As filed with the Securities and Exchange Commission on
December 15, 1997
Registration No. 333-______
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SOVEREIGN BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 6720 23-2453088
(State or other jurisdic- (Primary Standard (I.R.S. Employer
tion of incorporation or Industrial Class- Identification
organization) ification Code No.)
Number)
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
(610) 320-8400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Jay S. Sidhu
President and Chief Executive Officer
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
(610) 320-8400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Joseph M. Harenza, Esquire Gerard L. Hawkins, Esquire
William J. Reynolds, Esquire Daniel P. Weitzel, Esquire
Stevens & Lee Elias, Matz, Tiernan &
111 North Sixth Street Herrick, L.L.P.
P.O. Box 679 734 15th Street, N.W.
Reading, Pennsylvania 19603 12th Floor
Washington, D.C., N.W. 20005
<PAGE>
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered
in connection with the formation of a holding company and there
is compliance with General Instruction G, check the following
box: [ ]
CALCULATION OF REGISTRATION FEE
_________________________________________________________________
Title of Amount to be Proposed Proposed Amount of
each class registered (1) maximum maximum registra-
of secur- offering aggregate tion fee (2)
ities to be price per offering
registered unit price
_________________________________________________________________
Common Stock, 26,388,630 Not Not
no par value shares applicable applicable $126,766
(and (with rights)
associated
stock purchase
rights) (3)
_________________________________________________________________
(1) Based on the maximum number of shares of the Registrant's
common stock that may be issued in connection with the
proposed merger (the "Merger") of ML Bancorp, Inc. ("ML
Bancorp") with and into the Registrant. In accordance with
Rule 416, this Registration Statement shall also register
any additional shares of the Registrant's common stock which
may become issuable to prevent dilution resulting from stock
splits, stock dividends or similar transactions as provided
by the agreement relating to the Merger.
(2) Estimated solely for purposes of calculating the
registration fee. Computed in accordance with
Rule 457(f)(1), on the basis of the closing sale price of
the common stock of ML Bancorp on December 11, 1997 of
$30.00 and based on 12,878,497 shares of ML Bancorp common
stock to be exchanged in the Merger and unexercised options
to purchase 1,065,690 shares of ML Bancorp common stock.
Pursuant to Rule 457(b), the required fee is reduced by the
$74,058 filing fee paid at the time of filing preliminary
proxy materials in connection with this transaction on
November 10, 1997.
(3) Prior to the occurrence of certain events, the stock
purchase rights will not be evidenced separately from the
common stock.
___________________________
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
_________________________________________________________________
<PAGE>
[Letterhead of Sovereign Bancorp, Inc.]
SOVEREIGN BANCORP, INC.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
December 15, 1997
Dear Shareholder:
You are cordially invited to attend a special meeting
of the shareholders of Sovereign Bancorp, Inc. ("Sovereign")
which will be held at the Sheraton Valley Forge and Convention
Center, located at 1160 First Avenue, King of Prussia,
Pennsylvania, at 3:00 p.m., local time, on Thursday, January 22,
1998. For your convenience, directions to the Sheraton Valley
Forge and Convention Center are included on the bottom portion of
the attendance card enclosed in this Proxy Statement/Prospectus.
At the special meeting, shareholders will be asked to
approve and adopt an Agreement and Plan of Merger providing for
the merger of ML Bancorp, Inc. with and into Sovereign. This
combination will create a banking services company with
approximately $17 billion in total assets and leading geographic
markets in Pennsylvania and New Jersey. Your Board of Directors
believes that the combination of ML Bancorp, Inc. with Sovereign
represents a unique and major opportunity to bring substantial
benefits to both organizations.
The proposed merger is described in the accompanying
Proxy Statement/Prospectus and its annexes. Please read all of
these materials carefully.
SOVEREIGN'S BOARD OF DIRECTORS HAS DETERMINED THAT THE
MERGER IS IN THE BEST INTERESTS OF SOVEREIGN AND ITS
SHAREHOLDERS. ACCORDINGLY, THE BOARD HAS APPROVED THE MERGER AND
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER AT THE SPECIAL
MEETING.
Because of the significance of these matters to
Sovereign, your participation in the special meeting, in person
or by proxy, is especially important. We hope you will be able
to attend the meeting. However, whether or not you anticipate
attending in person, we urge you to complete, sign and return the
enclosed proxy card promptly to ensure that your shares will be
represented at the special meeting. If you attend the special
meeting, you will, of course, be entitled to vote in person. If
you intend to attend the special meeting, please return the
attendance card enclosed in this Proxy Statement/Prospectus.
Thank you very much for your continued interest and
support. We look forward to seeing you at the meeting.
Sincerely,
Richard E. Mohn
Chairman of the Board
Jay S. Sidhu
President and Chief Executive
Officer
<PAGE>
SOVEREIGN BANCORP, INC.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
(610) 320-8400
____________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on January 22, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of
Shareholders (including any adjournment or postponement, the
"Sovereign Special Meeting") of SOVEREIGN BANCORP, INC.
("Sovereign") will be held at the Sheraton Valley Forge and
Convention Center, located at 1160 First Avenue, King of Prussia,
Pennsylvania, at 3:00 p.m., local time, on Thursday, January 22,
1998, to consider the following matters:
1. To vote on the approval and adoption of the
Agreement and Plan of Merger dated as of September 18, 1997
(the "Merger Agreement"), between Sovereign and ML Bancorp,
Inc. ("ML Bancorp"), which provides, among other things, for
(i) the merger of ML Bancorp with and into Sovereign (the
"Merger") and (ii) the conversion of each share of common
stock of ML Bancorp outstanding immediately prior to the
Merger (other than any dissenting shares under Pennsylvania
law and shares directly or indirectly owned by Sovereign or
ML Bancorp) into the right to receive a number of shares of
Sovereign common stock determined in the manner set forth in
the Merger Agreement, plus cash in lieu of any fractional
share interest.
2. To vote on adjournment of the Sovereign Special
Meeting, if necessary, to permit further solicitation of
proxies in the event there are not sufficient votes at the
time of the Sovereign Special Meeting to approve the Merger
Agreement.
3. To consider such other matters as may properly be
brought before the Sovereign Special Meeting.
Only those Sovereign shareholders of record at the
close of business on December 1, 1997, shall be entitled to
notice of, and to vote at, the Sovereign Special Meeting.
The Board of Directors of Sovereign believes that the
Merger is fair to and in the best interests of Sovereign and its
shareholders and recommends that shareholders vote "FOR" approval
of the Merger Agreement.
By order of the Board of Directors
Lawrence M. Thompson, Jr.
Secretary
December 15, 1997
_________________________________________________________________
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL
IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. IF
YOU ATTEND THE SOVEREIGN SPECIAL MEETING,
YOU MAY VOTE IN PERSON EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
[LETTERHEAD OF ML BANCORP]
December 15, 1997
Dear Shareholder:
You are cordially invited to attend a special meeting of
shareholders (the "ML Bancorp Special Meeting") of ML Bancorp,
Inc. ("ML Bancorp") to be held on Thursday, January 22, 1998, at
2:00 p.m., local time, at the Sheraton Valley Forge and
Convention Center, 1160 First Avenue, King of Prussia,
Pennsylvania.
At the ML Bancorp Special Meeting, shareholders will
consider and vote upon the Agreement and Plan of Merger dated as
of September 18, 1997 (the "Merger Agreement"), between ML
Bancorp and Sovereign Bancorp, Inc. ("Sovereign"), providing for
the merger of ML Bancorp with and into Sovereign (the "Merger")
and the conversion of each outstanding share of common stock of
ML Bancorp (other than any dissenting shares under Pennsylvania
law and shares directly or indirectly owned by Sovereign or ML
Bancorp) into shares of common stock of Sovereign, based on an
exchange ratio to be determined in accordance with the Merger
Agreement, all as more fully described in the accompanying Proxy
Statement/Prospectus. Sovereign will pay cash to ML Bancorp
shareholders in lieu of issuing fractional shares of Sovereign
Common Stock. Completion of the Merger is subject to certain
conditions, including the approval of the Merger Agreement by the
shareholders of ML Bancorp and Sovereign and the approval of the
Merger by various regulatory agencies.
The attached Joint Proxy Statement/Prospectus contains
important information concerning the Merger. We urge you to give
it your careful attention.
The Board of Directors of ML Bancorp has carefully
considered and approved the Merger Agreement and believes that
the Merger is fair to and in the best interests of ML Bancorp and
its shareholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS
UNANIMOUSLY HAS APPROVED AND RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
Your vote is important regardless of the number of shares
you own. Whether or not you plan to attend the ML Bancorp
Special Meeting, the Board of Directors of ML Bancorp urges you
to complete, sign, date and return the enclosed Proxy Card
promptly in the enclosed postage-paid envelope. This will not
prevent you from voting in person at the ML Bancorp Special
Meeting but will ensure that your vote is counted if you are
unable to attend.
On behalf of the Board of Directors and our employees, I
wish to thank you for your continued support. We appreciate your
interest.
Sincerely yours,
John R. Eppinger
Chairman of the Board
Dennis S. Marlo
President and Chief Executive
Officer
<PAGE>
ML BANCORP, INC.
Two Aldwyn Center
Lancaster Avenue & Route 320
Villanova, Pennsylvania 19085
____________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on January 22, 1998
____________________
NOTICE IS HEREBY GIVEN that a Special Meeting of
Shareholders (including any adjournment or postponement, the "ML
Bancorp Special Meeting") of ML Bancorp, Inc. ("ML Bancorp"), a
Pennsylvania corporation, will be held on Thursday, January 22,
1998, at 2:00 p.m., local time, at the Sheraton Valley Forge and
Convention Center, 1160 First Avenue, King of Prussia,
Pennsylvania, to consider and vote upon the following matters,
all as more fully described in the accompanying Joint Proxy
Statement/Prospectus:
1. The approval and adoption of the Agreement
and Plan of Merger dated as of September 18, 1997 (the
"Merger Agreement"), between ML Bancorp and Sovereign
Bancorp, Inc. ("Sovereign"), which provides, among other
things, for (i) the merger of ML Bancorp with and into
Sovereign (the "Merger") and (ii) the conversion of each
share of common stock of ML Bancorp outstanding immediately
prior to the Merger (other than any dissenting shares under
Pennsylvania law and shares directly or indirectly owned by
Sovereign or ML Bancorp) into the right to receive a number
of shares of Sovereign common stock determined in the manner
set forth in the Merger Agreement, plus cash in lieu of any
fractional share interest.
2. The adjournment of the ML Bancorp Special
Meeting, if necessary, to permit further solicitation of
proxies in the event there are not sufficient votes at the
time of the ML Bancorp Special Meeting to approve the Merger
Agreement.
3. The transaction of such other business as may
properly be brought before the ML Bancorp Special Meeting.
The Board of Directors of ML Bancorp has fixed the
close of business on December 5, 1997 as the record date for
determining shareholders entitled to notice of, and to vote at,
the ML Bancorp Special Meeting.
The Board of Directors of ML Bancorp has determined
that the Merger is fair to and in the best interests of ML
Bancorp and its shareholders and unanimously recommends that
shareholders vote "FOR" approval of the Merger Agreement.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF
SHARES YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE ML BANCORP
SPECIAL MEETING, THE BOARD OF DIRECTORS OF ML BANCORP URGES YOU
TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS
SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS
WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE ML BANCORP
SPECIAL MEETING BUT WILL ENSURE THAT YOUR VOTE IS COUNTED IF YOU
ARE UNABLE TO ATTEND.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES
AT THIS TIME.
BY ORDER OF THE BOARD OF DIRECTORS
Brian M. Hartline, Secretary
Villanova, Pennsylvania
December 15, 1997
IF YOU HAVE ANY QUESTIONS, PLEASE CALL
ML BANCORP AT (610) 526-6460
Attention: Brian M. Hartline
<PAGE>
________________________________________________________________
SOVEREIGN BANCORP, INC. and ML BANCORP, INC.
JOINT PROXY STATEMENT
____________________
SOVEREIGN BANCORP, INC.
PROSPECTUS
________________________________________________________________
This Joint Proxy Statement/Prospectus ("Proxy
Statement/Prospectus") is being furnished to shareholders of
Sovereign Bancorp, Inc. ("Sovereign")and to shareholders of ML
Bancorp, Inc. ("ML Bancorp"), each a Pennsylvania corporation, in
connection with the solicitation of proxies by the respective
Boards of Directors of Sovereign and ML Bancorp for use at the
Special Meeting of Shareholders of Sovereign (including any
adjournments or postponements thereof, the "Sovereign Special
Meeting") and the Special Meeting of Shareholders of ML Bancorp
(including any adjournments or postponements thereof, the "ML
Bancorp Special Meeting" and, together with the Sovereign Special
Meeting, the "Meetings") to be held on January 22, 1998.
This Proxy Statement/Prospectus relates to up to
26,388,630 shares of common stock, no par value, of Sovereign
("Sovereign Common Stock") which may be issued upon the merger of
ML Bancorp with and into Sovereign (the "Merger"), pursuant to an
Agreement and Plan of Merger dated as of September 18, 1997 (the
"Merger Agreement"). In the Merger, if the average value of a
share of common stock, no par value, of Sovereign (together with
the Sovereign Rights, as hereinafter defined, attached thereto,
the "Sovereign Common Stock"), determined in accordance with the
Merger Agreement over 20 consecutive trading days ending on the
trading day preceding the Determination Date (as hereinafter
defined) (the "Sovereign Market Value"), is greater than or equal
to $13.80 and less than or equal to $18.67, then each share of
common stock, $.01 par value, of ML Bancorp (the "ML Bancorp
Common Stock"), other than (i) any dissenting shares under
Pennsylvania law ("Dissenting Shares") and (ii) shares directly
or indirectly owned by Sovereign or ML Bancorp other than in a
fiduciary capacity that are beneficially owned by third parties
or as a result of debts previously contracted ("Excluded
Shares"), will be converted into and become the right to receive
1.67 shares of Sovereign Common Stock. If the Sovereign Market
Value is less than $13.80 or greater than $18.67, shareholders of
ML Bancorp will be entitled to receive a number of shares of
Sovereign Common Stock, as follows: (i) if the Sovereign Market
Value is less than $13.80 per share, each share of ML Bancorp
Common Stock (other than any Dissenting Shares and Excluded
Shares) will be converted into and become the right to receive
that number (rounded to the nearest hundredth) of shares of
Sovereign Common Stock as shall equal $23.05 divided by the
Sovereign Market Value, provided that if the Sovereign Market
Value is less than $12.18, Sovereign shall have the option to
elect that each share of ML Bancorp Common Stock (other than any
Dissenting Shares and Excluded Shares) be converted into and
become the right to receive that number (rounded to the nearest
hundredth) of shares of Sovereign Common Stock as shall equal
$23.05 divided by $12.18, and (ii) if the Sovereign Market Value
is greater than $18.67 per share, each share of ML Bancorp Common
Stock (other than any Dissenting Shares and Excluded Shares) will
be converted into and become the right to receive that number
(rounded to the nearest hundredth) of shares of Sovereign Common
Stock as shall equal $31.18 divided by the Sovereign Market
Value, provided that if on or prior to the effective date (the
"Effective Date") of the Merger there has been any public
announcement of a proposed acquisition or sale of all or
substantially all of Sovereign's assets or a merger,
consolidation or similar transaction involving Sovereign in which
Sovereign is not the surviving entity or in which shareholders of
Sovereign before such transaction will not hold in the aggregate
shares of the surviving or new corporation to be outstanding
immediately after the consummation thereof entitled to cast at
least a majority of the votes entitled to be cast generally for
the election of directors, then each share of ML Bancorp Common
Stock (other than any Dissenting Shares and Excluded Shares) will
be converted into and become the right to receive 1.67 shares of
Sovereign Common Stock. In addition, as further described in the
accompanying Joint Proxy Statement/Prospectus, in the event that
ML Bancorp elects to terminate the Merger Agreement as a result
of a decline in the Sovereign Market Value to $12.18 or less in
the absence of a specified decline in the weighted average prices
of a comparable group of nine thrift holding companies, Sovereign
can override such termination by increasing the number (rounded
to the nearest hundredth) of shares issuable in exchange for each
outstanding share of ML Bancorp Common Stock (other than any
Dissenting Shares and Excluded Shares) from the number (rounded
to the nearest hundredth) of shares of Sovereign Common Stock as
shall equal $23.05 divided by $12.18 to that number (rounded to
the nearest hundredth) of shares of Sovereign Common Stock as
shall equal $23.05 divided by the Sovereign Market Value. The
term "Determination Date" means the earlier of (i) the date on
which the Office of Thrift Supervision (the "OTS") approves the
Merger and the merger of Main Line Bank ("Main Line Bank") with
and into Sovereign Bank ("Sovereign Bank") (or the later of such
dates if the OTS approves such transactions on different dates)
and (ii) March 31, 1998.
The number of shares of Sovereign Common Stock into
which each share of ML Bancorp Common Stock (other than any
Dissenting Shares and Excluded Shares) will be converted in the
Merger will be further adjusted to prevent dilution in the event
of additional stock splits, reclassifications or other similar
events. Sovereign will pay cash to ML Bancorp shareholders in
lieu of issuing fractional shares of Sovereign Common Stock.
This Proxy Statement/Prospectus constitutes both the
proxy statement of each of Sovereign and ML Bancorp relating to
(i) the solicitation of proxies by their respective Boards of
Directors for use at the Meetings to be held for the purpose of
considering and voting upon a proposal to approve the Merger
Agreement and (ii) the prospectus of Sovereign with respect to
the Sovereign Common Stock to be issued in the Merger. Sovereign
Common Stock is quoted on the Nasdaq National Market. On
December 12, 1997, the last sale price of Sovereign Common Stock
as reported on the Nasdaq National Market (symbol: SVRN) was
$21.625.
This Proxy Statement/Prospectus and the accompanying
form of proxy are first being mailed to shareholders of Sovereign
and ML Bancorp on or about December 15, 1997.
THE SHARES OF SOVEREIGN COMMON STOCK OFFERED HEREBY
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES OF SOVEREIGN COMMON STOCK OFFERED HEREBY ARE
NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR
SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
________________
The date of this Proxy Statement/Prospectus is
December 15, 1997.
<PAGE>
Table of Contents
Page
AVAILABLE INFORMATION ................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ....... 2
SUMMARY ............................................... 5
The Companies ................................... 5
The Meetings .................................... 8
The Merger ...................................... 12
Certain Related Transactions .................... 23
Interests of Certain Persons in the Merger ...... 24
Comparative Per Common Share Data ............... 25
Recent Developments ............................. 32
SELECTED FINANCIAL DATA ............................... 35
PRO FORMA COMBINED FINANCIAL INFORMATION .............. 42
Pro Forma Unaudited Combined Condensed Balance
Sheet as of September 30, 1997 .................. 43
Pro Forma Unaudited Combined Condensed Statements
of Income for the Nine Months Ended September 30,
1997 and 1996 and the Years Ended December 31,
1996, 1995 and 1994 ............................. 46
THE MEETINGS .......................................... 53
Date, Time and Place ............................ 53
Matters To Be Considered at the Special Meetings. 53
Votes Required .................................. 54
Voting of Proxies ............................... 56
Revocability of Proxies ......................... 57
Record Date; Stock Entitled to Vote; Quorum ..... 58
Solicitation of Proxies ......................... 59
THE MERGER ............................................ 60
Background of and Reasons for the Merger;
Recommendations of the Boards of Directors. 60
Terms of the Merger ............................. 65
Opinions of Financial Advisors .................. 69
Effective Date of the Merger .................... 97
Exchange of ML Bancorp Stock Certificates ....... 98
Conditions to the Merger ........................ 99
Subsidiary Bank Merger ..........................101
Regulatory Approvals ............................101
Representations and Warranties ..................103
Business Pending the Merger .....................104
Dividends .......................................108
No Solicitation of Transactions .................109
Amendment; Waivers ..............................110
Termination; Effect of Termination ..............110
Management and Operations after the Merger ......115
Employee Benefits and Severance .................117
Accounting Treatment ............................120
Certain Federal Income Tax Consequences .........122
Expenses ........................................124
Resale of Sovereign Common Stock ................124
Dissenters' Rights ..............................126
INTERESTS OF CERTAIN PERSONS IN THE MERGER ............130
Stock Options ...................................131
Indemnification; Directors and Officers
Insurance .......................................131
Continued Employment ............................132
Employment Agreements ...........................133
Pension and ESOP Plans ..........................136
Retention Bonuses ...............................137
Pennsylvania Division of Sovereign Bank Advisory
Board ...........................................138
CERTAIN RELATED TRANSACTIONS ..........................138
Stock Option Agreement ..........................138
INFORMATION WITH RESPECT TO SOVEREIGN .................144
General .........................................144
Market Price of and Dividends on Sovereign Common
Stock and Related Shareholder Matters ...........144
INFORMATION WITH RESPECT TO ML BANCORP ................146
General .........................................146
Market Price of and Dividends on ML Bancorp Common
Stock and Related Shareholder Matters .....146
DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES ...........148
Common Stock ....................................148
Preferred Stock .................................152
Shareholder Rights Plan .........................158
Special Charter and Pennsylvania Corporate Law
Provisions ................................159
COMPARISON OF SHAREHOLDER RIGHTS ......................163
Directors .......................................164
Shareholder Meetings ............................167
Action by Shareholders Without a Meeting ........167
Inspection Rights ...............................168
Shareholder Rights Plan .........................168
Antitakeover Provisions .........................168
Required Shareholder Vote .......................171
Amendment of Bylaws .............................175
Mandatory Tender Offer Provision ................176
Dissenters' Rights ..............................177
Dividends .......................................178
Voluntary Dissolution ...........................178
Preemptive Rights ...............................179
ADJOURNMENT ...........................................179
EXPERTS ...............................................180
LEGAL MATTERS .........................................181
OTHER MATTERS .........................................181
SHAREHOLDER PROPOSALS .................................182
ANNEXES
A. Agreement and Plan of Merger between
Sovereign and ML Bancorp, dated as of
September 18, 1997. . . . . . . . . . . . . . . A-1
B. Stock Option Agreement between Sovereign
and ML Bancorp, dated as of September 18,
1997 . . . . . . . . . . . . . . . . . . . . . . B-1
C. Opinion of Merrill Lynch, Pierce, Fenner & Smith,
Incorporated. . . . . . . . . . . . . . . . . . C-1
D. Opinion of Sandler O'Neill & Partners L.P. . . . D-1
E. Sections 1930 and 1571-1580 of the Pennsylvania
Business Corporation Law of 1988, as amended. . E-1
<PAGE>
No persons have been authorized to give any information
or to make any representations other than those contained in this
Proxy Statement/Prospectus in connection with the solicitation of
proxies or the offering of securities made hereby and, if given
or made, such information or representation must not be relied
upon as having been authorized by Sovereign or ML Bancorp. This
Proxy Statement/Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, any securities, or the
solicitation of a proxy, in any jurisdiction to or from any
person to whom it is not lawful to make any such offer or
solicitation in such jurisdiction. Neither the delivery of this
Proxy Statement/Prospectus nor any distribution of securities
made hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of
Sovereign or ML Bancorp since the date hereof or that the
information herein is correct as of any time subsequent to its
date.
All information concerning Sovereign and its
subsidiaries contained herein, incorporated herein by reference
or supplied herewith, has been furnished by Sovereign, and all
information concerning ML Bancorp and its subsidiaries contained
herein, incorporated herein by reference or supplied herewith,
has been furnished by ML Bancorp.
AVAILABLE INFORMATION
Sovereign and ML Bancorp are each subject to the
informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance
therewith, file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission").
The reports, proxy statements and other information filed by
Sovereign and ML Bancorp with the Commission can be inspected and
copied at the offices of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at Seven World Trade
Center, New York, New York 10048, and Citicorp Center, 500 West
Madison Avenue, Suite 1400, Chicago, Illinois 60661-2511. Copies
of such material also can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates, and from the web site that the
Commission maintains at http://www.sec.gov.
Sovereign has filed with the Commission a Registration
Statement on Form S-4 (together with any amendments thereto, the
"Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Sovereign
Common Stock to be issued pursuant to the Merger Agreement. This
Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement and the exhibits thereto.
Such additional information may be obtained from the Commission's
principal office in Washington, D.C. Statements contained in
this Proxy Statement/Prospectus or in any document incorporated
in this Proxy Statement/Prospectus by reference or supplied
herewith as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and,
in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being
qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by
Sovereign (File No. 0-16533) pursuant to the Exchange Act are
incorporated by reference in this Proxy Statement/Prospectus:
1. Sovereign's Annual Report on Form 10-K for the
year ended December 31, 1996, as amended by
Form 10-K/A dated July 10, 1997.
2. Sovereign's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997, as amended by
Form 10-Q/A dated July 10, 1997, June 30, 1997 and
September 30, 1997.
3. Sovereign's Current Reports on Form 8-K dated
February 5, 1997, February 6, 1997, February 13,
1997, March 18, 1997, June 17, 1997, September 12,
1997, as amended, September 18, 1997 and
December 9, 1997 (which includes Sovereign's
supplemental consolidated financial statements).
4. Sovereign's Registration Statement on Form 8-A,
filed August 14, 1989, pursuant to which Sovereign
registered Sovereign Rights under the Exchange Act
and any amendments or reports filed for the
purpose of updating such Registration Statement.
The following documents filed with the Commission by ML
Bancorp (File No. 0-24358) pursuant to the Exchange Act are
incorporated by reference in this Proxy Statement/Prospectus:
1. ML Bancorp's Annual Report on Form 10-K for the
year ended March 31, 1997.
2. ML Bancorp's Quarterly Reports on Form 10-Q for
the quarters ended June 30, 1997 and September 30,
1997.
3. ML Bancorp's Current Report on Form 8-K dated
September 22, 1997 and September 24, 1997, as
amended.
In addition, all documents filed by Sovereign and ML
Bancorp pursuant to Section 13(a), 13(c), 14 and 15(d) of the
Exchange Act subsequent to the date of this Proxy Statement/
Prospectus and prior to the date of the Meetings shall be deemed
to be incorporated by reference in this Proxy Statement/
Prospectus and to be a part hereof from the dates of filing of
such documents or reports. Any statement contained herein or in
a document all or a portion of which is incorporated or deemed to
be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Proxy Statement/
Prospectus to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded
shall not be deemed, except as modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS
BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, ON WRITTEN OR ORAL REQUEST. DOCUMENTS RELATING TO
SOVEREIGN MAY BE REQUESTED FROM SOVEREIGN BANCORP, INC.,
1130 BERKSHIRE BOULEVARD, WYOMISSING, PENNSYLVANIA 19610
(TELEPHONE NUMBER (610) 320-8400), ATTENTION: LAWRENCE M.
THOMPSON, JR., SECRETARY. DOCUMENTS RELATING TO ML BANCORP MAY
BE REQUESTED FROM ML BANCORP, INC., TWO ALDWYN CENTER, ROUTE 320
AND LANCASTER AVENUE, VILLANOVA, PENNSYLVANIA 19085 (TELEPHONE
NUMBER (610) 526-6460), ATTENTION: BRIAN M. HARTLINE, SECRETARY.
IN ORDER TO ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE
APPLICABLE MEETING, REQUESTS SHOULD BE RECEIVED BY JANUARY 9,
1998.
<PAGE>
SUMMARY
The following is a summary of certain information
contained elsewhere in this Proxy Statement/Prospectus and in the
documents incorporated herein by reference. Reference is made
to, and this summary is qualified in its entirety by, the more
detailed information contained or incorporated by reference in
this Proxy Statement/Prospectus and the Annexes hereto. A copy
of the Merger Agreement (excluding exhibits thereto) is set forth
in Annex A to this Proxy Statement/Prospectus and reference is
made thereto for a complete description of the terms of the
Merger. Shareholders of Sovereign and ML Bancorp are urged to
read carefully this entire Proxy Statement/Prospectus, including
the Annexes hereto.
Except as otherwise specifically indicated, all ratios
and share data relating to Sovereign and all share price
information relating to the Merger Agreement have been adjusted
to reflect Sovereign's 6-for-5 stock split effected on March 14,
1997 (the "Stock Split").
The Companies
Sovereign
Sovereign, a Pennsylvania business corporation, is the
holding company for Sovereign Bank, a federal savings bank. At
September 30, 1997, Sovereign and its subsidiaries had total
consolidated assets, deposits and shareholders' equity of
approximately $14.6 billion, $7.8 billion and $742.1 million,
respectively. The primary operating entity of Sovereign is
Sovereign Bank. Sovereign Bank's primary business consists of
attracting deposits from its network of 150 community banking
offices, and originating commercial, consumer and residential
mortgage loans and home equity lines of credit in the communities
served by those offices. Those offices are located largely in
the Pennsylvania counties of Berks, Lancaster, Bucks, Montgomery,
Philadelphia, Lehigh and Northampton, the New Jersey counties of
Essex, Mercer, Middlesex, Monmouth, Morris, Ocean and Union, and
New Castle County in Delaware.
On August 29, 1997, Sovereign completed its acquisition
of Bankers Corp. ("Bankers"), a New Jersey corporation, pursuant
to which Bankers merged with and into Sovereign, with Sovereign
surviving the merger. The merger was treated as a pooling of
interests for financial accounting purposes. As part of the
Bankers merger, Bankers Savings, a New Jersey Savings bank and a
wholly-owned subsidiary of Bankers, was merged with and into
Sovereign Bank. At the date of merger, Bankers had total
unaudited consolidated assets, deposits, and stockholders' equity
of approximately $2.5 billion, $1.6 billion, and $204 million,
respectively. Bankers Savings operated 15 branches located in
Middlesex, Monmouth and Ocean Counties, New Jersey.
On September 19, 1997 Sovereign Bank completed its
purchase from Fleet Financial Group, Inc. and certain of its
affiliates ("Fleet") of certain assets of Fleet's automobile
finance division (the "Division"). The assets consisted
principally of (i) approximately $1.9 billion of indirect
automobile loans, other indirect consumer loans, dealer floor
plan loans and loans to automobile leasing companies at 98.7% of
principal amount or a cash purchase price of approximately $1.875
billion (less approximately $65 million of certain assumed
liabilities), and (ii) miscellaneous furniture, fixtures and
equipment for approximately $1 million in cash. The transaction
was treated as a purchase for financial accounting purposes and,
after taking into account loan loss reserves, resulted in
approximately $10 million of goodwill.
For additional information regarding the Bankers and
Fleet transactions, see "-Recent Developments - Sovereign."
The principal executive offices of Sovereign are
located at 1130 Berkshire Boulevard, Wyomissing, Pennsylvania
19610, and its telephone number is (610) 320-8400. For further
information concerning Sovereign and its subsidiaries, see
"AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE," "SOVEREIGN SELECTED FINANCIAL DATA," "INFORMATION
WITH RESPECT TO SOVEREIGN" and "DESCRIPTION OF SOVEREIGN CAPITAL
SECURITIES."
ML Bancorp
ML Bancorp, a Pennsylvania corporation, is the holding
company for Main Line Bank, a federal savings bank. At
September 30, 1997, ML Bancorp and Main Line Bank had total
consolidated assets, deposits and shareholders' equity of
approximately $2.3 billion, $1.0 billion and $160.0 million,
respectively. The primary operating entity of ML Bancorp is Main
Line Bank. Main Line Bank's primary business consists of
providing a wide range of financial products and services through
its network of 29 community banking offices and 9 mortgage loan
production offices, including traditional depository and lending
services to consumers, businesses, and governmental units. The
banking offices are located primarily in the Pennsylvania
counties of Bucks, Chester, Delaware and Montgomery. The loan
production offices are located in Eastern Pennsylvania, Southern
New Jersey, Northern Delaware and Florida.
On September 8, 1997, ML Bancorp completed the
acquisition of Penncore Financial Service Corporation
("Penncore"), pursuant to which Penncore was merged with and into
ML Bancorp, with ML Bancorp surviving the merger. The Penncore
acquisition was treated as a purchase for financial accounting
purposes. As part of the Penncore merger, Commonwealth State
Bank, a Pennsylvania-chartered bank and a wholly owned subsidiary
of Penncore, was merged with and into Main Line Bank. See "-
Recent Developments - ML Bancorp."
The principal executive offices of ML Bancorp are at
Two Aldwyn Center, Villanova, Pennsylvania 19085 and its
telephone number is (610) 526-6460. For additional information
concerning ML Bancorp, see "AVAILABLE INFORMATION,"
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "ML BANCORP
SELECTED FINANCIAL DATA" and "INFORMATION WITH RESPECT TO ML
BANCORP."
The Meetings
General
The Sovereign Special Meeting will be held at the
Sheraton Valley Forge and Convention Center, located at
1160 First Avenue, King of Prussia, Pennsylvania, at 3:00 p.m.,
local time, on Thursday, January 22, 1998.
The ML Bancorp Special Meeting will be held at the
Sheraton Valley Forge and Convention Center, located at
1160 First Avenue, King of Prussia, Pennsylvania, at 2:00 p.m.,
local time, on Thursday, January 22, 1998.
Record Dates
The record date for the Sovereign Special Meeting is
December 1, 1997 (the "Sovereign Record Date"). The record date
for the ML Bancorp Special Meeting is December 5, 1997 (the "ML
Bancorp Record Date"). Only shareholders of record at the close
of business on the Sovereign Record Date or the ML Bancorp Record
Date, as applicable, will be entitled to receive notice of, and
to vote at, the Meetings.
Matters to be Considered at the Meetings
Sovereign. At the Sovereign Special Meeting, holders
of Sovereign Common Stock will consider and vote upon a proposal
to approve and adopt the Merger Agreement attached as Annex A to
this Proxy Statement/Prospectus and incorporated herein by
reference. In addition, shareholders of Sovereign are being
asked to approve a proposal to adjourn the Sovereign Special
Meeting, if necessary, to permit further solicitation of proxies
in the event there are not sufficient votes at the Sovereign
Special Meeting to approve the Merger Agreement (the "Sovereign
Adjournment Proposal"). Shareholders will also consider and vote
upon any other matter that may properly come before the Sovereign
Special Meeting.
ML Bancorp. At the ML Bancorp Special Meeting, holders
of ML Bancorp Common Stock will consider and vote upon a proposal
to approve and adopt the Merger Agreement attached as Annex A to
this Proxy Statement/Prospectus and incorporated herein by
reference. In addition, shareholders of ML Bancorp are being
asked to approve a proposal to adjourn the ML Bancorp Special
Meeting, if necessary, to permit further solicitation of proxies
in the event there are not sufficient votes at the ML Bancorp
Special Meeting to approve the Merger Agreement (the "ML Bancorp
Adjournment Proposal"). Shareholders will also consider and vote
upon any other matter that may properly come before the ML
Bancorp Special Meeting.
See "THE MEETINGS -- Matters to be Considered at the
Meetings."
Votes Required
Sovereign. Shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast
on the Sovereign Record Date must be represented in person or by
proxy at the Sovereign Special Meeting for a quorum to be present
for purposes of voting on the Merger Agreement and any other
matter to be considered at the Sovereign Special Meeting. The
approval and adoption of the Merger Agreement and the approval of
the Sovereign Adjournment Proposal will each require the
affirmative vote of a majority of the votes cast, in person or by
proxy, by all shareholders entitled to vote thereon at the
Sovereign Special Meeting. Each holder of shares of Sovereign
Common Stock outstanding on the Sovereign Record Date will be
entitled to one vote for each share held of record at the
Sovereign Special Meeting. The directors and executive officers
of Sovereign have agreed to vote all shares of Sovereign Common
Stock that they own on the Sovereign Record Date in favor of the
approval and adoption of the Merger Agreement. On the Sovereign
Record Date, directors and executive officers of Sovereign owned
approximately 4,508,000 shares of Sovereign Common Stock, or
approximately 5% of the then outstanding shares of Sovereign
Common Stock.
Management of Sovereign is not aware of any person or
entity owning 5% or more of Sovereign Common Stock, except for
4,949,040 shares of Sovereign Common Stock (approximately 5% of
outstanding shares) held of record by a nominee for York Bank &
Trust Company, trustee for the Sovereign Employee Stock Ownership
Plan (the "Sovereign ESOP"). Under the terms of the Sovereign
ESOP, shares held by the Sovereign ESOP are allocated to
individual employee accounts as the debt incurred to purchase the
shares is repaid. Once allocated to an individual employee
account, shares are voted in the manner directed by the employee.
Prior to allocation, the trustee is required to vote the shares
in its discretion. As of October 15, 1997, 881,944 shares were
allocated to the accounts of Sovereign employees and 4,067 shares
were unallocated.
ML Bancorp. Shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast
on the ML Bancorp Record Date must be represented in person or by
proxy at the ML Bancorp Special Meeting for a quorum to be
present for purposes of voting on the Merger Agreement and any
other matter to be considered at the ML Bancorp Special Meeting.
The approval and adoption of the Merger Agreement and the
approval of the ML Bancorp Adjournment Proposal will each require
the affirmative vote of a majority of the votes cast, in person
or by proxy, by all shareholders entitled to vote thereon at the
ML Bancorp Special Meeting. Each holder of shares of ML Bancorp
Common Stock outstanding on the ML Bancorp Record Date will be
entitled to one vote for each share held of record at the ML
Bancorp Special Meeting. The directors and executive officers of
ML Bancorp have agreed to vote all shares of ML Bancorp Common
Stock that they own on the ML Bancorp Record Date in favor of the
approval and adoption of the Merger Agreement. On the ML Bancorp
Record Date, directors and executive officers of ML Bancorp owned
approximately 422,421 shares of ML Bancorp Common Stock, or
approximately 3.6% of the then outstanding shares of ML Bancorp
Common Stock.
Management of ML Bancorp is not aware of any person or
entity owning 5% or more of the outstanding shares of ML Bancorp
Common Stock, except for 1,013,146 shares of ML Bancorp Common
Stock (approximately 8.5% of outstanding shares) held of record
by the ML Bancorp Employee Stock Ownership Plan Trust (the "ML
Bancorp ESOP Plan Trust") pursuant to the ML Bancorp Employee
Stock Ownership Plan (the "ML Bancorp ESOP"). Under the terms of
the ML Bancorp ESOP, PNC Bank, as trustee for the ML Bancorp
ESOP, must vote all allocated shares in accordance with the
instructions of the participating employees, and vote allocated
shares for which employees do not give instructions and
unallocated shares in accordance with the instructions of the ML
Bancorp ESOP Administrative Committee comprised of
Messrs. John R. Eppinger, Dennis S. Marlo and Brian M. Hartline.
As of the October 31, 1997, 329,879 shares were allocated to the
accounts of ML Bancorp employees, and 683,267 shares were
unallocated.
See "THE MEETINGS -- Votes Required."
The Merger
Terms of the Merger
At the Effective Date of the Merger, each outstanding
share of ML Bancorp Common Stock (other than any Dissenting
Shares and Excluded Shares) will be automatically converted into,
and become a right to receive, 1.67 shares of Sovereign Common
Stock provided that the Sovereign Market Value is greater than or
equal to $13.80 and less than or equal to $18.67 per share.
If, however, the Sovereign Market Value is less than
$13.80 or greater than $18.67, shareholders of ML Bancorp will be
entitled to receive a number of shares of Sovereign Common Stock,
and corresponding percentage of Sovereign stock purchase rights,
as described in the following paragraphs:
If the Sovereign Market Value is less than $13.80 per
share, each share of ML Bancorp Common Stock (other than any
Dissenting Shares and Excluded Shares) will be converted into and
become the right to receive that number (rounded to the nearest
hundredth) of shares of Sovereign Common Stock as shall equal
$23.05 divided by the Sovereign Market Value, provided that if
the Sovereign Market Value is less than $12.18, Sovereign shall
have the option to elect that each share of ML Bancorp Common
Stock (other than any Dissenting Shares and Excluded Shares) be
converted into and become the right to receive that number
(rounded to the nearest hundredth) of shares of Sovereign Common
Stock as shall equal $23.05 divided by $12.18.
If the Sovereign Market Value is greater than $18.67
per share, each share of ML Bancorp Common Stock (other than any
Dissenting Shares and Excluded Shares) will be converted into and
become the right to receive that number (rounded to the nearest
hundredth) of shares of Sovereign Common Stock as shall equal
$31.18 divided by the Sovereign Market Value, provided that if on
or prior to the Effective Date there has been any public
announcement of a proposed acquisition or sale of all or
substantially all of Sovereign's assets or a merger,
consolidation or similar transaction involving Sovereign in which
Sovereign is not the surviving entity or in which shareholders of
Sovereign before such transaction will not hold in the aggregate
shares of the surviving or new corporation to be outstanding
immediately after the consummation thereof entitled to cast at
least a majority of the votes entitled to be cast generally for
the election of directors, then each share of ML Bancorp Common
Stock (other than any Dissenting Shares and Excluded Shares) will
be converted into and become the right to receive 1.67 shares of
Sovereign Common Stock.
In addition, as further described in the accompanying
Joint Proxy Statement/Prospectus, in the event that ML Bancorp
elects to terminate the Merger Agreement as a result of a decline
in the Sovereign Market Value to $12.18 or less in the absence of
a specified decline in the weighted average prices of a
comparable group of nine thrift holding companies, Sovereign can
override such termination by increasing the number (rounded to
the nearest hundredth) of shares issuable in exchange for each
share of ML Bancorp Common Stock (other than any Dissenting
Shares and Excluded Shares) from the number (rounded to the
nearest hundredth) of shares of Sovereign Common Stock as shall
equal $23.05 divided by $12.18 to that number (rounded to the
nearest hundredth) of shares of Sovereign Common Stock as shall
equal $23.05 divided by the Sovereign Market Value as of the
Determination Date. See "THE MERGER -- Termination; Effect of
Termination."
The number of shares of Sovereign Common Stock issuable
in exchange for shares of ML Bancorp Common Stock (as finally
determined, the "Exchange Ratio") will be further adjusted to
prevent dilution in the event of additional stock splits,
reclassifications or other similar events.
Sovereign will in all events pay cash to ML Bancorp
shareholders in lieu of issuing fractional shares of Sovereign
Common Stock.
In connection with the Merger, all outstanding options
to purchase shares of ML Bancorp Common Stock issued under ML
Bancorp's preexisting employee and director stock option plans
generally will be converted on the Effective Date into options to
acquire that number of shares of Sovereign Common Stock equal to
the number of shares of ML Bancorp Common Stock covered by the
option multiplied by the Exchange Ratio, and the exercise price
for a whole share of Sovereign Common Stock shall be the stated
exercise price for such option divided by the Exchange Ratio,
such shares to be issuable upon exercise in accordance with the
terms of the respective plans and grant agreements of ML Bancorp
under which they were issued. See "THE MERGER -- Terms of the
Merger" and "-- Accounting Treatment."
The Effective Date will be the fifth business day
following satisfaction or waiver of all conditions to the
consummation of the Merger as specified in the Merger Agreement
or such other date as Sovereign and ML Bancorp may mutually
agree. See "THE MERGER -- Effective Date."
Dividends
The Merger Agreement permits ML Bancorp to pay one
regular quarterly cash dividend in the calendar quarter ended
December 31, 1997, not to exceed $.10 per share of ML Common
Stock outstanding. With respect to each calendar quarter ending
after December 31, 1997 but prior to the Effective Date, ML
Bancorp may pay a quarterly cash dividend not to exceed $.033 per
share of ML Common Stock outstanding, provided that if the
shareholders of each of Sovereign and ML Bancorp have not
approved the Merger prior to the end of any calendar quarter
occurring after December 31, 1997, ML Bancorp may declare and pay
an additional dividend equal to $.067 per share of ML Common
Stock outstanding with respect to such quarter. See "THE
MERGER -- Dividends."
Bank Merger
In connection with the Merger, Main Line Bank will
merge with and into Sovereign Bank as soon as practicable
following the Merger, pursuant to a Bank Plan of Merger (the
"Bank Plan of Merger") dated September 18, 1997 (the "Bank
Merger"). See "THE MERGER -- Subsidiary Bank Merger."
Dissenters' Rights
Under Section 1930 and Chapter 15, Subchapter D, of the
Pennsylvania Business Corporation Law (the "BCL"), holders of ML
Bancorp Common Stock who, prior to the vote of ML Bancorp
shareholders on the Merger, properly file with ML Bancorp a
written notice of intention to dissent will have the right to
obtain a cash payment for the "fair value" of their shares
(excluding any element of value arising in anticipation of the
Merger). In order to exercise such rights, a ML Bancorp
shareholder must comply with the procedural requirements of
Chapter 15, Subchapter D, of the BCL, a description of which is
provided in "THE MERGER -- Dissenters' Rights" and the full text
of which is attached to this Proxy Statement/Prospectus as
Annex E. Such "fair value" would be determined in judicial
proceedings, the result of which cannot be predicted. Failure to
take any of the steps required under Chapter 15, Subchapter D, of
the BCL on a timely basis may result in the loss of dissenters'
rights. See "THE MERGER -- Dissenters' Rights" and "COMPARISON
OF SHAREHOLDER RIGHTS -- Dissenters' Rights."
Accounting Treatment and Certain Federal Income Tax
Consequences
The Merger is intended to qualify as a pooling of
interests for financial accounting purposes and is expected to
constitute a tax-free reorganization for federal income tax
purposes. It is a condition to completion of the Merger that
Sovereign and ML Bancorp each receive an opinion from its
respective independent auditor that the Merger will be treated as
a pooling of interests for financial accounting purposes.
Sovereign and ML Bancorp have each been informed by
their respective independent auditors that there is no reason to
believe that the Merger will not qualify as a pooling of
interests for financial accounting and financial reporting
purposes, provided that ML Bancorp reissue approximately 600,000
to 1,000,000 shares of ML Bancorp Common Stock for fair value to
individuals or entities unaffiliated with ML Bancorp and
Sovereign prior to the Effective Date (the "ML Bancorp Stock
Sale"). ML Bancorp has agreed in the Merger Agreement (i) to use
its reasonable best efforts to effect such a sale of ML Bancorp
Common Stock after the Merger has been approved by the
shareholders of Sovereign and ML Bancorp and prior to the
Effective Date, and (ii) to consult with Sovereign with respect
to the amount of shares of ML Bancorp Common Stock to be sold and
the timing and manner of such sale. The ML Bancorp Stock Sale
will not occur during the 20 consecutive trading days ending on
the trading day preceding the Determination Date during which the
Sovereign Market Value will be determined.
As of the date of this Proxy Statement/Prospectus,
neither Sovereign nor ML Bancorp has any reason to believe that
their respective independent auditors will be unable to deliver
an opinion that the Merger will qualify as a pooling of interests
for financial accounting purposes, assuming completion of the ML
Bancorp Stock Sale.
Completion of the Merger is also subject to the
conditions that (i) Sovereign and ML Bancorp each receive an
opinion from Sovereign's counsel that the Merger will constitute
a tax-free reorganization for federal income tax purposes, and
(ii) ML Bancorp receive an opinion from its counsel as to the tax
consequences of the Merger as to ML Bancorp shareholders. As of
the date of the Proxy Statement/Prospectus, Sovereign and ML
Bancorp each has no reason to believe that its counsel will be
unable to deliver such opinion.
See "THE MERGER -- Certain Federal Income Tax
Consequences," "-- Accounting Treatment" and "-- Conditions to
the Merger."
Recommendations of Boards of Directors
Sovereign. The Board of Directors of Sovereign
believes that the terms of the Merger are fair and in the best
interests of the shareholders of Sovereign and has approved the
Merger Agreement. The Board of Directors of Sovereign recommends
that the shareholders of Sovereign approve the Merger Agreement.
ML Bancorp. The Board of Directors of ML Bancorp
believes that the terms of the Merger are fair and in the best
interests of the shareholders of ML Bancorp and has unanimously
approved the Merger Agreement. The Board of Directors of ML
Bancorp unanimously recommends that the shareholders of ML
Bancorp approve the Merger Agreement.
Opinions of Financial Advisor
Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") has delivered its written opinion, dated the
date of this Proxy Statement/Prospectus, to the Board of
Directors of Sovereign that, as of the date of such opinion, and
subject to the assumptions and considerations set forth therein,
the Exchange Ratio is fair to Sovereign from a financial point of
view. A copy of the opinion of Merrill Lynch is attached hereto
as Annex C.
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill")
has delivered its written opinion, dated September 18, 1997, and
updated as of the date of this Proxy Statement/Prospectus, to the
Board of Directors of ML Bancorp that, as of the respective dates
of such opinions, and subject to the assumptions and
considerations set forth therein, the Exchange Ratio is fair from
a financial point of view to the holders of ML Bancorp Common
Stock. A copy of the opinion of Sandler O'Neill, dated the date
of this Proxy Statement/Prospectus, is attached hereto as
Annex D.
For information on the assumptions made, matters
considered and qualifications and limitations on the reviews
undertaken by Merrill Lynch and Sandler O'Neill, see "THE
MERGER -- Opinions of the Financial Advisors."
Conditions to the Merger; Regulatory Approvals
The obligations of Sovereign and ML Bancorp to complete
the Merger are subject to various conditions usual and customary
in transactions similar to the Merger, including, without
limitation, obtaining requisite regulatory approvals and
obtaining approvals of the shareholders of both Sovereign and ML
Bancorp. Application has been made to obtain required regulatory
approvals. No assurance can be given that all required approvals
will be received or as to the timing or conditions of such
approvals. See "THE MERGER --Regulatory Approvals." The
obligation of Sovereign to complete the Merger is also subject to
certain other conditions, including without limitation, that the
Merger qualify as a tax-free reorganization for federal income
tax purposes and as a pooling of interests for accounting
purposes, as discussed above. No assurances can be given that
all such conditions will be met. See "THE MERGER -- Conditions
to the Merger."
Termination; Effect of Termination
The Merger Agreement may be terminated at any time
prior to the Effective Date by mutual consent of Sovereign and ML
Bancorp or by either party if (i) the other party, in any
material respect, breaches any representation, warranty, covenant
or other obligation contained in the Merger Agreement which would
have a Material Adverse Effect (as defined in the Merger
Agreement) on the breaching party, and such breach has not been
cured by the earlier of thirty days from the date written notice
of such breach was given to such party committing the breach or
the Effective Date, (ii) the closing date (the "Closing Date,"
which, under the terms of the Merger Agreement is the same date
as the Effective Date) of the Merger shall not have occurred by
on or before May 31, 1998, unless the failure of such occurrence
shall be due to the failure of the party seeking to terminate the
Merger Agreement to perform or observe any agreements required to
be performed by such party on or before the Closing Date or
(iii) either party has received a final unappealable
administrative order from a regulatory authority whose approval
or consent has been requested that such approval or consent will
not be granted, or in the case of termination by Sovereign, will
not be granted absent the imposition of terms and conditions
which would have a Material Adverse Effect, unless such
occurrence shall be due to the failure of the party seeking to
terminate the Merger Agreement or perform or observe in any
material respect its agreements set forth therein to be performed
or observed by such party on or before the Closing Date.
In addition, ML Bancorp may terminate the Merger
Agreement at any time during the ten-day period following the
Determination Date if both (a) the Sovereign Market Value is less
than $12.18 and Sovereign elects to have the Exchange Ratio equal
the number (rounded to the nearest hundredth) obtained by
dividing $23.05 by $12.18 and (b) the quotient obtained by
dividing the Sovereign Market Value by $16.24 (being the closing
sale price of Sovereign Common Stock immediately preceding public
announcement of the Merger) (the "Sovereign Ratio") is less than
the quotient obtained by dividing the weighted average closing
price per share (the "Index Price") of the common stocks of a
group of nine specified thrift holding companies (the "Index
Group") on the Determination Date by the Index Price on
September 17, 1997 and subtracting 0.10 from such latter number
(the "Index Ratio"); provided, however, that if ML Bancorp elects
to terminate the Merger Agreement in accordance with these
provisions, such termination will not occur if Sovereign elects
to increase the Exchange Ratio to the number (rounded to the
nearest hundredth) which equals the quotient obtained by dividing
$23.05 by the Sovereign Market Value.
The Merger Agreement may be terminated by either the
Board of Directors of Sovereign or the Board of Directors of ML
Bancorp if the Board of Directors of the other party shall have
withdrawn, modified or changed in a manner adverse to the
terminating party its approval or recommendation of the Merger
Agreement and the transactions contemplated thereby.
See "THE MERGER -- Termination; Effect of Termination."
Comparison of Shareholder Rights
Sovereign and ML Bancorp are each Pennsylvania
corporations subject to the provisions of the BCL. Upon
completion of the Merger, shareholders of ML Bancorp will become
shareholders of Sovereign, and their rights as such will continue
to be governed by the BCL and also by Sovereign's Articles of
Incorporation and Bylaws. The rights of shareholders of
Sovereign are different in certain respects from the rights of
shareholders of ML Bancorp. The most significant of these
differences include the following: (i) Sovereign has in effect a
shareholder rights plan, pursuant to which holders of Sovereign
Common Stock are entitled under certain circumstances relating to
an attempt to acquire control of Sovereign to acquire Sovereign
Common Stock or stock of a potential acquiror at a substantially
reduced price (ML Bancorp has not adopted a similar shareholder
rights plan); (ii) the existence of a provision in ML Bancorp's
Articles of Incorporation prohibiting record holders of ML
Bancorp Common Stock who beneficially own in excess of 10% of the
outstanding shares of ML Bancorp Common Stock from voting shares
held in excess of such 10% limit (Sovereign's Articles of
Incorporation do not include a similar limitation); and
(iii) certain provisions of Sovereign's Articles of Incorporation
designed to deter a nonnegotiated attempt to obtain control of
Sovereign. See "COMPARISON OF SHAREHOLDER RIGHTS."
Management and Operations after the Merger
The Board of Directors and executive officers of
Sovereign in office immediately prior to completion of the Merger
will remain as Sovereign's Board of Directors and executive
officers upon completion of the Merger. The Board of Directors
and executive officers of Sovereign Bank in office immediately
prior to completion of the Bank Merger will remain as Sovereign
Bank's Board of Directors and executive officers, except that,
upon completion of the Bank Merger, Sovereign will cause
Sovereign Bank to elect or appoint Dennis S. Marlo, President and
Chief Executive Officer of ML Bancorp, as President of the new
Pennsylvania Division of Sovereign Bank, which will be comprised
of Sovereign Bank's Pennsylvania and Delaware branch network.
Mr. Marlo will also be appointed as a director of Sovereign Bank
to hold office until the 1999 annual reorganization meeting of
the Board of Directors of Sovereign Bank. Sovereign has agreed,
so long as Mr. Marlo remains an active employee of Sovereign or
Sovereign Bank, to renominate Mr. Marlo as a director of
Sovereign Bank for election at the 1999 and 2000 annual
reorganization meetings of Sovereign Bank, respectively, and to
vote its shares of Sovereign Bank in favor of such election at
such meetings.
On the Effective Date, Sovereign has agreed to
establish for a period of at least two years the new Pennsylvania
Division of Sovereign Bank Advisory Board (the "Advisory Board"),
which shall consist of all non-employee members of the ML Bancorp
Board of Directors immediately prior to the Effective Date.
See "THE MERGER -- Subsidiary Bank Merger,"
"-- Management and Operations after the Merger" and "-- Employee
Benefits and Severance."
Exchange of Certificates
After the Effective Date, Sovereign will send to ML
Bancorp shareholders transmittal materials for use in effecting
the exchange of their certificates representing whole shares of
ML Bancorp Common Stock for certificates representing shares of
Sovereign Common Stock. Sovereign will pay holders of ML Bancorp
Common Stock cash in lieu of issuing fractional shares of
Sovereign Common Stock. See "THE MERGER -- Exchange of ML
Bancorp Stock Certificates."
Certain Related Transactions
As a condition to Sovereign entering into the Merger
Agreement, ML Bancorp granted Sovereign an option (the "Option")
under certain circumstances to purchase up to 2,361,245 shares of
ML Bancorp Common Stock at a purchase price of $21.875 per share
(the "Option") pursuant to a Stock Option Agreement dated
September 18, 1997 (the "Stock Option Agreement"), a copy of
which is included as Annex B to this Proxy Statement/Prospectus.
The Option may be exercised by Sovereign only upon the occurrence
of specified events that have the potential for a third party to
effect an acquisition of control of ML Bancorp prior to the
termination of the Merger Agreement. None of such triggering
events has occurred as of the date hereof. Acquisitions of
shares of ML Bancorp Common Stock pursuant to an exercise of the
Option would be subject to prior regulatory approval under
certain circumstances.
The Stock Option Agreement provides that Sovereign may
require, under certain circumstances, ML Bancorp to repurchase
the Option and all shares of ML Bancorp Common Stock purchased by
Sovereign pursuant to the Option on the terms and conditions set
forth in the Stock Option Agreement. ML Bancorp's repurchase of
the Option or ML Bancorp's repurchase of any of the shares of ML
Bancorp Common Stock purchased by Sovereign pursuant to the
Option would have the effect of precluding a potential acquiror
of ML Bancorp from accounting for the acquisition of ML Bancorp
as a pooling of interests for financial accounting purposes for a
certain period of time. See "CERTAIN RELATED TRANSACTIONS --
Stock Option Agreement."
The directors and executive officers of ML Bancorp have
agreed to vote such ML Bancorp Common Stock in favor of the
Merger Agreement and to certain restrictions which are intended
to ensure compliance with applicable securities laws and that the
Merger will be accounted for as a pooling of interests. See "THE
MERGER -- Matters to be Considered at the Meeting." A copy of
the form of letter agreement executed by the directors and
executive officers of ML Bancorp is included as Exhibit 1-A to
the Merger Agreement attached hereto as Annex A.
The Stock Option Agreement and the agreements of ML
Bancorp's directors and executive officers to vote in favor of
the Merger are intended to increase the likelihood that the
Merger will be consummated in accordance with the terms of the
Merger Agreement and may have the effect of discouraging
competing offers to the Merger. See "CERTAIN RELATED
TRANSACTIONS -- Stock Option Agreement."
Interests of Certain Persons in the Merger
Certain directors and executive officers of ML Bancorp
are the holders of stock options to acquire ML Bancorp Common
Stock, which will be converted into options to acquire Sovereign
Common Stock.
Sovereign has agreed in the Merger Agreement to honor
all employment agreements, consulting agreements and termination
agreements that ML Bancorp and its subsidiaries have entered into
with their current or former employees, except that Sovereign and
Sovereign Bank have agreed to use their reasonable best efforts
to enter into a new employment agreement with Mr. Marlo.
Sovereign and Mr. Marlo have preliminarily agreed to the form of
such new contract. For a description of such contract, see
"INTERESTS OF CERTAIN PERSONS IN THE MERGER - Employment
Agreements." Mr. Marlo also will become a director of Sovereign
Bank, as discussed above under "Management and Operations After
the Merger."
The members of the Advisory Board of the new
Pennsylvania Division of Sovereign Bank shall be paid an annual
retainer of $18,750 ($25,000 in the case of Mr. John Eppinger,
Chairman of the Board of ML Bancorp), which is equal to the
annual fees currently being received by such persons in their
capacities as directors of ML Bancorp and Main Line Bank.
Also, Sovereign has agreed to indemnify and insure
after the Effective Date, persons who served as directors and
officers of ML Bancorp and Main Line Bank. See "THE MERGER --
Management and Operations After the Merger" and "INTERESTS OF
CERTAIN PERSONS IN THE MERGER."
Comparative Per Common Share Data
The following table sets forth certain unaudited
comparative per share data relating to book value per common
share, cash dividends declared per common share and income from
continuing operations per common share (i) on an historical basis
for Sovereign and ML Bancorp, (ii) on a pro forma basis per share
of Sovereign Common Stock to reflect completion of the Merger,
assuming the Merger was effective for the periods presented, and
(iii) on an equivalent pro forma basis per share of ML Bancorp
Common Stock to reflect completion of the Merger, assuming the
Merger was effective for the periods presented. The pro forma
information has been prepared giving effect to the Merger using
the pooling of interests accounting method, assuming the Merger
was effective for the periods presented. For a description of
the effect of pooling of interests accounting, see "THE MERGER --
Accounting Treatment." Because Sovereign's acquisition of
Bankers, completed on August 29, 1997, was accounted for as a
pooling of interests, Sovereign's historical financial
information has been restated to reflect for all periods
presented Bankers' assets and liabilities and results of
operations based on the assumption that such acquisition was
completed at the beginning of the applicable period. Sovereign's
historical financial information at and for the nine months ended
September 30, 1997 includes the assets and liabilities Sovereign
purchased from Fleet on September 19, 1997 and the results of
operations relating to such assets and liabilities from
September 19, 1997 through September 30, 1997. The Fleet
transaction was accounted for as a purchase. The pro forma
information for the nine month period ended September 30, 1997
and for the years ended December 31, 1996, 1995 and 1994 utilized
ML Bancorp financial information for the six-month period ended
September 30, 1997, and the years ended March 31, 1997, 1996 and
1995, respectively. ML Bancorp's historical financial
information for the six months ended September 30, 1997 includes
the assets and liabilities ML Bancorp acquired on September 8,
1997 in connection with its acquisition of Penncore and includes
the results of operations relating to such assets and liabilities
from September 8, 1997 through September 30, 1997. The Penncore
transaction was accounted for as a purchase. The following
equivalent per share data assume an Exchange Ratio of 1.67 shares
of Sovereign Common Stock for each share of ML Bancorp Common
Stock (the applicable Exchange Ratio assuming a Sovereign Market
Value greater than or equal to $13.80 and less than or equal to
$18.67); the Exchange Ratio is subject to adjustment based on the
actual Sovereign Market Value. See "THE MERGER -- Terms of the
Merger." The following equivalent per share data does not
include the effects of the ML Bancorp Stock Sale. As discussed
elsewhere herein, ML Bancorp agreed in the Merger Agreement
(i) to use its reasonable best efforts to effect the ML Bancorp
Stock Sale following the approval of the Merger by the
shareholders of Sovereign and ML Bancorp and prior to the
Effective Date, and (ii) to consult with Sovereign with respect
to the amount of shares of ML Bancorp Common Stock to be sold and
the timing and manner of such sale (which will not occur during
the 20 consecutive trading days ending on the trading day
preceding the Determination Date during which the Sovereign
Market Value will be determined). See "THE MERGER - Accounting
Treatment." This information should be read in conjunction with
the consolidated financial statements of Sovereign (including the
supplemental consolidated financial statements) and ML Bancorp,
including the notes thereto, incorporated by reference in this
Proxy Statement/Prospectus, and the other financial data
appearing elsewhere in this Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "AVAILABLE
INFORMATION," and "PRO FORMA COMBINED FINANCIAL STATEMENTS."
The following information is not necessarily indicative
of the results of operations of future periods or future combined
financial position.
<PAGE>
<TABLE>
<CAPTION>
At September 30, 1997(1) At December 31, 1996(1)
Book Value Per Common Share:
<S> <C> <C>
Historical:
Sovereign . . . . . . . . . . . . . . . $ 7.33 $ 7.02
ML Bancorp . . . . . . . . . . . . . . . 14.41 13.03
Pro Forma(2)(3):
Pro forma per share of Sovereign Common
Stock . . . . . . . . . . . . . . . . 7.50 7.14
Equivalent pro forma per share of ML Bancorp
Common Stock . . . . . . . . . . . . 12.53 11.92
<CAPTION>
For the nine months ended For the year ended December 31,
September 30, 1997(1) 1996(1) 1995(1) 1994(1)
Cash Dividends Paid Per Common Share:
<S> <C> <C> <C> <C>
Historical:
Sovereign . . . . . . . . . . . . . . . $0.11 $0.14 $0.13 $0.12
ML Bancorp. . . . . . . . . . . . . . . 0.20 0.38 - -
Pro Forma(3)(4):
Pro forma per share of Sovereign
Common Stock. . . . . . . . . . . . . 0.11 0.14 0.13 0.12
Equivalent pro forma per share
of ML Bancorp Common Stock. . . . . . 0.18 0.23 0.22 0.20
Income from Continuing Operations Per Common Share:
Historical:
Sovereign. . . . . . . . . . . . . . . . $0.46 $0.69 $0.82 $0.76
ML Bancorp. . . . . . . . . . . . . . . . 0.68 1.22 0.91 0.49
Pro Forma(3)(5):
Pro forma per share of Sovereign
Common Stock . . . . . . . . . . . . . 0.45 0.69 0.77 0.65
Equivalent pro forma per share of ML Bancorp
Common Stock . . . . . . . . . . . . . 0.75 1.15 1.29 1.09
</TABLE>
__________________
(1) Data reflect ML Bancorp historical financial data at and for
the six-months ended September 30, 1997, and at and for the
years ended March 31, 1997, 1996 and 1995.
(2) Pro forma book value per share of Sovereign Common Stock was
calculated by dividing total pro forma combined
shareholders' equity amounts as of the applicable date by
the sum of (i) the total shares of Sovereign Common Stock
outstanding as of the applicable date assuming conversion of
all Sovereign's outstanding 6-1/4% Cumulative Convertible
Preferred Stock, Series B ("Series B Preferred Stock"), or
101,239,602 shares at September 30, 1997 and 99,902,114
shares at December 31, 1996, respectively, and (ii) the
total shares of ML Bancorp Common Stock outstanding as of
the applicable date, 11,865,564 at September 30, 1997 and
11,218,354 shares at March 31, 1997, respectively,
multiplied by an Exchange Ratio of 1.67 shares of Sovereign
Common Stock for each share of ML Bancorp Common Stock.
Equivalent pro forma book value per share of ML Bancorp
Common Stock represents the pro forma book value per share
of Sovereign Common Stock multiplied by an Exchange Ratio of
1.67. The Exchange Ratio is subject to adjustment based on
the actual Sovereign Market Value. See "THE MERGER -- Terms
of the Merger."
(3) Separate pro forma information with respect to Bankers,
Fleet and Penncore is not required to be presented under the
Commission's rules and regulations due to the size of such
transactions.
(4) Sovereign pro forma dividends per share represent historical
dividends paid by Sovereign. ML Bancorp pro forma
equivalent dividends per share represent such amounts
multiplied by an Exchange Ratio of 1.67 shares of Sovereign
Common Stock for each share of ML Bancorp Common Stock. The
Exchange Ratio is subject to adjustment based on the actual
Sovereign Market Value. See "THE MERGER -- Terms of the
Merger."
(5) Sovereign pro forma income from continuing operations per
common share represents historical net income from
continuing operations for Sovereign and ML Bancorp combined
on the assumption that Sovereign and ML Bancorp had been
combined for the periods presented on a pooling of interests
basis, divided by the number of shares of Sovereign Common
Stock which will be issued and outstanding following
completion of the Merger based on an Exchange Ratio of 1.67
shares of Sovereign Common Stock for each share of ML
Bancorp Common Stock. ML Bancorp equivalent pro forma
income from continuing operations per common share
represents such amounts multiplied by an Exchange Ratio of
1.67 shares of Sovereign Common Stock for each share of ML
Bancorp Common Stock. The Exchange Ratio is subject to
adjustment based on the actual Sovereign Market Value. See
"THE MERGER -- Terms of the Merger."
<PAGE>
Market Value of Securities
The following table sets forth the market value per
share of Sovereign Common Stock, the market value per share of ML
Bancorp Common Stock and the equivalent market value per share of
ML Bancorp Common Stock on September 17, 1997 (the last business
day preceding public announcement of the Merger) and December 12,
1997 (the latest practicable trading day before the printing of
this Proxy Statement/Prospectus). The equivalent market value
per share of ML Bancorp Common Stock indicated in the table is
based on an Exchange Ratio of 1.67 shares of Sovereign Common
Stock for each shares of ML Bancorp Common (the applicable
Exchange Ratio assuming a Sovereign Market Value greater than or
equal to $13.80 and less than or equal to $18.67). The Exchange
Ratio is subject to adjustment based on the actual Sovereign
Market Value. See "THE MERGER -- Terms of the Merger."
The historical market values per share of Sovereign
Common Stock and ML Bancorp Common Stock and the historical
market value of Sovereign Common Stock used to determine the
equivalent market value per share of ML Bancorp Common Stock are
the per share last sale prices on September 17, 1997, and
December 12, 1997, respectively, as reported on the Nasdaq
National Market with respect to both Sovereign Common Stock and
ML Bancorp Common Stock.
Sovereign ML Bancorp
Equivalent
Market Value
Historical Historical Per Share
September 17, 1997 $16.38 $23.13 $27.35
December 12, 1997 $21.63 $30.75 $36.12
For information concerning cash dividends paid by
Sovereign, see "INFORMATION WITH RESPECT TO SOVEREIGN -- Market
Price of and Dividends on Sovereign Common Stock and Related
Shareholder Matters."
Recent Developments
Sovereign
On August 29, 1997, Sovereign completed its acquisition
of Bankers, a New Jersey corporation, pursuant to which Bankers
merged with and into Sovereign, with Sovereign surviving the
merger. On the effective date of the merger, each outstanding
share of Bankers common stock was automatically converted into
1.854 shares of Sovereign Common Stock. The merger was treated
as a pooling of interest for financial accounting purposes. As a
result, all financial information relating to Sovereign contained
herein has been prepared to give retroactive effect to the
acquisition of Bankers and, therefore, reflects the combined
financial position and results of operations of Bankers and
Sovereign as if the Bankers acquisition had taken place at the
beginning of the applicable period covered by such information.
As part of the Bankers merger, Bankers Savings, a New Jersey
Savings bank and a wholly owned subsidiary of Bankers, was merged
with and into Sovereign Bank.
At the date of merger, Bankers had total unaudited
consolidated assets, deposits, and stockholders' equity of
approximately $2.5 billion, $1.6 billion, and $204 million,
respectively. Bankers Savings operated 15 branches located in
Middlesex, Monmouth and Ocean Counties, New Jersey.
