As filed with the Securities and Exchange Commission on May 5,
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
tion of incorporation or Industrial Class- Identification
organization) ification Code No.)
Number)
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:
Joseph M. Harenza, Esquire Michael M. Horn, Esquire
David W. Swartz, Esquire Peter S. Twombly, Esquire
Stevens & Lee, P.C. McCarter & English, LLP
111 North Sixth Street Four Gateway Center
P.O. Box 679 100 Mulberry Street
Reading, PA 19603 Newark, NJ 07101-2652
<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: [ ]
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)(3)
ities to be price per offering
registered unit(2) price(2)
_________________________________________________________________
Common Stock, 7,424,392 Not Not
no par value shares applicable applicable $35,294.74
$33,047.32 (with rights)
(and
associated
stock purchase
rights) (4)
_________________________________________________________________
(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 Carnegie Bancorp
("Carnegie") 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.
(3) Computed in accordance with Rule 457(f)(1), on the basis of
the average of the closing bid and ask price of the common
stock of Carnegie on April 29, 1998 of $36.9375 and based on
2,753,261 shares of Carnegie common stock to be exchanged in
the Merger and unexercised options to purchase 384,921
shares of Carnegie common stock.
(4) 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 CARNEGIE BANCORP]
May __, 1998
Dear Shareholder:
You are cordially invited to attend the annual meeting of
shareholders (the "Annual Meeting") of Carnegie Bancorp
("Carnegie") to be held on Thursday, June 25, 1998, at 4:00 p.m.,
local time, at the main office of Carnegie Bank, N.A., the
Company's wholly-owned subsidiary, located at 619 Alexander Road,
Princeton, New Jersey 08540.
At the Annual Meeting, shareholders will consider and vote
upon the Agreement and Plan of Merger dated as of December 12,
1997 (the "Merger Agreement"), between Carnegie and Sovereign
Bancorp, Inc. ("Sovereign"), providing for the merger of Carnegie
with and into Sovereign (the "Merger") and the conversion of each
outstanding share of common stock of Carnegie (other than shares,
if any, then owned by Sovereign, Carnegie or any subsidiary of
Carnegie) 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 Carnegie
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 Carnegie and the approval of the Merger by
various regulatory agencies.
To account for the possibility that the Merger Agreement
will not be approved by the shareholders of Carnegie or that the
Merger will not be consummated for any other reason, you will
also be asked to vote on the election of nine (9) directors of
Carnegie to hold office until the next annual meeting of
shareholders and until their successors are duly elected and
qualified. The vote on this matter will only be given effect if
the Merger Agreement is not approved or the Merger is not
otherwise consummated.
In the material accompanying this letter, you will find a
Notice of Annual Meeting of Shareholders, a Proxy Statement/
Prospectus relating to the actions to be taken by Carnegie
shareholders at the Annual Meeting and a proxy card. The Proxy
Statement/Prospectus more fully describes the proposed Merger and
other matters to be considered at the Annual Meeting and includes
certain information concerning Carnegie and Sovereign. Carnegie
has previously sent to shareholders its 1997 Annual Report to
Shareholders (which includes portions of Carnegie's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997).
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 Carnegie has carefully considered
and approved the Merger Agreement and believes that the Merger is
in the best interests of Carnegie 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 Annual Meeting,
the Board of Directors of Carnegie 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 Annual 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, you will need
additional documentation from your record holder in order to vote
personally at the Annual Meeting.
On behalf of the Board of Directors and our employees, I
wish to thank you for your continued support. We appreciate your
interest.
Sincerely yours,
Bruce A. Mahon
Chairman of the Board
Thomas L. Gray, Jr.
President and Chief
Executive Officer
<PAGE>
CARNEGIE BANCORP
619 Alexander Road
Princeton, New Jersey 08540
____________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on June 25, 1998
____________________
NOTICE IS HEREBY GIVEN that a Annual Meeting of
Shareholders (including any adjournment or postponement, the
"Annual Meeting") of Carnegie Bancorp ("Carnegie"), a New Jersey
corporation, will be held on Thursday, June 25, 1998, at
4:00 p.m., local time, at the main office of Carnegie Bank, NA,
the Company's wholly-owned subsidiary, located at 619 Alexander
Road, Princeton, New Jersey 08540, 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 12, 1997 (the
"Merger Agreement"), between Sovereign Bancorp, Inc.
("Sovereign") and Carnegie, which provides, among other
things, for (i) the merger of Carnegie with and into
Sovereign (the "Merger") and (ii) the conversion of each
share of common stock of Carnegie outstanding immediately
prior to the Merger (other than any shares owned by
Sovereign, Carnegie or any subsidiary of Carnegie) 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. To account for the possibility that the
Merger Agreement will not be approved by the shareholders of
Carnegie or that the Merger will not be consummated for any
other reason, shareholders will also consider and vote upon
the election of nine (9) directors of Carnegie to hold
office until the next annual meeting of shareholders and
until their successors are duly elected and qualified.
3. The adjournment of the Annual Meeting, if
necessary, to permit further solicitation of proxies in the
event there are not sufficient votes at the time of the
Annual Meeting to approve the Merger Agreement.
4. The transaction of such other business as may
properly be brought before the Annual Meeting.
The Board of Directors of Carnegie has determined that
an affirmative vote on each proposal to be considered at the
Annual Meeting is in the best interests of Carnegie and its
shareholders and unanimously recommends a vote "FOR" each
proposal.
The Board of Directors of Carnegie has fixed the close
of business on May __, 1998 as the record date for determining
shareholders entitled to notice of, and to vote at, the Annual
Meeting. A list of shareholders entitled to vote at the Annual
Meeting will be available for inspection at Carnegie Bancorp,
619 Alexander Road, Princeton, New Jersey, for a period of ten
days prior to the Annual Meeting and also will be available for
inspection at the Annual Meeting.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF
SHARES YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, THE BOARD OF DIRECTORS OF CARNEGIE 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 ANNUAL MEETING BUT WILL
ASSURE THAT YOUR VOTE IS COUNTED IF YOU ARE UNABLE TO ATTEND. IF
YOU ARE A SHAREHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD
HOLDER IN ORDER TO VOTE PERSONALLY AT THE ANNUAL MEETING.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES
AT THIS TIME.
BY ORDER OF THE BOARD OF DIRECTORS
___________________________________
Thomas L. Gray, Jr.,
President and Chief Executive
Officer
Princeton, New Jersey
May __, 1998
<PAGE>
________________________________________________________________
CARNEGIE BANCORP
PROXY STATEMENT
____________________
SOVEREIGN BANCORP, INC.
PROSPECTUS
________________________________________________________________
This Proxy Statement/Prospectus ("Proxy Statement/
Prospectus") is being furnished to shareholders of Carnegie
Bancorp ("Carnegie"), a New Jersey corporation, in connection
with the solicitation of proxies by the Board of Directors of
Carnegie for use at the Annual Meeting of Shareholders of
Carnegie (including any adjournments or postponements thereof,
the "Annual Meeting") to be held on June 25, 1998.
This Proxy Statement/Prospectus relates to up to
7,424,392 shares of common stock, no par value, of Sovereign
Bancorp, Inc. (together with the Sovereign Rights, as hereinafter
defined, attached thereto, the "Sovereign Common Stock") which
may be issued upon the merger of Carnegie with and into Sovereign
(the "Merger"), pursuant to an Agreement and Plan of Merger,
dated as of December 12, 1997 (the "Merger Agreement"). In the
Merger, each outstanding share of common stock, no par value, of
Carnegie ("Carnegie Common Stock") (other than shares, if any,
then owned by Sovereign, Carnegie or any subsidiary of Carnegie
("Excluded Shares")), will be converted into and become the right
to receive such number of shares of Sovereign Common Stock as
shall equal $35.50 divided by the average of the last reported
sales 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 Carnegie 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
Carnegie Common Stock (other than Excluded Shares) will be
converted into 2.366 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 Carnegie Common Stock will be
converted into 1.937 shares of Sovereign Common Stock. In
addition, as further described herein, in the event that Carnegie
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 $12.06 (without a
corresponding specified decline in the weighted average prices of
a comparable group of nine thrift holding companies), Sovereign
can override such termination by increasing the number of shares
issuable in exchange for each share of Carnegie Common Stock from
2.366 shares to such number of shares of Sovereign Common Stock
as shall have an aggregate value of $28.53 based on the Sovereign
Market Value as of the date immediately preceding the Effective
Date.
The number of shares of Sovereign Common Stock into
which each share of Carnegie 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 adjustment shall be made to prevent dilution in the event
of additional stock splits, reclassifications or other similar
events. Sovereign will pay cash to Carnegie shareholders in lieu
of issuing fractional shares of Sovereign Common Stock.
This Proxy Statement/Prospectus constitutes both
(i) the proxy statement of Carnegie relating to the solicitation
of proxies by the Board of Directors of Carnegie for use at the
Annual Meeting to be held for the purpose, among other things, 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 May __,
1998.
<PAGE>
Table of Contents
Page
AVAILABLE INFORMATION.................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........ 2
SUMMARY................................................ 4
The Companies..................................... 4
The Annual 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 ANNUAL MEETING..................................... 34
Date, Time and Place.............................. 34
Matters To Be Considered at the Annual Meetings... 34
Votes Required.................................... 34
Voting of Proxies................................. 35
Revocability of Proxies........................... 36
Record Date; Stock Entitled to Vote; Quorum....... 36
Solicitation of Proxies........................... 36
THE MERGER............................................. 37
Background of and Reasons for the Merger.......... 37
Terms of the Merger............................... 40
Fairness Opinion of Carnegie's Financial Advisor.. 42
Effective Date of the Merger...................... 46
Exchange of Carnegie Stock Certificates........... 47
Conditions to the Merger.......................... 48
Subsidiary Bank Merger............................ 49
Regulatory Approvals.............................. 49
Representations and Warranties.................... 50
Business Pending the Merger....................... 51
Dividends......................................... 53
No Solicitation of Transactions................... 54
Amendment; Waivers................................ 54
Termination; Effect of Termination................ 54
Management and Operations after the Merger........ 58
Employee Benefits and Severance................... 59
Accounting Treatment.............................. 59
Certain Federal Income Tax Consequences........... 60
Expenses.......................................... 61
Resale of Sovereign Common Stock.................. 61
No Dissenters' Rights of Appraisal................ 62
Dividend Reinvestment Plan........................ 62
INTERESTS OF CERTAIN PERSONS IN THE MERGER............. 62
Stock Options..................................... 62
Indemnification; Directors and Officers Insurance. 63
Employment and Other Agreements................... 63
CERTAIN RELATED TRANSACTIONS........................... 66
Stock Option Agreement............................ 66
INFORMATION WITH RESPECT TO SOVEREIGN.................. 70
General........................................... 70
Market Price of and Dividends on Sovereign
Common Stock and Related Shareholder Matters.... 70
INFORMATION WITH RESPECT TO CARNEGIE................... 71
Business.......................................... 71
Directors......................................... 71
Executive Officers................................ 72
Board of Directors Meetings and Committees........ 73
Directors Compensation............................ 73
Executive Compensation............................ 75
Employment Agreements............................. 78
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION......................................... 79
EXECUTIVE COMPENSATION POLICY.......................... 79
PERFORMANCE GRAPH...................................... 82
Principal and Other Shareholders of Carnegie...... 82
Certain Transactions.............................. 84
Market Price of and Dividends on Carnegie
Common Stock and Related Shareholder Matters.... 85
DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES............ 87
Common Stock...................................... 87
Preferred Stock................................... 89
Shareholder Rights Plan........................... 90
Special Charter and Pennsylvania Corporate Law
Provisions...................................... 91
COMPARISON OF SHAREHOLDER RIGHTS....................... 94
Directors......................................... 94
Shareholder Meetings.............................. 97
Action by Shareholders Without a Meeting.......... 97
Inspection Rights................................. 97
Shareholder Rights Plan........................... 98
Antitakeover Provisions........................... 98
Required Shareholder Vote.........................101
Amendment of Bylaws...............................102
Mandatory Tender Offer Provision..................103
Dissenters' Rights................................103
Dividends.........................................104
Voluntary Dissolution.............................105
Preemptive Rights.................................105
ADJOURNMENT............................................105
ELECTION OF DIRECTORS OF CARNEGIE......................106
EXPERTS................................................106
LEGAL MATTERS..........................................107
OTHER MATTERS..........................................107
SHAREHOLDER PROPOSALS..................................108
ANNEXES
A. Agreement and Plan of Merger between
Sovereign and Carnegie
dated as of December 12, 1997.....................A-1
B. Stock Option Agreement between
Sovereign and Carnegie,
dated December 12, 1997...........................B-1
C. Opinion of Janney Montgomery
Scott Inc.........................................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 Carnegie. 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 Carnegie 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 Carnegie and its subsidiaries contained
herein, incorporated herein by reference or supplied herewith,
has been furnished by Carnegie.
AVAILABLE INFORMATION
Sovereign and Carnegie 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 Carnegie 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
Carnegie (File No. 0-24562) pursuant to the Exchange Act are
incorporated by reference in this Proxy Statement/Prospectus:
1. Carnegie's Annual Report on Form 10-K for the year
ended December 31, 1997.
2. The description of the Carnegie Common Stock
contained in Carnegie's Registration Statement on
Form 8-A filed pursuant to the Exchange Act,
including any amendment thereto or report filed
under the Exchange Act for the purpose of updating
such description.
In addition, all documents filed by Sovereign and
Carnegie 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 Annual 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. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, ON WRITTEN OR ORAL REQUEST. DOCUMENTS RELATING TO
SOVEREIGN MAY BE REQUESTED FROM SOVEREIGN BANCORP, INC.,
1130 BERKSHIRE BOULEVARD, WYOMISSING, PENNSYLVANIA 19610
(TELEPHONE NUMBER (610) 320-8400), ATTENTION: LAWRENCE M.
THOMPSON, JR., SECRETARY. DOCUMENTS RELATING TO CARNEGIE MAY BE
REQUESTED FROM CARNEGIE BANCORP, 619 ALEXANDER AVENUE, PRINCETON,
NEW JERSEY 08540 (TELEPHONE NUMBER (609) 243-7500), ATTENTION:
RICHARD P. ROSA, SECRETARY. IN ORDER TO ENSURE DELIVERY OF THE
DOCUMENTS PRIOR TO CARNEGIE'S ANNUAL MEETING REQUESTS SHOULD BE
RECEIVED BY MAY __, 1998.
<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 Carnegie 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 and
exchange ratio information under 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."
Carnegie
Carnegie, a New Jersey corporation, is the holding
company for Carnegie Bank, N.A., a national banking association
("Carnegie Bank"). At December 31, 1997, Carnegie had total
consolidated assets, deposits and shareholders' equity of
approximately $431.9 million, $332.9 million and $35.2 million,
respectively. The sole active subsidiary of Carnegie is Carnegie
Bank, which has 8 branches located in Burlington, Hunterdon,
Mercer, Morris, Ocean and Somerset Counties, New Jersey and Bucks
County, Pennsylvania. Carnegie Bank is principally engaged in
the business of taking deposits and making primarily commercial
loans, commercial mortgages, loans to professionals, and to a
lesser extent, residential mortgage loans.
The principal executive offices of Carnegie are located
at 619 Alexander Road, Princeton, New Jersey 08540 and its
telephone number is (609) 243-7500. For additional information
concerning Carnegie, see "AVAILABLE INFORMATION," "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE," "CARNEGIE SELECTED FINANCIAL
DATA" and "INFORMATION WITH RESPECT TO CARNEGIE."
The Annual Meeting
General
The Annual Meeting will be held at the main office of
Carnegie Bank, NA, the Company's wholly-owned subsidiary, located
at 619 Alexander Road, Princeton, New Jersey 08540 at 4:00 p.m.,
local time, on June 25, 1998.
Record Date
The record date for the Annual Meeting is May [1], 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 Annual Meeting.
Matters to be Considered at the Annual Meeting
At the Annual Meeting, holders of Carnegie 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, to
account for the possibility that the Merger Agreement will not be
approved by the Shareholders of Carnegie or that the Merger will
not be consummated for any other reason, shareholders of Carnegie
are being asked to (1) vote on the election of nine (9) directors
of Carnegie to hold office until the next annual meeting of
shareholders and until their successors are duly elected and
qualified (the "Election Proposal"); and (2) approve a proposal
to adjourn the Annual Meeting, if necessary, to permit further
solicitation of proxies in the event there are not sufficient
votes at the Annual Meeting to approve the Merger Agreement (the
"Adjournment Proposal"). The vote on the Election Proposal will
only be given effect if the Merger Agreement is not approved or
the Merger is not otherwise consummated. Shareholders will also
consider and vote upon any other matter that may properly come
before the Annual Meeting.
See "THE ANNUAL MEETING -- Matters to be Considered at
the Annual 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
Annual Meeting for a quorum to be present for purposes of voting
on the Merger Agreement and on the Adjournment and Election
Proposals. The approval and adoption of the Merger Agreement and
the approval of the Adjournment and Election Proposals will each
require the affirmative vote of a majority of the votes cast, in
person or by proxy, at the Annual Meeting. With respect to the
Election Proposal, which will only be given effect if the Merger
Agreement is not approved by the shareholders of Carnegie or if
the Merger is not otherwise consummated, the directors of
Carnegie will be elected by a plurality of the votes cast by
shareholders of Carnegie present at the Annual Meeting in person
or represented by proxy. Each holder of shares of Carnegie
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 Annual Meeting.
The directors and executive officers of Carnegie have
agreed to vote all shares of Carnegie 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 Carnegie owned approximately 188,722 shares of
Carnegie Common Stock, or approximately 6.9% of the then
outstanding shares of Carnegie Common Stock. Except for John
Hancock Advisers, Inc. which owns 5.0% of the outstanding common
stock of Carnegie based upon a recently filed Schedule 13G,
management of Carnegie is not aware of any person or entity
owning 5% or more of the outstanding shares of Carnegie Common
Stock as of the Record Date.
See "THE ANNUAL MEETING -- Votes Required."
The Merger
Principal Terms of the Merger
At the Effective Date of the Merger, each outstanding
share of Carnegie 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
$35.50 divided by the average of the last reported sales 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 Carnegie will be entitled to receive a fixed number of shares
of Sovereign Common Stock as follows:
(i) If, as of the Effective Date, the Sovereign Market
Value is less than $15.00 per share, each outstanding share of
Carnegie Common Stock (other than Excluded Shares) will be
converted into and become a right to receive 2.367 shares of
Sovereign Common Stock.
(ii) If, as of the Effective Date, the Sovereign
Market Value is greater than $18.33 per share, each outstanding
share of Carnegie Common Stock (other than Excluded Shares) will
be converted into and become a right to receive 1.937 shares of
Sovereign Common Stock.
In addition, Carnegie may elect to terminate the Merger
Agreement if (i) the Sovereign Market Value as of the date
immediately preceding the Effective Date is less than $12.06 (as
adjusted to reflect the Stock Split) and (ii) the weighted
average prices of a comparable group of nine thrift holding
companies have not declined since the date of the Merger
Agreement by an amount specified therein. However, Sovereign may
override Carnegie's termination election by increasing the number
of shares issuable in exchange for each share of Carnegie Common
Stock from 2.367 shares to such number of shares of Sovereign
Common Stock as shall have an aggregate value of $28.53 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 Carnegie Common Stock (as finally
determined, the "Exchange Ratio") accounts for the 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 Carnegie shareholders in
lieu of issuing fractional shares of Sovereign Common Stock.
In connection with the Merger, all outstanding options
to purchase shares of Carnegie Common Stock under Carnegie'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 Carnegie 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 Carnegie
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 the twenty-five day period following the fifth day on
which all conditions precedent are fulfilled or waived. See "THE
MERGER -- Effective Date."
The Merger Agreement permits Carnegie to pay its
regular quarterly cash dividend in an amount not to exceed
$.14 per share. See "THE MERGER -- Dividends."
In connection with the Merger, Carnegie Bank 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 12, 1997 (the "Bank Merger"). See "THE
MERGER -- Subsidiary Bank Merger."
No Dissenters' Rights of Appraisal
Record holders of Carnegie 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 Annual 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 Carnegie believes that the
terms of the Merger are fair and in the best interests of the
shareholders of Carnegie and has unanimously approved the Merger
Agreement. The Board of Directors of Carnegie unanimously
recommends that the shareholders of Carnegie approve the Merger
Agreement.
Opinion of Financial Advisor
Janney Montgomery Scott Inc. ("JMS") has rendered its
written opinion, dated December 12, 1997, [and updated as of the
date of this Proxy Statement/Prospectus,] to the Board of
Directors of Carnegie that, as of the [respective] date[s] of
such opinion[s], 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
Carnegie Common Stock. A copy of the opinion of JMS[, dated the
date of this Proxy Statement/Prospectus,] is attached hereto as
Annex C. First Colonial Securities Group, Inc. ("FCSG, Inc.")
acted as a co-adviser with respect to the Merger. Michael E.
Golden, a vice-chairman of the Board of Directors of Carnegie, is
Chairman and CEO of FCSG, Inc.
Carnegie has agreed to pay fees to JMS and FCSG, Inc.
for its services in connection with the Merger, a substantial
portion of which is contingent upon completion of the Merger.
For information on the assumptions made, matters
considered and limits of the reviews by JMS, see "THE MERGER --
Opinion of Financial Advisor."
Conditions to the Merger; Regulatory Approvals
The obligations of Sovereign and Carnegie 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 Carnegie. Application
has been made to obtain required regulatory approvals. No
assurance can be given that all required approvals will be
received or as to the timing or conditions of such approvals.
See "THE MERGER --Regulatory Approvals." The obligation of
Sovereign to complete the Merger is also subject to certain other
conditions, including, among other things, receipt of an opinion
from Sovereign's independent auditors to the effect that the
Merger will be treated as a pooling of interests for financial
accounting purposes. No assurances can be given that all such
conditions will be met. See "THE MERGER -- Conditions to the
Merger."
Termination; Effect of Termination
The Merger Agreement may be terminated at any time
prior to the Effective Date by mutual consent of Sovereign and
Carnegie 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 (A) 30 days after the
date written notice of such breach was given to such party
committing the breach or (B) the Effective Date, (ii) the closing
date (the "Closing Date," which, under the terms of the Merger
Agreement is the same date as the Effective Date) of the Merger
shall not have occurred by September 30, 1998 or (iii) either
party receives a final unappealable administrative order from a
regulatory authority that the necessary approval will not be
granted unless the failure of such occurrence shall be due to the
failure of the party seeking to terminate the Merger Agreement to
perform or observe any agreements required to be performed by
such party by the Closing Date.
In addition, Carnegie may terminate the Merger
Agreement if both (a) the Sovereign Market Value as of the date
immediately preceding the Closing Date (the "Determination Date")
is less than $12.06 and (b) the quotient obtained by dividing the
Sovereign Market Value as of the Determination Date by $16.07
(being the closing sale price of Sovereign Common Stock
immediately preceding public announcement of the Merger) is less
than (i) the quotient obtained by dividing the weighted average
closing price per share (the "Index Price") of the common stocks
of a group of nine specified thrift holding companies (the "Index
Group") as of the Determination Date by $_____ (being the Index
Price on December 11, 1997) minus (ii) 0.15; provided, however,
that if Carnegie elects to terminate the Merger Agreement in
accordance with these provisions, Sovereign may nonetheless elect
to override Carnegie's termination by increasing the Exchange
Ratio to an amount which equals the quotient obtained by dividing
$28.53 by the Sovereign Market Value as of the Determination
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"). Carnegie 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 Carnegie 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
Carnegie. The most significant of these differences include the
following: the absence of the ability of shareholders of
Sovereign to call a annual 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 annual 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
(Carnegie 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. See "THE MERGER -- Subsidiary Bank Merger,"
and "-- Management and Operations after the Merger."
No Solicitation
Carnegie has agreed in the Merger Agreement that,
during the term of the Merger Agreement, neither it nor any of
its subsidiaries, affiliates or representatives will solicit or
engage in any discussions with any person other than Sovereign
concerning any acquisition of Carnegie or any of its
subsidiaries, except that (i) the Board of Directors of Carnegie
may respond to unsolicited inquiries from third parties to the
extent required in order to fulfill its fiduciary duty and
(ii) Carnegie 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
Carnegie shareholders transmittal materials for use in effecting
the exchange of their certificates representing whole shares of
Carnegie Common Stock for certificates representing shares of
Sovereign Common Stock. Sovereign will pay holders of Carnegie
Common Stock cash in lieu of issuing fractional shares of
Sovereign Common Stock. See "THE MERGER -- Exchange of Carnegie
Stock Certificates."
Certain Related Transactions
As a condition to Sovereign entering into the Merger
Agreement, Carnegie granted Sovereign an option under certain
circumstances to purchase up to 543,888 shares of Carnegie Common
Stock pursuant to a Stock Option Agreement, dated December 12,
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 Carnegie prior to the termination of
the Merger Agreement. The exercise price per share to purchase
Carnegie Common Stock under the Stock Option Agreement is equal
to the lower of $31.00 or the lowest price per share that a
person or group, other than Sovereign or an affiliate of
Sovereign, paid or offers to pay for Carnegie Common Stock upon
the occurrence of one of the specified events that triggers the
ability of Sovereign to exercise the option. None of such
triggering events has occurred as of the date hereof.
Acquisitions of shares of Carnegie 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 Carnegie have
agreed not to sell their shares of Carnegie Common Stock and to
vote such Carnegie 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
Carnegie'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
Carnegie from considering or proposing such an acquisition, even
if such persons were prepared to pay a higher price per share for
Carnegie 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 Carnegie 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 Carnegie
are the holders of stock options to acquire Carnegie Common
Stock, which will be converted into options to acquire Sovereign
Common Stock.
Mr. Bruce A. Mahon, the Chairman of the Board of
Carnegie, is a party to a consulting agreement with Carnegie
which provides, among other things, that upon his voluntary or
involuntary termination of service following a "change in
control" of Carnegie (which would include the Merger) he would be
entitled to receive his base salary and bonuses for a period of
30 months after such termination. Mr. Mahon has indicated his
intention to terminate his service upon the Effective Date.
Sovereign has agreed that Mr. Mahon shall be paid his termination
benefits under his agreement calculated as though a change in
control had occurred on June 30, 1998. Accordingly, in
connection with the consummation of the Merger, Mr. Mahon will
receive payments, including the value of non-cash benefits,
having a present value of approximately $216,019 under his
agreement. See "INTERESTS OF CERTAIN PERSONS IN THE MERGER --
Employment Agreements."
Mr. Thomas L. Gray, Jr., the President and Chief
Executive Officer of Carnegie, is a party to an employment
agreement with Carnegie which provides, among other things, that
upon his voluntary or involuntary termination of employment
following a "change in control" of Carnegie (which would include
the Merger) he would be entitled to receive his base salary and
bonuses for a period of 30 months after such termination.
Mr. Gray has indicated his intention to terminate his employment
upon the Effective Date. Sovereign has agreed that Mr. Gray
shall be paid his termination benefits under his employment
agreement calculated as though a change in control had occurred
on June 30, 1998. Accordingly, in connection with consummation
of the Merger, Mr. Gray will receive payments, including the
value of non-cash benefits, having a present value of
approximately $1,123,565 under his employment agreement. See
"INTERESTS OF CERTAIN PERSONS IN THE MERGER -- Employment
Agreements."
Mr. Mark A. Wolters, the Executive Vice President of
Carnegie, is a party to an employment agreement with Carnegie
which provides, among other things, that upon his voluntary or
involuntary termination of employment following a "change in
control" of Carnegie (which would include the Merger) he would be
entitled to receive his base salary and bonuses for a period of
18 months after such termination. Mr. Wolters has indicated his
intention to terminate his employment upon the Effective Date.
Sovereign has agreed that Mr. Wolters shall be paid his
termination benefits under his employment agreement calculated as
though a change in control had occurred on June 30, 1998.
Accordingly, in connection with the consummation of the Merger,
Mr. Wolters will receive payments, including the value of non-
cash benefits, having a present value of approximately $308,663,
under his employment agreement. See "INTERESTS OF CERTAIN
PERSONS IN THE MERGER -- Employment Agreements."
In the Merger Agreement, Sovereign has agreed that
Mr. Richard Rosa, Senior Vice President and Chief Financial
Officer of Carnegie, will be entitled to six months of base
salary which by agreement includes an allowance for car expenses,
medical and dental benefits, and prorated bonus (based on his
1997 bonus), as severance pay in the event Mr. Rosa's employment
is terminated in connection with the Merger within three months
of the Effective Date, either because his position is eliminated
or he is not offered employment for a position of generally
similar job description or responsibilities in a location within
30 miles of his present work location. Assuming a change in
control occurred on June 30, 1998, followed by Mr. Rosa's
termination of employment, he would receive payments, including
the value of non-cash benefits, having a present value of
approximately $61,183. See "INTERESTS OF CERTAIN PERSONS IN THE
MERGER -- Annual Termination Agreement."
Also, Sovereign has agreed to indemnify, after the
Effective Date, persons who served as directors and officers of
Carnegie and Carnegie Bank. 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 Carnegie, (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 Carnegie
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 1.937 shares of Sovereign Common
Stock for each share of Carnegie 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 Carnegie,
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>
At December 31, At December 31,
1997 1996
Book Value Per Common Share:
Historical(1):
Sovereign................. $ 6.71 $ 5.97
Carnegie.................. 12.80 11.65
Pro Forma(2):
Pro forma per share of
Sovereign Common Stock.. 6.71 5.97
Equivalent pro forma per
share of Carnegie Common
Stock................... 13.00 11.56
For the year ended
December 31,
1997 1996 1995
Cash Dividends Paid Per Common Share:
Historical(1):
Sovereign............................. $0.09 $0.12 $0.11
Carnegie.............................. 0.56 0.49 0.48
Pro Forma(3):
Pro forma per share of Sovereign
Common Stock........................ 0.09 0.12 0.11
Equivalent pro forma per share
of Carnegie Common Stock............ 0.18 0.24 0.21
Income from Continuing Operations Per
Common Share:
Basic Earnings per Share:
Historical(1):
Sovereign............................. 0.69 0.62 0.68
Carnegie.............................. 1.55 1.10 1.11
Pro Forma(4):
Pro forma per share of Sovereign
Common Stock........................ 0.69 0.62 0.67
Equivalent pro forma per share of
Carnegie Common Stock............... 1.34 1.20 1.30
Diluted Earnings Per Share:
Historical:
Sovereign............................. 0.65 0.59 0.65
Carnegie.............................. 1.42 1.00 1.08
Pro Forma:
Pro forma per share of Sovereign
Common Stock........................ 0.65 0.58 0.65
Equivalent pro forma per share of
Carnegie Common Stock............... 1.26 1.12 1.26
__________________
(1) Sovereign historical information includes the effect of
Sovereign's acquisition of ML Bancorp, Inc. on February 27,
1998, but does not include the effect of Sovereign's pending
acquisition of First Home Bancorp Inc. See "Recent
Developments."
(2) 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 (_____________ as of
December 31, 1997 and _____________ as of December 31, 1996)
plus the additional amount of shares that would be issued
assuming conversion of all Sovereign's outstanding 6 1/4%
Cumulative Convertible Preferred Stock, Series B ("Series B
Preferred Stock"), (14,342,621 shares at December 31, 1997),
and (ii) the total of 2,751,816 shares of Carnegie Common
Stock outstanding as of December 31, 1997 multiplied by an
Exchange Ratio of 1.937 shares of Sovereign Common Stock for
each share of Carnegie 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 Carnegie Common Stock represents the pro
forma book value per share of Sovereign Common Stock
multiplied by an Exchange Ratio of 1.937 (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."
(3) Sovereign pro forma dividends per share represent historical
dividends paid by Sovereign. Carnegie pro forma equivalent
dividends per share represent such amounts multiplied by an
Exchange Ratio of 1.937 shares of Sovereign Common Stock for
each share of Carnegie 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."
(4) Sovereign pro forma income from continuing operations per
basic common share represents historical net income from
continuing operations for Sovereign and Carnegie combined on
the assumption that Sovereign and Carnegie 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 1.937 shares of
Sovereign Common Stock for each share of Carnegie 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).
Carnegie equivalent pro forma income from continuing
operations per basic common share represents such amounts
multiplied by an Exchange Ratio of _____ shares of Sovereign
Common Stock for each share of Carnegie 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). Sovereign's
pro forma income from continuing operations per diluted
common share and Carnegie's equivalent pro forma income from
continuing operations per diluted common share includes the
effects of conversion of Sovereign's Series B Preferred
Stock and the effects of presently exercisable stock options
(1,507,095 for Sovereign and 309,191 for Carnegie). 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
Carnegie Common Stock and the equivalent market value per share
of Carnegie Common Stock on December 11, 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 Carnegie Common Stock indicated in the table (i) at
December 11, 1997 is based on an Exchange Ratio of 1.937 shares
of Sovereign Common Stock for each share of Carnegie 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 December 11, 1997) and (ii) at May __,
1998 is based on an Exchange Ratio of ____ shares of Sovereign
Common Stock for each share of Carnegie 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 Carnegie Common Stock and the historical market
value of Sovereign Common Stock used to determine the equivalent
market value per share of Carnegie Common Stock are the per share
last sale prices on December 11, 1997, and May __, 1998,
respectively, as reported on the Nasdaq Stock Market National
Market with respect to both Sovereign Common Stock and Carnegie
Common Stock.
Sovereign Carnegie
Equivalent
Market Value
Historical Historical Per Share
December 11, 1997 $ $31.00 $ (1)
May __, 1998 _____ ______ ______(2)
_________________
(1) Based on assumed Exchange Ratio of 1.937.
(2) 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 First Home Bancorp Inc. On
December 18, 1997, Sovereign and First Home Bancorp Inc. ("First
Home"), parent company of First Home Savings Bank, F.S.B. ("First
Home Bank"), entered into an Agreement and Plan of Merger (the
"First Home Agreement") pursuant to which First Home agreed to
merge with and into Sovereign. First Home is a thrift holding
company headquartered in Pennsville, New Jersey. First Home Bank
operates eight community banking offices in southern New Jersey
and two community banking offices in Delaware. At December 31,
1997, First Home had total unaudited consolidated assets,
deposits and shareholders' equity of approximately
$537.8 million, $326.0 million and $37.4 million, respectively.
The terms of the First Home Agreement call for Sovereign to
exchange $31.25 in Sovereign Common Stock for each outstanding
share of First Home common stock or approximately $85 million in
Sovereign Common Stock based on 2,708,426 shares of First Home
common stock outstanding.
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 interests 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 24,600,000 shares
of Sovereign common stock in the ML Bancorp transaction.
Redemption of Series B Preferred Stock. On April 15,
1998, 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.
