Definitive Proxy Solicitation Material — Merger or Acquisition — Schedule 14A Filing Table of Contents
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o Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x Definitive
Proxy Statement
o Definitive
Additional Materials
o Soliciting
Material Pursuant to §240.14a-12
Golden West Financial Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x
No fee required.
o
Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
(1)
Title of each class of securities to which
transaction applies:
(2)
Aggregate number of securities to which
transaction applies:
(3)
Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
(4)
Proposed maximum aggregate value of transaction:
(5)
Total fee paid:
o
Fee paid previously with preliminary materials.
o
Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and identify the
filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
Our merger. Wachovia and Golden West are proposing a
merger of Golden West into a wholly-owned subsidiary of
Wachovia. After the merger, we believe the combined company will
be one of the nation’s leading banking organizations in
consumer and commercial banking, asset and wealth management,
securities brokerage and investment banking.
Facts for Golden West shareholders:
Facts for Wachovia shareholders:
• In
the merger, 77% of your Golden West common shares will be
converted into the right to receive 1.365 Wachovia common
shares, and 23% of your Golden West common shares will be
converted into the right to receive $81.07 in cash (which is an
equivalent of approximately 1.051 Wachovia common shares and
approximately $18.65 in cash for each Golden West common share
you own).
• In
the merger, you will keep your Wachovia common shares.
• Your
board of directors unanimously recommends that you vote for the
proposal to approve and adopt the plan of merger contained in
the merger agreement.
• Your
board of directors unanimously recommends that you vote for the
proposal to issue Wachovia common shares as consideration in the
merger.
• Wachovia
expects to continue its current dividend policy. Based on the
current Wachovia quarterly dividend of $0.51 per Wachovia common
share and the exchange ratio in the merger (i.e., 1.051,
which is 1.365 times 77%), this would equal a quarterly dividend
of $0.536 per Golden West common share.
• Your
dividend rights will not be affected by the merger. The current
Wachovia quarterly dividend is $0.51 per Wachovia common
share.
• After
the merger, former Golden West shareholders will own about 17%
of the combined company.
• After
the merger, current Wachovia shareholders will own about 83% of
the combined company.
• Generally,
the merger will be tax-free to you, other than with respect to
any cash you receive in the merger.
• The
merger will be tax-free to you.
• Golden
West needs your vote to complete the merger. Golden West plans
to hold a special shareholders’ meeting to vote on the
merger and other matters on August 31, 2006.
• Wachovia
needs your vote to complete the merger. Wachovia plans to hold a
special shareholders’ meeting to vote on the merger and
other matters on August 31, 2006.
Merger consideration.The number of shares of Wachovia
common stock and cash that Golden West shareholders will receive
in the merger is fixed. The dollar value of the stock
consideration Golden West shareholders will receive in the
merger will change depending on changes in the market price of
Wachovia common stock and will not be known at the time either
company’s shareholders vote on the merger. For example,
Closing
Value per share of
Wachovia
Golden West common stock
Date
Share Price
(including cash amount)
May 5, 2006 (the last trading
day before we
announced the execution of the merger agreement)
You should obtain current market quotations for both Wachovia
and Golden West common shares. Wachovia and Golden West are both
listed on the New York Stock Exchange, under the symbols
“WB” and “GDW”, respectively.
Voting. Even if you plan to attend your company’s
meeting, please vote as soon as possible by completing and
submitting the enclosed proxy card.
This document and risks. Please read this document
carefully because it contains important information about the
merger. Read carefully the risk factors relating to the
merger beginning on page 17.
None of the U.S. Securities and Exchange Commission, or the
SEC, any state securities commission or the North Carolina
Commissioner of Insurance has approved or disapproved the
securities to be issued in the merger or determined if this
document is accurate or adequate. It is illegal to tell you
otherwise.
The securities to be issued in the merger are not savings or
deposit accounts and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
Joint proxy statement-prospectus dated July 24, 2006,
and first mailed to shareholders on or about July 26,2006.
This document incorporates important business and financial
information about Wachovia and Golden West from other documents
that are not included in or delivered with this document. This
information is available to you without charge upon your written
or oral request. You can obtain documents related to Wachovia
and Golden West that are incorporated by reference into this
document through the Securities and Exchange Commission web site
at http://www.sec.gov or by requesting them in writing or
by telephone from the appropriate company:
Golden West Financial Corporation
1901 Harrison Street Oakland, California94612
Telephone: (510) 446-3420
If you would like to request
documents,
please do so by August 24, 2006
to receive them before
Wachovia’s special meeting.
If you would like to request
documents,
please do so by August 24, 2006
to receive them before
Golden West’s special
meeting.
You also may obtain additional proxy cards and other
information related to the proxy solicitation by contacting the
appropriate contact listed above. You will not be charged for
any of these documents that you request.
See “Where You Can Find More Information” on page 103.
GOLDEN
WEST FINANCIAL CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 31, 2006
To the Shareholders of Golden West Financial Corporation:
A special meeting of shareholders of Golden West Financial
Corporation, a Delaware corporation, is being held on
August 31, 2006, at 10:00 a.m., Pacific time, on the
fourth floor of Golden West’s headquarters at
1901 Harrison Street, Oakland, California, for the
following purposes:
•
To consider and vote on the proposal to approve and adopt the
plan of merger contained in the Agreement and Plan of Merger,
dated as of May 7, 2006, pursuant to which Golden West will
merge with and into a wholly-owned subsidiary of Wachovia
Corporation, as more fully described in the attached joint proxy
statement-prospectus.
•
To transact any other business as may properly come before the
special meeting or any adjournment or postponement of the
special meeting.
The close of business on July 11, 2006 has been fixed as
the record date for determining those shareholders entitled to
notice of, and to vote at, the special meeting and any
adjournments or postponements of the special meeting. Only
Golden West common shareholders of record at the close of
business on that date are entitled to notice of, and to vote at,
the special meeting and any adjournments or postponements of the
special meeting. In order to approve and adopt the plan of
merger, the holders of a majority of the outstanding shares of
Golden West common stock entitled to vote must vote in favor of
the proposal. Abstentions and broker non-votes will have the
same effect as votes against approval and adoption of the plan
of merger. If you wish to attend the special meeting and your
shares are held in the name of a broker, trust, bank or other
nominee, you must bring with you a proxy or letter from the
broker, trustee, bank or nominee to confirm your beneficial
ownership of the shares.
By Order of the Board of Directors,
Michael Roster
Executive Vice President,
General Counsel and Secretary
Whether or not you plan to attend the special meeting in
person, please vote your proxy by telephone or through the
Internet, as described on the enclosed proxy card, or complete,
date, sign and return the enclosed proxy card in the enclosed
envelope. The enclosed envelope requires no postage if mailed in
the United States. If you attend the special meeting, you may
vote in person if you wish, even if you have previously returned
your proxy card or voted by telephone or through the
Internet.
Golden West’s board of directors unanimously recommends
that you vote “FOR” approval and adoption of the plan
of merger.
This brief summary highlights selected information from this
document. It may not contain all the information that is
important to you. We urge you to read carefully the entire
document and the other documents to which we refer you for a
more complete understanding of the proposed merger between
Wachovia and Golden West. In addition, we incorporate by
reference into this document important business and financial
information about Wachovia and Golden West. You may obtain the
information incorporated by reference into this document without
charge by following the instructions in the section entitled
“Where You Can Find More Information” on
page 103. Each item in this summary includes a page
reference directing you to a more complete description of that
item.
We propose that Wachovia acquire Golden West by merging Golden
West with and into a wholly-owned subsidiary of Wachovia, which
we refer to as the “merger subsidiary”, with the
merger subsidiary as the surviving corporation. Following the
merger, Wachovia will continue to be incorporated in North
Carolina with its corporate headquarters in Charlotte, North
Carolina. The combined company will be called “Wachovia
Corporation” and its common stock will trade on the New
York Stock Exchange, or the NYSE, under the symbol
“WB”. We expect to complete the merger in the fourth
quarter of 2006.
Golden West Shareholders. If you are a Golden
West shareholder, 77% of your Golden West common shares will be
converted in the merger into the right to receive 1.365 Wachovia
common shares, and the remaining 23% of your Golden West common
shares will be converted in the merger into the right to receive
$81.07 in cash. This is equivalent to approximately
1.051 shares of Wachovia common stock and approximately
$18.65 in cash for each share of Golden West common stock you
own.
Wachovia will not issue fractional shares in the merger.
Instead, it will pay cash for fractional common shares based on
the average of the NYSE closing price per Wachovia share on the
10 trading days before the merger completion date.
For example, if you own 100 shares of Golden West common
stock immediately prior to the merger, when the proposed merger
is completed, you will receive:
•
105 Wachovia common shares;
•
$1,864.61 in cash; and
•
for the fractional Wachovia common share, cash equal to 0.105
(the remaining fractional interest in a Wachovia common share)
multiplied by the average of the NYSE closing price per Wachovia
share on the 10 trading days before the merger completion date.
If you are a Golden West shareholder, you will need to surrender
your Golden West common stock certificates to receive the merger
consideration for those Golden West shares, and any dividends
paid by Wachovia after merger completion. Please do not
surrender your certificates until you receive written
instructions from Wachovia after we have completed the merger.
Wachovia Shareholders. If you are a Wachovia
shareholder, your shares of Wachovia common stock will be
unchanged by the merger. You do not need to surrender your
shares or your stock certificates.
Combined Company. After merger completion,
former Golden West shareholders will own approximately 17% of
the outstanding common stock of the combined company, and
current Wachovia shareholders will own approximately 83% of the
outstanding common stock of the combined company.
In the merger, Golden West shareholders will receive, with
respect to 77% of their shares of Golden West common stock,
1.365 shares of Wachovia common stock, and with respect to
the remaining 23% of their shares of Golden West common stock,
$81.07 in cash. This is equivalent to each share of Golden West
common stock being
converted into the right to receive approximately
1.051 shares of Wachovia common stock and approximately
$18.65 in cash. The number of Wachovia common shares and cash
issued in the merger for each Golden West common shareholder is
fixed and will not be adjusted for changes in the market price
of either Wachovia common stock or Golden West common stock.
Accordingly, any change in the price of Wachovia common stock
prior to the merger will affect the market value of the stock
portion of the merger consideration that Golden West
shareholders will receive as a result of the merger. Neither of
us is permitted to terminate the merger agreement or resolicit
the vote of our respective shareholders solely because of
changes in the market prices of our respective common stocks.
You should obtain current stock price quotations for Wachovia
common stock and Golden West common stock. Wachovia common stock
and Golden West common stock are listed on the NYSE under the
symbols “WB” and “GDW”, respectively. The
following table shows the closing prices for Wachovia common
stock and Golden West common stock and the implied per share
value in the merger to Golden West shareholders for the
following dates and periods:
•
May 5, 2006, the last trading day before we announced the
execution of the merger agreement;
•
May 8, 2006, the first trading day after we announced the
execution of the merger agreement;
•
July 21, 2006, shortly before we mailed this
document; and
With respect to the portion of the merger consideration
involving the issuance of Wachovia common stock, we agreed upon
a fixed exchange ratio, and note the following:
•
a fixed exchange ratio is customary for mergers of this type in
the financial services industry;
•
an exchange ratio that does not fluctuate with the price of our
common stocks provides substantial certainty about the number of
shares that will be issued in the merger; and
•
the nominal dollar value of the Wachovia shares to be received
by Golden West shareholders in the merger will fluctuate with
the market price of Wachovia common stock before the merger is
completed and could be materially different from the market
price prevailing when we signed the merger agreement.
Wachovia expects to continue its common stock dividend policy
after the merger, but this policy is subject to the
determination of Wachovia’s board of directors and may
change at any time. Wachovia paid a dividend of $0.51 per
share of Wachovia common stock in the second quarter of 2006,
and Golden West has declared a dividend of $0.08 per share
of Golden West common stock to be paid in the third quarter of
2006. For comparison, based on the equivalent 1.051 exchange
ratio (i.e., 1.365 times 77%) and Wachovia’s current
quarterly dividend rate of $0.51 per share, following the
merger, holders of Golden West common stock would receive a
quarterly dividend equivalent to $0.536 per share of Golden
West common stock (i.e., 1.051 times $0.51).
The merger agreement permits each of us to continue to pay
regular quarterly cash dividends to our shareholders prior to
merger completion. Golden West has agreed in the merger
agreement to coordinate with Wachovia regarding dividend
declarations and the related record dates and payment dates so
that Golden West shareholders will not receive two dividends, or
fail to receive one dividend, for any single quarter.
Accordingly, prior to the merger,
Golden West may coordinate and alter its dividend record dates
in order to effect this policy.
The payment of dividends by Wachovia or Golden West on their
common stock in the future, either before or after the merger is
completed, is subject to the determination of our respective
boards of directors and depends on cash requirements, our
financial condition and earnings, legal and regulatory
considerations and other factors.
The merger is intended to constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended. Therefore, for U.S. federal income tax
purposes as a result of the merger, Golden West shareholders
generally will not recognize gain on the receipt of Wachovia
common stock and will only recognize gain (but not loss) in an
amount not to exceed any cash received as part of the merger
consideration, including any cash received in lieu of fractional
share interests. The merger is conditioned on the receipt of
legal opinions of Sullivan & Cromwell LLP, special
counsel to Wachovia, and Wachtell, Lipton, Rosen &
Katz, special counsel to Golden West, that, for
U.S. federal income tax purposes, the merger will
constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
For a complete description of the material U.S. federal
income tax consequences of the transaction, see “The Merger
Agreement—Material U.S. Federal Income Tax
Consequences”.
Tax matters are very complicated and the consequences of the
merger to any particular shareholder will depend on that
shareholder’s particular facts and circumstances. You are
urged to consult your own tax advisor to determine your own tax
consequences from the merger.
In connection with the merger, Wachovia’s board of
directors received a written opinion from Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Wachovia’s financial
advisor, dated as of May 7, 2006, as to the fairness, from
a financial point of view, to Wachovia of the merger
consideration to be paid by Wachovia in the merger. The full
text of Merrill Lynch’s written opinion is attached to this
joint proxy statement-prospectus as Appendix B. We
encourage you to read this opinion carefully in its entirety for
a description of the assumptions made, procedures followed,
matters considered and limitations on the review undertaken by
Merrill Lynch. Merrill Lynch’s opinion was provided to
Wachovia’s board in its evaluation of the merger
consideration, does not address any other aspect of the merger
and does not constitute a recommendation to any shareholder with
respect to any matters relating to the proposed merger. Merrill
Lynch’s opinion will not reflect any developments that may
occur or may have occurred after the date of the opinion and
prior to merger completion. Wachovia does not currently expect
to request an updated opinion from Merrill Lynch.