On September 19, 1997 Sovereign Bank completed its
purchase of certain assets of Fleet's Division. The assets
consisted principally of (i) approximately $1.9 billion of
indirect automobile loans, other indirect consumer loans, dealer
floor plan loans and loans to automobile leasing companies at
98.7% of principal amount or a cash purchase price of
approximately $1.875 billion (less approximately $65 million of
certain assumed liabilities), and (ii) miscellaneous furniture,
fixtures and equipment for approximately $1 million in cash.
As part of the transaction, Sovereign has agreed to
offer employment to approximately 180 employees of the Division.
Sovereign, during a transition period, is also leasing certain
Fleet owned or leased facilities in Melville, New York and
Hartford, Connecticut.
Sovereign expects that its new automobile finance
division will serve over 2,000 automotive dealerships and 225,000
customers principally throughout New Jersey, New York,
Pennsylvania and several New England states.
The transaction was treated as a purchase for financial
accounting purposes and, after taking into account loan loss
reserves, resulted in approximately $10 million of goodwill.
Sovereign expects that its new automotive finance
division will result in earnings per share accretion of $0.02 in
1997, $0.08 in 1998, $0.12 in 1999 and $0.18 in 2000, after
giving pro forma effect to Sovereign's combination with Bankers.
ML Bancorp
On September 8, 1997, ML Bancorp completed the
acquisition of Penncore, pursuant to which Penncore was merged,
with and into ML Bancorp, with ML Bancorp surviving the merger.
On the effective date of the merger, each outstanding share of
Penncore common stock was automatically converted into $36.56 in
cash or a combination of cash and ML Bancorp Common Stock.
Seventy percent (70%) of the shares of Penncore common stock were
exchanged for shares of ML Bancorp Common Stock and thirty
percent (30%) were exchanged for cash. As part of the Penncore
merger, Commonwealth State Bank, a Pennsylvania-chartered bank
and a wholly owned subsidiary of Penncore, was merged with and
into Main Line Bank.
As a result of the Penncore merger, ML Bancorp acquired
approximately $133.0 million in assets and $95.0 million in
deposits.
The Penncore acquisition was treated as a purchase for
financial accounting purposes and resulted in approximately $7.8
million of goodwill.
[END OF SUMMARY]
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth (i) certain historical
consolidated summary financial data for Sovereign (ii) certain
historical consolidated summary financial data for ML Bancorp,
and (iii) certain unaudited pro forma combined selected financial
data giving effect to the Merger assuming that shareholders of ML
Bancorp will receive 1.67 shares of Sovereign Common Stock for
each share of ML Bancorp Common Stock they own (the applicable
Exchange Ratio assuming a Sovereign Market Value of greater than
or equal to $13.80 and less than or equal to $18.67). These data
are derived from, and should be read in conjunction with, among
other things, the consolidated financial statements and
supplemental consolidated financial statements of Sovereign and
the consolidated financial statements of ML Bancorp, including
the notes thereto, incorporated by reference in this Proxy
Statement/Prospectus, and the pro forma combined financial
information, including the notes thereto, appearing elsewhere in
this Proxy Statement/Prospectus.
Because Sovereign's acquisition of Bankers, completed
on August 29, 1997, was accounted for as a pooling of interests,
Sovereign's historical financial information has been restated to
reflect for all periods presented Bankers' assets and liabilities
and results of operations based on the assumption that such
acquisition was completed as of the beginning of the applicable
period. Sovereign's supplemental consolidated financial
statements at December 31, 1996 and 1995 and for the three years
ended December 31, 1996 are set forth in Sovereign's Current
Report on Form 8-K, which was filed with the Commission on
December 9, 1997, and reflect the effects of Sovereign's
acquisition of Bankers for all periods presented. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "AVAILABLE
INFORMATION" and "PRO FORMA COMBINED FINANCIAL INFORMATION."
Sovereign's historical financial information at and for
the nine months ended September 30, 1997 includes the assets and
liabilities Sovereign purchased from Fleet on September 19, 1997
and the results of operations relating to such assets and
liabilities from September 19, 1997 through September 30, 1997.
The Fleet transaction was accounted for as a purchase. ML
Bancorp's historical financial information at and for the six
months ended September 30, 1997 includes the assets and
liabilities ML Bancorp acquired on September 8, 1997 in
connection with its acquisition of Penncore and includes the
results of operations relating to such assets and liabilities
from September 8, 1997 through September 30, 1997. The Penncore
transaction was accounted for as a purchase.
Interim unaudited data for the nine months ended
September 30, 1997 and 1996 with respect to Sovereign and the six
months ended September 30, 1997 and 1996 with respect to ML
Bancorp reflects, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation of such data. Results for the 1997 interim periods
are not necessarily indicative of results which may be expected
for any other interim period or for the year as a whole.
The unaudited pro forma selected financial data do not
give effect to any potential cost savings, potential revenue
enhancements, or any merger-related expenses that may be realized
or incurred as a result of the Merger or the estimated effects of
the ML Bancorp Stock Sale.
<PAGE>
SOVEREIGN SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
Balance Sheet
Data
At or for the Nine Months
Ended September 30, Year Ended December 31,
1997 1996 1996 1995 1994 1993 1992(2)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets. . . . . . . . . . . $14,601,008 $12,360,432 $12,500,852 $10,616,931 $8,873,991 $6,975,798 $5,678,614
Loans . . . . . . . . . . . . . . 10,299,998 8,167,229 8,321,771 6,463,490 6,029,568 4,398,125 3,715,755
Allowance for possible loan
losses. . . . . . . . . . . . . (94,517) (50,242) (52,689) (49,075) (50,785) (50,108) (44,076)
Investment and mortgage-backed
securities available-for-sale . 869,894 581,518 528,887 904,732 107,481 - -
Investment and mortgage-backed
securities held-to-maturity . . 2,937,692 3,136,913 3,195,094 2,644,467 2,333,829 2,192,008 1,496,807
Deposits. . . . . . . . . . . . . 7,750,849 7,221,653 7,235,395 7,237,723 5,959,860 4,990,952 4,728,980
Borrowings. . . . . . . . . . . . 5,925,009 4,335,238 4,476,284 2,621,006 2,310,091 1,441,732 433,437
Shareholders' equity. . . . . . . 742,365 687,274 701,425 655,264 513,587 454,426 404,301
<CAPTION>
Summary Statement
of Operations
At or for the Nine Months
Ended September 30, Year Ended December 31,
1997 1996 1996 1995 1994 1993 1992(2)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income . . . . . . $ 694,585 $ 598,848 $ 818,594 $ 666,645 $ 495,678 $ 418,379 $ 348,638
Total interest expense. . . . . . 449,128 373,016 514,473 414,388 263,312 216,559 197,653
Net interest income . . . . . . . 245,457 225,832 304,121 252,257 232,366 201,820 150,985
Provision for possible loan
losses. . . . . . . . . . . . . 31,199 10,166 15,366 8,150 9,962 13,130 18,357
Net interest income after
provision for possible
loan losses . . . . . . . . . . 214,258 215,666 288,755 244,107 222,404 188,690 132,628
Other income. . . . . . . . . . . 27,330 31,090 46,304 32,936 20,387 23,266 20,736
Other expenses. . . . . . . . . . 160,064 168,238 221,484 155,279 131,000 117,269 83,916
Income before income taxes and
cumulative effect of change in
accounting principle. . . . . . 81,524 78,518 113,575 121,764 111,791 94,687 69,448
Income tax provision. . . . . . . 33,949 29,643 43,436 41,354 40,888 35,080 26,879
Income before cumulative effect
of change in accounting
principle . . . . . . . . . . . 47,575 48,875 70,139 80,410 70,903 59,607 42,569
Cumulative effect of change
in accounting principle . . . . -- -- -- -- -- 4,800 (1,858)
Net income. . . . . . . . . . . . $ 47,575 $ 48,875 $ 70,139 $ 80,410 $ 70,903 $ 64,407 $ 40,711
============ =========== =========== ========== =========== ========== ==========
Net income applicable to common
stock . . . . . . . . . . . . .
Share Data (3)
Common shares outstanding at end
of period (in thousands). . . . 89,275 87,508 87,928 83,836 83,686 78,937 78,698
Preferred shares outstanding at
end of period (in thousands). . 1,998 2,000 2,000 2,000 0 0 0
Earnings per common and common
equivalent share:
Before cumulative effect
of change in accounting
principle . . . . . . . . . . . $0.46 $0.48 $0.69 $0.82 $0.76 $0.64 $0.52
After cumulative effect
of change in accounting
principle . . . . . . . . . . . 0.46 0.48 0.69 0.82 0.76 0.70 0.55
Book value per common and common
equivalent share at end of
period(4) . . . . . . . . . . . 7.33 6.91 7.02 6.65 5.76 5.08 4.54
Common share price at end of
period. . . . . . . . . . . . . 17.50 9.19 10.94 8.06 5.88 9.00 5.13
Dividends paid per common share . 0.11 0.11 0.14 0.13 0.12 0.09 0.07
Dividend payout ratio . . . . . . 24.57% 22.29% 20.72% 15.73% 15.33% 12.71% 12.36%
Return on average assets. . . . . 0.58% 0.63% 0.60% 0.84% 0.92% 1.00% 0.93%
Return on average stockholders'
equity. . . . . . . . . . . . . . 10.43% 10.50% 10.27% 13.53% 14.61% 15.07% 13.17%
Equity to assets. . . . . . . . . 5.08% 5.56% 5.61% 6.17% 5.79% 6.51% 7.12%
________________
</TABLE>
(1) The acquisitions of Bankers in August 1997, First State
Financial Services, Inc. ("First State") in February 1997,
Charter Bancorp, Inc. ("Charter") in November 1994 and
Valley Federal Savings ("Valley Federal") in November 1993
were each accounted for as pooling of interests, and
accordingly, the consolidated financial statements have been
restated to include the accounts of Bankers, First State,
Charter and Valley Federal for all periods presented.
(2) The acquisition of Harmonia Bancorp, Inc. ("Harmonia") was
accounted for as a purchase at the close of business on
December 31, 1992. Sovereign's consolidated balance sheet
at December 31, 1992 includes Harmonia. Sovereign's 1992
consolidated results of operations do not include Harmonia's
results.
(3) All per share data have been adjusted to reflect all stock
dividends and stock splits declared or effected through the
date of this Proxy Statement/Prospectus, including the Stock
Split.
(4) Book value is calculated using equity divided by common
shares and assuming conversion of all outstanding shares of
Series B Preferred Stock. As of the date of this Proxy
Statement/Prospectus, the conversion rate for Sovereign's
Series B Preferred Stock is 5.9868 shares of Sovereign
Common Stock for each share of Series B Preferred Stock.
<PAGE>
ML BANCORP SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
FINANCIAL CONDITION
DATA
At or for the Six Months
Ended September 30, At or for the Year Ended March 31,
-------------------------- ----------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets.......................... $2,315,784 $1,888,847 $1,959,847 $1,765,812 $1,563,452 $1,001,037 $989,308
Loans receivable, net(2)........ 1,022,085 811,481 835,243 786,824 575,280 294,324 313,521
Investments and mortgage-backed
securities.................... 1,162,092 975,278 1,015,189 898,413 926,448 666,838 625,585
Customer accounts............... 1,000,336 807,477 873,357 861,016 693,988 679,687 618,693
Borrowings...................... 1,087,058 927,798 893,703 748,206 705,231 256,633 304,881
Equity.......................... 160,337 138,067 135,704 140,337 141,300 53,978 57,056
Nonperforming assets............ 9,734 11,534 10,724 10,445 8,931 12,363 24,658
Allowance for loan losses....... 17,757 14,981 14,733 13,124 9,111 7,337 7,488
Book value per share(3)......... $14.41 $12.55 $13.03 12.24 11.15 N/A N/A
Tangible book value per share(3) $13.50 $12.15 $12.77 11.93 11.10 N/A N/A
Income Statement Data:
Interest income................. 76,281 68,132 137,318 $120,421 $90,233 $61,899 $70,973
Interest expense................ 44,490 41,797 83,139 76,659 53,484 39,079 45,959
---------------------------------------------------------------------------------------------------
Net interest income............. 31,791 26,335 54,179 43,762 36,749 22,820 25,014
Provision for Loan Losses....... 2,020 2,010 5,310 4,000 3,400 1,113 3,169
---------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses..... 29,771 24,325 48,869 39,762 33,349 21,707 21,845
Non-interest income............. 8,717 8,350 15,706 7,269 3,412 8,616 7,196
Non-interest expenses........... 25,053 27,538 48,860 29,139 23,093 21,000 20,253
Income before income taxes and
effect of cumulative change
in accounting principle....... 13,435 5,137 15,715 17,892 13,668 9,323 8,788
Income taxes (Benefit).......... 5,613 (2,208) 1,905 6,272 4,974 7,461 3,267
Cumulative effect of change in
accounting for income taxes... 0 0 0 0 0 0 1,967
--------------------------------------------------------------------------------------------------
Net income...................... 7,822 7,345 13,810 $11,620 $8,694 $1,862 $7,488
==================================================================================================
Primary earnings per share(3)... $0.69 $0.62 $1.23 $0.92 $0.49 N/A N/A
Fully diluted earnings per
share(3)...................... $0.68 $0.62 $1.22 $0.91 $0.49 N/A N/A
Dividends declared per share(3). $0.20 $0.19 $0.38 $0.26 N/A N/A N/A
Average Balance Sheet Data(4):
Assets.......................... $2,087,426 $1,862,260 $1,876,198 $1,628,137 $1,310,585 $1,001,449 $946,874
Loans........................... 888,371 804,224 805,101 662,160 412,464 304,745 355,410
Mortgage-related securities..... 946,199 875,610 876,969 821,436 753,745 598,345 499,878
Investments..................... 128,763 79,310 82,033 77,199 89,501 44,770 43,894
Customer accounts............... 906,751 833,998 866,226 759,335 693,803 638,804 589,441
Borrowings...................... 1,871,796 1,708,175 850,706 704,267 498,307 294,016 291,329
Equity.......................... 146,436 141,203 141,911 147,372 105,809 58,768 50,553
Weighted shares outstanding-
primary(3).................... 11,335,840 11,833,625 11,195,279 12,695,358 13,456,962 N/A N/A
Weighted shares outstanding-
fully diluted(3).............. 11,570,085 11,932,312 11,281,595 12,786,594 13,456,962 N/A N/A
Selected Financial Ratios:
Return on average equity........ 10.68% 9.92% 9.73% 7.88% 8.22% 3.17% 14.81%
Return on average assets........ 0.75% 0.75% 0.74% 0.71% 0.66% 0.19% 0.79%
Average equity to average assets 7.02% 7.58% 7.56% 9.05% 8.07% 5.87% 5.34%
Allowance for loan losses to:
Gross loans................... 1.71% 1.81% 1.73% 1.64% 1.56% 2.43% 2.51%
Non-performing loans.......... 218.53% 141.04% 156.86% 156.20% 134.74% 137.50% 55.16%
Total non-performing assets to
total assets.................. 0.42% 0.61% 0.55% 0.59% 0.57% 1.23% 2.49%
Capital ratios:
Tangible capital.............. 5.45% 6.54% 5.93% 7.48% 9.17% 5.15% 5.40%
Core capital.................. 5.45% 6.54% 5.93% 7.48% 9.17% 5.11% 5.31%
Risk-based capital............ 12.44% 15.25% 13.95% 15.31% 21.54% 12.67% 13.11%
Net interest margin............. 3.22% 2.98% 3.06% 2.79% 2.90% 2.39% 2.74%
<FN>
- ----------------------------------
(1) ML Bancorp's acquisition of Penncore on September 8, 1997 was accounted for as a purchase, and accordingly, is reflected
only in the financial information at or for the six-month period ended September 30, 1997.
(2) Loans include loans receivable, net, and loans available for sale.
(3) Per share data is calculated since August 11, 1994, the date of Bancorp's initial public offering, and has been adjusted for
Bancorp's two-for-one stock split effected on September 6, 1996.
(4) Certain reclassifications have been made in order to conform with current year's presentation.
________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION> PRO FORMA COMBINED SELECTED FINANCIAL DATA
At or for the Nine Months
Ended September 30(1)(2), At or for the Year Ended December 31(2)(3),
1997 1996 1996 1995 1994 1993 1992
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $16,916,792 $14,249,279 $14,460,699 $12,382,743 $10,437,443 $7,976,835 $6,667,922
Loans, net 11,227,566 8,928,468 9,104,325 7,201,239 6,554,063 4,642,341 3,985,200
Investment securities and mortgage-
backed securities 4,969,678 4,693,709 4,739,170 4,447,612 3,367,758 2,858,846 2,122,390
Deposits 8,751,185 8,029,130 8,108,752 8,098,739 6,653,848 5,670,639 5,347,673
Borrowings 7,012,067 5,263,036 5,369,987 3,369,212 3,015,322 1,698,365 738,318
Stockholders' equity 902,702 825,341 837,129 795,601 654,887 508,404 461,357
Interest income $ 770,866 $ 666,980 $ 955,912 $ 787,066 $ 585,911 $ 480,278 $ 419,611
Interest expense 493,618 414,813 597,612 491,047 316,796 255,638 243,612
Net interest income before provision
for loan losses 277,248 252,167 358,300 296,019 269,115 224,640 175,999
Provision for loan losses 33,219 12,176 20,676 12,150 13,362 14,243 21,526
Net interest income after provision
for loan losses 244,029 239,991 337,624 283,869 255,753 210,397 154,473
Other income 36,047 39,440 62,010 40,205 23,799 31,882 27,932
Other expenses 185,117 195,776 270,344 184,418 154,093 138,269 104,169
Income before income taxes and
cumulative effect of change in
accounting method 94,959 83,655 129,290 139,656 125,459 104,010 78,236
Income taxes 39,562 27,435 45,341 47,626 45,862 42,541 30,146
Net income before cumulative effect
of change in accounting method 55,397 56,220 83,949 92,030 79,597 61,469 48,090
Cumulative effect of change in
accounting method 0 0 0 0 0 4,800 109
Net income $ 55,397 $ 56,220 $ 83,949 $ 92,030 $ 79,597 $ 66,269 $ 48,199
=========== =========== ========== ========== ========== ========== ==========
Earnings per common share $ 0.45 $ 0.46 $ 0.69 $ 0.77 $ 0.65 $ 0.64 $ 0.52
=========== =========== ========== ========== ========== ========== ==========
Dividends per common share $ 0.11 $ 0.11 $ 0.14 $ 0.13 $ 0.12 $ 0.09 $ 0.07
=========== =========== =========== ========== ========== ========== ==========
</TABLE>
___________________________________
(1) Reflects ML Bancorp historical information at or for the six
months ended September 30, 1997.
(2) Separate pro forma information with respect to Bankers,
Fleet and Penncore is not required to be presented under the
Commission's rules and regulations due to the size of such
transactions.
(3) Reflects ML Bancorp historical information at or for each of
the years in the five-year period ended March 31, 1997.
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables set forth selected unaudited pro
forma financial data reflecting the Merger.
The pro forma information has been prepared assuming
that shareholders of ML Bancorp will receive in the Merger 1.67
shares of Sovereign Common Stock for each share of ML Bancorp
Common Stock they own (the applicable Exchange Ratio assuming a
Sovereign Market Value of greater than or equal to $13.80 and
less than or equal to $18.67). This Exchange Ratio is subject to
adjustment based on the actual Sovereign Market Value. See "THE
MERGER -- Terms of the Merger."
The pro forma financial information included in this
Proxy Statement/Prospectus is presented for illustrative purposes
only. Such pro forma financial information does not necessarily
reflect what the actual results of Sovereign would be following
completion of the Merger.
The following pro forma information does not give
effect to any potential cost savings, potential revenue
enhancements or any merger-related expenses that may be realized
or incurred as a result of the Merger. See "THE MERGER --
Management and Operations After the Merger." The pro forma
information does not include the effects of the ML Bancorp Stock
Sale. As discussed elsewhere herein, ML Bancorp agreed in the
Merger Agreement (i) to use its reasonable best efforts to effect
the ML Bancorp Stock Sale following the approval of the Merger by
the shareholders of Sovereign and ML Bancorp and prior to the
Effective Date, and (ii) to consult with Sovereign with respect
to the amount of shares of ML Bancorp Common Stock to be sold and
the timing and manner of such sale (which will not occur during
the 20 consecutive trading days ending on the trading day
preceding the Determination Date during which the Sovereign
Market Value will be determined). See "THE MERGER -- Accounting
Treatment."
Pro Forma Unaudited Combined Condensed Balance Sheet as of
September 30, 1997
The following unaudited pro forma combined condensed
balance sheet information reflects (i) the historical
consolidated balance sheets of Sovereign and ML Bancorp as of
September 30, 1997 and (ii) the pro forma combined condensed
balance sheet of Sovereign as of such date, after giving effect
to the Merger. The Merger has been reflected as a pooling of
interests effective as of September 30, 1997. Sovereign's
historical financial information as of September 30, 1997
includes the assets and liabilities Sovereign purchased from
Fleet on September 19, 1997 and acquired as a result of the
acquisition of Bankers on August 29, 1997, which were accounted
for as a purchase and a pooling of interests, respectively. ML
Bancorp's historical financial information as of September 30,
1997 includes the assets and liabilities it acquired on
September 8, 1997 in connection with its acquisition of Penncore.
Separate pro forma information with respect to Bankers, Fleet and
Penncore is not required to be presented under the Commission's
rules and regulations due to the size of such transactions. The
unaudited information should be read in conjunction with the
historical consolidated financial statements of Sovereign and ML
Bancorp, including the notes thereto, incorporated by reference
in this Proxy Statement/Prospectus. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE INFORMATION."
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(In thousands)
<TABLE>
<CAPTION>
Sovereign
Pro and
Forma ML Bancorp
Sovereign ML Bancorp Adjustments Combined(1)
<S> <C> <C> <C> <C>
Cash and amounts due
from depository
institutions ...... $ 178,269 $ 25,514 $ - $ 203,783
Investment and
mortgage-backed
securities ........ 3,807,596 1,162,092 (3,765)(3) 4,965,923
Loans ............... 10,299,998 1,039,843 - 11,339,841
Allowance for possible
loan losses ....... (94,517) (17,758) - (112,275)
Goodwill and other
intangible assets . 118,357 10,742 - 129,099
Other assets ........ 291,315 95,351 - 386,666
Total assets ...... $14,601,008 $2,315,784 $ (3,765) $16,913,027
=========== ========== =========== ===========
Deposits ............ $ 7,750,849 $1,000,336 $ - $ 8,751,185
Borrowings .......... 5,925,009 1,087,058 - 7,012,067
Other liabilities ... 85,576 18,053 - 103,629
Total liabilities . 13,761,434 2,105,447 - 15,866,881
Trust Preferred
Securities....... 97,452 50,000 - 147,452
Preferred stock...... 96,367 - - 96,367
Common stock(2)...... 380,032 101,810 (47,249)(3)(4) 434,594
Unallocated common stock
held by ESOP and RRP (33,258) (6,683) 6,683 (4) (33,258)
Treasury stock....... (177) (36,801) 36,801 (4) (177)
Unrecognized gain on
investments........ 7,440 7,695 - 15,135
and
Retained earnings.... 291,718 94,315 - 386,033
Total shareholders'
equity ............ 742,122 160,337 (3,765) 898,694
Total liabilities and
shareholders'
equity ............ $14,601,008 $2,315,784 $(3,765) $16,913,027
=========== ========== =========== ===========
____________________________
</TABLE>
(1) Does not reflect any adjustments related to the ML
Bancorp Stock Sale. Assuming that 1,000,000 shares of
ML Bancorp Common Stock are sold in the ML Bancorp
Stock Sale at $30.75 per share, the closing price of a
share of ML Bancorp Common Stock on December 12, 1997,
the latest practicable trading day prior to the
printing of the Proxy Statement/Prospectus, for
estimated net cash proceeds of $30.55 million after
expenses, total assets, common stock, total
shareholders' equity and total liabilities and
shareholders' equity would be $16.9 billion, $454.2
million, $929.2 million and $16.9 billion,
respectively, for Sovereign and ML Bancorp on a pro
forma combined basis. ML Bancorp will sell between
600,000 and 1,000,000 shares of ML Bancorp Common Stock
in the ML Bancorp Stock Sale based on the number of
shares of ML Bancorp Common Stock issued from ML
Bancorp's treasury upon the exercise of outstanding
options to purchase ML Bancorp Common Stock between the
date hereof and consummation of the ML Bancorp Stock
Sale. See "THE MERGER -- Accounting Treatment."
(2) Sovereign Common Stock has no par value; accordingly,
amounts shown include surplus.
(3) Represents cancellation of Sovereign's investment in ML
Bancorp Common Stock.
(4) Represents cancellation of treasury shares of ML
Bancorp and termination of ML Bancorp's Employee Stock
Ownership Plan.
<PAGE>
Pro Forma Unaudited Combined Condensed Statements of Income for
the Nine Months Ended September 30, 1997 and 1996 and the Years
Ended December 31, 1996, 1995 and 1994
The following unaudited pro forma combined condensed
statements of income reflect the historical consolidated
statements of income of Sovereign (including the supplemental
consolidated financial statements) and ML Bancorp, as indicated
below, for each period presented and the pro forma combined
condensed statements of income of Sovereign, after giving effect
to the Merger. The Merger has been reflected as a pooling of
interests. See "THE MERGER -- Accounting Treatment." The pro
forma combined condensed statements of income for the nine-month
periods ended September 30, 1997 and 1996 and the years ended
December 31, 1996, 1995 and 1994 were prepared on the assumption
that the Merger had been completed as of the beginning of the
applicable six-month, nine-month or annual period for Sovereign
or ML Bancorp, as the case may be. Sovereign's historical
financial information for the nine months ended September 30,
1997 and 1996 and for each of the years in the three-year period
ended December 31, 1996 includes Bankers' results of operations
for such interim or annual period, as the case may be, based on
the assumption that such acquisition was completed as of the
beginning of the applicable interim or annual period, as the case
may be. Sovereign's acquisition of Bankers was accounted for as
a pooling of interests. Sovereign's historical financial
information for the nine months ended September 30, 1997 includes
for the period from September 19, 1997 through September 30, 1997
the results of operations relating to the assets and liabilities
Sovereign acquired from Fleet on September 19, 1997. The Fleet
transaction was accounted for as a purchase. ML Bancorp's
historical financial information for the six months ended
September 30, 1997 includes for the period from September 8, 1997
through September 30, 1997 the results of operations of the
assets and liabilities ML Bancorp acquired in connection with its
acquisition of Penncore on September 8, 1997. Separate pro forma
information with respect to Bankers, Fleet and Penncore is not
required to be presented under the Commission's rules and
regulations due to the size of such transactions. The pro forma
combined condensed statements of income for the years ended
December 31, 1996, 1995 and 1994 and for the nine-month periods
ended September 30, 1997 and 1996 utilize ML Bancorp historical
financial information for the years ended March 31, 1997, 1996
and 1995 and the six-month periods ended September 30, 1997 and
1996, respectively. The unaudited information should be read in
conjunction with the historical consolidated financial statements
of Sovereign (including Sovereign's supplemental consolidated
financial statements set forth in Sovereign's Current Report on
Form 8-K which was filed with the Commission on December 9, 1997)
and ML Bancorp, including the notes thereto, incorporated by
reference in this Proxy Statement/Prospectus. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE INFORMATION."
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997(1)(2)
(In thousands, except per share data)
Sovereign
and
ML Bancorp
Sovereign ML Bancorp Combined
Interest income ............ $ 694,585 $ 76,281 $ 770,866
Interest expense ........... 449,128 44,490 493,618
Net interest income ........ 245,457 31,791 277,248
Provision for possible
loan losses .............. 31,199 2,020 33,219
Net interest income after
provision for possible
loan losses .............. 214,258 29,771 244,029
Other non-interest income... 27,330 8,717 36,047
Non-interest expense ....... 160,064 25,053 185,117
Income before taxes ........ 81,524 13,435 94,959
Income taxes ............... 33,949 5,613 39,562
Net income ................. $ 47,575 $ 7,822 $ 55,397
========= ======== =========
Earnings per share (fully
diluted) ................. $ 0.46 $ 0.68 $ 0.45
========= ======== =========
__________________________
(1) Reflects ML Bancorp historical financial information for the
six months ended September 30, 1997.
(2) Does not reflect any adjustments related to the ML Bancorp
Stock Sale.
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996(1)(2)
(In thousands, except per share data)
Sovereign
and
ML Bancorp
Sovereign ML Bancorp Combined
Interest income ............ $ 598,848 $ 68,132 $ 666,980
Interest expense ........... 373,016 41,797 414,813
Net interest income ........ 225,832 26,335 252,167
Provision for possible
loan losses .............. 10,166 2,010 12,176
Net interest income after
provision for possible
loan losses .............. 215,666 24,325 239,991
Other non-interest income... 31,090 8,350 39,440
Non-interest expense ....... 168,238 27,538 195,776
Income before taxes ........ 78,518 5,137 83,655
Income taxes ............... 29,643 (2,208) 27,435
Net income ................. $ 48,875 $ 7,345 $ 56,220
========= ======== =========
Earnings per share ......... $ 0.48 $ 0.62 $ 0.46
(fully diluted) ========= ======== =========
__________________________
(1) Reflects ML Bancorp historical financial information for the
six months ended September 30, 1996.
(2) Does not reflect any adjustments related to the ML Bancorp
Stock Sale.
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996(1)(2)
(In thousands, except per share data)
Sovereign
and
ML Bancorp
Sovereign ML Bancorp Combined
Interest income ............ $ 818,594 $137,318 $ 955,912
Interest expense ........... 514,473 83,139 597,612
Net interest income ........ 304,121 54,179 358,300
Provision for possible
loan losses .............. 15,366 5,310 20,676
Net interest income after
provision for possible
loan losses .............. 288,755 48,869 337,624
Other non-interest income... 46,304 15,706 62,010
Non-interest expense ....... 221,484 48,860 270,344
Income before taxes ........ 113,575 15,715 129,290
Income taxes ............... 43,436 1,905 45,341
Net income ................. $ 70,139 $ 13,810 $ 83,949
========= ======== =========
Earnings per share ......... $ 0.69 $ 1.22 $ 0.69
(fully diluted) ========= ======== =========
__________________________
(1) Reflects ML Bancorp historical financial information for the
fiscal year ended March 31, 1997.
(2) Does not reflect any adjustments related to the ML Bancorp
Stock Sale.
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995(1)(2)
(In thousands, except per share data)
Sovereign
and
ML Bancorp
Sovereign ML Bancorp Combined
Interest income ............ $ 666,645 $120,421 $ 787,066
Interest expense ........... 414,388 76,659 491,047
Net interest income ........ 252,257 43,762 296,019
Provision for possible
loan losses .............. 8,150 4,000 12,150
Net interest income after
provision for possible
loan losses .............. 244,107 39,762 283,869
Other non-interest income... 32,936 7,269 40,205
Non-interest expense ....... 155,279 29,139 184,418
Income before taxes ........ 121,764 17,892 139,656
Income taxes ............... 41,354 6,272 47,626
Net income ................. $ 80,410 $ 11,620 $ 92,030
========= ======== =========
Earnings per share ......... $ 0.82 $ 0.91 $ 0.77
(fully diluted) ========= ======== =========
__________________________
(1) Reflects ML Bancorp historical financial information for the
fiscal year ended March 31, 1996.
(2) Does not reflect any adjustments related to the ML Bancorp
Stock Sale.
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994(1)(2)
(In thousands, except per share data)
Sovereign
and
ML Bancorp
Sovereign ML Bancorp Combined
Interest income ............ $ 495,678 $ 90,233 $ 585,911
Interest expense ........... 263,312 53,484 316,796
Net interest income ........ 232,366 36,749 269,115
Provision for possible
loan losses .............. 9,962 3,400 13,362
Net interest income after
provision for possible
loan losses .............. 222,404 33,349 255,753
Other non-interest income... 20,387 3,412 23,799
Non-interest expense ....... 131,000 23,093 154,093
Income before taxes ........ 111,791 13,668 125,459
Income taxes ............... 40,888 4,974 45,862
Net income ................. $ 70,903 $ 8,694 $ 79,597
========= ======== =========
Earnings per share ......... $ 0.76 $ 0.49 $ 0.65
(fully diluted) ========= ======== =========
__________________________
(1) Reflects ML Bancorp historical financial information for the
fiscal year ended March 31, 1995.
(2) Does not reflect any adjustments related to the ML Bancorp
Stock Sale.
<PAGE>
THE MEETINGS
Date, Time and Place
Sovereign. The Sovereign Special Meeting will be held
at the Sheraton Valley Forge and Convention Center, located at
1160 First Avenue, King of Prussia, Pennsylvania, at 3:00 p.m.
local time, on Thursday, January 22, 1998.
ML Bancorp. The ML Bancorp Special Meeting will be
held at the Sheraton Valley Forge and Convention Center, located
at 1160 First Avenue, King of Prussia, Pennsylvania, at 2:00 p.m.
local time, on Thursday, January 22, 1998.
Matters To Be Considered at the Special Meetings
Sovereign. At the Sovereign Special Meeting, holders
of Sovereign Common Stock will be asked to consider and vote upon
the approval and adoption of the Merger Agreement and the
approval of the Sovereign Adjournment Proposal. Shareholders may
also consider and vote upon such other matters as may properly be
brought before the Sovereign Special Meeting.
The Board of Directors of Sovereign has approved the
Merger Agreement and recommends a vote FOR approval and adoption
of the Merger Agreement. The Board of Directors has also
approved, and recommends a vote FOR approval of, the Sovereign
Adjournment Proposal.
ML Bancorp. At the ML Bancorp Special Meeting, holders
of ML Bancorp Common Stock will be asked to consider and vote
upon the approval and adoption of the Merger Agreement and the
approval of the ML Bancorp Adjournment Proposal. Shareholders
may also consider such other matters as may properly be brought
before the ML Bancorp Special Meeting.
The Board of Directors of ML Bancorp has (with all
directors present), by unanimous vote, approved the Merger
Agreement and recommends a vote FOR approval and adoption of the
Merger Agreement. The Board of Directors has also, by unanimous
vote, approved, and recommends a vote FOR approval of the ML
Bancorp Adjournment Proposal.
Votes Required
Sovereign. The approval and adoption of the Merger
Agreement and the approval of the Sovereign Adjournment Proposal
will each require the affirmative vote of a majority of the votes
cast, in person or by proxy, by all shareholders entitled to vote
thereon at the Sovereign Special Meeting.
Holders of record of Sovereign Common Stock on the
Sovereign Record Date are each entitled to one vote per share on
each matter to be voted on at the Sovereign Special Meeting.
The directors and executive officers of Sovereign have
agreed to vote all shares of Sovereign Common Stock that they own
on the Sovereign Record Date in favor of the approval and
adoption of the Merger Agreement. As of the Sovereign Record
Date, directors and executive officers of Sovereign and their
affiliates beneficially owned and were entitled to vote 4,508,000
shares of Sovereign Common Stock, which represented approximately
5% of the shares of Sovereign Common Stock outstanding on the
Sovereign Record Date. Management of Sovereign is not aware of
any person or entity owning 5% or more of the outstanding shares
of Sovereign Common Stock, except for 4,949,040 shares of
Sovereign Common Stock (approximately 5% of outstanding shares)
held of record by a nominee for York Bank & Trust Company,
trustee for the Sovereign ESOP. Under the terms of the Sovereign
ESOP, shares held by the Sovereign ESOP are allocated to
individual employee accounts as the debt incurred to purchase the
shares is repaid. Once allocated to an individual employee
account, shares are voted in the manner directed by the employee.
Prior to allocation, the trustee is required to vote the shares
in its discretion. As of the Sovereign Record Date, Sovereign
and its subsidiaries, as fiduciaries, custodians or agents, did
not have voting power with respect to any shares of Sovereign
Common Stock.
ML Bancorp. The approval and adoption of the Merger
Agreement and the approval of the ML Bancorp Adjournment Proposal
will each require the affirmative vote of a majority of the votes
cast, in person or by proxy, by all shareholders entitled to vote
thereon at the ML Bancorp Special Meeting.
Each holder of shares of ML Bancorp Common Stock
outstanding on the ML Bancorp Record Date will be entitled to one
vote for each share held of record on each matter to be
considered at the ML Bancorp Special Meeting.
The directors and executive officers of ML Bancorp have
agreed to vote all shares of ML Bancorp Common Stock that they
own on the ML Bancorp Record Date for approval and adoption of
the Merger Agreement. As of the ML Bancorp Record Date,
directors and executive officers of ML Bancorp and their
affiliates beneficially owned and were entitled to vote 422,421
shares of ML Bancorp Common Stock, which represented
approximately 3.6% of the shares of ML Bancorp Common Stock
outstanding on the ML Bancorp Record Date. Management of
ML Bancorp is not aware of any person or entity owning 5% or more
of the outstanding shares of ML Bancorp Common Stock, except for
1,013,146 shares of ML Bancorp Common Stock (approximately 8.5%
of outstanding shares) held of record by the ML Bancorp ESOP Plan
Trust. Under the terms of the ML Bancorp ESOP, PNC Bank, as
trustee for the ML Bancorp ESOP, must vote all allocated shares
in accordance with the instructions of the participating
employees, and vote allocated shares for which employees do not
give instructions and unallocated shares in accordance with the
instructions of the ML Bancorp Administrative Committee comprised
of Messrs. John R. Eppinger, Dennis S. Marlo and Brian M.
Hartline. As of October 31, 1997, 329,879 shares were allocated
to the accounts of ML Bancorp employees and 683,267 shares were
unallocated.
Voting of Proxies
Shares represented by all properly executed proxies
received in time for the Meetings will be voted at such Meetings
in the manner specified therein by the holders thereof. In the
case of Sovereign, properly executed proxies that do not contain
voting instructions will be voted in favor of the Merger
Agreement and in favor of the Sovereign Adjournment Proposal. In
the case of ML Bancorp, properly executed proxies that do not
contain voting instructions will be voted in favor of the Merger
Agreement and in favor of the ML Bancorp Adjournment Proposal.
Sovereign and ML Bancorp each intend to count shares of
Sovereign Common Stock or ML Bancorp Common Stock, as the case
may be, present in person at the Meetings but not voting, and
shares of Sovereign Common Stock or ML Bancorp Common Stock, as
the case may be, for which they have received proxies but with
respect to which holders of shares have abstained on any matter,
as present at the Meetings for purposes of determining the
presence or absence of a quorum for the transaction of business.
The abstention from voting with respect to any proposal
by any shareholder who is present in person or by proxy at the
Sovereign Special Meeting or the ML Bancorp Special Meeting will
not constitute or be counted as a "vote" cast for purposes of the
Sovereign Special Meeting or the ML Bancorp Special Meeting,
respectively. Because the approval of the Merger Agreement and
the respective Adjournment Proposals at the Sovereign Special
Meeting and the ML Bancorp Special Meeting requires the
affirmative vote of a majority of all votes cast by the
shareholders of Sovereign and ML Bancorp entitled to vote
thereon, respectively, an abstention will not have the same
effect as a vote against such proposals at the Meetings.
Under the applicable rules of the New York Stock
Exchange and the National Association of Securities Dealers, Inc.
("NASD") brokers and/or members, as the case may be, who hold
shares in street name for customers who are the beneficial owners
of such shares are prohibited from giving a proxy to vote such
customers' shares with respect to the approval and adoption of
the Merger Agreement or the respective Adjournment Proposals in
the absence of specific instructions from such customers ("broker
non-votes"). Broker non-votes also will not constitute or be
counted as "votes" cast for purposes of the Sovereign Special
Meeting or the ML Bancorp Special Meeting, and thus also will not
have the same effect as a vote against such proposals.
It is not expected that any matter other than those
referred to herein will be brought before either of the Meetings.
If, however, other matters are properly presented for a vote, the
persons named as proxies will vote in accordance with their
judgment with respect to such matters.
Revocability of Proxies
The grant of a proxy on the enclosed Sovereign or ML
Bancorp form does not preclude a Sovereign shareholder or a ML
Bancorp shareholder from voting in person. A Sovereign
shareholder or a ML Bancorp shareholder may revoke a proxy at any
time prior to its exercise by filing with the Secretary of
Sovereign (in the case of a Sovereign shareholder) or the
Secretary of ML Bancorp (in the case of a ML Bancorp shareholder)
a duly executed revocation of proxy, by submitting a duly
executed proxy bearing a later date or by appearing at the
applicable Meeting and voting in person at such Meeting.
Attendance at the applicable Meeting will not, in and of itself,
constitute revocation of a proxy.
Record Date; Stock Entitled to Vote; Quorum
Sovereign. Only holders of record of Sovereign Common
Stock on the Sovereign Record Date will be entitled to notice of,
and to vote at, the Sovereign Special Meeting. On the Sovereign
Record Date, 93,443,510 shares of Sovereign Common Stock were
issued and outstanding and held by approximately 10,530 holders
of record.
Shareholders entitled to cast at least a majority of
the votes which all shareholders are entitled to cast on the
Sovereign Record Date must be represented in person or by proxy
at the Sovereign Special Meeting in order for a quorum to be
present for purposes of voting on approval of the Merger
Agreement and the Sovereign Adjournment Proposal.
ML Bancorp. Only holders of record of ML Bancorp
Common Stock on the ML Bancorp Record Date will be entitled to
notice of, and to vote at, the ML Bancorp Special Meeting. On
the ML Bancorp Record Date, 11,878,497 shares of ML Bancorp
Common Stock were issued and outstanding and held by
approximately 1,413 holders of record.
Shareholders entitled to cast at least a majority of
the votes which all shareholders are entitled to cast on the ML
Bancorp Record Date must be represented in person or by proxy at
the ML Bancorp Special Meeting in order for a quorum to be
present for purposes of voting on approval of the Merger
Agreement and the ML Bancorp Adjournment Proposal.
Solicitation of Proxies
Each of Sovereign and ML Bancorp will bear the cost of
the solicitation of proxies from its own shareholders, except
that Sovereign and ML Bancorp will share equally the cost of
printing and mailing this Proxy Statement/Prospectus. In
addition to solicitation by mail, the directors, officers and
employees of each of Sovereign and ML Bancorp and their
subsidiaries may solicit proxies from shareholders of such
company by telephone or telegram or in person without
compensation other than reimbursement for their actual expenses.
Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of stock held of
record by such persons, and Sovereign and ML Bancorp will
reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in connection therewith.
Georgeson & Company, Inc. will assist in the
solicitation of proxies by Sovereign for a fee of $7,500, plus
reasonable out-of-pocket expenses. Chase Mellon Shareholder
Services will assist in the solicitation of proxies by ML Bancorp
for a fee of $5,000, plus reasonable out-of-pocket expenses.
ML BANCORP SHAREHOLDERS SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXY CARDS. AS DESCRIBED BELOW UNDER
THE CAPTION "THE MERGER -- EXCHANGE OF ML BANCORP STOCK
CERTIFICATES," EACH ML BANCORP SHAREHOLDER WILL BE PROVIDED WITH
MATERIALS FOR EXCHANGING SHARES OF ML BANCORP COMMON STOCK AS
PROMPTLY AS PRACTICABLE AFTER THE EFFECTIVE DATE.
<PAGE>
THE MERGER
Background of and Reasons for the Merger; Recommendations of the
Boards of Directors
Background of the Merger
On July 23, 1997, the respective Chief Executive
Officers of Sovereign and ML Bancorp met for a previously
scheduled periodic breakfast meeting to discuss general industry
matters and local business conditions. As the meeting drew to a
close, Sovereign's Chief Executive Officer expressed an interest
in combining Sovereign and ML Bancorp. A brief general
discussion of the potential mutual benefits of such a combination
ensued. No specifics concerning an acquisition price were
discussed other than by ML Bancorp that any consideration should
be in the form of shares of Sovereign Common Stock, on a fixed
exchange or fixed price basis, to yield a value in the mid $20
per share for ML Bancorp Common Stock. The meeting concluded
with both parties agreeing to discuss this matter again to
ascertain their respective levels of interest in pursuing a
possible combination.
During August 1997 preliminary discussions were held
between executive managements of Sovereign and ML Bancorp to
explore the desirability of combining. During this time, ML
Bancorp's Board of Directors was made aware of the preliminary
discussions between the executive managements of the two
companies.
In early September 1997, representatives of both
Sovereign and ML Bancorp conducted due diligence of the other's
financial condition, business and operations. Negotiations on
the terms of the Merger Agreement were initiated promptly
thereafter and were finalized on September 18, 1997. Due to the
price and form of the consideration offered by Sovereign, and the
strategic nature of the Merger, ML Bancorp did not solicit other
offers or enter into negotiations with any other party.
At a meeting of the ML Bancorp Board of Directors held
on September 18, 1997, the management of ML Bancorp, as well as
ML Bancorp's legal advisor and Sandler O'Neill, ML Bancorp's
financial advisor, reviewed, among other things, a summary of
management's due diligence findings and the terms of the proposed
Merger. Based on that review, the opinion of Sandler O'Neill,
and consideration of the factors discussed herein, the ML Bancorp
Board of Directors unanimously approved and authorized the
execution of the Merger Agreement and the Stock Option Agreement,
which were executed on September 18, 1997.
Reasons for the Merger
Sovereign's Reasons for the Merger
Sovereign's acquisition strategy consists of
identifying financial institutions with business philosophies
that are similar to those of Sovereign, which operate in strong
markets that are geographically compatible with Sovereign, are
financially sound and can be acquired at reasonable cost.
Acquisitions are also evaluated in terms of asset quality,
interest rate risk, potential operating efficiencies and
management capabilities.
In determining the terms of its offer for ML Bancorp
and whether to enter into the Merger Agreement, Sovereign's Board
of Directors considered a number of factors, including the
following: (i) the financial condition, operating results and
future prospects of Sovereign and ML Bancorp, (ii) historical pro
forma financial information on the Merger, including, among other
things, pro forma book value and earnings per share information,
dilution analysis and capital ratio impact information, (iii) a
comparison of the price being paid in this Merger to other
comparable financial institution mergers, based on, among other
things, multiples of book value and earnings, (iv) the historical
trading prices for the ML Bancorp Common Stock and the Sovereign
Common Stock, (v) the review by Sovereign's Board of Directors of
comparable transactions and management's view, based on such
comparable transactions, that Sovereign would be able to obtain
an opinion from a reputable investment banking firm as to the
fairness of the Exchange Ratio to Sovereign from a financial
point of view (which opinion was subsequently delivered to the
Sovereign Board by Merrill Lynch, as described under "Opinions of
Financial Advisors - Sovereign" below), and (vi) the geographic
location of ML Bancorp's franchise, which provides a natural
fill-in between Sovereign's existing franchise concentrations in
Berks County and New Jersey and which provides access to the
desirable Main Line area of Montgomery and Chester Counties.
In approving the transaction, the Sovereign Board did
not specifically identify any one factor or group of factors as
being more significant than any other factor in the decision
making process, although individual directors may have given one
or more factors more weight than other factors. The emphasis of
the Sovereign Board's discussion in considering the transaction,
however, was on the financial aspects of the transaction,
particularly (i) the strategic fit and enhanced franchise value
discussed above, including pro forma market share information
relating to deposits in Bucks, Chester, Delaware and Montgomery
Counties, Pennsylvania, (ii) perceived opportunities to reduce
the combined company's operating expenses following the Merger,
(iii) the ability to increase Sovereign's capital base, thereby
increasing operating flexibility, (iv) ML Bancorp's asset
quality, (v) the absence of any significant earnings per share
dilution and significant potential for accretion in light of
potential cost savings and revenue enhancements resulting from
the Merger, (vi) the significant increase in capital resulting
from the Merger and the significant accretion to tangible book
value, (vii) pricing provisions of the Merger Agreement, which
provide for a fixed Exchange Ratio of 1.67 shares of Sovereign
Common Stock for each share of ML Bancorp Common Stock if the
Sovereign Market Value is greater than or equal to $13.80 and
less than or equal to $18.67 and a floating Exchange Ratio in the
event the Sovereign Market Value is outside such range, provided
that if the Sovereign Market Value is less than $12.18, Sovereign
shall have the option to elect a fixed Exchange Ratio equal to
$23.05 divided by $12.18, and (viii) Sovereign's right, in the
event that ML Bancorp elects to terminate the Merger Agreement as
a result of a decline in the Sovereign Market Value to $12.18 per
share or less in the absence of a specified decline in the
average price of a comparable group of nine thrift holding
companies, to override such termination by increasing the number
(rounded to the nearest hundredth) of shares of Sovereign Common
Stock issuable in the Merger to a number (rounded to the nearest
hundredth) of shares having an aggregate value of $23.05 divided
by the Sovereign Market Value.
ML Bancorp's Reasons for the Merger
In reaching its determination that the Merger and the
Merger Agreement are fair to, and in the best interests of ML
Bancorp and its shareholders, ML Bancorp's Board of Directors
consulted with its financial advisor, as well as with ML
Bancorp's management, and considered a number of factors,
including, without limitation, the following: (i) the Board of
Directors' belief that the terms of the Merger Agreement are
attractive in that the Merger Agreement provides that ML
Bancorp's shareholders will become shareholders of Sovereign, a
company that the Board of Directors believes has positive future
prospects; (ii) the written opinion of Sandler O'Neill that the
Exchange Ratio is fair to ML Bancorp's shareholders from a
financial point of view, (iii) pro forma financial information on
the Merger, including, among other things, earnings per share,
dilution analysis and ratio impact information; (iv) the
sustainability of core earnings by Sovereign and potential for
growth; (v) the tax free nature of the transaction to ML Bancorp
and ML Bancorp's shareholders; (vi) historical stock price
information for both Sovereign and ML Bancorp; (vii) the Board's
review, based on a presentation by ML Bancorp's management
regarding ML Bancorp's due diligence and its analysis of the
business, operations, management, earnings and financial
condition of Sovereign on both a historical and a prospective
basis, of (A) the enhanced opportunities for operating
efficiencies, particularly in terms of integration of operations
and support functions such as product development, asset-
liability management, marketing, data processing, loan review and
finance and accounting, that could result from the Merger and
(B) the enhanced opportunities for growth that the Merger would
make possible, particularly the ability to access the resources
of Sovereign in designing future products and services that ML
Bancorp does not now offer and in responding to changing
competitive, technological and regulatory environments;
(viii) the Board's belief that the combined enterprise, having a
greater size and greater resources than ML Bancorp, could offer
ML Bancorp's customers a broader range of products and services
than ML Bancorp presently offers as an independent entity;
(ix) the Board's review of alternatives to the Merger (including
the alternatives of remaining independent and growing internally,
remaining independent for a period of time and then selling ML
Bancorp and remaining independent and growing through future
acquisitions), including the range of possible values to ML
Bancorp's shareholders obtainable through implementation of such
alternatives and the timing and likelihood of actually receiving
such values; (x) the Board's belief that the Merger represents a
strategic alliance between Sovereign and ML Bancorp; (xi) the
Board's review of multiples of book value, earnings per share and
market price to be paid by Sovereign and paid by other acquirors
in other comparable recent acquisitions of savings banks and
thrifts; and (xii) the current and prospective economic
environment and competitive constraints facing financial
institutions, including ML Bancorp and Sovereign.
In approving the Merger, the Board did not identify any
one factor or group of factors as being more important or
significant than any other factor in the decision making process,
although individual directors may have given one or more factors
more weight than other factors.
Recommendation of the Sovereign Board of Directors
The Board of Directors of Sovereign believes that the
terms of the Merger are fair to, and in the best interests of,
Sovereign and its shareholders and has approved the Merger
Agreement. The Board of Directors of Sovereign recommends that
the shareholders of Sovereign approve the Merger Agreement.
Recommendation of the ML Bancorp Board of Directors
The Board of Directors of ML Bancorp believes that the
terms of the Merger are fair to, and in the best interests of, ML
Bancorp and its shareholders and has unanimously approved the
Merger Agreement. The Board of Directors of ML Bancorp
unanimously recommends that the shareholders of ML Bancorp
approve the Merger Agreement.
Terms of the Merger
Upon completion of the Merger, the separate legal
existence of ML Bancorp will cease. All property, rights,
powers, duties, obligations, debts and liabilities of ML Bancorp
will automatically be taken and deemed to be transferred to and
vested in Sovereign, in accordance with Pennsylvania law.
Sovereign, as the surviving corporation, will be governed by the
Articles of Incorporation and Bylaws of Sovereign in effect
immediately prior to completion of the Merger. The directors and
executive officers of Sovereign prior to the Merger will
continue, in their respective capacities, as the directors and
executive officers of Sovereign after the Merger.
At the Effective Date of the Merger, each outstanding
share of ML Bancorp Common Stock (other than any Dissenting
Shares and Excluded Shares) will be automatically converted into,
and become a right to receive, 1.67 shares of Sovereign Common
Stock, provided that such Sovereign Market Value is greater than
or equal to $13.80 and less than or equal to $18.67 per share.
If the Sovereign Market Value is less than $13.80 or greater than
$18.67, shareholders of ML Bancorp will be entitled to receive a
number (rounded to the nearest hundredth) of shares of Sovereign
Common Stock as described in the following paragraphs:
If the Sovereign Market Value is less than $13.80 per
share, each share of ML Bancorp Common Stock (other than any
Dissenting Shares and Excluded Shares) will be converted into and
become the right to receive that number (rounded to the nearest
hundredth) of shares of Sovereign Common Stock as shall equal
$23.05 divided by the Sovereign Market Value, provided that if
the Sovereign Market Value is less than $12.18, Sovereign shall
have the option to elect that each share of ML Bancorp Common
Stock (other than any Dissenting Shares and Excluded Shares) be
converted into and become the right to receive that number
(rounded to the nearest hundredth) of shares of Sovereign Common
Stock as shall equal $23.05 divided by $12.18.
If the Sovereign Market Value is greater than $18.67
per share, each share of ML Bancorp Common Stock (other than any
Dissenting Shares and Excluded Shares) will be converted into and
become the right to receive that number (rounded to the nearest
hundredth) of shares of Sovereign Common Stock as shall equal
$31.18 divided by the Sovereign Market Value, provided that if on
or prior to the Effective Date there has been any public
announcement of a proposed acquisition or sale of all or
substantially all of Sovereign's assets or a merger,
consolidation or similar transaction involving Sovereign in which
Sovereign is not the surviving entity or in which shareholders of
Sovereign before such transaction will not hold in the aggregate
shares of the surviving or new corporation to be outstanding
immediately after the consummation thereof entitled to cast at
least a majority of the votes entitled to be cast generally for
the election of directors, then each share of ML Bancorp Common
Stock (other than any Dissenting Shares and Excluded Shares) will
be converted into and become the right to receive 1.67 shares of
Sovereign Common Stock.
In addition, in the event that ML Bancorp elects to
terminate the Merger Agreement as a result of a decline in the
Sovereign Market Value to $12.18 or less in the absence of a
specified decline in the weighted average prices of a comparable
group of nine thrift holding companies, Sovereign can override
such termination by increasing the number (rounded to the nearest
hundredth) of shares issuable in exchange for each share of ML
Bancorp Common Stock from the number (rounded to the nearest
hundredth) of shares of Sovereign Common Stock as shall equal
$23.05 divided by $12.18 to that number (rounded to the nearest
hundredth) of shares of Sovereign Common Stock as shall equal
$23.05 divided by the Sovereign Market Value. See "THE MERGER --
Termination; Effect of Termination."
The number of shares of Sovereign Common Stock issuable
in exchange for shares of ML Bancorp Common Stock will be further
adjusted to prevent dilution in the event of additional stock
splits, reclassifications or other similar events.
Sovereign will in all events pay cash to ML Bancorp
shareholders in lieu of issuing fractional shares of Sovereign
Common Stock.
As of the ML Bancorp Record Date, directors and
executive officers of ML Bancorp and/or Main Line Bank held
options to purchase an aggregate of 1,065,690 shares of ML
Bancorp Common Stock which had been granted pursuant to ML
Bancorp's stock option plans (the "ML Options"). On the
Effective Date, each ML Option which is then outstanding, whether
or not exercisable, shall cease to represent a right to acquire
shares of ML Bancorp Common Stock and shall be converted
automatically into an option to purchase shares of Sovereign
Common Stock, and Sovereign shall assume each ML Option, in
accordance with the terms of the applicable ML Bancorp stock
option plan and stock option agreement by which it is evidenced,
except that from and after the Effective Date, (i) Sovereign and
its Board of Directors or a duly authorized committee thereof
shall be substituted for ML Bancorp and ML Bancorp's Board of
Directors or duly authorized committee thereof administering such
ML Bancorp stock option plan, (ii) each ML Option assumed by
Sovereign may be exercised solely for shares of Sovereign Common
Stock, (iii) the number of shares of Sovereign Common Stock
subject to such ML Option shall be equal to the number of shares
of ML Bancorp Common Stock subject to such ML Option immediately
prior to the Effective Date multiplied by the Exchange Ratio,
provided that any fractional shares of Sovereign Common Stock
resulting from such multiplication shall be rounded down to the
nearest share, and (iv) the per share exercise price under each
such ML Option shall be adjusted by dividing the per share
exercise price under each such ML Option by the Exchange Ratio,
provided that such exercise price shall be rounded up to the
nearest cent. Notwithstanding clauses (iii) and (iv) of the
preceding sentence, each ML Option which is an "incentive stock
option" shall be adjusted as required by Section 424 of the
Internal Revenue Code of 1986, as amended (the "Code").
Neither the Merger nor consummation of the Bank Merger
will require Sovereign, ML Bancorp or any subsidiary of either to
distribute to depositors the liquidation account established by
ML Bancorp Savings in connection with its conversion from mutual
to stock form.
The Sovereign Common Stock and cash to be received by
the holders of ML Bancorp Common Stock in lieu of fractional
interest in Sovereign Common Stock (including the holders of
options to acquire ML Bancorp Common Stock) in exchange for each
share (other than any Dissenting Shares and Excluded Shares) of
ML Bancorp Common Stock (including shares subject to options) are
referred to herein as the "Merger Consideration."
Opinions of Financial Advisors
Opinion of Sovereign's Financial Advisor
Sovereign retained Merrill Lynch to act as its
financial advisor in connection with the Merger and related
matters based upon its qualifications, expertise and reputation,
as well as Merrill Lynch's prior investment banking relationship
and general familiarity with Sovereign. Merrill Lynch has
rendered an opinion dated as of the date of this Proxy
Statement/Prospectus (the "Sovereign Fairness Opinion"), to the
Sovereign Board that, as of the date thereof, the proposed
Exchange Ratio in the Merger was fair to Sovereign from a
financial point of view.
The full text of the Sovereign Fairness Opinion, which
sets forth, among other things, assumptions made, procedures
followed, matters considered, and limitations on the scope of
review undertaken, is attached as Appendix C to this Proxy
Statement/Prospectus and is incorporated herein by reference.
Sovereign's shareholders are urged to read the Sovereign Fairness
Opinion in its entirety. This summary of the Sovereign Fairness
Opinion is qualified in its entirety by reference to the full
text of such opinion.
The Sovereign Fairness Opinion is addressed to the
Sovereign Board, is directed only to the Exchange Ratio and does
not constitute a recommendation to any shareholder of Sovereign
as to how such shareholder should vote at any meeting held in
connection with the Merger.
In arriving at the Sovereign Fairness Opinion, Merrill
Lynch, among other things: (i) reviewed certain publicly
available business and financial information relating to
Sovereign and ML Bancorp that Merrill Lynch deemed to be
relevant; (ii) reviewed certain information, including financial
forecasts, relating to the businesses, earnings, assets,
liabilities and prospects of ML Bancorp and Sovereign furnished
to Merrill Lynch by senior management of Sovereign and ML
Bancorp, as well as the amount and timing of the cost savings and
related expenses and revenue enhancements expected to result from
the Merger furnished to Merrill Lynch by the senior management of
Sovereign and ML Bancorp (the "Expected Synergies");
(iii) conducted discussions with members of senior management of
Sovereign and ML Bancorp concerning the foregoing, including the
respective businesses, prospects, regulatory condition and
contingencies of Sovereign and ML Bancorp before and after giving
effect to the Merger and the Expected Synergies; (iv) reviewed
the market prices and valuation multiples for the Sovereign
Common Stock and the ML Bancorp Common Stock with those of
certain publicly-traded companies which Merrill Lynch deemed to
be relevant; (v) reviewed the results of operations of ML Bancorp
and Sovereign and compared them with those of certain publicly-
traded companies that Merrill Lynch deemed to be relevant;
(vi) compared the proposed financial terms of the Merger with the
financial terms of certain other transactions that Merrill Lynch
deemed to be relevant; (vii) reviewed the potential pro forma
impact of the Merger; (viii) reviewed the Merger Agreement, the
Stock Option Agreement and this Proxy Statement/Prospectus; and
(ix) reviewed such other financial studies and analyses and took
into account such other matters as Merrill Lynch deemed
necessary, including its assessment of general economic, market
and monetary conditions.
In preparing the Sovereign Fairness Opinion, with
Sovereign's consent, Merrill Lynch assumed and relied on the
accuracy and completeness of all information supplied or
otherwise made available to it, discussed with or reviewed by or
for it, or publicly available, and Merrill Lynch did not assume
responsibility for independently verifying such information or
undertake an independent evaluation or appraisal of the assets or
liabilities of Sovereign or ML Bancorp, nor was Merrill Lynch
furnished with any such evaluation or appraisal. Merrill Lynch
is not expert in the evaluation of allowances for loan losses and
Merrill Lynch did not make an independent evaluation of the
adequacy of the allowance for loan losses of Sovereign or ML
Bancorp, nor did Merrill Lynch review any individual credit files
relating to ML Bancorp or Sovereign and, as a result, Merrill
Lynch assumed that the aggregate allowance for loan losses for
both ML Bancorp and Sovereign is adequate to cover such losses
and will be adequate on a pro forma basis for the combined
entity. In addition, Merrill Lynch did not assume any obligation
to conduct, nor did it conduct, any physical inspection of the
properties or facilities of Sovereign or ML Bancorp. With
respect to the financial forecast information, Merrill Lynch
assumed, with Sovereign's consent, that such forecasts, including
without limitation financial forecasts, evaluations of
contingencies and projections regarding under-performing and non-
performing assets, net charge-offs, adequacy of reserves and
future economic conditions and the Expected Synergies furnished
to or discussed with it by Sovereign or ML Bancorp reflect the
best currently available estimates, allocations and judgments of
the senior management of Sovereign and ML Bancorp as to the
expected future financial performance of Sovereign, ML Bancorp or
the combined entity, as the case may be, and the Expected
Synergies. Merrill Lynch expressed no opinion as to such
financial forecast information or the Expected Synergies or the
assumptions upon which they are based. Merrill Lynch further
assumed that the Merger will qualify as a tax-free reorganization
for U.S. federal income tax purposes and will be accounted for as
a pooling of interests. No limitations were imposed by Sovereign
on the scope of Merrill Lynch's investigation or on the
procedures followed by Merrill Lynch in rendering the Sovereign
Fairness Opinion.
The Sovereign Fairness Opinion was necessarily based on
economic, market and other conditions as in effect on, and the
information made available to Merrill Lynch as of, the date
thereof. For purposes of rendering such Opinion, Merrill Lynch
assumed, in all respects material to its analysis, that the
representations and warranties of each party to the Merger
Agreement and all related documents and instruments
(collectively, the "Documents") contained therein are true and
correct, that each party to the Documents would perform all of
the covenants and agreements required to be performed by such
party under such Documents, and that all conditions to the
consummation of the Merger would be satisfied without waiver
thereof. Merrill Lynch also assumed that, in the course of
obtaining the necessary regulatory or other consents or approvals
(contractual or otherwise) for the Merger, no restrictions,
including any divestiture or amendment or modifications, will be
imposed that will have a material adverse effect on the
contemplated benefits of the Merger, including the Expected
Synergies. Certain internal management forecasts, projections
and estimates were furnished to Merrill Lynch in connection with
its analysis of the Merger. As a matter of policy, Sovereign
does not publicly disclose forecasts, projections and estimates
of this type and such forecasts, projections and estimates were
not prepared with a view towards public disclosure. These
forecasts, projections and estimates were based on numerous
variables and assumptions which are inherently uncertain and
which may not be within the control of management, including,
without limitation, general economic, financial market,
regulatory and competitive conditions. Accordingly, actual
results could vary materially from those set forth in such
forecasts, projections and estimates.
In connection with rendering the Sovereign Fairness
Opinion to the Sovereign Board, Merrill Lynch performed a variety
of financial analyses. The summary set forth below does not
purport to be a complete description of the analyses performed by
Merrill Lynch in this regard, although it describes the material
analyses performed by Merrill Lynch. The preparation of a
fairness opinion is a complex process involving various
subjective determinations as to the most appropriate and relevant
methods of financial analysis and the application of these
methods to the particular circumstances, and, therefore, such an
opinion is not readily susceptible to a partial analysis or
summary description. Accordingly, notwithstanding the separate
factors summarized below, Merrill Lynch believes that its
analyses must be considered in their entirety and that selecting
portions of its analyses and factors considered by it, without
considering all analyses and factors, or attempting to ascribe
relative weights to some or all such analyses and factors, could
create an incomplete view of the evaluation process underlying
Merrill Lynch's opinion. In addition, Merrill Lynch may have
given various analyses more or less weight than the other
analyses, it may have used them for different purposes and may
have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting from any
particular analysis described below should not be taken to be
Merrill Lynch's view of the actual value of Sovereign or ML
Bancorp or of the company resulting from the Merger. The fact
that any specific analysis has been referred to in the summary
below is not meant to indicate that such analysis was given more
weight than any other analysis.
In performing its analyses, Merrill Lynch made numerous
assumptions with respect to industry performance, general
business and economic conditions and other matters, all of which
are beyond the control of Merrill Lynch, Sovereign and ML
Bancorp. The analyses performed by Merrill Lynch are not
necessarily indicative of actual values or actual future results,
which may be significantly more or less favorable than suggested
by such analyses. In addition, the analyses do not purport to be
appraisals or to reflect the prices at which any securities of
Sovereign or ML Bancorp may trade at the present time or at any
time in the future. Such analyses were prepared solely as part
of Merrill Lynch's analysis of the fairness of the Exchange Ratio
to Sovereign from a financial point of view. With respect to the
comparison of selected companies and transactions analyses
summarized below, no public company or transaction utilized as a
comparison is identical to Sovereign or ML Bancorp or to the
proposed Merger, as the case may be, and such analyses
necessarily involve complex considerations and judgments
concerning the differences in financial and operating
characteristics of the companies, and the financial and other
terms of the prior transactions, and other factors that could
affect the public trading values of the companies concerned or
that affected the financial terms of prior transactions.
The following is a summary of the material analyses
presented by Merrill Lynch to the Sovereign Board in connection
with the Sovereign Fairness Opinion:
(a) OFFER VALUATION. Merrill Lynch reviewed the
terms of the proposed Merger, including the Exchange Ratio and
the aggregate transaction value. Each of Merrill Lynch's
calculations as to this and the other analyses performed in
connection with the Sovereign Fairness Opinion, except as
otherwise expressly indicated herein, was based upon the Exchange
Ratio of 1.67 in effect pursuant to the Merger Agreement on the
date thereof. Merrill Lynch reviewed the implied value of the
consideration offered based upon the closing share price of
Sovereign Common Stock on September 18, 1997 (the date of
announcement of the Merger) (the "September 18 Sovereign Stock
Price") and on October 20, 1997 (the "October 20 Sovereign Stock
Price"), which indicated that the implied value of the
consideration offered in the Sovereign proposal was approximately
$27.45 per share of ML Bancorp Common Stock, and an aggregate
transaction value of approximately $360.181 million, based on the
September 18 Sovereign Stock Price, and $30.06 per share of ML
Bancorp Common Stock, and an aggregate transaction value of
approximately $395.709 million, based on the October 20 Sovereign
Stock Price. Merrill Lynch further determined that the Exchange
Ratio of 1.67, based on the September 18, 1997 Sovereign Stock
Price and the October 20, 1997 Stock Price, represented multiples
of 2.19x and 2.40x, respectively, to ML Bancorp's fully diluted
book value per share as of September 30, 1997; multiples of 2.35x
and 2.57x, respectively, to ML Bancorp's fully diluted tangible
book value per share as of September 30, 1997; multiples of
21.79x and 23.86x, respectively, to ML Bancorp's earnings per
share for the 12-month period ended September 30, 1997; multiples
of 17.37x and 19.03x, respectively, to ML Bancorp's estimated
earnings per share for calendar 1998, and multiples of 15.25x and
16.70x, respectively, to ML Bancorp's estimated earnings per
share for calendar 1999 (such estimated earnings based in each
case on ML Bancorp management estimates for ML Bancorp's fiscal
years ended March 31, 1998 and 1999, adjusted to conform to
calendar fiscal years); and implied deposit premiums to stated
tangible book value of 16.05% and 19.60%, respectively.
(b) CONTRIBUTION ANALYSIS. Merrill Lynch
reviewed the relative contributions to be made by Sovereign and
ML Bancorp to the combined entity, assuming an Exchange Ratio of
1.67. The financial and operating information reviewed in such
analysis included total assets, loans, deposits, equity, net
income for the 12-month period ended September 30, 1997 and
estimated net income for 1997, 1998 and 1999. This analysis
showed that the shareholders of Sovereign would own approximately
82.44% of the outstanding shares of common stock of the combined
company immediately following the Merger and that Sovereign would
be contributing, on a pro forma basis, 86.42% of total assets,
92.52% of loans, 88.57% of deposits, 79.19% of equity, 77.63% of
net income for the 12-month period ended September 30, 1997 and
81.00%, 81.95% and 81.29% of estimated net income per share, on a
fully diluted basis, for 1997, 1998 and 1999, respectively.
