As filed with the Securities and Exchange Commission on April 20,
1998
Registration No. 333-______
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SOVEREIGN BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 6720 23-2453088
(State or other jurisdic- (Primary Standard (I.R.S. Employer
of incorporation Industrial Class- Identification
or organization) ification Code No. No.)
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
<PAGE>
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.
[ ]
CALCULATION OF REGISTRATION FEE
_________________________________________________________________
Title of Amount to be Proposed Proposed Amount of
each class registered (1) maximum maximum registra-
of secur- offering aggregate tion fee (2)
ities to be price per offering
registered unit price
_________________________________________________________________
Common Stock, 5,896,262 Not Not $28,597.52
no par value shares applicable applicable
(and (with rights)
associated
stock purchase
rights) (3)
_________________________________________________________________
(1) Based on the maximum number of shares of the Registrant's
common stock that may be issued in connection with the
proposed merger (the "Merger") of First Home Bancorp Inc.
("First Home") with and into the Registrant. In accordance
with Rule 416, this Registration Statement shall also
register any additional shares of the Registrant's common
stock which may become issuable to prevent dilution
resulting from stock splits, stock dividends or similar
transactions as provided by the agreement relating to the
Merger.
(2) Estimated solely for purposes of calculating the
registration fee. Computed in accordance with
Rule 457(f)(1), on the basis of the closing sale price of
the common stock of First Home on April 20, 1998 of $34-1/4
and based on 2,708,426 shares of First Home common stock to
be exchanged in the Merger and unexercised options to
purchase 121,961 shares of First Home common stock.
(3) Prior to the occurrence of certain events, the stock
purchase rights will not be evidenced separately from the
common stock.
___________________________
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.
_________________________________________________________________
<PAGE>
[LETTERHEAD OF FIRST HOME BANCORP INC.]
May 14, 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 Wednesday, June 24, 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 (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 June 24, 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 Wednesday, June 24, 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 (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 May 4, 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
May 14, 1998
<PAGE>
________________________________________________________________
FIRST HOME BANCORP INC.
PROXY STATEMENT
____________________
SOVEREIGN BANCORP, INC.
PROSPECTUS
________________________________________________________________
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
June 24, 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 (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 May __, 1998, the last sale price of Sovereign Common
Stock as reported on the Nasdaq Stock Market National Market
(symbol: SVRN) was $____________.
This Proxy Statement/Prospectus and the accompanying
form of proxy are first being mailed on or about May __, 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
________ __, 1998.
<PAGE>
Table of Contents
Page
AVAILABLE INFORMATION .................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE .......... 2
SUMMARY .................................................. 4
The Companies ....................................... 4
The Special Meeting ................................. 5
The Merger .......................................... 7
Certain Related Transactions ........................ 12
Interests of Certain Persons in the Merger .......... 13
Comparative Per Common Share Data ................... 14
Recent Developments ................................. 20
SELECTED FINANCIAL DATA .................................. 22
PRO FORMA COMBINED FINANCIAL INFORMATION ................. 27
Pro Forma Combined Condensed Consolidated Balance
Sheet As of December 31, 1997 .................. 27
Pro Forma Unaudited Combined Condensed Statements
of Income for the Years Ended December 31,
1997, 1996 and 1995 ............................ 30
THE SPECIAL MEETING ...................................... 34
Date, Time and Place ................................ 34
Matters To Be Considered at the Special Meetings .... 34
Votes Required ...................................... 34
Voting of Proxies ................................... 35
Revocability of Proxies ............................. 35
Record Date; Stock Entitled to Vote; Quorum ......... 36
Solicitation of Proxies ............................. 36
THE MERGER ............................................... 37
Background of and Reasons for the Merger;
Recommendations of the Board of Directors ...... 37
Terms of the Merger ................................. 42
Opinion of First Home's Financial Advisor ........... 44
Effective Date of the Merger ........................ 50
Exchange of First Home Stock Certificates ........... 51
Conditions to the Merger ............................ 52
Subsidiary Bank Merger .............................. 54
Regulatory Approvals ................................ 54
Representations and Warranties ...................... 55
Business Pending the Merger ......................... 56
Dividends ........................................... 58
No Solicitation of Transactions ..................... 59
Amendment; Waivers .................................. 59
Termination; Effect of Termination .................. 60
Management and Operations after the Merger .......... 61
Employee Benefits and Severance ..................... 62
Accounting Treatment ................................ 63
Certain Federal Income Tax Consequences ............. 64
Expenses ............................................ 65
Resale of Sovereign Common Stock .................... 65
No Dissenters' Rights of Appraisal .................. 66
Dividend Reinvestment Plan .......................... 66
INTERESTS OF CERTAIN PERSONS IN THE MERGER ............... 66
Shares Owned by Management and the Board ............ 66
Indemnification; Directors and Officers Insurance ... 67
Employment Agreements ............................... 67
CERTAIN RELATED TRANSACTIONS ............................. 69
Stock Option Agreement .............................. 69
INFORMATION WITH RESPECT TO SOVEREIGN .................... 73
General ............................................. 73
Market Price of and Dividends on Sovereign Common
Stock and Related Shareholder Matters .......... 73
INFORMATION WITH RESPECT TO FIRST HOME ................... 75
Market Price of and Dividends on First Home Common
Stock and Related Shareholder Matters .......... 75
DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES .............. 77
Common Stock ........................................ 77
Preferred Stock ..................................... 79
Shareholder Rights Plan ............................. 80
Special Charter and Pennsylvania Corporate Law
Provisions ..................................... 81
COMPARISON OF SHAREHOLDER RIGHTS ......................... 84
Directors ........................................... 84
Shareholder Meetings ................................ 87
Action by Shareholders Without a Meeting ............ 88
Inspection Rights ................................... 88
Shareholder Rights Plan ............................. 89
Antitakeover Provisions ............................. 89
Required Shareholder Vote ........................... 92
Amendment of Bylaws ................................. 93
Mandatory Tender Offer Provision .................... 94
Dissenters' Rights .................................. 94
Dividends ........................................... 95
Voluntary Dissolution ............................... 96
Preemptive Rights ................................... 96
ADJOURNMENT .............................................. 96
EXPERTS .................................................. 98
LEGAL MATTERS ............................................ 98
OTHER MATTERS ............................................ 99
SHAREHOLDER PROPOSALS .................................... 99
ANNEXES
A. Agreement and Plan of Merger between
Sovereign and First Home
dated as of December 18, 1997 ..................... 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
<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 Current Report on Form 8-K filed on
May __, 1998 (including restated financial
statements of Sovereign).
3. Current Reports on Form 8-K, dated April 20, 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:
1. First Home's Annual Report on Form 10-K for the
year ended December 31, 1997 delivered with this
Proxy Statement/Prospectus.
2. 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 JUNE 15, 1998.
A copy of First Home's 1997 Annual Report on Form 10-K
is delivered together with the Proxy Statement/Prospectus.
<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 December 31, 1997, Sovereign and its
subsidiaries had total consolidated assets, deposits and
shareholders' equity of approximately $16.7 billion, $8.9 billion
and $972.9 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 December 31,
1997, First Home had total consolidated assets, deposits and
shareholders' equity of approximately $537.8 million,
$326.0 million and $37.4 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."
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 June 24,
1998.
Record Date
The record date for the Special Meeting is May 4, 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
58,873 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) 161,387 shares of First Home Common Stock (approximately
6.0% 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 8.3% 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 158,378 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."
