PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Section 240.14a-12
SOVEREIGN BANCORP, INC.
(Name of Registrant as Specified in its Charter)
_________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
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<PAGE>
SOVEREIGN BANCORP, INC.
March __, 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 RSVP card if you intend to be present at
the meeting.
We urge you to participate in the Meeting in person or by
proxy. Thank you very much for your continued interest in
Sovereign.
Sincerely,
Richard E. Mohn
Chairman of the Board
Jay S. Sidhu
President
and Chief Executive Officer
<PAGE>
[SOVEREIGN LOGO]
_____________________
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
to be held April 22, 1999
_____________________
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 500,000,000 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
LAWRENCE M. THOMPSON, JR.
Secretary
Wyomissing, Pennsylvania
March __, 1999
<PAGE>
SOVEREIGN BANCORP, INC
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
(610) 320-8400
_______________________________
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 22, 1999
_______________________________
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 __, 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 $7,500.00, plus reasonable
out-of-pocket expenses.
Voting and Revocation of Proxies. The execution and return
of the enclosed proxy will not affect a shareholder's right to
attend the Meeting and vote in person. Any shareholder giving a
proxy may revoke it at any time before it is exercised by
submitting written notice of its revocation or a subsequently
executed proxy bearing a later date to the Secretary of
Sovereign, or by attending the Meeting and electing to vote in
person. Shareholders of record at the close of business on
March 1, 1999 (the "Record Date"), are entitled to notice of, and
to vote at, the Meeting. On the Record Date, there were
159,727,155 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
500,000,000 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
<PAGE 1> comes before the Meeting or any adjournment thereof, in
the discretion of the persons named as proxyholders.
Quorum. The presence, in person or by proxy, of
shareholders entitled to cast at least a majority of the votes
that all shareholders are entitled to cast 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.
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.
- - Sovereign's Audit Committee consists of five directors, all
of whom are outside directors. Sovereign's Audit Committee
serves as the principal liaison among the Board of
Directors, Sovereign's independent certified public
accountants and Sovereign's internal audit function. It is
responsible for, among other things, reporting to
Sovereign's Board on the results of the annual audit. The
Committee reviews and evaluates the scope of the audit,
accounting policies and reporting practices, internal
auditing, internal controls, security procedures and other
matters considered appropriate. The Committee also reviews
the performance of Sovereign's independent certified public
accountants in connection with their audit of Sovereign's
financial statements. Importantly, from a corporate
governance perspective, the Audit Committee also regularly
evaluates the independent certified public accountants'
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 two times during
1998.
<PAGE 2>
- - 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 one time during 1998.
- - 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 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
<PAGE 3> 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 one time during 1998.
- - 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.
- - 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 one time 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
<PAGE 4> Management Committee, and Sovereign's Executive
Committee. Sovereign's Merger and Acquisition Committee, which
met two times 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 two times
during 1998, consists of seven directors, six of whom are outside
directors. This Committee administers Sovereign's Pension Plan,
Employee Stock Ownership Plan, Stock Purchase Plan,
401(k) Retirement Savings Plan and Sovereign's Long Term Deferred
Compensation Plans and Programs. This Committee also approves
Sovereign's investment policy and guidelines, reviews investment
performance, and appoints and retains trustees and investment
managers for Sovereign's retirement plans. Sovereign's Risk
Management Committee assesses the major risks which impact on
Sovereign's earnings, asset quality, operations, as well as
interest rate risk. The Committee consists of seven directors,
six of whom are outside directors. The Risk Management Committee
met two times 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.
New Sovereign directors receive manuals which include
information on Sovereign's vision, mission, values and style, as
well as copies of Sovereign's by-laws, policies, procedures and
guidelines. They are also provided with an opportunity to meet
with Sovereign's management and visit Sovereign's facilities.
Pre-meeting materials are routinely distributed to Board
members in advance of meetings. These materials include in-depth
reports on each of Sovereign's critical success factors,
including reports on asset quality, cost containment, interest
rate and other risks. These materials also include reports for
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.
