EXHIBIT 99.1
AGREEMENT AND PLAN OF MERGER
among
SOVEREIGN BANCORP, INC.,
SOVEREIGN MERGER SUB, INC.
and
FIRST ESSEX BANCORP, INC.
June 12, 2003
TABLE OF CONTENTS
ARTICLE I THE MERGERS
Section 1.01 Definitions..................................2
Section 1.02 The Merger..................................12
Section 1.03 Surviving Corporation Merger................27
Section 1.04 Bank Merger.................................27
ARTICLE II REPRESENTATIONS AND WARRANTIES OF FIRST ESSEX
Section 2.01 Organization................................28
Section 2.02 Capitalization..............................29
Section 2.03 Authority; No Violation.....................31
Section 2.04 Consents....................................32
Section 2.05 Financial Statements........................33
Section 2.06 Taxes.......................................34
Section 2.07 No Material Adverse Effect..................34
Section 2.08 Contracts...................................34
Section 2.09 Ownership of Property; Insurance Coverage...36
Section 2.10 Legal Proceedings...........................37
Section 2.11 Compliance With Applicable Law..............38
Section 2.12 ERISA.......................................38
Section 2.13 Brokers, Finders and Financial Advisors;
Fairness Opinion............................40
Section 2.14 Environmental Matters.......................40
Section 2.15 Allowance for Losses........................41
Section 2.16 Information to be Supplied..................41
Section 2.17 Securities Documents........................42
Section 2.18 Related Party Transactions..................42
Section 2.19 Loans.......................................42
Section 2.20 Takeover Laws...............................42
Section 2.21 Labor and Employment Matters................43
Section 2.22 Quality of Representations..................43
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SOVEREIGN
Section 3.01 Organization................................43
Section 3.02 Capital Structure...........................44
Section 3.03 Authority; No Violation.....................45
Section 3.04 Consents....................................47
Section 3.05 Financial Statements........................47
Section 3.06 Taxes.......................................48
Section 3.07 No Material Adverse Effect..................49
Section 3.08 Ownership of Property; Insurance Coverage...49
Section 3.09 Legal Proceedings...........................49
Section 3.10 Compliance With Applicable Law..............50
Section 3.11 Information to be Supplied..................51
i
Section 3.12 ERISA.......................................51
Section 3.13 Securities Documents........................52
Section 3.14 Environmental Matters.......................53
Section 3.15 Allowance for Loan Losses...................53
Section 3.16 Loans.......................................53
Section 3.17 Continuity of Business Enterprise...........53
Section 3.18 No First Essex Capital Stock................53
Section 3.19 Sufficient Funds............................54
Section 3.20 Regulatory Capital..........................54
Section 3.21 Quality of Representations..................54
ARTICLE IV COVENANTS OF THE PARTIES
Section 4.01 Conduct of First Essex's Business...........54
Section 4.02 Access; Confidentiality.....................58
Section 4.03 Regulatory Matters and Consents.............59
Section 4.04 Taking of Necessary Action..................61
Section 4.05 Certain Agreements..........................61
Section 4.06 No Other Bids and Related Matters...........63
Section 4.07 Duty to Advise; Duty to Update Disclosure
Schedule....................................67
Section 4.08 Conduct of Sovereign's Business.............68
Section 4.09 Current Information.........................68
Section 4.10 Undertakings by Sovereign and First Essex...68
Section 4.11 Employee Benefits and Retention Bonuses.....72
Section 4.12 Affiliate Letter............................75
Section 4.13 Sovereign Rights Agreement..................76
Section 4.14 Advisory Board..............................76
Section 4.15 Non-Solicitation of Customers and Employees.76
ARTICLE V CONDITIONS
Section 5.01 Conditions to First Essex's Obligations
under this Agreement........................77
Section 5.02 Conditions to Sovereign's Obligations
under this Agreement........................78
ARTICLE VI TERMINATION, WAIVER AND AMENDMENT
Section 6.01 Termination.................................80
Section 6.02 Effect of Termination.......................82
ARTICLE VII MISCELLANEOUS
Section 7.01 Expenses....................................83
Section 7.02 Non-Survival of Representations and
Warranties..................................84
Section 7.03 Amendment, Extension and Waiver.............84
Section 7.04 Entire Agreement............................84
Section 7.05 No Assignment...............................85
ii
Section 7.06 Notices.....................................85
Section 7.07 Captions....................................86
Section 7.08 Counterparts................................86
Section 7.09 Severability................................86
Section 7.10 Governing Law...............................87
iii
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of June 12,
2003, is made by and among SOVEREIGN BANCORP, INC.
("Sovereign"), a Pennsylvania corporation, having its principal
place of business in Philadelphia, Pennsylvania, SOVEREIGN
MERGER SUB, INC., a Delaware corporation having its principal
place of business in Philadelphia, Pennsylvania and a wholly
owned subsidiary of Sovereign ("Merger Sub"), and FIRST ESSEX
BANCORP, INC. ("First Essex"), a Delaware corporation, having
its principal place of business in Andover, Massachusetts.
BACKGROUND
1. Sovereign and First Essex desire for First Essex to
merge with and into Sovereign, with Sovereign surviving such
merger, in accordance with the laws of the Commonwealth of
Pennsylvania, the State of Delaware and the plan of merger set
forth herein.
2. At or prior to the execution and delivery of this
Agreement, certain directors, officers of First Essex and
affiliates of First Essex, each have executed in favor of
Sovereign, a letter agreement dated June 12, 2003, in the form
attached hereto as Exhibit 1.
3. Sovereign desires to merge First Essex Bank, a
Massachusetts-chartered savings bank and a wholly-owned
subsidiary of First Essex ("First Essex Bank"), into and with
Sovereign Bank, a federal savings bank and a wholly-owned
subsidiary of Sovereign ("Sovereign Bank"), with Sovereign Bank
surviving such merger in accordance with the Bank Plan of Merger
(as hereinafter defined).
4. Sovereign and First Essex desire to provide the terms
and conditions governing the transactions contemplated herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, agreements, representations and warranties
herein contained, the parties hereto, intending to be legally
bound, do hereby agree as follows:
1
ARTICLE I
THE MERGERS
Section 1.01 Definitions. As used in this Agreement, the
following terms shall have the indicated meanings (such meanings
to be equally applicable to both the singular and plural forms
of the terms defined):
Acquisition Transaction shall mean one of the
following transactions with a party other than Sovereign or
an affiliate of Sovereign (i) a merger or consolidation, or
any similar transaction, involving First Essex or a First
Essex Subsidiary, (ii) a purchase, lease or other
acquisition of all or a substantial portion of the assets
or liabilities of First Essex or a First Essex Subsidiary
or (iii) a purchase or other acquisition (including by way
of share exchange, tender offer, exchange offer or
otherwise) of 15% of any class or series of equity
securities of First Essex or a First Essex Subsidiary (for
purposes of Section 4.06) or 50% of any class or series of
equity securities of First Essex or a First Essex
Subsidiary (for purposes of Section 6.02(b)).
Affiliate means, with respect to any Person, any
Person who directly, or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under
common control with, such Person and, without limiting the
generality of the foregoing, includes any executive officer
or director of such Person and any Affiliate of such
executive officer or director.
Aggregate Cash Election Share Number has the meaning
given that term in Section 1.02(e)(viii).
Aggregate Stock Election Share Number has the meaning
given that term in Section 1.02(e)(vi).
Agreement means this agreement, and any amendment or
supplement hereto.
Applications means the applications for regulatory
approval which are required by the transactions
contemplated hereby.
Average Final Price means the Sovereign Market Value
as of the Effective Date.
2
Bank Holding Company Act means the Bank Holding
Company Act of 1956, as amended.
Bank Merger means the merger of First Essex Bank with
and into Sovereign Bank, with Sovereign Bank surviving such
merger, contemplated by Section 1.04 of this Agreement.
Bank Plan of Merger has the meaning given to that term
in Section 1.04 of this Agreement.
BCL means the Pennsylvania Business Corporation Law of
1988, as amended.
Business Day means any day other than (i) a Saturday
or Sunday, or (ii) a day on which Sovereign is authorized
or obligated by law or executive order to close.
Cash Consideration has the meaning given that term in
Section 1.02(e)(iv).
Cash Election has the meaning given that term in
Section 1.02(e)(vii).
Cash Election Number shall have the meaning given that
term in Section 1.02(e)(vii).
Cash Election Shares has the meaning given that term
in Section 1.02(e)(viii).
Cash Proration Factor has the meaning given that term
in Section 1.02(e)(viii).
Certificate of Merger means the certificate of merger
to be executed by Merger Sub and First Essex and to be
filed with the DOSS, in accordance with the applicable laws
of the State of Delaware.
Change in Recommendation means the withdrawal,
modification or qualification (or any proposal to change,
modify or qualify) of the recommendation of the Merger by
the Board of Directors of First Essex in any manner adverse
to Sovereign or the Merger or the taking of any other
action or making any other statement in connection with the
meeting of First Essex's stockholders inconsistent with
recommending the Merger.
3
Closing Date means the date determined by Sovereign,
in its sole discretion, upon five (5) days prior written
notice to First Essex, but in no event earlier than
January 7, 2004, or such other date as Sovereign and First
Essex shall agree.
Common Stock Exchange Ratio shall have the meaning
given that term in Section 1.02(e)(iv).
DGCL means the Delaware General Corporation Law, as
amended.
DOSS means the Delaware Office of the Secretary of
State.
Effective Date means the date specified in the
Certificate of Merger, which may be the same as the Closing
Date.
Effective Time means the time specified in the
Certificate of Merger for the effectiveness of the Merger
or, if no such time is specified, the time of filing the
Certificate of Merger.
Election shall have the meaning given that term in
Section 1.02(e)(ix).
Election Date shall have the meaning given that term
in Section 1.02(f)(ii).
Environmental Law means any federal, state or local
law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, order, judgment,
decree, injunction or agreement with any Regulatory
Authority relating to (i) the protection, preservation or
restoration of the environment (including, without
limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or
(ii) the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production,
release or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, whether
by type or by quantity, including any material containing
any such substance as a component.
4
ERISA means the Employee Retirement Income Security
Act of 1974, as amended.
Exchange Act means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
from time to time thereunder.
Exchange Agent shall have the meaning given that term
in Section 1.02(f)(i).
FDIA means the Federal Deposit Insurance Act, as
amended.
FDIC means the Federal Deposit Insurance Corporation.
Federal Reserve Board means the Board of Governors of
the Federal Reserve System.
First Essex Advisory Board has the meaning given that
term in Section 4.14.
First Essex Certificates has the meaning given to that
term in Section 1.02(f)(ii).
First Essex Common Stock means the common stock of
First Essex described in Section 2.02(a).
First Essex Disclosure Schedule means a disclosure
schedule delivered by First Essex to Sovereign pursuant to
this Agreement.
First Essex Financials means (i) the annual audited
consolidated financial statements of First Essex as of
December 31, 2002 and for the three years ended
December 31, 2002, including the notes thereto and (ii) the
unaudited interim consolidated financial statements of
First Essex as of each calendar quarter thereafter included
in Securities Documents filed by First Essex, including the
notes thereto.
First Essex Option has the meaning given that term in
Section 1.02(g)(i).
First Essex Regulatory Reports means the annual or
quarterly reports, and accompanying schedules, of First
5
Essex or First Essex Bank, as the case may be, filed with
the OTS, FDIC or the MDB from December 31, 2002 through the
Closing Date.
First Essex Rights Agreement means the Rights
Agreement dated as of October 12, 1999 between First Essex
and Equiserve Trust Company, N.A., as rights agent,
relating to First Essex's Series B Junior Participating
Cumulative Preferred Stock in accordance with the terms of
the First Essex Rights Agreement.
First Essex Stock Option Plans means the stock option
plans of First Essex identified in the First Essex
Securities Documents.
First Essex Stock Purchase Rights means Rights to
purchase a unit of First Essex's Series B Junior
Participating Cumulative Preferred Stock in accordance with
the terms of the First Essex Rights Agreement.
First Essex Subsidiary means (i) any corporation or
business trust, 50% or more of the capital stock or equity
interests of which are owned, either directly or
indirectly, by First Essex, except any corporation the
stock of which is held in the ordinary course of the
lending activities of First Essex Bank, (ii) First Essex
Capital Trust I, and (iii) First Essex Capital Statutory
Trust II.
First Essex 401(k) Plan has the meaning given that
term in Section 4.11(a)(iii).
FSLA means the Fair Labor Standards Act of 1938.
GAAP means generally accepted accounting principles as
in effect at the relevant date.
HOLA means the Home Owners' Loan Act of 1933, as
amended.
IRC means the Internal Revenue Code of 1986, as
amended.
IRS means the Internal Revenue Service.
6
Labor and Employment Law means any federal, state,
local, or foreign law, statute, ordinance, executive order,
rule, regulation, code, consent, order, judgment, decree,
injunction or any agreement with any regulatory authority
relating to (i) employment discrimination or affirmative
action, (ii) labor relations, (iii) employee compensation
or benefits, (iv) safety and health, (v) wrongful or
retaliatory discharge, and/or (vi) any other aspect of the
employment relationship. Such laws shall include, but not
be limited to, Title VII of the Civil Rights Act of 1964 as
amended, the Age Discrimination in Employment Act, the
Americans with Disabilities Act, the Family and Medical
Leave Act, the Employee Retirement Income Security Act, the
Occupational Safety and Health Act, the Fair Labor
Standards Act, the Fair Credit Collection Act, the Worker
Adjustment and Retraining Notification Act, Executive
Order 11246, the Employee Polygraph Protection Act, the
Equal Pay Act, the National Labor Relations Act, the Older
Worker Benefit Protection Act, the Rehabilitation Act,
the Vietnam Era Veterans Readjustment Assistance Act, as
well as any and all state fair employment practices laws,
any and all state labor relations laws, any and all state
wage and hour laws, any and all state wage payment and
collection laws, any and all state statutes regarding
wrongful or retaliatory discharge, and federal and state
common law regarding employment discrimination or
affirmative action, labor relations, employee compensation
or benefits, safety and health and/or wrongful or
retaliatory discharge and/or related tort claims.
MDB means the Massachusetts Division of Banks.
MHPF means the Massachusetts Housing Partnership Fund.
MBBI means the Massachusetts Board of Bank
Incorporation.
MDIF means the Massachusetts Depositors Insurance Fund
Material Adverse Effect shall mean, with respect to
Sovereign or First Essex, respectively, any effect that is
material and adverse to its assets, financial condition or
results of operations on a consolidated basis, provided,
however, that Material Adverse Effect shall not be deemed
to include (a) any change in the value of the respective
investment and loan portfolios of Sovereign or First Essex
7
resulting from a change in interest rates generally,
(b) any change occurring after the date hereof in any
federal or state law, rule or regulation or in GAAP, which
change affects banking institutions generally, including
any changes affecting the Bank Insurance Fund or the
Savings Association Insurance Fund, (c) changes in general
economic (except in the context of determining a Material
Adverse Effect for purposes of asset quality), legal,
regulatory or political conditions affecting banking
institutions generally, (d) changes resulting from the
announcement of the transactions contemplated by this
Agreement, (e) reasonable expenses (plus reasonable legal
fees, cost and expense relating to any litigation arising
as a result of the Merger and the costs associated with
Section 4.11 hereof) incurred in connection with this
Agreement and the transactions contemplated hereby,
(f) actions or omissions of a party (or any of its
Subsidiaries) taken pursuant to the terms of this Agreement
with the prior written consent of the other party in
contemplation of the transactions contemplated hereby
(including without limitation any actions taken by First
Essex pursuant to Section 4.10(a)(vii) of this Agreement),
and (g) any effect with respect to a party hereto caused,
in whole or in substantial part, by the other party.
Merger means the merger of Merger Sub with and into
First Essex, with First Essex surviving such merger,
contemplated by this Agreement.
Merger Consideration means the Cash Consideration or
the Stock Consideration, as applicable.
Merger Sub has the meaning given that term in the
first paragraph of the Agreement.
Merger Sub Common Stock has the meaning given that
term in Section 1.02(e)(iii) of this Agreement.
Mixed Election has the meaning given that term in
Section 1.02(e)(ix).
Non-Election Shares shall have the meaning given that
term in Section 1.02(f)(v).
NYSE means the New York Stock Exchange.
8
OTS means the Office of Thrift Supervision.
PDS means the Department of State of the Commonwealth
of Pennsylvania.
Person means any individual, corporation, partnership,
limited liability company, limited liability partnership,
joint venture, association, trust or "group" (as that term
is defined in Section 13(d)(3) of the Exchange Act).
Prospectus/Proxy Statement means the prospectus/proxy
statement, together with any supplements thereto, to be
transmitted to holders of First Essex Common Stock in
connection with the transactions contemplated by this
Agreement.
Registration Statement means the registration
statement on Form S-4, including any pre-effective or post-
effective amendments or supplements thereto, as filed with
the SEC under the Securities Act with respect to the
Sovereign Common Stock and Sovereign Stock Purchase Rights
to be issued in connection with the transactions
contemplated by this Agreement.
Regulatory Agreement has the meaning given to that
term in Section 2.11 and 3.10 of this Agreement.
Regulatory Authority means any banking agency or
department of any federal or state government, including
without limitation the OTS, the Federal Reserve Board, the
FDIC, the MDB, the MHPF, the MBBI, the MDIF or the
respective staffs thereof.
Rights means warrants, options, rights, convertible
securities and other capital stock equivalents which
obligate an entity to issue its securities.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as
amended, and the rules and regulations promulgated from
time to time thereunder.
9
Securities Documents means all registration
statements, schedules, statements, forms, reports, proxy
materials, and other documents required to be filed under
the Securities Laws.
Securities Laws means the Securities Act and the
Exchange Act and the rules and regulations promulgated from
time to time thereunder.
Sovereign Common Stock has the meaning given to that
term in Section 3.02(a) of this Agreement.
Sovereign Disclosure Schedule means a disclosure
schedule delivered by Sovereign to First Essex pursuant to
this Agreement.
Sovereign ESOP has the meaning given that term in
Section 4.11(a)(i).
Sovereign Financials means (i) the annual audited
consolidated financial statements of Sovereign as of
December 31, 2002 and for the three years ended
December 31, 2002, including the notes thereto and (ii) the
unaudited interim consolidated financial statements of
Sovereign as of each calendar quarter thereafter included
in Securities Documents filed by Sovereign, including the
notes thereto.
Sovereign Market Price means, as of any date, the
closing sale price of a share of Sovereign Common Stock, as
reported on the NYSE.
Sovereign Market Value means, as of any date, the
average of the Sovereign Market Prices for the ten
consecutive trading days ending on the trading day
preceding the date as of which the Sovereign Market Value
is determined.
Sovereign Regulatory Reports means the annual reports
of Sovereign or Sovereign Bank, as the case may be, filed
with the OTS from December 31, 2002 through the Closing
Date.
Sovereign Rights Agreement means the Rights Agreement
dated as of September 19, 1989, as amended September 27,
1995, and as further amended and restated June 21, 2001,
10
between Sovereign and Mellon Investor Services LLC, as
rights agent, relating to Sovereign's Series A Junior
Participating Preferred Stock.
Sovereign Stock Purchase Rights means Rights to
purchase a unit of Sovereign's Series A Junior
Participating Preferred Stock in accordance with the terms
of the Sovereign Rights Agreement.
Sovereign Subsidiaries means (i) any corporation, 50%
or more of the capital stock or equity interests of which
are owned, either directly or indirectly, by Sovereign,
except any corporation the stock of which is held in the
ordinary course of the lending activities of a bank,
(ii) Sovereign Bank, (iii) Merger Sub, and (iv) Sovereign
Capital Trust I, Sovereign Capital Trust II and Sovereign
Capital Trust III and any similar entity sponsored or
created by Sovereign.
Sovereign 401(k) Plan has the meaning given that term
in Section 4.11(a)(ii).
Stock Consideration shall have the meaning given that
term in Section 1.02(e)(iv).
Stock Election shall have the meaning given that term
in Section 1.02(e)(v).
Stock Election Number has the meaning given that term
in Section 1.02(e)(v).
Stock Election Shares shall have the meaning given
that term in Section 1.02(e)(vi).
Stock Proration Factor shall have the meaning given
that term in Section 1.02(e)(vi).
Subsidiary means any corporation, 50% or more of the
capital stock of which is owned, either directly or
indirectly, by another entity, except any corporation the
stock of which is held in the ordinary course of the
lending activities of a bank.
Superior Proposal means a bona fide written proposal
for an Acquisition Transaction on terms which the Board of
Directors of First Essex concludes in good faith, based
11
upon a written opinion of its financial advisors and after
consultation with First Essex's outside legal counsel,
taking into account all the terms and conditions of the
Acquisition Transaction (including any break-up fees,
expense reimbursement provisions and conditions to
consummation), the legal, financial and regulatory aspects
of the proposal, and the person making the proposal,
(i) are in the aggregate more favorable and provide greater
value to all the stockholders of First Essex than the
Merger and (ii) are fully financed, or reasonably capable
of being fully financed, and otherwise reasonably capable
of being completed as proposed.