On May 7, 2006, the date the Golden West board of directors
approved the merger, Lehman Brothers, Golden West’s
financial advisor, rendered an opinion to Golden West’s
board of directors that, as of that date, the merger
consideration to be paid to Golden West shareholders pursuant to
the merger agreement was fair from a financial point of view to
the holders of Golden West common stock. The full text of Lehman
Brothers’ written opinion is attached to this joint proxy
statement-prospectus as Appendix C. You should read
this opinion completely to understand the procedures followed,
assumptions made, matters considered and limitations of the
review undertaken by Lehman Brothers. Lehman Brothers’
opinion was directed to the Golden West board of directors in
connection with its evaluation of the merger consideration to be
offered to Golden West shareholders, does not in any manner
address
the decision of the Golden West board to proceed with or effect
the merger and does not constitute a recommendation to any
shareholder as to any matters relating to the merger. The
opinion of Lehman Brothers will not reflect any developments
that may occur or may have occurred after the date of the
opinion and prior to merger completion. Golden West does not
currently expect to request an updated opinion from Lehman
Brothers.
All Golden West directors and senior executive officers are
shareholders of Golden West. Some of Golden West’s
directors and executive officers have interests in the merger
other than their interests as shareholders. The members of our
boards of directors knew about these additional interests and
considered them when they adopted the merger agreement and the
plan of merger.
Directors of Golden West. The merger agreement
provides that Wachovia will cause two current members of Golden
West’s board of directors to be appointed to
Wachovia’s board of directors effective as of merger
completion. Golden West has not awarded any stock options or
other benefits to its non-management directors other than
ordinary course fees for serving as directors. Consistent with
its past practice, Wachovia has agreed in the merger agreement
to indemnify all present and former directors, officers and
employees of Golden West and its subsidiaries against costs and
expenses in connection with claims arising from matters existing
or occurring prior to merger completion. In addition, also
consistent with its past practice, Wachovia has agreed to obtain
directors’ and officers’ liability insurance for
present and former officers and directors of Golden West and its
subsidiaries with respect to facts or events occurring prior to
merger completion.
Senior Executive Officers of Golden West. The
senior executive officers of Golden West, referred to by Golden
West as its Office of the Chairman, consist of Herbert M.
Sandler and Marion O. Sandler (Chairman and Chief Executive
Officers), Russell W. Kettell (President and Chief Financial
Officer), and James T. Judd (Senior Executive Vice President).
Mr. and Mrs. Sandler are the largest individual
shareholders of Golden West, and Messrs. Kettell and Judd
are also shareholders of Golden West. The members of the Office
of the Chairman do not have any employment agreements or other
arrangements with Golden West that would entitle them to
severance payments or additional benefits upon a change of
control of Golden West. Mr. and Mrs. Sandler do not
participate in the supplemental employee retirement agreements
extended by Golden West to some of its key employees.
Messrs. Kettell and Judd do participate in these
supplemental employee retirement agreements, but the benefits to
them under their respective agreements have already fully
vested, and the merger will not result in them receiving any
additional consideration from Golden West beyond that to which
they have already become entitled.
The members of the Office of the Chairman all own stock options
in Golden West. As described elsewhere in this joint proxy
statement-prospectus, the stock options owned by Golden West
employees, including members of the Office of the Chairman, will
become fully vested upon merger completion. As of July 11,2006:
•
Mr. and Mrs. Sandler each had 655,000 options outstanding,
555,000 of which were already fully vested and the remainder of
which would vest before or upon merger completion;
•
Mr. Kettell had 628,800 options outstanding, 478,800 of
which were already fully vested and the remainder of which would
vest before or upon merger completion; and
•
Mr. Judd had 150,000 options outstanding, all of which
would vest before or upon merger completion.
Under Section 262 of the Delaware General Corporation Law,
holders of Golden West common stock may have the right to obtain
an appraisal of the value of their shares of Golden West common
stock in connection with the merger. To perfect appraisal
rights, a Golden West shareholder must not vote for the approval
and adoption of the plan of merger and must strictly comply with
all of the procedures required under Delaware law. Failure to
strictly comply with Section 262 of the Delaware General
Corporation Law by a Golden West shareholder may result in
termination or waiver of that shareholder’s appraisal
rights.
We have included a copy of Section 262 of the Delaware
General Corporation Law as Appendix D to this joint
proxy statement-prospectus.
Wachovia Shareholders. Wachovia’s board
of directors believes that the merger is in the best interests
of Wachovia and its shareholders, and unanimously recommends
that Wachovia shareholders vote “FOR” the proposal to
approve the issuance of shares of Wachovia common stock as
consideration in the merger.
Golden West Shareholders. Golden West’s
board of directors believes that the merger and the other
transactions contemplated by the merger agreement are in the
best interests of Golden West shareholders and that the merger
consideration is fair to Golden West shareholders, and
unanimously recommends that Golden West shareholders vote
“FOR” the proposal to approve and adopt the plan of
merger contained in the merger agreement.
Wachovia’s Board of
Directors. Wachovia’s board of directors is
proposing that Wachovia shareholders approve the proposal to
issue the Wachovia common shares as consideration in the merger
because the board believes:
•
Golden West offers Wachovia a unique strategic fit because the
merger would expand Wachovia’s banking operations into many
high growth geographic areas of the United States. The merger
would also diversify Wachovia’s balance sheet into higher
yielding low-risk assets. As a result, Wachovia’s board
believes Wachovia will have a greater potential to accelerate
its long-term growth rate following the merger;
•
Golden West is a very well-managed, quality organization with an
exceptionally strong earnings record, strong credit quality,
strong risk management and a customer-focused business model;
•
the two companies have complementary sales- and service-focused
business models, strong credit culture and credit quality, and
an ability to market products to each other’s customer
bases;
•
Golden West’s and Wachovia’s managements share a
common business vision and commitment to their respective
customers, shareholders, employees and other
constituencies; and
•
the merger is likely to provide an increase in shareholder
value, including the benefits of a stronger strategic position.
With respect to shareholder value, Wachovia believes that
although the merger may be dilutive to Wachovia shareholders on
an earnings per share basis calculated according to GAAP until
2009, the merger will be accretive to Wachovia shareholders on a
cash earnings per share basis by 2008. Wachovia’s
estimation of earnings per share, or EPS, accretion/dilution for
each of the years 2007, 2008 and 2009 is as follows:
2007
2008
2009
Pro forma GAAP EPS
$
5.10
5.66
6.30
Wachovia estimated standalone GAAP
EPS
5.21
5.73
6.30
Accretion/(Dilution)
(0.11
)
(0.07
)
0.00
Pro forma cash EPS
5.26
5.79
6.40
Wachovia estimated standalone cash
EPS
5.28
5.78
6.34
Accretion/(Dilution)
$
(0.02
)
0.01
0.06
Wachovia’s estimated full year 2007 stand-alone GAAP
earnings per share are based on consensus earnings per share
estimates as reported by First Call as of May 5, 2006,
adjusted to include merger-related and restructuring expenses in
2007. Wachovia’s estimated stand-alone GAAP earnings per
share for 2008 and 2009 are based on 2007 consensus earnings per
share estimates plus the consensus
5-year
earnings per share growth expectations of 10% per year.
Management believed that the 2007 First Call estimates for
future earnings and growth provided a reasonable framework for
illustrating the pro forma effects of the merger. Full year 2007
earnings per share estimates assume consensus earnings per share
estimates for Golden West as reported by First Call as of
May 5, 2006 and pro forma 2008 and 2009 estimates assume
consensus
5-year
earnings per share growth expectations for Golden West of
12% per year. Pro forma earnings per share are also based
on the annual cost savings discussed below and on the
assumptions of Wachovia’s management described in more
detail under “The Merger—Recommendation of
Wachovia’s Board and Its Reasons for the Merger” and
under “The Merger—Opinion of Wachovia’s Financial
Advisor”. Cash earnings per share is a non-GAAP financial
measure that is calculated by adding after-tax restructuring and
merger-related expenses and intangible amortization to income
before the cumulative effect of a change in accounting principle
and dividing the result by average shares outstanding. Wachovia
believes this measure provides information useful to investors
in understanding our underlying operational performance, our
business and performance trends, and it facilitates comparison
with the performance of others in the financial services
industry.
In considering the merger, Wachovia’s board of directors
also considered the potential initial negative impact on the
market price of Wachovia common stock following announcement of
the merger. In addition, it considered the following potential
adverse consequences of the merger:
•
the possibility that the merger and the related integration
process could result in the loss of key employees, in the
disruption of Wachovia’s on-going business or in the loss
of customers;
•
the potential impact of interest rate fluctuations on Golden
West’s short-term and long-term revenues and earnings;
•
the possibility that the anticipated benefits of the merger may
not be realized, including the expected cost savings;
•
the potential effect of the merger on Golden West’s
employee benefits under various agreements, plans and programs
because the merger may accelerate vesting under some of such
arrangements, which might encourage employees to leave and
involve additional cost under such agreements, plans and
programs;
•
the impact of divestitures that may be required in connection
with obtaining regulatory approvals for the merger, which may
result in lost customer relationships and reduce the amount of
income the combined company could have realized without such
divestitures; and
•
the potential merger-related and restructuring charges.
The Wachovia board concluded, however, that the anticipated
benefits of the merger were likely to substantially outweigh the
risks.
Golden West’s Board of Directors. Golden
West’s board of directors is proposing the merger because,
among other reasons:
•
it expects the merger would create a leading financial
institution with more than $650 billion of assets that will
serve banking customers in 21 states and
Washington D.C. and have mortgage lending operations in
39 states and will be the leading retail bank in the
southeast United States, a leading bank in the western United
States, a top ten mortgage origination and servicing company, a
top ten indirect auto lender, a leading national brokerage and
fund manager, and a well-positioned corporate and investment
bank;
•
Wachovia’s reputation as an employer of choice,
consistently being recognized for its commitment to a
best-in-class
and diverse workforce, and the compatibility between
Wachovia’s and Golden West’s employee relations
strategies;
•
Wachovia’s reputation for exceptional customer service, and
the similar approaches to customer service employed by Wachovia
and Golden West;
•
its understanding of the potential for a greater range of
products that the combined company would be able to sell;
•
the complementary aspects of Golden West’s and
Wachovia’s businesses, including geographic coverage and
the board’s understanding of the compatibility of their
respective managements, cultures and operating styles, and the
Golden West board’s assessment of the likelihood that
Golden West’s business culture would continue to flourish
as part of a larger company; and
•
the terms of the merger agreement, including the consideration
to be paid to Golden West shareholders in the merger.
Cost Savings and Accounting Charges. Although
no assurances can be made, Wachovia believes that following the
merger, the combined company can achieve cost savings of
approximately 9% of Golden West’s non-interest expense or
0.5% of combined non-interest expense (approximately
$53 million in after-tax annual expense reductions) by 2008.
As part of these cost savings, Wachovia expects to reduce the
combined company’s job positions by about 1,100 over the
merger integration period. Wachovia believes that approximately
25% of these reductions could occur through normal attrition. As
part of the cost savings, Wachovia expects to consolidate about
55 branch banking offices during the integration period. You can
find more details about our expected cost savings under the
heading “The Merger — Cost Savings”.
Wachovia expects to recognize an estimated $176 million of
after-tax merger-related and restructuring expenses and
$117 million of after-tax exit cost purchase accounting
adjustments. A portion of these charges and adjustments will be
recorded upon merger completion, with the remainder expected to
be recorded in each year from the merger completion through 2008.
In the merger agreement, Golden West agreed not to initiate,
solicit or encourage proposals from third parties regarding
acquiring Golden West or its businesses. In addition, Golden
West agreed not to engage in negotiations with or provide
confidential information to a third party regarding acquiring
Golden West or its businesses. However, if Golden West receives
an unsolicited acquisition proposal from a third party, Golden
West can participate in negotiations with and provide
confidential information to the third party if, among other
steps, Golden West’s board of directors concludes in good
faith that the proposal is a proposal that is, or would
reasonably be likely to result in, a superior proposal to our
merger. Golden West’s receipt of a superior proposal or
participation in such negotiations does not give Golden West the
right to terminate the merger agreement.
In consideration of Wachovia agreeing to enter into the merger
agreement, three Golden West directors, Mr. Sandler,
Mrs. Sandler, and Bernard A. Osher, solely in their
capacity as Golden West shareholders, have agreed that the
shares of Golden West common stock that they beneficially owned
on May 7, 2006 would be voted in favor of the merger and
that they would not support any other merger proposal by a third
party. Because the shares subject to these voting agreements
represent approximately 13.5% of the outstanding shares of
Golden West common stock as of the record date, these voting
agreements may have the effect of discouraging a competing offer
to acquire Golden West. A form of voting agreement is attached
in Appendix A.
Wachovia Shareholders. In order to approve the
issuance of shares of Wachovia common stock as consideration in
the merger, the holders of a majority of Wachovia’s common
shares voting at Wachovia’s special meeting must vote in
favor of the proposal. As of July 11, 2006, the record date
for the Wachovia special meeting, Wachovia directors and
executive officers beneficially owned about 39.0 million,
or approximately 2.5%, of the shares entitled to vote at the
Wachovia special meeting. Golden West and its directors and
executive officers beneficially owned less than 1% of the shares
entitled to vote at the Wachovia special meeting.
Golden West Shareholders. In order to approve
and adopt the plan of merger contained in the merger agreement,
the holders of a majority of Golden West’s common shares
outstanding as of July 11, 2006, the record date for the
Golden West special meeting, must vote in favor of the plan of
merger contained in the merger agreement. As of that date,
Golden West directors and executive officers beneficially owned
about 44.0 million, or approximately 14.2%, of the shares
entitled to vote at the Golden West special meeting. In
addition, because Mr. Sandler, Mrs. Sandler and
Mr. Osher, in their capacity as Golden West shareholders,
have each agreed in their respective voting agreement to vote
the shares of Golden West common stock beneficially owned by
them, respectively, in favor of the plan of merger, approval and
adoption of the plan of merger at the Golden West special
meeting would require the approval of an additional 36.5% of the
outstanding Golden West shares as of the record date. Wachovia
and its directors and executive officers beneficially owned less
than 1% of the shares entitled to vote at the Golden West
meeting (other than shares held by Wachovia in a fiduciary,
custodial or agency capacity).
