
$31.98 per share, respectively, under the "base case", the conservative
operating scenario,
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and the aggressive operating scenario. RP Financial concluded that, since the
Merger Consideration exceeded the present value of future cash flows accruing to
holders of First Home Common Stock under all scenarios assuming the current
market merger value and approximated or exceeded the present value calculations
under most scenarios assuming the aggressive merger value, the DCF analyses
supported its fairness conclusions.
(d) Impact Analysis. RP Financial evaluated the projected financial impact
of the Merger on the balance sheet, income statement and per share financial
measures of First Home. RP Financial's analysis considered the financial
condition and operations of First Home and Sovereign at March 31, 1998 and the
pro forma impact of the Merger. The figures utilized for Sovereign reflect the
pro forma impact of the acquisition of ML Bancorp. RP Financial calculated the
impact analysis at two price levels for the Sovereign Common Stock: (1) the
upper limit, at which the holders of First Home Common Stock would receive
approximately 1.705 shares of Sovereign Common Stock pursuant to the Exchange
Ratio formula; and (2) the lower limit, at which the holders of First Home
Common Stock would receive approximately 2.083 shares of Sovereign Common Stock
pursuant to the Exchange Ratio formula. At any point between the upper and lower
limits, RP Financial estimated that holders of First Home Common Stock would
realize accretion in market value of approximately 9 percent, which represents
the difference between the Merger Consideration and the most recent trading
price for First Home Common Stock prior to execution of the Agreement. RP
Financial estimated that holders of First Home Common Stock would incur dilution
of 29 percent and 14 percent in tangible book value per share at the upper and
lower limits, respectively. RP Financial further estimated that holders of First
Home Common Stock would realize accretion of 8 percent and 31 percent in
projected earnings per share at the upper and lower limits, respectively, and
would realize dilution of 72 percent and 65 percent, respectively, in dividends
per share at the upper and lower limits. The holders of First Home Common Stock
would enjoy a stronger return on equity (ROE), on a pro forma basis, relative to
stand-alone operations. RP Financial considered both the impact of the Merger on
the overall financial measures of First Home as well as the impact of the Merger
on the per share financial measures of First Home in support of the fairness
issue.
In addition to these financial analyses, RP Financial considered several
other considerations in its fairness conclusions. Such other financial
considerations included the greater market capitalization of the merged company
relative to First Home on a stand-alone basis; the significantly greater
liquidity in the shares relative to the shares of First Home Common Stock
without the Merger; the likelihood of greater potential stock price appreciation
in the Sovereign Common Stock relative to the shares of First Home Common Stock
without the Merger; the potential benefits to First Home of the greater
geographic and operating diversification of the merged company relative to First
Home on a stand-alone basis; and the potential recovery resulting from
Sovereign's supervisory goodwill claim against the United States Government.
On the basis of these analyses and other considerations, RP Financial
concluded that the Merger Consideration, as described in the Merger Agreement,
is fair to the shareholders of First Home from a financial point of view. As
described above, RP Financial's opinion and presentation to First Home's Board
of Directors was one of many factors taken into consideration by First Home's
Board of Directors in making its determination to approve the Merger Agreement.
Although the foregoing summary describes the material components of the analyses
presented by RP Financial to First Home's Board of Directors, it does not
purport to be a complete description of all the analyses performed by RP
Financial and is qualified, in its entirety, by reference to the written opinion
of RP Financial set forth as Annex C hereto, which First Home shareholders are
urged to read in its entirety.
Pursuant to a letter dated November 12, 1997 (the "RP Financial Engagement
Letter"), RP Financial estimates that it will receive from First Home total fees
of $175,000, of which $115,000 has been paid to date, plus reimbursement of
certain out-of-pocket expenses, for its services in connection with the Merger.
In addition, First Home has agreed to indemnify RP Financial against certain
liabilities, including liabilities under the federal securities laws.
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EFFECTIVE DATE OF THE MERGER
Under the Merger Agreement, the Effective Date, which under the Merger
Agreement is the same as the Closing Date, is the date determined by Sovereign,
in its sole discretion, upon five days prior written notice to First Home, but
in no event will the Effective Date be later than 30 days after (i) all required
regulatory approvals for the Merger have been obtained and (ii) all actions
required to be taken by First Home and Sovereign to authorize the Merger and the
Bank Merger shall have been duly and validly taken, or such other date as
Sovereign and First Home may agree. The parties presently expect that the
Effective Date will occur on or about July 31, 1998. See "-- Conditions to the
Merger" herein.
On or prior to the Effective Date, Articles of Merger between Sovereign and
First Home 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 at any time prior to the Effective
Date by mutual consent of Sovereign and First Home or by either party if (i) the
other party breaches, in any material respect, any material covenant or
undertaking, representation or warranty contained in the Merger Agreement which
results in a Material Adverse Effect (as defined in the Merger Agreement; see
"THE MERGER -- Termination; Effect of Termination") on the non-breaching party,
and such breach has not been substantially cured by the earlier of 30 days after
the date written notice of such breach was given to such party committing the
breach or the Effective Date, (ii) the Closing Date shall not have occurred by
September 30, 1998 or (iii) either party receives a final unappealable
administrative order from a regulatory authority that the necessary approval
will not 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 Closing
Date or in the case of Sovereign, such approval will not be granted without the
imposition of a condition which would have a material adverse effect on
Sovereign. See "-- Termination; Effect of Termination."
In addition, the Merger Agreement may be terminated by First Home on the
Closing Date if the Sovereign Market Value as of the Closing Date is less than
$11.25 (as adjusted for the Stock Split). Notwithstanding First Home's right to
terminate the Merger Agreement, as a result of the foregoing, Sovereign may
override First Home's election to terminate by increasing the applicable
Exchange Ratio to equal the quotient obtained by dividing $23.44 by the
Sovereign Market Value as of the Closing Date. There can be no assurance that
First Home would exercise its right to terminate the Merger Agreement if a
Termination Event (i.e., the conditions described above) exists, and if First
Home does elect to so terminate the Merger Agreement, there can be no assurance
that Sovereign will elect to increase the applicable 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 two scenarios:
(1) If the Sovereign Market Value as of the Closing Date is not less
than $11.25 (as adjusted for the Stock Split), there would be no
Termination Event and no adjustment to the applicable Exchange Ratio.
(2) If the Sovereign Market Value on the Closing Date is less than
$11.25, there would be a Termination Event and the First Home 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 $23.44 by the Sovereign Market Value as of
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 First Home Common Stock in the Merger, nor do
they reflect all possible termination/increase scenarios.
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EXCHANGE OF FIRST HOME STOCK CERTIFICATES
The conversion of First Home 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 First Home shareholder of record. The transmittal form
will contain instructions with respect to the surrender of certificates
representing First Home 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 First Home as soon as reasonably possible but in no event later
than 15 business days following the receipt of certificates representing former
shares of First Home Common Stock (except in the case of share certificates
containing a restrictive legend or with respect to which stop transfer
instructions pertain) duly endorsed.
FIRST HOME SHAREHOLDERS SHOULD NOT FORWARD FIRST HOME STOCK CERTIFICATES TO
THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. FIRST HOME
SHAREHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Until the certificates representing First Home 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 First Home 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 First Home will be
liable to any holder of shares of First Home 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
First Home Common Stock shall be deemed to have been issued in full satisfaction
of all rights pertaining to such shares of First Home 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 First Home on such shares of First Home 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 First Home 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.
CONDITIONS TO THE MERGER
The obligations of Sovereign and First Home to effect the Merger are
subject to various conditions, which include, among other customary provisions
for transactions of this type, the following:
(a) 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" herein);
(b) all representations and warranties made by Sovereign and First
Home in the Merger Agreement shall be true and correct as of the Effective
Date (see "-- Representations and Warranties" herein);
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(c) all obligations and covenants required of First Home and Sovereign
in the Merger Agreement shall have been duly performed and complied with in
all respects (see "-- Business Pending the Merger" herein);
(d) there shall not be any order, decree, or injunction in effect
preventing the completion of the transactions contemplated by the Merger
Agreement;
(e) there shall have been delivered to each of Sovereign and First
Home 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
(f) there shall not have been any material adverse effect on the
consolidated assets, financial condition or results of operations of the
other since September 30, 1997, except for any material adverse effect
caused by (i) any change in the value of the respective investment
portfolios of Sovereign or First Home resulting from a change in interest
rates generally, (ii) any change occurring after the date of the 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 (iii) reasonable
expenses (plus reasonable legal fees, cost and expense relating to any
litigation arising as a result of the Merger) incurred in connection with
the Merger Agreement and the transactions contemplated thereby, (iv)
actions or omissions of Sovereign or First Home (or any of their
subsidiaries) taken with the prior informed written consent of the other
party in contemplation of the transactions contemplated under the Merger
Agreement, and (v) any effect with respect to Sovereign or First Home
caused, in whole or in substantial part, by the other party (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"
herein); and
(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 First Home or First Home Savings shall be reasonably
satisfactory to Sovereign; provided that (i) any such environmental audit
was commenced prior to January 26, 1998, (ii) Sovereign must elect to
terminate the 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 audits result in a Material Adverse Effect. As of January
26, 1998, no such environmental audit had been commenced.
In addition, First Home's obligation to effect the Merger is subject to the
holders of First Home Common Stock having duly approved the Merger Agreement.
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
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.
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SUBSIDIARY BANK MERGER
In connection with the Merger, Sovereign Bank and First Home 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,
First Home Savings will merge with and into Sovereign Bank, with Sovereign Bank
surviving. Sovereign and First Home anticipate that the Bank Merger will be
completed concurrently with the completion of the Merger.
REGULATORY APPROVALS
The Merger is subject to the prior approval of the Office of Thrift
Supervision ("OTS") under the Home Owners' Loan Act and the OTS regulations
adopted thereunder. An application for approval of the Merger was filed with the
OTS on or about March 12, 1998. On May 15, 1998, the Staff of the OTS deemed the
application complete. 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.
First Home Bank and Sovereign Bank received ratings of "satisfactory" and
"outstanding," respectively, 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.
There can be no assurance that the regulatory authorities described above
will approve the Merger, and, if approved, there can be no assurance as to the
date of such approvals. The 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
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 Merger, the Department of
Justice could analyze the 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 Merger's competitive effects.
Failure of the Department of Justice to object to the 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, First Home and First Home Savings; (b) the capital structures of
Sovereign and First Home; (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 September 30, 1997, in the consolidated assets,
business, financial condition or results of operations of Sovereign or First
Home; (g) the filing of tax returns and payment of taxes; (h) the absence of
undisclosed material pending or threatened litigation; (i) compliance with
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applicable laws and regulations; (j) retirement and other employee plans and
matters relating to the Employee Retirement Income Security Act of 1974; (k) the
quality of title to assets and properties; (l) the maintenance of adequate
insurance; (m) the absence of undisclosed brokers' or finders' fees (except as
disclosed in the Merger Agreement); (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
First Home in connection with the Registration Statement, this Proxy
Statement/Prospectus and all applications filed with regulatory authorities for
approval of the Merger and the Bank Merger; (q) documents filed with the
Commission and the accuracy of information contained therein and (r) the
engagement of no brokers, finders or financial advisory for a fee except for RP
Financial LC by First Home.
The Merger Agreement also contains other representations and warranties by
First Home 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 First Home; (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 First Home 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, First
Home 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, First Home has agreed in the Merger Agreement that neither it
nor First Home 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 121,961 shares of First Home 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" herein); (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" herein), or enter into or amend any employment agreement; (vii) grant
any pay increase except for routine periodic increases in accordance with past
practice and within limits set forth in the Merger Agreement; (viii) engage in
any merger, acquisition or similar transaction; (ix) sell or lease substantially
all of its assets; (x) sell or otherwise dispose of the capital stock of First
Home Savings or any assets thereof other than in the ordinary course of
business; (xi) change any accounting practices, except as may be required by
generally accepted accounting principles (without regard to any optional early
adoption date); (xii) implement any new employee benefit or welfare plan, or
amend any such plan, unless such amendment does not result in an increase in
cost except as expressly permitted by the Merger Agreement; (xiii) purchase any
security for its investment portfolio not rated "A" or higher by either Standard
& Poor's Corporation or Moody's Investor Services, Inc.; (xiv) make, enter into,
renew, extend, modify or compromise any transaction (including loans and
commitments to lend) with any affiliate of First Home except in the ordinary
course of business consistent with past practices; (xv) enter into any interest
rate swap or similar arrangement; (xvi) take any action which would give rise to
a right of payment to any individual under any employment agreement; (xvii)
intentionally and knowingly take any action that would preclude the treatment of
the Merger as a pooling of interests for financial accounting purposes; (xviii)
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; (xix) waive, release, grant or transfer any
rights of value, or
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modify or change in any material respect any existing material agreement to
which First Home or any First Home subsidiary is a party, other than in the
ordinary course of business, consistent with past practice; (xx) take any action
which would cause any of the representations and warranties of First Home set
forth in the Merger Agreement to be untrue or the conditions set forth in the
Merger Agreement to be unsatisfied; or (xxi) agree to do any of the foregoing.
First Home 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 First Home or any subsidiary of First Home; (ii) to permit a
representative of Sovereign to attend committee meetings of the Board of First
Home and First Home Savings; (iii) if Sovereign requests and agrees to bear the
expense, to retain a proxy solicitor in connection with the solicitation of
First Home 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. 71 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 First Home or any First Home
subsidiary, on terms and conditions mutually acceptable to First Home 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 First Home's shareholders; (vii) to provide to Sovereign copies of
the minutes of all meetings of the Board of Directors of First Home 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 First Home Savings.
Sovereign and First Home 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 First Home; (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 First Home to pay a regular quarterly cash
dividend not to exceed $.10 per share of First Home Common Stock outstanding.
First Home agreed in the Merger Agreement to cause, as promptly as practicable,
the regular quarterly dividend record dates and payment dates with respect to
First Home 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 First Home to receive two dividends either from First
Home or Sovereign in any quarter or to deny or prohibit shareholders of First
Home from receiving one dividend from First Home or Sovereign in any quarter.
First Home Savings may pay cash dividends sufficient to permit payment of the
dividends permitted to be paid by First Home. No other dividends may be paid by
First Home or First Home Savings without the prior written consent of Sovereign.
NO SOLICITATION OF TRANSACTIONS
Under the Merger Agreement, the Board of Directors of First Home generally
was permitted to respond to unsolicited inquiries relating to any acquisition of
First Home, any First Home subsidiary or any assets or business thereof for a
30-day period which ended January 17, 1998 to the extent required in order to
fulfill its fiduciary duties. No inquiries were received by First Home in this
regard during this period (or, as of the date hereof, thereafter). The Merger
Agreement provides that after such 30-day period, First Home shall not, nor
shall it permit any First Home subsidiary or any other affiliate
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of First Home or any officer, director or employee of any of them, or any
investment banker, attorney, accountant or other representative retained by
First Home, any First Home subsidiary or any other First Home 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 First Home, any First Home subsidiary, or any assets or business thereof,
except (i) the Board of Directors of First Home may respond to unsolicited
inquiries from third parties to the extent required in order to fulfill its
fiduciary duty and (ii) First Home's officers may respond to inquiries from
analysts, regulatory authorities and holders of First Home Common Stock in the
ordinary course of business. The Merger Agreement provides that First Home shall
notify Sovereign immediately if any such discussions or negotiations are sought
to be initiated with First Home 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 First Home have executed a letter
agreement containing provisions similar to those described above relating to
First Home, and such directors and executive officers have also agreed to vote
such shares of First Home Common Stock in favor of the Merger Agreement. A copy
of the form of letter agreement executed by the directors and executive officers
of First Home 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 First Home may
(a) amend the Merger Agreement, (b) extend the time for the performance of any
of the obligations or other acts of Sovereign and First Home 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 First Home presently anticipate to occur on
or about July 31, 1998, (a) by the mutual written consent of Sovereign and First
Home; or (b) by Sovereign or First Home (i) if there shall have been any
material breach of any material covenant or undertaking, representation or
warranty of Sovereign which results in a Material Adverse Effect with respect to
Sovereign, on the one hand, or of First Home which results in a Material Adverse
Effect with respect to First Home, on the other hand, and such breach has not
been substantially cured by the earlier of within 30 days after the date written
notice of such breach is given to the party committing such breach or the
Effective Date; (ii) if the Closing Date shall not have occurred on or before
September 30, 1998, 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 receives a final unappealable administrative order from a
regulatory authority that the necessary approval will not 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 Closing Date or in the case of Sovereign such
approval will not be granted without the imposition of a condition which would
have a material adverse effect on Sovereign.
In addition, the Merger Agreement may be terminated by First Home on the
Closing Date, if the Sovereign Market Value as of the Closing Date is less than
$11.25; provided, however, that the Merger Agreement would not be so terminated
if Sovereign elects, at its sole option, to increase the Exchange Ratio to an
amount which equals the quotient obtained by dividing 23.44 by the Sovereign
Market Value as of the Closing Date. There can be no assurance that First Home
would exercise its right to terminate the Merger Agreement in the event the
Sovereign Market Value is less than $11.25 as of the Closing Date, and if First
Home does elect to so terminate the Merger Agreement, there can be no assurance
that Sovereign will elect to increase the Exchange Ratio.
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The First Home Board of Directors has made no decision as to whether it
would exercise its right to terminate the Merger Agreement in the event the
Sovereign Market Value is less than $11.25 as of the Closing Date. In
considering whether to exercise its termination right in such situation, the
First Home 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 First Home at the Special Meeting will
confer on the First Home Board of Directors the power, consistent with its
fiduciary duties, to elect to consummate the Merger in the event the Sovereign
Market Value is less than $11.25 as of the Closing Date whether or not there is
any increase in the Exchange Ratio and without any further action by, or
resolicitation of, the shareholders of First Home. If the First Home Board of
Directors elects to exercise its termination right, First Home 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 described 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 First Home 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 possible increase of the
Exchange Ratio in the event First Home elects to exercise its termination right.
In the event of termination of the Merger Agreement by either Sovereign or
First Home, there will be no liability or obligation on the part of Sovereign or
First Home 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.
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% to 40% of First Home's recurring
operating expenses, and are expected to be substantially realized within 12
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 $4.0 to $5.0 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
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with a change in strategy related to problem assets, losses on sales of assets,
payments to executive officers of First Home 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 First Home and First
Home Savings employees at levels which, in the aggregate, are at least as
favorable as such benefits which existed as of December 18, 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 First Home (except for the
First Home ESOP which shall be terminated) 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, First Home and First Home Savings
employees shall receive credit for service with First Home or First Home Savings
under Sovereign's pension and 401(k) plans, but not under Sovereign's Employee
Stock Ownership Plan, for purposes of eligibility and vesting determination.
Employees participating in the First Home ESOP may have the amounts in their
accounts either distributed to them in a lump sum or rolled over to another
qualified tax plan or individual retirement account.
In the Merger Agreement, Sovereign agreed to cause Sovereign Bank to
provide employees of First Home Savings whose employment is terminated in
connection with the Merger within three (3) months after the conversion of First
Home's system to that of Sovereign's, 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 in a location within 30 miles from an employee's work
location), excluding any employee who has an existing employment or consulting
agreement or whose employment is terminated for cause, as follows, provided such
employees execute such documentation as Sovereign may reasonably require,
including Sovereign's customary form of release: (i) 13 employees identified by
First Home shall be entitled to two weeks of base salary as severance pay for
each year of service with First Home or First Home Savings, with a two-week
minimum; and (ii) all other employees shall be entitled to one week of base
salary as severance pay for each year of service with First Home or First Home
Savings, with a one-week minimum. Employees of First Home Savings who do not
execute the documentation required by Sovereign with respect to termination
benefits will be entitled to the termination benefits provided under First Home
Savings's severance policies.
Certain employees of First Home or First Home Savings will be entitled to
receive a retention bonus in the event such employees remain employees of First
Home or First Home Savings, as applicable, until the date the systems conversion
occurs or is terminated prior to the date of the systems conversion, but after
the Effective Date, and satisfactorily fulfills the duties and responsibilities
of the positions of such employees of First Home or First Home Savings, as the
case may be, through the Effective Date; provided that retention bonuses, in the
aggregate, shall not exceed $250,000.
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 First Home will be carried forward to
the combined corporation at their recorded amounts; income of the combined
corporation will include income of both Sovereign and First Home 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 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.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Completion of the Merger is conditioned upon there being delivered to
Sovereign and to First Home 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 First Home 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 First Home in
the Merger;
(ii) no gain or loss will be recognized by holders of shares of First
Home Common Stock upon their receipt of Sovereign Common Stock in exchange
for their First Home 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 First Home 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 First Home will
be the same as the tax basis of their First Home Common Stock exchanged
therefor; and
(iv) the holding period of the Sovereign Common Stock in the hands of
the First Home shareholders will include the holding period of their First
Home Common Stock exchanged therefor, provided such First Home 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 First Home. 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, First Home intends 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 FIRST HOME 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 FIRST HOME
SHAREHOLDER IS ADVISED TO CONSULT A TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER.
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EXPENSES
Sovereign and First Home 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 First Home and (ii)
if Sovereign requests First Home to retain a proxy solicitor in connection with
the solicitation of First Home 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 First Home
shareholder who may be deemed to be an "affiliate" of First Home or Sovereign
for purposes of Rule 145 under the Securities Act. Each director and executive
officer of First Home 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 First Home 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 First Home after the Merger have
been made public. This Proxy Statement/Prospectus does not cover resales of
Sovereign Common Stock received by any person who may be deemed an affiliate of
First Home or Sovereign.
NO DISSENTERS' RIGHTS OF APPRAISAL
Holders of shares of Sovereign First Home Common Stock will not be entitled
to dissenters' rights under the New Jersey BCA in connection with the matters to
be acted on at the Special Meeting. 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 First Home who
become shareholders of Sovereign will be eligible to participate therein.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of First Home's management, First Home Savings's
management, the Board of Directors of First Home and the Board of Directors of
First Home Savings may be deemed to have interests in the Merger in addition to
their interests, if any, in First Home Common Stock. The First Home Board of
Directors was aware of these factors and considered them, among other matters,
in approving the Merger Agreement and the transactions contemplated thereby.
