Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
between
SOVEREIGN BANCORP, INC.
and
PEOPLES BANCORP, INC.
September 7, 1998
AGREEMENT
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TABLE OF CONTENTS
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Page
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BACKGROUND.................................................... 1
AGREEMENT..................................................... 1
ARTICLE I
THE MERGERS
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Section 1.01 Definitions.................................... 1
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Section 1.02 The Merger..................................... 7
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Section 1.03 The Bank Merger................................ 13
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PEOPLES
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Section 2.01 Organization.................................. 14
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Section 2.02 Capitalization................................ 14
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Section 2.03 Authority; No Violation....................... 16
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Section 2.04 Consents...................................... 17
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Section 2.05 Financial Statements.......................... 17
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Section 2.06 Taxes......................................... 18
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Section 2.07 No Material Adverse Effect.................... 18
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Section 2.08 Contracts..................................... 19
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Section 2.09 Ownership of Property; Insurance Coverage..... 20
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Section 2.10 Legal Proceedings............................. 21
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Section 2.11 Compliance With Applicable Law................ 21
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Section 2.12 ERISA......................................... 22
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Section 2.13 Brokers, Finders and Financial Advisors;
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Fairness Opinion.............................. 23
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Section 2.14 Environmental Matters......................... 24
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Section 2.15 Allowance for Losses.......................... 24
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Section 2.16 Information to be Supplied.................... 24
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Section 2.17 Securities Documents.......................... 24
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Section 2.18 Related Party Transactions.................... 25
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Section 2.19 Schedule of Termination Benefits.............. 25
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Section 2.20 Loans......................................... 25
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Section 2.21 Antitakeover Provisions Inapplicable.......... 26
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Section 2.22 Labor and Employment Matters.................. 26
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Section 2.23 Year 2000..................................... 26
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Section 2.24 Quality of Representations.................... 26
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOVEREIGN
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Section 3.01 Organization.................................. 27
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Section 3.02 Capital Structure............................. 28
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Section 3.03 Authority; No Violation....................... 28
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Section 3.04 Consents...................................... 30
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Section 3.05 Financial Statements.......................... 30
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(i)
Section 3.06 Taxes......................................... 31
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Section 3.07 No Material Adverse Effect.................... 31
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Section 3.08 Ownership of Property; Insurance Coverage..... 31
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Section 3.09 Legal Proceedings............................. 32
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Section 3.10 Compliance With Applicable Law................ 32
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Section 3.11 Information to be Supplied.................... 33
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Section 3.12 ERISA......................................... 33
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Section 3.13 Securities Documents.......................... 34
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Section 3.14 Environmental Matters......................... 35
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Section 3.15 Allowance for Loan Losses..................... 35
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Section 3.16 Brokers and Finders........................... 35
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Section 3.17 Loans......................................... 35
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Section 3.18 Year 2000..................................... 35
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Section 3.19 Quality of Representations.................... 36
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ARTICLE IV
COVENANTS OF THE PARTIES
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Section 4.01 Conduct of Peoples' Business.................. 36
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Section 4.02 Access; Confidentiality....................... 40
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Section 4.03 Regulatory Matters and Consents............... 40
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Section 4.04 Taking of Necessary Action.................... 42
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Section 4.05 Certain Agreements............................ 42
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Section 4.06 No Other Bids and Related Matters............. 44
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Section 4.07 Duty to Advise; Duty to Update
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Disclosure Schedule.......................... 45
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Section 4.08 Conduct of Sovereign's Business............... 45
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Section 4.09 Current Information........................... 45
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Section 4.10 Undertakings by Sovereign and Peoples......... 46
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Section 4.11 Employee Benefits and Termination Benefits.... 49
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Section 4.12 NASDAQ Listing................................ 54
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Section 4.13 Affiliate Letter.............................. 54
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Section 4.14 Publication of Combined Financial Results..... 54
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Section 4.15 Sovereign Rights Agreement.................... 55
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Section 4.16 Advisory Board................................ 55
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ARTICLE V
CONDITIONS
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Section 5.01 Conditions to Peoples' Obligations under
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this Agreement.................................. 55
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Section 5.02 Conditions to Sovereign's Obligations
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under this Agreement............................ 57
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ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
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Section 6.01 Termination..................................... 59
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Section 6.02 Effect of Termination........................... 61
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(ii)
ARTICLE VII
MISCELLANEOUS
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Section 7.01 Expenses...................................... 61
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Section 7.02 Non-Survival of Representations and
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Warranties................................... 61
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Section 7.03 Amendment, Extension and Waiver............... 62
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Section 7.04 Entire Agreement.............................. 62
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Section 7.05 No Assignment................................. 62
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Section 7.06 Notices....................................... 63
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Section 7.07 Captions...................................... 64
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Section 7.08 Counterparts.................................. 64
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Section 7.09 Severability.................................. 64
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Section 7.10 Governing Law................................. 64
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Exhibit 1 - Peoples' Affiliate Agreement
Exhibit 2 - Stock Option Agreement
Exhibit 3 - Bank Plan of Merger
Exhibit 4 - Form of Agreement Re: Benefits
Exhibit 5 - Form of Opinion of Sovereign's Counsel
Exhibit 6 - Form of Tax Opinion of Sovereign's Counsel
Exhibit 7 - Form of Opinion of Peoples' Counsel
(iii)
AGREEMENT
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THIS AGREEMENT AND PLAN OF MERGER, dated as of September 7, 1998, is
made by and between SOVEREIGN BANCORP, INC. ("Sovereign"), a Pennsylvania
corporation, having its principal place of business in Wyomissing, Pennsylvania,
and PEOPLES BANCORP, INC. ("Peoples"), a Delaware corporation, having its
principal place of business in Lawrenceville, New Jersey.
BACKGROUND
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1. Sovereign and Peoples desire for Peoples to merge with and into
Sovereign, with Sovereign surviving such merger, in accordance with the
applicable laws of the Commonwealth of Pennsylvania and the State of Delaware,
and in accordance with the plan of merger set forth herein.
2. At or prior to the execution and delivery of this Agreement, (a)
certain directors and officers of Peoples and affiliates of Peoples, each have
executed in favor of Sovereign, a Letter Agreement dated September 4, 1998, in
the form attached hereto as Exhibit 1, and (b) Peoples is concurrently granting
to Sovereign an option to acquire, under certain circumstances, Peoples' common
stock (the "Sovereign Option") pursuant to a Stock Option Agreement between
Sovereign and Peoples dated September 7, 1998, attached hereto as Exhibit 2.
3. Sovereign desires to merge Trenton Savings Bank, FSB, a federal
savings bank and a wholly-owned subsidiary of Peoples ("Trenton Savings"), into
and with Sovereign Bank, a federal savings bank and a wholly-owned subsidiary of
Sovereign ("Sovereign Bank"), with Sovereign Bank surviving such merger in
accordance with the Bank Plan of Merger in the form attached hereto as
Exhibit 3.
4. Sovereign and Peoples desire to provide the terms and conditions
governing the transactions contemplated herein.
AGREEMENT
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NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
parties hereto, intending to be legally bound, do hereby agree as follows:
ARTICLE I
THE MERGERS
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Section 1.01 Definitions. As used in this Agreement, the following
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terms shall have the indicated meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
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Affiliate means, with respect to any Person, any Person who
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directly, or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with, such Person and, without
limiting the generality of the foregoing, includes any executive officer or
director of such Person and any Affiliate of such executive officer or
director.
Agreement means this agreement, and any amendment or supplement
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hereto, which constitutes a "plan of merger" between Sovereign and Peoples.
Applications means the applications for regulatory approval which
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are required by the transactions contemplated hereby.
Articles of Merger means the articles of merger to be executed by
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Sovereign and Peoples and to be filed in the PDS, in accordance with the
applicable laws of the Commonwealth of Pennsylvania.
Bank Merger means the merger of Trenton Savings with and into
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Sovereign Bank, with Sovereign Bank surviving such merger, contemplated by
Section 1.03 of this Agreement.
Bank Plan of Merger has the meaning given to that term in Section
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1.03 of this Agreement.
BCL means the Pennsylvania Business Corporation Law of 1988, as
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amended.
Certificate of Merger means the certificate of merger to be
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executed by Sovereign and Peoples and to be filed in the DOSS, in
accordance with the applicable laws of the State of Delaware.
Closing Date means the date determined by Sovereign, in its sole
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discretion, upon five (5) days prior written notice to Peoples, but in no
event later than thirty (30) days after the last condition precedent
pursuant to this Agreement has been fulfilled or waived (including the
expiration of any applicable waiting period), or such other date as
Sovereign and Peoples shall agree.
DGCL means the Delaware General Corporation Law, as amended.
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DOSS mans the Delaware Office of the Secretary of State.
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Effective Date means the date specified in the Articles of Merger
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filed in the PDS and the Certificate of Merger filed in the DOSS, and shall
be the same as the Closing Date.
2
Environmental Law means any federal, state or local law, statute,
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ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with
any Regulatory Authority relating to (i) the protection, preservation or
restoration of the environment (including, without limitation, air, water
vapor, surface water, groundwater, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or
disposal of any substance presently listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, whether by type or by quantity, including any material
containing any such substance as a component.
ERISA means the Employee Retirement Income Security Act of 1974,
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as amended.
Exchange Act means the Securities Exchange Act of 1934, as
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amended, and the rules and regulations promulgated from time to time
thereunder.
Exchange Ratio shall mean the exchange ratio provided for in
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Section 1.02(e)(ii).
FDIA means the Federal Deposit Insurance Act, as amended.
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FDIC means the Federal Deposit Insurance Corporation.
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FSLA means the Fair Labor Standards Act of 1938.
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GAAP means generally accepted accounting principles as in effect
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at the relevant date.
HOLA means the Home Owners' Loan Act of 1933, as amended.
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IRC means the Internal Revenue Code of 1986, as amended.
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IRS means the Internal Revenue Service.
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Labor and Employment Law means any federal, state, local, or
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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
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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.
Material Adverse Effect shall mean, with respect to Sovereign or
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Peoples, respectively, any effect that is material and adverse to its
assets, financial condition or results of operations on a consolidated
basis, provided, however, that Material Adverse Effect shall not be deemed
to include (a) any change in the value of the respective investment and
loan portfolios of Sovereign or Peoples resulting from a change in interest
rates generally, (b) any change occurring after the date hereof in any
federal or state law, rule or regulation or in GAAP, which change affects
banking institutions generally, including any changes affecting the Bank
Insurance Fund or the Savings Association Insurance Fund, (c) reasonable
expenses (plus reasonable legal fees, cost and expense relating to any
litigation arising as a result of the Merger and the cost associated with
Section 4.11 hereof) incurred in connection with this Agreement and the
transactions contemplated hereby, (d) actions or omissions of a party (or
any of its Subsidiaries) taken with the prior informed written consent of
the other party in contemplation of the transactions contemplated hereby
(including without limitation any actions taken by Peoples pursuant to
Section 4.10(a)(ix) of this Agreement), and (e) any effect with respect to
a party hereto caused, in whole or in substantial part, by the other party.
Merger means the merger of Peoples with and into Sovereign, with
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Sovereign surviving such merger, contemplated by this Agreement.
NASD means the National Association of Securities Dealers, Inc.
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OTS means the Office of Thrift Supervision.
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PDS means the Department of State of the Commonwealth of
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Pennsylvania.
Person means any individual, corporation, partnership, joint
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venture, association, trust or "group" (as that term is defined in Section
13(d)(3) of the Exchange Act).
Peoples Common Stock means the common stock of Peoples described
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in Section 2.02(a).
Peoples Disclosure Schedule means a disclosure schedule delivered
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by Peoples to Sovereign pursuant to this Agreement.
Peoples Financials means (i) the audited consolidated financial
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statements of Peoples as of December 31, 1997 and for the three years ended
December 31, 1997, including the notes thereto and (ii) the unaudited
interim consolidated financial statements of Peoples as of each calendar
quarter thereafter included in Securities Documents filed by Peoples,
including the notes thereto.
Peoples Stock Option Plans means the Trenton Savings Bank FSB and
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Peoples Bancorp, MHC 1996 Stock Option Plan and the Peoples Bancorp, Inc.
1999 Stock Option Plan.
Peoples Regulatory Reports means the Annual Reports of Peoples,
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Peoples Bancorp MHC or Trenton Savings, as the case may be, on Form H-
(b)11, any Current Report of Peoples or Trenton Savings, as the case may
be, on Form H-(b)11 filed with the OTS from December 31, 1995 through the
Closing Date and the Thrift Financial Reports of Peoples or Trenton
Savings, as the case may be, and accompanying schedules for each calendar
quarter, beginning with the quarter ended December 31, 1995, through the
Closing Date.
Peoples Subsidiary means any corporation, 50% or more of the
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capital stock of which is owned, either directly or indirectly, by Peoples,
except any corporation the stock of which is held in the ordinary course of
the lending activities of Trenton Savings.
Prospectus/Proxy Statement means the prospectus/proxy statement,
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together with any supplements thereto, to be transmitted to holders of
Peoples Common Stock in connection with the transactions contemplated by
this Agreement.
Registration Statement means the registration statement on Form
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S-4, including any pre-effective or post-effective amendments or
supplements thereto, as filed with
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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
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Section 2.11 and 3.10 of this Agreement.
Regulatory Authority means any banking agency or department of
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any federal or state government, including without limitation the OTS, the
FDIC, or the respective staffs thereof.
Rights means warrants, options, rights, convertible securities
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and other capital stock equivalents which obligate an entity to issue its
securities.
SEC means the Securities and Exchange Commission.
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Securities Act means the Securities Act of 1933, as amended, and
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the rules and regulations promulgated from time to time thereunder.
Securities Documents means all registration statements,
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schedules, statements, forms, reports, proxy material, and other documents
required to be filed under the Securities Laws.
Securities Laws means the Securities Act and the Exchange Act and
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the rules and regulations promulgated from time to time thereunder.
Sovereign Common Stock has the meaning given to that term in
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Section 3.02(a) of this Agreement.
Sovereign Disclosure Schedule means a disclosure schedule
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delivered by Sovereign to Peoples pursuant to this Agreement.
Sovereign Financials means (i) the audited consolidated financial
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statements of Sovereign as of December 31, 1997 and for the three years
ended December 31, 1997, including the notes thereto and (ii) the unaudited
interim consolidated financial statements of Sovereign as of each calendar
quarter thereafter included in Securities Documents filed by Sovereign,
including the notes thereto.
Sovereign Market Price means, as of any date, the average of the
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mean between the closing high bid and low asked prices of a share of
Sovereign Common Stock, as reported on the National Association of
Securities Dealers Automated Quotation System (Nasdaq) National Market
System.
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Sovereign Market Value means, as of any date, the average of the
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Sovereign Market Prices for the fifteen consecutive trading days ending on
the trading day preceding the date as of which the Sovereign Market Value
is determined.
Sovereign Option means the option granted to Sovereign by Peoples
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to acquire such number of shares of Peoples Common Stock as shall equal
19.9% of the shares of Peoples Common Stock outstanding before giving
effect to the exercise of such option referenced in the recitals to this
Agreement.
Sovereign Regulatory Reports means the Annual Reports of
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Sovereign on Form H-(b)11 filed with the OTS since December 31, 1995
through the Closing Date, any Current Report of Sovereign on Form H-(b)11
filed with the OTS from December 31, 1995 through the Closing Date and the
Thrift Financial Reports of Sovereign Bank and accompanying schedules for
each calendar quarter, beginning with the quarter ended December 31, 1995,
through the Closing Date.
Sovereign Rights Agreement means the Rights Agreement dated as of
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September 19, 1989, as amended September 27, 1995, between Sovereign and
Chemical Bank, as rights agent, relating to Sovereign's Series A Junior
Participating Preferred Stock.
Sovereign Stock Purchase Rights means Rights to purchase a unit
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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
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the capital stock of which is owned, either directly or indirectly, by
Sovereign, except any corporation the stock of which is held in the
ordinary course of the lending activities of a bank and (ii) Sovereign
Capital Trust I and any similar entity sponsored or created by Sovereign
after the date hereof.
Subsidiary means any corporation, 50% or more of the capital
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stock of which is owned, either directly or indirectly, by another entity,
except any corporation the stock of which is held in the ordinary course of
the lending activities of a bank.
Section 1.02 The Merger.
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(a) Closing. The closing will take place at 10:00 a.m. on the Closing
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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
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documents to be delivered at the closing) have been satisfied or waived at or
prior to the Closing Date. On the Closing Date, Peoples and Sovereign shall
cause the Articles of Merger to be duly executed and to be filed in the PDS and
the Certificate of Merger to be duly executed and filed in the DOSS.
(b) The Merger. Subject to the terms and conditions of this
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Agreement, on the Effective Date: Peoples shall merge with and into Sovereign;
the separate existence of Peoples shall cease; Sovereign shall be the surviving
corporation in the Merger; and all of the property (real, personal and mixed),
rights, powers and duties and obligations of Peoples shall be taken and deemed
to be transferred to and vested in Sovereign, as the surviving corporation in
the Merger, without further act or deed; all debts, liabilities and duties of
each of Peoples and Sovereign shall thereafter be the responsibility of
Sovereign as the surviving corporation; all in accordance with the applicable
laws of the Commonwealth of Pennsylvania and the State of Delaware.
(c) Sovereign's Articles of Incorporation and Bylaws. On and after
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the Effective Date, the articles of incorporation and the bylaws of Sovereign,
as in effect immediately prior to the Effective Date, shall automatically be and
remain the articles of incorporation and bylaws of Sovereign, as the surviving
corporation in the Merger, until thereafter altered, amended or repealed.
(d) Board of Directors and Officers of Sovereign and Sovereign Bank.
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(i) On the Effective Date, the Board of Directors of Sovereign, as
the surviving corporation in the Merger, shall consist of those persons holding
such office immediately prior to the Effective Date.
