exv10w1



 




Exhibit 10.1




EXECUTION
COPY

INVESTMENT AGREEMENT




dated as of




October 24, 2005




between




BANCO SANTANDER CENTRAL HISPANO, S.A.




and




SOVEREIGN BANCORP, INC.




 









 






TABLE OF CONTENTS




	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	ARTICLE 1
	 	 	 	 
	 	 	Definitions
	 	 	 	 
	Section 1.01.
	 	Definitions

	 	 	1	 
	Section 1.02.
	 	Other Definitional and Interpretative Provisions

	 	 	14	 
	 	 	 
	 	 	 	 
	 	 	ARTICLE 2
	 	 	 	 
	 	 	Purchase and Sale
	 	 	 	 
	 	 	 
	 	 	 	 
	Section 2.01.
	 	Purchase and Sale

	 	 	14	 
	Section 2.02.
	 	Closing

	 	 	15	 
	Section 2.03.
	 	Additional Purchases by Buyer

	 	 	15	 
	Section 2.04.
	 	Gross Up Rights

	 	 	17	 
	 	 	 
	 	 	 	 
	 	 	ARTICLE 3
	 	 	 	 
	 	 	Representations and Warranties of the
Company
	 	 	 	 
	 	 	 
	 	 	 	 
	Section 3.01.
	 	Organization.

	 	 	20	 
	Section 3.02.
	 	Capitalization

	 	 	21	 
	Section 3.03.
	 	Authority

	 	 	22	 
	Section 3.04.
	 	Non-Contravention

	 	 	23	 
	Section 3.05.
	 	Consents

	 	 	23	 
	Section 3.06.
	 	Financial Statements

	 	 	24	 
	Section 3.07.
	 	Taxes

	 	 	24	 
	Section 3.08.
	 	SEC Filings and the Sarbanes-Oxley Act

	 	 	25	 
	Section 3.09.
	 	Absence of Certain Changes

	 	 	26	 
	Section 3.10.
	 	Contracts

	 	 	28	 
	Section 3.11.
	 	No Undisclosed Material Liabilities

	 	 	30	 
	Section 3.12.
	 	Ownership of Property; Insurance Coverage

	 	 	30	 
	Section 3.13.
	 	Legal Proceedings

	 	 	31	 
	Section 3.14.
	 	Compliance with Applicable Law

	 	 	32	 
	Section 3.15.
	 	Employee Benefit Plans

	 	 	32	 
	Section 3.16.
	 	Brokers, Finders and Financial Advisors

	 	 	33	 
	Section 3.17.
	 	Environmental Matters

	 	 	34	 
	Section 3.18.
	 	Allowance for Losses

	 	 	34	 
	Section 3.19.
	 	Related Party Transactions

	 	 	34	 
	Section 3.20.
	 	Loans

	 	 	35	 
	Section 3.21.
	 	Labor Matters

	 	 	35	 
	Section 3.22.
	 	Risk Management Instruments

	 	 	35	 
	Section 3.23.
	 	Community Reinvestment Act, Anti-Money Laundering
and Customer Information Security

	 	 	36	 






i









 






	 	 	 	 	 	 	 
	 	 	 	 	Page
	Section 3.24.
	 	Credit Card Accounts

	 	 	36	 
	Section 3.25.
	 	Agreements with Regulatory Authorities

	 	 	36	 
	Section 3.26.
	 	Regulatory Capital

	 	 	37	 
	Section 3.27.
	 	Regulatory Probability

	 	 	37	 
	Section 3.28.
	 	Directors’ and Officers’ Insurance

	 	 	37	 
	Section 3.29.
	 	Rights Plan

	 	 	37	 
	 	 	 
	 	 	 	 
	 	 	ARTICLE 4
	 	 	 	 
	 	 	Representations and Warranties
of Buyer
	 	 	 	 
	 	 	 
	 	 	 	 
	Section 4.01.
	 	Organization

	 	 	38	 
	Section 4.02.
	 	Authority

	 	 	38	 
	Section 4.03.
	 	Non-Contravention

	 	 	38	 
	Section 4.04.
	 	Financing

	 	 	39	 
	Section 4.05.
	 	Purchase for Investment

	 	 	39	 
	Section 4.06.
	 	Finders’ Fees

	 	 	39	 
	Section 4.07.
	 	Ownership of the Company

	 	 	39	 
	Section 4.08.
	 	Compliance with Applicable Law

	 	 	39	 
	Section 4.09.
	 	Absence of Certain Changes

	 	 	40	 
	Section 4.10.
	 	Regulatory Probability

	 	 	40	 
	 	 	 
	 	 	 	 
	 	 	ARTICLE 5
	 	 	 	 
	 	 	Covenants of the Company
	 	 	 	 
	 	 	 
	 	 	 	 
	Section 5.01.
	 	Conduct of the Company

	 	 	40	 
	Section 5.02.
	 	Access to Information; Reports

	 	 	41	 
	Section 5.03.
	 	Notices of Certain Events

	 	 	43	 
	Section 5.04.
	 	Certain Change in Control Provisions

	 	 	43	 
	Section 5.05.
	 	Takeover Laws

	 	 	44	 
	Section 5.06.
	 	Other Defensive Measures

	 	 	45	 
	Section 5.07.
	 	Regulatory Matters

	 	 	46	 
	Section 5.08.
	 	Certain Payments

	 	 	46	 
	Section 5.09.
	 	FIRPTA

	 	 	46	 
	 	 	 
	 	 	 	 
	 	 	ARTICLE 6
	 	 	 	 
	 	 	Covenants of Buyer
	 	 	 	 
	 	 	 
	 	 	 	 
	Section 6.01.
	 	Confidentiality

	 	 	46	 
	Section 6.02.
	 	Right of First Purchase

	 	 	47	 
	Section 6.03.
	 	Voting Trust Agreement

	 	 	48	 
	Section 6.04.
	 	Tier 1 Capital; Debt Financing

	 	 	48	 






ii









 





	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	ARTICLE 7
	 	 	 	 
	 	 	Covenants of Buyer and the Company
	 	 	 	 
	 	 	 
	 	 	 	 
	Section 7.01.
	 	Reasonable Best Efforts; Further Assurances

	 	 	49	 
	Section 7.02.
	 	Certain Filings

	 	 	49	 
	Section 7.03.
	 	Public Announcements

	 	 	49	 
	Section 7.04.
	 	Trademarks

	 	 	50	 
	Section 7.05.
	 	Exchange of Management

	 	 	50	 
	Section 7.06.
	 	Public Subsidiary Stock

	 	 	51	 
	 	 	 
	 	 	 	 
	 	 	ARTICLE 8
	 	 	 	 
	 	 	Investor Related Covenants
	 	 	 	 
	 	 	 
	 	 	 	 
	Section 8.01.
	 	Standstill

	 	 	51	 
	Section 8.02.
	 	Transfer Restrictions

	 	 	52	 
	Section 8.03.
	 	Pre-Closing Period

	 	 	55	 
	Section 8.04.
	 	General Restrictions

	 	 	56	 
	Section 8.05.
	 	First Standstill Period

	 	 	57	 
	Section 8.06.
	 	Second Standstill Period

	 	 	58	 
	Section 8.07.
	 	Third Standstill Period

	 	 	62	 
	Section 8.08.
	 	First Look and Last Look Rights

	 	 	65	 
	Section 8.09.
	 	Post-Standstill Period

	 	 	66	 
	Section 8.10.
	 	Tender Offer Option

	 	 	66	 
	Section 8.11.
	 	Board Representation

	 	 	67	 
	Section 8.12.
	 	Approval Rights

	 	 	69	 
	Section 8.13.
	 	Certain Actions

	 	 	69	 
	Section 8.14.
	 	Voting Arrangements

	 	 	69	 
	 	 	 
	 	 	 	 
	 	 	ARTICLE 9
	 	 	 	 
	 	 	Post Acquisition Covenants
	 	 	 	 
	 	 	 
	 	 	 	 
	Section 9.01.
	 	Company Headquarters

	 	 	70	 
	Section 9.02.
	 	The Company Board

	 	 	70	 
	Section 9.03.
	 	Exclusive Acquisition Vehicle

	 	 	71	 
	Section 9.04.
	 	Change in Control

	 	 	71	 
	 	 	 
	 	 	 	 
	 	 	ARTICLE 10
	 	 	 	 
	 	 	Conditions to Closing
	 	 	 	 
	 	 	 
	 	 	 	 
	Section 10.01.
	 	Conditions to Obligations of Buyer and the Company

	 	 	71	 
	Section 10.02.
	 	Conditions to Obligation of Buyer

	 	 	72	 
	Section 10.03.
	 	Conditions to Obligation of the Company

	 	 	72	 






iii









 






	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	ARTICLE 11
	 	 	 	 
	 	 	Survival
	 	 	 	 
	 	 	 
	 	 	 	 
	Section 11.01.
	 	Survival

	 	 	73	 
	 	 	 
	 	 	 	 
	 	 	ARTICLE 12
	 	 	 	 
	 	 	Termination
	 	 	 	 
	 	 	 
	 	 	 	 
	Section 12.01.
	 	Grounds for Termination

	 	 	73	 
	Section 12.02.
	 	Effect of Termination

	 	 	75	 
	 	 	 
	 	 	 	 
	 	 	ARTICLE 13
	 	 	 	 
	 	 	Miscellaneous
	 	 	 	 
	 	 	 
	 	 	 	 
	Section 13.01.
	 	Notices

	 	 	75	 
	Section 13.02.
	 	Amendments and Waivers

	 	 	76	 
	Section 13.03.
	 	Disclosure Schedule References

	 	 	77	 
	Section 13.04.
	 	Expenses

	 	 	77	 
	Section 13.05.
	 	Successors and Assigns

	 	 	77	 
	Section 13.06.
	 	Governing Law

	 	 	77	 
	Section 13.07.
	 	Jurisdiction

	 	 	77	 
	Section 13.08.
	 	WAIVER OF JURY TRIAL

	 	 	78	 
	Section 13.09.
	 	Counterparts; Effectiveness; Third-Party
Beneficiaries

	 	 	78	 
	Section 13.10.
	 	Entire Agreement

	 	 	78	 
	Section 13.11.
	 	Severability

	 	 	78	 
	Section 13.12.
	 	Specific Performance

	 	 	78	 
	Section 13.13.
	 	Immaterial
Breaches

	 	 	79	 
	 	 	 
	 	 	 	 
	Exhibit A
	 	Form of Voting Trust Agreement
	 	 	 	 







iv










 






INVESTMENT AGREEMENT




     AGREEMENT (this “Agreement”) dated as of October 24, 2005 between Banco Santander Central
Hispano, S.A., a Spanish sociedad anónima (“Buyer”), and Sovereign Bancorp, Inc., a Pennsylvania
corporation (the “Company”).



W I T N E S S E T H:




     WHEREAS, the Company desires to sell the Shares to Buyer, and Buyer desires to purchase the
Shares from the Company, upon the terms and subject to the conditions hereinafter set forth;



     The parties hereto agree as follows:



ARTICLE 1




Definitions




     Section 1.01. Definitions. (a) The following terms, as used herein, have the following
meanings:



     “Acquisition Proposal” means any offer, proposal or inquiry relating to, or any indication of
interest by any Person or Group in (A) any acquisition or purchase, direct or indirect, of all or
substantially all of the assets of the Company or any Material Subsidiary or over 25% of any class
of equity or voting securities of the Company or any Material Subsidiary, (B) any tender offer by
any Person or Group (other than the Company) or exchange offer that, if consummated, would result
in such Person or Group beneficially owning 25% or more of any class of equity or voting securities
of the Company or any Material Subsidiary, (C) a merger, consolidation, share exchange, business
combination, reorganization, recapitalization, liquidation, dissolution or other similar
transaction involving the Company or any Material Subsidiary, or (D) any proposition to nominate or
elect as directors of the Company Persons other than those proposed by the Board or the Nominating
Committee thereof, the effect of which, if approved by the Company’s shareholders, would cause a
majority of the members of the Board to be Persons who are not (i) in the case of any Acquisition
Proposal made prior to the Closing, directors of the Company as of the date hereof or (ii) in the
case of any Acquisition Proposal made after the Closing Date, Persons who are directors of the
Company after giving effect to Section 8.11(a) or successors to such directors who have been
nominated by the Company or its Nominating Committee or elected by the Board to fill a vacancy in
the Board; provided that, (i) a Surviving Company Merger shall not constitute an Acquisition
Proposal and (ii) for purposes of Article 8, actions and transactions described in clauses (A)
through (D) above will not constitute an Acquisition Proposal until such time as the Person or
Group taking such actions or engaging in such transactions, or



 









 




proposing to do so, shall have made a reasonably specific bona fide offer or proposal (and not
simply an inquiry as to whether the Company or its Subsidiaries would be interested in discussing a
possible Acquisition Transaction, whether made publicly or privately and whether made orally or in
writing).




     “Additional Shares” means any shares of Voting Securities purchased by Buyer pursuant to
Section 2.03 or Section 2.04.



     “Affiliate” means, with respect to any Person at any time, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person as of such time;
provided that, (i) prior to Closing, Independence will not be deemed to be an Affiliate of the
Company and effective as of the Closing, Independence will be deemed to be an Affiliate of the
Company, (ii) the Voting Trustee (solely in its capacity as the Trustee under the Voting Trust
Agreement) will be deemed to be an Affiliate of Buyer, and (iii) neither the Company nor its
Subsidiaries shall be deemed to be an Affiliate of Buyer prior to the consummation of a 100%
Acquisition Proposal by Buyer.



     “Applicable Law” means, with respect to any Person, any foreign, federal, state or local law
(statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule,
regulation, order, injunction, judgment, decree, ruling or other similar requirement enacted,
adopted, promulgated or applied by a Governmental Authority that is binding upon or applicable to
such Person, as amended unless expressly specified otherwise.



     “Balance Sheet Date” means December 31, 2004.



     “Bank” means Sovereign Bank.



     “Beneficial Ownership” by a Person of any securities includes ownership by any Person who,
directly or indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares (i) voting power which includes the power to vote, or to direct the voting
of, such security; and/or (ii) investment power which includes the power to dispose, or to direct
the disposition, of such security; and shall otherwise be interpreted in accordance with the term
“beneficial ownership” as defined in Rule 13d-3 adopted by the SEC under the Exchange Act; provided
that for purposes of determining Beneficial Ownership, a Person shall be deemed to be the
Beneficial Owner of any securities which may be acquired by such Person pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants
or options, or otherwise (irrespective of whether the right to acquire such securities is
exercisable immediately or only after the passage of time, including the passage of time in excess
of 60 days, the satisfaction of any conditions, the occurrence of any event or any combination of
the foregoing), except that in no event will Buyer or any of its Affiliates be deemed to



2









 




Beneficially Own any securities which it has the right to acquire pursuant to this Agreement
unless, and then only to the extent that, Buyer or such Affiliate shall have actually exercised such right. For purposes of this Agreement, a Person shall be deemed
to Beneficially Own any securities Beneficially Owned by its Affiliates or any Group of which such
Person or any such Affiliate is or becomes a member. Notwithstanding the foregoing, securities
Beneficially Owned by Buyer and its Affiliates shall not include, for any purpose under this
Agreement, any Voting Securities or other securities held by Buyer and its Subsidiaries in trust
for the benefit of persons other than Buyer and its Affiliates, managed, brokerage, custodial,
nominee or other customer accounts; in mutual funds, open- or closed-end investment funds or other
pooled investment vehicles sponsored, managed and/or advised or subadvised by Buyer or its
Affiliates; or by Affiliates of Buyer (or any division thereof) which are broker-dealers or
otherwise engaged in the securities business, provided that in each case, such securities were
acquired in the ordinary course of business of their respective banking, investment management and
securities business and not with the intent or purpose on the part of Buyer or its Affiliates of
influencing control of the Company or avoiding the provisions of this Agreement. The term
“Beneficially Own” shall have a correlative meaning.




     “BHC Act” means the United States Bank Holding Company Act of 1956.



     “Board” means the Board of Directors of the Company.



     “Business Day” means a day, other than Saturday, Sunday or other day on which commercial banks
in New York, New York or Madrid, Spain are authorized or required by Applicable Law to close.



     “Buyer Change in Control” means any Majority Board Change with respect to Buyer.



     “Buyer Disclosure Schedule” means a disclosure schedule delivered by Buyer to the Company
pursuant to this Agreement.



     “Buyer Material Adverse Effect” means a “Material Adverse Effect” as defined in this Agreement
but with respect to Buyer rather than the Company.



     “Bylaws” means the corporate bylaws of the Company as amended from time to time in accordance
with the terms thereof, Applicable Law and this Agreement.



     “capital stock” means, with respect to any Person at any time, any and all shares, interests,
participations or other equivalents (however designated, whether voting or non-voting) of capital
stock, partnership interests (whether general or limited) or equivalent ownership interests in or
issued by such Person.



3









 





     “Change in Control” means, with respect to any Person other than Buyer, (i) any acquisition or
purchase, direct or indirect, by a third party, of 50% or more of the consolidated assets of such
Person and its subsidiaries or over 50% of the
voting securities of such Person or (ii) any Majority Board Change of such Person.



     “Charter” means the Articles of Incorporation of the Company as amended from time to time in
accordance with the terms thereof and Applicable Law.



     “Closing Date” means the date of the Closing.



     “Code” means the U.S. Internal Revenue Code of 1986.



     “Common Stock” means the common stock of the Company.



     “Company Disclosure Schedule” means a disclosure schedule delivered by the Company to Buyer
pursuant to this Agreement.



     “Company Financials” means (i) the audited consolidated financial statements of the Company as
of December 31, 2004 (or, as of the Closing Date, as of December 31, 2005) and for the three years
ended December 31, 2004 (or, as of the Closing Date, for the three years ending December 31, 2005),
including the notes thereto, (ii) the unaudited interim consolidated financial statements of the
Company as of each calendar quarter thereafter included in the Company SEC Documents filed by the
Company, including the notes thereto.



     “Company Regulatory Reports” means the annual or quarterly reports, and accompanying
schedules, of the Company, the Bank and, after the Closing, of Independence Community Bank, filed
with the OTS, Federal Reserve Board, the New York Banking Department, or the FDIC since December
31, 2002.



     “Company Subsidiary” means (i) the Bank, (ii) any corporation or business trust or other
entity, 50% or more of the capital stock or equity interests of which are owned, either directly or
indirectly, by the Company, except any corporation the stock of which is held as security for loans
made in the ordinary course of the lending activities of the Bank.



     “Competing Business” means a business (a) whose principal activities are those of (i) an
FDIC-insured bank the principal business of which is that of a deposit-taking financial institution
or branch-based commercial lending, (ii) non-bank lending, including consumer finance, (iii)
mortgage brokerage, (iv) insurance agency, brokerage or service, and (v) asset or investment
management and advice and (b) that has substantial operations in the Designated Area; provided
that, none of the following shall constitute a “Competing Business”: (A)



4









 




any of the businesses
referred to in clauses (ii), (iii), (iv) or (v) of this definition that have an equity value of
more than $300 million, or (B) any business which would otherwise be a Competing Business but which
constitutes part of the business of a U.S. or foreign financial institution and is not the primary
business of such financial institution.




     “Convertible Rights” means warrants, options, rights, convertible securities and any other
securities or instruments that obligate an entity to issue capital stock, including the PIERS
Instruments and any options, stock appreciation rights or restricted stock granted under the
Employee Plans.



     “Defensive Measure” means (i) any provision of the Charter or Bylaws the purpose or effect of
which is, in whole or in part, to defer, delay or make more costly or burdensome, the consummation
of an Acquisition Proposal involving the Company, including Articles 8, 11, 15, 16 and 17 of the
Charter and Sections 4.03, 4.04, 10.01 and 11.01 of the Bylaws, (ii) any shareholder rights plan or
“poison pill” including the Rights Agreement, (iii) any employment or severance agreement and any
Employee Plan that provides for enhanced benefits to officers, directors or employees of the
Company or any of its Subsidiaries or any acceleration of any such benefits in connection with the
consummation of an Acquisition Proposal involving the Company or any of its Subsidiaries, including
the Employee Agreements and the Employee Plans, (iv) any contract or agreement to which the Company
is a party that imposes on the Company or any of its Subsidiaries a material cost, or deprives the
Company or any of its Subsidiaries of a material asset or benefit, in either case, in connection
with the consummation of an Acquisition Proposal involving the Company or any of its Subsidiaries,
(v) any Applicable Law, the effect of which is to provide special rights, including economic and
voting rights, in connection with the consummation of an Acquisition Proposal involving the Company
or any of its Subsidiaries, including the Pennsylvania Law and (vi) any act by the Board, the
Company or any of its Subsidiaries that is intended to have or has any of the effects described in
clauses (i) through (iv) above.



     “Designated Area” means the states of Maine, Vermont, New Hampshire, Massachusetts, Rhode
Island, Connecticut, New York, New Jersey, Pennsylvania, Ohio, Delaware, Maryland, West Virginia,
Kentucky, Virginia and North Carolina and the District of Columbia.



     “Environmental Law” means any foreign, federal, state or local law (including common law),
statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent,
order, judgment, decree, injunction requirement or restriction or agreement with any Governmental
Authority relating to (i) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater, drinking water
supply, surface soil, subsurface soil, plant and animal life or any other natural



5









 




resource), (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, and/or (iii)
employee health and safety matters.




     “ERISA” means the Employee Retirement Income Security Act of 1974.



     “ERISA Affiliate” of any entity means any other entity which, together with such entity, would
be treated as a single employer under Section 414 of the Code.



     “Exchange Act” means the Securities Exchange Act of 1934.



     “Exclusive Agreement” means a legally binding merger, acquisition or similar agreement
relating to a 100% Acquisition Proposal pursuant to which the Board is prohibited from soliciting
Acquisition Proposals, entertaining any Unsolicited Acquisition Proposals from Persons who are not
a party to such agreement and not permitting the Company or the Board to terminate such agreement
based on the receipt of any other Acquisition Proposal.



     “FDIA” means the Federal Deposit Insurance Act, as amended.



     “FDIC” means the Federal Deposit Insurance Corporation.



     “Federal Reserve Board” means the Board of Government of the Federal Reserve System.



     “First Standstill Period” means the 24-month period commencing on the Closing Date.



     “GAAP” means generally accepted accounting principles in the United States as in effect from
time to time.



     “Governmental Authority” means any transnational, domestic or foreign federal, state or local,
governmental authority, department, court, agency or official, including any political subdivision
thereof.



     “Group” has the meaning assigned to it in Section 13(d)(3) of the Exchange Act.



     “HOLA” means the Home Owners’ Loan Act of 1933.



     “Hostile Action” means (i) with respect to Voting Securities, any unsolicited offer, tender
offer or other acquisition proposal or acquisition of



6









 




Voting Securities made without the prior
consent or invitation of the Board, (ii) any initiation of or participation in any Proxy
Solicitation against any action approved by a majority of the Unaffiliated Directors or for any
action opposed by the Unaffiliated Directors, or (iii) a failure to vote in favor of the slate of
Board nominees recommended by the Board at any time after the PA Law Termination Date; provided
that Acquisition Proposals that Buyer is permitted to make under the terms of this Agreement shall
not constitute Hostile Actions.




     “Independence” means Independence Community Bank Corp.



     “Independence Agreement” means the Agreement and Plan of Merger dated as of the date hereof by
and among the Company, Independence and Iceland Acquisition Corp., as in effect on the date hereof.



     “Independence Transaction” means the transactions contemplated by the Independence Agreement.



     “Knowledge” of any Person that is not an individual means the actual knowledge of such
Person’s officers after reasonable inquiry.



     “Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge,
security interest, encumbrance or other adverse claim of any kind in respect of such property or
asset. For the purposes of this Agreement, a Person shall also be deemed to own, subject to a
Lien, any property or asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.



     “Majority Board Change” means as to any Person, any action, event, transaction or set of
circumstances that results in a majority of the members of the board of directors of such Person
being persons who were not members of such board of directors (the “Pre-existing Directors”) before
such action, event, transaction or set of circumstances, or successors to such Pre-existing
Directors who were nominated for election by such board of directors (or any Nominating Committee
thereof) or elected by such board of directors to fill a vacancy in such board of directors.



     “Material Adverse Effect” shall mean, with respect to the Company, any material adverse effect
on its business, financial condition or results of operations of the Company and its Subsidiaries,
taken as a whole; provided that in determining whether a Material Adverse Effect has occurred,
there shall be excluded any effect resulting from, or attributable to, (i) any change in interest
rates generally, (ii) any change occurring after the date hereof in any federal or state law, rule
or regulation (or in any interpretation of the foregoing) or in GAAP or applicable regulatory
accounting principles, which change affects banking



7









 




institutions (or their holding companies)
generally, (iii) changes in general economic or political conditions affecting banking institutions
(or their holding companies) generally, (iv) this Agreement or the Independence Agreement,
including the announcement of the transactions contemplated by this Agreement or of the
Independence Transaction, (v) expenses (including legal fees, costs and expenses relating to any
litigation) and costs arising as a result of the transactions contemplated by this Agreement or the
Independence Agreement, (vi) actions or omissions of the Company or any of its Subsidiaries with
the prior written consent of Buyer in furtherance of the transactions contemplated hereby or by the
Independence Agreement or otherwise required to be taken by the Company or any of its Subsidiaries
hereunder or under the Independence Agreement or (vii) actions taken by Buyer or its Affiliates in
breach of Buyer’s obligations hereunder; and provided further that, a decrease in the trading or market price of the Common
Stock shall not be considered by itself and without regard to matters affecting the business,
financial condition or results of operations of the Company or its Subsidiaries, to constitute a
Material Adverse Effect.




     “Material Subsidiary” means any Subsidiary whose assets constitute more than 10% of the total
consolidated assets of the Company and its Subsidiaries.



