AGREEMENT AND PLAN
OF MERGER
between
SOVEREIGN BANCORP, INC.
and
CARNEGIE BANCORP
December 12, 1997
AGREEMENT
TABLE OF CONTENTS
Page
BACKGROUND................................................................. 1
AGREEMENT.................................................................. 1
ARTICLE I
THE MERGERS
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.............................................. 12
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CARNEGIE
Section 2.01 Organization................................................. 13
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Section 2.02 Capitalization............................................... 14
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Section 2.03 Authority; No Violation...................................... 15
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Section 2.04 Consents..................................................... 16
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Section 2.05 Financial Statements......................................... 17
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Section 2.06 Taxes........................................................ 17
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Section 2.07 No Material Adverse Effect................................... 18
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Section 2.08 Contracts.................................................... 18
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Section 2.09 Ownership of Property; Insurance Coverage.................... 19
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Section 2.10 Legal Proceedings............................................ 20
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Section 2.11 Compliance With Applicable Law............................... 21
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Section 2.12 ERISA........................................................ 21
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Section 2.13 Brokers, Finders and Financial Advisors...................... 23
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Section 2.14 Environmental Matters........................................ 23
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Section 2.15 Loan Portfolio............................................... 23
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Section 2.16 Information to be Supplied................................... 23
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(i)
Section 2.17 Securities Documents......................................... 24
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Section 2.18 Related Party Transactions................................... 24
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Section 2.19 Schedule of Termination Benefits............................. 24
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Section 2.20 Loans........................................................ 25
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Section 2.21 Antitakeover Provisions Inapplicable......................... 25
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Section 2.22 Quality of Representations................................... 25
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOVEREIGN
Section 3.01 Organization................................................. 25
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Section 3.02 Capital Structure............................................ 26
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Section 3.03 Authority; No Violation...................................... 27
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Section 3.04 Consents..................................................... 28
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Section 3.05 Financial Statements......................................... 29
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Section 3.06 Taxes........................................................ 29
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Section 3.07 No Material Adverse Effect................................... 29
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Section 3.08 Ownership of Property; Insurance Coverage.................... 30
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Section 3.09 Legal Proceedings............................................ 30
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Section 3.10 Compliance With Applicable Law............................... 31
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Section 3.11 Information to be Supplied................................... 31
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Section 3.12 ERISA........................................................ 32
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Section 3.13 Securities Documents......................................... 33
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Section 3.14 Environmental Matters........................................ 33
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Section 3.15 Loan Portfolio............................................... 33
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Section 3.16 Brokers and Finders.......................................... 33
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Section 3.17 Loans........................................................ 34
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Section 3.18 Shares of Sovereign Common Stock............................. 34
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Section 3.19 Quality of Representations................................... 34
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(ii)
ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.01 Conduct of Carnegie's Business............................... 34
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Section 4.02 Access; Confidentiality...................................... 38
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Section 4.03 Regulatory Matters and Consents.............................. 39
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Section 4.04 Taking of Necessary Action................................... 39
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Section 4.05 Certain Agreements........................................... 40
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Section 4.06 No Other Bids and Related Matters............................ 42
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Section 4.07 Duty to Advise; Duty to Update Carnegie's
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Disclosure Schedule.......................................... 42
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Section 4.08 Conduct of Sovereign's Business.............................. 43
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Section 4.09 Board and Committee Minutes.................................. 43
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Section 4.10 Undertakings by Sovereign and Carnegie....................... 43
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Section 4.11 Employee Benefits and Termination Benefits................... 46
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Section 4.12 Duty to Advise; Duty to Update Sovereign's
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Disclosure Schedule.......................................... 48
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Section 4.13 Affiliate Letter............................................. 48
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ARTICLE V
CONDITIONS
Section 5.01 Conditions to Carnegie's Obligations under
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this Agreement............................................... 48
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Section 5.02 Conditions to Sovereign's Obligations under
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this Agreement............................................... 50
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ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
Section 6.01 Termination.................................................. 52
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Section 6.02 Effect of Termination........................................ 54
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ARTICLE VII
MISCELLANEOUS
Section 7.01 Expenses..................................................... 55
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Section 7.02 Non-Survival of Representations and
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Warranties................................................... 55
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(iii)
Section 7.03 Amendment, Extension and Waiver.............................. 55
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Section 7.04 Entire Agreement............................................. 55
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Section 7.05 No Assignment................................................ 56
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Section 7.06 Notices...................................................... 56
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Section 7.07 Captions..................................................... 57
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Section 7.08 Counterparts................................................. 57
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Section 7.09 Severability................................................. 57
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Section 7.10 Governing Law................................................ 57
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Exhibit 1 Carnegie's 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 Carnegie's Counsel
(iv)
AGREEMENT
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 12, 1997, is made
by and between SOVEREIGN BANCORP, INC. ("Sovereign"), a Pennsylvania
corporation, having its principal place of business in Wyomissing, Pennsylvania,
and CARNEGIE BANCORP ("Carnegie"), a New Jersey corporation, having its
principal place of business in Princeton, New Jersey.
BACKGROUND
1. Sovereign and Carnegie desire for Carnegie 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 New Jersey,
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 Carnegie and affiliates of Carnegie, each have
executed in favor of Sovereign, a Letter Agreement dated as of the date hereof
in the form attached hereto as Exhibit 1, and (b) Carnegie granted to Sovereign
an option to acquire, under certain circumstances, Carnegie's common stock (the
"Sovereign Option") pursuant to a Stock Option Agreement between Sovereign and
Carnegie dated as of the date hereof, attached hereto as Exhibit 2.
3. Sovereign desires to merge Carnegie Bank, N.A., a national banking
association and a wholly-owned subsidiary of Carnegie ("Carnegie Bank"), into
and with Sovereign Bank, a federal savings bank and a wholly-owned subsidiary of
Sovereign ("Sovereign Bank"), with Sovereign Bank surviving such merger in
accordance with the Bank Plan of Merger in the form attached hereto as
Exhibit 3.
4. Sovereign and Carnegie desire to provide the terms and conditions
governing the transactions contemplated herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
parties hereto, intending to be legally bound, do hereby agree as follows:
ARTICLE I
THE MERGERS
Section 1.01 Definitions. As used in this Agreement, the following terms
shall have the indicated meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
1
Affiliate means, with respect to any Person, any Person who
directly, or indirectly, through one or more intermediaries, controls,
or is controlled by, or is under common control with, such Person and,
without limiting the generality of the foregoing, includes any
executive officer or director of such Person and any Affiliate of such
executive officer or director.
Agreement means this agreement, and any amendment or supplement
hereto, which constitutes a "plan of merger" between Sovereign and
Carnegie.
Applications means the applications for regulatory approval which
are required by the transactions contemplated hereby.
Articles of Merger means the articles of merger to be executed by
Sovereign and Carnegie and to be filed in the PDS and the NJSOS, in
accordance with the applicable laws of the Commonwealth of
Pennsylvania and the State of New Jersey.
Bank Merger means the merger of Carnegie Bank, N.A. with and into
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
1.03 of this Agreement.
BCL means the Pennsylvania Business Corporation Law of 1988, as
amended.
BHC Act means the Bank Holding Company Act of 1956, as amended.
Carnegie Common Stock means the common stock of Carnegie
described in Section 2.02(a).
Carnegie Disclosure Schedule means a disclosure schedule
delivered by Carnegie to Sovereign pursuant to Article II of this
Agreement.
Carnegie Financials means (i) the audited consolidated financial
statements of Carnegie as of December 31, 1996 and for the three years
ended December 31, 1996, including the notes thereto, and (ii) the
unaudited interim consolidated financial statements of Carnegie as of
each calendar quarter thereafter, included in Securities Documents
filed by Carnegie.
Carnegie Regulatory Reports means the Annual Reports of Carnegie
on Form FR Y-6, any Current Report of
2
Carnegie on Form FR Y-9C and FR Y-LP filed with the FRB and the NJDB
from December 31, 1995 through the Closing Date and the Reports of
Condition and Income (Call Reports) of Carnegie Bank, N.A. and
accompanying schedules for each calendar quarter, beginning with the
quarter ended December 31, 1995, through the Closing Date.
Carnegie Subsidiaries means any corporation, 50% or more of the
capital stock of which is owned, either directly or indirectly, by
Carnegie, except any corporation the stock of which is held in the
ordinary course of the lending activities of Carnegie Bank, N.A.
Closing Date means the date determined by Sovereign, in its sole
discretion, upon five (5) days prior written notice to Carnegie, but
in no event later than thirty (30) days after (i) all required
approvals of Regulatory Authorities for the Merger shall have been
obtained and (ii) all actions required to be taken by Carnegie and
Sovereign to authorize the Merger and the Bank Merger shall have been
duly and validly taken, or such other date as Sovereign and Carnegie
shall agree.
Effective Date means the date upon which all required approvals
from Regulatory Authorities have been received and the Merger shall be
deemed effective by the PDS and the NJSOS, and shall be the same as
the Closing Date.
Environmental Law means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction
or agreement with any Regulatory Authority relating to (i) the
protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant and animal
life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of any substance
presently listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated, whether by
type or by quantity, including any material containing any such
substance as a component.
ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
Exchange Act means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated from time to time
thereunder.
Exchange Ratio shall have the meaning given to such term in
Section 1.02(e)(ii)(A).
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FDIA means the Federal Deposit Insurance Act, as amended.
FDIC means the Federal Deposit Insurance Corporation.
FRB means the Federal Reserve Board.
GAAP means generally accepted accounting principles as in effect
at the relevant date.
HOLA means the Home Owners' Loan Act of 1933, as amended.
IRC means the Internal Revenue Code of 1986, as amended.
IRS means the Internal Revenue Service.
Material Adverse Effect shall mean, with respect to Sovereign or
Carnegie, any adverse effect on its assets, financial condition or
results of operations which is material to its assets, financial
condition or results of operations on a consolidated basis, except for
any material adverse effect caused by (i) any change in the value of
the respective investment portfolios of Sovereign or Carnegie
resulting from a change in interest rates generally or (ii) 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.
Merger means the merger of Carnegie with and into Sovereign, with
Sovereign surviving such merger, contemplated by this Agreement.
NBA means the National Bank Act, as amended.
NJBCA means the New Jersey Business Corporation Act, as amended.
NJDB means the Department of Banking and Insurance of the State
of New Jersey.
NJSOS means the Office of the Secretary of State of the State of
New Jersey.
OTS means the Office of Thrift Supervision.
PDS means the Department of State of the Commonwealth of
Pennsylvania.
4
Person means any individual, corporation, partnership, joint
venture, association, trust or "group" (as that term is defined
under the Exchange Act).
Prospectus/Proxy Statement means the prospectus/proxy statement,
together with any supplements thereto, to be transmitted to holders of
Carnegie Common Stock and Sovereign Common Stock in connection with
the transactions contemplated by this Agreement.
Registration Statement means the registration statement on Form
S-4, including any pre-effective or post-effective amendments or
supplements thereto, as filed with the SEC under the Securities Act
with respect to the Sovereign Common Stock and Sovereign Stock
Purchase Rights to be issued in connection with the transactions
contemplated by this Agreement.
Regulatory Agreement has the meaning given to that term in
Section 2.11 of this Agreement.
Regulatory Authority means any banking agency or department of
any federal or state government, including without limitation the OTS,
the FDIC, the NJDB, the FRB, or the respective staffs thereof.
Rights means warrants, options, rights, convertible securities
and other capital stock equivalents which obligate an entity to issue
its securities.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended, and
the rules and regulations promulgated from time to time thereunder.
Securities Documents means all registration statements,
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
the rules and regulations promulgated from time to time thereunder.
Sovereign Common Stock has the meaning given to that term in
Section 3.02(a) of this Agreement.
Sovereign Disclosure Schedule means a disclosure schedule
delivered by Sovereign to Carnegie pursuant to Article III of this
Agreement.
Sovereign Financials means (i) the audited consolidated financial
statements of Sovereign as of
5
December 31, 1996 and for the three years ended December 31, 1996,
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.
Sovereign Market Price means, as of any date, the last reported
sales price of a share of Sovereign Common Stock, as reported on the
National Association of Securities Dealers Automated Quotation System
(Nasdaq) National Market System.
Sovereign Market Value means, as of any date, the average of the
last reported sales price of a share of Sovereign Common Stock,
as reported on the National Association of Securities Dealers
Automated Quotation System (Nasdaq) National Market System, for each
of the fifteen consecutive trading days commencing sixteen (16)
trading days prior to the date of determination.
Sovereign Option means the option granted to Sovereign to acquire
shares of Carnegie Common Stock referenced in the recitals to this
Agreement.
Sovereign Regulatory Reports means the Annual Reports of
Sovereign on Form H(b)-11, 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 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
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
of Sovereign's Series A Junior Participating Preferred Stock in
accordance with the terms of the Sovereign Rights Agreement.
Sovereign Subsidiaries means any corporation, 50% or more of 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.
Subsidiary means any corporation, 50% or more of the capital
stock of which is owned, either directly or indirectly, by another
entity, except any corporation the stock of which is held in the
ordinary course of the lending activities of a bank.
6
Section 1.02 The Merger.
(a) Closing. The closing will take place at 10:00 a.m. on the Closing Date
at the offices of Stevens & Lee, 111 North Sixth Street, Reading, Pennsylvania,
unless another time and place are agreed to by the parties hereto; provided, in
any case, that all conditions to closing set forth in Article V have been
satisfied or waived at or prior to the Closing Date. On the Closing Date,
Carnegie and Sovereign shall cause the Articles of Merger to be duly executed
and to be filed in the PDS and the NJSOS.
(b) The Merger. Subject to the terms and conditions of this Agreement, on
the Effective Date: Carnegie shall merge with and into Sovereign; the separate
existence of Carnegie 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 Carnegie 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 Carnegie 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 New Jersey.
(c) Sovereign's Articles of Incorporation and Bylaws. On and after 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.
(i) On the Effective Date, the Board of Directors and officers of
Sovereign, as the surviving corporation in the Merger, shall consist
of those persons holding such offices immediately prior to the
Effective Date.
(ii) On the effective date of the Bank Merger, the directors and
officers of Sovereign Bank, as the surviving corporation in the Bank
Merger, shall consist of those persons holding such offices
immediately prior to the Effective Date.
7
(e) Conversion of Shares.
(i) Sovereign Common Stock.
(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 Carnegie (other than shares held
in trust, managed, custodial or nominee accounts and the like or
held by mutual funds for which a subsidiary of Carnegie 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) Carnegie Common Stock.
(A) Subject to the provisions of subparagraphs (B), (C) and
(D) of this Section 1.02(e)(ii), each share of Carnegie Common
Stock issued and outstanding immediately prior to the Effective
Date (other than shares of Carnegie Common Stock, if any, then
owned by Sovereign or Carnegie or any Carnegie 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:
(i) if the Sovereign Market Value determined as of the
Effective Date is greater than or equal to $18.00 and less
than or equal to $22.00, then that number of shares of fully
paid and nonassessable shares of Sovereign Common Stock, and
the corresponding percentage of Sovereign Stock Purchase
Rights pursuant to the Sovereign Rights Agreement, equal to
$35.50 divided by the Sovereign Market Value determined as
of the Effective Date;
(ii) if the Sovereign Market Value determined as of the
Effective Date is less than $18.00, then 1.972 shares of
fully paid and nonassessable shares of Sovereign Common
Stock, and the corresponding percentage of Sovereign Stock
Purchase Rights pursuant to the Sovereign Rights Agreement;
or
8
(iii) if the Sovereign Market Value determined as of
the Effective Date is greater than $22.00, then 1.614 shares
of fully paid and nonassessable shares of Sovereign Common
Stock, and the corresponding percentage of Sovereign Stock
Purchase Rights pursuant to the Sovereign Rights Agreement
(as determined pursuant to any of Sections
1.02(e)(ii)(A)(i), 1.02(e)(ii)(A)(ii) or
1.02(e)(ii)(A)(iii), the "Exchange Ratio").
