As Filed With the Securities and Exchange Commission On May 28, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SOVEREIGN BANCORP, INC.
(Exact name of registrant as specified in its charter)
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PENNSYLVANIA 6720 23-2453088
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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1130 BERKSHIRE BOULEVARD
WYOMISSING, PENNSYLVANIA 19610
(610) 320-8400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------------
JAY S. SIDHU
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SOVEREIGN BANCORP, INC.
1130 BERKSHIRE BOULEVARD
WYOMISSING, PENNSYLVANIA 19610
(610) 320-8400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------
Copies to:
JOSEPH M. HARENZA, ESQUIRE JOHN J. GORMAN, ESQUIRE
DAVID W. SWARTZ, ESQUIRE KENNETH R. LEHMAN, ESQUIRE
STEVENS & LEE, P.C. LUSE LEHMAN GORMAN
111 NORTH SIXTH STREET POMERENK & SCHICK, P.C.
P.O. BOX 679 5335 WISCONSIN AVENUE, N.W.
READING, PA 19603 SUITE 400
(610) 478-2000 WASHINGTON, DC 20015
(202) 274-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------------------
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box, and list Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED (1) PER UNIT (2) OFFERING PRICE (2) FEE (2)(3)
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Common Stock,
no par value (and associated 27,590,007 shares Not Not
stock purchase rights) (4)............ (with rights) Applicable Applicable $98,272.15
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(1) Based on the maximum number of shares of the Registrant's common stock that
may be issued in connection with the proposed merger of Peoples Bancorp,
Inc. with and into the Registrant. In accordance with Rule 416, this
Registration Statement shall also register any additional shares of the
Registrant's common stock which may become issuable to prevent dilution
resulting from stock splits, stock dividends or similar transactions as
provided by the agreement relating to the merger.
(2) Estimated solely for purposes of calculating the registration fee.
(3) Computed in accordance with Rule 457(f)(1), on the basis of the average of
the closing bid and ask price of the common stock of Peoples on May 27, 1999
of $10.25 and based on 31,500,000 shares of Peoples common stock to be
exchanged in the Merger and unexercised options to purchase 2,987,508 shares
of Peoples common stock. Pursuant to Rule 457(b), the required fee is
reduced by the $80,866 filing fee paid on March 8, 1999 at the time of
filing preliminary proxy materials in connection with this transaction.
(4) Prior to the occurrence of certain events, the stock purchase rights will
not be evidenced separately from the common stock.
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
PEOPLES
BANCORP, INC.
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Sovereign Bancorp, Inc. and Peoples Bancorp,
Inc. have approved the acquisition of Peoples by Sovereign through a merger. IN
THE MERGER, PEOPLES STOCKHOLDERS WILL RECEIVE .80 SHARES OF SOVEREIGN COMMON
STOCK FOR EACH SHARE OF PEOPLES COMMON STOCK, AND WILL NOT GENERALLY RECOGNIZE
FEDERAL INCOME TAX GAIN OR LOSS FOR THE SOVEREIGN COMMON STOCK THAT THEY
RECEIVE.
On May 27, 1999, the closing price of Sovereign common stock was $12.688,
making the value of .80 of Sovereign common stock equal to $10.15 on that date.
The closing price of Peoples common stock on that date was $10.156. These prices
will fluctuate between now and the merger. After the merger, Peoples
stockholders will own about 13.6% of Sovereign's common stock.
Sovereign common stock and Peoples common stock trade on the National
Market System of the Nasdaq Stock Market. The trading symbol for Sovereign
common stock is "SVRN." The trading symbol for Peoples common stock is "TSBS."
We cannot complete the merger unless the Peoples stockholders approve it.
Peoples will hold a special meeting of its stockholders to vote on this merger
proposal. The date, time and place of the Peoples meeting is as follows:
June 30, 1999
10:00 a.m., local time
Trenton Country Club
Sullivan Way
West Trenton, New Jersey 07114
We strongly support this combination of our companies and enthusiastically
recommend that you vote in favor of the merger.
/s/ Wendell T. Breithaupt /s/ John B. Sill
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Wendell T. Breithaupt John B. Sill
President and Chief Executive Officer Chairman of the Board
Peoples Bancorp, Inc. Peoples Bancorp, Inc.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THE PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF
ANY BANK OR NONBANK SUBSIDIARY OF ANY OF THE PARTIES, AND THEY ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE
FUND OR ANY GOVERNMENTAL AGENCY.
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This proxy statement/prospectus is dated June 1, 1999 and was first mailed
to stockholders on June 2, 1999.
<PAGE>
PEOPLES
BANCORP, INC.
134 FRANKLIN CORNER ROAD
LAWRENCEVILLE, NEW JERSEY 08648-0950
------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 30, 1999
------------------------------
WE HEREBY GIVE NOTICE that Peoples Bancorp, Inc. will hold a special
meeting of stockholders on Thursday, June 30, 1999, at 10:00 a.m., local time,
at the Trenton Country Club, Sullivan Way, West Trenton, New Jersey, to consider
and vote upon the following matters, all as more fully described in the
accompanying proxy statement/prospectus:
1. The approval and adoption of the agreement and plan of merger,
dated as of September 7, 1998, between Sovereign Bancorp, Inc. and Peoples,
which provides, among other things, for the merger of Peoples with and into
Sovereign and the conversion of each share of common stock of Peoples
outstanding immediately prior to the merger into .80 shares of Sovereign
common stock, plus cash in lieu of any fractional share interest.
2. The adjournment of the special meeting, if necessary, to permit
further solicitation of proxies in the event there are not sufficient votes
at the time of the special meeting to approve the merger agreement.
3. The transaction of such other business as may properly be brought
before the special meeting.
The Board of Directors of Peoples recommends a vote "FOR" each proposal.
The Board of Directors of Peoples has fixed the close of business on May 3,
1999 as the record date for determining stockholders entitled to notice of, and
to vote at, the special meeting. A list of stockholders entitled to vote at the
special meeting will be available for inspection at Peoples Bancorp, Inc., 134
Franklin Corner Road, Lawrenceville, New Jersey, for a period of ten days prior
to the special meeting and also will be available for inspection at the special
meeting.
Your vote is important regardless of the number of shares you own. Whether
or not you plan to attend the special meeting, the Board of Directors of Peoples
urges you to complete, sign, date and return the enclosed proxy card as soon as
possible in the enclosed postage-paid envelope. This will not prevent you from
voting in person at the special meeting but will assure that your vote is
counted if you are unable to attend. If you are a stockholder whose shares are
not registered in your own name, you will need additional documentation from
your record holder in order to vote personally at the special meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Wendell T. Breithaupt
--------------------------------------
Wendell T. Breithaupt
President and Chief Executive Officer
Lawrenceville, New Jersey
June 1, 1999
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TABLE OF CONTENTS
PAGE
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SUMMARY.................................................................................... 3
A WARNING ABOUT FORWARD LOOKING INFORMATION................................................ 9
SELECTED FINANCIAL DATA.................................................................... 10
THE SPECIAL MEETING........................................................................ 12
Date, Time and Place..................................................................... 12
Matters To Be Considered at the Special Meeting.......................................... 12
Record Date; Stock Entitled to Vote; Quorum.............................................. 12
Votes Required........................................................................... 12
Voting of Proxies........................................................................ 13
Revocability of Proxies.................................................................. 13
Solicitation of Proxies.................................................................. 13
THE MERGER................................................................................. 14
Background of the Merger................................................................. 14
Peoples' Board of Directors Reasons for the Merger....................................... 15
Recommendation of Peoples' Board of Directors............................................ 17
Effect of the Merger..................................................................... 17
Opinion of Independent Financial Advisor................................................. 18
Effective Date of the Merger............................................................. 23
Exchange of Peoples Stock Certificates................................................... 24
Conditions to the Merger................................................................. 24
Subsidiary Bank Merger................................................................... 25
Regulatory Approvals..................................................................... 25
Representations and Warranties........................................................... 26
Business Pending the Merger.............................................................. 27
Dividends................................................................................ 29
No Solicitation of Transactions.......................................................... 29
Amendment; Waivers....................................................................... 29
Termination; Effect of Termination....................................................... 30
Example of Price Decline Termination Provision........................................... 30
Management and Operations After the Merger............................................... 31
Employee Benefits and Severance Benefits................................................. 32
Accounting Treatment..................................................................... 34
Material Federal Income Tax Consequences................................................. 34
Expenses................................................................................. 35
Resale of Sovereign Common Stock......................................................... 35
No Dissenters' Rights of Appraisal....................................................... 35
Dividend Reinvestment Plan............................................................... 35
FINANCIAL INTERESTS OF DIRECTORS AND OFFICERS.............................................. 36
Stock Options............................................................................ 36
Indemnification; Directors and Officers Insurance........................................ 36
Employment and Other Agreements.......................................................... 36
</TABLE>
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STOCK OPTION AGREEMENT..................................................................... 38
INFORMATION ABOUT SOVEREIGN................................................................ 40
General.................................................................................. 40
Market Price of and Dividends on Sovereign Common Stock and Related Shareholder Matters.. 40
INFORMATION ABOUT PEOPLES.................................................................. 41
General.................................................................................. 41
Market Price of and Dividends on Peoples Common Stock and Related Stockholder Matters.... 41
DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES................................................ 42
Common Stock............................................................................. 42
Preferred Stock.......................................................................... 43
Shareholder Rights Plan.................................................................. 43
Special Charter and Pennsylvania Corporate Law Provisions................................ 44
COMPARISON OF SHAREHOLDER RIGHTS........................................................... 47
Directors................................................................................ 47
Shareholders' Meetings................................................................... 48
Shareholder Rights Plan.................................................................. 48
Required Shareholder Votes............................................................... 48
Amendment of Bylaws...................................................................... 50
Mandatory Tender Offer Provision......................................................... 50
Special Pennsylvania Corporate Law Provisions............................................ 51
Antitakeover Provisions.................................................................. 51
ADJOURNMENT................................................................................ 52
EXPERTS.................................................................................... 52
LEGAL MATTERS.............................................................................. 52
OTHER MATTERS.............................................................................. 52
SHAREHOLDER PROPOSALS...................................................................... 53
WHERE YOU CAN FIND MORE INFORMATION........................................................ 53
ANNEXES
A. Agreement and Plan of Merger between Sovereign and Peoples dated as of
September 7, 1998..................................................................... A-1
B. Stock Option Agreement between Sovereign and Peoples, dated September 7, 1998.......... B-1
C. Opinion of Berwind Financial, LP....................................................... C-1
</TABLE>
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<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What do I need to do now?
A: Just indicate on your proxy card how you want your shares to be voted, then
sign and mail it in the enclosed prepaid return envelope as soon as
possible, so that your shares may be represented and voted at the special
meeting to be held on June 30, 1999.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Maybe. Your broker will vote your shares only if you provide instructions
on how to vote. You should follow the directions provided by your broker.
Without instructions, your shares will not be voted on the merger
agreement.
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. There are three ways for you to revoke your proxy and change your
vote. First, you may send a written notice to the person to whom you
submitted your proxy stating that you would like to revoke your proxy.
Second, you may complete and submit a new proxy card with a later date.
Third, you may vote in person at the special meeting. If you have
instructed a broker to vote your shares, you must follow directions
received from your broker to change your vote.
Q: Should I send in my stock certificates now?
A: No. Shortly after the merger is completed, Sovereign will send you written
instructions for exchanging your stock certificates. We will request that
you return your Peoples stock certificates at that time.
Q: When do you expect to merge?
A: We expect to complete the merger on June 30, 1999. In addition to the
approval of Peoples stockholders, we must also obtain regulatory approval.
We expect to receive all necessary approvals no later than early June.
Q: Whom should I call with questions or to obtain additional copies of this
proxy statement/prospectus?
A: You should contact either:
Sovereign Bancorp
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Attention: Investor Relations Department
Telephone: (610) 320-8498
Peoples Bancorp, Inc.
134 Franklin Corner
Lawrenceville, New Jersey 08648-0950
Attention: Robert C. Hollenbeck, Corporate Secretary
Telephone: (609) 844-3100
<PAGE>
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus. It may not contain all of the information that is
important to you. You should read carefully this entire proxy
statement/prospectus and the attached annexes. See "Where You Can Find More
Information" on page 53 for reference to additional information available to you
regarding Sovereign and Peoples.
EXCHANGE RATIO IS .80 SHARES OF SOVEREIGN COMMON STOCK FOR EACH PEOPLES SHARE
(PAGE 17)
If the merger is completed, you will receive .80 shares of Sovereign common
stock for each share of Peoples stock you own, plus cash instead of any
fractional share. On May 27, 1999, the closing price of Sovereign common stock
was $12.688, making the value of .80 shares of Sovereign common stock equal to
$10.15 on that date. Because the market price of Sovereign stock fluctuates, you
will not know when you vote what the shares will be worth when issued in the
merger.
If the price of Sovereign common stock is below $11.00 just before the
merger and the stock prices of certain other thrift holding companies have not
experienced similar relative declines since the time that the companies agreed
to merge, Peoples may terminate the merger agreement. If this were to happen,
Peoples would not owe Sovereign any penalty or fee as a result of termination of
the merger agreement.
NO FEDERAL INCOME TAX ON SHARES RECEIVED IN MERGER (PAGE 34)
Peoples stockholders generally will not recognize gain or loss for federal
income tax purposes for the shares of Sovereign common stock they receive in the
merger. Sovereign's attorneys have issued a legal opinion to this effect, which
we have included as an exhibit to the registration statement filed with the SEC
for the shares to be issued in the merger. Peoples stockholders will be taxed on
cash received instead of any fractional share. Tax matters are complicated, and
tax results may vary among shareholders. We urge you to contact your own tax
advisor to understand fully how the merger will affect you.
PEOPLES BOARD RECOMMENDS STOCKHOLDER APPROVAL (PAGE 17)
The Peoples Board believes that the merger is in the best interests of
Peoples and its stockholders and unanimously recommends that you vote "FOR"
approval of the merger.
EXCHANGE RATIO IS FAIR FROM A FINANCIAL POINT OF VIEW ACCORDING TO OUR FINANCIAL
ADVISOR (PAGE 18)
Berwind Financial, L.P. has given an opinion to the Peoples Board that, as
of May 28, 1999, the exchange ratio in the merger is fair from a financial point
of view to Peoples stockholders. We have attached the full text of this opinion
as Annex C to this proxy statement/prospectus. We encourage you to read the
opinion carefully. Berwind Financial has received $200,000 for serving as
financial advisor. If we complete the merger, Berwind Financial will receive an
additional $2.6 million in exchange for its advice and for providing its
fairness opinion.
MAJORITY VOTE REQUIRED TO APPROVE MERGER (PAGE 12)
Approval of the merger requires the affirmative vote of the holders of at
least a majority of the outstanding shares of Peoples common stock. Your failure
to vote will have the effect of a vote against approval of the merger. Certain
directors and executive officers of Peoples together own about 5.3% of the
shares entitled to be cast at the meeting, and they have agreed to vote their
shares in favor of the merger. Sovereign owns about 4.8% of Peoples common stock
which it intends to vote in favor of the merger.
Brokers who hold shares of Peoples common stock as nominees will not have
authority to vote such shares with respect to the merger unless stockholders
provide voting instructions.
As a result of a previously announced purchase program relating to Peoples
shares by Sovereign and after giving effect to repurchases by Peoples of its own
shares, Sovereign's total ownership of Peoples in March 1999 aggregated
approximately 8.65% of Peoples outstanding shares. When it determined that its
acquisitions in excess of 5% of Peoples outstanding shares caused a violation of
OTS change of control regulations, Sovereign disposed of shares necessary to
reduce its total ownership of Peoples to below 5%. SEC regulations also required
the filing of a Schedule 13D upon Sovereign's acquisition of beneficial
ownership of 5% or more of Peoples outstanding shares. Sovereign's ownership of
Peoples exceeded 5% in January 1999. Sovereign did not file a Schedule 31D
reporting its ownership and disposition of the excess Peoples shares until June
1, 1999. See "THE SPECIAL MEETING--Sovereign Acquisitions of Peoples Stock" on
page 13.
The merger does not require the approval of Sovereign's shareholders.
3
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SPECIAL MEETING TO BE HELD JUNE 30, 1999 (PAGE 12)
Peoples will hold the special meeting of stockholders on Thursday, June 30,
1999, at 10:00 a.m., local time, at the Trenton Country Club, Sullivan Way, West
Trenton, New Jersey.
At the meeting, you will vote on the merger and on the proposal to adjourn
the meeting to solicit additional proxies, if necessary, and conduct any other
business that properly arises.
SHARE INFORMATION AND MARKET PRICES (PAGES 40 AND 41)
Sovereign common stock and Peoples common stock trade on the National
Market System of the NASDAQ Stock Market. The trading symbol for Sovereign is
"SVRN." The trading symbol for Peoples is "TSBS." The following table shows the
last sale prices of Sovereign common stock, Peoples common stock and the
equivalent price per share of Peoples common stock based on the exchange ratio
on September 4, 1998 and May 27, 1999.
SOVEREIGN PEOPLES
--------- ---------------------------
EQUIVALENT
MARKET VALUE
HISTORICAL HISTORICAL PER SHARE
---------- ---------- ------------
September 4, 1998................ $13.1250 $ 8.3125 $10.5000
May 27, 1999..................... 12.6875 10.1563 10.1500
The market prices of both Sovereign and Peoples common stock will fluctuate
prior to the merger. You should obtain current market quotations for Sovereign
common stock and Peoples common stock.
The following table shows quarterly dividend information for Sovereign
common stock, Peoples common stock and equivalent dividends per share of Peoples
common stock based on the exchange ratio and Sovereign's and Peoples' current
quarterly dividend rates.
SOVEREIGN PEOPLES
--------- ---------------------------
EQUIVALENT
HISTORICAL HISTORICAL QUARTERLY
QUARTERLY QUARTERLY DIVIDEND
DIVIDEND DIVIDEND PER SHARE
---------- ---------- ------------
May 27, 1999......................... . $0.025 $0.025 $0.020
THE COMPANIES (PAGES 40 AND 41)
Sovereign Bancorp, Inc.
2000 Market Street
Philadelphia, Pennsylvania 19103
(610) 320-8400
Sovereign, a Pennsylvania business corporation, is the holding company for
Sovereign Bank, a federal savings bank. At March 31, 1999, Sovereign and its
subsidiaries had total consolidated assets of $23.2 billion, deposits of $12.0
billion and shareholders' equity of $1.2 billion. The primary operating entity
of Sovereign is Sovereign Bank. Sovereign Bank's primary business consists of
attracting deposits from its network of approximately 290 community banking
offices, and originating commercial, consumer and residential mortgage loans and
home equity lines of credit in the communities served by those offices. Those
offices are located largely in the Pennsylvania counties of Berks, Lancaster,
Bucks, Montgomery, Philadelphia, Lehigh, Northampton and Lycoming, the New
Jersey counties of Essex, Mercer, Middlesex, Monmouth, Morris, Ocean and Union,
and in New Castle County in Delaware.
Peoples Bancorp, Inc.
134 Franklin Corner
Lawrenceville, New Jersey 08648-0950
(609) 844-3100
4
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Peoples, a Delaware corporation, is the holding company for Trenton Savings
Bank FSB, a federal savings bank. At March 31, 1999, Peoples had total
consolidated assets of $1.4 billion, deposits of $507.0 million and
shareholders' equity of $312.6 million. Trenton Savings Bank has 14 branches
located in Burlington, Mercer and Ocean Counties, New Jersey, a trust services
subsidiary headquartered in Ocean County, New Jersey and an asset-based lending
subsidiary. Trenton Savings Bank is engaged principally in the business of
taking deposits and making primarily residential loan mortgages and to a lesser
extent commercial loans, commercial mortgages, consumer loans and home equity
and property improvement loans.
COPY OF MERGER AGREEMENT ATTACHED (PAGE A-1)
We have attached the merger agreement as Annex A at the back of this proxy
statement/prospectus. We encourage you to read the merger agreement, as it is
the primary legal document that governs the merger.
RECORD DATE SET AT MAY 3, 1999; ONE VOTE PER SHARE OF PEOPLES STOCK (PAGE 12)
If you owned shares of Peoples common stock at the close of business on May
3, 1999, you are entitled to vote on the merger, the adjournment proposal and
any other matters considered at the meeting.
On May 3, 1999, there were 31,275,472 shares of Peoples common stock
outstanding. You will have one vote at the meeting for each share of Peoples
common stock you owned on May 3, 1999.
CONDITIONS THAT MUST BE SATISFIED FOR THE MERGER TO OCCUR (PAGE 25)
The following conditions must be met for us to complete the merger in
addition to other customary conditions:
-- approval of the merger by Peoples stockholders;
-- the absence of legal restraints that prevent the completion of the
merger;
-- receipt of a legal opinion that the merger will be tax-free,
except for any cash received in lieu of fractional shares;
-- the continuing accuracy of the parties' representations in the merger
agreement; and
-- the continuing effectiveness of the registration statement filed with
the SEC.
We cannot complete the merger unless we obtain the approval of the Office
of Thrift Supervision. On January 19, 1999, Sovereign filed the required
application seeking approval of the merger. Although we believe regulatory
approval will be received in a timely manner, we cannot be certain when or if we
will obtain it.
TERMINATION AND AMENDMENT OF THE MERGER AGREEMENT (PAGE 30)
We can mutually agree at any time to terminate the merger agreement without
completing the merger. Either company can also terminate the merger agreement in
the following circumstances:
-- the merger is not completed on or prior to June 30, 1999 and the company
that wants to terminate the merger agreement is not at that time in
breach of it in a material way;
-- the conditions described above are not met; or
-- the other company violates, in a material way, any of its
representations, warranties or obligations under the merger agreement.
Generally, the company seeking to terminate cannot itself be in violation
of the merger agreement.
We can agree to amend the merger agreement in any way, except that after
the stockholders' meeting we cannot decrease the consideration you will receive
in the merger. Either company can
5
<PAGE>
waive any of the requirements of the other company in the merger agreement,
except that neither company can waive any required regulatory approval. Neither
company intends to waive the tax opinion condition. If a tax opinion is not
available and we wish to proceed with the merger, we will resolicit
stockholders.
NO DISSENTERS' RIGHTS OF APPRAISAL (PAGE 35)
Under Delaware law, you do not have the right to dissent from the merger
and receive cash equal to the "fair value" of your shares.
SOVEREIGN TO USE PURCHASE ACCOUNTING TREATMENT (PAGE 34)
Sovereign will account for the merger as a purchase for accounting and
financial reporting purposes.
SOVEREIGN TO CONTINUE AS SURVIVING CORPORATION (PAGE 17)
Sovereign will continue as the surviving corporation after the merger. The
Boards of Directors and executive officers of Sovereign and Sovereign Bank will
not change as a result of the merger.
YOUR RIGHTS AS SHAREHOLDERS WILL CHANGE AFTER THE MERGER (PAGE 47)
Upon completion of the merger, you will become a shareholder of Sovereign.
Sovereign's Articles of Incorporation and Bylaws and Pennsylvania law determine
the rights of Sovereign's shareholders. The rights of shareholders of Sovereign
differ in certain respects from the rights of stockholders of Peoples.
STOCK OPTION AGREEMENT (PAGE 38)
As a condition to Sovereign entering into the merger agreement and to
discourage other companies from acquiring Peoples, Peoples granted Sovereign an
option to purchase up to 7,225,000 shares of Peoples common stock at an exercise
price of $8.50 per share. Sovereign may exercise this option only if another
party seeks to gain control of Peoples. We do not believe that any of the events
which would permit Sovereign to exercise the option have occurred as of the date
of this proxy statement/prospectus.
The stock option agreement is attached to this proxy statement/prospectus
as Annex B.
MONETARY BENEFITS TO MANAGEMENT IN THE MERGER (PAGE 36)
When considering the recommendation of the Peoples Board, you should be
aware that some directors and officers have interests in the merger which
conflict with their interests as shareholders. These interests include:
-- Some officers of Peoples have entered into agreements with Peoples that
will provide them with severance payments upon completion of the merger.
-- Mr. Breithaupt will receive a payment of $750,000;
-- Mr. Bellarmino will receive a payment of $452,000 if Sovereign
terminates his employment; and
-- Six other executive officers of Peoples will receive in the
aggregate payments of $872,500.
-- Officers and directors hold stock options to purchase Peoples stock that
will convert into options to purchase Sovereign stock that are
exercisable immediately after the merger.
6
<PAGE>
-- As of May 3, 1999, the difference between the aggregate exercise
price and the market value of the shares underlying the options
held by executive officers, which represents the economic value of
the options, was $4.7 million.
-- As disclosed in the prospectus relating to its second step conversion,
Peoples intends to adopt the 1999 incentive stock option plan and the
1999 recognition and retention plan. The merger agreement permits
Peoples to adopt these plans and to grant up to 578,000 shares of
restricted stock and 1,428,000 options to purchase Peoples common stock
to certain directors and officers.
-- As of May 3, 1999, the aggregate market value of the restricted
stock to be granted to Peoples officers and directors would have
been $6.3 million. The exercise price of the options to be granted
will be the market value of Peoples common stock on the date of
grant.
-- Assuming the grant of all 578,000 shares of restricted stock and
the exercise of all 1,428,000 options, Peoples officers and
directors would pay $14.5 million to Peoples upon such exercise
(assuming the market value of Peoples common stock is $10.156 on
the date of the option award), and Peoples shareholders would have
their ownership interests diluted 6.41%.
-- Sovereign will enter into consulting agreements with up to four officers
of Peoples for a period not exceeding three years with annual fees of
$10,000 each.
-- Sovereign will pay a retention bonus to certain employees, including up
to $955,000 to five executive officers.
-- Sovereign will establish an advisory board consisting of former Peoples
directors with an annual retainer of $1,000.
-- Following the merger, Sovereign will indemnify and provide liability
insurance to former officers and directors of Peoples.
7
<PAGE>
COMPARATIVE PER SHARE DATA
We summarize below the per share information for our companies on an historical,
pro forma combined and equivalent basis. You should read this information in
conjunction with our historical financial statements and the related notes
contained in the annual and quarterly reports and other documents we have filed
with the SEC. See "Where You Can Find More Information" on page 53. The
Sovereign pro forma information gives effect to the merger accounted for as a
purchase, assuming that .80 shares of Sovereign common stock are issued for each
outstanding share of Peoples common stock. Peoples equivalent share amounts are
calculated by multiplying the pro forma basic and diluted earnings per share,
historical per share dividend and historical shareholders' equity by the
exchange ratio of .80 shares of Sovereign common stock so that the per share
amounts equate to the respective values for one share of Peoples common stock.
You should not rely on the pro forma information as being indicative of the
historical results that we would have had if we had been combined or the future
results that we will experience after the merger.
<TABLE>
<CAPTION>
AT OR FOR
THE THREE AT OR FOR
MONTHS ENDED THE YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
BOOK VALUE PER COMMON SHARE:
Historical:
Sovereign........................................................ $ 7.59 $ 7.54
Peoples.......................................................... 9.57 9.51
Pro Forma:
Pro forma per share of Sovereign Common Stock.................... 8.20 8.21
Equivalent pro forma per share of Peoples Common Stock........... 6.56 6.50
CASH DIVIDENDS PAID PER COMMON SHARE:
Historical:
Sovereign........................................................ 0.020 0.080
Peoples.......................................................... 0.025 0.100
Pro Forma:
Pro forma per share of Sovereign Common Stock.................... 0.020 0.080
Equivalent pro forma per share of Peoples Common Stock........... 0.016 0.064
INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE:
Basic
Historical:
Sovereign..................................................... 0.28 0.88
Peoples....................................................... 0.14 0.34
Pro Forma:
Pro forma per share of Sovereign Common Stock................. 0.26 0.79
Equivalent pro forma per share of Peoples Common Stock........ 0.21 0.63
Diluted
Historical:
Sovereign..................................................... 0.28 0.85
Peoples....................................................... 0.14 0.34
Pro Forma:
Pro forma per share of Sovereign Common Stock................. 0.26 0.76
Equivalent pro forma per share of Peoples Common Stock........ 0.21 0.61
</TABLE>
8
<PAGE>
A WARNING ABOUT FORWARD LOOKING INFORMATION
This proxy statement/prospectus contains and incorporates some
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include
statements regarding intent, belief or current expectations about matters
including statements as to "beliefs," "expectations", "anticipations,"
"intentions" or similar words. Forward-looking statements are also statements
that are not statements of historical fact. Forward-looking statements are
subject to risks, uncertainties and assumptions. These include, by their nature:
-- the effects of changing economic conditions in Sovereign's and Peoples'
market areas and nationally;
-- credit risks of commercial, real estate, consumer and other lending
activities;
-- significant changes in interest rates;
-- changes in federal and state banking laws and regulations which could
impact operations;
-- funding costs; and
-- other external developments which could materially affect the business
and operations of Sovereign and Peoples.
If one or more of these risks of uncertainties occurs or if the underlying
assumptions prove incorrect, actual results, performance or achievements in 1999
and beyond could differ materially from those expressed in, or implied by, the
forward-looking statements.
9
<PAGE>
SELECTED FINANCIAL DATA
The following tables show certain historical consolidated summary financial
data for both Sovereign and Peoples. We derived this information from the
consolidated financial statements of Sovereign and Peoples incorporated by
reference in this proxy statement/prospectus. See "Where You Can Find More
Information" on page 53.
SOVEREIGN SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
AT OR FOR
THE THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets................. $23,188,093 $19,065,437 $21,913,873 $17,655,455 $15,298,690 $13,082,579 $11,021,718
Loans........................ 11,561,302 10,978,228 11,285,840 11,324,122 9,595,495 7,591,107 6,972,184
Allowance for possible loan
losses..................... (133,831) (118,424) (133,802) (116,823) (73,847) (67,515) (64,611)
Investment and
mortgage-backed
securities................. 9,575,011 6,670,137 8,502,082 5,372,713 5,012,118 4,695,805 3,546,687
Deposits..................... 12,040,040 9,892,687 12,322,716 9,515,294 8,660,684 8,548,888 7,064,223
Borrowings................... 9,307,726 7,404,165 7,900,592 6,863,643 5,599,109 3,566,857 3,144,265
Shareholders' equity......... 1,213,613 1,061,140 1,204,068 1,047,795 839,751 843,733 696,018
SUMMARY STATEMENT OF
OPERATIONS
Total interest income........ $ 368,028 $ 324,112 $ 1,355,371 $ 1,178,777 $ 1,016,826 $ 838,261 $ 626,241
Total interest expense....... 228,236 203,495 861,759 746,695 629,860 518,483 335,846
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income.......... 139,792 120,617 493,612 432,082 386,966 319,778 290,395
Provision for possible loan
losses..................... 7,500 6,760 27,961 41,125 22,685 13,119 14,562
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income after
provision for possible loan
losses..................... 132,292 113,857 465,651 390,957 364,281 306,659 275,833
----------- ----------- ----------- ----------- ----------- ----------- -----------
Other income................. 32,304 22,823 105,638 58,722 63,379 42,908 24,674
Other expenses............... 95,369 71,851 309,694 250,559 249,625 199,647 166,155
----------- ----------- ----------- ----------- ----------- ----------- -----------
One-time, merger-related
charges.................... -- 39,529 50,389 29,258 -- -- --
Non-recurring SAIF
assessments................ -- -- -- -- 40,148 -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes... 69,227 25,300 211,206 169,862 137,887 149,920 134,352
Income tax provision......... 23,914 10,200 74,751 67,324 47,509 51,051 49,013
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income................... $ 45,313 $ 15,100 $ 136,455 $ 102,538 $ 90,378 $ 98,869 $ 85,339
=========== =========== =========== =========== =========== =========== ===========
SHARE DATA (2)
Common shares outstanding at
end of period (in
thousands) (3)............. 160,001 143,311 159,727 141,219 134,000 130,762 133,140
Preferred shares outstanding
at end of period (in
thousands)................. 0 1,996 0 1,996 2,000 2,000 --
Basic earnings per share
(4)........................ $ 0.28 $ 0.10 $ 0.88 $ 0.70 $ 0.63 $ 0.68 $ 0.65
Diluted earnings per share
(4)........................ $ 0.28 $ 0.09 $ 0.85 $ 0.66 $ 0.59 $ 0.66 $ 0.63
Book value per share at end
of period (5).............. $ 7.59 $ 7.40 $ 7.54 $ 7.42 $ 6.64 $ 5.67 $ 4.96
Common share price at end of
period..................... $ 12 1/4 $ 18 3/16 $ 14 1/4 $ 17 5/16 $ 9 1/8 $ 6 11/16 $ 4 7/8
Dividends per common share
(6)........................ $ 0.025 $ 0.020 $ 0.084 $ 0.114 $ 0.140 $ 0.119 $ 0.095
SELECTED FINANCIAL RATIOS
Dividend payout ratio (7).... 7.50% 22.22% 9.88% 17.27% 23.73% 18.03% 15.08%
Return on average assets
(8)........................ 0.81 0.77 0.70% 0.63% 0.63% 0.83% 0.89%
Return on average
shareholders'
equity (8)................. 15.07 13.21 12.42% 10.92% 10.34% 12.60% 13.58%
Equity to assets............. 5.23 5.57 5.49% 5.93% 5.82% 6.45% 6.31%
</TABLE>
- ------------------
(1) All selected financial data have been restated to reflect all acquisitions
during the periods presented which have been accounted for under the
pooling-of-interests method of accounting.
(2) All per share data have been adjusted to reflect all stock dividends and
stock splits declared or effected through the date of this proxy
statement/prospectus.
(3) Common shares outstanding at December 31, 1998 is calculated as follows:
common shares issued (164,146,000) subtracted by the sum of unallocated
shares held by the employee stock ownership plan (4,340,000) at December 31,
1998 plus the amount of treasury stock held by Sovereign at December 31,
1998 (79).
(4) The 1998 and 1997 results include the special charges described in Note 8
below. Excluding the special charges, basic earnings per share and diluted
earnings per share for 1998 and 1997 were $1.10 and $1.06 and $.97 and $.89,
respectively. The 1996 results include the non-recurring SAIF assessment
described in Note 8 below. Excluding the non-recurring SAIF assessment,
basic earnings per share and diluted earnings per share for 1996 were $.81
and $.76, respectively.
(5) Book Value is calculated using equity divided by common shares.
(6) The higher dividend rate in prior periods is the result of acquisitions
which were accounted for as a pooling-of-interests.
(7) The dividend payout ratio is calculated using dividends per common share
divided by diluted earnings per share.
(8) Special charges comprised of merger-related charges of $33.5 million
(after-tax) in 1998 and $29.8 million (after-tax), including $16.2 million
(after-tax) classified as a special provision for loan loss, in 1997,
resulting from Sovereign's acquisitions during 1998 and 1997, and losses
from non-recurring sales of held-to-maturity securities of $0.3 million
(after-tax) and $6.9 million (after-tax) in 1998 and 1997, respectively. The
1996 results include the non-recurring SAIF assessment of $24.9 million
(after-tax). Excluding the non-recurring SAIF assessment, basic earnings per
share and diluted earnings per share for 1996 were $.81 and $.76,
respectively.
10
<PAGE>
PEOPLES SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR
THE THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(2)
Total assets......................... $1,444,201 $ 888,872 $1,469,598 $640,419 $601,016 $514,218 $441,019
Loans, net........................... 498,382 412,745 494,569 396,448 380,288 306,093 289,504
Investment securities and
mortgage-backed securities......... 774,727 189,798 834,287 198,293 174,201 175,037 127,065
Deposits............................. 506,976 510,446 504,900 493,400 491,246 410,770 377,559
Borrowings........................... 611,100 30,000 611,100 30,000 -- -- --
Shareholders' Equity................. 312,577 112,040 339,870 110,038 103,352 97,542 58,769
SUMMARY STATEMENT OF OPERATIONS(2)
Interest income...................... 23,673 11,314 58,403 43,857 36,903 33,518 29,468
Interest expense..................... 12,730 5,538 24,980 21,831 17,941 17,010 12,851
---------- ---------- ---------- -------- -------- -------- --------
Net interest income before provision
for loan losses.................... 10,943 5,776 33,423 22,026 18,962 16,508 16,617
Provision for loan losses............ 600 186 2,155 1,674 -- 150 180
---------- ---------- ---------- -------- -------- -------- --------
Net interest income after provision
for loan losses.................... 10,343 5,590 31,268 20,352 18,962 16,358 16,437
Other income(1)...................... 1,262 992 4,183 4,880 3,818 4,946 3,150
Other expenses....................... 3,901 3,804 15,781 13,443 9,669 7,792 7,475
---------- ---------- ---------- -------- -------- -------- --------
Income before income taxes........... 7,704 2,778 19,670 11,789 13,111 13,512 12,112
Income taxes......................... 2,973 1,075 7,601 4,327 4,720 4,864 4,437
---------- ---------- ---------- -------- -------- -------- --------
Net income........................... $ 4,731 $ 1,703 $ 12,069 $ 7,462 $ 8,391 $ 8,648 $ 7,675
========== ========== ========== ======== ======== ======== ========
SHARE DATA(2)(3)
Common shares outstanding at end of
period............................. 32,654 36,237 35,742 36,236 36,200 35,724 N/A
Basic earnings per share............. $ 0.14 $ 0.05 $ 0.34 $ 0.22 $ 0.25 N/A N/A
Diluted earnings per share........... 0.14 0.05 0.34 0.22 0.25 N/A N/A
Book value per common share.......... 9.57 9.34 9.51 9.29 9.10 8.94 N/A
Dividends per common share........... 0.025 0.023 0.10 0.09 0.09 N/A N/A
Dividend payout rate................. 17.86% 45.80% 29.41% 42.17% 37.23% N/A N/A
Return on average assets............. 1.30 1.03 1.35 1.18 1.56 1.73 1.72
Return of average equity............. 5.89 6.12 4.24 6.99 8.34 11.33 13.45
Average equity to average assets..... 22.15 16.89 31.86 16.89 18.67 15.27 12.78
Equity to assets at end of period.... 21.64 12.60 23.13 17.18 17.20 18.97 13.33
Interest rate spread for period...... 2.18 3.15 2.60 3.09 2.98 2.96 3.49
Net yield on average interest-earning
assets............................. 6.76 7.24 3.95 3.66 3.66 3.47 3.87
Non-performing assets to total assets
at period end...................... 0.25 0.42 0.29 0.92 0.69 0.43 0.59
Average interest-earning assets to
average interest-bearing
liabilities........................ 125.82 115.40 145.71 115.62 119.80 114.32 112.72
Other expenses to average assets..... 1.08 2.31 1.77 2.13 1.80 1.56 1.67
Net interest income, after provision
for loan losses to other
expenses........................... 256.13 146.95 198.14 151.39 196.11 209.93 219.89
Number of full service offices....... 14 14 14 14 14 10 9
</TABLE>
- ------------------
(1) For the three months ended March 31, 1999 and 1998, Peoples recorded net
securities gains of $0.3 million and $0. During the fiscal years ended
December 31, 1998, 1997, 1996 and 1995, Trenton Savings Bank recorded net
securities gains of $.5 million, $2.9 million, $2.8 million and $4.1
million, respectively. The Bank's portfolio of equity securities was
completely divested as of December 31, 1997, and gains realized in 1998 are
from the securities portfolio of the parent company.
(2) A minority stock offering, which raised proceeds of $29.5 million, was
completed on August 3, 1995. Peoples completed its mutual-to-stock
conversion on April 8, 1998, which raised net proceeds of $217 million.
(3) In 1997, Peoples adopted SFAS No. 128. Per share amounts for prior years
have been restated. In addition, earnings per share for 1997 and prior years
have been adjusted to reflect the exchange of previously outstanding shares
of common stock for new shares of Peoples common stock at an exchange ratio
of 3.8243 shares of Peoples common stock for each share of previously
outstanding common stock as a result of the mutual-to-stock conversion on
April 8, 1998.
11
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE
Peoples will hold the special meeting at the Trenton Country Club, Sullivan
Way, West Trenton, New Jersey, at 10:00 a.m. local time, on June 30, 1999.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, holders of Peoples common stock will consider and
vote upon proposals to:
-- approve and adopt the merger agreement; and
-- approve a proposal to adjourn the meeting if more time is needed to
solicit proxies.
A vote for approval of the merger agreement is a vote for approval of the
merger of Peoples into Sovereign and for the exchange of Peoples common stock
for Sovereign common stock. If the merger is completed, Peoples will cease to
exist and you will receive .80 shares of Sovereign common stock in exchange for
each share of Peoples common stock that you hold. Sovereign will pay cash in
lieu of issuing any fractional share interests to you.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of Peoples common stock on May 3, 1999 will receive
notice of, and can vote at, the special meeting. On May 3, 1999, 31,275,472
shares of Peoples common stock were issued and outstanding and held by
approximately 7,325 holders of record.
A quorum requires the presence, in person or by proxy, of stockholders
entitled to cast at least a majority of the votes which all stockholders of
Peoples are entitled to cast on the record date.
Peoples intends to count the following shares as present at the special
meeting for the purpose of determining a quorum:
-- shares of Peoples common stock present in person at the special meeting
but not voting;
-- shares of Peoples common stock represented by proxies on which the
stockholder has abstained on any matter; and
-- shares of Peoples common stock represented by proxies from a broker with
no indication of how the shares are to be voted.
VOTES REQUIRED
Approval of the merger agreement requires the affirmative vote of a
majority of the outstanding shares of Peoples common stock entitled to vote at
the special meeting. Approval of the adjournment proposal requires the
affirmative vote of a majority of the votes cast in person or by proxy at the
special meeting.
You have one vote for each share of Peoples common stock that you hold of
record on each matter to be considered at the special meeting, unless you own
more than 10% of the issued and outstanding shares. Management of Peoples is not
aware of any person or entity owning 10% or more of the outstanding shares of
Peoples common stock as of the record date.
The directors and executive officers of Peoples have agreed to vote all
shares of Peoples common stock that they own for approval and adoption of the
merger agreement. As of the record date for the special meeting, directors and
executive officers of Peoples and their affiliates beneficially owned and were
entitled to vote approximately 1,649,299 shares of Peoples common stock, which
represented approximately 5.3% of the shares of Peoples common stock outstanding
on the record date.
12
<PAGE>
SOVEREIGN ACQUISITIONS OF PEOPLES STOCK
As a result of previously announced purchase program relating to Peoples
shares by Sovereign and after giving effect to repurchases by Peoples of its own
shares, Sovereign's total ownership of Peoples outstanding shares of common
stock of Peoples aggregated approximately 8.65% in March 1999. When it
determined that its acquisitions in excess of 5% of Peoples outstanding shares
caused a violation of OTS change of control regulations because Sovereign's
pending regulatory application with the OTS seeking approval for the merger did
not cover these shares, Sovereign, in consultation with the OTS, disposed of
shares necessary to reduce its ownership of Peoples to below 5%. SEC regulations
also required the filing of a Schedule 13D by Sovereign upon its acquisition of
5% or more of Peoples outstanding shares. Sovereign's ownership of Peoples
exceeded 5% of Peoples shares in January 1999. Sovereign did not file a Schedule
13D reporting the ownership and disposition of the excess Peoples shares until
June 1, 1999. Sovereign is working with the OTS to resolve any remaining issues
relating to this inadvertent violation. Because its disposition of the Peoples
shares in excess of 5% of total outstanding shares occurred after the record
date for the special meeting, Sovereign will not vote at the special meeting any
shares of Peoples stock in excess of that amount.
VOTING OF PROXIES
We will vote shares represented by all properly executed proxies received
in time for the special meeting in the manner specified on each proxy. We will
vote properly executed proxies that do not contain voting instructions in favor
of the merger agreement and in favor of the adjournment proposal.
If you abstain from voting on any proposal considered at the special
meeting, we will not count the abstention as a vote "for" or "against" the
proposal for purposes of the special meeting. Under rules relating to how
brokers vote shares held in brokerage accounts, brokers who hold your shares in
street name cannot give a proxy to vote your shares on the merger agreement or
the adjournment proposal without receiving specific instructions from you. We
will not count these broker non-votes as a vote "for" or "against" the merger
agreement or the adjournment proposal for purposes of the special meeting. As a
result:
-- because approval of the merger agreement requires the affirmative vote
of a majority of all votes entitled to be cast by the stockholders of
Peoples, abstentions and broker non-votes will have the same effect as a
vote against merger agreement; and
-- because approval of the adjournment proposal requires the affirmative
vote of a majority of all votes cast at the special meeting, abstentions
and broker non-votes will not affect the vote on the adjournment
proposal.
No other matters may properly come before the special meeting.
REVOCABILITY OF PROXIES
If you grant a proxy, you may revoke your proxy at any time until it is
voted by:
-- delivering a notice of revocation or delivering a later dated proxy to
Robert C. Hollenbeck, Secretary, Peoples Bancorp, Inc., 134 Franklin
Corner Road, Lawrenceville, New Jersey 08648;
-- submitting a proxy card with a later date; or
-- appearing at the special meeting and voting in person.
Attendance at the special meeting will not in and of itself revoke a proxy.
SOLICITATION OF PROXIES
Peoples will bear the cost of the solicitation of proxies from its
shareholders. Sovereign and Peoples will share equally the cost of printing this
proxy statement/prospectus. Sovereign has agreed to bear the expense of the
proxy solicitor engaged by Peoples at Sovereign's request.
Peoples will solicit proxies by mail. In addition, the directors, officers
and employees of Peoples and its subsidiaries may solicit proxies from
shareholders by telephone or telegram or in person. Peoples will make
arrangements with brokerage houses and other custodians, nominees and
fiduciaries for forwarding proxy solicitation material to the beneficial owners
of stock held of record by those persons, and Peoples will reimburse them for
reasonable out-of-pocket expenses.
Chase Mellon Shareholder Services will assist in the solicitation of
proxies by Peoples for a fee of $7,500, plus reasonable out-of-pocket expenses.
You should not send in your stock certificates with your proxy card. As
described below under the caption "The Merger -- Exchange of Peoples Stock
Certificates" on page 24 you will receive materials for exchanging shares of
Peoples common stock shortly after the merger.
13
<PAGE>
THE MERGER
In this section of the proxy statement/prospectus we describe the material
terms and provisions of the proposed merger. A copy of the merger agreement that
provides for the merger is attached to this proxy statement/prospectus as Annex
A. We urge all stockholders to read the merger agreement carefully.
The merger agreement provides that:
-- Peoples will merge into Sovereign;
-- Trenton Savings Bank will merge into Sovereign Bank; and
-- You, as a stockholder of Peoples, will receive .80 shares of Sovereign
common stock for each share of Peoples that you own if the merger is
completed.
The Board of Directors of Peoples has unanimously approved and adopted the
merger agreement and the merger, and believes the merger is in your best
interests. Your Board of Directors unanimously recommends that you vote "FOR"
the merger agreement.
BACKGROUND OF THE MERGER
From time to time, Jay Sidhu, President and Chief Executive Officer of
Sovereign, has informally communicated with Wendell Breithaupt, President and
Chief Executive Officer of Peoples, as to Sovereign's interest in a possible
combination with Peoples. On June 19, Mr. Breithaupt received a letter from Mr.
Sidhu stating Sovereign's interest in pursuing an acquisition of Peoples in a
stock for stock transaction. The letter referred to a proposed exchange ratio of
.73 shares of Sovereign common stock in exchange for each share of Peoples
common stock.
In response to this letter, on June 22 the merger and acquisition committee
of the Board (consisting of directors Breithaupt, Trainer, Reinhard, Longstreth
and Sill) met with Berwind to review Sovereign's indication of interest. On June
24, Berwind reviewed the indication of interest with the full board at a
regularly scheduled meeting. Berwind in general reviewed the merger and
acquisition market, Sovereign's financial condition, operating performance and
common stock trading history, and the proposed exchange ratio. The Board and the
committee also discussed the regulatory restriction imposed in connection with
Peoples' second step conversion that prohibited Peoples, without prior
regulatory (OTS) approval, from "taking any action" toward a merger and
acquisition transaction for a period of one year from April 8, 1998, the date of
the completion of the conversion. The OTS customarily imposes this restriction
in conversion transactions, including second step conversions. Following these
meetings, Peoples informed Sovereign in writing that, in light of the applicable
regulatory restriction, it would be inappropriate to respond further to
Sovereign's indication of interest.
During July, Mr. Sidhu continued to express to Mr. Breithaupt Sovereign's
interest in acquiring Peoples and its desire to work with Peoples to resolve
regulatory issues. At Sovereign's request, Berwind met with Mr. Sidhu on August
3 at a Sovereign office to review the financial aspects of a business
combination between Peoples and Sovereign. Berwind provided a report of this
meeting to Messrs. Breithaupt and Bellarmino of Peoples on August 4 and to the
full Board at a special meeting on August 5. At the August 5 meeting, counsel
addressed the fiduciary duties of a Board of Directors in general and in
particular in connection with mergers and acquisitions. Counsel further advised
the Board that regulatory approval would be required before Peoples could
negotiate and enter into a merger agreement or a letter of intent as to an
acquisition. The Board determined to authorize management, together with
Peoples' financial and legal advisors, to continue exploratory discussions with
Sovereign. During the next two weeks, the management of Peoples and Sovereign,
as well as their financial and legal advisors, held numerous discussions
regarding a possible acquisition of Peoples by Sovereign in a stock for stock
transaction. Among the issues discussed were the procedure for obtaining
regulatory approval for the negotiation of definitive merger agreement, possible
timing, pricing and structure for any transaction, and the accounting treatment
of any merger as a pooling or purchase.