Surviving Corporation has the meaning given to that
term in Section 1.02(b).
Takeover Laws has the meaning given to that term in
Section 2.20.
Section 1.02 The Merger.
(a) Closing. The closing will take place at on the
Closing Date at such time and place as are agreed to by the
parties hereto; provided, in any case, that all conditions to
closing set forth in Article V (other than the delivery of
certificates, opinions and other instruments and documents to be
delivered at the closing) have been satisfied or waived at or
prior to the Closing Date. On the Closing Date, Sovereign and
First Essex shall cause the Certificate of Merger to be duly
executed and filed with the DOSS.
(b) The Merger. Subject to the terms and conditions
of this Agreement, on the Effective Date: Merger Sub shall
merge with and into First Essex; the separate existence of
Merger Sub shall cease; First Essex shall be the surviving
corporation in the Merger (First Essex, as the surviving
corporation in the Merger, sometimes referred to as the
"Surviving Corporation"); and all of the property (real,
personal and mixed), rights, powers and duties and obligations
of Merger Sub shall be taken and deemed to be transferred to and
vested in the Surviving Corporation, without further act or
deed; all debts, liabilities and duties of each of Merger Sub
and First Essex shall thereafter be the responsibility of the
Surviving Corporation; all in accordance with the applicable
laws of the State of Delaware.
12
(c) Certificate of Incorporation and Bylaws of the
Surviving Corporation. On and after the Effective Date, the
certificate of incorporation and bylaws of Merger Sub, as in
effect immediately prior to the Effective Date, shall
automatically be and remain the certificate of incorporation and
bylaws of the Surviving Corporation, until thereafter altered,
amended or repealed.
(d) Board of Directors and Officers of the Surviving
Corporation. On and after the Effective Date, the directors and
officers of Merger Sub shall be the directors and officers of
the Surviving Corporation, until such time as their successors
are elected and duly qualified.
(e) Effect on Shares. At the Effective Time, by
virtue of the Merger and without any action on the part of
Sovereign, Merger Sub, First Essex or the holders of any of the
following securities, the following shall occur:
(i) Cancellation of Certain Common Stock.
Each share of First Essex Common Stock that is owned by
Sovereign, Merger Sub, First Essex or any of their
Subsidiaries (other than shares that are held in trust,
managed, custodial or nominee accounts and the like and
that are beneficially owned by third parties) shall be
canceled and cease to be issued and outstanding, and no
consideration shall be delivered therefor.
(ii) Certain Sovereign Common Stock Not
Affected. Each issued and outstanding share of Sovereign
Common Stock shall, at and after the Effective Time,
continue to be issued and outstanding as an identical share
of Sovereign Common Stock.
(iii) Conversion of Merger Sub Common Stock.
Each share of common stock of Merger Sub, $0.01 par value
("Merger Sub Common Stock"), issued and outstanding
immediately prior to the Effective Time shall be canceled
and retired at the Effective Time and automatically
converted into one validly issued, fully paid and
nonassessable share of common stock, $0.01 par value, of
the Surviving Corporation. Each certificate evidencing
ownership of a number of shares of Merger Sub Common Stock
shall be deemed to evidence ownership of the same number of
shares of common stock, $0.01 par value, of the Surviving
Corporation.
13
(iv) Conversion of First Essex Common Stock.
Each share of First Essex Common Stock issued and
outstanding immediately prior to the Effective Time (other
than shares canceled pursuant to Section 1.02(e)(i) and
shares with respect to which the holder thereof duly
exercises the right to dissent, if any, under applicable
law) shall, based on the election procedures set forth
below, be converted into the right to receive (x) $48.00 in
cash (the "Cash Consideration") or (y) 2.9250 validly
issued, fully paid and nonassessable shares of Sovereign
Common Stock (the "Stock Consideration") (the "Common Stock
Exchange Ratio"), plus such additional consideration, if
any, provided by Section 1.02(e)(xii).
(v) Stock Election. Subject to the
immediately following sentence, each record holder of First
Essex Common Stock, determined pursuant to Section 1.02(f),
shall be entitled to elect to receive shares of Sovereign
Common Stock for such holder's shares of First Essex Common
Stock (a "Stock Election"). Notwithstanding the foregoing,
the number of shares of First Essex Common Stock to be
converted into the right to receive Sovereign Common Stock
at the Effective Time will be equal to 50% of the total
number of shares of First Essex Common Stock issued and
outstanding as of the close of business on the second
trading day prior to the Effective Time (excluding for this
purpose shares to be canceled pursuant to
Section 1.02(e)(i)) (the "Stock Election Number").
(vi) Stock Election Shares. As used herein,
the term "Stock Election Shares" means shares of First
Essex Common Stock for which a Stock Election has been made
and the term "Aggregate Stock Election Share Number" means
the aggregate number of shares of First Essex Common Stock
covered by Stock Elections. If the Aggregate Stock
Election Share Number exceeds the Stock Election Number,
each Stock Election Share shall be converted into the right
to receive shares of Sovereign Common Stock or cash in the
following manner:
(A) a proration factor (the "Stock
Proration Factor") shall be determined by dividing the
Stock Election Number by the Aggregate Stock Election
Share Number;
14
(B) the number of Stock Election Shares
covered by each Stock Election that will be converted
into the right to receive the Stock Consideration
shall be determined by multiplying the Stock Proration
Factor by the total number of shares of First Essex
Common Stock covered by such Stock Election; and
(C) each Stock Election Share other than
Stock Election Shares converted into the right to
receive Sovereign Common Stock in accordance with
Section 1.02(e)(vi)(B) above shall be converted into
the right to receive the Cash Consideration.
(vii) Cash Election. Subject to the immediately
following sentence, each record holder of shares of First
Essex Common Stock, determined pursuant to Section 1.02(f),
shall be entitled to elect to receive Cash Consideration
for such holder's shares of First Essex Common Stock (a
"Cash Election"). Notwithstanding the foregoing, the
number of shares of First Essex Common Stock to be
converted into the right to receive cash at the Effective
Time will be equal to 50% of the total number of shares of
First Essex Common Stock issued and outstanding as of the
close of business on the second trading day prior to the
Effective Time, minus (x) the number of shares of First
Essex Common Stock with respect to which dissenters'
rights, if any, have been duly exercised (excluding for
this purpose shares to be canceled pursuant to
Section 1.02(e)(i)) and (y) the aggregate number of shares
with respect to which cash is paid in lieu of fractional
shares pursuant to Section 1.2(e)(xi) (the "Cash Election
Number").
(viii) Cash Election Shares. As used herein, the
term "Cash Election Shares" means the shares of First Essex
Common Stock for which a Cash Election has been made and
the term "Aggregate Cash Election Share Number" means the
aggregate number of shares of First Essex Common Stock
covered by Cash Elections. If the Aggregate Cash Election
Share Number exceeds the Cash Election Number, each Cash
Election Share shall be converted into the right to receive
cash or Sovereign Common Stock in the following manner:
15
(A) a proration factor (the "Cash Proration
Factor") shall be determined by dividing the Cash
Election Number by the Aggregate Cash Election Share
Number;
(B) the number of Cash Election Shares
covered by each Cash Election that will be converted
into the right to receive Cash Consideration shall be
determined by multiplying the Cash Proration Factor by
the total number of shares of First Essex Common Stock
covered by such Cash Election; and
(C) each Cash Election Share other than
those shares converted into the right to receive cash
in accordance with Section 1.02(e)(viii)(B) shall be
converted into the right to receive the Stock
Consideration.
(ix) Mixed Election. Subject to the i
immediately following sentence, each record holder of
shares of First Essex Common Stock immediately prior to the
Effective Time shall be entitled to elect to receive shares
of Sovereign Common Stock for part of such holder's shares
of First Essex Common Stock and cash for the remaining part
of such holder's shares of First Essex Common Stock (the
"Mixed Election" and, collectively with Stock Election and
Cash Election, the "Election"). With respect to each
holder of First Essex Common Stock who makes a Mixed
Election, the shares of First Essex Common Stock such
holder elects to be converted into the right to receive the
Stock Consideration shall be treated as Stock Election
Shares for purposes of the provisions contained in Sections
1.02(e)(v) and (vi) and the shares such holder elects to be
converted into the right to receive Cash Consideration
shall be treated as Cash Election Shares for purposes of
the provisions contained in Sections 1.02(e)(vii) and
(viii).
(x) Adjustments to Stock and Cash
Consideration. Notwithstanding anything herein to the
contrary, the total Stock Consideration shall be increased
and the total Cash Consideration shall be decreased if, but
only to the extent, necessary to ensure that the total
value of the Cash Consideration to be received by the First
Essex stockholders is no more than 60% of the total
consideration to be received by the First Essex
16
stockholders, as follows: The Stock Election Shares held
by any First Essex stockholder shall, instead of the right
to receive the Stock Consideration set forth in
section 1.02(e)(iv), be converted in the aggregate into the
right to receive that number of shares of validly issued,
fully paid and nonassessable shares of Sovereign Common
Stock equal to (a) 2.9250 times the number of such Stock
Election Shares, plus (b) an additional number of whole and
fractional shares of Sovereign Common Stock which, when
multiplied by the Sovereign Market Price as of the Business
Date immediately preceding the Closing Date, equals the
difference (the "Adjustment Amount") between (x) 40% of the
sum of (I) $48.00 times the number of such Stock Election
Shares plus (II) the amount of cash in lieu of fractional
shares of Sovereign Common Stock otherwise deliverable
pursuant to section 1.02(e)(xi) in respect of such Stock
Election Shares, minus (y) 60% of the Sovereign Market
Price, as of the Business Date immediately preceding the
Closing Date, multiplied by 2.9250 times the number of such
Stock Election Shares; and the Cash Election Shares held by
any First Essex stockholder shall, instead of the right to
receive the Cash Consideration set forth in
section 1.02(e)(iv), be converted in the aggregate into the
right to receive an amount of cash equal to the product of
(a) the number of such Cash Election Shares, times (b) the
quotient obtained by dividing (x) $48.00 times the total
number of Cash Election Shares held by all First Essex
stockholders, minus the aggregate of all Adjustment Amounts
for all Stock Election Shares held by all First Essex
stockholders (as calculated above) by (y) the total number
of Cash Election Shares held by all First Essex
stockholders.
(xi) Cash in Lieu of Fractional Shares.
Notwithstanding anything herein to the contrary, no
fraction of a whole share of Sovereign Common Stock and no
scrip or certificate therefore shall be issued in
connection with the Merger. Any former First Essex
stockholder who would otherwise be entitled to receive a
fraction of a share of Sovereign Common Stock shall
receive, in lieu thereof, cash in an amount equal to such
fraction multiplied by the Average Final Price.
(xii) Additional Consideration for Stock
Election Shares in Certain Cases. In the event that First
Essex delivers to Sovereign a written notice of termination
17
under Section 6.01(d) and thereafter Sovereign delivers a
written notice indicating that it intends to proceed with
the Merger by paying additional consideration, then each
Stock Election Share shall be converted into the right to
receive a number of shares of Sovereign Common Stock plus
cash (if any) equal in value to $13.14. For purposes of
the preceding sentence, (x) the number of shares of
Sovereign Common Stock payable shall not be less than the
number of shares set forth in Clause (y) of
Section 1.02(e)(iv), (y) shares of Sovereign Common Stock
paid shall be valued at the Sovereign Market Value as of
the close of business on the Business Date immediately
preceding the Closing Date, and (z) the determination to
pay additional shares of Sovereign Common Stock, cash or a
combination of both shall be made at Sovereign's sole
discretion; provided, however, that in no event shall the
aggregate number of shares of Sovereign Common Stock
payable in the Merger pursuant to this Section 1.02(e)(xii)
be less than a number of shares necessary for First Essex
and Sovereign to secure the opinions described in
Section 5.01(i) and Section 5.02(i), respectively.
(f) Form of Election.
(i) Prior to the Effective Time, Sovereign
shall appoint Mellon Shareholder Services, LLC, or some
other entity selected by Sovereign subject to the approval
of First Essex (which approval shall not be unreasonably
withheld or delayed), as the exchange and paying agent (the
"Exchange Agent") for the payment and exchange of the Cash
and Stock Consideration.
(ii) Sovereign shall prepare a form of election
(the "Form of Election") subject to the approval of First
Essex (which approval shall not be unreasonably withheld or
delayed) to be mailed by the Exchange Agent to the record
holders of First Essex Common Stock not more than 60
Business Days or less than 20 Business Days prior to the
Election Date. The Form of Election shall be used by each
record holder of shares of First Essex Common Stock who
wishes to elect to receive Sovereign Common Stock or cash
for any or all shares of First Essex Common Stock held by
such holder, subject to the provisions of Section 1.02(e).
The Exchange Agent shall use reasonable efforts to make the
Form of Election available to all persons who become
holders of First Essex Common Stock during the period
18
between the record date (for the mailing of the Form of
Election) and the Election Date. Any holder's election
shall have been properly made only if the Exchange Agent
shall have received at its designated office, by 5:00 p.m.,
New York City time, on the Business Day specified in the
Form of Election (or a later Business Day specified by
Sovereign in a subsequent press release) (the "Election
Date", which Election Date shall be two Business Days prior
to the date on which the Effective Time will occur), a Form
of Election properly completed and signed and accompanied
by certificates that immediately prior to the Effective
Time represented issued and outstanding shares of First
Essex Common Stock (the "First Essex Certificates") to
which such Form of Election relates, in form acceptable for
transfer on the books of First Essex (or by an appropriate
guarantee of delivery of such First Essex Certificates as
set forth in such Form of Election from a firm which is an
"eligible guarantor institution" (as defined in Rule 17Ad-
15 under the Exchange Act) provided that such First Essex
Certificates are in fact delivered to the Exchange Agent by
the time set forth in such guarantee of delivery).
(iii) Any Form of Election may be revoked by the
stockholder submitting it to the Exchange Agent only by
written notice received by the Exchange Agent prior to
5:00 p.m., New York City time, on the Election Date. If a
Form of Election is revoked, the First Essex Certificate or
First Essex Certificates (or guarantees of delivery, as
appropriate) for the shares of First Essex Common Stock to
which such Form of Election relates shall be promptly
returned by the Exchange Agent to the stockholder of First
Essex submitting the same. In addition, in the event that
the Agreement is terminated for any reason, any First Essex
Certificates in the possession of Sovereign or the Exchange
Agent shall be promptly returned to the stockholder of
First Essex who submitted the Form of Election to which
such First Essex Certificates relate.
(iv) Sovereign shall have the discretion, which
it may delegate in whole or in part to the Exchange Agent,
to determine whether Forms of Election have been properly
completed, signed and submitted or revoked and to disregard
immaterial defects in Forms of Election. The decision of
Sovereign or the Exchange Agent in such matters shall be
conclusive and binding. Neither Sovereign nor the Exchange
Agent shall be under any obligation to notify any person of
19
any defect in a Form of Election submitted to the Exchange
Agent. The Exchange Agent shall also make, within seven
business days after the Election Date, all computations
contemplated by Section 1.02(e) and all such computations
shall be conclusive and binding on the holder of shares of
First Essex Common Stock.
(v) For the purposes hereof, a holder of
shares of First Essex Common Stock who does not submit a
Form of Election which is subsequently received by the
Exchange Agent prior to the Election Date (the "Non-
Election Shares") shall be deemed not to have made a Cash
Election, Stock Election or Mixed Election. If Sovereign
or the Exchange Agent shall determine that any purported
Election was not properly made, the shares subject to such
improperly made Election shall be treated as Non-Election
Shares. Non-Election Shares shall be treated as Cash
Election Shares up to the Cash Election Number and as Stock
Election Shares for any Non-Election Shares in excess of
the Cash Election Number.
(g) Stock Options.
(i) At the Effective Time, and subject to the
provisions of paragraph (ii) of this Section 1.02(g), each
option to acquire First Essex Common Stock ("First Essex
Option") which is then outstanding and exercisable
immediately prior to the Effective Time held by (A) a
director of First Essex, (B) an employee of First Essex who
will not continue employment with Sovereign following the
Effective Date, (C) an employee of First Essex holding
fewer than 2,000 First Essex Options who will continue
employment with Sovereign following the Effective Date, or
(D) an employee of First Essex holding in excess of 2,000
First Essex Options who will continue employment with
Sovereign following the Effective Date and so elects
pursuant to a written election submitted to First Essex
prior to the Election Date, shall be terminated and each
grantee thereof shall be entitled to receive, in lieu of,
and in full satisfaction of, each share of First Essex
Common Stock that would otherwise have been issuable upon
the exercise thereof, an amount equal to the positive
difference between the Cash Consideration and the exercise
price for such First Essex Option; provided, however, that
if no positive difference exists between the Cash
Consideration and the exercise price for a First Essex
20
Option covered by this Section 1.02(g)(i), such First Essex
Option shall be converted in a manner specified in
Section 1.02(g)(ii). First Essex agrees to take or cause
to be taken all action necessary to provide for termination
of First Essex Options covered by this Section 1.02(g)(i)
and the payment of the amounts required in connection
therewith effective at or before the Effective Time.
(ii) In the event that an employee of First
Essex holding in excess of 2,000 First Essex Options who
will continue employment with Sovereign following the
Effective Date so elects pursuant to a written election
submitted to First Essex prior to the Election Date, which
shall be in such form as shall be prescribed by First Essex
and reasonably satisfactory to Sovereign, each First Essex
Option held by such holder (or by a holder of a First Essex
Option for which no positive difference exists between the
Cash Consideration and the exercise price of such First
Essex Option as provided in Section1.02(g)(i)) which is
outstanding and unexercised immediately prior to the
Effective Time, whether or not then outstanding an
unexercised immediately prior to the Effective Time,
whether or not then exercisable, shall cease to represent a
right to acquire shares of First Essex Common Stock and
shall be converted automatically into an option to purchase
shares of Sovereign Common Stock and the corresponding
number of Sovereign Stock Purchase Rights, and Sovereign
shall assume each First Essex Option, in accordance with
the terms of the applicable First Essex Stock Option Plan
and stock option or other agreement by which it is
evidenced, except that from and after the Effective Time,
(i) Sovereign and its Board of Directors shall be
substituted for First Essex and the committee of First
Essex's Board of Directors (including, if applicable, the
entire Board of Directors of First Essex) administering
such First Essex Stock Option Plan, (ii) each First Essex
Option assumed by Sovereign may be exercised solely for
shares of Sovereign Common Stock, (iii) the number of
shares of Sovereign Common Stock subject to such First
Essex Option shall be equal to the number of shares of
First Essex Common Stock subject to such First Essex Option
immediately prior to the Effective Time multiplied by the
Common Stock Exchange Ratio, as the case may be, provided
that any fractional shares of Sovereign Common Stock
resulting from such multiplication shall be rounded down to
the nearest share, and (iv) the per share exercise price
21
under each such First Essex Option shall be adjusted by
dividing the per share exercise price under each such First
Essex Option by the Common Stock Exchange Ratio, as the
case may be, provided that such exercise price shall be
rounded up to the nearest cent. Notwithstanding
clauses (iii) and (iv) of the preceding sentence, each
First Essex Option which is an "incentive stock option"
shall be adjusted as required by Section 424 of the IRC,
and the regulations promulgated thereunder, so as not to
constitute a modification, extension or renewal of the
option within the meaning of Section 424(h) of the IRC.
Sovereign and First Essex agree to take all necessary steps
to effect the foregoing provisions of this Section 1.02(g).
(iii) Prior to the Effective Time, First Essex
shall take or cause to be taken all actions required under
First Essex Stock Option Plans to provide for the actions
set forth in paragraphs (i) and (ii) of this
Section 1.02(g), which actions shall be reasonably
satisfactory to Sovereign.
(iv) Within 10 days after the Effective Date,
Sovereign shall file a registration statement on Form S-8
(or any other successor or appropriate form) with respect
to the shares of Sovereign Common Stock and Sovereign Stock
Purchase Rights subject to the options referenced in this
Section 1.02(g), and shall use its reasonable best efforts
to maintain the current status of the prospectus or
prospectuses contained therein for so long as such options
remain outstanding.
(h) Surrender and Exchange of First Essex Stock
Certificates.
(i) Exchange Fund. At or prior to the
Effective Time, Sovereign shall deposit with the Exchange
Agent, in trust for the benefit of holders of shares of
First Essex Common Stock sufficient cash and certificates
representing shares of Sovereign Common Stock to make all
payments and deliveries to stockholders of First Essex
pursuant to Section 1.02(e). Any cash and certificates for
Sovereign Common Stock deposited with the Exchange Agent
shall hereinafter be referred to as the "Exchange Fund."
(ii) Exchange Procedures for Effective Forms of
Election Submitted by Election Date. As soon as
22
practicable after the Effective Time (and in any case no
later than five (5) days thereafter), Sovereign shall cause
the Exchange Agent to mail the Merger Consideration to
stockholders of First Essex who have submitted effective
Forms of Election prior to the Election Date.