Acquisition of First Union Corporation/CoreStates
Bank, N.A. Assets. On April 27, 1998, Sovereign announced that
it had agreed to acquire 95 branch offices, approximately $2.3
billion in associated deposits and approximately $800 million in
selected loans from CoreStates Bank, N.A. ("CoreStates") for a
purchase price of $318 million. The branches are located in 20
counties in Pennsylvania, including 23 branches in the
Philadelphia area, nine branches in the Lehigh Valley and
42 branches in central and north-central Pennsylvania, and 9
counties in New Jersey. The transaction will be accounted for as
a purchase and is expected to close in the third quarter of 1998.
[END OF SUMMARY]
<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 Carnegie, and
(iii) certain unaudited pro forma combined selected financial
data giving effect to the Merger assuming that shareholders of
Carnegie will receive 1.937 shares of Sovereign Common Stock for
each share of Carnegie 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 Carnegie, 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>
SOVEREIGN SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
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 4,668,423
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 have 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>
CARNEGIE 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>
Income Statement Data
Interest income $32,414 $24,464 $18,706 $13,555 $9,877
Interest expense 16,037 10,884 8,464 5,149 3,639
Net interest income 16,377 13,580 10,242 8,406 6,238
Provisions for loan losses 446 1,609 369 650 429
Net interest income after provision
for loan losses 15,931 11,971 9,873 7,756 5,809
Non-interest income 1,034 1,360 744 495 471
Non-interest expense 11,482 10,054 7,724 6,056 4,696
Income before income taxes 5,483 3,277 2,893 2,195 1,584
Income tax expense 1,858 1,133 765 656 520
Net income $ 3,625 $ 2,144 $ 2,128 $ 1,539 $1,064
======= ======= ======= ======= ======
Per Share Date
Net income - basic 1.55 $1.10 $1.11 $1.11 $0.98
- diluted 1.42 1.00 1.08 1.11 0.98
Cash dividends (1) 0.56 0.49 0.48 0.40 0.32
Book Value 12.80 11.65 11.27 9.56 9.90
Weighted average shares outstanding:
- primary 2,336,058 1,943,760 1,925,158 1,381,622 1,090,680
- fully diluted 2,544,075 2,141,255 1,964,590 1,381,622 1,090,680
Financial Condition Data
Total assets $431,886 $343,357 $250,562 $195,654 $154,363
Federal funds sold 1,725 - - - 2,350
Loans, net 284,789 263,797 162,587 138,897 116,266
Investment securities 121,471 53,374 70,577 44,920 28,728
Deposits 332,897 302,562 210,201 176,789 143,178
Stockholders' equity 35,224 23,742 21,794 18,056 10,798
Average equity to average total assets 7.39% 7.75% 8.84% 7.67% 7.10%
Performance Ratios
Return on average assets 0.94% 0.75% 0.95% 0.87% 0.81%
Return on average stockholders' equity 12.69% 9.68% 10.72% 11.39% 11.38%
Net interest margin(2) 4.50% 5.11% 5.02% 5.16% 5.08%
Ratio of earnings to fixed charges(3) 1.34 1.29 1.33 1.42 1.42
Asset Quality Ratios
Allowance for loan losses to total loans 1.03% 1.00% 1.07% 1.00% 0.84%
Allowance for loan losses to non-accrual loans 68.19% 79.74% 43.56% 67.80% 30.44%
Non-performing loans to total loans 1.51% 1.25% 2.45% 1.47% 2.75%
Non-performing assets to total assets 1.12% 1.11% 1.61% 1.06% 2.09%
Net charge-offs (recoveries) to average loans 0.06% 0.34% 0.01% 0.19% 0.28%
Liquidity and Capital Ratios
Dividend payout 36.09% 44.42% 43.42% 35.91% 32.80%
Loans to deposits 86.44% 88.07% 78.18% 79.36% 81.89%
Tier I risk-based capital 11.81% 8.81% 12.04% 14.06% 9.61%
Total risk-based capital 12.80% 9.79% 13.03% 15.06% 10.48%
Leverage capital 8.36% 7.20% 8.87% 10.47% 8.20%
<FN>
(1) Cash dividends per share have not been restated for stock dividends.
(2) Yields on tax-exempt obligations have been computed on a fully tax-equivalent basis,
assuming a Federal income tax rate of 34%.
(3) The ratio of earnings to fixed charges is calculated by dividing income from continuing
operations before fixed charges and income taxes ("earnings") by fixed charges. Fixed
charges consist of interest expense and that portion of rental expense that Carnegie
believes to be representative of interest.
</TABLE>
<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, Inc., which was completed
on February 27, 1998, and Sovereign's proposed acquisition of
First Home Bancorp, Inc. which is pending and considered probable
of completion. See "RECENT DEVELOPMENTS" and "THE MERGER --
Accounting Treatment."
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 1.937 shares of Sovereign Common Stock for each
share of Carnegie 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 Carnegie as of
December 31, 1997. The Merger has been reflected as a pooling of
interests. Sovereign historical financial information has been
restated to include the effects of the acquisition of ML Bancorp
on February 27, 1998, which was accounted for as a pooling of
interests. Combined Sovereign and Carnegie information also
includes the effects of Sovereign's pending acquisition of First
Home, which will be accounted for a pooling of interests. (The
Merger and the First Home transaction 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 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 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 form 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(1)
(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(2). $ 0.69 $ 1.75 $ 1.55 $ 0.71
========== ========== ========== ==========
Diluted earnings per share(2) $ 0.65 $ 1.72 $ 1.42 $ 0.66
========== ========== ========== ==========
__________________________
<FN>
(1) The unaudited pro forma financial information does not include any non-recurring material expenses related to the Merger,
the First Home Acquisition, or the ML Bancorp Acquisition. Sovereign currently estimates after-tax merger-related charges
in the range of (i) $25.8 million, or $0.17 per share, related to the ML Bancorp Acquisition, taken in the first quarter
1998, (ii) $__________ to $____________ million, or $_____________ to ___________ per share, related to the First Home
Acquisition, expected to be taken in the 2nd quarter 1998; and (iii) $__________ to $__________ million, or $___________ or
$_____________ per share related to the Merger expected to be taken in the 2nd quarter 1998.
(2) For Carnegie, based on a weighted average of shares outstanding equal to 2,336 for basic earnings and 2,544 for earnings on
a diluted basis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996(1)
(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(2). $ 0.62 $ 1.58 $ 1.10 $ 0.63
========== ========== ========== ==========
Diluted earnings per share(2) $ 0.59 $ 1.57 $ 1.00 $ 0.60
========== ========== ========== ==========
______________________
<FN>
(1) The unaudited pro forma financial information does not include any non-recurring material expenses related to the Merger,
the First Home Acquisition, or the ML Bancorp Acquisition. Sovereign currently estimates after-tax merger-related charges
in the range of (i) $25.8 million, or $0.17 per share, related to the ML Bancorp Acquisition, taken in the first quarter
1998, (ii) $__________ to $____________ million, or $_____________ to ___________ per share, related to the First Home
Acquisition, expected to be taken in the 2nd quarter 1998; and (iii) $__________ to $__________ million, or $___________ or
$_____________ per share related to the Merger expected to be taken in the 2nd quarter 1998.
(2) For Carnegie, based on a weighted average of shares outstanding equal to 1,944 for basic earnings and 2,141 for earnings on
a diluted basis.
</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(1). $ 0.68 $ 1.74 $ 1.11 $ 0.69
========== ========== ========== ==========
Diluted earnings per share(1) $ 0.65 $ 1.74 $ 1.08 $ 0.66
========== ========== ========== ==========
______________________
<FN>
(1) For Carnegie, based on a weighted average of shares outstanding equal to 1,925 for basic earnings and 1,965 for earnings on
a diluted basis.
</TABLE>
<PAGE>
THE ANNUAL MEETING
Date, Time and Place
The Annual Meeting will be held at the main office of
Carnegie Bank, NA, the wholly-owned subsidiary of the Company,
located at 619 Alexander Road, Princeton, New Jersey 08540, at
4:00 p.m. local time, on June 25, 1998.
Matters To Be Considered at the Annual Meetings
At the Annual Meeting, holders of Carnegie Common Stock
will be asked to consider and vote upon proposals to:
(i) approve and adopt the Merger Agreement, (ii) approve the
Adjournment Proposal and alternatively, (iii) to account for the
possibility that the Merger Agreement will not be approved by the
shareholders of Carnegie or that the Merger will not be
consummated for any other reason, to elect nine (9) directors to
the Carnegie Board of Directors. Shareholders may also consider
such other matters as may properly be brought before the Annual
Meeting.
The Board of Directors of Carnegie 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.
The following nine individuals have been nominated as directors
of Carnegie in the event the Merger is not consummated:
Theodore H. Dolci, Jr., Michael E. Golden, Thomas L. Gray, Jr.,
Bruce A. Mahon, James E. Quackenbush, Steven L. Shapiro,
Shelley M. Zeiger, Mark A. Wolters, and Joseph J. Oakes, III. It
is the intention of the persons named in the accompanying proxy
to vote for the election of the nine nominees unless contrary
instructions are given or authority to do so is withheld.
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 Annual Meeting. Directors of Carnegie will be
elected by a plurality of the votes cast by the shareholders of
Carnegie. The election of Carnegie directors will only be given
effect if the Merger Agreement is not approved by the
shareholders of Carnegie or if the Merger is not otherwise
consummated.
Each holder of shares of Carnegie Common Stock
outstanding on the Record Date will be entitled to one vote for
each share held of record on each mater to be considered at the
Annual Meeting.
The directors and executive officers of Carnegie have
agreed to vote all shares of Carnegie 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 Carnegie and their affiliates beneficially owned and
were entitled to vote approximately 188,722 shares of Carnegie
Common Stock, which represented approximately 6.9% of the shares
of Carnegie Common Stock outstanding on the Record Date. Except
for John Hancock Advisers, Inc. which owns 5.0% of the
outstanding common stock of Carnegie based upon a recently filed
Schedule 13G, management of Carnegie is not aware of any person
or entity owning 5% or more of the outstanding shares of Carnegie
Common Stock as of the Record Date.
Voting of Proxies
Carnegie intends to count shares of Carnegie Common
Stock present in person at the Annual Meeting but not voting,
shares of Carnegie Common Stock for which it had received proxies
but with respect to which holders of shares have abstained on any
matter, and shares of Carnegie Common Stock for which it received
proxies from a broker with no indication of how shares are to be
voted (a "broker non-vote") as present at the Annual Meeting for
purposes of determining the presence or absence of a quorum for
the transaction of business.
Shares represented by all properly executed proxies
received in time for the Annual Meeting will be voted at the
Annual 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 and for the election of the
nine (9) nominated directors.
Under New Jersey Law, Carnegie's Certificate of
Incorporation and the rules of the National Association of
Securities Dealers ("NASD") applicable to Carnegie, the
affirmative vote of a majority of votes cast in person or by
proxy at the Annual Meeting is required to approve the Merger
Agreement and the Carnegie Adjournment Proposal. Directors of
Carnegie will be elected by a plurality of the votes cast be
shareholders of Carnegie. Abstentions and broker non-votes
relating to shares of Carnegie Common Stock will not constitute
or be counted as votes "cast" for purposes of the Annual Meeting.
It is not expected that any matter other than those
referred to herein will be brought before the Annual 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 Carnegie form does
not preclude a Carnegie shareholder from voting in person. A
Carnegie shareholder may revoke a proxy at any time prior to its
exercise by filing with the Secretary of Carnegie a duly executed
revocation of proxy, by submitting a duly executed proxy bearing
a later date or by appearing at the Annual Meeting and voting in
person at such Meeting. Attendance at the Annual Meeting will
not, in and of itself, constitute revocation of a proxy.
Record Date; Stock Entitled to Vote; Quorum
Only holders of record of Carnegie Common Stock on the
Record Date will be entitled to notice of, and to vote at, the
Annual Meeting. On the Record Date, _________ shares of Carnegie
Common Stock were issued and outstanding and held by
approximately ______ holders of record.
Shareholders entitled to cast at least a majority of
the votes which all shareholders are entitled to cast on the
Carnegie Record Date must be represented in person or by proxy at
the Carnegie Annual Meeting in order for a quorum to be present
for purposes of voting on approval of the Merger Agreement and
the Adjournment and Election Proposal at the Annual Meeting.
Solicitation of Proxies
Carnegie will bear the cost of the solicitation of
proxies from its shareholders. Sovereign and Carnegie 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 Carnegie at Sovereign's
request. In addition to solicitation by mail, the directors,
officers and employees of Carnegie 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 Carnegie will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-
pocket expenses in connection therewith.
_______________________________ will assist in the
solicitation of proxies by Carnegie for a fee of $_______, plus
reasonable out-of-pocket expenses.
CARNEGIE SHAREHOLDERS SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXY CARDS. AS DESCRIBED BELOW UNDER
THE CAPTION "THE MERGER -- EXCHANGE OF CARNEGIE STOCK
CERTIFICATES," EACH CARNEGIE SHAREHOLDER WILL BE PROVIDED WITH
MATERIALS FOR EXCHANGING SHARES OF CARNEGIE COMMON STOCK AS
PROMPTLY AS PRACTICABLE AFTER THE EFFECTIVE DATE.
<PAGE>
THE MERGER
Background of and Reasons for the Merger
Background of the Merger
In September 1997, Carnegie's Vice Chairman, Michael E.
Golden received an unsolicited letter (the "Unsolicited Offer")
from a Pennsylvania-based bank holding company, in which the bank
holding company expressed an interest in acquiring or combining
with Carnegie. A copy of the solicitation was forwarded to
Carnegie's President, Thomas L. Gray, Jr., and Carnegie's Board
of Directors.
In response to the Unsolicited Offer, Carnegie's Board
determined to retain an independent investment banking firm to
act as financial advisors to the Board in evaluating and
responding to the Unsolicited Offer and to advise the board with
respect to potential alternative strategies. Following
interviews of six investment banking firms, in early October
Carnegie's Board retained Janney Montgomery Scott Inc. ("JMS")
and First Colonial Securities Group, Inc. (the "Co-advisors").
With the assistance of the Co-advisors, the Board then conducted
a further review of the Unsolicited Offer and determined that the
Unsolicited Offer previously was inadequate and not in the best
interests of Carnegie's shareholders. Accordingly, the offer was
rejected.
As part of its subsequent review of strategic
alternatives for Carnegie and its shareholders, management and
Carnegie's Board, with the advice of the Co-advisors, considered
the possible affiliation of Carnegie with a larger financial
institution. To this end, JMS was authorized, among other
things, to contact potential merger partners to determine their
interest in a possible business combination with Carnegie. JMS
prepared an information booklet and contacted certain potential
acquirers, including Sovereign.
Four financial institutions submitted expressions of
interest to acquire Carnegie and JMS was authorized by Carnegie's
Board to conduct further negotiations with the three financial
institutions which had submitted expressions of interest
containing the most favorable terms to Carnegie and its
shareholders.
At the same time, a committee of Carnegie's board and
senior management, consisting of Messrs. Mahon, Gray, Wolters and
Rosa, and the Co-advisors met with representatives of each of the
three potential acquirers to further discuss terms and conditions
of potential transactions. Following these discussions, Carnegie
requested that revised expressions of interest be submitted by
November 24, 1997 to Carnegie by each of the three parties.
On November 26, 1997, Carnegie's Board of Directors met
with the Co-advisors to consider and discuss revised proposals to
acquire Carnegie which had been received from the three financial
institutions. At this meeting, the Carnegie Board determined
that the terms presented by Sovereign in its proposals were
superior to the other two offers. This determination was based
upon, among other things, a comparison of the three proposed
transactions, the analysis of each transaction made by the Co-
advisors and Carnegie's legal counsel, and a detailed review and
analysis of the history, business and the financial and market
factors affecting each institution. See "The Merger -- Reasons
for the Merger." The Carnegie Board also evaluated the liquidity
and trading characteristics of Sovereign Common Stock and
concluded that Sovereign's acquisition of Carnegie would afford
Carnegie shareholders greater liquidity and an ownership interest
in a larger entity capable of competing more effectively with
other financial institutions.
At the conclusion of its November 26 meeting, the Board
authorized Carnegie's management, with the assistance of the Co-
advisors and legal counsel, to conduct further due diligence and
to begin negotiating a definitive merger agreement with
Sovereign.
The Carnegie Board met again on December 12, 1997
following completion of Carnegie's due diligence examination of
Sovereign, to consider approval of a definitive agreement with
Sovereign. At that meeting, the Carnegie Board received the
verbal opinion of the Co-advisors to the effect that the proposed
consideration to be received by Carnegie's shareholders pursuant
to the Merger was fair to such shareholders from a financial
point of view. After further deliberation, the Carnegie Board
approved the Merger Agreement and the Agreement was executed on
behalf of Carnegie as of December 12, 1997.
Reasons for the Merger
The Carnegie Board of Directors have unanimously
approved the Merger, and believe that the Merger is in the best
interests of Carnegie and its shareholders.
Prior to reaching its conclusion, Carnegie's Board
reviewed and considered the results of a comprehensive due
diligence process and reviewed the terms of the Merger with
Carnegie management, the co-advisors and Carnegie's counsel. In
reaching its conclusion to accept Sovereign's offer and to enter
into the Merger Agreement, Carnegie's Board considered a number
of factors, including the following:
(i) Information provided by Sovereign concerning
the financial condition, results of operations and business
of Sovereign on a historical and prospective basis, together
with current industry, economic and market conditions
applicable to financial institutions, indicated that
Sovereign's management had been successful in profitably
expanding Sovereign's business and increasing its
revenues.
(ii) Pro forma financial information on the
Merger reflected pro forma book value and earnings per share
favorable to Carnegie's shareholders.
(iii) The price being paid by Sovereign in the
Merger compared favorably in terms of multiples of book
value and earnings to the recent Mergers involving
comparable financial institutions (see "The Merger --
Fairness Opinion of Carnegie's Financial Advisors").
(iv) The financial aspects of the written
proposals, including the Unsolicited Offer, received from
the other financial institutions which submitted expressions
of interest to Carnegie's representatives were less
favorable to Carnegie and its shareholders in terms of
proposed exchange ratios and multiples of book value and
earnings.
(v) The tax-free nature of the transaction would
benefit Carnegie's shareholders.
(vi) The co-advisor's extensive efforts to elicit
interest from other entities which might be interested in a
business combination with Carnegie indicated that the
proposals received represented a thorough check of the
acquisition market.
(vii) The greater liquidity of Sovereign Common
Stock as compared to Carnegie Common Stock would benefit
Carnegie's shareholders.
(viii) The Carnegie Board's belief that
consolidation in the financial services industry is likely
to continue.
(ix) The favorable opinion of the co-advisors
that the consideration to be received by Carnegie's
shareholders was fair from a financial point of view.
The Board of Directors of Carnegie also took into
account that Carnegie's shareholders would have the opportunity
to participate in the future growth of Sovereign by obtaining
Sovereign Common Stock in the Merger. The Carnegie Board
believes that the Merger will result in a stronger and more
effective competitor in Carnegie's markets, better able to
compete effectively in the rapidly changing marketplace for
banking and financial services to take advantage of opportunities
that might not be available to Carnegie on its own.
The foregoing does not purport to be a complete list of
the matters considered by Carnegie's Board of Directors in
approving the Merger. In approving the Merger, the Board did not
identify any one factor or group of factors as being more
significant than any other factor in the decision-making process.
Recommendation of the Carnegie Board of Directors
The Board of Directors of Carnegie believes that the
terms of the Merger are fair to, and in the best interests of,
Carnegie and its shareholders and has unanimously approved the
Merger Agreement. The Board of Directors of Carnegie unanimously
recommends that the shareholders of Carnegie approve the Merger
Agreement.
Terms of the Merger
The Merger Agreement provides that upon completion of
the Merger, Carnegie will merge with and into Sovereign, and the
separate legal existence of Carnegie will cease. As a
consequence of the Merger, all property, rights, powers, duties,
obligations, debts and liabilities of Carnegie will automatically
be taken and deemed to be transferred to and vested in Sovereign,
in accordance with Pennsylvania and New Jersey law. Sovereign,
as the surviving corporation, will be governed by the Articles of
Incorporation and Bylaws of Sovereign in effect immediately prior
to completion of the Merger. The directors and executive
officers of Sovereign prior to the Merger will continue, in their
respective capacities, as the directors and executive officers of
Sovereign after the Merger.
Upon completion of the Merger, each outstanding share
of Carnegie 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 $35.50
divided by the average of the 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 Carnegie will be entitled to
receive a fixed number of shares of Sovereign Common Stock as
follows:
(i) If, as of the Effective Date, the Sovereign Market
Value is less than $15.00 per share, each outstanding share of
Carnegie Common Stock (other than Excluded Shares) will be
converted into and become a right to receive 2.366 shares of
Sovereign Common Stock.
(ii) If, as of the Effective Date, the Sovereign
Market Value is greater than $18.33 per share, each outstanding
share of Carnegie Common Stock (other than Excluded Shares) will
be converted into and become a right to receive 1.937 shares of
Sovereign Common Stock.
In addition, Carnegie may elect to terminate the Merger
Agreement if (i) the Sovereign Market Value as of the date
immediately preceding the Effective Date is less than $12.06 and
(ii) the weighted average prices of a comparable group of nine
thrift holding companies have not declined by a specific amount.
However, Sovereign may override Carnegie's termination election
by increasing the number of shares issuable in exchange for each
share of Carnegie Common Stock from 2.366 shares to such number
of shares of Sovereign Common Stock as shall have an aggregate
value of $28.53 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 Carnegie 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 Carnegie will receive cash in lieu of
fractional shares of Sovereign Common Stock. See " -- Exchange
of Carnegie Stock Certificates" herein.
As of the Record Date, directors and executive officers
of Carnegie and/or Carnegie Bank have been granted options to
purchase 384,921 shares of Carnegie 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 Carnegie 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 Carnegie under which they were issued.
The Sovereign Common Stock and cash to be received by
the holders of Carnegie Common Stock (including the holders of
options to acquire Carnegie Common Stock) in exchange for each
share (other than Excluded Shares) of Carnegie Common Stock
(including shares subject to options) are referred to herein as
the "Merger Consideration."
Fairness Opinion of Carnegie's Financial Advisor
Carnegie has retained Janney Montgomery Scott ("JMS")
to act as its financial advisor and to render a fairness opinion.
JMS has delivered opinions to Carnegie's Board of Directors that,
based upon and subject to the various considerations set forth
therein, as of December 12, 1997, and as of the date of this
Proxy Statement/Prospectus, the Exchange Ratio is fair, from a
financial point of view, to the holders of Carnegie Common Stock.
The full text of JMS' opinion as of the date thereof,
which sets forth the assumptions made, matters considered and
limitations of the review undertaken, is attached as Annex C to
this Proxy Statement/Prospectus, is incorporated herein by
reference, and should be read in its entirety in connection with
this Proxy Statement/Prospectus. The summary of the opinion of
JMS set forth herein is qualified in its entirety by reference to
the full text of such opinion attached as Annex C to this Proxy
Statement/Prospectus. The Proxy Opinion of JMS is directed only
to the Exchange Ratio and does not constitute a recommendation to
any holder of Carnegie Common Stock as to how such shareholder
should vote at the Special Meeting.
JMS was selected to render its opinions based upon its
qualifications, expertise and experience. JMS has knowledge of,
and experience with, New Jersey and Pennsylvania banking markets
and banking organizations operating in those markets and was
selected by Carnegie because of its knowledge of, experience
with, and reputation in the financial services industry. In
addition, JMS lead-managed a unit offering for Carnegie in August
1994 and assisted in the exercise of warrants in August 1998.
On December 12, 1997, the Carnegie Board of Directors
approved the Merger Agreement and JMS delivered an oral opinion
(the "Preliminary Opinion") to the Carnegie Board of Directors
stating that, as of such date, the Carnegie Exchange Ratio was
fair to the holders of Carnegie Common Stock from a financial
point of view. JMS reached the same opinion as of the date of
this Proxy Statement/Prospectus.
In connection with rendering its Proxy Opinion, JMS,
among other things: (i) reviewed the historical financial
performances, current financial positions and general prospects
of Carnegie and Sovereign, (ii) considered the proposed financial
terms of the Merger and have examined the projected consequences
of the Merger with respect to, among other things, market value,
earnings per share and book value per share of Carnegie Common
Stock, (iii) to the extent deemed relevant, analyzed selected
public information of certain other banks and bank holding
companies and compared Carnegie and Sovereign from a financial
point of view to these other banks and bank holding companies,
(iv) reviewed the historical market price ranges and trading
activity performance of the common stocks of Carnegie and
Sovereign, (v) reviewed publicly available information such as
annual reports, SEC filings and research reports, (vi) compared
the terms of the Merger with the terms of certain other
comparable transactions to the extent information concerning such
acquisitions was publicly available, (vii) discussed with certain
members of senior management of Carnegie and Sovereign the
strategic aspects of the Merger, including estimated cost savings
from the Merger, (viii) reviewed the Merger Agreement and
(ix) performed such other analyses and examinations as deemed
necessary. JMS has also had conversations with various senior
officers of Carnegie and Sovereign to discuss the foregoing as
well as other matters believed relevant to its opinion.
JMS relied without independent verification upon the
accuracy and completeness of all of the financial and other
information reviewed by and discussed with it for purposes of its
opinions. With respect to Carnegie's financial forecasts
reviewed by JMS in rendering its opinion, JMS assumed that such
financial forecasts were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the
management of Carnegie as to the future financial performance of
Carnegie. JMS did not make an independent evaluation or
appraisal of the assets (including loans) or liabilities of
Carnegie or Sovereign nor was it furnished with any such
appraisal. JMS also did not independently verify and has relied
on and assumed that all allowances for loan and lease losses set
forth in the balance sheets of Carnegie and Sovereign were
adequate and complied fully with applicable law, regulatory
policy and sound banking practice as of the date of such
financial statements.
The following is a summary of selected analyses
prepared and analyzed by JMS in connection with its Preliminary
and Proxy Opinions but does not purport to be a complete
description of the analyses undertaken by JMS. The preparation
of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to a partial
analysis or summary description. JMS believes that its analyses
must be considered as a whole and that selecting portions of such
analyses and the factors considered therein, without considering
all factors and analyses, could create an incomplete view of the
analyses and processes underlying the Preliminary and Proxy
Opinions. In performing its analyses, JMS made numerous
assumptions with respect to industry performance, business and
economic conditions and various other matters, many of which
cannot be predicted and are beyond the control of Carnegie,
Sovereign and JMS. Any estimates contained in JMS' analyses are
not necessarily indicative of future results or values, which may
be significantly more or less favorable than such estimates.
Estimates on the values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies
or their securities may actually be sold. Because such estimates
are inherently subject to uncertainty, neither Carnegie or JMS
assumes responsibility if future results or actual values are
materially different from these estimates.
Comparable Company Analysis. JMS compared selected
financial and operating data for Carnegie with those of a peer
group of selected banks and bank holding companies located in
Pennsylvania and New Jersey with assets between $250 and
$500 million (the "Peer Group"). The analysis compared price per
share as a multiple of latest twelve month earnings per share,
price per share as a percentage of estimated 1998 earnings per
share, price per share as a percentage of book value per share,
equity as a percentage of assets, nonperforming assets plus loans
90 days past due as a percentage of assets, loan loss reserve as
a percentage of nonperforming assets plus loans 90 days past due,
return on average assets, return on average equity and efficiency
ratios. The analysis also compared the compound annual growth
rates of assets, loans, deposits and earnings per share.
In addition, JMS also compared selected financial and
operating data for Sovereign with those of a peer group of
selected thrift holding companies located nationally with assets
between $5 billion and $25.0 billion (the "Sovereign Peer
Group"). The analysis compared price per share as a multiple of
latest twelve month core earnings per share, price per share as a
percentage of estimated 1998 earnings per share, price per share
as a percentage of book value per share, equity as a percentage
of assets, nonperforming assets plus loans 90 days past due as a
percentage of assets, loan loss reserves as a percentage of
nonperforming assets plus loans 90 days past due, return on
average assets, return on average equity and efficiency ratios.
Analysis of Selected Merger and Acquisition
Transactions. JMS analyzed certain financial aspects of selected
mergers and acquisitions of New Jersey banks and bank holding
companies announced since January 1, 1995, where the selling
institution was located in New Jersey, and compared the multiples
of book value, tangible book value and latest twelve months
earnings for the Merger with the multiples paid in the subject
transactions. In summary, the indicated value to be received by
shareholders of Carnegie compared favorably to the value received
in the transactions described herein.
In addition, JMS analyzed certain financial aspects of
selected mergers and acquisitions of banks and bank holding
companies announced since December 1, 1996 where the selling
institution was located in Connecticut, Maryland, Massachusetts,
New Jersey, New York, North Carolina, Pennsylvania, Virginia and
West Virginia and compared the multiples of book value, tangible
book value and latest twelve months earnings for the Merger with
the multiples paid in the subject transactions. Particular
distinction was noted for transactions involving sellers located
in New Jersey and for transactions involving sellers with total
assets between $250 million and $500 million. In summary, the
indicated value to be received by shareholders of Carnegie
compared favorably to the value received in the transactions
described herein.
Discounted Dividend Analyses. Using discounted
dividend analyses, JMS estimated the present value of the future
dividend streams that Carnegie could produce on a stand-alone
basis over a five-year period under different assumptions, if
Carnegie performed in accordance with various earnings growth
forecasts. JMS also estimated the terminal value for Carnegie's
Common Stock after the five year period by applying a range of
earnings multiples from 14 to 18 times Carnegie's terminal year
earnings. The range of multiples used reflected a variety of
scenarios regarding the growth and profitability prospects of
Carnegie. The dividend streams and terminal values were then
discounted to present value using discount rates ranging from 10%
to 15%, reflecting different assumptions regarding the rates of
return required by holders or prospective buyers of Carnegie's
Common Stock.
Analysis of Stock Price and Volume. JMS compared the
stock price per share performance for the last 52-week period for
both Carnegie and Sovereign and the daily trading volume for the
same period.
Pro Forma Merger Analysis. JMS analyzed, using
earnings estimates for Carnegie and Sovereign as reported by
First Call, certain pro forma effects resulting from the Merger
based on the proposed Exchange Ratios. The analysis indicated
that, relative to Carnegie on a stand-alone basis, the Merger
would be accretive to Carnegie's earnings per share and book
value per share and dilutive to tangible book value per share and
cash dividends per share.
In reaching its opinion as to fairness, none of the
analyses performed by JMS was assigned a greater significance by
JMS than any other. As a result of its consideration of the
aggregate of all factors present and analyses performed, JMS
reached the conclusion, and opined, that the Exchange Ratio, as
set forth in the Agreement is fair from a financial point of view
to holders of Carnegie Common Stock.
In connection with delivering its Proxy Opinion, JMS
updated certain analyses described above to reflect current
market conditions and events occurring since the date of the
Agreement. Such reviews and updates led JMS to conclude that it
was not necessary to change the conclusions it had reached in
connection with rendering the Preliminary Opinion.
JMS, as part of its investment banking business, is
regularly engaged in the valuation of assets, securities and
companies in connection with various types of asset and security
transactions, including mergers, acquisitions, private
placements, and valuation for various other purposes and in the
determination of adequate consideration in such transactions.
The Proxy Opinion of JMS was based solely upon the
information available to it and the economic, market and other
circumstances as they existed as of the date hereof; events
occurring after the date hereof could materially affect the
assumptions used in preparing its Proxy Opinion. JMS has not
undertaken to reaffirm and revise its Proxy Opinion or otherwise
comment upon any events occurring after the date hereof.
In delivering its Preliminary Opinion and Proxy
Opinion, JMS assumed that in the course of obtaining the
necessary regulatory and governmental approvals for the Merger,
no restrictions will be imposed on Carnegie that would have a
material adverse effect on the contemplated benefits of the
Merger. JMS also assumed that there would not occur any change
in applicable law or regulation that would cause a material
adverse change in the prospects or operations of Carnegie and
Sovereign after the Merger.
Pursuant to the terms of the engagement letter date
October 6, 1997, Carnegie paid JMS and First Colonial Securities,
its co-financial advisor, $25,000 upon the signing of the
engagement agreement. Carnegie paid $100,000 to JMS and First
Colonial Securities upon signing of the Merger Agreement. In
addition, Carnegie has also agreed to pay JMS and First Colonial
Securities $1.47 million upon the closing of the transaction and
to reimburse JMS and First Colonial Securities for its reasonable
out-of-pocket expenses. Whether or not the Merger is completed,
Carnegie has agreed to indemnify JMS and First Colonial
Securities and certain related persons against certain
liabilities relating to or arising out of its engagement.
THE FOREGOING PROVIDES ONLY A SUMMARY OF THE PROXY
OPINION OF JMS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THAT OPINION, WHICH IS SET FORTH AS ANNEX C TO
THIS PROXY STATEMENT/PROSPECTUS.
Effective Date of the Merger
Under the Merger Agreement, the Effective Date is the
date determined by Sovereign, in its sole discretion, upon five
days prior written notice to Carnegie, 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 Carnegie and Sovereign
to authorize the Merger and the Bank Merger shall have been duly
and validly taken, or such other date as Sovereign and Carnegie
may agree. The parties presently expect that the Effective Date
will occur on or about May __, 1998. See " -- Conditions to the
Merger" herein.
On or prior to the Effective Date, Articles of Merger
between Sovereign and Carnegie will be filed with the
Pennsylvania Department of State and the New Jersey Secretary of
State, and each such document will set forth the Effective Date.
The Merger Agreement may be terminated by either party if, among
other reasons, the Merger closing does not occur on or before
September 30, 1998 and the terminating party is not in breach of
or has not failed to perform or observe any of the agreements
under the Merger Agreement to be performed or observed by it.
See " -- Termination; Effect of Termination."
Exchange of Carnegie Stock Certificates
The conversion of Carnegie 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 Carnegie shareholder of record. The transmittal
form will contain instructions with respect to the surrender of
certificates representing Carnegie 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 Carnegie as soon as reasonably possible
but in no event later than 15 business days following the receipt
of certificates representing former shares of Carnegie Common
Stock (except in the case of share certificates containing a
restrictive legend or with respect to which stop transfer
instructions pertain) duly endorsed.