<PAGE 5>
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:
- 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;
- Monitoring of Sovereign's activities which may
pose significant risks to Sovereign and of
Sovereign's programs to respond to and contain
such risks;
- 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; <PAGE 6>
- 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;
- 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;
- Periodic study, using outside resources, of
Sovereign's strategic alternatives, including
sale, continuing its current strategy, or engaging
in a merger of equals;
- 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;
- 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
- 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
<PAGE 7> 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.
The following table sets forth certain information
concerning (i) the nominees for election as Class III directors
<PAGE 8> 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 ___, 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. PAGE 9
<PAGE>
<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 181,357(4) --
CONTINUING AS CLASS II DIRECTORS
TO SERVE UNTIL 2001
Rhoda S. Oberholtzer ............ 68 1979 33,808(5) --
Daniel K. Rothermel ............. 60 1976 119,249(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 5,710,074(12)(13) 3.5%
_______________
</TABLE>
(1) The table reflects data supplied by each director and
executive officer. The table also reflects shares of
Sovereign common stock owned by the trustee of 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 outstanding shares. Shares and percent include
79,324 shares subject to vested options.
(3) Mr. Sidhu holds shared voting and investment power over
688,237 outstanding 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
42,545 shares. Shares and percent include 66,751 shares
subject to vested options.
<PAGE 10>
(5) Shares and percent include 24,000 shares subject to vested
options.
(6) Mr. Rothermel holds shared voting and investment power over
7,856 outstanding 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.
(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 outstanding 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 1,330,128 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
<PAGE 11> 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 are in compliance with this ownership
requirement as of the date of this Proxy Statement.
PAGE 12
<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 INSERT Richard E. Mohn. Mr. Mohn became Chairman of the
TO COME] 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 INSERT Rhoda S. Oberholtzer. Mrs. Oberholtzer is
TO COME] 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 INSERT Patrick J. Petrone. Mr. Petrone retired as
TO COME] 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 INSERT Daniel K. Rothermel. Mr. Rothermel became
TO COME] President and Chief Executive Officer of Cumru
Associates, Inc., a private holding company in
<PAGE 13> 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, and also serves as Chairman of
Sovereign's Executive Committee and Ethics and
Corporate Governance Committee.
[PHOTO INSERT Jay S. Sidhu. Mr. Sidhu became President and
TO COME] 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 INSERT Cameron C. Troilo, Sr. Mr. Troilo is the owner
TO COME] 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 INSERT G. Arthur Weaver. Mr. Weaver is a real estate and
TO COME] 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. <PAGE 14>
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 attend. 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 Sovereign 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 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. <PAGE 15>
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.
Compensation Philosophy
The Executive Compensation Program of Sovereign has been
designed to:
- Align the interests of executives with the long-
term interests of shareholders through award
opportunities which result in ownership of common
stock;
- Motivate key team members to achieve a superior
level of quality performance and financial results
by rewarding them for their achievement;
- Support a pay-for-performance policy that
supplements overall company compensation amounts
based on company-wide results, team oriented
results and individual performance; and
- Provide the executive with an appropriate level of
retirement income through the use of a combination
of both qualified and nonqualified deferred
compensation programs.
<PAGE 16>
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.
Pursuant to this policy and in light of the significant
performance based [increase] in Mr. Sidhu's bonus for 1998, his
base salary was [not] increased in January 1999. [The other
named executive officers were granted salary increases in 1998.]
These salary increases were not based on any mathematical formula
and did not directly relate to any quantitative factors.
Short-Term Incentive Compensation
Incentive compensation awards in 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
Mr. Sidhu elected to defer under the Bonus Deferral Plan and the
other 50% of which he 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 Compensation Committee determined the amount of bonus
paid to Mr. Sidhu, and Mr. Sidhu determined the bonuses paid to
the other named executives.
<PAGE 17>
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 is entitled
to annually defer receipt of 25% to 50% of his or her bonus for a
given year. The deferred amount is placed in a grantor trust and
invested in Sovereign common stock. A 100% matching contribution
is made to the trust by or on behalf of the participant's
employer and is likewise invested in Sovereign common stock.