(iii) Exchange Procedures in Absence of
Effective Forms of Election Submitted Prior to Effective
Date. As soon as reasonably practicable after the
Effective Time (and in any case no later than ten (10) days
thereafter), Sovereign shall cause the Exchange Agent to
mail to each record holder of First Essex Common Stock
immediately prior to the Effective Time who has not
surrendered First Essex Certificates representing all of
the Shares of First Essex Common Stock owned by such holder
pursuant to Section 1.02(f)(ii) a letter of transmittal
which shall specify that delivery of the First Essex
Certificates shall be effected, and risk of loss and title
to the First Essex Certificates shall pass, only upon
delivery of the First Essex Certificates to the Exchange
Agent, and which letter shall be in customary form and have
such other provisions as Sovereign may reasonably specify
and instructions for effecting the surrender of such First
Essex Certificates in exchange for the Cash Consideration
and/or the Stock Consideration, as the case may be. Upon
surrender of a First Essex Certificate to the Exchange
Agent together with such letter of transmittal, duly
executed and completed in accordance with the instructions
thereto, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such First
Essex Certificate shall be entitled to receive within ten
(10) days in exchange therefor (A) a certificate
representing, in the aggregate, the whole number of shares
of Sovereign Common Stock that such holder has the right to
receive pursuant to Section 1.02(e) and/or (B) a check in
the amount equal to the cash that such holder has the right
to receive pursuant to Section 1.02(e). No interest will
be paid or will accrue on any cash payment pursuant to
Section 1.02(e). In the event of a transfer of ownership
of First Essex Common Stock which is not registered in the
transfer records of First Essex, a certificate
representing, in the aggregate, the proper number of shares
of Sovereign Common Stock and/or a check in the proper
amount pursuant to Section 1.02(e) may be issued with
respect to such First Essex Common Stock, as the case may
be, to such a transferee if the First Essex Certificate
23
formerly representing such shares of First Essex Common
Stock is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer
and to evidence that any applicable stock transfer taxes
have been paid. Persons who have submitted an effective
Form of Election as provided in Section 1.02(f) and
surrendered First Essex Certificates as provided therein
shall be treated as if they have properly surrendered First
Essex Certificates together with the letter of transmittal
pursuant to this Section 1.02(h).
(iv) Distributions with Respect to Unexchanged
Shares. No dividends or other distributions declared or
made with respect to shares of Sovereign Common Stock with
a record date after the Effective Time shall be paid to the
holder of any unsurrendered First Essex Certificate with
respect to the shares of Sovereign Common Stock that such
First Essex Certificate holder would be entitled to receive
upon surrender of such First Essex Certificate until such
holder shall surrender such First Essex Certificate in
accordance with Section 1.02(h)(iii). Subject to the
effect of applicable laws, following surrender of any such
First Essex Certificate, there shall be paid to such holder
of shares of Sovereign Common Stock issuable in exchange
therefor, without interest, (a) promptly after the time of
such surrender, the amount of dividends or other
distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of
Sovereign Common Stock and (b) at the appropriate payment
date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender
payable with respect to such whole shares of Sovereign
Common Stock.
(v) No Further Ownership Rights. All shares
of Sovereign Common Stock issued and cash paid upon
conversion of shares of First Essex Common Stock in
accordance with the terms of this Agreement shall be deemed
to have been issued or paid in full satisfaction of all
rights pertaining to the shares of First Essex Common
Stock.
(vi) Termination of Exchange Fund. Any portion
of the Exchange Fund which remains undistributed to the
holders of First Essex Certificates for twelve (12) months
24
after the Effective Date shall be delivered to Sovereign or
otherwise on the instructions of Sovereign and any holders
of the First Essex Certificates who have not previously
complied with this Section 1.02(h) shall thereafter look
only to Sovereign for the Merger Consideration with respect
to the shares of First Essex Stock formerly represented
thereby to which such holders are entitled pursuant to
Section 1.02(e) any cash in lieu of fractional shares of
Sovereign Common Stock to which such holders are entitled
pursuant to Section 1.02(e)(xi) and any dividends or
distributions with respect to shares of Sovereign Common
Stock to which such holders are entitled pursuant to
Section 1.02(h)(iv).
(vii) No Liability. None of Sovereign, First
Essex, any of their respective Affiliates or the Exchange
Agent shall be liable to any Person in respect of any
Merger Consideration from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned
property, escheat or similar law.
(viii) Investment of the Exchange Fund. The
Exchange Agent shall invest any cash included in the
Exchange Fund as reasonably directed by Sovereign; provided
that, such investments shall be in obligations of or
guaranteed by the United States of America and backed by a
full faith and credit of the United States of America or in
commercial paper obligations rated P-1 and A-1 or better by
Moody's Investors Service, Inc. and Standard & Poor's
Corporation, respectively. Any interest and other income
resulting from such investments shall be payable to
Sovereign.
(ix) Lost Certificates. If any First Essex
Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person
claiming such First Essex Certificate to be lost, stolen or
destroyed and, if required by Sovereign the posting by such
Person of a bond in such reasonable amount as Sovereign may
direct as indemnity against any claim that may be made
against it with respect to such First Essex Certificate,
the Exchange Agent will deliver in exchange for such lost,
stolen, or destroyed First Essex Certificate the applicable
Merger Consideration with respect to the shares of First
Essex Common Stock formerly represented thereby, any cash
in lieu of fractional shares of Sovereign Common Stock to
25
which the holders thereof are entitled pursuant to
Section 1.02(e)(x), and any dividends or other
distributions on shares of Sovereign Common Stock to which
the holders thereof are entitled pursuant to
Section 1.02(h)(iv).
(x) Withholding Rights. Sovereign shall be
entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder
of shares of First Essex Stock such amounts as it is
required to deduct and withhold with respect to the making
of such payment under the IRC and the rules and regulations
promulgated thereunder, or any provisions of state, local
or foreign tax law. To the extent that amounts are so
withheld by Sovereign, such withheld amounts shall be
treated for all purposes of this Agreement as having been
paid to the holder of the shares of First Essex Common
Stock in respect of which such deduction and withholding
was made by Sovereign.
(xi) Stock Transfer Books. At the close of
business on the Effective Date, the stock transfer books of
First Essex with respect to First Essex Common Stock issued
and outstanding prior to the Effective Time shall be closed
and, thereafter, there shall be no further registration of
transfers on the records of First Essex of shares of First
Essex Common Stock issued and outstanding prior to the
Effective Time. From and after the Effective Time, the
holders of First Essex Certificates shall cease to have any
rights with respect to such shares of First Essex Common
Stock formerly represented thereby, except as otherwise
provided herein or by law. On or after the Effective Time,
any First Essex Certificates presented to the Exchange
Agent or Sovereign for any reason shall be exchanged for
the applicable Merger Consideration with respect to the
shares of Sovereign or First Essex Common Stock, as the
case may be, formerly represented thereby, any cash in lieu
of fractional shares of Sovereign Common Stock to which the
holders thereof are entitled pursuant to
Section 1.02(e)(xi), and any dividends or other
distributions on shares of Sovereign Common Stock to which
the holders thereof are entitled pursuant to
Section 1.02(h)(iii).
(i) Anti-Dilution Provisions. If Sovereign shall, at
any time before the Effective Date, (A) issue a dividend in
26
shares of Sovereign Common Stock, (B) combine the outstanding
shares of Sovereign Common Stock into a smaller number of
shares, (C) subdivide the outstanding shares of Sovereign Common
Stock, or (D) reclassify the shares of Sovereign Common Stock,
then, in any such event, the number of shares of Sovereign
Common Stock to be delivered to First Essex stockholders who are
entitled to receive shares of Sovereign Common Stock in exchange
for shares of First Essex Common Stock shall be adjusted so that
each First Essex stockholder shall be entitled to receive such
number of shares of Sovereign Common Stock as such stockholder
would have been entitled to receive if the Effective Date had
occurred immediately prior to the happening of such event. (By
way of illustration, if Sovereign declares a stock dividend of
7% payable with respect to a record date on or prior to the
Effective Date, the Common Stock Exchange Ratio shall be
adjusted upward by 7%). In addition, in the event that, prior
to the Effective Date, Sovereign enters into an agreement
pursuant to which shares of Sovereign Common Stock would be
converted into shares or other securities or obligations of
another corporation, proper provision shall be made in such
agreement so that each First Essex stockholder entitled to
receive shares of Sovereign Common Stock in the Merger shall be
entitled to receive such number of shares or other securities or
amount of obligations of such other corporation as such
stockholder would be entitled to receive if the Effective Date
had occurred immediately prior to the happening of such event.
Section 1.03 Surviving Corporation Merger. Sovereign and
the Surviving Corporation shall take all necessary or
appropriate action, including entering into an appropriate
agreement and plan of merger, to cause the Surviving Corporation
to merge with and into Sovereign in accordance with applicable
laws and regulations and the terms of such agreement and plan of
merger as soon a practicable after the Effective Time. Upon
completion of such merger, the separate corporate existence of
the Surviving Corporation shall cease and Sovereign shall
survive and continue to exist as a business corporation
incorporated under the BCL.
Section 1.04 Bank Merger. Sovereign and First Essex shall
use their best efforts to cause First Essex Bank to merge with
and into Sovereign Bank, with Sovereign Bank surviving such
merger, concurrently with ,or as soon as practicable after the
Effective Date. Concurrently with, or as soon as practicable
after, the execution and delivery of this Agreement, Sovereign
shall cause Sovereign Bank, and First Essex shall cause First
27
Essex Bank, to execute and deliver a bank plan of merger (the
"Bank Plan of Merger") in a form acceptable to Sovereign and
First Essex.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FIRST ESSEX
First Essex hereby represents and warrants to Sovereign
that, except as specifically set forth in the First Essex
Disclosure Schedule delivered to Sovereign by First Essex on the
date hereof:
Section 2.01 Organization.
(a) First Essex is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware. First Essex is a savings and loan holding
company duly registered under HOLA pursuant to an election made
under Section 10(1) thereof. First Essex has the corporate power
and authority to carry on its business and operations as now
being conducted and to own and operate the properties and assets
now owned and being operated by it. First Essex is qualified or
licensed to do business as a foreign corporation in each
jurisdiction in which it is required to be so qualified or
licensed as the result of the ownership or leasing of property
or the conduct of its business except where the failure to be so
qualified or licensed would not have a Material Adverse Effect
on First Essex.
(b) First Essex Bank is a savings bank duly organized
and validly existing under the laws of the Commonwealth of
Massachusetts. First Essex Bank has the corporate power and
authority to carry on its business and operations as now being
conducted and to own and operate the properties and assets now
owned and being operated by it. First Essex Bank and each other
First Essex Subsidiary is qualified or licensed to do business
as a foreign corporation in each jurisdiction in which it is
required to be so qualified or licensed as the result of the
ownership or leasing of property or the conduct of its business,
except where the failure to be so qualified or licensed would
not have a Material Adverse Effect on First Essex.
28
(c) There are no First Essex Subsidiaries other than
First Essex Bank, First Essex Capital Trust I, First Essex
Capital Trust II, and those identified in the First Essex
Disclosure Schedule.
(d) The deposits of First Essex Bank are insured by
the FDIC to the extent provided in the FDIA and by the MDIF in
amounts exceeding FDIC limits.
(e) The respective minute books of First Essex and
First Essex Bank and each other First Essex Subsidiary
accurately record, in all material respects, all material
corporate actions of their respective stockholders and boards of
directors (including committees).
(f) Prior to the date of this Agreement, First Essex
has delivered to Sovereign true and correct copies of the
certificate of incorporation and bylaws of First Essex, the
charter and bylaws of First Essex Bank and the articles of
incorporation and bylaws of each other First Essex Subsidiary,
each as in effect on the date hereof.
Section 2.02 Capitalization.
(a) The authorized capital stock of First Essex
consists of (i) 25,000,000 shares of common stock, $.10 par
value per share ("First Essex Common Stock"), of which as of the
date of this Agreement 2,429,300 shares were issued and held by
First Essex as treasury stock and 7,734,874 shares are
outstanding, validly issued, fully paid and nonassessable and
free of preemptive rights and (ii) 5,000,000 shares of preferred
stock, $.10 par value per share, none of which are issued or
outstanding. Neither First Essex nor First Essex Bank nor any
other First Essex Subsidiary has or is bound by any
subscription, option, warrant, call, commitment, agreement, plan
or other Right of any character relating to the purchase, sale
or issuance or voting of, or right to receive dividends or other
distributions on any shares of First Essex Common Stock, First
Essex preferred stock or any other security of First Essex or
any securities representing the right to vote, purchase or
otherwise receive any shares of First Essex Common Stock, First
Essex preferred stock or any other security of First Essex,
other than (i) the First Essex Stock Purchase Rights,
(ii) 1,059,721 shares issuable or to be issued under First Essex
Stock Option Plans or stock options otherwise granted by the
First Essex Board of Directors and evidenced by written stock
29
option agreements, and as set forth in reasonable detail
(including the weighted average exercise price of all such
options) in the First Essex Disclosure Schedule, (iii) capital
securities issued by First Essex Capital Trust I, (iv) capital
securities issued by First Essex Capital Statutory Trust II, and
(v) shares issuable under First Essex's 401(k) Retirement
Savings Plan.
(b) The authorized capital stock of First Essex Bank
consists exclusively of (i) 100,000 shares of common stock,
$10.00 par value ("First Essex Bank Common Stock"), of which
98,858 shares are outstanding, validly issued, fully paid,
nonassessable, free of preemptive rights, all of which are owned
by First Essex free and clear of any lien, security interests,
pledges, charges and restrictions of any kind or nature.
Neither First Essex nor any First Essex Subsidiary has or is
bound by any subscription, option, warrant, call, commitment,
agreement or other Right of any character relating to the
purchase, sale or issuance or voting of, or right to receive
dividends or other distributions on any shares of the capital
stock of any First Essex Subsidiary or any other security of any
First Essex Subsidiary or any securities representing the right
to vote, purchase or otherwise receive any shares of the capital
stock or any other security of any First Essex Subsidiary.
Either First Essex or First Essex Bank owns all of the
outstanding shares of capital stock of each First Essex
Subsidiary free and clear of all liens, security interests,
pledges, charges, encumbrances, agreements and restrictions of
any kind or nature, except that, in the case of First Essex
Capital Trust I and First Essex Capital Statutory Trust II,
First Essex owns 100% of the common securities.
(c) Except for the First Essex Subsidiaries, neither
(i) First Essex, (ii) First Essex Bank, nor (iii) any other
First Essex Subsidiary, owns any equity interest, directly or
indirectly, in any other company or controls any other company,
except for equity interests held in the investment portfolios of
First Essex Subsidiaries, equity interests held by First Essex
Subsidiaries in a fiduciary capacity, and equity interests held
in connection with the commercial loan activities of First Essex
Subsidiaries. There are no subscriptions, options, warrants,
calls, commitments, agreements or other Rights outstanding and
held by First Essex or First Essex Bank with respect to any
other company's capital stock or the equity of any other person.
30
(d) To the best of First Essex's knowledge, except as
disclosed in First Essex's proxy statement dated April 1, 2003,
no person or "group" (as that term is used in Section 13(d)(3)
of the Exchange Act), is the beneficial owner (as defined in
Section 13(d) of the Exchange Act) of 5% or more of the
outstanding shares of First Essex Common Stock.
Section 2.03 Authority; No Violation.
(a) First Essex has full corporate power and
authority to execute and deliver this Agreement and to complete
the transactions contemplated hereby. First Essex Bank has full
corporate power and authority to execute and deliver the Bank
Plan of Merger and to complete the Bank Merger. The execution
and delivery of this Agreement by First Essex and the completion
by First Essex of the transactions contemplated hereby have been
duly and validly approved by the Board of Directors of First
Essex and, except for approval by the stockholders of First
Essex as required under the DGCL, First Essex's certificate of
incorporation and bylaws and Nasdaq Stock Market requirements
applicable to it, no other corporate proceedings on the part of
First Essex are necessary to complete the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by First Essex and, subject to
(i) approval of the stockholders of First Essex as required
under the DGCL, First Essex's certificate of incorporation and
bylaws and Nasdaq Stock Market requirements applicable to it and
(ii) receipt of the required approvals from Regulatory
Authorities described in Section 3.04 hereof and compliance with
such required approvals, constitutes the valid and binding
obligation of First Essex, enforceable against First Essex in
accordance with its terms, subject further to applicable
bankruptcy, insolvency and similar laws affecting creditors'
rights generally and subject, as to enforceability, to general
principles of equity. The Bank Plan of Merger, upon its
execution and delivery by First Essex Bank concurrently with, or
as soon as practicable after, the execution and delivery of this
Agreement, will constitute the valid and binding obligation of
First Essex Bank, enforceable against First Essex Bank in
accordance with its terms, subject to applicable conservatorship
or receivership provisions of the FDIA, or insolvency and
similar laws affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity.
(b) (A) The execution and delivery of this Agreement
by First Essex, (B) the execution and delivery of the Bank Plan
31
of Merger by First Essex Bank, (C) subject to receipt of
approvals from First Essex's stockholders and the receipt of
approvals from the Regulatory Authorities referred to in
Section 3.04 hereof and First Essex's and Sovereign's compliance
with any conditions contained therein, the completion of the
transactions contemplated hereby, and (D) compliance by First
Essex or First Essex Bank with any of the terms or provisions
hereof or of the Bank Plan of Merger, will not (i) conflict with
or result in a breach of any provision of the certificate of
incorporation or bylaws of First Essex or any First Essex
Subsidiary; (ii) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction
applicable to First Essex or any First Essex Subsidiary or any
of their respective properties or assets; or (iii) violate,
conflict with, result in a breach of any provisions of,
constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the
termination of, accelerate the performance required by, or
result in a right of termination or acceleration or the creation
of any lien, security interest, charge or other encumbrance upon
any of the properties or assets of First Essex or any First
Essex Subsidiary under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement, commitment or other instrument
or obligation to which First Essex or any First Essex Subsidiary
is a party, or by which they or any of their respective
properties or assets may be bound or affected, except for such
violations, conflicts, breaches or defaults under clause (ii) or
(iii) hereof which, either individually or in the aggregate,
will not have a Material Adverse Effect on First Essex.
Section 2.04 Consents. Except for the consents,
approvals, filings and registrations from or with the Regulatory
Authorities referred to in Section 3.04 hereof and compliance
with any conditions contained therein, and the approval of this
Agreement by the stockholders of First Essex under the DGCL,
First Essex's certificate of incorporation and bylaws, and
Nasdaq Stock Market requirements applicable to it, and the
approval of the Bank Plan of Merger by First Essex as sole
stockholder of First Essex Bank under the laws of the
Commonwealth of Massachusetts , and by the First Essex Bank
Board of Directors, no consents or approvals of, or filings or
registrations with, any public body or authority are necessary,
and no consents or approvals of any third parties are necessary,
or will be, in connection with (a) the execution and delivery of
this Agreement by First Essex or the Bank Plan of Merger by
32
First Essex Bank, and (b) the completion by First Essex of the
transactions contemplated hereby or by First Essex Bank of the
Bank Merger. As of the date hereof, First Essex has no reason
to believe that (i) any required consents or approvals will not
be received or will be received with conditions, limitations or
restrictions unacceptable to it or which would adversely impact
First Essex's ability to complete the transactions contemplated
by this Agreement or that (ii) any public body or authority, the
consent or approval of which is not required or any filing with
which is not required, will object to the completion of the
transactions contemplated by this Agreement.
Section 2.05 Financial Statements.
(a) First Essex has previously delivered or will
deliver to Sovereign the First Essex Regulatory Reports. The
First Essex Regulatory Reports have been, or will be, prepared
in all material respects in accordance with applicable
regulatory accounting principles and practices, including, but
not limited to, all applicable rules, regulations and
pronouncements of applicable Regulatory Authorities, throughout
the periods covered by such statements, and present, or will
present in all material respects, the financial position,
results of operations and changes in stockholders' equity of
First Essex as of and for the periods ended on the dates
thereof, in accordance with applicable regulatory accounting
principles, including, but not limited to, all applicable rules,
regulations and pronouncements of applicable Regulatory
Authorities, applied on a consistent basis.
(b) First Essex has previously delivered to Sovereign
the First Essex Financials. The First Essex Financials have
been, or will be, prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered by such
statements, except as noted therein, and fairly present, or will
fairly present, the consolidated financial position, results of
operations and cash flows of First Essex as of and for the
periods ended on the dates thereof, in accordance with GAAP
applied on a consistent basis, except as noted therein.
(c) At the date of each balance sheet included in the
First Essex Financials or the First Essex Regulatory Reports,
neither First Essex nor First Essex Bank (as the case may be)
had, or will have any liabilities, obligations or loss
contingencies of any nature (whether absolute, accrued,
contingent or otherwise) of a type required to be reflected in
33
such First Essex Financials or First Essex Regulatory Reports or
in the footnotes thereto which are not fully reflected or
reserved against therein or fully disclosed in a footnote
thereto, except for liabilities, obligations and loss
contingencies which are not material in the aggregate and which
are incurred in the ordinary course of business, consistent with
past practice and except for liabilities, obligations and loss
contingencies which are within the subject matter of a specific
representation and warranty herein and subject, in the case of
any unaudited statements, to normal, recurring audit adjustments
and the absence of footnotes.