In the merger, Wachovia will assume all Golden West employee
stock options and those options will become options to purchase
Wachovia common stock. Each converted option will vest in full
upon merger completion. The number of shares issuable under
those options and the exercise prices will be adjusted to take
into account the 1.365 exchange ratio for Golden West shares
converted into Wachovia shares in the merger.
Our obligations to complete the merger depend on a number of
conditions being met. These include:
•
approval and adoption of the plan of merger contained in the
merger agreement by Golden West shareholders and approval of the
issuance of Wachovia common stock as consideration in the merger
by Wachovia shareholders;
•
listing the shares of Wachovia common stock to be issued in the
merger on the NYSE (including shares to be issued following
exercise of the Golden West employee stock options assumed by
Wachovia);
•
receiving the required approvals of applicable federal and state
regulatory authorities;
•
the absence of any government action or other legal restraint or
prohibition that would prohibit the merger or make it illegal;
•
receiving legal opinions that, for United States federal income
tax purposes, the merger will be treated as a reorganization
within the meaning of Section 368(a) of the Internal
Revenue Code. These opinions will be based on customary
assumptions and on factual representations made by Wachovia and
Golden West and will be subject to various limitations; and
•
the representations and warranties of each party to the merger
agreement being true and correct, except as would not have or
would not reasonably be expected to have a material adverse
effect, and the other party to the merger agreement must have
performed in all material respects all of its obligations under
the merger agreement.
Where the law permits, either of us could choose to waive a
condition to our obligation to complete the merger even when
that condition has not been satisfied. We cannot be certain
when, or if, the conditions to the merger will be satisfied or
waived, or that the merger will be completed. Although the
merger agreement allows us to waive the tax opinion condition,
we do not currently anticipate doing so. If either of us does
waive the tax opinion condition, we will inform you of this fact
and ask you to vote on the merger taking this into consideration.
We cannot complete the merger unless it is approved by the Board
of Governors of the Federal Reserve System. Pending receipt of
Federal Reserve Board approval, the United States Department of
Justice, or DOJ, can challenge the merger. We filed the
applicable notification with the Federal Reserve Board on
July 7, 2006.
The merger is also subject to receiving the approval of other
regulatory authorities. We are in the process of preparing and
filing all of the required applications and notices with
regulatory authorities.
There can be no assurance as to whether these and other
regulatory approvals will be received, the timing of those
approvals, or whether any conditions will be imposed.
We can mutually agree at any time to terminate the merger
agreement without completing the merger, even if we have
obtained the appropriate shareholder approvals. Also, either of
us can decide, without the consent of the other, to terminate
the merger agreement:
•
if there is a final denial of a required regulatory approval;
•
if the merger is not completed on or before March 31, 2007,
unless the failure to complete the merger by this date is due to
the failure of the party seeking to terminate the
merger agreement to perform its obligations under the merger
agreement;
•
if there is a continuing breach of the merger agreement by the
other party, after 60 days’ written notice to the
breaching party, as long as that breach would allow the
non-breaching party not to complete the merger; or
•
if the other party’s board of directors fails to recommend
approval of the plan of merger to its shareholders, or withdraws
or materially and adversely modifies its recommendation.
Also, Wachovia may terminate the merger agreement if Golden
West’s board recommends an acquisition proposal other than
the merger, or if Golden West’s board negotiates or
authorizes negotiations with a third party regarding an
acquisition proposal other than the merger and those
negotiations continue for at least 20 business days.
Wachovia’s board may not change its recommendation for the
proposal to issue Wachovia common shares in the merger and
therefore, Golden West has no similar termination right.
The failure of either Golden West or Wachovia to obtain the
shareholder vote required for the merger will not by itself give
either company the right to terminate the merger agreement. As
long as no other termination event has occurred, both companies
would remain obligated to continue to use their reasonable best
efforts to complete the merger until March 31, 2007, which,
depending on the timing of the failed meeting, could include
calling additional shareholder meetings.
Whether or not the merger is completed, we will each pay our own
fees and expenses, except that we will evenly divide the costs
and expenses that we incur in preparing, printing and mailing
this joint proxy statement-prospectus and filing fees paid in
connection with the registration statement and all applications
for government approvals, except fees paid to counsel, financial
advisors and accountants.
In certain circumstances involving a competing acquisition bid
for Golden West, Golden West has agreed to pay Wachovia a
termination fee of $995 million, upon termination of the
merger agreement or, in some cases, within a specified period of
time after termination. See “The Merger
Agreement—Termination Fee” for more information.
We may jointly amend the merger agreement, and each of us may
waive our right to require the other party to follow particular
provisions of the merger agreement. However, we may not amend
the merger agreement after our shareholders approve the merger
if the amendment would legally require merger proposals to be
resubmitted to Golden West shareholders or Wachovia shareholders
or would violate Delaware or North Carolina law.
Wachovia may also change the structure of the merger, as long as
any change does not change the amount or type of stock or other
payment to be received by Golden West shareholders and the
holders of options to purchase Golden West common stock, does
not materially delay the timing of merger completion, does not
adversely affect the tax consequences of the merger to Golden
West shareholders and does not cause any of the conditions to
complete the merger to be incapable of being satisfied.
The rights of Wachovia shareholders are governed by North
Carolina law and by Wachovia’s articles of incorporation
and by-laws. The rights of Golden West shareholders are governed
by Delaware law and by Golden West’s certificate of
incorporation and by-laws. Golden West shareholders should be
aware of these differences when they vote at the special meeting
because, upon merger completion, they will own shares of
Wachovia common stock and therefore their rights will be
governed by North Carolina law and Wachovia’s articles of
incorporation and by-laws.
Wachovia is a financial holding company organized under the laws
of North Carolina and registered under the federal Bank Holding
Company Act. Wachovia has approximately 3,160 full-service
financial centers, more than 700 retail brokerage offices and
approximately 5,200 ATM locations.
Wachovia offers a comprehensive line of consumer and commercial
banking products and services, personal trust, investment
advisory, insurance, securities brokerage, investment banking,
mortgage, credit card, cash management, international banking
and other financial services.
At March 31, 2006, Wachovia had consolidated total assets
of approximately $542 billion, consolidated total deposits
of approximately $329 billion and consolidated stockholders
equity of approximately $50 billion. Based on total assets
at March 31, 2006, Wachovia was the 4th largest bank
holding company in the United States.
Golden West is a Delaware corporation and a registered savings
and loan holding company. Golden West primarily operates its
banking and mortgage business through its wholly-owned
subsidiary, World Savings Bank, FSB, a federal savings bank
primarily regulated by the Office of Thrift Supervision. Golden
West, through its subsidiaries, engages in a range of consumer
banking businesses, primarily deposit gathering and residential
mortgage lending, from approximately 285 savings branches in
10 states and lending operations in 39 states.
Wachovia plans to hold its special meeting on August 31,2006, at 9:30 a.m., Eastern time, in Grand Ballroom D,
at The Westin Charlotte, 601 South College Street,
Charlotte, North Carolina28202. At the meeting, Wachovia
shareholders will be asked to approve the issuance of shares of
Wachovia common stock as consideration in the merger and the
Amended and Restated Wachovia Corporation 2003 Stock Incentive
Plan. Each of the proposals is independent, and is not
contingent on approval by shareholders, of the other proposal.
Wachovia shareholders can vote at the Wachovia special meeting
of shareholders if they owned Wachovia common stock at the close
of business on July 11, 2006. As of that date, there were
1,588,703,209 shares of Wachovia common stock outstanding
and entitled to vote. Wachovia shareholders can cast one vote
for each share of Wachovia common stock that they owned on that
date.
In order to approve the Amended and Restated Wachovia
Corporation 2003 Stock Incentive Plan, the holders of a majority
of Wachovia’s common shares voting at Wachovia’s
special meeting must vote in favor of the proposal.
Golden West plans to hold its special meeting of shareholders on
August 31, 2006, at 10:00 a.m., Pacific time, on the
fourth floor of Golden West’s headquarters at
1901 Harrison Street, Oakland, California. At the meeting,
Golden West shareholders will be asked to approve and adopt the
plan of merger contained in the merger agreement providing for
the merger of Golden West into a wholly-owned subsidiary of
Wachovia.
Golden West shareholders can vote at the Golden West special
meeting of shareholders if they owned Golden West common stock
at the close of business on July 11, 2006. As of that date,
there were 308,969,449 shares of Golden West common stock
outstanding and entitled to vote. Golden West shareholders can
cast one vote for each share of Golden West common stock that
they owned on that date.
The table on the following page shows historical information
about our companies’ respective earnings per share,
dividends per share and book value per share, and similar
information reflecting the merger, which we refer to as
“pro forma” information, at or for the three months
ended March 31, 2006, and at or for the year ended
December 31, 2005. In presenting the comparative pro forma
information for the periods shown, it is assumed that Wachovia
and Golden West had been combined throughout those periods.
It has been assumed that the merger will be accounted for under
an accounting method known as “purchase accounting”.
Under the purchase method of accounting, the assets and
liabilities of the company not surviving a merger are recorded,
as of the completion date of the merger, at their respective
fair values and added to those of the surviving company.
Financial statements of the surviving company issued after
merger completion reflect such values and are not restated
retroactively to reflect the historical financial position or
results of operations of the company not surviving.
The information listed as “equivalent pro forma” for
Golden West was obtained by multiplying the pro forma amounts
listed by Wachovia by the equivalent 1.051 exchange ratio
(i.e., 1.365 times 77%). We present this information to
reflect the fact that Golden West shareholders will receive the
equivalent of 1.051 shares of Wachovia common stock for
each share of their Golden West common stock exchanged in the
merger.
The pro forma financial information includes estimated
adjustments to record certain assets and liabilities of Golden
West at their respective fair values and to record certain exit
costs related to Golden West. The pro forma adjustments included
herein are subject to updates as additional information becomes
available and as additional analyses are performed. Certain
other assets and liabilities of Golden West will also be subject
to adjustment to their respective fair values. Pending more
detailed analyses, no pro forma adjustments are included herein
for these assets and liabilities, including additional
intangible assets which may be identified. Any change in the
fair value of the net assets of Golden West will change the
amount of the purchase price allocable to goodwill.
Additionally, changes to Golden West’s stockholders’
equity, including dividends and net income from April 1,2006, through the date the merger is completed, will also change
the amount of goodwill recorded. In addition, the final
adjustments may be materially different from the unaudited pro
forma adjustments presented herein.
Wachovia also anticipates that the merger will provide Wachovia
with financial benefits that include increased revenue
opportunities and reduced operating expenses, but these
financial benefits are not reflected in the pro forma
information. Accordingly, the pro forma information does not
attempt to predict or suggest future results. It also does not
necessarily reflect what the historical results of the combined
company would have been had our companies been combined during
the periods presented. See “The Merger—Cost
Savings”.
The information in the following tables is based on historical
financial information and related notes that we have presented
in our prior filings with the SEC. You should read all of the
summary financial information provided in the following tables
together with this historical financial information and related
notes. The historical financial information is also incorporated
into this document by reference. See “Where You Can Find
More Information” for a description of where you can find
this historical information.
The following tables show summarized historical financial data
for each of Wachovia and Golden West and also show similar pro
forma information reflecting the merger. The historical
financial data show the financial results actually achieved by
Wachovia and Golden West for the periods indicated. The pro
forma information reflects the pro forma effect of accounting
for the merger under the purchase method of accounting. The pro
forma income statement data for the three months ended
March 31, 2006, assumes a merger completion date of
January 1, 2006. The pro forma income statement data for
the year ended December 31, 2005, assumes a merger
completion date of January 1, 2005. The pro forma balance
sheet data assumes a merger completion date of March 31,2006.
The pro forma financial information includes estimated
adjustments to record certain assets and liabilities of Golden
West at their respective fair values and to record certain exit
costs related to Golden West. The pro forma adjustments included
herein are subject to updates as additional information becomes
available and as additional analyses are performed. Certain
other assets and liabilities of Golden West will also be subject
to adjustment to their respective fair values, including
additional intangible assets which may be identified. Pending
more detailed analyses, no pro forma adjustments are included
herein for these assets and liabilities. Any change in the fair
value of the net assets of Golden West will change the amount of
the purchase price allocable to goodwill. Additionally, changes
to Golden West’s stockholders’ equity, including net
income from April 1, 2006, through the date the merger is
completed, will also change the amount of goodwill recorded. In
addition, the final adjustments may be materially different from
the unaudited pro forma adjustments presented herein.
The information in the tables on the following pages is based on
historical financial information and related notes that we have
presented in our prior filings with the SEC. You should read all
of the summary financial information provided in the following
tables together with this historical financial information and
related notes. The historical financial information is also
incorporated into this document by reference. See “Where
You Can Find More Information” for a description of where
you can find this historical information.
Wachovia also anticipates that the merger will provide Wachovia
with financial benefits that include increased revenue
opportunities and reduced operating expenses, but these
financial benefits are not reflected in the pro forma
information. Accordingly, the pro forma information does not
attempt to predict or suggest future results. It also does not
necessarily reflect what the historical results of the combined
company would have been had our companies been combined during
the periods presented. See “The Merger—Cost
Savings”.
Since announcement of the merger, our merger integration teams
have been developing plans to integrate the operations of Golden
West into Wachovia so that we will continue to provide premier
service to our customers while at the same time beginning to
realize merger efficiencies. These plans will continue to be
refined over the next several months and will address systems,
facilities and equipment, personnel, contractual arrangements
and other integration activities for both Golden West and
Wachovia.
The costs associated with merger integration activities that
impact certain Golden West systems, facilities and equipment,
personnel and contractual arrangements will be recorded as
purchase accounting adjustments as described above when the
appropriate plans are in place with potential refinements up to
one year after merger completion as additional information
becomes available. Wachovia currently estimates that exit cost
purchase accounting adjustments will amount to $117 million
after-tax. The costs associated with integrating systems and
operations will be recorded as merger-related expenses based on
the nature and timing of the related expenses, but generally
will be recorded as the expenses are incurred. Restructuring
charges will be recorded based on the nature and timing of the
expenses and generally will include merger integration
activities that impact Wachovia systems, facilities and
equipment, personnel and contractual arrangements. Wachovia
expects merger-related and restructuring expenses will amount to
$176 million after-tax and will be incurred and reported
through 2008.