(B) Each share of Carnegie Common Stock (other than trust
account shares or DPC shares) owned by Sovereign or a Sovereign
Subsidiary on the Effective Date, if any, shall be cancelled.
(C) Each share of Carnegie Common Stock issued and held in
the treasury of Carnegie or owned by Carnegie or any Carnegie
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 Carnegie Common
Stock who would otherwise be entitled to receive a fraction of a
share of Sovereign Common Stock shall receive, in lieu thereof,
cash in an amount equal to such fraction of a share multiplied by
the Sovereign Market Price determined as of the Effective Date.
(f) Stock Options. Each option to acquire Carnegie Common Stock shall be
converted into and become an option to acquire that number of shares of
Sovereign Common Stock equal to the number of shares of Carnegie Common Stock
covered by the option multiplied by the Exchange Ratio. The exercise price for a
whole share of Sovereign Common Stock shall be the present stated exercise price
of such option divided by the Exchange Ratio, such shares to be issuable upon
exercise of such options in accordance with the terms of the respective plans
and grant agreements under which they were issued; provided however, that
Carnegie shall be permitted to amend the terms of outstanding nonqualified stock
options to (i) accelerate vesting of such options to a date on or prior to the
Effective Date and (ii) extend the expiration or termination of such options for
a period not exceeding 24 months following termination of an optionee's
employment or service provided that any such amendment shall not adversely
affect the ability to account for the transaction as a pooling of interests.
9
(g) Surrender and Exchange of Carnegie Stock Certificates.
(i) Exchange of Certificates. Each holder of shares of Carnegie 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 Carnegie 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 shares of
Sovereign Common Stock issued in exchange for certificates for Carnegie
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
Carnegie 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 Carnegie 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 at the time of such
exchange 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. 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 Carnegie Common Stock. Notwithstanding the
foregoing, no party hereto will be liable to any holder of Carnegie Common
Stock for any amount paid in good faith to a public official or agency
pursuant to any applicable abandoned property, escheat or similar law.
Until such time as certificates for shares of Carnegie Common Stock are
surrendered by a Carnegie shareholder to Sovereign for exchange, or
Carnegie shareholders have complied with reasonable and customary
procedures relating to lost or destroyed certificates, 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 Carnegie
Common Stock delivered for exchange
10
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 Carnegie Common Stock which are
surrendered. As promptly as practicable after the Effective Date, Sovereign
shall send or cause to be sent to each shareholder of record of Carnegie
Common Stock transmittal materials for use in exchanging certificates
representing Carnegie 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
Carnegie as soon as reasonably possible but in no event later than fifteen
(15) business days following the receipt of certificates representing
former shares of Carnegie Common Stock (except in the case of share
certificates containing a restrictive legend or with respect to which stop
transfer instructions pertain) 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 Carnegie
Certificates. Upon the Effective Date, the stock transfer books for
Carnegie Common Stock will be closed and no further transfers of shares of
Carnegie Common Stock will thereafter be made or recognized. All
certificates for shares of Carnegie Common Stock surrendered pursuant to
this Section 1.02(g) will be cancelled by Sovereign.
(h) Anti-Dilution Provisions. If, on the Effective Date, (i) the Exchange
Ratio is determined pursuant to either Section 1.02(e)(ii)(A)(ii) or
1.02(e)(ii)(A)(iii), (ii) Sovereign has, at any time after the date hereof and
before the Effective Date, (A) issued a dividend in shares of Sovereign
11
Common Stock, (B) combined the outstanding shares of Sovereign Common Stock into
a smaller number of shares, (C) subdivided the outstanding shares of Sovereign
Common Stock, or (D) reclassified the shares of Sovereign Common Stock, and
(iii) the Exchange Ratio would have been determined under the same section if
such dividend, combination, subdivision or reclassification had not occurred
(determined by appropriate mathematical adjustment of the actual Exchange
Ratio), then the number of shares of Sovereign Common Stock to be delivered
pursuant to Sections 1.02(e)(ii)(A)(ii) or 1.02(e)(ii)(A)(iii) to Carnegie
shareholders who are entitled to receive shares of Sovereign Common Stock in
exchange for shares of Carnegie Common Stock shall be adjusted so that each
Carnegie 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 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 and the conditions
set forth above are satisfied, the Exchange Ratio determined pursuant to
Sections 1.02(e)(ii)(A)(ii) or 1.02(e)(ii)(A)(iii) shall be adjusted upward by
7%). If, on the Effective Date, (i) the exchange ratio preliminarily would be
determined pursuant to Section 1.02(e)(ii)(A)(i), 1.02(e)(ii)(A)(ii), or
1.02(e)(ii)(A)(iii) (the "Tentative Exchange Ratio"), (ii) Sovereign has, at any
time after the date hereof and before the Effective Date, (A) issued a dividend
in shares of Sovereign Common Stock, (B) combined the outstanding shares of
Sovereign Common Stock into a smaller number of shares, (C) subdivided the
outstanding shares of Sovereign Common Stock, or (D) reclassified the shares of
Sovereign Common Stock, and (iii) the Tentative Exchange Ratio would have been
determined under a different section if such dividend, combination, subdivision,
or reclassification had not occurred (determined by appropriate mathematical
adjustment of the Sovereign Market Value), then the actual Exchange Ratio shall
be determined by giving effect to such mathematical adjustment and by changing,
if relevant, the otherwise determined exchange ratio amount set forth in Section
1.02(e)(ii)(A)(ii) or 1.02(e)(ii)(A)(iii). (By way of illustration, if Sovereign
shall declare a two-for-one stock split payable with respect to a record date on
or prior to the Effective Date and the Sovereign Market Value determined as of
the Effective Date is $10.00, then the Exchange Ratio shall be determined under
Section 1.02(e)(ii)(A)(i) as though such Sovereign Market Value were $20.00. In
such event, each Bankers shareholder would receive 3.55 shares of Sovereign
Common Stock in exchange for each share of Bankers Common Stock, so that the
aggregate market value of the Sovereign Common Stock received would be $35.50.)
Section 1.03 The Bank Merger. Sovereign and Carnegie shall use their best
efforts to cause Carnegie Bank to merge with and into Sovereign Bank, with
Sovereign Bank surviving such merger, as soon as practicable after the Effective
Date.
12
Concurrently with, or as soon as practicable after, the execution and delivery
of this Agreement, Sovereign shall cause Sovereign Bank, and Carnegie shall
cause Carnegie Bank, to execute and deliver the Bank Plan of Merger attached
hereto as Exhibit 3.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CARNEGIE
Carnegie hereby represents and warrants to Sovereign that, except as
specifically set forth in the Carnegie Disclosure Schedule delivered to
Sovereign by Carnegie on the date hereof:
Section 2.01 Organization.
(a) Carnegie is a corporation duly organized, validly existing and in good
standing under the laws of the State of New Jersey. Carnegie is a bank holding
company duly registered under the BHC. Carnegie 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.
Carnegie is not qualified or licensed to do business as a foreign corporation in
any other jurisdiction and is not 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.
(b) Carnegie Bank is a national banking association duly organized and
validly existing under the laws of the United States of America. Carnegie 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. Neither Carnegie Bank nor any other Carnegie
Subsidiary is qualified or licensed to do business as a foreign corporation in
any other jurisdiction and neither 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.
(c) There are no Carnegie Subsidiaries other than Carnegie Bank and those
identified in the Carnegie Disclosure Schedule. There are no Carnegie Bank
Subsidiaries other than those identified in the Carnegie Disclosure Schedule.
(d) The deposits of Carnegie Bank are insured by the FDIC to the extent
provided in the FDIA.
(e) The respective minute books of Carnegie and Carnegie Bank and each
other Carnegie Subsidiary accurately record, in all material respects, all
material corporate actions of their respective shareholders and boards of
directors (including committees) through the date of this Agreement.
13
(f) Prior to the date of this Agreement, Carnegie has delivered to
Sovereign true and correct copies of the articles of incorporation and bylaws of
Carnegie and the articles of association and bylaws of Carnegie Bank as in
effect on the date hereof.
Section 2.02 Capitalization.
(a) The authorized capital stock of Carnegie consists of (a) 5,000,000
shares of common stock, no par value ("Carnegie Common Stock"), of which
2,733,108 shares are outstanding, validly issued, fully paid and nonassessable
and free of preemptive rights, and (b) no shares of preferred stock. Neither
Carnegie nor Carnegie Bank nor any other Carnegie 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 Carnegie
Common Stock, Carnegie preferred stock or any other security of Carnegie or any
securities representing the right to vote, purchase or otherwise receive any
shares of Carnegie Common Stock, Carnegie preferred stock or any other security
of Carnegie, other than shares issuable under the Sovereign Option and as set
forth in reasonable detail in the Carnegie Disclosure Schedule.
(b) The authorized capital stock of Carnegie Bank consists of (i) 1,000,000
shares of common stock, par value $5.00 per share, of which 897,305 shares are
outstanding, validly issued, fully paid, nonassessable, free of preemptive
rights and owned by Carnegie. Neither Carnegie nor any Carnegie 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 Carnegie Subsidiary or any other security of any
Carnegie 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 Carnegie Subsidiary. Either Carnegie or Carnegie Bank owns all of the
outstanding shares of capital stock of each Carnegie Subsidiary free and clear
of all liens, security interests, pledges, charges, encumbrances, agreements and
restrictions of any kind or nature.
(c) Except as set forth in the Carnegie Disclosure Schedule, neither (i)
Carnegie, (ii) Carnegie Bank nor (iii) any other Carnegie 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 Carnegie Subsidiaries, equity interests held by Carnegie
Subsidiaries in a fiduciary capacity, and equity interests held in connection
with the commercial loan activities of Carnegie Subsidiaries including DPC
shares. There are no subscriptions, options, warrants, calls, commitments,
14
agreements or other Rights outstanding and held by Carnegie or Carnegie Bank
with respect to any other company's capital stock or the equity of any other
person.
(d) To the best of Carnegie's knowledge, 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 Carnegie Common Stock, except as disclosed in the Carnegie Disclosure
Schedule.
Section 2.03 Authority; No Violation.
(a) Carnegie has full corporate power and authority to execute and deliver
this Agreement and to complete the transactions contemplated hereby. Carnegie
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 Carnegie and the completion by Carnegie of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of Carnegie and, except for approval by the shareholders of Carnegie
as required under the NJBCA, Carnegie's articles of incorporation and bylaws and
Nasdaq requirements applicable to it, no other corporate proceedings on the part
of Carnegie are necessary to complete the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Carnegie and,
subject to approval of the shareholders of Carnegie as required under the NJBCA,
Carnegie's articles of incorporation and bylaws and Nasdaq requirements
applicable to it and receipt of the required approvals from Regulatory
Authorities described in Section 3.04 hereof, constitutes the valid and binding
obligation of Carnegie, enforceable against Carnegie 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 Carnegie Bank concurrently with the execution and delivery of this Agreement,
will constitute the valid and binding obligation of Carnegie Bank, enforceable
against Carnegie Bank in accordance with its terms, subject to approvals of
Regulatory Authorities and 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 Carnegie, (B) the
execution and delivery of the Bank Plan of Merger by Carnegie Bank, (C) subject
to receipt of approvals from the Regulatory Authorities referred to in Section
3.04 hereof, shareholder approval and Carnegie's and Sovereign's compliance with
any conditions contained therein, the completion of the transactions
contemplated hereby, and (D) compliance by Carnegie or Carnegie Bank with any of
the terms
15
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 Carnegie or any Carnegie Subsidiary or the articles of association or
bylaws of Carnegie Bank; (ii) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to Carnegie
or any Carnegie Subsidiary or any of their respective properties or assets; or
(iii) except as set forth in the Carnegie Disclosure Schedule, 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
Carnegie or any Carnegie 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 Carnegie
or any Carnegie 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 Carnegie.
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 Carnegie under the NJBCA, and
the approval of the Bank Plan of Merger by Carnegie as sole shareholder of
Carnegie Bank under the NBA, and by the Carnegie 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 Carnegie or the Bank Plan of Merger by Carnegie Bank, or (b) the
completion by Carnegie of the transactions contemplated hereby or by Carnegie
Bank of the Bank Merger. Carnegie 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
Carnegie'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.
16
Section 2.05 Financial Statements.
(a) Carnegie has previously delivered, or will deliver, to Sovereign the
Carnegie Regulatory Reports. The Carnegie 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 Carnegie as of and for the periods ended on the dates thereof, in
accordance with applicable regulatory accounting principles applied on a
consistent basis, subject to normal permissible adjustments.
(b) Carnegie has previously delivered to Sovereign the Carnegie Financials.
The Carnegie Financials have been, or will be, prepared in accordance with
generally accepted accounting principles and practices applied on a consistent
basis throughout the periods covered by such statements, and fairly present, or
will fairly present, the consolidated financial position, results of operations
and cash flows of Carnegie as of and for the periods ending on the dates
thereof, in accordance with generally accepted accounting principles applied on
a consistent basis, subject to normal recurring audit adjustments.
(c) At the date of each balance sheet included in the Carnegie Financials
or the Carnegie Regulatory Reports, neither Carnegie nor Carnegie Bank (as the
case may be) had, or will have any liabilities, obligations or loss
contingencies of any nature (whether absolute, accrued, contingent or otherwise)
of a type required to be reflected in such Carnegie Financials or Carnegie
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.
(a) Carnegie and the Carnegie Subsidiaries are members of the same
affiliated group within the meaning of IRC Section 1504(a). Carnegie has duly
filed, and will file, all federal, state and local tax returns required to be
filed by or with respect to Carnegie and all Carnegie 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 Carnegie and any Carnegie Subsidiary by
17
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.
(b) No consent pursuant to IRC Section 341(f) has been filed (or will be
filed prior to the Closing Date) by or with respect to Carnegie or any Carnegie
Subsidiary.
Section 2.07 No Material Adverse Effect. Carnegie has not suffered any
Material Adverse Effect since December 31, 1996.
Section 2.08 Contracts.