SHARES OWNED BY MANAGEMENT AND THE BOARD
As of the Record Date, the directors and executive officers of First Home
beneficially own approximately 731,830 shares of First Home Common Stock,
including Management Options to purchase 13,330 shares of First Home Common
Stock which are exercisable within 60 days of the Record Date. 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
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Stock equal to the number of shares of First Home 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 First Home 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 First Home and First Home 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 First Home or any First Home 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 First Home or First Home Savings as of December 18, 1997,
including the right to advancement of expenses, provided, however, that any such
officer, director or employee of First Home or First Home Savings may not be
indemnified by Sovereign and/or First Home Savings if such indemnification is
prohibited by applicable law.
Sovereign has agreed to maintain First Home's 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.
EMPLOYMENT AGREEMENTS
In the Merger Agreement, Sovereign has agreed to honor the employment
agreements First Home entered into with each of Messrs. Stephen D. Miller,
Robert A. DiValerio, Duff P. O'Connor and Stephen R. Selverian. The rates of
salary currently payable under the agreements are $243,800 for Mr. Miller,
$166,025 for Mr. DiValerio, and $125,475 each for Mr. O'Connor and Mr.
Selverian. Salary changes may be negotiated from time to time during the term of
the agreement. In addition, incentive compensation or bonuses may be awarded the
employee from time to time by the Board of Directors of First Home. The term of
the agreement for each officer is three years. The term of each agreement
automatically extends for an additional one year period on December 31 of each
year, provided no written notice is given by either First Home or the employee
to terminate the automatic extension and the extension is explicitly reviewed
and approved in writing by the Board of Directors of First Home. First Home may
terminate the employees' employment or suspend its obligations under the
agreements in certain limited circumstances with or without cause. The employees
may terminate their employment under the agreements for good reason, as defined
in the agreements. The agreements define good reason to include a change in
control of First Home, a change in or limitation of the employees' duties or
powers, removal of the employees from or failure to re-elect them to the
positions specified in the agreements, a reduction in the employees rate of
compensation or benefits or the failure of First Home to observe any covenant in
the agreement to be observed or performed by First Home.
If First Home terminates an employee's employment without cause or an
employee terminates his employment for good reason, First Home is required to
pay the terminated employee for the duration of the agreement's term (as if the
employee's employment had not terminated) (i) annually, 100% of the employee's
annual salary at the time of the termination; (ii) annually, an amount equal to
the average of the three highest annual incentive compensation payments paid to
the terminated employee;
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and (iii) medical, pension and similar benefits comparable to those furnished to
the employee immediately prior to the termination. In the event of termination
for good reason as the result of a change in control and the present value of
these payments is equal to or in excess of 300% of the employees "base amount,"
as defined in Section 280G(b)(3)(A) of the Code, the employee has waived the
right to receive such amount of such payments which is sufficient to reduce the
present value of such payments below 300% of the base amount. Also,
notwithstanding anything to the contrary contained in the agreements, the
employee may not receive any amount upon termination of employment (whether
pursuant to the agreement or any other policy or arrangement) which would cause
the employee to receive an amount which exceeds three times the average of total
compensation paid to the employee by First Home during each of the five years
preceding the year in which the employee's employment is terminated. Assuming a
change in control occurred on May 30, 1998, followed by termination of each of
the employment agreements, the present value of payments would be limited by an
amount defined in Section 280G(b)(3)(A) of the Code. Messrs. Miller, DiValerio,
O'Connor and Selverian would receive payments, including the value of non-cash
benefits, having a present value of approximately $715,544, $472,921, $365,660,
and $391,148, respectively, under the employment agreements. Pursuant to the
Merger Agreement, the calculations take into consideration the fact that the
employment agreements are for a term of three years from the Closing Date.
In the Merger Agreement, Sovereign agreed that Messrs. Miller, DiValerio,
O'Connor and Selverian may elect to be paid out under the terms of their
respective employment agreements or receive a lump-sum payment of the present
value (based on a 6% per annum discount factor) of the payments required to be
made thereunder.
FIRST HOME ADVISORY BOARD
On the Effective Date, Sovereign has agreed to establish for a period of
one year the Advisory Board, which shall consist of all the members of the First
Home Board of Directors immediately prior to the Effective Date. The members of
the Advisory Board shall be paid an annual retainer of $9,000. Sovereign has
also agreed to use its best efforts to cause the members of the Advisory Board
to be re-appointed for at least an additional one year term.
CERTAIN RELATED TRANSACTIONS
STOCK OPTION AGREEMENT
General. As a condition to Sovereign entering into the Merger Agreement,
First Home executed and delivered to Sovereign the Stock Option Agreement, dated
December 18, 1997 (the "Stock Option Agreement"), which permits Sovereign to
purchase First Home Common Stock under certain circumstances. Pursuant to the
Stock Option Agreement, Sovereign was granted an option (the "Option") to
purchase up to 538,975 shares of First Home Common Stock (representing
approximately 19.9% of the issued and outstanding shares of First Home Common
Stock on December 17, 1997). The exercise price per share to purchase First Home
Common Stock under the Option is $30.00 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 First Home's knowledge as of the
date of this Proxy Statement/Prospectus).
The directors and executive officers of First Home have agreed not to sell
their shares of First Home Common Stock and to vote such First Home Common Stock
in favor of the Merger Agreement.
Effect of Stock Option and Voting Agreements. The Stock Option Agreement,
together with (i) First Home's agreement to not solicit other transactions
relating to the acquisition of First Home by a third party and (ii) the
agreement of First Home's 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 First Home from considering or proposing such an
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acquisition, even if such persons were prepared to pay a higher price per share
for First Home Common Stock than the price per share implicit in the Merger
Consideration. Certain attempts to acquire First Home or an interest in First
Home would cause the Option to become exercisable as described above.
Sovereign's exercise of such Option would significantly increase a potential
acquiror's cost of acquiring First Home 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 First Home than it might otherwise have proposed to pay. In addition,
the management of Sovereign and First Home believe that the existence of the
Stock Option Agreement is likely to prohibit any acquiror of First Home from
accounting for any acquisition of First Home using the "pooling of interests"
accounting method because of the ability of Sovereign to cause First Home to
repurchase its shares. In addition, exercise of the Option would increase the
ability of Sovereign to obtain the approval of First Home's 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 First Home Common Stock (excluding any shares
eligible to be reported on Schedule 13G of the Commission);
(b) a person or group, other than Sovereign or an affiliate of
Sovereign, enters into an agreement or letter of intent with First Home
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 First Home, (ii) acquire all or substantially all of the
assets or liabilities of First Home or all or substantially all of the
assets or liabilities of First Home 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 First Home Common Stock (excluding any shares
eligible to be reported on Schedule 13G of the Commission) or the then
outstanding shares of common stock of First Home 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 First Home or all or substantially all the assets
or liabilities of First Home Savings, or any other business combination
involving First Home or First Home 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 First Home Common Stock or
the then outstanding shares of common stock of First Home 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 First Home called to vote on
the Merger, First Home's shareholders fail to approve the Merger by the
vote required by applicable law at the meeting of shareholders called for
such purpose or such meeting has been cancelled; or
(d) a person or group, other than Sovereign or an affiliate of
Sovereign, makes a bona fide Proposal and thereafter, but before such
Proposal has been Publicly Withdrawn, First Home 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
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(e) First Home 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 First Home 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 First Home of any representation, warranty, covenant or other
obligation of First Home which results in a Material Adverse Effect with respect
to First Home (and such breach has not been substantially cured by the earlier
of 30 days after the date on which written notice of such breach is given to
First Home) or the Effective Date, (B) the Closing Date shall not have occurred
by September 30, 1998 and such failure to close by September 30, 1998 shall be
due to the failure by First Home to perform or observe its agreements set forth
in the Merger Agreement required to be performed or observed by First Home or
(C) the Merger Agreement is terminated as a result of the failure of First Home
shareholders to approve the Merger Agreement following either a withdrawal or
modification by a director of First Home of a prior recommendation to approve
the Merger Agreement or a failure of a director of First Home to recommend
approval of the Merger Agreement, 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 First Home to issue the shares subject
to the Option.
In the event of any change in First Home 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.
First Home has granted Sovereign certain registration rights with respect
to shares of First Home 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 "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and "AVAILABLE INFORMATION."
MARKET PRICE OF AND DIVIDENDS ON SOVEREIGN COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Sovereign Common Stock is listed on the Nasdaq Stock Market National
Market under the symbol "SVRN." As of June 15, 1998, Sovereign had approximately
13,300 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
Stock Market National Market and does not necessarily reflect mark-ups,
mark-downs or commissions. This information has been adjusted to reflect the
Stock Split.
QUARTERLY
------------------------------
QUARTER ENDED DIVIDEND HIGH LOW
------------- -------- -------- --------
June 30, 1998(1)............................. $.0200 $22.1875 $16.3125
March 31, 1998............................... .0174 18.9375 14.9375
December 31, 1997............................ .0137 18.0000 14.3125
September 30, 1997........................... .0337 14.5625 12.2500
June 30, 1997................................ .0357 12.6875 9.5000
March 31, 1997............................... .0357 11.6875 9.1250
December 31, 1996............................ .0336 9.4375 7.5625
September 30, 1996........................... .0344 7.6250 6.6875
- ------------------
(1) Through June 22, 1998.
On December 18, 1997, the last business day preceding public announcement
of the Merger, the last sale price for Sovereign Common Stock was $16.77 (as
adjusted for the Stock Split) per share. On June 24, 1998, the last sale price
for the Sovereign Common Stock was $16.625 per share. The average weekly
trading volume for the Sovereign Common Stock during the quarter ended March 31,
1998 was approximately 927,000 shares.
For certain limitations on the ability of Sovereign Bank to pay dividends
to Sovereign, see the footnotes to financial statements included in Sovereign's
Current Report on Form 8-K dated June 23, 1998, which is incorporated herein by
reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
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INFORMATION WITH RESPECT TO FIRST HOME
MARKET PRICE OF AND DIVIDENDS ON FIRST HOME COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The First Home Common Stock is listed on the Nasdaq Stock Market National
Market under the symbol "FSPG." As of the Record Date, there were approximately
925 shareholders of record. The table below sets forth for the periods indicated
the amount of dividends declared per share and the quarterly ranges of high and
low closing sales prices as reported on the Nasdaq Stock Market National Market
for the periods indicated. Such prices do not necessarily reflect mark-ups,
mark-downs or commissions.
QUARTERLY
--------------------------
QUARTER ENDED DIVIDEND HIGH LOW
------------- -------- ------ ------
June 30, 1998(1)............................... $ -- $37.50 $30.56
March 31, 1998................................. 0.10 31.88 29.00
December 31, 1997.............................. 0.10 33.00 21.25
September 30, 1997............................. 0.10 22.38 18.88
June 30, 1997.................................. 0.10 19.38 17.88
March 31, 1997................................. 0.10 19.25 13.88
December 31, 1996.............................. 0.10 14.63 13.50
September 30, 1996............................. 0.09 14.06 13.31
- ------------------
(1) Through June 22, 1998
On December 18, 1997, the last business day preceding public announcement
of the Merger, the last sale price for First Home Common Stock was $30.00 per
share. On June 24, 1998, the last sale price for First Home Common Stock was
$30.56 per share. The average weekly trading volume for the First Home Common
Stock during the quarter ended March 31, 1998 was approximately 32,354 shares.
The Merger Agreement permits First Home to pay a regular quarterly cash
dividend not to exceed $.10 per share of First Home Common Stock outstanding.
First Home agreed in the Merger Agreement to cause, as promptly as practicable,
the regular quarterly dividend record dates and payment dates with respect to
First Home 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 First Home to receive two dividends either from First
Home or Sovereign in any quarter or to deny or prohibit shareholders of First
Home from receiving one dividend from First Home or Sovereign in any quarter.
First Home Savings may pay cash dividends sufficient to permit payment of the
dividends permitted to be paid by First Home. No other dividends may be paid by
First Home or First Home Savings without the prior written consent of Sovereign.
See "THE MERGER -- Dividends." First Home's ability to continue to pay dividends
may be dependent upon its receipt of dividends from First Home Savings. See
"REGULATION," set forth in First Home's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, which is incorporated herein by reference.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
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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, 1998,
there were 132,925,323 shares of Sovereign Common Stock issued and outstanding,
9,253 shares held by Sovereign as treasury stock and 1,995,617 shares of 6 1/4%
Cumulative Convertible Preferred Stock, Series B ($50 liquidation preference)
issued and outstanding, all of which shares of preferred stock were called for
redemption on April 15, 1998. 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 or in connection with pending acquisitions by Sovereign.
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, 1998, 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 periods. 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
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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, 1997, which is 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 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 Stock Market 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
Stock Market 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 First Home
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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On April 15, 1998 Sovereign announced that it would redeem all outstanding
shares of its Series B Preferred Stock on May 15, 1998. Substantially all
holders of the Series B Preferred Stock converted their stock to Sovereign
Common Stock on or prior to the redemption date. Sovereign issued 14,361,954
shares of Sovereign Common Stock upon conversion of the Series B 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 (the "Series A Junior
Participating Preferred Stock") at an initial exercise price of $40 (the
"Sovereign Rights"). 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 19.9% 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 19.9% 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 19.9%
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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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 further 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; 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 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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COMPARISON OF SHAREHOLDER RIGHTS
At the Effective Date, shareholders of First Home automatically will 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 First Home 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 First Home.
This summary does not purport to be a complete statement of the rights of
First Home shareholders under the applicable New Jersey law, First Home's
Certificate of Incorporation or First Home's 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 First
Home and to the Pennsylvania BCL and the governing corporate instruments of
Sovereign. Copies of such governing corporate instruments of First Home 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 "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"AVAILABLE INFORMATION."
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.
First Home's Certificate of Incorporation provides that the entire board of
directors may be removed by the shareholders only for "cause" by the affirmative
vote of the shareholders entitled to cast at least 75% of the votes which all
shareholders would be entitled to cast at any annual election of directors or of
such class of directors. "Cause" is defined to mean one of the following events:
a director's felony conviction, judicial declaration that the director is of
unsound mind or a director's gross abuse of trust committed in bad faith. First
Home's Certificate of Incorporation also provides that the Board of Directors
may, without shareholder approval, declare vacant the office of any director for
any proper cause (whether or not similar to those listed in the above
definition) including, but not limited to, conflict of interest or other breach
of fiduciary duty, default on a loan, or unacceptability of the director to bank
regulatory authorities.
Nomination
Shareholders of Sovereign are required to submit, 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).
First Home's Bylaws require that nominations for the election of directors
made by shareholders (as opposed to those made by the Nominating Committee of
the Board of Directors) must be made by written notice received by the Secretary
not less than 60 nor more than 90 days prior to the annual meeting of
shareholders at which directors are to be elected. Such notice must set forth,
among other things, the name, age, address, principal occupation or employment
of each such nominee, the class and number of shares of stock that are owned by
such nominee, any other information required to be disclosed in proxy statements
under Regulation 14A of the Securities Exchange Act of 1934, as
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amended, and certain information about the names, addresses and stock holdings
of the shareholders making such nomination. Nominations not made in accordance
with the procedure set forth in the Bylaws may be rejected unless the Nominating
Committee has failed to deliver to the Secretary written nominations for all
directorships to be voted upon at the annual meeting at least 30 days prior to
the meeting (excluding substitute nominations in the case of death, disability,
disqualification or other inability to serve of a nominee), in which case any
shareholder may make nominations for director at the annual meeting.
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 Board of Directors. Presently, the
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
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.
Pursuant to First Home's Certificate of Incorporation, the Board of
Directors must consist of not less than five nor more than 25 directors. The
number of directors to be elected, subject to the foregoing limits, is
determined from time to time by the Board of Directors. First Home's Board of
Directors has fixed the number at seven. The Certificate of Incorporation of
First Home provides for the classification of the Board of Directors into three
classes as nearly equal in number as possible. Each class is elected for a three
year term.
Cumulative Voting
Neither Sovereign's nor First Home's 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.
The Certificate of Incorporation of First Home provides that a director or
officer shall not be liable to the Company or its shareholders for damages for
beach of any duty owed to the Company or its shareholders, except that this
provision will not relieve a director or officer from liability for an act or
omission: (i) in breach of that person's duty of loyalty to the Company or its
shareholders; (ii) not in good faith or involving a knowing violation of law; or
(iii) resulting in receipt by that person of an improper personal benefit.
As permitted by the New Jersey BCA, First Home's Certificate of
Incorporation provides that directors or officers of First Home are not
personally liable to First Home or its shareholders for breach of any duty owed
to First Home 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 First Home 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.
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Indemnification
The Bylaws of Sovereign and the Certificate of Incorporation of First Home
each provide for indemnification of directors, officers, employees 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.
The Bylaws of First Home provide that First Home shall, to the fullest
extent now or hereafter permitted by the New Jersey BCA, as amended from time to
time, indemnify any director or officer of First Home. This right shall include
the right to be paid by First Home for expenses incurred in defending any
action, suit or proceeding in advance of final disposition, subject to the
receipt by First Home of such undertakings as may be required by the New Jersey
BCA. Additionally, the Board of Directors by resolution, may similarly indemnify
persons other than a director or officer of First Home for liabilities incurred
in connection with services rendered at the request of First Home or any of its
subsidiaries.
SHAREHOLDER MEETINGS
Special meetings of Sovereign shareholders may be called at any time by the
Board of Directors at a duly called and held meeting of the Board of Directors
or upon the unanimous written consent of the members of the 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.
First Home's Bylaws provide that special meetings of shareholders shall be
called by the Secretary upon the request of the Chairman of the Board, the
President, the Board of Directors or the holders of at least 20% of the votes
which all shareholders are entitled to cast at the particular meeting. The New
Jersey BCA provides that upon the application of the holder or holders of not
less than 10% of all the shares entitled to vote at a meeting, the Superior
Court, for good cause shown, may order 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). Neither the
Certificate of Incorporation nor the Bylaws of First Home contains any similar
provisions.
First Home's Bylaws provide that only such proposals as have been properly
brought before the meeting can be acted upon at such meeting. In order to be
considered properly brought before an annual meeting, proposals by shareholders
(as opposed to proposals by the Board of Directors) must be made in writing and
received at the principal executive offices of First Home not less than 20 days
prior to the annual meeting of shareholders; provided, however, that if less
than 30 days notice of such meeting is given to the shareholders, notice of the
shareholder's proposal must be received not later than the close of business on
the tenth day following the day on which notice of the meeting was mailed to
shareholders. Each notice of a proposal given by a shareholder must set forth a
brief description of such proposal, the name and address of the shareholder
making such proposal and the class and number of shares owned by such
shareholder. Proposals not made in accordance with the procedures set forth in
the Bylaws will be rejected.
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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's shareholders may be taken
without a meeting, and the power of Sovereign's shareholders to consent in
writing to action without a meeting is expressly denied.
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
the 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, in person or by agent or attorney, 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.
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."
First Home 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.
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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 management. See "DESCRIPTION OF
SOVEREIGN CAPITAL SECURITIES -- Special Charter and Pennsylvania Corporate Law
Provisions."
First Home
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, sale, lease, exchange, pledge,
transfer or other disposition of assets, 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.
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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 situations such as, but not
limited to, inadvertent acquisitions, provided the Interested Shareholder
divests itself or himself of a sufficient number of shares so that such
shareholder is no longer a 10% or greater beneficial owner in accordance with
the NJSPA. A New Jersey Resident Domestic Corporation may not opt out of the
NJSPA.
Because Sovereign is not an "Interested Shareholder" as defined in NJSPA,
NJSPA is not applicable to the Merger.
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
shareholders is required for approval (abstentions with respect to any matter
are not considered votes "cast" under Pennsylvania law).
The holders of First Home Common Stock possess exclusive voting rights of
First Home. Each holder of First Home Common Stock is entitled to one vote for
each share owned of record. For general corporate action of the shareholders of
First Home, the affirmative vote of a majority of the votes cast at a
shareholders' meeting is required for approval.
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
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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.
First Home is subject to the provisions of the New Jersey Shareholders
Protection Act, the effect of which may be to increase the number of votes
required for shareholder approval of certain business combinations. See "-- New
Jersey Shareholders Protection Act."
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 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.
Amendments to First Home's Certificate of Incorporation require the
approval of the affirmative vote of the holders of at least 80% of the
outstanding voting stock; provided, however, the affirmative vote of the holders
of a majority of the shares of First Home Common Stock is required if the Board
of Directors has approved the proposed amendment by resolution adopted before
the shareholders are solicited to vote on the amendments.
AMENDMENT OF BYLAWS
The authority to amend or repeal Sovereign's Bylaws is vested in
Sovereign's 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 the Bylaws shall require the affirmative vote of two-thirds of the
entire Board of Directors or shareholders holding 80% of the votes that all
shareholders are entitled to cast).
First Home's Bylaws may be amended or repealed by a majority vote of the
members of the Board of Directors, or if any amendment to the Bylaws is proposed
by shareholders, and has not previously received the approval of the Board of
Directors, such amendment shall require the affirmative vote of the holders of
at least eighty percent (80%) of the votes which all shareholders are entitled
to cast thereon, in addition to any other approval which is required by law,
this Certificate of Incorporation, these Bylaws or otherwise.
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.
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Neither First Home's Certificate of Incorporation or Bylaws nor the New
Jersey BCA provide First Home's 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 Section 1906(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 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 regular course of business. However, unless the Certificate of
Incorporation otherwise provides, no such right to dissent exists with respect
to (i) any class or series of shares that which on the record date fixed to
determine the shareholders entitled to vote on the transaction, is listed on a
national securities exchange or is held of record by not less than 1,000 holders
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. First
Home's 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 First Home's Certificate of Incorporation with
respect to the payment of dividends.
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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 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, if the Board of Directors recommends that First
Home be dissolved and directs that the question be submitted to a vote at a
meeting of shareholders, First Home 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 First Home is entitled to vote on
such motion 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 First Home Common Stock
are entitled to preemptive rights.
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 the Special Meeting,
such proposal could not be approved unless the Special Meeting is adjourned in
order to permit further solicitation of proxies. In order to allow proxies which
have been received by First Home, at the time of the applicable Meeting to be
voted for such adjournment, if necessary, First Home has submitted the question
of adjournment under such circumstances to its shareholders as a separate matter
for their consideration.
The Board of Directors of First Home recommends that shareholders vote
their proxies in favor of the Adjournment Proposal 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 Adjournment Proposal unless otherwise
indicated thereon. If it is necessary to adjourn the Special Meeting, 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 Special
Meeting.