(c) PRO FORMA MERGER ANALYSIS. Based on
management earnings estimates, the Expected Synergies and an
estimated restructuring charge for the Merger, Merrill Lynch
analyzed certain pro forma effects expected to result from the
Merger. This analysis indicated that the transaction would be
accretive to estimated earnings per share of Sovereign Common
Stock in 1998, 1999 and 2000, and that the Merger would be
dilutive to Sovereign's book value per share and slightly
accretive to tangible book value per share. Merrill Lynch's
analysis also indicated that the transaction would be accretive
to Sovereign's ratio of total common equity to total assets and
tangible common equity ratio.
Merrill Lynch also analyzed the effect on the pro forma
impact of the Merger on Sovereign of potential changes in the
Exchange Ratio based on the Sovereign Market Value pursuant to
the Merger Agreement. Merrill Lynch determined that the Merger
would be accretive to Sovereign's estimated 1999 earnings per
share for values of the Exchange Ratio pursuant to the Merger
Agreement corresponding to Sovereign Market Values greater than
$13.00, and that the Merger would be slightly dilutive to
Sovereign's estimated 1999 earnings per share for the Exchange
Ratio pursuant to the Merger Agreement corresponding to a
Sovereign Market Value of $12.50 or less. See "THE MERGER -- Terms
of the Merger Agreement."
(d) DISCOUNTED DIVIDEND STREAM ANALYSIS. Using a
discounted dividend stream analysis, Merrill Lynch estimated the
net present value of the future streams of after-tax cash flows
that ML Bancorp could produce on a stand-alone basis from 1998
through 2002 and distribute to ML Bancorp's shareholders
("Dividendable Net Income"). In this analysis, Merrill Lynch
assumed that ML Bancorp performed in accordance with its
management's earnings estimates for 1998, 1999 and 2000 and would
grow earnings at 10.00% thereafter, assumed a 5.00% annual asset
growth rate and projected the maximum dividends that would permit
ML Bancorp's tangible common equity ratio to be maintained at a
minimum 6.49% level. Merrill Lynch calculated the sum of (i) the
terminal values per share of ML Bancorp Common Stock based on
assumed multiples of Sovereign's projected 2003 earnings ranging
from 11.00x to 13.00x plus (ii) the projected 1998-2002 five-year
Dividendable Net Income streams per share, in each case,
discounted to present values at assumed discount rates ranging
from 12.00% to 14.00%. This discounted dividend stream analysis
indicated a reference range of $19.16 to $23.66 per share of ML
Bancorp Common Stock. Merrill Lynch also performed an additional
similar analysis except that it assumed that ML Bancorp achieved
on a standalone basis the Expected Synergies (realized 72% in the
first year and 100% in the second year and thereafter). This
additional discounted dividend stream analysis indicated a
reference range of $31.55 to $37.55 per share of ML Bancorp
Common Stock. As indicated above, these analyses did not purport
to be indicative of actual future results and did not purport to
reflect the prices at which shares of ML Bancorp Common Stock may
trade.
Merrill Lynch also estimated the present value of the
Dividendable Net Income that Sovereign could produce on a stand-
alone basis from 1998 through 2002. In this analysis, Merrill
Lynch assumed that Sovereign performed in accordance with the
earnings projections as published by First Call for 1998, 1999
and 2000 (with earnings per share increasing at 10.00% per year
thereafter), that Sovereign's assets would grow at an annual rate
of 5.00% and that earnings in excess of those required to be
retained to maintain a tangible common equity ratio of 4.31% were
dividendable. Merrill Lynch calculated the sum of (i) the
terminal values per share of Sovereign Common Stock based on
assumed multiples of Sovereign's projected 2003 earnings ranging
from 11.00x to 13.00x plus (ii) the projected 1998-2002 five-year
Dividendable Net Income streams per share, in each case,
discounted to present values at assumed discount rates ranging
from 12.00% to 14.00%. This discounted dividend stream analysis
indicated a reference range of $15.71 to $19.22 per share of
Sovereign Common Stock. As indicated above, this analysis did
not purport to be indicative of actual future results and did not
purport to reflect the prices at which shares of Sovereign Common
Stock may trade before or after the Merger.
Discounted cash flow analysis was included because it
is a widely used valuation methodology, but the results of such
methodology are highly dependent upon the numerous assumptions
that must be made, including earnings growth rates, dividend
payout rates, terminal values and discount rates.
(e) ANALYSIS OF SELECTED ACQUISITION
TRANSACTIONS. Merrill Lynch reviewed publicly available
information regarding selected thrift acquisitions in the United
States with a value of between $100 million and $1.0 billion
which had been announced since January 1, 1997. Merrill Lynch
calculated the multiples of the purchase price per share paid in
such acquisitions to last twelve months' earnings per share, book
value per share, tangible book value per share, as well as the
premium to deposits paid based on the aggregate transaction
value, which Merrill Lynch determined resulted in relevant ranges
of multiples of (i) with respect to last twelve months' earnings
per share, 9.38x to 33.33x, with a mean of 20.89x and a median of
19.10x (resulting in imputed values per share ML Bancorp Common
Stock of $11.31, $40.17, $25.18 and $23.02, respectively);
(ii) with respect to book value per share, 1.51x to 4.80x, with a
mean of 2.18x and a median of 1.98x (resulting in imputed values
per share of ML Bancorp Common Stock of $18.48, $58,86, $26.68
and $24.29, respectively); (iii) with respect to tangible book
value per share, 1.51x to 4.80x, with a mean of 2.24x and a
median of 2.09x (resulting in imputed values per share of ML
Bancorp Common Stock of $17.24, $54.92, $25.63 and $23.96,
respectively); and of deposit premiums of 5.90% to 39.31%, with a
mean of 15.72% and a median of 15.19% (resulting in imputed
values per share of ML Bancorp Common Stock of $4.51, $30.07,
$12.02 and $11.62, respectively). In performing the above
analysis, Merrill Lynch used results for ML Bancorp as of or for
the period ended September 30, 1997.
No company or transaction used in the above analysis as
a comparison is identical to ML Bancorp, Sovereign or the
contemplated transaction. Accordingly, an analysis of the
results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial
and operating characteristics of the companies and other factors
that could affect the value of the companies and other factors
that could affect the value of the companies to which they are
being compared. Mathematical analysis (such as determining the
mean or median) is not, in itself, a meaningful method of using
comparable data.
(f) PEER GROUP ANALYSIS. Merrill Lynch reviewed
and compared certain financial information, ratios, and public
market multiples relating to ML Bancorp to the publicly available
corresponding data for a peer group of selected thrifts which
Merrill Lynch deemed to be relevant. The group of selected
thrifts (the "ML Bancorp Selected Thrifts") held assets of
between $1 billion and $3 billion and consisted of Northwest
Savings Bank, Harris Financial Inc., Queens County Bancorp Inc.,
JSB Financial Inc., First Savings Bank, Ocean Financial Corp.,
Commonwealth Bancorp Inc., Reliance Bancorp Inc., Dime Community
Bancorp Inc., WSFS Financial Corporation, York Financial Corp.,
Haven Bancorp Inc., PennFed Financial Services Inc and Maryland
Federal Bancorp.
Based on a review of such information for the ML
Bancorp Selected Thrifts, Merrill Lynch determined (in each case
based on company data as of June 30, 1997 and, where applicable,
closing stock prices as of October 20, 1997, except for the ML
Bancorp Common Stock price, which was as of September 18, 1997):
(i) that nonperforming assets as a percentage of total assets for
the ML Bancorp Selected Thrifts ranged from 0.44% to 1.66%, with
a mean of 0.77%, compared to 0.46% for ML Bancorp; (ii) that the
percentage of nonperforming loans as a ratio of total loans for
the ML Bancorp Selected Thrifts ranged from 0.33% to 2.41%, with
a mean of 1.03%, compared to 0.89% for ML Bancorp; (iii) that
reserves as a percentage of nonperforming loans for the ML
Bancorp Selected Thrifts ranged from 34.96% to 675.05%, with a
mean of 142.51%, compared to 193.13% for ML Bancorp; (iv) that
reserves as a percentage of nonperforming assets for the ML
Bancorp Selected Thrifts ranged from 33.53% to 112.22%, with a
mean of 75.85%, compared to 163.34% for ML Bancorp; (v) that
equity as a percentage of total assets for the ML Bancorp
Selected Thrifts ranged from 5.20% to 22.85%, with a mean of
10.41%, compared to 6.98% for ML Bancorp; (vi) that tangible
equity as a percentage of total assets for the ML Bancorp
Selected Thrifts ranged from 5.16% to 22.85%, with a mean of
9.73%, compared to 6.87% for ML Bancorp; (vii) that the Tier 1
capital ratio for the ML Bancorp Selected Thrifts ranged from
9.87% to 29.86%, with a mean of 16.10%, compared to 13.07% for ML
Bancorp; (viii) that the total capital ratio for the ML Bancorp
Selected Thrifts ranged from 10.45% to 30.90%, with a mean of
16.90%, compared to 14.32% for ML Bancorp; (ix) that the return
on average assets for the 12-month period ended June 30, 1997 for
the ML Bancorp Selected Thrifts ranged from 0.01% to 1.80%, with
a mean of 0.79%, compared to 0.74% for ML Bancorp; (x) that the
return on average equity for the twelve-month period ended
June 30, 1997 for the ML Bancorp Selected Thrifts ranged from
0.08% to 23.39%, with a mean of 8.01%, compared to 10.14% for ML
Bancorp; (xi) that the net interest margin for the ML Bancorp
Selected Thrifts ranged from 2.66% to 4.72%, with a mean of
3.51%, compared to 3.12% for ML Bancorp; (xii) that the
efficiency ratio for the ML Bancorp Selected Thrifts ranged from
37.17% to 71.37%, with a mean of 53.05%, compared to 65.50% for
ML Bancorp; (xiii) that the multiple of price to earnings per
share for the 12-month period ended June 30, 1997 for the ML
Bancorp Selected Thrifts ranged from 18.02x to 68.75x, with a
mean of 33.54x, compared to 20.04x for ML Bancorp; (xiv) that the
multiple of price to estimated 1997 earnings per share (based on
First Call consensus estimates) for the ML Bancorp Selected
Thrifts ranged from 12.59x to 32.26x, with a mean of 18.40x,
compared to 18.04x for ML Bancorp; (xv) that the multiple of
price to estimated 1998 earnings per share (based on First Call
consensus estimates) for the ML Bancorp Selected Thrifts ranged
from 10.53x to 29.33x, with a mean of 16.21x, compared to 15.03x
for ML Bancorp; (xvi) that the multiple of price to book value
per share for the ML Bancorp Selected Thrifts ranged from 1.35x
to 3.77x, with a mean of 2.10x, compared to 1.85x for ML Bancorp;
(xvii) that the multiple of price to tangible book value for the
ML Bancorp Selected Thrifts ranged from 1.35x to 4.31x, with a
mean of 2.30x, compared to 1.88x for ML Bancorp; and (xviii) that
the dividend yield for the ML Bancorp Selected Thrifts ranged
from 0.00% to 2.96%, with a mean of 1.51%, compared to 1.56% for
ML Bancorp.
Merrill Lynch also calculated a range of imputed values
for a share of ML Bancorp Common Stock based on certain of the
ratios for the ML Bancorp Selected Banks specified above,
including the ratio of the closing price of the common stock on
September 18, 1997 to each of book value, tangible book value and
estimated earnings per share for 1997 and 1998, in each case
based on First Call consensus estimates. This analysis resulted
in a range of imputed values for ML Bancorp Common Stock of
between $17.63 and $57.93.
Merrill Lynch reviewed and compared certain financial
information, ratios, and public market multiples relating to
Sovereign to the publicly available corresponding data for a peer
group of selected thrifts which Merrill Lynch deemed to be
relevant. The group of selected thrifts (the "Sovereign Selected
Thrifts") consisted of Charter One Financial, GreenPoint
Financial Corp., Dime Bancorp Inc., Bank United Corp., Astoria
Financial Corp., Webster Financial Corp., St. Paul Bancorp Inc.,
Onbancorp Inc. and ALBANK Financial Corp.
Based on a review of such information for the Sovereign
Selected Thrifts, Merrill Lynch determined (in each case based on
company data as of or for the twelve months ended June 30, 1997
and, where applicable, closing stock prices as of October 20,
1997): (i) that nonperforming assets as a percentage of total
assets for the Sovereign Selected Thrifts ranged from 0.21% to
2.89%, with a mean of 0.90%, compared to 0.53% for Sovereign;
(ii) that the percentage of nonperforming loans as a ratio of
total loans for the Sovereign Selected Thrifts ranged from 0.24%
to 2.47%, with a mean of 0.89%, compared to 0.71% for Sovereign;
(iii) that reserves as a percentage of nonperforming loans for
the Sovereign Selected Thrifts ranged from 26.69% to 459.15%,
with a mean of 145.78%, compared to 101.34 percent for Sovereign;
(iv) that reserves as a percentage of nonperforming assets for
the Sovereign Selected Thrifts ranged from 27.84% to 353.88%,
with a mean of 116.41%, compared to 85.52% for Sovereign;
(v) that equity as a percentage of total assets for the Sovereign
Selected Thrifts ranged from 5.02% to 10.31%, with a mean of
7.09%, compared to 4.90% for Sovereign; (vi) that tangible equity
as a percentage of total assets for the Sovereign Selected
Thrifts ranged from 4.32% to 8.58%, with a mean of 6.19%,
compared to 3.95% for Sovereign; (vii) that the Tier 1 capital
ratio for the Sovereign Selected Thrifts ranged from 9.82% to
16.37%, with a mean of 13.14%, compared to 10.31% for Sovereign;
(viii) that the total capital ratio for the Sovereign Selected
Thrifts ranged from 10.59% to 17.62%, with a mean of 14.15%,
compared to 14.43% for Sovereign; (ix) that the return on average
assets for the 12-month period ended June 30, 1997 for the
Sovereign Selected Thrifts ranged from 0.42% to 0.99%, with a
mean of 0.67%, compared to 0.51% for Sovereign; (x) that the
return on average equity for the 12-month period ended June 30,
1997 for the Sovereign Selected Thrifts ranged from 7.06% to
14.60%, with a mean of 9.78%, compared to 10.06% for Sovereign;
(xi) that the net interest margin for the Sovereign Selected
Thrifts ranged from 2.46% to 3.95%, with a mean of 3.08%,
compared to 2.52% for Sovereign; (xii) that the efficiency ratio
for the Sovereign Selected Thrifts ranged from 40.05% to 58.52%,
with a mean of 49.74%, compared to 49.24% for Sovereign;
(xiii) that the multiple of price to earnings per share for the
twelve-month period ended June 30, 1997 for the Sovereign
Selected Thrifts ranged from 19.58x to 33.16x, with a mean of
24.94x, compared to 27.69x for Sovereign; (xiv) that the multiple
of price to estimated 1997 earnings per share (based on First
Call consensus estimates) for the Sovereign Selected Thrifts
ranged from 15.23x to 18.52x, with a mean of 17.52x, compared to
16.51x for Sovereign; (xv) that the multiple of price to
estimated 1998 earnings per share (based on First Call consensus
estimates) for the Sovereign Selected Thrifts ranged from 13.41x
to 16.49x, with a mean of 15.51x, compared to 13.85x for
Sovereign; (xvi) that the multiple of price to book value per
share for the Sovereign Selected Thrifts ranged from 1.69x to
2.82x, with a mean of 2.25x, compared to 2.63x for Sovereign;
(xvii) that the multiple of price to tangible book value for the
Sovereign Selected Thrifts ranged from 1.93x to 3.37x, with a
mean of 2.59x, compared to 3.49x for Sovereign; and (xviii) that
the dividend yield for the Sovereign Selected Thrifts ranged from
0.77% to 2.50%, with a mean of 1.53%, compared to 0.50% for
Sovereign.
Merrill Lynch also calculated a range of imputed values
for a share of Sovereign Common Stock based on certain of the
ratios for the Sovereign Selected Thrifts specified above,
including the ratio of the closing price of the Sovereign Common
Stock on October 20, 1997 to each of book value, tangible book
value and estimated earnings per share for 1997 and 1998, in each
case based on First Call consensus estimates. This analysis
resulted in a range of imputed values for Sovereign Common Stock
of between $9.96 and $21.44.
Merrill Lynch was retained by the Sovereign Board as an
independent contractor to act as financial advisor to Sovereign
with respect to the Merger and will receive a fee for its
services, a significant portion of which is contingent upon the
consummation of the Merger. Merrill Lynch is a nationally
recognized investment banking firm which, among other things,
regularly engages in the valuation of businesses and securities,
including banking institutions, in connection with mergers and
acquisitions. Merrill Lynch in the past has provided financial
advisory, investment banking and other services to Sovereign and
has received customary fees for the rendering of such services.
In addition, in the ordinary course of its securities business,
Merrill Lynch may actively trade debt and/or equity securities of
Sovereign and ML Bancorp, and their respective affiliates, for
its own account and the accounts of its customers, and Merrill
Lynch, therefore, may from time to time hold a long or short
position in such securities.
Sovereign and Merrill Lynch entered into a letter
agreement, dated September 19, 1997, relating to the services to
be provided by Merrill Lynch in connection with the Merger.
Sovereign agreed to compensate Merrill Lynch as follows: (i) a
fee of $25,000, which was paid in cash upon execution of the
letter agreement; and (ii) an additional fee of $225,000 payable
upon consummation of the Merger. Sovereign also agreed to
reimburse Merrill Lynch for its reasonable out-of-pocket expenses
incurred in connection with its advisory work, including the
reasonable fees and disbursements of its legal counsel (provided
that such expenses will not exceed $5,000 without the prior
written consent of Sovereign), and to indemnify Merrill Lynch
against certain liabilities relating to or arising out of the
Merger, including liabilities which might arise under the federal
securities laws.
Opinion of ML Bancorp's Financial Advisor
Pursuant to a letter agreement dated as of August 28,
1997 (the "Sandler O'Neill Agreement"), ML Bancorp retained
Sandler O'Neill as an independent financial advisor in connection
with ML Bancorp's consideration of a possible business
combination with another institution. Sandler O'Neill is a
nationally recognized investment banking firm whose principal
business specialty is banks and savings institutions and is
regularly engaged in the valuation of such businesses and their
securities in connection with mergers and acquisitions and other
corporate transactions.
Pursuant to the terms of the Sandler O'Neill Agreement,
Sandler O'Neill acted as financial advisor to ML Bancorp in
connection with the Merger. In connection therewith, the Board
of Directors of ML Bancorp requested Sandler O'Neill to render
its opinion as to the fairness of the Exchange Ratio to the
holders of ML Bancorp Common Stock in the Merger from a financial
point of view. At the September 18, 1997 meeting at which ML
Bancorp's Board approved and adopted the Merger Agreement,
Sandler O'Neill delivered its oral opinion, subsequently
confirmed in writing, to ML Bancorp's Board that, as of such
date, the Exchange Ratio was fair, from a financial point of
view, to such shareholders. Sandler O'Neill has also delivered
to ML Bancorp's Board a written opinion dated the date of this
Proxy Statement/Prospectus (the "ML Bancorp Fairness Opinion")
which is substantially identical to the September 18, 1997
opinion. The full text of the ML Bancorp Fairness Opinion, which
sets forth the procedures followed, assumptions made, matters
considered and qualifications and limitations on the review
undertaken in connection with such opinion, is attached as
Annex D to this Proxy Statement/Prospectus and is incorporated
herein by reference. The description of the opinion set forth
herein is qualified in its entirety by reference to Annex D.
Holders of ML Bancorp Common Stock are urged to read the ML
Bancorp Fairness Opinion in its entirety in connection with their
consideration of the proposed Merger.
The ML Bancorp Fairness Opinion was provided to ML
Bancorp's Board for its information and is directed only to the
fairness, from a financial point of view, of the Exchange Ratio
to holders of ML Bancorp's Common Stock. It does not address the
underlying business decision of ML Bancorp to engage in the
Merger or any other aspect of the Merger and does not constitute
a recommendation to any holder of shares of ML Bancorp Common
Stock as to how such shareholder should vote at the ML Bancorp
Special Meeting with respect to the Merger or any other matter
related thereto.
In connection with rendering its opinion dated
September 18, 1997, Sandler O'Neill performed a variety of
financial analyses. The following is a summary of the material
analyses performed by Sandler O'Neill. Such summary does not
purport to be a complete description of the analyses underlying
Sandler O'Neill's opinion. The preparation of a fairness opinion
is a complex process involving subjective judgements and is not
necessarily susceptible to a partial analysis or summary
description. Sandler O'Neill believes that its analyses must be
considered as a whole and that selecting portions of such
analyses and the factors considered therein, without considering
all factors and analyses, could create an incomplete view of the
analyses and processes underlying its opinion. In performing its
analyses, Sandler O'Neill made numerous assumptions with respect
to industry performance, business and economic conditions and
various other matters, many of which cannot be predicted and are
beyond the control of ML Bancorp, Sovereign and Sandler O'Neill.
Any estimates contained in Sandler O'Neill's analyses are not
necessarily indicative of future results or values, which may be
significantly more or less favorable than such estimates.
Estimates on the values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies
or their securities may actually be sold. Because such estimates
are inherently subject to uncertainty, neither ML Bancorp nor
Sandler O'Neill assumes responsibility for their accuracy.
Stock Trading History. Sandler O'Neill reviewed the
history of the reported trading prices and volume of ML Bancorp's
Common Stock and the Sovereign Common Stock, and the relationship
between the movements in the prices of ML Bancorp's and Sovereign
Common Stock, respectively, to movements in certain stock
indices, including the Standard & Poor's 500 Index, the NASDAQ
Banking Index and composite groups of publicly traded savings
institutions in geographic proximity and of similar asset size to
ML Bancorp and Sovereign, respectively.
Analysis of Selected Publicly Traded Companies.
Sandler O'Neill used publicly available information to compare
selected financial and market trading information, including
balance sheet composition, asset quality ratios, loan loss
reserve levels, profitability, capital adequacy, dividends and
trading multiples for ML Bancorp and two different groups of
selected institutions. The first group consisted of ML Bancorp
and the following 12 publicly-traded regional savings
institutions (the "Regional Group") having total assets ranging
from $1.3 billion to $3.6 billion: ALBANK Financial Corp.,
Commonwealth Bancorp Inc., Haven Bancorp Inc., JSB Financial
Inc., New York Bancorp Inc., Ocean Financial Corp., PennFed
Financial Services Inc., Queens County Bancorp Inc., Reliance
Bancorp Inc., Roslyn Bancorp Inc., TR Financial Corp., and WSFS
Financial Corporation. Sandler O'Neill also compared ML Bancorp
to a group of 11 publicly-traded savings institutions having
total assets ranging from $1.5 billion to $7.1 billion and which
had a return on average equity (based on last quarter annualized
earnings) of greater than 14% and a price to tangible book value
of greater than 190% (the "Highly-Valued Group"). The Highly-
Valued Group institutions were: Commercial Federal Corp., D&N
Financial Corp., First Federal Capital Corp., First Financial
Holdings Inc., InterWest Bancorp Inc., New York Bancorp Inc.,
Peoples Heritage Financial Group, TR Financial Corp., Washington
Federal Inc., Webster Financial Corp. and WSFS Financial
Corporation. The analysis compared publicly available financial
information for each of the groups as of and for each of the
years ended December 31, 1992 through December 31, 1996 and as of
and for the twelve months (and in certain cases, the three
months) ended June 30, 1997 with data for ML Bancorp as of and
for the fiscal years ended March 31, 1992 through March 31, 1997
and as of and for the twelve months (and, in certain cases, the
three months) ended June 30, 1997. The following comparisons are
based upon the June 30, 1997 financial information and the data
with respect to the Regional Group and the Highly-Valued Group
consists of the median data for such groups.
The total assets of ML Bancorp were $2.1 billion,
compared to $2.0 billion for the Regional Group and $3.3 billion
for the Highly-Valued Group. The annual growth rate of assets
for ML Bancorp was 10.4%, compared to 12.6% for the Regional
Group and 14.3% for the Highly-Valued Group. The tangible equity
to total assets ratio was 6.86% for ML Bancorp, compared to 6.86%
for the Regional Group and 6.09% for the Highly-Valued Group.
The net loans to assets ratio for ML Bancorp was 43.0%, compared
to 54.6% for the Regional Group and 68.5% for the Highly-Valued
Group. The cash and securities to total assets ratio was 52.5%
for ML Bancorp, compared to 41.8% for the Regional Group and
26.2% for the Highly-Valued Group. Total deposits were $904
million for ML Bancorp, compared to $1.24 billion for the
Regional Group and $1.73 billion for the Highly-Valued Group. ML
Bancorp had a gross loans to total deposits ratio of 100.2%,
compared to 81.4% for the Regional Group and 114.0% for the
Highly-Valued Group. The total borrowings to total assets ratio
for ML Bancorp was 45.9%, compared to 21.8% for the Regional
Group and 28.2% for the Highly-Valued Group. The ratio of non-
performing loans to gross loans was 0.89% for ML Bancorp,
compared to 0.90% for the Regional Group and 0.93% for the
Highly-Valued Group. The ratio of non-performing loans to total
assets for ML Bancorp was 0.39%, compared to 0.50% for the
Regional Group and 0.54% for the Highly-Valued Group. The ratio
of non-performing assets to total assets for ML Bancorp was
0.46%, compared to 0.58% for the Regional Group and 0.83% for the
Highly-Valued Group. The ratio of loan loss reserves to non-
performing loans was 193.1% for ML Bancorp, compared to 98.2% for
the Regional Group and 124.8% for the Highly-Valued Group. The
ratio of loan loss reserves to gross loans for ML Bancorp was
1.71%, compared to 0.87% for the Regional Group and 0.92% for the
Highly-Valued Group. The net interest margin of ML Bancorp was
3.12%, compared to 3.50% for the Regional Group and 3.25% for the
Highly-Valued Group. The ratio of non-interest income to average
assets for ML Bancorp was 0.79%, compared to 0.38% for the
Regional Group and 0.67% for the Highly-Valued Group. The ratio
of non-interest expense to average assets was 2.28% for ML
Bancorp, compared to 1.88% for the Regional Group and 2.19% for
the Highly-Valued Group. The efficiency ratio of ML Bancorp was
63.4%, compared to 48.8% for the Regional Group and 55.8% for the
Highly-Valued Group. The annualized return on average assets for
the quarter ended June 30, 1997 was 0.75% for ML Bancorp,
compared to 1.03% for the Regional Group and 1.11% for the
Highly-Valued Group. The annualized return on average equity for
the quarter ended June 30, 1997 was 10.64% for ML Bancorp,
compared to 11.06% for the Regional Group and 16.32% for the
Highly-Valued Group. The price to tangible book value for ML
Bancorp was 153%, compared to 170% for the Regional Group and
240% for the Highly-Valued Group. The price to earnings per
share multiple based upon annualized earnings for the quarter
ended June 30, 1997 was 15.6x for ML Bancorp, compared to 15.6x
for the Regional Group and 14.5x for the Highly-Valued Group.
The dividend payout ratio was 30.56% for ML Bancorp, compared to
29.70% for the Regional Group and 28.11% for the Highly-Valued
Group.
Sandler O'Neill also used publicly available
information to perform a similar comparison of selected financial
and market trading information for Sovereign and two different
groups of selected institutions. The first group consisted of
Sovereign and the following 10 publicly-traded savings
institutions (the "Peer Group") having total assets ranging from
$3.2 billion to $20.1 billion: ALBANK Financial Corp., Astoria
Financial Corp., Charter One Financial, Dime Bancorp Inc.,
GreenPoint Financial Corp., Long Island Bancorp Inc., New York
Bancorp Inc., Roslyn Bancorp Inc., TR Financial Corp. and Webster
Financial Corp. Sandler O'Neill also compared Sovereign to a
group of seven publicly-traded savings institutions having total
assets ranging from $5.6 billion to $14.5 billion and which had a
return on average equity (based on last quarter annualized
earnings) of greater than 11% and a price to tangible book value
of greater than 200% (the "Large Highly-Valued Group" ). The
Highly-Valued Group institutions were: Bank United Corp.,
Charter One Financial, Coast Savings Financial, Commercial
Federal Corp., Peoples Heritage Financial Group, Washington
Federal Inc. and Webster Financial Corp. The analysis compared
publicly available financial information for Sovereign and each
of the groups as of and for the years ended December 31, 1992
through December 31, 1996 and as of and for the twelve months
(and, in certain cases, three months) ended June 30, 1997. The
following comparisons are based upon the June 30, 1997 financial
information and the data described below with respect to the Peer
Group and the Large Highly-Valued Group consists of the median
data for such groups.
The total assets of Sovereign were $10.9 billion,
compared to $5.9 billion for the Peer Group and $7 billion for
the Large Highly-Valued Group. The annual growth rate of assets
for Sovereign was 18.7%, compared to 10.4% for the Peer Group and
9.0% for the Large Highly-Valued Group. The tangible equity to
total assets ratio was 3.91% for Sovereign, compared to 6.20% for
the Peer Group and 5.33% for the Large Highly-Valued Group. The
net loans to total assets ratio for Sovereign was 62.3%, compared
to 61.1% for the Peer Group and 68.5% for the Large Highly-Valued
Group. Total deposits were approximately $5.9 billion for
Sovereign, compared to $4.0 billion for the Peer Group and $4.4
billion for the Large Highly-Valued Group. Sovereign had a gross
loans to total deposits ratio of approximately 116.8%, compared
to 88.7% for the Peer Group and 116.8% for the Large Highly-
Valued Group. The total borrowings to total assets ratio for
Sovereign was 39.9%, compared to 26.0% for the Peer Group and
30.8% for the Large Highly-Valued Group. The ratio of non-
performing loans to gross loans was 0.71% for Sovereign, compared
to 1.04% for the Peer Group and 0.88% for the Large Highly-Valued
Group. The ratio of non-performing loans to total assets for
Sovereign was 0.44%, compared to approximately 0.62% for the Peer
Group and 0.63% for the Large Highly-Valued Group. The non-
performing assets to total assets ratio for Sovereign was 0.53%,
compared to 0.71% for the Peer Group and 0.83% for the Large
Highly-Valued Group. The ratio of loan loss reserves to non-
performing loans was 101.3% for Sovereign, compared to 99.9% for
the Peer Group and 106.7% for the Large Highly-Valued Group. The
ratio of loan loss reserves to gross loans for Sovereign was
0.72%, compared to 0.92% for the Peer Group and 0.91% for the
Large Highly-Valued Group. The net interest margin of Sovereign
was 2.52%, compared to 2.91% for the Peer Group and 2.86% for the
Large Highly-Valued Group. The ratio of non-interest income to
average assets for Sovereign was 0.34%, compared to 0.40% for the
Peer Group and 0.61% for the Large Highly-Valued Group. The
ratio of non-interest expense to average assets was 1.44% for
Sovereign, compared to 1.59% for the Peer Group and 1.79% for the
Large Highly-Valued Group. The efficiency ratio of Sovereign was
49.6%, compared to 48.1% for the Peer Group and 57.0% for the
Large Highly-Valued Group. The annualized return on average
assets for the quarter ended June 30, 1997 was 0.82% for
Sovereign, compared to approximately 0.96% for the Peer Group and
0.98% for the Large Highly-Valued Group. The annualized return
on average equity for the quarter ended June 30, 1997 was 16.45%
for Sovereign, compared to 11.59% for the Peer Group and 16.19%
for the Large Highly-Valued Group. The price to tangible book
value for Sovereign was 288%, compared to 204% for the Peer
Group, and 262% for the Large Highly-Valued Group. The price to
earnings per share multiple based upon annualized earnings for
the quarter ended June 30, 1997 was 13.8x for Sovereign, compared
to 14.3x for the Peer Group and 14.7x for the Large Highly-Valued
Group. The dividend payout ratio was 12.00% for Sovereign,
compared to 26.0% for the Peer Group and 30.4% for the Large
Highly-Valued Group.
Analysis of Selected Merger Transactions. Sandler
O'Neill reviewed 39 transactions announced between January 1,
1997 and September 15, 1997 involving public savings institutions
nationwide as targets with transaction values over $15 million
("Nationwide Transactions"), seven transactions announced between
January 1, 1997 and September 15, 1997 involving regional
(Maryland, New Jersey, New York and Pennsylvania) public savings
institutions as targets with transaction values over $15 million
("Regional Transactions"), and 9 public savings institution deals
nationwide, announced between January 1, 1997 and September 15,
1997, with transaction values between $200 million and $700
million ("Large Deals"). Sandler O'Neill also reviewed 8
transactions announced between June 1, 1992 and September 15,
1997 involving savings institutions as targets and Sovereign as
the acquiror ("Sovereign Transactions"). Sandler O'Neill
reviewed the ratios of price to last twelve months' earnings,
price to book value, price to tangible book value, price to
deposits, price to assets and core deposit premium paid in each
such transaction and computed high, low, mean, and median ratios
and premiums for the respective groups of transactions. Based
upon the median multiples for Nationwide Transactions, Sandler
O'Neill derived an imputed range of values per share of ML
Bancorp's Common Stock of $19.42 to $32.40. Based upon the
median multiples for Regional Transactions, Sandler O'Neill
derived an imputed range of values per share of ML Bancorp's
Common Stock of $17.46 to $33.88. Based upon the median
multiples for Large Transactions, Sandler O'Neill derived an
imputed range of values per share of ML Bancorp's Common Stock of
$19.63 to $29.35. Based upon the median multiples for Sovereign
Transactions, Sandler O'Neill derived an imputed range of values
per share of ML Bancorp's Common Stock of $11.39 to $31.32.
Discounted Dividend Stream and Terminal Value Analysis.
Sandler O'Neill also performed an analysis which estimated the
future stream of after-tax dividend flows of ML Bancorp through
2002 under various circumstances, assuming ML Bancorp performed
in accordance with the earnings forecasts provided by its
management. To approximate the terminal value of ML Bancorp's
Common Stock at the end of the five-year period, Sandler O'Neill
applied price to earnings multiples ranging from 10x to 25x and
applied multiples of tangible book value ranging from 125% to
250%. The dividend income streams and terminal values were then
discounted to present values using different discount rates
(ranging from 9% to 15%) chosen to reflect different assumptions
regarding required rates of return of holders of prospective
buyers of ML Bancorp's Common Stock. This analysis, assuming the
current dividend payout ratio, indicated an imputed range of
values per share of ML Bancorp's Common Stock of between $10.62
and $31.91 when applying the price to earnings multiples, and an
imputed range of values per share of ML Bancorp's Common Stock
between of $13.34 and $33.79 when applying multiples of tangible
book value. In connection with its analysis, Sandler O'Neill
extensively used sensitivity analyses (including variations with
respect to the growth rate of assets, net interest spread, non-
interest income, non-interest expense and dividend payout ratio)
to illustrate the effects changes in the underlying assumptions
could have on the resulting present value.
Pro Forma Merger Analysis. Based upon earnings
forecasts and expected cost savings of the Merger discussed with
Sovereign's management, Sandler O'Neill analyzed certain
potential pro forma effects of the Merger on Sovereign. This
analysis indicated that the Merger would be accretive to
projected earnings per share of Sovereign Common Stock in the
first full year following the Merger and in each of the four
years thereafter and accretive to tangible book value for all
periods analyzed.
Contribution Analysis. Sandler O'Neill reviewed the
relative contributions to, among other things, total assets,
total loans, total deposits, total equity and last twelve months'
("LTM") net income (exclusive of the one-time SAIF charge in
1996), to be made by ML Bancorp and Sovereign to the combined
institution based on data at and for the twelve months ended
June 30, 1997. This analysis indicated that ML Bancorp's implied
contribution was 13.6% of total assets, 9.7% of total loans,
10.5% of total deposits, 16.3% of total equity and 19.3% of LTM
net income. Based upon an Exchange Ratio of 1.67, current
holders of ML Bancorp Common Stock would own approximately 19.5%
of the outstanding shares of the combined institution.
In connection with rendering its opinion of
September 18, 1997, Sandler O'Neill also reviewed, among other
things: (i) the Merger Agreement and exhibits thereto; (ii) the
Stock Option Agreement; (iii) Sovereign's audited consolidated
financial statements and management's discussion and analysis of
financial condition and results of operations as contained in its
annual report to shareholders for the year ended December 31,
1996; (iv) ML Bancorp's audited consolidated financial statements
and management's discussion and analysis of financial condition
and results of operations as contained in its annual report to
shareholders for the year ended March 31, 1997; (v) Sovereign's
unaudited consolidated financial statements and management's
discussion and analysis of financial condition and results of
operations contained in its Quarterly Report on Form 10-Q for the
quarters ended March 31 and June 30, 1997, respectively; (vi) ML
Bancorp's unaudited consolidated financial statements and
management's discussion and analysis of financial condition and
results of operations contained in its Quarterly Report on Form
10-Q for the quarter ended June 30, 1997; (vii) certain financial
analyses and forecasts of ML Bancorp prepared by and reviewed
with management of ML Bancorp and the views of senior management
of ML Bancorp regarding ML Bancorp's past and current business
operations, results thereof, financial condition and future
prospects; (viii) certain financial analyses and forecasts of
Sovereign prepared by and reviewed with management of Sovereign
and the views of senior management of Sovereign regarding
Sovereign's past and current business operations, results
thereof, financial condition and future prospects; (ix) the pro
forma impact of the Merger on Sovereign; (x) the publicly
reported historical price and trading activity for the Sovereign
and ML Bancorp Common Stock, including a comparison of certain
financial and stock market information for Sovereign and ML
Bancorp with similar publicly available information for certain
other companies the securities of which are publicly traded;
(xi) the financial terms of recent business combinations in the
savings institution industry, to the extent publicly available;
(xii) the current market environment generally and the banking
environment in particular; and (xiii) such other information,
financial studies, analyses and investigations and financial,
economic and market criteria as we considered relevant. Sandler
O'Neill was not asked to, and did not, solicit indications of
interest in a potential transaction from other third parties.
In connection with rendering the ML Bancorp Fairness
Opinion, Sandler O'Neill confirmed the appropriateness of its
reliance on the analyses used to render its September 18, 1997
opinion by performing procedures to update certain of such
analyses and by reviewing the assumptions upon which such
analyses were based and the factors considered in connection
therewith.
In performing its reviews, Sandler O'Neill assumed and
relied upon, without independent verification, the accuracy and
completeness of all the financial information, analyses and other
information that was publicly available or otherwise furnished
to, reviewed by or discussed with it, and Sandler O'Neill does
not assume any responsibility or liability therefor. Sandler
O'Neill did not make an independent evaluation or appraisal of
the specific assets, the collateral securing assets or the
liabilities of Sovereign or ML Bancorp or any of their
subsidiaries, or the collectibility of any such assets, nor was
it furnished with any such evaluations or appraisals (relying,
where relevant, on the analyses and estimates of Sovereign and ML
Bancorp). With respect to the information regarding potential
future financial performance provided by each company's
management, Sandler O'Neill assumed that they have been
reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements
of the respective future financial performances of Sovereign and
ML Bancorp and that such performances will be achieved. Sandler
O'Neill also assumed that there has been no material change in
Sovereign's or ML Bancorp's assets, financial condition, results
of operations, business or prospects since June 30, 1997, the
date of the last financial statements noted above, that Sovereign
will remain as a going concern for all periods relevant to its
analyses, that the Merger will be accounted for as a pooling of
interests, and that the conditions precedent in the Merger
Agreement are not waived.
Under the Sandler O'Neill Agreement, ML Bancorp has
agreed to pay Sandler O'Neill a transaction fee in connection
with the Merger, a substantial portion of which is contingent
upon the consummation of the Merger. Under the terms of the
Sandler O'Neill Agreement, ML Bancorp has agreed to pay Sandler
O'Neill a transaction fee of $2 million, of which 25% has been
paid and 75% is payable on the day of closing of the transaction.
Sandler O'Neill has also received a fee of $250,000 for rendering
the ML Bancorp Fairness Opinion, which will be credited against
the $2 million transaction fee. ML Bancorp has also agreed to
reimburse Sandler O'Neill for its reasonable out-of-pocket
expenses incurred in connection with its engagement and to
indemnify Sandler O'Neill and its affiliates and their respective
partners, directors, officers, employees , agents, and
controlling persons against certain expenses and liabilities,
including liabilities under securities laws.
Sandler O'Neill has in the past provided other
financial advisory services to ML Bancorp and has received
compensation for such services. Sandler O'Neill may also provide
certain investment banking services to ML Bancorp in the future,
including in connection with the reissuance of certain shares of
ML Bancorp Common Stock in connection with the Merger, and will
receive compensation for such services. In the ordinary course
of its business, Sandler O'Neill may actively trade the debt
and/or equity securities of ML Bancorp and Sovereign for its own
account and for the accounts of customers and, accordingly, may
at any time hold a long or short position in such securities.
Effective Date of the Merger
Under the Merger Agreement, the Effective Date will be
the fifth business day following satisfaction or waiver of all
conditions to the consummation of the Merger as specified in the
Merger Agreement or such other date as Sovereign and ML Bancorp
may mutually agree. The parties presently expect that the
Effective Date will occur in early 1998. See " -- Conditions to
the Merger" herein.
On or prior to the Effective Date, Articles of Merger
between Sovereign and ML Bancorp will be filed with the
Pennsylvania Department of State, and such document will set
forth the Effective Date. The Merger Agreement may be terminated
by either party if, among other reasons, the Closing Date does
not occur on or before May 31, 1998, unless the failure of such
occurrence shall be due to the failure of the party seeking to
terminate the Merger Agreement to perform or observe any of the
agreements required to be performed by such party on or before
the Closing Date. See " -- Termination; Effect of Termination."
Exchange of ML Bancorp Stock Certificates
The conversion of ML Bancorp Common Stock into
Sovereign Common Stock will occur automatically at the Effective
Date. As soon as practicable after the Effective Date,
Sovereign, or a bank or trust company designated by Sovereign, in
the capacity of exchange agent (the "Exchange Agent"), will send
a transmittal form to each ML Bancorp shareholder of record. The
transmittal form will contain instructions with respect to the
surrender of certificates representing ML Bancorp Common Stock to
be exchanged for Sovereign Common Stock. Under the Merger
Agreement, certificates representing shares of Sovereign Common
Stock and checks for cash in lieu of fractional interests in
shares of Sovereign Common Stock must be mailed to former
shareholders of ML Bancorp as soon as reasonably possible but in
no event later than 15 business days following the receipt of
certificates representing former shares of ML Bancorp Common
Stock duly endorsed.
ML BANCORP SHAREHOLDERS SHOULD NOT FORWARD ML BANCORP
STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED
TRANSMITTAL FORMS. ML BANCORP SHAREHOLDERS SHOULD NOT RETURN
STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Until the certificates representing ML Bancorp Common
Stock are surrendered for exchange after completion of the
Merger, holders of such certificates will not receive, and will
not be paid dividends on, the Sovereign Common Stock into which
such shares have been converted. When such certificates are
surrendered, any unpaid dividends will be paid without interest.
For all other purposes, however, each certificate which
represents shares of ML Bancorp Common Stock outstanding at the
Effective Date (other than any Dissenting Shares and Excluded
Shares) will be deemed to evidence ownership of and the right to
receive the shares of Sovereign Common Stock (and cash in lieu of
fractional shares) into which those shares have been converted by
virtue of the Merger. Neither Sovereign nor ML Bancorp will be
liable to any holder of shares of ML Bancorp Common Stock for any
amount paid in good faith to a public official pursuant to any
applicable abandoned property, escheat or similar law.
All shares of Sovereign Common Stock issued upon
conversion of shares of ML Bancorp Common Stock shall be deemed
to have been issued in full satisfaction of all rights pertaining
to such shares of ML Bancorp Common Stock, subject, however, to
Sovereign's obligation to pay any dividends or make any other
distributions with a record date on or prior to the Effective
Date, which may have been declared or made by ML Bancorp on such
shares of ML Bancorp Common Stock in accordance with the Merger
Agreement and which remain unpaid at the Effective Date.
No fractional shares of Sovereign Common Stock will be
issued to any shareholder of ML Bancorp upon completion of the
Merger. For each fractional share that would otherwise be
issued, Sovereign will pay by check an amount equal to the
product obtained by multiplying the fractional share interest to
which such holder would otherwise be entitled by the average
between the closing high bid and low asked prices of a share of
Sovereign Common Stock on the Nasdaq National Market System (the
"Sovereign Market Price") as of the Effective Date.
Conditions to the Merger
The obligations of Sovereign and ML Bancorp to effect
the Merger are subject to various conditions, which include the
following:
(a) the Merger Agreement shall have been duly
approved by the holders of Sovereign Common Stock and ML Bancorp
Common Stock;
(b) all necessary governmental approvals for the
Merger shall have been obtained, and all waiting periods required
by law or imposed by any governmental authority with respect to
the Merger shall have expired (see " -- Regulatory Approvals"
herein);
(c) there shall not be any order, decree, or
injunction in effect preventing the completion of the
transactions contemplated by the Merger Agreement;
(d) there shall have been delivered to each of
Sovereign and ML Bancorp an opinion of counsel that, among other
things, the Merger will be treated for federal income tax
purposes as a "reorganization" within the meaning of
Section 368(a) of the Code (see " -- Certain Federal Income Tax
Consequences"); and
(e) Sovereign and ML Bancorp shall each have
received an opinion from its respective independent certified
public accountants that the Merger will be treated as a pooling
of interests for financial accounting purposes (see " --
Accounting Treatment" herein).
In addition to the foregoing, the obligations of each
party to the Merger Agreement are conditioned on (i) the accuracy
in all material respects as of the date of the Merger Agreement
and as of the Effective Date of the representations and
warranties of the other party, except as to any representation or
warranty which specially relates to an earlier date and except as
otherwise contemplated by the Merger Agreement, (ii) the other
party's performance in all material respects of all covenants and
obligations required to be performed by it at or prior to the
Effective Date and (iii) other conditions which are customary for
transactions of the type contemplated by the Merger Agreement.
See "-Representations and Warranties" and "-Business Pending the
Merger.
Except for the requirements of shareholder approval,
regulatory approvals and the absence of any order, decree, or
injunction preventing the transactions contemplated by the Merger
Agreement, each of the conditions described above may be waived
in the manner and to the extent described in " -- Amendment;
Waivers" herein. Neither Sovereign nor ML Bancorp, however,
anticipates waiving the conditions that it receive an opinion
from its independent auditors that the Merger will be treated as
a pooling of interests for financial accounting purposes and an
opinion of its counsel that, in the case of Sovereign provides
among other things, that the Merger will be treated as a
"reorganization" within the meaning of Section 368(a) of the
Code, and in the case of ML Bancorp addresses, among other
things, the tax consequences of the Merger to ML Bancorp
shareholders.
Subsidiary Bank Merger
In connection with the Merger, Sovereign Bank and Main
Line Bank entered into the Bank Plan of Merger. Pursuant to the
Bank Plan of Merger, concurrently with or as soon as practicable
after completion of the Merger, Main Line Bank will merge with
and into Sovereign Bank, with Sovereign Bank surviving.
Sovereign and Main Line Bank anticipate that the Bank Merger will
be completed concurrently with the completion of the Merger.
Regulatory Approvals
The Merger is subject to prior approval of the OTS
under Section 10(e) of the Home Owners' Loan Act ("HOLA") and
regulations of the OTS thereunder. An application for approval
of the Merger was filed with the OTS on or about November 25,
1997. In evaluating an application under Section 10(e) the OTS
shall take into consideration the financial and managerial
resources and future prospects of the acquiror and the
association involved, the effect of the acquisition on the
association, the insurance risk to the Federal Deposit Insurance
Corporation (the "FDIC") an the convenience and needs of the
community to be served. Consideration of the managerial
resources of a company shall include consideration of the
competence, experience and integrity of the directors, officers
and principal shareholders of the company. Before approving an
acquisition, the OTS shall request from the U.S. Department of
Justice and consider any report rendered within 30 days on the
competitive factors involved. The OTS may not approve any
proposed acquisition (i) which would result in a monopoly or
which would be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the savings and loan
business in any part of the United States, (ii) which in any
section of the country may have the effect of substantially
lessening competition or tending to create a monopoly or which in
any other manner would be in restraint of trade, unless the OTS
finds that the anticompetitive effects of the proposed
acquisition are clearly outweighed in the public interest by the
probable effect of the proposed acquisition in meeting the
convenience and needs of the community to be served or (iii) the
acquiror fails to provide adequate assurances to the OTS that the
acquiror will make available to the OTS such information on the
operations or activities of the acquiror and any affiliate
thereof as the OTS determines to be appropriate to determine and
enforce compliance with the HOLA.
In addition, the OTS has the responsibility by statute
and regulation to review the performance of all involved
institutions in meeting their responsibilities under the
Community Reinvestment Act ("CRA"), which includes the record of
performance of the existing institutions in meeting the credit
needs of the entire community including low- and moderate-income
neighborhoods. Both Main Line Bank and Sovereign Bank received
ratings of "outstanding" in their last CRA examinations.
There can be no assurance that the OTS will approve the
Merger, and, if approved, there can be no assurance as to the
date of such approval. The Merger may not be consummated until
30 days (15 days if the Attorney General does not object) after
the date of the OTS approval, during which time the U.S.
Department of Justice has the opportunity to challenge the Merger
on antitrust grounds. The commencement of an antitrust action by
the U.S. Department of Justice would stay the effectiveness of
OTS approval unless a court specifically orders otherwise. In
reviewing the Merger, the U.S. Department of Justice could
analyze the Merger's effect on competition differently than the
OTS, and thus it is possible that the Department of U.S. Justice
could reach a different conclusion than the OTS regarding the
Merger's competitive effects.
Representations and Warranties
The Merger Agreement contains customary representations
and warranties relating to, among other things, (a) the corporate
organization of Sovereign and its subsidiaries and ML Bancorp and
its subsidiaries; (b) the capital structures of Sovereign and ML
Bancorp; (c) the due authorization, execution, delivery,
performance and enforceability of the Merger Agreement and the
Bank Plan of Merger; (d) consents or approvals of regulatory
authorities or third parties necessary to complete the Merger and
the Bank Merger; (e) the consistency of financial statements with
generally accepted accounting principles and, where appropriate,
applicable regulatory accounting principles; (f) the absence of
material adverse changes, since June 30, 1997, in the
consolidated assets, business, financial condition or results of
operations of Sovereign or ML Bancorp; (g) the filing of tax
returns and payment of taxes; (h) the absence of undisclosed
material pending or threatened litigation; (i) compliance with
applicable laws and regulations; (j) retirement and other
employee plans and matters relating to the Employee Retirement
Income Security Act of 1974; (k) the quality of title to assets
and properties; (l) the maintenance of adequate insurance;
(m) the absence of undisclosed brokers' or finders' fees; (n) the
absence of material environmental violations, actions or
liabilities; (o) the consistency of the allowance for loan losses
with generally accepted accounting principles and all applicable
regulatory criteria; (p) the accuracy of information supplied by
Sovereign and ML Bancorp in connection with the Registration
Statement on Form S-4 filed with the Commission in connection
with the issuance of Sovereign Common Stock in the Merger, this
Proxy Statement/Prospectus and all applications filed with
regulatory authorities for approval of the Merger and the Bank
Merger; (q) documents filed with the Commission and the accuracy
of information contained therein; (r) the validity and binding
nature of loans reflected as assets in the financial statements
of ML Bancorp and Sovereign; and (s) the tax and accounting
treatment of the Merger.
Business Pending the Merger
Pursuant to the Merger Agreement, Sovereign and ML
Bancorp have each agreed to use their reasonable good faith
efforts to preserve their business organizations intact, to
maintain good relationships with employees and to preserve the
goodwill of customers and others with whom business relationships
exist. In addition, ML Bancorp has agreed to conduct its
business and to engage in transactions only in the ordinary
course of business, consistent with past practice, except as
otherwise required by the Merger Agreement or with the written
consent of Sovereign.
In addition, ML Bancorp has agreed in the Merger
Agreement that neither it nor any ML Bancorp subsidiaries will,
without the written consent of Sovereign, among other things,
(i) change its articles of incorporation, charter or bylaws;
(ii) change the number of authorized or issued shares of its
capital stock, or grant options or similar rights with respect to
its capital stock or any securities convertible into its capital
stock, except for (A) stock to be issued pursuant to the ML
Bancorp Stock Sale, (B) the issuance of up to 1,422,200 shares of
ML Bancorp Common Stock upon the exercise of ML Options
outstanding on the date of the Merger Agreement, (C) the issuance
of shares of ML Bancorp Common Stock and options to purchase
shares of ML Bancorp Common Stock in October 1997 to non-employee
directors of the Company to the extent required by the ML Bancorp
stock option plans and the ML Bancorp Management Recognition and
Retention Plan (the "RRP") and (D) the issuance of shares of ML
Bancorp Common Stock pursuant to the Stock Option Agreement,
(iii) split, combine or reclassify any shares of its capital
stock; (iv) declare, set aside or pay any dividend or other
distribution in respect of its capital stock, except as otherwise
specifically set forth in the Merger Agreement (see "Dividends"
herein); (v) grant any severance pay, except in accordance with
written policies or written agreements in effect on the date of
the Merger Agreement (see " -- Employee Benefits and Severance"
herein), or enter into or amend any employment agreement;
(vi) grant any pay increase except for routine periodic increases
in accordance with past practice; (vii) engage in any merger,
acquisition or similar transaction; (viii) dispose of any assets
other than in the ordinary course of business; (ix) change any
accounting practices, except as may be required by generally
accepted accounting principles (without regard to any optional
early adoption date); (x) implement any new employee benefit or
welfare plan, or amend any such plan, unless such amendment does
not result in an increase in cost, except as expressly permitted
by the Merger Agreement; (xi) purchase any security for its
investment portfolio not rated "A" or higher by either Standard &
Poor's Corporation or Moody's Investor Services, Inc.;
(xii) make, enter into, renew, extend, modify or compromise any
transaction with any affiliate of ML Bancorp other than deposit
and loan transactions in the ordinary course of business and
which are in compliance with the requirements of applicable laws
and regulations; (xiii) enter into any interest rate swap floor
or cap or similar arrangement; (xiv) take any action which would
give rise to a right of payment to any individual under any
employment agreement; (xv) take any action that would preclude
the treatment of the Merger as a pooling of interests for
financial accounting purposes or as a tax-free reorganization
under the Code; (xvi) waive, release, grant or transfer any
rights of value, or modify or change in any material respect any
existing agreement to which ML Bancorp or any ML Bancorp
subsidiary is a party, other than in the ordinary course of
business, consistent with past practice; (xvii) take any action
which would cause any of the representations and warranties of ML
Bancorp set forth in the Merger Agreement to be untrue or the
conditions set forth in the Merger Agreement to be unsatisfied;
or (xviii) agree to do any of the foregoing.
ML Bancorp has also agreed in the Merger Agreement,
among other things, (i) to permit Sovereign, if Sovereign elects
to do so at its own expense, to cause a "phase I environmental
audit" to be performed at any physical site owned or occupied by
ML Bancorp or any subsidiary of ML Bancorp; (ii) if Sovereign
requests and at its expense, to cause ML Bancorp's independent
certified public accountants to perform a review of its unaudited
consolidated financial statements as of the end of any calendar
quarter, in accordance with Statement of Auditing Standards
No. 36, and to issue their report on such financial statements;
(iii) if Sovereign requests, to use its reasonable best efforts
to obtain an extension of any contract with an outside service
bureau or other vendor of services to ML Bancorp or any ML
Bancorp subsidiary, on terms and conditions mutually acceptable
to ML Bancorp and Sovereign; and (iv) to approve the Bank Merger
as sole shareholder of Main Line Bank.
Sovereign has agreed in the Merger Agreement that
neither it nor any Sovereign subsidiary will, without the written
consent of ML Bancorp, (i) declare, set aside, make or pay any
extraordinary cash dividend or other distribution of cash or
property in respect of the Sovereign Common Stock, except for
stock dividends and regular quarterly cash dividends and as
otherwise provided in the Merger Agreement, (ii) amend its
articles of incorporation or bylaws in a manner which would
adversely affect in any manner the terms of the Sovereign Common
Stock or the ability of Sovereign or Sovereign Bank to complete
the transactions contemplated in the Merger Agreement, (iii) take
any action that would preclude the treatment of the Merger as a
pooling of interests for financial accounting purposes or as a
tax-free reorganization under the Code, (iv) take any action
which would result in any of the representations and warranties
of Sovereign set forth in the Merger Agreement to be untrue or
the conditions set forth in the Merger Agreement to be
unsatisfied, or (v) agree to do any of the foregoing.
Sovereign and ML Bancorp have jointly agreed, among
other things, (i) to submit the Merger Agreement to their
shareholders for approval at a meeting to be held as soon as
practicable; (ii) to confer, at the request of the other party,
on a monthly basis prior to the Effective Date regarding each
party's financial condition, operations and business matters
relating to the completion of the Merger; (iii) to provide to
each other copies of the minutes of any meeting of the Board of
Directors of such party and its subsidiaries, and of any of their
respective committees or of any senior management committee;
(iv) to prepare all applications for, and use their reasonable
best efforts to obtain, all required regulatory approvals;
(v), subject to the terms of the Merger Agreement, to take all
actions necessary to complete the transactions contemplated by
the Merger Agreement; (vi) to maintain adequate insurance;
(vii) to maintain accurate books and records; (v) to file all tax
returns and pay all taxes when due; (ix) to agree upon the form
and substance of any press release or public disclosure related
to the Merger Agreement, the Merger and the Bank Merger; and
(x) to deliver to the other copies of all securities documents
when filed.
Dividends
The Merger Agreement permits ML Bancorp to pay one
regular quarterly cash dividend in the calendar quarter ended
December 31, 1997, not to exceed $.10 per share of ML Common
Stock outstanding. With respect to each calendar quarter ending
after December 31, 1997 but prior to the Effective Date, ML
Bancorp may pay a quarterly cash dividend not to exceed $.033 per
share of ML Common Stock outstanding, provided that if the
shareholders of each of Sovereign and ML Bancorp have not
approved the Merger prior to the end of any such calendar quarter
occurring after December 31, 1997, ML Bancorp may declare and pay
an additional dividend equal to $.067 per share of ML Common
Stock outstanding with respect to such quarter. ML Bancorp
agreed in the Merger Agreement to cause, as promptly as
practicable, the regular quarterly dividend record dates and
payment dates with respect to ML Bancorp Common Stock to be the
same as Sovereign's regular quarterly dividend record dates and
payment dates with respect to Sovereign Common Stock. The Merger
Agreement provides that nothing contained therein shall be
construed to permit shareholders of ML Bancorp to receive two
dividends either from ML Bancorp or Sovereign in any quarter or
to deny or prohibit shareholders of ML Bancorp from receiving one
dividend from ML Bancorp or Sovereign in any quarter. Main Line
Bank may pay cash dividends sufficient to permit payment of the
dividends permitted to be paid by ML Bancorp. No other dividends
may be paid by ML Bancorp or Main Line Bank without the prior
written consent of Sovereign.
No Solicitation of Transactions
Under the Merger Agreement, the Board of Directors of
ML Bancorp generally was permitted to respond to unsolicited
inquiries relating to an Acquisition Transaction (as defined
below) for a 30-day period ending October 18, 1997 to the extent
required in order to fulfill its fiduciary duties. No inquiries
were received by ML Bancorp in this regard during this period
(or, as of the date hereof, thereafter). The Merger Agreement
provides that after such 30-day period, ML Bancorp shall not and
ML Bancorp shall not authorize or permit any of its directors,
officers, employees or agents, to directly or indirectly
(i) respond to, solicit, initiate or encourage any inquiries
relating to, or the making of any proposal which relates to, an
Acquisition Transaction, (ii) recommend or endorse an Acquisition
Transaction, (iii) participate in any discussions or negotiations
regarding an Acquisition Transaction, (iv) provide any third
party (other than Sovereign or an affiliate of Sovereign) with
any nonpublic information in connection with any inquiry or
proposal relating to an Acquisition Transaction or (v) enter into
an agreement with any other party with respect to an Acquisition
Transaction. Notwithstanding the foregoing the ML Bancorp Board
of Directors may recommend or endorse an Acquisition Transaction
if, after having consulted with and considered the written advice
of its financial advisers and outside counsel, it has determined
in good faith that the failure to do so would result in a
reasonable likelihood that the directors, under the BCL, have
breached their fiduciary duty. ML Bancorp has agreed to notify
Sovereign orally (within one day) and in writing (as promptly as
practicable) if any inquiries or proposals relating to an
Acquisition Transaction are received by, any such information is
requested from, or any such negotiations or discussions are
sought to be initiated or continued with, ML Bancorp.
"Acquisition Transaction" means one of the following transactions
with a party other than Sovereign or an affiliate of Sovereign
(i) a merger or consolidation, or any similar transaction,
involving ML Bancorp or an ML Bancorp subsidiary, (ii) a
purchase, lease or other acquisition of all or a substantial
portion of the assets or liabilities of ML Bancorp or an ML
Bancorp subsidiary or (iii) a purchase or other acquisition
(including by way of share exchange, tender offer, exchange offer
or otherwise) of a substantial interest in any class or series of
equity securities of ML Bancorp (other than as permitted in the
Merger Agreement) or an ML Bancorp subsidiary.
Amendment; Waivers
Subject to applicable law, at any time prior to the
consummation of the transactions contemplated by the Merger
Agreement, Sovereign and ML Bancorp may (a) amend the Merger
Agreement, (b) extend the time for the performance of any of the
obligations or other acts of Sovereign and ML Bancorp required in
the Merger Agreement, (c) waive any inaccuracies in the
representations and warranties contained in the Merger Agreement,
or (d) waive compliance with any of the agreements or conditions
contained in the Merger Agreement, except for the requirements of
shareholder approval, regulatory approvals and the absence of any
order, decree, or injunction presenting the transactions
contemplated by the Merger Agreement; provided, however, that any
amendment, extension or waiver granted or executed after
shareholders of ML Bancorp and Sovereign have approved the Merger
Agreement shall not modify either the amount or the form of
consideration to be provided to holders of ML Common Stock upon
completion of the Merger or otherwise materially adversely affect
the shareholders of ML Bancorp or Sovereign without the approval
of such shareholders.
Termination; Effect of Termination
The Merger Agreement may be terminated at any time
prior to the Effective Date by mutual consent of Sovereign and ML
Bancorp or by either party if (i) the other party, in any
material respect, breaches any representation, warranty, covenant
or other obligation contained in the Merger Agreement which would
have a Material Adverse Effect (as defined in the Merger
Agreement), on the breaching party, and such breach has not been
cured by the earlier of thirty days from the date written notice
of such breach was given to such party committing the breach or
the Effective Date, (ii) the Closing Date of the Merger shall not
have occurred by on or before May 31, 1998, unless the failure of
such occurrence shall be due to the failure of the party seeking
to terminate the Merger Agreement to perform or observe any
agreements required to be performed by such party on or before
the Closing Date or (iii) either party has received a final
unappealable administrative order from a regulatory authority
whose approval or consent has been requested that such approval
or consent will not be granted, or in the case of termination by
Sovereign, will not be granted absent the imposition of terms and
conditions which would have a Material Adverse Effect, unless if
such occurrence shall be due to the failure of the party seeking
to terminate the Merger Agreement or perform or observe in any
material respect its agreements set forth therein to be performed
or observed by such party on or before the Closing Date.
In addition, ML Bancorp may terminate the Merger
Agreement at any time during the ten-day period following the
Determination Date if both (a) the Sovereign Market Value is less
than $12.18 and Sovereign elects to have the Exchange Ratio equal
the number (rounded to the nearest hundredth) obtained by
dividing $23.05 by $12.18 and (b) the quotient obtained by
dividing the Sovereign Market Value by $16.24 (being the closing
sale price of Sovereign Common Stock immediately preceding public
announcement of the Merger) (the "Sovereign Ratio") is less than
the quotient obtained by dividing the weighted average closing
price per share (the "Index Price") of the common stocks of a
group of nine specified thrift holding companies (the "Index
Group") on the Determination Date by $43.09 (being the Index
Price on September 17, 1997) and subtracting 0.10 from such
latter number (the "Index Ratio");
provided, however, that the Merger Agreement would not be so
terminated if Sovereign elects, at its sole option, to increase
the Exchange Ratio in the manner set forth in the Merger
Agreement and as illustrated below. There can be no assurance
that the ML Bancorp Board of Directors would exercise its right
to terminate the Merger Agreement if a Termination Event (i.e.,
the conditions described above) exists, and if the ML Bancorp
Board of Directors does elect to so terminate the Merger
Agreement, there can be no assurance that Sovereign will elect to
increase the Exchange Ratio as provided in the Merger Agreement
and as illustrated below.
Certain possible effects of the above provisions of the
Exchange Ratio may be illustrated by the following three
scenarios:
(1) If the Sovereign Market Value is not less than
$12.18, there would be no Termination Event and no
adjustment to the Exchange Ratio, other than the adjustment
to the Exchange Ratio required by the Merger Agreement in
the event the Sovereign Market Value is less than $13.80.
(2) If the Sovereign Market Value is less than $12.18,
but the Sovereign Ratio is equal to or greater than the
Index Ratio, there would be no Termination Event and no
increase in the Exchange Ratio, other than the adjustment to
the Exchange Ratio required by the Merger Agreement in the
event the Sovereign Market Value is less than $13.80.
(3) If (i) the Sovereign Market Value is less than
$12.18, (ii) Sovereign elects to have the Exchange Ratio
equal the number (rounded to the nearest hundredth) obtained
by dividing $23.05 by $12.18, and (iii) the Sovereign Ratio
is less than the Index Ratio, there would be a Termination
Event and the ML Bancorp Board of Directors could, at its
sole option, elect to terminate the Merger Agreement;
provided that Sovereign could, at its sole option, override
such termination by electing to increase the Exchange Ratio
to equal the quotient (rounded to the nearest hundredth)
obtained by dividing $23.05 by the Sovereign Market Value.
The above scenarios are for illustrative purposes only
and are not intended to, and do not, reflect the value of the
Sovereign Common Stock that may actually be received by holders
of ML Bancorp Common Stock in the Merger, nor do they reflect all
possible termination/increase scenarios.
ML Bancorp shareholders should be aware that the
Sovereign Market Value as of the Determination Date, on which the
occurrence of a Termination Event and the subsequent increase, if
any, in the Exchange Ratio may be determined, will be based on
the average of the closing sale prices of Sovereign Common Stock
during a 20-day trading period ending on the trading day
preceding the Determination Date. Accordingly, because the
market price of Sovereign Common Stock between the trading day
preceding the Determination Date and the Effective Date, as well
as on the date certificates representing shares of Sovereign
Common Stock are delivered in exchange for shares of ML Bancorp
Common Stock following consummation of the Merger, will fluctuate
and possibly decline, the value of the Sovereign Common Stock
actually received by holders of ML Bancorp Common Stock may be
more or less than (i) the Sovereign Market Value on the trading
day preceding the Determination Date, or (ii) the value of the
Sovereign Common Stock on the Closing Date resulting from the
Exchange Ratio or any possible adjustment to the Exchange Ratio
as illustrated above.
The Index Group consists of nine thrift holding
companies selected by Sovereign and ML Bancorp as being directly
relevant for purposes of distinguishing changes in Sovereign's
stock prices that are unique from those reflective of general
changes in comparable companies. The nine thrift holding
companies are GreenPoint Financial Corp., Charter One Financial,
Dime Bancorp, Inc., Washington Federal, Inc., Long Island
Bancorp, Inc., Bank United Corp., Astoria Financial Corporation,
Peoples Heritage Financial Group, Inc. and Golden State Bancorp,
Inc. If Sovereign or any company belonging to the Index Group
undergoes a reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between
September 17, 1997 and the Determination Date, the prices of
Sovereign Common Stock or such other common stocks shall be
appropriately adjusted. In the event the common stock of any
such company ceases to be publicly traded or there has been an
announcement of a proposal for the acquisition or sale of such
company, such company will be removed from the Index Group and
the weights will be redistributed proportionately for purposes of
determining whether there has been a Termination Event.
It is not possible to know whether a Termination Event
will occur until after the Determination Date. The ML Bancorp
Board of Directors has made no decision as to whether it would
exercise its right to terminate the Merger Agreement if there is
a Termination Event. In considering whether to exercise its
termination right in such situation, the ML Bancorp Board of
Directors would, consistent with its fiduciary duties, take into
account all relevant facts and circumstances that exist at such
time and would consult with its financial advisors and legal
counsel. Approval of the Merger Agreement by the shareholders of
ML Bancorp at the ML Bancorp Special Meeting will confer on the
ML Bancorp Board of Directors the power, consistent with its
fiduciary duties, to elect to consummate the Merger in the event
of a Termination Event whether or not there is any increase in
the Exchange Ratio and without any further action by, or
resolicitation of, the shareholders of ML Bancorp. If the ML
Bancorp Board of Directors elects to exercise its termination
right, ML Bancorp must give Sovereign prompt notice of that
decision on the Closing Date. Sovereign has the option, in its
sole discretion, to increase the Exchange Ratio in the manner set
forth in the Merger Agreement and as illustrated above and
thereby avoid such termination of the Merger Agreement.
Sovereign is under no obligation to increase the Exchange Ratio,
and there can be no assurance that Sovereign would elect to
increase the Exchange Ratio if the ML Bancorp Board of Directors
were to exercise its right to terminate the Merger Agreement as
set forth above. Any such decision would be made by Sovereign in
light of the circumstances existing at the time Sovereign has the
opportunity to make such an election.
