<PAGE>
As filed with the Securities and Exchange Commission on March 19, 1999
Registration No. 333-_____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
--------------------
FORM S-3
--------------------
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------------
SOVEREIGN BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2453088
- ----------------------------- -----------------------------
(State or other jurisdiction (I.R.S. employer
of Incorporation) identification no.)
1130 Berkshire Boulevard Jay S. Sidhu, President
Wyomissing, Pennsylvania 19610 and Chief Executive Officer
(610) 320-8400 1130 Berkshire Boulevard
- -------------------------------- Wyomissing, Pennsylvania 19610
(Address, including zip code, (610)320-8400
and telephone number, including --------------------------------
area code, of Registrant's (Name, address, including
executive principal offices) zip code, and telephone
number, including area code,
of agent for service)
--------------------
Copy to:
Joseph M. Harenza, Esquire
Stevens & Lee
111 North Sixth Street
Reading, PA 19601
(610) 478-2160
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement, as
determined by market conditions and other factors.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
[ ] _________________.
If this Form is 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
effective registration statement for the same offering. [x] 333-09113.
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================
Title of Each Amount Proposed Maximum Proposed Maximum Amount of
Class of Securities to be Offering Price Aggregate Offering Registration
To Be Registered Registered Per Share Price Fee
- ---------------- ---------- ----------------- ------------------ -------------
<S> <C> <C> <C> <C>
Senior Notes due
2001 $40,000,000 100% $40,000,000 $11,120
======================================================================================
</TABLE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The information in the Registration Statement on Form S-3 (File No.
333-09113) filed by Sovereign Bancorp, Inc. with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, is incorporated
by reference into this Registration Statement.
<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated August 12, 1996)
$240,000,000
[GRAPHIC OMITTED]
SOVEREIGN BANCORP, INC.
65/8% Senior Unsecured Notes due March 15, 2001
-------------------------------
This is a public offering by Sovereign Bancorp, Inc. of $240,000,000 of 65/8%
Senior Unsecured Notes due March 15, 2001. Interest is payable on the notes on
March 15 and September 15 of each year, beginning September 15, 1999.
We may redeem the notes at any time, but we will pay a premium upon any
redemption prior to maturity.
The underwriters expect to deliver the notes on or about March 22, 1999 through
the book-entry facilities of the Depository Trust Company.
Investing in the notes involves risks. See "RISK FACTORS" beginning on page S-6
of this prospectus supplement.
Per Note Total
------------ ---------------
Public Offering Price .......... 99.892% $239,740,800
Underwriting Discount .......... .625% $ 1,500,000
Proceeds to Sovereign
Bancorp, Inc. ................. 99.267% $238,240,800
The notes are not savings or deposit accounts of us or any of our subsidiaries,
and the notes are not insured by the Federal Deposit Insurance Corporation, the
Savings Association Insurance Fund, the Bank Insurance Fund or any other
governmental agency.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the attached prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
-------------------------------
LEHMAN BROTHERS
SALOMON SMITH BARNEY
March 16, 1999
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus supplement or the attached prospectus. We have not
authorized anyone to provide you with information that is different. You should
not assume that the information contained in this prospectus supplement or the
attached prospectus is accurate as of any date other than the date on the front
cover of the document. We are not making an offer of these notes in any state
where the offer is not permitted.
-------------------------------------------
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Sovereign Bancorp, Inc ......................... S-3
The Offering ................................... S-5
Risk Factors ................................... S-6
Forward-Looking Statements ..................... S-6
Our Ratio of Earnings to Fixed Charges ......... S-7
Use of Proceeds ................................ S-8
Capitalization ................................. S-8
Selected Financial Data ........................ S-9
Description of the Notes ....................... S-11
Underwriting ................................... S-14
Legal Matters .................................. S-14
Prospectus
Page
----
Available Information .......................... 1
Incorporation of Certain Documents by
Reference ................................... 1
Sovereign Bancorp, Inc. ........................ 1
Supervision and Regulation ..................... 2
Ratio of Earnings to Fixed Charges ............. 6
Use of Proceeds ................................ 7
Description of Debt Securities ................. 7
Description of Capital Securities .............. 18
Description of Preferred Shares ................ 19
Description of Capital Stock ................... 22
Description of Securities Warrants ............. 25
Certain Tax Considerations ..................... 27
Plan of Distribution ........................... 27
Legal Matters .................................. 28
Experts ........................................ 28
S-2
<PAGE>
SOVEREIGN BANCORP, INC.
We are a Pennsylvania business corporation and the holding company for
Sovereign Bank, a federal savings bank. As of December 31, 1998, we had total
consolidated assets, deposits and shareholders' equity of approximately $21.9
billion, $12.3 billion and $1.2 billion, respectively.
We conduct our operations through our subsidiary, Sovereign Bank. Our
primary business consists of attracting deposits from our network of
approximately 295 community banking offices, and originating commercial and
asset-based loans, consumer and residential mortgage loans and home equity
lines of credit in the communities served by those offices. Our mortgage
banking division also originates loans through, provides financing to, and
acquires loans from, mortgage companies and other originators of loans across
the nation. Most of our community banking offices are located in north central
and eastern Pennsylvania, New Jersey and northern Delaware. In terms of assets,
we are the third largest bank or thrift holding company headquartered in
Pennsylvania, and one of the 50 largest in the United States.
Our principal executive offices are located at 2000 Market Street,
Philadelphia, Pennsylvania 19103, and our telephone number is (215) 557-4630.
Recent Operating Results
At and for the year ended December 31, 1998. We reported net income of
$136.5 million for the year ended December 31, 1998, compared to $102.5 million
for the year ended December 31, 1997, an increase of 33.2%. Net income per
share for the year ended December 31, 1998 was $.85, compared to $.66 for the
year ended December 31, 1997, an increase of 28.8%. Excluding pre-tax
merger-related charges of $50.4 million in 1998 and $54.0 million in 1997, our
net income would have increased 22.3% from $139.3 million for the year ended
December 31, 1997 to $170.3 million for the year ended December 31, 1998.
Excluding the merger-related charges, our net income per share for the year
ended December 31, 1998 would have increased 19.1% to $1.06 as compared to $.89
for the same period in 1997.
Excluding the merger-related charges noted above, return on average equity
and return on total assets were 15.50% and .87%, respectively, for 1998 and
14.83% and .85%, respectively, for 1997.
Our net interest income for the year ended December 31, 1998 was $493.6
million compared to $432.1 million for the year ended December 31, 1997. We
attribute this increase to the growth in our balance sheet resulting from our
recent acquisitions. Our interest rate spread (the difference between the yield
on total assets and the cost of total liabilities) was 2.56% for the year ended
December 31, 1998 compared to 2.68% for the same period in 1997.
Our provision for possible loan losses was $28.0 million for the year
ended December 31, 1998 compared to $41.1 million for the year ended December
31, 1997. At December 31, 1998, our non-performing assets were $115.7 million
compared to $107.7 million at December 31, 1997. Our ratio of non-performing
assets to total assets was .53% at December 31, 1998 compared to .61% at
December 31, 1997. Our ratio of the allowance for possible loan losses to
non-performing loans was 128.9% at December 31, 1998 compared to 116.7% at
December 31, 1997.
Our total other expenses were $360.1 million for the year ended December
31, 1998 compared to $279.8 million for the year ended December 31, 1997. Our
ratio of general and administrative expenses to average assets for the year
ended December 31, 1998 was 1.41% compared to 1.38% for the year ended December
31, 1997. This increase was primarily due to our overall franchise growth, as
well as systems-related charges related to our conversion to a new commercial
bank data processing system and our Year 2000 initiatives.
S-3
<PAGE>
Pending Acquisitions
Pending Acquisition of Peoples Bancorp, Inc. On September 7, 1998, we
entered into an agreement to acquire Peoples Bancorp, Inc., parent company of
Trenton Savings Bank, FSB. Peoples is a holding company headquartered in
Lawrenceville, New Jersey. Peoples operates 14 banking offices in central and
southern New Jersey. At September 30, 1998, approximately 21.0% of Peoples'
loan portfolio consisted of loans to small and medium size businesses, and an
additional 11.0% represented consumer loans. Peoples also operates a trust
operation. At September 30, 1998, Peoples reported total unaudited consolidated
assets of approximately $872.5 million, deposits of approximately $491.6
million and shareholders' equity of approximately $342.1 million. Peoples also
reported net income of $8.5 million for the nine months ended September 30,
1998 compared to $5.9 million for the nine months ended September 30, 1997. We
cannot complete our acquisition of Peoples until the requisite regulatory
agencies and Peoples' shareholders have approved this merger. Although we
expect to complete this merger in the second quarter of 1999, we cannot
guarantee that the necessary approvals will be received by such time, or at
all. If completed, we will treat the merger as a purchase for financial
accounting purposes.
S-4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Issue .......................... We will issue $240,000,000 aggregate principal amount of Sovereign
Bancorp's 65/8% Senior Unsecured Notes due March 15, 2001.
Maturity Date .................. March 15, 2001
Interest Payment Dates ......... We will pay interest on the notes in arrears on each March 15 and
September 15, commencing September 15, 1999.
Interest Rate .................. The notes will bear interest at a rate per annum of 65/8%.
Optional Redemption ............ We may redeem the notes in whole or in part at any time prior to maturity.
The redemption price in the case of optional redemption will equal 100%
of the principal amount of the notes being redeemed at that time plus all
accrued and unpaid interest on the notes to be redeemed at that time plus a
make whole premium. See "Description of the Notes--Optional
Redemption."
Mandatory Redemption ........... Upon a continuing event of default, the trustee or holders of not less than
25% in principal amount of the notes may require us to redeem the notes.
The redemption price in the case of mandatory redemption will be equal to
the aggregate principal amount of the notes, plus accrued and unpaid
interest to the date of redemption. See "Description of Notes--Mandatory
Redemption" and "Description of the Debt Securities--Events of Default."
Sinking Fund ................... None.
Ranking ........................ The payment of principal and interest on the notes will be unsecured and
will rank equally in right of payment to all of our present and future
unsecured senior debt. As of December 31, 1998, we had approximately
$7.9 million of indebtedness on a consolidated basis, $49.8 million of
which comprised senior unsecured debt. We currently have no secured
senior debt outstanding. Our obligations under the notes will also be
effectively subordinated to all existing and future obligations of our
subsidiaries, including Sovereign Bank's obligation to depositors. See "Risk
Factors--Our ability to incur additional debt could adversely affect our
ability to repay the notes" and "Risk Factors--Restrictions on dividends
and other distributions of Sovereign Bank could limit amounts payable to
us." While the notes are outstanding, we will not have the right to amend
the Indenture under which the notes are being issued or the terms of the
notes in a way which adversely affects the holders of the notes or which
waives an event of default without the consent of holders of at least a
majority in aggregate principal amount of the notes. See "Description of
the Debt Securities--Modification and Waiver."
Use of Proceeds ................ We will use $200,502,000 of the proceeds from the sale of the notes to
repay, in full, our outstanding Floating Rate Senior Notes due September
15, 1999 in the principal amount of $200,502,000, issued by us on
September 14, 1998. We presently intend to use the remaining proceeds
from this offering for general corporate purposes.
Rating ......................... The notes will be rated "BBB-" by Standard & Poor's Ratings Group,
"Ba1" by Moody's Investor Services, Inc., and "BBB" by Duff & Phelps
Credit Service Co.
</TABLE>
S-5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before purchasing
the notes. These are not the only risks and uncertainties facing our company.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business operations.
Our ability to incur additional debt could adversely affect our ability to
repay the notes.
You will be in the same position as the creditors of our other senior
unsecured debt. We are not obligated to repay the notes prior to repaying any
of our other senior unsecured debt. You should also understand that the
Indenture permits us and our subsidiaries to borrow additional funds. As a
result, any new senior unsecured debt that we incur will have the same
repayment priority as the notes, and any senior secured debt will rank higher
than the notes to the extent that it is secured by collateral.
If we borrow additional funds, those new loans will increase our loan
repayment obligations and, therefore, decrease the amount of cash that is
available to us to pay the notes. Furthermore, new loans could make it more
difficult for us to borrow additional funds. As of December 31, 1998, we had no
senior secured debt and unconsolidated indebtedness of approximately $491.0
million, of which $249.3 million comprised senior unsecured debt.
Restrictions on dividends and other distributions of Sovereign Bank could limit
amounts payable to us.
The notes will be our exclusive obligation. Because we derive
substantially all of our cash flow from dividends and other distributions that
our primary operating subsidiary, Sovereign Bank, pays to us, our ability to
repay our creditors, including you, depends upon the performance of Sovereign
Bank. However, various federal laws restrict Sovereign Bank's ability to pay
dividends or to extend credit to us. For a discussion of some of these
limitations, see our Annual Report on Form 10-K for the year ended December 31,
1997, which is incorporated by reference.
Additionally, the Indenture permits our subsidiaries, including Sovereign
Bank, to borrow funds. The credit agreements under which our subsidiaries
borrow funds may restrict the amount of money that they may pay to us.
Furthermore, if any of our subsidiaries is dissolved, liquidated or
reorganized, then the claims of those subsidiaries' creditors (including
depositors) generally are first in right of payment as compared to our claims
to the assets of our subsidiaries, thereby limiting the proceeds that would be
paid to us. As of December 31, 1998, the aggregate indebtedness (including
deposit liabilities, but excluding accounts payable and accrued expenses,
deferred income taxes and other liabilities) of Sovereign Bank and all of our
other subsidiaries was approximately $19.9 billion.
We may be required to reduce payments to some holders of the notes to satisfy
United States tax withholding requirements.
In the event that we are required to deduct or withhold taxes, duties or
other governmental charges from our payments to holders or beneficial owners of
notes, we would not be required to pay any additional amounts to such holders
and, therefore, any such taxes, duties or charges would reduce the amounts
received by such holders. See "Certain Tax Considerations."
There is an absence of a public market for the notes.
The notes are a new issue of securities with no established trading
market. We have been advised by the underwriters that they intend to make a
market in the notes, but they are not obligated to do so and may discontinue
any market making at anytime without notice. We cannot give any assurance as to
the liquidity of the trading market for the notes. The notes will not be listed
on any securities exchange.
FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus supplement, the attached
prospectus and the documents incorporated by reference are forward-looking
statements.
S-6
<PAGE>
These forward-looking statements include statements with respect to our
beliefs, plans, objectives, goals, expectations, anticipations, estimates,
intentions, financial condition, results of operations, future performance and
business, including:
o statements relating to our goals with respect to growth in earnings per
share, return on equity, return on assets, overhead efficiency ratio,
tier 1 leverage ratio, annualized net charge-offs, dividend pay-out
ratio, and fee income as a percentage of total revenue; and
o statements that include the words "may," "could," "should," "would,"
"believe," "expect," "anticipate," "estimate," "intend," "plan," or
similar expressions.
These forward-looking statements involve risks and uncertainties that are
subject to change based on various important factors (some of which are beyond
our control). The following factors, among others, could cause our financial
performance to differ materially from the goals, plans, objectives, intentions
and expectations expressed in such forward-looking statements:
o the strength of the United States economy in general and the strength of
the local economies in which we conduct operations;
o the effects of trade, monetary and fiscal policies and laws, including
interest rate policies of the Board of Governors of the Federal Reserve
System;
o inflation, interest rate, market and monetary fluctuations;
o the timely development of competitive new products and services by us
and the acceptance of those products and services by customers;
o the willingness of customers to substitute competitors' products and
services for our products and services and vice versa;
o our success in gaining regulatory approval of products and services,
when required;
o the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and insurance);
o technological changes;
o changes in consumer spending and savings habits;
o the impact of our pending and completed acquisitions, including our
success in fully realizing or realizing within the expected time frame
expected cost savings and/or revenue enhancements from such pending or
completed acquisitions, including, without limitation, the expected cost
savings and revenue enhancements expected from the acquisition of
Peoples Bancorp, Inc.;
o unanticipated regulatory or judicial proceedings;
o unanticipated results of our efforts to be Year 2000 compliant; and
o our success at managing the risks involved in the foregoing.
If one or more of these risks or uncertainties occurs or if the underlying
assumptions prove incorrect, then our actual results, performance or
achievements in 1999 and beyond could differ materially from those expressed
in, or implied by, the forward-looking statements.
We caution that the foregoing list of important factors is not exclusive,
and neither such list nor any such forward-looking statement takes into account
the impact that any future acquisition may have on us and any such
forward-looking statement. We do not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of us.
OUR RATIO OF EARNINGS TO FIXED CHARGES
We computed our ratio of earnings to fixed charges by dividing earnings by
fixed charges on a consolidated basis. We computed our ratio of earnings to
combined fixed charges and preferred stock dividends by dividing earnings by
the sum of fixed charges and preferred stock dividend requirements. Earnings
consist primarily of income before income taxes adjusted for fixed charges.
Fixed charges consist primarily of interest expense on short-term and long-term
borrowings.
S-7
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
Excluding interest on deposits ......... 1.48x 1.44x 1.49x 1.89x 2.16x
Including interest on deposits ......... 1.24x 1.22x 1.22x 1.29x 1.40x
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends(1)
Excluding interest on deposits ......... 1.47x 1.41x 1.44x 1.81x 2.16x
Including interest on deposits ......... 1.24x 1.21x 1.20x 1.27x 1.40x
</TABLE>
- ------------
(1) On May 15, 1998, we redeemed all outstanding shares of our 61/4% Cumulative
Convertible Preferred Stock, Series B at a redemption price of $52.188 per
share. Substantially all holders of the Series B Preferred Stock converted
their shares of preferred stock to shares of our common stock.
USE OF PROCEEDS
Our proceeds from the offering of the notes will be $238,240,800 without
giving effect to the out-of-pocket expenses we will incur in connection with
the offering of the notes. We will use $200,502,000 of our proceeds from this
offering to repay, in full, our outstanding Floating Rate Senior Notes due
September 15, 1999, in the aggregate principal amount of $200,502,000. In
September 1998, we received $200,502,000 from the sale of the Floating Rate
Unsecured Notes. Those proceeds were used to repay an interim, short-term note
in the aggregate principal amount of $200,000,000 payable to Lehman Commercial
Paper, Inc., an affiliate of one of the underwriters. We used the $200,000,000
we received from Lehman Commercial Paper, Inc. to provide regulatory capital
necessary to permit us to complete the acquisition of 93 First Union/CoreStates
branches in September 1998.