SELECTED
CONSOLIDATED HISTORICAL FINANCIAL DATA OF GOLDEN WEST
Three Months Ended
March 31,
Years Ended December 31,
(In millions, except per share data)
2006
2005
2005
2004
2003
2002
2001
CONSOLIDATED SUMMARIES OF
INCOME
Interest income(a)
$
2,019
1,364
6,517
4,355
3,653
3,588
4,294
Interest expense
1,136
607
3,265
1,560
1,320
1,567
2,578
Net interest income(a)
883
757
3,252
2,795
2,333
2,021
1,716
Provision for credit losses
4
1
8
3
12
21
22
Net interest income after provision
for credit losses(a)
879
756
3,244
2,792
2,321
2,000
1,694
Securities gains
2
2
11
13
72
45
43
Fee and other income(a)
34
28
134
104
117
111
109
Noninterest expense
271
224
963
840
721
601
514
Income before income taxes and
cumulative effect of a change in accounting principle
644
562
2,426
2,069
1,789
1,555
1,332
Income taxes
253
214
940
789
683
597
513
Income before cumulative effect of
a change in accounting principle
391
348
1,486
1,280
1,106
958
819
Cumulative effect of a change in
accounting principle, net of income taxes
—
—
—
—
—
—
(6
)
Net income
$
391
348
1,486
1,280
1,106
958
813
PER COMMON SHARE DATA
Basic earnings
Income before change in accounting
principle
$
1.27
1.13
4.83
4.19
3.63
3.10
2.59
Net income
1.27
1.13
4.83
4.19
3.63
3.10
2.57
Diluted earnings
Income before change in accounting
principle
1.25
1.12
4.77
4.13
3.57
3.06
2.55
Net income
1.25
1.12
4.77
4.13
3.57
3.06
2.53
Cash dividends
0.08
0.06
0.26
0.21
0.178
0.151
0.13
Book value
29.31
24.68
28.15
23.73
19.55
16.37
13.77
CASH DIVIDENDS PAID ON COMMON
STOCK
25
18
80
64
54
47
41
CONSOLIDATED PERIOD-END BALANCE
SHEET ITEMS
Assets
127,556
112,588
124,615
106,889
82,550
68,406
58,586
Loans, net of unearned income
121,057
105,931
118,095
100,797
74,371
58,843
41,423
Deposits
61,583
55,593
60,158
52,965
46,727
41,039
34,473
Long-term debt
46,584
41,468
47,155
39,074
22,991
19,825
18,835
Stockholders’ equity
$
9,043
7,579
8,671
7,275
5,947
5,025
4,284
Common shares outstanding
309
307
308
307
304
307
311
CONSOLIDATED AVERAGE BALANCE
SHEET ITEMS
Assets
$
125,995
109,807
116,800
93,702
73,644
62,719
57,293
Loans, net of unearned income
119,675
103,322
110,373
87,256
65,175
51,075
36,954
Deposits
60,830
54,116
57,385
49,372
44,457
37,047
32,006
Long-term debt
46,508
40,440
43,134
31,023
20,775
19,225
19,350
Stockholders’ equity
$
8,867
7,419
7,938
6,578
5,442
4,648
4,017
Common shares outstanding
Basic
308
307
307
305
305
309
317
Diluted
312
312
312
310
310
313
321
ASSET QUALITY
Allowance for loan losses
$
300
290
296
290
290
281
261
Nonperforming assets (includes TDRs)
437
356
382
348
427
425
395
Net charge-offs
$
—
1
3
3
3
1
2
CONSOLIDATED
PERCENTAGES
Average assets to average
stockholders’ equity
14.21
X
14.80
14.71
14.24
13.53
13.49
14.26
Return on average assets
1.24
%(b)
1.27
(b)
1.27
1.37
1.50
1.53
1.42
Return on average
stockholders’ equity
17.64
(b)
18.78
(b)
18.72
19.45
20.33
20.62
20.23
Average stockholders’ equity
to average assets
7.04
6.76
6.80
7.02
7.39
7.41
7.01
Stockholders’ equity to assets
7.09
6.73
6.96
6.81
7.20
7.35
7.31
Allowance for loan losses to
Loans, net of unearned income
0.25
0.27
0.25
0.29
0.39
0.48
0.63
Nonperforming assets
69
81
77
83
68
66
66
Net charge-offs to average loans,
net of unearned income
—
(b)
—
(b)
—
—
—
—
—
Nonperforming assets to loans, net
of unearned income, foreclosed properties and loans in other
assets as held for sale
0.36
0.34
0.32
0.35
0.57
0.72
0.94
Capital ratios
WSB
Tier 1 risk-based capital
12.88
12.45
12.58
12.41
13.52
13.52
13.20
Total risk-based capital
13.30
12.93
13.02
12.92
14.16
14.26
14.24
Tier 1 (core or leverage)
6.94
6.72
6.76
6.71
7.45
7.61
7.71
WTX
Tier 1 risk-based capital
24.63
24.08
24.68
23.62
22.85
24.05
25.04
Total risk-based capital
24.73
24.16
24.77
23.67
22.88
24.07
25.05
Tier 1 (core or leverage)
5.67
5.42
5.61
5.22
5.16
5.23
5.23
Net interest margin(a)
2.84
%(b)
2.79
(b)
2.82
3.02
3.22
3.29
3.05
(a)
The consolidated summaries of income financial data for each of
the five years ended December 31, include certain
reclassifications to Golden West’s prior year financial
statements to conform to current year presentation.
Specifically, prepayment fees and late charges related to Golden
West’s loan portfolio were reclassified from fees and other
income to interest income. These reclassifications had no effect
on net income.
In addition to the other information contained in or
incorporated by reference into this joint proxy
statement-prospectus, including the matters addressed under the
heading “Forward-Looking Statements”, you should
carefully consider the following risk factors in deciding how to
vote on the merger.
Because
the Market Price of Wachovia Common Stock May Fluctuate, Golden
West Shareholders Cannot Be Sure of the Market Value of the
Wachovia Common Stock That They Will Receive in the
Merger.
In the merger, Golden West shareholders will have the right to
receive, with respect to 77% of their shares of Golden West
common stock, 1.365 shares of Wachovia common stock for
each such share and, with respect to the remaining 23%, $81.07
in cash for each such share. This is equivalent to the right to
receive 1.051 shares of Wachovia common stock and $18.65 in
cash for each share of Golden West common stock. Because the
number of Wachovia common shares and cash that will be issued in
the merger to each Golden West common shareholder is fixed and
will not be adjusted for changes in the market price of either
Wachovia common stock or Golden West common stock, any change in
the price of Wachovia common stock will affect the market value
of the stock portion of the merger consideration that Golden
West shareholders will receive. Neither Wachovia nor Golden West
is permitted to terminate the merger agreement or resolicit the
vote of its shareholders solely because of changes in the market
price of their respective shares of common stock.
Stock price changes may result from a variety of factors,
including general market and economic conditions, changes in our
businesses, operations and prospects and regulatory
considerations. Many of these factors are beyond our control.
The prices of Wachovia common stock and Golden West common stock
at the closing of the merger may vary from their respective
prices on the date the merger agreement was executed, the date
of this joint proxy statement-prospectus and the dates of the
special meetings. As a result, the value represented by the
stock portion of the merger consideration also will vary. For
example, based on the range of closing prices of Wachovia common
stock during the period from May 5, 2006, the last trading
day before public announcement of the execution of the merger
agreement, through July 21, 2006, the merger consideration
represented a value ranging from a high of $81.07 to a low of
$73.33, in each case including the equivalent $18.65 per
Golden West share cash payment (i.e., $81.07 times 23%),
for each share of Golden West common stock. Because the date the
merger is completed may be later than the dates of the meetings,
at the time of your shareholders’ meeting, you will not
necessarily know the market value of Wachovia common stock that
Golden West shareholders will receive upon merger completion.
Combining
Our Two Companies May Be More Difficult, Costly or
Time-Consuming Than We Expect.
Wachovia and Golden West have operated and, until merger
completion, will continue to operate, independently. It is
possible that the integration process could result in the loss
of key employees or disruption of each company’s ongoing
business or inconsistencies in standards, controls, procedures
and policies that adversely affect our ability to maintain
relationships with customers and employees or to achieve the
anticipated benefits of the merger. As with any merger of
banking institutions, there also may be business disruptions
that cause us to lose customers or cause customers to take their
deposits out of our banks. The success of the combined company
following the merger may depend in large part on the ability to
integrate the two businesses, business models and cultures. If
we are not able to integrate our operations successfully and
timely, the expected benefits of the merger may not be realized.
Regulatory
Approvals May Not Be Received, May Take Longer Than Expected or
Impose Conditions Which Are Not Presently Anticipated.
The merger must be approved by the Federal Reserve Board. The
Federal Reserve Board will consider, among other factors, the
competitive impact of the merger, the financial and managerial
resources of our companies and their subsidiary banks and the
convenience and needs of the communities to be served. As part
of that consideration, we expect that the Federal Reserve Board
will review capital position, safety and soundness, and legal
and regulatory compliance matters, and Community Reinvestment
Act matters.
There can be no assurance as to whether these and other
regulatory approvals will be received, the timing of those
approvals, or whether any conditions will be imposed.
Future
Results of the Combined Company May Differ Materially from the
Pro Forma Financial Information Presented in This Joint Proxy
Statement-Prospectus.
Wachovia’s future results may be materially different from
those shown in the pro forma financial information presented in
this joint proxy statement-prospectus that show only a
combination of Wachovia’s and Golden West’s historical
results. Wachovia has estimated that Wachovia will record
approximately $176 million of aggregate after-tax
merger-related and restructuring expenses, and $117 million
of after-tax exit cost purchase accounting adjustments. The
charges may be higher or lower than estimated, depending upon
how costly or difficult it is to integrate our two companies.
Furthermore, these charges may decrease Wachovia’s capital
that could be used for income-earning investments in the future.
The
Market Price of Wachovia Common Stock after the Merger May be
Affected by Factors Different from Those Affecting Golden West
Common Stock or Wachovia Common Stock Currently.
The businesses of Wachovia and Golden West differ in some
respects and, accordingly, the results of operations of the
combined company and the market price of Wachovia’s shares
of common stock after the merger may be affected by factors
different from those currently affecting the independent results
of operations of each of Wachovia or Golden West. For a
discussion of the businesses of Wachovia and Golden West and of
certain factors to consider in connection with those businesses,
see the documents incorporated by reference into this joint
proxy statement-prospectus and referred to under “Where You
Can Find More Information”.
Unless
the Merger Is Completed, There are Limits on Another Business
Combination Until March 31, 2007.
The failure of either Golden West or Wachovia to obtain the
shareholder vote required for the merger will not by itself give
either company the right to terminate the merger agreement. As
long as no other termination event has occurred, both companies
would remain obligated to continue to use their reasonable best
efforts to complete the merger until March 31, 2007, which,
depending on the timing of the failed meeting, could include
calling additional shareholder meetings.
During the period the merger agreement is in effect, Golden West
cannot undertake any other material mergers or business
combination transactions without the consent of Wachovia.
Furthermore, any decision by the Golden West board of directors
to withdraw or adversely modify its recommendation of the
merger, or recommend an acquisition proposal other than the
merger, or negotiate or authorize negotiations with a third
party regarding an acquisition proposal other than the merger
will not give Golden West the right to terminate the merger
agreement. The foregoing prohibitions could have the effect of
delaying alternative strategic business combinations for a
limited period.
We May
Fail to Realize the Cost Savings Estimated For the
Merger.
Wachovia estimates that approximately $53 million of annual
after-tax cost savings would be realized from the merger by
December 31, 2008. While Wachovia continues to be
comfortable with these estimates as of the date of this joint
proxy statement-prospectus, it is possible that the estimates of
the potential cost savings could turn out to be incorrect. For
example, the combined purchasing power may not be as strong as
expected, and therefore the cost savings could be reduced. In
addition, unanticipated growth in Wachovia’s business may
require Wachovia to continue to operate or maintain some
facilities or support functions that are currently expected to
be combined or reduced. The cost savings estimates also depend
on our ability to combine the businesses of Wachovia and Golden
West in a manner that permits those costs savings to be
realized. If the estimates turn out to be incorrect or Wachovia
is not able to combine successfully our two companies, the
anticipated cost savings may not be fully realized or realized
at all, or may take longer to realize than expected.
Uncertainties
Associated with the Merger May Cause a Loss of Employees and May
Otherwise Affect the Future Business and Operations of Wachovia
and Golden West.
Wachovia’s success after the merger will depend in part
upon its ability to retain key employees of Wachovia and Golden
West. Current and prospective employees of Wachovia and Golden
West may experience uncertainty about their roles with the
combined company following the merger. This may adversely affect
the ability of each of Wachovia and Golden West to attract and
retain key management, sales, marketing, technical and other
personnel. In addition, key employees may depart because of
issues relating to the uncertainty and difficulty of integration
or a desire not to remain with the combined company following
the merger. Accordingly, no assurance can be given that the
combined company will be able to attract or retain key employees
of Wachovia and Golden West to the same extent that those
companies have been able to attract or retain their own
employees in the past.
The SEC
Is Investigating Wachovia’s Relationship With Its Auditor,
KPMG LLP.
As reported in Wachovia’s Annual Report on
Form 10-K
for the year ended December 31, 2005, the SEC has requested
Wachovia to produce certain information concerning any
agreements or understandings by which Wachovia referred clients
to KPMG LLP during the period January 1, 1997 to November
2003 in connection with an inquiry regarding the independence of
KPMG LLP as Wachovia’s outside auditors during such period.
Wachovia is continuing to cooperate with the SEC in its inquiry,
which is being conducted pursuant to a formal order of
investigation entered by the SEC on October 21, 2003.
Wachovia believes the SEC’s inquiry relates to certain tax
services offered to Wachovia customers by KPMG LLP during the
period from 1997 to early 2002, and whether these activities
might have caused KPMG LLP not to be “independent”
from Wachovia, as defined by applicable accounting and SEC
regulations requiring auditors of an SEC-reporting company to be
independent of the company. Those SEC regulations require that
our annual reports contain financial statements that are
accompanied by a report of independent accountants. Wachovia
and/or KPMG
LLP received fees in connection with a small number of personal
financial consulting transactions related to these services.
