[LOGO of ML Bancorp]
December 18, 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,
/s/ John R. Eppinger
-------------------------------------
John R. Eppinger
Chairman of the Board
/s/ Dennis S. Marlo
-------------------------------------
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
/s/ Brian M. Hartline
-----------------------------------
Brian M. Hartline
Secretary
Villanova, Pennsylvania
December 18, 1997
IF YOU HAVE ANY QUESTIONS, PLEASE CALL
ML BANCORP AT (610) 526-6460
Attention: Brian M. Hartline
<PAGE>
[LOGO of Sovereign Bancorp]
SOVEREIGN BANCORP, INC.
1130 BERKSHIRE BOULEVARD
WYOMISSING, PENNSYLVANIA 19610
December 18, 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,
/s/ Richard E. Mohn
-------------------------------------
Richard E. Mohn
Chairman of the Board
/s/ Jay S. Sidhu
-------------------------------------
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
/s/ LAWRENCE M. THOMPSON, JR.
-------------------------------------
LAWRENCE M. THOMPSON, JR.
SECRETARY
December 18, 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>
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 (together with the Sovereign Rights, as
hereinafter defined, attached thereto, the "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 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
<PAGE>
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, a federal
savings 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 17, 1997, the last sale price of Sovereign
Common Stock as reported on the Nasdaq National Market (symbol: SVRN) was
$19.875.
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 18, 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 18, 1997.
<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION .................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE .......................... 2
SUMMARY .................................................................. 3
The Companies .......................................................... 3
The Meetings ........................................................... 4
The Merger ............................................................. 6
Certain Related Transactions ........................................... 11
Interests of Certain Persons in the Merger ............................. 11
Comparative Per Common Share Data ...................................... 12
Recent Developments .................................................... 15
SELECTED FINANCIAL DATA .................................................. 18
PRO FORMA COMBINED FINANCIAL INFORMATION ................................. 22
Pro Forma Unaudited Combined Condensed Balance Sheet as of
September 30, 1997 .................................................. 22
Pro Forma Unaudited Combined Condensed Income Statements
for the Nine Months Ended September 30, 1997 and 1996
and the Years Ended December 31, 1996, 1995 and 1994 ................ 24
THE MEETINGS ............................................................. 30
Date, Time and Place ................................................... 30
Matters To Be Considered at the Special Meetings ....................... 30
Votes Required ......................................................... 30
Voting of Proxies ...................................................... 31
Revocability of Proxies ................................................ 32
Record Date; Stock Entitled to Vote; Quorum ............................ 32
Solicitation of Proxies ................................................ 32
THE MERGER ............................................................... 33
Background of and Reasons for the Merger; Recommendations
of the Boards of Directors .......................................... 33
Terms of the Merger .................................................... 35
Opinions of Financial Advisors ......................................... 37
Effective Date of the Merger ........................................... 49
Exchange of ML Bancorp Stock Certificates .............................. 49
Conditions to the Merger ............................................... 50
Subsidiary Bank Merger ................................................. 51
Regulatory Approvals ................................................... 51
Representations and Warranties ......................................... 52
Business Pending the Merger ............................................ 52
Dividends .............................................................. 54
No Solicitation of Transactions ........................................ 54
Amendment; Waivers ..................................................... 55
Termination; Effect of Termination ..................................... 55
Management and Operations after the Merger ............................. 57
Employee Benefits and Severance ........................................ 58
Accounting Treatment ................................................... 59
Certain Federal Income Tax Consequences ................................ 60
Expenses ............................................................... 61
Resale of Sovereign Common Stock ....................................... 61
(i)
<PAGE>
PAGE
----
Dissenters' Rights ..................................................... 62
INTERESTS OF CERTAIN PERSONS IN THE MERGER ............................... 64
Stock Options .......................................................... 64
Indemnification; Directors and Officers Insurance ...................... 64
Continued Employment ................................................... 64
Employment Agreements .................................................. 65
Pension and ESOP Plans ................................................. 66
Retention Bonuses ...................................................... 66
Pennsylvania Division of Sovereign Bank Advisory Board ................. 67
CERTAIN RELATED TRANSACTIONS ............................................. 67
Stock Option Agreement ................................................. 67
INFORMATION WITH RESPECT TO SOVEREIGN .................................... 70
General ................................................................ 70
Market Price of and Dividends on Sovereign Common Stock
and Related Shareholder Matters ..................................... 70