We presently intend to use the remaining proceeds of this offering for
general corporate purposes, which may include advances to or investments in
Sovereign Bank and financing possible future acquisitions. The precise amounts
and timing of our application of the remaining proceeds will depend upon many
factors, including the funding requirements of Sovereign Bank, the availability
of other funds, and the existence of acquisition opportunities. Pending these
uses, we expect to invest the net proceeds in short-term, interest-bearing
securities.
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
December 31, 1998, and as adjusted to give effect to the offering of the notes
and our use of the estimated net proceeds. You should read the following data
in conjunction with the financial information that we have included in this
prospectus supplement and in the documents that we incorporated into this
prospectus supplement and the attached prospectus by reference. See
"Incorporation of Certain Documents by Reference" in the attached prospectus.
December 31, 1998
--------------------------------
Actual As Adjusted(1)
-------------- ---------------
(Dollars in thousands)
Deposits ........................... $12,322,716 $12,322,716
Short-term borrowings .............. 3,921,684 3,721,182
Long-term debt ..................... 3,978,908 4,216,949
Trust Preferred Securities ......... 129,050 129,050
Total stockholders' equity ......... 1,204,068 1,204,068
----------- -----------
Total capitalization ............... $21,556,426 $21,593,965
=========== ===========
- ------------
(1) As adjusted to give effect to the offering of the notes. Proceeds are net
of $1,959,200 of the underwriting discount and other estimated expenses of
the offering of the notes.
S-8
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth some of our historical consolidated summary
financial data as of and for each of the periods indicated. We derived our
selected financial data for each of the three years in the period ended
December 31, 1998 from our audited consolidated financial statements. You
should read the data presented below in conjunction with, among other things,
our consolidated financial statements, including the notes thereto,
incorporated by reference in this prospectus supplement. See "Incorporation of
Certain Documents by Reference" and "Available Information" in the attached
prospectus.
SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Balance Sheet Data
Total assets ........................................ $21,913,873 $17,655,455 $15,298,690
Loans ............................................... 11,285,840 11,324,122 9,595,495
Allowance for possible loan losses .................. (133,802) (116,823) (73,847)
Investment and mortgage-backed securities ........... 8,502,082 5,372,713 5,012,118
Deposits ............................................ 12,322,716 9,515,294 8,660,684
Borrowings .......................................... 7,900,592 6,863,643 5,599,109
Stockholders' equity ................................ 1,204,068 1,047,795 889,751
Summary Statement of Operations
Total interest income ............................... $1,355,371 $ 1,178,777 $ 1,016,826
Total interest expense .............................. 861,759 746,695 629,860
----------- ----------- -----------
Net interest income ................................. 493,612 432,082 386,966
Provision for possible loan losses .................. 27,961 41,125 22,685
----------- ----------- -----------
Net interest income after provision for possible loan
losses ............................................. 465,651 390,957 364,281
Other income ........................................ 105,638 58,722 63,379
Other expenses ...................................... 360,083 279,817 289,773
----------- ----------- -----------
Income before income taxes .......................... 211,206 169,862 137,887
Income tax provision ................................ 74,751 67,324 47,509
----------- ----------- -----------
Net income .......................................... $ 136,455 $ 102,538 $ 90,378
=========== =========== ===========
Share Data(2)
Common shares outstanding at end of period
(in thousands) ..................................... 159,727 141,218 134,000
Preferred shares outstanding at end of period
(in thousands) ..................................... 0 1,996 2,000
Basic earnings per share(3) ......................... $ 0.88 $ 0.70 $ 0.63
Diluted earnings per share(3) ....................... $ 0.85 $ 0.66 $ 0.59
Book value per share at end of period(4) ............ $ 7.54 $ 7.42 $ 6.64
Common share price at end of period ................. $ 141/4 $ 175/16 $ 91/8
Dividends declared per common share(5) .............. $ 0.084 $ 0.114 $ 0.140
Selected Financial Ratios
Dividend payout ratio(6) ............................ 9.88% 17.27% 23.73%
Return on average assets ............................ .70% 0.63% 0.63%
Return on average stockholders' equity .............. 12.42% 10.92% 10.34%
Equity to assets .................................... 5.49% 5.93% 5.82%
</TABLE>
S-9
<PAGE>
- ------------
(1) We have restated all selected financial data to reflect all acquisitions
during the periods presented that we have accounted for under the
pooling-of-interests method of accounting.
(2) We have adjusted all per share data to reflect all stock dividends and
stock splits declared or effected through the date of this prospectus
supplement.
(3) Our 1998 and 1997 results include the merger-related charges of $33.8
million (after-tax) and $36.7 million (after-tax), respectively, resulting
from our acquisitions during 1998 and 1997. Excluding the merger-related
charges, basic earnings per share and diluted earnings per share were
$1.10 and $1.06, respectively, for 1998 and $.97 and $.89, respectively,
for 1997. 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.
(4) We calculated book value by dividing equity by common shares.
(5) The higher dividend rate in prior periods is the result of acquisitions
that we accounted for as a pooling-of-interests.
(6) The dividend payout ratio is calculated using dividends per common share
divided by diluted earnings per share.
S-10
<PAGE>
DESCRIPTION OF THE NOTES
We will issue the notes under an indenture, dated February 1, 1994 (the
"Indenture"), between us and Harris Trust and Savings Bank, as Trustee (the
"Trustee").
The notes must be held in minimum denominations of $100,000 and integral
multiples of $1,000 in excess thereof.
Except as otherwise defined herein, capitalized terms used herein shall
have their meanings as set forth in the prospectus.
Ranking, Maturity and Interest Payments
The notes will be our direct, senior unsecured obligations. The notes will
mature March 15, 2001, and will bear interest from March 22, 1999, which is the
date of original issuance, at the rate stated on the cover page of this
prospectus supplement. We will pay interest semiannually on March 15 and
September 15 to the persons in whose names the notes are registered at the
close of business on the preceding March 1 and September 1, respectively. The
initial interest payment will be made on September 15, 1999.
Optional Redemption
We may at our option and at any time redeem the notes, in whole or in
part, in principal amounts of denominations of $100,000 and integral multiples
of $1,000 in excess thereof except that we may not reduce a holder's beneficial
ownership of the notes below the minimum denomination of $100,000 as a result
of an optional redemption. The redemption price will equal the sum of:
(1) an amount equal to 100% of the principal amount of the notes being
redeemed at that time plus
(2) accrued and unpaid interest up to, but not including, the redemption
date plus
(3) a make-whole premium.
We will calculate the make-whole premium as
(1) the aggregate present value as of the redemption date of each dollar of
principal of the notes being redeemed at that time and the amount of
interest (exclusive of interest accrued to the redemption date) that
would have been payable on each interest payment date after the
redemption date in respect of such dollar if such redemption had not
been made, determined by discounting, on a semi-annual basis, such
principal and interest at a rate equal to the sum of the Treasury Yield
(determined on the business day immediately preceding the redemption
date) plus 25 basis points from the respective dates on which such
principal and interest would have been payable if such redemption had
not been made, in excess of
(2) the aggregate principal amount of the notes being redeemed at that
time.
"Treasury Yield" means, in connection with the calculation of any
make-whole premium on any note, the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled by and published in the most recently published Federal Reserve
Statistical Release H.15 (519) prior to the redemption date (or, if such
Statistical Release is no longer published, any publicly available source of
similar date)) equal to the then remaining maturity of the notes being
redeemed. If no United States Treasury security is available with a constant
maturity that exactly matches the remaining maturity of the notes being
redeemed, then the yields for the two published maturities most closely
corresponding to, and greater than, such remaining maturity shall be calculated
pursuant to the immediately preceding sentence and the "Treasury Yield" shall
be calculated by interpolation, on a straight line basis, from such yields,
rounding to the nearest month.
If we elect to redeem all or part of the notes, then we will fix the date
for redemption and send notice of the redemption by first class mail at least
30 and not more than 60 days prior to the redemption date to each registered
holder of notes to be redeemed at its last registered address. In the event we
elect to redeem less than all of the notes, we will notify the trustee at least
45 days prior to the redemption date (unless a shorter notice is satisfactory
to the trustee) as to the aggregate principal amount of notes that we will
redeem, and the trustee will select the notes or portions thereof to be
redeemed by such method the trustee determines to be fair and appropriate.
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We will deposit with the trustee or with one or more paying agents an
amount of money equal to the aggregate redemption price for all the notes to be
redeemed on that redemption date.
If we redeem any note in part only, the notice of redemption that relates
to such note will state the portion of the note to be redeemed. We will issue a
new note in principal amount equal to the unredeemed portion in the name of the
registered holder thereof upon cancellation of the original note.
On and after the redemption date, interest will cease to accrue on notes
or portions of them called for redemption unless we default in the payment of
the redemption price.
Mandatory Redemption
The Indenture provides that upon the occurrence of a continuing event of
default, the aggregate principal amount of the notes and all accrued and unpaid
interest may be declared immediately due and payable by the trustee or by
holders of not less than 25% in principal amount of the notes. See "Description
of the Debt Securities--Events of Default."
Book-Entry System
The Depository Trust Company ("DTC") will act as securities depository for
the notes. We will issue the notes in fully-registered form (without interest
coupons) in the name of Cede & Co. (DTC's partnership nominee). One or more
fully-registered certificates will be issued as Global Securities for the notes
in the aggregate principal amount of the notes, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC holds securities that its participants ("Direct
Participants") deposit with DTC. DTC also facilitates the settlement among
Direct Participants of securities transactions, such as transfers and pledges,
in deposited securities through electronic computerized book-entry changes in
Direct Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its Direct Participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants" and
together with Direct Participants, "Participants"). The Rules applicable to DTC
and its Participants are on file with the Securities and Exchange Commission.
Anyone who purchases the notes under the DTC system must make their
purchases through a Direct Participant, which will receive a credit for the
notes on DTC's records. The Direct Participant will then record the ownership
interest of each actual purchaser of notes ("Beneficial Owner") on the
Participant's records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant through which the Beneficial
Owner entered into the transaction. Transfers of ownership interests in the
notes are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in the notes, except in the
event that use of the book-entry system for the notes is discontinued.
To facilitate subsequent transfers, all notes deposited by Direct
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of notes with DTC and their registration in the name of
Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the notes. DTC's records reflect only the
identity of the Direct Participants to whose accounts such notes are credited,
which may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
S-12
<PAGE>
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the notes.
Under its usual procedures, DTC would mail an omnibus proxy to the Trustee as
soon as possible after the record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
notes are credited on the record date (identified in a listing attached to the
omnibus proxy).
We will make principal and interest payments on the notes to DTC. DTC has
advised us that its current practice is to credit Direct Participants' accounts
on the payable date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on
the payable date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such Participant and not of
DTC, Sovereign or the Trustee, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payments of principal and
interest to DTC is the responsibility of Sovereign or the Trustee, disbursement
of such payments to Direct Participants shall be the responsibility of DTC, and
disbursements of such payments to the Beneficial Owners shall be the
responsibility of Participants.
DTC may discontinue providing its services as securities depository with
respect to the notes at any time by giving reasonable notice to us or the
Trustee. Under such circumstances, in the event that a successor securities
depository is not obtained, note certificates are required to be printed and
delivered.
We may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depository). In that event, note
certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable (including DTC),
but we take no responsibility for the accuracy thereof.
Neither we, the Trustee nor the underwriters will have any responsibility
or obligation to Participants, or the persons for whom they act as nominees,
with respect to the accuracy of the records of DTC, its nominee or any
Participant with respect to any ownership interest in the notes, or payments
to, or the providing of notice for, Participants or Beneficial Owners.
S-13
<PAGE>
UNDERWRITING
The underwriters named below have severally agreed to purchase, and we
have agreed to sell to them, severally, the principal amounts of notes
indicated below. The Underwriting Agreement provides that the obligations of
the underwriters to purchase the notes are subject to certain conditions
described in that agreement. The underwriters will be obligated to purchase all
the notes if any of the notes are purchased.
Principal
Amount of Notes
----------------
Lehman Brothers Inc. .............. $232,000,000
Salomon Smith Barney Inc. ......... $ 8,000,000
------------
$240,000,000
============
We have been advised by the underwriters that they propose to offer the
notes to the public initially at the offering price stated on the cover of this
prospectus supplement and to certain dealers at the same price less a selling
concession equal to .20% of the principal amount of the notes. The underwriters
may allow and each such dealer may reallow to other dealers a concession not
exceeding .10% of the principal amount of the notes. After the initial public
offering, the public offering price and any concessions and reallowances may be
changed.
In connection with the offering made hereby, the underwriters may purchase
and sell the notes in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover short
positions created by the underwriters in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose
of preventing or retarding a decline in the market price of the notes, and
short positions created by the underwriters involve the sale by the
underwriters of a greater aggregate principal amount of notes than they are
required to purchase from Sovereign. The underwriters also may impose a penalty
bid, whereby selling concessions allowed to broker-dealers in respect of the
notes sold in the offering may be reclaimed by the underwriters if such notes
are repurchased by the underwriters in stabilizing or covering transactions.
These activities may stabilize, maintain or otherwise affect the market price
of the notes, which may be higher than the price that might otherwise prevail
in the open market, and these activities, if commenced, may be discontinued at
any time. These transactions may be effected in the over-the-counter market or
otherwise.
The notes are a new issue of securities with no established trading
market. We have been advised by the underwriters that they intend to make a
market in the notes, but they are not obligated to do so and may discontinue
any market making at any time without notice. No assurance can be given as to
the liquidity of the trading market for the notes. The notes will not be listed
on any securities exchange.
We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended. We have agreed, during the period ending 60 days from the date of this
prospectus supplement, not to issue, sell, offer to sell, grant any option for
the sale of, or otherwise dispose of any debt securities (except for the notes)
with substantially similar terms to the notes.
In the ordinary course of their respective businesses, the underwriters
and their affiliates have engaged, and may in the future engage, in commercial
banking and/or investment banking transactions with us and our affiliates.
You should read "Plan of Distribution" in the prospectus for further
information regarding the distribution of the notes.
LEGAL MATTERS
Certain legal matters will be passed upon for us by Stevens & Lee, P.C.,
Reading and Philadelphia, Pennsylvania. Certain legal matters will be passed
upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York.
S-14
<PAGE>
Prospectus
[GRAPHIC OMITTED]
SOVEREIGN BANCORP, INC.
Common Stock and Common Stock Warrants
Debt Securities and Debt Warrants
Preferred Shares and Preferred Share Warrants
Sovereign Bancorp, Inc. (the "Corporation" or "Sovereign") may from time
to time offer (i) shares of its Common Stock, no par value (the "Common
Stock"), (ii) in one or more series its unsecured debt securities, which may be
either senior (the "Senior Securities") or subordinated (the "Subordinated
Securities", the Senior Securities and the Subordinated Securities being
referred to collectively as the "Debt Securities"), (iii) warrants to purchase
the Debt Securities ("Debt Warrants"), (iv) shares of preferred stock (the
"Preferred Shares") (v) warrants to purchase the Preferred Shares ("Preferred
Share Warrants"), and (vi) warrants to purchase Common Stock ("Common Stock
Warrants," the Debt Warrants, Preferred Share Warrants and Common Stock
Warrants being referred to collectively as the "Securities Warrants") with an
aggregate initial public offering price (including the exercise price of any
Securities Warrants) of up to $200,000,000 or the equivalent thereof in one or
more foreign currencies or composite currencies, including European Currency
Units ("ECU"), on terms to be determined at the time of sale.
The Common Stock, Debt Securities, Preferred Shares and Securities
Warrants (collectively, the "Offered Securities") may be offered separately or
together in units, in separate series, in amounts, at prices, and on terms and
conditions to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement").
The Senior Securities will rank equally with all other unsubordinated and
unsecured indebtedness of the Corporation. The Subordinated Securities will be
subordinated to all existing and future Senior Debt of the Corporation, as
defined. See "Description of Debt Securities."
The Securities Warrants may be issued independently or together with
Common Stock, Debt Securities, or Preferred Shares offered by any Prospectus
Supplement and may be attached to or separate from such Common Stock, Debt
Securities, or Preferred Shares.
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered, such as, where applicable, (i) in the case of
Debt Securities, the specific designation, original issue discount or premium,
aggregate principal amount, currency, denominations, maturity, rate and time of
payment of interest, terms for redemption at the option of the Corporation or
repayment at the option of the holder and the redemption premium (if any),
terms for sinking fund payments, terms for conversion into Common Stock or
Preferred Shares or exchange into capital securities and the initial public
offering price; (ii) in the case of Preferred Shares, the specific title and
stated value, any dividend, liquidation, redemption, conversion, exchange,
voting and other rights, and the initial public offering price; and (iii) in
the case of Securities Warrants, where applicable, the duration, offering
price, exercise price and detachability.
Each of the Offered Securities may be issued separately or together with
Securities Warrants as a unit (a "Unit"). If any of the Offered Securities are
issued as a Unit, the Prospectus Supplement relating thereto will describe the
specific terms relating to such Unit including, where applicable: (i) if the
Securities Warrant will be detachable from the accompanying Offered Security
and when, if ever, such Securities Warrant may be separately transferred; (ii)
the allocation of the public offering price between the Securities Warrant and
the accompanying Offered Security; (iii) the qualification of the Units and its
composite Offered Securities for trading on any securities exchange or
automated dealers' quotation reporting system, and (iv) any United States
federal income tax considerations relating to the Unit and the Offered
Securities comprising the Unit.
The Prospectus Supplement will also contain information, where applicable,
about certain United States federal income tax considerations relating to, and
any listing on a securities exchange of, the Offered Securities covered by the
Prospectus Supplement.
The Offered Securities may be offered directly by the Corporation to
purchasers, through agents designated from time to time, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Offered Securities, their names, and any applicable fee,
commission, purchase price or discount arrangements with them will be set
forth, or will be calculable from the information set forth, in the Prospectus
Supplement. The Corporation may also issue contracts under which the
counterparty may be required to purchase Common Stock, Debt Securities, or
Preferred Stock. Such contracts would be issued with the Common Stock, Debt
Securities, Preferred Stock, and/or Securities Warrants in amounts, at prices
and on terms to be set forth in a Prospectus Supplement. See "Plan of
Distribution."