(a) Except as described in Carnegie's proxy statement for its May 21, 1997
annual meeting of shareholders and Annual Reports on Form 10-K or 10-KSB for the
years ended December 31, 1996, 1995 and 1994, previously delivered to Sovereign,
in the footnotes to the audited consolidated financial statements of Carnegie as
of December 31, 1996, and for the three years ended December 31, 1996, or in the
Carnegie Disclosure Schedule, neither Carnegie nor any Carnegie 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 Carnegie
or any Carnegie 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 Carnegie or any
Carnegie Subsidiary; (iii) any collective bargaining agreement with any labor
union relating to employees of Carnegie or any Carnegie Subsidiary; (iv) any
agreement which by its terms limits the payment of dividends by any Carnegie
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 Carnegie or any Carnegie Subsidiary is an obligor to any person, which
instrument evidences or relates to indebtedness other than deposits, repurchase
agreements, 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 Carnegie
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) or the filings referenced therein,
have been provided to Sovereign on or before the date hereof, are listed on the
Carnegie
18
Disclosure Schedule and are in full force and effect on the date hereof
and neither Carnegie nor any Carnegie Subsidiary (nor, to the knowledge of
Carnegie, 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 Carnegie. Except
as set forth in the Carnegie Disclosure Schedule, 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. Except as set
forth in the Carnegie Disclosure Schedule or as otherwise contemplated by this
Agreement or the Merger, none of the employees (including officers) of Carnegie
or any Carnegie Subsidiary, possess the right to terminate their employment
solely as a result of the execution of this Agreement. Except as set forth in
the Carnegie Disclosure Schedule, no plan, employment agreement, termination
agreement, or similar agreement or arrangement to which Carnegie or any Carnegie
Subsidiary is a party or under which Carnegie or any Carnegie 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.
Except as set forth in the Carnegie Disclosure Schedule or as otherwise
contemplated by this Agreement or the Merger, 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
Carnegie or any Carnegie 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 Carnegie or any Carnegie
Subsidiary to provide a benefit in the form of Carnegie Common Stock or
determined by reference to the value of Carnegie Common Stock.
Section 2.09 Ownership of Property; Insurance Coverage.
(a) Except as disclosed in the Carnegie Disclosure Schedule, Carnegie and
the Carnegie 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 Carnegie or any Carnegie 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 Carnegie Regulatory Reports and in the Carnegie 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 liabilities for borrowed money from a member bank or the Federal
19
Reserve Bank, (ii) statutory liens for amounts not yet delinquent or which are
being contested in good faith and (iii) items permitted under Article IV or
(iv), as to real property, exceptions to title which are not material
individually or in the aggregate. Carnegie and the Carnegie Subsidiaries, as
lessee, have the right under valid and subsisting leases of real and personal
properties used by Carnegie 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. Except as disclosed in the Carnegie Disclosure Schedule, such
existing leases and commitments to lease 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 Carnegie Financials.
(b) With respect to all agreements pursuant to which Carnegie or any
Carnegie Subsidiary has purchased securities subject to an agreement to resell,
if any, Carnegie or such Carnegie Subsidiary, as the case may be, has a valid,
perfected first lien or security interest in the securities or other collateral
securing the repurchase agreement, and the value of such collateral equals or
exceeds the amount of the debt secured thereby.
(c) Carnegie and the Carnegie Subsidiaries currently maintain insurance
considered by Carnegie to be reasonable for their respective operations and
similar in scope and coverage to that maintained by other businesses similarly
engaged. Neither Carnegie nor any Carnegie Subsidiary has received written
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 the
effect of which would result in a Material Adverse Effect. There are presently
no material claims pending under such policies of insurance and no notices have
been given by Carnegie or Carnegie Bank under such policies. All such insurance
is valid and enforceable and in full force and effect, and within the last three
years Carnegie has received each type of insurance coverage for which it has
applied and during such periods has not been denied indemnification for any
material claims submitted under any of its insurance policies.
Section 2.10 Legal Proceedings. Except as disclosed in the Carnegie
Disclosure Schedule, neither Carnegie nor any Carnegie Subsidiary is a party to
any, and there are no pending or, to the best of Carnegie's knowledge,
threatened legal, administrative, arbitration or other proceedings, claims
(whether asserted or unasserted), actions or governmental investigations or
inquiries of any nature (i) against Carnegie or any Carnegie Subsidiary, (ii) to
which Carnegie or any Carnegie Subsidiary's assets are or may be subject, (iii)
challenging the validity or propriety of any of the transactions contemplated by
this
20
Agreement, or (iv) which could adversely affect the ability of Carnegie 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.
Section 2.11 Compliance With Applicable Law.
(a) Carnegie and Carnegie 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.
(b) Except as disclosed in the Carnegie Disclosure Schedule, neither
Carnegie nor any Carnegie Subsidiary has received any notification or
communication from any Regulatory Authority (i) asserting that Carnegie or any
Carnegie 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 Carnegie or any Carnegie Subsidiary; (iii) requiring or threatening
to require Carnegie or any Carnegie Subsidiary, or indicating that Carnegie or
any Carnegie 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
Carnegie or any Carnegie 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 Carnegie or any Carnegie 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 Carnegie nor any Carnegie
Subsidiary has consented to or entered into any Regulatory Agreement, except as
heretofore disclosed to Sovereign.
Section 2.12 ERISA. Carnegie 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, deferred compensation and
supplemental income plans, supplemental executive retirement plans, employment
agreements, annual or long-term incentive plans, group insurance plans, all
employee welfare benefit plans within the meaning of ERISA Section 3(1)
(including short-term disability, long-term disability, and medical plans),
vacation pay and sick leave
21
policies or arrangements, and all other employee benefit plans, policies,
agreements and arrangements, all of which are set forth or described in the
Carnegie Disclosure Schedule, maintained or contributed to for the benefit of
the employees or former employees (including eligible retired employees) and any
beneficiaries thereof or directors or former directors of Carnegie or any
Carnegie Subsidiary, together with (i) the most recent actuarial (if any) and
financial statements relating to those plans which constitute "qualified plans"
under IRC Section 401(a), (ii) the most recent annual reports, if any, relating
to such plans filed by them, respectively, with any government agency, and (iii)
all rulings and determination letters, if any, which pertain to any such plans.
Neither Carnegie, any Carnegie Subsidiary which is required to be aggregated
with Carnegie under IRC Section 414 nor any other pension plan maintained by
Carnegie or any Carnegie 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 Carnegie, 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. 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, determined on an "ongoing basis"
and not a "termination basis," using 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 Carnegie nor any Carnegie Subsidiary
has incurred, or is subject to any liability under ERISA Section 4201 for, a
complete or partial withdrawal from a multi-employer plan. All "employee benefit
plans," as defined in ERISA Section 3(3), maintained or sponsored by Carnegie or
any Carnegie Subsidiary 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(c) and not
exempt under IRC Section 4975(d)) has occurred within the past six (6) years
with respect to any employee benefit plan maintained by Carnegie or any Carnegie
Subsidiary which would result in the imposition, directly or indirectly, of tax
under IRC Section 4975 or other penalty under ERISA, which, individually or in
the aggregate, has resulted in or will result in a Material Adverse Effect with
respect to Carnegie. Carnegie and the Carnegie Subsidiaries have provided
continuation coverage under group health plans for separating employees and
"qualified
22
beneficiaries" in accordance with the provisions of IRC Section 4980B(f). To the
knowledge of Carnegie, such group health plans are in material compliance with
Section 1862(b)(1) of the Social Security Act.
Section 2.13 Brokers, Finders and Financial Advisors. Except for Carnegie's
engagement of Janney Montgomery Scott Inc. ("JMS") and First Colonial Securities
Group, Inc. ("FCSG") in connection with transactions contemplated by this
Agreement, neither Carnegie nor any Carnegie 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 Carnegie 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
Carnegie Financials. The Carnegie Disclosure Schedule shall contain as an
exhibit the engagement letter among Carnegie, JMS and FCSG.
Section 2.14 Environmental Matters. To the knowledge of Carnegie, neither
Carnegie nor any Carnegie Subsidiary, nor any properties owned or operated by
Carnegie or any Carnegie Subsidiary 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 Carnegie. 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 Carnegie, threatened, relating to the liability
of any property owned or operated by Carnegie or any Carnegie Subsidiary under
any Environmental Law.
Section 2.15 Loan Portfolio. The allowance for loan losses reflected, and
to be reflected, in the Carnegie Regulatory Reports, and shown, and to be shown,
on the balance sheets contained in the Carnegie Financials have been, and will
be, established in accordance with the requirements of generally accepted
accounting principles and all applicable regulatory criteria.
Section 2.16 Information to be Supplied. The information to be supplied by
Carnegie and Carnegie Bank for inclusion in the Registration Statement
(including the Prospectus/Proxy Statement) will not, at the time the
Registration Statement is declared effective pursuant to the Securities Act,
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 Carnegie for inclusion in the
Applications
23
will, at the time such documents are filed with any Regulatory Authority, be
accurate in all material aspects.
Section 2.17 Securities Documents. Carnegie has delivered to Sovereign
copies of its (i) annual reports on SEC Form 10-K or 10-KSB for the years ended
December 31, 1996 and 1995, (ii) quarterly reports on SEC Form 10-Q or 10-QSB
for the quarters ended March 31, 1997, June 31, 1997 and September 30, 1997 and
(iii) proxy materials used or for use in connection with its annual meetings of
shareholders held in 1997, 1996 and 1995. 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.
Section 2.18 Related Party Transactions. Except as disclosed (i) in the
Carnegie Disclosure Schedule, (ii) in Carnegie's proxy statement for its May 21,
1997 annual meeting of shareholders or (iii) in the footnotes to the Carnegie
Financials, Carnegie is not a party to any transaction (including any loan or
other credit accommodation) with any Affiliate of Carnegie (except a Carnegie
Subsidiary). Except as so disclosed, 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 unfavorable features. Except
as set forth in the Carnegie Disclosure Schedule, no loan or credit
accommodation to any Affiliate of Carnegie 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 Carnegie nor Carnegie
Bank has been notified that principal and interest with respect to any such loan
or other credit accommodation will not be paid when due or that the loan grade
classification accorded such loan or credit accommodation by Carnegie Bank is
inappropriate.
Section 2.19 Schedule of Termination Benefits. The Carnegie Disclosure
Schedule includes a schedule of the present value as of June 30, 1998 of
termination benefits and related payments that would be payable to the
individuals identified thereon, excluding any options to acquire Carnegie 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 Carnegie solely
for the benefit of officers of Carnegie or Carnegie Subsidiaries (the "Benefits
Schedule"), assuming their employment is terminated as of June 30, 1998 and the
Closing Date occurs prior to such termination. No other individuals are entitled
to benefits under any such plans. The present value of the termination benefits
and related payments specified on the Benefits Schedule with respect to each
named individual (based on
24
a 6% per annum discount factor) is true and correct in all material respects.
Section 2.20 Loans. Each loan reflected as an asset in the Carnegie
Financial Statements (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and correct (ii) to the extent secured, has
been secured by valid liens and security interests which have been perfected,
and (ii) is the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles, in
each case other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on Carnegie.
Section 2.21 Antitakeover Provisions Inapplicable. The provisions of
Sections 14A:10A-4 and 14A:10A-5 of the NJBCA do not and will not apply to this
Agreement or the transactions contemplated hereby, assuming Sovereign owns no
shares of Carnegie Common Stock.
Section 2.22 Quality of Representations. The representations made by
Carnegie in this Agreement are true, correct and complete in all material
respects, and do not omit statements necessary to make them not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOVEREIGN
Sovereign hereby represents and warrants to Carnegie that, except as set
forth in the Sovereign Disclosure Schedule delivered by Sovereign to Carnegie 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
25
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
Carnegie true and correct copies of the articles of incorporation and the bylaws
of Sovereign and Sovereign Bank, respectively, as in effect on the date hereof.
Section 3.02 Capital Structure.
(a) The authorized capital stock of Sovereign consists of (a) 200,000,000
shares of common stock, no par value ("Sovereign Common Stock"), of which, at
the date of this Agreement, 10,008 shares were issued and held by Sovereign as
treasury stock and 89,366,365 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, 2,000,000 shares of 6 1/4% Cumulative,
Convertible Preferred Stock, Series B, are outstanding, validly issued, fully
paid and nonassessable. 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 2,342,047 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, and dividend reinvestment and stock purchase plan, (iii) capital securities
issued by Sovereign Capital Trust I, and (iv) the deemed rights to acquire
Sovereign Stock possessed by holders of the common stock of ML Bancorp, Inc.
under the Agreement and Plan of Merger between Sovereign and ML Bancorp, Inc.
dated September 18, 1997, contingent upon completion of the transactions
contemplated thereby. As of September 30, 1997, Sovereign had approximately
10,500 shareholders of record.
(b) To the best of Sovereign's knowledge, except as disclosed in
Sovereign's proxy statement dated March 19, 1997,
26
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) Sovereign owns all of the capital stock of Sovereign Bank, free and
clear of any lien or encumbrance. 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. Set forth on the
Sovereign Disclosure Schedule is a list of all 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 and validly approved by the Board of
Directors of Sovereign and, except for approval of the shareholders of Sovereign
under Nasdaq requirements applicable to it, 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 approval by the shareholders of Sovereign under Nasdaq
requirements applicable to it and 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 Carnegie's and Sovereign's compliance with any conditions
contained therein, the consummation of the
27
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.
Section 3.04 Consents. Except for consents, approvals, filings and
registrations from or with the OTS, the FRB, the PDS, the NJSOS, the SEC, the
NJDB and state "blue sky" authorities, and compliance with any conditions
contained therein, and the approval of this Agreement by the shareholders of
Sovereign in accordance with Nasdaq requirements applicable to it, and the
approval of the Bank Plan of Merger by Sovereign as sole shareholder of
Sovereign Bank under the FDIA, 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 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.
28
Section 3.05 Financial Statements.
(a) Sovereign has previously delivered, or will deliver, to Carnegie the
Sovereign Financials. The Sovereign Financials have been, or will be, prepared
in accordance with generally accepted accounting principles and practices 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 generally accepted accounting
principles. Sovereign will make the Sovereign Regulatory Reports available to
Carnegie for inspection.
(b) At the date of each balance sheet included in the Sovereign Financials,
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, 1996.
29
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 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 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. There are presently no material claims pending under
such policies of insurance and no notices have been given by Sovereign or
Sovereign Bank under such policies. All such insurance is valid and enforceable
and in full force and effect, and within the last three years Sovereign has
received each type of insurance coverage for which it has applied and during
such periods has not been denied indemnification for any material claims
submitted under any of its insurance policies.
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)
30
which, individually or in the aggregate, could not be reasonably expected to
have a Material Adverse Effect.
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 the assets, business, financial condition, business prospects or
results of operations of Sovereign and its Subsidiaries taken as a whole.
(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 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 Carnegie.
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) will not, at the time the Registration Statement is
declared effective pursuant to the Securities Act, 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, be accurate in all material
aspects.
31
Section 3.12 ERISA. Sovereign has previously made available to Carnegie
true and complete copies of the employee pension benefit plans within the
meaning of ERISA Section 3(2), including profit sharing plans, deferred
compensation and supplemental income plans, supplemental executive retirement
plans, stock purchase plans, annual or long-term incentive plans, group
insurance plans, all other employee welfare benefit plans within the meaning of
ERISA Section 3(1) (including short-term disability, long-term disability, and
medical plans), vacation pay and sick leave policies or arrangements and all
other employee benefit plans, policies, agreements and arrangements, all of
which are set forth or described on the Sovereign Disclosure Schedule,
maintained or contributed to for the benefit of the employees or former
employees (including eligible 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 statements
relating to those plans which constitute "qualified plans" under IRC Section
401(a), (ii) the most recent annual reports, if any, relating to such plans
filed by them, respectively, with any government agency, and (iii) all rulings
and determination letters, if any, which pertain to any such plans. Neither
Sovereign nor any Sovereign Subsidiary which is required to be aggregated with
Sovereign under IRC Section 414, and no 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. 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, determined on an "ongoing basis"
and not a "termination basis," using 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 multi-employer plan. All "employee
benefit plans," as defined in ERISA Section 3(3), maintained or sponsored by
Sovereign or any Sovereign Subsidiary comply, and in 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(c) and not exempt under IRC Section 4975(d)) has occurred within
the past six (6)
32
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 tax under IRC Section 4975 or other penalty under
ERISA, 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 have provided continuation coverage under group health plans for
separating employees in accordance with the provisions of IRC Section 4980B(f).
