PROSPECTUS SUPPLEMENT
(To Prospectus dated September 30, 1999)
$175,000,000
[LOGO]
SOVEREIGN BANCORP, INC.
8 5/8% Senior Notes due 2004
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This is an offering by Sovereign Bancorp, Inc. of its 8 5/8% Senior Notes due
March 15, 2004. Interest is payable on the notes on March 15 and September 15 of
each year, beginning September 15, 2001.
The notes will be obligations of our Company and will rank equally with all of
our existing and future senior indebtedness. The notes will effectively rank
junior to all existing and future liabilities of Sovereign Bank and our other
subsidiaries, which conduct all of our operations.
Investing in the notes involves risks. "RISK FACTORS" begin on page S-__ of this
prospectus supplement.
Per Note Total
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Public Offering Price........................... 99.886% $174,800,500
Underwriting Discount........................... 1.125% $ 1,968,750
Proceeds to Company............................. 98.761% $172,831,750
Interest on the notes will accrue from February 20, 2001 to the date of
delivery.
The notes are not savings or deposit accounts of us or any of our subsidiaries,
and the notes are not insured by the Federal Deposit Insurance Corporation, the
Savings Association Insurance Fund, the Bank Insurance Fund or any other
governmental agency.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the attached prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Lehman Brothers expects to deliver the notes on or about February 20, 2001,
subject to conditions.
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LEHMAN BROTHERS
February 9, 2001
S-1
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of the offering of the notes. The second
part is the accompanying prospectus, which gives more general information, some
of which may not apply to the notes. In this prospectus supplement, "we," "us"
and "our" refer to Sovereign Bancorp, Inc. and "Sovereign" collectively refers
to Sovereign Bancorp, Inc., Sovereign Bank and their other subsidiaries.
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information contained in or
incorporated by reference in this prospectus supplement or the accompanying
prospectus is accurate as of any date other than the date on the front cover of
this prospectus supplement.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Forward-Looking Statements .................................................S-
Summary ....................................................................S-
Risk Factors ...............................................................S-
Use of Proceeds ............................................................S-
Our Ratio of Earnings to Fixed Charges .....................................S-
Capitalization .............................................................S-
Description of the Notes ...................................................S-
Underwriting ...............................................................S-
Experts ....................................................................S-
Legal Matters ..............................................................S-
Prospectus
Prospectus Summary .........................................................2
Where You Can Find More Information ........................................4
Forward-Looking Statements .................................................5
Use of Proceeds ............................................................6
Our Ratio of Earnings to Fixed Charges .....................................6
Description of Common Stock. ...............................................7
Description of Preferred Stock .............................................7
Description of Depositary Shares ...........................................9
Description of Debt Securities .............................................12
Description of Warrants ....................................................24
Stock Purchase Contracts and Stock Purchase Units ..........................27
Description of Capital Securities ..........................................27
Description of Trust Preferred Securities and Trust Guarantees .............31
Certain Tax Considerations .................................................34
Plan of Distribution .......................................................34
ERISA Considerations .......................................................36
Legal Matters ..............................................................36
Experts ....................................................................36
S-2
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements made by us or on our behalf. The
presentations, and certain of the other disclosure in this prospectus
supplement, the accompanying prospectus and in the documents incorporated by
reference, including any statements preceded by, followed by or that include the
words "may," "could," "should," "will," "would," "believe," "expect,"
"anticipate," "estimate," "intend," "plan," "assume" or similar expressions
constitute forward-looking statements.
These forward-looking statements implicitly and explicitly include the
assumptions underlying the statements with respect to our beliefs, plans,
objectives, goals, expectations, anticipations, estimates, intentions, financial
condition, results of operations, future performance and business, including our
expectations and estimates with respect to our revenues, expenses, earnings,
return on equity, return on assets, efficiency ratio, asset quality and other
financial data and performance ratios.
Although we believe that the expectations reflected in our
forward-looking statements are reasonable, these statements involve risks and
uncertainties which are subject to change based on various important factors
(some of which are beyond our control). The following factors, among others,
could cause our financial performance to differ materially from our goals,
plans, objectives, intentions, expectations, and other forward-looking
statements:
o the strength of the United States economy in general and the
strength of the local economies in which we conduct operations;
o the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors
of the Federal Reserve System;
o inflation, interest rate, market and monetary fluctuations;
o our ability to successfully integrate the assets, liabilities,
customers, systems, and management we acquire into our operations;
o our timely development of competitive new products and services in a
changing environment and the acceptance of such products and
services by customers;
o the impact of changes in financial services policies, laws and
regulations, including laws, regulations and policies concerning
taxes, banking, securities and insurance, and the application
thereof by regulatory bodies;
o technological changes;
o changes in consumer spending and savings habits;
o regulatory or judicial proceedings; and
o the other risks set forth under "Risk Factors."
If one or more of the factors affecting our forward-looking statements
proves incorrect, then our actual results, performance or achievements could
differ materially from those expressed in, or implied by, forward-looking
information and statements contained in this prospectus supplement and the
accompanying prospectus. Therefore, we caution you not to place undue reliance
on our forward-looking statements.
We do not intend to update our forward-looking information and
statements, whether written or oral, to reflect change. All forward-looking
statements attributable to us are expressly qualified by these cautionary
statements.
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SUMMARY
The following summary contains basic information about this offering.
This summary may not contain all of the information that is important to you.
You should carefully read this entire prospectus supplement, the accompanying
prospectus, and the other documents we refer to for a more complete
understanding of this offering. In addition, we incorporate important business
and financial information in this prospectus supplement and the accompanying
prospectus by reference.
Sovereign Bancorp, Inc.
We are a holding company for our principal subsidiary, Sovereign Bank.
Our business consists primarily of attracting deposits from our network of
community banking offices, and originating small business and middle market
commercial and asset-based loans, consumer and residential mortgage loans and
home equity lines of credit in eastern Pennsylvania, New Jersey, Delaware and
New England. As of December 31, 2000, we had consolidated assets of $33.5
billion, deposits of $24.5 billion and stockholders' equity of $1.9 billion.
Risk Factors
Potential investors should carefully consider all of the information in
this prospectus supplement and the accompanying prospectus. In particular,
potential investors should evaluate the specific factors under "Risk Factors"
for risks involved with a purchase of the notes.
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Recent Developments
2000 Results
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For the year ended December 31, 2000, we reported unaudited operating
earnings of $239.9 million ($1.15 per fully diluted share), cash earnings
(operating earnings before amortization of intangible assets and ESOP related
expense) of $308.6 million ($1.48 per fully diluted share) and a net loss of
$30.2 million ($.13 per fully diluted share). Operating earnings include certain
one-time tax benefits and exclude special charges for one-time restructuring and
merger-related costs. Restructuring and merger-related costs include
organizational restructuring charges, securities losses related to balance sheet
restructuring, systems and integration charges related to recent acquisitions,
expenses related to a non-solicitation agreement with FleetBoston, and the
impact on net interest income and shares outstanding from early issuance of
certain debt and equity instruments issued to finance the New England
Acquisition. The net impact of the tax benefits and special charges for the year
ended December 31, 2000 was $243.8 million after-tax and for the quarter ended
December 31, 2000 were $50.7 million after-tax. At December 31, 2000,
non-performing loans as a percentage of total assets were 0.54%, and the
allowance for loan losses was 1.17% as a percentage of total loans and 143% as a
percentage of non-performing loans. In addition, we repaid and prepaid over $225
million of our indebtedness during 2000.
Recent Sale of Common Stock
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On February 5, 2001, we sold 20 million shares of our common stock and
received net proceeds of approximately $150 million. We intend to apply the net
proceeds from the sale of our common stock, together with $90 million of the
proceeds from the sale of the notes, to the repayment of $240 million of senior
debt which matures on March 15, 2001.
Senior Credit Facility
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We have a syndicated senior secured credit facility arranged in
December 1999 by Salomon Smith Barney and Lehman Brothers in anticipation of our
New England Acquisition. There is presently $350 million outstanding under this
facility. In connection with this facility, we agreed, among other things, not
to issue additional funded debt, except funded debt the entire proceeds of which
are used to refinance existing debt. The holders of the senior secured notes
have recently amended the credit facility to permit us to issue the notes.
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The Offering
Issue........................... We will issue $175,000,000 aggregate
principal amount of Sovereign Bancorp's
8 5/8% Senior Notes due , 2004.
Maturity Date................... March 15, 2004
Interest Payment Dates.......... We will pay interest on the notes in
arrears on each September 15 and March 15,
commencing September 15, 2001.
Interest Rate................... The notes will bear interest at a rate per
annum of 8 5/8% from February 20, 2001.
Mandatory Redemption............ Upon a continuing event of default, the
trustee or holders of not less than 25% in
principal amount of the notes may require
us to redeem the notes. The redemption
price in the case of mandatory redemption
will be equal to the aggregate principal
amount of the notes, plus accrued and
unpaid interest to the date of redemption.
See "Description of the Notes--Events of
Default."
Sinking Fund.................... None.
Ranking......................... The notes will be unsecured senior
obligations. The notes will rank:
o equal with any existing and future
senior debt, and
o senior to any existing and future
subordinated debt.
At December 31, 2000, we had approximately
$1.360 billion of funded debt outstanding,
$770 million of which was senior unsecured
debt and $590 million of which was senior
secured debt.
After giving effect to the issuance of the
notes, together with the issuance of $150
million of our common stock on February 5,
2001, and the use of the proceeds
therefrom, there will be $1.295 billion of
funded debt outstanding, of which $945
million will be senior unsecured debt and
$380 million will be senior secured debt.
S-6
Our obligations under the notes are
effectively subordinated to all existing
and future obligations of our subsidiaries,
including Sovereign Bank's obligation to
depositors. See "Risk Factors-- A
deterioration in Sovereign Bank's financial
condition, results of operations or cash
flow could adversely affect our ability to
pay principal or interest on our
indebtedness and dividends on our common or
preferred stock." and "Risk Factors-- Our
holding company structure also restricts
the ability of the Bank to provide funds to
us and to pay dividends and make debt
payments."
During the period during which the notes
are outstanding, we will not have the right
to amend the Indenture under which the
notes are being issued or the terms of the
notes in a way which adversely affects the
holders of the notes or which waives an
event of default without the consent of
holders of at least a majority in aggregate
principal amount of the notes. See
"Description of the Notes--Modification and
Waiver."
Guarantees...................... The notes will be guaranteed on an
unsecured senior basis by certain of our
future material domestic subsidiaries,
excluding banking institutions and their
subsidiaries and certain special purpose
entities. See "Description of the
Notes-Subsidiary Guaranties."
Change of Control............... Upon a change of control, as defined under
the indenture for the notes, you will have
the right to require us to repurchase all
or a portion of your notes at a price equal
to 101% of the principal amount, plus
accrued and unpaid interest. See
"Description of the Notes-Repurchase at the
Option of Holders Upon a Change of
Control."
Certain Covenants............... The indenture for the notes limits our
ability to, among other things:
o incur additional debt;
o make loans and investments;
o pay dividends or other distributions to
stockholders;
o create additional liens on our assets;
o restrict distributions from subsidiaries;
o engage in transactions with our
affiliates;
o consolidate, merge or transfer all or
substantially all our assets; or
o change lines of business.
All of these limitations will be subject to
a number of important qualifications. The
covenants will not restrict Sovereign Bank
from assuming deposit liabilities, making
loans, advances and other investments,
incurring debt or liens or otherwise
operating in the ordinary course of
business. See "Description of the
Notes-Certain Covenants."
Use of Proceeds................. We estimate the net proceeds from the
offering will be approximately $173
million. We will use approximately $90
million of the proceeds from the sale of
the notes, together with the $150 million
net proceeds from the issuance of 20
million shares of our common stock on
February 5, 2001, to repay in full when
due, our outstanding 6 5/8% Senior Notes
due March 15, 2001, and the remaining $83
million will be used for general corporate
purposes, including supporting Sovereign
Bank. See "Use of Proceeds."
S-7
Risk Factors
You should carefully consider all information included or incorporated
by reference in this prospectus supplement and accompanying prospectus. In
particular, you should carefully consider the risks described below before
purchasing the notes. These are not the only risks and uncertainties we face.
Additional risks and uncertainties which we currently consider immaterial or
which are not yet known to us may also impair our financial condition, results
of operations or prospects.
We significantly increased our level of debt in connection with our New
England Acquisition and our tangible equity at the holding company level is
limited, which could adversely affect our future flexibility.
In order to finance the New England Acquisition, we incurred a
significant amount of debt at the holding company level. This could adversely
impact our ability to meet regulatory requirements and to provide capital to
Sovereign Bank to meet the Bank's regulatory requirements, respond to economic
downturns or cushion a deterioration in the Bank's operating results. This could
also adversely affect our ability to finance our growth, repurchase our stock,
refinance our outstanding debt, complete acquisitions with cash or debt, or
react to certain changes in our operating environment.
A deterioration in Sovereign Bank's financial condition, results of
operations or cash flow could adversely affect our ability to pay principal or
interest on our indebtedness and dividends on our common or preferred stock.
Our only source of cash to pay dividends to our stockholders and make
payments on our debt are dividends and other distributions from Sovereign Bank,
which are limited, among other things, by the level of Sovereign Bank's capital,
liquidity, earnings and related regulatory capital and other requirements.
A significant deterioration in Sovereign Bank's financial condition,
earnings or cash flow, as a result of an economic downturn and a corresponding
decrease in credit quality or otherwise, could limit Sovereign Bank's ability to
pay cash dividends to us, which, in turn, would limit our ability to pay our
debt service and trust preferred expense or to pay dividends on our equity
securities.
Our holding company structure also restricts the ability of the Bank to
provide funds to us and to pay dividends and make debt payments.
Federal banking laws, regulations and policies also limit Sovereign
Bank's ability to pay dividends and make other distributions to us. Sovereign
Bank must obtain prior OTS approval to declare a dividend or make any other
capital distribution if, after such dividend or distribution, Sovereign Bank's
total distributions to us within that calendar year would exceed 100% of its net
income during the year plus retained net income for the prior two years,
Sovereign Bank would not meet capital levels imposed by the OTS in connection
with any order, including the OTS order applicable to the New England
Acquisition, as amended (the "OTS Order"), or if Sovereign Bank is not
adequately capitalized at the time. In addition, OTS prior approval would be
S-8
required if Sovereign Bank's examination or CRA ratings fall below certain
levels or Sovereign Bank is notified by the OTS that it is a problem association
or an association in troubled condition. Also, even if prior OTS approval is not
required, Sovereign Bank must give the OTS 30 days prior notice of the
declaration of any dividend to us. The Office of Thrift Supervision may deny an
application for approval for any capital distribution that it determines would
constitute an unsafe or unsound practice. In addition, as a holding company, our
rights and the rights of our creditors to participate in the assets of Sovereign
Bank upon any liquidation, receivership or reorganization will be subject to the
prior claims of Sovereign Bank's creditors, including Sovereign Bank's
depositors. Thus, a significant deterioration of Sovereign Bank's capital,
earnings or cash flow could limit or prevent Sovereign Bank from paying cash
dividends to us which, in turn, would limit our ability to pay our debt service,
pay trust preferred expense or pay dividends on our equity securities.
Our indebtedness places restrictions on us which may limit our
operating flexibility and our ability to pay dividends.
The debt we incurred in connection with the New England Acquisition
imposes material restrictions on us. These restrictions may limit us in engaging
in certain transactions, including the following:
o certain types of mergers or consolidations;
o paying dividends or other distributions to our stockholders;
o making investments;
o selling assets;
o repurchasing our common stock;
o borrowing additional money;
o transactions with affiliates; and
o granting liens.