     “100% Acquisition Proposal” means any Acquisition Proposal, whether payable in cash,
securities or a combination thereof, by any Person or Group to acquire Beneficial Ownership of 100%
of the equity securities (including those issuable pursuant to Convertible Rights) of the Company
that are not already Beneficially Owned by such Person or Group.



     “OTS” means the Office of Thrift Supervision.



     “Ownership Percentage” means, at any time, (a) with respect to Voting Securities Beneficially
Owned by Buyer or its Affiliates, the quotient, expressed as a percentage, of (i) the Total Voting
Power of all Voting Securities Beneficially Owned by Buyer and its Affiliates divided by (ii) the
Total Voting Power of all Voting Securities then outstanding and (b) with respect to any
Participating Preferred Stock, the greater of (x) the Ownership Percentage of the Voting Securities
Beneficially Owned by Buyer and its Affiliates at such time and (y) the quotient, expressed as a
percentage, of (A) the total number of Participating Preferred Shares owned by Buyer and its
Affiliates at such time divided by (B) the total number of all shares of Participating Preferred
Stock outstanding at such time; provided that, to the extent that the Ownership Percentage of Buyer
or its Affiliates is reduced as a result of actions taken by the Company or the Company
Subsidiaries or by holders of Convertible Rights and such Ownership has not been fully restored
pursuant to Section 2.04 to the Ownership Percentage of Buyer or its Affiliates prior to such
actions other than as a result of a failure by Buyer to exercise its rights thereunder, then for
purposes of Sections 5.02(b), 6.02(b),



8









 




8.04, 8.09 and 8.11 and for purposes of the Registration
Rights Agreement, Buyer’s Ownership Percentage shall be calculated without giving effect to the
dilution in such Ownership Percentage arising out of such actions and before giving effect to any
actions taken by Buyer or the Company pursuant to Section 2.04.




     “PA Law Termination Date” means the first date on which the Pennsylvania Law shall have become
inapplicable to the transactions contemplated by this Agreement or inapplicable to the Company in
accordance with Applicable Law and the Charter.



     “Participating Preferred Stock” means any preferred stock of the Company, whether or not
Voting Securities, that has the right to participate together with the Common Stock in connection
with distributions of dividends.



     “Pennsylvania Law” means Subchapter E of Chapter 25 of the Pennsylvania Business Corporation
Law of 1988, as amended, 15 Pa. C.S. Sections 2541-2548.



     “Person” means an individual, corporation, partnership, limited liability company,
association, trust or other entity or organization, including a Governmental Authority.



     “PIERS Instruments” means the Contingent Convertible Trust Preferred Income Equity Redeemable
Securities issued by Sovereign Capital Trust IV.



     “Pre-closing Period” means the period commencing on the date hereof and ending on the Closing
Date.



     “Prevailing Fair Market Value” means, (i) as to any securities (other than Publicly Traded
Securities) or other property, the cash price at which a willing seller would sell and a willing
buyer would buy such securities or property in an arm’s length negotiated transaction without time
constraints, as determined by an internationally recognized investment banking firm selected by
mutual agreement of Buyer and the Company, and (ii) with respect to Publicly Traded Securities, as
of any date, the arithmetic average weighted by reference to the daily trading volume of the
closing prices of such securities on their principal exchange or quotation system for the 20
consecutive trading days immediately preceding the applicable date of determination.



     “Proxy Solicitation” means any solicitation of proxies (as such words are defined in Rule
14a-1 of Regulation 14A promulgated pursuant to the Exchange Act disregarding clause (iv) of Rule
14a-1(1)(2) and including exempt solicitations pursuant to Rule 14a-2(b)(1)).



9









 





     “Publicly Traded Securities” means any securities that are listed and regularly traded on a
national securities exchange (including the New York Stock Exchange and the Madrid Stock Exchange)
or quoted on the NASDAQ National Market or the NASDAQ Small Cap systems.



     “Registration Rights Agreement” means the Registration Rights Agreement dated as of the date
hereof between Buyer and the Company.



     “Regulatory Approvals” means any approvals, consents, or waivers required by law from, or any
filing with, the Bank of Spain, the Federal Reserve Board or any other Regulatory Authority and any
change-in-control filings with any state insurance regulatory authority.



     “Regulatory Authority” means any banking agency or department of any foreign, U.S. federal or
state government, including the OTS, the Federal Reserve Board, the FDIC or the respective staffs
thereof.



     “Required Purchase” means any purchase by Buyer of Common Stock or other securities of the
Company or any other capital contribution by Buyer as may be required by any laws or regulations
applicable to bank or thrift holding companies or by any Governmental Authority, including any
purchase or capitalization as may be required to maintain Buyer’s FHC status.



     “Rights” means the preferred share purchase rights of the Company issued pursuant to the
Rights Agreement.



     “Rights Agreement” means the Second Amended and Restated Rights Agreement dated as of January
19, 2005, between the Company and Mellon Investor Services LLC, a New Jersey Limited Liability
Company, as Rights Agent.



     “Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002.



     “SEC” means the United States Securities and Exchange Commission.



     “Second Standstill Period” means the 12-month period commencing on the day following the end
of the First Standstill Period.



     “Securities Act” means the Securities Act of 1933.



     “Shares” means the Initial Shares, any shares of Common Stock acquired by Buyer pursuant to
Section 2.03 or Section 2.04 and any such shares acquired as a result of a Required Purchase.



     “Standstill Period” means the period commencing on the date of this Agreement and ending on
the Standstill Termination Date.



10









 





     “Subsidiary” means any entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Company.



     “Substantial Competitor” means any deposit-taking financial institution that holds more than
50% of its aggregate U.S. deposits in the Designated Area.



     “Surviving Company Merger” means, at any time, any merger (including any reorganization,
consolidation, share exchange or similar business combination) to which the Company is a party
where (i) the then current chief executive officer of the Company remains as the sole chief
executive officer of the surviving public corporation with a substantially similar role and
responsibilities, (ii) the Company’s shareholders immediately prior to the effective date of such
transaction own, after giving effect to such transaction, a majority of the Voting Securities, and
(iii) there has not occurred, as a result of such transaction, a Majority Board Change of the
Company as measured against the board of directors in office immediately prior to the such
transaction.



     “Tax” means any tax, governmental fee, duty, charge, levy, impost or other like assessment or
charge of any kind whatsoever, together with any interest, penalty, addition to tax or additional
amount imposed by any Governmental Authority responsible for the imposition of any such tax
(domestic or foreign), and any liability for any of the foregoing as transferee or as a result of
any existing express or implied agreement or arrangement.



     “Third Party” means any Person other than Buyer, the Company and their respective Affiliates.



     “Third Standstill Period” means the 24-month period commencing on the first day following the
end of the Second Standstill Period.



     “Total Voting Power” means the aggregate number of votes which may be cast by holders of
outstanding Voting Securities.



     “Treasury Stock” means shares of Common Stock that are classified as treasury stock in
accordance with GAAP.



     “Unaffiliated Directors” means the members of the Board other than those members who are
Affiliates of Buyer.



     “Voting Securities” means (i) all the securities of the Company entitled, in the ordinary
course, to vote in the election of Directors of the Company and (ii) all securities of the Company
that are convertible into, exchangeable for, or otherwise entitle the holder thereof to receive or
purchase, at any time, securities



11









 




of the Company having such voting power including, without
limitation, for purposes of this Agreement, the PIERS Instruments and (iii) any Shares held by the
Voting Trustee (notwithstanding the fact that Buyer shall not have any voting rights with respect
to Shares held by the Voting Trustee); provided that for purposes of determining, as of any time,
the Voting Securities Beneficially Owned by any Person or Total Voting Power, the securities
described in clause (ii) shall be taken into account only to the extent that such securities have
been converted or exchanged or the holder thereof has received or purchased the securities having
such voting power.




     “Voting Trust Agreement” means a Voting Trust Agreement substantially in the form of Exhibit A
executed and delivered by Buyer and the Voting Trustee pursuant to Section 6.03.



     (b) Each of the following terms is defined in the Section set forth opposite such term:



	 	 	 	 	 
	Term	 	Section
	Acquisition Proposal Notice

	 	 	8.08	(a)
	Agreement

	 	Preamble

	Agreement Actions

	 	8.03(iv)

	Appraisal Price

	 	 	8.06	(d)
	Appraisal Process

	 	 	8.06	(e)
	Buyer

	 	Preamble

	Buyer Acquisition Transactions

	 	 	5.05	(a)
	Buyer Deferral Period

	 	 	8.07	(d)
	Buyer Trademarks

	 	 	7.04	 
	Capital Investments

	 	 	6.04	 
	Closing

	 	 	2.02	 
	Company

	 	Preamble

	Company Deferral Period

	 	 	8.07	(b)
	Company Regulatory Agreement

	 	 	3.25	 
	Company Representatives

	 	 	8.03	 
	Company SEC Documents

	 	 	3.08	 
	Company Securities

	 	 	3.02	(b)
	D&O Insurance

	 	 	3.28	 
	Defense Removal Actions

	 	8.03(iii)

	Derivatives Contract

	 	 	3.22	 
	e-mail

	 	 	13.01	 
	Employee Plans

	 	 	3.15	(a)
	Equalized Percentage

	 	 	2.04	(c)
	Fair Market Value of the Company

	 	 	8.06	(f)
	FDIA Limitations

	 	 	3.03	 
	FHC status

	 	 	5.07	 






12









 






	 	 	 	 	 
	Term	 	Section
	First Appraiser

	 	 	8.06	(e)
	First Purchase Notice

	 	 	6.02	(c)
	First Purchase Period

	 	 	6.02	(b)
	High Value

	 	 	8.06	(e)
	Incumbent Directors

	 	 	9.02	(a)
	Initial Buyer Percentage

	 	 	2.01	 
	Initial Shares

	 	 	2.01	 
	internal controls

	 	 	3.08	(f)
	Low Value

	 	 	8.06	(e)
	Majority of the Minority Vote

	 	 	8.06	(d)
	Mid-Range

	 	 	8.06	(e)
	Multiemployer Plan

	 	 	3.15	(b)
	Offer

	 	8.02(b)(ii)

	Offer Notice

	 	 	8.02(b	)(i)
	Offer Period

	 	8.02(b)(ii)

	Offer Price

	 	 	8.02(b	)(i)
	Offered Securities

	 	 	8.02(b	)(i)
	Opt Out Proposal

	 	 	5.05	(b)
	Permitted Consideration

	 	 	5.06	(e)
	Permitted Limit

	 	 	2.03	(a)
	Post-Standstill Period

	 	 	8.09	 
	Purchase Price

	 	 	2.01	 
	Purchase Response Notice

	 	 	6.02	(c)
	Restricted Buyer Persons

	 	 	8.01	 
	Sale Restriction Termination Date

	 	 	8.01	 
	Second Appraiser

	 	 	8.06	(e)
	Second Period Accepted Acquisition Proposal

	 	 	8.06	(d)
	Solicitation Actions

	 	 	8.03	(i)
	Solicitation Response Actions

	 	8.03(ii)

	Standstill Termination Date

	 	 	8.01	 
	Start Date

	 	 	8.06	(e)
	Stock Currency

	 	 	8.04	(d)
	Takeover Laws

	 	 	5.05	(a)
	Third Appraiser

	 	 	8.06	(e)
	Third-Party Transaction Market Check

	 	 	8.06	(g)
	Third Period Accepted Acquisition Proposal

	 	 	8.07	(c)
	Third Value

	 	 	8.06	(e)
	Title IV Plan

	 	 	3.15	(b)
	Trademark License Agreement

	 	 	7.04	 
	Transfer

	 	 	8.01	(d)
	Unsolicited Acquisition Proposal

	 	 	8.05	(c)
	USA Patriot Act

	 	 	3.23	 
	USRPHC

	 	 	5.09	 
	Voting Trustee

	 	 	6.03	 






13









 






     Section 1.02. Other Definitional and Interpretative Provisions. The words “hereof”,
“herein” and “hereunder” and words of like import used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. The captions herein
are included for convenience of reference only and shall be ignored in the construction or
interpretation hereof. References to Articles, Sections, Exhibits and Schedules are to Articles,
Sections, Exhibits and Schedules of this Agreement unless otherwise specified. Any capitalized
terms used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning as
defined in this Agreement. Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words “include”, “includes” or “including”
are used in this Agreement, they shall be deemed to be followed by the words “without limitation”,
whether or not they are in fact followed by those words or words of like import. “Writing”,
“written” and comparable terms refer to printing, typing and other means of reproducing words
(including electronic media) in a visible form. References to any agreement or contract are to
that agreement or contract as amended, modified or supplemented from time to time in accordance
with the terms hereof and thereof; provided that with respect to any agreement or contract listed
on any schedules hereto, all such amendments, modifications or supplements must also be listed in
the appropriate schedule. References to any Person include the successors and permitted assigns of
that Person. References from or through any date mean, unless otherwise specified, from and
including or through and including, respectively. References to “law”, “laws” or to a particular statute
or law shall be deemed also to include any and all Applicable Law.



ARTICLE 2




Purchase and Sale




     Section 2.01. Purchase and Sale. Upon the terms and subject to the conditions of this
Agreement, the Company agrees to sell to Buyer (or to any of its Affiliates), and Buyer agrees to
purchase from the Company, that number of shares of Common Stock such that, after giving effect to
such purchase and sale, Buyer shall own 19.80% of the total number of shares of Common Stock
outstanding on the Closing Date (the “Initial Buyer Percentage”) (together with the Rights attached
thereto, the “Initial Shares”); provided that such purchase and sale shall be effected by (a) the
sale to Buyer of newly issued shares equal to the lesser of (i) the maximum number of shares that
can be issued to Buyer without requiring that the issuance be approved by the Company’s
shareholders under NYSE Rule 312.03 and (ii) to the extent applicable, the maximum number



14









 




of shares
that can be issued to Buyer without causing Buyer to have any obligation to the Company’s
shareholders under the Pennsylvania Law and (b) the sale to Buyer of the number of shares of
Treasury Stock necessary to cause Buyer to own the Initial Buyer Percentage. The purchase price
for the Initial Shares is (i) $27.00 multiplied by (ii) the number of Initial Shares (the “Purchase
Price”). The Purchase Price shall be paid as provided in Section 2.02.




     Section 2.02. Closing. The closing (the “Closing”) of the purchase and sale of the Initial
Shares hereunder shall take place at the offices of Davis Polk & Wardwell, 450 Lexington Avenue,
New York, New York, as soon as possible, but in no event later than ten Business Days after
satisfaction of the conditions set forth in Article 10, or at such other time or place as Buyer and
the Company may agree. At the Closing:




     (a) Buyer or any of its Affiliates shall deliver to the Company the Purchase Price in
immediately available funds by wire transfer to an account of the Company designated by
the Company, by notice to Buyer, which notice shall be delivered not later than two
Business Days prior to the Closing Date (or if not so designated, then by certified or
official bank check payable in immediately available funds to the order of the Company in
such amount); and




     (b) the Company shall issue or transfer the Initial Shares to Buyer through the
delivery of certificates for the Initial Shares duly endorsed or accompanied by stock
powers duly endorsed in blank, with any required transfer stamps affixed thereto, or by
means of a customary DTC electronic transfer, as applicable.



     Section 2.03. Additional Purchases by Buyer. (a) At any time after the Closing, Buyer and
its Affiliates shall have the right to purchase and/or to cause the Voting Trustee to purchase, in
the manner described below, additional shares of Common Stock; provided that, subject to Article 8,
until the Standstill Termination Date, the Voting Securities Beneficially Owned by Buyer and its
Affiliates immediately after giving effect to such purchases shall not exceed the sum of (i) 24.99%
of the Total Voting Power and (ii) any Voting Securities Beneficially Owned by Buyer as a result of
a Required Purchase (the “Permitted Limit”); provided that Buyer shall not be deemed to have
exceeded the Permitted Limit to the extent that any such excess arises out of a recapitalization of
the Company, a repurchase or redemption of Securities by the Company or any other action taken by
the Company.



     (b) Until the PA Law Termination Date, Buyer and its Affiliates shall cause all purchases
which would result in Buyer and its Affiliates owning more than 19.99% of the outstanding Common
Stock that are permitted to be made pursuant to this Section 2.03 to be made by the Voting Trustee.



15









 





     (c) If Buyer determines to make, or cause its Affiliates or the Voting Trustee to make, any
purchase of Common Stock under this Section 2.03, Buyer will, or will cause its Affiliates or the
Voting Trustee to, purchase such Common Stock in the following manner and in the following order of
priorities:




     (i) first, subject to the Permitted Limit, Buyer shall notify the Company as to the
number of shares of Common Stock that it or its Affiliates desire to purchase or that
Buyer desires to cause the Voting Trustee to purchase;




     (ii) second, the Company will sell to Buyer, Buyer’s Affiliates or the Voting
Trustee, as applicable, and Buyer, Buyer’s Affiliates or the Voting Trustee, as
applicable, will purchase from the Company the number of shares of Treasury Stock equal to
the lesser of the number of shares requested by Buyer and the number of shares of Treasury
Stock held by the Company on the date of Buyer’s notice;




     (iii) third, to the extent that the number of Shares of Treasury Stock available to
the Company on such date is less than the number of shares requested by Buyer, the Company
shall sell to Buyer, Buyer’s Affiliates or the Voting Trustee, as applicable, and Buyer,
Buyer’s Affiliates or the Voting Trustee, as applicable, shall purchase from the Company
newly issued shares of Common Stock; provided that, (A) Buyer shall not purchase newly
issued shares from the Company unless Buyer receives an opinion of its counsel to the
effect that Rule 312.03 of the NYSE does not require that the shareholders of the Company
approve the issuance and sale of such shares, and (B) the Company shall not sell to Buyer,
its Affiliates or the Voting Trustee any newly issued shares pursuant to this Section 2.03
unless the Company receives an opinion of its counsel to the effect that Rule 312.03 of the NYSE does not require that
shareholders of the Company approve the issuance and sale of such shares to Buyer, its
Affiliates or the Voting Trustee; and




     (iv) fourth, to the extent that the total number of shares of Common Stock sold to
Buyer, its Affiliates or the Voting Trustee under clauses (ii) and (iii) is less than the
number of shares requested by Buyer, then, subject to Applicable Law, Buyer, its
Affiliates or the Voting Trustee may buy shares of Common Stock in open market
transactions or from Third Parties until Buyer, its Affiliates or the Voting Trustee, as
applicable, shall have purchased, in the aggregate, the number of shares specified in
Buyer’s notice.



     (d) If Buyer, its Affiliates or the Voting Trustee purchase Treasury Stock or newly issued
shares of Common Stock from the Company, such purchases and sales shall be consummated as promptly
as practicable after the



16









 




date of delivery of Buyer’s notice and in any event no later than ten
Business Days after such date.




     (e) If Buyer, its Affiliates or the Voting Trustee purchase shares of Treasury Stock or newly
issued shares of Common Stock from the Company, the price payable by Buyer, its Affiliates or the
Voting Trustee to the Company for each such share of Common Stock shall be equal to the Prevailing
Fair Market Value per share of Common Stock on the date of purchase.



     Section 2.04. Gross Up Rights. (a) If at any time after Closing, the Company issues or
proposes to issue any Voting Securities or any Participating Preferred Stock, whether (i) for
financing, (ii) in connection with mergers and acquisitions, (iii) in connection with the exercise
of Convertible Rights, (iv) upon the exercise of any option, warrant, stock appreciation right or
other similar instrument granted to officers, directors, employees, consultants or others, (v) in
the form of restricted shares or similar instruments, (vi) or otherwise, Buyer shall have the
option and right to acquire such Voting Securities so that immediately after such issuance Buyer
shall Beneficially Own the same Ownership Percentage of such Voting Securities as was Beneficially
Owned by Buyer and its Affiliates before such issuance and to acquire its Ownership Percentage of
any such Participating Preferred Stock in the manner described below; provided that any capital
stock acquired by Buyer or its Affiliates in connection with any Required Purchase shall not be
taken into account for purposes of the calculations required by this Section 2.04(a); and provided
further that, in the case of any securities (except for any Participating Preferred Stock which are
also Voting Securities) described in clause (ii) of the definition of Voting Securities, Buyer’s
rights under this Section shall arise upon any conversion or exchange of such Voting Securities for
securities entitled, in the ordinary course, to vote in the election of Directors of the Company,
rather than upon the issuance thereof.



     (b) Prior to issuing any Voting Securities or Participating Preferred Stock (other than
issuances pursuant to clauses (iii), (iv) and (v) of Section 2.04(a)), the Company shall provide
Buyer with ten Business Days’ prior written notice (or if such notice period is not possible under
the circumstances, such prior notice as is practicable) of the proposed issuance. Buyer, acting
directly or through its Affiliates, shall have the right, exercisable by providing written notice
to the Company of the exercise of its rights within ten days after receipt of the Company’s notice,
to purchase for cash directly from the Company (i) up to a sufficient number of such Voting
Securities so that, after giving effect to such issuance, Buyer and its Affiliates will
Beneficially Own the same Ownership Percentage as was Beneficially Owned by Buyer and its
Affiliates immediately prior to the issuance of such Voting Securities or (ii) its Ownership
Percentage of such Participating Preferred Stock (or to maintain its Ownership Percentage of any
class of Participating Preferred Stock previously issued by the Company and purchased by Buyer or
its Affiliates). The purchase price for any Voting



17









 




Securities purchased by Buyer or its Affiliates
pursuant to this Section 2.04(b) will be (A) in the case of an issuance of Voting Securities or
Participating Preferred Stock other than in connection with mergers and acquisitions, the lesser of
(x) the Prevailing Fair Market Value of such Voting Securities or Participating Preferred Stock on
the date of issuance thereof or (y) the price (including any assumed indebtedness which is part of
the purchase price and valuing any non-cash consideration at Prevailing Fair Market Value) at which
the Company issues such Voting Securities or Participating Preferred Stock to other shareholders or
Third Parties and (B) in the case of an issuance of Voting Securities or Participating Preferred
Stock in connection with any merger or acquisition the arithmetic average, weighted by reference to
daily trading volume, of the closing prices of such Voting Securities or Participating Preferred
Stock during the 30 trading day period ending immediately prior to the closing of such merger or
acquisition. The Company shall provide such information, to the extent reasonably available,
relating to any non-cash consideration as Buyer may reasonably request in order to evaluate any
non-cash consideration paid in respect of any issuance pursuant to this Section 2.04(b). If, in
connection with any issuance by the Company covered by this Section 2.04(b), Buyer gives notice of
its intent to exercise its option under this Section 2.04(b) but has not purchased the securities
subject thereto within 60 days thereafter for reasons not primarily related to actions or omissions
of the Company or the absence of any approvals or consents or the taking of any other actions
required to be taken under Applicable Law or the prohibition on purchasing such securities during
such period imposed by applicable securities laws, Buyer shall be deemed to have waived its rights
to purchase such securities under this Section 2.04 with respect to such issuance of Voting
Securities or Participating Preferred Stock.




     (c) No later than 15 days after the end of each of its fiscal quarters, the Company shall give
Buyer notice of the aggregate number of Voting Securities issued during the preceding fiscal
quarter under clauses (iii), (iv) and (v) of Section 2.04(a). Within ten days of the receipt of
such notice Buyer shall have the right to take or cause to be taken the following actions, in the following order of
priorities, in order to ensure that, after giving effect to such actions, Buyer and its Affiliates
will Beneficially Own the same Ownership Percentage as was Beneficially Owned by Buyer and its
Affiliates immediately before the beginning of such fiscal quarter (the “Equalized Percentage”):




     (i) first, Buyer, acting directly or through its Affiliates, shall have a right to
purchase from the Company the number of shares of Treasury Stock necessary to reach the
Equalized Percentage;




     (ii) second, to the extent that the Company does not have available enough shares of
Treasury Stock to permit Buyer and its Affiliates to reach the Equalized Percentage, the
Company shall, unless prohibited by Applicable Law, and subject to the receipt of any
required



18









 




regulatory approval, use its reasonable best efforts to repurchase in the open
market within 15 days after the delivery of the notice to Buyer, the number of shares
necessary to allow Buyer and its Affiliates to achieve the Equalized Percentage after
giving effect to any purchases pursuant to clause (i);





     (iii) third, at the Company’s reasonable election (provided that the Company shall
have acted reasonably in making its election), to the extent that the combination of the
actions contemplated by clauses (i) and (ii) are not adequate to allow Buyer and its
Affiliates to reach the Equalized Percentage, Buyer, acting directly or through its
Affiliates, shall have the right to purchase from the Company newly issued shares;
provided that, (A) to the extent that the approval of the Company’s shareholders is
required in connection with such issuance, upon Buyer’s request the Company will convene a
shareholders’ meeting to approve such issuance and (B) unless such meeting can be held
within 90 days of Buyer’s request or if such meeting is held and approval is not obtained,
Buyer and its Affiliates shall have the option of proceeding to make the purchases
contemplated by clause (iv); and




     (iv) fourth, to the extent that the combination of the actions contemplated by
clauses (i) through (iii) are not adequate to allow Buyer and its Affiliates to reach the
Equalized Percentage, Buyer and its Affiliates shall have the right, subject to Applicable
Law, to purchase in open market transactions or from third parties, the number of Voting
Securities necessary to allow them to reach the Equalized Percentage.



     (d) If Buyer or its Affiliates purchase Treasury Stock or newly issued Common Stock pursuant
to Section 2.04(c), the purchase price for such Treasury Stock or newly issued Common Stock will be
the Prevailing Fair Market Value of the Common Stock on the date of issuance of newly issued Common
Stock or purchase of Treasury Stock, as the case may be; provided that, to the extent that the
event giving rise to Buyer’s and its Affiliates’ rights under Section 2.04(c) is
the conversion of the PIERS Instruments, Buyer and its Affiliates shall be required to
purchase such shares of Common Stock at the conversion price under the applicable PIERS
Instruments.