INFORMATION WITH RESPECT TO ML BANCORP ................................... 71
General ................................................................ 71
Market Price of and Dividends on ML Bancorp Common Stock
and Related Shareholder Matters ..................................... 71
DESCRIPTION OF SOVEREIGN CAPITAL SECURITIES .............................. 72
Common Stock ........................................................... 72
Preferred Stock ........................................................ 73
Shareholder Rights Plan ................................................ 76
Special Charter and Pennsylvania Corporate Law
Provisions .......................................................... 76
COMPARISON OF SHAREHOLDER RIGHTS ......................................... 78
Directors .............................................................. 78
Shareholder Meetings ................................................... 79
Action by Shareholders Without a Meeting ............................... 80
Inspection Rights ...................................................... 80
Shareholder Rights Plan ................................................ 80
Antitakeover Provisions ................................................ 80
Required Shareholder Vote .............................................. 81
Amendment of Bylaws .................................................... 83
Mandatory Tender Offer Provision ....................................... 83
Dissenters' Rights ..................................................... 84
Dividends .............................................................. 84
Voluntary Dissolution .................................................. 84
Preemptive Rights ...................................................... 84
ADJOURNMENT .............................................................. 85
EXPERTS .................................................................. 85
LEGAL MATTERS ............................................................ 85
OTHER MATTERS ............................................................ 86
SHAREHOLDER PROPOSALS .................................................... 86
(ii)
<PAGE>
PAGE
----
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
(iii)
<PAGE>
[This Page Intentionally Left Blank]
<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.
1
<PAGE>
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 Reports 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.
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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 (including 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."
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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.
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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
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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."
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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."
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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 receive an opinion from its 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 December 15, 1997, 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
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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.
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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."
10
<PAGE>
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."
11
<PAGE>
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." Assuming that the actual Sovereign Market Value
was the $19.88 closing per share price of the Sovereign Common Stock on December
17, 1997, the Exchange Ratio would be 1.57. See "-- Market Value of Securities"
below.
The following equivalent per share data 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 following equivalent
per share data also 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." The following equivalent per share data also does not include the
effects of the pending acquisitions of First Home Bancorp Inc. and Carnegie
Bancorp by Sovereign. See "-- Recent Developments."
The following 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."
12
<PAGE>
The following information is not necessarily indicative of the results of
operations of future periods or future combined financial position.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997(1) AT DECEMBER 31, 1996(1)
------------------------- ---------------------------------
<S> <C> <C>
Book Value Per Common Share:
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
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
FOR THE NINE MONTHS ENDED ---------------------------------
SEPTEMBER 30, 1997(1) 1996(1) 1995(1) 1994(1)
------------------------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash Dividends Paid Per Common Share:
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. Assuming that the actual Sovereign Market Value was the
$19.88 closing per share price of the Sovereign Common Stock on December 17,
1997, the Exchange Ratio would be 1.57 and the pro forma equivalent data set
forth above would be reduced accordingly. See "-- Market Value of
Securities" below. 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. See "-- Recent Developments."
13
<PAGE>
(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. Assuming that the
actual Sovereign Market Value was the $19.88 closing per share price of the
Sovereign Common Stock on December 17, 1997, the Exchange Ratio would be
1.57 and the pro forma equivalent data set forth above would be reduced
accordingly. See "-- Market Value of Securities" below. 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. Assuming that the actual Sovereign Market Value was
the $19.88 closing per share price of the Sovereign Common Stock on December
17, 1997, the Exchange Ratio would be 1.57 and the pro forma equivalent data
set forth above would be reduced accordingly. See "-- Market Value of
Securities" below. The Exchange Ratio is subject to adjustment based on the
actual Sovereign Market Value. See "THE MERGER -- Terms of the Merger."