Except for the Common Stock and any 61/4% Cumulative Convertible Preferred
Stock, Series B that may be offered hereby, the Offered Securities are a new
issue of securities with no established trading market. In the event that
Offered Securities of a series offered hereby are not listed on a national
securities exchange, certain broker-dealers may make a market in the Offered
Securities, but will not be obligated to do so and may discontinue any market
making any time without notice. No assurance can be given that any
broker-dealer will make a market in the Offered Securities of any series or as
to the liquidity of the trading market for the Offered Securities. Any such
market making may be discontinued at any time.
----------------
The Offered Securities are not savings accounts, deposits or other
obligations of any bank or nonbank subsidiary of the Corporation and are not
insured by the Federal Deposit Insurance Corporation, Bank Insurance Fund,
Savings Association Insurance Fund, or any other government agency.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement.
----------------
The date of this Prospectus is August 12, 1996.
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus or any Prospectus Supplement and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Corporation, or any underwriter or agent. This Prospectus and
any Prospectus Supplement do not constitute an offer to sell or a solicitation
of an offer to buy any Offered Securities in any jurisdiction to any person to
whom it is unlawful to make such offer in such jurisdiction. Neither the
delivery of this Prospectus or any Prospectus Supplement nor any sale made
hereunder and thereunder shall, under any circumstances, create any implication
that the information contained or incorporated by reference herein or therein
is correct as of any time subsequent to the date of such information or that
there has been no change in the affairs of the Corporation since such date.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files proxy statements, reports and other information with
the Securities and Exchange Commission (the "Commission"). This filed material
can be inspected and copied at the Commission's office at 450 Fifth Street,
N.W., Washington, D.C. 20549 and the Commission's Regional Offices in New York
(7 World Trade Center, Suite 1300, New York, New York 10048) and Chicago (500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511) and copies of
such materials can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the
Corporation are incorporated in this Prospectus by reference and made a part
hereof:
(1) The Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995.
(2) The Corporation's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
(3) The Corporation's Current Reports on Form 8-K filed January 22, 1996,
February 6, 1996, February 16, 1996, June 3, 1996, and July 29, 1996.
(4) The Corporation's Registration Statement on Form 8-A, dated October
12, 1989, as amended on Form 8-A/A, dated January 8, 1996, pursuant to which
the Corporation registered certain stock purchase rights under the Exchange
Act.
(5) The Corporation's Registration Statement on Form 8-A, dated May 16,
1995, pursuant to which the Corporation registered its 6-1/4% Cumulative
Convertible Preferred Stock, Series B under the Exchange Act.
Financial and other information included in the reports incorporated by
reference herein do not reflect stock splits or dividends declared subsequent
to the respective dates of such reports.
Each document or report subsequently filed by the Corporation with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date hereof and prior to the termination of the offering of the
Offered Securities shall be deemed to be incorporated by reference into this
Prospectus and to be a part of this Prospectus from the date of filing of such
document. Any statement contained herein, or in the document all or a portion
of which is incorporated or deemed to be incorporated by reference herein,
shall be deemed to be modified or superseded for purposes of the Registration
Statement and this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of the Registration Statement or
this Prospectus.
The Corporation will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference, other than
certain exhibits to such documents. Written requests should be directed to
Sovereign Bancorp, Inc., P.O. Box 12646, Reading, Pennsylvania 19612;
Attention: Investor Relations Officer (telephone: 610 320-8400).
SOVEREIGN BANCORP, INC.
Sovereign Bancorp, Inc. ("Sovereign" or the "Corporation") is a
Pennsylvania multi-thrift holding corporation headquartered in a suburb of
Reading, Pennsylvania. Sovereign's subsidiaries consist of Sovereign Bank, a
Federal Savings Bank ("Sovereign Bank"), Sovereign Community Bank ("Community
Bank") and Sovereign
1
<PAGE>
Investment Corporation. At June 30, 1996, Sovereign and its subsidiaries had
total consolidated assets, deposits, and shareholders' equity of $9.2 billion,
$5.0 billion and $461 million, respectively. Based on total assets at June 30,
1996, Sovereign is the largest thrift holding corporation and fourth largest
financial institution headquartered in Pennsylvania. (Sovereign Bank and
Community Bank are collectively referred to herein as the "Banks.")
Sovereign's primary business consists of attracting deposits from its
network of 122 community banking offices, located in Pennsylvania, New Jersey
and Delaware, and originating residential mortgage loans and home equity lines
of credit in those communities. The Banks originate mortgage loans through
their community banking offices, commissioned employees who conduct business
out of loan production offices, and a network of independent mortgage bankers
and brokers. Substantially all loan underwriting is performed by the Banks.
Sovereign's operating strategy emphasizes consistent profitability and
growth. Accordingly, Sovereign seeks to (1) maintain superior asset quality
through emphasis on the origination of single family mortgage loans; (2) limit
interest rate risk through the origination of adjustable rate mortgages for
retention in its portfolio; (3) maintain low overhead expense and high employee
productivity; and (4) encourage a strong sales and service culture. In
addition, Sovereign intends, over the course of the next 5 years, to increase
the size of its commercial loan portfolio and consumer loan portfolio to
approximately 10% and 25%, respectively, of Sovereign's total loan portfolio.
In its effort to increase the size of the commercial loan and consumer loan
portfolios, Sovereign will endeavor to maintain its emphasis on superior asset
quality, low interest rate risk, low overhead expense and strong sales and
service culture.
Sovereign operates in a heavily regulated environment. Changes in laws and
regulations affecting it and its subsidiaries may have an impact on its
operations. See "Supervision and Regulation."
The principal executive offices of Sovereign are located at 1130 Berkshire
Boulevard, Wyomissing, Pennsylvania 19610, telephone (610) 320-8400.
Holding Company Structure
Sovereign is a legal entity separate and distinct from its subsidiaries.
Accordingly, the right of Sovereign, and consequently the right of creditors 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. The principal source of Sovereign's revenue and
cash flow is dividends from its subsidiaries. See "Supervision and Regulation
- -- Restrictions on Capital Distributions" for a discussion of regulatory and
other restrictions on the ability of the subsidiaries to pay dividends to
Sovereign.
SUPERVISION AND REGULATION
General
Sovereign is a "savings and loan holding company" registered with the
Office of Thrift Supervision (the "OTS") under the Home Owners' Loan Act (the
"HOLA") and, as such, Sovereign is subject to OTS regulations, examinations,
supervision and reporting. The Banks are subject to examination and
comprehensive regulation by the OTS. The deposits of Sovereign Bank are insured
by the Savings Association Insurance Fund (the "SAIF") of the Federal Deposit
Insurance Corporation (the "FDIC"). The deposits of Community Bank are insured
by the Bank Insurance Fund (the "BIF") of the FDIC, and the Banks are subject
to FDIC regulation. The Banks are members of the Federal Home Loan Bank (the
"FHLB") system. The Banks are also subject to regulation by the Board of
Governors of the Federal Reserve System with respect to reserves maintained
against deposits and certain other matters.
Sovereign
The HOLA prohibits a registered savings and loan holding company from
directly or indirectly acquiring control, including through an acquisition by
merger, consolidation or purchase of assets, of any savings association (as
defined to include a federal savings bank) or any other savings and loan
holding company, without prior
2
<PAGE>
OTS approval. Generally, a savings and loan holding company may not acquire
more than 5% of the voting shares of any savings association unless by merger,
consolidation or purchase of assets. Certain regulations of the OTS describe
standards for control under the HOLA (see "Control of Sovereign").
Federal law empowers the Director of OTS to take substantive action when
it determines that there is reasonable cause to believe that the continuation
by a savings and loan holding company of any particular activity constitutes a
serious risk to the financial safety, soundness, or stability of a savings and
loan holding company's subsidiary savings institution. The Director of OTS has
oversight authority for all holding company affiliates, not just the insured
institution. Specifically, the Director of OTS may, as necessary, (i) limit the
payment of dividends by the savings institution; (ii) limit transactions
between the savings institution, the holding company and the subsidiaries or
affiliates of either; or (iii) limit any activities of the savings institution
that might create a serious risk that the liabilities of the holding company
and its affiliates may be imposed on the savings institution. Any such limits
would be issued in the form of a directive having the legal efficacy of a cease
and desist order.
Control of Sovereign
Under the Savings and Loan Holding Company Act and the related Change in
Bank Control Act (the "Control Act"), individuals, corporations or other
entities acquiring shares of Sovereign's common stock may, alone or "in
concert" with other investors, be deemed to control Sovereign and thereby the
Banks. If deemed to control Sovereign, such person or group will be required to
obtain OTS approval to acquire shares of Sovereign's common stock and will be
subject to certain ongoing reporting procedures and restrictions under federal
law and regulations. Under the regulations, ownership of 25% of the capital
stock of Sovereign will be deemed to constitute "control," and ownership of
more than 10% of the capital stock may also be deemed to constitute "control"
if certain other control factors are present. It is possible that even lower
levels of ownership of such securities could constitute "control" under the
regulations.
Sovereign Bank and Community Bank
The Banks are members of the FHLB system and are required to file reports
with the OTS describing their activities and financial condition and are
periodically examined to test compliance with various regulatory requirements.
The Banks are also subject to examination by the FDIC. Such examinations are
conducted with the purpose of protecting depositors and the insurance fund and
not with the purpose of protecting holders of equity or debt securities of
Sovereign, Sovereign Bank, or Community Bank.
Regulatory Capital Requirements
OTS regulations require savings associations to maintain a minimum
tangible capital ratio of not less than 1.5%, a minimum core capital, or
"leverage", ratio of not less than 3% of tangible assets and 4% of
risk-adjusted assets, and a minimum risk-based capital ratio (based upon credit
risk) of not less than 8%. These standards are the same as the capital
standards that are applicable to other insured depositary institutions, such as
banks. Regulations adopted by the OTS require a minimum leverage capital
requirement of 3% for associations rated composite 1 under the OTS MACRO rating
system. For all other savings associations, the minimum leverage capital
requirement is 3% plus at least an additional 100 to 200 basis points.
In August, 1995, the federal banking agencies, including the OTS, issued a
rule modifying their then-existing risk-based capital standards to provide for
consideration of interest rate risk when assessing the capital adequacy of an
institution. The new rule does not establish a measurement framework for
assessing an institution's interest rate risk exposure level. Examiners will
use data collected by the banking agencies to determine the adequacy of an
individual institution's capital in light of interest rate risk. Examiners will
also consider historical financial performance, earnings exposure to interest
rate movements and the adequacy of internal interest rate risk management,
among other things.
The federal banking agencies, including the OTS, also adopted final rules
relating to concentration of credit risk and risks of non-traditional
activities effective on January 17, 1995. The agencies declined to adopt a
quantitative test for concentrations of credit risk and, instead, provided that
such risk would be considered in addition to other risks in assessing an
institution's overall capital adequacy. Institutions with higher concentration
of
3
<PAGE>
credit risk will be required to maintain greater levels of capital. Similarly,
the federal agencies incorporated the evaluation of the risks of
non-traditional activities into the overall assessment of capital adequacy. The
agencies also indicated that proposed rules regarding specific types of
non-traditional activities will be promulgated from time to time.
Under the Federal Deposit Insurance Act ("FDIA") insured depository
institutions must be classified in one of five defined categories (well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized). Under OTS regulations, an
institution will be considered "well capitalized" if it has (i) a total
risk-based capital ratio of 10% or greater, (ii) a Tier 1 risk-based capital
ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv) is not
subject to any order or written directive to meet and maintain a specific
capital level. An "adequately capitalized" institution is one that has (i) a
total risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based
capital ratio of 4% or greater, (iii) a leverage ratio of 4% or greater (or 3%
or greater in the case of a bank with the highest composite regulatory
examination rating) and (iv) does not meet the definition of a well capitalized
institution. An institution will be considered (A) "undercapitalized" if it has
(i) a total risk-based capital ratio of less than 8%, (ii) a Tier 1 risk-based
capital ratio of less than 4% or (iii) a leverage ratio of less than 4% (or 3%
in the case of an institution with the highest regulatory examination rating);
(B) "significantly undercapitalized" if the institution has (i) a total
risk-based capital ratio of less than 6%, (ii) a Tier 1 risk-based capital
ratio of less than 3% or (iii) a leverage ratio of less than 3%; and (C)
"critically undercapitalized" if the institution has a ratio of tangible equity
to total assets of equal to or less than 2%. The OTS may, under certain
circumstances, reclassify a "well capitalized" institution as "adequately
capitalized" or require an "adequately capitalized" or "undercapitalized"
institution to comply with supervisory actions as if it were in the next lower
category. Such a reclassification could be made if the OTS determines that the
institution is in an unsafe or unsound condition (which could include
unsatisfactory examination ratings). A savings institution's capital category
is determined with respect to its most recent thrift financial report filed
with the OTS. In the event an institution's capital deteriorates to the
undercapitalized category or below, the FDIA and OTS regulations prescribe an
increasing amount of regulatory intervention, including the adoption by the
institution of a capital restoration plan, a guarantee of the plan by its
parent holding company and the placement of a hold on increases in assets,
number of branches and lines of business.
If capital has reached the significantly or critically undercapitalized
levels, further material restrictions can be imposed, including restrictions on
interest payable on accounts, dismissal of management and (in critically
undercapitalized situations) appointment of a receiver or conservator.
Critically undercapitalized institutions generally may not, beginning 60 days
after becoming critically undercapitalized, make any payment of principal or
interest on their subordinated debt. All but well capitalized institutions are
prohibited from accepting brokered deposits without prior regulatory approval.
Pursuant to the FDIA and OTS regulations, savings associations which are not
categorized as well capitalized or adequately capitalized are restricted from
making capital distributions which include cash dividends, stock redemptions or
repurchases, cash-out mergers, interest payments on certain convertible debt
and other transactions charged to the capital account of a savings association.
At March 31, 1996, Sovereign Bank and Community Bank each met the criteria to
be classified as "well capitalized."
Standards for Safety and Soundness
The federal banking agencies adopted, effective in August 1995, certain
operational and managerial standards for depository institutions, including
internal audit system components, loan documentation requirements, asset growth
parameters, and compensation standards for officers, directors and employees.
Sovereign does not anticipate that the implementation or enforcement of these
guidelines will have a material adverse effect on its results of operations.
Restrictions on Capital Distributions
OTS regulations govern capital distributions by savings associations,
which include cash dividends, stock redemptions or repurchases, cash-out
mergers, interest payments on certain convertible debt and other transactions
charged to the capital account of a savings association. Generally, the
regulation creates a safe harbor for
4
<PAGE>
specified levels of capital distributions from associations meeting at least
their minimum capital requirements, so long as such associations notify the OTS
and receive no objection to the distribution from the OTS. Associations that do
not qualify for the safe harbor are required to obtain prior OTS approval
before making any capital distributions.
The OTS rule generally provides for three tiers of savings associations:
(i) Tier 1 associations, associations that have capital ("total capital" as
calculated under the OTS capital regulations) equal to or greater than their
capital requirements prior to, and on a pro forma basis after giving effect to,
a proposed capital distribution; (ii) Tier 2 associations, associations that
have capital equal to or greater than their minimum capital requirements, but
less than their Tier 1 capital requirements prior to, and on a pro forma basis
after giving effect to, a proposed capital distribution; and (iii) Tier 3
associations, associations that do not meet their minimum capital requirements,
either before or after giving effect to a proposed capital distribution. Under
the OTS capital distributions rule, a Tier 1 association may make capital
distributions without OTS approval 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 Tier 1 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 the foregoing limits if the OTS does not object
after receiving notice thereof. At December 31, 1995, each of the Banks was a
"Tier 1 association." A Tier 2 association is authorized without OTS approval
to make distributions of up to 75% of net income over the most recent
four-quarter period if it satisfies its fully phased-in risk-based capital
requirement, or up to 50% of such net income if it satisfies its interim (90%
of fully phased-in amount) risk-based capital requirement. A Tier 2 association
may, through a written approval process, obtain OTS approval to make
distributions in excess of these amounts. Tier 3 associations are not
authorized to make any capital distributions without prior written OTS approval
unless, in the case of an association operating in compliance with an approved
capital plan, the capital distribution is consistent with the association's
capital plan. The OTS has supervisory authority to prohibit the payment of
capital distributions for Tier 1 and Tier 2 associations.
As a condition of obtaining approval from the OTS for the reorganization
whereby Sovereign was formed as a "savings and loan holding company" Sovereign
agreed that Sovereign Bank would not pay cash dividends in an amount in excess
of 50% of Sovereign Bank's net income for any year. Amounts not used in any one
year may be accumulated and used in subsequent years.
Insurance of Deposit Accounts
The FDIC has implemented a risk-related premium schedule for all insured
depository institutions that results in the assessment of premiums based on
capital and supervisory measures. Under the risk-related premium schedule, the
FDIC assigns, on a semiannual basis, each institution to one of three capital
groups (well-capitalized, adequately capitalized or undercapitalized) and
further assigns such institution to one of three subgroups within a capital
group. The institution's subgroup assignment is based upon the FDIC's judgment
of the institution's strength in light of supervisory evaluations, including
examination reports, statistical analyses and other information relevant to
measuring the risk posed by the institution. Only institutions with a total
capital to risk-adjusted assets ratio of 10.00% or greater, a Tier 1 capital to
risk-based assets ratio of 6% or greater, and a Tier 1 leverage ratio of 5.0%
or greater, are assigned to the well-capitalized group. As of December 31,
1995, Sovereign Bank and Community Bank were classified as well capitalized for
purposes of calculating insurance assessments. Institutions are prohibited from
disclosing the risk classification to which they have been assigned. As of
December 31, 1995, the FDIC calculated deposit insurance assessments at the
rate of $.23 for every $100 of deposits for the members of SAIF in the lowest
risk-based premium category and $0.31 for every $100 of insured deposits for
members of SAIF in the highest risk-based premium category.