     (e) If, at the time of any purchase by Buyer of Voting Securities pursuant to this Section
2.04, the Voting Trustee shall hold any Voting Securities, the Buyer will cause the Voting Trustee
to purchase the number of Voting Securities that is determined by multiplying the number of Voting
Securities to be purchased by Buyer pursuant to this Section 2.04 by a fraction, the numerator of
which is the number of Voting Securities held by the Voting Trustee immediately before such
purchase and the denominator of which is the total number of Voting



19









 




Securities held by Buyer and
its Affiliates (including the Voting Trustee) immediately before such purchase.




ARTICLE 3




Representations and Warranties of the Company




     Subject to Section 13.03, except as set forth in the Company Disclosure Schedule, the Company
represents and warrants to Buyer as of the date hereof and as of the Closing Date that:



     Section 3.01. Organization. (a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Pennsylvania. The Company is a
savings and loan holding company duly registered under the HOLA. The Company 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. The Company and each Company
Subsidiary are 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 has
not had, and would not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. Each Company 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. The Company Disclosure Schedule identifies each State in which the Company
and each Company Subsidiary is qualified to do business as a foreign corporation.



     (b) The Bank is a federal savings bank, duly organized and validly existing under the laws of
the United States of America.



     (c) There are no Company Subsidiaries other than the Bank, Iceland Acquisition Corp. and those
identified in the Company SEC Documents.



     (d) The Bank is a qualified thrift lender pursuant to Section 10(m) of the HOLA and a member
in good standing of the Federal Home Loan Bank of Pittsburgh. The deposits of the Bank are insured
by the FDIC to the fullest extent permitted in the FDIA, and all premiums and assessments required
to be paid in connection therewith have been paid when due.



     (e) The respective minute books of the Company, the Bank and each other Company Subsidiary
accurately reflect all material corporate actions of their respective shareholders and boards of
directors (including committees).



20









 





     (f) Prior to the date of this Agreement, the Company has made available to Buyer true and
correct copies of the articles of incorporation and bylaws of the Company and the Bank, each as in
effect on the date hereof.



     Section 3.02. Capitalization. (a) The authorized capital stock of the Company consists of
(i) 800,000,000 shares of Common Stock, of which, at the date of this Agreement, 360,388,527 shares
were issued and outstanding and 22,050,315 shares were held by the Company as Treasury Stock, and
(ii) 7,500,000 shares of preferred stock, no par value, of which, at the date of this Agreement, no
shares are issued or outstanding. All of the Company’s outstanding shares of Common Stock are
validly issued, fully paid and non-assessable, and none of such shares were issued in violation of
any preemptive rights. All of the Common Stock that is held by the Company as Treasury Stock is
validly issued and none of such Common Stock was issued in violation of any preemptive rights. The
Company has no Convertible Rights authorized, issued or outstanding, other than (A) the Rights, (B)
as of the date hereof options or other rights to acquire an aggregate of 16,618,037 shares of
Common Stock under the Company’s stock option plans, non-employee directors compensation plan,
employee stock ownership plan, employee stock purchase plan, and dividend reinvestment and stock
purchase plan, and other employee benefit and stock-based benefit plans, and (C) the PIERS
Instruments which are convertible, in accordance with the terms thereof, into 26,111,395 shares of
Common Stock in the aggregate.



     (b) Except as set forth in Section 3.02, there are no outstanding (i) shares of capital stock
of, or other voting securities or ownership interests in, the Company, (ii) securities of the
Company convertible into or exchangeable for shares of capital stock or other voting securities or
ownership interests in the Company, (iii) options or other rights to acquire from the Company, or
other obligation of the Company to issue, any capital stock or other voting securities or ownership
interests in or any securities convertible into or exchangeable for capital stock or other voting
securities or ownership interests in the Company or (iv) any other Convertible Rights (the items in
clauses (i), (ii), (iii) and (iv) being referred to collectively as the “Company Securities”).
Except as set forth in Section 2.04, there are no outstanding obligations of the Company or any
Company Subsidiary to repurchase, redeem or otherwise acquire any of the Company Securities.



     (c) The authorized capital stock of the Bank consists of (i) 15,000,000 shares of common
stock, $1.00 par value, of which 1,000 shares are outstanding, and (ii) 7,500,000 shares of
preferred stock, no par value, of which no shares are outstanding, validly issued, fully paid,
nonassessable, free of preemptive rights, all of which are owned by the Company free and clear of
any Liens. Neither the Company nor any Company Subsidiary has been or is bound by any
subscription, option, warrant, call, commitment, agreement or other right of any character



21









 




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 Company Subsidiary or any other security of
any Company 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 Company Subsidiary. The
Company owns, directly or indirectly, all of the outstanding shares of capital stock of each other
Company Subsidiary free and clear of any Liens.




     (d) Except for the Company Subsidiaries, none of (i) the Company, (ii) the Bank, or (iii) any
other Company Subsidiary, owns any equity interest, directly or indirectly, in any other Person or
controls any other Person, except for equity interests held in the investment portfolios of Company
Subsidiaries, equity interests held by Company Subsidiaries in a fiduciary capacity, equity
interests held in connection with the commercial loan activities of Company Subsidiaries, or other
securities and interests held in a fiduciary capacity and beneficially owned by third parties or
taken in consideration of debts previously contracted. There are no subscription rights, options,
warrants, calls, commitments, agreements or other Convertible Rights outstanding and held by the
Company or the Bank with respect to the capital stock or the equity of any other Person.



     (e) To the best of the Company’s Knowledge, except as disclosed in the Company’s proxy
statement dated March 22, 2005, or in any subsequent Schedule 13D or 13G filed with the SEC, no
person or Group Beneficially Owns 5% or more of the outstanding shares of Common Stock.



     (f) Each of the shares of Common Stock to be issued by the Company to Buyer or, in the case of
Treasury Stock, to be sold and transferred to Buyer, pursuant to the terms of this Agreement will
be, upon such issuance, sale or transfer duly authorized, validly issued, fully paid and
nonassessable and will be free and clear of any Lien.



     Section 3.03. Authority. The Company has requisite corporate power and authority to execute
and deliver this Agreement and the Registration Rights Agreement and to complete the transactions
contemplated hereby subject to receipt of all Regulatory Approvals. The execution and delivery of
this Agreement and the Registration Rights Agreement by the Company and the completion by the
Company of the transactions contemplated hereby and thereby have been duly and validly approved by
the Board and no other corporate proceedings on the part of the Company are necessary to complete
the transactions contemplated hereby. This Agreement has been, and the Registration
Rights Agreement, upon the execution and delivery thereof by the Company, will have been, duly
and validly executed and delivered by the Company and, subject to receipt of the Regulatory
Approvals and compliance therewith, constitutes the valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms (except as enforceability may be
limited by



22









 




applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors’ rights, general equity
principles or by applicable conservatorship or receivership provisions of the FDIA (“FDIA
Limitations”)).




     Section 3.04. Non-Contravention. Subject to receipt of the Regulatory Approvals and the
Company’s compliance with any conditions contained therein (including the expiration of related
waiting periods), none of (i) the execution and delivery of this Agreement or the Registration
Rights Agreement by the Company, or the completion of the transactions contemplated hereby or
thereby, and (ii) compliance by the Company or the Bank with any of the terms or provisions hereof
or thereof, will (A) conflict with or result in a breach of any provision of the articles of
incorporation or bylaws of the Company or the Bank; (B) conflict with or result in a breach of any
provision of the articles of incorporation or bylaws of any Company Subsidiary (excluding the
Bank); (C) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to the Company or any Company Subsidiary or any of their respective
properties or assets; or (D) 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 upon any of the properties or
assets of the Company or any Company 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 the Company or any Company Subsidiary is a party, or by
which they or any of their respective properties or assets may be subject except, in the case of
clauses (B), (C) (other than with respect to the Company), and (D), any such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of Liens as have not had and would not
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.



     Section 3.05. Consents. (a) Except for (i) Regulatory Approvals and compliance with any
conditions contained therein and (ii) compliance with any applicable requirements of the Securities
Act, the Exchange Act and any other applicable U.S. state or federal securities laws, no consents
or approvals of, or filings or registrations with, any Governmental Authority are necessary, and no
consents or approvals or waivers of any third parties are necessary, or will be, in connection with
(A) the execution and delivery of this Agreement or the Registration Rights Agreement by the
Company, or (B) the completion by the Company of the transactions contemplated hereby or thereby.
As of the date hereof, the Company has no reason to believe that the consents and approvals set forth above
will not be received or will be received with conditions, limitations or restrictions that would
reasonably be expected to have a Material Adverse Effect



23









 




or which would adversely impact the
Company’s ability to complete the transactions contemplated by this Agreement.




     (b) No approval or other action by the shareholders of the Company is required in connection
with the execution, delivery and performance by the Company of this Agreement or the Registration
Rights Agreement or the consummation of the Closing or the purchase by the Buyer of the Additional
Shares.



     Section 3.06. Financial Statements. (a) The Company has previously made available or will
make available to Buyer the Company Regulatory Reports. The Company Regulatory Reports have been,
or will be, prepared in all 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 fairly
present, or will fairly present in all respects, the financial position, results of operations and
changes in shareholders’ equity of the Company 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) The Company has previously made available to Buyer the Company Financials filed by it with
the SEC. The Company 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, in all material respects, the consolidated financial
position, results of operations and cash flows of the Company 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 Company Financials or Company Regulatory
Reports, neither the Company nor the 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 Company Financials or Company Regulatory
Reports or in the footnotes thereto which are not appropriately reflected or reserved against
therein or appropriately 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, in the case of any unaudited statements, to
normal, recurring audit adjustments and the absence of footnotes.



     Section 3.07. Taxes. The Company and the Company Subsidiaries are members of the same
affiliated group within the meaning of Section 1504(a) of



24









 




the Code. The Company has duly filed,
and will file, all Tax returns required to be filed by or with respect to the Company and all
Company Subsidiaries on or prior to the Closing Date (taking into account any extensions of time
within which to file which have not expired) (all such returns being or will be true and complete
in all 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 Taxes which have been incurred by or are due
or claimed to be due from the Company and any Company 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 (a) are not delinquent or (b) are being contested in good faith (which
are described on the Company Disclosure Schedule). Neither the Company nor any Company Subsidiary
has (i) any audits pending or proposed in writing, or (ii) waived or extended any statute of
limitations for Tax purposes.




     Section 3.08. SEC Filings and the Sarbanes-Oxley Act. (a) The Company has delivered to
Buyer (i) the Company’s annual reports on Form 10-K for its fiscal years ended December 31, 2004,
2003 and 2002, (ii) its quarterly reports on Form 10-Q for its fiscal quarters ending March 31,
2005 and June 30, 2005, (iii) its proxy or information statements relating to meetings of the
shareholders of the Company held (or actions taken without a meeting by such stockholders) since
December 31, 2004, and (iv) all of its other reports, statements, schedules and registration
statements filed with the SEC since December 31, 2004 (the documents referred to in this Section
3.08(a) and the Form 10-K, Form 10-Q, proxy or information statement and other reports, schedules
and registration statements filed with the SEC after the date hereof and before the Closing,
collectively, the “Company SEC Documents”).



     (b) As of its filing date, each Company SEC Document complied, and each such Company SEC
Document filed subsequent to the date hereof will comply, as to form in all material respects with
the applicable requirements of the Securities Act and the Exchange Act, as the case may be.



     (c) As of its filing date, each Company SEC Document filed pursuant to the Exchange Act did
not, and each such Company SEC Document filed subsequent to the date hereof will not, contain any
untrue statement of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they were made, not
misleading.



     (d) Each Company SEC Document that is a registration statement, as amended or supplemented, if
applicable, filed pursuant to the Securities Act, as of the date such statement or amendment became
effective, did not contain (or, in the case of any registration statement, as amended or
supplemented, if applicable, filed by the Company prior to the Closing Date, as of the date such
registration statement or amendment becomes effective, will not contain any untrue statement



25









 




of a material fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.




     (e) The Company has established and maintains disclosure controls and procedures (as defined
in Rule 13a-15 under the Exchange Act). Such disclosure controls and procedures are designed to
ensure that material information relating to the Company, including its consolidated Company
Subsidiaries, is made known to the Company’s principal executive officer and its principal
financial officer by others within those entities, particularly during the periods in which the
periodic reports required under the Exchange Act are being prepared. Such disclosure controls and
procedures are effective in timely alerting the Company’s principal executive officer and principal
financial officer to material information required to be included in the Company’s periodic reports
required under the Exchange Act.



     (f) The Company and the Company Subsidiaries have established and maintained a system of
internal control over financial reporting (as defined in Rule 13a-15 under the 1934 Exchange)
(“internal controls”). Such internal controls are sufficient to provide reasonable assurance
regarding the reliability of the Company’s financial reporting and the preparation of Company
financial statements for external purposes in accordance with GAAP. The Company has disclosed,
based on its most recent evaluation of internal controls prior to the date hereof, to the Company’s
auditors and audit committee (x) any significant deficiencies and material weaknesses in the design
or operation of internal controls which are reasonably likely to adversely affect the Company’s
ability to record, process, summarize and report financial information and (y) any fraud, whether
or not material, that involves management or other employees who have a significant role in
internal controls. The Company has made available to Buyer a summary of any such disclosure made
by management to the Company’s auditors and its audit committee.



     (g) The Company has not, since the enactment of the Sarbanes-Oxley Act, taken any action
prohibited by Section 402 of the Sarbanes-Oxley Act.



     Section 3.09. Absence of Certain Changes. Since the Balance Sheet Date, the business of the
Company and each Company Subsidiary has been conducted in the ordinary course consistent with past
practices and there has not been (other than as disclosed in the Company Regulatory Reports, the
Company SEC Documents or the Company Financials, in each case as filed as of the date hereof):



     (a) any event, occurrence, development or state of circumstances or facts that has had or
would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;



26









 





     (b) any declaration, setting aside or payment of any dividend or other distribution with
respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any Company Subsidiary of any
outstanding shares of capital stock or other securities of, or other ownership interests in, the
Company;



     (c) any amendment of any material term of any outstanding security of the Company or any
Company Subsidiary (other than outstanding securities held only by wholly owned direct or indirect
Subsidiaries of the Company);



     (d) any incurrence, assumption or guarantee by the Company or any Company Subsidiary of any
indebtedness for borrowed money other than in the ordinary course of business and in amounts and on
terms consistent with past practices;



     (e) any creation or other incurrence by the Company or any Company Subsidiary of any Lien on
any material asset other than in the ordinary course of business consistent with past practices;



     (f) any making of any loan, advance or capital contributions to or investment in any Person
other than loans, advances or capital contributions to or investments made in the ordinary course
of business consistent with past practices;



     (g) any damage, destruction or other casualty loss (whether or not covered by insurance)
affecting the business or assets of the Company or any Company Subsidiary that has had or would
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the
Company;



     (h) any transaction or commitment made, or any contract or agreement entered into, by the
Company or any Company Subsidiary relating to its assets or business (including the acquisition or
disposition of any assets) or any relinquishment by the Company or any Company Subsidiary of any
contract or other right, in either case, material to the Company or any Company Subsidiary, taken
as a whole, other than transactions and commitments in the ordinary course of business consistent
with past practices and those contemplated by this Agreement and the Independence Agreement;



     (i) any change in any method of accounting or accounting principles or practice by the Company
or any Company Subsidiary, except for any such change required by reason of a concurrent change in
GAAP or Regulation S-X under the Exchange Act;



     (j) other than in the ordinary course consistent with past practice, any (i) grant of any
severance or termination pay to (or amendment to any existing



27









 




arrangement with) any director,
officer or employee of the Company or any Company Subsidiary, (ii) increase in benefits payable
under any existing severance or termination pay policies or employment agreements, (iii) any
entering into any employment, deferred compensation or other similar agreement (or any amendment to any such existing agreement) with any director, officer or employee of
the Company or any Company Subsidiary, (iv) establishment, adoption or amendment (except as
required by applicable law) of any collective bargaining, bonus, profit-sharing, thrift, pension,
retirement, deferred compensation, compensation, stock option, restricted stock or other benefit
plan or arrangement covering any director, officer or employee of the Company or any Company
Subsidiary or (v) increase in compensation, bonus or other benefits payable to any director,
officer or employee of the Company or any Company Subsidiary;




     (k) any labor dispute, other than routine individual grievances, or any activity or proceeding
by a labor union or representative thereof to organize any employees of the Company or any Company
Subsidiary, which employees were not subject to a collective bargaining agreement at the Balance
Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to such employees; or



     (l) any Tax election made or changed, any annual tax accounting period changed, any method of
tax accounting adopted or changed, any amended Tax returns or claims for Tax refunds filed, any
closing agreement entered into, any Tax claim, audit or assessment settled, or any right to claim a
Tax refund, offset or other reduction in Tax liability surrendered.



     Section 3.10. Contracts. (a) Except for documents listed as exhibits to the Company SEC
Documents or listed in the Company Disclosure Schedule, neither the Company nor any Company
Subsidiary is a party to or subject to:




     (i) any material employment, consulting or severance contract or arrangement with any
past or present officer, director or employee of the Company or any Company 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 the Company or any Company
Subsidiary;




     (iii) any collective bargaining agreement with any labor union relating to employees
of the Company or any Company Subsidiary;



28









 






     (iv) any agreement which by its terms limits the payment of dividends by the Company
or any Company 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 the Company or any Company Subsidiary
is an obligor to any person, which instrument evidences or relates to indebtedness 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 Buyer or any Affiliate thereof, other than deposits, repurchase
agreements, the junior subordinated debentures relating to First Essex Capital Trust I,
First Essex Capital Trust II, ML Capital Trust I, Seacoast Capital Trust I, Seacoast
Capital Trust II, Sovereign Capital Trust I, Sovereign Capital Trust III, Sovereign
Capital Trust IV, Waypoint Capital Trust I, Waypoint Capital Trust II, and Waypoint
Statutory Trust III borrowings referred to in the Company SEC Documents or the Company
Financials, bankers’ acceptances and “treasury tax and loan” accounts established in the
ordinary course of business and transactions in “federal funds”; or




     (vi) any contract limiting the freedom of the Company or any Company 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 3.10(a) have been made available to Buyer on or before the date hereof, are listed as
exhibits to the Company SEC Documents or are listed on the Company Disclosure Schedule and are in
full force and effect on the date hereof and neither the Company nor any Company Subsidiary (nor,
to the Knowledge of the Company, any other party to any such contract, plan, arrangement or
instrument) has breached any material provision of, or is in default in any respect under any
material term of, any such contract, plan, arrangement or instrument. Except as listed in the
Company SEC Documents (with respect to (iii) and (iv) only) or as listed on the Company 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 or the Registration
Rights Agreement, (ii) none of the employees (including officers) of the Company or any Company
Subsidiary, possess the contractual right to terminate their employment as a result of the
execution of this Agreement or the Registration Rights Agreement, and each contract with any
director, officer and employee is listed as exhibits to the Company SEC Documents or listed on the
Company Disclosure Schedule, (iii) no material plan, employment agreement, termination agreement,
or similar agreement or



29









 




arrangement to which the Company or any Company Subsidiary is a party or
under which the Company or any Company 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 (A) provides for acceleration
in the vesting of benefits or payments due thereunder upon the occurrence of a change in ownership
or control of the Company or any Company Subsidiary absent the occurrence of a subsequent event;
(B) provides for benefits which may cause the disallowance of a federal income tax deduction under Section 280G of the Code; or (C) requires
the Company or any Company Subsidiary to provide a benefit in the form of Common Stock or
determined by reference to the value of Common Stock.




     Section 3.11. No Undisclosed Material Liabilities. There are no liabilities or obligations
of the Company or any Company Subsidiary of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there is no existing condition, situation or
set of circumstances that would reasonably be expected to result in such a liability, other than:



     (a) liabilities or obligations disclosed and provided for in the balance sheet of the Company
as of the Balance Sheet Date or in the notes thereto or in the Company SEC Documents; and



     (b) liabilities or obligations incurred in the ordinary course of business consistent with
past practices since the Balance Sheet Date that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.



     Section 3.12. Ownership of Property; Insurance Coverage. (a) The Company and the Company
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 the Company or any Company
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 Company Regulatory Reports and in the Company 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 Liens,
except (i) statutory Liens for amounts not yet delinquent or which are being contested in good
faith, (ii) pledges to secure deposits and other Liens incurred in the ordinary course of its
banking business, (iii) such imperfections of title, easements and encumbrances, if any, as are not
material in character, amount or extent and (iv) as reflected on the consolidated statement of the
financial condition of the Company included in the Company SEC Documents or Company Financials.



30









 





     (b) The Company and the Company Subsidiaries, as lessee, have the right under valid and
subsisting leases of real and personal properties used by the Company 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 Company Financials.



     (c) With respect to all agreements pursuant to which the Company or any Company Subsidiary has
purchased securities subject to an agreement to resell, if any, the Company or such Company
Subsidiary, as the case may be, has a valid, perfected first lien or security interest in the
securities or other collateral securing the repurchase agreement, and the value of such collateral
equals or exceeds the amount of the debt secured thereby.



     (d) The Company and the Company Subsidiaries currently maintain insurance considered by the
Company to be reasonably prudent for their respective operations in accordance with industry
practice. Neither the Company nor any Company Subsidiary has received notice from any insurance
carrier that (i) such insurance will be canceled or that coverage thereunder will be reduced or
eliminated or (ii) premium costs with respect to such policies of insurance will be substantially
increased (except with respect to industry-wide increases in officers’ and directors’ liability
insurance and employment law liability insurance). Except with regard to ordinary course claims
under the Company’s medical insurance plans, there are presently no material claims pending under
such policies. All such insurance is valid and enforceable and in full force and effect, and
within the last three years the Company, the Bank and each Company Subsidiary has received each
type of insurance coverage for which they have applied and during such periods have not been denied
indemnification for any claims submitted under any of their insurance policies.



     Section 3.13. Legal Proceedings. Neither the Company nor any Company Subsidiary is a party
to any, and there are no pending or, to the best of the Company’s Knowledge, threatened legal,
administrative, arbitration or other proceedings, claims (whether asserted or unasserted), actions
or governmental investigations or inquiries of any nature (a) against the Company or any Company
Subsidiary or (b) to which the Company’s or any Company Subsidiary’s assets are or may be subject,
(c) challenging the validity or propriety of any of the transactions contemplated by this Agreement
or the Registration Rights Agreement, or (d) which would reasonably be expected to materially and
adversely affect the ability of the Company to perform under this Agreement or the Registration
Rights Agreement, except for any proceedings, claims, actions, investigations or inquiries referred
to in clauses (a) or (b) which, if adversely



31









 




determined, individually or in the aggregate, would
not be reasonably expected to have a Material Adverse Effect on the Company.




     Section 3.14. Compliance with Applicable Law. (a) The Company and Company Subsidiaries and
their employees hold all licenses, franchises, permits and authorizations necessary for the lawful
conduct of the businesses of the Company and Company Subsidiaries under, and have complied in all
respects with, applicable laws, statutes, orders, rules or regulations of any federal, state or
local governmental authority relating to them.



     (b) The Company and each Company Subsidiary are in substantial compliance with all of the
statutes, regulations or ordinances which each Regulatory Authority applicable to them enforces. Since December 31, 2002, no Regulatory
Authority has threatened to revoke any license, franchise, permit or governmental authorization
which is material to the Company or any Company Subsidiary.



     Section 3.15. Employee Benefit Plans. (a) The Company has previously delivered or made
available to Buyer (i) true and complete copies of all employee pension benefit plans within the
meaning of ERISA Section 3(2), including profit sharing plans, employee stock ownership plans,
employee stock purchase plans, deferred compensation and supplemental income plans, supplemental
executive retirement plans, material employment agreements, annual executive and material
administrative incentive plans or long-term incentive plans (including without limitation plans
providing for the granting of stock options, restricted stock and other equity-based awards),
severance, severance protection and severance benefit 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, programs, agreements and arrangements
(collectively, the “Employee Plans”), all of which are set forth in the Company Disclosure
Schedule, (ii) the most recent actuarial and valuation reports (if any) and financial reports
relating to those plans, (iii) the most recent annual reports relating to such plans filed by them,
respectively, with any government agency, and (iv) the most recent determination letters and any
pending request for a determination letter pertaining to any such plans.



     (b) Except as listed on the Company Disclosure Schedule, none of the Company, any ERISA
Affiliate and any predecessor thereof (i) sponsors, maintains or contributes to any Employee Plan
subject to Title IV of ERISA (a “Title IV Plan”), (ii) contributes to, or has in the past
contributed to, any multiemployer plan, as defined in Section 3(37) of ERISA (a “Multiemployer
Plan”), (iii) has or would reasonably be expected to have any liability with respect to any Title
IV Plan or any Multiemployer Plan, whether pursuant to Title IV of ERISA or otherwise or (iv) has
any current or projected material liability in



32









 




respect of post-employment or post-retirement health
or medical or life insurance benefits for retired, former or current employees of the Company or
any Subsidiary, except as required to avoid excise tax under Section 4980B of the Code.




     (c) To the Knowledge of the Company, all “employee benefit plans,” as defined in ERISA Section
3(3), comply and within the past six 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 Code relevant to such treatment. To the Knowledge of the Company,
after appropriate inquiry, 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
Code Section 4975) has occurred and not been corrected within the past six years with respect to
any employee benefit plan maintained by the Company or any Company Subsidiary which would result in the
imposition, directly or indirectly, of an excise tax under Code Section 4975 or other penalty under
ERISA or the Code.



     (d) Each Employee Plan has been maintained in material compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules and regulations,
including ERISA and the Code, which are applicable to such Employee Plan.



