SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
/_/ Preliminary Proxy Statement
/_/ Confidential, for Use of the Commission Only
(as defined by Rule 14a-6(e)(2)
/X/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Sovereign Bancorp, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than Registrant)
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/X/ No fee required.
/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
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/_/ Fee paid previously with preliminary materials.
/_/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount previously paid: _________________________________________________
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3) Filing party: ___________________________________________________________
4) Date Filed: _____________________________________________________________
<PAGE>
[LOGO]
March 16, 1998
Dear Shareholder:
Sovereign Bancorp's Annual Meeting of Shareholders will be held on Friday,
April 17, 1998, at 10:00 a.m. in the Baron Room of The Sheraton Berkshire Inn,
Route 422 West, Papermill Road Exit, Wyomissing, Pennsylvania. For your
convenience, directions to The Sheraton Berkshire Inn are included on the bottom
portion of the proxy card included with this mailing.
Sovereign's Board of Directors believes that it is important for
Sovereign's shareholders to participate personally in the process by which
Sovereign's directors are elected. The election of diligent, active, involved,
and responsible directors is the cornerstone of corporate governance at
Sovereign. Sovereign's Board actively chooses, directs and compensates
Sovereign's senior management, establishes programs to oversee Sovereign's
compliance with laws and reviews corporate plans, policies and commitments with
a view to representing all of Sovereign's stakeholders, including its
shareholders, customers, team members, and the communities Sovereign serves.
THE NOTICE AND PROXY STATEMENT, WHICH ARE SET FORTH IN THE FOLLOWING PAGES,
DESCRIBE THE BUSINESS TO BE CONDUCTED AT THE MEETING. PROPOSALS 1, 2, 3 AND 4 TO
BE ACTED ON AT THE MEETING HAVE BEEN UNANIMOUSLY APPROVED AND RECOMMENDED BY
SOVEREIGN'S BOARD OF DIRECTORS. PLEASE CAREFULLY READ THE DESCRIPTION OF THE
PROPOSALS AND VOTE FOR THEIR ADOPTION.
If you cannot attend the Meeting, your shares should still be represented
at the Meeting. We urge you to sign and date the enclosed proxy card and return
it in the enclosed envelope as soon as possible. Please indicate and return the
enclosed proxy card and the enclosed RSVP card if you intend to be present at
the meeting.
We urge you to participate in the Meeting in person or by proxy. Thank you
very much for your continued interest in Sovereign.
Sincerely,
/s/ Richard E. Mohn
-------------------------------------
Richard E. Mohn
Chairman of the Board
/s/ Jay S. Sidhu
-------------------------------------
Jay S. Sidhu
President and Chief Executive Officer
<PAGE>
[LOGO]
------------------------
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 17, 1998
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Meeting") of Sovereign Bancorp, Inc. ("Sovereign") will be held on April 17,
1998, at 10:00 a.m. (Eastern Time) at The Sheraton Berkshire Inn, Wyomissing,
Pennsylvania, for the following purposes:
(1) To elect two (2) Class II directors of Sovereign to serve for a
term of three years and until their successors shall have been elected and
qualified;
(2) To act upon the Sovereign Bancorp, Inc. 1997 Non-Employee
Directors' Stock Option Plan (the "1997 Stock Option Plan");
(3) To act upon the Sovereign Bancorp, Inc. Employee Stock Purchase
Plan (the "1997 Stock Purchase Plan");
(4) To ratify the appointment by Sovereign's Board of Directors of
Ernst & Young LLP as Sovereign's independent auditors for the fiscal year
ending December 31, 1998; and
(5) To transact such other business as may properly be presented at
the Meeting.
Shareholders of record at the close of business on February 25, 1998, are
entitled to notice of, and to vote at the Meeting.
WHETHER OR NOT YOU PLAN ON ATTENDING THE MEETING IN PERSON, PLEASE SIGN,
DATE, AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ LAWRENCE M. THOMPSON, JR.
-------------------------------------
LAWRENCE M. THOMPSON, JR.
SECRETARY
Wyomissing, Pennsylvania
March 16, 1998
<PAGE>
SOVEREIGN BANCORP, INC.
1130 BERKSHIRE BOULEVARD
WYOMISSING, PENNSYLVANIA 19610
(610) 320-8400
------------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 17, 1998
------------------------------------
GENERAL INFORMATION
SOLICITATION OF PROXIES. This Proxy Statement is furnished in connection
with the solicitation of proxies by the Board of Directors of Sovereign Bancorp,
Inc. ("Sovereign"), parent company of Sovereign Bank, for use at Sovereign's
annual meeting of shareholders to be held April 17, 1998, or any adjournment
thereof (the "Meeting"). This Proxy Statement and the accompanying proxy are
first being mailed to shareholders of Sovereign on or about March 16, 1998. The
expense of soliciting proxies will be borne by Sovereign. It is expected that
the solicitation of proxies will be made primarily by mail. Sovereign's
directors, officers and team members may also solicit proxies personally, by
telephone and by telegraph. In addition, Sovereign has retained Georgeson &
Company Inc. to assist with the solicitation of proxies at an estimated cost of
$7,500.00, plus reasonable out-of-pocket expenses.
VOTING AND REVOCATION OF PROXIES. The execution and return of the enclosed
proxy will not affect a shareholder's right to attend the Meeting and vote in
person. Any shareholder giving a proxy may revoke it at any time before it is
exercised by submitting written notice of its revocation or a subsequently
executed proxy bearing a later date to the Secretary of Sovereign, or by
attending the Meeting and electing to vote in person. Shareholders of record at
the close of business on February 25, 1998 (the "Record Date"), are entitled to
notice of, and to vote at, the Meeting. On the Record Date, there were
112,493,102 shares of Sovereign common stock outstanding (adjusted for the
6-for-5 stock split to be effected on April 15, 1998), each of which will be
entitled to one vote at the Meeting.
If the enclosed proxy is appropriately marked, signed and returned in time
to be voted at the Meeting, the shares represented by the proxy will be voted in
accordance with the instructions marked thereon. Signed proxies not marked to
the contrary will be voted "FOR" the election, as directors, of the Board of
Directors' nominees; "FOR" the approval of the 1997 Stock Option Plan; "FOR" the
approval of the continuation of the amended and restated 1997 Stock Purchase
Plan; and "FOR" the ratification of Ernst & Young LLP as Sovereign's independent
auditors for 1998. Signed proxies will be voted "FOR" or "AGAINST" any other
matter that properly comes before the Meeting or any adjournment thereof, in the
discretion of the persons named as proxyholders.
QUORUM. The presence, in person or by proxy, of shareholders entitled to
cast at least a majority of the votes that all shareholders are entitled to cast
shall constitute a quorum at the Meeting. Abstentions with respect to one or
more proposals voted upon at the Meeting will be included for purposes of
determining the presence of a quorum at the Meeting.
STOCK SPLIT. All information in this Proxy Statement relating to the
number of shares of Sovereign common stock outstanding and to the number of
shares of Sovereign common stock issuable upon the exercise of stock options
reflect the 6-for-5 stock split to be effected on April 15, 1998 to shareholders
of record on March 31, 1998.
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INFORMATION CONCERNING THE BOARD OF DIRECTORS,
SOVEREIGN'S GOVERNANCE PROCEDURES
AND COMMITTEES OF THE BOARD OF DIRECTORS
Sovereign's Articles of Incorporation provide that the number of Sovereign
directors shall consist of not less than six nor more than twenty members, as
fixed by the Board of Directors from time to time. The Articles also provide
that the Board shall be divided into three classes, which under applicable law,
must be, in terms of the number of directors in each class, as nearly equal as
possible. The Board presently consists of eight members.
Consistent with what it perceives to be good principles of corporate
governance, Sovereign's historic practice has been to require that the
preponderance of its Board consist of outside, non-employee directors, and to
delegate important policy making and oversight functions to committees which
also consist predominantly of outside directors. A description of the committees
which possess significant corporate governance responsibilities is set forth
below.
o Sovereign's Audit Committee consists of five directors, all of whom are
outside directors. Sovereign's Audit Committee serves as the principal
liaison among the Board of Directors, Sovereign's independent certified
public accountants and Sovereign's internal audit function. It is
responsible for, among other things, reporting to Sovereign's Board on
the results of the annual audit. The Committee reviews and evaluates the
scope of the audit, accounting policies and reporting practices, internal
auditing, internal controls, security procedures and other matters
considered appropriate. The Committee also reviews the performance of
Sovereign's independent certified public accountants in connection with
their audit of Sovereign's financial statements. Importantly, from a
corporate governance perspective, it also regularly evaluates their
independence from Sovereign and Sovereign's management. Depending on the
nature of matters under review, the outside auditors, and such officers
and other team members, as necessary, attend all or part of the meetings
of the Committee. Sovereign's Audit Committee met twice during 1997.
o Sovereign's Nominating Committee consists of five directors, all of whom
are outside directors. Sovereign's Bylaws provide for both shareholder
and Board nomination of director candidates. The Committee has the
important task of taking the first step toward assuring good corporate
governance by identifying, reviewing and recommending, to the full Board,
potential nominees for submission to Sovereign's shareholders for
election as directors of Sovereign or for election to fill vacancies on
the Board. The Committee strives to identify, review and recommend only
those nominees who appear to possess (i) the highest personal and
professional ethics, integrity and values; (ii) sufficient education and
breadth of experience to understand, evaluate and suggest solutions to
the many challenges facing financial institutions in an increasingly
competitive environment; (iii) a reasoned and balanced commitment to
Sovereign's social responsibilities; (iv) an interest in and the
availability of time to be involved in Sovereign's affairs over a
sustained period; (v) the reputation and stature required to represent
Sovereign in the communities Sovereign serves, as well as before
Sovereign's shareholders and other stakeholders; (vi) a willingness to
objectively appraise management performance in the interest of Sovereign
and its stakeholders; (vii) an open mind on all policy issues affecting
the overall interests of Sovereign and its stakeholders; and (viii)
involvement only in other activities or interests which do not create a
conflict, or the appearance of a conflict, with the director's
responsibilities to Sovereign and its stakeholders. The Committee's
review of candidates is performed without regard to gender, race or
religious affiliation. One of the objectives of this review is to have a
Board which consists of members with a mix of diverse backgrounds,
skills, experiences and personalities which will foster, not only good
decision making, but also the chemistry to create an environment
encouraging active, constructive, and informed participation among Board
members. The Committee met once during 1997.
o Sovereign's Corporate Governance and Ethics Committee, which Sovereign
believes to be one of the few such Board committees in the United States,
consists of six directors, all but one of whom are outside directors. The
Chairman of the Committee also serves as Chairman of Sovereign Bank's
Code of Conduct Committee. The Committee monitors, oversees and reviews
compliance, by Sovereign's directors, officers and team members with
Sovereign's Code of Conduct. Sovereign's Code of Conduct regulates
potential conflicts of interest and transactions between Sovereign and
its affiliates, the possible misuse or
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<PAGE>
abuse of confidential information by Sovereign affiliates, and trading in
Sovereign stock by Sovereign affiliates. The Committee function,
therefore, is to assure, to the extent practicable, that Sovereign's
directors, management, other affiliates and team members act in
accordance with the highest standards of professional and ethical
conduct. When exercising its authority, the Committee is required to
consider Sovereign's mission, vision and values, including the impact of
its actions on Sovereign's stakeholders, including Sovereign's
shareholders, customers and team members, and the communities Sovereign
serves. The Committee also is required to periodically review Sovereign's
Code of Conduct and to make recommendations to the Board with respect to
modification. During 1996, Sovereign expanded the scope of the
responsibility of this Committee to specifically include corporate
governance matters. The Committee met once during 1997.
o Sovereign's Compensation Committee consists of five directors, all of
whom are outside directors. This Committee is responsible for the
important task of studying and making recommendations to the Board on
compensating and providing incentive to executive management, principally
Sovereign's Chief Executive Officer. Among other responsibilities, the
Committee makes appraisals of the performance of the Chief Executive
Officer. In addition, the Committee reviews Sovereign's executive
compensation structure in an effort to insure that executive compensation
(i) is competitive and (ii) is closely linked to Sovereign's financial
performance. The committee also attempts to assure, through programs
which are substantially weighted in favor of the use of Sovereign stock
as a compensation medium, that the interests of executive management are
aligned, to the extent practicable, with the interests of Sovereign's
shareholders. This Committee met three times during 1997.
o Sovereign's Community Reinvestment and Public Responsibility Committee
consists of five directors, four of whom are outside directors. The
Committee reviews Sovereign's programs, which strive to meet Sovereign's
social responsibilities to the communities which it serves by, among
other things, providing credit to all segments of such communities,
including low to moderate income individuals. The Committee reviews
Sovereign's pursuit of opportunities which contribute to the growth and
vitality of these communities while conforming to safe and sound lending
practices and to the many laws and regulations which are applicable to
financial institutions. The Committee reviews and recommends to the Board
Sovereign's annual Community Reinvestment Act Plan, including a review of
Sovereign Bank's credit programs and results, in an effort to assure that
they are socially useful, economically sound and nondiscriminatory. The
Committee met once during 1997.
Sovereign also maintains a number of other important committees, including
Sovereign's Merger and Acquisition Committee, Sovereign's Pension Committee,
Sovereign's Risk Management Committee, and Sovereign's Executive Committee.
Sovereign's Merger and Acquisition Committee, which met three times during 1997,
consists of four directors, three of whom are outside directors. The Committee
reviews and recommends to Sovereign's Board of Directors candidates for
acquisition by Sovereign. Sovereign's Pension Committee, which met twice during
1997, consists of six directors, five of whom are outside directors. This
Committee administers Sovereign's Pension Plan, Employee Stock Ownership Plan,
Stock Purchase Plan, 401(k) Retirement Savings Plan and Sovereign's Long-Term
Deferred Compensation Plans and Programs. This Committee also approves
Sovereign's investment policy and guidelines, reviews investment performance,
and appoints and retains trustees and investment managers for Sovereign's
retirement plans. Sovereign's Risk Management Committee assesses the major risks
which impact on Sovereign's earnings, asset quality, operations, as well as
interest rate risk. The Committee consists of six directors, five of whom are
outside directors. The Risk Management Committee met once during 1997. The Board
of Directors also has an Executive Committee, which has the ability to exercise
all of the powers of the Board in the management and direction of the business
and affairs of Sovereign between Board meetings, except those, which by statute,
are reserved to the Board of Directors. This Committee, which met three times
during 1997, consists of five directors, four of whom are outside directors.
Also consistent with the principles of what it perceives to be good
corporate governance, Sovereign's Board, working with management, has
established a series of practices and procedures to assure a flow of information
about Sovereign's business to its directors in an effort to maximize continued
active interest, involvement and participation by Board members, as well as
diligent and effective Board decision making.
3
<PAGE>
New Sovereign directors receive manuals which include information on
Sovereign's vision, mission, values and style, as well as copies of Sovereign's
by-laws, policies, procedures and guidelines. They are also provided with an
opportunity to meet with Sovereign's management and visit Sovereign's
facilities.
Pre-meeting materials are routinely distributed to Board members in advance
of meetings. These materials include in-depth reports on each of Sovereign's
critical success factors, including reports on asset quality, cost containment,
interest rate and other risks. These materials also include reports for each of
Sovereign's divisions, consisting not only of financial data, but also
production, sales and marketing data and information on market and industry
trends, as well. These materials also include background and write-ups on items
coming before the Board. In an effort to be informed, directors also
periodically visit sites of new branches and acquisitions, as well as other
Sovereign locations, important to the decision making process.
Senior and executive officers routinely attend at least a portion of every
Board meeting and they, and other members of management, frequently brief and
seek advice from the Board, not only on items coming before the Board, but also
on new products, marketing strategies and human resource initiatives. The Board
periodically invites professionals and representatives of securities firms to
make presentations to the Board in order to make the Board more aware, among
other things, of investor perceptions of Sovereign. The Board also holds
periodic meetings with Sovereign's senior regulators in order for these
regulators to make the Board more aware of the changing regulatory environment,
and industry trends, as well as to discuss their assessment of Sovereign. Board
members take these and other opportunities to actively discuss Sovereign
specific and industry specific information and trends with these officers and
other visitors.
Sovereign's Board meets once or twice each year, over a two-day period,
with Sovereign's executive management team to review Sovereign's business plans,
discuss corporate strategy and evaluate Sovereign's strengths, weaknesses,
opportunities and threats, as well as to review Sovereign's progress against
Sovereign's vision, mission, values and critical success factors.
Sovereign's Board also extensively studies Sovereign's strategic
alternatives, including sale, continuing its current strategy, or engaging in a
merger of equals, at least once a year. Sovereign has pursued this policy for
the past several years and expects to continue it in the future, particularly in
light of rapidly changing competitive conditions. Investment banking firms are
usually asked to provide material for and/or to make presentations to or
otherwise assist the Board at these sessions.
In addition, Sovereign's Board has identified the following areas of Board
and Board Committee involvement and responsibility as its principal areas of
focus in its effort to achieve good corporate governance and to represent
Sovereign's stakeholders effectively:
1. Ongoing active and participatory review of Sovereign's strategic plan
and its long range goals and of Sovereign's performance against such
plan and goals, and the evaluation of the desirability, as appropriate,
of modifications to such plans and goals;
2. Monitoring of Sovereign's activities which may pose significant risks to
Sovereign and of Sovereign's programs to respond to and contain such
risks;
3. Ongoing review and monitoring of Sovereign's progress in achieving its
critical success factors, including assessment of the development of
Sovereign's key team members;
4. Periodic, independent and objective review of the performance and
development of the Chief Executive Officer and other members of
executive management and their compensation relative to such
performance;
5. Ongoing review of Sovereign's adherence to its corporate "Mission,"
"Vision" and "Values," which include Sovereign's articulation of its
responsibilities to its stakeholders, including its shareholders,
customers, team members, and the communities Sovereign serves;
6. Periodic study, using outside resources, of Sovereign's strategic
alternatives, including sale, continuing its current strategy, or
engaging in a merger of equals;
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7. Ongoing review of, and compliance with, Sovereign's policies and
procedures, particularly its Code of Conduct, and other policies
designed to assure compliance by Sovereign with law and regulation;
8. Review of the selection process for nominees for election to Sovereign's
Board and the overall quality, interest, diligence, participation and
contribution of its members; and
9. The availability, dissemination and explanation of the information which
the Board and management believe is needed for the Board to perform its
duties diligently and effectively in the interest of Sovereign's
stakeholders.
The Board met sixteen times during 1997. Each director attended at least
75% of the total number of Board meetings held during 1997. Each director also
attended at least 75% of the aggregate total number of meetings of the Board and
its Committees on which the director served except one director who attended 64%
of the total number of such meetings.
In addition to consisting principally of outside directors, Sovereign's
Board occasionally excludes management directors from meetings. It also
otherwise acts in an independent manner and considers itself to be interested,
diligent, actively involved in Sovereign's affairs and otherwise dedicated to
principles of good corporate governance.
In what it perceives as an important action from the perspective of
Sovereign's shareholders, Sovereign's Board, in January 1998 adopted a policy
which requires directors, and certain key officers to own, by certain dates, a
specified dollar value of Sovereign stock geared generally to their degree of
responsibility or salary levels. Under this policy, Sovereign directors,
Sovereign Bank directors, Sovereign's CEO and Sovereign Executive management are
required to beneficially own shares of common stock having a value $100,000,
$50,000, six times base salary, and three times base salary, respectively, at
all times during their tenure with Sovereign, beginning January 1, 1999. Senior
management and members of Sovereign's Leaders group are required to beneficially
own shares of Sovereign common stock having a value of two times base salary and
one time base salary, respectively, beginning January 1, 2001. Shares of
Sovereign common stock issuable upon the exercise of stock options and shares
allocated to the account of a Sovereign employee under Sovereign's Employee
Stock Ownership Plan are not considered beneficially owned for purposes of the
Policy. Sovereign's Board took this action, with the concurrence of its
Corporate Governance and Ethics Committee, in an effort to assure that the
interests of directors, officers and certain key employees are more completely
aligned with those of Sovereign's shareholders.
ELECTION OF DIRECTORS
Sovereign's Board of Directors consists of eight members and is divided
into three classes: Class I directors, whose term expires in 2000; Class III
directors, whose term expires in 1999; and Class II directors, whose present
term expires in 1998 at the Meeting and, if and when elected at the Meeting,
whose term will expire in 2001.
The Board of Directors has unanimously nominated Rhoda S. Oberholtzer and
Daniel K. Rothermel for election as Class II directors of Sovereign. Each of the
nominees has consented to being named in this Proxy Statement and to serve if
elected. If any of the nominees become unable to accept nomination or election,
the persons named in the proxy may vote for a substitute nominee selected by the
Board of Directors. Sovereign's management, however, has no present reason to
believe that any nominee listed below will be unable to serve as a director, if
elected.
The two nominees who receive the highest number of votes cast at the
Meeting will be elected Class II directors. Shares represented by properly
executed proxies in the accompanying form will be voted for the Class II
nominees named below unless otherwise specified in the proxy by the shareholder.
Any shareholder who wishes to withhold authority from the proxyholders to vote
for the election of directors or to withhold authority to vote for any
individual nominee may do so by marking his or her proxy to that effect.
Shareholders cannot cumulate their votes for the election of directors. No proxy
may be voted for a greater number of persons than the number of nominees named.
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The following table sets forth certain information concerning (i) the
nominees for election as Class II directors of Sovereign, (ii) the continuing
Class I and Class III directors of Sovereign, (iii) each named present or former
executive officer of Sovereign identified in the summary compensation table on
page 14, and (iv) all Sovereign directors and executive officers as a group,
including their beneficial ownership of shares of common stock of Sovereign as
of the Record Date. Unless otherwise indicated, each such Sovereign director and
each such named executive officer holds sole voting and investment power over
the shares listed as beneficially owned and the shares listed constitute less
than 1% of the outstanding shares. Shares indicated as being subject to options
are shares issuable pursuant to options outstanding and vested under Sovereign's
stock option plans. Time in service for certain directors includes time served
as a director of Sovereign's and Sovereign Bank's predecessor institutions.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
DIRECTOR BENEFICIAL OF COMMON
NAME AGE SINCE OWNERSHIP(1) STOCK
- ---- --- -------- ------------ ---------
<S> <C> <C> <C> <C>
NOMINEES AS CLASS II DIRECTORS
TO SERVE UNTIL 2001
Rhoda S. Oberholtzer................................. 67 1979 38,898(2) *
Daniel K. Rothermel.................................. 59 1976 96,871(3) *
CONTINUING AS CLASS I DIRECTORS
TO SERVE UNTIL 2000
Fred D. Hafer........................................ 57 1997 2,627(4) *
Patrick J. Petrone................................... 68 1987 251,106(5) *
Cameron C. Troilo, Sr................................ 59 1974 551,556(6) *
CONTINUING AS CLASS III DIRECTORS
TO SERVE UNTIL 1999
Richard E. Mohn...................................... 66 1981 482,325(7) *
Jay S. Sidhu......................................... 46 1987 2,377,000(8) 2.1%
G. Arthur Weaver..................................... 64 1971 155,365(9) *
EXECUTIVE OFFICERS
Karl D. Gerhart...................................... 45 n/a 486,967(10) *
Lawrence M. Thompson, Jr............................. 45 n/a 310,712(11) *
All Sovereign Directors and executive officers as a
group (10 persons)................................. n/a n/a 4,753,421(12)(13) 4.2
</TABLE>
- ------------------
(1) The table reflects data supplied by each director and executive officer.
The table also reflects shares of Sovereign common stock owned by the
trustee of Sovereign's Employee Stock Ownership Plan which have been
allocated to the accounts of the executive officers identified in the
table, and as a group. The data in the table reflect the 6-for-5 stock
split to be effected on April 15, 1998 to shareholders of record on March
31, 1998.
(2) Shares and percent include 526 shares held by Mrs. Oberholtzer's spouse.
(3) Mr. Rothermel holds shared voting and investment power over 7,817 shares.
Shares and percent include 1,270 shares held by Mr. Rothermel's spouse with
respect to which Mr. Rothermel disclaims beneficial ownership. Shares and
percent include 42,751 shares subject to vested options.
(4) Mr. Hafer holds shared voting and investment power over 2,237 shares.
(5) Mr. Petrone holds shared voting and investment power over 75,570 shares.
(6) Shares and percent include 61,783 shares subject to vested options.
(7) Shares and percent include 55,324 shares subject to vested options.
(8) Mr. Sidhu holds shared voting and investment power over 769,083 shares.
Shares and percent include 861,833 shares subject to vested options, and
27,673 shares held by Sovereign's 401(k) Retirement Savings Plan that are
allocated to Mr. Sidhu's account. Shares and percent include 18,568 shares
purchased and held
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by the Sovereign Employee Stock Ownership Plan (the "Sovereign ESOP") which
are allocated to Mr. Sidhu's account and over which he exercises voting
power.
(9) Mr. Weaver holds shared voting and investment power over 42,545 shares.
Shares and percent include 42,751 subject to vested options.
(10) Mr. Gerhart holds shared voting and investment power over 106,704 shares.
Mr. Gerhart's shares and percent include 65,414 shares subject to vested
options and 61,451 shares held by Sovereign's 401(k) Retirement Savings
Plan which are allocated to Mr. Gerhart's account. Shares and percent
include 14,107 shares purchased and held by the Sovereign ESOP which are
allocated to Mr. Gerhart's account and over which he exercises voting
power.
(11) Mr. Thompson holds shared voting and investment power over 102,838 shares.
Mr. Thompson's shares and percent include 188,677 shares subject to vested
options and 5,399 shares held by Sovereign's 401(k) Retirement Savings Plan
which are allocated to Mr. Thompson's account. Shares and percent include
13,798 shares purchased and held by the Sovereign ESOP that are allocated
to Mr. Thompson's account and over which he exercises voting power.
(12) In the aggregate, these persons hold shared voting and investment power
over 1,595,893 shares. Shares and percent include 1,318,533 shares subject
to vested options and 94,523 shares held by Sovereign's 401(k) Retirement
Savings Plan allocated to the executive officers' accounts. Shares and
percent include 46,473 shares purchased and held by the Sovereign ESOP that
are allocated to participant accounts and over which they exercise voting
power.
(13) Under a policy adopted by Sovereign's Board in January 1998, Sovereign's
non-employee directors, Mr. Sidhu, Mr. Thompson and Mr. Gerhart, are
required to beneficially own shares of Sovereign common stock having a
value of $100,000, six times base salary, three times base salary and three
times base salary, respectively, at all times during their tenure with
Sovereign, beginning January 1, 1999. Shares of Sovereign common stock
issuable upon exercise of stock options and shares allocated to the account
of Messrs. Sidhu, Gerhart and Thompson under the Sovereign ESOP are not
considered beneficially owned for purposes of the policy.
7
<PAGE>
The principal occupation and business experience during the last five years of,
and other information with respect to, each nominee for election as a director
of Sovereign and of each continuing director of Sovereign is as follows:
[PHOTO] FRED D. HAFER. Mr. Hafer was appointed President and Chief
Operating Officer of GPU, Inc. (public utility company) in 1996.
In 1997, he assumed the additional responsibilities of Chairman
and Chief Executive Officer. Prior thereto, he served as
President and Chief Operating Officer of Metropolitan Edison Co.
("Met-Ed") and Pennsylvania Electric Co. from 1994. Prior
thereto, he served as President and Chief Operating Officer of
Met-Ed from 1986. Mr. Hafer has served as a director of GPU,
Inc. since 1996. Mr. Hafer serves as a member of the
Compensation, Corporate Governance and Ethics, Merger and
Acquisition, Pension and Risk Management Committees and also
serves as Chairman and as a member of Sovereign's Audit
Committee.
[PHOTO] RICHARD E. MOHN. Mr. Mohn became Chairman of the Board of
Sovereign Bank in November, 1989, and Chairman of Sovereign in
May 1995. He is Chairman of Cloister Spring Water Company,
Lancaster, Pennsylvania, a bottler and distributor of spring
water. Mr. Mohn serves as a member of Sovereign's Executive,
Compensation, Community Reinvestment and Public Responsibility,
Corporate Governance and Ethics, Merger and Acquisition, Pension
and Risk Management Committees and also serves as Chairman and
as a member of Sovereign's Nominating Committee.
[PHOTO] RHODA S. OBERHOLTZER. Mrs. Oberholtzer is retired. Prior to her
retirement she was Floral Manufacturing Manager of Stauffer's of
Kissel Hill, Lititz, Pennsylvania. Mrs. Oberholtzer serves on
Sovereign's Audit, Community Reinvestment and Public
Responsibility, Corporate Governance and Ethics and Risk
Management Committees, and also serves as a Chairperson and as a
member of Sovereign's Pension Committee.
[PHOTO] PATRICK J. PETRONE. Mr. Petrone retired as President of the
Charter Federal Savings Bank Division of Sovereign Bank and as
Vice Chairman of Sovereign Bank in October 1996. Prior to the
merger of Charter Federal Savings Bank into Sovereign Bank in
1994, he served as President and Chief Executive Officer of
Charter and of Charter Federal. Mr. Petrone previously served as
President and Chief Executive Officer of Charter since 1990 and
President and Chief Executive Officer of Charter Federal since
1989. Mr. Petrone serves on Sovereign's Executive, Compensation,
Nominating, and Risk Management Committees, and also serves as
Chairman and as a member of Sovereign's Community Reinvestment
and Public Responsibility Committee.
8
<PAGE>
[PHOTO] DANIEL K. ROTHERMEL. Mr. Rothermel became President and Chief
Executive Officer of Cumru Associates, Inc., a private holding
company in 1989. He retired, in 1989, as Vice President, General
Counsel and Secretary of Carpenter Technology Corporation, a
publicly held specialty steel manufacturer, a position he held
for more than ten years. Mr. Rothermel is a member of
Sovereign's Audit, Compensation, Merger and Acquisition and
Nominating Committees, and also serves as Chairman and as a
member of Sovereign's Executive Committee and Corporate
Governance and Ethics Committee.
[PHOTO] JAY S. SIDHU. Mr. Sidhu became President and Chief Executive
Officer of Sovereign in November 1989, and was named President
and Chief Executive Officer of Sovereign Bank in March 1989. Mr.
Sidhu previously served as Treasurer and Chief Financial Officer
of Sovereign since the organization of Sovereign in 1987. Mr.
Sidhu serves as a member of Sovereign's Executive, Community
Reinvestment and Public Responsibility, Corporate Governance and
Ethics, Pension, and Risk Management Committees, and also serves
as Chairman and a member of Sovereign's Merger and Acquisition
Committee.
[PHOTO] CAMERON C. TROILO, Sr. Mr. Troilo is the owner and President of
Cameron C. Troilo, Inc., a holding company for entities engaged
in the construction, building material supply, and real estate
management businesses. Mr. Troilo previously served as Vice
Chairman of Yardley Savings & Loan Association, which was
acquired by Sovereign Bank in 1989. He presently serves on the
Audit, Community Reinvestment and Public Responsibility,
Nominating and Pension Committees, and also serves as Chairman
and as a member of Sovereign's Risk Management Committee.
[PHOTO] G. ARTHUR WEAVER. Mr. Weaver is a real estate and insurance
executive with the George A. Weaver Company, New Holland,
Pennsylvania. Mr. Weaver serves on Sovereign's Executive, Audit,
Corporate Governance and Ethics, Nominating and Pension
Committees, and also serves as Chairman and a member of
Sovereign's Compensation Committee.
9
<PAGE>
COMPENSATION PAID TO DIRECTORS
Sovereign believes that the amount, form and methods used to determine
compensation are an important ingredient in (i) attracting and maintaining
directors who are independent, interested, diligent and actively involved in
Sovereign's affairs, and (ii) more substantially aligning the interests of
Sovereign's directors with the interests of Sovereign's stakeholders.
In 1996, shareholders approved the Non-Employee Director Compensation Plan
as a means of compensating non-employee directors of Sovereign and Sovereign
Bank for all services rendered as directors. The Plan requires that, on a
quarterly basis, all non-employees serving as directors of Sovereign and/or
Sovereign Bank receive a fixed number of shares of Sovereign common stock, plus
cash equal to the difference between the value of Sovereign common stock
received and the individual's quarterly compensation. Sovereign's Chairman must
receive the total amount of his compensation in Sovereign common stock. For the
period ending September 30, 1997, directors of Sovereign who also served as
directors of Sovereign Bank received 675 shares of Sovereign common stock
quarterly plus cash sufficient to provide total quarterly compensation of $9,500
and directors of Sovereign who did not also serve as directors of Sovereign Bank
received 500 shares of Sovereign common stock quarterly plus cash sufficient to
provide total quarterly compensation of $7,000. Sovereign's Chairman received
Sovereign common stock with a value sufficient to provide quarterly compensation
of $25,000. Effective October 1, 1997, and in conjunction with the adoption of a
new director's stock option plan, the plan was modified to provide that
directors of Sovereign who also served as directors of Sovereign Bank receive
415 shares of Sovereign common stock quarterly, plus cash sufficient to provide
total quarterly compensation of $3,600. Directors of Sovereign, who do not also
serve as directors of Sovereign Bank, receive 325 shares of Sovereign common
stock quarterly plus cash sufficient to provide total quarterly compensation of
$1,800. Sovereign's chairman receives 1,600 shares of Sovereign common stock
quarterly as compensation.
In accordance with Sovereign's policy of creating and maintaining a
long-term mutuality of interests between non-employee directors and Sovereign's
shareholders, Sovereign has adopted, subject to shareholder approval, the
Sovereign Bancorp, Inc. 1997 Non-Employee Directors' Stock Option Plan (see
proposal No. 2 herein) to provide non-employee directors of Sovereign (and not
Sovereign Bank) with nonqualified stock options as a portion of their
compensation as directors. Each eligible director receives 20,000 stock options
each year for a period of five years. No options were granted under this plan in
1997.
Also, in accordance with Sovereign's policy of creating and maintaining
this long term mutuality of interest, Sovereign adopted, in January 1998, a
policy under which all Sovereign's non-employee directors, as well as
Sovereign's CEO who is a management director, are required to beneficially own
shares of Sovereign common stock having a value of $100,000 and six times base
salary, respectively, at all times during their tenure with Sovereign, beginning
January 1, 1999.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
Sovereign Bancorp, Inc.'s Executive Compensation Program is administered by
the Compensation Committee of the Board of Directors. The Compensation Committee
is composed entirely of non-employee Directors. The Executive Compensation
Program is structured and administered to support Sovereign's mission, which is
to be a highly focused, quality driven, market led and results oriented company,
seeking continually to outperform the market in terms of consistency, growth in
earnings, quality of earnings and return on equity. The program is also
structured to link executive compensation to Sovereign's performance and,
through programs which are substantially weighted in favor of the use of
Sovereign stock as a compensation medium, to more closely align the interests of
executive management with those of Sovereign's shareholders.
The Compensation Committee evaluates and recommends, to the Board of
Directors, compensation and awards for the Chief Executive Officer. The Chief
Executive Officer, Jay S. Sidhu, evaluates and approves compensation and awards
for the other executive officers. Such compensation and awards are based upon
Sovereign's performance and each individual's performance in meeting personal
and team objectives.
10
<PAGE>
COMPENSATION PHILOSOPHY
The Executive Compensation Program of Sovereign has been designed to:
o Align the interests of executives with the long-term interests of
shareholders through award opportunities which result in ownership of
common stock;
o Motivate key team members to achieve a superior level of quality
performance and financial results by rewarding them for their
achievement;
o Support a pay-for-performance policy that supplements overall company
compensation amounts based on company-wide results, team oriented results
and individual performance; and
o Provide the executive with an appropriate level of retirement income
through the use of a combination of both qualified and nonqualified
deferred compensation programs.
COMPONENTS OF COMPENSATION
At present, the Executive Compensation Program is comprised of salary,
annual cash incentive opportunities, long-term incentive opportunities in the
form of options to acquire Sovereign stock, deferred compensation and employee
benefits, which are also significantly stock based. As an executive's level of
responsibility increases, a greater portion of his or her potential total
compensation opportunity is based on performance incentives and less on salary
and employee benefits, causing greater variability in the individual's absolute
compensation from year-to-year. Base salary levels for the executive officers of
Sovereign are set below average compared to other companies within its peer
group because executives can have the opportunity for total compensation,
including long-term compensation, to exceed the average salary for peer group
companies upon Sovereign's achievement of predetermined financial goals and
objectives set by the Compensation Committee and the Board of Directors. The
intent is to have incentive compensation tied to performance results. Pursuant
to this policy and in light of the significant performance based increase in Mr.
Sidhu's bonus for 1997, his base salary was not increased in January 1998. The
other named executive officers were granted salary increases in 1997. These
salary increases were not based on any mathematical formula and did not directly
relate to any quantitative factors.
SHORT-TERM INCENTIVE COMPENSATION
Incentive compensation awards in 1998 were based on a review of Sovereign's
1997 performance. This review included an assessment of Sovereign's results of
operations for 1997 and of performance against financial hurdles, set in early
1997, relating to return on equity, earnings and capital levels for 1997. The
hurdles reflected the Board of Directors' determination of the appropriate goals
for a growth oriented company. No bonuses would have been paid to executive
management if Sovereign had not achieved these financial goals. Pursuant to a
formula recommended by the Compensation Committee and approved by the Board
early in 1997, Mr. Sidhu was entitled to a bonus for 1997 if certain hurdles
were met or exceeded. Mr. Sidhu was also entitled to receive a special bonus for
1997 if these hurdles were met and if certain goals relating to growth, both
internal and external, were met or exceeded by December 31, 1997. Because
Sovereign substantially exceeded these goals and hurdles, Mr. Sidhu was eligible
to receive an incentive compensation award of $908,000 for 1997, 50% of which
Mr. Sidhu elected to defer under the Bonus Deferral Plan discussed under
"Long-Term Incentive Compensation."
The Compensation Committee determined the amount of bonus paid to Mr. Sidhu
and Mr. Sidhu determined the bonuses paid to the other named executives. In a
continuing effort to align the interests of executive management with the
interests of shareholders by making a higher percentage of total compensation
stock based, Mr. Sidhu's bonus increases by 5% if he agrees to use his bonus to
increase his stake in Sovereign by purchasing shares of Sovereign common stock
with the bonus. The bonuses of certain executive officers, from time-to-time,
are likewise increased if they agree to purchase stock.
11
<PAGE>
LONG-TERM INCENTIVE COMPENSATION
Sovereign's shareholders approved the 1996 Stock Option Plan at the 1996
Annual Meeting of Shareholders. The 1996 Plan, like its predecessor plans, is a
long-term plan designed not only to provide incentive to management, but also to
align a significant portion of the Executive Compensation Program with
shareholder interests. The 1996 Stock Option Plan permits Sovereign to grant
certain officers a right to purchase shares of stock over a ten (10) year
period, at the fair market value per share at the date the option is granted. In
granting incentive stock options to Mr. Sidhu and the other executive officers,
the Compensation Committee took into account Sovereign's financial performance,
Sovereign's long-term strategic goal of increasing shareholder value, the
executive's level of responsibility and his continuing contributions to
Sovereign.
Effective as of November 1, 1997, the Board of Directors adopted the
Sovereign Bancorp, Inc. Bonus Recognition and Retention Plan (the "Bonus
Deferral Plan"). Under the Bonus Deferral Plan, a selected executive employee of
Sovereign or certain of its subsidiaries is entitled to annually defer receipt
of 25% to 50% of his or her bonus for a given year. The deferred amount is
placed in a grantor trust and invested in Sovereign common stock. A 100%
matching contribution is made to the trust by or on behalf of the participant's
employer and is likewise invested in Sovereign common stock. Earnings on the
deferral and match are reinvested in such stock as well. A participant becomes
100% vested in the aggregate of each year's deferral, match and earnings thereon
(the "Account Balance") five years after the initial funding of such year's
contributions to the trust. A participant also vests in the Account Balance in
the event of termination of employment by reason of death, disability,
retirement, involuntary termination or the occurrence of a change of control (as
such terms are defined). Termination for cause (as defined) or voluntary
termination of employment prior to the expiration of the five-year vesting
period generally results in the forfeiture of the entire Account Balance,
including the amount initially deferred by the participant. Payment of vested
Account Balances is made, in stock, in accordance with the election of the
participant or, in certain cases, at other times specified by the plan document.
To the extent permitted by law, a participant is entitled to vote all shares of
Sovereign common stock comprising his or her Account Balances. Otherwise, such
shares are voted by the trustee in its discretion. The Bonus Deferral Plan is
administered independently of all other plans of deferred compensation
maintained from time to time by Sovereign and its subsidiaries. Messrs. Sidhu,
Gerhart and Thompson have each elected to defer receipt of 50% of their
respective bonuses for 1997.
In addition to the three qualified pension benefit plans maintained by
Sovereign and certain of its subsidiaries for the benefit of their eligible
employees, three additional nonqualified plans are maintained to, among other
things, supplement benefits that may be limited by certain provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). The qualified plans are
a defined benefit retirement plan, the 401(k) Retirement Savings Plan, and the
Sovereign ESOP. The three nonqualified plans are described below.
Effective as of June 1, 1997, the Board of Directors adopted the Sovereign
Bancorp, Inc. Enhanced Executive Retirement Plan (the "Enhanced Retirement
Plan"). Under the Enhanced Retirement Plan, a selected executive employee of
Sovereign or certain of its subsidiaries, who satisfies such plan's
requirements, will be entitled to an enhanced defined benefit pension to the
extent the pension from the qualified defined benefit retirement plan and
certain other sources is less than a targeted level. Such targeted level is an
annual pension equal to 60% of his or her average compensation (which includes
salary, bonus, deferred compensation but excludes income from the exercise of
stock options). The actual supplemental pension to which an eligible executive
is entitled to receive under the Enhanced Retirement Plan is reduced, but not
below zero, by the sum of his or her (i) pension under the qualified defined
benefit retirement plan, (ii) calculated Social Security benefit, and (iii)
pension under the Supplemental Retirement Plan described below. In order to vest
in the enhanced pension, an eligible executive must remain employed by Sovereign
until age 55 and attain 5 years of service under the qualified retirement plan.
Provision is made for a reduction in the plan benefit for a participant who
terminates before age 60 or who has completed less than 15 years of service, but
in no event will the targeted level be reduced below 30% of average
compensation. Provision is also made by the plan document for enhanced
survivor's and disability retirement benefits. In the case of a change in
control (as defined), special provisions apply, including immediate 100% vesting
and the elimination of the reduction in benefit for age and years of service
below the general plan requirements. Under certain circumstances (such as
defined misconduct and a
12
<PAGE>
breach of any applicable covenant not to compete), enhanced plan benefits may be
forfeited. Currently, only Messrs. Sidhu, Gerhart and Thompson have been
selected to participate in the Enhanced Retirement Plan.
Effective as of January 1, 1997, the Board of Directors adopted the
Sovereign Bancorp, Inc. Supplemental Executive Retirement Plan (the
"Supplemental Retirement Plan"). The purpose of the Supplemental Retirement Plan
is to replace, for selected employees, those benefits under the qualified
defined benefit retirement plan that are limited by certain provisions of the
Code. In general, selected employees will receive supplemental pensions equal to
such limited amount, subject generally to the provisions, conditions and other
limitations of the qualified plan document. Immediate 100% vesting is provided,
however, upon the occurrence of a change in control (as defined). Plan benefits
are provided through a grantor trust.
Effective as of January 1, 1997, the Board of Directors amended the
Sovereign Bancorp, Inc. Nonqualified Deferred Compensation Plan (the "Deferred
Compensation Plan") to more closely align its provisions with Sovereign's
long-term incentive compensation policy. The Deferred Compensation Plan, as
amended, is intended to serve two primary purposes. First, it is intended to
replace, for selected employees, those benefits under the 401(k) Retirement
Savings Plan that are limited by certain provisions of the Code. A 50% matching
contribution is made on behalf of a participant who defers receipt of at least
the required minimum amount of his or her compensation, subject to the condition
that matching contributions under the two plans will not be made with respect to
more than 6% of compensation. Second, the Deferred Compensation Plan is intended
to provide a vehicle for selected employees and directors of Sovereign and
certain of its subsidiaries to defer receipt of compensation generally. The
minimum and maximum annual deferrals permitted under the Deferred Compensation
Plan for employee-participants are $2,600 and 75% of base salary and bonus,
respectively. Participating directors may defer receipt of any portion of their
fees. Interest is credited on all account balances at rates determined from time
to time in accordance with the provisions of the plan document. Participants are
always 100% vested in their account balances. Payment of plan benefits is
generally made following termination of employment under the option (which may
include a lump sum) selected by the participant.
The following tables, and the accompanying narrative and footnotes, reflect
the decisions covered by the above discussion. This report has been furnished by
the Compensation Committee whose members are:
G. Arthur Weaver, Chairman
Richard E. Mohn
Daniel K. Rothermel
Fred D. Hafer
Patrick J. Petrone
13
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and
long-term compensation awarded to, earned by or paid for services in all
capacities to Sovereign with respect to the fiscal years ended December 31,
1997, 1996 and 1995, of those persons who during 1997, (i) served as Sovereign's
chief executive officer or (ii) were executive officers (other than the chief
executive officer) whose total annual salary and bonus exceeded $100,000
(collectively with the chief executive officer, the "Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------- ---------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND SALARY BONUS OPTIONS/SARS(3) COMPENSATION(4)(5)
PRINCIPAL POSITION YEAR ($)(1) ($)(2) (#) ($)
- -------------------------------- ---- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
Jay S. Sidhu 1997 $291,154 $454,000 217,800 $4,750
President and 1996 245,000 567,000 26,250 4,500
Chief Executive Officer 1995 195,000 460,479 0 4,725
Karl D. Gerhart 1997 163,462 75,478 105,120 4,750
Chief Financial 1996 125,000 82,784 10,500 4,500
Officer and Treasurer 1995 114,038 85,555 0 4,065
Lawrence M. Thompson, Jr. 1997 163,462 75,478 105,120 4,750
Chief Administrative 1996 125,000 82,784 10,500 2,548
Officer and Secretary 1995 114,038 85,555 0 3,859
</TABLE>
- ------------------
(1) Messrs. Sidhu, Gerhart and Thompson each received salary increases in 1997.
Mr. Sidhu's salary level increased to $295,000 in January, 1997. Messrs.
Gerhart and Thompson's salary levels increased to $155,000 in January, 1997
and to $180,000 in August, 1997.
(2) Mr. Sidhu's bonus for 1997 (paid in 1998) was increased by 5% because Mr.
Sidhu agreed to purchase Sovereign common stock with the proceeds of such
bonus. Amounts shown for 1997 reflect 50% of the bonus amount actually
awarded because Messrs. Sidhu, Gerhart and Thompson each elected to defer,
and subject to a substantial risk of forfeiture, receipt of the remaining
50% of their respective bonuses under the Bonus Deferral Plan. The deferred
amount, as well as Sovereign's matching contribution are subject to such
risk of forfeiture for five years. See "Long-Term Incentive Compensation"
above for a more complete description of the Bonus Deferral Plan.
(3) Reflects 6-for-5 stock split to be effected on April 15, 1998 to
shareholders of record on March 31, 1998.
(4) Does not include the value of 1,468 shares of Sovereign Common Stock
allocated to the accounts of each of Messrs. Sidhu, Gerhart, and Thompson,
under the terms of the Sovereign ESOP as of December 31, 1997.
(5) Amounts appearing in this column are Sovereign's contributions on behalf of
each named person to the Sovereign Bancorp, Inc. 401(k) Retirement Savings
Plan, and, in the case of Messrs. Sidhu, Gerhart and Thompson, include
Sovereign's contributions to the Sovereign Bancorp, Inc. Nonqualified
Deferred Compensation Plan.
14
<PAGE>
The following table sets forth information concerning grants of stock
options during the fiscal year ended December 31, 1997 to the named executive
officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM
GRANTED(1) IN FISCAL PRICE(2) EXPIRATION -----------------------
NAME (#) YEAR ($/SH) DATE 5%(%)(3) 10%($)(3)
---- ---------- ---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
37,800 5.5% $ 9.38 1/16/07 $ 223,020 $ 565,110
Jay S. Sidhu................... 180,000 26.1 13.28 8/17/07 1,503,000 3,812,400
15,120 2.2 9.38 1/16/07 89,208 226,044
Karl D. Gerhart................ 90,000 13.0 13.28 8/17/07 751,500 1,906,200
15,120 2.2 9.38 1/16/07 89,208 226,044
Lawrence M. Thompson, Jr....... 90,000 13.0 13.28 8/17/07 751,500 1,906,200
</TABLE>
- ------------------
(1) All amounts represent a mix of incentive stock options and nonqualified
stock options. Terms of outstanding incentive stock options are for a period
of ten years and nonqualified stock options are for a period of ten years
and one month from the date the option is granted. An option may only be
exercised after the holder has been an employee of Sovereign or one of its
subsidiaries for one full year from the date the option is granted or three
months from the date the employee's employment is terminated. Of the options
granted to Messrs. Sidhu, Gerhart and Thompson, 180,000, 90,000, and 90,000,
respectively, vest ratably over a period of three years. Options are not
exercisable following an optionee's voluntary termination of employment
other than by reason of retirement or disability.
(2) Under the terms of the plan, the exercise price per share must equal the
fair market value on the date the option is granted. The exercise price may
be paid in cash, in shares of Sovereign common stock valued at fair market
value on the date of exercise or pursuant to a cashless exercise procedure
under which the optionee provides irrevocable instructions to a brokerage
firm to sell the purchased shares and to remit to Sovereign, out of the sale
proceeds, an amount equal to the exercise price plus all applicable
withholding taxes.
(3) The dollar amounts set forth under these columns are the result of
calculations made at the 5% and 10% appreciation rates set forth in
Securities and Exchange Commission regulations and are not intended to
indicate future price appreciation, if any, of Sovereign common stock.
The following table sets forth information concerning exercised and
unexercised options to purchase Sovereign common stock:
AGGREGATED OPTIONS EXERCISED IN LAST YEAR AND DECEMBER 31, 1997 OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, DECEMBER 31,
SHARES 1997 (#) 1997 ($)
ACQUIRED ON VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Jay S. Sidhu................. 0 $ 0 997,752/217,800 $17,252,795/$3,766,125
Karl D. Gerhart.............. 12,600 68,166 50,294/105,120 869,674/ 1,817,700
Lawrence M. Thompson, Jr..... 10,298 109,056 173,557/105,120 3,001,093/ 1,817,700
</TABLE>
15
<PAGE>
PENSION PLAN
Sovereign maintains a defined benefit retirement plan ("Pension Plan") for
all employees who have attained age 21 and have completed one year of
eligibility service. The following table sets forth the estimated annual
benefits payable upon retirement to participants at normal retirement age, in
the average annual salary and years of service classifications specified.
SOVEREIGN BANCORP, INC. PENSION PLAN
ILLUSTRATION OF BENEFITS AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIVE YEAR BENEFITS PAYABLE PER YEARS OF SERVICE(1)(2)
AVERAGE ---------------------------------------------------
REMUNERATION(3) 15 20 25 30 35
--------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 60,000 $11,433 $ 15,243 $ 19,054 $ 22,865 $ 26,676
80,000 17,133 22,843 28,554 34,265 39,976
100,000 22,833 30,443 38,054 45,665 53,276
120,000 28,533 38,043 47,554 57,065 66,576
140,000 34,233 45,643 57,054 68,465 79,876
160,000 39,933(4) 53,243(4) 66,554(4) 79,865(4) 93,176(4)
180,000 39,933(4) 53,243(4) 66,554(4) 79,865(4) 93,176(4)
200,000 39,933(4) 53,243(4) 66,554(4) 79,865(4) 93,176(4)
220,000 39,933(4) 53,243(4) 66,554(4) 79,865(4) 93,176(4)
240,000 39,933(4) 53,243(4) 66,554(4) 79,865(4) 93,176(4)
</TABLE>
- ------------------
(1) The following are the years of credited service under Sovereign's Pension
Plan for the persons named in the cash compensation table: Mr. Sidhu -- 11
years; Mr. Thompson -- 12 years; and Mr. Gerhart -- 21 years.
(2) Benefits are computed in single life annuity amounts on the basis of an
assumed year of birth of 1950 and without any deduction for Social Security
or other offset amounts.
(3) Represents the highest average remuneration received over a consecutive
five-year period during the last ten years, excluding deferred compensation
other than 401(k) Retirement Savings Plan contributions, subject in the
cases of Messrs. Sidhu, Gerhart and Thompson to a compensation limit of
$160,000 in 1997.
(4) The 1997 maximum annual benefit permitted when the Internal Revenue Code's
annual compensation limit of $160,000 and maximum annual benefit limit are
applied to the Pension Plan's benefit formula.
16
<PAGE>
CERTAIN TRANSACTIONS
EMPLOYMENT AGREEMENTS
Sovereign and Sovereign Bank entered into an employment agreement, dated
March 1, 1997, with Jay S. Sidhu, which superseded, in its entirety, Mr. Sidhu's
then existing employment agreement. Mr. Sidhu's agreement has an initial term of
five years and, unless terminated as set forth therein, is automatically
extended annually to provide a new term of five years except that, at certain
times, notice of nonextension may be given, in which case the agreement will
expire at the end of its then current term. No such notice has been given.
The agreement provides a base salary which, if increased by action of the
Board of Directors, becomes the new base salary provided thereafter by the
agreement. In addition, the agreement provides, among other things, a right to
participate in any bonus plan approved by the Board of Directors and insurance,
vacation, pension and other fringe benefits for Mr. Sidhu.
If Mr. Sidhu's employment is terminated without cause (as defined), or if
Mr. Sidhu voluntarily terminates employment for "good reason," Mr. Sidhu becomes
entitled to severance benefits under the agreement. The term good reason
includes the assignment of duties and responsibilities inconsistent with Mr.
Sidhu's status as President and Chief Executive Officer, a reduction in salary
or benefits or a reassignment which requires Mr. Sidhu to move his principal
residence more than 100 miles from Sovereign's principal executive office. If
any such termination occurs, Mr. Sidhu will be paid an amount equal to five
times the sum of (i) his highest annual base salary under the agreement, and
(ii) the average of his annual bonuses with respect to the three calendar years
immediately preceding his termination. Such amount will be payable in sixty
equal monthly installments. In addition, in the event of such termination, Mr.
Sidhu will be entitled to continuation of certain insurance and other specified
benefits for sixty months or until he secures substantially similar benefits
through other employment, whichever shall first occur. Further, Mr. Sidhu will
be entitled to additional retirement benefits to which he would have been
entitled had his employment continued through the then remaining term of the
agreement. If the payments and benefits under the agreement, when aggregated
with other amounts received from Sovereign and Sovereign Bank, are such that Mr.
Sidhu becomes subject to excise tax on excess parachute payments under Code
Sections 4999 and 280G of the Internal Revenue Code, he will receive additional
payments equal to such excise tax and any incremental income taxes he may be
required to pay by reason of the receipt of additional amounts under the
agreement. Sovereign estimates that, if Mr. Sidhu had terminated employment as
of March 1, 1998 under circumstances entitling him to the above-described
severance benefits, he would have been entitled to receive $4.8 million,
exclusive of the non-cash benefits, additional retirement benefits, and any
potential excise tax-related payments.
If Mr. Sidhu's employment terminates by reason of his disability, he will
be entitled to continuation of 80% of the annual base salary and bonus described
above, less amounts payable under any disability plan of Sovereign, until the
earliest of (i) his return to employment, (ii) his attainment of age 65, or
(iii) his death. Provision is also made generally for the continuation of
insurance and other specified benefits for such period, as well as additional
credits for retirement benefit purposes.
The agreement contains provisions restricting Mr. Sidhu's right to compete
with Sovereign and Sovereign Bank during the period he is receiving severance or
disability benefits thereunder, except under certain circumstances.
Sovereign has also entered into employment agreements with Karl D. Gerhart
and Lawrence M. Thompson, Jr., each dated September 25, 1997, which superseded
in their entirety the executives' then existing employment agreements. Each
agreement, has an initial term of three years and, unless terminated as set
forth therein, is automatically extended at certain dates to provide a new term
of three years except that at certain times notice of nonextension may be given,
in which case the agreement will expire at the end of its then current term.
Each agreement provides a base salary which, if increased by action of the Board
of Directors, becomes the new base salary provided thereafter by the agreement.
In addition, each agreement provides, among other things, a right to participate
in any bonus plan approved by the Board of Directors and insurance, vacation,
pension and other fringe benefits for the executive.
17
<PAGE>
If Mr. Gerhart's or Mr. Thompson's employment is terminated without cause
(as defined), whether or not a change in control (as defined) of Sovereign has
occurred, or if Mr. Gerhart or Mr. Thompson voluntarily terminates employment
for good reason (as defined) following a change in control, the executive
becomes entitled to severance benefits under the agreement. The benefits are
continuation of salary, bonus (equal to the average bonus for the three prior
years), and insurance and other fringe benefits for three years. If, in the
absence of a change in control, Mr. Gerhart's or Mr. Thompson's employment is
terminated without cause, cash benefits payable under the agreement are reduced
by an amount equal to 25% of any compensation received from another employer.
Each agreement contains a provision restricting the executive's right to
compete, for a period of 12 months, after a voluntary termination of employment
without good reason or any termination for cause; in all other circumstances,
after termination of employment, there is no covenant not to compete. In the
event severance payments and benefits under either agreement, when added to all
other benefits in the nature of "parachute payments" under Code Section 280G,
payable to either executive would cause the excise tax provisions of Code
Section 4999 to apply then the payments and benefits under such agreement will
be reduced to the minimum extent necessary to avoid such tax.
INDEMNIFICATION
The by-laws of Sovereign provide for (1) indemnification of directors,
officers, employees and agents of Sovereign and its subsidiaries and (2) the
elimination of a director's liability for monetary damages, each to the fullest
extent permitted by Pennsylvania law. Pennsylvania law provides that a
Pennsylvania corporation may indemnify directors, officers, employees and agents
of the corporation against liabilities they may incur in such capacities for any
action taken or any failure to act, whether or not the corporation would have
the power to indemnify the person under any provision of law, unless such action
or failure to act is determined by a court to have constituted recklessness or
willful misconduct. Pennsylvania law also permits the adoption of a by-law
amendment, approved by shareholders, providing for the elimination of a
director's liability for monetary damages for any action taken or any failure to
take any action unless (1) the director has breached or failed to perform the
duties of his office and (2) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.
Directors and officers of Sovereign are also insured against certain
liabilities for their actions, as such, by an insurance policy obtained by
Sovereign. The premium for 1997 was $259,000.
On December 21, 1993, Sovereign Bank entered into an Indemnification
Agreement (the "Indemnification Agreement") with Mr. Sidhu. The Indemnification
Agreement provides that Sovereign Bank will indemnify Mr. Sidhu to the fullest
extent permitted by applicable law and regulation for all expenses, judgments,
fines and penalties incurred in connection with, and amounts paid in settlement
of, any claim relating to, among other things, the fact that Mr. Sidhu is or was
a director or officer of Sovereign or Sovereign Bank (an "Indemnifiable Claim").
Sovereign Bank will also advance expenses upon Mr. Sidhu's request in connection
with any Indemnifiable Claim.
Sovereign Bank's indemnification obligations are subject to the condition
that a Reviewing Party (as defined in the Indemnification Agreement) shall not
have determined that Mr. Sidhu would not be permitted to be indemnified under
applicable law. To the extent that it is subsequently determined that Mr. Sidhu
is not entitled to indemnification, he shall reimburse Sovereign Bank for any
amounts previously paid.
Upon a Change in Control (as defined in the Indemnification Agreement) of
Sovereign or Sovereign Bank, all determinations regarding Sovereign Bank's
indemnification obligations under the Indemnification Agreement shall be made by
Independent Legal Counsel (as defined in the Indemnification Agreement). Upon a
Potential Change in Control (as defined in the Indemnification Agreement) of
Sovereign or Sovereign Bank, Sovereign Bank shall, upon written request by Mr.
Sidhu, create and fund a trust for the benefit of Mr. Sidhu in order to ensure
satisfaction of Sovereign Bank's indemnification obligations under the
Indemnification Agreement.
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<PAGE>
INDEBTEDNESS OF MANAGEMENT
Prior to August 1989, Sovereign Bank offered consumer and residential
mortgage loans to directors of Sovereign and its subsidiaries, full-time
employees with six months continuous service at Sovereign Bank, and part-time
employees with one year of continuous service at Sovereign Bank, at preferential
terms with respect to interest rates and loan fees. Specifically, interest rates
offered to such persons were up to 1% lower than rates offered to nonaffiliated
persons for similar transactions, and certain loan origination fees were waived.
As a result of the enactment in August 1989 of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, which made certain provisions of
the Federal Reserve Act applicable to Sovereign and Sovereign Bank, any credit
extended by Sovereign Bank to executive officers and directors of Sovereign Bank
and Sovereign, and to the extent otherwise permitted, principal shareholders of
Sovereign or any related interest of the foregoing must be (i) on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions by Sovereign Bank with non-affiliated
parties, and (ii) not involve more than the normal risk of repayment or present
other unfavorable features.
At December 31, 1997, there were no directors or executive officers of
Sovereign whose aggregate indebtedness to Sovereign Bank exceeded $60,000, and
whose loan was granted on preferential terms applicable to directors, officers
and employees of Sovereign Bank and Sovereign at the time the loan was made.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Sovereign's officers and directors, and any persons
owning ten percent or more of Sovereign's common stock, to file in their
personal capacities initial statements of beneficial ownership, statements of
changes in beneficial ownership and annual statements of beneficial ownership
with the Securities and Exchange Commission (the "SEC"). Persons filing such
beneficial ownership statements are required by SEC regulation to furnish
Sovereign with copies of all such statements filed with the SEC. The rules of
the SEC regarding the filing of such statements require that "late filings" of
such statements be disclosed in Sovereign's proxy statement. Based solely on
Sovereign's review of any copies of such statements received by it, and on
written representations from Sovereign's existing directors and officers that no
annual statements of beneficial ownership were required to be filed by such
persons, Sovereign believes that all such statements were timely filed in 1997.
OTHER
Cameron C. Troilo, a Class I director, leases space to Sovereign Bank for
its branch and commercial lending facilities located in Newtown, Bucks County,
Pennsylvania. The aggregate monthly rental for these facilities is $9,924,
excluding operating expenses and reimbursement for electricity. Sovereign
believes that the amount of rent charged by Mr. Troilo is not in excess of the
amount of rent charged by unrelated parties for similar premises in the area.
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<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph and table comparing the yearly percentage change
in the cumulative total shareholder return on Sovereign's common stock against
(1) the cumulative total return on the S&P 500 Index, (2) the cumulative total
return on the NASDAQ Bank Index, and (3) the cumulative total return on the
largest three Pennsylvania bank holding companies (CoreStates Financial Corp,
Mellon Bank Corp. and PNC Bank Corp.) for the five-year period commencing
January 1, 1993, and ending December 31, 1997.
Cumulative total return on Sovereign's common stock, the S&P 500 Index, the
NASDAQ Combination Bank Index and the common stock of the largest three
Pennsylvania bank holding companies equals the total increase in value since
January 1, 1993, assuming reinvestment of all dividends. The graph and table
were prepared assuming that $100 was invested on January 1, 1993, in Sovereign's
common stock, the S&P 500, the NASDAQ Bank Index and the common stock of the
largest three Pennsylvania bank holding companies.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts the
following plot points:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
S&P 500.................................. $100 $107.06 $105.41 $141.36 $170.01 $222.72
NASDAQ Bank Index........................ 100 129.37 130.80 189.41 238.95 390.90
Sovereign................................ 100 177.67 117.84 164.13 226.38 432.17
Top 3 Banks in PA(1)..................... 100 101.37 91.63 150.29 200.86 329.25
</TABLE>
- ------------------
(1) Includes CoreStates Financial Corp, Mellon Bank Corp. and PNC Bank Corp.
20
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding persons known by
Sovereign to own more than 5% of the outstanding shares of Sovereign's common
stock as of the Record Date.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP COMMON STOCK
------------------------------------ ----------------- ------------
<S> <C> <C>
Sovereign ESOP.................................. 5,873,873 5.2%
c/o York Bank & Trust Company
P.O. Box 869
21 East Market Street
York, Pennsylvania 17401
</TABLE>
- ------------------
(1) Under the terms of the Sovereign ESOP, shares held by the Sovereign ESOP are
allocated to individual employee accounts as the debt incurred to purchase
the shares is repaid. Once allocated to an individual employee account,
shares are voted in the manner directed by the employee. Prior to
allocation, the trustee is required to vote the shares in its discretion. As
of the Record Date, 1,262,741 shares were allocated to the accounts of
Sovereign employees and 4,611,132 shares were unallocated.
PROPOSAL TO APPROVE THE SOVEREIGN BANCORP, INC.
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
DESCRIPTION OF THE 1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The purposes of the Sovereign Bancorp, Inc. 1997 Non-Employee Directors'
Stock Option Plan (the "1997 Stock Option Plan") are to promote the long-term
success of Sovereign by creating a long-term mutuality of interests between the
non-employee Directors and shareholders of Sovereign, to provide an additional
inducement for such Directors to remain with Sovereign and to provide a means
through which Sovereign may attract able persons to serve as Directors.
Shareholders have previously authorized a one-time grant of options to
non-employee directors under the 1993 Stock Option Plan. No further options may
be granted to non-employee directors thereunder.
The principal features of the 1997 Stock Option Plan are summarized below.
The summary is qualified in its entirety by reference to the full text of the
1997 Stock Option Plan which is appended as Exhibit "A" to this proxy statement.
The 1997 Stock Option Plan authorizes the Compensation Committee (the
"Committee") of the Board of Directors (the "Board") to grant options for the
purchase of up to 1,000,000 shares of Sovereign's common stock. Sovereign's
policy is to have outstanding, at any one time, options to acquire no more than
10% of Sovereign's shares outstanding at such time, including options issued
under all Sovereign stock option plans and options issued under the plans of
institutions which have merged with or who have been acquired by Sovereign. At
December 31, 1997, options to acquire 2,862,424 shares of Sovereign common stock
were outstanding, representing approximately 2.5% of Sovereign's outstanding
common stock, as of such date.
Under the 1997 Stock Option Plan, only nonqualified stock options may be
granted to eligible directors of Sovereign. As of the Record Date, Sovereign had
7 directors who would be eligible to participate in the 1997 Stock Option Plan.
Option grants are made annually on the third business day following the
date of each annual meeting of Sovereign's shareholders. Each eligible director
will receive an annual option to purchase 20,000 shares of Sovereign common
stock. No eligible director can receive options under the plan to purchase more
than 100,000 shares of common stock in total. In January 1998, each non-employee
director received a grant of options to purchase 20,000 shares of Sovereign
common stock, subject to shareholder approval of the Plan.
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<PAGE>
The 1997 Stock Option Plan authorizes a committee composed of at least
three members of the Board, who serve at the discretion of the Board, to
administer and interpret the 1997 Stock Option Plan. Any shares as to which an
option expires, lapses unexercised, or is terminated or canceled may be subject
to a new option.
The exercise price for options granted under the 1997 Stock Option Plan
will be the fair market value of the stock underlying the option on the date the
option is granted. Therefore no dollar value or gain to the optionee is possible
without appreciation in the stock price after the date the option is granted.
The nonqualified stock options granted under the 1997 Stock Option Plan may
be exercised for 10 years and 1 month after the date of grant. No option may be
transferred by the optionee other than by will or by the laws of descent and
distribution, and each option is exercisable during the optionee's lifetime only
by the optionee.
Under the 1997 Stock Option Plan, options may not be exercised during the
12 month period following the date of grant, unless the optionee retires (as
defined in the 1997 Stock Option Plan), dies or unless there occurs a "change in
control" of Sovereign during such period. In that event the options become
immediately exercisable. The term, "Change in Control" is defined in the 1997
Stock Option Plan to mean, among other things, the execution of a binding
written agreement (which is approved, if legally required, by Sovereign's
shareholders) to sell Sovereign in a transaction in which (i) Sovereign's
shareholders do not own, after the transaction, at least 51% of the voting
securities of the surviving institution, and (ii) persons who were members of
Sovereign's Board do not constitute at least 51% of the members of the Board of
the surviving institution.
Under the 1997 Stock Option Plan, in the event of an optionee's retirement,
stock options may continue to be exercised during the term of the option up to
three years from the date of retirement. "Retirement" is defined in the 1997
Stock Option Plan to mean the failure, for any reason, to stand for reelection
as a director. An optionee whose service terminates due to death or disability
may exercise an option until the earlier of the term of the option or three
years after such termination of service as a director.
If an optionee's service as a director is terminated for "Cause," or if he
or she resigns, all options granted to such person terminate upon the date of
removal or resignation. Under the 1997 Stock Option Plan, termination for
"Cause" is defined as termination of service resulting from (i) the optionee's
conviction of or plea of guilty to a felony, a crime of falsehood, or a crime
involving fraud or moral turpitude, or the actual incarceration of the optionee
for a period of forty-five (45) consecutive days, (ii) the optionee's willful
failure to follow the lawful instructions of the Board of Directors after
receipt by the optionee of written notice of such instructions, or (iii) any
government regulatory agency recommending or ordering that the optionee be
terminated or relieved of his duties.
At the election of the holder of a nonqualified option and subject to the
rules established by the Committee, any required withholding taxes may be
satisfied by Sovereign withholding shares of common stock issued on the exercise
of a nonqualified stock option which have a fair market value equal to or less
than any required withholding taxes, delivery by the holder to Sovereign of
sufficient common stock to satisfy the withholding obligation, or delivery by
the holder to Sovereign of sufficient cash to satisfy the withholding
obligations.
The Board may amend, suspend or terminate the 1997 Stock Option Plan at any
time without shareholder approval, subject to the requirements of applicable
securities and tax laws; provided, however, that the Board may not, without
shareholder approval, amend the 1997 Stock Option Plan so as to (i) increase the
number of shares subject to the 1997 Stock Option Plan, (ii) change the class of
eligible participants, or (iii) otherwise change the 1997 Stock Option Plan in
any manner deemed material under applicable federal securities laws. In
addition, the Board may not modify or amend the 1997 Stock Option Plan with
respect to any outstanding option or impair or cancel any outstanding option
without the consent of the affected optionee.
TAX CONSEQUENCES
The 1997 Stock Option Plan permits non-employee directors of Sovereign to
receive grants of nonqualified stock options. The 1997 Stock Option Plan is not
a qualified plan under Code Section 401(a) and is not subject to the provisions
of the Employee Retirement Income Security Act of 1974, as amended. Sovereign
has been advised that under the Code, the following federal income tax
consequences will result when nonqualified stock
22
<PAGE>
options are granted or exercised, although the following is not intended to be a
complete statement of the applicable law.
An optionee will not be deemed to receive any income for federal tax
purposes at the time a nonqualified stock option is granted, nor will Sovereign
be entitled to a tax deduction at that time. At the time of exercise, however,
the optionee will realize ordinary income in an amount equal to the excess of
the market value of the shares at the time of exercise of the option over the
option price of such shares. Sovereign is allowed a federal income tax deduction
in an amount equal to the ordinary income recognized by the optionee due to the
exercise of a non-qualified stock option at the time of such recognition by the
optionee.
STOCK-FOR-STOCK EXCHANGE
If an optionee exercises nonqualified stock options by exchanging
previously-owned statutory option stock, the Internal Revenue Service has ruled
that the optionee will not recognize gain on the disposition of the statutory
option stock (assuming the holding period requirements applicable to such
statutory option stock have been satisfied) because of the non-recognition rule
of Code Section 1036.
No grant of options under the proposed 1997 Stock Option Plan has been
made.
If the 1997 Stock Option Plan is approved by the shareholders, Sovereign
anticipates that the Plan will be registered with the Securities and Exchange
Commission and with any applicable state securities commission where
registration is required. The cost of such registrations will be borne by
Sovereign.
As provided above, only non-employee directors of Sovereign will be
eligible to receive stock options under the 1997 Stock Option Plan.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR ADOPTION OF
THE 1997 STOCK OPTION PLAN. The affirmative vote of a majority of all votes cast
at the Meeting is required to adopt the 1997 Stock Option Plan. Abstentions and
broker non-votes will not constitute or be counted as "votes" cast for purposes
of the Meeting. All proxies will be voted "FOR" adoption of the 1997 Stock
Option Plan unless a shareholder specifies to the contrary on such shareholder's
proxy card.
PROPOSAL TO APPROVE CONTINUATION OF THE
SOVEREIGN EMPLOYEE STOCK PURCHASE PLAN
GENERAL
On March 10, 1987, the Penn Savings Bank, F.S.B. Employee Stock Purchase
Plan of 1987 (the "1987 Plan") was adopted by the Board of Directors of Penn
Savings Bank, F.S.B ("Penn Savings"), a predecessor of Sovereign Bank. The
shareholders of Penn Savings approved the plan on May 19, 1987. The plan became
a plan of Sovereign covering the employees of Sovereign and its subsidiaries,
upon Sovereign becoming a holding company. The 1987 Plan expired by its terms on
June 30, 1997. Due to the success of the 1987 Plan in encouraging and enabling
employees of Sovereign to acquire a proprietary interest in Sovereign through
the ownership of shares of Sovereign's common stock, Sovereign adopted, subject
to shareholder approval, an amendment and restatement of the 1987 Plan as the
Sovereign Bancorp, Inc. Employee Stock Purchase Plan (the "1997 Stock Purchase
Plan"). The 1997 plan is virtually identical to the 1987 Plan and continues to
provide a stock option for all employees satisfying the 1997 plan's eligibility
provisions to purchase Sovereign's common stock. The 1997 Stock Purchase Plan
document is attached hereto as Exhibit "B" and is incorporated herein by
reference. The following description of the 1997 Stock Purchase Plan is
qualified in its entirety by reference to the plan document.
The total number of shares of common stock to be reserved under the 1997
Stock Purchase Plan is 1,000,000 shares (subject to adjustment as described
below).
23
<PAGE>
PURPOSE
The purpose of the 1997 Stock Purchase Plan is to encourage and enable
employees of Sovereign, or any subsidiary of Sovereign, to acquire a proprietary
interest in Sovereign through the ownership of shares of Sovereign's common
stock. Sovereign believes that employees who participate in the 1997 Stock
Purchase Plan will have a closer identification with Sovereign by virtue of
their ability, as shareholders, to participate in Sovereign's growth and
earnings. Shares of common stock will be purchased directly from Sovereign from
authorized but previously unissued shares or shares held in the treasury.
Proceeds from the sale of the common stock pursuant to the 1997 Stock Purchase
Plan will be used by Sovereign for general corporate purposes. It is the
intention of Sovereign that the 1997 Stock Purchase Plan qualify as an "employee
stock purchase plan" under Section 423 of the Code.
ADMINISTRATION
The 1997 Stock Purchase Plan will be administered by a committee of not
less than three directors of Sovereign (the "Committee"), none of whom may be
full time employees of Sovereign or of any subsidiary. The Committee will be
appointed by, and serve at the pleasure of, Sovereign's Board of Directors.
Sovereign's Board of Directors has appointed the members of its Compensation
Committee as the Committee members. The Committee will have the authority to
determine all questions of interpretation and operation of the 1997 Stock
Purchase Plan, which determination will be final and binding on all plan
participants.
ELIGIBILITY
Any employee, including any officer, who has worked for Sovereign and/or a
subsidiary (as defined in the plan) of Sovereign for a continuous period of at
least six months and who customarily works more than five (5) months per year
and more than 20 hours per week is eligible to participate in the 1997 Stock
Purchase Plan. Eligible employees who desire to participate in the 1997 Stock
Purchase Plan must complete and return the required forms to Sovereign. As of
the Record Date, there were approximately 1,850 employees eligible to
participate in the 1997 Stock Purchase Plan.
OPERATION OF THE PLAN
The total number of shares of common stock to be reserved under the 1997
Stock Purchase Plan is 1,000,000 shares. If adjustments are made in the number
of outstanding shares of common stock by reason of a stock dividend, stock
split-up, or similar change in capitalization, subsequent to July 1, 1997,
Sovereign's Board of Directors will, in its discretion, make appropriate
adjustments in the number of shares that may be reserved for purchase under the
1997 Stock Purchase Plan and the purchase price (as defined below) therefor.
The 1997 Stock Purchase Plan will be implemented by two six-month periods
(the "Option Periods") per year, commencing January 1 and July 1, during which
participants may contribute to the 1997 Stock Purchase Plan through payroll
deductions. The 1997 Stock Purchase Plan will continue until substantially all
of the shares reserved under the plan are sold, or until its termination, which
Sovereign's Board of Directors may effect at any time. On each bi-weekly pay
date (the "Exercise Date"), each participant will acquire shares of common stock
under the 1997 Stock Purchase Plan. The number of shares will be based on the
dollar amount accumulated in the participant's stock purchase account at the end
of the applicable Option Period.
The purchase price (the "Option Price") for each share of common stock to
be sold under the 1997 Stock Purchase Plan will be an amount not less than 85%
and not more than 100% (such percentage to be fixed by the Committee prior to
the first day of each Option Period) of the closing sale price of one share of
common stock as reported on the NASDAQ National Market System on the Exercise
Date, whichever is lower. (The Committee has initially established the
applicable percentage at 92.5%.) If no sales of common stock are reported on an
Exercise Date, the market price for the relevant date will be the closing sale
price of one share as reported for the last preceding trading date. If
Sovereign's Board of Directors determines that there are unusual circumstances
or occurrences under which such prices do not reflect the fair value of such
shares, then Sovereign's Board of Directors may determine such fair market value
based upon such prices or market quotations as it shall deem appropriate.
24
<PAGE>
Bi-weekly purchases of common stock will be made by means of payroll
deductions during each Option Period. The deductions may not exceed 15% (or such
lesser percentage as the Committee may determine) of a participant's regular
base salary or hourly base rate of pay, but may not be less than $1.00 per pay
period. (The initial maximum applicable percentage has been set at 15%.) A
participant's regular base salary or hourly base rate of pay will not include
overtime pay, bonuses, commissions, and any other payment in excess of normal
salary or hourly pay. Subject to the above limitations, the amount of the
payroll deduction is discretionary with each participant, but may not be changed
by a participant during an Option Period. However, a participant may withdraw
from the 1997 Stock Purchase Plan at any time. (See "Withdrawal from the Plan"
herein.) Contributions made through payroll deductions may be used by Sovereign
for any corporate purpose and could be subject to the claims of Sovereign's
creditors.
On each Exercise Date, the Committee will use the bi-weekly payroll
deduction of a participant to purchase for him or her the maximum number of
shares of common stock permitted by the 1997 Stock Purchase Plan. The following
are the limitations on the number of shares of common stock that may be
purchased by each participant in an offering under the 1997 Stock Purchase Plan:
(a) No common stock may be purchased by any participant if, by reason
of such purchase, such participant would own 5% or more of the total
combined voting power or value of all classes of stock of Sovereign or one
of its subsidiaries. For purposes of this limitation, an individual will be
considered as owning stock owned by certain of his or her relatives and a
percentage of stock owned by any corporation, partnership, estate or trust
in which he or she has an interest; and stock which a participant may
purchase under outstanding options issued under Sovereign's Stock Option
Plans or otherwise shall be treated as stock owned by the participant.
(b) No participant will be granted an option which permits his or her
rights to purchase common stock under the 1997 Stock Purchase Plan and all
other Code Section 423 plans of Sovereign or a subsidiary to accrue at a
rate which exceeds $25,000 of fair market value of such common stock
(determined at the time the option is granted) for each calendar year.
(c) If the aggregate funds available for the purchase of common stock
on any Exercise Date would cause the issuance of shares in excess of the
number of shares of common stock available under the 1997 Stock Purchase
Plan, the Committee will proportionately reduce the number of such shares
purchased by each participant to eliminate such excess and the 1997 Stock
Purchase Plan shall automatically terminate immediately after such Exercise
Date.
(d) The maximum number of shares of common stock which a participant
may purchase in any Option Period shall equal his or her total scheduled
1997 Stock Purchase Plan payroll deductions for such Option Period divided
by 50% of the per share fair market value of Sovereign's common stock as of
the first day of such Option Period.
All shares purchased shall be credited to a participant's account, but
shall initially be registered in the name of Sovereign's nominee, as agent for
the participant, and held until such time as his or her participation in the
1997 Stock Purchase Plan terminates or he or she files a written request to have
a stock certificate or certificates issued to him or her. A participating
employee will have all of the rights of a shareholder with respect to shares
purchased under the 1997 Stock Purchase Plan, whether or not certificates have
been issued.
WITHDRAWAL FROM THE PLAN
A participant may withdraw from the 1997 Stock Purchase Plan at any time by
giving written notice to the Committee. Upon withdrawal any common stock
purchased under the 1997 Stock Purchase Plan by the withdrawing participant (and
then credited to his or her plan account) will be promptly distributed to such
person.
Termination of a participant's employment for any reason, including
retirement or death, will result in the immediate termination of his or her
participation in the 1997 Stock Purchase Plan. Any common stock purchased under
the 1997 Stock Purchase Plan by such person (and then credited to his or her
plan account) will be promptly distributed.
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NONTRANSFERABILITY
Rights to purchase common stock under the 1997 Stock Purchase Plan will be
exercisable only by the participant, will not be transferable, and will expire
upon a participant's death.
TERM AND AMENDMENT
Although Sovereign intends to maintain the 1997 Stock Purchase Plan in
effect until all shares of common stock reserved thereunder have been purchased,
the Board of Directors may at any time amend or terminate the 1997 Stock
Purchase Plan, except that no amendment to the 1997 Stock Purchase Plan may be
made, without prior shareholder approval, if such amendment would (i) provide
for the sale of more than the number of shares to be authorized hereby, (ii)
materially change the benefits provided under the plan or the eligibility
requirements for participation in the plan, or (iii) change the definition of a
"subsidiary" as set forth therein.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the federal income tax consequences
pertaining to participation in the 1997 Stock Purchase Plan. It is not intended
to constitute a detailed analysis of such consequences, nor does it discuss the
state, local or other consequences applicable to plan participation.
A participating employee will not recognize income on the first day of an
Option Period or on an Exercise Date. If acquired shares are disposed of within
two years after the first day of the applicable Option Period, then an
individual will recognize as ordinary income, in the taxable year of the
disposition, an amount equal to the excess of the fair market value of the
shares at the time of purchase (i.e., the Exercise Date) over the Option Price
therefor. If acquired shares are disposed of more than two years after the first
day of the applicable Option Period, then an individual will recognize as
ordinary income, in the taxable year of the disposition, an amount equal to the
lesser of (i) the excess of the fair market value of the shares on the first day
of the Option Period in which they were purchased over the Option Price therefor
(determined as if the shares were purchased on that date), or (ii) the excess of
the fair market value of the shares at the time of the disposition over the
amount paid for such shares.
An individual's tax basis for common stock purchased under the 1997 Stock
Purchase Plan will be equal to the Option Price of the shares plus any ordinary
income recognized as described above. Any recognizable gain in excess of
ordinary income recognized upon disposition of the common stock will be capital
gain and any loss will be capital loss. Whether any such capital gain or loss is
short-term, mid-term or long-term will depend on how long the shares were held.
If an individual dies while owning common stock purchased under the 1997
Stock Purchase Plan, there will be included in the individual's ordinary income,
for the taxable year closing with the individual's death, an amount equal to the
lesser of (i) the excess of the fair market value of the shares on the first day
of the Option Period in which they were purchased over the Option Price therefor
(determined as if the shares were purchased on that date), or (ii) the excess of
the fair market value of the shares at the time of death over the amount paid
for such shares.
If an individual recognizes ordinary income as a result of the disposition
of common stock within two years of the first day of an applicable Option
Period, then Sovereign will be entitled to a deduction equal to the ordinary
income recognized. Sovereign will not be entitled to a deduction under any other
circumstances.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF
THE 1997 STOCK PURCHASE PLAN. THE BOARD BELIEVES THAT THE EXISTENCE OF THE PLAN
WILL ASSIST IN ATTRACTING AND RETAINING QUALIFIED EMPLOYEES OF SOVEREIGN AND
SOVEREIGN BANK AND WILL HAVE THE EFFECT OF MORE SIGNIFICANTLY ALIGNING THE
INTERESTS OF THESE EMPLOYEES WITH THOSE OF SOVEREIGN'S SHAREHOLDERS. The
affirmative vote of a majority of all votes cast at the Meeting is required to
approve the adoption of the 1997 Stock Purchase Plan. Abstentions and broker
non-votes will not constitute or be counted as
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"votes" cast for purposes of the Meeting. All proxies will be voted "FOR"
adoption of the 1997 Stock Purchase Plan unless a shareholder specifies to the
contrary on such shareholder's proxy card.
PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of Sovereign has appointed Ernst & Young LLP,
certified public accountants, as Sovereign's independent auditors for the fiscal
year ending December 31, 1998. No determination has been made as to what action
Sovereign's Board of Directors would take if shareholders do not ratify the
appointment.
Ernst & Young LLP has conducted the audit of the financial statements of
Sovereign and its subsidiaries for the year ended December 31, 1997.
Representatives of Ernst & Young LLP are expected to be present at the Meeting,
will be given an opportunity to make a statement if they desire to do so, and
will be available to answer appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
APPOINTMENT OF ERNST & YOUNG LLP AS SOVEREIGN'S INDEPENDENT AUDITORS FOR THE
1998 FISCAL YEAR. The affirmative vote of a majority of all votes cast at the
Meeting is required to ratify the appointment. Abstentions and broker non-votes
will not constitute or be counted as "votes" cast for purposes of the Meeting.
All proxies will be voted "FOR" ratification of the appointment unless a
shareholder specifies to the contrary on such shareholder's proxy card.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Sovereign's 1999 Annual Meeting of Shareholders will be held on or about
April 15, 1999.
In accordance with the By-Laws of Sovereign, a shareholder who desires to
propose a matter for consideration at an annual meeting of shareholders must
provide notice thereof in writing, delivered or mailed by first-class United
States mail, postage prepaid, to the Secretary of Sovereign, not less than 90
days nor more than 120 days prior to such annual meeting.
Any shareholder who desires to submit a proposal to be considered for
inclusion in Sovereign's proxy materials relating to its 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.
DIRECTOR NOMINATIONS BY SHAREHOLDER
In accordance with the by-laws of Sovereign, any shareholder entitled to
vote for the election of directors may nominate candidates for election to the
Board by providing notice thereof in writing and delivered or mailed to
Sovereign not less than 90 days prior to the date of the 1999 Annual Meeting of
Shareholders.
Any shareholder who desires to submit a candidate to be considered for
nomination to the Board of Directors for inclusion in Sovereign's proxy
materials relating to its 1999 Annual Meeting of Shareholders must submit the
same information as that required to be stated by Sovereign in its Proxy
Statement with respect to nominees of the Board of Directors. The shareholder
nomination should be submitted in writing, addressed to Sovereign Bancorp, Inc.
at 1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610 (Attn: Secretary),
on or before January 15, 1999.
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ANNUAL REPORT
Sovereign's Annual Report on Form 10-K for the year ended December 31,
1997, including a list of the exhibits thereto, is enclosed herewith.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ LAWRENCE M. THOMPSON, JR.
-------------------------------------
LAWRENCE M. THOMPSON, JR.
Secretary
PLEASE REMEMBER TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR IMPORTANT VOTE WILL BE COUNTED AT
THE ANNUAL MEETING.
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EXHIBIT "A"
SOVEREIGN BANCORP, INC.
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The purposes of the Sovereign Bancorp, Inc. 1997 Non-Employee Directors'
Stock Option Plan (the "Plan") are to promote the long-term success of Sovereign
Bancorp, Inc. (the "Corporation") by creating a long-term mutuality of interests
between the non-employee Directors and stockholders of the Corporation, to
provide an additional inducement for such Directors to remain with the
Corporation and to provide a means through which the Corporation may attract
able persons to serve as Directors of the Corporation.
SECTION 1
ADMINISTRATION
The Plan shall be administered by a Committee (the "Committee") appointed
by the Board of Directors of the Corporation (the "Board") and consisting of not
less than two members of the Board. The Committee shall keep records of action
taken at its meetings. A majority of the Committee shall constitute a quorum at
any meeting, and the actions of a majority of the members present at any meeting
at which a quorum is present, or actions approved in writing by all the members
of the Committee, shall be the actions of the Committee.
The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the operations of the Plan as it
shall deem to be necessary and advisable for the administration of the Plan
consistent with the purposes of the Plan. All questions of interpretation and
application of the Plan, or as to stock options granted under the Plan, shall be
subject to the determination of the Committee, which shall be final and binding.
Notwithstanding the above, the selection of the Directors to whom stock
options are to be granted, the timing of such grants, the number of shares
subject to any stock option, the exercise price of any stock option, the periods
during which any stock option may be exercised and the term of any stock option
shall be as hereinafter provided, and the Committee shall have no discretion as
to such matters.
SECTION 2
SHARES AVAILABLE UNDER THE PLAN
The aggregate number of shares which may be issued and as to which grants
of stock options may be made under the Plan is 1,000,000 shares of the Common
Stock, no par value, of the Corporation (the "Common Stock"), subject to
adjustment and substitution as set forth in Section 5.
If any stock option granted under the Plan is cancelled by mutual consent
or terminates or expires for any reason without having been exercised in full,
the number of shares subject thereto shall again be available for purposes of
the Plan. The shares which may be issued under the Plan may be either authorized
but unissued shares or treasury shares or partly each.
SECTION 3
GRANT OF STOCK OPTIONS
On the third business day following the day of each annual meeting of the
stockholders of the Corporation, each person who is then a member of the Board
and who is not then an employee of the Corporation or any of its subsidiaries (a
"non-employee Director") shall automatically and without further action by the
Board or the Committee be granted a "nonstatutory stock option" (i.e., a stock
option which does not qualify under Sections 422 or 423 of the Internal Revenue
Code of 1986, as amended (the "Code")) to purchase 20,000 shares of Common
Stock, subject to adjustment and substitution as set forth in Section 5.
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However, no non-employee Director can receive options to purchase more than
100,000 shares of Common Stock (or the number of adjusted or substituted shares
pursuant to Section 5) under the Plan. If the number of shares then remaining
available for the grant of stock options under the Plan is not sufficient for
each non-employee Director to be granted an option for 20,000 shares (or the
number of adjusted or substituted shares pursuant to Section 5), then each
non-employee Director shall be granted an option for a number of whole shares
equal to the number of shares then remaining available divided by the number of
non-employee Directors, disregarding any fractions of a share.
SECTION 4
TERMS AND CONDITIONS OF STOCK OPTIONS
Stock options granted under the Plan shall be subject to the following
terms and conditions:
(A) The purchase price at which each stock option may be exercised
(the "option price") shall be one hundred percent (100%) of the fair market
value per share of the Common Stock covered by the stock option on the date
of grant, determined as provided in Section 4(G).
(B) The option price for each stock option shall be paid in full upon
exercise and shall be payable in cash in United States dollars (including
check, bank draft or money order); provided, however, that in lieu of such
cash the person exercising the stock option may pay the option price in
whole or in part by delivering to the Corporation shares of Common Stock
having a fair market value on the date of exercise of the stock option,
determined as provided in Section 4(G), equal to the option price for the
shares being purchased; except that (i) any portion of the option price
representing a fraction of a share shall in any event be paid in cash and
(ii) no shares of Common Stock which have been held for less than six
months may be delivered in payment of the option price of a stock option.
Delivery of shares may also be accomplished through the effective transfer
to the Corporation of shares held by a broker or other agent. The
Corporation will also cooperate with any person exercising a stock option
who participates in a cashless exercise program of a broker or other agent
under which all or part of the shares received upon exercise of the stock
option are sold through the broker or other agent or under which the broker
or other agent makes a loan to such person. Notwithstanding the foregoing,
the exercise of the stock option shall not be deemed to occur and no shares
of Common Stock will be issued by the Corporation upon exercise of the
stock option until the Corporation has received payment of the option price
in full. The date of exercise of a stock option shall be determined
under procedures established by the Committee, and as of the date of
exercise the person exercising the stock option shall be considered for all
purposes to be the owner of the shares with respect to which the stock
option has been exercised. Payment of the option price with shares shall
not increase the number of shares of the Common Stock which may be issued
under the Plan as provided in Section 2.
(C) No stock option shall be exercisable until the grantee has
remained in the continuous service of the Corporation for a period of one
year after the date of grant of such option except in case of death or
retirement as provided in Section 4(E) or in case of Change in Control as
provided in Section 6.
Subject to the preceding sentence and subject to Section 4(E) (which
provides for earlier termination of a stock option under certain
circumstances), each stock option shall be exercisable for ten years and
one month from the date of grant and not thereafter. A stock option to the
extent exercisable at any time may be exercised in whole or in part.
(D) No stock option shall be transferable by the grantee otherwise
than by will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death.
All stock options shall be exercisable during the lifetime of the grantee
only by the grantee or the grantee's guardian or legal representative.
These restrictions on transferability shall not apply to the extent such
restrictions are not at the time required for the Plan to continue to meet
the requirements of Rule 16b-3 under the Securities Exchange Act of 1934
(the "1934 Act"), or any successor Rule.
(E) If a grantee ceases to be a Director of the Corporation for any
reason, any outstanding stock options held by the grantee shall be
exercisable according to the following provisions:
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(i) If a grantee ceases to be a Director of the Corporation by
reason of total and permanent disability, any outstanding stock option
held by such grantee shall be exercisable by the grantee (but only if
exercisable by the grantee immediately prior to ceasing to be a
Director) at any time prior to the expiration date of such stock
option or within three years after the date the grantee ceases to be a
Director, whichever is the shorter period;
(ii) If during his term of office as a Director a grantee resigns
from the Board or is removed from office for cause (as such term is
defined in the Sovereign Bancorp, Inc. 1996 Stock Option Plan), any
outstanding stock option held by the grantee shall terminate as of the
date of resignation or removal;
(iii) If a grantee ceases to be a Director of the Corporation due
to death, any outstanding stock option held by the grantee at the time
of death (whether or not exercisable by the grantee immediately prior
to death) shall be exercisable by the person entitled to do so under
the will of the grantee, or, if the grantee shall fail to make
testamentary disposition of the stock option or shall die intestate,
by the legal representative of the grantee at any time prior to the
expiration date of such stock option or within three years after the
date of death of the grantee, whichever is the shorter period; and
(iv) If a grantee ceases to be a Director of the Corporation due
to retirement (which shall be deemed the failure, for any reason, to
stand for reelection as a Director), any outstanding stock option held
by the grantee at the date of retirement (whether or not exercisable
by the grantee immediately prior to retirement) shall be exercisable
by the grantee at any time prior to the expiration date of such stock
option or within three years after the date the grantee ceases to be a
director, whichever is the shorter period.
A stock option held by a grantee who has ceased to be a Director of
the Corporation shall terminate upon the expiration of the applicable
exercise period, if any, specified in this Section 4(E).
(F) All stock options shall be confirmed by an agreement, or an
amendment thereto, which shall be executed on behalf of the Corporation by
the Chief Executive Officer (if other than the President), the President or
any Vice President and by the grantee.
(G) Fair market value shall be (i) during such time as Common Stock is
not listed on an established stock exchange or exchanges but is listed on
the NASDAQ National Market System, the fair market value per share shall be
the closing sale price for the Common Stock on the day the option is
granted. If no sale of Common Stock has occurred on that day, the fair
market value shall be determined by reference to such price for the next
preceding day on which such a sale occurred; (ii) during such time as the
Common Stock is not listed on an established stock exchange or on the
NASDAQ National Market System, fair market value per share shall be the
mean between the closing dealer "bid" and "asked" prices for the Common
Stock on the day of the grant, and if no "bid" and "asked" prices are
quoted for the day of the grant, the fair market value shall be determined
by reference to such prices on the next preceding day on which such prices
were quoted; (iii) if the Common Stock is listed on an established stock
exchange or exchanges, the fair market value shall be deemed to be the
closing price of the Common Stock on such stock exchange or exchanges on
the day the option is granted or, if no sale of Common Stock has been made
on any stock exchange on that day, the fair market value shall be
determined by reference to such price for the next preceding day on which a
sale occurred; and (iv) in the event the Common Stock is not traded on an
established stock exchange or in the NASDAQ National Market System, and no
closing dealer "bid" and "asked" prices are available on the date of grant,
then fair market value will be the price established by the Committee in
good faith.
(H) The obligation of the Corporation to issue shares of the Common
Stock under the Plan shall be subject to (i) the effectiveness of a
registration statement under the Securities Act of 1933, as amended, with
respect to such shares, if deemed necessary or appropriate by counsel for
the Corporation, (ii) the condition that the shares shall have been listed
(or authorized for listing upon official notice of issuance) upon each
stock exchange, if any, on which the Common Stock may then be listed and
(iii) all other applicable laws, regulations, rules and orders which may
then be in effect.
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Subject to the foregoing provisions of this Section 4 and the other
provisions of the Plan, any stock option granted under the Plan shall be
subject to such restrictions and other terms and conditions, if any, as
shall be determined, in its discretion, by the Committee and set forth in
the agreement referred to in Section 4(F), or an amendment thereto; except
that in no event shall the Committee or the Board have any power or
authority which would cause the Plan to fail to be a plan described in Rule
16b-3(c)(2)(ii), or any successor Rule.
SECTION 5
ADJUSTMENT AND SUBSTITUTION OF SHARES
If a dividend or other distribution shall be declared upon the Common Stock
payable in shares of the Common Stock, the number of shares of the Common Stock
set forth in Section 3, the number of shares of the Common Stock then subject to
any outstanding stock options and the number of shares of the Common Stock which
may be issued under the Plan but are not then subject to outstanding stock
options on the date fixed for determining the stockholders entitled to receive
such stock dividend or distribution shall be adjusted by adding thereto the
number of shares of the Common Stock which would have been distributable thereon
if such shares had been outstanding on such date.
If the outstanding shares of the Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Common Stock set forth in Section 3, for each share of the Common
Stock subject to any then outstanding stock option and for each share of the
Common Stock which may be issued under the Plan but which is not then subject to
any outstanding stock option, the number and kind of shares of stock or other
securities into which each outstanding share of the Common Stock shall be so
changed or for which each such share shall be exchangeable.
In case of any adjustment or substitution as provided for in the first two
paragraphs of this Section 5, the aggregate option price for all shares subject
to each then outstanding stock option prior to such adjustment or substitution
shall be the aggregate option price for all shares of stock or other securities
(including any fraction) to which such shares shall have been adjusted or which
shall have been substituted for such shares. Any new option price per share
shall be carried to at least three decimal places with the last decimal place
rounded upwards to the nearest whole number.
If the outstanding shares of the Common Stock shall be changed in value by
reason of any spin-off, split-off or split-up, or dividend in partial
liquidation, dividend in property other than cash or extraordinary distribution
to holders of the Common Stock, the Committee shall make any adjustments to any
then outstanding stock option which it determines are equitably required to
prevent dilution or enlargement of the rights of grantees which would otherwise
result from any such transaction.
No adjustment or substitution provided for in this Section 5 shall require
the Corporation to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution.
Except as provided in this Section 5, a grantee shall have no rights by
reason of any issue by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
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SECTION 6
ADDITIONAL RIGHTS IN CERTAIN EVENTS
(A) Definitions.
For purposes of this Section 6, the term "Change in Control" shall mean the
first to occur of any of the following events:
"Change in Control" -- means the first to occur of any of the
following events:
(1) any "Person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act except for any of the Corporation's employee benefit
plans, or any entity holding the Corporation's voting securities for, or
pursuant to, the terms of any such plan (or any trust forming a part
thereof) (the "Benefit Plan(s)"), is or becomes the beneficial owner,
directly or indirectly, of the Corporation's securities representing 19.9%
or more of the combined voting power of the Corporation's then outstanding
securities other than pursuant to a transaction described in (d) below;
(2) there occurs a contested proxy solicitation of the Corporation's
shareholders that results in the contesting party obtaining the ability to
vote securities representing 19.9% or more of the combined voting power of
the Corporation's then outstanding securities;
(3) a binding written agreement is executed (and, if legally
required, approved by the Corporation's shareholders) providing for a sale,
exchange, transfer or other disposition of substantially all of the assets
of the Corporation or of Sovereign Bank, a Federal Savings Bank to another
entity, except to an entity controlled directly or indirectly by the
Corporation;
(4) the shareholders of the Corporation approve a merger,
consolidation, or other reorganization of the Corporation, unless:
(5) under the terms of the agreement approved by the Corporation's
shareholders providing for such merger, consolidation or reorganization,
the shareholders of the Corporation immediately before such merger,
consolidation or reorganization, will own, directly or indirectly
immediately following such merger, consolidation or reorganization at least
51% of the combined voting power of the outstanding voting securities of
the Corporation resulting from such merger, consolidation or reorganization
(the "Surviving Corporation") in substantially the same proportion as their
ownership of the voting securities immediately before such merger,
consolidation or reorganization;
(6) under the terms of the agreement approved by the Corporation's
shareholders providing for such merger, consolidation or reorganization,
the individuals who were members of the Board immediately prior to the
execution of such agreement will constitute at least 51% of the members of
the board of directors of the Surviving Corporation after such merger,
consolidation or reorganization; and
(7) based on the terms of the agreement approved by the Corporation's
shareholders providing for such merger, consolidation or reorganization, no
Person (other than (A) the Corporation or any Subsidiary of the
Corporation, (B) any Benefit Plan (C) the Surviving Corporation or any
Subsidiary of the Surviving Corporation, or (D) any Person who, immediately
prior to such merger, consolidation or reorganization had beneficial
ownership of 19.9% or more of the then outstanding voting securities) will
have beneficial ownership of 19.9% or more of the combined voting power of
the Surviving Corporation's then outstanding voting securities;
(8) a plan of liquidation or dissolution of the Corporation, other
than pursuant to bankruptcy or insolvency laws, is adopted;
(9) during any period of two consecutive years, individuals, who at
the beginning of such period, constituted the Board cease for any reason to
constitute at least a majority of the Board unless the election, or the
nomination for election by the Corporation's shareholders, of each new
director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period; or
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(10) the occurrence of a Triggering Event within the meaning of the
Rights Agreement dated as of September 19, 1989 between the Corporation and
Harris Trust Company of New York, as amended.
Notwithstanding clause (a) of the preceding paragraph, a Change in Control
shall not be deemed to have occurred if a Person becomes the beneficial owner,
directly or indirectly, of the Corporation's securities representing 19.9% or
more of the combined voting power of the Corporation's then outstanding
securities solely as a result of an acquisition by the Corporation of its voting
securities which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 19.9% or
more of the combined voting power of the Corporation's then outstanding
securities; provided, however, that if a Person becomes a beneficial owner of
19.9% or more of the combined voting power of the Corporation's then outstanding
securities by reason of share purchases by the Corporation and shall, after such
share purchases by the Corporation, become the beneficial owner, directly or
indirectly, of any additional voting securities of the Corporation (other than
as a result of a stock split, stock dividend or similar transaction), then a
Change in Control of the Corporation shall be deemed to have occurred with
respect to such Person under clause (a) of the preceding paragraph. In no event
shall a Change in Control of the Corporation be deemed to occur under such
clause (a) above with respect to Benefit Plans.
(B) Acceleration of the Exercise Date of Stock Options.
Notwithstanding any other provision contained in the Plan, upon the
occurrence of a Change in Control all outstanding stock options shall become
immediately and fully exercisable whether or not otherwise exercisable by their
terms.
SECTION 7
EFFECT OF THE PLAN ON THE
RIGHTS OF CORPORATION AND STOCKHOLDERS
Nothing in the Plan, in any stock option granted under the Plan, or in any
stock option agreement shall confer any right to any person to continue as a
Director of the Corporation or interfere in any way with the rights of the
stockholders of the Corporation or the Board of Directors to elect and remove
Directors.
SECTION 8
AMENDMENT AND TERMINATION
The right to amend the Plan at any time and from time to time and the right
to terminate the Plan at any time are hereby specifically reserved to the Board,
provided always that no such termination shall terminate any outstanding stock
options granted under the Plan, and provided further that no amendment of the
Plan shall (i) be made without stockholder approval if stockholder approval of
the amendment is at the time required for stock options under the Plan to
qualify for the exemption from Section 16(b) of the 1934 Act provided by Rule
16b-3, or any successor Rule, or by the rules of any stock exchange on which the
Common Stock may then be listed, (ii) amend more than once every six months the
provisions of the Plan relating to the selection of the Directors to whom stock
options are to be granted, the timing of such grants, the number of shares
subject to any stock option, the exercise price of any stock option, the periods
during which any stock option may be exercised and the term of any stock option
other than to comport with changes in the Code or the rules and regulations
thereunder or (iii) otherwise amend the Plan in any manner that would cause
stock options under the Plan not to qualify for the exemption provided by Rule
16b-3, or any successor Rule. No amendment or termination of the Plan shall,
without the written consent of the holder of a stock option therefore awarded
under the Plan, adversely affect the rights of such holder with respect thereto.
Notwithstanding anything contained in the preceding paragraph or any other
provision of the Plan or any stock option agreement, the Board shall have the
power to amend the Plan in any manner deemed necessary or advisable for stock
options granted under the Plan to qualify for the exemption provided by Rule
16b-3 (or any successor rule relating to exemption from Section 16(b) of the
1934 Act), and any such amendment shall, to the extent deemed necessary or
advisable by the Board, be applicable to any outstanding stock options
theretofore
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granted under the Plan notwithstanding any contrary provisions contained in any
stock option agreement. In the event of any such amendment to the Plan, the
holder of any stock option outstanding under the Plan shall, upon request of the
Committee and as a condition to the exercisability of such option, execute a
conforming amendment in the form prescribed by the Committee to the stock option
agreement referred to in Section 4(F) within such reasonable time as the
Committee shall specify in such request.
SECTION 9
EFFECTIVE DATE
The Plan shall become effective upon approval by the affirmative vote of
the holders of a majority of the Common Stock present in person or by proxy and
entitled to vote at a duly called and convened meeting of such holders. If such
approval is obtained at the Annual Meeting of Stockholders in 1998, the Plan
shall be effective on the date of such meeting, the first stock options shall be
granted on the third business day thereafter.
A-7
<PAGE>
EXHIBIT "B"
SOVEREIGN BANCORP, INC.
EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED AND RESTATED
JULY 1, 1997)
B-1
<PAGE>
ARTICLE I
PURPOSE AND SCOPE OF THE PLAN
SECTION1.1 PURPOSE.
The Sovereign Bancorp, Inc. Employee Stock Purchase Plan is intended to
encourage employee participation in the ownership and economic progress of the
Company.
SECTION1.2 DEFINITIONS.
Unless the context clearly indicates otherwise, the following terms have
the meaning set forth below:
"Board of Directors" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and as the same
may be further amended from time to time, and the Treasury Regulations
promulgated thereunder.
"Committee" means the committee of directors appointed by the Board of
Directors, which committee shall administer the Plan as provided in Section 1.3.
"Common Stock" means the common stock of the Company.
"Company" means Sovereign Bancorp, Inc.
"Compensation" means an Employee's salary or hourly base rate of pay, as
the case may be, plus commissions, but excludes overtime pay, bonuses and any
other payment in excess of normal salary or hourly pay.
"Continuous Service" means the period of time, uninterrupted by a
termination of employment, that an Employee has been employed by the Company or
a Subsidiary, or both, immediately preceding an Offering Date. Such period of
time shall include any leave of absence permitted or required to be taken into
account by applicable Treasury Regulations.
"Employee" means any common law employee of the Company or a Subsidiary.
"Exercise Date" means each bi-weekly pay date during an Option Period.
"Fair Market Value" of a share of Common Stock on any given date means the
closing sale price for such shares on that date as reported by the National
Association of Securities Dealers Automated Quotations. If a closing sale price
for the Common Stock for the given date is not reported, or if there is none,
the Fair Market Value will be equal to the closing sale price on the nearest
trading day preceding such date. Notwithstanding the foregoing, if, in the Board
of Directors' judgment, there are unusual circumstances or occurrences under
which the otherwise determined Fair Market Value of the Common Stock does not
represent the actual fair value thereof, then the Fair Market Value of such
Common Stock shall be determined by the Board of Directors on the basis of such
prices or market quotations as it shall deem appropriate and fairly reflective
of the then fair value of such Common Stock.
"Leave of Absence" means, for purposes of participation in the Plan, a
person who is on leave of absence who shall be deemed to be an employee for the
first ninety (90) days of such leave of absence and such Employee's employment
shall be deemed to have terminated at the close of business on the ninetieth
(90th) day of such leave of absence unless such Employee shall have returned to
regular employment prior to the close of business on such ninetieth (90th) day.
Termination by the Company of any Employee's leave of absence, other than
termination of such leave of absence on return to employment, shall terminate an
Employee's employment for all purposes under the Plan and shall terminate such
Employee's participation in the Plan and the right to purchase Common Stock
hereunder.
"Offering Date" means January 1st and July 1st of each Plan Year.
"Option Period" or "period" means the period beginning on an Offering Date
and ending on the next succeeding June 30 or December 31.
B-2
<PAGE>
"Option Price" means the purchase price of a share of Common Stock
hereunder as provided in Section 3.1.
"Participant" means any Employee who (i) is eligible to participate in the
Plan under Section 2.1, and (ii) elects to participate.
"Plan" means the Sovereign Bancorp, Inc. Employee Stock Purchase Plan, as
the same may be amended from time to time.
"Plan Year" means the 12-consecutive-month period beginning on July 1st and
ending on the following June 30th.
"Stock Purchase Account" or "Account" means an account established and
maintained in the name of each Participant to record the dollar amounts and
shares of Common Stock accumulated on his behalf from time to time.
"Stock Purchase Agreement" means the form prescribed by the Committee which
must be executed by an Employee who elects to participate in the Plan. The
proper execution and filing of such form shall constitute the grant of an option
from time to time to the Employee in accordance with the terms of this Plan
document and the terms of such form.
"Subsidiary" means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if, at the beginning of an
Option Period, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50 percent or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
"Team Member Services" means the department responsible for personnel
matters pertaining to an Employee.
SECTION1.3 ADMINISTRATION OF PLAN.
The Plan shall be administered by a Committee, appointed by the Board of
Directors, of not less than three (3) non-Employee directors. Subject to
direction by the Board of Directors and the express provisions of this Plan
document, the Committee shall be authorized to prescribe, amend and rescind
rules and regulations relating to the Plan and the Committee's administration
thereof; to interpret the Plan; to fix the terms of an offering under the Plan;
to fix the rate of interest to be paid on balances in Stock Purchase Accounts;
to prescribe the maximum percentage of payroll deductions permitted for an
Option Period; to restrict participation in the Plan consistent with any
requirement of law or regulation; and to make all other determinations necessary
to the administration of the Plan, including appointment of individuals to
facilitate the day-to-day operation thereof. The Committee's determinations as
to the interpretation and operation of the Plan shall be final and conclusive.
SECTION1.4 EFFECTIVE DATE OF PLAN.
The original effective date of the Plan was July 1, 1987. The effective
date of this amended and restated Plan is July 1, 1997.
SECTION1.5 TERMINATION OF PLAN.
The Board of Directors shall have the right to terminate the Plan at any
time. Upon any such termination, the dollar amount and shares of Common Stock,
if any, in each Participant's Account shall be distributed.
ARTICLE II
PARTICIPATION
SECTION2.1 ELIGIBILITY.
Each Employee, who on an Offering Date (i) will have at least six (6)
months of continuous service with the Company and/or a Subsidiary, (ii) will be
an Employee whose customary employment is more than five (5) months in a
calendar year, and (iii) will be an Employee whose customary employment is more
than 20 hours per
B-3
<PAGE>
week, may become a Participant by executing and filing with Team Member Services
a Stock Purchase Agreement prior to the earlier of such Offering Date or five
business days prior to the first pay day in the applicable Option Period. An
election to participate shall continue in effect until termination of
participation occurs in accordance with Article V.
SECTION2.2 PAYROLL DEDUCTIONS.
Payment for shares of Common Stock purchased under the Plan shall be made
solely by authorized payroll deduction from each payment of Compensation in
accordance with instructions received from a Participant. Deductions from
payroll shall be expressed as a whole percentage of Compensation (determined on
the first day of each Option Period) no greater than the percentage set by the
Committee, but shall not be less than $1.00 per pay period. The actual maximum
percentage that may be fixed by the Committee shall be 15%. A Participant may
not increase or decrease the percentage deduction during an Option Period.
However, a Participant may change the percentage deduction for any subsequent
Option Period by filing notice thereof with Team Member Services prior to the
date described in Section 2.1 for filing a Stock Purchase Agreement. Amounts
deducted from a Participant's Compensation pursuant to this section shall be
credited to such Participant's Account and shall bear interest in accordance
with the provisions of Section 5.3.
SECTION2.3 TRANSFER OF PAYROLL DEDUCTIONS.
All payroll deductions withheld by a Subsidiary under the Plan shall be
immediately transferred to the Company.
SECTION2.4 LEAVE OF ABSENCE.
If a Participant goes on a Leave of Absence, such Participant shall have
the right to elect (i) to withdraw the balance in his Stock Purchase Account,
(ii) discontinue contributions to the Plan but remain a Participant in the Plan,
or (iii) remain a Participant in the Plan during such Leave of Absence,
authorizing deductions to be made from payments by the Company to the
Participant during such Leave of Absence and undertaking to make cash payments
to the Plan at the end of each Payroll Period to the extent that amounts payable
by the Company to such Participant are insufficient to meet such Participant's
authorized Plan deductions.
ARTICLE III
PURCHASE OF SHARES
SECTION3.1 OPTION PRICE.
The Option Price per share of the Common Stock sold to Participants
hereunder shall be set by the Committee prior to the Offering Date. The Option
Price shall not be less than 85%, nor more than 100%, of the Fair Market Value
of such share on each Exercise Date of an Option Period.
SECTION3.2 PURCHASE OF SHARES.
On each Exercise Date, the entire amount in a Participant's Account shall
be used to purchase shares of Common Stock, calculated to four (4) decimal
places, at the relevant Option Price.
SECTION3.3 LIMITATIONS ON PURCHASE AND GRANT.
No Participant shall purchase Common Stock hereunder in any calendar year
having a Fair Market Value of more than $25,000, provided that any such purchase
shall not exceed the limitations imposed by Code Section 423(b)(8). Further, no
Participant shall be granted the right to purchase Common Stock hereunder if, by
reason of such grant, such Participant would be deemed to possess five percent
(5%) or more of the total combined voting power or value of all classes of stock
of the Company or a Subsidiary. For purposes of the preceding sentence, the
rules of Code Section 424(d) shall apply and Common Stock which a Participant
may purchase under outstanding options shall be treated as stock owned by the
Participant.
B-4
<PAGE>
SECTION3.4 MAXIMUM NUMBER OF SHARES PURCHASABLE PER OPTION PERIOD.
In addition to all other restrictions set forth herein, the maximum number
of shares of Common Stock that an Employee may purchase during each Option
Period shall be equal to the total amount of contributions that the Employee is
scheduled to make to the Plan during such Period (in accordance with the terms
of his effective Stock Purchase Agreement), divided by 50% of the per share Fair
Market Value determined on the first day of such Period.
SECTION3.5 RESTRICTION ON TRANSFERABILITY.
Rights to purchase shares hereunder shall be exercisable only by the
Participant. Such rights shall not be transferable and shall expire upon a
Participant's death.
SECTION3.6 DIVIDEND REINVESTMENT.
To the extent provided by the Committee, dividends on shares held in a
Participant's Stock Purchase Account shall be reinvested in additional shares of
Common Stock in accordance with the provisions of the Company's Dividend
Reinvestment and Stock Purchase Plan then in effect.
ARTICLE IV
PROVISIONS RELATING TO COMMON STOCK
SECTION4.1 COMMON STOCK RESERVED.
Except as provided in Section 4.2, no more than 1,000,000 shares of the
Company's Common Stock may be sold pursuant to options granted under the Plan.
SECTION4.2 ADJUSTMENT FOR CHANGES IN COMMON STOCK.
(i) In the event that the shares of Common Stock of the Company as
presently constituted, shall be changed into or exchanged for a different number
or kind of shares of stock or other securities of the Company or of another
corporation (whether by reason of merger, consolidation, recapitalization,
reclassification, split-up, combination of shares or otherwise) or if the number
of such shares of stock shall be increased through the payment of a stock
dividend, then subject to the provisions of subsection (iii) below, a majority
of the disinterested members of the Board of Directors may substitute for or add
to each share of stock of the Company which was theretofore appropriated, or
which thereafter may become subject to an offering under the Plan, the number
and kind of shares of stock or other securities into which each outstanding
share of the stock of the Company shall be so changed or for which each such
share shall be exchanged or to which such share shall be entitled, as the case
may be. Outstanding Stock Purchase Agreements shall also be deemed appropriately
amended as to price and other terms, as may be necessary to reflect the
foregoing events.
(ii) If there shall be any other change in the number or kind of the
outstanding shares of Common Stock of the Company, or of any stock or other
securities in which such stock shall have been changed or for which it shall
have been exchanged, and if a majority of the disinterested members of the Board
of Directors shall, in its sole discretion, determine that such change equitably
requires an adjustment in any offering which was theretofore made or which may
thereafter be made under the Plan, that such adjustment shall be made in
accordance with such determination.
(iii) An offering pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments or reclassifications,
reorganizations or changes in its capital or business structure, to merge, to
consolidate, to dissolve, to liquidate or to sell or transfer all or any part of
its business or assets.
SECTION4.3 INSUFFICIENT SHARES.
If the aggregate funds available for the purchase of Common Stock on any
Exercise Date would cause an issuance of shares in excess of the number provided
for in Section 4.1 (as the same may be adjusted as provided in Section 4.2), (i)
the Committee shall proportionately reduce the number of shares which would
otherwise be
B-5
<PAGE>
purchased by each Participant in order to eliminate such excess, and (ii) the
Plan shall automatically terminate immediately after such Exercise Date.
SECTION4.4 CONFIRMATION OF PURCHASES; REGISTRATION OF SHARES.
Purchases of Common Stock hereunder shall be confirmed in writing to Plan
Participants. All shares purchased shall be credited to his Account, but shall
initially be registered in the name of the Company's nominee, as agent for Plan
Participants. Such nominee will hold a Participant's share certificates until
such time as his participation in the Plan terminates or he files a written
request with his Team Member Services to have a certificate or certificates
issued in his name. Except in the case of death, any certificate issued to a
Participant must initially be issued in his name alone, or in his name and
another as joint tenants with right of survivorship. Registration of any shares
following the death of a Participant will be subject to the same rules as are
then applicable to decedent shareholders generally.
SECTION4.5 RIGHTS AS SHAREHOLDERS.
The shares of Common Stock purchased by a Participant on an Exercise Date
shall, for all purposes, be deemed to have been issued and sold at the close of
business on such Exercise Date. Participants for whom shares have been purchased
shall be entitled to all rights of a shareholder with respect to such shares,
including the right to receive dividends and the right to vote. The Company will
take such steps as may be necessary to ensure that such rights are enjoyed by
each Participant whose shares are held in nominee name.
SECTION4.6 CORPORATE REORGANIZATIONS, LIQUIDATIONS, ETC.
In the event of any corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation, provision may be
made for the substitution of a new option for an old option, or an assumption of
an old option, by an employer corporation or a corporation related to such
corporation. Any provision for such substitution or assumption shall be subject
to the limitations and provisions of Code Section 424.
ARTICLE V
TERMINATION OF PARTICIPATION
SECTION5.1 VOLUNTARY WITHDRAWAL.
A Participant may withdraw from the Plan at any time by filing notice of
withdrawal with his Team Member Services prior to an Exercise Date. Upon
withdrawal, the dollar amount and shares, if any, credited to his Stock Purchase
Account shall be distributed to him and no shares will be purchased on his
behalf for the applicable Option Period. Any Participant who withdraws from the
Plan may again become a Participant in accordance with Section 2.1.
SECTION5.2 TERMINATION OF ELIGIBILITY.
If a Participant ceases to be employed by the Company or a Subsidiary
during an Option Period, his participation in the Plan shall thereupon
terminate. In such event, the dollar amount and shares, if any, in his Stock
Purchase Account shall be distributed to him (or in the case of death, to his
designated beneficiary(ies)) and no further shares will be purchased on his
behalf. For purposes of this section, an Employee's participation in the Plan
will not automatically terminate if he becomes an individual on a leave of
absence permitted or required to be taken into account by applicable Treasury
Regulations.
B-6
<PAGE>
ARTICLE VI
GENERAL PROVISIONS
SECTION6.1 TAX WITHHOLDING; INFORMATION RETURNS.
Each Employee who elects to participate in the Plan shall be deemed to have
consented to any income tax withholding that may hereafter be required by reason
of his participation in the Plan or the disposition of, or payment of any
dividends on, shares acquired by him under the Plan. The proper officers of the
Company and each Subsidiary shall prepare and, where required, timely file such
tax information returns and other notices as may be required by law from time to
time.
SECTION6.2 NOTICES.
Any notice which a Participant files pursuant to the Plan shall be made on
forms prescribed by the Committee and shall be effective when received by Team
Member Services.
SECTION6.3 CONDITION OF EMPLOYMENT.
Neither the creation of the Plan, nor participation therein, shall be
deemed to create any right of continued employment or in any way affect the
right of the Company or a Subsidiary to terminate an Employee.
SECTION6.4 AMENDMENT OF THE PLAN.
The Board of Directors may at any time, and from time to time, amend the
Plan in any respect, except, that without approval of the Company's
shareholders, no amendment may (i) increase the aggregate number of shares
permitted to be reserved by the Board of Directors under the Plan other than as
provided in Section 4.2, (ii) materially change the Plan benefits provided for
herein, (iii) change the definition of a Subsidiary, or (iv) materially change
the eligibility requirements for Employees. Any amendment of the Plan must be
made in accordance with applicable provisions of the Code.
SECTION6.5 APPLICATION OF FUNDS.
All funds received by the Company by reason of a purchase of shares
hereunder may be used for any corporate purpose.
SECTION6.6 LEGAL RESTRICTIONS.
The Company shall not be obligated to sell shares of Common Stock hereunder
if counsel to the Company determines that such sale would violate any applicable
law or regulation.
SECTION6.7 GENDER.
Whenever used herein, use of any gender shall be applicable to all genders.
SECTION6.8 NUMBER.
Whenever used herein, singular words shall include the plural, and vice
versa, as the context requires.
SECTION6.9 GOVERNING LAW.
Except to the extent preempted by Federal law, the Plan and all rights and
obligations thereunder shall be construed and enforced in accordance with the
domestic internal law of the Commonwealth of Pennsylvania.
SECTION6.10 RESTATEMENT OF PLAN.
This restatement of the Plan, as of July 1, 1997, shall be effective
immediately.
B-7
<PAGE>
DIRECTIONS TO THE SHERATON BERKSHIRE
(ROUTE 422 WEST & PAPER MILL ROAD EXIT), 1741 PAPER MILL ROAD
WYOMISSING (READING), PA 19610-1207
FROM:
MANHATTAN, NY -- Take Lincoln Tunnel to NJ Tpk S to exit 14. Take I-78W to 222S.
Continue 35 miles on 222S to exit marked 222S, 176S, 422W Lancaster Exit here,
continue 2 miles thru 1st traffic light (do not follow signs to 422E or 222S
which exits just before the traffic light). After light, exit onto Paper Mill
Road, Sheraton is straight ahead.
ASBURY PARK/TRENTON, NJ -- Take I-95W to NJ Turnpike S to PA Turnpike W to Exit
22 Morgantown. Follow signs to I-176. Take I-176N to 422W to Paper Mill Road
exit. Exit onto Paper Mill Road, Sheraton is straight ahead.
PHILADELPHIA, PA -- Take I-76W to PA Tpk W to Exit 22 Morgantown. Follow signs
to I-176N 9 miles to 422W to the Paper Mill Road Exit. Exit onto Paper Mill
Road, Sheraton is straight ahead.
PITTSBURGH/HARRISBURG, PA -- Take PA Tpk E to Exit 21 Denver. Follow signs to
222N to 422W to Paper Mill Road Exit. Exit onto Paper Mill Road, Sheraton is
straight ahead.
SCRANTON/WILKES-BARRE, PA -- Take I-81S to 61S to 222S. Exit here, continue 2
miles thru 1st traffic light (do not follow signs to 422E or 222S which exits
just before the traffic light). After light, exit onto Paper Mill Road, Sheraton
is straight ahead.
DOVER, DE -- Take 13N to Wilmington to 141N to I-95N to 202N to 100N to PA Tpk W
to Exit 22 Morgantown. Follow signs I-176N, 9 miles to 422W to Paper Mill Road
Exit. Exit onto Paper Mill Road, Sheraton is straight ahead.
<PAGE>
Please mark your votes as indicated in this example |X|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING MATTERS & PROPOSALS
MATTER NO. 1:
ELECTION OF CLASS II DIRECTORS
FOR all nominees
listed to the right
(except as marked
to the contrary)
| |
WITHHOLD AUTHORITY
to vote for all
nominees listed
to the right
| |
Rhoda S. Oberholtzer;
Daniel K. Rothermel
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
STRIKE A LINE THROUGH THE NAME IN THE LIST ABOVE.)
MATTER NO. 2: FOR AGAINST ABSTAIN
1997 NON-EMPLOYEE DIRECTORS' STOCK | | | | | |
OPTION PLAN
MATTER NO. 3: FOR AGAINST ABSTAIN
EMPLOYEE STOCK PURCHASE PLAN | | | | | |
MATTER NO. 4: FOR AGAINST ABSTAIN
RATIFICATION OF INDEPENDENT AUDITORS | | | | | |
Please check this box if you plan to attend the 1998 Annual Meeting. | |
The undersigned hereby acknowledges receipt of the Proxy Statement dated March
16, 1998 and hereby revokes any proxy or proxies heretofore given to vote share
at said meeting or any adjournment thereof.
Dated:________________________________, 1998
- -------------------------------------------------------------------------------
Signature
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Signature if held jointly. Please sign exactly as name appears hereon.
(PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ADDRESSED ENVELOPE)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
SOVEREIGN BANCORP, INC.
I/We hereby appoint Karl D. Gerhart and Patricia A. Zong, or any one of
them acting in the absence of the other, as proxyholders, each with the power to
appoint his or her substitute, and hereby authorize them to represent and to
vote, as designated on the reverse side, all the shares of common stock of
Sovereign Bancorp, Inc. held of record by me/us on February 25, 1998, at the
Annual Meeting of Shareholders to be held on April 17, 1998, or any adjournment
thereof.
This proxy when properly executed will be voted in the manner directed on
the reverse side. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF DIRECTORS, FOR THE PROPOSAL TO ACT UPON THE 1997 NON-EMPLOYEE
DIRECTORS' STOCK OPTION PLAN, FOR THE PROPOSAL TO ACT UPON THE EMPLOYEE STOCK
PURCHASE PLAN, AND FOR RATIFICATION OF INDEPENDENT AUDITORS. This proxy will be
voted, in the discretion of the proxyholders, upon such other business as may
properly come before the Annual Meeting of Shareholders or any adjournment
thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Please vote and sign on the other side.
FOLD AND DETACH HERE