Earnings on the deferral and match are reinvested in such stock
as well. A participant becomes 100% vested in the aggregate of
each year's deferral, match and earnings thereon 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 chose not
to do so for 1998. <PAGE 18>
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 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 chose not
to participate in this Plan for 1998.
In addition to the three qualified pension benefit plans
maintained by Sovereign and certain of its subsidiaries for the
benefit of their eligible employees, three additional
nonqualified plans are maintained to, among other things,
supplement benefits that may be limited by certain provisions of
the Internal Revenue Code of 1986, as amended (the "Code"). The
qualified plans are a defined benefit retirement plan, the 401(k)
Retirement Savings Plan, and the Sovereign ESOP. The three
nonqualified plans are described below.
Effective as of June 1, 1997, the Board of Directors adopted
the Sovereign Bancorp, Inc. Enhanced Executive Retirement Plan
(the "Enhanced Retirement Plan"). Under the Enhanced Retirement
Plan, a selected executive employee of Sovereign or certain of
its subsidiaries, who satisfies such plan's requirements, will
be entitled to an enhanced defined benefit pension to the extent
the pension from the qualified defined benefit retirement plan
and certain other sources is less than a targeted level. Such
targeted level is an annual pension equal to 60% of his or her
average compensation (which includes salary, bonus, deferred
compensation but excludes income from the exercise of stock
options). The actual supplemental pension to which an eligible
executive is entitled to receive under the Enhanced Retirement
Plan is reduced, but not below zero, by the sum of his or her
(i) pension under the qualified defined benefit retirement plan,
(ii) calculated Social Security benefit, and (iii) pension under
the Supplemental Retirement Plan described below. In order to
<PAGE 19> 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, Marlo and Thompson
have been selected to participate in the Enhanced Retirement
Plan.
Effective as of January 1, 1997, the Board of Directors
adopted the Sovereign Bancorp, Inc. Supplemental Executive
Retirement Plan (the "Supplemental Retirement Plan"). The
purpose of the Supplemental Retirement Plan is to replace, for
selected employees, those benefits under the qualified defined
benefit retirement plan that are limited by certain provisions of
the Code. In general, selected employees will receive
supplemental pensions equal to such limited amount, subject
generally to the provisions, conditions and other limitations of
the qualified plan document. Immediate 100% vesting is provided,
however, upon the occurrence of a change in control (as defined).
Plan benefits are provided through a grantor trust.
Effective as of January 1, 1997, the Board of Directors
amended the Sovereign Bancorp, Inc. Nonqualified Deferred
Compensation Plan (the "Deferred Compensation Plan") to more
closely align its provisions with Sovereign's long-term incentive
compensation policy. The Deferred Compensation Plan, as amended,
is intended to serve two primary purposes. First, it is intended
to replace, for selected employees, those benefits under the
401(k) Retirement Savings Plan that are limited by certain
provisions of the Code. A 50% matching contribution is made on
behalf of a participant who defers receipt of at least the
required minimum amount of his or her compensation, subject to
the condition that matching contributions under the two plans
will not be made with respect to more than 6% of compensation.
Second, the Deferred Compensation Plan is intended to provide a
vehicle for selected employees and directors of Sovereign and
certain of its subsidiaries to defer receipt of compensation
generally. The minimum and maximum annual deferrals permitted
under the Deferred Compensation Plan for employee-participants
are $2,600 and 75% of base salary and bonus, respectively.
Participating directors may defer receipt of any portion of their
fees. Interest is credited on all account balances at rates
determined from time to time in accordance with the provisions of
the plan document. Participants are always 100% vested in their
<PAGE 20> 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
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 $100,000 (collectively with the chief executive officer,
the "Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
Securities
Underlying All Other
Options/ Compensa-
Name and Salary(1) Bonus(2) SARs tion(3)(4)
Principal Position Year ($) ($) (#) ($)
<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
<PAGE 21> Pennsylvania Division of Sovereign Bank from
February 28, 1998 until he was appointed Chief Financial
Officer and Treasurer of Sovereign on May 19, 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 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. 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.