The foregoing discussion is qualified in its entirety
by reference to the applicable provisions in the Merger Agreement
(a copy of which is set forth as Annex A to this Joint Proxy
Statement/Prospectus) relating to possible increase of the
Exchange Ratio as the result of a Termination Event.
In the event of termination of the Merger Agreement by
either Sovereign or ML Bancorp, there will be no liability or
obligation on the part of Sovereign or ML Bancorp other than the
obligation dealing with confidentiality and other than any
liabilities or damages incurred as a result of the willful breach
by a party of any of its representations, warranties, covenants
or agreements set forth in the Merger Agreement.
Management and Operations after the Merger
Directors and Executive Officers
The Board of Directors and executive officers of
Sovereign in office immediately prior to the Effective Date of
the Merger will constitute Sovereign's Board of Directors and
executive officers after completion of the Merger.
The Board of Directors and executive officers of
Sovereign Bank in office immediately prior to the Effective Date
of the Bank Merger will constitute Sovereign Bank's Board of
Directors and executive officers after completion of the Bank
Merger, except that Sovereign will cause Sovereign Bank to elect
or appoint Dennis S. Marlo, President and Chief Executive Officer
of ML Bancorp, as President of the new Pennsylvania Division of
Sovereign Bank, which will be comprised of Sovereign Bank's
Pennsylvania and Delaware branch network. Mr. Marlo will also be
appointed as a director of Sovereign Bank to hold office until
the 1999 annual reorganization meeting of the Board of Directors
of Sovereign Bank and until his successor is elected and
qualified in accordance with the Charter and Bylaws of Sovereign
Bank. Sovereign has agreed, so long as Mr. Marlo remains an
active employee of Sovereign or Sovereign Bank, to renominate
Mr. Marlo as a director of Sovereign Bank for election at the
1999 and 2000 annual reorganization meetings of the Board of
Directors of Sovereign Bank and has agreed to vote its shares of
Sovereign Bank in favor of such election at such meetings.
On the Effective Date, Sovereign Bank shall establish
for a period of at least two years the Advisory Board, which
shall consist of all non-employee members of the ML Bancorp Board
of Directors immediately prior to the Effective Date.
Consolidation of Operations
Sovereign expects to achieve certain cost savings and
operating synergies as a result of the Merger. These costs
savings and operating synergies are anticipated to aggregate
approximately 35% to 40% of ML Bancorp's recurring operating
expenses, and are expected to be substantially realized within
12 months following the Effective Date. Sovereign expects that
such cost savings and operating synergies will be realized
primarily as the result of the elimination of duplicative
administrative and back office functions. Because of the
uncertainties inherent in merging two financial institutions,
changes in the regulatory environment and changes in economic
conditions, no assurances can be given that any particular level
of cost savings will be realized, that any such cost savings will
be realized over the time period currently anticipated or that
such cost savings will not be offset to some degree by increases
in other expenses, including expenses relating to integrating the
two companies.
Any such expected cost savings or synergies do not give
effect to an expected one-time after-tax charge of approximately
$10 million to $15 million, relating to Merger expenses, which
will be incurred upon completion of the Merger. Such expenses
will be incurred principally as a result of salaries and
benefits, including payments pursuant to employment and change in
control agreements and other severance payments, occupancy and
equipment expense, and other operating expenses which are
required to be accrued in accordance with generally accepted
accounting principles.
Employee Benefits and Severance
On and after the Effective Date, the employee pension
and welfare benefit plans of Sovereign and ML Bancorp (as well as
any other plan of ML Bancorp providing for benefits not subject
to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), may, at Sovereign's election and subject to
the requirements of the Code, continue to be maintained
separately or consolidated, except as set forth below. The
Merger Agreement provides that in connection with implementation
of the foregoing, the following provisions and guidelines shall
apply (i) employees of ML Bancorp and its subsidiaries who become
employees of Sovereign or a subsidiary of Sovereign shall become
entitled to participate in the Sovereign ESOP in accordance with
its terms by treating them as newly-employed individuals without
any prior service credit under such plan; (ii) each participant
in the ML Bancorp ESOP not fully vested will, in accordance with
the terms of the ML Bancorp ESOP, become fully vested in his or
her ML Bancorp ESOP account as of the Effective Date (the Merger
Agreement provides that ML Bancorp, Main Line Bank and Sovereign
will cooperate to cause the ML Bancorp ESOP to be terminated upon
the Effective Date); (iii) employees of ML Bancorp and its
subsidiaries who become employees of Sovereign or a Sovereign
subsidiary shall become entitled to participate in Sovereign's
Defined Benefit Pension Plan (the "Sovereign DB Plan") in
accordance with its terms (each such employee shall (A) receive,
for purposes of participation and vesting only, credit for all
service with ML or an ML Bancorp subsidiary credited to each such
employee under ML Bancorp's Defined Benefit Plan (the "ML Bancorp
DB Plan") as of the date of its termination or cessation of
accrual of benefits, and (B) enter the Sovereign DB Plan on the
entry date concurrent with or next following the employee's
satisfaction of such plan's minimum participation requirements);
(iv) ML may proceed with the presently contemplated termination
and/or cessation of the accrual of benefits under the ML Bancorp
DB Plan and allocation of excess benefits and Sovereign shall
take no action inconsistent therewith if the ML Bancorp DB Plan
is not terminated and allocation of excess benefits thereunder
are not completed prior to the Effective Date, it being the
intention of the parties that such actions be taken after the
Effective Date under such circumstances; (v) employees of ML
Bancorp or an ML Bancorp subsidiary who become employees of
Sovereign or a Sovereign subsidiary shall become entitled to
participate in the Sovereign 401(k) Plan in accordance with its
terms (each such employee shall (A) receive, for purposes of
participation and vesting only, credit for all service with ML
Bancorp or an ML Bancorp subsidiary credited to each such
employee under ML Bancorp's 401(k) Plan as of the date of the
Merger, and (B) enter the Sovereign 401(k) Plan on the entry date
concurrent with or next following the employee's satisfaction of
such plan's minimum participation requirements); (vi) following
the Merger, Sovereign will initially continue to maintain ML
Bancorp's 401(k) Plan until its participants generally become
eligible to participate in the Sovereign 401(k) Plan;
(vii) following the Merger, Sovereign will, as soon as
administratively feasible and subject to certain limitations,
consolidate the Sovereign and ML Bancorp Nonqualified Deferred
Compensation Plans (the "Excess Benefit Plans") maintained by
Sovereign and ML Bancorp to supplement certain pension benefits
lost by some employees by reason of limitations contained in the
Code; (viii) the RRP shall continue in effect following the
Effective Date as a Sovereign plan with no further grants or
awards contemplated to be made thereunder, except as otherwise
expressly provided in the Merger Agreement; (ix) following the
Merger, (A) the welfare benefit plans of Sovereign and ML Bancorp
(and their respective subsidiaries) shall initially remain
unchanged, (B) Sovereign shall undertake a study, in consultation
with appropriate professional advisors, with a view toward the
possible combination of some or all of such plans or the benefits
provided thereunder, and (C) following such study, Sovereign
shall take such action with respect to such plans (which may
include the implementation of new benefits, reduction or
elimination of some benefits, and the alteration of the
respective cost allocation between employer and employee) as it
deems appropriate under the circumstances; (x) ML Bancorp may
continue to administer its bonus programs and arrangements
through the Effective Date, with such equitable modifications as
may be appropriate to take into account the circumstances of the
Merger and the timing thereof (in the event the Merger shall
occur after the current fiscal year, bonuses shall be provided on
a pro rata basis with respect to the interim period; provided,
however, that bonuses for such interim period, in the aggregate,
shall not exceed $200,000); (xi) prior to consummation of the
Merger, Main Line Bank may continue to originate loans pursuant
to its employee loan program, and upon consummation of the Bank
Merger, Sovereign agrees to cause Sovereign Bank to honor all of
the loans originated by Main Line Bank pursuant to such employee
loan program or its predecessors; and (xii) through the Effective
Date of the Merger, without the prior written consent of
Sovereign and except as otherwise expressly permitted by the
Merger Agreement, no further benefits, grants or awards shall be
made available under any other ML Bancorp plans to employees or
directors, including, without limitation, the granting of stock
options, stock appreciation rights, restricted stock, and
performance shares.
Sovereign has agreed in the Merger Agreement to cause
Sovereign Bank to provide the severance pay and benefits
specified in the Main Line Bank severance policy to any employee
of Main Line Bank whose employment is terminated in connection
with the Merger within three months of the Effective Date, either
because such employee's position is eliminated or such employee
is not offered comparable employment (i.e., not offered
employment for a position of generally similar job description or
responsibilities in a location within 65 miles from ML Bancorp's
headquarters), excluding any employee who has an existing
employment or special termination agreement or whose employment
is terminated for cause.
Sovereign has agreed in the Merger Agreement to pay the
cost of out-placement services for employees who are terminated
without cause in connection with the Merger within three months
after the Effective Date. Sovereign shall not be obligated to
pay any out-placement fees in connection with the foregoing or
more than $50,000 in the aggregate for such services.
Accounting Treatment
The Merger is intended to qualify as a pooling of
interests for accounting and financial reporting purposes. Under
this method of accounting, the recorded assets and liabilities of
Sovereign and ML Bancorp will be carried forward to the combined
corporation at their recorded amounts; income of the combined
corporation will include income of both Sovereign and ML Bancorp
for the entire fiscal year of Sovereign in which the Merger
occurs; and the reported income of the separate corporations for
prior periods will be combined and restated as income of the
combined corporation. Expenses incurred in connection with the
Merger will constitute expenses for the accounting periods to
which such expenses relate.
It is a condition to completion of the Merger that
Sovereign and ML Bancorp each receive an opinion from its
respective independent accountants confirming that the Merger
will qualify as a pooling of interests for financial accounting
purposes.
Sovereign and ML Bancorp have each been informed by
their respective independent auditors that there is no reason to
believe that the Merger will not qualify as a pooling of
interests for financial accounting and financial reporting
purposes, provided that ML Bancorp reissue approximately 600,000
to 1,000,000 shares of ML Bancorp Common Stock for fair value to
individuals or entities unaffiliated with ML Bancorp and
Sovereign prior to the Effective Date. ML Bancorp has agreed in
the Merger Agreement (i) to use its reasonable best efforts to
effect such a sale of ML Bancorp Common Stock after the Merger
has been approved by the shareholders of Sovereign and ML Bancorp
and prior to the Effective Date, and (ii) to consult with
Sovereign with respect to the amount of shares of ML Bancorp
Common Stock to be sold and the timing and manner of such sale,
which may involve a private placement or, with Sovereign's
consent, a public offering. The ML Bancorp Stock Sale will not
occur during the 20 consecutive trading days ending on the
trading day preceding the Determination Date during which the
Sovereign Market Value will be determined.
In the event that the independent accountants of either
Sovereign or ML Bancorp is unable to deliver its opinion that the
Merger will qualify as a pooling of interests for financial
accounting purposes, then Sovereign and ML Bancorp have agreed to
appoint another national accounting firm mutually acceptable to
each party to determine if the Merger is required to be accounted
for as a pooling of interests. The written determination by such
national accounting firm shall be binding on Sovereign and ML
Bancorp for purposes of determining whether the conditions
regarding the receipt of such opinions have been satisfied.
As of the date of this Proxy Statement/Prospectus,
neither Sovereign nor ML Bancorp has any reason to believe that
their respective independent auditors will be unable to deliver
an opinion that the Merger will qualify as a pooling of interests
for financial accounting purposes, assuming completion of the ML
Bancorp Stock Sale.
Certain Federal Income Tax Consequences
Completion of the Merger is conditioned upon there
being delivered to Sovereign an opinion of Stevens & Lee, P.C.,
counsel to Sovereign, that for federal income tax purposes, under
current law, assuming that the Merger and related transactions
will take place as described in the Merger Agreement, among other
things, the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, and Sovereign and ML
Bancorp will each be a party to the reorganization within the
meaning of Section 368(b) of the Code.
In that case, in the opinion of Stevens & Lee, P.C.,
the following would be the material federal income tax
consequences of the Merger:
(i) no gain or loss will be recognized by
Sovereign or ML Bancorp in the Merger;
(ii) no gain or loss will be recognized by
holders of shares of ML Bancorp Common Stock upon their receipt
of Sovereign Common Stock in exchange for their ML Bancorp Common
Stock, except that shareholders who receive cash proceeds for
fractional interests in Sovereign Common Stock will recognize
gain or loss equal to the difference between such proceeds and
the tax basis allocated to their fractional share interests, and
such gain or loss will constitute capital gain or loss if their
ML Bancorp Common Stock is held as a capital asset at the
Effective Date;
(iii) the tax basis of the shares of Sovereign
Common Stock (including fractional share interests) received by
the shareholders of ML Bancorp will be the same as the tax basis
of their ML Bancorp Common Stock exchanged therefor; and
(iv) the holding period of the Sovereign Common
Stock in the hands of the ML Bancorp shareholders will include
the holding period of their ML Bancorp Common Stock exchanged
therefor, provided such ML Bancorp Common Stock is held as a
capital asset at the Effective Date.
Completion of the Merger is also conditioned upon there
being delivered to ML Bancorp an opinion of Elias, Matz,
Tiernan & Herrick L.L.P. ("Elias, Matz"), counsel to ML Bancorp,
as to the tax consequences of the Merger to ML Bancorp
shareholders.
Under the Merger Agreement, the conditions that
Stevens & Lee and Elias, Matz deliver the opinions described
above can be waived by Sovereign and ML Bancorp, respectively.
However, in the event that the delivery of such opinions of
counsel is waived, or such opinions would otherwise set forth tax
consequences materially different to a shareholder than those
described above, Sovereign and ML Bancorp intend to resolicit
proxies as required in accordance with the rules and regulations
of the Commission.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED ON CURRENTLY EXISTING PROVISIONS OF
THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER,
AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF
THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD
AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. THE DISCUSSION
IS NOT A COMPLETE DESCRIPTION OF ALL THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER AND, IN PARTICULAR, DOES NOT ADDRESS
TAX CONSIDERATIONS THAT MAY AFFECT THE TREATMENT OF SHAREHOLDERS
WHO ACQUIRED THEIR ML BANCORP COMMON STOCK PURSUANT TO THE
EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION,
OR SHAREHOLDERS WHICH ARE EXEMPT ORGANIZATIONS OR WHO ARE NOT
CITIZENS OR RESIDENTS OF THE UNITED STATES. EACH SHAREHOLDER'S
INDIVIDUAL CIRCUMSTANCES MAY AFFECT THE TAX CONSEQUENCES OF THE
MERGER TO SUCH SHAREHOLDER. IN ADDITION, NO INFORMATION IS
PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES OF THE
MERGER UNDER APPLICABLE STATE, LOCAL, OR FOREIGN LAWS.
ACCORDINGLY, EACH ML BANCORP SHAREHOLDER IS ADVISED TO CONSULT A
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO
SUCH SHAREHOLDER.
Expenses
Sovereign and ML Bancorp will each pay all costs and
expenses incurred by it in connection with the transactions
contemplated by the Merger Agreement, including fees and expenses
of financial consultants, accountants and legal counsel, except
that the cost of printing and mailing this Proxy Statement/
Prospectus will be shared equally by Sovereign and ML Bancorp.
Resale of Sovereign Common Stock
The Sovereign Common Stock issued pursuant to the
Merger will be freely transferable under the Securities Act
except for shares issued to any ML Bancorp shareholder who may be
deemed to be an "affiliate" of ML Bancorp for purposes of
Rule 145 under the Securities Act or an affiliate of Sovereign
for purposes of Rule 144 promulgated under the Securities Act
(each an "Affiliate"). Affiliates will include persons
(generally executive officers, directors and 10% shareholders)
who control, are controlled by or are under common control with
(i) Sovereign or ML Bancorp at the time of the ML Bancorp Special
Meeting or (ii) Sovereign at or after the Effective Date.
Rules 144 and 145 will restrict the sale of Sovereign
Common Stock received in the Merger by Affiliates and certain of
their family members and related interests. Generally, during
the year following the Effective Date, those persons who are
Affiliates of ML Bancorp at the time of the ML Bancorp Special
Meeting, provided they are not Affiliates of Sovereign at or
following the Effective Date, may publicly resell any Sovereign
Common Stock received by them in the Merger, subject to certain
limitations as to, among other things, the amount of Sovereign
Common Stock sold by them in any three-month period and as to the
manner of sale. After the year period, such Affiliates may
resell their shares without such restriction so long as there is
adequate current public information with respect to Sovereign as
required by Rule 144. Persons who are Affiliates of Sovereign
after the Effective Date may publicly resell the Sovereign Common
Stock received by them in the Merger subject to similar
limitations and subject to certain filing requirements specified
in Rule 144.
The ability of Affiliates to resell shares of Sovereign
Common Stock received in the Merger under Rule 144 or Rule 145 as
summarized herein generally will be subject to Sovereign's having
satisfied its Exchange Act reporting requirements for specified
periods prior to the time of sale. Affiliates also would be
permitted to resell Sovereign Common Stock received in the Merger
pursuant to an effective registration statement under the
Securities Act or another available exemption from the Securities
Act regulations requirements. This Proxy Statement/Prospectus
does not cover any resales of Sovereign Common Stock received by
persons who may be deemed to be Affiliates of Sovereign or ML
Bancorp.
Each director and executive officer of ML Bancorp and
Sovereign has entered into an agreement with Sovereign and ML
Bancorp, respectively, providing that, as an affiliate, he or she
will not transfer any Sovereign Common Stock received in the
Merger except in compliance with the Securities Act and will make
no dispositions of any Sovereign Common Stock or ML Bancorp
Common Stock (or any interest therein) during the period
commencing 30 days prior to the Effective Date through the date
on which financial results covering at least 30 days of combined
operations of Sovereign and ML Bancorp after the Merger have been
made public.
Dissenters' Rights
Pursuant to the BCL, any shareholder of ML Bancorp has
the right to dissent from the Merger, and to obtain payment of
the "fair value" (as defined therein) of his ML Bancorp Common
Stock if the Merger is consummated. The term "fair value" means
the value of ML Bancorp Common Stock immediately before
completion of the Merger, taking into account all relevant
factors, but excluding any appreciation or depreciation in
anticipation of the Merger.
The following summary of the steps to be taken if the
right to dissent is to be exercised is qualified in its entirety
by the full text of Section 1930 and Subchapter D of Chapter 15
of the BCL, which are attached as Annex E to this Proxy
Statement/Prospectus. Each step must be taken in the indicated
order and in strict compliance with the applicable provisions of
the statute in order to perfect dissenters' rights. The failure
of any shareholder to comply with the aforesaid steps will result
in the shareholder receiving the consideration contemplated by
the Merger Agreement. See "THE MERGER -- Terms of the Merger."
Any shareholder of ML Bancorp who contemplates exercising the
right to dissent is urged to read carefully the provisions of
Section 1930 and Subchapter D of Chapter 15 of the BCL.
Any written notice or demand which is required in
connection with the exercise of dissenters' rights, whether
before or after the Effective Date, must be sent to ML Bancorp,
Two Aldwyn Center, Lancaster Avenue and Route 320, Villanova,
Pennsylvania 19085 (Attention: Brian M. Hartline, Secretary).
A person who wishes to dissent must file with ML
Bancorp, prior to the vote of shareholders on the Merger at the
ML Bancorp Special Meeting, a written notice of intention to
demand that he be paid the fair value for his ML Bancorp Common
Stock if the Merger is effected, must effect no change in the
beneficial ownership of his ML Bancorp Common Stock from the date
of such filing through the Effective Date, and must refrain from
voting his ML Bancorp Common Stock to approve the Merger.
Neither a proxy nor a vote against approval of the Merger will
constitute the necessary written notice of intention to dissent.
A beneficial owner of ML Bancorp Common Stock whose shares are
held of record in "street name" by a brokerage firm or other
nominee must obtain the written consent of such record holder to
such beneficial owner's exercise of dissenters' rights and must
submit such consent to ML Bancorp no later than the time of the
filing of his notice of intention to dissent.
If the Merger is approved by the required vote of ML
Bancorp's shareholders, ML Bancorp will mail a notice to all
dissenters who gave due notice of intention to demand payment and
who refrained from voting in favor of the Merger. The notice
will state where and when a demand for payment must be sent and
certificates for ML Bancorp Common Stock must be deposited in
order to obtain payment, and will include a form for demanding
payment and a copy of Subchapter D of Chapter 15 of the BCL. The
time set for receipt of the demand for payment and deposit of
stock certificates will not be less than 30 days from the date of
mailing of the notice.
A shareholder who fails to timely demand payment or
fails to timely deposit stock certificates, as required by ML
Bancorp's notice, will not have any right to receive payment of
the fair value of his ML Bancorp Common Stock.
Promptly after completion of the Merger, or upon timely
receipt of demand for payment if the Merger already has been
completed, Sovereign will either remit to dissenters who have
made demand and have deposited their stock certificates the
amount that Sovereign, as successor to ML Bancorp, estimates to
be the fair value of the ML Bancorp Common Stock or give written
notice that no such remittance is being made. The remittance or
notice will be accompanied by (i) a closing balance sheet and an
income statement of ML Bancorp for a fiscal year ending not more
than 16 months before the date of remittance, together with the
latest available interim financial statements, (ii) a statement
of Sovereign's estimate of the fair value of the ML Bancorp
Common Stock, and (iii) notice of the right of the dissenter to
demand payment or supplemental payment under the BCL, as the case
may be, accompanied by a copy of Subchapter D of Chapter 15 of
the BCL. If Sovereign does not remit the estimated fair value
for shares with respect to which demand for payment has been made
and stock certificates have been deposited, then Sovereign will
return any certificates that have been deposited. Returned
certificates, and any certificates subsequently issued in
exchange therefor, will be marked to record the fact that demand
for payment has been made. Transferees of shares so marked shall
not acquire any rights in ML Bancorp or Sovereign other than
those rights held by the original dissenter after such dissenter
demanded payment of fair value.
If a dissenter believes that the amount stated or
remitted by Sovereign is less than the fair value of the ML
Bancorp Common Stock, he may send Sovereign his own estimate of
the fair value of the ML Bancorp Common Stock, which shall be
deemed to be a demand for payment of the amount of the
deficiency. If Sovereign remits payment of its estimated value
of a dissenter's ML Bancorp Common Stock and the dissenter does
not file his own estimate within 30 days after the mailing by
Sovereign of its remittance, the dissenter will be entitled to no
more than the amount remitted to him by Sovereign.
Within 60 days after the latest to occur of completion
of the Merger, timely receipt by ML Bancorp or Sovereign, as the
case may be, of any demands for payment, or timely receipt by ML
Bancorp or Sovereign, as the case may be, of any estimates by
dissenters of fair value, if any demands for payment remain
unsettled, ML Bancorp or Sovereign, as the case may be, may file
in the Court of Common Pleas of Montgomery County (the "Court")
an application requesting that the fair value of the ML Bancorp
Common Stock be determined by the Court. In such case, all
dissenters, wherever residing, whose demands have not been
settled shall be made parties to the proceeding as in an action
against their shares, and a copy of the application shall be
served on each such dissenter.
If ML Bancorp or Sovereign, as the case may be, were to
fail to file such an application, then any dissenter, on behalf
of all dissenters who have made a demand and who have not settled
their claim against ML Bancorp or Sovereign, as its successor,
may file an application in the name of ML Bancorp or Sovereign,
as its successor, at any time within the 30-day period after the
expiration of the 60-day period and request that the fair value
be determined by the Court. The fair value determined by the
Court may, but need not, equal the dissenters' estimates of fair
value. If no dissenter files such an application, then each
dissenter entitled to do so shall be paid ML Bancorp's or
Sovereign's, as the case may be, estimate of the fair value of
the ML Bancorp Common Stock and no more, and may bring an action
to recover any amount not previously remitted, plus interest at a
rate the Court finds fair and equitable.
ML Bancorp or Sovereign, as the case may be, intends to
negotiate in good faith with any dissenting shareholder. If
after negotiation, a claim cannot be settled, then ML Bancorp or
Sovereign, as its successor, intends to file an application
requesting that the fair value of the ML Bancorp Common Stock be
determined by the Court.
The costs and expenses of any valuation proceedings in
Court, including the reasonable compensation and expense of any
appraiser appointed by the Court to recommend a decision on the
issue of fair value, will be determined by the Court and asserted
against ML Bancorp or Sovereign, as the case may be, except that
any part of the costs and expenses may be apportioned and
assessed by the Court against all or any of the dissenters who
are parties and whose action in demanding supplemental payment
the Court finds to be dilatory, obdurate, arbitrary, vexatious or
in bad faith.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of ML Bancorp's management, Main Line
Bank's management, the Board of Directors of ML Bancorp and the
Board of Directors of Main Line Bank may be deemed to have
interests in the Merger in addition to their interests, if any,
in ML Bancorp Common Stock. The ML Bancorp Board of Directors
was aware of these factors and considered them, among other
matters, in approving the Merger Agreement and the transactions
contemplated thereby.
Stock Options
As of the Record Date, the directors and executive
officers of ML Bancorp beneficially own approximately 1,668,412
shares of ML Bancorp Common Stock, including 357,960 shares
allocated on their behalf under ML Bancorp's RRP and Management
Options to purchase 1,065,690 shares of ML Bancorp Common Stock.
On the Effective Date, each ML Option, whether or not such ML
Option is exercisable on the Effective Date, shall cease to be
outstanding and shall be converted on the Effective Date into and
become an option to acquire that number of shares of Sovereign
Common Stock equal to the number of shares of ML Bancorp Common
Stock covered by the ML Option multiplied by the Exchange Ratio,
at an exercise price equal to the present stated exercise price
of such option divided by the Exchange Ratio. Shares issuable
upon the exercise of such options to acquire Sovereign Common
Stock shall be issuable in accordance with the terms of the
respective plans and grant agreements of ML Bancorp under which
they were issued.
Indemnification; Directors and Officers Insurance
Sovereign has agreed in the Merger Agreement that, on
or after the Effective Date, Sovereign shall indemnify, defend
and hold harmless all prior and then-existing directors and
officers of ML Bancorp and Main Line Bank against (i) all losses,
claims, damages, costs, expenses, liabilities or judgments or
amounts that are paid in settlement (with the approval of
Sovereign) of or in connection with any claim, action, suit,
proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is
or was a director, officer or employee of ML Bancorp or any ML
Bancorp subsidiary, whether pertaining to any matter existing or
occurring at or prior to the Effective Date and whether asserted
or claimed prior to, or at or after, the Effective Date
("Indemnified Liabilities") and (ii) all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out
of, or pertaining to the Merger Agreement or the transactions
contemplated by the Merger Agreement, to the same extent as such
officer, director or employee would be indemnified by ML Bancorp
or Main Line Bank as of September 18, 1997, including the right
to advancement of expenses, provided, however, that any such
officer, director or employee of ML Bancorp or Main Line Bank may
not be indemnified by Sovereign and/or Main Line Bank if such
indemnification is prohibited by applicable law.
Sovereign has agreed to maintain ML Bancorp's existing
directors' and officers' liability insurance policy, or a policy
providing comparable coverage amounts on terms no less favorable,
including Sovereign's existing policy if it meets the foregoing
standard, covering persons currently covered by such insurance
for a period of five years after the Effective Date, subject to
certain maximum cost limits.
Continued Employment
Upon completion of the Bank Merger, Sovereign will
cause Sovereign Bank to elect or appoint Dennis S. Marlo,
President and Chief Executive Officer of ML Bancorp, as President
of the Pennsylvania Division of Sovereign Bank. Mr. Marlo will
also be appointed as a director of Sovereign Bank to hold office
until the 1999 annual reorganization meeting of the Board of
Directors of Sovereign Bank. Sovereign has agreed, so long as
Mr. Marlo remains an active employee of Sovereign or Sovereign
Bank, to renominate Mr. Marlo as a director of Sovereign Bank for
election at the 1999 and 2000 annual reorganization meetings of
Sovereign Bank, respectively, and to vote its shares of Sovereign
Bank in favor of such election at such meetings.
Employment Agreements
Except as otherwise provided below Sovereign has agreed
in the Merger Agreement to honor all employment agreements,
consulting agreements and termination agreements that ML Bancorp
and its subsidiaries have entered into with their current or
former employees. In connection therewith, Sovereign and
Sovereign Bank have preliminarily agreed to use their reasonable
best efforts to enter into a new employment agreement with
Mr. Marlo. Sovereign and Mr. Marlo have agreed to the form of
such new contract. The major provisions of such contract are
summarized below. There can be no assurance that an agreement
will be successfully negotiated or, if an agreement is
negotiated, that the provisions will be as set forth below.
Mr. Marlo's proposed agreement with Sovereign has an
initial term of three years and, unless terminated as set forth
therein, is automatically extended annually to provide a new term
of three years except that, at certain times, notice of
nonextension may be given, in which case the agreement will
expire at the end of its then current term, unless sooner
terminated.
The agreement provides a base salary which, if
increased by action of the Board of Directors, becomes the new
base salary provided thereafter by the agreement. In addition,
the agreement provides, among other things, a right to
participate in any bonus plan approved by the Board of Directors
and insurance (including medical insurance to age 66), vacation,
pension and other fringe benefits and perquisites for Mr. Marlo.
If Mr. Marlo's employment is terminated without
"Cause," or if Mr. Marlo voluntarily terminates employment for
"Good Reason" (as defined in the agreement), Mr. Marlo becomes
entitled to severance benefits under the agreement. "Good
Reason" includes the assignment of duties and responsibilities
inconsistent with Mr. Marlo's status as President and Chief
Executive Officer of the Pennsylvania division of Sovereign Bank,
a reduction in salary or benefits, a reassignment which requires
Mr. Marlo to move his principal residence more than 50 miles from
ML Bancorp's principal executive office immediately prior to the
agreement, or failure to annually extend the agreement. If any
such termination occurs, Mr. Marlo will be paid an amount equal
to three times the sum of (i) his highest annual base salary
under the agreement, and (ii) the average of his annual bonuses
with respect to the three calendar years immediately preceding
his termination. Such amount will be payable in thirty-six equal
monthly installments. In addition, in the event of such
termination, Mr. Marlo will be entitled to continuation of
certain insurance and other specified benefits for thirty-six
months or until he secures substantially similar benefits through
other employment, whichever shall first occur. Further,
Mr. Marlo will be entitled to additional retirement benefits to
which he would have been entitled had his employment continued
through the then remaining term of the agreement. If the
payments and benefits under the agreement, when aggregated with
other amounts received from Sovereign and Sovereign Bank, are
such that Mr. Marlo becomes subject to excise tax on excess
parachute payments pursuant to Sections 4999 and 280G of the
Code, he will receive additional payments equal to such excise
tax and any incremental income taxes he may be required to pay by
reason of the receipt of additional amounts under the agreement.
Sovereign estimates that, if Mr. Marlo were terminated
immediately after the Merger under circumstances entitling him to
the above-described severance benefits, he would be entitled to
receive $1.1 million, exclusive of the non-cash benefits,
additional retirement benefits, and any potential excise tax-
related payments.
If Mr. Marlo's employment terminates by reason of his
disability, he will be entitled to continuation of 80% of the
annual base salary and bonus described above, less amounts
payable under any disability plan of Sovereign, until the
earliest of (i) his return to employment, (ii) his attainment of
age 65, or (iii) his death. Provision is also made generally for
the continuation of insurance and other specified benefits for
such period, as well as additional credits for retirement benefit
purposes. In the event of Mr. Marlo's death during the term of
the agreement, provision is made generally for the payment of his
annual compensation to his beneficiary for a period of twenty-
four months.
Mr. Marlo also will have the right to terminate his
employment agreement with Sovereign for any reason during the
first two years of the agreement. In such event, he will be
entitled generally to the payments and benefits provided for
under his current contracts with ML Bancorp and Main Line Bank.
The agreement contains provisions restricting
Mr. Marlo's right to compete with Sovereign and Sovereign Bank
during the period he is receiving severance or disability
benefits thereunder, except under certain circumstances.
Main Line Bank has entered into employment agreements
with Messrs. Campbell, Hartline and Blaston, whereby the Bank has
agreed to employ each of them in their current positions for a
term of one year at base salaries of $165,000, $160,000 and
$150,000, respectively, which salaries may be increased (but not
decreased) from time to time. Under such contracts, the
executives are also entitled to participate in bonus plans,
employee benefit plans, and other benefits specified therein.
The term of each contract shall be renewed annually for an
additional year unless either party elects, not less than 30 days
prior to the expiration of the contract not to renew it.
Sovereign Bank will assume the obligations of the employer by
operation of law following the Merger.
In the event of any such executive's termination of
employment as a result of certain adverse actions taken with
respect to him in connection with or following a change in
control (as defined), he will be entitled to a severance benefit
of two times his then base salary, payable in 24 monthly
installments, but in no event shall such severance payments, when
added to other payments and benefits subject to Section 280G of
the Code, exceed the limitation of such section, so that no 20%
federal excise tax will be payable by him and no corporate tax
deduction will be limited by such section. The proposed Merger
and related transactions will constitute a "change in control"
for purposes of each contract. Sovereign estimates that, if the
employment of Messrs. Campbell, Hartline and Blaston were to
terminate following the Merger under the circumstances qualifying
for the change in control severance benefits, they would be
entitled to total contract payments of $330,000, $320,000 and
$300,000, respectively.
Pension and ESOP Plans
In accordance with the terms of the ML Bancorp ESOP, it
will be terminated in connection with the Merger. Under the ML
Bancorp ESOP's provisions, the outstanding loan owed by it
(presently, approximately $4,650,000) will be paid by selling
such number of unallocated shares held by the trustee as will be
necessary to fund the repayment of such loan. The remaining
unallocated shares will be allocated to the accounts of the ML
Bancorp ESOP participants in accordance with the plan document's
allocation procedures, and such participants will automatically
become 100% vested in their account balances, as increased by
such allocation. Based on ML Bancorp Common Stock price on
December 5, 1997, assuming the unallocated shares are deemed to
be earnings of the ML Bancorp ESOP, and assuming the Merger is
consummated prior to March 31, 1998, it is estimated that Messrs.
Marlo, Campbell, Hartline and Blaston will have additional ML
Bancorp Common Stock valued at $384,093, $378,652, $359,063 and
$0 allocated to their accounts by reason of the termination of
the ML Bancorp ESOP.
In accordance with the terms of the Merger Agreement,
ML Bancorp will be permitted to proceed with the presently
contemplated termination of, or benefit accrual cessation under,
the ML Bancorp DB Plan. As of March 31, 1997, the most recent
valuation date, the ML Bancorp DB Plan was overfunded, on a
termination basis, by approximately $937,000. Such overfunding
will be allocated among plan participants in accordance with the
provisions of the plan document and federal government
requirements, and such participants will automatically become
100% vested in their accrued pensions, as increase by such
allocation. Based on preliminary actuarial data, it is estimated
that the annual pensions of Messrs. Marlo, Campbell, Hartline and
Blaston will thereby be increased by approximately $55,500,
$26,500, $4,500 and $0, respectively.
Retention Bonuses
The Merger Agreement provides that certain key
operations employees of ML Bancorp (none of whom are executive
officers of ML Bancorp) will be entitled to receive a retention
bonus from ML Bancorp or Main Line Bank equal to no more than six
months of such person's annual base salary as of September 18,
1997 in the event that such person remains an employee of ML
Bancorp or in ML Bancorp subsidiary until the Effective Date (or
in certain cases, the date the systems conversion occurs after
the Effective Date) and satisfactorily fulfills the duties and
responsibilities of the position of such person, provided that
such retention bonuses shall not exceed the amount specified in
the Merger Agreement.
Pennsylvania Division of Sovereign Bank Advisory Board
On the Effective Date, Sovereign has agreed to
establish for a period of at least two years the Advisory Board,
which shall consist of all non-employee members of the ML Bancorp
Board of Directors immediately prior to the Effective Date. The
members of the Advisory Board shall be paid an annual retainer of
$18,750 ($25,000 in the case of Mr. John Eppinger, chairman of
the Board of ML Bancorp), which is equal to the annual fees
currently being received by such persons in their capacities as
directors of ML Bancorp and Main Line Bank.
CERTAIN RELATED TRANSACTIONS
Stock Option Agreement
General. As a condition to Sovereign entering into the
Merger Agreement, ML Bancorp executed and delivered to Sovereign
the Stock Option Agreement, dated September 18, 1997 (the "Stock
Option Agreement"), which permits Sovereign to purchase ML
Bancorp Common Stock under certain circumstances. Pursuant to
the Stock Option Agreement, Sovereign was granted an option (the
"Option") to purchase up to 2,361,245 shares of ML Bancorp Common
Stock (representing approximately 19.9% of the issued and
outstanding shares of ML Bancorp Common Stock on September 17,
1997). The exercise price per share to purchase ML Bancorp
Common Stock under the Option is equal to $21.875 per share. The
Option may only be exercised, in whole or in part, upon the
occurrence of certain events (collectively, "Triggering Events"),
which are described below (none of which have occurred to the
best of Sovereign's or ML Bancorp's knowledge as of the date of
this Proxy Statement/Prospectus).
The Stock Option Agreement, together with (i) ML
Bancorp's agreement to not solicit other transactions relating to
the acquisition of ML Bancorp by a third party (see "THE MERGER--
No Solicitation of Transactions") and (ii) the agreement of ML
Bancorp's directors and executive officers to vote their shares
in favor of the Merger Agreement, are intended to increase the
likelihood that the Merger will be completed in accordance with
the terms of the Merger Agreement and may have the effect of
discouraging competing offers to the Merger.
Terms of Stock Option Agreement. The following is a
brief summary of certain provisions of the Stock Option
Agreement, a complete copy of which is included as Annex B to
this Proxy Statement/Prospectus. The following summary is
qualified in its entirety by reference to the Stock Option
Agreement.
Provided that (i) Sovereign shall not be, on the date
of exercise, in material breach of the agreements or covenants
contained in the Merger Agreement or the Stock Option Agreement,
and (ii) no preliminary or permanent injunction or other order
against the delivery of shares covered by the Option issued by
any court of competent jurisdiction in the United States shall be
in effect on the date of exercise, upon or after the occurrence
of a Triggering Event (as such term is hereinafter defined)
Sovereign may exercise the Option, in whole or in part, at any
time or one or more times, from time to time; provided that the
Option shall terminate and be of no further force and effect upon
the earliest to occur of (A) the Effective Date, (B) termination
of the Merger Agreement in accordance with the terms thereof
prior to the occurrence of a Triggering Event or a Preliminary
Triggering Event (as such term is hereinafter defined), other
than a termination of the Merger Agreement due to an uncured
material breach of any material covenant, undertaking or
representation of warranty, contained in the Merger Agreement
which would have a Material Adverse Effect, unless in the case of
termination by ML Bancorp due to such breach, the termination is
as a result of a willful breach of the Merger Agreement by
Sovereign (a termination due to an uncured material breach of any
material covenant, undertaking or representation of warranty,
contained in the Merger Agreement which would have a Material
Adverse Effect, except a termination by ML Bancorp as a result of
a willful breach by Sovereign, being referred to herein as a
"Default Termination"), (C) 18 months after the termination of
the Merger Agreement by Sovereign or ML Bancorp pursuant to a
Default Termination, and (D) 18 months after termination of the
Merger Agreement (other than pursuant to a Default Termination)
following the occurrence of a Triggering Event or a Preliminary
Triggering Event; and provided, further, that any purchase of
shares upon exercise of the Option shall be subject to compliance
with applicable securities and banking laws.
The term "Triggering Event" means the occurrence of any
of the following events:
(i) a person or group (as such terms are defined
in the Exchange Act and the rules and regulations
thereunder), other than Sovereign or an affiliate of
Sovereign, acquires beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act) of 25% or more of the
then outstanding shares of ML Bancorp Common Stock
(excluding any shares eligible to be reported on
Schedule 13G of the Commission); or
(ii) a person or group, other than Sovereign or
an affiliate of Sovereign, enters into an agreement or
letter of intent or memorandum of understanding with
ML Bancorp pursuant to which such person or group or any
affiliate of such person or group would (i) merge or
consolidate, or enter into any similar transaction, with
ML Bancorp, (ii) acquire all or substantially all of the
assets or liabilities or ML Bancorp or all or substantially
all of the assets or liabilities of Main Line Bank (or any
successor subsidiary), or (iii) acquire beneficial ownership
of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 25%
or more of the then outstanding shares of ML Bancorp Common
Stock (excluding any shares eligible to be reported on
Schedule 13G of the Commission) or the then outstanding
shares of common stock of Main Line Bank, or ML Bancorp
shall have authorized, recommended or publicly proposed, or
publicly announced an intention to authorize, recommend or
propose, such an agreement or letter of intent or memorandum
of understanding.
The term "Preliminary Triggering Event" means the
occurrence of any of the following events:
(i) a person or group (as such terms are defined
in the Exchange Act and the rules and regulations
thereunder), other than Sovereign or an affiliate of
Sovereign, acquires beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act) of 10% or more of the
then outstanding shares of ML Bancorp Common Stock
(excluding any shares eligible to be reported on Schedule
13G of the Commission);
(ii) a person or group, other than Sovereign or
an affiliate of Sovereign, publicly announces a bona fide
proposal (including a written communication that is or
becomes the subject of public disclosure) for (i) any
merger, consolidation or acquisition of all or substantially
all the assets or liabilities of ML Bancorp or all or
substantially all the assets or liabilities of Main Line
Bank, or any other business combination involving ML Bancorp
or Main Line Bank, or (ii) a transaction involving the
transfer of beneficial ownership of securities representing,
or the right to acquire beneficial ownership or to vote
securities representing, 10% or more of the then outstanding
shares of ML Bancorp Common Stock or Main Line Bank Common
Stock (collectively, a "Proposal"), and thereafter, if such
Proposal has not been Publicly Withdrawn (as such term is
hereinafter defined) at least 30 days prior to the meeting
of shareholders of ML Bancorp called to vote on the Merger,
ML Bancorp's shareholders fail to approve the Merger by the
vote required by applicable law at the meeting of
shareholders called for such purpose or such meeting has
been canceled; or
(iii) the Board of Directors of ML Bancorp shall
(A) fail to recommend the Merger, (B) recommend an
Acquisition Transaction or (C) have withdrawn or modified
in a manner adverse to Sovereign the recommendation of the
Board of Directors of ML Bancorp with respect to the Merger
Agreement and thereafter ML Bancorp's shareholders fail to
approve the Merger by the vote required by law at the
meeting of shareholders called for such purpose or such
meeting is not scheduled or is canceled; or
(iv) a person or group, other than Sovereign or
an affiliate of Sovereign, makes a bona fide Proposal and
thereafter, but before such Proposal has been Publicly
Withdrawn, ML Bancorp shall have breached any
representation, warranty, covenant or obligation contained
in the Merger Agreement and such breach would entitle
Sovereign to terminate the Merger Agreement (without regard
to any applicable cure period unless such cure is promptly
effected without jeopardizing consummation of the Merger
pursuant to the Merger Agreement).
The term "Publicly Withdrawn" means an unconditional
bona fide withdrawal of the Proposal coupled with a public
announcement of no further interest in pursuing such Proposal or
in acquiring any controlling influence over ML Bancorp or in
soliciting or inducing any other person (other than Sovereign or
an affiliate of Sovereign) to do so.
The Stock Option Agreement provides that Sovereign may
require, under certain circumstances, ML Bancorp to repurchase
the Option and all shares of ML Bancorp Common Stock purchased by
Sovereign pursuant to the Option on the terms and conditions set
forth in the Stock Option Agreement. ML Bancorp's repurchase of
the Option or ML Bancorp's repurchase of any of the shares of ML
Bancorp Common Stock purchased by Sovereign pursuant to the
Option could have the effect of precluding a potential acquiror
of ML Bancorp from accounting for the acquisition of ML Bancorp
as a pooling of interests for financial accounting purposes.
In the event of any change in ML Bancorp Common Stock
by reason of stock dividends, split-ups, recapitalizations,
combinations, conversions, divisions, exchanges of shares or the
like, the number and kind of shares issuable pursuant to the
Option will be adjusted appropriately.
ML Bancorp has granted Sovereign certain registration
rights with respect to shares of ML Bancorp Common Stock issuable
upon exercise of the Option.
<PAGE>
INFORMATION WITH RESPECT TO SOVEREIGN
General
Financial and other information relating to Sovereign,
including information relating to Sovereign's directors and
executive officers, is incorporated herein by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE
INFORMATION."
Market Price of and Dividends on Sovereign Common Stock and
Related Shareholder Matters
The Sovereign Common Stock is listed on the Nasdaq
National Market under the symbol "SVRN." As of the Sovereign
Record Date, Sovereign had approximately 10,530 shareholders of
record. The table below sets forth for the periods indicated the
amount of dividends paid per share and the quarterly ranges of
high and low sales prices for Sovereign Common Stock as reported
by the Nasdaq National Market and does not necessarily reflect
mark-ups, mark-downs or commissions.
Quarterly
Quarter Ended Dividend High Low
December 31, 1997(1) $ -- $ 21.63 $ 17.19
September 30, 1997 .0360 17.50 14.69
June 30, 1997 .0380 15.25 11.38
March 31, 1997 .0386 14.00 10.94
December 31, 1996 .0368 11.38 9.06
September 30, 1996 .0376 9.19 8.00
June 30, 1996 .0342 9.38 8.31
March 31, 1996 .0350 9.25 7.75
December 31, 1995 .0295 8.50 7.75
September 30, 1995 .0354 8.50 7.56
June 30, 1995 .0319 7.63 6.38
March 31, 1995 .0309 7.19 5.94
__________________
(1) Through December 12, 1997.
On September 17, 1997, the last business day preceding
public announcement of the Merger, the last sale price for the
Sovereign Common Stock was $16.38 per share. On December 12,
1997, the last sale price for the Sovereign Common Stock was
$21.625 per share. The average weekly trading volume for the
Sovereign Common Stock during the quarter ended September 30,
1997 was 2.28 million shares.
For certain limitations on the ability of Sovereign
Bank to pay dividends to Sovereign, see Sovereign's Annual Report
on Form 10-K for the year ended December 31, 1996, which is
incorporated herein by reference. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
<PAGE>
INFORMATION WITH RESPECT TO ML BANCORP
General
Financial and other information concerning ML Bancorp,
including information relating to ML Bancorp's directors and
executive officers, is incorporated herein by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Market Price of and Dividends on ML Bancorp Common Stock and
Related Shareholder Matters
The ML Bancorp Common Stock is listed on the Nasdaq
National Market under the symbol "MLBC." As of the ML Bancorp
Record Date, there were approximately 1,453 shareholders of
record. The table below sets forth for the periods indicated the
amount of dividends declared per share and the quarterly ranges
of high and low closing sales prices as reported on the Nasdaq
National Market for the periods indicated. Such prices do not
necessarily reflect mark-ups, mark-downs or commissions.
Quarterly
Quarter Ended Dividend High Low
December 31, 1997(1) $ 0.10 $ 30.75 $ 26.50
September 30, 1997 0.10 27.38 18.75
June 30, 1997 0.10 19.38 15.00
March 31, 1997 0.095 17.75 13.75
December 31, 1996 0.095 14.88 13.88
September 30, 1996 0.095 14.06 11.88
June 30, 1996 0.095 12.50 11.38
March 31, 1996 0.08 12.38 10.88
December 31, 1995 0.07 12.32 10.50
September 30, 1995 0.06 11.94 9.50
June 30, 1995 0.05 9.82 7.88
March 31, 1995 N/A 8.07 6.69
__________________
(1) Through December 12, 1997
On September 17, 1997, the last business day preceding
public announcement of the Merger, the last sale price for the ML
Bancorp Common Stock was $23.13 per share. On December 12, 1997,
the last sale price for the ML Bancorp Common Stock was $30.75
per share. The average weekly trading volume for the ML Bancorp
Common Stock during the quarter ended September 30, 1997 was
approximately 82,000 shares.
For information on the ability of ML Bancorp to pay
dividends on the ML Bancorp Common Stock following execution of
the Merger Agreement, see "THE MERGER - Dividends." For certain
limitations on the ability of Main Line Bank to pay dividends to
ML Bancorp, see ML Bancorp's Annual Report on Form 10-K for the
fiscal year ended March 31, 1997, which is incorporated herein by
reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
<PAGE>
DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES
The authorized capital stock of Sovereign consists of
200,000,000 shares of common stock, no par value ("Sovereign
Common Stock"), and 7,500,000 shares of authorized preferred
stock ("Sovereign Preferred Stock"). As of September 30, 1997,
there were 89,275,479 shares of Sovereign Common Stock issued and
outstanding, 12,319 shares held by Sovereign as treasury stock
and 1,998,350 shares of 6-1/4% Cumulative Convertible Preferred
Stock, Series B ($50 liquidation preference) issued and
outstanding. There are no other shares of capital stock of
Sovereign authorized, issued or outstanding. Sovereign has no
options, warrants, or other rights authorized, issued or
outstanding, other than as described herein under "Shareholder
Rights Plan" and options granted under Sovereign's stock option
plans or in connection with acquisitions by Sovereign.
Common Stock
The holders of Sovereign Common Stock are entitled to
share ratably in dividends when and if declared by the Sovereign
Board of Directors from funds legally available therefor.
Declaration and payment of cash dividends by Sovereign depends
upon dividend payments by Sovereign Bank, which are Sovereign's
primary source of revenue and cash flow. Sovereign is a legal
entity separate and distinct from its subsidiaries. Accordingly,
the right of Sovereign, and consequently the right of creditors
and shareholders of Sovereign, to participate in any distribution
of the assets or earnings of any subsidiary is necessarily
subject to the prior claims of creditors of the subsidiary,
except to the extent that claims of Sovereign in its capacity as
a creditor may be recognized.
Sovereign Bank will not be permitted to pay dividends
on its capital stock or repurchase shares of its stock if its
shareholders' equity would be reduced below the amount required
for the liquidation accounts established in the respective
conversions from mutual to stock form of the predecessors of
Sovereign Bank or applicable regulatory capital requirements.
Current OTS regulations require a holding company's insured
institutions to give the OTS 30 days advance notice of any
proposed declaration of dividends to the holding company, and the
OTS has the authority under its supervisory powers to prohibit
the payment of dividends to the holding company.
The OTS capital distribution rule, which became
effective on August 1, 1990, provides for three tiers of savings
associations: (i) Tier 1 associations, associations that have
capital ("total capital" as calculated under the OTS capital
regulations) equal to or greater than their fully phased-in
capital requirements (the requirements applicable at December 31,
1994) prior to, and on a pro forma basis after giving effect to,
a proposed capital distribution; (ii) Tier 2 associations,
associations that have capital equal to or greater than their
minimum capital requirements, but less than their fully phased-in
capital requirements prior to, and on a pro forma basis after
giving effect to, a proposed capital distribution; and
(iii) Tier 3 associations, associations that do not meet their
minimum capital requirements, either before or after giving
effect to a proposed capital distribution. At September 30,
1997, Sovereign Bank is a "Tier 1 association" both historically
and on a pro forma basis after giving effect to the Bank Merger.
Under the OTS capital distribution rule, a Tier 1 association may
make capital distributions of up to the greater of (a) 100% of
its net income during a calendar year plus the amount that would
reduce by one-half its surplus capital ratio (the percentage by
which the association's capital-to-assets ratio exceeds the ratio
of its fully phased-in capital requirements to its assets) at the
beginning of the calendar year or (b) 75% of its net income over
the most recent four-quarter period. A Tier 1 association may
make capital distributions in excess of the foregoing limits if
the OTS does not object after receiving notice thereof. A Tier 2
association is authorized to make distributions of up to 75% of
net income over the most recent four-quarter period if it
satisfies its fully phased-in risk-based capital requirement, or
up to 50% of such net income if it satisfies its interim (90% of
fully phased-in amount) risk-based capital requirement. A Tier 2
association may, through a written approval process, obtain OTS
approval to make distributions in excess of these amounts.
Tier 3 associations are not authorized to make any capital
distributions without prior written OTS approval unless, in the
case of an association operating in compliance with an approved
capital plan, the capital distribution is consistent with the
association's capital plan. The OTS has supervisory authority to
prohibit the payment of capital distributions for Tier 1 and
Tier 2 associations.
For certain limitations on the ability of Sovereign
Bank to pay dividends to Sovereign, see Sovereign's Annual Report
on Form 10-K for the year ended December 31, 1996, which is
incorporated herein by reference. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
Prior to the issuance of any Sovereign Preferred Stock
which possesses voting rights (see "Preferred Stock" below), the
holders of shares of Sovereign Common Stock will possess
exclusive voting rights in Sovereign. Each holder of shares of
Sovereign Common Stock will be entitled to one vote for each
share held on matters upon which shareholders have the right to
vote. Sovereign shareholders are not entitled to cumulate votes
in the election of directors.
The holders of Sovereign Common Stock have no
preemptive rights to acquire any additional shares of Sovereign.
In addition, the Sovereign Common Stock is not subject to
redemption.
Sovereign's Articles of Incorporation authorize the
Sovereign Board of Directors to issue authorized shares of
Sovereign Common Stock without shareholder approval. Sovereign
Common Stock is included for quotation on the Nasdaq National
Market. As a result, in order to maintain such inclusion,
approval of Sovereign's shareholders is required for the issuance
of additional shares of Sovereign Common Stock or securities
convertible into Sovereign Common Stock if the issuance of such
securities (1) is in connection with the acquisition of a
company, is not in connection with a public offering for cash,
and the securities issued have or will have voting power equal to
or in excess of 20% of the voting power outstanding before such
issuance; (2) is in connection with the acquisition of a company
in which a director, officer or substantial shareholder of
Sovereign has a 5% or greater interest and the issuance of the
securities could result in an increase in outstanding common
stock or voting power of 5% or more; (3) is in connection with a
transaction, other than a public offering, at a price less than
the greater of book or market value in which the shares issued
will equal 20% or more of the shares of Sovereign Common Stock or
20% or more of the voting power outstanding before issuance; or
(4) would result in a change in control of Sovereign. Under
Nasdaq National Market rules, shareholder approval is also
required for the establishment of a stock option or purchase plan
in which stock may be acquired by officers and directors other
than pursuant to a broadly-based plan in which other security
holders of Sovereign or employees of Sovereign participate. For
a discussion of the approval of Sovereign shareholders required
for the issuance of the shares of Sovereign Common Stock issuable
to ML Bancorp shareholders in the Merger, see "THE MEETING --
Votes Required."
In the event of liquidation, dissolution or winding-up
of Sovereign, whether voluntary or involuntary, holders of
Sovereign Common Stock will be entitled to share ratably in any
of its assets or funds that are available for distribution to its
shareholders after the satisfaction of its liabilities (or after
adequate provision is made therefor) and after payment of any
liquidation preferences of any outstanding Sovereign Preferred
Stock.
Preferred Stock
General
Sovereign's Board of Directors is authorized to approve
the issuance of Sovereign Preferred Stock, without any required
approval of shareholders. The rights, qualifications,
limitations and restrictions on each series of Sovereign
Preferred Stock issued will be determined by the Sovereign Board
of Directors at the time of issuance and may include, among other
things, rights to participating dividends, voting and
convertibility into shares of Sovereign Common Stock. Shares of
Sovereign Preferred Stock may be issued with dividend,
redemption, voting, and liquidation rights taking priority over
the Sovereign Common Stock, and may be convertible into Sovereign
Common Stock, as determined by the Sovereign Board of Directors
at the time of issuance.
On May 17, 1995, Sovereign issued 2,000,000 shares of
6-1/4% Cumulative, Convertible Preferred Stock, Series B (the
"Series B Preferred Stock"), all of which remain outstanding.
Description of Series B Preferred Stock
Ranking. The Series B Preferred Stock ranks prior to
the Sovereign Common Stock and Series A Junior Participating
Preferred Stock (as hereinafter defined), and on a parity with
all other Sovereign Preferred Stock (unless such other Sovereign
Preferred Stock is expressly made junior to the Series B
Preferred Stock), with respect to the payment of dividends and
amounts payable upon any voluntary or involuntary liquidation,
dissolution or winding up of Sovereign.
Dividends. Holders of record of shares of Series B
Preferred Stock are entitled to receive, when and as declared by
the Board of Directors of Sovereign, cash dividends payable
quarterly at the rate of 6-1/4% per annum. Dividends on the
Series B Preferred Stock, calculated as a percentage of the
liquidation preference, are payable quarterly on February 15,
May 15, August 15 and November 15 of each year. Dividends are
cumulative from the date of issue of the Series B Preferred
Stock. So long as any Series B Preferred Stock is outstanding,
Sovereign may not declare any dividends on the Sovereign Common
Stock or any other stock ranking as to dividends or distribution
of assets junior to the Series B Preferred Stock (the Sovereign
Common Stock and any such other stock being herein referred to as
"Junior Stock"), or make any payment on account of, or set apart
money for, a sinking or other analogous fund for the purchase,
redemption or other retirement of any shares of Junior Stock, or
make any distribution in respect thereof, whether in cash or
property or in obligations or stock of Sovereign, other than
Junior Stock, unless (i) full cumulative dividends shall have
been paid or declared and set apart for payment upon all
outstanding shares of Sovereign Preferred Stock other than Junior
Stock and (ii) Sovereign is not in default or in arrears with
respect to any sinking or other analogous fund or any call for
tenders, obligation or other agreement for the purchase,
redemption or other retirement of any shares of Sovereign
Preferred Stock other than Junior Stock. If dividends on shares
of the Series B Preferred Stock are in arrears, and there shall
be outstanding shares of any other series of Sovereign Preferred
Stock ranking on a parity as to dividends with the shares of the
Series B Preferred Stock, Sovereign, in making any dividend
payment on account of such arrears, is required to make payments
ratably upon all outstanding shares of the Series B Preferred
Stock and shares of such other series of Sovereign Preferred
Stock in proportion to the respective amounts of dividends in
arrears on such shares of Series B Preferred Stock and shares of
such other series of Sovereign Preferred Stock.
Conversion Rights. Holders of shares of Series B
Preferred Stock have the right, at their option, to convert
shares of Series B Preferred Stock into shares of Sovereign
Common Stock at any time at an initial conversion rate of 5.987
shares of Sovereign Common Stock for each share of Series B
Preferred Stock, provided that, if any of the Series B Preferred
Stock is called for redemption, the conversion rights pertaining
thereto will terminate at the close of business on the date fixed
for redemption. On December 12, 1997, the closing prices of the
Series B Preferred Stock and the Sovereign Common Stock as
reported on the Nasdaq/NMS were $131.969 and $21.625,
respectively. As of December 12, 1997, a holder of Series B
Preferred Stock would have received 5.987 shares of Sovereign
Common Stock with an aggregate market value equal to $129.47 upon
conversion of each share of Series B Preferred Stock. If and
when the aggregate market value of 5.987 shares of Sovereign
Common exceeds the market price of a share of Series B Preferred
Stock, holders of the Preferred Stock may elect to convert their
shares of Series B Preferred Stock into Sovereign Common Stock,
subject to Sovereign's right to redeem the Series B Preferred
Stock on or after May 15, 1998. See "-Redemption."
The conversion rate is subject to adjustment in certain
events, including: (i) the issuance of capital stock as a
dividend or distribution on the Sovereign Common Stock;
(ii) subdivisions and combinations of the Sovereign Common Stock;
(iii) the issuance to all holders of Sovereign Common Stock of
certain rights or warrants entitling them to subscribe for or
purchase Sovereign Common Stock (or securities convertible into
Sovereign Common Stock) within 45 days after the date fixed for
the determination of the shareholders entitled to receive such
rights or warrants, at less than the current market price per
share of the Sovereign Common Stock; and (iv) the distribution to
all holders of Sovereign Common Stock of evidences of
indebtedness or assets of Sovereign (excluding those referred to
above).
In the case of (i) any reclassification or change of
the Sovereign Common Stock, or (ii) a consolidation or merger
involving Sovereign, or (iii) a sale or conveyance to another
corporation of the property and assets of Sovereign as an
entirety or substantially as an entirety, in each case as a
result of which holders of Sovereign Common Stock will be
entitled to receive stock, securities, other property or assets
(including cash) with respect to or in exchange for such
Sovereign Common Stock, the holders of the Series B Preferred
Stock then outstanding will be entitled thereafter to convert
such Series B Preferred Stock into the kind and amount of shares
of stock and other securities or property which they would have
received upon such reclassification, change, consolidation,
merger, combination, sale or conveyance had such Series B
Preferred Stock been converted into Sovereign Common Stock
immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance.
Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of Sovereign,
the holders of shares of Series B Preferred Stock will be
entitled to receive out of the assets of Sovereign available for
distribution to shareholders, before any distribution of assets
is made to holders of Sovereign Common Stock or of any other
stock of Sovereign ranking as to such distribution junior to the
Series B Preferred Stock, liquidating distributions in the amount
of $50 per share plus accrued and unpaid dividends. If upon any
voluntary or involuntary liquidation, dissolution or winding up
of Sovereign, the amounts payable with respect to the Series B
Preferred Stock and any other shares of stock of Sovereign
ranking as to any such distribution on a parity with the Series B
Preferred Stock are not paid in full, the holders of the Series B
Preferred Stock and of such other shares will share ratably in
any such distribution of assets of Sovereign in proportion to the
full respective preferential amounts to which they are entitled.
After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of shares of Series B
Preferred Stock will not be entitled to any further participation
in any distribution of assets by Sovereign. A consolidation or
merger of Sovereign with or into any other corporation or
corporations or a sale of all or substantially all of the assets
of Sovereign will not be deemed to be a liquidation, dissolution
or winding up of Sovereign.
Redemption. The shares of Series B Preferred Stock are
not redeemable prior to May 15, 1998. On or after May 15, 1998,
at any time or from time to time, each share of Series B
Preferred Stock will be redeemable in whole or in part at the
option of Sovereign, upon not less than 30 nor more than 60 days'
notice, at a redemption price as set forth below plus, in each
case, accrued and unpaid dividends to the redemption date.
If Redeemed During the
Twelve Months Beginning May 15, Redemption Price
1998........................... $52.188
1999........................... 51.875
2000........................... 51.563
2001........................... 51.250
2002........................... 50.938
2003........................... 50.625
2004........................... 50.313
and at $50 per share thereafter.
The Series B Preferred Stock may not be redeemed and
Sovereign may not otherwise purchase or acquire any shares of the
Series B Preferred Stock unless full cumulative dividends on the
Series B Preferred Stock or on any series of Sovereign Preferred
Stock ranking on a parity with or senior to the Series B
Preferred Stock have been paid or declared and set apart for
payment and unless all matured obligations of Sovereign with
respect to all sinking funds or purchase funds applicable to any
other series of Sovereign Preferred Stock then outstanding have
been met.
Voting Rights. Except as indicated below, or except as
expressly required by applicable law, the holders of the Series B
Preferred Stock are not entitled to vote.
If the equivalent of six quarterly dividends payable on
any series of Sovereign Preferred Stock are in default (whether
or not declared and whether or not consecutive), the holders of
record of all outstanding shares of any series of Sovereign
Preferred Stock, voting as a single class without regard to
series, will be entitled to elect two directors until all
dividends in default have been paid or declared and set apart for
payment. The affirmative vote or consent of the holders of at
least two-thirds of the outstanding shares of Series B Preferred
Stock and any other series of Sovereign Preferred Stock, voting
as a single class without regard to series, will be required
(i) for any amendment to Sovereign's Articles of Incorporation
(or any certificate supplemental thereto providing for the
capital stock of Sovereign) or Bylaws which will materially and
adversely change the preferences, privileges, rights or powers of
the Sovereign Preferred Stock, but, in any case in which one or
more, but not all, series of Sovereign Preferred Stock would be
affected as to their preferences, privileges, rights or powers,
only the consent of holders of at least two-thirds of the shares
of all such series that would be so affected, voting separately
as a class, will be required; or (ii) to issue any class of stock
which shall have preference as to dividends or distribution of
assets over any outstanding series of Sovereign Preferred stock.
Shareholder Rights Plan
Sovereign maintains a Shareholder Rights Plan (the
"Rights Plan") designed to protect shareholders from attempts to
acquire control of Sovereign at an inadequate price. Under the
Rights Plan, each outstanding share of Sovereign Common Stock has
attached to it one right to purchase one one-hundredth of a share
of a series of junior participating preferred stock (the
"Series A Junior Participating Preferred Stock") at an initial
exercise price of $40 (the "Sovereign Rights"). The Sovereign
Rights are not currently exercisable or transferable, and no
separate certificates evidencing the Sovereign Rights will be
distributed, unless certain events occur.
The Sovereign Rights become exercisable to purchase
shares of the Series A Junior Participating Preferred Stock if a
person, group or other entity acquires or commences a tender
offer or an exchange offer for 19.9% or more of total voting
power. The Sovereign Rights also can be exercised if a person or
group who has become a beneficial owner of at least 4.9% of
Sovereign Common Stock or total voting power is declared by
Sovereign's Board of Directors to be an "adverse person," as
defined in the Rights Plan.
After the Sovereign Rights become exercisable, under
certain circumstances, the Sovereign Rights (other than the
Sovereign Rights held by a 19.9% beneficial owner or an "adverse
person") will entitle the holders to purchase either Sovereign
Common Stock or the common stock of the potential acquiror, in
lieu of the Series A Junior Participating Preferred Stock, at a
substantially reduced price.
Sovereign is generally entitled to redeem the Sovereign
Rights at $.001 per right at any time until the tenth business
day following public announcement that a 19.9% position has been
acquired. At any time prior to the date the Sovereign Rights
have become nonredeemable, the Sovereign Board of Directors can
extend the redemption period. The Sovereign Rights are not
redeemable following an "adverse person" determination.
Special Charter and Pennsylvania Corporate Law Provisions
Sovereign's Articles of Incorporation and Bylaws
contain certain provisions which may have the effect of deterring
or discouraging, among other things, a nonnegotiated tender or
exchange offer for Sovereign stock, a proxy contest for control
of Sovereign, the assumption of control of Sovereign by a holder
of a large block of Sovereign stock and the removal of
Sovereign's management. These provisions: (1) empower the
Sovereign Board of Directors, without shareholder approval, to
issue Sovereign Preferred Stock the terms of which, including
voting power, are set by the Sovereign Board of Directors;
(2) divide the Sovereign Board of Directors into three classes
serving staggered three-year terms; (3) restrict the ability of
shareholders to remove directors; (4) require that shares with at
least 80% of total voting power approve mergers and other similar
transactions with a person or entity holding stock with more than
5% of Sovereign's voting power, if the transaction is not
approved, in advance, by the Sovereign Board of Directors;
(5) prohibit shareholders' actions without a meeting; (6) require
that shares with at least 80%, or in certain instances a
majority, of total voting power approve the repeal or amendment
of Sovereign's Articles of Incorporation; (7) require any person
who acquires stock of Sovereign with voting power of 25% or more
to offer to purchase for cash all remaining shares of Sovereign
voting stock at the highest price paid by such person for shares
of Sovereign voting stock during the preceding year;
(8) eliminate cumulative voting in elections of directors;
(9) require an affirmative vote of at least two-thirds of
Sovereign's total voting power in order for shareholders to
repeal or amend Sovereign's Bylaws; (10) require advance notice
of nominations for the election of directors and the presentation
of shareholder proposals at meetings of shareholders; and
(11) provide that officers, directors, employees, agents and
persons who own 5% or more of the voting securities of any other
corporation or other entity that owns 66-2/3% or more of
Sovereign's outstanding voting stock cannot constitute a majority
of the members of Sovereign's Board of Directors.
The BCL also contains certain provisions applicable to
Sovereign which may have the effect of impeding a change in
control of Sovereign. These provisions, among other things:
(1) require that, following any acquisition by any person or
group of 20% of a public corporation's voting power, the
remaining shareholders have the right to receive payment for
their shares, in cash, from such person or group in an amount
equal to the "fair value" of the shares, including an increment
representing a proportion of any value payable for control of the
corporation, and (2) prohibit for five years, subject to certain
exceptions, a "business combination" (which includes a merger or
consolidation of the corporation or a sale, lease or exchange of
assets) with a shareholder or group of shareholders beneficially
owning 20% or more of a public corporation's voting power.
In 1990, Pennsylvania adopted legislation further
amending the BCL. To the extent applicable to Sovereign at the
present time, this legislation generally: (1) expands the
factors and groups (including shareholders) which the Sovereign
Board of Directors can consider in determining whether a certain
action is in the best interests of the corporation; (2) provides
that the Sovereign Board of Directors need not consider the
interests of any particular group as dominant or controlling;
(3) provides that Sovereign's directors, in order to satisfy the
presumption that they have acted in the best interests of the
corporation, need not satisfy any greater obligation or higher
burden of proof with respect to actions relating to an
acquisition or potential acquisition of control; (4) provides
that actions relating to acquisitions of control that are
approved by a majority of "disinterested directors" are presumed
to satisfy the directors' standard, unless it is proven by clear
and convincing evidence that the directors did not assent to such
action in good faith after reasonable investigation; and
(5) provides that the fiduciary duty of Sovereign's directors is
solely to the corporation and may be enforced by the corporation
or by a shareholder in a derivative action, but not by a
shareholder directly.