     (e) There has been no amendment to, written interpretation of or announcement (whether or not
written) by the Company or any of its Affiliates or relating to, or change in employee
participation or coverage under, any Employee Plan that would materially increase the expense of
maintaining such Employee Plan above the level of the expense incurred in respect thereof for the
most recent fiscal year ended prior to the date hereof.



     (f) There are no outstanding loans or other extensions of credit made by the Company or any of
its Subsidiaries to any executive officer (as defined in Rule 3b-7 under the Exchange Act) or
directors of the Company. The Company has not, since the enactment of the Sarbanes-Oxley Act,
taken any action prohibited by Section 402 of the Sarbanes-Oxley Act.



     (g) Except as disclosed on the Company Disclosure Schedule, there is no action, suit,
investigation, audit or proceeding pending against or involving or, to the Knowledge of the
Company, threatened against or involving any Employee Plan before any arbitrator or any
Governmental Authority.



     Section 3.16. Brokers, Finders and Financial Advisors. Except for Citigroup and any other
financial advisor to the Company in connection with this Agreement, each of whose fees will be paid
by the Company, neither the Company nor any Company Subsidiary, nor any of their respective
officers,



33









 




directors, employees or agents, has employed any broker, finder or financial advisor in
connection with the transactions contemplated by this Agreement, the Registration Rights Agreement
or the Independence Agreement, or incurred any liability or commitment for any fees or commissions
to any such person in connection with the transactions contemplated by this Agreement, the
Registration Rights Agreement or the Independence Agreement, which has not been reflected in the
Company Financials.




     Section 3.17. Environmental Matters. To the Knowledge of the Company, neither the Company
nor any Company Subsidiary, nor any properties operated by the Company or any Company Subsidiary
during the Company’s use or ownership, has been or is in violation of, or liable under or in
connection with, any Environmental Law that would reasonably be expected to have a Material Adverse
Effect on the Company. There are no actions, suits or proceedings, or demands, claims, notices
(including without limitation notices, demand letters or requests for information from any
environmental agency) or, to the Knowledge of the Company, investigations instituted or pending, or to the knowledge of the Company, overtly
threatened, relating to the liability of the Company or any Company Subsidiary under any
Environmental Law that would reasonably be expected to have a Material Adverse Effect on the
Company.



     Section 3.18. Allowance for Losses. The allowance for loan losses reflected, and to be
reflected, in the Company Regulatory Reports each has been, and will be, established in compliance
with the requirements of all applicable regulatory criteria, and the allowance for loan losses
shown, and to be shown, on the balance sheets contained in the Company Financials have been, and
will be, established in compliance with the applicable requirements of GAAP.



     Section 3.19. Related Party Transactions. Except as disclosed in the Company SEC Documents
or in the footnotes to the Company Financials, Company Regulatory Reports, the Company 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 the Company (except a Company
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 the Company 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 the Company nor the 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 the Bank is inappropriate.



34









 





     Section 3.20. Loans. Each loan reflected as an asset in the Company Financials (a) was
originated, underwritten, approved, documented and periodically approved in all material respects
in accordance with prudent lending standards generally accepted in the banking business and, to the
Knowledge of the Company, after appropriate inquiry, did not deviate in any material respect from
the Company’s policies and procedures currently in effect, and (b) 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 (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to the affecting creditors’ rights or by general
equity principles or FDIA Limitations). Each extension of credit made by the Bank to an “insider”
(as such term is defined in the Federal Reserve Board’s Regulation O) of the Bank or the Company
complies with the Federal Reserve Board’s Regulation O, as made applicable to the Bank by 12 C.F.R.
§ 563.43.



     Section 3.21. Labor Matters. No key employee of the Company or any Company Subsidiary has
indicated to the Company or to the Company Subsidiary, as the case may be, that he intends to
resign or retire as a result of the transactions contemplated by this Agreement or otherwise within
one year after the Closing Date. The Company and the Company Subsidiaries are in compliance with
all currently Applicable Laws respecting employment and employment practices, terms and conditions
of employment and wages and hours, and are not engaged in any unfair labor practice. There is no
unfair labor practice complaint pending or, to the Knowledge of the Company, threatened against the
Company or any Company Subsidiary before the National Labor Relations Board. Neither the Company
nor any Company Subsidiary is a party to or bound by any collective bargaining agreement.



     Section 3.22. Risk Management Instruments. Except as disclosed in the Company Financials,
neither the Company nor any of the Company Subsidiaries is a party to or has agreed to enter into
an exchange traded or over-the-counter equity, interest rate, foreign exchange or other swap,
forward, future, option, cap, floor or collar or any other contract that is not included on the
balance sheet and is a derivatives contract (including various combinations thereof) (each, a
“Derivatives Contract”) or owns securities that (a) are referred to generically as “structured
notes,” “high risk mortgage derivatives,” “capped floating rate notes” or “capped floating rate
mortgage derivatives” or (b) are likely to have changes in value as a result of interest or
exchange rate changes that significantly exceed normal changes in value attributable to interest or
exchange rate changes, except for those Derivatives Contracts and other instruments legally
purchased or entered into in the ordinary course of business, consistent with safe and sound
banking principles and regulatory guidance. All of such Derivatives Contracts or other



35









 




instruments, are legal, valid and binding obligations of the Company or any of the Company
Subsidiaries enforceable in accordance with their terms (except as enforcement may be limited by
general principles of equity whether applied in a court of law or a court of equity and by
bankruptcy, insolvency and similar laws affecting creditors’ rights and remedies generally), and
are in full force and effect. The Company and the Company Subsidiaries have duly performed in all
respects all of their obligations thereunder to the extent that such obligations to perform have
accrued, and, to the Company’s Knowledge, there are no breaches, violations or defaults or
allegations or assertions of such by any party thereunder which would have or would reasonably be
expected to have a Material Adverse Effect on the Company.




     Section 3.23. Community Reinvestment Act, Anti-Money Laundering and Customer Information
Security. Neither the Company nor the Bank is aware of, has been advised of, or has reason to
believe that any facts or circumstances exist, which would cause the Bank (a) to be deemed not to
be in satisfactory compliance in any material respect with the Community Reinvestment Act, and the
regulations promulgated thereunder, or to be assigned a rating for Community Reinvestment Act
purposes by federal or state bank regulators of lower than “satisfactory,” or (b) to be deemed to be operating in violation in any respect of the federal
Bank Secrecy Act, as amended, and its implementing regulations (31 C.F.R. Part 103), the USA
Patriot Act of 2001, Public Law 107-56 (the “USA Patriot Act”), and the regulations promulgated
thereunder, any order issued with respect to anti-money laundering by the U.S. Department of the
Treasury’s Office of Foreign Assets Control, or any other applicable anti-money laundering statute,
rule or regulation, or (c) to be deemed not to be in satisfactory compliance in any respect with
the applicable privacy of customer information requirements contained in any federal and state
privacy laws and regulations, including, without limitation, in Title V of the Gramm-Leach-Bliley
Act of 1999 and regulations promulgated thereunder, as well as the provisions of the information
security program adopted by the Bank pursuant to 12 C.F.R. Part 364. The board of directors of the
Bank has adopted and implemented an anti-money laundering program that contains adequate and
appropriate customer identification certification procedures that has not been deemed ineffective
in any material respects by any Regulatory Authority and that meets the requirements in all
material respects of Section 352 of the USA Patriot Act and the regulations thereunder.



     Section 3.24. Credit Card Accounts. Neither the Company nor any Company Subsidiary
originates, maintains or administers credit card accounts.



     Section 3.25. Agreements with Regulatory Authorities. Neither the Company nor any Company
Subsidiary is subject to any presently pending cease-and-desist or other order or enforcement
action issued by or is a party to any written agreement, consent agreement or memorandum of
understanding with, or



36









 




is a party to any commitment letter or similar undertaking to, or is subject
to any order or directive by, or has been ordered to pay any civil money penalty by, or has been
since January 1, 2003, a recipient of any supervisory letter from, or since January 1, 2003, has
adopted any policies, procedures or board resolutions at the request or suggestion of any
Regulatory Authority or other governmental entity that currently restricts in any material respect
the conduct of its business or that in any manner relates to its capital adequacy, its ability to
pay dividends, its credit or risk management policies, its management or its business (each item in
this sentence, whether or not set forth in the Company Disclosure Schedule, a “Company Regulatory
Agreement”), nor has the Company or any Company Subsidiary been advised since December 31, 2002 by
any Regulatory Authority or other governmental entity that it is considering issuing, initiating,
ordering, or requesting any such Company Regulatory Agreement.




     Section 3.26. Regulatory Capital. The Company and the Bank meet or exceed all applicable
regulatory capital requirements, and the Bank is deemed “well capitalized” under such regulatory
requirements.



     Section 3.27. Regulatory Probability. As of the date hereof, the Company has no Knowledge
of any fact or circumstance that would reasonably be expected to result in the denial to the
Company or a Company Subsidiary of any Regulatory Approval or that any such Regulatory Approval will contain any condition or requirement that
would reasonably be expected to have a Material Adverse Effect.



     Section 3.28. Directors’ and Officers’ Insurance. The Company and the Bank currently
provide, and have for the preceding five years provided, customary directors’ and officers’
liability insurance coverage (“D&O Insurance”). The D&O Insurance policies are legal, valid,
binding and in full force and effect in accordance with their terms, and neither the Company nor
the Bank is in breach or default with respect to its obligations thereunder (including with respect
to payment of premiums). The D&O Insurance policies contain market terms (including with respect
to premiums, coverage and deductibles) that are typical of policies maintained by publicly traded
U.S. companies in the industry in which the Company operates.



     Section 3.29. Rights Plan. The Company has taken all actions necessary to render the Rights
issued pursuant to the terms of the Rights Agreement inapplicable to this Agreement and the
transactions contemplated hereby.



ARTICLE 4




Representations and Warranties of Buyer




     Buyer represents and warrants to the Company as of the date hereof and as of the Closing Date
that:



37









 





     Section 4.01. Organization. Buyer is a corporation duly organized, validly existing and in
good standing under the laws of Spain. Buyer 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. Buyer 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.



     Section 4.02. Authority. Buyer has requisite corporate power and authority to execute and
deliver this Agreement and the Registration Rights Agreement and the Voting Trust Agreement and to
complete the transactions contemplated hereby and thereby, subject to receipt of all necessary
approvals of Governmental Authorities. The execution and delivery of this Agreement and the
Registration Rights Agreement and the Voting Trust Agreement by Buyer and the completion by Buyer
of the transactions contemplated hereby have been duly and validly approved by the Board of
Directors or the appropriate committee thereof of Buyer and no other corporate proceedings on the
part of Buyer are necessary to complete the transactions contemplated hereby or thereby. Subject
to receipt of the Regulatory Approvals and compliance therewith, this Agreement has been duly and
validly executed and delivered by Buyer and constitutes, and the Registration Rights Agreement and
the Voting Trust Agreement, upon the execution and delivery thereof, by Buyer will be duly and validly executed and delivered by
Buyer and will constitute, a valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors’ rights and general equity principles).



     Section 4.03. Non-Contravention. None of (i) the execution and delivery of this Agreement,
the Registration Rights Agreement or the Voting Trust Agreement by Buyer, (ii) subject to receipt
of the Regulatory Approvals and the Company’s compliance with any conditions contained therein
(including the expiration of related waiting periods), the completion of the transactions
contemplated hereby or thereby, and (iii) compliance by Buyer with any of the terms or provisions
hereof and thereof, will (A) conflict with or result in a breach of any provision of the articles
of incorporation or bylaws of Buyer; (B) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Buyer or any of its properties or assets;
or (C) 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 upon any of the properties or assets of Buyer under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease,



38









 




agreement, commitment or other instrument or obligation to which Buyer is a party,
or by which its properties or assets may be subject except, in the case of clause (C), for such
violations, conflicts, breaches, defaults, terminations, accelerations and creations of Liens as
have not had, and would not reasonably be expected to have, a Material Adverse Effect or impair the
ability of Buyer to fulfill its obligations under this Agreement, the Voting Trust Agreement or the
Registration Rights Agreement.




     Section 4.04. Financing. Buyer has, or will have prior to the Closing, sufficient cash,
available lines of credit or other sources of immediately available funds to enable it to make
payment of the Purchase Price and any other amounts to be paid by it hereunder.



     Section 4.05. Purchase for Investment. Buyer is purchasing the Shares for investment for
its own account and not with a view to, or for sale in connection with, any distribution thereof.
Buyer (either alone or together with its advisors) has sufficient knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and risks of its
investment in the Shares and is capable of bearing the economic risks of such investment.



     Section 4.06. Finders’ Fees. Except for bankers, whose fees and expenses will be paid by
Buyer, there is no investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of Buyer who might be entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.



     Section 4.07. Ownership of the Company. As of the date hereof, Buyer does not beneficially
own any shares of Common Stock (other than in connection with its brokerage, investment advisory or
management, trust and fiduciary, arbitrage, trading and lending activities in the normal and usual
course of business).



     Section 4.08. Compliance with Applicable Law. (a) Buyer and its employees hold all
licenses, franchises, permits and authorizations necessary for the lawful conduct of the businesses
of Buyer under, and have complied in all respects with, applicable laws, statutes, orders, rules or
regulations of any federal, state or local governmental authority relating to them.



     (b) Buyer is in substantial compliance with all of the statutes, regulations or ordinances
which each Regulatory Authority applicable to it enforces. Since December 31, 2002, no Regulatory
Authority has threatened to revoke any license, franchise, permit or governmental authorization
which is material to Buyer.



39









 





     Section 4.09. Absence of Certain Changes. Since December 31, 2004, the business of Buyer
has been conducted in the ordinary course consistent with past practices and there has not been
(other than as disclosed in Buyer’s regulatory or SEC documents or in its financial statements, in
each case as of the date hereof) any event, occurrence, development or state of circumstances or
facts that has had or would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.



     Section 4.10. Regulatory Probability. As of the date hereof, Buyer has no Knowledge of any
fact or circumstance that would reasonably be expected to result in the denial to Buyer of any
Regulatory Approval or that any such Regulatory Approval will contain any condition or requirement
that would reasonably be expected to have a Buyer Material Adverse Effect.



ARTICLE 5




Covenants of the Company




     The Company agrees that:



     Section 5.01. Conduct of the Company. (a) From the date hereof until the Closing Date, the
Company will, and will cause each Company Subsidiary to, conduct its businesses in the ordinary
course consistent with past practice and to use its best reasonable efforts to preserve intact its
business organizations and relationships with third parties and to keep available the services of
its present officers and employees. Without limiting the generality of the foregoing, from
the date hereof until the Closing Date, the Company shall not, and shall not permit any
Company Subsidiary to, except as contemplated by this Agreement and the Independence Agreement:




     (i) adopt or propose any change in its certificate of incorporation or bylaws;




     (ii) merge or consolidate with any other Person or acquire a material amount of
assets from any other Person;




     (iii) sell, lease, license or otherwise dispose of any material assets or property
except (A) pursuant to existing contracts or commitments and (B) in the ordinary course
consistent with past practice;




     (iv) amend or modify, in any material respect, the Independence Agreement, waive any
material rights of the Company thereunder, or waive any conditions to the obligation of
the Company to consummate the transactions contemplated by the Independence Agreement;



40









 






     (v) issue any Voting Securities or sell any shares of Treasury Stock, other than
under the Company’s Direct Stock Purchase Plan, Non-Employee Director Compensation Plan,
Employee Stock Purchase Plan, Retirement Plan, Advisory Board compensation programs or
pursuant to Convertible Rights outstanding on the date hereof or pursuant to employee
stock options granted after the date hereof in the ordinary course of business consistent
with past practice; or




     (vi) agree or commit to do any of the foregoing.



     (b) From the date hereof until the Closing Date, the Company shall not, and shall not permit
any Company Subsidiary to:




     (i) take or agree or commit to take any action that would make any representation or
warranty of the Company hereunder inaccurate in any respect at, or as of any time prior
to, the Closing Date; or




     (ii) omit or agree or commit to omit to take any action necessary to prevent any such
representation or warranty from being inaccurate in any respect at any such time.



     Section 5.02. Access to Information; Reports. (a) From the date hereof until the Closing
Date, the Company will (i) give, and will cause each Subsidiary to give, Buyer, its counsel,
financial advisors, auditors and other authorized representatives full access to the offices,
properties, books and records of the Company and the Subsidiaries, (ii) furnish, and will cause
each Subsidiary to furnish, to Buyer, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other information relating to the Company or any Subsidiary as such Persons may reasonably request, and (iii) instruct the
employees, counsel and financial advisors of the Company or any Subsidiary to cooperate with Buyer
in its investigation of the Company or any Subsidiary. No investigation by Buyer or other
information received by Buyer shall operate as a waiver or otherwise affect any representation,
warranty or agreement given or made by the Company hereunder.



     (b) From the Closing Date until the earliest of (x) the date on which Buyer and its Affiliates
no longer own 10% or more of the Total Voting Power or (y) the date of termination of this
Agreement pursuant to Section 12.01, the Company agrees to provide to Buyer:




     (i) access to, upon reasonable prior notice to the Company, (A) the Company’s
auditors and the auditors of all the Company’s Subsidiaries, (B) any materials relating
to, or correspondence to or from, any agency that regulates, or proposes to regulate, any
of the activities,



41









 




operations or assets of the Company or any of its Subsidiaries, and (C)
the senior officers of the Company and any of its Subsidiaries;





     (ii) access, upon reasonable prior notice to the Company, by any agency that
regulates or audits, or proposes to regulate or audit, any of the activities, operations
or assets of Buyer or any of its Subsidiaries, to (A) all financial, operating and legal
records and information of the Company and its Subsidiaries, and (B) the senior officers
of the Company and any of Company Subsidiaries;




     (iii) as soon as practicable and, in any event, within ten Business Days (or such
earlier date that the information is available to the Company) after the end of each
month, the unaudited consolidated balance sheet and statement of shareholder equity of the
Company and its Subsidiaries as at the end of such month and the related unaudited
statement of income for such month and for the portion of the fiscal year then ended;




     (iv) as soon as practicable and, in any event, within 40 days (or such earlier date
that the information is available to the Company) after the end of each of the first three
fiscal quarters, (A) the unaudited consolidated balance sheet and statement of shareholder
equity of the Company and its Subsidiaries as at the end of such quarter and the related
unaudited statement of income and statement of cash flows and changes in financial
condition for such quarter and for the portion of the fiscal year then ended, and (B) the
Company’s quarterly operating budget, projections and business plan for the coming
quarter;




     (v) as soon as practicable and, in any event, within 75 days (or such earlier date
that the information is available to the Company) after the end of each fiscal year, (A)
the audited consolidated balance sheet and statement of shareholder equity of the Company and its Subsidiaries as at the end of
such fiscal year and the related audited statement of income and statement of cash flows
and changes in financial condition for such fiscal year, in each case prepared in
accordance with generally accepted accounting principles, consistently applied and
certified by the Company’s accountant or another firm of independent public accountants of
internationally recognized standing, together with a comparison of the figures in such
financial statements with the figures for the previous fiscal year and the figures in the
Company’s annual operating budget, (B) any management letters or other correspondence from
such accountants and (C) the Company’s annual operating budget, projections, and business
plan for the coming fiscal year; and



42









 






     (vi) promptly following the preparation thereof, a copy of any revisions to the
annual operating budget delivered pursuant to clause (iv).



     Section 5.03. Notices of Certain Events. The Company shall promptly notify Buyer of:




     (a) any notice or other communication from any Person alleging that the consent of
such Person is or may be required in connection with the transactions contemplated by this
Agreement;




     (b) any notice or other communication from any Governmental Authority in connection
with the transactions contemplated by this Agreement or the Independence Agreement;




     (c) any actions, suits, claims, investigations or proceedings commenced or, to its
Knowledge threatened against, relating to or involving or otherwise affecting the Company
or any Subsidiary that, if pending on the date of this Agreement, would have been required
to have been disclosed pursuant to Section 3.13 or that relate to the consummation of the
transactions contemplated by this Agreement or the Independence Agreement;




     (d) any inaccuracy of any representation or warranty contained in this Agreement at
any time during the term hereof that would reasonably be expected to cause any of the
conditions set forth in Section 10.01 or Section 10.02 not to be satisfied; and




     (e) any failure of the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder;


provided that the delivery of any notice pursuant to this Section 5.03 shall not limit or otherwise
affect the remedies available hereunder to the party receiving that notice; and provided further
that any noncompliance with the foregoing provisions of this Section 5.03 shall not constitute failure of a condition set forth in Section
10.01 or Section 10.02 or give rise to any right of termination under Article 12 unless the
underlying change or event shall independently constitute such a failure or give rise to such a
right.




     Section 5.04. Certain Change in Control Provisions. Prior to Closing the Company shall take
such actions as may be required so that the Buyer Acquisition Transactions (other than those
contemplated in Sections 8.06 through 8.08 and Section 8.10) will not constitute a “change of
control” or “change in control” under any of the employment agreements or employee severance
protection agreements (including without limitation all employee letter agreements or other



43









 




binding agreements) or under any of the Employee Plans. The Company shall have the right to determine the
manner and method for achieving the result required by this Section 5.04; provided that such manner
and method must be reasonably acceptable to Buyer.




     Section 5.05. Takeover Laws. (a) In addition to the actions to be taken by the Company
pursuant to Section 5.05(b)-(c) below in respect of the Pennsylvania Law, prior to the Closing Date
the Company shall take all action required to be taken by it in order to exempt this Agreement, and
all acquisitions of Voting Securities by Buyer contemplated or permitted by this Agreement,
including those acquisitions contemplated or permitted under Sections 2.01, 2.03, 2.04, 8.05, 8.06,
8.07, 8.08 and 8.10 and any Required Purchases, and any Transfers of Voting Securities by Buyer
that are contemplated or permitted hereunder including those permitted under Section 8.02 (but
excluding any acquisitions or Transfers of Voting Securities by any Transferee after the initial
acquisition of Voting Securities from Buyer) (collectively, the “Buyer Acquisition Transactions”),
from the requirements of any “moratorium,” “control share,” “fair price,” “shareholder approval of
transactions with interested Persons,” “affiliate transaction,” “business combination,” or other
antitakeover laws and regulations of any jurisdiction (collectively, the “Takeover Laws”).



     (b) The Company shall use commercially reasonable efforts to cause the Buyer Acquisition
Transactions to be exempt from or not subject to the Pennsylvania Law; provided that if the Company
shall not have otherwise achieved such exemption or inapplicability prior to December 31, 2006, the
Company shall (after the Closing): (i) take action by the affirmative vote of at least 80% of the
members of the Board to recommend to the shareholders of the Company that the Charter be amended to
provide that the Pennsylvania Law be inapplicable to the Company (the “Opt Out Proposal”), (ii)
call and hold a meeting of the Company’s shareholders for the purpose of approving the Opt Out
Proposal, such meeting to take place no later than June 30, 2007, (iii) actively solicit proxies in
favor of the Opt Out Proposal, and (iv) if the Opt Out Proposal is approved by the vote of
shareholders of the Company entitled to cast at least a majority of the votes that all shareholders
of the Company are entitled to cast on the proposal, cause to be filed, within one business day of
such approval, an amendment to the Charter reflecting the amendment so approved.



     (c) After Closing, the Company shall not take any action, including by way of
recapitalization, redemption or repurchase of Common Stock or otherwise that will require Buyer to
comply with the requirements of the Pennsylvania Law.



     (d) Nothing in this Section 5.05 shall require a shareholder vote of the Company prior to
Closing.



44









 





     Section 5.06. Other Defensive Measures. (a) Prior to the Closing Date, the Company shall
take all actions necessary so that the provisions of Articles 8, 11, 15, 16 and 17 of the Charter
and Sections 4.03, 4.04, 10.01 and 11.01 of the Bylaws are rendered inapplicable to, or otherwise
consistent with, and unable to prevent Buyer from exercising its rights under this Agreement or
making it more difficult to obtain the approval of the Board or the shareholders of the Company
than it would be in the absence of such provision, and the Buyer Acquisition Transactions so long
as the Buyer Acquisition Transactions are consummated in accordance with the terms of this
Agreement. For the avoidance of doubt, the Company shall not be required to take any action that
would render such provisions of the Charter and Bylaws inapplicable to any other transaction
effected by Buyer or to any action that might be taken by any Transferee of any of the Shares.



     (b) To the extent not taken prior to the date hereof, prior to the Closing Date, the Company
shall take all actions necessary to render the rights issued pursuant to the terms of the Rights
Agreement inapplicable to this Agreement and the transactions contemplated hereby, including the
Buyer Acquisition Transactions so long as such transactions are consummated in accordance with this
Agreement.



     (c) Prior to the Closing Date, the Company shall take all actions necessary so that any other
Defensive Measures are rendered inapplicable to, or are otherwise consistent with, and do not
prevent Buyer from exercising its rights under, this Agreement and the transactions contemplated
hereby, including the Buyer Acquisition Transactions, so long as such transactions are consummated
in accordance with this Agreement.



     (d) Provided that Buyer has complied with its obligations under Article 8, the Company shall
not at any time during the term of this Agreement rescind or otherwise render ineffective any of
the actions required to be taken by Sections 5.04, 5.05 and 5.06, nor will it impose any additional
Defensive Measures applicable to the Buyer Acquisition Transactions.



     (e) From the Closing Date until the termination of this Agreement in accordance with Section
12.01, the Company shall not take any Defense Removal Action for the benefit of any Third Party
except in connection with a 100% Acquisition Proposal providing for consideration that consists
only of cash and/or capital stock that is listed and traded on the NYSE, quoted on the NASDAQ
National Market System or on the principal stock exchange of any country that is a member of the Organization for Economic Cooperation and Development, including American
Depositary Receipts or other similar instruments representing such capital stock (“Permitted
Consideration”) that the Company is permitted to accept under Article 8 and shall not take any
Defense Removal Action for the



45









 




benefit of a Third Party in a manner that is more favorable to such
Third Party than to Buyer.