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 17, 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 (i) at September 17, 1997 is based
on 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)
and (ii) at December 17, 1997 is based on an Exchange Ratio of 1.57 shares of
Sovereign Common Stock for each share of ML Bancorp Common Stock (the applicable
Exchange Ratio assuming a Sovereign Market Value equal to $19.88, the closing
per share price of the Sovereign Common Stock on December 17, 1997). 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 17,
1997, respectively, as reported on the Nasdaq National Market with respect to
both Sovereign Common Stock and ML Bancorp Common Stock.
<TABLE>
<CAPTION>
SOVEREIGN ML BANCORP
---------- -------------------------
EQUIVALENT
MARKET VALUE
HISTORICAL HISTORICAL PER SHARE
---------- ---------- ------------
<S> <C> <C> <C>
September 17, 1997...................................... $16.38 $23.13 $27.35(1)
December 17, 1997....................................... $19.88 $30.06 $31.21(2)
</TABLE>
- ------------------
(1) Based on an assumed Exchange Ratio of 1.67.
(2) Based on an assumed Exchange Ratio of 1.57.
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."
14
<PAGE>
RECENT DEVELOPMENTS
Sovereign
Proposed Acquisition of First Home Bancorp Inc. On December 18, 1997,
Sovereign and First Home Bancorp Inc. ("First Home"), parent company of First
Home Savings Bank, F.S.B. ("First Home Bank"), entered into an Agreement and
Plan of Merger (the "First Home Agreement") pursuant to which First Home has
agreed to merge with and into Sovereign (the "First Home Merger"). First Home is
a thrift holding company headquartered in Pennsville, New Jersey whose principal
operating subsidiary, First Home Bank, operates eight community banking offices
in southern New Jersey and two community banking offices in Delaware. At
September 30, 1997, First Home had total unaudited consolidated assets, deposits
and shareholders' equity of approximately $525.1 million, $323.6 million and
$36.0 million, respectively.
The terms of the First Home Agreement call for Sovereign to exchange $31.25
in Sovereign Common Stock for each outstanding share of First Home common stock
or approximately $86 million in Sovereign Common Stock based on approximately
2,708,426 shares of First Home common stock outstanding. The purchase price will
stay fixed at $31.25 per share of First Home common stock if the average price
of Sovereign's Common Stock remains between $18.00 and $22.00 per share during
the 15-day period prior to the closing of the transaction. If the average price
of Sovereign's Common Stock declines below $18.00 per share during the pricing
period, First Home shareholders would receive a fixed exchange ratio of 1.736
shares of Sovereign Common Stock for each share of First Home common stock.
Conversely, if the average price of Sovereign's Common Stock is higher than
$22.00 per share, First Home shareholders would receive a fixed exchange ratio
of 1.420 shares of Sovereign Common Stock for each share of First Home common
stock.
First Home has the right to terminate the First Home Agreement if the
average price of Sovereign's Common Stock during the pricing period declines
below $13.50, subject to Sovereign's right to increase the exchange ratio in
order to result in a minimum price of $23.44 in Sovereign Common Stock.
The First Home Merger is subject to the approval of various regulatory
agencies and First Home shareholders. Sovereign anticipates that the transaction
will close in the second quarter of 1998 and will be accounted for as a pooling
of interests. Sovereign also anticipates recording a one-time after tax
merger-related charge of $4.0 to $5.0 million at the closing of the transaction.
As part of the First Home Merger, First Home Bank will be merged with and into
Sovereign Bank.
In connection with the execution of the First Home Agreement, First Home
granted a stock option to Sovereign to purchase, under certain conditions, up to
19.9% of First Home's outstanding common stock.
Proposed Acquisition of Carnegie Bancorp. On December 15, 1997, Sovereign
and Carnegie Bancorp ("Carnegie"), parent company of Carnegie Bank, N.A.
("Carnegie Bank"), entered into an Agreement and Plan or Merger (the "Carnegie
Agreement") pursuant to which Carnegie has agreed to merge with and into
Sovereign (the "Carnegie Merger"). Carnegie is a commercial bank holding company
headquartered in Princeton, New Jersey whose principal operating subsidiary,
Carnegie Bank, operates seven community banking offices throughout central New
Jersey and one community banking office in Pennsylvania. At September 30, 1997,
Carnegie had total unaudited consolidated assets, deposits and shareholders'
equity of approximately $423.9 million, $323.5 million and $34.3 million,
respectively.