CARNEGIE SHAREHOLDERS SHOULD NOT FORWARD CARNEGIE STOCK
CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED
TRANSMITTAL FORMS. CARNEGIE SHAREHOLDERS SHOULD NOT RETURN STOCK
CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Until the certificates representing Carnegie 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 Carnegie 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 Carnegie will be liable to any
holder of shares of Carnegie 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 Carnegie Common Stock shall be deemed to
have been issued in full satisfaction of all rights pertaining to
such shares of Carnegie 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 Carnegie on such
shares of Carnegie 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 Carnegie 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 Carnegie to effect the
Merger are subject to various conditions, which include, among
other customary provisions for transactions of this type, the
following:
(a) the Merger Agreement shall have been duly
approved by the holders of Carnegie Common Stock;
(b) all necessary governmental approvals for the
Merger shall have been obtained, and all waiting periods required
by law or imposed by any governmental authority with respect to
the Merger shall have expired (see " -- Regulatory Approvals"
herein);
(c) there shall not be any order, decree, or
injunction in effect preventing the completion of the
transactions contemplated by the Merger Agreement;
(d) there shall have been delivered to each of
Sovereign and Carnegie an opinion of counsel that, among other
things, the Merger will be treated for federal income tax
purposes as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code") (see " -- Certain Federal Income Tax Consequences");
and
(e) there shall not have been any material
adverse effect on the consolidated assets, financial condition or
results of operations of the other since December 31, 1996,
except for any material adverse effect caused by any change in
the value of the respective investment portfolios of Sovereign or
Carnegie resulting from a change in interest rates generally or
any change occurring after the date of the Agreement in any
federal or state law, rule or regulation or in generally accepted
accounting principles ("GAAP"), which change affects banking
institutions generally, including any change affecting the Bank
Insurance Fund (the "BIF") or the Savings Association Insurance
Fund (the "SAIF") of the Federal Deposit Insurance Corporation (a
"Material Adverse Effect").
In addition, Sovereign's obligation to effect the
Merger is subject to, among others, the following additional
condition that 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).
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
Carnegie Bank 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, Carnegie Bank will
merge with and into Sovereign Bank, with Sovereign Bank
surviving. Sovereign and Carnegie anticipate that the Bank
Merger will be completed concurrently with the completion of the
Merger.
Regulatory Approvals
The Bank Merger is subject to the prior approval of the
Office of Thrift Supervision ("OTS") under the Bank Merger Act
and the OTS regulations adopted thereunder. An application for
approval of the Bank Merger was filed with the OTS on March 13,
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.
In addition, the OTS has the responsibility by statute
and regulation to review the performance of all involved
institutions in meeting their responsibilities under the
Community Reinvestment Act ("CRA"), which includes the record of
performance of the existing institutions in meeting the credit
needs of the entire community including low-and moderate-income
neighborhoods. Both Carnegie Bank and Sovereign Bank received
ratings of "satisfactory" in their last CRA examinations. No
protest of the Merger has been filed with the OTS under the CRA
as of the date of this Proxy Statement/Prospectus.
Because Carnegie is presently a bank holding company
and Sovereign is not, and will not be after the Merger, and
because the Bank Merger is expected to be completed concurrently
with the Merger, Sovereign has requested confirmation from the
Federal Reserve Bank of Philadelphia that no application is
necessary under the Bank Holding Company Act in connection with
the Merger. Sovereign has received such confirmation in the past
in similar transactions.
There can be no assurance that the regulatory
authorities described above will approve the Bank Merger, and, if
approved, there can be no assurance as to the date of such
approvals. The Bank Merger may not be consummated until 30 days
(15 days if the Attorney General does not object) after the date
of the OTS approval, during which time the Department of Justice
has the opportunity to challenge the Bank Merger on antitrust
grounds. The commencement of an antitrust action by the
Department of Justice would stay the effectiveness of OTS
approval unless a court specifically orders otherwise. In
reviewing the Bank Merger, the Department of Justice could
analyze the Bank Merger's effect on competition differently than
the OTS, and thus it is possible that the Department of Justice
could reach a different conclusion than the OTS regarding the
Bank Merger's competitive effects. Failure of the Department of
Justice to object to the Bank Merger does not prevent the filing
of antitrust actions by private persons.
Representations and Warranties
The Merger Agreement contains customary representations
and warranties relating to, among other things, (a) the corporate
organization of Sovereign, Sovereign Bank, Carnegie and Carnegie
Bank; (b) the capital structures of Sovereign and Carnegie;
(c) the due authorization, execution, delivery, performance and
enforceability of the Merger Agreement and the Bank Plan of
Merger; (d) consents or approvals of regulatory authorities or
third parties necessary to complete the Merger and the Bank
Merger; (e) the consistency of financial statements with
generally accepted accounting principles and, where appropriate,
applicable regulatory accounting principles; (f) the absence of
material adverse changes, since December 31, 1996, in the
consolidated assets, business, financial condition or results of
operations of Sovereign or Carnegie; (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; (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 Carnegie in connection with the Registration
Statement on Form S-4 filed with the Commission in connection
with the issuance of Sovereign Common Stock in the Merger, this
Proxy Statement/Prospectus and all applications filed with
regulatory authorities for approval of the Merger and the Bank
Merger; and (q) documents filed with the Commission and the
accuracy of information contained therein.
The Merger Agreement also contains other
representations and warranties by Carnegie 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 Carnegie; (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
Carnegie 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, Carnegie 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, Carnegie has agreed in the Merger
Agreement that neither it nor Carnegie Bank 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 384,921 shares of
Carnegie 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;
(viii) engage in any merger, acquisition or similar transaction;
(ix) dispose of any assets other than in the ordinary course of
business; (x) change any accounting practices, except as may be
required by generally accepted accounting principles (without
regard to any optional early adoption date); (xi) implement any
new employee benefit or welfare plan, or amend any such plan,
unless such amendment does not result in an increase in cost
except as expressly permitted by the Merger Agreement;
(xii) purchase any security for its investment portfolio not
rated "A" or higher by either Standard & Poor's Corporation or
Moody's Investor Services, Inc.; (xiii) make, enter into, renew,
extend, modify or compromise any transaction (including loans and
commitments to lend) with any affiliate of Carnegie; (xiv) enter
into any interest rate swap or similar arrangement; (xv) other
than as a result of the execution and delivery of the Merger
Agreement, take any action which would give rise to a right of
payment to any individual under any employment agreement;
(xvi) intentionally and knowingly take any action that would
preclude the treatment of the Merger as a pooling of interests
for financial accounting purposes; (xvii) make any loan or other
credit facility commitment to any borrower in excess of
$1,000,000, or compromise, extend, renew or modify any such loan
or commitment outstanding in excess of $1,000,000; (xviii) waive,
release, grant or transfer any rights of value, or modify or
change in any material respect any existing agreement to which
Carnegie or any Carnegie subsidiary is a party, other than in the
ordinary course of business, consistent with past practice;
(xix) take any action which would cause any of the
representations and warranties of Carnegie set forth in the
Merger Agreement to be untrue or the conditions set forth in the
Merger Agreement to be unsatisfied; or (xx) agree to do any of
the foregoing.
Carnegie 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
Carnegie or any subsidiary of Carnegie; (ii) to permit a
representative of Sovereign to attend committee meetings of the
management of Carnegie and Carnegie Bank, and to reasonably
consider Sovereign's requests that its representatives be
permitted to attend meetings of Carnegie's Board of Directors or
Executive Committee; (iii) if Sovereign requests and agrees to
bear the expense, to retain a proxy solicitor in connection with
the solicitation of Carnegie 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 Carnegie or any Carnegie subsidiary, on
terms and conditions mutually acceptable to Carnegie 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 Carnegie's shareholders; (vii) to provide to
Sovereign copies of the minutes of all meetings of the Board of
Directors of Carnegie 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 Carnegie
Bank.
Sovereign and Carnegie 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 Carnegie; (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 Carnegie to pay a regular
quarterly cash dividend not to exceed $.14 per share of Carnegie
Common Stock outstanding. Carnegie agreed in the Merger
Agreement to cause, as promptly as practicable, the regular
quarterly dividend record dates and payment dates with respect to
Carnegie 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 Carnegie to receive two dividends either from
Carnegie or Sovereign in any quarter or to deny or prohibit
shareholders of Carnegie from receiving one dividend from
Carnegie or Sovereign in any quarter. Carnegie Bank may pay cash
dividends sufficient to permit payment of the dividends permitted
to be paid by Carnegie. No other dividends may be paid by
Carnegie or Carnegie Bank without the prior written consent of
Sovereign.
No Solicitation of Transactions
The Merger Agreement provides that during the term of
the Merger Agreement, Carnegie shall not, nor shall it permit any
Carnegie subsidiary or any other affiliate of Carnegie or any
officer, director or employee of any of them, or any investment
banker, attorney, accountant or other representative retained by
Carnegie, any Carnegie subsidiary or any other Carnegie 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 Carnegie, any Carnegie subsidiary, or any
assets or business thereof, except (i) the Board of Directors of
Carnegie may respond to unsolicited inquiries from third parties
to the extent required in order to fulfill its fiduciary duty and
(ii) Carnegie's officers may respond to inquiries from analysts,
regulatory authorities and holders of Carnegie Common Stock in
the ordinary course of business. The Merger Agreement provides
that Carnegie shall notify Sovereign immediately if any such
discussions or negotiations are sought to be initiated with
Carnegie 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 Carnegie have
executed a letter agreement containing provisions similar to
those described above relating to Carnegie, and such directors
and executive officers have also agreed to vote such shares of
Carnegie Common Stock in favor of the Merger Agreement. A copy
of the form of letter agreement executed by the directors and
executive officers of Carnegie 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 Carnegie may (a) amend the Merger
Agreement, (b) extend the time for the performance of any of the
obligations or other acts of Sovereign and Carnegie 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 Carnegie
presently anticipate to occur on or about June __, 1998, (a) by
the mutual written consent of Sovereign and Carnegie; or (b) by
Sovereign or Carnegie (i) if there shall have been any 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 Carnegie which
results in a Material Adverse Effect with respect to Carnegie, on
the other hand, and such breach has not been substantially cured
by the earlier of (A) within 30 days after the date written
notice of such breach is given to the party committing such
breach or (B) the Effective Date; (ii) if the Closing Date shall
not have occurred on or before September 30, 1998, unless the
failure of such occurrence shall be due to the failure of the
party seeking to terminate the Merger Agreement to perform or
observe its agreements set forth in the Merger Agreement required
to be performed or observed by such party on or before the
Effective Date; or (iii) if either party has been informed in
writing by any banking agency or department of any federal or
state government whose approval or consent has been requested
that such approval or consent is unlikely to be granted, unless
the failure of such occurrence shall be due to the failure of the
party seeking to terminate the Merger Agreement to perform or
observe its agreements set forth in the Merger Agreement and
required to be performed or observed by such party on or before
the Effective Date.
In addition, the Merger Agreement may be terminated by
Carnegie on the Closing Date, if both:
(a) the Sovereign Market Value as of the
Determination Date (i.e., the date immediately preceding the
Closing Date) is less than $12.06; and
(b) the quotient obtained by dividing the
Sovereign Market Value as of the Determination Date by
$16.08 (being the closing sale price of Sovereign Common
Stock immediately prior to public announcement of the
Merger) (the "Sovereign Ratio") is less than the quotient
obtained by dividing the weighted average closing price per
share (the "Index Price") of the common stocks of a group of
nine specified thrift holding companies (the "Index Group"),
which are identified below, as of the Determination Date by
$________ (being the Index Price on December 11, 1997) and
subtracting 0.15 from such latter number (after such
subtraction, the "Index Ratio").
Notwithstanding Carnegie's right to terminate the Merger
Agreement, as a result of the foregoing, Sovereign may override
Carnegie's election to terminate by increasing the Exchange Ratio
to equal the quotient obtained by dividing $28.53 by the
Sovereign Market Value. There can be no assurance that Carnegie
would exercise its right to terminate the Merger Agreement if a
Termination Event (i.e., the conditions described above) exists,
and if Carnegie does elect to so terminate the Merger Agreement,
there can be no assurance that Sovereign will elect to increase
the Exchange Ratio as provided in the Merger Agreement and as
illustrated below.
Certain possible effects of the above provisions of the
Exchange Ratio may be illustrated by the following three
scenarios:
(1) If the Sovereign Market Value as of the
Determination Date is not less than $12.06 (as adjusted for
the Stock Split), there would be no Termination Event and no
adjustment to the Exchange Ratio.
(2) If the Sovereign Market Value on the Determination
Date is less than $12.06, but the Sovereign Ratio is equal
to or greater than the Index Ratio, there would be no
Termination Event and no increase in the Exchange Ratio.
(3) If the Sovereign Market Value on the Determination
Date is less than $12.06 and the Sovereign Ratio is less
than the Index Ratio, there would be a Termination Event and
the Carnegie 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 $28.53 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 Carnegie Common Stock in the Merger, nor do they reflect all
possible termination/increase scenarios.
Carnegie shareholders should be aware that the
Sovereign Market Value as of the Determination Date, on which the
occurrence of a Termination Event and the subsequent increase, if
any, in the Exchange Ratio may be determined, will be based on
the average of the closing sale prices of Sovereign Common Stock
during a 15-day trading period ending on the Determination Date.
Accordingly, because the market price of Sovereign Common Stock
between the Determination Date and the Effective Date, as well as
on the date certificates representing shares of Sovereign Common
Stock are delivered in exchange for shares of Carnegie Common
Stock following consummation of the Merger, will fluctuate and
possibly decline, the value of the Sovereign Common Stock
actually received by holders of Carnegie Common Stock may be more
or less than (i) the Sovereign Market Value as of the
Determination Date, or (ii) the value of the Sovereign Common
Stock on the Closing Date resulting from the Exchange Ratio or
any possible adjustment to the Exchange Ratio as illustrated
above.
The Index Group consists of nine thrift holding
companies selected by Sovereign and Carnegie as being directly
relevant for purposes of distinguishing changes in Sovereign's
stock prices that are unique from those reflective of general
changes in comparable companies. The nine thrift holding
companies are GreenPoint Financial Corp., Charter One Financial,
Dime Bancorp, Inc., Washington Federal, Inc., Long Island
Bancorp, Inc., Bank United Corp., Astoria Financial Corporation,
Peoples Heritage Financial Group, and Golden State Bancorp. If
Sovereign or any company belonging to the Index Group undergoes a
reclassification, recapitalization, split-up, combination,
exchange of shares or similar transaction between December 11,
1997 and the Determination Date, the prices of Sovereign Common
Stock or such other common stocks shall be appropriately
adjusted. In the event the common stock of any such company
ceases to be publicly traded or there has been an announcement of
a proposal for the acquisition or sale of such company, such
company will be removed from the Index Group and the weights will
be redistributed proportionately for purposes of determining
whether there has been a Termination Event.
It is not possible to know whether a Termination Event
will occur until after the Determination Date. The Carnegie
Board of Directors has made no decision as to whether it would
exercise its right to terminate the Merger Agreement if there is
a Termination Event. In considering whether to exercise its
termination right in such situation, the Carnegie 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
Carnegie at the Annual Meeting will confer on the Carnegie Board
of Directors the power, consistent with its fiduciary duties, to
elect to consummate the Merger in the event of a Termination
Event whether or not there is any increase in the Exchange Ratio
and without any further action by, or resolicitation of, the
shareholders of Carnegie. If the Carnegie Board of Directors
elects to exercise its termination right, Carnegie must give
Sovereign prompt notice of that decision on the Closing Date.
Sovereign has the option, in its sole discretion, to increase the
Exchange Ratio in the manner set forth in the Merger Agreement
and as illustrated above and thereby avoid such termination of
the Merger Agreement. However, 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
Carnegie 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
as the result of a Termination Event.
In the event of termination of the Merger Agreement by
either Sovereign or Carnegie, there will be no liability or
obligation on the part of Sovereign or Carnegie 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 40% to 50% of Carnegie's recurring operating
expenses, and are expected to be substantially realized within
six (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 Carnegie 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
Carnegie and Carnegie Bank employees at levels which, in the
aggregate, are at least as favorable as such benefits which
existed as of December 12, 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 Carnegie 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, Carnegie and Carnegie Bank employees shall receive
credit for service with Carnegie or Carnegie Bank under
Sovereign's pension and 401(k) plans, but not under Sovereign's
Employee Stock Ownership Plan, for purposes of eligibility and
vesting determination.
In the Merger Agreement, Sovereign agreed to cause
Sovereign Bank to provide employees of Carnegie Bank whose
employment is terminated in connection with the Merger within
three (3) 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) employees with a title of vice president or
higher and employees with five or more years of service shall be
entitled to two weeks of base salary as severance pay for each
year of service with Carnegie or Carnegie Bank, with a two-week
minimum; and (ii) employees with a title lower than vice
president (other than employees with five or more years of
service) shall be entitled to one week of base salary as
severance pay for each year of service with Carnegie or Carnegie
Bank, with a one-week minimum. Employees of Carnegie Bank who do
not execute the documentation required by Sovereign with respect
to termination benefits will be entitled to the termination
benefits provided under Carnegie Bank's severance policies.
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 Carnegie will be carried forward to the combined
corporation at their recorded amounts; income of the combined
corporation will include income of both Sovereign and Carnegie
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 delivery
to Sovereign and to Carnegie of 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 Carnegie 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 Carnegie in the Merger;
(ii) no gain or loss will be recognized by
holders of shares of Carnegie Common Stock upon their receipt of
Sovereign Common Stock in exchange for their Carnegie 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
Carnegie 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 Carnegie will be the same as the tax basis of
their Carnegie Common Stock exchanged therefor; and
(iv) the holding period of the Sovereign Common
Stock in the hands of the Carnegie shareholders will include the
holding period of their Carnegie Common Stock exchanged therefor,
provided such Carnegie Common Stock is held as a capital asset at
the Effective Date.
Under the Merger Agreement, the condition that
Stevens & Lee, P.C. deliver the opinion described above can be
waived by Sovereign and Carnegie. 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, Carnegie 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 CARNEGIE 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 CARNEGIE SHAREHOLDER IS ADVISED TO CONSULT A
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO
SUCH SHAREHOLDER.
Expenses
Sovereign and Carnegie will each pay all their
respective costs and expenses incurred 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 Carnegie and (ii) if Sovereign requests Carnegie to retain a
proxy solicitor in connection with the solicitation of Carnegie
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 Carnegie shareholder who may be
deemed to be an "affiliate" of Carnegie or Sovereign for purposes
of Rule 145 under the Securities Act. Each director and
executive officer of Carnegie 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 Carnegie 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 Carnegie 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 Carnegie or Sovereign.
No Dissenters' Rights of Appraisal
Holders of shares of Sovereign Carnegie 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 Annual
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 Carnegie who become shareholders of
Sovereign will be eligible to participate therein.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Carnegie's management, Carnegie
Bank's management, the Board of Directors of Carnegie and the
Board of Directors of Carnegie Bank may be deemed to have
interests in the Merger in addition to their interests, if any,
in Carnegie Common Stock. The Carnegie Board of Directors was
aware of these factors and considered them, among other matters,
in approving the Merger Agreement and the transactions
contemplated thereby.
Stock Options
As of the Record Date, the directors and executive
officers of Carnegie beneficially own approximately 573,643
shares of Carnegie Common Stock, including Management Options to
purchase 384,921 shares of Carnegie Common Stock. On the
Effective Date, each Management Option, whether or not such
Management Option is exercisable on the Effective Date, shall
cease to be outstanding and shall be converted on the Effective
Date into and become an option to acquire that number of shares
of Sovereign Common Stock equal to the number of shares of
Carnegie 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
Carnegie 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 Carnegie and Carnegie Bank 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 Carnegie or any Carnegie 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 Carnegie or
Carnegie Bank as of December 12, 1997, including the right to
advancement of expenses, provided, however, that any such
officer, director or employee of Carnegie or Carnegie Bank may
not be indemnified by Sovereign and/or Carnegie Bank if such
indemnification is prohibited by applicable law.
Sovereign has agreed to maintain Carnegie'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 six years after the Effective Date, subject to
certain maximum cost limits.
Employment and Other Agreements
In the Merger Agreement, Sovereign has agreed to honor
the employment agreements Carnegie entered into with
Mr. Thomas L. Gray, Jr., President and Chief Executive Officer of
Carnegie, and Mr. Mark A. Wolters, Executive Vice President of
Carnegie.
Carnegie's employment agreement with Mr. Gray, dated
January 1, 1997, (the "Gray Employment Agreement") provides for a
three-year term, and further provides that it will automatically
be renewed for a one-year term on each anniversary date unless,
ninety days prior to such anniversary date, either party provides
written notice of its intention not to renew. The Gray
Employment Agreement provides that Mr. Gray will receive an
annual base salary of $210,000 for fiscal 1998, and that his base
salary will be reviewed annually by the Carnegie Board of
Directors. In addition, the Gray Employment Agreement provides
that Mr. Gray is to receive an annual bonus of not less than 6%
of the adjusted net after tax income of Carnegie and such other
compensation as determined by Carnegie Board of Directors. The
Gray Employment Agreement permits Carnegie to terminate
Mr. Gray's employment for cause at any time. The Gray Employment
Agreement defines cause to mean (i) willful and continued failure
to perform duties; (ii) fraud, misappropriation or material
damage to the property or business of Carnegie; (iii) willful
violation of law or conviction or admission of, or plea of nolo
contendere to, any felony which would adversely effect the
executive's ability to perform his duties; or (iv) willful
violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order
issued by, or regulatory consent agreement with, any banking
regulatory agency having jurisdiction over Carnegie or any of its
subsidiaries. In the event Mr. Gray is terminated for reasons
other than cause prior to the expiration of the term of the
Agreement, Mr. Gray shall be entitled to receive his base salary
and bonus for the remaining term. In addition, Carnegie is to
maintain medical and life insurance benefits for Mr. Gray for the
remaining term. Mr. Gray may terminate his employment upon 60
days' notice to Carnegie. Upon the occurrence of a change in
control (as defined in the Gray Employment Agreement) which
results in Mr. Gray's involuntary termination without cause or
Mr. Gray's voluntary resignation within 18 months of such change
in control because (i) he is reassigned to a position of lesser
rank or status than Chief Executive Officer; (ii) his place of
employment is relocated by more than thirty miles from its
location as of the date of the Employment Agreement; or (iii) his
compensation or other benefits are reduced, Mr. Gray will be
entitled to receive his base salary and bonuses for a period of
thirty (30) months after such termination. In addition, Carnegie
will continue to maintain Mr. Gray's medical and dental insurance
and other benefits in effect through the end of such 30-month
period. Mr. Gray has indicated his intention to terminate his
employment upon the Effective Date. Sovereign has agreed that
Mr. Gray shall be paid his termination benefits under his
employment agreement calculated as though a change in control had
occurred on May 30, 1998. Accordingly, in connection with
consummation of the Merger, Mr. Gray will receive payments,
including the value of non-cash benefits, having a present value
of approximately $1,123,565 under his employment agreement.
Carnegie's employment agreement with Mr. Wolters, dated
January 1, 1997, (the "Wolters Employment Agreement") provides
for a term of three years and his employment is subject to
automatic renewal for an additional one-year term on each
anniversary date unless, ninety days prior to such anniversary
date, either party provides written notice of its intention not
to renew. Mr. Wolters' annual base salary is $100,000 for fiscal
1998 and his base salary is subject to annual review by the
Carnegie Board of Directors. In addition, Mr. Wolters is
entitled to receive a bonus in an amount equal to 2% of the
adjusted net after-tax income of Carnegie and such other
compensation as determined by the Carnegie Board of Directors.
The Wolters Employment Agreement permits Carnegie to terminate
Mr. Wolters' employment for cause. Cause is defined under the
Wolters Employment Agreement in the same manner as it is defined
under the Gray Employment Agreement. In the event Mr. Wolters is
terminated for reasons other than cause prior to the expiration
of the initial three year term, Mr. Wolters shall be entitled to
receive his salary and bonus for the remaining term. Mr. Wolters
may terminate his employment upon 60 days' written notice to
Carnegie. In addition, Carnegie shall maintain Mr. Wolters'
medical and dental insurance and other benefits for the remaining
term. Upon the occurrence of a change in control (as defined in
the Wolters Employment Agreement) and the subsequent involuntary
termination of Mr. Wolters without cause or his voluntary
resignation within 18 months of such change in control because
(i) he is reassigned to a position of lesser rank or status than
Executive Vice President, (ii) his principal place of employment
is moved by more than 30 miles from its current place, or
(iii) his compensation or other benefits are reduced, Mr. Wolters
will be entitled to receive his then current base salary and
bonus for 18 months after such termination. In addition,
Carnegie will continue to maintain Mr. Wolters' medical and
dental insurance and other benefits in effect through the end of
such 18 month period. Mr. Wolters has indicated his intention to
terminate his employment upon the Effective Date. Sovereign has
agreed that Mr. Wolters shall be paid his termination benefits
under his employment agreement calculated as though a change in
control had occurred on May 30, 1998. Accordingly, in connection
with consummation of the Merger, Mr. Wolters will receive
payments, including the value of non-cash benefits, having a
present value of approximately $308,663, under his employment
agreement.
In the Merger Agreement, Sovereign has agreed to honor
the consulting agreement, dated January 1, 1997, between Carnegie
and Mr. Bruce Mahon, Chairman of the Board of Carnegie. Pursuant
to the consulting agreement, Mr. Mahon receives an annual
consulting fee of $100,000. The consulting agreement has a term
of two and one-half (2-1/2) years and expires [30] months after the
Closing Date. The consulting agreement can be terminated at any
time for cause. Cause is defined in the consulting agreement as
(i) the consultant's willful and continued failure to perform his
duties; (ii) fraud, misappropriation or other intentional damage
to the property or business of Carnegie; or (iii) the
consultant's admission or conviction of, or plea of nolo
contendere to any felony that adversely affects Carnegie. In the
event of Mr. Mahon's death, Carnegie is obligated to reimburse
his estate for any unpaid fees and expenses for services rendered
prior to his death.
The consulting agreement provides, among other things,
that upon the voluntary or involuntary termination of the
agreement following a "change in control" of Carnegie (which
would include the Merger) he would be entitled to receive the
consulting fee for a period of 30 months after such termination.
Mr. Mahon has indicated his intention to terminate the consulting
agreement upon the Effective Date. Sovereign has agreed that
Mr. Mahon shall be paid the termination benefits under the
consulting agreement calculated as though a change in control had
occurred on June 30, 1988. Accordingly, in connection with
consummation of the Merger, Mr. Mahon will receive payments,
including the value of non-cash benefits, having a present value
of approximately $216,019 under his employment agreement.
In the Merger Agreement, Sovereign has agreed that
Mr. Richard Rosa, Senior Vice President and Chief Financial
Officer of Carnegie, will be entitled to six months of base
salary which by agreement includes an allowance for car expenses,
medical and dental benefits, and bonus (based on his 1997 bonus),
as severance pay in the event Mr. Rosa's employment is terminated
in connection with the Merger within three months of the
Effective Date, either because his position is eliminated or he
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 of his present
work location). Assuming a change in control occurred on
June 30, 1998, followed by Mr. Rosa's termination of employment,
he would receive payments, including the value of non-cash
benefits, having a present value of approximately $61,183.
CERTAIN RELATED TRANSACTIONS
Stock Option Agreement
General. As a condition to Sovereign entering into the
Merger Agreement, Carnegie executed and delivered to Sovereign
the Stock Option Agreement, dated December 12, 1997 (the "Stock
Option Agreement"), which permits Sovereign to purchase Carnegie
Common Stock under certain circumstances. Pursuant to the Stock
Option Agreement, Sovereign was granted an option (the "Option")
to purchase up to 543,888 shares of Carnegie Common Stock
(representing approximately 19.9% of the issued and outstanding
shares of Carnegie Common Stock on December 11, 1997). The
exercise price per share to purchase Carnegie Common Stock under
the Option is equal to the lower of $31.00 or the lowest price
per share that a person or group, other than Sovereign or an
affiliate of Sovereign, paid or offers to pay for Carnegie Common
Stock upon the occurrence of one of the specified events that
trigger exercise of the option. The Option may only be
exercised, in whole or in part, upon the occurrence of certain
events (collectively, "Triggering Events"), which are described
below (none of which have occurred to the best of Sovereign's or
Carnegie's knowledge as of the date of this Proxy Statement/
Prospectus).
Effect of Stock Option Agreement. The Stock Option
Agreement, together with (i) Carnegie's agreement to not solicit
other transactions relating to the acquisition of Carnegie by a
third party and (ii) the agreement of Carnegie'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 Carnegie from considering or proposing
such an acquisition, even if such persons were prepared to pay a
higher price per share for Carnegie Common Stock than the price
per share implicit in the Merger Consideration. Certain attempts
to acquire Carnegie or an interest in Carnegie 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 Carnegie 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 Carnegie than it might otherwise have proposed to pay.
In addition, the management of Sovereign and Carnegie believe
that the existence of the Stock Option Agreement is likely to
prohibit any acquiror of Carnegie from accounting for any
acquisition of Carnegie using the "pooling of interests"
accounting method. In addition, exercise of the Option would
increase the ability of Sovereign to obtain the approval of
Carnegie'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 Carnegie Common
Stock (excluding any shares eligible to be reported on
Schedule 13G of the Commission); or
(b) a person or group, other than Sovereign or an
affiliate of Sovereign, enters into an agreement or letter
of intent with Carnegie 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 Carnegie, (ii) acquire all or
substantially all of the assets or liabilities of Carnegie
or all or substantially all of the assets or liabilities of
Carnegie Bank, 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 Carnegie Common Stock
(excluding any shares eligible to be reported on
Schedule 13G of the Commission) or the then outstanding
shares of common stock of Carnegie Bank, 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 Carnegie or all or
substantially all the assets or liabilities of Carnegie
Bank, or any other business combination involving Carnegie
or Carnegie Bank 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 Carnegie Common Stock or the then outstanding
shares of common stock of Carnegie Bank (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 Carnegie called to vote on the Merger,
Carnegie'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, Carnegie 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) Carnegie 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 Carnegie 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
Carnegie of any representation, warranty, covenant or other
obligation of Carnegie which results in a Material Adverse Effect
with respect to Carnegie (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 Carnegie) or the
Effective Date or (B) the Closing Date shall not have occurred by
September 30, 1998 and such failure to close by September 30,
1998 shall be due to the failure by Carnegie to perform or
observe its agreements set forth in the Merger Agreement required
to be performed or observed by Carnegie, 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 Carnegie to
issue the shares subject to the Option.
In the event of any change in Carnegie 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.
Carnegie has granted Sovereign certain registration
rights with respect to shares of Carnegie 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
April 14, 1998, Sovereign had approximately 12,145 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.
Quarterly
Quarter Ended Dividend High Low
June 30, 1998(1) $_____ _______ _______
March 31, 1998 $.0172 18.9375 14.9375
December 31, 1997 .0194 18.0000 14.3125
September 30, 1997 .0336 14.5625 12.2500
June 30, 1997 .0355 12.6875 9.5000
March 31, 1997 .0356 11.6875 9.1250
December 31, 1996 .0262 9.4375 7.5625
September 30, 1996 .0344 7.6250 6.6875
__________________
(1) Through April __, 1998.
On December 11, 1997, the last business day preceding
public announcement of the Merger, the last sale price for
Sovereign Common Stock was $_______ per share. On April __,
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 CARNEGIE
Business
Carnegie is a New Jersey business corporation and a
bank holding company registered with the Board of Governors of
the Federal Reserve System (the "FRB") under the Bank Holding
Company Act of 1956, as amended (the "BHCA"). Carnegie was
incorporated on October 6, 1993 for the purpose of acquiring
Carnegie Bank and thereby enabling Carnegie Bank to operate
within the bank holding company structure. On April 12, 1994,
Carnegie acquired one hundred percent (100%) of the outstanding
shares of Carnegie Bank. The principal activities of Carnegie
are owning and supervising Carnegie Bank, which engages in a
commercial banking business in Merger, Burlington, Hunterdon,
Morris, Ocean and Somerset counties, New Jersey and Bucks County,
Pennsylvania. Carnegie directs the policies and coordinates the
financial resources of Carnegie Bank.
Carnegie's principal executive offices are located at
619 Alexander Avenue, Princeton, New Jersey 08540, telephone
(609) 243-7500.
Carnegie has previously sent to shareholders its 1997
Annual Report to Shareholders. The Annual Report, which includes
portions of Carnegie's Annual Report on Form 10-K for the year
ended December 31, 1997, is incorporated herein by reference.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Directors
Following is a list of the names of all directors of
Carnegie, together with: their ages, their positions and offices
with Carnegie, their principal occupations during the past five
years, and the years during which their current consecutive terms
as directors of Carnegie first commenced:
<TABLE>
<CAPTION>
Name, Age and Principal Occupations Director
Position with Registrant During Past Five Years Since(1)
<S> <C> <C>
Theodore H. Dolci, Jr., President, Ted Dolci Excavating, Inc. 1989
41
Michael E. Golden, 54 Chairman and Chief Executive Officer, 1988
Chairman First Colonial Chairman Securities
Group, Inc., a full service stock and
bond brokerage; Vice Chairman,
Admiralty Bank (Palm Beach Gardens,
Florida)
Thomas L. Gray, Jr., 53 President and Chief Executive Officer 1988
President and Chief of the Company and the Bank; Director,
Executive Officer Admiralty Bank (Palm Beach Gardens,
Florida)
Bruce A. Mahon, 67, Chairman of the Board of the Company 1988
Chairman of the Board and the Bank; chairman, Admiralty
Bank (Palm Beach Gardens, Florida)
James E. Quackenbush, Retired, formerly Managing Partner, 1988
68 Malesard, Quackenbush, Swift &
Company, Certified Public Accountants
Steven L. Shapiro, 57 Chairman of Alloy, Silverstein, 1992
Shapiro, Adams, Mulford & Co.,
Certified Public Accountants,
Cherry Hill, New Jersey.
Mr. Shapiro is Commissioner of the
New Jersey Casino Redevelopment
Authority and Trustee of the
New Jersey Hospital Foundation.
Mr. Shapiro is also a member of the
Executive Advisory Council of
Rutgers University and serves on
the board of the Student Loan
Marketing Corporation in
Washington, D.C.
Shelley M. Zeiger, 62 Chairman, Zeiger Enterprises, Inc., 1992
import company
Mark A. Wolters, 37, Executive Vice President of the 1994
Executive Vice Company and the Bank; Director,
President Admiralty Bank (Palm Beach Gardens,
Florida)
Joseph J. Oakes, III, 55 President, Acorn Financial Services, 1988
a financial services and insurance
brokerage firm
- ------------------
</TABLE>
(1) Includes prior service on Board of Directors of the Bank.
No director of the Company is also a director of any other
company registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or
subject to the requirements of Section 15(d) of such Act or
any company registered as an investment company under the
Investment Company Act of 1940.
All of Carnegie's directors serve for a period of one
year and until their successors are elected and qualified.