In August 1995, the FDIC adopted an amendment to the BIF risk-based
assessment schedule that lowers the deposit insurance assessment rate for most
(90% or more) commercial banks and other depository institutions with deposits
insured by BIF to $.04 per $100 of insured deposits. On November 14, 1995, the
FDIC further reduced the BIF assessment rates to a range of $.00 per $100 of
insured deposits (subject to a minimum annual premium of $2,000) for those
institutions with the least risk to $0.27 for every $100 of insured deposits
for institutions deemed to have the highest risk, beginning January 1, 1996. At
the same time, the FDIC voted
5
<PAGE>
to retain the existing assessment rates for SAIF- insured institutions. The
reduced BIF assessment rates result in a substantial disparity in the deposit
insurance premiums paid by BIF and SAIF members and could place SAIF-insured
savings associations at a significant competitive disadvantage to BIF-insured
institutions.
Sovereign Bank is subject to FDIC deposit insurance assessments at the
rate applicable to SAIF-insured institutions except, however, that the deposits
acquired, on January 15, 1993 and May 31, 1996, when Sovereign acquired
Harmonia Bancorp, Inc. ("Harmonia") and West Jersey Bancshares, Inc. ("WJB"),
respectively, remain subject to BIF insurance assessment rates. The balance of
these Harmonia and WJB deposits were estimated to be approximately $756.0
million and $88.3, respectively, at June 30, 1996. Community Bank, acquired by
Sovereign on November 15, 1995, is subject to FDIC deposit insurance
assessments at the rate applicable to BIF insured institutions.
Federal savings banks like the Banks are required by OTS regulations to
pay assessments to the OTS to fund the operations of the OTS. The general
assessment is paid on a quarterly basis and is computed based on total assets
of the institution, including subsidiaries.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the Corporation including its
consolidated subsidiaries is computed by dividing earnings by fixed charges.
The ratio of earnings to combined fixed charges and preferred stock dividends
is computed by dividing earnings by the sum of fixed charges and preferred
stock dividend requirements. Earnings consist primarily of income (loss) before
income taxes adjusted for fixed charges. Fixed charges consist primarily of
interest expense on short-term and long-term borrowings.
<TABLE>
<CAPTION>
Three Months Year Ended December 31,
Ended March 31, --------------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
Excluding interest on deposits ......... 1.68x 1.79x 1.97x 2.30x 2.58x 2.13x
Including interest on deposits ......... 1.28x 1.27x 1.38x 1.38x 1.29x 1.17x
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends
Excluding interest on deposits ......... 1.51x 1.68x 1.97x 2.30x 2.58x 2.13x
Including interest on deposits ......... 1.23x 1.24x 1.38x 1.38x 1.29x 1.17x
</TABLE>
6
<PAGE>
USE OF PROCEEDS
The net proceeds of the Offered Securities will be used for general
corporate purposes, which may include without limitation funding investments
in, or extensions of credit to, the Corporation's subsidiaries, repayment of
obligations, redemption of outstanding indebtedness and financing possible
future acquisitions. Pending such use, the Corporation may temporarily invest
the net proceeds or may use them to reduce short-term indebtedness.
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may apply to the Debt Securities so offered will be
described in the Prospectus Supplement relating to such Debt Securities. Except
where specifically noted, the following description applies to both Senior
Securities and Subordinated Securities.
General
The Debt Securities will be unsecured obligations of the Corporation and
will not be insured by the Savings Association Insurance Fund or the Bank
Insurance Fund of the Federal Deposit Insurance Corporation.
The Debt Securities will be issued either as Senior Securities or
Subordinated Securities. The Senior Securities will be issued under an
Indenture dated as of February 1, 1994 (the "Senior Indenture"), between the
Corporation and Harris Trust and Savings Bank, as Trustee. The Subordinated
Securities will be issued under an Indenture dated as of February 1, 1994 (the
"Subordinated Indenture"), between the Corporation and Harris Trust and Savings
Bank, as Trustee. The Senior Indenture and the Subordinated Indenture are
collectively referred to herein as the "Indentures." Copies of the Indentures
have been filed with the Commission. References to the "Trustee" shall mean
Harris Trust and Savings Bank as trustee under the Senior Indenture or the
Subordinated Indenture, as applicable.
The statements which follow under this caption are brief summaries of
certain provisions contained in the Indentures, do not purport to be complete
and are qualified in their entirety by reference to all the provisions of the
applicable Indenture, copies of which have been filed with the Commission as
exhibits to the Registration Statement. Whenever defined terms are used but not
defined herein, such terms shall have the meanings ascribed to them in the
applicable Indenture, it being intended that such defined terms shall be
incorporated herein by reference. References to Sections are references to
Sections in both Indentures unless otherwise indicated.
Neither Indenture limits the aggregate principal amount of Debt Securities
that may be issued thereunder and each Indenture provides that Debt Securities
of any series may be issued thereunder up to the aggregate principal amount
which may be authorized from time to time by the Corporation. Except as may be
set forth in a Prospectus Supplement, neither the Indentures nor the Debt
Securities will limit or otherwise restrict the amount of other indebtedness
which may be incurred or the other securities which may be issued by the
Corporation or any of its affiliates.
Because the Corporation is a holding company, the rights of its creditors,
including the holders of the Debt Securities, to share in the distribution of
the assets of any subsidiary upon the subsidiary's liquidation or
recapitalization, will be subject to the prior claims of the subsidiary's
creditors (including in the case of the Corporation's banking subsidiaries,
their depositors), except to the extent that the Corporation may itself be a
creditor with recognized claims against the subsidiary. In addition, there are
certain regulatory limitations on the payment of dividends and on loans and
other transfers to the Corporation by its banking subsidiaries. See
"Supervision and Regulation."
The amount of Debt Securities offered by this Prospectus will be limited
to the amounts described on the cover of this Prospectus. Each indenture
provides that Debt Securities in an unlimited amount may be issued thereunder
from time to time in one or more series. (Section 301)
The Senior Securities will be unsecured and will rank pari passu with
other unsecured Senior Debt of the Corporation. The Subordinated Securities
will be unsecured and, except as may be set forth in a Prospectus
7
<PAGE>
Supplement, will rank pari passu with other Subordinated Debt of the
Corporation and, together with such other Subordinated Debt, will be
subordinate and junior in right of payment to the prior payment in full of the
Senior Debt of the Corporation as described below under "Subordination."
Reference is hereby made to the Prospectus Supplement relating to the
particular series of Debt Securities for the terms of such Debt Securities,
including, where applicable: (i) the designation and any limit on the aggregate
principal amount of such Debt Securities; (ii) the price (expressed as a
percentage of the aggregate principal amount thereof) at which such Debt
Securities will be issued; (iii) the date or dates on which such Debt
Securities will mature or method by which such dates can be determined; (iv)
the currency or currencies in which such Debt Securities are being sold and are
denominated and the circumstances, if any, under which any Debt Securities may
be payable in a currency other than the currency in which such Debt Securities
are denominated, and if so, the exchange rate, the exchange rate agent and, if
the Holder of any such Debt Securities may elect the currency in which payments
thereon are to be made, the manner of such election; (v) the denomination in
which any Debt Securities which are Registered Securities will be issuable, if
other than denominations of $1,000 and any integral multiple thereof, and the
denomination or denominations in which any Debt Securities which are Bearer
Securities will be issuable, if other than the denomination of $5,000; (vi) the
rate or rates (which may be fixed or variable) at which such Debt Securities
will bear interest, which rate may be zero in the case of certain Debt
Securities issued at an issue price representing a discount from the principal
amount payable at maturity; (vii) the date from which interest on such Debt
Securities will accrue, the dates on which such interest will be payable or
method by which such dates can be determined, the date on which payment of such
interest will commence and the circumstances, if any, in which the Corporation
may defer interest payments; (viii) the dates on which, and the price or prices
at which, such Debt Securities will, pursuant to any mandatory sinking fund
provision, or may, pursuant to any optional redemption or required repayment
provisions, be redeemed or repaid and the other terms and provisions of any
such optional redemption or required repayment; (ix) any terms by which such
Debt Securities may be convertible into Common Stock (see "Description of
Common Stock"), Preferred Shares (see "Description of Preferred Shares"), or
any other Capital Securities (see "Description of Capital Securities") of the
Corporation and, in case of Debt Securities convertible into Preferred Shares,
the terms of such Preferred Shares; (x) any terms by which the principal of
such Debt Securities will be exchangeable for Capital Securities and any terms
creating a fund (the "Securities Fund") pursuant to which the proceeds of sales
of Capital Securities may be designated on the books of the Corporation for the
payment of any of the principal of such Debt Securities; (xi) whether such Debt
Securities are to be issuable as Bearer Securities and/or Registered Securities
and, if issuable as Bearer Securities, the terms upon which any Bearer
Securities may be exchanged for Registered Securities; (xii) whether such Debt
Securities are to be issued in the form of one or more temporary or permanent
Global Securities and, if so, the identity of the depositary for such Global
Security or Securities; (xiii) if a temporary global Debt Security is to be
issued with respect to such series, the extent to which, and the manner in
which, any interest thereon payable on an interest payment date prior to the
issuance of a permanent Global Security or definitive Bearer Securities will be
credited to the accounts of the persons entitled thereto on such interest
payment date; (xiv) if a temporary Global Security is to be issued with respect
to such series, the terms upon which interests in such temporary Global
Security may be exchanged for interests in a permanent Global Security or for
definitive Debt Securities of the series and the terms upon which interests in
a permanent Global Security, if any, may be exchanged for definitive Debt
Securities of the Series; (xv) any additional restrictive covenants included
for the benefit of Holders of such Debt Securities; (xvi) any additional Events
of Default provided with respect to such Debt Securities; (xvii) information
with respect to book-entry procedures, if any; (xviii) whether the Debt
Securities will be repayable at the option of the Holder in the event of a
change in control of the Corporation; (xix) any other terms of the Debt
Securities not inconsistent with the provisions of the applicable indenture;
(xx) the terms of any securities being offered together with or separately from
the Debt Securities; and (xxi) if such Debt Securities are Original Issue
Discount Securities, the accreted or notational value thereof (or method of
determining such amount) upon acceleration of maturity. Such Prospectus
Supplement will also describe any special provisions for the payment of
additional amounts with respect to the Debt Securities and certain United
States federal income tax consequences and other special considerations
applicable to such series of Debt Securities. If a Debt Security is denominated
in a foreign currency, such Debt Security may not trade on a U.S. national
securities exchange unless and until the Commission has approved appropriate
rule changes pursuant to the Act to accommodate the trading of such Debt
Security.
8
<PAGE>
Form, Exchange, Registration and Transfer
Debt Securities of a series may be issuable in definitive form solely as
Registered Securities, solely as Bearer Securities or as both Registered
Securities and Bearer Securities. Unless otherwise indicated in the Prospectus
Supplement, Bearer Securities other than Bearer Securities in temporary or
permanent global form will have interest coupons attached. (Section 201) Each
Indenture also provides that Bearer Securities or Registered Securities of a
series may be issuable in permanent global form. (Section 203) See "Permanent
Global Securities."
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series of authorized denominations and of a
like aggregate principal amount, tenor and terms. In addition, if Debt
Securities of any series are issuable as both Registered Securities and Bearer
Securities, at the option of the Holder upon request confirmed in writing, and
subject to the terms of the applicable Indenture, Bearer Securities (with all
unmatured coupons, except as provided below, and all matured coupons in
default) of such series will be exchangeable into Registered Securities of the
same series of any authorized denominations and of a like aggregate principal
amount, tenor and terms. Bearer Securities surrendered in exchange for
Registered Securities between the close of business on a Regular Record Date or
a Special Record Date and the relevant date for payment of interest shall be
surrendered without the coupon relating to such date for payment of interest,
and interest will not be payable in respect of the Registered Security issued
in exchange for such Bearer Security, but will be payable only to the Holder of
such coupon when due in accordance with the terms of the applicable Indenture.
Bearer Securities will not be issued in exchange for Registered Securities.
(Section 305) Each Bearer Security, other than a temporary global Bearer
Security, and each interest coupon will bear the following legend: "Any United
States Person who holds this obligation will be subject to limitations under
the United States federal income tax laws including the limitations provided in
Sections 165(j) and 1287(a) of the Internal Revenue Code."
Debt Securities may be presented for exchange as provided above, and
Registered Securities may be presented for registration of transfer (duly
endorsed or accompanied by a satisfactory written instrument of transfer), at
the office of the Security Registrar or at the office of any transfer agent
designated by the Corporation for such purpose with respect to such series of
Debt Securities, without service charge and upon payment of any taxes and other
governmental charges. (Section 305) If the applicable Prospectus Supplement
refers to any transfer agent (in addition to the Security Registrar) initially
designated by the Corporation with respect to any series of Debt Securities,
the Corporation may at any time rescind the designation of any such transfer
agent or approve a change in the location through which any such transfer agent
(or Security Registrar) acts, except that, if Debt Securities of a series are
issuable solely as Registered Securities, the Corporation will be required to
maintain a transfer agent in each Place of Payment for such series and, if Debt
Securities of a series are issuable as Bearer Securities, the Corporation will
be required to maintain (in addition to the Security Registrar) a transfer
agent in a Place of Payment for such series located outside the United States.
The Corporation may at any time designate additional transfer agents with
respect to any series of Debt Securities. (Section 1002)
The Corporation shall not be required (i) to issue, register the transfer
of or exchange Debt Securities of any particular series to be redeemed or
exchanged for Capital Securities for a period of fifteen days preceding the
first publication of the relevant notice of redemption or, if Registered
Securities are outstanding and there is no publication, the mailing of the
relevant notice of redemption, (ii) to register the transfer of or exchange any
Registered Security so selected for redemption or exchange in whole or in part,
except the unredeemed or unexchanged portion of any Registered Security being
redeemed or exchanged in part, or (iii) to exchange any Bearer Security so
selected for redemption or exchange except that such a Bearer Security may be
exchanged for a Registered Security of like tenor and terms of that series,
provided that such Registered Security shall be surrendered for redemption or
exchange. (Section 305) Additional information regarding restrictions on the
issuance, exchange and transfer of, and special United States federal income
tax considerations relating to Bearer Securities will be set forth in the
applicable Prospectus Supplement.
Temporary Global Securities
If so specified in the applicable Prospectus Supplement, all or any
portion of the Debt Securities of a series which are issuable as Bearer
Securities will initially be represented by one or more temporary Global
Securities,
9
<PAGE>
without interest coupons, to be deposited with a common depositary in London
for Morgan Guaranty Trust Corporation of New York, Brussels Office, as operator
of the Euroclear System ("Euroclear") and Cedel S.A. ("Cedel") for credit to
designated accounts. On and after the date determined as provided in any such
temporary Global Security and described in the applicable Prospectus
Supplement, but within a reasonable time, each such temporary Global Security
will be exchangeable for definitive Bearer Securities, definitive Registered
Securities or all or a portion of a permanent global Bearer Security, or any
combination thereof, as specified in such Prospectus Supplement. No definitive
Bearer Security or permanent global Bearer Security delivered in exchange for a
portion of a temporary Global Security shall be mailed or otherwise delivered
to any location in the United States in connection with such exchange.
Additional information regarding restrictions on and special United States
federal income tax consequences relating to temporary Global Securities will be
set forth in the Prospectus Supplement relating thereto.
Permanent Global Securities
If any Debt Securities of a series are issuable in permanent global form,
the applicable Prospectus Supplement will describe the circumstances, if any,
under which beneficial owners of interest in any such permanent Global Security
may exchange such interests for Debt Securities of such series and of like
tenor and principal amount of any authorized form and denomination. Principal
of and any premium and interest on a permanent Global Security will be payable
in the manner described in the Prospectus Supplement relating thereto.
Payments and Paying Agents
Unless otherwise indicated in the applicable Prospectus Supplement,
payments of principal of and premium, if any, and interest, if any, on Bearer
Securities will be payable in the currency designated in the Prospectus
Supplement, subject to any applicable laws and regulations, at such paying
agencies outside the United States as the Corporation may appoint from time to
time. Unless otherwise provided in the Prospectus Supplement, such payments may
be made, at the option of the Holder, by a check in the designated currency or
by transfer to an account in the designated currency maintained by the payee
with a bank located outside the United States. Unless otherwise indicated in
the applicable Prospectus Supplement, payment of interest on Bearer Securities
on any Interest Payment Date will be made only against surrender of the coupon
relating to such Interest Payment Date to a paying agent outside the United
States. (Section 1001) No payment with respect to any Bearer Security will be
made at any office or paying agency maintained by the Corporation in the United
States nor will any such payment be made by transfer to an account, or by mail
to an address, in the United States. Notwithstanding the foregoing, payments of
principal of and premium, if any, and interest, if any, on Bearer Securities
denominated and payable in U.S. dollars will be made in U.S. dollars at an
office or agency of, and designated by, the Corporation located in the United
States, if payment of the full amount thereof in U.S. dollars at all paying
agencies outside the United States is illegal or effectively precluded by
exchange controls or other similar restrictions, and the Trustee receives an
opinion of counsel that such payment within the United States is legal.
(Section 1002) As used in this Prospectus, "United States" means the United
States of America (including the States and the District of Columbia) and its
possessions including Puerto Rico, the U.S. Virgin Islands, Guam, American
Samoa, Wake Island and the Northern Marianas Islands.
Unless otherwise indicated in the applicable Prospectus Supplement,
payment of principal of and premium, if any, and interest, if any, on a
Registered Security will be payable in the currency designated in the
Prospectus Supplement, and interest will be payable at the office of such
paying agent or paying agents as the Corporation may appoint from time to time,
except that at the option of the Corporation payment of any interest may be
made by a check in such currency mailed to the Holder at such Holder's
registered address or by wire transfer to an account in such currency
designated by such Holder in writing not less than ten days prior to the date
of such payment. Unless otherwise indicated in the applicable Prospectus
Supplement, payment of any installment of interest on a Registered Security
will be made to the Person in whose name such Registered Security is registered
at the close of business on the Regular Record Date for such payments. (Section
307) Unless otherwise indicated in the applicable Prospectus Supplement,
principal payable at maturity will be paid to the registered holder upon
surrender of the Registered Security at the office of a duly appointed paying
agent.