To the knowledge of Sovereign, such group health plans are in material
compliance with Section 1862(b)(1) of the Social Security Act.
Section 3.13 Securities Documents. Sovereign has delivered, or will
deliver, to Carnegie copies of its (i) annual reports on SEC Form 10-K for the
years ended December 31, 1996, 1995, and 1994, (ii) quarterly reports on SEC
Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and September 30,
1997, (iii) current reports on SEC Form 8-K filed during 1997, (iv) proxy
statement dated March 19, 1997 used in connection with its annual meeting of
shareholders held in April 1997 and (iv) any other Securities Documents
reasonably requested by Carnegie. Such reports and such proxy materials
complied, at the time filed with the SEC, in 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 owned or operated by
Sovereign or any Sovereign Subsidiary 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 Loan Portfolio. 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 generally
accepted accounting principles and all applicable regulatory criteria.
Section 3.16 Brokers and Finders. 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.
33
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 (ii) is the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles, in
each case other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on Sovereign.
Section 3.18 Shares of Sovereign Common Stock. The shares of Sovereign
Common Stock to be issued to holders of shares of Carnegie Common Stock pursuant
to the Merger, shall, upon effectiveness of the Merger, be duly and validly
issued and fully paid and non-assessable and free from all taxes, liens and
charges.
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 Carnegie's Business.
(a) From the date of this Agreement to the Closing Date, Carnegie and each
Carnegie 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. Carnegie will use its best efforts, and
will cause Carnegie Bank to use its best 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 Carnegie and Carnegie
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, Carnegie
will not, and Carnegie will not permit any Carnegie Subsidiary to:
(i) amend or change any provision of its certificate or articles of
incorporation, charter, or bylaws;
(ii) change the number of authorized or issued shares of its capital
stock or issue or grant any
34
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, 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) Carnegie may
issue shares of Carnegie Common Stock upon the valid exercise, subject to
the terms of the letter agreement attached hereto as Exhibit 1, of
presently outstanding options to acquire Carnegie Common Stock under the
Carnegie Stock Option Plans and (B) Carnegie may pay a regular quarterly
cash dividend, not to exceed $.14 per share of Carnegie Common Stock
outstanding. As promptly as practicable following the date of this
Agreement, the Board of Directors of Carnegie 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 Carnegie 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 Carnegie shareholders to receive two
dividends either from Carnegie or from Carnegie and Sovereign in any
quarter or to deny or prohibit them from receiving one dividend from
Carnegie or Sovereign in any quarter. Subject to applicable regulatory
restrictions, if any, Carnegie Bank may pay a cash dividend, in the
aggregate, sufficient to fund any dividend by Carnegie permitted hereunder;
(iii) grant any severance or termination pay (other than pursuant to
written policies or written agreements of Carnegie or Carnegie Subsidiaries
in effect on the date hereof, included on the Disclosure Schedule, and
provided to Sovereign prior to the date hereof) to, or enter into any new
or amend any existing employment agreement with, or increase the
compensation of, any employee, officer or director of Carnegie or any
Carnegie Subsidiary, except for routine periodic increases, individually
and in the aggregate, in accordance with past practice;
(iv) merge or consolidate Carnegie or any Carnegie Subsidiary with any
other corporation; sell or lease all or any substantial portion of the
assets or business of Carnegie or any Carnegie 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 Carnegie 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 Carnegie Subsidiary
of its
35
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 Carnegie Bank or
sell or otherwise dispose of any asset of Carnegie or of any Carnegie
Subsidiary other than in the ordinary course of business consistent with
past practice; subject any asset of Carnegie or of any Carnegie Subsidiary
to a lien, pledge, security interest or other 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 Carnegie 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;
(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 Carnegie or Carnegie Bank;
(viii) waive, release, grant or transfer any rights of value or modify
or change in any material respect any existing material agreement to which
Carnegie or any Carnegie 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 that was not in effect on the date
of this Agreement, or materially amend any existing plan or arrangement
except as permitted by Section 1.02(f) or to the extent such amendments do
not result in an increase in cost;
(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.;
(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
36
affiliated borrowers in excess of $1,000,000 in the aggregate, or increase,
compromise, extend, renew or modify any existing loan or commitment
outstanding in excess of $1,000,000, except for any commitment disclosed on
the Carnegie Disclosure Schedule; provided that Sovereign will not
unreasonably withhold its consent with respect to any request by Carnegie
for permission to increase, compromise, extend, renew or modify any loan
subject to this provision;
(xii) except as set forth on the Carnegie Disclosure Schedule, enter
into, renew, extend or modify any other transaction with any Affiliate;
(xiii) enter into any interest rate swap or similar commitment,
agreement or arrangement;
(xiv) except for the execution of this Agreement, 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 Carnegie or any Carnegie Subsidiary to do any of
the following: (i) make any capital expenditure of $100,000 or more not
disclosed on Carnegie 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 $1,000,000, 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 Carnegie or a Carnegie Subsidiary or repurchase
agreements made, in each case, in the ordinary course of business; or (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 Carnegie or any Carnegie Subsidiary of
more than $50,000 annually, or containing a material financial commitment and
extending beyond 12 months from the date hereof.
37
Section 4.02 Access; Confidentiality.
(a) From the date of this Agreement through the Closing Date, Carnegie or
Sovereign, as the case may be, shall afford to, and shall cause each Carnegie
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 Carnegie 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) Carnegie 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, Carnegie shall permit employees
of Sovereign reasonable access to and participation in matters relating to
problem loans, loan restructurings and loan work-outs of Carnegie and the
Carnegie Subsidiaries in an individual amount in excess of $250,000, 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. Sovereign shall have the right, however, at Sovereign's
expense, to cause Carnegie or any Carnegie Subsidiary to obtain an appraisal by
an independent third party experienced in such matters, and mutually
satisfactory to Sovereign and Carnegie, of the assets or property securing any
loan made by Carnegie or any Carnegie Subsidiary.
(d) If the transactions contemplated by this Agreement shall not be
consummated, Carnegie and Sovereign will 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. Carnegie and Sovereign shall each give prompt
notice to the other party of any contemplated disclosure where such disclosure
is so legally required.
38
Section 4.03 Regulatory Matters and Consents.
(a) Sovereign and Carnegie will prepare all Applications and make all
filings for, and use their 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
consummate the transactions contemplated by this Agreement.
(b) Carnegie will furnish Sovereign with all information concerning
Carnegie and Carnegie Subsidiaries as may be necessary or advisable in
connection with any Application or filing made by or on behalf of Sovereign to
any Regulatory Authority in connection with the transactions contemplated by
this Agreement.
(c) Sovereign will promptly furnish Carnegie with copies of all material
written communications to, or received by Sovereign or any Sovereign Subsidiary
from, any Regulatory Authority in respect of the transactions contemplated
hereby, except information which is filed by Sovereign which is designated as
confidential or contains an earnings projection.
(d) Sovereign will furnish Carnegie with (i) copies of all Applications
prior to filing with any Regulatory Authority and provide Carnegie a reasonable
opportunity to suggest changes to such Applications, which suggested changes
Sovereign may, in its reasonable discretion accept or reject, (ii) copies of all
Applications filed by Sovereign and (iii) copies of all documents filed by
Sovereign under the Securities Exchange Act of 1934, as amended.
(e) Carnegie will cooperate with Sovereign in the foregoing matters and
will furnish Sovereign with all information concerning Carnegie and Carnegie
Subsidiaries as may be necessary or advisable in connection with any Application
or filing (including the Registration Statement and any report filed with the
SEC) made by or on behalf of Sovereign to any Regulatory Authority in connection
with the transactions contemplated by this Agreement, and such information will
be accurate and complete in all material respects. In connection therewith,
Carnegie will provide certificates and other documents reasonably requested by
Sovereign.
Section 4.04 Taking of Necessary Action.
(a) Sovereign and Carnegie shall each use its best efforts in good faith,
and each of them shall cause its Subsidiaries to use their best efforts in good
faith, to (i) furnish such information as may be required in connection with the
preparation of the documents referred to in Section 4.03 of this Agreement, and
(ii) take or cause to be taken all action necessary or desirable on its part
using its best efforts so as
39
to permit completion of the Merger and the Bank Merger 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 Carnegie nor any Carnegie 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 Carnegie or from exercising its rights under this
Agreement or the Option Agreement.
(b) Carnegie and Sovereign shall promptly prepare a Prospectus/Proxy
Statement to be mailed to shareholders of Carnegie in connection with the
meeting of its shareholders and transactions contemplated hereby, and to be
filed by Sovereign with the SEC in the Registration Statement, which
Prospectus/Proxy statement shall conform to all applicable legal requirements.
Sovereign shall, as promptly as practicable following the preparation thereof,
file the Registration Statement with the SEC and Carnegie 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 Carnegie, 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 Carnegie with as many copies of such Registration
Statement and all amendments thereto promptly upon the filing thereof as
Carnegie may reasonably request.
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
40
employee of Carnegie 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 Carnegie, any of the Carnegie's
Subsidiaries or any of their respective predecessors or (ii) this Agreement or
any of the transactions contemplated hereby, whether in any case asserted or
arising before or after the Effective Date, the parties hereto agree to
cooperate and use their best efforts to defend against and respond thereto to
the extent permitted by the NJBCA and the Articles of Incorporation and Bylaws
of Carnegie. On or after the Effective Date, Sovereign shall indemnify, defend
and hold harmless all prior and then-existing directors and officers of Carnegie
and Carnegie Bank, 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 Carnegie or any Carnegie
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 Carnegie
or Carnegie Bank as of the date hereof including the right to advancement of
expenses, provided, however, that any such officer, director or employee of
Carnegie or Carnegie Bank may not be indemnified by Sovereign and/or Sovereign
Bank if such indemnification is prohibited by applicable law. Sovereign further
agrees to advance to Indemnified Parties expenses incurred by such Indemnified
Parties in defending against any Indemnified Liabilities claims to the fullest
extent permitted by applicable law.
(b) Sovereign shall maintain Carnegie's existing directors' and officers'
liability insurance policy (or a policy providing comparable coverage amounts on
terms generally no less favorable, including Sovereign's existing policy if it
meets the foregoing standard) covering persons who are currently covered by such
insurance for a period of six years after the Effective Date; provided, however,
that in no event shall Sovereign be obligated to expend, in order to maintain or
provide insurance coverage pursuant to this Section 4.05(b), any amount per
annum in excess of 150% of the amount of the annual premiums paid as of the date
hereof by Carnegie 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 notify each covered insured and
nonetheless maintain the most advantageous policies of directors'
41
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.
(c) Sovereign agrees to honor and Sovereign agrees to cause Sovereign Bank
to honor all terms and conditions of all existing employment contracts disclosed
in the Carnegie Disclosure Schedule.
Section 4.06 No Other Bids and Related Matters.
(a) So long as this Agreement remains in Effect, Carnegie shall not, nor
shall it permit any Carnegie Subsidiary or any other Affiliate of Carnegie or
any officer, director or employee of any of them, or any investment banker,
attorney, accountant or other representative retained by Carnegie, any Carnegie
Subsidiary or any other Carnegie Affiliate to, directly or indirectly, solicit,
encourage, initiate or engage in discussions or negotiations with, or respond to
requests for information, inquiries, or other communications from, any person
other than Sovereign concerning the fact of, or the terms and conditions of,
this Agreement, or concerning any acquisition of Carnegie, any Carnegie
Subsidiary, or any assets or business thereof (except that Carnegie's officers
may respond to inquiries from analysts, Regulatory Authorities and holders of
Carnegie Common Stock in the ordinary course of business). Carnegie shall notify
Sovereign immediately if (i) any such discussions or negotiations are sought to
be initiated with Carnegie by any person other than Sovereign, or (ii) if any
such requests for information, inquiries, proposals or communications are
received from any person other than Sovereign, or analysts, Regulatory
Authorities and holders of Carnegie Common Stock in the ordinary course of
business.
(b) Notwithstanding the foregoing, Carnegie, after written notice to
Sovereign, may respond to unsolicited inquiries from third parties if the
fiduciary duty of the individuals set forth in the first sentence of Section
4.06(a) legally requires them to do so and they are so advised in a written
opinion of counsel.
Section 4.07 Duty to Advise; Duty to Update Carnegie's Disclosure Schedule.
Carnegie shall promptly advise Sovereign of any change or event having a
Material Adverse Effect on it or on any Carnegie Subsidiary 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. Carnegie
shall update Carnegie's Disclosure Schedule as promptly
42
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 the Carnegie Disclosure Schedule. The delivery of such updated Schedule shall
not relieve Carnegie 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 5.02(c) hereof.
Section 4.08 Conduct of Sovereign's Business. From the date of this
Agreement to the Closing Date, Sovereign will use its best efforts to (x)
preserve its business organizations intact, (y) maintain good relationships with
employees, and (z) preserve for itself the goodwill of customers of Sovereign
and Sovereign Subsidiaries and others with whom business relationships exist.
Section 4.09 Board and Committee Minutes. Carnegie shall provide to
Sovereign, within 30 days after any meeting of the Board of Directors of
Carnegie or any Carnegie Subsidiary, or any committee thereof, or any senior
management committee, a copy of the minutes of such meeting, except that with
respect to any meeting held within 30 days of the Closing Date, such minutes
shall be provided to Sovereign prior to the Closing Date.
Section 4.10 Undertakings by Sovereign and Carnegie.
(a) From and after the date of this Agreement, Carnegie shall:
(i) Voting by Directors. Subject to the fiduciary duties of officers
and directors of Carnegie imposed by applicable law, recommend to all
members of Carnegie's Board of Directors to vote all shares of Carnegie's
Common Stock beneficially owned by each such director in favor of this
Agreement;
(ii) Shareholder Meeting. Submit this Agreement to its shareholders
for approval at a meeting to be held as soon as practicable, and subject to
the fiduciary duties of officers and directors of Carnegie imposed by
applicable law, use its best efforts to cause its Board of Director to
unanimously recommend approval of this Agreement to its shareholders;
(iii) 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
Carnegie or any Carnegie Subsidiary on the date hereof;
(iv) Approval of Bank Plan of Merger. Approve the Bank Plan of Merger
as sole shareholder of Carnegie Bank and obtain the approval of, and cause
the
43
execution and delivery of, the Bank Plan of Merger by Carnegie Bank;
(v) Proxy Solicitor. If Sovereign requests and agrees to bear the
expense thereof, retain a proxy solicitor in connection with the
solicitation of Carnegie shareholder approval of this Agreement;
(vi) 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. 36, and to issue their report on such financial statements as soon as
is practicable thereafter;
(vii) Outside Service Bureau Contracts. If requested to do so by
Sovereign, use its best efforts to obtain an extension of any contract with
an outside service bureau or other vendor of services to Carnegie or any
Carnegie Subsidiary, on terms and conditions mutually acceptable to
Carnegie and Sovereign;
(viii) Committee Meetings. Permit a representative of Sovereign, who
is reasonably acceptable to Carnegie, to attend all committee meetings of
Carnegie and Carnegie Bank management including, without limitation, any
loan or asset/liability committee. Carnegie shall respond reasonably and in
good faith to any request of Sovereign to permit a representative of
Sovereign, who is reasonably acceptable to Carnegie, to attend any meeting
of Carnegie's Board of Directors or the Executive Committee thereof;
provided, however, that the failure of a representative of Sovereign to
attend any such committee or Board meeting shall not impair the right or
ability of such committee or Board to conduct and take actions pursuant to
such meetings;
(ix) Reserves and Merger-Related Costs. On or before the Effective
Date, consistent with generally accepted accounting principles 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 Carnegie to those of Sovereign (as such practices and
methods are to be applied to Carnegie from and after the Closing Date) and
Sovereign's plans with respect to the conduct of the business of Carnegie
following the Merger and otherwise to reflect Merger-related expenses and
costs incurred by Carnegie, provided, however, that Carnegie shall not be
required to take such action (A) more than two 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
44
Sovereign of the writing referred to in the preceding clause, Carnegie
shall provide Sovereign a written statement, certified without personal
liability by the chief executive officer of Carnegie 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 Carnegie or any Carnegie Subsidiary
pursuant to this subsection, or any litigation or regulatory proceeding
arising out of any such accrual or reserve, shall (i) 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 or (ii) be
taken into account in the calculation of bonuses payable to any officers of
Carnegie or Carnegie Subsidiaries.