These restrictions could limit our ability to obtain additional debt to
provide capital to support Sovereign Bank, repurchase stock, refinance or pay
principal or interest on our outstanding debt, consummate acquisitions for cash
or debt or react to changes in our operating environment. Certain of our
indebtedness - our syndicated credit facility - also requires us to observe a
number of financial covenants, the breach of which, absent waiver or amendment,
could have a material adverse effect on us, and is also secured by a pledge of
Sovereign Bank's stock. This means that our ability to pledge the stock of
Sovereign Bank to secure other obligations is limited. The stock of Sovereign
Bank is also pledged to secure an additional $240 million of presently
outstanding senior debt due March 15, 2001.
S-9
An economic downturn may lead to a deterioration in our asset quality
and adversely affect our earnings and cash flow.
Our business faces various material risks, including credit risk and
the risk that the demand for our products will decrease. In a recession or other
economic downturn, these risks would probably become more acute. In an economic
downturn, our credit risk and litigation expense will increase. Also, decreases
in consumer confidence, real estate values, interest rates and investment
returns, usually associated with a downturn, could combine to make the types of
loans we originate less profitable.
Changing interest rates may adversely affect our profits.
To be profitable, we must earn more money from interest on loans and
investments we make than the interest we pay to our depositors and lenders and
cover the cost of our operations. If interest rates rise, our net interest
income could be negatively affected if interest paid on interest-bearing
liabilities, such as deposits and borrowings, increases more quickly than
interest earned on interest-earning assets, such as loans, mortgage-related
securities, and other investment securities. This would cause our net income to
go down. In addition, rising interest rates may hurt our income because they may
reduce the demand for loans and the value of our investment securities. If
interest rates decline, however, our loans and investments may be prepaid
earlier than expected, which may also lower our income. Interest rates do and
will continue to fluctuate, and we cannot predict future Federal Reserve Board
actions or other factors that will cause rates to change.
We experience intense competition for loans and deposits.
Competition among financial institutions in attracting and retaining
deposits and making loans is intense. Traditionally, our most direct competition
for deposits has come from commercial banks, savings and loan associations and
credit unions doing business in our areas of operation. Recently, we have
experienced increasing competition for deposits from nonbanking sources, such as
money market mutual funds and corporate and government debt securities.
Competition for loans comes primarily from commercial banks, savings and loan
associations, consumer finance companies, insurance companies and other
institutional lenders. We compete primarily on the basis of the price at which
products are offered, and on customer service. A number of institutions with
which we compete have greater assets and capital than we do and, thus, are
better able to compete on the basis of price than we are.
We are subject to substantial regulation which could adversely affect
our business and operations.
As a financial institution, we are subject to extensive regulation,
which materially affects our business. Statutes, regulations and policies to
which we and Sovereign Bank are subject may be changed at any time, and the
interpretation and the application of these laws and regulations by our
regulators is also subject to change. There can be no assurance that future
changes in regulations or in their interpretation or application will not
adversely affect us. The OTS Order contains conditions which require us to meet
and maintain various capital ratios and liquidity at both the holding company
and bank levels. Failure to meet these requirements could have a material
S-10
adverse effect on us and the Bank, absent waiver or amendment. In the past,
Congress has considered legislation in various forms which would require savings
and loan associations, such as Sovereign Bank, to convert their charters to
national bank charters. In the absence of appropriate "grandfathering" or "phase
in" provisions, legislation eliminating Sovereign Bank's charter would have a
material adverse effect on us and Sovereign Bank because, among other things,
the regulatory capital and accounting treatment for bank holding companies and
savings and loan holding companies is different. In addition, recent legislative
proposals contemplate a transfer of jurisdiction over holding companies of
savings and loan associations from the Office of Thrift Supervision to the
Federal Reserve Board, which could elect to impose bank holding company
regulations on us. If we were presently subject to the regulations governing
bank holding companies, we would not meet applicable capital requirements and,
as a result, we would be required to raise additional equity or reduce the size
of Sovereign Bank on terms that may not be economically advantageous. In
addition, our ability to engage in nonbanking activities in the future would be
materially curtailed. We cannot determine if, when, or in what form such
legislation may eventually be enacted. The regulatory agencies having
jurisdiction over banks and thrifts have under consideration a number of
possible rulemaking initiatives which impact on bank and thrift and bank and
thrift holding company capital requirements. Adoption of one or more of these
proposed rules could have an adverse effect on us and Sovereign Bank.
Existing federal regulations limit our ability to increase our
commercial loans. We are required to maintain 65% of our assets in residential
mortgage loans and certain other loans, including small business loans. We also
cannot have more than 10% of our assets in large commercial loans, 10% in small
business loans, or more than four times our capital in commercial real estate
loans. A small business loan is one with an original loan amount of less that $1
million, while a large commercial loan is anything larger than that. Because
commercial loans generally yield interest income which is higher than
residential mortgage loans, the amount of our interest income could be adversely
affected by these provisions. If the growth of our commercial loan portfolio
continues at its current rate, we may exceed these regulatory limitations,
requiring us either to reduce the size of our commercial loan portfolio or take
other actions which may adversely affect our net interest income.
We may need to attract additional management.
We have historically maintained a flat management structure. Although
we attracted and retained key, experienced management in connection with the New
England Acquisition, we may need to attract and retain additional management to
successfully operate the integrated company. The failure to do so could
adversely affect our ability to effectively manage our larger and more diverse
bank.
Increased commercial lending could adversely affect our credit quality
and operating results.
Commercial loans present a higher degree of credit risk than
residential mortgage loans and result in a higher level of charge-offs and loan
loss reserves. Our commercial loan portfolio as a percentage of total loans has
grown from 7.9% at December 31, 1994 to 36% at December 31, 2000. A downturn in
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the national economy or in one or more of the regional economies we serve could
have a material adverse effect on our credit quality and litigation expense, and
therefore our earnings.
Our ability to incur additional debt could adversely affect our ability
to repay the notes.
You will be in the same position as the creditors of our other senior
unsecured debt. We are not obligated to repay the notes prior to repaying any of
our other senior unsecured debt. You should also understand that the Indenture
permits us and our subsidiaries to borrow additional funds. As a result, any new
senior unsecured debt that we incur will have the same repayment priority as the
notes, and any senior secured debt will rank higher than the notes to the extent
that it is secured by collateral.
At December 31, 2000, we had approximately $1.360 billion of funded
debt, $770 million of which was senior unsecured debt and $590 million of which
was senior secured debt. After giving effect to the issuance of the notes,
together with the issuance of $150 million of our common stock on February 5,
2001, and the use of the proceeds therefrom, there will be $1.295 billion of
funded debt outstanding, of which $945 million will be senior unsecured debt and
$350 million will be senior secured debt.
Additionally, the Indenture permits our subsidiaries, including
Sovereign Bank, to borrow funds. The agreements under which our subsidiaries
borrow funds may restrict the amount of money that they may pay to us.
Furthermore, if any of our subsidiaries is dissolved, liquidated or reorganized,
then the claims of those subsidiaries' creditors (including depositors)
generally are first in right of payment as compared to our claims to the assets
of our subsidiaries, thereby limiting the proceeds that would be paid to us. As
of December 31, 2000, the aggregate indebtedness (including deposit liabilities
and Federal Home Loan Bank advances, but excluding accounts payable and accrued
expenses, deferred income taxes and other liabilities) of Sovereign Bank and all
of our other subsidiaries was approximately $29 billion.
There is no present public market for the notes.
The notes are a new issue of securities with no established trading
market. We have been advised by the underwriters that they intend to make a
market in the notes, but they are not obligated to do so and may discontinue any
market making at anytime without notice. We cannot give any assurance as to the
liquidity of the trading market for the notes. The notes will not be listed on
any securities exchange.
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USE OF PROCEEDS
Our proceeds from the offering of the notes will be approximately $173
million without giving effect to the out-of-pocket expenses we will incur in
connection with the offering. We will use approximately $90 million of the
proceeds from this offering, together with the approximately $150 million of
proceeds from the sale of 20 million shares of our common stock on February 5,
2001, to repay in full when due our outstanding 6 5/8% Senior Unsecured Notes
due March 15, 2001, in the aggregate principal amount of $240 million. We plan
to use the remaining proceeds from the offering of the notes for general
corporate purposes, including supporting Sovereign Bank.
Pending these uses, we expect to invest the net proceeds in short-term,
interest-bearing securities.
OUR RATIO OF EARNINGS TO FIXED CHARGES
We computed our ratio of earnings to fixed charges by dividing earnings
by fixed charges on a consolidated basis. Earnings consist primarily of income
before income taxes adjusted for fixed charges. Fixed charges consist primarily
of interest expense on short-term and long-term borrowings.
Nine Months Ended
September 30, Year Ended December 31,
----------------- --------------------------------------------------------
2000(2) 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges
Excluding interest on deposits(1)... -- 1.58x 1.47x 1.48x 1.44x 1.49x 1.89x
Including interest on deposits(1)... -- 1.32x 1.27x 1.24x 1.22x 1.22x 1.29x
- ----------
(1) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest (which includes amortization of deferred financing costs), a
portion of rental expense attributable to interest expense related to a
sale/leaseback transaction involving certain leased locations of Sovereign
Bank, and one-third of other rental expense, deemed representative of that
portion of rental expense estimated to be attributable to interest.
(2) GAAP earnings were inadequate to cover fixed charges by $89.3 million for
the nine month period ended September 30, 2000.
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CAPITALIZATION
The following table sets forth our consolidated capitalization as of
September 30, 2000, and as adjusted to give effect to the sale of the notes and
the sale of 20 million shares of common stock on February 9, 2001 and our use of
the estimated net proceeds from such sales. The table should be read in
conjunction with our consolidated financial statements and the accompanying
notes thereto incorporated by reference in the Prospectus.
As of September 30, 2000
As Adjusted for the Notes
and the Common Stock
Actual Offering(1)
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(dollars in thousands)
Long-Term Debt
Senior credit facility.............................. $ 350,000 $ 350,000
8.625% senior notes................................. - 174,801
10.25% senior notes................................. 200,000 200,000
10.50% senior notes................................. 500,000 500,000
6.625% senior notes................................. 239,941 -
8.00% subordinated medium-term notes................ 49,956 49,956
8.50% subordinated debentures....................... 19,990 19,990
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Total long-term debt.............................. 1,359,887 1,294,747
Mandatorily redeemable capital securities
("Trust Preferred Securities") and other minority
interest in subsidiaries ............................ 455,491 455,491
Stockholders' Equity
Preferred stock; 7,500,000 shares authorized;
none issued and outstanding, actual and as
adjusted.......................................... - -
Common stock, no par value; 400,000,000
shares authorized; 231,318,004 shares
issued, actual; 251,318,004 shares issued,
as adjusted....................................... 1,258,137 1,407,137
Warrants............................................... 91,500 91,500
Unallocated common stock held by ESOP;
4,856,254 shares.................................... (36,295) (36,295)
Treasury stock, at cost; 406,606 shares................ (3,695) (3,695)
Accumulated other comprehensive income................. (90,700) (90,700)
Retained earnings...................................... 683,223 683,223
--------- --------
Total stockholders' equity.......................... 1,902,170 2,051,170
---------- ----------
Total capitalization................................ $3,717,548 $3,801,408
========== ==========
- ------------------
(1) As adjusted to give effect to the offering of the notes and the common
stock. Proceeds are net of estimated expenses of the offering of the notes
and the common stock.
S-14
Federal law requires institutions regulated by the Office of Thrift
Supervision to have a minimum leverage capital ratio equal to 3% of tangible
assets and 4% of risk-adjusted assets, and a risk-based capital ratio equal to
8%. Federal law also requires OTS regulated institutions to have a minimum
tangible capital equal to 2% of total tangible assets. The OTS Order requires
Sovereign Bank to be "Well Capitalized" and also to meet certain other capital
ratio requirements and other conditions. Various agreements with our lenders
also require us to cause Sovereign Bank to be "Well Capitalized" at all times
and in compliance with all regulatory requirements. To be "well capitalized",
Sovereign Bank must maintain a Tier 1 Leverage ratio of at least 5%, a Tier 1
risk-based capital ratio of 6% and total risk based capital of 10%. As of
December 31, 2000, Sovereign Bank was classified as well-capitalized and was in
compliance with the conditions and capital requirements discussed above.
Management expects that Sovereign Bank will continue to be classified as
well-capitalized and in compliance with such capital requirements and
conditions. Although OTS capital regulations do not apply to savings and loan
holding companies, the OTS Order requires us to maintain certain Tier 1 capital
levels. We are presently in compliance with this requirement and expect to
remain as such.
S-15
DESCRIPTION OF THE NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions". In this description, the words
"Company" and "we" refer only to Sovereign Bancorp, Inc. on an unconsolidated
basis and not to any of its subsidiaries.
The terms of the 8 5/8% Senior Notes due 2004 are described below. The
notes are described in the prospectus that follows this prospectus supplement.
The provisions described below supplement, and to the extent they conflict they
supersede, the information in the prospectus with respect to the notes.
The Company will issue the notes under the indenture dated as of
February 1, 1994 (the "Existing Indenture"), between the Company and BNY Midwest
Trust Company (as successor to Harris Trust and Savings Bank), as Trustee, which
is filed as an exhibit to the registration statement of which this prospectus
supplement is a part, and under the second supplemental indenture dated as of
February 15, 2001 (the "Supplemental Indenture", and together with the Existing
Indenture, the "Indenture"), between the Company and the Trustee. The Indenture
is governed by the Trust Indenture Act of 1939. The terms of the notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act.
We urge you to read the Indenture because it, and not this description,
defines your rights as a holder of these notes. A copy of the form of
Supplemental Indenture will be filed as an exhibit to the registration statement
of which this prospectus supplement forms a part.
The Company will issue notes only in fully registered form without
coupons, in denominations of $1,000 and integral multiples of $1,000. The notes
will be issued as a separate series of senior debt securities under the
Indenture, and accordingly will vote as a separate series from other series of
senior debt securities on matters under the Indenture.
Principal, Maturity and Interest
The notes will mature on March 15, 2004. We can issue a maximum of $200
million aggregate principal amount of the notes.
Interest on the notes will be payable semi-annually in arrears on March
15 and September 15, commencing on September 15, 2001. The Company will pay
interest to those persons who were holders of record on the March 1 and
September 1 immediately preceding each interest payment date.
Interest on the notes will accrue from the date of original issuance
or, if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
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Ranking
The notes will be:
o senior unsecured obligations of the Company;
o equal in ranking as to payment ("pari passu") with all existing and
future senior debt of the Company;
o senior in right of payment to all existing and future subordinated
debt of the Company; and
o guaranteed on a senior unsecured basis by the Company's Material
Domestic Subsidiaries that are not banking institutions, or
subsidiaries thereof, or special purpose entities. At present the
Company has no such Material Domestic Subsidiaries. Sovereign Bank
and its subsidiaries are banking institutions and will not be
Subsidiary Guarantors.
At December 31, 2000, we had approximately $1.360 billion of funded
debt, $770 million of which is senior unsecured debt and $590 of which is senior
secured debt. After giving effect to the issuance of the notes, together with
the issuance of $150 million of our common stock on February 5, 2001, and the
use of the proceeds therefrom, there will be $1.295 billion of funded debt
outstanding, of which $945 million will be senior unsecured debt and $350
million will be senior secured debt.