Executive Officers
Following is a list of the names of all executive
officers of the Registrant who are not also directors, together
with their ages, their positions and offices with the Registrant,
and their principal occupations during the past five years:
<TABLE>
<CAPTION>
Name, Age and Principal Occupations Director
Position with Registrant During Past Five Years Since(1)
<S> <C> <C>
Richard P. Rosa, 46, Chief Financial Officer of Carnegie 1995
Chief Financial Officer Bank, N.A. since April 1995; Director,
Admiralty Bank (Palm Beach Gardens,
Florida); Formerly, Executive Vice
President and Chief Financial Officer
of Lakeland First Financial Group,
Inc. and its wholly-owned subsidiary,
Lakeland Savings Bank
</TABLE>
Board of Directors Meetings and Committees
Attendance at Board and Committee Meetings
During the fiscal year ended December 31, 1997, the
Board of Directors of the Company held thirteen (13) meetings.
During that fiscal year, no director attended less than 80% of
the aggregate of (i) the meetings of the Board of Directors and
(ii) meetings of the committees of the board of Directors on
which such directors served.
Committees of the Board
The Board of Directors maintained an Audit committee
(the "Audit Committee") which consisted of Messrs. Quackenbush,
Shapiro and Oakes during the fiscal year ended December 31, 1997.
The Audit Committee arranges for the Bank's directors examination
through its independent certified public accounts, reviews and
evaluates the recommendations of the directors examinations,
receives all reports of examination of the Company and the Bank
by regulatory agencies, analyzes such reports, and reports to the
Company's Board the results of its analysis of the regulatory
reports. The Audit Committee met five (5) times in 1997.
The Board of Directors does not have a Compensation
Committee. The entire Board acts as a Compensation Committee.
Any compensation matter concerning Messrs. Gray and Wolters is
not voted on by either individual.
The Board of Directors does not have a Nominating
Committee. The entire Board acts as a Nominating Committee.
Directors Compensation
Directors of the Company receive no remuneration for
their service on the Board of Directors of the Company.
Directors of the Bank, other than full-time employees of the
Bank, receive a $5,000 annual retainer, payable quarterly. All
directors of the Bank receive fees of $750 per Board meeting
attended and $300 per committee meeting attended, except that the
Chairman of the Audit Committee receives $600 per Audit Committee
meeting attended. In addition, Mr. Michael Golden, in his
capacity as Vice Chairman of the Bank, receives an annual stipend
of $12,000. Mr. Gray does receive Board meeting and Loan
Committee (of the Bank) meeting fees and Mr. Wolters does receive
Board meeting fees.
The Company has entered into a consulting agreement
with Mr. Bruce A. Mahon, Chairman of the Board of the Company.
Pursuant to the consulting agreement, Mr. Mahon receives an
annual consulting fee of $100,000. The consulting agreement has a
term of two and one-half (2-1/2) years. The consulting agreement
can be terminated by the Company at any time for cause. Cause is
defined in the consulting agreement as (i) consultant's willful
and continued failure to perform his duties; (ii) fraud,
misappropriation or other intentional damage to the property or
business of the Company or (iii) the consultant's admission or
conviction of, or plea of nolo contendere to, any felony that
adversely affects the Company. In the event of Mr. Mahon's
death, the Company is obligated to reimburse his estate for any
unpaid fees and expenses for services rendered prior to his
death. In addition, Mr. Mahon also receives certain insurance
benefits directly from the Company which are not included in the
consulting agreement.
The consulting agreement provides, among other things,
that upon the voluntary or involuntary termination of the
agreement following a "change in control" of Carnegie (which
would include the Merger) he would be entitled to receive the
consulting fee for a period of 30 months after such termination.
Mr. Mahon has indicated his intention to terminate the consulting
agreement upon the Effective Date. Sovereign has agreed that
Mr. Mahon shall be paid the termination benefits under the
consulting agreement calculated as though a change in control had
occurred on June 30, 1988. Accordingly, in connection with
consummation of the Merger, Mr. Mahon will receive payments,
including the value of non-cash benefits, having a present value
of approximately $216,019 under his employment agreement.
The Company maintains a 1995 Directors Stock Option
Plan ("1995 Directors Plan"). Under the 1995 Directors' Plan,
151,315 shares of Common Stock have been reserved for issuance,
as adjusted to reflect stock dividends declared by the Company
from time to time. Directors of the Company, the Bank and any
other subsidiaries which the Company may acquire or incorporate
are eligible to participate in the 1995 Directors Plan. The 1995
Directors Plan is administered by the Company's Board of
Directors which has the power to designate which directors will
receive options and the terms of such options. No option may be
exercised more than ten years after the date of its grant.
The Company maintains the 1993 Stock Option Plan for
Non-Employee Directors (the "Outside Directors' Plan"). Under
the Outside Directors' Plan, 42,000 shares of Common Stock have
been reserved for issuance, adjusted to reflect stock dividends
declared subsequent to the adoption of the Outside Directors'
Plan. Non-employee Directors of the Company, the Bank and any
other subsidiaries which the company may acquire or incorporate
participate in the Outside Directors' Plan. Each participant in
the Outside Directors' Plan automatically receives an option to
purchase 5,000 shares of Common Stock effective as of the date
such participant commences his service on the Board of Directors.
No option may be exercised more than ten years after the date of
its grant. The purchase price of the shares of Common Stock
subject to options under the Outside Directors' Plan is 100% of
the fair market value on the date such option is granted. There
are no more shares available for issuance under the Outside
Directors' Plan.
On January 15, 1997, the Board of Directors adopted the
Carnegie Bancorp 1997 Stock Option Plan which provides for grants
of stock options to officers, directors and employees of the
Company.
The 1997 Plan is administered by the Company's Board of
Directors, which has the authority to designate the optionees and
to determine the number of shares subject to each option, the
date of grant and the terms and conditions governing the option,
including any vesting schedule. The Board of Directors also
designates whether options granted under the 1997 Plan are non-
statutory stock options or incentive stock options. In addition,
the Board is charged with the responsibility of interpreting the
1997 Plan and making all administrative determinations
thereunder.
All directors, officers and employees of the Company or
its subsidiaries are eligible to receive options under the 1997
Plan.
The 1997 Plan authorized the Company to issue 274,000
shares of the Common Stock pursuant to options. However,
pursuant to the terms of the 1997 Plan, no options may first
become exercisable if on such date options to purchase in excess
of 15% of the Company's outstanding common stock to be
outstanding under all of the Company's stock option plans in the
aggregate.
Executive Compensation
The following table sets forth a summary for the last
three (3) fiscal years of the cash and non-cash compensation
awarded to, earned by, or paid to, the Chief Executive Officer of
the Company and each of the most highly compensated executive
officers who were serving as executive officers of the Registrant
at December 31, 1997 and whose individual remuneration exceeded
$100,000 for the last fiscal year (collectively, "Named
Officers").
SUMMARY COMPENSATION TABLE
Cash and Cash Equivalent
Forms of Remuneration
<TABLE>
<CAPTION>
Long Term
Compensation
Securities
Name and Current Annual Annual Other Annual Underlying
Principal Position Year Salary Bonus(1) Compensation(2) Options
<S> <C> <C> <C> <C> <C>
Thomas L. Gray, Jr. 1997 $210,000 $449,508 $20,900(3) $19,425
President and Chief 1996 $130,000 $173,133 $20,872 -0-
Executive Officer 1995 $130,000 $142,585 $19,409 $54,475
Mark A. Wolters 1997 $100,000 $ 84,000 $14,420(3) $14,175
Executive Vice 1996 $ 80,000 $ 57,711 $14,467 -0-
President 1995 $ 80,000 $ 47,528 $12,932 $13,114
Richard P. Rosa 1997 $ 85,000 $ 30,000 $ 5,000 $ 8,925
Senior Vice President
and Chief Executive
Officer
- ---------------------
</TABLE>
(1) Bonuses earned for services rendered in the indicated years
although payment may have been made in subsequent years.
(2) Other annual compensation includes director fees, insurance
premiums and the personal use of Company automobiles, or
automobile allowance.
(3) In 1997, Mr. Gray received $18,450 for attending meetings of
the Board of Directors and special committees of the Board
and Mr. Wolters received $11,550 for attending meetings of
the Board of Directors and special committees of the Board.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth with respect to grants
of stock options made during 1997 to each of the Named Officers;
(i) the name of such officer; (ii) the number of options granted;
(iii) the percent the grant represents of the total options
granted to all employees during 1997; (iv) the per share exercise
price of the options granted; (v) the expiration date of the
options; and (vi) the Black-Scholes value of the options at grant
date.
<TABLE>
<CAPTION>
Percent of Total
No. of Securities Options/SARs Exercise of
Underlying Granted to Base Price
Options/SARs Employees in ($/Share) Expiration Grant Date
Name Granted (#) Fiscal Year 01/15/07 Date Present Value(1)
<S> <C> <C> <C> <C> <C>
Thomas L. Gray, Jr. 19,425 15.42% $17.86 01/15/07 $59,810
Mark A. Wolters 14,175 11.25% $17.86 01/15/07 $43,645
Richard P. Rosa 8,925 7.08% $17.86 01/15/07 $27,480
- -------------------------
</TABLE>
(1) The values shown reflect standard application of the Black-
Scholes pricing model using (i) a 20% stock price
volatility, (ii) an expected term of five years, (iii) a
risk-free interest rate of 6.17%, and (iv) a dividend yield
of 3.00%. The values do not take into account risk factors
such as non-transferability and limits on exercisability.
In assessing the values indicated in the above table, it
should be kept in mind that no matter what theoretical value
is placed on a stock option on the date of grant, the
ultimate value of the option is dependent on the market
value of the Common Stock at a future date, which will
depend to a large degree on the efforts of the named
officers to bring future success to the corporation for the
benefit of all stockholders.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION/SAR VALUES
The following table sets forth with respect to each
exercise of stock options during 1997 by each of the Named
Officers and the year-end value of unexercised options on an
aggregated basis: (i) the name of each such officer; (ii) the
number of shares received upon exercise; (iii) the aggregate
dollar value realized upon exercise; (iv) the total value of
unexercised options held at December 31, 1997 separately
identifying the exercisable and unexercisable options; and
(v) the aggregate dollar value of in-the-money, unexercised
options held at December 31, 1997, separately identifying the
exercisable and unexercisable options.
<TABLE>
<CAPTION>
No. of Securities Value of Unexercised
Underlying In-the-Money Options
Unexercised Options at FY End ($) (based
Shares at FY End (#) on $34.37 per share)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(3) Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Thomas L. Gray, Jr. 13,208 $291,745 73,822 / 29,584 $1,705,875 / $578,412
Mark A. Wolters - - 32,181 / 14,247 $ 742,051 / $256,907
Richard P. Rosa - - 7,235 / 8,363 $ 149,410 / $148,096
</TABLE>
Employment Agreements
The Company has entered into employment agreements with
Mr. Thomas L. Gray, its President and Chief Executive Officer,
and Mr. Mark A. Wolters, its Executive Vice President. The
employment agreement with Mr. Gray (the "Gray Employment
Agreement") provides for a three-year term, and further provides
that it will automatically be renewed for a one-year term on each
anniversary date unless, ninety days prior to such anniversary
date, either party provides written notice of its intention not
to renew. The Gray Employment Agreement provides that Mr. Gray
will receive an annual base salary of $210,000 for fiscal 1997,
and that his base salary will be reviewed annually by the Board
of Directors. In addition, the Gray Employment Agreement
provides that Mr. Gray is to receive an annual bonus of not less
than 6% of the adjusted net after tax income of the Company and
such other compensation as determined by the Board of Directors.
The Gray Employment Agreement permits the Company to terminate
Mr. Gray's employment for cause at any time. The Gray Employment
Agreement defines cause to mean (i) willful and continued failure
to perform duties; (ii) fraud, misappropriate or material damage
to the property or business of the Company; (iii) willful
violation of law or conviction or admission of, or plea of nolo
contendere to, any felony which would adversely affect the
executive's ability to perform his duties; or (iv) willful
violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order
issued by, or regulatory consent agreement with, any banking
regulatory agency having jurisdiction over the Company or any of
its subsidiaries. In the event Mr. Gray is terminated for
reasons other than cause prior to the expiration of the term of
the Agreement, Mr. Gray shall be entitled to receive his base
salary and bonus for the remaining term. In addition, the
Company is to maintain medical and life insurance benefits for
Mr. Gray for the remaining term. Mr. Gray may terminate his
employment upon sixty (60) days' notice to the Company. Upon the
occurrence of a change in control (as defined in the Gray
Employment Agreement) which results in Mr. Gray's involuntary
termination without cause or Mr. Gray's voluntary resignation
within 18 months of such change in control because (i) he is
reassigned to a position of lesser rank or status than Chief
Executive Officer; (ii) his place of employment is relocated by
more than thirty miles from its location as of the date of the
Employment Agreement; or (iii) his compensation or other benefits
are reduced, Mr. Gray will be entitled to receive his base salary
and bonuses for a period of thirty (30) months after such
termination. In addition, the Company will continue to maintain
Mr. Gray's medical and dental insurance and other benefits in
effect through the end of such 30-month period.
The Company has entered into an employment agreement
with Mark A. Wolters, the Executive Vice President of the Company
(the "Wolters Employment Agreement"). Pursuant to the Wolters
Employment Agreement, Mr. Wolters is to be employed for a term of
three years and his employment is subject to automatic renewal of
an additional one-year term on each anniversary date unless,
ninety days prior to such anniversary date, either party provides
written notice of its intention not to renew. Mr. Wolters'
annual base salary is $100,000 for fiscal 1997 and this base
salary is subject to annual review by the Board of Directors. In
addition, Mr. Wolters is entitled to receive a bonus in an amount
equal to 2% of the adjusted net after-tax income of the Company
and such other compensation as determined by the Board of
Directors. The Wolters Employment Agreement permits the Company
to terminate Mr. Wolters' employment for cause. Cause is defined
under the Wolters Employment Agreement in the same manner as it
is defined under the Gray Employment Agreement. In the event
Mr. Wolters is terminated for reasons other than cause prior to
the expiration of the initial three-year term, Mr. Wolters shall
be entitled to receive his base salary and bonus for the
remaining term. Mr. Wolters may terminate his employment upon
sixty (60) days' written notice to the Company. In addition, the
Company shall maintain his medical and dental insurance and other
benefits for the remaining term. Upon the occurrence of a change
in control (as defined in the Wolters Employment Agreement) and
the subsequent involuntary termination of Mr. Wolters without
cause or his voluntary resignation within 18 months of such
change in control because (i) he is reassigned to a position of
lesser rank or status than Executive Vice President, (ii) his
principal place of employment is moved by more than 30 miles from
its current place, or (iii) his compensation or other benefits
are reduced, Mr. Wolters will be entitled to receive his then
current base salary and bonus for 18 months after such
termination. In addition, the Company will continue to maintain
Mr. Wolters' medical and dental insurance and other benefits in
effect through the end of such 18-month period.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Company does not maintain a standing Compensation
Committee. The compensation payable to the Company's executive
officers is determined by the Board of Directors of the Company,
without the participation of Messrs. Gray and Wolters on any
compensation matter directly related to them individually.
EXECUTIVE COMPENSATION POLICY
The Company's policy is to compensate its executives fairly
and adequately for the responsibility assumed by them for the
success and direction of the Company, the effort expended in
discharging that responsibility and the results achieved directly
or indirectly from each executive's performance. "Fair and
adequate compensation" is established after careful review of:
1. The Company's earnings;
2. The Company's performance as compared to other
companies of similar size and market area; and
3. Comparison of what the market demands for
compensation of similarly situated and experienced
executives.
Total compensation takes into consideration a mix of
base salary, bonus, perquisites and stock options. The
particular mix is established in order to competitively attract
competent professionals, retain those professionals, and reward
extraordinary achievement.
The Board of Directors also considers net income for
the year and earnings per share of the Company before finalizing
officer increases for the coming year.
Based upon its current levels of compensation, the
Company is not affected by the provisions of the Internal Revenue
Code which limits the deductibility to a company of compensation
in excess of $1 million paid to any of its top five executives.
Thus, the Company has no policy as to that subject.
BASE SALARY
The Board of Directors bears the responsibility for
establishing base salary.
Salary is minimum compensation for any particular
position and is not tied to any performance formula or standard.
However, that is not to say that poor performance will not result
in termination. Acceptable performance is expected of all
executive officers as a minimum standard.
To establish salary, the following criteria are used:
1. Position description.
2. Direct responsibility assumed.
3. Comparative studies of peer group
compensation. Special weight is given to local factors as
opposed to national averages.
4. Earnings performance of the Company resulting
in availability of funds for payment of salary expense.
5. Competitive level of salary to be maintained
to attract and retain qualified and experienced executives.
ANNUAL BONUSES
Each year the Board establishes the parameters for the
award of a bonus and the size of the pool of available bonus
money. The current parameters are related to the Company's net
income after taxes.
STOCK OPTIONS
Stock option awards are determined by the Board's Stock
Option Committee.
The Stock Option Committee meets to evaluate
meritorious performance of all officers and employees for
consideration to receive stock options.
The Stock Option Committee makes awards based upon the
following criteria:
1. Position of the officer or employee in the
Company.
2. The benefit which the Company has derived as
a result of the efforts of the award candidate under
consideration.
3. The Company's desire to encourage long-term
employment of the award candidate.
PERQUISITES
Perks, such as company automobiles and their related
expenses, country club memberships, auxiliary insurance benefits
and other perks which the Board may approve from time to time are
determined and awarded pursuant to evaluation under the same
criteria used to establish base salary.
The Company has long believed that a strong, explicit
link should exist between executive compensation and the value
delivered to shareholders. The bonus program and the stock
option awards both provide competitive compensation while
mirroring the Company's performance. Since the bonus is based on
a direct, explicit link to the Company's performance, it is
directly and explicitly linked to the value received by
shareholders. The Company's profitability inures to the benefit
of shareholders, and is a direct result of the direction
established by management.
MEMBERS OF THE BOARD OF DIRECTORS
Bruce A. Mahon James E. Quackenbush
Theodore H. Dolci, Jr. Steven L. Shapiro
Thomas L. Gray, Jr. Mark A. Wolters
Michael E. Golden Shelly M. Zeiger
Joseph J. Oakes, III
PERFORMANCE GRAPH
[CHART TO BE INSERTED]
<TABLE>
<CAPTION>
Period Ending
09/08/94 12/31/94 12/31/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C>
Carnegie Bancorp 100.00 78.04 125.76 154.45 305.61
NASDAQ - Total US(1) 100.00 98.13 138.79 170.70 209.47
SNL $250M-$500M Bank Index(2) 100.00 97.22 131.20 170.36 294.65
</TABLE>
(1) The NASDAQ Total US Index consists of all NASDAQ National
Market and SmallCap Stocks.
(2) The SNL $250M-$500M Bank Index consists of all publicly
traded banks with assets between $250M and $500M.
Principal and Other Shareholders of Carnegie
The following table sets forth, as of February 28,
1998, certain information concerning the ownership of shares of
common Stock by (i) each person who is known by the Company to
own beneficially more than five percent (5%) of the issued and
outstanding common Stock, (ii) each director and nominee for
director of the company, (iii) each named executive officer
described in the section captioned "Executive compensation", and
(iv) all directors and officers as a group. Except as otherwise
indicated, each individual named has sole investment and voting
power with respect to the securities shown.
<TABLE>
<CAPTION>
No. of Shares
Beneficially Percent
Name of Beneficial Owner Owned(1) of Class
<S> <C> <C>
John Hancock Advisers, Inc. 137,659(2) 5.00%
101 Huntington Avenue
Boston, Massachusetts 02199
<CAPTION>
Name of Directors and Executive Officers
<S> <C> <C>
Bruce A. Mahon 51,357 (4) 1.84%
Thomas L. Gray, Jr. 116,201 (5) 4.07
Mark A. Wolters 49,609 (6) 1.77
Theodore H. Dolci, Jr. 34,521 (3) 1.24
Michael E. Golden 77,143 (7) 2.76
Joseph J. Oakes, III 42,824 (3)(8) 1.54
James E. Quackenbush 54,415 (3)(9) 1.96
Steven L. Shapiro 29,663 (10) 1.07
Shelly M. Zeiger 31,750 (11) 1.14
Richard P. Rosa 22,285 (12) .80
All Directors and Executive Officers 509,768 16.93
As a Group
</TABLE>
(1) Beneficially owned shares include shares over which the
named person exercises either sole or shared voting power or
sole or shared investment power. It also includes shares
owned (i) by a spouse, minor children or by relatives
sharing the same home, (ii) by entities owned or controlled
by the named person, and (iii) by other persons if the named
person has the right to acquire such shares within 60 days
by the exercise of any right or option. Unless otherwise
noted, all shares are owned of record and beneficially by
the named person, either directly or through the Company's
Dividend Reinvestment Plan.
(2) Based solely upon the most recent Schedule 13G filed by John
Hancock Advisers, Inc. received by the Company.
(3) Includes 23,341 shares purchasable pursuant to options which
are exercisable within sixty (60) days.
(4) Includes 2,808 shares beneficially owned by Mr. Mahon's
spouse. Also included are 36,683 shares purchasable
pursuant to options which are exercisable within sixty (60)
days.
(5) Includes 734 shares held by Mr. Gray's former spouse as
guardian for his minor son, 1,350 shares held in a self-
directed IRA, 2,126 shares under the Bank's 401(k) Plan and
78,678 shares purchasable pursuant to options which are
exercisable within sixty (60) days.
(6) Includes 35,725 shares purchasable pursuant to options which
are exercisable within sixty (60) days, 1,062 shares held in
an IRA account and 2,120 shares under the Bank's 401(k)
Plan.
(7) Includes 8,424 shares held in a Profit Sharing Plan of which
Mr. Golden is the beneficiary, 5,643 shares in a retirement
account and 9,004 shares held in a self-directed IRA. Also
includes 40,515 shares purchasable pursuant to options which
are exercisable within sixty (60) days.
(8) Includes 7,116 shares held in a Keogh Plan of which
Mr. Oakes is the beneficiary and 11,086 shares in a
retirement account.
(9) Includes 15,495 shares held in Mr. Quackenbush's self-
directed IRA and 9,866 shares in the name of The Fairburst
Trust, of which Mr. Quackenbush's spouse is co-trustee and
beneficiary and 100 shares in Mr. Quackenbush's spouse's
self-directed IRA.
(10) Includes 4,282 shares held in Mr. Shapiro's self-directed
IRA and 1,207 shares held in a voluntary Pension Plan of
which Mr. Shapiro is trustee and beneficiary. Also includes
21,257 shares purchasable pursuant to options which are
exercisable within sixty (60) days.
(11) Includes 1,348 shares held by Mr. Zeiger's spouse and minor
child, and 21,257 shares purchasable pursuant to options
which are exercisable within sixty (60) days.
(12) Includes 5,116 shares held in Mr. Rosa's self-directed IRA,
99 shares under the Bank's 401(k) Plan and 7,609 shares held
in the name of Morris Area community foundation of which
Mr. Rosa is Finance Chairman. Also includes 9,466 shares
purchasable pursuant to options which are exercisable within
sixty (60) days.
Certain Transactions
The Bank has made in the past and, assuming continued
satisfaction of generally applicable credit standards, expects to
continue to make loans to directors, executive officers and their
associates (i.e., corporations or organizations for which they
serve as officers or directors or in which they have beneficial
ownership interests of ten percent or more). These loans have
all been made in the ordinary course of the Bank's business on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other persons and do not involve more than the
normal risk of collectability or present other unfavorable
features.
Michael E. Golden is the Vice Chairman of the Board of
the Company and is also the Chairman and CEO of FCSG, Inc. On
October 6, 1997, the Company retained Janney Montgomery Scott
Inc. and FCSG, Inc. (collectively, the "co-advisors") to act as
financial advisors to the Company's Board of Directors in
evaluating and responding to an unsolicited expression of
interest to acquire the Company and to advise the Board with
respect to potential strategic alternatives available to the
Company. The Company paid a non-refundable advisory fee of
$25,000 to the co-advisors upon retaining the co-advisors, and
$100,000 upon execution of the Merger Agreement with Sovereign
Bancorp Inc. on December 12, 1997. Under the terms of the
Company's engagement of the co-advisors, half of the fees were
paid to FCSG, Inc. Additionally, each co-advisor would be
entitled to receive a payment equal to one-half of 1.5% of the
aggregate consideration received by the Company or its
shareholders upon consummation of the Merger, less its respective
portion of the $125,000 fee already paid during 1997.
Includes prior service on Board of Directors of the
Bank.
No director of the Company is also a director of any
other company registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act), or subject
to the requirements of Section 15(d) of such Act or any company
registered as an investment company under the Investment Company
Act of 1940.
Financial and other information concerning Carnegie is
incorporated herein by reference. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
Market Price of and Dividends on Carnegie Common Stock and
Related Shareholder Matters
The Carnegie Common Stock is listed on the Nasdaq Stock
Market National Market under the symbol CBNJ. As of the Record
Date, there were approximately ________ 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 ____ _____ _____
December 31, 1997 0.14 35.00 23.38
September 30, 1997 0.14 27.50 18.25
June 30, 1997 0.14 18.75 16.50
March 31, 1997 0.14 19.63 17.50
December 31, 1996 0.13 20.13 16.75
September 30, 1996 0.12 17.13 15.00
June 30, 1996 0.12 16.25 14.25
March 31, 1996 0.12 18.00 15.75
__________________
(1) Through April __, 1998
On December 11, 1997, the last business day preceding
public announcement of the Merger, the last sale price for
Carnegie Common Stock was $31.00 per share. On May __, 1998, the
last sale price for Carnegie Common Stock was $________ per
share. The average weekly trading volume for the Carnegie Common
Stock during the quarter ended March 31, 1998 was approximately
________ shares.
The Merger Agreement permits Carnegie to pay a regular
quarterly cash dividend not to exceed $.14 per share of Carnegie
Common Stock outstanding. Carnegie agreed in the Merger
Agreement to cause, as promptly as practicable, the regular
quarterly dividend record dates and payment dates with respect to
Carnegie 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 Carnegie to receive two dividends either from
Carnegie or Sovereign in any quarter or to deny or prohibit
shareholders of Carnegie from receiving one dividend from
Carnegie or Sovereign in any quarter. Carnegie Bank may pay cash
dividends sufficient to permit payment of the dividends permitted
to be paid by Carnegie. No other dividends may be paid by
Carnegie or Carnegie Bank without the prior written consent of
Sovereign. See "THE MERGER -- Dividends." Carnegie's ability to
continue to pay dividends may be dependent upon its receipt of
dividends from Carnegie Bank. See "SUPERVISION AND REGULATION,"
set forth in Carnegie's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997 (included as part of
Carnegie's 1997 Annual Report to Shareholders), 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 period. A Tier 1 association may
make capital distributions in excess of the foregoing limits if
the OTS does not object after receiving notice thereof. A Tier 2
association is authorized to make distributions of up to 75% of
net income over the most recent four-quarter period if it
satisfies its fully phased-in risk-based capital requirement, or
up to 50% of such net income if it satisfies its interim (90% of
fully phased-in amount) risk-based capital requirement. A Tier 2
association may, through a written approval process, obtain OTS
approval to make distributions in excess of these amounts.
Tier 3 associations are not authorized to make any capital
distributions without prior written OTS approval unless, in the
case of an association operating in compliance with an approved
capital plan, the capital distribution is consistent with the
association's capital plan. The OTS has supervisory authority to
prohibit the payment of capital distributions for Tier 1 and
Tier 2 associations.
For certain limitations on the ability of Sovereign
Bank to pay dividends to Sovereign, see Sovereign's Annual Report
on Form 10-K for the year ended December 31, 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 Carnegie 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, 1998, 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 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 Series A 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 Carnegie
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
Carnegie 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 Carnegie.
This summary does not purport to be a complete
statement of the rights of Carnegie shareholders under the
applicable New Jersey law, Carnegie's Certificate of
Incorporation or Carnegie'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 Carnegie and to the Pennsylvania BCL and the
governing corporate instruments of Sovereign. Copies of such
governing corporate instruments of Carnegie 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.
Under Carnegie's Bylaws, directors may be removed from
office with or without cause by the affirmative vote of the
holders of a majority of the issued and outstanding shares of
Carnegie Common Stock entitled to vote in the election of
directors.
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).
Neither Carnegie's Certificate of Incorporation or
Bylaws nor the New Jersey BCA provides Carnegie's shareholders
with similar rights.
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.
Carnegie's Bylaws provide that the Board of Directors
shall be composed of not less than one nor more than 25
directors. Presently, the Board of Directors is composed of nine
members. All members of the Board of Directors of Carnegie are
elected annually.
Cumulative Voting
Neither Sovereign's nor Carnegie'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.
As permitted by the New Jersey BCA, Carnegie's
Certificate of Incorporation provides that neither directors nor
officers of Carnegie are personally liable to Carnegie or its
shareholders for breach of any duty owed to Carnegie 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
Carnegie 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 Carnegie 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.
Generally, current and former directors, officers,
employees and agents of Carnegie are entitled to indemnification
(i) in third party actions, if the person acted in good faith and
in a manner he reasonably believed to be in or not opposed to the
best interests of Carnegie and, as to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful and (ii) in derivative or corporate actions, if the
person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of Carnegie,
provided the person has not been adjudged to be liable to
Carnegie. Indemnification in both third party actions and
derivative or corporate actions can be made only as authorized in
a specific case upon a finding that the appropriate standard for
indemnification has been met. Such finding must be made by (i) a
majority vote of a quorum of disinterested directors,
(ii) independent legal counsel in a written opinion, or (iii) by
the shareholders if the Certificate of Incorporation or Bylaws or
a resolution of the Board of Directors or the shareholders so
directs.
Shareholder Meetings
Annual 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 annual meeting of shareholders.
The Bylaws of Carnegie provide that annual meetings of
shareholders may be called only by the Chairman of the Board, the
President or the Board of Directors.
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 Carnegie contains any similar provisions.
Action by Shareholders Without a Meeting
Sovereign's Bylaws provide that no action required or
permitted to be taken at any annual or annual 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.
Carnegie's Bylaws allow shareholders of Carnegie to act
without a meeting only if all shareholders entitled to vote
thereon consent thereto in writing. 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 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."
Carnegie 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."
Carnegie
The New Jersey Shareholders Protection Act ("NJSPA")
provides that no corporation organized under the laws of New
Jersey with its principal executive offices or significant
operations located in New Jersey (a "New Jersey Resident Domestic
Corporation") may engage in any "business combination" (as
defined in the NJSPA, a "Business Combination") with any
interested shareholder (as defined in the NJSPA, an "Interested
Shareholder") of that New Jersey Resident Domestic Corporation
for a period of five years following that Interested
Shareholder's stock acquisition unless that Business Combination
is approved by the board of directors of that New Jersey Resident
Domestic Corporation prior to that Interested Shareholder's stock
acquisition date. The term Business Combination, as defined in
the NJSPA, includes, among other things, certain mergers,
consolidations, asset transfers, stock issuances, plans of
liquidation and recapitalizations. Interested Shareholder, as
defined in the NJSPA, includes certain persons holding, directly
or indirectly, 10% or more of the voting power of the outstanding
voting stock of the New Jersey Resident Domestic Corporation and
certain affiliates of the New Jersey Resident Domestic
Corporation that, at any time within the five year period
immediately prior to the date in question, were the beneficial
owners, directly or indirectly, of 10% or more of the voting
power of the then outstanding stock of the New Jersey Resident
Domestic Corporation.
Pursuant to the NJSPA, no New Jersey Resident Domestic
Corporation may engage, at any time, in any Business Combination
with any Interested Stockholder of that New Jersey Resident
Domestic Corporation other than: (i) a Business Combination
approved by the board of directors of that New Jersey Resident
Domestic Corporation prior to that Interested Stockholder's stock
acquisition date, (ii) a Business Combination approved by the
affirmative vote of the holders of two-thirds of the voting stock
not beneficially owned by that Interested Shareholder at a
meeting called for such purpose, or (iii) a Business Combination
where the Interested Shareholder pays a formula price designed to
ensure that all holders (other than the Interested Shareholder)
of stock of the New Jersey Resident Domestic Corporation receive
at least the highest price per share paid by that Interested
Shareholder for any shares of capital stock acquired by it. The
NJSPA does not apply to certain inadvertent acquisitions,
provided the Interested Shareholder divests itself or himself of
a sufficient number of shares in accordance with the NJSPA. A
New Jersey Resident Domestic Corporation may not opt out of the
NJSPA.
Under the New Jersey BCA, directors of a New Jersey
corporation may consider, in discharging their duties to the
corporation and in determining what he or she reasonably believes
to be in the best interest of the corporation, any of the
following (in addition to considering the effects of any action
on shareholders): (i) the effects of the action on the
corporation's employees, suppliers, creditors and customers,
(ii) the effects of the action on the community in which the
corporation operates and (iii) the long-term as well as the
short-term interests of the corporation and its shareholders,
including the possibility that these interests may be best served
by the continued independence of the corporation. If, on the
basis of the foregoing factors, the board of directors determines
that any proposal or offer to acquire the corporation is not in
the best interest of the corporation, it may reject such proposal
or offer, in which event the board of directors will have no duty
to facilitate, remove any obstacles to, or refrain from impeding
such proposal or offer.
Required Shareholder Vote
General
Subject to the voting rights of any series of Sovereign
Preferred Stock then outstanding (see "DESCRIPTION OF SOVEREIGN
CAPITAL SECURITIES -- Preferred Stock"), the holders of Sovereign
Common Stock possess exclusive voting rights of Sovereign. Each
holder of Sovereign Common Stock is entitled to one vote for each
share owned of record. For general corporate action of the
shareholders of Sovereign, the affirmative vote of a majority of
the votes cast at a meeting of shareholders is required for
approval (abstentions with respect to any matter are not
considered votes "cast" under Pennsylvania law).
The holders of Carnegie Common Stock possess exclusive
voting rights of Carnegie. Each holder of Carnegie Common Stock
is entitled to one vote for each share owned of record. For
general corporate action of the shareholders of Carnegie, 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.
Under Carnegie's Bylaws, any merger, consolidation,
asset sale or similar transaction generally requires the
affirmative vote of a majority of the votes cast at the meeting
at which the matter is considered.
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.
Under the New Jersey BCA, if the Board of Directors
approves a proposed amendment to Carnegie's Certificate of
Incorporation and directs that the proposed amendment be
submitted to a vote at a meeting of shareholders, the proposed
amendment will be adopted 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 Carnegie 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.
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).
The Bylaws of Carnegie may be amended or repealed by
vote of a majority of directors or by vote of a majority of the
stock outstanding and entitled to vote.