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."
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 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 July 31, 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 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 o
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 events 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 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 1.705 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 $__________ as of May __, 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."
<PAGE>
<TABLE>
<CAPTION>
Book Value Per Common Share(1)(2)(3): At 12/31/97 At 12/31/96
<S> <C> <C>
Historical:
Sovereign $6.71 $5.97
First Home 13.80 12.05
Pro Forma:
Pro forma per share of
Sovereign Common Stock 6.75 6.00
Equivalent pro forma
per share of First Home
Common Stock 11.51 10.23
<CAPTION>
For the year ended December 31
1997 1996 1995
<S> <C> <C> <C>
Cash Dividends Paid Per Common Share:
Historical(4):
Sovereign $0.09 $0.12 $0.11
First Home 0.40 0.37 0.36
Pro Forma:
Pro forma per share of Sovereign
Common Stock 0.09 0.12 0.11
Equivalent pro forma per share
of First Home Common Stock 0.16 0.21 0.18
Income from Continuing Operations Per
Common Share(2)(5):
Basic Earnings per Share:
Historical:
Sovereign $0.69 $0.62 $0.68
First Home 1.75 1.58 1.74
Pro Forma:
Pro forma per share of Sovereign
Common Stock 0.70 0.63 0.69
Equivalent pro forma per share of
First Home Common Stock 1.19 1.07 1.18
Diluted Earnings per Share:
Historical:
Sovereign 0.65 0.59 0.65
First Home 1.72 1.57 1.74
Pro Forma:
Pro forma per share of Sovereign
Common Stock 0.66 0.60 0.66
Equivalent pro forma per share of
First Home Common Stock 1.13 1.02 1.13
__________________
</TABLE>
(1) Pro forma book value per share of Sovereign Common Stock was
calculated by dividing total pro forma combined
shareholders' equity amounts as of the applicable date by
the sum of (i) the total shares of Sovereign Common Stock
outstanding as of the applicable date assuming conversion of
all of Sovereign's outstanding 6-1/4% Cumulative Convertible
Preferred Stock, Series B ("Series B Preferred Stock"), or
14,342,621 shares at December 31, 1997, and (ii) the total
of 2,708,426 shares of First Home Common Stock outstanding
as of December 31, 1997 multiplied by an Exchange Ratio of
1.705 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 $________ as of
May __, 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 _____ (the applicable Exchange Ratio
assuming the Sovereign Market Value as of the Effective Date
is equal to the Sovereign Market Value of $________ as of
May __, 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 May __, 1998, to reflect the ML Bancorp
transaction. The proposed merger with Carnegie Bancorp is
not reflected in the historical information. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "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 1.705 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 $________ as of May __, 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 1.705
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 $________ as of May __,
1998). First Home equivalent pro forma income from
continuing operations per common share represents such
amounts multiplied by an Exchange Ratio of 1.705 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 $________ as of May __, 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."
<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
May __, 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 May __, 1998 is based on an
Exchange Ratio of ____ 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 $_________ as of May __,
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 May __,
1998, respectively, as reported on the Nasdaq Stock Market
National Market with respect to both Sovereign Common Stock and
First Home Common Stock.
Sovereign First Home
Equivalent
Market Value
Historical Historical Per Share
December 18, 1997 $16.77(1) $30.00 $31.25(2)
May __, 1998 ______ ______ ______(3)
_________________
(1) As adjusted for the Stock Split.
(2) Based on assumed Exchange Ratio of 1.863.
(3) Based on assumed Exchange Ratio of _______.
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 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 completed its acquisition of 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
Sovereign announced that Sovereign will redeem all outstanding
shares of its 6-1/4% Cumulative Convertible Preferred Stock,
Series B ("Series B Preferred Stock") on May 15, 1998, at a
redemption price of $52.188 per share plus all accrued and unpaid
dividends through May 15, 1998, of $0.78125 per share. As a
result of the current conversion ratio of 7.184 shares of
Sovereign Common Stock for each share of Series B Preferred
Stock, Sovereign anticipates that all holders of the Series B
Preferred Stock will convert their stock to Sovereign Common
Stock on or prior to the redemption date. If all shares of
Series B Preferred Stock are converted, the number of shares of
Sovereign Common Stock would increase by approximately 14,368,000
shares.
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth (i) certain historical
consolidated summary financial data for Sovereign (ii) certain
historical consolidated summary financial data for First Home,
and (iii) certain unaudited pro forma combined selected financial
data giving effect to the Merger assuming that shareholders of
First Home will receive 1.705 shares of Sovereign Common Stock
for each share of First Home Common Stock they own (the
applicable Exchange Ratio assuming the Sovereign Market Value as
of the Effective Date is equal to the Sovereign Market Value of
$_____ as of May __, 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."
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."
<PAGE>
<TABLE>
<CAPTION>
SOVEREIGN SELECTED FINANCIAL DATA(1)
Year Ended December 31,
1997 1996 1995 1994 1993
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Financial Condition
Data
Total assets. . . . . . . . . . . . $16,685,771 $14,456,934 $12,378,978 $10,437,443 $7,976,835
Loans . . . . . . . . . . . . . . . $10,756,785 9,067,039 7,168,405 6,588,692 4,688,423
Allowance for possible loan
losses. . . . . . . . . . . . . . $ 110,251 67,422 62,199 59,896 57,445
Investment and mortgage-backed
securities . . . . . . . . . . . $ 5,005,026 4,735,405 4,443,847 3,367,758 2,858,846
Deposits. . . . . . . . . . . . . . $ 8,913,275 8,108,752 8,098,739 6,653,848 5,670,639
Borrowings. . . . . . . . . . . . . $ 6,573,465 5,369,987 3,369,212 3,015,322 1,698,365
Shareholders' equity. . . . . . . . $ 972,929 833,364 791,836 654,887 508,404
Income Statement Data
Total interest income . . . . . . . $ 1,107,339 $ 955,912 $ 787,066 $ 585,911 $ 480,278
Total interest expense. . . . . . . $ 706,897 597,612 491,047 316,796 255,638
Net interest income . . . . . . . . $ 400,442 358,300 296,019 269,115 224,640
Provision for possible loan
losses. . . . . . . . . . . . . . $ 40,199 20,676 12,150 13,362 14,243
Net interest income after
provision for possible
loan losses . . . . . . . . . . . $ 360,243 337,624 283,869 255,753 210,397
Other income. . . . . . . . . . . . $ 55,955 61,175 40,106 23,188 29,248
Other expenses. . . . . . . . . . . $ 258,905 269,509 184,319 153,482 135,635
Income before income taxes and
cumulative effect of change in
accounting principle. . . . . . . 157,293 129,290 139,656 125,459 104,010
Income tax provision. . . . . . . . $ 63,100 45,341 47,626 45,862 42,541
Income before cumulative effect
of change in accounting
principle . . . . . . . . . . . . $ 94,193 83,949 92,030 79,597 61,469
Cumulative effect of change
in accounting principle . . . . . $ -- -- -- -- 4,800
Net income. . . . . . . . . . . . . $ 94,193 $ 83,949 $ 92,030 $ 79,597 $ 66,269
=========== =========== ========== =========== ==========
Net income applicable to common
stock . . . . . . . . . . . . . . $ 87,949 $ 77,699 $ 87,342 $ 79,597 $ 66,269
=========== =========== =========== =========== ===========
Per Share Data (2)
Common shares outstanding at end
of period (in thousands). . . . . 130,677 125,258 122,400 125,053 94,724
Preferred shares outstanding at
end of period (in thousands). . . 1,996 2,000 2,000 - -
Basic Earnings per share:
Before cumulative effect
of change in accounting
principle . . . . . . . . . . . . $ 0.69 $ 0.62 $ 0.68 $ 0.60 $ 0.58
After cumulative effect
of change in accounting
principle . . . . . . . . . . . . $ 0.69 $ 0.62 $ 0.68 $ 0.60 $ 0.63
Diluted earnings per share:
Before cumulative effect of change
in accounting principle. . . . . $ 0.65 $ 0.59 $ 0.65 $ 0.58 $ 0.56
After cumulative effect of change
in accounting principle. . . . . $ 0.65 $ 0.59 $ 0.65 $ 0.58 $ 0.61
Book value per share at end of
period(3) . . . . . . . . . . . . $ 6.71 $ 5.97 $ 5.79 $ 5.24 $ 5.37
Common share price at end of
period. . . . . . . . . . . . . . $ 17 5/16 9 1/8 6 11/16 4 7/8 7 1/2
Dividends paid per common share . . $ 0.092 0.122 0.108 0.103 0.079
Selected Financial Ratios
Dividend payout ratio . . . . . . . 14.15% 20.79% 16.57% 17.63% 13.04%
Return on average assets. . . . . . 0.60% 0.62% 0.82% 0.88% 0.89%
Return on average stockholders'
equity. . . . . . . . . . . . . . . 10.62% 10.22% 12.47% 13.47% 13.63%
Equity to assets. . . . . . . . . . 5.83% 5.76% 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. As of the date of this Proxy
Statement/Prospectus, the conversion rate for Sovereign's
Series B Preferred Stock is 7.184 shares of Sovereign Common
Stock for each share of Series B Preferred Stock.