Although KPMG LLP has confirmed to Wachovia that during all
periods covered by the SEC’s inquiry, including the
present, KPMG LLP was and is “independent” from
Wachovia under applicable accounting and SEC regulations,
Wachovia cannot give any assurances as to the outcome of the
SEC’s inquiry.
Wachovia. On July 20, 2006, Wachovia
announced its results of operations for the quarter ended
June 30, 2006. Wachovia’s net income was $1.9 billion
in the second quarter of 2006 compared with net income of $1.6
billion in the second quarter of 2005. On a diluted earnings per
share basis, earnings were $1.17 compared with $1.04 a year ago.
In the first six months of 2006, net income was $3.6 billion, or
diluted earnings per share of $2.26, compared with $3.3 billion,
or $2.05 per share, in the first six months of 2005.
Tax-equivalent net interest income was $3.7 billion in the
second quarter of 2006 compared with $3.4 billion in the
second quarter of 2005. In the first six months of 2006,
tax-equivalent net interest income was $7.2 billion compared
with $6.9 billion in the first six months of 2005. Fee and other
income was $3.6 billion in the second quarter of 2006 compared
with $3.0 billion in the second quarter of 2005. Fee and other
income in the first six months of 2006 was $7.1 billion compared
with $6.0 billion in the same period a year ago.
Nonperforming assets were $741 million, or 0.25% of loans, net,
foreclosed properties and loans held for sale, at June 30,2006, compared with $1.1 billion, or 0.44%, at June 30,2005. Annualized net charge-offs as a percentage of average net
loans were 0.08% in the second quarter of 2006 compared with
0.09% in the second quarter of 2005.
Golden West. On July 20, 2006, Golden
West announced its results of operations for the quarter and six
months ended June 30, 2006. Golden West’s earnings
were $390 million for the second quarter of 2006 compared
to earnings of $360 million in the second quarter of 2005.
For the first six months of 2006, earnings were
$781 million compared to $709 million for the same
period in 2005. Diluted earnings per share amounted to $1.25 for
the second quarter of 2006 compared to $1.16 for the second
quarter of 2005. For the six months ended June 30, 2006,
diluted earnings per share amounted to $2.50 compared to $2.28
for the same period in 2005.
For the six months ended June 30, 2006, net interest income
grew 14% to $1.8 billion from $1.6 billion for the six
months ended June 30, 2005. The increase was due to loan
portfolio growth partially offset by a decrease in the average
primary spread from 2.64% for the six months ended June 30,2005 to 2.54% for the six months ended June 30, 2006.
Golden West’s general and administrative expenses increased
21% from $463 million for the six months ended
June 30, 2005 to $558 million for the six months ended
June 30, 2006. The general and administrative expense to
average assets ratio increased to 0.88% for the six months ended
June 30, 2006 compared to 0.82% for the comparable period
in 2005. The primary reason for the increase in the ratio was
average assets growing more slowly than expenses between the
same periods.
Golden West’s loan portfolio increased to $123.5 billion at
June 30, 2006, up 10% from $112.7 billion at
June 30, 2005, and 99% of the loan portfolio was adjustable
rate mortgages (ARMs) at each of those period ends. Second
quarter loan originations amounted to $11.7 billion as
compared to $13.5 billion for the second quarter of 2005
and $23.3 billion for the first six months of 2006 compared
to $24.6 billion for the first half of 2005. Ninety-nine
percent of originations for the second quarter and first six
months of 2006 were ARMs.
Golden West’s ratio of nonperforming assets to total assets
increased slightly from 0.28% at June 30, 2005 to 0.37% at
June 30, 2006 but remained at very low levels. Net
chargeoffs to average loans and MBS were zero basis points for
the three and six months ended June 30, 2006 and 2005.
At June 30, 2006, Golden West had total assets of
$128.8 billion compared to total assets of
$117.5 billion at June 30, 2005. Total deposits were
$62.2 billion at June 30, 2006 compared with
$59.2 billion a year ago. Stockholders’ equity
amounted to $9.4 billion at June 30, 2006 compared to
$7.9 billion at June 30, 2005.
For additional information regarding Wachovia’s and Golden
West’s second quarter 2006 results, please see “Where
You Can Find More Information”.
This section contains information for Wachovia shareholders
about the special shareholder meeting Wachovia has called to
consider and approve the issuance of shares of Wachovia common
stock as consideration in the merger and to consider and approve
the Amended and Restated Wachovia Corporation 2003 Stock
Incentive Plan. Wachovia is mailing this joint proxy
statement-prospectus to you, as a Wachovia shareholder, on or
about July 26, 2006. Together with this joint proxy
statement-prospectus, Wachovia is also sending a notice of the
Wachovia special meeting, and a form of proxy that
Wachovia’s board of directors is soliciting for use at the
special meeting and at any adjournments or postponements of the
meeting. The special meeting will be held on August 31,2006 at 9:30 a.m., Eastern time, in Grand Ballroom D,
at The Westin Charlotte, 601 South College Street,
Charlotte, North Carolina28202.
The only matters to be considered at the Wachovia special
meeting are the approval of the issuance of shares of Wachovia
common stock as consideration in the merger and approval of the
Amended and Restated Wachovia Corporation 2003 Stock Incentive
Plan. Wachovia shareholders may also be asked to vote on a
proposal to adjourn or postpone the special meeting. Wachovia
could use any adjournment or postponement of the special meeting
for the purpose, among others, of allowing more time to solicit
votes to approve the issuance of the Wachovia common shares as
consideration in the merger.
Wachovia shareholders should complete and return the proxy card
accompanying this document to ensure that their vote is counted
at the special meeting, regardless of whether they plan to
attend the special meeting. If you are a registered shareholder
(that is, you hold stock directly registered in your own name,
including through Wachovia’s direct registration service),
you may also vote by telephone or through the Internet by
following the instructions described on your proxy card. If your
shares are held in nominee or “street name” you will
receive separate voting instructions from your broker or
nominee, which will be included with your proxy materials. Most
brokers and nominees offer telephone and Internet voting, but
the availability of and procedures for these alternatives will
depend on the arrangements established by each particular broker
or nominee. If your shares are held in a Wachovia employee
benefit plan that entitles you to direct how the shares
allocated to your account are to be voted, you will receive
separate voting instructions from the plan’s trustee. Your
shares in such plans that entitle you to direct how the shares
are to be voted may be voted even if you do not instruct the
trustee how to vote, as will be explained in a notice to you.
If you are a registered Wachovia shareholder, you can revoke
your proxy at any time before the vote is taken at the special
meeting by submitting to Wachovia’s corporate secretary
written notice of revocation or a properly executed proxy of a
later date, or by attending the special meeting and voting in
person. Attendance at the special meeting will not by itself
constitute revocation of a proxy. Written notices of revocation
and other communications about revoking Wachovia proxies should
be addressed to:
If your shares are held in nominee or “street name”,
you should contact your broker or other nominee regarding the
revocation of proxies.
All shares of Wachovia common stock represented by valid proxies
we receive through this solicitation, and not revoked before
they are exercised, will be voted in the manner specified on the
proxies. If you make no specification on your proxy card, your
proxy will be voted “FOR” approval of the issuance of
shares as consideration in the merger and “FOR”
approval of the Amended and Restated Wachovia Corporation 2003
Stock Incentive Plan. However, brokers that hold shares of
Wachovia common stock in nominee or “street name” for
customers who are the beneficial owners of those shares may not
give a proxy to vote those shares
on the issuance of shares or approval of the Amended and
Restated 2003 Stock Incentive Plan without specific instructions
from those customers.
Wachovia’s board is presently unaware of any other matters
that may be presented for action at the special meeting. If
other matters do properly come before the special meeting,
however, Wachovia intends that shares represented by proxies in
the form accompanying this joint proxy statement-prospectus will
be voted by and at the discretion of the persons named as
proxies on the proxy card. However, proxies that indicate a vote
against approval of the issuance of shares as consideration in
the merger will not be voted in favor of any adjournment or
postponement of the special meeting to solicit additional
proxies to approve the issuance of shares.
Approving the proposal to authorize the issuance of shares as
consideration in the merger and the proposal to approve the
Amended and Restated 2003 Stock Incentive Plan each requires the
affirmative vote of a majority of the shares of Wachovia common
stock voted at the special meeting. Each of the proposals is
independent, and is not contingent on approval by shareholders,
of the other proposal.
Because approval of the issuance of shares as consideration
in the merger and the Amended and Restated 2003 Stock Incentive
Plan each requires the affirmative vote of a majority of the
shares of Wachovia common stock voted at the special meeting,
abstentions and broker non-votes will have no effect in
determining the outcome of the vote. Wachovia’s board urges
Wachovia shareholders to complete, date and sign the
accompanying proxy and return it promptly in the enclosed,
postage-paid envelope or, alternatively, to submit your proxy
via the telephone or Internet procedures described under
“—Voting via Telephone, Internet or Mail”
below.
Wachovia will bear the entire cost of soliciting proxies from
its shareholders, except that Wachovia and Golden West have
agreed to each pay one-half of the costs and expenses of
printing and mailing this joint proxy statement-prospectus and
all filing and other fees relating to the merger paid to the
SEC. In addition to soliciting proxies by mail, Wachovia will
request banks, brokers and other record holders to send proxies
and proxy material to the beneficial owners of Wachovia common
stock and secure their voting instructions, if necessary.
Wachovia will reimburse those banks, brokers and record holders
for their reasonable fees and expenses in taking those actions.
Wachovia also has made arrangements with Georgeson Inc. to
assist in soliciting proxies for the merger and the special
meeting and in communicating with shareholders and has agreed to
pay Georgeson Inc. $50,000 plus expenses for its services. If
necessary, Wachovia also may use several of its regular
employees, who will not be specially compensated, to solicit
proxies from its shareholders, either personally or by
telephone, the Internet, telegram, fax, letter or special
delivery letter.
In accordance with North Carolina law, Wachovia’s by-laws
and the rules of the NYSE, Wachovia has fixed July 11, 2006
as the record date for determining the Wachovia shareholders
entitled to notice of, and to vote at, the special meeting. Only
Wachovia common shareholders of record at the close of business
on the record date are entitled to notice of, and to vote at,
the special meeting and any adjournments or postponements of the
special meeting. At the close of business on the record date,
there were 1,588,703,209 shares of Wachovia common stock
outstanding, held by approximately 176,470 holders of record.
The presence in person or by proxy of a majority of common
shares outstanding on the record date will constitute a quorum
for purposes of conducting business at the special meeting. On
each matter properly submitted for consideration at the special
meeting, you are entitled to one vote for each outstanding share
of Wachovia common stock you held as of the close of business on
the record date.
If you have any shares in Wachovia’s Dividend Reinvestment
and Stock Purchase Plan, the enclosed proxy represents the
number of shares you had in that plan on the record date for
Wachovia’s special meeting, as well as the number of shares
directly registered in your name on the record date.
Shares of Wachovia common stock present in person at the special
meeting but not voting, and shares of Wachovia common stock for
which Wachovia has received proxies indicating that their
holders have abstained, will be counted as present at the
special meeting for purposes of determining whether there is a
quorum for transacting business at the special meeting. Shares
represented by proxies returned by a broker holding the shares
in “street name” will be counted for purposes of
determining whether a quorum exists, even if those shares are
not voted by their beneficial owners on matters where the broker
cannot vote the shares in its discretion (so-called “broker
non-votes”).
As of the record date:
•
Wachovia’s directors and executive officers beneficially
owned approximately 39.0 million shares of Wachovia common
stock, representing approximately 2.5% of the shares entitled to
vote at the special meeting. Wachovia currently expects that its
directors and executive officers will vote the shares of
Wachovia common stock they beneficially own “FOR”
approval of the issuance of shares of Wachovia common stock as
consideration in the merger and “FOR” approval of the
Amended and Restated 2003 Stock Incentive Plan;
•
subsidiaries of Wachovia, as fiduciaries, custodians or agents,
held approximately 186.1 million shares of Wachovia common
stock, representing approximately 11.7% of the shares entitled
to vote at the special meeting, and maintained sole or shared
voting power over approximately 18.4 million of these
shares; and
•
Golden West and its directors and executive officers
beneficially owned less than 1% of the shares entitled to vote
at the Wachovia special meeting.
The Wachovia board of directors has approved and adopted the
merger agreement and the transactions contemplated by the merger
agreement. The Wachovia board believes that the merger agreement
and the transactions it contemplates are in the best interests
of Wachovia and its shareholders, and unanimously recommends
that Wachovia shareholders vote “FOR” approval of the
issuance of shares of Wachovia common stock as consideration in
the merger.
The Wachovia board recommends that Wachovia shareholders vote
“FOR” approval of adopting the Amended and Restated
2003 Stock Incentive Plan.
See “The Merger—Recommendation of Wachovia’s
Board and Its Reasons for the Merger” for a more detailed
discussion of the Wachovia board’s recommendation.
Wachovia offers registered shareholders three ways for you to
vote your proxy:
Option
1—Vote By Telephone:
Call the toll free number on the enclosed proxy card before
11:59 p.m., Eastern time, August 30, 2006 and follow
the instructions on the proxy card.
Option
2—Vote On the Internet:
Access the proxy form at http://proxy.georgeson.com before
11:59 p.m., Eastern time, August 30, 2006. Follow the
instructions for Internet voting found on that website and on
the enclosed proxy card. If you vote via the Internet, please be
advised that there may be costs involved, including possibly
access charges from Internet access providers and telephone
companies. You will have to bear these costs.
If your shares are registered in the name of a brokerage, bank
or other nominee, you may not be able to use telephone and
Internet voting procedures. Please refer to the voting materials
you receive from, or otherwise contact, your broker, bank or
other nominee to determine your options.
If you do not wish to vote by telephone or the Internet, please
complete, sign, date and return the enclosed proxy card as
described under “Proxies” above.
In order to be effective, proxy instructions must be received
before the times indicated above to allow for processing the
results.
The voting procedures used by Wachovia’s tabulation agent,
Georgeson Inc., are designed to authenticate properly
shareholders’ identities and to record accurately and count
their proxies.