The terms of the Carnegie Agreement call for Sovereign to exchange $35.50
in Sovereign Common Stock for each outstanding share of Carnegie common stock or
approximately $97 million in Sovereign Common Stock based on approximately
2,733,108 shares of Carnegie common stock outstanding. The purchase price will
stay fixed at $35.50 per share of Carnegie common stock if the average price of
Sovereign's Common Stock remains between $18.00 and $22.00 per share during the
15-day period prior to the closing of the transaction. If the average price of
Sovereign's Common
15
<PAGE>
Stock declines below $18.00 per share during the pricing period, Carnegie
shareholders would receive a fixed exchange ratio of 1.972 shares of Sovereign
Common Stock for each share of Carnegie common stock. Conversely, if the average
price of Sovereign Common Stock is higher than $22.00 per share, Carnegie
shareholders would receive a fixed exchange ratio of 1.614 shares of Sovereign
Common Stock for each share of Carnegie common stock.
Carnegie has the right to terminate the Carnegie Agreement if the average
price of Sovereign's Common Stock during the pricing period declines below
$14.47 and Sovereign's decline in value is 15% greater than the percentage
decline of a group of similar financial institutions, subject to Sovereign's
right to increase the exchange ratio in order to result in a minimum price of
$28.53 in Sovereign Common Stock.
The Carnegie Merger is subject to the approval of various regulatory
agencies and Carnegie shareholders. Sovereign anticipates that the transaction
will close in the second quarter of 1998 and will be accounted for as a pooling
of interests. Sovereign also anticipates recording a one-time after tax
merger-related charge of $7.0 to $8.0 million at the closing of the transaction.
As part of the Carnegie Merger, Carnegie Bank will be merged with and into
Sovereign Bank.
In connection with the execution of the Carnegie Agreement, Carnegie
granted a stock option to Sovereign to purchase, under certain conditions, up to
19.9% of Carnegie's outstanding common stock.
Recently Completed Acquisitions. 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.
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.
16
<PAGE>
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.
17
<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). Assuming that the actual Sovereign Market Value was the $19.88
closing per share price of the Sovereign Common Stock on December 17, 1997, the
Exchange Ratio would be 1.57. See "SUMMARY -- Comparative Per Common Share Data
- -- Market Value of Securities." The Exchange Ratio is subject to adjustment
based on the actual Sovereign Market Value. See "THE MERGER -- Terms of the
Merger."
The following 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 the
pending acquisitions of First Home and Carnegie by Sovereign, which are not
deemed to be material under the Commission's rules and regulations due to the
size of such transactions, 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.
See "SUMMARY -- Recent Developments" and "THE MERGER -- Management and
Operations After the Merger."
18
<PAGE>
SOVEREIGN SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
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>
FINANCIAL CONDITION DATA
Total assets....................... $14,601,251 $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
INCOME STATEMENT DATA
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............................ $ 42,890 $ 44,188 $ 63,889 $ 75,721 $ 70,903 $ 64,407 $ 40,711
=========== =========== =========== =========== ========== ========== ==========
SHARE DATA (3)
Common shares outstanding at end of
period (in thousands)............ 89,275 87,558 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
SELECTED FINANCIAL RATIOS
Dividend payout ratio.............. 24.57% 22.29% 20.72% 15.73% 15.53% 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.
(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.
19
<PAGE>
ML BANCORP SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
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>
FINANCIAL CONDITION DATA
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
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
</TABLE>
- ------------------
(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 ML Bancorp's
initial public offering, and has been adjusted for ML 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.
20
<PAGE>
PRO FORMA COMBINED SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
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>
FINANCIAL CONDITION DATA
Total assets............. $16,917,920 $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............. 4,965,913 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..... 903,587 825,341 837,129 795,601 654,887 508,404 461,357
INCOME STATEMENT DATA
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) Pro forma information with respect to First Home and Carnegie and 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.