(ii) On the Effective Date, the officers of Sovereign duly elected
and holding office immediately prior to the Effective Date shall be the officers
of Sovereign, as the surviving corporation in the Merger, existing on such
Effective Date.
(iii) On the effective date of the Bank Merger, the Board of
Directors of Sovereign Bank, as the surviving institution in the Bank Merger,
shall consist of those persons holding such office immediately prior to such
effective date.
(iv) On the effective date of the Bank Merger, the officers of
Sovereign Bank duly elected and holding office immediately prior to such
effective date shall be the officers of Sovereign Bank, as the surviving
corporation in the Bank Merger.
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(e) Conversion of Shares.
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(i) Sovereign Common Stock.
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(A) Each share of Sovereign Common Stock issued and outstanding
immediately prior to the Effective Date shall, on and after the Effective
Date, continue to be issued and outstanding as an identical share of
Sovereign Common Stock. Shares of Sovereign Common Stock owned by Peoples
(other than shares held in trust, managed, custodial or nominee accounts
and the like or held by mutual funds for which a subsidiary of Peoples acts
as investment advisor, that in any such case are beneficially owned by
third parties (any such shares, "trust account shares") and shares acquired
in respect of debts previously contracted (any such shares, "DPC shares"))
shall become treasury stock of Sovereign.
(B) Each share of Sovereign Common Stock issued and held in the
treasury of Sovereign as of the Effective Date, if any, shall, on and after
the Effective Date, continue to be issued and held in the treasury of
Sovereign.
(ii) Peoples Common Stock.
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(A) Subject to the provisions of subparagraphs (B), (C) and (D)
of this Section 1.02(e)(ii), each share of Peoples Common Stock issued and
outstanding immediately prior to the Effective Date (other than shares of
Peoples Common Stock, if any, then owned by Sovereign or Peoples or any
Peoples Subsidiary) shall, on the Effective Date, by reason of the Merger
and without any action on the part of the holder thereof, be converted into
and become a right to receive .80 fully paid and nonassessable shares of
Sovereign Common Stock, and the corresponding percentage of Sovereign Stock
Purchase Rights pursuant to the Sovereign Rights Agreement.
(B) Each share of Peoples Common Stock owned by Sovereign or a
Sovereign Subsidiary on the Effective Date, if any, shall be cancelled.
(C) Each share of Peoples Common Stock issued and held in the
treasury of Peoples or owned by Peoples or any Peoples Subsidiary (other
than trust account shares or DPC shares) as of the Effective Date, if any,
shall be cancelled, and no cash, stock or other property shall be delivered
in exchange therefor.
(D) No fraction of a whole share of Sovereign Common Stock and no
scrip or certificates therefor shall be issued in connection with the
Merger. Any former holder of Peoples Common Stock who would otherwise be
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entitled to receive a fraction of a share of Sovereign Common Stock shall
receive, in lieu thereof, cash in an amount equal to such fraction of a
share multiplied by the Sovereign Market Price determined as of the
Effective Date.
(f) Stock Options.
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(i) On the Effective Date, each option to acquire Peoples Common
Stock which is then outstanding ("Peoples Option"), whether or not
exercisable, shall cease to represent a right to acquire shares of Peoples
Common Stock and shall be converted automatically into an option to
purchase shares of Sovereign Common Stock and the corresponding number of
Sovereign Stock Purchase Rights, and Sovereign shall assume each Peoples
Option, in accordance with the terms of the applicable Peoples Stock Option
Plan and stock option agreement by which it is evidenced, except that from
and after the Effective Date, (i) Sovereign and its Board of Directors or a
duly authorized committee thereof shall be substituted for Peoples and
Peoples' Board of Directors or duly authorized committee thereof
administering such Peoples Stock Option Plan, (ii) each Peoples Option
assumed by Sovereign may be exercised solely for shares of Sovereign Common
Stock and Sovereign Stock Purchase Rights, (iii) the number of shares of
Sovereign Common Stock subject to such Peoples Option shall be equal to the
number of shares of Peoples Common Stock subject to such Peoples Option
immediately prior to the Effective Date multiplied by the Applicable
Exchange Ratio, provided that any fractional shares of Sovereign Common
Stock resulting from such multiplication shall be rounded down to the
nearest share, and (iv) the per share exercise price under each such
Peoples Option shall be adjusted by dividing the per share exercise price
under each such Peoples Option by the Applicable Exchange Ratio, provided
that such exercise price shall be rounded down to the nearest cent.
Notwithstanding clauses (iii) and (iv) of the preceding sentence, each
Peoples Option which is an "incentive stock option" shall be adjusted as
required by Section 424 of the IRC, and the regulations promulgated
thereunder, so as not to constitute a modification, extension or renewal of
the option within the meaning of Section 424(h) of the IRC. Sovereign and
Peoples agree to take all necessary steps to effect the foregoing
provisions of this Section 1.02(f).
(ii) Within 45 days after the Effective Date, Sovereign shall
file a registration statement on Form S-8 (or any other successor or
appropriate form) with respect to the shares of Sovereign Common Stock and
Sovereign Stock Purchase Rights subject to the options referenced in this
Section 1.02(f) and relating to the 1999 RRP (as defined in Section 4.11(a)
(vii)), and shall use its reasonable best efforts to maintain the current
status of
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the prospectus or prospectuses contained therein for so long as such
options remain outstanding.
(g) Surrender and Exchange of Peoples Stock Certificates.
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(i) Exchange of Certificates. Each holder of shares of Peoples
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Common Stock who surrenders to Sovereign (or its agent) the certificate or
certificates representing such shares will be entitled to receive, as soon
as practicable after the Effective Date, in exchange therefor a certificate
or certificates for the number of whole shares of Sovereign Common Stock
into which such holder's shares of Peoples Common Stock have been converted
pursuant to the Merger, together with a check for cash in lieu of any
fractional share in accordance with Section 1.02(e)(ii)(D) hereof.
(ii) Rights Evidenced by Certificates. Each certificate for
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shares of Sovereign Common Stock issued in exchange for certificates for
Peoples Common Stock pursuant to Section 1.02(g)(i) hereof will be dated
the Effective Date and be entitled to dividends and all other rights and
privileges pertaining to such shares of stock from and after the Effective
Date. Until surrendered, each certificate theretofore evidencing shares of
Peoples Common Stock will, from and after the Effective Date, evidence
solely the right to receive certificates for shares of Sovereign Common
Stock pursuant to Section 1.02(g)(i) hereof and a check for cash in lieu of
any fractional share in accordance with Section 1.02(e)(ii)(D) hereof. If
certificates for shares of Peoples Common Stock are exchanged for Sovereign
Common Stock at a date following one or more record dates for the payment
of dividends or of any other distribution on the shares of Sovereign Common
Stock, Sovereign will pay cash in an amount equal to dividends theretofore
payable on such Sovereign Common Stock and pay or deliver any other
distribution to which holders of shares of Sovereign Common Stock have
theretofore become entitled. Upon surrender of certificates for shares of
Peoples Common Stock in exchange for certificates for Sovereign Common
Stock, Sovereign also shall pay any dividends to which such holder of
Peoples Common Stock may be entitled as a result of the declaration of a
dividend on the Peoples Common Stock by Peoples in accordance with the
terms of this Agreement with a record date prior to the Effective Date and
a payment date after the Effective Date. No interest will accrue or be
payable in respect of dividends or cash otherwise payable under this
Section 1.02(g) upon surrender of certificates for shares of Peoples Common
Stock.
Notwithstanding the foregoing, no party hereto will be liable to
any holder of Peoples Common Stock for any amount paid in good faith to a
public official or
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agency pursuant to any applicable abandoned property, escheat or similar
law. Until such time as certificates for shares of Peoples Common Stock
are surrendered by a Peoples shareholder to Sovereign for exchange,
Sovereign shall have the right to withhold dividends or any other
distributions on the shares of Sovereign Common Stock issuable to such
shareholder.
(iii) Exchange Procedures. Each certificate for shares of
-------------------
Peoples Common Stock delivered for exchange under this Section 1.02(g) must
be endorsed in blank by the registered holder thereof or be accompanied by
a power of attorney to transfer such shares endorsed in blank by such
holder. If more than one certificate is surrendered at one time and in one
transmittal package for the same shareholder account, the number of whole
shares of Sovereign Common Stock for which certificates will be issued
pursuant to this Section 1.02(g) will be computed on the basis of the
aggregate number of shares represented by the certificates so surrendered.
If shares of Sovereign Common Stock or payments of cash are to be issued or
made to a person other than the one in whose name the surrendered
certificate is registered, the certificate so surrendered must be properly
endorsed in blank, with signature(s) guaranteed, or otherwise in proper
form for transfer, and the person to whom certificates for shares of
Sovereign Common Stock is to be issued or to whom cash is to be paid shall
pay any transfer or other taxes required by reason of such issuance or
payment to a person other than the registered holder of the certificate for
shares of Peoples Common Stock which are surrendered. As promptly as
reasonably practicable but in no event later than five (5) business days
after the Effective Date, Sovereign shall send or cause to be sent to each
shareholder of record of Peoples Common Stock transmittal materials for use
in exchanging certificates representing Peoples Common Stock for
certificates representing Sovereign Common Stock into which the former have
been converted in the Merger. Certificates representing shares of
Sovereign Common Stock and checks for cash in lieu of fractional shares
shall be mailed to former shareholders of Peoples as promptly as reasonably
practicable but in no event later than fifteen (15) business days following
the receipt of certificates representing former shares of Peoples Common
Stock duly endorsed or accompanied by the materials referenced herein and
delivered by certified mail, return receipt requested (but in no event
earlier than the second business day following the Effective Date).
(iv) Closing of Stock Transfer Books; Cancellation of Peoples
--------------------------------------------------------
Certificates. Upon the Effective Date, the stock transfer books for
------------
Peoples Common Stock will be closed and no further transfers of shares of
Peoples Common Stock will thereafter be made or recognized. All
12
certificates for shares of Peoples Common Stock surrendered pursuant to
this Section 1.02(g) will be cancelled by Sovereign.
(h) Anti-Dilution Provisions. If Sovereign shall, at any time before
------------------------
the Effective Date, (A) issue a dividend in shares of Sovereign Common Stock,
(B) combine the outstanding shares of Sovereign Common Stock into a smaller
number of shares, (C) subdivide the outstanding shares of Sovereign Common
Stock, or (D) reclassify the shares of Sovereign Common Stock, then, in any such
event, the number of shares of Sovereign Common Stock to be delivered to Peoples
shareholders who are entitled to receive shares of Sovereign Common Stock in
exchange for shares of Peoples Common Stock shall be adjusted so that each
Peoples shareholder shall be entitled to receive such number of shares of
Sovereign Common Stock as such shareholder would have been entitled to receive
if the Effective Date had occurred immediately prior to the happening of such
event. (By way of illustration, if Sovereign shall declare a stock dividend of
7% payable with respect to a record date on or prior to the Effective Date, the
Exchange Ratio determined pursuant to Sections 1.02(e)(ii) hereof shall be
adjusted upward by 7%). In addition, in the event that, prior to the Effective
Date, Sovereign enters into an agreement pursuant to which shares of Sovereign
Common Stock would be converted into shares or other securities or obligations
of another corporation, proper provision shall be made in such agreement so that
each Peoples shareholder shall be entitled to receive such number of shares or
other securities or amount of obligations of such other corporation as such
shareholder would be entitled to receive if the Effective Date had occurred
immediately prior to the happening of such event.
Section 1.03 The Bank Merger. Sovereign and Peoples shall use their
---------------
best efforts to cause Trenton Savings to merge with and into Sovereign Bank,
with Sovereign Bank surviving such merger, as soon as practicable after the
Effective Date. Concurrently with, or as soon as practicable after, the
execution and delivery of this Agreement, Sovereign shall cause Sovereign Bank,
and Peoples shall cause Trenton Savings, to execute and deliver the Bank Plan of
Merger attached hereto as Exhibit 3.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PEOPLES
-----------------------------------------
Peoples hereby represents and warrants to Sovereign that, except as
specifically set forth in the Peoples Disclosure Schedule delivered to Sovereign
by Peoples on the date hereof:
13
Section 2.01 Organization.
------------
(a) Peoples is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Peoples is a savings and
loan holding company duly registered under the HOLA. Peoples has the corporate
power and authority to carry on its business and operations as now being
conducted and to own and operate the properties and assets now owned and being
operated by it. Peoples is qualified or licensed to do business as a foreign
corporation in each jurisdiction in which it is required to be so qualified or
licensed as the result of the ownership or leasing of property or the conduct of
its business except where the failure to be so qualified or licensed would not
have a Material Adverse Effect on Peoples.
(b) Trenton Savings is a federal savings bank duly organized and
validly existing under the laws of the United States of America. Trenton
Savings has the corporate power and authority to carry on its business and
operations as now being conducted and to own and operate the properties and
assets now owned and being operated by it. Trenton Savings and each other
Peoples Subsidiary is qualified or licensed to do business as a foreign
corporation in each jurisdiction in which it is required to be so qualified or
licensed as the result of the ownership or leasing of property or the conduct of
its business, except where the failure to be so qualified or licensed would not
have a Material Adverse Effect on Peoples.
(c) There are no Peoples Subsidiaries other than Trenton Savings and
those identified in the Peoples Disclosure Schedule.
(d) The deposits of Trenton Savings are insured by the FDIC to the
extent provided in the FDIA.
(e) The respective minute books of Peoples and Trenton Savings and
each other Peoples Subsidiary accurately record, in all material respects, all
material corporate actions of their respective shareholders and boards of
directors (including committees).
(f) Prior to the date of this Agreement, Peoples has delivered to
Sovereign true and correct copies of the articles of incorporation and bylaws of
Peoples and the charter and bylaws of Trenton Savings as in effect on the date
hereof.
Section 2.02 Capitalization.
--------------
(a) The authorized capital stock of Peoples consists of (i) 70,000,000
shares of common stock, $0.01 par value per share ("Peoples Common Stock"), of
which 36,363,038 shares are outstanding, validly issued, fully paid and
nonassessable and free of preemptive rights and (ii) 1,000,000 shares of
preferred stock, $.01 par value per share, none of
14
which are issued or outstanding. Neither Peoples nor Trenton Savings nor any
other Peoples Subsidiary has or is bound by any subscription, option, warrant,
call, commitment, agreement, plan or other Right of any character relating to
the purchase, sale or issuance or voting of, or right to receive dividends or
other distributions on any shares of Peoples Common Stock, Peoples preferred
stock or any other security of Peoples or any securities representing the right
to vote, purchase or otherwise receive any shares of Peoples Common Stock,
Peoples preferred stock or any other security of Peoples, other than (i) shares
issuable under the Sovereign Option and (ii) 981,508 shares issuable or to be
issued under Peoples Stock Option Plans and as set forth in reasonable detail in
the Peoples Disclosure Schedule.
(b) The authorized capital stock of Trenton Savings consists of (i)
20,000,000 shares of common stock, $0.10 par value ("Trenton Savings Common
Stock"), of which 100 shares are outstanding, validly issued, fully paid,
nonassessable, free of preemptive rights, all of which are owned by Peoples free
and clear of any lien, security interests, pledges, charges and restrictions of
any kind or nature and (ii) 10,000,000 shares of preferred stock, $0.10 par
value, none of which are issued or outstanding. Neither Peoples nor any Peoples
Subsidiary has or is bound by any subscription, option, warrant, call,
commitment, agreement or other Right of any character relating to the purchase,
sale or issuance or voting of, or right to receive dividends or other
distributions on any shares of the capital stock of any Peoples Subsidiary or
any other security of any Peoples Subsidiary or any securities representing the
right to vote, purchase or otherwise receive any shares of the capital stock or
any other security of any Peoples Subsidiary. Either Peoples or Trenton Savings
owns all of the outstanding shares of capital stock of each Peoples Subsidiary
free and clear of all liens, security interests, pledges, charges, encumbrances,
agreements and restrictions of any kind or nature.
(c) Neither (i) Peoples, (ii) Trenton Savings, nor (iii) any other
Peoples Subsidiary, owns any equity interest, directly or indirectly, treasury
stock, in any other company or controls any other company, except for equity
interests held in the investment portfolios of Peoples Subsidiaries, equity
interests held by Peoples Subsidiaries in a fiduciary capacity, and equity
interests held in connection with the commercial loan activities of Peoples
Subsidiaries. There are no subscriptions, options, warrants, calls,
commitments, agreements or other Rights outstanding and held by Peoples or
Trenton Savings with respect to any other company's capital stock or the equity
of any other person.
(d) To the best of Peoples' knowledge, except as disclosed in Peoples'
proxy statement dated April 21, 1998, no person or "group" (as that term is used
in Section 13(d)(3) of the Exchange Act), is the beneficial owner (as defined in
15
Section 13(d) of the Exchange Act) of 5% or more of the outstanding shares of
Peoples Common Stock.
Section 2.03 Authority; No Violation.
-----------------------
(a) Peoples has full corporate power and authority to execute and
deliver this Agreement and to complete the transactions contemplated hereby.
Trenton Savings has full corporate power and authority to execute and deliver
the Bank Plan of Merger and to complete the Bank Merger. The execution and
delivery of this Agreement by Peoples and the completion by Peoples of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of Peoples and, except for approval by the shareholders of
Peoples as required under the DGCL, Peoples' certificate of incorporation and
bylaws and Nasdaq requirements applicable to it, no other corporate proceedings
on the part of Peoples are necessary to complete the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Peoples and, subject to (i) approval of the shareholders of Peoples as required
under the DGCL, Peoples' certificate of incorporation and bylaws and Nasdaq
requirements applicable to it and (ii) receipt of the required approvals from
Regulatory Authorities described in Section 3.04 hereof and compliance with such
required approvals, constitutes the valid and binding obligation of Peoples,
enforceable against Peoples in accordance with its terms, subject further to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of equity.