EXPERTS
The consolidated financial statements of Sovereign at December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997,
included in Sovereign's Annual Report on Form 10-K for the year ended December
31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference which, as to the years 1996 and 1995, are based in part on the reports
of KPMG Peat Marwick LLP, independent auditors. The financial statements
referred to above are included in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
The consolidated financial statements (restated to include ML Bancorp,
Inc., which was acquired on February 28, 1998) of Sovereign at December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
appearing in Sovereign's Current Report on Form 8-K, dated June 23, 1998, and
incorporated by reference in this Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in
62
<PAGE>
their report thereon included therein and incorporated herein by reference,
which, as to the years 1997, 1996 and 1995, is based in part on the reports of
KPMG Peat Marwick LLP, independent auditors. The consolidated financial
statements referred to above are included in reliance upon such reports given
upon the authority of such firms as experts in accounting and auditing.
The consolidated financial statements of First Home as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
incorporated by reference in this Proxy Statement/Prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto appearing elsewhere herein, and are included in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
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 200,000 shares of Sovereign
Common Stock, including shares issuable upon the exercise of options issued to
Mr. Lewis in his capacity as director of Sovereign Bank.
Legal matters in connection with the Merger will be passed upon for First
Home by Blank Rome Comisky & McCauley LLP.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Board of Directors
of First Home knows of no matters which will be presented for consideration at
the Special Meeting other than as set forth in this Proxy Statement/Prospectus.
However, if any other matters shall come before the Special Meeting or any
adjournments 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 was held on April 17, 1998.
It is anticipated that Sovereign's 1999 Annual Meeting of Shareholders will be
held on or about April 15, 1999. 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 1999 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 16, 1998.
63
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pennsylvania law provides that a Pennsylvania corporation may indemnify
directors, officers, employees and agents of the corporation against liabilities
they may incur in such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify the person
under any provision of law, unless such action or failure to act is determined
by a court to have constituted recklessness or willful misconduct. Pennsylvania
law also permits the adoption of a bylaw amendment, approved by shareholders,
providing for the elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the director has
breached or failed to perform the duties of his office and (2) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
The bylaws of Sovereign provide for (1) indemnification of directors,
officers, employees and agents of the registrant and its subsidiaries and (2)
the elimination of a director's liability for monetary damages, to the fullest
extent permitted by Pennsylvania law.
Directors and officers are also insured against certain liabilities for
their actions, as such, by an insurance policy obtained by Sovereign.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
2.1 Agreement and Plan of Merger dated as of December 18, 1997,
between Sovereign Bancorp, Inc. and First Home Bancorp Inc.,
as amended (included as Annex A to the Proxy Statement
Prospectus). Schedules are omitted; Sovereign Bancorp, Inc.
agrees to furnish copies of such schedules to the Commission
upon request.
2.2 Stock Option Agreement dated December 18, 1997, between
Sovereign Bancorp, Inc. and First Home Bancorp Inc.
(included as Annex B to the Proxy Statement/Prospectus).
3.1 Articles of Incorporation, as amended, of Sovereign Bancorp,
Inc. (Incorporated by reference to Exhibit 3.1 of
Sovereign's Annual Report on Form 10-K for the year ended
December 31, 1995.)
3.2 Bylaws of Sovereign Bancorp, Inc. (Incorporated by reference
to Exhibit 3.2 of Sovereign's Annual Report on Form 10-K for
the year ended December 31, 1993.)
4. Sovereign Bancorp, Inc. has outstanding long-term debt that
does not exceed 10% of the total assets of Sovereign
Bancorp, Inc. and its consolidated subsidiaries; therefore,
copies of the constituent instruments defining the rights of
the holders of such debt are not included as exhibits to
this Registration Statement. Sovereign Bancorp, Inc. agrees
to furnish copies of such instruments to the Commission upon
request.
5.1 Opinion of Stevens & Lee re: Validity.**
8.1 Form of opinion of Stevens & Lee re: tax matters.**
10.1 Sovereign Bancorp, Inc. Stock Option Plan, as amended and
restated. (Incorporated by reference to Exhibit 10.1 to
Sovereign's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.)*
10.2 Sovereign Bancorp, Inc. 1993 Stock Option Plan.
(Incorporated by reference to Exhibit 10.21 to Sovereign's
Annual Report on Form 10-K for the year ended December 31,
1992.)*
10.3 Sovereign Bancorp, Inc. Employee Stock Purchase Plan.
(Incorporated by reference to Exhibit 4.1 to Sovereign's
Registration Statement No. 33-44108 on Form S-8.)*
10.4 Agreement dated as of March 1, 1997, between Sovereign
Bancorp, Inc., Sovereign Bank, and Jay S. Sidhu.
(Incorporated by reference to Exhibit 99.1 of Sovereign's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, as amended.)*
II-1
<PAGE>
10.5 Agreement dated as of September 15, 1992, between Sovereign
Bank, a Federal Savings Bank, and Karl D. Gerhart.
(Incorporated by Reference to Exhibit 10.4 of Sovereign's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.)*
10.6 Agreement dated as of September 15, 1992, between Sovereign
Bank, a Federal Savings Bank, and Lawrence M. Thompson, Jr.
(Incorporated by reference to Exhibit 10.5 of Sovereign's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.)*
10.7 Penn Savings Bank Senior Officer Incentive Plan.
(Incorporated by reference to Exhibit 10.6 to Sovereign's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)*
10.8 Rights agreement dated September 19, 1989, between Sovereign
Bancorp, Inc. and Harris Trust Company of New York.
(Incorporated by reference to Exhibit 4.3 to Sovereign's
Registration Statement No. 33-89586 on Form S-8.)
10.9 Sovereign Bancorp, Inc. Non-Employee Director Incentive
Compensation Plan. (Incorporated by reference to Exhibit
10.12 to Sovereign's Registration Statement No. 33-43195 on
Form S-1.)*
10.10 Indemnification Agreement dated December 21, 1993, between
Sovereign Bank and Jay S. Sidhu. (Incorporated herein by
reference to Exhibit 10.25 to Sovereign's Annual Report on
Form 10-K for the year ended December 31, 1993.)*
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of KPMG Peat Marwick LLP, Independent Auditors.**
23.3 Consent of KPMG Peat Marwick LLP, Independent Auditors.**
23.4 Consent of Arthur Andersen LLP, Independent Auditors.**
23.5 Consent of Stevens & Lee, P.C. (contained in Exhibit 5.1).**
23.6 Consent of Stevens & Lee, P.C.**
23.7 Consent of RP Financial, LC
23.8 Consent of KPMG Peat Marwick LLP, Independent Auditors.
24.1 Powers of Attorney of Directors and Officers (included on
signature page hereof).
99.1 Form of Opinion of RP Financial, LC dated June 26, 1998
(included as Annex C to Proxy Statement/Prospectus).
99.2 Form of Proxy Card for the Special Meeting of Shareholders
of First Home Bancorp Inc.**
- ------------------
* Denotes management contract or compensatory contract, plan or arrangement.
** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES.
None required.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any fact or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
II-2
<PAGE>
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(c)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the applicable
form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the bylaws of the registrant, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Borough of
Wyomissing, Commonwealth of Pennsylvania, on June 22, 1998.
SOVEREIGN BANCORP, INC.
(Registrant)
By: /s/ Jay S. Sidhu
----------------------------------
Jay S. Sidhu,
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jay S. Sidhu, Karl D. Gerhart and Joseph M.
Harenza, and each of them, his true and lawful attorney-in-fact, as agent with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacity, to sign any or all amendments to this
Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as they might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman and Director June 22, 1998
- -------------------------------
Richard E. Mohn
/s/ Jay S. Sidhu Director, President and Chief Executive June 22, 1998
- ------------------------------- Officer (Principal Executive Officer)
Jay S. Sidhu
* Director June 22, 1998
- -------------------------------
Fred D. Hafer
* Director June 22, 1998
- -------------------------------
Rhoda S. Oberholtzer
* Director June 22, 1998
- -------------------------------
Patrick J. Petrone
* Director June 22, 1998
- -------------------------------
Daniel K. Rothermel
* Director June 22, 1998
- -------------------------------
Cameron C. Troilo
* Director June 22, 1998
- -------------------------------
G. Arthur Weaver
/s/ Dennis S. Marlo Chief Financial Officer June 22, 1998
- -------------------------------
Dennis S. Marlo
* Chief Accounting Officer June 22, 1998
- -------------------------------
Mark R. McCollom
*By: /s/ Jay S. Sidhu
---------------------------
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
- ------ -----------
2.1 Agreement and Plan of Merger dated December 18, 1997,
between Sovereign Bancorp, Inc. and First Home Bancorp Inc.
(included as Annex A to the Proxy Statement Prospectus).
Schedules are omitted; Sovereign Bancorp, Inc. agrees to
furnish copies of such schedules to the Commission upon
request.
2.2 Stock Option Agreement dated December 18, 1997, between
Sovereign Bancorp, Inc. and First Home Bancorp Inc.
(included as Annex B to the Proxy Statement/Prospectus).
5.1 Opinion of Stevens & Lee, P.C. re: Validity.*
8.1 Form of opinion of Stevens & Lee, P.C. re: tax matters.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.*
23.3 Consent of KPMG Peat Marwick LLP.*
23.4 Consent of Arthur Andersen LLP.*
23.5 Consent of Stevens & Lee, P.C. (contained in Exhibit 5).*
23.6 Consent of Stevens & Lee., P.C.*
23.7 Consent of RP Financial, LC.
23.8 Consent of KPMG Peat Marwick LLP.
24.1 Powers of Attorney of Directors and Officers (included on
signature page hereof).
99.1 Form of Opinion of RP Financial, LC dated June 26, 1998
(included as Annex C to Proxy Statement/Prospectus).
99.2 Form of Proxy Card for the Special Meeting of Shareholders
of First Home Bancorp Inc.*
- ------------------
* Previously filed.
II-5
ANNEX A
AGREEMENT AND PLAN
OF MERGER
[AS AMENDED]
BETWEEN
SOVEREIGN BANCORP, INC.
AND
FIRST HOME BANCORP INC.
DECEMBER 18, 1997
A-1
<PAGE>
AGREEMENT
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 18, 1997, is made
by and between SOVEREIGN BANCORP, INC. ("Sovereign"), a Pennsylvania
corporation, having its principal place of business in Wyomissing, Pennsylvania,
and FIRST HOME BANCORP INC. ("First Home"), a New Jersey corporation, having its
principal place of business in Pennsville, New Jersey.
BACKGROUND
1. Sovereign and First Home desire for First Home 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 First Home and affiliates of First Home, each have
executed in favor of Sovereign, a Letter Agreement dated December 18, 1997, in
the form attached hereto as Exhibit 1, and (b) First Home is concurrently
granting to Sovereign an option to acquire, under certain circumstances, First
Home's common stock (the "Sovereign Option") pursuant to a Stock Option
Agreement between Sovereign and First Home dated December 18, 1997, attached
hereto as Exhibit 2.
3. Sovereign desires to merge First Home Savings Bank, F.S.B., a federal
savings bank and a wholly-owned subsidiary of First Home ("First Home 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 First Home 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 First Home.
Applicable Exchange Ratio shall have the meaning given to such term in
Section 1.02(e)(ii).
Applications means the applications for regulatory approval which are
required by the transactions contemplated hereby.
Articles of Merger means the articles of merger to be executed by Sovereign
and First Home 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,
respectively.
A-2
<PAGE>
Bank Merger means the merger of First Home 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.
BCL means the Pennsylvania Business Corporation Law of 1988, as amended.
Closing Date means the date determined by Sovereign, in its sole
discretion, upon five (5) days prior written notice to First Home, 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 First Home shall
agree.
Determination Date means the date immediately preceding the Closing Date.
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 or local 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.
FDIC means the Federal Deposit Insurance Corporation.
First Home Common Stock means the common stock of First Home described in
Section 2.02(a).
First Home Disclosure Schedule means a disclosure schedule delivered by
First Home to Sovereign pursuant to this Agreement.
First Home Financials means (i) the audited consolidated financial
statements of First Home as of December 31, 1996 and for the three years ended
December 31, 1996, including the notes thereto, (ii) the unaudited interim
consolidated financial statements of First Home as of each calendar quarter
thereafter included in Securities Documents filed by First Home, including the
notes thereto and (iii) the preliminary unaudited consolidated statement of
condition and income statement of First Home as of November 30, 1997, and for
the two-month period then ended.
First Home Stock Option Plans means the Employee Compensation Program and
the 1994 Stock Option Plan for Non-Employee Directors.
First Home Regulatory Reports means the Annual Reports of First Home or
First Home Savings, as the case may be, on Form H-(b)11, any Current Report of
First Home or First Home Savings, as the case may be, on Form H-(b)11 filed with
the OTS from December 31, 1995 through the Closing Date and the Thrift Financial
Reports of First Home or First Home Savings, as the case may be, and
accompanying schedules for each calendar quarter, beginning with the quarter
ended December 31, 1995, through the Closing Date.
First Home Subsidiary means any corporation, 50% or more of the capital
stock of which is owned, either directly or indirectly, by First Home, except
any corporation the stock of which is held in the ordinary course of the lending
activities of First Home Savings.
GAAP means generally accepted accounting principles as in effect at the
relevant date.
A-3
<PAGE>
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 First
Home, respectively, any effect that is material and adverse to its assets,
financial condition or results of operations on a consolidated basis, provided,
however, that Material Adverse Effect shall not be deemed to include (a) any
change in the value of the respective investment and loan portfolios of
Sovereign or First Home resulting from a change in interest rates generally, (b)
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, (c) reasonable expenses (plus reasonable legal fees,
cost and expense relating to any litigation arising as a result of the Merger
and the cost associated with Section 4.11(d) hereof) incurred in connection with
this Agreement and the transactions contemplated hereby, (d) actions or
omissions of a party (or any of its Subsidiaries) taken with the prior informed
written consent of the other party in contemplation of the transactions
contemplated hereby (including without limitation any actions taken by First
Home pursuant to Section 4.10(a)(ix) of this Agreement), and (e) any effect with
respect to a party hereto caused, in whole or in substantial part, by the other
party.
Merger means the merger of First Home with and into Sovereign, with
Sovereign surviving such merger, contemplated by this Agreement.
NASD means the National Association of Securities Dealers, Inc.
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 in Section 13(d)(3) of
the Exchange Act).
Prospectus/Proxy Statement means the prospectus/proxy statement, together
with any supplements thereto, to be transmitted to holders of First Home 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 and
3.10 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,
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.
A-4
<PAGE>
Securities Documents means all registration statements, schedules,
statements, forms, reports, proxy material, and other documents required to be
filed under the Securities Laws.
Securities Laws means the Securities Act and the Exchange Act and the rules
and regulations promulgated from time to time thereunder.
Sovereign Common Stock has the meaning given to that term in Section
3.02(a) of this Agreement.
Sovereign Disclosure Schedule means a disclosure schedule delivered by
Sovereign to First Home pursuant to this Agreement.
Sovereign Financials means (i) the audited consolidated financial
statements of Sovereign as of December 31, 1996 and for the three years ended
December 31, 1996, 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, including the
notes thereto, and (iii) the preliminary unaudited consolidated financial
statements of Sovereign as of November 30, 1997 and for the two 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 Sovereign
Market Prices for the fifteen consecutive trading days ending on the trading day
preceding the date as of which the Sovereign Market Value is determined.
Sovereign Option means the option granted to Sovereign by First Home to
acquire such number of shares of First Home Common Stock as shall equal 19.9% of
the shares of First Home Common Stock outstanding before giving effect to the
exercise of such option referenced in the recitals to this Agreement.
Sovereign Regulatory Reports means the Annual Reports of Sovereign on Form
H-(b)11 filed with the OTS since December 31, 1995 through the Closing Date, any
Current Report of Sovereign on Form H-(b)11 filed with the OTS from December 31,
1995 through the Closing Date and the Thrift Financial Reports of Sovereign Bank
and accompanying schedules for each calendar quarter, beginning with the quarter
ended December 31, 1995, 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 (i) 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 and (ii) Sovereign Capital Trust I and any similar
entity sponsored or created by Sovereign after the date hereof.
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 such time and place as are agreed to by the parties hereto; provided, in any
case, that all conditions to closing set forth in Article V (other than the
delivery of certificates, opinions and other instruments and documents to be
delivered at the closing) have been satisfied or waived at or prior to the
Closing Date. On the Closing Date, First Home and Sovereign shall cause the
Articles of Merger to be duly executed and to be filed in the PDS and the NJSOS.
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(b) The Merger. Subject to the terms and conditions of this Agreement, on
the Effective Date: First Home shall merge with and into Sovereign; the separate
existence of First Home shall cease; Sovereign shall be the surviving
corporation in the Merger; and all of the property (real, personal and mixed),
rights, powers and duties and obligations of First Home 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 First Home 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 Board of Directors
of Sovereign Bank, as the surviving institution in the Bank Merger, shall
consist of those persons holding such office immediately prior to such
effective date.
(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 First Home (other than shares held in trust, managed, custodial or
nominee accounts and the like or held by mutual funds for which a
subsidiary of First Home 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) First Home Common Stock.
(A) Subject to the provisions of subparagraphs (B), (C) and (D) of
this Section 1.02(e)(ii), each share of First Home Common Stock issued
and outstanding immediately prior to the Effective Date (other than
shares of First Home Common Stock, if any, then owned by Sovereign or
First Home or any First Home 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 $18.00 and less than or
equal to $22.00, then that number of shares of fully paid and
nonassessable shares of Sovereign Common Stock, and the
corresponding
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percentage of Sovereign Stock Purchase Rights pursuant to the
Sovereign Rights Agreement, equal to $31.25 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 $18.00, then 1.736 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 $22.00, then 1.420 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 First Home 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 First Home Common Stock issued and held in the
treasury of First Home or owned by First Home or any First Home
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 First Home 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.
(i) On the Effective Date, each option to acquire First Home Common
Stock which is then outstanding ("First Home Option"), whether or not
exercisable, shall cease to represent a right to acquire shares of First
Home Common Stock and shall be converted automatically into an option to
purchase shares of Sovereign Common Stock and the corresponding number of
Sovereign Stock Purchase Rights, and Sovereign shall assume each First Home
Option, in accordance with the terms of the applicable First Home Stock
Option Plan and stock option agreement by which it is evidenced, except
that from and after the Effective Date, (i) Sovereign and its Board of
Directors or a duly authorized committee thereof shall be substituted for
First Home and First Home's Board of Directors or duly authorized committee
thereof administering such First Home Stock Option Plan, (ii) each First
Home Option assumed by Sovereign may be exercised solely for shares of
Sovereign Common Stock and Sovereign Stock Purchase Rights, (iii) the
number of shares of Sovereign Common Stock subject to such First Home
Option shall be equal to the number of shares of First Home Common Stock
subject to such First Home Option immediately prior to the Effective Date
multiplied by the Applicable Exchange Ratio, provided that any fractional
shares of Sovereign Common Stock resulting from such multiplication shall
be rounded down to the nearest share, and (iv) the per share exercise price
under each such First Home Option shall be adjusted by dividing the per
share exercise price under each such First Home Option by the Applicable
Exchange Ratio, provided that such exercise price shall be rounded up to
the nearest cent. Notwithstanding clauses (iii) and (iv) of the preceding
sentence, each First Home Option which is an "incentive stock option" shall
be adjusted as required by Section 424 of the IRC, and the regulations
promulgated thereunder, so as not to constitute a modification, extension
or renewal of the option within the meaning of Section 424(h) of the IRC.
Sovereign and First Home agree to take all necessary steps to effect the
foregoing provisions of this Section 1.02(f).
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(ii) As soon as practicable after the Effective Date, Sovereign shall
deliver to each participant in each First Home Stock Option Plan an appropriate
notice setting forth such participant's rights pursuant thereto and the grants
subject to such First Home Stock Option Plan shall continue in effect on the
same terms and conditions, including without limitation the duration thereof,
subject to the adjustments required by Section 1.02(f)(i) hereof after giving
effect to the Merger. Within 60 days after the Effective Date, Sovereign shall
file a registration statement on Form S-3 or Form S-8, as the case may be (or
any successor or other appropriate forms), with respect to the shares of
Sovereign Common Stock and Sovereign Stock Purchase Rights subject to such
options and shall use its reasonable best efforts to maintain the current status
of the prospectus or prospectuses contained therein for so long as such options
remain outstanding.
(g) Surrender and Exchange of First Home Stock Certificates.
(i) Exchange of Certificates. Each holder of shares of First Home
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 First Home Common Stock have been
converted pursuant to the Merger, together with a check for cash in lieu of
any fractional share in accordance with Section 1.02(e)(ii)(D) hereof.
(ii) Rights Evidenced by Certificates. Each certificate for shares
of Sovereign Common Stock issued in exchange for certificates for First
Home 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
First Home 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 First Home 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. Upon surrender of
certificates for shares of First Home Common Stock in exchange for
certificates for Sovereign Common Stock, Sovereign also shall pay any
dividends to which such holder of First Home Common Stock may be entitled
as a result of the declaration of a dividend on the First Home Common Stock
by First Home in accordance with the terms of this Agreement with a record
date prior to the Effective Date and a payment date after the Effective
Date. 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 First Home Common Stock.
Notwithstanding the foregoing, no party hereto will be liable to any
holder of First Home 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 First
Home Common Stock are surrendered by a First Home 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 First Home
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
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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 First Home 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
First Home Common Stock transmittal materials for use in exchanging
certificates representing First Home 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 First Home as soon as reasonably possible
but in no event later than fifteen (15) business days following the receipt
of certificates representing former shares of First Home Common Stock 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 First Home
Certificates. Upon the Effective Date, the stock transfer books for First
Home Common Stock will be closed and no further transfers of shares of
First Home Common Stock will thereafter be made or recognized. All
certificates for shares of First Home Common Stock surrendered pursuant to
this Section 1.02(g) will be cancelled by Sovereign.
(h) 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 First Home shareholders who are
entitled to receive shares of Sovereign Common Stock in exchange for shares of
First Home Common Stock shall be adjusted so that each First Home 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 $10.00, then the Applicable
Exchange Ratio shall be determined under Section 1.02(e)(ii)(A)(i) as though
such Sovereign Market Value were $20.00. In such event, each First Home
shareholder would receive 3.125 shares of
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Sovereign Common Stock in exchange for each share of First Home Common Stock, so
that the aggregate market value of the Sovereign Common Stock received would be
$31.25.)