(b) From and after the date of this Agreement, Sovereign and Carnegie shall
each:
(i) Filings and Approvals. Cooperate with the other in the preparation
and filing, as soon as practicable, of (A) the Applications, (B) the
Registration Statement and related filings under state securities laws
covering the Sovereign Common Stock and related Sovereign Stock Purchase
Rights to be issued pursuant to the Merger, (C) all other documents
necessary to obtain any other approvals and consents required to effect the
completion of the Merger and the Bank Merger, and (D) all other documents
contemplated by this Agreement;
(ii) Identification of Carnegie's Affiliates. Cooperate with the other
and use its best efforts to identify those persons who may be deemed to be
Affiliates of Carnegie;
(iii) 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 Carnegie shareholders, Carnegie's internal
announcements and customer disclosures, but nothing contained herein shall
prohibit either party from making any disclosure which its counsel deems
necessary;
(iv) Maintenance of Insurance. Maintain, and cause their respective
Subsidiaries to maintain, insurance in such amounts as are reasonable to
cover such
45
risks as are customary in relation to the character and location of its
properties and the nature of its business;
(v) Maintenance of Books and Records. Maintain, and cause their
respective Subsidiaries to maintain, books of account and records in
accordance with generally accepted accounting principles applied on a basis
consistent with those principles used in preparing the financial statements
heretofore delivered;
(vi) Delivery of Securities Documents. Deliver to the other, copies of
all Securities Documents simultaneously with the filing thereof;
(vii) 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; or
Section 4.11 Employee Benefits and Termination Benefits.
(a) Employee Benefits. On and after the Effective Date, the employee
pension and welfare benefit plans of Sovereign and Carnegie may, at Sovereign's
election and subject to the requirements of the IRC, including the distribution
rules of ERISA, continue to be maintained separately or consolidated, provided,
however, that Carnegie employees shall receive benefits at least as favorable,
in the aggregate, as the benefits to which they were entitled as of the date of
this Agreement. In the event of a consolidation of any or all of such plans or
in the event of termination of the Carnegie benefit plans, Carnegie and Carnegie
Bank employees shall receive credit for all service with Carnegie or Carnegie
Bank under Sovereign's pension and 401(k) plans, but not under Sovereign's
Employee Stock Ownership Plan, for purposes of eligibility and vesting
determination. In the event of any termination of or consolidation of any
Carnegie or Carnegie Bank health plan with any Sovereign health plan, all
employees of Carnegie or Carnegie Bank who were eligible for coverage under the
terminated plan shall have coverage under any successor health plan with
protection for any pre-existing condition. In the event of a termination or
consolidation of any Carnegie or Carnegie Bank health plan, terminated Carnegie
or Carnegie Bank employees will have the right to continue coverage under group
health plans of Sovereign and/or the Sovereign Subsidiaries in accordance with
IRC Section 4980B(f).
(b) Termination Benefits. Carnegie shall cause to be delivered to Sovereign
concurrently with the execution of this Agreement with respect to each
individual named on the Benefits Schedule included in the Carnegie Disclosure
Schedule, the written acknowledgment of each such individual in the form
46
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,
policy or arrangement maintained by Carnegie solely for the benefit of officers
of Carnegie or Carnegie Subsidiaries assuming (i) a termination of such
individual's employment on June 30, 1998, and (ii) the occurrence of a "change
in control" of Carnegie, as such term or concept may be defined in any relevant
document. Carnegie and Sovereign acknowledge and agree that the amounts shown on
the 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 of
Carnegie and Carnegie Bank for routine periodic increases in benefits under such
plans, policies or arrangements.
(c) Severance Policy. Sovereign agrees to cause Sovereign Bank to provide
employees of Carnegie Bank whose employment is terminated in connection with the
Merger within three (3) months of the Effective Date, either because such
employee's position is eliminated or such employee is not offered comparable
employment (i.e., not offered employment for a position of generally similar job
description or responsibilities in a location within thirty (30) miles from an
employee's work location), excluding any employee who has an existing employment
or consulting agreement or whose employment is terminated for Cause (as defined
below), as follows, provided such employees execute such documentation as
Sovereign may reasonably require, including Sovereign's customary form of
release: (i) employees with a title of vice president or higher and employees
with five (5) or more years of service shall be entitled to two weeks of base
salary as severance pay for each year of service with Carnegie or Carnegie Bank,
with a two-week minimum; (ii) employees with a title lower than vice president
(other than employees with five (5) or more years of service) shall be entitled
to one week of base salary as severance pay for each year of service with
Carnegie or Carnegie Bank, with a one-week minimum; and (iii) Richard Rosa shall
be entitled to six months of base salary as severance pay and any additional
benefits set forth on the Carnegie Disclosure Schedule. 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, 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 Carnegie and Carnegie Bank employees under
47
this subsection are the only severance benefits payable by Carnegie or Carnegie
Bank under any plan or policy (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
Carnegie Bank's severance policies. The benefits payable to Carnegie 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. Within ninety (90) days of the
date hereof, Sovereign and Sovereign Bank shall use their reasonable best
efforts to inform the employees of Carnegie and Carnegie Bank of the likelihood
of such employees having continued employment with Sovereign Bank following the
Effective Date and, where appropriate, shall use their reasonable best efforts
to interview the Carnegie and Carnegie Bank employees to determine if there are
mutually beneficial employment opportunities available at Sovereign Bank.
Section 4.12 Duty to Advise; Duty to Update Sovereign's Disclosure
Schedule. Sovereign shall promptly advise Carnegie of any change or event having
a Material Adverse Effect on it or on any Sovereign Subsidiary 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.
Sovereign shall update Sovereign's 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 the Sovereign Disclosure Schedule. The delivery of such updated Schedule
shall not relieve Sovereign 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) hereof.
Section 4.13 Affiliate Letter. No later than five days after the date of
this Agreement, Carnegie shall cause to be delivered to Sovereign the Letter
Agreement attached hereto as Exhibit 1, executed by each director and officer
set forth thereon.
ARTICLE V
CONDITIONS
Section 5.01 Conditions to Carnegie's Obligations under this Agreement. The
obligations of Carnegie hereunder shall be subject to satisfaction at or prior
to the Closing Date of each of the following conditions, unless waived by
Carnegie pursuant to Section 7.03 hereof:
48
(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 Carnegie shall have received certified copies of the
resolutions evidencing such authorizations;
(b) Covenants. The obligations and covenants of Sovereign required by this
Agreement to be performed by Sovereign at or prior to the Closing Date shall
have been duly performed and complied with in all respects, except where the
failure to perform or comply with any obligation or covenant would not, either
individually or in the aggregate, result in a Material Adverse Effect with
respect to Sovereign;
(c) Representations and Warranties. The representations and warranties of
Sovereign set forth in this Agreement shall be true and correct, as of the date
of this Agreement, and as of the Closing Date as though made on and as of the
Closing Date, except as to any representation or warranty (i) which specifically
relates to an earlier date or (ii) where the breach of the representation or
warranty would not, either individually or in the aggregate, constitute a
Material Adverse Effect with respect to Sovereign;
(d) Approvals of Regulatory Authorities. Sovereign shall have received all
required approvals of Regulatory Authorities of the Merger, and delivered copies
thereof to Carnegie; 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, 1996, there shall not
have occurred any Material Adverse Effect with respect to Sovereign;
(g) Officer's Certificate. Sovereign shall have delivered to Carnegie a
certificate, 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. Carnegie shall have received an opinion
of Stevens & Lee, counsel to Sovereign, dated the Closing Date, in form and
substance
49
reasonably satisfactory to Carnegie 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;
(j) Tax Opinion. Carnegie shall have received an opinion of Stevens & Lee,
substantially to the effect set forth on Exhibit 6 attached hereto;
(k) Approval of Carnegie's Shareholders. This Agreement shall have been
approved by the shareholders of Carnegie by such vote as is required under
Carnegie's articles of incorporation and bylaws or under Nasdaq requirements
applicable to it; and
(l) Investment Banking Opinion. Carnegie shall have received an oral
opinion from JMS on or before the date of this Agreement and updated in writing
as of a date within five (5) days of mailing the Prospectus/Proxy Statement, to
the effect that the terms of the Merger are fair, from a financial point of
view, to the shareholders of Carnegie.
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, Carnegie and Carnegie 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 Carnegie and Carnegie
Bank; and Sovereign shall have received certified copies of the resolutions
evidencing such authorizations;
(b) Covenants. The obligations and covenants of Carnegie, 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
Carnegie;
(c) Representations and Warranties. The representations and warranties of
Carnegie set forth in this
50
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 Carnegie;
(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, 1996, there shall not
have occurred any Material Adverse Effect with respect to Carnegie.
(g) Officer's Certificate. Carnegie shall have delivered to Sovereign a
certificate, 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 Carnegie's Counsel. Sovereign shall have received an
opinion of McCarter & English, counsel to Carnegie, dated the Closing Date, in
form and substance reasonably satisfactory to Sovereign and its counsel
substantially 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;
(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 an opinion from Ernst &
Young to the effect that the
51
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 4.11(a)(ii) with respect to
owned or occupied bank premises shall not, individually or in the aggregate,
constitute a Material Adverse Effect; provided, however, that (i) any such
environmental audit must be initiated within 45 days of the date of this
Agreement, and (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
(m) Third Party Consents. Carnegie shall have obtained any required
consents from third parties under any real property leases which are material to
the conduct by Carnegie and its Subsidiaries of their respective businesses with
respect to the transactions contemplated by this Agreement.
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 Carnegie:
(i) if the Closing Date shall not have occurred on or before September
30, 1998, unless the failure of such occurrence shall be due to the failure
of the party seeking to terminate this Agreement to perform or observe 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 been informed in writing by a Regulatory
Authority whose approval or consent has been requested that such approval
or consent is unlikely to be granted, unless the failure of such occurrence
shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe its agreements set forth herein required to
be performed or observed by such party on or before the Closing Date; or
(c) by Carnegie, on the Closing Date if both of the following conditions
are satisfied:
(1) the Sovereign Market Value as of the close of business on the
Determination Date shall be less than $14.47; and
52
(2) (i) the quotient obtained by dividing the Sovereign Market Value
as of the close of business on the Determination Date by $19.29 (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
0.15 from the quotient in this clause (2)(ii);
subject, however, to the following: If Carnegie shall elect to terminate this
Agreement pursuant to this Section 6.01(c), it shall give written notice thereof
to Sovereign on the Closing Date; but provided further, that Sovereign shall
have the option to elect to increase the Exchange Ratio to equal the quotient
obtained by dividing $28.53 by the Sovereign Market Value determined as of the
close of business on the Determination Date, whereupon no termination shall have
occurred pursuant to this Section 6.01(c) and this Agreement shall remain in
effect in accordance with its terms (except as the Exchange Ratio shall have
been so modified), and any references in this Agreement to "Exchange Ratio"
shall thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant
to this Section 6.01(c).
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 nine 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 nine thrift holding companies and the weights attributed to
them are as follows:
53
Thrift Holding Companies % Weighting
------------------------ -----------
Dime Bancorp, Inc. 27.67%
Charter One Financial 14.87%
Golden State Bancorp 11.75%
Washington Federal, Inc. 11.07%
GreenPoint Financial Corp. 9.86%
Bank United Corp. 6.62%
Peoples Heritage Finl Group 6.41%
Astoria Financial Corporation 6.15%
Long Island Bancorp, Inc. 5.60%
-------
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 December 11, 1997.
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) at any time on or prior to the Effective Date, by Carnegie in writing
if Sovereign has, or by Sovereign in writing if Carnegie 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 by Sovereign would have a Material Adverse Effect on Sovereign and in the
case of a breach by Carnegie would have a Material Adverse Effect on Carnegie,
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 Carnegie to the other, except for any
54
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 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 extent specifically provided
otherwise herein, agreements and covenants, other than those covenants set forth
in Sections 1.02(d)(i) and (iii), 1.02(g), 4.05, and 4.11(a) and (c) which will
survive the Merger, shall terminate on the Closing Date; provided, however, that
the covenants contained in Sections 4.11(a) and (c) shall survive the Merger
only for a period of one (1) year.
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.
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
other than any agreement pertaining to confidentiality or nondisclosure. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors; provided, however, that nothing in
55
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(d)(i)
and (iii), 1.02(g), 4.05, and 4.11(a) and (c) with respect to indemnification,
employee benefits and certain other matters, and provided, further, that any
such rights, remedies, obligations or liabilities conferred pursuant to Sections
4.11(a) and (c) shall terminate and expire one (1) year from the Effective Date.
Section 7.05 No Assignment. Neither party hereto may assign any of its
rights or obligations hereunder to any other person, without the prior written
consent of the other party hereto.
Section 7.06 Notices. All notices or other communications hereunder shall
be in writing and shall be deemed given if delivered personally, mailed by
prepaid registered or certified mail (return receipt requested), or sent by
telecopy, addressed as follows:
(a) If to Sovereign, to:
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, 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 Carnegie, to:
Carnegie Bancorp
619 Alexander Road
Princeton, New Jersey 08540
Attention: Thomas L. Gray, Jr.
President and Chief
Executive Officer
Telecopy No.: (609) 452-2492
56
with copies to:
McCarter & English
Four Gateway Center
100 Mulberry Street
Newark, NJ 07101-0652
Attention: Michael M. Horn, Esquire
Telecopy No.: (973) 624-7070
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
57
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
SOVEREIGN BANCORP, INC.
/s/
By___________________________
Jay S. Sidhu
President and Chief
Executive Officer
CARNEGIE BANCORP
/s/
By________________________________
Thomas L. Gray, Jr.
President and Chief
Executive Officer
58
Exhibit 1
December 12, 1997
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Ladies and Gentlemen:
Sovereign Bancorp, Inc. ("Sovereign") and Carnegie Bancorp ("Carnegie")
desire to enter into an agreement dated December 12, 1997 ("Agreement"),
pursuant to which, subject to the terms and conditions set forth therein, (a)
Carnegie will merge with and into Sovereign with Sovereign surviving the merger,
and (b) shareholders of Carnegie will receive common stock of Sovereign in
exchange for common stock of Carnegie outstanding on the closing date (the
foregoing, collectively, referred to herein as the "Merger").