____________________
The following table sets forth information concerning grants
of stock options during the fiscal year ended December 31, 1998
to the named executive officers.
<PAGE 22>
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
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.
<PAGE 23>
The following table sets forth information concerning
exercised and unexercised options to purchase Sovereign common
stock:
<TABLE>
<CAPTION>
AGGREGATED OPTIONS EXERCISED IN LAST YEAR AND December 31, 1998 OPTION VALUE
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>
Pension Plan
Sovereign maintains a defined benefit retirement plan
("Pension Plan") for all employees who have attained age 21 and
have completed one year of eligibility service. The following
table sets forth the estimated annual benefits payable upon
retirement to participants at normal retirement age, in the
average annual salary and years of service classifications
specified.
<TABLE>
<CAPTION>
SOVEREIGN BANCORP, INC. PENSION PLAN
ILLUSTRATION OF BENEFITS AT December 31, 1998
Five Year
Average Benefits Payable Per Years of Service(1)(2)
Remuneration(3) 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 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)
____________________
</TABLE>
(1) The following are the years of credited service under
Sovereign's Pension Plan for the persons named in the cash
compensation table: Mr. Sidhu -- 12 years; Mr. Marlo -- 1
year; and Mr. Thompson -- 13 years. <PAGE 24>
(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.
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
<PAGE 25> 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 $____ 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 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
<PAGE 26> 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
<PAGE 27> 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 by-laws of Sovereign provide for (1) indemnification of
directors, officers, employees and agents of Sovereign and its
subsidiaries and (2) the elimination of a director's liability
for monetary damages, each to the fullest extent permitted by
Pennsylvania law. Pennsylvania law provides that a Pennsylvania
corporation may indemnify directors, officers, employees and
agents of the corporation against liabilities they may incur in
such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify
the person under any provision of law, unless such action or
failure to act is determined by a court to have constituted
recklessness or willful misconduct. Pennsylvania law also
permits the adoption of a by-law amendment, approved by
shareholders, providing for the elimination of a director's
liability for monetary damages for any action taken or any
failure to take any action unless (1) the director has breached
or failed to perform the duties of his office and (2) the breach
or failure to perform constitutes self-dealing, willful
misconduct or recklessness.
Directors and officers of Sovereign are also insured against
certain liabilities for their actions, as such, by an insurance
policy obtained by Sovereign. The premium for 1998 was $404,877.
On December 21, 1993, Sovereign Bank entered into an
Indemnification Agreement (the "Indemnification Agreement") with
Mr. Sidhu. The Indemnification Agreement provides that Sovereign
Bank will indemnify Mr. Sidhu to the fullest extent permitted by
applicable law and regulation for all expenses, judgments, fines
and penalties incurred in connection with, and amounts paid in
settlement of, any claim relating to, among other things, the
fact that Mr. Sidhu is or was a director or officer of Sovereign
or Sovereign Bank (an "Indemnifiable Claim"). Sovereign Bank
will also advance expenses upon Mr. Sidhu's request in connection
with any Indemnifiable Claim.
Sovereign Bank's indemnification obligations are subject to
the condition that a Reviewing Party (as defined in the
Indemnification Agreement) shall not have determined that
Mr. Sidhu would not be permitted to be indemnified under
applicable law. To the extent that it is subsequently determined
that Mr. Sidhu is not entitled to indemnification, he shall
reimburse Sovereign Bank for any amounts previously paid.
<PAGE 28>
Upon a Change in Control (as defined in the Indemnification
Agreement) of Sovereign or Sovereign Bank, all determinations
regarding Sovereign Bank's indemnification obligations under the
Indemnification Agreement shall be made by Independent Legal
Counsel (as defined in the Indemnification Agreement). Upon a
Potential Change in Control (as defined in the Indemnification
Agreement) of Sovereign or Sovereign Bank, Sovereign Bank shall,
upon written request by Mr. Sidhu, create and fund a trust for
the benefit of Mr. Sidhu in order to ensure satisfaction of
Sovereign Bank's indemnification obligations under the
Indemnification Agreement.