The Company only has a stockholder's claim in the assets of Sovereign
Bank and the Company's other subsidiaries. This stockholder's claim is junior to
the claims that creditors of the Company's subsidiaries have against those
subsidiaries, including in the case of Sovereign Bank, its depositors, the
Federal Deposit Insurance Corporation and the Federal Home Loan Bank. Holders of
the notes will only be creditors of the Company and of those subsidiaries that
may become Subsidiary Guarantors, if any. Holders will not be creditors of
Sovereign Bank or its subsidiaries where most of the Company's consolidated
assets are located. In the case of Sovereign Bank and the other subsidiaries
that also are not Subsidiary Guarantors, all the existing and future liabilities
of such subsidiaries, including any claims of trade creditors and preferred
stockholders, will be effectively senior to the notes.
All the operations of the Company are conducted through Sovereign Bank
and other subsidiaries. Therefore, the Company's ability to service its debt,
including the notes, is dependent upon the earnings of Sovereign Bank and the
other subsidiaries, and their ability to distribute those earnings as dividends,
loans or other payments to the Company. Certain laws restrict the ability of the
Company's subsidiaries to pay dividends and make loans and advances to it. In
particular, dividends by Sovereign Bank are restricted under the laws and
regulations applicable to savings associations and savings and loan holding
companies. The Company will not be able to use the earnings of Sovereign Bank
and those other subsidiaries subject to distribution restrictions to make
payments on the notes, except to the extent the restrictions are satisfied.
Furthermore, under certain circumstances, bankruptcy, "fraudulent conveyance"
laws or other similar laws could invalidate any future Subsidiary Guaranties. If
this were to occur, the Company would also be unable to use the earnings of
future Subsidiary Guarantors, if any, to the extent they face restrictions on
distributing funds to the Company. Any of the situations described above could
make it more difficult for the Company to service its debt.
The total balance sheet liabilities (excluding deposits) of the
Company's subsidiaries, including Sovereign Bank, as of December 31, 2000,
excluding unused commitments made by lenders, were $4.8 billion.
S-17
The Company's subsidiaries also have other liabilities and commitments,
including contingent and other off-balance sheet liabilities, that may be
significant. The Indenture contains limitations on the amount of additional Debt
which the Company and its Subsidiaries (except Sovereign Bank and any other
Depository Institution or Subsidiary of a Depository Institution) may Incur.
However, the amounts of such Debt could be substantial and may be Incurred
either by Sovereign Bank and the Company's other subsidiaries, as well as by
future Subsidiary Guarantors, if any.
The notes are unsecured obligations of the Company and will be
unsecured obligations of any future Subsidiary Guarantors. Secured Debt of the
Company and any Subsidiary Guarantors will be effectively senior to the notes to
the extent of the value of the assets securing such Debt. In particular, debt
under the Company's senior credit facility is secured by a pledge of the stock
of Sovereign Bank (but not its subsidiaries). As a result, debt under the senior
credit facility will be effectively senior to the notes to the extent of the
value of such security.
As of December 31, 2000, after giving effect to the use of the proceeds
from this offering, the outstanding secured Debt of the Company will be
approximately $350 million. See "Risk Factors--Our holding company structure
also restricts the ability of the Bank to provide funds to us and to pay
dividends and make debt payments," "--Our indebtedness places restrictions on us
which may limit our operating flexibility and our ability to pay dividends."
S-18
Sinking Fund
There will be no mandatory sinking fund payments for the notes.
Repurchase at the Option of Holders Upon a Change of Control
Upon the occurrence of a Change of Control, each holder of notes shall
have the right to require the Company to repurchase all or any part of such
holder's notes pursuant to the offer described below (the "Change of Control
Offer") at a purchase price (the "Change of Control Purchase Price") equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the purchase date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
Within 45 days following any Change of Control (the "Change of Control
Notice Date"), the Company shall:
(a) cause a notice of the Change of Control Offer to be sent at
least once to the Dow Jones News Service or similar business news service in the
United States, and
(b) send, by first-class mail, with a copy to the Trustee, to each
holder of notes, at such holder's address appearing in the Security Register, a
notice stating:
(1) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to the covenant entitled "Repurchase at the
Option of Holders Upon a Change of Control" and that all notes timely tendered
will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase
date, which shall be, subject to any contrary requirements of applicable law, a
business day no earlier than 30 days nor later than 60 days from the date such
notice is mailed;
(3) the circumstances and relevant facts regarding the Change
of Control (including information with respect to pro forma historical income,
cash flow and capitalization after giving effect to the Change of Control); and
(4) the procedures that holders of notes must follow in order
to tender their notes (or portions thereof) for payment, and the procedures that
holders of notes must follow in order to withdraw an election to tender notes
(or portions thereof) for payment.
The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of notes pursuant to a Change
of Control Offer. To the extent that the provisions of any securities laws or
S-19
regulations conflict with the provisions of the covenant described hereunder,
the Company will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the covenant described
hereunder by reason of such compliance.
The Change of Control repurchase feature is a result of negotiations
between the Company and the Underwriters. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to certain
covenants described below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of debt outstanding at such time or otherwise affect
the Company's capital structure or credit ratings.
The Company's senior credit facility may prohibit the Company from
purchasing any notes prior to certain dates, and may also provide that the
occurrence of certain of the events that would constitute a Change of Control
would constitute a default under such credit facility. Other future debt of the
Company may contain similar prohibitions or require such debt to be repurchased
upon a Change of Control. Moreover, the exercise by holders of notes of their
right to require the Company to repurchase such notes could cause a default
under existing or future debt of the Company, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to holders of notes upon a repurchase
may be limited by the Company's then existing financial resources. There can be
no assurance that sufficient funds will be available when necessary to make any
required repurchases. The Company's failure to purchase notes in connection with
a Change of Control would result in a default under the Indenture. Such a
default would, in turn, constitute a default under existing debt of the Company
and may constitute a default under other future debt as well. The Company's
obligation to make an offer to repurchase the notes as a result of a Change of
Control may be waived or modified at any time prior to the occurrence of such
Change of Control with the written consent of the holders of a majority in
principal amount of the notes. See "--Amendments and Waivers."
Certain Covenants
Covenant Suspension. During any period of time that:
(a) the notes have Investment Grade Ratings from both S&P and
Moody's and
(b) no Default or Event of Default has occurred and is continuing
under the Indenture,
the Company and the Subsidiaries will not be subject to the following provisions
of the Indenture:
o "--Limitation on Debt",
o "--Limitation on Restricted Payments",
S-20
o "--Limitation on Restrictions on Distributions from Subsidiaries",
o "--Limitation on Transactions with Affiliates",
o clause (x) of the third paragraph (and such clause (x) as referred
to in the first paragraph) of "--Designation of Restricted and
Unrestricted Subsidiaries",
o "--Limitation on Company's Business" and
o clauses (e) and (f) of the first and second paragraphs of "--Merger,
Consolidation and Sale of Property"
(collectively, the "Suspended Covenants"). In the event that the Company and the
Subsidiaries are not subject to the Suspended Covenants for any period of time
as a result of the preceding sentence and, subsequently, one or both of S&P
and/or Moody's withdraws its ratings or downgrades the ratings assigned to the
notes below the required Investment Grade Ratings or a Default or Event of
Default occurs and is continuing, then the Company and the Subsidiaries will
thereafter again be subject to the Suspended Covenants and compliance with the
Suspended Covenants with respect to Restricted Payments made after the time of
such withdrawal, downgrade, Default or Event of Default will be calculated in
accordance with the terms of the covenant described below under "--Limitation on
Restricted Payments" as though, for purposes of determining whether new
Restricted Payments can be made after such time, such covenant had been in
effect during the entire period of time from the Issue Date.
Limitation on Debt. The Company shall not, and shall not permit any
Subsidiary to, Incur, directly or indirectly, any Debt; provided, however, that
the foregoing shall not prohibit the Incurrence of the following Debt:
(a) Debt of the Company evidenced by the notes and of any Subsidiary
Guarantors evidenced by Subsidiary Guaranties relating to the notes;
(b) Debt outstanding on the Issue Date not otherwise described in
clause (a), (c), (d), (e), (g), (h), (i) or (j);
(c) Debt of the Company or any Subsidiary Guarantor if, immediately
after giving pro forma effect to the Incurrence of such Debt and the application
of the proceeds thereof, the outstanding aggregate principal amount of Debt of
the Company and its Subsidiaries on a consolidated basis (other than Debt
Incurred pursuant to clause (j)) would not exceed an amount equal to the
Adjusted Consolidated Net Worth of the Company
(d) Subordinated Obligations of the Company or any Subsidiary
Guarantor if, immediately after giving pro forma effect to the Incurrence of
such Debt and the application of the proceeds thereof, the Consolidated Interest
Coverage Ratio would be greater than 3.00 to 1.00; provided, however, that such
Debt (A) shall have a Stated Maturity that is no earlier than the Stated
Maturity of the notes and (B) shall have an Average Life equal to or greater
than the remaining Average Life of the notes;
S-21
(e) Debt under any Credit Facilities, provided that the aggregate
principal amount of all such Debt at any one time outstanding shall not exceed
$500 million; and provided further that the aggregate principal balance of Debt
that may be outstanding at any one time under such Credit Facilities shall be
permanently reduced to the extent that the amount of credit available under
such Credit Facilities is, by the terms of any such Credit Facility then in
effect, permanently reduced as a result of one or more Asset Sales.
(f) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (a), (b), (c), (d), (g) or (h);
(g) Debt of a Subsidiary outstanding on the date on which such
Subsidiary was acquired by the Company or otherwise became a Subsidiary (other
than Debt Incurred as consideration in, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or series of
transactions pursuant to which such Subsidiary became a Subsidiary of the
Company or was otherwise acquired by the Company), provided that at the time
such Subsidiary was acquired by the Company or otherwise became a Subsidiary and
after giving pro forma effect to the Incurrence of such Debt, the Company would
have been able to Incur $1.00 of additional Debt pursuant to clause (c) of this
covenant;
(h) Subordinated Obligations Incurred by the Company and Debt
Incurred by any special purpose trust pursuant to the issuance by such special
purpose trust of trust preferred securities (including Subordinated Obligations
Incurred or trust preferred securities issued pursuant to a remarketing of Debt
permitted pursuant to this clause (h), provided such remarketing is in
accordance with the original terms of such Debt);
(i) in the case of a Financial Services Subsidiary, any Debt issued
by such Financial Services Subsidiary in the ordinary course of funding its
assets if, immediately after giving pro forma effect to the Incurrence of such
Debt and the application of the proceeds thereof, (A) the outstanding aggregate
principal amount of Debt Incurred by such Financial Services Subsidiary would
not exceed an amount equal to the Consolidated Total Assets of such Financial
Services Subsidiary, and (B) the amount of the Consolidated Total Assets and
Consolidated Net Worth of all the Financial Services Subsidiaries on a combined
basis would not exceed 2.5% of the Company's Consolidated Total Assets and
Consolidated Net Worth, respectively (all determinations pursuant to this clause
(i) shall be made as of the end of the Company's most recent fiscal quarter
ending at least 45 days prior to the date of such Incurrence); and
(j) Debt of any Subsidiary that is a Depository Institution or a
Subsidiary of a Depository Institution, including Sovereign Bank.
Notwithstanding anything to the contrary contained in this covenant,
(1) the Company shall not, and shall not permit any Subsidiary
Guarantor to, Incur any Debt pursuant to this covenant if the proceeds thereof
are used, directly or indirectly, to Refinance any Subordinated Obligations
unless such Debt shall be subordinated to the notes or the applicable Subsidiary
Guaranty, as the case may be, to at least the same extent as such Subordinated
Obligations, and
(2) the Company shall not permit any Subsidiary that is not a
Subsidiary Guarantor to Incur any Debt pursuant to this covenant if the proceeds
thereof are used, directly or indirectly, to Refinance any Debt of the Company
or any Subsidiary Guarantor.
S-22
Limitation on Restricted Payments. The Company shall not make, and
shall not permit any Subsidiary to make, directly or indirectly, any Restricted
Payment if at the time of, and after giving effect to, such proposed Restricted
Payment,
(a) a Default or Event of Default shall have occurred and be
continuing, or
(b) any Subsidiary that is a Depository Institution does not qualify
as "well capitalized" under Section 28 of the FDIA (or any successor provision)
and the regulations of the OTS thereunder, or
(c) the Consolidated Common Shareholders' Tangible Equity of
Sovereign Bank as of the end of the most recent fiscal quarter ending at least
45 days prior to the date of such Restricted Payment was less than the Minimum
Tangible Common Equity Amount as of the end of such fiscal quarter, or
(d) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since November 15, 1999 (the amount of any
Restricted Payment, if made other than in cash, to be based upon Fair Market
Value) would exceed an amount equal to the sum of:
(1) 50% of the aggregate amount of Consolidated Net Income
accrued during the period (treated as one accounting period) from October 1,
1999 to the end of the most recent fiscal quarter ending at least 45 days prior
to the date of such Restricted Payment (or if the aggregate amount of
Consolidated Net Income for such period shall be a deficit, minus 100% of such
deficit), plus
(2) Capital Stock Sale Proceeds, plus
(3) the sum of:
(A) the aggregate net cash proceeds received by the
Company or any Subsidiary from the issuance or sale after November 15, 1999 of
convertible or exchangeable Debt (excluding trust preferred securities issued by
Sovereign Capital Trust II) that has been converted into or exchanged for
Capital Stock (other than Disqualified Stock) of the Company, and
(B) the aggregate amount by which Debt (excluding
trust preferred securities issued by Sovereign Capital Trust II) of the Company
or any Subsidiary is reduced on the Company's consolidated balance sheet on or
after the Issue Date upon the conversion or exchange of any Debt issued or sold
on or prior to the Issue Date that is convertible or exchangeable for Capital
Stock (other than Disqualified Stock) of the Company,
excluding, in the case of clause (A) or (B):
(x) any such Debt issued or sold to the Company or a
Subsidiary or an Unrestricted Subsidiary or an employee stock
S-23
ownership plan or trust established by the Company or any
Subsidiary or an Unrestricted Subsidiary for the benefit of
their employees, and
(y) the aggregate amount of any cash or other
Property distributed by the Company or any Subsidiary upon any
such conversion or exchange, plus
(4) an amount equal to the sum of:
(A) the net reduction in Investments in any Person
other than the Company or a Subsidiary resulting from dividends, repayments of
loans or advances or cash proceeds from transfers of Property, in each case to
the Company or any Subsidiary from such Person plus,
(B) the portion (proportionate to the Company's
equity interest in such Unrestricted Subsidiary) of the Fair Market Value of the
net assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however, that the
foregoing sum shall not exceed, in the case of any Person, the amount of
Investments previously made (and treated as a Restricted Payment) by the Company
or any Restricted subsidiary in such Person.