21
<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). Assuming that the actual Sovereign Market Value was
the $19.88 closing per share price of the Sovereign Common Stock on December 17,
1997, the Exchange Ratio would be 1.57. See "SUMMARY -- Comparative Per Common
Share Data -- Market Value of Securities." 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." The following pro forma
information also does not give effect to the pending acquisitions of First Home
and Carnegie by Sovereign because the size of such transactions are not deemed
to be material under the Commission's rules and regulations. See "SUMMARY --
Recent Developments."
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."
22
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SOVEREIGN
AND
PRO 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 $ 4,650(5) $ 208,433
Investment and mortgage-backed
securities.............................. 3,807,586 1,162,092 (3,765)(3) 4,965,913
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...... 118,117 10,742 -- 128,859
Other assets.............................. 291,798 95,351 -- 387,149
----------- ---------- ------- -----------
Total assets............................ $14,601,251 $2,315,784 $ 885 $16,917,920
=========== ========== ======= ===========
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)........................... 380,032 101,811 (40,566)(3)(4)(5) 441,277
Unallocated common stock held by ESOP and
RRP..................................... (33,015) (6,683) 6,683(5) (33,015)
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 (2,033)(5) 384,000
----------- ---------- ------- -----------
Total shareholders' equity................ 742,365 160,337 885 903,587
----------- ---------- ------- -----------
Total liabilities and shareholders'
equity.................................. $14,601,251 $2,315,784 $ 885 $16,917,920
=========== ========== ======= ===========
</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 $30.06 per share, the closing price of a share of ML
Bancorp Common Stock on December 17, 1997, the latest practicable trading
day prior to the printing of the Proxy Statement/Prospectus, for estimated
net cash proceeds of $29.9 million after expenses, total assets, common
stock, total shareholders' equity and total liabilities and shareholders'
equity would be $16.95 billion, $471.1 million, $933.6 million and $16.95
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.
(5) Represents the exchange of the unallocated shares of ML Bancorp Common Stock
held by the ML Bancorp ESOP for shares of Sovereign Common Stock pursuant to
the terms of the Merger and the subsequent sale thereof to repay the
outstanding loan owed by the ML Bancorp ESOP and the allocation of the
remaining shares of Sovereign Common Stock to participant accounts.
23
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENTS 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."
24
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997(1)(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
AND
ML BANCORP
SOVEREIGN ML BANCORP COMBINED
--------- ---------- ----------
<S> <C> <C> <C>
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
======== ======= ========
</TABLE>
- ------------------
(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.
25
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996(1)(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
AND
ML BANCORP
SOVEREIGN ML BANCORP COMBINED
--------- ---------- ----------
<S> <C> <C> <C>
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 (fully diluted)................ $ 0.48 $ 0.62 $ 0.46
======== ======= ========
</TABLE>
- ------------------
(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.
26
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996(1)(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
AND
ML BANCORP
SOVEREIGN ML BANCORP COMBINED
--------- ---------- ----------
<S> <C> <C> <C>
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 (fully diluted)................ $ 0.69 $ 1.22 $ 0.69
======== ======== ========
</TABLE>
- ------------------
(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.
27
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995(1)(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
AND
ML BANCORP
SOVEREIGN ML BANCORP COMBINED
--------- ---------- ----------
<S> <C> <C> <C>
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 (fully diluted)................ $ 0.82 $ 0.91 $ 0.77
======== ======== ========
</TABLE>
- ------------------
(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.
28
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994(1)(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SOVEREIGN
AND
ML BANCORP
SOVEREIGN ML BANCORP COMBINED
--------- ---------- ----------
<S> <C> <C> <C>
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 (fully diluted)................ $ 0.76 $ 0.49 $ 0.65
======== ======= ========
</TABLE>
- ------------------
(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.
29
<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.
30
<PAGE>
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.
31
<PAGE>
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.
32
<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
33
<PAGE>
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;
34
<PAGE>
(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.
35
<PAGE>
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
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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 December 15, 1997 (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
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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.
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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.
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(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
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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
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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
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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.
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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 THE ML BANCORP 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
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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-
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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.
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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
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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. On December 15, 1997,
Sovereign entered into an Agreement and Plan of Merger with Carnegie and on
December 18, 1997, Sovereign entered into an Agreement and Plan of Merger with
First Home. Sandler O'Neill made no independent investigation of such companies
or the terms of such transactions. Sandler O'Neill assumed, on the basis of the
information contained in this Proxy Statement/Prospectus, that such transactions
are not and will not be material to the financial condition or results of
operations of Sovereign on either a historical or prospective basis.