To reduce the expenses of delivering duplicate proxy materials
to Wachovia shareholders, Wachovia is relying upon SEC rules
that permit us to deliver only one joint proxy
statement-prospectus to multiple shareholders who share an
address unless we receive contrary instructions from any
shareholder at that address. If you share an address with
another shareholder and have received only one joint proxy
statement-prospectus, you may write or call us as specified
below to request a separate copy of this document and we will
promptly send it to you at no cost to you. For future Wachovia
shareholder meetings, you may request separate copies of our
proxy materials, or request that we send only one set of these
materials to you if you are receiving multiple copies, by
contacting us at: Investor Relations, Wachovia Corporation, 301
South College Street, Charlotte, North Carolina
28288-0206,
or by telephoning us at
(704) 374-6782.
This section contains information about the special meeting of
Golden West shareholders called to consider and approve and
adopt the plan of merger contained in the merger agreement. This
joint proxy statement-prospectus is being mailed to Golden West
shareholders on or about July 26, 2006. Together with this
joint proxy statement-prospectus, Golden West is also sending to
you a notice of the Golden West special meeting, and a form of
proxy that Golden West’s board is soliciting for use at the
special meeting and at any adjournments or postponements of the
meeting. The special meeting will be held on August 31,2006 at 10:00 a.m., Pacific time, on the fourth floor of
Golden West’s headquarters at 1901 Harrison Street,
Oakland, California.
The only matter to be considered at the Golden West special
meeting is the approval and adoption of the plan of merger
contained in the merger agreement. Golden West shareholders may
also be asked to vote upon a proposal to adjourn or postpone the
special meeting. Golden West could use any adjournment or
postponement of the meeting for the purpose, among others, of
allowing more time to solicit votes to approve and adopt the
plan of merger.
Golden West shareholders should complete and return the proxy
card accompanying this document to ensure that their vote is
counted at the special meeting, regardless of whether they plan
to attend the special meeting. If you are a registered Golden
West shareholder (that is, you hold Golden West common stock
directly registered in your own name), you may also vote by
telephone or through the Internet by following the instructions
described on your proxy card. If your shares of Golden West
common stock are held in nominee or “street name”, you
will receive separate voting instructions from your broker or
nominee, which will be included with your proxy materials. Most
brokers and nominees offer telephone and Internet voting, but
the availability of and procedures for these alternatives will
depend on the arrangements established by each particular broker
or nominee.
If you are a registered Golden West shareholder, you can revoke
your proxy at any time before the vote is taken at the special
meeting by submitting to Golden West’s corporate secretary
written notice of revocation or a properly executed proxy of a
later date, or by attending the special meeting and voting in
person. Attendance at the special meeting will not by itself
constitute revocation of a proxy. Written notices of revocation
and other communications about revoking Golden West proxies
should be addressed to:
If your shares are held in nominee or “street name”,
you should contact your broker or other nominee regarding the
revocation of proxies.
All shares of Golden West common stock represented by valid
proxies Golden West receives through this solicitation, and not
revoked before they are exercised, will be voted in the manner
specified on the proxies. If you make no specification on your
proxy card, your proxy will be voted “FOR” approval
and adoption of the plan of merger contained in the merger
agreement. However, brokers that hold shares of Golden West
common stock in nominee or “street name” for customers
who are the beneficial owners of those shares may not give a
proxy to vote those shares on the plan of merger without
specific instructions from those customers.
Golden West’s board is presently unaware of any other
matters that may be presented for action at the special meeting.
If other matters do properly come before the special meeting,
however, Golden West intends that shares represented by proxies
in the form accompanying this joint proxy statement-prospectus
will be voted by and at the discretion of the persons named as
proxies on the proxy card. However, proxies that indicate a vote
against approval and adoption of the plan of merger will not be
voted in favor of any
adjournment or postponement of the special meeting to solicit
additional proxies to approve and adopt the plan of merger.
Approving and adopting the plan of merger contained in the
merger agreement requires the affirmative vote of a majority of
the outstanding shares of Golden West common stock entitled to
vote at the special meeting.
Because approval and adoption of the plan of merger contained
in the merger agreement requires the affirmative vote of a
majority of the outstanding shares of Golden West common stock
entitled to vote at the special meeting, abstentions and broker
non-votes will have the same effect as votes against approval
and adoption of the plan of merger. Therefore, Golden
West’s board urges Golden West shareholders to complete,
date and sign the accompanying proxy and return it promptly in
the enclosed, postage-paid envelope or, alternatively, to submit
your proxy via the telephone or Internet procedures described
under “—Voting via Telephone, Internet or Mail”
below.
Golden West shareholders should not send in any stock
certificates with their proxy card. The exchange agent will mail
a transmittal letter with instructions for the surrender of
stock certificates to Golden West shareholders as soon as
practicable after the merger is completed.
Golden West will bear the entire cost of soliciting proxies from
its shareholders, except that Golden West and Wachovia have
agreed to each pay one-half of the costs and expenses of
printing and mailing this joint proxy statement-prospectus and
all filing and other fees relating to the merger paid to the
SEC. In addition to soliciting proxies by mail, Golden West will
request banks, brokers and other record holders to send proxies
and proxy material to the beneficial owners of Golden West
common stock and secure their voting instructions, if necessary.
Golden West will reimburse those banks, brokers and record
holders for their reasonable fees and expenses in taking those
actions. If necessary, subject to applicable law, Golden West
may also use several of its regular employees, who will not be
specially compensated, to solicit proxies from its shareholders,
either personally or by telephone, the Internet, telegram, fax,
letter or special delivery letter.
In accordance with Delaware law, Golden West’s by-laws and
NYSE rules, Golden West has fixed July 11, 2006 as the
record date for determining the Golden West shareholders
entitled to notice of, and to vote at, the special meeting. Only
Golden West common shareholders of record at the close of
business on the record date are entitled to notice of, and to
vote at, the special meeting and any adjournments or
postponements of the special meeting. At the close of business
on the record date, there were 308,969,449 shares of Golden
West common stock outstanding, held by approximately 950 holders
of record. The presence in person or by proxy of a majority of
common shares outstanding on the record date will constitute a
quorum for purposes of conducting business at the special
meeting. On each matter properly submitted for consideration at
the special meeting, you are entitled to one vote for each
outstanding share of Golden West common stock you held as of the
close of business on the record date.
Shares of Golden West common stock present in person at the
special meeting but not voting, and shares of Golden West common
stock for which Golden West has received proxies indicating that
their holders have abstained, will be counted as present at the
special meeting for purposes of determining whether there is a
quorum for transacting business at the special meeting. Shares
represented by proxies returned by a broker holding the shares
in “street name” will be counted for purposes of
determining whether a quorum exists, even if those shares are
not voted by their beneficial owners on matters where the broker
cannot vote the shares in its discretion (so-called “broker
non-votes”).
As of the record date:
•
Golden West’s directors and executive officers beneficially
owned approximately 44.0 million shares of Golden West
common stock, representing approximately 14.2% of the shares
entitled to vote at the special meeting. Golden West currently
expects that its directors and executive officers will vote the
shares of Golden West common stock they beneficially own
“FOR” approval and adoption of the plan of merger
contained in the merger agreement. Mr. Sandler,
Mrs. Sandler and Mr. Osher, solely in their capacity
as Golden West shareholders, have each agreed in their
respective voting agreement to vote their respective shares in
favor of the plan of merger;
•
Wachovia and its directors and executive officers beneficially
owned less than 1% of the shares entitled to vote at the Golden
West special meeting (other than shares held as fiduciary,
custodian or agent as described below); and
•
subsidiaries of Wachovia, as fiduciaries, custodians or agents,
held a total of approximately 4.4 million shares of Golden
West common stock, representing approximately 1.4% of the shares
entitled to vote at the annual meeting, and maintained sole or
shared voting power over approximately 520 thousand of
these shares.
The Golden West board of directors has unanimously approved and
adopted the plan of merger contained in the merger agreement.
The Golden West board of directors believes that the plan of
merger contained in the merger agreement and the transactions it
contemplates are in the best interests of Golden West and its
shareholders, and unanimously recommends that Golden West
shareholders vote “FOR” approval and adoption of the
plan of merger.
See “The Merger—Recommendation of Golden West’s
Board and Its Reasons for the Merger” for a more detailed
discussion of the Golden West board’s recommendation with
regard to the plan of merger.
Golden West offers three ways for you to vote your proxy:
•
Option
1—Vote by Telephone:
Call toll free
1-800-690-6903
before midnight, Eastern time, on August 30, 2006 and
follow the instructions on the enclosed proxy card.
•
Option
2—Vote on the Internet:
Access the proxy form at www.proxyvote.com before midnight,
Eastern time, on August 30, 2006. Follow the instructions
for Internet voting found there and on the enclosed proxy card.
If you vote via the Internet, please be advised that there may
be costs involved, including possibly access charges from
Internet access providers and telephone companies. You will have
to bear these costs.
If your shares are registered in the name of a brokerage, bank
or other nominee, you may not be able to use telephone and
Internet voting procedures. Please refer to the voting materials
you receive, or contact your broker, bank or other nominee, to
determine your options.
• Option
3—Mail your Proxy Card:
If you do not wish to vote by telephone or the Internet, please
complete, sign, date and return the enclosed proxy card as
described under “—Proxies” above.
In order to be effective, proxy instructions must be received
before the times indicated above to allow for processing the
results.
The voting procedures used by Golden West’s transfer agent,
Mellon Investor Services, LLC, are designed to properly
authenticate shareholders’ identities and to accurately
record and count their proxies.
To reduce the expenses of delivering duplicate proxy materials
to Golden West shareholders, Golden West is relying upon SEC
rules that permit it to deliver only one joint proxy
statement-prospectus to multiple shareholders who share an
address unless we receive contrary instructions from any
shareholder at that address. If you share an address with
another shareholder and have received only one joint proxy
statement-prospectus, you may write or call us as specified
below to request a separate copy of this document and we will
promptly send it to you at no cost to you. For future Golden
West shareholder meetings, if any, you may request separate
copies of our proxy materials, or request that we send only one
set of these materials to you if you are receiving multiple
copies, by contacting us at: Golden West Financial Corporation,
1901 Harrison Street, Oakland, California94612, or by
telephoning us at
(510) 446-3420.
The following discussion describes certain material
information about the merger. We urge you to read carefully this
entire document, including the merger agreement and the
financial advisor opinions attached as Appendices to this
document, for a more complete understanding of the merger.
Wachovia’s and Golden West’s boards of directors have
approved and adopted the merger agreement, including the plan of
merger contained therein. The merger agreement provides for
combining our companies through the merger of Golden West into a
wholly-owned subsidiary of Wachovia, which we refer to in this
document as the “merger subsidiary”, with the merger
subsidiary as the surviving corporation.
In the merger, Golden West shareholders have the right to
receive, with respect to 77% of their shares of Golden West
common stock, 1.365 shares of Wachovia common stock for
each such share and, with respect to the remaining 23% of their
shares of Golden West common stock, $81.07 for each such share.
This is equivalent to the right to receive 1.051 shares of
Wachovia common stock and $18.65 in cash for each share of
Golden West common stock. Shares of Wachovia common stock issued
and outstanding at merger completion will remain outstanding and
those stock certificates will be unaffected by the merger.
Wachovia’s common stock will continue to trade on the NYSE
under the Wachovia Corporation name with the symbol
“WB” following the merger.
See “The Merger Agreement” for additional and more
detailed information regarding the legal documents that govern
the merger, including information about the conditions to the
merger and the provisions for terminating or amending the merger
agreement.
The Golden West board of directors regularly discusses with
Golden West management the company’s financial performance
and prospects, and also considers the company’s strategy
and future outlook. Issues such as competitive developments and
succession planning are regularly addressed as part of these
discussions.
In late 2005, senior management of Golden West met with
representatives of Lehman Brothers and had a general discussion
that encompassed current areas of focus for investors in banking
companies, developments in bank mergers and acquisitions, Golden
West’s recent and expected financial performance and the
types of strategic alternatives that might be available to
Golden West.
In March and April of 2006, senior management of Golden West
again met with representatives of Lehman Brothers. Lehman
Brothers discussed updated valuation analyses of Golden West and
also discussed various potential strategic alternatives,
including possible strategic partners. Following these meetings,
Lehman Brothers continued to investigate the various strategic
alternatives that might be available to Golden West and, during
this time, had further discussions with Golden West senior
management.
In the evening of April 27, 2006, on behalf of Golden West,
Lehman Brothers contacted a partner at Sullivan &
Cromwell LLP, Wachovia’s outside corporate counsel, and
inquired whether Wachovia might be interested in discussing a
strategic transaction regarding Golden West. The following day,
April 28, 2006, Lehman Brothers contacted G. Kennedy
Thompson, Chairman, President and Chief Executive Officer of
Wachovia, to assess Wachovia’s interest in discussing such
a strategic transaction. Subsequent to this discussion,
Mr. Thompson contacted Herbert M. Sandler and Marion O.
Sandler, Chairmen and Chief Executive Officers of Golden West,
to indicate that Wachovia was familiar with Golden West and to
express Wachovia’s interest in pursuing a possible
strategic transaction with Golden West.
Following this initial contact, Wachovia and Golden West and
their respective financial advisors discussed generally the
outlines of a possible transaction, including preliminary
financial and other terms of an agreement, the logistical steps
in moving forward and the expected timeframe. On May 2,2006, Wachovia and Golden West entered into a confidentiality
and standstill agreement and commenced mutual due diligence
investigations.
On May 2, 2006, the Golden West board of directors held a
meeting at which Lehman Brothers provided a report on its work
to date for Golden West. Senior management of Golden West
reviewed for the board of
directors Wachovia’s indication of interest and reviewed
the course and current status of the discussions with Wachovia.
Lehman Brothers also provided a preliminary financial analysis
for the Golden West board of directors of a possible transaction
between Golden West and Wachovia. Wachtell, Lipton,
Rosen & Katz, counsel to Golden West, reviewed with the
Golden West board of directors the legal and fiduciary
considerations relating to the board’s consideration of a
possible merger if discussions proceeded to that point.
On the evening of May 3, 2006, the Wachovia board of
directors held a meeting to review and discuss the potential
acquisition of Golden West. Mr. Thompson and other members
of Wachovia management presented information about Golden
West’s business model, preliminary due diligence findings,
and financial information about Golden West and the possible
transaction. Wachovia’s board responded favorably to the
concept of the possible merger. Additional Wachovia board
meetings were planned to address the status of negotiations
between Wachovia and Golden West and due diligence findings.