<PAGE>
FIRST HOME SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
1997 1996 1995 1994 1993
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Financial Condition Data
Total assets (1) $537,798 $498,399 $453,039 $388,621 $351,600
Loans receivable, net 276,286 258,909 255,217 240,168 216,044
Mortgage-backed securities 215,896 188,607 146,760 94,333 95,979
Investment securities 30,320 34,732 34,621 39,676 23,121
Deposits 326,043 290,298 270,176 239,108 227,327
FHLB and other borrowed funds 171,829 173,148 150,126 123,633 98,331
Total shareholders' equity (2) 37,385 32,645 30,103 23,075 23,097
Book value per share (3) 13.80 12.05 11.12 8.58 8.86
Income Statement Data
Total interest income $38,968 $36,450 $32,489 $26,775 $24,570
Total interest expense 23,680 21,364 18,972 13,901 12,152
Net interest income 15,288 15,086 13,517 12,874 12,418
Provision for credit losses 400 400 600 550 700
Net interest income after provision
for credit losses 14,888 14,686 12,917 12,324 11,718
Other income 1,333 1,387 2,307 1,240 1,784
SAIF recapitalization assessment -- 1,564 --- --- ---
Other expenses 9,127 9,189 7,853 6,866 7,020
Income before income taxes 7,094 5,320 7,371 6,698 6,482
Income taxes 2,366 1,035 2,660 2,495 2,426
Net income before cumulative effect
of a change in accounting
principle 4,728 4,285 4,711 4,203 4,056
Cumulative effect of a change in
accounting principle -- -- -- -- 543
Net income $ 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 $ 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) $ 1.75 $ 1.58 $ 1.74 $ 1.56 $ 1.76
Diluted net income per share $ 1.72 $ 1.57 $ 1.74 $ 1.56 $ 1.72
====== ======= ======= ======= =======
Dividends per share (3) $ .40 $ .37 $ .36 .32 .24
====== ======= ======= ======= =======
Other Data(4)
Return on average assets before
cumulative effect of a change in
accounting principle .92% .91% 1.11% 1.12% 1.23%
Return on average assets after
cumulative effect of a change in
accounting principle .92% .91% 1.11% 1.12% 1.40%
Return on average equity before
cumulative effect of a change in
accounting principle 13.67% 13.79% 17.52% 17.79% 19.05%
Return on average equity after
cumulative effect of a change in
accounting principle 13.67% 13.79% 17.52% 17.79% 21.60%
Dividend payout ratio 22.86% 23.42% 20.69% 20.51% 13.64%
Average shareholder's equity to
average assets 6.72% 6.56% 6.34% 6.31% 6.47%
Capital ratios:
GAAP 6.74% 6.43% 6.64% 5.94% 6.56%
Tangible and core (2) 6.60% 6.45% 6.47% 6.69% 6.49%
Risk-based (2) 16.55% 16.84% 15.68% 15.65% 14.92%
Average interest rate spread 2.82% 3.07% 3.09% 3.42% 3.80%
<PAGE>
<CAPTION>
At or for the Year Ended December 31,
1997 1996 1995 1994 1993
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net yield on average interest-earning
assets 3.05% 3.28% 3.29% 3.56% 3.94%
Ratio of average interest-earning assets
to average interest-bearing
liabilities 104.83% 104.55% 104.22% 103.61% 103.58%
General and administrative expense
to average assets 1.71% 1.84% 1.79% 1.75% 1.94%
Asset quality ratios:
Non-performing loans to total loans 1.20% 1.22% 1.13% 1.64% 1.07%
Non-performing assets to total assets .78% .83% .75% 1.25% 1.26%
Allowance for possible credit losses to
non-performing assets 85.84% 90.38% 104.52% 68.02% 60.01%
Full service banking offices at end
of period 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.
<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 "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 1.705 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
$_____________ as of May __, 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
December 31, 1997
The following unaudited pro forma combined condensed
consolidated balance sheet information combines the historical
consolidated balance sheets of Sovereign and First Home as of
December 31, 1997. The Merger has been reflected as a pooling of
interests. The pro forma combined condensed consolidated balance
sheet also gives effect, as of December 31, 1997, (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."
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Balance Sheet
As of December 31, 1997
(Dollars In thousands)
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 ...... $ 233,645 $ 6,182 $ 16,110 -- $ 255,937
Investment and
mortgage-backed
securities ........ 5,005,026 246,216 121,471 -- 5,372,713
Loans ............... 11,067,153 279,902 287,745 -- 11,634,800
Allowance for possible
loan losses ....... (110,251) (3,616) (2,956) -- (116,823)
Goodwill and other
intangible assets . 125,816 - - -- 125,816
Other assets ........ 364,382 9,114 9,516 -- 383,012
Total assets ...... $16,685,771 $ 537,798 $431,886 -- $17,655,455
=========== ========== ======== ========= ===========
Deposits ............ $ 8,913,275 $ 326,043 $332,897 -- $ 9,572,215
Borrowings .......... 6,573,465 171,829 61,725 -- 6,807,019
Other liabilities ... 97,130 2,541 2,040 -- 101,711
Total liabilities . 15,583,870 500,413 396,662 -- 16,480,945
Trust Preferred
Securities ....... 128,972 -- -- -- 128,972
Preferred Stock...... 96,276 - - -- 96,276
Common Stock(1)...... 472,780 8,923 33,245 -- 514,948
Unallocated common
stock held by ESOP. (31,194) - - -- (31,194)
Treasury Stock....... (185) -- (185)
Unrecognized gain on
investments........ 18,680 227 37 -- 18,944
and
Retained Earnings.... 416,572 28,235 1,942 -- 446,749
Total shareholders'
equity ............ 972,929 37,385 35,224 -- 1,045,538
Total liabilities and
shareholders'
equity ............ $16,685,771 $ 537,798 $431,886 $ -- $17,655,455
=========== ========== ======== ========= ===========
</TABLE>
____________________________
(1) Sovereign Common Stock has no par value; accordingly,
amounts shown include surplus.