14
<PAGE>
On August 24, the Board held a special meeting to discuss the developments
regarding Sovereign. Berwind again reviewed with the Board the financial aspects
of the Sovereign proposal and the strategic alternatives available, including
remaining independent. Legal counsel discussed the procedure for obtaining
regulatory approval to proceed with negotiations with Sovereign and noted that
the banking regulator would not permit any merger transaction to be consummated
before the one year anniversary of the conversion, or April 8, 1999. The market
risk of entering into a stock for stock merger transaction that could not, for
regulatory reasons, be closed for eight months was discussed. The risk that
requesting regulatory approval to enter into definitive negotiations so soon
after the conversion could result in a denial and the possible inability to
pursue any possible merger transaction for an entire year was also discussed.
The Board determined that it would not seek regulatory approval to enter into
definitive negotiations unless the proposed pricing was increased.
At a special Board meeting on August 27, the Board was informed that
Sovereign had indicated a willingness to increase the proposed exchange ratio
from .73 to .80 Sovereign shares for each share of Peoples' common stock.
Berwind presented a financial and valuation analyses of the revised exchange
ratio, including a comparison of the price offered to other merger and
acquisition transactions. Following this presentation, the Board authorized
counsel to request regulatory approval to negotiate a definitive merger
agreement with Sovereign, which request was submitted to the OTS on August 27.
On August 29, the first draft of a definitive merger agreement was provided
to Peoples and its advisors by counsel to Sovereign. Commencing August 31,
Peoples' advisors conducted a due diligence review of Sovereign. At a special
meeting of the Board on September 1, Peoples' advisors reviewed the terms of the
draft merger and related agreements, including the stock option agreement, the
potential financial and strategic benefits of the transaction, and the financial
and valuation analyses of the proposed transaction. Counsel again discussed the
fiduciary duties of a board in connection with merger transactions. The Board
discussed the merits of a fixed, as compared to a floating, exchange ratio, and
discussed the appropriate mechanism for providing Peoples with a termination
right in the event of a decline in the market price of Sovereign's common stock
prior to closing. At the direction of the Board of Directors, management pursued
informal discussions with third parties that the Board believed might be
interested in acquiring Peoples. The Board did not seek formal offers from third
parties or auction the company based on the Board's belief that the preliminary
indications from these parties was inadequate, the financial analysis as to the
strategic value of a combination with Sovereign, and the advice of counsel that
Peoples was not legally required to do so.
On September 4, the OTS notified Peoples in writing that it could proceed
with the negotiation of a definitive agreement for a business combination. The
Board held a special meeting on September 4 and again discussed the terms of the
proposed transaction, and reviewed the terms and provisions of the merger
agreement and related documents. The Board agreed to a termination provision
based on a decline in Sovereign's price that exceeds the decline in an index of
certain other thrift holding companies. The Board authorized Peoples' financial
advisors to negotiate a mutually agreeable definitive merger agreement. The
Board authorized the execution of a definitive agreement on the terms reviewed
and discussed by the Board. Between September 4 and 7, the parties finalized the
merger agreement and related documents. On September 7 the parties executed the
merger agreement, and on September 8 the parties publicly announced the
agreement.
PEOPLES' BOARD OF DIRECTORS REASONS FOR THE MERGER
The Peoples Board believes that the terms of the merger agreement are fair
and in the best interests of Peoples and its stockholders. In the course of
reaching its determination, the Peoples Board consulted with legal counsel with
respect to its legal duties and the terms of the merger agreement. The Peoples
Board consulted with its financial advisor with respect to the financial aspects
of the transaction and fairness of the exchange ratio from a financial point of
view, and with senior management regarding, among other things, operational
matters.
15
<PAGE>
The following discussion of the information and factors considered by the
Peoples Board is not intended to be exhaustive, but does include all material
factors considered by the Board. In reaching its decision to approve the merger
agreement, the Peoples Board considered the following:
(1) That Sovereign serves the Pennsylvania and Delaware market areas
in addition to New Jersey and that the expanded reach of the combined
company would benefit existing customers and make the combined company more
attractive to potential customers.
(2) That Sovereign offers a broader range of products and services
and that the merger would provide Peoples' customers with access to these
products and services without Peoples having to undergo the expense of
introducing them on its own.
(3) The financial condition, results of operations, cash flow,
businesses and prospects of Peoples. In this regard, the Peoples Board
analyzed the options of selling Peoples or continuing on a stand-alone
basis. Based on financial forecasts developed by Peoples and analyzed by
Berwind, the present value of Peoples common stock on a stand-alone basis
ranged from a low of $4.59 to a high of $8.64.
(4) That the value of the .80 shares of Sovereign common stock to be
received for each share of Peoples common stock was $10.50 based on the
$13.125 last trade of Sovereign common stock on September 4, 1998, the last
trading day prior to the date of the execution of the merger agreement.
(5) That the $10.50 value of the .80 shares of Sovereign common stock
compared favorably with the $8.3125 price of the last trade of Peoples
common stock on September 4, 1998, and compared favorably with the $4.59 to
$8.64 range of present values of Peoples common stock on a stand-alone
basis based on the forecasts developed by Peoples and analyzed by Berwind.
(6) That the exchange ratio resulted in a $2.19 per share, or 26.3%,
premium to the trading price of Peoples common stock. The board determined
this premium by comparing the $8.3125 last trade of Peoples common stock on
September 4, 1998, and the $10.50 value of the .80 shares of Sovereign
common stock. In determining to recommend that shareholders vote to approve
the merger agreement, the Board considered that based on the trading prices
of Sovereign common stock as of May 27, 1999, the value of the .80 shares
of Sovereign common stock to be received for each share of Peoples common
stock was $10.15.
(7) The Board also considered Peoples' approximately 40% equity to
assets ratio and its impact on Peoples' ability to generate a market rate
of return on equity. In this regard, the Board reviewed Peoples' prior
efforts to use its capital and generate additional profitability through
acquisitions. Since its acquisition of Burlington County Bank in 1996 and
Manchester Trust Bank in 1997, continued attempts to acquire targeted banks
in New Jersey and Pennsylvania were unsuccessful.
(8) The written opinion of Berwind that, as of September 4, 1998, the
exchange ratio was fair to Peoples' stockholders from a financial point of
view.
(9) The current operating environment, including the continued
consolidation and increasing competition in the banking and financial
services industries and the prospect for further changes in these
industries.
(10) The results of the due diligence investigations of Sovereign,
including assessments of credit policies, asset quality, interest rate
risk, litigation and adequacy of loan loss reserves.
(11) The other terms of the merger agreement and exhibits, including
the opportunity for Peoples' stockholders to receive shares of Sovereign
common stock in a tax-free exchange.
(12) The anticipated cost savings and efficiencies available to the
combined company as a result of the merger. Cost savings of approximately
$7.0 million (pre-tax), or 46% of Peoples' total non-interest expense, were
anticipated within the first year following completion of the merger. These
anticipated cost savings were based on the assumption that employee related
cost
16
<PAGE>
savings would be approximately $3.4 million, and non-employee related
expense savings would be approximately $3.6 million.
(13) The detailed financial analyses, pro forma and other information,
with respect to Peoples and Sovereign discussed by Berwind, as well as the
Peoples Board's knowledge of Peoples, Sovereign and their respective
businesses.
(14) The likelihood of the merger and related transactions being
approved by the appropriate regulatory authorities, including factors such
as market share analyses, Sovereign's Community Reinvestment Act rating at
that time and the estimated pro forma financial impact of the transaction
on Sovereign. See "--Regulatory Approvals."
(15) The fact that the merger agreement prohibits Peoples from
initiating or encouraging discussion with third parties relating to an
alternative transaction and that Sovereign required Peoples to enter into
the stock option agreement.
(16) The Peoples Board believed that a tax-free transaction pursuant
to which Peoples stockholders receive shares of the acquiror would be
desired by most stockholders.
(17) The Peoples Board's review of the status of Sovereign's
preparations to be Year 2000 compliant.
In reaching its determination to approve and recommend the merger
agreement, the Peoples' Board did not assign any relative or specific weights to
the foregoing factors, and individual directors may have weighed factors
differently.
RECOMMENDATION OF PEOPLES' BOARD OF DIRECTORS
The Peoples' Board believes that the merger is in the best interests of
Peoples and its stockholders. ACCORDINGLY, THE PEOPLES' BOARD RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
EFFECT OF THE MERGER
Upon completion of the merger, Peoples will merge with and into Sovereign,
and the separate legal existence of Peoples will cease. As a consequence of the
merger, all property, rights, debts and obligations of Peoples will
automatically transfer to and vest in Sovereign, in accordance with Pennsylvania
and Delaware law. Sovereign, as the surviving corporation, will be governed by
the Articles of Incorporation and Bylaws of Sovereign in effect immediately
prior to completion of the merger. The directors and executive officers of
Sovereign prior to the merger will continue, in their respective capacities, as
the directors and executive officers of Sovereign after the merger.
On the effective day of the merger, each outstanding share of Peoples
common stock will automatically convert into .80 shares of Sovereign common
stock. You will receive cash instead of receiving fractional share interests of
Sovereign common stock. Shares of Peoples common stock owned by Sovereign or
Peoples at the time of the merger will not convert in the merger.
Sovereign will adjust the number of shares of Sovereign common stock
issuable in exchange for shares of Peoples common stock to take into account any
stock splits, reclassifications or other similar events involving Sovereign
common stock prior to closing.
On the effective date of the merger, each outstanding option to purchase
shares of Peoples common stock automatically convert into an option to purchase
Sovereign common stock. The number of shares of Sovereign common stock issuable
upon exercise will equal to the number of shares of Peoples common stock subject
to the option multiplied by .80. The exercise price for a whole share of
Sovereign common stock will equal the stated exercise price of the option
divided by .80. Shares issuable upon the exercise of such options to acquire
Sovereign common stock will remain subject to the terms of the plans and grant
agreements of Peoples under which Peoples issued the options.
17
<PAGE>
OPINION OF INDEPENDENT FINANCIAL ADVISOR
Pursuant to an engagement letter dated as of August 26, 1998, Peoples
retained Berwind to act as its financial advisor in connection with
Peoples'consideration of a possible business combination with Sovereign. In
connection with the merger, the Peoples board requested Berwind to render its
opinion as to the fairness, from a financial point of view, of the exchange
ratio to the holders of Peoples common stock. At the September 4, 1998 meeting
at which Peoples' board considered and approved the merger agreement, Berwind
rendered its opinion to the board that, based upon and subject to the various
considerations set forth therein, as of September 4, 1998, the exchange ratio
was fair, from a financial point of view, to the holders of Peoples common
stock. Berwind has reconfirmed its opinion dated as of May 28, 1999 to the
effect that, as of that date, the exchange ratio was fair to the holders of
shares of Peoples common stock from a financial point of view.
The full text of Berwind's May 28 opinion, which sets forth the assumptions
made, matters considered and limitations of the review undertaken, is attached
as Annex C to this proxy statement/prospectus, is incorporated herein by
reference, and should be read in its entirety in connection with this proxy
statement/prospectus. The summary of the opinion of Berwind set forth herein is
qualified in its entirety by reference to the full text of such opinion attached
as Annex C to this proxy statement/prospectus.
Berwind was selected to act as Peoples' financial advisor in connection
with the merger based upon its qualifications, expertise, reputation and
experience. Since 1995, Berwind has formally acted as financial advisor to
Peoples at various times on a contractual basis. Berwind has knowledge of, and
experience with, New Jersey, Pennsylvania and surrounding banking markets as
well as banking organizations operating in those markets and was selected by
Peoples because of its knowledge of, experience with, and reputation in the
financial services industry. Berwind, as part of its investment banking
business, is engaged regularly in the valuation of assets, securities and
companies in connection with various types of asset and securities transactions,
including mergers, acquisitions, private placements, and valuations for various
other purposes and in the determination of adequate consideration in such
transactions.
On September 7, 1998, Peoples executed the merger agreement in accordance
with Board approval. Prior to such approval, Berwind delivered its September 4
opinion to Peoples' Board stating that, as of such date, the exchange ratio
pursuant to the merger agreement was fair to the shareholders of Peoples from a
financial point of view. Berwind reached the same opinion as of the date of its
May 28 opinion. The full text of the May 28 opinion which sets forth assumptions
made, matters considered and limits on the review undertaken is attached as
Annex C to this proxy statement/prospectus. No limitations were imposed by
Peoples' Board of Directors upon Berwind with respect to the investigations made
or procedures followed by Berwind in rendering the September 4 opinion or the
May 28 opinion.
In delivering its September 4 opinion and May 28 opinion, Berwind assumed
that in the course of obtaining the necessary regulatory and governmental
approvals for the Merger, no restriction will be imposed on Sovereign or Peoples
that would have a material adverse effect on the contemplated benefits of the
merger. Berwind also assumed that there will not occur any change in applicable
law or regulation that would cause a material adverse change in the prospects or
operations of Sovereign after the merger.
Berwind relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinions. With respect to financial
forecasts and other information reviewed by Berwind in rendering its opinions,
Berwind assumed that such information was reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Peoples and Sovereign as to their most likely future performance
and the cost savings and other potential synergies (including the amount, timing
and achievability) anticipated to result from the merger. Berwind did not make
an independent evaluation or appraisal of the assets (including loans) or
liabilities of Peoples or Sovereign nor was it furnished with any such
appraisal. Berwind also did not independently verify and has relied on and
18
<PAGE>
assumed that all allowances for loan and lease losses set forth in the balance
sheets of Peoples and Sovereign were adequate and complied fully with applicable
law, regulatory policy and sound banking practice as of the date of such
financial statements. In addition, Berwind did not review credit files of either
Peoples or Sovereign.
In connection with rendering its September 4 opinion, Berwind performed a
variety of financial analyses. Berwind evaluated the financial terms of the
transaction using standard valuation methods, including comparable company
analysis, comparable acquisition transaction analysis, discounted dividend
analysis, pro forma merger analysis and contribution analysis. The following is
a summary of selected material analyses prepared by Berwind and presented to
Peoples' Board in connection with the September 4 opinion and analyzed by
Berwind in connection with the September 4 and May 28 opinions. In connection
with delivering its May 28 opinion, Berwind updated certain analyses described
above to reflect current market conditions and events occurring since the date
of the September 4 opinion. Such reviews and updates led Berwind to conclude
that it was not necessary to change the conclusions it had reached in connection
with rendering the September 4 opinion.
Comparable Companies Analysis. Berwind compared selected publicly
available financial and operating data for Peoples with those of a peer group of
(1) selected publicly traded thrifts and thrift holding companies with assets
between $800 million and $1.75 billion, as of December 31, 1998, headquartered
in New Jersey, Pennsylvania, New York or Delaware (referred to in the table as
the "Size Peer Group") and (2) selected publicly traded thrifts and thrift
holding companies which underwent a second-step mutual to stock conversion since
January 1, 1998 (referred to in the table as the "Recent Second Step Conversion
Peer Group").
The analysis compared Peoples' data and the median data for each of the
peer groups as of and for each of the years ended December 31, 1995 through
December 31, 1998. The table below sets forth the comparative data as of and for
the twelve months ended December 31, 1998 for Peoples and for each of the peer
groups.
<TABLE>
<CAPTION>
RECENT SECOND STEP
SIZE CONVERSION PEER
PEER GROUP GROUP MEDIAN
(DOLLARS IN THOUSANDS) PEOPLES MEDIAN VALUE VALUE
- ---------------------- ---------- ------------ ------------------
<S> <C> <C> <C>
Total assets............................... $1,469,598 $1,402,558 $400,189
Equity/assets.............................. 23.1% 8.8% 18.0%
Loans/deposits............................. 98.76% 94.18% 95.21%
Nonperforming assets plus accruing loans 90
days past due/assets..................... .29% .42% .37%
Loan loss reserves/nonperforming assets
plus accruing loans 90 days past due..... 96.28% 139.55% 166.23%
Net loan charge-offs/loans................. .33% .01% .02%
Return on average assets................... 1.35% .89% .78%
Return on average equity................... 4.24% 10.04% 5.75%
Efficiency ratio........................... 40.06% 52.92% 60.51%
Net interest margin........................ 3.74% 3.02% 3.37%
Three year annual asset growth............. 41.9% 11.2% 16.5%
Three year annual loan growth.............. 17.4% 15.6% 18.2%
Three year annual deposit growth........... 7.1% 5.8% 10.1%
</TABLE>
Berwind also compared selected publicly available financial, operating and
stock market data for Sovereign with those of a peer group of selected publicly
traded thrifts and thrift holding companies with assets greater than $9.5
billion, as of December 31, 1998, headquartered throughout the United States.
The analysis compared Sovereign data to the median data for the peer group as of
and for each of the years ended December 31, 1995 through December 31, 1998. The
table below sets forth the comparable data as of and for the twelve months ended
December 31, 1998.
19
<PAGE>
<TABLE>
<CAPTION>
PEER GROUP
(DOLLARS IN THOUSANDS) SOVEREIGN MEDIAN VALUE
- ---------------------- ----------- ------------
<S> <C> <C>
Total assets..................................... $21,913,873 $21,069,038
Equity/assets.................................... 5.5% 7.3%
Loans/deposits................................... 91.59% 107.45%
Nonperforming assets plus accuring loans 90 days
past due/assets................................ .54% .68%
Loan loss reserves/nonperforming assets plus
accruing loans 90 days past due................ 112.58% 85.52%
Net loan charge-offs/average loans............... .30% .15%
Net loan charge-offs/average loans over most
recent four years.............................. .21% .17%
Return on average assets......................... .70% 1.02%
Return on average equity......................... 12.42% 15.07%
Efficiency ratio................................. 60.09% 48.40%
Net interest margin.............................. 2.79% 2.80%
Three year annual asset growth................... 18.8% 17.2%
Three year annual loan growth.................... 14.1% 26.0%
Three year annual deposit growth................. 13.0% 17.4%
Market capitalization (dollars in millions)...... $ 2,171.3 $ 2,878.1
Price/52 week high............................... 73.5% 78.0%
Price/book value................................. 181.3% 188.9%
Price/tangible book value........................ 281.3% 247.3%
Price/last twelve months' earnings............... 16.0x 13.6x
Price/1999 IBES estimated earnings per share..... 11.4x 12.7x
Price/2000 IBES estimated earnings per share..... 10.2x 11.4x
Dividend yield................................... 0.74% 1.70%
Dividend payout ratio............................ 9.9% 32.0%
Average weekly volume/shares outstanding......... 4.19% 2.03%
</TABLE>
Comparable Acquisition Transaction Analysis. Berwind compared the
multiples of book value, tangible book value, latest twelve months' earnings,
assets and deposits inherent to the merger with the multiples paid in recent
acquisitions of thrifts and thrift holding companies that Berwind deemed
comparable. The transactions deemed comparable by Berwind included both
interstate and intrastate acquisitions announced between January 1, 1996 and the
date of the May 28 opinion. Berwind compared transactions located throughout the
country and analyzed those transactions in three groups:
-- a national group (41 transactions),
-- a regional group (6 transactions), and
-- a performance group (19 transactions).
The national group included thrift institution transactions throughout the
United States in which the selling institution's assets were between $800
million and $3.0 billion as of the most recent period publicly available prior
to announcement; the regional group included transactions involving thrift
institutions in which the acquired company was located in New Jersey,
Pennsylvania, New York or Maryland; and the performance group included
transactions involving thrift institutions throughout the United States in which
the acquired company had shareholders' equity as a percentage of total assets
greater than or equal to 20.0% as of the most recent period publicly available
prior to the date of announcement.
20
<PAGE>
The analysis showed the following values:
<TABLE>
<CAPTION>
PEOPLES/
SOVEREIGN PERFORMANCE NATIONAL REGIONAL
TRANSACTION MEDIAN MEDIAN MEDIAN
----------- ----------- -------- --------
<S> <C> <C> <C> <C>
Price/book value............................ 115.9% 126.4% 181.4% 174.9%
Price/tangible book value................... 119.3% 126.4% 188.1% 176.5%
Price/last twelve months earnings per
share..................................... 32.6x 26.7x 17.9x 23.1x
Price/deposits.............................. 78.0% 45.9% 23.9% 22.3%
Price/assets................................ 26.8% 32.2% 16.5% 15.1%
Premium/seller's market price one day prior
to announcement........................... 26.3% 20.9% 11.8% 12.1%
</TABLE>
No company or transaction, however, used in this analysis is identical to
Peoples, Sovereign or the merger. Accordingly, an analysis of the result of the
foregoing is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that would affect the public trading values of
the companies or company to which they are being compared.
Discounted Dividend Analysis. Berwind performed a discounted dividend
analysis to determine a range of present values per share of Peoples common
stock assuming Peoples continued to operate as a stand-alone entity. This range
was determined by adding the present value of the estimated future dividend
stream that Peoples could generate, and the present value of the "terminal
value" of Peoples common stock at the end of year 2003. To determine a projected
dividend stream, Berwind utilized Peoples' current dividend payout ratio of
21.3% of Peoples projected net income. Berwind used earnings estimates available
from IBES for 1999. The net income projections were grown using an earnings
growth rate of 10% for years 1999 through 2003. The "terminal value" of Peoples
common stock at the end of the period was determined by applying to year 2003
projected earnings a range of price to earnings multiples from 14.0x to 18.0x.
This range of terminal multiples was utilized to reflect price to earnings
multiples generally received by thrift institutions which have been able to
effectively deploy excess capital. The Size Peer Group referenced in the
Comparable Company Analysis is generally reflective of such institutions. As of
the date of the May 28 opinion, the median price to earnings multiple for this
peer group was 13.9x latest twelve month earnings. It was assumed that at the
end of the five year projected period, Peoples would exhibit financial
characteristics consistent with these companies and, therefore, trade at a
comparable range of price to earnings multiples. The dividend stream and
terminal values were discounted to present value using discount rates of 10% to
14%, which Berwind viewed as the appropriate discount rate range for a savings
bank with Peoples' risk characteristics. Based upon the assumptions, the
stand-alone value of Peoples' common stock ranged from approximately $5.95 to
$8.96 per share. These values as a multiple of Peoples' December 31, 1998 book
value per share ranged from 62.6% to 94.4%. These values were consistent with
price to book multiples generally received by independent thrift institutions
that have similar capital positions and earnings performance as Peoples. The
Recent Second Step Conversion Peer Group referenced in the Comparable Company
Analysis is generally comprised of such companies. As of the date of the May 28
opinion, the median price to book value multiple for this group was 80.9%.
<TABLE>
<CAPTION>
TERMINAL PRICE
EARNINGS MULTIPLES:
DISCOUNT RATE: 14.0X 16.0X 18.0X
- -------------- ----- ----- -----
<S> <C> <C> <C>
10.0%............................................... $7.08 $8.02 $8.96
12.0%............................................... $6.49 $7.35 $8.20
14.0%............................................... $5.95 $6.74 $7.53
</TABLE>
In connection with its analysis, Berwind considered and discussed with the
Peoples' Board how the present value analysis would be affected by changes in
the underlying assumptions, including variations with respect to the growth rate
of assets, net interest spread, non-interest income, non-interest expenses and
dividend payout ratio. Berwind noted that the discounted dividend stream and
terminal value analysis is a widely used valuation methodology, but the
assumptions that must be made, and the results thereof are not necessarily
indicative of actual values or future results.
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<PAGE>
Pro Forma Contribution Analysis. Berwind analyzed the changes in the
amount of earnings, book value and dividends represented by one share of Peoples
stock prior to the merger and the number of shares of Sovereign stock after the
merger resulting from the exchange ratio. The analysis considered, among other
things, the changes that the merger would cause to Peoples' earnings per share,
book value per share and indicated cash dividends.
The analysis showed the following information:
<TABLE>
<CAPTION>
PRO FORMA
EQUIVALENT
PEOPLES IN SOVEREIGN
------- ------------
<S> <C> <C>
1998 basic earnings..................................... $ .34 $ .64
1999 IBES estimated earnings............................ $ .47 $ .93
Current quarterly cash dividend annualized.............. $ .10 $ .08
Book value as of December 31, 1998...................... $9.51 $6.57
</TABLE>
In reviewing the pro forma combined earnings, equity and assets of
Sovereign based on the merger with Peoples, Berwind analyzed the contribution
that Peoples would have made to the combined company's earnings, equity and
assets as of December 31, 1998. Berwind also reviewed the percentage ownership
that Peoples shareholders would hold in the combined company. Berwind has not
expressed any opinion as to the actual value of Sovereign common stock when
issued in the merger or the price at which Sovereign common stock will trade
after the merger.
The analysis showed the following information as of and for the year ended
December 31, 1998:
<TABLE>
<CAPTION>
PEOPLES SOVEREIGN
CONTRIBUTION CONTRIBUTION
------------ ------------
<S> <C> <C>
1998 net income...................................... 8.1% 91.9%
Total equity......................................... 22.0% 78.0%
Total assets......................................... 6.3% 93.7%
Total ownership...................................... 14.5% 85.5%
</TABLE>
In rendering its May 28 opinion, Berwind among other things:
-- reviewed the historical financial performances, current financial
positions and general prospects of Peoples and Sovereign and reviewed
certain internal financial analyses and forecasts prepared by the
management of Peoples;
-- reviewed the merger agreement;
-- reviewed and analyzed the stock market performance of Peoples and
Sovereign;
-- studied and analyzed the consolidated financial and operating data of
Peoples and Sovereign;
-- considered the terms and conditions of the proposed merger as compared
with the terms and conditions of comparable thrift and thrift holding
company mergers and acquisitions;
-- met and/or communicated with certain members of Peoples' and Sovereign's
senior management to discuss their respective operations, historical
financial statements, and future prospects;
-- reviewed this proxy statement/prospectus;
-- compared the financial performance of Peoples and Sovereign and the
prices and trading activity of Sovereign common stock with certain other
comparable publicly-traded thrift and thrift holding companies and their
securities;
-- discussed the strategic objectives of the merger and the plans for the
combined company with senior executives of Peoples and Sovereign,
including estimates of the cost savings and other synergies projected by
Peoples and Sovereign for the combined company;
-- participated in discussions and negotiations among representatives of
Peoples and Sovereign and their financial and legal advisors;
-- reviewed the merger agreement and certain related documents; and
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<PAGE>
-- conducted such other financial analyses, studies and investigations as
Berwind deemed appropriate.
In connection with rendering its September 4 opinion and May 28 opinion,
Berwind performed a variety of financial analyses. Although the evaluation of
the fairness, from a financial point of view, of the consideration to be paid in
the merger was to some extent a subjective one based on the experience and
judgment of Berwind and not merely the result of mathematical analysis of
financial data, Berwind principally relied on the previously discussed financial
valuation methodologies in its determinations. Berwind believes its analyses
must be considered as a whole and that selecting portions of the analyses and
factors considered by Berwind without considering all the analyses and factors
could create an incomplete view of the process underlying Berwind's opinions. In
its analysis, Berwind made numerous assumptions with respect to business,
market, monetary and economic conditions, industry performance and other
matters, many of which are beyond Peoples' and Sovereign's control. Any
estimates contained in Berwind's analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable than
such estimates.
In reaching its opinion as to fairness, none of the analyses or factors
considered by Berwind was assigned any particular weighing by Berwind than any
other analysis. As a result of its consideration of the aggregate of all factors
present and analyses performed, Berwind reached the conclusion, and opined, that
the exchange ratio pursuant to the merger agreement was fair to the shareholders
of Peoples from a financial point of view.
Berwind's May 28 opinion was based solely upon the information available to
it and the economic, market and other circumstances as they existed and could be
evaluated as of the date its opinion was delivered; events occurring after the
date of its May 28 opinion could materially affect the assumptions used in
preparing its opinion. Berwind has not undertaken to reaffirm and revise its May
28 opinion or otherwise comment upon any events occurring after the date
thereof.
Pursuant to the terms of the engagement letter dated August 26, 1998,
Peoples has paid Berwind $200,000 for serving as financial advisor. Peoples has
also agreed to pay Berwind an additional approximately $2.6 million upon
completion of the merger for acting as financial advisor in connection with the
merger including delivering its September 4 and May 28 opinions. Whether or not
the merger is consummated, Peoples has also agreed to reimburse Berwind for all
reasonable out-of-pocket expenses incurred in connection with the services
provided by Berwind, and to indemnify Berwind and certain related persons
against certain liabilities relating to or arising out of its engagement.
The full text of the May 28 opinion of Berwind, which sets forth the
assumptions made, matters considered, and limitations of the review undertaken
is attached hereto as Annex C. Peoples' shareholders are urged to read the May
28 opinion in its entirety. Berwind's May 28 opinion is directed only to the
fairness of the exchange ratio pursuant to the merger agreement from a financial
point of view to Peoples, is for the information of the board of directors of
Peoples, and does not address any other aspect of the merger nor does it
constitute a recommendation to any holder of Peoples common stock as to how such
holder should vote at the special meeting.
THIS SECTION PROVIDES ONLY A SUMMARY OF ALL MATERIAL INFORMATION PERTAINING
TO THE MAY 28 OPINION OF BERWIND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THAT OPINION, WHICH IS SET FORTH IN ANNEX C TO THIS PROXY
STATEMENT/PROSPECTUS.
EFFECTIVE DATE OF THE MERGER
The effective date of the merger will occur within 30 days following the
satisfaction or waiver of all conditions to completion of the merger specified
in the merger agreement. Sovereign and Peoples may also mutually agree on a
different date. We presently expect that the effective date of the merger will
occur on June 30, 1999.
On or prior to the effective date of the merger, Sovereign and Peoples will
file articles of merger or a certificate of merger with the Pennsylvania
Department of State and the Delaware Secretary of State, and each such document
will set forth the effective date of the merger. Either Sovereign or Peoples can
terminate the merger agreement if, among other reasons, the merger does not
occur on or
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before June 30, 1999 and the terminating party has not breached or failed to
perform any of its obligations under the merger agreement. See "-- Termination;
Effect of Termination" on page 30.
EXCHANGE OF PEOPLES STOCK CERTIFICATES
No later than five business days after the effective date of the merger,
Sovereign will send a transmittal form to each record owner of Peoples common
stock. The transmittal form will contain instructions on how to surrender
certificates representing Peoples common stock for certificate representing
Sovereign common stock.
Sovereign must mail certificates representing shares of Sovereign common
stock and checks for cash in lieu of fractional share interests to former
stockholders of Peoples in no event later than fifteen business days following
the receipt of the transmittal form and Peoples stock certificates properly
endorsed or accompanied by the required materials.
YOU SHOULD NOT FORWARD PEOPLES STOCK CERTIFICATES UNTIL YOU HAVE RECEIVED
TRANSMITTAL FORMS FROM SOVEREIGN. YOU SHOULD NOT RETURN STOCK CERTIFICATES WITH
THE ENCLOSED PROXY CARD.
Until you exchange your certificates representing Peoples common stock, you
will not receive the Sovereign common stock into which your Peoples shares have
converted or any dividends on the Sovereign shares. When you surrender your
Peoples certificates, you will receive any unpaid dividends without interest.
For all other purposes, however, each certificate which represents shares of
Peoples common stock outstanding at the effective date of the merger will
evidence ownership of the shares of Sovereign common stock into which those
shares converted as a result of the merger. Neither Sovereign nor Peoples will
have liability for any amount paid in good faith to a public official pursuant
to any applicable abandoned property, escheat or similar law.
CONDITIONS TO THE MERGER
The obligations of Sovereign and Peoples to complete the merger are subject
to various conditions, which include, among other customary provisions for
transactions of this type, the following:
-- approval of the merger agreement by Peoples stockholders;
-- receipt of all required regulatory approvals, including the expiration
or termination of any notice and waiting periods;
-- the absence of any legal order prohibiting the merger;
-- delivery of a tax opinion to each of Sovereign and Peoples; and
-- the absence of any material adverse effect on the assets, financial
condition or results of operations on a consolidated basis of the other
since December 31, 1997, not including:
o any change in the value of the investment or loan portfolios of
Sovereign or Peoples resulting from a change in interest rates
generally;
o any change occurring after the date of the merger agreement in any
law or regulation or in generally accepted accounting principles
which affects banking institutions generally;
o reasonable expenses relating to any litigation arising as a result
of the merger;
o actions taken with the written consent of the other party; and
o any material adverse effect caused, in whole or in substantial part,
by the party claiming that a material adverse effect has occurred.
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In addition, the obligations of both Sovereign and Peoples to complete the
merger are conditioned on:
-- the accuracy in all material respects as of the date of the merger
agreement and as of the merger date of the representations and
warranties of the other party, except as to any representation or
warranty which specially relates to an earlier date and except as
otherwise contemplated by the merger agreement,
-- the other party's material performance of all its covenants and
obligations; and
-- other conditions customary for similar transactions, such as the receipt
of officer certificates and legal opinions.
Except for the requirements of stockholder approval, regulatory approvals
and the absence of any legal preventing the merger, each of the conditions
described above may be waived in the manner and to the extent described in "--
Amendment; Waivers" on page 29. Sovereign has waived the condition that the
merger qualify as a pooling of interests for accounting purposes. Sovereign does
not, however, anticipate waiving the condition that it receive a tax opinion
from its counsel. As of the date of this proxy statement/prospectus, Sovereign's
counsel has delivered the required tax opinion.
SUBSIDIARY BANK MERGER
As part of the merger, Sovereign Bank and Trenton Savings Bank entered into
a bank plan of merger. The bank plan of merger provides that Trenton Savings
Bank will merge into Sovereign Bank, with Sovereign Bank surviving. Sovereign
and Peoples expect to complete the bank merger concurrently with completion of
the merger.
REGULATORY APPROVALS
The Office of Thrift Supervision must approve the merger and the bank
merger. Sovereign filed an application for approval with the OTS on January 19,
1999. Under applicable regulations, the OTS will review the financial,
managerial, competitive, legal, disclosure, accounting and tax aspects of the
transaction, as well as the insurance risk to the Bank Insurance Fund and the
Savings Association Insurance Fund and the convenience and needs of the
community to be served.
In addition, the OTS may not approve any proposed acquisition:
-- if it would result in a monopoly or further any combination or
conspiracy to monopolize or to attempt to monopolize the savings and
loan business in any part of the United States; or
-- which in any section of the country may have the effect of substantially
lessening competition or tending to create a monopoly or which in any
other manner would restrain trade, unless the OTS finds that the
anticompetitive effects of the proposed acquisition are clearly
outweighed in the public interest by the probable effect of the proposed
acquisition in meeting the convenience and needs of the community to be
served.
In addition, the OTS has the responsibility to review the performance of
all involved institutions in meeting their responsibilities under the Community
Reinvestment Act, which includes the record of performance of the existing
institutions in meeting the credit needs of the entire community including low-
and moderate-income neighborhoods. Both Trenton Savings Bank and Sovereign Bank
received ratings of "satisfactory" in their last Community Reinvestment Act
examinations. The OTS has not received any protest under the Community
Reinvestment Act as of the date of this proxy statement/prospectus.
We cannot assure you that the OTS will approve the bank merger or as to the
date of approval. We cannot complete the bank merger until 30 days (15 days if
the Attorney General does not object) after the date of OTS approval, during
which time the U.S. Department of Justice may challenge the bank merger on
antitrust grounds. The commencement of an antitrust action by the U.S.
Department of Justice would stay the effectiveness of OTS approval unless a
court specifically orders otherwise. In
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reviewing the bank merger, the U.S. Department of Justice could analyze the bank
merger's effect on competition differently than the OTS, and thus it is possible
that the U.S. Department of Justice could reach a different conclusion than the
OTS regarding the bank merger's competitive effects. Failure of the U.S.
Department of Justice to object to the bank merger does not prevent the filing
of antitrust actions by private persons.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties
relating to:
-- the corporate organization of Sovereign, Sovereign Bank, Peoples and
Trenton Savings Bank;
-- the capital structures of Sovereign and Peoples;
-- the approval and enforceability of the merger agreement and the bank
plan of merger;
-- required consents or approvals of regulatory authorities or third
parties;
-- the consistency of financial statements with generally accepted
accounting principles and, where appropriate, applicable regulatory
accounting principles;
-- the filing of tax returns and payment of taxes;
-- the absence of material adverse changes, since December 31, 1997, in the
consolidated assets, business, financial condition or results of
operations of Sovereign or Peoples;
-- the absence of undisclosed material pending or threatened litigation;
-- compliance with applicable laws and regulations;
-- retirement and other employee plans and matters relating to the Employee
Retirement Income Security Act of 1974;
-- the quality of title to assets and properties;
-- the maintenance of adequate insurance;
-- the absence of undisclosed brokers' or finders' fees;
-- the absence of material environmental violations, actions or
liabilities;
-- the consistency of the allowance for loan losses with generally accepted
accounting principles and all applicable regulatory criteria;
-- the accuracy of information supplied by Sovereign and Peoples in
connection with the Registration Statement filed by Sovereign with the
SEC, this proxy statement/prospectus and all applications filed with
regulatory authorities for approval of the merger and the bank merger;
and
-- documents filed by Sovereign and Peoples with the SEC and the accuracy
of information contained therein.
The merger agreement also contains other representations and warranties by
Peoples relating to:
-- employment and consulting contracts and benefits matters;
-- the validity and binding nature of loans reflected as assets in the
financial statements of Peoples;
-- the inapplicability of the antitakeover provisions of Delaware law to
the merger; and
-- transactions with affiliates.
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BUSINESS PENDING THE MERGER
Under the merger agreement, Sovereign and Peoples each agreed to use their
best efforts to preserve their business organizations intact, to maintain good
relationships with employees and to preserve the goodwill of customers and
others with whom business relationships exist. In addition, Peoples agreed to
conduct its business and to engage in transactions only in the ordinary course
of business, consistent with past practice, except as otherwise required by the
merger agreement or with the written consent of Sovereign.
Peoples also agreed that neither it nor Trenton Savings Bank may, without
the written consent of Sovereign:
-- amend or change any provision of its certificate of incorporation,
charter or bylaws;
-- change the number of authorized or issued shares of its capital stock,
except for the issuance of up to 981,508 shares of Peoples common stock
upon the exercise of outstanding stock options;
-- grant any option, warrant, or agreement of any character relating to its
authorized or issued capital stock or any securities convertible into
its capital stock, except for the grant of options to acquire up to
1,428,000 shares of Peoples common stock upon the anticipated adoption
of the Peoples 1999 Stock Option Plan and the grant of up to 578,000
shares of Peoples common stock upon the anticipated adoption of the
Peoples 1999 Recognition and Retention Plan;
-- split, combine or reclassify any shares of its capital stock;
-- declare, set aside or pay any dividend or other distribution in respect
of its capital stock, except as otherwise specifically set forth in the
merger agreement (see "Dividends" on page 29);
-- grant any severance or termination pay, except in accordance with
written policies or written agreements in effect on the date of the
merger agreement (see "-- Employee Benefits and Severance" on page 32),
or enter into or amend any existing employment agreement;
-- grant any pay increase except for routine periodic increases in
accordance with past practice;
-- engage in any merger, acquisition or similar transaction;
-- sell, lease or dispose of any assets other than in the ordinary course
of business;
-- take any action which would result in any of the representations and
warranties of Peoples become untrue;
-- change any accounting practices, except as may be required by generally
accepted accounting principles (without regard to any optional early
adoption date) or any regulatory authority responsible for regulating
Peoples or Trenton Savings Bank;
-- waive, release, grant or transfer any rights of value or modify or
change in any material respect any existing material agreement to which
Peoples or any subsidiary is a party, other than in the ordinary causes
of business, consistent with past practices;
-- implement any new employee benefit or welfare plan, or amend any plan,
unless the amendment does not result in an increase in cost or is
permitted by the merger agreement;
-- purchase any security for its investment portfolio not rated "A" or
higher by either Standard & Poor's Corporation or Moody's Investor
Services, Inc. or otherwise materially alter the mix, maturity, credit
or interest rate, risk profile of its portfolio of investment securities
or its portfolio of mortgage-backed securities;
-- enter into, renew, modify or compromise any transaction with any
affiliate of Peoples, unless permitted by the merger agreement;
-- enter into any interest rate swap or similar arrangement;
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-- other than as a result of the merger agreement, take any action which
would give rise to a right of payment to any individual under any
employment agreement;
-- make any loan or other credit facility commitment to any borrower in
excess of $2,000,000, or compromise, extend, renew or modify any such
loan or commitment outstanding in excess of $2,000,000, unless otherwise
permitted in the merger agreement; or
-- waive, release, grant or transfer any rights of value, or modify or
materially change any existing agreement to which Peoples or any Peoples
subsidiary is a party, other than in the ordinary course of business,
consistent with past practice.
Peoples has also agreed in the merger agreement:
-- to permit Sovereign to perform a "phase I environmental audit" at any
physical site occupied by Peoples or any subsidiary of Peoples;
-- to permit a representative of Sovereign to attend committee meetings of
the management of Peoples and Trenton Savings Bank;
-- if Sovereign requests and agrees to bear the expense, to retain a proxy
solicitor to help solicit stockholder approval of the merger;
-- if Sovereign requests, to have its independent certified public
accountants review Peoples' unaudited consolidated financial statements
as of the end of any calendar quarter;
-- if Sovereign requests, to use its best efforts to extend any contract
with an outside service bureau or other vendor;
-- to submit the merger agreement to its stockholders for approval;
-- to provide to Sovereign copies of the minutes of all meetings of the
Board of Directors of Peoples and its subsidiaries, and of any of their
respective committees or of any senior management committee; and
-- to approve the bank merger as sole stockholder of Trenton Savings Bank.
Sovereign and Peoples have jointly agreed:
-- to use their best efforts to obtain all required regulatory approvals;
-- to take all actions necessary to complete the transactions contemplated
by the merger agreement;
-- to maintain adequate insurance;
-- to maintain accurate books and records;
-- to file all tax returns and pay all taxes when due;
-- to cooperate with each other and use their best efforts to identify
those persons who may be deemed to be affiliates of Peoples;
-- to agree upon the form and substance of any press release or public
disclosure related to the merger; and
-- to deliver to the other copies of all securities documents when filed.
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DIVIDENDS
The merger agreement permits Peoples to pay a regular quarterly cash
dividend not to exceed $.025 per share of Peoples common stock outstanding.
Peoples also agreed to conform its regular quarterly dividend record dates and
payment dates to Sovereign's record and payment dates.
Subject to applicable regulatory restrictions, if any, Trenton Savings Bank
may pay cash dividends sufficient to permit payment of the dividends by Peoples.
Neither Peoples nor Trenton Savings Bank may pay any other dividend without the
prior written consent of Sovereign.
NO SOLICITATION OF TRANSACTIONS
The merger agreement prohibits Peoples or any of its affiliates or
representatives from:
-- responding to, soliciting, initiating or encouraging any inquiries
relating to an acquisition of Peoples by a party other than Sovereign;
-- recommending or endorsing an acquisition of Peoples by a party other
than Sovereign;
-- participating in any discussions or negotiations regarding an
acquisition of Peoples by a party other than Sovereign;
-- providing anyone other than Sovereign with any nonpublic information
relating to an acquisition of Peoples by a party other than Sovereign;
or
-- entering into an agreement.
Peoples agreed to notify Sovereign if it receives any inquiries or
proposals relating to an acquisition by a party other than Sovereign.
Peoples directors and certain executive officers have executed a letter
agreement containing provisions similar to those described above relating to
Peoples. A copy of the form of letter agreement executed by the directors and
executive officers of Peoples is included as an exhibit to the merger agreement
attached hereto as Annex A.
AMENDMENT; WAIVERS
Subject to any applicable legal restrictions, at any time prior to
completion of the merger, Sovereign and Peoples may:
-- amend the merger agreement;
-- extend the time for the performance of any of the obligations or other
acts of Sovereign and Peoples required in the merger agreement;
-- waive any inaccuracies in the representations and warranties contained
in the merger agreement; or
-- waive compliance with any of the agreements or conditions contained in
the merger agreement, except for the requirements of stockholder
approval, regulatory approval and the absence of any order, decree, or
injunction preventing the merger.
After you have approved the merger agreement, however, we cannot modify
either the amount or the form of consideration you will receive upon completion
of the merger or otherwise materially adversely affect you without stockholder
approval.
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TERMINATION; EFFECT OF TERMINATION
We may terminate the merger agreement at any time prior to completion of
the merger by mutual written consent.
Either Sovereign or Peoples may terminate the merger agreement at any time
prior to completion of the merger:
-- if the closing date of the merger does not occur on or before June 30,
1999, unless the failure to close by that date results from the failure
of the party seeking to terminate the merger agreement to materially
perform any of its obligations; or
-- if either party has received a final nonappealable order from a
regulatory authority denying a required approval or consent, unless the
denial results from the failure of the party seeking to terminate the
merger agreement to materially perform any of its obligations.
Peoples alone may terminate the merger agreement at any time prior to
completion of the merger:
-- if Sovereign has materially breached any material covenant or
representation contained in the merger agreement which would have a
material adverse effect on the assets, financial condition or results of
operation of Sovereign on a consolidated basis, but only if the breach
remains uncured;
-- if both of the following conditions are satisfied:
o the average price of Sovereign's common stock over a period of 15
consecutive trading days ending on the last trading day immediately
before the closing date is less than $11.00 per share; and
o the quotient obtained by dividing the 15-day average of Sovereign's
price by $13.125 is less than the number obtained when .10 is
subtracted from the quotient obtained by dividing:
1. the weighted average of the per share stock prices of a group of
eight other thrift holding companies as of the last trading day
immediately preceding the closing date of the merger by
2. the weighted average of the per share stock prices of the same
eight thrift holding companies as of September 3, 1998 (the last
trading day prior to public announcement of the merger).
EXAMPLE OF PRICE DECLINE TERMINATION PROVISION
Assuming that the closing date of the merger is scheduled to occur on June
1, 1999, Peoples will have the right to terminate the merger agreement on such
date if the two conditions described above are satisfied as set forth in the
following hypothetical example. We provide this hypothetical example only to
illustrate how the price decline termination provision operates. The example is
not based on actual prices.
Condition No. 1: Assume that the average price of Sovereign common stock
is $10.99 per share on May 31, 1999; and
Condition No. 2: Assume that, as illustrated in Step 4 below, the number
obtained in Step 1 is less than the number obtained in Step 3, based on the
following additional assumptions:
Step 1 Divide $10.99 (the assumed average price of Sovereign common
stock on May 31, 1999) by $13.125 (the amount stipulated in merger
agreement). This quotient equals .8294.
Step 2 Divide $28.00 (the assumed average price of eight other
specified thrift holding companies on May 31, 1999) by $25.21 (the average
price of the eight thrift holding companies as of September 3, 1998). This
quotient is 1.1107.
Step 3 Subtract .10 (the amount stipulated in the merger agreement)
from 1.1107 (the quotient obtained in Step 2.) This difference is 1.0107.
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Step 4 Determine if the number obtained in Step 1 is less than the
number obtained in Step 3. In this hypothetical example, Condition No. 2 is
satisfied because .8294 (the quotient obtained in Step 1) is less than
1.0107 (the difference obtained in Step 3).
As a result of the satisfaction of both Condition No. 1 and Condition No. 2
in this hypothetical example, Peoples would have the right to terminate the
merger agreement on June 1, 1999.
Sovereign alone may terminate the merger agreement at any time prior to
completion of the merger:
-- if Peoples has materially breached any material covenant or
representation which would have a material adverse effect on the assets,
financial condition or results of operations of Peoples on a
consolidated basis, but only if the breach remains uncured; or
-- if the Board of Directors of Peoples fails to recommend and endorse the
merger agreement or withdraws or modifies a prior recommendation in a
manner adverse to Sovereign.
In the event that either Sovereign or Peoples terminates the merger
agreement, neither Sovereign nor Peoples will have any continuing liability or
obligation other than the obligation dealing with confidentiality and any
liabilities result from willful breach.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Directors and Executive Officers
The Board of Directors and executive officers of Sovereign and Sovereign
Bank will not change as a result of the merger.
On the effective date of the merger, Sovereign will establish the new
Peoples Advisory Board of Sovereign Bank, which shall consist of all members of
the Peoples Board of Directors immediately prior to the effective date. The
Peoples Advisory Board of Sovereign Bank will be initially established for one
year from the effective date of the merger. Thereafter, for a period of two
additional years, Sovereign will either continue the Peoples Advisory Board or
designate former members of the Peoples Advisory Board as Directors Emeriti of
Sovereign Bank.
Consolidation of Operations
Sovereign expects to achieve certain cost savings and operating synergies
as a result of the merger. Sovereign believes that these costs savings and
operating synergies will aggregate approximately 35% to 40% of Peoples'
recurring operating expenses, and will occur within six months following the
merger. Sovereign expects that it will realize these cost savings and operating
synergies primarily from eliminating duplicative administrative functions.
Because of the uncertainties inherent in merging two financial institutions,
changes in the regulatory environment and changes in economic conditions, we
cannot give any assurances that any particular level of cost savings will be
realized or that any cost savings will occur over the time period currently
anticipated. Increases in other expenses, including expenses relating to
integrating the two companies, may also offset any cost savings to some degree.
Any cost savings do not give effect to an expected one-time after-tax
charge of approximately $17.8 million, relating to merger expenses, which
Sovereign will incur upon completion of the merger. These expenses relate
principally to payments to executive officers of Peoples under existing
contracts, other severance payments, losses on sales of assets, and asset
writedowns and transaction costs directly related to the merger.
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EMPLOYEE BENEFITS AND SEVERANCE BENEFITS
Employee Benefits
After the merger, the employee pension, including employee stock ownership
plans, and welfare benefit plans of Sovereign and Peoples may, at Sovereign's
election and subject to the requirements of the Internal Revenue Code continue
to be maintained separately or consolidated or terminated, except as set forth
below.
-- Sovereign Employee Stock Ownership Plan. Employees who become employees
of Sovereign or a Sovereign subsidiary will be entitled to participate
in the Sovereign Employee Stock Ownership Plan in accordance with its
terms by treating them as newly employed individuals without any prior
service credit under Sovereign's plan.
