PROSPECTUS
[SOVEREIGN BANCORP LOGO]
DIVIDEND REINVESTMENT AND
STOCK PURCHASE PLAN
This Prospectus relates to the 1,742,725 shares of common stock, no par
value, of Sovereign Bancorp, Inc. registered for sale under its Dividend
Reinvestment and Stock Purchase Plan.
Of these shares, 823,702 were purchased prior to the date of this
Prospectus. This Prospectus relates to the remaining 919,023 of such shares. It
is suggested that this Prospectus be retained for future reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS JUNE 2, 1998
TABLE OF CONTENTS
PAGE
----
Available Information....................................... 5
Incorporation of Certain Information by Reference........... 5
Highlights of the Plan...................................... 6
Sovereign................................................... 7
The Plan.................................................... 7
Purpose................................................... 7
Advantages................................................ 8
Administration............................................ 8
Participation............................................. 9
Purchases and Price of Shares............................. 11
Reports to Participants................................... 12
Dividends on Fractions.................................... 13
Certificates for Shares................................... 13
Custody Service........................................... 13
Withdrawals............................................... 13
Other Information......................................... 14
Employees................................................. 15
Federal Income Tax Consequences........................... 15
Use of Proceeds............................................. 16
Description of Capital Stock................................ 16
Legal Matters............................................... 19
Experts..................................................... 19
Indemnification............................................. 19
2
[SOVEREIGN BANCORP LOGO]
Fellow Shareholders:
As a holder of Sovereign Bancorp, Inc. Common Stock, you are able to
participate in Sovereign's Dividend Reinvestment and Stock Purchase Plan. Under
this Plan, you may elect to have your Sovereign Bancorp dividends automatically
reinvested in additional shares of Sovereign Common Stock. You may also, if you
wish, use the Plan to purchase additional shares of Common Stock through
voluntary cash payments.
We are pleased to inform you that as of October 12, 1995, ChaseMellon
Shareholder Services is acting as transfer agent, registrar and dividend
distribution agent for Sovereign Bancorp's Common Stock. Accordingly, all
dividend reinvestment and stock purchase correspondence should now be directed:
By Regular Mail: By Hand, Courier or Registered Mail:
ChaseMellon Shareholder Services ChaseMellon Shareholder Services
Investment Services Dept. Investment Services Dept.
P.O. Box 3338 85 Challenger Road
South Hackensack, NJ 07606-1938 Overpeck Center
Ridgefield Park, NJ 07660
Please mention Sovereign Bancorp, Inc. in all your correspondence. If you
prefer, you may call ChaseMellon Shareholder Services at 1-800-685-4524.
Participation in this Plan is entirely voluntary and you can, at any time,
discontinue it. Details of the Plan, including information on ChaseMellon
Shareholder Services, the agent for the Plan, are provided in this updated
Prospectus. Please note that, if you are presently a participant in the Plan,
you need not take any additional action at this time to continue your
participation.
We hope you will find this a convenient and inexpensive way to increase
your ownership of Sovereign Bancorp, Inc.
Sincerely,
/s/ Richard E. Mohn /s/ Jay S. Sidhu
- ------------------------ -----------------------
Richard E. Mohn Jay S. Sidhu
Chairman of the Board President and Chief Executive Officer
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No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus in connection
with the offer made by this Prospectus, and, if given or made, such information
or representations must not be relied upon. This Prospectus shall not constitute
an offer to sell or the solicitation of an offer to buy nor shall there be any
sale of these securities in any jurisdiction in which such offer, solicitation
or sale would be unlawful prior to registration or qualification under the
securities law of any such jurisdiction. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of Sovereign Bancorp,
Inc. ("Sovereign") since the date hereof.
AVAILABLE INFORMATION
Sovereign is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices located at 230 South Dearborn Street,
Chicago, Illinois 60604, and 75 Park Place, New York, New York 10007. Copies of
such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Sovereign has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933 (the "Act") with respect to the common
stock being offered pursuant to this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. In addition, certain documents filed by Sovereign with the
Commission have been incorporated in this Prospectus by reference. See
"Incorporation of Certain Documents by Reference." For further information with
respect to Sovereign and the Common Stock offered hereby, reference is made to
the Registration Statement, including the exhibits thereto, and the documents
incorporated herein by reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Sovereign with the Securities
and Exchange Commission are incorporated in this Prospectus by reference:
(a) Sovereign's Annual Report on Form 10-K for the year ended December
31, 1997;
(b) Sovereign's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995;
(c) Sovereign's Current Reports on Form 8-K dated February 19, 1998,
February 20, 1998 and April 20, 1998.
(d) Sovereign's Registration Statement on Form 8-A, filed August 14,
1989, pursuant to which Sovereign registered certain stock purchase rights
under the Exchange Act.
In addition, all documents filed by Sovereign pursuant to Section 13(a),
13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the shares of Common
Stock offered hereby shall be deemed to be incorporated by reference in this
Prospectus. Any statement contained herein or in a document all or a portion of
which is incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as modified or superseded, to constitute
a part of this Prospectus.
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SOVEREIGN HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO
WHOM THIS PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF SUCH
PERSON, A COPY OF ANY AND ALL OF THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS
PROSPECTUS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO THE DOCUMENTS THAT THIS PROSPECTUS
INCORPORATES). WRITTEN OR ORAL REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO:
INVESTOR RELATIONS OFFICER, SOVEREIGN BANCORP, INC., 1130 BERKSHIRE BOULEVARD,
WYOMISSING, PENNSYLVANIA 19610 (TELEPHONE: 610-320-8498).
HIGHLIGHTS OF THE PLAN
Sovereign's Dividend Reinvestment and Stock Purchase Plan (the "Plan")
provides holders of record of shares of Sovereign's common stock, no par value
(the "Common Stock"), with a simple and convenient way to purchase additional
shares without any brokerage commissions or other fees.