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<PAGE>
The paying agents outside the United States initially appointed by the
Corporation for a series of Debt Securities will be named in the applicable
Prospectus Supplement. The Corporation may terminate the appointment of any of
the paying agents from time to time, except that the Corporation will maintain
at least one paying agent outside the United States so long as any Bearer
Securities are outstanding where Bearer Securities may be presented for payment
and may be surrendered for exchange, provided that so long as any series of
Debt Securities is listed on The Stock Exchange of the United Kingdom and the
Republic of Ireland or the Luxembourg Stock Exchange or any other stock
exchange located outside the United States and such stock exchange shall so
require, the Corporation will maintain a paying agent in London or Luxembourg
or any other required city located outside the United States, as the case may
be, for such series of Debt Securities. (Section 1002)
All moneys paid by the Corporation to a paying agent for the payment of
principal of or premium, if any, or interest, if any, on any Debt Security that
remains unclaimed at the end of two years after such principal, premium or
interest shall have become due and payable will, at request of the Corporation,
be repaid to the Corporation, and the Holder of such Debt Security or any
coupon appertaining thereto will thereafter look only to the Corporation for
payment thereof. (Section 1003)
Covenants Contained in Indentures
The Indentures provide that the Corporation (a) will not sell, transfer,
or otherwise dispose of any shares of Voting Stock of Sovereign Bank or permit
Sovereign Bank to issue, sell, or otherwise dispose of any shares of its Voting
Stock unless Sovereign Bank remains a Controlled Subsidiary, and (b) will not
permit Sovereign Bank to (i) merge or consolidate unless the surviving
corporation is a Controlled Subsidiary or (ii) convey or transfer its
properties and assets substantially as an entirety to any person, except to a
Controlled Subsidiary. (Section 1005) "Controlled Subsidiary" means any
corporation more than 80% of the outstanding shares of "Voting Stock" (except
for directors' qualifying shares) of which is at the time owned directly by the
Corporation. With the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Debt Securities of each series issued under
the Indentures, such definition in the Indentures may be modified so as to
reduce the required percentage of ownership from 80% to a majority. (Section
902) The term "Voting Stock" of Sovereign Bank refers to stock of any class or
classes, however designated, having ordinary voting power for the election of a
majority of the Board of Directors of Sovereign Bank, other than stock having
such power only by reason of the happening of a contingency. (Section 101)
The Senior Indenture also prohibits the Corporation from creating,
assuming, incurring or suffering to exist, as security for indebtedness for
borrowed money, any mortgage, pledge, encumbrance or lien or charge of any kind
upon the Voting Stock of Sovereign Bank (other than directors' qualifying
shares) without effectively providing that the Senior Securities shall be
secured equally and ratably with (or prior to) such indebtedness; provided,
however, that the Corporation may create, assume, incur or suffer to exist any
such mortgage, pledge, encumbrance or lien or charge without regard to the
foregoing provisions so long as after giving effect thereto, the Corporation
will own at least 80% of the Voting Stock of Sovereign Bank then issued and
outstanding, free and clear of any such mortgage, pledge, encumbrance, or lien
or charge. (Section 1004 of the Senior Indenture) The Subordinated Indenture
does not contain this covenant.
The Corporation is not restricted by the Indentures from incurring,
assuming or becoming liable for any type of debt or other obligations, from
creating liens on its property (other than in the case of the Senior
Indentures, the Voting Stock of Sovereign Bank as described above) for any
purposes or from paying dividends or making distributions on its capital stock
or purchasing or redeeming its capital stock. The Indentures do not require the
maintenance of any financial ratios or specified levels of net worth or
liquidity. In addition, the Indentures do not contain any provision which would
require the Corporation to repurchase or redeem or otherwise modify the terms
of any of its Debt Securities upon a change in control or other events
involving the Corporation which may adversely affect the creditworthiness of
the Debt Securities.
Modification and Waiver
Except as to the definition of Controlled Subsidiary in the Senior
Indenture and certain other modifications and amendments not adverse to Holders
of Debt Securities, modifications and amendments of and waivers of
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compliance with certain restrictive provisions under each Indenture may be made
only with the consent of the Holders of not less than 662/3% in principal
amount of the Outstanding Debt Securities of each series thereunder affected by
such modification, amendment or waiver; provided that no such modification or
amendment may, without the consent of the Holder of each Outstanding Debt
Security or coupon affected thereby; (i) change the Stated Maturity of the
principal or any installment of principal or any installment of interest, if
any; (ii) reduce the amount of principal or interest thereon, or any premium
payable upon redemption or repayment thereof or in the case of an Original
Issue Discount Security the amount of principal payable upon acceleration of
the Maturity thereof; (iii) change the place of payment or the currency in
which principal or interest is payable, if any; (iv) impair the right to
institute suit for the enforcement of any payment of the principal, premium, if
any, and interest, if any, or adversely affect the right of repayment, if any,
at the option of the Holder; (v) reduce the percentage in principal amount of
Outstanding Debt Securities of any series, the consent of whose Holders is
required for modification or amendment of the applicable Indenture or for
waiver of compliance with certain provisions of the applicable Indenture or for
waiver of certain defaults; (vi) reduce the requirements contained in the
applicable Indenture for quorum or voting; (vii) in the case of Debt Securities
exchangeable for Capital Securities, impair any right to the delivery of
Capital Securities in exchange for such Debt Securities or the right to
institute suit for the enforcement of any such delivery or, in the case of Debt
Securities convertible into Common Stock or Preferred Shares, impair any right
to convert such Debt Securities; or (viii) modify any of the above
provisions. (Section 902)
Each Indenture contains provisions for convening meetings of the Holders
of Debt Securities of a series issued thereunder if Debt Securities of that
series are issuable in whole or in part as Bearer Securities. (Section 1601) A
meeting may be called at any time by the Trustee for such Debt Securities, or
upon the request of the Corporation or the Holders of at least 10% in principal
amount of the Outstanding Debt Securities of such series, in any such case upon
notice given in accordance with the Indenture with respect thereto. (Section
1602) Except as limited by the proviso in the preceding paragraph, any
resolution presented at a meeting or adjourned meeting at which a quorum is
present may be adopted by the affirmative vote of the Holders of a majority in
principal amount of the Outstanding Debt Securities of that series; provided,
however, that, except as limited by the proviso in the preceding paragraph, any
resolution with respect to any consent or waiver which may be given by the
Holders of not less than 662/3% in principal amount of the Outstanding Debt
Securities of a series issued under an Indenture may be adopted at a meeting or
an adjourned meeting at which a quorum is present only by the affirmative vote
of the Holders of 662/3% in principal amount of such Outstanding Debt
Securities of that series; and provided further, that, except as limited by the
proviso in the preceding paragraph, any resolution with respect to any demand,
consent, waiver or other action which may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Debt Securities of a series issued under an Indenture
may be adopted at a meeting or adjourned meeting at which a quorum is present
by the affirmative vote of the Holders of such specified percentage in
principal amount of the Outstanding Debt Securities of that series. (Section
1604)
Any resolution passed or decision taken at any meeting of Holders of Debt
Securities of any series duly held in accordance with the applicable Indenture
with respect thereto will be binding on all Holders of Debt Securities of that
series and the related coupons issued under that Indenture. The quorum at any
meeting of Holders of a series of Debt Securities called to adopt a resolution,
and at any reconvened meeting, will be persons holding or representing a
majority in principal amount of the Outstanding Debt Securities of such series;
provided, however, that if any action is to be taken at such meeting with
respect to a consent or waiver which may be given by the Holders of not less
than 662/3% in principal amount of the Outstanding Debt Securities of a series,
the Persons holding or representing 662/3% in principal amount of the
Outstanding Debt Securities of such series issued under that Indenture will
constitute a quorum. (Section 1604)
Events of Default
Unless otherwise provided in the applicable Prospectus Supplement, any
series of Senior Securities issued under the Senior Indenture will provide that
the following shall constitute Events of Default with respect to such series:
(i) default in payment of principal of or premium, if any, on any Senior
Security of such series when due; (ii) default for 30 days in payment of
interest, if any, on any Senior Security of such series or related coupon, if
any, when due; (iii) default in the deposit of any sinking fund payment on any
Senior Security of such series
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when due; (iv) default in the performance of any other covenant in such
Indenture, continued for 90 days after written notice thereof by the Trustee
thereunder or the Holders of at least 25% in principal amount of the
Outstanding Senior Securities of such series issued under that Indenture; and
(v) certain events of bankruptcy, insolvency or reorganization of the
Corporation or Sovereign Bank. (Section 501 of the Senior Indenture)
Unless otherwise provided in the applicable Prospectus Supplement, any
series of Subordinated Securities issued under the Subordinated Indenture will
provide that the only Event of Default will be certain events of bankruptcy of
the Corporation. (Section 501 of the Subordinated Indenture) Unless
specifically stated in the applicable Prospectus Supplement for a particular
series of Subordinated Securities, there is no right of acceleration of the
payment of principal of the Subordinated Securities upon a default in the
payment of principal, premium, if any, or interest, if any, or in the
performance of any covenant or agreement in the Subordinated Securities or
Subordinated Indenture. In the event of a default in the payment of principal,
premium, if any, or interest, if any, or the performance of any covenant
(including, if applicable, any covenant to deliver any Capital Securities
required to be delivered or any covenant to sell Capital Securities in a
Secondary Offering) or agreement in the Subordinated Securities or Subordinated
Indenture, the Trustee, subject to certain limitations and conditions, may
institute judicial proceedings to enforce payment of such principal, premium,
if any, or interest, if any, or to obtain the performance of such covenant or
agreement or any other proper remedy, including, in the case of the failure to
deliver Capital Securities, a proceeding to collect money equal to the
principal amount of any Subordinated Securities for which Capital Securities
were to be exchanged. (Section 503 of the Subordinated Indenture)
The Corporation is required to file with each Trustee annually an
Officers' Certificate as to the absence of certain defaults under the terms of
the Indentures. (Section 1007 of the Senior Indenture, Section 1004 of the
Subordinated Indenture) Each Indenture provides that if an Event of Default
specified therein shall occur and be continuing, either the Trustee thereunder
or the Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series issued under that Indenture may declare the principal
of all such Debt Securities (or in the case of Original Issue Discount Series,
such portion of the principal amount thereof as may be specified in the terms
thereof) to be due and payable. (Section 502) In certain cases, the Holders of
a majority in principal amount of the Outstanding Debt Securities of any series
may, on behalf of the Holders of all Debt Securities of any such series and any
related coupons, waive any past default or Event of Default except a default
(i) in payment of the principal of or premium, if any, on any of the Debt
Securities of such series and (ii) in respect of a covenant or provision of the
Indenture which cannot be modified or amended without the consent of the Holder
of each Outstanding Debt Security of such series or coupons affected. (Section
513)
Each Indenture contains a provision entitling the Trustee thereunder
subject to the duty of such Trustee during default to act with the required
standard of care, to be indemnified by the Holders of the Debt Securities of
any series thereunder or any related coupons before proceeding to exercise any
right or power under such Indenture with respect to such series at the request
of such Holders. (Section 603) Each Indenture provides that no Holder of any
Debt Securities of any series thereunder or any related coupons may institute
any proceeding, judicial or otherwise, to enforce such Indenture except in the
case of failure of the Trustee thereunder, for 60 days, to act after it is
given notice of default, a request to enforce such Indenture by the Holders of
not less than 25% in aggregate principal amount of the Outstanding Debt
Securities of such series and an offer of indemnity reasonable to the Trustee.
(Section 507) This provision will not prevent any Holder of Debt Securities or
any related coupons from enforcing payment of the principal thereof and
premium, if any, and interest, if any, thereon at the respective due dates
thereof. (Section 508) The Holders of a majority in aggregate principal amount
of the Outstanding Debt Securities of any series issued under an Indenture may
direct the time, method and place of conducting any proceedings for any remedy
available to the Trustee for such Debt Securities or exercising any trust or
power conferred on it with respect to the Debt Securities of such series.
However, such Trustee may refuse to follow any direction that conflicts with
law or the Indenture under which it serves or which would be unjustly
prejudicial to Holders not joining therein. (Section 512)
Each Indenture provides that the Trustee thereunder will, within 90 days
after the occurrence of a default with respect to any series of Debt Securities
thereunder known to it, give to the Holders of Debt Securities of such series
notice of such default if not cured or waived, but, except in the case of a
default in the payment of principal of or premium, if any, or interest, if any,
on any Debt Securities of such series or any related coupons
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or in the payment of any sinking fund installment with respect to Debt
Securities of such series or in the exchange of Capital Securities for Debt
Securities of such series, the Trustee for such Debt Securities shall be
protected in withholding such notice if it determines in good faith that the
withholding of such notice is in the interest of the Holders of such Debt
Securities. (Section 602)
Defeasance
The Corporation may terminate certain of its obligations under each
Indenture with respect to the Debt Securities of any series thereunder,
including its obligations to comply with the covenants described under the
heading "Covenants Contained in Indentures" above, with respect to such Debt
Securities, on the terms and subject to the conditions contained in such
Indentures, by depositing in trust with the Trustee money and/or, to the extent
such Debt Securities are denominated and payable in U.S. dollars only, Eligible
Instruments which, through the payment of principal and interest in accordance
with their terms, will provide money in an amount sufficient to pay the
principal and premium, if any, and interest, if any, on such Debt Securities,
and any mandatory sinking fund, repayment or analogous payments thereon, on the
scheduled due dates therefor. Such deposit and termination is conditioned upon
the Corporation's delivery of an opinion of counsel that the Holders of such
Debt Securities will have no federal income tax consequences as a result of
such deposit and termination. Such termination will not relieve the Corporation
of its obligation to pay when due the principal of or interest on such Debt
Securities if such Debt Securities of such series are not paid from the money
or Eligible Instruments held by the Trustee for the payment thereof. (Section
401) The applicable Prospectus Supplement may further describe the provisions,
if any, permitting or restricting such defeasance with respect to the Debt
Securities of a particular series.
Subordination
The Subordinated Securities shall be subordinate and junior in right of
payment, to the extent set forth in the Subordinated Indenture, to all Senior
Debt (as defined below) of the Corporation. In the event that the Corporation
shall default in the payment of any principal, premium, if any, or interest, if
any, on any Senior Debt when the same becomes due and payable, whether at
Maturity or at a date fixed for prepayment or by declaration of acceleration or
otherwise, then, unless and until such default shall have been cured or waived
or shall have ceased to exist, no direct or indirect payment (in cash,
property, securities, by set-off or otherwise) shall be made or agreed to be
made for principal, premium, if any, or interest, if any, on the Subordinated
Securities, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Subordinated Securities. (Section 1801 of the
Subordinated Indenture) "Senior Debt" means any obligation of the Corporation
to its creditors, whether now outstanding or subsequently incurred other than
(i) any obligation as to which it is provided that such obligation is not
Senior Debt and (ii) the Subordinated Securities. (Section 101 of the
Subordinated Indenture). A series of Subordinated Debt Securities may be issued
that is subordinate to the Senior Debt, but is senior as to right of payment to
some or all other series of Subordinated Debt Securities.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Corporation, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding up of the Corporation, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Corporation for the benefit of creditors or (iv)
any other marshalling of the assets of the Corporation, all Senior Debt
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
principal or interest on the Subordinated Securities. In such event, any
payment or distribution on account of the principal of or interest on the
Subordinated Securities, whether in cash, securities or other property (other
than securities of the Corporation or any other corporation provided for by a
plan of reorganization or readjustment the payment of which is subordinate, at
least to the extent provided in the subordination provisions with respect to
the Subordinated Securities, to the payment of all Senior Debt at the time
outstanding, and to any securities issued in respect thereof under any such
plan of reorganization or adjustment), which would otherwise (but for the
subordination provisions) be payable or deliverable in respect of the
Subordinated Securities shall be paid or delivered directly to the holders of
Senior Debt in accordance with the priorities then existing among such holders
until all Senior Debt (including any interest thereon accruing after the
commencement of any such proceedings) shall have been paid in full. (Section
1801 of the Subordinated Indenture)
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In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Debt, the Holders of Subordinated Securities,
together with the holders of any obligations of the Corporation ranking on a
parity with the Subordinated Securities, shall be entitled to be repaid from
the remaining assets of the Corporation the amounts at the time due and owing
on account of unpaid principal, premium, if any, and interest, if any, on the
Subordinated Securities and such other obligations before any payment or other
distribution, whether in cash, property or otherwise, shall be made on account
of any capital stock or obligations of the Corporation ranking junior to the
Subordinated Securities and such other obligations. If any payment or
distribution on account of the principal of or interest on the Subordinated
Securities of any character or any security, whether in cash, securities or
other property (other than securities of the Corporation or any other
corporation provided for by a plan of reorganization or readjustment the
payment of which is subordinate, at least to the extent provided in the
subordination provisions with respect to the Subordinated Securities, to the
payment of all Senior Debt at the time outstanding and to any securities issued
in respect thereof under any such plan of reorganization or readjustment) shall
be received by any Holder of any Subordinated Securities in contravention of
any of the terms hereof and before all the Senior Debt shall have been paid in
full, such payment or distribution or security shall be received in trust for
the benefit of, and shall be paid over or delivered and transferred to, the
holders of the Senior Debt at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Debt remaining unpaid to the extent necessary to pay all such Senior
Debt in full. (Section 1801 of the Subordinated Indenture) By reason of such
subordination, in the event of the insolvency of the Corporation, holders of
Senior Debt may receive more, ratably, and holders of the Subordinated
Securities having a claim pursuant to such securities may receive less,
ratably, than the other creditors of the Corporation. Such subordination will
not prevent the occurrence of any Event of Default in respect of the
Subordinated Securities.
The Subordinated Indenture may be modified or amended as provided under
"Modification and Waiver" above, provided that no such modification or
amendment may, without the consent of the holders of all Senior Debt
outstanding, modify any of the provisions of the Subordinated Indenture
relating to the subordination of the Subordinated Securities and any related
coupons in a manner adverse to such holders. (Section 902 of the Subordinated
Indenture)
Conversion of Convertible Debt Securities
The Holders of Debt Securities of a specified series that are convertible
into Common Stock or Preferred Shares of the Corporation ("Convertible Debt
Securities") will be entitled at certain times specified in the applicable
Prospectus Supplement, subject to prior redemption, repayment or repurchase, to
convert any Convertible Debt Securities of such series (in denominations set
forth in the applicable Prospectus Supplement) into Common Stock or Preferred
Shares, as the case may be, at the conversion price set forth in the applicable
Prospectus Supplement, subject to adjustment as described below and in the
applicable Prospectus Supplement. Except as described below, no adjustment will
be made on conversion of any Convertible Debt Securities for interest accrued
thereon or for dividends on any Common Stock or Preferred Shares issued.