     (f) Nothing in this Section 5.06 shall require a shareholder vote of the Company prior to
Closing.



     Section 5.07. Regulatory Matters. Notwithstanding any other provision in this Agreement to
the contrary, the Company shall (a) promptly notify Buyer of any deficiencies at the Company or any
depository institution Subsidiary of the Company that could be expected to affect adversely Buyer’s
status as a U.S. financial holding company (“FHC status”), (b) take all actions that Buyer may
reasonably request and cooperate with Buyer to cause any such deficiencies to be promptly remedied,
and (c) not intentionally engage in any transaction that would be expected to affect adversely
Buyer’s FHC status. The Company shall comply, and cause any Subsidiary to comply, with all
conditions imposed by any Regulatory Authority (including conditions relating to the divestiture of
impermissible investments) in any order approving the transaction contemplated by this Agreement
and any transaction in which the Company acquires a depositary institution so long as compliance
with such conditions would not reasonably be expected to have a Material Adverse Effect or be
otherwise unreasonably burdensome.



     Section 5.08. Certain Payments. In the event the Company shall receive any Termination Fee
under the terms of, and as defined in the Independence Agreement, the Company shall immediately pay
50% of the amount received to Buyer by wire transfer of immediately available funds to such account
of Buyer as Buyer may designate.



     Section 5.09. FIRPTA. In connection with any disposition by Buyer of any Common Stock, upon
the written request of Buyer the Company shall (a) in accordance with Treasury Regulation Section
1.897-2, determine whether it is or has been a “U.S. real property holding corporation” (“USRPHC”)
within the meaning of Section 897 of the Code during the relevant period, and (b) if the Company so
determines that it is not and has not been a USRPHC during such period, deliver to Buyer a
statement to such effect in accordance with Treasury Regulation Section 1.897-2(g)(1).



ARTICLE 6




Covenants of Buyer




     Buyer agrees that:



     Section 6.01. Confidentiality. Prior to the Closing Date and after any termination of this
Agreement, Buyer and its Affiliates will hold, and will use



46









 




their best efforts to cause their
respective officers, directors, employees, accountants, counsel, consultants, advisors and agents
to hold, in confidence, unless compelled to disclose by judicial or administrative process or by
other requirements of law, all confidential documents and information concerning the Company or any
Subsidiary furnished to Buyer or its Affiliates in connection with the transactions contemplated by
this Agreement, except to the extent that such information can be shown to have been (a) previously
known on a nonconfidential basis by Buyer, (b) in the public domain through no fault of Buyer or
(c) later lawfully acquired by Buyer from sources other than the Company or any Subsidiary;
provided that Buyer may disclose such information to its officers, directors, employees,
accountants, counsel, consultants, advisors and agents in connection with the transactions
contemplated by this Agreement, so long as such Persons are informed by Buyer of the confidential
nature of such information and are directed by Buyer to treat such information confidentially. The
obligation of Buyer and its Affiliates to hold any such information in confidence shall be
satisfied if they exercise the same care with respect to such information as they would take to
preserve the confidentiality of their own similar information.




     Section 6.02. Right of First Purchase. (a) The Company recognizes that Buyer and its
Affiliates are currently engaged and may in the future engage in the same or similar activities or
lines of business as the Company’s and its Subsidiaries’ business, which activities or lines of
business may compete with the Company’s and its Subsidiaries’ business, and that Buyer and its
Affiliates will continue in such businesses following the date hereof. Accordingly, subject only
to Section 6.02(b) and the provisions of any employment agreement, consulting agreement or other
written agreement with the Company, Buyer, its Affiliates, and any agent, representative, officer,
director, employee of Buyer or any of its Affiliates, may engage in, or possess an interest in,
other business ventures of every nature and description, independently or with others, whether or
not such other enterprises shall be in competition with or operating the same or similar businesses
as the Company or any of its Subsidiaries, and no such Person shall have any obligation or duty to
bring business opportunities to the attention of the Company or any of its Subsidiaries, other than
those business opportunities that were offered to or intended to be directed towards the Company or
its Subsidiaries or were made aware or available to such Person solely as a result of such Person’s
position with, or during the course of the performance of such Person’s duties to, the Company or
any of its Subsidiaries.



     (b From the date hereof until the earliest of (i) the first date upon which Buyer and its
Affiliates no longer Beneficially Own Voting Securities representing at least 15% of the Total Voting Power, (ii) the date of consummation by Buyer of
any 100% Acquisition Proposal permitted under the terms of this Agreement and (iii) any termination
of this Agreement pursuant to Section 12.01 (the “First Purchase Period”), Buyer agrees that it
will not and will not permit any of its Affiliates to acquire, directly or indirectly, for its own



47









 




account, solely or jointly with others, control of any Competing Business without first offering to
the Company the right to acquire such Competing Business in the manner provided in Section 6.02(c)
below.




     (c) If, at any time during the First Purchase Period, Buyer desires to acquire control of a
Competing Business, it shall deliver a written notice to the Company (the “First Purchase Notice”)
identifying the Competing Business and setting forth, to the extent then known by Buyer, the
material terms upon which such acquisition is proposed to be made. Not later than ten Business
Days after receipt of a First Purchase Notice, the Company shall deliver to Buyer a written
response (a “Purchase Response Notice”) indicating whether the Company desires to make the proposed
acquisition. If the Company expresses an interest in making the proposed acquisition, Buyer will
use all commercially reasonable efforts (which shall not include the expenditure of monies or the
incurrence of liabilities except to the extent reimbursed or guaranteed by the Company) to
facilitate the acquisition by the Company. If (i) the Company rejects the acquisition opportunity
in the Purchase Response Notice, (ii) the Company indicates in the Purchase Response Notice an
interest in making the proposed acquisition but fails to enter into a definitive agreement with
respect to the proposed acquisition within 60 days after delivery of the Purchase Response Notice
or (iii) the Company fails to deliver a Purchase Response Notice within the ten Business Day period
specified above, then the Company shall be deemed to have rejected the opportunity to acquire the
Competing Business and Buyer shall thereafter be free to acquire control of the Competing Business
for its own account.



     Section 6.03. Voting Trust Agreement. At or prior to the Closing, Buyer shall enter into
the Voting Trust Agreement with a financial institution with no material relationship with Buyer
(to act in the capacity of Trustee) selected by Buyer and approved by the Company (the “Voting
Trustee”), which approval shall not be unreasonably withheld or delayed.



     Section 6.04. Tier 1 Capital; Debt Financing. To the extent that the aggregate purchase
price for the Shares payable at the Closing is less than the purchase price in the Independence
Transaction, Buyer shall purchase, upon the request of the Company, non-voting preferred
shares/Tier 1 qualifying instruments of the Company (the “Capital Instruments”) and will provide
debt financing to the Company, in each case, on market terms and pricing in effect at the date of
issuance, the proceeds of which will be sufficient to enable the Company to pay such difference;
provided that Buyer shall not be obligated to purchase Capital Instruments for an aggregate
purchase price exceeding $600 million and Buyer shall not be obligated under this Section 6.04 for any amount in excess of
$1.2 billion.



48









 





ARTICLE 7




Covenants of Buyer and the Company




     Buyer and the Company agree that:



     Section 7.01. Reasonable Best Efforts; Further Assurances. Subject to the terms and
conditions of this Agreement, Buyer and the Company will use their reasonable best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable
under Applicable Laws to consummate the transactions contemplated by this Agreement, including,
without limitation, all of the Buyer Acquisition Transactions, including (i) preparing and filing
as promptly as practicable with any Governmental Authority or other third party all documentation
to effect all necessary filings, notices, petitions, statements, registrations, submissions of
information, applications and other documents; (ii) obtaining and maintaining all approvals,
consents, registrations, permits, authorizations and other confirmations required to be obtained
from any Governmental Authority or other third party that are necessary, proper or advisable to
consummate the transactions contemplated by this Agreement, including, without limitation, all of
the Buyer Acquisition Transactions; and (iii) in the case of the Company, using its best efforts to
cause the transactions contemplated by the Independence Agreement to be consummated pursuant to the
terms thereof. The Company and Buyer agree, and the Company agrees to cause each Subsidiary, to
execute and deliver such other documents, certificates, agreements and other writings and to take
such other actions as may be necessary or desirable in order to consummate or implement
expeditiously the transactions contemplated by this Agreement, including, without limitation, all
of the Buyer Acquisition Transactions so long as such transactions are consummated in accordance
with this Agreement.



     Section 7.02. Certain Filings. The Company and Buyer shall cooperate with one another (a)
in determining whether any action by or in respect of, or filing with, any Governmental Authority
is required, or any actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the transactions
contemplated by this Agreement, including, without limitation, the Regulatory Approvals and (b) in
taking such actions or making any such filings, furnishing information required in connection
therewith and seeking timely to obtain any such actions, consents, approvals or waivers.



     Section 7.03. Public Announcements. The parties agree to consult with each other before
issuing any press release or making any public statement with respect to this Agreement or the
transactions contemplated hereby or by the Independence Agreement and, except for any press
releases and public statements the making of which may be required by Applicable Law or any listing agreement



49









 




with any national securities exchange, will not issue any such press release or make any such public
statement prior to such consultation.




     Section 7.04. Trademarks. Effective as of the Closing, Buyer shall grant the Company a
royalty-free, non-exclusive, non-transferable license to use the marks set forth on Schedule 7.04
of the Buyer Disclosure Schedule (collectively or individually as the context requires, the “Buyer
Trademarks”) solely in connection with the conduct of the business of the Company as conducted as
of the Closing Date (or as otherwise permitted by Buyer in writing) within the Designated Area
until the earlier to occur of any of the following: (a) the fifth anniversary of the Closing Date,
(b) the date on which Buyer and its Affiliates own less than 15% of the Voting Securities, (c) any
breach of any obligation or covenants of the Company under the Trademark License Agreement or this
Agreement, (d) any termination of this Agreement pursuant to Section 12.01 and (e) any damages are
incurred or reasonably expected to be incurred or suffered by Buyer and its Affiliates in
connection with the Trademark License Agreement or the Company’s use of the Buyer Trademarks. The
Company agrees that: (i) the Buyer Trademarks may be used only in the form and in the manner
stipulated by Buyer and the Company shall conform to and observe such standards as Buyer from time
to time prescribes, (ii) all services performed under the Buyer Trademarks and all goods to which
the Buyer Trademarks are applied shall at all times be in compliance with applicable laws, and such
services performed or goods supplied shall in each case be effected in a manner so as not to bring
discredit upon the Buyer Trademarks, (iii) any use of the Buyer Trademarks by the Company shall
inure to the benefit of Buyer, and (iv) the Company will promptly notify Buyer of any action, suit
or proceeding asserted or threatened against the Company or its Affiliates relating to the Buyer
Trademarks, use its best efforts to defend such action, suit or proceeding and permit Buyer to
either (x) control the defense of such action, suit or proceeding or (y) participate in such
defense. In addition, the Company agrees not to do or permit any act which may directly or
indirectly impair or prejudice Buyer’s right, title or interest in and to the Buyer Trademarks or
be detrimental to the reputation and goodwill of Buyer, including any act which may assist or give
rise to any application to remove or de-register any of the Buyer Trademarks. These and other
terms and conditions shall be set forth in more detail in a Trademark License Agreement to be
entered into between the Company and Buyer on or before the Closing Date (the “Trademark License
Agreement”).



     Section 7.05. Exchange of Management. Each of Buyer and the Company agree that from the
Closing Date until the earlier of (a) termination of this
Agreement pursuant to Section 12.01, (b) the date on which
Buyer and its Affiliates own less than 10% of the Total Voting Power,
and (c) a Change in Control of the Company, it will appoint at least one of the other party’s employees
to at least one position with direct reporting to the department head within each of its financial
control department, internal audit department and risk management department; provided that the
individual or individuals will not, in any case, be appointed to



50









 




the most senior position in any such department and will be reasonably acceptable to such
appointing party.




     Section 7.06. Public Subsidiary Stock. To the extent requested by either Buyer or the
Company in connection with any Acquisition Proposal by Buyer that is approved by the Board, Buyer
and the Company will negotiate in good faith to agree upon a structure for such Acquisition
Proposal that will result in Persons other than Buyer holding equity securities representing
approximately 10% of the Voting Power of the Company after giving effect to such Acquisition
Proposal and/or an economic interest in the Company of approximately 10%; provided that in no event
shall this Section 7.06 qualify or modify the provisions of Article 8.



ARTICLE 8




Investor Related Covenants




     Section 8.01. Standstill. Buyer agrees that, except as contemplated by Section 8.02, from
the date hereof until the earlier of (a) the five year anniversary of the Closing Date, (b) the
date on which the Company either accepts or enters into an agreement, an agreement in principle or
other similar document with respect to an Acquisition Proposal made by any Person other than Buyer
(or announces an intention to do so), (c) the date on which the Company rejects or fails to accept
a 100% Acquisition Proposal from Buyer that Buyer is permitted to make under the terms of this
Article 8 and that the Company is required to accept under the terms of this Agreement, or (d) the
date of any breach by the Company or any of its Affiliates of any obligation under this Agreement
as set forth in Sections 8.03 through 8.13 (the earliest of such dates the “Sale Restriction
Termination Date”), Buyer shall not, and shall not permit its Affiliates to, acting either alone or
in concert with any other Person or Group, directly or indirectly (collectively, the “Restricted
Buyer Persons”) take any of the actions listed in Section 8.01(d) below. Buyer agrees that, except
as contemplated by the Buyer Acquisition Transactions, from the date hereof until the earlier of
(i) the five year anniversary of the Closing Date, (ii) the date on which the Company consummates
an Acquisition Proposal made by a Person or Group other than Buyer, (iii) the date on which the
Company rejects or fails to accept a 100% Acquisition Proposal from Buyer that Buyer is permitted
to make under the terms of this Article 8 and that the Company is required to accept under the
terms of this Agreement and (iv) the date of any breach by the Company or any of its Affiliates of
any obligation under this Agreement as set forth in Sections 8.03 through 8.13 (the earliest of
such dates, the “Standstill Termination Date”), the Restricted Buyer Persons shall not take any of
the actions listed in Sections 8.01(a), (b) or (c) below; provided that the Restricted Buyer
Persons shall be bound by the provisions of Section 8.09 after the Standstill Termination Date.
During the periods and to the extent set forth above, the Restricted Buyer Persons shall not:



51









 





     (a) acquire or offer, seek, propose or agree to acquire, by any means whatsoever, including by
means of any purchase or exchange of shares or any business combination, Beneficial Ownership of
any Voting Securities or any assets of the Company or any Subsidiary;


     (b) make any Acquisition Proposal;




     (c) commence, engage in, encourage, facilitate or otherwise participate in any Proxy
Solicitation, agree or announce its intention to vote with any Person engaging in any such
solicitation, or seek to influence, advise or direct the vote of any holder of Voting Securities in
connection with any such solicitation; or



     (d) sell, pledge, encumber or otherwise transfer or agree to transfer (a “Transfer”), directly
or indirectly, any Voting Securities Beneficially Owned by Buyer or its Affiliates or any Voting
Securities held by the Voting Trust except (i) pursuant to any merger, consolidation,
reorganization, recapitalization, tender offer, exchange offer, or other similar transaction
approved by a majority of Unaffiliated Directors, or a self-tender of the Company, (ii) to an
Affiliate of Buyer who agrees in writing to be bound by the terms of this Agreement and (iii)
pursuant to a bona fide pledge to a financial institution.


Notwithstanding anything in the foregoing to the contrary, it is agreed that the restrictions set
forth in this Section 8.01 will not prevent Buyer or its Affiliates or its representatives from
engaging in brokerage, investment advisory or management, trust and fiduciary, arbitrage, trading
and lending activities in the normal and usual course of business.




     Section 8.02. Transfer Restrictions. (a) Buyer agrees that, at any time following the Sale
Restriction Termination Date, it will not, and will not permit its Affiliates to Transfer, or agree
to Transfer, directly or indirectly, any shares of Voting Securities, except:




     (i) to an Affiliate of Buyer who agrees in writing to be bound by the terms of this
Agreement;




     (ii) pursuant to a distribution to the public, registered under the Securities Act,
in which Buyer and its Affiliates use their commercially reasonable efforts to effect a
distribution of such shares of Common Stock in a manner that would not reasonably be
expected to cause a material disruption in the market for such shares of Common Stock and
to minimize the possibility that any Person who purchases such shares of Common Stock will
become the holder of 5% or more of the outstanding shares of Common Stock as a result of
such purchase;



52









 






     (iii) in a sale in the public market, pursuant to Rule 144 of the General Rules and
Regulations of the Securities Act or otherwise in compliance with applicable securities
laws, in which sale Buyer and its Affiliates use their commercially reasonable efforts to effect such sale or transfer
in a manner that would not reasonably be expected to cause a material disruption in the
market for such shares of Common Stock and to minimize the possibility that any Person who
purchases such shares of Common Stock will become the holder of 5% or more of the
outstanding shares of Common Stock as a result of such purchase;




     (iv) subject to compliance with the Company’s right of first offer set forth in
Section 8.02(b) below and, if applicable, to the Company’s right of last look set forth in
Section 8.02(c), to any Third Party that is not a Substantial Competitor and is not listed
on the prohibited purchaser list provided pursuant to Section 8.07(f);




     (v) in connection with a merger, consolidation, reorganization, recapitalization,
tender offer, exchange offer, other similar transaction approved by a majority of
Unaffiliated Directors, or a self-tender of the Company;


     (vi) as a bona fide pledge to a financial institution; or





     (vii) with the prior written consent of the Company.



     (b) (i) If, at any time following the Sale Restriction Termination Date, Buyer (or any of its
Affiliates) desires to Transfer any shares of Common Stock to any Third Party pursuant to the
provisions of Section 8.02(a)(iv), Buyer shall give notice (an “Offer Notice”) to the Company that
Buyer desires to make such a Transfer and that sets forth the number of shares of Common Stock
proposed to be Transferred by Buyer (the “Offered Securities”), the cash price per share that Buyer
proposes to be paid for such Offered Securities (the “Offer Price”) and any other material terms
sought by Buyer.




     (ii) The giving of an Offer Notice to the Company shall constitute an offer (the
“Offer”) by Buyer to Transfer the Offered Securities to the Company for cash at the Offer
Price and on the other terms set forth in the Offer Notice. The Company shall have a
30-day period (the “Offer Period”) in which to accept such Offer as to all of the Offered
Securities by giving a notice of acceptance to Buyer prior to the expiration of such Offer
Period. If the Company fails to notify Buyer prior to the expiration of the Offer Period,
it shall be deemed to have declined such Offer.



53









 






     (iii) If the Company elects to purchase the Offered Securities, the Company shall
purchase and pay, in immediately available funds by wire transfer to an account of Buyer
designated by Buyer, by notice to the Company, for the Offered Securities within 20
Business Days after the date on which all such Offered Securities have been accepted;
provided that, if the Transfer of such Offered Securities is subject to any prior regulatory approval, subject to Section 8.02(b)(iv)(C), the time period during which
such Transfer may be consummated shall be extended until the expiration of five Business
Days after all such approvals shall have been received, but in no event shall such period
be extended for more than an additional 120 days.




     (iv) Upon the earlier to occur of (A) full rejection of the Offer by the Company,
(B) the expiration of the Offer Period without the Company electing to purchase all of the
Offered Securities and (C) the failure to obtain any required consent or regulatory
approval for the purchase of all of the Offered Securities by the Company within 150 days
of full acceptance of the Offer, Buyer shall have a 60-day period during which to effect a
Transfer of any or all of the Offered Securities on substantially the same or more
favorable (as to Buyer) terms and conditions as were set forth in the Offer Notice at a
price not less than the Offer Price; provided that, if the Transfer is subject to
regulatory approval, such 60-day period shall be extended until the expiration of five
Business Days after all such approvals shall have been received.



     Buyer may Transfer Offered Securities in accordance with this Section 8.02(b) for
consideration other than cash only if Buyer has first obtained and delivered to the Company a
representation in writing that the fair market value of the non-cash consideration that Buyer
proposes to accept as consideration for such Offered Securities, together with any cash
consideration, is at least equal to 100% of the Offer Price.



     (c) If at any time following the Sale Restriction Termination Date, Buyer desires to Transfer
any shares of Common Stock to any Third Party pursuant to the provisions of Section 8.02(a)(iv) and
the Buyer knows or has reason to know that after giving effect to such sale the Transferee of such
shares will have Beneficial Ownership of more than 5% of the Voting Securities of the Company, then
after complying with Buyer’s obligations under Section 8.02(b) and after receiving an offer by a
Third Party to purchase the Offered Securities with respect to which the provisions of Section
8.02(b) were applied but before consummating any sale of such Offered Securities to such Third
Party, Buyer will give the Company a second right to purchase the Offered Securities in accordance
with the following procedures: After obtaining the Third Party offer, Buyer shall give the Company
written notice of all of the material terms of such offer and shall provide the Company with a last
opportunity to buy such Offered Securities at the same price and on the same terms set forth in
Buyer’s notice. The Company shall deliver to Buyer a response notice within ten days of receipt of
Buyer’s notice indicating whether the Company desires to purchase all of the Offered Securities



54









 




at such price and on such terms and conditions. If the Company delivers a notice indicating a desire
to purchase all of the Offered Securities within the ten day period, then Buyer shall sell such
Offered Securities to the Company and the Company shall purchase such Offered Securities from Buyer
at such price and on such terms. The closing of this sale and purchase shall take place within 20 Business Days after receipt by Buyer of the Company’s response notice.
If the Company rejects the opportunity to buy all of the Offered Securities or fails to deliver a
response notice to Buyer within the ten day period specified above, then Buyer shall be permitted
to consummate the proposed sale with such Third Party on the terms set forth in Buyer’s notice to
the Company or on any other terms that are less favorable to the Third Party than those set forth
in such notice.




     Section 8.03. Pre-Closing Period. During the Pre-Closing Period the Company shall not, and
shall not permit any of its Subsidiaries or any of its or their officers, directors, employees,
investment bankers, attorneys, accountants, consultants or other agents or advisors (such
Subsidiaries, officers, directors, employees, investment bankers, attorneys, accountants,
consultants, agents and advisors, collectively, the “Company Representatives”) to, directly or
indirectly:




     (i) solicit, initiate, or take any action to facilitate or encourage the submission
of any Acquisition Proposal by a Third Party or otherwise initiate any process that is
intended to, or is reasonably likely to lead to the making of an Acquisition Proposal by
any Third Party (collectively, “Solicitation Actions”),




     (ii) enter into or participate in any discussion or negotiations with, furnish any
information relating to the Company or any of its Subsidiaries or afford any access to the
business, properties, assets, books or records of the Company or any of its Subsidiaries
to, otherwise cooperate in any way with, or knowingly assist, participate in, facilitate
or encourage in any manner any effort by any Third Party that is seeking to make, or has
made, an Acquisition Proposal (collectively, “Solicitation Response Actions”),




     (iii) grant to any Third Party any waiver under or any release or any standstill or
similar agreement or any Defensive Measure or redeem, modify, repeal or otherwise diminish
any Defensive Measure for the benefit of any Third Party (collectively, “Defense Removal
Actions”),



55









 






     (iv) enter into any agreement, agreement in principle, letter of intent, term sheet
or other similar instrument relating to any Acquisition Proposal by any Third Party
(collectively, “Agreement Actions”), or




     (v) agree or commit to take any of the actions described in this Section 8.03.



     Section 8.04. General Restrictions. (a) Notwithstanding anything to the contrary contained
herein and in addition to any other restrictions set forth herein, until the earlier of (i) the
Standstill Termination Date or (ii) such time as Buyer and its Affiliates Beneficially Own less
than 19.8% of the outstanding shares of Common Stock, the Company will not and will not permit any
Company Representative to, directly or indirectly, take any of the actions described in clauses (i)
through (v) of Section 8.03 in respect of any Acquisition Proposal from a Third Party other than a
100% Acquisition Proposal payable in Permitted Consideration and that is approved by the Board
after compliance with the terms of Article 8, as applicable. For purposes of the calculations of
the percentage of ownership by Buyer and its Affiliates of outstanding shares of Common Stock
effected pursuant to this Section 8.04(a), shares of Common Stock issued at any time after Closing,
to any Person other than Buyer or any of its Affiliates, shall be excluded from such calculations,
unless Buyer is entitled, pursuant to Section 2.04, to purchase additional securities of the
Company in connection with such issuance, and, in each such case, until Buyer shall have had the
opportunity to exercise its rights to purchase such additional securities pursuant to Section 2.04
and, in the event of such exercise, shall have completed such purchase.



     (b) Notwithstanding anything to the contrary contained herein, if the Company accepts any
Acquisition Proposal from Buyer where the consideration consists, in whole or in part, of
securities of Buyer, (i) the Company will be granted the opportunity, prior to signing a definitive
agreement with Buyer, to perform a customary due diligence review of Buyer, (ii) the definitive
agreement will provide that the Company will have customary access to books, records and management
of Buyer during the period between the signing of the definitive agreement and closing, (iii) the
definitive agreement would include representations and warranties relating to Buyer that are
customary for public company merger or acquisition agreements and customary conditions including a
material adverse change condition.



     (c) If, after the application of all of the procedures outlined in Sections 8.03 through 8.08
and compliance by the Company and the Board with the terms thereof, the Company accepts a
Third-Party Acquisition Proposal that it has the right to accept hereunder, Buyer and its
Affiliates will vote all of their Voting Securities for and against the Third-Party Acquisition
Proposal in the same proportions as votes are cast by shareholders other than Buyer with respect to
such Third-Party Acquisition Proposal.



56









 





     (d) For purposes of this Article 8 (including for purposes of comparing Acquisition Proposals
and determining whether Buyer has matched another Acquisition Proposal) if any Acquisition Proposal
is payable, in whole or in part in Permitted Consideration other than cash (the “Stock Currency”),
the Stock Currency in such Acquisition Proposal will be valued at the arithmetic average of the
weighted, by reference to daily trading volumes, average closing prices of such Stock Currency
during the 20 trading day period ending prior to the date of the submission of such Acquisition
Proposal to the Company.