Section 2.06 Taxes. First Essex and the First Essex
Subsidiaries are members of the same affiliated group within the
meaning of IRC Section 1504(a). First Essex has duly filed, and
will file, all federal, state and local tax returns required to
be filed by or with respect to First Essex and all First Essex
Subsidiaries on or prior to the Closing Date (all such returns
being accurate and correct in all material respects) and has
duly paid or will pay, or made or will make provisions and
related balance sheet accruals (if required) for the payment of,
all federal, state and local taxes which have been incurred by
or are due or claimed to be due from First Essex and any First
Essex Subsidiary by any taxing authority or pursuant to any tax
sharing agreement or arrangement (written or oral) on or prior
to the Closing Date other than taxes which (i) are not
delinquent or (ii) are being contested in good faith.
Section 2.07 No Material Adverse Effect. First Essex has
not suffered any Material Adverse Effect since December 31,
2002.
Section 2.08 Contracts.
(a) Except as described in this Agreement, or in the
First Essex Disclosure Schedule, neither First Essex nor any
First Essex Subsidiary is a party to or subject to: (i) any
employment, consulting or severance contract or arrangement with
any past or present officer, director or employee of First Essex
or any First Essex Subsidiary, except for "at will"
arrangements; (ii) any plan, arrangement or contract providing
for bonuses, pensions, options, deferred compensation,
retirement payments, profit sharing or similar arrangements for
or with any past or present officers, directors or employees of
First Essex or any First Essex Subsidiary; (iii) any collective
bargaining agreement with any labor union relating to employees
34
of First Essex or any First Essex Subsidiary; (iv) any agreement
which by its terms limits the payment of dividends by any First
Essex Subsidiary; (v) any instrument evidencing or related to
indebtedness for borrowed money whether directly or indirectly,
by way of purchase money obligation, conditional sale, lease
purchase, guaranty or otherwise, in respect of which First Essex
or any First Essex Subsidiary is an obligor to any person, which
instrument evidences or relates to indebtedness, other than
deposits, repurchase agreements, Federal Home Loan Bank advances
and repurchases, the junior subordinated debentures referred to
in Section 4.05(e), bankers acceptances and "treasury tax and
loan" accounts established in the ordinary course of business
and transactions in "federal funds" or which contains financial
covenants or other restrictions (other than those relating to
the payment of principal and interest when due) which would be
applicable on or after the Closing Date to Sovereign or any
Sovereign Subsidiary; or (vi) any contract (other than this
Agreement) limiting the freedom of First Essex or any First
Essex Subsidiary to engage in any type of banking or bank-
related business permissible under law.
(b) True and correct copies of agreements, plans,
arrangements and instruments referred to in Section 2.08(a) have
been provided to Sovereign on or before the date hereof, are
listed on the First Essex Disclosure Schedule and are in full
force and effect on the date hereof and neither First Essex nor
any First Essex Subsidiary (nor, to the knowledge of First
Essex, any other party to any such contract, plan, arrangement
or instrument) has breached any provision of, or is in default
in any respect under any term of, any such contract, plan,
arrangement or instrument which breach has resulted in or will
result in a Material Adverse Effect with respect to First Essex.
Except as described in this Agreement or as set forth in the
First Essex Disclosure Schedule, (i) no party to any material
contract, plan, arrangement or instrument will have the right to
terminate any or all of the provisions of any such contract,
plan, arrangement or instrument as a result of the transactions
contemplated by this Agreement, (ii) none of the employees
(including officers) of First Essex or any First Essex
Subsidiary, possess the contractual right to terminate their
employment as a result of the execution of this Agreement or
upon completion of the Merger on the Effective Date, and each
contract with any director, officer and employee is listed on
the First Essex Disclosure Schedule and such Schedule contains a
true and correct summary of (x) severance and other benefits
such individual would be entitled to receive upon termination of
35
their employment for other than cause and (y) the provisions of
any covenant not to compete, covenant not to solicit customers
and covenant not to solicit employees, (iii) no plan, employment
agreement, termination agreement, or similar agreement or
arrangement to which First Essex or any First Essex Subsidiary
is a party or under which First Essex or any First Essex
Subsidiary may be liable contains provisions which permit an
employee or independent contractor to terminate it without cause
and continue to accrue future benefits thereunder, and (iv) no
such agreement, plan or arrangement (x) provides for
acceleration in the vesting of benefits or payments due
thereunder upon the occurrence of a change in ownership or
control of First Essex or any First Essex Subsidiary absent the
occurrence of a subsequent event; (y) provides for benefits
which may cause the disallowance of a federal income tax
deduction under IRC Section 280G; or (z) requires First Essex or
any First Essex Subsidiary to provide a benefit in the form of
First Essex Common Stock or determined by reference to the value
of First Essex Common Stock.
Section 2.09 Ownership of Property; Insurance Coverage.
(a) First Essex and the First Essex Subsidiaries
have, or will have as to property acquired after the date
hereof, good and, as to real property, marketable title to all
assets and properties owned by First Essex or any First Essex
Subsidiary in the conduct of their businesses, whether such
assets and properties are real or personal, tangible or
intangible, including assets and property reflected in the
balance sheets contained in the First Essex Regulatory Reports
and in the First Essex Financials or acquired subsequent thereto
(except to the extent that such assets and properties have been
disposed of for fair value, in the ordinary course of business,
since the date of such balance sheets), subject to no
encumbrances, liens, mortgages, security interests or pledges,
except (i) those items which secure repurchase agreements and
liabilities for borrowed money from a Federal Home Loan Bank,
(ii) statutory liens for amounts not yet delinquent or which are
being contested in good faith and (iii) items permitted under
Article IV. First Essex and the First Essex Subsidiaries, as
lessee, have the right under valid and subsisting leases of real
and personal properties used by First Essex and its Subsidiaries
in the conduct of their businesses to occupy or use all such
properties as presently occupied and used by each of them. Such
existing leases and commitments to lease constitute or will
constitute operating leases for both tax and financial
36
accounting purposes and the lease expense and minimum rental
commitments with respect to such leases and lease commitments
are as disclosed in the Notes to the First Essex Financials.
(b) With respect to all agreements pursuant to which
First Essex or any First Essex Subsidiary has purchased
securities subject to an agreement to resell, if any, First
Essex or such First Essex Subsidiary, as the case may be, has a
valid, perfected first lien or security interest in the
securities or other collateral securing the repurchase
agreement, and the value of such collateral equals or exceeds
the amount of the debt secured thereby.
(c) First Essex and the First Essex Subsidiaries
currently maintain insurance considered by First Essex to be
reasonable for their respective operations and similar in scope
and coverage to that maintained by other businesses similarly
engaged. Neither First Essex nor any First Essex Subsidiary has
received notice from any insurance carrier that (i) such
insurance will be cancelled or that coverage thereunder will be
reduced or eliminated, or (ii) premium costs with respect to
such policies of insurance will be substantially increased.
There are presently no material claims pending under such
policies of insurance and no notices have been given by First
Essex or First Essex Bank under such policies during the past
two (2) years with respect to any potential material claims.
All such insurance is valid and enforceable and in full force
and effect, and within the last three years First Essex and
First Essex Bank have received each type of insurance coverage
for which they have applied and during such periods have not
been denied indemnification for any material claims submitted
under any of their insurance policies.
Section 2.10 Legal Proceedings. Except as set forth in
the First Essex Disclosure Schedule, neither First Essex nor any
First Essex Subsidiary is a party to any, and there are no
pending or, to the best of First Essex's knowledge, threatened
legal, administrative, arbitration or other proceedings, claims
(whether asserted or unasserted), actions or governmental
investigations or inquiries of any nature (i) against First
Essex or any First Essex Subsidiary, (ii) to which First Essex
or any First Essex Subsidiary's assets are or may be subject,
(iii) challenging the validity or propriety of any of the
transactions contemplated by this Agreement, or (iv) which could
adversely affect the ability of First Essex to perform under
37
this Agreement, except for any proceedings, claims, actions,
investigations or inquiries referred to in clauses (i) or (ii)
which, if adversely determined, individually or in the
aggregate, could not be reasonably expected to have a Material
Adverse Effect on First Essex.
Section 2.11 Compliance With Applicable Law.
(a) First Essex and First Essex Subsidiaries hold all
licenses, franchises, permits and authorizations necessary for
the lawful conduct of their businesses under, and have complied
in all material respects with, applicable laws, statutes,
orders, rules or regulations of any federal, state or local
governmental authority relating to them, other than where such
failure to hold or such noncompliance will neither result in a
limitation in any material respect on the conduct of their
businesses nor otherwise have a Material Adverse Effect on First
Essex.
(b) Except as disclosed on the First Essex Disclosure
Schedule, (i) First Essex and each First Essex Subsidiary is in
substantial compliance with all of the statutes, regulations or
ordinances which each Regulatory Authority applicable to them
enforces; (ii) no Regulatory Authority has threatened to revoke
any license, franchise, permit or governmental authorization
which is material to First Essex or any First Essex Subsidiary
required or threatened to require First Essex or any First Essex
Subsidiary, to enter into a cease and desist order or memorandum
of understanding with it; and (iii) no Regulatory Authority has
restricted or limited the operations of First Essex or any First
Essex Subsidiary, including without limitation any restriction
on the payment of dividends (any such memorandum or order
described in this sentence is hereinafter referred to as a
"Regulatory Agreement"). Neither First Essex nor any First
Essex Subsidiary has consented to or entered into any Regulatory
Agreement. First Essex received a rating of "Satisfactory" in
connection with its last CRA examination.
Section 2.12 ERISA. First Essex has previously delivered
to Sovereign true and complete copies of all employee pension
benefit plans within the meaning of ERISA Section 3(2),
including profit sharing plans, defined benefit pension plans,
employee stock ownership plans, stock purchase plans, deferred
compensation and supplemental income plans, supplemental
executive retirement plans, employment agreements, annual
executive and administrative incentive plans or long term
38
incentive plans, severance plans, policies and agreements, group
insurance plans, and all employee welfare benefit plans within
the meaning of ERISA Section 3(1) (including vacation pay, sick
leave, short-term disability, long-term disability, and medical
plans) and all other employee benefit plans, policies,
agreements and arrangements, all of which are set forth in the
First Essex Disclosure Schedule, sponsored or contributed to for
the benefit of the employees or former employees (including
retired employees) and any beneficiaries thereof or directors or
former directors of First Essex or any First Essex Subsidiary,
together with (i) the most recent actuarial (if any) and
financial reports relating to those plans which constitute
"qualified plans" under IRC Section 401(a), (ii) the most recent
annual reports relating to such plans filed by them,
respectively, with any government agency, and (iii) all rulings
(other than determination letters) and most recent determination
letters and any pending request for a determination letter
pertaining to any such plans. Neither First Essex, any First
Essex Subsidiary, nor any employee benefit pension plan (as
defined in ERISA Section 3(2)) maintained by First Essex or any
First Essex Subsidiary, has incurred, directly or indirectly,
within the past six (6) years any liability under Title IV of
ERISA (including to the Pension Benefit Guaranty Corporation) or
to the IRS with respect to any employee benefit pension plan
qualified under IRC Section 401(a) which liability has resulted
in or will result in a Material Adverse Effect with respect to
First Essex, except liabilities to the Pension Benefit Guaranty
Corporation pursuant to ERISA Section 4007, all of which have
been fully paid, nor has any reportable event under ERISA
Section 4043 occurred with respect to any such pension plan
which would result in a Material Adverse Effect. With respect
to each of such plans that is subject to Title IV of ERISA, the
present value of the accrued benefits under such plans,
calculated on a plan termination basis (using appropriate or
required annuity purchase rates and lump-sum distribution
assumptions), based on the plan's most recent valuation date and
determined as of such date, did not exceed the then current
value of the assets of such plan allocable to such accrued
benefits. Neither First Essex nor any First Essex Subsidiary
has incurred or is subject to any liability under ERISA
Section 4201 for a complete or partial withdrawal from a
multiemployer plan. All "employee benefit plans," as defined in
ERISA Section 3(3), comply and within the past six (6) years
have complied in all material respects with (i) relevant
provisions of ERISA and (ii) in the case of plans intended to
qualify for favorable income tax treatment, provisions of the
39
IRC relevant to such treatment. No prohibited transaction
(which shall mean any transaction prohibited by ERISA
Section 406 and not exempt under ERISA Section 408 or any
transaction prohibited under IRC Section 4975) has occurred
within the past six (6) years with respect to any employee
benefit plan maintained by First Essex or any First Essex
Subsidiary which would result in the imposition, directly or
indirectly, of an excise tax under IRC Section 4975 or other
penalty under ERISA or the IRC, which, individually or in the
aggregate, has resulted in or will result in a Material Adverse
Effect with respect to First Essex. First Essex and the First
Essex Subsidiaries provide continuation coverage under group
health plans for separating employees and "qualified
beneficiaries" in accordance with the provisions of IRC
Section 4980B(f). Such group health plans are in material
compliance with Section 1862(b)(1) of the Social Security Act
and the applicable provisions of the Health Insurance
Portability and Accountability Act of 1996, as amended.
Section 2.13 Brokers, Finders and Financial Advisors;
Fairness Opinion. Except for First Essex's engagement of
Sandler O'Neill & Partners L.P. ("Sandler") in connection with
transactions contemplated by this Agreement, or as otherwise set
forth on the First Essex Disclosure Schedule, neither First
Essex nor any First Essex Subsidiary, nor any of their
respective officers, directors, employees or agents, has
employed any broker, finder or financial advisor in connection
with the transactions contemplated by this Agreement or in
connection with any transaction other than the Merger, or,
except for its commitments disclosed in First Essex Disclosure
Schedule, incurred any liability or commitment for any fees or
commissions to any such person in connection with the
transactions contemplated by this Agreement or in connection
with any transaction other than the Merger, which has not been
reflected in the First Essex Financials. The First Essex
Disclosure Schedule shall contain as an exhibit the engagement
letter between First Essex and Sandler. Sandler has provided
First Essex with its oral opinion to the effect that, as of the
date of approval of this Agreement by the Board of Directors of
First Essex, the Merger Consideration is fair to stockholders of
First Essex in the Merger from a financial point of view.
Section 2.14 Environmental Matters. To the knowledge of
First Essex, except as set forth on the First Essex Disclosure
Schedule, neither First Essex nor any First Essex Subsidiary,
nor any properties operated by First Essex or any First Essex
40
Subsidiary during First Essex's use or ownership has been or is
in violation of or liable under any Environmental Law which
violation or liability, individually or in the aggregate,
resulted in, or will result, in a Material Adverse Effect with
respect to First Essex. There are no actions, suits or
proceedings, or demands, claims, notices or investigations
(including without limitation notices, demand letters or
requests for information from any environmental agency)
instituted or pending, or to the knowledge of First Essex,
threatened, relating to the liability of any property owned or
operated by First Essex or any First Essex Subsidiary under any
Environmental Law. First Essex has previously delivered to
Sovereign copies of any and all environmental reports, studies,
assessments and information regarding underground storage tanks
relating to the environmental condition of any property owned or
operated by First Essex or any of its Subsidiaries.
Section 2.15 Allowance for Losses. The allowance for loan
losses reflected, and to be reflected, in the First Essex
Regulatory Reports have been and will be, established in
accordance with the requirements of all regulatory criteria, and
the allowance for loan losses shown, and to be shown, on the
balance sheets contained in the First Essex Financials have
been, and will be, established in accordance with the
requirements of GAAP.
Section 2.16 Information to be Supplied. The information
to be supplied by First Essex and First Essex Bank for inclusion
in the Registration Statement (including the Prospectus/Proxy
Statement) and/or any information First Essex filed with the SEC
under the Exchange Act which is incorporated by reference into
the Registration Statement (including the Prospectus/Proxy
Statement) will not, at the time the Registration Statement is
declared effective pursuant to the Securities Act and as of the
date the Prospectus/Proxy Statement is mailed to stockholders of
First Essex and up to and including the date of the meeting of
stockholders of First Essex to which such Prospectus/Proxy
Statement relates, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements therein not misleading. The information
supplied, or to be supplied, by First Essex for inclusion in the
Applications will, at the time such documents are filed with any
Regulatory Authority and up to and including the date of the
attainment of any required regulatory approvals or consents, be
accurate in all material respects.
41
Section 2.17 Securities Documents. The Securities
Documents filed or to be filed by First Essex under the Exchange
Act at any time since December 31, 2001 complied or will comply,
at the time filed with the SEC, in all material respects, with
the Exchange Act and all applicable rules and regulations of the
SEC.
Section 2.18 Related Party Transactions. Except as
disclosed in the Securities Documents filed by First Essex, in
the footnotes to the First Essex Financials, or in the First
Essex Disclosure Schedule, First Essex is not a party to any
transaction (including any loan or other credit accommodation,
but excluding deposits in the ordinary course of business) with
any Affiliate of First Essex (except a First Essex Subsidiary).
All such transactions (a) were made in the ordinary course of
business, (b) were made on substantially the same terms,
including interest rates and collateral, as those prevailing at
the time for comparable transactions with other Persons, and
(c) did not involve more than the normal risk of collectibility
or present other risks or unfavorable features. No loan or
credit accommodation to any Affiliate of First Essex is
presently in default or, during the three year period prior to
the date of this Agreement, has been in default or has been
restructured, modified or extended. Neither First Essex nor
First Essex Bank has been notified that principal and interest
with respect to any such loan or other credit accommodation will
not be paid when due or that the loan grade classification
accorded such loan or credit accommodation by First Essex Bank
is inappropriate.
Section 2.19 Loans. Each loan reflected as an asset in
the First Essex Financial Statements (i) is evidenced by notes,
agreements or other evidences of indebtedness which are true,
genuine and correct (ii) to the extent secured, has been secured
by valid liens and security interests which have been perfected,
and (ii) is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting
creditors' rights and to general equity principles, in each case
other than loans as to which the failure to satisfy the
foregoing standards would not have a Material Adverse Effect on
First Essex.
Section 2.20 Takeover Laws. First Essex has taken all
action required to be taken by it in order to exempt this
42
Agreement, the Bank Plan of Merger and the transactions
contemplated hereby and thereby from, and this Agreement, the
Bank Plan of Merger and the transactions contemplated hereby and
thereby are exempt from, the requirements of any "moratorium,"
"control share," "fair price," "affiliate transaction,"
"business combination," or other antitakeover laws and
regulations of any jurisdiction (collectively, the "Takeover
Laws"), including, without limitation, the provisions of
Section 203 of the DGCL. The First Essex Rights Agreement will
not apply to this Agreement or the transactions contemplated
hereby.
Section 2.21 Labor and Employment Matters. To the
knowledge of First Essex, neither First Essex nor any First
Essex Subsidiary, nor any facilities owned or operated by First
Essex or any First Essex Subsidiary has been or is in violation
of or is liable under any Labor and Employment Law, which
violation or liability, individually or in the aggregate,
resulted in, or will result in, a Material Adverse Effect with
respect to First Essex. There are no legal, administrative,
arbitration or other proceedings, demands, claims, notices,
audits or investigations (including without limitation notices,
demand letters or requests for information from any federal,
state or local commission, agency or board) instituted or
pending, or to the knowledge of First Essex threatened, relating
to the liability of First Essex or any First Essex Subsidiary
under any Labor and Employment Law.
Section 2.22 Quality of Representations. The
representations made by First Essex in this Agreement do not
contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make them not misleading
under all facts and circumstances.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOVEREIGN
Sovereign hereby represents and warrants to First Essex
that, except as set forth in the Sovereign Disclosure Schedule
delivered by Sovereign to First Essex on or prior to the date
hereof:
Section 3.01 Organization.
(a) Sovereign is a corporation duly organized,
validly existing and in good standing under the laws of the
43
Commonwealth of Pennsylvania. Sovereign is a savings and loan
holding company duly registered under the HOLA. Sovereign has
the corporate power and authority to carry on its business and
operations as now being conducted and to own and operate the
properties and assets now owned and being operated by it. Each
Sovereign Subsidiary is duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its
incorporation and each possesses full corporate power and
authority to carry on its respective business and to own, lease
and operate its properties as presently conducted. Neither
Sovereign nor any Sovereign Subsidiary is required by the
conduct of its business or the ownership or leasing of its
assets to qualify to do business as a foreign corporation in any
jurisdiction other than the Commonwealth of Pennsylvania and the
states of Delaware, New Jersey, Massachusetts, Connecticut,
Rhode Island, and New Hampshire, except where the failure to be
so qualified would not have a Material Adverse Effect.
(b) Sovereign Bank is a federal savings bank, duly
organized and validly existing under the laws of the United
States of America. Sovereign Bank has the corporate power and
authority to carry on its business and operations as now being
conducted and to own and operate the properties and assets now
owned and being operated by it.
(c) The deposits of Sovereign Bank are insured by the
FDIC to the extent provided in the FDIA.
(d) The respective minute books of Sovereign and
Sovereign Bank accurately record in all material respects all
material corporate action of their respective stockholders and
boards of directors (including committees) through the date of
this Agreement.
(e) Prior to the execution of this Agreement,
Sovereign has delivered to First Essex true and correct copies
of the articles of incorporation and the bylaws of Sovereign and
Sovereign Bank, respectively, as in effect on the date hereof.
