PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
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SOVEREIGN BANCORP, INC.
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[LOGO]
March 22, 1999
Dear Shareholder:
Sovereign Bancorp will hold its 1999 Annual Meeting of Shareholders on
Thursday, April 22, 1999, at 4:00 p.m. at the Scottish Rite Cathedral, 310 South
7th Avenue, West Reading, Pennsylvania. For your convenience, directions to the
Scottish Rite Cathedral are included on the bottom portion of the proxy card
included with this mailing and also on the back cover of the Proxy Statement.
Sovereign's Board of Directors believes that it is important for
Sovereign's shareholders to participate personally in the process by which
Sovereign's directors are elected. The election of diligent, active, involved,
and responsible directors is the cornerstone of corporate governance at
Sovereign. Sovereign's Board actively chooses, directs and compensates
Sovereign's senior management, establishes programs to oversee Sovereign's
compliance with laws and reviews corporate plans, policies and commitments with
a view to representing all of Sovereign's stakeholders, including its
shareholders, customers, team members, and the communities Sovereign serves.
THE NOTICE AND PROXY STATEMENT, WHICH ARE SET FORTH IN THE FOLLOWING PAGES,
DESCRIBE THE BUSINESS TO BE CONDUCTED AT THE MEETING. PROPOSALS 1, 2 AND 3 TO BE
ACTED ON AT THE MEETING HAVE BEEN UNANIMOUSLY APPROVED AND RECOMMENDED BY
SOVEREIGN'S BOARD OF DIRECTORS. PLEASE CAREFULLY READ THE DESCRIPTION OF THE
PROPOSALS AND VOTE FOR THEIR ADOPTION.
If you cannot attend the Meeting, your shares should still be represented
at the Meeting. We urge you to sign and date the enclosed proxy card and return
it in the enclosed envelope as soon as possible. Please indicate and return the
enclosed proxy card and the enclosed attendance card if you intend to be present
at the meeting.
We urge you to participate in the Meeting in person or by proxy. Thank you
very much for your continued interest in Sovereign.
Sincerely,
/s/ Richard E. Mohn
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Richard E. Mohn
Chairman of the Board
/s/ Jay S. Sidhu
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Jay S. Sidhu
President and Chief Executive Officer
<PAGE>
[LOGO]
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NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 1999
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Meeting") of Sovereign Bancorp, Inc. ("Sovereign") will be held on Thursday,
April 22, 1999, at 4:00 p.m. (Eastern Time) at the Scottish Rite Cathedral, 310
South 7th Avenue, West Reading, Pennsylvania, for the following purposes:
(1) To elect three (3) Class III directors of Sovereign to serve for a
term of three years and until their successors shall have been elected and
qualified;
(2) To consider and act upon a proposal to amend Sovereign's Articles
of Incorporation to increase the number of authorized shares of common
stock from 200,000,000 shares to 400,000,000 shares;
(3) To ratify the appointment by Sovereign's Board of Directors of
Ernst & Young LLP as Sovereign's independent auditors for the fiscal year
ending December 31, 1999; and
(4) To transact such other business as may properly be presented at
the Meeting.
Shareholders of record at the close of business on March 1, 1999, are
entitled to notice of, and to vote at the Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE SIGN, DATE,
AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Lawrence M. Thompson, Jr.
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LAWRENCE M. THOMPSON, JR.
SECRETARY
Wyomissing, Pennsylvania
March 22, 1999
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SOVEREIGN BANCORP, INC.
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 22, 1999
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GENERAL INFORMATION
SOLICITATION OF PROXIES. The Board of Directors of Sovereign Bancorp, Inc.
("Sovereign"), parent company of Sovereign Bank, is providing this Proxy
Statement to solicit proxies for use at Sovereign's annual meeting of
shareholders to be held April 22, 1999, or any adjournment thereof (the
"Meeting"). Sovereign is first mailing this Proxy Statement and the accompanying
proxy on or about March 22, 1999. Sovereign will pay the expense of soliciting
proxies. Sovereign expects to solicit proxies primarily by mail. Sovereign's
directors, officers and team members may also solicit proxies personally, by
telephone and by telegraph. In addition, Sovereign has retained Georgeson &
Company Inc. to assist with the solicitation of proxies at an estimated cost of
$7,500, plus reasonable out-of-pocket expenses.
VOTING AND REVOCATION OF PROXIES. The execution and return of the enclosed
proxy will not affect a shareholder's right to attend the Meeting and vote in
person. Any shareholder giving a proxy may revoke it at any time before it is
exercised by submitting written notice of its revocation or a subsequently
executed proxy bearing a later date to the Secretary of Sovereign, or by
attending the Meeting and electing to vote in person. Shareholders of record at
the close of business on March 1, 1999 (the "Record Date"), are entitled to
notice of, and to vote at, the Meeting. On the Record Date, there were
164,289,948 shares of Sovereign common stock outstanding, each of which will be
entitled to one vote at the Meeting.
If the enclosed proxy is appropriately marked, signed and returned in time
to be voted at the Meeting, the shares represented by the proxy will be voted in
accordance with the instructions marked thereon. Signed proxies not marked to
the contrary will be voted "FOR" the election, as directors, of the Board of
Directors' nominees; "FOR" the proposal to amend Sovereign's Articles of
Incorporation to increase the number of authorized shares of common stock from
200,000,000 shares to 400,000,000 shares; and "FOR" the ratification of Ernst &
Young LLP as Sovereign's independent auditors for 1999. Signed proxies will be
voted "FOR" or "AGAINST" any other matter that properly comes before the Meeting
or any adjournment thereof, in the discretion of the persons named as
proxyholders, including with respect to any matters not complying with the
advance notice provisions set forth in Sovereign's Bylaws.
QUORUM. The presence, in person or by proxy, of shareholders entitled to
cast at least a majority of the votes that all shareholders are entitled to cast
will constitute a quorum at the Meeting. Abstentions with respect to one or more
proposals voted upon at the Meeting will be included for purposes of determining
the presence of a quorum at the Meeting.
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INFORMATION CONCERNING THE BOARD OF DIRECTORS,
SOVEREIGN'S GOVERNANCE PROCEDURES
AND COMMITTEES OF THE BOARD OF DIRECTORS
Sovereign's Articles of Incorporation provide that the number of Sovereign
directors shall consist of not less than six nor more than twenty members, as
fixed by the Board of Directors from time to time. The Articles also divide the
Board into three classes, which under applicable law, must be, in terms of the
number of directors in each class, as nearly equal as possible. The Board
presently consists of seven members.
Consistent with its perception of good principles of corporate governance,
Sovereign historically has required that the preponderance of its Board consist
of outside, non-employee directors, and has delegated important policy making
and oversight functions to committees which also consist predominantly of
outside directors. A description of the committees which possess significant
corporate governance responsibilities is set forth below.
o Sovereign's Audit Committee consists of five directors, all of whom are
outside directors. Sovereign's Audit Committee serves as the principal
liaison among the Board of Directors, Sovereign's independent auditors
and Sovereign's internal audit function. It is responsible for, among
other things, reporting to Sovereign's Board on the results of the annual
audit. The Committee reviews and evaluates the scope of the audit,
accounting policies and reporting practices, internal auditing, internal
controls, security procedures and other matters considered appropriate.
The Committee also reviews the performance of Sovereign's independent
auditors in connection with their audit of Sovereign's financial
statements. Importantly, from a corporate governance perspective, the
Audit Committee also regularly evaluates the independent auditors'
independence from Sovereign and Sovereign's management. Depending on the
nature of matters under review, the outside auditors, and such officers
and other team members, as necessary, attend all or part of the meetings
of the Committee. Sovereign's Audit Committee met twice during 1998.
o Sovereign's Nominating Committee consists of six directors, all of whom
are outside directors. Sovereign's Bylaws provide for both shareholder
and Board nomination of director candidates. The Committee has the
important task of taking the first step toward assuring good corporate
governance by identifying, reviewing and recommending, to the full Board,
potential nominees for submission to Sovereign's shareholders for
election as directors of Sovereign or for election to fill vacancies on
the Board. The Committee strives to identify, review and recommend only
those nominees who appear to possess (i) the highest personal and
professional ethics, integrity and values; (ii) sufficient education and
breadth of experience to understand, evaluate and suggest solutions to
the many problems facing financial institutions in an increasingly
competitive environment; (iii) a reasoned and balanced commitment to
Sovereign's social responsibilities; (iv) an interest in and the
availability of time to be involved in Sovereign's affairs over a
sustained period; (v) the reputation and stature required to represent
Sovereign in the communities Sovereign serves, as well as before
Sovereign's shareholders and other stakeholders; (vi) a willingness to
objectively appraise management performance in the interest of Sovereign
and its stakeholders; (vii) an open mind on all policy issues affecting
the overall interests of Sovereign and its stakeholders; and (viii)
involvement only in other activities or interests which do not create a
conflict, or the appearance of a conflict, with the director's
responsibilities to Sovereign and its stakeholders. The Committee's
review of candidates is performed without regard to gender, race or
religious affiliation. One of the objectives of this review is to have a
Board which consists of members with a mix of diverse backgrounds,
skills, experiences and personalities which will foster, not only good
decision making, but also the chemistry to create an environment
encouraging active, constructive, and informed participation among Board
members. The Committee met once during 1998.
o Sovereign's Ethics and Corporate Governance Committee, which Sovereign
believes to be one of the few such Board committees in the United States,
consists of seven directors, all but one of whom are outside directors.