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 Carnegie's Certificate of Incorporation or
Bylaws nor the New Jersey BCA provide Carnegie'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 ordinary course of business. However, no such right to
dissent exists with respect to (i) any class or series of shares
that is listed on a national securities exchange or is held of
record by not less than 1,000 holders on the record date fixed to
determine the shareholders entitled to vote on the transaction,
or, generally, (ii) any transaction in connection with which the
shareholders of the corporation will receive only (a) cash,
(b) securities that, upon consummation of the transaction, will
be listed on a national securities exchange or held of record by
not less than 1,000 holders, or (c) cash and such securities. A
shareholder of a corporation may also dissent from any
acquisition of shares owned by such shareholder in connection
with the acquisition by another New Jersey corporation, in
exchange for its shares, of all the shares of a class or series
of securities of such corporation. Any shareholder who perfects
dissenters' rights under the New Jersey BCA is entitled to
receive the "fair value" of such shares as determined either by
agreement between such shareholder and the corporation or by a
court of competent jurisdiction. Carnegie'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
Carnegie'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 Carnegie be dissolved and directs that the
question be submitted to a vote at a meeting of shareholders,
Carnegie 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 Carnegie 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
Carnegie 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 Annual Meeting, such proposal could
not be approved unless the Annual Meeting is adjourned in order
to permit further solicitation of proxies. In order to allow
proxies which have been received by Carnegie, at the time of the
applicable Meeting to be voted for such adjournment, if
necessary, Carnegie has submitted the question of adjournment
under such circumstances to its shareholders as a separate matter
for their consideration.
The Board of Directors of Carnegie 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 Annual
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 Annual Meeting.
ELECTION OF DIRECTORS OF CARNEGIE (ITEM NO. 2)
(FOR CARNEGIE SHAREHOLDERS ONLY)
At the Carnegie Annual Meeting, Carnegie shareholders
will be asked to vote on a proposal, which would only become
effective if the Merger is not consummated, to elect nine (9)
directors to hold office until the next annual meeting of
shareholders and until their successors have been duly elected
and qualified. IF THE MERGER IS CONSUMMATED, THE VOTE ON THIS
PROPOSAL WILL BE CONSIDERED VOID AND OF NO FORCE AND EFFECT.
The following nine individuals have been nominated for
election as directors in the event the Merger is not consummated:
Theodore H. Dolci, Jr., Michael E. Golden, Thomas L. Gray, Jr.,
Bruce A. Mahon, James E. Quackenbush, Steven L. Shapiro,
Shelley M. Zeiger, Mark A. Wolters and Joseph J. Oakes, III.
Each of the nominees is currently a director of Carnegie. For
biographical and other information on the nominees, see
"Information with respect to Carnegie."
The directors of Carnegie will be elected by a
plurality of the votes cast by shareholders of Carnegie present
at the Carnegie Annual Meeting in person or represented by proxy
if a quorum is present.
It is the intention of the persons named in the
accompanying proxy to vote FOR the election of the nine nominees,
unless contrary instructions are given or authority to do so is
withheld.
AT THE CARNEGIE ANNUAL MEETING, THE SHAREHOLDERS OF
CARNEGIE WILL BE REQUESTED TO ELECT NINE DIRECTORS TO THE BOARD
OF DIRECTORS. THE DIRECTORS OF CARNEGIE WILL BE ELECTED BY A
PLURALITY OF THE VOTES CAST BY SHAREHOLDERS OF CARNEGIE PRESENT
AT THE MEETING IN PERSON OR REPRESENTED BY PROXY. THE ELECTION
OF ANY DIRECTORS UNDER THIS PROPOSAL WILL ONLY BE GIVEN EFFECT IF
THE MERGER IS NOT CONSUMMATED.
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 and 1996, 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 is based in part on the report of KPMG Peat Marwick LLP,
independent auditors. Such consolidated financial statements are
included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of Carnegie as of
December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997, included in Carnegie's
Annual Report on Form 10-KSB for the year ended December 31,
1997, have been audited by Coopers & Lybrand LLP, independent
auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such consolidated
financial statements are included in reliance upon such reports
given upon the authority of said firm as experts in accounting
and auditing.
Coopers & Lybrand LLP has conducted the audit of the
financial statements of Carnegie and its subsidiary for the year
ended December 31, 1997. Representatives of Coopers & Lybrand
LLP are expected to be present at the Annual Meeting of Carnegie,
will be given an opportunity to make a statement if they desire
to do so, and will be available to answer appropriate questions
from shareholders. Coopers & Lybrand LLP has no material
financial interest in Carnegie or its subsidiary.
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 Carnegie by McCarter & English.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the
Board of Directors of Carnegie knows of no matters which will be
presented for consideration at the Annual Meeting other than as
set forth in this Proxy Statement/Prospectus. However, if any
other matters shall come before the Annual 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 16, 1998. 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
CARNEGIE BANCORP
December 12, 1997
<PAGE>
AGREEMENT
THIS AGREEMENT AND PLAN OF MERGER, dated as of
December 12, 1997, is made by and between SOVEREIGN BANCORP, INC.
("Sovereign"), a Pennsylvania corporation, having its principal
place of business in Wyomissing, Pennsylvania, and CARNEGIE
BANCORP ("Carnegie"), a New Jersey corporation, having its
principal place of business in Princeton, New Jersey.
BACKGROUND
1. Sovereign and Carnegie desire for Carnegie 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 Carnegie and
affiliates of Carnegie, each have executed in favor of Sovereign,
a Letter Agreement dated as of the date hereof in the form
attached hereto as Exhibit 1, and (b) Carnegie granted to
Sovereign an option to acquire, under certain circumstances,
Carnegie's common stock (the "Sovereign Option") pursuant to a
Stock Option Agreement between Sovereign and Carnegie dated as of
the date hereof, attached hereto as Exhibit 2.
3. Sovereign desires to merge Carnegie Bank, N.A., a
national banking association and a wholly-owned subsidiary of
Carnegie ("Carnegie Bank"), into and with Sovereign Bank, 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 Carnegie 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 Carnegie.
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 Carnegie and to be filed in the
PDS and the NJSOS, in accordance with the applicable laws of
the Commonwealth of Pennsylvania and the State of
New Jersey.
Bank Merger means the merger of Carnegie Bank,
N.A. 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.
BHC Act means the Bank Holding Company Act of
1956, as amended.
Carnegie Common Stock means the common stock of
Carnegie described in Section 2.02(a).
Carnegie Disclosure Schedule means a disclosure
schedule delivered by Carnegie to Sovereign pursuant to
Article II of this Agreement.
Carnegie Financials means (i) the audited
consolidated financial statements of Carnegie as of
December 31, 1996 and for the three years ended December 31,
1996, including the notes thereto, and (ii) the unaudited
interim consolidated financial statements of Carnegie as of
each calendar quarter thereafter, included in Securities
Documents filed by Carnegie.
Carnegie Regulatory Reports means the Annual
Reports of Carnegie on Form FR Y-6, any Current Report of
Carnegie on Form FR Y-9C and FR Y-LP filed with the FRB and
the NJDB from December 31, 1995 through the Closing Date and
the Reports of Condition and Income (Call Reports) of
Carnegie Bank, N.A. and accompanying schedules for each
calendar quarter, beginning with the quarter ended
December 31, 1995, through the Closing Date.
Carnegie Subsidiaries means any corporation, 50%
or more of the capital stock of which is owned, either
directly or indirectly, by Carnegie, except any corporation
the stock of which is held in the ordinary course of the
lending activities of Carnegie Bank, N.A.
Closing Date means the date determined by
Sovereign, in its sole discretion, upon five (5) days prior
written notice to Carnegie, but in no event later than
thirty (30) days after (i) all required approvals of
Regulatory Authorities for the Merger shall have been
obtained and (ii) all actions required to be taken by
Carnegie and Sovereign to authorize the Merger and the Bank
Merger shall have been duly and validly taken, or such other
date as Sovereign and Carnegie shall agree.
Effective Date means the date upon which all
required approvals from Regulatory Authorities have been
received and the Merger shall be deemed effective by the PDS
and the NJSOS, and shall be the same as the Closing Date.
Environmental Law means any federal, state, local
or foreign law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, order,
judgment, decree, injunction or agreement with any
Regulatory Authority relating to (i) the protection,
preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface
soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of any substance presently
listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated,
whether by type or by quantity, including any material
containing any such substance as a component.
ERISA means the Employee Retirement Income
Security Act of 1974, as amended.
Exchange Act means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
from time to time thereunder.
Exchange Ratio shall have the meaning given to
such term in Section 1.02(e)(ii)(A).
FDIA means the Federal Deposit Insurance Act, as
amended.
FDIC means the Federal Deposit Insurance
Corporation.
FRB means the Federal Reserve Board.
GAAP means generally accepted accounting
principles as in effect at the relevant date.
HOLA means the Home Owners' Loan Act of 1933, as
amended.
IRC means the Internal Revenue Code of 1986, as
amended.
IRS means the Internal Revenue Service.
Material Adverse Effect shall mean, with respect
to Sovereign or Carnegie, any adverse effect on its assets,
financial condition or results of operations which is
material to its assets, financial condition or results of
operations on a consolidated basis, except for any material
adverse effect caused by (i) any change in the value of the
respective investment portfolios of Sovereign or Carnegie
resulting from a change in interest rates generally or
(ii) any change occurring after the date hereof in any
federal or state law, rule or regulation or in GAAP, which
change affects banking institutions generally, including any
changes affecting the Bank Insurance Fund or the Savings
Association Insurance Fund.
Merger means the merger of Carnegie with and into
Sovereign, with Sovereign surviving such merger,
contemplated by this Agreement.
NBA means the National Bank Act, as amended.
NJBCA means the New Jersey Business Corporation
Act, as amended.
NJDB means the Department of Banking and Insurance
of the State of New Jersey.
NJSOS means the Office of the Secretary of State
of the State of New Jersey.
OTS means the Office of Thrift Supervision.
PDS means the Department of State of the
Commonwealth of Pennsylvania.
Person means any individual, corporation,
partnership, joint venture, association, trust or "group"
(as that term is defined under the Exchange Act).
Prospectus/Proxy Statement means the
prospectus/proxy statement, together with any supplements
thereto, to be transmitted to holders of Carnegie Common
Stock and Sovereign Common Stock in connection with the
transactions contemplated by this Agreement.
Registration Statement means the registration
statement on Form S-4, including any pre-effective or
post-effective amendments or supplements thereto, as filed
with the SEC under the Securities Act with respect to the
Sovereign Common Stock and Sovereign Stock Purchase Rights
to be issued in connection with the transactions
contemplated by this Agreement.
Regulatory Agreement has the meaning given to that
term in Section 2.11 of this Agreement.
Regulatory Authority means any banking agency or
department of any federal or state government, including
without limitation the OTS, the FDIC, the NJDB, the FRB, or
the respective staffs thereof.
Rights means warrants, options, rights,
convertible securities and other capital stock equivalents
which obligate an entity to issue its securities.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933,
as amended, and the rules and regulations promulgated from
time to time thereunder.
Securities Documents means all registration
statements, schedules, statements, forms, reports, proxy
material, and other documents required to be filed under the
Securities Laws.
Securities Laws means the Securities Act and the
Exchange Act and the rules and regulations promulgated from
time to time thereunder.
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 Carnegie pursuant to
Article III of 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 and (ii) the unaudited
interim consolidated financial statements of Sovereign as of
each calendar quarter thereafter included in Securities
Documents filed by Sovereign.
Sovereign Market Price means, as of any date, the
last reported sales price 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 last reported sales price of a share of
Sovereign Common Stock, as reported on the National
Association of Securities Dealers Automated Quotation System
(Nasdaq) National Market System, for each of the fifteen
consecutive trading days commencing sixteen (16) trading
days prior to the date of determination.
Sovereign Option means the option granted to
Sovereign to acquire shares of Carnegie Common Stock
referenced in the recitals to this Agreement.
Sovereign Regulatory Reports means the Annual
Reports of Sovereign on Form H(b)-11, any Current Report of
Sovereign on Form H(b)-11 filed with the OTS from
December 31, 1995 through the Closing Date and the Thrift
Financial Reports of Sovereign and accompanying schedules
for each calendar quarter, beginning with the quarter ended
December 31, 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 any corporation, 50%
or more of the capital stock of which is owned, either
directly or indirectly, by Sovereign, except any corporation
the stock of which is held in the ordinary course of the
lending activities of a bank.
Subsidiary means any corporation, 50% or more of
the capital stock of which is owned, either directly or
indirectly, by another entity, except any corporation the
stock of which is held in the ordinary course of the lending
activities of a bank.
Section 1.02 The Merger.
(a) Closing. The closing will take place at
10:00 a.m. on the Closing Date at the offices of Stevens & Lee,
111 North Sixth Street, Reading, Pennsylvania, unless another
time and place are agreed to by the parties hereto; provided, in
any case, that all conditions to closing set forth in Article V
have been satisfied or waived at or prior to the Closing Date.
On the Closing Date, Carnegie 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: Carnegie
shall merge with and into Sovereign; the separate existence of
Carnegie 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
Carnegie 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 Carnegie 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 and officers of Sovereign, as the surviving corporation
in the Merger, shall consist of those persons holding such
offices immediately prior to the Effective Date.
(ii) On the effective date of the Bank
Merger, the directors and officers of Sovereign Bank, as the
surviving corporation in the Bank Merger, shall consist of those
persons holding such offices immediately prior to the Effective
Date.
(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 Carnegie (other than shares held in trust, managed,
custodial or nominee accounts and the like or held by mutual
funds for which a subsidiary of Carnegie 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) Carnegie Common Stock.
(A) Subject to the provisions of
subparagraphs (B), (C) and (D) of this Section 1.02(e)(ii),
each share of Carnegie Common Stock issued and outstanding
immediately prior to the Effective Date (other than shares
of Carnegie Common Stock, if any, then owned by Sovereign or
Carnegie or any Carnegie 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 $35.50
divided by the Sovereign Market Value determined as of
the Effective Date;
(ii) if the Sovereign Market Value
determined as of the Effective Date is less than
$18.00, then 1.972 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 1.614 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 "Exchange Ratio").
(B) Each share of Carnegie 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 Carnegie Common Stock
issued and held in the treasury of Carnegie or owned by
Carnegie or any Carnegie 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 Carnegie Common Stock who would otherwise be
entitled to receive a fraction of a share of Sovereign
Common Stock shall receive, in lieu thereof, cash in an
amount equal to such fraction of a share multiplied by the
Sovereign Market Price determined as of the Effective Date.
(f) Stock Options. Each option to acquire
Carnegie Common Stock shall be converted into and become an
option to acquire that number of shares of Sovereign Common Stock
equal to the number of shares of Carnegie Common Stock covered by
the option multiplied by the Exchange Ratio. The exercise price
for a whole share of Sovereign Common Stock shall be the present
stated exercise price of such option divided by the Exchange
Ratio, such shares to be issuable upon exercise of such options
in accordance with the terms of the respective plans and grant
agreements under which they were issued; provided however, that
Carnegie shall be permitted to amend the terms of outstanding
nonqualified stock options to (i) accelerate vesting of such
options to a date on or prior to the Effective Date and
(ii) extend the expiration or termination of such options for a
period not exceeding 24 months following termination of an
optionee's employment or service provided that any such amendment
shall not adversely affect the ability to account for the
transaction as a pooling of interests.
(g) Surrender and Exchange of Carnegie Stock
Certificates.
(i) Exchange of Certificates. Each holder
of shares of Carnegie 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 Carnegie 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 Carnegie 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 Carnegie 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 Carnegie 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 at
the time of such exchange in an amount equal to dividends
theretofore payable on such Sovereign Common Stock and pay
or deliver any other distribution to which holders of shares
of Sovereign Common Stock have theretofore become entitled.
No interest will accrue or be payable in respect of
dividends or cash otherwise payable under this
Section 1.02(g) upon surrender of certificates for shares of
Carnegie Common Stock. Notwithstanding the foregoing, no
party hereto will be liable to any holder of Carnegie 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 Carnegie Common Stock are surrendered by a
Carnegie shareholder to Sovereign for exchange, or Carnegie
shareholders have complied with reasonable and customary
procedures relating to lost or destroyed certificates,
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 Carnegie 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 Carnegie 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 Carnegie Common Stock
transmittal materials for use in exchanging certificates
representing Carnegie 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 Carnegie as soon as reasonably possible but
in no event later than fifteen (15) business days following
the receipt of certificates representing former shares of
Carnegie Common Stock (except in the case of share
certificates containing a restrictive legend or with respect
to which stop transfer instructions pertain) duly endorsed
or accompanied by the materials referenced herein and
delivered by certified mail, return receipt requested (but
in no event earlier than the second business day following
the Effective Date).
(iv) Closing of Stock Transfer Books;
Cancellation of Carnegie Certificates. Upon the Effective
Date, the stock transfer books for Carnegie Common Stock
will be closed and no further transfers of shares of
Carnegie Common Stock will thereafter be made or recognized.
All certificates for shares of Carnegie 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 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 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 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 Carnegie
shareholders who are entitled to receive shares of Sovereign
Common Stock in exchange for shares of Carnegie Common Stock
shall be adjusted so that each Carnegie 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 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 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 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 Bankers
shareholder would receive 3.55 shares of Sovereign Common Stock
in exchange for each share of Bankers Common Stock, so that the
aggregate market value of the Sovereign Common Stock received
would be $35.50.)
Section 1.03 The Bank Merger. Sovereign and Carnegie
shall use their best efforts to cause Carnegie Bank 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 Carnegie shall cause Carnegie Bank, to execute and
deliver the Bank Plan of Merger attached hereto as Exhibit 3.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CARNEGIE
Carnegie hereby represents and warrants to Sovereign
that, except as specifically set forth in the Carnegie Disclosure
Schedule delivered to Sovereign by Carnegie on the date hereof:
Section 2.01 Organization.
(a) Carnegie is a corporation duly organized,
validly existing and in good standing under the laws of the State
of New Jersey. Carnegie is a bank holding company duly
registered under the BHC. Carnegie 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. Carnegie 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.
(b) Carnegie Bank is a national banking
association duly organized and validly existing under the laws of
the United States of America. Carnegie 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. Neither Carnegie Bank
nor any other Carnegie Subsidiary is qualified or licensed to do
business as a foreign corporation in any other jurisdiction and
neither is required to be so qualified or licensed as the result
of the ownership or leasing of property or the conduct of its
business except where the failure to be so qualified or licensed
would not have a Material Adverse Effect.
(c) There are no Carnegie Subsidiaries other than
Carnegie Bank and those identified in the Carnegie Disclosure
Schedule. There are no Carnegie Bank Subsidiaries other than
those identified in the Carnegie Disclosure Schedule.
(d) The deposits of Carnegie Bank are insured by
the FDIC to the extent provided in the FDIA.
(e) The respective minute books of Carnegie and
Carnegie Bank and each other Carnegie Subsidiary accurately
record, in all material respects, all material corporate actions
of their respective shareholders and boards of directors
(including committees) through the date of this Agreement.
(f) Prior to the date of this Agreement, Carnegie
has delivered to Sovereign true and correct copies of the
articles of incorporation and bylaws of Carnegie and the articles
of association and bylaws of Carnegie Bank as in effect on the
date hereof.
Section 2.02 Capitalization.
(a) The authorized capital stock of Carnegie
consists of (a) 5,000,000 shares of common stock, no par value
("Carnegie Common Stock"), of which 2,733,108 shares are
outstanding, validly issued, fully paid and nonassessable and
free of preemptive rights, and (b) no shares of preferred stock.
Neither Carnegie nor Carnegie Bank nor any other Carnegie
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
Carnegie Common Stock, Carnegie preferred stock or any other
security of Carnegie or any securities representing the right to
vote, purchase or otherwise receive any shares of Carnegie Common
Stock, Carnegie preferred stock or any other security of
Carnegie, other than shares issuable under the Sovereign Option
and as set forth in reasonable detail in the Carnegie Disclosure
Schedule.
(b) The authorized capital stock of Carnegie Bank
consists of (i) 1,000,000 shares of common stock, par value $5.00
per share, of which 897,305 shares are outstanding, validly
issued, fully paid, nonassessable, free of preemptive rights and
owned by Carnegie. Neither Carnegie nor any Carnegie 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 Carnegie Subsidiary or any other security of any
Carnegie 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 Carnegie Subsidiary. Either
Carnegie or Carnegie Bank owns all of the outstanding shares of
capital stock of each Carnegie 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 Carnegie
Disclosure Schedule, neither (i) Carnegie, (ii) Carnegie Bank nor
(iii) any other Carnegie 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 Carnegie Subsidiaries, equity
interests held by Carnegie Subsidiaries in a fiduciary capacity,
and equity interests held in connection with the commercial loan
activities of Carnegie Subsidiaries including DPC shares. There
are no subscriptions, options, warrants, calls, commitments,
agreements or other Rights outstanding and held by Carnegie or
Carnegie Bank with respect to any other company's capital stock
or the equity of any other person.
(d) To the best of Carnegie's knowledge, no
person or "group" (as that term is used in Section 13(d)(3) of
the Exchange Act), is the beneficial owner (as defined in Section
13(d) of the Exchange Act) of 5% or more of the outstanding
shares of Carnegie Common Stock, except as disclosed in the
Carnegie Disclosure Schedule.
Section 2.03 Authority; No Violation.
(a) Carnegie has full corporate power and
authority to execute and deliver this Agreement and to complete
the transactions contemplated hereby. Carnegie 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 Carnegie and the completion by
Carnegie of the transactions contemplated hereby have been duly
and validly approved by the Board of Directors of Carnegie and,
except for approval by the shareholders of Carnegie as required
under the NJBCA, Carnegie's articles of incorporation and bylaws
and Nasdaq requirements applicable to it, no other corporate
proceedings on the part of Carnegie are necessary to complete the
transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Carnegie and, subject to
approval of the shareholders of Carnegie as required under the
NJBCA, Carnegie's articles of incorporation and bylaws and Nasdaq
requirements applicable to it and receipt of the required
approvals from Regulatory Authorities described in Section 3.04
hereof, constitutes the valid and binding obligation of Carnegie,
enforceable against Carnegie 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 Carnegie Bank
concurrently with the execution and delivery of this Agreement,
will constitute the valid and binding obligation of Carnegie
Bank, enforceable against Carnegie Bank in accordance with its
terms, subject to approvals of Regulatory Authorities and
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 Carnegie, (B) the execution and delivery of the Bank
Plan of Merger by Carnegie Bank, (C) subject to receipt of
approvals from the Regulatory Authorities referred to in
Section 3.04 hereof, shareholder approval and Carnegie's and
Sovereign's compliance with any conditions contained therein, the
completion of the transactions contemplated hereby, and
(D) compliance by Carnegie or Carnegie 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 Carnegie or any Carnegie
Subsidiary or the articles of association or bylaws of Carnegie
Bank; (ii) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction
applicable to Carnegie or any Carnegie Subsidiary or any of their
respective properties or assets; or (iii) except as set forth in
the Carnegie 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 Carnegie or any Carnegie 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 Carnegie or any
Carnegie 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 Carnegie.
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 Carnegie under the NJBCA, and
the approval of the Bank Plan of Merger by Carnegie as sole
shareholder of Carnegie Bank under the NBA, and by the Carnegie
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 Carnegie or the Bank Plan of Merger
by Carnegie Bank, or (b) the completion by Carnegie of the
transactions contemplated hereby or by Carnegie Bank of the Bank
Merger. Carnegie 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 Carnegie'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 2.05 Financial Statements.
(a) Carnegie has previously delivered, or will
deliver, to Sovereign the Carnegie Regulatory Reports. The
Carnegie 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 Carnegie as
of and for the periods ended on the dates thereof, in accordance
with applicable regulatory accounting principles applied on a
consistent basis, subject to normal permissible adjustments.
(b) Carnegie has previously delivered to
Sovereign the Carnegie Financials. The Carnegie Financials have
been, or will be, prepared in accordance with generally accepted
accounting principles and practices applied on a consistent basis
throughout the periods covered by such statements, and fairly
present, or will fairly present, the consolidated financial
position, results of operations and cash flows of Carnegie as of
and for the periods ending on the dates thereof, in accordance
with generally accepted accounting principles applied on a
consistent basis, subject to normal recurring audit adjustments.
(c) At the date of each balance sheet included in
the Carnegie Financials or the Carnegie Regulatory Reports,
neither Carnegie nor Carnegie Bank (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 Carnegie Financials or
Carnegie 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) Carnegie and the Carnegie Subsidiaries are
members of the same affiliated group within the meaning of IRC
Section 1504(a). Carnegie has duly filed, and will file, all
federal, state and local tax returns required to be filed by or
with respect to Carnegie and all Carnegie 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 Carnegie and any Carnegie 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 Carnegie or any Carnegie Subsidiary.
Section 2.07 No Material Adverse Effect. Carnegie has
not suffered any Material Adverse Effect since December 31, 1996.
Section 2.08 Contracts.
(a) Except as described in Carnegie's proxy
statement for its May 21, 1997 annual meeting of shareholders and
Annual Reports on Form 10-K or 10-KSB for the years ended
December 31, 1996, 1995 and 1994, previously delivered to
Sovereign, in the footnotes to the audited consolidated financial
statements of Carnegie as of December 31, 1996, and for the three
years ended December 31, 1996, or in the Carnegie Disclosure
Schedule, neither Carnegie nor any Carnegie 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 Carnegie or any Carnegie 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 Carnegie or any Carnegie Subsidiary; (iii) any
collective bargaining agreement with any labor union relating to
employees of Carnegie or any Carnegie Subsidiary; (iv) any
agreement which by its terms limits the payment of dividends by
any Carnegie 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
Carnegie or any Carnegie Subsidiary is an obligor to any person,
which instrument evidences or relates to indebtedness other than
deposits, repurchase agreements, bankers acceptances and
"treasury tax and loan" accounts established in the ordinary
course of business and transactions in "federal funds" or which
contains financial covenants or other restrictions (other than
those relating to the payment of principal and interest when due)
which would be applicable on or after the Closing Date to
Sovereign or any Sovereign Subsidiary; or (vi) any contract
(other than this Agreement) limiting the freedom of any Carnegie
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
the filings referenced therein, have been provided to Sovereign
on or before the date hereof, are listed on the Carnegie
Disclosure Schedule and are in full force and effect on the date
hereof and neither Carnegie nor any Carnegie Subsidiary (nor, to
the knowledge of Carnegie, 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 Carnegie. Except as set forth in the Carnegie
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 Carnegie Disclosure
Schedule or as otherwise contemplated by this Agreement or the
Merger, none of the employees (including officers) of Carnegie or
any Carnegie Subsidiary, possess the right to terminate their
employment solely as a result of the execution of this Agreement.
Except as set forth in the Carnegie Disclosure Schedule, no plan,
employment agreement, termination agreement, or similar agreement
or arrangement to which Carnegie or any Carnegie Subsidiary is a
party or under which Carnegie or any Carnegie 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
Carnegie Disclosure Schedule or as otherwise contemplated by this
Agreement or the Merger, 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 Carnegie or any Carnegie 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 Carnegie or any
Carnegie Subsidiary to provide a benefit in the form of Carnegie
Common Stock or determined by reference to the value of Carnegie
Common Stock.
Section 2.09 Ownership of Property; Insurance
Coverage.
(a) Except as disclosed in the Carnegie
Disclosure Schedule, Carnegie and the Carnegie 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 Carnegie or any Carnegie 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
Carnegie Regulatory Reports and in the Carnegie Financials or
acquired subsequent thereto (except to the extent that such
assets and properties have been disposed of for fair value, in
the ordinary course of business, since the date of such balance
sheets), subject to no encumbrances, liens, mortgages, security
interests or pledges, except (i) those items which secure
liabilities for borrowed money from a member bank or the Federal
Reserve Bank, (ii) statutory liens for amounts not yet delinquent
or which are being contested in good faith and (iii) items
permitted under Article IV or (iv), as to real property,
exceptions to title which are not material individually or in the
aggregate. Carnegie and the Carnegie Subsidiaries, as lessee,
have the right under valid and subsisting leases of real and
personal properties used by Carnegie 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 Carnegie Disclosure Schedule, such existing
leases and commitments to lease 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 Carnegie
Financials.
(b) With respect to all agreements pursuant to
which Carnegie or any Carnegie Subsidiary has purchased
securities subject to an agreement to resell, if any, Carnegie or
such Carnegie 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) Carnegie and the Carnegie Subsidiaries
currently maintain insurance considered by Carnegie to be
reasonable for their respective operations and similar in scope
and coverage to that maintained by other businesses similarly
engaged. Neither Carnegie nor any Carnegie Subsidiary has
received written 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 the effect
of which would result in a Material Adverse Effect. There are
presently no material claims pending under such policies of
insurance and no notices have been given by Carnegie or Carnegie
Bank under such policies. All such insurance is valid and
enforceable and in full force and effect, and within the last
three years Carnegie has received each type of insurance coverage
for which it has applied and during such periods has not been
denied indemnification for any material claims submitted under
any of its insurance policies.
Section 2.10 Legal Proceedings. Except as disclosed
in the Carnegie Disclosure Schedule, neither Carnegie nor any
Carnegie Subsidiary is a party to any, and there are no pending
or, to the best of Carnegie'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 Carnegie or any Carnegie
Subsidiary, (ii) to which Carnegie or any Carnegie 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
Carnegie to perform under this Agreement, except for any
proceedings, claims, actions, investigations or inquiries
referred to in clauses (i) or (ii) which, if adversely
determined, individually or in the aggregate, could not be
reasonably expected to have a Material Adverse Effect.
Section 2.11 Compliance With Applicable Law.
(a) Carnegie and Carnegie 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.
(b) Except as disclosed in the Carnegie
Disclosure Schedule, neither Carnegie nor any Carnegie Subsidiary
has received any notification or communication from any
Regulatory Authority (i) asserting that Carnegie or any Carnegie
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
Carnegie or any Carnegie Subsidiary; (iii) requiring or
threatening to require Carnegie or any Carnegie Subsidiary, or
indicating that Carnegie or any Carnegie 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 Carnegie or any Carnegie 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
Carnegie or any Carnegie 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 Carnegie nor any Carnegie Subsidiary has consented to or
entered into any Regulatory Agreement, except as heretofore
disclosed to Sovereign.
Section 2.12 ERISA. Carnegie 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, deferred compensation and supplemental
income plans, supplemental executive retirement plans, employment
agreements, annual or long-term incentive plans, group insurance
plans, all employee welfare benefit plans within the meaning of
ERISA Section 3(1) (including short-term disability, long-term
disability, and medical plans), vacation pay and sick leave
policies or arrangements, and all other employee benefit plans,
policies, agreements and arrangements, all of which are set forth
or described in the Carnegie Disclosure Schedule, maintained or
contributed to for the benefit of the employees or former
employees (including eligible retired employees) and any
beneficiaries thereof or directors or former directors of
Carnegie or any Carnegie Subsidiary, together with (i) the most
recent actuarial (if any) and financial statements relating to
those plans which constitute "qualified plans" under IRC
Section 401(a), (ii) the most recent annual reports, if any,
relating to such plans filed by them, respectively, with any
government agency, and (iii) all rulings and determination
letters, if any, which pertain to any such plans. Neither
Carnegie, any Carnegie Subsidiary which is required to be
aggregated with Carnegie under IRC Section 414 nor any other
pension plan maintained by Carnegie or any Carnegie 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 Carnegie, except liabilities to the
Pension Benefit Guaranty Corporation pursuant to ERISA
Section 4007, all of which have been fully paid, nor has any
reportable event under ERISA Section 4043 occurred with respect
to any such pension plan. With respect to each of such plans
that is subject to Title IV of ERISA, the present value of the
accrued benefits under such plan, determined on an "ongoing
basis" and not a "termination basis," using 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 Carnegie nor any
Carnegie Subsidiary has incurred, or is subject to any liability
under ERISA Section 4201 for, a complete or partial withdrawal
from a multi-employer plan. All "employee benefit plans," as
defined in ERISA Section 3(3), maintained or sponsored by
Carnegie or any Carnegie Subsidiary 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(c) and not exempt
under IRC Section 4975(d)) has occurred within the past six (6)
years with respect to any employee benefit plan maintained by
Carnegie or any Carnegie Subsidiary which would result in the
imposition, directly or indirectly, of tax under IRC Section 4975
or other penalty under ERISA, which, individually or in the
aggregate, has resulted in or will result in a Material Adverse
Effect with respect to Carnegie. Carnegie and the Carnegie
Subsidiaries have provided continuation coverage under group
health plans for separating employees and "qualified
beneficiaries" in accordance with the provisions of IRC
Section 4980B(f). To the knowledge of Carnegie, 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.
Except for Carnegie's engagement of Janney Montgomery Scott Inc.
("JMS") and First Colonial Securities Group, Inc. ("FCSG") in
connection with transactions contemplated by this Agreement,
neither Carnegie nor any Carnegie 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 Carnegie 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 Carnegie
Financials. The Carnegie Disclosure Schedule shall contain as an
exhibit the engagement letter among Carnegie, JMS and FCSG.
Section 2.14 Environmental Matters. To the knowledge
of Carnegie, neither Carnegie nor any Carnegie Subsidiary, nor
any properties owned or operated by Carnegie or any Carnegie
Subsidiary has been or is in violation of or liable under any
Environmental Law which violation or liability, individually or
in the aggregate, resulted in, or will result, in a Material
Adverse Effect with respect to Carnegie. 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 Carnegie,
threatened, relating to the liability of any property owned or
operated by Carnegie or any Carnegie Subsidiary under any
Environmental Law.
Section 2.15 Loan Portfolio. The allowance for loan
losses reflected, and to be reflected, in the Carnegie Regulatory
Reports, and shown, and to be shown, on the balance sheets
contained in the Carnegie Financials have been, and will be,
established in accordance with the requirements of generally
accepted accounting principles and all applicable regulatory
criteria.
Section 2.16 Information to be Supplied. The
information to be supplied by Carnegie and Carnegie Bank for
inclusion in the Registration Statement (including the
Prospectus/Proxy Statement) will not, at the time the
Registration Statement is declared effective pursuant to the
Securities Act, contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein not misleading. The information supplied, or
to be supplied, by Carnegie for inclusion in the Applications
will, at the time such documents are filed with any Regulatory
Authority, be accurate in all material aspects.
Section 2.17 Securities Documents. Carnegie has
delivered to Sovereign copies of its (i) annual reports on SEC
Form 10-K or 10-KSB for the years ended December 31, 1996 and
1995, (ii) quarterly reports on SEC Form 10-Q or 10-QSB for the
quarters ended March 31, 1997, June 31, 1997 and September 30,
1997 and (iii) proxy materials used or for use in connection with
its annual meetings of shareholders held in 1997, 1996 and 1995.