The Bank Plan of Merger, upon its execution and delivery by Trenton Savings
concurrently with the execution and delivery of this Agreement, will constitute
the valid and binding obligation of Trenton Savings, enforceable against Trenton
Savings in accordance with its terms, subject to applicable conservatorship or
receivership provisions of the FDIA, or insolvency and similar laws affecting
creditors' rights generally and subject, as to enforceability, to general
principles of equity.
(b) (A) The execution and delivery of this Agreement by Peoples, (B)
the execution and delivery of the Bank Plan of Merger by Trenton Savings, (C)
subject to receipt of approvals from the Regulatory Authorities referred to in
Section 3.04 hereof and Peoples' and Sovereign's compliance with any conditions
contained therein, the completion of the transactions contemplated hereby, and
(D) compliance by Peoples or Trenton Savings with any of the terms or provisions
hereof or of the Bank Plan of Merger, will not (i) conflict with or result in a
breach of any provision of the certificate of incorporation or bylaws of Peoples
or any Peoples Subsidiary or the charter and bylaws of Trenton Savings; (ii)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to Peoples or any Peoples Subsidiary or any of
their respective properties or assets; or (iii) violate, conflict with, result
in a breach of any provisions of,
16
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of, accelerate the
performance required by, or result in a right of termination or acceleration or
the creation of any lien, security interest, charge or other encumbrance upon
any of the properties or assets of Peoples or any Peoples Subsidiary under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement, commitment or other instrument or
obligation to which Peoples or any Peoples Subsidiary is a party, or by which
they or any of their respective properties or assets may be bound or affected,
except for such violations, conflicts, breaches or defaults under clause (ii) or
(iii) hereof which, either individually or in the aggregate, will not have a
Material Adverse Effect on Peoples.
Section 2.04 Consents. Except for the consents, approvals, filings
--------
and registrations from or with the Regulatory Authorities referred to in Section
3.04 hereof and compliance with any conditions contained therein, and the
approval of this Agreement by the shareholders of Peoples under the DGCL,
Peoples' certificate of incorporation and bylaws, and Nasdaq requirements
applicable to it, and the approval of the Bank Plan of Merger by Peoples as sole
shareholder of Trenton Savings under the HOLA, and by the Trenton Savings Board
of Directors, no consents or approvals of, or filings or registrations with, any
public body or authority are necessary, and no consents or approvals of any
third parties are necessary, or will be, in connection with (a) the execution
and delivery of this Agreement by Peoples or the Bank Plan of Merger by Trenton
Savings, and (b) the completion by Peoples of the transactions contemplated
hereby or by Trenton Savings of the Bank Merger. As of the date hereof, Peoples
has no reason to believe that (i) any required consents or approvals will not be
received or will be received with conditions, limitations or restrictions
unacceptable to it or which would adversely impact Peoples' ability to complete
the transactions contemplated by this Agreement or that (ii) any public body or
authority, the consent or approval of which is not required or any filing with
which is not required, will object to the completion of the transactions
contemplated by this Agreement. Shareholders of Peoples are not entitled to
exercise dissenters' rights in connection with the transactions contemplated by
this Agreement under federal or Delaware law.
Section 2.05 Financial Statements.
--------------------
(a) Peoples has previously delivered or will deliver to Sovereign the
Peoples Regulatory Reports. The Peoples Regulatory Reports have been, or will
be, prepared in all material respects in accordance with applicable regulatory
accounting principles and practices throughout the periods covered by such
statements, and fairly present, or will fairly present in all material respects,
the financial position, results of operations and changes in shareholders'
equity of Peoples as
17
of and for the periods ended on the dates thereof, in accordance with applicable
regulatory accounting principles applied on a consistent basis.
(b) Peoples has previously delivered to Sovereign the Peoples
Financials. The Peoples Financials have been, or will be, prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered by such statements, except as noted therein, and fairly present, or will
fairly present, the consolidated financial position, results of operations and
cash flows of Peoples as of and for the periods ended on the dates thereof, in
accordance with GAAP applied on a consistent basis, except as noted therein.
(c) At the date of each balance sheet included in the Peoples
Financials or the Peoples Regulatory Reports, neither Peoples nor Trenton
Savings (as the case may be) had, or will have any liabilities, obligations or
loss contingencies of any nature (whether absolute, accrued, contingent or
otherwise) of a type required to be reflected in such Peoples Financials or
Peoples Regulatory Reports or in the footnotes thereto which are not fully
reflected or reserved against therein or fully disclosed in a footnote thereto,
except for liabilities, obligations and loss contingencies which are not
material in the aggregate and which are incurred in the ordinary course of
business, consistent with past practice and except for liabilities, obligations
and loss contingencies which are within the subject matter of a specific
representation and warranty herein and subject, in the case of any unaudited
statements, to normal, recurring audit adjustments and the absence of footnotes.
Section 2.06 Taxes. Peoples and the Peoples Subsidiaries are members
-----
of the same affiliated group within the meaning of IRC Section 1504(a). Peoples
has duly filed, and will file, all federal, state and local tax returns required
to be filed by or with respect to Peoples and all Peoples Subsidiaries on or
prior to the Closing Date (all such returns being accurate and correct in all
material respects) and has duly paid or will pay, or made or will make,
provisions for the payment of all federal, state and local taxes which have been
incurred by or are due or claimed to be due from Peoples and any Peoples
Subsidiary by any taxing authority or pursuant to any tax sharing agreement or
arrangement (written or oral) on or prior to the Closing Date other than taxes
which (i) are not delinquent or (ii) are being contested in good faith.
Section 2.07 No Material Adverse Effect. Peoples has not suffered
--------------------------
any Material Adverse Effect since December 31, 1997.
18
Section 2.08 Contracts.
---------
(a) Except as described in this Agreement, or in the Peoples
Disclosure Schedule, neither Peoples nor any Peoples Subsidiary is a party to or
subject to: (i) any employment, consulting or severance contract or arrangement
with any past or present officer, director or employee of Peoples or any Peoples
Subsidiary, except for "at will" arrangements; (ii) any plan, arrangement or
contract providing for bonuses, pensions, options, deferred compensation,
retirement payments, profit sharing or similar arrangements for or with any past
or present officers, directors or employees of Peoples or any Peoples
Subsidiary; (iii) any collective bargaining agreement with any labor union
relating to employees of Peoples or any Peoples Subsidiary; (iv) any agreement
which by its terms limits the payment of dividends by any Peoples Subsidiary;
(v) any instrument evidencing or related to indebtedness for borrowed money
whether directly or indirectly, by way of purchase money obligation, conditional
sale, lease purchase, guaranty or otherwise, in respect of which Peoples or any
Peoples Subsidiary is an obligor to any person, which instrument evidences or
relates to indebtedness other than deposits, repurchase agreements, Federal Home
Loan Bank advances and repurchases, bankers acceptances and "treasury tax and
loan" accounts established in the ordinary course of business and transactions
in "federal funds" or which contains financial covenants or other restrictions
(other than those relating to the payment of principal and interest when due)
which would be applicable on or after the Closing Date to Sovereign or any
Sovereign Subsidiary; or (vi) any contract (other than this Agreement) limiting
the freedom of any Peoples Subsidiary to engage in any type of banking or bank-
related business permissible under law.
(b) True and correct copies of agreements, plans, arrangements and
instruments referred to in Section 2.08(a) have been provided to Sovereign on or
before the date hereof, are listed on the Peoples Disclosure Schedule and are in
full force and effect on the date hereof and neither Peoples nor any Peoples
Subsidiary (nor, to the knowledge of Peoples, any other party to any such
contract, plan, arrangement or instrument) has breached any provision of, or is
in default in any respect under any term of, any such contract, plan,
arrangement or instrument which breach has resulted in or will result in a
Material Adverse Effect with respect to Peoples. Except as described in this
Agreement or as set forth in the Peoples Disclosure Schedule, (i) no party to
any material contract, plan, arrangement or instrument will have the right to
terminate any or all of the provisions of any such contract, plan, arrangement
or instrument as a result of the transactions contemplated by this Agreement,
(ii) none of the employees (including officers) of Peoples or any Peoples
Subsidiary, possess the right to terminate their employment as a result of the
execution of this Agreement, (iii) no plan, employment agreement, termination
agreement, or similar agreement or arrangement to which Peoples or any Peoples
19
Subsidiary is a party or under which Peoples or any Peoples Subsidiary may be
liable contains provisions which permit an employee or independent contractor to
terminate it without cause and continue to accrue future benefits thereunder,
and (iv) no such agreement, plan or arrangement (x) provides for acceleration in
the vesting of benefits or payments due thereunder upon the occurrence of a
change in ownership or control of Peoples or any Peoples Subsidiary absent the
occurrence of a subsequent event; (y) provides for benefits which may cause the
disallowance of a federal income tax deduction under IRC Section 280G; or (z)
requires Peoples or any Peoples Subsidiary to provide a benefit in the form of
Peoples Common Stock or determined by reference to the value of Peoples Common
Stock.
Section 2.09 Ownership of Property; Insurance Coverage.
-----------------------------------------
(a) Peoples and the Peoples Subsidiaries have, or will have as to
property acquired after the date hereof, good and, as to real property,
marketable title to all assets and properties owned by Peoples or any Peoples
Subsidiary in the conduct of their businesses, whether such assets and
properties are real or personal, tangible or intangible, including assets and
property reflected in the balance sheets contained in the Peoples Regulatory
Reports and in the Peoples Financials or acquired subsequent thereto (except to
the extent that such assets and properties have been disposed of for fair value,
in the ordinary course of business, since the date of such balance sheets),
subject to no encumbrances, liens, mortgages, security interests or pledges,
except (i) those items which secure repurchase agreements and liabilities for
borrowed money from a Federal Home Loan Bank, (ii) statutory liens for amounts
not yet delinquent or which are being contested in good faith and (iii) items
permitted under Article IV. Peoples and the Peoples Subsidiaries, as lessee,
have the right under valid and subsisting leases of real and personal properties
used by Peoples and its Subsidiaries in the conduct of their businesses to
occupy or use all such properties as presently occupied and used by each of
them. Such existing leases and commitments to lease constitute or will
constitute operating leases for both tax and financial accounting purposes and
the lease expense and minimum rental commitments with respect to such leases and
lease commitments are as disclosed in the Notes to the Peoples Financials.
(b) With respect to all agreements pursuant to which Peoples or any
Peoples Subsidiary has purchased securities subject to an agreement to resell,
if any, Peoples or such Peoples Subsidiary, as the case may be, has a valid,
perfected first lien or security interest in the securities or other collateral
securing the repurchase agreement, and the value of such collateral equals or
exceeds the amount of the debt secured thereby.
20
(c) Peoples and the Peoples Subsidiaries currently maintain insurance
considered by Peoples to be reasonable for their respective operations and
similar in scope and coverage to that maintained by other businesses similarly
engaged. Neither Peoples nor any Peoples Subsidiary has received notice from
any insurance carrier that (i) such insurance will be cancelled or that coverage
thereunder will be reduced or eliminated, or (ii) premium costs with respect to
such policies of insurance will be substantially increased. There are presently
no material claims pending under such policies of insurance and no notices have
been given by Peoples or Trenton Savings under such policies. All such
insurance is valid and enforceable and in full force and effect, and within the
last three years Peoples and Trenton Savings have received each type of
insurance coverage for which they have applied and during such periods have not
been denied indemnification for any material claims submitted under any of their
insurance policies.
Section 2.10 Legal Proceedings. Except as set forth in the Peoples
-----------------
Disclosure Schedule, neither Peoples nor any Peoples Subsidiary is a party to
any, and there are no pending or, to the best of Peoples' knowledge, threatened
legal, administrative, arbitration or other proceedings, claims (whether
asserted or unasserted), actions or governmental investigations or inquiries of
any nature (i) against Peoples or any Peoples Subsidiary, (ii) to which Peoples
or any Peoples Subsidiary's assets are or may be subject, (iii) challenging the
validity or propriety of any of the transactions contemplated by this Agreement,
or (iv) which could adversely affect the ability of Peoples to perform under
this Agreement, except for any proceedings, claims, actions, investigations or
inquiries referred to in clauses (i) or (ii) which, if adversely determined,
individually or in the aggregate, could not be reasonably expected to have a
Material Adverse Effect on Peoples.
Section 2.11 Compliance With Applicable Law.
------------------------------
(a) Peoples and Peoples Subsidiaries hold all licenses, franchises,
permits and authorizations necessary for the lawful conduct of their businesses
under, and have complied in all material respects with, applicable laws,
statutes, orders, rules or regulations of any federal, state or local
governmental authority relating to them, other than where such failure to hold
or such noncompliance will neither result in a limitation in any material
respect on the conduct of their businesses nor otherwise have a Material Adverse
Effect on Peoples.
(b) Neither Peoples nor any Peoples Subsidiary has received any
notification or communication from any Regulatory Authority (i) asserting that
Peoples or any Peoples Subsidiary is not in compliance with any of the statutes,
regulations or ordinances which such Regulatory Authority enforces; (ii)
threatening to revoke any license, franchise, permit or governmental
authorization which is material to Peoples
21
or any Peoples Subsidiary; (iii) requiring or threatening to require Peoples or
any Peoples Subsidiary, or indicating that Peoples or any Peoples Subsidiary may
be required, to enter into a cease and desist order, agreement or memorandum of
understanding or any other agreement restricting or limiting, or purporting to
restrict or limit, in any manner the operations of Peoples or any Peoples
Subsidiary, including without limitation any restriction on the payment of
dividends; or (iv) except for the order issued by the OTS in connection with its
conversion in 1997, directing, restricting or limiting, or purporting to direct,
restrict or limit, in any manner the operations of Peoples or any Peoples
Subsidiary, including without limitation any restriction on the payment of
dividends (any such notice, communication, memorandum, agreement or order
described in this sentence is hereinafter referred to as a "Regulatory
Agreement"). Neither Peoples nor any Peoples Subsidiary has consented to or
entered into any Regulatory Agreement except in connection with its conversion.
Peoples has no reason to believe that it will not receive regulatory approval
for the Merger. Peoples received a rating of "satisfactory" in connection with
its last CRA examination.
Section 2.12 ERISA. Peoples has previously delivered to Sovereign
-----
true and complete copies of all employee pension benefit plans within the
meaning of ERISA Section 3(2), including profit sharing plans, employee stock
ownership plan, stock purchase plans, deferred compensation and supplemental
income plans, supplemental executive retirement plans, employment agreements,
annual executive and administrative incentive plan or long term incentive plans,
severance plans, policies and agreements, group insurance plans, and all other
employee welfare benefit plans within the meaning of ERISA Section 3(1)
(including vacation pay, sick leave, short-term disability, long-term
disability, and medical plans) and all other employee benefit plans, policies,
agreements and arrangements, all of which are set forth in the Peoples
Disclosure Schedule, sponsored or contributed to for the benefit of the
employees or former employees (including retired employees) and any
beneficiaries thereof or directors or former directors of Peoples or any Peoples
Subsidiary, together with (i) the most recent actuarial (if any) and financial
reports relating to those plans which constitute "qualified plans" under IRC
Section 401(a), (ii) the most recent annual reports relating to such plans filed
by them, respectively, with any government agency, and (iii) all rulings and
determination letters which pertain to any such plans. Neither Peoples, any
Peoples Subsidiary, nor any pension plan maintained by Peoples or any Peoples
Subsidiary, has incurred, directly or indirectly, within the past six (6) years
any liability under Title IV of ERISA (including to the Pension Benefit Guaranty
Corporation) or to the IRS with respect to any pension plan qualified under IRC
Section 401(a) which liability has resulted in or will result in a Material
Adverse Effect with respect to Peoples, except liabilities to the Pension
Benefit Guaranty Corporation pursuant to ERISA Section 4007, all of which
22
have been fully paid, nor has any reportable event under ERISA Section 4043
occurred with respect to any such pension plan which would result in a Material
Adverse Effect. With respect to each of such plans that is subject to Title IV
of ERISA, the present value of the accrued benefits under such plan, based upon
the actuarial assumptions used for funding purposes in the plan's most recent
actuarial report did not, as of its latest valuation date, exceed the then
current value of the assets of such plan allocable to such accrued benefits.
Neither Peoples nor any Peoples Subsidiary has incurred or is subject to any
liability under ERISA Section 4201 for a complete or partial withdrawal from a
multiemployer plan. All "employee benefit plans," as defined in ERISA Section
3(3), comply and within the past six (6) years have complied in all material
respects with (i) relevant provisions of ERISA and (ii) in the case of plans
intended to qualify for favorable income tax treatment, provisions of the IRC
relevant to such treatment. No prohibited transaction (which shall mean any
transaction prohibited by ERISA Section 406 and not exempt under ERISA Section
408 or any transaction prohibited under IRC Section 4975) has occurred within
the past six (6) years with respect to any employee benefit plan maintained by
Peoples or any Peoples Subsidiary which would result in the imposition, directly
or indirectly, of an excise tax under IRC Section 4975 or other penalty under
ERISA or the IRC, which, individually or in the aggregate, has resulted in or
will result in a Material Adverse Effect with respect to Peoples. Peoples and
the Peoples Subsidiaries provide continuation coverage under group health plans
for separating employees and "qualified beneficiaries" in accordance with the
provisions of IRC Section 4980B(f). Such group health plans are in material
compliance with Section 1862(b)(1) of the Social Security Act. The forms of the
Peoples' proposed 1999 Stock Option Plan and Peoples' proposed 1999 Management
Recognition Award Plan are set forth in the Peoples Disclosure Schedule.