The 1990 amendments to the BCL explicitly provide that
the fiduciary duty of directors shall not be deemed to require
directors (1) to redeem any rights under, or to modify or render
inapplicable, any shareholder rights plan; (2) to render
inapplicable, or make determinations under, provisions of the BCL
relating to control transactions, business combinations, control-
share acquisitions or disgorgement by certain controlling
shareholders following attempts to acquire control; or (3) to act
as the board of directors, a committee of the board or an
individual director solely because of the effect such action
might have on an acquisition or potential or proposed acquisition
of control of the corporation or the consideration that might be
offered or paid to shareholders in such an acquisition. One of
the effects of the 1990 fiduciary duty statutory provisions may
be to make it more difficult for a shareholder to successfully
challenge the actions of the Sovereign Board of Directors in a
potential change in control context. Pennsylvania case law
appears to provide that the fiduciary duty standard under the
1990 amendments to the BCL grants directors the statutory
authority to reject or refuse to consider any potential or
proposed acquisition of the corporation.
Sovereign opted out of coverage by the "disgorgement"
and "control-share acquisition" statutes included in the 1990
legislation, pursuant to a Bylaw amendment as permitted by the
legislation. To the extent applicable to a Pennsylvania
corporation, the "disgorgement" statute generally requires
disgorgement by any person or group who or which has acquired or
publicly disclosed an intent to acquire 20% or more of a
corporation's voting power of any profit realized from the sale
of any shares acquired within specified time periods of such
acquisition or disclosure if the shares are sold within eighteen
months thereafter. The "control share acquisition" statute
generally prohibits a person or group who or which exceeds
certain stock ownership thresholds (20%, 33-1/3% and 50%) for the
first time from voting the "control shares" (i.e., the shares
owned in excess of the applicable threshold) unless voting rights
are restored by a vote of disinterested shareholders. As a
result of Sovereign's opt-out from coverage by these statutes,
neither the "disgorgement" nor the "control share acquisition"
statute would apply to a nonnegotiated attempt to acquire control
of Sovereign, although such an attempt would still be subject to
the special charter and other provisions described in the
preceding paragraphs. Sovereign can reverse this action, and
thereby cause the "disgorgement" and "control share acquisition"
statutes to apply to an attempt to acquire control of Sovereign,
by means of an amendment to Sovereign's Bylaws, which could be
adopted by the Board of Directors, without shareholder approval,
rescinding the Bylaw provision by which Sovereign originally
opted out of coverage by these statutes.
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
At the Effective Date, shareholders of ML Bancorp
automatically will become shareholders of Sovereign, and their
rights as shareholders will be determined by the BCL and by
Sovereign's Articles of Incorporation and Bylaws. The following
is a summary of material differences between the rights of
holders of Sovereign Common Stock and the rights of holders of ML
Bancorp Common Stock. These differences arise from various
provisions of the Articles of Incorporation, Bylaws and Rights
Plan of Sovereign and the Articles of Incorporation and Bylaws of
ML Bancorp.
This summary does not purport to be a complete
statement of the rights of ML Bancorp shareholders under the
applicable Pennsylvania law, ML Bancorp's Articles of
Incorporation or ML Bancorp's Bylaws or a comprehensive
comparison with the rights of Sovereign's shareholders under the
applicable Pennsylvania law, Sovereign's Articles of
Incorporation and Sovereign's Bylaws, or a complete description
of the specific provisions referred to herein. This summary is
not meant to be relied upon as an exhaustive list or a detailed
description of the provisions discussed and is qualified in its
entirety by reference to the BCL and the governing corporate
instruments of ML Bancorp and Sovereign. Copies of such
governing corporate instruments of ML Bancorp and Sovereign are
available, without charge, to any person, including any
beneficial owner to whom this Proxy Statement/Prospectus is
delivered, by following the instructions listed under
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE
INFORMATION."
Directors
Removal
Pursuant to Sovereign's Articles of Incorporation,
Sovereign directors may be removed from office without cause by
the affirmative vote of a majority of the outstanding voting
shares.
Under ML Bancorp's Articles of Incorporation, directors
may be removed from office without cause by the affirmative vote
of the holders of not less than 75% of the total votes of all
shares of ML Bancorp eligible to be cast by shareholders.
Nomination
Shareholders of both Sovereign and ML Bancorp are
required to submit to their respective companies, in writing and
in advance, any nomination of a candidate for election as a
director.
Sovereign's Bylaws provide that such nominations
generally must be submitted not more than 120 days, and not less
than 90 days, prior to a scheduled meeting for the election of
directors (unless less than 21 days' notice of the meeting is
given to shareholders, in which case such nominations must be
submitted within seven days following the mailing of the notice
to shareholders).
ML Bancorp's Articles of Incorporation provide that its
shareholders must submit written nominations not less than
60 days prior to the anniversary date of the immediately
preceding annual meeting. ML Bancorp's shareholders submitting
nominations also must supply certain information regarding the
identity and background of the proposed nominee, as set forth in
the Articles of Incorporation of ML Bancorp.
Election of Directors
Sovereign's Articles of Incorporation and Bylaws
provide that its Board of Directors shall be composed of not less
than six nor more than 25 directors, the number of which may be
determined by the Board of Directors. Presently, the Board of
Directors is composed of eight members. The Sovereign Board of
Directors is divided into three classes, each serving three-year
terms, so that approximately one-third of the directors are
elected at each annual meeting of shareholders. Classification
of the Board of Directors has the effect of decreasing the number
of directors that could be elected in a single year by any person
who seeks to elect its designees to a majority of the seats on
the Sovereign Board of Directors and thereby could impede a
change in control of Sovereign.
ML Bancorp's Bylaws provide that the Board of Directors
of ML Bancorp shall be composed of not less than five nor more
than 15 directors, which number may be increased or decreased by
resolution of the Board of Directors. Presently, the Board of
Directors is composed of seven members. The Board of Directors
of ML Bancorp is also divided into four classes, each serving
four-year terms, so that approximately one-fourth of the
directors are elected at each annual meeting of shareholders.
Cumulative Voting
Neither Sovereign's nor ML Bancorp's shareholders are
permitted to cumulate votes in the election of directors.
Limited Liability
As permitted by the BCL, Sovereign's Bylaws provide
that directors of Sovereign are not personally liable to
Sovereign, its shareholders or others for any action taken or any
failure to take any action unless the director breached or failed
to perform the duties of his or her office as set forth under
Pennsylvania law and such breach or failure constitutes
self-dealing, willful misconduct or recklessness; provided,
however, that there is no such elimination of liability arising
under any criminal statute or with respect to the payment of
taxes pursuant to local, state or federal law.
As permitted by the BCL, ML Bancorp's Articles of
Incorporation provide that a director of ML Bancorp shall not be
personally liable for monetary damages for any action taken, or
any failure to take any action, as a director except to the
extent that by law a director's liability for monetary damages
may not be limited.
Indemnification
The Bylaws of Sovereign and the Articles of
Incorporation of ML Bancorp each provide for indemnification of
current and former directors, officers and agents for certain
litigation-related liabilities and expenses to the maximum extent
provided by Pennsylvania law.
As provided in the BCL, current and former directors,
officers, employees and agents of Sovereign and ML Bancorp are
entitled to indemnification in both third party actions and
derivative actions unless there is a court finding that the act
or failure to act giving rise to the claim for indemnification
constitutes willful misconduct or recklessness. There is no
requirement of a case-by-case determination that the applicable
standard of conduct has been met for a person to be entitled to
indemnification.
Shareholder Meetings
Special meetings of Sovereign shareholders may be
called at any time by the Board of Directors at a duly called and
held meeting of the Board of Directors or upon the unanimous
written consent of the members of the Board of Directors or by
the Chairman of the Board or the Chief Executive Officer, but
only upon receiving written direction of at least a majority of
directors then in office. Sovereign shareholders are not
entitled to call a special meeting of shareholders.
Special meetings of ML Bancorp shareholders may be
called only by the Board of Directors pursuant to a resolution
approved by the affirmative vote of a majority of directors then
in office, the Chairman of the Board or the President. ML
Bancorp shareholders are not entitled to call a special meeting.
Shareholders of Sovereign are required to submit to
Sovereign, in writing and in advance, any matter desired to be
placed on the agenda of an annual meeting of shareholders. Such
proposal generally must be submitted not more than 150 days and
not less than 90 days prior to the meeting (or seven days if less
than 21 days' notice of the annual meeting is given to
shareholders).
ML Bancorp's Articles of Incorporation require that its
shareholders submit to ML Bancorp written notice of any matter
desired to be placed on the agenda of an annual meeting of
shareholders not later than 60 days prior to the anniversary date
of the immediately preceding annual meeting of shareholders.
Action by Shareholders Without a Meeting
Sovereign's Bylaws provide that no action required or
permitted to be taken at any annual or special meeting of
Sovereign's shareholders may be taken without a meeting, and the
power of Sovereign's shareholders to consent in writing to action
without a meeting is expressly denied.
ML Bancorp's Articles of Incorporation allow
shareholders of ML Bancorp to act without a meeting if consent in
writing setting forth the action so taken shall be signed by all
shareholders who would be entitled to vote.
Inspection Rights
The BCL provides that Shareholders of Sovereign and ML
Bancorp, upon written demand under oath stating the purpose
thereof, shall have the right, for any proper purpose, to examine
during usual business hours the share register, books or records
of account and records of the proceedings of the shareholders and
directors, and make copies or extracts therefrom.
Shareholder Rights Plan
Sovereign has adopted a shareholder rights plan
pursuant to which holders of Sovereign Common Stock are entitled,
under certain circumstances generally involving an accumulation
of Sovereign Common Stock, to purchase Sovereign Common Stock or
common stock of the potential acquiror at a substantially reduced
price. See "DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES --
Shareholder Rights Plan." ML Bancorp does not have a shareholder
rights plan.
Antitakeover Provisions
Sovereign
Sovereign is subject to some, but not all, of various
provisions of the BCL which are triggered, in general, if any
person or group acquires, or discloses an intent to acquire, 20%
or more of the voting power of a covered corporation, other than
pursuant to a registered firm commitment underwriting or, in
certain cases, pursuant to the approving vote of the Board of
Directors. The relevant provisions are contained in
Subchapters 25E-H of the BCL.
Subchapter 25E of the BCL (relating to control
transactions) provides that if any person or group acquires 20%
or more of the voting power of a covered corporation, the
remaining shareholders may demand from such person or group the
fair value of their shares, including a proportionate amount of
any control premium.
Subchapter 25F of the BCL (relating to business
combinations) delays for five years and imposes conditions upon
"business combinations" between an "interested shareholder" and
the corporation. The term "business combination" is defined
broadly to include various transactions utilizing a corporation's
assets for purchase price amortization or refinancing purposes.
For this purpose, an "interested shareholder" is defined
generally as the beneficial owner of at least 20% of a
corporation's voting shares.
Subchapter 25G of the BCL (relating to control share
acquisitions) prevents a person who has acquired 20% or more of
the voting power of a covered corporation from voting such shares
unless the "disinterested" shareholders approve such voting
rights. Failure to obtain such approval exposes the owner to the
risk of a forced sale of the shares to the issuer. Even if
shareholder approval is obtained, the corporation is also subject
to Subchapters 25I and J of the BCL. Subchapter 25I provides for
a minimum severance payment to certain employees terminated
within two years of the approval. Subchapter 25J prohibits the
abrogation of certain labor contracts prior to their stated date
of expiration.
Subchapter 25H of the BCL (relating to disgorgement)
applies in the event that (i) any person or group publicly
discloses that the person or group may acquire control of the
corporation or (ii) a person or group acquires (or publicly
discloses an offer or intent to acquire) 20% or more of the
voting power of the corporation and, in either case, sells shares
within 18 months thereafter. Any profits from sales of equity
securities of the corporation by the person or group during the
18-month period belong to the corporation if the securities that
were sold were acquired during the 18-month period or within
24 months prior thereto.
Subchapters 25E-H of the BCL contain a wide variety of
transactional and status exemptions, exclusions and safe harbors.
As permitted under the BCL, Sovereign has opted out of the
provisions of Subchapters 25G and H but is subject to the
provisions of Subchapters 25E and F. Such action can be reversed
under certain circumstances.
In addition, the fiduciary duty standards applicable to
the Board of Directors of Sovereign under the BCL and certain
provisions of Sovereign's Articles of Incorporation and Bylaws
may have the effect of deterring or discouraging, among other
things, a nonnegotiated tender or exchange offer for Sovereign
stock, a proxy contest for control of Sovereign, the assumption
of control of Sovereign by a holder of a large block of
Sovereign's stock and the removal of Sovereign's management. See
"DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES -- Special Charter
and Pennsylvania Corporate Law Provisions."
ML Bancorp
ML Bancorp is subject to the provisions of
Subchapter 25E through 25J of the BCL.
In addition, the fiduciary duty standards applicable to
the Board of Directors of ML Bancorp under the BCL and certain
provisions of ML Bancorp's Articles of Incorporation and Bylaws
may have the effect of deterring or discouraging, among other
things, a nonnegotiated tender or exchange offer for Sovereign
stock, a proxy contest for control of ML Bancorp, the assumption
of control of ML Bancorp by a holder of a large block of ML
Bancorp's stock and the removal of ML Bancorp's management.
Required Shareholder Vote
General
Subject to the voting rights of any series of Sovereign
Preferred Stock then outstanding (see "DESCRIPTION OF SOVEREIGN
CAPITAL SECURITIES -- Preferred Stock"), the holders of Sovereign
Common Stock possess exclusive voting rights of Sovereign. Each
holder of Sovereign Common Stock is entitled to one vote for each
share owned of record. For general corporate action of the
shareholders of Sovereign, the affirmative vote of a majority of
the votes cast at a meeting of shareholders is required for
approval (abstentions with respect to any matter are not
considered votes "cast" under Pennsylvania law).
The holders of ML Bancorp Common Stock possess
exclusive voting rights of ML Bancorp. Except as provided in the
following paragraph, each holder of ML Bancorp Common Stock is
entitled to one vote for each share owned of record. For general
corporate action of the shareholders of ML Bancorp, the
affirmative vote of a majority of the votes cast at a
shareholders' meeting is required for approval.
ML Bancorp's Articles provide that for a period of five
years from the completion of the conversion of Main Line Federal
Savings Bank (now known as Main Line Bank) from mutual to stock
form, no person or entity shall directly or indirectly offer to
acquire or acquire the "beneficial ownership" of (i) more than
10% of the issued and outstanding shares of any class of an
equity security of ML Bancorp, or (ii) any securities convertible
into, or exercisable for, any equity securities of ML Bancorp if,
assuming conversion or exercise by such person or entity of all
securities of which such person or entity is the beneficial owner
which are convertible into, or exercisable for, such equity
securities of which such person or entity is not the beneficial
owner), such person or entity would be the beneficial owner of
more than 10% of any class of an equity security of ML Bancorp .
Beneficial ownership is generally defined to entail the
possession of voting rights and other shareholder rights pursuant
to direct or indirect ownership of shares of ML Bancorp Common
Stock, or pursuant to some contract, agreement, or other
arrangement with the owner of such shares. The status of
beneficial owner extends to certain parties who are associated
with beneficial owners and to persons or entities who control,
are controlled by, or under common control with a beneficial
owner.
The foregoing restrictions do not apply to (i) any
offer with a view toward public resale made exclusively to ML
Bancorp by underwriters or a selling group acting on its behalf,
(ii) any tax qualified employee benefit plan or arrangement
established by ML Bancorp or by Main Line Bank and any trustee of
such plan or arrangement, and (iii) any other offer or
acquisition approved in advance by the affirmative vote of
two-thirds of ML Bancorp's Board of Directors.
In the event that shares are acquired in violation of
the restrictions on offers and acquisitions, all shares
beneficially owned by any person or entity in excess of 10% shall
not be counted as shares entitled to vote and shall not be voted
by any person or entity or counted as voting shares in connection
with any matter submitted to shareholders for a vote. In
addition, the Board of Directors may cause such shares in excess
of 10% to be transferred to an independent trustee for sale on
the open market or otherwise, with the expense of such trustee to
be paid out of the proceeds of the sale.
The conversion of Main Line Federal Savings Bank from
mutual to stock form was completed on August 11, 1994. These
restrictions on offers and acquisitions will expire on August 10,
1999 and are not applicable to the Merger Agreement and the
transactions contemplated thereby because the Merger Agreement
was unanimously approved by the Board of Directors of ML Bancorp.
Fundamental Changes
Sovereign's Articles of Incorporation require that a
plan of merger, consolidation, share exchange, division,
conversion or asset transfer (in respect of a sale, lease,
exchange or other disposition of all, or substantially all, the
assets of Sovereign other than in the usual and regular course of
business) must be approved by the affirmative vote of
shareholders entitled to cast at least a majority of the votes
which all shareholders are entitled to cast, except that
shareholder approval of any such transaction which is approved in
advance by at least 66-2/3% of the members of Sovereign's Board
of Directors requires only the affirmative vote of a majority of
the votes cast. In the absence of prior approval by Sovereign's
Board of Directors, Sovereign's Articles of Incorporation require
a vote of shareholders with at least 80% of Sovereign's total
voting power to approve any merger, consolidation, share
exchange, asset transfer (in respect of a sale, lease, exchange
or other disposition of all, or substantially all, the assets of
Sovereign) or similar transactions involving a shareholder
holding 5% or more of Sovereign's voting power. The Merger has
been unanimously approved by Sovereign's Board of Directors.
ML Bancorp's Articles of Incorporation do not contain
special provisions concerning the vote required to approve
mergers, consolidations, voluntary dissolution, asset sales and
other fundamental transactions. Under the BCL, approval of such
transactions generally requires the affirmative vote of a
majority of all outstanding shares entitled to vote.
Amendment of Articles of Incorporation
Sovereign's Articles of Incorporation contain various
provisions that require a supermajority vote of shareholders to
amend or repeal particular sections of such Articles. Amendment
or repeal of the provisions of Sovereign's Articles of
Incorporation relating to noncumulative voting, the
classification of directors, the approval of fundamental changes,
the requirement of holding meetings for shareholder action, the
amendment of Bylaws generally, and the consideration of non-
economic factors by Sovereign's Board of Directors if evaluating
a tender offer, merger, consolidation or similar transaction all
require (i) the affirmative vote of 80% of the shares entitled to
vote or (ii) the affirmative vote of 80% of the members of
Sovereign's Board of Directors and the affirmative vote of
shareholders entitled to cast at least a majority of votes which
all shareholders are entitled to cast.
ML Bancorp's Articles of Incorporation require that
amendments to the ML Bancorp's Articles be approved by
shareholders. Approval requires the votes of the holders of a
majority of the shares entitled to vote generally in an election
of directors, voting together as a single class, as well as such
additional vote of the preferred stock as may be required by the
provisions of any series thereof, to approve any amendment to ML
Bancorp's Articles. Notwithstanding the prior sentence, the
Articles of Incorporation require the affirmative vote of the
holders of at least 75% of the shares of the ML Bancorp entitled
to vote generally in an election of directors, voting together as
a single class, as well as such additional vote of the preferred
stock as may be required by the provisions of any series thereof,
to amend, adopt, alter, change or repeal any provisions of the
Articles inconsistent with certain Articles relating to directors
generally, the number and powers of directors, changes in number
of directors, filling vacancies on the Board of Directors, and
removing directors; preemptive rights; indemnification of
officers, directors, employees and agents and limitations on
personal liability of directors, employees and agents and
limitations on personal liability of directors; meetings of
shareholders, organization and conduct of such meetings and
shareholder proposals; restrictions on offers and acquisitions of
ML Bancorp's equity securities; and amendments of Articles.
Amendment of Bylaws
The authority to amend or repeal Sovereign's Bylaws is
vested in Sovereign's Board of Directors, subject always to the
power of the shareholders of Sovereign to change such action by
the affirmative vote of shareholders holding at least two-thirds
of Sovereign's total voting power (except that any amendment to
the indemnification and limitation of director liability
provisions set forth in the Bylaws shall require the affirmative
vote of two-thirds of the entire Board of Directors or
shareholders holding 80% of the votes that all shareholders are
entitled to cast).
ML Bancorp's Articles of Incorporation require that
amendments to the ML Bancorp's Bylaws be approved by
shareholders. Approval requires the votes of the holders of a
majority of the shares entitled to vote generally in an election
of directors, voting together as a single class, as well as such
additional vote of the preferred stock as may be required by the
provisions of any series thereof, to approve any amendment to ML
Bancorp's Bylaws. Notwithstanding the prior sentence, the
Articles of Incorporation require the affirmative vote of the
holders of at least 75% of the shares of the ML Bancorp entitled
to vote generally in an election of directors, voting together as
a single class, as well as such additional vote of the preferred
stock as may be required by the provisions of any series thereof,
to amend, adopt, alter, change or repeal any provision of the
Bylaws inconsistent with certain Bylaws relating to directors,
filling vacancies on the Board of Directors, and removing
directors; preemptive rights; indemnification of officers,
directors, employees and agents and limitations on personal
liability of directors; meetings of shareholders, organization
and conduct on such meetings and shareholder proposals;
restrictions on offers and acquisitions of the ML Bancorp's
equity securities; and amendments of the Bylaws.
Mandatory Tender Offer Provision
Sovereign's Articles of Incorporation provide that any
person or entity acquiring Sovereign capital stock with 25% or
more of Sovereign's total voting power is required to offer to
purchase, for cash, all shares of Sovereign's voting stock, at a
price per share equal to the highest price paid by such person
for each respective class of Sovereign's voting stock within the
preceding twelve months. Such provision is inapplicable if at
least 80% of Sovereign's Board of Directors approves in advance
such acquisition of 25% or more of Sovereign's total voting
power. Neither ML Bancorp's Articles of Incorporation nor Bylaws
provide ML Bancorp's shareholders with similar rights.
Subchapter 25E of the BCL also provides that following
any acquisition by a person or group of more than 20% of a
publicly-held corporation's voting stock, the remaining
shareholders have the right to receive payment, in cash, for
their shares from such person or group of an amount equal to the
"fair value" of their shares, including a proportionate amount
for any control premium. Sovereign and ML Bancorp are subject to
Subchapter 25E of the BCL. See "-- Antitakeover Provisions."
Dissenters' Rights
Under the BCL, a shareholder of a corporation is
generally entitled to receive payment of the fair value of such
shareholder's shares if such shareholder duly exercises its
dissenters' rights with respect to a plan of merger or
consolidation, share exchange, asset transfer, division or
conversion to which such corporation is a party, unless the
shares are (i) listed on a national securities exchange or
(ii) held of record by more than 2,000 shareholders. The
foregoing market exceptions do not apply, and dissenters' rights
generally are available in respect of, (i) shares that are not
converted solely into shares of the acquiring, surviving, new or
other corporation or solely into such shares and money in lieu of
fractional shares, (ii) shares of any preferred or special class
unless the shareholders of the class are entitled to vote on the
plan and such class vote is required for the adoption of the plan
or to effectuate the transaction and (iii) shares which under the
plan are treated differently from shares of the same class or
series and which are not entitled to vote as a special class
under BCL Section 1906(c). The BCL allows a corporation to
provide dissenters' rights notwithstanding the statutory
exceptions, but Sovereign's Articles of Incorporation and Bylaws
do not require such optional dissenters' rights. Under the BCL,
if a plan of merger or consolidation, share exchange, asset
transfer, division or conversion is adopted by the directors
only, without any shareholder approvals required, the
shareholders have no statutory dissenters' rights in respect of
the plan other than optional dissenters' rights, if any.
Sovereign's shareholders have no dissenters' rights
with respect to the Merger. ML Bancorp's shareholders are
entitled to dissenters' rights in the Merger. See "THE MERGER --
Dissenters' Rights."
Dividends
Under the BCL, a corporation may pay dividends unless,
after giving effect thereto, (i) the corporation would be unable
to pay its debts as they become due in the usual course of its
business or (ii) the total assets of the corporation would be
less than the sum of its total liabilities plus the amount that
would be needed, if the corporation were to be dissolved at the
time as of which the distribution is measured, to satisfy the
preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the
distribution. For additional information regarding dividends
with respect to Sovereign and ML Bancorp, See "INFORMATION WITH
RESPECT TO SOVEREIGN" and "INFORMATION WITH RESPECT TO ML
BANCORP," respectively.
Voluntary Dissolution
Under the BCL, if the Board of Directors of the
Pennsylvania corporation, such as Sovereign and ML Bancorp
recommends that the corporation be dissolved and directs that the
question be submitted to a vote at a meeting of shareholders, the
corporation may be dissolved upon the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote
thereon and, if any class of shares is entitled to vote thereon
as a class, the affirmative vote of a majority of the votes cast
in each class vote.
Under Sovereign's Articles of Incorporation if at least
66-2/3% of Sovereign's Board of Directors has not recommended
that Sovereign be dissolved, Sovereign may be dissolved upon the
affirmative vote of shareholders entitled to cast at least 80% of
the votes which all shareholders are entitled to cast. ML
Bancorp's Articles of Incorporation do not contain a similar
provision.
Preemptive Rights
Neither the holders of Sovereign Common Stock nor ML
Bancorp Common Stock are entitled to preemptive rights.
ADJOURNMENT
In the event that there are not sufficient votes to
constitute a quorum or approve the adoption of the Merger
Agreement at the time of one or both of the Meetings, such
proposal could not be approved unless the Meetings were adjourned
in order to permit further solicitation of proxies. In order to
allow proxies which have been received by Sovereign or ML
Bancorp, as the case may be, at the time of the applicable
Meeting to be voted for such adjournment, if necessary, each of
Sovereign and ML Bancorp has submitted the question of
adjournment under such circumstances to its shareholders as a
separate matter for their consideration.
The Boards of Directors of each of Sovereign and ML
Bancorp recommend that shareholders vote their proxies in favor
of the Sovereign Adjournment Proposal or the ML Bancorp
Adjournment Proposal, as the case may be, so that their proxies
may be used for such purposes in the event it becomes necessary.
Properly executed proxies will be voted in favor of the Sovereign
Adjournment Proposal or the ML Bancorp Adjournment Proposal, as
the case may be, unless otherwise indicated thereon. If it is
necessary to adjourn one or both of the Meetings, no notice of
the time and place of the adjourned meeting is required to be
given to shareholders other than an announcement of such time and
place at the Special Meeting.
<PAGE>
EXPERTS
The consolidated financial statements of Sovereign, at
December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996, included in Sovereign's Annual
Report on Form 10-K for the year ended December 31, 1996, have
been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are
included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The supplemental consolidated financial statements of
Sovereign at December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996 appearing in
Sovereign's Current Report on Form 8-K, dated December 9, 1997,
and incorporated by reference herein have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report
thereon incorporated herein by reference, which is based in part
on the reports of KPMG Peat Marwick LLP, independent auditors.
The consolidated financial statements referred to above are
incorporated herein by reference in reliance upon such reports
given upon the authority of such firms as experts in accounting
and auditing.
The consolidated financial statements of ML Bancorp as
of March 31, 1997 and 1996 and for each of the years in the
three-year period ended March 31, 1997, the consolidated
financial statements of Bankers as of December 31, 1996 and 1995
and for each of the years in the three-year period ended
December 31, 1996, and the consolidated financial statements of
First State Financial Services, Inc. as of September 30, 1996 and
1995 and for each of the years in the three-year period ended
September 30, 1996, have been incorporated by reference herein in
reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the Sovereign Common Stock to be issued
in the Merger, certain federal income tax consequences of the
Merger, and certain other legal matters relating to the Merger
are being passed upon for Sovereign by the law firm of Stevens &
Lee, counsel to Sovereign. Joseph E. Lewis, a director of
Sovereign Bank, is a principal of the firm of Stevens & Lee.
Stevens & Lee and its attorneys own an aggregate of approximately
20,000 shares of Sovereign Common Stock, including shares
issuable upon the exercise of options issued to Mr. Lewis in his
capacity as director of Sovereign Bank.
Legal matters in connection with the Merger will be
passed upon for ML Bancorp by Elias, Matz, Tiernan & Herrick,
L.L.P., Washington, D.C.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the
Boards of Directors of Sovereign and ML Bancorp know of no
matters which will be presented for consideration at the Meetings
other than as set forth in this Proxy Statement/Prospectus.
However, if any other matters shall properly come before either
of the Meetings or any adjournments thereof and be voted upon,
the forms of proxy shall be deemed to confer discretionary
authority to the individuals named as proxies therein to vote the
shares represented by such proxy as to any such matters.
SHAREHOLDER PROPOSALS
Sovereign's 1998 Annual Meeting of Shareholders will be
held on or about April 16, 1998. In accordance with the Bylaws
of Sovereign, a shareholder who desires to propose a matter for
consideration at an annual meeting of shareholders must provide
notice thereof in writing, delivered or mailed by first-class
United States mail, postage prepaid, to the Secretary of
Sovereign, not less than 90 days nor more than 120 days prior to
such annual meeting. Any shareholder who desires to submit a
proposal to be considered for inclusion in Sovereign's proxy
materials relating to its 1998 Special Meeting of Shareholders
must submit such proposal in writing, addressed to Sovereign
Bancorp, Inc. at 1130 Berkshire Boulevard, Wyomissing,
Pennsylvania 19610 (Attn: Secretary), on or before November 17,
1997.
Any proposal which a shareholder wishes to have
included in the proxy materials of ML Bancorp relating to an
annual meeting of shareholders, must be received at the principal
executive offices of the Company, Two Aldwyn Center, Lancaster
Avenue and Route 320, Villanova, Pennsylvania 19085, Attention:
Brian M. Hartline, Secretary, within the time specified by
Rule 14a-8 under the Exchange Act. If such proposal is in
compliance with all of the requirements of Rule 14a-8 under the
Exchange Act, it will be included in the proxy statement and set
forth on the form of proxy issued for such annual meeting of
shareholders. It is urged that any such proposals be sent
certified mail, return receipt requested.
Shareholder proposals which are not submitted for
inclusion in ML Bancorp's proxy materials pursuant to Rule 14a-8
under the Exchange Act may be brought before an annual meeting
pursuant to Article 10.D of ML Bancorp's Articles of
Incorporation, which provides that business at an annual meeting
of shareholders must be (a) properly brought before the meeting
by or at the direction of the Board of Directors, or
(b) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an
annual meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of ML Bancorp.
To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of ML
Bancorp not less than 60 days prior to the anniversary date of
the mailing of the proxy materials by ML Bancorp for the
immediately preceding annual meeting.
A shareholder's notice must set forth as to each matter
the shareholder proposes to bring before an annual meeting (a) a
brief description of the business desired to be brought before
the annual meeting, (b) the name and address, as they appear on
ML Bancorp's books, of the shareholder proposing such business
and, to the extent known, any other shareholders known by such
shareholder to be supporting such proposal, (c) the class and
number of shares of ML Bancorp Common Stock which are
beneficially owned by the shareholder and, to the extent known,
by any other shareholders known by such shareholder to be
supporting such proposal, and (d) any material interest of the
shareholder in such business.
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
<PAGE>
AGREEMENT AND PLAN
OF MERGER
between
SOVEREIGN BANCORP, INC.
and
ML BANCORP, INC.
September 18, 1997
<PAGE>
AGREEMENT
THIS AGREEMENT AND PLAN OF MERGER, dated as of
September 18, 1997, is made by and between SOVEREIGN BANCORP,
INC. ("Sovereign"), a Pennsylvania corporation, having its
principal place of business in Wyomissing, Pennsylvania, and ML
BANCORP, INC. ("ML"), a Pennsylvania corporation, having its
principal place of business in Villanova, Pennsylvania.
BACKGROUND
1. Sovereign and ML desire for ML to merge with and
into Sovereign, with Sovereign surviving such merger, in
accordance with the applicable laws of the Commonwealth of
Pennsylvania, and in accordance with the plan of merger set forth
herein.
2. Sovereign and ML desire that the merger of ML and
Sovereign constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended,
and be accounted for as a pooling-of-interests under generally
accepted accounting principles.
3. As a condition and inducement to Sovereign's
willingness to enter into this Agreement, (a) the directors and
certain officers of ML are concurrently executing a Letter
Agreement in the form attached hereto as Exhibit 1-A, and (b) ML
is concurrently granting to Sovereign an option to acquire, under
certain circumstances, ML's common stock (the "Sovereign Option")
pursuant to a Stock Option Agreement between Sovereign and ML in
the form attached hereto as Exhibit 2.
4. As a condition and inducement to ML's willingness
to enter into this Agreement, the directors and certain officers
of Sovereign are concurrently executing a Letter Agreement in the
form attached hereto as Exhibit 1-B.
5. Sovereign desires to merge Main Line Bank, a
federal savings bank and a wholly-owned subsidiary of ML ("Main
Line Bank"), into and with Sovereign Bank, a federal savings bank
and a wholly-owned subsidiary of Sovereign ("Sovereign Bank"),
with Sovereign Bank surviving such merger in accordance with the
Bank Plan of Merger in the form attached hereto as Exhibit 3.
6. Sovereign and ML desire to provide the terms and
conditions governing the transactions contemplated herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of
the mutual covenants, agreements, representations and warranties
herein contained, the parties hereto, intending to be legally
bound, do hereby agree as follows:
ARTICLE I
THE MERGERS
Section 1.01 Definitions. As used in this Agreement,
the following terms shall have the indicated meanings (such
meanings to be equally applicable to both the singular and plural
forms of the terms defined):
Affiliate means, with respect to any Person, any
Person who directly, or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under
common control with, such Person and, without limiting the
generality of the foregoing, includes any executive officer
or director of such Person and any Affiliate of such
executive officer or director.
Agreement means this agreement, and any amendment
or supplement hereto, which constitutes a "plan of merger"
between Sovereign and ML.
Applicable Exchange Ratio shall have the meaning
given to such term in Section 1.02(e)(ii)(A).
Applications means the applications for regulatory
approval which are required by the transactions contemplated
hereby.
Articles of Merger means the articles of merger to
be executed by Sovereign and ML and to be filed in the PDS,
in accordance with the applicable laws of the Commonwealth
of Pennsylvania.
Bank Merger means the merger of Main Line Bank
with and into Sovereign Bank, with Sovereign Bank surviving
such merger, contemplated by Section 1.03 of this Agreement.
Bank Plan of Merger has the meaning given to that
term in Section 1.03 of this Agreement.
BCL means the Pennsylvania Business Corporation
Law of 1988, as amended.
Closing Date means the fifth business day
following the satisfaction or waiver, to the extent
permitted hereunder, of the conditions to the consummation
of the Merger specified in Article V of this Agreement
(other than the delivery of certificates, opinions and other
instruments and documents to be delivered at the Closing),
or such other date as Sovereign and ML may mutually agree.
Determination Date means the earlier of (i) the
date on which the OTS approves the Merger and the Bank
Merger (or the later of such dates if the OTS approves such
transactions on different dates) and (ii) March 31, 1998.
Dissenting Shares shall have the meaning set forth
in Section 1.02(e)(ii)(E) hereof.
DOJ means the United States Department of Justice.
Effective Date means the date upon which the
Articles of Merger shall be filed in the PDS, and shall be
the same as the Closing Date.
Environmental Law means any federal, state, local
or foreign law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, order,
judgment, decree, injunction or agreement with any
Regulatory Authority relating to (i) the protection,
preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface
soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of any substance presently
listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated,
whether by type or by quantity, including any material
containing any such substance as a component.
ERISA means the Employee Retirement Income
Security Act of 1974, as amended.
Exchange Act means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
from time to time thereunder.
FDIA means the Federal Deposit Insurance Act, as
amended.
FDIC means the Federal Deposit Insurance
Corporation.
GAAP means generally accepted accounting
principles as in effect at the relevant date.
HOLA means the Home Owners' Loan Act, as amended.
IRC means the Internal Revenue Code of 1986, as
amended.
IRS means the Internal Revenue Service.
ML Common Stock means the common stock of ML
described in Section 2.02(a).
ML Disclosure Schedule means a disclosure schedule
delivered by ML to Sovereign pursuant to Article II of this
Agreement.
ML Financials means (i) the audited consolidated
financial statements of ML as of March 31, 1997 and for the
three years ended March 31, 1997, including the notes
thereto, and (ii) the unaudited interim consolidated
financial statements of ML as of each calendar quarter
thereafter included in Securities Documents filed by ML.
ML Options means options to purchase shares of ML
Common Stock granted pursuant to the ML Stock Option Plans.
ML Regulatory Reports means the Annual Reports of
ML on Form H-(b)11 filed since March 31, 1995 through the
Closing Date, any Current Report of ML on Form H-(b)11 filed
with the OTS from March 31, 1995 through the Closing Date
and the Thrift Financial Reports of Main Line Bank and
accompanying schedules for each calendar quarter, beginning
with the quarter ended March 31, 1995, through the Closing
Date.
ML Stock Option Plans means the 1994 Stock Option
Plan and the 1997 Stock Option Plan.
ML Subsidiaries means (i) any corporation, 50% or
more of the capital stock of which is owned, either directly
or indirectly, by ML, except any corporation the stock of
which is held in the ordinary course of the lending
activities of Main Line Bank, and (ii) ML Capital Trust I.
Material Adverse Effect shall mean, with respect
to Sovereign or ML, respectively, any effect that is
material and adverse to its assets, financial condition or
results of operations on a consolidated basis, provided,
however, that Material Adverse Effect shall not be deemed to
include (a) any change in the value of the respective
investment and loan portfolios of Sovereign or ML resulting
from a change in interest rates generally, (b) any change
occurring after the date hereof in any federal or state law,
rule or regulation or in GAAP, which change affects banking
institutions generally, including any changes affecting the
Bank Insurance Fund or the Savings Association Insurance
Fund, (c) reasonable expenses (not to exceed $2.5 million,
plus reasonable legal fees, cost and expense relating to any
litigation arising as a result of the Merger, reasonable
costs associated with compliance with Section 4.16 hereof
and the cost associated with Section 4.11(e) hereof)
incurred in connection with this Agreement and the
transactions contemplated hereby, (d) actions or omissions
of a party (or any of its Subsidiaries) taken with the prior
informed written consent of the other party in contemplation
of the transactions contemplated hereby (including without
limitation any actions taken by ML pursuant to
Section 4.10(a)(vi) of this Agreement), and (e) any effect
with respect to a party hereto caused, in whole or in part,
by the other party.
Merger means the merger of ML with and into
Sovereign, with Sovereign surviving such merger,
contemplated by this Agreement.
NASD means the National Association of Securities
Dealers, Inc.
OTS means the Office of Thrift Supervision.
PDS means the Department of State of the
Commonwealth of Pennsylvania.
Person means any individual, corporation,
partnership, joint venture, association, trust or "group"
(as that term is defined in Section 13(d)(3) of the Exchange
Act).
Prospectus/Proxy Statement means the
prospectus/proxy statement, together with any amendments and
supplements thereto, to be transmitted to holders of ML
Common Stock and Sovereign Common Stock in connection with
the transactions contemplated by this Agreement.
Registration Statement means the registration
statement on Form S-4, including any pre-effective or
post-effective amendments or supplements thereto, as filed
with the SEC under the Securities Act with respect to the
Sovereign Common Stock and Sovereign Stock Purchase Rights
to be issued in connection with the transactions
contemplated by this Agreement.
Regulatory Agreement has the meanings given to
that term in Sections 2.11 and 3.10 of this Agreement.
Regulatory Authority means any banking agency or
department of any federal or state government, including
without limitation the OTS, the FDIC, or the respective
staffs thereof.
Rights means warrants, options, rights,
convertible securities and other capital stock equivalents
which obligate an entity to issue its securities.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933,
as amended, and the rules and regulations promulgated from
time to time thereunder.
Securities Documents means all registration
statements, schedules, statements, forms, reports, proxy
material, and other documents required to be filed under the
Securities Laws.
Securities Laws means the Securities Act, the
Exchange Act, the Investment Company Act of 1940, as
amended, the Investment Advisors Act of 1940, as amended,
the Trust Indenture Act of 1939, as amended, and in each
case the rules and regulations promulgated from time to time
thereunder.
Sovereign Common Stock has the meaning given to
that term in Section 3.02(a) of this Agreement.
Sovereign Disclosure Schedule means a disclosure
schedule delivered by Sovereign to ML pursuant to
Article III of this Agreement.
Sovereign Financials means (i) the audited
consolidated financial statements of Sovereign as of
December 31, 1996 and for the three years ended December 31,
1996, including the notes thereto, and (ii) the unaudited
interim consolidated financial statements of Sovereign as of
each calendar quarter thereafter included in Securities
Documents filed by Sovereign.
Sovereign Market Price means, as of any date, the
average between the closing high bid and low asked prices of
a share of Sovereign Common Stock on the Nasdaq National
Market System (as reported in The Wall Street Journal, or if
not reported therein, in another authoritative source).
Sovereign Market Value means the average of the
Sovereign Market Prices for the twenty (20) consecutive
trading days ending on the trading day preceding the
Determination Date.
Sovereign Option means the option granted to
Sovereign to acquire shares of ML Common Stock referenced in
the recitals to this Agreement.
Sovereign Regulatory Reports means the Annual
Reports of Sovereign on Form H-(b)11 filed with the OTS
since December 31, 1995 through the Closing Date, any
Current Report of Sovereign on Form H-(b)11 filed with the
OTS from December 31, 1995 through the Closing Date and the
Thrift Financial Reports of Sovereign Bank and accompanying
schedules for each calendar quarter, beginning with the
quarter ended December 31, 1995, through the Closing Date.
Sovereign Rights Agreement means the Rights
Agreement dated as of September 19, 1989, as amended
September 27, 1995, between Sovereign and Chemical Bank, as
rights agent, relating to Sovereign's Series A Junior
Participating Preferred Stock.
Sovereign Stock Purchase Rights means Rights to
purchase a unit of Sovereign's Series A Junior Participating
Preferred Stock in accordance with the terms of the
Sovereign Rights Agreement.
Sovereign Subsidiaries means (i) any corporation,
50% or more of the capital stock of which is owned, either
directly or indirectly, by Sovereign, except any corporation
the stock of which is held in the ordinary course of the
lending activities of a bank and (ii) Sovereign Capital
Trust I and any similar entity sponsored or created by
Sovereign after the date hereof.
Subsidiary means any corporation, 50% or more of
the capital stock of which is owned, either directly or
indirectly, by another entity, except any corporation the
stock of which is held in the ordinary course of the lending
activities of a bank.
Section 1.02 The Merger.
(a) Closing. The closing will take place at
10:00 a.m. on the Closing Date at the offices of Stevens & Lee,
111 North Sixth Street, Reading, Pennsylvania, unless another
time and place are agreed to by the parties hereto; provided, in
any case, that all conditions to closing set forth in Article V
(other than the delivery of certificates, opinions and other
instruments and documents to be delivered at the Closing) have
been satisfied or waived at or prior to the Closing Date. On the
Closing Date, ML and Sovereign shall cause the Articles of Merger
to be duly executed and to be filed in the PDS.
(b) The Merger. Subject to the terms and
conditions of this Agreement, on the Effective Date, ML shall
merge with and into Sovereign in accordance with the provisions
of the BCL. Sovereign shall be the surviving corporation of the
Merger and shall continue its corporate existence under the laws
of the Commonwealth of Pennsylvania. From and after the
Effective Date, the Merger shall have the effects set forth in
Section 1929 of the BCL.
(c) Sovereign's Articles of Incorporation and
Bylaws. On and after the Effective Date, the articles of
incorporation and the bylaws of Sovereign, as in effect
immediately prior to the Effective Date, shall automatically be
and remain the articles of incorporation and bylaws of Sovereign,
as the surviving corporation in the Merger, until thereafter
altered, amended or repealed.
(d) Board of Directors and Officers of Sovereign.
(i) On the Effective Date, the Board of
Directors of Sovereign, as the surviving corporation in the
Merger, shall consist of those persons holding such office
immediately prior to the Effective Date.
(ii) On the Effective Date, the officers of
Sovereign duly elected and holding office immediately prior to
the Effective Date shall be the officers of Sovereign, as the
surviving corporation in the Merger, existing on such Effective
Date.
(e) Conversion of Shares.
(i) Sovereign Common Stock.
(A) Each share of Sovereign Common
Stock issued and outstanding immediately prior to the
Effective Date shall, on and after the Effective Date,
continue to be issued and outstanding as an identical share
of Sovereign Common Stock. Shares of Sovereign Common Stock
owned by ML (other than shares held in trust, managed,
custodial or nominee accounts and the like or held by mutual
funds for which a subsidiary of ML acts as investment
advisor, that in any such case are beneficially owned by
third parties (any such shares, "trust account shares") and
shares acquired in respect of debts previously contracted
(any such shares, "DPC shares")) shall become treasury stock
of Sovereign.
(B) Each share of Sovereign Common
Stock issued and held in the treasury of Sovereign as of the
Effective Date, if any, shall, on and after the Effective
Date, continue to be issued and held in the treasury of
Sovereign.
(ii) ML Common Stock.
(A) Subject to the provisions of
subparagraphs (B), (C), (D) and (E) of this
Section 1.02(e)(ii), each share of ML Common Stock issued
and outstanding immediately prior to the Effective Date
(other than shares of ML Common Stock, if any, then owned by
Sovereign or ML or any ML Subsidiary) shall, on the
Effective Date, by reason of the Merger and without any
action on the part of the holder thereof, be converted into
and become a right to receive:
(i) if the Sovereign Market Value
is greater than or equal to $13.80 and less than or
equal to $18.67, then 1.67 shares of fully paid and
nonassessable shares of Sovereign Common Stock, and the
corresponding number of Sovereign Stock Purchase Rights
pursuant to the Sovereign Rights Agreement;
(ii) if the Sovereign Market Value
is less than $13.80, then that number (rounded to the
nearest hundredth) of shares of fully paid and
nonassessable shares of Sovereign Common Stock, and the
corresponding number of Sovereign Stock Purchase Rights
pursuant to the Sovereign Rights Agreement, equal to
$23.05 divided by the Sovereign Market Value, provided
that if the Sovereign Market Value is less than $12.18,
Sovereign shall have the option to elect, by written
notice to ML, and subject to ML's and Sovereign's
rights under Section 6.01(c) hereof, to have the
Exchange Ratio be equal to that number (rounded to the
nearest hundredth) of shares of fully paid and
nonassessable shares of Sovereign Common Stock, and the
corresponding number of Sovereign Stock Purchase Rights
pursuant to the Sovereign Rights Agreement, equal to
$23.05 divided by $12.18; or
(iii) if the Sovereign Market
Value is greater than $18.67, then that number (rounded
to the nearest hundredth) of shares of fully paid and
nonassessable shares of Sovereign Common Stock, and the
corresponding number of Sovereign Stock Purchase Rights
pursuant to the Sovereign Rights Agreement, equal to
$31.18 divided by the Sovereign Market Value, provided
that if on or prior to the Effective Date there has
been any public announcement of a proposed acquisition
or sale of all or substantially all of Sovereign's
assets or a merger, consolidation or similar
transaction involving Sovereign in which Sovereign is
not the surviving entity or in which shareholders of
Sovereign before such transaction will not hold in the
aggregate shares of the surviving or new corporation to
be outstanding immediately after the consummation
thereof entitled to cast at least a majority of the
votes entitled to be cast generally for the election of
directors, the Exchange Ratio shall be 1.67.
The Exchange Ratio, as determined pursuant to any of
Sections 1.02(e)(ii)(A)(i), 1.02(e)(ii)(A)(ii) or
1.02(e)(ii)(A)(iii), is hereinafter referred to as the
"Applicable Exchange Ratio".
(B) Each share of ML Common Stock
(other than trust account shares or DPC shares) owned by
Sovereign or a Sovereign Subsidiary on the Effective Date,
if any, shall be cancelled.
(C) Each share of ML Common Stock
issued and held in the treasury of ML or owned by ML or any
ML Subsidiary (other than trust account shares or DPC
shares) as of the Effective Date, if any, shall be
cancelled, and no cash, stock or other property shall be
delivered in exchange therefor.
(D) No fraction of a whole share of
Sovereign Common Stock and no scrip or certificates therefor
shall be issued in connection with the Merger. Any former
holder of ML Common Stock who would otherwise be entitled to
receive a fraction of a share of Sovereign Common Stock
shall receive, in lieu thereof, cash in an amount equal to
such fraction of a share multiplied by the Sovereign Market
Price determined as of the Effective Date.
(E) Each outstanding share of ML Common
Stock the holder of which has perfected his right to dissent
under the BCL and has not effectively withdrawn or lost such
right as of the Effective Date shall not be converted into
or represent a right to receive shares of Sovereign Common
Stock hereunder, and the holder thereof shall be entitled
only to such rights as are granted by the BCL. ML shall
give Sovereign prompt notice upon receipt by ML of any such
written demands for payment of the fair value of such shares
of ML Common Stock ("Dissenting Shares") and of withdrawals
of such demands and any other instruments provided pursuant
to the BCL (any shareholder duly making such demand being
hereinafter called a "Dissenting Shareholder"). If any
Dissenting Shareholder shall effectively withdraw or lose
(through failure to perfect or otherwise) his right to such
payment at any time, such holder's shares of ML Common Stock
shall be converted into the right to receive Sovereign
Common Stock in accordance with Section 1.02(e)(ii) of this
Agreement. Any payments made in respect of Dissenting
Shares shall be made by Sovereign, as the surviving
corporation of the Merger.
(f) Stock Options.
(i) On the Effective Date, each ML Option
which is then outstanding, whether or not exercisable, shall
cease to represent a right to acquire shares of ML Common
Stock and shall be converted automatically into an option to
purchase shares of Sovereign Common Stock and the
corresponding number of Sovereign Stock Purchase Rights, and
Sovereign shall assume each ML Option, in accordance with
the terms of the applicable ML Stock Option Plan and stock
option agreement by which it is evidenced, except that from
and after the Effective Date, (i) Sovereign and its Board of
Directors or a duly authorized committee thereof shall be
substituted for ML and ML's Board of Directors or duly
authorized committee thereof administering such ML Stock
Option Plan, (ii) each ML Option assumed by Sovereign may be
exercised solely for shares of Sovereign Common Stock and
Sovereign Stock Purchase Rights, (iii) the number of shares
of Sovereign Common Stock subject to such ML Option shall be
equal to the number of shares of ML Common Stock subject to
such ML Option immediately prior to the Effective Date
multiplied by the Applicable Exchange Ratio, provided that
any fractional shares of Sovereign Common Stock resulting
from such multiplication shall be rounded down to the
nearest share, and (iv) the per share exercise price under
each such ML Option shall be adjusted by dividing the per
share exercise price under each such ML Option by the
Applicable Exchange Ratio, provided that such exercise price
shall be rounded up to the nearest cent. Notwithstanding
clauses (iii) and (iv) of the preceding sentence, each ML
Option which is an "incentive stock option" shall be
adjusted as required by Section 424 of the IRC, and the
regulations promulgated thereunder, so as not to constitute
a modification, extension or renewal of the option within
the meaning of Section 424(h) of the IRC. Sovereign and ML
agree to take all necessary steps to effect the foregoing
provisions of this Section 1.02(f).
(ii) As soon as practicable after the
Effective Date, Sovereign shall deliver to each participant
in each ML Stock Option Plan an appropriate notice setting
forth such participant's rights pursuant thereto and the
grants subject to such ML Stock Option Plan shall continue
in effect on the same terms and conditions, including
without limitation the duration thereof, subject to the
adjustments required by Section 1.02(f)(i) hereof after
giving effect to the Merger. Within 30 days after the
Effective Date, Sovereign shall file a registration
statement on Form S-3 or Form S-8, as the case may be (or
any successor or other appropriate forms), with respect to
the shares of Sovereign Common Stock and Sovereign Stock
Purchase Rights subject to such options and shall use its
reasonable best efforts to maintain the current status of
the prospectus or prospectuses contained therein for so long
as such options remain outstanding.
(g) Surrender and Exchange of ML Stock
Certificates.
(i) Exchange of Certificates. Each holder
of shares of ML Common Stock who surrenders to Sovereign (or
its agent) the certificate or certificates representing such
shares will be entitled to receive, as soon as practicable
after the Effective Date, in exchange therefor a certificate
or certificates for the number of whole shares of Sovereign
Common Stock into which such holder's shares of ML Common
Stock have been converted pursuant to the Merger, together
with a check for cash in lieu of any fractional share in
accordance with Section 1.02(e)(ii)(D) hereof.
(ii) Rights Evidenced by Certificates. Each
certificate for shares of Sovereign Common Stock issued in
exchange for certificates for ML Common Stock pursuant to
Section 1.02(g)(i) hereof will be dated the Effective Date
and be entitled to dividends and all other rights and
privileges pertaining to such shares of stock from and after
the Effective Date. Until surrendered, each certificate
theretofore evidencing shares of ML Common Stock will, from
and after the Effective Date, evidence solely the right to
receive certificates for shares of Sovereign Common Stock
pursuant to Section 1.02(g)(i) hereof and a check for cash
in lieu of any fractional share in accordance with
Section 1.02(e)(ii)(D) hereof. If certificates for shares
of ML Common Stock are exchanged for Sovereign Common Stock
at a date following one or more record dates for the payment
of dividends or of any other distribution on the shares of
Sovereign Common Stock, Sovereign will pay cash in an amount
equal to dividends theretofore payable on such Sovereign
Common Stock and pay or deliver any other distribution to
which holders of shares of Sovereign Common Stock have
theretofore become entitled. Upon surrender of certificates
for shares of ML Common Stock in exchange for certificates
for Sovereign Common Stock, Sovereign also shall pay any
dividends to which such holder of ML Common Stock may be
entitled as a result of the declaration of a dividend on the
ML Common Stock by ML in accordance with the terms of this
Agreement with a record date prior to the Effective Date and
a payment date after the Effective Date. No interest will
accrue or be payable in respect of dividends or cash
otherwise payable under this Section 1.02(g) upon surrender
of certificates for shares of ML Common Stock.
Notwithstanding the foregoing, no party hereto will be
liable to any holder of ML Common Stock for any amount paid
in good faith to a public official or agency pursuant to any
applicable abandoned property, escheat or similar law.
Until such time as certificates for shares of ML Common
Stock are surrendered by a ML shareholder to Sovereign for
exchange, Sovereign shall have the right to withhold
dividends or any other distributions on the shares of
Sovereign Common Stock issuable to such shareholder.
(iii) Exchange Procedures. Each certificate
for shares of ML Common Stock delivered for exchange under
this Section 1.02(g) must be endorsed in blank by the
registered holder thereof or be accompanied by a power of
attorney to transfer such shares endorsed in blank by such
holder. If more than one certificate is surrendered at one
time and in one transmittal package for the same shareholder
account, the number of whole shares of Sovereign Common
Stock for which certificates will be issued pursuant to this
Section 1.02(g) will be computed on the basis of the
aggregate number of shares represented by the certificates
so surrendered. If shares of Sovereign Common Stock or
payments of cash are to be issued or made to a person other
than the one in whose name the surrendered certificate is
registered, the certificate so surrendered must be properly
endorsed in blank, with signature(s) guaranteed, or
otherwise in proper form for transfer, and the person to
whom certificates for shares of Sovereign Common Stock is to
be issued or to whom cash is to be paid shall pay any
transfer or other taxes required by reason of such issuance
or payment to a person other than the registered holder of
the certificate for shares of ML Common Stock which are
surrendered. As promptly as practicable after the Effective
Date, Sovereign shall send or cause to be sent to each
shareholder of record of ML Common Stock transmittal
materials for use in exchanging certificates representing ML
Common Stock for certificates representing Sovereign Common
Stock into which the former have been converted in the
Merger. Certificates representing shares of Sovereign
Common Stock and checks for cash in lieu of fractional
shares shall be mailed to former shareholders of ML as soon
as reasonably possible but in no event later than fifteen
(15) business days following the receipt of certificates
representing former shares of ML Common Stock duly endorsed
or accompanied by the materials referenced herein and
delivered by certified mail, return receipt requested (but
in no event earlier than the second business day following
the Effective Date).
(iv) Closing of Stock Transfer Books;
Cancellation of ML Certificates. Upon the Effective Date,
the stock transfer books for ML Common Stock will be closed
and no further transfers of shares of ML Common Stock will
thereafter be made or recognized. All certificates for
shares of ML Common Stock surrendered pursuant to this
Section 1.02(g) will be cancelled by Sovereign.
(h) Anti-Dilution Provisions. If, Sovereign has,
at any time after the date hereof and before the Effective Date,
(A) issued a dividend in shares of Sovereign Common Stock,
(B) combined the outstanding shares of Sovereign Common Stock
into a smaller number of shares, (C) subdivided the outstanding
shares of Sovereign Common Stock, or (D) reclassified the shares
of Sovereign Common Stock, then the number of shares of Sovereign
Common Stock to be delivered to ML shareholders who are entitled
to receive shares of Sovereign Common Stock in exchange for
shares of ML Common Stock shall be adjusted so that each ML
shareholder shall be entitled to receive such number of shares of
Sovereign Common Stock as such shareholder would have been
entitled to receive if the Effective Date had occurred prior to
the happening of such event. (By way of illustration, if
Sovereign shall declare a stock dividend of 7% payable with
respect to a record date on or prior to the Effective Date and
the conditions set forth above are satisfied, the Applicable
Exchange Ratio shall be adjusted upward by 7%).
Section 1.03 The Bank Merger. Sovereign and ML shall
use their reasonable best efforts to cause Main Line Bank to
merge with and into Sovereign Bank, with Sovereign Bank surviving
such merger, on or as soon as practicable after the Effective
Date. Concurrently with, or as soon as practicable after, the
execution and delivery of this Agreement, Sovereign shall cause
Sovereign Bank, and ML shall cause Main Line Bank, to execute and
deliver the Bank Plan of Merger attached hereto as Exhibit 3.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ML
ML hereby represents and warrants to Sovereign that,
except as specifically set forth in the ML Disclosure Schedule
delivered to Sovereign by ML on the date hereof:
Section 2.01 Organization.
(a) ML is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth
of Pennsylvania. ML is a savings and loan holding company duly
registered under the HOLA. ML 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. ML is not qualified or licensed
to do business as a foreign corporation in any other jurisdiction
and is not required to be so qualified or licensed as the result
of the ownership or leasing of property or the conduct of its
business except where the failure to be so qualified or licensed
would not have a Material Adverse Effect on ML.
(b) Main Line Bank is a federal savings bank duly
organized and validly existing under the laws of the United
States. Main Line Bank has the corporate power and authority to
carry on its business and operations as now being conducted and
to own and operate the properties and assets now owned and being
operated by it. Neither Main Line Bank nor any other ML
Subsidiary is qualified or licensed to do business as a foreign
corporation in any other jurisdiction and neither is required to
be so qualified or licensed as the result of the ownership or
leasing of property or the conduct of its business, except where
the failure to be so qualified or licensed would not have a
Material Adverse Effect on ML.
(c) There are no ML Subsidiaries other than Main
Line Bank and those identified in the ML Disclosure Schedule.
(d) The deposits of Main Line Bank are insured by
the FDIC to the extent provided in the FDIA.
(e) The respective minute books of ML and Main
Line Bank and each other ML Subsidiary accurately record, in all
material respects, all material corporate actions of their
respective shareholders and boards of directors (including
committees).
(f) Prior to the date of this Agreement, ML has
delivered to Sovereign true and correct copies of the articles of
incorporation and bylaws of ML and the charter and bylaws of Main
Line Bank as in effect on the date hereof.
Section 2.02 Capitalization.
(a) The authorized capital stock of ML consists
of (a) 30,000,000 shares of common stock, $0.01 par value ("ML
Common Stock"), of which 11,865,564 shares are outstanding,
validly issued, fully paid and nonassessable and free of
preemptive rights, and (b) 5,000,000 shares of preferred stock,
no par value, none of which are issued or outstanding. Neither
ML nor Main Line Bank nor any other ML Subsidiary has or is bound
by any subscription, option, warrant, call, commitment,
agreement, plan or other Right of any character relating to the
purchase, sale or issuance or voting of, or right to receive
dividends or other distributions on any shares of ML Common
Stock, ML preferred stock or any other security of ML or any
securities representing the right to vote, purchase or otherwise
receive any shares of ML Common Stock, ML preferred stock or any
other security of ML, other than (i) shares issuable under the
Sovereign Option, (ii) 1,442,200 shares of ML Common Stock
issuable under the ML Stock Option Plans, (iii) rights of each of
the five non-employee directors of ML to receive scheduled grants
of 1,000 shares of ML Common Stock pursuant to the ML Recognition
and Retention Plan and options to purchase 4,000 shares of ML
Common Stock under the ML 1994 Stock Option Plan in October 1997
and (iv) rights of holders of 9.875% Capital Securities issued by
ML Capital Trust I, including without limitation the rights of
such holders to acquire ML 9.875% Junior Subordinated Deferable
Interest Debentures under certain circumstances, all as set forth
in detail in the ML Disclosure Schedule.
(b) The authorized capital stock of Main Line
Bank consists of 1,000,000 shares of common stock, par value
$0.01 per share ("Main Line Bank Common Stock"), of which 1,000
shares are outstanding, validly issued, fully paid,
nonassessable, free of preemptive rights and owned by ML. Except
for agreements entered into in connection with the issuance of
9.875% Capital Securities by ML Capital Trust I, neither ML nor
any ML Subsidiary has or is bound by any subscription, option,
warrant, call, commitment, agreement or other Right of any
character relating to the purchase, sale or issuance or voting
of, or right to receive dividends or other distributions on any
shares of the capital stock of any ML Subsidiary or any other
security of any ML 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 ML Subsidiary. Except
in the case of 9.875% Capital Securities issued by ML Capital
Trust I, either ML or Main Line Bank owns all of the outstanding
shares of capital stock of each ML Subsidiary free and clear of
all liens, security interests, pledges, charges, encumbrances,
agreements and restrictions of any kind or nature.
(c) Except as set forth in the ML Disclosure
Schedule, neither (i) ML, (ii) Main Line Bank nor (iii) any other
ML Subsidiary, owns any equity interest, directly or indirectly,
other than treasury stock, in any other company or controls any
other company, except for equity interests held in the investment
portfolios of ML Subsidiaries, equity interests held by ML
Subsidiaries in a fiduciary capacity, and equity interests held
in connection with the commercial loan activities of ML
Subsidiaries. There are no subscriptions, options, warrants,
calls, commitments, agreements or other Rights outstanding and
held by ML or Main Line Bank with respect to any other company's
capital stock or the equity of any other person.
(d) To the best of ML's knowledge, except as
disclosed in ML's proxy statement dated June 13, 1997, no person
or "group" (as that term is used in Section 13(d)(3) of the
Exchange Act), is the beneficial owner (as defined in Section
13(d) of the Exchange Act) of 5% or more of the outstanding
shares of ML Common Stock.
Section 2.03 Authority; No Violation.
(a) ML has full corporate power and authority to
execute and deliver this Agreement and to complete the
transactions contemplated hereby. Main Line Bank has full
corporate power and authority to execute and deliver the Bank
Plan of Merger and to consummate the Bank Merger. The execution
and delivery of this Agreement by ML and the completion by ML of
the transactions contemplated hereby have been duly and validly
approved by the Board of Directors of ML and, except for approval
by the shareholders of ML as required under the BCL, ML's
articles of incorporation and bylaws and Nasdaq requirements
applicable to it, no other corporate proceedings on the part of
ML are necessary to complete the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by ML and, subject to approval of the shareholders of
ML as required under the BCL, ML's articles of incorporation and
bylaws and Nasdaq requirements applicable to it and receipt of
the required approvals from Regulatory Authorities described in
Section 3.04 hereof, constitutes the valid and binding obligation
of ML, enforceable against ML in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity. The Bank Plan
of Merger, upon its execution and delivery by Main Line Bank
concurrently with the execution and delivery of this Agreement,
will constitute the valid and binding obligation of Main Line
Bank, enforceable against Main Line Bank in accordance with its
terms, subject to applicable conservatorship or receivership
provisions of the FDIA, or insolvency and similar laws affecting
creditors' rights generally and subject, as to enforceability, to
general principles of equity.
(b) (A) The execution and delivery of this
Agreement by ML, (B) the execution and delivery of the Bank Plan
of Merger by Main Line Bank, (C) subject to receipt of approvals
from the Regulatory Authorities referred to in Section 3.04
hereof and ML's and Sovereign's compliance with any conditions
contained therein, the completion of the transactions
contemplated hereby, and (D) compliance by ML or Main Line Bank
with any of the terms or provisions hereof or of the Bank Plan of
Merger, will not (i) conflict with or result in a breach of any
provision of the articles of incorporation or other
organizational document or bylaws of ML or any ML Subsidiary;
(ii) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to ML or
any ML Subsidiary or any of their respective properties or
assets; or (iii) except as set forth in the ML Disclosure
Schedule, violate, conflict with, result in a breach of any
provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default)
under, result in the termination of, accelerate the performance
required by, or result in a right of termination or acceleration
or the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of ML or any ML
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 ML or any ML Subsidiary is a party, or by which they or any
of their respective properties or assets may be bound or
affected, except for such violations, conflicts, breaches or
defaults under clause (ii) or (iii) hereof which, either
individually or in the aggregate, will not have a Material
Adverse Effect on ML.
Section 2.04 Consents. Except for the consents,
approvals, filings and registrations from or with the Regulatory
Authorities referred to in Section 3.04 hereof and compliance
with any conditions contained therein, and the approval of this
Agreement by the shareholders of ML under the BCL, ML's articles
of incorporation and bylaws and Nasdaq requirements applicable to
it, and the approval of the Bank Plan of Merger by ML as sole
shareholder of Main Line Bank under the HOLA, and by the Main
Line Bank Board of Directors, and except as disclosed in the ML
Disclosure Schedule, no consents or approvals of, or filings or
registrations with, any public body or authority are necessary,
and no consents or approvals of any third parties are necessary,
or will be, in connection with (a) the execution and delivery of
this Agreement by ML or the Bank Plan of Merger by Main Line
Bank, and (b) the completion by ML of the transactions
contemplated hereby or by Main Line Bank of the Bank Merger. As
of the date hereof, ML has no reason to believe that (i) any
required consents or approvals will not be received or will be
received with conditions, limitations or restrictions
unacceptable to it or which would adversely impact ML's or Main
Line Bank's ability to complete the transactions contemplated by
this Agreement or that (ii) any public body or authority, the
consent or approval of which is not required or any filing with
which is not required, will object to the completion of the
transactions contemplated by this Agreement.
Section 2.05 Financial Statements.
(a) ML has previously delivered, or will deliver,
to Sovereign the ML Regulatory Reports. The ML Regulatory
Reports have been, or will be, prepared in all material respects
in accordance with applicable regulatory accounting principles
and practices throughout the periods covered by such statements,
and fairly present, or will fairly present in all material
respects, the financial position, results of operations and
changes in shareholders' equity of ML as of and for the periods
ended on the dates thereof, in accordance with applicable
regulatory accounting principles applied on a consistent basis.
(b) ML has previously delivered to Sovereign the
ML Financials. The ML Financials have been, or will be, prepared
in accordance with GAAP applied on a consistent basis throughout
the periods covered by such statements, except as noted therein,
and fairly present, or will fairly present, the consolidated
financial position, results of operations and cash flows of ML as
of and for the periods ending on the dates thereof, in accordance
with generally accepted accounting principles applied on a
consistent basis, except as noted therein.
(c) At the date of each balance sheet included in
the ML Financials or the ML Regulatory Reports, neither ML nor
Main Line 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 ML Financials or ML Regulatory
Reports or in the footnotes thereto which are not fully reflected
or reserved against therein or fully disclosed in a footnote
thereto, except for liabilities, obligations and loss
contingencies which are not material in the aggregate and which
are incurred in the ordinary course of business, consistent with
past practice and except for liabilities, obligations and loss
contingencies which are within the subject matter of a specific
representation and warranty herein and subject, in the case of
any unaudited statements, to normal, recurring audit adjustments
and the absence of footnotes.
Section 2.06 Taxes.
(a) ML and the ML Subsidiaries are members of the
same affiliated group within the meaning of IRC Section 1504(a).
ML has duly filed, and will file, all federal, state and local
tax returns required to be filed by or with respect to ML and all
ML Subsidiaries on or prior to the Closing Date (all such returns
being accurate and correct in all material respects) and has duly
paid or will pay, or made or will make, provisions for the
payment of all federal, state and local taxes which have been
incurred by or are due or claimed to be due from ML and any ML
Subsidiary by any taxing authority or pursuant to any tax sharing
agreement or arrangement (written or oral) on or prior to the
Closing Date other than taxes which (i) are not delinquent or
(ii) are being contested in good faith.
(b) No consent pursuant to IRC Section 341(f) has
been filed (or will be filed prior to the Closing Date) by or
with respect to ML or any ML Subsidiary.
Section 2.07 No Material Adverse Effect. ML has not
suffered any Material Adverse Effect since June 30, 1997.
Section 2.08 Contracts.
(a) Except as described in ML's proxy statement
dated June 13, 1997 and Annual Reports on Form 10-K for the years
ended March 31, 1995, 1996 and 1997, previously delivered to
Sovereign, in the footnotes to the audited consolidated financial
statements of ML as of March 31, 1997, and for the three years
ended March 31, 1997, or in the ML Disclosure Schedule, neither
ML nor any ML Subsidiary is a party to or subject to: (i) any
employment, consulting or severance contract or arrangement with
any past or present officer, director or employee of ML or any ML
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 ML or any ML Subsidiary; (iii) any
collective bargaining agreement with any labor union relating to
employees of ML or any ML Subsidiary; (iv) any agreement which by
its terms limits the payment of dividends by any ML 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 ML or any ML Subsidiary is an
obligor to any person, which instrument evidences or relates to
indebtedness other than deposits, repurchase agreements, Federal
Home Loan Bank advances, bankers acceptances and "treasury tax
and loan" accounts established in the ordinary course of business
and transactions in "federal funds" or which contains financial
covenants or other restrictions (other than those relating to the
payment of principal and interest when due) which would be
applicable on or after the Closing Date to Sovereign or any
Sovereign Subsidiary; or (vi) any contract (other than this
Agreement) limiting the freedom of any ML Subsidiary to engage in
any type of banking or bank-related business permissible under
law.