Participants in the Plan may:
o Automatically reinvest cash dividends on all of their shares of Common
Stock.
o Automatically reinvest cash dividends on fewer than all of their shares
of Common Stock and continue to receive cash dividends on their remaining
shares.
o Invest by making optional cash payments up to specified limits in any
quarter, whether or not any dividends on shares of Common Stock are being
reinvested. Shares purchased with optional cash payments will
automatically be enrolled in the Plan.
o Avoid brokerage commissions, service charges or other fees in connection
with purchases under the Plan.
o Provide for safekeeping, free of charge, for all certificates
representing shares of Common Stock through the Plan's free custodial
service.
o Avoid record keeping requirements and costs for any and all shares held
by the Agent through the free custodial service and reporting provision
of the Plan.
As of the date of this Prospectus, purchases of shares of Common Stock with
reinvested dividends are made at a 5% discount (the "Dividend Reinvestment
Discount") from the "Current Market Price" as defined in the answer to Question
10. The Dividend Reinvestment Discount may be changed or eliminated, however, at
Sovereign's discretion. Purchases of shares of Common Stock with optional cash
are made at the Current Market Price. Sovereign may in its discretion permit
purchases of shares of Common Stock with optional cash at a 5% discount from the
Current Market Price (the "Optional Cash Payment Discount"), which Optional Cash
Payment Discount may then be changed or eliminated at any time.
As of the date of this Prospectus, optional cash purchases may be made in
any amount from a minimum payment of $50 up to a maximum total of $5,000 per
quarter. The minimum and maximum amounts of quarterly optional cash purchases
may be changed (or optional cash purchases may be eliminated), however, at
Sovereign's discretion. Upon request to Sovereign, a participant may be
permitted to make a larger investment as described in the answer to Question 12.
Sovereign may, at its discretion, as to reinvested dividends on shares of
Common Stock or optional cash payments or both, direct the purchase of treasury
or newly-issued shares of Common Stock from Sovereign, or direct the purchase of
shares of Common Stock in market transactions. Market transactions may be
conducted in the over-the-counter market or by negotiated transactions and may
be on such terms as to price, delivery and otherwise as ChaseMellon Shareholder
Services (the "Agent") may determine. Market transactions would provide no new
funds for Sovereign.
A complete description of the Plan is included below under the caption,
"THE PLAN." Please read it carefully.
6
To enroll in the Plan, a holder of shares of Common Stock need only
complete the Plan Authorization Card which accompanies this Prospectus and
return it to the Agent.
Holders of shares of Common Stock who do not choose to participate in the
Plan will continue to receive cash dividends, as declared, by check in the usual
manner.
IF YOU HAVE QUESTIONS CONCERNING THE PLAN
By Regular Mail: By Hand, Courier or Registered Mail:
ChaseMellon Shareholder Services ChaseMellon Shareholder Services
Investment Services Dept. Investment Services Dept.
P.O. Box 3338 85 Challenger Road
South Hackensack, NJ 07606-1938 Overpeck Center
Ridgefield Park, NJ 07660
Please mention Sovereign Bancorp, Inc. in all your correspondence and, if
you are a participant in the Plan, give the number of your account. If you
prefer, you may call ChaseMellon Shareholder Services at 1-800-685-4524.
SOVEREIGN
Sovereign is a registered thrift holding company incorporated under the
laws of the Commonwealth of Pennsylvania. Sovereign, through its wholly-owned
subsidiary, Sovereign Bank, ("Sovereign Bank"), primary business consists of
attracting deposits from its network of community banking offices, and
originating commercial, consumer and residential mortgage loans and home equity
lines of credit in the communities served by those offices.
Sovereign's principal executive offices are located at 1130 Berkshire
Boulevard, Wyomissing, Pennsylvania 19610, and its telephone number at that
address is (610) 320-8400.
THE PLAN
The following is a question and answer statement of the provisions of the
Plan.
PURPOSE
1. What is the purpose of the Plan?
The purpose of the Plan is to provide holders of shares of Common Stock
with a simple and convenient method of reinvesting their cash dividends and/or
making optional cash payments toward the purchase of additional shares of Common
Stock without payment of any brokerage commissions, service charges or other
fees. Such additional shares will be purchased either from Sovereign or in
market transactions. To the extent that such additional shares are purchased
from Sovereign, Sovereign will receive additional funds for general corporate
purposes.
The Plan offers eligible holders an opportunity to invest conveniently for
long-term growth. The Plan is not intended to provide holders of shares of
Common Stock with a mechanism for generating assured short-term profits through
rapid turnover of shares acquired at a discount. The intended purpose of the
Plan precludes any person, organization or other entity from establishing a
series of related accounts for the purpose of conducting arbitrage operations
and/or exceeding the optional cash payment limit. Sovereign accordingly reserves
the right to modify, suspend or terminate participation by a shareholder who is
using the Plan for purposes inconsistent with the intended purpose of the Plan.
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ADVANTAGES
2. What are the advantages of the Plan?
Participants in the Plan may:
o Automatically reinvest cash dividends on all of their shares of Common
Stock.
o Automatically reinvest cash dividends on less than all of their shares of
Common Stock and continue to receive cash dividends on their remaining
shares.
o Invest by making optional cash payments up to specified limits in any
quarter, whether or not any dividends on shares of Common Stock are being
reinvested. Shares purchased with optional cash payments will
automatically be enrolled in the Plan.
o Avoid brokerage commissions, service charges or other fees in connection
with purchases under the Plan.
o Provide for safekeeping, free of charge, for all certificates
representing shares of Common Stock, including shares not participating
in the Plan, through the Plan's free custodial service.
o Avoid record keeping requirements and costs for any and all shares held
by the Agent through the free custodial service and reporting provision
of the Plan.