Section 2.13 Brokers, Finders and Financial Advisors; Fairness
-------------------------------------------------
Opinion. Except for Peoples' engagement of Berwind Financial, LP ("Berwind") in
- -------
connection with transactions contemplated by this Agreement, neither Peoples nor
any Peoples Subsidiary, nor any of their respective officers, directors,
employees or agents, has employed any broker, finder or financial advisor in
connection with the transactions contemplated by this Agreement or in connection
with any transaction other than the Merger, or, except for its commitments
disclosed in Peoples Disclosure Schedule, incurred any liability or commitment
for any fees or commissions to any such person in connection with the
transactions contemplated by this Agreement or in connection with any
transaction other than the Merger, which has not been reflected in the Peoples
Financials. The Peoples Disclosure Schedule shall contain as an exhibit the
engagement letter between Peoples and Berwind. Berwind has provided Peoples
with its written opinion to the effect that, as of the date of approval of this
Agreement by the Board of Directors of Peoples,
23
the Exchange Ratio is fair to Peoples shareholders from a financial point of
view.
Section 2.14 Environmental Matters. To the knowledge of Peoples,
---------------------
neither Peoples nor any Peoples Subsidiary, nor any properties operated by
Peoples or any Peoples Subsidiary during Peoples' use or ownership has been or
is in violation of or liable under any Environmental Law which violation or
liability, individually or in the aggregate, resulted in, or will result, in a
Material Adverse Effect with respect to Peoples. There are no actions, suits or
proceedings, or demands, claims, notices or investigations (including without
limitation notices, demand letters or requests for information from any
environmental agency) instituted or pending, or to the knowledge of Peoples,
threatened, relating to the liability of any property owned or operated by
Peoples or any Peoples Subsidiary under any Environmental Law.
Section 2.15 Allowance for Losses. The allowance for loan losses
--------------------
reflected, and to be reflected, in the Peoples Regulatory Reports, and shown,
and to be shown, on the balance sheets contained in the Peoples Financials have
been, and will be, established in accordance with the requirements of GAAP and
all applicable regulatory criteria.
Section 2.16 Information to be Supplied. The information to be
--------------------------
supplied by Peoples and Trenton Savings for inclusion in the Registration
Statement (including the Prospectus/Proxy Statement) and/or any information
Peoples filed with the SEC under the Exchange Act which is incorporated by
reference into the Registration Statement (including the Prospectus/Proxy
Statement) will not, at the time the Registration Statement is declared
effective pursuant to the Securities Act and as of the date the Prospectus/Proxy
Statement is mailed to shareholders of Peoples and up to and including the date
of the meeting of shareholders of Peoples to which such Prospectus/Proxy
Statement relates, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein not
misleading. The information supplied, or to be supplied, by Peoples for
inclusion in the Applications will, at the time such documents are filed with
any Regulatory Authority and up to and including the date of the attainment of
any required regulatory approvals or consents, be accurate in all material
respects.
Section 2.17 Securities Documents. Peoples has delivered to
--------------------
Sovereign copies of its (i) annual report on SEC Form 10-K for the year ended
December 31, 1997, (ii) quarterly reports on SEC Form 10-Q for the quarters
ended March 31, 1998 and June 30, 1998 and (iii) proxy materials used in
connection with its meeting of shareholders held in 1998. Such reports and such
proxy materials complied, at the time filed with the SEC, in all material
respects, with the Exchange Act and all applicable rules and regulations of the
SEC.
24
Section 2.18 Related Party Transactions. Except as disclosed in the
--------------------------
Peoples' Securities Documents, in the footnotes to the Peoples Financials, or in
the Peoples Disclosure Schedule, Peoples is not a party to any transaction
(including any loan or other credit accommodation, but excluding deposits in the
ordinary course of business) with any Affiliate of Peoples (except a Peoples
Subsidiary). All such transactions (a) were made in the ordinary course of
business, (b) were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other Persons, and (c) did not involve more than the normal
risk of collectability or present other risks or unfavorable features. No loan
or credit accommodation to any Affiliate of Peoples is presently in default or,
during the three year period prior to the date of this Agreement, has been in
default or has been restructured, modified or extended. Neither Peoples nor
Trenton Savings has been notified that principal and interest with respect to
any such loan or other credit accommodation will not be paid when due or that
the loan grade classification accorded such loan or credit accommodation by
Trenton Savings is inappropriate.
Section 2.19 Schedule of Termination Benefits. The Peoples
--------------------------------
Disclosure Schedule includes a schedule of the present value as of December 31,
1998 of termination benefits and related payments which would be payable to the
individuals identified thereon, excluding any options to acquire Peoples Common
Stock granted to such individuals, under any and all employment agreements,
special termination agreements, supplemental executive retirement plans,
deferred bonus plans, deferred compensation plans, salary continuation plans, or
any other pension benefit or welfare benefit plan maintained by Peoples solely
for the benefit of executive officers of Peoples or any Peoples Subsidiary (the
"Benefits Schedule"), assuming their employment is terminated as of April 2,
1999 and the Closing Date occurs on April 1, 1999. No other individuals are
entitled to benefits under any such plans. The present value of the termination
benefits and related payments specified, including required gross-up payments
under Section 280G of the IRC, on the Benefit Schedule with respect to each
named individual (based on a 6% per annum discount factor) is true and correct
in all material respects. Except as set forth in Peoples Disclosure Schedule,
as of the date of this Agreement, no Peoples director had deferred any
compensation accrued by Peoples.
Section 2.20 Loans. Each loan reflected as an asset in the Peoples
-----
Financial Statements (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and correct (ii) to the extent secured, has
been secured by valid liens and security interests which have been perfected,
and (ii) is the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting
25
creditors' rights and to general equity principles, in each case other than
loans as to which the failure to satisfy the foregoing standards would not have
a Material Adverse Effect on Peoples.
Section 2.21 Antitakeover Provisions Inapplicable. The provisions of
------------------------------------
Section 203 of the DGCL do not and will not apply to this Agreement or the
transactions contemplated hereby.
Section 2.22 Labor and Employment Matters. To the knowledge of
----------------------------
Peoples, neither Peoples nor any Peoples Subsidiary, nor any facilities owned or
operated by Peoples or any Peoples Subsidiary has been or is in violation of or
is liable under any Labor and Employment Law, which violation or liability,
individually or in the aggregate, resulted in, or will result in, a Material
Adverse Effect with respect to Peoples. There are no legal, administrative,
arbitration or other proceedings, demands, claims, notices or investigations
(including without limitation notices, demand letters or requests for
information from any federal, state or local commission, agency or board)
instituted or pending, or to the knowledge of Peoples threatened, relating to
the liability of Peoples or any Peoples Subsidiary under any Labor and
Employment Law.
Section 2.23 Year 2000. Peoples has not received, and does not
---------
reasonably expect to receive, a rating level of "Needs Improvement" or
"Unsatisfactory" on its Year 2000 Report of Examination from the OTS, as those
terms are defined in the OTS CEO Memo dated April 30, 1998. Peoples has made
available to Sovereign a complete and accurate copy of its plan including an
estimate of the anticipated associated costs, for addressing the issues set
forth in the statements of the Federal Financial Institutions Examination
Council, dated May 5, 1997, entitled "Year 2000 Project Management Awareness,"
and December 1997, entitled "Safety and Soundness Guidelines Concerning the Year
2000 Business Risk," as such issues affect Peoples. Between the date hereof and
the Effective Date, Peoples shall use commercially practicable efforts to
implement its plan.
Section 2.24 Quality of Representations. The representations made by
--------------------------
Peoples in this Agreement are true, correct and complete in all material
respects, and do not omit statements necessary to make them not misleading under
all facts and circumstances.
26
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOVEREIGN
-------------------------------------------
Sovereign hereby represents and warrants to Peoples that, except as
set forth in the Sovereign Disclosure Schedule delivered by Sovereign to Peoples
on or prior to the date hereof:
Section 3.01 Organization.
------------
(a) Sovereign is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania. Sovereign is
a savings and loan holding company duly registered under the HOLA. Sovereign
has the corporate power and authority to carry on its business and operations as
now being conducted and to own and operate the properties and assets now owned
and being operated by it. Each Sovereign Subsidiary is duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation and each possesses full corporate power and authority to carry on
its respective business and to own, lease and operate its properties as
presently conducted. Neither Sovereign nor any Sovereign Subsidiary is required
by the conduct of its business or the ownership or leasing of its assets to
qualify to do business as a foreign corporation in any jurisdiction other than
the Commonwealth of Pennsylvania and the states of Delaware and New Jersey,
except where the failure to be so qualified would not have a Material Adverse
Effect.
(b) Sovereign Bank is a federal savings bank, duly organized and
validly existing under the laws of the United States of America. Sovereign Bank
has the corporate power and authority to carry on its business and operations as
now being conducted and to own and operate the properties and assets now owned
and being operated by it.
(c) The deposits of Sovereign Bank are insured by the FDIC to the
extent provided in the FDIA.
(d) The respective minute books of Sovereign and Sovereign Bank
accurately record in all material respects all material corporate action of
their respective shareholders and boards of directors (including committees)
through the date of this Agreement.
(e) Prior to the execution of this Agreement, Sovereign has delivered
to Peoples true and correct copies of the articles of incorporation and the
bylaws of Sovereign and Sovereign Bank, respectively, as in effect on the date
hereof.
27
Section 3.02 Capital Structure.
-----------------
(a) The authorized capital stock of Sovereign consists of (a)
200,000,000 shares of common stock, no par value ("Sovereign Common Stock"), of
which, at the date of this Agreement, 8,477 shares were issued and held by
Sovereign as treasury stock and 163,652,098 shares are outstanding, validly
issued, fully paid and nonassessable, and (b) 7,500,000 shares of preferred
stock, no par value, of which, at the date of this Agreement, no shares are
issued or outstanding. No shares of Sovereign Common Stock were issued in
violation of any preemptive rights. Sovereign has no Rights authorized, issued
or outstanding, other than (i) the Sovereign Stock Purchase Rights, (ii) options
to acquire shares of Sovereign Common Stock authorized under Sovereign's
employee benefit plans, stock option plans, non-employee directors compensation
plan, employee stock ownership plan, employee stock purchase plan, and dividend
reinvestment and stock purchase plan, and (iii) capital securities issued by
Sovereign Capital Trust I. As of September 1, 1998, Sovereign had approximately
15,000 shareholders of record.
(b) To the best of Sovereign's knowledge, except as disclosed in
Sovereign's proxy statement dated March 16, 1998, no person or "group" (as that
term is used in Section 13(d)(3) of the Exchange Act) is the beneficial owner
(as defined in Section 13(d) of the Exchange Act) of 5% or more of the
outstanding shares of Sovereign Common Stock.
(c) Except as disclosed in the Sovereign Disclosure Schedule,
Sovereign owns all of the capital stock of Sovereign Bank, free and clear of any
lien, security interests, pledges, charges, encumbrances, agreements and
restrictions of any kind or nature and either Sovereign or Sovereign Bank owns
all of its shares of capital stock of each other Sovereign Subsidiary free and
clear of all liens, security interests, pledges, charges, encumbrances,
agreements and restrictions of any kind or nature. Except for the Sovereign
Subsidiaries, Sovereign does not possess, directly or indirectly, any material
equity interest in any corporation, except for equity interests held in the
investment portfolios of Sovereign Subsidiaries, equity interests held by
Sovereign Subsidiaries in a fiduciary capacity, and equity interests held in
connection with the commercial loan activities of Sovereign Subsidiaries.
Section 3.03 Authority; No Violation.
-----------------------
(a) Sovereign has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
Sovereign Bank has full corporate power and authority to execute and deliver the
Bank Plan of Merger and to consummate the Bank Merger. The execution and
delivery of this Agreement by Sovereign and the completion by Sovereign of the
transactions contemplated hereby have been duly
28
and validly approved by the Board of Directors of Sovereign, and, except for
approval of this Agreement by the shareholders of Sovereign to the extent
required by Nasdaq rules applicable to Sovereign, no other corporate proceedings
on the part of Sovereign are necessary to complete the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Sovereign and, subject to receipt of the required approvals of Regulatory
Authorities described in Section 3.04 hereof, constitutes the valid and binding
obligation of Sovereign, enforceable against Sovereign in accordance with its
terms, subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and subject, as to enforceability, to general
principles of equity. The Bank Plan of Merger, upon its execution and delivery
by Sovereign Bank concurrently with the execution and delivery of this
Agreement, will constitute the valid and binding obligation of Sovereign Bank,
enforceable against Sovereign Bank in accordance with its terms, subject to
applicable conservatorship and receivership provisions of the FDIA, or
insolvency and similar laws affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity.
(b) (A) The execution and delivery of this Agreement by Sovereign, (B)
the execution and delivery of the Bank Plan of Merger by Sovereign Bank, (C)
subject to receipt of approvals from the Regulatory Authorities referred to in
Section 3.04 hereof and Peoples' and Sovereign's compliance with any conditions
contained therein, the consummation of the transactions contemplated hereby, and
(D) compliance by Sovereign or Sovereign Bank with any of the terms or
provisions hereof or of the Bank Plan of Merger will not (i) conflict with or
result in a breach of any provision of the articles of incorporation or bylaws
of Sovereign or any Sovereign Subsidiary or the charter and bylaws of Sovereign
Bank; (ii) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Sovereign or any Sovereign
Subsidiary or any of their respective properties or assets; or (iii) violate,
conflict with, result in a breach of any provisions of, constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default), under, result in the termination of, accelerate the performance
required by, or result in a right of termination or acceleration or the creation
of any lien, security interest, charge or other encumbrance upon any of the
properties or assets of Sovereign or Sovereign Bank under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other investment or obligation to which Sovereign
or Sovereign Bank is a party, or by which they or any of their respective
properties or assets may be bound or affected, except for such violations,
conflicts, breaches or defaults under clause (ii) or (iii) hereof which, either
individually or in the aggregate, will not have a Material Adverse Effect on
Sovereign.
29
Section 3.04 Consents. Except for consents, approvals, filings and
--------
registrations from or with the OTS, the SEC, and state "blue sky" authorities,
and compliance with any conditions contained therein, approval of this Agreement
by the shareholders of Sovereign to the extent required by Nasdaq rules
applicable to Sovereign, and the approval of the Bank Plan of Merger by
Sovereign as sole shareholder of Sovereign Bank under the HOLA, and by the
Sovereign Bank Board of Directors, no consents or approvals of, or filings or
registrations with, any public body or authority are necessary, and no consents
or approvals of any third parties are necessary, or will be, in connection with
(a) the execution and delivery of this Agreement by Sovereign or the Bank Plan
of Merger by Sovereign Bank, and (b) the completion by Sovereign of the
transactions contemplated hereby or by Sovereign Bank of the Bank Merger.
Sovereign has no reason to believe that (i) any required consents or approvals
will not be received or will be received with conditions, limitations or
restrictions unacceptable to it or which would adversely impact Sovereign's or
Sovereign Bank's ability to complete the transactions contemplated by this
Agreement or that (ii) any public body or authority, the consent or approval of
which is not required or any filing with which is not required, will object to
the completion of the transactions contemplated by this Agreement.
Section 3.05 Financial Statements.
--------------------
(a) Sovereign has made, or will make, the Sovereign Regulatory Reports
available to Peoples for inspection. The Sovereign Regulatory Reports have
been, or will be, prepared in all material respects in accordance with
applicable regulatory accounting principles and practices throughout the periods
covered by such statements, and fairly present, or will fairly present in all
material respects, the financial position, results of operations, and changes in
shareholders' equity of Sovereign as of and for the periods ended on the dates
thereof, in accordance with applicable regulatory accounting principles applied
on a consistent basis.
(b) Sovereign has previously delivered, or will deliver, to Peoples
the Sovereign Financials. The Sovereign Financials have been, or will be,
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered by the Sovereign Financials, except as noted therein and fairly
present, or will fairly present, the consolidated financial position, results of
operations and cash flows of Sovereign as of and for the periods ending on the
dates thereof, in accordance with GAAP applied on a consistent basis throughout
the periods covered by the Sovereign Financials, except as noted therein.
Sovereign will make the Sovereign Regulatory Reports available to Peoples for
inspection.
(c) At the date of each balance sheet included in the Sovereign
Financials or Sovereign Regulatory Reports,
30
Sovereign did not have any liabilities, obligations or loss contingencies of any
nature (whether absolute, accrued, contingent or otherwise) of a type required
to be reflected in such Sovereign Financials or in the footnotes thereto which
are not fully reflected or reserved against therein or disclosed in a footnote
thereto, except for liabilities, obligations or loss contingencies which are not
material in the aggregate and which are incurred in the ordinary course of
business, consistent with past practice, and except for liabilities, obligations
or loss contingencies which are within the subject matter of a specific
representation and warranty herein and subject, in the case of any unaudited
statements, to normal recurring audit adjustments and the absence of footnotes.
Section 3.06 Taxes. Sovereign and the Sovereign Subsidiaries are
-----
members of the same affiliated group within the meaning of IRC Section 1504(a).
Sovereign has duly filed, and will file, all federal, state and local tax
returns required to be filed by or with respect to Sovereign and all Sovereign
Subsidiaries on or prior to the Closing Date (all such returns being accurate
and correct in all material respects) and has duly paid or will pay, or made or
will make, provisions for the payment of all federal, state and local taxes
which have been incurred by or are due or claimed to be due from Sovereign and
any Sovereign Subsidiary by any taxing authority or pursuant to any tax sharing
agreement or arrangement (written or oral) on or prior to the Closing Date other
than taxes which (i) are not delinquent or (ii) are being contested in good
faith.
Section 3.07 No Material Adverse Effect. Sovereign has not suffered
--------------------------
any Material Adverse Effect since December 31, 1997.
Section 3.08 Ownership of Property; Insurance Coverage.