(b) True and correct copies of agreements, plans,
arrangements and instruments referred to in Section 2.08(a),
described in the ML proxy statement dated June 13, 1997 or in a
footnote to the ML Financials, have been provided to Sovereign on
or before the date hereof, are listed on the ML Disclosure
Schedule and are in full force and effect on the date hereof and
neither ML nor any ML Subsidiary (nor, to the knowledge of ML,
any other party to any such contract, plan, arrangement or
instrument) has breached any provision of, or is in default in
any respect under any term of, any such contract, plan,
arrangement or instrument which breach has resulted in or will
result in a Material Adverse Effect with respect to ML. Except
as set forth in the ML Disclosure Schedule, no party to any
material contract, plan, arrangement or instrument will have the
right to terminate any or all of the provisions of any such
contract, plan, arrangement or instrument as a result of the
transactions contemplated by this Agreement. Except as set forth
in the ML Disclosure Schedule, none of the employees (including
officers) of ML or any ML Subsidiary possess the right to
terminate their employment as a result of the execution of this
Agreement. Except as set forth in the ML Disclosure Schedule, no
plan, employment agreement, termination agreement, or similar
agreement or arrangement to which ML or any ML Subsidiary is a
party or under which ML or any ML Subsidiary may be liable
contains provisions which permit an employee or independent
contractor to terminate it without cause and continue to accrue
future benefits thereunder. Except as set forth in the ML
Disclosure Schedule, no such agreement, plan or arrangement
(x) provides for acceleration in the vesting of benefits or
payments due thereunder upon the occurrence of a change in
ownership or control of ML or any ML Subsidiary absent the
occurrence of a subsequent event; (y) provides for benefits which
may cause the disallowance of a federal income tax deduction
under IRC Section 280G; or (z) requires ML or any ML Subsidiary
to provide a benefit in the form of ML Common Stock or determined
by reference to the value of ML Common Stock.
Section 2.09 Ownership of Property; Insurance
Coverage.
(a) Except as disclosed in the ML Disclosure
Schedule, ML and the ML 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
ML or any ML 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 ML Regulatory Reports and in the
ML Financials or acquired subsequent thereto (except to the
extent that such assets and properties have been disposed of for
fair value, in the ordinary course of business, since the date of
such balance sheets), subject to no encumbrances, liens,
mortgages, security interests or pledges, except (i) those items
which secure repurchase agreements and liabilities for borrowed
money from a Federal Home Loan Bank, (ii) statutory liens for
amounts not yet delinquent or which are being contested in good
faith and (iii) items permitted under Article IV. ML and the ML
Subsidiaries, as lessee, have the right under valid and
subsisting leases of real and personal properties used by ML and
its Subsidiaries in the conduct of their businesses to occupy or
use all such properties as presently occupied and used by each of
them. Except as disclosed in the ML Disclosure Schedule, 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 ML Financials.
(b) With respect to all agreements pursuant to
which ML or any ML Subsidiary has purchased securities subject to
an agreement to resell, if any, ML or such ML Subsidiary, as the
case may be, has a valid, perfected first lien or security
interest in the securities or other collateral securing the
repurchase agreement, and the value of such collateral equals or
exceeds the amount of the debt secured thereby.
(c) ML and the ML Subsidiaries currently maintain
insurance considered by ML to be reasonable for their respective
operations and similar in scope and coverage to that maintained
by other businesses similarly engaged. Neither ML nor any ML
Subsidiary has received notice from any insurance carrier that
(i) such insurance will be cancelled or that coverage thereunder
will be reduced or eliminated, or (ii) premium costs with respect
to such policies of insurance will be substantially increased.
There are presently no material claims pending under such
policies of insurance and no notices have been given by ML or
Main Line Bank under such policies. All such insurance is valid
and enforceable and in full force and effect, and within the last
three years ML has received each type of insurance coverage for
which it has applied and during such periods has not been denied
indemnification for any material claims submitted under any of
its insurance policies.
Section 2.10 Legal Proceedings. Except as disclosed
in the ML Disclosure Schedule, neither ML nor any ML Subsidiary
is a party to any, and there are no pending or, to the best of
ML's knowledge, threatened legal, administrative, arbitration or
other proceedings, claims (whether asserted or unasserted),
actions or governmental investigations or inquiries of any nature
(i) against ML or any ML Subsidiary, (ii) to which ML or any ML
Subsidiary's assets are or may be subject, (iii) challenging the
validity or propriety of any of the transactions contemplated by
this Agreement, or (iv) which could adversely affect the ability
of ML to perform under this Agreement, except for any
proceedings, claims, actions, investigations or inquiries
referred to in clauses (i) or (ii) which, if adversely
determined, individually or in the aggregate, could not be
reasonably expected to have a Material Adverse Effect on ML.
Section 2.11 Compliance With Applicable Law.
(a) ML and ML Subsidiaries hold all licenses,
franchises, permits and authorizations necessary for the lawful
conduct of their businesses under, and have complied in all
material respects with, applicable laws, statutes, orders, rules
or regulations of any federal, state or local governmental
authority relating to them, other than where such failure to hold
or such noncompliance will neither result in a limitation in any
material respect on the conduct of their businesses nor otherwise
have a Material Adverse Effect on ML.
(b) Except as disclosed in the ML Disclosure
Schedule, neither ML nor any ML Subsidiary has received any
notification or communication from any Regulatory Authority
(i) asserting that ML or any ML Subsidiary is not in compliance
with any of the statutes, regulations or ordinances which such
Regulatory Authority enforces; (ii) threatening to revoke any
license, franchise, permit or governmental authorization which is
material to ML or any ML Subsidiary; (iii) requiring or
threatening to require ML or any ML Subsidiary, or indicating
that ML or any ML Subsidiary may be required, to enter into a
cease and desist order, agreement or memorandum of understanding
or any other agreement restricting or limiting, or purporting to
restrict or limit, in any manner the operations of ML or any ML
Subsidiary, including without limitation any restriction on the
payment of dividends; or (iv) directing, restricting or limiting,
or purporting to direct, restrict or limit, in any manner the
operations of ML or any ML Subsidiary, including without
limitation any restriction on the payment of dividends (any such
notice, communication, memorandum, agreement or order described
in this sentence is hereinafter referred to as a "Regulatory
Agreement"). Neither ML nor any ML Subsidiary has consented to
or entered into any Regulatory Agreement, except as heretofore
disclosed to Sovereign.
Section 2.12 ERISA. ML has previously delivered to
Sovereign true and complete copies of all employee pension
benefit plans within the meaning of ERISA Section 3(2), profit
sharing plans, stock purchase plans, deferred compensation and
supplemental income plans, supplemental executive retirement
plans, employment agreements, annual or long term incentive
plans, severance plans, policies and agreements, group insurance
plans, and all other employee welfare benefit plans within the
meaning of ERISA Section 3(1) (including vacation pay, sick
leave, short-term disability, long-term disability, and medical
plans) and all other employee benefit plans, policies, agreements
and arrangements, all of which are set forth in the ML Disclosure
Schedule, maintained or contributed to for the benefit of the
employees or former employees (including retired employees) and
any beneficiaries thereof or directors or former directors of ML
or any ML Subsidiary, together with (i) the most recent actuarial
(if any) and financial reports relating to those plans which
constitute "qualified plans" under IRC Section 401(a), (ii) the
most recent annual reports relating to such plans filed by them,
respectively, with any government agency, and (iii) all rulings
and determination letters which pertain to any such plans.
Neither ML, any ML Subsidiary nor any pension plan maintained by
ML or any ML Subsidiary, has incurred, directly or indirectly,
within the past six (6) years any liability under Title IV of
ERISA (including to the Pension Benefit Guaranty Corporation) or
to the IRS with respect to any pension plan qualified under IRC
Section 401(a) which liability has resulted in or will result in
a Material Adverse Effect with respect to ML, except liabilities
to the Pension Benefit Guaranty Corporation pursuant to ERISA
Section 4007, all of which have been fully paid, nor has any
reportable event under ERISA Section 4043 occurred with respect
to any such pension plan. With respect to each of such plans
that is subject to Title IV of ERISA, the present value of the
accrued benefits under such plan, based upon the actuarial
assumptions used for funding purposes in the plan's most recent
actuarial report did not, as of its latest valuation date, exceed
the then current value of the assets of such plan allocable to
such accrued benefits. Neither ML nor any ML Subsidiary has
incurred or is subject to any liability under ERISA Section 4201
for a complete or partial withdrawal from a multi-employer plan.
All "employee benefit plans," as defined in ERISA Section 3(3),
comply and within the past six (6) years have complied in all
material respects with (i) relevant provisions of ERISA and
(ii) in the case of plans intended to qualify for favorable
income tax treatment, provisions of the IRC relevant to such
treatment. No prohibited transaction (which shall mean any
transaction prohibited by ERISA Section 406 and not exempt under
ERISA Section 408 or any transaction prohibited under IRC
Section 4975) has occurred within the past six (6) years with
respect to any employee benefit plan maintained by ML or any ML
Subsidiary which would result in the imposition, directly or
indirectly, of an excise tax under IRC Section 4975 or other
penalty under ERISA or the IRC, which, individually or in the
aggregate, has resulted in or will result in a Material Adverse
Effect with respect to ML. ML and the ML Subsidiaries provide
continuation coverage under group health plans for separating
employees and "qualified beneficiaries" in accordance with the
provisions of IRC Section 4980B(f). Such group health plans are
in compliance with Section 1862(b)(1) of the Social Security Act.
Neither ML nor any ML Subsidiary is aware of any existing or
contemplated audit of any of its employee benefit plans by the
Internal Revenue Service or U.S. Department of Labor.
Section 2.13 Brokers, Finders and Financial Advisors.
Except for ML's engagement of Sandler O'Neill & Partners L.P. in
connection with the transactions contemplated by this Agreement,
neither ML nor any ML Subsidiary, nor any of their respective
officers, directors, employees or agents, has employed any
broker, finder or financial advisor in connection with the
transactions contemplated by this Agreement or in connection with
any transaction other than the Merger, or, except for its
commitments disclosed in the ML Disclosure Schedule, incurred any
liability or commitment for any fees or commissions to any such
person in connection with the transactions contemplated by this
Agreement or in connection with any transaction other than the
Merger, which has not been reflected in the ML Financials. The
ML Disclosure Schedule shall contain as an exhibit the engagement
letter between ML and Sandler O'Neill & Partners L.P.
Section 2.14 Environmental Matters. To the knowledge
of ML, neither ML nor any ML Subsidiary, nor any properties owned
or operated by ML or any ML Subsidiary has been or is in
violation of or liable under any Environmental Law which
violation or liability, individually or in the aggregate,
resulted in, or will result, in a Material Adverse Effect with
respect to ML. There are no actions, suits or proceedings, or
demands, claims, notices or investigations (including without
limitation notices, demand letters or requests for information
from any environmental agency) instituted or pending, or to the
knowledge of ML, threatened, relating to the liability of any
property owned or operated by ML or any ML Subsidiary under any
Environmental Law.
Section 2.15 Allowance for Loan Losses. The allowance
for loan losses reflected, and to be reflected, in the ML
Regulatory Reports, and shown, and to be shown, on the balance
sheets contained in the ML Financials have been, and will be,
established in accordance with the requirements of GAAP and all
applicable regulatory criteria.
Section 2.16 Information to be Supplied. The
information to be supplied by ML and Main Line Bank for inclusion
in the Registration Statement (including the Prospectus/Proxy
Statement) will not, at the time the Registration Statement is
declared effective pursuant to the Securities Act and as of the
date the Prospectus/Proxy Statement is mailed to shareholders of
Sovereign and ML and up to and including the date(s) of the
meetings of shareholders of Sovereign and ML to which such
Prospectus/Proxy Statement relates, contain any untrue statement
of a material fact or omit to state any material fact necessary
in order to make the statements therein not misleading. The
information supplied, or to be supplied, by ML for inclusion in
the Applications will, at the time such documents are filed with
any Regulatory Authority and up to and including the date(s) of
the obtainment of any required regulatory approvals or consents,
be accurate in all material aspects.
Section 2.17 Securities Documents. ML has delivered
to Sovereign copies of its (i) annual reports on SEC Form 10-K
for the years ended March 31, 1997, 1995 and 1994, (ii) a
quarterly report on SEC Form 10-Q for the quarter ended June 30,
1997, and (iii) proxy materials used in connection with its
meetings of shareholders held in 1997, 1996 and 1995. Such
reports and such proxy materials complied, at the time filed with
the SEC, in all material respects, with the Exchange Act and all
applicable rules and regulations of the SEC.
Section 2.88 Related Party Transactions. Except as
disclosed (i) in the ML Disclosure Schedule, (ii) in the ML proxy
statement dated June 13, 1997 or (iii) in the footnotes to the ML
Financials, ML 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 ML (except an
ML Subsidiary); and all such transactions (a) were made in the
ordinary course of business, (b) were made on substantially the
same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other
Persons, and (c) did not involve more than the normal risk of
collectability or present other unfavorable features. Except as
set forth on the ML Disclosure Schedule, no loan or credit
accommodation to any Affiliate of ML 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 ML nor Main Line 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 Main Line Bank is inappropriate.
Section 2.19 Loans. Each loan reflected as an asset
in the ML Financial Statements (i) is evidenced by notes,
agreements or other evidences of indebtedness which are true,
genuine and correct (ii) to the extent secured, has been secured
by valid liens and security interests which have been perfected,
and (ii) is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting
creditors' rights and to general equity principles, in each case
other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on ML.
Section 2.20 Accounting for the Merger;
Reorganization. As of the date hereof, ML does not have any
reason to believe that the Merger will fail to qualify (i) for
pooling-of-interests accounting treatment under GAAP, assuming
compliance by ML and Sovereign with the requirements of
Section 4.16 hereof, or (ii) as a reorganization under
Section 368(a) of the IRC.
Section 2.21 Fairness Opinion. ML has received a
written opinion from Sandler O'Neill & Partners L.P. to the
effect that, as of the date hereof, the consideration to be
received by shareholders of ML pursuant to this Agreement is
fair, from a financial point of view, to such shareholders.
Section 2.22 Quality of Representations. The
representations made by ML in this Agreement are true, correct
and complete in all material respects, and do not omit statements
necessary to make them not misleading under all facts and
circumstances.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOVEREIGN
Sovereign hereby represents and warrants to ML that,
except as set forth in the Sovereign Disclosure Schedule
delivered by Sovereign to ML on or prior to the date hereof:
Section 3.01 Organization.
(a) Sovereign is a corporation duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Sovereign is a savings and loan
holding company duly registered under the HOLA. Sovereign has
the corporate power and authority to carry on its business and
operations as now being conducted and to own and operate the
properties and assets now owned and being operated by it. Each
Sovereign Subsidiary is duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its
incorporation and each possesses full corporate power and
authority to carry on its respective business and to own, lease
and operate its properties as presently conducted. Neither
Sovereign nor any Sovereign Subsidiary is required by the conduct
of its business or the ownership or leasing of its assets to
qualify to do business as a foreign corporation in any
jurisdiction other than the Commonwealth of Pennsylvania and the
states of Delaware and New Jersey, except where the failure to be
so qualified would not have a Material Adverse Effect on
Sovereign.
(b) Sovereign Bank is a federal savings bank,
duly organized and validly existing under the laws of the United
States. Sovereign Bank has the corporate power and authority to
carry on its business and operations as now being conducted and
to own and operate the properties and assets now owned and being
operated by it.
(c) The deposits of Sovereign Bank are insured by
the FDIC to the extent provided in the FDIA.
(d) The respective minute books of Sovereign and
Sovereign Bank accurately record in all material respects all
material corporate action of their respective shareholders and
boards of directors (including committees).
(e) Prior to the execution of this Agreement,
Sovereign has delivered to ML true and correct copies of the
articles of incorporation and the bylaws of Sovereign and
Sovereign Bank, respectively, as in effect on the date hereof.
Section 3.02 Capital Structure.
(a) The authorized capital stock of Sovereign
consists of (a) 200,000,000 shares of common stock, no par value
("Sovereign Common Stock"), of which, at the date of this
Agreement, 12,319 shares were issued and held by Sovereign as
treasury stock and 88,071,493 shares are outstanding, validly
issued, fully paid and nonassessable, and (b) 7,500,000 shares of
preferred stock, no par value, of which, at the date of this
Agreement, 2,000,000 shares of 6-1/4% Cumulative, Convertible
Preferred Stock, Series B, are outstanding, validly issued, fully
paid and nonassessable. No shares of Sovereign Common Stock were
issued in violation of any preemptive rights. Sovereign has no
Rights authorized, issued or outstanding, other than (i) the
Sovereign Stock Purchase Rights, (ii) options to acquire
2,588,135 shares of Sovereign Common Stock under Sovereign's
stock option plans, including the non-employee directors
compensation plan, and (iii) pursuant to Sovereign's employee
stock ownership plan, employee stock purchase plan, and dividend
reinvestment and stock purchase plan. As of December 31, 1996,
Sovereign had approximately 8,500 shareholders of record.
(b) To the best of Sovereign's knowledge, except
as disclosed in Sovereign's proxy statement dated March 19, 1997,
no person or "group" (as that term is used in Section 13(d)(3) of
the Exchange Act) is the beneficial owner (as defined in
Section 13(d) of the Exchange Act) of 5% or more of the
outstanding shares of Sovereign Common Stock.
(c) Sovereign owns all of the capital stock of
Sovereign Bank, free and clear of any lien or encumbrance.
Except for the Sovereign Subsidiaries, Sovereign does not
possess, directly or indirectly, any material equity interest in
any corporation, except for equity interests held in the
investment portfolios of Sovereign Subsidiaries, equity interests
held by Sovereign Subsidiaries in a fiduciary capacity, and
equity interests held in connection with the commercial loan
activities of Sovereign Subsidiaries.
Section 3.03 Authority; No Violation.
(a) Sovereign has full corporate power and
authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. Sovereign Bank has full
corporate power and authority to execute and deliver the Bank
Plan of Merger and to consummate the Bank Merger. The execution
and delivery of this Agreement by Sovereign and the completion by
Sovereign of the transactions contemplated hereby have been duly
and validly approved by the Board of Directors of Sovereign and,
except for approval of the shareholders of Sovereign under Nasdaq
requirements applicable to it, no other corporate proceedings on
the part of Sovereign are necessary to complete the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by Sovereign and, subject to approval by
the shareholders of Sovereign under Nasdaq requirements
applicable to it and receipt of the required approvals of
Regulatory Authorities described in Section 3.04 hereof,
constitutes the valid and binding obligation of Sovereign,
enforceable against Sovereign in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity. The Bank Plan
of Merger, upon its execution and delivery by Sovereign Bank
concurrently with the execution and delivery of this Agreement,
will constitute the valid and binding obligation of Sovereign
Bank, enforceable against Sovereign Bank in accordance with its
terms, subject to applicable conservatorship and receivership
provisions of the FDIA, or insolvency and similar laws affecting
creditors' rights generally and subject, as to enforceability, to
general principles of equity.
(b) (A) The execution and delivery of this
Agreement by Sovereign, (B) the execution and delivery of the
Bank Plan of Merger by Sovereign Bank, (C) subject to receipt of
approvals from the Regulatory Authorities referred to in
Section 3.04 hereof and ML's and Sovereign's compliance with any
conditions contained therein, the consummation of the
transactions contemplated hereby, and (D) compliance by Sovereign
or Sovereign Bank with any of the terms or provisions hereof or
of the Bank Plan of Merger will not (i) conflict with or result
in a breach of any provision of the articles of incorporation or
other organizational document or bylaws of Sovereign or any
Sovereign Subsidiary; (ii) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction
applicable to Sovereign or any Sovereign Subsidiary or any of
their respective properties or assets; or (iii) violate, conflict
with, result in a breach of any provisions of, constitute a
default (or an event which, with notice or lapse of time, or
both, would constitute a default), under, result in the
termination of, accelerate the performance required by, or result
in a right of termination or acceleration or the creation of any
lien, security interest, charge or other encumbrance upon any of
the properties or assets of Sovereign or any Sovereign Subsidiary
under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease,
agreement or other investment or obligation to which Sovereign or
any Sovereign Subsidiary is a party, or by which they or any of
their respective properties or assets may be bound or affected,
except for such violations, conflicts, breaches or defaults under
clause (ii) or (iii) hereof which, either individually or in the
aggregate, will not have a Material Adverse Effect on Sovereign.
Section 3.04 Consents. Except for consents,
approvals, filings and registrations from or with the OTS, the
DOJ, the SEC, the PDS, the NASD and state "blue sky" authorities,
and compliance with any conditions contained therein, and the
approval of this Agreement by the shareholders of Sovereign in
accordance with Nasdaq requirements applicable to it, and the
approval of the Bank Plan of Merger by Sovereign as sole
shareholder of Sovereign Bank under the HOLA, and by the
Sovereign Bank Board of Directors, no consents or approvals of,
or filings or registrations with, any public body or authority
are necessary, and no consents or approvals of any third parties
are necessary, or will be, in connection with (a) the execution
and delivery of this Agreement by Sovereign or the Bank Plan of
Merger by Sovereign Bank, and (b) the completion by Sovereign of
the transactions contemplated hereby or by Sovereign Bank of the
Bank Merger. As of the date hereof, Sovereign has no reason to
believe that (i) any required consents or approvals will not be
received or will be received with conditions, limitations or
restrictions unacceptable to it or which would adversely impact
Sovereign's or Sovereign Bank's ability to complete the
transactions contemplated by this Agreement or that (ii) any
public body or authority, the consent or approval of which is not
required or any filing with which is not required, will object to
the completion of the transactions contemplated by this
Agreement.
Section 3.05 Financial Statements.
(a) Sovereign has made, or will make, the
Sovereign Regulatory Reports available to ML for inspection. The
Sovereign Regulatory Reports have been, or will be, prepared in
all material respects in accordance with applicable regulatory
accounting principles and practices throughout the periods
covered by such statements, and fairly present, or will fairly
present in all material respects, the financial position, results
of operations, and changes in shareholders' equity of Sovereign
as of and for the periods ended on the dates thereof, in
accordance with applicable regulatory accounting principles
applied on a consistent basis.
(b) Sovereign has previously delivered, or will
deliver, to ML the Sovereign Financials. The Sovereign
Financials have been, or will be, prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered
by such statements, except as noted therein, and fairly present,
or will fairly present, the consolidated financial position,
results of operations and cash flows of Sovereign as of and for
the periods ending on the dates thereof, in accordance with GAAP
applied on a consistent basis, except as noted therein.
(c) At the date of each balance sheet included in
the Sovereign Financials or Sovereign Regulatory Reports,
Sovereign did not have any liabilities, obligations or loss
contingencies of any nature (whether absolute, accrued,
contingent or otherwise) of a type required to be reflected in
such Sovereign Financials or Sovereign Regulatory Reports or in
the footnotes thereto which are not fully reflected or reserved
against therein or disclosed in a footnote thereto, except for
liabilities, obligations or loss contingencies which are not
material in the aggregate and which are incurred in the ordinary
course of business, consistent with past practice, and except for
liabilities, obligations or loss contingencies which are within
the subject matter of a specific representation and warranty
herein and subject, in the case of any unaudited statements, to
normal recurring audit adjustments and the absence of footnotes.
Section 3.06 Taxes. Sovereign and the Sovereign
Subsidiaries are members of the same affiliated group within the
meaning of IRC Section 1504(a). Sovereign has duly filed, and
will file, all federal, state and local tax returns required to
be filed by or with respect to Sovereign and all Sovereign
Subsidiaries on or prior to the Closing Date (all such returns
being accurate and correct in all material respects) and has duly
paid or will pay, or made or will make, provisions for the
payment of all federal, state and local taxes which have been
incurred by or are due or claimed to be due from Sovereign and
any Sovereign Subsidiary by any taxing authority or pursuant to
any tax sharing agreement or arrangement (written or oral) on or
prior to the Closing Date other than taxes which (i) are not
delinquent or (ii) are being contested in good faith.
Section 3.07 No Material Adverse Effect. Sovereign
has not suffered any Material Adverse Effect since June 30, 1997.
Section 3.08 Ownership of Property; Insurance
Coverage.
(a) Sovereign and the Sovereign Subsidiaries have
good and, as to real property, marketable title to all assets and
properties owned by Sovereign or any of its Subsidiaries in the
conduct of their businesses, whether such assets and properties
are real or personal, tangible or intangible, including assets
and property reflected in the balance sheets contained in the
Sovereign Regulatory Reports and in the Sovereign Financials or
acquired subsequent thereto (except to the extent that such
assets and properties have been disposed of for fair value, in
the ordinary course of business, since the date of such balance
sheets), subject to no encumbrances, liens, mortgages, security
interests or pledges, except (i) those items that secure
liabilities for borrowed money and that are described in the
Sovereign Disclosure Schedule or permitted under Article IV
hereof, and (ii) statutory liens for amounts not yet delinquent
or which are being contested in good faith. Sovereign and the
Sovereign Subsidiaries, as lessee, have the right under valid and
subsisting leases of real and personal properties used by
Sovereign and its Subsidiaries in the conduct of their businesses
to occupy and use all such properties as presently occupied and
used by each of them.
(b) Sovereign and the Sovereign Subsidiaries
currently maintain insurance in amounts considered by Sovereign
to be reasonable for their respective operations, and such
insurance is similar in scope and coverage to that maintained by
other businesses similarly engaged. Neither Sovereign nor any
Sovereign Subsidiary has received notice from any insurance
carrier that (i) such insurance will be cancelled or that
coverage thereunder will be reduced or eliminated or (ii) premium
costs with respect to such insurance will be substantially
increased.
Section 3.09 Legal Proceedings. Neither Sovereign nor
any Sovereign Subsidiary is a party to any, and there are no
pending or, to the best of Sovereign's knowledge, threatened
legal, administrative, arbitration or other proceedings, claims,
actions or governmental investigations or inquiries of any nature
(i) against Sovereign or any Sovereign Subsidiary, (ii) to which
Sovereign's or any Sovereign Subsidiary's assets are or may be
subject, (iii) challenging the validity or propriety of any of
the transactions contemplated by this Agreement, or (iv) which
could adversely affect the ability of Sovereign to perform under
this Agreement, except for any proceedings, claims, actions,
investigations or inquiries referred to in clauses (i) or (ii)
which, individually or in the aggregate, could not be reasonably
expected to have a Material Adverse Effect on Sovereign.
Section 3.10 Compliance With Applicable Law.
(a) Sovereign and the Sovereign Subsidiaries hold
all licenses, franchises, permits and authorizations necessary
for the lawful conduct of their businesses under, and have
complied in all material respects with, applicable laws,
statutes, orders, rules or regulations of any federal, state or
local governmental authority relating to them, other than where
such failure to hold or such noncompliance will neither result in
a limitation in any material respect on the conduct of their
businesses nor otherwise have a Material Adverse Effect on
Sovereign.
(b) Neither Sovereign nor any Sovereign
Subsidiary has received any notification or communication from
any Regulatory Authority (i) asserting that Sovereign or any
Sovereign Subsidiary is not in compliance with any of the
statutes, regulations or ordinances which such Regulatory
Authority enforces; (ii) threatening to revoke any license,
franchise, permit or governmental authorization which is material
to Sovereign or any Sovereign Subsidiary; (iii) requiring or
threatening to require Sovereign or any Sovereign Subsidiary, or
indicating that Sovereign or any Sovereign Subsidiary may be
required, to enter into a cease and desist order, agreement or
memorandum of understanding or any other agreement restricting or
limiting, or purporting to restrict or limit, in any manner the
operations of Sovereign or any Sovereign Subsidiary, including
without limitation any restriction on the payment of dividends;
or (iv) directing, restricting or limiting, or purporting to
direct, restrict or limit, in any manner the operations of
Sovereign or any Sovereign Subsidiary, including without
limitation any restriction on the payment of dividends (any such
notice, communication, memorandum, agreement or order described
in this sentence is hereinafter referred to as a "Regulatory
Agreement"). Neither Sovereign nor any Sovereign Subsidiary has
consented to or entered into any Regulatory Agreement, except as
heretofore disclosed to ML.
Section 3.11 Information to be Supplied. The
information to be supplied by Sovereign for inclusion in the
Registration Statement (including the Prospectus/Proxy Statement)
will not, at the time the Registration Statement is declared
effective pursuant to the Securities Act and as of the date the
Prospectus/Proxy Statement is mailed to shareholders of Sovereign
and ML and up to and including the date(s) of the meetings of
shareholders of Sovereign and ML to which such Prospectus/Proxy
Statement relates, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements therein not misleading. The information
supplied, or to be supplied, by Sovereign for inclusion in the
Applications will, at the time such documents are filed with any
Regulatory Authority and up to and including the date(s) of the
obtainment of any required regulatory approvals or consents, be
accurate in all material aspects.
Section 3.12 ERISA. Sovereign has previously made
available to ML true and complete copies of the employee pension
benefit plans within the meaning of ERISA Section 3(2), profit
sharing plans, stock purchase plans, deferred compensation and
supplemental income plans, supplemental executive retirement
plans, annual incentive plans, group insurance plans, and all
other employee welfare benefit plans within the meaning of ERISA
Section 3(1) (including vacation pay, sick leave, short-term
disability, long-term disability, and medical plans), and all
other employee benefit plans, policies, agreements and
arrangements, all of which are set forth on the Sovereign
Disclosure Schedule, maintained or contributed to for the benefit
of the employees or former employees (including retired
employees) and any beneficiaries thereof or directors or former
directors of Sovereign or any Sovereign Subsidiary, together with
(i) the most recent actuarial (if any) and financial reports
relating to those plans which constitute "qualified plans" under
IRC Section 401(a), (ii) the most recent annual reports relating
to such plans filed by them, respectively, with any government
agency, and (iii) all rulings and determination letters which
pertain to any such plans. Neither Sovereign nor any Sovereign
Subsidiary, and no pension plan maintained by Sovereign or any
Sovereign Subsidiary, has incurred, directly or indirectly,
within the past six (6) years any liability under Title IV of
ERISA (including to the Pension Benefit Guaranty Corporation) or
to the IRS with respect to any pension plan qualified under IRC
Section 401(a) which liability has resulted in or will result in
a Material Adverse Effect with respect to Sovereign, except
liabilities to the Pension Benefit Guaranty Corporation pursuant
to ERISA Section 4007, all of which have been fully paid, nor has
any reportable event under ERISA Section 4043 occurred with
respect to any such pension plan. With respect to each of such
plans that is subject to Title IV of ERISA, the present value of
the accrued benefits under such plan, based upon the actuarial
assumptions used for funding purposes in the plan's most recent
actuarial report did not, as of its latest valuation date, exceed
the then current value of the assets of such plan allocable to
such accrued benefits. Neither Sovereign nor any Sovereign
Subsidiary has incurred or is subject to any liability under
ERISA Section 4201 for a complete or partial withdrawal from a
multi-employer plan. All "employee benefit plans," as defined in
ERISA Section 3(3), comply and within the past six (6) years have
complied in all material respects with (i) relevant provisions of
ERISA, and (ii) in the case of plans intended to qualify for
favorable income tax treatment, provisions of the IRC relevant to
such treatment. No prohibited transaction (which shall mean any
transaction prohibited by ERISA Section 406 and not exempt under
ERISA Section 408 or any transaction prohibited under IRC
Section 4975) has occurred within the past six (6) years with
respect to any employee benefit plan maintained by Sovereign or
any Sovereign Subsidiary that would result in the imposition,
directly or indirectly, of an excise tax under IRC Section 4975
or other penalty under ERISA or the IRC, which individually or in
the aggregate, has resulted in or will result in a Material
Adverse Effect with respect to Sovereign. Sovereign and the
Sovereign Subsidiaries provide continuation coverage under group
health plans for separating employees and "qualified
beneficiaries" in accordance with the provisions of IRC Section
4980B(f). Such group health plans are in compliance with Section
1862(b)(1) of the Social Security Act.
Section 3.13 Securities Documents. Sovereign has
delivered to ML copies of its (i) annual reports on SEC Form 10-K
for the years ended December 31, 1996, 1995 and 1994,
(ii) quarterly reports on SEC Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997, (iii) current reports on SEC
Form 8-K dated February 5, 1997, February 6, 1997, February 13,
1997, March 18, 1997 and June 17, 1997 and (iv) proxy statement
dated March 19, 1997 used in connection with its annual meeting
of shareholders held in April 1997. Such reports and such proxy
materials complied, at the time filed with the SEC, in all
material respects, with the Exchange Act and the applicable rules
and regulations of the SEC.
Section 3.14 Environmental Matters. To the knowledge
of Sovereign, neither Sovereign nor any Sovereign Subsidiary, nor
any properties owned or operated by Sovereign or any Sovereign
Subsidiary has been or is in violation of or liable under any
Environmental Law which violation or liability, individually or
in the aggregate, resulted in or will result in a Material
Adverse Effect with respect to Sovereign. There are no actions,
suits or proceedings, or demands, claims, notices or
investigations (including without limitation notices, demand
letters or requests for information from any environmental
agency) instituted or pending, or to the knowledge of Sovereign,
threatened, relating to the liability of any property owned or
operated by Sovereign or any Sovereign Subsidiary under any
Environmental Law.
Section 3.15 Allowance for Loan Losses. The allowance
for loan losses reflected, and to be reflected, in the Sovereign
Regulatory Reports, and shown, and to be shown, on the balance
sheets contained in the Sovereign Financials have been, and will
be, established in accordance with the requirements of GAAP and
all applicable regulatory criteria.
Section 3.16 Brokers and Finders. In connection with
the transactions contemplated by this Agreement, neither
Sovereign nor any Sovereign Subsidiary, nor any of their
respective officers, directors, employees or agents, has employed
any broker, finder or financial advisor, or incurred any
liability for any fees or commissions to any such person, in
connection with the transactions contemplated by this Agreement.
Section 3.17 Loans. Each loan reflected as an asset
in the Sovereign Financial Statements (i) is evidenced by notes,
agreements or other evidences of indebtedness which are true,
genuine and correct (ii) to the extent secured, has been secured
by valid liens and security interests which have been perfected,
and (ii) is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting
creditors' rights and to general equity principles, in each case
other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on Sovereign.
Section 3.18 Accounting for the Merger;
Reorganization. As of the date hereof, Sovereign does not have
any reason to believe that the Merger will fail to qualify
(i) for pooling-of-interests treatment under GAAP, assuming
compliance by ML and Sovereign with the requirements of
Section 4.16 hereof, or (ii) as a reorganization under
Section 368(a) of the IRC.
Section 3.19 Quality of Representations. The
representations made by Sovereign in this Agreement are true,
correct and complete in all material respects and do not omit
statements necessary to make the representations not misleading
under the circumstances.
ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.01 Conduct of ML's Business.
(a) From the date of this Agreement to the
Closing Date, ML and each ML Subsidiary will conduct its business
and engage in transactions, including extensions of credit, only
in the ordinary course and consistent with past practice and
policies, except as otherwise required by this Agreement or with
the written consent of Sovereign. ML will use its reasonable
good faith efforts, and will cause Main Line Bank to use its
reasonable good faith efforts, to (i) preserve its business
organizations intact, (ii) maintain good relationships with
employees, and (iii) preserve for itself the good will of
customers of ML and ML Subsidiaries and others with whom business
relationships exist. From the date hereof to the Closing Date,
except as otherwise consented to or approved by Sovereign in
writing or as permitted or required by this Agreement, ML will
not, and ML will not permit any ML Subsidiary to:
(i) amend or change any provision of its
certificate or articles of incorporation, charter, or
bylaws;
(ii) except as required by Section 4.16,
change the number of authorized or issued shares of its
capital stock or issue or grant any option, warrant, call,
commitment, subscription, Right or agreement of any
character relating to its authorized or issued capital stock
or any securities convertible into shares of such stock, or
split, combine or reclassify any shares of capital stock, or
declare, set aside or pay any dividend or other distribution
in respect of capital stock, or redeem or otherwise acquire
any shares of capital stock, except that (A) ML may issue up
to an aggregate of 1,442,200 shares of ML Common Stock upon
the valid exercise of ML Options, (B) ML may issue shares of
ML Common Stock and options to purchase shares of ML Common
Stock in October 1997 to the extent required by the ML
Recognition and Retention Plan and the ML 1994 Stock Option
Plan, as set forth in Section 2.02 hereof, (C) ML may issue
shares of ML Common Stock pursuant to the Sovereign Option,
(D) ML may pay one regular quarterly cash dividend in the
calendar quarter ended December 31, 1997, not to exceed
$.10 per share of ML Common Stock outstanding; and
thereafter, ML may pay a quarterly cash dividend not to
exceed $.033 per share of ML Common Stock outstanding,
provided that if the shareholders of each of Sovereign and
ML have not approved the Merger prior to the end of any such
calendar quarter occurring after December 31, 1997, ML may
declare and pay an additional dividend equal to $.067 per
share of ML Common Stock outstanding for such quarter and
(E) ML Capital Trust I may make distributions on its 9.875%
Capital Securities in accordance with their terms. As
promptly as practicable following the date of this
Agreement, the Board of Directors of ML shall cause its
regular quarterly dividend record dates and payment dates to
be the same as Sovereign's regular quarterly dividend record
dates and payment dates for Sovereign Common Stock, and ML
shall not change its regular dividend payment dates and
record dates without prior written consent of Sovereign.
Nothing contained in this Section 4.01(ii) or in any other
Section of this Agreement shall be construed to permit ML
shareholders to receive two dividends either from ML or from
ML and Sovereign in any quarter or to deny or prohibit them
from receiving one dividend from ML or Sovereign in any
quarter. Nothing contained herein shall be deemed to affect
the ability of an ML Subsidiary to pay dividends on its
capital stock to ML subject to applicable regulatory
restrictions.
(iii) grant any severance or termination pay
(other than pursuant to written policies or written
agreements of ML or ML Subsidiaries in effect on the date
hereof and provided to Sovereign prior to the date hereof)
to, or enter into any new or amend any existing employment
agreement with, or increase the compensation of, any
employee, officer or director of ML or any ML Subsidiary,
except for routine periodic increases, individually and in
the aggregate, in accordance with past practice;
(iv) merge or consolidate ML or any ML
Subsidiary with any other corporation; sell or lease all or
any substantial portion of the assets or business of ML or
any ML Subsidiary; make any acquisition of all or any
substantial portion of the business or assets of any other
person, firm, association, corporation or business
organization other than in connection with the collection of
any loan or credit arrangement between any ML Subsidiary and
any other person; enter into a purchase and assumption
transaction with respect to deposits and liabilities; permit
the revocation or surrender by any ML Subsidiary of its
certificate of authority to maintain, or file an application
for the relocation of, any existing branch office, or file
an application for a certificate of authority to establish a
new branch office;
(v) sell or otherwise dispose of the capital
stock of Main Line Bank or sell or otherwise dispose of any
asset of ML or of any ML Subsidiary other than in the
ordinary course of business consistent with past practice;
subject any asset of ML or of any ML Subsidiary to a lien,
pledge, security interest or other encumbrance (other than
in connection with deposits, repurchase agreements, bankers
acceptances, "treasury tax and loan" accounts established in
the ordinary course of business and transactions in "federal
funds" and the satisfaction of legal requirements in the
exercise of trust powers) other than in the ordinary course
of business consistent with past practice; incur any
indebtedness for borrowed money (or guarantee any
indebtedness for borrowed money), except in the ordinary
course of business consistent with past practice;
(vi) take any action which would result in
any of the representations and warranties of ML set forth in
this Agreement becoming untrue as of any date after the date
hereof or in any of the conditions set forth in Article V
hereof not being satisfied, except in each case as may be
required by applicable law;
(vii) change any method, practice or
principle of accounting, except as may be required from time
to time by GAAP (without regard to any optional early
adoption date) or any Regulatory Authority responsible for
regulating ML or Main Line Bank;
(viii) waive, release, grant or transfer any
rights of value or modify or change in any material respect
any existing material agreement to which ML or any ML
Subsidiary is a party, other than in the ordinary course of
business consistent with past practice;
(ix) implement any pension, retirement,
profit sharing, bonus, welfare benefit or similar plan or
arrangement that was not in effect on the date of this
Agreement, or, except as required by law, materially amend
any existing plan or arrangement except to the extent such
amendments do not result in an increase in cost; provided,
however, that ML may contribute to the ML pension plan an
amount not to exceed the minimum amount required under ERISA
or the IRC only if (A) such amount is usual and ordinary,
consistent with past practice and (B) ML obtains an opinion
of legal counsel that the full amount of such contribution
will be deductible by ML for federal tax purposes;
(x) purchase any security for its investment
portfolio not rated "A" or higher by either Standard &
Poor's Corporation or Moody's Investor Services, Inc.;
(xi) amend or otherwise modify the
underwriting and other lending guidelines and policies of
Main Line Bank in effect as of the date hereof or otherwise
fail to conduct its lending activities in the ordinary
course of business consistent with past practice;
(xii) enter into, renew, extend or modify
any other transaction with any Affiliate, other than deposit
and loan transactions in the ordinary course of business and
which are in compliance with the requirements of applicable
laws and regulations;
(xiii) enter into any interest rate swap,
floor or cap or similar commitment, agreement or
arrangement;
(xiv) except for the execution of this
Agreement, take any action that would give rise to a right
of payment to any individual under any employment agreement;
(xv) take any action that would preclude the
Merger from qualifying (A) for pooling-of-interests
accounting treatment under GAAP or (B) as a reorganization
within the meaning of Section 368 of the IRC, provided,
however, that nothing contained herein shall limit the
ability of ML to comply with its obligations under the Stock
Option Agreement; or
(xvi) agree to do any of the foregoing.
For purposes of this Section 4.01, it shall not be
considered in the ordinary course of business for ML or any ML
Subsidiary to do any of the following: (i) make any capital
expenditure of $100,000 or more not disclosed on ML Disclosure
Schedule 4.01, without the prior written consent of Sovereign;
(ii) make any sale, assignment, transfer, pledge, hypothecation
or other disposition of any assets having a book or market value,
whichever is greater, in the aggregate in excess of $5,000,000,
other than pledges of assets to secure government deposits, to
exercise trust powers, sales of assets received in satisfaction
of debts previously contracted in the normal course of business,
issuance and sales of loans, or transactions in the investment
securities portfolio by ML or a ML Subsidiary or repurchase
agreements, in each case, in the ordinary course of business; or
(iii) undertake or enter any lease, contract or other commitment
for its account, other than in the normal course of providing
credit to customers as part of its banking business, involving a
payment by ML or any ML Subsidiary of more than $100,000
annually, or containing a material financial commitment and
extending beyond 12 months from the date hereof.
Section 4.02 Access; Confidentiality.
(a) From the date of this Agreement through the
Closing Date, ML or Sovereign, as the case may be, shall afford
to, and shall cause each ML Subsidiary or Sovereign Subsidiary to
afford to, the other party and its authorized agents and
representatives, complete access to their respective properties,
assets, books and records and personnel, at reasonable hours and
after reasonable notice; and the officers of ML and Sovereign
will furnish any person making such investigation on behalf of
the other party with such financial and operating data and other
information with respect to the businesses, properties, assets,
books and records and personnel as the person making such
investigation shall from time to time reasonably request.
(b) ML and Sovereign each agree to conduct such
investigation and discussions hereunder in a manner so as not to
interfere unreasonably with normal operations and customer and
employee relationships of the other party.
(c) In addition to the access permitted by
subparagraph (a) above, from the date of this Agreement through
the Closing Date, ML shall permit employees of Sovereign
reasonable access to and participation in matters relating to
problem loans, loan restructurings and loan work-outs of ML and
the ML Subsidiaries, provided that nothing contained in this
subparagraph shall be construed to grant Sovereign or any
Sovereign employee any decision-making authority with respect to
such matters. Sovereign shall have the right, however, at
Sovereign's expense, to cause ML or any ML Subsidiary to obtain
an appraisal by an independent third party experienced in such
matters, and mutually satisfactory to Sovereign and ML, of the
assets or property securing any loan made by ML or any ML
Subsidiary, with a principal balance of $1.0 million or more.
(d) All information furnished to Sovereign by ML
or by ML to Sovereign previously in connection with the
transactions contemplated by this Agreement or pursuant hereto
shall be held in confidence to the extent required by, and in
accordance with, the confidentiality agreements, dated August 20,
1997, between ML and Sovereign (the "Confidentiality
Agreements").
Section 4.03 Regulatory Matters and Consents.
(a) ML and Sovereign shall promptly prepare a
Prospectus/Proxy Statement to be mailed to their respective
shareholders in connection with the meetings of their respective
shareholders and transactions contemplated hereby, and to be
filed by Sovereign with the SEC in the Registration Statement,
which Prospectus/Proxy Statement shall conform to all applicable
legal requirements. Sovereign shall, as promptly as practicable
following the preparation thereof, file the Registration
Statement with the SEC and ML and Sovereign shall use all
reasonable efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable
after such filing. Sovereign will advise ML, promptly after
Sovereign receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order or
the suspension of the qualification of the shares of capital
stock issuable pursuant to the Registration Statement, or the
initiation or threat of any proceeding for any such purpose, or
of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information. Sovereign
shall use its reasonable best efforts to obtain, prior to the
effective date of the Registration Statement, all necessary state
securities laws or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement.
Sovereign will provide ML with as many copies of such
Registration Statement and all amendments thereto promptly upon
the filing thereof as ML may reasonably request.
(b) Sovereign and ML will prepare all
Applications to Regulatory Authorities and make all filings for,
and use their reasonable best efforts to obtain as promptly as
practicable after the date hereof, all necessary permits,
consents, approvals, waivers and authorizations of all Regulatory
Authorities necessary or advisable to consummate the transactions
contemplated by this Agreement.
(c) ML will furnish Sovereign with all
information concerning ML and ML Subsidiaries as may be
reasonably necessary or advisable in connection with the
Registration Statement and any Application or filing made by or
on behalf of Sovereign to any Regulatory Authority in connection
with the transactions contemplated by this Agreement and the Bank
Plan of Merger.
(d) Sovereign and ML shall have the right to
review in advance, and to the extent practicable each will
consult with the other on, all information which appears in any
filing made with or written materials submitted to the SEC, any
Regulatory Authority or any third party in connection with the
transactions contemplated by this Agreement and the Bank Plan of
Merger. In exercising the foregoing right, each of the parties
hereto shall act reasonably and as promptly as practicable. The
parties hereto agree that they will consult with each other with
respect to the obtaining of all permits, consents, approvals and
authorizations of the SEC, Regulatory Authorities and third
parties necessary or advisable to consummate the transactions
contemplated by this Agreement and the Bank Plan of Merger and
each party will keep the other apprised of the status of matters
relating to completion of the transactions contemplated hereby
and thereby.
(e) Sovereign will promptly furnish ML with
copies of all Applications and other written communications to,
or received by Sovereign or any Sovereign Subsidiary from, any
Regulatory Authority in respect of the transactions contemplated
hereby and the Bank Plan of Merger.
Section 4.04 Taking of Necessary Action. Sovereign
and ML shall each use its reasonable best efforts in good faith,
and each of them shall cause its Subsidiaries to use their
reasonable best efforts in good faith, to take or cause to be
taken all action necessary or desirable on its part so as to
permit completion of the Merger and the Bank Merger as soon as
practicable after the date hereof, including, without limitation,
(A) obtaining the consent or approval of each individual,
partnership, corporation, association or other business or
professional entity whose consent or approval is required or
desirable for consummation of the transactions contemplated
hereby (including assignment of leases without any change in
terms), provided that neither ML nor any ML Subsidiary shall
agree to make any payments or modifications to agreements in
connection therewith without the prior written consent of
Sovereign, and (B) requesting the delivery of appropriate
opinions, consents and letters from its counsel and independent
auditors. No party hereto shall take, or cause, or to the best
of its ability permit to be taken, any action that would
substantially impair the prospects of completing the Merger and
the Bank Merger pursuant to this Agreement and the Bank Plan of
Merger; provided that nothing herein contained shall preclude
Sovereign or ML or from exercising its rights under this
Agreement or the Stock Option Agreement.
Section 4.05 Indemnification; Insurance.
(a) In the event of any threatened or actual
claim, action, suit, proceeding or investigation, whether civil,
criminal or administrative, in which any person who is now, or
has been at any time prior to the date of this Agreement, or who
becomes prior to the Effective Date, a director or officer or
employee of ML or any of its Subsidiaries (the "Indemnified
Parties") is, or is threatened to be, made a party to a suit
based in whole or in part on, or arising in whole or in part out
of, or pertaining to (i) the fact that he is or was a director,
officer or employee of ML, any of the ML Subsidiaries or any of
their respective predecessors or (ii) this Agreement or any of
the transactions contemplated hereby, whether in any case
asserted or arising before or after the Effective Date, the
parties hereto agree to cooperate and use their best efforts to
defend against and respond thereto to the extent permitted by the
BCL and the Articles of Incorporation and Bylaws of ML. On or
after the Effective Date, Sovereign shall indemnify, defend and
hold harmless all prior and then-existing directors and officers
of ML or of any ML Subsidiary, against (i) all losses, claims,
damages, costs, expenses, liabilities or judgments or amounts
that are paid in settlement (with the prior approval of
Sovereign) of or in connection with any claim, action, suit,
proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is
or was a director, officer or employee of ML or any ML
Subsidiary, whether pertaining to any matter existing or
occurring at or prior to the Effective Date and whether asserted
or claimed prior to, or at or after, the Effective Date
("Indemnified Liabilities") and (ii) all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out
of, or pertaining to this Agreement or the transactions
contemplated hereby, to the same extent as such officer, director
or employee may be indemnified by ML or any ML Subsidiary as of
the date hereof including the right to advancement of expenses,
provided, however, that any such officer, director or employee of
ML or any ML Subsidiary may not be indemnified by Sovereign
and/or Sovereign Bank if such indemnification is prohibited by
applicable law.
(b) Sovereign shall maintain ML's existing
directors' and officers' liability insurance policy (or a policy
providing comparable coverage amounts on terms generally no less
favorable, including Sovereign's existing policy if it meets the
foregoing standard) covering persons who are currently covered by
such insurance for a period of five years after the Effective
Date; provided, however, that in no event shall Sovereign be
obligated to expend, in order to maintain or provide insurance
coverage pursuant to this Section 4.05(b), any amount per annum
in excess of 150% of the amount of the annual premiums paid as of
the date hereof by ML for such insurance (the "Maximum Amount").
If the amount of the annual premiums necessary to maintain or
procure such insurance coverage exceeds the Maximum Amount,
Sovereign shall use all reasonable efforts to maintain the most
advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to the Maximum Amount. In
the event that Sovereign acts as its own insurer for all of its
directors and officers with respect to matters typically covered
by a directors' and officers' liability insurance policy,
Sovereign's obligations under this Section 4.05(b) may be
satisfied by such self insurance, so long as its senior debt
ratings by Standard & Poor's Corporation and Moody's Investors
Services, Inc. are not lower than such ratings as of the date
hereof.
(c) In the event that Sovereign or any of its
respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger
or (ii) transfers all or substantially all of its properties and
assets to any Person, then, and in each such case the successors
and assigns of such entity shall assume the obligations set forth
in this Section 4.05.
Section 4.06 No Other Bids and Related Matters. So
long as this Agreement remains in effect, ML shall not and ML
shall not authorize or permit any of its directors, officers,
employees or agents, to directly or indirectly (i) respond to,
solicit, initiate or encourage any inquiries relating to, or the
making of any proposal which relates to, an Acquisition
Transaction (as defined below), (ii) recommend or endorse an
Acquisition Transaction, (iii) participate in any discussions or
negotiations regarding an Acquisition Transaction, (iv) provide
any third party (other than Sovereign or an affiliate of
Sovereign) with any nonpublic information in connection with any
inquiry or proposal relating to an Acquisition Transaction or
(v) enter into an agreement with any other party with respect to
an Acquisition Transaction. Notwithstanding the foregoing,
(i) for a period of 30 days after the date of this Agreement, the
Board of Directors of ML may respond to unsolicited inquiries
relating to an Acquisition Transaction or (ii) the Board of
Directors may recommend or endorse an Acquisition Transaction if,
after having consulted with and considered the written advice of
its financial advisers and outside counsel, it has determined in
good faith that the failure to do so would result in a reasonable
likelihood that the directors, under the BCL, have breached their
fiduciary duty. ML will immediately cease and cause to be
terminated any existing activities, discussions or negotiations
previously conducted with any parties other than Sovereign with
respect to any of the foregoing, and will take all actions
necessary or advisable to inform the appropriate individuals or
entities referred to in the first sentence hereof of the
obligations undertaken in this Section 4.06. ML will notify
Sovereign orally (within one day) and in writing (as promptly as
practicable) if any inquiries or proposals relating to an
Acquisition Transaction are received by, any such information is
requested from, or any such negotiations or discussions are
sought to be initiated or continued with, ML. As used in this
Agreement, "Acquisition Transaction" shall mean one of the
following transactions with a party other than Sovereign of an
affiliate of Sovereign (i) a merger or consolidation, or any
similar transaction, involving ML or an ML Subsidiary, (ii) a
purchase, lease or other acquisition of all or a substantial
portion of the assets or liabilities of ML or an ML Subsidiary or
(iii) a purchase or other acquisition (including by way of share
exchange, tender offer, exchange offer or otherwise) of a
substantial interest in any class or series of equity securities
of ML (other than as permitted by Section 4.01(a)(ii) hereof) or
an ML Subsidiary.
Section 4.07 Duty to Advise; Duty to Update Disclosure
Schedule. Each party shall promptly advise the other party of
any change or event having a Material Adverse Effect on it or
which it believes would or would be reasonably likely to cause or
constitute a material breach of any of its representations,
warranties or covenants set forth herein. Each party shall
update its respective Disclosure Schedule as promptly as
practicable after the occurrence of an event or fact which, if
such event or fact had occurred prior to the date of this
Agreement, would have been disclosed in such Disclosure Schedule.
The delivery of such updated Schedule shall not relieve a party
from any breach or violation of this Agreement and shall not have
any effect for the purposes of determining the satisfaction of
the condition set forth in Section 5.01(c) or 5.02(c) hereof, as
applicable.
Section 4.08 Conduct of Sovereign's Business.
(a) From the date of this Agreement to the
Closing Date, Sovereign will use its best efforts to (x) preserve
its business organizations intact, (y) maintain good
relationships with employees, and (z) preserve for itself the
goodwill of customers of Sovereign and Sovereign Subsidiaries and
others with whom business relationships exist.
(b) Except with the prior written consent of ML
or as expressly contemplated hereby, between the date hereof and
the Effective Date, Sovereign shall not, and shall cause each
Sovereign Subsidiary not to:
(i) declare, set aside, make or pay any
extraordinary cash dividend or other distribution of cash or
property in respect of the Sovereign Common Stock, except
for stock dividends and regular quarterly cash dividends,
provided, however, that nothing contained herein shall be
deemed to affect the ability of a Sovereign Subsidiary to
pay dividends on its capital stock to Sovereign;
(ii) amend its Articles of Incorporation or
equivalent document or Bylaws in a manner which would
adversely affect in any manner the terms of the Sovereign
Common Stock or the ability of Sovereign or Sovereign Bank
to consummate the transactions contemplated hereby;
(iii) take any action that would preclude
the Merger from qualifying (A) for pooling-of-interests
accounting treatment under GAAP or (B) as a reorganization
within the meaning of Section 368 of the IRC; provided,
however, that nothing contained herein shall limit the
ability of Sovereign to exercise its rights under the Stock
Option Agreement;
(iv) take any action which would result in
any of the representations and warranties of Sovereign
contained in this Agreement becoming untrue as of any date
after the date hereof or in any of the conditions set forth
in Article V hereof not being satisfied, except in each case
as may be required by applicable law; or
(v) agree to do any of the foregoing.
Section 4.09 Current Information.
(a) During the period from the date of this
Agreement to the Effective Date, each party shall, upon the
request of the other party, cause one or more of its designated
representatives to confer on a monthly or more frequent basis
with representatives of the other party regarding its financial
condition, operations and business and matters relating to the
completion of the transactions contemplated hereby. As soon as
reasonably available, but in no event more than 45 days after the
end of each calendar quarter ending after the date of this
Agreement (other than the last quarter of each fiscal year ending
December 31 in the case of Sovereign and March 31 in the case of
ML), ML and Sovereign will deliver to the other party its
quarterly report on Form 10-Q under the Exchange Act, and, as
soon as reasonably available, but in no event more than 90 days
after the end of each fiscal year ended December 31 in the case
of Sovereign and March 31 in the case of ML, ML and Sovereign
will deliver to the other party its Annual Report on Form 10-K.
Within 25 days after the end of each month, ML and Sovereign will
deliver to the other party a consolidated balance sheet and a
consolidated statement of operations, without related notes, for
such month.
9.W Each party shall provide to the other party a
copy of the minutes of any meeting of the Board of Directors of
such party or any Subsidiary thereof, or any committee thereof,
or any senior management committee, promptly after such minutes
are approved at a subsequent meeting of the board or committee,
but in any event within 40 days of the meeting of such board or
committee to which such minutes relate, except that with respect
to any meeting held within 30 days of the Closing Date, such
minutes shall be provided prior to the Closing Date.
Section 4.10 Undertakings by Sovereign and ML.
(a) From and after the date of this Agreement, ML
shall:
(i) Phase I Environmental Audit. Permit
Sovereign, if Sovereign elects to do so, at its own expense,
to cause a "phase I environmental audit" to be performed at
any physical location owned or occupied by ML or any ML
Subsidiary on the date hereof;
(ii) Approval of Bank Plan of Merger.
Approve the Bank Plan of Merger as sole shareholder of Main
Line Bank and obtain the approval of, and cause the
execution and delivery of, the Bank Plan of Merger by Main
Line Bank;
(iii) Timely Review. If requested by
Sovereign at Sovereign's sole expense, cause its independent
certified public accountants to perform a review of its
unaudited consolidated financial statements as of the end of
any calendar quarter, in accordance with Statement of
Auditing Standards No. 36, and to issue its report on such
financial statements as soon as is practicable thereafter;
(iv) Outside Service Bureau Contracts. If
requested to do so by Sovereign, use its reasonable best
efforts to obtain an extension of any contract with an
outside service bureau or other vendor of services to ML or
any ML Subsidiary, on terms and conditions mutually
acceptable to ML and Sovereign;
(v) List of Nonperforming Assets. Provide
Sovereign, within fifteen (15) days after the quarterly
meeting of its Asset Review Committee, a written list of
nonperforming assets as of the end of such month; and
(vi) Reserves and Merger-Related Costs. On
or before the Effective Date, establish such additional
accruals and reserves as may be necessary to conform the
accounting reserve practices and methods (including credit
loss practices and methods) of ML to those of Sovereign (as
such practices and methods are to be applied to ML from and
after the Closing Date) and Sovereign's plans with respect
to the conduct of the business of ML following the Merger
and otherwise to reflect Merger-related expenses and costs
incurred by ML, provided, however, that ML shall not be
required to take such action (A) more than five (5) days
prior to the Effective Date; and (B) unless Sovereign agrees
in writing that all conditions to closing set forth in
Section 5.02 have been satisfied or waived (except for the
expiration of any applicable waiting periods); prior to the
delivery by Sovereign of the writing referred to in the
preceding clause, ML shall provide Sovereign a written
statement, certified without personal liability by the chief
executive officer of ML and dated the date of such writing,
that the representation made in Section 2.15 hereof is true
as of such date or, alternatively, setting forth in detail
the circumstances that prevent such representation from
being true as of such date. No accrual or reserve made by
ML or any ML Subsidiary pursuant to this subsection, or any
litigation or regulatory proceeding arising out of any such
accrual or reserve, shall constitute or be deemed to be a
breach or violation of any representation, warranty,
covenant, condition or other provision of this Agreement or
to constitute a termination event within the meaning of
Section 6.01(d) hereof.
(b) From and after the date of this Agreement,
Sovereign and ML shall each:
(i) Shareholders Meetings. Each of ML and
Sovereign shall take all action necessary to properly call
and convene a special meeting of its shareholders as soon as
practicable after the date hereof to consider and vote upon
this Agreement and the transactions contemplated hereby.
The Board of Directors of ML and the Board of Directors of
Sovereign will recommend that the shareholders of ML and
Sovereign, respectively, approve this Agreement and the
transactions contemplated hereby, provided that the Board of
Directors of ML or the Board of Directors of Sovereign may
fail to make such recommendation, or withdraw, modify or
change any such recommendation, if such Board of Directors,
after having consulted with and considered the written
advice of its financial advisers and outside counsel, has
determined that the making of such recommendation, or the
failure to withdraw, modify or change such recommendation,
would result in a reasonable likelihood that the directors,
under the BCL, have breached their fiduciary duty. If
required by the other party, a party shall retain a proxy
solicitor in connection with the solicitation of the
approval of its shareholders of this Agreement and the
transactions contemplated hereby.
(ii) Public Announcements. Cooperate and
cause its respective officers, directors, employees and
agents to cooperate in good faith, consistent with their
respective legal obligations, in the preparation and
distribution of, and agree upon the form and substance of,
any press release related to this Agreement and the
transactions contemplated hereby, and any other public
disclosures related thereto, including without limitation,
communications to ML shareholders and ML's internal
announcements and customer disclosures, but nothing
contained herein shall prohibit either party from making any
disclosure which its counsel deems necessary under
applicable law;
(iii) Maintenance of Insurance. Maintain,
and cause their respective Subsidiaries to maintain,
insurance in such amounts as are reasonable to cover such
risks as are customary in relation to the character and
location of its properties and the nature of its business;
(iv) Maintenance of Books and Records.
Maintain, and cause their respective Subsidiaries to
maintain, books of account and records in accordance with
GAAP applied on a basis consistent with those principles
used in preparing the financial statements heretofore
delivered;
(v) Delivery of Securities Documents.
Deliver to the other, copies of all Securities Documents
simultaneously with the filing thereof; and
(vi) Taxes. File all federal, state, and
local tax returns required to be filed by them or their
respective Subsidiaries on or before the date such returns
are due (including any extensions) and pay all taxes shown
to be due on such returns on or before the date such payment
is due.
Section 4.11 Employee Benefits and Termination
Benefits.
(a) Employee Benefits. On and after the
Effective Date, the employee pension and welfare benefit plans of
Sovereign and ML (as well as any other plan of ML providing for
benefits not subject to ERISA) may, at Sovereign's election and
subject to the requirements of the IRC, continue to be maintained
separately or consolidated, except as set forth below. In
connection with implementation of the foregoing, the following
provisions and guidelines shall apply:
(i) Sovereign Employee Stock Ownership Plan
("ESOP"). Employees of ML and ML Subsidiaries who become
employees of Sovereign or a Sovereign Subsidiary shall
become entitled to participate in the Sovereign ESOP in
accordance with its terms by treating them as newly employed
individuals without any prior service credit under such
plan.
(ii) ML ESOP.
(A) Each participant in the ML Employee
Stock Ownership Plan ("ML ESOP") not fully vested will,
in accordance with the terms of the ML ESOP, become
fully vested in his or her ML ESOP account as of the
Effective Date. As soon as practicable after the
execution of this Agreement, ML, Main Line Bank and
Sovereign will cooperate to cause the ML ESOP to be
amended and other action taken, in a manner reasonably
acceptable to ML and Sovereign, to provide that the ML
ESOP will terminate upon the Effective Date. Between
the date hereof and the Effective Date, the existing ML
ESOP indebtedness shall be paid in the ordinary course
of business and ML or Main Line Bank shall make such
contributions to the ML ESOP as necessary to fund such
payments. Any indebtedness of the ML ESOP remaining as
of the Effective Date shall be repaid from the Trust
associated with the ML ESOP through application or sale
of the Sovereign Common Stock received by the ML ESOP;
provided, however, that (i) any related sale or
distribution of shares by the ML ESOP shall be effected
in accordance with the requirements of federal and any
applicable state securities laws and regulations,
including any rules of the NASD, (ii) any related sale
or distribution of shares by the ML ESOP and any
participant shall be effected in such a manner (and
with such safeguards as may be necessary or
appropriate) so as not to jeopardize the intended
"pooling of interests" accounting treatment of the
Merger, and (iii) all distributions from the ML ESOP
after the Effective Date shall be in shares of
Sovereign Common Stock. Upon the repayment of the ML
ESOP loan, the remaining funds in the ML ESOP suspense
account will be allocated (to the extent permitted by
Sections 401(a), 415 or 4975 of the IRC and the
applicable laws and regulations including, without
limitation, the applicable provisions of ERISA) to ML
ESOP participants (as determined under the terms of the
ML ESOP). ML and Sovereign agree that, subject to the
conditions described herein, as soon as practicable
after the Effective Date and repayment of the ML ESOP
loan, participants in the ML ESOP shall be entitled at
their election to have the amounts in their ML ESOP
accounts either distributed to them in a lump sum or
rolled over to another tax-qualified plan (including
Sovereign plans to the extent permitted by Sovereign)
or individual retirement account.
(B) The actions relating to termination
of the ML ESOP will be adopted conditioned upon the
consummation of the Merger and upon receiving a
favorable determination letter from the Internal
Revenue Service ("IRS") with regard to the continued
qualification of the ML ESOP after any required
amendments. ML and Sovereign will cooperate in
submitting appropriate requests for any such
determination letter to the IRS and will use their best
efforts to seek the issuance of such letter as soon as
practicable following the date hereof. ML and
Sovereign will adopt such additional amendments to the
ML ESOP as may be reasonably required by the IRS as a
condition to granting such determination letter,
provided that such amendments do not (i) substantially
change the terms outlined herein, (ii) have a Material
Adverse Effect on ML or (iii) result in an additional
material liability to Sovereign.
(C) As of and following the Effective
Date, Sovereign shall cause the ML ESOP to be
maintained for the exclusive benefit of employees and
other persons who were participants or beneficiaries
therein prior to the Effective Date and proceed with
termination of the ML ESOP through distribution of its
assets in accordance with its terms subject to the
amendments described herein and as otherwise may be
required to comply with applicable law or to obtain a
favorable determination from the IRS as to the
continuing qualified status of the ML ESOP, provided,
however, that no such termination distributions of the
ML ESOP shall occur after the Effective Date until a
favorable termination letter has been received from the
IRS.
(iii) Sovereign Defined Benefit Pension Plan
("DB Plan"). Employees of ML and ML Subsidiaries who become
employees of Sovereign or a Sovereign Subsidiary shall
become entitled to participate in Sovereign's DB Plan in
accordance with its terms. In this regard, each such
employee shall (A) receive, for purposes of participation
and vesting only, credit for all service with ML or an ML
Subsidiary credited to each such employee under ML's DB Plan
as of the date of its termination or cessation of accrual of
benefits, and (B) enter the Sovereign DB Plan on the entry
date concurrent with or next following the employee's
satisfaction of such plan's minimum participation
requirements.
7889 ML DB Plan. ML may proceed with the
presently contemplated termination and/or cessation of the
accrual of benefits under its DB Plan and allocation of
excess benefits and Sovereign shall take no action
inconsistent therewith if the DB Plan is not terminated and
allocation of excess benefits thereunder are not completed
prior to the Effective Date, it being the intention of the
parties that such actions be taken after the Effective Date
under such circumstances. No termination or cessation
distribution shall be made until ML or Sovereign has
received a favorable determination letter from the IRS.
(v) Sovereign 401(k) Retirement Savings Plan
("401(k) Plan"). Employees of ML and ML Subsidiaries who
become employees of Sovereign or a Sovereign Subsidiary
shall become entitled to participate in the Sovereign 401(k)
Plan in accordance with its terms. In this regard, each
such employee shall (A) receive, for purposes of
participation and vesting only, credit for all service with
ML or an ML Subsidiary credited to each such employee under
ML's 401(k) Plan as of the date of the date of the Merger,
and (B) enter the Sovereign 401(k) Plan on the entry date
concurrent with or next following the employee's
satisfaction of such plan's minimum participation
requirements.
(vi) ML Savings Plan ("401(k) Plan").
Following the Merger, Sovereign will initially continue to
maintain ML's 401(k) Plan until its participants generally
become eligible to participate in the Sovereign 401(k) Plan.
Thereafter, Sovereign shall have the right, but not the
obligation, to combine the two plans on such terms as it
deems appropriate and in accordance with applicable law.
(vii) Sovereign and ML Nonqualified Deferred
Compensation Plans ("Excess Benefit Plans"). Following the
Merger, Sovereign will, as soon as administratively
feasible, consolidate the Excess Benefit Plans maintained by
Sovereign and ML to supplement certain pension benefits lost
by some employees by reason of limitations contained in the
IRC. Such consolidation shall be effected in such a manner
that no person receive redundant benefits or lose existing
benefits. The intent of the preceding sentence is that
affected employees of ML and ML Subsidiaries generally shall
be entitled only to the sum of (A) the benefits accrued
under the ML Excess Benefit Plan(s) as of the plan
consolidation, and (B) the benefits accrued thereafter under
the combined Excess Benefit Plan.
(viii) ML Recognition and Retention Plan
("RRP"). The RRP shall continue in effect following the
Effective Date as a Sovereign plan. No action shall be
taken that would adversely affect the rights of plan
participants who hold outstanding grants or awards of shares
of ML Common Stock, whether before or after the Effective
Date. Except as expressly permitted by this Agreement, no
further grants or awards shall be made under the RRP
following the date of this Agreement. Any shares of ML
Common Stock outstanding under such Plan's related trust,
but not subject to a grant or award, shall be converted into
Sovereign Common Stock as of the Effective Date.