Sovereign has required, as a condition to its execution and delivery to
Carnegie of the Agreement, that the undersigned, being directors, executive
officers and major shareholders of Carnegie, execute and deliver to Sovereign
this Letter Agreement.
Each of the undersigned, in order to induce Sovereign to execute and
deliver to Carnegie the Agreement, hereby irrevocably:
(a) Agrees to be present (in person or by proxy) at all meetings of
shareholders of Carnegie called to vote for approval of the Merger so that all
shares of common stock of Carnegie then owned by the undersigned will be counted
for the purpose of determining the presence of a quorum at such meetings and to
vote all such shares (i) in favor of approval and adoption of the Agreement and
the transactions contemplated thereby (including any amendments or modifications
of the terms thereof approved by the Board of Directors of Carnegie), and (ii)
against approval or adoption of any other merger, business combination,
recapitalization, partial liquidation or similar transaction involving Carnegie;
(b) Agrees not to vote or execute any written consent to rescind or amend
in any manner any prior vote or written consent, as a shareholder of Carnegie,
to approve or adopt the Agreement;
Sovereign Bancorp, Inc.
December 12, 1997
Page 2
(c) Agrees to use reasonable best efforts to cause the Merger to be
consummated, subject to the fiduciary duties of the undersigned under applicable
law;
(d) Agrees not to sell, transfer or otherwise dispose of any common stock
of Carnegie on or prior to the record date for the meeting of Carnegie
shareholders to vote on the Merger;
(e) Except as permitted by Section 4.06 of the Agreement, agrees not to
solicit, initiate or engage in any negotiations or discussions with any party
other than Sovereign with respect to any offer, sale, transfer or other
disposition of, any shares of common stock of Carnegie now or hereafter owned by
the undersigned;
(f) Agrees not to offer, sell, transfer or otherwise dispose of any shares
of common stock of Sovereign received in the Merger, except (i) at such time as
a registration statement under the Securities Act of 1933, as amended
("Securities Act") covering sales of such Sovereign common stock is effective
and a prospectus is made available under the Securities Act, (ii) within the
limits, and in accordance with the applicable provisions of, Rule 145(d) under
the Securities Act, or (iii) in a transaction which, in the opinion of counsel
satisfactory to Sovereign or as described in a "no-action" or interpretive
letter from the staff of the Securities and Exchange Commission ("SEC"), is not
required to be registered under the Securities Act; and acknowledges and agrees
that Sovereign is under no obligation to register the sale, transfer or other
disposition of Sovereign common stock by the undersigned or on behalf of the
undersigned, or to take any other action necessary to make an exemption from
registration available;
(g) Notwithstanding the foregoing, agrees not to sell, or in any other way
reduce the risk of the undersigned relative to, any shares of common stock of
Carnegie or of common stock of Sovereign, during the period commencing thirty
days prior to the effective date of the Merger and ending on the date on which
financial results covering at least thirty days of post-Merger combined
operations of Sovereign and Carnegie have been published within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies;
Sovereign Bancorp, Inc.
December 12, 1997
Page 3
(h) Agrees that Sovereign shall not be bound by any attempted sale of any
shares of Sovereign common stock, and Sovereign's transfer agent shall be given
an appropriate stop transfer order and shall not be required to register any
such attempted sale, unless the sale has been effected in compliance with the
terms of this Letter Agreement; and further agrees that the certificate
representing shares of Sovereign common stock owned by the undersigned may be
endorsed with a restrictive legend consistent with the terms of this Letter
Agreement;
(i) Acknowledges and agrees that the provisions of subparagraphs (f), (g)
and (h) hereof also apply to shares of Sovereign common stock received in the
Merger (or any shares of Carnegie common stock or of Sovereign common stock,
whether or not received in the Merger, for the period referred to in
subparagraph (g) above) owned by (i) his or her spouse, (ii) any of his or her
relatives or relatives of his or her spouse occupying his or her home, (iii) any
trust or estate in which he or she, his or her spouse, or any such relative owns
at least a 10% beneficial interest or of which any of them serves as trustee,
executor or in any similar capacity, and (iv) any corporation or other
organization in which the undersigned, any affiliate of the undersigned, his or
her spouse, or any such relative owns at least 10% of any class of equity
securities or of the equity interest;
(j) Represents that the undersigned has no plan or intention to sell,
exchange, or otherwise dispose of any shares of common stock of Sovereign to be
received in the Merger prior to expiration of the time period referred to in
subparagraph (g) hereof; and
(k) Represents that the undersigned has the capacity to enter into this
Letter Agreement and that it is a valid and binding obligation enforceable
against the undersigned in accordance with its terms, subject to bankruptcy,
insolvency and other laws affecting creditors' rights and general equitable
principles.
The obligations set forth herein shall terminate concurrently with any
termination of the Agreement.
------------------------
Sovereign Bancorp, Inc.
December 12, 1997
Page 4
This Letter Agreement may be executed in two or more counterparts, each of
which shall be deemed to constitute an original, but all of which together shall
constitute one and the same Letter Agreement.
------------------------
This Letter Agreement shall terminate concurrently with any termination of
the Agreement in accordance with its terms.
------------------------
The undersigned intend to be legally bound hereby.
Sincerely,
Exhibit 2
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Stock Option Agreement") dated December 12,
1997, is by and between SOVEREIGN BANCORP, INC., a Pennsylvania corporation
("Sovereign") and CARNEGIE BANCORP a New Jersey corporation ("Carnegie").
BACKGROUND
1. Sovereign and Carnegie desire to enter into an Agreement and Plan of
Merger, dated December 12, 1997 (the "Agreement"), providing, among other
things, for the acquisition by Sovereign of Carnegie through the merger of
Carnegie with and into Sovereign, with Sovereign surviving the merger (the
"Merger").
2. As a condition to Sovereign to enter into the Plan, Carnegie is granting
to Sovereign an option to purchase up to that number of shares of common stock
of Carnegie as shall equal 19.9% of shares of common stock of Carnegie issued
and outstanding immediately prior to such purchase, on the terms and conditions
hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual covenants and agreements
set forth herein, Sovereign and Carnegie, intending to be legally bound hereby,
agree:
1. Grant of Option. Carnegie hereby grants to Sovereign, on the terms and
conditions set forth herein, the option to purchase (the "Option") up to 543,888
shares (as adjusted as set forth herein, the "Option Shares") of common stock,
no par value per share (the "Common Stock"), of Carnegie at a price per share
(as adjusted as set forth herein, the "Option Price") equal to the lower of (i)
$31.00 or (ii) the lowest price per share that a person or a group, other than
Sovereign or an affiliate of Sovereign, paid or offers to pay after the date
hereof for Common Stock in a transaction constituting a Triggering Event under
Section 2 hereof.
2. Exercise of Option. Provided that (i) Sovereign shall not be in breach
of the agreements or covenants contained in this Agreement or the Plan, and (ii)
no preliminary or permanent injunction or other order against the delivery of
shares covered by the Option issued by any court of competent jurisdiction in
the United States shall be in effect, upon or after the occurrence of a
Triggering Event (as such term is hereinafter defined) and until termination of
this Stock Option Agreement in accordance with the provisions of Section 21,
Sovereign may exercise the Option, in whole or in part, at any
1
time or one or more times, from time to time. As used herein, the term
"Triggering Event" means the occurrence of any of the following events:
(a) a person or group (as such terms are defined in the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder), other than Sovereign or an affiliate of Sovereign,
acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of 10% or more of the then outstanding shares of Common Stock
(excluding any shares eligible to be reported on Schedule 13G of the
Securities and Exchange Commission);
(b) a person or group, other than Sovereign or an affiliate of
Sovereign, enters into an agreement or letter of intent with Carnegie
pursuant to which such person or group or any affiliate of such person or
group would (i) merge or consolidate, or enter into any similar
transaction, with Carnegie, (ii) acquire all or substantially all of the
assets or liabilities of Carnegie or all or substantially all of the assets
or liabilities of Carnegie Bank, N.A., the wholly-owned subsidiary of
Carnegie ("Carnegie Bank"), or (iii) acquire beneficial ownership of
securities representing, or the right to acquire beneficial ownership or to
vote securities representing, 10% or more of the then outstanding shares of
Common Stock (excluding any shares eligible to be reported on Schedule 13G
of the Securities and Exchange Commission) or the then outstanding shares
of common stock of Carnegie Bank; or
(c) a person or group, other than Sovereign or an affiliate of
Sovereign, publicly announces a bona fide proposal (including a written
communication that is or becomes the subject of public disclosure) for (i)
any merger, consolidation or acquisition of all or substantially all the
assets or liabilities of Carnegie or all or substantially all the assets or
liabilities of Carnegie Bank, or any other business combination involving
Carnegie or Carnegie Bank, or (ii) a transaction involving the transfer of
beneficial ownership of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 10% or more of the
then outstanding shares of Common Stock or the then outstanding shares of
common stock of Carnegie Bank (collectively, a "Proposal"), and thereafter,
if such Proposal has not been Publicly Withdrawn (as such term is
hereinafter defined) at least 30 days prior to the meeting of shareholders
of Carnegie called to vote on the Merger, Carnegie's shareholders fail to
approve the Merger by the vote required by applicable law at the meeting of
shareholders called for such purpose or such meeting has been cancelled; or
2
(d) a person or group, other than Sovereign or an affiliate of
Sovereign, makes a bona fide Proposal and thereafter, but before such
Proposal has been Publicly Withdrawn, Carnegie willfully takes any action
in a manner which would likely result in the failure of either party to
satisfy a material condition to the closing of the Merger or materially
reduce the value of the transaction to Sovereign; or
(e) Carnegie breaches, in any material respect, any binding term of
the Agreement with respect to the Merger, or this Stock Option Agreement
after a Proposal is made and before it is Publicly Withdrawn or publicly
announces an intention to authorize, recommend or accept any such Proposal;
provided, however, that any purchase of shares upon exercise of the Option shall
be subject to compliance with applicable law.
If more than one of the transactions giving rise to a Triggering Event
under this Section is undertaken or effected, then all such transactions shall
give rise only to one Triggering Event, which Triggering Event shall be deemed
continuing for all purposes hereunder until all such transactions are abandoned.
"Publicly Withdrawn" for purposes of this Section 2 shall mean an
unconditional bona fide withdrawal of the Proposal coupled with a public
announcement of no further interest in pursuing such Proposal or in acquiring
any controlling influence over Carnegie or in soliciting or inducing any other
person (other than Sovereign or an affiliate of Sovereign) to do so.
Notwithstanding the foregoing, the obligation of Carnegie to issue Option
Shares upon exercise of the Option shall be deferred (but shall not terminate)
(i) until the receipt of all required governmental or regulatory approvals or
consents necessary for Carnegie to issue the Option Shares, or Sovereign to
exercise the Option, or until the expiration or termination of any waiting
period required by law, or (ii) so long as any injunction or other order, decree
or ruling issued by any federal or state court of competent jurisdiction is in
effect which prohibits the sale or delivery of the Option Shares, and, in each
case, notwithstanding any provision to the contrary set forth herein, the Option
shall not expire or otherwise terminate.
Carnegie shall notify Sovereign promptly in writing of the occurrence of
any Triggering Event known to it, it being understood that the giving of such
notice by Carnegie shall not be a condition to the right of Sovereign to
exercise the Option. Carnegie will not take any action which would have the
effect of preventing or disabling Carnegie from delivering the Option Shares to
Sovereign upon exercise of the Option or otherwise performing its obligations
under this Stock Option Agreement. In the event Sovereign wishes to exercise the
Option, Sovereign
3
shall send a written notice to Carnegie (the date of which is hereinafter
referred to as the "Notice Date") specifying the total number of Option Shares
it wishes to purchase and a place and date between two and ten business days
inclusive from the Notice Date for the closing of such a purchase (a "Closing");
provided, however, that a Closing shall not occur prior to two days after the
later of receipt of any necessary regulatory approvals or the expiration of any
legally required notice or waiting period, if any.
3. Payment and Delivery of Certificates. At any Closing hereunder, (a)
Sovereign will make payment to Carnegie of the aggregate price for the Option
Shares so purchased by wire transfer of immediately available funds to an
account designated by Carnegie, (b) Carnegie will deliver to Sovereign a stock
certificate or certificates representing the number of Option Shares so
purchased, registered in the name of Sovereign or its designee, in such
denominations as were specified by Sovereign in its notice of exercise, and (c)
Sovereign will pay any transfer or other taxes required by reason of the
issuance of the Option Shares so purchased.
A legend will be placed on each stock certificate evidencing Option Shares
issued pursuant to this Stock Option Agreement, which legend will read
substantially as follows:
"The shares of stock evidenced by this certificate have not been the
subject of a registration statement filed under the Securities Act of 1933,
as amended (the "Act"), and declared effective by the Securities and
Exchange Commission. These shares may not be sold, transferred or otherwise
disposed of prior to such time unless Carnegie Bancorp receives an opinion
of counsel stating that an exemption from the registration provisions of
the Act is available for such transfer."
4. Registration Rights. Upon or after the occurrence of a Triggering Event
and upon receipt of a written request from Sovereign, Carnegie shall prepare and
file as soon as practicable a registration statement under the Securities Act of
1933, as amended, with the Securities and Exchange Commission covering the
Option and such number of Option Shares as Sovereign shall specify in its
request, and Carnegie shall use its best efforts to cause such registration
statement to be declared effective in order to permit the sale or other
disposition of the Option and the Option Shares, provided that Sovereign shall
in no event have the right to have more than one such registration statement
become effective, and provided further that Carnegie shall not be required to
prepare and file any such registration statement in connection with any proposed
sale with respect to which counsel to Carnegie delivers to Carnegie and to
Sovereign its opinion to the effect that no such filing is required under
applicable laws and regulations with respect to such sale or disposition;
4
provided, however, that Carnegie may delay any registration of Option Shares
above for a period not exceeding 90 days provided Carnegie shall in good faith
determine that any such registration would adversely affect an offering or
contemplated offering of other securities by Carnegie. Sovereign shall provide
all information reasonably requested by Carnegie for inclusion in any
registration statement to be filed hereunder. In connection with such filing,
Carnegie shall use its best efforts to cause to be delivered to Sovereign such
certificates, opinions, accountant's letters and other documents as Sovereign
shall reasonably request and as are customarily provided in connection with
registration of securities under the Securities Act of 1933, as amended.
Carnegie shall provide to Sovereign such number of copies of the preliminary
prospectus and final prospectus and any amendments and supplements thereto as
Sovereign may reasonably request. All reasonable expenses incurred by Carnegie
in complying with the provisions of this Section 4, including, without
limitation, all registration and filing fees, reasonable printing expenses,
reasonable fees and disbursements of counsel for Carnegie and blue sky fees and
expenses, shall be paid by Carnegie. Underwriting discounts and commissions to
brokers and dealers relating to the Option Shares, fees and disbursements of
counsel to Sovereign and any other expenses incurred by Sovereign in connection
with such filing shall be borne by Sovereign. In connection with such filing,
Carnegie shall indemnify and hold harmless Sovereign against any losses, claims,
damages or liabilities, joint or several, to which Sovereign may become subject,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any preliminary or final
registration statement or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; and Carnegie will reimburse Sovereign for any legal or other
expense reasonably incurred by Sovereign in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that Carnegie will not be liable in any case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
preliminary or final registration statement or such amendment or supplement
thereto in reliance upon and in conformity with written information furnished by
or on behalf of Sovereign specifically for use in the preparation thereof.