-----------------------------------------
(a) Sovereign and the Sovereign Subsidiaries have good and, as to real
property, marketable title to all assets and properties owned by Sovereign or
any of its Subsidiaries in the conduct of their businesses, whether such assets
and properties are real or personal, tangible or intangible, including assets
and property reflected in the balance sheets contained in the Sovereign
Financials and in the Sovereign Regulatory Reports or acquired subsequent
thereto (except to the extent that such assets and properties have been disposed
of for fair value, in the ordinary course of business, since the date of such
balance sheets), subject to no encumbrances, liens, mortgages, security
interests or pledges, except (i) those items that secure liabilities for
borrowed money and that are described in the Sovereign Disclosure Schedule or
permitted under Article IV hereof, and (ii) statutory liens for amounts not yet
delinquent or which are being contested in good faith. Sovereign and the
Sovereign Subsidiaries, as lessee, have the right under valid and subsisting
leases of real and personal properties used by
31
Sovereign and its Subsidiaries in the conduct of their businesses to occupy and
use all such properties as presently occupied and used by each of them.
(b) Sovereign and the Sovereign Subsidiaries currently maintain
insurance in amounts considered by Sovereign to be reasonable for their
respective operations, and such insurance is similar in scope and coverage to
that maintained by other businesses similarly engaged. Neither Sovereign nor
any Sovereign Subsidiary has received notice from any insurance carrier that (i)
such insurance will be cancelled or that coverage thereunder will be reduced or
eliminated or (ii) premium costs with respect to such insurance will be
substantially increased.
Section 3.09 Legal Proceedings. Neither Sovereign nor any Sovereign
-----------------
Subsidiary is a party to any, and there are no pending or, to the best of
Sovereign's knowledge, threatened legal, administrative, arbitration or other
proceedings, claims, actions or governmental investigations or inquiries of any
nature (i) against Sovereign or any Sovereign Subsidiary, (ii) to which
Sovereign's or any Sovereign Subsidiary's assets are or may be subject, (iii)
challenging the validity or propriety of any of the transactions contemplated by
this Agreement, or (iv) which could adversely affect the ability of Sovereign to
perform under this Agreement, except for any proceedings, claims, actions,
investigations or inquiries referred to in clauses (i) or (ii) which,
individually or in the aggregate, could not be reasonably expected to have a
Material Adverse Effect on Sovereign.
Section 3.10 Compliance With Applicable Law.
------------------------------
(a) Sovereign and the Sovereign Subsidiaries hold all licenses,
franchises, permits and authorizations necessary for the lawful conduct of their
businesses under, and have complied in all material respects with, applicable
laws, statutes, orders, rules or regulations of any federal, state or local
governmental authority relating to them, other than where such failure to hold
or such noncompliance will neither result in a limitation in any material
respect on the conduct of their businesses nor otherwise have a Material Adverse
Effect on Sovereign.
(b) Neither Sovereign nor any Sovereign Subsidiary has received any
notification or communication from any Regulatory Authority (i) asserting that
Sovereign or any Sovereign Subsidiary is not in compliance with any of the
statutes, regulations or ordinances which such Regulatory Authority enforces;
(ii) threatening to revoke any license, franchise, permit or governmental
authorization which is material to Sovereign or any Sovereign Subsidiary; (iii)
requiring or threatening to require Sovereign or any Sovereign Subsidiary, or
indicating that Sovereign or any Sovereign Subsidiary may be required, to enter
into a cease and desist order, agreement or
32
memorandum of understanding or any other agreement restricting or limiting, or
purporting to restrict or limit, in any manner the operations of Sovereign or
any Sovereign Subsidiary, including without limitation any restriction on the
payment of dividends; or (iv) directing, restricting or limiting, or purporting
to direct, restrict or limit, in any manner the operations of Sovereign or any
Sovereign Subsidiary, including without limitation any restriction on the
payment of dividends (any such notice, communication, memorandum, agreement or
order described in this sentence is hereinafter referred to as a "Regulatory
Agreement"). Neither Sovereign nor any Sovereign Subsidiary has consented to or
entered into any Regulatory Agreement, except as heretofore disclosed to
Peoples. Sovereign received a rating of "outstanding" in connection with its
last CRA examination.
Section 3.11 Information to be Supplied. The information to be
--------------------------
supplied by Sovereign for inclusion in the Registration Statement (including the
Prospectus/Proxy Statement) and/or any information Sovereign filed with the SEC
under the Exchange Act which is incorporated by reference into the Registration
Statement (including the Prospectus/Proxy Statement) will not, at the time the
Registration Statement is declared effective pursuant to the Securities Act and
as of the date the Prospectus/Proxy Statement is mailed to shareholders of
Peoples and up to and including the date of the meeting of shareholders of
Peoples to which such Prospectus/Proxy Statement relates, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein not misleading. The information supplied,
or to be supplied, by Sovereign for inclusion in the Applications will, at the
time such documents are filed with any Regulatory Authority and up to and
including the date(s) of the obtainment of any required regulatory approvals or
consents, be accurate in all material aspects.
Section 3.12 ERISA. Sovereign has previously made available to
-----
Peoples true and complete copies of the employee pension benefit plans within
the meaning of ERISA Section 3(2), profit sharing plans, employee stock
ownership plans, stock purchase plans, deferred compensation and supplemental
income plans, supplemental executive retirement plans, annual incentive plans,
group insurance plans, and all other employee welfare benefit plans within the
meaning of ERISA Section 3(1) (including vacation pay, sick leave, short-term
disability, long-term disability, and medical plans), and all other employee
benefit plans, policies, agreements and arrangements, all of which are set forth
on the Sovereign Disclosure Schedule, sponsored or contributed to for the
benefit of the employees or former employees (including retired employees) and
any beneficiaries thereof or directors or former directors of Sovereign or any
Sovereign Subsidiary, together with (i) the most recent actuarial (if any) and
financial reports relating to those plans which constitute "qualified plans"
under IRC Section 401(a), (ii) the most recent annual reports relating to such
plans filed by them,
33
respectively, with any government agency, and (iii) all rulings and
determination letters which pertain to any such plans. Neither Sovereign, any
Sovereign Subsidiary, nor any pension plan maintained by Sovereign or any
Sovereign Subsidiary, has incurred, directly or indirectly, within the past six
(6) years any liability under Title IV of ERISA (including to the Pension
Benefit Guaranty Corporation) or to the IRS with respect to any pension plan
qualified under IRC Section 401(a) which liability has resulted in or will
result in a Material Adverse Effect with respect to Sovereign, except
liabilities to the Pension Benefit Guaranty Corporation pursuant to ERISA
Section 4007, all of which have been fully paid, nor has any reportable event
under ERISA Section 4043 occurred with respect to any such pension plan which
would result in a Material Adverse Effect. With respect to each of such plans
that is subject to Title IV of ERISA, the present value of the accrued benefits
under such plan, based upon the actuarial assumptions used for funding purposes
in the plan's most recent actuarial report did not, as of its latest valuation
date, exceed the then current value of the assets of such plan allocable to such
accrued benefits. Neither Sovereign nor any Sovereign Subsidiary has incurred
or is subject to any liability under ERISA Section 4201 for a complete or
partial withdrawal from a multiemployer plan. All "employee benefit plans," as
defined in ERISA Section 3(3), comply and within the past six (6) years have
complied in all material respects with (i) relevant provisions of ERISA, and
(ii) in the case of plans intended to qualify for favorable income tax
treatment, provisions of the IRC relevant to such treatment. No prohibited
transaction (which shall mean any transaction prohibited by ERISA Section 406
and not exempt under ERISA Section 408 or any transaction prohibited under IRC
Section 4975) has occurred within the past six (6) years with respect to any
employee benefit plan maintained by Sovereign or any Sovereign Subsidiary that
would result in the imposition, directly or indirectly, of an excise tax under
IRC Section 4975 or other penalty under ERISA or the IRC, which individually or
in the aggregate, has resulted in or will result in a Material Adverse Effect
with respect to Sovereign. Sovereign and the Sovereign Subsidiaries provide
continuation coverage under group health plans for separating employees and
"qualified beneficiaries" in accordance with the provisions of IRC Section
4980B(f). Such group health plans are in compliance with Section 1862(b)(1) of
the Social Security Act.
Section 3.13 Securities Documents. Sovereign has delivered, or will
--------------------
deliver, to Peoples copies of its (i) annual reports on SEC Form 10-K for the
years ended December 31, 1997, 1996, and 1995, (ii) quarterly reports on SEC
Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998, (iii) current
reports on SEC Form 8-K dated June 23, 1998, April 20, 1998, February 20, 1998
and February 19, 1998, and (iv) proxy statement dated March 16, 1998 used in
connection with its annual meeting of shareholders held in April 1998. Such
reports and such proxy materials complied, at the time filed with the SEC, in
34
all material respects, with the Exchange Act and the applicable rules and
regulations of the SEC.
Section 3.14 Environmental Matters. To the knowledge of Sovereign,
---------------------
neither Sovereign nor any Sovereign Subsidiary, nor any properties operated by
Sovereign or any Sovereign Subsidiary during Sovereign's use or ownership has
been or is in violation of or liable under any Environmental Law which violation
or liability, individually or in the aggregate, resulted in or will result in a
Material Adverse Effect with respect to Sovereign. There are no actions, suits
or proceedings, or demands, claims, notices or investigations (including without
limitation notices, demand letters or requests for information from any
environmental agency) instituted or pending, or to the knowledge of Sovereign,
threatened, relating to the liability of any property owned or operated by
Sovereign or any Sovereign Subsidiary under any Environmental Law.
Section 3.15 Allowance for Loan Losses. The allowance for loan
-------------------------
losses reflected, and to be reflected, in the Sovereign Regulatory Reports, and
shown, and to be shown, on the balance sheets contained in the Sovereign
Financials have been, and will be, established in accordance with the
requirements of GAAP and all applicable regulatory criteria.
Section 3.16 Brokers and Finders. In connection with the
-------------------
transactions contemplated by the Agreement, neither Sovereign nor any Sovereign
Subsidiary, nor any of their respective officers, directors, employees or
agents, has employed any broker, finder or financial advisor, or incurred any
liability for any fees or commissions to any such person, in connection with the
transactions contemplated by this Agreement.
Section 3.17 Loans. Each loan reflected as an asset in the Sovereign
-----
Financial Statements (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and correct (ii) to the extent secured, has
been secured by valid liens and security interests which have been perfected,
and (iii) is the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles, in
each case other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on Sovereign.
Section 3.18 Year 2000. Sovereign has not received, and does not
---------
reasonably expect to receive, a rating level of "Needs Improvement" or
"Unsatisfactory" on its Year 2000 Report of Examination from the OTS, as those
terms are defined in the OTS CEO Memo dated April 30, 1998. Sovereign has made
available to Peoples a complete and accurate copy of its plan including an
estimate of the anticipated associated costs, for addressing the issues set
forth in the statements of the Federal Financial
35
Institutions Examination Council, dated May 5, 1997, entitled "Year 2000 Project
Management Awareness," and December 1997, entitled "Safety and Soundness
Guidelines Concerning the Year 2000 Business Risk," as such issues affect
Sovereign. Between the date hereof and the Effective Date, Sovereign shall use
commercially practicable efforts to implement its plan.
Section 3.19 Quality of Representations. The representations made by
--------------------------
Sovereign in this Agreement are true, correct and complete in all material
respects and do not omit statements necessary to make the representations not
misleading under the circumstances.
ARTICLE IV
COVENANTS OF THE PARTIES
------------------------
Section 4.01 Conduct of Peoples' Business.
----------------------------
(a) From the date of this Agreement to the Closing Date, Peoples and
each Peoples Subsidiary will conduct its business and engage in transactions,
including extensions of credit, only in the ordinary course and consistent with
past practice and policies, except as otherwise required by this Agreement or
with the written consent of Sovereign. Peoples will use its reasonable good
faith efforts, and will cause Trenton Savings to use its reasonable good faith
efforts, to (i) preserve its business organizations intact, (ii) maintain good
relationships with employees, and (iii) preserve for itself the good will of
customers of Peoples and Peoples Subsidiaries and others with whom business
relationships exist. From the date hereof to the Closing Date, except as
otherwise consented to or approved by Sovereign in writing or as permitted or
required by this Agreement, Peoples will not, and Peoples will not permit any
Peoples Subsidiary to:
(i) amend or change any provision of its certificate of
incorporation, charter, or bylaws;
(ii) change the number of authorized or issued shares of its
capital stock or issue or grant any option, warrant, call, commitment,
subscription, Right or agreement of any character relating to its
authorized or issued capital stock or any securities convertible into
shares of such stock, except as contemplated by Section 4.11 of this
Agreement, or split, combine or reclassify any shares of capital stock, or
declare, set aside or pay any dividend or other distribution in respect of
capital stock, or redeem or otherwise acquire any shares of capital stock,
except that (A) Peoples may issue shares of Peoples Common Stock upon the
valid exercise of outstanding options to acquire Peoples Common Stock under
the Peoples Stock Option Plans, in accordance with Section 4.11 of this
Agreement, (B) Peoples may pay a regular quarterly cash dividend, not to
exceed $0.025 per share of Peoples Common Stock
36
outstanding, and (C) Peoples may issue shares of Peoples Common Stock
pursuant to the Sovereign Option. As promptly as practicable following the
date of this Agreement, the Board of Directors of Peoples shall cause its
regular quarterly dividend record dates and payment dates to be the same as
Sovereign's regular quarterly dividend record dates and payment dates for
Sovereign Common Stock, and except as provided above, Peoples shall not
change its regular dividend payment dates and record dates without prior
written consent of Sovereign. Nothing contained in this Section 4.01(ii)
or in any other Section of this Agreement shall be construed to permit
Peoples shareholders to receive two dividends either from Peoples or from
Peoples and Sovereign in any quarter or to deny or prohibit them from
receiving one dividend from Peoples or Sovereign in any quarter; subject to
applicable regulatory restrictions, if any, Trenton Savings may pay a cash
dividend, in the aggregate, sufficient to fund any dividend by Peoples
permitted hereunder;
(iii) grant any severance or termination pay (other than
pursuant to written policies or written agreements of Peoples or Peoples
Subsidiaries in effect on the date hereof and provided to Sovereign prior
to the date hereof, as contemplated by this Agreement, or as otherwise
agreed to in writing by Sovereign and Peoples) to, or enter into any new or
amend any existing employment agreement with, or increase the compensation
of, any employee, officer or director of Peoples or any Peoples Subsidiary,
except for routine periodic increases, individually and in the aggregate,
in accordance with past practice;
(iv) merge or consolidate Peoples or any Peoples Subsidiary with
any other corporation; sell or lease all or any substantial portion of the
assets or business of Peoples or any Peoples Subsidiary; make any
acquisition of all or any substantial portion of the business or assets of
any other person, firm, association, corporation or business organization
other than in connection with the collection of any loan or credit
arrangement between any Peoples Subsidiary and any other person; enter into
a purchase and assumption transaction with respect to deposits and
liabilities; permit the revocation or surrender by any Peoples Subsidiary
of its certificate of authority to maintain, or file an application for the
relocation of, any existing branch office, or file an application for a
certificate of authority to establish a new branch office;
(v) sell or otherwise dispose of the capital stock of Trenton
Savings or sell or otherwise dispose of any asset of Peoples or of any
Peoples Subsidiary other than in the ordinary course of business consistent
with past practice; subject any asset of Peoples or of any Peoples
Subsidiary to a lien, pledge, security interest or other
37
encumbrance (other than in connection with deposits, repurchase agreements,
bankers acceptances, "treasury tax and loan" accounts established in the
ordinary course of business and transactions in "federal funds" and the
satisfaction of legal requirements in the exercise of trust powers) other
than in the ordinary course of business consistent with past practice;
incur any indebtedness for borrowed money (or guarantee any indebtedness
for borrowed money), except in the ordinary course of business consistent
with past practice;
(vi) take any action which would result in any of the
representations and warranties of Peoples set forth in this Agreement
becoming untrue as of any date after the date hereof or in any of the
conditions set forth in Article V hereof not being satisfied, except in
each case as may be required by applicable law;
(vii) change any method, practice or principle of accounting,
except as may be required from time to time by GAAP (without regard to any
optional early adoption date) or any Regulatory Authority responsible for
regulating Peoples or Trenton Savings;
(viii) waive, release, grant or transfer any rights of value or
modify or change in any material respect any existing material agreement to
which Peoples or any Peoples Subsidiary is a party, other than in the
ordinary course of business, consistent with past practice;
(ix) implement any pension, retirement, profit sharing, bonus,
welfare benefit or similar plan or arrangement which was not in effect on
the date of this Agreement, or materially amend any existing plan or
arrangement except to the extent such amendments do not result in an
increase in cost; provided, however, that Peoples may contribute to the
Peoples employee stock ownership plan, to the extent set forth in the
Peoples Disclosure Schedule;
(x) purchase any security for its investment portfolio not rated
"A" or higher by either Standard & Poor's Corporation or Moody's Investor
Services, Inc. or otherwise alter, in any material respect, the mix,
maturity, credit or interest rate risk profile of its portfolio of
investment securities or its portfolio of mortgage-backed securities;
(xi) make any new loan or other credit facility commitment
(including without limitation, lines of credit and letters of credit) to
any borrower or group of affiliated borrowers in excess of $2,000,000 in
the aggregate, or increase, compromise, extend, renew or modify any
existing loan or commitment outstanding in excess of
38
$2,000,000, except for any commitment disclosed on the Peoples Disclosure
Schedule; provided that Sovereign will not unreasonably withhold its
consent with respect to any request by Peoples for permission to increase,
compromise, extend, renew or modify any loan subject to this provision;
(xii) except as set forth on the Peoples Disclosure Schedule or
except in the ordinary course of business consistent with past practice,
enter into, renew, extend or modify any other transaction with any
Affiliate other than deposit and loan transactions in the ordinary course
of business and which are in compliance with applicable laws and
regulations;
(xiii) enter into any interest rate swap or similar commitment,
agreement or arrangement;
(xiv) except for the execution of this Agreement, or resulting
therefrom, take any action that would give rise to a right of payment to
any individual under any employment agreement;
(xv) intentionally and knowingly take any action that would
preclude satisfaction of the condition to closing contained in Section
5.02(k) relating to financial accounting treatment of the Merger; or
(xvi) agree to do any of the foregoing.