As of the date of this Prospectus, purchases of shares of Common Stock with
reinvested dividends are made at a 5% discount (the "Dividend Reinvestment
Discount") from the "Current Market Price" as defined in the answer to Question
10. The Dividend Reinvestment Discount may be changed or eliminated, however, at
Sovereign's discretion. Purchases of shares of Common Stock with optional cash
are made at the Current Market Price. Sovereign may in its discretion permit
purchases of shares of Common Stock with optional cash at a 5% discount from the
Current Market Price (the "Optional Cash Payment Discount"), which Optional Cash
Payment Discount may then be changed or eliminated at any time.
As of the date of this Prospectus, optional cash purchases may be made in
any amount from a minimum of $50 up to a maximum of $5,000 per quarter. The
minimum and maximum amounts of quarterly optional cash purchases may be changed
(or optional cash purchases may be eliminated), however, at Sovereign's
discretion. Upon request to Sovereign, a participant may be permitted to make a
larger investment as described in the answer to Question 12.
Full investment of funds is possible under the Plan because it permits a
participant's account to be credited not only with full shares but also with
fractional shares. Such fractional shares participate ratably in subsequent
dividends. Statements reflecting each purchase will be sent to you as soon as
practicable after each purchase for your account.
ADMINISTRATION
3. Who administers the Plan for participants?
Mellon Bank (the "Agent") with certain administrative support provided to
the Agent by ChaseMellon Shareholder Services L.L.C., a registered Transfer
Agent, as designated agent for each participating shareholder, administers the
Plan, keeps records, sends statements of account activity to each participant
and performs other duties relating to the Plan. The Agent holds for safekeeping
the shares purchased for you together with shares forwarded by you to the Agent
for safekeeping until termination of your participation in the Plan or receipt
of your written request for a certificate for all or part of your shares. Shares
purchased under the Plan and held by the Agent will be registered in the Agent's
name or the name of its nominee, as your agent. In the event that the Agent
should resign or otherwise cease to act as agent, Sovereign will appoint a new
agent to administer the Plan.
The Agent also acts as dividend disbursing agent, transfer agent and
registrar for shares of Common Stock.
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PARTICIPATION
4. Who is eligible to participate?
All holders of record of at least one whole share of Common Stock are
eligible to participate in the Plan. If you hold your shares in your own name,
you may participate in the Plan. If you are a beneficial owner whose shares are
registered in any name other than your own (e.g., in a broker's "street name" or
in the name of a bank nominee), you must become a shareholder of record by
having shares transferred into your own name or you must arrange with your
record holder to participate in the Plan on your behalf.
To facilitate participation by beneficial owners, Sovereign has made
alternative arrangements with the Agent to reinvest dividends under the Plan by
record holders such as brokers and bank nominees, on a per-dividend basis on
behalf of beneficial owners (see answer to Question 9). However, beneficial
owners who are not record holders may not make optional cash payments under the
Plan.
In addition, each employee of Sovereign or Sovereign Bank who participates
in Sovereign's Employee Stock Purchase Plan automatically participates in the
Plan with respect to shares of Common Stock held in the employee's Employee
Stock Purchase Plan account. See answer to Question 27 for more details.
5. Is partial participation possible under the Plan?
YES. If you desire that the dividends on only some of your shares held of
record be reinvested under the Plan, you may indicate such number of shares on
the Plan Authorization Card. Dividends will thereafter be reinvested on the
number of shares you specify, and you will continue to receive cash dividends on
the remainder of your shares. If, however, Sovereign effects a stock split or
declares a stock dividend, all shares issuable as a result thereof will be
deposited into your account and subject to reinvestment under the Plan.
6. How does an eligible shareholder participate?
You may join the Plan by completing and signing the Authorization Card
which accompanies this Prospectus and returning it to the Agent. A postage-paid
envelope is provided for this purpose. You may obtain an Authorization Card at
any time by written request to the Agent, ChaseMellon Shareholder Services,
Investment Services Dept., P.O. Box 3338, South Hackensack, NJ 07606 or by
telephoning the Agent at 1-800-685-4524.
A broker or bank nominee may participate in the Plan on behalf of
beneficial owners by signing and returning the Authorization Card, or may
reinvest dividends on their behalf (but not make optional cash purchases) by
signing and returning the Broker and Nominee Authorization Form (the "B & N
Form") to the Agent. (See answer to Question 9.)
7. When may an eligible shareholder join the Plan?
If you are a shareholder of record, you may join the Plan at any time.
8. When will dividends be reinvested and/or additional optional cash purchases
be made?
When shares of Common Stock are purchased from Sovereign through the
reinvestment of dividends, such purchases will be made on the "Investment Date"
in each quarter. The Investment Date will be the fifteenth day of each of
February, May, August and November if a business day and, if not a business day,
the Investment Date will be the next preceding business day; provided that, in
its discretion, Sovereign may defer the sale of shares to the Agent to a later
date if necessary or advisable under applicable securities laws. Except in the
case of such deferral, the Investment Date will coincide with the expected
dividend payment date in those quarters in which a dividend is payable and, with
respect to those quarters, the terms "Investment Date" and "dividend payment
date" are used interchangeably in this Prospectus. In the event of any such
deferral, the Investment Date will be the first date that sales may be made
under applicable securities laws.
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Where market transactions are made, the Agent will make every effort to
make the purchases promptly, beginning on the Investment Date and completing
such purchases no later than 30 days from such date, except where completion at
a later date is necessary or advisable under applicable securities laws. Such
purchases may be made in the over-the-counter market or in negotiated
transactions, and may be subject to such terms with respect to price, delivery
and other terms as agreed to by the Agent. Neither Sovereign nor any participant
shall have any authorization or power to direct the time or price at which
shares may be so purchased, or the selection of the broker or dealer through or
from whom purchases are to be made.
If the Authorization Card is received prior to the record date for a
dividend payment, your election to reinvest dividends will begin with that
dividend payment. If the Authorization Card is received on or after any such
record date, reinvestment of dividends will begin on the dividend payment date
following the next record date if you are still a shareholder of record. Record
dates for payment of dividends will normally precede payment dates by
approximately two weeks.
See the answer to Question 12 for information concerning limitations on the
minimum and maximum amounts of optional cash purchases that may be made each
quarter and the answer to Question 13 for information as to when optional cash
payments must be received to be invested on the Investment Date.
Shares will be allocated and credited to participants' accounts as follows:
(1) shares purchased from Sovereign will be allocated and credited on the
appropriate Investment Date; and (2) shares purchased in market transactions
will be allocated and credited as of the date on which the Agent completes the
purchases of the aggregate number of shares to be purchased. Depending on
Sovereign's election, participants may be credited with shares purchased from
Sovereign, shares purchased in market transactions or a combination of both.
9. What does the Plan Authorization Card provide?
o If you elect "Full Dividend Reinvestment," the Plan Authorization Card
directs the Agent to apply toward the purchase of additional shares of
Common Stock all your cash dividends on all the shares then or
subsequently registered in your name, together with any optional cash
payments.
o If you elect to reinvest dividends on only a portion of your shares held
of record, the Plan Authorization Card directs the Agent to apply all
your cash dividends on the number of shares you specify on the Plan
Authorization Card, together with any optional cash payments, toward the
purchase of additional shares of Common Stock.
o If the "Optional Cash Payments Only" box on the Plan Authorization Card
is checked, you will continue to receive cash dividends on shares
registered in your name in the usual manner, but the Agent will apply any
optional cash payment received with the Plan Authorization Card to the
purchase of additional shares under the Plan.
Also, by signing the Plan Authorization Card, you further direct the Agent
to:
o Reinvest automatically any subsequent dividends on shares accumulated and
held in your Plan account. The Plan, in other words, operates so as to
reinvest dividends on a cumulative basis, until you withdraw from the
Plan, or until the Plan is terminated.
o Automatically deposit into your Plan account any subsequent stock
dividends and/or stock splits on all shares of Common Stock, including
shares not participating in the Plan.
The B & N Form provides that the broker or nominee who is the record holder
of the shares which you beneficially own will provide the Agent, each time
Sovereign declares a cash dividend, with written instructions on an appropriate
form, identifying one or more beneficial owners and specifying as to each owner
the number of full shares with respect to which the dividend is to be
reinvested. The B & N Form, therefore, unlike the Plan Authorization Card,
contemplates new instructions to the Agent each time a dividend is declared. The
Agent, on the Investment Date, will reinvest the dividend
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payable with respect to the number of shares specified in the record holder's
instructions for each identified owner in as many whole shares of Sovereign
Common Stock as can be purchased with the total dividend paid with respect to
each specified number of shares at the purchase price computed in accordance
with the Plan. The remaining dividend, if any, will be paid in cash to the
record holder. As soon as practicable following the Investment Date, the Agent
will transmit to the record holder a listing containing the identification of
each owner furnished by the record holder in its instructions and showing as to
each such owner: (a) the number of shares specified for reinvestment of the
dividend, (b) the total dividend paid with respect to such shares, (c) the
number of whole shares purchased, (d) the total cost of the shares purchased,
(e) the amount of the total dividend not reinvested, and (f) the total dividend
reportable for federal income tax purposes. Accompanying the listing will be a
share certificate, registered in the name of the record holder, for the total
number of shares purchased for each of the beneficial owners identified on the
listing, and one check for the aggregate amount of the dividend not reinvested
for such owners.
The B & N Form and appropriate instructions must be received by the Agent
not later than the record date for such dividend or no dividends will be
reinvested based on such B & N Form.
PURCHASES AND PRICE OF SHARES
10. How will the price of shares of Common Stock purchased under the Plan be
determined?
If Sovereign directs the purchase of treasury or authorized but unissued
shares of Common Stock under the Plan from Sovereign, the "Current Market Price"
is defined as the average of the mean between the daily high and low sales
prices of the shares of Common Stock as published in the Wall Street Journal
report of the NASDAQ National Market System for the ten trading days immediately
preceding the Investment Date (as defined in the answer to Question 8), as the
case may be, or, if no trading occurs in the shares of Common Stock on one or
more of such trading days, for the ten trading days immediately preceding the
Investment Date during which the shares of Common Stock were traded in the
NASDAQ National Market System (the "Pricing Period"). If Sovereign directs the
purchase of shares of Common Stock under the Plan in market transactions, the
"Current Market Price" is defined as the weighted average of the actual price
paid for shares of Common Stock purchased by the Agent.
The purchase price of shares of Common Stock purchased with reinvested
dividends will be the Current Market Price less the Dividend Reinvestment
Discount, if any, then in effect. The purchase price of shares of Common Stock
purchased with optional cash will be the Current Market Price less the Optional
Cash Payment Discount, if any, then in effect. Sovereign, in its sole
discretion, may change or eliminate the Dividend Reinvestment Discount or the
Optional Cash Payment Discount upon sending Plan participants not less than 30
days' prior written notice thereof. As of the date of this Prospectus there is
no Optional Cash Payment Discount.
11. How many shares of Common Stock will be purchased for participants?
The number of shares to be purchased for your account depends on the amount
of your dividend and/or optional cash payment and the purchase price of the
shares. Your account will be credited with that number of shares, including
fractions computed to four decimal places, equal to the amount you invest
divided by the purchase price per share.
12. How are optional cash purchases made?
The option to make cash purchases is available to shareholders of record on
a quarterly basis. Each such purchase, must be at least a minimum quarterly
amount and purchases cannot exceed a total maximum quarterly amount, both as
determined by Sovereign.
As of the date of this Prospectus, optional cash purchases may be made in
any amount from a minimum payment of $50 up to a maximum total of $5,000 per
quarter. The minimum and maximum amounts of quarterly optional cash purchases,
however, may be changed (or optional cash purchases
11
may be eliminated) at Sovereign's discretion upon sending Plan participants not
less than 30 days' prior written notice thereof.
For purposes of the limitation on the maximum quarterly amount, all Plan
accounts deemed by Sovereign to be under common control or management will be
aggregated. Unless Sovereign grants prior permission to make a larger
investment, Sovereign reserves the right to return to participants amounts which
exceed the maximum quarterly amount. Participants may be permitted to invest
amounts in excess of the maximum quarterly amount with the prior approval of
Sovereign. Requests for such approval should be made during the five business
day period beginning seven business days preceding the Pricing Period (as
defined in the answer to Question 10), and such requests should be directed to
the Company's Chief Financial Officer (610-320-8437) or Corporate Secretary
(610-320-8412).
An optional cash purchase may be made by you when joining the Plan by
enclosing a check or money order payable in United States dollars (payable to
"Sovereign Bancorp, Inc.") with the Authorization Card. Thereafter, optional
cash purchases may be made through the use of the Cash Payment Forms which will
be attached to each statement of account you receive.
13. When will your optional cash payments received by the Agent be invested?
The Agent will apply any optional cash payment received during the 15 days
immediately preceding each Pricing Period (as defined in the answer to Question
10) to the purchase of shares of Common Stock on the Investment Date which is
the next business day following the Pricing Period. Any optional cash payment
received after the first day of a Pricing Period will be applied to the purchase
of Common Stock for your account on the Investment Date immediately following
the next Pricing Period. Optional cash payments made by check or other draft
will not be applied to the purchase of shares of Common Stock on the Investment
Date unless such check or draft has cleared prior to such Investment Date. Under
no circumstances will interest be paid on optional cash payments.
Optional cash payments received by the Agent will be returned to you upon
your written request if such request is received by the Agent not later than two
business days prior to the first day of the Pricing Period.
14. Are there any out-of-pocket costs to participants in connection with
purchases under the Plan?
NO. All costs of administration of the Plan and all brokerage fees or
commissions on shares purchased under the Plan are paid by Sovereign. There are
no expenses in connection with withdrawal from the Plan unless you request that
you receive certificates or that shares be sold upon your withdrawal from the
Plan in both of which cases you will be charged fees. (See answers to Questions
17 and 21).
REPORTS TO PARTICIPANTS
15. What kind of reports will be sent to you as a participant in the Plan?
As soon as practicable after each purchase for your account, a statement
will be mailed to you advising you of your cumulative investments for the
current calendar year. These statements are your continuing record of the cost
of your purchases and should be retained for income tax purposes. In addition,
you will receive copies of other communications sent to holders of shares of
Common Stock, including Sovereign's annual and quarterly reports to its
shareholders, the notice of annual meeting and proxy statement in connection
with its annual meeting of shareholders and Internal Revenue Service information
for reporting dividends paid.
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DIVIDENDS ON FRACTIONS
16. Will you be credited with dividends on fractions of shares?
YES.
CERTIFICATES FOR SHARES
17. Will certificates be issued for shares purchased?
Shares of Common Stock purchased for your account will be held in the name
of the Agent or its nominee for your account. No certificates will be issued to
you for shares in your account unless you so request the Agent in writing, or
until your account is terminated. At any time, you may request the Agent to send
you a certificate for some or all of the whole shares credited to your account.
This request should be mailed to the Agent at the address set forth in the
answer to Question 6. A $5.00 check payable to "ChaseMellon Shareholders
Services" for this service must accompany each request for certificates. Any
remaining whole shares and any fraction of a share will remain credited to your
account.
Certificates for fractional shares will not be issued under any
circumstances.
18. In whose name will certificates be registered when issued to you?
Your account under the Plan will be maintained in the name or names in
which your certificates were registered at the time you entered the Plan.
Consequently, certificates for whole shares will be similarly registered when
issued.
CUSTODY SERVICE
19. May I send my certificates to the Agent for safekeeping?
As an additional service to Plan participants, you may deposit with the
Agent, free of charge, any or all certificates representing shares of Common
Stock held by you. If you wish to use this service, you should elect the
"safekeeping authorization" box on the Plan Authorization Card and return it to
the Agent together with the certificate or certificates. Delivery of stock
certificates is at the risk of the shareholder and, in the event of delivery by
mail, insured registered mail with return receipt requested is recommended. The
receipt by the Agent of any shares delivered for safekeeping will be shown on
your account statement.
Participating shareholders may withdraw some or all of their shares from
the Agent's custody at any time by requesting in writing that a certificate(s)
be issued for some or all of the full shares held by the Agent. To do so, you
must follow the procedures and pay the fee described in the answer to Question
17.
WITHDRAWALS
20. When may you withdraw from the Plan?
You may withdraw from the Plan at any time. If your request to withdraw is
received prior to a dividend record date set by the Board of Directors for
determining shareholders of record entitled to receive a dividend, your request
will be processed on the day following receipt of the request by the Agent.
If your request to withdraw is received by the Agent on or after a dividend
record date but before the payment date, the Agent, in its sole discretion may
either pay such dividend in cash or reinvest it in shares for your account. The
request for withdrawal will then be processed as promptly as possible following
such dividend payment date. Any optional cash payments which you may have sent
to the Agent prior to a request for withdrawal will also be invested on the next
Investment Date unless you expressly request return of that payment in your
request for withdrawal and your request for withdrawal is received by the Agent
at least two business days prior to the first day of the Pricing
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Period. All dividends subsequent to such dividend payment date will be paid in
cash to you unless and until you re-enroll in the Plan, which you may do at any
time.
21. How do you withdraw from the Plan?
In order to withdraw from the Plan, you must notify the Agent in writing,
at its address set forth in the answer to Question 6, that you wish to withdraw.
When you withdraw from the Plan (subject to the answer to Question 20), or upon
any termination of the Plan by Sovereign, you may request that a certificate for
whole shares of Common Stock credited to your account under the Plan and all
certificates held for safekeeping be issued to you. To do so, you must follow
the procedure and pay the fee described in the answer to Question 17. A cash
payment, based upon the sale price received by the Agent, will be made to you
for any fraction of a share.