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
<PAGE 29> 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.
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.
Sovereign Bancorp, Inc.
Performance Graph
[Graph to be inserted separately]
1993 1994 1995 1996 1997 1998
Sovereign $100 $ 66 $ 91 $125 $238 $197
S&P 500 100 101 139 171 229 294
<PAGE 30>
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.
PROPOSAL TO AMEND SOVEREIGN'S ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 200,000,000 SHARES TO 500,000,000 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 500,000,000 shares. The Board of
Directors recommends that shareholders approve this amendment.
At March 1, 1999, there were 159,727,155 shares of Sovereign
common stock issued and outstanding. Of the remaining 40,272,845
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 less than
9,000,000 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
<PAGE 31> 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.
The amendment of the Articles of Incorporation to increase
the number of authorized shares of common stock from 200,000,000
to 500,000,000 will consist of a revision of Article Fifth of the
Articles of Incorporation to provide as follows: <PAGE 32>
"FIFTH. The aggregate number of shares of capital
stock which the Corporation shall have authority to
issue is 507,500,000 shares, divided into two classes
consisting of 500,000,000 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.
PAGE 33
<PAGE>
PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of Sovereign has appointed Ernst &
Young LLP, certified public accountants, as Sovereign's
independent auditors for the fiscal year ending December 31,
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 By-Laws of Sovereign, a shareholder
who desires to propose a matter for consideration at an annual
meeting of shareholders must provide notice thereof in writing,
delivered or mailed by first-class United States mail, postage
prepaid, to the Secretary of Sovereign, not less than 90 days nor
more than 120 days prior to such annual meeting.
Any shareholder who desires to submit a proposal to be
considered for inclusion in Sovereign's proxy materials relating
to its 2000 Annual Meeting of Shareholders must submit such
proposal in writing, addressed to Sovereign Bancorp, Inc. at
1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610 (Attn:
Secretary), on or before November __, 1999.
DIRECTOR NOMINATIONS BY SHAREHOLDER
In accordance with the by-laws of Sovereign, any shareholder
entitled to vote for the election of directors may nominate
candidates for election to the Board by providing notice thereof
in writing and delivered or mailed to Sovereign not less than
90 days prior to the date of the 2000 Annual Meeting of
Shareholders. <PAGE 34>
Any shareholder who desires to submit a candidate to be
considered for nomination to the Board of Directors for inclusion
in Sovereign's proxy materials relating to its 2000 Annual
Meeting of Shareholders must submit the same information as that
required to be stated by Sovereign in its Proxy Statement with
respect to nominees of the Board of Directors. The shareholder
nomination should be submitted in writing, addressed to Sovereign
Bancorp, Inc. at 1130 Berkshire Boulevard, Wyomissing,
Pennsylvania 19610 (Attn: Secretary), on or before January __,
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 thereof 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
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.
PAGE 35
<PAGE>
[PROXY CARD]
[Side 1]
SOVEREIGN BANCORP, INC.
I/We hereby appoint David A. Silverman and Patricia A. Zong,
or any one of them acting in the absence of the other, as
proxyholders, each with the power to appoint his or her
substitute, and hereby authorize them to represent and to vote,
as designated on the reverse side, all the shares of common stock
of Sovereign Bancorp, Inc. held of record by me/us on 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 500,000,000 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 36
<PAGE>
[Side 2]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE FOLLOWING MATTERS & PROPOSALS
MATTER NO. 1:
ELECTION OF CLASS II 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
[ ] [ ] [ ]
MATTER NO. 3:
RATIFICATION OF FOR AGAINST ABSTAIN
INDEPENDENT AUDITORS [ ] [ ] [ ]
The undersigned hereby acknowledges
receipt of the Proxy Statement
dated March __, and hereby revokes
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.
[ ] Please check this box if you plan to attend the 1999 Annual
Meeting.
<PAGE 37>