For purposes of this Section 4.01, it shall not be considered in the
ordinary course of business for Peoples or any Peoples Subsidiary to do any of
the following: (i) make any capital expenditure of $100,000 or more not
disclosed on Peoples Disclosure Schedule 4.01, without the prior written consent
of Sovereign; (ii) make any sale, assignment, transfer, pledge, hypothecation or
other disposition of any assets having a book or market value, whichever is
greater, in the aggregate in excess of $500,000, other than pledges of assets to
secure government deposits, to exercise trust powers, sales of assets received
in satisfaction of debts previously contracted in the normal course of business,
issuance of loans, or transactions in the investment securities portfolio by
Peoples or a Peoples Subsidiary or repurchase agreements made, in each case, in
the ordinary course of business; (iii) undertake or enter any lease, contract or
other commitment for its account, other than in the normal course of providing
credit to customers as part of its banking business, involving a payment by
Peoples or any Peoples Subsidiary of more than $100,000 annually, or containing
a material financial commitment and extending beyond 12 months from the date
hereof; or (iv) grant options or issue restricted stock under the 1996 Peoples
Stock Option Plan or the 1996 Peoples Management Recognition and Retention Plan.
39
Section 4.02 Access; Confidentiality.
-----------------------
(a) From the date of this Agreement through the Closing Date, Peoples
or Sovereign, as the case may be, shall afford to, and shall cause each Peoples
Subsidiary or Sovereign Subsidiary to afford to, the other party and its
authorized agents and representatives, complete access to their respective
properties, assets, books and records and personnel, at reasonable hours and
after reasonable notice; and the officers of Peoples and Sovereign will furnish
any person making such investigation on behalf of the other party with such
financial and operating data and other information with respect to the
businesses, properties, assets, books and records and personnel as the person
making such investigation shall from time to time reasonably request.
(b) Peoples and Sovereign each agree to conduct such investigation and
discussions hereunder in a manner so as not to interfere unreasonably with
normal operations and customer and employee relationships of the other party.
(c) In addition to the access permitted by subparagraph (a) above,
from the date of this Agreement through the Closing Date, Peoples shall permit
employees of Sovereign reasonable access to and participation in matters
relating to problem loans, loan restructurings and loan work-outs of Peoples and
the Peoples Subsidiaries, provided that nothing contained in this subparagraph
shall be construed to grant Sovereign or any Sovereign employee any final
decision-making authority with respect to such matters.
(d) If the transactions contemplated by this Agreement shall not be
consummated, Peoples and Sovereign will comply with the terms of the
confidentiality agreement dated August 28, 1998 and each destroy or return all
documents and records obtained from the other party or its representatives,
during the course of its investigation and will cause all information with
respect to the other party obtained pursuant to this Agreement or preliminarily
thereto to be kept confidential, except to the extent such information becomes
public through no fault of the party to whom the information was provided or any
of its representatives or agents and except to the extent disclosure of any such
information is legally required. Peoples and Sovereign shall each give prompt
notice to the other party of any contemplated disclosure where such disclosure
is so legally required.
Section 4.03 Regulatory Matters and Consents.
-------------------------------
(a) Peoples and Sovereign shall prepare a Prospectus/Proxy Statement
to be mailed to shareholders of Peoples in connection with Peoples' meeting of
shareholders contemplated to be held on or about April 15, 1999 and the
transactions contemplated hereby, and to be filed by Sovereign
40
with the SEC in the Registration Statement, which Prospectus/Proxy statement
shall conform to all applicable legal requirements. Sovereign shall, following
the preparation thereof, file the Registration Statement with the SEC and
Peoples and Sovereign shall use all reasonable efforts to have the Registration
Statement declared effective under the Securities Act as promptly as practicable
after such filing. Sovereign will advise Peoples, promptly after Sovereign
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, of the issuance of any
stop order or the suspension of the qualification of the shares of capital stock
issuable pursuant to the Registration Statement, or the initiation or threat of
any proceeding for any such purpose, or of any request by the SEC for the
amendment or supplement of the Registration Statement or for additional
information. Sovereign shall use its best efforts to obtain, prior to the
effective date of the Registration Statement, all necessary state securities
laws or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement. Sovereign will provide Peoples with as many
copies of such Registration Statement and all amendments thereto promptly upon
the filing thereof as Peoples may reasonably request.
(b) Sovereign and Peoples will prepare all Applications to Regulatory
Authorities and make all filings for, and use their reasonable best efforts to
obtain as promptly as practicable after the date hereof, all necessary permits,
consents, approvals, waivers and authorizations of all Regulatory Authorities
necessary or advisable to complete the transactions contemplated by this
Agreement.
(c) Peoples will furnish Sovereign with all information concerning
Peoples and Peoples Subsidiaries as may be reasonably necessary or advisable in
connection with the Registration Statement and any Application or filing made by
or on behalf of Sovereign to any Regulatory Authority in connection with the
transactions contemplated by this Agreement and the Bank Plan of Merger.
(d) Sovereign and Peoples shall have the right to review in advance,
and to the extent practicable each will consult with the other on, all
information which appears in any filing made with or written materials submitted
to the SEC, any Regulatory Authority or any third party in connection with the
transactions contemplated by this Agreement and the Bank Plan of Merger. In
exercising the foregoing right, each of the parties hereto shall act reasonably
and as promptly as practicable. The parties hereto agree that they will consult
with each other with respect to the obtaining of all permits, consents,
approvals and authorizations of the SEC, Regulatory Authorities and third
parties necessary or advisable to consummate the transactions contemplated by
this Agreement and the Bank Plan of Merger and each party will keep the other
apprised of the status of matters
41
relating to completion of the transactions contemplated hereby and thereby.
(e) Sovereign will promptly furnish Peoples with copies of all written
communications to, or received by Sovereign or any Sovereign Subsidiary from,
any Regulatory Authority in respect of the transactions contemplated hereby.
Section 4.04 Taking of Necessary Action.
--------------------------
(a) Sovereign and Peoples shall each use its best efforts in good
faith, and each of them shall cause its Subsidiaries to use their reasonable
best efforts in good faith, to take or cause to be taken all action necessary or
desirable on its part using its best efforts so as to permit completion of the
Merger and the Bank Merger, as soon as practicable after the date hereof,
including, without limitation, (A) obtaining the consent or approval of each
individual, partnership, corporation, association or other business or
professional entity whose consent or approval is required or desirable for
consummation of the transactions contemplated hereby (including assignment of
leases without any change in terms), provided that neither Peoples nor any
Peoples Subsidiary shall agree to make any payments or modifications to
agreements in connection therewith without the prior written consent of
Sovereign, and (B) requesting the delivery of appropriate opinions, consents and
letters from its counsel and independent auditors. No party hereto shall take,
or cause, or to the best of its ability permit to be taken, any action that
would substantially impair the prospects of completing the Merger and the Bank
Merger pursuant to this Agreement and the Bank Plan of Merger; provided that
nothing herein contained shall preclude Sovereign or Peoples or from exercising
its rights under this Agreement or the Stock Option Agreement.
(b) Sovereign shall not take any action which would result in any of
the representations and warranties of Sovereign set forth in this Agreement
becoming untrue as of any date after the date hereof or in any of the conditions
set forth in Article V hereof not being satisfied, except in each case as may be
required by law.
Section 4.05 Certain Agreements.
------------------
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative, in which
any person who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Date, a director or officer or
employee of Peoples or any of its Subsidiaries (the "Indemnified Parties") is,
or is threatened to be, made a party to a suit based in whole or in part on, or
arising in whole or in part out of, or pertaining to (i) the fact that he is or
was a director, officer or employee of Peoples, any of the Peoples' Subsidiaries
42
or any of their respective predecessors or (ii) this Agreement or any of the
transactions contemplated hereby, whether in any case asserted or arising before
or after the Effective Date, the parties hereto agree to cooperate and use their
best efforts to defend against and respond thereto to the extent permitted or
required by the DGCL and the Certificate of Incorporation and Bylaws of Peoples.
On or after the Effective Date, Sovereign shall indemnify, defend and hold
harmless all prior and then-existing directors and officers of Peoples and any
Peoples Subsidiary, against (i) all losses, claims, damages, costs, expenses,
liabilities or judgments or amounts that are paid in settlement (with the
approval of Sovereign which approval shall not be unreasonably withheld) of or
in connection with any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of Peoples or any Peoples
Subsidiary, whether pertaining to any matter existing or occurring at or prior
to the Effective Date and whether asserted or claimed prior to, or at or after,
the Effective Date ("Indemnified Liabilities") and (ii) all Indemnified
Liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to this Agreement or the transactions contemplated hereby, to the
same extent as such officer, director or employee may be indemnified by Peoples
or any Peoples Subsidiary as of the date hereof including the right to
advancement of expenses, provided, however, that any such officer, director or
employee of Peoples or any Peoples Subsidiary may not be indemnified by
Sovereign and/or Sovereign Bank if such indemnification is prohibited by
applicable law.
(b) Sovereign shall maintain Peoples' existing directors' and
officers' liability insurance policy (or a policy providing comparable coverage
amounts on terms generally no less favorable, including Sovereign's existing
policy if it meets the foregoing standard) covering persons who are currently
covered by such insurance for a period of five years after the Effective Date;
provided, however, that in no event shall Sovereign be obligated to expend, in
order to maintain or provide insurance coverage pursuant to this Section
4.05(b), any amount per annum in excess of 150% of the amount of the annual
premiums paid as of the date hereof by Peoples for such insurance (the "Maximum
Amount"). If the amount of the annual premiums necessary to maintain or procure
such insurance coverage exceeds the Maximum Amount, Sovereign shall use all
reasonable efforts to maintain the most advantageous policies of directors' and
officers' insurance obtainable for an annual premium equal to the Maximum
Amount. In the event that Sovereign acts as its own insurer for all of its
directors and officers with respect to matters typically covered by a directors'
and officers' liability insurance policy, Sovereign's obligations under this
Section 4.05(b) may be satisfied by such self insurance, so long as its senior
debt ratings by Standard & Poor's Corporation and Moody's Investors Services,
Inc. are not lower than such ratings as of the date hereof.
43
(c) Sovereign agrees to honor and Sovereign agrees to cause Sovereign
Bank to honor all terms and conditions of all existing employment contracts and
special termination agreements disclosed in the Peoples Disclosure Schedule. To
the extent that the employment of any of the employees listed on the Peoples
Disclosure Schedule is terminated after the Effective Date, Sovereign agrees to
enter into consulting arrangements with such individuals for the amounts and for
the time periods set forth on the Peoples Disclosure Schedule.
(d) In the event that Sovereign or any of its respective successors
or assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any Person, then, and in each such case the successors and assigns of such
entity shall assume the obligations set forth in this Section 4.05.
Section 4.06 No Other Bids and Related Matters. So long as this
---------------------------------
Agreement remains in effect, Peoples shall not and Peoples shall not authorize
or permit any of its directors, officers, employees or agents, to directly or
indirectly (i) respond to, solicit, initiate or encourage any inquiries relating
to, or the making of any proposal which relates to, an Acquisition Transaction
(as defined below), (ii) recommend or endorse an Acquisition Transaction (unless
such person's fiduciary duty as a director of Peoples legally requires such
person to do so and such person is so advised in a written opinion of counsel to
Peoples), (iii) participate in any discussions or negotiations regarding an
Acquisition Transaction, (iv) provide any third party (other than Sovereign or
an affiliate of Sovereign) with any nonpublic information in connection with any
inquiry or proposal relating to an Acquisition Transaction or (v) enter into an
agreement with any other party with respect to an Acquisition Transaction.
Peoples will immediately cease and cause to be terminated any existing
activities, discussions or negotiations previously conducted with any parties
other than Sovereign with respect to any of the foregoing, and will take all
actions necessary or advisable to inform the appropriate individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 4.06. Peoples will notify Sovereign orally (within one day) and in
writing (as promptly as practicable) if any inquiries or proposals relating to
an Acquisition Transaction are received by, any such information is requested
from, or any such negotiations or discussions are sought to be initiated or
continued with, Peoples. As used in this Agreement, "Acquisition Transaction"
shall mean one of the following transactions with a party other than Sovereign
of an affiliate of Sovereign (i) a merger or consolidation, or any similar
transaction, involving Peoples or a Peoples Subsidiary, (ii) a purchase, lease
or other acquisition of all or a substantial portion of the assets or
liabilities of Peoples or a Peoples Subsidiary or (iii) a
44
purchase or other acquisition (including by way of share exchange, tender offer,
exchange offer or otherwise) of a substantial interest in any class or series of
equity securities of Peoples (other than as permitted by Section 4.01(a)(ii)
hereof) or a Peoples Subsidiary.
Section 4.07 Duty to Advise; Duty to Update Disclosure Schedule.
--------------------------------------------------
Each party shall promptly advise the other party of any change or event having a
Material Adverse Effect on it or which it believes would or would be reasonably
likely to cause or constitute a material breach of any of its representations,
warranties or covenants set forth herein. Each party shall update its
respective Disclosure Schedule as promptly as practicable after the occurrence
of an event or fact which, if such event or fact had occurred prior to the date
of this Agreement, would have been disclosed in such Disclosure Schedule. The
delivery of such updated Schedule shall not relieve a party from any breach or
violation of this Agreement and shall not have any effect for the purposes of
determining the satisfaction of the condition set forth in Sections 5.01(c) and
5.02(c) hereof, as applicable.
Section 4.08 Conduct of Sovereign's Business. From the date of this
-------------------------------
Agreement to the Closing Date, Sovereign will use its reasonable good faith
efforts to (i) preserve its business organizations intact, (ii) maintain good
relationships with employees, and (iii) preserve for itself the goodwill of
customers of Sovereign and Sovereign Subsidiaries and others with whom business
relationships exist.
Section 4.09 Current Information.
-------------------
(a) During the period from the date of this Agreement to the
Effective Date, each party shall, upon the request of the other party, cause one
or more of its designated representatives to confer on a monthly or more
frequent basis with representatives of the other party regarding its financial
condition, operations and business and matters relating to the completion of the
transactions contemplated hereby. As soon as reasonably available, but in no
event more than 45 days after the end of each calendar quarter ending after the
date of this Agreement (other than the last quarter of each fiscal year ending
December 31), Peoples and Sovereign will deliver to the other party its
quarterly report on Form 10-Q under the Exchange Act, and, as soon as reasonably
available, but in no event more than 90 days after the end of each fiscal year
ended December 31, Peoples and Sovereign will deliver to the other party its
Annual Report on Form 10-K. Within 25 days after the end of each month, Peoples
will deliver to Sovereign a consolidated balance sheet and a consolidated
statement of operations, without related notes, for such month.
(b) Peoples shall provide to Sovereign a copy of the minutes of any
meeting of the Board of Directors of
45
Peoples or any Peoples Subsidiary, or any committee thereof, or any senior
management committee, promptly after such minutes are approved at a subsequent
meeting of the board or committee, but in any event within 40 days of the
meeting of such board or committee to which such minutes relate, except that
with respect to any meeting held within 30 days of the Closing Date, such
minutes shall be provided prior to the Closing Date.
Section 4.10 Undertakings by Sovereign and Peoples.
-------------------------------------
(a) From and after the date of this Agreement, Peoples shall:
(i) Voting by Directors. Use its best efforts to cause all
-------------------
members of Peoples' Board of Directors to vote all shares of Peoples'
Common Stock beneficially owned by each such director in favor of this
Agreement;
(ii) Phase I Environmental Audit. Permit Sovereign, if
---------------------------
Sovereign elects to do so, at its own expense, to cause a "phase I
environmental audit" to be performed at any physical location owned or
occupied by Peoples or any Peoples Subsidiary on the date hereof;
(iii) Approval of Bank Plan of Merger. Approve the Bank Plan of
-------------------------------
Merger as sole shareholder of Trenton Savings and obtain the approval of,
and cause the execution and delivery of, the Bank Plan of Merger by Trenton
Savings;
(iv) Proxy Solicitor. If Sovereign requests and agrees to bear
---------------
the expense thereof, retain a proxy solicitor in connection with the
solicitation of Peoples shareholder approval of this Agreement;
(v) Timely Review. If requested by Sovereign at Sovereign's
-------------
sole expense, cause its independent certified public accountants to perform
a review of its unaudited consolidated financial statements as of the end
of any calendar quarter, in accordance with Statement of Auditing Standards
No. 71, and to issue its report on such financial statements as soon as is
practicable thereafter;
(vi) Outside Service Bureau Contracts. If requested to do so by
--------------------------------
Sovereign, use its reasonable best efforts to obtain an extension of any
contract with an outside service bureau or other vendor of services to
Peoples or any Peoples Subsidiary, on terms and conditions mutually
acceptable to Peoples and Sovereign;
(vii) Committee Meetings. Permit a representative of Sovereign,
------------------
who is reasonably acceptable to Peoples, to attend all committee meetings
of Peoples and
46
Trenton Savings management including, without limitation, any loan or
asset/liability committee;
(viii) List of Nonperforming Assets. Provide Sovereign, within
----------------------------
ten (10) days after the quarterly meeting of its Asset Review Committee, a
written list of nonperforming assets as of the end of such month;
(ix) Reserves and Merger-Related Costs. On or before the
---------------------------------
Effective Date, establish such additional accruals and reserves as may be
necessary to conform the accounting reserve practices and methods
(including credit loss practices and methods) of Peoples to those of
Sovereign (as such practices and methods are to be applied to Peoples from
and after the Closing Date) and Sovereign's plans with respect to the
conduct of the business of Peoples following the Merger and otherwise to
reflect Merger-related expenses and costs incurred by Peoples, provided,
however, that Peoples shall not be required to take such action (A) more
than five (5) days prior to the Effective Date; and (B) unless Sovereign
agrees in writing that all conditions to closing set forth in Section 5.02
have been satisfied or waived (except for the expiration of any applicable
waiting periods); prior to the delivery by Sovereign of the writing
referred to in the preceding clause, Peoples shall provide Sovereign a
written statement, certified without personal liability by the chief
executive officer of Peoples and dated the date of such writing, that the
representation made in Section 2.15 hereof is true as of such date or,
alternatively, setting forth in detail the circumstances that prevent such
representation from being true as of such date; and no accrual or reserve
made by Peoples or any Peoples Subsidiary pursuant to this subsection, or
any litigation or regulatory proceeding arising out of any such accrual or
reserve, shall constitute or be deemed to be a breach or violation of any
representation, warranty, covenant, condition or other provision of this
Agreement or to constitute a termination event within the meaning of
Section 6.01(d) hereof;
(x) Shareholders' Meeting. Peoples shall take all action
---------------------
necessary to properly call and convene a special meeting of its
shareholders on or about April 15, 1999 to consider and vote upon this
Agreement and the transactions contemplated hereby; the Board of Directors
of Peoples shall recommend that the shareholders of Peoples, approve this
Agreement and the transactions contemplated hereby, provided, however, that
no director of Peoples shall be required to take any action in accordance
with this subsection in such person's capacity as a director if the
fiduciary duty of such person in such capacity legally requires otherwise
and such person is so advised in a written opinion of counsel;
47
(xi) Personnel Information. Deliver to Sovereign, if not done
---------------------
so heretofore, schedule(s) of all employees including pertinent information
concerning each such employee as reasonably requested by Sovereign and
sorted as reasonably requested by Sovereign; such schedule(s) shall be
updated as necessary to reflect in a timely manner any deletions or
additions; make available for inspection and copying by Sovereign all
personnel records;
(xii) Personnel Additions and Terminations. If requested by
------------------------------------
Sovereign, advise and consult with Sovereign regarding the hiring or
termination of any employee;
(xiii) Employment Policies. Deliver to Sovereign all personnel
-------------------
policy manuals, memoranda and postings, and all employee handbooks or other
communications with employees regarding personnel policies and practices;
furnish additional information as reasonably requested by Sovereign with
respect to such policies and practices and any others not covered by any
such written materials;
(xiv) WARN Notices. Assist Sovereign as reasonably requested by
------------
it in connection with Sovereign providing notices to affected employees
under the Workers Adjustment and Retraining Notification Act or complying
with any other Labor and Employment Law; and
(xv) Employment Law Claims. Inform Sovereign promptly upon
---------------------
receiving notice of any legal, administrative, arbitration or other
proceedings, demands, notices or investigations (by any federal, state or
local commission, agency or board) relating to the alleged liability of
Peoples or any Peoples Subsidiary under any Labor and Employment Law.
(b) From and after the date of this Agreement, Sovereign and Peoples
shall each:
(i) Identification of Peoples' Affiliates. Cooperate with the
-------------------------------------
other and use its best efforts to identify those persons who may be deemed
to be Affiliates of Peoples;
(ii) Public Announcements. Cooperate and cause its respective
--------------------
officers, directors, employees and agents to cooperate in good faith,
consistent with their respective legal obligations, in the preparation and
distribution of, and agree upon the form and substance of, any press
release related to this Agreement and the transactions contemplated hereby,
and any other public disclosures related thereto, including without
limitation communications to Peoples shareholders, Peoples' internal
announcements and customer disclosures, but nothing contained herein shall
prohibit either party from making any
48
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 simultaneously with the filing thereof;
and
(vi) Taxes. File all federal, state, and local tax returns
-----
required to be filed by them or their respective Subsidiaries on or before
the date such returns are due (including any extensions) and pay all taxes
shown to be due on such returns on or before the date such payment is due.
Section 4.11 Employee Benefits and Termination Benefits.
------------------------------------------
(a) Employee Benefits. On and after the Effective Date, the employee
-----------------
pension (including employee stock ownership plans) and welfare benefit plans of
Sovereign and Peoples (as well as any other plan of Peoples providing for
benefits not subject to ERISA) may, at Sovereign's election and subject to the
requirements of the IRC, continue to be maintained separately or consolidated or
terminated, except as set forth below. In connection with implementation of the
foregoing, the following provisions and guidelines shall apply:
(i) Sovereign Employee Stock Ownership Plan ("ESOP"). Employees
------------------------------------------------
of Peoples and Peoples Subsidiaries who become employees of Sovereign or a
Sovereign Subsidiary shall become entitled to participate in the Sovereign
ESOP in accordance with its terms by treating them as newly employed
individuals without any prior service credit under such plan.
49
(ii) Trenton Savings Bank FSB Employee Stock Ownership Plan
------------------------------------------------------
("Peoples ESOP"). After the Effective Date, Sovereign will not merge the
----------------
Peoples ESOP until and unless required by applicable law, and in no event
prior to December 31, 2000.
(iii) Sovereign Defined Benefit Pension Plan ("DB Plan").
--------------------------------------------------
Employees of Peoples and Peoples Subsidiaries who become employees of
Sovereign or a Sovereign Subsidiary shall become entitled to participate in
Sovereign's DB Plan in accordance with its terms. In this regard, each
such employee shall (A) receive, for purposes of participation and vesting
only, credit for all service with Peoples or a Peoples Subsidiary credited
to each such employee under Peoples' applicable qualified plan, and (B)
enter the Sovereign DB Plan on the entry date concurrent with or next
following the employee's satisfaction of such plan's minimum participation
requirements.
(iv) Sovereign 401(k) Retirement Savings Plan ("401(k) Plan").
--------------------------------------------------------
Employees of Peoples and Peoples Subsidiaries who become employees of
Sovereign or a Sovereign Subsidiary shall become entitled to participate in
the Sovereign 401(k) Plan in accordance with its terms. In this regard,
each such employee shall (A) receive, for purposes of participation and
vesting only, credit for all service with Peoples or a Peoples Subsidiary
credited to each such employee under Peoples' 401(k) Plan as of the
Effective Date, and (B) enter the Sovereign 401(k) Plan on the entry date
concurrent with or next following the employee's satisfaction of such
plan's minimum participation requirements.
(v) Peoples Savings Plan ("401(k) Plan"). After the Effective
------------------------------------
Date, Sovereign will initially continue to maintain Peoples' 401(k) Plan
until its participants generally become eligible to participate in the
Sovereign 401(k) Plan. Thereafter, Sovereign shall have the right, but not
the obligation, to combine the two plans on such terms as it deems
appropriate and in accordance with applicable law.
(vi) Sovereign and Peoples Nonqualified Deferred Compensation
--------------------------------------------------------
Plans ("Excess Benefit Plans"). Following the Merger, Sovereign will, as
------------------------------
soon as administratively feasible, consolidate the Excess Benefit Plans
maintained by Sovereign and Peoples to supplement certain pension benefits
lost by some employees by reason of limitations contained in the IRC. Such
consolidation shall be effected in such a manner that no person receive
redundant benefits or lose existing benefits. The intent of the preceding
sentence is that affected employees of Peoples and Peoples Subsidiaries
generally shall be entitled only to the sum of (A) the benefits accrued
under the Peoples Excess
50
Benefit Plan(s) as of the plan consolidation, and (B) the benefits accrued
thereafter under the combined Excess Benefit Plan.
(vii) Peoples 1996 and 1999 Recognition and Retention Plan
----------------------------------------------------
("1996 RRP" and "1999 RRP"). The 1996 RRP shall continue in effect
---------------------------
following the Effective Date as a Sovereign plan. No action shall be taken
that would adversely affect the rights of plan participants who hold
outstanding grants or awards of shares of Peoples Common Stock, whether
before or after the Effective Date. No further grants or awards shall be
made under the 1996 RRP following the date of this Agreement. Peoples may
adopt the 1999 RRP in the form set forth in the Peoples Disclosure
Schedule. The 1999 RRP will permit the grant or award of a maximum of
578,000 shares of Peoples Common Stock to the individuals and in the
amounts set forth on the Peoples Disclosure Schedule; provided, however,
that the 1999 RRP shall provide that grants or awards under the 1999 RRP
shall provide for three-year vesting and shall not automatically vest upon
the "change in control" which would occur on the Effective Date as a result
of the Merger.
(viii) Peoples 1996 and 1999 Stock Option Plans ("1996 Option
------------------------------------------------------
Plan") and ("1999 Option Plan"). The 1996 Option Plan shall continue in
-------------------------------
effect following the Effective Date as a Sovereign plan. No action shall
be taken that would adversely affect the rights of plan participants who
hold outstanding grants of options to purchase Peoples Common Stock,
whether before or after the Effective Date. No further grants of stock
options will be made under the 1996 Option Plan following the date of this
Agreement. Peoples may adopt the 1999 Option Plan in the form set forth in
the Peoples Disclosure Schedule. The 1999 Option Plan will permit the
grant of stock options to purchase a maximum of 1,428,000 shares of Peoples
Common Stock to the individuals and in the amounts set forth on the Peoples
Disclosure Schedule; provided, however, that options granted under the 1999
Option Plan shall provide for three-year vesting and shall not
automatically vest upon the "change in control" which would occur on the
Effective Date as a result of the Merger.
(ix) Welfare Benefit Plans. After the Effective Date, the
---------------------
welfare benefit plans of Sovereign and Peoples (and their respective
subsidiaries) shall initially remain unchanged. Sovereign shall undertake
a study, in consultation with appropriate professional advisors, with a
view toward the possible combination of some or all of such plans or the
benefits provided thereunder. Following such study, Sovereign shall take
such action with respect to such plans (which may include the
implementation of new benefits, reduction or elimination of some benefits,
and the alteration of the respective cost allocation between
51
employer and employee) as it deems appropriate under the circumstances. In
the event of any termination of or consolidation of a Peoples welfare plan
with any Sovereign welfare plan, all employees of Peoples and Peoples
Subsidiaries who are eligible for continued coverage under the Peoples
welfare plan shall have immediate coverage under any successor welfare plan
without the necessity of satisfying a waiting period for coverage of any
pre-existing condition. Except for the individuals set forth in the
Peoples Disclosure Schedule, Sovereign does not provide welfare benefits to
part-time employees or retired employees.
(x) Peoples Bonus Plans and Arrangements. Peoples may continue
------------------------------------
to administer such bonus programs and arrangements as are disclosed
pursuant to this Agreement through the Effective Date, with such equitable
modifications as may be appropriate to take into account the circumstances
of the Merger and the timing thereof. In the event the Merger shall occur
after the current fiscal year, bonuses shall be provided on a pro rata
basis with respect to the interim period; provided, however, that bonuses
for such interim period, in the aggregate, shall not exceed twenty-five
percent (25%) of the aggregate amount of bonuses payable for the calendar
year ending December 31, 1998.
(xi) Other Peoples Plans. From the date of this Agreement
-------------------
through the Effective Date of the Merger, without the prior written consent
of Sovereign and except as otherwise expressly permitted by this Agreement,
no further benefits, grants or awards shall be made available under any
other Peoples plans to employees or directors, including, without
limitation, the granting of stock options, stock appreciation rights,
restricted stock, and performance shares.
(b) Termination Benefits. Peoples shall use its best efforts to cause
--------------------
to be delivered to Sovereign within five (5) business days following execution
of this Agreement with respect to each executive officer named on the Benefits
Schedule included in the Peoples Disclosure Schedule, the written acknowledgment
of each such individual in the form attached hereto as Exhibit 4 pursuant to
which each such individual agrees and acknowledges that the dollar amount set
forth opposite such individual's name on such Benefits Schedule is the entire
amount that would be due to such individual under any employment agreement,
special termination agreement, supplemental executive retirement plan, deferred
bonus plan, deferred compensation plan, salary continuation plan, or any other
pension benefit or welfare benefit plan maintained by Peoples solely for the
benefit of officers of Peoples or Peoples Subsidiaries assuming a termination of
such individual's employment on April 2, 1999, and April 1, 1999 as the Closing
Date. Peoples and Sovereign acknowledge and agree that the amounts shown on the
52
Benefits Schedule and the letter of acknowledgement for each officer named
herein reflect a good faith estimate of the amounts that will be payable to such
individuals under the circumstances described and may be subject to adjustment
upon an actual termination of employment in order to reflect increases in such
individuals' compensation and benefit plans consistent with past practices for
routine periodic increases.
(c) Severance Policy. Sovereign agrees to cause Sovereign Bank to
----------------
provide severance pay, as set forth below, to any employee of Peoples whose
employment is terminated hereafter in connection with the Merger up to three (3)
months beyond the Effective Date, because (i) such employee's position is
eliminated, or (ii) such employee is not offered or retained in comparable
employment (i.e., a position of generally similar job description or
responsibilities in a location within a thirty (30)-mile radius from either such
employee's work location with Peoples or residence), excluding any employee who
has an existing employment or consulting agreement with Peoples or any Peoples
Subsidiary, who has accepted an offer from Sovereign of noncomparable employment
or whose employment is terminated for Cause (as defined below), provided such
--------
employee executes such documentation as Sovereign may reasonably require,
including Sovereign's customary form of release provided to Peoples prior to the
execution of this Agreement and provided such employee does not leave employment
with Peoples or Sovereign prior to the employment termination date or any
extension thereof established or adjusted by Sovereign: (i) senior officers
(within the meaning of Peoples' Severance Pay Policy) shall be entitled to two
and one-half (2-1/2) weeks' pay for each full year of continuous service with a
minimum severance benefit of thirty (30) weeks' pay; (ii) junior officers
(within the meaning of Peoples' Severance Pay Plan) shall be entitled to two and
one-half (2-1/2) weeks pay for each full year of continuous service with a
minimum severance benefit of sixteen (16) weeks' pay and a maximum severance
benefit of thirty (30) weeks' pay; (iii) regular full-time employees who are
exempt employees under FLSA shall be entitled to two and one-half (2-1/2) weeks'
pay for each full year of continuous service with a minimum severance benefit of
eight (8) weeks' pay and a maximum severance benefit of thirty (30) weeks' pay;
(iv) regular full-time employees who are nonexempt employees under FLSA shall be
entitled to two and one-half (2-1/2) weeks' pay for each full year of continuous
service with a minimum severance benefit of four (4) weeks' pay and a maximum
severance benefit of thirty (30) weeks' pay; and (v) part-time, peak-time and
temporary employees shall not be entitled to any severance benefits. For
purposes of this Section 4.11(c), "Cause" shall mean termination because of the
employee's personal dishonesty, failure to meet established performance goals
and standards, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties or willful violation of any
law, rule or regulation (other than traffic violations or similar offenses).
The benefits provided to terminated Peoples employees under this
53
subsection are the only severance benefits payable by Peoples to such employees
(excluding severance benefits provided under existing employment or consulting
agreements or as otherwise required by law), except for employees who do not
execute the documentation required by Sovereign, which employees shall be
entitled to the termination benefits provided under Peoples' normal severance
policies. The benefits payable to Peoples' employees under this subsection or
otherwise shall in any event be in lieu of any termination benefits to which
such employees would otherwise be entitled under Sovereign's or Sovereign Bank's
severance policies or programs then in effect.
(d) Intention Regarding Future Employment. Sovereign and Sovereign
-------------------------------------
Bank shall use their reasonable best efforts to inform the employees of Peoples
at least sixty (60) days prior to the Effective Date of the likelihood of such
employees having continued employment with Sovereign Bank following the
Effective Date and, where appropriate in Sovereign Bank's judgment, it will
consider for employment opportunities at Sovereign Bank such employees who would
otherwise be terminated.
(e) Retention Bonuses. Notwithstanding subparagraph (c) above, each
-----------------
employee of Peoples or of Trenton Savings identified in the Peoples Disclosure
Schedule shall be entitled to receive a "retention" bonus from Peoples (or the
applicable Peoples Subsidiary) as determined by the executive officers of
Peoples (after consultation with Sovereign) and as set forth on the Peoples
Disclosure Schedule in the event that such employee remains an employee of
Peoples (or the applicable Peoples Subsidiary), until the date the systems
conversion occurs (or such other date established or adjusted by Sovereign not
to exceed 90 days following the date the system conversion occurs) or is
terminated prior to the date of the systems conversion, but after the Effective
Date, and satisfactorily fulfills the duties and responsibilities of the
position of such employee of Peoples (or the applicable Peoples Subsidiary)
through the employee's termination date; provided that retention bonuses, in the
aggregate, shall not exceed $2,400,000.
Section 4.12 NASDAQ Listing. Sovereign shall use all reasonable best
--------------
efforts to cause the shares of Sovereign Common Stock to be issued in connection
with the Merger to be approved for quotation on the Nasdaq Stock Market's
National Market System, subject to official notice of issuance, as of or prior
to the Effective Date.
Section 4.13 Affiliate Letter. Concurrently with, or within five (5)
----------------
business days after, the execution and delivery of this Agreement, Peoples shall
cause to be delivered to Sovereign the Letter Agreement attached hereto as
Exhibit 1, executed by each director, officer and any Affiliate of Peoples.
Section 4.14 Publication of Combined Financial Results. Sovereign
-----------------------------------------
shall use its reasonable best efforts to
54
publish as soon as possible, but no later than thirty (30) days after the end of
the first month after the Effective Date in which there are at least 30 days of
post-Merger combined operations, combined revenues and net income figures as
contemplated by and in accordance with the terms of SEC Accounting Series
Release No. 135, provided, however, that Sovereign may delay publishing such
information for such period of times as it, in its good faith reasonable
judgment, deems necessary or desirable to achieve a bona fide corporate purpose.