Section 1.03 The Bank Merger. Sovereign and First Home shall use their
best efforts to cause First Home 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 First Home shall cause First Home Savings, to execute and deliver the Bank
Plan of Merger attached hereto as Exhibit 3.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FIRST HOME
First Home hereby represents and warrants to Sovereign that, except as
specifically set forth in the First Home Disclosure Schedule delivered to
Sovereign by First Home on the date hereof:
Section 2.01 Organization.
(a) First Home is a corporation duly organized, validly existing and in
good standing under the laws of the State of New Jersey. First Home is a savings
and loan holding company duly registered under the HOLA. First Home 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. First Home is not qualified or licensed to do business as
a foreign corporation in any other jurisdiction and is not required to be so
qualified or licensed as the result of the ownership or leasing of property or
the conduct of its business except where the failure to be so qualified or
licensed would not have a Material Adverse Effect on First Home.
(b) First Home Savings is a federal savings bank duly organized and validly
existing under the laws of the United States. First Home 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 First Home Savings nor any other First Home
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 on First Home.
(c) There are no First Home Subsidiaries other than First Home Savings and
those identified in the First Home Disclosure Schedule.
(d) The deposits of First Home Savings are insured by the FDIC to the
extent provided in the FDIA.
(e) The respective minute books of First Home and First Home Savings and
each other First Home Subsidiary accurately record, in all material respects,
all material corporate actions of their respective shareholders and boards of
directors (including committees).
(f) Prior to the date of this Agreement, First Home has delivered to
Sovereign true and correct copies of the articles of incorporation and bylaws of
First Home and the charter and bylaws of First Home Savings as in effect on the
date hereof.
Section 2.02 Capitalization.
(a) The authorized capital stock of First Home consists of (a) 10,000,000
shares of common stock, no par value ("First Home Common Stock"), of which
2,708,426 shares are outstanding, validly issued, fully paid and nonassessable
and free of preemptive rights, and (b) 1,000,000 shares of preferred stock, none
of which are issued or outstanding. Neither First Home nor First Home Savings
nor any other First Home 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 First Home Common Stock, First
Home preferred stock or any other security of First Home or any securities
representing the
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right to vote, purchase or otherwise receive any shares of First Home Common
Stock, First Home preferred stock or any other security of First Home, other
than (i) shares issuable under the Sovereign Option and (ii) 121,961 shares
issuable under First Home Stock Option Plans and as set forth in reasonable
detail in the First Home Disclosure Schedule.
(b) The authorized capital stock of First Home Savings consists of (i) 100
shares of common stock, no par value ("First Home Savings Common Stock"), of
which 100 shares are outstanding, validly issued, fully paid, nonassessable,
free of preemptive rights, all of which are owned by First Home free and clear
of any lien, security interests, pledges, charges and restrictions of any kind
or nature. Neither First Home nor any First Home 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 First Home Subsidiary or any other security of any First Home 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 First Home
Subsidiary. Either First Home or First Home Savings owns all of the outstanding
shares of capital stock of each First Home 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 First Home Disclosure Schedule, neither (i)
First Home, (ii) First Home Savings, nor (iii) any other First Home 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 First Home Subsidiaries, equity interests held by First
Home Subsidiaries in a fiduciary capacity, and equity interests held in
connection with the commercial loan activities of First Home Subsidiaries. There
are no subscriptions, options, warrants, calls, commitments, agreements or other
Rights outstanding and held by First Home or First Home Savings with respect to
any other company's capital stock or the equity of any other person.
(d) To the best of First Home's knowledge, except as disclosed in First
Home's proxy statement dated March 28, 1997, 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 First Home Common Stock.
Section 2.03 Authority; No Violation.
(a) First Home has full corporate power and authority to execute and
deliver this Agreement and to complete the transactions contemplated hereby.
First Home 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 First Home and the completion by First Home of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of First Home and, except for approval by the shareholders of
First Home as required under the NJBCA, First Home's certificate of
incorporation and bylaws and Nasdaq requirements applicable to it, no other
corporate proceedings on the part of First Home are necessary to complete the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by First Home and, subject to approval of the
shareholders of First Home as required under the NJBCA, First Home's certificate
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 First Home, enforceable
against First Home in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of equity. The Bank
Plan of Merger, upon its execution and delivery by First Home Savings
concurrently with the execution and delivery of this Agreement, will constitute
the valid and binding obligation of First Home Savings, enforceable against
First Home 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 First Home, (B) the
execution and delivery of the Bank Plan of Merger by First Home Savings, (C)
subject to receipt of approvals from the Regulatory Authorities referred to in
Section 3.04 hereof and First Home's and Sovereign's
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compliance with any conditions contained therein, the completion of the
transactions contemplated hereby, and (D) compliance by First Home or First Home
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
certificate of incorporation or bylaws of First Home or any First Home
Subsidiary or the charter and bylaws of First Home Savings; (ii) violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to First Home or any First Home Subsidiary or any of their
respective properties or assets; or (iii) except as set forth in the First Home
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 First Home or any First Home
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 First Home or any First Home 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 First Home.
Section 2.04 Consents. Except for the consents, approvals, filings and
registrations from or with the Regulatory Authorities referred to in Section
3.04 hereof and compliance with any conditions contained therein, and the
approval of this Agreement by the shareholders of First Home under the NJBCA,
First Home's articles of incorporation and bylaws and Nasdaq requirements
applicable to it, and the approval of the Bank Plan of Merger by First Home as
sole shareholder of First Home Savings under the HOLA, and by the First Home
Savings Board of Directors, and except as disclosed in the First Home Disclosure
Schedule, 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 First Home or the Bank Plan of Merger by First
Home Savings, and (b) the completion by First Home of the transactions
contemplated hereby or by First Home Savings of the Bank Merger. As of the date
hereof, First Home 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 First Home'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. Shareholders of First Home 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) First Home has previously delivered, or will deliver, to Sovereign the
First Home Regulatory Reports. The First Home 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 First Home as of and for the periods ended on the dates
thereof, in accordance with applicable regulatory accounting principles applied
on a consistent basis.
(b) First Home has previously delivered to Sovereign the First Home
Financials. The First Home Financials have been, or will be, prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered by such statements, except as noted therein, and fairly present, or will
fairly present, the consolidated financial position, results of operations and
cash flows of First Home as of and for the periods ended on the dates thereof,
in accordance with GAAP applied on a consistent basis, except as noted therein.
(c) At the date of each balance sheet included in the First Home Financials
or the First Home Regulatory Reports, neither First Home nor First Home Savings
(as the case may be) had, or will have any liabilities, obligations or loss
contingencies of any nature (whether absolute, accrued, contingent or
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otherwise) of a type required to be reflected in such First Home Financials or
First Home 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) First Home and the First Home Subsidiaries are members of the same
affiliated group within the meaning of IRC Section 1504(a). First Home has duly
filed, and will file, all federal, state and local tax returns required to be
filed by or with respect to First Home and all First Home 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 First Home and any First Home
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 First Home or any First
Home Subsidiary.
Section 2.07 No Material Adverse Effect. First Home has not suffered any
Material Adverse Effect since September 30, 1997.
Section 2.08 Contracts.
(a) Except as described in First Home's proxy statement for its April 25,
1997 annual meeting of shareholders and Annual Report on Form 10-K for the year
ended December 31, 1996, previously delivered to Sovereign, in the footnotes to
the audited consolidated financial statements of First Home as of December 31,
1996 and for the three years ended December 31, 1996, in the footnotes to the
audited financial statements of First Home Savings as of December 31, 1996 and
for the three years ended December 31, 1996, or in the First Home Disclosure
Schedule, neither First Home nor any First Home 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 First Home or any
First Home 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 First Home or any
First Home Subsidiary; (iii) any collective bargaining agreement with any labor
union relating to employees of First Home or any First Home Subsidiary; (iv) any
agreement which by its terms limits the payment of dividends by any First Home
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 First Home or any First Home Subsidiary is an obligor to any person,
which instrument evidences or relates to indebtedness other than deposits,
repurchase agreements, Federal Home Loan Bank advances and repurchases, 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 First Home
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 First Home proxy
statement for its April 25, 1997 annual meeting of shareholders or in a footnote
to such First Home Financials, have been provided to Sovereign on or before the
date hereof, are listed on the First Home Disclosure Schedule and are in full
force and effect on the date hereof and neither First Home nor any First Home
Subsidiary (nor, to the knowledge of
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First Home, 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 First
Home. Except as set forth in the First Home 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 First Home Disclosure Schedule, none of the employees
(including officers) of First Home or any First Home Subsidiary, possess the
right to terminate their employment as a result of the execution of this
Agreement. Except as set forth in the First Home Disclosure Schedule, no plan,
employment agreement, termination agreement, or similar agreement or arrangement
to which First Home or any First Home Subsidiary is a party or under which First
Home or any First Home 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 First Home
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 First Home or any First Home
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 First Home or any First Home Subsidiary
to provide a benefit in the form of First Home Common Stock or determined by
reference to the value of First Home Common Stock.
Section 2.09 Ownership of Property; Insurance Coverage.
(a) Except as disclosed in the First Home Disclosure Schedule, First Home
and the First Home 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 First Home or any First Home 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 First Home Regulatory Reports and in the First Home
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 repurchase agreements and 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. First
Home and the First Home Subsidiaries, as lessee, have the right under valid and
subsisting leases of real and personal properties used by First Home 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 First Home 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 First Home Financials.
(b) With respect to all agreements pursuant to which First Home or any
First Home Subsidiary has purchased securities subject to an agreement to
resell, if any, First Home or such First Home 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) First Home and the First Home Subsidiaries currently maintain insurance
considered by First Home to be reasonable for their respective operations and
similar in scope and coverage to that maintained by other businesses similarly
engaged. Neither First Home nor any First Home 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 First Home or First Home Savings under such policies.
All such insurance is valid and enforceable and in full force and effect, and
within the last three years First Home and First Home Savings have received each
type of insurance coverage for
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which they have applied and during such periods have not been denied
indemnification for any material claims submitted under any of their insurance
policies.
Section 2.10 Legal Proceedings. Except as disclosed in the First Home
Disclosure Schedule, neither First Home nor any First Home Subsidiary is a party
to any, and there are no pending or, to the best of First Home's knowledge,
threatened legal, administrative, arbitration or other proceedings, claims
(whether asserted or unasserted), actions or governmental investigations or
inquiries of any nature (i) against First Home or any First Home Subsidiary,
(ii) to which First Home or any First Home 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 First Home 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 on First Home.
Section 2.11 Compliance With Applicable Law.
(a) Except as disclosed in the First Home Disclosure Schedule, First Home
and First Home 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 First Home.
(b) Except as disclosed in the First Home Disclosure Schedule, neither
First Home nor any First Home Subsidiary has received any notification or
communication from any Regulatory Authority (i) asserting that First Home or any
First Home 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 First Home or any First Home Subsidiary; (iii) requiring or
threatening to require First Home or any First Home Subsidiary, or indicating
that First Home or any First Home 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 First Home or any First Home 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 First Home or any First Home 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 First
Home nor any First Home Subsidiary has consented to or entered into any
Regulatory Agreement, except as heretofore disclosed to Sovereign.
Section 2.12 ERISA. First Home has previously delivered to Sovereign true
and complete copies of all employee pension benefit plans within the meaning of
ERISA Section 3(2), including profit sharing plans, employee stock ownership
plan, stock purchase plans, deferred compensation and supplemental income plans,
supplemental executive retirement plans, employment agreements, annual executive
and administrative incentive plan or long term incentive plans, severance 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 First Home Disclosure Schedule, sponsored 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 First Home or any First Home 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 First Home, any First Home Subsidiary, nor any
pension plan maintained by First Home or any First Home 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
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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 First Home, 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 which would result in a Material Adverse Effect. 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 First Home nor
any First Home Subsidiary has incurred or is subject to any liability under
ERISA Section 4201 for a complete or partial withdrawal from a multiemployer
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 First Home or
any First Home Subsidiary which 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 First Home. First Home and
the First Home 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 material
compliance with Section 1862(b)(1) of the Social Security Act.
Section 2.13 Brokers, Finders and Financial Advisors; Fairness
Opinion. Except for First Home's engagement of RP Financial, LC ("RP
Financial") in connection with transactions contemplated by this Agreement,
neither First Home nor any First Home 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 First Home 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
First Home Financials. The First Home Disclosure Schedule shall contain as an
exhibit the engagement letter between First Home and RP Financial. RP Financial
has provided First Home with its written opinion to the effect that the Exchange
Ratio is fair to First Home shareholders from a financial point of view.
Section 2.14 Environmental Matters. To the knowledge of First Home,
neither First Home nor any First Home Subsidiary, nor any properties operated by
First Home or any First Home Subsidiary during First Home's use or ownership 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 First Home. 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 First Home,
threatened, relating to the liability of any property owned or operated by First
Home or any First Home Subsidiary under any Environmental Law.
Section 2.15 Allowance for Losses. The allowance for loan losses
reflected, and to be reflected, in the First Home Regulatory Reports, and shown,
and to be shown, on the balance sheets contained in the First Home Financials
have been, and will be, established in accordance with the requirements of GAAP
and all applicable regulatory criteria.
Section 2.16 Information to be Supplied. The information to be supplied by
First Home and First Home Savings for inclusion in the Registration Statement
(including the Prospectus/Proxy Statement) and/or any information First Home
filed with the SEC under the Exchange Act which is incorporated by reference
into the Registration Statement (including the Prospectus/Proxy Statement) will
not, at the time the Registration Statement is declared effective pursuant to
the Securities Act and
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as of the date the Prospectus/Proxy Statement is mailed to shareholders of First
Home and up to and including the date of the meeting of shareholders of First
Home to which such Prospectus/Proxy Statement relates, 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 First Home for inclusion in the Applications will, at the
time such documents are filed with any Regulatory Authority and up to and
including the date of the attainment of any required regulatory approvals or
consents, be accurate in all material respects.
Section 2.17 Securities Documents. First Home has delivered to Sovereign
copies of its (i) annual report on SEC Form 10-K for the year ended December 31,
1996, (ii) quarterly reports on SEC Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997 and (iii) proxy materials used or for
use in connection with its meetings of shareholders held in 1997 and 1996. 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
First Home Disclosure Schedule, (ii) in the proxy statement for use in
connection with First Home's April 25, 1997 annual meeting of shareholders or
(iii) in the footnotes to the First Home Financials, First Home is not a party
to any transaction (including any loan or other credit accommodation, but
excluding deposits in the ordinary course of business) with any Affiliate of
First Home (except a First Home Subsidiary). Except as disclosed in the First
Home Disclosure Schedule or in First Home's proxy statement for its April 25,
1997 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 risks or unfavorable
features. Except as set forth on the First Home Disclosure Schedule, no loan or
credit accommodation to any Affiliate of First Home 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 First Home nor
First Home 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
First Home Savings is inappropriate.
Section 2.19 Schedule of Termination Benefits. The First Home Disclosure
Schedule includes a schedule of the present value as of December 31, 1997 of
termination benefits and related payments that would be payable to the
individuals identified thereon, excluding any options to acquire First Home
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 First
Home solely for the benefit of executive officers of First Home or any First
Home Subsidiary (the "Benefits Schedule"), assuming their employment is
terminated as of December 31, 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 November
30, 1997, no First Home director had deferred any compensation accrued by First
Home.
Section 2.20 Loans. Each loan reflected as an asset in the First Home
Financial Statements (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and correct (ii) to the extent secured, has
been secured by valid liens and security interests which have been perfected,
and (ii) is the legal, valid and binding obligation of the 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 First Home.
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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 First
Home 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 First Home that, except as set
forth in the Sovereign Disclosure Schedule delivered by Sovereign to First Home
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 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 FDIA.
(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
First Home 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) 200,000,000
shares of common stock, no par value ("Sovereign Common Stock"), of which, at
the date of this Agreement, 10,008 shares were issued and held by Sovereign as
treasury stock and 89,366,365 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 2,342,047 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, and (iii) capital securities
issued by Sovereign Capital Trust I, and (iv) the deemed rights to acquire
Sovereign Stock possessed by holders of the common stock of ML Bancorp, Inc.
under the Agreement and Plan of Merger between Sovereign and ML Bancorp, Inc.,
dated September 18, 1997, contingent upon
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completion of the transactions contemplated thereby. As of September 30, 1997,
Sovereign had approximately 10,500 shareholders of record.
(b) To the best of Sovereign's knowledge, except as disclosed in
Sovereign's proxy statement dated March 19, 1997, 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, security interests, pledges, charges, encumbrances,
agreements and restrictions of any kind or nature and either Sovereign or
Sovereign Bank owns all of its shares of capital stock of each other Sovereign
Subsidiary free and clear of all liens, security interests, pledges, charges,
encumbrances, agreements and restrictions of any kind or nature. 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 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 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 First Home's and Sovereign's compliance with any conditions
contained therein, the consummation of the transactions contemplated hereby, and
(D) compliance by Sovereign or Sovereign Bank with any of the terms or
provisions hereof or of the Bank Plan of Merger will not (i) conflict with or
result in a breach of any provision of the articles of incorporation or bylaws
of Sovereign or 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.
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Section 3.04 Consents. Except for consents, approvals, filings and
registrations from or with the OTS, the NJDB, the SEC, and state "blue sky"
authorities, and compliance with any conditions contained therein, and the
approval of the Bank Plan of Merger by Sovereign as sole shareholder of
Sovereign Bank under the HOLA, 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 or Sovereign Bank'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 made, or will make, the Sovereign Regulatory Reports
available to First Home for inspection. The Sovereign 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 Sovereign as of and for the periods ended on the dates
thereof, in accordance with applicable regulatory accounting principles applied
on a consistent basis.
(b) Sovereign has previously delivered, or will deliver, to First Home the
Sovereign Financials. The Sovereign Financials have been, or will be, prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered by the Sovereign Financials, except as noted therein and fairly present,
or will fairly present, the consolidated financial position, results of
operations and cash flows of Sovereign as of and for the periods ending on the
dates thereof, in accordance with GAAP applied on a consistent basis throughout
the periods covered by the Sovereign Financials, except as noted therein.
Sovereign will make the Sovereign Regulatory Reports available to First Home for
inspection.
(c) At the date of each balance sheet included in the Sovereign Financials
or Sovereign Regulatory Reports, 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 September 30, 1997.
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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 and in the Sovereign Regulatory Reports 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 on Sovereign.
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 Sovereign.
(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 First Home.
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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) and/or any information Sovereign filed with the SEC
under the Exchange Act which is incorporated by reference into the Registration
Statement (including the Prospectus/Proxy Statement) will not, at the time the
Registration Statement is declared effective pursuant to the Securities Act and
as of the date the Prospectus/Proxy Statement is mailed to shareholders of First
Home and up to and including the date of the meeting of shareholders of First
Home to which such Prospectus/Proxy Statement relates, 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 and up to and
including the date(s) of the obtainment of any required regulatory approvals or
consents, be accurate in all material aspects.
Section 3.12 ERISA. Sovereign has previously made available to First Home
true and complete copies of the employee pension benefit plans within the
meaning of ERISA Section 3(2), profit sharing plans, employee stock ownership
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, sponsored 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, any Sovereign Subsidiary, nor any 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 which
would result in a Material Adverse Effect. With respect to each of such plans
that is subject to Title IV of ERISA, the present value of the accrued benefits
under such plan, based upon the actuarial assumptions used for funding purposes
in the plan's most recent actuarial report did not, as of its latest valuation
date, exceed the then current value of the assets of such plan allocable to such
accrued benefits. Neither Sovereign nor any Sovereign Subsidiary has incurred or
is subject to any liability under ERISA Section 4201 for a complete or partial
withdrawal from a multiemployer 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 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 and "qualified
beneficiaries" in accordance with the provisions of IRC Section 4980B(f). Such
group health plans are in compliance with Section 1862(b)(1) of the Social
Security Act.
Section 3.13 Securities Documents. Sovereign has delivered, or will
deliver, to First Home copies of its (i) annual reports on SEC Form 10-K for the
years ended December 31, 1996, 1995, and 1994, (ii) quarterly reports on SEC
Form 10-Q for the quarters ended March 31, 1997, June 30, 1997
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and September 30, 1997, (iii) current reports on SEC Form 8-K dated February 5,
1997, February 6, 1997, February 13, 1997, March 18, 1997 June 17, 1997,
September 12, 1997, as amended, September 18, 1997 and December 9, 1997, which
are all the Current Reports on Form 8-K which were or filed or required to be
filed, (iv) proxy statement dated March 19, 1997 used in connection with its
annual meeting of shareholders held in April 1997, (v) proxy material dated July
22, 1997 relating to Sovereign's acquisition of Bankers Corp., and (vi)
preliminary proxy material filed by Sovereign with the SEC in November, 1997 and
related Form S-4 Registration Statement relating to Sovereign's acquisition of
ML Bancorp, Inc. 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 operated by Sovereign
or any Sovereign Subsidiary during Sovereign's use or ownership 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 Allowance for Loan Losses. 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 GAAP
and all applicable regulatory criteria.
Section 3.16 Brokers and Finders. In connection with the transactions
contemplated by the Agreement, 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 Accounting for the Merger; Reorganization. As of the date
hereof, Sovereign does not have any reason to believe that the Merger will fail
to qualify (i) for pooling-of-interests treatment under GAAP, or (ii) as a
reorganization under Section 368(a) of the IRC.
Section 3.19 NJBCA Antitakeover Provisions. Neither Sovereign nor any
Sovereign Subsidiary is an "interested shareholder" of First Home under Sections
14A:10A-4 and 14:10A-5 of the NJBCA.
Section 3.20 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 First Home's Business.