The Chairman of the Committee also serves as Chairman of Sovereign Bank's
Code of Conduct Committee. The Committee monitors, oversees and reviews
compliance, by Sovereign's directors, officers and team members with
Sovereign's Code of Conduct. Sovereign's Code of Conduct regulates
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potential conflicts of interest and transactions between Sovereign and
its affiliates, the possible misuse or abuse of confidential information
by Sovereign affiliates, and trading in Sovereign stock by Sovereign
affiliates. The Committee function, therefore, is to assure, to the
extent practicable, that Sovereign's directors, management, other
affiliates and team members act in accordance with the highest standards
of professional and ethical conduct. When exercising its authority, the
Committee is required to consider Sovereign's mission, vision and values,
including the impact of its actions on Sovereign's stakeholders,
including Sovereign's shareholders, customers and team members, and the
communities Sovereign serves. The Committee also is required to
periodically review Sovereign's Code of Conduct and to make
recommendations to the Board with respect to modification. During 1996
Sovereign expanded the scope of the responsibility of this Committee to
specifically include corporate governance matters. The Committee met once
during 1998.
o Sovereign's Compensation Committee consists of six directors, all of whom
are outside directors. This Committee is responsible for the important
task of studying and making recommendations to the Board on compensating
and providing incentive to executive management, principally Sovereign's
Chief Executive Officer. Among other responsibilities, the Committee
makes appraisals of the performance of the Chief Executive Officer. In
addition, the Committee reviews Sovereign's executive compensation
structure in an effort to insure that executive compensation (i) is
competitive and (ii) is closely linked to Sovereign's financial
performance. The Committee also attempts to assure, through programs
which are substantially weighted in favor of the use of Sovereign stock
as a compensation medium, that the interests of executive management are
aligned, to the extent practicable, with the interests of Sovereign's
shareholders. This Committee met four times during 1998.
o Sovereign's Community Reinvestment Act and Public Responsibility
Committee consists of seven directors, six of whom are outside directors.
The Committee reviews Sovereign's programs, which strive to meet
Sovereign's social responsibilities to the communities which it serves
by, among other things, providing credit to all segments of such
communities, including low to moderate income individuals. The Committee
reviews Sovereign's pursuit of opportunities which contribute to the
growth and vitality of these communities while conforming to safe and
sound lending practices and to the many laws and regulations which are
applicable to financial institutions. The Committee reviews and
recommends to the Board Sovereign's annual Community Reinvestment Act
Plan, including a review of Sovereign Bank's credit programs and results,
in an effort to assure that they are socially useful, economically sound
and nondiscriminatory. The Committee met once during 1998.
Sovereign also maintains a number of other important committees, including
Sovereign's Merger and Acquisition Committee, Sovereign's Pension Committee,
Sovereign's Risk Management Committee, and Sovereign's Executive Committee.
Sovereign's Merger and Acquisition Committee, which met twice during 1998,
consists of four directors, three of whom are outside directors. The Committee
reviews and recommends to Sovereign's Board of Directors candidates for
acquisition by Sovereign. Sovereign's Pension Committee, which met twice during
1998, presently consists of all seven directors. This Committee administers
Sovereign's Pension Plan, Employee Stock Ownership Plan, Stock Purchase Plan,
401(k) Retirement Savings Plan and Sovereign's Long Term Deferred Compensation
Plans and Programs. This Committee also approves Sovereign's investment policy
and guidelines, reviews investment performance, and appoints and retains
trustees and investment managers for Sovereign's retirement plans. Sovereign's
Risk Management Committee assesses the major risks which impact on Sovereign's
earnings, asset quality, operations, as well as interest rate risk. The
Committee presently consists of all seven directors. The Risk Management
Committee met twice during 1998. The Board of Directors also has an Executive
Committee, which has the ability to exercise all of the powers of the Board in
the management and direction of the business and affairs of Sovereign between
Board meetings, except those, which by statute, are reserved to the Board of
Directors. This Committee, which did not meet in 1998, consists of five
directors, four of whom are outside directors.
Also consistent with its perception of good corporate governance,
Sovereign's Board, working with management, has established a series of
practices and procedures to assure a flow of information about Sovereign's
business to its directors in an effort to maximize continued active interest,
involvement and participation by Board members, as well as diligent and
effective Board decision making.
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New Sovereign directors receive manuals which include information on
Sovereign's vision, mission, values and style, as well as copies of Sovereign's
bylaws, policies, procedures and guidelines. They are also provided with an
opportunity to meet with Sovereign's management and visit Sovereign's
facilities.
Pre-meeting materials are routinely distributed to Board members in advance
of meetings. These materials include in-depth reports on each of Sovereign's
critical success factors, including reports on asset quality, cost containment,
interest rate and other risks. These materials also include reports for
Sovereign's major business units, consisting not only of financial data, but
also production, sales and marketing data and information on market and industry
trends, as well. These materials also include background and write-ups on items
coming before the Board. In an effort to be informed, directors also
periodically visit sites of new branches and acquisitions, as well as other
Sovereign locations germane to the decision making process.
Senior and executive officers routinely attend at least a portion of every
Board meeting and they, and other members of management, frequently brief and
seek advice from the Board, not only on items coming before the Board, but also
on new products, marketing strategies and human resource initiatives. The Board
periodically invites professionals and representatives of securities firms to
make presentations to the Board in order to make the Board more aware, among
other things, of investor perceptions of Sovereign. The Board also periodically
meets with Sovereign's regulators in order for these regulators to make the
Board more aware of the changing regulatory environment, and industry trends, as
well as to discuss their assessment of Sovereign. Board members take these and
other opportunities to actively discuss Sovereign specific and industry specific
information and trends with these officers and other visitors.
Sovereign's Board meets once or twice each year, over a two-day period,
with Sovereign's executive management team to review Sovereign's business plans,
discuss corporate strategy and evaluate Sovereign's strengths, weaknesses,
opportunities and threats, as well as to review Sovereign's progress against
Sovereign's vision, mission, values and critical success factors.
Sovereign's Board also extensively studies Sovereign's strategic
alternatives including sale, continuing its current strategy, or engaging in a
merger of equals at least once a year. Sovereign has pursued this policy for the
past several years and expects to continue it in the future, particularly in
light of rapidly changing competitive conditions. Investment banking firms are
usually asked to provide material for and/or to make presentations to or
otherwise assist the Board at these sessions.
In addition, Sovereign's Board has identified the following areas of Board
and Board Committee involvement and responsibility as its principal areas of
focus in its effort to achieve good corporate governance and to represent
Sovereign's stakeholders effectively:
o Ongoing active and participatory review of Sovereign's strategic plan and
its long range goals and of Sovereign's performance against such plan and
goals, and the evaluation of the desirability, as appropriate, of
modifications to such plans and goals;
o Monitoring of Sovereign's activities which may pose significant risks to
Sovereign and of Sovereign's programs to respond to and contain such
risks;
o Ongoing review and monitoring of Sovereign's progress in achieving its
critical success factors, including assessment of the development of
Sovereign's key team members;
o Periodic, independent and objective review of the performance and
development of the Chief Executive Officer and other members of executive
management and their compensation relative to such performance;
o Ongoing review of Sovereign's adherence to its corporate "Mission,"
"Vision" and "Values," which include Sovereign's articulation of its
responsibilities to its stakeholders, including its shareholders,
customers, team members, and the communities Sovereign serves;
o Periodic study, using outside resources, of Sovereign's strategic
alternatives, including sale, continuing its current strategy, or
engaging in a merger of equals;
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o Ongoing review of, and compliance with, Sovereign's policies and
procedures, particularly its Code of Conduct, and other policies designed
to assure compliance by Sovereign with law and regulation;
o Review of the selection process for nominees for election to Sovereign's
Board and the overall quality, interest, diligence, participation and
contribution of its members; and
o The availability, dissemination and explanation of the information which
the Board and management believe is needed for the Board to perform its
duties diligently and effectively in the interest of Sovereign's
stakeholders.
The Board met 13 times during 1998. Each director attended at least 75% of
the total number of meetings of the Board and its Committees on which the
director served during 1998.
In addition to consisting principally of outside directors, Sovereign's
Board occasionally excludes management directors from meetings. It also
otherwise acts in an independent manner and considers itself to be interested,
diligent, actively involved in Sovereign's affairs and otherwise dedicated to
principles of good corporate governance.
In what it perceives as an important action from the prospective of
Sovereign's shareholders, Sovereign's Board, in January 1998, adopted a policy
which requires directors, and certain key officers to own, by certain dates, a
specified dollar value of Sovereign stock geared generally to their degree of
responsibility or salary levels. Under this policy, Sovereign directors,
Sovereign Bank directors, Sovereign's CEO and Sovereign executive management are
required to beneficially own shares of common stock having a value of $100,000,
$50,000, six times base salary, and three times base salary, respectively, at
all times during their tenure with Sovereign. The ownership requirement for
Sovereign directors, Sovereign Bank directors and Sovereign's CEO must be
achieved by December 31, 1999. The completion date for Sovereign executive
management is December 31, 2002. Senior management and members of Sovereign's
Strategy and Policy Committee are required to beneficially own shares of
Sovereign common stock having a value of two times base salary by December 31,
2003. Shares of Sovereign common stock subject to unexercised stock options and
shares allocated to the account of a Sovereign employee under Sovereign's
Employee Stock Ownership Plan are not considered beneficially owned for purposes
of the Policy. Sovereign's Board took this action, with the concurrence of its
Ethics and Corporate Governance Committee, in an effort to assure that the
interests of directors, officers and certain key employees are more completely
aligned with those of Sovereign's shareholders.
ELECTION OF DIRECTORS
Sovereign's Board of Directors consists of seven members and is divided
into three classes: Class II directors, whose term expires in 2001; Class I
directors, whose term expires in 2000; and Class III directors, whose present
term expires in 1999 at the Meeting and, if and when elected at the Meeting,
whose term will expire in 2002.
The Board of Directors has unanimously nominated Richard E. Mohn, Jay S.
Sidhu and G. Arthur Weaver for election as Class III directors of Sovereign.
Each of the nominees has consented to being named in this Proxy Statement and to
serve if elected. If any of the nominees become unable to accept nomination or
election, the persons named in the proxy may vote for a substitute nominee
selected by the Board of Directors. Sovereign's management, however, has no
present reason to believe that any nominee listed below will be unable to serve
as a director, if elected.
The three nominees who receive the highest number of votes cast at the
Meeting will be elected Class III directors. Shares represented by properly
executed proxies in the accompanying form will be voted for the Class III
nominees named below unless otherwise specified in the proxy by the shareholder.
Any shareholder who wishes to withhold authority from the proxyholders to vote
for the election of directors or to withhold authority to vote for any
individual nominee may do so by marking his or her proxy to that effect.
Shareholders cannot cumulate their votes for the election of directors. No proxy
may be voted for a greater number of persons than the number of nominees named.