Section 3.02 Capital Structure.
(a) The authorized capital stock of Sovereign
consists of (a) 400,000,000 shares of common stock, no par value
("Sovereign Common Stock"), of which, at the date of this
Agreement, 1,591,486 shares were issued and held by Sovereign as
treasury stock and 265,159,627 shares are outstanding, validly
44
issued, fully paid and nonassessable, and (b) 7,500,000 shares
of preferred stock, no par value, of which, at the date of this
Agreement, no shares are issued or outstanding. No shares of
Sovereign Common Stock were issued in violation of any
preemptive rights. Sovereign has no Rights authorized, issued
or outstanding, other than (i) the Sovereign Stock Purchase
Rights, (ii) options to acquire shares of Sovereign Common Stock
authorized under Sovereign's employee benefit plans, stock
option plans, non-employee directors compensation plan, employee
stock ownership plan, employee stock purchase plan, and dividend
reinvestment and stock purchase plan, (iii) securities issued by
Sovereign Capital Trust I, (iv) securities issued by Sovereign
Capital Trust II, and (v) securities issued by Sovereign Capital
Trust III. The authorized capital stock of Merger Sub consists
of 1,000 shares of capital stock, $0.01 par value, all of which
are issued and outstanding and owned by Sovereign.
(b) To the best of Sovereign's knowledge, except as
disclosed in Sovereign's proxy statement dated March 21, 2003,
no person or "group" (as that term is used in Section 13(d)(3)
of the Exchange Act) is the beneficial owner (as defined in
Section 13(d) of the Exchange Act) of 5% or more of the
outstanding shares of Sovereign Common Stock.
(c) Except as disclosed in the Sovereign Disclosure
Schedule, Sovereign owns all of the capital stock of Sovereign
Bank, free and clear of any lien, security interests, pledges,
charges, encumbrances, agreements and restrictions of any kind
or nature and either Sovereign or Sovereign Bank owns all of its
shares of capital stock of each other Sovereign Subsidiary free
and clear of all liens, security interests, pledges, charges,
encumbrances, agreements and restrictions of any kind or nature.
Except for the Sovereign Subsidiaries, Sovereign does not
possess, directly or indirectly, any material equity interest in
any corporation, except for equity interests held in the
investment portfolios of Sovereign Subsidiaries, equity
interests held by Sovereign Subsidiaries in a fiduciary
capacity, and equity interests held in connection with the
commercial loan activities of Sovereign Subsidiaries.
Section 3.03 Authority; No Violation.
(a) Each of Sovereign and Merger Sub has full
corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated
hereby. Sovereign Bank has full corporate power and authority
45
to execute and deliver the Bank Plan of Merger and to consummate
the Bank Merger. The execution and delivery of this Agreement
by each of Sovereign and Merger Sub and the completion by each
of Sovereign and Merger Sub of the transactions contemplated
hereby have been duly and validly approved by the Boards of
Directors of each of Sovereign and Merger Sub, and no other
corporate proceedings on the part of either Sovereign or Merger
Sub are necessary to complete the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by each of Sovereign and Merger Sub and, subject to
receipt of the required approvals of Regulatory Authorities
described in Section 3.04 hereof, constitutes the valid and
binding obligation of each Sovereign and Merger Sub, enforceable
against each of Sovereign and Merger Sub in accordance with its
terms, subject to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity. The Bank Plan
of Merger, upon its execution and delivery by Sovereign Bank,
will constitute the valid and binding obligation of Sovereign
Bank, enforceable against Sovereign Bank in accordance with its
terms, subject to applicable conservatorship and receivership
provisions of the FDIA, or insolvency and similar laws affecting
creditors' rights generally and subject, as to enforceability,
to general principles of equity.
(b) (A) The execution and delivery of this Agreement
by each of Sovereign and Merger Sub, (B) the execution and
delivery of the Bank Plan of Merger by Sovereign Bank,
(C) subject to receipt of approvals from the Regulatory
Authorities referred to in Section 3.04 hereof and First Essex's
and Sovereign's compliance with any conditions contained
therein, the consummation of the transactions contemplated
hereby, and (D) compliance by Sovereign, Merger Sub or Sovereign
Bank with any of the terms or provisions of this Agreement or of
the Bank Plan of Merger will not (i) conflict with or result in
a breach of any provision of the charter or bylaws of Sovereign,
Merger Sub or any other Sovereign Subsidiary or the charter and
bylaws of Sovereign Bank; (ii) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to Sovereign, Merger Sub or any other
Sovereign Subsidiary or any of their respective properties or
assets; or (iii) violate, conflict with, result in a breach of
any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default),
under, result in the termination of, accelerate the performance
required by, or result in a right of termination or acceleration
46
or the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of Sovereign,
Merger Sub or Sovereign Bank under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other investment or
obligation to which Sovereign, Merger Sub or Sovereign Bank is a
party, or by which they or any of their respective properties or
assets may be bound or affected, except for such violations,
conflicts, breaches or defaults under clause (ii) or (iii)
hereof which, either individually or in the aggregate, will not
have a Material Adverse Effect on Sovereign.
Section 3.04 Consents. Except for consents, approvals,
filings and registrations from or with the OTS, the MDB, the
MBBI, the MHPF, the MDIF, the NYSE, the SEC, and state "blue
sky" authorities, and compliance with any conditions contained
therein, no consents or approvals of, or filings or
registrations with, any public body or authority are necessary,
and no consents or approvals of any third parties other than
Sovereign or its Affiliates are necessary, or will be, in
connection with (a) the execution and delivery of this Agreement
by Sovereign or Merger Sub or the Bank Plan of Merger by
Sovereign Bank, and (b) the completion by Sovereign or Merger
Sub of the transactions contemplated hereby or by Sovereign Bank
of the Bank Merger. Sovereign has no reason to believe that
(i) any required consents or approvals will not be received or
will be received with conditions, limitations or restrictions
unacceptable to it or which would adversely impact the ability
of Sovereign, Merger Sub or Sovereign Bank to complete the
transactions contemplated by this Agreement or that (ii) any
public body or authority, the consent or approval of which is
not required or any filing with which is not required, will
object to the completion of the transactions contemplated by
this Agreement.
Section 3.05 Financial Statements.
(a) Sovereign has previously delivered, or will
deliver, to First Essex, the Sovereign Regulatory Reports
available to First Essex for inspection. The Sovereign
Regulatory Reports have been, or will be, prepared in all
material respects in accordance with applicable regulatory
accounting principles and practices throughout the periods
covered by such statements, and fairly present, or will fairly
present in all material respects, the financial position,
results of operations, and changes in stockholders' equity of
47
Sovereign as of and for the periods ended on the dates thereof,
in accordance with applicable regulatory accounting principles
applied on a consistent basis.
(b) Sovereign has previously delivered, or will
deliver, to First Essex the Sovereign Financials. The Sovereign
Financials have been, or will be, prepared in accordance with
GAAP applied on a consistent basis throughout the periods
covered by the Sovereign Financials, except as noted therein and
fairly present, or will fairly present, the consolidated
financial position, results of operations and cash flows of
Sovereign as of and for the periods ending on the dates thereof,
in accordance with GAAP applied on a consistent basis throughout
the periods covered by the Sovereign Financials, except as noted
therein.
(c) At the date of each balance sheet included in the
Sovereign Financials or Sovereign Regulatory Reports, Sovereign
did not have any liabilities, obligations or loss contingencies
of any nature (whether absolute, accrued, contingent or
otherwise) of a type required to be reflected in such Sovereign
Financials or in the footnotes thereto which are not fully
reflected or reserved against therein or disclosed in a footnote
thereto, except for liabilities, obligations or loss
contingencies which are not material in the aggregate and which
are incurred in the ordinary course of business, consistent with
past practice, and except for liabilities, obligations or loss
contingencies which are within the subject matter of a specific
representation and warranty herein and subject, in the case of
any unaudited statements, to normal recurring audit adjustments
and the absence of footnotes.
Section 3.06 Taxes. Sovereign and the Sovereign
Subsidiaries are members of the same affiliated group within the
meaning of IRC Section 1504(a). Sovereign has duly filed, and
will file, all federal, state and local tax returns required to
be filed by or with respect to Sovereign and all Sovereign
Subsidiaries on or prior to the Closing Date (all such returns
being accurate and correct in all material respects) and has
duly paid or will pay, or made or will make, provisions and
related balance sheet accruals (if required) for the payment of
all federal, state and local taxes which have been incurred by
or are due or claimed to be due from Sovereign and any Sovereign
Subsidiary by any taxing authority or pursuant to any tax
48
sharing agreement or arrangement (written or oral) on or prior
to the Closing Date other than taxes which (i) are not
delinquent or (ii) are being contested in good faith.
Section 3.07 No Material Adverse Effect. Sovereign has
not suffered any Material Adverse Effect since December 31,
2002.
Section 3.08 Ownership of Property; Insurance Coverage.
(a) Sovereign and the Sovereign Subsidiaries have
good and, as to real property, marketable title to all assets
and properties owned by Sovereign or any of its Subsidiaries in
the conduct of their businesses, whether such assets and
properties are real or personal, tangible or intangible,
including assets and property reflected in the balance sheets
contained in the Sovereign Financials and in the Sovereign
Regulatory Reports or acquired subsequent thereto (except to the
extent that such assets and properties have been disposed of for
fair value, in the ordinary course of business, since the date
of such balance sheets), subject to no encumbrances, liens,
mortgages, security interests or pledges, except (i) those items
that secure liabilities for borrowed money and that are
described in the Sovereign Disclosure Schedule, and
(ii) statutory liens for amounts not yet delinquent or which are
being contested in good faith. Sovereign and the Sovereign
Subsidiaries, as lessee, have the right under valid and
subsisting leases of real and personal properties used by
Sovereign and its Subsidiaries in the conduct of their
businesses to occupy and use all such properties as presently
occupied and used by each of them.
(b) Sovereign and the Sovereign Subsidiaries
currently maintain insurance in amounts considered by Sovereign
to be reasonable for their respective operations, and such
insurance is similar in scope and coverage to that maintained by
other businesses similarly engaged. Neither Sovereign nor any
Sovereign Subsidiary has received notice from any insurance
carrier that (i) such insurance will be cancelled or that
coverage thereunder will be reduced or eliminated or
(ii) premium costs with respect to such insurance will be
substantially increased.
Section 3.09 Legal Proceedings. Neither Sovereign nor any
Sovereign Subsidiary is a party to any, and there are no pending
or, to the best of Sovereign's knowledge, threatened legal,
49
administrative, arbitration or other proceedings, claims,
actions or governmental investigations or inquiries of any
nature (i) against Sovereign or any Sovereign Subsidiary,
(ii) to which Sovereign's or any Sovereign Subsidiary's assets
are or may be subject, (iii) challenging the validity or
propriety of any of the transactions contemplated by this
Agreement, or (iv) which could adversely affect the ability of
Sovereign to perform under this Agreement, except for any
proceedings, claims, actions, investigations or inquiries
referred to in clauses (i) or (ii) which, individually or in the
aggregate, could not be reasonably expected to have a Material
Adverse Effect on Sovereign.
Section 3.10 Compliance With Applicable Law.
(a) Sovereign and the Sovereign Subsidiaries hold all
licenses, franchises, permits and authorizations necessary for
the lawful conduct of their businesses under, and have complied
in all material respects with, applicable laws, statutes,
orders, rules or regulations of any federal, state or local
governmental authority relating to them, other than where such
failure to hold or such noncompliance will neither result in a
limitation in any material respect on the conduct of their
businesses nor otherwise have a Material Adverse Effect on
Sovereign.
(b) Except as disclosed on the Sovereign Disclosure
Schedule, (i) Sovereign and each Sovereign Subsidiary is in
substantial compliance with all of the statutes, regulations or
ordinances which each Regulatory Authority applicable to them
enforces; (ii) no Regulatory Authority has threatened to revoke
any license, franchise, permit or governmental authorization
which is material to Sovereign or any Sovereign Subsidiary or
required or threatened to require Sovereign or any Sovereign
Subsidiary to enter into a cease and desist order or memorandum
of understanding with it and (iii) no Regulatory authority has
restricted or limited the operations of Sovereign or any
Sovereign Subsidiary, including without limitation any
restriction on the payment of dividends (any such memorandum or
order described in this sentence is hereinafter referred to as a
"Regulatory Agreement"). Neither Sovereign nor any Sovereign
Subsidiary is a party to any Regulatory Agreement. Sovereign
received a rating of "Satisfactory" in connection with its last
CRA examination.
50
Section 3.11 Information to be Supplied. The information
to be supplied by Sovereign for inclusion in the Registration
Statement (including the Prospectus/Proxy Statement) and/or any
information Sovereign filed with the SEC under the Exchange Act
which is incorporated by reference into the Registration
Statement (including the Prospectus/Proxy Statement) will not,
at the time the Registration Statement is declared effective
pursuant to the Securities Act and as of the date the
Prospectus/Proxy Statement is mailed to stockholders of First
Essex and up to and including the date of the meeting of
stockholders of First Essex to which such Prospectus/Proxy
Statement relates, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements therein not misleading. The information
supplied, or to be supplied, by Sovereign for inclusion in the
Applications will, at the time such documents are filed with any
Regulatory Authority and up to and including the date(s) of the
obtainment of any required regulatory approvals or consents, be
accurate in all material aspects.
Section 3.12 ERISA. Sovereign has previously made
available to First Essex true and complete copies of the
employee pension benefit plans within the meaning of ERISA
Section 3(2), profit sharing plans, employee stock ownership
plans, stock purchase plans, deferred compensation and
supplemental income plans, supplemental executive retirement
plans, annual incentive plans, group insurance plans, and all
other employee welfare benefit plans within the meaning of ERISA
Section 3(1) (including vacation pay, sick leave, short-term
disability, long-term disability, and medical plans), and all
other employee benefit plans, policies, agreements and
arrangements, all of which are set forth on the Sovereign
Disclosure Schedule, sponsored or contributed to for the benefit
of the employees or former employees (including retired
employees) and any beneficiaries thereof or directors or former
directors of Sovereign or any Sovereign Subsidiary, together
with (i) the most recent actuarial (if any) and financial
reports relating to those plans which constitute "qualified
plans" under IRC Section 401(a), (ii) the most recent annual
reports relating to such plans filed by them, respectively, with
any government agency, and (iii) all rulings and determination
letters which pertain to any such plans. Neither Sovereign, any
Sovereign Subsidiary, nor any pension plan maintained by
Sovereign or any Sovereign Subsidiary, has incurred, directly or
indirectly, within the past six (6) years any liability under
Title IV of ERISA (including to the Pension Benefit Guaranty
51
Corporation) or to the IRS with respect to any pension plan
qualified under IRC Section 401(a) which liability has resulted
in or will result in a Material Adverse Effect with respect to
Sovereign, except liabilities to the Pension Benefit Guaranty
Corporation pursuant to ERISA Section 4007, all of which have
been fully paid, nor has any reportable event under ERISA
Section 4043 occurred with respect to any such pension plan
which would result in a Material Adverse Effect. With respect
to each of such plans that is subject to Title IV of ERISA, the
present value of the accrued benefits under such plan, based
upon the actuarial assumptions used for funding purposes in the
plan's most recent actuarial report did not, as of its latest
valuation date, exceed the then current value of the assets of
such plan allocable to such accrued benefits. Neither Sovereign
nor any Sovereign Subsidiary has incurred or is subject to any
liability under ERISA Section 4201 for a complete or partial
withdrawal from a multiemployer plan. All "employee benefit
plans," as defined in ERISA Section 3(3), comply and within the
past six (6) years have complied in all material respects with
(i) relevant provisions of ERISA, and (ii) in the case of plans
intended to qualify for favorable income tax treatment,
provisions of the IRC relevant to such treatment. No prohibited
transaction (which shall mean any transaction prohibited by
ERISA Section 406 and not exempt under ERISA Section 408 or any
transaction prohibited under IRC Section 4975) has occurred
within the past six (6) years with respect to any employee
benefit plan maintained by Sovereign or any Sovereign Subsidiary
that would result in the imposition, directly or indirectly, of
an excise tax under IRC Section 4975 or other penalty under
ERISA or the IRC, which individually or in the aggregate, has
resulted in or will result in a Material Adverse Effect with
respect to Sovereign. Sovereign and the Sovereign Subsidiaries
provide continuation coverage under group health plans for
separating employees and "qualified beneficiaries" in accordance
with the provisions of IRC Section 4980B(f). Such group health
plans are in compliance with Section 1862(b)(1) of the Social
Security Act and the applicable provisions of the Health
Insurance Portability and Accountability Act of 1996, as
amended.
Section 3.13 Securities Documents. The Securities
Documents filed or to be filed by Sovereign under the Exchange
Act at any time since December 31, 2001 complied or will comply,
at the time filed with the SEC, in all material respects, with
the Exchange Act and the applicable rules and regulations of the
SEC.
52
Section 3.14 Environmental Matters. To the knowledge of
Sovereign, neither Sovereign nor any Sovereign Subsidiary, nor
any properties operated by Sovereign or any Sovereign Subsidiary
during Sovereign's use or ownership has been or is in violation
of or liable under any Environmental Law which violation or
liability, individually or in the aggregate, resulted in or will
result in a Material Adverse Effect with respect to Sovereign.
There are no actions, suits or proceedings, or demands, claims,
notices or investigations (including without limitation notices,
demand letters or requests for information from any
environmental agency) instituted or pending, or to the knowledge
of Sovereign, threatened, relating to the liability of any
property owned or operated by Sovereign or any Sovereign
Subsidiary under any Environmental Law.
Section 3.15 Allowance for Loan Losses. The allowance for
loan losses reflected, and to be reflected, in the Sovereign
Regulatory Reports, and shown, and to be shown, on the balance
sheets contained in the Sovereign Financials have been, and will
be, established in accordance with the requirements of GAAP and
all applicable regulatory criteria.
Section 3.16 Loans. Each loan reflected as an asset in
the Sovereign Financial Statements (i) is evidenced by notes,
agreements or other evidences of indebtedness which are true,
genuine and correct (ii) to the extent secured, has been secured
by valid liens and security interests which have been perfected,
and (iii) is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting
creditors' rights and to general equity principles, in each case
other than loans as to which the failure to satisfy the
foregoing standards would not have a Material Adverse Effect on
Sovereign.
Section 3.17 Continuity of Business Enterprise. It is the
present intent of Sovereign that, following the Merger,
Sovereign will continue the historic business of First Essex or
use a significant portion of First Essex's historic business
assets in a business, in each case within the meaning of
Treasury Reg. Section 1.368-1(d).
Section 3.18 No First Essex Capital Stock. Neither
Sovereign nor any Sovereign Subsidiary beneficially owns,
directly or indirectly, any shares of First Essex Common Stock,
53
or any options, warrants or other rights to acquire any First
Essex Common Stock, except pursuant to the Merger as
contemplated in this Agreement.
Section 3.19 Sufficient Funds. Sovereign will have at the
Effective Time sufficient cash funds to complete the Merger as
contemplated in this Agreement.
Section 3.20 Regulatory Capital. Neither Sovereign nor
Sovereign Bank is subject to any capital requirements other than
those required by applicable Regulatory Authorities or under
applicable federal regulations and as disclosed in Note 17 to
Sovereign's audited consolidated financial statements as of
December 31, 2002 and for the three years ended December 31,
2002 included in Sovereign's Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, and Sovereign and Sovereign
Bank are each in full compliance with all such capital
requirements.
Section 3.21 Quality of Representations. The
representations made by Sovereign in this Agreement are true,
correct and complete in all material respects and do not omit
statements necessary to make the representations not misleading
under the circumstances.
ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.01 Conduct of First Essex's Business.
(a) From the date of this Agreement to the Closing
Date, First Essex and each First Essex Subsidiary will conduct
its business and engage in transactions, including extensions of
credit, only in the ordinary course and consistent with past
practice and policies, except as otherwise required by this
Agreement or with the written consent of Sovereign. First Essex
will use its reasonable good faith efforts, and will cause First
Essex Bank to use its reasonable good faith efforts, to
(i) preserve its business organizations intact, (ii) maintain
good relationships with employees, and (iii) preserve for itself
the good will of customers of First Essex and First Essex
Subsidiaries and others with whom business relationships exist.