<PAGE>
Pro Forma Unaudited Combined Condensed Statements of Income for
the Years Ended December 31, 1997, 1996 and 1995
The following unaudited pro forma combined condensed
consolidated statements of income for the years ended
December 31, 1997, 1996, and 1995 give effect to the Transactions
as if they had occurred on January 1, 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 Carnegie, including the notes thereto,
incorporated by reference in this Proxy Statement/Prospectus.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "Recent
Developments."
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands, except per share data)
Sovereign
First Home
Carnegie
Sovereign First Home Carnegie Combined
<S> <C> <C> <C> <C>
Interest income ............ $1,107,339 $ 38,968 $ 32,414 $1,178,721
Interest expense ........... 706,897 23,680 16,037 746,614
Net interest income ........ 400,442 15,288 16,377 432,107
Provision for possible
loan losses .............. 40,199 400 446 41,045
Net interest income after
provision for possible
loan losses .............. 360,243 14,888 15,931 391,062
Other non-interest income... 55,955 1,333 1,034 58,322
Non-interest expense ....... 258,905 9,127 11,482 279,514
Income before taxes ........ 157,293 7,094 5,483 169,870
Income taxes ............... 63,100 2,366 1,858 67,324
Net income ................. $ 94,193 $ 4,728 $ 3,625 $ 102,546
========== ========== ========== ==========
Net income applicable to
common stock ............ $ 87,949 $ 4,728 $ 3,625 $ 96,302
========== ========== ========== ==========
Basic earnings per share ... $ 0.69 $ 1.75 $ 1.55 $ 0.71
========== ========== ========== ==========
Diluted earnings per share $ 0.65 $ 1.72 $ 1.42 $ 0.66
========== ========== ========== ==========
__________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands, except per share data)
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>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands, except per share data)
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 $ 0.69
========== ========== ========== ==========
Diluted earnings per share . $ 0.65 $ 1.74 $ 1.08 $ 0.66
========== ========== ========== ==========
__________________________
</TABLE>
<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 June 24,
1998.
Matters To Be Considered at the Special Meetings
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) 161,387 shares of
First Home Common Stock (approximately 6.0% 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 8.3% 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 158,378 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.
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, 2,708,426 shares of
First Home Common Stock were issued and outstanding and held by
approximately 950 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.
<PAGE>
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 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
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;
(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.
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 113,694 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."
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 December 31,
1997. 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) this draft of
the Proxy Statement/Prospectus and related Annexes included in
the Form S-4 Registration Statement filed with the SEC on
April 20, 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, (c) shareholder, regulatory and internal
financial and other reports through December 31, 1997, (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 (3) 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) interim results and developments through May __,
1998, including regulatory filings and press releases,
(c) regulatory and internal financial and other reports through
December 31, 1997, (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, (e) Sovereign's management
comments regarding past and current business, operations,
financial condition, and future prospects, and (f) 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 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 196%, respectively, versus a
tangible price-to-book value ratio of approximately 225%
indicated by the Merger Consideration based on December 31, 1997
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 16.4% indicated by the Merger Consideration based
on December 31, 1997 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 18.2 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 18.6 times indicated
by the Merger Consideration relative to First Home's December 31,
1997 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 $26.56 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 $25.45 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 $27.68 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 $30.52 per share, $29.23 per share, and $31.81
per share, respectively, under the "base case", the conservative
operating scenario, 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 December 31, 1997 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 27 percent and 12 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 7 percent and 30 percent in projected
earnings per share at the upper and lower limits, respectively,
and would realize dilution of 73 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.
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 June __, 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
July 31, 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.
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);
(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.
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. 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.
The Staff of the OTS is in the process of reviewing the
application.
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
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 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 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 May __, 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 July 31, 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.
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 6
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
$___ to $___ million, relating to Merger expenses, which will be
incurred upon completion of the Merger. Such expenses will be
incurred principally as a result of an addition to the allowance
for possible loan losses which Sovereign has determined will be
necessary in connection with a change in strategy related to
problem assets, losses on sales of assets, payments to executive
officers of 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 six
(6) months of the Effective Date, 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.
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.
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 58,873 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 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; 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 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
(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 July 31, 1998 and such failure to close by July 31, 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.
<PAGE>
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
_________________, 1998, Sovereign had approximately _____
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) $______ $_______ $_______
March 31, 1998 0.0172 18.9375 14.9375
December 31, 1997 0.0194 18.0000 14.3125
September 30, 1997 0.0336 14.5625 12.2500
June 30, 1997 0.0355 12.6875 9.5000
March 31, 1997 0.0356 11.6875 9.1250
December 31, 1996 0.0262 9.4375 7.5625
September 30, 1996 0.0344 7.6250 6.6875
__________________
(1) Through May __, 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 May __, 1998, the last sale price for the
Sovereign Common Stock was $__________ per share. The average
weekly trading volume for the Sovereign Common Stock during the
quarter ended March 31, 1998 was ______________ shares.
For certain limitations on the ability of Sovereign
Bank to pay dividends to Sovereign, see Sovereign's Annual Report
on Form 10-K for the year ended December 31, 1997, which is
incorporated herein by reference. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
<PAGE>
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 950 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) $ $ $
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 May __, 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 May __, 1998, the
last sale price for First Home Common Stock was $________ 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."
<PAGE>
DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES
The authorized capital stock of Sovereign consists of
200,000,000 shares of common stock, no par value ("Sovereign
Common Stock"), and 7,500,000 shares of authorized preferred
stock ("Sovereign Preferred Stock"). As of March 31, 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. 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 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.
On May 17, 1995, Sovereign issued 2,000,000 shares of
6-1/4% Cumulative, Convertible Preferred Stock, Series B (the
"Series B Preferred Stock").
On April 15 Sovereign announced that Sovereign will
redeem all outstanding shares of its 6-1/4% Cumulative
Convertible Preferred Stock, Series B ("Series B Preferred
stock") on May 15, 1998, at a redemption price of $52.188 per
share plus all accrued and unpaid dividends through May 15, 1998,
of $0.78125 per share. As a result of the current conversion
ratio of 7.184 shares of Sovereign Common Stock for each share of
Series B Preferred Stock, Sovereign anticipates that all holders
of the Series B Preferred Stock will convert their stock to
Sovereign Common Stock on or prior to the redemption date. If
all shares of Series B Preferred Stock are converted, the number
of shares of Sovereign Common Stock would increase by
approximately 14,368,000 shares.
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.
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.
<PAGE>
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 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.
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.
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.
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.
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
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.
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.
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.
<PAGE>
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 supplemental 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 appearing in
Sovereign's Current Report on Form 8-K, dated May __, 1998, and
incorporated by reference in the Registration Statement in this
Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference, which is
based in part on the report of KPMG Peat Marwick LLP, independent
auditors. The consolidated financial statements referred to
above are 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.
<PAGE>
ANNEX A
AGREEMENT AND PLAN
OF MERGER
between
SOVEREIGN BANCORP, INC.
and
FIRST HOME BANCORP INC.