(a) From the date of this Agreement to the Closing Date, First Home and
each First Home 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. First Home will use its reasonable good
faith efforts, and will cause First Home 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 First Home and First Home 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, First Home will not, and First Home will not permit
any First Home Subsidiary to:
(i) amend or change any provision of its certificate 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) First Home may issue shares of First Home
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 First Home Common Stock under the First Home Stock Option Plans,
(B) First Home may pay a regular quarterly cash dividend, not to exceed
$.10 per share of First Home Common Stock outstanding, and (C) First Home
may issue shares of First Home Common Stock pursuant to the Sovereign
Option. As promptly as practicable following the date of this Agreement,
the Board of Directors of First Home 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 except as provided above, First Home 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 First Home
shareholders to receive two dividends either from First Home or from First
Home and Sovereign in any quarter or to deny or prohibit them from
receiving one dividend from First Home or Sovereign in any quarter. Subject
to applicable regulatory restrictions, if any, First Home Savings may pay a
cash dividend, in the aggregate, sufficient to fund any dividend by First
Home permitted hereunder;
(iii) grant any severance or termination pay (other than pursuant to
written policies or written agreements of First Home or First Home
Subsidiaries in effect on the date hereof and provided to Sovereign prior
to the date hereof or as otherwise agreed to in writing by Sovereign and
First Home) to, or enter into any new or amend any existing employment
agreement with, or increase the compensation of, any employee, officer or
director of First Home or any First Home Subsidiary, except for routine
periodic increases in salary (estimated to be not in excess of $125,000
through June 30, 1998) and bonus required by existing bonus plans
(estimated to be not in excess of $200,000 through June 30, 1998);
(iv) merge or consolidate First Home or any First Home Subsidiary with
any other corporation; sell or lease all or any substantial portion of the
assets or business of First Home or any First Home 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 First Home 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 First Home
Subsidiary of its
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certificate of authority to maintain, or file an application for the
relocation of, any existing branch office, or file an application for a
certificate of authority to establish a new branch office;
(v) sell or otherwise dispose of the capital stock of First Home
Savings or sell or otherwise dispose of any asset of First Home or of any
First Home Subsidiary other than in the ordinary course of business
consistent with past practice; subject any asset of First Home or of any
First Home 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 First Home 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, except in each case as may be
required by applicable law;
(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 First Home or First Home 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
First Home or any First Home 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 which 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 First Home may contribute to the First Home
employee stock ownership plan, to the extent accrued on the First Home
Financial Statements at and for periods prior to the date of this
Agreement, (i) up to $240,000 (consisting of both voluntary and matching
contributions) in January 1998 with respect to the year ending December 31,
1997 and (ii) a pro rated amount up to $120,000 (consisting of both
voluntary and matching contributions) prior to the Closing Date with
respect to the year ending December 31, 1998 (such amount to be pro rated
based on the number of days elapsed from January 1, 1998 to the Closing
Date);
(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. or otherwise alter, in any material respect, the mix,
maturity, credit or interest rate risk profile of its portfolio of
Investment Securities or its portfolio of Mortgage-Backed Securities.
(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 First Home Disclosure Schedule; provided that Sovereign
will not unreasonably withhold its consent with respect to any request by
First Home for permission to increase, compromise, extend, renew or modify
any loan subject to this provision;
(xii) except as set forth on the First Home Disclosure Schedule or
except in the ordinary course of business consistent with past practice,
enter into, renew, extend or modify any other transaction with any
Affiliate other than deposit and loan transactions in the ordinary course
of business and which are in compliance with applicable laws and
regulations;
(xiii) enter into any interest rate swap or similar commitment,
agreement or arrangement;
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(xiv) except for the execution of this Agreement, or resulting
therefrom, 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 First Home or any First Home Subsidiary to do
any of the following: (i) make any capital expenditure of $100,000 or more not
disclosed on First Home 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 First Home or a First Home 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 First Home or any First Home 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, First Home or
Sovereign, as the case may be, shall afford to, and shall cause each First Home
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 First Home 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) First Home 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, First Home shall permit
employees of Sovereign reasonable access to and participation in matters
relating to problem loans, loan restructurings and loan work-outs of First Home
and the First Home 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 First Home or any
First Home Subsidiary to obtain an appraisal by an independent third party
experienced in such matters, and mutually satisfactory to Sovereign and First
Home, of the assets or property securing any loan made by First Home or any
First Home Subsidiary, with a principal balance of $500,000 or more.
(d) If the transactions contemplated by this Agreement shall not be
consummated, First Home 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. First Home 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) First Home and Sovereign shall promptly prepare a Prospectus/Proxy
Statement to be mailed to shareholders of First Home in connection with First
Home's meeting of shareholders and the 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 First Home 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 First Home, promptly after Sovereign receives notice thereof, of the
time when the Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order or the suspension of
the qualification of the shares of capital stock issuable pursuant to the
Registration Statement, or the initiation or threat of any proceeding for any
such purpose, or of any request by the SEC for the amendment or supplement of
the Registration Statement or for additional information. Sovereign shall use
its best efforts to obtain, prior to the effective date of the Registration
Statement, all necessary state securities laws or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by this Agreement.
Sovereign will provide First Home with as many copies of such Registration
Statement and all amendments thereto promptly upon the filing thereof as First
Home may reasonably request.
(b) Sovereign and First Home will prepare all Applications to Regulatory
Authorities and make all filings for, and use their reasonable 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.
(c) First Home will furnish Sovereign with all information concerning First
Home and First Home Subsidiaries as may be reasonably necessary or advisable in
connection with the Registration Statement and any Application or filing made by
or on behalf of Sovereign to any Regulatory Authority in connection with the
transactions contemplated by this Agreement and the Bank Plan of Merger.
(d) Sovereign and First Home shall have the right to review in advance, and
to the extent practicable each will consult with the other on, all information
which appears in any filing made with or written materials submitted to the SEC,
any Regulatory Authority or any third party in connection with the transactions
contemplated by this Agreement and the Bank Plan of Merger. In exercising the
foregoing right, each of the parties hereto shall act reasonably and as promptly
as practicable. The parties hereto agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of the SEC, Regulatory Authorities and third parties necessary or
advisable to consummate the transactions contemplated by this Agreement and the
Bank Plan of Merger and each party will keep the other apprised of the status of
matters relating to completion of the transactions contemplated hereby and
thereby.
(e) Sovereign will promptly furnish First Home with copies of all written
communications to, or received by Sovereign or any Sovereign Subsidiary from,
any Regulatory Authority in respect of the transactions contemplated hereby.
Section 4.04 Taking of Necessary Action.
(a) Sovereign and First Home shall each use its best efforts in good faith,
and each of them shall cause its Subsidiaries to use their reasonable best
efforts in good faith, to 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, as soon as practicable after the date hereof,
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 First Home nor any
First Home Subsidiary shall agree to make any payments or modifications to
agreements in connection therewith without the prior written consent of
Sovereign,
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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 First Home or from exercising its
rights under this Agreement or the Stock Option Agreement.
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 First Home 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 First Home, any of the First Home's
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 Certificate of incorporation and
bylaws of First Home. On or after the Effective Date, Sovereign shall indemnify,
defend and hold harmless all prior and then-existing directors and officers of
First Home and any First Home Subsidiary, 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 First Home or any First Home 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 First Home or any First Home Subsidiary as of
the date hereof including the right to advancement of expenses, provided,
however, that any such officer, director or employee of First Home or any First
Home Subsidiary may not be indemnified by Sovereign and/or Sovereign Bank if
such indemnification is prohibited by applicable law.
(b) Sovereign shall maintain First Home's 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 First Home 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 First Home Disclosure Schedule
and for purposes of this Agreement the terms of such employment contracts shall
be for a period of three (3) years from the Closing Date. Under such employment
contracts, each employee may elect to be paid out under the terms of such
contract or receive a lump-
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sum payment of the present value (based on a 6% per annum discount factor) of
the payments required to be made thereunder.
(d) In the event that Sovereign or any of its respective successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any Person, then, and in each such case the successors and assigns of such
entity shall assume the obligations set forth in this Section 4.05.
Section 4.06 No Other Bids and Related Matters.
(a) So long as this Agreement remains in effect, First Home shall not and
First Home shall not authorize or permit any of its directors, officers,
employees or agents, to directly or indirectly (i) respond to, solicit, initiate
or encourage any inquiries relating to, or the making of any proposal which
relates to, an Acquisition Transaction (as defined below), (ii) recommend or
endorse an Acquisition Transaction, (iii) participate in any discussions or
negotiations regarding an Acquisition Transaction, (iv) provide any third party
(other than Sovereign or an affiliate of Sovereign) with any nonpublic
information in connection with any inquiry or proposal relating to an
Acquisition Transaction or (v) enter into an agreement with any other party with
respect to an Acquisition Transaction. First Home will immediately cease and
cause to be terminated any existing activities, discussions or negotiations
previously conducted with any parties other than Sovereign with respect to any
of the foregoing, and will take all actions necessary or advisable to inform the
appropriate individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 4.06. First Home will notify
Sovereign orally (within one day) and in writing (as promptly as practicable) if
any inquiries or proposals relating to an Acquisition Transaction are received
by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, First Home. As used in
this Agreement, "Acquisition Transaction" shall mean one of the following
transactions with a party other than Sovereign of an affiliate of Sovereign (i)
a merger or consolidation, or any similar transaction, involving First Home or a
First Home Subsidiary, (ii) a purchase, lease or other acquisition of all or a
substantial portion of the assets or liabilities of First Home or a First Home
Subsidiary or (iii) a purchase or other acquisition (including by way of share
exchange, tender offer, exchange offer or otherwise) of a substantial interest
in any class or series of equity securities of First Home (other than as
permitted by Section 4.01(a)(ii) hereof) or a First Home Subsidiary.
(b) Notwithstanding the foregoing, First Home, after written notice to
Sovereign, may for a period of thirty (30) days after the date of this Agreement
respond to unsolicited inquiries from third parties with respect to an
Acquisition Transaction if the fiduciary duty of the individuals set forth in
the first sentence of Section 4.06(a) legally requires them to do so and they
are so advised in a written opinion of counsel.
Section 4.07 Duty to Advise; Duty to Update Disclosure Schedule. Each
party shall promptly advise the other party of any change or event having a
Material Adverse Effect on it 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. Each party shall update its respective
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 such Disclosure Schedule. The delivery
of such updated Schedule shall not relieve a party 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 5.01(c) and 5.02(c)
hereof, as applicable.
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.
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Section 4.09 Current Information.
(a) During the period from the date of this Agreement to the Effective
Date, each party shall, upon the request of the other party, cause one or more
of its designated representatives to confer on a monthly or more frequent basis
with representatives of the other party regarding its financial condition,
operations and business and matters relating to the completion of the
transactions contemplated hereby. As soon as reasonably available, but in no
event more than 45 days after the end of each calendar quarter ending after the
date of this Agreement (other than the last quarter of each fiscal year ending
December 31), First Home and Sovereign will deliver to the other party its
quarterly report on Form 10-Q under the Exchange Act, and, as soon as reasonably
available, but in no event more than 90 days after the end of each fiscal year
ended December 31, First Home and Sovereign will deliver to the other party its
Annual Report on Form 10-K. Within 25 days after the end of each month, First
Home and Sovereign will deliver to the other party a consolidated balance sheet
and a consolidated statement of operations, without related notes, for such
month.
(b) First Home shall provide to Sovereign a copy of the minutes of any
meeting of the Board of Directors of First Home or any First Home Subsidiary, or
any committee thereof, or any senior management committee, promptly after such
minutes are approved at a subsequent meeting of the board or committee, but in
any event within 40 days of the meeting of such board or committee to which such
minutes relate, except that with respect to any meeting held within 30 days of
the Closing Date, such minutes shall be provided prior to the Closing Date.
Section 4.10 Undertakings by Sovereign and First Home.
(a) From and after the date of this Agreement, First Home shall:
(i) Voting by Directors. Recommend to all members of First Home's
Board of Directors to vote all shares of First Home's Common Stock
beneficially owned by each such director in favor of this Agreement;
(ii) Phase I Environmental Audit. Permit Sovereign, if Sovereign
elects to do so, at its own expense, to cause a "phase I environmental
audit" to be performed at any physical location owned or occupied by First
Home or any First Home Subsidiary on the date hereof;
(iii) Approval of Bank Plan of Merger. Approve the Bank Plan of
Merger as sole shareholder of First Home Savings and obtain the approval
of, and cause the execution and delivery of, the Bank Plan of Merger by
First Home Savings;
(iv) Proxy Solicitor. If Sovereign requests and agrees to bear the
expense thereof, retain a proxy solicitor in connection with the
solicitation of First Home 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 its 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 reasonable best efforts to obtain an extension of any
contract with an outside service bureau or other vendor of services to
First Home or any First Home Subsidiary, on terms and conditions mutually
acceptable to First Home and Sovereign;
(vii) Committee Meetings. Permit a representative of Sovereign, who
is reasonably acceptable to First Home, to attend all committee meetings of
First Home and First Home Savings management including, without limitation,
any loan or asset/liability committee;
(viii) List of Nonperforming Assets. Provide Sovereign, within ten
(10) days after the quarterly meeting of its Asset Review Committee, a
written list of nonperforming assets as of the end of such month;
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(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 First Home to those of Sovereign (as such
practices and methods are to be applied to First Home from and after the
Closing Date) and Sovereign's plans with respect to the conduct of the
business of First Home following the Merger and otherwise to reflect
Merger-related expenses and costs incurred by First Home, provided,
however, that First Home shall not be required to take such action (A) more
than five (5) 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, First Home shall provide Sovereign a
written statement, certified without personal liability by the chief
executive officer of First Home 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 First Home or any First Home 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; and
(x) Shareholders Meetings. First Home shall take all action necessary
to properly call and convene a special meeting of its shareholders as soon
as practicable after the date hereof to consider and vote upon this
Agreement and the transactions contemplated hereby. The Board of Directors
of First Home shall recommend that the shareholders of First Home, approve
this Agreement and the transactions contemplated hereby; provided, however,
that no director of First Home shall be required to take any action in
accordance with this subsection in such person's capacity as a director if
the fiduciary duty of such person in such capacity legally requires
otherwise and such person is so advised in a written opinion of counsel.
(b) From and after the date of this Agreement, Sovereign and First Home
shall each:
(i) Identification of First Home's Affiliates. Cooperate with the
other and use its best efforts to identify those persons who may be deemed
to be Affiliates of First Home;
(ii) 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 First Home shareholders, First Home's internal
announcements and customer disclosures, but nothing contained herein shall
prohibit either party from making any disclosure which its counsel deems
necessary under applicable law;
(iii) 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;
(iv) Maintenance of Books and Records. Maintain, and cause their
respective Subsidiaries to maintain, books of account and records in
accordance with GAAP applied on a basis consistent with those principles
used in preparing the financial statements heretofore delivered;
(v) Delivery of Securities Documents. Deliver to the other, copies of
all Securities Documents simultaneously with the filing thereof; and
(vi) 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.
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Section 4.11 Employee Benefits and Termination Benefits.
(a) Employee Benefits. On and after the Effective Date, the employee
pension (including employee stock ownership plans) and welfare benefit plans of
Sovereign and First Home may, at Sovereign's election and subject to the
requirements of the IRC, continue to be maintained separately, consolidated or
terminated, provided, however, that First Home employees shall receive benefits
at least as favorable, in the aggregate, as the benefits to which they were
entitled on the date of this Agreement. First Home and Sovereign agree that,
subject to the conditions described herein, as soon as practicable after the
Effective Date and receipt of a favorable determination letter from the IRS upon
plan termination, participants in the First Home ESOP shall be entitled at their
election to have the amounts in their First Home ESOP accounts either
distributed to them in a lump sum or rolled over to another tax-qualified plan
(including Sovereign plans to the extent permitted by Sovereign) or individual
retirement account. In the event of a consolidation of any or all of such
pension benefit plans or in the event of termination of the First Home pension
benefit plans, First Home and First Home Savings employees shall receive full
credit for service with First Home or First Home Savings under Sovereign's
pension and 401(k) plans, but not Sovereign's Employee Stock Ownership Plan, for
purposes of eligibility and vesting determination. In the event of any
termination of or consolidation of any First Home or First Home Savings health
plan with any Sovereign health plan, all employees of First Home or First Home
Savings who were eligible for coverage under the terminated plan shall have
coverage under any successor health plan with protection for any pre-existing
condition. In the event of a termination or consolidation of any First Home or
First Home Savings health plan, terminated First Home or First Home 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. First Home shall cause to be delivered to
Sovereign concurrently with the execution of this Agreement with respect to each
executive officer named on the Benefits Schedule included in the First Home
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 pension benefit or
welfare benefit plan maintained by First Home solely for the benefit of officers
of First Home or First Home Subsidiaries assuming a termination of such
individual's employment on December 31, 1997, subsequent to the Closing Date.
First Home 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 agrees to cause Sovereign
Bank to provide employees of First Home Savings whose
employment is terminated in connection with the Merger within
three (3) months after the conversion of First Home's system
to that of Sovereign's, 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 in a location within thirty (30) miles from
an employee's work location), and who do not at their election
cease performing services for Sovereign or First Home, as
applicable, prior to their final termination date as set or
adjusted by Sovereign, excluding any employee who has an
existing employment or consulting agreement or whose
employment is terminated for Cause (as defined below), as
follows, provided such employees execute such documentation as
Sovereign may reasonably require, including Sovereign's
customary form of release: (i) the thirteen employees
identified on First Home's
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Disclosure Schedule shall be entitled to two weeks of base
salary as severance pay for each year of service with First
Home or First Home Savings, or Sovereign or any Sovereign
Subsidiary, with a two-week minimum; and (ii) employees other
than the thirteen employees identified on First Home's
Disclosure Schedule shall be entitled to one week of base
salary as severance pay for each year of service with First
Home or First Home Savings, or Sovereign or any Sovereign
Subsidiary, with a one-week minimum. For purposes of this
Section 4.11(c), "Cause" shall mean termination because of the
employee's personal dishonesty, failure to meet established
performance goals (which shall be reasonably established),
willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties
or willful violation of any law, rule or regulation (other
than traffic violations or similar offenses). The benefits
provided to terminated First Home or First Home Savings
employees under this subsection are the only severance
benefits payable by First Home or First Home Savings under any
plan or policy (excluding severance benefits provided under
existing employment or consulting agreements or as otherwise
required by law), except for employees who do not execute the
documentation required by Sovereign, which employees shall be
entitled to the termination benefits provided under First Home
Savings' severance policies. The benefits payable to First
Home employees under this subsection or otherwise shall in any
event 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."
4. Section 4.11(d) of the Agreement is deleted in its entirety and
replaced with the following:
"(d) Retention Bonuses. Notwithstanding subparagraph (c)
above, each employee of First Home or of First Home Savings
identified in the First Home Disclosure Schedule shall be
entitled to receive a "retention" bonus from First Home or
First Home Savings Bank as determined by the executive
officers of First Home (after consultation with Sovereign) and
as set forth on First Home's Disclosure Schedule in the event
that such employee remains an employee of First Home, First
Home Savings or Sovereign, as applicable, until the date the
systems conversion occurs or is involuntarily terminated prior
to the date of the systems conversion, but after the Effective
Date, and satisfactorily fulfills the duties and
responsibilities of the position of such employee of First
Home, First Home Savings or Sovereign, as the case may be,
through the date of systems conversion; provided that
retention bonuses, in the aggregate, shall not exceed
$250,000."
(e) Employee Loan Program. Prior to consummation of the Merger, First Home
may continue to originate loans pursuant to its employee loan program in effect
as of the date hereof, and upon consummation of the Merger, Sovereign agrees to
cause Sovereign Bank to honor the loans originated by First Home pursuant to
such employee loan program.
(f) Intention Regarding Future Employment. Within ninety (90) days of the
date hereof, Sovereign and Sovereign Bank intends to use their reasonable best
efforts to inform the employees of First Home and First Home Savings of the
likelihood of such employees having continued employment with Sovereign Bank
following the Effective Date and, where appropriate, intends to use their
reasonable best efforts to interview the First Home and First Home Savings
employees to determine if there are mutually beneficial employment opportunities
available at Sovereign Bank. It is the intent of Sovereign Bank in connection
with reviewing applicants for employment positions to give any First Home
employee who is terminated in connection with the Merger within three months of
the Effective Date the same consideration as is afforded Sovereign Bank
employees for such positions in accordance with existing formal or informal
policies for a period of three months from such date of termination.
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Section 4.12 Stock Exchange Listing. Sovereign shall use all reasonable
best efforts to cause the shares of Sovereign Common Stock to be issued in
connection with the Merger to be approved for quotation on the Nasdaq Stock
Market's National Market System, subject to official notice of issuance, as of
or prior to the Effective Date.
Section 4.13 Affiliate Letter. Concurrently with the execution and
delivery of this Agreement, First Home shall cause to be delivered to Sovereign
the Letter Agreement attached hereto as Exhibit 1, executed by each director,
officer and any shareholder required to file reports on SEC Schedule 13D under
the Exchange Act set forth thereon.
Section 4.14 Publication of Combined Financial Results. Sovereign shall
use its reasonable best efforts to publish as soon as possible, but no later
than the required date of filing its Quarterly Report on Form 10-Q for the first
fiscal quarter following 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 and in accordance with the terms of SEC Accounting Series
Release No. 135.
Section 4.15 Sovereign Rights Agreement. Sovereign agrees that any
Sovereign Rights issued pursuant to the Sovereign Rights Agreement shall be
issued with respect to each share of Sovereign Common Stock issued pursuant to
the terms hereof regardless whether there has occurred a "Distribution Date"
under the terms of such Sovereign Rights Agreement prior to the Effective Date,
as well as to take all action necessary or advisable to enable the holder of
each such share of Sovereign Common Stock to obtain the benefit of such
Sovereign Stock Purchase Rights notwithstanding their prior distribution,
including without limitation, amendment of the Sovereign Rights Agreement.
Section 4.16 Advisory Board. On the Effective Date, Sovereign Bank shall
establish for a period of at least two years the First Home Advisory Board (the
"Advisory Board"), which shall consist of all the members of the First Home
Board of Directors immediately prior to the Effective Date. The members of the
Advisory Board shall be paid an annual retainer of $9,000, exclusive of any
First Home Board Members who do not wish to join the Advisory Board.