From the date hereof to the Closing Date, except as otherwise
consented to or approved by Sovereign through Stacey Weikel,
Vice President, or another representative designated by
54
Sovereign, or required by this Agreement, First Essex will not,
and First Essex will not permit any First Essex Subsidiary to:
(i) amend or change any provision of its
certificate of incorporation, charter, or bylaws;
(ii) change the number of authorized or issued
shares of its capital stock or issue or grant any option,
warrant, call, commitment, subscription, Right or agreement
of any character relating to its authorized or issued
capital stock or any securities convertible into shares of
such stock, except as contemplated by Section 4.11 of this
Agreement, or split, combine or reclassify any shares of
capital stock, or declare, set aside or pay any dividend or
other distribution in respect of capital stock, or redeem
or otherwise acquire any shares of capital stock, except
that (A) First Essex may issue shares of First Essex Common
Stock upon the valid exercise of outstanding options to
acquire First Essex Common Stock under the First Essex
Stock Option Plans, or pursuant to written stock option
agreements set forth in the First Essex Disclosure
Schedule, in accordance with Section 4.11 of this
Agreement, (B) First Essex may pay a regular quarterly cash
dividend to stockholders in an amount not to exceed $0.24
per share in the ordinary course of business consistent
with past practice; and (C) subject to applicable
regulatory restrictions, if any, First Essex Bank may pay a
cash dividend, in the aggregate, sufficient to fund any
dividend by First Essex permitted hereunder;
(iii) grant any severance or termination pay
(other than pursuant to written policies or written
agreements of First Essex or First Essex Subsidiaries in
effect on the date hereof and provided to Sovereign prior
to the date hereof, as contemplated by this Agreement, or
as otherwise agreed to in writing by Sovereign and First
Essex) to, or enter into any new or amend any existing
employment agreement with, or increase the compensation of,
any employee, officer or director of First Essex or any
First Essex Subsidiary, except for routine periodic
increases, individually and in the aggregate, in accordance
with past practice;
(iv) merge or consolidate First Essex or any
First Essex Subsidiary with any other corporation; sell or
lease all or any substantial portion of the assets or
55
business of First Essex or any First Essex Subsidiary; make
any acquisition of all or any substantial portion of the
business or assets of any other person, firm, association,
corporation or business organization other than in
connection with the collection of any loan or credit
arrangement between any First Essex Subsidiary and any
other person; enter into a purchase and assumption
transaction with respect to deposits and liabilities;
permit the revocation or surrender by any First Essex
Subsidiary of its certificate of authority to maintain, or
file an application for the relocation of, any existing
branch office, or file an application for a certificate of
authority to establish a new branch office;
(v) sell or otherwise dispose of the capital
stock of First Essex Bank or sell or otherwise dispose of
any asset of First Essex or of any First Essex Subsidiary
other than in the ordinary course of business consistent
with past practice; subject any asset of First Essex or of
any First Essex Subsidiary to a lien, pledge, security
interest or other encumbrance (other than in connection
with deposits, repurchase agreements, Federal Home Loan
Bank borrowings, bankers acceptances, "treasury tax and
loan" accounts established in the ordinary course of
business and transactions in "federal funds" and the
satisfaction of legal requirements in the exercise of trust
powers) other than in the ordinary course of business
consistent with past practice; incur any indebtedness for
borrowed money (or guarantee any indebtedness for borrowed
money), except in the ordinary course of business
consistent with past practice;
(vi) take any action which would result in any
of the representations and warranties of First Essex set
forth in this Agreement becoming untrue as of any date
after the date hereof or in any of the conditions set forth
in Article V hereof not being satisfied, except in each
case as may be required by applicable law;
(vii) change any method, practice or principle
of accounting, except as may be required from time to time
by GAAP (without regard to any optional early adoption
date) or any Regulatory Authority responsible for
regulating First Essex or First Essex Bank;
56
(viii) waive, release, grant or transfer any
rights of value or modify or change in any material respect
any existing material agreement to which First Essex or any
First Essex Subsidiary is a party, other than in the
ordinary course of business, consistent with past practice;
(ix) implement any pension, retirement, profit
sharing, bonus, welfare benefit or similar plan or
arrangement which was not in effect on the date of this
Agreement, or materially amend any existing plan or
arrangement except to the extent such amendments do not
result in an increase in cost; provided, however, that
First Essex shall timely make all participant salary
deferral contributions, its regular basic non-discretionary
matching contributions, and all participant loan payments
to the First Essex 401(k) plan through the Effective Date;
(x) purchase any security for its investment
portfolio not rated "A" or higher by either Standard &
Poor's Corporation or Moody's Investor Services, Inc. or
otherwise alter, in any material respect, the mix,
maturity, credit or interest rate risk profile of its
portfolio of investment securities or its portfolio of
mortgage-backed securities;
(xi) make any new loan or other credit facility
commitment (including without limitation, lines of credit
and letters of credit) to any borrower or group of
affiliated borrowers in excess of $3,000,000 in the
aggregate, or increase, compromise, extend, renew or modify
any existing loan or commitment outstanding in excess of
$3,000,000, except for any commitment disclosed on the
First Essex Disclosure Schedule;
(xii) except as set forth on the First Essex
Disclosure Schedule or except in the ordinary course of
business consistent with past practice, enter into, renew,
extend or modify any other transaction with any Affiliate
other than deposit and loan transactions in the ordinary
course of business and which are in compliance with
applicable laws and regulations;
(xiii) enter into any interest rate swap or
similar commitment, agreement or arrangement;
57
(xiv) except for the execution of this
Agreement, or resulting therefrom, take any action that
would give rise to a right of payment to any individual
under any employment agreement; or
(xv) agree to do any of the foregoing.
For purposes of this Section 4.01, it shall not be
considered in the ordinary course of business for First Essex or
any First Essex Subsidiary to do any of the following: (i) make
any capital expenditure of $100,000 or more not disclosed on
First Essex Disclosure Schedule 4.01, without the prior written
consent of Sovereign; (ii) make any sale, assignment, transfer,
pledge, hypothecation or other disposition of any assets having
a book or market value, whichever is greater, in the aggregate
in excess of $500,000, other than sales of mortgage loans in the
ordinary course of business consistent with past practice, sales
of other loans in amounts not exceeding $2.5 million in the
ordinary course of business consistent with past practice,
pledges of assets to secure borrowings from the Federal Home
Loan Bank of Boston, pledges of assets to secure government
deposits, to exercise trust powers, sales of assets received in
satisfaction of debts previously contracted in the normal course
of business, issuance of loans, or transactions in the
investment securities portfolio by First Essex or a First Essex
Subsidiary or repurchase agreements made, in each case, in the
ordinary course of business; (iii) undertake or enter any lease,
contract or other commitment for its account, other than in the
normal course of providing credit to customers as part of its
banking business, involving a payment by First Essex or any
First Essex Subsidiary of more than $100,000 annually, or
containing a material financial commitment and extending beyond
12 months from the date hereof.
Section 4.02 Access; Confidentiality.
(a) From the date of this Agreement through the
Closing Date, First Essex or Sovereign, as the case may be,
shall afford to, and shall cause each First Essex Subsidiary or
Sovereign Subsidiary to afford to, the other party and its
authorized agents and representatives, complete access to their
respective properties, assets, books and records and personnel,
at reasonable hours and after reasonable notice; and the
officers of First Essex and Sovereign will furnish any person
making such investigation on behalf of the other party with such
financial and operating data and other information with respect
58
to the businesses, properties, assets, books and records and
personnel as the person making such investigation shall from
time to time reasonably request.
(b) First Essex and Sovereign each agree to conduct
such investigation and discussions hereunder in a manner so as
not to interfere unreasonably with normal operations and
customer and employee relationships of the other party.
(c) In addition to the access permitted by
subparagraph (a) above, from the date of this Agreement through
the Closing Date, First Essex shall permit employees of
Sovereign reasonable access to and participation in matters
relating to problem loans, loan restructurings and loan workouts
with respect to any loan in excess of $1 million, investments,
derivatives, and other asset/liability activities of First Essex
and the First Essex Subsidiaries, provided that nothing
contained in this subparagraph shall be construed to grant
Sovereign or any Sovereign employee any final decision-making
authority with respect to such matters.
(d) If the transactions contemplated by this
Agreement shall not be consummated, First Essex and Sovereign
will continue to comply with the terms of the confidentiality
agreements dated September 17, 2002 and September 20, 2002,
respectively.
Section 4.03 Regulatory Matters and Consents.
(a) First Essex and Sovereign shall prepare a
Prospectus/Proxy Statement to be mailed to stockholders of First
Essex in connection with the meeting of stockholders of First
Essex to consider and the transactions contemplated hereby, and
to be filed by Sovereign with the SEC in the Registration
Statement, which Prospectus/Proxy statement shall conform to all
applicable legal requirements. Sovereign and First Essex shall
use commercially reasonable efforts to cause the Registration
Statement to be filed as soon as practicable, but not later than
sixty (60) days, after the date of this Agreement. Sovereign
shall, following the preparation thereof, file the Registration
Statement with the SEC and First Essex and Sovereign shall use
all commercially reasonable efforts to have the Registration
Statement declared effective under the Securities Act as
promptly as practicable after such filing. Sovereign will
advise First Essex, promptly after Sovereign receives notice
thereof, of the time when the Registration Statement has become
59
effective or any supplement or amendment has been filed, of the
issuance of any stop order or the suspension of the
qualification of the shares of capital stock issuable pursuant
to the Registration Statement, or the initiation or threat of
any proceeding for any such purpose, or of any request by the
SEC for the amendment or supplement of the Registration
Statement or for additional information. Sovereign will provide
First Essex with as many copies of such Registration Statement
and all amendments thereto promptly upon the filing thereof as
First Essex may reasonably request.
(b) Sovereign and First Essex will prepare all
Applications to Regulatory Authorities and make all filings for,
and use their commercially reasonable efforts to obtain as
promptly as practicable after the date hereof, all necessary
permits, consents, approvals, waivers and authorizations of all
Regulatory Authorities necessary or advisable to complete the
transactions contemplated by this Agreement.
(c) First Essex will furnish Sovereign with all
information concerning First Essex and First Essex Subsidiaries
as may be reasonably necessary or advisable in connection with
the Registration Statement and any Application or filing made by
or on behalf of Sovereign to any Regulatory Authority in
connection with the transactions contemplated by this Agreement
and the Bank Plan of Merger.
(d) Sovereign and First Essex shall have the right to
review in advance, and to the extent practicable each will
consult with the other on, all information which appears in any
filing made with or written materials submitted to the SEC, any
Regulatory Authority or any third party in connection with the
transactions contemplated by this Agreement and the Bank Plan of
Merger. In exercising the foregoing right, each of the parties
hereto shall act reasonably and as promptly as practicable. The
parties hereto agree that they will consult with each other with
respect to the obtaining of all permits, consents, approvals and
authorizations of the SEC, Regulatory Authorities and third
parties necessary or advisable to consummate the transactions
contemplated by this Agreement and the Bank Plan of Merger and
each party will keep the other apprised of the status of matters
relating to completion of the transactions contemplated hereby
and thereby.
(e) Sovereign will promptly furnish First Essex with
copies of all written communications to, or received by
60
Sovereign or any Sovereign Subsidiary from, any Regulatory
Authority in respect of the transactions contemplated hereby.
Section 4.04 Taking of Necessary Action. Sovereign and
First Essex shall each use commercially reasonable efforts in
good faith, and each of them shall cause its Subsidiaries to use
their commercially reasonable efforts in good faith, to take or
cause to be taken all action necessary or desirable on its part
using commercially reasonable efforts so as to permit completion
of the Merger and the Bank Merger, as soon as practicable after
the date hereof, including, without limitation, (A) obtaining
the consent or approval of each individual, partnership,
corporation, association or other business or professional
entity whose consent or approval is required or desirable for
consummation of the transactions contemplated hereby (including
assignment of leases without any change in terms), provided that
neither First Essex nor any First Essex Subsidiary shall agree
to make any payments or modifications to agreements in
connection therewith without the prior written consent of
Sovereign, and (B) requesting the delivery of appropriate
opinions, consents and letters from its counsel and independent
auditors. No party hereto shall take, or cause, or to the best
of its ability permit to be taken, any action that would
substantially impair the prospects of completing the Merger and
the Bank Merger pursuant to this Agreement and the Bank Plan of
Merger; provided that nothing herein contained shall preclude
Sovereign or First Essex or from exercising its rights under
this Agreement.
Section 4.05 Certain Agreements.
(a) In the event of any threatened or actual claim,
action, suit, proceeding or investigation, whether civil,
criminal or administrative, in which any person who is now, or
has been at any time prior to the date of this Agreement, or who
becomes prior to the Effective Date, a director or officer or
employee of First Essex or any of its Subsidiaries (the
"Indemnified Parties") is, or is threatened to be, made a party
to a suit based in whole or in part on, or arising in whole or
in part out of, or pertaining to (i) the fact that he is or was
a director, officer or employee of First Essex, any of the First
Essex's Subsidiaries or any of their respective predecessors or
(ii) this Agreement or any of the transactions contemplated
hereby, whether in any case asserted or arising before or after
the Effective Date, the parties hereto agree to cooperate and
use their best efforts to defend against and respond thereto to
61
the extent permitted or required by the DGCL and the certificate
of incorporation and bylaws of First Essex. On or after the
Effective Date, Sovereign shall indemnify, defend and hold
harmless all prior and then-existing directors and officers of
First Essex and any First Essex Subsidiary, against (i) all
losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement (with the
approval of Sovereign which approval shall not be unreasonably
withheld) of or in connection with any claim, action, suit,
proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is
or was a director, officer or employee of First Essex or any
First Essex Subsidiary, whether pertaining to any matter
existing or occurring at or prior to the Effective Date and
whether asserted or claimed prior to, or at or after, the
Effective Date ("Indemnified Liabilities") and (ii) all
Indemnified Liabilities based in whole or in part on, or arising
in whole or in part out of, or pertaining to this Agreement or
the transactions contemplated hereby, to the same extent as such
officer, director or employee may be indemnified by First Essex
or any First Essex Subsidiary as of the date hereof including
the right to advancement of expenses, provided, however, that
any such officer, director or employee of First Essex or any
First Essex Subsidiary shall not be indemnified by Sovereign
and/or Sovereign Bank if such indemnification is prohibited by
applicable law.
(b) Sovereign shall maintain First Essex's existing
directors' and officers' liability insurance policy (or a policy
providing comparable coverage amounts on terms generally no less
favorable, including Sovereign's existing policy if it meets the
foregoing standard) covering persons who are currently covered
by such insurance for a period of six years after the Effective
Date; provided, however, that in no event shall Sovereign be
obligated to expend, in order to maintain or provide insurance
coverage pursuant to this Section 4.05(b), any amount per annum
in excess of 150% of the amount of the annual premiums paid as
of the date hereof by First Essex for such insurance (the
"Maximum Amount"). If the amount of the annual premiums
necessary to maintain or procure such insurance coverage exceeds
the Maximum Amount, Sovereign shall use all reasonable efforts
to maintain the most advantageous policies of directors' and
officers' insurance obtainable for an annual premium equal to
the Maximum Amount. In the event that Sovereign acts as its own
insurer for all of its directors and officers with respect to
matters typically covered by a directors' and officers'
62
liability insurance policy, Sovereign's obligations under this
Section 4.05(b) may be satisfied by such self insurance, so long
as its senior debt ratings by Standard & Poor's Corporation and
Moody's Investors Services, Inc. are not lower than such ratings
as of the date hereof.
(c) Sovereign agrees to honor and Sovereign agrees to
cause Sovereign Bank to honor all terms and conditions of all
existing employment contracts, special termination agreements,
severance plan for employees and short-term incentive plan
disclosed in the First Essex Disclosure Schedule.
(d) In the event that Sovereign or any of its
respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger
or (ii) transfers all or substantially all of its properties and
assets to any Person, then, and in each such case the successors
and assigns of such entity shall assume the obligations set
forth in this Section 4.05.
(e) Sovereign agrees that, effective with the
Effective Date, it shall assume First Essex's $10 million
principal amount of 10.875% Fixed Rate Junior Subordinated
Debentures due 2030, $15 million principal amount of Floating
Rate Junior Subordinated Deferred Interest Debentures due 2031,
and all of First Essex's obligations under the related trust
indentures, and shall take all action necessary or appropriate
in accordance therewith, including, if required by the trustees,
execution of a supplemental indenture and other appropriate
documents or certificates.
Section 4.06 No Other Bids and Related Matters.
(a) Except as provided in Sections 4.06(b) and (c),
First Essex shall not and First Essex shall not authorize or
permit any of its directors, officers, employees, agents or
representatives (including investment bankers or lawyers), to
directly or indirectly (i) solicit, initiate or encourage any
inquiries relating to, or the making of any proposal which
relates to, an Acquisition Transaction, (ii) respond to any
inquiry relating to an Acquisition Transaction, (iii) recommend
or endorse an Acquisition Transaction, (iv) participate in any
discussions or negotiations regarding an Acquisition
Transaction, (v) provide any third party (other than Sovereign
or an Affiliate of Sovereign) with any nonpublic information in
63
connection with any inquiry or proposal relating to an
Acquisition Transaction, (vi) enter into a letter of intent,
agreement in principal, or other agreement with any other party
with respect to an Acquisition Transaction, or (vii) fail to
recommend and support the Merger to First Essex stockholders.
(b) Notwithstanding anything in this Section 4.06 to
the contrary, First Essex or its Board of Directors shall be
permitted to (i) to the extent applicable, comply with Rule 14d-
9 and Rule 14e-2 promulgated under the Exchange Act with regard
to a proposed Acquisition Transaction or (ii) respond to or
engage in any discussions or negotiations with, or provide any
confidential information or data to, any person in response to
an unsolicited bona fide written proposal for an Acquisition
Transaction by any such person first made after the date of this
Agreement, if and only to the extent that, in any such case
referred to in clause (ii) above:
(A) First Essex's stockholders meeting to vote
on the adoption of this Agreement shall not have occurred,
(B) First Essex shall have complied in all
material respects with the provisions of this Section 4.06,
(C) First Essex's Board of Directors, after
consultation with First Essex's outside legal counsel,
determines in good faith that failure to take such action
would be in inconsistent with its fiduciary duties under
applicable law,
(D) (aa) First Essex has received an unsolicited
bona fide written proposal for an Acquisition Transaction
from a third party, and its Board of Directors concludes in
good faith that such proposal is, or would be reasonably
likely to result in, a Superior Proposal, and (bb) prior
to providing any information or data to any person in
connection with a proposal for an Acquisition Transaction
by any such person, First Essex's Board of Directors
receives from such person an executed confidentiality
agreement having provisions that are no less favorable to
the party providing such information than those set forth
in the Confidentiality Agreement signed by Sovereign;
provided, however, that before First Essex shall provide any
information or data as permitted by this clause (bb),
64
(w) First Essex shall notify Sovereign of its
intention to enter into discussions with such third party,
specifying the material terms and conditions, to the extent
known, of such third party's Superior Proposal and furnishing to
Sovereign a copy of any relevant proposed transaction term
sheets, letters of intent or documents furnished by the party
making such Superior Proposal,
(x) by the close of business on the third
business day following the day on which Sovereign has received
such notice, Sovereign has, in writing, made a binding offer to
make adjustments in the terms and conditions of this Agreement,
or has declined or omitted to do so, and
(y) if either Sovereign has declined or omitted
to make such adjustments, or Sovereign has made a binding offer
to make such adjustments and the Board of Directors of First
Essex has considered such adjustments and has concluded in good
faith, after consultation with First Essex's outside legal
counsel and financial advisors, that the unsolicited proposal
would still be reasonably likely to result in a Superior
Proposal even after giving effect to the adjustments proposed by
Sovereign, then First Essex may proceed to enter into
discussions with such third party, or
(z) if Sovereign has offered to make such
adjustments and the Board of Directors of First Essex has
considered such adjustments and has concluded in good faith,
after consultation with First Essex's outside legal counsel and
financial advisors, that the unsolicited proposal would not be
reasonably likely to result in a Superior Proposal after giving
effect to the adjustments proposed by Sovereign, then First
Essex shall not enter into discussions with such third party
with respect to the unsolicited proposal that was submitted to
it;
provided, further, however, that First Essex shall be obligated
to follow the procedures set forth in clauses (w), (x), (y) and
(z) only once with respect to any third party proposing an
Acquisition Transaction,
(E) First Essex notifies Sovereign as promptly
as practicable (and in any event within 24 hours), of such
inquiries, proposals or offers received by, any such
information requested from, or any such discussions or
negotiations sought to be initiated or continued with, it
65
or any of its representatives indicating, with
particularity in connection with such notice, the identity
of such person and the material terms and conditions of any
inquiries, proposals or offers (including a copy thereof if
in writing and any related available documentation or
correspondence). First Essex agrees that it will promptly
keep Sovereign informed of the status and terms of any such
proposals or offers and the status and terms of any such
discussions or negotiations.
(c) Notwithstanding anything in this Section 4.06 to
the contrary, First Essex or its Board of Directors shall be
permitted to effect a change in recommendation to First Essex's
stockholders, if and only to the extent that, in any such case:
(A) The conditions in Sections 4.06(b)(A), (B),
(C), (D) and (E) have been satisfied,
(B) (aa) First Essex has received an unsolicited
bona fide written proposal for an Acquisition Transaction
from a third party and its Board of Directors concludes in
good faith that such proposal is a Superior Proposal, (bb)
First Essex has notified Sovereign, at least five (5)
business days in advance, of its intention to withdraw or
effect a change in its recommendation to First Essex's
stockholders specifying the material terms and conditions
of such Superior Proposal and furnishing to Sovereign a
copy of any relevant proposed transaction term sheets,
letter of intent or agreements with the party making such
Superior Proposal and any other material documents received
by it or its representatives, (cc) First Essex prior to
effecting such a withdrawal or change in recommendation,
has caused its financial and legal advisors to negotiate
with Sovereign in good faith to make such adjustments in
the terms and conditions of this Agreement such that such
Acquisition Proposal would no longer constitute a Superior
Proposal, and (dd) First Essex's Board of Directors has
considered such adjustments in the terms and conditions of
this Agreement resulting from such negotiations, and has
concluded in good faith, based upon consultation with its
financial advisors and with First Essex's outside legal
counsel, that such proposal for an Acquisition Transaction
remains a Superior Proposal even after giving effect to the
adjustments proposed by Sovereign.