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
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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.
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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");
(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").
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
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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") and 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
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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
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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
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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.
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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:
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(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
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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.
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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
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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.
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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
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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
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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
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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.
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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.
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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.
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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
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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
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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
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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.
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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 17, 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 17, 1997, the last sale price for the Sovereign Common Stock
was $19.88 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."
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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 17, 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 17, 1997, the last sale price for the ML Bancorp Common
Stock was $30.06 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."
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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
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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.
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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 17, 1997, the closing
per share prices of the Series B Preferred Stock and the Sovereign Common Stock
as reported on the Nasdaq/NMS were $119.75 and $19.875, respectively. As of
December 17, 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
$118.99 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
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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,
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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,
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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.
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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.
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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
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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.
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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
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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.
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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."
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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 Section1906(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.
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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.
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 200,000 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.
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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 have submitted 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.
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ANNEX A
AGREEMENT AND PLAN
OF MERGER
BETWEEN
SOVEREIGN BANCORP, INC.
AND
ML BANCORP, INC.
SEPTEMBER 18, 1997
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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).
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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
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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.
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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
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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
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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.
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(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
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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
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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
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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
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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
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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
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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
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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
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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
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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 2.18 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.
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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
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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
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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
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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.
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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,
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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
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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;
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(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,
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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,
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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
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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.
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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.
(b) 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:
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(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
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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
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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.
(iv) 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
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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.
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(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.
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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
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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
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<PAGE>
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;
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<PAGE>
(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
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<PAGE>
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:
<TABLE>
<CAPTION>
THRIFT HOLDING COMPANIES % WEIGHTING
- ------------------------ -----------
<S> <C>
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%
======
</TABLE>
"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
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<PAGE>
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,
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<PAGE>
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
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<PAGE>
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 7.09 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
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<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
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<PAGE>
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,
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<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;
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(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,
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<PAGE>
EXHIBIT 2
STOCK OPTION AGREEMENT
[SEE ANNEX B]
A-47
<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 1,000 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:
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.
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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:
<TABLE>
<CAPTION>
NAME RESIDENCE ADDRESS
---- -----------------
<S> <C>
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.]
</TABLE>
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.
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<PAGE>
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.
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<PAGE>
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
A-51
<PAGE>
EXHIBIT "A"
TO PLAN OF MERGER
SOVEREIGN BANK
BRANCH LOCATIONS
[INTENTIONALLY OMITTED.]
A-52
<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
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<PAGE>
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.
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<PAGE>
EXHIBIT 5
FORM OF TAX OPINION OF STEVENS & LEE
Sovereign 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.
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<PAGE>
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.
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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
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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.
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<PAGE>
ANNEX B
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.
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(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).
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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.
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(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
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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
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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
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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
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(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.
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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
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ANNEX C
[Merrill Lynch Letterhead]
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
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[Merrill Lynch Logo]
(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.
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[Merrill Lynch Logo]
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,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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ANNEX D
[Sandler O'Neill Letterhead]
December 18, 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
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[Sandler O'Neill Letterhead]
Board of Directors
ML Bancorp, Inc.
December 18, 1997
Page 2
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 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.
On December 15, 1997, Sovereign entered into an Agreement and Plan of
Merger with Carnegie Bancorp and on December 18, 1997, Sovereign entered into an
Agreement and Plan of Merger with First Home Bancorp, Inc. We note that Sandler
O'Neill has made no independent investigation of such companies or the terms of
such transactions. We have assumed, with your permission and on the basis of the
information contained in the Joint Proxy Statement/Prospectus, that such
transactions are not and will not be material to the financial condition or
results of operations of Sovereign on either a historical or prospective basis.
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
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Board of Directors
ML Bancorp, Inc.
December 18, 1997
Page 3
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,
[Sandler O'Neill & Partners, L.P. Sig]
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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(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).
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(1) 15 Pa. C.S.A. Section 1571 et seq.
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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
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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
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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.
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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
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(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 are 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.
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