December 18, 1997
<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.
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.
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.
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.
(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
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).
(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 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 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 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 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 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 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 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.\A 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 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 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.
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 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.
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.
Section 3.0P 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.
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
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.
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
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;
(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.
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, 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-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.
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;
(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.
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 six
(6) months of the Effective Date, 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), 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,
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, 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.
(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 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 position of such
employee 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.
(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.
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;
(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 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:
(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
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 7.0A 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
(b) If to First Home, to:
First Home Bancorp Inc.
125 South Broadway
Pennsville, New Jersey 08070
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_________________________________
Jay S. Sidhu
President and Chief Executive
Officer
FIRST HOME BANCORP INC.
By_________________________________
Stephen D. Miller,
Chairman, President and Chief
Executive Officer
<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 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,
______________________________
Robert A. DiValerio
______________________________
Adam J. Gagliardi
______________________________
Eugene J. Martell
______________________________
Stephen D. Miller
______________________________
Duff P. O'Connor
______________________________
Frederick M. Palfrey
______________________________
W. Kenneth Porch
______________________________
Stephen R. Selverian
______________________________
Rodger D. Shay
______________________________
Grace D. Shay
<PAGE>
EXHIBIT 2
STOCK OPTION AGREEMENT
[See Annex B]
<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.
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 94 Southview Terrace
Middletown, New Jersey 07748
Brian Hard 10 Seven Springs Drive
Reading, Pennsylvania 19607
Stewart B. Kean Liberty Hall, Morris Avenue
Union, New Jersey 07083
Joseph E. Lewis 819 Apple Drive, Drexelwood
Wyomissing, Pennsylvania 19610
F. Joseph Loeper 622 Foss Avenue
Drexel Hill, Pennsylvania 19026
Dennis S. Marlo 1064 Tinker Hill Lane
Malvern, Pennsylvania 19355
Richard E. Mohn 2630 Old Orchard Road
Lancaster, Pennsylvania 17601
Rhoda S. Oberholtzer 807 Lititz Pike
Lititz, Pennsylvania 17543
Patrick J. Petrone 27 Harold Place
Clifton, New Jersey 07013
Daniel K. Rothermel R.D. #11, Box 359C
Reading, Pennsylvania 19610
Elizabeth B. Rothermel Four Trent Place
Wyomissing, Pennsylvania 19610
Robert A. Sadler 3551 North Drive
Bethlehem, Pennsylvania 18015
Jay S. Sidhu 12 Quail Ridge
Reading, Pennsylvania 19607
Cameron C. Troilo Sandy Run and Afton Avenues
Yardley, Pennsylvania 19067
G. Arthur Weaver 63 Heister Avenue
New Holland, Pennsylvania 17557
Dr. Paul B. Wieand 196 Red Hill Road
Ottsville, Pennsylvania 18942
3.2 Officers. On and after the Effective Date, the
officers of the Surviving Bank shall consist of the officers of
Sovereign Bank duly elected and holding office immediately prior
to the Effective Date. The names and titles of the officers are:
Name Title
Jay S. Sidhu President and Chief Executive Officer
Karl D. Gerhart Treasurer and Chief Financial Officer
Lawrence M. Thompson, Jr. Secretary and Chief Administrative
Officer
Dana J. Albera Assistant Secretary
ARTICLE IV
CONVERSION OF SHARES
4.1 Stock of Sovereign Bank. Each share of Sovereign
Bank Common Stock issued and outstanding immediately prior to the
Effective Date shall, on and after the Effective Date, continue
to be issued and outstanding as a share of common stock of the
Surviving Bank.
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 Section 552.13(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 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.
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_________________________________
Jay S. Sidhu,
President
FIRST HOME SAVINGS BANK, F.S.B.
By_________________________________
Stephen D. Miller,
Chairman of the Board,
President and Chief Executive
Officer
<PAGE>
EXHIBIT "A"
to Plan of Merger
SOVEREIGN BANK
BRANCH LOCATIONS
[INTENTIONALLY OMITTED]
<PAGE>
[FORM OF EMPLOYEE ESTOPPEL LETTER]
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_____________________
<PAGE>
[FORM OF S&L OPINION]
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 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.
<PAGE>
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 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.
<PAGE>
[FORM OF BLANK ROME OPINION]
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 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.
<PAGE>
ANNEX B
[Form of Option]
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 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 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 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 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 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.
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.
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 BANCORP, INC.
By_________________________________
Jay S. Sidhu,
President and Chief Executive
Officer
FIRST HOME BANCORP INC.
By_________________________________
Stephen D. Miller,
Chairman of the Board,
President and Chief Executive
Officer
<PAGE>
ANNEX C
[Form of Opinion]
[RP Financial Letterhead]
May __, 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 (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 (that 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.
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 ______, 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, (c) shareholder,
regulatory and internal financial and other reports through
December 31, 1997, (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) interim results and developments
through May __, 1998 including regulatory filings and press
releases, (c) regulatory and internal financial and other reports
through December 31, 1997, (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
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.
<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.
2.1 Agreement and Plan of Merger dated as of
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).
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).*
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 Form of 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).
23.6 Consent of Stevens & Lee, P.C.
23.7 Consent of RP Financial, LC
24.1 Powers of Attorney of Directors and Officers
(included on signature page hereof).
99.1 Form of Opinion of RP Financial, LC dated
_______________, 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.
(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;
(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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the Borough of Wyomissing, Commonwealth of
Pennsylvania, on March 26, 1998.
SOVEREIGN BANCORP, INC.
(Registrant)
By:/s/ Jay S. Sidhu
Jay S. Sidhu,
President and Chief Executive
Officer
KNOWN 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.
Signature Title Date
/s/ Richard E. Mohn Chairman and March 26, 1998
Richard E. Mohn Director
/s/ Jay S. Sidhu Director, President March 26, 1998
Jay S. Sidhu and Chief Executive
Officer (Principal
Executive Officer)
/s/ Fred D. Hafer Director March 26, 1998
Fred D. Hafer
/s/ Rhoda S. Oberholtzer Director March 26, 1998
Rhoda S. Oberholtzer
/s/ Patrick J. Petrone Director March 26, 1998
Patrick J. Petrone
/s/ Daniel K. Rothermel Director March 26, 1998
Daniel K. Rothermel
/s/ Cameron C. Troilo Director March 26, 1998
Cameron C. Troilo
/s/ G. Arthur Weaver Director March 26, 1998
G. Arthur Weaver
/s/ Karl D. Gerhart Chief Financial March 26, 1998
Karl D. Gerhart Officer
/s/ Mark R. McCollom Chief Accounting March 26, 1998
Mark R. McCollom Officer
<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 Form of 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
24.1 Powers of Attorney of Directors and Officers
(included on signature page hereof).
99.1 Form of Opinion of RP Financial, LC dated
_____________, 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.
_______________
EXHIBIT 5.1
[Letterhead of Stevens & Lee]
April 17, 1998
Board of Directors
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, PA 19610
Re: Registration Statement on Form S-4
First Home Bancorp Inc.
Ladies and Gentlemen:
In connection with the proposed offering of up to 5,896,262
shares of common stock, no par value (the "Common Stock"), by The
Sovereign Bancorp, Inc. (the "Company"), covered by the Company's
Registration Statement on Form S-4 (the "Registration Statement")
filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, with respect to such Common
Stock, we, as special counsel to the Company, have reviewed:
(1) the Articles of Incorporation of the Company;
(2) the Bylaws of the Company;
(3) resolutions adopted by the Board of Directors of the
Company relating to the Registration Statement, certified by the
Secretary of the Company;
(4) a subsistence certificate with respect to the Company
issued by the Pennsylvania Department of State;
(5) the Registration Statement; and
(6) copies of the certificates representing shares of the
Common Stock.