Sovereign will indemnify and hold harmless Carnegie to the same extent as set
forth in the immediately preceding sentence but only with reference to written
information furnished by or on behalf of Sovereign for use in the preparation of
such preliminary or final registration statement or such amendment or supplement
thereto; and Sovereign will reimburse Carnegie for any legal or other expense
reasonably incurred by Carnegie in connection with
5
investigating or defending any such loss, claim, damage, liability or action.
5. Adjustment Upon Changes in Capitalization. In the event of any change in
the Common Stock by reason of stock dividends, split-ups, recapitalizations,
combinations, conversions, divisions, exchanges of shares or the like, then the
number and kind of Option Shares and the Option Price shall be appropriately
adjusted.
6. Filings and Consents. Each of Sovereign and Carnegie will use its best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary to the consummation of the transactions
contemplated by this Stock Option Agreement. Within 10 days from the date
hereof, Sovereign shall file a report of beneficial ownership on Form 13D with
the Securities and Exchange Commission under the Exchange Act which discloses
the rights of Sovereign hereunder.
7. Representations and Warranties of Carnegie. Carnegie hereby represents
and warrants to Sovereign as follows:
(a) Due Authorization. Carnegie has full corporate power and authority
to execute, deliver and perform this Stock Option Agreement and all
corporate action necessary for execution, delivery and performance of this
Stock Option Agreement has been duly taken by Carnegie. This Stock Option
Agreement constitutes a legal, valid and binding obligation of Carnegie,
enforceable against Carnegie in accordance with its terms (except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to
or affecting creditors' rights or by general equity principles).
(b) Authorized Shares. Carnegie has taken all necessary corporate
action to authorize and reserve for issuance all shares of Common Stock
that may be issued pursuant to any exercise of the Option.
8. Representations and Warranties of Sovereign. Sovereign hereby represents
and warrants to Carnegie that Sovereign has full corporate power and authority
to execute, deliver and perform this Stock Option Agreement and all corporate
action necessary for execution, delivery and performance of this Stock Option
Agreement has been duly taken by Sovereign. This Stock Option Agreement
constitutes a legal, valid and binding obligation of Sovereign, enforceable
against Sovereign in accordance with its terms (except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles).
6
9. Specific Performance. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Stock Option Agreement and that the
obligations of the parties hereto shall be specifically enforceable.
10. Entire Agreement. This Stock Option Agreement and the Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof.
11. Assignment or Transfer. Sovereign may not sell, assign or otherwise
transfer its rights and obligations hereunder, in whole or in part, to any
person or group of persons other than to a subsidiary of Sovereign. Sovereign
represents that it is acquiring the Option for Sovereign's own account and not
with a view to, or for sale in connection with, any distribution of the Option
or the Option Shares. Sovereign is aware that neither the Option nor the Option
Shares is the subject of a registration statement filed with, and declared
effective by, the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act of 1933, as amended, but instead each is being offered in
reliance upon the exemption from the registration requirement provided by
Section 4(2) thereof and the representations and warranties made by Sovereign in
connection therewith and Sovereign acknowledges that the Option Shares may not
be sold, transferred or otherwise disposed of unless registered or unless
subject to an exemption from registration.
12. Amendment of Stock Option Agreement. By mutual consent of the parties
hereto, this Stock Option Agreement may be amended in writing at any time, for
the purpose of facilitating performance hereunder or to comply with any
applicable regulation of any governmental authority or any applicable order of
any court or for any other purpose.
13. Validity. The invalidity or unenforceability of any provision of this
Stock Option Agreement shall not affect the validity or enforceability of any
other provisions of this Stock Option Agreement, which shall remain in full
force and effect.
14. Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered personally, by telegram or telecopy, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
7
(i) 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
P.O. Box 679
Reading, Pennsylvania 19603
Attention: Joseph M. Harenza, Esquire
David W. Swartz, Esquire
Telecopy No.: (610) 376-5610
(ii) If to Carnegie, to:
Carnegie Bancorp
619 Alexander Road
Princeton, New Jersey 08540
Attention: Thomas L. Gray, Jr.
President
and Chief Executive Officer
Telecopy No.: (609) 452-2492
with copies to:
McCarter & English
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07101-0652
Attention: Michael M. Horn, Esquire
Telecopy No.: (973) 624-7070
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
15. Governing Law. This Stock Option Agreement shall be governed by and
construed in accordance with the domestic
8
internal law (but not the law of conflicts of law) of the Commonwealth of
Pennsylvania.
16. Captions. The captions in this Stock Option Agreement are inserted for
convenience and reference purposes, and shall not limit or otherwise affect any
of the terms or provisions hereof.
17. Waivers and Extensions. The parties hereto may, by mutual consent,
extend the time for performance of any of the obligations or acts of either
party hereto. Each party may waive (i) compliance with any of the covenants of
the other party contained in this Stock Option Agreement and/or (ii) the other
party's performance of any of its obligations set forth in this Stock Option
Agreement.
18. Parties in Interest. This Stock Option Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, nothing in this Stock
Option Agreement, express or implied, is intended to confer upon any other
person any rights or remedies of any nature whatsoever under or by reason of
this Stock Option Agreement.
19. Counterparts. This Stock Option Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
20. Expenses. Subject to the terms of the Plan and except as otherwise
provided herein, all costs and expenses incurred by the parties hereto in
connection with the transactions contemplated by this Stock Option Agreement or
the Option shall be paid by the party incurring such cost or expense.
21. Termination. This Stock Option Agreement shall terminate and be of no
further force or effect upon the earliest to occur of (A) the Effective Time or
(B) termination of the Agreement in accordance with the terms thereof, except
that if the Agreement is terminated by Sovereign pursuant to Section 6.01(b)(i)
of the Agreement (provided the failure of the occurrence of the event specified
in Section 6.01(b)(i) of the Agreement shall be due to the failure of Carnegie
to perform or observe its agreements set forth in the Agreement required to be
performed or observed by Carnegie prior to the Closing Date (as defined in the
Agreement)) or 6.01(d) of the Agreement, this Stock Option Agreement shall not
terminate until one year after the date of termination of the Agreement.
IN WITNESS WHEREOF, each of the parties hereto, pursuant to resolutions
adopted by its Board of Directors, has caused this Stock Option Agreement to be
executed by its duly authorized officer and has caused its corporate seal to be
9
affixed hereunto and to be duly attested, all as of the day and year first above
written.
SOVEREIGN BANCORP, INC.
By________________________________
Jay S. Sidhu,
President and Chief
Executive Officer
CARNEGIE BANCORP
By________________________________
Thomas L. Gray, Jr.
President and Chief Executive
Officer
10
Exhibit 3
BANK PLAN OF MERGER
THIS BANK PLAN OF MERGER ("Plan of Merger") dated December 12, 1997, is by
and between SOVEREIGN BANK, a federal savings bank ("Sovereign Bank"), and
CARNEGIE BANK, N.A., a national bank ("Carnegie Bank").
BACKGROUND
1. Sovereign Bank is a federal savings bank and a wholly-owned subsidiary
of Sovereign Bancorp, Inc., a Pennsylvania corporation ("Sovereign"). The
authorized capital stock of Sovereign Bank consists of 1,000 shares of common
stock, par value $1.00 per share ("Sovereign Bank Common Stock"), of which at
the date hereof 1,000 shares are issued and outstanding.
2. Carnegie Bank is a national bank and a wholly-owned subsidiary of
Carnegie Bancorp, a New Jersey corporation ("Carnegie"). The authorized capital
stock of Carnegie Bank consists of 1,000,000 shares of common stock, par value
$5.00 per share ("Carnegie Bank Common Stock"), of which at the date hereof
897,305 shares are issued and outstanding.
3. The respective Boards of Directors of Sovereign Bank and Carnegie Bank
deem the merger of Carnegie Bank with and into Sovereign Bank, pursuant to the
terms and conditions set forth or referred to herein, to be desirable and in the
best interests of the respective corporations and their respective shareholders.
4. The respective Boards of Directors of Sovereign Bank and Carnegie Bank
have adopted resolutions approving this Plan of Merger. The respective Boards of
Directors of Sovereign and Carnegie have adopted resolutions approving an
Agreement and Plan of Merger dated December 12, 1997 (the "Agreement") between
Sovereign and Carnegie, pursuant to which this Plan of Merger is being executed
by Sovereign Bank and Carnegie Bank.
AGREEMENT
In consideration of the premises and of the mutual covenants and agreements
herein contained, and in accordance with the applicable laws and regulations of
the United States of America, the Commonwealth of Pennsylvania, and the State of
New Jersey, Sovereign Bank and Carnegie Bank, intending to be legally bound
hereby, agree:
1
ARTICLE I
MERGER
Subject to the terms and conditions of this Plan of Merger and in
accordance with the applicable laws and regulations of the United States of
America, the Commonwealth of Pennsylvania, and the State of New Jersey on the
Effective Date (as that term is defined in Article V hereof): Carnegie Bank
shall merge with and into Sovereign Bank; the separate existence of Carnegie
Bank shall cease; and Sovereign Bank shall be the surviving corporation (such
transaction referred to herein as the "Merger" and Sovereign Bank, as the
surviving corporation in the Merger, referred to herein as the "Surviving
Bank"). Sovereign Bank will have its home office at 1130 Berkshire Boulevard,
Wyomissing, Pennsylvania 19610 and its branch offices at the locations listed on
Exhibit "A."
ARTICLE II
CHARTER AND BYLAWS
On and after the Effective Date, the Charter and Bylaws of Sovereign Bank,
as in effect immediately prior to the Effective Date, shall automatically be and
remain the Charter and Bylaws of the Surviving Bank, until altered, amended or
repealed.
ARTICLE III
BOARD OF DIRECTORS AND OFFICERS
3.1 Board of Directors. On and after the Effective Date, the directors of
the Surviving Bank shall consist of the directors of Sovereign Bank duly elected
and holding office immediately prior to the Effective Date. The names and
residence addresses of the directors are:
Name Residence Address
---- -----------------
Joseph P. Gemmell [INTENTIONALLY OMITTED.]
Brian Hard [INTENTIONALLY OMITTED.]
Stewart B. Kean [INTENTIONALLY OMITTED.]
Joseph E. Lewis [INTENTIONALLY OMITTED.]
F. Joseph Loeper [INTENTIONALLY OMITTED.]
Richard E. Mohn [INTENTIONALLY OMITTED.]
Rhoda S. Oberholtzer [INTENTIONALLY OMITTED.]
Patrick J. Petrone [INTENTIONALLY OMITTED.]
Daniel K. Rothermel [INTENTIONALLY OMITTED.]
2
Elizabeth B. Rothermel [INTENTIONALLY OMITTED.]
Robert A. Sadler [INTENTIONALLY OMITTED.]
Jay S. Sidhu [INTENTIONALLY OMITTED.]
Cameron C. Troilo [INTENTIONALLY OMITTED.]
G. Arthur Weaver [INTENTIONALLY OMITTED.]
Dr. Paul B. Wieand [INTENTIONALLY OMITTED.]
3.2 Officers. On and after the Effective Date, the officers of the
Surviving Bank shall consist of the officers of Sovereign Bank duly elected and
holding office immediately prior to the Effective Date. The names and titles of
the officers are:
Name Title
---- -----
Jay S. Sidhu President and Chief Executive
Officer
Karl D. Gerhart Treasurer and Chief Financial
Officer
Lawrence M. Thompson, Jr. Secretary and Chief Administrative
Officer
Dana J. Albera Assistant Secretary
ARTICLE IV
CONVERSION OF SHARES
4.1 Stock of Sovereign Bank. Each share of Sovereign Bank 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 a share of
common stock of the Surviving Bank.
4.2 Stock of Carnegie Bank. Each share of Carnegie Bank Common Stock issued
and outstanding immediately prior to the Effective Date, and each share of
Carnegie Bank Common Stock issued and held in the treasury of Carnegie as of the
Effective Date, if any, shall, on the Effective Date, be cancelled, and no cash,
stock or other property shall be delivered in exchange therefor.
ARTICLE V
EFFECTIVE DATE OF THE MERGER
The Merger shall be effective on the date on which all filings with
government agencies, as may be required under applicable laws and regulations
for the Merger to become
3
effective, are made and accepted by the applicable agencies (the "Effective
Date").
ARTICLE VI
EFFECT OF THE MERGER
6.1 Separate Existence. On the Effective Date: the separate existence of
Carnegie Bank shall cease; and all of the property (real, personal and mixed),
rights, powers, duties and obligations of Carnegie Bank shall be taken and
deemed to be transferred to and vested in the Surviving Bank, without further
act or deed, as provided by applicable laws and regulations.
6.2 Savings Accounts. After the Effective Date, Sovereign Bank will
continue to issue savings accounts on the same basis as immediately prior to the
Effective Date.
6.3 Liquidation Account. After the Effective Date, Sovereign Bank will
continue to maintain the Sovereign Bank liquidation account for the benefit of
eligible account holders on the same basis as immediately prior to the Effective
Date.
ARTICLE VII
CONDITIONS PRECEDENT
The obligations of Sovereign Bank and Carnegie Bank to effect the Merger
shall be subject to satisfaction, unless duly waived by the party permitted to
do so, of the conditions precedent set forth in the Agreement.
ARTICLE VIII
TERMINATION
This Plan of Merger shall terminate upon any termination of the Agreement
in accordance with its terms; provided, however, that any such termination of
this Plan of Merger shall not relieve any party hereto from liability on account
of a breach by such party of any of the terms hereof or thereof.
ARTICLE IX
AMENDMENT
Subject to applicable law, this Plan of Merger may be amended, by action of
the respective Boards of Directors of the parties hereto, at any time prior to
consummation of the Merger, but only by an instrument in writing signed by duly
authorized officers on behalf of the parties hereto.
4
ARTICLE X
MISCELLANEOUS
10.1 Extensions; Waivers. Each party, by a written instrument signed by a
duly authorized officer, may extend the time for the performance of any of the
obligations or other acts of the other party hereto and may waive compliance
with any of the covenants, or performance of any of the obligations, of the
other party contained in this Plan of Merger.
10.2 Notices. Any notice or other communication required or permitted under
this Plan of Merger shall be given, and shall be effective, in accordance with
the provisions of Section 7.06 of the Agreement.
10.3 Captions. The headings of the several Articles and Sections herein are
inserted for convenience of reference only and are not intended to be part of,
or to affect the meaning or interpretation of, this Plan of Merger.
10.4 Counterparts. For the convenience of the parties hereto, this Plan of
Merger may be executed in several counterparts, each of which shall be deemed
the original, but all of which together shall constitute one and the same
instrument.
10.5 Governing Law. This Plan of Merger shall be governed by and construed
in accordance with the laws of the United States of America and, in the absence
of controlling Federal law, in accordance with the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, Sovereign Bank and Carnegie Bank have caused this Bank
Plan of Merger to be executed by their duly
5
authorized officers and their corporate seals to be hereunto affixed on the date
first written above.
SOVEREIGN BANK
By________________________________
Jay S. Sidhu,
President
CARNEGIE BANK, N.A.
By________________________________
Thomas L. Gray, Jr.