ARTICLE V
CONDITIONS
Section 5.01 Conditions to First Home's Obligations under this
Agreement. The obligations of First Home hereunder shall be subject to
satisfaction at or prior to the Closing Date of each of the following
conditions, unless waived by First Home 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 First Home 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;
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(d) Approvals of Regulatory Authorities. Sovereign shall have received all
required approvals of Regulatory Authorities of the Merger, and delivered copies
thereof to First Home; 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 September 30, 1997, there shall not
have occurred any Material Adverse Effect with respect to Sovereign;
(g) Officer's Certificate. Sovereign shall have delivered to First Home a
certificate and such other documents, 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. First Home shall have received an
opinion of Stevens & Lee, counsel to Sovereign, dated the Closing Date, in form
and substance reasonably satisfactory to First Home 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 and
neither the Registration Statement nor any such approval by state securities or
"blue sky" authorities shall be subject to a stop order or threatened stop order
by the SEC or any such authority;
(j) Tax Opinion. First Home shall have received an opinion of Stevens &
Lee, substantially to the effect set forth on Exhibit 6 attached hereto;
(k) Approval of First Home's Shareholders. This Agreement shall have been
approved by the shareholders of First Home by such vote as is required under
First Home's articles of incorporation and bylaws, NJBCC or under Nasdaq
requirements applicable to it; and
(l) Investment Banking Opinion. First Home shall have received a written
opinion, dated within five (5) days of mailing the Prospectus/Proxy Statement,
from RP Financial, updating its prior written opinion, to the effect that the
Applicable Exchange Ratio 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, First Home and First Home 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 First Home and First
Home Savings; and Sovereign shall have received certified copies of the
resolutions evidencing such authorizations;
(b) Covenants. The obligations and covenants of First Home, 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 First Home;
(c) Representations and Warranties. The representations and warranties of
First Home 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
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not, either individually or in the aggregate, result in a Material Adverse
Effect with respect to First Home;
(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 September 30, 1997, there shall not
have occurred any Material Adverse Effect with respect to First Home.
(g) Officer's Certificate. First Home shall have delivered to Sovereign a
certificate and such other documents, 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 First Home's Counsel. Sovereign shall have received an
opinion of Blank Rome Cominsky & McCauley LLP, counsel to First Home, 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 and
neither the Registration Statement nor any such approval by state securities or
"blue sky" authorities shall be subject to a stop order or threatened stop order
by the SEC or any such authority;
(j) Tax Opinion. Sovereign shall have received an opinion of Stevens &
Lee, its counsel, substantially to the effect set forth on Exhibit 6 attached
hereto;
(k) Pooling Letter. Sovereign shall have received a letter from Ernst &
Young L.L.P. 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 4.10(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 on Sovereign; and
(m) Liquidation Account. Neither the Merger or consummation of the Bank
Plan of Merger shall require Sovereign, First Home or any Subsidiary of either
to distribute to depositors the liquidation account established by First Home
Savings in connection with its conversion from mutual to stock form.
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 First Home:
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(i) if the Closing Date shall not have occurred on or before July 31,
1998, unless the failure of such occurrence shall be due to the failure of
the party seeking to terminate this Agreement to perform or observe, in any
material respect, its agreements set forth in this Agreement required to be
performed or observed by such party on or before the Closing Date; or
(ii) if either party has received a final unappealable administrative
order from a Regulatory Authority whose approval or consent has been
requested that such approval or consent will not be granted, or in the case
of a termination by Sovereign, will not be granted absent the imposition of
terms and conditions which would permit satisfaction of the condition set
forth at Section 5.02(d) hereof, unless the failure of such occurrence
shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe in any material respect its agreements set
forth herein required to be performed or observed by such party on or
before the Closing Date; or
(c) By First Home, if on the Closing Date the Sovereign Market Value shall
be less than $13.50 (as adjusted for stock splits and dividends) subject,
however, to the following: If First Home shall elect to terminate this Agreement
pursuant to this Section 6.01(c), it shall give written notice thereof to
Sovereign (provided that such notice of election to terminate may be withdrawn
at any time within the five-day period commencing with receipt of such notice).
During the five-day period commencing with its receipt of such notice, Sovereign
shall have the option to elect to increase the Applicable Exchange Ratio to an
amount which when multiplied by the Sovereign Market Value determined as of the
Closing Date, equal to $23.44 and the Closing Date shall be postponed by the
minimum amount of time necessary, if any, to accommodate Sovereign's election of
such option (i.e. up to a five-day period). If Sovereign so elects within such
five-day period, it shall give prompt written notice to First Home of such
election and the Applicable Exchange Ratio, 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 Applicable 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).
(d) At any time on or prior to the Effective Date, by First Home in writing
if Sovereign has, or by Sovereign in writing if First Home has, in any material
respect, breached (i) any material covenant or undertaking contained herein or
(ii) any representation or warranty contained herein, which in the case of a
breach referred to in subclause (i) or (ii) above by Sovereign would have a
Material Adverse Effect on Sovereign and in case of a breach referred to in
subclause (i) or (ii) above by First Home would have a Material Adverse Effect
on First Home, in any case if such breach has not been substantially cured by
the earlier of 30 days after the date on which written notice of such breach is
given to the party committing such breach or the Effective Date or if on such
date such breach no longer causes a Material Adverse Effect.
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 First Home 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 that by
their terms are to be performed after the Effective Date, including without
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<PAGE>
limitation the covenants set forth in Sections 1.02(f), 1.02(g), 4.05, and
4.11(a) and (c) which will survive the Merger, shall terminate on the Closing
Date.
Section 7.03 Amendment, Extension and Waiver. Subject to applicable law,
at any time prior to the consummation of the transactions contemplated by this
Agreement, the parties may (a) amend this Agreement, (b) extend the time for the
performance of any of the obligations or other acts of either party hereto, (c)
waive any inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto, or (d) waive compliance with any of
the agreements or conditions contained in Articles IV and V hereof or otherwise
provided that any amendment, extension or waiver granted or executed after
shareholders of First Home have approved this Agreement shall not modify either
the amount or the form of the consideration to be provided hereby to holders of
First Home Common Stock upon consummation of the Merger or otherwise materially
adversely affect the shareholders of First Home without the approval of the
shareholders who would be so affected. 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(f), 1.02(g),
4.05, and 4.11(a) and (c).
Section 7.05 No Assignment. Neither party hereto may assign any of its
rights or obligations hereunder to any other person, without the prior written
consent of the other party hereto.
Section 7.06 Notices. All notices or other communications hereunder shall
be in writing and shall be deemed given if delivered personally, mailed by
prepaid registered or certified mail (return receipt requested), or sent by
telecopy, addressed as follows:
(a) If to Sovereign, to:
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Attention: Jay S. Sidhu, President and
Chief Executive Officer
Telecopy No.: (610) 320-8448
with a copy to:
Stevens & Lee
111 North Sixth Street
Reading, Pennsylvania 19601
Attention: Joseph M. Harenza, Esq. and
William J. Reynolds, Esq.
Telecopy No.: (610) 376-5610
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<PAGE>
(b) If to First Home, to:
First Home Bancorp Inc.
125 South Broadway
Pennsville, New Jersey 08540
Attention: Stephen D. Miller
Chairman, President and Chief
Executive Officer
Telecopy No.: (609) 678-8304
with copies to:
Blank Rome Comisky & McCauley
One Logan Square
Philadelphia, Pennsylvania 19103
Attention: Barry H. Genkin, Esquire
Telecopy No.: (215) 988-6910
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.
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
FIRST HOME BANCORP INC.
By /s/ STEPHEN D. MILLER
--------------------------------------
Stephen D. Miller,
Chairman, President and Chief
Executive Officer
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<PAGE>
AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER
WHEREAS, Sovereign Bancorp, Inc. ("Sovereign") and First Home Bancorp Inc.
("First Home") entered into an Agreement and Plan of Merger, dated December 18,
1997 (the "Agreement"), which sets forth the terms and conditions pursuant to
which First Home will merge with and into Sovereign, with Sovereign being the
surviving corporation; and
WHEREAS, Sovereign and First Home desire to amend the Agreement to provide
for the establishment by Sovereign Bank, a wholly owned subsidiary of Sovereign,
of an advisory board with at least two successive one year terms.
NOW, THEREFORE, pursuant to the terms of Section 7.05 of the Agreement and
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Sovereign and First Home, intending to be legally bound, do
hereby adopt this Amendment and agree that Section 4.16 of the Agreement is
deleted in its entirety and replaced with the following:
Section 4.16 Advisory Board. On the Effective Date, Sovereign Bank
shall establish the First Home Advisory Board (the "Advisory Board"), which
shall consist of all members of the First Home Board of Directors
immediately prior to the Effective Date. Each member of the Advisory Board
shall be paid an annual retainer of $9,000. The Advisory Board shall be
initially established for a one year term, provided, however, that
Sovereign Bank will use its best efforts to cause such persons to be
re-appointed for at least an additional one year term.
IN WITNESS WHEREOF, Sovereign and First Home have caused this Amendment to
the Agreement to be duly executed on its behalf by its officers thereunto duly
authorized as of this 1st day of May, 1998.
SOVEREIGN BANCORP, INC.
By: /s/ JAY S. SIDHU
----------------------------------
Name: Jay S. Sidhu
Title: President and Chief
Executive Officer
FIRST HOME BANCORP INC.
By: /s/ STEPHEN D. MILLER
----------------------------------
Name: Stephen D. Miller
Title: Chairman, President and
Chief Executive Officer
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<PAGE>
SECOND AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER
WHEREAS, Sovereign Bancorp, Inc. ("Sovereign") and First Home Bancorp Inc.
("First Home") entered into an Agreement and Plan of Merger, dated December 18,
1997 (the "Agreement"), which sets forth the terms and conditions pursuant to
which First Home will merge with and into Sovereign, with Sovereign being the
surviving corporation; and
WHEREAS, the Agreement was amended by a First Amendment to the Agreement
and Plan of Merger, dated as of May 1, 1998, and Sovereign and First Home desire
to further amend the Agreement.
NOW, THEREFORE, pursuant to the terms of Section 7.05 of the Agreement and
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Sovereign and First Home, intending to be legally bound, do
hereby adopt this Amendment and agree as follows:
1. Section 4.01(a)(iii) of the Agreement is deleted in its entirety
and replaced with the following:
"(iii) grant any severance or termination pay (other than
pursuant to written policies or written agreements of First
Home or First Home Subsidiaries in effect on the date hereof
and provided to Sovereign prior to the date hereof or as
otherwise agreed to in writing by Sovereign and First Home)
to, or enter into any new or amend any existing employment
agreement with, or increase the compensation of, any employee,
officer or director of First Home or any First Home
Subsidiary, except for routine periodic increases in salary
(estimated to be not in excess of $125,000 through June 30,
1998 and not to exceed $21,000 for each additional calendar
month or partial calendar month thereafter) and bonus required
by existing bonus plans (estimated to be not in excess of
$200,000 through June 30, 1998 and not to exceed $30,000 for
each additional calendar month or partial calendar month
thereafter);"
2. Section 4.01(a)(ix) of the Agreement is deleted in its entirety and
replaced with the following:
"(ix) implement any pension, retirement, profit sharing,
bonus, welfare benefit or similar plan or arrangement which
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 First Home may contribute to the First
Home employee stock ownership plan, to the extent accrued on
the First Home Financial Statements at and for periods prior
to the date of this Agreement, (i) up to $240,000 (consisting
of both voluntary and matching contributions) in January 1998
with respect to the year ending December 31, 1997 and (ii) a
pro-rated amount up to $240,000 (consisting of both voluntary
and matching contributions) prior to the Closing Date with
respect to the year ending December 31, 1998 (such amount to
be pro-rated based on the number of days elapsed from January
1, 1998 to the Closing Date);"
3. Section 4.11(c) of the Agreement is deleted in its entirety and
replaced with the following:
"(c) Severance Policy. Sovereign agrees to cause Sovereign
Bank to provide employees of First Home Savings whose
employment is terminated in connection with the Merger within
three (3) months after the conversion of First Home's system
to that of Sovereign's, 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 in a location within thirty (30) miles from
an employee's work location), and who do not at their election
cease performing services for
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<PAGE>
Sovereign or First Home, as applicable, prior to their final
termination date as set or adjusted by Sovereign, excluding
any employee who has an existing employment or consulting
agreement or whose employment is terminated for Cause (as
defined below), as follows, provided such employees execute
such documentation as Sovereign may reasonably require,
including Sovereign's customary form of release: (i) the
thirteen employees identified on First Home's Disclosure
Schedule shall be entitled to two weeks of base salary as
severance pay for each year of service with First Home or
First Home Savings, or Sovereign or any Sovereign Subsidiary,
with a two-week minimum; and (ii) employees other than the
thirteen employees identified on First Home's Disclosure
Schedule shall be entitled to one week of base salary as
severance pay for each year of service with First Home or
First Home Savings, or Sovereign or any Sovereign Subsidiary,
with a one-week minimum. For purposes of this Section 4.11(c),
"Cause" shall mean termination because of the employee's
personal dishonesty, failure to meet established performance
goals (which shall be reasonably established), willful
misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties or
willful violation of any law, rule or regulation (other than
traffic violations or similar offenses). The benefits provided
to terminated First Home or First Home Savings employees under
this subsection are the only severance benefits payable by
First Home or First Home Savings under any plan or policy
(excluding severance benefits provided under existing
employment or consulting agreements or as otherwise required
by law), except for employees who do not execute the
documentation required by Sovereign, which employees shall be
entitled to the termination benefits provided under First Home
Savings' severance policies. The benefits payable to First
Home employees under this subsection or otherwise shall in any
event 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."
4. Section 4.11(d) of the Agreement is deleted in its entirety and
replaced with the following:
"(d) Retention Bonuses. Notwithstanding subparagraph (c)
above, each employee of First Home or of First Home Savings
identified in the First Home Disclosure Schedule shall be
entitled to receive a "retention" bonus from First Home or
First Home Savings Bank as determined by the executive
officers of First Home (after consultation with Sovereign) and
as set forth on First Home's Disclosure Schedule in the event
that such employee remains an employee of First Home, First
Home Savings or Sovereign, as applicable, until the date the
systems conversion occurs or is involuntarily terminated prior
to the date of the systems conversion, but after the Effective
Date, and satisfactorily fulfills the duties and
responsibilities of the position of such employee of First
Home, First Home Savings or Sovereign, as the case may be,
through the date of systems conversion; provided that
retention bonuses, in the aggregate, shall not exceed
$250,000."
5. Section 6.01(b)(i) of the Agreement is deleted in its entirety and
replaced with the following:
"(i) if the Closing Date shall not have occurred on or
before September 30, 1998, unless the failure of such
occurrence shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe, in any
material respect, its agreements set forth in this Agreement
required to be performed or observed by such party on or
before the Closing Date;"
6. Except as amended hereby, the Agreement is ratified and confirmed
in all respects.
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<PAGE>
IN WITNESS WHEREOF, Sovereign and First Home have caused this Second
Amendment to the Agreement to be duly executed on its behalf by its officers
thereunto duly authorized as of this 22nd day of June 1998.
SOVEREIGN BANCORP, INC.
By: /s/ JAY S. SIDHU
---------------------------------------------
Name: Jay S. Sidhu
Title: President and Chief Executive Officer
FIRST HOME BANCORP INC.
By: /s/ STEPHEN D. MILLER
-----------------------------------------
Name: Stephen D. Miller
Title: Chairman, President and Chief
Executive Officer
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<PAGE>
FORM OF AFFILIATE LETTER
EXHIBIT 1
December 18, 1997
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Ladies and Gentlemen:
Sovereign Bancorp, Inc. ("Sovereign") and First Home Bancorp Inc. ("First
Home") desire to enter into an agreement dated December 18, 1997 ("Agreement"),
pursuant to which, subject to the terms and conditions set forth therein, (a)
First Home will merge with and into Sovereign with Sovereign surviving the
merger, and (b) shareholders of First Home will receive common stock of
Sovereign in exchange for common stock of First Home 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
First Home of the Agreement, that the undersigned, being directors, executive
officers and major shareholders of First Home, execute and deliver to Sovereign
this Letter Agreement.
Each of the undersigned, in order to induce Sovereign to execute and
deliver to First Home the Agreement, hereby irrevocably:
(a) Agrees to be present (in person or by proxy) at all meetings of
shareholders of First Home called to vote for approval of the Agreement and the
Merger so that all shares of common stock of First Home then owned by the
undersigned will be counted for the purpose of determining the presence of a
quorum at such meetings and to vote or cause to be voted all such shares 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 First Home);
(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 First Home,
to approve or adopt the Agreement;
(c) Agrees to use reasonable best efforts to cause the Merger to be
consummated; provided, however, that the undersigned shall not be required to
take any actions under this subparagraph in such person's capacity as a director
if the fiduciary duty of such person in such capacity legally requires otherwise
and such person is so advised in a written opinion of counsel;
(d) 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;
(e) 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
First Home 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 First Home have been published within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies
provided, however, that excluded from the foregoing
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<PAGE>
undertaking shall be such sales, pledges, transfers or other dispositions of
shares of First Home Common Stock or shares of Sovereign Common Stock which, in
the reasonable opinion of counsel for Sovereign, are individually and in the
aggregate de minimis within the meaning of Topic 2-E of the Staff Accounting
Bulletin Series of the Securities and Exchange Commission;
(f) Agrees that neither First Home nor Sovereign shall not be bound by any
attempted sale of any shares of First Home Common Stock or Sovereign common
stock, respectively, and Sovereign's transfer agents 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;
(g) Acknowledges and agrees that the provisions of subparagraphs (d), (e)
and (f) hereof also apply to shares of Sovereign common stock received in the
Merger (or any shares of First Home common stock or of Sovereign common stock,
whether or not received in the Merger, for the period referred to in
subparagraph (e) 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;
(h) 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 (e) hereof; and
(i) 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 December 18, 1997, is by
and between SOVEREIGN BANK, ("Sovereign Bank"), and FIRST HOME SAVINGS BANK,
F.S.B. ("First Home 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. First Home Savings is a federal savings bank and a wholly-owned
subsidiary of First Home Bancorp Inc., a New Jersey corporation ("First Home").
The authorized capital stock of First Home Savings consists of 100 shares of
common stock, no par value ("First Home Savings Common Stock"), of which at the
date hereof 100 shares are issued and outstanding.
3. The respective Boards of Directors of Sovereign Bank and First Home
Savings deem the merger of First Home 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 First Home
Savings have adopted resolutions approving this Plan of Merger. The respective
Boards of Directors of Sovereign and First Home have adopted resolutions
approving an Agreement dated December 18, 1997 (the "Agreement") between
Sovereign and First Home, pursuant to which this Plan of Merger is being
executed by Sovereign Bank and First Home 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, Sovereign Bank and First Home 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, on the Effective Date (as that term is defined in Article V hereof):
First Home Savings shall merge with and into Sovereign Bank; the separate
existence of First Home Savings shall cease; and Sovereign Bank shall be the
resulting bank (such transaction referred to herein as the "Merger" and
Sovereign Bank, as the resulting bank in the Merger, referred to herein as the
"Surviving Bank"). The name of the Surviving Bank shall be "Sovereign 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 be the Charter and
Bylaws of the Surviving Bank, and may thereafter be amended in accordance with
applicable law.
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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. Directors shall be
elected annually and shall hold office until their successors are elected and
qualified. The names and residence addresses of the directors are:
NAME RESIDENCE ADDRESS
- ---- -----------------
Joseph P. Gemmell............................ [intentionally omitted]
Brian Hard................................... [intentionally omitted]
Stewart B. Kean.............................. [intentionally omitted]
Joseph E. Lewis.............................. [intentionally omitted]
F. Joseph Loeper............................. [intentionally omitted]
Dennis S. Marlo.............................. [intentionally omitted]
Richard E. Mohn.............................. [intentionally omitted]
Rhoda S. Oberholtzer......................... [intentionally omitted]
Patrick J. Petrone........................... [intentionally omitted]
Daniel K. Rothermel.......................... [intentionally omitted]
Elizabeth B. Rothermel....................... [intentionally omitted]
Robert A. Sadler............................. [intentionally omitted]
Jay S. Sidhu................................. [intentionally omitted]
Cameron C. Troilo............................ [intentionally omitted]
G. Arthur Weaver............................. [intentionally omitted]
Dr. Paul B. Wieand........................... [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:
<TABLE>
<CAPTION>
NAME TITLE
- ---- -----
<S> <C>
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
</TABLE>
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ARTICLE IV
CONVERSION OF SHARES
4.1 Stock of Sovereign Bank. Each share of Sovereign Bank Common Stock
issued and outstanding immediately prior to the Effective Date shall, on and
after the Effective Date, continue to be issued and outstanding as a share of
common stock of the Surviving Bank.
4.2 Stock of First Home Savings. Each share of First Home Savings Common
Stock issued and outstanding immediately prior to the Effective Date, and each
share of First Home Savings Common Stock issued and held in the treasury of
First Home 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 articles of combination
executed by Sovereign Bank and First Home Savings are filed with and endorsed by
the Office of Thrift Supervision ("OTS") pursuant to 12 C.F.R. Section
552.13(k), unless a later date as specified in such articles of combination (the
"Effective Date"). The Merger shall not be effective unless and until (i) the
Merger receives any necessary approval from the OTS pursuant to 12 CFR Section
563.22(a) or (c), (ii) in the case the Merger requires a notification pursuant
to 12 CFR Section 563.22(b), notification has been provided to the OTS, or (iii)
in the case of Merger requires notice pursuant to 12 CFR Section 563.22(c), the
notice has been filed, and the appropriate period of time has passed or the OTS
has advised the parties that it will not disapprove the Merger.
ARTICLE VI
EFFECT OF THE MERGER
6.1 Separate Existence. On the Effective Date, the separate existence of
First Home Savings shall cease. As provided in 12 CFR Section552.13(l), as of
the Effective Date, all of the assets, properties, obligations and liabilities
of every kind and character, real, personal and mixed, tangible and intangible,
chosen in action, rights, and credits then owned by either the Sovereign Bank or
First Home Savings, or which would inure or be subject to either of them, shall
immediately by operation of law and without any conveyance or transfer and
without any further act or deed, be vested in and become the assets, property,
obligations and liabilities of the Surviving Bank which shall have, hold and
enjoy the same in its own right as fully and to the same extent as the same were
possessed, held and enjoyed by the Sovereign Bank and First Home Savings
immediately prior to the Effective Date. The Surviving Bank shall be deemed to
be and shall be a continuation of the entity and identity both of the Sovereign
Bank of First Home Savings and the rights and obligations of the Sovereign Bank
and of First Home Savings shall remain unimpaired; and the Surviving Bank, upon
the consummation of the Merger, shall succeed to all of such rights and
obligations and the duties and liabilities connected therewith.