     Section 8.05. First Standstill Period. During the First Standstill Period the following
provisions shall apply:



     (a) The Company shall not, and shall not permit any Company Representative to, take any
Solicitation Action, Solicitation Response Action, Defense Removal Action or Agreement Action
except as permitted by Section 8.05(c).



     (b) The Company may, but shall have no obligation to, invite Buyer to make an Acquisition
Proposal and if so invited then, notwithstanding Section 8.01, Buyer may, but shall have no
obligation to, submit an Acquisition Proposal. The Company may specify in its invitation any terms
or conditions which Buyer would have to satisfy if it were to make an Acquisition Proposal. Both
the Company and Buyer shall have the right, at any time to terminate, for any reason or no reason,
any negotiations or other discussions that result from the Company’s invitation. Regardless of
whether the Company issues an invitation or whether Buyer makes an Acquisition Proposal, the
Company shall continue to be bound by its obligations under Section 8.05(a).



     (c) If the Company receives an Acquisition Proposal from a Third Party and the Company has not
breached its obligations under Section 8.05(a) (any such Acquisition Proposal being referred to
herein as an “Unsolicited Acquisition Proposal”), then, subject to compliance with Section 8.04 and
Section 8.08 and after having negotiated in good faith with the Buyer for a period of at least 30
days on an exclusive basis to determine whether it is possible to reach a mutually acceptable
definitive agreement relating to a 100% Acquisition Proposal by Buyer, then and only then, the
Company may, and may permit the Company Persons to take Solicitation Response Actions, Defense
Removal Actions and Agreement Actions in connection with that Unsolicited Acquisition Proposal;
provided that if the Company takes any Defense Removal Actions or Agreement Actions with respect to
any Unsolicited Acquisition Proposal, the Sale Restriction Termination Date shall occur
immediately. The Company (i) may reject all Acquisition Proposals made by Third Parties and Buyer
but (ii) may not accept an Unsolicited Acquisition Proposal unless such Unsolicited Acquisition
Proposal is higher than Buyer’s best offer after full compliance with Section 8.08.



57









 





     (d) If the Company accepts an Acquisition Proposal from Buyer whether as a result of the
invitation process in Section 8.05(b) or otherwise, (i) the Company shall sign an Exclusive
Agreement with Buyer; (ii) the Board will take all action required by it under the Charter, the
Bylaws and Applicable Law to approve such Exclusive Agreement and will vote to approve Buyer’s
Acquisition Proposal; (iii) the Board will convene a meeting of the Company’s shareholders and
submit Buyer’s Acquisition Proposal to the shareholders for approval; (iv) subject to its fiduciary
duty, the Board will recommend that the shareholders vote in favor of Buyer’s Acquisition; provided
that, if the Board does not recommend that shareholders vote in favor of the Acquisition Proposal,
the Board will express no opinion on the Acquisition Proposal; (v) Buyer shall be entitled to vote
all of the Voting Securities Beneficially Owned by it (other than any Voting Securities that may be
held by the Voting Trustee) in favor of Buyer’s Acquisition Proposal; and (vi) a Majority of the Minority Vote shall be required to approve Buyer’s Acquisition
Proposal.



     Section 8.06. Second Standstill Period. During the Second Standstill Period, the following
provisions shall apply:



     (a) The Company shall not, and shall not permit any Company Person to, take any Solicitation
Action, Solicitation Response Action, Defense Removal Action or Agreement Action except as provided
in this Section 8.06.



     (b) Buyer may, at any time in its sole discretion, make a 100% Acquisition Proposal at any
price that is greater than $40 per share of Common Stock (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like after the date hereof); provided that, in
making any such Acquisition Proposal, Buyer shall use reasonable best efforts (consistent with
Applicable Law) to do so on a basis that would not require public disclosure of the fact or terms
of the Acquisition Proposal. Upon receipt of any such 100% Acquisition Proposal, the Company and
Buyer shall negotiate in good faith, and on an exclusive basis, for a period of 30 days to
determine whether it is possible to reach a mutually acceptable definitive agreement relating to
the 100% Acquisition Proposal made by Buyer.



     (c) If the Company and Buyer reach such an agreement, then the provisions of clauses (B)
through (E) in Section 8.06(d) below shall apply to such agreement. If, during such 30-day period,
the Company and Buyer are not able to reach an agreement, then the Company shall either (i) conduct
an Appraisal Process (as defined below) or (ii) conduct a Third-Party Transaction Market Check (as
defined below).



     (d) If (i) the Company decides to use the Appraisal Process and such Appraisal Process results
in the determination of an appraisal price (the “Appraisal Price”), and Buyer agrees to pay the
higher of the Appraisal Price or



58









 




$40 per share (adjusted as provided above), (ii) the Company
selects the Third-Party Transaction Market Check, and Buyer agrees to pay the higher of (x) the
best price resulting from the Third-Party Transaction Market Check after giving effect to Buyer’s
rights under Section 8.08 or (y) $40 per share (adjusted as provided above), (iii) the Company and
Buyer reach agreement on the terms of a 100% Acquisition Proposal by Buyer without engaging in an
Appraisal Process or a Third-Party Transaction Market Check or (iv) the Company engages in an
Appraisal Process or a Third-Party Transaction Market Check as permitted above and Buyer does not
match the price resulting from such Appraisal Process or Third-Party Transaction Market Check but
the Board nonetheless accepts a 100% Acquisition Proposal by Buyer at a price lower than the price
resulting from the Appraisal Process or Third-Party Transaction Market Check, then (A) the Company
and Buyer shall enter into an Exclusive Agreement relating to the 100% Acquisition Proposal on the
terms determined pursuant to clause (i), (ii), (iii) or (iv) above, as applicable (any such 100%
Acquisition Proposal, a “Second Period Accepted Acquisition Proposal”), (B) the Board will take all action required of it under the
Charter, the Bylaws and Applicable Law to approve such Exclusive Agreement and will vote to approve
the Second Period Accepted Acquisition, (C) the Board will convene a meeting of the Company’s
shareholders to approve the Second Period Accepted Acquisition Proposal and, subject to its
fiduciary duties, will recommend that the shareholders vote in favor of the Second Period Accepted
Acquisition Proposal; provided that, if the Board does not recommend that the shareholders vote in
favor of Buyer’s 100% Acquisition Proposal, the Board will express no opinion on the Acquisition
Proposal, (D) Buyer shall be entitled to vote all of the Voting Securities Beneficially Owned by it
(other than any such Voting Securities as may be held by the Voting Trustee) in favor of the Second
Period Accepted Acquisition Proposal, and (E) a vote in favor of the Second Period Accepted
Acquisition Proposal by the holders of (x) a majority of all outstanding Voting Securities and (y)
by the holders of a majority of the Voting Securities held by persons other than Buyer and its
Affiliates that are present and voting at the meeting (a “Majority of the Minority Vote”) shall be
required to approve such 100% Acquisition Proposal.




     (e) For purposes of this Agreement, “Appraisal Process” means taking the following steps: (1)
the Company shall notify Buyer no later than ten Business Days after completion of the 30-day
exclusive negotiating period referenced in Section 8.06(b) no later than ten Business Days
after delivery of the notice of the Company’s intention, the Unaffiliated Directors will select and
identify to Buyer an internationally recognized investment banker or appraiser (the “First
Appraiser”) and Buyer will select and identify to the Company a different internationally
recognized investment banker or appraiser (the “Second Appraiser”), (3) the date on which both the
First Appraiser and the Second Appraiser have been selected and identified will be considered to be
the “Start Date” (4) the Company and Buyer will cooperate with the First Appraiser and the



59









 




Second Appraiser and will share with each of such appraisers all information relevant to a valuation of
the Company, (5) within 30 Business Days after the Start Date, the First Appraiser and the Second
Appraiser will each determine its preliminary view of the Fair Market Value of the Company (as
defined below) and will consult with each other with respect to their respective preliminary
values, (6) on or prior to the 45th Business Day after the Start Date, the First Appraiser and the
Second Appraiser will each render to the Board and the Buyer their respective written reports on
the Fair Market Value of the Company; provided that if either the First Appraiser, the Second
Appraiser or the Third Appraiser (as defined below), if any, delivers a range of values rather than
a specific value, then that appraiser’s Fair Market Value of the Company shall be deemed to be the
midpoint of the range specified by such appraiser, (7) if the higher of the two Fair Market Values
of the Company determined (or deemed to be determined pursuant to the proviso set forth in clause
(6) above) by the First Appraiser or Second Appraiser (the “High Value”) is not more than 110% of
the lower of the two Fair Market Values of the Company determined (or deemed to be determined
pursuant to the proviso in clause (6) above) by the First Appraiser and the Second Appraiser (the “Low Value”), then, the Fair Market Value of the Company
determined by such appraisers will be the average of the High Value and the Low Value, (8) if the
High Value is more than 110% of the Low Value, then, not more than 60 Business Days after the Start
Date, the First Appraiser and the Second Appraiser will together designate another internationally
recognized investment banker or appraiser that has no current material business relationship with
either the Company or Buyer (the “Third Appraiser”), who will not be informed of the value
determined (or deemed to be determined pursuant to the proviso in clause (6) above) by the First
Appraiser and Second Appraiser, (9) the Third Appraiser will make a determination of the Fair
Market Value of the Company and deliver its written report to the Unaffiliated Directors and Buyer
(the “Third Value”) not more than 30 Business Days after the Third Appraiser is designated, (10) if
the Third Value is within the middle one third of the range of values between the High Value and
the Low Value (the “Mid-Range”), the Fair Market Value of the Company will be the Third Value, and
(11) if the Third Value does not fall within the Mid-Range, the Fair Market Value of the Company
will be the average of (A) the Third Value and (B) either (x) the High Value or (y) the Low Value,
whichever is closest to the Third Value; provided that the Fair Market Value of the Company shall
not be less than the Low Value nor greater than the High Value.




     (f) For purposes of this Agreement “Fair Market Value of the Company” means the price that
would be paid for all of the Company’s capital stock by a willing buyer to a willing seller, in an
arm’s length transaction, as if the Company did not have a shareholder owning 10% or more of the
outstanding Common Stock and the buyer was acquiring all of such Company’s capital stock, and
assuming that the Company was being sold in a manner designed to attract all



60









 




possible participants to the sales process (including Buyer), and to maximize shareholder value, with both buyer and
seller in possession of all material facts concerning the Company and its business; provided that,
in all cases, (i) the Fair Market Value of the Company will include a control premium and there
will be no minority illiquidity discount, (ii) the Fair Market Value of the Company shall be
determined on the assumption that in a competitive acquisition market with Buyer and other
prospective buyers, the Company would be at least as valuable to other prospective buyers as to
Buyer, (iii) the Fair Market Value of the Company will take into consideration (xx) the trading
activity (volume and price) and history of the Company’s stock, and (yy) the Company’s most recent
“unaffected” public market stock price, (iv) in making the determination of Fair Market Value of
the Company, there will be no discount included in any valuation of the Company due to the fact
that there may be few potential buyers for the Company due to any real or perceived restrictions
placed on the Company because of this Agreement (including Buyer’s right of last look) or the fact
that Buyer owns more than 10% of the outstanding Common Stock of the Company; and provided further
that no solicitation of Third Parties shall be permitted in determining Fair Market Value of the
Company. Upon the final determination of the Fair Market Value of the Company in accordance with
this Section, Buyer shall have 15 Business Days to revise its previously submitted 100% Acquisition Proposal so that the
purchase price contained therein, as so revised, meets or exceeds the higher of (i) Fair Market
Value of the Company determined in accordance with this Section 8.06 and (ii) $40 per share.




     (g) For purposes of this Agreement “Third-Party Transaction Market Check” means the
solicitation from Third Parties of firm offers with respect to a 100% Acquisition Proposal which
process shall not take longer than 60 days and which will require all such Third Parties approached
to sign customary confidentiality and standstill agreements.



     (h) If the Company receives an Unsolicited Acquisition Proposal at any time before Buyer makes
a 100% Acquisition Proposal permitted under Section 8.06(b), the Company shall deliver to Buyer a
written notice indicating that it has received such Unsolicited Acquisition Proposal, identifying
all material terms of such Unsolicited Acquisition Proposal and stating that, as a result thereof,
Buyer has a right to make a 100% Acquisition Proposal to the Company as contemplated by Section
8.06(b). If, within ten Business Days after receipt of such notice, Buyer submits a 100%
Acquisition Proposal at a price per share in excess of $40 (adjusted as provided above), the
Company shall be obligated to complete the procedure contemplated by Section 8.06(b) through (d) in
its entirety before taking any Solicitation Response Action, Defense Removal Action or Agreement
Action with respect to the Unsolicited Acquisition Proposal. In the event that either (i) Buyer
does not submit a 100% Acquisition Proposal during such ten Business Day period or (ii) Buyer does
submit a 100% Acquisition Proposal during such period and the application of the procedure set
forth in Section



61









 




8.06(b) does not result in a Second Period Accepted Acquisition Proposal and the
Company shall have complied with Sections 8.04, 8.06(h) and 8.08 then, and only then, shall the
Company be permitted to take any Solicitation Response Action, Defense Removal Action or Agreement
Action in connection with any Unsolicited Acquisition Proposal; provided that the Company shall not
be permitted to take any such actions unless (x) the Unsolicited Acquisition Proposal is at a price
in excess of $40 per share (adjusted as provided above) and (y) the Company has given effect to
Buyer’s rights under Section 8.08. If the application of the procedure set forth in Section
8.06(b) through (d) results in a Second Period Accepted Acquisition Proposal, then the Company and
Buyer shall take the actions in respect thereof contemplated by Section 8.06(d)(A) through (E).
For the avoidance of doubt, in no event shall the Company be required to accept any 100%
Acquisition Proposal from Buyer or any Third Party during the Second Standstill Period at a price
less than $40 per share (adjusted as provided above).




     (i) If Buyer makes an Acquisition Proposal under this Section 8.06 and the Company fulfills
all of its obligations under this Section 8.06 but the application of all of the provisions hereof
does not result in the acceptance of an Acquisition Proposal by the Company, the Buyer shall have
the right to initiate the process contemplated by this section by making an Acquisition Proposal
only one more time during the Second Standstill Period.



     Section 8.07. Third Standstill Period. During the Third Standstill Period, the following
provisions shall apply:



     (a) Except as permitted pursuant to Section 8.07(b) or Section 8.07(d), the Company shall not,
and shall not permit any Company Representative to, take any Solicitation Action, Solicitation
Response Action, Defense Removal Action or Agreement Action.



     (b) Buyer may, at any time and in its sole discretion, make a 100% Acquisition Proposal;
provided that, in making any such 100% Acquisition Proposal, Buyer shall use reasonable best
efforts (consistent with Applicable Law) to do so on a basis that would not require public
disclosure of the fact or terms of the 100% Acquisition Proposal. Upon receipt of any such 100%
Acquisition Proposal, the Company shall have the right, in its sole discretion, and exercisable by
delivering written notice to Buyer no later than ten Business Days after receipt of Buyer’s 100%
Acquisition Proposal to require that Buyer delay making its Acquisition Proposal for a period of up
to 270 days and, if the Company makes such request Buyer shall withdraw its request and shall not
make another Acquisition Proposal until the end of such 270-day period (or such shorter period as
the Company may have requested) (the “Company Deferral Period”); provided that (i) the Company
shall only be entitled to exercise this right once during the Third Standstill Period, (ii) the
Company Deferral Period shall not in any event extend beyond the date that is three months from the
end of the Third



62









 




Standstill Period, and (iii) if the Company exercises this right at a time during
the Third Standstill Period when either the deferral requested will not expire until after the
expiration of the Third Standstill Period, or after the end of the Company Deferral Period there
shall remain less than six months in the Third Standstill Period, then, at Buyer’s request, the
Third Standstill Period shall be extended to the date which is six months after the expiration of
the Company Deferral Period.




     (c) Upon the receipt of any 100% Acquisition Proposal after the expiration of the Company
Deferral Period or as to which no deferral is requested, the Company and Buyer shall negotiate in
good faith, and on an exclusive basis, for a period of 90 days to determine if it is possible to
reach a mutually acceptable definitive agreement relating to the 100% Acquisition Proposal made by
Buyer. If the Company and Buyer reach such an agreement then the provisions of clauses (B) through
(E) below shall apply to such Agreement. If, during such 90 day period, the Company and Buyer are
not able to reach an agreement then the Company shall either (i) conduct an Appraisal Process and,
as a result thereof determine the Appraisal Price or (ii) conduct a Third-Party Transaction Market
Check. If (i) the Company uses the Appraisal Process and Buyer matches the Appraisal Price, (ii)
the Company selects the Third-Party Transaction Market Check and Buyer matches the best price
resulting from such Third-Party Transaction Market Check, (iii) the Company and Buyer reach
agreement on the terms of a definitive agreement without engaging in an Appraisal Process or a
Third-Party Market Transaction Check or (iv) the Company engages in either an Appraisal Process or
a Third-Party Transaction Market Check, Buyer does not match the Appraisal Price or the best price resulting from the Third-Party Transaction Market
Check, as applicable, but the Board nonetheless accepts Buyer’s 100% Acquisition Proposal, (A) the
Company and Buyer shall enter into an Exclusive Agreement relating to the 100% Acquisition Proposal
on the terms determined pursuant to clause (i), (ii), (iii) or (iv), as applicable (any such
Acquisition Proposal, a “Third Period Accepted Acquisition Proposal”), (B) the Board will take all
action required of it under the Charter, the Bylaws and Applicable Law to approve such Exclusive
Agreement and will vote to approve the Third Period Accepted Acquisition Proposal, (C) the Board
will convene a meeting of the Company’s shareholders to approve such Third Period Accepted
Acquisition Proposal and, subject to its fiduciary duties, will recommend that the shareholders
vote in favor of such Third Period Accepted Acquisition Proposal; provided that if the Board does
not recommend that the shareholders vote in favor of Buyer’s 100% Acquisition Proposal, the Board
will express no opinion on the Acquisition Proposal, (D) Buyer shall be entitled to vote all of the
Voting Securities Beneficially Owned by it (other than any such Voting Securities as may be held by
the Voting Trustee) in favor of such Third Period Accepted Acquisition Proposal, and (E) a vote in
favor of such Third Period Accepted Acquisition Proposal by the holders of (x) a majority of all
outstanding Voting



63









 




Securities and (y) a Majority of the Minority Vote shall be required to approve
such Third Period Accepted Acquisition Proposal.




     (d) The Company shall have a right at any time during the Third Standstill Period to initiate
a process intended to, or reasonably likely to lead to, the making of an Acquisition Proposal by a
Third Party or otherwise take a Solicitation Action provided that it first follows the following
procedure. First, the Company must deliver to Buyer a written notice inviting Buyer to make a 100%
Acquisition Proposal. Buyer shall have the same deferral rights with respect to the Company’s
invitation as the Company has with respect to Buyer’s Acquisition Proposal under Section 8.07(b).
If, within ten Business Days after the end of any deferral period not exceeding 270 days selected
by Buyer (the “Buyer Deferral Period”) or within ten Business Days after receipt of the Company’s
invitation if Buyer does not exercise its deferral rights, Buyer makes a 100% Acquisition Proposal,
then the provisions of Sections 8.07(b) and 8.07(c) shall apply. If Buyer does not make an
Acquisition Proposal within such ten-day period, then, and only then, and subject to Section 8.04
and Section 8.08, the Company shall be permitted to take Solicitation Actions, Solicitation
Response Actions, Defense Removal Actions and Agreement Actions in connection with any 100%
Acquisition Proposal from any Third Party.



     (e) If the Company receives an Unsolicited Acquisition Proposal at any time (i) before Buyer
makes (taking into account any deferral right exercised by the Company) a 100% Acquisition Proposal
permitted under Section 8.07, (ii) before the Company delivers any notice under Section 8.07(d) or
(iii) after the delivery by the Company of the notice contemplated by Section 8.07(d) but before
the expiration of the ten Business Day time period during which Buyer may respond to such notice, then in such event, the Company shall deliver to Buyer a written
notice indicating that it has received such Unsolicited Acquisition Proposal, identifying all
material terms of such Unsolicited Acquisition Proposal and stating that, as a result thereof,
Buyer has a right to make a 100% Acquisition Proposal to the Company as contemplated by Section
8.07(b). If, within ten Business Days after receipt of such notice, Buyer submits a 100%
Acquisition Proposal, the Company and Buyer shall be obligated to complete the procedure
contemplated by Section 8.07(b) and 8.07(c) in its entirety. Only in the event either that (i)
Buyer does not submit a 100% Acquisition Proposal during such ten Business Day period or (ii) Buyer
does submit a 100% Acquisition Proposal during such period and the application of the procedure set
forth in Section 8.07(b) and 8.07(c) does not result in a Third Period Accepted Acquisition
Proposal, then, and only then, shall the Company be permitted to take any Solicitation Response
Action, Defense Removal Action or Agreement Action in connection with such Unsolicited Acquisition
Proposal. If the application of the procedure set forth in Section 8.07(b) and 8.07(c) results in
a Third Period Accepted Acquisition Proposal, then the Company and Buyer shall take the



64









 




actions in
respect thereof contemplated by clauses (A) through (E) of Section 8.07(c).




     (f) Within 30 days of the earlier to occur of the Standstill Restriction Termination Date and
the Sale Restriction Termination Date, the Company shall deliver to Buyer a list of prohibited
purchasers containing no more than five prohibited purchasers as contemplated by Section 8.02.



     Section 8.08. First Look and Last Look Rights. (a) Notwithstanding anything to the contrary
in this Agreement, from the date hereof until the earlier of
(i) the end of the Third Standstill Period or (ii) the date
on which the Company consummates an Acquisition Proposal made by a
Person or Group other than Buyer, the Company shall notify Buyer promptly (but in no event later than 24 hours)
after receipt by the Company (or any Company Representative) of any Acquisition Proposal, any
indication that a Third Party is considering making an Acquisition Proposal or of any request for
information relating to the Company or any of its Subsidiaries or for access to the business,
properties, assets, books or records of the Company or any of its Subsidiaries by any Third Party
that may be considering making, or has made, an Acquisition Proposal. The Company shall provide
such notice orally and in writing (the “Acquisition Proposal Notice”) and shall identify the Third
Party making, and the terms and conditions of, any such Acquisition Proposal, indication or
request. The Company shall keep Buyer fully informed, on a current basis, of the status and
details of any such Acquisition Proposal, indication or request.



     (b) Upon the receipt by Buyer, at any time during the First Standstill Period, the Second
Standstill Period or the Third Standstill Period, of any Acquisition Proposal Notice, Buyer shall
have, in addition to the specific rights set forth in Sections 8.05, 8.06 and 8.07 and after the
application thereof, the exclusive right to negotiate with the Company with respect to the 100%
Acquisition Proposal for a period of 30 days. During such 30-day period, the Company may not take
any Solicitation Response Actions, Defense Removal Actions or Agreement Actions in connection with Acquisition Proposals made by Persons other
than Buyer. At the end of such 30-day period, if Buyer has not made a 100% Acquisition Proposal
that is at least as favorable to the stockholders of the Company (other than Buyer) as the
unsolicited 100% Acquisition Proposal, the Company may take Solicitation Response Actions in
connection with such unsolicited 100% Acquisition Proposal but only concurrently with providing
Buyer written notice advising Buyer that it intends to take such actions. The Company shall
continue to advise Buyer after taking such actions. If the Company subsequently intends to take a
Defense Removal Action or an Agreement Action concerning such unsolicited 100% Acquisition
Proposal, the Company shall notify Buyer promptly of its intention to take such action, attaching
the most recent version of the relevant agreement, agreement in principle, letter of intent, term
sheet or similar instrument (or a description of all material terms and conditions thereof), and
shall not enter into any such agreement, letters, term sheets or instruments with any Person unless
Buyer has



65









 




failed to make a 100% Acquisition Proposal that is at least as favorable to the
stockholders of the Company as the 100% Acquisition Proposal (or description thereof) delivered to
Buyer within 30 days. If Buyer has made such a 100% Acquisition Proposal within such 30-day
period, then (A) Buyer and the Company shall enter into an Exclusive Agreement with respect to such
proposal, (B) the Board will take all action required of it under the Charter, the Bylaws and
Applicable Law to approve such Exclusive Agreement and vote to approve such proposal, (C) the Board
will convene a meeting of the Company’s shareholders to approve such proposal and, subject to its
fiduciary duties, will recommend that the shareholders vote in favor of such proposal; provided
that if the Board does not recommend that the shareholders vote in favor of Buyer’s 100%
Acquisition Proposal, the Board will express no opinion on the Acquisition Proposal, (D) Buyer
shall be entitled to vote all of the Voting Securities Beneficially Owned by it (other than any
such Voting Securities as may be held by the Voting Trustee) in favor of such proposal, and (E) a
vote in favor of such proposal by the holders of (x) a majority of all outstanding Voting
Securities and (y) a Majority of the Minority Vote shall be required to approve such proposal. For
the avoidance of doubt, in no event shall the Company be required to accept any 100% Acquisition
Proposal from Buyer or any Third Party during the Second Standstill Period at a price less than $40
per share (adjusted as provided above).




     Section 8.09. Post-Standstill Period. During the period commencing on the day after the
last day of the Standstill Period and ending on the first day on which Buyer and its Affiliates no
longer Beneficially Own 10% of the outstanding Common Stock and no representative of Buyer is a
member of the Board (the “Post-Standstill Period”), Buyer shall not, and shall not permit any of
its Affiliates to, take any Hostile Action.