Upon your withdrawal from the Plan, you may also request in writing that
all or part of the shares of Common Stock credited to your account in the Plan
be sold. If you request such sale, the Agent will make such sale for your
account as soon as practicable after processing your request for withdrawal. You
will receive the proceeds, less any brokerage fees or commissions and any
applicable stock transfer tax, from the sale of the shares sold at your request.
OTHER INFORMATION
22. What happens if you sell or transfer all the shares registered in your name
and held by you?
If you dispose of all shares of Common Stock registered in your name and
held by you, the shares purchased under the Plan and held in your account are
unaffected. The Agent will continue to reinvest the dividends on shares
remaining in your account unless and until you withdraw from the Plan or the
Plan is terminated.
23. What happens if Sovereign declares a dividend payable in shares or declares
a stock split?
Any dividend payable in shares of Common Stock, and any additional shares
of Common Stock distributed by Sovereign in connection with a stock split, with
respect to shares credited to your Plan account will be added to your Plan
account. Also, any dividends payable in shares of Common Stock, and any
additional shares of Common Stock resulting from a stock split which are
attributable to shares registered in your own name and not in your Plan account
will be added to your Plan account in the same manner as shares credited to your
Plan account.
The total number of shares of Common Stock to be offered under the Plan
will also be adjusted proportionately to take into account any stock splits,
stock dividends or similar transactions.
24. How will your shares held by the Agent be voted at meetings of
shareholders?
Shares of Common Stock held by the Agent for you will be voted as you
direct. A proxy card will be sent to you in connection with any annual or
special meeting of shareholders, as in the case of shareholders not
participating in the Plan. This card will cover all shares of Common Stock
registered in your own name as well as all full and fractional shares held by
the Agent for your account or held by the Agent for safekeeping under the Plan.
As in the case of nonparticipating shareholders, if no instructions are
indicated by you on a properly signed and returned proxy card, all your shares
- -- those registered in your own name and those held by the Agent for your
account under the Plan -- will be voted in accordance with recommendations of
Sovereign's management, unless otherwise provided. If the proxy card is not
returned, or if it is returned unsigned or improperly signed, none of the shares
covered by such proxy card (including those held by the Agent under the Plan)
will be voted.
25. What are the responsibilities of Sovereign and the Agent under the Plan?
Sovereign and the Agent will not be liable in administering the Plan for
any act done in good faith or as required by applicable securities laws or for
any good faith omission to act including, without limitation, any claim or
liability arising out of failure to terminate your account upon your death, or
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with respect to the prices at which shares are purchased for your account and
the times when such purchases are made or with respect to any fluctuation in the
market value after purchase or sale of shares.
26. May the Plan be changed or discontinued?
YES. Sovereign may suspend, terminate, modify or amend the Plan at any
time. Notice will be sent to you of any such suspension or termination, or of
any modification or amendment that alters its terms and conditions, as soon as
possible after such action by Sovereign.
EMPLOYEES
27. May employees of Sovereign and Sovereign Bank participate in the Plan?
YES. Employees who participate in Sovereign's Employee Stock Purchase Plan
(the "ESPP") automatically participate in the Plan with respect to shares of
Common Stock held in the employee's ESPP account. Employees who wish to
participate in the Plan with respect to shares of Common Stock held otherwise
than under the ESPP may do so in the manner provided for shareholders of record,
provided they are record holders of at least one whole share of Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
28. What are the federal income tax consequences of participation in the Plan?
Reinvested Dividends.
In the case of reinvested dividends, when shares are acquired for a
participant's account directly from Sovereign, the participant will be
considered to have received a dividend equal to the fair market value of the
shares purchased (i.e., the number of shares purchased on his behalf multiplied
by the fair market value per share on the Investment Date). The tax basis of
such shares will also equal the fair market value of the shares on the
Investment Date. The holding period of such shares will begin on the day
following the Investment Date.
In the case of reinvested dividends, when shares are acquired for a
participant's account on the open market, the participant will be considered to
have received a dividend equal to (i) the amount of cash used to purchase shares
on his behalf (i.e., the number of shares so purchased multiplied by the average
price per share paid by the Agent), plus (ii) that portion of the brokerage
commissions paid by Sovereign which are attributable to such shares. The tax
basis of such shares will also equal the amount of cash used to purchase the
shares plus the allocable portion of the brokerage fees paid by Sovereign. The
holding period of such shares will begin on the day following the date on which
the shares are credited to the participant's account.
Optional Cash Payments.
In the case of shares acquired directly from Sovereign with optional cash
payments, a participant generally will be considered to have received a dividend
equal to the excess, if any, of the fair market value of the purchased shares on
the Investment Date over the amount of the optional cash payment. The tax basis
of such shares will equal the amount of such excess, if any, plus the amount of
the optional payment. The holding period of such shares will begin on the day
following the Investment Date.
In the case of shares acquired on the open market with optional cash
payments, a participant will be considered to have received a dividend equal to
that portion of the brokerage commissions paid by Sovereign which are
attributable to such shares. The tax basis of such shares will equal the sum of
(i) the amount of the optional payment and (ii) the allocable portion of the
brokerage fees paid by Sovereign. The holding period of such shares will begin
on the day following the date on which the shares are credited to the
participant's account.
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Additional Information.
The foregoing discussion assumes that Sovereign will, from time to time,
have earnings and profits (for federal tax purposes) in excess of its
distributions to shareholders, and such is expected to be the case. A
prospective participant should also note that the "fair market value" of a share
of Common Stock on any relevant Investment Date is not necessarily equal to the
Current Market Price of such share.
A participant will not realize any taxable income upon the receipt of
certificates for whole shares credited to the participant's account under the
Plan, either upon the participant's request for certificates for certain of
those shares or upon withdrawal from or termination of the Plan. A participant
who receives, upon withdrawal from or termination of the Plan, a cash adjustment
for a fractional share credited to the participant's account, however, will
realize a gain or loss. Gain or loss will also be realized by the shareholder
upon the sale or exchange of shares after withdrawal from the Plan. The amount
of such gain or loss will be the difference between the amount which the
shareholder receives for the shares, and the shareholder's tax basis therefor.