Based upon our review of the foregoing, it is our opinion
that:
(a) the Company has been duly incorporated under the laws
of the Commonwealth of Pennsylvania and is validly existing and
in good standing under the laws of such Commonwealth; and
(b) the Common Stock covered by the Registration Statement
has been duly authorized and, when issued pursuant to the terms
described in the Registration Statement, will be legally issued
by the Company and fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to us under the
heading "LEGAL MATTERS" in the related Prospectus. In giving
this consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ STEVENS & LEE
Exhibit 8.1
______, 1998
Board of Directors
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, PA 19610
Board of Directors
First Home Bancorp, Inc.
125 South Broadway
Pennsville, NJ 08070
Re: Merger of First Home Bancorp, Inc. with and into Sovereign
Bancorp, Inc.; Merger of First Home Savings Bank with and
into Sovereign Bank
Lady and Gentlemen:
You have requested our opinion in connection with the
transaction contemplated by the Agreement and Plan of Merger (the
"Holding Company Merger Agreement"), dated as of December 18,
1997, between Sovereign Bancorp, Inc., a Pennsylvania corporation
("Sovereign"), and First Home Bancorp, Inc., a New Jersey
corporation ("First Home"), pursuant to which First Home will be
merged with and into Sovereign, which will be the surviving
corporation. At the Effective Date of such merger (the
"Merger"), each share of First Home Common Stock issued and
outstanding immediately prior to such date will, by virtue of the
Merger and without any action on the part of the holder thereof,
be converted into the right to receive such number of shares of
Sovereign Common Stock as is provided in Section 1.02(e) of the
Holding Company Merger Agreement. No fractional shares of
Sovereign Common Stock will be issued. In lieu thereof,
shareholders of First Home will receive cash in an amount
determined pursuant to Section 1.02(e) of the Holding Company
Merger Agreement. First Home shareholders will not be entitled
to exercise dissenters' rights in connection with the Merger.
All shares of First Home Common Stock held as treasury shares by
First Home or held by a First Home Subsidiary, Sovereign, or a
Sovereign Subsidiary on the Effective Date of the Merger will be
cancelled, and no shares of Sovereign Common Stock or other
property will be delivered in exchange therefor. Attached to and
trading with each share of Sovereign Common Stock are certain
"poison pill" rights (the "Rights") issued pursuant to the
Sovereign Rights Agreement.
You have also requested our opinion in connection with the
transaction contemplated by the Bank Plan of Merger, dated as of
December 18, 1997, between Sovereign Bank, a federal savings
bank, and First Home Savings Bank, a federal savings bank ("First
Home Savings"), pursuant to which First Home Savings will,
concurrently with or as soon as practicable after the closing of
the Merger of First Home with and into Sovereign, be merged with
and into Sovereign Bank, which will be the surviving institution.
At the effective date of such merger (the "Bank Merger"), all of
the issued and outstanding shares of First Home Savings Common
Stock and all shares of First Home Savings Common Stock held as
treasury shares will be cancelled, and no shares of Sovereign
Bank Common Stock will be delivered in exchange therefor.
This opinion is being furnished pursuant to Section 5.01(j)
and 5.02(j) of the Holding Company Merger Agreement. All
capitalized terms herein, unless otherwise specified, have the
meanings assigned thereto in the Holding Company Merger Agreement
and its exhibits.
In connection with our opinion, we have examined and are
familiar with originals or copies, certified or otherwise
identified to our satisfaction, of the Holding Company Merger
Agreement, the exhibits thereto, and such other documents as we
have deemed necessary or appropriate for the opinions set forth
below. In our examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and
the authenticity of such latter documents. As to any facts
material to this opinion which we did not independently establish
or verify, we have relied upon the foregoing documents and upon
statements and representations of officers and other
representatives of First Home and Sovereign, including certain
written representations of the managements of First Home and
Sovereign annexed hereto. The opinions expressed herein are
conditioned on the initial and continuing accuracy of the facts,
information, and representations contained in the aforesaid
documents or otherwise referred to above.
In preparing our opinion, we have considered applicable
provisions of the IRC, Treasury regulations, pertinent judicial
authorities, interpretive rulings of the Internal Revenue
Service, and such other authorities as we have deemed relevant.
Based solely upon the foregoing and upon the assumptions set
forth herein, and subject to the qualifications and caveats set
forth herein, we are of the opinion that, under present law, for
federal income tax purposes:
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 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.
We call your attention to the fact that certain portions of
this opinion relating to the federal income tax treatment of
First Home shareholders may not be applicable to persons who
received their First Home Common Stock pursuant to the exercise
of employee stock options or otherwise as compensation, or to
foreign persons or persons who, because of their circumstances or
status, are subject to special federal income tax treatment.
Except as set forth above, we express no other opinion as to
the tax consequences of the mergers and related transactions to
any party under federal, state, local or foreign laws.
Very truly yours,
STEVENS & LEE
<PAGE>
FIRST HOME BANCORP, INC.
OFFICER'S CERTIFICATE
The undersigned authorized officer of First Home Bancorp,
Inc., a New Jersey corporation ("First Home"), in connection with
the opinion to be delivered by Stevens & Lee, P. C., as to
certain of the federal income tax consequences of (i) the
proposed merger (the "Merger") of First Home with and into
Sovereign Bancorp, Inc., a Pennsylvania corporation
("Sovereign"), pursuant to the Agreement and Plan of Merger,
dated as of December 18, 1997, between Sovereign and First Home,
and (ii) the subsequent merger (the "Bank Merger") of First Home
Savings Bank, a federal savings bank ("First Home Savings"), with
and into Sovereign Bank, a federal savings bank, pursuant to the
Bank Plan of Merger, dated as of December 18, 1997, between
Sovereign Bank and First Home Savings, and recognizing that such
law firm will rely on this Certificate in delivering such
opinion, hereby certifies on behalf of First Home and First Home
Savings, to the best knowledge and belief of the management of
First Home and First Home Savings, at all times up to and
including the respective effective dates of the mergers, that:
1. The fair market value of the Sovereign common stock to
be received by each First Home shareholder will be approximately
equal to the fair market value of the First Home common stock
exchanged therefor.
2. There is no plan or intention on the part of the First
Home shareholders to sell, exchange, or otherwise dispose of a
number of shares of Sovereign common stock to be received in the
Merger that would reduce such shareholders' ownership of
Sovereign common stock to a number of shares having a value, as
of the effective date of such Merger, of less than 50% of the
value of all of the formerly outstanding First Home common stock
as of the same date. For purposes of this representation, shares
of First Home common stock exchanged for cash in lieu of
fractional shares of Sovereign common stock will be treated as
outstanding First Home common stock on the effective date of such
Merger. Moreover, shares of First Home common stock and shares
of Sovereign common stock held by First Home shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to
such Merger will be considered in making this representation.
3. The liabilities of First Home assumed by Sovereign and
the liabilities to which the transferred assets of First Home are
subject were incurred by First Home in the ordinary course of its
business.
4. Sovereign, First Home, and the shareholders of First
Home will pay their respective expenses, if any, incurred in
connection with the Merger.