6.2 Savings Accounts. As of the Effective Date, all savings accounts of
First Home Savings shall be and become savings accounts in the Surviving Bank
without change in their respective terms, maturity, minimum required balances or
withdrawal value. Each savings account of First Home Savings shall, as of the
Effective Time Date, be considered, for purpose of interest declared by the
Surviving Bank thereafter, as if it had been a savings account of the Surviving
Bank at the time said savings account was opened in First Home Savings and at
all times thereafter until such account ceases to be a savings account of the
Surviving Bank. Appropriate evidence of savings account ownership interest in
the Surviving Bank shall be provided, as necessary, after consummation of the
merger by the Surviving Bank to each savings account holder of First Home
Savings.
All savings accounts of Sovereign Bank prior to consummation of the merger
shall, as of the Effective Date, continue to be savings accounts in the
Surviving Bank without any change whatsoever
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in any of the provisions of such savings accounts, including, without
limitation, their respective terms maturity, minimum required balances or
withdrawal value.
6.3 Liquidation Account. After the Effective Date, Sovereign Bank will
continue to maintain the Sovereign Bank liquidation account for the benefit of
eligible account holders on the same basis as immediately prior to the Effective
Date, and First Home Savings' liquidation account for the benefit of eligible
account holders shall automatically be deemed assumed in full by Sovereign Bank,
as of the Effective Date, on the same basis as it existed immediately prior to
the Effective Date.
ARTICLE VII
CONDITIONS PRECEDENT
The obligations of Sovereign Bank and First Home 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 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.
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IN WITNESS WHEREOF, Sovereign Bank and First Home 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
By /s/ JAY S. SIDHU
-----------------------------------
Jay S. Sidhu
President
FIRST HOME SAVINGS BANK, F.S.B.
By /s/ STEPHEN D. MILLER
-----------------------------------
Stephen D. Miller,
Chairman of the Board,
President and Chief Executive
Officer
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<PAGE>
EXHIBIT "A"
TO PLAN OF MERGER
SOVEREIGN BANK
BRANCH LOCATIONS
[INTENTIONALLY OMITTED.]
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EXHIBIT 4
FORM OF AGREEMENT RE: BENEFITS
December 18, 1997
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Gentlemen:
I, the undersigned, hereby acknowledge and agree that an amount equal to
the lesser of (i) $__ or (ii) the highest amount which does not result in a loss
of federal income tax deduction under IRC Section 280G to First Home or
Sovereign with respect to any portion of such amount is the maximum amount that
I would be entitled to receive from First Home, any First Home 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 First Home or any First Home subsidiary
(or any of their respective successors or assigns) were terminated for any
reason, whether voluntarily or involuntarily, on December 31, 1997, and the
Closing Date were to occur on such termination date. 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 December 31, 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. I
acknowledge and agree that the amount actually payable to me, as a result of
reductions necessary to avoid excise tax payments and loss of federal income tax
deduction under IRC Section 280G, may be less than the total amounts otherwise
payable under the terms of any such agreement or plan.
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 as hereinbefore
specified, 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 First Home's employee benefit
plans and past practices for routine increases.
Sincerely,
Acknowledged and Agreed to:
SOVEREIGN BANK, INC.
By ___________________________________
Title ________________________________
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EXHIBIT 5
FORM OF OPINION OF COUNSEL TO SOVEREIGN
First Home 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 the requisite corporate power to
perform their obligations under 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
authorized by all necessary corporate action on the part of Sovereign and
Sovereign Bank, and the Agreement and the Plan are enforceable in accordance
with their respective terms and constitute valid and legally binding obligations
of Sovereign and Sovereign Bank, respectively, except to the extent
enforceability, validity and the legally binding nature 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 material 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
business, properties, 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, or to such counsel's
knowledge, of any third party, 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 or where the failure to obtain such approval, consent, authorization or
order would not have a material adverse effect on the consummation of the
transactions contemplated by the Agreement and Plan of Merger.
(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 in accordance with the Agreement and the Plan, the mergers of Sovereign and
First Home and of Sovereign Bank and First Home 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.
(f) The shares of Sovereign Common Stock to be issued in connection with
the merger of First Home and Sovereign contemplated by the Agreement have been
duly authorized and will, when issued
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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).
In addition to the foregoing opinions, such counsel shall state that 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 statements,
notes to the financial statements and financial tables, financial schedules and
other financial or statistical data contained therein and the stock valuation
information included or incorporated by reference therein and except for any
information supplied by First Home or First Home 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
statement, 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 and
that it is relying as to materiality as to factual matters or certificates of
officers and representations of the parties to the Agreement and other factual
representations of Sovereign and Sovereign Bank.
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EXHIBIT 6
FORM OF TAX OPINION OF STEVENS & LEE
Sovereign and First Home shall have received an opinion of Stevens & Lee
substantially to the effect that, under the provisions of the IRC:
1. The Merger will constitute a reorganization within the meaning of IRC
Section 368(a)(1)(A).
2. First Home and Sovereign will each be "a party to a reorganization"
within the meaning of IRC Section 368(b).
3. Neither First Home nor Sovereign will recognize any gain or loss upon
the transfer of First Home's assets to Sovereign in exchange solely for
Sovereign Common Stock (including any fractional share interests) and the
assumption by Sovereign of the liabilities of First Home.
4. The basis of the First Home assets in the hands of Sovereign will be the
same as the basis of such assets in the hands of First Home immediately prior to
the Merger.
5. The holding period of the assets of First Home to be received by
Sovereign will include the period during which the assets were held by First
Home.
6. No gain or loss will be recognized by the shareholders of First Home on
the receipt of Sovereign Common Stock (including any fractional share interests)
solely in exchange for their shares of First Home Common Stock.
7. The basis of the Sovereign Common Stock (including any fractional share
interests) to be received by the First Home shareholders in the Merger will be
the same as the basis of the First Home Common Stock surrendered in exchange
therefor.
8. The holding period of the Sovereign Common Stock (including any
fractional share interests) to be received by the First Home shareholders in the
Merger will include the period during which the First Home shareholders held
their First Home Common Stock, provided the shares of First Home Common Stock
are held as a capital asset on the Effective Date of the Merger.
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 distributions in full
payment in exchange for the fractional share interests redeemed, as provided in
IRC Section 302(a).
10. The Rights transferred with the shares of Sovereign Common Stock will
not constitute "other property" within the meaning of IRC Section 356(a)(1)(B).
11. As provided in IRC Section 381(c)(2) and related Treasury regulations,
Sovereign will succeed to and take into account the earnings and profits, or
deficit in earnings and profits, of First Home as of the Effective Date of the
Merger. Any deficit in the earnings and profits of Sovereign or First Home will
be used only to offset the earnings and profits accumulated after the Merger.
12. Pursuant to IRC Section 381(a) and related Treasury regulations,
Sovereign will succeed to and take into account the items of First Home
described in IRC Section 381(c). Such items will be taken into account by
Sovereign subject to the conditions and limitations of IRC Sections 381, 382,
383, and 384 and the Treasury regulations thereunder.
13. The Bank Merger will constitute a reorganization within the meaning of
IRC Section 368(a)(1)(A).
14. First Home Savings and Sovereign Bank will each be "a party to a
reorganization" within the meaning of IRC Section 368(b).
15. Neither First Home Savings nor Sovereign Bank will recognize any gain
or loss upon the transfer of First Home Savings' assets to Sovereign Bank in
constructive exchange solely for
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Sovereign Bank Common Stock and the assumption by Sovereign Bank of the
liabilities of First Home Savings.
16. The basis of the First Home Savings assets in the hands of Sovereign
Bank will be the same as the basis of such assets in the hands of First Home
Savings immediately prior to the Bank Merger.
17. The holding period of the First Home Savings assets in the hands of
Sovereign Bank will include the period during which such assets were held by
First Home Savings.
18. No gain or loss will be recognized by Sovereign, as the shareholder of
First Home Savings, upon the constructive receipt of shares of Sovereign Bank
Common Stock in exchange for the First Home 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 First Home Savings Common Stock
surrendered in the constructive exchange.
20. As provided in IRC Section 381(c)(2) and related Treasury regulations,
Sovereign Bank will succeed to and take into account the earnings and profits,
or deficit in earnings and profits, of First Home Savings as of the effective
date of the Bank Merger. Any deficit in the earnings and profits of Sovereign
Bank or First Home Savings will be used only to offset the earnings and profits
accumulated after the Bank Merger.
21. Pursuant to IRC Section 381(a) and related Treasury regulations,
Sovereign Bank will succeed to and take into account the items of First Home
Savings described in IRC Section 381(c). Such items will be taken into account
by Sovereign Bank subject to the conditions and limitations of IRC Sections 381,
382, 383, and 384 and the Treasury regulations thereunder.
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EXHIBIT 7
FORM OF OPINION OF COUNSEL TO FIRST HOME
Sovereign shall have received from counsel to First Home, an opinion, dated
as of the Closing Date, substantially to the effect that, subject to normal
exceptions and qualifications:
(a) First Home and First Home Savings have the requisite corporate power to
perform their obligations under 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
authorized by all necessary corporate action on the part of First Home and First
Home Savings, and the Agreement and the Plan constitute valid and legally
binding obligations of First Home and First Home Savings, respectively,
enforceable in accordance with their respective terms, except to the extent
enforceability, validity and the legally binding nature may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship, and other laws now or hereafter in effect, whether statutory or
decisional relating to creditors' rights generally or the rights of creditors of
federal savings banks and their holding companies, (ii) the exercise of judicial
discretion in applying principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity); and (iii)
laws related to the safety and soundness of insured depository institutions;
provided that no opinion be rendered as to the effect or availability of
equitable remedies or injunctive relief. Subject to satisfaction of the
conditions set forth in the Agreement, neither the transactions contemplated in
the Agreement and the Plan, nor compliance by First Home and First Home 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
First Home or the charter or bylaws of First Home Savings, or (B) based on
certificates of officers and without independent verification, to the knowledge
of such counsel, any material note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which First Home or First Home
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 First Home or First Home 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 federal banking or New
Jersey statute, rule or regulation applicable to First Home or First Home
Savings.
(b) First Home Savings 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 First Home Savings are insured to the maximum extent
provided by law by the Savings Association Insurance Fund of 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 First Home or First Home Savings is a party which would, if determined
adversely to First Home or First Home Savings, have a material adverse effect on
the business, properties, results of operations, or financial condition of First
Home or First Home 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 to such counsel's
knowledge, of any third party, is required for the consummation by First Home or
First Home Savings of the transactions contemplated by the Agreement and the
Plan, except for such consents, approvals, authorizations or orders as have been
obtained or where the failure to obtain such consent, approval, authorization,
or order would not have a material adverse effect on the consummation of the
transaction contemplated by the Agreement and Plan of Merger.
In addition to the foregoing opinions, such counsel shall state that on the
sole basis of such counsel's participation in conferences with officers and
employees of First Home 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
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amendments or supplements thereto (except for the financial information,
financial statements, notes to financial statements and financial tables,
financial schedules and other financial or statistical data contained therein
and the stock valuation information included or incorporated by reference
therein and except for any information supplied by Sovereign or a party other
than First Home 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 First Home 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 statement, 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 First Home or First Home
Savings or the transactions contemplated in the Agreement and the Plan and that
it is relying as to materiality as to factual matters on certificates of
officers' and representations of the parties to the Agreement and other factual
representations of First Home and First Home Savings.
Counsel's opinion may provide that (i) such counsel's opinion is governed
by the ABA Third Party Opinion Accord, (ii) such counsel's opinion is limited to
the laws of the State of New Jersey and the banking and securities laws of the
United States of America, and (iii) such counsel relied upon appropriate
certificates of public officials and officers of First Home and First Home
Savings as to certain factual matters.
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ANNEX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Stock Option Agreement") dated December 18,
1997, is by and between SOVEREIGN BANCORP, INC., a Pennsylvania corporation
("Sovereign") and FIRST HOME BANCORP INC., a New Jersey corporation ("First
Home").
BACKGROUND
1. Sovereign and First Home desire to enter into an Agreement and Plan of
Merger, dated December 18, 1997 (the "Agreement"), providing, among other
things, for the acquisition by Sovereign of First Home through the merger of
First Home with and into Sovereign, with Sovereign surviving the merger (the
"Merger").
2. As a condition to Sovereign to enter into the Plan, First Home is
granting to Sovereign an option to purchase up to that number of shares of
common stock, no par value (the "Common Stock"), of First Home as shall equal
19.9% of shares of Common Stock of First Home 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 First Home, intending to be legally bound
hereby, agree:
1. Grant of Option. First Home hereby grants to Sovereign, on the terms
and conditions set forth herein, the option to purchase (the "Option") up to
538,975 shares (as adjusted as set forth herein, the "Option Shares") of Common
Stock of First Home at a price per share (as adjusted as set forth herein, the
"Option Price") equal to $30.00, provided, however, that in no event shall the
number of Option Shares for which the Option is exercisable exceed 19.9% of the
issued and outstanding shares of Common Stock of First Home without giving
effect to any shares subject to or issued pursuant to the Option.
2. Exercise of Option. Provided that (i) Sovereign shall not be on the
date of exercise in breach of the agreements or covenants contained in the
Agreement or herein, 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 23, 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, letter of intent, or similar document
with First Home 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 First Home, (ii) acquire all or substantially all
of the assets or liabilities of First Home or all or substantially all of
the assets or liabilities of First Home Savings, the wholly-owned
subsidiary of First Home ("First Home Savings"), or (iii) acquire
beneficial ownership of securities representing, or the right to acquire
beneficial ownership or to vote
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securities representing, 10% or more of the then outstanding shares of
Common Stock (excluding any shares eligible to be reported on Schedule 13G
of the Securities and Exchange Commission) or the then outstanding shares
of common stock of First Home 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 First Home or all or substantially all the assets
or liabilities of First Home Savings, or any other business combination
involving First Home or First Home 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 First Home 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 First Home called to vote on the Merger,
First Home's shareholders fail to approve the Merger by the vote required
by applicable law at the meeting of shareholders called for such purpose or
such meeting has been cancelled; or
(d) a person or group, other than Sovereign or an affiliate of
Sovereign, makes a bona fide Proposal and thereafter, but before such
Proposal has been Publicly Withdrawn, First Home 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) First Home 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 2 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 First Home 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 First Home 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 First Home 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.
First Home 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 First Home shall not be a condition to the right of Sovereign to
exercise the Option. Subject to compliance with the applicable banking and
securities laws or regulations, First Home will not take any action which would
have the effect of preventing or disabling First Home 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 First Home (the
date
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of which is hereinafter referred to as the "Notice Date") specifying the total
number of Option Shares it wishes to purchase and a place and date between two
and ten business days inclusive from the Notice Date for the closing of such a
purchase (a "Closing"); provided, however, that a Closing shall not occur prior
to two days after the later of receipt of any necessary regulatory approvals or
the expiration of any legally required notice or waiting period, if any.
3. Repurchase of Option by First Home.
(a) At the request of Sovereign at any time commencing upon the first
occurrence of a Repurchase Event (as defined in Section 3(d)) and ending 18
months immediately thereafter, First Home shall repurchase from Sovereign
(x) the Option and (y) all shares of Common Stock purchased by Sovereign
pursuant hereto with respect to which Sovereign then has beneficial
ownership. The date on which Sovereign exercises its rights under this
Section 3 is referred to as the "Request Date." Such repurchase shall be at
an aggregate price (the "Section 3 Repurchase Consideration") equal to the
sum of: (i) the aggregate Purchase Price paid by Sovereign for any shares
of Common Stock acquired pursuant to the Option with respect to which
Sovereign then has beneficial ownership; (ii) the excess, if any, of (x)
the Applicable Price (as defined below) for each share of Common Stock over
(y) the Option Price (subject to adjustment pursuant to Section 6),
multiplied by the number of shares of Common Stock with respect to which
the Option has not been exercised; and (iii) the excess, if any, of the
Applicable price over the Option Price (subject to adjustment pursuant to
Section 6) paid (or, in the case of Option Shares with respect to which the
Option has been exercised, but the Closing has not occurred, payable) by
Sovereign for each share of Common Stock with respect to which the Option
has been exercised and with respect to which Sovereign then has beneficial
ownership, multiplied by the number of such shares.
(b) If Sovereign exercises its rights under this Section 3, First Home
shall, within ten (10) business days after the Request Date, pay the
Section 3 Repurchase Consideration to Sovereign in immediately available
funds, and contemporaneously with such payment, Sovereign shall surrender
to First Home the Option and the certificate evidencing the shares of
Common Stock purchased thereunder with respect to which Sovereign then has
beneficial ownership, and Sovereign shall warrant that it has sole record
and beneficial ownership of such shares, and that the same are then free
and clear of all liens, claims, charges and encumbrances of any kind
whatsoever. Notwithstanding the foregoing, to the extent that prior
notification to or approval of any banking agency or department of any
federal or state government, including without limitation the OTS, the
FDIC, or the respective staffs thereof (the "Regulatory Authority"), is
required in connection with the payment of all or any portion of the
Section 3 Repurchase Consideration, Sovereign shall have the ongoing option
to revoke its request for repurchase pursuant to Section 3, in whole or in
part, or to require that First Home deliver from time to time that portion
of the Section 3 Repurchase Consideration that it is not then so prohibited
from paying and promptly file the required notice or application for
approval and expeditiously process the same (and each party shall cooperate
with the other in the filing of any such notice or application and the
obtaining of any such approval), in which case the ten (10) business day
period of time that would otherwise run pursuant to the preceding sentence
for the payment of the portion of the Section 3 Repurchase Consideration
shall run instead from the date on which, as the case may be, any required
notification period has expired or been terminated or such approval has
been obtained and, in either event, any requisite waiting period shall have
passed. If any Regulatory Authority disapproves of any part of First Home's
proposed repurchase pursuant to this Section 3, First Home shall promptly
give notice of such fact to Sovereign. If any Regulatory Authority
prohibits the repurchase pursuant to this Section 3, First Home shall
promptly give notice of such fact to Sovereign. If any Regulatory Authority
prohibits the repurchase in part but not in whole, then Sovereign shall
have the right (i) to revoke the repurchase request or (ii) to the extent
permitted by such Regulatory Authority, determine whether the repurchase
should apply to the Option and/or Option Shares and to what extent to each,
and Sovereign shall thereupon have the right to exercise the Option as to
the number of Option Shares for which the Option was exercisable at the
Request Date less the sum of the number of shares covered by the Option in
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<PAGE>
respect of which payment has been made pursuant to Section 3(a)(ii) and the
number of shares covered by the portion of the Option (if any) that has
been repurchased. Sovereign shall notify First Home of its determination
under the preceding sentence within five (5) business days of receipt of
notice of disapproval of the repurchase.
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share of Common Stock paid for any
such share by the person or groups described in Section 3(d)(i), (ii) the
price per share of Common Stock received by a holder of Common Stock in
connection with any merger or other business combination transaction
described in Section 3(d)(ii), (iii) or (iv), or (iii) the highest closing
sales price per share of Common Stock quoted on the Nasdaq Stock Market
during the 40 business days preceding the Request Date; provided, however,
that in the event of a sale of less than all of First Home's assets, the
Applicable Price shall be the sum of the price paid in such sale for such
assets and the current market value of the remaining assets of First Home
as determined by a nationally-recognized investment banking firm selected
by Sovereign, divided by the number of shares of Common Stock outstanding
at the time of such sale. If the consideration to be offered, paid or
received pursuant to either of the foregoing clauses (i) or (ii) shall be
other than in cash, the value of such consideration shall be determined in
good faith by an independent nationally-recognized investment banking firm
selected by Sovereign and reasonably acceptable to First Home, which
determination shall be conclusive for all purposes of this Agreement.
(d) As used herein, a Repurchase Event shall occur if (i) any person
or group (as such terms are defined in 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, or the right to acquire beneficial ownership of, 10% or
more of the then-outstanding shares of Common Stock, (ii) First Home shall
have merged or consolidated with any person, other than Sovereign or an
affiliate of Sovereign, and shall not be the surviving or continuing
corporation of such merger or consolidation, (iii) any person, other than
Sovereign or an affiliate of Sovereign, shall have merged into First Home
and First Home shall be the surviving corporation, but, in connection with
such merger, the then-outstanding shares of Common Stock have been changed
into or exchanged for stock or other securities of First Home or any other
person or cash or any other property or the outstanding shares of Common
Stock immediately prior to such merger shall after such merger represent
less than 50% of the outstanding shares and share equivalents of the
surviving corporation or (iv) First Home shall have sold or otherwise
transferred more than 10% of its consolidated assets to any person, other
than Sovereign or an affiliate of Sovereign.
4. Payment and Delivery of Certificates. At any Closing hereunder, (a)
Sovereign will make payment to First Home of the aggregate price for the Option
Shares so purchased by wire transfer of immediately available funds to an
account designated by First Home, (b) First Home will deliver to Sovereign a
stock certificate or certificates representing the number of Option Shares so
purchased, registered in the name of Sovereign or its designee, in such
denominations as were specified by Sovereign in its notice of exercise, and (c)
Sovereign will pay any transfer or other taxes required by reason of the
issuance of the Option Shares so purchased.
A legend will be placed on each stock certificate evidencing Option Shares
issued pursuant to this Stock Option Agreement, which legend will read
substantially as follows:
"The shares of stock evidenced by this certificate have not been
the subject of a registration statement filed under the Securities Act
of 1933, as amended (the 'Act'), and declared effective by the
Securities and Exchange Commission. These shares may not be sold,
transferred or otherwise disposed of prior to such time unless First
Home Corp. receives an opinion of counsel reasonably acceptable to it
stating that an exemption from the registration provisions of the Act
is available for such transfer."
5. Registration Rights. Upon or after the occurrence of a Triggering Event
and upon receipt of a written request from Sovereign, First Home shall prepare
and file as soon as practicable a registration
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statement under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission covering the Option and such number
of Option Shares as Sovereign shall specify in its request, and First Home 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 First Home shall not be required to prepare and file any such registration
statement in connection with any proposed sale with respect to which counsel to
First Home delivers to First Home 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 First Home may
delay any registration of Option Shares above for a period not exceeding 90 days
in the event that First Home shall in good faith determine that any such
registration would adversely affect an offering or contemplated offering of
other securities by First Home. Sovereign shall provide all information
reasonably requested by First Home for inclusion in any registration statement
to be filed hereunder. In connection with such filing, First Home shall use its
commercially reasonable 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. First Home 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 First Home in complying with the
provisions of this Section 5, including, without limitation, all registration
and filing fees, reasonable printing expenses, reasonable fees and disbursements
of counsel for First Home and blue sky fees and expenses, shall be paid by First
Home. 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, First Home 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 First Home 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 First Home will not be
liable in any case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such preliminary or final registration
statement or such amendment or supplement thereto in reliance upon and in
conformity with written information furnished by or on behalf of Sovereign
specifically for use in the preparation thereof. Sovereign will indemnify and
hold harmless First Home 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 First Home for any legal or other expense reasonably
incurred by First Home in connection with investigating or defending any such
loss, claim, damage, liability or action. Notwithstanding anything to the
contrary contained herein, no indemnifying party shall be liable for any
settlement effected without its prior written consent.
6. 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.
7. Filings and Consents. Each of Sovereign and First Home will use its
commercially reasonable efforts to make all filings with, and to obtain consents
of, all third parties and governmental
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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 Schedule 13D with the Securities
and Exchange Commission under the Exchange Act which discloses the rights of
Sovereign hereunder.
8. Representations and Warranties of First Home. First Home hereby
represents and warrants to Sovereign as follows:
(a) Due Authorization. First Home has the requisite 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 First Home. This
Stock Option Agreement constitutes a legal, valid and binding obligation of
First Home, enforceable against First Home 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. First Home 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.
9. Representations and Warranties of Sovereign. Sovereign hereby
represents and warrants to First Home that Sovereign has the requisite 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). Sovereign or its
assignee agrees to execute a standard investment representation letter with
respect to its acquisition of any First Home securities acquired in connection
with this transaction.
10. 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.
11. 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.
12. 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 subject to
compliance with applicable securities laws. Sovereign represents that it is
acquiring the Option for Sovereign's own account and not with a view to, or for
sale in connection with, any distribution of the Option or the Option Shares.
Sovereign is aware that neither the Option nor the Option Shares is the subject
of a registration statement filed with, and declared effective by, the
Securities and Exchange Commission pursuant to Section 5 of the Securities Act,
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.
13. 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.
14. 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.
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15. 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
William J. Reynolds
Telecopy No.: (610) 376-5610
(ii) If to First Home, to:
First Home Bancorp Inc.
125 South Broadway
Pennsville, New Jersey 08070
Attention: Stephen D. Miller,
Chairman of the Board, President
and Chief Executive Officer
Telecopy No.: (609) 678-8304
with copies to:
Blank Rome Comisky & McCauley
One Logan Square
Philadelphia, Pennsylvania 19103
Attention: Barry H. Genkin, Esquire
Telecopy No.: (215) 988-6910
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).
16. 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.
17. 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.
18. 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.
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19. 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.
20. 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.
21. Expenses. 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.
22. Defined Terms. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Agreement.
23. 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 (i) the Agreement is terminated by Sovereign pursuant to Section
6.01(b)(i) of the Agreement or pursuant to Section 6.01(d) of the Agreement
(provided the failure of the occurrence of the event specified in Section
6.01(b)(i) of the Agreement shall be due to the failure of First Home to perform
or observe its agreements set forth in the Agreement required to be performed or
observed by First Home 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 or (ii) the Agreement is terminated as a result of
the failure of First Home shareholders to approve the Agreement following either
a withdrawal or modification by a director of First Home of a prior
recommendation to approve the Agreement or a failure of a director of First Home
to recommend approval of the Agreement, this Stock Option Agreement shall not
terminate until one year after the date of termination of the Agreement.
IN WITNESS WHEREOF, each of the parties hereto, pursuant to resolutions
adopted by its Board of Directors, has caused this Stock Option Agreement to be
executed by its duly authorized officer and has caused its corporate seal to be
affixed hereunto and to be duly attested, all as of the day and year first above
written.
SOVEREIGN BANK
By /s/ JAY S. SIDHU
-----------------------------------
Jay S. Sidhu
President and Chief Executive
Officer
FIRST HOME BANCORP INC.
By /s/ STEPHEN D. MILLER
-----------------------------------
Stephen D. Miller,
Chairman of the Board,
President and Chief Executive
Officer
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ANNEX C
[RP Financial Letterhead]
June 26, 1998
Board of Directors
First Home Bancorp, Inc.
125 South Broadway
Pennsville, New Jersey 08070
Members of the Board:
You have requested RP Financial, LC. ("RP Financial") to provide you with
its opinion as to the fairness from a financial point of view to the
shareholders of First Home Bancorp, Inc., Pennsville, New Jersey (the
"Company"), of the Agreement and Plan of Merger, as amended (the "Agreement")
dated December 18, 1997, by and among Sovereign Bancorp, Inc., a Pennsylvania
corporation ("Sovereign") and the Company. The Agreement is incorporated herein
by reference. Unless otherwise defined, all capitalized terms incorporated
herein have the meanings ascribed to them in the Agreement.
Summary Description of Consideration
Each share of the common stock of the Company, no par value ("Company
Common Stock"), issued and outstanding immediately prior to the Effective Date
(other than shares of Company Common Stock, if any, then owned by Sovereign or
the Company or any Company 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 $15.00 and less
than or equal to $18.33, then that number of shares of Sovereign Common Stock,
and the corresponding percentage of Sovereign Stock Purchase Rights pursuant to
the Sovereign Stock Purchase Rights Agreement, equal to $31.25 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 $15.00,
then 2.083 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 $18.33, then 1.705
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 (the "Exchange Ratio"). If the Sovereign Market Price
determined as of the Effective Date shall be less than $11.25, then the Company
shall have the right to terminate the Merger, but Sovereign shall have the
option to increase the consideration to be received by the holders of the
Company Common Stock by adjusting the Exchange Ratio to equal to number obtained
by dividing $23.44 by the Sovereign Market Value and, if Sovereign so elects, no
termination shall have occurred and the Agreement shall remain in effect. Each
share of Company 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. Each share of Company Common Stock issued and held in the
treasury of the Company or owned by the Company or any Company 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. 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 Company 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.
C-1
<PAGE>
RP Financial Background and Experience
RP Financial, as part of its financial institution valuation and consulting
practice, is regularly engaged in the valuation of financial institution
securities in connection with mergers and acquisitions of commercial banks and
thrift institutions, initial and secondary stock offerings, mutual-to-stock
conversions of thrift institutions, and business valuations for other corporate
purposes for financial institutions. As specialists in the securities of
financial institutions, RP Financial has experience in, and knowledge of, the
New Jersey and the Mid-Atlantic U.S. markets for bank securities and financial
institutions operating in New Jersey.
Materials Reviewed
In rendering this fairness opinion, RP Financial reviewed the following
material: (1) the Agreement; (2) the draft of the Proxy Statement/Prospectus and
related Annexes included in the Form S-4 Registration Statement filed with the
Securities and Exchange Commission on June 25, 1998; (3) financial and other
information for the Company, all with regard to balance sheet and off-balance
sheet composition, profitability, interest rates, volumes, maturities, trends,
credit risk, interest rate risk, liquidity risk and operations including: (a)
audited financial statements for the fiscal years ended December 31, 1994
through 1997, (b) Form 10-K as of December 31, 1997 and Form 10-Q as of March
31, 1998, (c) shareholder, regulatory and internal financial and other reports
through March 31, 1998, (d) the two most recent proxy statements for the
Company, (e) internal budgets, financial projections and EPS forecasts prepared
by management, and (f) the Company's management comments regarding past and
current business, operations, financial condition, and future prospects; and (4)
financial and other information for Sovereign including: (a) audited financial
statements for the fiscal years ended December 31, 1994 through 1997,
incorporated in Annual Reports to shareholders and Form 10-Ks; (b) Form 10-Q as
of March 31, 1998 and interim results and developments through June 25, 1998
including regulatory filings and press releases; (c) regulatory and internal
financial and other reports through March 31, 1998, (d) internal budgets and
financial projections prepared by management of Sovereign and third parties,
inclusive of the anticipated pro forma impact of recent previously announced
merger transactions, and, (e) Sovereign's management comments regarding past and
current business, operations, financial condition, and future prospects.
In addition, RP Financial reviewed financial, operational, market area and
stock price and trading characteristics for Sovereign and the Company relative
to publicly-traded savings institutions, respectively, with comparable
resources, financial condition, earnings, operations and markets. RP Financial
also considered the economic and demographic characteristics in the local market
area, and the potential impact of the regulatory, legislative and economic
environments on operations for the Company and Sovereign and the public
perception of the thrift industry. RP Financial also considered: (a) a
transaction summary of the financial terms of the Merger, including the
aggregate consideration represented by the Exchange Ratio relative to fully
diluted book value, fully diluted earnings, fully diluted assets, and deposit
liabilities of the Company; (b) the financial terms, financial condition,
operating performance, and market area of other recently completed mergers and
acquisitions of comparable financial institution entities, including evaluating
Mid-Atlantic U.S. transactions both generally and specifically and U.S.
transactions nationwide where the selling institution's financial condition and
operations were comparable to those of the Company; (c) discounted cash flow
analyses for the Company on a stand-alone basis, incorporating the current
business plan including anticipated costs deemed necessary by management should
the Company determine to remain and operate as an independent institution and
future prospects of operating as an independent institution; and (d) the pro
forma impact of the Merger to the holders of Company Common Stock (incorporating
the Exchange Ratio, transaction adjustments, and potential earnings improvements
resulting from consolidation), including the resulting impact to the market
value per share, tangible book value per share, earnings per share, and
dividends per share of the Company Common Stock. RP Financial also considered
the more attractive liquidity characteristics of Sovereign Common Stock relative
to the Company Common Stock, the enhanced competitive position of Sovereign
resulting from the Merger, the greater return on equity of the Sovereign Common
Stock relative to the Company Common Stock, and the opportunities
C-2
<PAGE>
for Sovereign to increase earnings in the future. The results of these analyses
and the other factors considered were evaluated as a whole, with the aggregate
results indicating a range of financial parameters utilized to assess the
Exchange Ratio as described in the Agreement.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning the
Company and Sovereign furnished by the respective institutions to RP Financial
for review, as well as publicly-available information regarding other financial
institutions and economic and demographic data. Neither the Company nor
Sovereign restricted RP Financial as to the material it was permitted to review.
RP Financial did not perform or obtain any independent appraisals or evaluations
of the assets and liabilities and potential and/or contingent assets of
liabilities of the Company or Sovereign. The financial forecasts and budgets
reviewed by RP Financial were prepared by the managements of the Company and
Sovereign. Neither the Company nor Sovereign publicly discloses internal
management forecasts or budgets of the type provided to RP Financial in
connection with the review of the Merger, and such financial forecasts were not
prepared with a view towards public disclosure. The financial forecasts and
budgets were based upon numerous variables and assumptions which are inherently
uncertain, including without limitation factors related to general economic and
competitive conditions, as well as trends in asset quality. Accordingly, actual
results could vary significantly from those set forth in such financial
forecasts.
RP Financial expresses no opinion on matters of a legal, regulatory, tax or
accounting nature or the ability of the Merger as set forth in the Agreement to
be consummated. In rendering its opinion, RP Financial assumed that, in the
course of obtaining the necessary regulatory and governmental approvals for the
proposed Merger, no restriction will be imposed on Sovereign that would have a
material adverse effect on the ability of the Merger to be consummated as set
forth in the Agreement.
Opinion
It is understood that this letter is directed to the Board of Directors of
the Company in its consideration of the Agreement, and does not constitute a
recommendation to any shareholder of the Company as to any action that such
shareholder should take in connection with the Agreement, or otherwise.
It is understood that this opinion is based on market conditions and other
circumstances existing on the date hereof.
It is understood that this opinion may be included in its entirety in any
communication by the Company or its Board of Directors to the stockholders of
the Company. It is also understood that this opinion may be included in its
entirety in any regulatory filing by Sovereign or the Company, and that RP
Financial consents to the summary of the opinion in the proxy materials of the
Company, and any amendments thereto. Except as described above, this opinion may
not be summarized, excerpted from or otherwise publicly referred to without RP
Financial's prior written consent.
Based upon and subject to the foregoing, and other such matters considered
relevant, it is RP Financial's opinion that, as of the date hereof, the Exchange
Ratio, as described in the Agreement, is fair to such shareholders from a
financial point of view.
Respectfully submitted,
RP FINANCIAL, LC.
C-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pennsylvania law provides that a Pennsylvania corporation may indemnify
directors, officers, employees and agents of the corporation against liabilities
they may incur in such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify the person
under any provision of law, unless such action or failure to act is determined
by a court to have constituted recklessness or willful misconduct. Pennsylvania
law also permits the adoption of a bylaw amendment, approved by shareholders,
providing for the elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the director has
breached or failed to perform the duties of his office and (2) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
The bylaws of Sovereign provide for (1) indemnification of directors,
officers, employees and agents of the registrant and its subsidiaries and (2)
the elimination of a director's liability for monetary damages, to the fullest
extent permitted by Pennsylvania law.
Directors and officers are also insured against certain liabilities for
their actions, as such, by an insurance policy obtained by Sovereign.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger dated as of December 18, 1997,
between Sovereign Bancorp, Inc. and First Home Bancorp Inc.,
as amended (included as Annex A to the Proxy Statement
Prospectus). Schedules are omitted; Sovereign Bancorp, Inc.
agrees to furnish copies of such schedules to the Commission
upon request.
2.2 Stock Option Agreement dated December 18, 1997, between
Sovereign Bancorp, Inc. and First Home Bancorp Inc.
(included as Annex B to the Proxy Statement/Prospectus).
3.1 Articles of Incorporation, as amended, of Sovereign Bancorp,
Inc. (Incorporated by reference to Exhibit 3.1 of
Sovereign's Annual Report on Form 10-K for the year ended
December 31, 1995.)
3.2 Bylaws of Sovereign Bancorp, Inc. (Incorporated by reference
to Exhibit 3.2 of Sovereign's Annual Report on Form 10-K for
the year ended December 31, 1993.)
4. Sovereign Bancorp, Inc. has outstanding long-term debt that
does not exceed 10% of the total assets of Sovereign
Bancorp, Inc. and its consolidated subsidiaries; therefore,
copies of the constituent instruments defining the rights of
the holders of such debt are not included as exhibits to
this Registration Statement. Sovereign Bancorp, Inc. agrees
to furnish copies of such instruments to the Commission upon
request.
5.1 Opinion of Stevens & Lee re: Validity.**
8.1 Form of opinion of Stevens & Lee re: tax matters.**
10.1 Sovereign Bancorp, Inc. Stock Option Plan, as amended and
restated. (Incorporated by reference to Exhibit 10.1 to
Sovereign's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.)*
10.2 Sovereign Bancorp, Inc. 1993 Stock Option Plan.
(Incorporated by reference to Exhibit 10.21 to Sovereign's
Annual Report on Form 10-K for the year ended December 31,
1992.)*
10.3 Sovereign Bancorp, Inc. Employee Stock Purchase Plan.
(Incorporated by reference to Exhibit 4.1 to Sovereign's
Registration Statement No. 33-44108 on Form S-8.)*
10.4 Agreement dated as of March 1, 1997, between Sovereign
Bancorp, Inc., Sovereign Bank, and Jay S. Sidhu.
(Incorporated by reference to Exhibit 99.1 of Sovereign's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, as amended.)*
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
10.5 Agreement dated as of September 15, 1992, between Sovereign
Bank, a Federal Savings Bank, and Karl D. Gerhart.
(Incorporated by Reference to Exhibit 10.4 of Sovereign's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.)*
10.6 Agreement dated as of September 15, 1992, between Sovereign
Bank, a Federal Savings Bank, and Lawrence M. Thompson, Jr.
(Incorporated by reference to Exhibit 10.5 of Sovereign's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.)*
10.7 Penn Savings Bank Senior Officer Incentive Plan.
(Incorporated by reference to Exhibit 10.6 to Sovereign's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)*
10.8 Rights agreement dated September 19, 1989, between Sovereign
Bancorp, Inc. and Harris Trust Company of New York.
(Incorporated by reference to Exhibit 4.3 to Sovereign's
Registration Statement No. 33-89586 on Form S-8.)
10.9 Sovereign Bancorp, Inc. Non-Employee Director Incentive
Compensation Plan. (Incorporated by reference to Exhibit
10.12 to Sovereign's Registration Statement No. 33-43195 on
Form S-1.)*
10.10 Indemnification Agreement dated December 21, 1993, between
Sovereign Bank and Jay S. Sidhu. (Incorporated herein by
reference to Exhibit 10.25 to Sovereign's Annual Report on
Form 10-K for the year ended December 31, 1993.)*
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of KPMG Peat Marwick LLP, Independent Auditors.**
23.3 Consent of KPMG Peat Marwick LLP, Independent Auditors.**
23.4 Consent of Arthur Andersen LLP, Independent Auditors.**
23.5 Consent of Stevens & Lee, P.C. (contained in Exhibit 5.1).**
23.6 Consent of Stevens & Lee, P.C.**
23.7 Consent of RP Financial, LC
23.8 Consent of KPMG Peat Marwick LLP, Independent Auditors.
24.1 Powers of Attorney of Directors and Officers (included on
signature page hereof).
99.1 Form of Opinion of RP Financial, LC dated June 26, 1998
(included as Annex C to Proxy Statement/Prospectus).
99.2 Form of Proxy Card for the Special Meeting of Shareholders
of First Home Bancorp Inc.**
</TABLE>
- ------------------
* Denotes management contract or compensatory contract, plan or arrangement.
** Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES.
None required.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any fact or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
II-2
<PAGE>
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(c)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the applicable
form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the bylaws of the registrant, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Borough of
Wyomissing, Commonwealth of Pennsylvania, on June 22, 1998.
SOVEREIGN BANCORP, INC.
(Registrant)
By: /s/ Jay S. Sidhu
-------------------------------
Jay S. Sidhu,
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jay S. Sidhu, Karl D. Gerhart and Joseph M.
Harenza, and each of them, his true and lawful attorney-in-fact, as agent with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacity, to sign any or all amendments to this
Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as they might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman and Director June 22, 1998
- ----------------------------
Richard E. Mohn
/s/ Jay S. Sidhu Director, President and Chief Executive June 22, 1998
- ---------------------------- Officer (Principal Executive Officer)
Jay S. Sidhu
* Director June 22, 1998
- ----------------------------
Fred D. Hafer
* Director June 22, 1998
- ----------------------------
Rhoda S. Oberholtzer
* Director June 22, 1998
- ----------------------------
Patrick J. Petrone
* Director June 22, 1998
- ----------------------------
Daniel K. Rothermel
* Director June 22, 1998
- ----------------------------
Cameron C. Troilo
* Director June 22, 1998
- ----------------------------
G. Arthur Weaver
/s/ Dennis S. Marlo Chief Financial Officer June 22, 1998
- ----------------------------
Dennis S. Marlo
* Chief Accounting Officer June 22, 1998
- ----------------------------
Mark R. McCollom
*By: /s/ Jay S. Sidhu
------------------------
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.1 Agreement and Plan of Merger dated December 18, 1997,
between Sovereign Bancorp, Inc. and First Home Bancorp Inc.
(included as Annex A to the Proxy Statement Prospectus).
Schedules are omitted; Sovereign Bancorp, Inc. agrees to
furnish copies of such schedules to the Commission upon
request.
2.2 Stock Option Agreement dated December 18, 1997, between
Sovereign Bancorp, Inc. and First Home Bancorp Inc.
(included as Annex B to the Proxy Statement/Prospectus).
5.1 Opinion of Stevens & Lee, P.C. re: Validity.*
8.1 Form of opinion of Stevens & Lee, P.C. re: tax matters.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.*
23.3 Consent of KPMG Peat Marwick LLP.*
23.4 Consent of Arthur Andersen LLP.*
23.5 Consent of Stevens & Lee, P.C. (contained in Exhibit 5).*
23.6 Consent of Stevens & Lee., P.C.*
23.7 Consent of RP Financial, LC.
23.8 Consent of KPMG Peat Marwick LLP.
24.1 Powers of Attorney of Directors and Officers (included on
signature page hereof).
99.1 Form of Opinion of RP Financial, LC dated June 26, 1998
(included as Annex C to Proxy Statement/Prospectus).
99.2 Form of Proxy Card for the Special Meeting of Shareholders
of First Home Bancorp Inc.*
</TABLE>
- ------------------
* Previously filed.
II-5
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the reference to our firm under the caption "Experts" in the
Pre-Effective Amendment to the Registration Statement on Form S-4 (No.
333-50569)and related Prospectus of Sovereign Bancorp, Inc. for the registration
of up to a maximum of 5,896,262 shares of its common stock and to the
incorporation by reference therein of our report dated March 2, 1998, with
respect to the consolidated financial statements of Sovereign Bancorp, Inc.
(restated to include ML Bancorp, Inc. which was acquired on February 28, 1998)
included in its Current Report on Form 8-K filed on or about June 23, 1998 with
the Securities and Exchange Commission and incorporated by reference in this
Registration Statement.
/s/ Ernst & Young LLP
Harrisburg, Pennsylvania
June 22, 1998
EXHIBIT 23.7
[LETTERHEAD OF RP FINANCIAL, LC]
June 19, 1998
Board of Directors
First Home Bancorp, Inc.
125 South Broadway
Pennsville, New Jersey 08070
Gentlemen:
We hereby consent to the use of our firm's name in the Form S-4
Registration Statement of Sovereign Bancorp, Inc. and any amendments thereto,
and the inclusion of, summary of and references to our fairness opinion in such
filings including the combined Proxy Statement/Prospectus of Sovereign Bancorp,
Inc. and First Home Bancorp, Inc.
Very truly yours,
RP FINANCIAL, LC.
/s/ WILLIAM E. POMMERENING
----------------------------------
William E. Pommerening
Chief Executive Officer
EXHIBIT 23.8
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
Sovereign Bancorp, Inc:
We consent to the incorporation by reference and to the reference to our firm
under the heading "Experts" in the Registration Statements (Form 8-K; Form S-4
No. 333-51813; and Form S-4 No. 333-50569) of Sovereign Bancorp, Inc. of our
report dated June 15, 1998, relating to the consolidated statements of financial
condition of ML Bancorp, Inc. and subsidiaries as of February 27, 1998, and
March 31, 1997, and the related consolidated statements of operations, cash
flows and changes in stockholders' equity for the eleven-month period ended
February 27, 1998 and for each year in the two-year period ended March 31, 1997.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
June 19, 1998