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The following table sets forth certain information concerning (i) the
nominees for election as Class III directors of Sovereign, (ii) the continuing
Class I and Class II directors of Sovereign, (iii) each named present or former
executive officer of Sovereign identified in the summary compensation table on
page 14, and (iv) all Sovereign directors and executive officers as a group,
including their beneficial ownership of shares of common stock of Sovereign as
of the Record Date. Unless otherwise indicated, each such Sovereign director and
each such named executive officer holds sole voting and investment power over
the shares listed as beneficially owned and the shares listed constitute less
than 1% of the outstanding shares. Unless otherwise indicated in a footnote,
shares indicated as being subject to options are shares issuable pursuant to
options outstanding and vested under Sovereign's stock option plans. Time in
service for certain directors includes time served as a director of Sovereign's
and Sovereign Bank's predecessor institutions.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
DIRECTOR BENEFICIAL OF COMMON
NAME AGE SINCE OWNERSHIP(1) STOCK
- ---- --- -------- ------------ ---------
<S> <C> <C> <C> <C>
NOMINEES AS CLASS III DIRECTORS
TO SERVE UNTIL 2002
Richard E. Mohn...................................... 67 1981 481,371(2) --
Jay S. Sidhu......................................... 47 1987 2,572,624(3) 1.6%
G. Arthur Weaver..................................... 65 1971 199,916(4) --
CONTINUING AS CLASS II DIRECTORS
TO SERVE UNTIL 2001
Rhoda S. Oberholtzer................................. 68 1979 33,808(5) --
Daniel K. Rothermel.................................. 60 1976 122,590(6) --
CONTINUING CLASS I DIRECTORS
TO SERVE UNTIL 2000
Patrick J. Petrone................................... 69 1987 277,097(7) --
Cameron C. Troilo, Sr................................ 60 1974 587,057(8) --
EXECUTIVE OFFICERS
Dennis S. Marlo(9)................................... 56 N/A 1,075,181(10) --
Lawrence M. Thompson, Jr............................. 46 N/A 382,330(11) --
All Sovereign Directors and executive officers as a
group (9 persons).................................. N/A N/A 5,731,974(12)(13) 3.4%
</TABLE>
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(1) The table reflects data supplied by each director and executive officer.
The table also reflects shares of Sovereign common stock owned by the
trustee of the Sovereign Employee Stock Ownership Plan (the "Sovereign
ESOP") which have been allocated to the accounts of the executive officers
identified in the table, and as a group.
(2) Mr. Mohn holds shared voting and investment power over 166,340 shares.
Shares and percent include 79,324 shares subject to vested options.
(3) Mr. Sidhu holds shared voting and investment power over 688,237 shares.
Shares and percent include 873,873 shares subject to vested options and
27,928 shares held by Sovereign's 401(k) Retirement Savings Plan that are
allocated to Mr. Sidhu's account. Shares and percent include 19,750 shares
purchased and held by the Sovereign ESOP which are allocated to Mr. Sidhu's
account and over which he exercises voting power.
(4) Mr. Weaver holds shared voting and investment power over 117,783 shares.
Shares and percent include 66,751 shares subject to vested options.
(5) Shares and percent include 24,000 shares subject to vested options.
(6) Mr. Rothermel holds shared voting and investment power over 7,856 shares.
Shares and percent include 3,341 shares held by Mr. Rothermel's spouse with
respect to which Mr. Rothermel disclaims beneficial ownership. Shares and
percent include 58,151 shares subject to vested options.
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(7) Shares and percent include 24,000 shares subject to vested options.
(8) Mr. Troilo holds shared voting and investment power over 425,040 shares.
Shares and percent include 55,783 shares subject to vested options.
(9) Upon completion of Sovereign's acquisition of ML Bancorp, Inc. on February
28, 1998, Mr. Marlo, the former President and Chief Executive Officer of ML
Bancorp, Inc., served as President of the Pennsylvania Division of
Sovereign Bank from February 28, 1998 until he was appointed Chief
Financial Officer and Treasurer of Sovereign effective May 18, 1998.
(10) Mr. Marlo holds shared voting and investment power over 111 shares. Mr.
Marlo's shares and percent include 601,240 shares subject to vested options
and 260 shares held by Sovereign's 401(k) Retirement Savings Plan which are
allocated to Mr. Marlo's account. Mr. Marlo was not a participant in the
Sovereign ESOP in 1998.
(11) Mr. Thompson holds shared voting and investment power over 2,563 shares.
Mr. Thompson's shares and percent include 199,254 shares subject to vested
options and 5,475 shares held by Sovereign's 401(k) Retirement Savings Plan
which are allocated to Mr. Thompson's account. Shares and percent include
15,007 shares purchased and held by the Sovereign ESOP that are allocated
to Mr. Thompson's account and over which he exercises voting power.
(12) In the aggregate, these persons hold shared voting and investment power
over 1,407,930 shares. Shares and percent include 1,982,376 shares subject
to vested options and 33,663 shares held by Sovereign's 401(k) Retirement
Savings Plan allocated to the executive officers' accounts. Shares and
percent include 34,757 shares purchased and held by the Sovereign ESOP that
are allocated to participant accounts and over which they exercise voting
power.
(13) Under a policy adopted by Sovereign's Board in January 1998, Sovereign's
non-employee directors, Mr. Sidhu, Mr. Marlo and Mr. Thompson are required
to beneficially own shares of Sovereign common stock having a value of
$100,000, six times base salary, and three times base salary, respectively,
at all times during their tenure with Sovereign. The ownership requirement
for non-employee directors and Mr. Sidhu must be achieved by December 31,
1999. The ownership requirement for Messrs. Marlo and Thompson must be
achieved by December 31, 2002. Shares of Sovereign common stock subject to
unexercised stock options and shares allocated to the account of Messrs.
Sidhu, Marlo and Thompson under Sovereign's ESOP are not considered
beneficially owned for purposes of the policy. Messrs. Sidhu, Marlo and
Thompson and a majority of the non-employee directors have met this
ownership requirement as of the date of this Proxy Statement.
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<PAGE>
The principal occupation and business experience during the last five years of,
and other information with respect to, each nominee for election as a director
of Sovereign and of each continuing director of Sovereign is as follows:
PHOTO Richard E. Mohn. Mr. Mohn became Chairman of the Board of
Sovereign Bank in November, 1989, and Chairman of Sovereign in
May 1995. Mr. Mohn is the retired Chairman of Cloister Spring
Water Company, Lancaster, Pennsylvania. Mr. Mohn serves as a
member of Sovereign's Executive, Compensation, Community
Reinvestment Act and Public Responsibility, Ethics and Corporate
Governance, Merger and Acquisition, Pension and Risk Management
Committees and also serves as Chairman of Sovereign's Nominating
Committee. Mr. Mohn has served on Sovereign's, Sovereign Bank's
or predecessor institutions' boards, committees, or advisory
boards for 24 years.
PHOTO Rhoda S. Oberholtzer. Mrs. Oberholtzer is retired. Prior to her
retirement she was Floral Manufacturing Manager of Stauffer's of
Kissel Hill, Lititz, Pennsylvania. Mrs. Oberholtzer serves on
Sovereign's Audit, Compensation, Community Reinvestment Act and
Public Responsibility, Ethics and Corporate Governance,
Nominating and Risk Management Committees, and also serves as
Chairperson of Sovereign's Pension Committee.
PHOTO Patrick J. Petrone. Mr. Petrone retired as President of the
Charter Federal Savings Bank Division of Sovereign Bank and as
Vice Chairman of Sovereign Bank in October 1996. Prior to the
merger of Charter Federal Savings Bank into Sovereign Bank in
1994, he served as President and Chief Executive Officer of
Charter FSB Bancorp from 1990 and of Charter Federal Savings Bank
from 1989. Mr. Petrone previously served as Executive Vice
President and Chief Executive Officer of Charter Federal Savings
Bank from 1988 to 1989. Mr. Petrone serves on Sovereign's
Executive, Compensation, Ethics and Corporate Governance,
Nominating, Pension, and Risk Management Committees, and also
serves as Chairman of Sovereign's Audit Committee and Community
Reinvestment Act and Public Responsibility Committee.
PHOTO Daniel K. Rothermel. Mr. Rothermel became President and Chief
Executive Officer of Cumru Associates, Inc., a private holding
company in 1989. He retired, in 1989, as Vice President, General
Counsel and Secretary of Carpenter Technology Corporation, a
publicly held specialty steel manufacturer, a position he held
for more than ten years. Mr. Rothermel is a member of Sovereign's
Audit, Compensation, Community Reinvestment Act and Public
Responsibility, Merger and Acquisition, Nominating, Pension and
Risk Management Committees, of Sovereign's Executive Committee
and Corporate Governance and Ethics Committee.
8
<PAGE>
PHOTO Jay S. Sidhu. Mr. Sidhu became President and Chief Executive
Officer of Sovereign in November 1989, and was named President
and Chief Executive Officer of Sovereign Bank in March 1989. Mr.
Sidhu previously served as Treasurer and Chief Financial Officer
of Sovereign since the organization of Sovereign in 1987. Mr.
Sidhu serves as a member of Sovereign's Executive, Community
Reinvestment Act and Public Responsibility, Ethics and Corporate
Governance, Pension and Risk Management Committees, and also
serves as Chairman of Sovereign's Merger and Acquisition
Committee.
PHOTO Cameron C. Troilo, Sr. Mr. Troilo is the owner and President of
Cameron C. Troilo, Inc., a holding company for entities engaged
in the construction, building material supply, and real estate
management businesses. Mr. Troilo previously served as Vice
Chairman of Yardley Savings & Loan Association, which was
acquired by Sovereign Bank in 1989. He presently serves on the
Audit, Compensation, Community Reinvestment Act and Public
Responsibility, Ethics and Corporate Governance, Merger and
Acquisition, Nominating and Pension Committees, and also serves
as Chairman of Sovereign's Risk Management Committee.
PHOTO G. Arthur Weaver. Mr. Weaver is a real estate and insurance
executive with the George A. Weaver Company, New Holland,
Pennsylvania. Mr. Weaver is a member of the Board of Directors of
Old Guard Group, Inc., a publicly-held holding company for
several property and casualty insurance companies. Mr. Weaver
serves on Sovereign's Executive, Audit, Community Reinvestment
Act and Public Responsibility, Ethics and Corporate Governance,
Nominating, Pension and Risk Management Committees, and also
serves as Chairman of Sovereign's Compensation Committee.
9
<PAGE>
COMPENSATION PAID TO DIRECTORS
Sovereign believes that the amount, form and methods used to determine
compensation are an important ingredient in (i) attracting and maintaining
directors who are independent, interested, diligent and actively involved in
Sovereign's affairs, and (ii) more substantially aligning the interests of
Sovereign's directors with the interests of Sovereign's stakeholders.