(Section 1803 of the Senior Indenture, Section 1903 of the Subordinated
Indenture) If any Convertible Debt Securities not called for redemption are
converted between a Regular Record Date for the payment of interest and the
next succeeding Interest Payment Date, such Convertible Debt Securities must be
accompanied by funds equal to the interest payable on such succeeding Interest
Payment Date on the principal amount so converted. (Section 1803 of the Senior
Indenture, Section 1903 of the Subordinated Indenture) The Corporation is not
required to issue fractional shares of Common Stock upon conversion of
Convertible Debt Securities that are convertible into Common Stock and, in lieu
thereof, will pay a cash adjustment based upon the Closing Price (as defined in
the Indenture) of the Common Stock on the last business day prior to the date
of conversion. (Section 1804 of the Senior Indenture, Section 1904 of the
Subordinated Indenture) In the case of Convertible Debt Securities called for
redemption, conversion rights will expire at the close of business on the
redemption date. (Section 1802 of the Senior Indenture, Section 1902 of the
Subordinated Indenture)
Unless otherwise indicated in the applicable Prospectus Supplement, the
conversion price for Convertible Debt Securities that are convertible into
Common Stock is subject to adjustment under formulas set forth in the
applicable Indenture in certain events, including: the issuance of the
Corporation's capital stock as a dividend or distribution on the Common Stock;
subdivisions and combinations of the Common Stock; the issuance to all
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holders of Common Stock of certain rights or warrants entitling them to
subscribe for or purchase Common Stock within 45 days after the date fixed for
the determination of the stockholders entitled to receive such rights or
warrants, at less than the current market price (as defined in the Indenture);
and the distribution to all holders of Common Stock of evidences of
indebtedness or assets of the Corporation (excluding certain cash dividends and
distributions described in the next paragraph) or rights or warrants (excluding
those referred to above). (Section 1806 of the Senior Indenture, Section 1906
of the Subordinated Indenture) In the event that the Corporation shall
distribute any rights or warrants to acquire capital stock ("Capital Stock
Rights") pursuant to which separate certificates representing such Capital
Stock Rights will be distributed subsequent to the initial distribution of such
Capital Stock Rights (whether or not such distribution shall have occurred
prior to the date of the issuance of a series of Convertible Debt Securities),
such subsequent distribution shall be deemed to be the distribution of such
Capital Stock Rights; provided that the Corporation may, in lieu of making any
adjustment in the conversion price upon a distribution of separate certificates
representing such Capital Stock Rights, make proper provision so that each
Holder of such a Convertible Debt Security who converts such Convertible Debt
Security (or any portion thereof) (a) before the record date for such
distribution of separate certificates shall be entitled to receive upon such
conversion shares of Common Stock issued with Capital Stock Rights and (b)
after such record date and prior to the expiration, redemption or termination
of such Capital Stock Rights shall be entitled to receive upon such conversion,
in addition to the shares of Common Stock issuable upon such conversion, the
same number of such Capital Stock Rights as would a holder of the number of
shares of Common Stock that such Convertible Debt Security so converted would
have entitled the holder thereof to acquire in accordance with the terms and
provisions applicable to the Capital Stock Rights if such Convertible Debt
Security were converted immediately prior to the record date for such
distribution. Common Stock owned by or held for the account of the Corporation
or any majority owned subsidiary shall not be deemed outstanding for the
purpose of any adjustment.
No adjustment in the conversion price of Convertible Debt Securities that
are convertible into Common Stock will be made for regular quarterly or other
periodic or recurring cash dividends or distributions or for cash dividends or
distributions to the extent paid from retained earnings. No adjustment in the
conversion price of Convertible Debt Securities that are convertible into
Common Stock will be required unless such adjustment would require a change of
at least 1% in the conversion price then in effect, provided, that any such
adjustment not so made will be carried forward and taken into account in any
subsequent adjustment; and provided further that any such adjustment not so
made shall be made no later than three years after the occurrence of the event
requiring such adjustment to be made or carried forward. The Corporation
reserves the right to make such reductions in the conversion price in addition
to those required in the foregoing provisions as the Corporation in its
discretion shall determine to be advisable in order that certain stock-related
distributions hereafter made by the Corporation to its stockholders shall not
be taxable. (Section 1806 of the Senior Indenture, Section 1906 of the
Subordinated Indenture) Except as stated above, the conversion price will not
be adjusted for the issuance of Common Stock or any securities convertible into
or exchangeable for Common Stock or securities carrying the right to purchase
any of the foregoing.
In the case of (i) a reclassification or change of the Common Stock, (ii)
a consolidation or merger involving the Corporation or (iii) a sale or
conveyance to another corporation of the property and assets of the Corporation
as an entirety or substantially as an entirety, in each case as a result of
which holders of Common Stock shall be entitled to receive stock, securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the Holders of the Convertible Debt Securities then
outstanding that are convertible into Common Stock will be entitled thereafter
to convert such Convertible Debt Securities into the kind and amount of shares
of stock and other securities or property which they would have received upon
such reclassification, change, consolidation, merger, sale or conveyance had
such Convertible Debt Securities been converted into Common Stock immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance. (Section 1807 of the Senior Indenture, Section 1907 of the
Subordinated Indenture)
In the event of a taxable distribution to holders of Common Stock (or
other transaction) which results in any adjustment of the conversion price of
Convertible Debt Securities that are convertible into Common Stock, the Holders
of such Convertible Debt Securities may, in certain circumstances, be deemed to
have received a distribution subject to United States income tax as a dividend;
in certain other circumstances, the absence of such an adjustment may result in
a taxable dividend to the holders of Common Stock or such Convertible Debt
Securities.
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Exchange for Capital Securities
To the extent set forth in a Prospectus Supplement, a specified series of
Debt Securities may be mandatorily exchangeable for Capital Securities as
described under "Description of Capital Securities" below.
Information Concerning the Trustees
The Trustee serves as trustee under indentures for other debt of the
Corporation and as Rights Agent under the Corporation's Rights Agreement,
described in "Description of Common Stock -- Shareholder Rights Plan," below.
The Trustee may, from time to time make loans to the Corporation and
perform other services for the Corporation in the normal course of business.
Under the provisions of the Trust Indenture Act of 1939, as recently amended
(the "Trust Indenture Act"), upon the occurrence of a default under an
indenture, if a trustee has a conflicting interest (as defined in the Trust
Indenture Act) the trustee must, within 90 days, either eliminate such
conflicting interest or resign. Under the provisions of the Trust Indenture
Act, an indenture trustee shall be deemed to have a conflicting interest if the
trustee is a creditor of the obligor. If the trustee fails either to eliminate
the conflicting interest or to resign within 10 days after the expiration of
such 90-day period, the trustee is required to notify debt holders to this
effect and any debt holder who has been a bona fide holder for at least six
months may petition a court to remove the trustee and to appoint a successor
trustee.
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DESCRIPTION OF CAPITAL SECURITIES
The following description of Capital Securities is included in this
Prospectus because a Prospectus Supplement may provide that Capital Securities
will be issuable in exchange for a series of mandatory convertible Debt
Securities or upon conversion of a series of mandatory convertible Preferred
Shares. Whenever Capital Securities are exchangeable for Debt Securities, the
Corporation will be obligated to deliver Capital Securities with a Market Value
(as defined below) equal to the principal amount of such Debt Securities. In
addition, the Corporation will unconditionally undertake to sell the Capital
Securities in a sale (the "Secondary Offering") on behalf of any Holders who
elect to receive cash for the Capital Securities. The Corporation will bear all
expenses of the Secondary Offering, including underwriting discounts and
commissions. However, there is no assurance that there will be a market for the
Capital Securities when issued or at any time thereafter. If the Corporation
fails to deliver any Capital Securities when required to be delivered, the
Trustee may institute judicial proceedings for (i) specific performance, (ii)
money equal to the principal amount of the Debt Securities for which Capital
Securities were to be exchanged or (iii) any other proper remedy. (Section 503)
If the Corporation fails to effect the Secondary Offering, it will deliver to
the Holders Capital Securities, and not cash, upon exchange of the Debt
Securities. In such event, the Corporation will have no specifically
enforceable obligation to effect the Secondary Offering, but will not be
relieved of any liability for money damages it would have for breach of its
obligation to effect a Secondary Offering of sufficient amounts of Capital
Securities. The "Market Value" of any Capital Securities means their sale price
in the Secondary Offering. If the Corporation does not effect the Secondary
Offering, the Market Value of such Capital Securities shall be their fair value
when exchanged as determined by three independent nationally recognized
investment banking firms selected by the Corporation.
Whenever Preferred Shares are mandatorily convertible into Capital
Securities, the Corporation will be obligated to deliver Capital Securities in
an amount either based upon a conversion price or with a required conversion
value. The conversion value will be determined by then market prices, by an
auction or bidding procedure or by such other method as set forth in the
applicable Prospectus Supplement.
The staff of the Commission has advised that Rules 13e-4 and 14e-1 of the
Commission's rules and regulations relating to tender offers by issuers, as
currently in effect and interpreted, would be applicable to the exchange of
Capital Securities for Debt Securities of any series and the Secondary
Offering. If, at the time of the exchange of Capital Securities for Debt
Securities of any series and the Secondary Offering, Rule 13e-4 or Rule 14e-1
(or any successor rule or rules) applies to such transactions, the Corporation
will comply with such rule (or any successor rule or rules) and will afford
holders of such Debt Securities all rights and will make all filings required
by such rule (or successor rule or rules). Rule 13e-4 and Rule 14e-1 may also
be deemed to apply to mandatorily convertible Preferred Shares.
The Capital Securities may consist of Common Stock, Perpetual Preferred
Stock (as defined below) or other capital securities of the Corporation
acceptable to its primary federal regulator. All Capital Securities which will
be exchangeable for Debt Securities or issuable upon conversion of Preferred
Shares will, upon issuance, be duly authorized, validly issued and, if
applicable, fully paid and nonassessable. The Common Stock of the Corporation
is described below under "Description of Common Stock."
The Corporation may select any preferred stock ("Perpetual Preferred
Stock") that is not mandatorily, or at the option of the holder, redeemable or
repayable, otherwise than in shares of Common Stock or Perpetual Preferred
Stock of another class or series or with the proceeds of the sale of Common
Stock or Perpetual Preferred Stock, as Capital Securities to be exchanged for
Debt Securities or issued upon conversion of Preferred Shares. Any shares of
Perpetual Preferred Stock to be so issued will have such designations,
preferences, dividend and other rights, qualifications, limitations and
restrictions as may be determined by the Corporation and approved by the Board
of Directors. A general description of the preferred stock of the Corporation
is set forth below under "Description of Preferred Shares."
The Corporation may also select any other securities to be exchanged for
Debt Securities or issued upon conversion of Preferred Shares which qualify at
the time of exchange or conversion as Capital Securities as determined by the
Corporation's primary federal regulator. Such other Capital Securities will
have such terms as may be determined by the Corporation.
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DESCRIPTION OF PREFERRED SHARES
The following description of the terms of the Preferred Shares sets forth
certain general terms and provisions of the Preferred Shares offered by any
Prospectus Supplement, and the extent, if any, to which such general provisions
may apply to the Preferred Shares so offered will be described in the
Prospectus Supplement relating to such Preferred Shares. The description of
certain provisions of the Preferred Shares set forth below and in the
Prospectus Supplement does not purport to be complete and is subject to and
qualified in its entirety by reference to the Certificate of Designation
relating to the particular series of Preferred Shares, which will be filed with
the Commission at or prior to the time of the sale of such Preferred Shares.
General
Under the Corporation's Certificate of Incorporation, the Board of
Directors of the Corporation is authorized without further stockholder action
to adopt resolutions providing for the issuance of up to 7,500,000 shares of
preferred stock (the "Preferred Stock"), in one or more series, with such
voting powers, full or limited, and with such par value, designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions, as may be determined by the Board
of Directors. As of June 30, 1996, the Corporation had 2,000,000 shares of its
61/4% Cumulative Convertible Preferred Stock, Series B issued and outstanding.
The Preferred Shares shall have the dividend, liquidation redemption,
voting rights and, if applicable, conversion rights set forth below unless
otherwise provided in the Prospectus Supplement relating to a particular series
of Preferred Shares. Reference is made to the Prospectus Supplement relating to
the particular series of Preferred Shares offered thereby for specific terms,
including, where applicable: (i) the title of such Preferred Shares; (ii) the
price at which such Preferred Shares will be issued; (iii) the dividend rates
and dates on which dividends shall be payable, as well as the dates from which
dividends shall commence to cumulate; (iv) the dates on which the Preferred
Shares will be subject to redemption and the redemption price, (v) any
mandatory redemption or sinking fund provisions; (vi) any rights on the part of
the holder to convert the Preferred Shares into shares of Common Stock; (vii)
any provisions for the mandatory conversion of such Preferred Shares into
Capital Securities; and (viii) any additional dividend, liquidation,
redemption, sinking fund, voting and other rights, preferences, privileges,
limitations and restrictions; and (ix) the terms of any securities being
offered together with or separately from such Preferred Shares. The Preferred
Shares will be fully paid and nonassessable, and for each share issued, a sum
equal to the par value (if any) will be credited to the Corporation's preferred
stock account.
Dividends
Holders of Preferred Shares will be entitled to receive cash dividends,
when and as declared by the Board of Directors of the Corporation out of assets
of the Corporation legally available for payment, at such rates and on such
dates as will be set forth in the applicable Prospectus Supplement. Each
dividend will be payable to holders of record as they appear on the stock books
of the Corporation on the record dates fixed by the Board of Directors of the
Corporation. Dividends will be cumulative from and after the date set forth in
the applicable Prospectus Supplement. If, for any dividend period or periods,
full cumulative dividends on any shares of preferred stock have not been paid
or declared and set apart for payment or the Corporation is in default or in
arrears with respect to any sinking fund or other arrangement for the purchase
or redemption of any shares of preferred stock, the Corporation may not declare
any dividends on, or make any payment on account of the purchase, redemption or
other retirement of, its Common Stock or any other stock of the Corporation
ranking as to dividends or distribution of assets junior to the preferred
stock. If dividends on Preferred Shares are in arrears, and there shall be
outstanding shares of any other series of preferred stock ranking on a parity
as to dividends with the Preferred Shares, the Corporation, in making any
dividend payment on account of such arrears, is required to make payments
ratably upon all outstanding Preferred Shares and shares of such other series
of preferred stock in proportion to the respective amounts of dividends in
arrears on such Preferred Shares and shares of such other series of preferred
stock. See "Supervision and Regulation" for a description of certain legal
restrictions placed on the ability of the Corporation's banking subsidiaries to
provide funds to the Corporation.
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Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of Preferred Shares will be entitled
to receive out of assets of the Corporation available for distribution to
stockholders, before any distribution of assets is made to holders of Common
Stock, liquidating distributions in the amount of the par value per share (as
set forth in the applicable Prospectus Supplement) plus all accrued and unpaid
dividends. If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the amounts payable with respect to the
Preferred Shares and any other shares of stock of the Corporation ranking as to
any such distribution on a parity with the Preferred Shares are not paid in
full, the holders of the Preferred Shares and of such other shares will share
ratably in any such distribution of assets of the Corporation in proportion to
the full respective preferential amounts to which they are entitled. After
payment of the full amount of the liquidating distribution to which they are
entitled, the holder of Preferred Shares will not be entitled to any further
participation in any distribution of assets by the Corporation. A consolidation
or merger of the Corporation with or into any other corporation or corporations
or a sale of all or substantially all of the assets of the Corporation shall
not be deemed to be liquidation, dissolution or winding up of the Corporation.
Redemption
The Preferred Shares will be redeemable in whole or in part, at the option
of the Corporation, at the times and at the redemption prices set forth in the
applicable Prospectus Supplement.
The Corporation may not redeem less than all the outstanding shares of any
series of Preferred Shares unless full cumulative dividends have been paid or
declared and set apart for payment upon all outstanding shares of such series
of Preferred Shares for all past dividend periods, and unless all matured
obligations of the Corporation with respect to all sinking funds, retirement
funds or purchase funds for all series of preferred stock then outstanding have
been met.
Voting Rights
Except as indicated below or in the applicable Prospectus Supplement, or
except as expressly required by applicable law, the holders of the Preferred
Shares will not be entitled to vote.
If the equivalent of six quarterly dividends payable on any series of the
Preferred Shares or any other series of preferred stock are in default (whether
or not declared or consecutive), the holders of all outstanding series of
preferred stock, voting as a single class with regard to series, will be
entitled to elect two directors until all dividends in default have been paid
or declared and set apart for payment.
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of the Preferred Shares and any other series of preferred
stock, voting as a single class without regard to series, will be required (i)
for any amendment of the Corporation's Certificate of Incorporation (or any
certificate supplemental thereto providing for the capital stock of the
Corporation) or Bylaws that will materially and adversely change the
preferences, privileges, rights, or powers of the preferred stock, but, in any
case in which one or more, but not all, series of preferred stock would be so
affected as to their preferences, privileges, rights or powers, only the
consent of holders of at least two-thirds of the shares of each series that
would be so affected, voting separately as a class, shall be required or (ii)
to issue any class of stock that shall have preference as to dividends or
distribution of assets over any outstanding series of preferred stock.
All stockholder action must be taken at a meeting. Stockholder action by
written consent is not permitted.
The Corporation's Certificate of Incorporation may be amended to increase
the number of authorized shares of the preferred stock without the vote of the
holders of outstanding Preferred Shares.
Preferred Stock Conversion Rights
The Prospectus Supplement for any series of Preferred Shares will state
whether shares in that series are convertible into Common Stock. See
"Description of Capital Stock," below. Unless otherwise provided in the
applicable Prospectus Supplement, if a series of Preferred Shares is
convertible into shares of Common Stock ("Convertible Preferred Shares"),
holders of such Convertible Preferred Shares will have the right, at their
option
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and at any time, to convert any of such Convertible Preferred Shares, initially
at the conversion rate set forth in the Prospectus Supplement relating to such
Convertible Preferred Shares, provided that if such series of Convertible
Preferred Shares is called for redemption, the conversion rights pertaining
thereto will terminate at the close of business on the date fixed for
redemption. No fractional shares will be issued upon conversion of the
Convertible Preferred Shares, but if such conversion results in a fraction, an
equivalent amount will be paid in cash by the Corporation, based on the Closing
Price, as defined in the Certificate of Designation for such series of
Convertible Preferred Shares, of the Common Stock on the business day
immediately preceding the day on which the Convertible Preferred Shares are
converted.