Any such gain or loss will be a capital gain or loss if the shares sold were
held as a capital asset. Such capital gain or loss will be long-term, mid-term
or short-term depending on how long the participant held the shares.
A foreign shareholder who is a participant and whose dividends are subject
to United States income tax withholding will have the amount of the tax to be
withheld deducted from such dividends before reinvestment in additional shares
for such participant's Plan account. The statements confirming purchases made
for a foreign participant will indicate that tax has been withheld.
The final statement received from the Agent during any calendar year will
include tax information for the year.
The foregoing discussion is only a brief summary of certain federal income
tax provisions applicable to participation in the Plan based on current law and
is for general information only. It is not a complete enumeration or analysis of
all the tax consequences of participating in the Plan and may not describe the
tax consequences to a particular participant in light of individual
circumstances. The law and interpretational authorities on which such summary is
based are subject to change at any time, which could change the tax consequences
described above. Accordingly, participants are urged to consult their own tax
advisors for advice relating to the federal, state, local and foreign tax
consequences of participation in the Plan.
USE OF PROCEEDS
Sovereign knows neither the number of shares that will ultimately be
purchased under the Plan nor the prices at which such shares will be purchased.
To the extent that shares are purchased from Sovereign, Sovereign intends to add
the proceeds from such purchases to the general funds of Sovereign for general
corporate purposes.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital of Sovereign consists of 200,000,000 shares of
Common Stock, no par value, and 7,500,000 shares of preferred stock, such
preferred stock to be issuable, in series and classes having such par value,
rights, preferences, privileges and restrictions as the Board of Directors of
Sovereign may determine. Except as described below, each share of Common Stock
will have the same relative rights as, and will be identical in all respects
with, each other share of Common Stock.
The following summaries of Sovereign's Articles of Incorporation, Bylaws
and the Rights Plan (defined below) do not purport to be complete and are
qualified in their entirety by reference to such instruments.
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COMMON STOCK
Voting Rights.
Prior to the issuance of any preferred stock which possesses voting rights
(see "Preferred Stock" below), the holders of shares of Common Stock will
possess exclusive voting rights in Sovereign. Each holder of shares of Common
Stock will be entitled to one vote for each share held on matters upon which
shareholders have the right to vote. Shareholders will not be entitled to
cumulate their votes for the election of directors.
Dividends.
Holders of shares of Common Stock are entitled to share ratably in
dividends when and if declared by the Board of Directors of Sovereign from funds
legally available therefor. The timing and amount of any future dividends will
depend on earnings, capital requirements, federal and state laws, regulations
and policies and other factors deemed relevant by the Board of Directors.
Declaration and payment of cash dividends by Sovereign depends upon dividend
payments by Sovereign Bank, which are Sovereign's primary source of income.
Payments of dividends by Sovereign Bank are subject to, among other things,
regulations of the Office of Thrift Supervision governing capital distributions,
which include cash dividends, by savings associations.
Liquidation.
In the event of any liquidation, dissolution or winding up of Sovereign,
after payment of all debts and liabilities of Sovereign and payment of any
liquidation preference plus accrued dividends applicable to any outstanding
shares of preferred stock, holders of shares of Common Stock will be entitled to
receive all assets of Sovereign available for distribution in cash or in kind.
Preemptive Rights; Redemption.
Holders of shares of Common Stock will not be entitled to preemptive rights
with respect to any shares of Sovereign which may be issued. The Common Stock
will not be subject to redemption. Upon receipt by Sovereign of the full
specified purchase price therefor, shares of Common Stock will be fully paid and
nonassessable.
PREFERRED STOCK
Sovereign's Board of Directors is authorized to approve the issuance of
preferred stock, without any required approval of shareholders. The rights,
qualifications, limitations and restrictions on each series of preferred stock
issued will be determined by the Board of Directors at the time of issuance and
may include, among other things, rights to participating dividends, voting and
convertibility into shares of Common Stock. Shares of preferred stock may be
issued with dividend, redemption, voting, and liquidation rights taking priority
over Common Stock, and may be convertible into common stock, as determined by
the Board of Directors at the time of issuance.
On May 17, 1995, Sovereign issued 2,000,000 shares of 6 1/4% Cumulative,
Convertible Preferred Stock, Series B (the "Series B Preferred Stock").
On April 15, 1998, Sovereign gave notice of redemption of all outstanding
shares of Series B Preferred Stock on May 15, 1998 at a redemption price of
$52.188 per share plus all accrued and unpaid dividends through the redemption
date. As a result of the current conversion ratio applicable to the Series B
Preferred Stock, Sovereign anticipates that all holders of Series B Preferred
Stock will convert such stock to Sovereign Common Stock on or prior to the
redemption date. As of the date of this Prospectus, Sovereign has no other
shares of preferred stock issued or outstanding.
SHAREHOLDER RIGHTS PLAN
Sovereign maintains a Shareholder Rights Plan (the "Rights Plan") designed
to protect shareholders from attempts to acquire control of Sovereign at an
inadequate price. Under the Rights Plan, each outstanding share of Common Stock
has attached to it one right to purchase one one-hundredth of a share of a
series of junior participating preferred stock at an initial exercise price of
$40.
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The rights are not currently exercisable or transferable, and no separate
certificates evidencing such rights will be distributed, unless certain events
occur.
The rights become exercisable to purchase shares of the junior
participating preferred stock if a person, group or other entity acquires or
commences a tender offer or an exchange offer for 19.9% or more of total voting
power. They can also be exercised if a person or group who has become a
beneficial owner of at least 4.9% of the Common Stock or total voting power is
declared by Sovereign's Board of Directors to be an "adverse person," as defined
in the Rights Plan.