In 1996, shareholders approved the Non-Employee Director Compensation Plan
as a means of compensating non-employee directors of Sovereign and Sovereign
Bank for all services rendered as directors. The Plan requires that, on a
quarterly basis, all non-employees serving as directors of Sovereign and/or
Sovereign Bank receive a fixed number of shares of Sovereign common stock, plus,
except for the Chairman, $600 cash for each monthly Sovereign Board meeting
which the director attends and an additional $600 cash for each monthly
Sovereign Bank meeting which the director attends if the director is also a
director of Sovereign Bank. Sovereign's Chairman must receive the total amount
of his compensation in Sovereign common stock. During the year ended December
31, 1998, directors of Sovereign who also served as directors of Sovereign Bank
received 1,909 shares of Sovereign common stock, plus $1,200 for each monthly
Board meeting which they attended. Sovereign's Chairman's compensation for his
service in 1998 was 1,920 shares of Sovereign common stock per quarter.
In 1998, shareholders approved the Sovereign Bancorp, Inc. 1997
Non-Employee Directors' Stock Option Plan. In accordance with Sovereign's policy
of creating and maintaining a long-term mutuality of interests between
non-employee directors and Sovereign's shareholders, the Plan provides
non-employee directors of Sovereign (and not Sovereign Bank) with nonqualified
stock options as a portion of their compensation as directors. Each eligible
director receives 20,000 stock options each year (as adjusted pursuant to the
terms of the plan) for a period of five years. Each eligible director received
24,000 stock options in 1998 (as adjusted for the 6-for-5 stock split effected
in 1998).
Also, in accordance with Sovereign's policy of creating and maintaining
this long term mutuality of interest, Sovereign adopted, in January 1998, a
policy under which all Sovereign's non-employee directors, as well as
Sovereign's CEO who is a management director, are required to beneficially own
shares of Sovereign common stock having a value of $100,000 and six times base
salary, respectively, at all times during their tenure with Sovereign. The
ownership requirement for non-employee directors and Sovereign's CEO must be
achieved by December 31, 1999. The value of unexercised stock options and the
value of shares held for an officer's account under Sovereign's ESOP are not
considered for purposes of the ownership policy.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
Sovereign Bancorp, Inc.'s Executive Compensation Program is administered by
the Compensation Committee of the Board of Directors. The Compensation Committee
is composed entirely of non-employee Directors. The Executive Compensation
Program is structured and administered to support Sovereign's mission, which is
to be a highly focused, quality driven, market led and results oriented company,
seeking continually to outperform the market in terms of consistency, growth in
earnings, quality of earnings and return on equity. The program is also
structured to link executive compensation to Sovereign's performance and,
through programs which are substantially weighted in favor of the use of
Sovereign stock as a compensation medium, to more closely align the interests of
executive management with those of Sovereign's shareholders.
The Compensation Committee evaluates and recommends, to the Board of
Directors, compensation and awards for the Chief Executive Officer. The Chief
Executive Officer, Jay S. Sidhu, evaluates and approves compensation and awards
for the other executive officers. Such compensation and awards are based upon
Sovereign's performance and each individual's performance in meeting personal
and team objectives.
10
<PAGE>
COMPENSATION PHILOSOPHY
The Executive Compensation Program of Sovereign has been designed to:
o Align the interests of executives with the long-term interests of
shareholders through award opportunities which result in ownership of
common stock;
o Motivate key team members to achieve a superior level of quality
performance and financial results by rewarding them for their
achievement;
o Support a pay-for-performance policy that supplements overall company
compensation amounts based on company-wide results, team oriented results
and individual performance; and
o Provide the executive with an appropriate level of retirement income
through the use of a combination of both qualified and nonqualified
deferred compensation programs.
COMPONENTS OF COMPENSATION
At present, the Executive Compensation Program is comprised of salary,
annual cash incentive opportunities, long-term incentive opportunities in the
form of options to acquire Sovereign stock, deferred compensation and employee
benefits, which are also significantly stock based. As an executive's level of
responsibility increases, a greater portion of his or her potential total
compensation opportunity is based on performance incentives and less on salary
and employee benefits, causing greater variability in the individual's absolute
compensation from year-to-year. Base salary levels for the executive officers of
Sovereign are set below average compared to other companies within its peer
group because executives can have the opportunity for total compensation to
exceed the average salary for peer group companies upon Sovereign's achievement
of predetermined financial goals and objectives set by the Compensation
Committee and the Board of Directors. The intent is to have incentive
compensation tied to performance results. In 1998, Sovereign engaged a
compensation consultant to review and analyze Sovereign's base salary structure.
As a result of such review, adjustments were made to the annual base salaries of
certain employees and executive officers in October 1998 to reflect the
competitive salary market. Mr. Sidhu's annual base salary increased at that time
to $450,000. In accordance with Sovereign's policy, the increased base salary
levels remain below average compared to other companies within its peer group.
The 1998 salary increases were based primarily on the review and analysis of
Sovereign's salary structure compared to other companies within its peer group,
and were not based on any mathematical formula or directly related to any
quantitative criteria.
SHORT-TERM INCENTIVE COMPENSATION
Incentive compensation awards in 1999 were based on a review of Sovereign's
1998 performance. This review included an assessment of Sovereign's results of
operations for 1998 and of performance against financial hurdles, set in early
1998, relating to return on equity, earnings and capital levels for 1998. The
hurdles reflected the Board of Directors' determination of the appropriate goals
for a growth oriented company. No bonuses would have been paid to executive
management if Sovereign had not achieved these financial goals. Because
Sovereign substantially exceeded the goals and hurdles previously established by
the Board, Mr. Sidhu was eligible to receive an incentive compensation award of
$900,000 for 1998, 50% of which was deferred under the Bonus Deferral Plan and
the other 50% of which Mr. Sidhu directed be used to purchase shares of
Sovereign common stock under the Sovereign Bank Bonus Award Program which are
described under "Long-Term Incentive Compensation."
The amount of the bonus paid to Mr. Sidhu was determined solely on the
basis of the performance criteria established by the Board in early 1998. Under
these criteria, Mr. Sidhu was eligible to receive a bonus in the range of 0.40%
of Sovereign's 1998 net operating profit, excluding merger-related charges to a
maximum of 0.60% of Sovereign's 1998 net operating profit, excluding
merger-related charges, in the event that such net operating profit exceeded
$161.0 million. The Board established the target levels of net operating profit
based on increasing levels of return on shareholders' equity as of December 31,
1997, adjusted to include ML Bancorp, which was acquired by Sovereign in
February 1998. The Board capped the amount of cash payable to Mr. Sidhu for 1998
under the incentive plan at $500,000, in effect requiring that the remaining
amount of any bonus payable to him for 1998 be deferred under the Bonus Deferral
Plan described under "Long-Term Incentive Compensation." Consistent with
Sovereign's efforts to control expenses in light of the significant amount of
merger and acquisition activity undertaken by Sovereign in 1998, Sovereign's
officers, including Mr. Sidhu,
11
<PAGE>
agreed to reduce the amount of the bonuses for 1998 otherwise payable to them
under the formula established by the Board by 10%.
The Compensation Committee determined the amount of bonus paid to Mr.
Sidhu, and Mr. Sidhu determined the bonuses paid to the other named executives.
LONG-TERM INCENTIVE COMPENSATION
Sovereign's shareholders approved the 1996 Stock Option Plan at the 1996
Annual Meeting of Shareholders. The 1996 Plan, like its predecessor plans, is a
long-term plan designed not only to provide incentive to management, but also to
align a significant portion of the Executive Compensation Program with
shareholder interests. The 1996 Stock Option Plan permits Sovereign to grant
certain officers and employees a right to purchase shares of stock at the fair
market value per share at the date the option is granted. In granting stock
options to Mr. Sidhu and the other executive officers, the Compensation
Committee took into account Sovereign's financial performance, Sovereign's
long-term strategic goal of increasing shareholder value, the executive's level
of responsibility and his continuing contributions to Sovereign. Effective as of
November 19, 1998, the Board of Directors amended the 1996 Stock Option Plan to
permit the limited transfer of nonqualified stock options to a member of the
optionee's immediate family, a trust for the exclusive benefit of a family
member or pursuant to a domestic relations order. At the same time, the Board of
Directors also amended the 1986 Stock Option Plan to permit the limited transfer
of nonqualified stock options on the same terms as described above. A large
number of options granted under the 1986 Plan remain outstanding.
The Sovereign Bancorp, Inc. Bonus Recognition and Retention Plan (the
"Bonus Deferral Plan") permits a selected executive employee of Sovereign or
certain of its subsidiaries to annually defer receipt of 25% to 50% of his or
her bonus for a given year. The deferred amount is placed in a grantor trust and
invested in Sovereign common stock. A 100% matching contribution is made to the
trust by the employer on behalf of the participant and is likewise invested in
Sovereign common stock. Earnings on the deferral and match are reinvested in
such stock as well. A participant becomes 100% vested in the aggregate of each
year's deferral, match and earnings thereon five years after the initial funding
of such year's contributions to the trust. A participant also vests in the
account balance in the event of termination of employment by reason of death,
disability, retirement, involuntary termination or the occurrence of a change of
control (as such terms are defined). Termination for cause (as defined) or
voluntary termination of employment prior to the expiration of the five-year
vesting period generally results in the forfeiture of the entire account
balance, including the amount initially deferred by the participant. Payment of
vested account balances is made, in stock, in accordance with the election of
the participant or, in certain cases, at other times specified by the plan
document. To the extent permitted by law, a participant is entitled to vote all
shares of Sovereign common stock comprising his or her account balance.
Otherwise, such shares are voted by the trustee in its discretion. Messrs. Sidhu
and Thompson have each elected to defer receipt of 50% of their respective
bonuses for 1998 under this plan. Mr. Marlo was ineligible to participate in
this plan for 1998 because he was not employed by Sovereign on January 1, 1998.
Under the Sovereign Bonus Award Program, selected management employees may
direct that 50% or more of their bonus be used to purchase shares of Sovereign
common stock at fair market value. In such event, the dollar amount of bonus
which is used to purchase shares of Sovereign common stock is increased by 25%
to 30%, the percentage within this range varying based on the amount of the
bonus directed for the purchase of shares of stock. Shares issuable under this
plan are distributed to the participating employee ratably over a three-year
period. With respect to an employee who elected to participate in the Bonus
Deferral Plan, this 50% is incremental to the 25% to 50% of bonus which may be
deferred under that plan. In addition, participating employees are granted
options to purchase one share of Sovereign common stock for each $10 of cash
bonus directed for the purchase of Sovereign common stock under this Plan.
Vesting and forfeiture provisions with respect to shares not yet distributed to
a participant in the event of a participant's death, disability, retirement,
termination of employment or a change in control are substantially similar to
the vesting and forfeiture provisions with respect to the Bonus Deferral Plan
referred to above. This Plan is effective for the year beginning January 1,
1998. Messrs. Sidhu and Thompson each directed that the remaining 50% of their
respective bonuses for 1998 not deferred under the Bonus Deferral Plan be used
to purchase shares of Sovereign common stock under this Plan. Mr. Marlo directed
that 50% of his 1998 bonus be used to purchase shares of Sovereign common stock
under this Plan.
In addition to the three qualified pension benefit plans maintained by
Sovereign and certain of its subsidiaries for the benefit of their eligible
employees, three additional nonqualified plans are maintained to,
12
<PAGE>
among other things, supplement benefits that may be limited by certain
provisions of the Internal Revenue Code of 1986, as amended (the "Code"). The
qualified plans are a defined benefit retirement plan, the 401(k) Retirement
Savings Plan, and the Sovereign ESOP. The three nonqualified plans are described
below.
Effective as of June 1, 1997, the Board of Directors adopted the Sovereign
Bancorp, Inc. Enhanced Executive Retirement Plan (the "Enhanced Retirement
Plan"). Under the Enhanced Retirement Plan, a selected executive employee of
Sovereign or certain of its subsidiaries, who satisfies such plan's
requirements, will be entitled to an enhanced defined benefit pension to the
extent the pension from the qualified defined benefit retirement plan and
certain other sources is less than a targeted level. Such targeted level is an
annual pension equal to 60% of his or her average compensation (which includes
salary, bonus, deferred compensation but excludes income from the exercise of
stock options). The actual supplemental pension to which an eligible executive
is entitled to receive under the Enhanced Retirement Plan is reduced, but not
below zero, by the sum of his or her (i) pension under the qualified defined
benefit retirement plan, (ii) calculated Social Security benefit, and (iii)
pension under the Supplemental Retirement Plan described below. In order to vest
in the enhanced pension, an eligible executive must remain employed by Sovereign
until age 55 and attain 5 years of service under the qualified retirement plan.
Provision is made for a reduction in the plan benefit for a participant who
terminates before age 60 or who has completed less than 15 years of service, but
in no event will the targeted level be reduced below 30% of average
compensation. Provision is also made by the plan document for enhanced
survivor's and disability retirement benefits. In the case of a change in
control (as defined), special provisions apply, including immediate 100% vesting
and the elimination of the reduction in benefit for age and years of service
below the general plan requirements. Under certain circumstances (such as
defined misconduct and a breach of any applicable covenant not to compete),
enhanced plan benefits may be forfeited. Currently, only Messrs. Sidhu and
Thompson have been selected to participate in the Enhanced Retirement Plan.
Effective as of January 1, 1997, the Board of Directors adopted the
Sovereign Bancorp, Inc. Supplemental Executive Retirement Plan (the
"Supplemental Retirement Plan"). The purpose of the Supplemental Retirement Plan
is to replace, for selected employees, those benefits under the qualified
defined benefit retirement plan that are limited by certain provisions of the
Code. In general, selected employees will receive supplemental pensions equal to
such limited amount, subject generally to the provisions, conditions and other
limitations of the qualified plan document. Immediate 100% vesting is provided,
however, upon the occurrence of a change in control (as defined). Plan benefits
are provided through a grantor trust. Messrs. Sidhu, Marlo and Thompson
participate in the Supplemental Retirement Plan.
Effective as of January 1, 1997, the Board of Directors amended the
Sovereign Bancorp, Inc. Nonqualified Deferred Compensation Plan (the "Deferred
Compensation Plan") to more closely align its provisions with Sovereign's
long-term incentive compensation policy. The Deferred Compensation Plan, as
amended, is intended to serve two primary purposes. First, it is intended to
replace, for selected employees, those benefits under the 401(k) Retirement
Savings Plan that are limited by certain provisions of the Code. A 50% matching
contribution is made on behalf of a participant who defers receipt of at least
the required minimum amount of his or her compensation, subject to the condition
that matching contributions under the two plans will not be made with respect to
more than 6% of compensation. Second, the Deferred Compensation Plan is intended
to provide a vehicle for selected employees and directors of Sovereign and
certain of its subsidiaries to defer receipt of compensation generally. The
minimum and maximum annual deferrals permitted under the Deferred Compensation
Plan for employee-participants are $2,600 and 75% of base salary and bonus,
respectively. Participating directors may defer receipt of any portion of their
fees. Interest is credited on all account balances at rates determined from time
to time in accordance with the provisions of the plan document. Participants are
always 100% vested in their account balances. Payment of plan benefits is
generally made following termination of employment under the option (which may
include a lump sum) selected by the participant.
The following tables, and the accompanying narrative and footnotes, reflect
the decisions covered by the above discussion. This report has been furnished by
the Compensation Committee whose members are:
G. Arthur Weaver, Chairman
Richard E. Mohn
Rhoda S. Oberholtzer
Cameron C. Troilo, Sr.
Patrick J. Petrone
Daniel K. Rothermel
13
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and
long-term compensation awarded to, earned by or paid for services in all
capacities to Sovereign with respect to the fiscal years ended December 31,
1998, 1997 and 1996, of those persons who during 1998, (i) served as Sovereign's
chief executive officer or (ii) were executive officers (other than the chief
executive officer) whose total annual salary and bonus exceeded $100,000
(collectively with the chief executive officer, the "Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- ---------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND SALARY(1) BONUS(2) OPTIONS/SARS COMPENSATION(3)(4)
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
------------------ ---- --------- -------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
Jay S. Sidhu 1998 $330,769 $450,000 135,600 $ 0
President and 1997 291,154 454,000 217,800 4,750
Chief Executive Officer 1996 245,000 567,000 26,250 4,500
Dennis S. Marlo 1998 $330,000 $ 70,000 30,000 $2,400
Chief Financial 1997 N/A N/A N/A N/A
Officer and Treasurer(5) 1996 N/A N/A N/A N/A
Lawrence M. Thompson, Jr. 1998 $217,692 $ 91,154 59,950 $2,273
Chief Administrative 1997 163,462 75,478 105,120 4,750
Officer and Secretary 1996 125,000 82,784 10,500 4,500
</TABLE>
- ------------------
(1) Messrs. Sidhu and Thompson each received salary increases in 1998. Mr.
Sidhu's salary level increased to $450,000 during 1998. Mr. Thompson's
salary level increased to $250,000 during 1998. Mr. Marlo served as the
President of the Pennsylvania Division of Sovereign Bank from February 28,
1998 until he was appointed Chief Financial Officer and Treasurer of
Sovereign on May 18, 1998.
(2) Amounts shown for Messrs. Sidhu and Thompson for 1998 reflect 50% of the
bonus amount actually awarded because they each elected to defer, and
subject to a substantial risk of forfeiture, receipt of the remaining 50% of
their respective bonuses under the Bonus Deferral Plan. The deferred amount,
as well as Sovereign's matching contribution, are subject to such risk of
forfeiture for five years. See "Long-Term Incentive Compensation" above for
a more complete description of the Bonus Deferral Plan. Each of Mr. Sidhu
and Mr. Thompson directed that the remaining 50% of his bonus for 1998 (the
bonus amounts shown for such individuals in the table) be used to purchase,
at fair market value, shares of Sovereign common stock under the terms of
the Sovereign Bonus Award Program. Mr. Marlo elected to defer 50% of his
bonus for 1998 under the Bonus Award Program. Under the terms of the Bonus
Award Program, bonus amounts for management employees who direct that all or
a portion of their cash bonuses be used to purchase common stock are
increased by up to 30% and such increased amount is also used to purchase
common stock at fair market value. Employees who participate in the Bonus
Award Program are also granted additional stock options based on the amount
of bonus directed to be used to purchase Sovereign common stock. See "Long-
Term Incentive Compensation."
(3) Does not include the value of 1,162 shares of Sovereign Common Stock
allocated to the accounts of each of Messrs. Sidhu and Thompson under the
terms of Sovereign's Employee Stock Ownership Plan for 1998.
(4) Amounts appearing in this column are Sovereign's contributions on behalf of
each named person to the Sovereign Bancorp, Inc. 401(k) Retirement Savings
Plan, and, in the case of Messrs. Sidhu, Marlo, and Thompson include
Sovereign's contributions to the Sovereign Bancorp, Inc. Nonqualified
Deferred Compensation Plan.
(5) Upon completion of Sovereign's acquisition of ML Bancorp, Inc. on February
28, 1998, Mr. Marlo, the former President and Chief Executive Officer of ML
Bancorp, Inc., served as President of the Pennsylvania Division of Sovereign
Bank from February 28, 1998 until he was appointed Chief Financial Officer
and Treasurer of Sovereign effective May 18, 1998.
14
<PAGE>
The following table sets forth information concerning grants of stock
options during the fiscal year ended December 31, 1998 to the named executive
officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM(3)
GRANTED(1) IN FISCAL PRICE(2) EXPIRATION ---------------------
NAME (#) YEAR ($/SH) DATE 5%(%) 10%($)
---- ---------- ---------- -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Jay S. Sidhu.................... 75,600 11.0% $16.35 03/18/08 $777,351 $1,969,961
7,473 1.1 13.38 09/17/08 62,859 159,297
52,527 7.6 13,38 10/17/08 441,829 1,119,681
Dennis S. Marlo................. 7,473 1.1 13.38 09/17/08 62,859 159,297
22,527 3.3 13.38 10/17/08 189,485 480,192
Lawrence M. Thompson, Jr........ 30,000 4.3 16.35 03/18/08 308,473 781,731
7,423 1.1 13.38 09/17/08 62,859 159,297
22,527 3.3 13.38 10/17/08 189,485 480,192
</TABLE>
- ------------------
(1) Terms of outstanding incentive stock options are for a period of ten years
and nonqualified stock options are for a period of ten years and one month
from the date the option is granted. An option may only be exercised after
the holder has been an employee of Sovereign or one of its subsidiaries for
one full year from the date the option is granted or three months from the
date the employee's employment is terminated. Options were granted to
Messrs. Sidhu, Marlo and Thompson in the amount of 135,600, 30,000, and
60,000, respectively. Options are not exercisable following an optionee's
voluntary termination of employment other than by reason of retirement or
disability.
(2) Under the terms of the plan, the exercise price per share must equal the
fair market value on the date the option is granted. The exercise price may
be paid in cash, in shares of Sovereign common stock valued at fair market
value on the date of exercise or pursuant to a cashless exercise procedure
under which the optionee provides irrevocable instructions to a brokerage
firm to sell the purchased shares and to remit to Sovereign, out of the sale
proceeds, an amount equal to the exercise price plus all applicable
withholding taxes.
(3) The dollar amounts set forth under these columns are the result of
calculations made at the 5% and 10% appreciation rates set forth in
Securities and Exchange Commission regulations and are not intended to
indicate future price appreciation, if any, of Sovereign common stock.
The following table sets forth information concerning exercised and
unexercised options to purchase Sovereign common stock:
AGGREGATED OPTIONS EXERCISED IN LAST YEAR AND DECEMBER 31, 1998 OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, DECEMBER 31,
SHARES 1998 (#) 1998 ($)
ACQUIRED ON VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Jay S. Sidhu................. 297,278 $3,811,210 798,273/255,600 $11,375,390/$2,565,000
Dennis S. Marlo.............. 50,000 589,250 601,240/30,000 8,567,670/427,500
Lawrence M. Thompson, Jr..... 49,423 881,830 169,254/120,000 2,411,870/1,710,000
</TABLE>
15
<PAGE>
Sovereign maintains a defined benefit retirement plan for all employees who
have attained age 21 and have completed one year of eligibility service. The
following table sets forth the estimated annual benefits payable upon retirement
to participants at normal retirement age, in the average annual salary and years
of service classifications specified.
SOVEREIGN BANCORP, INC. PENSION PLAN
ILLUSTRATION OF BENEFITS AT DECEMBER 31, 1998
FIVE YEAR BENEFITS PAYABLE PER YEARS OF SERVICE(1)(2)
AVERAGE ---------------------------------------------------
REMUNERATION(3) 15 20 25 30 35
--------------- ------- ------- ------- ------- -------
$ 60,000 $11,273 $15,031 $18,789 $22,547 $26,305
80,000 16,973 22,631 28,289 33,947 39,605
100,000 22,673 30,231 37,789 45,347 52,905
120,000 28,373 37,831 47,289 56,747 66,205
140,000 34,073 45,431 56,789 68,147 79,505
160,000 39,773(4) 53,031(4) 66,289(4) 79,547(4) 92,805(4)
180,000 39,773(4) 53,031(4) 66,289(4) 79,547(4) 92,805(4)
200,000 39,773(4) 53,031(4) 66,289(4) 79,547(4) 92,805(4)
220,000 39,773(4) 53,031(4) 66,289(4) 79,547(4) 92,805(4)
240,000 39,773(4) 53,031(4) 66,289(4) 79,547(4) 92,805(4)
- ------------------
(1) The following are the years of credited service under Sovereign's pension
plan for the persons named in the cash compensation table: Mr. Sidhu -- 12
years; Mr. Marlo -- 1 year; and Mr. Thompson -- 13 years.
(2) Benefits are computed in single life annuity amounts on the basis of an
assumed year of birth of 1950 and without any deduction for Social Security
or other offset amounts.
(3) Represents the highest average remuneration received over a consecutive
five-year period during the last ten years, excluding deferred compensation
other than 401(k) Retirement Savings Plan contributions, subject in the
cases of Messrs. Sidhu, Marlo and Thompson to a compensation limit of
$160,000 in 1998.
(4) The 1998 maximum annual benefit permitted when the Internal Revenue Code's
annual compensation limit of $160,000 and maximum annual benefit limit are
applied to the pension plan's benefit formula.
16
<PAGE>
CERTAIN TRANSACTIONS
EMPLOYMENT AGREEMENTS
JAY S. SIDHU. Sovereign and Sovereign Bank entered into an employment
agreement, dated March 1, 1997, with Jay S. Sidhu, which superseded, in its
entirety, Mr. Sidhu's then existing employment agreement. Mr. Sidhu's agreement
has an initial term of five years and, unless terminated as set forth therein,
is automatically extended annually to provide a new term of five years except
that, at certain times, notice of nonextension may be given, in which case the
agreement will expire at the end of its then current term. No such notice has
been given.
The agreement provides a base salary which, if increased by action of the
Board of Directors, becomes the new base salary provided thereafter by the
agreement. In addition, the agreement provides, among other things, a right to
participate in any bonus plan approved by the Board of Directors and insurance,
vacation, pension and other fringe benefits for Mr. Sidhu.
If Mr. Sidhu's employment is terminated without cause (as defined), or if
Mr. Sidhu voluntarily terminates employment for "good reason," Mr. Sidhu becomes
entitled to severance benefits under the agreement. The term good reason
includes the assignment of duties and responsibilities inconsistent with Mr.
Sidhu's status as President and Chief Executive Officer, a reduction in salary
or benefits or a reassignment which requires Mr. Sidhu to move his principal
residence more than 100 miles from Sovereign's principal executive office. If
any such termination occurs, Mr. Sidhu will be paid an amount equal to five
times the sum of (i) his highest annual base salary under the agreement, and
(ii) the average of his annual bonuses with respect to the three calendar years
immediately preceding his termination. Such amount will be payable in sixty
equal monthly installments. In addition, in the event of such termination, Mr.
Sidhu will be entitled to continuation of certain insurance and other specified
benefits for sixty months or until he secures substantially similar benefits
through other employment, whichever shall first occur. Further, Mr. Sidhu will
be entitled to additional retirement benefits to which he would have been
entitled had his employment continued through the then remaining term of the
agreement. If the payments and benefits under the agreement, when aggregated
with other amounts received from Sovereign and Sovereign Bank, are such that Mr.
Sidhu becomes subject to excise tax on excess parachute payments under Code
Sections 4999 and 280G of the Internal Revenue Code, he will receive additional
payments equal to such excise tax and any incremental income taxes he may be
required to pay by reason of the receipt of additional amounts under the
agreement. Sovereign estimates that, if Mr. Sidhu had terminated employment as
of March 1, 1999 under circumstances entitling him to the above-described
severance benefits, he would have been entitled to receive $6.2 million,
exclusive of the non-cash benefits, additional retirement benefits, and any
potential excise tax-related payments.
If Mr. Sidhu's employment terminates by reason of his disability, he will
be entitled to continuation of 80% of the annual base salary and bonus described
above, less amounts payable under any disability plan of Sovereign, until the
earliest of (i) his return to employment, (ii) his attainment of age 65, or
(iii) his death. Provision is also made generally for the continuation of
insurance and other specified benefits for such period, as well as additional
credits for retirement benefit purposes.
The agreement contains provisions restricting Mr. Sidhu's right to compete
with Sovereign and Sovereign Bank during the period he is receiving severance or
disability benefits thereunder, except under certain circumstances.
DENNIS S. MARLO. In connection with Sovereign's completion of the
acquisition of ML Bancorp, Inc. in February 1998, Sovereign agreed to honor the
employment agreements between Mr. Dennis S. Marlo, the former President and
Chief Executive Officer of ML Bancorp, Inc., and each of ML Bancorp, Inc. and
Main Line Bank (the "Holding Company Agreement" and "Bank Agreement,"
respectively).
The Holding Company Agreement and the Bank Agreement had initial terms of
three years and, unless terminated as set forth therein, are automatically
extended annually for one additional year.
Both the Holding Company Agreement and the Bank Agreement contain terms
specifying Mr. Marlo's rights to base salary, bonus, pension and welfare
benefits, vacation, use of an automobile and replacement thereof
17
<PAGE>
every three years, membership dues at one club of his choice, post-employment
continuation of medical insurance coverage for him and his spouse until age 66,
and certain death benefits. In addition, he is entitled to reimbursement of
expenses incurred in furtherance of his employers' businesses.
As a result of the merger of ML Bancorp, Inc. with and into Sovereign
Bancorp, Inc. and the merger of Main Line Bank with and into Sovereign Bank, Mr.
Marlo is entitled to terminate his employment at any time during the term of his
Agreement, including any extension period. In such event he is entitled, in the
aggregate, to receive the following amounts and benefits: (i) payment of three
times his then base salary, payable in 36 equal monthly installments, and (ii)
continuation, at no cost to him, for a maximum period of 36 months of specified
employee benefits to which he theretofore was entitled under his employers'
plans, programs and arrangements. In addition, in the event that provision of
such termination payments and benefits causes the imposition of an excise tax
under Section 4999 of the Internal Revenue Code of 1986, as amended, he is
entitled to receipt of such additional payment (payable over 36 months) as are
necessary to neutralize the effect on him of the imposition of such tax.
LAWRENCE M. THOMPSON, JR. Sovereign has also entered into an employment
agreement with Lawrence M. Thompson, Jr., dated September 25, 1997, which
superseded Mr. Thompson's then-existing employment agreement. The agreement, has
an initial term of three years and, unless terminated as set forth therein, is
automatically extended at certain dates to provide a new term of three years
except that at certain times notice of nonextension may be given, in which case
the agreement will expire at the end of its then current term. The agreement
provides a base salary which, if increased by action of the Board of Directors,
becomes the new base salary provided thereafter by the agreement. In addition,
the agreement provides, among other things, a right to participate in any bonus
plan approved by the Board of Directors and insurance, vacation, pension and
other fringe benefits for the executive.
If Mr. Thompson's employment is terminated without cause (as defined),
whether or not a change in control (as defined) of Sovereign has occurred, or if
Mr. Thompson voluntarily terminates employment for good reason (as defined)
following a change in control, Mr. Thompson becomes entitled to severance
benefits under the agreement. The benefits are continuation of salary, bonus
(equal to the average bonus for the three prior years), and insurance and other
fringe benefits for three years. If, in the absence of a change in control, Mr.
Thompson's employment is terminated without cause, cash benefits payable under
the agreement are reduced by an amount equal to 25% of any compensation received
from another employer. The agreement contains a provision restricting Mr.
Thompson's right to compete, for a period of 12 months, after a voluntary
termination of employment without good reason or any termination for cause; in
all other circumstances, after termination of employment, there is no covenant
not to compete. In the event severance payments and benefits under the
agreement, when added to all other benefits in the nature of "parachute
payments" under Code Section 280G, payable to Mr. Thompson would cause the
excise tax provisions of Code Section 4999 to apply then the payments and
benefits under such agreement will be reduced to the minimum extent necessary to
avoid such tax.
INDEMNIFICATION
The Bylaws of Sovereign provide for (1) indemnification of directors,
officers, employees and agents of Sovereign and its subsidiaries and (2) the
elimination of a director's liability for monetary damages, each to the fullest
extent permitted by Pennsylvania law. Pennsylvania law provides that a
Pennsylvania corporation may indemnify directors, officers, employees and agents
of the corporation against liabilities they may incur in such capacities for any
action taken or any failure to act, whether or not the corporation would have
the power to indemnify the person under any provision of law, unless such action
or failure to act is determined by a court to have constituted recklessness or
willful misconduct. Pennsylvania law also permits the adoption of a Bylaw
amendment, approved by shareholders, providing for the elimination of a
director's liability for monetary damages for any action taken or any failure to
take any action unless (1) the director has breached or failed to perform the
duties of his office and (2) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.
Directors and officers of Sovereign are also insured against certain
liabilities for their actions, as such, by an insurance policy obtained by
Sovereign. The premium for 1998 was $404,877.
18
<PAGE>
On December 21, 1993, Sovereign Bank entered into an Indemnification
Agreement (the "Indemnification Agreement") with Mr. Sidhu. The Indemnification
Agreement provides that Sovereign Bank will indemnify Mr. Sidhu to the fullest
extent permitted by applicable law and regulation for all expenses, judgments,
fines and penalties incurred in connection with, and amounts paid in settlement
of, any claim relating to, among other things, the fact that Mr. Sidhu is or was
a director or officer of Sovereign or Sovereign Bank (an "Indemnifiable Claim").
Sovereign Bank will also advance expenses upon Mr. Sidhu's request in connection
with any Indemnifiable Claim.
Sovereign Bank's indemnification obligations are subject to the condition
that a Reviewing Party (as defined in the Indemnification Agreement) shall not
have determined that Mr. Sidhu would not be permitted to be indemnified under
applicable law. To the extent that it is subsequently determined that Mr. Sidhu
is not entitled to indemnification, he is required to reimburse Sovereign Bank
for any amounts previously paid.
Upon a Change in Control (as defined in the Indemnification Agreement) of
Sovereign or Sovereign Bank, all determinations regarding Sovereign Bank's
indemnification obligations under the Indemnification Agreement will be made by
Independent Legal Counsel (as defined in the Indemnification Agreement). Upon a
Potential Change in Control (as defined in the Indemnification Agreement) of
Sovereign or Sovereign Bank, Sovereign Bank will, upon written request by Mr.
Sidhu, create and fund a trust for the benefit of Mr. Sidhu in order to ensure
satisfaction of Sovereign Bank's indemnification obligations under the
Indemnification Agreement.
INDEBTEDNESS OF MANAGEMENT
As permitted by applicable federal banking laws, Sovereign Bank offered
consumer loans and residential mortgage loans to directors and employees of
Sovereign and its subsidiaries with at least one year of continuous service at
preferential terms with respect to interest rates and loan fees. Specifically,
interest rates offered to such persons were up to 1% lower than rates offered to
nonaffiliated persons for similar transactions, and certain loan origination
fees were waived. No loans were granted to directors or executive officers of
Sovereign on terms that were preferential to the terms applicable to employees
of Sovereign and Sovereign Bank at the time any such loan was made.
All loans to directors and executive officers of Sovereign (i) were made in
the ordinary course of business, (ii) were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions by Sovereign Bank with non-affiliated parties, except as
permitted by applicable federal banking law and as described above, and (iii)
did not involve more than the normal risk of repayment or present other
unfavorable features.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Sovereign's officers and directors, and any persons
owning ten percent or more of Sovereign's common stock, to file in their
personal capacities initial statements of beneficial ownership, statements of
changes in beneficial ownership and annual statements of beneficial ownership
with the Securities and Exchange Commission (the "SEC"). Persons filing such
beneficial ownership statements are required by SEC regulation to furnish
Sovereign with copies of all such statements filed with the SEC. The rules of
the SEC regarding the filing of such statements require that "late filings" of
such statements be disclosed in Sovereign's proxy statement. Based solely on
Sovereign's review of any copies of such statements received by it, and on
written representations from Sovereign's existing directors and officers that no
annual statements of beneficial ownership were required to be filed by such
persons, Sovereign believes that all such statements were timely filed in 1998.
OTHER
Cameron C. Troilo, a Class I director, leases space to Sovereign Bank for its
branch and commercial lending facilities located in Newtown, Bucks County,
Pennsylvania. The aggregate monthly rental for these facilities is $14,113,
excluding operating expenses and reimbursement for electricity. Sovereign
believes that the amount of rent charged by Mr. Troilo is not in excess of the
amount of rent charged by unrelated parties for similar premises in the area.
19
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph and table comparing the yearly percentage change
in the cumulative total shareholder return on Sovereign's common stock against
the cumulative total return on (1) the S&P 500 Index, (2) NASDAQ Bank Index and
(3) the S&P Savings & Loan Index for the five-year period commencing January 1,
1994, and ending December 31, 1998. In 1998, Sovereign had included a peer-group
comparison consisting of the three largest bank holding companies located in
Pennsylvania, PNC Financial Corp., Mellon Bank Corp. and CoreStates Financial
Corp. CoreStates Financial Corp was acquired in April 1998 and Sovereign intends
to prospectively use the S&P Savings & Loan Index as its peer-group comparison.
The following information includes a comparison to both the S&P Savings & Loan
Index and the three largest bank holding companies located in Pennsylvania for
the period presented. Keystone Financial, Inc. has been substituted for
CoreStates Financial Corp. for periods following the acquisition of CoreStates
in April 1998.
Cumulative total return on Sovereign's common stock, the S&P 500 Index, the
NASDAQ Bank Index, the S&P Savings & Loan Index and the common stock of the
largest three Pennsylvania bank holding companies equals the total increase in
value since January 1, 1994, assuming reinvestment of all dividends. The graph
and table were prepared assuming that $100 was invested on January 1, 1994 in
Sovereign's common stock, the S&P 500, the NASDAQ Bank Index, the S&P Savings &
Loan Index and the common stock of the largest three Pennsylvania bank holding
companies.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Sovereign............................. $100 $ 66 $ 91 $125 $238 $197
S&P 500............................... 100 101 139 171 229 294
NASDAQ Bank Index..................... 100 100 148 196 328 325
Top 3 Banks in PA(1).................. 100 89 146 194 317 342
S&P Savings & Loan Index.............. 100 87 143 172 304 284
- ------------------
(1) Includes CoreStates Financial Corp, Mellon Bank Corp. and PNC Bank Corp.
through the first quarter of 1998. Keystone Financial, Inc. replaces
CoreStates Financial Corp. in the second quarter of 1998 following the
acquisition of CoreStates.
20
<PAGE>
PROPOSAL TO AMEND SOVEREIGN'S ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 200,000,000 SHARES TO 400,000,000 SHARES
The Board of Directors has approved an amendment to Article Fifth of the
Articles of Incorporation which, if adopted, would increase the number of
authorized shares of Sovereign common stock from 200,000,000 to 400,000,000
shares. The Board of Directors recommends that shareholders approve this
amendment.
At March 1, 1999, there were 164,289,948 shares of Sovereign common stock
issued and outstanding. Of the remaining 35,710,052 shares of authorized common
stock on such date, approximately 31,500,000 shares will be issued in connection
with Sovereign's pending acquisition of Peoples Bancorp, Inc., leaving only
approximately 4,200,000 shares of common stock available for issuance by
Sovereign, including under its dividend reinvestment plan and various employee
benefit plans.
Matter No. 2 is being proposed because the Board of Directors believes that
it is advisable to have a greater number of authorized but unissued shares of
common stock available for various corporate programs and purposes. Sovereign
may from time to time consider acquisitions, stock dividends or stock splits,
and public or private financings to provide Sovereign with capital, which may
involve the issuance of additional shares of common stock or securities
convertible into common stock. Also, additional shares of common stock may be
necessary to meet anticipated future obligations under Sovereign's dividend
reinvestment and stock purchase plan and under Sovereign's employee benefit
plans. The Board of Directors believes that having authority to issue additional
shares of common stock will avoid the possible delay and significant expense of
calling and holding a special meeting of shareholders to increase authorized
shares of common stock.
Sovereign has no present plan, agreement or understanding involving the
issuance of its common stock except for shares required or permitted to be
issued under employee benefit plans, upon exercise of outstanding stock options,
under Sovereign's shareholder rights plan, and in connection with Sovereign's
pending acquisition of Peoples Bancorp, Inc. It is possible, however, that
additional merger and acquisition opportunities involving the issuance of shares
of common stock will develop. It is also possible that an increase in the market
price for common stock, and conditions in the capital markets generally, may
make a stock dividend, a stock split or a public offering of Sovereign's stock
desirable. Sovereign believes that an increase in the number of authorized
shares of Sovereign's common stock will enhance its ability to respond promptly
to any such opportunities.
If Matter No. 2 is approved, the Board of Directors will not solicit
shareholder approval to issue additional authorized shares of common stock,
except to the extent that such approval may be required by law, and such shares
may be issued for such consideration, cash or otherwise, at such times and in
such amounts as the Board of Directors may determine. Under the rules of the
National Association of Securities Dealers, Inc. applicable to Sovereign,
shareholder approval must be obtained prior to the issuance of shares for
certain purposes, including the issuance of greater than 20% of Sovereign's then
outstanding shares in connection with an acquisition by Sovereign.
Although the Board of Directors presently intends to employ the additional
shares of common stock solely for the purposes set forth above, such shares
could be used by the Board of Directors to dilute the stock ownership of persons
seeking to obtain control of Sovereign, thereby possibly discouraging or
deterring a nonnegotiated attempt to obtain control of Sovereign and making
removal of incumbent management more difficult. The proposal, however, is not a
result of, nor does the Board of Directors have knowledge of, any effort to
accumulate Sovereign capital stock or to obtain control of Sovereign by means of
a merger, tender offer, solicitation in opposition to the Board of Directors or
otherwise.
Article Fifth of Sovereign's Articles of Incorporation also authorizes the
issuance of 7,500,000 shares of preferred stock, which the Board of Directors
has the power to issue as a class or in series and to determine the voting
power, if any, dividend rates, conversion or redemption prices, designations,
rights, preferences and limitations of the shares in the class or in each
series. The proposed amendment to Article Fifth of Sovereign's Articles of
Incorporation will not increase or otherwise affect Sovereign's authorized
preferred stock. As of March 1, 1999, there were no shares of Sovereign's
preferred stock outstanding.
21
<PAGE>
The amendment of the Articles of Incorporation to increase the number of
authorized shares of common stock from 200,000,000 to 400,000,000 will consist
of a revision of Article Fifth of the Articles of Incorporation to read in its
entirety as follows:
"FIFTH. The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is 407,500,000 shares,
divided into two classes consisting of 400,000,000 shares of common
stock without par value ("Common Stock") and 7,500,000 shares of
preferred stock having such par value as the board of directors shall
fix and determine, as provided in Article Sixth below ("Preferred
Stock")."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS AMENDMENT. The
affirmative vote of a majority of all votes cast at the Meeting is required to
approve this amendment. Abstentions and broker non-votes will not constitute or
be counted as "votes" cast for purposes of the Meeting. All proxies will be
voted "FOR" approval of the amendment unless a shareholder specifies to the
contrary on such shareholder's proxy card.
PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of Sovereign has appointed Ernst & Young LLP,
independent auditors, as Sovereign's independent auditors for the fiscal year
ending December 31, 1999. No determination has been made as to what action
Sovereign's Board of Directors would take if shareholders do not ratify the
appointment.
Ernst & Young LLP has conducted the audit of the financial statements of
Sovereign and its subsidiaries for the year ended December 31, 1998.
Representatives of Ernst & Young LLP are expected to be present at the Meeting,
will be given an opportunity to make a statement if they desire to do so, and
will be available to answer appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
APPOINTMENT OF ERNST & YOUNG LLP AS SOVEREIGN'S INDEPENDENT AUDITORS FOR THE
1999 FISCAL YEAR. The affirmative vote of a majority of all votes cast at the
Meeting is required to ratify the appointment. Abstentions and broker non-votes
will not constitute or be counted as "votes" cast for purposes of the Meeting.
All proxies will be voted "FOR" ratification of the appointment unless a
shareholder specifies to the contrary on such shareholder's proxy card.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Sovereign's 2000 Annual Meeting of Shareholders will be held on or about
April 20, 2000.
In accordance with the Bylaws of Sovereign, a shareholder who desires to
propose a matter for consideration at an annual meeting of shareholders must
provide notice thereof in writing, delivered or mailed by first-class United
States mail, postage prepaid, to the Secretary of Sovereign, not less than 90
days nor more than 150 days prior to such annual meeting. For the 2000 Annual
Meeting of Shareholders, this period will begin on November 22, 1999 and end on
January 21, 2000.
Any shareholder who desires to submit a proposal to be considered for
inclusion in Sovereign's proxy materials relating to its 2000 Annual Meeting of
Shareholders in accordance with the rules of the Securities and Exchange
Commission must submit such proposal in writing, addressed to Sovereign Bancorp,
Inc. at 1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610 (Attn:
Secretary), on or before November 23, 1999.
22
<PAGE>
DIRECTOR NOMINATIONS BY SHAREHOLDER
In accordance with the Bylaws of Sovereign, any shareholder entitled to
vote for the election of directors may nominate candidates for election to the
Board provided that the shareholder has given notice of the nomination in
writing, delivered or mailed by first-class United States mail, postage prepaid,
to the Secretary of Sovereign not less than 90 days nor more than 120 days prior
to such annual meeting. For the 2000 Annual Meeting of Shareholders, this period
will begin on December 22, 1999 and end on January 21, 2000.
Shareholders may also recommend qualified persons for consideration by the
Board of Directors to be included in Sovereign's proxy materials as a nominee of
the Board of Directors. Shareholders making a recommendation must submit the
same information as that required to be included by Sovereign in its Proxy
Statement with respect to nominees of the Board of Directors. The shareholder
recommendation should be submitted in writing, addressed to Sovereign Bancorp,
Inc. at 1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610 (Attn:
Secretary), on or before January 15, 2000.
ANNUAL REPORT
Sovereign's Annual Report to the Shareholders for the year ended December
31, 1998 is enclosed herewith. Sovereign's Annual Report is furnished to
shareholders for their information. No part of the Annual Report is incorporated
by reference herein.
UPON WRITTEN REQUEST OF ANY SHAREHOLDER, A COPY OF SOVEREIGN'S ANNUAL
REPORT ON FORM 10-K FOR ITS FISCAL YEAR ENDED DECEMBER 31, 1998, INCLUDING A
LIST OF THE EXHIBITS THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 13a-1 UNDER THE SECURITIES EXCHANGE ACT OF
1934, MAY BE OBTAINED, WITHOUT CHARGE, FROM LAWRENCE M. THOMPSON, JR.,
SECRETARY, SOVEREIGN BANCORP, INC., 1130 BERKSHIRE BOULEVARD, WYOMISSING,
PENNSYLVANIA 19610. EACH REQUEST MUST SET FORTH A GOOD FAITH REPRESENTATION
THAT, AS OF THE RECORD DATE, THE PERSON MAKING THE REQUEST WAS A BENEFICIAL
OWNER OF SOVEREIGN'S COMMON STOCK ENTITLED TO VOTE AT THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Lawrence M. Thompson, Jr.
----------------------------------
LAWRENCE M. THOMPSON, JR.
Secretary
PLEASE REMEMBER TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR IMPORTANT VOTE WILL BE COUNTED AT
THE ANNUAL MEETING.
23
<PAGE>
DIRECTIONS TO THE SCOTTISH RITE CATHEDRAL
7th AVENUE & PARK ROAD, WYOMISSING, PA 19610
FROM:
MANHATTAN, NY -- Take Lincoln Tunnel to NJ Turnpike South to exit 14. Take I-78
West to 222 South to North Wyomissing Boulevard Exit. Turn left onto Park Road
at the traffic light. The Scottish Rite Cathedral is staight ahead (4 stop
lights + 1/2 mile) on the left.
ASBURY PARK/TRENTON, NJ -- Take I-95 West to NJ Turnpike South to PA Turnpike
West to Exit 22 Morgantown. Follow signs to I-176 North to North Wyomissing
Boulevard Exit. Turn left onto Park Road at the traffic light. The Scottish Rite
Cathedral is straight ahead (3 stop lights + 1/2 mile) on the left.
PHILADELPHIA, PA -- Take I-76 West to PA Turnpike West to Exit 22 Morgantown.
Follow signs to I-176 North to North Wyomissing Boulevard Exit. Turn left onto
Park Road at the traffic light. The Scottish Rite Cathedral is straight ahead (3
stop lights + 1/2 mile) on the left.
PITTSBURGH/HARRISBURG, PA -- Take PA Turnpike East to Exit 22 Morgantown. Follow
signs to I-176 North to North Wyomissing Boulevard Exit. Turn left onto Park
Road at the traffic light. The Scottish Rite Cathedral is straight ahead (3 stop
lights + 1/2 mile) on the left.
SCRANTON/WILKES-BARRE, PA -- Take I-81 South to 61 South to 222 South to North
Wyomissing Boulevard Exit. Turn left onto Park Road at the traffic light. The
Scottish Rite Cathedral is straight ahead (3 stop lights + 1/2 mile) on the
left.
DOVER, DE -- Take 13 North to Wilmington to 141 North to I-95 to 202 North to
100 North to PA Turnpike West to Exit 22 Morgantown. Follow signs to I-176 North
to North Wyomissing Boulevard Exit. Turn left onto Park Road at the traffic
light. The Scottish Rite Cathedral is straight ahead (3 stop lights + 1/2 mile)
on the left.
<PAGE>
[PROXY CARD]
[Side 1]
SOVEREIGN BANCORP, INC.
I/We hereby appoint Dennis S. Marlo, David A. Silverman and Patricia A.
Zong, or any one of them acting in the absence of the others, as proxyholders,
each with the power to appoint his or her substitute, and hereby authorize them
to represent and to vote, as designated on the reverse side, all the shares of
common stock of Sovereign Bancorp, Inc. held of record by me/us on March 1,
1999, at the Annual Meeting of Shareholders to be held on April 22, 1999, or any
adjournment thereof.
This proxy when properly executed will be voted in the manner directed on
the reverse side. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF DIRECTORS, FOR THE PROPOSAL TO AMEND SOVEREIGN'S ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM
200,000,000 SHARES to 400,000,000 SHARES, AND FOR RATIFICATION OF INDEPENDENT
AUDITORS. This proxy will be voted, in the discretion of the proxyholders, upon
such other business as may properly come before the Annual Meeting of
Shareholders or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Please vote and sign on the other side.
<PAGE>
[Side 2]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE FOLLOWING MATTERS & PROPOSALS
MATTER NO. 1:
ELECTION OF CLASS III DIRECTORS.
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as to vote for all
marked to the contrary below) nominees listed below
Richard E. Mohn; Jay S. Sidhu; G. Arthur Weaver
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
STRIKE A LINE THROUGH THE NAME IN THE LIST ABOVE.)
MATTER NO. 2:
INCREASE AUTHORIZED
SHARES OF COMMON STOCK FOR AGAINST ABSTAIN
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[ ] [ ] [ ]
MATTER NO. 3:
RATIFICATION OF FOR AGAINST ABSTAIN
INDEPENDENT AUDITORS [ ] [ ] [ ]
The undersigned hereby acknowledges receipt of
the Proxy Statement dated March 22, and hereby
revokes
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any proxy or proxies heretofore given to vote
shares at said meeting or any adjournment
thereof.
Dated _______________, 1999 _____________________________________________
Signature
(PLEASE DATE, SIGN AND RETURN
THIS PROXY IN THE ENCLOSED _____________________________________________
ADDRESSED ENVELOPE) Signature if held jointly. Please sign
exactly as name appears hereon.