66
(d) First Essex agrees that (i) it will, and will
cause its officers, directors and representatives to,
immediately cease and cause to be terminated any activities,
discussions or negotiations existing as of the date of this
Agreement with any parties conducted heretofore with respect to
any possible Acquisition Transaction, (ii) it will immediately
cease and cause its Subsidiaries, and its and their officers,
directors, agents, representatives and advisors, to cease any
and all existing activities, discussions or negotiations with
any third parties conducted heretofore with respect to any
possible Acquisition Transaction, and (iii) it will not release
any third party from, or waive any provisions of, any
confidentiality or standstill agreement to which it or any of
its subsidiaries is a party with respect to any possible
Acquisition Transaction. First Essex agrees that it will use
reasonable best efforts to promptly inform its respective
directors, officers, key employees, agents and representatives
of the obligations undertaken in this Section 4.06.
(e) Nothing in this Section 4.06 shall permit First
Essex to terminate this Agreement. First Essex shall not submit
to the vote of its stockholders any proposal for an Acquisition
Transaction other than the Merger prior to the vote on the
Merger by First Essex's stockholders.
(f) Any disclosure (other than a "stop, look and
listen" or similar communication of the type contemplated by
Rule 14-9(f) under the Exchange Act) made pursuant to clause (i)
of Section 4.06(b) shall be deemed to contribute a change in
recommendation unless the Board of Directors of First Essex
expressly reaffirms its recommendation of the Merger.
Section 4.07 Duty to Advise; Duty to Update Disclosure
Schedule. Each party shall promptly advise the other party of
any change or event having a Material Adverse Effect on it or
which it believes would or would be reasonably likely to cause
or constitute a material breach of any of its representations,
warranties or covenants set forth herein. Each party shall
update its respective Disclosure Schedule as promptly as
practicable after the occurrence of an event or fact which, if
such event or fact had occurred prior to the date of this
Agreement, would have been disclosed in such Disclosure
Schedule. The delivery of such updated Schedule shall not
relieve a party from any breach or violation of this Agreement
67
and shall not have any effect for the purposes of determining
the satisfaction of the condition set forth in Sections 5.01(c)
and 5.02(c) hereof, as applicable.
Section 4.08 Conduct of Sovereign's Business. From the
date of this Agreement to the Closing Date, Sovereign will use
its reasonable good faith efforts to (i) preserve its business
organizations intact, (ii) maintain good relationships with
employees, and (iii) preserve for itself the goodwill of
customers of Sovereign and Sovereign Subsidiaries and others
with whom business relationships exist.
Section 4.09 Current Information.
(a) During the period from the date of this Agreement
to the Effective Date, each party shall, upon the request of the
other party, cause one or more of its designated representatives
to confer on a monthly or more frequent basis with
representatives of the other party regarding its financial
condition, operations and business and matters relating to the
completion of the transactions contemplated hereby. Within
fifteen (15) days after the end of each month, First Essex will
deliver to Sovereign a consolidated balance sheet and a
consolidated statement of operations, without related notes, for
such month.
(b) First Essex shall provide to Sovereign a copy of
the minutes of any meeting of the Board of Directors of First
Essex or any First Essex Subsidiary, or any committee thereof,
or any senior management committee, promptly after such minutes
are approved at a subsequent meeting of the board or committee,
but in any event within thirty-five (35) days of the meeting of
such board or committee to which such minutes relate, except
that with respect to any meeting held within thirty (30) days of
the Closing Date, such minutes shall be provided prior to the
Closing Date.
Section 4.10 Undertakings by Sovereign and First Essex.
(a) From and after the date of this Agreement, First
Essex shall:
(i) Voting by Directors. Use its reasonable
efforts to cause all members of First Essex's Board of
Directors to vote all shares of First Essex's Common Stock
beneficially owned by each such director in favor of this
68
Agreement and to recommend to stockholders of First Essex
and otherwise support the Merger; provided that nothing in
this Agreement shall prevent the Board of First Essex from
exercising its rights under Section 4.06 of this Agreement.
(ii) Approval of Bank Plan of Merger. Approve
the Bank Plan of Merger as sole stockholder of First Essex
Bank and obtain the approval of, and cause the execution
and delivery of, the Bank Plan of Merger by First Essex
Bank;
(iii) Proxy Solicitor. If Sovereign requests
and agrees to bear the expense thereof, retain a proxy
solicitor in connection with the solicitation of First
Essex stockholder approval of this Agreement;
(iv) Outside Service Bureau Contracts. If
requested to do so by Sovereign, use its reasonable efforts
to obtain an extension of any contract with an outside
service bureau or other vendor of services to First Essex
or any First Essex Subsidiary, on terms and conditions
mutually acceptable to First Essex and Sovereign;
(v) Committee Meetings. Permit a
representative of Sovereign, who is reasonably acceptable
to First Essex, to attend all committee meetings of First
Essex and First Essex Bank management including, without
limitation, any loan or asset/liability committee;
(vi) List of Nonperforming Assets. Provide
Sovereign, within ten (10) days after the quarterly meeting
of its Asset Review Committee, a written list of
nonperforming assets as of the end of such month;
(vii) Reserves, Merger-Related Costs and Other
Matters. Prior to the Effective Date, to the extent
consistent with GAAP, the rules and regulations of the SEC
and applicable banking laws and regulations, modify or
change its loan, OREO, accrual, reserve, tax, litigation,
real estate valuation, asset liability management and
investment portfolio policies and practices (including loan
classifications and levels of reserves) so as to be applied
on a basis that is consistent with Sovereign; provided,
however, that no such modifications or changes need to be
made prior to the satisfaction of the conditions set forth
in Sections 5.01(d) and 5.01(j); and further provided that
69
in any event, no accrual or reserve made by First Essex or
any of its Subsidiaries pursuant to this Section shall
constitute or be deemed to be a breach, violation of or
failure to satisfy any representation, warranty, covenant,
agreement, condition or other provision of this Agreement
or otherwise be considered in determining whether any such
breach, violation or failure to satisfy shall have
occurred. The recording of any such adjustments shall not
be deemed to imply any misstatement or previously furnished
financial statements or information and shall not be
construed as concurrence of First Essex or its management
with any such adjustments. In the event that First Essex
or any of its Subsidiaries takes, at the request of
Sovereign, any action pursuant to this
Section 4.10(a)(vii), Sovereign shall reimburse First Essex
and its Subsidiaries for any fees, expenses and charges,
and the costs of reversing any action taken if the Merger
is not consummated other than as a result of termination of
the Agreement (i) under Section 6.01(b), unless the failure
of the occurrence specified therein shall be due to
Sovereign's failure to observe, in any material respect,
agreements set forth in the Agreement required to be
performed or observed by Sovereign on or before the Closing
Date, (ii) by First Essex under Section 6.01(d), (iii) by
Sovereign under Section 6.01(e) or (iv) by Sovereign under
Section 6.01(f) as a result of a breach by First Essex of
any material covenant or representation and warranty as
provided therein;
(viii) Stockholders' Meeting. First Essex shall
take all action necessary to properly call and convene a
special meeting of its stockholders as soon as reasonably
practicable to consider and vote upon this Agreement and
the transactions contemplated hereby; except as provided in
Section 4.06(b), the Board of Directors of First Essex
shall recommend that the stockholders of First Essex,
approve this Agreement and the transactions contemplated
hereby;
(ix) Personnel Information. Deliver to
Sovereign, if not done so heretofore, schedule(s) of all
employees including pertinent information concerning each
such employee as reasonably requested by Sovereign and
sorted as reasonably requested by Sovereign; such
schedule(s) shall be updated as necessary to reflect in a
70
timely manner any deletions or additions; make available
for inspection and copying by Sovereign all personnel
records;
(x) Personnel Additions and Terminations. If
requested by Sovereign, advise and consult with Sovereign
regarding the hiring or termination of any employee;
(xi) Employment Policies. Deliver to Sovereign
all personnel policy manuals, memoranda and postings, and
all employee handbooks or other communications with
employees regarding personnel policies and practices;
furnish additional information as reasonably requested by
Sovereign with respect to such policies and practices and
any others not covered by any such written materials;
(xii) WARN Notices. Assist Sovereign as
reasonably requested by it in connection with Sovereign
providing notices to affected employees under the Workers
Adjustment and Retraining Notification Act or complying
with any other Labor and Employment Law;
(xiii) Employment Law Claims. Inform Sovereign
promptly upon receiving notice of any legal,
administrative, arbitration or other proceedings, demands,
notices, audits or investigations (by any federal, state or
local commission, agency or board) relating to the alleged
liability of First Essex or any First Essex Subsidiary
under any Labor and Employment Law;
(b) From and after the date of this Agreement,
Sovereign and First Essex shall each:
(i) Identification of First Essex's
Affiliates. Cooperate with the other and use its best
efforts to identify those persons who may be deemed to be
Affiliates of First Essex;
(ii) Public Announcements. Cooperate and use
reasonable efforts to cause its respective officers,
directors, employees and agents to cooperate in good faith,
consistent with their respective legal obligations, in the
preparation and distribution of, and agree upon the form
and substance of, any press release related to this
Agreement and the transactions contemplated hereby, and any
other public disclosures related thereto, including without
71
limitation communications to First Essex stockholders,
First Essex's internal announcements and customer
disclosures, but nothing contained herein shall prohibit
either party from making any disclosure which its counsel
deems necessary under applicable law;
(iii) Maintenance of Insurance. Maintain, and
cause their respective Subsidiaries to maintain, insurance
in such amounts as are reasonable to cover such risks as
are customary in relation to the character and location of
its properties and the nature of its business;
(iv) Maintenance of Books and Records.
Maintain, and cause their respective Subsidiaries to
maintain, books of account and records in accordance with
GAAP applied on a basis consistent with those principles
used in preparing the financial statements heretofore
delivered;
(v) Delivery of Securities Documents. Deliver
to the other, copies of all Securities Documents promptly
after the filing thereof; and
(vi) Taxes. File all federal, state, and local
tax returns required to be filed by them or their
respective Subsidiaries on or before the date such returns
are due (including any extensions) and pay all taxes shown
to be due on such returns on or before the date such
payment is due and provide or properly accrued for taxes
not yet due and payable.
Section 4.11 Employee Benefits and Retention Bonuses.
(a) Employee Benefits. On and after the Effective
Date, the employee pension and welfare benefit plans of
Sovereign and First Essex (as well as any other plan of First
Essex providing for benefits not subject to ERISA) may, at
Sovereign's election and subject to the requirements of the IRC,
continue to be maintained separately, consolidated, frozen or
terminated, except as set forth below. In connection with
implementation of the foregoing, the following provisions and
guidelines shall apply:
(i) Sovereign Employee Stock Ownership Plan
("Sovereign ESOP"). Employees of First Essex and First
Essex Subsidiaries who become employees of Sovereign or a
72
Sovereign Subsidiary shall become entitled to participate
in the Sovereign ESOP in accordance with its terms by
treating them as newly employed individuals without any
prior service credit under such plan. Employees of First
Essex and First Essex Subsidiaries will not receive past
service credit for purposes of eligibility to participate
or for vesting purposes under the Sovereign ESOP.
(ii) Sovereign 401(k) Retirement Plan
("Sovereign 401(k) Plan"). Employees of First Essex and
First Essex Subsidiaries who become employees of Sovereign
or a Sovereign Subsidiary shall receive, for purposes of
eligibility to participate in the Sovereign 401(k) Plan
only, credit for all service with First Essex or a First
Essex Subsidiary credited to each such employee under First
Essex's 401(k) Plan as of the Effective Date, and shall
enter the Sovereign 401(k) Plan in accordance with its
terms as soon as administratively feasible following
completion of six (6) months of service (within the meaning
of the Sovereign 401(k) Plan) with either First Essex, a
First Essex Subsidiary or Sovereign, a Sovereign Subsidiary
or both.
(iii) First Essex Savings Plan ("First Essex
401(k) Plan"). After the Effective Date, Sovereign shall
amend the First Essex 401(k) Plan to freeze participation
and contributions under such plan. After the Effective
Date, Sovereign will continue to maintain the individual
participant accounts under First Essex's 401(k) Plan.
Thereafter, Sovereign shall have the right, but not the
obligation, to combine the First Essex 401(k) Plan and the
Sovereign 401(k) Plan on such terms as it deems appropriate
and in accordance with applicable law.
(iv) Sovereign and First Essex Nonqualified
Deferred Compensation Plans. On the date of, or prior to,
the Closing Date, First Essex will freeze participation and
benefit accruals under any nonqualified deferred
compensation plans then maintained by First Essex effective
as of the Closing Date, including but not limited to the
supplemental executive retirement agreements and benefit
enhancement plans set forth on the First Essex Disclosure
Schedule. The freezing of participation and benefit
accruals under such nonqualified deferred compensation
plans shall be effected in such a manner that no person
receive redundant benefits or lose existing benefits. The
73
intent of the preceding sentence is that affected employees
of First Essex and First Essex Subsidiaries generally shall
be entitled only to the benefits accrued under the First
Essex deferred compensation plans as of the Effective Date
of the Merger. Such benefits shall, to the extent required
by such plans, be funded through a grantor trust.
(v) Welfare Benefit Plans. After the
Effective Date, the welfare benefit plans of Sovereign and
First Essex (and their respective subsidiaries) shall
initially remain unchanged until the contracts underlying
such welfare benefit plans expire or as long as is
administratively feasible, following the Closing Date.
Sovereign shall take such action with respect to such plans
(which may include the implementation of new benefits,
reduction or elimination of some benefits, and the
alteration of the respective cost allocation between
employer and employee) as it deems appropriate under the
circumstances. Employees of First Essex and First Essex
Subsidiary who become employees of Sovereign or a Sovereign
Subsidiary shall become participants in the Sovereign
welfare benefit plans as soon as administratively feasible
thereafter. In the event of any termination of or
consolidation of a First Essex welfare plan with any
Sovereign welfare plan, all employees of First Essex and
First Essex Subsidiaries who are eligible for continued
coverage under the First Essex welfare plan shall have
immediate coverage under any successor welfare plan without
the necessity of satisfying a waiting period for coverage
of any pre-existing condition. Sovereign does not provide
welfare benefits to retired employees.
(vi) First Essex Bonus Plans and Arrangements.
First Essex may continue to administer such bonus programs
and arrangements as are disclosed pursuant to this
Agreement through the Effective Date, with such equitable
modifications as may be appropriate to take into account
the circumstances of the Merger and the timing thereof;
provided, however, that aggregate payments under First
Essex bonus plans and arrangements for the fiscal year
ending December 31, 2003 shall not exceed the amount set
forth in the First Essex Disclosure Schedule. First Essex
may pay pro-rated bonuses for 2004 under the short-term
incentive plan in accordance with the terms of such plan.
74
(vii) First Essex Defined Benefit Pension Plan.
From the date of this Agreement, First Essex shall
continue to maintain, without change other than change
required by law, its defined benefit pension plan. First
Essex shall freeze participation and benefit accruals
effective as of October 31, 2003 and shall timely make all
required contributions through the Effective Date.
(viii) Other First Essex Plans. From the date
of this Agreement through the Effective Date of the Merger,
without the prior written consent of Sovereign and except
as otherwise expressly permitted by this Agreement, no
further benefits, grants or awards shall be made available
under any other First Essex plans to employees or
directors, including, without limitation, the granting of
stock options, stock appreciation rights, restricted stock,
and performance shares.
(ix) Nothing in this subsection shall be
construed as precluding Sovereign from amending or
terminating any plan, program or arrangement following the
Effective Date of the Merger, to the extent it is not
otherwise precluded from doing the same.
(c) Retention Bonuses. Each employee of First Essex
jointly designated in writing by Sovereign and First Essex shall
be entitled to receive a "retention" bonus from First Essex,
First Essex Bank, Sovereign or Sovereign Bank, as the case may
be, in an amount to be mutually agreed upon in writing by
Sovereign and First Essex in the event that such employee
remains an employee of First Essex or a First Essex Subsidiary,
or Sovereign or a Sovereign Subsidiary, as applicable, until the
Effective Date (or in certain cases, a date, after the Effective
Date, that the systems conversion occurs or thereafter as
determined by Sovereign) provided that such employee
satisfactorily fulfills the duties and responsibilities of the
position of such employee of First Essex or a First Essex
Subsidiary, or Sovereign or a Sovereign Subsidiary, as the case
may be, through the Effective Date and thereafter, if
applicable.
Section 4.12 Affiliate Letter. First Essex shall use its
best efforts to cause to be delivered to Sovereign, concurrently
with the execution of this Agreement or within five (5) Business
Days thereafter, the Letter Agreement attached hereto as
Exhibit 1, executed by each Affiliate of First Essex.
75
Section 4.13 Sovereign Rights Agreement. Sovereign agrees
that any Sovereign Rights issued pursuant to the Sovereign
Rights Agreement shall be issued with respect to each share of
Sovereign Common Stock issued pursuant to the terms hereof
regardless whether there has occurred a "Distribution Date"
under the terms of such Sovereign Rights Agreement prior to the
Effective Date, as well as to take all action necessary or
advisable to enable the holder of each such share of Sovereign
Common Stock to obtain the benefit of such Sovereign Stock
Purchase Rights notwithstanding their prior distribution,
including without limitation, amendment of the Sovereign Rights
Agreement.
Section 4.14 Advisory Board. On the Effective Date,
Sovereign Bank shall establish the First Essex Advisory Board
(the "First Essex Advisory Board"), which shall consist of all
members of the First Essex Board immediately prior to the
Effective Date. The First Essex Advisory Board shall be
maintained for a term of 24 months from the Effective Date. The
First Essex Advisory Board will meet no more than once each
quarter during its 24 month term. Each member of the First
Essex Advisory Board shall be paid an annual retainer fee of
$1,000 and a fee of $1,000 for each meeting of the First Essex
Advisory Board the member attends. Sovereign Bank shall have no
obligation to continue the services of any advisory director
who, in the reasonable judgment of Sovereign Bank, acts in a
manner detrimental to Sovereign Bank. In the event that
Sovereign Bank terminates, suspends or disbands the First Essex
Advisory Board, fails to require or request the attendance of a
member with respect to at least four (4) meetings of the First
Essex Advisory Board and/or committee thereof within a single
year or removes a member of the First Essex Advisory Board other
than because such member acted in a manner detrimental to Bank,
in each case prior to the end of the 24-month period
contemplated by this Section 4.14, any member affected by any
such action or failure shall nonetheless be paid the full fees
(assuming at least four (4) meetings annually had been held)
less any fees paid to the member during the twenty-four
(24) month period.
Section 4.15 Non-Solicitation of Customers and Employees.
First Essex shall use reasonable efforts to cause to be
delivered to Sovereign on or before the Effective Date, the
written agreement required by Section 5.02(k), executed by the
individual identified in such Section.
76
ARTICLE V
CONDITIONS
Section 5.01 Conditions to First Essex's Obligations under
this Agreement. The obligations of First Essex hereunder shall
be subject to satisfaction at or prior to the Closing Date of
each of the following conditions, unless waived by First Essex
pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be
taken by, or on the part of, Sovereign and Sovereign Bank to
authorize the execution, delivery and performance of this
Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement
and the Bank Plan of Merger, shall have been duly and validly
taken by Sovereign and Sovereign Bank; and First Essex shall
have received certified copies of the resolutions evidencing
such authorizations;
(b) Covenants. The obligations and covenants of
Sovereign required by this Agreement to be performed by
Sovereign at or prior to the Closing Date shall have been duly
performed and complied with in all respects, except where the
failure to perform or comply with any obligation or covenant
would not, either individually or in the aggregate, result in a
Material Adverse Effect with respect to Sovereign;
(c) Representations and Warranties. The
representations and warranties of Sovereign set forth in this
Agreement shall be true and correct, as of the date of this
Agreement, and as of the Closing Date as though made on and as
of the Closing Date, except as to any representation or warranty
(i) which specifically relates to an earlier date or (ii) where
the breach of the representation or warranty would not, either
individually or in the aggregate, constitute a Material Adverse
Effect with respect to Sovereign;
(d) Approvals of Regulatory Authorities. Sovereign
and First Essex shall have received all required approvals of
Regulatory Authorities of the Merger, and delivered copies
thereof to First Essex; and all notice and waiting periods
required thereunder shall have expired or been terminated;
77
(e) No Injunction. There shall not be in effect any
order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby;
(f) No Material Adverse Effect. Since December 31,
2002, there shall not have occurred any Material Adverse Effect
with respect to Sovereign;
(g) Officer's Certificate. Sovereign shall have
delivered to First Essex a certificate and such other documents,
dated the Closing Date and signed, without personal liability,
by its chairman or president, to the effect that the conditions
set forth in subsections (a) through (e) of this Section 5.01
have been satisfied, to the best knowledge of the officer
executing the same;
(h) Registration Statement. The Registration
Statement shall be effective under the Securities Act and no
proceedings shall be pending or threatened by the SEC to suspend
the effectiveness of the Registration Statement; and all
required approvals by state securities or "blue sky" authorities
with respect to the transactions contemplated by this Agreement,
shall have been obtained and neither the Registration Statement
nor any such approval by state securities or "blue sky"
authorities shall be subject to a stop order or threatened stop
order by the SEC or any such authority;
(i) Tax Opinion. First Essex shall have received an
opinion of Foley Hoag LLP to the effect that the Merger, taken
together with the Surviving Corporation merger contemplated by
Section 1.03, will constitute a "reorganization" within the
meaning of such term in IRC Section 368(a)(1); and
(j) Approval of First Essex's Stockholders. This
Agreement shall have been approved by the stockholders of First
Essex by such vote as is required under First Essex's
certificate of incorporation and bylaws, the DGCL or under
Nasdaq requirements applicable to it.