5. There is no intercorporate indebtedness existing
between First Home and Sovereign that was issued, acquired, or
will be settled at a discount.
6. No two parties to the Merger are "investment companies"
as defined in Section 368(a)(2)(F)(iii) and (iv) of the Internal
Revenue Code of 1986, as amended (the "IRC").
7. First Home is not under the jurisdiction of a court in
a Title 11 or similar case within the meaning of IRC Section
368(a)(3)(A).
8. The fair market value of the assets of First Home
transferred to Sovereign will equal or exceed the sum of the
liabilities assumed by Sovereign plus the amount of the
liabilities, if any, to which the transferred assets are subject.
9. The payment of cash in lieu of fractional shares of
Sovereign common stock is solely for the purpose of avoiding the
expense and inconvenience to Sovereign of issuing fractional
shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in
the transaction to the First Home shareholders of record instead
of issuing fractional shares of Sovereign common stock will not
exceed 1% of the total consideration that will be issued in the
Merger to the shareholders of First Home in exchange for their
shares of First Home common stock. The fractional share
interests of each First Home shareholder of record will be
aggregated, and no First Home shareholder will receive cash in an
amount equal to or greater than the value of one full share of
Sovereign common stock.
10. None of the compensation received by any shareholder-
employees of First Home will be part of the consideration for
First Home common stock. The compensation to be paid to
shareholder-employees under any employment agreement will be for
services actually rendered and will be commensurate with amounts
paid by third parties bargaining at arm's length for similar
services. None of the stock to be received by any
shareholder-employee of First Home is separate consideration for
any compensation owed to such shareholder-employee.
11. The liabilities of First Home Savings assumed by
Sovereign Bank and the liabilities to which the transferred
assets of First Home Savings are subject were incurred by First
Home Savings in the ordinary course of its business.
12. There is no intercorporate indebtedness existing
between Sovereign Bank and First Home Savings that was issued,
acquired, or will be settled at a discount.
13. No two parties to the Bank Merger are "investment
companies" as defined in IRC Section 368(a)(2)(F)(iii) and (iv).
14. First Home Savings is not under the jurisdiction of a
court in a Title 11 or similar case within the meaning of IRC
Section 368(a)(3)(A).
15. The fair market value of the assets of First Home
Savings transferred to Sovereign Bank will equal or exceed the
sum of the liabilities assumed by Sovereign Bank plus the amount
of the liabilities, if any, to which the transferred assets are
subject.
16. The total adjusted basis of the assets of First Home
Savings transferred to Sovereign Bank will equal or exceed the
sum of the liabilities assumed by Sovereign Bank plus the amount
of the liabilities, if any, to which the transferred assets are
subject.
IN WITNESS WHEREOF, I have, on behalf of First Home and
First Home Savings, signed this certificate as of the _____ day
of __________, 1998.
FIRST HOME BANCORP, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
SOVEREIGN BANCORP, INC.
OFFICER'S CERTIFICATE
The undersigned authorized officer of Sovereign Bancorp,
Inc., a Pennsylvania corporation ("Sovereign"), in connection
with the opinion to be delivered by Stevens & Lee, P. C., as to
certain of the federal income tax consequences of (i) the
proposed merger (the "Merger") of First Home Bancorp, Inc., a New
Jersey corporation ("First Home"), with and into Sovereign
pursuant to the Agreement and Plan of Merger, dated as of
December 18, 1997, between Sovereign and First Home, and (ii) the
subsequent merger (the "Bank Merger") of First Home Savings Bank,
a federal savings bank ("First Home Savings"), with and into
Sovereign Bank, a federal savings bank, pursuant to the Bank Plan
of Merger, dated as of December 18, 1997, between Sovereign Bank
and First Home Savings, and recognizing that such law firm will
rely on this Certificate in delivering such opinion, hereby
certifies on behalf of Sovereign and Sovereign Bank, to the best
knowledge and belief of the management of Sovereign and Sovereign
Bank, at all times up to and including the respective effective
dates of the mergers, that:
1. The fair market value of the Sovereign common stock to
be received by each First Home shareholder will be approximately
equal to the fair market value of the First Home common stock
exchanged therefor.
2. There is no plan or intention on the part of the First
Home shareholders to sell, exchange, or otherwise dispose of a
number of shares of Sovereign common stock to be received in the
Merger that would reduce such shareholders' ownership of
Sovereign common stock to a number of shares having a value, as
of the effective date of such Merger, of less than 50% of the
value of all of the formerly outstanding First Home common stock
as of the same date. For purposes of this representation, shares
of First Home common stock exchanged for cash in lieu of
fractional shares of Sovereign common stock will be treated as
outstanding First Home common stock on the effective date of such
Merger. Moreover, shares of First Home common stock and shares
of Sovereign common stock held by First Home shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to
such Merger will be considered in making this representation.
3. Sovereign has no plan or intention to reacquire any of
its common stock issued in the Merger.
4. Sovereign has no plan or intention to sell or otherwise
dispose of any of the assets of First Home acquired in the
Merger, except for dispositions made in the ordinary course of
business, transfers described in Section 368(a)(2)(C) of the
Internal Revenue Code of 1986, as amended (the "IRC"), and the
transfer contemplated by the Bank Merger.
5. The liabilities of First Home assumed by Sovereign and
the liabilities to which the transferred assets of First Home are
subject were incurred by First Home in the ordinary course of its
business.
6. Following the Merger, Sovereign will continue the
historic business of First Home or use a significant portion of
First Home's historic business assets in a business.
7. Sovereign, First Home, and the shareholders of First
Home will pay their respective expenses, if any, incurred in
connection with the Merger.
8. There is no intercorporate indebtedness existing
between First Home and Sovereign that was issued, acquired, or
will be settled at a discount.
9. No two parties to the Merger are "investment companies"
as defined in IRC Section 368(a)(2)(F)(iii) and (iv).
10. First Home is not under the jurisdiction of a court in
a Title 11 or similar case within the meaning of IRC Section
368(a)(3)(A).
11. The fair market value of the assets of First Home
transferred to Sovereign will equal or exceed the sum of the
liabilities assumed by Sovereign plus the amount of the
liabilities, if any, to which the transferred assets are subject.
12. The payment of cash in lieu of fractional shares of
Sovereign common stock is solely for the purpose of avoiding the
expense and inconvenience to Sovereign of issuing fractional
shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in
the transaction to the First Home shareholders of record instead
of issuing fractional shares of Sovereign common stock will not
exceed 1% of the total consideration that will be issued in the
Merger to the shareholders of First Home in exchange for their
shares of First Home common stock. The fractional share
interests of each First Home shareholder of record will be
aggregated, and no First Home shareholder will receive cash in an
amount equal to or greater than the value of one full share of
Sovereign common stock.
13. None of the compensation received by any shareholder-
employees of First Home will be part of the consideration for
First Home common stock. The compensation to be paid to
shareholder-employees under any employment agreement will be for
services actually rendered and will be commensurate with amounts
paid by third parties bargaining at arm's length for similar
services. None of the stock to be received by any
shareholder-employee of First Home is separate consideration for
any compensation owed to such shareholder-employee.
14. At the time Sovereign executed the Sovereign Rights
Agreement, and as of the date of this Certificate, the likelihood
of the Sovereign Stock Purchase Rights being exercised was, and
is, both remote and speculative.