     Section 8.10. Tender Offer Option. If, but only if, the Board breaches its commitments
under Sections 8.04, 8.05, 8.06, 8.07 or 8.08 to approve the Exclusive Agreements referred to
therein and to cause such Exclusive Agreements to be executed by the Company to take all action required of it under the Charter,
the Bylaws and Applicable Law to approve such Exclusive Agreement, to vote in favor of a Buyer
Acquisition Proposal that is required to be accepted by the Company in accordance with the terms of
such sections, to convene a meeting of the Company’s shareholders to approve such a Buyer
Acquisition Proposal and, subject to its fiduciary duty, to recommend that the shareholders of the
Company vote in favor of such Buyer Acquisition Proposal, then Buyer shall be permitted to commence
a tender offer for shares of the Common Stock; provided that (a) the offer price and consideration
in such tender offer shall be the same (both in amount and in form of consideration) as the price
that would otherwise have been reflected in the Exclusive Agreement contemplated by the terms of
Sections 8.05, 8.06, 8.07 or 8.08, as the case may be, (b) the offer shall be an offer for all of
the outstanding shares of Common Stock, (c) the offer shall be subject to the requirement that
holders of at least a



66









 




majority of the outstanding shares not owned by Buyer tender their shares in
the offer and (d) subject to obtaining any required approval of the Board, the offer will obligate
Buyer, after completion of the tender offer, to complete a merger in which all holders of Common
Stock who did not tender in the offer will receive the same price and consideration per share (both
in amount and in form of consideration) as the price and consideration per share paid in the offer.




     Section 8.11. Board Representation. (a) Upon the Closing, the Company shall increase the
size of the Board by two directors so that upon such increase, (i) the Board shall consist of ten
Directors (taking into account the closing under the Independence Transaction) and (ii) the Board
shall elect as directors to fill these two vacancies two persons designated by Buyer who shall be
reasonably acceptable to the Company and to the Board. Subject to Section 8.11(b) below, one such
person shall serve as a director in the class of directors whose term expires in 2007 and the other
such person shall serve as a director in the class of directors whose term expires in 2008.



     (b) So long as Buyer and its Affiliates Beneficially Own at least 19.8% and not more than
24.9% of the outstanding shares of Common Stock, the Company shall continue to nominate and
recommend for election two persons designated by Buyer to serve as directors on the Board who shall
be nominated to serve in the respective class of their respective predecessors; provided that, upon
any increase in the size of the Board, the Board shall elect as directors to fill such newly
created vacancies persons designated by Buyer in sufficient number so that the number of directors
serving on the Board who have been designated by Buyer shall in no event represent less than 20% or
more than 25% of the total number of directors, and the Company shall continue to nominate and
recommend for election such persons designated by Buyer. So long as Buyer and its Affiliates
Beneficially Own less than 19.8% but more than 10% of the outstanding shares of Common Stock, the
Company shall continue to nominate and recommend for election one person designated by Buyer to
serve as a director on the Board. If Buyer and its Affiliates beneficially own more than 24.9% of
the outstanding shares of Common Stock and Buyer has not breached any of its obligations hereunder, Buyer
shall be entitled to Board representation proportional to its ownership. Upon the death,
disability, retirement, resignation or other removal of a director designated by Buyer, the Board
shall elect as a director to fill the vacancy so created a person designated by Buyer to fill such
vacancy. For purposes of the calculations of the percentage of ownership by Buyer and its
Affiliates of outstanding shares of Common Stock effected pursuant to this Section 8.11(b), shares
of Common Stock issued at any time after Closing, to any Person other than Buyer or any of its
Affiliates, shall be excluded from such calculations, unless Buyer is entitled, pursuant to Section
2.04, to purchase additional securities of the Company in connection with such issuance, and, in
each such case, until Buyer shall have had the opportunity to exercise its rights to purchase such
additional securities pursuant to Section 2.04 and, in the event of



67









 




such exercise, shall have completed such purchase. Under the circumstances described in this paragraph in which Buyer is not
entitled to designate persons to serve as directors on the Board, Buyer shall cause such designated
persons to resign as members of the Board.




     (c) Promptly following the Closing, the Company shall appoint at least one of the directors
designated by Buyer to each committee of the Board; provided that a director designated by Buyer
shall not be appointed to a committee of the Board if counsel to the Company advises the Company
and Buyer that the appointment of such designee to a committee of the Board would violate
Applicable Law, any rule or regulation of a stock exchange on which the Company’s Common Stock is
listed or the Company’s written “Corporate Governance Guidelines” and committee charters (true and
complete copies of which have been provided to Buyer) as in effect on the date hereof (with such
amendments as are required by Applicable Law or approved by the affirmative vote of the Board
including at least one director designated by Buyer). To the extent no director designated by
Buyer is permitted to serve on a particular committee under Applicable Law, such rules and
regulations or charter, the Company shall take all necessary action to permit a director to attend
each meeting of such committee as a non-voting observer to the extent permitted by Applicable Law
or such rules and regulations.



     (d) Promptly following the Closing, the Company shall appoint at least one of the directors
designated by Buyer to the Board of Directors of the Bank to serve as long as Buyer is entitled to
designate one or more persons to serve on the Board.



     (e) Upon the Closing, Buyer shall appoint the Chief Executive Officer of the Company to the
Board of Directors of Buyer. Upon the death, disability, retirement, resignation or other removal
of any person from the position as Chief Executive Officer of the Company, the Company shall cause
such person to resign, or Buyer shall remove such person, as applicable, from the Board of
Directors of Buyer and the successor Chief Executive Officer of the Company (if reasonably
acceptable to Buyer) shall thereafter be appointed to the Board of Directors of Buyer. The obligations of Buyer under this Section 8.11(e) shall terminate upon
the earlier of (i) Buyer owning less than 10% of the outstanding shares of Common Stock and (ii)
the Company breaching any of its obligations or covenants under this Agreement. Under the
circumstances described in clauses (i) and (ii) in the immediately preceding sentence, the Company
shall cause its Chief Executive Officer to resign as a director of the Board of Directors of Buyer
and such person shall no longer serve as a director of the Board of Directors of Buyer.



     Section 8.12. Approval Rights. From the Closing Date until the expiration of the Standstill
Period, each of the following actions of the Board shall



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require the affirmative vote of the Board,
such approval to include the affirmative vote or consent of at least one of the directors
designated by Buyer:




     (a) Removal of the Chief Executive Officer of the Company; provided that the Board shall
consult with Buyer in good faith before selecting any new chief executive officer and the chief
executive officer selected by the Board must be reasonably acceptable to Buyer;



     (b) Expansion in the size of the Board to over 12 directors; and



     (c) Any amendments to the Bylaws other than modifications referred to in Section 8.13 effected
in order to give effect to the terms set forth in this Section 8.12.



     Section 8.13. Certain Actions. The Company and the Board shall, from the date hereof until
the termination of this Agreement pursuant to Section 12.01, take or cause to be taken all lawful
action necessary or appropriate, including, without limitation, by modifying the bylaws or other
organizational documents of the Company or any Company Subsidiary to ensure that at all such times
the provisions of the bylaws and of any organizational documents of the Company and any applicable
Company Subsidiary (a) facilitate and do not at any time conflict with any provision of this
Agreement, including Sections 8.05 and 8.06 and (b) permit Buyer to receive the benefits to which
Buyer is entitled under this Agreement, including Sections 8.05 and 8.06.



     Section 8.14. Voting Arrangements. (a) In addition to the provisions of Section 8.04(d),
provided that the Company has not breached any of its obligations set forth in Section 8.11, during
the period commencing on the PA Law Termination Date and ending on the Standstill Termination Date,
Buyer shall vote and cause to be voted all Voting Securities (other than any Voting Securities
deposited with the Voting Trustee) Beneficially Owned by Buyer and its Affiliates (i) for persons
nominated and recommended by the Board for election as directors of the Board (so long as Buyer’s
designees have been nominated and recommended) and against any person nominated for election as a
director by any other Person and (ii) as directed by the Board with respect to an Acquisition
Proposal (other than an Acquisition Proposal made by Buyer) opposed by the Board; provided that
Buyer shall vote its Voting Securities in connection with an Acquisition Proposal by a Third Party in proportion to the votes cast by shareholders of the
Company other than Buyer, its Affiliates or the Voting Trustee to the extent provided in Section
8.04(c) and otherwise may vote its Voting Securities against an Acquisition Proposal by a Third
Party that the Board recommends to shareholders.



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     (b) Except as provided in Section 8.14(a), Buyer and its Affiliates may vote all of their
Voting Securities (other than any Voting Securities deposited with the Voting Trustee) in their
sole discretion.



ARTICLE 9




Post Acquisition Covenants




     Section 9.01. Company Headquarters. The Company agrees to maintain the headquarters office
of the Company in the city in which it is located as of the date of this Agreement or in another
location mutually agreed by the Company and Buyer until at least the earlier of (a) the date of
acquisition by Buyer of all the Voting Securities of the Company, (b) the date of termination of
this Agreement pursuant to Section 12.01 or (c) a Change in Control of the Company (other than as a
result of an acquisition by Buyer of all the Voting Securities of the Company). Buyer agrees that,
if it acquires 100% of the Voting Securities of the Company, Buyer will maintain the headquarters
office of the Company in its present or in another location reasonably acceptable to Buyer and the
Incumbent Directors for a period of five years after completion of such acquisition.



     Section 9.02. The Company Board. (a) Subject to any requirement for shareholder approval to
increase the size of the Board to the number required to give effect to this Section 9.02, promptly
after any consummation of any 100% Acquisition Proposal by Buyer, Buyer will cause the Company and
the Board to take such action as may be required to increase the size of the Board to a number of
members such that (i) all of the individuals who are members of the Board at the time of the
consummation of the 100% Acquisition Proposal (the “Incumbent Directors”) may continue to be
members of the Board and (ii) individuals designated or nominated by Buyer shall constitute a
majority (or, if at such time under the terms of the Charter or Bylaws or under Applicable Law, any
higher percentage of the members of the Board is required to take any Board action, then such that
the number of the individuals designated or nominated by Buyer constitutes that higher percentage
of the Board members). For a period of ten years after consummation of the 100% Acquisition
Proposal by Buyer, subject to Applicable Law, Buyer will continue to nominate Incumbent Directors
(or successors selected by Incumbent Directors) for reelection to the Board upon the expiration of
the term of office of any Incumbent Director and will vote all Voting Securities held by it in
favor of the election of the Incumbent Director so nominated.



     (b) The Incumbent Directors (other than those designated by Buyer) shall have the right to
enforce, including by specific performance as set forth in Section 13.12, the Obligations of Buyer
set forth in this Article 9 with respect to the Company after the consummation of the 100%
Acquisition Proposal by Buyer.



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     Section 9.03. Exclusive Acquisition Vehicle. Following the acquisition by Buyer of 100% of
the Voting Securities of the Company, subject to Applicable Law, the Buyer will contribute to the
Company any businesses in the U.S. and its territories that Buyer or its Affiliates may have
acquired since the Closing Date, and for a period of ten years after the acquisition by Buyer of
100% of the Voting Securities of the Company, the Company shall be the exclusive vehicle for
acquisitions by Buyer and its Affiliates in the U.S.; provided that, if such contribution to the
Company or acquisition by the Company would cause materially adverse tax consequences for Buyer,
Buyer and the Company will work together to find a solution so the contribution or acquisition can
be done to or by the Company without creating materially adverse tax consequences for Buyer.



     Section 9.04. Change in Control. Notwithstanding the other provisions of this Article 9, at
any time after consummation of a 100% Acquisition Proposal by Buyer, Buyer’s obligations under
Sections 9.01, 9.02 and 9.03 shall expire at such time, if any, as Buyer no longer owns at least a
majority of the Company’s Voting Securities or if Buyer’s representatives no longer constitute a
majority of the members of the Board.



ARTICLE 10




Conditions to Closing




     Section 10.01. Conditions to Obligations of Buyer and the Company. The obligations of Buyer
and the Company to consummate the Closing are subject to the satisfaction of the following
conditions:




     (a) No provision of any Applicable Law shall prohibit the consummation of the
Closing.




     (b) All actions by or in respect of or filings with any Governmental Authority
required to permit the consummation of the Closing shall have been taken, made or
obtained, including the approval of the Bank of Spain, the approval of the Federal Reserve
Board under Section 4(j) of the BHC Act and any change-in-control filings with any state
insurance regulatory authority, and no approval shall contain any condition or requirement
that would reasonably be expected to have a Material Adverse Effect or Buyer Material
Adverse Effect.




     (c) All of the conditions to closing under the Independence Agreement shall have been
satisfied or waived (with the consent of Buyer to the extent any such waiver was granted
by the Company) in accordance with the terms of the Independence Agreement such that the
closing of the transactions contemplated by this Agreement and the closing of the



71









 



transactions contemplated by the Independence Agreement shall occur substantially
simultaneously.




     Section 10.02. Conditions to Obligation of Buyer. The obligation of Buyer to consummate the
Closing is subject to the satisfaction of the following further conditions:




     (a) the Company shall have performed in all material respects all of its obligations
hereunder required to be performed by it on or prior to the Closing Date other than its
obligations under Section 5.01(b);




     (b) the Company shall have performed all of its obligations under Section 5.01(b)
except to the extent that its failure to do so would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect; and




     (c) the representations and warranties of the Company contained in this Agreement and
in any certificate or other writing delivered by the Company pursuant hereto shall be true
in all respects at and as of the Closing Date as if made at and as of such time (unless
any such representation and warranty speaks as of an earlier specified date, in which
event such representation and warranty shall be true in all respects as of such specified
date); provided, however, that for purposes of determining the satisfaction of this
condition, no effect shall be given to any exception in such representations and
warranties (other than the representation and warranty set forth in Section 3.09(a))
relating to materiality or a Material Adverse Effect; and provided further, that for
purposes of this condition, such representations and warranties (other than the
representation and warranty set forth in Section 3.09(a), which shall be true in all
respects) shall be deemed to be true in all respects unless the failure or failures of
such representations and warranties to be so true and correct, individually or in the
aggregate, has had or would reasonably be expected to have a Material Adverse Effect and
Buyer shall have received a certificate signed by the Chief Executive Officer of the
Company to the foregoing effect.



     Section 10.03. Conditions to Obligation of the Company. The obligation of the Company to
consummate the Closing is subject to the satisfaction of the following further conditions:




     (a) Buyer shall have performed in all material respects all of its obligations
hereunder required to be performed by it at or prior to the Closing Date;




     (b) the representations and warranties of Buyer contained in this Agreement and in
any certificate or other writing delivered by Buyer



72









 




pursuant hereto shall be true in all material respects at and as of the Closing Date as if made at and as of such date; and





     (c) the Company shall have received a certificate signed by the General Secretary of
Buyer to the foregoing effect.



ARTICLE 11




Survival




     Section 11.01. Survival. The covenants, agreements, representations and warranties of the
parties hereto contained in this Agreement or in any certificate or other writing delivered
pursuant hereto or in connection herewith shall survive the Closing. The representations and
warranties of the parties hereto contained in this Agreement shall be deemed made only as of the
date hereof and as of the Closing Date, in each case unless a different date is specified in the
representation and warranty.



ARTICLE 12




Termination




     Section 12.01. Grounds for Termination. This Agreement may be terminated at any time:




     (a) by mutual written agreement of the Company and Buyer;




     (b) by either the Company or Buyer if the Closing shall not have been consummated on
or before September 30, 2006, unless the failure of the Closing to be consummated by such
date shall be due to the failure of the party seeking to terminate this Agreement to
perform or observe any of its covenants or agreements set forth herein or, in the case of
the Company, in the Independence Agreement;




     (c) by either the Company or Buyer if there shall be any Applicable Law that makes
consummation of the transactions contemplated hereby illegal or otherwise prohibited or if
consummation of the transactions contemplated hereby would violate any nonappealable final
order, decree or judgment of any Governmental Authority having competent jurisdiction;




     (d) by either the Company or Buyer, if the Independence Agreement shall have been
terminated;




     (e) by Buyer upon the occurrence of any of the following:



73









 






     (i) any Person (other than Buyer and its Affiliates) shall have acquired
Beneficial Ownership of shares of Common Stock representing more than 10% of all
outstanding shares of Common Stock other than as a result of any Transfer by
Buyer or its Affiliates pursuant to Section 8.02;




     (ii) the Board approves or the Company enters into a definitive agreement or
agreement in principle with respect to an Acquisition Proposal made by a Person
other than Buyer or announces an intention to accept such an Acquisition Proposal
or enter into such agreement;




     (iii) prior to Closing, a breach of any representation or warranty or
failure to perform any covenant or agreement on the part of the Company set forth
in this Agreement shall have occurred that would cause the condition set forth in
Section 10.02(a) not to be satisfied, and such condition is incapable of being
satisfied by September 30, 2006 and Buyer shall have given the Company 30 days’
prior written notice specifying in reasonable detail the nature of such breach;
provided that Buyer has not materially breached its obligations hereunder;




     (iv) following Closing, a material breach of any covenant or agreement
required to be performed under this Agreement or any of the agreements
contemplated by this Agreement by the Company; or




     (v) the members of the Board who hold such office on the date of this
Agreement and such persons nominated or appointed to the Board or recommended for
election by a majority of such members after the date of this Agreement shall
cease to constitute a majority of the Board; or




     (f) by the Company upon the occurrence of any of the following:




     (i) prior to Closing, a breach of any representation or warranty or failure
to perform any covenant or agreement on the part of Buyer set forth in this
Agreement shall have occurred that would cause the condition set forth in Section
10.03(a) not to be satisfied, and such condition is incapable of being satisfied
by September 30, 2006 and the Company shall have given Buyer 30 days’ prior
written notice specifying in reasonable detail the nature of such breach;
provided that the Company has not materially breached its obligations hereunder;



74









 






     (ii) following Closing, a material breach of any covenant or agreement
required to be performed under this Agreement by Buyer; or




     (iii) upon the occurrence of a Buyer Change in Control.


The party desiring to terminate this Agreement pursuant to Section 12.01 shall give notice of such
termination to the other party.




     Section 12.02. Effect of Termination. If this Agreement is terminated as permitted by
Section 12.01, such termination shall be without liability of either party (or any stockholder,
director, officer, employee, agent, consultant or representative of such party) to the other party
to this Agreement; provided that if such termination shall result from the (a) willful failure of
either party to fulfill a condition to the performance of the obligations of the other party, (b)
failure to perform a covenant or agreement of this Agreement or (c) breach by either party hereto
of any representation or warranty or agreement contained herein, such party shall be fully liable
for any and all Damages incurred or suffered by the other party as a result of such failure or
breach. The provisions of Sections 5.07, 5.08, 6.01, 7.03, 8.01 (solely in the case of a
termination under Section 12.01(e)(ii) until consummation of such Acquisition Proposal with respect
to the restrictions in clauses (a), (b) and (c)), 8.04(c) (solely in the case of a termination
under Section 12.01(e)(ii) with respect to such Acquisition Proposal and in the case of a
termination under Section 12.01(f)(ii)), 8.09, 13.01, 13.04, 13.06, 13.07 and 13.08 shall survive
any termination hereof pursuant to Section 12.01.



ARTICLE 13




Miscellaneous




     Section 13.01. Notices. All notices, requests and other communications to any party
hereunder shall be in writing (including facsimile transmission and electronic mail (“e-mail”)
transmission, so long as a receipt of such e-mail is requested and received) and shall be given,



     if to Buyer, to:


Banco Santander Central Hispano, S.A.

Ciudad Grupo Santander

Avda. de Cantabria, s/n-28660

Boadilla del Monte

Madrid, Spain

Attention: Ignacio Benjumea, General Secretary

Facsimile No.: 34-91-259-6634


75









 







     with a copy to:


Davis Polk & Wardwell

450 Lexington Avenue

New York, New York 10017

Attention: Diane G. Kerr

Facsimile No.: 212-450-3800

E-mail: diane.kerr@dpw.com



     if to the Company, to:


Sovereign Bancorp, Inc.

1130 Berkshire Boulevard

Wyomissing, Pennsylvania 19610

Attention: President

Facsimile No.: 610-208-6143



     with a copy to:


Stevens & Lee

111 North Sixth Street

P.O. Box 679

Reading, Pennsylvania 19603

Attention: Joseph M. Harenza

Facsimile No.: 610-376-5610

E-mail: jmh@stevenslee.com


or such other address or facsimile number as such party may hereafter specify for the purpose by
notice to the other parties hereto. All such notices, requests and other communications shall be
deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in
the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such
notice, request or communication shall be deemed not to have been received until the next
succeeding Business Day in the place of receipt.




     Section 13.02. Amendments and Waivers. (a) Any provision of this Agreement may be amended
or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an
amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom
the waiver is to be effective.



     (b) No failure or delay by any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of



76









 




any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.




     Section 13.03. Disclosure Schedule References. The parties hereto agree that any reference
in a particular Section of the Company Disclosure Schedule shall only be deemed to be an exception
to (or, as applicable, a disclosure for purposes of) the representations and warranties (or
covenants, as applicable) of the relevant party that are contained in the corresponding Section of
this Agreement.



     Section 13.04. Expenses. Except as otherwise provided herein, all costs and expenses
incurred in connection with this Agreement shall be paid by the party incurring such cost or
expense.



     Section 13.05. Successors and Assigns. The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective successors and assigns;
provided that no party may assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without the consent of each other party hereto; except that Buyer may transfer
or assign its rights and obligations under this Agreement, in whole or from time to time in part,
to (a) one or more of its Affiliates at any time and (b) after the Closing Date, to any Person;
provided that no such transfer or assignment shall relieve Buyer of its obligations hereunder or
enlarge, alter or change any obligation of any other party hereto or due to Buyer.



     Section 13.06. Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York, without regard to the conflicts of law rules of
such state, except to the extent that Pennsylvania law applies to corporations incorporated in
Pennsylvania.



     Section 13.07. Jurisdiction. The parties hereto agree that any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby shall be brought in the United States
District Court for the Southern District of New York or any New York State court sitting in New
York City, so long as one of such courts shall have subject matter jurisdiction over such suit,
action or proceeding, and that any cause of action arising out of this Agreement shall be deemed to
have arisen from a transaction of business in the State of New York, and each of the parties hereby
irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection that it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum. Process in any such suit,
action or proceeding may be served on any party



77









 




anywhere in the world, whether within or without
the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service
of process on such party as provided in Section 13.01 shall be deemed effective service of process
on such party.




     Section 13.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.



     Section 13.09. Counterparts; Effectiveness; Third-Party Beneficiaries. This Agreement may
be signed in any number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become
effective when each party hereto shall have received a counterpart hereof signed by all of the
other parties hereto. Until and unless each party has received a counterpart hereof signed by the
other party hereto, this Agreement shall have no effect and no party shall have any right or
obligation hereunder (whether by virtue of any other oral or written agreement or other
communication). No provision of this Agreement is intended to confer any rights, benefits,
remedies, obligations, or liabilities hereunder upon any Person other than the parties hereto and
their respective successors and assigns.



     Section 13.10. Entire Agreement. This Agreement, the Registration Rights Agreement and the
Voting Trust Agreement constitute the entire agreement between the parties with respect to the
subject matter hereof and thereof and supersede all prior agreements and understandings, both oral
and written, between the parties with respect to the subject matter of this Agreement.



     Section 13.11. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other Governmental Authority to be
invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions
of this Agreement shall remain in full force and effect and shall in no way be affected, impaired
or invalidated so long as the economic or legal substance of the transactions contemplated hereby
is not affected in any manner materially adverse to any party. Upon such a determination, the
parties shall negotiate in good faith to modify this Agreement so as to effect the original intent
of the parties as closely as possible in an acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the fullest extent possible.



     Section 13.12. Specific Performance. The parties hereto agree that irreparable damage would
occur if any provision of this Agreement were not performed in accordance with the terms hereof and
that the parties (including



78









 



Incumbent Directors (other than those designated by Buyer) in
accordance with Section 9.02(b)) shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement or to enforce specifically the performance of the terms and provisions
hereof in the United States District Court for the Southern District of New York or any New York
State court sitting in New York City, in addition to any other remedy to which they are entitled at
law or in equity.



     Section 12.03.
Immaterial Breaches. If either party unintentionally fails to
comply with a notice or other similar time period provision in this
Agreement, such failure does not adversely prejudice the other party
in any way and is promptly cured, such failure shall not be deemed to
be a breach of such provision.

79









 








     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.



	 	 	 	 	 
	 	BANCO SANTANDER CENTRAL HISPANO, S.A.

 	 
	 	By:  	/s/
Juan Rodriguez Inciarte

 	 
	 	 	Name:  	Juan Rodriguez Inciarte	 
	 	 	Title:  	Director General	 
	 



	 	 	 	 	 
	 	SOVEREIGN BANCORP, INC.