Notwithstanding the foregoing limitation, the Company or any Subsidiary
or any Unrestricted Subsidiary may:
(a) pay dividends on Capital Stock of the Company within 60 days of
the declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with the Indenture; provided, however, that at the time
of such payment, no other Default or Event of Default shall have occurred and be
continuing (or result therefrom); provided further, however, that such payment
shall be included in the calculation of the amount of Restricted Payments;
(b) purchase, repurchase, redeem, legally defease, acquire or retire
for value (i) Capital Stock of the Company or Subordinated Obligations in
exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary or an Unrestricted Subsidiary or an
employee stock ownership plan or trust established by the Company or any such
Subsidiary or Unrestricted Subsidiary for the benefit of their employees) or
(ii) trust preferred securities or related Subordinated Obligations in
connection with a remarketing and issuance of trust preferred securities or
related Subordinated Obligations in an aggregate principal amount not greater
than the original trust preferred securities or related Subordinated
Obligations; provided, however, that, in the case of clause (i) or (ii):
(1) such purchase, repurchase, redemption, legal defeasance,
acquisition or retirement shall be excluded in the calculation of the amount of
Restricted Payments, and
S-24
(2) the Capital Stock Sale Proceeds from such exchange or sale
(other than from the exercise of warrants in connection with a remarketing of
trust preferred securities or related Subordinated Obligations) shall be
excluded from the calculation pursuant to clause (d)(2) above;
(c) purchase, repurchase, redeem, legally defease, acquire or retire
for value any Subordinated Obligations in exchange for, or out of the proceeds
of the substantially concurrent sale of, Permitted Refinancing Debt; provided,
however, that such purchase, repurchase, redemption, legal defeasance,
acquisition or retirement shall be excluded in the calculation of the amount of
Restricted Payments; and
(d) make other Restricted Payments, including Restricted Payments of
the type described in clauses (a), (b) and (c), in an aggregate annual amount
not to exceed $25 million; provided, however, that at the time of such payment,
no other Default or Event of Default shall have occurred and be continuing (or
result therefrom); provided further, however, that such payment shall be
included in the calculation of the amount of Restricted Payments.
Limitation on Liens. The Company shall not, and shall not permit any
Subsidiary to, directly or indirectly, Incur or suffer to exist, any Lien (other
than Permitted Liens) upon any of its Property (including Capital Stock of a
Subsidiary), whether owned at the Issue Date or thereafter acquired, or any
interest therein or any income or profits therefrom, unless it has made or will
make effective provision whereby the notes or any applicable Subsidiary Guaranty
will be secured by such Lien equally and ratably with (or prior to) all other
Debt of the Company or any Subsidiary secured by such Lien.
Limitation on Restrictions on Distributions from Subsidiaries. The
Company shall not, and shall not permit any Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist any consensual
restriction on the right of any Subsidiary to:
(a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock, or pay any Debt or other
obligation owed, to the Company or any other Subsidiary,
(b) make any loans or advances to the Company or any other
Subsidiary or
(c) transfer any of its Property to the Company or any other
Subsidiary.
The foregoing limitations will not apply:
(1) with respect to clauses (a), (b) and (c), to restrictions:
(A) in effect on the Issue Date,
(B) relating to Debt of a Subsidiary and existing at
the time it became a Subsidiary if such restriction was not created in
connection with or in anticipation of the transaction or series of transactions
pursuant to which such Subsidiary became a Subsidiary or was acquired by the
Company, or
S-25
(C) that result from the Refinancing of Debt Incurred
pursuant to an agreement referred to in clause (1)(A) or (B) above or in clause
(3)(A) or (B) below, provided such restriction is no less favorable to the
holders of notes than those under the agreement evidencing the Debt so
Refinanced, or
(D) effectively imposed by any governmental agency
having regulatory supervision over Sovereign Bank or any other Subsidiary, or
(E) relating to Debt of a Financial Services
Subsidiary Incurred pursuant to clause (i) of the covenant described under
"--Limitation on Debt",
(2) with respect to clause (a) only, to restrictions relating
to any Qualified Preferred Stock issued after November 15, 1999, and
(3) with respect to clause (c) only, to restrictions:
(A) relating to Debt that is permitted to be Incurred
and secured without also securing the notes or any applicable Subsidiary
Guaranty pursuant to the covenants described under "--Limitation on Debt" and
"--Limitation on Liens" that limit the right of the debtor to dispose of the
Property securing such Debt,
(B) encumbering Property at the time such Property
was acquired by the Company or any Subsidiary, so long as such restriction
relates solely to the Property so acquired and was not created in connection
with or in anticipation of such acquisition,
(C) resulting from customary provisions restricting
subletting or assignment of leases or customary provisions in other agreements
that restrict assignment of such agreements or rights thereunder, or
(D) customary restrictions contained in asset sale
agreements limiting the transfer of such Property pending the closing of such
sale.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any Subsidiary to, directly or indirectly, conduct any business
or enter into or suffer to exist any transaction or series of transactions
(including the purchase, sale, transfer, assignment, lease, conveyance or
exchange of any Property or the rendering of any service) with, or for the
benefit of, any Affiliate of the Company (an "Affiliate Transaction"), unless:
(a) the terms of such Affiliate Transaction are:
(1) set forth in writing, and
(2) no less favorable to the Company or such Subsidiary, as
the case may be, than those that could be obtained in a comparable arm's-length
transaction with a Person that is not an Affiliate of the Company,
S-26
(b) if such Affiliate Transaction involves aggregate payments or
value in excess of $5 Million, the Board of Directors (including a majority of
the disinterested members of the Board of Directors) approves such Affiliate
Transaction and, in its good faith judgment, believes that such Affiliate
Transaction complies with clause (a)(2) of this paragraph as evidenced by a
Board Resolution promptly delivered to the Trustee, and
(c) if such Affiliate Transaction involves aggregate payments or
value in excess of $25 Million, the Company obtains a written opinion from an
Independent Financial Advisor to the effect that the consideration to be paid or
received in connection with such Affiliate Transaction is fair, from a financial
point of view, to the Company and its Subsidiaries, taken as a whole.
Notwithstanding the foregoing limitation, the Company or any Subsidiary
may enter into or suffer to exist the following:
(a) any transaction or series of transactions between the Company
and one or more Subsidiaries or between two or more Subsidiaries in the ordinary
course of business, provided that no more than 5% of the total voting power of
the Voting Stock (on a fully diluted basis) of any such Subsidiary is owned by
an Affiliate of the Company (other than a Subsidiary);
(b) any Restricted Payment permitted to be made pursuant to the
covenant described under "--Limitation on Restricted Payments" or any Permitted
Investment;
(c) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors and
employees of the Company or any of the Subsidiaries, so long as the Board of
Directors in good faith shall have approved the terms thereof and deemed the
services theretofore or thereafter to be performed for such compensation to be
fair consideration therefor;
(d) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Subsidiary, as the case may be, provided that such loans and advances do not
exceed $25 Million in the aggregate at any one time outstanding; and
(e) any transaction or series of transactions, in connection with a
securitization of assets of the Company, any Subsidiary or any Unrestricted
Subsidiary, (i) between the Company and one or more Subsidiaries or Unrestricted
Subsidiaries, (ii) between two or more Subsidiaries or Unrestricted
Subsidiaries, or (iii) between one or more Subsidiaries and Unrestricted
Subsidiaries.
Limitation on Company's Business. The Company shall not, and shall not
permit any Subsidiary, to, directly or indirectly, engage in any business other
than the Banking Business.
Subsidiary Guarantors. The Company shall cause each Material Domestic
Subsidiary to execute and deliver to the Trustee a Subsidiary Guaranty, unless
such Material Domestic Subsidiary is a banking institution, a subsidiary of a
banking institution or a special purpose entity established for the purpose of
issuing trust preferred securities or engaging in the securitization of assets.
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Notwithstanding the foregoing, any Subsidiary that enters into a Guarantee or
otherwise Incurs Debt under a Credit Facility, in either case pursuant to clause
(e) of the covenant described under "--Limitation of Debt", shall, at such time,
execute and deliver to the Trustee a Subsidiary Guaranty obligating such
Subsidiary under the Indenture and the notes to the same extent and for so long
as such Subsidiary is so obligated under such Credit Facility.
Tax Sharing Agreement. The Company shall not, and shall not permit any
Subsidiary to, terminate, amend, modify or waive any provisions of the Tax
Sharing Agreement or enter into any other tax allocation, sharing or similar
agreement; provided, however, that:
(a) any provision of the Tax Sharing Agreement may be terminated,
amended, modified or waived (i) to the extent required by any governmental
agency having regulatory supervision over Sovereign Bank or any other Subsidiary
of the Company or (ii) if such termination, amendment, modification or waiver
does not materially adversely affect the Company, any Subsidiary Guarantor or
their rights, benefits or obligations under the Tax Sharing Agreement; and
(b) the Company or any Subsidiary may enter into such other tax
agreement with any direct or indirect shareholder of the Company with respect to
consolidated or combined tax returns including the Company or any of its
Subsidiaries or Unrestricted Subsidiaries but only to the extent that amounts
payable from time to time by the Company or any such Subsidiary under any such
agreement do not exceed the corresponding tax payments that the Company or such
Subsidiary would have been required to make to any relevant taxing authority had
the Company or such Subsidiary not joined in such consolidated or combined
returns, but instead had filed returns including only the Company and its
Subsidiaries, provided that such agreement does not materially adversely affect
the Company, any Subsidiary Guarantor or their rights, benefits or obligations
under the Tax Sharing Agreement as in effect at such time.
Maintenance of Status of Subsidiaries as Insured Depository
Institutions; Capital Maintenance. The Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the status of
each of its Subsidiaries that is a Depository Institution as an insured
depository institution and do all things necessary to ensure that savings
accounts of each such Subsidiary are insured by the FDIC or any successor
organization up to the maximum amount permitted by 12 U.S.C. Section 1811 et
seq. and the regulations thereunder or any succeeding federal law, except as to
individual accounts or interests in employee benefit plans that are not entitled
to "pass-through" insurance under 12 U.S.C. Section 1812(a)(1)(D).
The Company shall cause Sovereign Bank to maintain or exceed the
status of a "well capitalized" institution as defined in the FDIA and OTS
regulations.
Designation of Restricted and Unrestricted Subsidiaries. For
purposes of this "Description of notes", the term "Subsidiary" has the same
meaning as "Restricted Subsidiary", except for below and in a few related
provisions where the term "Restricted Subsidiary" is used. The Board of
Directors may designate any Subsidiary of the Company to be an Unrestricted
Subsidiary if:
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(a) the Subsidiary to be so designated does not own any Capital
Stock or Debt of, or own or hold any Lien on any Property of, the Company or any
other Restricted Subsidiary, and
(1) the Subsidiary to be so designated has total assets of
$1,000 or less, or
(2) such designation is effective immediately upon such entity
becoming a Subsidiary of the Company.
Unless so designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of the Company will be classified as a Restricted Subsidiary;
provided, however, that such Subsidiary shall not be designated a Restricted
Subsidiary and shall be automatically classified as an Unrestricted Subsidiary
if either of the requirements set forth in clauses (x) and (y) of the second
immediately following paragraph will not be satisfied after giving pro forma
effect to such classification or if such Person is a Subsidiary of an
Unrestricted Subsidiary.
Except as provided in the first sentence of the preceding paragraph, no
Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary. In
addition, neither the Company nor any Restricted Subsidiary shall at any time be
directly or indirectly liable for any Debt that provides that the holder thereof
may (with the passage of time or notice or both) declare a default thereon or
cause the payment thereof to be accelerated or payable prior to its Stated
Maturity upon the occurrence of a default with respect to any Debt, Lien or
other obligation of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary). Upon designation of a
Restricted Subsidiary as an Unrestricted Subsidiary in compliance with this
covenant, such Restricted Subsidiary shall, by execution and delivery of a
supplemental indenture in form satisfactory to the Trustee, be released from any
Subsidiary Guaranty previously made by such Restricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary if, immediately after giving pro forma effect to such
designation,
(x) the Company could Incur at least $1.00 of additional Debt
pursuant to both clauses (c) and (d) of the covenant described under
"--Limitation on Debt", and
(y) no Default or Event of Default shall have occurred and be
continuing or would result therefrom.
Any such designation or redesignation by the Board of Directors will be
evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation or redesignation and an Officers' Certificate that:
(a) certifies that such designation or redesignation complies with
the foregoing provisions, and
(b) gives the effective date of such designation or redesignation,
such filing with the Trustee to occur within 45 days after the end of the fiscal
quarter of the Company in which such designation or redesignation is made (or,
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in the case of a designation or redesignation made during the last fiscal
quarter of the Company's fiscal year, within 90 days after the end of such
fiscal year).
Subsidiary Guaranties
The obligations of the Company under the Indenture, including the
repurchase obligation resulting from a Change of Control, will be fully and
unconditionally guaranteed, jointly and severally, on a senior, unsecured basis,
by any future Material Domestic Subsidiaries of the Company that are not banking
institutions, or subsidiaries thereof, or special purpose entities established
for the purpose of issuing trust securities or engaging in the securitization of
assets.
Neither Sovereign Bank nor any of the Company's other existing
subsidiaries is a Subsidiary Guarantor. All the present operations of the
Company are conducted through Sovereign Bank and other subsidiaries, and
Sovereign Bank and such subsidiaries hold, at present, virtually all the
Company's consolidated assets.
If the Company sells or otherwise disposes of either:
(1) its ownership interest in any Subsidiary Guarantor, or
(2) all or substantially all the assets of any Subsidiary
Guarantor, such Subsidiary Guarantor would be released from all its obligations
under its Subsidiary Guaranty.
In addition, if the Company redesignates a Subsidiary Guarantor as an
Unrestricted Subsidiary, which the Company can do under certain circumstances,
the redesignated Subsidiary Guarantor will be released from all its obligations
under its Subsidiary Guaranty. See "--Certain Covenants--Designation of
Restricted and Unrestricted Subsidiaries" and "--Merger, Consolidation and Sale
of Property".
If any Subsidiary Guarantor makes payments under its Subsidiary
Guaranty, each of the Company and the other Subsidiary Guarantors, if any, must
contribute their share of such payments. The Company's and the other Subsidiary
Guarantors' shares of such payment will be computed based on the proportion that
the net worth of the Company or the relevant Subsidiary Guarantor represents
relative to the aggregate net worth of the Company and all the Subsidiary
Guarantors combined.
Merger, Consolidation and Sale of Property
The Company shall not merge, consolidate or amalgamate with or into any
other Person (other than a merger of a Wholly Owned Subsidiary into the Company)
or sell, transfer, assign, lease, convey or otherwise dispose of all or
substantially all its Property in any one transaction or series of transactions
unless:
(a) the Company shall be the surviving Person (the "Surviving
Person") or the Surviving Person (if other than the Company) formed by such
merger, consolidation or amalgamation or to which such sale, transfer,
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assignment, lease, conveyance or disposition is made shall be a corporation
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia;
(b) the Surviving Person (if other than the Company) expressly
assumes, by supplemental indenture in form satisfactory to the Trustee, executed
and delivered to the Trustee by such Surviving Person, the due and punctual
payment of the principal of, and premium, if any, and interest on, all the
notes, according to their tenor, and the due and punctual performance and
observance of all the covenants and conditions of the Indenture to be performed
by the Company;
(c) in the case of a sale, transfer, assignment, lease, conveyance
or other disposition of all or substantially all the Property of the Company,
such Property shall have been transferred as an entirety or virtually as an
entirety to one Person;
(d) immediately before and after giving effect to such transaction
or series of transactions on a pro forma basis (and treating, for purposes of
this clause (d) and clauses (e) and (f) below, any Debt that becomes, or is
anticipated to become, an obligation of the Surviving Person or any Subsidiary
as a result of such transaction or series of transactions as having been
Incurred by the Surviving Person or such Subsidiary at the time of such
transaction or series of transactions), no Default or Event of Default shall
have occurred and be continuing;
(e) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company or the Surviving Person, as the
case may be, would be able to Incur at least $1.00 of additional Debt under both
clauses (c) and (d) of the covenant described under "--Certain Covenants--
Limitation on Debt";
(f) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Surviving Person shall have an Adjusted
Consolidated Net Worth in an amount which is not less than the Adjusted
Consolidated Net Worth of the Company immediately prior to such transaction or
series of transactions;
(g) the Company shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and the supplemental indenture, if any, in respect thereto comply
with this covenant and that all conditions precedent herein provided for
relating to such transaction have been satisfied; and
(h) the Surviving Person shall have delivered to the Trustee an
Opinion of Counsel to the effect that the holders will not recognize income,
gain or loss for Federal income tax purposes as a result of such transaction or
series of transactions and will be subject to Federal income tax on the same
amounts and at the same times as would be the case if the transaction or series
of transactions had not occurred.