After the rights become exercisable, under certain circumstances, the
rights (other than rights held by a 19.9% or an "adverse person") will entitle
the holders to purchase either the Common Stock or the common stock of the
potential acquirer, in lieu of the junior participating preferred stock, at a
substantially reduced price.
Sovereign is generally entitled to redeem the rights at $.001 per right at
any time until the tenth business day following public announcement that a 19.9%
position has been acquired. At any time prior to the date the rights have become
nonredeemable, the Board can extend the redemption period. Rights are not
redeemable following an "adverse person" determination.
ARTICLES OF INCORPORATION AND BYLAWS
Sovereign's Articles of Incorporation and Bylaws contain certain provisions
which may have the effect of deterring or discouraging, among other things, a
non-negotiated tender or exchange offer for the Common Stock, a proxy contest
for control of Sovereign, the assumption of control of Sovereign by a holder of
a large block of the Common Stock and the removal of Sovereign's management.
These provisions: (1) empower the Board of Directors, without shareholder
approval, to issue preferred stock the terms of which, including voting power,
are set by the Board; (2) divide the Board of Directors into three classes
serving staggered three-year terms; (3) restrict the ability of shareholders to
remove directors; (4) require that shares with at least 80% of total voting
power approve mergers and other similar transactions with a person or entity
holding stock with more than 5% of Sovereign's voting power, if the transaction
is not approved, in advance, by the Board of Directors; (5) prohibit
shareholders' actions without a meeting; (6) require that shares with at least
80%, or in certain instances a majority, of total voting power approve the
repeal or amendment of the Articles of Incorporation; (7) require any person who
acquires stock of Sovereign with voting power of 25% or more to offer to
purchase for cash all remaining shares of Sovereign's voting stock at the
highest price paid by such person for shares of Sovereign's voting stock during
the preceding year, (8) eliminate cumulative voting in elections of directors;
(9) require that shares with at least 66 2/3% of total voting power approve the
repeal or amendment of the Bylaws; (10) require advance notice of nominations
for the election of directors and the presenting of shareholder proposals at
meetings of shareholders; and (11) provide that officers, directors, employees,
agents and persons who own 5% or more of the voting securities of any other
corporation or other entity that owns 66 2/3% or more of Sovereign's outstanding
voting stock cannot constitute a majority of the members of Sovereign's Board of
Directors.
PENNSYLVANIA LAW
The Pennsylvania Business Corporation Law contains provisions applicable to
Sovereign which may have similar effects. These provisions, among other things:
(1) require that, following any acquisition by any person or group of 20% of a
public corporation's voting power, the remaining shareholders have the right to
receive payment for their shares, in cash, from such person or group in an
amount equal to the "fair value" of the shares, including an increment
representing a proportion of any value payable for control of the corporation;
and (2) prohibit for five years, subject to certain exceptions, a "business
combination" (which includes a merger or consolidation of the corporation or a
sale, lease or exchange of assets) with a shareholder or group of shareholders
beneficially owning 20% or more of a public corporation's voting power.
In 1990, Pennsylvania adopted legislation further amending the Pennsylvania
Business Corporation Law. To the extent applicable to Sovereign at the present
time, this legislation generally (1) expands the factors and groups (including
shareholders) which the Board of Directors can consider in determining whether a
certain action is in the best interests of the corporation, (2) provides that
the
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Board need not consider the interests of any particular group as dominant or
controlling, (3) provides that directors, in order to satisfy the presumption
that they have acted in the best interests of the corporation, need not satisfy
any greater obligation or higher burden of proof with respect to actions
relating to an acquisition or potential acquisition of control, (4) provides
that actions relating to acquisitions of control that are approved by a majority
of "disinterested directors" are presumed to satisfy the directors' standard
unless it is proven by clear and convincing evidence that the directors did not
assent to such action in good faith after reasonable investigation, and (5)
provides that the fiduciary duty of directors is solely to the corporation and
may be enforced by the corporation or by a shareholder in a derivative action,
but not by a shareholder directly. One of the effects of the new fiduciary duty
provisions may be to make it more difficult for a shareholder to successfully
challenge the actions of the Board of Directors in a potential change in control
context. Sovereign opted out of coverage by the disgorgement and control-share
acquisition statutes, also adopted in 1990, pursuant to a Bylaw amendment as
permitted by the legislation; Sovereign can reverse this action under certain
circumstances.
LEGAL MATTERS
The legality of the shares of the Common Stock offered hereby will be
passed upon for Sovereign by Stevens & Lee, 111 North Sixth Street, Reading,
Pennsylvania 19601, counsel to Sovereign.
EXPERTS
The consolidated balance sheets of Sovereign and subsidiaries as of
December 31, 1997 and 1996 and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the three-year period ended December 31, 1997 incorporated by reference in this
Prospectus from Sovereign's Annual Report on Form 10-K for the year ended
December 31, 1997, have been audited by Ernst & Young, independent auditors, as
set forth in their report thereon.
The audited consolidated financial statements of Sovereign and subsidiaries
have been so incorporated by reference in reliance upon the reports of Ernst &
Young, which reports, incorporated by reference in this Prospectus, have been
given upon the authority of such firms as experts in accounting and auditing.
INDEMNIFICATION
Pennsylvania law provides that a Pennsylvania corporation may indemnify
directors, officers, employees and agents of the corporation against liabilities
they may incur in such capacities for any action taken or any failure to act,
whether or not the corporation would have the power to indemnify the person
under any provision of law, unless such action or failure to act is determined
by a court to have constituted recklessness or willful misconduct. Pennsylvania
law also permits the adoption of a bylaw amendment, approved by shareholders,
providing for the elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the director has
breached or failed to perform the duties of his office and (2) the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
The Bylaws of Sovereign provide for (1) indemnification of directors,
officers, employees and agents of Sovereign and of its subsidiaries and (2) the
elimination of a director's liability for monetary damages, to the fullest
extent permitted by Pennsylvania law.
Directors and officers are also insured against certain liabilities for
their actions, as such, by an insurance policy obtained by Sovereign.
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