 	 
	 	By:  	/s/
Jay S. Sidhu
 	 
	 	 	Name:  	Jay S. Sidhu	 
	 	 	Title:  	Chairman, Chief Executive Officer and President	 



 









 






	 	 	 	 	 



EXHIBIT A




FORM OF VOTING TRUST AGREEMENT





 










 






VOTING TRUST AGREEMENT




     THIS VOTING TRUST AGREEMENT, dated as of [                    ], by and among Banco Santander Central
Hispano, S.A., a Spanish sociedad anónima (the “Stockholder”), Sovereign Bancorp Inc., a
Pennsylvania corporation (the “Company”), and The [                    ] Bank (the “Trustee”),



W I T N E S S E T H:




     WHEREAS, the Stockholder and the Company are parties to a Investment Agreement, dated as of
October 24, 2005 (as it may be amended from time to time, the “Investment Agreement”; capitalized
terms used but not defined herein shall have the meanings set forth therein), pursuant to which (i)
the Stockholder shall acquire common stock of the Company, without par value (“Company Common
Stock”) equal to 19.8% of the issued and outstanding shares of Company Common Stock on the date so
acquired (the “Closing Date”) and shall have the right, but not the obligation, to acquire shares
of Company Common Stock constituting up to an additional 5.1% of the issued and outstanding shares
of Company Common Stock, directly from the Company, in the open market and/or from third parties,
on terms set forth in the Investment Agreement; and



     WHEREAS, the Company is a “registered corporation,” as that term is defined in Section 2502 of
the Pennsylvania Business Corporation Law (the “PaBCL”), 15 Pa.C.S. § 2502, and is subject to
Subchapter E of Chapter 25 of the Pa BCL, 15 Pa.C.S. §§ 2541-2548 (“Subchapter E”);



     WHEREAS, under the terms of the Investment Agreement, if the provisions of Subchapter E would
otherwise continue to apply to the ownership of Company Common Stock by the Stockholder or its
Affiliates, on June 30, 2007, the Company is obligated, not later than June 30, 2007, to call and
hold an annual or special meeting of Stockholders of the Company for the purpose of voting upon,
inter alia, an amendment to the Articles of Incorporation of the Company to render
Subchapter E inapplicable to the Company (the “ Exemption Proposal”) and to actively solicit
proxies in favor of the Exemption Proposal;



     WHEREAS, Stockholder desires (and is obligated pursuant to the Investment Agreement), from
time to time following the Closing Date, to deposit in an independent, irrevocable voting trust, or
to cause to be transferred or issued directly to such trust, such number of shares of Company
Common Stock as may be necessary so that none of the Stockholder or any of its Affiliates becomes a
“controlling person or group,” as that term is defined in Section 2543(a) of the PaBCL, 15 Pa.C.S.
§ 2543(a) (a “Controlling Person”).



     WHEREAS, neither the Trustee nor any of its Affiliates has any officers or board members in
common with the Stockholder or any of its Affiliates; and



 









 





     WHEREAS, the Trustee is willing to act as voting trustee pursuant to the terms of this Trust
Agreement.



     NOW THEREFORE, the parties hereto agree as follows:



     1. Creation of Trust — The Stockholder and the Company hereby appoint the
[                    ] Bank as Trustee hereunder, and the Bank hereby accepts said appointment and agrees
to act as Trustee under this Trust Agreement as provided herein.



     2. Trust Is Irrevocable — This Trust Agreement and the nomination of the Trustee
during the term of the trust shall be irrevocable by the Stockholder and the Company and their
Affiliates and shall terminate only in accordance with, and to the extent of, the provisions of
Paragraph 8 hereof.



     3. Deposit of Trust Stock — From and after the Closing Date, the Stockholder shall,
from time to time, deposit, or direct the transfer agent for the Company Common Stock to transfer
directly to the Trustee, such number of shares of Company Common Stock as may be necessary so
neither the Stockholder nor any Affiliate of the Stockholder is, at any time this Trust Agreement
is in effect, a Controlling Person. The Stockholder may also deposit cash with the Trustee and
direct the Trustee to make purchases of Company Common Stock with such amounts (but in no event in
excess of such amounts) so deposited. Certificates representing shares of Company Common Stock
deposited with the Trustee to be held by it pursuant to the terms of this Agreement shall be duly
endorsed or accompanied by proper instruments duly executed for transfer thereof to the Trustee or
otherwise validly and properly transferred. The Trustee shall issue to Stockholder, in respect of
shares of Company Common Stock deposited hereunder, and in respect of Company Common Stock
purchased by it pursuant to the second sentence of this Paragraph 3 one or more Voting Trust
Certificates substantially in the form attached hereto as Exhibit A (the “Trust Certificates”),
with the blanks therein appropriately completed. All shares of Company Common Stock at any time
delivered to the Trustee hereunder, or purchased by the Trustee pursuant to the second sentence of
this Paragraph 3, are called the “Trust Stock.” The Trustee shall present to the Company all
certificates representing Trust Stock that is not registered in the name of the Trustee, or its
nominee, as trustee under this Agreement, for surrender and cancellation and for the issuance and
delivery to the Trustee of new certificates registered in the name of the Trustee, or its nominee,
as Trustee under this Agreement.



     4. Powers of Trustee — The Trustee shall be present, in person or represented by
proxy, at all annual and special meetings of Stockholders of the Company so that all Trust Stock
may be counted for the purposes of determining the presence of a quorum at such meetings. The
Stockholder and the Company agree, and the Trustee acknowledges, that the Trustee shall not
participate in or interfere with the management of the Company and shall take no other actions with
respect to the Company except in accordance with the terms hereof. As required by Section       of
the Investment Agreement, the Trustee shall vote all Trust Stock with respect to all matters,
including without limitation the election or removal of directors, voted on by the stockholders of
the Company (whether at a regular or special meeting or pursuant to a written consent) in the same
proportion as all Company Common Stock (other than (i) Trust Stock, and (ii) Company Common Stock
voted by, or at the direction of, the Stockholder or any Affiliate



-2-









 



thereof) is voted with respect to such matters. In exercising its voting rights in accordance
with this Paragraph 4, the Trustee shall take such actions as may be necessary or appropriate at
all annual, special or other meetings of stockholders of the Company or in connection with any and
all consents of stockholders in lieu of a meeting.




     5. Further Provisions Concerning the Trustee — The Trustee shall not be liable for
any mistakes of fact or law or any error of judgment, or for any act or omission, except as a
result of the Trustee’s willful misconduct or gross negligence.



     6. Transfer of Trust Certificates — The Trust Certificates shall be transferable to
the same extent that shares of Company Common Stock owned by the Stockholder and its Affiliates are
transferable under the Investment Agreement, to the extent practicable. They may be transferred on
the books of the Trustee by the registered holder upon the surrender thereof properly assigned, in
accordance with rules from time to time established for that purpose by the Trustee. Until so
transferred, the Trustee may treat the registered holder as owner for all purposes. Each
transferee of a Trust Certificate issued hereunder shall, by his acceptance thereof, assent to and
become a party to this Trust Agreement, and shall assume all attendant rights and obligations. Any
such transfer in violation of this Paragraph 6 shall be null and void.



     7. Dividends and Distributions; Subscription Rights; Reorganizations and
Recapitalizations —



          (a) The Trustee shall, immediately following the receipt of each cash dividend or cash
distribution or distribution of property or securities of other issuers or securities issued by the
Company having no conditional or unconditional voting rights on any matter (“Company Non-Voting
Securities”), as may be declared and paid upon the Trust Stock, pay the same over to, or as
directed by, the Stockholder or to or as directed by the holders of the Trust Certificates
hereunder as then appearing on the books of the Trustee. In lieu of receiving cash dividends or
cash distributions or other distributions described in the preceding sentence and paying the same
to the holders of Trust Certificates pursuant to the prior sentence, the Trustee may submit a
certification to the Company in writing directing the Company to pay such dividends or
distributions directly to the holders of Trust Certificates on the record date for such dividend or
distribution, and the Trustee shall amend such certification (or submit a new certification) as
appropriate to reflect any transfers of Trust Certificates. Upon receipt of such written
instructions, the Company shall pay such dividends or other distributions directly to the holders
of the Trust certificates so certified by the Trustee. Upon such instructions being given by the
Trustee to Company, and until revoked by the Trustee, all liability of the Trustee with respect to
such dividends or other distributions shall cease. The Trustee shall receive and hold dividends and
distributions of securities issued by the Company having conditional or unconditional rights to
vote on any matter (“Company Voting Securities”) upon the same terms and conditions as the Trust
Stock and shall issue Trust Certificates representing any new or additional Company Voting
Securities that may be paid as dividends or otherwise distributed upon the Trust Stock to the
registered holders of Trust Certificates in proportion to their respective interests.




          (b) In case any stock or other securities of the Company are offered for subscription to the
holders of capital stock of the Company deposited hereunder, through options, rights or otherwise,
promptly upon receipt of notice of such offer, the Trustee shall mail
a copy thereof to


-3-









 






the holders of the Trust Certificates. Upon receipt by the Trustee, at least five days prior to the
last day fixed by the Company for subscription and payment, of a request from any such holder of
Trust Certificates to subscribe in such holder’s behalf, accompanied by the sum of money required
to pay for such capital stock or securities (not in excess of the amount subject to subscription in
respect to the Trust Stock represented by the Trust Certificate held by such holder), the Trustee
shall make such subscription and payment on behalf of the holder, and upon receiving from the
Company the certificates for shares or securities so subscribed for, shall issue to such holder a
Trust Certificate in respect thereof if the same be Voting Company Securities, but if the same be
Company Non-Voting Securities, the Trustee shall mail or deliver such securities to the holder in
whose behalf the subscription was made, or may instruct the Company to make delivery directly to
the holder entitled thereto.




          (c) In the event that the Company is merged into or consolidated with another corporation,
divided into two or more resulting entities, or all or substantially all of the assets of the
Company are transferred to another corporation pursuant to a plan requiring the Company’s assets to
be distributed in liquidation, or all the shares of the Company are to be exchanged in connection
with a reorganization or recapitalization of the Company, then in connection with such transaction
or series of transactions the term “Company” for all purposes of this Agreement shall be taken to
include any successor entity, and the Trustee shall receive and hold under this Agreement any stock
of, or other interests in, such successor entity received on account of the ownership, as Trustee
hereunder, of the Trust Stock prior to such merger, consolidation, division, transfer,
reorganization or recapitalization. Voting Trust Certificates issued and outstanding under this
Agreement at the time of such merger, consolidation, division, transfer, reorganization or
recapitalization may remain outstanding, or the Trustee shall have the discretion to substitute for
such Certificates new Certificates in appropriate form, and the term “Trust Stock” as used herein
shall be taken to include any stock or evidence of an interest which may be received by the Trustee
in lieu of all or any part of the capital stock of the Company.




     In case any reorganization or recapitalization affecting Trust Stock shall have been duly
authorized, the Trustee is hereby authorized to surrender Trust Stock held by the Trustee
hereunder, pro rata on behalf of all holders of Trust Certificates, as may be required under the
terms pursuant to which such reorganization or recapitalization is to be effected, and to receive
and hold any and all other securities of the Company or successor thereto issued in exchange for
such surrendered Trust Stock. Following any such action, the Certificates issued and outstanding
pursuant hereto shall be deemed to represent proportionately the number of other securities
resulting from such reorganization or recapitalization.



     8. Transfer of Trust Stock; Termination of Trust —



          (a) This Trust is accepted by the Trustee subject to the right hereby reserved in the holder
or holders of Trust Certificates as then appearing on the records of the Trustee at any time to
direct the Trustee, by a writing executed by the holder or holders of Trust Certificates (each, a
“Transferor”) and delivered to the Trustee (a “Transfer Notice”), to sell, pledge, encumber or
otherwise transfer or agree to transfer (a “Transfer”) all or any part of the Trust Stock (other
than to the Stockholder or any of its Affiliates); provided that a Transfer may only be made at
such times, and upon such terms and conditions, as would not be in violation of the Investment
Agreement. A copy of the Transfer Notice shall be delivered to the
Company and the Trustee


-4-









 






shall execute the Transfer specified therein as soon as practicable after the expiration of a three
business day period following the Company’s receipt of such Transfer Notice, unless the Company
shall have provided written notice to the Trustee and the Transferor(s) within such three-day
period requesting that such Transferor(s) provide the Company with an opinion of counsel reasonably
satisfactory to it that such Transfer would not be in violation of the Investment Agreement. Upon
receipt by the Company of such opinion of counsel, the Company shall promptly provide the Trustee
and the Transferor(s) with a written notice stating that it no longer objects to such Transfer (a
“Company Notice”). The Trustee shall be entitled to rely on (i) a certification from each
Transferor, executed by its President or one of its Vice Presidents and under its corporate seal,
that any Transfer directed to be made pursuant to this subparagraph 8(a) of the whole or any part
of the Trust Stock would not be in violation of the Investment Agreement and (ii) the Company
Notice. In the event of a permitted Transfer of Trust Stock pursuant to this subparagraph 8(a),
the Trustee shall, to the extent the consideration therefor is payable to or controllable by the
Trustee, promptly pay, or cause to be paid, upon the order of the holder or holders directing such
sale, the net proceeds of such sale in proportion to their respective interests in the Trust Stock
so Transferred. The Trustee shall require the surrender to it of the Trust Certificates issued
hereunder in respect of the Trust Stock to be so Transferred as a condition to the delivery of the
Trust Stock to be Transferred pursuant to this subparagraph 8(a).




          (b) This Trust is accepted by the Trustee subject to the right hereby reserved in the holder
or holders of Trust Certificates at any time to direct the Trustee in writing (a “Delivery Notice”)
to deliver the whole or any part of the Trust Stock to the holder or holders of Trust Certificates
who have given a Delivery Notice (each, a “Requesting Holder”); but the Trustee shall make delivery
only if, after giving effect thereto, neither the Stockholder nor any of its Affiliates would be a
Controlling Person. The Trustee shall take all actions reasonably requested by the Requesting
Holder to effect any such delivery. A copy of such Delivery Notice shall be delivered to the
Company and the Trustee shall execute the delivery specified therein as soon as practicable after
the expiration of a three business day period following the Company’s receipt of such Transfer
Notice, unless the Company shall have provided written notice to the Trustee and the Requesting
Holder(s) within such three-day period requesting that such Requesting Holder(s) provide the
Company with an opinion of counsel reasonably satisfactory to it that, after effecting such
delivery, neither the Stockholder nor any of its Affiliates would be a Controlling Person. Upon
receipt by the Company of such opinion of counsel, the Company shall promptly provide the Trustee
and the Requesting Holder(s) with a written notice stating that it no longer objects to such
delivery (a “Company Delivery Notice”). The Trustee shall be entitled to rely on (i) a
certification from each Requesting Holder, executed by its President or one of its Vice Presidents
and under its corporate seal, that any such delivery directed to be made by the Stockholder of the
whole or any part of the Trust Stock to the Stockholder would not, after giving effect thereto,
cause the Stockholder or any of its Affiliates, to be a Controlling Person and (ii) the Company
Delivery Notice. The Trustee shall require the surrender to it of the Trust Certificates issued
hereunder in respect of the Trust Stock to be so delivered as a condition to the delivery of the
Trust Stock directed by the Requesting Holder(s) to be delivered by it pursuant to this
subparagraph 8(b).




          (c) If (A) the Exemption Proposal shall be approved by the requisite vote of holders of
Company Common Stock and there shall be delivered to the Trustee a
certified copy


-5-









 






of Articles of Amendment to the Articles of Incorporation of the Company providing that Subchapter
E shall not be applicable to the Company, or (B) there shall be delivered to the Trustee an
opinion, in form and substance satisfactory to the Company and the Stockholder, of counsel who is
satisfactory to the Company and the Stockholder, that Subchapter E is otherwise no longer
applicable to the ownership of Company Common Stock by the Stockholder and any of its Affiliates,
the Trustee shall transfer to, or upon the order of, the holder or holders of Trust Certificates as
then appearing on the records of the Trustee, its right, title and interest in and to all of the
Trust Stock and all other property then held by it in accordance with the terms and conditions of
this Trust Agreement and not theretofore transferred or delivered by it as provided in subparagraph
8(a) and subparagraph 8(b), and this Trust shall cease and come to an end. The Trustee shall
require the surrender to it of the Trust Certificates issued hereunder as a condition to the
release or transfer of the Trust Stock and all other property then held by it pursuant to this
subparagraph 8(c).




          (d) Unless sooner terminated pursuant to any other provision herein contained, this Trust
Agreement shall terminate on the the date on which all Trust Stock has been delivered by the
Trustee pursuant to subparagraphs 8(a), 8(b), or 8(c). The Trustee shall require the surrender to
it of the Trust Certificates hereunder before the release or transfer of the stock interests
evidenced thereby.




          (e) Except as expressly provided in this Paragraph 8, the Trustee shall not dispose of, or in
any way encumber, the Trust Stock, and any transfer, sale or encumbrance in violation of the
foregoing shall be null and void.




     9. Independence of the Trustee — Neither the Trustee nor any Affiliate of the Trustee
may have any officers, or members of their respective boards of directors, in common with the
Stockholder or any of its Affiliates. None of the Stockholder or any of its Affiliates shall
purchase, other than in a fiduciary capacity for the benefit of third parties, the stock or
securities of the Trustee or any Affiliate of the Trustee.



     10. Compensation of the Trustee — The Trustee shall be entitled to receive reasonable
and customary compensation for all services rendered by it as Trustee under the terms hereof and
said compensation to the Trustee, together with all counsel fees, taxes, or other expenses
reasonably incurred hereunder, shall be promptly paid by the Stockholder.



     11. Trustee May Act Through Agents — The Trustee may at any time or from time to time
appoint an agent or agents and may delegate to such agent or agents the performance of any
administrative duty of the Trustee.



     12. Concerning the Responsibilities and Indemnification of the Trustee — The Trustee
shall not be answerable for the default or misconduct of any agent or attorney appointed by it in
pursuance hereof if such agent or attorney has been selected with reasonable care. The duties and
responsibilities of the Trustee shall be limited to those expressly set forth in this Trust
Agreement. The Trustee shall not be responsible for the sufficiency or the accuracy of the form,
execution, validity or genuineness of the Trust Stock, or of any documents relating thereto, or for
any lack of endorsement thereon, or for any description therein, nor shall the Trustee be
responsible or liable in any respect on account of the identity, authority or rights of



-6-









 



the persons executing or delivering or purporting to execute or deliver any such Trust Stock
or document or endorsement or this Trust Agreement, except for the execution and delivery of this
Trust Agreement by the Trustee, so long as the Trustee has acted in good faith and without gross
negligence or willful misconduct. The Stockholder agrees that it will at all times protect,
indemnify and save harmless the Trustee from any loss, cost or expense of any kind or character
whatsoever in connection with this Trust except those, if any, growing out of the negligence or
willful misconduct of the Trustee, and will at all times undertake, assume full responsibility for,
and pay all costs and expenses of any suit or litigation of any character, with respect to the
Trust Stock or this Trust Agreement, and if the Trustee shall be made a party thereto, the
Stockholder will pay all costs and expenses, including reasonable counsel fees, to which the
Trustee may be subject by reason thereof; provided, however, that the Stockholder shall not be
responsible for the cost and expense of any suit that the Trustee shall settle without first
obtaining Stockholder’s written consent. The Trustee may consult with counsel and the opinion of
such counsel shall be full and complete authorization and protection in respect of any action taken
or omitted or suffered by the Trustee hereunder in good faith and without gross negligence or
willful misconduct and in accordance with such opinion, except for settlement of a suit without the
Stockholder’s consent as provided in this Paragraph 12.




     13. Trustee to Give Account to Holders — To the extent requested to do so by the
Stockholder or any registered holder of a Trust Certificate, the Trustee shall furnish to the party
making such request full information with respect to (i) all property theretofore delivered to it
as Trustee, (ii) all property then held by it as Trustee, and (iii) all actions theretofore taken
by it as Trustee.



     14. Resignation, Succession, Disqualification of Trustee — The Trustee, or any
trustee hereafter appointed, may at any time resign by giving 60 days’ written notice of
resignation to the Stockholder and the Company. The Stockholder shall at least 15 days prior to
the effective date of such notice appoint a successor trustee which shall (i) satisfy the
requirements of Paragraph 9 hereof, (ii) be reasonably acceptable to Stockholder and the Company
and (iii) be a corporation organized and doing business under the laws of the United States or of
any State thereof and authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000 and subject to supervision or examination by
federal or state authority. If no successor trustee shall have been appointed and shall have
accepted appointment at least 15 days prior to the effective date of such notice of resignation,
the resigning Trustee may petition any competent authority or court of competent jurisdiction for
the appointment of a successor trustee. Upon written assumption by the successor trustee of the
Trustee’s powers and duties hereunder, a copy of the instrument of assumption shall be delivered by
the Trustee to the Stockholder and the Company and all registered holders of Trust Certificates
shall be notified of its assumption, whereupon the Trustee shall be discharged of the powers and
duties of the Trustee hereunder and the successor trustee shall become vested with such powers and
duties and the term “Trustee” as used herein shall mean such successor trustee. In the event of
any material violation by the Trustee of the terms and conditions of this Trust Agreement, the
Trustee shall become disqualified from acting as trustee hereunder as soon as a successor trustee
shall have been selected by the Stockholder in the manner provided by this paragraph.



-7-









 




     15. Amendment — This Trust Agreement may from time to time be modified or amended by
agreement executed by the Trustee, the Stockholder, the Company and all registered holders of the
Trust Certificates upon receipt of an opinion, in form and substance satisfactory to the Company
and the Stockholder, of counsel who is satisfactory to the Company and the Stockholder, that such
modification or amendment, and the voting of the Trust Stock, will not cause the Stockholder or any
of its Affiliates to become a Controlling Person.



     16. Governing Law— The provisions of this Trust Agreement and of the rights and
obligations of the parties hereunder shall be governed by the laws of the Commonwealth of
Pennsylvania.



     17. Successors and Assigns; Company Consent; Filing of Agreement. 



          (a) This Trust Agreement shall be binding upon the successors and assigns to the parties
hereto, including without limitation successors to the Stockholder by merger, consolidation or
otherwise.




          (b) Except as otherwise expressly set forth herein, any consent required from the Company
hereunder may be granted or withheld in the Company’s sole discretion.




          (c) Copies of this Agreement, and each modification or amendment hereof, shall be filed in the
principal office of the Company and shall be open for inspection by any holder of Trust
Certificates and any stockholder of the Company, daily during business hours upon reasonable prior
notice.




     19. Counterparts — This Trust Agreement is executed in four counterparts, each of
which shall constitute an original, and one of which shall be held by the Stockholder, one of which
shall be held by the Company, and the other two shall be held by the Trustee, one of which shall be
subject to inspection by holders of Trust Certificates on reasonable notice during business hours.



     20. Notices — Any notice which any party hereto may give to the other hereunder shall
be in writing and shall be given by hand delivery, or by first class registered mail, or by
overnight courier service, or by facsimile transmission confirmed by one of the aforesaid methods,
sent,


If to the Stockholder, to


[                                                            


                                                            


                                                            ]


If to the Company:


[                                                            


                                                            


                                                            ]




-8-









 







If to the Trustee, to


[                                                            


                                                            


                                                            ]



     And if to the holders of Trust Certificates, to them at their addresses as shown on the
records maintained by the Trustee.



     21. Remedies — Each of the parties hereto acknowledges and agrees that in the event
of any breach of this Agreement, each non-breaching party would be irreparably and immediately
harmed and could not be made whole by monetary damages. It is accordingly agreed that the parties
hereto (a) will waive, in any action for specific performance, the defense of adequacy of a remedy
at law and (b) shall be entitled, in addition to any other remedy to which they may be entitled at
law or in equity, to an order compelling specific performance of this Agreement in any action
instituted in any state or federal court sitting in New York City, New York. Each party hereto
consents to personal jurisdiction in any such action brought in any state or federal court sitting
in New York City, New York.



     22. Entire Agreement. This Agreement, together with the other agreements and documents
referred to herein, constitutes the entire agreement, and supersedes all prior agreements and
understandings, oral and written, among the parties with respect to the subject matter hereof.



     IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be executed all as
of the day and year first above written.



	 	 	 	 	 
	 	BANCO SANTANDER CENTRAL HISPANO, S.A.

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



	 	 	 	 	 
	 	SOVEREIGN BANCORP, INC.

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



	 	 	 	 	 
	 	[                                                       ] BANK

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 



-9-









 






EXHIBIT A




VOTING TRUST CERTIFICATE

FOR SHARES OF COMMON STOCK OF

SEVRUGA CORPORATION

INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF

PENNSYLVANIA





     THIS IS TO CERTIFY that                      will be entitled, on the surrender of this Certificate,
to receive on the termination of the Voting Trust Agreement hereinafter referred to, or otherwise
as provided in Paragraph 8 of said Voting Trust Agreement, a certificate or certificates for
                    
shares of the Common Stock, without par value, of Sovereign Bancorp Inc., a Pennsylvania
corporation (the “Company”). This Certificate is issued pursuant to, and the rights of the holder
hereof are subject to and limited by, the terms of a Voting Trust Agreement, dated as of
[                    ], 2005, by Banco Santander Central Hispano, S.A., a Spanish sociedad anónima, the
Company, and The [                    ] Bank as Voting Trustee, a copy of which Voting Trust
Agreement is on file in the registered office of the Company at [                    ], and open to
inspection of any stockholder of the Company and the holder hereof.



     The holder of this Certificate shall be entitled to the benefits of said Voting Trust
Agreement, including, without limitation, the right to receive payment of certain dividends or
other distributions, if any, paid by the Company with respect to the number of shares represented
by this Certificate.



     This Certificate shall be transferable only on the books of the undersigned Voting Trustee or
any successor, to be kept by it, on surrender hereof by the registered holder in person or by
attorney duly authorized in accordance with the provisions of said Voting Trust Agreement, and
until so transferred, the Voting Trustee may treat the registered holder as the owner of this
Voting Trust Certificate for all purposes whatsoever, unaffected by any notice to the contrary.



     By accepting this Certificate, the holder hereof assents to all the provisions of, and becomes
a party to, said Voting Trust Agreement.



     IN WITNESS WHEREOF, the Voting Trustee has caused this Certificate to be signed by its officer
duly authorized.


Dated:




	 	 	 	 	 
	 	THE [                                                       ] BANK

 	 
	 	By  	
 	 
	 	 	   Authorized Officer 	 
	 	 	 	 



 









 





[FORM OF BACK OF VOTING TRUST CERTIFICATE]





     FOR VALUE RECEIVED                                                              hereby sells, assigns, and transfers
 unto
                                                             the within Voting Trust Certificate and all rights and interests represented
thereby, and does hereby irrevocably constitute and appoint                                                              Attorney to
transfer said Voting Trust Certificate on the books of the within mentioned Voting Trustee, with
full power of substitution in the premises.



                                                            




Dated:




In the Presence of: