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