The Company shall not permit Sovereign Bank, or any of its
Subsidiaries, or any Subsidiary Guarantor (each a "Specified Party") to merge,
consolidate or amalgamate with or into any other Person (other than a merger of
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a Wholly Owned Subsidiary into such Specified Party) or sell, transfer, assign,
lease, convey or otherwise dispose of all or substantially all its Property in
any one transaction or series of transactions (other than to the company or any
subsidiary) unless:
(a) the Surviving Person (if not such Specified Party) formed by
such merger, consolidation or amalgamation or to which such sale, transfer,
assignment, lease, conveyance or disposition is made shall be a corporation
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia;
(b) solely in the case of such a transaction involving a Subsidiary
Guarantor, the Surviving Person (if other than such Subsidiary Guarantor)
expressly assumes, by Subsidiary Guaranty in form satisfactory to the Trustee,
executed and delivered to the Trustee by such Surviving Person, the due and
punctual performance and observance of all the obligations of such Subsidiary
Guarantor under its Subsidiary Guaranty;
(c) in the case of a sale, transfer, assignment, lease, conveyance
or other disposition of all or substantially all the Property of such Specified
Party, such Property shall have been transferred as an entirety or virtually as
an entirety to one Person;
(d) immediately before and after giving effect to such transaction
or series of transactions on a pro forma basis (and treating, for purposes of
this clause (d) and clauses (e) and (f) below, any Debt that becomes, or is
anticipated to become, an obligation of the Surviving Person, the Company or any
Subsidiary as a result of such transaction or series of transactions as having
been Incurred by the Surviving Person, the Company or such Subsidiary at the
time of such transaction or series of transactions), no Default or Event of
Default shall have occurred and be continuing;
(e) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company would be able to Incur at least
$1.00 of additional Debt under both clauses (c) and (d) of the covenant
described under "--Certain Covenants--Limitation on Debt";
(f) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company shall have an Adjusted
Consolidated Net Worth in an amount which is not less than the Adjusted
Consolidated Net Worth of the Company immediately prior to such transaction or
series of transactions; and
(g) the Company shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and such Subsidiary Guaranty, if any, in respect thereto comply with
this covenant and that all conditions precedent herein provided for relating to
such transaction have been satisfied.
The Surviving Person shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the Indenture (or of the
Subsidiary Guarantor under the Subsidiary Guaranty, as the case may be), but the
predecessor Company in the case of:
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(a) a sale, transfer, assignment, conveyance or other disposition
(unless such sale, transfer, assignment, conveyance or other disposition is of
all the assets of the Company as an entirety or virtually as an entirety), or
(b) a lease,
shall not be released from any of the obligations or covenants under the
Indenture, including with respect to the payment of the notes.
SEC Reports
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the Commission and provide the Trustee and holders of notes with such
annual reports and such information, documents and other reports as are
specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S.
corporation subject to such Sections, such information, documents and reports to
be so filed and provided at the times specified for the filing of such
information, documents and reports under such Sections; provided, however, that
the Company shall not be so obligated to file such information, documents and
reports with the Commission if the Commission does not permit such filings.
Events of Default
Events of Default in respect of the notes include:
(1) failure to make the payment of any interest on the notes
when the same becomes due and payable, and such failure continues for a period
of 30 days;
(2) failure to make the payment of any principal of, or premium,
if any, on, any of the notes when the same becomes due and payable at its Stated
Maturity, upon acceleration, mandatory redemption, optional redemption, required
repurchase or otherwise;
(3) failure to comply with the covenant described under
"--Merger, Consolidation and Sale of Property" or with any covenant or agreement
in the Pledge and Escrow Agreement;
(4) failure to comply with any other covenant or agreement in
the notes or in the Indenture (other than a failure that is the subject of the
foregoing clause (1), (2) or (3)) and such failure continues for 30 days after
written notice is given to the Company as provided below;
(5) a default under any Debt by the Company or any Subsidiary
that results in acceleration of the maturity of such Debt, or failure to pay any
such Debt at maturity, in an aggregate amount greater than $25.0 million or its
foreign currency equivalent at the time (the "cross acceleration provisions");
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(6) any judgment or judgments for the payment of money in an
aggregate amount in excess of $50.0 million (or its foreign currency equivalent
at the time) that shall be rendered against the Company or any Subsidiary and
that shall not be waived, satisfied or discharged for any period of 45
consecutive days during which a stay of enforcement shall not be in effect (the
"judgment default provisions");
(7) certain events involving bankruptcy, insolvency or
reorganization of the Company or any Significant Subsidiary (the "bankruptcy
provisions");
(8) any Subsidiary Guaranty ceases to be in full force and
effect (other than in accordance with the terms of such Subsidiary Guaranty) or
any Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guaranty (the "guaranty provisions"); and
(9) failure of the Company or its Wholly Owned Subsidiaries to
own 100% of the Voting Stock or common stock (or Capital Stock convertible into
Voting Stock or common stock) of Sovereign Bank ("the ownership provisions").
A Default under clause (4) is not an Event of Default until the Trustee
or the holders of not less than 25% in aggregate principal amount of the notes
then outstanding notify the Company of the Default and the Company does not cure
such Default within the time specified after receipt of such notice. Such notice
must specify the Default, demand that it be remedied and state that such notice
is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event that with the giving of notice and the lapse of time would become an
Event of Default, its status and what action the Company is taking or proposes
to take with respect thereto.
If an Event of Default with respect to the notes (other than an Event
of Default resulting from certain events involving bankruptcy, insolvency or
reorganization with respect to the Company) shall have occurred and be
continuing, the Trustee or the registered holders of not less than 25% in
aggregate principal amount of the notes then outstanding may declare to be
immediately due and payable the principal amount of all the notes then
outstanding, plus accrued but unpaid interest to the date of acceleration. In
case an Event of Default resulting from certain events of bankruptcy, insolvency
or reorganization with respect to the Company shall occur, such amount with
respect to all the notes shall be due and payable immediately without any
declaration or other act on the part of the Trustee or the holders of the notes.
After any such acceleration, but before a judgment or decree based on
acceleration is obtained by the Trustee, the registered holders of a majority in
aggregate principal amount of the notes then outstanding may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of accelerated principal, premium or interest, have
been cured or waived as provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the holders of the
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notes, unless such holders shall have offered to the Trustee reasonable
indemnity. Subject to such provisions for the indemnification of the Trustee,
the holders of a majority in aggregate principal amount of the notes then
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the notes.
No holder of notes will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or trustee, or
for any remedy thereunder, unless:
(a) such holder has previously given to the Trustee written notice
of a continuing Event of Default,
(b) the registered holders of at least 25% in aggregate principal
amount of the notes then outstanding have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as trustee, and
(c) the Trustee shall not have received from the registered holders
of a majority in aggregate principal amount of the notes then outstanding a
direction inconsistent with such request and shall have failed to institute such
proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a holder
of any note for enforcement of payment of the principal of, and premium, if any,
or interest on, such note on or after the respective due dates expressed in such
note.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with the
consent of the registered holders of a majority in aggregate principal amount of
the notes then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the notes) and any past default or compliance
with any provisions may also be waived (except a default in the payment of
principal, premium or interest and certain covenants and provisions of the
Indenture which cannot be amended without the consent of each holder of an
outstanding note) with the consent of the registered holders of at least a
majority in aggregate principal amount of the notes then outstanding. However,
without the consent of each holder of an outstanding note, no amendment may,
among other things,
(1) reduce the amount of notes whose holders must consent to an
amendment or waiver,
(2) reduce the rate of or extend the time for payment of
interest on any note,
(3) reduce the principal of or extend the Stated Maturity of any
note,
(4) make any note payable in money other than that stated in the
note,
(5) impair the right of any holder of the notes to receive
payment of principal of and interest on such holder's notes on or after the due
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dates therefor or to institute suit for the enforcement of any payment on or
with respect to such holder's notes or any Subsidiary Guaranty,
(6) subordinate the notes or any Subsidiary Guaranty to any
other obligation of the Company or the applicable Subsidiary Guarantor,
(7) release any security interest that may have been granted in
favor of the holders of the notes other than pursuant to the terms of such
security interest,
(8) reduce the premium payable upon a Change of Control or, at
any time after a Change of Control has occurred, change the time at which the
Change of Control Offer relating thereto must be made or at which the notes must
be repurchased pursuant to such Change of Control Offer, or
(9) make any change in any Subsidiary Guaranty that would
adversely affect the holders of the notes.
Without the consent of any holder of the notes, the Company and the
Trustee may amend the Indenture to:
o cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture,
o provide for uncertificated notes in addition to or in place of
certificated notes (provided that the uncertificated notes are
issued in registered form for purposes of Section 163(f) of
the Code, or in a manner such that the uncertificated notes
are described in Section 163(f)(2)(B) of the Code),
o add additional Guarantees with respect to the notes or to
release Subsidiary Guarantors from Subsidiary Guaranties as
provided by the terms of the Indenture,
o secure the notes or add to the covenants of the Company for
the benefit of the holders of the notes or to surrender any
right or power conferred upon the Company,
o make any change that does not adversely affect the rights of
any holder of the notes or to comply with any requirement of
the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act, and
o provide for the issuance of additional notes in accordance
with the Indenture.
The consent of the holders of the notes is not necessary to approve the
particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment. After an amendment becomes
effective, the Company is required to mail to each registered holder of the
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notes at such holder's address appearing in the Security Register a notice
briefly describing such amendment. However, the failure to give such notice to
all holders of the notes, or any defect therein, will not impair or affect the
validity of the amendment.
Defeasance
The Company at any time may terminate all its obligations under the notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the notes, to replace mutilated, destroyed, lost or
stolen notes and to maintain a registrar and paying agent in respect of the
notes. The Company at any time may terminate:
(1) its obligations under the covenants described under
"--Repurchase at the Option of Holders Upon a Change of Control" and "--Certain
Covenants",
(2) the operation of the cross acceleration provisions, the
judgment default provisions, the bankruptcy provisions with respect to
Significant Subsidiaries, the guaranty provisions and the ownership provisions
described under "--Events of Default" above, and
(3) the limitations contained in clauses (e) and (f) under the
first paragraph of, and in the second paragraph of, "--Merger, Consolidation and
Sale of Property" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option. If the Company exercises
its legal defeasance option, payment of the notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the notes may not be accelerated because
of an Event of Default specified in clause (4) (with respect to the covenants
described under "--Certain Covenants"), (5), (6), (7) (with respect only to
Significant Subsidiaries), (8) or (9) under "--Events of Default" above or
because of the failure of the Company to comply with clauses (e) and (f) under
the first paragraph of, or with the second paragraph of, "--Merger,
Consolidation and Sale of Property" above. If the Company exercises its legal
defeasance option or its covenant defeasance option, each Subsidiary Guarantor
will be released from all its obligations under its Subsidiary Guaranty.
The legal defeasance option or the covenant defeasance option may be
exercised only if:
(a) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and interest on
the notes to maturity or redemption, as the case may be;
(b) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent certified public accountants
expressing their opinion that the payments of principal and interest when due
and without reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in such
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amounts as will be sufficient to pay principal and interest when due on all the
notes to maturity or redemption, as the case may be;
(c) 123 days pass after the deposit is made and during the 123-day
period no Default described in clause (7) under "--Events of Default" occurs
with respect to the Company or any other Person making such deposit which is
continuing at the end of the period;
(d) no Default or Event of Default has occurred and is continuing on
the date of such deposit and after giving effect thereto;
(e) such deposit does not constitute a default under any other
agreement or instrument binding on the Company;
(f) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company Act of
1940;
(g) in the case of the legal defeasance option, the Company delivers
to the Trustee an Opinion of Counsel stating that:
(1) the Company has received from the Internal Revenue Service a
ruling, or
(2) since the date of the Indenture there has been a change in
the applicable Federal income tax law, to the effect, in either case, that, and
based thereon such Opinion of Counsel shall confirm that, the holders of the
notes will not recognize income, gain or loss for Federal income tax purposes as
a result of such defeasance and will be subject to Federal income tax on the
same amounts, in the same manner and at the same time as would have been the
case if such defeasance has not occurred;
(h) in the case of the covenant defeasance option, the Company
delivers to the Trustee an Opinion of Counsel to the effect that the holders of
the notes will not recognize income, gain or loss for Federal income tax
purposes as a result of such covenant defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such covenant defeasance had not occurred; and
(i) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the notes have been complied with as required by the
Indenture.
Governing Law
The Indenture and the notes are governed by the internal laws of the
State of New York without reference to principles of conflicts of law.
The Trustee
BNY Midwest Trust Company is the Trustee under the Indenture.
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Except during the continuance of an Event of Default, the Trustee will
perform only such duties as are specifically set forth in the Indenture. During
the existence of an Event of Default, the Trustee will exercise such of the
rights and powers vested in it under the Indenture and use the same degree of
care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
The Trustee serves as trustee under indentures for other debt of the
Company and as Rights Agent under the Company's Rights Agreement, described in
the prospectus in "Description of Capital Securities-- Shareholder Rights Plan".
Certain Definitions
Set forth below is a summary of certain of the defined terms used in
the Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided. Unless the context otherwise requires, an accounting
term not otherwise defined has the meaning assigned to it in accordance with
GAAP.
"Adjusted Consolidated Net Worth" means, as of any date of
determination, the Consolidated Net Worth of the Company as of the end of the
most recent fiscal quarter of the Company ending at least 45 days prior to such
date of determination; provided, however, that pro forma effect shall be given
(x) to any of the following that shall have occurred since the end of the
relevant fiscal quarter or that shall occur simultaneously with or immediately
following the transaction giving rise to the need to calculate Adjusted
Consolidated Net Worth and (y) to the use of any proceeds of such transaction to
effect any of the following (in each case without duplication and as if the
following had occurred on the last day of such fiscal quarter):
(a) issuances and sales of Capital Stock by the Company or any
Subsidiary,
(b) Investments in (by merger or otherwise) or acquisitions of any
Subsidiary or any Person that becomes a Subsidiary as a result of such
Investment or acquisition or in Property which constitutes all or substantially
all of an operating unit of a business,
(c) Restricted Payments and Permitted Investments, and
(d) Asset Sales.
"Affiliate" of any specified Person means:
(a) any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with such specified
Person, or
(b) any other Person who is a director or executive officer of:
(1) such specified Person,
(2) any Subsidiary (or in the case of the Company, any
Subsidiary or Unrestricted Subsidiary) of such specified Person, or
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(3) any Person described in clause (a) above.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. For purposes of the covenant described
under "--Certain Covenants--Limitation on Transactions with Affiliates",
"Affiliate" shall also mean any beneficial owner of shares representing 5% or
more of the total voting power of the Voting Stock (on a fully diluted basis) of
the Company or of rights or warrants to purchase such Voting Stock (whether or
not currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Asset Sale" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions) in excess of $5 million taken individually (or with respect to a
series of related transactions taken as a whole) by the Company or any
Subsidiary, including any disposition by means of a merger, consolidation or
similar transaction, of:
(a) any shares of Capital Stock of a Subsidiary (other than
directors' qualifying shares), or
(b) any other assets of the Company or any Subsidiary outside of the
ordinary course of business of the Company or such Subsidiary.
"Attributable Debt" in respect of a Sale and Leaseback Transaction
means, at any date of determination,
(a) if such Sale and Leaseback Transaction is a Capital Lease
Obligation, the amount of Debt represented thereby according to the definition
of "Capital Lease Obligation", and
(b) in all other instances, the greater of:
(1) the Fair Market Value of the Property subject to such Sale
and Leaseback Transaction, and
(2) the present value (discounted at the interest rate borne by
the notes, compounded annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such Sale and
Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of any date of determination, with respect to
any Debt or Preferred Stock, the quotient obtained by dividing:
(a) the sum of the product of the numbers of years (rounded to the
nearest one-twelfth of one year) from the date of determination to the dates of
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each successive scheduled principal payment of such Debt or redemption or
similar payment with respect to such Preferred Stock multiplied by the amount of
such payment by
(b) the sum of all such payments.
"Banking Business" means (i) owning the Capital Stock of Sovereign
Bank, (ii) engaging in, or owning the Capital Stock of any other Subsidiaries or
Unrestricted Subsidiaries engaged in, activities permissible for subsidiaries of
a bank holding company or a savings and loan holding company under federal and
state law at the time then applicable to the Company, its Subsidiaries and
Unrestricted Subsidiaries and (iii) the holding of Permitted Investments.
"Capital Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty. For purposes of
"--Certain Covenants--Limitation on Liens", a Capital Lease Obligation shall be
deemed secured by a Lien on the Property being leased.
"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of any class of corporate stock or partnership
interests or any other participations, rights, warrants, options or other
interests in the nature of an equity interest in such Person, including
Preferred Stock, but excluding any debt security convertible or exchangeable
into such equity interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds
received by the Company from the issuance or sale (other than to a Subsidiary or
Unrestricted Subsidiary or an employee stock ownership plan or trust established
by the Company or any such Subsidiary or any such Unrestricted Subsidiary for
the benefit of their employees) by the Company of its Capital Stock (other than
Disqualified Stock) after November 15, 1999, net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Change of Control" means the occurrence of any of the following
events:
(a) if any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act or any successor provisions to either of the
foregoing), including any group acting for the purpose of acquiring, holding,
voting or disposing of securities within the meaning of Rule 13d-5(b)(1) under
the Exchange Act, becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, except that a person will be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of 50% or more of the total voting power of the Voting
Stock of the Company (for purposes of this clause (a), such person or group
shall be deemed to beneficially own any Voting Stock of a corporation held by
any other corporation (the "parent corporation") so long as such person or group
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beneficially owns, directly or indirectly, in the aggregate a majority of the
total voting power of the Voting Stock of such parent corporation); or
(b) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together with
any new directors whose election or appointment by such Board or whose
nomination for election by the shareholders of the Company was approved by a
vote of not less than two-thirds of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office; or
(c) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company; or (d) a sale, transfer, assignment,
lease, conveyance or other disposition, directly or indirectly (other than to
the Company or any Wholly Owned Subsidiary) in any one transaction or series of
transactions, in either case occurring outside the ordinary course of business,
of more than 75% of the assets or 75% of the deposit liabilities of Sovereign
Bank shown on the consolidated balance sheet of Sovereign Bank as of the end of
the most recent fiscal quarter ending at least 45 days prior to such transaction
(or the first transaction in any such series of transactions); provided,
however, that for purposes of this clause (d) if the Company at any time holds
any assets other than (1) the Capital Stock of Sovereign Bank and (2) Temporary
Cash Investments, such other assets shall be deemed to be assets of Sovereign
Bank and to have been reflected on such consolidated balance sheet; provided,
further, that a pledge by the Company of the shares of Sovereign Bank owned by
the Company to secure Debt Incurred under any Credit Facility or Debt existing
on the date hereof requiring security on a basis pari passu with any Credit
Facility will not, absent any action to realize such pledge, constitute a Change
of Control, provided such pledge and Incurrence is otherwise in accordance with
the covenants described under "--Certain Covenants--Limitation on Debt" and
"--Limitation on Liens".
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Price Protection Agreement" means, in respect of a Person,
any forward contract, commodity swap agreement, commodity option agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in commodity prices.
"Consolidated Common Shareholders' Tangible Equity" means, as of any
date of determination, the total amount shown for shareholders' tangible equity
determined pursuant to Office of Thrift Supervision guidelines and any successor
requirements thereto on a consolidated balance sheet of Sovereign Bank and its
Subsidiaries as at such date, less any amounts included therein attributable to,
without duplication, Preferred Stock held by Persons other than the Company and
its Subsidiaries.
"Consolidated Interest Coverage Ratio" means, as of any date of
determination, the ratio of:
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(a) the aggregate amount of Earnings Available for Fixed Charges for
the most recent four consecutive fiscal quarters ending at least 45 days prior
to such determination date to
(b) Consolidated Interest Expense that is anticipated to accrue
during a period consisting of the fiscal quarter in which such determination
date occurs and the three fiscal quarters immediately subsequent thereto (based
upon the pro forma amount and maturity of, and interest payments in respect of,
Debt of the Company and the Subsidiaries expected by the Company to be
outstanding on such determination date), assuming for the purposes of this
measurement the continuation of market interest rates prevailing on such
determination date and base interest rates in respect of floating interest rate
obligations equal to the base interest rates on such obligations in effect as of
such determination date, provided that, if the Company or any of the
Subsidiaries is a party to any Interest Rate Agreement that would have the
effect of changing the interest rate on any Debt of the Company or any of the
Subsidiaries for such four-quarter period (or a portion thereof), the rate
resulting therefrom shall be used for such four-quarter period or portion
thereof, provided further that any Consolidated Interest Expense with respect to
Debt so Incurred or Repaid by the Company or any Subsidiary during the fiscal
quarter in which such determination date occurs shall be calculated on a pro
forma basis as if such Debt was Incurred or Repaid on the first day of such
fiscal quarter.
In addition, pro forma effect shall be given to any of the following
that shall have occurred since the beginning of the four quarter historical
period so preceding such determination date, or that shall occur simultaneously
with or immediately following the determination date, as if the following had
occurred on the first day of such period: (i) Investments in (by merger or
otherwise) or acquisitions of any Subsidiary or any Person that becomes a
Subsidiary as a result of such Investment or acquisition or in Property which
constitutes all or substantially all of an operating unit of a business and (ii)
Asset Sales.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Subsidiaries, plus, to the
extent not included in such total interest expense, and to the extent Incurred
by the Company or its Subsidiaries,
(a) interest expense attributable to leases constituting part of a
Sale and Leaseback Transaction and to Capital Lease Obligations,
(b) amortization of debt discount and debt issuance cost, including
commitment fees,
(c) capitalized interest,
(d) non-cash interest expense,
(e) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(f) net costs associated with Hedging Obligations (including
amortization of fees),
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(g) Disqualified Stock Dividends,
(h) Preferred Stock Dividends,
(i) interest Incurred in connection with Investments in discontinued
operations,
(j) interest accruing on any Debt of any other Person to the extent
such Debt is Guaranteed by the Company or any Subsidiary, and
(k) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or trust to
pay interest or fees to any Person (other than the Company) in connection with
Debt Incurred by such plan or trust.
Notwithstanding the foregoing, interest expense or other amounts
Incurred in the ordinary course of business by banking institutions or Financial
Services Subsidiaries shall not be included as part of Consolidated Interest
Expense.
"Consolidated Net Income" means, for any period, the net income (loss)
of the Company and its consolidated Subsidiaries and Unrestricted Subsidiaries,
less, without duplication, the amounts of Preferred Stock Dividends declared or
accrued during such period in respect of any Preferred Stock of Subsidiaries and
Unrestricted Subsidiaries held by Persons other than the Company and its Wholly
Owned Subsidiaries (to the extent not already deducted from Consolidated Net
Income); provided, however, that there shall not be included in such
Consolidated Net Income:
(a) any net income (loss) of any Person (other than the Company) if
such Person is not a Subsidiary, except that:
(1) subject to the exclusion contained in clause (d) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
distributed by such Person during such period to the Company or a Subsidiary as
a dividend or other distribution (subject, in the case of a dividend or other
distribution to a Subsidiary, to the limitations contained in clause (c) below),
and
(2) the Company's equity in a net loss of any such Person other
than an Unrestricted Subsidiary for such period shall be included in determining
such Consolidated Net Income,
(b) for purposes of the covenant described under "--Certain
Covenants--Limitation on Restricted Payments" only, any net income (loss) of any
Person acquired by the Company or any of its consolidated Subsidiaries and
Unrestricted Subsidiaries in a pooling of interests transaction for any period
prior to the date of such acquisition,
(c) any net income of any Subsidiary if such Subsidiary is subject
to restrictions, directly or indirectly, on the payment of dividends or the
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making of distributions, directly or indirectly, to the Company (other than
restrictions contained in any Qualified Preferred Stock) except that:
(1) subject to the exclusion contained in clause (d) below, the
Company's equity in the net income of any such Subsidiary for such period shall
be included in such Consolidated Net Income up to the aggregate amount of cash
distributed by such Subsidiary during such period (or, in the case of a
Depository Institution, that could as of such date of determination be
distributed with respect to such period, provided that the Company is not aware
of any foreseeable negative changes to its ability to make such distributions)
to the Company or another Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to another Subsidiary,
to the limitation contained in this clause), and
(2) the Company's equity in a net loss of any such Subsidiary
for such period shall be included in determining such Consolidated Net Income,
(d) any gain (but not loss) realized upon the sale or other
disposition of any Property of the Company or any of its consolidated
Subsidiaries and Unrestricted Subsidiaries (including pursuant to any Sale and
Leaseback Transaction) that is not sold or otherwise disposed of in the ordinary
course of business (excluding, solely for the purposes of the covenant described
under "--Certain Covenants--Limitation of Restricted Payments," any gain in
connection with a sale of insured deposits),
(e) any extraordinary gain or loss,
(f) the cumulative effect of a change in accounting principles,
(g) any non-cash compensation expense realized for grants of
performance shares, stock options or other rights to officers, directors and
employees of the Company or any Subsidiary, provided that such shares, options
or other rights can be redeemed at the option of the holder only for Capital
Stock of the Company (other than Disqualified Stock), and
(h) for purposes of the covenant described under "--Certain
Covenants--Limitation on Restricted Payments" only, any interest payments made
by the Company or any Subsidiary to a special purpose trust that is a Subsidiary
(and if such Subsidiary is not a Wholly Owned Subsidiary, such amount shall be
on a pro rata basis) on Debt of the Company or such Subsidiary to the extent
such trust uses such proceeds to make dividends, distributions or other payments
which are Restricted Payments.
Notwithstanding the foregoing, for purposes of the covenant described
under "--Certain Covenants--Limitation on Restricted Payments" only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (d)(4) thereof.
"Consolidated Net Worth" means, in respect of any Person, the total of
the amounts shown on the consolidated balance sheet of such Person and its
Subsidiaries as:
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(a) the par or stated value of all outstanding Capital Stock of such
Person, plus
(b) paid-in capital or capital surplus relating to such Capital
Stock, plus
(c) any retained earnings or earned surplus, less:
(1) any accumulated deficit, and
(2) any amounts attributable to Disqualified Stock.
"Consolidated Total Assets" means, in respect of any Person, as of any
date of determination, the amount that would appear on a consolidated balance
sheet of such Person and its consolidated Subsidiaries as the total assets of
such Person and its Subsidiaries.
"Credit Facilities" means, with respect to the Company or any
Subsidiary, one or more debt or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans or trade
letters of credit, in each case together with any extensions, revisions,
refinancings or replacements thereof by a lender or syndicate of lenders.
"Currency Exchange Protection Agreement" means, in respect of a Person,
any foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
(without duplication):
(a) the principal of and premium (if any and then only to the extent
then due and payable) in respect of:
(1) debt of such Person for money borrowed, and
(2) debt evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable;
(b) all Capital Lease Obligations of such Person and all
Attributable Debt in respect of Sale and Leaseback Transactions entered into by
such Person;
(c) all obligations of such Person issued or assumed as the deferred
purchase price of Property, all conditional sale obligations of such Person and
all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(d) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in (a) through (c) above) entered
into in the ordinary course of business of such Person to the extent such
letters of credit are not drawn upon or, if and to the extent drawn upon, such
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drawing is reimbursed no later than the third Business Day following receipt by
such Person of a demand for reimbursement following payment on the letter of
credit);
(e) the amount of all obligations of such Person with respect to the
Repayment of any Disqualified Stock or, with respect to any Subsidiary of such
Person, any Preferred Stock (but excluding, in each case, any accrued
dividends);
(f) all obligations of the type referred to in clauses (a) through
(e) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(g) all obligations of the type referred to in clauses (a) through
(f) of other Persons secured by any Lien on any Property of such Person (whether
or not such obligation is assumed by such Person), the amount of such obligation
being deemed to be the lesser of the value of such Property or the amount of the
obligation so secured; and
(h) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Debt of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date. The amount of Debt represented by a
Hedging Obligation shall be equal to:
(1) zero if such Hedging Obligation has been Incurred solely for
the purpose of managing risk in the ordinary course of business and not for
speculative purposes, including (i) interest, currency, commodity, liquidity,
credit, prepayment and other risks, (ii) reducing borrowing costs, or (iii)
converting any elements of indebtedness from one form to another (collectively,
"Ordinary Course Hedges"), or
(2) the notional amount of such Hedging Obligation which is not
an Ordinary Course Hedge.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Depository Institution" shall have the meaning attributed thereto in
Section 3(c)(1) of the FDIA, 12 U.S.C. Section 1813(c)(1), or a similar
definition under any successor statute.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, in either case at the option of the
holder thereof) or otherwise:
(a) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
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(b) is or may become redeemable or repurchaseable at the option of
the holder thereof, in whole or in part, or
(c) is convertible or exchangeable at the option of the holder
thereof for Debt or Disqualified Stock, on or prior to, in the case of clause
(a), (b) or (c), the first anniversary of the Stated Maturity of the notes.
"Disqualified Stock Dividends" means all dividends with respect to
Disqualified Stock of the Company held by Persons other than a Wholly Owned
Subsidiary. The amount of any such dividend shall be equal to the quotient of
such dividend divided by the difference between one and the maximum statutory
federal income tax rate (expressed as a decimal number between 1 and 0) then
applicable to the Company.
"Earnings Available for Fixed Charges" means, for any period, an amount
equal to, for the Company and its consolidated Subsidiaries, the sum of
Consolidated Net Income for such period, plus the following to the extent
reducing Consolidated Net Income for such period:
(a) the provision for taxes based on income or profits or utilized
in computing net loss,
(b) Consolidated Interest Expense, and
(c) amortization of intangibles.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and amortization of, a Subsidiary shall be added to Consolidated Net
Income to compute Earnings Available for Fixed Charges only to the extent (and
in the same proportion) that the net income of such Subsidiary was included in
calculating Consolidated Net Income and only, in the case of any Subsidiary, if
a corresponding amount would be permitted at the date of determination to be
dividended or paid to the Company by such Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Subsidiary or its shareholders.