-- Trenton Savings Bank Employee Stock Ownership Plan. Peoples intends to
terminate the Trenton Savings Bank Employee Stock Ownership Plan
("Peoples ESOP") prior to the effective date of the merger. The Peoples
ESOP has an outstanding loan to purchase Peoples Common Stock, with an
outstanding principal balance of $9.1 million as of March 31, 1999.
Peoples will sell sufficient shares held in the ESOP suspense account to
pay off the existing ESOP loan. All remaining shares held in the
suspense account will be allocated as earnings of the ESOP to the
accounts of participants based on their beginning of the year account
balances. Participants in the ESOP will become 100% vested in their
accounts as a result of the merger. Peoples also intends to amend the
ESOP to ensure that terminated employees will be entitled to receive
their share of the 1999 contribution allocation under the ESOP.
-- Sovereign Defined Benefit Pension Plan. Employees who become employees
of Sovereign or a Sovereign subsidiary will be entitled to participate
in Sovereign's Defined Benefit Pension Plan in accordance with its
terms. In this regard, each such employee will receive, for purposes of
participation and vesting only, credit for all service with Peoples or a
Peoples subsidiary credited to each such employee under Peoples'
applicable qualified plan, and enter the Sovereign Defined Benefit
Pension Plan on the entry date concurrent with or next following the
employee's satisfaction of such plan's minimum participation
requirements.
-- Sovereign 401(k) Retirement Savings Plan. Employees who become
employees of Sovereign or a Sovereign subsidiary will become entitled to
participate in the Sovereign 401(k) Plan in accordance with its terms.
Each employee will receive, for purposes of participation and vesting
only, credit for all service with Peoples credited to the employee under
Peoples 401(k) Plan. These employees will enter the Sovereign 401(k)
Plan on the entry date concurrent with or next following the employee's
satisfaction of the plan's minimum participation requirements.
-- Peoples Savings Plan. After completion of merger, Sovereign will
initially continue to maintain Peoples 401(k) Plan until its
participants generally become eligible to participate in the Sovereign
401(k) Plan. Thereafter, Sovereign can decide whether to combine the two
plans.
-- Sovereign and Peoples Nonqualified Deferred Compensation
Plans. Following the merger, Sovereign will, as soon as
administratively feasible, consolidate Sovereign's and Peoples'
nonqualified deferred compensation plans. Peoples maintains these plans
to supplement pension benefits lost by some employees by reason of
limitations contained in the Internal Revenue Code. No person can
receive redundant benefits or lose existing benefits in this
consolidation.
-- Peoples 1996 and 1999 Recognition and Retention Plan. The Peoples 1996
Recognition and Retention Plan will continue in effect following the
merger as a Sovereign plan. Sovereign will not take any action to
adversely affect the rights of plan participants who hold outstanding
grants or awards of shares of Peoples common stock. No further grants or
awards are permissible under the 1996 Recognition and Retention Plan.
Peoples will adopt the 1999 Recognition and Retention Plan in the form
approved by Sovereign. The 1999 Recognition and Retention Plan will
permit the grant of a maximum of 578,000 shares of Peoples common stock.
Grants or awards under the 1999 Recognition and Retention Plan will
provide for one-
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to three-year vesting and will not automatically vest upon the "change
in control" which would occur on the effective date of the merger.
-- Peoples 1996 and 1999 Stock Option Plans. The 1996 Option Plan will
continue in effect following the effective date of the merger as a
Sovereign plan. Sovereign will not take any action to adversely affect
the rights of plan participants who hold outstanding grants of options
to purchase Peoples common stock. No further grants of stock options are
permissible under the 1996 Option Plan. Peoples will adopt the 1999
Option Plan in the form approved by Sovereign. The 1999 Option Plan will
permit the grant of stock options to purchase a maximum of 1,428,000
shares of Peoples common stock. Options granted under the 1999 Option
Plan will provide for one-to three-year vesting and will not
automatically vest upon the "change in control" which would occur on the
effective date of the merger.
-- Welfare Benefit Plans. After the effective date of the merger, the
welfare benefit plans of Sovereign and Peoples (and their respective
subsidiaries) will initially remain unchanged. Sovereign will undertake
a study, in consultation with appropriate professional advisors, with a
view toward the possible combination of some or all of such plans or the
benefits provided thereunder. Following such study, Sovereign will take
such action (which may include the implementation of new benefits,
reduction or elimination of some benefits, and the alteration of the
respective cost allocation between employer and employee) as it deems
appropriate under the circumstances. In the event of any termination of
or consolidation of a Peoples welfare plan with any Sovereign welfare
plan, all employees of Peoples and Peoples subsidiaries who are eligible
for continued coverage under the Peoples welfare plan will have
immediate coverage under any successor welfare plan without the
necessity of satisfying a waiting period for coverage of any
pre-existing condition. Sovereign does not provide welfare benefits to
part-time employees or retired employees.
-- Peoples Bonus Plans and Arrangements. Peoples is permitted to continue
to administer its bonus programs and arrangements through the effective
date of the merger, with such equitable modifications as may be
appropriate to take into account the circumstances of the merger and the
timing thereof. The merger agreement permits Peoples to pay bonuses on a
pro rata basis with respect to 1999, subject to the limitation that the
bonuses for the interim period, in the aggregate, not exceed fifty
percent (50%) of the aggregate amount of bonuses paid for the calendar
year ended December 31, 1998.
Severance Benefits
Sovereign will provide severance pay to any employee of Peoples whose
employment is terminated up to three months beyond the effective date of the
merger either because the employee's position is eliminated or the employee is
not offered or retained in comparable employment. Comparable employment means a
position of generally similar job description or responsibilities in a location
within a thirty-mile radius from either the employee's work location with
Peoples or the employee's residence.
If a terminated employee executes such documentation as Sovereign may
reasonably require, including Sovereign's customary form of release, and
provided the employee does not leave employment with Peoples or Sovereign prior
to the employment termination date established or adjusted by Sovereign:
-- senior officers will receive two and one-half weeks' pay for each full
year of continuous service with a minimum severance benefit of thirty
weeks' pay;
-- junior officers will receive two and one-half weeks pay for each full
year of continuous service with a minimum severance benefit of sixteen
weeks' pay and a maximum severance benefit of thirty weeks' pay;
-- regular full-time employees who are exempt employees under the federal
Fair Labor Standards Act will receive two and one-half weeks' pay for
each full year of continuous service with a minimum severance benefit of
four weeks' pay and a maximum severance benefit of thirty weeks' pay;
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-- regular full-time employees who are nonexempt employees under the
federal Fair Labor Standards Act will receive two and one-half weeks'
pay for each full year of continuous service with a minimum severance
benefit of four weeks' pay and a maximum severance benefit of thirty
weeks' pay; and
-- part-time, peak-time and temporary employees will not receive any
severance benefits.
Any employee who has an existing employment or consulting agreement with
Peoples or any Peoples subsidiary, who has accepted an offer from Sovereign of
noncomparable employment or whose employment is terminated for cause will not
receive severance pay. "Cause" means termination because of the employee's
personal dishonesty, failure to meet established performance goals and
standards, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties or willful violation of any
law, rule or regulation other than traffic violations or similar offenses.
The benefits provided to terminated Peoples employees as described above
are the only severance benefits payable by Peoples, except for employees who do
not execute the documentation required by Sovereign, who will receive
termination benefits under Peoples' normal severance policies. The benefits
payable to Peoples' employees described above or otherwise will in any event be
in lieu of any termination benefits which such employees would otherwise receive
under Sovereign's severance policies or programs.
In addition to the severance payments described above, Sovereign and
Peoples have identified fifteen officers and employees who may be critical to
the transition period following the merger and who will qualify for a retention
bonus if they are willing to remain in Sovereign's employ for a period of time
following the merger. The aggregate retention bonus to be paid by Sovereign will
not exceed $2,516,500.
ACCOUNTING TREATMENT
Sovereign will use the purchase method of accounting to account for the
merger. In general, the purchase method of accounting accounts for a business
combination as the acquisition of one company by another. Purchase accounting
requires Sovereign to allocate the purchase price and costs of the acquisition
to all of Peoples' assets and liabilities, based on their fair value at the
merger agreement date. If the purchase price exceeds the fair value of Peoples'
net assets, Sovereign must record the excess as "goodwill" and then amortize it
as an expense over its estimated life. Peoples' earnings or losses will be
included in Sovereign's financial statements only prospectively from the date of
the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
To complete the merger, Sovereign and Peoples must receive an opinion of
Stevens & Lee, P.C., counsel to Sovereign, that the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, and that Sovereign and Peoples will each be a party to the reorganization
within the meaning of Section 368(b) of the Code.
In the opinion of Stevens & Lee, P.C., the material federal income tax
consequences of the merger will be as follows:
-- Sovereign and Peoples will not recognize gain or loss in the merger;
-- you will not recognize any gain or loss upon receipt of Sovereign common
stock in exchange for your Peoples common stock, except shareholders who
receive cash proceeds for fractional interests will recognize gain or
loss equal to the difference between such proceeds and the tax basis
allocated to their fractional share interests, and such gain or loss
will constitute capital gain or loss if their Peoples common stock is
held as a capital asset at the effective date of the merger;
-- the tax basis of shares of Sovereign common stock (including fractional
share interests) you receive in the merger will be the same as the tax
basis of your shares of Peoples common stock; and
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-- the holding period of the Sovereign common stock you receive in the
merger will include the holding period of your shares of Peoples common
stock, provided your Peoples common stock is held as a capital asset at
the time of the merger.
Under the merger agreement, the condition that Stevens & Lee, P.C. deliver,
at closing, the opinion described above can be waived by Sovereign and Peoples.
However, in the event that the delivery of such opinion of counsel is waived, or
such opinion would otherwise set forth tax consequences materially different to
a stockholder than those described above, Peoples intends to resolicit proxies
as required in accordance with the rules and regulations of the SEC.
This is not a complete description of all the federal income tax
consequences of the merger and, in particular, does not address tax
considerations that may affect the treatment of shareholders who acquired their
Peoples common stock pursuant to the exercise of employee stock options or
otherwise as compensation, or shareholders which are exempt organizations or who
are not citizens or residents of the united states. Each stockholder's
individual circumstances may affect the tax consequences of the merger to such
stockholder. In addition, no information is provided herein with respect to the
tax consequences of the merger under applicable state, local, or foreign laws.
Accordingly, you are advised to consult a tax advisor as to the specific tax
consequences of the merger to you.
EXPENSES
Sovereign and Peoples will each pay all their respective costs and
expenses, including fees and expenses of financial consultants, accountants and
legal counsel, except that:
-- Sovereign and Peoples will share equally the cost of printing and
mailing this proxy statement/prospectus; and
-- if Sovereign requests Peoples to retain a proxy solicitor for the
meeting, Sovereign will bear the expense of such proxy solicitor.
RESALE OF SOVEREIGN COMMON STOCK
The Sovereign common stock issued in the merger will be freely transferable
under the Securities Act of 1933 except for shares issued to any Peoples
stockholder who is an "affiliate" for purposes of SEC Rule 145. Each director
and executive officer of Peoples has entered into an agreement with Sovereign
providing that, as an affiliate, he or she will not transfer any Sovereign
common stock received in the merger except in compliance with the securities
laws. This proxy statement/prospectus does not cover resales of Sovereign common
stock received by any affiliate of Peoples or Sovereign.
NO DISSENTERS' RIGHTS OF APPRAISAL
Holders of shares of Peoples common stock will not be entitled to
dissenters' rights of appraisal under the Delaware General Corporation Law in
connection with the matters to be acted on at the special meeting.
DIVIDEND REINVESTMENT PLAN
Sovereign currently maintains a Dividend Reinvestment and Stock Purchase
Plan. This plan provides shareholders of Sovereign with a simple and convenient
method of investing cash dividends, as well as voluntary cash payments, in
additional shares of Sovereign common stock without payment of any brokerage
commission or service charge. Sovereign expects to continue to offer this plan
after the effective date of the merger, and shareholders of Peoples who become
shareholders of Sovereign will be eligible to participate therein.
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FINANCIAL INTERESTS OF DIRECTORS AND OFFICERS
Certain members of management of Peoples and Trenton Savings Bank, and
their Boards of Directors, may have interests in the merger in addition to their
interests as shareholders of Peoples. The Peoples Board of Directors was aware
of these factors and considered them, among other matters, in approving the
merger agreement.
STOCK OPTIONS
As of the record date, the directors and executive officers of Peoples
beneficially own approximately 1,649,299 shares of Peoples common stock, and
hold options to purchase 753,320 shares of Peoples common stock. On the
effective date of the merger, each option will convert into an option to acquire
Sovereign common stock. The number of shares of Sovereign common stock issuable
upon the exercise of the converted option will equal the number of shares of
Peoples common stock covered by the option multiplied by .80 and the exercise
price for a whole share of Sovereign common stock will be the stated exercise
price of the option divided by .80. Shares issuable upon the exercise of options
to acquire Sovereign common stock will be issuable in accordance with the terms
of the respective plans and grant agreements of Peoples under which Peoples
issued the options.
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE
Sovereign has agreed to indemnify all directors and officers of Peoples and
Trenton Savings Bank against:
-- all liabilities and expenses relating to claims, proceedings or
investigations resulting from the person's status as a director, officer
or employee of Peoples or any Peoples subsidiary, whether pertaining to
matters existing prior to the merger and whether asserted prior to or
after the merger; and
-- all liabilities and expenses relating to claims, proceedings or
investigations arising out of the merger agreement or the merger to the
same extent as those officers, directors and employees could be
indemnified by Peoples or Trenton Savings Bank.
Sovereign has agreed to maintain Peoples' existing directors' and officers'
liability insurance policy, or a policy providing comparable coverage amounts on
terms no less favorable, covering persons currently covered by such insurance
for a period of five years after the effective date, subject to certain maximum
cost limits.
EMPLOYMENT AND OTHER AGREEMENTS
Employment and Severance Agreements. In accordance with their employment
agreements, Wendell T. Breithaupt, President and Chief Executive Officer, and
Leo J. Bellarmino, Executive Vice President, will each receive a severance
payment as a result of the merger. Mr. Breithaupt will receive a payment of
$750,000. Mr. Bellarmino (if terminated) will receive a payment equal to 2.99
times the average of the five preceding years' base salary, including bonuses
and other taxable compensation paid or attributable to him during such years,
which payment is estimated at $452,000. In addition, Mr. Bellarmino will receive
continued life, medical, dental, and disability insurance coverage for a period
of 36 months following the merger. In order to avoid an excess parachute payment
under Section 280G of the Internal Revenue Code, $4,000 of Mr. Bellarmino's
severance benefit was paid in 1998.
In addition, Trenton Savings Bank entered into severance agreements with
Dan A. Chila, Senior Vice president and Chief Financial Officer, Richard A.
Gallaudet, Vice President and Senior Lending Officer, Robert C. Hollenbeck, Vice
President and Corporate Secretary, Dean H. Lippincott, Vice President and
Mortgage Officer, Robert Russo, Vice President and Treasurer, and Frank
Sannella, Jr., President and Chief Executive Officer of TS Business Finance
Corp., a wholly-owned subsidiary of
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<PAGE>
Trenton Savings Bank. As a result of the merger, each individual will be
entitled to receive a severance payment equal to one and one-half times his
annual salary and bonus paid with respect to the 1998 fiscal year. The severance
payments will be as follows: Mr. Gallaudet, $152,000, M. Lippincott, $142,000,
Mr. Hollenbeck, $99,000, Mr. Russo, $118,000, Mr. Chila, $172,500 and Mr.
Sannella, $189,000. In addition, each executive will be entitled to continued
life, medical, dental and disability coverage substantially identical to the
coverage maintained for him prior to his termination for an eighteen-month
period or, in the case of medical coverage, a twelve-month period. In order to
avoid an excess parachute payment under Section 280G of the Internal Revenue
Code, portions of the severance payments were paid in December, as follows: Mr.
Gallaudet, $15,000, Mr. Lippincott, $142,000, Mr. Hollenbeck, $94,000, and Mr.
Russo, $23,000. If the change in control does not occur, Peoples will take the
amounts paid in 1998 into consideration in awarding future bonuses and stock
benefits to such persons.
William Bedle, Chairman and Chief Executive Officer, and Ira Brower,
President, of Manchester Trust Company are parties to employment agreements
under which each executive is entitled to a severance payment in the event of a
change in control and the executives' involuntary termination of employment, or
voluntary termination of employment following a material reduction in duties and
responsibilities without cause, a relocation of the executive's principal place
of employment greater than 50 miles from his present location, or a reduction in
his base compensation to less than current salary without cause. The payments
that would be due these persons in the event of a termination of employment
following the merger would be $223,600 for Mr. Bedle and $235,040 for Mr.
Brower.
Sovereign intends to enter into consulting agreements with Messrs.
Bellarmino and Sannella, and two officers of Manchester Trust, if their
employment is terminated as a result of the merger. Under the agreements, each
person will provide ongoing advice to Sovereign following the completion of the
merger, for a period of time not to exceed three years. The annual fee to be
paid to these individuals is $10,000.
Supplemental Executive Retirement Plan. Messrs. Breithaupt, Gallaudet and
Lippincott and three members of the Board of Directors, Messrs. Sill, Trainer
and Truesdale, are participants in a supplemental executive retirement plan
("SERP"). Under the SERP, eligible employees are entitled to a benefit equal to
the benefit under any tax qualified plan that is reduced because of limitations
under the Internal Revenue Code. In addition, participating employees and
directors can defer salary and bonuses, and board fees, which are distributed
following termination of employment or service. A participant is 100% vested in
his own deferrals at all times. Employee participants are eligible for
contributions to their account from Trenton Savings Bank, approximately equal to
matching contributions which cannot be made to such person sunder the Trenton
Savings Bank 401(k) Plan due to the contribution limits. The contributions made
on behalf of the executives by the Bank vest after five years of service,
provided that, in the event of a change in control, all accounts vest and become
immediately payable to the participants as soon as administratively feasible.
RETENTION BONUSES
Peoples and Sovereign have identified certain employees of Peoples who are
entitled to receive a "retention bonus" if they are willing to remain employed
by Sovereign following the merger until the date of the systems conversion, or
another date set by Sovereign up to 90 days after the system conversion. To
receive the retention bonus, the employee must satisfactorily fulfill the duties
and responsibilities of his or her position while employed. In the aggregate,
the retention bonuses cannot exceed $2,516,500 and the amount paid to officers
Gallaudet, Lippincott, Chila, Russo, and Hollenbeck is not expected to exceed
$955,000.
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<PAGE>
ADVISORY BOARD
Sovereign will appoint all of the members of the Peoples board of directors
to an advisory board and will pay each advisory board member an annual retainer
of $1,000. The advisory board will have a one-year term, and Sovereign expects
to continue the advisory board for three years following the merger.
1999 STOCK OPTION AND RESTRICTED STOCK PLANS
In connection with its second step conversion, Peoples disclosed its intent
to adopt a stock option plan and a recognition and retention plan. Under OTS
regulations, certain restrictions are applicable to these plans if they are
adopted within one year of the completion of the conversion transaction.
Consequently, peoples intended to adopt these plans after the one-year period
following the conversion. Peoples had disclosed an intent to reserve 2.4 million
option shares and 952,233 shares of restricted stock. However, in light of its
determination to enter into the merger agreement with Sovereign, Peoples intends
to reduce the number of shares it otherwise would have granted under the plans.
The merger agreement permits Peoples to grant up to 578,000 shares of restricted
stock and options to purchase up to 1,428,000 shares of Peoples common stock to
the board and certain senior management. Sovereign will assume these grants as a
result of the merger. Vesting of these awards will require continued service as
either an advisory or emeritus advisory director, or in the case of employees
who are not directors, as an employee or consultant.
STOCK OPTION AGREEMENT
General. As a condition to Sovereign entering into the merger agreement,
Peoples executed the stock option agreement, dated September 7, 1998, which
permits Sovereign to purchase Peoples common stock under certain circumstances.
Under the stock option agreement, Sovereign received an option to purchase
up to 7,225,000 shares of Peoples common stock. This number represents
approximately 19.9% of the issued and outstanding shares of Peoples common stock
on September 7, 1998. The exercise price per share to purchase Peoples common
stock under the option is equal to the lower of $8.50 or the lowest price per
share that a person or group, other than Sovereign or an affiliate of Sovereign,
paid or offers to pay for Peoples common stock upon the occurrence of one of the
specified events that trigger exercise of the option. Sovereign may only
exercise the option, upon the occurrence of certain triggering events, which are
described below. None of the triggering events have occurred to the best of
Sovereign's or Peoples' knowledge as of the date of this proxy
statement/prospectus).
Effect of Stock Option Agreement. The stock option agreement, together
with Peoples' agreement to not solicit other transactions relating to the
acquisition of Peoples by a third party and the agreement of Peoples' directors
and executive officers to vote their shares in favor of the merger agreement,
may have the effect of discouraging persons from making a proposal to acquire
Peoples.
Certain attempts to acquire Peoples or an interest in Peoples would cause
the option to become exercisable as described above. Sovereign's exercise of the
option would significantly increase a potential acquiror's cost of acquiring
Peoples compared to the cost that would be incurred without the stock option
agreement.
Terms of Stock Option Agreement. The following is a brief summary of the
material provisions of the stock option agreement. A complete copy of the stock
option agreement is included as Annex B to this proxy statement/prospectus. We
urge you to read it carefully.
The option is exercisable only upon the occurrence of a triggering event.
As used in the stock option agreement, a "triggering event" means generally any
of the following events:
-- a person or group, other than Sovereign or an affiliate of Sovereign,
acquires beneficial ownership of 10% or more of the then outstanding
shares of Peoples common stock; or
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-- a person or group, other than Sovereign, enters into an agreement or
letter of intent with Peoples to
o merge or consolidate, or enter into any similar transaction, with
Peoples,
o acquire all or substantially all of the assets or liabilities of
Peoples or all or substantially all of the assets or liabilities of
Trenton Savings Bank, or
o acquire beneficial ownership of securities representing, or the
right to acquire beneficial ownership or to vote securities
representing, 10% or more of the then outstanding shares of Peoples
common stock or the then outstanding shares of common stock of
Trenton Savings Bank; or
-- a person or group, other than Sovereign or an affiliate of Sovereign,
publicly announces a bona fide proposal for:
o any merger, consolidation or acquisition of all or substantially all
the assets or liabilities of Peoples or all or substantially all the
assets or liabilities of Trenton Savings Bank, or any other business
combination involving Peoples or Trenton Savings Bank or
o a transaction involving the transfer of beneficial ownership of 10%
or more of the then outstanding shares of Peoples common stock or
common stock of Trenton Savings Bank, followed by a failure of
Peoples' stockholders to approve the merger; or
-- a person or group, other than Sovereign, makes a bona fide proposal to
acquire Peoples and Peoples then willfully takes any action likely to
result in the failure of a material condition to closing or material
reduction in the value of the transaction to Sovereign; or
-- Peoples materially breaches any binding term of the merger agreement or
the stock option agreement after a proposal to acquire Peoples by a
party other than Sovereign is made and Peoples publicly announces an
intention to recommend or accept the proposal.
The option expires on the earlier of:
-- the effective date of the merger; or
-- termination of the merger agreement in accordance with its terms, except
that if:
o Sovereign terminates the merger agreement as a result of an uncured
breach by Peoples which results in a material adverse effect on the
assets, financial condition or results of operations of Peoples, or
o the closing date of the merger does not occur by June 30, 1999 due
to the failure by Peoples to perform or observe its obligations
under the merger agreement,
then the stock option agreement continues until one year after termination
of the merger agreement.
In the event of any change in Peoples common stock by reason of stock
dividends, split-ups, recapitalizations, combinations, conversions, divisions,
exchanges of shares or the like, the number and kind of shares issuable under
the option are adjusted appropriately.
Peoples granted Sovereign certain registration rights for shares of Peoples
common stock issuable upon exercise of the option.
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INFORMATION ABOUT SOVEREIGN
GENERAL
Financial and other information relating to Sovereign, including
information relating to Sovereign's directors and executive officers, is
incorporated herein by reference. See "WHERE YOU CAN FIND MORE INFORMATION" on
page 53.
MARKET PRICE OF AND DIVIDENDS ON SOVEREIGN COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Sovereign common stock trades on the Nasdaq Stock Market National
Market under the symbol SVRN. As of May 27, 1999, Sovereign had approximately
14,200 shareholders of record. The table below shows the periods indicated the
amount of dividends paid per share and the quarterly ranges of high and low
sales prices for Sovereign common stock as reported by the Nasdaq National
Market. Stock price information does not necessarily reflect mark-ups,
mark-downs or commissions.
<TABLE>
<CAPTION>
QUARTERLY
------------------------------------
QUARTER ENDED DIVIDEND HIGH LOW
------------- -------- -------- --------
<S> <C> <C> <C>
June 30, 1999(1).................................... -- $26.2500 $11.5000
March 31, 1999...................................... 0.0250 14.6250 11.7500
December 31, 1998................................... 0.0200 14.5000 8.7500
September 30, 1998.................................. 0.0200 18.3750 11.8750
June 30, 1998....................................... 0.0200 22.1875 16.3125
March 31, 1998...................................... 0.0174 18.9375 14.9375
December 31, 1997................................... 0.0137 18.0000 14.3125
September 30, 1997.................................. 0.0337 14.5625 12.2500
June 30, 1997....................................... 0.0357 12.6875 9.5000
March 31, 1997...................................... 0.0357 11.6875 9.1250
</TABLE>
- ------------------
(1) Through May 27, 1999.
On September 4, 1998, the last business day preceding public announcement
of the merger, the last sale price for Sovereign common stock was $13.1250 per
share. On May 27, 1999, the last sale price for the Sovereign common stock was
$12.688 per share. The average weekly trading volume for the Sovereign common
stock during the quarter ended March 31, 1999 was 1,034,464 shares.
For certain limitations on the ability of Sovereign Bank to pay dividends
to Sovereign, see Sovereign's Annual Report on Form 10-K for the year ended
December 31, 1998, which is incorporated herein by reference. See "WHERE YOU CAN
FIND MORE INFORMATION" on page 53.
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INFORMATION ABOUT PEOPLES
GENERAL
Financial and other information relating to Peoples, including information
relating to Peoples' directors and executive officers, is incorporated herein by
reference. See "WHERE YOU CAN FIND MORE INFORMATION" on page 53.
MARKET PRICE OF AND DIVIDENDS ON PEOPLES COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Peoples common stock trades on the Nasdaq National Market under the
symbol TSBS. As of May 3, 1999, there were approximately 7,325 stockholders of
record. The table below sets forth for the periods indicated the amount of
dividends declared per share and the quarterly ranges of high and low bid quotes
as reported on the Nasdaq National Market for the periods indicated. Such prices
do not necessarily reflect mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW DECLARED
------ ------ ---------
<S> <C> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1999
First Quarter........................................... $11.31 $ 9.44 $.0250
Second Quarter(1)....................................... $19.63 $ 9.13 $ --
FISCAL YEAR ENDED DECEMBER 31, 1998
First Quarter........................................... 11.77 10.20 .0229
Second Quarter.......................................... 11.38 9.94 .0250
Third Quarter........................................... 10.19 6.97 .0250
Fourth Quarter.......................................... 11.00 7.00 .0250
FISCAL YEAR ENDED DECEMBER 31, 1997
First Quarter........................................... 4.87 4.12 .0229
Second Quarter.......................................... 5.39 4.67 .0229
Third Quarter........................................... 8.76 5.00 .0229
Fourth Quarter.......................................... 11.96 7.32 .0229
</TABLE>
- ------------------
(1) Through May 27, 1999
On September 4, 1998, the last business day preceding public announcement
of the merger, the last sale price for Peoples common stock was $8.3125 per
share. On May 27, 1999, the last sale price for Peoples common stock was
$10.1563 per share. The average weekly trading volume for the Peoples common
stock during the quarter ended March 31, 1998 was approximately 1,132,057
shares.
The merger agreement permits Peoples to pay a regular quarterly cash
dividend not to exceed $.025 per share of Peoples common stock outstanding.
Peoples' ability to continue to pay dividends may be dependent upon its
receipt of dividends from Trenton Savings Bank. See Peoples' Annual Report on
Form 10-K for the fiscal year ended December 31, 1998, which is incorporated
herein by reference. See "WHERE YOU CAN FIND MORE INFORMATION" on page 53.
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DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES
The authorized capital stock of Sovereign consists of 400,000,000 shares of
common stock, no par value, and 7,500,000 shares of authorized preferred stock.
As of May 14, 1999, there were 158,054,071 shares of Sovereign common stock
issued and outstanding and no shares of preferred stock issued and outstanding.
There are no other shares of capital stock of Sovereign authorized, issued or
outstanding. Sovereign has no options, warrants, or other rights authorized,
issued or outstanding, other than as described herein under "Shareholder Rights
Plan" and options granted under Sovereign's stock option plans or in connection
with pending acquisitions by Sovereign.
COMMON STOCK
The holders of Sovereign common stock share ratably in dividends when and
if declared by the Sovereign Board of Directors from legally available funds.
Declaration and payment of cash dividends by Sovereign depends upon dividend
payments by Sovereign Bank, which are Sovereign's primary source of revenue and
cash flow. Sovereign is a legal entity separate and distinct from its
subsidiaries. Accordingly, the right of Sovereign, and consequently the right of
creditors and shareholders of Sovereign, to participate in any distribution of
the assets or earnings of any subsidiary is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of
Sovereign in its capacity as a creditor may be recognized.
Sovereign Bank cannot pay dividends on its capital stock or repurchase
shares of its stock if its shareholders' equity would be reduced below the
amount required for the liquidation accounts established in the respective
conversions from mutual to stock form of the predecessors of Sovereign Bank or
applicable regulatory capital requirements. Current OTS regulations require a
holding company's insured institutions to give the OTS 30 days advance notice of
any proposed declaration of dividends to the holding company, and the OTS has
the authority under its supervisory powers to prohibit the payment of dividends
to the holding company.
The OTS capital distribution rule provides for three tiers of savings
associations:
-- Tier 1 associations, associations that have total capital equal to or
greater than their fully phased-in capital requirements prior to, and on
a pro forma basis after giving effect to, a proposed capital
distribution;
-- Tier 2 associations, associations that have capital equal to or greater
than their minimum capital requirements, but less than their fully
phased-in capital requirements prior to, and on a pro forma basis after
giving effect to, a proposed capital distribution; and
-- Tier 3 associations, associations that do not meet their minimum capital
requirements, either before or after giving effect to a proposed capital
distribution.
At December 31, 1998, Sovereign Bank is a "Tier 1 association" both
historically and on a pro forma basis after giving effect to the bank merger.
Under the OTS capital distribution rule, a Tier 1 association may make capital
distributions of up to the greater of
-- 100% of its net income during a calendar year plus the amount that would
reduce by one-half its surplus capital ratio (the percentage by which
the association's capital-to-assets ratio exceeds the ratio of its fully
phased-in capital requirements to its assets) at the beginning of the
calendar year or
-- 75% of its net income over the most recent four-quarter period.
A Tier 1 association may make capital distributions in excess of these
limits if the OTS does not object after receiving notice. A Tier 2 association
can make distributions of up to 75% of net income over the most recent
four-quarter period if it satisfies its fully phased-in risk-based capital
requirement, or up to 50% of such net income if it satisfies its interim (90% of
fully phased-in amount) risk-based capital requirement. A Tier 2 association
may, through a written approval process, obtain OTS approval to make
distributions in excess of these amounts. Tier 3 associations are not authorized
to
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<PAGE>
make any capital distributions without prior written OTS approval unless, in the
case of an association operating in compliance with an approved capital plan,
the capital distribution is consistent with the association's capital plan. The
OTS has supervisory authority to prohibit the payment of capital distributions
for Tier 1 and Tier 2 associations.
Prior to the issuance of any Sovereign preferred stock which possesses
voting rights (see "Preferred Stock" below), the holders of shares of Sovereign
common stock will possess exclusive voting rights in Sovereign. Each holder of
shares of Sovereign common stock has one vote for each share held on matters
upon which shareholders have the right to vote. Sovereign shareholders cannot
cumulate votes in the election of directors.
The holders of Sovereign common stock have no preemptive rights to acquire
any additional shares of Sovereign. In addition, Sovereign common stock is not
subject to redemption.
Sovereign's Articles of Incorporation authorize the Sovereign Board of
Directors to issue authorized shares of Sovereign common stock without
shareholder approval. Sovereign common stock is included for quotation on the
Nasdaq National Market. As a result, in order to maintain such inclusion,
approval of Sovereign's shareholders is required for the issuance of additional
shares of Sovereign common stock or securities convertible into Sovereign common
stock if the issuance of such securities:
-- relates to acquisition of a company and the securities will have 20% or
more of the voting power outstanding before the issuance;
-- relates to acquisition of a company in which a director, officer or
substantial shareholder of Sovereign has a 5% or greater interest and
the issuance of the securities could result in an increase in
outstanding common stock or voting power of 5% or more;
-- relates to a transaction, other than a public offering, at a price less
than the greater of book or market value in which the shares issued will
equal 20% or more of the shares of Sovereign common stock or 20% or more
of the voting power outstanding before issuance; or
-- would result in a change in control of Sovereign.
Under Nasdaq National Market rules, shareholders must also approve a stock
option or purchase plan applicable to officers and directors other than a
broadly-based plan in which other security holders of Sovereign or employees of
Sovereign participate.
In the event of liquidation, dissolution or winding-up of Sovereign,
whether voluntary or involuntary, holders of Sovereign common stock share
ratably in any of its assets or funds that are available for distribution to its
shareholders after the satisfaction of its liabilities (or after adequate
provision is made therefor) and after payment of any liquidation preferences of
any outstanding Sovereign preferred stock.
PREFERRED STOCK
Sovereign's Board of Directors is authorized to approve the issuance of
Sovereign preferred stock, without any required approval of shareholders.
Sovereign's Board determines the rights and limitations on each series of
Sovereign preferred stock at the time of issuance. These rights may include
rights to participating dividends, voting and convertibility into shares of
Sovereign common stock. Shares of Sovereign preferred stock can have dividend,
redemption, voting, and liquidation rights taking priority over Sovereign common
stock, and may be convertible into Sovereign common stock.
SHAREHOLDER RIGHTS PLAN
Sovereign maintains a Shareholder Rights Plan designed to protect
shareholders from attempts to acquire control of Sovereign at an inadequate
price. Under the Shareholder Rights Plan, each outstanding share of Sovereign
common stock has attached to it one right to purchase one-hundredth of a share
of junior participating preferred stock at an initial exercise price of $40. The
rights are not
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currently exercisable or transferable, and no separate certificates evidencing
such rights will be distributed, unless certain events occur.
A holder can exercise the rights to purchase shares of the junior
participating preferred stock if a person, group or other entity acquires or
commences a tender offer or an exchange offer for 19.9% or more of total voting
power. A holder can also exercise if Sovereign's Board declines a person or
group who has become a beneficial owner of at least 4.9% of Sovereign common
stock or total voting power an "adverse person," as defined in the Rights Plan.
After the rights become exercisable the rights (other than rights held by a
19.9% beneficial owner or an "adverse person") generally will entitle the
holders to purchase either Sovereign common stock or the common stock of the
potential acquiror, in lieu of the junior participating preferred stock, at a
substantially reduced price.
Sovereign can generally redeem the rights at $.001 per right at any time
until the tenth business day following public announcement that a 19.9% position
has been acquired. At any time prior to the date the rights become
nonredeemable, the Sovereign Board of Directors can extend the redemption
period. Rights are not redeemable following an "adverse person" determination.
SPECIAL CHARTER AND PENNSYLVANIA CORPORATE LAW PROVISIONS
Sovereign's Articles of Incorporation and Bylaws contain certain provisions
which may have the effect of deterring or discouraging, among other things, a
nonnegotiated tender or exchange offer for Sovereign stock, a proxy contest for
control of Sovereign, the assumption of control of Sovereign by a holder of a
large block of Sovereign stock and the removal of Sovereign's management. These
provisions:
-- empower the Sovereign Board of Directors, without shareholder approval,
to issue Sovereign preferred stock the terms of which, including voting
power, are set by the Sovereign Board of Directors;
-- divide the Sovereign Board of Directors into three classes serving
staggered three-year terms;
-- restrict the ability of shareholders to remove directors;
-- require that shares with at least 80% of total voting power approve
mergers and other similar transactions with a person or entity holding
stock with more than 5% of Sovereign's voting power, if the transaction
is not approved, in advance, by the Sovereign Board of Directors;
-- prohibit shareholders' actions without a meeting;
-- require that shares with at least 80%, or in certain instances a
majority, of total voting power approve the repeal or amendment of
Sovereign's Articles of Incorporation;
-- require any person who acquires stock of Sovereign with voting power of
25% or more to offer to purchase for cash all remaining shares of
Sovereign voting stock at the highest price paid by such person for
shares of Sovereign voting stock during the preceding year;
-- eliminate cumulative voting in elections of directors;
-- require an affirmative vote of at least two-thirds of Sovereign's total
voting power in order for shareholders to repeal or amend Sovereign's
Bylaws;
-- require advance notice of nominations for the election of directors and
the presentation of shareholder proposals at meetings of shareholders;
and
-- provide that officers, directors, employees, agents and persons who own
5% or more of the voting securities of any other corporation or other
entity that owns 66 2/3% or more of Sovereign's outstanding voting stock
cannot constitute a majority of the members of Sovereign's Board of
Directors.
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The Pennsylvania Business Corporation Law of 1988 also contains certain
provisions applicable to Sovereign which may have the effect of impeding a
change in control of Sovereign. These provisions, among other things:
-- require that, following any acquisition of 20% of a public corporation's
voting power, the remaining shareholders have the right to receive
payment for their shares, in cash, from the requiring person or group in
an amount equal to the "fair value" of the shares, including an
increment representing a proportion of any value payable for control of
the corporation and
-- prohibit for five years, subject to certain exceptions, a "business
combination," which includes a merger or consolidation of the
corporation or a sale, lease or exchange of assets with a shareholder or
group of shareholders beneficially owning 20% or more of a public
corporation's voting power.
In 1990, Pennsylvania adopted legislation further amending the Pennsylvania
Business Corporation Law of 1988. To the extent applicable to Sovereign at the
present time, this legislation generally:
-- expands the factors and groups (including shareholders) which the
Sovereign Board of Directors can consider in determining whether a
certain action is in the best interests of the corporation;
-- provides that the Sovereign Board of Directors need not consider the
interests of any particular group as dominant or controlling;
-- provides that Sovereign's directors, in order to satisfy the presumption
that they have acted in the best interests of the corporation, need not
satisfy any greater obligation or higher burden of proof for actions
relating to an acquisition or potential acquisition of control;
-- provides that actions relating to acquisitions of control that are
approved by a majority of "disinterested directors" are presumed to
satisfy the directors' standard, unless it is proven by clear and
convincing evidence that the directors did not assent to such action in
good faith after reasonable investigation; and
-- provides that the fiduciary duty of Sovereign's directors is solely to
the corporation and may be enforced by the corporation or by a
shareholder in a derivative action, but not by a shareholder directly.
The 1990 amendments to the Pennsylvania Business Corporation Law of 1988
explicitly provide that the fiduciary duty of directors does not require
directors to:
-- redeem any rights under, or to modify or render inapplicable, any
shareholder rights plan;
-- render inapplicable, or make determinations under, provisions of the
Pennsylvania Business Corporation Law of 1988, relating to control
transactions, business combinations, control-share acquisitions or
disgorgement by certain controlling shareholders following attempts to
acquire control; or
-- act as the board of directors, a committee of the board or an individual
director solely because of the effect such action might have on an
acquisition or potential or proposed acquisition of control of the
corporation or the consideration that might be offered or paid to
shareholders in such an acquisition.
One of the effects of the 1990 fiduciary duty statutory provisions may be
to make it more difficult for a shareholder to successfully challenge the
actions of the Sovereign Board of Directors in a potential change in control
context. Pennsylvania case law appears to provide that the fiduciary duty
standard under the 1990 amendments to the Pennsylvania Business Corporation Law
of 1988 grants directors the statutory authority to reject or refuse to consider
any potential or proposed acquisition of the corporation.
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Sovereign opted out of coverage by the "disgorgement" and "control-share
acquisition" statutes included in the 1990 legislation, pursuant to a Bylaw
amendment as permitted by the legislation. To the extent applicable to a
Pennsylvania corporation, the "disgorgement" statute generally requires
disgorgement by any person or group who or which has acquired or publicly
disclosed an intent to acquire 20% or more of a corporation's voting power of
any profit realized from the sale of any shares acquired within specified time
periods of such acquisition or disclosure if the shares are sold within eighteen
months thereafter. The "control share acquisition" statute generally prohibits a
person or group who or which exceeds certain stock ownership thresholds (20%,
33 1/3% and 50%) for the first time from voting the "control shares" (i.e., the
shares owned in excess of the applicable threshold) unless voting rights are
restored by a vote of disinterested shareholders. As a result of Sovereign's
opt-out from coverage by these statutes, neither the "disgorgement" nor the
"control share acquisition" statute would apply to a nonnegotiated attempt to
acquire control of Sovereign, although such an attempt would still be subject to
the special charter and other provisions described in the preceding paragraphs.
Sovereign can reverse this action, and thereby cause the "disgorgement" and
"control share acquisition" statutes to apply to an attempt to acquire control
of Sovereign, by means of an amendment to Sovereign's Bylaws, which could be
adopted by the Board of Directors, without shareholder approval.
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COMPARISON OF SHAREHOLDER RIGHTS
If we complete the merger, shareholders of Peoples automatically will
become shareholders of Sovereign, and their rights as shareholders will be
determined by the Pennsylvania Business Corporation Law of 1988, and by
Sovereign's Articles of Incorporation and Bylaws. The following is a summary of
material differences between the rights of holders of Sovereign common stock and
the rights of holders of Peoples common stock. These differences arise from
various provisions of the Pennsylvania Business Corporation Law of 1988, and the
Delaware General Corporation Law, the Articles of Incorporation, Bylaws and
Shareholder Rights Plan of Sovereign and the Certificate of Incorporation and
Bylaws of Peoples.
DIRECTORS
Removal
Under Sovereign's Articles of Incorporation, Sovereign directors may be
removed from office without cause by the affirmative vote of a majority of
outstanding voting shares. Peoples directors, pursuant to Peoples' Certificate
of Incorporation, may only be removed for cause and only by the affirmative vote
of the holders of at least 80% of the outstanding voting capital stock.
Nomination
Shareholders of both Peoples and Sovereign are required to submit to their
respective companies, in writing and in advance, any nomination of a candidate
for election as a director. Sovereign's bylaws provide that such nominations
generally must be submitted not more than 120 days, and not less than 90 days,
prior to a scheduled meeting for the election of directors (unless less than 21
days' notice of the meeting is given to shareholders in which case such
nominations must be submitted within 7 days following the mailing of the notice
to shareholders). Peoples' Bylaws provide that its shareholders must submit
written nominations not less than 90 days prior to the date of the meeting for
the election of directors (unless less than 100 days' notice of the meeting is
given to shareholders in which case such nominations must be submitted not less
than 10 days following the day on which notice of the meeting was mailed or
public disclosure was made).
Limited Liability
A director of Sovereign is not personally liable to Sovereign, its
shareholders or others for any action taken or any failure to take any action
unless the director breached or failed to perform the duties of his or her
office as set forth under Pennsylvania law and such breach or failure
constitutes self-dealing, willful misconduct or recklessness; provided, however,
that there is no such elimination of liability arising under any criminal
statute or with respect to the payment of taxes pursuant to local, state or
federal law.
A director of Peoples is not personally liable to Peoples or its
shareholders for monetary damages for breach of fiduciary duty as a director
except for liability:
-- for any breach of the director's duty of loyalty;
-- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
-- for certain illegal dividends; or
-- for any transaction from which the director derived an improper personal
benefit.
Indemnification
The Certificate of Incorporation of Peoples and the Bylaws of Sovereign
each provide for indemnification of directors, officers and agents for certain
litigation-related liabilities and expenses.
Generally, directors, officers and employees of Peoples are entitled to
indemnification:
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-- in third party actions, if the person acted in good faith and in a
manner he reasonably believed to be in the best interests of Peoples
and, as to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful; and
-- in derivative actions, if the person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of
Peoples, provided the person has not been adjudged to be liable to
Peoples.
Indemnification by Peoples in both third party actions and derivative
actions can be made only in a specific case upon a finding by:
-- a majority vote of disinterested directors or a committee thereof, even
though less than a quorum;
-- independent legal counsel in a written opinion, or
-- by shareholders, that the appropriate standard for indemnification has
been met.
In comparison, directors, officers, employees and agents of Sovereign are
entitled to indemnification in both third party actions and derivative actions
unless there is a court finding that the act or failure to act giving rise to
the claim for indemnification constitutes willful misconduct or recklessness.
There is no requirement of a case-by-case determination that the applicable
standard of conduct has been met for a person to be entitled to indemnification.
SHAREHOLDERS' MEETINGS
Special meetings of Sovereign shareholders may be called at any time by any
of the following:
-- the Board of Directors at a duly called and held meeting of the Board of
Directors or upon the unanimous written consent of the members of the
Board of Directors; or
-- the Chairman of the Board or the Chief Executive Officer, but only upon
receiving written direction of at least a majority of directors then in
office.
Special meetings of Peoples shareholders may be called only by a majority
of the total number of directors of Peoples.
Shareholders of Sovereign are required to submit to Sovereign, in writing
and in advance, any matter desired to be placed on the agenda of an annual
meeting of shareholders. Such proposal generally must be submitted not more than
150 days and not less than 90 days prior to the meeting (or 7 days if less than
21 days' notice of the annual meeting is given to shareholders). Peoples' Bylaws
require that its shareholders submit to Peoples written notice of any matter
desired to be placed on the agenda of an annual meeting of shareholders not less
than 90 days prior to the date of the meeting (or 10 days if less than 100 days'
notice or prior public disclosure of the date of the meeting is given or made to
shareholders).
SHAREHOLDER RIGHTS PLAN
Sovereign has adopted a shareholder rights plan pursuant to which holders
of Sovereign common stock are entitled, under certain circumstances generally
involving an accumulation of Sovereign common stock, to purchase Sovereign
common stock or common stock of the potential acquiror at a substantially
reduced price. See "DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES -- Shareholder
Rights Plan."
Peoples does not have a shareholder rights plan.
REQUIRED SHAREHOLDER VOTES
General
Subject to the voting rights of any series of Sovereign preferred stock
then outstanding, the holders of Sovereign common stock possess exclusive voting
rights of Sovereign. Each holder of Sovereign common stock is entitled to one
vote for each share owned of record. There are no cumulative voting rights in
the election of directors. For general corporate action of the shareholders of
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Sovereign, the affirmative vote of a majority of the votes cast, in person or by
proxy, at a shareholders' meeting is required for approval.
The holders of Peoples common stock possess exclusive voting rights of
Peoples. Except as provided in the following paragraph, each holder of Peoples
common stock is entitled to one vote for each share owned of record. There are
no cumulative voting rights in the election of directors. For general corporate
action of the shareholders of Peoples, the affirmative vote of a majority of the
votes cast at a shareholders' meeting is required for approval.
As provided in Peoples' Certificate of Incorporation, record holders of
Peoples common stock who beneficially own in excess of 10% of the outstanding
shares of Peoples common stock are not entitled to any vote with respect to the
shares held in excess of the 10% limit. A person or entity is deemed to
beneficially own shares owned by an affiliate of, as well as persons acting in
concert with, such person or entity. Peoples' Certificate of Incorporation
authorizes the Board of Directors:
-- to make all determinations necessary to implement and apply the 10%
limit including determining whether persons or entities are acting in
concert; and
-- to demand that any person who is reasonably believed to beneficially own
stock in excess of the 10% limit supply information to Peoples to enable
the Board to implement and apply to the 10% limit. The Board of
Directors of Peoples is not aware of any person who beneficially owns
shares of Peoples common stock in excess of the 10% limit with respect
to the matters to be considered at the special meeting
Fundamental Changes
Sovereign's Articles of Incorporation require that a plan of merger,
consolidation, share exchange, division, conversion or asset transfer (in
respect of a sale, lease, exchange or other disposition of all, or substantially
all, the assets of Sovereign other than in the usual and regular course of
business) must be approved by the affirmative vote of shareholders entitled to
cast at least a majority of the votes which all shareholders are entitled to
cast, except that shareholder approval of any such transaction which is approved
in advance by at least 66 2/3% of the members of Sovereign's Board of Directors
requires only the affirmative vote of a majority of the votes cast. In the
absence of prior approval by Sovereign's Board of Directors, Sovereign's
Articles of Incorporation require a vote of shareholders with at least 80% of
Sovereign's total voting power to approve any merger, consolidation, share
exchange, asset transfer (in respect of a sale, lease, exchange or other
disposition of all, or substantially all, the assets of Sovereign) or similar
transactions involving a shareholder holding 5% or more of Sovereign's voting
power.
Under the Delaware General Corporation Law, a plan of merger,
consolidation, or asset transfer (in respect of a sale, lease, exchange or other
disposition of all, or substantially all, the assets of Peoples) must be
approved by the affirmative vote of a majority of the outstanding stock of
Peoples entitled to vote thereon; provided, however, that no vote of
shareholders of a constituent corporation surviving a merger shall be necessary
to authorize a merger:
-- the agreement of merger does not amend in any respect the certificate of
incorporation of such constituent corporation;
-- each share of stock of such constituent corporation outstanding
immediately prior to the effective date of the merger is to be an
identical outstanding or treasur share of the surviving corporation
after the effective date of the merger; and
-- either no shares of common stock of the surviving corporation and no
shares, securities or obligations convertible into such stock are to be
issued or delivered under the plan of merger, or the authorized unissued
shares or the treasury shares of common stock of the surviving
corporation to be issued or delivered under the plan of merger plus
those initially issuable upon conversion of any other shares, securities
or obligations to be issued or delivered under such plan do not exceed
20% of the shares of common stock of such constituent corporation
outstanding immediately prior to the effective date of the merger.