Section 5.02 Conditions to Sovereign's Obligations under
this Agreement. The obligations of Sovereign hereunder shall be
subject to satisfaction at or prior to the Closing Date of each
of the following conditions, unless waived by Sovereign pursuant
to Section 7.03 hereof:
78
(a) Corporate Proceedings. All action required to be
taken by, or on the part of, First Essex and First Essex Bank to
authorize the execution, delivery and performance of this
Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement
and the Bank Plan of Merger, shall have been duly and validly
taken by First Essex and First Essex Bank; and Sovereign shall
have received certified copies of the resolutions evidencing
such authorizations;
(b) Covenants. The obligations and covenants of
First Essex, required by this Agreement to be performed by it at
or prior to the Closing Date shall have been duly performed and
complied with in all respects, except where the failure to
perform or comply with any obligation or covenant would not,
either individually or in the aggregate, result in a Material
Adverse Effect with respect to First Essex;
(c) Representations and Warranties. The
representations and warranties of First Essex set forth in this
Agreement shall be true and correct as of the date of this
Agreement, and as of the Closing Date as though made on and as
of the Closing Date, except as to any representation or warranty
(i) which specifically relates to an earlier date or (ii) where
the breach of the representation or warranty would not, either
individually or in the aggregate, result in a Material Adverse
Effect with respect to First Essex;
(d) Approvals of Regulatory Authorities. Sovereign
and First Essex shall have received all required approvals of
Regulatory Authorities for the Merger; and all notice and
waiting periods required thereunder shall have expired or been
terminated;
(e) No Injunction. There shall not be in effect any
order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby;
(f) No Material Adverse Effect. Since December 31,
2002, there shall not have occurred any Material Adverse Effect
with respect to First Essex;
(g) Officer's Certificate. First Essex shall have
delivered to Sovereign a certificate and such other documents,
79
dated the Closing Date and signed, without personal liability,
by its chairman of the board or president, to the effect that
the conditions set forth in subsections (a) through (e) of this
Section 5.02 have been satisfied, to the best knowledge of the
officer executing the same;
(h) Registration Statement. The Registration
Statement shall be effective under the Securities Act and no
proceedings shall be pending or threatened by the SEC to suspend
the effectiveness of the Registration Statement; and all
required approvals by state securities or "blue sky" authorities
with respect to the transactions contemplated by this Agreement,
shall have been obtained and neither the Registration Statement
nor any such approval by state securities or "blue sky"
authorities shall be subject to a stop order or threatened stop
order by the SEC or any such authority;
(i) Tax Opinion. Sovereign shall have received an
opinion of Stevens & Lee, P.C. to the effect that the Merger,
taken together with the Surviving Corporation merger
contemplated by Section 1.03, will constitute a "reorganization"
within the meaning of such term in IRC Section 368(a)(1);
(j) Approval of First Essex's Stockholders. This
Agreement shall have been approved by the stockholders of First
Essex by such vote as is required under First Essex's
certificate of incorporation and bylaws, the DGCL or under
Nasdaq requirements applicable to it; and
(k) Non-Solicitation of Customers and Employees.
Brian W. Thompson shall have executed and delivered to Sovereign
an agreement in the form set forth in the First Essex Disclosure
Schedule to Sovereign relating to the solicitation of customers
and employees of First Essex after the Closing Date.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
Section 6.01 Termination. This Agreement may be
terminated on or at any time prior to the Closing Date:
(a) By the mutual written consent of the parties
hereto;
(b) By Sovereign or First Essex:
80
(i) if the Closing Date shall not have
occurred on or before March 31, 2004, unless the failure of
such occurrence shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe,
in any material respect, its agreements set forth in this
Agreement required to be performed or observed by such
party on or before the Closing Date; or
(ii) if either party has received a final
unappealable administrative order from a Regulatory
Authority whose approval or consent has been requested that
such approval or consent will not be granted;
unless in the case of both Section 6.01(b)(i) and 6.01(b)(ii)
hereof the failure of such occurrence shall be due to the
failure of the party seeking to terminate this Agreement to
perform or observe in any material respect its agreements set
forth herein required to be performed or observed by such party
on or before the Closing Date.
(c) by First Essex if First Essex's stockholders fail
to approve this Agreement at the special meeting of First Essex
stockholders called for that purpose; provided a period of at
least thirty days elapsed between the date of mailing the Proxy
Statement/Prospectus and the date of the special meeting at
which a quorum is present.
(d) By First Essex, on the Closing Date, if the
Sovereign Market Value as of the close of business on the
Business Date immediately preceding the Closing Date shall be
less than $13.14; provided, however, that if First Essex
delivers a notice of termination under this Section 6.01(d) and
Sovereign thereafter delivers to First Essex a written notice
indicating that it intends to proceed with the Merger by paying
additional consideration as set forth in Section 1.02(e)(xii),
then First Essex shall have no right to terminate the Agreement
under this Section 6.01(d) and the provisions of
Section 1.02(e)(xii) shall apply to the Stock Election Shares.
(e) By Sovereign at any prior to the Closing Date if
the Board of Directors of First Essex shall have (i) breached,
in any material respect the provisions of Section 4.06(a) of
this Agreement (ii) exercised its rights under Section 4.06(b)
of this Agreement to withdraw, modify or change, in a manner
adverse to Sovereign, its approval or recommendation of this
81
Agreement and the Merger or to recommended or endorse a proposal
for another Acquisition Transaction, (iii) failed to call, give
notice of, convene or hold a meeting of stockholders to consider
the Merger in violation of Section 4.10(a)(viii) hereof or
(iv) failed to recommend the Merger.
(f) At any time on or prior to the Effective Date, by
First Essex in writing if Sovereign has, or by Sovereign in
writing if First Essex has, in any material respect, breached
(i) any material covenant or undertaking contained herein or
(ii) any representation or warranty contained herein, which in
the case of a breach referred to in subclause (i) or (ii) above
by Sovereign would have a Material Adverse Effect on Sovereign
and in case of a breach referred to in subclause (i) or (ii)
above by First Essex would have a Material Adverse Effect on
First Essex, in any case if such breach has not been
substantially cured by the earlier of thirty (30) days after the
date on which written notice of such breach is given to the
party committing such breach or the Effective Date or if on such
date such breach no longer causes a Material Adverse Effect.
Section 6.02 Effect of Termination. (a) If this
Agreement is terminated pursuant to Section 6.01 hereof, this
Agreement shall forthwith become void (except for
Section 4.02(d), Section 4.10(b)(ii), this Section 6.02, and
Section 7.01 hereof, and all obligations of the parties intended
to be performed after the termination of this Agreement, which
shall remain in full force and effect), and there shall be no
further liability on the part of Sovereign or First Essex to the
other, except for any liability arising out of any (i) uncured
willful breach of any covenant or other agreement contained in
this Agreement or (ii) any fraudulent breach of a representation
or warranty.
(b) If this Agreement is terminated as a result of
any breach of a representation, warranty, covenant or other
agreement which is caused by the willful or fraudulent breach of
a party hereto, such party shall be liable to the other for all
out-of-pocket costs and expenses, including, without limitation,
the reasonable fees and expenses of lawyers, accountants and
investment bankers, incurred by such other party in connection
with the entering into of this Agreement and the carrying out of
any and all acts contemplated hereunder ("Expenses"). The
payment of Expenses is not an exclusive remedy, but is in
addition to any other rights or remedies available to the
parties hereto at law or in equity.
82
(c) In the event this Agreement is terminated by:
(i) Sovereign pursuant to Section 6.01(e);
(ii) First Essex pursuant to Section 6.01(c) in
circumstances where the Board of Directors of First Essex
shall not have publicly recommended to the stockholders of
First Essex that such stockholders vote in favor of the
approval of this Agreement, the Merger and the other
transactions contemplated hereby or shall have withdrawn,
modified or amended such recommendation in the manner
adverse Sovereign; or
(iii) First Essex pursuant to Section 6.01(c) in
circumstances where both (y) within twelve (12) months of
such termination, First Essex shall have entered into an
agreement to engage in or there has otherwise occurred an
Acquisition Transaction with any person other than
Sovereign or any Affiliate of Sovereign and (z) at the time
of such termination or event giving rise to such
termination, it shall have been publicly announced that any
Person (other than Sovereign or any Affiliate of Sovereign)
shall have (A) made, or disclosed an intention to make, a
bona fide offer to engage in an Acquisition Transaction, or
(B) filed an application (or given a notice), whether in
draft or final form, under the HOLA or the Change in Bank
Control Act of 1978, for approval to engage in an
Acquisition Transaction;
then First Essex shall make a single cash payment to Sovereign
in the amount of $17,500,000 upon such termination. Any payment
required under this Section 6.02(b) shall be payable by First
Essex to Sovereign (by wire transfer of immediately available
fund to an account designated by Sovereign) within two (2)
business days after demand by Sovereign.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Expenses. Except for the cost of printing
and mailing the Proxy Statement/Prospectus which shall be shared
equally, each party hereto shall bear and pay all costs and
expenses incurred by it in connection with the transactions
contemplated hereby, including fees and expenses of its own
financial consultants, accountants and counsel.
83
Section 7.02 Non-Survival of Representations and
Warranties. All representations, warranties and, except to the
extent specifically provided otherwise herein, agreements and
covenants, other than those covenants that by their terms are to
be performed after the Effective Date, including without
limitation the covenants set forth in Sections 1.02(g), 1.02(h),
4.05, 4.11(a) and 4.11(b) which will survive the Merger, shall
terminate on the Closing Date.
Section 7.03 Amendment, Extension and Waiver. Subject to
applicable law, at any time prior to the consummation of the
transactions contemplated by this Agreement, the parties may
(a) amend this Agreement, (b) extend the time for the
performance of any of the obligations or other acts of either
party hereto, (c) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered
pursuant hereto, or (d) waive compliance with any of the
agreements or conditions contained in Articles IV and V hereof
or otherwise, provided that any amendment, extension or waiver
granted or executed after stockholders of First Essex have
approved this Agreement shall not modify either the amount or
the form of the consideration to be provided hereby to holders
of First Essex Common Stock upon consummation of the Merger or
otherwise materially adversely affect the stockholders of First
Essex without the approval of the stockholders who would be so
affected. This Agreement may not be amended except by an
instrument in writing authorized by the respective Boards of
Directors and signed, by duly authorized officers, on behalf of
the parties hereto. Any agreement on the part of a party
hereto to any extension or waiver shall be valid only if set
forth in an instrument in writing signed by a duly authorized
officer on behalf of such party, but such waiver or failure to
insist on strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure.
Section 7.04 Entire Agreement. This Agreement, including
the Schedules and Exhibits hereto, contains the entire agreement
and understanding of the parties with respect to its subject
matter, together with the confidentiality agreements dated
September 17, 2002 and September 20, 2002, respectively, between
Sovereign and First Essex. This Agreement supersedes all prior
arrangements and understandings between the parties, both
written or oral, with respect to its subject matter. This
Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors; provided,
84
however, that nothing in this Agreement, expressed or implied,
is intended to confer upon any party, other than the parties
hereto and their respective successors, any rights, remedies,
obligations or liabilities other than pursuant to
Sections 1.02(g), 1.02(h), 4.05, 4.11(a), and 4.11(b).
Section 7.05 No Assignment. Neither party hereto may
assign any of its rights or obligations hereunder to any other
person, without the prior written consent of the other party
hereto.
Section 7.06 Notices. All notices or other communications
hereunder shall be in writing and shall be deemed given if
delivered personally, mailed by prepaid registered or certified
mail (return receipt requested), or sent by telecopy, addressed
as follows:
(a) If to Sovereign, to:
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, PA 19610
Attention: Mark R. McCollom,
Senior Vice President
Telecopy No.: (610) 320-8448
with a copy to:
Stevens & Lee, P.C.
111 North Sixth Street, P.O. Box 679
Reading, Pennsylvania 19603-0679
Attention: Joseph M. Harenza, Esquire
and
David W. Swartz, Esquire
Telecopy No.: (610) 376-5610
(b) If to First Essex, to:
First Essex Bancorp, Inc.
71 Main Street
Andover, Massachusetts 01810
Attention: Leonard A. Wilson
Chairman and Chief Executive Officer
Telecopy No.: (978) 623-0943
85
with copies to:
Foley Hoag LLP
155 Seaport Boulevard
Boston, Massachusetts 02210-2600
Attention: Peter W. Coogan, Esquire
and
Carol Hempfling Pratt, Esquire
Telecopy No.: (617) 832-7000
Section 7.07 Captions. The captions contained in this
Agreement are for reference purposes only and are not part of
this Agreement.
Section 7.08 Counterparts. This Agreement may be executed
in any number of counterparts, and each such counterpart shall
be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
Section 7.09 Severability. If any provision of this
Agreement or the application thereof to any person or
circumstance shall be invalid or unenforceable to any extent,
the remainder of this Agreement and the application of such
provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent
permitted by law.
86
Section 7.10 Governing Law. This Agreement shall be
governed by and construed in accordance with the domestic
internal law of the Commonwealth of Pennsylvania, excluding its
conflicts of law principles.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their duly authorized officers as of the day
and year first above written.
SOVEREIGN BANCORP, INC.
By /s/ Lawrence M. Thompson, Jr.
--------------------------------
Lawrence M. Thompson, Jr.,
Vice Chairman
SOVEREIGN MERGER SUB, INC.
By /s/ Lawrence M. Thompson, Jr.
--------------------------------
Lawrence M. Thompson, Jr.,
President
FIRST ESSEX BANCORP, INC.
By /s/ Leonard A. Wilson
-------------------------------
Leonard A. Wilson,
Chairman and Chief
Executive Officer
87
EXHIBIT 1
FORM OF AFFILIATE LETTER
June 12, 2003
Sovereign Bancorp, Inc.
2000 Market Street
Philadelphia, Pennsylvania 19103
Ladies and Gentlemen:
Sovereign Bancorp, Inc. ("Sovereign") and First Essex
Bancorp, Inc. ("First Essex") desire to enter into an agreement
dated June 12, 2003 ("Agreement"), pursuant to which, subject to
the terms and conditions set forth therein, (a) First Essex will
merge with and into Sovereign with Sovereign surviving the
merger and (b) stockholders of First Essex will receive common
stock of Sovereign and/or cash in exchange for common stock of
First Essex outstanding on the closing date (the foregoing,
collectively, referred to herein as the "Merger").
Sovereign has required, as a condition to its execution and
delivery to First Essex of the Agreement, that the undersigned,
being a director, executive officer and/or major stockholder of
First Essex, execute and deliver to Sovereign this Letter
Agreement.
The undersigned, in order to induce Sovereign to execute
the Agreement, hereby irrevocably:
(a) Agrees to be present (in person or by proxy) at
all meetings of stockholders of First Essex called to vote for
approval of the Agreement and the Merger so that all shares of
common stock of First Essex then owned by the undersigned or
over which the undersigned exercises voting control
(collectively, "Shares") will be counted for the purpose of
determining the presence of a quorum at such meetings, and
agrees to vote or cause to be voted all such Shares (i) in favor
of approval and adoption of the Agreement and the transactions
contemplated thereby (including any amendments or modifications
of the terms thereof approved by the Board of Directors of First
Essex) and (ii) against approval or adoption of any other
merger, business combination, recapitalization, asset sale,
partial liquidation or similar transaction involving First
Essex;
88
(b) Agrees not to vote or execute any written consent
to rescind or amend in any manner any prior vote or written
consent, as a stockholder of First Essex, to approve or adopt
the Agreement;
(c) Except as required by law, agrees that the
undersigned will not, and will not permit any company, trust or
other entity controlled by the undersigned to, contract to sell,
sell or otherwise transfer or dispose of any of the Shares or
any interest therein or any voting rights with respect thereto,
other than subsequent to the stockholder meeting of First Essex
held in connection with the vote on the Agreement or pursuant to
a gift where the donee has agreed in writing to abide by the
terms of this agreement in a form reasonably satisfactory to
Sovereign.
(d) Agrees not to offer, sell, transfer or otherwise
dispose of any shares of common stock of Sovereign received in
the Merger, except (i) at such time as a registration statement
under the Securities Act of 1933, as amended ("Securities Act")
covering sales of such Sovereign common stock is effective and a
prospectus is made available under the Securities Act,
(ii) within the limits, and in accordance with the applicable
provisions of, Rule 145(d) under the Securities Act, or (iii) in
a transaction which, in the opinion of counsel satisfactory to
Sovereign or as described in a "no-action" or interpretive
letter from the staff of the Securities and Exchange Commission,
is not required to be registered under the Securities Act; and
acknowledges and agrees that Sovereign is under no obligation to
register the sale, transfer or other disposition of Sovereign
common stock by the undersigned or on behalf of the undersigned,
or to take any other action necessary to make an exemption from
registration available;
(e) Agrees that neither First Essex nor Sovereign
shall be bound by any attempted sale by the undersigned of any
shares of First Essex Common Stock or Sovereign common stock,
respectively, and Sovereign's transfer agent shall be given an
appropriate stop transfer order and shall not be required to
register any such attempted sale, unless the sale has been
effected in compliance with the terms of this Letter Agreement;
and further agrees that the certificate representing shares of
Sovereign common stock owned by the undersigned may be endorsed
with a restrictive legend consistent with the terms of this
Letter Agreement;
89
(f) Acknowledges and agrees to use reasonable efforts
to cause the provisions of subparagraph (e) hereof to be
observed with respect to shares of Sovereign common stock
received in the Merger owned by (i) his or her spouse, (ii) any
of his or her relatives or relatives of his or her spouse
occupying his or her home, (iii) any trust or estate in which he
or she, his or her spouse, or any such relative owns at least a
10% beneficial interest or of which any of them serves as
trustee, executor or in any similar capacity, and (iv) any
corporation or other organization in which the undersigned, any
affiliate of the undersigned, his or her spouse, or any such
relative owns at least 10% of any class of equity securities or
of the equity interest;
(g) Represents that the undersigned has the capacity
to enter into this Letter Agreement and that it is a valid and
binding obligation enforceable against the undersigned in
accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights and general equitable
principles.
________________________
It is understood and agreed that the provisions of
subparagraphs (a) and (b) of this Letter Agreement relate solely
to the capacity of the undersigned as a stockholder or other
beneficial owner of shares of First Essex common stock and is
not in any way intended to affect the exercise by the
undersigned of the undersigned's responsibilities as a director
or officer of First Essex. It is further understood and agreed
that such subparagraphs of this Letter Agreement are not in any
way intended to affect the exercise by the undersigned of any
fiduciary responsibility which the undersigned may have in
respect of any shares of First Essex common stock held or
controlled by the undersigned as of the date hereof.
The obligations set forth herein shall terminate
concurrently with any termination of the Agreement.
This Letter Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an
original, but all of which together shall constitute one and the
same Letter Agreement.
90
This Letter Agreement shall inure to the benefit of
Sovereign, and shall be binding on the undersigned and his or
her executors, personal representatives, administrators, heirs,
legatees, guardians and other personal representatives. This
Agreement shall survive the death or incapacity of the
undersigned.
The undersigned agrees that, in the event of his or her
breach of this Letter Agreement, Sovereign shall be entitled to
such remedies and relief against the undersigned as are
available at law or in equity. The undersigned acknowledges
that there is not an adequate remedy at law to compensate
Sovereign for a violation of this agreement, and irrevocably
waives, to the extent permitted by law, any defense that he or
she might have based on the adequacy of a remedy at law which
might be asserted as a bar to specific performance, injunctive
relief, or other equitable relief. The undersigned agrees to
the granting of injunctive relief without the posting of any
bond and further agrees that, if any bond shall be required,
such bond shall be in a nominal amount.
Please confirm, intending to be legally bound, that the
foregoing correctly states the understanding between the
undersigned and Sovereign by signing and returning to Sovereign
a counterpart hereof.
Very truly yours,
Name:________________________
Accepted as of this ____ day of June, 2003:
Sovereign Bancorp, Inc.
By: ____________________________
91