(ix) Welfare Benefit Plans. Following the
Merger, the welfare benefit plans of Sovereign and ML (and
their respective subsidiaries) shall initially remain
unchanged. Sovereign shall undertake a study, in
consultation with appropriate professional advisors, with a
view toward the possible combination of some or all of such
plans or the benefits provided thereunder. Following such
study, Sovereign shall take such action with respect to such
plans (which may include the implementation of new benefits,
reduction or elimination of some benefits, and the
alteration of the respective cost allocation between
employer and employee) as it deems appropriate under the
circumstances.
(x) ML Bonus Plans and Arrangements. ML may
continue to administer such bonus programs and arrangements
as are disclosed pursuant to this Agreement through the
Effective Date, with such equitable modifications as may be
appropriate to take into account the circumstances of the
Merger and the timing thereof. In the event the Merger
shall occur after such current fiscal year, bonuses shall be
provided on a pro rata basis with respect to the interim
period; provided, however, that bonuses for such interim
period, in the aggregate, shall not exceed $200,000.
(xi) Employer Loan Program. Prior to
consummation of the Merger, Main Line Bank may continue to
originate loans pursuant to its employee loan program in
effect as of the date hereof, as disclosed pursuant to this
Agreement, and upon consummation of the Bank Merger,
Sovereign agrees to cause Sovereign Bank to honor all of the
loans originated by Main Line Bank pursuant to such employee
loan program or its predecessors.
(xii) Other ML Plans. From the date of this
Agreement through the Effective Date of the Merger, without
the prior written consent of Sovereign and except as
otherwise expressly permitted by this Agreement, no further
benefits, grants or awards shall be made available under any
other ML plans to employees or directors, including, without
limitation, the granting of stock options, stock
appreciation rights, restricted stock, and performance
shares.
(b) Severance Policy. Sovereign agrees to cause
Sovereign Bank to provide the severance pay and benefits
specified in the Main Line Bank severance policy to any employee
of Main Line Bank whose employment is terminated in connection
with the Merger within three (3) months of the Effective Date,
either because such employee's position is eliminated or such
employee is not offered comparable employment (i.e., not offered
employment for a position of generally similar job description or
responsibilities in a location within 65 miles from ML's
headquarters), excluding any employee who has an existing
employment or special termination agreement or whose employment
is terminated for Cause (as defined below). For purposes of this
Section 4.11(b), "Cause" shall mean termination because of the
employee's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties or willful violation of any law,
rule or regulation (other than traffic violations or similar
offenses). The benefits provided to terminated ML and Main Line
Bank employees under this subsection are the only severance
benefits payable by ML or Main Line Bank under any plan or policy
(excluding severance benefits provided under existing employment
or special termination agreements or as otherwise required by
law) and shall be in lieu of any termination benefits to which
such employees would otherwise be entitled under Sovereign's or
Sovereign Bank's severance policies or programs then in effect.
ML shall amend its severance policy, to the extent reasonably
necessary, so that the effect of its administration shall not be
in conflict with the provisions of this Agreement, including,
without limitation, provisions relating to bonuses and out-
placement services.
(c) Intention Regarding Future Employment.
Within ninety (90) days of the date hereof, Sovereign and
Sovereign Bank shall use their reasonable best efforts to inform
the employees of ML and Main Line Bank of the likelihood of such
employees having continued employment with Sovereign Bank
following the Effective Date and, where appropriate, shall use
their reasonable best efforts to interview the ML and Main Line
Bank employees to determine if there are mutually beneficial
employment opportunities available at Sovereign Bank. It is the
intent of Sovereign Bank in connection with reviewing applicants
for employment positions to give any Main Line Bank employee who
is terminated in connection with the Merger within three (3)
months of the Effective Date the same consideration as is
afforded Sovereign Bank employees for such positions in
accordance with existing formal or informal polices for a period
of three (3) months from such date of termination.
(d) Employment and Other Contracts. Sovereign
agrees to honor all employment contracts, consulting contracts
and other special termination agreements that ML and the ML
Subsidiaries have with their current or former employees and
which have been disclosed to Sovereign pursuant to this
Agreement.
(e) Retention Bonuses. Each employee of ML or
one of the ML Subsidiaries identified in the ML Disclosure
Schedule shall be entitled to receive a "retention" bonus from ML
or Main Line Bank equal to no more than six (6) months of such
employee's annual base salary as of the date of this Agreement in
the event that such employee remains an employee of ML or one of
the ML Subsidiaries, as applicable, until the Effective Date (or
in certain cases, the date the systems conversion occurs after
the Effective Date) and satisfactorily fulfills the duties and
responsibilities of the position of such employee of ML or one of
the ML Subsidiaries, as the case may be, through the Effective
Date; provided that retention bonuses, in the aggregate, shall
not exceed $350,000.
(f) Out-Placement. Sovereign shall pay the cost
of out-placement services for employees who are terminated
without Cause (as defined in Section 4.11(b)) in connection with
the Merger within three (3) months after the Effective Date.
Sovereign shall not be obligated to pay any out-placement fees in
connection with the foregoing or more than $50,000 in the
aggregate for such services.
Section 4.12 Stock Exchange Listing. Sovereign shall
use all reasonable efforts to cause the shares of Sovereign
Common Stock to be issued in connection with the Merger to be
approved for quotation on the Nasdaq Stock Market's National
Market, subject to official notice of issuance, as of or prior to
the Effective Date.
Section 4.13 Affiliate Letters.
(a) Each party has provided to the other party a
schedule of each person that, to the best of its knowledge, is
deemed to be an "Affiliate" of it, as that term is used in Rule
145 under the Securities Act or Accounting Series Releases 130
and 135 of the Commission.
(b) Each of ML and Sovereign shall use its
reasonable best efforts to cause each person who may be deemed to
be an Affiliate of ML and Sovereign respectively, to execute and
deliver to Sovereign as soon as practicable after the date of
this Agreement, and in any event prior to the date of the
meetings of shareholders of ML and Sovereign to be called
pursuant to Section 4.10(b)(i) hereof, a written agreement in the
form of Exhibit 1-A and 1-B in the case of Affiliates of ML and
Sovereign, respectively.
Section 4.14 Directors and Officers.
(a) Effective as of the effective date of the
Bank Merger, Sovereign shall cause Sovereign Bank to elect or
appoint Dennis S. Marlo as President of the Pennsylvania Division
of Sovereign Bank, which shall consist of all Pennsylvania and
Delaware branches of Sovereign Bank existing at the Effective
Date.
(b) Sovereign and Sovereign Bank shall use their
reasonable best efforts to enter into a new employment agreement
with Dennis S. Marlo substantially in the form set forth in the
ML Disclosure Schedule, with such other changes thereto as may be
mutually agreed upon by Sovereign, Sovereign Bank and Mr. Marlo,
effective as of the effective date of the Bank Merger.
(c) On the effective date of the Bank Merger, the
directors of Sovereign Bank, as the surviving institution in the
Bank Merger, shall consist of (i) those persons holding such
office immediately prior to the effective date of the Bank Merger
and (ii) Dennis S. Marlo, who shall be appointed as a director of
Sovereign Bank effective as of the effective date of the Bank
Merger. Mr. Marlo shall be appointed to hold office until the
1999 annual reorganization meeting of the Board of Directors of
Sovereign Bank and until his successor is elected and qualified.
Sovereign agrees to cause Mr. Marlo, so long as he remains an
active employee of Sovereign or Sovereign Bank, to be renominated
as a director of Sovereign Bank for election at the 1999 and 2000
annual reorganization meetings of the Board of Directors of
Sovereign Bank and agrees to vote its shares of Sovereign Bank in
favor of such election at such meetings.
(d) On the effective date of the Bank Merger, the
officers of Sovereign Bank shall be (i) the officers of Sovereign
Bank, as the surviving corporation in the Bank Merger,
immediately prior to such effective date, and (ii) Dennis S.
Marlo, who shall be appointed as President of the Pennsylvania
Division of Sovereign Bank effective as of the effective date of
the Bank Merger.
(e) On the Effective Date, Sovereign Bank shall
establish for a period of at least two years the Pennsylvania
Division of Sovereign Bank Advisory Board (the "Advisory
Board"), which shall consist of all non-employee members of the
ML Board of Directors immediately prior to the Effective Date.
The members of the Advisory Board shall be paid an annual
retainer of $18,750 ($25,000 in the case of John Eppinger).
Section 4.15 Sovereign Rights Agreement. Sovereign
agrees that any Sovereign Rights issued pursuant to the Sovereign
Rights Agreement shall be issued with respect to each share of
Sovereign Common Stock issued pursuant to the terms hereof
regardless whether there has occurred a "Distribution Date" under
the terms of such Sovereign Rights Agreement prior to the
Effective Date, as well as to take all action necessary or
advisable to enable the holder of each such share of Sovereign
Common Stock to obtain the benefit of such Sovereign Stock
Purchase Rights notwithstanding their prior distribution,
including without limitation, amendment of the Sovereign Rights
Agreement.
Section 4.16 ML Share Issuance. After ML and
Sovereign shareholder approval of the Merger and prior to the
Effective Date, ML shall use its reasonable best efforts to offer
and sell for fair value to individuals or entities unaffiliated
with ML and Sovereign such number of shares of ML Common Stock as
shall be sufficient, in the opinion of Sovereign's and ML's
independent accountants, require the Merger to be accepted for as
a pooling-of-interests under GAAP. ML shall consult with
Sovereign with respect to the amount of shares to be sold and the
timing and manner of such sale, which may involve placement
agents or, with Sovereign's consent, underwriters. If Sovereign
receives from its independent certified public accountants
written advice that ML cannot sell a sufficient number of shares
to satisfy the requirements of this Section, then Sovereign, to
ensure that the Merger will not fail to qualify for pooling-of-
interests accounting treatment, whether in conjunction with the
aforementioned ML share issuance or otherwise, shall use its
reasonable best efforts to offer and sell for fair value to
individuals or entities unaffiliated with ML and Sovereign all or
part of the shares of ML Common Stock held by it if such offer
and sale would ensure that the Merger will not fail to qualify
for pooling-of-interests accounting treatment.
ARTICLE V
CONDITIONS
Section 5.01 Conditions to ML's Obligations under this
Agreement. The obligations of ML hereunder shall be subject to
satisfaction at or prior to the Closing Date of each of the
following conditions, unless waived by ML pursuant to
Section 7.03 hereof:
(a) Corporate Proceedings. All action required
to be taken by, or on the part of, Sovereign and Sovereign Bank
to authorize the execution, delivery and performance of this
Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement
and the Bank Plan of Merger, shall have been duly and validly
taken by Sovereign and Sovereign Bank; and ML shall have received
certified copies of the resolutions evidencing such
authorizations;
(b) Covenants. The obligations and covenants of
Sovereign required by this Agreement to be performed by Sovereign
at or prior to the Closing Date shall have been duly performed
and complied with in all material respects;
(c) Representations and Warranties. The
representations and warranties of Sovereign set forth in this
Agreement shall be true and correct, as of the date of this
Agreement, and as of the Closing Date as though made on and as of
the Closing Date, except as to any representation or warranty
(i) which specifically relates to an earlier date or (ii) where
the breach of the representation or warranty would not, either
individually or in the aggregate, constitute a Material Adverse
Effect with respect to Sovereign;
(d) Approvals of Regulatory Authorities.
Sovereign shall have received all required approvals of
Regulatory Authorities of the Merger, and delivered copies
thereof to ML; and all notice and waiting periods required
thereunder shall have expired or been terminated;
(e) No Injunction. There shall not be in effect
any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby;
(f) Officer's Certificate. Sovereign shall have
delivered to ML a certificate, dated the Closing Date and signed,
without personal liability, by its chairman or president, to the
effect that the conditions set forth in subsections (a) through
(e) of this Section 5.01 have been satisfied, to the best
knowledge of the officer executing the same;
(g) Opinion of Sovereign's Counsel. ML shall
have received an opinion of Stevens & Lee, counsel to Sovereign,
dated the Closing Date, in form and substance reasonably
satisfactory to ML and its counsel to the effect set forth on
Exhibit 4 attached hereto;
(h) Registration Statement. The Registration
Statement shall be effective under the Securities Act and no
proceedings shall be pending or threatened by the SEC to suspend
the effectiveness of the Registration Statement; all required
approvals by state securities or "blue sky" authorities with
respect to the transactions contemplated by this Agreement, shall
have been obtained; and neither the Registration Statement nor
any such approval by state securities or "blue sky" authorities
shall be subject to a stop order or threatened stop order by the
SEC or any such authority.
(i) Tax Opinion. ML shall have received an
opinion of Elias, Matz, Tiernan & Herrick substantially to the
effect set forth in paragraphs (6)-(10) on Exhibit 5 attached
hereto;
(j) Pooling Letter. KPMG Peat Marwick shall have
issued a letter dated as of the Effective Date to ML and Ernst &
Young LLP shall have issued a letter dated as of the Effective
Date to Sovereign, to the effect that, based on a review of this
Agreement and related agreements and the facts and circumstances
then known to it, the Merger shall be accounted for as a pooling-
of-interests under GAAP, and Sovereign shall have received from
the Affiliates of Sovereign and ML the agreements referred to in
Section 4.13(b) hereof to the extent necessary to ensure in the
reasonable judgment of ML and Sovereign that the Merger shall be
accounted for in such manner.
(k) Approval of ML's Shareholders. This
Agreement shall have been approved by the shareholders of ML by
such vote as is required under the BCL, ML's articles of
incorporation and bylaws or under Nasdaq requirements applicable
to it; and
(l) Other. Sovereign and Sovereign Bank shall
have furnished ML with such certificates of its respective
officers or others and such documents to evidence fulfillment of
the conditions set forth in this Section 5.01 as ML may
reasonable request.
Section 5.02 Conditions to Sovereign's Obligations
under this Agreement. The obligations of Sovereign hereunder
shall be subject to satisfaction at or prior to the Closing Date
of each of the following conditions, unless waived by Sovereign
pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required
to be taken by, or on the part of, ML and Main Line Bank to
authorize the execution, delivery and performance of this
Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement
and the Bank Plan of Merger, shall have been duly and validly
taken by ML and Main Line Bank; and Sovereign shall have received
certified copies of the resolutions evidencing such
authorizations;
(b) Covenants. The obligations and covenants of
ML required by this Agreement to be performed by ML at or prior
to the Closing Date shall have been duly performed and complied
with in all material respects;
(c) Representations and Warranties. The
representations and warranties of ML set forth in this Agreement
shall be true and correct as of the date of this Agreement, and
as of the Closing Date as though made on and as of the Closing
Date, except as to any representation or warranty (i) which
specifically relates to an earlier date or (ii) where the breach
of the representation or warranty would not, either individually
or in the aggregate, result in a Material Adverse Effect with
respect to ML;
(d) Approvals of Regulatory Authorities.
Sovereign shall have received all required approvals of
Regulatory Authorities for the Merger, without the imposition of
any term or condition that would have a Material Adverse Effect
on Sovereign upon completion of the Merger; and all notice and
waiting periods required thereunder shall have expired or been
terminated;
(e) No Injunction. There shall not be in effect
any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby;
(f) Officer's Certificate. ML shall have
delivered to Sovereign a certificate, dated the Closing Date and
signed, without personal liability, by its chairman of the board
or president, to the effect that the conditions set forth in
subsections (a) through (c) and (e) of this Section 5.02 have
been satisfied, to the best knowledge of the officer executing
the same;
(g) Opinions of ML's Counsel. Sovereign shall
have received an opinion of Elias, Matz, Tiernan & Herrick
L.L.P., special counsel to ML, dated the Closing Date, in form
and substance reasonably satisfactory to Sovereign and its
counsel to the effect set forth on Exhibit 6 attached hereto;
(h) Registration Statement. The Registration
Statement shall be effective under the Securities Act and no
proceedings shall be pending or threatened by the SEC to suspend
the effectiveness of the Registration Statement; all required
approvals by state securities or "blue sky" authorities with
respect to the transactions contemplated by this Agreement, shall
have been obtained; and neither the Registration Statement nor
any such approval by state securities or "blue sky" authorities
shall be subject to a stop order or threatened stop order by the
SEC or any such authority.
(i) Tax Opinion. Sovereign shall have received
an opinion of Stevens & Lee, its counsel, substantially to the
effect set forth on Exhibit 5 attached hereto;
(j) Pooling Letter. Each of Sovereign and ML
shall have received the letters specified in Section 5.01(j).
(k) Phase I Environmental Audit Results. The
results of any "phase I environmental audit" conducted pursuant
to Section 4.10(a)(i) with respect to owned or occupied bank
premises shall be reasonably satisfactory to Sovereign; provided,
however, that (i) any such environmental audit must be initiated
within 45 days of the date of this Agreement, (ii) Sovereign must
elect to terminate this Agreement or waive its right to terminate
the Agreement under this Section 5.02(k) within 15 days of
receiving the results of such environmental audit and
(iii) Sovereign may not terminate this Agreement under this
Section 5.02(k) unless the results of such audits result in a
Material Adverse Effect on ML;
(l) Approval of Sovereign's Shareholders. This
Agreement shall have been approved by the shareholders of
Sovereign by such vote as is required under Sovereign's articles
of incorporation and bylaws or under Nasdaq requirements
applicable to it;
(m) Other. ML and Main Line Bank shall have
furnished Sovereign with such certificates of its respective
officers or others and such documents to evidence fulfillment of
the conditions set forth in this Section 5.02 as Sovereign may
reasonably request.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
Section 6.01 Termination. This Agreement may be
terminated on or at any time prior to the Closing Date:
(a) By the mutual written consent of the parties
hereto;
(b) By Sovereign or ML:
(i) if the Closing Date shall not have
occurred on or before May 31, 1998, unless the failure of
such occurrence shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe in
any material respect its agreements set forth in this
Agreement required to be performed or observed by such party
on or before the Closing Date; or
(ii) if either party has received a final
unappealable administrative order from a Regulatory
Authority whose approval or consent has been requested that
such approval or consent will not be granted, or in the case
of a termination by Sovereign, will not be granted absent
the imposition of terms and conditions which would permit
satisfaction of the condition set forth at Section 5.02(d)
hereof, unless the failure of such occurrence shall be due
to the failure of the party seeking to terminate this
Agreement to perform or observe in any material respect its
agreements set forth herein required to be performed or
observed by such party on or before the Closing Date; or
(c) By ML, at any time during the ten-day period
following the Determination Date if both of the following
conditions are satisfied:
(1) the Sovereign Market Value shall be less
than $12.18 and Sovereign shall make the election specified
in the proviso clause to Section 1.02(e)(ii)(A)(ii) hereof;
and
(2) (i) the quotient obtained by dividing
the Sovereign Market Value by $16.24 (such number being
referred to herein as the "Sovereign Ratio") shall be less
than (ii) the quotient obtained by dividing the Index Price
on the Determination Date by the Index Price on the Starting
Date and subtracting 0.10 from the quotient in this clause
(2)(ii);
subject, however, to the following: If ML shall elect to
terminate this Agreement pursuant to this Section 6.01(c), it
shall give written notice thereof to Sovereign (provided that
such notice of election to terminate may be withdrawn at any time
within the aforementioned ten-day period). During the five-day
period commencing with its receipt of such notice, Sovereign
shall have the option to elect to increase the Exchange Ratio to
equal the number (rounded to the nearest hundredth) obtained by
dividing $23.05 by the Sovereign Market Value and the Closing
Date shall be postponed by the minimum amount of time necessary,
if any, to accommodate Sovereign's election of such option (i.e.
up to a five-day period). If Sovereign so elects within such
five-day period, it shall give prompt written notice to ML of
such election and the Exchange Ratio, whereupon no termination
shall have occurred pursuant to this Section 6.01(c) and this
Agreement shall remain in effect in accordance with its terms
(except as the Exchange Ratio shall have been so modified), and
any references in this Agreement to "Exchange Ratio" or
"Applicable Exchange Ratio" shall thereafter be deemed to refer
to the Exchange Ratio as adjusted pursuant to this
Section 6.01(c).
For purposes of this Section 6.01(c), the
following terms shall have the meanings indicated.
"Index Group" shall mean the thrift or bank
holding companies listed below, the common stocks of all of which
shall be publicly traded and as to which there shall not have
been, since the Starting Date and before the Determination Date,
any public announcement of a proposal for such company to be
acquired or for such company to acquire another company or
companies in transactions with a value exceeding 25% of the
acquiror's market capitalization. In the event that any such
company or companies are removed from the Index Group, the
weights (which have been determined based upon the number of
shares of outstanding common stock) shall be redistributed
proportionately for purposes of determining the Index Price. The
thrift or bank holding companies and the weights attributed to
them are as follows:
Thrift Holding Companies % Weighting
Charter One Financial 17.84%
Greenpoint Financial Corp. 17.47%
Dime Bancorp Inc. 14.61%
Golden State Bancorp Inc. 10.66%
Washington Federal Inc. 9.13%
Bank United Corp. 8.69%
Peoples Heritage Financial Group, Inc. 7.50%
Long Island Bancorp Inc. 7.18%
Astoria Financial Corp 6.92%
Total 100.00%
"Index Price" on a given date shall mean the
weighted average (weighted in accordance with the factors listed
above) of the closing sales prices of the companies composing the
Index Group.
"Starting Date" shall mean the last trading day
immediately preceding the date of the first public announcement
of entry into this Agreement.
If any company belonging to the Index Group declares or effects a
stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares, or similar transaction between
the Starting Date and the Determination Date, the prices for the
common stock of such company shall be appropriately adjusted for
the purposes of applying this Section 6.01(c);
(d) at any time on or prior to the Effective
Date, by ML in writing if Sovereign has, or by Sovereign in
writing if ML has, in any material respect, breached (i) any
material covenant or undertaking contained herein or (ii) any
representation or warranty contained herein, which in the case of
a breach by Sovereign would have a Material Adverse Effect on
Sovereign and in the case of a breach by ML would have a Material
Adverse Effect on ML, in any case if such breach has not been
substantially cured by the earlier of 30 days after the date on
which written notice of such breach is given to the party
committing such breach or the Effective Date or if on such date
such breach no longer causes a Material Adverse Effect; or
(e) by either the Board of Directors of Sovereign
or the Board of Directors of ML if the Board of Directors of the
other party shall have withdrawn, modified or changed in a manner
adverse to the terminating party its approval or recommendation
of this Agreement and the transactions contemplated hereby.
Section 6.02 Effect of Termination. If this Agreement
is terminated pursuant to Section 6.01 hereof, this Agreement
shall forthwith become void (other than Section 4.02(d) and
Section 7.01 hereof, which shall remain in full force and
effect), and there shall be no further liability on the part of
Sovereign or ML to the other, except for any liability arising
out of any uncured willful breach of any covenant or other
agreement contained in this Agreement, any fraudulent breach of a
representation or warranty, in this Agreement and any obligation
or liability arising under the Stock Option Agreement. Nothing
contained in this Section 6.02 shall be deemed to prohibit
Sovereign or ML from maintaining an action against a third party
for tortious interference or otherwise.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Expenses. Except for the cost of
printing and mailing the Proxy Statement/Prospectus which shall
be shared equally, each party hereto shall bear and pay all costs
and expenses incurred by it in connection with the transactions
contemplated hereby, including fees and expenses of its own
financial consultants, accountants and counsel.
Section 7.02 Non-Survival of Representations and
Warranties. All representations, warranties and, except to the
extent specifically provided otherwise herein, agreements and
covenants, other than those covenants that by their terms are to
be performed after the Effective Date, including without
limitation the covenants set forth in Sections 1.02(f) and (g),
4.05, 4.11 and 4.14 hereof, which will survive the Merger, shall
terminate on the Closing Date.
Section 7.03 Amendment, Extension and Waiver. Subject
to applicable law, at any time prior to the consummation of the
transactions contemplated by this Agreement, the parties may
(a) amend this Agreement, (b) extend the time for the performance
of any of the obligations or other acts of either party hereto,
(c) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or
(d) waive compliance with any of the agreements or conditions
contained in Articles IV and V hereof or otherwise, provided that
any amendment, extension or waiver granted or executed after
shareholders of ML or Sovereign have approved this Agreement
shall not modify either the amount or the form of the
consideration to be provided hereby to holders of ML Common Stock
upon consummation of the Merger or otherwise materially adversely
affect the shareholders of ML or Sovereign without the approval
of the shareholders who would be so affected. This Agreement may
not be amended except by an instrument in writing authorized by
the respective Boards of Directors and signed, by duly authorized
officers, on behalf of the parties hereto. Any agreement on the
part of a party hereto to any extension or waiver shall be valid
only if set forth in an instrument in writing signed by a duly
authorized officer on behalf of such party, but such waiver or
failure to insist on strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
Section 7.04 Entire Agreement. This Agreement,
including the documents and other writings referred to herein or
delivered pursuant hereto, contains the entire agreement and
understanding of the parties with respect to its subject matter.
This Agreement supersedes all prior arrangements and
understandings between the parties, both written or oral with
respect to its subject matter. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their
respective successors; provided, however, that nothing in this
Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto and their respective
successors, any rights, remedies, obligations or liabilities
other than pursuant to Sections 1.02(f) and (g), 4.05, 4.11(d)
and 4.14.
Section 7.05 No Assignment. Neither party hereto may
assign any of its rights or obligations hereunder to any other
person, without the prior written consent of the other party
hereto.
Section 7.06 Notices. All notices or other
communications hereunder shall be in writing and shall be deemed
given if delivered personally, mailed by prepaid registered or
certified mail (return receipt requested), or sent by telecopy,
addressed as follows:
(a) If to Sovereign, to:
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Attention: Jay S. Sidhu, President and Chief
Executive Officer
Telecopy No.: (610) 320-8448
with a copy to:
Stevens & Lee
111 North Sixth Street
Reading, Pennsylvania 19601
Attention: Joseph M. Harenza, Esquire and
Jeffrey P. Waldron, Esquire
Telecopy No.: (610) 376-5610
(b) If to ML, to:
ML Bancorp, Inc.
Two Aldwyn Center
Route 320 & Lancaster Avenue
Villanova, Pennsylvania 19085
Attention: Dennis S. Marlo
President and Chief
Executive Officer
Telecopy No.: (610) 526-6227
with copies to:
Elias, Matz, Tiernan & Herrick L.L.P.
The Walker Building
734 15th Street, N.W.
12th Floor
Washington, D.C. 20005
Attention: Gerard L. Hawkins, Esquire
Daniel P. Weitzel, Esquire
Telecopy No.: (202) 347-4983
Section 7.07 Captions. The captions contained in this
Agreement are for reference purposes only and are not part of
this Agreement.
Section 7.08 Accountants. In the event that the
conditions to closing specified in Section 5.01(j) and 5.02(j)
are not satisfied because either (but not both) Ernst & Young or
KPMG Peat Marwick is unable to deliver the letter required by
such sections, then the parties hereto agree to appoint another
national accounting firm mutually acceptable to each party to
determine if the Merger is required to be accounted for as a
pooling-of-interests. The written determination by such national
accounting firm shall be binding on both parties for purposes of
determining whether the conditions contained in Section 5.01(j)
and 5.02(j) has been satisfied. In the event that the provisions
of this Section 7.08 become applicable, the date specified in
Section 6.01(b)(i) shall be extended until the earlier of (i) the
date of the written determination by such national accounting
firm or (ii) June 30, 1998.
Section 7.0W Counterparts. This Agreement may be
executed in any number of counterparts, and each such counterpart
shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
Section 7.10 Severability. If any provision of this
Agreement or the application thereof to any person or
circumstance shall be invalid or unenforceable to any extent, the
remainder of this Agreement and the application of such
provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent
permitted by law.
Section 7.11 Governing Law. This Agreement shall be
governed by and construed in accordance with the domestic
internal law (including the law of conflicts of law) of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their duly authorized officers as of
the day and year first above written.
SOVEREIGN BANCORP, INC.
By /s/ Jay S. Sidhu
Jay S. Sidhu
President and Chief
Executive Officer
ML BANCORP, INC.
By /s/ Dennis S. Marlo
Dennis S. Marlo,
President and Chief
Executive Officer
<PAGE>
Exhibit 1-A
September 18, 1997
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Ladies and Gentlemen:
Sovereign Bancorp, Inc. ("Sovereign") and ML Bancorp, Inc.
("ML") desire to enter into an agreement dated September 18, 1997
("Agreement"), pursuant to which, subject to the terms and
conditions set forth therein, (a) ML will merge with and into
Sovereign with Sovereign surviving the merger, and
(b) shareholders of ML will receive common stock of Sovereign in
exchange for common stock of ML outstanding on the closing date
(the foregoing, collectively, referred to herein as the
"Merger").
Sovereign has required, as a condition to its execution and
delivery to ML of the Agreement, that the undersigned execute and
deliver to Sovereign this Letter Agreement.
In consideration of the foregoing, each of the undersigned
hereby irrevocably:
(a) Agrees to be present (in person or by proxy) at
all meetings of shareholders of ML called to vote for approval of
the Agreement and the Merger so that all shares of common stock
of ML then owned by the undersigned will be counted for the
purpose of determining the presence of a quorum at such meetings
and to vote or cause to be voted all such shares in favor of
approval and adoption of the Agreement and the transactions
contemplated thereby (including any amendments or modifications
of the terms thereof approved by the Board of Directors of ML);
(b) Agrees not to vote or execute any written consent
to rescind or amend in any manner any prior vote or written
consent, as a shareholder of ML, to approve or adopt the
Agreement;
(c) Agrees to use reasonable best efforts to cause the
Merger to be consummated;
(d) Agrees not to offer, sell, transfer or otherwise
dispose of any shares of common stock of Sovereign received in
the Merger, except (i) at such time as a registration statement
under the Securities Act of 1933, as amended ("Securities Act")
covering sales of such Sovereign common stock is effective and a
prospectus is made available under the Securities Act,
(ii) within the limits, and in accordance with the applicable
provisions of, Rule 145(d) under the Securities Act, or (iii) in
a transaction which, in the opinion of counsel satisfactory to
Sovereign or as described in a "no-action" or interpretive letter
from the staff of the Securities and Exchange Commission ("SEC"),
is not required to be registered under the Securities Act; and
acknowledges and agrees that Sovereign is under no obligation to
register the sale, transfer or other disposition of Sovereign
common stock by the undersigned or on behalf of the undersigned,
or to take any other action necessary to make an exemption from
registration available;
(e) Notwithstanding the foregoing, agrees not to sell,
or in any other way reduce the risk of the undersigned relative
to, any shares of common stock of ML or of common stock of
Sovereign, during the period commencing thirty days prior to the
effective date of the Merger and ending on the date on which
financial results covering at least thirty days of post-Merger
combined operations of Sovereign and ML have been published
within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies, provided, however, that excluded
from the foregoing undertaking shall be such sales, pledges,
transfers or other dispositions of shares of ML common stock or
shares of Sovereign common stock which, in Sovereign's sole
judgment, are individually and in the aggregate de minimis within
the meaning of Topic 2-E of the Staff Accounting Bulletin Series
of the SEC;
(f) Agrees that neither ML nor Sovereign shall be
bound by any attempted sale of any shares of ML common stock or
Sovereign common stock, respectively, and ML's and Sovereign's
transfer agents shall be given appropriate stop transfer orders
and shall not be required to register any such attempted sale,
unless the sale has been effected in compliance with the terms of
this Letter Agreement; and further agrees that the certificate
representing shares of Sovereign common stock owned by the
undersigned may be endorsed with a restrictive legend consistent
with the terms of this Letter Agreement;
(g) Acknowledges and agrees that the provisions of
subparagraphs (d), (e) and (f) hereof also apply to shares of
Sovereign common stock and ML common stock owned by (i) his or
her spouse, (ii) any of his or her relatives or relatives of his
or her spouse occupying his or her home, (iii) any trust or
estate in which he or she, his or her spouse, or any such
relative owns at least a 10% beneficial interest or of which any
of them serves as trustee, executor or in any similar capacity,
and (iv) any corporation or other organization in which the
undersigned, any affiliate of the undersigned, his or her spouse,
or any such relative owns at least 10% of any class of equity
securities or of the equity interest;
(h) Represents that the undersigned has no plan or
intention to sell, exchange, or otherwise dispose of any shares
of common stock of Sovereign prior to expiration of the time
period referred to in subparagraph (e) hereof; and
(i) Represents that the undersigned has the capacity
to enter into this Letter Agreement and that it is a valid and
binding obligation enforceable against the undersigned in
accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights and general equitable
principles.
_________________________
It is understood and agreed that the provisions of
subparagraphs (a), (b) and (c), of this Letter Agreement relate
solely to the capacity of the undersigned as a shareholder or
other beneficial owner of shares of ML common stock and is not in
any way intended to affect the exercise by the undersigned of the
undersigned's responsibilities as a director or officer of ML.
It is further understood and agreed that such subparagraphs of
this Letter Agreement are not in any way intended to affect the
exercise by the undersigned of any fiduciary responsibility which
the undersigned may have in respect of any shares of ML common
stock held by the undersigned as of the date hereof.
_________________________
This Letter Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an
original, but all of which together shall constitute one and the
same Letter Agreement.
_________________________
This Letter Agreement shall terminate concurrently with any
termination of the Agreement in accordance with its terms.
_________________________
The undersigned intend to be legally bound hereby.
Sincerely,
<PAGE>
Exhibit 1-B
September 18, 1997
ML Bancorp, Inc.
Two Aldwyn Center
Route 320 & Lancaster Avenue
Villanova, Pennsylvania 19085
Ladies and Gentlemen:
Sovereign Bancorp, Inc. ("Sovereign") and ML Bancorp, Inc.
("ML") desire to enter into an agreement dated September 18, 1997
("Agreement"), pursuant to which, subject to the terms and
conditions set forth therein, (a) ML will merge with and into
Sovereign with Sovereign surviving the merger, and
(b) shareholders of ML will receive common stock of Sovereign in
exchange for common stock of ML outstanding on the closing date
(the foregoing, collectively, referred to herein as the
"Merger").
ML has required, as a condition to its execution and
delivery to Sovereign of the Agreement, that the undersigned
execute and deliver to Sovereign this Letter Agreement.
In consideration of the foregoing, each of the undersigned
hereby irrevocably:
(a) Agrees to be present (in person or by proxy) at
all meetings of shareholders of Sovereign called to vote for
approval of the Agreement and the Merger so that all shares of
common stock of Sovereign then owned by the undersigned will be
counted for the purpose of determining the presence of a quorum
at such meetings and to vote or cause to be voted all such shares
in favor of approval and adoption of the Agreement and the
transactions contemplated thereby (including any amendments or
modifications of the terms thereof approved by the Board of
Directors of Sovereign).
(b) Agrees not to vote or execute any written consent
to rescind or amend in any manner any prior vote or written
consent, as a shareholder of Sovereign, to approve or adopt the
Agreement;
(c) Agrees to use reasonable best efforts to cause the
Merger to be consummated;
(d) Agrees not to sell, or in any other way reduce the
risk of the undersigned relative to, any shares of common stock
of ML or of common stock of Sovereign, during the period
commencing thirty days prior to the effective date of the Merger
and ending on the date on which financial results covering at
least thirty days of post-Merger combined operations of Sovereign
and ML have been published within the meaning of Section 201.01
of the Codification of Financial Reporting Policies of the
Securities and Exchange Commission ("SEC"), provided, however,
that excluded from the foregoing undertaking shall be such sales,
pledges, transfers or other dispositions of shares of ML common
stock or shares of Sovereign common stock which, in Sovereign's
sole judgment, are individually and in the aggregate de minimis
within the meaning of Topic 2-E of the Staff Accounting Bulletin
Series of the SEC;
(e) Agrees that neither ML nor Sovereign shall be
bound by any attempted sale of any shares of ML common stock or
Sovereign common stock, respectively, and ML's and Sovereign's
transfer agents shall be given appropriate stop transfer orders
and shall not be required to register any such attempted sale,
unless the sale has been effected in compliance with the terms of
this Letter Agreement; and further agrees that the certificate
representing shares of Sovereign common stock owned by the
undersigned may be endorsed with a restrictive legend consistent
with the terms of this Letter Agreement;
(f) Acknowledges and agrees that the provisions of
subparagraphs (d) and (e) hereof apply to shares of Sovereign
common stock and ML common stock owned by (i) his or her spouse,
(ii) any of his or her relatives or relatives of his or her
spouse occupying his or her home, (iii) any trust or estate in
which he or she, his or her spouse, or any such relative owns at
least a 10% beneficial interest or of which any of them serves as
trustee, executor or in any similar capacity, and (iv) any
corporation or other organization in which the undersigned, any
affiliate of the undersigned, his or her spouse, or any such
relative owns at least 10% of any class of equity securities or
of the equity interest;
(g) Represents that the undersigned has no plan or
intention to sell, exchange, or otherwise dispose of any shares
of common stock of Sovereign prior to expiration of the time
period referred to in subparagraph (d) hereof; and
(h) Represents that the undersigned has the capacity
to enter into this Letter Agreement and that it is a valid and
binding obligation enforceable against the undersigned in
accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights and general equitable
principles.
_________________________
It is understood and agreed that the provisions of
subparagraphs (a), (b) and (c) of this Letter Agreement relate
solely to the capacity of the undersigned as a shareholder or
other beneficial owner of shares of Sovereign common stock and is
not in any way intended to affect the exercise by the undersigned
of the undersigned's responsibilities as a director or officer of
Sovereign. It is further understood and agreed that such
subparagraphs of this Letter Agreement are not in any way
intended to affect the exercise by the undersigned of any
fiduciary responsibility which the undersigned may have in
respect of any shares of Sovereign common stock held by the
undersigned as of the date hereof.
_________________________
This Letter Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an
original, but all of which together shall constitute one and the
same Letter Agreement.
_________________________
This Letter Agreement shall terminate concurrently with any
termination of the Agreement in accordance with its terms.
_________________________
The undersigned intend to be legally bound hereby.
Sincerely,
<PAGE>
Exhibit 2
STOCK OPTION AGREEMENT
SEE ANNEX B.
<PAGE>
Exhibit 3
BANK PLAN OF MERGER
THIS BANK PLAN OF MERGER ("Plan of Merger") dated
September 18, 1997, is by and between SOVEREIGN BANK, a Federal
Savings Bank ("Sovereign Bank"), and MAIN LINE BANK, a Federal
Savings Bank ("ML Bank").
BACKGROUND
1. Sovereign Bank is a federal savings bank and a
wholly-owned subsidiary of Sovereign Bancorp, Inc., a
Pennsylvania corporation ("Sovereign"). The authorized capital
stock of Sovereign Bank consists of 1,000 shares of common stock,
par value $1.00 per share ("Sovereign Bank Common Stock"), of
which at the date hereof 1,000 shares are issued and outstanding.
2. ML Bank is a federal savings bank and a
wholly-owned subsidiary of ML Bancorp, Inc., a Pennsylvania
corporation ("ML"). The authorized capital stock of ML Bank
consists of 1,000,000 shares of common stock, par value $0.01 per
share ("ML Bank Common Stock"), of which at the date hereof
__________ shares are issued and outstanding.
3. The respective Boards of Directors of Sovereign
Bank and ML Bank deem the merger of ML Bank with and into
Sovereign Bank, pursuant to the terms and conditions set forth or
referred to herein, to be desirable and in the best interests of
the respective corporations and their respective shareholders.
4. The respective Boards of Directors of Sovereign
Bank and ML Bank have adopted resolutions approving this Plan of
Merger. The respective Boards of Directors of Sovereign and ML
have adopted resolutions approving an Agreement dated
September 18, 1997 (the "Agreement") between Sovereign and ML,
pursuant to which this Plan of Merger is being executed by
Sovereign Bank and ML Bank.
AGREEMENT
In consideration of the premises and of the mutual
covenants and agreements herein contained, and in accordance with
the applicable laws and regulations of the United States of
America, Sovereign Bank and ML Bank, intending to be legally
bound hereby, agree:
<PAGE>
ARTICLE I
MERGER
Subject to the terms and conditions of this Plan of
Merger and in accordance with the applicable laws and regulations
of the United States of America, on the Effective Date (as that
term is defined in Article V hereof): ML Bank shall merge with
and into Sovereign Bank; the separate existence of ML Bank shall
cease; and Sovereign Bank shall be the surviving corporation
(such transaction referred to herein as the "Merger" and
Sovereign Bank, as the surviving corporation in the Merger,
referred to herein as the "Surviving Bank"). The name of the
Surviving Bank shall be "Sovereign Bank" and it shall have its
home office at 1130 Berkshire Boulevard, Wyomissing, Pennsylvania
19610 and its branch offices at the locations listed on
Exhibit "A."
ARTICLE II
CHARTER AND BYLAWS
On and after the Effective Date, the Charter and Bylaws
of Sovereign Bank, as in effect immediately prior to the
Effective Date, shall automatically be and remain the Charter and
Bylaws of the Surviving Bank, until altered, amended or repealed.
ARTICLE III
BOARD OF DIRECTORS AND OFFICERS
3.1 Board of Directors. On and after the Effective
Date, the directors of the Surviving Bank shall consist of the
directors of Sovereign Bank duly elected and holding office
immediately prior to the Effective Date and Dennis S. Marlo.
Directors shall be elected annually and shall hold office until
their successors are elected and qualified. The names and
residence addresses of the directors are:
Name Residence Address
Joseph P. Gemmell [INTENTIONALLY OMITTED.]
Fred D. Hafer [INTENTIONALLY OMITTED.]
Brian Hard [INTENTIONALLY OMITTED.]
Stewart B. Kean [INTENTIONALLY OMITTED.]
Joseph E. Lewis [INTENTIONALLY OMITTED.]
F. Joseph Loeper [INTENTIONALLY OMITTED.]
Dennis S. Marlo [INTENTIONALLY OMITTED.]
Richard E. Mohn [INTENTIONALLY OMITTED.]
Rhoda S. Oberholtzer [INTENTIONALLY OMITTED.]
Patrick J. Petrone [INTENTIONALLY OMITTED.]
Daniel K. Rothermel [INTENTIONALLY OMITTED.]
Elizabeth B. Rothermel [INTENTIONALLY OMITTED.]
Robert A. Sadler [INTENTIONALLY OMITTED.]
Jay S. Sidhu [INTENTIONALLY OMITTED.]
Cameron C. Troilo [INTENTIONALLY OMITTED.]
G. Arthur Weaver [INTENTIONALLY OMITTED.]
Dr. Paul B. Wieand [INTENTIONALLY OMITTED.]
3.2 Officers. On and after the Effective Date, the
officers of the Surviving Bank shall consist of the officers of
Sovereign Bank duly elected and holding office immediately prior
to the Effective Date and Dennis S. Marlo, who shall be elected
as President of the Pennsylvania Division of Sovereign Bank
pursuant to Section 4.14(a) of the Agreement.
ARTICLE IV
CONVERSION OF SHARES
4.1 Stock of Sovereign Bank. Each share of Sovereign
Bank Common Stock issued and outstanding immediately prior to the
Effective Date shall, on and after the Effective Date, continue
to be issued and outstanding as a share of common stock of the
Surviving Bank.
4.2 Stock of ML Bank. Each share of ML Bank Common
Stock issued and outstanding immediately prior to the Effective
Date, and each share of ML Bank Common Stock issued and held in
the treasury of ML as of the Effective Date, if any, shall, on
the Effective Date, be cancelled, and no cash, stock or other
property shall be delivered in exchange therefor.
ARTICLE V
EFFECTIVE DATE OF THE MERGER
The Merger shall be effective on the date on which
articles of combination executed by Sovereign Bank and ML Bank
are filed with and endorsed by the Office of Thrift Supervision
("OTS") pursuant to 12 C.F.R. Section 552.13(k), unless a later
date is specified in such articles of combination (the "Effective
Date").
ARTICLE VI
EFFECT OF THE MERGER
6.1 Separate Existence. On the Effective Date: the
separate existence of ML Bank shall cease; and all of the
property (real, personal and mixed), rights, powers, duties and
obligations of ML Bank shall be taken and deemed to be
transferred to and vested in the Surviving Bank, without further
act or deed, as provided by applicable laws and regulations,
including without limitation 12 C.F.R. Section 552.13(l).
6.2 Savings Accounts. After the Effective Date,
Sovereign Bank will continue to issue savings accounts on the
same basis as immediately prior to the Effective Date.
6.3 Liquidation Account. After the Effective Date,
Sovereign Bank will continue to maintain the Sovereign Bank
liquidation account for the benefit of eligible account holders
on the same basis as immediately prior to the Effective Date, and
ML Bank's liquidation account for the benefit of eligible account
holders shall automatically be deemed assumed by Sovereign Bank,
as of the Effective Date, on the same basis as it existed
immediately prior to the Effective Date.
ARTICLE VII
CONDITIONS PRECEDENT
The obligations of Sovereign Bank and ML Bank to effect
the Merger shall be subject to (i) the approval of this Plan of
Merger by Sovereign and ML in their capacities as the sole
shareholder of Sovereign Bank and ML Bank, respectively,
(ii) receipt of approval of the Merger from the OTS and any other
applicable regulatory authority, (iii) receipt of any necessary
approval to operate the main office of ML Bank and the branch
offices of ML Bank as offices of the Surviving Bank and (iv) the
consummation of the merger of ML into Sovereign pursuant to the
Agreement on or before the Effective Date.
ARTICLE VIII
TERMINATION
This Plan of Merger shall terminate upon any
termination of the Agreement in accordance with its terms.
ARTICLE IX
AMENDMENT
Subject to applicable law, this Plan of Merger may be
amended, by action of the respective Boards of Directors of the
parties hereto, at any time prior to consummation of the Merger,
but only by an instrument in writing signed by duly authorized
officers on behalf of the parties hereto.
ARTICLE X
MISCELLANEOUS
10.1 Extensions; Waivers. Any of the terms and
conditions of this Plan of Merger may be waived at any time by
whichever of the parties hereto is, or the sole shareholder of
which is, entitled to the benefit thereof by a written instrument
signed by a duly authorized officer of such party.
10.2 Notices. Any notice or other communication
required or permitted under this Plan of Merger shall be given,
and shall be effective, in accordance with the provisions of
Section 7.06 of the Agreement.
10.3 Captions. The headings of the several Articles
and Sections herein are inserted for convenience of reference
only and are not intended to be part of, or to affect the meaning
or interpretation of, this Plan of Merger.
10.4 Counterparts. For the convenience of the parties
hereto, this Plan of Merger may be executed in several
counterparts, each of which shall be deemed the original, but all
of which together shall constitute one and the same instrument.
10.5 Governing Law. This Plan of Merger shall be
governed by and construed in accordance with the laws of the
United States of America and, in the absence of controlling
Federal law, in accordance with the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, Sovereign Bank and ML Bank have
caused this Bank Plan of Merger to be executed by their duly
authorized officers and their corporate seals to be hereunto
affixed on the date first written above.
SOVEREIGN BANK
By /s/ Jay S. Sidhu
Jay S. Sidhu,
President
MAIN LINE BANK
By /s/ Dennis S. Marlo
Dennis S. Marlo,
President
<PAGE>
EXHIBIT "A"
to Plan of Merger
SOVEREIGN BANK
BRANCH LOCATIONS
[INTENTIONALLY OMITTED.]
<PAGE>
EXHIBIT 4
FORM OF OPINION OF COUNSEL TO SOVEREIGN
ML shall have received from counsel to Sovereign, an
opinion, dated as of the Closing Date, substantially to the
effect that, subject to normal exceptions and qualifications:
(a) Sovereign and Sovereign Bank have full corporate
power to carry out the transactions contemplated in the Agreement
and the Bank Plan of Merger, respectively. The execution and
delivery of the Agreement and the Bank Plan of Merger and the
consummation of the transactions contemplated thereunder have
been duly and validly authorized by all necessary corporate
action on the part of Sovereign and Sovereign Bank, and the
Agreement and the Plan constitute valid and legally binding
obligations of Sovereign and Sovereign Bank, respectively, except
as may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium, receivership, conservatorship, and other laws now or
hereafter in effect relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of federal
savings institutions or their holding companies, (ii) general
equitable principles, and (iii) laws relating to the safety and
soundness of insured depository institutions, and except that no
opinion need be rendered as to the effect or availability of
equitable remedies or injunctive relief (regardless of whether
such enforceability is considered in a proceeding in equity or at
law). Subject to satisfaction of the conditions set forth in the
Agreement, neither the transactions contemplated in the Agreement
or the Plan, nor compliance by Sovereign and Sovereign Bank with
any of the respective provisions thereof, will (i) conflict with
or result in a breach or default under (A) the articles of
incorporation or bylaws of Sovereign or the charter or bylaws of
Sovereign Bank, or, (B) to the knowledge of such counsel, any
note, bond, mortgage, indenture, license, agreement or other
material instrument or obligation to which Sovereign or Sovereign
Bank is a party; or (ii) based on certificates of officers and
without independent verification, to the knowledge of such
counsel, result in the creation or imposition of any material
lien or encumbrance upon the property of Sovereign or Sovereign
Bank, except such material lien, instrument or obligation that
has been disclosed pursuant to the Agreement or the Plan; or
(iii) violate in any material respect any order, writ, injunction
or decree known to such counsel, or any federal or Pennsylvania
statute, rule or regulation applicable to Sovereign or Sovereign
Bank.
(b) Sovereign Bank is a validly existing federally-
chartered savings bank organized under the laws of the United
States of America. The deposits of Sovereign Bank are insured to
the maximum extent provided by law by the Federal Deposit
Insurance Corporation.
(c) There is, to the knowledge of such counsel, no
legal, administrative, arbitration or governmental proceeding or
investigation pending or threatened to which Sovereign or
Sovereign Bank is a party which would, if determined adversely to
Sovereign or Sovereign Bank, have a material adverse effect on
the financial condition or results of operation of Sovereign and
Sovereign Bank taken as a whole, or which presents a claim to
restrain or prohibit the transactions contemplated by the
Agreement and the Plan, respectively.
(d) No consent, approval, authorization or order of
any federal or state court or federal or state governmental
agency or body, or to such counsel's knowledge is required for
the consummation by Sovereign or Sovereign Bank of the
transactions contemplated by the Agreement and the Plan, except
for such consents, approvals, authorizations or orders as have
been obtained or which would not have a Material Adverse Effect
upon Sovereign upon consummation of the Merger.
(e) Upon the filing and effectiveness of the Articles
of Merger with the PDS and Articles of Combination with the OTS
in accordance with the Agreement and the Plan, the mergers of
Sovereign and ML and of Sovereign Bank and ML Bank contemplated
by the Agreement and the Plan, respectively, will have been
effected in compliance with all applicable federal and
Pennsylvania laws and regulations in all material respects.
(f) The shares of Sovereign Common Stock to be issued
in connection with the merger of ML and Sovereign contemplated by
the Agreement have been duly authorized and will, when issued in
accordance with the terms of the Agreement, be validly issued,
fully paid and nonassessable, free and clear of any mortgage,
pledge, lien, encumbrance or claim (legal or equitable).
(g) In addition to the foregoing opinions, counsel
shall state that the sole basis of such counsel's participation
in conferences with officers and employees of Sovereign in
connection with the Proxy Statement/Prospectus, and without other
independent investigation or inquiry, such counsel has no reason
to believe that the Proxy Statement/Prospectus, including any
amendments or supplements thereto (except for the financial
information, financial statements, notes to financial statements,
financial schedules and other financial or statistical data and
stock valuation information contained or incorporated by
reference therein and except for any information supplied by ML
or ML Bank for inclusion therein, as to which counsel need
express no belief), as of the date of mailing thereof, contained
any untrue statement of a material fact with respect to Sovereign
or omitted to state any material fact with respect to Sovereign
necessary to make any statement therein with respect to
Sovereign, in light of the circumstances under which it was made,
not misleading. Counsel may state in connection with the
foregoing, that such counsel has not independently verified and
does not assume the responsibility for the accuracy, completeness
or fairness of any information or statements contained in the
Proxy Statement/Prospectus, except with respect to identified
statements of law or regulations or legal conclusions relating to
Sovereign or the transactions contemplated in the Agreement and
the Plan and that it is relying as to materiality as to factual
matters on certificates of officers and representatives of the
parties to the Agreement and other factual representations by ML
and Main Line Bank.
Such counsel's opinion shall be limited to matters
governed by federal banking and securities laws and by the BCL.
<PAGE>
EXHIBIT 5
FORM OF TAX OPINION OF STEVENS & LEE
Sovereign and ML shall have received an opinion of Stevens &
Lee substantially to the effect that, under the provisions of the
IRC:
1. The transfer by ML of all of its assets to Sovereign in
exchange for Sovereign Common Stock (including fractional share
interests) and the assumption by Sovereign of all of ML's
liabilities will constitute a reorganization within the meaning
of Section 368(a)(1)(A) of the IRC.
2. ML and Sovereign will each be "a party to a
reorganization" within the meaning of Section 368(b) of the IRC.
3. Neither ML nor Sovereign will recognize any gain or
loss upon the transfer of ML's assets to Sovereign in exchange
solely for Sovereign Common Stock (including fractional share
interests) and the assumption by Sovereign of the liabilities of
ML.
4. The basis of the ML assets in the hands of Sovereign
will be the same as the basis of such assets in the hands of ML
immediately prior to the Merger.
5. The holding period of the assets of ML to be received
by Sovereign will include the period during which the assets were
held by ML.
6. No gain or loss will be recognized by the shareholders
of ML on the receipt of Sovereign Common Stock (including
fractional share interests) solely in exchange for their shares
of ML Common Stock.
7. The basis of the Sovereign Common Stock (including
fractional share interests) to be received by the ML shareholders
in the Merger will be the same as the basis of the ML Common
Stock surrendered in exchange therefor.
8. The holding period of the Sovereign Common Stock
(including fractional share interests) to be received by the ML
shareholders in the Merger will include the period during which
the ML shareholders held their ML Common Stock, provided the
shares of ML Common Stock are held as a capital asset on the
Effective Date.
9. The payment of cash in lieu of fractional share
interests of Sovereign Common Stock will be treated as if the
fractional share interests were distributed as part of the Merger
and then redeemed by Sovereign. Such cash payments will be
treated as having been received as distribution in full payment
in exchange for the fractional share interests redeemed, as
provided in Section 302(a) of the IRC.
10. The Sovereign Stock Purchase Rights transferred with
the shares of Sovereign Common Stock will not constitute "other
property" within the meaning of Section 356(a)(1)(B) of the IRC.
11. As provided in Section 381(c)(2) of the IRC and related
Treasury regulations, Sovereign will succeed to and take into
account the earnings and profits, or deficit in earnings and
profits, of ML as of the Effective Date. Any deficit in the
earnings and profits of Sovereign or ML will be used only to
offset the earnings and profits accumulated after the Merger.
12. Pursuant to Section 381(a) of the IRC and related
Treasury regulations, Sovereign will succeed to and take into
account the items of ML described in Section 381(c) of the IRC.
Such items will be taken into account by Sovereign subject to the
conditions and limitations of Sections 381, 382, 383, and 384 of
the IRC and the Treasury regulations thereunder.
13. The Bank Merger will constitute a reorganization within
the meaning of Section 368(a)(1)(A) of the IRC.
14. ML Bank and Sovereign Bank will each be "a party to a
reorganization" within the meaning of Section 368(b) of the IRC.
15. Neither ML Bank nor Sovereign Bank will recognize any
gain or loss upon the transfer of ML Bank's assets to Sovereign
Bank in constructive exchange solely for Sovereign Bank common
stock and the assumption by Sovereign Bank of the liabilities of
ML Bank.
16. The basis of the ML Bank assets in the hands of
Sovereign Bank will be the same as the basis of such assets in
the hands of ML Bank immediately prior to the Bank Merger.
17. The holding period of the ML Bank assets in the hands
of Sovereign Bank will include the period during which such
assets were held by ML Bank.
18. No gain or loss will be recognized by Sovereign, as the
shareholder of ML Bank, upon the constructive receipt of shares
of Sovereign Bank common stock in exchange for the ML Bank common
stock surrendered in exchange therefor in the Bank Merger.
19. The basis of the Sovereign Bank common stock to be held
by Sovereign after the Bank Merger will equal the basis of such
stock immediately before the Bank Merger, increased by the basis
of the ML Bank common stock surrendered in the constructive
exchange.
20. As provided in Section 381(c)(2) of the IRC and related
Treasury regulations, Sovereign Bank will succeed to and take
into account the earnings and profits, or deficit in earnings and
profits, of ML Bank as of the effective date of the Bank Merger.
Any deficit in the earnings and profits of Sovereign Bank or ML
Bank will be used only to offset the earnings and profits
accumulated after the Bank Merger.
21. Pursuant to Section 381(a) of the IRC and related
Treasury regulations, Sovereign Bank will succeed to and take
into account the items of ML Bank described in Section 381(c) of
the IRC. Such items will be taken into account by Sovereign Bank
subject to the conditions and limitations of Sections 381, 382,
383, and 384 of the IRC and the Treasury regulations thereunder.
<PAGE>
EXHIBIT 6
FORM OF OPINION OF COUNSEL TO ML
Sovereign shall have received from counsel to ML, an
opinion, dated as of the Closing Date, substantially to the
effect that, subject to normal exceptions and qualifications:
(a) ML and Main Line Bank have full corporate power to
carry out the transactions contemplated in the Agreement and the
Bank Plan of Merger, respectively. The execution and delivery of
the Agreement and the Bank Plan of Merger and the consummation of
the transactions contemplated thereunder have been duly and
validly authorized by all necessary corporate action on the part
of ML and Main Line Bank, and the Agreement and the Plan
constitute a valid and legally binding obligation, in accordance
with their respective terms, of ML and Main Line Bank,
respectively, except as may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, receivership,
conservatorship, and other laws now or hereafter in effect
relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of federal savings
institutions or their holding companies, (ii) general equitable
principles, and (iii) laws relating to the safety and soundness
of insured depository institutions, and except that no opinion
need be rendered as to the effect or availability of equitable
remedies or injunctive relief (regardless of whether such
enforceability is considered in a proceeding in equity or at
law). Subject to satisfaction of the conditions set forth in the
Agreement, neither the transactions contemplated in the Agreement
and the Plan, nor compliance by ML and Main Line Bank with any of
the respective provisions thereof, will (i) conflict with or
result in a breach or default under (A) the certificate of
incorporation or bylaws of ML or the charter or bylaws of Main
Line Bank, or (B) based on certificates of officers and without
independent verification, to the knowledge of such counsel, any
note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which ML or Main Line Bank is a
party; or (ii) to the knowledge of such counsel, result in the
creation or imposition of any material lien, instrument or
encumbrance upon the property of ML or Main Line Bank, except
such material lien, instrument or obligation that has been
disclosed to Sovereign pursuant to the Agreement and the Plan, or
(iii) violate in any material respect any order, writ,
injunction, or decree known to such counsel, or any statute, rule
or regulation applicable to ML or Main Line Bank.
(b) Main Line Bank is a validly existing federally-
chartered savings bank organized under the laws of the United
States of America. The deposits of Main Line Bank are insured to
the maximum extent provided by law by the Federal Deposit
Insurance Corporation.
(c) There is, to the knowledge of such counsel, no
legal, administrative, arbitration or governmental proceeding or
investigation pending or threatened to which ML or Main Line Bank
is a party which would, if determined adversely to ML or Main
Line Bank, have a material adverse effect on the business,
properties, results of operations, or condition, financial or
otherwise, of ML or Main Line Bank taken as a whole or which
presents a claim to restrain or prohibit the transactions
contemplated by the Agreement and the Plan, respectively.
(d) No consent, approval, authorization, or order of
any federal or state court or federal or state governmental
agency or body, or to such counsel's knowledge of any third
party, is required for the consummation by ML or Main Line Bank
of the transactions contemplated by the Agreement and the Plan,
except for such consents, approvals, authorizations or orders as
have been obtained or which would not have a Material Adverse
Effect upon Sovereign upon consummation of the Merger.
In addition to the foregoing opinions, counsel shall
state that on the sole basis of such counsel's participation in
conferences with officers and employees of ML in connection with
the preparation of the Prospectus/Proxy Statement and without
other independent investigation or inquiry, such counsel has no
reason to believe that the Prospectus/Proxy Statement, including
any amendments or supplements thereto (except for the financial
information, financial statements, notes to financial statements,
financial schedules and other financial or statistical data and
stock valuation information contained or incorporated by
reference therein and except for any information supplied by
Sovereign for inclusion therein, as to which counsel need express
no belief), as of the date of mailing thereof and as of the date
of the meeting of shareholders of ML to approve the Merger,
contained any untrue statement of a material fact or omitted to
state a material fact necessary to make any statement therein, in
light of the circumstances under which it was made, not
misleading. Counsel may state in connection with the foregoing
that such counsel has not independently verified and does not
assume any responsibility for the accuracy, completeness or
fairness of any information or statements contained in the
Prospectus/Proxy Statement, except with respect to identified
statements of law or regulations or legal conclusions relating to
ML or ML Bank or the transactions contemplated in the Agreement
and the Plan and that it is relying as to materiality as to
factual matters on certificates of officers and representatives
of the parties to the Agreement and other factual representations
by ML and Main Line Bank.
Such counsel's opinion shall be limited to matters
governed by federal banking and securities laws and by the BCL.
<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Stock Option Agreement")
dated September 18, 1997, is by and between SOVEREIGN BANCORP,
INC., a Pennsylvania corporation ("Sovereign") and ML BANCORP,
INC., a Pennsylvania corporation ("ML").
BACKGROUND
1. Sovereign and ML desire to enter into an Agreement
and Plan of Merger, dated September 18, 1997 (the "Agreement"),
providing, among other things, for the acquisition by Sovereign
of ML through the merger of ML with and into Sovereign, with
Sovereign surviving the merger (the "Merger").
2. As a condition to Sovereign to enter into the
Plan, ML is granting to Sovereign an option to purchase up to
that number of shares of common stock, par value $.01 per share
(the "Common Stock") of ML as shall equal 19.9% of shares of
Common Stock of ML issued and outstanding as of the date hereof,
on the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual
covenants and agreements set forth herein, Sovereign and ML,
intending to be legally bound hereby, agree:
1. Grant of Option. ML hereby grants to Sovereign,
on the terms and conditions set forth herein, the option to
purchase (the "Option") up to 2,361,245 shares of Common Stock of
ML (as adjusted as set forth herein, the "Option Shares") at a
price per share (as adjusted as set forth herein, the "Option
Price") equal to $21.875, provided, however, that in no event
shall the number of Option Shares for which the Option is
exercisable exceed 19.9% of the issued and outstanding shares of
ML Common Stock without giving effect to any shares subject to or
issued pursuant to the Option.
2. Exercise of Option.
(a) Provided that (i) Sovereign shall not be, on
the date of exercise, in material breach of the agreements or
covenants contained in the Agreement or this Stock Option
Agreement, and (ii) no preliminary or permanent injunction or
other order against the delivery of shares covered by the Option
issued by any court of competent jurisdiction in the United
States shall be in effect on the date of exercise, upon or after
the occurrence of a Triggering Event (as such term is hereinafter
defined) Sovereign may exercise the Option, in whole or in part,
at any time or one or more times, from time to time; provided
that the Option shall terminate and be of no further force and
effect upon the earliest to occur of (A) the Effective Date of
the Merger, as provided in the Agreement, (B) termination of the
Agreement in accordance with the terms thereof prior to the
occurrence of a Triggering Event or a Preliminary Triggering
Event, other than a termination of the Agreement pursuant to
Section 6.01(d), unless in the case of termination by ML pursuant
to Section 6.01(d), such termination is as a result of a willful
breach of the Agreement by Sovereign (a termination pursuant to
Section 6.01(d), except a termination by ML as a result of a
willful breach by Sovereign, being referred to herein as a
"Default Termination"), (C) 18 months after the termination of
the Agreement by Sovereign or ML pursuant to a Default
Termination, and (D) 18 months after termination of the Agreement
(other than pursuant to a Default Termination) following the
occurrence of a Triggering Event or a Preliminary Triggering
Event; and provided, further, that any purchase of shares upon
exercise of the Option shall be subject to compliance with
applicable securities and banking laws. The rights set forth in
Section 3 hereof shall terminate when the right to exercise the
Option terminates (other than as a result of a complete exercise
of the Option) as set forth above.
(b) As used herein, the term "Triggering Event"
means the occurrence of any of the following events:
(i) a person or group (as such terms are
defined in the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations
thereunder), other than Sovereign or an affiliate of
Sovereign, acquires beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act) of 25% or more of the
then outstanding shares of Common Stock (excluding any
shares eligible to be reported on Schedule 13G of the
Securities and Exchange Commission); or
(ii) a person or group, other than Sovereign
or an affiliate of Sovereign, enters into an agreement or
letter of intent or memorandum of understanding with ML
pursuant to which such person or group or any affiliate of
such person or group would (i) merge or consolidate, or
enter into any similar transaction, with ML, (ii) acquire
all or substantially all of the assets or liabilities of ML
or all or substantially all of the assets or liabilities of
Main Line Bank (or any successor subsidiary), the wholly-
owned subsidiary of ML ("ML Bank"), or (iii) acquire
beneficial ownership of securities representing, or the
right to acquire beneficial ownership or to vote securities
representing, 25% or more of the then outstanding shares of
Common Stock (excluding any shares eligible to be reported
on Schedule 13G of the Securities and Exchange Commission)
or the then outstanding shares of common stock of ML Bank,
or ML shall have authorized, recommended or publicly
proposed, or publicly announced an intention to authorize,
recommend or propose, such an agreement or letter of intent
or memorandum of understanding.
(c) As used herein, the term "Preliminary
Triggering Event" means the occurrence of any of the following
events:
(i) a person or group (as such terms are
defined in the Exchange Act and the rules and regulations
thereunder), other than Sovereign or an affiliate of
Sovereign, acquires beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act) of 10% or more of the
then outstanding shares of Common Stock (excluding any
shares eligible to be reported on Schedule 13G of the
Securities and Exchange Commission);
(ii) a person or group, other than Sovereign
or an affiliate of Sovereign, publicly announces a bona fide
proposal (including a written communication that is or
becomes the subject of public disclosure) for (i) any
merger, consolidation or acquisition of all or substantially
all the assets or liabilities of ML or all or substantially
all the assets or liabilities of ML Bank, or any other
business combination involving ML or ML Bank, or (ii) a
transaction involving the transfer of beneficial ownership
of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 10%
or more of the then outstanding shares of Common Stock or
the then outstanding shares of Common Stock of ML Bank
(collectively, a "Proposal"), and thereafter, if such
Proposal has not been Publicly Withdrawn (as such term is
hereinafter defined) at least 30 days prior to the meeting
of shareholders of ML called to vote on the Merger, ML's
shareholders fail to approve the Merger by the vote required
by applicable law at the meeting of shareholders called for
such purpose or such meeting has been cancelled; or
(iii) the Board of Directors of ML shall
(A) fail to recommend the Merger, (B) recommend an
Acquisition Transaction or (C) have withdrawn or modified
in a manner adverse to Sovereign the recommendation of the
Board of Directors of ML with respect to the Agreement and
thereafter ML's shareholders fail to approve the Merger by
the vote required by law at the meeting of shareholders
called for such purpose or such meeting is not scheduled or
is cancelled; or
(iv) a person or group, other than Sovereign
or an affiliate of Sovereign, makes a bona fide Proposal and
thereafter, but before such Proposal has been Publicly
Withdrawn, ML shall have breached any representation,
warranty, covenant or obligation contained in the Agreement
and such breach would entitle Sovereign to terminate the
Agreement under Section 6.01(d) thereof (without regard to
the cure period provided for therein unless such cure is
promptly effected without jeopardizing consummation of the
Merger pursuant to the Agreement).
If more than one of the transactions giving rise to a Triggering
Event or a Preliminary Triggering Event under this Section 2 is
undertaken or effected, then all such transactions shall give
rise only to one Triggering Event or Preliminary Triggering
Event, as applicable, which Triggering Event or Preliminary
Triggering Event shall be deemed continuing for all purposes
hereunder until all such transactions are abandoned.
"Publicly Withdrawn" for purposes of this Section 2
shall mean an unconditional bona fide withdrawal of the Proposal
coupled with a public announcement of no further interest in
pursuing such Proposal or in acquiring any controlling influence
over ML or in soliciting or inducing any other person (other than
Sovereign or an affiliate of Sovereign) to do so.
Notwithstanding the foregoing, the obligation of ML to
issue Option Shares upon exercise of the Option shall be deferred
(but shall not terminate): (i) until the receipt of all required
governmental or regulatory approvals or consents necessary for ML
to issue the Option Shares or Sovereign to exercise the Option,
or until the expiration or termination of any waiting period
required by law, or (ii) so long as any injunction or other
order, decree or ruling issued by any federal or state court of
competent jurisdiction is in effect which prohibits the sale or
delivery of the Option Shares, and, in each case, notwithstanding
any provision to the contrary set forth herein, the Option shall
not expire or otherwise terminate.
ML shall notify Sovereign promptly in writing of the
occurrence of any Triggering Event known to it, it being
understood that the giving of such notice by ML shall not be a
condition to the right of Sovereign to exercise the Option. ML
will not take any action which would have the effect of
preventing or disabling ML from delivering the Option Shares to
Sovereign upon exercise of the Option or otherwise performing its
obligations under this Stock Option Agreement, except to the
extent required by applicable securities and banking laws and
regulations. In the event Sovereign wishes to exercise the
Option, Sovereign shall send a written notice to ML (the date of
which is hereinafter referred to as the "Notice Date") specifying
the total number of Option Shares it wishes to purchase and a
place and date between two and ten business days inclusive from
the Notice Date for the closing of such a purchase (a "Closing");
provided, however, that a Closing shall not occur prior to two
days after the later of receipt of any necessary regulatory
approvals or the expiration of any legally required notice or
waiting period, if any.