15. The fair market value of the Sovereign Bank common
stock to be constructively received by Sovereign will be
approximately equal to the fair market value of the First Home
Savings common stock exchanged therefor.
16. Sovereign has no plan or intention to sell, exchange,
or otherwise dispose of a number of shares of Sovereign Bank
common stock that would reduce its ownership of Sovereign Bank
common stock constructively received in the Bank Merger to a
number of shares having a value, as of the effective date of such
merger, of less than 50% of the value of all of the formerly
outstanding First Home Savings common stock as of the same date.
17. Sovereign Bank has no plan or intention to sell or
otherwise dispose of the assets of First Home Savings acquired in
the Bank Merger, except for (i) dispositions made in the ordinary
course of business and (ii) transfers described in IRC Section
368(a)(2)(C).
18. The liabilities of First Home Savings assumed by
Sovereign Bank and the liabilities to which the transferred
assets of First Home Savings are subject were incurred by First
Home Savings in the ordinary course of its business.
19. Following the Bank Merger, Sovereign Bank will continue
the historic business of First Home Savings or use a significant
portion of First Home Savings' historic business assets in a
business.
20. Sovereign, Sovereign Bank, and First Home Savings will
pay their respective expenses, if any, incurred in connection
with the Bank Merger.
21. There is no intercorporate indebtedness existing
between Sovereign Bank and First Home Savings that was issued,
acquired, or will be settled at a discount.
22. No two parties to the Bank Merger are "investment
companies" as defined in IRC Section 368(a)(2)(F)(iii) and (iv).
23. First Home Savings is not under the jurisdiction of a
court in a Title 11 or similar case within the meaning of IRC
Section 368(a)(3)(A).
24. The fair market value of the assets of First Home
Savings transferred to Sovereign Bank will equal or exceed the
sum of the liabilities assumed by Sovereign Bank plus the amount
of the liabilities, if any, to which the transferred assets are
subject.
25. The total adjusted basis of the assets of First Home
Savings transferred to Sovereign Bank will equal or exceed the
sum of the liabilities assumed by Sovereign Bank plus the amount
of the liabilities, if any, to which the transferred assets are
subject.
IN WITNESS WHEREOF, I have, on behalf of Sovereign and
Sovereign Bank, signed this certificate as of the _____ day of
__________, 1998.
SOVEREIGN BANCORP, INC.
By:________________________________
Name:______________________________
Title:_____________________________
Exhibit 23.1
Form of Independent Auditors' Consent
We consent to the reference to our firm under the caption
"Experts" in the Registration Statement on Form S-4 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 financial statements and schedules of
Sovereign included in its Annual Report (Form 10-K) for the year
ended December 31, 1997, and our report dated May __, 1998, with
respect to the supplemental consolidated financial statements of
Sovereign included in its Current Report (Form 8-K) dated May __,
1998, both filed with the Securities and Exchange Commission and
incorporated by reference in this Registration Statement.
Ernst & Young LLP
Harrisburg, Pennsylvania
April __, 1998
Exhibit 23.2
Independent Auditors' Consent
We consent to incorporation by reference in the Registration
Statement on Form S-4 of Sovereign Bancorp, Inc. and in the
related prospectus of our report dated November 26, 1996 relating
to the consolidated balance sheet of First State Financial
Services, Inc. and subsidiaries as of September 30, 1996 and the
related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the two-year
period ended September 30, 1996, which report appears in the 1997
annual report on Form 10-K of Sovereign Bancorp, Inc. and the
reference to our Firm under the heading "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
April 14, 1998
Exhibit 23.3
Independent Auditors' Consent
We consent to incorporation by reference in the Registration
Statement on Form S-4 of Sovereign Bancorp, Inc. and in the
related prospectus of our report dated January 31, 1997, except
as to Note 2, which is as of February 5, 1997, relating to the
consolidated statement of condition of Bankers Corp. and
subsidiary as of December 31, 1996 and the related consolidated
statements of income, changes in stockholders' equity and cash
flows for each of the years in the two-year period ended
December 31, 1996, which report appears in the 1997 annual report
on Form 10-K of Sovereign Bancorp, Inc. and the reference to our
Firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
April 14, 1998
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement on
Form S-4 of our report dated February 9, 1998 included in First
Home Bancorp Inc.'s Form 10-K for the year ended December 31,
1997, and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
Philadelphia, Pa.
April 15, 1998
EXHIBIT 23.6
[LETTERHEAD OF STEVENS & LEE, P.C.]
April 17, 1998
Board of Directors
Sovereign Bancorp, Inc.
P.O. Box 12646
Reading, Pennsylvania 19612
Ladies and Gentlemen:
We are acting as counsel to Sovereign Bancorp, Inc.
("Sovereign") in connection with the proposed merger of First
Home Bancorp, Inc., a New Jersey corporation, with and into
Sovereign. In that regard, our tax opinions are as set forth
under the section entitled "The Merger--Tax Consequences" in the
Proxy Statement/Prospectus relating to the above-described
transactions (the "Proxy Statement/Prospectus").
We hereby consent to the filing of this opinion as an
Exhibit to Sovereign's Registration Statement on Form S-4 of
which the Proxy Statement/Prospectus is a part and to the use of
our name under the above-referenced section of the Proxy
Statement/Prospectus.
Very truly yours,
/s/ STEVENS & LEE
Exhibit 23.7
[Letterhead of RP Financial, LC.]
April 15, 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 99.2
FIRST HOME BANCORP INC.
Special Meeting of Shareholders -
June 24, 1998 at 10:30 p.m., Local Time
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned shareholder of First Home Bancorp Inc.
("First Home") hereby appoints Robert A. DiValerio and Stephen D.
Miller and each of them the proxies of the undersigned (each with
power of substitution and with all powers the undersigned would
possess if personally present) to vote at the Special Meeting of
Shareholders of First Home to be held on Wednesday, June 24,
1998, at the Holiday Inn, Exit 10, I-295, Pureland Industrial
Complex, Bridgeport, New Jersey and at any adjournment or
postponement thereof (the "Meeting"), all the shares of Common
Stock of First Home which the undersigned would be entitled to
vote on the following proposals more fully described in the Joint
Proxy Statement/Prospectus dated May [___], 1998 for the Meeting
in the manner specified and in the discretion of the named
proxies on the other business that may properly come before the
Meeting.
__________________
Please indicate on the reverse side of this card how your
stock is to be voted. Unless you specifically direct otherwise,
the shares represented by this proxy will be voted "FOR" the
following proposals listed on the reverse side of this card.
The DIRECTORS recommend a vote "FOR" proposals 1 and 2
(continued and to be signed on reverse side)
<PAGE>
1. Approval and adoption of the Agreement and Plan of Merger,
dated December 18, 1997 (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 and (ii) the conversion of each
share of common stock of First Home outstanding immediately
prior to the Merger into the right to receive a number of
shares of Sovereign common stock determined in a manner set
forth in the Merger Agreement plus cash in lieu of any
fractional share interest.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Approval of the proposal to adjourn the Meeting, if
necessary, to permit further solicitation of proxies in the
event there are not sufficient votes at the time of the
Meeting to approve the Merger Agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
NOTE: Your signature should appear
as your name appears hereon. When
shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such. If a
corporation, please sign in full
corporate name by the President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
Please sign, date and return the
proxy card promptly using the
enclosed postage paid envelope.
Dated:______________________, 1998
___________________________________
(Signature)
___________________________________
(Signature if held jointly)