During the remainder of the week of May 1, 2006, senior
management of Wachovia and Golden West and their respective
financial and legal advisors continued discussions and
negotiations regarding a possible transaction between the
companies. In addition, during this time, they continued with
their due diligence investigations with respect to
Wachovia’s and Golden West’s business, legal, tax and
other matters. On May 2, 2006, Sullivan & Cromwell
LLP provided draft merger documentation to Wachtell, Lipton,
Rosen & Katz, and the parties and their respective
counsel negotiated the terms of the merger agreement over the
next several days while due diligence investigations continued.
On Friday, May 5, 2006, Wachovia’s board of directors
met in the afternoon to discuss the progress of discussions and
negotiations between Wachovia and Golden West. Mr. Thompson
and Wachovia’s management updated the board on due
diligence findings and reviewed financial and strategic
considerations regarding Golden West as an ongoing entity and as
part of the combined company following the merger.
Wachovia’s board expressed to management their belief in
the long-term strategic merits of the possible merger and
encouraged management to continue discussions and negotiations
with Golden West.
On Friday, May 5, 2006, senior management of Wachovia and
Golden West discussed key financial terms of the transaction
and, among other things, agreed to propose to their respective
boards of directors an exchange ratio of 1.365 shares of
Wachovia common stock for a specified percentage of the Golden
West shares, to be finally determined before execution of a
definitive agreement, and $81.07 in cash for the remaining
percentage of Golden West shares. Over the next day, senior
management of Wachovia and Golden West continued their
discussions and agreed to propose to their respective boards of
directors that 77% of shares of Golden West common stock held by
each holder of record would be exchanged for Wachovia common
stock at the exchange ratio, and the remaining 23% of shares of
Golden West common stock held by each holder of record would be
exchanged for cash. This would be equivalent to
1.051 shares of Wachovia common stock and $18.65 in cash
for each outstanding share of Golden West common stock. During
this time, Wachovia and Golden West and their counsel finalized
negotiation of the other terms of the proposed merger agreement.
In addition, Wachovia proposed that, concurrently with the
execution of the merger agreement, it would enter into a voting
and support agreement with each of Herbert M. Sandler, Marion O.
Sandler and Bernard A. Osher, each solely in his or her capacity
as a Golden West shareholder, to vote his or her shares of
Golden West common stock in favor of any proposed merger and
against competing proposals for Golden West while the merger
agreement is in effect. During the week of May 1, 2006,
Wachovia, these signing shareholders and their counsel finalized
negotiation of the terms of these voting agreements.
Wachovia’s board of directors met in the morning of Sunday,
May 7, 2006. Mr. Thompson and Wachovia’s
management reviewed the status of discussions and negotiations
with Golden West since the previous board meeting. Members of
Wachovia’s management discussed the financial aspects of
the transaction, including the proposed merger consideration,
accretion/dilution analysis, post-merger capital ratios,
estimated expense savings, anticipated financial benefits and
revenue opportunities, and key financial terms contained in the
merger agreement. Management also discussed strategic factors
related to the proposed transaction, including Golden
West’s consumer banking and mortgage-lending businesses,
the timing of integration activities, and a credit quality and
risk management assessment of Golden West.
Partners of Sullivan & Cromwell LLP advised the
Wachovia board regarding certain legal matters related to the
proposed transaction, including the fiduciary obligations of
Wachovia’s directors in connection with their consideration
of the proposed merger agreement. Partners of
Sullivan & Cromwell LLP also presented information
about the proposed merger agreement, including key terms
relating to structure, covenants, and representations and
warranties. Sullivan & Cromwell LLP partners also
discussed regulatory and shareholder approvals required to
complete the merger and the terms of the voting agreements.
Following the Sullivan & Cromwell LLP presentation,
representatives from Merrill Lynch delivered a financial
analysis of the transaction and then orally advised the Wachovia
board of directors of its opinion that, as of May 7, 2006,
and based upon the assumptions made, procedures followed,
matters considered and limitations of the review undertaken by
Merrill Lynch, all as set forth in its written opinion, the
merger consideration to be paid by Wachovia in the merger was
fair, from a financial point of view, to Wachovia. Following the
Merrill Lynch presentation, directors addressed questions to
members of Wachovia’s management, partners of
Sullivan & Cromwell LLP and representatives of Merrill
Lynch. Following a period of discussion and response to director
questions, upon motion duly made and seconded, the Wachovia
board of directors unanimously approved the merger agreement and
the transactions contemplated by the merger agreement.
The Golden West board of directors met on the afternoon of
Sunday, May 7, 2006. At the meeting, Mr. Sandler
reviewed for the board of directors the course of discussions
and negotiations with Wachovia following the last meeting of the
Golden West board of directors and summarized for the board the
proposed financial terms of the merger agreement.
Representatives of Lehman Brothers then summarized the key
financial terms of the merger and the valuation multiples
represented by those terms and reviewed the pro forma rankings
of the combined company. Lehman Brothers also reviewed with the
Golden West board of directors information on Wachovia’s
businesses, key contributors to its earnings and revenue and its
branch network, customers, financial performance, acquisition
history, management team and shareholder base. Lehman Brothers
then presented a detailed financial valuation analysis of each
of Golden West and Wachovia, including historical stock price
performance, financial performance and trading multiple metrics
against peer financial institutions, valuation ranges implied by
precedent merger transactions and discounted cash flow analysis,
and also presented an analysis of the pro forma impact of the
proposed transaction on the earnings per share, dividends,
tangible book value and regulatory capital ratios of each
company. Following questions from the board and discussion,
Lehman Brothers rendered its opinion to the board that, as of
the date of and subject to the qualifications set forth in the
opinion, the consideration proposed to be paid in the merger was
fair, from a financial point of view, to Golden West
shareholders.
Following the Lehman Brothers presentation, representatives of
Wachtell, Lipton, Rosen & Katz discussed the fiduciary
obligations of the directors in connection with their
consideration of the proposed merger agreement, reviewed for the
board the terms of the proposed merger agreement and the
proposed voting agreements with Mr. and Mrs. Sandler and
Mr. Osher, reviewed the regulatory and shareholder
approvals expected to be required in connection with the merger,
and discussed employee, compensation and benefits issues
relating to the proposed transaction. Mr. Sandler then
discussed the proposed timeline for announcing the transaction
if the Golden West board of directors were to approve the
proposed merger agreement. Representatives of Wachtell, Lipton,
Rosen & Katz then reviewed with the board the draft
resolutions proposed to be adopted in connection with the
merger. After further questions from the directors and
discussion of the proposed transaction, the Golden West board of
directors resolved unanimously that the merger agreement and the
merger are advisable for, fair to and in the best interest of
the Golden West shareholders and voted unanimously to approve
and adopt the merger agreement and the merger.
Promptly after the meeting of the Golden West board of
directors, on May 7, 2006, Wachovia and Mr. and
Mrs. Sandler and Mr. Osher entered into the voting
agreements, and Wachovia and Golden West executed the merger
agreement. Later that evening, Wachovia and Golden West issued a
joint press release announcing the transaction.
After careful consideration, at its meeting on May 7,2006, Wachovia’s board determined that the merger agreement
is in the best interests of Wachovia and its shareholders.
Accordingly, Wachovia’s board, by a unanimous vote, adopted
the merger agreement and unanimously recommends that Wachovia
shareholders vote “FOR” approval of the issuance of
shares of Wachovia common stock as consideration in the
merger.
In reaching its decision to recommend this merger to Wachovia
shareholders, Wachovia’s board concluded that Golden West
and Wachovia have a unique strategic fit and that the merger
provides an opportunity for enhanced financial performance and
shareholder value. Golden West and Wachovia share similar
philosophies and approaches, as well as complementary strengths.
Wachovia’s board believes that the merger will solidify
Wachovia’s position as a major provider of consumer
financial services nationwide.
Wachovia’s board determined the merger would place Wachovia
in an improved competitive position in the financial markets
because it believes the merger combines two financially sound
institutions with complementary businesses and business
strategies, thereby creating a stronger combined institution
with greater size, flexibility, breadth of services, efficiency,
capital resources, profitability and potential for growth than
either company possesses alone. Wachovia’s board believes
that each institution currently is well-managed and that each
institution will contribute complementary business strengths
resulting in a well-diversified combined company, with strong
capitalization that will allow the combined company to take
advantage of future opportunities for growth.
Wachovia’s board determined that the merger would create an
opportunity for enhancing shareholder value after considering,
among other things, the strategic rationale, the financial
implications and the risks associated with the transaction. In
concluding that the merger is in the best interests of Wachovia
and its shareholders, Wachovia’s board considered, among
other things, the following factors that supported the decision
to approve the merger:
•
Wachovia’s and Golden West’s strategic business,
operations, financial condition, asset quality, earnings and
prospects. In reviewing these factors, Wachovia’s board
concluded that Golden West’s business and operations
complement those of Wachovia, that Golden West’s financial
condition and asset quality are very sound and will further
strengthen Wachovia’s balance sheet, and that Golden
West’s earnings and prospects should result in Wachovia
having superior future earnings and prospects compared to its
earnings and prospects on a stand-alone basis. In particular,
Wachovia’s board considered the following:
•
the strong demographic conditions of markets in which Golden
West primarily conducts its operations;
•
the strengthening of Wachovia’s market position in Florida,
Texas, New Jersey and New York;
•
the expansion of Wachovia’s general banking operations in
attractive markets in California, Arizona, Colorado, Nevada,
Kansas and Illinois;
•
the expansion of Wachovia’s residential mortgage lending
business to be one of the largest mortgage providers in the
United States; and
•
the combined company’s position as one of the largest
banking organizations in the United States in terms of deposits,
assets, assets under management, branches, mutual fund assets,
on-line banking customers, registered representatives, ATMs,
full service brokerage offices and private client offices.
•
The consistency of the merger with Wachovia’s business
strategy, including achieving strong earnings growth, improving
customer attraction and retention, focusing on expense control,
and gradually
shifting Wachovia’s business to higher growth, lower
capital businesses. The board concluded after its analysis that
Wachovia and Golden West are a highly complementary fit because
of:
•
Golden West’s responsiveness to customer needs and demands,
and Golden West’s skill at anticipating those demands,
which results in strong customer relationships;
•
Golden West’s geographic coverage, which would strengthen
Wachovia’s presence in Florida, Texas, New Jersey and New
York, and expand its presence to new markets in California,
Arizona, Colorado, Nevada, Kansas and Illinois; and
•
the complementary nature of the markets served and products
offered by Golden West and Wachovia and the expectation that the
merger would provide economies of scale, expanded product
offerings, expanded opportunities for cross-selling, cost
savings opportunities and enhanced opportunities for growth.
•
The anticipated enhancements to Wachovia’s pro forma
business mix by having more of Wachovia’s expected earnings
stream come from traditional banking businesses, thus tending to
lessen earnings volatility.
•
The expectation of Wachovia’s legal advisors that the
merger will qualify as a transaction of a type that is generally
tax-free for United States federal income tax purposes to
Wachovia, Golden West and Wachovia’s shareholders.
•
Wachovia’s board’s belief that the merger is likely to
provide increases to shareholder value. In particular,
Wachovia’s board believes that:
•
Although the merger may be dilutive to Wachovia shareholders on
an earnings per share basis calculated according to GAAP until
2009, the merger will be accretive to Wachovia shareholders on a
cash earnings per share basis by 2008. Wachovia’s
estimation of earnings per share accretion/dilution for each of
the years 2007, 2008 and 2009 is as follows:
2007
2008
2009
Pro forma GAAP EPS
$
5.10
5.66
6.30
Wachovia estimated standalone GAAP
EPS
5.21
5.73
6.30
Accretion/(Dilution)
(0.11
)
(0.07
)
0.00
Pro forma cash EPS
5.26
5.79
6.40
Wachovia estimated standalone cash
EPS
5.28
5.78
6.34
Accretion/(Dilution)
$
(0.02
)
0.01
0.06
Wachovia estimated full year 2007 stand-alone GAAP earnings per
share are based on consensus earnings per share estimates as
reported by First Call as of May 5, 2006, adjusted to
include merger-related and restructuring expenses in 2007
(merger-related and restructuring expenses associated with
transactions prior to the merger are expected to be immaterial
in 2007). Estimated stand-alone GAAP earnings per share for 2008
and 2009 are based on 2007 consensus earnings per share
estimates plus the consensus
5-year
earnings per share growth expectations of 10% per year
(merger-related and restructuring expenses associated with
transactions prior to the merger are expected to be immaterial
in 2008 and 2009). Management believed that the First Call
estimates for future earnings and growth provided a reasonable
framework for illustrating the pro forma effects of the merger.
Pro forma average shares outstanding assumes an average fully
diluted share count for Wachovia on a stand-alone basis of
1,601 million shares in 2007, 1,598 million shares in
2008 and 1,586 million shares in 2009 and for Golden West
on a stand-alone basis of 315 million shares (or
331 million Wachovia shares based on the equivalent 1.051
exchange ratio (i.e., 1.365 times 77%)).
Pro forma 2007 earnings per share estimates assume consensus
earnings per share estimates for Golden West in 2007 as reported
by First Call as of May 5, 2006 and pro forma 2008 and 2009
estimates assume a consensus
5-year
earnings per share growth expectation for Golden West of
12% per year.
Pro forma earnings are also based on the assumptions of
Wachovia’s management described below and under
“—Opinion of Wachovia’s Financial Advisor”.
The assumptions of Wachovia’s management include annual
cost savings of approximately 9% of Golden West’s
non-interest expense, or approximately $53 million
after-tax, by the end of 2008, with lower amounts of cost
savings to be realized prior to that time. The assumptions also
give no credit for revenue enhancements and pro forma cash
earnings exclude aggregate merger-related and restructuring
expenses.
Cash earnings per share is a non-GAAP financial measure that is
calculated by adding after-tax restructuring and merger-related
expenses and intangible amortization to income before cumulative
effect of a change in accounting principle and dividing the
result by average shares outstanding. Wachovia believes this
measure provides information useful to investors in
understanding our underlying operational performance, our
business and performance trends, and facilitates comparison with
the performance of others in the financial services industry.
•
Following merger integration, Wachovia believes the earnings per
share of Wachovia will grow at a faster rate compared to its
growth on a stand-alone basis.
•
Based on the assumptions described above, Wachovia believes the
merger will satisfy Wachovia’s criteria for acquisitions by
being accretive to cash earnings per share within two years and
having an internal rate of return in excess of 15%.
•
Wachovia’s board’s belief that Wachovia and Golden
West management share a common vision of commitment to their
respective shareholders, employees, customers, suppliers, and
creditors.