"Eligible Investments" shall mean (i) investments in U.S. Government
Obligations maturing within 365 days of the date of acquisition thereof; (ii)
investments in time deposit accounts, certificates of deposit and money market
deposits maturing within 90 days of the date of acquisition thereof issued by a
bank or trust company organized under the laws of the United States of America
or any state thereof having capital, surplus and undivided profits aggregating
in excess of $500 million and whose long-term debt is rated "A-3" or "A-" or
higher according to Moody's or S&P (or such similar equivalent rating by at
least one "nationally recognized statistical rating organization" (as defined in
Rule 436 under the Securities Act)); (iii) repurchase obligations with a term of
not more than 60 days for (x) underlying securities of the types described in
clause (i) above, or (y) underlying agency, asset backed, mortgage backed, or
corporate securities maturing within 365 days of the date of deposit into escrow
and rated AAA or the equivalent thereof by at least one of S&P or Moody's, in
either case, entered into with (a) a bank meeting the qualifications described
in clause (ii) above, or (b) any primary government securities dealer reporting
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to the Market Reports Division of the Federal Reserve Bank of New York; (iv)
investments in commercial paper, maturing not more than 90 days after the date
of acquisition thereof, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America with a rating at the time as of which any Investment therein is made of
"P-1" (or higher) according to Moody's and "A-1" (or higher) according to S&P;
and (v) direct obligations (or certificates representing an ownership interest
in such obligations) of any state of the United States of America (including any
agency or instrumentality thereof) for the payment of which the full faith and
credit of such state is pledged and which are not callable or redeemable at the
Company's option, provided that: (a) the long-term debt of such state is rated
"A-3" or "A-" or higher according to Moody's or S&P (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)), and (b) such obligations
mature within 180 days of the date of acquisition thereof.
"Exchange Act" means the Securities Exchange Act of 1934.
"Fair Market Value" means, with respect to any Property, the price
that could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value shall be
determined, except as otherwise provided, if such Property has a Fair Market
Value in excess of $50.0 million, by a majority of the Board of Directors and
evidenced by a Board Resolution, dated within 30 days of the relevant
transaction, delivered to the Trustee.
"Financial Services Subsidiary" means any Subsidiary of the Company
(other than a Depository Institution or a Subsidiary of a Depository
Institution) which conducts any financial asset origination, securitization,
financing or servicing business or any other financial services business.
"Foreign Subsidiary" means any Subsidiary or Unrestricted Subsidiary
which is not organized under the laws of the United States of America or any
State thereof or the District of Columbia.
"GAAP" means United States generally accepted accounting principles as
in effect on November 15, 1999, including those set forth:
(a) in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants,
(b) in the statements and pronouncements of the Financial Accounting
Standards Board,
(c) in such other statements by such other entity as approved by a
significant segment of the accounting profession, and
(d) the rules and regulations of the Commission governing the
inclusion of financial statements (including pro forma financial statements) in
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periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the Commission.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt of such other Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise), or
(b) entered into for the purpose of assuring in any other manner the
obligee against loss in respect thereof (in whole or in part); provided,
however, that the term "Guarantee" shall not include:
(1) endorsements for collection or deposit in the ordinary
course of business, or
(2) a contractual commitment by one Person to invest in another
Person for so long as such Investment is reasonably expected to constitute a
Permitted Investment under clause (b) of the definition of "Permitted
Investment".
The term "Guarantee" used as a verb has a corresponding meaning. The term
"Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement,
Commodity Price Protection Agreement or any other similar agreement or
arrangement.
"Incur" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Debt or other
obligation or the recording, as required pursuant to GAAP, of any such Debt or
obligation on the balance sheet of such Person (and "Incurrence" and "Incurred"
shall have meanings correlative to the foregoing); provided, however, that a
change in GAAP that results in an obligation of such Person that exists at such
time, and is not theretofore classified as Debt, becoming Debt shall not be
deemed an Incurrence of such Debt; provided further, however, that any Debt or
other obligations of a Person existing at the time such Person becomes a
Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be
deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary;
and provided further, however, that solely for purposes of determining
compliance with "--Certain Covenants--Limitation on Debt", amortization of debt
discount shall not be deemed to be the Incurrence of Debt, provided that in the
case of Debt sold at a discount, the amount of such Debt Incurred shall at all
times be the aggregate principal amount at Stated Maturity.
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"Independent Financial Advisor" means an investment banking firm
of national standing or any third party appraiser of national standing, provided
that such firm or appraiser is not an Affiliate of the Company.
"Interest Rate Agreement" means, for any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect against fluctuations in interest
rates.
"Investment" by any Person means any direct or indirect loan
(other than loans or advances to customers or suppliers in the ordinary course
of business that are recorded as accounts receivable or loans receivable on the
balance sheet of such Person), advance or other extension of credit or capital
contribution (by means of transfers of cash or other Property to others or
payments for Property or services for the account or use of others, or
otherwise) to, or Incurrence of a Guarantee of any obligation of, or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Debt issued by, any other Person. For the purposes of the covenant
described under "--Certain Covenants--Limitation on Restricted Payments",
"--Designation of Restricted and Unrestricted Subsidiaries" and the definition
of "Restricted Payment", "Investment" shall include the portion (proportionate
to the Company's equity interest in such Subsidiary) of the Fair Market Value of
the net assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Unrestricted Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary of an amount (if positive) equal to:
(a) the Company's "Investment" in such Subsidiary at the time of
such redesignation, less
(b) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary
at the time of such redesignation.
In determining the amount of any Investment made by transfer of any
Property other than cash, such Property shall be valued at its Fair Market Value
at the time of such Investment.
"Investment Grade Rating" means a rating equal to or higher than Baa3
(or the equivalent) by Moody's and BBB- (or the equivalent) by S&P.
"Issue Date" means the date on which the notes are initially issued.
"Lien" means, with respect to any Property of any Person, any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any Capital
Lease Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
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"Material Domestic Subsidiary" means any Significant Subsidiary other
than (a) a Foreign Subsidiary or (b) a Subsidiary or Unrestricted Subsidiary of
a Foreign Subsidiary or (c) an Unrestricted Subsidiary.
"Minimum Tangible Common Equity Amount" means, as of the end of any
fiscal quarter, an amount equal to $1.0 billion.
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer, any Executive Vice President or the Principal Accounting
Officer (so long as such Principal Accounting Officer is at least a Senior or
Executive Vice President) of the Company.
"Officers' Certificate" means a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive officer,
principal financial officer or principal accounting officer (so long as such
principal accounting officer is at least a Senior or Executive Vice President of
the Company) of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Investment" means any Investment by the Company or a
Subsidiary in:
(a) the Company, any Subsidiary or any Person that will, upon the
making of such Investment, become a Subsidiary, provided that the primary
business of such Subsidiary is the Banking Business;
(b) any Person if as a result of such Investment such Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its Property to, the Company or a Subsidiary, provided that
such Person's primary business is Banking Business;
(c) Temporary Cash Investments;
(d) receivables owing to the Company or a Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade terms
may include such concessionary trade terms as the Company or such Subsidiary
deems reasonable under the circumstances;
(e) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business;
(f) loans and advances to officers, directors and employees made in
the ordinary course of business consistent with past practices of the Company or
such Subsidiary, as the case may be, provided that such loans and advances in
the aggregate do not exceed $25 million at any one time outstanding;
S-52
(g) stock, obligations or other securities received in settlement of
debts created in the ordinary course of business and owing to the Company or a
Subsidiary or in satisfaction of judgments;
(h) Investments in the ordinary course of business by any Subsidiary
that is a banking institution or a Financial Services Subsidiary or a Subsidiary
of a banking institution or a Financial Services Subsidiary (to the extent it
would be permitted, under applicable laws and regulations, to make such
Investment) in any Person other than an Affiliate of the Company (other than an
Unrestricted Affiliate, a Subsidiary of the Company or a Person that would
become an Unrestricted Affiliate or a Subsidiary as a result of such
Investment); and
(i) other Investments made for a price not greater than Fair Market
Value that do not exceed $50 million outstanding at any one time in the
aggregate.
"Permitted Liens" means:
(a) Liens to secure Debt permitted to be Incurred under clause (e)
of the covenant described under "--Certain Covenants--Limitation on Debt",
provided that any such Lien is limited to the Capital Stock of Wholly Owned
Subsidiaries, including Sovereign Bank;
(b) Liens created under negative pledge provisions of the indentures
for the Company's senior notes outstanding on the Issue Date, but only to the
extent required by such provisions as in effect on the Issue Date;
(c) Liens for taxes, assessments or governmental charges or levies
on the Property of the Company or any Subsidiary if the same shall not at the
time be delinquent or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
that shall be required in conformity with GAAP shall have been made therefor;
(d) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens and other similar Liens, on the Property of the Company or any
Subsidiary arising in the ordinary course of business and securing payment of
obligations that are not more than 60 days past due or are being contested in
good faith and by appropriate proceedings;
(e) Liens on the Property of the Company or any Subsidiary Incurred
in the ordinary course of business to secure performance of obligations with
respect to statutory or regulatory requirements, performance or return-of-money
bonds, surety bonds or other obligations of a like nature and Incurred in a
manner consistent with industry practice, in each case which are not Incurred in
connection with the borrowing of money, the obtaining of advances or credit or
the payment of the deferred purchase price of Property and which do not in the
aggregate impair in any material respect the use of Property in the operation of
the business of the Company and the Subsidiaries taken as a whole;
(f) Liens on Property at the time the Company or any Subsidiary
acquired such Property, including any acquisition by means of a merger or
consolidation with or into the Company or any Subsidiary; provided, however,
S-53
that any such Lien may not extend to any other Property of the Company or any
Subsidiary; provided further, however, that such Liens shall not have been
Incurred in anticipation of or in connection with the transaction or series of
transactions pursuant to which such Property was acquired by the Company or any
Subsidiary;
(g) Liens on the Property of a Person at the time such Person
becomes a Subsidiary; provided, however, that any such Lien may not extend to
any other Property of the Company or any other Subsidiary that is not a direct
Subsidiary of such Person; provided further, however, that any such Lien was not
Incurred in anticipation of or in connection with the transaction or series of
transactions pursuant to which such Person became a Subsidiary;
(h) pledges or deposits by the Company or any Subsidiary under
workmen's compensation laws, unemployment insurance laws or similar legislation,
or good faith deposits in connection with bids, tenders, contracts (other than
for the payment of Debt) or leases to which the Company or any Subsidiary is
party, or deposits to secure public or statutory obligations of the Company, or
deposits for the payment of rent, in each case Incurred in the ordinary course
of business;
(i) utility easements, building restrictions and such other
encumbrances or charges against real Property as are of a nature generally
existing with respect to properties of a similar character;
(j) Liens existing on November 15, 1999 not otherwise described in
clauses (a) through (i) above or clause (k), (m) or (n) below;
(k) Liens not otherwise described in clauses (a) through (j) above
or clause (m) or (n) below on the Property of any Subsidiary that is not a
Subsidiary Guarantor to secure any Debt permitted to be Incurred by such
Subsidiary pursuant to the covenant described under "--Certain
Covenants--Limitation on Debt" (including Liens to secure Debt permitted to be
Incurred under such covenant by a Depositary Institution) or to secure any other
obligation of such Subsidiary;
(l) Liens on the Property of the Company or any Subsidiary to secure
any Refinancing, in whole or in part, of any Debt secured by Liens referred to
in clause (f), (g), or (j) above; provided, however, that any such Lien shall be
limited to all or part of the same Property that secured the original Lien
(together with improvements and accessions to such Property) and the aggregate
principal amount of Debt that is secured by such Lien shall not be increased to
an amount greater than the sum of:
(1) the outstanding principal amount, or, if greater, the
committed amount, of the Debt secured by Liens described under clause (f), (g)
or (j) above, as the case may be, at the time the original Lien became a
Permitted Lien under the Indenture, and
(2) an amount necessary to pay any fees and expenses, including
premiums and defeasance costs, incurred by the Company or such Subsidiary in
connection with such Refinancing; and
S-54
(m) Liens not otherwise described in clauses (a) through (l) above
or (n) below on the Property of a Financial Services Subsidiary to secure any
Debt permitted to be Incurred by such Subsidiary pursuant to the covenant
described under "--Certain Covenants--Limitation on Debt"; and
(n) Liens securing Ordinary Course Hedges.
"Permitted Refinancing Debt" means any Debt that Refinances any other
Debt, including any successive Refinancings, so long as:
(a) such Debt is in an aggregate principal amount (or if Incurred
with original issue discount, an aggregate issue price) not in excess of the sum
of:
(1) the aggregate principal amount (or if Incurred with original
issue discount, the aggregate accreted value) then outstanding of the Debt being
Refinanced, and
(2) an amount necessary to pay any fees and expenses, including
premiums and defeasance costs, related to such Refinancing,
(b) the Average Life of such Debt is equal to or greater than the
Average Life of the Debt being Refinanced,
(c) the Stated Maturity of such Debt is no earlier than the Stated
Maturity of the Debt being Refinanced, and
(d) the new Debt shall not be senior in right of payment to the Debt
that is being Refinanced;
provided, however, that Permitted Refinancing Debt shall not include (x) Debt of
a Subsidiary or Unrestricted Subsidiary that is not a Subsidiary Guarantor that
Refinances Debt of the Company or a Subsidiary Guarantor or (y) Debt of the
Company or a Subsidiary that Refinances Debt of an Unrestricted Subsidiary.
"Person" means any individual, corporation, company (including any
limited liability company), association, partnership, joint venture, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
the payment of dividends, or as to the distribution of assets upon any voluntary
or involuntary liquidation or dissolution of such Person, over shares of any
other class of Capital Stock issued by such Person. Preferred Stock includes
Disqualified Stock, Qualified Preferred Stock, Trust Preferred Stock and any
other trust preferred securities issued by special purpose trusts.
"Preferred Stock Dividends" means all dividends with respect to
Preferred Stock of Subsidiaries held by Persons other than the Company or a
Wholly Owned Subsidiary. The amount of any such dividend except with respect to
Trust Preferred Stock or any other trust preferred securities issued by special
purpose trusts shall be equal to the quotient of such dividend divided by the
S-55
difference between one and the maximum statutory federal income rate (expressed
as a decimal number between 1 and 0) then applicable to the issuer of such
Preferred Stock.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, as the case may be.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including Capital Stock in, and other securities of, any
other Person. For purposes of any calculation required pursuant to the
Indenture, the value of any Property shall be its Fair Market Value.
"Qualified Preferred Stock" means any Preferred Stock of any Subsidiary
(other than Trust Preferred Stock and any other trust preferred securities
issued by special purpose trusts) which meets the requirements set forth below:
(a) such Preferred Stock is not Disqualified Stock;
(b) the terms of such Preferred Stock do not impose any consensual
restriction on the ability of the issuer thereof to pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock, to the Company or any other Subsidiary, except for restrictions to the
effect that:
(i) dividends and distributions on common stock or other capital
stock of the issuer may not be declared or paid or set apart for
payment at any time when the issuer has not declared and paid any
dividends or distributions on such Preferred Stock which are required
to be declared and paid as a precondition to dividends or distributions
on other capital stock of the issuer;
(ii) distributions upon the liquidation, dissolution or winding
up of the issuer, whether voluntary or involuntary ("Liquidating
Distributions"), may not be made on the common stock or other capital
stock of the issuer at any time when such Preferred Stock is entitled
to receive Liquidating Distributions which have not been paid; and
(iii) dividends and distributions on common stock or other
capital stock of the issuer may not be declared or paid or set apart
for payment at any time when such Preferred Stock is required to be,
but has not been, redeemed, repurchased, converted, exchanged or
otherwise paid pursuant to provisions which meet the requirements of
clause (a) above; and
(c) the terms of such Preferred Stock do not impose any consensual
restriction on the ability of the issuer thereof to: (i) pay any Debt or other
obligation owed to the Company or any other Subsidiary, (ii) make any loans or
S-56
advances to the Company or any other Subsidiary or (iii) transfer any of its
Property to the Company or any other Subsidiary, except, in any such case, any
restriction permitted under "--Certain Covenants--Limitations on Restrictions on
Distributions from Subsidiaries" (other than under clause (2) thereof).