Section 4.15 Sovereign Rights Agreement. Sovereign agrees that any
--------------------------
Sovereign Rights issued pursuant to the Sovereign Rights Agreement shall be
issued with respect to each share of Sovereign Common Stock issued pursuant to
the terms hereof regardless whether there has occurred a "Distribution Date"
under the terms of such Sovereign Rights Agreement prior to the Effective Date,
as well as to take all action necessary or advisable to enable the holder of
each such share of Sovereign Common Stock to obtain the benefit of such
Sovereign Stock Purchase Rights notwithstanding their prior distribution,
including without limitation, amendment of the Sovereign Rights Agreement.
Section 4.16 Advisory Board. On the Effective Date, Sovereign Bank
--------------
shall establish the Peoples Advisory Board (the "Peoples Advisory Board"), which
shall consist of all members of the Peoples Advisory Board immediately prior to
the Effective Date. Each member of the Peoples Advisory Board shall be paid an
annual retainer of $1,000. The Peoples Advisory Board shall be initially
established for a term of one year from the Effective Date. Thereafter, for a
period of two additional years, Sovereign shall either continue the Peoples
Advisory Board or designate former members of the Peoples Advisory Board as
Directors Emeriti.
ARTICLE V
CONDITIONS
----------
Section 5.01 Conditions to Peoples' Obligations under this Agreement.
--------------------------------------------------------
The obligations of Peoples hereunder shall be subject to satisfaction at or
prior to the Closing Date of each of the following conditions, unless waived by
Peoples pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on
---------------------
the part of, Sovereign and Sovereign Bank to authorize the execution, delivery
and performance of this Agreement and the Bank Plan of Merger, respectively, and
the consummation of the transactions contemplated by this Agreement and the Bank
Plan of Merger, shall have been duly and validly taken by Sovereign and
Sovereign Bank; and Peoples shall have received certified copies of the
resolutions evidencing such authorizations;
55
(b) Covenants. The obligations and covenants of Sovereign required by
---------
this Agreement to be performed by Sovereign at or prior to the Closing Date
shall have been duly performed and complied with in all respects, except where
the failure to perform or comply with any obligation or covenant would not,
either individually or in the aggregate, result in a Material Adverse Effect
with respect to Sovereign;
(c) Representations and Warranties. The representations and
------------------------------
warranties of Sovereign set forth in this Agreement shall be true and correct,
as of the date of this Agreement, and as of the Closing Date as though made on
and as of the Closing Date, except as to any representation or warranty (i)
which specifically relates to an earlier date or (ii) where the breach of the
representation or warranty would not, either individually or in the aggregate,
constitute a Material Adverse Effect with respect to Sovereign;
(d) Approvals of Regulatory Authorities. Sovereign shall have
-----------------------------------
received all required approvals of Regulatory Authorities of the Merger, and
delivered copies thereof to Peoples; and all notice and waiting periods required
thereunder shall have expired or been terminated;
(e) No Injunction. There shall not be in effect any order, decree or
-------------
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby;
(f) No Material Adverse Effect. Since December 31, 1997, there shall
--------------------------
not have occurred any Material Adverse Effect with respect to Sovereign;
(g) Officer's Certificate. Sovereign shall have delivered to Peoples
---------------------
a certificate and such other documents, dated the Closing Date and signed,
without personal liability, by its chairman or president, to the effect that the
conditions set forth in subsections (a) through (e) of this Section 5.01 have
been satisfied, to the best knowledge of the officer executing the same;
(h) Opinion of Sovereign's Counsel. Peoples shall have received an
------------------------------
opinion of Stevens & Lee, counsel to Sovereign, dated the Closing Date, in form
and substance reasonably satisfactory to Peoples and its counsel to the effect
set forth on Exhibit 5 attached hereto;
(i) Registration Statement. The Registration Statement shall be
----------------------
effective under the Securities Act and no proceedings shall be pending or
threatened by the SEC to suspend the effectiveness of the Registration
Statement; and all required approvals by state securities or "blue sky"
authorities with respect to the transactions contemplated by this Agreement,
shall have been obtained and neither the Registration Statement nor any
56
such approval by state securities or "blue sky" authorities shall be subject to
a stop order or threatened stop order by the SEC or any such authority;
(j) Tax Opinion. Peoples shall have received an opinion of Stevens &
-----------
Lee, substantially to the effect set forth on Exhibit 6 attached hereto;
(k) Approval of Peoples' Shareholders. This Agreement shall have been
---------------------------------
approved by the shareholders of Peoples by such vote as is required under
Peoples' certificate of incorporation and bylaws, the DGCL or under Nasdaq
requirements applicable to it; and
(l) Investment Banking Opinion. Peoples shall have received a written
--------------------------
opinion, dated within five (5) days of mailing the Prospectus/Proxy Statement,
from Berwind Financial, updating its prior written opinion, to the effect that
the Exchange Ratio is fair, from a financial point of view, to such
shareholders.
Section 5.02 Conditions to Sovereign's Obligations under this
------------------------------------------------
Agreement. The obligations of Sovereign hereunder shall be subject to
- ---------
satisfaction at or prior to the Closing Date of each of the following
conditions, unless waived by Sovereign pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on
---------------------
the part of, Peoples and Trenton Savings to authorize the execution, delivery
and performance of this Agreement and the Bank Plan of Merger, respectively, and
the consummation of the transactions contemplated by this Agreement and the Bank
Plan of Merger, shall have been duly and validly taken by Peoples and Trenton
Savings; and Sovereign shall have received certified copies of the resolutions
evidencing such authorizations;
(b) Covenants. The obligations and covenants of Peoples, required by
---------
this Agreement to be performed by it at or prior to the Closing Date shall have
been duly performed and complied with in all respects, except where the failure
to perform or comply with any obligation or covenant would not, either
individually or in the aggregate, result in a Material Adverse Effect with
respect to Peoples;
(c) Representations and Warranties. The representations and
------------------------------
warranties of Peoples set forth in this Agreement shall be true and correct as
of the date of this Agreement, and as of the Closing Date as though made on and
as of the Closing Date, except as to any representation or warranty (i) which
specifically relates to an earlier date or (ii) where the breach of the
representation or warranty would not, either individually or in the aggregate,
result in a Material Adverse Effect with respect to Peoples;
57
(d) Approvals of Regulatory Authorities. Sovereign shall have
-----------------------------------
received all required approvals of Regulatory Authorities for the Merger,
without the imposition of any term or condition that would have a Material
Adverse Effect on Sovereign upon completion of the Merger; and all notice and
waiting periods required thereunder shall have expired or been terminated;
(e) No Injunction. There shall not be in effect any order, decree or
-------------
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby;
(f) No Material Adverse Effect. Since December 31, 1997, there shall
--------------------------
not have occurred any Material Adverse Effect with respect to Peoples.
(g) Officer's Certificate. Peoples shall have delivered to Sovereign
---------------------
a certificate and such other documents, dated the Closing Date and signed,
without personal liability, by its chairman of the board or president, to the
effect that the conditions set forth in subsections (a) through (e) of this
Section 5.02 have been satisfied, to the best knowledge of the officer executing
the same;
(h) Opinions of Peoples' Counsel. Sovereign shall have received an
----------------------------
opinion of Luse Lehman Gorman Pomerenk & Schick, counsel to Peoples, dated the
Closing Date, in form and substance reasonably satisfactory to Sovereign and its
counsel to the effect set forth on Exhibit 7 attached hereto;
(i) Registration Statement. The Registration Statement shall be
----------------------
effective under the Securities Act and no proceedings shall be pending or
threatened by the SEC to suspend the effectiveness of the Registration
Statement; and all required approvals by state securities or "blue sky"
authorities with respect to the transactions contemplated by this Agreement,
shall have been obtained and neither the Registration Statement nor any such
approval by state securities or "blue sky" authorities shall be subject to a
stop order or threatened stop order by the SEC or any such authority;
(j) Tax Opinion. Sovereign shall have received an opinion of Stevens
-----------
& Lee, its counsel, substantially to the effect set forth on Exhibit 6 attached
hereto;
(k) Pooling Letter. Sovereign shall have received letters from Ernst
--------------
& Young LLP and KPMG Peat Marwick LLP to the effect that the Merger will be
treated as a "pooling of interests" for financial accounting purposes;
(l) Phase I Environmental Audit Results. The results of any "phase I
-----------------------------------
environmental audit" conducted pursuant to Section 4.10(a)(ii) with respect to
owned or occupied bank
58
premises shall be reasonably satisfactory to Sovereign; provided, however, that
(i) any such environmental audit must be initiated within 30 days of the date of
this Agreement, (ii) Sovereign must elect to terminate this Agreement or waive
its right to terminate the Agreement under this Section 5.02(l) within 15 days
of receiving the results of such environmental audit and (iii) Sovereign may not
terminate this Agreement under this Section 5.02(l) unless the results of such
audits result in a Material Adverse Effect on Sovereign;
(m) Shareholder Approval. This Agreement shall have been approved by
--------------------
the shareholders of Sovereign by such vote as is required under Sovereign's
articles of incorporation and bylaws or under Nasdaq requirements applicable to
it, to the extent required by Nasdaq rules applicable to Sovereign.
(n) Liquidation Account. Neither the Merger or consummation of the
-------------------
Bank Plan of Merger shall require Sovereign, Peoples or any Subsidiary of either
to distribute to depositors the liquidation account established by Trenton
Savings in connection with its conversion from mutual to stock form.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
---------------------------------
Section 6.01 Termination. This Agreement may be terminated on or at
-----------
any time prior to the Closing Date:
(a) By the mutual written consent of the parties hereto;
(b) By Sovereign or Peoples:
(i) if the Closing Date shall not have occurred on or before
June 30, 1999 unless the failure of such occurrence shall be due to the
failure of the party seeking to terminate this Agreement to perform or
observe, in any material respect, its agreements set forth in this
Agreement required to be performed or observed by such party on or before
the Closing Date; or
(ii) if either party has received a final unappealable
administrative order from a Regulatory Authority whose approval or consent
has been requested that such approval or consent will not be granted,
unless in the case of both Section 6.01(b)(i) and 6.01(b)(ii) hereof the
failure of such occurrence shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe in any material respect
its agreements set forth herein required to be performed or observed by
such party on or before the Closing Date.
(c) By Peoples, on the Closing Date if both of the following
conditions are satisfied:
59
(1) the Sovereign Market Value as of the close of business on the
Determination Date shall be less than $11.00; and
(2) (i) the quotient obtained by dividing the Sovereign Market
Value as of the close of business on the Determination Date by $13.125
(such number being referred to herein as the "Sovereign Ratio") shall be
less than (ii) the quotient obtained by dividing the Index Price on the
Determination Date by the Index Price on the Starting Date and subtracting
0.10 from the quotient in this clause (2)(ii).
For purposes of this Section 6.01(c), the following terms shall have
the meanings indicated.
"Determination Date" shall mean the date immediately preceding the
Closing Date.
"Index Group" shall mean the eight thrift holding companies listed
below, the common stocks of all of which shall be publicly traded and as to
which there shall not have been, since the Starting Date and before the
Determination Date, any public announcement of a proposal for such company to be
acquired or for such company to acquire another company or companies in
transactions with a value exceeding 25% of the acquiror's market capitalization.
In the event that any such company or companies are removed from the Index
Group, the weights (which have been determined based upon the number of shares
of outstanding common stock) redistributed proportionately for purposes of
determining the Index Price. The eight thrift holding companies and the weights
attributed to them are as follows:
Thrift Holding Companies % Weighting
------------------------ -----------
Dime Bancorp, Inc..................... 27.67%
Charter One Financial................. 14.87%
Golden State Bancorp.................. 11.75%
Astoria Financial Corporation......... 11.75%
Washington Federal, Inc............... 11.07%
GreenPoint Financial Corp............. 9.86%
Bank United Corp...................... 6.62%
Peoples Heritage Finl Group........... 6.41%
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Total............................. 100.00%
=======
"Index Price" on a given date shall mean the weighted average
(weighted in accordance with the factors listed above) of the closing sales
prices of the companies composing the Index Group (reported as provided with
respect to the Sovereign Market Value).
"Starting Date" shall mean September 3, 1998.
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If any company belonging to the Index Group or Sovereign declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares, or similar transaction between the Starting
Date and the Determination Date, the prices for the common stock of such company
or Sovereign shall be appropriately adjusted for the purposes of applying this
Section 6.01(c); or
(d) By Sovereign at any time prior to the Closing Date if the Board of
Directors of Peoples shall have (i) failed to recommend and endorse this
Agreement and the transactions contemplated hereby, (ii) withdrawn, modified or
changed in a manner adverse to Sovereign its approval or recommendation of this
Agreement and the transactions contemplated hereby, or (iii) recommended or
endorsed another Acquisition Transaction.
(e) At any time on or prior to the Effective Date, by Peoples in
writing if Sovereign has, or by Sovereign in writing if Peoples has, in any
material respect, breached (i) any material covenant or undertaking contained
herein or (ii) any representation or warranty contained herein, which in the
case of a breach referred to in subclause (i) or (ii) above by Sovereign would
have a Material Adverse Effect on Sovereign and in case of a breach referred to
in subclause (i) or (ii) above by Peoples would have a Material Adverse Effect
on Peoples, in any case if such breach has not been substantially cured by the
earlier of 30 days after the date on which written notice of such breach is
given to the party committing such breach or the Effective Date or if on such
date such breach no longer causes a Material Adverse Effect.
Section 6.02 Effect of Termination. If this Agreement is terminated
---------------------
pursuant to Section 6.01 hereof, this Agreement shall forthwith become void
(other than Section 4.02(d), Section 4.10(b)(iii) and Section 7.01 hereof, which
shall remain in full force and effect), and there shall be no further liability
on the part of Sovereign or Peoples to the other, except for any liability
arising out of any uncured willful breach of any covenant or other agreement
contained in this Agreement or any fraudulent breach of a representation or
warranty.
ARTICLE VII
MISCELLANEOUS
-------------
Section 7.01 Expenses. Except for the cost of printing and mailing
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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.
Section 7.02 Non-Survival of Representations and Warranties. All
----------------------------------------------
representations, warranties and, except to the
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extent specifically provided otherwise herein, agreements and covenants, other
than those covenants that by their terms are to be performed after the Effective
Date, including without limitation the covenants set forth in Sections 1.02(f),
1.02(g), 4.05, and 4.11(a), (c) and (e) which will survive the Merger, shall
terminate on the Closing Date.
Section 7.03 Amendment, Extension and Waiver. Subject to applicable
-------------------------------
law, at any time prior to the consummation of the transactions contemplated by
this Agreement, the parties may (a) amend this Agreement, (b) extend the time
for the performance of any of the obligations or other acts of either party
hereto, (c) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or (d) waive
compliance with any of the agreements or conditions contained in Articles IV and
V hereof or otherwise provided that any amendment, extension or waiver granted
or executed after shareholders of Peoples have approved this Agreement shall not
modify either the amount or the form of the consideration to be provided hereby
to holders of Peoples Common Stock upon consummation of the Merger or otherwise
materially adversely affect the shareholders of Peoples without the approval of
the shareholders who would be so affected. This Agreement may not be amended
except by an instrument in writing authorized by the respective Boards of
Directors and signed, by duly authorized officers, on behalf of the parties
hereto. Any agreement on the part of a party hereto to any extension or waiver
shall be valid only if set forth in an instrument in writing signed by a duly
authorized officer on behalf of such party, but such waiver or failure to insist
on strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
Section 7.04 Entire Agreement. This Agreement, including the
----------------
documents and other writings referred to herein or delivered pursuant hereto,
contains the entire agreement and understanding of the parties with respect to
its subject matter. This Agreement supersedes all prior arrangements and
understandings between the parties, both written or oral with respect to its
subject matter. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors; provided, however, that
-------- -------
nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto and their respective successors, any
rights, remedies, obligations or liabilities other than pursuant to Sections
1.02(f), 1.02(g), 4.05, and 4.11(a) and (c).
Section 7.05 No Assignment. Neither party hereto may assign any of
-------------
its rights or obligations hereunder to any other person, without the prior
written consent of the other party hereto.
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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, Pennsylvania 19610
Attention: Jay S. Sidhu,
President and Chief Executive
Officer
Telecopy No.: (610) 320-8448
with a copy to:
Stevens & Lee
111 North Sixth Street
Reading, Pennsylvania 19601
Attention: Joseph M. Harenza, Esquire
and
David W. Swartz, Esquire
Telecopy No.: (610) 376-5610
(b) If to Peoples, to:
Peoples Bancorp, Inc.
134 Franklin Corner Road
Lawrenceville, New Jersey 08648-0950
Attention: Wendell T. Breithaupt,
President and Chief Executive
Officer
Telecopy No.: (609) 844-9636
with copies to:
Luse Lehman Gorman Pomerenk & Schick
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
Attention: John J. Gorman, Esquire
and
Kenneth R. Lehman, Esquire
Telecopy No.: (202) 362-2902
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Section 7.07 Captions. The captions contained in this Agreement are
--------
for reference purposes only and are not part of this Agreement.
Section 7.08 Counterparts. This Agreement may be executed in any
------------
number of counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
Section 7.09 Severability. If any provision of this Agreement or the
------------
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
Section 7.10 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the domestic internal law (including the law of
conflicts of law) of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
SOVEREIGN BANCORP, INC.
By: /s/ Jay S. Sidhu
-------------------------------------
Jay S. Sidhu,
President and Chief Executive Officer
PEOPLES BANCORP, INC.
By: /s/ Wendell T. Breithaupt
-------------------------------------
Wendell T. Breithaupt,
President and Chief Executive Officer
64