Unless otherwise indicated in the applicable Prospectus Supplement, the
conversion rate is subject to adjustment in certain events, including: the
issuance of capital stock as a dividend or distribution on the Common Stock;
subdivisions and combinations of the Common Stock; the issuance to all holders
of Common Stock of certain rights or warrants entitling them to subscribe for
or purchase Common Stock (or securities convertible into Common Stock) within
45 days after the date fixed for the determination of the stockholders entitled
to receive such rights or warrants, at less than the current market price (as
defined in the Certificate of Designation for such series of Convertible
Preferred Shares); and the distribution to all holders of Common Stock of
evidences of indebtedness or assets of the Corporation (excluding certain cash
dividends and distributions described below) or rights or warrants (excluding
those referred to above). In the event that the Corporation shall distribute
any Rights pursuant to which separate certificates representing such Rights
will be distributed subsequent to the initial distribution of such Rights
(whether or not such distribution shall have occurred prior to the date of the
issuance of a series of Convertible Preferred Shares), such subsequent
distribution shall be deemed to be the distribution of such Rights; provided,
that the Corporation may, in lieu of making any adjustment in the conversion
rate upon a distribution of separate certificates representing such Rights,
make proper provision so that each holder of such a Convertible Preferred Share
who converts such Convertible Preferred Share (or any portion thereof) (a)
before the record date for such distribution of separate certificates shall be
entitled to receive upon such conversion shares of Common Stock issued with
Rights and (b) after such record date and prior to the expiration, redemption
or termination of such Rights shall be entitled to receive upon such
conversion, in addition to the shares of Common Stock issuable upon such
conversion, the same number of such Rights as would a holder of the number of
shares of Common Stock that such Convertible Preferred Share so converted would
have entitled the holder thereof to acquire in accordance with the terms and
provisions applicable to the Rights if such Convertible Preferred Share were
converted immediately prior to the record date for such distribution. Common
Stock owned by or held for the account of the Corporation or any majority owned
subsidiary shall not be deemed outstanding for the purpose of any adjustment.
No adjustment in conversion rate will be made for regular quarterly or
other periodic or recurring cash dividends or distributions or for cash
distributions to the extent paid from retained earnings. No adjustment in the
Conversion Price will be required unless such adjustment would require a change
of at least 1% in the Conversion Price then in effect or a period of three
years shall have elapsed from the date of occurrence of any event requiring any
such adjustment; provided, that any adjustment that would otherwise be required
to be made shall be carried forward and taken into account in any subsequent
adjustment. Notwithstanding any of the foregoing, neither the issuance of
Common Stock under the Corporation's Dividend Reinvestment Plan or any
successor plans providing for the purchase of shares of Common Stock by the
Corporation's securityholders or employees at a price not less than 90% of the
"fair market value" of the Common Stock as such term, or equivalent term, is
defined in, and as calculated pursuant to, such plans from time to time, nor
the granting of any rights thereunder, shall require an adjustment to the
conversion rate. The Corporation reserves the right to make such increases in
the conversion rate in addition to those required in the foregoing provisions
as the Corporation, in its discretion, shall determine to be advisable in order
that certain stock related distributions hereafter made by the Corporation to
its stockholders shall not be taxable. Except as stated above, the conversion
rate will not be adjusted for the issuance of Common Stock or any securities
convertible into or exchangeable for Common Stock, or securities carrying the
right to purchase any of the foregoing.
In the case of (i) any reclassification or change of the Common Stock, or
(ii) a consolidation or merger involving the Corporation, or (iii) a sale or
conveyance to another corporation of the property and assets of the Corporation
as an entirety or substantially as an entirety, in each case as a result of
which holders of Common Stock shall be entitled to receive stock, securities,
other property or assets (including cash) with respect to or in
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exchange for such Common Stock, the holders of the Convertible Preferred Shares
then outstanding will be entitled thereafter to convert such Convertible
Preferred Shares into the kind and amount of shares of stock and other
securities or property which they would have received upon such
reclassification, change, consolidation, merger, combination, sale or
conveyance.
If at any such time the Corporation makes a distribution of property to
its shareholders that would be taxable to such shareholders as a dividend for
federal income tax purposes (for example, distributions of evidences of
indebtedness or assets of the Corporation, but generally not stock dividends or
rights to subscribe to capital stock) and, pursuant to the antidilution
provisions described above, the conversion rate of the Convertible Preferred
Shares is increased, such increase may be deemed to be the receipt of taxable
income by Holders of the Convertible Preferred Shares.
Outstanding Preferred Stock
The Preferred Shares will rank on a parity in all respects with the
outstanding preferred stock of the Corporation. The Common Stock, including
Common Stock that may be issued upon conversion of the Preferred Shares or in
exchange for or upon conversion of Subordinated Debt Securities, will be
subject to any prior rights of the preferred stock then outstanding. Therefore,
the rights of any other preferred stock that may be subsequently issued may
limit the rights of the holders of the Preferred Shares.
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital of Sovereign consists of 100,000,000 shares of
Common Stock, no par value, and 7,500,000 shares of preferred stock, such
preferred stock to be issuable, in series and classes having such par value,
rights, preferences, privileges and restrictions as the Board of Directors of
Sovereign may determine. Except as described below, each share of Common Stock
will have the same relative rights as, and will be identical in all respects
with, each other share of Common Stock.
The following summaries of certain provisions of the Corporation's
Articles of Incorporation, as amended, and Bylaws and the Rights Agreement
(defined below) do not purport to be complete and are qualified in their
entirety by reference to such instruments, each of which is an exhibit to the
Registration Statement of which this Prospectus forms a part.
Common Stock
Voting Rights. Prior to the issuance of any preferred stock which
possesses voting rights (see "Preferred Stock" below), the holders of the
Common Stock will possess exclusive voting rights in Sovereign. Each holder of
shares of Common Stock will be entitled to one vote for each share held on
matters upon which stockholders have the right to vote. Stockholders will not
be entitled to cumulate their votes for the election of directors.
The holders of Common Stock are entitled to share ratably in dividends
when and if declared by the Board of Directors of Sovereign from funds legally
available therefor. Payment of dividends by Sovereign is dependent upon
dividend payments to Sovereign by its subsidiaries, which payments are subject
to regulatory restrictions. See "Supervision and Regulation -- Restrictions on
Capital Distributions." Payment of dividends by Sovereign is also subject to
certain limitations imposed by a loan agreement between Sovereign and an
institutional lender. See "Supervision and Regulation -- Restrictions on
Capital Distributions."
Liquidation. In the event of any liquidation, dissolution, or winding up
of Sovereign, after payment of all debts and liabilities of Sovereign and
payment of any liquidation preference plus accrued dividends applicable to any
outstanding shares of preferred stock, the holders of the Common Stock will be
entitled to receive all assets of Sovereign available for distribution in cash
or in kind.
Preemptive Rights; Redemption. Holders of the Common Stock will not be
entitled to preemptive rights with respect to any shares of Sovereign which may
be issued. The Common Stock will not be subject to redemption. Upon receipt by
Sovereign of the full specified purchase price therefor, the Common Stock will
be fully paid and nonassessable.
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Preferred Stock
Sovereign's Board of Directors is authorized to approve the issuance of
preferred stock, without any required approval of stockholders. The rights,
qualifications, limitations and restrictions of each series of preferred stock
issued will be determined by the Board of Directors at the time of issuance and
may include, among other things, rights to participating dividends, voting and
convertibility into the Common Stock. Shares of preferred stock may be issued
with dividend, redemption, voting, and liquidation rights taking priority over
Common Stock, and may be convertible into Common Stock, as determined by the
Board of Directors at the time of issuance.
At June 30, 1996, the only series of Sovereign Preferred Stock outstanding
was Sovereign's 61/4% Cumulative Convertible Preferred Stock, Series B (the
"Series B Preferred"), of which 2,000,000 shares were outstanding at June 30,
1996. The Series B Preferred is convertible at the option of the holder at any
time, unless previously redeemed, into Common Stock. The Series B Preferred may
not be redeemed prior to May 15, 1998. Thereafter, the Series B Preferred is
redeemable at the option of Sovereign in whole or in part. The Series B
Preferred has a liquidation preference of $50 per share.
Holders of Series B Preferred are not entitled to vote except in limited
circumstances.
If the equivalent of six quarterly dividends payable on any series of
preferred stock of Sovereign are in default (whether or not declared or
consecutive), the holders of all outstanding series of preferred stock, voting
as a single class without regard to series, will be entitled to elect two
directors until all dividends in default have been paid or declared and set
apart for payment. The affirmative vote or consent of the holders of at least
two-thirds of the outstanding shares of preferred stock, voting as a single
class without regard to series, will be required (i) for any amendment to
Sovereign's Articles of Incorporation (or any certificate supplemental thereto
providing for the capital stock of the Corporation) or Bylaws which will
materially and adversely change the preferences, privileges, rights or powers
of the preferred stock, but, in any case in which one or more, but not all,
series of preferred stock would be affected as to their preferences,
privileges, rights or powers, only the consent of holders of at least
two-thirds of the shares of all such series that would be so affected, voting
separately as a class, shall be required or (ii) to issue any class of stock
which shall have preference as to dividends or distribution of assets over any
outstanding series of preferred stock.
Sovereign's Articles of Incorporation may be amended to increase the
number of authorized shares of preferred stock without the vote of the holders
of outstanding preferred stock.
The brief description of the terms of the Series B Preferred set forth
above does not purport to be complete and is subject to and qualified in its
entirety by reference to the Statement with Respect to Shares for the Series B
Preferred, a form of which is filed with the Commission pursuant to Sovereign's
Registration Statement on Form 8-A dated May 16, 1995.
Sovereign's Shareholder Rights Plan provides for the issuance of a series
of junior participating preferred stock. See the description of such series of
preferred stock under "Shareholder Rights Plan" below.
Shareholder Rights Plan
Sovereign maintains a Shareholder Rights Plan (the "Rights Plan") designed
to protect shareholders from attempts to acquire control of Sovereign at an
inadequate price. Under the Rights Plan, each outstanding share of the Common
Stock has attached to it one right to purchase one one-hundredth of a share of
a series of junior participating preferred stock at an initial exercise price
of $40. The rights are not currently exercisable or transferable, and no
separate certificates evidencing such rights will be distributed, unless
certain events occur.
The rights become exercisable to purchase shares of the junior
participating preferred stock if a person, group or other entity acquires or
commences a tender offer or an exchange offer for 9.9% or more of total voting
power. They can also be exercised if a person or group who has become a
beneficial owner of at least 4.9% of the Common Stock or total voting power is
declared by Sovereign's Board of Directors to be an "adverse person," as
defined in the Rights Plan.
After the rights become exercisable, under certain circumstances, the
rights (other than rights held by a 9.9% or an "adverse person") will entitle
the holders to purchase either the Common Stock or the common stock of the
potential acquirer, in lieu of the junior participating preferred stock, at a
substantially reduced price.
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Sovereign is generally entitled to redeem the rights at $.001 per right at
any time until the tenth business day following the public announcement that a
9.9% position has been acquired. At any time prior to the date the rights have
become nonredeemable, the Board can extend the redemption period. Rights are
not redeemable following an "adverse person" determination.
Articles of Incorporation and Bylaws
Sovereign's Articles of Incorporation and Bylaws contain certain
provisions which may have the effect of deterring or discouraging, among other
things, a non-negotiated tender or exchange offer for the Common Stock, a proxy
contest for control of Sovereign, the assumption of control of Sovereign by a
holder of a large block of the Common Stock and the removal of Sovereign's
management. These provisions: (1) empower the Board of Directors, without
shareholder approval, to issue preferred stock the terms of which, including
voting power, are set by the Board; (2) divide the Board of Directors into
three classes serving staggered three-year terms; (3) restrict the ability of
shareholders to remove directors; (4) require that shares with at least 80% of
total voting power approve mergers and other similar transactions with a person
or entity holding stock with more than 5% of Sovereign's voting power, if the
transaction is not approved, in advance, by the Board of Directors; (5)
prohibit shareholders' actions without a meeting; (6) require that shares with
at least 80%, or in certain instances a majority, of total voting power approve
the repeal or amendment of the Articles of Incorporation; (7) require any
person who acquires stock of Sovereign with voting power of 25% or more to
offer to purchase for cash all remaining shares of Sovereign's voting stock at
the highest price paid by such person for shares of Sovereign's voting stock
during the preceding year; (8) eliminate cumulative voting in elections of
directors; (9) require that shares with at least 662/3% of total voting power
approve, repeal or amend the Bylaws; (10) require advance notice of nominations
for the election of directors and the presenting of shareholder proposals at
meetings of shareholders; and (11) provide that officers, directors, employees,
agents and persons who own 5% or more of the voting securities of any other
corporation or other entity that owns 662/3% or more of Sovereign's outstanding
voting stock cannot constitute a majority of the members of Sovereign's Board
of Directors.
Pennsylvania Law
The Pennsylvania Business Corporation Law contains certain provisions
applicable to Sovereign which may have similar effects. These provisions, among
other things: (1) require that, following any acquisition by any person or
group of 20% of a public corporation's voting power, the remaining stockholders
have the right to receive payment for their shares, in cash, from such person
or group in an amount equal to the "fair value" of the shares, including an
increment representing a proportion of any value payable for control of the
corporation; and (2) prohibit for five years, subject to certain exceptions, a
"business combination" (which includes a merger or consolidation of the
corporation or a sale, lease or exchange of assets) with a stockholder or group
of stockholders beneficially owning 20% or more of a public corporation's
voting power.
In April 1990, Pennsylvania adopted legislation further amending the
Pennsylvania Business Corporation Law. To the extent applicable to Sovereign at
the present time, this legislation generally (1) expands the factors and groups
(including shareholders) which the Board of Directors can consider in
determining whether a certain action is in the best interests of the
corporation, (2) provides that the Board need not consider the interests of any
particular group as dominant or controlling, (3) provides that directors, in
order to satisfy the presumption that they have acted in the best interests of
the corporation, need not satisfy any greater obligation or higher burden of
proof with respect to actions relating to an acquisition or potential
acquisition of control, (4) provides that actions relating to acquisitions of
control that are approved by a majority of "disinterested directors" are
presumed to satisfy the directors' standard unless it is proved by clear and
convincing evidence that the directors did not assent to such action in good
faith after reasonable investigation, and (5) provides that the fiduciary duty
of 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. One of the effects of the new fiduciary duty provisions
may be to make it more difficult for a shareholder to successfully challenge
the actions of the Board of Directors in a potential change in control context.
Sovereign opted out of coverage by the disgorgement and control-share
acquisition statutes, also adopted in April 1990, pursuant to a Bylaw amendment
as permitted by the legislation. Sovereign can reverse this action under
certain circumstances.
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DESCRIPTION OF SECURITIES WARRANTS
The Corporation may issue Securities Warrants for the purchase of Debt
Securities, Preferred Shares or Common Stock. Securities Warrants may be issued
independently or together with Common Stock, Debt Securities or Preferred
Shares offered by any Prospectus Supplement and may be attached to or separate
from such Common Stock, Debt Securities or Preferred Shares. Each series of
Securities Warrants will be issued under a separate warrant agreement (a
"Securities Warrant Agreement") to be entered into between the Corporation and
a bank or trust corporation, as Securities Warrant Agent, all as set forth in
the Prospectus Supplement relating to the particular issue of offered
Securities Warrants. The Securities Warrant Agent will act solely as an agent
of the Corporation in connection with the Securities Warrant Certificates and
will not assume any obligation or relationship of agency or trust for or with
any holders of Securities Warrant Certificates or beneficial owners of
Securities Warrants. Copies of the forms of Securities Warrant Agreements,
including the forms of Securities Warrant Certificates representing the
Securities Warrants, are filed as exhibits to the Registration Statement to
which this Prospectus pertains. The following summaries of certain provisions
of the forms of Securities Warrant Agreements and Securities Warrant
Certificates do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
Securities Warrant Agreements and the Securities Warrant Certificates.
General
If Securities Warrants are offered, the applicable Prospectus Supplement
will describe the terms of such Securities Warrants, including, in the case of
Securities Warrants for the purchase of Debt Securities, the following where
applicable: (i) the offering price; (ii) the currencies in which such
Securities Warrants are being offered; (iii) the designation, aggregate
principal amount, currencies, denominations and terms of the series of Debt
Securities purchasable upon exercise of such Securities Warrants; (iv) the
designation and terms of any series of Debt Securities or Preferred Shares with
which such Securities Warrants are being offered and the number of such
Securities Warrants being offered with each such share of Common Stock, Debt
Security or Preferred Share; (v) the date on and after which such Securities
Warrants and the related Common Stock or series of Debt Securities or Preferred
Shares will be transferable separately; (vi) the principal amount of the series
of Debt Securities purchasable upon exercise of each such Securities Warrant
and the price at which and currencies in which such principal amount of Debt
Securities of such series may be purchased upon such exercise; (vii) the date
on which the right to exercise such Securities Warrants shall commence and the
date (the "Expiration Date") on which such right shall expire; (viii) whether
the Securities Warrants will be issued in registered or bearer form; (ix)
United States federal income tax consequences; and (x) any other terms of such
Securities Warrants.
In the case of Securities Warrants for the purchase of Preferred Shares or
Common Stock, the applicable Prospectus Supplement will describe the terms of
such Securities Warrants, including the following where applicable: (i) the
offering price; (ii) the aggregate number of shares purchasable upon exercise
of such Securities Warrants and, in the case of Securities Warrants for
Preferred Shares, the designation, aggregate number and terms of the series of
Preferred Shares purchasable upon exercise of such Securities Warrants; (iii)
the designation and terms of the series of Common Stock, Debt Securities or
Preferred Shares with which such Securities Warrants are being offered and the
number of such Securities Warrants being offered with each share of Common
Stock or such Debt Security or Preferred Share; (iv) the date on and after
which such Securities Warrants and the related Common Stock or series of Debt
Securities or Preferred Shares will be transferable separately; (v) the number
of Preferred Shares or shares of Common Stock purchasable upon exercise of each
such Securities Warrant and the price at which such number of Preferred Shares
of such series or shares of Common Stock may be purchased upon such exercise;
(vi) the date on which the right to exercise such Securities Warrants shall
commence and the Expiration Date on which such right shall expire; (vii) United
States federal income tax consequences; and (viii) any other terms of such
Securities Warrants. Securities Warrants for the purchase of Preferred Shares,
or Common Stock will be offered and exercisable for U.S. dollars only and will
be in registered form only.