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In addition, Peoples' Certificate of Incorporation requires a vote of
shareholders with at least 80% of Peoples' total voting power to approve any
merger, consolidation, share exchange, asset transfer (in respect of a sale,
lease, exchange or other disposition of all, or substantially all, the assets of
Peoples) or similar transactions involving a shareholders holding 10% or more of
Peoples' voting power if such transaction is not approved by at least two-thirds
of Peoples' disinterested directors.
Amendment of Articles or Certificate of Incorporation
Sovereign's Articles of Incorporation contain various provisions that
require a super-majority vote of shareholders to amend or repeal particular
sections of such Articles. Amendment or repeal of the provisions of Sovereign's
Articles of Incorporation relating to noncumulative voting, the classification
of directors, the requirement of holding meetings for shareholder action, the
amendment of Bylaws generally, and the consideration of non-economic factors by
Sovereign's Board of Directors if evaluating a tender offer, all require:
-- the affirmative vote of 80% of the shares entitled to vote; or
-- the affirmative vote of 80% of the members of Sovereign's Board of
Directors and the affirmative in vote of shareholders entitled to cast
at least a majority of votes which all shareholders are entitled to
cast.
A supermajority vote of 80% of Peoples' shareholders, is required to amend
or repeal the provisions of Peoples' Certificate of Incorporation relating to
the requirements of holding meetings for stockholder action, the right to call
special meetings of shareholders being vested solely in the Board of Directors,
the classification and filling of vacancies on, and removal of members of, the
Peoples Board of Directors, the restriction on voting rights with respect to
shares held in excess of the 10% limit, the amendment of Bylaws generally, and
the super-majority vote requirement on a merger or similar transaction with a
10% or greater Peoples stockholder.
AMENDMENT OF BYLAWS
The authority to amend or repeal Sovereign's Bylaws is vested in
Sovereign's Board of Directors, subject always to the power of the shareholders
of Sovereign to change such action by the affirmative vote of shareholders
holding at least two-thirds of the voting power (except that any amendment to
the indemnification provisions set forth in the Bylaws shall require the
affirmative vote of two-thirds of the Board of Directors or shareholders holding
80% of the votes that all shareholders are entitled to cast). Similarly, the
authority to amend or repeal Peoples' Bylaws is vested in Peoples' Board of
Directors. By contrast, however, although Peoples' shareholders may amend or
repeal the Bylaws, a stockholder amendment to or repeal of any Bylaw provision
requires the affirmative vote of Peoples shareholders holding at least 80% of
the voting power.
MANDATORY TENDER OFFER PROVISION
Sovereign's Articles of Incorporation provide that any person or entity
acquiring Sovereign capital stock with 25% or more of Sovereign's total voting
power is required to offer to purchase, for cash, all shares of Sovereign's
voting stock, at a price per share equal to the highest price paid by such
person for each respective class of Sovereign's voting stock within the
preceding twelve months. The Pennsylvania Business Corporation Law of 1988 also
provides that following any acquisition by a person or group of more than 20% of
a publicly-held corporation's voting stock, the remaining shareholders have the
right to receive payment, in cash, for their shares from such person or group of
an amount equal to the "fair value" of their shares, including a proportionate
amount for any control premium.
Neither Peoples' Certificate of Incorporation, Bylaws nor the Delaware
General Corporation Law provide Peoples shareholders with similar rights.
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SPECIAL PENNSYLVANIA CORPORATE LAW PROVISIONS
For certain provisions of Pennsylvania corporate law relating to the
fiduciary duty of directors that differ from Delaware law, see "DESCRIPTION OF
SOVEREIGN CAPITAL SECURITIES -- Special Charter and Corporate Law Provisions" on
page 42.
ANTITAKEOVER PROVISIONS
Sovereign is subject to some, but not all, of various provisions of the
Pennsylvania Business Corporation Law of 1988 which are triggered, in general,
if any person or group acquires, or discloses an intent to acquire, 20% or more
of the voting power of a covered corporation, other than pursuant to a
registered firm commitment underwriting or, in certain cases, pursuant to the
approving vote of the Board of Directors. There are no analogous provisions in
the Delaware General Corporation Law. The relevant provisions are contained in
Subchapters 25E-H of the Pennsylvania Business Corporation Law of 1988.
Subchapter 25E of the Pennsylvania Business Corporation Law of 1988
(relating to control transactions) provides that if any person or group acquires
20% or more of the voting power of a covered corporation, the remaining
shareholders may demand from such person or group the fair value of their
shares, including a proportionate amount of any control premium.
Subchapter 25F of the Pennsylvania Business Corporation Law of 1988
(relating to business combinations) delays for five years and imposes conditions
upon "business combinations" between an "interested shareholder" and the
corporation. The term "business combination" is defined broadly to include
various transactions utilizing a corporation's assets for purchase price
amortization or refinancing purposes. For this purpose, an "interested
shareholder" is defined generally as the beneficial owner of at least 20% of a
corporation's voting shares.
Subchapter 25G of the Pennsylvania Business Corporation Law of 1988
(relating to control share acquisitions) prevents a person who has acquired 20%
or more of the voting power of a covered corporation from voting such shares
unless the "disinterested" shareholders approve such voting rights. Failure to
obtain such approval exposes the owner to the risk of a forced sale of the
shares to the issuer. Even if shareholder approval is obtained, the corporation
is also subject to Subchapters 25I and J of the Pennsylvania Business
Corporation Law of 1988. Subchapter 25I provides for a minimum severance payment
to certain employees terminated within two years of the approval. Subchapter 25J
prohibits the abrogation of certain labor contracts prior to their stated date
of expiration.
Subchapter 25H of the Pennsylvania Business Corporation Law of 1988
(relating to disgorgement) applies in the event that (i) any person or group
publicly discloses that the person or group may acquire control of the
corporation or (ii) a person or group acquires (or publicly discloses an offer
or intent to acquire) 20% or more of the voting power of the corporation and, in
either case, sells shares within 18 months thereafter. Any profits from sales of
equity securities of the corporation by the person or group during the 18-month
period belong to the corporation if the securities that were sold were acquired
during the 18-month period or within 24 months prior thereto.
Subchapters 25E-H of the Pennsylvania Business Corporation Law of 1988
contain a wide variety of transactional and status exemptions, exclusions and
safe harbors. As permitted under the Pennsylvania Business Corporation Law of
1988, Sovereign has opted out of the provisions of Subchapters 25G and H but is
subject to the provisions of Subchapters 25E and F. Such action can be reversed
under certain circumstances.
In addition, the fiduciary duty standards applicable to the Board of
Directors of Sovereign under the Pennsylvania Business Corporation Law of 1988,
and certain provisions of Sovereign's Articles of Incorporation and Bylaws may
have the effect of deterring or discouraging, among other things, a
nonnegotiated tender or exchange offer for Sovereign stock, a proxy contest for
control of Sovereign, the assumption of control of Sovereign by a holder of a
large block of Sovereign's stock and the removal of Sovereign's management. See
"DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES -- Special Charter and Pennsylvania
Corporate Law Provisions" on page 42.
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ADJOURNMENT
In the event that we do not have sufficient votes for a quorum or to
approve the merger agreement at the special meeting, Peoples intends to adjourn
the meeting to permit further solicitation of proxies. We can only use proxies
received by Peoples at the time of the special meeting to vote for adjournment,
if necessary, by submitting the question of adjournment to you as a separate
matter for consideration.
The Board of Directors of Peoples recommends that stockholders vote their
proxies in favor of the adjournment proposal so that their proxies may be used
to vote for an adjournment if necessary. The proxyholders will vote properly
executed proxies in favor of the adjournment proposal unless the proxies
indicate otherwise. If Peoples adjourns the special meeting, Peoples will not
give notice of the time and place of the adjourned meeting other than by an
announcement of such time and place at the special meeting.
EXPERTS
The consolidated financial statements of Sovereign, at December 31, 1998
and 1997 and for each of the three years in the period ended December 31, 1998,
included in Sovereign's Annual Report on Form 10-K for the year ended December
31, 1998, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference, which as to the years 1997 and 1996, is based in part on the reports
of other auditors. Such consolidated financial statements are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Peoples Bancorp, Inc. and
subsidiary as of December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998, included in Peoples' Annual Report on
Form 10-K for the year ended December 31, 1998, incorporated by reference herein
and in the Registration Statement have been incorporated by reference herein and
in the Registration Statement in reliance upon the report of KPMG LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Stevens & Lee, P.C. will pass on the validity of the Sovereign common stock
issued in the merger, certain federal income tax consequences of the merger.
Joseph E. Lewis, a director of Sovereign Bank, is a principal of the firm of
Stevens & Lee. Stevens & Lee and its attorneys own an aggregate of approximately
300,000 shares of Sovereign common stock, including shares issuable upon the
exercise of options issued to Mr. Lewis in his capacity as director of Sovereign
Bank.
Luse Lehman Gorman Pomerenk & Schick will pass on legal matters relating to
the merger for Peoples.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Board of Directors
of Peoples knows of no matters which will be presented for consideration at the
special meeting other than matters described in this proxy statement/prospectus.
However, if any other matters shall come before the special meeting or any
adjournments, the forms of proxy will confer discretionary authority to the
individuals named as proxies to vote the shares represented by the proxy on any
such matters.
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SHAREHOLDER PROPOSALS
Sovereign's 1999 Annual Meeting of Shareholders will be held on April 22,
1999. Sovereign's 2000 Annual Meeting of Shareholders will be held on or about
April 20, 2000. In accordance with the ByLaws of Sovereign, a shareholder who
desires to propose a matter for consideration at an annual meeting of
shareholders must provide notice thereof in writing, delivered or mailed by
first-class United States mail, postage prepaid, to the Secretary of Sovereign,
not less than 90 days nor more than 120 days prior to such annual meeting. Any
shareholder who desires to submit a proposal to be considered for inclusion in
Sovereign's proxy materials relating to its 2000 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 23, 1999.
WHERE YOU CAN FIND MORE INFORMATION
Sovereign and Peoples are subject to the informational requirements of the
Securities Exchange Act of 1934, and file reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, proxy statements and other information Sovereign and/or Peoples
files at the Securities and Exchange Commission's public reference rooms at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Securities and Exchange
Commission's Regional Offices in New York (7 World Trade Center, Suite 1300, New
York, New York 10048) and Chicago (Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661). You may call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Sovereign's and Peoples' Securities and Exchange Commission filings are
also available on the Securities and Exchange Commission's Internet site at
http://www.sec.gov.
Sovereign filed a Registration Statement on Form S-4 (No. 333-____) to
register with the Securities and Exchange Commission the Sovereign common stock
issuable to Peoples shareholders in the merger. This proxy statement/prospectus
is a part of that Registration Statement and constitutes a prospectus of
Sovereign in addition to being a proxy statement of Peoples for the special
meeting. As allowed by Securities and Exchange Commission rules, this proxy
statement/prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
Some of the information that you may want to consider in deciding how to
vote with respect to the merger is not physically included in this proxy
statement/prospectus, but rather is "incorporated by reference" to documents
that have been filed by Sovereign and Peoples with the Securities and Exchange
Commission. The information that is incorporated by reference consists of:
Documents filed by Sovereign (SEC File No. 0-16533):
-- Sovereign's Annual Report on Form 10-K for the year ended December 31,
1998, as amended by a Form 10-K/A filed June 1, 1999.
-- Sovereign's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, as amended by a Form 10-Q/A filed June 1, 1999.
-- Sovereign's Current Reports on Form 8-K filed March 19, 1999 and April
16, 1999.
-- Sovereign's Registration Statement on Form 8-A, filed August 14, 1989,
pursuant to which Sovereign registered certain stock purchase rights
under the Exchange Act and any amendments or reports filed for the
purpose of updating such Registration Statement.
Documents filed by Peoples (SEC File No. 0-22641):
-- Peoples' Annual Report on Form 10-K for the year ended December 31,
1998, as amended by a Form 10-K/A filed March 30, 1999.
-- People's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
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-- The description of the Peoples common stock contained in Peoples'
Registration Statement on Form 8-A filed pursuant to the Securities
Exchange Act of 1934, as amended, including any amendment thereto or
report filed under the Exchange Act for the purpose of updating such
description.
All documents filed by Sovereign and Peoples pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, after the
date of this proxy statement/prospectus and prior to the special meeting also
are incorporated by reference into this proxy statement/prospectus and will be
deemed to be a part hereof from the date of filing of such documents.
Any statement contained in a document that is incorporated by reference
will be deemed to be modified or superseded for all purposes to the extent that
a statement contained herein (or in any other document that is subsequently
filed with the Securities and Exchange Commission and incorporated by reference)
modifies or is contrary to that previous statement.
We may have sent you some of the documents incorporated by reference, but
you can obtain any of them through us or the Securities and Exchange Commission.
Documents incorporated by reference are available from Sovereign and/or Peoples
without charge, excluding all exhibits unless we have specifically incorporated
by reference an exhibit in this proxy statement/prospectus. Peoples shareholders
may obtain documents incorporated by reference in this proxy
statement/prospectus, with respect to Sovereign, by requesting them in writing
or by telephone from: Sovereign Bancorp, Inc., 1130 Berkshire Boulevard,
Wyomissing, PA 19610, Attention: David A. Silverman, Esquire (telephone number
(610) 320-8400), and with respect to Peoples, by requesting them in writing or
by telephone from: Peoples Bancorp, Inc., Attention: Robert C. Hollenbeck,
Corporate Secretary (telephone number (609) 844-3100). In order to ensure timely
delivery of such documents, any request should be made by June 10, 1999.
All information contained or incorporated by reference in this proxy
statement/prospectus relating to Sovereign and its subsidiaries has been
supplied by Sovereign. All information contained or incorporated by reference in
this proxy statement/prospectus relating to Peoples and its subsidiaries has
been supplied by Peoples.
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ANNEX A
AGREEMENT AND PLAN
OF MERGER
BETWEEN
SOVEREIGN BANCORP, INC.
AND
PEOPLES BANCORP, INC.
SEPTEMBER 7, 1998
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AGREEMENT
THIS AGREEMENT AND PLAN OF MERGER, dated as of September 7, 1998, is made
by and between SOVEREIGN BANCORP, INC. ("Sovereign"), a Pennsylvania
corporation, having its principal place of business in Wyomissing, Pennsylvania,
and PEOPLES BANCORP, INC. ("Peoples"), a Delaware corporation, having its
principal place of business in Lawrenceville, New Jersey.
BACKGROUND
1. Sovereign and Peoples desire for Peoples to merge with and into
Sovereign, with Sovereign surviving such merger, in accordance with the
applicable laws of the Commonwealth of Pennsylvania and the State of Delaware,
and in accordance with the plan of merger set forth herein.
2. At or prior to the execution and delivery of this Agreement, (a) certain
directors and officers of Peoples and affiliates of Peoples, each have executed
in favor of Sovereign, a Letter Agreement dated September 4, 1998, in the form
attached hereto as Exhibit 1, and (b) Peoples is concurrently granting to
Sovereign an option to acquire, under certain circumstances, Peoples' common
stock (the "Sovereign Option") pursuant to a Stock Option Agreement between
Sovereign and Peoples dated September 7, 1998, attached hereto as Exhibit 2.
3. Sovereign desires to merge Trenton Savings Bank, FSB, a federal savings
bank and a wholly-owned subsidiary of Peoples ("Trenton Savings"), into and with
Sovereign Bank, a federal savings bank and a wholly-owned subsidiary of
Sovereign ("Sovereign Bank"), with Sovereign Bank surviving such merger in
accordance with the Bank Plan of Merger in the form attached hereto as Exhibit
3.
4. Sovereign and Peoples desire to provide the terms and conditions
governing the transactions contemplated herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
parties hereto, intending to be legally bound, do hereby agree as follows:
ARTICLE I
THE MERGERS
Section 1.01 Definitions. As used in this Agreement, the following terms
shall have the indicated meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
Affiliate means, with respect to any Person, any Person who directly, or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such Person and, without limiting the
generality of the foregoing, includes any executive officer or director of such
Person and any Affiliate of such executive officer or director.
Agreement means this agreement, and any amendment or supplement hereto,
which constitutes a "plan of merger" between Sovereign and Peoples.
Applications means the applications for regulatory approval which are
required by the transactions contemplated hereby.
Articles of Merger means the articles of merger to be executed by Sovereign
and Peoples and to be filed in the PDS, in accordance with the applicable laws
of the Commonwealth of Pennsylvania.
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Bank Merger means the merger of Trenton Savings with and into Sovereign
Bank, with Sovereign Bank surviving such merger, contemplated by Section 1.03 of
this Agreement.
Bank Plan of Merger has the meaning given to that term in Section 1.03 of
this Agreement.
BCL means the Pennsylvania Business Corporation Law of 1988, as amended.
Certificate of Merger means the certificate of merger to be executed by
Sovereign and Peoples and to be filed in the DOSS, in accordance with the
applicable laws of the State of Delaware.
Closing Date means the date determined by Sovereign, in its sole
discretion, upon five (5) days prior written notice to Peoples, but in no event
later than thirty (30) days after the last condition precedent pursuant to this
Agreement has been fulfilled or waived (including the expiration of any
applicable waiting period), or such other date as Sovereign and Peoples shall
agree.
DGCL means the Delaware General Corporation Law, as amended.
DOSS mans the Delaware Office of the Secretary of State.
Effective Date means the date specified in the Articles of Merger filed in
the PDS and the Certificate of Merger filed in the DOSS, and shall be the same
as the Closing Date.
Environmental Law means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any Regulatory
Authority relating to (i) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated from time to time thereunder.
Exchange Ratio shall mean the exchange ratio provided for in Section
1.02(e)(ii).
FDIA means the Federal Deposit Insurance Act, as amended.
FDIC means the Federal Deposit Insurance Corporation.
FSLA means the Fair Labor Standards Act of 1938.
GAAP means generally accepted accounting principles as in effect at the
relevant date.
HOLA means the Home Owners' Loan Act of 1933, as amended.
IRC means the Internal Revenue Code of 1986, as amended.
IRS means the Internal Revenue Service.
Labor and Employment Law means any federal, state, local, or foreign law,
statute, ordinance, executive order, rule, regulation, code, consent, order,
judgment, decree, injunction or any agreement with any regulatory authority
relating to (i) employment discrimination or affirmative action, (ii) labor
relations, (iii) employee compensation or benefits, (iv) safety and health, (v)
wrongful or retaliatory discharge, and/or (vi) any other aspect of the
employment relationship. Such laws shall include, but not be limited to, Title
VII of the Civil Rights Act of 1964 as amended, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, the Family and Medical
Leave Act, the Employee Retirement Income Security Act, the Occupational Safety
and Health Act, the Fair Labor Standards Act, the Fair Credit Collection Act,
the Worker Adjustment and Retraining Notification Act, Executive Order 11246,
the Employee Polygraph Protection Act, the Equal Pay Act, the National
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Labor Relations Act, the Older Worker Benefit Protection Act, the Rehabilitation
Act, the Vietnam Era Veterans Readjustment Assistance Act, as well as any and
all state fair employment practices laws, any and all state labor relations
laws, any and all state wage and hour laws, any and all state wage payment and
collection laws, any and all state statutes regarding wrongful or retaliatory
discharge, and federal and state common law regarding employment discrimination
or affirmative action, labor relations, employee compensation or benefits,
safety and health and/or wrongful or retaliatory discharge.
Material Adverse Effect shall mean, with respect to Sovereign or Peoples,
respectively, any effect that is material and adverse to its assets, financial
condition or results of operations on a consolidated basis, provided, however,
that Material Adverse Effect shall not be deemed to include (a) any change in
the value of the respective investment and loan portfolios of Sovereign or
Peoples resulting from a change in interest rates generally, (b) any change
occurring after the date hereof in any federal or state law, rule or regulation
or in GAAP, which change affects banking institutions generally, including any
changes affecting the Bank Insurance Fund or the Savings Association Insurance
Fund, (c) reasonable expenses (plus reasonable legal fees, cost and expense
relating to any litigation arising as a result of the Merger and the cost
associated with Section 4.11 hereof) incurred in connection with this Agreement
and the transactions contemplated hereby, (d) actions or omissions of a party
(or any of its Subsidiaries) taken with the prior informed written consent of
the other party in contemplation of the transactions contemplated hereby
(including without limitation any actions taken by Peoples pursuant to Section
4.10(a)(ix) of this Agreement), and (e) any effect with respect to a party
hereto caused, in whole or in substantial part, by the other party.
Merger means the merger of Peoples with and into Sovereign, with Sovereign
surviving such merger, contemplated by this Agreement.
NASD means the National Association of Securities Dealers, Inc.
OTS means the Office of Thrift Supervision.
PDS means the Department of State of the Commonwealth of Pennsylvania.
Person means any individual, corporation, partnership, joint venture,
association, trust or "group" (as that term is defined in Section 13(d)(3) of
the Exchange Act).
Peoples Common Stock means the common stock of Peoples described in Section
2.02(a).
Peoples Disclosure Schedule means a disclosure schedule delivered by
Peoples to Sovereign pursuant to this Agreement.
Peoples Financials means (i) the audited consolidated financial statements
of Peoples as of December 31, 1997 and for the three years ended December 31,
1997, including the notes thereto and (ii) the unaudited interim consolidated
financial statements of Peoples as of each calendar quarter thereafter included
in Securities Documents filed by Peoples, including the notes thereto.
Peoples Stock Option Plans means the Trenton Savings Bank FSB and Peoples
Bancorp, MHC 1996 Stock Option Plan and the Peoples Bancorp, Inc. 1999 Stock
Option Plan.
Peoples Regulatory Reports means the Annual Reports of Peoples, Peoples
Bancorp MHC or Trenton Savings, as the case may be, on Form H-(b)11, any Current
Report of Peoples or Trenton Savings, as the case may be, on Form H-(b)11 filed
with the OTS from December 31, 1995 through the Closing Date and the Thrift
Financial Reports of Peoples or Trenton Savings, as the case may be, and
accompanying schedules for each calendar quarter, beginning with the quarter
ended December 31, 1995, through the Closing Date.
Peoples Subsidiary means any corporation, 50% or more of the capital stock
of which is owned, either directly or indirectly, by Peoples, except any
corporation the stock of which is held in the ordinary course of the lending
activities of Trenton Savings.
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Prospectus/Proxy Statement means the prospectus/proxy statement, together
with any supplements thereto, to be transmitted to holders of Peoples Common
Stock in connection with the transactions contemplated by this Agreement.
Registration Statement means the registration statement on Form S-4,
including any pre-effective or post-effective amendments or supplements thereto,
as filed with the SEC under the Securities Act with respect to the Sovereign
Common Stock and Sovereign Stock Purchase Rights to be issued in connection with
the transactions contemplated by this Agreement.
Regulatory Agreement has the meaning given to that term in Section 2.11 and
3.10 of this Agreement.
Regulatory Authority means any banking agency or department of any federal
or state government, including without limitation the OTS, the FDIC, or the
respective staffs thereof.
Rights means warrants, options, rights, convertible securities and other
capital stock equivalents which obligate an entity to issue its securities.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended, and the rules
and regulations promulgated from time to time thereunder.
Securities Documents means all registration statements, schedules,
statements, forms, reports, proxy material, and other documents required to be
filed under the Securities Laws.
Securities Laws means the Securities Act and the Exchange Act and the rules
and regulations promulgated from time to time thereunder.
Sovereign Common Stock has the meaning given to that term in Section
3.02(a) of this Agreement.
Sovereign Disclosure Schedule means a disclosure schedule delivered by
Sovereign to Peoples pursuant to this Agreement.
Sovereign Financials means (i) the audited consolidated financial
statements of Sovereign as of December 31, 1997 and for the three years ended
December 31, 1997, including the notes thereto and (ii) the unaudited interim
consolidated financial statements of Sovereign as of each calendar quarter
thereafter included in Securities Documents filed by Sovereign, including the
notes thereto.
Sovereign Market Price means, as of any date, the average of the mean
between the closing high bid and low asked prices of a share of Sovereign Common
Stock, as reported on the National Association of Securities Dealers Automated
Quotation System (Nasdaq) National Market System.
Sovereign Market Value means, as of any date, the average of the Sovereign
Market Prices for the fifteen consecutive trading days ending on the trading day
preceding the date as of which the Sovereign Market Value is determined.
Sovereign Option means the option granted to Sovereign by Peoples to
acquire such number of shares of Peoples Common Stock as shall equal 19.9% of
the shares of Peoples Common Stock outstanding before giving effect to the
exercise of such option referenced in the recitals to this Agreement.
Sovereign Regulatory Reports means the Annual Reports of Sovereign on Form
H-(b)11 filed with the OTS since December 31, 1995 through the Closing Date, any
Current Report of Sovereign on Form H-(b)11 filed with the OTS from December 31,
1995 through the Closing Date and the Thrift Financial Reports of Sovereign Bank
and accompanying schedules for each calendar quarter, beginning with the quarter
ended December 31, 1995, through the Closing Date.
Sovereign Rights Agreement means the Rights Agreement dated as of September
19, 1989, as amended September 27, 1995, between Sovereign and Chemical Bank, as
rights agent, relating to Sovereign's Series A Junior Participating Preferred
Stock.
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Sovereign Stock Purchase Rights means Rights to purchase a unit of
Sovereign's Series A Junior Participating Preferred Stock in accordance with the
terms of the Sovereign Rights Agreement.
Sovereign Subsidiaries means (i) any corporation, 50% or more of the
capital stock of which is owned, either directly or indirectly, by Sovereign,
except any corporation the stock of which is held in the ordinary course of the
lending activities of a bank and (ii) Sovereign Capital Trust I and any similar
entity sponsored or created by Sovereign after the date hereof.
Subsidiary means any corporation, 50% or more of the capital stock of which
is owned, either directly or indirectly, by another entity, except any
corporation the stock of which is held in the ordinary course of the lending
activities of a bank.
Section 1.02 The Merger.
(a) Closing. The closing will take place at 10:00 a.m. on the Closing Date
at such time and place as are agreed to by the parties hereto; provided, in any
case, that all conditions to closing set forth in Article V (other than the
delivery of certificates, opinions and other instruments and documents to be
delivered at the closing) have been satisfied or waived at or prior to the
Closing Date. On the Closing Date, Peoples and Sovereign shall cause the
Articles of Merger to be duly executed and to be filed in the PDS and the
Certificate of Merger to be duly executed and filed in the DOSS.
(b) The Merger. Subject to the terms and conditions of this Agreement, on
the Effective Date: Peoples shall merge with and into Sovereign; the separate
existence of Peoples shall cease; Sovereign shall be the surviving corporation
in the Merger; and all of the property (real, personal and mixed), rights,
powers and duties and obligations of Peoples shall be taken and deemed to be
transferred to and vested in Sovereign, as the surviving corporation in the
Merger, without further act or deed; all debts, liabilities and duties of each
of Peoples and Sovereign shall thereafter be the responsibility of Sovereign as
the surviving corporation; all in accordance with the applicable laws of the
Commonwealth of Pennsylvania and the State of Delaware.
(c) Sovereign's Articles of Incorporation and Bylaws. On and after the
Effective Date, the articles of incorporation and the bylaws of Sovereign, as in
effect immediately prior to the Effective Date, shall automatically be and
remain the articles of incorporation and bylaws of Sovereign, as the surviving
corporation in the Merger, until thereafter altered, amended or repealed.
(d) Board of Directors and Officers of Sovereign and Sovereign Bank.
(i) On the Effective Date, the Board of Directors of Sovereign, as
the surviving corporation in the Merger, shall consist of those persons
holding such office immediately prior to the Effective Date.
(ii) On the Effective Date, the officers of Sovereign duly elected and
holding office immediately prior to the Effective Date shall be the
officers of Sovereign, as the surviving corporation in the Merger, existing
on such Effective Date.
(iii) On the effective date of the Bank Merger, the Board of Directors
of Sovereign Bank, as the surviving institution in the Bank Merger, shall
consist of those persons holding such office immediately prior to such
effective date.
(iv) On the effective date of the Bank Merger, the officers of
Sovereign Bank duly elected and holding office immediately prior to such
effective date shall be the officers of Sovereign Bank, as the surviving
corporation in the Bank Merger.
(e) Conversion of Shares.
(i) Sovereign Common Stock.
(A) Each share of Sovereign Common Stock issued and outstanding
immediately prior to the Effective Date shall, on and after the
Effective Date, continue to be issued and outstanding as an identical
share of Sovereign Common Stock. Shares of Sovereign Common Stock owned
by Peoples (other than shares held in trust, managed, custodial or
nominee
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accounts and the like or held by mutual funds for which a subsidiary of
Peoples acts as investment advisor, that in any such case are
beneficially owned by third parties (any such shares, "trust account
shares") and shares acquired in respect of debts previously contracted
(any such shares, "DPC shares")) shall become treasury stock of
Sovereign.
(B) Each share of Sovereign Common Stock issued and held in the
treasury of Sovereign as of the Effective Date, if any, shall, on and
after the Effective Date, continue to be issued and held in the treasury
of Sovereign.
(ii) Peoples Common Stock.
(A) Subject to the provisions of subparagraphs (B), (C) and (D) of
this Section 1.02(e)(ii), each share of Peoples Common Stock issued and
outstanding immediately prior to the Effective Date (other than shares
of Peoples Common Stock, if any, then owned by Sovereign or Peoples or
any Peoples Subsidiary) shall, on the Effective Date, by reason of the
Merger and without any action on the part of the holder thereof, be
converted into and become a right to receive .80 fully paid and
nonassessable shares of Sovereign Common Stock, and the corresponding
percentage of Sovereign Stock Purchase Rights pursuant to the Sovereign
Rights Agreement.
(B) Each share of Peoples Common Stock owned by Sovereign or a
Sovereign Subsidiary on the Effective Date, if any, shall be cancelled.
(C) Each share of Peoples Common Stock issued and held in the
treasury of Peoples or owned by Peoples or any Peoples Subsidiary (other
than trust account shares or DPC shares) as of the Effective Date, if
any, shall be cancelled, and no cash, stock or other property shall be
delivered in exchange therefor.
(D) No fraction of a whole share of Sovereign Common Stock and no
scrip or certificates therefor shall be issued in connection with the
Merger. Any former holder of Peoples Common Stock who would otherwise be
entitled to receive a fraction of a share of Sovereign Common Stock
shall receive, in lieu thereof, cash in an amount equal to such fraction
of a share multiplied by the Sovereign Market Price determined as of the
Effective Date.
(f) Stock Options.
(i) On the Effective Date, each option to acquire Peoples Common Stock
which is then outstanding ("Peoples Option"), whether or not exercisable,
shall cease to represent a right to acquire shares of Peoples Common Stock
and shall be converted automatically into an option to purchase shares of
Sovereign Common Stock and the corresponding number of Sovereign Stock
Purchase Rights, and Sovereign shall assume each Peoples Option, in
accordance with the terms of the applicable Peoples Stock Option Plan and
stock option agreement by which it is evidenced, except that from and after
the Effective Date, (i) Sovereign and its Board of Directors or a duly
authorized committee thereof shall be substituted for Peoples and Peoples'
Board of Directors or duly authorized committee thereof administering such
Peoples Stock Option Plan, (ii) each Peoples Option assumed by Sovereign
may be exercised solely for shares of Sovereign Common Stock and Sovereign
Stock Purchase Rights, (iii) the number of shares of Sovereign Common Stock
subject to such Peoples Option shall be equal to the number of shares of
Peoples Common Stock subject to such Peoples Option immediately prior to
the Effective Date multiplied by the Applicable Exchange Ratio, provided
that any fractional shares of Sovereign Common Stock resulting from such
multiplication shall be rounded down to the nearest share, and (iv) the per
share exercise price under each such Peoples Option shall be adjusted by
dividing the per share exercise price under each such Peoples Option by the
Applicable Exchange Ratio, provided that such exercise price shall be
rounded down to the nearest cent. Notwithstanding clauses (iii) and (iv) of
the preceding sentence, each Peoples Option which is an "incentive stock
option" shall be adjusted as required by Section 424 of the IRC, and the
regulations promulgated thereunder, so as not to constitute a modification,
extension or renewal of the option within the meaning of Section
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424(h) of the IRC. Sovereign and Peoples agree to take all necessary steps
to effect the foregoing provisions of this Section 1.02(f).
(ii) Within 45 days after the Effective Date, Sovereign shall file a
registration statement on Form S-8 (or any other successor or appropriate
form) with respect to the shares of Sovereign Common Stock and Sovereign
Stock Purchase Rights subject to the options referenced in this Section
1.02(f) and relating to the 1999 RRP (as defined in Section 4.11(a) (vii)),
and shall use its reasonable best efforts to maintain the current status of
the prospectus or prospectuses contained therein for so long as such
options remain outstanding.
(g) Surrender and Exchange of Peoples Stock Certificates.
(i) Exchange of Certificates. Each holder of shares of Peoples Common
Stock who surrenders to Sovereign (or its agent) the certificate or
certificates representing such shares will be entitled to receive, as soon
as practicable after the Effective Date, in exchange therefor a certificate
or certificates for the number of whole shares of Sovereign Common Stock
into which such holder's shares of Peoples Common Stock have been converted
pursuant to the Merger, together with a check for cash in lieu of any
fractional share in accordance with Section 1.02(e)(ii)(D) hereof.
(ii) Rights Evidenced by Certificates. Each certificate for shares of
Sovereign Common Stock issued in exchange for certificates for Peoples
Common Stock pursuant to Section 1.02(g)(i) hereof will be dated the
Effective Date and be entitled to dividends and all other rights and
privileges pertaining to such shares of stock from and after the Effective
Date. Until surrendered, each certificate theretofore evidencing shares of
Peoples Common Stock will, from and after the Effective Date, evidence
solely the right to receive certificates for shares of Sovereign Common
Stock pursuant to Section 1.02(g)(i) hereof and a check for cash in lieu of
any fractional share in accordance with Section 1.02(e)(ii)(D) hereof. If
certificates for shares of Peoples Common Stock are exchanged for Sovereign
Common Stock at a date following one or more record dates for the payment
of dividends or of any other distribution on the shares of Sovereign Common
Stock, Sovereign will pay cash in an amount equal to dividends theretofore
payable on such Sovereign Common Stock and pay or deliver any other
distribution to which holders of shares of Sovereign Common Stock have
theretofore become entitled. Upon surrender of certificates for shares of
Peoples Common Stock in exchange for certificates for Sovereign Common
Stock, Sovereign also shall pay any dividends to which such holder of
Peoples Common Stock may be entitled as a result of the declaration of a
dividend on the Peoples Common Stock by Peoples in accordance with the
terms of this Agreement with a record date prior to the Effective Date and
a payment date after the Effective Date. No interest will accrue or be
payable in respect of dividends or cash otherwise payable under this
Section 1.02(g) upon surrender of certificates for shares of Peoples Common
Stock.
Notwithstanding the foregoing, no party hereto will be liable to any
holder of Peoples Common Stock for any amount paid in good faith to a
public official or agency pursuant to any applicable abandoned property,
escheat or similar law. Until such time as certificates for shares of
Peoples Common Stock are surrendered by a Peoples shareholder to Sovereign
for exchange, Sovereign shall have the right to withhold dividends or any
other distributions on the shares of Sovereign Common Stock issuable to
such shareholder.
(iii) Exchange Procedures. Each certificate for shares of Peoples
Common Stock delivered for exchange under this Section 1.02(g) must be
endorsed in blank by the registered holder thereof or be accompanied by a
power of attorney to transfer such shares endorsed in blank by such holder.
If more than one certificate is surrendered at one time and in one
transmittal package for the same shareholder account, the number of whole
shares of Sovereign Common Stock for which certificates will be issued
pursuant to this Section 1.02(g) will be computed on the basis of the
aggregate number of shares represented by the certificates so surrendered.
If shares of Sovereign Common Stock or payments of cash are to be issued or
made to a person other than the one in whose name the surrendered
certificate is registered, the certificate so surrendered must be
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properly endorsed in blank, with signature(s) guaranteed, or otherwise in
proper form for transfer, and the person to whom certificates for shares of
Sovereign Common Stock is to be issued or to whom cash is to be paid shall
pay any transfer or other taxes required by reason of such issuance or
payment to a person other than the registered holder of the certificate for
shares of Peoples Common Stock which are surrendered. As promptly as
reasonably practicable but in no event later than five (5) business days
after the Effective Date, Sovereign shall send or cause to be sent to each
shareholder of record of Peoples Common Stock transmittal materials for use
in exchanging certificates representing Peoples Common Stock for
certificates representing Sovereign Common Stock into which the former have
been converted in the Merger. Certificates representing shares of Sovereign
Common Stock and checks for cash in lieu of fractional shares shall be
mailed to former shareholders of Peoples as promptly as reasonably
practicable but in no event later than fifteen (15) business days following
the receipt of certificates representing former shares of Peoples Common
Stock duly endorsed or accompanied by the materials referenced herein and
delivered by certified mail, return receipt requested (but in no event
earlier than the second business day following the Effective Date).
(iv) Closing of Stock Transfer Books; Cancellation of Peoples
Certificates. Upon the Effective Date, the stock transfer books for
Peoples Common Stock will be closed and no further transfers of shares of
Peoples Common Stock will thereafter be made or recognized. All
certificates for shares of Peoples Common Stock surrendered pursuant to
this Section 1.02(g) will be cancelled by Sovereign.
(h) Anti-Dilution Provisions. If Sovereign shall, at any time before the
Effective Date, (A) issue a dividend in shares of Sovereign Common Stock, (B)
combine the outstanding shares of Sovereign Common Stock into a smaller number
of shares, (C) subdivide the outstanding shares of Sovereign Common Stock, or
(D) reclassify the shares of Sovereign Common Stock, then, in any such event,
the number of shares of Sovereign Common Stock to be delivered to Peoples
shareholders who are entitled to receive shares of Sovereign Common Stock in
exchange for shares of Peoples Common Stock shall be adjusted so that each
Peoples shareholder shall be entitled to receive such number of shares of
Sovereign Common Stock as such shareholder would have been entitled to receive
if the Effective Date had occurred immediately prior to the happening of such
event. (By way of illustration, if Sovereign shall declare a stock dividend of
7% payable with respect to a record date on or prior to the Effective Date, the
Exchange Ratio determined pursuant to Sections 1.02(e)(ii) hereof shall be
adjusted upward by 7%). In addition, in the event that, prior to the Effective
Date, Sovereign enters into an agreement pursuant to which shares of Sovereign
Common Stock would be converted into shares or other securities or obligations
of another corporation, proper provision shall be made in such agreement so that
each Peoples shareholder shall be entitled to receive such number of shares or
other securities or amount of obligations of such other corporation as such
shareholder would be entitled to receive if the Effective Date had occurred
immediately prior to the happening of such event.
Section 1.03 The Bank Merger. Sovereign and Peoples shall use their best
efforts to cause Trenton Savings to merge with and into Sovereign Bank, with
Sovereign Bank surviving such merger, as soon as practicable after the Effective
Date. Concurrently with, or as soon as practicable after, the execution and
delivery of this Agreement, Sovereign shall cause Sovereign Bank, and Peoples
shall cause Trenton Savings, to execute and deliver the Bank Plan of Merger
attached hereto as Exhibit 3.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PEOPLES
Peoples hereby represents and warrants to Sovereign that, except as
specifically set forth in the Peoples Disclosure Schedule delivered to Sovereign
by Peoples on the date hereof:
Section 2.01 Organization.
(a) Peoples is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Peoples is a savings and loan
holding company duly registered under the HOLA. Peoples has the corporate power
and authority to carry on its business and operations as now being conducted and
to own and operate the properties and assets now owned and being operated by it.
Peoples is qualified or licensed to do business as a foreign corporation in each
jurisdiction in which it is required to be so qualified or licensed as the
result of the ownership or leasing of property or the conduct of its business
except where the failure to be so qualified or licensed would not have a
Material Adverse Effect on Peoples.
(b) Trenton Savings is a federal savings bank duly organized and validly
existing under the laws of the United States of America. Trenton Savings has the
corporate power and authority to carry on its business and operations as now
being conducted and to own and operate the properties and assets now owned and
being operated by it. Trenton Savings and each other Peoples Subsidiary is
qualified or licensed to do business as a foreign corporation in each
jurisdiction in which it is required to be so qualified or licensed as the
result of the ownership or leasing of property or the conduct of its business,
except where the failure to be so qualified or licensed would not have a
Material Adverse Effect on Peoples.
(c) There are no Peoples Subsidiaries other than Trenton Savings and those
identified in the Peoples Disclosure Schedule.
(d) The deposits of Trenton Savings are insured by the FDIC to the extent
provided in the FDIA.
(e) The respective minute books of Peoples and Trenton Savings and each
other Peoples Subsidiary accurately record, in all material respects, all
material corporate actions of their respective shareholders and boards of
directors (including committees).
(f) Prior to the date of this Agreement, Peoples has delivered to Sovereign
true and correct copies of the articles of incorporation and bylaws of Peoples
and the charter and bylaws of Trenton Savings as in effect on the date hereof.
Section 2.02 Capitalization.
(a) The authorized capital stock of Peoples consists of (i) 70,000,000
shares of common stock, $0.01 par value per share ("Peoples Common Stock"), of
which 36,363,038 shares are outstanding, validly issued, fully paid and
nonassessable and free of preemptive rights and (ii) 1,000,000 shares of
preferred stock, $.01 par value per share, none of which are issued or
outstanding. Neither Peoples nor Trenton Savings nor any other Peoples
Subsidiary has or is bound by any subscription, option, warrant, call,
commitment, agreement, plan or other Right of any character relating to the
purchase, sale or issuance or voting of, or right to receive dividends or other
distributions on any shares of Peoples Common Stock, Peoples preferred stock or
any other security of Peoples or any securities representing the right to vote,
purchase or otherwise receive any shares of Peoples Common Stock, Peoples
preferred stock or any other security of Peoples, other than (i) shares issuable
under the Sovereign Option and (ii) 981,508 shares issuable or to be issued
under Peoples Stock Option Plans and as set forth in reasonable detail in the
Peoples Disclosure Schedule.
(b) The authorized capital stock of Trenton Savings consists of (i)
20,000,000 shares of common stock, $0.10 par value ("Trenton Savings Common
Stock"), of which 100 shares are outstanding, validly issued, fully paid,
nonassessable, free of preemptive rights, all of which are owned by Peoples free
and clear of any lien, security interests, pledges, charges and restrictions of
any kind or nature and (ii) 10,000,000 shares of preferred stock, $0.10 par
value, none of which are issued or outstanding. Neither Peoples nor any Peoples
Subsidiary has or is bound by any subscription, option, warrant, call,
commitment, agreement or other Right of any character relating to the purchase,
sale or issuance or voting of, or right to receive dividends or other
distributions on any shares of the capital stock of any
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Peoples Subsidiary or any other security of any Peoples Subsidiary or any
securities representing the right to vote, purchase or otherwise receive any
shares of the capital stock or any other security of any Peoples Subsidiary.
Either Peoples or Trenton Savings owns all of the outstanding shares of capital
stock of each Peoples Subsidiary free and clear of all liens, security
interests, pledges, charges, encumbrances, agreements and restrictions of any
kind or nature.
(c) Neither (i) Peoples, (ii) Trenton Savings, nor (iii) any other Peoples
Subsidiary, owns any equity interest, directly or indirectly, treasury stock, in
any other company or controls any other company, except for equity interests
held in the investment portfolios of Peoples Subsidiaries, equity interests held
by Peoples Subsidiaries in a fiduciary capacity, and equity interests held in
connection with the commercial loan activities of Peoples Subsidiaries. There
are no subscriptions, options, warrants, calls, commitments, agreements or other
Rights outstanding and held by Peoples or Trenton Savings with respect to any
other company's capital stock or the equity of any other person.
(d) To the best of Peoples' knowledge, except as disclosed in Peoples'
proxy statement dated April 21, 1998, no person or "group" (as that term is used
in Section 13(d)(3) of the Exchange Act), is the beneficial owner (as defined in
Section 13(d) of the Exchange Act) of 5% or more of the outstanding shares of
Peoples Common Stock.
Section 2.03 Authority; No Violation.
(a) Peoples has full corporate power and authority to execute and deliver
this Agreement and to complete the transactions contemplated hereby. Trenton
Savings has full corporate power and authority to execute and deliver the Bank
Plan of Merger and to complete the Bank Merger. The execution and delivery of
this Agreement by Peoples and the completion by Peoples of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of Peoples and, except for approval by the shareholders of Peoples as
required under the DGCL, Peoples' certificate of incorporation and bylaws and
Nasdaq requirements applicable to it, no other corporate proceedings on the part
of Peoples are necessary to complete the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Peoples and,
subject to (i) approval of the shareholders of Peoples as required under the
DGCL, Peoples' certificate of incorporation and bylaws and Nasdaq requirements
applicable to it and (ii) receipt of the required approvals from Regulatory
Authorities described in Section 3.04 hereof and compliance with such required
approvals, constitutes the valid and binding obligation of Peoples, enforceable
against Peoples in accordance with its terms, subject further to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of equity. The Bank
Plan of Merger, upon its execution and delivery by Trenton Savings concurrently
with the execution and delivery of this Agreement, will constitute the valid and
binding obligation of Trenton Savings, enforceable against Trenton Savings in
accordance with its terms, subject to applicable conservatorship or receivership
provisions of the FDIA, or insolvency and similar laws affecting creditors'
rights generally and subject, as to enforceability, to general principles of
equity.
(b) (A) The execution and delivery of this Agreement by Peoples, (B) the
execution and delivery of the Bank Plan of Merger by Trenton Savings, (C)
subject to receipt of approvals from the Regulatory Authorities referred to in
Section 3.04 hereof and Peoples' and Sovereign's compliance with any conditions
contained therein, the completion of the transactions contemplated hereby, and
(D) compliance by Peoples or Trenton Savings with any of the terms or provisions
hereof or of the Bank Plan of Merger, will not (i) conflict with or result in a
breach of any provision of the certificate of incorporation or bylaws of Peoples
or any Peoples Subsidiary or the charter and bylaws of Trenton Savings; (ii)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to Peoples or any Peoples Subsidiary or any of
their respective properties or assets; or (iii) violate, conflict with, result
in a breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in a right
of termination or acceleration or the creation of any lien, security interest,
charge or other encumbrance upon any of the properties or assets of Peoples or
any Peoples Subsidiary under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement,
commitment or other instrument or obligation to which Peoples or any Peoples
Subsidiary is a party, or
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by which they or any of their respective properties or assets may be bound or
affected, except for such violations, conflicts, breaches or defaults under
clause (ii) or (iii) hereof which, either individually or in the aggregate, will
not have a Material Adverse Effect on Peoples.
Section 2.04 Consents. Except for the consents, approvals, filings and
registrations from or with the Regulatory Authorities referred to in Section
3.04 hereof and compliance with any conditions contained therein, and the
approval of this Agreement by the shareholders of Peoples under the DGCL,
Peoples' certificate of incorporation and bylaws, and Nasdaq requirements
applicable to it, and the approval of the Bank Plan of Merger by Peoples as sole
shareholder of Trenton Savings under the HOLA, and by the Trenton Savings Board
of Directors, no consents or approvals of, or filings or registrations with, any
public body or authority are necessary, and no consents or approvals of any
third parties are necessary, or will be, in connection with (a) the execution
and delivery of this Agreement by Peoples or the Bank Plan of Merger by Trenton
Savings, and (b) the completion by Peoples of the transactions contemplated
hereby or by Trenton Savings of the Bank Merger. As of the date hereof, Peoples
has no reason to believe that (i) any required consents or approvals will not be
received or will be received with conditions, limitations or restrictions
unacceptable to it or which would adversely impact Peoples' ability to complete
the transactions contemplated by this Agreement or that (ii) any public body or
authority, the consent or approval of which is not required or any filing with
which is not required, will object to the completion of the transactions
contemplated by this Agreement. Shareholders of Peoples are not entitled to
exercise dissenters' rights in connection with the transactions contemplated by
this Agreement under federal or Delaware law.
Section 2.05 Financial Statements.
(a) Peoples has previously delivered or will deliver to Sovereign the
Peoples Regulatory Reports. The Peoples Regulatory Reports have been, or will
be, prepared in all material respects in accordance with applicable regulatory
accounting principles and practices throughout the periods covered by such
statements, and fairly present, or will fairly present in all material respects,
the financial position, results of operations and changes in shareholders'
equity of Peoples as of and for the periods ended on the dates thereof, in
accordance with applicable regulatory accounting principles applied on a
consistent basis.
(b) Peoples has previously delivered to Sovereign the Peoples Financials.
The Peoples Financials have been, or will be, prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered by such statements,
except as noted therein, and fairly present, or will fairly present, the
consolidated financial position, results of operations and cash flows of Peoples
as of and for the periods ended on the dates thereof, in accordance with GAAP
applied on a consistent basis, except as noted therein.
(c) At the date of each balance sheet included in the Peoples Financials or
the Peoples Regulatory Reports, neither Peoples nor Trenton Savings (as the case
may be) had, or will have any liabilities, obligations or loss contingencies of
any nature (whether absolute, accrued, contingent or otherwise) of a type
required to be reflected in such Peoples Financials or Peoples Regulatory
Reports or in the footnotes thereto which are not fully reflected or reserved
against therein or fully disclosed in a footnote thereto, except for
liabilities, obligations and loss contingencies which are not material in the
aggregate and which are incurred in the ordinary course of business, consistent
with past practice and except for liabilities, obligations and loss
contingencies which are within the subject matter of a specific representation
and warranty herein and subject, in the case of any unaudited statements, to
normal, recurring audit adjustments and the absence of footnotes.