President and Chief
Executive Officer
6
EXHIBIT "A"
to Plan of Merger
SOVEREIGN BANK
BRANCH LOCATIONS
[INTENTIONALLY OMITTED.]
7
EXHIBIT 4
Form of Agreement Re: Benefits
------------------------------
December 12, 1997
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Gentlemen:
I, the undersigned, hereby acknowledge and agree that an amount not to
exceed $__________ is the maximum amount that I would be entitled to receive
from Carnegie, any Carnegie subsidiary or any of their respective successors or
assigns pursuant to any employment agreement, special termination agreement,
supplemental executive retirement plan, deferred compensation plan, salary
continuation plan, or any other benefit or welfare plan assuming that my
employment with Carnegie or any Carnegie subsidiary (or any of their respective
successors or assigns) is terminated for any reason, whether voluntarily or
involuntarily, on June 30, 1998, and following the Closing Date of the
transaction described in the Agreement and Plan of Merger dated as of December
12, 1997 between Sovereign Bancorp, Inc. and Carnegie Bancorp (the "Agreement").
All capitalized terms used herein but not defined herein shall have the meanings
given to them in the Agreement. The amount shown above represents the total of
all amounts available for payment in an immediate lump sum upon termination and
the present value, as of June 30, 1998 (based on a 6% per annum discount factor)
of all payments to be made on a date or dates subsequent to the date of
termination.
This letter is subject to the acknowledgement and agreement of Sovereign
Bancorp, Inc., as evidenced below, that the amount shown above reflects a good
faith estimate of the amounts that will be payable to me in the event of my
termination of employment on or after the Closing Date, as defined in the
Agreement, and may be subject to adjustment upon an actual termination of my
employment to reflect increases in my compensation and benefits due to the
passage of time or in accordance with the terms of Carnegie's employee benefit
plans
Sovereign Bancorp, Inc.
December 12, 1997
Page 2
and past practices for routine increases. Sovereign agrees to make all such
required payments in accordance with the terms of the applicable agreement or
plan.
Sincerely,
Acknowledged and Agreed to:
SOVEREIGN BANCORP, INC.
By________________________
Title_____________________
EXHIBIT 5
FORM OF OPINION OF COUNSEL TO SOVEREIGN
Carnegie shall have received from counsel to Sovereign, an opinion, dated
as of the Closing Date, substantially to the effect that, subject to normal
exceptions and qualifications:
(a) Sovereign and Sovereign Bank have full corporate power to carry out the
transactions contemplated in the Agreement and the Plan of Merger, respectively.
The execution and delivery of the Agreement and the Plan of Merger and the
consummation of the transactions contemplated thereunder have been duly and
validly authorized by all necessary corporate action on the part of Sovereign
and Sovereign Bank, and the Agreement and the Plan constitute valid and legally
binding obligations of Sovereign and Sovereign Bank, respectively, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship, and other laws affecting creditors' rights generally and
institutions the deposits of which are insured by the FDIC, and as may be
limited by the exercise of judicial discretion in applying principles of equity.
Subject to satisfaction of the conditions set forth in the Agreement, neither
the transactions contemplated in the Agreement or the Plan, nor compliance by
Sovereign and Sovereign Bank with any of the respective provisions thereof, will
(i) conflict with or result in a breach or default under (A) the articles of
incorporation or bylaws of Sovereign or the charter or bylaws of Sovereign Bank,
or, (B) to the knowledge of such counsel, any note, bond, mortgage, indenture,
license, agreement or other material instrument or obligation to which Sovereign
or Sovereign Bank is a party; or (ii) based on certificates of officers and
without independent verification, to the knowledge of such counsel, result in
the creation or imposition of any material lien or encumbrance upon the property
of Sovereign or Sovereign Bank, except such material lien, instrument or
obligation that has been disclosed pursuant to the Agreement or the Plan; or
(iii) violate in any material respect any order, writ, injunction or decree
known to such counsel, or any federal or Pennsylvania statute, rule or
regulation applicable to Sovereign or Sovereign Bank.
(b) Sovereign Bank is a validly existing federally-chartered savings bank
organized and in good standing under the laws of the United States of America.
The deposits of Sovereign Bank are insured to the maximum extent provided by law
by the Federal Deposit Insurance Corporation.
(c) There is, to the knowledge of such counsel, no legal, administrative,
arbitration or governmental proceeding or investigation pending or threatened to
which Sovereign or Sovereign Bank is a party which would, if determined
adversely to Sovereign or Sovereign Bank, have a material adverse effect on
1
the financial condition or results of operation of Sovereign and Sovereign Bank
taken as a whole, or which presents a claim to restrain or prohibit the
transactions contemplated by the Agreement and the Plan, respectively.
(d) No consent, approval, authorization or order of any federal or state
court or federal or state governmental agency or body is required for the
consummation by Sovereign or Sovereign Bank of the transactions contemplated by
the Agreement and the Plan, except for such consents, approvals, authorizations
or orders as have been obtained.
(e) Upon the filing and effectiveness of the Articles of Merger with the
PDS, the Articles of Merger with the NJSOS, and Articles of Combination with the
OTS [and the OCC] in accordance with the Agreement and the Plan, the mergers of
Sovereign and Carnegie and of Sovereign Bank and Carnegie Bank contemplated by
the Agreement and the Plan, respectively, will have been effected in compliance
with all applicable federal and Pennsylvania laws and regulations in all
material respects.
(f) The shares of Sovereign Common Stock to be issued in connection with
the merger of Carnegie and Sovereign contemplated by the Agreement have been
duly authorized and will, when issued in accordance with the terms of the
Agreement, be validly issued, fully paid and nonassessable, free and clear of
any mortgage, pledge, lien, encumbrance or claim (legal or equitable).
(g) On the sole basis of such counsel's participation in conferences with
officers and employees of Sovereign in connection with the Proxy
Statement/Prospectus, and without other independent investigation or inquiry,
such counsel has no reason to believe that the Proxy Statement/Prospectus,
including any amendments or supplements thereto (except for the financial
information, financial schedules and other financial or statistical data
contained therein and except for any information supplied by Carnegie or
Carnegie Bank for inclusion therein, as to which counsel need express no
belief), as of the date of mailing thereof, contained any untrue statement of a
material fact with respect to Sovereign or omitted to state any material fact
with respect to Sovereign necessary to make any statement therein with respect
to Sovereign, in light of the circumstances under which it was made, not
misleading. Counsel may state in delivering such opinion, that such counsel has
not independently verified and does not assume the responsibility for the
accuracy, completeness or fairness of any information or statements contained in
the Proxy Statement/Prospectus, except with respect to identified statements of
law or regulations or legal conclusions relating to Sovereign or the
transactions contemplated in the Agreement and the Plan.
2
EXHIBIT 6
FORM OF TAX OPINION OF STEVENS & LEE
Sovereign and Carnegie shall have received an opinion of Stevens & Lee
substantially to the effect that, under the provisions of the IRC:
1. Provided the Merger qualifies as a statutory merger under applicable
law, the transfer by Carnegie of all of its assets to Sovereign in exchange for
Sovereign Common Stock (including fractional share interests) and the assumption
by Sovereign of all of Carnegie's liabilities will constitute a reorganization
within the meaning of Section 368(a)(1)(A) of the IRC.
2. Carnegie and Sovereign will each be "a party to a reorganization" within
the meaning of Section 368(b) of the IRC.
3. Neither Carnegie nor Sovereign will recognize any gain or loss upon the
transfer of Carnegie's assets to Sovereign in exchange solely for Sovereign
Common Stock (including fractional share interests) and the assumption by
Sovereign of the liabilities of Carnegie.
4. The basis of Carnegie's assets in the hands of Sovereign will be the
same as the basis of such assets in the hands of Carnegie immediately prior to
the Merger.
5. The holding period of the assets of Carnegie to be received by Sovereign
will include the period during which the assets were held by Carnegie.
6. No gain or loss will be recognized by the shareholders of Carnegie on
the receipt of Sovereign Common Stock (including fractional share interests)
solely in exchange for their shares of Carnegie Common Stock.
7. The basis of the Sovereign Common Stock (including fractional share
interests) to be received by the Carnegie shareholders in the Merger will be the
same as the basis of the Carnegie Common Stock surrendered in exchange therefor.
8. The holding period of the Sovereign Common Stock (including fractional
share interests) to be received by the Carnegie shareholders in the Merger will
include the period during which the Carnegie shareholders held their Carnegie
Common Stock, provided the shares of Carnegie Common Stock are held as a capital
asset on the Effective Date.
9. The payment of cash in lieu of fractional share interests of Sovereign
Common Stock will be treated as if the fractional share interests were
distributed as part of the Merger and then redeemed by Sovereign. Such cash
payments will be
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treated as having been received as distribution in full payment in exchange for
the fractional share interests redeemed, as provided in Section 302(a) of the
IRC.
10. The Sovereign Stock Purchase Rights transferred with the shares of
Sovereign Common Stock will not constitute "other property" within the meaning
of Section 356(a)(1)(B) of the IRC.
11. As provided in Section 381(c)(2) of the IRC and related Treasury
regulations, Sovereign will succeed to and take into account the earnings and
profits, or deficit in earnings and profits, of Carnegie as of the Effective
Date. Any deficit in the earnings and profits of Sovereign or Carnegie will be
used only to offset the earnings and profits accumulated after the Merger.
12. Pursuant to Section 381(a) of the IRC and related Treasury regulations,
Sovereign will succeed to and take into account the items of Carnegie described
in Section 381(c) of the IRC. Such items will be taken into account by Sovereign
subject to the conditions and limitations of Sections 381, 382, 383, and 384 of
the IRC and the Treasury regulations thereunder.
13. Provided the Bank Merger constitutes a statutory merger under
applicable law, the Bank Merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) of the IRC.
14. Carnegie Bank and Sovereign Bank will each be "a party to a
reorganization" within the meaning of Section 368(b) of the IRC.
15. Neither Carnegie Bank nor Sovereign Bank will recognize any gain or
loss upon the transfer of Carnegie Bank's assets to Sovereign Bank in
constructive exchange solely for Sovereign Bank common stock and the assumption
by Sovereign Bank of the liabilities of Carnegie Bank.
16. The basis of Carnegie Bank's assets in the hands of Sovereign Bank will
be the same as the basis of such assets in the hands of Carnegie Bank
immediately prior to the Bank Merger.
17. The holding period of Carnegie Bank's assets in the hands of Sovereign
Bank will include the period during which such assets were held by Carnegie
Bank.
18. No gain or loss will be recognized by Sovereign, as the shareholder of
Carnegie Bank, upon the constructive receipt of shares of Sovereign Bank common
stock in exchange for the Carnegie Bank Common Stock surrendered in exchange
therefor in the Bank Merger.
19. The basis of the Sovereign Bank common stock to be held by Sovereign
after the Bank Merger will equal the basis of such
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stock immediately before the Bank Merger, increased by the basis of the Carnegie
Bank Common Stock surrendered in the constructive exchange.
20. As provided in Section 381(c)(2) of the IRC and related Treasury
regulations, Sovereign Bank will succeed to and take into account the earnings
and profits, or deficit in earnings and profits, of Carnegie Bank as of the
effective date of the Bank Merger. Any deficit in the earnings and profits of
Sovereign Bank or Carnegie Bank will be used only to offset the earnings and
profits accumulated after the Bank Merger.
21. Pursuant to Section 381(a) of the IRC and related Treasury regulations,
Sovereign Bank will succeed to and take into account the items of Carnegie Bank
described in Section 381(c) of the IRC. Such items will be taken into account by
Sovereign Bank subject to the conditions and limitations of Sections 381, 382,
383, and 384 of the IRC and the Treasury regulations thereunder.
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EXHIBIT 7
FORM OF OPINION OF COUNSEL TO CARNEGIE
Sovereign shall have received from counsel to Carnegie, an opinion, dated
as of the Closing Date, substantially to the effect that, subject to normal
exceptions and qualifications:
(a) Carnegie and Carnegie Bank have full corporate power to carry out the
transactions contemplated in the Agreement and the Plan of Merger, respectively.
The execution and delivery of the Agreement and the Plan of Merger and the
consummation of the transactions contemplated thereunder have been duly and
validly authorized by all necessary corporate action on the part of Carnegie and
Carnegie Bank, and the Agreement and the Plan constitute a valid and legally
binding obligation, in accordance with their respective terms, of Carnegie and
Carnegie Bank, respectively, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, receivership, conservatorship, and other laws
affecting creditors' rights generally and institutions the deposits of which are
insured by the FDIC, and as may be limited by the exercise of judicial
discretion in applying principles of equity. Subject to satisfaction of the
conditions set forth in the Agreement, neither the transactions contemplated in
the Agreement and the Plan, nor compliance by Carnegie and Carnegie Bank with
any of the respective provisions thereof, will (i) conflict with or result in a
breach or default under (A) the certificate of incorporation or bylaws of
Carnegie or the charter or bylaws of Carnegie Bank, or (B) based on certificates
of officers and without independent verification, to the knowledge of such
counsel, any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which Carnegie or Carnegie Bank is a party; or (ii)
to the knowledge of such counsel, result in the creation or imposition of any
material lien, instrument or encumbrance upon the property of Carnegie or
Carnegie Bank, except such material lien, instrument or obligation that has been
disclosed to Sovereign pursuant to the Agreement and the Plan, or (iii) violate
in any material respect any order, writ, injunction, or decree known to such
counsel, or any statute, rule or regulation applicable to Carnegie or Carnegie
Bank.
(b) Carnegie Bank is a validly existing state-chartered bank organized and
in good standing under the laws of the United States of America. The deposits of
Carnegie Bank are insured to the maximum extent provided by law by the Federal
Deposit Insurance Corporation.
(c) There is, to the knowledge of such counsel, no legal, administrative,
arbitration or governmental proceeding or investigation pending or threatened to
which Carnegie or Carnegie Bank is a party which would, if determined adversely
to Carnegie or Carnegie Bank, have a material adverse effect on the business,
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properties, results of operations, or condition, financial or otherwise, of
Carnegie or Carnegie Bank taken as a whole or which presents a claim to restrain
or prohibit the transactions contemplated by the Agreement and the Plan,
respectively.
(d) No consent, approval, authorization, or order of any federal or state
court or federal or state governmental agency or body, or of any third party, is
required for the consummation by Carnegie or Carnegie Bank of the transactions
contemplated by the Agreement and the Plan, except for such consents, approvals,
authorizations or orders as have been obtained.
(e) On the sole basis of such counsel's participation in conferences with
officers and employees of Carnegie in connection with the preparation of the
Prospectus/Proxy Statement and without other independent investigation or
inquiry, such counsel has no reason to believe that the Prospectus/Proxy
Statement, including any amendments or supplements thereto (except for the
financial information, financial statements, financial schedules and other
financial or statistical data contained therein and except for any information
supplied by Sovereign for inclusion therein, as to which counsel need express no
belief), as of the date of mailing thereof and as of the date of the meeting of
shareholders of Carnegie to approve the merger, contained any untrue statement
of a material fact or omitted to state a material fact necessary to make any
statement therein, in light of the circumstances under which it was made, not
misleading. Counsel may state in delivering such opinion, that such counsel has
not independently verified and does not assume any responsibility for the
accuracy, completeness or fairness of any information or statements contained in
the Prospectus/Proxy Statement, except with respect to identified statements of
law or regulations or legal conclusions relating to Carnegie or Carnegie Bank or
the transactions contemplated in the Agreement and the Plan.
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