Securities Warrant Certificates may be exchanged for new Securities
Warrant Certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Securities Warrant Agent or any other office indicated in
the applicable Prospectus
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Supplement. Prior to the exercise of any Securities Warrant to purchase Debt
Securities, holders of such Securities Warrants will not have any of the rights
of Holders of the Debt Securities purchasable upon such exercise, including the
right to receive payments of principal of, premium, if any, or interest, if
any, on the Debt Securities purchasable upon such exercise or to enforce
covenants in the applicable indenture. Prior to the exercise of any Securities
Warrants to purchase Preferred Shares or Common Stock, holders of such
Securities Warrants will not have any rights of holders of the Preferred Shares
or Common Stock purchasable upon such exercise, including the right to receive
payments of dividends, if any, on the Preferred Shares or Common Stock
purchasable upon such exercise or to exercise any applicable right to vote.
Exercise of Securities Warrants
Each Securities Warrant will entitle the holder thereof to purchase such
principal amount of Debt Securities or number of Preferred Shares or shares of
Common Stock, as the case may be, at such exercise price as shall in each case
be set forth in, or calculable from the Prospectus Supplement relating to the
offered Securities Warrants. After the close of business on the Expiration Date
(or such later date to which such Expiration Date may be extended by the
Corporation), unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Securities
Warrant Agent payment as provided in the applicable Prospectus Supplement of
the amount required to purchase the Debt Securities, Preferred Shares or Common
Stock, as the case may be, purchasable upon such exercise together with certain
information set forth on the reverse side of the Securities Warrant
Certificate. Securities Warrants will be deemed to have been exercised upon
receipt of payment of the exercise price, subject to the receipt, within five
business days, of the Securities Warrant Certificate evidencing such Securities
Warrants. Upon receipt of such payment and the Securities Warrant Certificate
properly completed and duly executed at the corporate trust office of the
Securities Warrant Agent or any other office indicated in the applicable
Prospectus Supplement, the Corporation will, as soon as practicable, issue and
deliver the Debt Securities, Preferred Shares or Common Stock, as the case may
be, purchasable upon such exercise. If fewer than all of the Securities
Warrants represented by such Securities Warrant Certificate are exercised, a
new Securities Warrant Certificate will be issued for the remaining amount of
Securities Warrants.
Amendments and Supplements to Securities Warrant Agreements
The Securities Warrant Agreements may be amended or supplemented without
the consent of the holders of the Securities Warrants issued thereunder to
effect changes that are not inconsistent with the provisions of the Securities
Warrants and that do not adversely affect the interests of the holders of the
Securities Warrants.
Common Stock Warrant Adjustments
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of Common Stock covered by, a
Common Stock Warrant are subject to adjustment in certain events, including:
(i) the issuance of Common Stock as a dividend or distribution on the Common
Stock; (ii) subdivisions and combinations of the Common Stock; (iii) the
issuance to all holders of Common Stock of certain rights or warrants entitling
them to subscribe for or purchase Common Stock within 45 days after the date
fixed for the determination of the stockholders entitled to receive such rights
or warrants, at less than the current market price (as defined in the Warrant
Agreement for such series of Common Stock Warrants); and (iv) the distribution
to all holders of Common Stock of evidences of indebtedness or assets of the
Corporation (excluding certain cash dividends and distributions described
below) or rights or warrants (excluding those referred to above). In the event
that the Corporation shall distribute any rights or warrants to acquire capital
stock pursuant to clause (iii) above (the "Capital Stock Rights"), pursuant to
which separate certificates representing such Capital Stock Rights will be
distributed subsequent to the initial distribution of such Capital Stock Rights
(whether or not such distribution shall have occurred prior to the date of the
issuance of a series of Common Stock Warrants), such subsequent distribution
shall be deemed to be the distribution of such Capital Stock Rights; provided
that the Corporation may, in lieu of making any adjustment in the exercise
price of, and the number of shares of Common Stock covered by, a Common Stock
Warrant upon a distribution of separate certificates representing such
26
<PAGE>
Capital Stock Rights, make proper provision so that each holder of such a
Common Stock Warrant who exercises such Common Stock Warrant (or any portion
thereof) (a) before the record date for such distribution of separate
certificates shall be entitled to receive upon such exercise shares of Common
Stock issued with Capital Stock Rights and (b) after such record date and prior
to the expiration, redemption or termination of such Capital Stock Rights shall
be entitled to receive upon such exercise, in addition to the shares of Common
Stock issuable upon such exercise, the same number of such Capital Stock Rights
as would a holder of the number of shares of Common Stock that such Common
Stock Warrants so exercised would have entitled the holder thereof to acquire
in accordance with the terms and provisions applicable to the Capital Stock
Rights if such Common Stock Warrant was exercised immediately prior to the
record date for such distribution. Common Stock owned by or held for the
account of the Corporation or any majority owned subsidiary shall not be deemed
outstanding for the purpose of any adjustment.
No adjustment in the exercise price of, and the number of shares of Common
Stock covered by, a Common Stock Warrant will be made for regular quarterly or
other periodic or recurring cash dividends or distributions or for cash
dividends or distributions to the extent paid from retained earnings. No
adjustment will be required unless such adjustment would require a change of at
least 1% in the exercise price then in effect; provided that any such
adjustment not so made will be carried forward and taken into account in any
subsequent adjustment; and provided further that any such adjustment not so
made shall be made no later than three years after the occurrence of the event
requiring such adjustment to be made or carried forward. Except as stated
above, the exercise price of, and the number of shares of Common Stock covered
by, a Common Stock Warrant will not be adjusted for the issuance of Common
Stock or any securities convertible into or exchangeable for Common Stock, or
securities carrying the right to purchase any of the foregoing.
In the case of (i) a reclassification or change of the Common Stock, (ii)
a consolidation or merger involving the Corporation or (iii) sale or conveyance
to another corporation of the property and assets of the Corporation as an
entirety or substantially as an entirety, in each case as a result of which
holders of the Corporation's Common Stock shall be entitled to receive stock,
securities, other property or assets (including cash) with respect to or in
exchange for such Common Stock, the holders of the Common Stock Warrants then
outstanding will be entitled thereafter to convert such Common Stock Warrants
into the kind and amount of shares of stock and other securities or property
which they would have received upon such reclassification, change,
consolidation, merger, sale or conveyance had such Common Stock Warrants been
exercised immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance.
CERTAIN TAX CONSIDERATIONS
The Prospectus Supplement may contain information concerning certain tax
considerations relating to the Offered Securities. Holders of Offered
Securities should consult their tax advisors as to the applicability to the
Offered Securities and interest or dividends, if any, payable thereon of
federal, state and local taxes.
PLAN OF DISTRIBUTION
The Corporation may offer and sell the Offered Securities in any of three
ways: (i) through agents; (ii) through underwriters or dealers; or (iii)
directly to one or more purchasers. The Prospectus Supplement with respect to
any of the Offered Securities will set forth the terms of the offering of such
Offered Securities, including the name or names of any underwriters or agents,
the purchase price of such Offered Securities, the proceeds to the Corporation
from such sale, any underwriting discounts or agency fees and other items
constituting underwriters' or agents' compensation, the initial public offering
price, any discounts or concessions allowed or reallowed or paid to dealers,
and any securities exchanges on which such Offered Securities may be listed.
The distribution of the Offered Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices.
The Corporation may also issue contracts under which the counterparty may
be required to purchase Common Stock, Debt Securities, or Preferred Shares.
Such contracts would be issued with Common Stock, Debt Securities, Preferred
Shares, and/or Securities Warrants in amounts, at prices and on terms to be set
forth in a Prospectus Supplement. See "Plan of Distribution."
27
<PAGE>
If so indicated in the Prospectus Supplement relating to any Offered
Securities, the Corporation will authorize underwriters, dealers and agents to
solicit offers by certain specified institutions to purchase such Offered
Securities from the Corporation at the public offering price set forth in such
Prospectus Supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. Such contracts will be
subject only to those conditions set forth in such Prospectus Supplement, and
such Prospectus Supplement will set forth the commission payable for
solicitation of such contracts.
Underwriters, dealers and agents may be entitled, under agreements entered
into with the Corporation, to indemnification by the Corporation against
certain civil liabilities, including liabilities under the Securities Act of
1933, or to contributions with respect to payments which the underwriters or
agents may be required to make in respect thereof. Underwriters and agents, and
affiliates thereof, may be customers of, engage in transactions with, or
perform services for the Corporation and its affiliates in the ordinary course
of business.
Each underwriter, dealer and agent participating in the distribution of
any Debt Securities that are issuable as Bearer Securities will agree that, in
connection with the original issuance of such Bearer Securities, it will not
offer, sell or deliver, directly or indirectly, Bearer Securities to a United
States person or to any person within the United States, except to the extent
permitted under United States Treasury Regulations.
Except for Common Stock, all Offered Securities will be new issues of
securities with no established trading market. Any underwriters to whom Offered
Securities are sold by the Corporation for public offering and sale may make a
market in such Offered Securities, but such underwriters will not be obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for any
Offered Securities.
LEGAL MATTERS
The legality of the Offered Securities and, if any Offered Securities are
by their terms convertible into Common Stock, the Common Stock into which the
Offered Securities may be converted, will be passed upon for the Corporation by
Stevens & Lee, 111 North Sixth Street, Reading, Pennsylvania 19601, special
counsel to the Corporation. Joseph E. Lewis, a director of the Sovereign Bank,
is a principal of the firm of Stevens & Lee. At June 30, 1996, certain
attorneys at Stevens & Lee and members of their immediate families owned or had
investment discretion with respect to an aggregate of less than 300,000 shares
of Common Stock. Unless otherwise indicated in the Prospectus Supplement
relating thereto, if the Offered Securities are being distributed in an
underwritten offering, certain legal matters with respect to the Offered
Securities and, if the Offered Securities are by their terms convertible or
exchangeable, the securities into which the Offered Securities may be converted
or exchanged, will be passed upon for the underwriters by the law firm named in
such Prospectus Supplement as representing the underwriters.
EXPERTS
The consolidated financial statements of Sovereign Bancorp, Inc. appearing
in Sovereign Bancorp, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1995 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 year 1993 is based in part on the report of
B.D.O. Seidman, LLP, independent auditors. Such consolidated financial
statements are incorporated herein by reference in reliance upon such reports
given upon the authority of such firms as experts in accounting and auditing.
28
<PAGE>
$240,000,000
[GRAPHIC OMITTED]
SOVEREIGN BANCORP, INC.
65/8% Senior Unsecured Notes due March 15, 2001
-----------------------------
PROSPECTUS SUPPLEMENT
March 16, 1999
-----------------------------
LEHMAN BROTHERS
SALOMON SMITH BARNEY
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and that it has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Borough of Wyomissing, Commonwealth of Pennsylvania, on
March 2, 1999.
SOVEREIGN BANCORP, INC.
By /s/ Jay S. Sidhu
------------------------------------
Jay S. Sidhu,
President and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, THAT EACH OFFICER AND DIRECTOR OF
SOVEREIGN BANCORP, INC. WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS
JAY S. SIDHU, DENNIS S. MARLO, LAWRENCE M. THOMPSON, JR., AND JOSEPH M. HARENZA,
ESQUIRE, AND EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS,
WITH FULL AND SEVERAL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN
HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, 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 SAID ATTORNEYS-IN-FACT AND
AGENTS 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 TO ALL
INTENTS AND PURPOSES AS THEY OR HE 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.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C> <C>
/s/ Richard E. Mohn Chairman of the March 2, 1999
- ------------------------ Board and Director
Richard E. Mohn
/s/ Jay S. Sidhu President, Chief March 2, 1999
- ------------------------ Executive Officer
Jay S. Sidhu and Director
/s/ Rhoda S. Oberholtzer Director March 2, 1999
- ------------------------
Rhoda S. Oberholtzer
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Patrick J. Petrone Director March 2, 1999
- ------------------------
Patrick J. Petrone
/s/ Daniel K. Rothermel Director March 2, 1999
- ------------------------
Daniel K. Rothermel
/s/ G. Arthur Weaver Director March 2, 1999
- ------------------------
G. Arthur Weaver
/s/ Cameron C. Troilo Director March 2, 1999
- ------------------------
Cameron C. Troilo
/s/ Dennis S. Marlo Chief Financial March 2, 1999
- ------------------------
Dennis S. Marlo Officer
/s/ Mark R. McCollom Chief Accounting March 2, 1999
- ------------------------
Mark R. McCollom Officer
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
5.1 Opinion of Stevens & Lee, P.C.
23.1 Consent of Stevens & Lee, P.C.
(included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of KPMG LLP
23.4 Consent of KPMG LLP
23.5 Consent of KPMG LLP
23.6 Consent of PricewaterhouseCoopers LLP
23.7 Arthur Andersen LLP
<PAGE>
Exhibit 5.1
March 19, 1999
Board of Directors
Sovereign Bancorp, Inc.
1130 Berkshire Blvd.
Wyomissing, PA 19610
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
In connection with the proposed offering of Senior Notes, with an
aggregate initial public offering price of up to $40,000,000 covered by the
Company's Registration Statement on Form S-3 (the "Registration Statement"), we,
as counsel to the Company, have reviewed:
(i) the Articles of Incorporation of the Company as
amended to date;
(ii) the Bylaws of the Company as amended to date;
(iii) a corporate subsistence certificate dated March 15,
1999, issued by the Secretary of the Commonwealth of Pennsylvania with respect
to the Company;
(iv) the Resolutions of the Board of Directors of the Company
adopted on February 18, 1999; and
(v) the Registration Statement.
Based upon our review of such documents, it is our opinion that:
1. The Company has been duly incorporated under the laws of the
Commonwealth of Pennsylvania and is validly existing and subsisting under the
laws of such Commonwealth.
2. The Senior Indenture dated February 1, 1994 (the "Indenture")
between the Company and Harris Trust and Savings Bank, as trustee (the
"Trustee"), has been duly authorized and executed and is a valid and legally
binding obligation of the Company, enforceable in accordance with its terms,
subject to
<PAGE>
Board of Directors
Sovereign Bancorp, Inc.
March 19, 1999
Page 2
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles.
3. The Senior Notes covered by the Registration Statement have been
duly authorized and, when (a) executed and authenticated in the manner set forth
in the Indenture, and (b) issued, sold and delivered in the manner set forth in
the Indenture against payment therefore, the Senior Notes will be validly
executed, authenticated, issued, sold, and delivered, and will constitute valid
and legally binding obligations of the Company, enforceable in accordance with
their terms, subject to bankruptcy, insolvency, reorganization, moratorium and
other laws affecting creditors' rights generally and general equity principles.
----------------
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,
STEVENS & LEE
/s/ Stevens & Lee
-----------------------------------------
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 and related Prospectus Supplement of Sovereign Bancorp, Inc. filed
pursuant to Rule 462(b) of the Securities Act of 1933 for the registration of
$40,000,000 of debt securities of our report dated March 11, 1999 with respect
to the consolidated financial statements of Sovereign Bancorp, Inc. included in
its Current Report on Form 8-K dated March 18, 1999, filed with the Securities
and Exchange Commission and incorporated by reference in this Registration
Statement.
/s/ Ernst & Young
- -----------------------------
Philadelphia, Pennsylvania
March 16, 1999
<PAGE>
Exhibit 23.3
The Board of Directors
Sovereign Bancorp, Inc.
We consent to the incorporation by reference in the Registration Statement, on
Form S-3 and in connection with the Current Report on Form 8-K, 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
March 16, 1999
<PAGE>
Exhibit 23.4
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 Statements
(Form S-8 No. 33-20186, Form S-8 No. 33-29038, Form S- 8 No. 33-39453, Form S-8
No. 33-44108, Form S-8 No. 33-89526, Form S-8, No. 33-89592, Form S-8 No.
333-05251, Form S-8 No. 333- 05309, Form S-3 No. 33-46870, and Form S-3 No.
333-09113) of Sovereign Bancorp, Inc. and the related prospectus of our report
dated November 26, 1996 relating to the consolidated statements of operations,
stockholders' equity and cash flows of First Sate Financial Services, Inc. for
the year ended September 30, 1996, which report appears in the Form 8-K of
Sovereign Bancorp, Inc. to be dated March 18, 1999, which is incorporated by
reference in this registration statement on Form S-3 of Sovereign Bancorp, Inc.
/s/ KPMG LLP
---------------------
KPMG LLP
Short Hills, New Jersey
March 16, 1999
<PAGE>
Exhibit 23.5
Independent Auditors' Consent
The Board of Directors
Sovereign Bancorp, Inc.
(Successors of Bankers Corp.):
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-20186, Form S-8 No. 33-29038, Form S- 8 No. 33-39453, Form S-8
No. 33-44108, Form S-8 No. 33-89526, Form S-8, No. 33-89592, Form S-8 No.
333-05251, Form S-8 No. 33- 05309, Form S-3 No. 33-46870, and Form S-3 No.
333-09113) of Sovereign Bancorp, Inc. and 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 Form 8-K of Sovereign Bancorp,
Inc. to be dated March 18, 1999, which is incorporated by reference in this
registration statement on Form S-3 of Sovereign Bancorp, Inc.
/s/ KPMG LLP
-----------------------
KPMG LLP
Short Hills, New Jersey
March 16, 1999
<PAGE>
EXHIBIT 23.6
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statement of
Sovereign Bancorp, Inc. on Form S-3, filed on or about March 18, 1999, of our
report dated February 2, 1998, on our audits of the consolidated financial
statements of Carnegie Bancorp 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 Current Report on Form 8-K for the year ended
December 31, 1998.
/s/ PricewaterhouseCoopers LLP
---------------------------
Princeton, New Jersey
March 16, 1999
<PAGE>
Exhibit 23.7
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Sovereign Bancorp, Inc.'s Registration Statement on Form S-3,
for the registration of $40,000,000 of debt securities, 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 Current
Report on Form 8-K dated March 18, 1999, 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
March 16, 1999