Section 2.06 Taxes. Peoples and the Peoples Subsidiaries are members of
the same affiliated group within the meaning of IRC Section 1504(a). Peoples has
duly filed, and will file, all federal, state and local tax returns required to
be filed by or with respect to Peoples and all Peoples Subsidiaries on or prior
to the Closing Date (all such returns being accurate and correct in all material
respects) and has duly paid or will pay, or made or will make, provisions for
the payment of all federal, state and local taxes which have been incurred by or
are due or claimed to be due from Peoples and any Peoples Subsidiary by any
taxing authority or pursuant to any tax sharing agreement or arrangement
(written or oral) on or prior to the Closing Date other than taxes which (i) are
not delinquent or (ii) are being contested in good faith.
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Section 2.07 No Material Adverse Effect. Peoples has not suffered any
Material Adverse Effect since December 31, 1997.
Section 2.08 Contracts.
(a) Except as described in this Agreement, or in the Peoples Disclosure
Schedule, neither Peoples nor any Peoples Subsidiary is a party to or subject
to: (i) any employment, consulting or severance contract or arrangement with any
past or present officer, director or employee of Peoples or any Peoples
Subsidiary, except for "at will" arrangements; (ii) any plan, arrangement or
contract providing for bonuses, pensions, options, deferred compensation,
retirement payments, profit sharing or similar arrangements for or with any past
or present officers, directors or employees of Peoples or any Peoples
Subsidiary; (iii) any collective bargaining agreement with any labor union
relating to employees of Peoples or any Peoples Subsidiary; (iv) any agreement
which by its terms limits the payment of dividends by any Peoples Subsidiary;
(v) any instrument evidencing or related to indebtedness for borrowed money
whether directly or indirectly, by way of purchase money obligation, conditional
sale, lease purchase, guaranty or otherwise, in respect of which Peoples or any
Peoples Subsidiary is an obligor to any person, which instrument evidences or
relates to indebtedness other than deposits, repurchase agreements, Federal Home
Loan Bank advances and repurchases, bankers acceptances and "treasury tax and
loan" accounts established in the ordinary course of business and transactions
in "federal funds" or which contains financial covenants or other restrictions
(other than those relating to the payment of principal and interest when due)
which would be applicable on or after the Closing Date to Sovereign or any
Sovereign Subsidiary; or (vi) any contract (other than this Agreement) limiting
the freedom of any Peoples Subsidiary to engage in any type of banking or bank-
related business permissible under law.
(b) True and correct copies of agreements, plans, arrangements and
instruments referred to in Section 2.08(a) have been provided to Sovereign on or
before the date hereof, are listed on the Peoples Disclosure Schedule and are in
full force and effect on the date hereof and neither Peoples nor any Peoples
Subsidiary (nor, to the knowledge of Peoples, any other party to any such
contract, plan, arrangement or instrument) has breached any provision of, or is
in default in any respect under any term of, any such contract, plan,
arrangement or instrument which breach has resulted in or will result in a
Material Adverse Effect with respect to Peoples. Except as described in this
Agreement or as set forth in the Peoples Disclosure Schedule, (i) no party to
any material contract, plan, arrangement or instrument will have the right to
terminate any or all of the provisions of any such contract, plan, arrangement
or instrument as a result of the transactions contemplated by this Agreement,
(ii) none of the employees (including officers) of Peoples or any Peoples
Subsidiary, possess the right to terminate their employment as a result of the
execution of this Agreement, (iii) no plan, employment agreement, termination
agreement, or similar agreement or arrangement to which Peoples or any Peoples
Subsidiary is a party or under which Peoples or any Peoples Subsidiary may be
liable contains provisions which permit an employee or independent contractor to
terminate it without cause and continue to accrue future benefits thereunder,
and (iv) no such agreement, plan or arrangement (x) provides for acceleration in
the vesting of benefits or payments due thereunder upon the occurrence of a
change in ownership or control of Peoples or any Peoples Subsidiary absent the
occurrence of a subsequent event; (y) provides for benefits which may cause the
disallowance of a federal income tax deduction under IRC Section 280G; or (z)
requires Peoples or any Peoples Subsidiary to provide a benefit in the form of
Peoples Common Stock or determined by reference to the value of Peoples Common
Stock.
Section 2.09 Ownership of Property; Insurance Coverage.
(a) Peoples and the Peoples Subsidiaries have, or will have as to property
acquired after the date hereof, good and, as to real property, marketable title
to all assets and properties owned by Peoples or any Peoples Subsidiary in the
conduct of their businesses, whether such assets and properties are real or
personal, tangible or intangible, including assets and property reflected in the
balance sheets contained in the Peoples Regulatory Reports and in the Peoples
Financials or acquired subsequent thereto (except to the extent that such assets
and properties have been disposed of for fair value, in the ordinary course of
business, since the date of such balance sheets), subject to no encumbrances,
liens, mortgages, security interests or pledges, except (i) those items which
secure repurchase agreements
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and liabilities for borrowed money from a Federal Home Loan Bank, (ii) statutory
liens for amounts not yet delinquent or which are being contested in good faith
and (iii) items permitted under Article IV. Peoples and the Peoples
Subsidiaries, as lessee, have the right under valid and subsisting leases of
real and personal properties used by Peoples and its Subsidiaries in the conduct
of their businesses to occupy or use all such properties as presently occupied
and used by each of them. Such existing leases and commitments to lease
constitute or will constitute operating leases for both tax and financial
accounting purposes and the lease expense and minimum rental commitments with
respect to such leases and lease commitments are as disclosed in the Notes to
the Peoples Financials.
(b) With respect to all agreements pursuant to which Peoples or any Peoples
Subsidiary has purchased securities subject to an agreement to resell, if any,
Peoples or such Peoples Subsidiary, as the case may be, has a valid, perfected
first lien or security interest in the securities or other collateral securing
the repurchase agreement, and the value of such collateral equals or exceeds the
amount of the debt secured thereby.
(c) Peoples and the Peoples Subsidiaries currently maintain insurance
considered by Peoples to be reasonable for their respective operations and
similar in scope and coverage to that maintained by other businesses similarly
engaged. Neither Peoples nor any Peoples Subsidiary has received notice from any
insurance carrier that (i) such insurance will be cancelled or that coverage
thereunder will be reduced or eliminated, or (ii) premium costs with respect to
such policies of insurance will be substantially increased. There are presently
no material claims pending under such policies of insurance and no notices have
been given by Peoples or Trenton Savings under such policies. All such insurance
is valid and enforceable and in full force and effect, and within the last three
years Peoples and Trenton Savings have received each type of insurance coverage
for which they have applied and during such periods have not been denied
indemnification for any material claims submitted under any of their insurance
policies.
Section 2.10 Legal Proceedings. Except as set forth in the Peoples
Disclosure Schedule, neither Peoples nor any Peoples Subsidiary is a party to
any, and there are no pending or, to the best of Peoples' knowledge, threatened
legal, administrative, arbitration or other proceedings, claims (whether
asserted or unasserted), actions or governmental investigations or inquiries of
any nature (i) against Peoples or any Peoples Subsidiary, (ii) to which Peoples
or any Peoples Subsidiary's assets are or may be subject, (iii) challenging the
validity or propriety of any of the transactions contemplated by this Agreement,
or (iv) which could adversely affect the ability of Peoples to perform under
this Agreement, except for any proceedings, claims, actions, investigations or
inquiries referred to in clauses (i) or (ii) which, if adversely determined,
individually or in the aggregate, could not be reasonably expected to have a
Material Adverse Effect on Peoples.
Section 2.11 Compliance With Applicable Law.
(a) Peoples and Peoples Subsidiaries hold all licenses, franchises, permits
and authorizations necessary for the lawful conduct of their businesses under,
and have complied in all material respects with, applicable laws, statutes,
orders, rules or regulations of any federal, state or local governmental
authority relating to them, other than where such failure to hold or such
noncompliance will neither result in a limitation in any material respect on the
conduct of their businesses nor otherwise have a Material Adverse Effect on
Peoples.
(b) Neither Peoples nor any Peoples Subsidiary has received any
notification or communication from any Regulatory Authority (i) asserting that
Peoples or any Peoples Subsidiary is not in compliance with any of the statutes,
regulations or ordinances which such Regulatory Authority enforces; (ii)
threatening to revoke any license, franchise, permit or governmental
authorization which is material to Peoples or any Peoples Subsidiary; (iii)
requiring or threatening to require Peoples or any Peoples Subsidiary, or
indicating that Peoples or any Peoples Subsidiary may be required, to enter into
a cease and desist order, agreement or memorandum of understanding or any other
agreement restricting or limiting, or purporting to restrict or limit, in any
manner the operations of Peoples or any Peoples Subsidiary, including without
limitation any restriction on the payment of dividends; or (iv) except for the
order issued by the OTS in connection with its conversion in 1997, directing,
restricting or limiting, or purporting to direct, restrict or limit, in any
manner the operations of Peoples or any Peoples Subsidiary, including without
limitation any restriction on the payment of dividends (any such
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notice, communication, memorandum, agreement or order described in this sentence
is hereinafter referred to as a "Regulatory Agreement"). Neither Peoples nor any
Peoples Subsidiary has consented to or entered into any Regulatory Agreement
except in connection with its conversion. Peoples has no reason to believe that
it will not receive regulatory approval for the Merger. Peoples received a
rating of "satisfactory" in connection with its last CRA examination.
Section 2.12 ERISA. Peoples has previously delivered to Sovereign true and
complete copies of all employee pension benefit plans within the meaning of
ERISA Section 3(2), including profit sharing plans, employee stock ownership
plan, stock purchase plans, deferred compensation and supplemental income plans,
supplemental executive retirement plans, employment agreements, annual executive
and administrative incentive plan or long term incentive plans, severance plans,
policies and agreements, group insurance plans, and all other employee welfare
benefit plans within the meaning of ERISA Section 3(1) (including vacation pay,
sick leave, short-term disability, long-term disability, and medical plans) and
all other employee benefit plans, policies, agreements and arrangements, all of
which are set forth in the Peoples Disclosure Schedule, sponsored or contributed
to for the benefit of the employees or former employees (including retired
employees) and any beneficiaries thereof or directors or former directors of
Peoples or any Peoples Subsidiary, together with (i) the most recent actuarial
(if any) and financial reports relating to those plans which constitute
"qualified plans" under IRC Section 401(a), (ii) the most recent annual reports
relating to such plans filed by them, respectively, with any government agency,
and (iii) all rulings and determination letters which pertain to any such plans.
Neither Peoples, any Peoples Subsidiary, nor any pension plan maintained by
Peoples or any Peoples Subsidiary, has incurred, directly or indirectly, within
the past six (6) years any liability under Title IV of ERISA (including to the
Pension Benefit Guaranty Corporation) or to the IRS with respect to any pension
plan qualified under IRC Section 401(a) which liability has resulted in or will
result in a Material Adverse Effect with respect to Peoples, except liabilities
to the Pension Benefit Guaranty Corporation pursuant to ERISA Section 4007, all
of which have been fully paid, nor has any reportable event under ERISA Section
4043 occurred with respect to any such pension plan which would result in a
Material Adverse Effect. With respect to each of such plans that is subject to
Title IV of ERISA, the present value of the accrued benefits under such plan,
based upon the actuarial assumptions used for funding purposes in the plan's
most recent actuarial report did not, as of its latest valuation date, exceed
the then current value of the assets of such plan allocable to such accrued
benefits. Neither Peoples nor any Peoples Subsidiary has incurred or is subject
to any liability under ERISA Section 4201 for a complete or partial withdrawal
from a multiemployer plan. All "employee benefit plans," as defined in ERISA
Section 3(3), comply and within the past six (6) years have complied in all
material respects with (i) relevant provisions of ERISA and (ii) in the case of
plans intended to qualify for favorable income tax treatment, provisions of the
IRC relevant to such treatment. No prohibited transaction (which shall mean any
transaction prohibited by ERISA Section 406 and not exempt under ERISA Section
408 or any transaction prohibited under IRC Section 4975) has occurred within
the past six (6) years with respect to any employee benefit plan maintained by
Peoples or any Peoples Subsidiary which would result in the imposition, directly
or indirectly, of an excise tax under IRC Section 4975 or other penalty under
ERISA or the IRC, which, individually or in the aggregate, has resulted in or
will result in a Material Adverse Effect with respect to Peoples. Peoples and
the Peoples Subsidiaries provide continuation coverage under group health plans
for separating employees and "qualified beneficiaries" in accordance with the
provisions of IRC Section 4980B(f). Such group health plans are in material
compliance with Section 1862(b)(1) of the Social Security Act. The forms of the
Peoples' proposed 1999 Stock Option Plan and Peoples' proposed 1999 Management
Recognition Award Plan are set forth in the Peoples Disclosure Schedule.
Section 2.13 Brokers, Finders and Financial Advisors; Fairness
Opinion. Except for Peoples' engagement of Berwind Financial, LP ("Berwind") in
connection with transactions contemplated by this Agreement, neither Peoples nor
any Peoples Subsidiary, nor any of their respective officers, directors,
employees or agents, has employed any broker, finder or financial advisor in
connection with the transactions contemplated by this Agreement or in connection
with any transaction other than the Merger, or, except for its commitments
disclosed in Peoples Disclosure Schedule, incurred any liability or commitment
for any fees or commissions to any such person in connection with the
transactions contemplated by this Agreement or in connection with any
transaction other than the Merger, which has not been reflected in the Peoples
Financials. The Peoples Disclosure Schedule shall contain as an
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exhibit the engagement letter between Peoples and Berwind. Berwind has provided
Peoples with its written opinion to the effect that, as of the date of approval
of this Agreement by the Board of Directors of Peoples, the Exchange Ratio is
fair to Peoples shareholders from a financial point of view.
Section 2.14 Environmental Matters. To the knowledge of Peoples, neither
Peoples nor any Peoples Subsidiary, nor any properties operated by Peoples or
any Peoples Subsidiary during Peoples' use or ownership has been or is in
violation of or liable under any Environmental Law which violation or liability,
individually or in the aggregate, resulted in, or will result, in a Material
Adverse Effect with respect to Peoples. There are no actions, suits or
proceedings, or demands, claims, notices or investigations (including without
limitation notices, demand letters or requests for information from any
environmental agency) instituted or pending, or to the knowledge of Peoples,
threatened, relating to the liability of any property owned or operated by
Peoples or any Peoples Subsidiary under any Environmental Law.
Section 2.15 Allowance for Losses. The allowance for loan losses
reflected, and to be reflected, in the Peoples Regulatory Reports, and shown,
and to be shown, on the balance sheets contained in the Peoples Financials have
been, and will be, established in accordance with the requirements of GAAP and
all applicable regulatory criteria.
Section 2.16 Information to be Supplied. The information to be supplied by
Peoples and Trenton Savings for inclusion in the Registration Statement
(including the Prospectus/Proxy Statement) and/or any information Peoples filed
with the SEC under the Exchange Act which is incorporated by reference into the
Registration Statement (including the Prospectus/Proxy Statement) will not, at
the time the Registration Statement is declared effective pursuant to the
Securities Act and as of the date the Prospectus/Proxy Statement is mailed to
shareholders of Peoples and up to and including the date of the meeting of
shareholders of Peoples to which such Prospectus/Proxy Statement relates,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein not misleading. The
information supplied, or to be supplied, by Peoples for inclusion in the
Applications will, at the time such documents are filed with any Regulatory
Authority and up to and including the date of the attainment of any required
regulatory approvals or consents, be accurate in all material respects.
Section 2.17 Securities Documents. Peoples has delivered to Sovereign
copies of its (i) annual report on SEC Form 10-K for the year ended December 31,
1997, (ii) quarterly reports on SEC Form 10-Q for the quarters ended March 31,
1998 and June 30, 1998 and (iii) proxy materials used in connection with its
meeting of shareholders held in 1998. Such reports and such proxy materials
complied, at the time filed with the SEC, in all material respects, with the
Exchange Act and all applicable rules and regulations of the SEC.
Section 2.18 Related Party Transactions. Except as disclosed in the
Peoples' Securities Documents, in the footnotes to the Peoples Financials, or in
the Peoples Disclosure Schedule, Peoples is not a party to any transaction
(including any loan or other credit accommodation, but excluding deposits in the
ordinary course of business) with any Affiliate of Peoples (except a Peoples
Subsidiary). All such transactions (a) were made in the ordinary course of
business, (b) were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other Persons, and (c) did not involve more than the normal
risk of collectability or present other risks or unfavorable features. No loan
or credit accommodation to any Affiliate of Peoples is presently in default or,
during the three year period prior to the date of this Agreement, has been in
default or has been restructured, modified or extended. Neither Peoples nor
Trenton Savings has been notified that principal and interest with respect to
any such loan or other credit accommodation will not be paid when due or that
the loan grade classification accorded such loan or credit accommodation by
Trenton Savings is inappropriate.
Section 2.19 Schedule of Termination Benefits. The Peoples Disclosure
Schedule includes a schedule of the present value as of December 31, 1998 of
termination benefits and related payments which would be payable to the
individuals identified thereon, excluding any options to acquire Peoples Common
Stock granted to such individuals, under any and all employment agreements,
special termination agreements, supplemental executive retirement plans,
deferred bonus plans, deferred compensation plans, salary continuation plans, or
any other pension benefit or welfare benefit plan
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maintained by Peoples solely for the benefit of executive officers of Peoples or
any Peoples Subsidiary (the "Benefits Schedule"), assuming their employment is
terminated as of April 2, 1999 and the Closing Date occurs on April 1, 1999. No
other individuals are entitled to benefits under any such plans. The present
value of the termination benefits and related payments specified, including
required gross-up payments under Section 280G of the IRC, on the Benefit
Schedule with respect to each named individual (based on a 6% per annum discount
factor) is true and correct in all material respects. Except as set forth in
Peoples Disclosure Schedule, as of the date of this Agreement, no Peoples
director had deferred any compensation accrued by Peoples.
Section 2.20 Loans. Each loan reflected as an asset in the Peoples
Financial Statements (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and correct (ii) to the extent secured, has
been secured by valid liens and security interests which have been perfected,
and (ii) is the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles, in
each case other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on Peoples.
Section 2.21 Antitakeover Provisions Inapplicable. The provisions of
Section 203 of the DGCL do not and will not apply to this Agreement or the
transactions contemplated hereby.
Section 2.22 Labor and Employment Matters. To the knowledge of Peoples,
neither Peoples nor any Peoples Subsidiary, nor any facilities owned or operated
by Peoples or any Peoples Subsidiary has been or is in violation of or is liable
under any Labor and Employment Law, which violation or liability, individually
or in the aggregate, resulted in, or will result in, a Material Adverse Effect
with respect to Peoples. There are no legal, administrative, arbitration or
other proceedings, demands, claims, notices or investigations (including without
limitation notices, demand letters or requests for information from any federal,
state or local commission, agency or board) instituted or pending, or to the
knowledge of Peoples threatened, relating to the liability of Peoples or any
Peoples Subsidiary under any Labor and Employment Law.
Section 2.23 Year 2000. Peoples has not received, and does not reasonably
expect to receive, a rating level of "Needs Improvement" or "Unsatisfactory" on
its Year 2000 Report of Examination from the OTS, as those terms are defined in
the OTS CEO Memo dated April 30, 1998. Peoples has made available to Sovereign a
complete and accurate copy of its plan including an estimate of the anticipated
associated costs, for addressing the issues set forth in the statements of the
Federal Financial Institutions Examination Council, dated May 5, 1997, entitled
"Year 2000 Project Management Awareness," and December 1997, entitled "Safety
and Soundness Guidelines Concerning the Year 2000 Business Risk," as such issues
affect Peoples. Between the date hereof and the Effective Date, Peoples shall
use commercially practicable efforts to implement its plan.
Section 2.24 Quality of Representations. The representations made by
Peoples in this Agreement are true, correct and complete in all material
respects, and do not omit statements necessary to make them not misleading under
all facts and circumstances.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOVEREIGN
Sovereign hereby represents and warrants to Peoples that, except as set
forth in the Sovereign Disclosure Schedule delivered by Sovereign to Peoples on
or prior to the date hereof:
Section 3.01 Organization.
(a) Sovereign is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. Sovereign is a
savings and loan holding company duly registered under the HOLA. Sovereign has
the corporate power and authority to carry on its business and operations as now
being conducted and to own and operate the properties and assets now owned and
being operated by it. Each Sovereign Subsidiary is duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation and each possesses full corporate power and authority to carry on
its respective business and to own, lease and operate its properties as
presently conducted. Neither Sovereign nor any Sovereign Subsidiary is required
by the conduct of its business or the ownership or leasing of its assets to
qualify to do business as a foreign corporation in any jurisdiction other than
the Commonwealth of Pennsylvania and the states of Delaware and New Jersey,
except where the failure to be so qualified would not have a Material Adverse
Effect.
(b) Sovereign Bank is a federal savings bank, duly organized and validly
existing under the laws of the United States of America. Sovereign Bank has the
corporate power and authority to carry on its business and operations as now
being conducted and to own and operate the properties and assets now owned and
being operated by it.
(c) The deposits of Sovereign Bank are insured by the FDIC to the extent
provided in the FDIA.
(d) The respective minute books of Sovereign and Sovereign Bank accurately
record in all material respects all material corporate action of their
respective shareholders and boards of directors (including committees) through
the date of this Agreement.
(e) Prior to the execution of this Agreement, Sovereign has delivered to
Peoples true and correct copies of the articles of incorporation and the bylaws
of Sovereign and Sovereign Bank, respectively, as in effect on the date hereof.
Section 3.02 Capital Structure.
(a) The authorized capital stock of Sovereign consists of (a) 200,000,000
shares of common stock, no par value ("Sovereign Common Stock"), of which, at
the date of this Agreement, 8,477 shares were issued and held by Sovereign as
treasury stock and 163,652,098 shares are outstanding, validly issued, fully
paid and nonassessable, and (b) 7,500,000 shares of preferred stock, no par
value, of which, at the date of this Agreement, no shares are issued or
outstanding. No shares of Sovereign Common Stock were issued in violation of any
preemptive rights. Sovereign has no Rights authorized, issued or outstanding,
other than (i) the Sovereign Stock Purchase Rights, (ii) options to acquire
shares of Sovereign Common Stock authorized under Sovereign's employee benefit
plans, stock option plans, non-employee directors compensation plan, employee
stock ownership plan, employee stock purchase plan, and dividend reinvestment
and stock purchase plan, and (iii) capital securities issued by Sovereign
Capital Trust I. As of September 1, 1998, Sovereign had approximately 15,000
shareholders of record.
(b) To the best of Sovereign's knowledge, except as disclosed in
Sovereign's proxy statement dated March 16, 1998, no person or "group" (as that
term is used in Section 13(d)(3) of the Exchange Act) is the beneficial owner
(as defined in Section 13(d) of the Exchange Act) of 5% or more of the
outstanding shares of Sovereign Common Stock.
(c) Except as disclosed in the Sovereign Disclosure Schedule, Sovereign
owns all of the capital stock of Sovereign Bank, free and clear of any lien,
security interests, pledges, charges, encumbrances, agreements and restrictions
of any kind or nature and either Sovereign or Sovereign Bank owns all of its
shares of capital stock of each other Sovereign Subsidiary free and clear of all
liens, security
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interests, pledges, charges, encumbrances, agreements and restrictions of any
kind or nature. Except for the Sovereign Subsidiaries, Sovereign does not
possess, directly or indirectly, any material equity interest in any
corporation, except for equity interests held in the investment portfolios of
Sovereign Subsidiaries, equity interests held by Sovereign Subsidiaries in a
fiduciary capacity, and equity interests held in connection with the commercial
loan activities of Sovereign Subsidiaries.
Section 3.03 Authority; No Violation.
(a) Sovereign has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. Sovereign
Bank has full corporate power and authority to execute and deliver the Bank Plan
of Merger and to consummate the Bank Merger. The execution and delivery of this
Agreement by Sovereign and the completion by Sovereign of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of Sovereign, and, except for approval of this Agreement by the
shareholders of Sovereign to the extent required by Nasdaq rules applicable to
Sovereign, no other corporate proceedings on the part of Sovereign are necessary
to complete the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Sovereign and, subject to receipt of the
required approvals of Regulatory Authorities described in Section 3.04 hereof,
constitutes the valid and binding obligation of Sovereign, enforceable against
Sovereign in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity. The Bank Plan of Merger,
upon its execution and delivery by Sovereign Bank concurrently with the
execution and delivery of this Agreement, will constitute the valid and binding
obligation of Sovereign Bank, enforceable against Sovereign Bank in accordance
with its terms, subject to applicable conservatorship and receivership
provisions of the FDIA, or insolvency and similar laws affecting creditors'
rights generally and subject, as to enforceability, to general principles of
equity.
(b) (A) The execution and delivery of this Agreement by Sovereign, (B) the
execution and delivery of the Bank Plan of Merger by Sovereign Bank, (C) subject
to receipt of approvals from the Regulatory Authorities referred to in Section
3.04 hereof and Peoples' and Sovereign's compliance with any conditions
contained therein, the consummation of the transactions contemplated hereby, and
(D) compliance by Sovereign or Sovereign Bank with any of the terms or
provisions hereof or of the Bank Plan of Merger will not (i) conflict with or
result in a breach of any provision of the articles of incorporation or bylaws
of Sovereign or any Sovereign Subsidiary or the charter and bylaws of Sovereign
Bank; (ii) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Sovereign or any Sovereign
Subsidiary or any of their respective properties or assets; or (iii) violate,
conflict with, result in a breach of any provisions of, constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default), under, result in the termination of, accelerate the performance
required by, or result in a right of termination or acceleration or the creation
of any lien, security interest, charge or other encumbrance upon any of the
properties or assets of Sovereign or Sovereign Bank under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other investment or obligation to which Sovereign
or Sovereign Bank is a party, or by which they or any of their respective
properties or assets may be bound or affected, except for such violations,
conflicts, breaches or defaults under clause (ii) or (iii) hereof which, either
individually or in the aggregate, will not have a Material Adverse Effect on
Sovereign.
Section 3.04 Consents. Except for consents, approvals, filings and
registrations from or with the OTS, the SEC, and state "blue sky" authorities,
and compliance with any conditions contained therein, approval of this Agreement
by the shareholders of Sovereign to the extent required by Nasdaq rules
applicable to Sovereign, and the approval of the Bank Plan of Merger by
Sovereign as sole shareholder of Sovereign Bank under the HOLA, and by the
Sovereign Bank Board of Directors, no consents or approvals of, or filings or
registrations with, any public body or authority are necessary, and no consents
or approvals of any third parties are necessary, or will be, in connection with
(a) the execution and delivery of this Agreement by Sovereign or the Bank Plan
of Merger by Sovereign Bank, and (b) the completion by Sovereign of the
transactions contemplated hereby or by Sovereign
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Bank of the Bank Merger. Sovereign has no reason to believe that (i) any
required consents or approvals will not be received or will be received with
conditions, limitations or restrictions unacceptable to it or which would
adversely impact Sovereign's or Sovereign Bank's ability to complete the
transactions contemplated by this Agreement or that (ii) any public body or
authority, the consent or approval of which is not required or any filing with
which is not required, will object to the completion of the transactions
contemplated by this Agreement.
Section 3.05 Financial Statements.
(a) Sovereign has made, or will make, the Sovereign Regulatory Reports
available to Peoples for inspection. The Sovereign Regulatory Reports have been,
or will be, prepared in all material respects in accordance with applicable
regulatory accounting principles and practices throughout the periods covered by
such statements, and fairly present, or will fairly present in all material
respects, the financial position, results of operations, and changes in
shareholders' equity of Sovereign as of and for the periods ended on the dates
thereof, in accordance with applicable regulatory accounting principles applied
on a consistent basis.
(b) Sovereign has previously delivered, or will deliver, to Peoples the
Sovereign Financials. The Sovereign Financials have been, or will be, prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered by the Sovereign Financials, except as noted therein and fairly present,
or will fairly present, the consolidated financial position, results of
operations and cash flows of Sovereign as of and for the periods ending on the
dates thereof, in accordance with GAAP applied on a consistent basis throughout
the periods covered by the Sovereign Financials, except as noted therein.
Sovereign will make the Sovereign Regulatory Reports available to Peoples for
inspection.
(c) At the date of each balance sheet included in the Sovereign Financials
or Sovereign Regulatory Reports, Sovereign did not have any liabilities,
obligations or loss contingencies of any nature (whether absolute, accrued,
contingent or otherwise) of a type required to be reflected in such Sovereign
Financials or in the footnotes thereto which are not fully reflected or reserved
against therein or disclosed in a footnote thereto, except for liabilities,
obligations or loss contingencies which are not material in the aggregate and
which are incurred in the ordinary course of business, consistent with past
practice, and except for liabilities, obligations or loss contingencies which
are within the subject matter of a specific representation and warranty herein
and subject, in the case of any unaudited statements, to normal recurring audit
adjustments and the absence of footnotes.
Section 3.06 Taxes. Sovereign and the Sovereign Subsidiaries are members
of the same affiliated group within the meaning of IRC Section 1504(a).
Sovereign has duly filed, and will file, all federal, state and local tax
returns required to be filed by or with respect to Sovereign and all Sovereign
Subsidiaries on or prior to the Closing Date (all such returns being accurate
and correct in all material respects) and has duly paid or will pay, or made or
will make, provisions for the payment of all federal, state and local taxes
which have been incurred by or are due or claimed to be due from Sovereign and
any Sovereign Subsidiary by any taxing authority or pursuant to any tax sharing
agreement or arrangement (written or oral) on or prior to the Closing Date other
than taxes which (i) are not delinquent or (ii) are being contested in good
faith.
Section 3.07 No Material Adverse Effect. Sovereign has not suffered any
Material Adverse Effect since December 31, 1997.
Section 3.08 Ownership of Property; Insurance Coverage.
(a) Sovereign and the Sovereign Subsidiaries have good and, as to real
property, marketable title to all assets and properties owned by Sovereign or
any of its Subsidiaries in the conduct of their businesses, whether such assets
and properties are real or personal, tangible or intangible, including assets
and property reflected in the balance sheets contained in the Sovereign
Financials and in the Sovereign Regulatory Reports or acquired subsequent
thereto (except to the extent that such assets and properties have been disposed
of for fair value, in the ordinary course of business, since the date of such
balance sheets), subject to no encumbrances, liens, mortgages, security
interests or pledges, except (i) those items that secure liabilities for
borrowed money and that are described in the Sovereign
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Disclosure Schedule or permitted under Article IV hereof, and (ii) statutory
liens for amounts not yet delinquent or which are being contested in good faith.
Sovereign and the Sovereign Subsidiaries, as lessee, have the right under valid
and subsisting leases of real and personal properties used by Sovereign and its
Subsidiaries in the conduct of their businesses to occupy and use all such
properties as presently occupied and used by each of them.
(b) Sovereign and the Sovereign Subsidiaries currently maintain insurance
in amounts considered by Sovereign to be reasonable for their respective
operations, and such insurance is similar in scope and coverage to that
maintained by other businesses similarly engaged. Neither Sovereign nor any
Sovereign Subsidiary has received notice from any insurance carrier that (i)
such insurance will be cancelled or that coverage thereunder will be reduced or
eliminated or (ii) premium costs with respect to such insurance will be
substantially increased.
Section 3.09 Legal Proceedings. Neither Sovereign nor any Sovereign
Subsidiary is a party to any, and there are no pending or, to the best of
Sovereign's knowledge, threatened legal, administrative, arbitration or other
proceedings, claims, actions or governmental investigations or inquiries of any
nature (i) against Sovereign or any Sovereign Subsidiary, (ii) to which
Sovereign's or any Sovereign Subsidiary's assets are or may be subject, (iii)
challenging the validity or propriety of any of the transactions contemplated by
this Agreement, or (iv) which could adversely affect the ability of Sovereign to
perform under this Agreement, except for any proceedings, claims, actions,
investigations or inquiries referred to in clauses (i) or (ii) which,
individually or in the aggregate, could not be reasonably expected to have a
Material Adverse Effect on Sovereign.
Section 3.10 Compliance With Applicable Law.
(a) Sovereign and the Sovereign Subsidiaries hold all licenses, franchises,
permits and authorizations necessary for the lawful conduct of their businesses
under, and have complied in all material respects with, applicable laws,
statutes, orders, rules or regulations of any federal, state or local
governmental authority relating to them, other than where such failure to hold
or such noncompliance will neither result in a limitation in any material
respect on the conduct of their businesses nor otherwise have a Material Adverse
Effect on Sovereign.
(b) Neither Sovereign nor any Sovereign Subsidiary has received any
notification or communication from any Regulatory Authority (i) asserting that
Sovereign or any Sovereign Subsidiary is not in compliance with any of the
statutes, regulations or ordinances which such Regulatory Authority enforces;
(ii) threatening to revoke any license, franchise, permit or governmental
authorization which is material to Sovereign or any Sovereign Subsidiary; (iii)
requiring or threatening to require Sovereign or any Sovereign Subsidiary, or
indicating that Sovereign or any Sovereign Subsidiary may be required, to enter
into a cease and desist order, agreement or memorandum of understanding or any
other agreement restricting or limiting, or purporting to restrict or limit, in
any manner the operations of Sovereign or any Sovereign Subsidiary, including
without limitation any restriction on the payment of dividends; or (iv)
directing, restricting or limiting, or purporting to direct, restrict or limit,
in any manner the operations of Sovereign or any Sovereign Subsidiary, including
without limitation any restriction on the payment of dividends (any such notice,
communication, memorandum, agreement or order described in this sentence is
hereinafter referred to as a "Regulatory Agreement"). Neither Sovereign nor any
Sovereign Subsidiary has consented to or entered into any Regulatory Agreement,
except as heretofore disclosed to Peoples. Sovereign received a rating of
"outstanding" in connection with its last CRA examination.
Section 3.11 Information to be Supplied. The information to be supplied by
Sovereign for inclusion in the Registration Statement (including the
Prospectus/Proxy Statement) and/or any information Sovereign filed with the SEC
under the Exchange Act which is incorporated by reference into the Registration
Statement (including the Prospectus/Proxy Statement) will not, at the time the
Registration Statement is declared effective pursuant to the Securities Act and
as of the date the Prospectus/Proxy Statement is mailed to shareholders of
Peoples and up to and including the date of the meeting of shareholders of
Peoples to which such Prospectus/Proxy Statement relates, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the
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statements therein not misleading. The information supplied, or to be supplied,
by Sovereign for inclusion in the Applications will, at the time such documents
are filed with any Regulatory Authority and up to and including the date(s) of
the obtainment of any required regulatory approvals or consents, be accurate in
all material aspects.
Section 3.12 ERISA. Sovereign has previously made available to Peoples
true and complete copies of the employee pension benefit plans within the
meaning of ERISA Section 3(2), profit sharing plans, employee stock ownership
plans, stock purchase plans, deferred compensation and supplemental income
plans, supplemental executive retirement plans, annual incentive plans, group
insurance plans, and all other employee welfare benefit plans within the meaning
of ERISA Section 3(1) (including vacation pay, sick leave, short-term
disability, long-term disability, and medical plans), and all other employee
benefit plans, policies, agreements and arrangements, all of which are set forth
on the Sovereign Disclosure Schedule, sponsored or contributed to for the
benefit of the employees or former employees (including retired employees) and
any beneficiaries thereof or directors or former directors of Sovereign or any
Sovereign Subsidiary, together with (i) the most recent actuarial (if any) and
financial reports relating to those plans which constitute "qualified plans"
under IRC Section 401(a), (ii) the most recent annual reports relating to such
plans filed by them, respectively, with any government agency, and (iii) all
rulings and determination letters which pertain to any such plans. Neither
Sovereign, any Sovereign Subsidiary, nor any pension plan maintained by
Sovereign or any Sovereign Subsidiary, has incurred, directly or indirectly,
within the past six (6) years any liability under Title IV of ERISA (including
to the Pension Benefit Guaranty Corporation) or to the IRS with respect to any
pension plan qualified under IRC Section 401(a) which liability has resulted in
or will result in a Material Adverse Effect with respect to Sovereign, except
liabilities to the Pension Benefit Guaranty Corporation pursuant to ERISA
Section 4007, all of which have been fully paid, nor has any reportable event
under ERISA Section 4043 occurred with respect to any such pension plan which
would result in a Material Adverse Effect. With respect to each of such plans
that is subject to Title IV of ERISA, the present value of the accrued benefits
under such plan, based upon the actuarial assumptions used for funding purposes
in the plan's most recent actuarial report did not, as of its latest valuation
date, exceed the then current value of the assets of such plan allocable to such
accrued benefits. Neither Sovereign nor any Sovereign Subsidiary has incurred or
is subject to any liability under ERISA Section 4201 for a complete or partial
withdrawal from a multiemployer plan. All "employee benefit plans," as defined
in ERISA Section 3(3), comply and within the past six (6) years have complied in
all material respects with (i) relevant provisions of ERISA, and (ii) in the
case of plans intended to qualify for favorable income tax treatment, provisions
of the IRC relevant to such treatment. No prohibited transaction (which shall
mean any transaction prohibited by ERISA Section 406 and not exempt under ERISA
Section 408 or any transaction prohibited under IRC Section 4975) has occurred
within the past six (6) years with respect to any employee benefit plan
maintained by Sovereign or any Sovereign Subsidiary that would result in the
imposition, directly or indirectly, of an excise tax under IRC Section 4975 or
other penalty under ERISA or the IRC, which individually or in the aggregate,
has resulted in or will result in a Material Adverse Effect with respect to
Sovereign. Sovereign and the Sovereign Subsidiaries provide continuation
coverage under group health plans for separating employees and "qualified
beneficiaries" in accordance with the provisions of IRC Section 4980B(f). Such
group health plans are in compliance with Section 1862(b)(1) of the Social
Security Act.
Section 3.13 Securities Documents. Sovereign has delivered, or will
deliver, to Peoples copies of its (i) annual reports on SEC Form 10-K for the
years ended December 31, 1997, 1996, and 1995, (ii) quarterly reports on SEC
Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998, (iii) current
reports on SEC Form 8-K dated June 23, 1998, April 20, 1998, February 20, 1998
and February 19, 1998, and (iv) proxy statement dated March 16, 1998 used in
connection with its annual meeting of shareholders held in April 1998. Such
reports and such proxy materials complied, at the time filed with the SEC, in
all material respects, with the Exchange Act and the applicable rules and
regulations of the SEC.
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Section 3.14 Environmental Matters. To the knowledge of Sovereign, neither
Sovereign nor any Sovereign Subsidiary, nor any properties operated by Sovereign
or any Sovereign Subsidiary during Sovereign's use or ownership has been or is
in violation of or liable under any Environmental Law which violation or
liability, individually or in the aggregate, resulted in or will result in a
Material Adverse Effect with respect to Sovereign. There are no actions, suits
or proceedings, or demands, claims, notices or investigations (including without
limitation notices, demand letters or requests for information from any
environmental agency) instituted or pending, or to the knowledge of Sovereign,
threatened, relating to the liability of any property owned or operated by
Sovereign or any Sovereign Subsidiary under any Environmental Law.
Section 3.15 Allowance for Loan Losses. The allowance for loan losses
reflected, and to be reflected, in the Sovereign Regulatory Reports, and shown,
and to be shown, on the balance sheets contained in the Sovereign Financials
have been, and will be, established in accordance with the requirements of GAAP
and all applicable regulatory criteria.
Section 3.16 Brokers and Finders. In connection with the transactions
contemplated by the Agreement, neither Sovereign nor any Sovereign Subsidiary,
nor any of their respective officers, directors, employees or agents, has
employed any broker, finder or financial advisor, or incurred any liability for
any fees or commissions to any such person, in connection with the transactions
contemplated by this Agreement.
Section 3.17 Loans. Each loan reflected as an asset in the Sovereign
Financial Statements (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and correct (ii) to the extent secured, has
been secured by valid liens and security interests which have been perfected,
and (iii) is the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles, in
each case other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on Sovereign.
Section 3.18 Year 2000. Sovereign has not received, and does not
reasonably expect to receive, a rating level of "Needs Improvement" or
"Unsatisfactory" on its Year 2000 Report of Examination from the OTS, as those
terms are defined in the OTS CEO Memo dated April 30, 1998. Sovereign has made
available to Peoples a complete and accurate copy of its plan including an
estimate of the anticipated associated costs, for addressing the issues set
forth in the statements of the Federal Financial Institutions Examination
Council, dated May 5, 1997, entitled "Year 2000 Project Management Awareness,"
and December 1997, entitled "Safety and Soundness Guidelines Concerning the Year
2000 Business Risk," as such issues affect Sovereign. Between the date hereof
and the Effective Date, Sovereign shall use commercially practicable efforts to
implement its plan.
Section 3.19 Quality of Representations. The representations made by
Sovereign in this Agreement are true, correct and complete in all material
respects and do not omit statements necessary to make the representations not
misleading under the circumstances.
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ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.01 Conduct of Peoples' Business.
(a) From the date of this Agreement to the Closing Date, Peoples and each
Peoples Subsidiary will conduct its business and engage in transactions,
including extensions of credit, only in the ordinary course and consistent with
past practice and policies, except as otherwise required by this Agreement or
with the written consent of Sovereign. Peoples will use its reasonable good
faith efforts, and will cause Trenton Savings to use its reasonable good faith
efforts, to (i) preserve its business organizations intact, (ii) maintain good
relationships with employees, and (iii) preserve for itself the good will of
customers of Peoples and Peoples Subsidiaries and others with whom business
relationships exist. From the date hereof to the Closing Date, except as
otherwise consented to or approved by Sovereign in writing or as permitted or
required by this Agreement, Peoples will not, and Peoples will not permit any
Peoples Subsidiary to:
(i) amend or change any provision of its certificate of incorporation,
charter, or bylaws;
(ii) change the number of authorized or issued shares of its capital
stock or issue or grant any option, warrant, call, commitment,
subscription, Right or agreement of any character relating to its
authorized or issued capital stock or any securities convertible into
shares of such stock, except as contemplated by Section 4.11 of this
Agreement, or split, combine or reclassify any shares of capital stock, or
declare, set aside or pay any dividend or other distribution in respect of
capital stock, or redeem or otherwise acquire any shares of capital stock,
except that (A) Peoples may issue shares of Peoples Common Stock upon the
valid exercise of outstanding options to acquire Peoples Common Stock under
the Peoples Stock Option Plans, in accordance with Section 4.11 of this
Agreement, (B) Peoples may pay a regular quarterly cash dividend, not to
exceed $0.025 per share of Peoples Common Stock outstanding, and (C)
Peoples may issue shares of Peoples Common Stock pursuant to the Sovereign
Option. As promptly as practicable following the date of this Agreement,
the Board of Directors of Peoples shall cause its regular quarterly
dividend record dates and payment dates to be the same as Sovereign's
regular quarterly dividend record dates and payment dates for Sovereign
Common Stock, and except as provided above, Peoples shall not change its
regular dividend payment dates and record dates without prior written
consent of Sovereign. Nothing contained in this Section 4.01(ii) or in any
other Section of this Agreement shall be construed to permit Peoples
shareholders to receive two dividends either from Peoples or from Peoples
and Sovereign in any quarter or to deny or prohibit them from receiving one
dividend from Peoples or Sovereign in any quarter; subject to applicable
regulatory restrictions, if any, Trenton Savings may pay a cash dividend,
in the aggregate, sufficient to fund any dividend by Peoples permitted
hereunder;
(iii) grant any severance or termination pay (other than pursuant to
written policies or written agreements of Peoples or Peoples Subsidiaries
in effect on the date hereof and provided to Sovereign prior to the date
hereof, as contemplated by this Agreement, or as otherwise agreed to in
writing by Sovereign and Peoples) to, or enter into any new or amend any
existing employment agreement with, or increase the compensation of, any
employee, officer or director of Peoples or any Peoples Subsidiary, except
for routine periodic increases, individually and in the aggregate, in
accordance with past practice;
(iv) merge or consolidate Peoples or any Peoples Subsidiary with any
other corporation; sell or lease all or any substantial portion of the
assets or business of Peoples or any Peoples Subsidiary; make any
acquisition of all or any substantial portion of the business or assets of
any other person, firm, association, corporation or business organization
other than in connection with the collection of any loan or credit
arrangement between any Peoples Subsidiary and any other person; enter into
a purchase and assumption transaction with respect to deposits and
liabilities; permit the revocation or surrender by any Peoples Subsidiary
of its certificate of authority to
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maintain, or file an application for the relocation of, any existing branch
office, or file an application for a certificate of authority to establish
a new branch office;
(v) sell or otherwise dispose of the capital stock of Trenton Savings
or sell or otherwise dispose of any asset of Peoples or of any Peoples
Subsidiary other than in the ordinary course of business consistent with
past practice; subject any asset of Peoples or of any Peoples Subsidiary to
a lien, pledge, security interest or other encumbrance (other than in
connection with deposits, repurchase agreements, bankers acceptances,
"treasury tax and loan" accounts established in the ordinary course of
business and transactions in "federal funds" and the satisfaction of legal
requirements in the exercise of trust powers) other than in the ordinary
course of business consistent with past practice; incur any indebtedness
for borrowed money (or guarantee any indebtedness for borrowed money),
except in the ordinary course of business consistent with past practice;
(vi) take any action which would result in any of the representations
and warranties of Peoples set forth in this Agreement becoming untrue as of
any date after the date hereof or in any of the conditions set forth in
Article V hereof not being satisfied, except in each case as may be
required by applicable law;
(vii) change any method, practice or principle of accounting, except
as may be required from time to time by GAAP (without regard to any
optional early adoption date) or any Regulatory Authority responsible for
regulating Peoples or Trenton Savings;
(viii) waive, release, grant or transfer any rights of value or modify
or change in any material respect any existing material agreement to which
Peoples or any Peoples Subsidiary is a party, other than in the ordinary
course of business, consistent with past practice;
(ix) implement any pension, retirement, profit sharing, bonus, welfare
benefit or similar plan or arrangement which was not in effect on the date
of this Agreement, or materially amend any existing plan or arrangement
except to the extent such amendments do not result in an increase in cost;
provided, however, that Peoples may contribute to the Peoples employee
stock ownership plan, to the extent set forth in the Peoples Disclosure
Schedule;
(x) purchase any security for its investment portfolio not rated "A"
or higher by either Standard & Poor's Corporation or Moody's Investor
Services, Inc. or otherwise alter, in any material respect, the mix,
maturity, credit or interest rate risk profile of its portfolio of
investment securities or its portfolio of mortgage-backed securities;
(xi) make any new loan or other credit facility commitment (including
without limitation, lines of credit and letters of credit) to any borrower
or group of affiliated borrowers in excess of $2,000,000 in the aggregate,
or increase, compromise, extend, renew or modify any existing loan or
commitment outstanding in excess of $2,000,000, except for any commitment
disclosed on the Peoples Disclosure Schedule; provided that Sovereign will
not unreasonably withhold its consent with respect to any request by
Peoples for permission to increase, compromise, extend, renew or modify any
loan subject to this provision;
(xii) except as set forth on the Peoples Disclosure Schedule or except
in the ordinary course of business consistent with past practice, enter
into, renew, extend or modify any other transaction with any Affiliate
other than deposit and loan transactions in the ordinary course of business
and which are in compliance with applicable laws and regulations;
(xiii) enter into any interest rate swap or similar commitment,
agreement or arrangement;
(xiv) except for the execution of this Agreement, or resulting
therefrom, take any action that would give rise to a right of payment to
any individual under any employment agreement;
(xv) intentionally and knowingly take any action that would preclude
satisfaction of the condition to closing contained in Section 5.02(k)
relating to financial accounting treatment of the Merger; or
(xvi) agree to do any of the foregoing.
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For purposes of this Section 4.01, it shall not be considered in the
ordinary course of business for Peoples or any Peoples Subsidiary to do any of
the following: (i) make any capital expenditure of $100,000 or more not
disclosed on Peoples Disclosure Schedule 4.01, without the prior written consent
of Sovereign; (ii) make any sale, assignment, transfer, pledge, hypothecation or
other disposition of any assets having a book or market value, whichever is
greater, in the aggregate in excess of $500,000, other than pledges of assets to
secure government deposits, to exercise trust powers, sales of assets received
in satisfaction of debts previously contracted in the normal course of business,
issuance of loans, or transactions in the investment securities portfolio by
Peoples or a Peoples Subsidiary or repurchase agreements made, in each case, in
the ordinary course of business; (iii) undertake or enter any lease, contract or
other commitment for its account, other than in the normal course of providing
credit to customers as part of its banking business, involving a payment by
Peoples or any Peoples Subsidiary of more than $100,000 annually, or containing
a material financial commitment and extending beyond 12 months from the date
hereof; or (iv) grant options or issue restricted stock under the 1996 Peoples
Stock Option Plan or the 1996 Peoples Management Recognition and Retention Plan.
Section 4.02 Access; Confidentiality.
(a) From the date of this Agreement through the Closing Date, Peoples or
Sovereign, as the case may be, shall afford to, and shall cause each Peoples
Subsidiary or Sovereign Subsidiary to afford to, the other party and its
authorized agents and representatives, complete access to their respective
properties, assets, books and records and personnel, at reasonable hours and
after reasonable notice; and the officers of Peoples and Sovereign will furnish
any person making such investigation on behalf of the other party with such
financial and operating data and other information with respect to the
businesses, properties, assets, books and records and personnel as the person
making such investigation shall from time to time reasonably request.
(b) Peoples and Sovereign each agree to conduct such investigation and
discussions hereunder in a manner so as not to interfere unreasonably with
normal operations and customer and employee relationships of the other party.