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, repurchase, redeem, defease or retire, or to issue other
Debt, in exchange or replacement for, such Debt. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Repay" means, in respect of any Debt, to repay, prepay, repurchase,
redeem, legally defease or otherwise retire such Debt. "Repayment" and "Repaid"
shall have correlative meanings. Debt shall be considered to have been Repaid
only to the extent that the related loan commitment, if any, shall have been
permanently reduced in connection therewith.
"Restricted Payment" means:
(a) any dividend or distribution (whether made in cash, securities
or other Property) declared or paid on or with respect to any shares of Capital
Stock of the Company or any Subsidiary (including any payment in connection with
any merger or consolidation with or into the Company or any Subsidiary), except
for any dividend or distribution that is made solely to the Company or a
Subsidiary (and, if such Subsidiary is not a Wholly Owned Subsidiary, to the
other shareholders of such Subsidiary on a pro rata basis or on a basis that
results in the receipt by the Company or a Subsidiary of dividends or
distributions of greater value than it would receive on a pro rata basis) or any
dividend or distribution or portion thereof payable solely in shares of Capital
Stock (other than Disqualified Stock) of the Company;
(b) the purchase, repurchase, redemption, acquisition or retirement
for value of any Capital Stock (including Trust Preferred Stock and any other
trust preferred securities issued by special purpose trusts or warrants issued
by the Company in connection therewith, and including redemptions in connection
with a remarketing of such securities) of the Company or any Subsidiary (other
than from the Company or a Subsidiary) or any securities exchangeable for or
convertible into any such Capital Stock, including the exercise of any option to
exchange any Capital Stock (other than for or into Capital Stock of the Company
that is not Disqualified Stock);
(c) the purchase, repurchase, redemption, acquisition or retirement
for value, prior to the date for any scheduled maturity, sinking fund or
amortization or other installment payment, of any Subordinated Obligation
(excluding the purchase, repurchase or other acquisition of any Subordinated
Obligation (other than a Subordinated Obligation covered by clause (e) below)
purchased in anticipation of satisfying a scheduled maturity, sinking fund or
amortization or other installment obligation, in each case due within one year
of the date of acquisition);
(d) any Investment (other than Permitted Investments) in any Person;
or
(e) any payment or purchase, repurchase, redemption, acquisition or
retirement for value by the Company or any Subsidiary of any Debt issued to any
special purpose trust of the Company in connection with the issuance by such
S-57
trust of trust preferred securities (including Trust Preferred Stock, provided,
however, that if the corresponding dividend, distribution or other payment by
the trust on its trust preferred securities of the proceeds so received from the
Company or such Subsidiary would otherwise constitute a Restricted Payment, the
amount of such proceeds shall only be counted once as a Restricted Payment.
"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement relating to Property now owned or hereafter acquired whereby the
Company or a Subsidiary transfers such Property to another Person and the
Company or a Subsidiary leases it from such Person.
"Securities Act" means the Securities Act of 1933.
"Significant Subsidiary" means any Subsidiary or Unrestricted
Subsidiary that would be a "Significant Subsidiary" of the Company within the
meaning of Rule 1-02 under Regulation S-X promulgated by the Commission or any
successor provision to such Rule.
"Sovereign Bank" means Sovereign Bank, a federal savings bank, and any
successor thereto.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred.
"Subordinated Obligation" means any Debt of the Company or any
Subsidiary Guarantor (whether outstanding on November 15, 1999 or thereafter
Incurred) that is subordinate or junior in right of payment to the notes or the
applicable Subsidiary Guaranty pursuant to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, company
(including any limited liability company), association, partnership, joint
venture or other business entity of which a majority of the total voting power
of the Voting Stock is at the time owned or controlled, directly or indirectly,
by:
(a) such Person,
(b) such Person and one or more Subsidiaries of such Person, or
(c) one or more Subsidiaries of such Person.
Unless otherwise specified, or as required by the context in the
definition of the term "Investment," the term "Subsidiary" or "Restricted
Subsidiary" means any Subsidiary of the Company other than an Unrestricted
Subsidiary.
S-58
"Subsidiary Guarantor" means any Person that becomes a Subsidiary
Guarantor pursuant to the covenant described under "--Certain
Covenants--Subsidiary Guarantors".
"Subsidiary Guaranty" means a Guarantee on the terms set forth in the
Indenture by a Subsidiary Guarantor of the Company's obligations with respect to
the notes.
"Tax Sharing Agreement" means the Tax Allocation Agreement dated July
7, 1995, among Sovereign Bancorp, Inc., and Sovereign Bank, FSB, Sovereign
Investment Corporation, First Lancaster Financial Corporation, Land Asset-303
Fairview Corporation, Land Asset-33 Sampson Corporation, Land Asset-2-4 Gregory
Court Corporation, 201 Associates, Inc., Sovereign Financial Associates,
Sovereign Financial Securities, Inc., Sovereign Financial Insurance Agency,
Inc., C.S. Service Corporation and Jersey Shore Financial Services, Inc., as
amended, waived or otherwise modified from time as permitted by the covenant
described under "--Certain Covenants--Tax Sharing Agreement".
"Temporary Cash Investments" means any of the following:
(a) Investments in U.S. Government Obligations maturing within 365
days of the date of acquisition thereof;
(b) Investments in time deposit accounts, certificates of deposit
and money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company organized under the laws of the United
States of America or any state thereof having capital, surplus and undivided
profits aggregating in excess of $250 million and whose long-term debt is rated
"A-3" or "A-" or higher according to Moody's or S&P (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act));
(c) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (a) entered into with:
(1) a bank meeting the qualifications described in clause (b)
above, or
(2) any primary government securities dealer reporting to the
Market Reports Division of the Federal Reserve Bank of New York;
(d) Investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America with a rating at the time as of which any Investment therein is made
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)); and
(e) direct obligations (or certificates representing an ownership
interest in such obligations) of any state of the United States of America
(including any agency or instrumentality thereof) for the payment of which the
full faith and credit of such state is pledged and which are not callable or
redeemable at the issuer's option, provided that:
S-59
(1) the long-term debt of such state is rated "A-3" or "A-" or
higher according to Moody's or S&P (or such similar equivalent rating by at
least one "nationally recognized statistical rating organization" (as defined in
Rule 436 under the Securities Act)), and
(2) such obligations mature within 180 days of the date of
acquisition thereof.
"Trust Preferred Stock" means $100,000,000 of 9% trust preferred
securities of Sovereign Capital Trust I Due April 1, 2027, $50,000,000 of 9.875%
trust preferred securities of ML Capital Trust I Due March 1, 2027, and
$287,500,000 of 7.50% trust preferred securities issued by Sovereign Capital
Trust II due January 15, 2030.
"Unrestricted Affiliate" means a Person (other than a Subsidiary or
Unrestricted Subsidiary of the Company) controlled (as defined in the definition
of "Affiliate") by the Company, in which no Affiliate of the Company (other than
(x) the Company, (y) a Wholly Owned Subsidiary of the Company and (z) another
Unrestricted Affiliate) has an Investment.
"Unrestricted Subsidiary" means:
(a) any corporation, company (including any limited liability
company), association, partnership, joint venture or other business entity of
which a majority of the total voting power of the Voting Stock is at the time
owned or controlled, directly or indirectly, by the Company or any Subsidiary
that is designated after November 15, 1999 as an Unrestricted Subsidiary as
permitted or required pursuant to the covenant described under "--Certain
Covenants-- Designation of Restricted and Unrestricted Subsidiaries" and not
thereafter redesignated as a Restricted Subsidiary as permitted pursuant
thereto; and
(b) any corporation, company (including any limited liability
company), association, partnership, joint venture or other business entity of
which a majority of the total voting power of the Voting Stock is at the time
owned or controlled, directly or indirectly, by an Unrestricted Subsidiary.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of any Person means all classes of Capital Stock or
other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Subsidiary all the
Voting Stock of which (except directors' qualifying shares) is at such time
owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
S-60
Book-Entry System
The notes will be initially issued in the form of one or more Global
Securities registered in the name of The Depository Trust Company ("DTC") or its
nominee.
Upon the issuance of a Global Security, DTC or its nominee will credit
the accounts of Persons holding through it with the respective principal amounts
of the notes represented by such Global Security purchased by such Persons in
the Offering. Such accounts shall be designated by the Underwriters. Ownership
of beneficial interests in a Global Security will be limited to Persons that
have accounts with DTC ("participants") or Persons that may hold interests
through participants. Any Person acquiring an interest in a Global Security
through an offshore transaction may hold such interest through Cedel or
Euroclear. Ownership of beneficial interests in a Global Security will be shown
on, and the transfer of that ownership interest will be effected only through,
records maintained by DTC (with respect to participants' interests) and such
participants (with respect to the owners of beneficial interests in such Global
Security other than participants). The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
Payment of principal of and interest on notes represented by a Global
Security will be made in immediately available funds to DTC or its nominee, as
the case may be, as the sole registered owner and the sole holder of the notes
represented thereby for all purposes under the Indenture. The Company has been
advised by DTC that upon receipt of any payment of principal of or interest on
any Global Security, DTC will immediately credit, on its book-entry registration
and transfer system, the accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal or face
amount of such Global Security as shown on the records of DTC. Payments by
participants to owners of beneficial interests in a Global Security held through
such participants will be governed by standing instructions and customary
practices as is now the case with securities held for customer accounts
registered in "street name" and will be the sole responsibility of such
participants.
A Global Security may not be transferred except as a whole by DTC or a
nominee of DTC to a nominee of DTC or to DTC. A Global Security is exchangeable
for certificated notes only if:
(a) DTC notifies the Company that it is unwilling or unable to
continue as a depositary for such Global Security or if at any time DTC ceases
to be a clearing agency registered under the Exchange Act,
(b) the Company in its discretion at any time determines not to have
all the notes represented by such Global Security, or
(c) there shall have occurred and be continuing a Default or an
Event of Default with respect to the notes represented by such Global Security.
Any Global Security that is exchangeable for certificated notes pursuant to the
preceding sentence will be exchanged for certificated notes in authorized
denominations and registered in such names as DTC or any successor depositary
holding such Global Security may direct. Subject to the foregoing, a Global
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Security is not exchangeable, except for a Global Security of like denomination
to be registered in the name of DTC or any successor depositary or its nominee.
In the event that a Global Security becomes exchangeable for certificated notes,
(a) certificated notes will be issued only in fully registered form
in denominations of $1,000 or integral multiples thereof,
(b) payment of principal of, and premium, if any, and interest on,
the certificated notes will be payable, and the transfer of the certificated
notes will be registerable, at the office or agency of the Company maintained
for such purposes, and
(c) no service charge will be made for any registration of transfer
or exchange of the certificated notes, although the Company may require payment
of a sum sufficient to cover any tax or governmental charge imposed in
connection therewith.
So long as DTC or any successor depositary for a Global Security, or
any nominee, is the registered owner of such Global Security, DTC or such
successor depositary or nominee, as the case may be, will be considered the sole
owner or holder of the notes represented by such Global Security for all
purposes under the Indenture and the notes. Except as set forth above, owners of
beneficial interests in a Global Security will not be entitled to have the notes
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of certificated notes in definitive
form and will not be considered to be the owners or holders of any notes under
such Global Security. Accordingly, each Person owning a beneficial interest in a
Global Security must rely on the procedures of DTC or any successor depositary,
and, if such Person is not a participant, on the procedures of the participant
through which such Person owns its interest, to exercise any rights of a holder
under the Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of holders or that
an owner of a beneficial interest in a Global Security desires to give or take
any action which a holder is entitled to give or take under the Indenture, DTC
or any successor depositary would authorize the participants holding the
relevant beneficial interest to give or take such action and such participants
would authorize beneficial owners owning through such participants to give or
take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
DTC has advised the Company that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
Exchange Act. DTC was created to hold the securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (which may include the Underwriters), banks, trust companies, clearing
corporations and certain other organizations some of whom (or their
representatives) own DTC. Access to DTC's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies, that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in Global Securities among participants of
DTC, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Company, the Trustee or the Underwriters will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting
agreement dated as of February 9, 2000, Lehman Brothers Inc., acting as
underwriter for the offering, has agreed to purchase $175,000 aggregate
principal amount of the notes.
The underwriting agreement provides that the obligation of Lehman
Brothers to purchase the notes included in this offering is subject to customary
conditions. Lehman Brothers is obligated to purchase all the notes if it
purchases any of the notes.
Lehman Brothers proposes initially to offer part of the notes to the
public at the public offering price set forth on the cover page hereof and in
part to certain dealers at a price that represents a concession not in excess of
.25% of the principal amount of the notes. Lehman Brothers may allow and such
dealers may reallow, a concession not in excess of .12% of the principal amount
of the notes to certain other dealers. After the initial offering of the notes,
the offering price and other selling terms may from time to time be varied by
Lehman Brothers.
In connection with the offering made hereby, Lehman Brothers may
purchase and sell the notes in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover short
positions created by Lehman Brothers in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the notes, and short
positions created by Lehman Brothers involve the sale by Lehman Brothers of a
greater aggregate principal amount of notes than they are required to purchase
from Sovereign. Lehman Brothers also may impose a penalty bid, whereby selling
concessions allowed to broker-dealers in respect of the notes sold in the
offering may be reclaimed by Lehman Brothers if such notes are repurchased by
Lehman Brothers in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the notes, which may
be higher than the price that might otherwise prevail in the open market, and
these activities, if commenced, may be discontinued at any time. These
transactions may be effected in the over-the-counter market or otherwise.
The notes are a new issue of securities with no established trading
market. We have been advised by Lehman Brothers that they intend to make a
market in the notes, but they are not obligated to do so and may discontinue any
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the notes. The notes will not be listed on
any securities exchange.
We have agreed to indemnify Lehman Brothers against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended.
We have agreed, during the period ending 60 days from the date of this
prospectus supplement, not to issue, sell, offer to sell, grant any option for
the sale of, or otherwise dispose of any debt securities (except for the notes)
with substantially similar terms to the notes. This will not prevent us from
replacing our existing secured senior credit facility with another secured
senior credit facility.
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LEGAL MATTERS
Certain legal matters will be passed upon for us by Stevens & Lee,
P.C., Reading and Philadelphia, Pennsylvania. Certain legal matters will be
passed upon for the underwriter by Skadden, Arps, Slate, Meagher & Flom, LLP,
New York, New York.
EXPERTS
The consolidated financial statements of Sovereign Bancorp, at December
31, 1999 and 1998 and for each of the three years in the period ended December
31, 1999, included in Sovereign Bancorp's Annual Report on Form 10-K for the
year ended December 31, 1999, as amended, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference which, as to the year 1997, is based in
part on the reports of KPMG LLP with respect to ML Bancorp, Inc., Arthur
Andersen LLP with respect to First Home Bancorp Inc. and PriceWaterhouseCoopers
LLP with respect to Carnegie Bancorp, Inc., independent auditors. The
consolidated financial statements referred to above are incorporated by
reference in reliance upon such reports given on the authority of such firms as
experts in accounting and auditing.
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