3. Repurchase of Option by ML.
(a) Subject to the last sentence of Section 2(a),
at the request of Sovereign at any time commencing upon the first
occurrence of a Repurchase Event (as defined in Section 3(d)) and
ending 18 months immediately thereafter, ML shall repurchase from
Sovereign (x) the Option and (y) all shares of Common Stock
purchased by Sovereign pursuant hereto with respect to which
Sovereign then has beneficial ownership. The date on which
Sovereign exercises its rights under this Section 3 is referred
to as the "Request Date." Such repurchase shall be at an
aggregate price (the "Section 3 Repurchase Consideration") equal
to the sum of:
(i) the aggregate Purchase Price paid by
Sovereign for any shares of Common Stock acquired pursuant
to the Option with respect to which Sovereign then has
beneficial ownership;
(ii) the excess, if any, of (x) the
Applicable Price (as defined below) for each share of Common
Stock over (y) the Option Price (subject to adjustment
pursuant to Section 6), multiplied by the number of shares
of Common Stock with respect to which the Option has not
been exercised; and
(iii) the excess, if any, of the Applicable
Price over the Option Price (subject to adjustment pursuant
to Section 6) paid (or, in the case of Option Shares with
respect to which the Option has been exercised, but the
Closing has not occurred, payable) by Sovereign for each
share of Common Stock with respect to which the Option has
been exercised and with respect to which Sovereign then has
beneficial ownership, multiplied by the number of such
shares.
(b) If Sovereign exercises it rights under this
Section 3, ML shall, within ten (10) business days after the
Request Date, pay the Section 3 Repurchase Consideration to
Sovereign in immediately available funds, and contemporaneously
with such payment, Sovereign shall surrender to ML the Option and
the certificate evidencing the shares of Common Stock purchased
thereunder with respect to which Sovereign then has beneficial
ownership, and Sovereign shall warrant that it has sole record
and beneficial ownership of such shares, and that the same are
then free and clear of all liens, claims, charges and
encumbrances of any kind whatsoever. Notwithstanding the
foregoing, to the extent that prior notification to or approval
of any banking agency or department of any federal or state
government, including without limitation the OTS, the FDIC, or
the respective staffs thereof (the "Regulatory Authority"), is
required in connection with the payment of all or any portion of
the Section 3 Repurchase Consideration, Sovereign shall have the
ongoing option to revoke its request for repurchase pursuant to
Section 3, in whole or in part, or to require that ML deliver
from time to time that portion of the Section 3 Repurchase
Consideration that it is not then so prohibited from paying and
promptly file the required notice or application for approval and
expeditiously process the same (and each party shall cooperate
with the other in the filing of any such notice or application
and the obtaining of any such approval), in which case the ten
(10) business day period of time that would otherwise run
pursuant to the preceding sentence for the payment of the portion
of the Section 3 Repurchase Consideration shall run instead from
the date on which, as the case may be, any required notification
period has expired or been terminated or such approval has been
obtained and, in either event, any requisite waiting period shall
have passed. If any Regulatory Authority disapproves of any part
of ML's proposed repurchase pursuant to this Section 3, ML shall
promptly give notice of such fact to Sovereign. If any
Regulatory Authority prohibits the repurchase pursuant to this
Section 3, ML shall promptly give notice of such fact to
Sovereign. If any Regulatory Authority prohibits the repurchase
in part but not in whole, then Sovereign shall have the right
(i) to revoke the repurchase request or (ii) to the extent
permitted by such Regulatory Authority, determine whether the
repurchase should apply to the Option and/or Option Shares and to
what extent to each, and Sovereign shall thereupon have the right
to exercise the Option as to the number of Option Shares for
which the Option was exercisable at the Request Date less the sum
of the number of shares covered by the Option in respect of which
payment has been made pursuant to Section 3(a)(ii) and the number
of shares covered by the portion of the Option (if any) that has
been repurchased. Sovereign shall notify ML of its determination
under the preceding sentence within five (5) business days of
receipt of notice of disapproval of the repurchase.
(c) For purposes of this Agreement, the
"Applicable Price" means the highest of (i) the highest price per
share of Common Stock paid for any such share by the person or
groups described in Section 3(d)(i), (ii) the price per share of
Common Stock received by a holder of Common Stock in connection
with any merger or other business combination transaction
described in Section 3(d)(ii), (iii) or (iv), or (iii) the
highest closing sales price per share of Common Stock quoted on
the Nasdaq Stock Market during the 40 business days preceding the
Request Date; provided, however, that in the event of a sale of
less than all of ML's assets, the Applicable Price shall be the
sum of the price paid in such sale for such assets and the
current market value of the remaining assets of ML as determined
by a nationally-recognized investment banking firm selected by
Sovereign, divided by the number of shares of Common Stock
outstanding at the time of such sale. If the consideration to be
offered, paid or received pursuant to either of the foregoing
clauses (i) or (ii) shall be other than in cash, the value of
such consideration shall be determined in good faith by an
independent nationally-recognized investment banking firm
selected by Sovereign and reasonably acceptable to ML, which
determination shall be conclusive for all purposes of this
Agreement.
(d) As used herein, a Repurchase Event shall
occur if (i) any person or group (as such terms are defined in
the Exchange Act and the rules and regulations thereunder), other
than Sovereign or an affiliate of Sovereign, acquires beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange
Act) of, or the right to acquire beneficial ownership of, 25% or
more of the then-outstanding shares of Common Stock, (ii) ML
shall have merged or consolidated with any person, other than
Sovereign or an affiliate of Sovereign, and shall not be the
surviving or continuing corporation of such merger or
consolidation, (iii) any person, other than Sovereign or an
affiliate of Sovereign, shall have merged into ML and ML shall be
the surviving corporation, but, in connection with such merger,
the then-outstanding shares of Common Stock have been changed
into or exchanged for stock or other securities of ML or any
other person or cash or any other property or the outstanding
shares of Common Stock immediately prior to such merger shall
after such merger represent less than 50% of the outstanding
shares and share equivalents of the surviving corporation or
(iv) ML shall have sold or otherwise transferred more than 25% of
its consolidated assets to any person, other than Sovereign or an
affiliate of Sovereign.
4. Payment and Delivery of Certificates. At any
Closing hereunder, (a) Sovereign will make payment to ML of the
aggregate price for the Option Shares so purchased by wire
transfer of immediately available funds to an account designated
by ML, (b) ML will deliver to Sovereign a stock certificate or
certificates representing the number of Option Shares so
purchased, registered in the name of Sovereign or its designee,
in such denominations as were specified by Sovereign in its
notice of exercise, and (c) Sovereign will pay any transfer or
other taxes required by reason of the issuance of the Option
Shares so purchased.
A legend will be placed on each stock certificate
evidencing Option Shares issued pursuant to this Stock Option
Agreement, which legend will read substantially as follows:
"The shares of stock evidenced by this
certificate have not been the subject of a registration
statement filed under the Securities Act of 1933, as
amended (the "Act"), and declared effective by the
Securities and Exchange Commission. These shares may
not be sold, transferred or otherwise disposed of prior
to such time unless ML Bancorp, Inc. receives an
opinion of counsel acceptable to it stating that an
exemption from the registration provisions of the Act
is available for such transfer."
5. Registration Rights. Upon or after the occurrence
of a Triggering Event and upon receipt of a written request from
Sovereign, ML shall prepare and file as soon as practicable a
registration statement under the Securities Act of 1933 (the
"Securities Act") with the Securities and Exchange Commission
covering the Option and such number of Option Shares as Sovereign
shall specify in its request, and ML shall use its best efforts
to cause such registration statement to be declared effective in
order to permit the sale or other disposition of the Option and
the Option Shares, provided that Sovereign shall in no event have
the right to have more than one such registration statement
become effective, and provided further that ML shall not be
required to prepare and file any such registration statement in
connection with any proposed sale with respect to which counsel
to ML delivers to ML and to Sovereign its opinion to the effect
that no such filing is required under applicable laws and
regulations with respect to such sale or disposition; provided
further, however, that ML may delay any registration of Option
Shares above for a period not exceeding 90 days in the event that
ML shall in good faith determine that any such registration would
adversely affect an offering or contemplated offering of
securities by ML. Sovereign shall provide all information
reasonably requested by ML for inclusion in any registration
statement to be filed hereunder. In connection with such filing,
ML shall use its reasonable best efforts to cause to be delivered
to Sovereign such certificates, opinions, accountant's letters
and other documents as Sovereign shall reasonably request and as
are customarily provided in connection with registration of
securities under the Securities Act. ML shall provide to
Sovereign such number of copies of the preliminary prospectus and
final prospectus and any amendments and supplements thereto as
Sovereign may reasonably request.
All reasonable expenses incurred by ML in complying
with the provisions of this Section 5, including, without
limitation, all registration and filing fees, reasonable printing
expenses, reasonable fees and disbursements of counsel for ML and
blue sky fees and expenses, shall be paid by ML. Underwriting
discounts and commissions to brokers and dealers relating to the
Option Shares, fees and disbursements of counsel to Sovereign and
any other expenses incurred by Sovereign in connection with such
filing shall be borne by Sovereign. In connection with such
filing, ML shall indemnify and hold harmless Sovereign against
any losses, claims, damages or liabilities, joint or several, to
which Sovereign may become subject, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any
preliminary or final registration statement or any amendment or
supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and ML will reimburse Sovereign for any
legal or other expense reasonably incurred by Sovereign in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that ML will not
be liable in any case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged
omission made in such preliminary or final registration statement
or such amendment or supplement thereto in reliance upon and in
conformity with written information furnished by or on behalf of
Sovereign specifically for use in the preparation thereof.
Sovereign will indemnify and hold harmless ML to the same extent
as set forth in the immediately preceding sentence but only with
reference to written information furnished by or on behalf of
Sovereign for use in the preparation of such preliminary or final
registration statement or such amendment or supplement thereto;
and Sovereign will reimburse ML for any legal or other expense
reasonably incurred by ML in connection with investigating or
defending any such loss, claim, damage, liability or action.
Notwithstanding anything to the contrary contained herein, no
indemnifying party shall be liable for any settlement effected
without its prior written consent.
6. Adjustment Upon Changes in Capitalization. In the
event of any change in the Common Stock by reason of stock
dividends, split-ups, recapitalizations, combinations,
conversions, divisions, exchanges of shares or the like, then the
number and kind of Option Shares and the Option Price shall be
appropriately adjusted.
7. Filings and Consents. Each of Sovereign and ML
will use its reasonable best efforts to make all filings with,
and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions
contemplated by this Stock Option Agreement. Within 10 days from
the date hereof, Sovereign shall file a report of beneficial
ownership on Form 13D with the Securities and Exchange Commission
under the Exchange Act which discloses the rights of Sovereign
hereunder.
8. Representations and Warranties of ML. ML hereby
represents and warrants to Sovereign as follows:
(a) Due Authorization. ML has full corporate
power and authority to execute, deliver and perform this Stock
Option Agreement and all corporate action necessary for
execution, delivery and performance of this Stock Option
Agreement has been duly taken by ML. This Stock Option
Agreement constitutes a legal, valid and binding obligation of
ML, enforceable against ML in accordance with its terms (except
as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws
of general applicability relating to or affecting creditors'
rights or by general equity principles).
(b) Authorized Shares. ML has taken all
necessary corporate action to authorize and reserve for issuance
all shares of Common Stock that may be issued pursuant to any
exercise of the Option.
9. Representations and Warranties of Sovereign.
Sovereign hereby represents and warrants to ML that Sovereign has
full corporate power and authority to execute, deliver and
perform this Stock Option Agreement and all corporate action
necessary for execution, delivery and performance of this Stock
Option Agreement has been duly taken by Sovereign. This Stock
Option Agreement constitutes a legal, valid and binding
obligation of Sovereign, enforceable against Sovereign in
accordance with its terms (except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles).
10. Specific Performance. The parties hereto
acknowledge that damages would be an inadequate remedy for a
breach of this Stock Option Agreement and that the obligations of
the parties hereto shall be specifically enforceable.
11. Entire Agreement. This Stock Option Agreement and
the Agreement constitute the entire agreement between the parties
with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, among
the parties or any of them with respect to the subject matter
hereof.
12. Assignment or Transfer. Sovereign may not sell,
assign or otherwise transfer its rights and obligations
hereunder, in whole or in part, to any person or group of persons
other than to a subsidiary of Sovereign. Sovereign represents
that it is acquiring the Option for Sovereign's own account and
not with a view to, or for sale in connection with, any
distribution of the Option or the Option Shares. Sovereign is
aware that neither the Option nor the Option Shares is the
subject of a registration statement filed with, and declared
effective by, the Securities and Exchange Commission pursuant to
Section 5 of the Securities Act, but instead each is being
offered in reliance upon the exemption from the registration
requirement provided by Section 4(2) thereof and the
representations and warranties made by Sovereign in connection
therewith.
13. Amendment of Stock Option Agreement. By mutual
consent of the parties hereto, this Stock Option Agreement may be
amended in writing at any time, for the purpose of facilitating
performance hereunder or to comply with any applicable regulation
of any governmental authority or any applicable order of any
court or for any other purpose.
14. Validity. The invalidity or unenforceability of
any provision of this Stock Option Agreement shall not affect the
validity or enforceability of any other provisions of this Stock
Option Agreement, which shall remain in full force and effect.
15. Notices. All notices, requests, consents and
other communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given when
delivered personally, by telegram or telecopy, or by registered
or certified mail (postage prepaid, return receipt requested) to
the respective parties as follows:
(i) If to Sovereign, to:
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Attention: Jay S. Sidhu, President
and Chief Executive Officer
Telecopy No.: (610) 320-8448
with a copy to:
Stevens & Lee
111 North Sixth Street
P.O. Box 679
Reading, Pennsylvania 19603
Attention: Joseph M. Harenza, Esquire
Jeffrey P. Waldron, Esquire
Telecopy No.: (610) 376-5610
(ii) If to ML, to:
ML Bancorp, Inc.
Route 320 & Lancaster Ave.
Villanova, Pennsylvania 19805
Attention: Dennis S. Marlo
President
and Chief Executive Officer
Telecopy No.: (610) 526-6227
with copies to:
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
12th Floor
Washington, D.C. 20005
Attention: Gerard L. Hawkins, Esquire
Daniel P. Weitzel, Esquire
Telecopy No.: (202) 347-2172
or to such other address as the person to whom notice is to be
given may have previously furnished to the others in writing in
the manner set forth above (provided that notice of any change of
address shall be effective only upon receipt thereof).
16. Governing Law. This Stock Option Agreement shall
be governed by and construed in accordance with the domestic
internal law (but not the law of conflicts of law) of the
Commonwealth of Pennsylvania.
17. Captions. The captions in this Stock Option
Agreement are inserted for convenience and reference purposes,
and shall not limit or otherwise affect any of the terms or
provisions hereof.
18. Waivers and Extensions. The parties hereto may,
by mutual consent, extend the time for performance of any of the
obligations or acts of either party hereto. Each party may waive
(i) compliance with any of the covenants of the other party
contained in this Stock Option Agreement and/or (ii) the other
party's performance of any of its obligations set forth in this
Stock Option Agreement.
19. Parties in Interest. This Stock Option Agreement
shall be binding upon and inure solely to the benefit of each
party hereto, and, nothing in this Stock Option Agreement,
express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by
reason of this Stock Option Agreement.
20. Counterparts. This Stock Option Agreement may be
executed in two or more counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one
and the same agreement.
21. Expenses. Except as otherwise provided herein,
all costs and expenses incurred by the parties hereto in
connection with the transactions contemplated by this Stock
Option Agreement or the Option shall be paid by the party
incurring such cost or expense.
22. Defined Terms. Capitalized terms which are used
but not defined herein shall have the meanings ascribed to such
terms in the Agreement.
IN WITNESS WHEREOF, each of the parties hereto,
pursuant to resolutions adopted by its Board of Directors, has
caused this Stock Option Agreement to be executed by its duly
authorized officer and has caused its corporate seal to be
affixed hereunto and to be duly attested, all as of the day and
year first above written.
SOVEREIGN BANCORP, INC.
By /s/ Jay S. Sidhu
Jay S. Sidhu,
President and Chief
Executive Officer
ML BANCORP, INC.
By /s/ Dennis S. Marlo
Dennis S. Marlo
President and Chief Executive
Officer
<PAGE>
ANNEX C
OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
December 15, 1997
Board of Directors
Sovereign Bancorp
1130 Berkshire Boulevard
Wyomissing, PA 19610
Members of the Board:
We understand that Sovereign Bancorp (SVRN) and ML Bancorp,
Inc. (ML Bancorp) have entered into an Agreement and Plan of
Merger (the Agreement) dated September 18, 1997 pursuant to which
ML Bancorp is to be merged with and into SVRN in a transaction
(the Merger) in which each outstanding share of ML Bancorp's
common stock, par value $0.01 per share (the ML Bancorp Shares),
will be converted into the right to receive shares (the Exchange
Ratio) of the common stock, no par value per share, of Sovereign
Bancorp (the SVRN Shares), all as set forth more fully in the
Agreement.
You have asked us whether, in our opinion, the Exchange
Ratio is fair from a financial point of view to SVRN.
In arriving at the opinion set forth below, we have, among
other things:
(1) Reviewed certain publicly available business and financial
information relating to SVRN and ML Bancorp that we deemed
to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the businesses, earnings, assets, liabilities
and prospects of ML Bancorp and SVRN furnished to us by
senior management of SVRN and ML Bancorp, as well as the
amount and timing of the cost savings and related expenses
and revenue enhancements expected to result from the Merger
furnished to us by the senior management of SVRN and ML
Bancorp (the Expected Synergies);
(3) Conducted discussions with members of senior management of
SVRN and ML Bancorp concerning the foregoing, including the
respective businesses, prospects, regulatory condition and
contingencies of SVRN and ML Bancorp before and after giving
effect to the Merger and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the
SVRN Shares and ML Bancorp Shares and compared the SVRN
Shares and the ML Bancorp Shares with those of certain
publicly-traded companies which we deemed to be relevant;
(5) Reviewed the results of operations of ML Bancorp and SVRN
and compared them with those of certain publicly traded
companies which we deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions which we
deemed to be relevant;
(7) Reviewed the potential pro forma impact of the Merger;
(8) Reviewed the Agreement and the Joint Proxy Statement -
Prospectus to be sent to shareholders of Sovereign and ML
Bancorp in connection with the Merger; and
(9) Reviewed such other financial studies and analyses and took
into account such other matters as we deemed necessary,
including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have, with your consent,
assumed and relied on the accuracy and completeness of all
information supplied or otherwise made available to us, discussed
with or reviewed by or for us, or publicly available, and we have
not assumed responsibility for independently verifying such
information or undertaken an independent evaluation or appraisal
of the assets or liabilities of SVRN or ML Bancorp, nor have we
been furnished any such evaluation or appraisal. We are not
experts in the evaluation of allowances for loan losses and we
have neither made an independent evaluation of the adequacy of
the allowance for loan losses of SVRN or ML Bancorp, nor reviewed
any individual credit files relating to SVRN or ML Bancorp and,
as a result, we have assumed that the aggregate allowance for
loan losses for both SVRN and ML Bancorp is adequate to cover
such losses and will be adequate on a pro forma basis for the
combined entity. In addition, we have not assumed any obligation
to conduct, nor have we conducted, any physical inspection of the
properties or facilities of SVRN or ML Bancorp. With respect to
the financial forecast information, including, without
limitation, financial forecasts, evaluation of contingencies and
projections regarding under-performing and non-performing assets,
net charge-offs, adequacy of reserves and future economic
conditions and the Expected Synergies, furnished to or discussed
with us by SVRN or ML Bancorp, we have assumed that they have
been reasonably prepared and reflect the best currently available
estimates, allocations and judgements of the senior management of
SVRN and ML Bancorp as to the expected future financial
performance of SVRN, ML Bancorp or the combined entity, as the
case many be, and the Expected Synergies. We express no opinion
as to such financial forecast information or the Expected
Synergies or the assumptions upon which they were based. We have
further assumed that the Merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes and will be
accounted for as a pooling of interests.
Our opinion is necessarily based upon market, economic and
other conditions as in effect, and on the information made
available to us as of, the date hereof. For the purposes of
rendering this opinion, we have assumed, in all respects material
to our analysis, that the representations and warranties of each
party in the Agreement and all related documents and instruments
(collectively, the "Documents") contained therein are true and
correct, that each party to the Documents will perform all of the
covenants and agreements required to be performed by such party
under such Documents, and that all conditions to the consummation
of the Merger will be satisfied without waiver thereof. We have
also assumed that in the course of obtaining the necessary
regulatory or other consents or approvals (contractual or
otherwise) for the Merger, no restrictions, including any
divestiture requirements or amendment or modifications, will be
imposed that will have a material adverse affect on the
contemplated benefits of the Merger, including the Expected
Synergies.
We are acting as financial advisor to SVRN in connection
with the Merger and will receive a fee from SVRN for our
services, a significant portion of which is contingent upon the
consummation of the Merger. In addition, SVRN has agreed to
indemnify us for certain liabilities arising out of our
engagement. We have in the past provided financial advisory,
investment banking and other services to SVRN, and may continue
to do so, and have received, and may receive, customary fees for
the rendering of such services. In addition, in the ordinary
course of our business, we also may actively trade debt and/or
equity securities of SVRN and its respective affiliates for our
own account and the accounts of our customers, and therefore we
may from time to time hold a long or short position in such
securities.
This opinion is for the use and benefit of the Board of
Directors of SVRN. Our opinion does not address the merits of
the underlying decision by SVRN to engage in the Merger, and does
not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed Merger.
We are not expressing any opinion herein as to the prices at
which SVRN shares will trade following the announcement or
consummation of the merger.
On the basis of and subject to the foregoing, we are of the
opinion that, as the date hereof, the Exchange Ratio is fair
from a financial point of view to SVRN.
Very truly yours,
/s/ MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
<PAGE>
ANNEX D
OPINION OF SANDLER O'NEILL & PARTNERS L.P.
December 15, 1997
Board of Directors
ML Bancorp, Inc.
Two Aldwyn Center
Villanova, PA 19085-1431
Gentlemen:
ML Bancorp, Inc. ("MLBC") and Sovereign Bancorp, Inc.
("Sovereign") have entered into an Agreement and Plan of Merger,
dated as of September 18, 1997 (the "Agreement"), pursuant to
which MLBC will be merged with and into Sovereign (the "Merger").
Upon consummation of the Merger, each share of MLBC common stock,
par value $0.01 per share, issued and outstanding immediately
prior to the Merger (the "MLBC Shares"), other than certain
shares specified in the Agreement, will be converted into the
right to receive 1.67 shares of Sovereign common stock, no par
value, subject to adjustment as provided in the Agreement if the
Sovereign Market Value (as defined in the Agreement) is greater
than $18.67 or less than $13.80 (the "Exchange Ratio"). The
terms and conditions of the Merger are more fully set forth in
the Agreement. You have requested our opinion as to the
fairness, from a financial point of view, of the Exchange Ratio
to the holders of the MLBC Shares.
Sandler O'Neill & Partners, L.P., as part of its investment
banking business, is regularly engaged in the valuation of
financial institutions and their securities in connection with
mergers and acquisitions and other corporate transactions. In
connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) the Stock
Option Agreement, dated as of September 18, 1997, by and between
MLBC and Sovereign; (iii) the Joint Proxy Statement/Prospectus of
Sovereign and MLBC dated the date hereof; (iv) Sovereign's
audited consolidated financial statements and management's
discussion and analysis of financial condition and results of
operations as contained in its annual report to shareholders for
the year ended December 31, 1996; (v) MLBC's audited consolidated
financial statements and management's discussion and analysis of
financial condition and results of operations as contained in its
annual report to shareholders for the year ended March 31, 1997;
(vi) Sovereign's unaudited consolidated financial statements and
management's discussion and analysis of financial condition and
results of operations contained in its Quarterly Report on Form
10-Q for the quarters ended March 31, June 30 and September 30,
1997, respectively; (vii) MLBC's unaudited consolidated financial
statements and management's discussion and analysis of the
financial condition and results of operations contained in its
Quarterly Report on Form 10-Q for the quarters ended June 30 and
September 30, 1997, respectively; (viii) certain financial
analyses and forecasts of MLBC prepared by and reviewed with
management of MLBC and the views of senior management of MLBC
regarding MLBC's past and current business operations, results
thereof, financial condition and future prospects; (ix) certain
financial analyses and forecasts of Sovereign prepared by and
reviewed with management of Sovereign and the views of senior
management of Sovereign regarding Sovereign's past and current
business operations, results thereof, financial condition and
future prospects; (x) the pro forma impact of the Merger on
Sovereign; (xi) the publicly reported historical price and
trading activity for Sovereign's and MLBC's common stock,
including a comparison of certain financial and stock market
information for Sovereign and MLBC with similar publicly
available information for certain other companies the securities
of which are publicly traded; (xii) the financial terms of recent
business combinations in the savings institution industry, to the
extent publicly available; (xiii) the current market environment
generally and the banking environment in particular; and (xiv)
such other information, financial studies, analyses and
investigations and financial, economic and market criteria as we
considered relevant. We were not asked to, and did not, solicit
indications of interest in a potential transaction from other
third parties.
In performing our review, we have assumed and relied upon,
without independent verification, the accuracy and completeness
of all the financial information, analyses and other information
that was publicly available or otherwise furnished to, reviewed
by or discussed with us, and we do not assume any responsibility
or liability therefor. We did not make an independent evaluation
or appraisal of the specific assets, the collateral securing
assets or the liabilities of Sovereign or MLBC or any of their
subsidiaries, or the collectibility of any such assets, nor have
we been furnished with any such evaluations or appraisals
(relying, where relevant, on the analyses and estimates of
Sovereign and MLBC). With respect to the financial projections
reviewed with management, we have assumed that they have been
reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements
of the respective future financial performances of Sovereign and
MLBC and that such performances will be achieved. We have also
assumed that there has been no material change in Sovereign's or
MLBC's assets, financial condition, results of operations,
business or prospects since September 30, 1997, the date of the
last financial statements noted above. We have assumed that
Sovereign and MLBC will remain as going concerns for all periods
relevant to our analyses, that the Merger will be accounted for
as a pooling of interests and that the conditions precedent in
the Agreement are not waived.
Our opinion is necessarily based on financial, economic,
market and other conditions as in effect on, and the information
made available to us as of, the date hereof. Events occurring
after the date hereof could materially affect this opinion. We
have not undertaken to update, revise or reaffirm this opinion or
otherwise comment upon events occurring after the date hereof.
We are expressing no opinion herein as to what the value of
Sovereign common stock will be when issued to MLBC's shareholders
pursuant to the Agreement or the prices at which Sovereign's or
MLBC's common stock will trade at any time.
We have acted as MLBC's financial advisor in connection with
the Merger and will receive a fee for our services, a significant
portion of which is contingent upon consummation of the Merger.
We have also received a fee for rendering this opinion. In the
past, we have also provided certain other investment banking
services for MLBC and have received compensation for such
services. We may also provide certain investment banking
services to MLBC in the future, including in connection with the
reissuance of certain shares of MLBC common stock in connection
with the Merger, and will receive compensation for such services.
In the ordinary course of our business, we may actively
trade the debt and equity securities of Sovereign and MLBC for
our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in
such securities.
Our opinion is directed to the Board of Directors of MLBC in
connection with its consideration of the Merger and does not
constitute a recommendation to any stockholder of MLBC as to how
such stockholder should vote at any meeting of stockholders
called to consider and vote upon the Merger. Our opinion is not
to be quoted or referred to, in whole or in part, in a
registration statement, prospectus, proxy statement or in any
other document, nor shall this opinion be used for any other
purposes, without Sandler O'Neill's prior written consent;
provided, however, that we hereby consent to the inclusion of
this opinion as an annex to the Joint Proxy Statement/Prospectus
of Sovereign and MLBC dated the date hereof.
Based upon and subject to the foregoing, it is our opinion,
as of the date hereof, that the Exchange Ratio is fair, from a
financial point of view, to the holders of MLBC Shares.
Very truly yours,
/s/ Sandler O'Neill & Partners L.P.
<PAGE>
ANNEX E
SECTION 1930 OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988
Section 1930. Dissenters rights.
(a) General rule.--If any shareholder of a domestic
business corporation that is to be a party to a merger or
consolidation pursuant to a plan of merger or consolidation
objects to the plan of merger or consolidation and complies with
the provisions of Subchapter D of Chapter 15 [FN 1] (relating to
dissenters rights), the shareholder shall be entitled to the
rights and remedies of dissenting shareholders therein provided,
if any. See also section 1906(c) (relating to dissenters rights
upon special treatment).
(b) Plans adopted by directors only.--Except as otherwise
provided pursuant to section 1571(c) (relating to grant of
optional dissenters rights), Subchapter D of Chapter 15 shall not
apply to any of the shares of a corporation that is a party to a
merger or consolidation pursuant to section 1924(b)(1)(i)
(relating to adoption by board of directors).
(c) Cross references.--See sections 1571(b) (relating to
exceptions) and 1904 (relating to de facto transaction doctrine
abolished).
____________________
1 15 Pa. C.S.A. Section 1571 et seq.
<PAGE>
SUBCHAPTER D OF CHAPTER 15 OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988
Subchapter D.-Dissenters Rights
Section 1571. Application and effect of subchapter.
(a) General rule.--Except as otherwise provided in
subsection (b), any shareholder of a business corporation shall
have the right to dissent from, and to obtain payment of the fair
value of his shares in the event of, any corporate action, or to
otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and
remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon
special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share
exchanges).
Section 1932(c) (relating to dissenters rights in asset
transfers).
Section 1952(d) (relating to dissenters rights in
division).
Section 1962(c) (relating to dissenters rights in
conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a
restriction on transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon
election).
Section 2705(d) (relating to dissenters rights upon
renewal of election).
Section 2907(a) (relating to proceedings to terminate
breach of qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--
(1) Except as otherwise provided in paragraph (2), the
holders of the shares of any class or series of shares that, at
the record date fixed to determine the shareholders entitled to
notice of and to vote at the meeting at which a plan specified in
any of section 1930, 1931(d), 1932(c) or 1952(d) is to be voted
on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000
shareholders;
shall not have the right to obtain payment of the fair value of
any such shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters
rights shall be available without regard to the exception
provided in that paragraph in the case of:
(i) Shares converted by a plan if the shares are
not converted solely into shares of the acquiring,
surviving, new or other corporation or solely into such
shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class
unless the articles, the plan or the terms of the
transaction entitle all shareholders of the class to vote
thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a
majority of the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under
section 1906(c) (relating to dissenters rights upon special
treatment).
(3) The shareholders of a corporation that acquires by
purchase, lease, exchange or other disposition all or
substantially all of the shares, property or assets of another
corporation by the issuance of shares, obligations or otherwise,
with or without assuming the liabilities of the other corporation
and with or without the intervention of another corporation or
other person, shall not be entitled to the rights and remedies of
dissenting shareholders provided in this subchapter regardless of
the fact, if it be the case, that the acquisition was
accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to
elect a majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights.--The bylaws or a
resolution of the board of directors may direct that all or a
part of the shareholders shall have dissenters rights in
connection with any corporate action or other transaction that
would otherwise not entitle such shareholders to dissenters
rights.
(d) Notice of dissenters rights.--Unless otherwise provided
by statute, if a proposed corporate action that would give rise
to dissenters rights under this subpart is submitted to a vote at
a meeting of shareholders, there shall be included in or enclosed
with the notice of meeting:
(1) a statement of the proposed action and a statement
that the shareholders have a right to dissent and obtain
payment of the fair value of their shares by complying with
the terms of this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes.--The procedures of this subchapter
shall also be applicable to any transaction described in any
statute other than this part that makes reference to this
subchapter for the purpose of granting dissenters rights.
(f) Certain provisions of articles ineffective.--This
subchapter may not be relaxed by any provision of the articles.
(g) Cross references.--See sections 1105 (relating to
restriction on equitable relief), 1904 (relating to de facto
transaction doctrine abolished) and 2512 (relating to dissenters
rights procedure).
Section 1572. Definitions.
The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Corporation." The issuer of the shares held or owned
by the dissenter before the corporate action or the
successor by merger, consolidation, division, conversion or
otherwise of that issuer. A plan of division may designate
which of the resulting corporations is the successor
corporation for the purposes of this subchapter. The
successor corporation in a division shall have sole
responsibility for payments to dissenters and other
liabilities under this subchapter except as otherwise
provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is
entitled to and does assert dissenters rights under this
subchapter and who has performed every act required up to
the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately
before the effectuation of the corporate action to which the
dissenter objects taking into account all relevant factors,
but excluding any appreciation or depreciation in
anticipation of the corporate action.
"Interest." Interest from the effective date of the
corporate action until the date of payment at such rate as
is fair and equitable under all of the circumstances, taking
into account all relevant factors including the average rate
currently paid by the corporation on its principal bank
loans.
Section 1573. Record and beneficial holders and owners.
(a) Record holders of shares.--A record holder of shares of
a business corporation may assert dissenters rights as to fewer
than all of the shares registered in his name only if he dissents
with respect to all the shares beneficially owned by any one
person and discloses the name and address of the person or
persons on whose behalf he dissents. In that event, his rights
shall be determined as if the shares as to which he has dissented
and his other shares were registered in the names of different
shareholders.
(b) Beneficial owners of shares.--A beneficial owner of
shares of a business corporation who is not the record holder may
assert dissenters rights with respect to shares held on his
behalf and shall be treated as a dissenting shareholder under the
terms of this subchapter if he submits to the corporation not
later than the time of the assertion of dissenters rights a
written consent of the record holder. A beneficial owner may not
dissent with respect to some but less than all shares of the same
class or series owned by the owner, whether or not the shares so
owned by him are registered in his name.
Section 1574. Notice of intention to dissent.
If the proposed corporate action is submitted to a vote at a
meeting of shareholders of a business corporation, any person who
wishes to dissent and obtain payment of the fair value of his
shares must file with the corporation, prior to the vote, a
written notice of intention to demand that he be paid the fair
value of his shares if the proposed action is effectuated, must
effect no change in the beneficial ownership of his shares from
the date of such filing continuously through the effective date
of the proposed action and must refrain from voting his shares in
approval of such action. A dissenter who fails in any respect
shall not acquire any right to payment of the fair value of his
shares under this subchapter. Neither a proxy nor a vote against
the proposed corporate action shall constitute the written notice
required by this section.
Section 1575. Notice to demand payment.
(a) General rule.--If the proposed corporate action is
approved by the required vote at a meeting of shareholders of a
business corporation, the corporation shall mail a further notice
to all dissenters who gave due notice of intention to demand
payment of the fair value of their shares and who refrained from
voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders,
the corporation shall send to all shareholders who are entitled
to dissent and demand payment of the fair value of their shares a
notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be
sent and certificates for certificated shares must be
deposited in order to obtain payment.
(2) Inform holders of uncertificated shares to what
extent transfer of shares will be restricted from the time
that demand for payment is received.
(3) Supply a form for demanding payment that includes
a request for certification of the date on which the
shareholder, or the person on whose beneficial shareholder
dissents, acquired beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.--The time set
for receipt of the demand and deposit of certificated shares
shall be not less than 30 days from the mailing of the notice.
Section 1576. Failure to comply with notice to demand payment,
etc.
(a) Effect of failure of shareholder to act.--A shareholder
who fails to timely demand payment, or fails (in the case of
certificated shares) to timely deposit certificates, as required
by a notice pursuant to section 1575 (relating to notice to
demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares
are not represented by certificates, the business corporation may
restrict their transfer from the time of receipt of demand for
payment until effectuation of the proposed corporate action or
the release of restrictions under the terms of section 1577(a)
(relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.--The dissenter shall
retain all other rights of a shareholder until those rights are
modified by effectuation of the proposed corporate action.
Section 1577. Release of restrictions or payment for shares.
(a) Failure to effectuate corporate action.--Within 60 days
after the date set for demanding payment and depositing
certificates, if the business corporation has not effectuated the
proposed corporate action, it shall return any certificates that
have been deposited and release uncertificated shares from any
transfer restrictions imposed by reason of the demand for
payment.
(b) Renewal of notice to demand payment.--When uncertified
shares have been released from transfer restrictions and
deposited certificates have been returned, the corporation may at
any later time send a new notice conforming to the requirements
of section 1575 (relating to notice to demand payment), with like
effect.
(c) Payment of fair value of shares.--Promptly after
effectuation of the proposed corporate action, or upon timely
receipt of demand for payment if the corporate action has already
been effectuated, the corporation shall either remit to
dissenters who have made demand and (if their shares are
certificated) have deposited their certificates the amount that
the corporation estimates to be the fair value of the shares, or
give written notice that no remittance under this section will be
made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income
of the issuer of the shares held or owned by the dissenter
for a fiscal year ending not more than 16 months before the
date of remittance or notice together with the latest
available interim financial statements.
(2) A statement of the corporation's estimate of the
fair value of the shares.
(3) A notice of the right of the dissenter to demand
payment or supplemental payment, as the case may be,
accompanied by a copy of this subchapter.
(d) Failure to make payment.--If the corporation does not
remit the amount of its estimate of the fair value of the shares
as provided by subsection (c), it shall return any certificates
that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for
payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to any
such uncertificated shares that such demand has been made. If
shares with respect to which notation has been so made shall be
transferred, each new certificate issued therefor or the records
relating to any transferred uncertificated shares shall bear a
similar notation, together with the name of the original
dissenting holder or owner of such shares. A transferee of such
shares shall not acquire by such transfer any rights in the
corporation other than those which the original dissenter had
after making demand for payment of their fair value.
Section 1578. Estimate by dissenter of fair value of shares.
(a) General rule.--If the business corporation gives notice
of its estimate of the fair value of the shares, without
remitting such amount, or remits payment of its estimate of the
fair value of a dissenter's shares as permitted by
section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less
than the fair value of his shares, he may send to the corporation
his own estimate of the fair value of the shares, which shall be
deemed a demand for payment of the amount or the deficiency.
(b) Effect of failure to file estimate.--Where the
dissenter does not file his own estimate under subsection (a)
within 30 days after the mailing by the corporation of its
remittance or notice, the dissenter shall be entitled to no more
than the amount stated in the notice or remitted to him by the
corporation.
Section 1579. Valuation proceedings generally.
(a) General rule.--Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under
section 1575 (relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to
section 1578 (relating to estimate by dissenter of fair
value of shares);
if any demands for payment remain unsettled, the business
corporation may file in court an application for relief
requesting that the fair value of the shares be determined by the
court.
(b) Mandatory joinder of dissenters.--All dissenters,
wherever residing, whose demands have not been settled shall be
made parties to the proceeding as in an action against their
shares. A copy of the application shall be served on each such
dissenter. If a dissenter is a nonresident, the copy may be
served on him in the manner provided or prescribed by or pursuant
to 42 Pa.C.S. Ch. 53 (relating to bases of jurisdiction and
interstate and international procedure).
(c) Jurisdiction of the court.--The jurisdiction of the
court shall be plenary and exclusive. The court may appoint an
appraiser to receive evidence and recommend a decision on the
issue of fair value. The appraiser shall have such power and
authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a
party shall be entitled to recover the amount by which the fair
value of his shares is found to exceed the amount, if any,
previously remitted, plus interest.
(e) Effect of corporation's failure to file application.--
If the corporation fails to file an application as provided in
subsection (a), any dissenter who made a demand and who has not
already settled his claim against the corporation may do so in
the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to
file an application shall be paid the corporation's estimate of
the fair value of the shares and no more, and may bring an action
to recover any amount not previously remitted.
Section 1580. Costs and expenses of valuation proceedings.
(a) General rule.--The costs and expenses of any proceeding
under section 1579 (relating to valuation proceedings generally)
including the reasonable compensation and expenses of the
appraiser appointed by the court, shall be determined by the
court and assessed against the business corporation except that
any part of the costs and expenses may be apportioned and
assessed as the court deems appropriate against all or some of
the dissenters who are parties and whose action in demanding
supplemental payment under section 1578 (relating to estimate by
dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack
of good faith appears.--Fees and expenses of counsel and of
experts for the respective parties may be assessed as the court
deems appropriate against the corporation and in favor of any or
all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the
fees and expenses arc assessed acted in bad faith or in a
dilatory, obdurate, arbitrary or vexatious manner in respect to
the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the
court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and
should not be assessed against the corporation, it may award to
those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefitted.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Pennsylvania law provides that a Pennsylvania corporation
may indemnify directors, officers, employees and agents of the
corporation against liabilities they may incur in such capacities
for any action taken or any failure to act, whether or not the
corporation would have the power to indemnify the person under
any provision of law, unless such action or failure to act is
determined by a court to have constituted recklessness or willful
misconduct. Pennsylvania law also permits the adoption of a
bylaw amendment, approved by shareholders, providing for the
elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the
director has breached or failed to perform the duties of his
office and (2) the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.
The bylaws of Sovereign provide for (1) indemnification of
directors, officers, employees and agents of the registrant and
its subsidiaries and (2) the elimination of a director's
liability for monetary damages, to the fullest extent permitted
by Pennsylvania law.
Directors and officers are also insured against certain
liabilities for their actions, as such, by an insurance policy
obtained by Sovereign.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
2.1 Agreement and Plan of Merger dated September 18,
1997, between Sovereign Bancorp, Inc. and ML
Bancorp, Inc. (included as Annex A to the Proxy
Statement Prospectus). Schedules are omitted;
Sovereign Bancorp, Inc. agrees to furnish copies
of such schedules to the Commission upon request.
2.2 Stock Option Agreement dated as of September 18,
1997, between Sovereign Bancorp, Inc. and ML
Bancorp, Inc. (included as Annex B to the Proxy
Statement/Prospectus).
3.1 Articles of Incorporation, as amended, of
Sovereign Bancorp, Inc. (Incorporated by reference
to Exhibit 3.1 of Sovereign's Annual Report on
Form 10-K for the year ended December 31, 1995.)
3.2 Bylaws of Sovereign Bancorp, Inc. (Incorporated by
reference to Exhibit 3.2 of Sovereign's Annual
Report on Form 10-K for the year ended
December 31, 1993.)
4. Sovereign Bancorp, Inc. has outstanding long-term
debt that does not exceed 10% of the total assets
of Sovereign Bancorp, Inc. and its consolidated
subsidiaries; therefore, copies of the constituent
instruments defining the rights of the holders of
such debt are not included as exhibits to this
Registration Statement. Sovereign Bancorp, Inc.
agrees to furnish copies of such instruments to
the Commission upon request.
5. Opinion of Stevens & Lee re: Validity.
8.1 Form of opinion of Stevens & Lee re: tax matters.
8.2 Form of opinion of Elias, Matz, Tiernan & Herrick,
L.L.P. re: tax matters.**
10.1 Sovereign Bancorp, Inc. Stock Option Plan, as
amended and restated. (Incorporated by reference
to Exhibit 10.1 to Sovereign's Annual Report on
Form 10-K for the fiscal year ended December 31,
1994.)*
10.2 Sovereign Bancorp, Inc. 1993 Stock Option Plan.
(Incorporated by reference to Exhibit 10.21 to
Sovereign's Annual Report on Form 10-K for the
year ended December 31, 1992.)*
10.3 Sovereign Bancorp, Inc. Employee Stock Purchase
Plan. (Incorporated by reference to Exhibit 4.1
to Sovereign's Registration Statement No. 33-44108
on Form S-8.)*
10.4 Agreement dated as of March 1, 1997, between
Sovereign Bancorp, Inc., Sovereign Bank, and
Jay S. Sidhu. (Incorporated by reference to
Exhibit 99.1 of Sovereign's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997, as
amended).*
10.5 Agreement dated as of September 15, 1992, between
Sovereign Bank, a Federal Savings Bank, and
Karl D. Gerhart. (Incorporated by Reference to
Exhibit 10.4 of Sovereign's Annual Report on
Form 10-K for the fiscal year ended December 31,
1992.)*
10.6 Agreement dated as of September 15, 1992, between
Sovereign Bank, a Federal Savings Bank, and
Lawrence M. Thompson, Jr. (Incorporated by
reference to Exhibit 10.5 of Sovereign's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1992.)*
10.7 Penn Savings Bank Senior Officer Incentive Plan.
(Incorporated by reference to Exhibit 10.6 to
Sovereign's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.)*
10.8 Rights agreement dated September 19, 1989, between
Sovereign Bancorp, Inc. and Harris Trust Company
of New York. (Incorporated by reference to
Exhibit 4.3 to Sovereign's Registration Statement
No. 33-89586 on Form S-8.)
10.9 Sovereign Bancorp, Inc. Non-Employee Director
Incentive Compensation Plan. (Incorporated by
reference to Exhibit 10.12 to Sovereign's
Registration Statement No. 33-43195 on Form S-1.)*
10.10 Indemnification Agreement dated December 21, 1993,
between Sovereign Bank and Jay S. Sidhu.
(Incorporated herein by reference to Exhibit 10.25
to Sovereign's Annual Report on Form 10-K for the
year ended December 31, 1993).*
23.1 Consent of Ernst & Young LLP.
23.2 Consents of KPMG Peat Marwick LLP.
23.3 Consent of Stevens & Lee (contained in Exhibit 5).
23.4 Consent of Stevens & Lee.
23.5 Consent of Elias, Matz, Tiernan & Herrick, L.L.P.
23.6 Consent of Merrill, Lynch, Pierce, Fenner & Smith,
Incorporated.
23.7 Consent of Sandler O'Neill & Partners L.P.
23.8 Consent of Elias, Matz, Tiernan & Herrick, L.L.P.
re: tax opinion.**
24.1 Powers of Attorney of Directors and Officers
(included on signature page hereof).
99.1 Opinion of Merrill Lynch, Pierce, Fenner & Smith,
Incorporation dated December 15, 1997 (included as
Annex C to Proxy Statement/ Prospectus).
99.2 Opinion of Sandler O'Neill & Partners L.P., dated
December 15, 1997 (included as Annex D to Proxy
Statement/Prospectus).
99.3 Form of Proxy for the Special Meeting of
Shareholders of Sovereign Bancorp, Inc.
99.4 Form of Proxy for the Annual Meeting of
Shareholders of ML Bancorp, Inc.
____________________
* Denotes management contract or compensatory contract, plan
or arrangement.
** To be filed by amendment.
(b) Financial Statement Schedules.
None required.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any fact or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes to deliver
or cause to be delivered with the prospectus, to each person to
whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the requirements
of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person
to whom the prospectus is sent or given, the latest quarterly
report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(c) (1) The undersigned registrant hereby undertakes as
follows: that prior to any public reoffering of the
securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called
for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of
the applicable form.
(2) The registrant undertakes that every prospectus
(i) that is filed pursuant to paragraph (1) immediately
preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and
that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the bylaws of the registrant, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(e) The undersigned registrant hereby undertakes to respond
to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the
registration statement through the date of responding to the
request.
(f) The undersigned registrant hereby undertakes to supply
by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration
statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the Borough of Wyomissing, Commonwealth of
Pennsylvania, on December 12, 1997.
SOVEREIGN BANCORP, INC.
(Registrant)
By: /s/ Jay S. Sidhu
Jay S. Sidhu,
President and Chief Executive
Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Jay S. Sidhu,
Karl D. Gerhart and Joseph M. Harenza, and each of them, his true
and lawful attorney-in-fact, as agent with full power of
substitution and resubstitution for him and in his name, place
and stead, in any and all capacity, to sign any or all amendments
to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto such
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully and to all intents
and purposes as they might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Signature Title Date
/s/ Richard E. Mohn Chairman and December 12, 1997
Richard E. Mohn Director
/s/ Jay S. Sidhu Director, President December 12, 1997
Jay S. Sidhu and Chief Executive
Officer (Principal
Executive Officer)
/s/ Fred D. Hafer Director December 12, 1997
Fred D. Hafer
/s/ Rhoda S. Oberholtzer Director December 12, 1997
Rhoda S. Oberholtzer
/s/ Patrick J. Petrone Director December 12, 1997
Patrick J. Petrone
/s/ Daniel K. Rothermel Director December 12, 1997
Daniel K. Rothermel
/s/ Cameron C. Troilo Director December 12, 1997
Cameron C. Troilo
/s/ G. Arthur Weaver Director December 12, 1997
G. Arthur Weaver
/s/ Karl D. Gerhart Chief Financial December 12, 1997
Karl D. Gerhart Officer
/s/ Mark R. McCollom Chief Accounting December 12, 1997
Mark R. McCollom Officer
<PAGE>
EXHIBIT INDEX
Number Description
2.1 Agreement and Plan of Merger dated September 18,
1997, between Sovereign Bancorp, Inc. and ML
Bancorp, Inc. (included as Annex A to the Proxy
Statement Prospectus). Schedules are omitted;
Sovereign Bancorp, Inc. agrees to furnish copies
of such schedules to the Commission upon request.
2.2 Stock Option Agreement dated as of September 18,
1997, between Sovereign Bancorp, Inc. and ML
Bancorp, Inc. (included as Annex B to the Proxy
Statement/Prospectus).
5. Opinion of Stevens & Lee re: Validity.
8.1 Form of opinion of Stevens & Lee re: tax matters.
8.2 Form of opinion of Elias, Matz, Tiernan & Herrick,
LLP re: tax matters.**
23.1 Consent of Ernst & Young LLP.
23.2 Consents of KPMG Peat Marwick LLP.
23.3 Consent of Stevens & Lee (contained in Exhibit 5).
23.4 Consent of Stevens & Lee.
23.5 Consent of Elias, Matz, Tiernan & Herrick, L.L.P.
23.6 Consent of Merrill Lynch, Pierce, Fenner & Smith,
Incorporated.
23.7 Consent of Sandler O'Neill & Partners L.P.
23.8 Consent of Elias, Matz, Tiernan & Herrick, L.L.P.
re: tax opinion.**
24.1 Powers of Attorney of Directors and Officers
(included on signature page hereof).
99.1 Opinion of Merrill Lynch, Pierce, Fenner & Smith,
Incorporation dated December 15, 1997 (included as
Annex C to Proxy Statement/Prospectus).
99.2 Opinion of Sandler O'Neill & Partners L.P., dated
December 15, 1997 (included as Annex D to Proxy
Statement/Prospectus).
99.3 Form of Proxy for the Special Meeting of
Shareholders of Sovereign Bancorp, Inc.
99.4 Form of Proxy for the Annual Meeting of
Shareholders of ML Bancorp, Inc.
_______________
** To be filed by amendment.
Exhibit 5
December 15, 1997
Board of Directors
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Re: Registration Statement on Form S-4
ML Bancorp, Inc.
Ladies and Gentlemen:
In connection with the proposed offering of up to 26,388,630
shares of common stock, no par value (the "Common Stock"), by
Sovereign Bancorp, Inc. (the "Company"), covered by the Company's
Registration Statement on Form S-4 (the "Registration Statement")
filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, with respect to such Common
Stock, we, as special counsel to the Company, have reviewed:
(1) the Articles of Incorporation of the Company;
(2) the Bylaws of the Company;
(3) resolutions adopted by the Board of Directors of the
Company relating to the Registration Statement, certified by the
Assistant Secretary of the Company;
(4) a subsistence certificate with respect to the Company
issued by the Pennsylvania Department of State;
(5) the Registration Statement; and
(6) copies of the certificates representing shares of the
Common Stock.
Based upon our review of the foregoing, it is our opinion
that:
(a) the Company has been duly incorporated under the laws
of the Commonwealth of Pennsylvania and is validly existing and
in good standing under the laws of such Commonwealth; and
(b) the Common Stock covered by the Registration Statement
has been duly authorized and, when issued pursuant to the terms
described in the Registration Statement, will be legally issued
by the Company and fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to us under the
heading "LEGAL MATTERS" in the related Prospectus. In giving
this consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
STEVENS & LEE
/s/ Stevens & Lee
EXHIBIT 8.1
___________, 1998
Board of Directors
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, PA 19610
Re: Merger of ML Bancorp, Inc. with and into Sovereign Bancorp,
Inc.; Merger of Main Line Bank with and into Sovereign Bank
Lady and Gentlemen:
You have requested our opinion in connection with the
transaction contemplated by the Agreement and Plan of Merger (the
"Holding Company Merger Agreement"), dated as of September 18,
1997, between Sovereign Bancorp, Inc., a Pennsylvania corporation
("Sovereign"), and ML Bancorp, Inc., a Pennsylvania corporation
("ML"), pursuant to which ML will be merged with and into
Sovereign, which will be the surviving corporation. At the
Effective Date of such merger (the "Merger"), each share of ML
Common Stock issued and outstanding immediately prior to such
date will, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to
receive such number of shares of Sovereign Common Stock as is
provided in Section 1.02(e) of the Holding Company Merger
Agreement. No fractional shares of Sovereign Common Stock will
be issued. In lieu thereof, shareholders of ML will receive cash
in an amount determined pursuant to Section 1.02(e) of the
Holding Company Merger Agreement. ML shareholders will be
entitled to exercise dissenters' rights in connection with the
Merger. All shares of ML Common Stock held as treasury shares by
ML or held by an ML Subsidiary, Sovereign, or a Sovereign
Subsidiary on the Effective Date of the Merger will be cancelled,
and no shares of Sovereign Common Stock or other property will be
delivered in exchange therefor. Attached to and trading with
each share of Sovereign Common Stock are certain "poison pill"
rights (the "Rights") issued pursuant to the Sovereign Rights
Agreement.
You have also requested our opinion in connection with the
transaction contemplated by the Bank Plan of Merger, dated as of
September 18, 1997, between Sovereign Bank, a federal savings
bank, and Main Line Bank, a federal savings bank ("ML Bank"),
pursuant to which ML Bank will, concurrently with or as soon as
practicable after the closing of the Merger of ML with and into
Sovereign, be merged with and into Sovereign Bank, which will be
the surviving institution. At the effective date of such merger
(the "Bank Merger"), all of the issued and outstanding shares of
ML Bank Common Stock and all shares of ML Bank Common Stock held
as treasury shares will be cancelled, and no shares of Sovereign
Bank Common Stock will be delivered in exchange therefor.
This opinion is being furnished pursuant to Section 5.02(i)
of the Holding Company Merger Agreement. All capitalized terms
herein, unless otherwise specified, have the meanings assigned
thereto in the Holding Company Merger Agreement and its exhibits.
In connection with our opinion, we have examined and are
familiar with originals or copies, certified or otherwise
identified to our satisfaction, of the Holding Company Merger
Agreement, the exhibits thereto, and such other documents as we
have deemed necessary or appropriate for the opinions set forth
below. In our examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and
the authenticity of such latter documents. As to any facts
material to this opinion which we did not independently establish
or verify, we have relied upon the foregoing documents and upon
statements and representations of officers and other
representatives of ML and Sovereign, including certain written
representations of the managements of ML and Sovereign annexed
hereto. The opinions expressed herein are conditioned on the
initial and continuing accuracy of the facts, information, and
representations contained in the aforesaid documents or otherwise
referred to above.
In preparing our opinion, we have considered applicable
provisions of the IRC, Treasury regulations, pertinent judicial
authorities, interpretive rulings of the Internal Revenue
Service, and such other authorities as we have deemed relevant.
Based solely upon the foregoing and upon the assumptions set
forth herein, and subject to the qualifications and caveats set
forth herein, we are of the opinion that, under present law, for
federal income tax purposes:
1. The Merger will constitute a reorganization within the
meaning of IRC Section 368(a)(1)(A).
2. ML and Sovereign will each be "a party to a
reorganization" within the meaning of IRC Section 368(b).
3. Neither ML nor Sovereign will recognize any gain or
loss upon the transfer of ML's assets to Sovereign in exchange
solely for Sovereign Common Stock (including any fractional share
interests) and the assumption by Sovereign of the liabilities of
ML.
4. The basis of the ML assets in the hands of Sovereign
will be the same as the basis of such assets in the hands of ML
immediately prior to the Merger.
5. The holding period of the assets of ML to be received
by Sovereign will include the period during which the assets were
held by ML.
6. No gain or loss will be recognized by the shareholders
of ML on the receipt of Sovereign Common Stock (including any
fractional share interests) solely in exchange for their shares
of ML Common Stock.
7. The basis of the Sovereign Common Stock (including any
fractional share interests) to be received by the ML shareholders
in the Merger will be the same as the basis of the ML Common
Stock surrendered in exchange therefor.
8. The holding period of the Sovereign Common Stock
(including any fractional share interests) to be received by the
ML shareholders in the Merger will include the period during
which the ML shareholders held their ML Common Stock, provided
the shares of ML Common Stock are held as a capital asset on the
Effective Date of the Merger.
9. The payment of cash in lieu of fractional share
interests of Sovereign Common Stock will be treated as if the
fractional share interests were distributed as part of the Merger
and then redeemed by Sovereign. Such cash payments will be
treated as having been received as distributions in full payment
in exchange for the fractional share interests redeemed, as
provided in IRC Section 302(a). Any gain or loss recognized by
an ML shareholder will be a capital gain or loss, provided the
shares of ML Common Stock are held as a capital asset on the
Effective Date of the Merger.
10. The Rights transferred with the shares of Sovereign
Common Stock will not constitute "other property" within the
meaning of IRC Section 356(a)(1)(B).
11. As provided in IRC Section 381(c)(2) and related
Treasury regulations, Sovereign will succeed to and take into
account the earnings and profits, or deficit in earnings and
profits, of ML as of the Effective Date of the Merger. Any
deficit in the earnings and profits of Sovereign or ML will be
used only to offset the earnings and profits accumulated after
the Merger.
12. Pursuant to IRC Section 381(a) and related Treasury
regulations, Sovereign will succeed to and take into account the
items of ML described in IRC Section 381(c). Such items will be
taken into account by Sovereign subject to the conditions and
limitations of IRC Sections 381, 382, 383, and 384 and the
Treasury regulations thereunder.
13. The Bank Merger will constitute a reorganization within
the meaning of IRC Section 368(a)(1)(A).
14. ML Bank and Sovereign Bank will each be "a party to a
reorganization" within the meaning of IRC Section 368(b).
15. Neither ML Bank nor Sovereign Bank will recognize any
gain or loss upon the transfer of ML Bank's assets to Sovereign
Bank in constructive exchange solely for Sovereign Bank Common
Stock and the assumption by Sovereign Bank of the liabilities of
ML Bank.
16. The basis of the ML Bank assets in the hands of
Sovereign Bank will be the same as the basis of such assets in
the hands of ML Bank immediately prior to the Bank Merger.
17. The holding period of the ML Bank assets in the hands
of Sovereign Bank will include the period during which such
assets were held by ML Bank.
18. No gain or loss will be recognized by Sovereign, as the
shareholder of ML Bank, upon the constructive receipt of shares
of Sovereign Bank Common Stock in exchange for the ML Bank Common
Stock surrendered in exchange therefor in the Bank Merger.
19. The basis of the Sovereign Bank Common Stock to be held
by Sovereign after the Bank Merger will equal the basis of such
stock immediately before the Bank Merger, increased by the basis
of the ML Bank Common Stock surrendered in the constructive
exchange.
20. As provided in IRC Section 381(c)(2) and related
Treasury regulations, Sovereign Bank will succeed to and take
into account the earnings and profits, or deficit in earnings and
profits, of ML Bank as of the effective date of the Bank Merger.
Any deficit in the earnings and profits of Sovereign Bank or ML
Bank will be used only to offset the earnings and profits
accumulated after the Bank Merger.
21. Pursuant to IRC Section 381(a) and related Treasury
regulations, Sovereign Bank will succeed to and take into account
the items of ML Bank described in IRC Section 381(c). Such items
will be taken into account by Sovereign Bank subject to the
conditions and limitations of IRC Sections 381, 382, 383, and 384
and the Treasury regulations thereunder.
We call your attention to the fact that certain portions of
this opinion relating to the federal income tax treatment of ML
shareholders may not be applicable to persons who received their
ML Common Stock pursuant to the exercise of employee stock
options or otherwise as compensation, or to foreign persons or
persons who, because of their circumstances or status, are
subject to special federal income tax treatment.
Except as set forth above, we express no other opinion as to
the tax consequences of the mergers and related transactions to
any party under federal, state, local or foreign laws.
Very truly yours,
STEVENS & LEE
Exhibit 23.1
Consent of Independent Auditors
We consent to incorporation by reference in the Registration
Statements (Form S-8 No. 33-20186, Form S-8 No. 33-29038,
Form S-8 No. 33-39453, Form S-8 No. 33-44108, Form S-8
No. 33-89586, Form S-8 No. 33-89592, Form S-8 No. 333-05309,
Form S-8 No. 333-05251, Form S-3 No. 33-46870, Form S-3
No. 333-09113, Form S-4 No. 333-32109 and
Form S-4 No. 333-32109-01) of Sovereign Bancorp, Inc. of our
report dated December 4, 1997, with respect to the supplemental
consolidated financial statements of Sovereign Bancorp, Inc.
incorporated by reference in its Registration Statement on
Form S-4 to be filed on our about December 15, 1997, with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Harrisburg, Pennsylvania
December 15, 1997
Exhibit 23.2
The Board of Directors
of ML Bancorp, Inc.
We consent to incorporation by reference in the registration
statement on Form S-4 of Sovereign Bancorp of our report on
ML Bancorp, Inc. dated April 22, 1997, relating to the
consolidated statements of financial condition of ML Bancorp,
Inc. and subsidiaries as of March 31, 1997 and statements of
financial condition of ML Bancorp, Inc. and subsidiaries as of
March 31, 1997 and 1996, and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows
for each of the years in the three-year period ended March 31,
1997, which report appears in the March 31, 1997 annual report on
Form 10-K of ML Bancorp, Inc. and to the reference to our firm
under the heading "Experts" in the registration statement.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
December 15, 1997
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statement on Form S-4 of Sovereign Bancorp, Inc. and in the
related prospectus of our report dated November 26, 1996 relating
to the consolidated balance sheets of First State Financial
Services, Inc. and subsidiaries as of September 30, 1996 and
1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the
three-year period ended September 30, 1996, which report appears
in the Form 8-K of Sovereign Bancorp, Inc. dated June 17, 1997
and the reference to our Firm under the heading "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
December 15, 1997
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statement on Form S-4 of Sovereign Bancorp, Inc. and in the
related prospectus of our report dated January 31, 1997, except
as to Note 2, which is as of February 5, 1997, relating to the
consolidated statements of condition of Bankers Corp. and
subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year
period ended December 31, 1996, which report appears in
Form 8-K/A No. 1 of Sovereign Bancorp, Inc. dated December 9,
1997, and the reference to our Firm under the heading "Experts"
in the prospectus.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
December 15, 1997
EXHIBIT 23.4
December 15, 1997
Board of Directors
Sovereign Bancorp, Inc.
P.O. Box 12646
Reading, Pennsylvania 19612
Ladies and Gentlemen:
We are acting as counsel to Sovereign Bancorp, Inc.
("Sovereign") in connection with the proposed merger of
ML Bancorp Inc., a Pennsylvania corporation, with and into
Sovereign. In that regard, our tax opinions are as set forth
under the section entitled "The Merger--Certain Federal Income
Tax Consequences" in the Proxy Statement/Prospectus relating to
the above-described transactions (the "Proxy Statement/
Prospectus").
We hereby consent to the filing of this opinion as an
Exhibit to Sovereign's Registration Statement on Form S-4 of
which the Proxy Statement/Prospectus is a part and to the use of
our name under the above-referenced section of the Proxy
Statement/Prospectus.
Very truly yours,
/s/ STEVENS & LEE
Exhibit 23.5
Law Offices
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
12th Floor
734 15th Street, N.W.
Washington, D.C. 20005
Telephone (202) 347-0300
December 15, 1997
We hereby consent to the references to us under the headings
"The Merger - Certain Federal Income Tax Consequences" and "Legal
Matters" in the Prospectus. In giving such consent, we do not
thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of
1933, as amended.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
By: /s/ Gerard L. Hawkins
Gerard L. Hawkins, a Partner
Exhibit 23.6
December 15, 1997
Board of Directors
Sovereign Bancorp, Inc.
1130 Berkshire Boulevard
Wyomissing, Pennsylvania 19610
Members of the Board:
We hereby consent to the use of our opinion letter to the
Board of Directors of Sovereign Bancorp, Inc. ("Sovereign"),
included as Appendix C to the Proxy Statement/Prospectus that
forms a part of the Registration Statement on Form S-4 relating
to the proposed merger of ML Bancorp, Inc. with and into
Sovereign, and to the references to such opinion in such Proxy
Statement/Prospectus under the captions "SUMMARY--The Merger--
Opinions of Financial Advisors," "THE MERGER--Opinions of
Financial Advisors--Opinion of Sovereign's Financial Advisor" and
"--Reasons for the Merger--Sovereign's Reasons for the Merger".
In giving such consent, we do not admit, and hereby disclaim,
that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as
amended (the "Securities Act"), or the rules and regulations of
the Securities and Exchange Commission (the "Commission")
thereunder, nor do we admit that we are experts with respect to
any part of such Registration Statement within the meaning of the
term "experts" as used in the Securities Act, or the rules and
regulations of the Commission thereunder.
Very truly yours,
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
/s/ John R. Chrin
Name: John R. Chrin
Title: Director
Exhibit 23.7
Sandler O'Neill
CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.
We hereby consent to the inclusion of our opinion letter to
the Board of Directors ML Bancorp, Inc. (the "Company") as
Annex D to the Joint Proxy Statement/Prospectus relating to the
proposed merger of the Company with and into Sovereign Bancorp,
Inc. contained in the Registration Statement on Form S-4 dated as
of the date hereof, and to the references to our firm and such
opinion in such Joint Proxy Statement/Prospectus. In giving such
consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended (the "Act"), or the rules and
regulations of the Securities and Exchange Commission thereunder
(the "Regulations"), nor do we admit that we are experts with
respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Act or the
Regulations.
/s/ Sandler O'Neill & Partners, L.P.
December 15, 1997
EXHIBIT 99.3
SOVEREIGN BANCORP, INC.
Special Meeting of Shareholders -
January 22, 1998 at 3:00 p.m., Local Time
This Proxy is Solicited on Behalf of the Board of
Directors
The undersigned shareholder of Sovereign Bancorp,
Inc.
("Sovereign") hereby appoints [___________________________ and
________________________________] the proxies of the undersigned
(each with power of substitution and with all powers the
undersigned would possess if personally present) to vote at the
Special Meeting of Shareholders of Sovereign to be held on
January 22, 1998, and at any adjournment or postponement thereof
(the "Meeting"), all the shares of Common Stock of Sovereign
which the undersigned would be entitled to vote on the following
proposals more fully described in the Joint Proxy Statement/
Prospectus dated December __, 1997 for the Meeting in the manner
specified and in the discretion of the named proxies on any other
business that may properly come before the Meeting.
_____________________
Please indicate on the reverse side of this card how
your stock is to be voted. Unless you specifically direct
otherwise, the shares represented by this proxy will be voted
"FOR" the following proposals.
(continued and to be signed on reverse side)
The DIRECTORS recommend a vote FOR
Approval and adoption of the Agreement and Plan of Merger,
dated as of September 18, 1997 (the "Merger Agreement"),
relating to the merger of ML Bancorp, Inc. with and into
Sovereign.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Approval of the proposal to adjourn the Meeting, if
necessary, in the event there are not sufficient votes at
the time of the Meeting to approve the Merger Agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
NOTE: Your signature should
appear
as your name appears hereon.
When
shares are held by joint
tenants,
both should sign. When
signing as
attorney, executor,
administrator,
trustee or guardian, please
give
full title as such. If a
corporation, please sign in
full
corporate name by the
President or
other authorized officer. If
a
partnership, please sign in
partnership name by
authorized
person.
Please sign, date and return
the
proxy card promptly using the
enclosed envelope.
Dated:_______________________, 199_
___________________________________
(Signature)
___________________________________
(Signature if held
jointly)
Exhibit 99.4
ML BANCORP, INC.
Special Meeting of Shareholders -
January 22, 1998 at 2:00 p.m., Local Time
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned shareholder of ML Bancorp, Inc.
("ML Bancorp") hereby appoints [___________________________ and
________________________________] the proxies of the undersigned
(each with power of substitution and with all powers the
undersigned would possess if personally present) to vote at the
Special Meeting of Shareholders of ML Bancorp to be held on
January 22, 1998, and at any adjournment or postponement thereof
(the "Meeting"), all the shares of Common Stock of ML Bancorp
which the undersigned would be entitled to vote on the following
proposals more fully described in the Joint Proxy
Statement/Prospectus dated December __, 1997 for the Meeting in
the manner specified and in the discretion of the named proxies
on any other business that may properly come before the Meeting.
_____________________
Please indicate on the reverse side of this card how
your stock is to be voted. Unless you specifically direct
otherwise, the shares represented by this proxy will be voted
"FOR" the following proposals.
(continued and to be signed on reverse side)
The DIRECTORS recommend a vote FOR
Approval and adoption of the Agreement and Plan of Merger,
dated as of September 18, 1997 (the "Merger Agreement"),
relating to the merger of ML Bancorp with and into Sovereign
Bancorp, Inc.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Approval of the proposal to adjourn the Meeting, if
necessary, in the event there are not sufficient votes at
the time of the Meeting to approve the Merger Agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
NOTE: Your signature should appear
as your name appears hereon. When
shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such. If a
corporation, please sign in full
corporate name by the President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
Please sign, date and return the
proxy card promptly using the
enclosed envelope.
Dated:_______________________, 199_
___________________________________
(Signature)
___________________________________
(Signature if held jointly)