(c) In addition to the access permitted by subparagraph (a) above, from the
date of this Agreement through the Closing Date, Peoples shall permit employees
of Sovereign reasonable access to and participation in matters relating to
problem loans, loan restructurings and loan work-outs of Peoples and the Peoples
Subsidiaries, provided that nothing contained in this subparagraph shall be
construed to grant Sovereign or any Sovereign employee any final decision-making
authority with respect to such matters.
(d) If the transactions contemplated by this Agreement shall not be
consummated, Peoples and Sovereign will comply with the terms of the
confidentiality agreement dated August 28, 1998 and each destroy or return all
documents and records obtained from the other party or its representatives,
during the course of its investigation and will cause all information with
respect to the other party obtained pursuant to this Agreement or preliminarily
thereto to be kept confidential, except to the extent such information becomes
public through no fault of the party to whom the information was provided or any
of its representatives or agents and except to the extent disclosure of any such
information is legally required. Peoples and Sovereign shall each give prompt
notice to the other party of any contemplated disclosure where such disclosure
is so legally required.
Section 4.03 Regulatory Matters and Consents.
(a) Peoples and Sovereign shall prepare a Prospectus/Proxy Statement to be
mailed to shareholders of Peoples in connection with Peoples' meeting of
shareholders contemplated to be held on or about April 15, 1999 and the
transactions contemplated hereby, and to be filed by Sovereign with the SEC in
the Registration Statement, which Prospectus/Proxy statement shall conform to
all applicable legal requirements. Sovereign shall, following the preparation
thereof, file the Registration Statement with the SEC and Peoples and Sovereign
shall use all reasonable efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such filing.
Sovereign will advise Peoples, promptly after Sovereign receives notice thereof,
of the time
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when the Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order or the suspension of
the qualification of the shares of capital stock issuable pursuant to the
Registration Statement, or the initiation or threat of any proceeding for any
such purpose, or of any request by the SEC for the amendment or supplement of
the Registration Statement or for additional information. Sovereign shall use
its best efforts to obtain, prior to the effective date of the Registration
Statement, all necessary state securities laws or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by this Agreement.
Sovereign will provide Peoples with as many copies of such Registration
Statement and all amendments thereto promptly upon the filing thereof as Peoples
may reasonably request.
(b) Sovereign and Peoples will prepare all Applications to Regulatory
Authorities and make all filings for, and use their reasonable best efforts to
obtain as promptly as practicable after the date hereof, all necessary permits,
consents, approvals, waivers and authorizations of all Regulatory Authorities
necessary or advisable to complete the transactions contemplated by this
Agreement.
(c) Peoples will furnish Sovereign with all information concerning Peoples
and Peoples Subsidiaries as may be reasonably necessary or advisable in
connection with the Registration Statement and any Application or filing made by
or on behalf of Sovereign to any Regulatory Authority in connection with the
transactions contemplated by this Agreement and the Bank Plan of Merger.
(d) Sovereign and Peoples shall have the right to review in advance, and to
the extent practicable each will consult with the other on, all information
which appears in any filing made with or written materials submitted to the SEC,
any Regulatory Authority or any third party in connection with the transactions
contemplated by this Agreement and the Bank Plan of Merger. In exercising the
foregoing right, each of the parties hereto shall act reasonably and as promptly
as practicable. The parties hereto agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of the SEC, Regulatory Authorities and third parties necessary or
advisable to consummate the transactions contemplated by this Agreement and the
Bank Plan of Merger and each party will keep the other apprised of the status of
matters relating to completion of the transactions contemplated hereby and
thereby.
(e) Sovereign will promptly furnish Peoples with copies of all written
communications to, or received by Sovereign or any Sovereign Subsidiary from,
any Regulatory Authority in respect of the transactions contemplated hereby.
Section 4.04 Taking of Necessary Action.
(a) Sovereign and Peoples shall each use its best efforts in good faith,
and each of them shall cause its Subsidiaries to use their reasonable best
efforts in good faith, to take or cause to be taken all action necessary or
desirable on its part using its best efforts so as to permit completion of the
Merger and the Bank Merger, as soon as practicable after the date hereof,
including, without limitation, (A) obtaining the consent or approval of each
individual, partnership, corporation, association or other business or
professional entity whose consent or approval is required or desirable for
consummation of the transactions contemplated hereby (including assignment of
leases without any change in terms), provided that neither Peoples nor any
Peoples Subsidiary shall agree to make any payments or modifications to
agreements in connection therewith without the prior written consent of
Sovereign, and (B) requesting the delivery of appropriate opinions, consents and
letters from its counsel and independent auditors. No party hereto shall take,
or cause, or to the best of its ability permit to be taken, any action that
would substantially impair the prospects of completing the Merger and the Bank
Merger pursuant to this Agreement and the Bank Plan of Merger; provided that
nothing herein contained shall preclude Sovereign or Peoples or from exercising
its rights under this Agreement or the Stock Option Agreement.
(b) Sovereign shall not take any action which would result in any of the
representations and warranties of Sovereign set forth in this Agreement becoming
untrue as of any date after the date
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hereof or in any of the conditions set forth in Article V hereof not being
satisfied, except in each case as may be required by law.
Section 4.05 Certain Agreements.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative, in which
any person who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Date, a director or officer or
employee of Peoples or any of its Subsidiaries (the "Indemnified Parties") is,
or is threatened to be, made a party to a suit based in whole or in part on, or
arising in whole or in part out of, or pertaining to (i) the fact that he is or
was a director, officer or employee of Peoples, any of the Peoples' Subsidiaries
or any of their respective predecessors or (ii) this Agreement or any of the
transactions contemplated hereby, whether in any case asserted or arising before
or after the Effective Date, the parties hereto agree to cooperate and use their
best efforts to defend against and respond thereto to the extent permitted or
required by the DGCL and the Certificate of Incorporation and Bylaws of Peoples.
On or after the Effective Date, Sovereign shall indemnify, defend and hold
harmless all prior and then-existing directors and officers of Peoples and any
Peoples Subsidiary, against (i) all losses, claims, damages, costs, expenses,
liabilities or judgments or amounts that are paid in settlement (with the
approval of Sovereign which approval shall not be unreasonably withheld) of or
in connection with any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of Peoples or any Peoples
Subsidiary, whether pertaining to any matter existing or occurring at or prior
to the Effective Date and whether asserted or claimed prior to, or at or after,
the Effective Date ("Indemnified Liabilities") and (ii) all Indemnified
Liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to this Agreement or the transactions contemplated hereby, to the
same extent as such officer, director or employee may be indemnified by Peoples
or any Peoples Subsidiary as of the date hereof including the right to
advancement of expenses, provided, however, that any such officer, director or
employee of Peoples or any Peoples Subsidiary may not be indemnified by
Sovereign and/or Sovereign Bank if such indemnification is prohibited by
applicable law.
(b) Sovereign shall maintain Peoples' existing directors' and officers'
liability insurance policy (or a policy providing comparable coverage amounts on
terms generally no less favorable, including Sovereign's existing policy if it
meets the foregoing standard) covering persons who are currently covered by such
insurance for a period of five years after the Effective Date; provided,
however, that in no event shall Sovereign be obligated to expend, in order to
maintain or provide insurance coverage pursuant to this Section 4.05(b), any
amount per annum in excess of 150% of the amount of the annual premiums paid as
of the date hereof by Peoples for such insurance (the "Maximum Amount"). If the
amount of the annual premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, Sovereign shall use all reasonable efforts
to maintain the most advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to the Maximum Amount. In the event that
Sovereign acts as its own insurer for all of its directors and officers with
respect to matters typically covered by a directors' and officers' liability
insurance policy, Sovereign's obligations under this Section 4.05(b) may be
satisfied by such self insurance, so long as its senior debt ratings by Standard
& Poor's Corporation and Moody's Investors Services, Inc. are not lower than
such ratings as of the date hereof.
(c) Sovereign agrees to honor and Sovereign agrees to cause Sovereign Bank
to honor all terms and conditions of all existing employment contracts and
special termination agreements disclosed in the Peoples Disclosure Schedule. To
the extent that the employment of any of the employees listed on the Peoples
Disclosure Schedule is terminated after the Effective Date, Sovereign agrees to
enter into consulting arrangements with such individuals for the amounts and for
the time periods set forth on the Peoples Disclosure Schedule.
(d) In the event that Sovereign or any of its respective successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any
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Person, then, and in each such case the successors and assigns of such entity
shall assume the obligations set forth in this Section 4.05.
Section 4.06 No Other Bids and Related Matters. So long as this Agreement
remains in effect, Peoples shall not and Peoples shall not authorize or permit
any of its directors, officers, employees or agents, to directly or indirectly
(i) respond to, solicit, initiate or encourage any inquiries relating to, or the
making of any proposal which relates to, an Acquisition Transaction (as defined
below), (ii) recommend or endorse an Acquisition Transaction (unless such
person's fiduciary duty as a director of Peoples legally requires such person to
do so and such person is so advised in a written opinion of counsel to Peoples),
(iii) participate in any discussions or negotiations regarding an Acquisition
Transaction, (iv) provide any third party (other than Sovereign or an affiliate
of Sovereign) with any nonpublic information in connection with any inquiry or
proposal relating to an Acquisition Transaction or (v) enter into an agreement
with any other party with respect to an Acquisition Transaction. Peoples will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations previously conducted with any parties other than
Sovereign with respect to any of the foregoing, and will take all actions
necessary or advisable to inform the appropriate individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 4.06. Peoples will notify Sovereign orally (within one day) and in
writing (as promptly as practicable) if any inquiries or proposals relating to
an Acquisition Transaction are received by, any such information is requested
from, or any such negotiations or discussions are sought to be initiated or
continued with, Peoples. As used in this Agreement, "Acquisition Transaction"
shall mean one of the following transactions with a party other than Sovereign
of an affiliate of Sovereign (i) a merger or consolidation, or any similar
transaction, involving Peoples or a Peoples Subsidiary, (ii) a purchase, lease
or other acquisition of all or a substantial portion of the assets or
liabilities of Peoples or a Peoples Subsidiary or (iii) a purchase or other
acquisition (including by way of share exchange, tender offer, exchange offer or
otherwise) of a substantial interest in any class or series of equity securities
of Peoples (other than as permitted by Section 4.01(a)(ii) hereof) or a Peoples
Subsidiary.
Section 4.07 Duty to Advise; Duty to Update Disclosure Schedule. Each
party shall promptly advise the other party of any change or event having a
Material Adverse Effect on it or which it believes would or would be reasonably
likely to cause or constitute a material breach of any of its representations,
warranties or covenants set forth herein. Each party shall update its respective
Disclosure Schedule as promptly as practicable after the occurrence of an event
or fact which, if such event or fact had occurred prior to the date of this
Agreement, would have been disclosed in such Disclosure Schedule. The delivery
of such updated Schedule shall not relieve a party from any breach or violation
of this Agreement and shall not have any effect for the purposes of determining
the satisfaction of the condition set forth in Sections 5.01(c) and 5.02(c)
hereof, as applicable.
Section 4.08 Conduct of Sovereign's Business. From the date of this
Agreement to the Closing Date, Sovereign will use its reasonable good faith
efforts to (i) preserve its business organizations intact, (ii) maintain good
relationships with employees, and (iii) preserve for itself the goodwill of
customers of Sovereign and Sovereign Subsidiaries and others with whom business
relationships exist.
Section 4.09 Current Information.
(a) During the period from the date of this Agreement to the Effective
Date, each party shall, upon the request of the other party, cause one or more
of its designated representatives to confer on a monthly or more frequent basis
with representatives of the other party regarding its financial condition,
operations and business and matters relating to the completion of the
transactions contemplated hereby. As soon as reasonably available, but in no
event more than 45 days after the end of each calendar quarter ending after the
date of this Agreement (other than the last quarter of each fiscal year ending
December 31), Peoples and Sovereign will deliver to the other party its
quarterly report on Form 10-Q under the Exchange Act, and, as soon as reasonably
available, but in no event more than 90 days after the end of each fiscal year
ended December 31, Peoples and Sovereign will deliver to the other party its
Annual Report on Form 10-K. Within 25 days after the end of each month, Peoples
will deliver to
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Sovereign a consolidated balance sheet and a consolidated statement of
operations, without related notes, for such month.
(b) Peoples shall provide to Sovereign a copy of the minutes of any meeting
of the Board of Directors of Peoples or any Peoples Subsidiary, or any committee
thereof, or any senior management committee, promptly after such minutes are
approved at a subsequent meeting of the board or committee, but in any event
within 40 days of the meeting of such board or committee to which such minutes
relate, except that with respect to any meeting held within 30 days of the
Closing Date, such minutes shall be provided prior to the Closing Date.
Section 4.10 Undertakings by Sovereign and Peoples.
(a) From and after the date of this Agreement, Peoples shall:
(i) Voting by Directors. Use its best efforts to cause all members of
Peoples' Board of Directors to vote all shares of Peoples' Common Stock
beneficially owned by each such director in favor of this Agreement;
(ii) Phase I Environmental Audit. Permit Sovereign, if Sovereign
elects to do so, at its own expense, to cause a "phase I environmental
audit" to be performed at any physical location owned or occupied by
Peoples or any Peoples Subsidiary on the date hereof;
(iii) Approval of Bank Plan of Merger. Approve the Bank Plan of
Merger as sole shareholder of Trenton Savings and obtain the approval of,
and cause the execution and delivery of, the Bank Plan of Merger by Trenton
Savings;
(iv) Proxy Solicitor. If Sovereign requests and agrees to bear the
expense thereof, retain a proxy solicitor in connection with the
solicitation of Peoples shareholder approval of this Agreement;
(v) Timely Review. If requested by Sovereign at Sovereign's sole
expense, cause its independent certified public accountants to perform a
review of its unaudited consolidated financial statements as of the end of
any calendar quarter, in accordance with Statement of Auditing Standards
No. 71, and to issue its report on such financial statements as soon as is
practicable thereafter;
(vi) Outside Service Bureau Contracts. If requested to do so by
Sovereign, use its reasonable best efforts to obtain an extension of any
contract with an outside service bureau or other vendor of services to
Peoples or any Peoples Subsidiary, on terms and conditions mutually
acceptable to Peoples and Sovereign;
(vii) Committee Meetings. Permit a representative of Sovereign, who
is reasonably acceptable to Peoples, to attend all committee meetings of
Peoples and Trenton Savings management including, without limitation, any
loan or asset/liability committee;
(viii) List of Nonperforming Assets. Provide Sovereign, within ten
(10) days after the quarterly meeting of its Asset Review Committee, a
written list of nonperforming assets as of the end of such month;
(ix) Reserves and Merger-Related Costs. On or before the Effective
Date, establish such additional accruals and reserves as may be necessary
to conform the accounting reserve practices and methods (including credit
loss practices and methods) of Peoples to those of Sovereign (as such
practices and methods are to be applied to Peoples from and after the
Closing Date) and Sovereign's plans with respect to the conduct of the
business of Peoples following the Merger and otherwise to reflect
Merger-related expenses and costs incurred by Peoples, provided, however,
that Peoples shall not be required to take such action (A) more than five
(5) days prior to the Effective Date; and (B) unless Sovereign agrees in
writing that all conditions to closing set forth in Section 5.02 have been
satisfied or waived (except for the expiration of any applicable waiting
periods); prior to the delivery by Sovereign of the writing referred to in
the preceding clause, Peoples shall provide Sovereign a written statement,
certified without personal liability by the
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chief executive officer of Peoples and dated the date of such writing, that
the representation made in Section 2.15 hereof is true as of such date or,
alternatively, setting forth in detail the circumstances that prevent such
representation from being true as of such date; and no accrual or reserve
made by Peoples or any Peoples Subsidiary pursuant to this subsection, or
any litigation or regulatory proceeding arising out of any such accrual or
reserve, shall constitute or be deemed to be a breach or violation of any
representation, warranty, covenant, condition or other provision of this
Agreement or to constitute a termination event within the meaning of
Section 6.01(d) hereof;
(x) Shareholders' Meeting. Peoples shall take all action necessary to
properly call and convene a special meeting of its shareholders on or about
April 15, 1999 to consider and vote upon this Agreement and the
transactions contemplated hereby; the Board of Directors of Peoples shall
recommend that the shareholders of Peoples, approve this Agreement and the
transactions contemplated hereby, provided, however, that no director of
Peoples shall be required to take any action in accordance with this
subsection in such person's capacity as a director if the fiduciary duty of
such person in such capacity legally requires otherwise and such person is
so advised in a written opinion of counsel;
(xi) Personnel Information. Deliver to Sovereign, if not done so
heretofore, schedule(s) of all employees including pertinent information
concerning each such employee as reasonably requested by Sovereign and
sorted as reasonably requested by Sovereign; such schedule(s) shall be
updated as necessary to reflect in a timely manner any deletions or
additions; make available for inspection and copying by Sovereign all
personnel records;
(xii) Personnel Additions and Terminations. If requested by
Sovereign, advise and consult with Sovereign regarding the hiring or
termination of any employee;
(xiii) Employment Policies. Deliver to Sovereign all personnel policy
manuals, memoranda and postings, and all employee handbooks or other
communications with employees regarding personnel policies and practices;
furnish additional information as reasonably requested by Sovereign with
respect to such policies and practices and any others not covered by any
such written materials;
(xiv) WARN Notices. Assist Sovereign as reasonably requested by it in
connection with Sovereign providing notices to affected employees under the
Workers Adjustment and Retraining Notification Act or complying with any
other Labor and Employment Law; and
(xv) Employment Law Claims. Inform Sovereign promptly upon receiving
notice of any legal, administrative, arbitration or other proceedings,
demands, notices or investigations (by any federal, state or local
commission, agency or board) relating to the alleged liability of Peoples
or any Peoples Subsidiary under any Labor and Employment Law.
(b) From and after the date of this Agreement, Sovereign and Peoples shall
each:
(i) Identification of Peoples' Affiliates. Cooperate with the other
and use its best efforts to identify those persons who may be deemed to be
Affiliates of Peoples;
(ii) Public Announcements. Cooperate and cause its respective
officers, directors, employees and agents to cooperate in good faith,
consistent with their respective legal obligations, in the preparation and
distribution of, and agree upon the form and substance of, any press
release related to this Agreement and the transactions contemplated hereby,
and any other public disclosures related thereto, including without
limitation communications to Peoples shareholders, Peoples' internal
announcements and customer disclosures, but nothing contained herein shall
prohibit either party from making any disclosure which its counsel deems
necessary under applicable law;
(iii) Maintenance of Insurance. Maintain, and cause their respective
Subsidiaries to maintain, insurance in such amounts as are reasonable to
cover such risks as are customary in relation to the character and location
of its properties and the nature of its business;
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(iv) Maintenance of Books and Records. Maintain, and cause their
respective Subsidiaries to maintain, books of account and records in
accordance with GAAP applied on a basis consistent with those principles
used in preparing the financial statements heretofore delivered;
(v) Delivery of Securities Documents. Deliver to the other, copies of
all Securities Documents simultaneously with the filing thereof; and
(vi) Taxes. File all federal, state, and local tax returns required
to be filed by them or their respective Subsidiaries on or before the date
such returns are due (including any extensions) and pay all taxes shown to
be due on such returns on or before the date such payment is due.
Section 4.11 Employee Benefits and Termination Benefits.
(a) Employee Benefits. On and after the Effective Date, the employee
pension (including employee stock ownership plans) and welfare benefit plans of
Sovereign and Peoples (as well as any other plan of Peoples providing for
benefits not subject to ERISA) may, at Sovereign's election and subject to the
requirements of the IRC, continue to be maintained separately or consolidated or
terminated, except as set forth below. In connection with implementation of the
foregoing, the following provisions and guidelines shall apply:
(i) Sovereign Employee Stock Ownership Plan ("ESOP"). Employees of
Peoples and Peoples Subsidiaries who become employees of Sovereign or a
Sovereign Subsidiary shall become entitled to participate in the Sovereign
ESOP in accordance with its terms by treating them as newly employed
individuals without any prior service credit under such plan.
(ii) Trenton Savings Bank FSB Employee Stock Ownership Plan ("Peoples
ESOP"). After the Effective Date, Sovereign will not merge the Peoples
ESOP until and unless required by applicable law, and in no event prior to
December 31, 2000.
(iii) Sovereign Defined Benefit Pension Plan ("DB Plan"). Employees
of Peoples and Peoples Subsidiaries who become employees of Sovereign or a
Sovereign Subsidiary shall become entitled to participate in Sovereign's DB
Plan in accordance with its terms. In this regard, each such employee shall
(A) receive, for purposes of participation and vesting only, credit for all
service with Peoples or a Peoples Subsidiary credited to each such employee
under Peoples' applicable qualified plan, and (B) enter the Sovereign DB
Plan on the entry date concurrent with or next following the employee's
satisfaction of such plan's minimum participation requirements.
(iv) Sovereign 401(k) Retirement Savings Plan ("401(k)
Plan"). Employees of Peoples and Peoples Subsidiaries who become employees
of Sovereign or a Sovereign Subsidiary shall become entitled to participate
in the Sovereign 401(k) Plan in accordance with its terms. In this regard,
each such employee shall (A) receive, for purposes of participation and
vesting only, credit for all service with Peoples or a Peoples Subsidiary
credited to each such employee under Peoples' 401(k) Plan as of the
Effective Date, and (B) enter the Sovereign 401(k) Plan on the entry date
concurrent with or next following the employee's satisfaction of such
plan's minimum participation requirements.
(v) Peoples Savings Plan ("401(k) Plan"). After the Effective Date,
Sovereign will initially continue to maintain Peoples' 401(k) Plan until
its participants generally become eligible to participate in the Sovereign
401(k) Plan. Thereafter, Sovereign shall have the right, but not the
obligation, to combine the two plans on such terms as it deems appropriate
and in accordance with applicable law.
(vi) Sovereign and Peoples Nonqualified Deferred Compensation Plans
("Excess Benefit Plans"). Following the Merger, Sovereign will, as soon as
administratively feasible, consolidate the Excess Benefit Plans maintained
by Sovereign and Peoples to supplement certain pension benefits lost by
some employees by reason of limitations contained in the IRC. Such
consolidation shall be effected in such a manner that no person receive
redundant benefits or lose existing benefits. The intent of the preceding
sentence is that affected employees of Peoples and Peoples Subsidiaries
generally shall be entitled only to the sum of (A) the benefits accrued
under the
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Peoples Excess Benefit Plan(s) as of the plan consolidation, and (B) the
benefits accrued thereafter under the combined Excess Benefit Plan.
(vii) Peoples 1996 and 1999 Recognition and Retention Plan ("1996 RRP"
and "1999 RRP"). The 1996 RRP shall continue in effect following the
Effective Date as a Sovereign plan. No action shall be taken that would
adversely affect the rights of plan participants who hold outstanding
grants or awards of shares of Peoples Common Stock, whether before or after
the Effective Date. No further grants or awards shall be made under the
1996 RRP following the date of this Agreement. Peoples may adopt the 1999
RRP in the form set forth in the Peoples Disclosure Schedule. The 1999 RRP
will permit the grant or award of a maximum of 578,000 shares of Peoples
Common Stock to the individuals and in the amounts set forth on the Peoples
Disclosure Schedule; provided, however, that the 1999 RRP shall provide
that grants or awards under the 1999 RRP shall provide for three-year
vesting and shall not automatically vest upon the "change in control" which
would occur on the Effective Date as a result of the Merger.
(viii) Peoples 1996 and 1999 Stock Option Plans ("1996 Option Plan")
and ("1999 Option Plan"). The 1996 Option Plan shall continue in effect
following the Effective Date as a Sovereign plan. No action shall be taken
that would adversely affect the rights of plan participants who hold
outstanding grants of options to purchase Peoples Common Stock, whether
before or after the Effective Date. No further grants of stock options will
be made under the 1996 Option Plan following the date of this Agreement.
Peoples may adopt the 1999 Option Plan in the form set forth in the Peoples
Disclosure Schedule. The 1999 Option Plan will permit the grant of stock
options to purchase a maximum of 1,428,000 shares of Peoples Common Stock
to the individuals and in the amounts set forth on the Peoples Disclosure
Schedule; provided, however, that options granted under the 1999 Option
Plan shall provide for three-year vesting and shall not automatically vest
upon the "change in control" which would occur on the Effective Date as a
result of the Merger.
(ix) Welfare Benefit Plans. After the Effective Date, the welfare
benefit plans of Sovereign and Peoples (and their respective subsidiaries)
shall initially remain unchanged. Sovereign shall undertake a study, in
consultation with appropriate professional advisors, with a view toward the
possible combination of some or all of such plans or the benefits provided
thereunder. Following such study, Sovereign shall take such action with
respect to such plans (which may include the implementation of new
benefits, reduction or elimination of some benefits, and the alteration of
the respective cost allocation between employer and employee) as it deems
appropriate under the circumstances. In the event of any termination of or
consolidation of a Peoples welfare plan with any Sovereign welfare plan,
all employees of Peoples and Peoples Subsidiaries who are eligible for
continued coverage under the Peoples welfare plan shall have immediate
coverage under any successor welfare plan without the necessity of
satisfying a waiting period for coverage of any pre-existing condition.
Except for the individuals set forth in the Peoples Disclosure Schedule,
Sovereign does not provide welfare benefits to part-time employees or
retired employees.
(x) Peoples Bonus Plans and Arrangements. Peoples may continue to
administer such bonus programs and arrangements as are disclosed pursuant
to this Agreement through the Effective Date, with such equitable
modifications as may be appropriate to take into account the circumstances
of the Merger and the timing thereof. In the event the Merger shall occur
after the current fiscal year, bonuses shall be provided on a pro rata
basis with respect to the interim period; provided, however, that bonuses
for such interim period, in the aggregate, shall not exceed twenty-five
percent (25%) of the aggregate amount of bonuses payable for the calendar
year ending December 31, 1998.
(xi) Other Peoples Plans. From the date of this Agreement through the
Effective Date of the Merger, without the prior written consent of
Sovereign and except as otherwise expressly permitted by this Agreement, no
further benefits, grants or awards shall be made available under any other
Peoples plans to employees or directors, including, without limitation, the
granting of stock options, stock appreciation rights, restricted stock, and
performance shares.
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(b) Termination Benefits. Peoples shall use its best efforts to cause to
be delivered to Sovereign within five (5) business days following execution of
this Agreement with respect to each executive officer named on the Benefits
Schedule included in the Peoples Disclosure Schedule, the written acknowledgment
of each such individual in the form attached hereto as Exhibit 4 pursuant to
which each such individual agrees and acknowledges that the dollar amount set
forth opposite such individual's name on such Benefits Schedule is the entire
amount that would be due to such individual under any employment agreement,
special termination agreement, supplemental executive retirement plan, deferred
bonus plan, deferred compensation plan, salary continuation plan, or any other
pension benefit or welfare benefit plan maintained by Peoples solely for the
benefit of officers of Peoples or Peoples Subsidiaries assuming a termination of
such individual's employment on April 2, 1999, and April 1, 1999 as the Closing
Date. Peoples and Sovereign acknowledge and agree that the amounts shown on the
Benefits Schedule and the letter of acknowledgement for each officer named
herein reflect a good faith estimate of the amounts that will be payable to such
individuals under the circumstances described and may be subject to adjustment
upon an actual termination of employment in order to reflect increases in such
individuals' compensation and benefit plans consistent with past practices for
routine periodic increases.
(c) Severance Policy. Sovereign agrees to cause Sovereign Bank to provide
severance pay, as set forth below, to any employee of Peoples whose employment
is terminated hereafter in connection with the Merger up to three (3) months
beyond the Effective Date, because (i) such employee's position is eliminated,
or (ii) such employee is not offered or retained in comparable employment (i.e.,
a position of generally similar job description or responsibilities in a
location within a thirty (30)-mile radius from either such employee's work
location with Peoples or residence), excluding any employee who has an existing
employment or consulting agreement with Peoples or any Peoples Subsidiary, who
has accepted an offer from Sovereign of noncomparable employment or whose
employment is terminated for Cause (as defined below), provided such employee
executes such documentation as Sovereign may reasonably require, including
Sovereign's customary form of release provided to Peoples prior to the execution
of this Agreement and provided such employee does not leave employment with
Peoples or Sovereign prior to the employment termination date or any extension
thereof established or adjusted by Sovereign: (i) senior officers (within the
meaning of Peoples' Severance Pay Policy) shall be entitled to two and one-half
(2 1/2) weeks' pay for each full year of continuous service with a minimum
severance benefit of thirty (30) weeks' pay; (ii) junior officers (within the
meaning of Peoples' Severance Pay Plan) shall be entitled to two and one-half
(2 1/2) weeks pay for each full year of continuous service with a minimum
severance benefit of sixteen (16) weeks' pay and a maximum severance benefit of
thirty (30) weeks' pay; (iii) regular full-time employees who are exempt
employees under FLSA shall be entitled to two and one-half (2 1/2) weeks' pay
for each full year of continuous service with a minimum severance benefit of
eight (8) weeks' pay and a maximum severance benefit of thirty (30) weeks' pay;
(iv) regular full-time employees who are nonexempt employees under FLSA shall be
entitled to two and one-half (2 1/2) weeks' pay for each full year of continuous
service with a minimum severance benefit of four (4) weeks' pay and a maximum
severance benefit of thirty (30) weeks' pay; and (v) part-time, peak-time and
temporary employees shall not be entitled to any severance benefits. For
purposes of this Section 4.11(c), "Cause" shall mean termination because of the
employee's personal dishonesty, failure to meet established performance goals
and standards, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties or willful violation of any
law, rule or regulation (other than traffic violations or similar offenses). The
benefits provided to terminated Peoples employees under this subsection are the
only severance benefits payable by Peoples to such employees (excluding
severance benefits provided under existing employment or consulting agreements
or as otherwise required by law), except for employees who do not execute the
documentation required by Sovereign, which employees shall be entitled to the
termination benefits provided under Peoples' normal severance policies. The
benefits payable to Peoples' employees under this subsection or otherwise shall
in any event be in lieu of any termination benefits to which such employees
would otherwise be entitled under Sovereign's or Sovereign Bank's severance
policies or programs then in effect.
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(d) Intention Regarding Future Employment. Sovereign and Sovereign Bank
shall use their reasonable best efforts to inform the employees of Peoples at
least sixty (60) days prior to the Effective Date of the likelihood of such
employees having continued employment with Sovereign Bank following the
Effective Date and, where appropriate in Sovereign Bank's judgment, it will
consider for employment opportunities at Sovereign Bank such employees who would
otherwise be terminated.
(e) Retention Bonuses. Notwithstanding subparagraph (c) above, each
employee of Peoples or of Trenton Savings identified in the Peoples Disclosure
Schedule shall be entitled to receive a "retention" bonus from Peoples (or the
applicable Peoples Subsidiary) as determined by the executive officers of
Peoples (after consultation with Sovereign) and as set forth on the Peoples
Disclosure Schedule in the event that such employee remains an employee of
Peoples (or the applicable Peoples Subsidiary), until the date the systems
conversion occurs (or such other date established or adjusted by Sovereign not
to exceed 90 days following the date the system conversion occurs) or is
terminated prior to the date of the systems conversion, but after the Effective
Date, and satisfactorily fulfills the duties and responsibilities of the
position of such employee of Peoples (or the applicable Peoples Subsidiary)
through the employee's termination date; provided that retention bonuses, in the
aggregate, shall not exceed $2,400,000.
Section 4.12 NASDAQ Listing. Sovereign shall use all reasonable best
efforts to cause the shares of Sovereign Common Stock to be issued in connection
with the Merger to be approved for quotation on the Nasdaq Stock Market's
National Market System, subject to official notice of issuance, as of or prior
to the Effective Date.
Section 4.13 Affiliate Letter. Concurrently with, or within five (5)
business days after, the execution and delivery of this Agreement, Peoples shall
cause to be delivered to Sovereign the Letter Agreement attached hereto as
Exhibit 1, executed by each director, officer and any Affiliate of Peoples.
Section 4.14 Publication of Combined Financial Results. Sovereign shall
use its reasonable best efforts to publish as soon as possible, but no later
than thirty (30) days after the end of the first month after the Effective Date
in which there are at least 30 days of post-Merger combined operations, combined
revenues and net income figures as contemplated by and in accordance with the
terms of SEC Accounting Series Release No. 135, provided, however, that
Sovereign may delay publishing such information for such period of times as it,
in its good faith reasonable judgment, deems necessary or desirable to achieve a
bona fide corporate purpose.
Section 4.15 Sovereign Rights Agreement. Sovereign agrees that any
Sovereign Rights issued pursuant to the Sovereign Rights Agreement shall be
issued with respect to each share of Sovereign Common Stock issued pursuant to
the terms hereof regardless whether there has occurred a "Distribution Date"
under the terms of such Sovereign Rights Agreement prior to the Effective Date,
as well as to take all action necessary or advisable to enable the holder of
each such share of Sovereign Common Stock to obtain the benefit of such
Sovereign Stock Purchase Rights notwithstanding their prior distribution,
including without limitation, amendment of the Sovereign Rights Agreement.
Section 4.16 Advisory Board. On the Effective Date, Sovereign Bank shall
establish the Peoples Advisory Board (the "Peoples Advisory Board"), which shall
consist of all members of the Peoples Advisory Board immediately prior to the
Effective Date. Each member of the Peoples Advisory Board shall be paid an
annual retainer of $1,000. The Peoples Advisory Board shall be initially
established for a term of one year from the Effective Date. Thereafter, for a
period of two additional years, Sovereign shall either continue the Peoples
Advisory Board or designate former members of the Peoples Advisory Board as
Directors Emeriti.
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ARTICLE V
CONDITIONS
Section 5.01 Conditions to Peoples' Obligations under this Agreement. The
obligations of Peoples hereunder shall be subject to satisfaction at or prior to
the Closing Date of each of the following conditions, unless waived by Peoples
pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on the
part of, Sovereign and Sovereign Bank to authorize the execution, delivery and
performance of this Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement and the Bank
Plan of Merger, shall have been duly and validly taken by Sovereign and
Sovereign Bank; and Peoples shall have received certified copies of the
resolutions evidencing such authorizations;
(b) Covenants. The obligations and covenants of Sovereign required by this
Agreement to be performed by Sovereign at or prior to the Closing Date shall
have been duly performed and complied with in all respects, except where the
failure to perform or comply with any obligation or covenant would not, either
individually or in the aggregate, result in a Material Adverse Effect with
respect to Sovereign;
(c) Representations and Warranties. The representations and warranties of
Sovereign set forth in this Agreement shall be true and correct, as of the date
of this Agreement, and as of the Closing Date as though made on and as of the
Closing Date, except as to any representation or warranty (i) which specifically
relates to an earlier date or (ii) where the breach of the representation or
warranty would not, either individually or in the aggregate, constitute a
Material Adverse Effect with respect to Sovereign;
(d) Approvals of Regulatory Authorities. Sovereign shall have received all
required approvals of Regulatory Authorities of the Merger, and delivered copies
thereof to Peoples; and all notice and waiting periods required thereunder shall
have expired or been terminated;
(e) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby;
(f) No Material Adverse Effect. Since December 31, 1997, there shall not
have occurred any Material Adverse Effect with respect to Sovereign;
(g) Officer's Certificate. Sovereign shall have delivered to Peoples a
certificate and such other documents, dated the Closing Date and signed, without
personal liability, by its chairman or president, to the effect that the
conditions set forth in subsections (a) through (e) of this Section 5.01 have
been satisfied, to the best knowledge of the officer executing the same;
(h) Opinion of Sovereign's Counsel. Peoples shall have received an opinion
of Stevens & Lee, counsel to Sovereign, dated the Closing Date, in form and
substance reasonably satisfactory to Peoples and its counsel to the effect set
forth on Exhibit 5 attached hereto;
(i) Registration Statement. The Registration Statement shall be effective
under the Securities Act and no proceedings shall be pending or threatened by
the SEC to suspend the effectiveness of the Registration Statement; and all
required approvals by state securities or "blue sky" authorities with respect to
the transactions contemplated by this Agreement, shall have been obtained and
neither the Registration Statement nor any such approval by state securities or
"blue sky" authorities shall be subject to a stop order or threatened stop order
by the SEC or any such authority;
(j) Tax Opinion. Peoples shall have received an opinion of Stevens & Lee,
substantially to the effect set forth on Exhibit 6 attached hereto;
(k) Approval of Peoples' Shareholders. This Agreement shall have been
approved by the shareholders of Peoples by such vote as is required under
Peoples' certificate of incorporation and bylaws, the DGCL or under Nasdaq
requirements applicable to it; and
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(l) Investment Banking Opinion. Peoples shall have received a written
opinion, dated within five (5) days of mailing the Prospectus/Proxy Statement,
from Berwind Financial, updating its prior written opinion, to the effect that
the Exchange Ratio is fair, from a financial point of view, to such
shareholders.
Section 5.02 Conditions to Sovereign's Obligations under this
Agreement. The obligations of Sovereign hereunder shall be subject to
satisfaction at or prior to the Closing Date of each of the following
conditions, unless waived by Sovereign pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on the
part of, Peoples and Trenton Savings to authorize the execution, delivery and
performance of this Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement and the Bank
Plan of Merger, shall have been duly and validly taken by Peoples and Trenton
Savings; and Sovereign shall have received certified copies of the resolutions
evidencing such authorizations;
(b) Covenants. The obligations and covenants of Peoples, required by this
Agreement to be performed by it at or prior to the Closing Date shall have been
duly performed and complied with in all respects, except where the failure to
perform or comply with any obligation or covenant would not, either individually
or in the aggregate, result in a Material Adverse Effect with respect to
Peoples;
(c) Representations and Warranties. The representations and warranties of
Peoples set forth in this Agreement shall be true and correct as of the date of
this Agreement, and as of the Closing Date as though made on and as of the
Closing Date, except as to any representation or warranty (i) which specifically
relates to an earlier date or (ii) where the breach of the representation or
warranty would not, either individually or in the aggregate, result in a
Material Adverse Effect with respect to Peoples;
(d) Approvals of Regulatory Authorities. Sovereign shall have received all
required approvals of Regulatory Authorities for the Merger, without the
imposition of any term or condition that would have a Material Adverse Effect on
Sovereign upon completion of the Merger; and all notice and waiting periods
required thereunder shall have expired or been terminated;
(e) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby;
(f) No Material Adverse Effect. Since December 31, 1997, there shall not
have occurred any Material Adverse Effect with respect to Peoples.
(g) Officer's Certificate. Peoples shall have delivered to Sovereign a
certificate and such other documents, dated the Closing Date and signed, without
personal liability, by its chairman of the board or president, to the effect
that the conditions set forth in subsections (a) through (e) of this Section
5.02 have been satisfied, to the best knowledge of the officer executing the
same;
(h) Opinions of Peoples' Counsel. Sovereign shall have received an opinion
of Luse Lehman Gorman Pomerenk & Schick, counsel to Peoples, dated the Closing
Date, in form and substance reasonably satisfactory to Sovereign and its counsel
to the effect set forth on Exhibit 7 attached hereto;
(i) Registration Statement. The Registration Statement shall be effective
under the Securities Act and no proceedings shall be pending or threatened by
the SEC to suspend the effectiveness of the Registration Statement; and all
required approvals by state securities or "blue sky" authorities with respect to
the transactions contemplated by this Agreement, shall have been obtained and
neither the Registration Statement nor any such approval by state securities or
"blue sky" authorities shall be subject to a stop order or threatened stop order
by the SEC or any such authority;
(j) Tax Opinion. Sovereign shall have received an opinion of Stevens &
Lee, its counsel, substantially to the effect set forth on Exhibit 6 attached
hereto;
(k) Pooling Letter. Sovereign shall have received letters from Ernst &
Young LLP and KPMG Peat Marwick LLP to the effect that the Merger will be
treated as a "pooling of interests" for financial accounting purposes;
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(l) Phase I Environmental Audit Results. The results of any "phase I
environmental audit" conducted pursuant to Section 4.10(a)(ii) with respect to
owned or occupied bank premises shall be reasonably satisfactory to Sovereign;
provided, however, that (i) any such environmental audit must be initiated
within 30 days of the date of this Agreement, (ii) Sovereign must elect to
terminate this Agreement or waive its right to terminate the Agreement under
this Section 5.02(l) within 15 days of receiving the results of such
environmental audit and (iii) Sovereign may not terminate this Agreement under
this Section 5.02(l) unless the results of such audits result in a Material
Adverse Effect on Sovereign;
(m) Shareholder Approval. This Agreement shall have been approved by the
shareholders of Sovereign by such vote as is required under Sovereign's articles
of incorporation and bylaws or under Nasdaq requirements applicable to it, to
the extent required by Nasdaq rules applicable to Sovereign.
(n) Liquidation Account. Neither the Merger or consummation of the Bank
Plan of Merger shall require Sovereign, Peoples or any Subsidiary of either to
distribute to depositors the liquidation account established by Trenton Savings
in connection with its conversion from mutual to stock form.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
Section 6.01 Termination. This Agreement may be terminated on or at any
time prior to the Closing Date:
(a) By the mutual written consent of the parties hereto;
(b) By Sovereign or Peoples:
(i) if the Closing Date shall not have occurred on or before June 30,
1999 unless the failure of such occurrence shall be due to the failure of
the party seeking to terminate this Agreement to perform or observe, in any
material respect, its agreements set forth in this Agreement required to be
performed or observed by such party on or before the Closing Date; or
(ii) if either party has received a final unappealable administrative
order from a Regulatory Authority whose approval or consent has been
requested that such approval or consent will not be granted, unless in the
case of both Section 6.01(b)(i) and 6.01(b)(ii) hereof the failure of such
occurrence shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe in any material respect its agreements
set forth herein required to be performed or observed by such party on or
before the Closing Date.
(c) By Peoples, on the Closing Date if both of the following conditions are
satisfied:
(1) the Sovereign Market Value as of the close of business on the
Determination Date shall be less than $11.00; and
(2) (i) the quotient obtained by dividing the Sovereign Market Value
as of the close of business on the Determination Date by $13.125 (such
number being referred to herein as the "Sovereign Ratio") shall be less
than (ii) the quotient obtained by dividing the Index Price on the
Determination Date by the Index Price on the Starting Date and subtracting
0.10 from the quotient in this clause (2)(ii).
For purposes of this Section 6.01(c), the following terms shall have the
meanings indicated.
"Determination Date" shall mean the date immediately preceding the Closing
Date.
"Index Group" shall mean the eight thrift holding companies listed below,
the common stocks of all of which shall be publicly traded and as to which there
shall not have been, since the Starting Date and before the Determination Date,
any public announcement of a proposal for such company to be acquired or for
such company to acquire another company or companies in transactions with a
value exceeding 25% of the acquiror's market capitalization. In the event that
any such company or companies are removed from the Index Group, the weights
(which have been determined based upon the number of shares of outstanding
common stock) redistributed proportionately for purposes of
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determining the Index Price. The eight thrift holding companies and the weights
attributed to them are as follows:
THRIFT HOLDING COMPANIES % WEIGHTING
- ------------------------ -----------
Dime Bancorp, Inc........................................... 27.67%
Charter One Financial....................................... 14.87%
Golden State Bancorp........................................ 11.75%
Astoria Financial Corporation............................... 11.75%
Washington Federal, Inc..................................... 11.07%
GreenPoint Financial Corp................................... 9.86%
Bank United Corp............................................ 6.62%
Peoples Heritage Finl Group................................. 6.41%
------
Total............................................... 100.00%
======
"Index Price" on a given date shall mean the weighted average (weighted in
accordance with the factors listed above) of the closing sales prices of the
companies composing the Index Group (reported as provided with respect to the
Sovereign Market Value).
"Starting Date" shall mean September 3, 1998.
If any company belonging to the Index Group or Sovereign declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares, or similar transaction between the Starting
Date and the Determination Date, the prices for the common stock of such company
or Sovereign shall be appropriately adjusted for the purposes of applying this
Section 6.01(c); or
(d) By Sovereign at any time prior to the Closing Date if the Board of
Directors of Peoples shall have (i) failed to recommend and endorse this
Agreement and the transactions contemplated hereby, (ii) withdrawn, modified or
changed in a manner adverse to Sovereign its approval or recommendation of this
Agreement and the transactions contemplated hereby, or (iii) recommended or
endorsed another Acquisition Transaction.
(e) At any time on or prior to the Effective Date, by Peoples in writing if
Sovereign has, or by Sovereign in writing if Peoples has, in any material
respect, breached (i) any material covenant or undertaking contained herein or
(ii) any representation or warranty contained herein, which in the case of a
breach referred to in subclause (i) or (ii) above by Sovereign would have a
Material Adverse Effect on Sovereign and in case of a breach referred to in
subclause (i) or (ii) above by Peoples would have a Material Adverse Effect on
Peoples, in any case if such breach has not been substantially cured by the
earlier of 30 days after the date on which written notice of such breach is
given to the party committing such breach or the Effective Date or if on such
date such breach no longer causes a Material Adverse Effect.
Section 6.02 Effect of Termination. If this Agreement is terminated
pursuant to Section 6.01 hereof, this Agreement shall forthwith become void
(other than Section 4.02(d), Section 4.10(b)(iii) and Section 7.01 hereof, which
shall remain in full force and effect), and there shall be no further liability
on the part of Sovereign or Peoples to the other, except for any liability
arising out of any uncured willful breach of any covenant or other agreement
contained in this Agreement or any fraudulent breach of a representation or
warranty.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Expenses. Except for the cost of printing and mailing the
Proxy Statement/ Prospectus which shall be shared equally, each party hereto
shall bear and pay all costs and expenses incurred by it in connection with the
transactions contemplated hereby, including fees and expenses of its own
financial consultants, accountants and counsel.
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Section 7.02 Non-Survival of Representations and Warranties. All
representations, warranties and, except to the extent specifically provided
otherwise herein, agreements and covenants, other than those covenants that by
their terms are to be performed after the Effective Date, including without
limitation the covenants set forth in Sections 1.02(f), 1.02(g), 4.05, and
4.11(a), (c) and (e) which will survive the Merger, shall terminate on the
Closing Date.
Section 7.03 Amendment, Extension and Waiver. Subject to applicable law,
at any time prior to the consummation of the transactions contemplated by this
Agreement, the parties may (a) amend this Agreement, (b) extend the time for the
performance of any of the obligations or other acts of either party hereto, (c)
waive any inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto, or (d) waive compliance with any of
the agreements or conditions contained in Articles IV and V hereof or otherwise
provided that any amendment, extension or waiver granted or executed after
shareholders of Peoples have approved this Agreement shall not modify either the
amount or the form of the consideration to be provided hereby to holders of
Peoples Common Stock upon consummation of the Merger or otherwise materially
adversely affect the shareholders of Peoples without the approval of the
shareholders who would be so affected. This Agreement may not be amended except
by an instrument in writing authorized by the respective Boards of Directors and
signed, by duly authorized officers, on behalf of the parties hereto. Any
agreement on the part of a party hereto to any extension or waiver shall be
valid only if set forth in an instrument in writing signed by a duly authorized
officer on behalf of such party, but such waiver or failure to insist on strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
Section 7.04 Entire Agreement. This Agreement, including the documents and
other writings referred to herein or delivered pursuant hereto, contains the
entire agreement and understanding of the parties with respect to its subject
matter. This Agreement supersedes all prior arrangements and understandings
between the parties, both written or oral with respect to its subject matter.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors; provided, however, that nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto and their respective successors, any rights, remedies,
obligations or liabilities other than pursuant to Sections 1.02(f), 1.02(g),
4.05, and 4.11(a) and (c).
Section 7.05 No Assignment. Neither party hereto may assign any of its
rights or obligations hereunder to any other person, without the prior written
consent of the other party hereto.
Section 7.06 Notices. All notices or other communications hereunder shall
be in writing and shall be deemed given if delivered personally, mailed by
prepaid registered or certified mail (return receipt requested), or sent by
telecopy, addressed as follows:
(i) If to Sovereign, to:
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Attention: Jay S. Sidhu
President and Chief Executive
Officer
Telecopy No.: (610) 320-8448
with a copy to:
Stevens & Lee
111 North Sixth Street
Reading, Pennsylvania 19601
Attention: Joseph M. Harenza, Esquire
and
David W. Swartz, Esquire
Telecopy No.: (610) 376-5610
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<PAGE>
(ii) If to Peoples, to:
Peoples Bancorp, Inc.
134 Franklin Corner Road
Lawrenceville, New Jersey 08648-0950
Attention: Wendell T. Breithaupt
President and Chief Executive
Officer
Telecopy No.: (609) 844-9636
with copies to:
Luse Lehman Gorman Pomerenk & Schick
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
Attention: John J. Gorman, Esquire
and
Kenneth R. Lehman, Esquire
Telecopy No.: (202) 362-2902
Section 7.07 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 7.08 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
Section 7.09 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
Section 7.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic internal law (including the law of
conflicts of law) of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
SOVEREIGN BANCORP, INC.
By /S/ JAY S. SIDHU
-------------------------------------
Jay S. Sidhu,
President and Chief Executive Officer
PEOPLES BANCORP, INC.
By /S/ WENDELL T. BREITHAUPT
-------------------------------------
WENDELL T. BREITHAUPT,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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<PAGE>
EXHIBIT 1
FORM OF AFFILIATE LETTER
SEPTEMBER 7, 1998
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Ladies and Gentlemen:
Sovereign Bancorp, Inc. ("Sovereign") and Peoples Bancorp, Inc. ("Peoples")
desire to enter into an agreement dated September 7, 1998 ("Agreement"),
pursuant to which, subject to the terms and conditions set forth therein, (a)
Peoples will merge with and into Sovereign with Sovereign surviving the merger
and (b) shareholders of Peoples will receive common stock of Sovereign in
exchange for common stock of Peoples outstanding on the closing date (the
foregoing, collectively, referred to herein as the "Merger").
Sovereign has required, as a condition to its execution and delivery to
Peoples of the Agreement, that the undersigned, being directors, executive
officers and major shareholders of Peoples, execute and deliver to Sovereign
this Letter Agreement.
Each of the undersigned, in order to induce Sovereign to execute and
deliver to Peoples the Agreement, hereby irrevocably:
(a) Agrees to be present (in person or by proxy) at all meetings of
shareholders of Peoples called to vote for approval of the Agreement and the
Merger so that all shares of common stock of Peoples then owned by the
undersigned will be counted for the purpose of determining the presence of a
quorum at such meetings and to vote or cause to be voted all such shares (i) in
favor of approval and adoption of the Agreement and the transactions
contemplated thereby (including any amendments or modifications of the terms
thereof approved by the Board of Directors of Peoples) and (ii) against approval
or adoption of any other merger, business combination, recapitalization, partial
liquidation or similar transaction involving Peoples;
(b) Agrees not to vote or execute any written consent to rescind or amend
in any manner any prior vote or written consent, as a shareholder of Peoples, to
approve or adopt the Agreement;
(c) Agrees to use reasonable best efforts to cause the Merger to be
consummated;
(d) Agrees not to offer, sell, transfer or otherwise dispose of any shares
of common stock of Sovereign received in the Merger, except (i) at such time as
a registration statement under the Securities Act of 1933, as amended
("Securities Act") covering sales of such Sovereign common stock is effective
and a prospectus is made available under the Securities Act, (ii) within the
limits, and in accordance with the applicable provisions of, Rule 145(d) under
the Securities Act, or (iii) in a transaction which, in the opinion of counsel
satisfactory to Sovereign or as described in a "no-action" or interpretive
letter from the staff of the Securities and Exchange Commission ("SEC"), is not
required to be registered under the Securities Act; and acknowledges and agrees
that Sovereign is under no obligation to register the sale, transfer or other
disposition of Sovereign common stock by the undersigned or on behalf of the
undersigned, or to take any other action necessary to make an exemption from
registration available;
(e) Notwithstanding the foregoing, agrees not to sell, or in any other way
reduce the risk of the undersigned relative to, any shares of common stock of
Peoples or of common stock of Sovereign, during the period commencing thirty
days prior to the effective date of the Merger and ending on the date on which
financial results covering at least thirty days of post-Merger combined
operations of Sovereign and Peoples have been published within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies
provided, however, that excluded from the foregoing
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<PAGE>
undertaking shall be such sales, pledges, transfers or other dispositions of
shares of Peoples Common Stock or shares of Sovereign Common Stock which, in the
reasonable opinion of counsel for Sovereign, are individually and in the
aggregate de minimis within the meaning of Topic 2-E of the Staff Accounting
Bulletin Series of the Securities and Exchange Commission;
(f) Agrees that neither Peoples nor Sovereign shall not be bound by any
attempted sale of any shares of Peoples Common Stock or Sovereign common stock,
respectively, and Sovereign's transfer agents shall be given an appropriate stop
transfer order and shall not be required to register any such attempted sale,
unless the sale has been effected in compliance with the terms of this Letter
Agreement; and further agrees that the certificate representing shares of
Sovereign common stock owned by the undersigned may be endorsed with a
restrictive legend consistent with the terms of this Letter Agreement;
(g) Acknowledges and agrees that the provisions of subparagraphs (d), (e)
and (f) hereof also apply to shares of Sovereign common stock received in the
Merger (or any shares of Peoples common stock or of Sovereign common stock,
whether or not received in the Merger, for the period referred to in
subparagraph (e) above) owned by (i) his or her spouse, (ii) any of his or her
relatives or relatives of his or her spouse occupying his or her home, (iii) any
trust or estate in which he or she, his or her spouse, or any such relative owns
at least a 10% beneficial interest or of which any of them serves as trustee,
executor or in any similar capacity, and (iv) any corporation or other
organization in which the undersigned, any affiliate of the undersigned, his or
her spouse, or any such relative owns at least 10% of any class of equity
securities or of the equity interest;
(h) Represents that the undersigned has no plan or intention to sell,
exchange, or otherwise dispose of any shares of common stock of Sovereign to be
received in the Merger prior to expiration of the time period referred to in
subparagraph (e) hereof; and
(i) Represents that the undersigned has the capacity to enter into this
Letter Agreement and that it is a valid and binding obligation enforceable
against the undersigned in accordance with its terms, subject to bankruptcy,
insolvency and other laws affecting creditors' rights and general equitable
principles.
------------------------------
The obligations set forth herein shall terminate concurrently with any
termination of the Agreement.
------------------------------
This Letter Agreement may be executed in two or more counterparts, each of
which shall be deemed to constitute an original, but all of which together shall
constitute one and the same Letter Agreement.
------------------------------
This Letter Agreement shall terminate concurrently with any termination of
the Agreement in accordance with its terms.
------------------------------
The undersigned intend to be legally bound hereby.
Sincerely,
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<PAGE>
EXHIBIT 2
STOCK OPTION AGREEMENT
[See Annex B]
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<PAGE>
EXHIBIT 3
BANK PLAN OF MERGER
THIS BANK PLAN OF MERGER ("Plan of Merger") dated September 7, 1998 is by
and between SOVEREIGN BANK, ("Sovereign Bank"), and TRENTON SAVINGS BANK, F.S.B.
("Trenton Savings").
BACKGROUND
1. Sovereign Bank is a federal savings bank and a wholly-owned subsidiary
of Sovereign Bancorp, Inc., a Pennsylvania corporation ("Sovereign"). The
authorized capital stock of Sovereign Bank consists of 1,000 shares of common
stock, par value $1.00 per share ("Sovereign Bank Common Stock"), of which at
the date hereof 1,000 shares are issued and outstanding.
2. Trenton Savings is a federal savings bank and a wholly-owned subsidiary
of Peoples Bancorp, Inc., a Delaware corporation ("Peoples"). The authorized
capital stock of Trenton Savings consists of 20,000,000 shares of common stock,
$.10 par value ("Trenton Savings Common Stock"), of which at the date hereof 100
shares are issued and outstanding, and 10,000,000 shares of preferred stock,
$.10 par value, none of which are issued or outstanding.
3. The respective Boards of Directors of Sovereign Bank and Trenton Savings
deem the merger of Trenton Savings with and into Sovereign Bank, pursuant to the
terms and conditions set forth or referred to herein, to be desirable and in the
best interests of the respective corporations and their respective shareholders.
4. The respective Boards of Directors of Sovereign Bank and Trenton Savings
have adopted resolutions approving this Plan of Merger. The respective Boards of
Directors of Sovereign and Peoples have adopted resolutions approving an
Agreement dated September 7, 1998 (the "Agreement") between Sovereign and
Peoples, pursuant to which this Plan of Merger is being executed by Sovereign
Bank and Trenton Savings.
AGREEMENT
In consideration of the premises and of the mutual covenants and agreements
herein contained, and in accordance with the applicable laws and regulations of
the United States of America, Sovereign Bank and Trenton Savings, intending to
be legally bound hereby, agree:
ARTICLE I
MERGER
Subject to the terms and conditions of this Plan of Merger and in
accordance with the applicable laws and regulations of the United States of
America, on the Effective Date (as that term is defined in Article V hereof):
Trenton Savings shall merge with and into Sovereign Bank; the separate existence
of Trenton Savings shall cease; and Sovereign Bank shall be the resulting bank
(such transaction referred to herein as the "Merger" and Sovereign Bank, as the
resulting bank in the Merger, referred to herein as the "Surviving Bank"). The
name of the Surviving Bank shall be "Sovereign Bank." Sovereign Bank will have
its home office at 1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610 and
its branch offices at the locations listed on Exhibit "A."
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<PAGE>
ARTICLE II
CHARTER AND BYLAWS
On and after the Effective Date, the Charter and Bylaws of Sovereign Bank,
as in effect immediately prior to the Effective Date, shall be the Charter and
Bylaws of the Surviving Bank, and may thereafter be amended in accordance with
applicable law.
ARTICLE III
BOARD OF DIRECTORS AND OFFICERS
3.1 Board of Directors. On and after the Effective Date, the directors of
the Surviving Bank shall consist of the directors of Sovereign Bank duly elected
and holding office immediately prior to the Effective Date. Directors shall be
elected annually and shall hold office until their successors are elected and
qualified. The names and residence addresses of the directors are:
NAME RESIDENCE ADDRESS
- ---- -----------------
Joseph P. Gemmell............................ [Intentionally omitted]
Brian Hard................................... [Intentionally omitted]
Stewart B. Kean.............................. [Intentionally omitted]
Joseph E. Lewis.............................. [Intentionally omitted]
F. Joseph Loeper............................. [Intentionally omitted]
Richard E. Mohn.............................. [Intentionally omitted]
Rhoda S. Oberholtzer......................... [Intentionally omitted]
Patrick J. Petrone........................... [Intentionally omitted]
Daniel K. Rothermel.......................... [Intentionally omitted]
Elizabeth B. Rothermel....................... [Intentionally omitted]
Robert A. Sadler............................. [Intentionally omitted]
Jay S. Sidhu................................. [Intentionally omitted]
Cameron C. Troilo............................ [Intentionally omitted]
G. Arthur Weaver............................. [Intentionally omitted]
Dr. Paul B. Wieand........................... [Intentionally omitted]
3.2 Officers. On and after the Effective Date, the officers of the
Surviving Bank shall consist of the officers of Sovereign Bank duly elected and
holding office immediately prior to the Effective Date. The names and titles of
the officers are:
NAME TITLE
- ---- -----
Jay S. Sidhu............................ President and Chief Executive Officer
Dennis S. Marlo......................... Chief Financial Officer
Lawrence M. Thompson, Jr................ Chief Operating Officer
Jacquelyn K. Blue....................... Treasurer
David A. Silverman...................... Secretary
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<PAGE>
ARTICLE IV
CONVERSION OF SHARES
4.1 Stock of Sovereign Bank. Each share of Sovereign Bank Common Stock
issued and outstanding immediately prior to the Effective Date shall, on and
after the Effective Date, continue to be issued and outstanding as a share of
common stock of the Surviving Bank.
4.2 Stock of Trenton Savings. Each share of Trenton Savings Common Stock
issued and outstanding immediately prior to the Effective Date, and each share
of Trenton Savings Common Stock issued and held in the treasury of Peoples as of
the Effective Date, if any, shall, on the Effective Date, be cancelled, and no
cash, stock or other property shall be delivered in exchange therefor.
ARTICLE V
EFFECTIVE DATE OF THE MERGER
The Merger shall be effective on the date on which articles of combination
executed by Sovereign Bank and Trenton Savings are filed with and endorsed by
the Office of Thrift Supervision ("OTS") pursuant to 12 C.F.R. Section
552.13(k), unless a later date as specified in such articles of combination (the
"Effective Date"). The Merger shall not be effective unless and until (i) the
Merger receives any necessary approval from the OTS pursuant to 12 CFR Section
563.22(a) or (c), (ii) in the case the Merger requires a notification pursuant
to 12 CFR Section 563.22(b), notification has been provided to the OTS, or (iii)
in the case of Merger requires notice pursuant to 12 CFR Section 563.22(c), the
notice has been filed, and the appropriate period of time has passed or the OTS
has advised the parties that it will not disapprove the Merger.
ARTICLE VI
EFFECT OF THE MERGER
6.1 Separate Existence. On the Effective Date, the separate existence of
Trenton Savings shall cease. As provided in 12 CFR 552.13(l), as of the
Effective Date, all of the assets, properties, obligations and liabilities of
every kind and character, real, personal and mixed, tangible and intangible,
chosen in action, rights, and credits then owned by either the Sovereign Bank or
Trenton Savings, or which would inure or be subject to either of them, shall
immediately by operation of law and without any conveyance or transfer and
without any further act or deed, be vested in and become the assets, property,
obligations and liabilities of the Surviving Bank which shall have, hold and
enjoy the same in its own right as fully and to the same extent as the same were
possessed, held and enjoyed by the Sovereign Bank and Trenton Savings
immediately prior to the Effective Date. The Surviving Bank shall be deemed to
be and shall be a continuation of the entity and identity both of the Sovereign
Bank of Trenton Savings and the rights and obligations of the Sovereign Bank and
of Trenton Savings shall remain unimpaired; and the Surviving Bank, upon the
consummation of the Merger, shall succeed to all of such rights and obligations
and the duties and liabilities connected therewith.
6.2 Savings Accounts. As of the Effective Date, all savings accounts of
Trenton Savings shall be and become savings accounts in the Surviving Bank
without change in their respective terms, maturity, minimum required balances or
withdrawal value. Each savings account of Trenton Savings shall, as of the
Effective Time Date, be considered, for purpose of interest declared by the
Surviving Bank thereafter, as if it had been a savings account of the Surviving
Bank at the time said savings account was opened in Trenton Savings and at all
times thereafter until such account ceases to be a savings account of the
Surviving Bank. Appropriate evidence of savings account ownership interest in
the Surviving Bank shall be provided, as necessary, after consummation of the
merger by the Surviving Bank to each savings account holder of Trenton Savings.
All savings accounts of Sovereign Bank prior to consummation of the merger
shall, as of the Effective Date, continue to be savings accounts in the
Surviving Bank without any change whatsoever in any of the provisions of such
savings accounts, including, without limitation, their respective terms
maturity, minimum required balances or withdrawal value.
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<PAGE>
6.3 Liquidation Account. After the Effective Date, Sovereign Bank will
continue to maintain the Sovereign Bank liquidation account for the benefit of
eligible account holders on the same basis as immediately prior to the Effective
Date, and Trenton Savings' liquidation account for the benefit of eligible
account holders shall automatically be deemed assumed in full by Sovereign Bank,
as of the Effective Date, on the same basis as it existed immediately prior to
the Effective Date.
ARTICLE VII
CONDITIONS PRECEDENT
The obligations of Sovereign Bank and Trenton Savings to effect the Merger
shall be subject to satisfaction, unless duly waived by the party permitted to
do so, of the conditions precedent set forth in the Agreement.
ARTICLE VIII
TERMINATION
This Plan of Merger shall terminate upon any termination of the Agreement
in accordance with its terms; provided, however, that any such termination of
this Plan of Merger shall not relieve any party hereto from liability on account
of a breach by such party of any of the terms hereof or thereof.
ARTICLE IX
AMENDMENT
Subject to applicable law, this Plan of Merger may be amended, by action of
the respective Boards of Directors of the parties hereto, at any time prior to
consummation of the Merger, but only by an instrument in writing signed by duly
authorized officers on behalf of the parties hereto.
ARTICLE X
MISCELLANEOUS
10.1 Extensions; Waivers. Each party, by a written instrument signed by a
duly authorized officer, may extend the time for the performance of any of the
obligations or other acts of the other party hereto and may waive compliance
with any of the covenants, or performance of any of the obligations, of the
other party contained in this Plan of Merger.
10.2 Notices. Any notice or other communication required or permitted
under this Plan of Merger shall be given, and shall be effective, in accordance
with the provisions of Section 7.06 of the Agreement.
10.3 Captions. The headings of the several Articles and Sections herein
are inserted for convenience of reference only and are not intended to be part
of, or to affect the meaning or interpretation of, this Plan of Merger.
10.4 Counterparts. For the convenience of the parties hereto, this Plan of
Merger may be executed in several counterparts, each of which shall be deemed
the original, but all of which together shall constitute one and the same
instrument.
10.5 Governing Law. This Plan of Merger shall be governed by and construed
in accordance with the laws of the United States of America and, in the absence
of controlling Federal law, in accordance with the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, Sovereign Bank and Trenton Savings have caused this
Bank Plan of Merger to be executed by their duly authorized officers and their
corporate seals to be hereunto affixed on the date first written above.
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<PAGE>
EXHIBIT "A"
TO PLAN OF MERGER
SOVEREIGN BANK
BRANCH LOCATIONS
[INTENTIONALLY OMITTED.]
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<PAGE>
EXHIBIT 4
FORM OF AGREEMENT RE: BENEFITS
September __, 1998
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Gentlemen:
I, the undersigned, hereby acknowledge and agree that an amount equal to
the lesser of (i) $__________ or (ii) the highest amount which does not result
in a loss of federal income tax deduction under IRC Section 280G to Peoples or
Sovereign with respect to any portion of such amount is the maximum amount that
I would be entitled to receive from Peoples, any Peoples subsidiary or any of
their respective successors or assigns pursuant to any employment agreement,
special termination agreement, supplemental executive retirement plan, deferred
compensation plan, salary continuation plan, or any other benefit or welfare
plan assuming that my employment with Peoples or any Peoples subsidiary (or any
of their respective successors or assigns) were terminated for any reason,
whether voluntarily or involuntarily, on December 31, 1998, and the Closing Date
were to occur on such termination date. All capitalized terms used herein but
not defined herein shall have the meanings given to them in the Agreement. The
amount shown above represents the total of all amounts available for payment in
an immediate lump sum upon termination and the present value, as of December 31,
1998 (based on a 6% per annum discount factor) of all payments to be made on a
date or dates subsequent to the date of termination. I acknowledge and agree
that the amount actually payable to me, as a result of reductions necessary to
avoid excise tax payments and loss of federal income tax deduction under IRC
Section 280G, may be less than the total amounts otherwise payable under the
terms of any such agreement or plan.
This letter is subject to the acknowledgement and agreement of Sovereign
Bancorp, Inc., as evidenced below, that the amount shown above reflects a good
faith estimate of the amounts that will be payable to me as hereinbefore
specified, and may be subject to adjustment upon an actual termination of my
employment to reflect increases in my compensation and benefits due to the
passage of time or in accordance with the terms of Peoples's employee benefit
plans and past practices for routine increases.
Sincerely,
Acknowledged and Agreed to:
SOVEREIGN BANK
By ___________________________________
Title ________________________________
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<PAGE>
EXHIBIT 5
FORM OF OPINION OF COUNSEL TO SOVEREIGN
Peoples shall have received from counsel to Sovereign, an opinion, dated as
of the Closing Date, substantially to the effect that, subject to normal
exceptions and qualifications:
(a) Sovereign and Sovereign Bank have the requisite corporate power to
perform their obligations under the Agreement and the Plan of Merger,
respectively. The execution and delivery of the Agreement and the Plan of Merger
and the consummation of the transactions contemplated thereunder have been
authorized by all necessary corporate action on the part of Sovereign and
Sovereign Bank, and the Agreement and the Plan are enforceable in accordance
with their respective terms and constitute valid and legally binding obligations
of Sovereign and Sovereign Bank, respectively, except to the extent
enforceability, validity and the legally binding nature may be limited by
bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship, and other laws affecting creditors' rights generally and
institutions the deposits of which are insured by the FDIC, and as may be
limited by the exercise of judicial discretion in applying principles of equity.
Subject to satisfaction of the conditions set forth in the Agreement, neither
the transactions contemplated in the Agreement or the Plan, nor compliance by
Sovereign and Sovereign Bank with any of the respective provisions thereof, will
(i) conflict with or result in a breach or default under (A) the articles of
incorporation or bylaws of Sovereign or the charter or bylaws of Sovereign Bank,
or, (B) to the knowledge of such counsel, any material note, bond, mortgage,
indenture, license, agreement or other material instrument or obligation to
which Sovereign or Sovereign Bank is a party; or (ii) based on certificates of
officers and without independent verification, to the knowledge of such counsel,
result in the creation or imposition of any material lien or encumbrance upon
the property of Sovereign or Sovereign Bank, except such material lien,
instrument or obligation that has been disclosed pursuant to the Agreement or
the Plan; or (iii) violate in any material respect any order, writ, injunction
or decree known to such counsel, or any federal or Pennsylvania statute, rule or
regulation applicable to Sovereign or Sovereign Bank.
(b) Sovereign is a corporation validly existing and in good standing under
the laws of the Commonwealth of Pennsylvania. Sovereign Bank is a validly
existing federally-chartered savings bank organized and in good standing under
the laws of the United States of America. The deposits of Sovereign Bank are
insured to the maximum extent provided by law by the Federal Deposit Insurance
Corporation.
(c) There is, to the knowledge of such counsel, no legal, administrative,
arbitration or governmental proceeding or investigation pending or threatened to
which Sovereign or Sovereign Bank is a party which would, if determined
adversely to Sovereign or Sovereign Bank, have a material adverse effect on the
business, properties, financial condition or results of operation of Sovereign
and Sovereign Bank taken as a whole, or which presents a claim to restrain or
prohibit the transactions contemplated by the Agreement and the Plan,
respectively.
(d) No consent, approval, authorization or order of any federal or state
court or federal or state governmental agency or body, or to such counsel's
knowledge, of any third party, is required for the consummation by Sovereign or
Sovereign Bank of the transactions contemplated by the Agreement and the Plan,
except for such consents, approvals, authorizations or orders as have been
obtained or where the failure to obtain such approval, consent, authorization or
order would not have a material adverse effect on the consummation of the
transactions contemplated by the Agreement and Plan of Merger.
(e) Upon the filing and effectiveness of the Articles of Merger with the
PDS, the Certificate of Merger with the DOSS, and Articles of Combination with
the OTS in accordance with the Agreement and the Plan, the mergers of Sovereign
and Peoples and of Sovereign Bank and Trenton Savings contemplated by the
Agreement and the Plan, respectively, will have been effected in compliance with
all applicable federal and Pennsylvania laws and regulations in all material
respects.
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<PAGE>
(f) The shares of Sovereign Common Stock to be issued in connection with
the merger of Peoples and Sovereign contemplated by the Agreement have been duly
authorized and will, when issued in accordance with the terms of the Agreement,
be validly issued, fully paid and nonassessable, free and clear of any mortgage,
pledge, lien, encumbrance or claim (legal or equitable).
In addition to the foregoing opinions, such counsel shall state that on the
sole basis of such counsel's participation in conferences with officers and
employees of Sovereign in connection with the Proxy Statement/Prospectus, and
without other independent investigation or inquiry, such counsel has no reason
to believe that the Proxy Statement/Prospectus, including any amendments or
supplements thereto (except for the financial information, financial statements,
notes to the financial statements and financial tables, financial schedules and
other financial or statistical data contained therein and the stock valuation
information included or incorporated by reference therein and except for any
information supplied by Peoples or Trenton Savings for inclusion therein, as to
which counsel need express no belief), as of the date of mailing thereof,
contained any untrue statement of a material fact with respect to Sovereign or
omitted to state any material fact with respect to Sovereign necessary to make
any statement therein with respect to Sovereign, in light of the circumstances
under which it was made, not misleading. Counsel may state in delivering such
statement, that such counsel has not independently verified and does not assume
the responsibility for the accuracy, completeness or fairness of any information
or statements contained in the Proxy Statement/Prospectus, except with respect
to identified statements of law or regulations or legal conclusions relating to
Sovereign or the transactions contemplated in the Agreement and the Plan and
that it is relying as to materiality as to factual matters or certificates of
officers and representations of the parties to the Agreement and other factual
representations of Sovereign and Sovereign Bank.
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EXHIBIT 6
FORM OF TAX OPINION OF STEVENS & LEE
Sovereign and Peoples shall have received an opinion of Stevens & Lee
substantially to the effect that, under the provisions of the IRC:
1. The Merger will constitute a reorganization within the meaning of IRC
Section 368(a)(1)(A).
2. Peoples and Sovereign will each be "a party to a reorganization" within
the meaning of IRC Section 368(b).
3. Neither Peoples nor Sovereign will recognize any gain or loss upon the
transfer of Peoples's assets to Sovereign in exchange solely for Sovereign
Common Stock (including any fractional share interests) and the assumption by
Sovereign of the liabilities of Peoples.
4. The basis of the Peoples assets in the hands of Sovereign will be the
same as the basis of such assets in the hands of Peoples immediately prior to
the Merger.
5. The holding period of the assets of Peoples to be received by Sovereign
will include the period during which the assets were held by Peoples.
6. No gain or loss will be recognized by the shareholders of Peoples on the
receipt of Sovereign Common Stock (including any fractional share interests)
solely in exchange for their shares of Peoples Common Stock.
7. The basis of the Sovereign Common Stock (including any fractional share
interests) to be received by the Peoples shareholders in the Merger will be the
same as the basis of the Peoples Common Stock surrendered in exchange therefor.
8. The holding period of the Sovereign Common Stock (including any
fractional share interests) to be received by the Peoples shareholders in the
Merger will include the period during which the Peoples shareholders held their
Peoples Common Stock, provided the shares of Peoples Common Stock are held as a
capital asset on the Effective Date of the Merger.
9. The payment of cash in lieu of fractional share interests of Sovereign
Common Stock will be treated as if the fractional share interests were
distributed as part of the Merger and then redeemed by Sovereign. Such cash
payments will be treated as having been received as distributions in full
payment in exchange for the fractional share interests redeemed, as provided in
IRC Section 302(a).
10. The Rights transferred with the shares of Sovereign Common Stock will
not constitute "other property" within the meaning of IRC Section 356(a)(1)(B).
11. As provided in IRC Section 381(c)(2) and related Treasury regulations,
Sovereign will succeed to and take into account the earnings and profits, or
deficit in earnings and profits, of Peoples as of the Effective Date of the
Merger. Any deficit in the earnings and profits of Sovereign or Peoples will be
used only to offset the earnings and profits accumulated after the Merger.
12. Pursuant to IRC Section 381(a) and related Treasury regulations,
Sovereign will succeed to and take into account the items of Peoples described
in IRC Section 381(c). Such items will be taken into account by Sovereign
subject to the conditions and limitations of IRC Sections 381, 382, 383, and 384
and the Treasury regulations thereunder.
13. The Bank Merger will constitute a reorganization within the meaning of
IRC Section 368(a)(1)(A).
14. Trenton Savings and Sovereign Bank will each be "a party to a
reorganization" within the meaning of IRC Section 368(b).
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15. Neither Trenton Savings nor Sovereign Bank will recognize any gain or
loss upon the transfer of Trenton Savings' assets to Sovereign Bank in
constructive exchange solely for Sovereign Bank Common Stock and the assumption
by Sovereign Bank of the liabilities of Trenton Savings.
16. The basis of the Trenton Savings assets in the hands of Sovereign Bank
will be the same as the basis of such assets in the hands of Trenton Savings
immediately prior to the Bank Merger.
17. The holding period of the Trenton Savings assets in the hands of
Sovereign Bank will include the period during which such assets were held by
Trenton Savings.
18. No gain or loss will be recognized by Sovereign, as the shareholder of
Trenton Savings, upon the constructive receipt of shares of Sovereign Bank
Common Stock in exchange for the Trenton Savings Common Stock surrendered in
exchange therefor in the Bank Merger.
19. The basis of the Sovereign Bank Common Stock to be held by Sovereign
after the Bank Merger will equal the basis of such stock immediately before the
Bank Merger, increased by the basis of the Trenton Savings Common Stock
surrendered in the constructive exchange.
20. As provided in IRC Section 381(c)(2) and related Treasury regulations,
Sovereign Bank will succeed to and take into account the earnings and profits,
or deficit in earnings and profits, of Trenton Savings as of the effective date
of the Bank Merger. Any deficit in the earnings and profits of Sovereign Bank or
Trenton Savings will be used only to offset the earnings and profits accumulated
after the Bank Merger.
21. Pursuant to IRC Section 381(a) and related Treasury regulations,
Sovereign Bank will succeed to and take into account the items of Trenton
Savings described in IRC Section 381(c). Such items will be taken into account
by Sovereign Bank subject to the conditions and limitations of IRC Sections 381,
382, 383, and 384 and the Treasury regulations thereunder.
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EXHIBIT 7
FORM OF OPINION OF COUNSEL TO PEOPLES
Sovereign shall have received from counsel to Peoples, an opinion, dated as
of the Closing Date, substantially to the effect that, subject to normal
exceptions and qualifications:
(a) Peoples and Trenton Savings have the requisite corporate power to
perform their obligations under the Agreement and the Plan of Merger,
respectively. The execution and delivery of the Agreement and the Plan of Merger
and the consummation of the transactions contemplated thereunder have been
authorized by all necessary corporate action on the part of Peoples and Trenton
Savings, and the Agreement and the Plan constitute valid and legally binding
obligations of Peoples and Trenton Savings, respectively, enforceable in
accordance with their respective terms, except to the extent enforceability,
validity and the legally binding nature may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, receivership, conservatorship, and other
laws now or hereafter in effect, whether statutory or decisional relating to
creditors' rights generally or the rights of creditors of federal savings banks
and their holding companies, (ii) the exercise of judicial discretion in
applying principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity); and (iii) laws related to the
safety and soundness of insured depository institutions; provided that no
opinion be rendered as to the effect or availability of equitable remedies or
injunctive relief. Subject to satisfaction of the conditions set forth in the
Agreement, neither the transactions contemplated in the Agreement and the Plan,
nor compliance by Peoples and Trenton Savings with any of the respective
provisions thereof, will (i) conflict with or result in a breach or default
under (A) the certificate of incorporation or bylaws of Peoples or the charter
or bylaws of Trenton Savings, or (B) based on certificates of officers and
without independent verification, to the knowledge of such counsel, any material
note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which Peoples or Trenton Savings is a party; or (ii) to the
knowledge of such counsel, result in the creation or imposition of any material
lien, instrument or encumbrance upon the property of Peoples or Trenton Savings,
except such material lien, instrument or obligation that has been disclosed to
Sovereign pursuant to the Agreement and the Plan, or (iii) violate in any
material respect any order, writ, injunction, or decree known to such counsel,
or any federal banking or Delaware statute, rule or regulation applicable to
Peoples or Trenton Savings.
(b) Peoples is a corporation validly existing and in good standing under
the laws of the State of Delaware. Trenton Savings is a validly existing
federally-chartered savings bank organized and in good standing under the laws
of the United States of America. The deposits of Trenton Savings are insured to
the maximum extent provided by law by the Savings Association Insurance Fund of
the Federal Deposit Insurance Corporation.
(c) There is, to the knowledge of such counsel, no legal, administrative,
arbitration or governmental proceeding or investigation pending or threatened to
which Peoples or Trenton Savings is a party which would, if determined adversely
to Peoples or Trenton Savings, have a material adverse effect on the business,
properties, results of operations, or financial condition of Peoples or Trenton
Savings taken as a whole or which presents a claim to restrain or prohibit the
transactions contemplated by the Agreement and the Plan, respectively.
(d) No consent, approval, authorization, or order of any federal or state
court or federal or state governmental agency or body, or to such counsel's
knowledge, of any third party, is required for the consummation by Peoples or
Trenton Savings of the transactions contemplated by the Agreement and the Plan,
except for such consents, approvals, authorizations or orders as have been
obtained or where the failure to obtain such consent, approval, authorization,
or order would not have a material adverse effect on the consummation of the
transaction contemplated by the Agreement and Plan of Merger.
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In addition to the foregoing opinions, such counsel shall state that on the
sole basis of such counsel's participation in conferences with officers and
employees of Peoples in connection with the preparation of the Prospectus/Proxy
Statement and without other independent investigation or inquiry, such counsel
has no reason to believe that the Prospectus/Proxy Statement, including any
amendments or supplements thereto (except for the financial information,
financial statements, notes to financial statements and financial tables,
financial schedules and other financial or statistical data contained therein
and the stock valuation information included or incorporated by reference
therein and except for any information supplied by Sovereign or a party other
than Peoples for inclusion therein, as to which counsel need express no belief),
as of the date of mailing thereof and as of the date of the meeting of
shareholders of Peoples to approve the merger, contained any untrue statement of
a material fact or omitted to state a material fact necessary to make any
statement therein, in light of the circumstances under which it was made, not
misleading. Counsel may state in delivering such statement, that such counsel
has not independently verified and does not assume any responsibility for the
accuracy, completeness or fairness of any information or statements contained in
the Prospectus/Proxy Statement, except with respect to identified statements of
law or regulations or legal conclusions relating to Peoples or Trenton Savings
or the transactions contemplated in the Agreement and the Plan and that it is
relying as to materiality as to factual matters on certificates of officers' and
representations of the parties to the Agreement and other factual
representations of Peoples and Trenton Savings.
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ANNEX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Stock Option Agreement") dated September 7,
1998, is by and between SOVEREIGN BANCORP, INC., a Pennsylvania corporation
("Sovereign") and PEOPLES BANCORP, INC., a Delaware corporation ("Peoples").
BACKGROUND
1. Sovereign and Peoples desire to enter into an Agreement and Plan of
Merger, dated September 7, 1998 (the "Agreement"), providing, among other
things, for the acquisition by Sovereign of Peoples through the merger of
Peoples with and into Sovereign, with Sovereign surviving the merger (the
"Merger").
2. As a condition to Sovereign to enter into the Plan, Peoples is granting
to Sovereign an option to purchase up to that number of shares of common stock,
no par value (the "Common Stock"), of Peoples as shall equal 19.9% of shares of
Common Stock of Peoples issued and outstanding immediately prior to such
purchase, on the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual covenants and agreements
set forth herein, Sovereign and Peoples, intending to be legally bound hereby,
agree:
1. Grant of Option. Peoples hereby grants to Sovereign, on the terms and
conditions set forth herein, the option to purchase (the "Option") up to
7,225,000 shares (as adjusted as set forth herein, the "Option Shares") of
Common Stock of Peoples at a price per share (as adjusted as set forth herein,
the "Option Price") equal to $8.50, provided, however, that in no event shall
the number of Option Shares for which the Option is exercisable exceed 19.9% of
the issued and outstanding shares of Common Stock of Peoples without giving
effect to any shares subject to or issued pursuant to the Option.
2. Exercise of Option. Provided that (i) Sovereign shall not be on the
date of exercise in breach of the agreements or covenants contained in the
Agreement or herein, and (ii) no preliminary or permanent injunction or other
order against the delivery of shares covered by the Option issued by any court
of competent jurisdiction in the United States shall be in effect, upon or after
the occurrence of a Triggering Event (as such term is hereinafter defined) and
until termination of this Stock Option Agreement in accordance with the
provisions of Section 23, Sovereign may exercise the Option, in whole or in
part, at any time or one or more times, from time to time. As used herein, the
term "Triggering Event" means the occurrence of any of the following events:
(a) a person or group (as such terms are defined in the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder), other than Sovereign or an affiliate of Sovereign,
acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of 15% or more of the then outstanding shares of Common Stock
(excluding any shares eligible to be reported on Schedule 13G of the
Securities and Exchange Commission);
(b) a person or group, other than Sovereign or an affiliate of
Sovereign, enters into an agreement, letter of intent, or similar document
with Peoples pursuant to which such person or group or any affiliate of
such person or group would (i) merge or consolidate, or enter into any
similar transaction, with Peoples, (ii) acquire all or substantially all of
the assets or liabilities of Peoples or all or substantially all of the
assets or liabilities of Trenton Savings Bank, FSB, the wholly-owned
subsidiary of Peoples ("Trenton Savings"), or (iii) acquire beneficial
ownership of securities representing, or the right to acquire beneficial
ownership or to vote securities
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representing, 15% or more of the then outstanding shares of Common Stock
(excluding any shares eligible to be reported on Schedule 13G of the
Securities and Exchange Commission) or the then outstanding shares of
common stock of Trenton Savings; or
(c) a person or group, other than Sovereign or an affiliate of
Sovereign, publicly announces a bona fide proposal (including a written
communication that is or becomes the subject of public disclosure) for (i)
any merger, consolidation or acquisition of all or substantially all the
assets or liabilities of Peoples or all or substantially all the assets or
liabilities of Trenton Savings, or any other business combination involving
Peoples or Trenton Savings, or (ii) a transaction involving the transfer of
beneficial ownership of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 15% or more of the
then outstanding shares of Common Stock or the then outstanding shares of
common stock of Trenton Savings (collectively, a "Proposal"), and
thereafter, if such Proposal has not been Publicly Withdrawn (as such term
is hereinafter defined) at least 30 days prior to the meeting of
shareholders of Peoples called to vote on the Merger, Peoples's
shareholders fail to approve the Merger by the vote required by applicable
law at the meeting of shareholders called for such purpose or such meeting
has been cancelled; or
(d) a person or group, other than Sovereign or an affiliate of
Sovereign, makes a bona fide Proposal and thereafter, but before such
Proposal has been Publicly Withdrawn, Peoples willfully takes any action in
a manner which would likely result in the failure of either party to
satisfy a material condition to the closing of the Merger or materially
reduce the value of the transaction to Sovereign; or
(e) the Board of Directors of Peoples shall (i) fail to recommend and
endorse the Agreement and the transactions contemplated thereby or (ii)
withdraw, modify, or change in a manner adverse to Sovereign its approval
or recommendation of the Agreement and the transactions contemplated
thereby, or (iii) recommend or endorse an Acquisition Transaction (as
defined in Section 4.06 of the Agreement); or
(f) Peoples breaches, in any material respect, any binding term of the
Agreement with respect to the Merger, or this Stock Option Agreement after
a Proposal is made and before it is Publicly Withdrawn or publicly
announces an intention to authorize, recommend or accept any such Proposal;
provided, however, that any purchase of shares upon exercise of the Option
shall be subject to compliance with applicable law.
If more than one of the transactions giving rise to a Triggering Event
under this Section 2 is undertaken or effected, then all such transactions shall
give rise only to one Triggering Event, which Triggering Event shall be deemed
continuing for all purposes hereunder until all such transactions are abandoned.
"Publicly Withdrawn" for purposes of this Section 2 shall mean an
unconditional bona fide withdrawal of the Proposal coupled with a public
announcement of no further interest in pursuing such Proposal or in acquiring
any controlling influence over Peoples or in soliciting or inducing any other
person (other than Sovereign or an affiliate of Sovereign) to do so.
Notwithstanding the foregoing, the obligation of Peoples to issue Option
Shares upon exercise of the Option shall be deferred (but shall not terminate)
(i) until the receipt of all required governmental or regulatory approvals or
consents necessary for Peoples to issue the Option Shares, or Sovereign to
exercise the Option, or until the expiration or termination of any waiting
period required by law, or (ii) so long as any injunction or other order, decree
or ruling issued by any federal or state court of competent jurisdiction is in
effect which prohibits the sale or delivery of the Option Shares, and, in each
case, notwithstanding any provision to the contrary set forth herein, the Option
shall not expire or otherwise terminate.
Peoples shall notify Sovereign promptly in writing of the occurrence of any
Triggering Event known to it, it being understood that the giving of such notice
by Peoples shall not be a condition to the right of Sovereign to exercise the
Option. Subject to compliance with the applicable banking and
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securities laws or regulations, Peoples will not take any action which would
have the effect of preventing or disabling Peoples from delivering the Option
Shares to Sovereign upon exercise of the Option or otherwise performing its
obligations under this Stock Option Agreement. In the event Sovereign wishes to
exercise the Option, Sovereign shall send a written notice to Peoples (the date
of which is hereinafter referred to as the "Notice Date") specifying the total
number of Option Shares it wishes to purchase and a place and date between two
and ten business days inclusive from the Notice Date for the closing of such a
purchase (a "Closing"); provided, however, that a Closing shall not occur prior
to two days after the later of receipt of any necessary regulatory approvals or
the expiration of any legally required notice or waiting period, if any.
3. Repurchase of Option by Peoples.
(a) At the request of Sovereign at any time commencing upon the first
occurrence of a Repurchase Event (as defined in Section 3(d)) and ending 18
months immediately thereafter, Peoples shall repurchase from Sovereign (x) the
Option and (y) all shares of Common Stock purchased by Sovereign pursuant hereto
with respect to which Sovereign then has beneficial ownership. The date on which
Sovereign exercises its rights under this Section 3 is referred to as the
"Request Date." Such repurchase shall be at an aggregate price (the "Section 3
Repurchase Consideration") equal to the sum of: (i) the aggregate Purchase Price
paid by Sovereign for any shares of Common Stock acquired pursuant to the Option
with respect to which Sovereign then has beneficial ownership; (ii) the excess,
if any, of (x) the Applicable Price (as defined below) for each share of Common
Stock over (y) the Option Price (subject to adjustment pursuant to Section 6),
multiplied by the number of shares of Common Stock with respect to which the
Option has not been exercised; and (iii) the excess, if any, of the Applicable
price over the Option Price (subject to adjustment pursuant to Section 6) paid
(or, in the case of Option Shares with respect to which the Option has been
exercised, but the Closing has not occurred, payable) by Sovereign for each
share of Common Stock with respect to which the Option has been exercised and
with respect to which Sovereign then has beneficial ownership, multiplied by the
number of such shares.
(b) If Sovereign exercises its rights under this Section 3, Peoples shall,
within ten (10) business days after the Request Date, pay the Section 3
Repurchase Consideration to Sovereign in immediately available funds, and
contemporaneously with such payment, Sovereign shall surrender to Peoples the
Option and the certificate evidencing the shares of Common Stock purchased
thereunder with respect to which Sovereign then has beneficial ownership, and
Sovereign shall warrant that it has sole record and beneficial ownership of such
shares, and that the same are then free and clear of all liens, claims, charges
and encumbrances of any kind whatsoever. Notwithstanding the foregoing, to the
extent that prior notification to or approval of any banking agency or
department of any federal or state government, including without limitation the
OTS, the FDIC, or the respective staffs thereof (the "Regulatory Authority"), is
required in connection with the payment of all or any portion of the Section 3
Repurchase Consideration, Sovereign shall have the ongoing option to revoke its
request for repurchase pursuant to Section 3, in whole or in part, or to require
that Peoples deliver from time to time that portion of the Section 3 Repurchase
Consideration that it is not then so prohibited from paying and promptly file
the required notice or application for approval and expeditiously process the
same (and each party shall cooperate with the other in the filing of any such
notice or application and the obtaining of any such approval), in which case the
ten (10) business day period of time that would otherwise run pursuant to the
preceding sentence for the payment of the portion of the Section 3 Repurchase
Consideration shall run instead from the date on which, as the case may be, any
required notification period has expired or been terminated or such approval has
been obtained and, in either event, any requisite waiting period shall have
passed. If any Regulatory Authority disapproves of any part of Peoples's
proposed repurchase pursuant to this Section 3, Peoples shall promptly give
notice of such fact to Sovereign. If any Regulatory Authority prohibits the
repurchase pursuant to this Section 3, Peoples shall promptly give notice of
such fact to Sovereign. If any Regulatory Authority prohibits the repurchase in
part but not in whole, then Sovereign shall have the right (i) to revoke the
repurchase request or (ii) to the extent permitted by such Regulatory Authority,
determine whether the repurchase should apply to the Option and/or Option Shares
and to what extent to each, and Sovereign shall
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thereupon have the right to exercise the Option as to the number of Option
Shares for which the Option was exercisable at the Request Date less the sum of
the number of shares covered by the Option in respect of which payment has been
made pursuant to Section 3(a)(ii) and the number of shares covered by the
portion of the Option (if any) that has been repurchased. Sovereign shall notify
Peoples of its determination under the preceding sentence within five (5)
business days of receipt of notice of disapproval of the repurchase.
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share of Common Stock paid for any such
share by the person or groups described in Section 3(d)(i), (ii) the price per
share of Common Stock received by a holder of Common Stock in connection with
any merger or other business combination transaction described in Section
3(d)(ii), (iii) or (iv), or (iii) the highest closing sales price per share of
Common Stock quoted on the Nasdaq Stock Market during the 40 business days
preceding the Request Date; provided, however, that in the event of a sale of
less than all of Peoples's assets, the Applicable Price shall be the sum of the
price paid in such sale for such assets and the current market value of the
remaining assets of Peoples as determined by a nationally-recognized investment
banking firm selected by Sovereign, divided by the number of shares of Common
Stock outstanding at the time of such sale. If the consideration to be offered,
paid or received pursuant to either of the foregoing clauses (i) or (ii) shall
be other than in cash, the value of such consideration shall be determined in
good faith by an independent nationally-recognized investment banking firm
selected by Sovereign and reasonably acceptable to Peoples, which determination
shall be conclusive for all purposes of this Agreement.
(d) As used herein, a Repurchase Event shall occur if (i) any person or
group (as such terms are defined in the Exchange Act and the rules and
regulations thereunder), other than Sovereign or an affiliate of Sovereign,
acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of, or the right to acquire beneficial ownership of, 15% or more
of the then-outstanding shares of Common Stock, (ii) Peoples shall have merged
or consolidated with any person, other than Sovereign or an affiliate of
Sovereign, and shall not be the surviving or continuing corporation of such
merger or consolidation, (iii) any person, other than Sovereign or an affiliate
of Sovereign, shall have merged into Peoples and Peoples shall be the surviving
corporation, but, in connection with such merger, the then-outstanding shares of
Common Stock have been changed into or exchanged for stock or other securities
of Peoples or any other person or cash or any other property or the outstanding
shares of Common Stock immediately prior to such merger shall after such merger
represent less than 50% of the outstanding shares and share equivalents of the
surviving corporation or (iv) Peoples shall have sold or otherwise transferred
more than 15% of its consolidated assets to any person, other than Sovereign or
an affiliate of Sovereign.
4. Payment and Delivery of Certificates. At any Closing hereunder, (a)
Sovereign will make payment to Peoples of the aggregate price for the Option
Shares so purchased by wire transfer of immediately available funds to an
account designated by Peoples, (b) Peoples will deliver to Sovereign a stock
certificate or certificates representing the number of Option Shares so
purchased, registered in the name of Sovereign or its designee, in such
denominations as were specified by Sovereign in its notice of exercise, and (c)
Sovereign will pay any transfer or other taxes required by reason of the
issuance of the Option Shares so purchased.
A legend will be placed on each stock certificate evidencing Option Shares
issued pursuant to this Stock Option Agreement, which legend will read
substantially as follows:
"The shares of stock evidenced by this certificate have not been the
subject of a registration statement filed under the Securities Act of 1933,
as amended (the "Act"), and declared effective by the Securities and
Exchange Commission. These shares may not be sold, transferred or otherwise
disposed of prior to such time unless Peoples Corp. receives an opinion of
counsel reasonably acceptable to it stating that an exemption from the
registration provisions of the Act is available for such transfer."
5. Registration Rights. Upon or after the occurrence of a Triggering Event
and upon receipt of a written request from Sovereign, Peoples shall prepare and
file as soon as practicable a registration
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statement under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission covering the Option and such number
of Option Shares as Sovereign shall specify in its request, and Peoples shall
use its best efforts to cause such registration statement to be declared
effective in order to permit the sale or other disposition of the Option and the
Option Shares, provided that Sovereign shall in no event have the right to have
more than one such registration statement become effective, and provided further
that Peoples shall not be required to prepare and file any such registration
statement in connection with any proposed sale with respect to which counsel to
Peoples delivers to Peoples and to Sovereign its opinion to the effect that no
such filing is required under applicable laws and regulations with respect to
such sale or disposition; provided, however, that Peoples may delay any
registration of Option Shares above for a period not exceeding 90 days in the
event that Peoples shall in good faith determine that any such registration
would adversely affect an offering or contemplated offering of other securities
by Peoples. Sovereign shall provide all information reasonably requested by
Peoples for inclusion in any registration statement to be filed hereunder. In
connection with such filing, Peoples shall use its commercially reasonable
efforts to cause to be delivered to Sovereign such certificates, opinions,
accountant's letters and other documents as Sovereign shall reasonably request
and as are customarily provided in connection with registration of securities
under the Securities Act. Peoples shall provide to Sovereign such number of
copies of the preliminary prospectus and final prospectus and any amendments and
supplements thereto as Sovereign may reasonably request.
All reasonable expenses incurred by Peoples in complying with the
provisions of this Section 5, including, without limitation, all registration
and filing fees, reasonable printing expenses, reasonable fees and disbursements
of counsel for Peoples and blue sky fees and expenses, shall be paid by Peoples.
Underwriting discounts and commissions to brokers and dealers relating to the
Option Shares, fees and disbursements of counsel to Sovereign and any other
expenses incurred by Sovereign in connection with such filing shall be borne by
Sovereign. In connection with such filing, Peoples shall indemnify and hold
harmless Sovereign against any losses, claims, damages or liabilities, joint or
several, to which Sovereign may become subject, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any preliminary or final registration statement or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and Peoples will
reimburse Sovereign for any legal or other expense reasonably incurred by
Sovereign in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that Peoples will not be liable
in any case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such preliminary or final registration
statement or such amendment or supplement thereto in reliance upon and in
conformity with written information furnished by or on behalf of Sovereign
specifically for use in the preparation thereof. Sovereign will indemnify and
hold harmless Peoples to the same extent as set forth in the immediately
preceding sentence but only with reference to written information furnished by
or on behalf of Sovereign for use in the preparation of such preliminary or
final registration statement or such amendment or supplement thereto; and
Sovereign will reimburse Peoples for any legal or other expense reasonably
incurred by Peoples in connection with investigating or defending any such loss,
claim, damage, liability or action. Notwithstanding anything to the contrary
contained herein, no indemnifying party shall be liable for any settlement
effected without its prior written consent.
6. Adjustment Upon Changes in Capitalization. In the event of any change
in the Common Stock by reason of stock dividends, split-ups, recapitalizations,
combinations, conversions, divisions, exchanges of shares or the like, then the
number and kind of Option Shares and the Option Price shall be appropriately
adjusted.
7. Filings and Consents. Each of Sovereign and Peoples will use its
commercially reasonable efforts to make all filings with, and to obtain consents
of, all third parties and governmental authorities necessary to the consummation
of the transactions contemplated by this Stock Option Agreement.
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<PAGE>
Within 10 days from the date hereof, Sovereign shall file a report of beneficial
ownership on Schedule 13D with the Securities and Exchange Commission under the
Exchange Act which discloses the rights of Sovereign hereunder.
8. Representations and Warranties of Peoples. Peoples hereby represents
and warrants to Sovereign as follows:
(a) Due Authorization. Peoples has the requisite corporate power and
authority to execute, deliver and perform this Stock Option Agreement and
all corporate action necessary for execution, delivery and performance of
this Stock Option Agreement has been duly taken by Peoples. This Stock
Option Agreement constitutes a legal, valid and binding obligation of
Peoples, enforceable against Peoples in accordance with its terms (except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws of general applicability
relating to or affecting creditors' rights or by general equity
principles).
(b) Authorized Shares. Peoples has taken all necessary corporate
action to authorize and reserve for issuance all shares of Common Stock
that may be issued pursuant to any exercise of the Option.
9. Representations and Warranties of Sovereign. Sovereign hereby
represents and warrants to Peoples that Sovereign has the requisite corporate
power and authority to execute, deliver and perform this Stock Option Agreement
and all corporate action necessary for execution, delivery and performance of
this Stock Option Agreement has been duly taken by Sovereign. This Stock Option
Agreement constitutes a legal, valid and binding obligation of Sovereign,
enforceable against Sovereign in accordance with its terms (except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles). Sovereign or its
assignee agrees to execute a standard investment representation letter with
respect to its acquisition of any Peoples securities acquired in connection with
this transaction.
10. Specific Performance. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Stock Option Agreement and
that the obligations of the parties hereto shall be specifically enforceable.
11. Entire Agreement. This Stock Option Agreement and the Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof.
12. Assignment or Transfer. Sovereign may not sell, assign or otherwise
transfer its rights and obligations hereunder, in whole or in part, to any
person or group of persons other than to a subsidiary of Sovereign subject to
compliance with applicable securities laws. Sovereign represents that it is
acquiring the Option for Sovereign's own account and not with a view to, or for
sale in connection with, any distribution of the Option or the Option Shares.
Sovereign is aware that neither the Option nor the Option Shares is the subject
of a registration statement filed with, and declared effective by, the
Securities and Exchange Commission pursuant to Section 5 of the Securities Act,
but instead each is being offered in reliance upon the exemption from the
registration requirement provided by Section 4(2) thereof and the
representations and warranties made by Sovereign in connection therewith.
13. Amendment of Stock Option Agreement. By mutual consent of the parties
hereto, this Stock Option Agreement may be amended in writing at any time, for
the purpose of facilitating performance hereunder or to comply with any
applicable regulation of any governmental authority or any applicable order of
any court or for any other purpose.
14. Validity. The invalidity or unenforceability of any provision of this
Stock Option Agreement shall not affect the validity or enforceability of any
other provisions of this Stock Option Agreement, which shall remain in full
force and effect.
B-6
<PAGE>
15. Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered personally, by telegram or telecopy, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
(i) If to Sovereign, to:
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Attention: Jay S. Sidhu
President and Chief Executive
Officer
Telecopy No.: (610) 320-8448
with a copy to:
Stevens & Lee
111 North Sixth Street
P.O. Box 679
Reading, Pennsylvania 19603
Attention: Joseph M. Harenza, Esquire
David W. Swartz, Esquire
Telecopy No.: (610) 376-5610
(ii) If to Peoples, to:
Peoples Bancorp, Inc.
134 Franklin Corner Road
Lawrenceville, New Jersey 08648
Attention: Wendell T. Breithaupt
President and Chief Executive
Officer
Telecopy No.: (609) 844-9636
with copies to:
Luse Lehman Gorman Pomerenk & Schick
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
Attention: John J. Gorman, Esquire
Kenneth R. Lehman, Esquire
Telecopy No.: (202) 362-2902
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
16. Governing Law. This Stock Option Agreement shall be governed by and
construed in accordance with the domestic internal law (but not the law of
conflicts of law) of the Commonwealth of Pennsylvania.
17. Captions. The captions in this Stock Option Agreement are inserted for
convenience and reference purposes, and shall not limit or otherwise affect any
of the terms or provisions hereof.
B-7
<PAGE>
18. Waivers and Extensions. The parties hereto may, by mutual consent,
extend the time for performance of any of the obligations or acts of either
party hereto. Each party may waive (i) compliance with any of the covenants of
the other party contained in this Stock Option Agreement and/or (ii) the other
party's performance of any of its obligations set forth in this Stock Option
Agreement.
19. Parties in Interest. This Stock Option Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, nothing in this Stock
Option Agreement, express or implied, is intended to confer upon any other
person any rights or remedies of any nature whatsoever under or by reason of
this Stock Option Agreement.
20. Counterparts. This Stock Option Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
21. Expenses. Except as otherwise provided herein, all costs and expenses
incurred by the parties hereto in connection with the transactions contemplated
by this Stock Option Agreement or the Option shall be paid by the party
incurring such cost or expense.
22. Defined Terms. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Agreement.
23. Termination. This Stock Option Agreement shall terminate and be of no
further force or effect upon the earliest to occur of (A) the Effective Time or
(B) termination of the Agreement in accordance with the terms thereof, except
that if (i) the Agreement is terminated by Sovereign pursuant to any of Sections
6.01(b)(i), 6.01(d), or 6.01(e) of the Agreement (provided the failure of the
occurrence of the event specified in Section 6.01(b)(i) of the Agreement shall
be due to the failure of Peoples to perform or observe its agreements set forth
in the Agreement required to be performed or observed by Peoples prior to the
Closing Date (as defined in the Agreement) and further provided that the breach
specified in Section 6.01(e) of the Agreement shall result from a willful action
taken by Peoples), this Stock Option Agreement shall not terminate until one
year after the date of termination of the Agreement or (ii) the Agreement is
terminated as a result of the failure of Peoples shareholders to approve the
Agreement following either a withdrawal or modification by a director of Peoples
of a prior recommendation to approve the Agreement or a failure of a director of
Peoples to recommend approval of the Agreement, this Stock Option Agreement
shall not terminate until one year after the date of termination of the
Agreement.
IN WITNESS WHEREOF, each of the parties hereto, pursuant to resolutions
adopted by its Board of Directors, has caused this Stock Option Agreement to be
executed by its duly authorized officer and has caused its corporate seal to be
affixed hereunto and to be duly attested, all as of the day and year first above
written.
SOVEREIGN BANCORP, INC.
By /S/ JAY S. SIDHU
-------------------------------------
Jay S. Sidhu,
President and Chief Executive Officer
PEOPLES BANCORP, INC.
By /S/ WENDELL T. BREITHAUPT
-------------------------------------
WENDELL T. BREITHAUPT,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
B-8
<PAGE>
ANNEX C
May 28, 1999
The Board of Directors
Peoples Bancorp, Inc.
134 Franklin Corner Road
Lawrenceville, NJ 08648
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding shares of the common stock (the
"Shares") of Peoples Bancorp, Inc. ("Peoples") of the exchange ratio of .80
shares of Sovereign Bancorp, Inc. ("Sovereign") to be received for each Share
(the "Exchange Ratio") in the proposed merger (the "Proposed Merger") by and
between Peoples and Sovereign as set forth in the Agreement and Plan of Merger
dated September 8, 1998 (the "Merger Agreement").
Berwind Financial, L.P., as part of its investment banking business,
regularly is engaged in the valuation of assets, securities and companies in
connection with various types of asset and security transactions, including
mergers, acquisitions, private placements and valuations for various other
purposes, and in the determination of adequate consideration in such
transactions.
In arriving at our opinion, we have, among other things: (i) reviewed the
historical financial performances, current financial positions and general
prospects of Peoples and Sovereign and reviewed certain internal financial
analyses and forecasts prepared by the management of Peoples and Sovereign, (ii)
reviewed the Merger Agreement, (iii) reviewed and analyzed the stock market
performance of Peoples and Sovereign, (iv) studied and analyzed the consolidated
financial and operating data of Peoples and Sovereign, (v) considered the terms
and conditions of the Proposed Merger between Peoples and Sovereign as compared
with the terms and conditions of comparable thrift and thrift holding company
mergers and acquisitions, (vi) met and/or communicated with certain members of
Peoples' and Sovereign's senior management to discuss their respective
operations, historical financial statements and future prospects, (vii) reviewed
this proxy statement/prospectus, and (viii) conducted such other financial
analyses, studies and investigations as we deemed appropriate.
Our opinion is given in reliance on information and representations made or
given by Peoples and Sovereign, and their respective officers, directors,
auditors, counsel and other agents, and on filings, releases and other
information issued by Peoples and Sovereign including financial statements,
financial projections, and stock price data as well as certain information from
recognized independent sources. We have not independently verified the
information concerning Peoples and Sovereign nor other data which we have
considered in our review and, for purposes of the opinion set forth below, we
have assumed and relied upon the accuracy and completeness of all such
information and data. We have not conducted any valuation or appraisal of any
assets or liabilities of Peoples or Sovereign, nor have any such valuations or
appraisals been provided to us. Additionally, we assume that the Proposed Merger
is, in all respects, lawful under applicable law.
With regard to financial and other information relating to the general
prospects of Peoples and Sovereign, we have assumed that such information has
been reasonably prepared and reflects the best currently available estimates and
judgment of the management of Peoples and Sovereign as to their most likely
future performance and the cost savings and other potential synergies (including
the amount, timing and achievability thereof) anticipated to result from the
Proposed Merger. For Peoples and Sovereign, we have assumed the allowance for
loan losses indicated on the balance sheets of each entity is adequate to cover
such losses; we have not reviewed credit files of either Peoples or Sovereign.
Also, in rendering our opinion, we have assumed that in the course of obtaining
the necessary regulatory approvals for the Proposed Merger no conditions will be
imposed that will have a material adverse effect on the contemplated benefits of
the Proposed Merger to Peoples or Sovereign.
C-1
<PAGE>
Our opinion is based upon information provided to us by the management of
Peoples and Sovereign, as well as market, economic, financial and other
conditions as they exist and can be evaluated only as of the date hereof and
speaks to no other period. Our opinion pertains only to the Exchange Ratio, is
for the information of the Board of Directors of Peoples in connection with its
evaluation of the Proposed Merger and does not constitute a recommendation to
the Board of Peoples and does not constitute a recommendation to Peoples
shareholders as to how such shareholders should vote on the Proposed Merger. We
are not expressing any opinion as to the actual value of Sovereign common stock
when issued pursuant to the Proposed Merger or the prices at which Sovereign
common stock will trade subsequent to the Proposed Merger.
Based on the foregoing, it is our opinion that, as of the date hereof that
the Exchange Ratio pursuant to the Agreement is fair, from a financial point of
view, to the holders of Shares.
Sincerely,
BERWIND FINANCIAL, L.P.
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Pennsylvania law provides that a Pennsylvania corporation may indemnify
directors, officers, employees and agents of the corporation against liabilities
they may incur in such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify the person
under any provision of law, unless such action or failure to act is determined
by a court to have constituted recklessness or willful misconduct. Pennsylvania
law also permits the adoption of a bylaw amendment, approved by shareholders,
providing for the elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the director has
breached or failed to perform the duties of his office and (2) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
The bylaws of Sovereign provide for (1) indemnification of directors,
officers, employees and agents of the registrant and its subsidiaries and (2)
the elimination of a director's liability for monetary damages, to the fullest
extent permitted by Pennsylvania law.
Directors and officers are also insured against certain liabilities for
their actions, as such, by an insurance policy obtained by Sovereign.
Item 21. Exhibits and Financial Statement Schedules.
<TABLE>
<S> <C> <C> <C>
(a) Exhibits.
2.1 Agreement and Plan of merger dated as of September 7, 1998,
between Sovereign Bancorp, Inc. and Peoples Bancorp, Inc.
(included as Annex A to the Proxy Statement Prospectus).
Schedules are omitted; Sovereign Bancorp, Inc. agrees to
furnish copies of such schedules to the Commission upon
request.
2.2 Stock Option Agreement dated September 7, 1998, between
Sovereign Bancorp, Inc. and Peoples Bancorp, Inc. (included
as Annex B to the proxy statement/prospectus).
3.1 Articles of Incorporation, as amended, of Sovereign Bancorp,
Inc. (Incorporated by reference to Exhibit 3.1 of
Sovereign's Annual Report on Form 10-K for the year ended
December 31, 1995.)
3.2 Bylaws of Sovereign Bancorp, Inc. (Incorporated by reference
to Exhibit 3.2 of Sovereign's Annual Report on Form 10-K for
the year ended December 31, 1998.)
4.1 Sovereign Bancorp, Inc. has outstanding long-term debt that
does not exceed 10% of the total assets of Sovereign
Bancorp, Inc. and its consolidated subsidiaries; therefore,
copies of the constituent instruments defining the rights of
the holders of such debt are not included as exhibits to
this Registration Statement. Sovereign Bancorp, Inc. agrees
to furnish copies of such instruments to the Commission upon
request.
5.1 Opinion of Stevens & Lee re: Validity.
8.1 Opinion of Stevens & Lee re: tax matters.
10.1 Sovereign Bancorp, Inc. Stock Option Plan, as amended and
restated. (Incorporated by reference to Exhibit 10.1 to
Sovereign's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.)**
10.2 Sovereign Bancorp, Inc. Employee Stock Purchase Plan.
(Incorporated by reference to Exhibit 4.1 to Sovereign's
Registration Statement No. 33-44108 on Form S-8.)**
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
10.3 Agreement dated as of March 1, 1997, between Sovereign
Bancorp, Inc., Sovereign Bank, and Jay S. Sidhu.
(Incorporated by reference to Exhibit 99.1 of Sovereign's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, as amended).**
10.4 Agreement dated as of May 1, 1997, between ML Bancorp, Inc.
(a predecessor company of Sovereign Bancorp, Inc.) and
Dennis S. Marlo. (Incorporated by Reference to Exhibit 10.4
of Sovereign's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.)**
10.5 Agreement dated as of September 15, 1992, between Sovereign
Bank, a Federal Savings Bank, and Lawrence M. Thompson, Jr.
(Incorporated by reference to Exhibit 10.5 of Sovereign's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.)**
10.6 Penn Savings Bank Senior Officer Incentive Plan.
(Incorporated by reference to Exhibit 10.6 to Sovereign's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)**
10.11 Rights agreement dated September 19, 1989, between Sovereign
Bancorp, Inc. and Harris Trust Company of New York.
(Incorporated by reference to Exhibit 4.3 to Sovereign's
Registration Statement No. 33-89586 on Form S-8.)
10.12 Sovereign Bancorp, Inc. Non-Employee Director Incentive
Compensation Plan. (Incorporated by reference to Exhibit
10.12 to Sovereign's Registration Statement No. 33-43195 on
Form S-1.)**
10.13 Indemnification Agreement dated December 21, 1993, between
Sovereign Bank and Jay S. Sidhu. (Incorporated herein by
reference to Exhibit 10.25 to Sovereign's Annual Report on
Form 10-K for the year ended December 31, 1993).**
10.14 Employment Agreement dated as of August 8, 1998, between
Charter Federal Savings Bank and Patrick J. Petrone.
(Incorporated by reference to Exhibit 10.23 to Sovereign's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)
10.15 Amendment to Employment Agreement between Patrick J. Petrone
and Charter Federal Savings Bank, dated October 17, 1994.
(Incorporated by reference to Exhibit 2.2 of Amendment No. 1
of Sovereign's Registration Statement on Form 8-A.)
10.16 Amendment to Rights Agreement, dated as of September 27,
1995, between Sovereign Bancorp, Inc. and Chemical Bank, as
successor to Harris Trust Company of New York, as Rights
Agent. (Incorporated by reference to Exhibit 2.2 of
Amendment No. 1 of Sovereign's Registration Statement on
Form 8-A.)
10.17 Sovereign Bancorp, Inc. 1997 Non-Employee Directors' Stock
Option Plan. (Incorporated by reference to Exhibit "A" to
Sovereign's definitive proxy statement dated March 16,
1998.)
10.18 Sovereign Bancorp, Inc. 1996 Stock Option Plan.
(Incorporated by reference to Exhibit "A" to Sovereign's
definitive proxy statement dated March 15, 1996.)
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of KPMG LLP, Independent Auditors (relating to
Peoples' Financial Statements).
23.3 Consent of KPMG LLP, Independent Auditors (relating to First
State Financial Services, Inc.'s Financial Statements).
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
23.4 Consent of KPMG LLP, Independent Auditors (relating to
Bankers Corp. Financial Statements).
23.5 Consent of KPMG LLP, Independent Auditors (relating to ML
Bancorp, Inc. Financial Statements).
23.6 Consent of Arthur Andersen, LLP, Independent Auditors
(relating to First Home Bancorp, Inc.).
23.7 Consent of PricewaterhouseCoopers LLP, Independent Auditors
(relating to Carnegie Bancorp).
23.8 Consent of Berwind Financial, L.P.
24.1 Powers of Attorney of Directors and Officers (included on
signature page hereof).
99.1 Form of Opinion of Berwind Financial, L.P. dated May 28,
1999 (included as Annex C to proxy statement/prospectus).
99.2 Form of Proxy for the Special Meeting of Stockholders of
Peoples Bancorp, Inc.
</TABLE>
- ------------------
** Denotes management contract or compensatory contract, plan or arrangement.
<TABLE>
<S> <C> <C> <C>
(b) Financial Statement Schedules.
</TABLE>
None required.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any fact or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-3
<PAGE>
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the bylaws of the registrant, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Borough of Wyomissing,
Commonwealth of Pennsylvania, on April 22, 1999.
SOVEREIGN BANCORP, INC.
(Registrant)
By: /s / JAY S. SIDHU
---------------------------------
Jay S. Sidhu,
President and Chief Executive
Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jay S. Sidhu, Dennis S. Marlo, Joseph M. Harenza,
and David W. Swartz and each of them, his true and lawful attorney-in-fact, as
agent with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacity, to sign any or all amendments to
this Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as they might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s / RICHARD E. MOHN Chairman and Director April 22, 1999
- --------------------------------
Richard E. Mohn
/s / JAY S. SIDHU Director, President and Chief Executive April 22, 1999
- -------------------------------- Officer (Principal Executive Officer)
Jay S. Sidhu
/s / RHODA S. OBERHOLTZER Director April 22, 1999
- --------------------------------
Rhoda S. Oberholtzer
/s / PATRICK J. PETRONE Director April 22, 1999
- --------------------------------
Patrick J. Petrone
/s / DANIEL K. ROTHERMEL Director April 22, 1999
- --------------------------------
Daniel K. Rothermel
/s / CAMERON C. TROILO Director April 22, 1999
- --------------------------------
Cameron C. Troilol
/s / G. ARTHUR WEAVER Director April 22, 1999
- --------------------------------
G. Arthur Weaver
/s / DENNIS S. MARLO Chief Financial Officer April 22, 1999
- --------------------------------
Dennis S. Marlo
/s / MARK R. MCCOLLOM Chief Accounting Officer April 22, 1999
- --------------------------------
Mark R. McCollom
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
5. Opinion of Stevens & Lee re: Validity.
8.1 Opinion of Stevens & Lee re: tax matters.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of KPMG LLP, Independent Auditors (relating to
Peoples' Financial Statements).
23.3 Consent of KPMG LLP, Independent Auditors (relating to First
State Financial Services, Inc. Financial Statements).
23.4 Consent of KPMG LLP, Independent Auditors (relating to
Bankers Corp. Financial Statements).
23.5 Consent of KPMG LLP, Independent Auditors (relating to ML
Bancorp, Inc. Financial Statements).
23.6 Consent of Arthur Andersen, LLP, Independent Auditors
(relating to First Home Bancorp, Inc.).
23.7 Consent of PricewaterhouseCoopers LLP, Independent Auditors
(relating to Carnegie Bancorp).
23.8 Consent of Berwind Financial, L.P.
99.2 Form of Proxy for the Special Meeting of Stockholders of
Peoples Bancorp, Inc.
</TABLE>
II-6
<PAGE>
Peoples
Bancorp, Inc.
EXHIBIT 5.1
May 28, 1998
Board of Directors
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, PA 19610
Re: Registration Statement on Form S-4
Peoples Bancorp, Inc.
Ladies and Gentlemen:
In connection with the proposed offering of up to 31,480,500 shares of
common stock, no par value (the "Common Stock"), by Sovereign Bancorp, Inc. (the
"Company"), covered by the Company's Registration Statement on Form S-4 (the
"Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, with respect to such Common Stock,
we, as special counsel to the Company, have reviewed:
(1) the Articles of Incorporation of the Company;
(2) the Bylaws of the Company;
(3) resolutions adopted by the Board of Directors of the Company relating
to the Registration Statement, certified by the Secretary of the Company;
(4) a subsistence certificate with respect to the Company issued by the
Pennsylvania Department of State;
(5) the Registration Statement; and
(6) copies of the certificates representing shares of the Common Stock.
<PAGE>
Board of Directors
Sovereign Bancorp, Inc.
May 28, 1999
Page 2
Based upon our review of the foregoing, it is our opinion that:
(a) the Company has been duly incorporated under the laws of the
Commonwealth of Pennsylvania and is validly existing and in good standing under
the laws of such Commonwealth; and
(b) the Common Stock covered by the Registration Statement has been duly
authorized and, when issued pursuant to the terms described in the Registration
Statement, will be legally issued by the Company and fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the heading "LEGAL MATTERS" in the
related Prospectus. In giving this consent, we do not thereby admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ STEVENS & LEE
Exhibit 8.1
May 28, 1999
Board of Directors
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, PA 19610
Board of Directors
Peoples Bancorp, Inc.
134 Franklin Corner Road
Lawrenceville, NJ 08648
Re: Merger of Peoples Bancorp, Inc. with and into Sovereign
Bancorp, Inc.; Merger of Trenton Savings Bank with and into
Sovereign Bank
Lady and Gentlemen:
You have requested our opinion in connection with the transaction
contemplated by the Agreement and Plan of Merger (the "Holding Company Merger
Agreement"), dated as of September 7, 1998, between Sovereign Bancorp, Inc., a
Pennsylvania corporation ("Sovereign"), and Peoples Bancorp, Inc., a Delaware
corporation ("Peoples"), pursuant to which Peoples will be merged with and into
Sovereign, which will be the surviving corporation. At the Effective Date of
such merger (the "Merger"), each share of Peoples Common Stock issued and
outstanding immediately prior to such date will, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive such number of shares of Sovereign Common Stock as is provided
in Section 1.02(e) of the Holding Company Merger Agreement. No fractional shares
of Sovereign Common Stock will be issued. In lieu thereof, shareholders of
Peoples will receive cash in an amount determined pursuant to Section 1.02(e) of
the Holding Company Merger Agreement. Peoples shareholders will not be entitled
to exercise dissenters' rights in connection with the Merger. All shares of
Peoples Common Stock held as treasury
<PAGE>
Board of Directors, Sovereign Bancorp, Inc.
Board of Directors, Peoples Bancorp, Inc.
May 28, 1999
Page 2
shares by Peoples or held by a Peoples Subsidiary, Sovereign, or a Sovereign
Subsidiary on the Effective Date of the Merger will be canceled, and no shares
of Sovereign Common Stock or other property will be delivered in exchange
therefor. Attached to and trading with each share of Sovereign Common Stock are
certain "poison pill" rights (the "Rights") issued pursuant to the Sovereign
Rights Agreement.
You have also requested our opinion in connection with the transaction
contemplated by the Bank Plan of Merger, dated as of September 7, 1998, between
Sovereign Bank, a federal savings bank, and Trenton Savings Bank, F.S.B., a
federal savings bank ("Trenton Savings"), pursuant to which Trenton Savings
will, concurrently with or as soon as practicable after the closing of the
Merger of Peoples with and into Sovereign, be merged with and into Sovereign
Bank, which will be the surviving institution. At the effective date of such
merger (the "Bank Merger"), all of the issued and outstanding shares of Trenton
Savings Common Stock and all shares of Trenton Savings Common Stock held as
treasury shares will be canceled, and no shares of Sovereign Bank Common Stock
will be delivered in exchange therefor.
This opinion is being furnished pursuant to Sections 5.01(j) and 5.02(j) of
the Holding Company Merger Agreement. All capitalized terms herein, unless
otherwise specified, have the meanings assigned thereto in the Holding Company
Merger Agreement and its exhibits.
In connection with our opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Holding Company Merger Agreement, the exhibits thereto, and such other
documents as we have deemed necessary or appropriate for the opinions set forth
below. In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certified or
photostatic copies, and the authenticity of such latter documents. As to any
facts material to this opinion which we did not independently establish or
verify, we have relied upon the foregoing documents and upon statements and
representations of officers and other representatives of Peoples and Sovereign,
including certain written representations of the managements of Peoples and
Sovereign annexed hereto. The opinions expressed herein are
<PAGE>
Board of Directors, Sovereign Bancorp, Inc.
Board of Directors, Peoples Bancorp, Inc.
May 28, 1999
Page 3
conditioned on the initial and continuing accuracy of the facts, information,
and representations contained in the aforesaid documents or otherwise referred
to above.
In preparing our opinion, we have considered applicable provisions of the
IRC, Treasury regulations, pertinent judicial authorities, interpretive rulings
of the Internal Revenue Service, and such other authorities as we have deemed
relevant.
Based solely upon the foregoing and upon the assumptions set forth herein,
and subject to the qualifications and caveats set forth herein, we are of the
opinion that, under present law, for federal income tax purposes:
1. The Merger will constitute a reorganization within the meaning of IRC
Section 368(a)(1)(A).
2. Peoples and Sovereign will each be "a party to a reorganization" within
the meaning of IRC Section 368(b).
3. Neither Peoples nor Sovereign will recognize any gain or loss upon the
transfer of Peoples' assets to Sovereign in exchange solely for Sovereign Common
Stock (including any fractional share interests) and the assumption by Sovereign
of the liabilities of Peoples.
4. The basis of the Peoples assets in the hands of Sovereign will be the
same as the basis of such assets in the hands of Peoples immediately prior to
the Merger.
5. The holding period of the assets of Peoples to be received by Sovereign
will include the period during which the assets were held by Peoples.
6. No gain or loss will be recognized by the shareholders of Peoples on the
receipt of Sovereign Common Stock (including any fractional share interests)
solely in exchange for their shares of Peoples Common Stock.
7. The basis of the Sovereign Common Stock (including any fractional share
interests) to be received by the Peoples shareholders in the Merger will be the
same as the basis of the Peoples Common Stock surrendered in exchange therefor.
<PAGE>
Board of Directors, Sovereign Bancorp, Inc.
Board of Directors, Peoples Bancorp, Inc.
May 28, 1999
Page 4
8. The holding period of the Sovereign Common Stock (including any
fractional share interests) to be received by the Peoples shareholders in the
Merger will include the period during which the Peoples shareholders held their
Peoples Common Stock, provided the shares of Peoples Common Stock are held as a
capital asset on the Effective Date of the Merger.
9. The payment of cash in lieu of fractional share interests of Sovereign
Common Stock will be treated as if the fractional share interests were
distributed as part of the Merger and then redeemed by Sovereign. Such cash
payments will be treated as having been received as distributions in full
payment in exchange for the fractional share interests redeemed, as provided in
IRC Section 302(a).
10. The Rights transferred with the shares of Sovereign Common Stock will
not constitute "other property" within the meaning of IRC Section 356(a)(1)(B).
11. As provided in IRC Section 381(c)(2) and related Treasury regulations,
Sovereign will succeed to and take into account the earnings and profits, or
deficit in earnings and profits, of Peoples as of the Effective Date of the
Merger. Any deficit in the earnings and profits of Sovereign or Peoples will be
used only to offset the earnings and profits accumulated after the Merger.
12. Pursuant to IRC Section 381(a) and related Treasury regulations,
Sovereign will succeed to and take into account the items of Peoples described
in IRC Section 381(c). Such items will be taken into account by Sovereign
subject to the conditions and limitations of IRC Sections 381, 382, 383, and 384
and the Treasury regulations thereunder.
13. The Bank Merger will constitute a reorganization within the meaning of
IRC Section 368(a)(1)(A).
14. Trenton Savings and Sovereign Bank will each be "a party to a
reorganization" within the meaning of IRC Section 368(b).
15. Neither Trenton Savings nor Sovereign Bank will recognize any gain or
loss upon the transfer of Trenton Savings' assets to Sovereign Bank in
constructive exchange solely for
<PAGE>
Board of Directors, Sovereign Bancorp, Inc.
Board of Directors, Peoples Bancorp, Inc.
May 28, 1999
Page 5
Sovereign Bank Common Stock and the assumption by Sovereign Bank of the
liabilities of Trenton Savings.
16. The basis of the Trenton Savings assets in the hands of Sovereign Bank
will be the same as the basis of such assets in the hands of Trenton Savings
immediately prior to the Bank Merger.
17. The holding period of the Trenton Savings assets in the hands of
Sovereign Bank will include the period during which such assets were held by
Trenton Savings.
18. No gain or loss will be recognized by Sovereign, as the shareholder of
Trenton Savings, upon the constructive receipt of shares of Sovereign Bank
Common Stock in exchange for the Trenton Savings Common Stock surrendered in
exchange therefor in the Bank Merger.
19. The basis of the Sovereign Bank Common Stock to be held by Sovereign
after the Bank Merger will equal the basis of such stock immediately before the
Bank Merger, increased by the basis of the Trenton Savings Common Stock
surrendered in the constructive exchange.
20. As provided in IRC Section 381(c)(2) and related Treasury regulations,
Sovereign Bank will succeed to and take into account the earnings and profits,
or deficit in earnings and profits, of Trenton Savings as of the effective date
of the Bank Merger. Any deficit in the earnings and profits of Sovereign Bank or
Trenton Savings will be used only to offset the earnings and profits accumulated
after the Bank Merger.
21. Pursuant to IRC Section 381(a) and related Treasury regulations,
Sovereign Bank will succeed to and take into account the items of Trenton
Savings described in IRC Section 381(c). Such items will be taken into account
by Sovereign Bank subject to the conditions and limitations of IRC Sections 381,
382, 383, and 384 and the Treasury regulations thereunder.
We call your attention to the fact that certain portions of this opinion
relating to the federal income tax treatment of Peoples shareholders may not be
applicable to persons who received their Peoples Common Stock pursuant to the
exercise of employee stock options or otherwise as compensation, or to
<PAGE>
Board of Directors, Sovereign Bancorp, Inc.
Board of Directors, Peoples Bancorp, Inc.
May 28, 1999
Page 6
foreign persons or persons who, because of their circumstances or status, are
subject to special federal income tax treatment.
Except as set forth above, we express no other opinion as to the tax
consequences of the mergers and related transactions to any party under federal,
state, local or foreign laws.
Very truly yours,
/s/ STEVENS & LEE
-------------
<PAGE>
PEOPLES BANCORP, INC.
OFFICER'S CERTIFICATE
The undersigned authorized officer of Peoples Bancorp, Inc., a Delaware
corporation ("Peoples"), in connection with the opinion to be delivered by
Stevens & Lee, P. C., as to certain of the federal income tax consequences of
(i) the proposed merger (the "Merger") of Peoples with and into Sovereign
Bancorp, Inc., a Pennsylvania corporation ("Sovereign"), pursuant to the
Agreement and Plan of Merger, dated as of September 7, 1998 between Sovereign
and Peoples, and (ii) the subsequent merger (the "Bank Merger") of Trenton
Savings Bank, F.S.B., a federal savings bank ("Trenton Savings"), with and into
Sovereign Bank, a federal savings bank, pursuant to the Bank Plan of Merger,
dated as of September 7, 1998, between Sovereign Bank and Trenton Savings, and
recognizing that such law firm will rely on this Certificate in delivering such
opinion, hereby certifies on behalf of Peoples and Trenton Savings, to the best
knowledge and belief of the management of Peoples and Trenton Savings, at all
times up to and including the respective effective dates of the mergers, that:
1. The fair market value of the Sovereign common stock to be received by
each Peoples shareholder will be approximately equal to the fair market value of
the Peoples common stock exchanged therefor.
2. There is no plan or intention on the part of the Peoples shareholders to
sell, exchange, or otherwise dispose of, to Peoples, Sovereign or any other
person a number of shares of Sovereign common stock to be received in the Merger
that would reduce such shareholders' ownership of Sovereign common stock to a
number of shares having a value, as of the effective date of such Merger, of
less than 50% of the value of all of the formerly outstanding Peoples common
stock as of the same date. Shares of Peoples common stock exchanged for cash in
lieu of fractional shares of Sovereign common stock will be considered in making
this representation. Moreover, shares of Peoples common stock and shares of
Sovereign common stock held by Peoples shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to such Merger will be considered
in making this representation.
3. The liabilities of Peoples assumed by Sovereign and the liabilities to
which the transferred assets of Peoples are subject were incurred by Peoples in
the ordinary course of its business.
7
<PAGE>
4. Sovereign, Peoples, and the shareholders of Peoples will pay their
respective expenses, if any, incurred in connection with the Merger.
5. There is no intercorporate indebtedness existing between Peoples and
Sovereign that was issued, acquired, or will be settled at a discount.
6. No two parties to the Merger have more than 25% of the value of their
assets invested in stock and securities of any one issuer and not more than 50%
of the value of their assets invested in five or fewer issuers.
7. Peoples is not insolvent and is not under the jurisdiction of a
bankruptcy or similar court, a receivership, a foreclosure, or similar
proceeding of a Federal or State court.
8. The fair market value of the assets of Peoples transferred to Sovereign
will equal or exceed the sum of the liabilities assumed by Sovereign plus the
amount of the liabilities, if any, to which the transferred assets are subject.
9. The payment of cash in lieu of fractional shares of Sovereign common
stock is solely for the purpose of avoiding the expense and inconvenience to
Sovereign of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid in
the transaction to the Peoples shareholders of record instead of issuing
fractional shares of Sovereign common stock will not exceed 1% of the total
consideration that will be issued in the Merger to the shareholders of Peoples
in exchange for their shares of Peoples common stock. The fractional share
interests of each Peoples shareholder of record will be aggregated, and no
Peoples shareholder will receive cash in an amount equal to or greater than the
value of one full share of Sovereign common stock.
10. None of the compensation received by any shareholder-employees of
Peoples will be part of the consideration for Peoples common stock. The
compensation to be paid to shareholder-employees under any employment agreement
will be for services actually rendered and will be commensurate with amounts
paid by third parties bargaining at arm's length for similar services. None of
the stock to be received by any shareholder-employee of Peoples is separate
consideration for any compensation owed to such shareholder-employee.
11. The liabilities of Trenton Savings assumed by Sovereign Bank and the
liabilities to which the transferred assets of
8
<PAGE>
Trenton Savings are subject were incurred by Trenton Savings in the ordinary
course of its business.
12. There is no intercorporate indebtedness existing between Sovereign Bank
and Trenton Savings that was issued, acquired, or will be settled at a discount.
13. No two parties to the Bank Merger have more than 25% of the value of
their assets invested in stock and securities of any one issuer and not more
than 50% of the value of their assets invested in five or fewer issuers.
14. Trenton Savings is not insolvent and is under the jurisdiction of a
bankruptcy or similar court, a receivership, a foreclosure, or similar
proceeding of a Federal or State court.
15. The fair market value of the assets of Trenton Savings transferred to
Sovereign Bank will equal or exceed the sum of the liabilities assumed by
Sovereign Bank plus the amount of the liabilities, if any, to which the
transferred assets are subject.
16. The total adjusted basis of the assets of Trenton Savings transferred
to Sovereign Bank will equal or exceed the sum of the liabilities assumed by
Sovereign Bank plus the amount of the liabilities, if any, to which the
transferred assets are subject.
IN WITNESS WHEREOF, I have, on behalf of Peoples and Trenton Savings,
signed this certificate as of the 28th day of May, 1999.
PEOPLES BANCORP, INC.
By: /s/ Wendell T. Breithaupt
-------------------------
Name: Wendell T. Breithaupt
---------------------
Title: President and Chief Executive Officer
9
<PAGE>
SOVEREIGN BANCORP, INC.
OFFICER'S CERTIFICATE
The undersigned authorized officer of Sovereign Bancorp, Inc., a
Pennsylvania corporation ("Sovereign"), in connection with the opinion to be
delivered by Stevens & Lee, P. C., as to certain of the federal income tax
consequences of (i) the proposed merger (the "Merger") of Peoples Bancorp, Inc.,
a Delaware corporation ("Peoples"), with and into Sovereign pursuant to the
Agreement and Plan of Merger, dated as of September 7, 1998, between Sovereign
and Peoples, and (ii) the subsequent merger (the "Bank Merger") of Trenton
Savings Bank, F.S.B., a federal savings bank ("Trenton Savings"), with and into
Sovereign Bank, a federal savings bank, pursuant to the Bank Plan of Merger,
dated as of September 7, 1998, between Sovereign Bank and Trenton Savings, and
recognizing that such law firm will rely on this Certificate in delivering such
opinion, hereby certifies on behalf of Sovereign and Sovereign Bank, to the best
knowledge and belief of the management of Sovereign and Sovereign Bank, at all
times up to and including the respective effective dates of the mergers, that:
1. The fair market value of the Sovereign common stock to be received by
each Peoples shareholder will be approximately equal to the fair market value of
the Peoples common stock exchanged therefor.
2. There is no plan or intention on the part of the Peoples shareholders to
sell, exchange, or otherwise dispose of, to Peoples, Sovereign or any other
person a number of shares of Sovereign common stock to be received in the Merger
that would reduce such shareholders' ownership of Sovereign common stock to a
number of shares having a value, as of the effective date of such Merger, of
less than 50% of the value of all of the formerly outstanding Peoples common
stock as of the same date. Shares of Peoples common stock exchanged for cash in
lieu of fractional shares of Sovereign common stock will considered in making
this representation. Moreover, shares of Peoples common stock and shares of
Sovereign common stock held by Peoples shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to such Merger will be considered
in making this representation.
3. Sovereign has no plan or intention to reacquire any of its common stock
issued in the Merger.
4. Sovereign has no plan or intention to sell or otherwise dispose of any
of the assets of Peoples acquired in the Merger, except for dispositions made in
the ordinary course of business,
10
<PAGE>
transfers of assets to a corporation controlled by Sovereign, and
the transfer contemplated by the Bank Merger.
5. The liabilities of Peoples assumed by Sovereign and the liabilities to
which the transferred assets of Peoples are subject were incurred by Peoples in
the ordinary course of its business.
6. Following the Merger, Sovereign will continue the historic business of
Peoples or use a significant portion of Peoples' historic business assets in a
business.
7. Sovereign, Peoples, and the shareholders of Peoples will pay their
respective expenses, if any, incurred in connection with the Merger.
8. There is no intercorporate indebtedness existing between Peoples and
Sovereign that was issued, acquired, or will be settled at a discount.
9. No two parties to the Merger have more than 25% of the value of their
assets invested in stock and securities of any one issuer and not more than 50%
of the value of their assets invested in five or fewer issuers.
10. Peoples is not insolvent and is not under the jurisdiction of a
bankruptcy or similar court, a receivership, a foreclosure, or similar
proceeding of a Federal or State court.
11. The fair market value of the assets of Peoples transferred to Sovereign
will equal or exceed the sum of the liabilities assumed by Sovereign plus the
amount of the liabilities, if any, to which the transferred assets are subject.
12. The payment of cash in lieu of fractional shares of Sovereign common
stock is solely for the purpose of avoiding the expense and inconvenience to
Sovereign of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid in
the transaction to the Peoples shareholders of record instead of issuing
fractional shares of Sovereign common stock will not exceed 1% of the total
consideration that will be issued in the Merger to the shareholders of Peoples
in exchange for their shares of Peoples common stock. The fractional share
interests of each Peoples shareholder of record will be aggregated, and no
Peoples shareholder will receive cash in an amount equal to or greater than the
value of one full share of Sovereign common stock.
11
<PAGE>
13. None of the compensation received by any shareholder-employees of
Peoples will be part of the consideration for Peoples common stock. The
compensation to be paid to shareholder-employees under any employment agreement
will be for services actually rendered and will be commensurate with amounts
paid by third parties bargaining at arm's length for similar services. None of
the stock to be received by any shareholder-employee of Peoples is separate
consideration for any compensation owed to such shareholder-employee.
14. At the time Sovereign executed the Sovereign Rights Agreement, and as
of the date of this Certificate, the likelihood of the Sovereign Stock Purchase
Rights being exercised was, and is, both remote and speculative.
15. The fair market value of the Sovereign Bank common stock to be
constructively received by Sovereign will be approximately equal to the fair
market value of the Trenton Savings common stock exchanged therefor.
16. Sovereign has no plan or intention to sell, exchange, or otherwise
dispose of a number of shares of Sovereign Bank common stock that would reduce
its ownership of Sovereign Bank common stock constructively received in the Bank
Merger to a number of shares having a value, as of the effective date of such
merger, of less than 50% of the value of all of the formerly outstanding Trenton
Savings common stock as of the same date.
17. Sovereign Bank has no plan or intention to sell or otherwise dispose of
the assets of Trenton Savings acquired in the Bank Merger, except for (i)
dispositions made in the ordinary course of business and (ii) transfers of
assets to a corporation controlled by Sovereign Bank.
18. The liabilities of Trenton Savings assumed by Sovereign Bank and the
liabilities to which the transferred assets of Trenton Savings are subject were
incurred by Trenton Savings in the ordinary course of its business.
19. Following the Bank Merger, Sovereign Bank will continue the historic
business of Trenton Savings or use a significant portion of Trenton Savings'
historic business assets in a business.
20. Sovereign, Sovereign Bank, and Trenton Savings will pay their
respective expenses, if any, incurred in connection with the Bank Merger.
12
<PAGE>
21. There is no intercorporate indebtedness existing between Sovereign Bank
and Trenton Savings that was issued, acquired, or will be settled at a discount.
22. No two parties to the Bank Merger have more than 25% of the value of
their assets invested in stock and securities of any one issuer and note more
than 50% of the value of their assets invested in five or fewer issuers.
23. Trenton Savings is not insolvent and is not under the jurisdiction of a
bankruptcy or similar court, a receivership, foreclosure, or similar proceeding
of a federal or state court.
24. The fair market value of the assets of Trenton Savings transferred to
Sovereign Bank will equal or exceed the sum of the liabilities assumed by
Sovereign Bank plus the amount of the liabilities, if any, to which the
transferred assets are subject.
25. The total adjusted basis of the assets of Trenton Savings transferred
to Sovereign Bank will equal or exceed the sum of the liabilities assumed by
Sovereign Bank plus the amount of the liabilities, if any, to which the
transferred assets are subject.
IN WITNESS WHEREOF, I have, on behalf of Sovereign and Sovereign Bank,
signed this certificate as of the 28th day of May, 1999.
SOVEREIGN BANCORP, INC.
By: /s/ Jay S. Sidhu
----------------------
Name: Jay S. Sidhu
Title: President and Chief
Executive Officer
13
Exhibit 23.1
------------
CONSENT OF INDEPENDENT PUBLIC AUDITORS
We consent to the incorporation by reference in the Registration Statement
on Form S-4 of Sovereign Bancorp, Inc. for the registration of 31,480,500
shares, of our report dated March 11, 1999 with respect to the consolidated
financial statements of Sovereign Bancorp, Inc. included in its Annual Report on
Form 10-K dated March 18, 1999, filed with the Securities and Exchange
Commission and incorporated by reference in this Registration Statement.
We also consent to the reference to our firm under the heading "Experts" in
the Registration Statement.
/s/ Ernst & Young
- ----------------------------------
Philadelphia, Pennsylvania
May 25, 1999
Exhibit 23.2
------------
The Board of Directors
Peoples Bancorp, Inc.
We consent to the incorporation by reference in the Registration Statement
on Form S-4 of Sovereign Bancorp, Inc. of our report dated January 25, 1999
relating to the consolidated statements of condition of Peoples Bancorp, Inc.
and subsidiary as of December 31, 1998, and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1998, which report appears in the
December 31, 1998 Annual Report on Form 10-K of Peoples Bancorp, Inc.
We also consent to the reference to our firm under the heading "Experts" in
the Registration Statement.
/s/ KPMG LLP
- --------------------------
Short Hills, New Jersey
May 25, 1999
Exhibit 23.3
------------
INDEPENDENT AUDITORS CONSENT
The Board of Directors
Sovereign Bancorp, Inc.
(Successors of First State Financial Services, Inc.):
We consent to the incorporation by reference in the Registration Statement on
Form S-4 of Sovereign Bancorp, Inc. and in the related prospectus of our report
dated November 26, 1996 relating to the consolidated statements of operations,
stockholders' equity and cash flows of First State Financial Services, Inc. for
the year ended September 30, 1996, which report appears in the 1998 Annual
Report on Form 10-K of Sovereign Bancorp, Inc.
/s/ KPMG LLP
- ------------------------------
Short Hills, New Jersey
May 25, 1999
Exhibit 23.4
------------
INDEPENDENT AUDITORS CONSENT
The Board of Directors
Sovereign Bancorp, Inc.
(Successors of Bankers Corp.):
We consent to the incorporation by reference in the Registration Statement
on Form S-4 of Sovereign Bancorp, Inc. and in the related prospectus of our
report dated January 31, 1997, except as to Note 2, which is as of February 5,
1997, relating to the consolidated statements of income, changes in
stockholders' equity and cash flows of Bankers Corp. and subsidiary for the year
ended December 31, 1996, which report appears in the Annual Report on Form 10-K
of Sovereign Bancorp, Inc.
/s/ KPMG LLP
- ---------------------------
Short Hills, New Jersey
May 25, 1999
Exhibit 23.5
------------
The Board of Directors
Sovereign Bancorp, Inc.
We consent to the incorporation by reference in the Registration Statement, on
Form S-4 of Sovereign Bancorp, Inc. of our report dated June 15, 1998, relating
to the consolidated statements of financial condition of ML Bancorp, Inc. and
subsidiaries as of February 27, 1998, and March 31, 1997, and the related
consolidated statements of operations, cash flows and changes in stockholders'
equity for the eleven month period ended February 27, 1998 and for the year
ended March 31, 1997.
/s/ KPMG LLP
- ------------------------------
Philadelphia, Pennsylvania
May 25, 1999
Exhibit 23.6
------------
CONSENT OF INDEPENDENT PUBLIC AUDITORS
As independent public accountants, we hereby consent to the incorporation
by reference in Sovereign Bancorp, Inc.'s Registration Statement on Form S-4
pertaining to the acquisition of Peoples Bancorp, Inc., for the registration of
31,480,500 shares, of our report dated February 9, 1998 on the December 31, 1997
financial statements of First Home Bancorp, Inc. and subsidiaries, included in
Sovereign Bancorp, Inc.'s Annual Report on Form 10-K and Form 10-K/A dated March
29, 1999 and May 25, 1999, respectively, filed with the Securities and Exchange
Commission and incorporated by reference in this Registration Statement. It
should be noted that we have not audited any financial statements of First Home
Bancorp, Inc. and subsidiaries subsequent to December 31, 1997 or performed any
audit procedures subsequent to the date of our report.
/s/ Arthur Andersen LLP
---------------------------
Philadelphia, Pennsylvania
May 25, 1999
Exhibit 23.7
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Sovereign Bancorp, Inc. on Form S-4, filed on or about May 27, 1999, of our
report dated February 2, 1998, on our audits of the consolidated financial
statements of Carnegie Bancorp, Inc. and Subsidiaries as of December 31, 1997,
and for the years ended December 31, 1997 and 1996, which report is included in
Sovereign Bancorp, Inc.'s Annual Report on Form 10-K/A for the year ended
December 31, 1998.
/s/ PricewaterhouseCoopers LLP
----------------------------------
Princeton, New Jersey
May 27, 1999
Exhibit 23.8
------------
CONSENT OF BERWIND FINANCIAL, L.P.
We consent to the use of our name Berwind Financial, L.P. in this
registration statement on Form S-4 concerning the merger of Peoples Bancorp,
Inc. into Sovereign Bancorp, Inc. and consent to the inclusion of our Fairness
Opinion in this registration statement.
Sincerely,
/s/ Berwind Financial, L.P.
---------------------------
Berwind Financial, L.P.
3000 Centre Square West
1500 Market Street
Philadelphia, PA 19102
Dated: May 26, 1999
EXHIBIT 99.2
PEOPLES BANCORP, INC.
Special Meeting of Shareholders -
June 30, 1999 at ___________, Local Time
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned shareholder of Peoples Bancorp, Inc. hereby appoints
[___________________] and [__________ ________] and each of them the proxies of
the undersigned (each with power of substitution and with all powers the
undersigned would possess if personally present) to vote at the special meeting
of shareholders of Peoples to be held on Wednesday, June 30, 1999, at the
Trenton Country Club, Sullivan Way, West Trenton, New Jersey and at any
adjournment or postponement thereof, all the shares of Common Stock of Peoples
which the undersigned would be entitled to vote on the following proposals more
fully described in the Proxy Statement/Prospectus dated May __, 1999 for the
meeting in the manner specified and in the discretion of the named proxies on
the other business that may properly come before the meeting.
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Please indicate on the reverse side of this card how your stock is to be
voted. Unless you specifically direct otherwise, the shares represented by this
proxy will be voted "FOR" the following proposals listed on the reverse side of
this card.
The DIRECTORS recommend a vote "FOR" proposals 1 and 2
(continued and to be signed on reverse side)
1
<PAGE>
1. Approval and adoption of the merger agreement, dated September 7, 1998,
between Sovereign Bancorp, Inc. and Peoples, which provides, among other
things, for (i) the merger of Peoples with and into Sovereign and (ii) the
conversion of each share of common stock of Peoples outstanding immediately
prior to the merger into .80 shares of Sovereign common stock plus cash in
lieu of any fractional share interest.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Approval of the proposal to adjourn the meeting, if necessary, to permit
further solicitation of proxies in the event there are not sufficient votes
at the time of the meeting to approve the merger agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
NOTE: Your signature should appear as
your name appears hereon. When shares
are held by joint tenants, both should
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such. If a corporation, please sign in
full corporate name by the President or
other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
Please sign, date and return the proxy
card promptly using the enclosed postage
paid envelope.
Dated:___________________________, 1999
_______________________________________
(Signature)
_______________________________________
(Signature if held jointly)
2