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 Carnegie Disclosure Schedule, (ii) in
Carnegie's proxy statement for its May 21, 1997 annual meeting of
shareholders or (iii) in the footnotes to the Carnegie
Financials, Carnegie is not a party to any transaction (including
any loan or other credit accommodation) with any Affiliate of
Carnegie (except a Carnegie Subsidiary). Except as so disclosed,
all such transactions (a) were made in the ordinary course of
business, (b) were made on substantially the same terms,
including interest rates and collateral, as those prevailing at
the time for comparable transactions with other Persons, and
(c) did not involve more than the normal risk of collectability
or present other unfavorable features. Except as set forth in
the Carnegie Disclosure Schedule, no loan or credit accommodation
to any Affiliate of Carnegie 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 Carnegie nor Carnegie Bank 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 Carnegie Bank is inappropriate.
Section 2.19 Schedule of Termination Benefits. The
Carnegie Disclosure Schedule includes a schedule of the present
value as of June 30, 1998 of termination benefits and related
payments that would be payable to the individuals identified
thereon, excluding any options to acquire Carnegie 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 Carnegie
solely for the benefit of officers of Carnegie or Carnegie
Subsidiaries (the "Benefits Schedule"), assuming their employment
is terminated as of June 30, 1998 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 on the
Benefits Schedule with respect to each named individual (based on
a 6% per annum discount factor) is true and correct in all
material respects.
Section 2.20 Loans. Each loan reflected as an asset
in the Carnegie 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 Carnegie.
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, assuming Sovereign owns no shares of
Carnegie Common Stock.
Section 2.22 Quality of Representations. The
representations made by Carnegie in this Agreement are true,
correct and complete in all material respects, and do not omit
statements necessary to make them not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOVEREIGN
Sovereign hereby represents and warrants to Carnegie
that, except as set forth in the Sovereign Disclosure Schedule
delivered by Sovereign to Carnegie 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 Carnegie 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, and dividend reinvestment
and stock purchase plan, (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 or encumbrance.
Except for the Sovereign Subsidiaries, Sovereign does not
possess, directly or indirectly, any material equity interest in
any corporation, except for equity interests held in the
investment portfolios of Sovereign Subsidiaries, equity interests
held by Sovereign Subsidiaries in a fiduciary capacity, and
equity interests held in connection with the commercial loan
activities of Sovereign Subsidiaries. Set forth on the Sovereign
Disclosure Schedule is a list of all Sovereign Subsidiaries.
Section 3.03 Authority; No Violation.
(a) Sovereign has full corporate power and
authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. Sovereign Bank has full
corporate power and authority to execute and deliver the Bank
Plan of Merger and to consummate the Bank Merger. The execution
and delivery of this Agreement by Sovereign and the completion by
Sovereign of the transactions contemplated hereby have been duly
and validly approved by the Board of Directors of Sovereign and,
except for approval of the shareholders of Sovereign under Nasdaq
requirements applicable to it, no other corporate proceedings on
the part of Sovereign are necessary to complete the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by Sovereign and, subject to approval by
the shareholders of Sovereign under Nasdaq requirements
applicable to it and receipt of the required approvals of
Regulatory Authorities described in Section 3.04 hereof,
constitutes the valid and binding obligation of Sovereign,
enforceable against Sovereign in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity. The Bank Plan
of Merger, upon its execution and delivery by Sovereign Bank
concurrently with the execution and delivery of this Agreement,
will constitute the valid and binding obligation of Sovereign
Bank, enforceable against Sovereign Bank in accordance with its
terms, subject to applicable conservatorship and receivership
provisions of the FDIA, or insolvency and similar laws affecting
creditors' rights generally and subject, as to enforceability, to
general principles of equity.
(b) (A) The execution and delivery of this
Agreement by Sovereign, (B) the execution and delivery of the
Bank Plan of Merger by Sovereign Bank, (C) subject to receipt of
approvals from the Regulatory Authorities referred to in
Section 3.04 hereof and Carnegie'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
FRB, the PDS, the NJSOS, the SEC, the NJDB and state "blue sky"
authorities, and compliance with any conditions contained
therein, and the approval of this Agreement by the shareholders
of Sovereign in accordance with Nasdaq requirements applicable to
it, and the approval of the Bank Plan of Merger by Sovereign as
sole shareholder of Sovereign Bank under the FDIA, and by the
Sovereign Bank Board of Directors, no consents or approvals of,
or filings or registrations with, any public body or authority
are necessary, and no consents or approvals of any third parties
are necessary, or will be, in connection with (a) the execution
and delivery of this Agreement by Sovereign or the Bank Plan of
Merger by Sovereign Bank, and (b) the completion by Sovereign of
the transactions contemplated hereby or by Sovereign Bank of the
Bank Merger. Sovereign has no reason to believe that (i) any
required consents or approvals will not be received or will be
received with conditions, limitations or restrictions
unacceptable to it or which would adversely impact Sovereign's
ability to complete the transactions contemplated by this
Agreement or that (ii) any public body or authority, the consent
or approval of which is not required or any filing with which is
not required, will object to the completion of the transactions
contemplated by this Agreement.
Section 3.05 Financial Statements.
(a) Sovereign has previously delivered, or will
deliver, to Carnegie the Sovereign Financials. The Sovereign
Financials have been, or will be, prepared in accordance with
generally accepted accounting principles and practices and fairly
present, or will fairly present, the consolidated financial
position, results of operations and cash flows of Sovereign as of
and for the periods ending on the dates thereof, in accordance
with generally accepted accounting principles. Sovereign will
make the Sovereign Regulatory Reports available to Carnegie for
inspection.
(b) At the date of each balance sheet included in
the Sovereign Financials, Sovereign did not have any liabilities,
obligations or loss contingencies of any nature (whether
absolute, accrued, contingent or otherwise) of a type required to
be reflected in such Sovereign Financials or in the footnotes
thereto which are not fully reflected or reserved against therein
or disclosed in a footnote thereto, except for liabilities,
obligations or loss contingencies which are not material in the
aggregate and which are incurred in the ordinary course of
business, consistent with past practice, and except for
liabilities, obligations or loss contingencies which are within
the subject matter of a specific representation and warranty
herein and subject, in the case of any unaudited statements, to
normal recurring audit adjustments and the absence of footnotes.
Section 3.06 Taxes. Sovereign and the Sovereign
Subsidiaries are members of the same affiliated group within the
meaning of IRC Section 1504(a). Sovereign has duly filed, and
will file, all federal, state and local tax returns required to
be filed by or with respect to Sovereign and all Sovereign
Subsidiaries on or prior to the Closing Date (all such returns
being accurate and correct in all material respects) and has duly
paid or will pay, or made or will make, provisions for the
payment of all federal, state and local taxes which have been
incurred by or are due or claimed to be due from Sovereign and
any Sovereign Subsidiary by any taxing authority or pursuant to
any tax sharing agreement or arrangement (written or oral) on or
prior to the Closing Date other than taxes which (i) are not
delinquent or (ii) are being contested in good faith.
Section 3.07 No Material Adverse Effect. Sovereign
has not suffered any Material Adverse Effect since December 31,
1996.
Section 3.08 Ownership of Property; Insurance
Coverage.
(a) Sovereign and the Sovereign Subsidiaries have
good and, as to real property, marketable title to all assets and
properties owned by Sovereign or any of its Subsidiaries in the
conduct of their businesses, whether such assets and properties
are real or personal, tangible or intangible, including assets
and property reflected in the balance sheets contained in the
Sovereign Financials or acquired subsequent thereto (except to
the extent that such assets and properties have been disposed of
for fair value, in the ordinary course of business, since the
date of such balance sheets), subject to no encumbrances, liens,
mortgages, security interests or pledges, except (i) those items
that secure liabilities for borrowed money and that are described
in the Sovereign Disclosure Schedule or permitted under
Article IV hereof, and (ii) statutory liens for amounts not yet
delinquent or which are being contested in good faith. Sovereign
and the Sovereign Subsidiaries, as lessee, have the right under
valid and subsisting leases of real and personal properties used
by Sovereign and its Subsidiaries in the conduct of their
businesses to occupy and use all such properties as presently
occupied and used by each of them.
(b) Sovereign and the Sovereign Subsidiaries
currently maintain insurance in amounts considered by Sovereign
to be reasonable for their respective operations, and such
insurance is similar in scope and coverage to that maintained by
other businesses similarly engaged. Neither Sovereign nor any
Sovereign Subsidiary has received notice from any insurance
carrier that (i) such insurance will be cancelled or that
coverage thereunder will be reduced or eliminated or (ii) premium
costs with respect to such insurance will be substantially
increased. There are presently no material claims pending under
such policies of insurance and no notices have been given by
Sovereign or Sovereign Bank under such policies. All such
insurance is valid and enforceable and in full force and effect,
and within the last three years Sovereign has received each type
of insurance coverage for which it has applied and during such
periods has not been denied indemnification for any material
claims submitted under any of its insurance policies.
Section 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.
Section 3.10 Compliance With Applicable Law.
(a) Sovereign and the Sovereign Subsidiaries hold
all licenses, franchises, permits and authorizations necessary
for the lawful conduct of their businesses under, and have
complied in all material respects with, applicable laws,
statutes, orders, rules or regulations of any federal, state or
local governmental authority relating to them, other than where
such failure to hold or such noncompliance will neither result in
a limitation in any material respect on the conduct of their
businesses nor otherwise have a Material Adverse Effect on the
assets, business, financial condition, business prospects or
results of operations of Sovereign and its Subsidiaries taken as
a whole.
(b) Neither Sovereign nor any Sovereign
Subsidiary has received any notification or communication from
any Regulatory Authority (i) asserting that Sovereign or any
Sovereign Subsidiary is not in compliance with any of the
statutes, regulations or ordinances which such Regulatory
Authority enforces; (ii) threatening to revoke any license,
franchise, permit or governmental authorization which is material
to Sovereign or any Sovereign Subsidiary; (iii) requiring or
threatening to require Sovereign or any Sovereign Subsidiary, or
indicating that Sovereign or any Sovereign Subsidiary may be
required, to enter into a cease and desist order, agreement or
memorandum of understanding or any other agreement restricting or
limiting, or purporting to restrict or limit, in any manner the
operations of Sovereign or any Sovereign Subsidiary, including
without limitation any restriction on the payment of dividends;
or (iv) directing, restricting or limiting, or purporting to
direct, restrict or limit, in any manner the operations of
Sovereign or any Sovereign Subsidiary, including without
limitation any restriction on the payment of dividends (any such
notice, communication, memorandum, agreement or order described
in this sentence is hereinafter referred to as a "Regulatory
Agreement"). Neither Sovereign nor any Sovereign Subsidiary has
consented to or entered into any Regulatory Agreement, except as
heretofore disclosed to Carnegie.
Section 3.11 Information to be Supplied. The
information to be supplied by Sovereign for inclusion in the
Registration Statement (including the Prospectus/Proxy Statement)
will not, at the time the Registration Statement is declared
effective pursuant to the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein not misleading.
The information supplied, or to be supplied, by Sovereign for
inclusion in the Applications will, at the time such documents
are filed with any Regulatory Authority, be accurate in all
material aspects.
Section 3.12 ERISA. Sovereign has previously made
available to Carnegie true and complete copies of the employee
pension benefit plans within the meaning of ERISA Section 3(2),
including profit sharing plans, deferred compensation and
supplemental income plans, supplemental executive retirement
plans, stock purchase plans, annual or long-term incentive plans,
group insurance plans, all other employee welfare benefit plans
within the meaning of ERISA Section 3(1) (including short-term
disability, long-term disability, and medical plans), vacation
pay and sick leave policies or arrangements and all other
employee benefit plans, policies, agreements and arrangements,
all of which are set forth or described on the Sovereign
Disclosure Schedule, maintained or contributed to for the benefit
of the employees or former employees (including eligible 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 statements
relating to those plans which constitute "qualified plans" under
IRC Section 401(a), (ii) the most recent annual reports, if any,
relating to such plans filed by them, respectively, with any
government agency, and (iii) all rulings and determination
letters, if any, which pertain to any such plans. Neither
Sovereign nor any Sovereign Subsidiary which is required to be
aggregated with Sovereign under IRC Section 414, and no pension
plan maintained by Sovereign or any Sovereign Subsidiary, has
incurred, directly or indirectly, within the past six (6) years
any liability under Title IV of ERISA (including to the Pension
Benefit Guaranty Corporation) or to the IRS with respect to any
pension plan qualified under IRC Section 401(a) which liability
has resulted in or will result in a Material Adverse Effect with
respect to Sovereign, except liabilities to the Pension Benefit
Guaranty Corporation pursuant to ERISA Section 4007, all of which
have been fully paid, nor has any reportable event under ERISA
Section 4043 occurred with respect to any such pension plan.
With respect to each of such plans that is subject to Title IV of
ERISA, the present value of the accrued benefits under such plan,
determined on an "ongoing basis" and not a "termination basis,"
using 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 multi-employer plan. All "employee benefit
plans," as defined in ERISA Section 3(3), maintained or sponsored
by Sovereign or any Sovereign Subsidiary comply, and in the past
six (6) years have complied, in all material respects with
(i) relevant provisions of ERISA, and (ii) in the case of plans
intended to qualify for favorable income tax treatment,
provisions of the IRC relevant to such treatment. No prohibited
transaction (which shall mean any transaction prohibited by ERISA
Section 406 and not exempt under ERISA Section 408 or any
transaction prohibited under IRC Section 4975(c) and not exempt
under IRC Section 4975(d)) 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 tax under IRC Section 4975
or other penalty under ERISA, 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 have provided continuation coverage under group
health plans for separating employees in accordance with the
provisions of IRC Section 4980B(f). To the knowledge of
Sovereign, such group health plans are in material compliance
with Section 1862(b)(1) of the Social Security Act.
Section 3.13 Securities Documents. Sovereign has
delivered, or will deliver, to Carnegie 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 filed during 1997,
(iv) proxy statement dated March 19, 1997 used in connection with
its annual meeting of shareholders held in April 1997 and
(iv) any other Securities Documents reasonably requested by
Carnegie. Such reports and such proxy materials complied, at the
time filed with the SEC, in all material respects, with the
Exchange Act and the applicable rules and regulations of the SEC.
Section 3.14 Environmental Matters. To the knowledge
of Sovereign, neither Sovereign nor any Sovereign Subsidiary, nor
any properties owned or operated by Sovereign or any Sovereign
Subsidiary has been or is in violation of or liable under any
Environmental Law which violation or liability, individually or
in the aggregate, resulted in or will result in a Material
Adverse Effect with respect to Sovereign. There are no actions,
suits or proceedings, or demands, claims, notices or
investigations (including without limitation notices, demand
letters or requests for information from any environmental
agency) instituted or pending, or to the knowledge of Sovereign,
threatened, relating to the liability of any property owned or
operated by Sovereign or any Sovereign Subsidiary under any
Environmental Law.
Section 3.15 Loan Portfolio. The allowance for loan
losses reflected, and to be reflected, in the Sovereign
Regulatory Reports, and shown, and to be shown, on the balance
sheets contained in the Sovereign Financials have been, and will
be, established in accordance with the requirements of generally
accepted accounting principles and all applicable regulatory
criteria.
Section 3.16 Brokers and Finders. Neither Sovereign
nor any Sovereign Subsidiary, nor any of their respective
officers, directors, employees or agents, has employed any
broker, finder or financial advisor, or incurred any liability
for any fees or commissions to any such person, in connection
with the transactions contemplated by this Agreement.
Section 3.17 Loans. Each loan reflected as an asset
in the Sovereign Financial Statements (i) is evidenced by notes,
agreements or other evidences of indebtedness which are true,
genuine and correct (ii) to the extent secured, has been secured
by valid liens and security interests which have been perfected,
and (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 Sovereign.
Section 3.18 Shares of Sovereign Common Stock. The
shares of Sovereign Common Stock to be issued to holders of
shares of Carnegie Common Stock pursuant to the Merger, shall,
upon effectiveness of the Merger, be duly and validly issued and
fully paid and non-assessable and free from all taxes, liens and
charges.
Section 3.19 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 Carnegie's Business.
(a) From the date of this Agreement to the
Closing Date, Carnegie and each Carnegie 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. Carnegie
will use its best efforts, and will cause Carnegie Bank to use
its best 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 Carnegie
and Carnegie 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, Carnegie
will not, and Carnegie will not permit any Carnegie Subsidiary
to:
(i) amend or change any provision of its
certificate or articles of incorporation, charter, or
bylaws;
(ii) change the number of authorized or
issued shares of its capital stock or issue or grant any
option, warrant, call, commitment, subscription, Right or
agreement of any character relating to its authorized or
issued capital stock or any securities convertible into
shares of such stock, or split, combine or reclassify any
shares of capital stock, or declare, set aside or pay any
dividend or other distribution in respect of capital stock,
or redeem or otherwise acquire any shares of capital stock,
except that (A) Carnegie may issue shares of Carnegie 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 Carnegie Common Stock under
the Carnegie Stock Option Plans and (B) Carnegie may pay a
regular quarterly cash dividend, not to exceed $.14 per
share of Carnegie Common Stock outstanding. As promptly as
practicable following the date of this Agreement, the Board
of Directors of Carnegie 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 Carnegie 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 Carnegie
shareholders to receive two dividends either from Carnegie
or from Carnegie and Sovereign in any quarter or to deny or
prohibit them from receiving one dividend from Carnegie or
Sovereign in any quarter. Subject to applicable regulatory
restrictions, if any, Carnegie Bank may pay a cash dividend,
in the aggregate, sufficient to fund any dividend by
Carnegie permitted hereunder;
(iii) grant any severance or termination pay
(other than pursuant to written policies or written
agreements of Carnegie or Carnegie Subsidiaries in effect on
the date hereof, included on the Disclosure Schedule, and
provided to Sovereign prior to the date hereof) to, or enter
into any new or amend any existing employment agreement
with, or increase the compensation of, any employee, officer
or director of Carnegie or any Carnegie Subsidiary, except
for routine periodic increases, individually and in the
aggregate, in accordance with past practice;
(iv) merge or consolidate Carnegie or any
Carnegie Subsidiary with any other corporation; sell or
lease all or any substantial portion of the assets or
business of Carnegie or any Carnegie 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 Carnegie 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 Carnegie 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 Carnegie Bank or sell or otherwise dispose of any
asset of Carnegie or of any Carnegie Subsidiary other than
in the ordinary course of business consistent with past
practice; subject any asset of Carnegie or of any Carnegie
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 Carnegie set
forth in this Agreement becoming untrue as of any date after
the date hereof or in any of the conditions set forth in
Article V hereof not being satisfied;
(vii) change any method, practice or
principle of accounting, except as may be required from time
to time by GAAP (without regard to any optional early
adoption date) or any Regulatory Authority responsible for
regulating Carnegie or Carnegie Bank;
(viii) waive, release, grant or transfer any
rights of value or modify or change in any material respect
any existing material agreement to which Carnegie or any
Carnegie Subsidiary is a party, other than in the ordinary
course of business, consistent with past practice;
(ix) implement any pension, retirement,
profit sharing, bonus, welfare benefit or similar plan or
arrangement that was not in effect on the date of this
Agreement, or materially amend any existing plan or
arrangement except as permitted by Section 1.02(f) or to the
extent such amendments do not result in an increase in cost;
(x) purchase any security for its investment
portfolio not rated "A" or higher by either Standard &
Poor's Corporation or Moody's Investor Services, Inc.;
(xi) make any new loan or other credit
facility commitment (including without limitation, lines of
credit and letters of credit) to any borrower or group of
affiliated borrowers in excess of $1,000,000 in the
aggregate, or increase, compromise, extend, renew or modify
any existing loan or commitment outstanding in excess of
$1,000,000, except for any commitment disclosed on the
Carnegie Disclosure Schedule; provided that Sovereign will
not unreasonably withhold its consent with respect to any
request by Carnegie for permission to increase, compromise,
extend, renew or modify any loan subject to this provision;
(xii) except as set forth on the Carnegie
Disclosure Schedule, enter into, renew, extend or modify any
other transaction with any Affiliate;
(xiii) enter into any interest rate swap or
similar commitment, agreement or arrangement;
(xiv) except for the execution of this
Agreement, take any action that would give rise to a right
of payment to any individual under any employment agreement;
(xv) intentionally and knowingly take any
action that would preclude satisfaction of the condition to
closing contained in Section 5.02(k) relating to financial
accounting treatment of the Merger; or
(xvi) agree to do any of the foregoing.
For purposes of this Section 4.01, it shall not be
considered in the ordinary course of business for Carnegie or any
Carnegie Subsidiary to do any of the following: (i) make any
capital expenditure of $100,000 or more not disclosed on Carnegie
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 Carnegie or a Carnegie 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 Carnegie or any Carnegie Subsidiary of
more than $50,000 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, Carnegie or Sovereign, as the case may be, shall
afford to, and shall cause each Carnegie 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
Carnegie 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) Carnegie 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, Carnegie shall permit employees of Sovereign
reasonable access to and participation in matters relating to
problem loans, loan restructurings and loan work-outs of Carnegie
and the Carnegie Subsidiaries in an individual amount in excess
of $250,000, 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 Carnegie or any Carnegie Subsidiary to obtain an
appraisal by an independent third party experienced in such
matters, and mutually satisfactory to Sovereign and Carnegie, of
the assets or property securing any loan made by Carnegie or any
Carnegie Subsidiary.
(d) If the transactions contemplated by this
Agreement shall not be consummated, Carnegie 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. Carnegie 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) Sovereign and Carnegie will prepare all
Applications and make all filings for, and use their best efforts
to obtain as promptly as practicable after the date hereof, all
necessary permits, consents, approvals, waivers and
authorizations of all Regulatory Authorities necessary or
advisable to consummate the transactions contemplated by this
Agreement.
(b) Carnegie will furnish Sovereign with all
information concerning Carnegie and Carnegie Subsidiaries as may
be necessary or advisable in connection with any Application or
filing made by or on behalf of Sovereign to any Regulatory
Authority in connection with the transactions contemplated by
this Agreement.
(c) Sovereign will promptly furnish Carnegie with
copies of all material written communications to, or received by
Sovereign or any Sovereign Subsidiary from, any Regulatory
Authority in respect of the transactions contemplated hereby,
except information which is filed by Sovereign which is
designated as confidential or contains an earnings projection.
(d) Sovereign will furnish Carnegie with
(i) copies of all Applications prior to filing with any
Regulatory Authority and provide Carnegie a reasonable
opportunity to suggest changes to such Applications, which
suggested changes Sovereign may, in its reasonable discretion
accept or reject, (ii) copies of all Applications filed by
Sovereign and (iii) copies of all documents filed by Sovereign
under the Securities Exchange Act of 1934, as amended.
(e) Carnegie will cooperate with Sovereign in the
foregoing matters and will furnish Sovereign with all information
concerning Carnegie and Carnegie Subsidiaries as may be necessary
or advisable in connection with any Application or filing
(including the Registration Statement and any report filed with
the SEC) made by or on behalf of Sovereign to any Regulatory
Authority in connection with the transactions contemplated by
this Agreement, and such information will be accurate and
complete in all material respects. In connection therewith,
Carnegie will provide certificates and other documents reasonably
requested by Sovereign.
Section 4.04 Taking of Necessary Action.
(a) Sovereign and Carnegie shall each use its
best efforts in good faith, and each of them shall cause its
Subsidiaries to use their best efforts in good faith, to
(i) furnish such information as may be required in connection
with the preparation of the documents referred to in Section 4.03
of this Agreement, and (ii) take or cause to be taken all action
necessary or desirable on its part using its best efforts so as
to permit completion of the Merger and the Bank Merger including,
without limitation, (A) obtaining the consent or approval of each
individual, partnership, corporation, association or other
business or professional entity whose consent or approval is
required or desirable for consummation of the transactions
contemplated hereby (including assignment of leases without any
change in terms), provided that neither Carnegie nor any Carnegie
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 Carnegie or from exercising its rights under this
Agreement or the Option Agreement.
(b) Carnegie and Sovereign shall promptly prepare
a Prospectus/Proxy Statement to be mailed to shareholders of
Carnegie in connection with the meeting of its shareholders and
transactions contemplated hereby, and to be filed by Sovereign
with the SEC in the Registration Statement, which Prospectus/
Proxy statement shall conform to all applicable legal
requirements. Sovereign shall, as promptly as practicable
following the preparation thereof, file the Registration
Statement with the SEC and Carnegie 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 Carnegie, 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 Carnegie with as many copies of such Registration
Statement and all amendments thereto promptly upon the filing
thereof as Carnegie may reasonably request.
Section 4.05 Certain Agreements.
(a) In the event of any threatened or actual
claim, action, suit, proceeding or investigation, whether civil,
criminal or administrative, in which any person who is now, or
has been at any time prior to the date of this Agreement, or who
becomes prior to the Effective Date, a director or officer or
employee of Carnegie 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 Carnegie, any of the Carnegie'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 Articles of Incorporation and
Bylaws of Carnegie. On or after the Effective Date, Sovereign
shall indemnify, defend and hold harmless all prior and then-
existing directors and officers of Carnegie and Carnegie Bank,
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 Carnegie or
any Carnegie 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 Carnegie or
Carnegie Bank as of the date hereof including the right to
advancement of expenses, provided, however, that any such
officer, director or employee of Carnegie or Carnegie Bank may
not be indemnified by Sovereign and/or Sovereign Bank if such
indemnification is prohibited by applicable law. Sovereign
further agrees to advance to Indemnified Parties expenses
incurred by such Indemnified Parties in defending against any
Indemnified Liabilities claims to the fullest extent permitted by
applicable law.
(b) Sovereign shall maintain Carnegie'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 six 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 Carnegie 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 notify each covered insured and
nonetheless 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 disclosed in the Carnegie
Disclosure Schedule.
Section 4.06 No Other Bids and Related Matters.
(a) So long as this Agreement remains in Effect,
Carnegie shall not, nor shall it permit any Carnegie Subsidiary
or any other Affiliate of Carnegie or any officer, director or
employee of any of them, or any investment banker, attorney,
accountant or other representative retained by Carnegie, any
Carnegie Subsidiary or any other Carnegie Affiliate to, directly
or indirectly, solicit, encourage, initiate or engage in
discussions or negotiations with, or respond to requests for
information, inquiries, or other communications from, any person
other than Sovereign concerning the fact of, or the terms and
conditions of, this Agreement, or concerning any acquisition of
Carnegie, any Carnegie Subsidiary, or any assets or business
thereof (except that Carnegie's officers may respond to inquiries
from analysts, Regulatory Authorities and holders of Carnegie
Common Stock in the ordinary course of business). Carnegie shall
notify Sovereign immediately if (i) any such discussions or
negotiations are sought to be initiated with Carnegie by any
person other than Sovereign, or (ii) if any such requests for
information, inquiries, proposals or communications are received
from any person other than Sovereign, or analysts, Regulatory
Authorities and holders of Carnegie Common Stock in the ordinary
course of business.
(b) Notwithstanding the foregoing, Carnegie,
after written notice to Sovereign, may respond to unsolicited
inquiries from third parties 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 Carnegie's
Disclosure Schedule. Carnegie shall promptly advise Sovereign of
any change or event having a Material Adverse Effect on it or on
any Carnegie Subsidiary or which it believes would or would be
reasonably likely to cause or constitute a material breach of any
of its representations, warranties or covenants set forth herein.
Carnegie shall update Carnegie's Disclosure Schedule as promptly
as practicable after the occurrence of an event or fact which, if
such event or fact had occurred prior to the date of this
Agreement, would have been disclosed in the Carnegie Disclosure
Schedule. The delivery of such updated Schedule shall not
relieve Carnegie from any breach or violation of this Agreement
and shall not have any effect for the purposes of determining the
satisfaction of the condition set forth in Sections 5.02(c)
hereof.
Section 4.08 Conduct of Sovereign's Business. From
the date of this Agreement to the Closing Date, Sovereign will
use its best efforts to (x) preserve its business organizations
intact, (y) maintain good relationships with employees, and
(z) preserve for itself the goodwill of customers of Sovereign
and Sovereign Subsidiaries and others with whom business
relationships exist.
Section 4.09 Board and Committee Minutes. Carnegie
shall provide to Sovereign, within 30 days after any meeting of
the Board of Directors of Carnegie or any Carnegie Subsidiary, or
any committee thereof, or any senior management committee, a copy
of the minutes of such meeting, except that with respect to any
meeting held within 30 days of the Closing Date, such minutes
shall be provided to Sovereign prior to the Closing Date.
Section 4.10 Undertakings by Sovereign and Carnegie.
(a) From and after the date of this Agreement,
Carnegie shall:
(i) Voting by Directors. Subject to the
fiduciary duties of officers and directors of Carnegie
imposed by applicable law, recommend to all members of
Carnegie's Board of Directors to vote all shares of
Carnegie's Common Stock beneficially owned by each such
director in favor of this Agreement;
(ii) Shareholder Meeting. Submit this
Agreement to its shareholders for approval at a meeting to
be held as soon as practicable, and subject to the fiduciary
duties of officers and directors of Carnegie imposed by
applicable law, use its best efforts to cause its Board of
Director to unanimously recommend approval of this Agreement
to its shareholders;
(iii) 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 Carnegie or any
Carnegie Subsidiary on the date hereof;
(iv) Approval of Bank Plan of Merger.
Approve the Bank Plan of Merger as sole shareholder of
Carnegie Bank and obtain the approval of, and cause the
execution and delivery of, the Bank Plan of Merger by
Carnegie Bank;
(v) Proxy Solicitor. If Sovereign requests
and agrees to bear the expense thereof, retain a proxy
solicitor in connection with the solicitation of Carnegie
shareholder approval of this Agreement;
(vi) Timely Review. If requested by
Sovereign at Sovereign's sole expense, cause its independent
certified public accountants to perform a review of its
unaudited consolidated financial statements as of the end of
any calendar quarter, in accordance with Statement of
Auditing Standards No. 36, and to issue their report on such
financial statements as soon as is practicable thereafter;
(vii) Outside Service Bureau Contracts. If
requested to do so by Sovereign, use its best efforts to
obtain an extension of any contract with an outside service
bureau or other vendor of services to Carnegie or any
Carnegie Subsidiary, on terms and conditions mutually
acceptable to Carnegie and Sovereign;
(viii) Committee Meetings. Permit a
representative of Sovereign, who is reasonably acceptable to
Carnegie, to attend all committee meetings of Carnegie and
Carnegie Bank management including, without limitation, any
loan or asset/liability committee. Carnegie shall respond
reasonably and in good faith to any request of Sovereign to
permit a representative of Sovereign, who is reasonably
acceptable to Carnegie, to attend any meeting of Carnegie's
Board of Directors or the Executive Committee thereof;
provided, however, that the failure of a representative of
Sovereign to attend any such committee or Board meeting
shall not impair the right or ability of such committee or
Board to conduct and take actions pursuant to such meetings;
(ix) Reserves and Merger-Related Costs. On
or before the Effective Date, consistent with generally
accepted accounting principles 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 Carnegie to those of
Sovereign (as such practices and methods are to be applied
to Carnegie from and after the Closing Date) and Sovereign's
plans with respect to the conduct of the business of
Carnegie following the Merger and otherwise to reflect
Merger-related expenses and costs incurred by Carnegie,
provided, however, that Carnegie shall not be required to
take such action (A) more than two 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, Carnegie shall provide Sovereign a written
statement, certified without personal liability by the chief
executive officer of Carnegie 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 Carnegie or any Carnegie Subsidiary pursuant to this
subsection, or any litigation or regulatory proceeding
arising out of any such accrual or reserve, shall
(i) 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 or
(ii) be taken into account in the calculation of bonuses
payable to any officers of Carnegie or Carnegie
Subsidiaries.
(b) From and after the date of this Agreement,
Sovereign and Carnegie shall each:
(i) Filings and Approvals. Cooperate with
the other in the preparation and filing, as soon as
practicable, of (A) the Applications, (B) the Registration
Statement and related filings under state securities laws
covering the Sovereign Common Stock and related Sovereign
Stock Purchase Rights to be issued pursuant to the Merger,
(C) all other documents necessary to obtain any other
approvals and consents required to effect the completion of
the Merger and the Bank Merger, and (D) all other documents
contemplated by this Agreement;
(ii) Identification of Carnegie's
Affiliates. Cooperate with the other and use its best
efforts to identify those persons who may be deemed to be
Affiliates of Carnegie;
(iii) 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 Carnegie shareholders, Carnegie's internal
announcements and customer disclosures, but nothing
contained herein shall prohibit either party from making any
disclosure which its counsel deems necessary;
(iv) 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;
(v) Maintenance of Books and Records.
Maintain, and cause their respective Subsidiaries to
maintain, books of account and records in accordance with
generally accepted accounting principles applied on a basis
consistent with those principles used in preparing the
financial statements heretofore delivered;
(vi) Delivery of Securities Documents.
Deliver to the other, copies of all Securities Documents
simultaneously with the filing thereof;
(vii) Taxes. File all federal, state, and
local tax returns required to be filed by them or their
respective Subsidiaries on or before the date such returns
are due (including any extensions) and pay all taxes shown
to be due on such returns on or before the date such payment
is due; or
Section 4.11 Employee Benefits and Termination
Benefits.
(a) Employee Benefits. On and after the
Effective Date, the employee pension and welfare benefit plans of
Sovereign and Carnegie may, at Sovereign's election and subject
to the requirements of the IRC, including the distribution rules
of ERISA, continue to be maintained separately or consolidated,
provided, however, that Carnegie employees shall receive benefits
at least as favorable, in the aggregate, as the benefits to which
they were entitled as of the date of this Agreement. In the
event of a consolidation of any or all of such plans or in the
event of termination of the Carnegie benefit plans, Carnegie and
Carnegie Bank employees shall receive credit for all service with
Carnegie or Carnegie Bank under Sovereign's pension and 401(k)
plans, but not under Sovereign's Employee Stock Ownership Plan,
for purposes of eligibility and vesting determination. In the
event of any termination of or consolidation of any Carnegie or
Carnegie Bank health plan with any Sovereign health plan, all
employees of Carnegie or Carnegie Bank 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
Carnegie or Carnegie Bank health plan, terminated Carnegie or
Carnegie Bank employees will have the right to continue coverage
under group health plans of Sovereign and/or the Sovereign
Subsidiaries in accordance with IRC Section 4980B(f).
(b) Termination Benefits. Carnegie shall cause
to be delivered to Sovereign concurrently with the execution of
this Agreement with respect to each individual named on the
Benefits Schedule included in the Carnegie 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, policy or
arrangement maintained by Carnegie solely for the benefit of
officers of Carnegie or Carnegie Subsidiaries assuming (i) a
termination of such individual's employment on June 30, 1998, and
(ii) the occurrence of a "change in control" of Carnegie, as such
term or concept may be defined in any relevant document.
Carnegie 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 of Carnegie and Carnegie Bank for routine periodic
increases in benefits under such plans, policies or arrangements.
(c) Severance Policy. Sovereign agrees to cause
Sovereign Bank to provide employees of Carnegie Bank whose
employment is terminated in connection with the Merger within
three (3) 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) employees
with a title of vice president or higher and employees with five
(5) or more years of service shall be entitled to two weeks of
base salary as severance pay for each year of service with
Carnegie or Carnegie Bank, with a two-week minimum;
(ii) employees with a title lower than vice president (other than
employees with five (5) or more years of service) shall be
entitled to one week of base salary as severance pay for each
year of service with Carnegie or Carnegie Bank, with a one-week
minimum; and (iii) Richard Rosa shall be entitled to six months
of base salary as severance pay and any additional benefits set
forth on the Carnegie Disclosure Schedule. 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, 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 Carnegie and Carnegie Bank employees under
this subsection are the only severance benefits payable by
Carnegie or Carnegie Bank 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 Carnegie Bank's severance policies. The
benefits payable to Carnegie 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) Intention Regarding Future Employment.
Within ninety (90) days of the date hereof, Sovereign and
Sovereign Bank shall use their reasonable best efforts to inform
the employees of Carnegie and Carnegie Bank of the likelihood of
such employees having continued employment with Sovereign Bank
following the Effective Date and, where appropriate, shall use
their reasonable best efforts to interview the Carnegie and
Carnegie Bank employees to determine if there are mutually
beneficial employment opportunities available at Sovereign Bank.
Section 4.12 Duty to Advise; Duty to Update
Sovereign's Disclosure Schedule. Sovereign shall promptly advise
Carnegie of any change or event having a Material Adverse Effect
on it or on any Sovereign Subsidiary or which it believes would
or would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants set
forth herein. Sovereign shall update Sovereign's Disclosure
Schedule as promptly as practicable after the occurrence of an
event or fact which, if such event or fact had occurred prior to
the date of this Agreement, would have been disclosed in the
Sovereign Disclosure Schedule. The delivery of such updated
Schedule shall not relieve Sovereign from any breach or violation
of this Agreement and shall not have any effect for the purposes
of determining the satisfaction of the condition set forth in
Sections 5.01(c) hereof.
Section 4.13 Affiliate Letter. No later than five
days after the date of this Agreement, Carnegie shall cause to be
delivered to Sovereign the Letter Agreement attached hereto as
Exhibit 1, executed by each director and officer set forth
thereon.
ARTICLE V
CONDITIONS
Section 5.01 Conditions to Carnegie's Obligations under
this Agreement. The obligations of Carnegie hereunder shall be
subject to satisfaction at or prior to the Closing Date of each of
the following conditions, unless waived by Carnegie 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 Carnegie 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
Carnegie; and all notice and waiting periods required thereunder
shall have expired or been terminated;
(e) No Injunction. There shall not be in effect
any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby;
(f) No Material Adverse Effect. Since December 31,
1996, there shall not have occurred any Material Adverse Effect
with respect to Sovereign;
(g) Officer's Certificate. Sovereign shall have
delivered to Carnegie a certificate, dated the Closing Date and
signed, without personal liability, by its chairman or president,
to the effect that the conditions set forth in subsections (a)
through (e) of this Section 5.01 have been satisfied, to the best
knowledge of the officer executing the same;
(h) Opinion of Sovereign's Counsel. Carnegie shall
have received an opinion of Stevens & Lee, counsel to Sovereign,
dated the Closing Date, in form and substance reasonably
satisfactory to Carnegie and its counsel to the effect set forth on
Exhibit 5 attached hereto;
(i) Registration Statement. The Registration
Statement shall be effective under the Securities Act and no
proceedings shall be pending or threatened by the SEC to suspend
the effectiveness of the Registration Statement; and all required
approvals by state securities or "blue sky" authorities with
respect to the transactions contemplated by this Agreement, shall
have been obtained;
(j) Tax Opinion. Carnegie shall have received an
opinion of Stevens & Lee, substantially to the effect set forth on
Exhibit 6 attached hereto;
(k) Approval of Carnegie's Shareholders. This
Agreement shall have been approved by the shareholders of Carnegie
by such vote as is required under Carnegie's articles of
incorporation and bylaws or under Nasdaq requirements applicable to
it; and
(l) Investment Banking Opinion. Carnegie shall
have received an oral opinion from JMS on or before the date of
this Agreement and updated in writing as of a date within five (5)
days of mailing the Prospectus/Proxy Statement, to the effect that
the terms of the Merger are fair, from a financial point of view,
to the shareholders of Carnegie.
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, Carnegie and Carnegie 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 Carnegie and
Carnegie Bank; and Sovereign shall have received certified copies
of the resolutions evidencing such authorizations;
(b) Covenants. The obligations and covenants of
Carnegie, 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 Carnegie;
(c) Representations and Warranties. The
representations and warranties of Carnegie 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 Carnegie;
(d) Approvals of Regulatory Authorities. Sovereign
shall have received all required approvals of Regulatory
Authorities for the Merger, without the imposition of any term or
condition that would have a Material Adverse Effect on Sovereign
upon completion of the Merger; and all notice and waiting periods
required thereunder shall have expired or been terminated;
(e) No Injunction. There shall not be in effect
any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby;
(f) No Material Adverse Effect. Since December 31,
1996, there shall not have occurred any Material Adverse Effect
with respect to Carnegie.
(g) Officer's Certificate. Carnegie shall have
delivered to Sovereign a certificate, dated the Closing Date and
signed, without personal liability, by its chairman of the board or
president, to the effect that the conditions set forth in
subsections (a) through (e) of this Section 5.02 have been
satisfied, to the best knowledge of the officer executing the same;
(h) Opinions of Carnegie's Counsel. Sovereign
shall have received an opinion of McCarter & English, counsel to
Carnegie, dated the Closing Date, in form and substance reasonably
satisfactory to Sovereign and its counsel substantially to the
effect set forth on Exhibit 7 attached hereto;
(i) Registration Statement. The Registration
Statement shall be effective under the Securities Act and no
proceedings shall be pending or threatened by the SEC to suspend
the effectiveness of the Registration Statement; and all required
approvals by state securities or "blue sky" authorities with
respect to the transactions contemplated by this Agreement, shall
have been obtained;
(j) Tax Opinion. Sovereign shall have received an
opinion of Stevens & Lee, its counsel, substantially to the effect
set forth on Exhibit 6 attached hereto;
(k) Pooling Letter. Sovereign shall have received
an opinion from Ernst & Young to the effect that the Merger will be
treated as a "pooling of interests" for financial accounting
purposes;
(l) Phase I Environmental Audit Results. The
results of any "phase I environmental audit" conducted pursuant to
Section 4.11(a)(ii) with respect to owned or occupied bank premises
shall not, individually or in the aggregate, constitute a Material
Adverse Effect; provided, however, that (i) any such environmental
audit must be initiated within 45 days of the date of this
Agreement, and (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
(m) Third Party Consents. Carnegie shall have
obtained any required consents from third parties under any real
property leases which are material to the conduct by Carnegie and
its Subsidiaries of their respective businesses with respect to the
transactions contemplated by this Agreement.
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 Carnegie:
(i) if the Closing Date shall not have
occurred on or before September 30, 1998, unless the failure
of such occurrence shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe 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 been informed in
writing by a Regulatory Authority whose approval or consent
has been requested that such approval or consent is unlikely
to be granted, unless the failure of such occurrence shall be
due to the failure of the party seeking to terminate this
Agreement to perform or observe its agreements set forth
herein required to be performed or observed by such party on
or before the Closing Date; or
(c) by Carnegie, on the Closing Date if both of the
following conditions are satisfied:
(1) the Sovereign Market Value as of the close
of business on the Determination Date shall be less than
$14.47; and
(2) (i) the quotient obtained by dividing the
Sovereign Market Value as of the close of business on the
Determination Date by $19.29 (such number being referred to
herein as the "Sovereign Ratio") shall be less than (ii) the
quotient obtained by dividing the Index Price on the
Determination Date by the Index Price on the Starting Date and
subtracting 0.15 from the quotient in this clause (2)(ii);
subject, however, to the following: If Carnegie shall elect to
terminate this Agreement pursuant to this Section 6.01(c), it shall
give written notice thereof to Sovereign on the Closing Date; but
provided further, that Sovereign shall have the option to elect to
increase the Exchange Ratio to equal the quotient obtained by
dividing $28.53 by the Sovereign Market Value determined as of the
close of business on the Determination Date, whereupon no
termination shall have occurred pursuant to this Section 6.01(c)
and this Agreement shall remain in effect in accordance with its
terms (except as the Exchange Ratio shall have been so modified),
and any references in this Agreement to "Exchange Ratio" shall
thereafter be deemed to refer to the Exchange Ratio as adjusted
pursuant to this Section 6.01(c).
For purposes of this Section 6.01(c), the following
terms shall have the meanings indicated.
"Determination Date" shall mean the date immediately
preceding the Closing Date.
"Index Group" shall mean the nine thrift holding
companies listed below, the common stocks of all of which shall be
publicly traded and as to which there shall not have been, since
the Starting Date and before the Determination Date, any public
announcement of a proposal for such company to be acquired or for
such company to acquire another company or companies in
transactions with a value exceeding 25% of the acquiror's market
capitalization. In the event that any such company or companies
are removed from the Index Group, the weights (which have been
determined based upon the number of shares of outstanding common
stock) redistributed proportionately for purposes of determining
the Index Price. The nine thrift holding companies and the weights
attributed to them are as follows:
Thrift Holding Companies % Weighting
Dime Bancorp, Inc. 27.67%
Charter One Financial 14.87%
Golden State Bancorp 11.75%
Washington Federal, Inc. 11.07%
GreenPoint Financial Corp. 9.86%
Bank United Corp. 6.62%
Peoples Heritage Finl Group 6.41%
Astoria Financial Corporation 6.15%
Long Island Bancorp, Inc. 5.60%
Total 100.00%
"Index Price" on a given date shall mean the
weighted average (weighted in accordance with the factors listed
above) of the closing sales prices of the companies composing the
Index Group (reported as provided with respect to the Sovereign
Market Value).
"Starting Date" shall mean December 11, 1997.
If any company belonging to the Index Group or Sovereign declares
or effects a stock dividend, reclassification, recapitalization,
split-up, combination, exchange of shares, or similar transaction
between the Starting Date and the Determination Date, the prices
for the common stock of such company or Sovereign shall be
appropriately adjusted for the purposes of applying this
Section 6.01(c); or
(d) at any time on or prior to the Effective Date,
by Carnegie in writing if Sovereign has, or by Sovereign in writing
if Carnegie 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 by
Sovereign would have a Material Adverse Effect on Sovereign and in
the case of a breach by Carnegie would have a Material Adverse
Effect on Carnegie, 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 Carnegie to the other, except for any
liability arising out of any uncured willful breach of any covenant
or other agreement contained in this Agreement or any fraudulent
breach of a representation or warranty.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Expenses. Except for the cost of printing
and mailing the Proxy Statement/Prospectus which shall be shared
equally, each party hereto shall bear and pay all costs and
expenses incurred by it in connection with the transactions
contemplated hereby, including fees and expenses of its own
financial consultants, accountants and counsel.
Section 7.02 Non-Survival of Representations and
Warranties. All representations, warranties and, except to the
extent specifically provided otherwise herein, agreements and
covenants, other than those covenants set forth in
Sections 1.02(d)(i) and (iii), 1.02(g), 4.05, and 4.11(a) and (c)
which will survive the Merger, shall terminate on the Closing Date;
provided, however, that the covenants contained in Sections 4.11(a)
and (c) shall survive the Merger only for a period of one (1) year.
Section 7.03 Amendment, Extension and Waiver. Subject
to applicable law, at any time prior to the consummation of the
transactions contemplated by this Agreement, the parties may
(a) amend this Agreement, (b) extend the time for the performance
of any of the obligations or other acts of either party hereto,
(c) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or
(d) waive compliance with any of the agreements or conditions
contained in Articles IV and V hereof or otherwise. This Agreement
may not be amended except by an instrument in writing authorized by
the respective Boards of Directors and signed, by duly authorized
officers, on behalf of the parties hereto. Any agreement on the
part of a party hereto to any extension or waiver shall be valid
only if set forth in an instrument in writing signed by a duly
authorized officer on behalf of such party, but such waiver or
failure to insist on strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
Section 7.04 Entire Agreement. This Agreement,
including the documents and other writings referred to herein or
delivered pursuant hereto, contains the entire agreement and
understanding of the parties with respect to its subject matter.
This Agreement supersedes all prior arrangements and understandings
between the parties, both written or oral with respect to its
subject matter other than any agreement pertaining to
confidentiality or nondisclosure. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their
respective successors; provided, however, that nothing in this
Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto and their respective
successors, any rights, remedies, obligations or liabilities other
than pursuant to Sections 1.02(d)(i) and (iii), 1.02(g), 4.05,
and 4.11(a) and (c) with respect to indemnification, employee
benefits and certain other matters, and provided, further, that any
such rights, remedies, obligations or liabilities conferred
pursuant to Sections 4.11(a) and (c) shall terminate and expire one
(1) year from the Effective Date.
Section 7.05 No Assignment. Neither party hereto may
assign any of its rights or obligations hereunder to any other
person, without the prior written consent of the other party
hereto.
Section 7.06 Notices. All notices or other
communications hereunder shall be in writing and shall be deemed
given if delivered personally, mailed by prepaid registered or
certified mail (return receipt requested), or sent by telecopy,
addressed as follows:
(a) If to Sovereign, to:
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Attention: Jay S. Sidhu, President and Chief
Executive Officer
Telecopy No.: (610) 320-8448
with a copy to:
Stevens & Lee
111 North Sixth Street
Reading, Pennsylvania 19601
Attention: Joseph M. Harenza, Esquire and
David W. Swartz, Esquire
Telecopy No.: (610) 376-5610
(b) If to Carnegie, to:
Carnegie Bancorp
619 Alexander Road
Princeton, New Jersey 08540
Attention: Thomas L. Gray, Jr.
President and Chief
Executive Officer
Telecopy No.: (609) 452-2492
with copies to:
McCarter & English
Four Gateway Center
100 Mulberry Street
Newark, NJ 07101-0652
Attention: Michael M. Horn, Esquire
Telecopy No.: (973) 624-7070
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
CARNEGIE BANCORP
By________________________________
Thomas L. Gray, Jr.
President and Chief
Executive Officer
<PAGE>
EXHIBIT 1
December 12, 1997
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Ladies and Gentlemen:
Sovereign Bancorp, Inc. ("Sovereign") and Carnegie Bancorp
("Carnegie") desire to enter into an agreement dated December 12,
1997 ("Agreement"), pursuant to which, subject to the terms and
conditions set forth therein, (a) Carnegie will merge with and into
Sovereign with Sovereign surviving the merger, and (b) shareholders
of Carnegie will receive common stock of Sovereign in exchange for
common stock of Carnegie 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 Carnegie of the Agreement, that the undersigned, being
directors, executive officers and major shareholders of Carnegie,
execute and deliver to Sovereign this Letter Agreement.
Each of the undersigned, in order to induce Sovereign to
execute and deliver to Carnegie the Agreement, hereby irrevocably:
(a) Agrees to be present (in person or by proxy) at all
meetings of shareholders of Carnegie called to vote for approval of
the Merger so that all shares of common stock of Carnegie then
owned by the undersigned will be counted for the purpose of
determining the presence of a quorum at such meetings and to vote
all such shares (i) in favor of approval and adoption of the
Agreement and the transactions contemplated thereby (including any
amendments or modifications of the terms thereof approved by the
Board of Directors of Carnegie), and (ii) against approval or
adoption of any other merger, business combination,
recapitalization, partial liquidation or similar transaction
involving Carnegie;
(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 Carnegie, to approve or adopt the Agreement;
(c) Agrees to use reasonable best efforts to cause the
Merger to be consummated, subject to the fiduciary duties of the
undersigned under applicable law;
(d) Agrees not to sell, transfer or otherwise dispose of
any common stock of Carnegie on or prior to the record date for the
meeting of Carnegie shareholders to vote on the Merger;
(e) Except as permitted by Section 4.06 of the
Agreement, agrees not to solicit, initiate or engage in any
negotiations or discussions with any party other than Sovereign
with respect to any offer, sale, transfer or other disposition of,
any shares of common stock of Carnegie now or hereafter owned by
the undersigned;
(f) Agrees not to offer, sell, transfer or otherwise
dispose of any shares of common stock of Sovereign received in the
Merger, except (i) at such time as a registration statement under
the Securities Act of 1933, as amended ("Securities Act") covering
sales of such Sovereign common stock is effective and a prospectus
is made available under the Securities Act, (ii) within the limits,
and in accordance with the applicable provisions of, Rule 145(d)
under the Securities Act, or (iii) in a transaction which, in the
opinion of counsel satisfactory to Sovereign or as described in a
"no-action" or interpretive letter from the staff of the Securities
and Exchange Commission ("SEC"), is not required to be registered
under the Securities Act; and acknowledges and agrees that
Sovereign is under no obligation to register the sale, transfer or
other disposition of Sovereign common stock by the undersigned or
on behalf of the undersigned, or to take any other action necessary
to make an exemption from registration available;
(g) Notwithstanding the foregoing, agrees not to sell,
or in any other way reduce the risk of the undersigned relative to,
any shares of common stock of Carnegie 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 Carnegie have been published
within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies;
(h) Agrees that Sovereign shall not be bound by any
attempted sale of any shares of Sovereign common stock, and
Sovereign's transfer agent shall be given an appropriate stop
transfer order and shall not be required to register any such
attempted sale, unless the sale has been effected in compliance
with the terms of this Letter Agreement; and further agrees that
the certificate representing shares of Sovereign common stock owned
by the undersigned may be endorsed with a restrictive legend
consistent with the terms of this Letter Agreement;
(i) Acknowledges and agrees that the provisions of
subparagraphs (f), (g) and (h) hereof also apply to shares of
Sovereign common stock received in the Merger (or any shares of
Carnegie common stock or of Sovereign common stock, whether or not
received in the Merger, for the period referred to in
subparagraph (g) above) owned by (i) his or her spouse, (ii) any of
his or her relatives or relatives of his or her spouse occupying
his or her home, (iii) any trust or estate in which he or she, his
or her spouse, or any such relative owns at least a 10% beneficial
interest or of which any of them serves as trustee, executor or in
any similar capacity, and (iv) any corporation or other
organization in which the undersigned, any affiliate of the
undersigned, his or her spouse, or any such relative owns at least
10% of any class of equity securities or of the equity interest;
(j) Represents that the undersigned has no plan or
intention to sell, exchange, or otherwise dispose of any shares of
common stock of Sovereign to be received in the Merger prior to
expiration of the time period referred to in subparagraph (g)
hereof; and
(k) Represents that the undersigned has the capacity to
enter into this Letter Agreement and that it is a valid and binding
obligation enforceable against the undersigned in accordance with
its terms, subject to bankruptcy, insolvency and other laws
affecting creditors' rights and general equitable principles.
The obligations set forth herein shall terminate concurrently
with any termination of the Agreement.
________________________
This Letter Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an
original, but all of which together shall constitute one and the
same Letter Agreement.
________________________
This Letter Agreement shall terminate concurrently with any
termination of the Agreement in accordance with its terms.
________________________
The undersigned intend to be legally bound hereby.
Sincerely,
<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 12, 1997, is by and between SOVEREIGN BANK, a federal
savings bank ("Sovereign Bank"), and CARNEGIE BANK, N.A., a
national bank ("Carnegie Bank").
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. Carnegie Bank is a national bank and a wholly-owned
subsidiary of Carnegie Bancorp, a New Jersey corporation
("Carnegie"). The authorized capital stock of Carnegie Bank
consists of 1,000,000 shares of common stock, par value $5.00 per
share ("Carnegie Bank Common Stock"), of which at the date hereof
897,305 shares are issued and outstanding.
3. The respective Boards of Directors of Sovereign Bank
and Carnegie Bank deem the merger of Carnegie Bank 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 Carnegie Bank have adopted resolutions approving this Plan of
Merger. The respective Boards of Directors of Sovereign and
Carnegie have adopted resolutions approving an Agreement and Plan
of Merger dated December 12, 1997 (the "Agreement") between
Sovereign and Carnegie, pursuant to which this Plan of Merger is
being executed by Sovereign Bank and Carnegie Bank.
AGREEMENT
In consideration of the premises and of the mutual
covenants and agreements herein contained, and in accordance with
the applicable laws and regulations of the United States of
America, the Commonwealth of Pennsylvania, and the State of
New Jersey, Sovereign Bank and Carnegie Bank, intending to be
legally bound hereby, agree:
ARTICLE I
MERGER
Subject to the terms and conditions of this Plan of
Merger and in accordance with the applicable laws and regulations
of the United States of America, the Commonwealth of Pennsylvania,
and the State of New Jersey on the Effective Date (as that term is
defined in Article V hereof): Carnegie Bank shall merge with and
into Sovereign Bank; the separate existence of Carnegie Bank shall
cease; and Sovereign Bank shall be the surviving corporation (such
transaction referred to herein as the "Merger" and Sovereign Bank,
as the surviving corporation in the Merger, referred to herein as
the "Surviving Bank"). Sovereign Bank will have its home office at
1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610 and its
branch offices at the locations listed on Exhibit "A."
ARTICLE II
CHARTER AND BYLAWS
On and after the Effective Date, the Charter and Bylaws
of Sovereign Bank, as in effect immediately prior to the Effective
Date, shall automatically be and remain the Charter and Bylaws of
the Surviving Bank, until altered, amended or repealed.
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. 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 Carnegie Bank. Each share of Carnegie Bank
Common Stock issued and outstanding immediately prior to the
Effective Date, and each share of Carnegie Bank Common Stock issued
and held in the treasury of Carnegie as of the Effective Date, if
any, shall, on the Effective Date, be cancelled, and no cash, stock
or other property shall be delivered in exchange therefor.
ARTICLE V
EFFECTIVE DATE OF THE MERGER
The Merger shall be effective on the date on which all
filings with government agencies, as may be required under
applicable laws and regulations for the Merger to become effective,
are made and accepted by the applicable agencies (the "Effective
Date").
ARTICLE VI
EFFECT OF THE MERGER
6.1 Separate Existence. On the Effective Date: the
separate existence of Carnegie Bank shall cease; and all of the
property (real, personal and mixed), rights, powers, duties and
obligations of Carnegie Bank shall be taken and deemed to be
transferred to and vested in the Surviving Bank, without further
act or deed, as provided by applicable laws and regulations.
6.2 Savings Accounts. After the Effective Date,
Sovereign Bank will continue to issue savings accounts on the same
basis as immediately prior to the Effective Date.
6.3 Liquidation Account. After the Effective Date,
Sovereign Bank will continue to maintain the Sovereign Bank
liquidation account for the benefit of eligible account holders on
the same basis as immediately prior to the Effective Date.
ARTICLE VII
CONDITIONS PRECEDENT
The obligations of Sovereign Bank and Carnegie Bank 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 Carnegie Bank 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
CARNEGIE BANK, N.A.
By________________________________
Thomas L. Gray, Jr.
President and Chief
Executive Officer
<PAGE>
EXHIBIT "A"
to Plan of Merger
SOVEREIGN BANK
BRANCH LOCATIONS
[INTENTIONALLY OMITTED.]
<PAGE>
EXHIBIT 4
Form of Agreement Re: Benefits
December 12, 1997
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Gentlemen:
I, the undersigned, hereby acknowledge and agree that an
amount not to exceed $__________ is the maximum amount that I would
be entitled to receive from Carnegie, any Carnegie 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 Carnegie or any Carnegie subsidiary (or any
of their respective successors or assigns) is terminated for any
reason, whether voluntarily or involuntarily, on June 30, 1998, and
following the Closing Date of the transaction described in the
Agreement and Plan of Merger dated as of December 12, 1997 between
Sovereign Bancorp, Inc. and Carnegie Bancorp (the "Agreement").
All capitalized terms used herein but not defined herein shall have
the meanings given to them in the Agreement. The amount shown
above represents the total of all amounts available for payment in
an immediate lump sum upon termination and the present value, as of
June 30, 1998 (based on a 6% per annum discount factor) of all
payments to be made on a date or dates subsequent to the date of
termination.
This letter is subject to the acknowledgement and agreement of
Sovereign Bancorp, Inc., as evidenced below, that the amount shown
above reflects a good faith estimate of the amounts that will be
payable to me in the event of my termination of employment on or
after the Closing Date, as defined in the Agreement, and may be
subject to adjustment upon an actual termination of my employment
to reflect increases in my compensation and benefits due to the
passage of time or in accordance with the terms of Carnegie's
employee benefit plans and past practices for routine increases.
Sovereign agrees to make all such required payments in accordance
with the terms of the applicable agreement or plan.
Sincerely,
Acknowledged and Agreed to:
SOVEREIGN BANCORP, INC.
By________________________
Title_____________________
<PAGE>
EXHIBIT 5
FORM OF OPINION OF COUNSEL TO SOVEREIGN
Carnegie shall have received from counsel to Sovereign,
an opinion, dated as of the Closing Date, substantially to the
effect that, subject to normal exceptions and qualifications:
(a) Sovereign and Sovereign Bank have full corporate
power to carry out the transactions contemplated in the Agreement
and the Plan of Merger, respectively. The execution and delivery
of the Agreement and the Plan of Merger and the consummation of the
transactions contemplated thereunder have been duly and validly
authorized by all necessary corporate action on the part of
Sovereign and Sovereign Bank, and the Agreement and the Plan
constitute valid and legally binding obligations of Sovereign and
Sovereign Bank, respectively, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship, and other laws affecting creditors' rights
generally and institutions the deposits of which are insured by the
FDIC, and as may be limited by the exercise of judicial discretion
in applying principles of equity. Subject to satisfaction of the
conditions set forth in the Agreement, neither the transactions
contemplated in the Agreement or the Plan, nor compliance by
Sovereign and Sovereign Bank with any of the respective provisions
thereof, will (i) conflict with or result in a breach or default
under (A) the articles of incorporation or bylaws of Sovereign or
the charter or bylaws of Sovereign Bank, or, (B) to the knowledge
of such counsel, any note, bond, mortgage, indenture, license,
agreement or other material instrument or obligation to which
Sovereign or Sovereign Bank is a party; or (ii) based on
certificates of officers and without independent verification, to
the knowledge of such counsel, result in the creation or imposition
of any material lien or encumbrance upon the property of Sovereign
or Sovereign Bank, except such material lien, instrument or
obligation that has been disclosed pursuant to the Agreement or the
Plan; or (iii) violate in any material respect any order, writ,
injunction or decree known to such counsel, or any federal or
Pennsylvania statute, rule or regulation applicable to Sovereign or
Sovereign Bank.
\FM Sovereign Bank is a validly existing
federally-chartered savings bank organized and in good standing
under the laws of the United States of America. The deposits of
Sovereign Bank are insured to the maximum extent provided by law by
the Federal Deposit Insurance Corporation.
(c) There is, to the knowledge of such counsel, no
legal, administrative, arbitration or governmental proceeding or
investigation pending or threatened to which Sovereign or Sovereign
Bank is a party which would, if determined adversely to Sovereign
or Sovereign Bank, have a material adverse effect on the financial
condition or results of operation of Sovereign and Sovereign Bank
taken as a whole, or which presents a claim to restrain or prohibit
the transactions contemplated by the Agreement and the Plan,
respectively.
(d) No consent, approval, authorization or order of any
federal or state court or federal or state governmental agency or
body is required for the consummation by Sovereign or Sovereign
Bank of the transactions contemplated by the Agreement and the
Plan, except for such consents, approvals, authorizations or orders
as have been obtained.
(e) Upon the filing and effectiveness of the Articles of
Merger with the PDS, the Articles of Merger with the NJSOS, and
Articles of Combination with the OTS [and the OCC] in accordance
with the Agreement and the Plan, the mergers of Sovereign and
Carnegie and of Sovereign Bank and Carnegie Bank 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 Carnegie and Sovereign contemplated
by the Agreement have been duly authorized and will, when issued in
accordance with the terms of the Agreement, be validly issued,
fully paid and nonassessable, free and clear of any mortgage,
pledge, lien, encumbrance or claim (legal or equitable).
(g) On the sole basis of such counsel's participation in
conferences with officers and employees of Sovereign in connection
with the Proxy Statement/Prospectus, and without other independent
investigation or inquiry, such counsel has no reason to believe
that the Proxy Statement/Prospectus, including any amendments or
supplements thereto (except for the financial information,
financial schedules and other financial or statistical data
contained therein and except for any information supplied by
Carnegie or Carnegie Bank for inclusion therein, as to which
counsel need express no belief), as of the date of mailing thereof,
contained any untrue statement of a material fact with respect to
Sovereign or omitted to state any material fact with respect to
Sovereign necessary to make any statement therein with respect to
Sovereign, in light of the circumstances under which it was made,
not misleading. Counsel may state in delivering such opinion, that
such counsel has not independently verified and does not assume the
responsibility for the accuracy, completeness or fairness of any
information or statements contained in the Proxy
Statement/Prospectus, except with respect to identified statements
of law or regulations or legal conclusions relating to Sovereign or
the transactions contemplated in the Agreement and the Plan.
<PAGE>
EXHIBIT 6
FORM OF TAX OPINION OF STEVENS & LEE
Sovereign and Carnegie shall have received an opinion of
Stevens & Lee substantially to the effect that, under the
provisions of the IRC:
1. Provided the Merger qualifies as a statutory merger under
applicable law, the transfer by Carnegie of all of its assets to
Sovereign in exchange for Sovereign Common Stock (including
fractional share interests) and the assumption by Sovereign of all
of Carnegie's liabilities will constitute a reorganization within
the meaning of Section 368(a)(1)(A) of the IRC.
2. Carnegie and Sovereign will each be "a party to a
reorganization" within the meaning of Section 368(b) of the IRC.
3. Neither Carnegie nor Sovereign will recognize any gain or
loss upon the transfer of Carnegie's assets to Sovereign in
exchange solely for Sovereign Common Stock (including fractional
share interests) and the assumption by Sovereign of the liabilities
of Carnegie.
4. The basis of Carnegie's assets in the hands of Sovereign
will be the same as the basis of such assets in the hands of
Carnegie immediately prior to the Merger.
5. The holding period of the assets of Carnegie to be
received by Sovereign will include the period during which the
assets were held by Carnegie.
6. No gain or loss will be recognized by the shareholders of
Carnegie on the receipt of Sovereign Common Stock (including
fractional share interests) solely in exchange for their shares of
Carnegie Common Stock.
7. The basis of the Sovereign Common Stock (including
fractional share interests) to be received by the Carnegie
shareholders in the Merger will be the same as the basis of the
Carnegie Common Stock surrendered in exchange therefor.
8. The holding period of the Sovereign Common Stock
(including fractional share interests) to be received by the
Carnegie shareholders in the Merger will include the period during
which the Carnegie shareholders held their Carnegie Common Stock,
provided the shares of Carnegie Common Stock are held as a capital
asset on the Effective Date.
9. The payment of cash in lieu of fractional share interests
of Sovereign Common Stock will be treated as if the fractional
share interests were distributed as part of the Merger and then
redeemed by Sovereign. Such cash payments will be treated as
having been received as distribution in full payment in exchange
for the fractional share interests redeemed, as provided in
Section 302(a) of the IRC.
10. The Sovereign Stock Purchase Rights transferred with the
shares of Sovereign Common Stock will not constitute "other
property" within the meaning of Section 356(a)(1)(B) of the IRC.
11. As provided in Section 381(c)(2) of the IRC and related
Treasury regulations, Sovereign will succeed to and take into
account the earnings and profits, or deficit in earnings and
profits, of Carnegie as of the Effective Date. Any deficit in the
earnings and profits of Sovereign or Carnegie will be used only to
offset the earnings and profits accumulated after the Merger.
12. Pursuant to Section 381(a) of the IRC and related
Treasury regulations, Sovereign will succeed to and take into
account the items of Carnegie described in Section 381(c) of the
IRC. Such items will be taken into account by Sovereign subject to
the conditions and limitations of Sections 381, 382, 383, and 384
of the IRC and the Treasury regulations thereunder.
FMM Provided the Bank Merger constitutes a statutory merger
under applicable law, the Bank Merger will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the
IRC.
14. Carnegie Bank and Sovereign Bank will each be "a party to
a reorganization" within the meaning of Section 368(b) of the IRC.
15. Neither Carnegie Bank nor Sovereign Bank will recognize
any gain or loss upon the transfer of Carnegie Bank's assets to
Sovereign Bank in constructive exchange solely for Sovereign Bank
common stock and the assumption by Sovereign Bank of the
liabilities of Carnegie Bank.
16. The basis of Carnegie Bank's assets in the hands of
Sovereign Bank will be the same as the basis of such assets in the
hands of Carnegie Bank immediately prior to the Bank Merger.
17. The holding period of Carnegie Bank's assets in the hands
of Sovereign Bank will include the period during which such assets
were held by Carnegie Bank.
18. No gain or loss will be recognized by Sovereign, as the
shareholder of Carnegie Bank, upon the constructive receipt of
shares of Sovereign Bank common stock in exchange for the Carnegie
Bank 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 Carnegie Bank Common Stock surrendered in the constructive
exchange.
20. As provided in Section 381(c)(2) of the IRC and related
Treasury regulations, Sovereign Bank will succeed to and take into
account the earnings and profits, or deficit in earnings and
profits, of Carnegie Bank as of the effective date of the Bank
Merger. Any deficit in the earnings and profits of Sovereign Bank
or Carnegie Bank will be used only to offset the earnings and
profits accumulated after the Bank Merger.
21. Pursuant to Section 381(a) of the IRC and related
Treasury regulations, Sovereign Bank will succeed to and take into
account the items of Carnegie Bank described in Section 381(c) of
the IRC. Such items will be taken into account by Sovereign Bank
subject to the conditions and limitations of Sections 381, 382,
383, and 384 of the IRC and the Treasury regulations thereunder.
<PAGE>
EXHIBIT 7
FORM OF OPINION OF COUNSEL TO CARNEGIE
Sovereign shall have received from counsel to Carnegie,
an opinion, dated as of the Closing Date, substantially to the
effect that, subject to normal exceptions and qualifications:
(a) Carnegie and Carnegie Bank have full corporate power
to carry out the transactions contemplated in the Agreement and the
Plan of Merger, respectively. The execution and delivery of the
Agreement and the Plan of Merger and the consummation of the
transactions contemplated thereunder have been duly and validly
authorized by all necessary corporate action on the part of
Carnegie and Carnegie Bank, and the Agreement and the Plan
constitute a valid and legally binding obligation, in accordance
with their respective terms, of Carnegie and Carnegie Bank,
respectively, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, receivership, conservatorship, and
other laws affecting creditors' rights generally and institutions
the deposits of which are insured by the FDIC, and as may be
limited by the exercise of judicial discretion in applying
principles of equity. Subject to satisfaction of the conditions
set forth in the Agreement, neither the transactions contemplated
in the Agreement and the Plan, nor compliance by Carnegie and
Carnegie Bank 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 Carnegie or the charter
or bylaws of Carnegie Bank, or (B) based on certificates of
officers and without independent verification, to the knowledge of
such counsel, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which Carnegie or
Carnegie Bank 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 Carnegie or Carnegie
Bank, except such material lien, instrument or obligation that has
been disclosed to Sovereign pursuant to the Agreement and the Plan,
or (iii) violate in any material respect any order, writ,
injunction, or decree known to such counsel, or any statute, rule
or regulation applicable to Carnegie or Carnegie Bank.
(b) Carnegie Bank is a validly existing state-chartered
bank organized and in good standing under the laws of the United
States of America. The deposits of Carnegie 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 Carnegie or Carnegie
Bank is a party which would, if determined adversely to Carnegie or
Carnegie Bank, have a material adverse effect on the business,
properties, results of operations, or condition, financial or
otherwise, of Carnegie or Carnegie 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 of any third party, is required for the consummation by
Carnegie or Carnegie Bank of the transactions contemplated by the
Agreement and the Plan, except for such consents, approvals,
authorizations or orders as have been obtained.
(e) On the sole basis of such counsel's participation in
conferences with officers and employees of Carnegie in connection
with the preparation of the Prospectus/Proxy Statement and without
other independent investigation or inquiry, such counsel has no
reason to believe that the Prospectus/Proxy Statement, including
any amendments or supplements thereto (except for the financial
information, financial statements, financial schedules and other
financial or statistical data contained therein and except for any
information supplied by Sovereign for inclusion therein, as to
which counsel need express no belief), as of the date of mailing
thereof and as of the date of the meeting of shareholders of
Carnegie to approve the merger, contained any untrue statement of a
material fact or omitted to state a material fact necessary to make
any statement therein, in light of the circumstances under which it
was made, not misleading. Counsel may state in delivering such
opinion, that such counsel has not independently verified and does
not assume any responsibility for the accuracy, completeness or
fairness of any information or statements contained in the
Prospectus/Proxy Statement, except with respect to identified
statements of law or regulations or legal conclusions relating to
Carnegie or Carnegie Bank or the transactions contemplated in the
Agreement and the Plan.
<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Stock Option Agreement")
dated December 12, 1997, is by and between SOVEREIGN BANCORP, INC.,
a Pennsylvania corporation ("Sovereign") and CARNEGIE BANCORP a
New Jersey corporation ("Carnegie").
BACKGROUND
1. Sovereign and Carnegie desire to enter into an
Agreement and Plan of Merger, dated December 12, 1997 (the
"Agreement"), providing, among other things, for the acquisition by
Sovereign of Carnegie through the merger of Carnegie with and into
Sovereign, with Sovereign surviving the merger (the "Merger").
2. As a condition to Sovereign to enter into the Plan,
Carnegie is granting to Sovereign an option to purchase up to that
number of shares of common stock of Carnegie as shall equal 19.9%
of shares of common stock of Carnegie 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 Carnegie,
intending to be legally bound hereby, agree:
1. Grant of Option. Carnegie hereby grants to
Sovereign, on the terms and conditions set forth herein, the option
to purchase (the "Option") up to 543,888 shares (as adjusted as set
forth herein, the "Option Shares") of common stock, no par value
per share (the "Common Stock"), of Carnegie at a price per share
(as adjusted as set forth herein, the "Option Price") equal to the
lower of (i) $31.00 or (ii) the lowest price per share that a
person or a group, other than Sovereign or an affiliate of
Sovereign, paid or offers to pay after the date hereof for Common
Stock in a transaction constituting a Triggering Event under
Section 2 hereof.
2. Exercise of Option. Provided that (i) Sovereign
shall not be in breach of the agreements or covenants contained in
this Agreement or the Plan, and (ii) no preliminary or permanent
injunction or other order against the delivery of shares covered by
the Option issued by any court of competent jurisdiction in the
United States shall be in effect, upon or after the occurrence of a
Triggering Event (as such term is hereinafter defined) and until
termination of this Stock Option Agreement in accordance with the
provisions of Section 21, Sovereign may exercise the Option, in
whole or in part, at any time or one or more times, from time to
time. As used herein, the term "Triggering Event" means the
occurrence of any of the following events:
(a) a person or group (as such terms are defined in
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder), other than
Sovereign or an affiliate of Sovereign, acquires beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange
Act) of 10% or more of the then outstanding shares of Common
Stock (excluding any shares eligible to be reported on
Schedule 13G of the Securities and Exchange Commission);
(b) a person or group, other than Sovereign or an
affiliate of Sovereign, enters into an agreement or letter of
intent with Carnegie 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
Carnegie, (ii) acquire all or substantially all of the assets
or liabilities of Carnegie or all or substantially all of the
assets or liabilities of Carnegie Bank, N.A., the wholly-owned
subsidiary of Carnegie ("Carnegie Bank"), 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 Carnegie Bank; 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 Carnegie or all or substantially all
the assets or liabilities of Carnegie Bank, or any other
business combination involving Carnegie or Carnegie Bank, 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 Carnegie Bank
(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 Carnegie called to vote on the Merger, Carnegie'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, Carnegie 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) Carnegie breaches, in any material respect, any
binding term of the Agreement with respect to the Merger, or
this Stock Option Agreement after a Proposal is made and
before it is Publicly Withdrawn or publicly announces an
intention to authorize, recommend or accept any such Proposal;
provided, however, that any purchase of shares upon exercise of the
Option shall be subject to compliance with applicable law.
If more than one of the transactions giving rise to a
Triggering Event under this Section is undertaken or effected, then
all such transactions shall give rise only to one Triggering Event,
which Triggering Event shall be deemed continuing for all purposes
hereunder until all such transactions are abandoned.
"Publicly Withdrawn" for purposes of this Section 2 shall
mean an unconditional bona fide withdrawal of the Proposal coupled
with a public announcement of no further interest in pursuing such
Proposal or in acquiring any controlling influence over Carnegie 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 Carnegie
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 Carnegie 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.
Carnegie 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 Carnegie shall not be
a condition to the right of Sovereign to exercise the Option.
Carnegie will not take any action which would have the effect of
preventing or disabling Carnegie 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 Carnegie (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. Payment and Delivery of Certificates. At any
Closing hereunder, (a) Sovereign will make payment to Carnegie of
the aggregate price for the Option Shares so purchased by wire
transfer of immediately available funds to an account designated by
Carnegie, (b) Carnegie 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 Carnegie Bancorp receives an opinion of
counsel stating that an exemption from the registration
provisions of the Act is available for such transfer."
4. Registration Rights. Upon or after the occurrence
of a Triggering Event and upon receipt of a written request from
Sovereign, Carnegie shall prepare and file as soon as practicable a
registration statement under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission covering the
Option and such number of Option Shares as Sovereign shall specify
in its request, and Carnegie 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 Carnegie shall not be required to prepare
and file any such registration statement in connection with any
proposed sale with respect to which counsel to Carnegie delivers to
Carnegie 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
Carnegie may delay any registration of Option Shares above for a
period not exceeding 90 days provided Carnegie shall in good faith
determine that any such registration would adversely affect an
offering or contemplated offering of other securities by Carnegie.
Sovereign shall provide all information reasonably requested by
Carnegie for inclusion in any registration statement to be filed
hereunder. In connection with such filing, Carnegie shall use its
best efforts to cause to be delivered to Sovereign such
certificates, opinions, accountant's letters and other documents as
Sovereign shall reasonably request and as are customarily provided
in connection with registration of securities under the Securities
Act of 1933, as amended. Carnegie 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 Carnegie
in complying with the provisions of this Section 4, including,
without limitation, all registration and filing fees, reasonable
printing expenses, reasonable fees and disbursements of counsel for
Carnegie and blue sky fees and expenses, shall be paid by Carnegie.
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, Carnegie 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 Carnegie 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 Carnegie 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 Carnegie 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 Carnegie for any legal or other expense
reasonably incurred by Carnegie in connection with investigating or
defending any such loss, claim, damage, liability or action.
5. Adjustment Upon Changes in Capitalization. In the
event of any change in the Common Stock by reason of stock
dividends, split-ups, recapitalizations, combinations, conversions,
divisions, exchanges of shares or the like, then the number and
kind of Option Shares and the Option Price shall be appropriately
adjusted.
DG Filings and Consents. Each of Sovereign and
Carnegie will use its best efforts to make all filings with, and to
obtain consents of, all third parties and governmental authorities
necessary to the consummation of the transactions contemplated by
this Stock Option Agreement. Within 10 days from the date hereof,
Sovereign shall file a report of beneficial ownership on Form 13D
with the Securities and Exchange Commission under the Exchange Act
which discloses the rights of Sovereign hereunder.
7. Representations and Warranties of Carnegie.
Carnegie hereby represents and warrants to Sovereign as follows:
(a) Due Authorization. Carnegie has full corporate
power and authority to execute, deliver and perform this Stock
Option Agreement and all corporate action necessary for
execution, delivery and performance of this Stock Option
Agreement has been duly taken by Carnegie. This Stock Option
Agreement constitutes a legal, valid and binding obligation of
Carnegie, enforceable against Carnegie 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. Carnegie has taken all
necessary corporate action to authorize and reserve for
issuance all shares of Common Stock that may be issued
pursuant to any exercise of the Option.
8. Representations and Warranties of Sovereign.
Sovereign hereby represents and warrants to Carnegie that Sovereign
has full corporate power and authority to execute, deliver and
perform this Stock Option Agreement and all corporate action
necessary for execution, delivery and performance of this Stock
Option Agreement has been duly taken by Sovereign. This Stock
Option Agreement constitutes a legal, valid and binding obligation
of Sovereign, enforceable against Sovereign in accordance with its
terms (except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles).
9. Specific Performance. The parties hereto
acknowledge that damages would be an inadequate remedy for a breach
of this Stock Option Agreement and that the obligations of the
parties hereto shall be specifically enforceable.
10. Entire Agreement. This Stock Option Agreement and
the Agreement constitute the entire agreement between the parties
with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, among
the parties or any of them with respect to the subject matter
hereof.
11. Assignment or Transfer. Sovereign may not sell,
assign or otherwise transfer its rights and obligations hereunder,
in whole or in part, to any person or group of persons other than
to a subsidiary of Sovereign. Sovereign represents that it is
acquiring the Option for Sovereign's own account and not with a
view to, or for sale in connection with, any distribution of the
Option or the Option Shares. Sovereign is aware that neither the
Option nor the Option Shares is the subject of a registration
statement filed with, and declared effective by, the Securities and
Exchange Commission pursuant to Section 5 of the Securities Act of
1933, as amended, but instead each is being offered in reliance
upon the exemption from the registration requirement provided by
Section 4(2) thereof and the representations and warranties made by
Sovereign in connection therewith and Sovereign acknowledges that
the Option Shares may not be sold, transferred or otherwise
disposed of unless registered or unless subject to an exemption
from registration.
12. Amendment of Stock Option Agreement. By mutual
consent of the parties hereto, this Stock Option Agreement may be
amended in writing at any time, for the purpose of facilitating
performance hereunder or to comply with any applicable regulation
of any governmental authority or any applicable order of any court
or for any other purpose.
13. Validity. The invalidity or unenforceability of any
provision of this Stock Option Agreement shall not affect the
validity or enforceability of any other provisions of this Stock
Option Agreement, which shall remain in full force and effect.
14. Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing
and shall be deemed to have been duly given when delivered
personally, by telegram or telecopy, or by registered or certified
mail (postage prepaid, return receipt requested) to the respective
parties as follows:
(i) If to Sovereign, to:
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Attention: Jay S. Sidhu, President
and Chief Executive Officer
Telecopy No.: (610) 320-8448
with a copy to:
Stevens & Lee
111 North Sixth Street
P.O. Box 679
Reading, Pennsylvania 19603
Attention: Joseph M. Harenza, Esquire
David W. Swartz, Esquire
Telecopy No.: (610) 376-5610
(ii) If to Carnegie, to:
Carnegie Bancorp
619 Alexander Road
Princeton, New Jersey 08540
Attention: Thomas L. Gray, Jr.
President
and Chief Executive Officer
Telecopy No.: (609) 452-2492
with copies to:
McCarter & English
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07101-0652
Attention: Michael M. Horn, Esquire
Telecopy No.: (973) 624-7070
or to such other address as the person to whom notice is to be
given may have previously furnished to the others in writing in the
manner set forth above (provided that notice of any change of
address shall be effective only upon receipt thereof).
15. Governing Law. This Stock Option Agreement shall be
governed by and construed in accordance with the domestic internal
law (but not the law of conflicts of law) of the Commonwealth of
Pennsylvania.
16. Captions. The captions in this Stock Option
Agreement are inserted for convenience and reference purposes, and
shall not limit or otherwise affect any of the terms or provisions
hereof.
17. Waivers and Extensions. The parties hereto may, by
mutual consent, extend the time for performance of any of the
obligations or acts of either party hereto. Each party may waive
(i) compliance with any of the covenants of the other party
contained in this Stock Option Agreement and/or (ii) the other
party's performance of any of its obligations set forth in this
Stock Option Agreement.
18. Parties in Interest. This Stock Option Agreement
shall be binding upon and inure solely to the benefit of each party
hereto, and, nothing in this Stock Option Agreement, express or
implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Stock
Option Agreement.
19. Counterparts. This Stock Option Agreement may be
executed in two or more counterparts, each of which shall be deemed
to be an original, but all of which shall constitute one and the
same agreement.
20. Expenses. Subject to the terms of the Plan and
except as otherwise provided herein, all costs and expenses
incurred by the parties hereto in connection with the transactions
contemplated by this Stock Option Agreement or the Option shall be
paid by the party incurring such cost or expense.
21. Termination. This Stock Option Agreement shall
terminate and be of no further force or effect upon the earliest to
occur of (A) the Effective Time or (B) termination of the Agreement
in accordance with the terms thereof, except that if the Agreement
is terminated by Sovereign pursuant to Section 6.01(b)(i) of the
Agreement (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 Carnegie to perform or observe its agreements set
forth in the Agreement required to be performed or observed by
Carnegie prior to the Closing Date (as defined in the Agreement))
or 6.01(d) 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
CARNEGIE BANCORP
By________________________________
Thomas L. Gray, Jr.
President and Chief Executive
Officer
<PAGE>
ANNEX C
Opinion of Financial Advisor
December __, 1997
The Board of Directors
Carnegie Bancorp
619 Alexander Road
Princeton, New Jersey 08540
Members of the Board:
Carnegie Bancorp ("Carnegie") and Sovereign Bancorp, Inc.
("Sovereign") have entered into a Merger Agreement providing for
the merger of Carnegie with and into Sovereign (the "Merger").
The proposed consideration is outlined in the Merger Agreement
dated December __, 1997. You have asked our opinion as of the date
hereof, whether the Exchange Ratio pursuant to the Merger Agreement
is fair, from a financial point of view, to the shareholders of
Carnegie.
Pursuant to the Merger Agreement, the terms provide for the
exchange of Sovereign Common Stock for all issued and outstanding
Capital Stock of Carnegie based upon the average closing price per
share of Sovereign Common Stock over a ten day trading period
ending two days prior to the closing of the Merger.
Janney Montgomery Scott Inc., as part of its investment
banking business, is engaged in the valuation of financial
institutions and their securities in connection with mergers and
acquisitions. In addition, in the ordinary course of our business
as a broker-dealer, we may, from time to time, have a long or short
position in, and buy or sell, debt or equity securities of Carnegie
or Sovereign for our own account or for the accounts of our
customers. We are familiar with Carnegie having lead-managed an
offering of units of Carnegie in 1994 and having provided standby
underwriting services in the conversion of expiring warrants in
August 1997. We have received a fee from Carnegie for rendering
this opinion.
In rendering our opinion, we have, among other things:
(a) reviewed the historical financial performances,
current financial positions and general prospects of Carnegie and
Sovereign;
(b) considered the proposed financial terms of the
Merger and have examined the projected consequences of the Merger
with respect to, among other things, market value, earnings and
book value per share of Carnegie Common Stock;
(c) to the extent deemed relevant, analyzed selected
public information of certain other banks and bank holding
companies and compared Carnegie and Sovereign from a financial
point of view to these other banks and bank holding companies;
(d) reviewed the historical market price ranges and
trading activity performance of Common Stock of Carnegie and
Sovereign;
(e) reviewed publicly - available information such as
annual reports, SEC filings and research reports;
(f) compared the terms of the Merger with the terms of
certain other comparable transactions to the extent information
concerning such acquisitions was publicly available;
(g) discussed with certain members of senior management
of Carnegie and Sovereign the strategic aspects of the Merger,
including estimated cost savings from the Merger;
(h) reviewed the Merger Agreement; and
(i) performed such other analyses and examinations as we
deemed necessary. We have also had conversations with various
senior officers of Carnegie and Sovereign to discuss the foregoing
as well as other matters we believe relevant to our opinion.
We have relied upon and assumed the accuracy and completeness
of all information provided to us by Carnegie and Sovereign or
publicly available and we have not independently verified such
information. We have relied upon the managements of Carnegie as to
the reasonableness and achievability of the financial and
operational forecasts and projections, and the assumptions and
bases therefor, provided to us, and we have assumed that such
forecasts and projections reflect the best currently available
estimates and judgements of such managements.
Our conclusion is rendered on the basis of market, economic
and other conditions prevailing as of the date hereof and on the
conditions and prospects, financial and otherwise, of Carnegie and
Sovereign as they exist and are known to us on the date hereof.
Furthermore, this opinion does not represent our opinion as to what
the value of Sovereign necessarily will be when the Sovereign
Common Stock is issued to Carnegie shareholders upon consummation
of the Merger. In addition, we express no recommendation as to
how the shareholders of Carnegie should vote at the shareholders
meeting held in connection with the Merger.
On the basis of and subject to the foregoing, we are of the
opinion that as of the date hereof, the Exchange Ratio pursuant to
the Merger Agreement is fair, from a financial point of view, to
the shareholders of Carnegie.
Very truly yours,
JANNEY MONTGOMERY SCOTT INC.
<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 12, 1997, between Sovereign Bancorp, Inc.
and Carnegie 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 12, 1997,
between Sovereign Bancorp, Inc. and Carnegie
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.)
4.1 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 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP, Independent
Auditors.
23.3 Consent of KPMG Peat Marwick LLP, Independent
Auditors.
23.4 Consent of Coopers & Lybrand LLP.
23.5 Consent of Stevens & Lee (contained in Exhibit 5).
23.6 Consent of Stevens & Lee.
23.7 Consent of Janney Montgomery, Scott Inc.**
24.1 Powers of Attorney of Directors and Officers
(included on signature page hereof).
99.1 Opinion of Janney Montgomery, Scott Inc. dated
____________________, 1998 (included as Annex C to
Proxy Statement/ Prospectus).**
99.2 Form of Proxy for the Annual Meeting of Shareholders
of Carnegie Bancorp, Inc.
____________________
* Denotes management contract or compensatory contract, plan or
arrangement.
** To be filed by amendment.
(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,
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/ Chairman and March 26, 1998
Richard E. Mohn Director
/s/ Director, President March 26, 1998
Jay S. Sidhu and Chief Executive
Officer (Principal
Executive Officer)
/s/ Director March 26, 1998
Fred D. Hafer
/s/ Director March 26, 1998
Rhoda S. Oberholtzer
/s/ Director March 26, 1998
Patrick J. Petrone
/s/ Director March 26, 1998
Daniel K. Rothermel
/s/ Director March 26, 1998
Cameron C. Troilo
/s/ Director March 26, 1998
G. Arthur Weaver
/s/ Chief Financial March 26, 1998
Karl D. Gerhart Officer
/s/ Chief Accounting March 26, 1998
Mark R. McCollom Officer
<PAGE>
EXHIBIT INDEX
Number Description
2.1 Agreement and Plan of Merger dated December 12,
1997, between Sovereign Bancorp, Inc. and Carnegie
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 12, 1997,
between Sovereign Bancorp, Inc. and Carnegie
Bancorp, Inc. (included as Annex B to the Proxy
Statement/Prospectus).
5. Opinion of Stevens & Lee re: Validity.
8.1 Form of opinion of Stevens & Lee re: tax matters.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP, Independent
Auditors.
23.3 Consent of KPMG Peat Marwick LLP, Independent
Auditors.
23.4 Consent of Coopers & Lybrand LLP.
23.5 Consent of Stevens & Lee (contained in Exhibit 5).
23.6 Consent of Stevens & Lee.
23.7 Consent of Janney Montgomery, Scott Inc.**
24.1 Powers of Attorney of Directors and Officers
(included on signature page hereof).
99.1 Opinion of Janney Montgomery, Scott Inc. dated
_________________, 1998 (included as Annex C to
Proxy Statement/Prospectus).**
99.2 Form of Proxy for the Annual Meeting of Shareholders
of Carnegie Bancorp, Inc.
_______________
** To be filed by amendment.
EXHIBIT 5.1
[Letterhead of Stevens & Lee]
May 5, 1998
Board of Directors
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, PA 19610
Re: Registration Statement on Form S-4
Carnegie Bancorp, Inc.
Ladies and Gentlemen:
In connection with the proposed offering of up to 7,424,392
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
[Letterhead of Stevens & Lee]
__________, 1998
Board of Directors
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, PA 19610
Board of Directors
Carnegie Bancorp
125 South Broadway
Pennsville, NJ 08070
Re: Merger of Carnegie Bancorp with and into Sovereign Bancorp,
Inc.; Merger of Carnegie Bank, N.A., 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 12,
1997, between Sovereign Bancorp, Inc., a Pennsylvania corporation
("Sovereign"), and Carnegie Bancorp, a New Jersey corporation
("Carnegie"), pursuant to which Carnegie 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
Carnegie 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 Carnegie will
receive cash in an amount determined pursuant to Section 1.02(e)
of the Holding Company Merger Agreement. Carnegie shareholders
will not be entitled to exercise dissenters' rights in connection
with the Merger. All shares of Carnegie Common Stock held as
treasury shares by Carnegie or held by a Carnegie 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 12, 1997, between Sovereign Bank, a federal savings
bank, and Carnegie Bank, N.A., a national banking association
("Carnegie Bank"), pursuant to which Carnegie Bank will,
concurrently with or as soon as practicable after the closing of
the Merger of Carnegie 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 Carnegie Bank Common Stock
and all shares of Carnegie Bank 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 Carnegie and Sovereign, including certain
written representations of the managements of Carnegie 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 transfer by Carnegie of all of its assets to
Sovereign in exchange for Sovereign Common Stock (including
fractional share interests) and the assumption by Sovereign of
all of Carnegie's liabilities will constitute a reorganization
within the meaning of IRC Section 368(a)(1)(A).
2. Carnegie and Sovereign will each be "a party to a
reorganization" within the meaning of IRC Section 368(b).
3. Neither Carnegie nor Sovereign will recognize any gain
or loss upon the transfer of Carnegie's assets to Sovereign in
exchange solely for Sovereign Common Stock (including fractional
share interests) and the assumption by Sovereign of the
liabilities of Carnegie.
4. The basis of Carnegie's assets in the hands of
Sovereign will be the same as the basis of such assets in the
hands of Carnegie immediately prior to the Merger.
5. The holding period of the assets of Carnegie to be
received by Sovereign will include the period during which the
assets were held by Carnegie.
6. No gain or loss will be recognized by the shareholders
of Carnegie on the receipt of Sovereign Common Stock (including
fractional share interests) solely in exchange for their shares
of Carnegie Common Stock.
7. The basis of the Sovereign Common Stock (including
fractional share interests) to be received by the Carnegie
shareholders in the Merger will be the same as the basis of the
Carnegie Common Stock surrendered in exchange therefor.
8. The holding period of the Sovereign Common Stock
(including fractional share interests) to be received by the
Carnegie shareholders in the Merger will include the period
during which the Carnegie shareholders held their Carnegie Common
Stock, provided the shares of Carnegie Common Stock are held as a
capital asset on the Effective Date.
9. The payment of cash in lieu of fractional share
interests of Sovereign Common Stock will be treated as if the
fractional share interests were distributed as part of the Merger
and then redeemed by Sovereign. Such cash payments will be
treated as having been received as 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 Carnegie as of the Effective Date. Any deficit in
the earnings and profits of Sovereign or Carnegie 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 Carnegie 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. Carnegie Bank and Sovereign Bank will each be "a party
to a reorganization" within the meaning of IRC Section 368(b).
15. Neither Carnegie Bank nor Sovereign Bank will recognize
any gain or loss upon the transfer of Carnegie Bank's assets to
Sovereign Bank in constructive exchange solely for Sovereign Bank
Common Stock and the assumption by Sovereign Bank of the
liabilities of Carnegie Bank.
16. The basis of Carnegie Bank's assets in the hands of
Sovereign Bank will be the same as the basis of such assets in
the hands of Carnegie Bank immediately prior to the Bank Merger.
17. The holding period of Carnegie Bank's assets in the
hands of Sovereign Bank will include the period during which such
assets were held by Carnegie Bank.
18. No gain or loss will be recognized by Sovereign, as the
shareholder of Carnegie Bank, upon the constructive receipt of
shares of Sovereign Bank Common Stock in exchange for the
Carnegie Bank 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 Carnegie Bank 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 Carnegie Bank as of the effective date of the Bank
Merger. Any deficit in the earnings and profits of Sovereign
Bank or Carnegie Bank 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 Carnegie Bank 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
Carnegie shareholders may not be applicable to persons who
received their Carnegie 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>
CARNEGIE BANCORP
OFFICER'S CERTIFICATE
The undersigned authorized officer of Carnegie Bancorp, a
New Jersey corporation ("Carnegie"), 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 Carnegie with and into Sovereign Bancorp, Inc.,
a Pennsylvania corporation ("Sovereign"), pursuant to the
Agreement and Plan of Merger, dated as of December 12, 1997,
between Sovereign and Carnegie, and (ii) the subsequent merger
(the "Bank Merger") of Carnegie Bank, N.A., a national banking
association ("Carnegie Bank"), with and into Sovereign Bank, a
federal savings bank, pursuant to the Bank Plan of Merger, dated
as of December 12, 1997, between Sovereign Bank and Carnegie
Bank, and recognizing that such law firm will rely on this
Certificate in delivering such opinion, hereby certifies on
behalf of Carnegie and Carnegie Bank, to the best knowledge and
belief of the management of Carnegie and Carnegie 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 Carnegie shareholder will be approximately
equal to the fair market value of the Carnegie common stock
exchanged therefor.
2. There is no plan or intention on the part of the
Carnegie 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 Carnegie common stock as
of the same date. For purposes of this representation, shares of
Carnegie common stock exchanged for cash in lieu of fractional
shares of Sovereign common stock will be treated as outstanding
Carnegie common stock on the effective date of such Merger.
Moreover, shares of Carnegie common stock and shares of Sovereign
common stock held by Carnegie 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 Carnegie assumed by Sovereign and
the liabilities to which the transferred assets of Carnegie are
subject were incurred by Carnegie in the ordinary course of its
business.
4. Sovereign, Carnegie, and the shareholders of Carnegie
will pay their respective expenses, if any, incurred in
connection with the Merger.
5. There is no intercorporate indebtedness existing
between Carnegie 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. Carnegie 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 Carnegie
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 Carnegie 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 Carnegie in exchange for their
shares of Carnegie common stock. The fractional share interests
of each Carnegie shareholder of record will be aggregated, and no
Carnegie 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 Carnegie will be part of the consideration for
Carnegie 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 Carnegie is separate consideration for any
compensation owed to such shareholder-employee.
11. The liabilities of Carnegie Bank assumed by Sovereign
Bank and the liabilities to which the transferred assets of
Carnegie Bank are subject were incurred by Carnegie Bank in the
ordinary course of its business.
12. There is no intercorporate indebtedness existing
between Sovereign Bank and Carnegie Bank 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. Carnegie Bank 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 Carnegie Bank
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 Carnegie Bank
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 Carnegie and
Carnegie Bank, signed this certificate as of the _____ day of
______________, 1998.
CARNEGIE BANCORP
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 Carnegie Bancorp, a New Jersey
corporation ("Carnegie"), with and into Sovereign pursuant to the
Agreement and Plan of Merger, dated as of December 12, 1997,
between Sovereign and Carnegie, and (ii) the subsequent merger
(the "Bank Merger") of Carnegie Bank, N.A., a national banking
association ("Carnegie Bank"), with and into Sovereign Bank, a
federal savings bank, pursuant to the Bank Plan of Merger, dated
as of December 12, 1997, between Sovereign Bank and Carnegie
Bank, 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 Carnegie shareholder will be approximately
equal to the fair market value of the Carnegie common stock
exchanged therefor.
2. There is no plan or intention on the part of the
Carnegie 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 Carnegie common stock as
of the same date. For purposes of this representation, shares of
Carnegie common stock exchanged for cash in lieu of fractional
shares of Sovereign common stock will be treated as outstanding
Carnegie common stock on the effective date of such Merger.
Moreover, shares of Carnegie common stock and shares of Sovereign
common stock held by Carnegie 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 Carnegie 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 Carnegie assumed by Sovereign and
the liabilities to which the transferred assets of Carnegie are
subject were incurred by Carnegie in the ordinary course of its
business.
6. Following the Merger, Sovereign will continue the
historic business of Carnegie or use a significant portion of
Carnegie's historic business assets in a business.
7. Sovereign, Carnegie, and the shareholders of Carnegie
will pay their respective expenses, if any, incurred in
connection with the Merger.
8. There is no intercorporate indebtedness existing
between Carnegie 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. Carnegie 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 Carnegie
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 Carnegie 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 Carnegie in exchange for their
shares of Carnegie common stock. The fractional share interests
of each Carnegie shareholder of record will be aggregated, and no
Carnegie 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 Carnegie will be part of the consideration for
Carnegie 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 Carnegie 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 Carnegie Bank
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 Carnegie Bank common stock as of the same date.
17. Sovereign Bank has no plan or intention to sell or
otherwise dispose of the assets of Carnegie Bank 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 Carnegie Bank assumed by Sovereign
Bank and the liabilities to which the transferred assets of
Carnegie Bank are subject were incurred by Carnegie Bank in the
ordinary course of its business.
19. Following the Bank Merger, Sovereign Bank will continue
the historic business of Carnegie Bank or use a significant
portion of Carnegie Bank's historic business assets in a
business.
20. Sovereign, Sovereign Bank, and Carnegie Bank 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 Carnegie Bank 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. Carnegie Bank 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 Carnegie Bank
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 Carnegie Bank
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 7,424,392 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 the 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
May ___, 1998
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the 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 consolidation 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
May 1, 1998
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the 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
May 1, 1998
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Sovereign Bancorp, Inc. on Form S-4 (File No. 333-)
of our report dated February 2, 1998, on our audits of the
consolidated financial statements of Carnegie Bancorp and
Subsidiary as of December 31, 1997 and 1996, and for the years
ended December 31, 1997, 1996 and 1995 which report is included
in this Annual Report on Form 10-K. We also consent to the
reference to our Firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Princeton, New Jersey
May 1, 1998
EXHIBIT 23.6
[LETTERHEAD OF STEVENS & LEE, P.C.]
May 5, 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 99.2
CARNEGIE BANCORP
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
Solicited on Behalf of the Board of Directors
The undersigned hereby appoints the Board of Directors of
CARNEGIE BANCORP ("Carnegie") or any survivor thereof to vote all
of the shares of Carnegie standing in the undersigned's name at
the Annual Meeting of Shareholders of Carnegie, to be held at the
main office of Carnegie Bank, N.A., 619 Alexander Road,
Princeton, New Jersey 08540, on Thursday, June 25, 1998, at
4:00 p.m. local time, and at any adjournment or postponement
thereof (the "Meeting"). The undersigned hereby revokes any and
all proxies heretofore given with respect to such meeting.
This proxy will be voted as specified below. If no choice
is specified, the proxy will be voted FOR approval of the
Agreement and Plan of Merger dated as of December 12, 1997
between Carnegie and Sovereign Bancorp, Inc. (the "Merger
Agreement"), and the transactions contemplated thereby (such
transactions collectively, the "Merger"). If no choice is
specified and the Merger Agreement is not approved by the
stockholders of Carnegie or the Merger is not otherwise
consummated, this proxy will be voted FOR Management's
Nominees to The Board of Directors.
The Board of Directors recommends a vote FOR approval of the
Merger Agreement. The Board of Directors recommends a vote FOR
Management's Nominees to the Board of Directors in the event that
the Merger Agreement is not approved by the stockholders of
Carnegie or the Merger is not otherwise consummated.
1. Proposal to adopt the Merger Agreement dated as of
December 12, 1997 between the Company and Sovereign
Bancorp, Inc.
/__/ For /__/ Against /__/ Abstain
2. Election of the following nine (9) nominees to serve as
directors of the Company: Theodore H. Dolci,
Michael E. Golden, Thomas L. Gray, Jr., Bruce A. Mahon,
Joseph J. Oakes, III, James E. Quackenbush, Steven L.
Shapiro, Mark A. Wolters and Shelly M. Zeiger.
(To BE GIVEN EFFECT ONLY IF THE MERGER AGREEMENT IS NOT
APPROVED BY THE STOCKHOLDERS OF CARNEGIE OR IF THE
MERGER AS DEFINED THEREIN, IS NOT OTHERWISE
CONSUMMATED)
FOR ALL NOMINEES /__/
TO WITHHOLD AUTHORITY FOR ANY OF THE ABOVE NAMED
NOMINEES, PRINT THE NOMINEE'S NAME ON THE LINE BELOW:
__________________________________________________
WITHHOLD AUTHORITY FOR ALL NOMINEES /__/
3. In their discretion, such other business as may
properly come before the meeting.
Dated:__________, 1998 ________________________________________
Signature
________________________________________
Signature
(Please sign exactly as your name
appears. When signing as an executor,
administrator, guardian, trustee or
attorney, please give your title as
such. If signer is a corporation,
please sign the full corporate name and
then an authorized officer should sign
his name and print his name and title
below his signature. If the shares are
held in joint name, all joint owners
should sign.)
PLEASE DATE, SIGN AND RETURN THIS
PROXY IN THE ENCLOSED RETURN
ENVELOPE.