•
Merrill Lynch’s financial presentation to Wachovia’s
board, including Merrill Lynch’s opinion, dated May 7,2006, to Wachovia’s board as to the fairness, from a
financial point of view, to Wachovia of the merger consideration
to be paid by Wachovia in the merger, as discussed in
“—Opinion of Wachovia’s Financial Advisor”
below.
•
Wachovia’s board’s understanding that the 1.365
exchange ratio and the $81.07 cash payment were both fixed and
would not fluctuate, as is customary in transactions of this
nature, and in view of the long-term strategic purposes of the
merger.
•
The review by Wachovia’s board with its legal advisor,
Sullivan & Cromwell LLP, of the provisions of the
merger agreement and voting agreements. Some of the features of
those agreements that the board considered are:
•
two members of Golden West’s board of directors would join
Wachovia’s board following merger completion, and the
proposed arrangements with respect to certain Golden West
employees; and
•
provisions of the merger agreement and the voting agreements
designed to enhance the probability that the merger will be
completed.
•
Wachovia’s board’s review and discussions with
Wachovia’s management and outside advisors concerning the
due diligence examination of operations, financial condition and
prospects of Golden West.
•
Wachovia’s expectation, after consulting with legal
counsel, that the required regulatory approvals could be
obtained.
Wachovia’s board also considered the potential initial
negative impact on the market price of Wachovia common stock
following announcement of the merger. In addition,
Wachovia’s board considered the following factors that
potentially created risks if the board decided to approve the
merger:
•
the possibility that the merger and the related integration
process could result in the loss of key employees, in the
disruption of Wachovia’s on-going business or in the loss
of customers;
the possibility that the anticipated benefits of the merger may
not be realized, including the expected cost savings;
•
the anticipated effect of the merger on Golden West’s
employee compensation, benefits and incentives under various
employment-related agreements, plans and programs because the
merger may accelerate vesting under some of such agreements,
plans and programs, which might encourage employees to leave and
involve additional cost;
•
the impact of divestitures of assets and deposit liabilities
that regulatory authorities may require in connection with the
merger, which may result in lost customer relationships and
reduce the amount of income the combined company could have
realized without such divestitures;
•
the potential merger-related restructuring charges; and
•
the potential impact of interest rate fluctuations on Golden
West’s short-term and long-term revenues and earnings.
Wachovia’s board concluded that the anticipated benefits of
combining with Golden West were likely to substantially outweigh
the preceding risks.
Although each member of Wachovia’s board individually
considered these and other factors, the board did not
collectively assign any specific or relative weights to the
factors considered and did not make any determination with
respect to any individual factor. The board collectively made
its determination with respect to the merger based on the
conclusion reached by its members, in light of the factors that
each of them considered appropriate, that the merger is in the
best interests of Wachovia and its shareholders.
Wachovia’s board of directors realized there can be no
assurance about future results, including results expected or
considered in the factors listed above, such as assumptions
regarding anticipated cost savings and earnings
accretion/dilution. However, the board concluded the potential
positive factors outweighed the potential risks of completing
the merger.
It should be noted that this explanation of the Wachovia
board’s reasoning and all other information presented in
this section is forward-looking in nature and, therefore, should
be read in light of the factors discussed under the heading
“Forward-Looking Statements”.
By unanimous vote, the Golden West board of directors, at a
meeting held on May 7, 2006, determined that the merger
agreement and the transactions contemplated by the merger
agreement were advisable and in the best interests of the Golden
West shareholders and approved and adopted the plan of merger
contained in the merger agreement and the transactions
contemplated by the merger agreement, including the merger. The
Golden West board of directors unanimously recommends that the
Golden West shareholders vote “FOR” the approval and
adoption of the plan of merger contained in the merger agreement
and the transactions contemplated by the merger agreement at the
Golden West special meeting.
In reaching this decision, the Golden West board of directors
consulted with Golden West’s management and its financial
and legal advisors and considered a variety of factors,
including the material factors described below. In light of the
number and variety of factors considered in connection with its
evaluation of the transaction, the Golden West board of
directors did not consider it practicable to, and did not
attempt to, quantify or otherwise assign relative weights to the
specific factors that it considered in reaching its
determination. The Golden West board of directors viewed its
position as being based on all of the information available and
the factors presented to and considered by it. In addition,
individual directors may have given different weights to
different factors. This explanation of Golden West’s
reasons for the proposed merger and other information presented
in this section contains forward-looking statements and,
therefore, should be read in light of the factors discussed
under “Forward-Looking Statements.”
The Golden West board of directors considered the following
factors:
•
its understanding of Golden West’s business, operations,
financial condition, earnings, management, succession planning
and prospects, and of Wachovia’s business, operations,
financial condition, earnings, management and prospects,
including Golden West’s due diligence review of Wachovia;
•
its understanding that Golden West’s chief executive
officers were considering the appropriate timeframe to retire or
reduce their
day-to-day
role in the management of the business;
•
its understanding of the current environment in the savings and
loan and financial services industry, including national and
local economic and market conditions, the competitive landscape
for savings and loan and financial institutions generally,
trends and developments in the residential mortgage lending
industry, consolidation in the financial services industry, and
the likely impact of these factors on Golden West;
•
Wachovia’s reputation as an employer of choice,
consistently being recognized for its commitment to a best
in-class and diverse workforce, and the compatibility between
Wachovia’s and Golden West’s employee relations
strategies;
•
Wachovia’s reputation for exceptional customer service, and
the similar approaches to customer service employed by Wachovia
and Golden West;
•
its understanding of the potential for a greater range of
products that the combined company would be able to sell;
•
the complementary aspects of Golden West’s and
Wachovia’s businesses, including geographic coverage and
the board’s understanding of the compatibility of their
respective managements, cultures and operating styles, and the
Golden West board’s assessment of the likelihood that
Golden West’s business culture would be compatible with the
culture of the combined company;
•
the terms of the merger agreement, including the consideration
to be paid to Golden West shareholders in the merger, which
would consist of a fixed amount in cash for 23% of Golden
West’s common stock and a fixed number of shares of
Wachovia common stock for the remaining 77% of Golden
West’s common stock, and the fact that under this structure
the value of the merger consideration would rise with increases,
and fall with decreases, in the market price of Wachovia common
stock, with such changes moderated to the extent of the cash
consideration;
•
the treatment of Golden West employees contemplated by the
merger agreement, including the proposed conversion of options
to acquire Golden West common stock into options to acquire
Wachovia common stock, the acceleration of vesting of options
upon the closing of the merger, severance arrangements, and the
amendment of the Golden West supplementary employee retirement
agreements (see “The Merger Agreement—Interests of
Certain Persons in the Merger”);
•
the expectation that the merger would create a leading financial
institution with more than $650 billion in assets that will
have retail branches in 21 states and Washington D.C. and
have mortgage lending operations in 39 states and will be
the leading retail bank in the southeast United States, a
leading bank in the western United States, a top ten mortgage
origination and servicing company, a top ten indirect auto
lender, a leading national brokerage and fund manager, and a
well-positioned corporate and investment bank;
•
the Golden West board’s view of the likely future prospects
of the combined company, including the opportunity for greater
market penetration in and around its historical markets and the
potential access to a more diversified customer base, revenue
sources and financial products;
•
the financial analysis presented by Lehman Brothers, Golden
West’s financial advisor, to the Golden West board of
directors and the opinion delivered by Lehman Brothers that,
based upon and subject to the assumptions made, matters
considered and limitations set forth in the opinions, the
consideration specified in the merger agreement was fair, from a
financial point of view, to the Golden West shareholders (see
“—Opinion of Golden West’s Financial
Advisor” below);
the fact that, under the terms of the merger agreement, two
appointees from the Golden West board of directors would serve
on the Wachovia board of directors after merger completion;
•
the expectation that, with respect to that portion of the merger
consideration to be received in the form of Wachovia common
stock, the merger will qualify as a transaction of a type that
is generally tax-free to Golden West shareholders for
U.S. federal income tax purposes;
•
the regulatory and other approvals, including the approval of
both Wachovia and Golden West shareholders, required in
connection with the merger and the likelihood that the approvals
needed to complete the merger will be obtained in a timely
manner without unacceptable conditions;
•
Wachovia’s recent track record in integrating acquisitions
and the Golden West board’s understanding of
Wachovia’s integration plan for the merger, along with the
potential issues of integrating the businesses, operations and
workforce of Golden West and Wachovia, including the potential
risk of diverting management focus and resources from other
strategic opportunities and from operational matters, and the
possibility of not achieving the expected integration and
efficiency levels in the expected timeframe;
•
the potential for revenue enhancements to be realized as a
result of the merger;
•
the terms of the voting agreements between Wachovia, on the one
hand, and each of Mr. and Mrs. Sandler and
Mr. Osher, on the other hand, under which Mr. and
Mrs. Sandler and Mr. Osher, solely in their capacity
as Golden West shareholders, agreed to vote their shares of
Golden West common stock in favor of the merger and against
alternative acquisition proposals for Golden West;
•
the possibility that the terms of the merger agreement,
including the provisions restricting Golden West from soliciting
third party acquisition proposals, the termination fee
provisions, and the terms of the voting agreements, could have
the effect of discouraging other parties that might be
interested in a merger with Golden West from proposing such a
transaction;
•
the ability under the merger agreement of Golden West under
certain circumstances to provide non-public information to, and
engage in discussions with, third parties that propose an
alternative transaction; its view that the terms of the merger
agreement, including the termination fee, would not preclude the
Golden West board of directors from evaluating a proposal for an
alternative transaction involving Golden West; and its view
after consultation with Golden West’s financial and legal
advisors that, as a percentage of the merger consideration at
the time of the announcement of the transaction, the termination
fee was within the range of termination fees provided for in
recent large acquisition transactions;
•
the risks described under “Risk Factors”;
•
the fees and expenses associated with completing the merger;
•
the risk that certain members of Golden West senior management
or Wachovia senior management might choose not to remain
employed with the combined company;
•
the risk that either Golden West shareholders or Wachovia
shareholders may fail to approve the merger or the transactions
contemplated by the merger agreement; and
•
the risk and costs that the merger might not be completed, the
potential impact of the restrictions under the merger agreement
on Golden West’s ability to take certain actions during the
period prior to the closing of the merger, the potential for
diversion of management and employee attention and for increased
employee attrition during that period and the potential effect
of these factors on Golden West’s business and relations
with customers.
The Golden West board of directors weighed the potential
benefits, advantages and opportunities of a merger and the risks
of not pursuing a transaction with Wachovia against the risks
and challenges inherent in the proposed merger. The Golden West
board of directors realized that there can be no assurance about
future results, including results expected or considered in the
factors listed above. However, the Golden West board
of directors concluded that the potential benefits outweighed
the risks of completing the merger with Wachovia.
After taking into account these and other factors, the Golden
West board of directors unanimously determined that the merger
agreement and the transactions contemplated by the merger
agreement were advisable and in the best interest of the Golden
West shareholders, approved the merger with Wachovia and the
other transactions contemplated by the merger agreement, and
approved and adopted the merger agreement.
Wachovia estimates that the combined company following the
merger is projected to save about $53 million in after-tax
costs annually by the end of 2008 and beyond. These modest cost
savings, which represent approximately 9% of Golden West’s
non-interest expense or 0.5% of the combined company’s
non-interest expense, primarily relate to overlapping or
duplicative technology systems, personnel functions, taxes and
real property facilities.
The following chart illustrates an itemization of the combined
company’s projected annual cost savings after the merger
integration is complete following the merger.
Annual Cost
Savings (in millions)
Personnel reductions
$
43
Taxes
18
Other, including purchasing
synergies
26
Expense increase (including branch
upfitting and employee benefits)
(34
)
$
53
Wachovia believes that approximately 50% of the combined
company’s projected annual cost savings would be achieved
in 2007 and 100% achieved by year-end 2008.
Wachovia’s board of directors engaged Merrill Lynch to act
as its financial advisor in connection with the merger, and to
render an opinion as to whether the merger consideration to be
paid by Wachovia pursuant to the merger was fair from a
financial point of view to Wachovia.
On May 7, 2006, Merrill Lynch delivered its oral opinion to
Wachovia’s board of directors, subsequently confirmed in
its written opinion as of that same date, that, as of that date,
and based upon and subject to the assumptions made, matters
considered and qualifications and limitations set forth in the
written opinion, the merger consideration to be paid by Wachovia
pursuant to the merger agreement was fair from a financial point
of view to Wachovia.
The full text of the written opinion of Merrill Lynch, dated
May 7, 2006, which sets forth the assumptions made, matters
considered and qualifications and limitations on the review
undertaken by Merrill Lynch, is attached as
Appendix B to this joint proxy statement-prospectus
and is incorporated into this joint proxy statement-prospectus
by reference. The following summary of Merrill Lynch’s
opinion is qualified in its entirety by reference to the full
text of the opinion. Shareholders of Wachovia are urged to read
and should read the entire opinion carefully. Merrill Lynch has
consented to the inclusion in this joint proxy
statement-prospectus of its opinion dated May 7, 2006 and
of the summary of that opinion set forth below.
In preparing its opinion to Wachovia’s board of directors,
Merrill Lynch performed various financial and comparative
analyses, including those described below. The summary set forth
below does not purport to be a complete description of the
analyses underlying Merrill Lynch’s opinion or the
presentation made by Merrill Lynch to Wachovia’s board of
directors. The preparation of a fairness opinion is a complex
analytic process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances
and, therefore, a fairness opinion is not readily
susceptible to partial analysis or summary description. In
arriving at its opinion, Merrill Lynch did not attribute any
particular weight to any analysis or factor considered by it,
but rather made its determination as to fairness on the basis of
its experience and professional judgment after considering the
results of all of its analyses. Accordingly, Merrill Lynch
believes that its analyses must be considered as a whole and
that selecting portions of its analyses and factors, or focusing
on information presented in tabular format, without considering
all of the analyses and factors or the narrative description of
the analyses, would create a misleading or incomplete view of
the process underlying its opinion.
In performing its analyses, Merrill Lynch made numerous
assumptions with respect to industry performance, general
business, economic, market and financial conditions and other
matters, many of which are beyond the control of Merrill Lynch.
Any estimates contained in the analyses performed by Merrill
Lynch are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than
those suggested by such analyses. Additionally, estimates of the
value of businesses or securities do not purport to be
appraisals or to reflect the prices at which such businesses or
securities might actually be sold. Accordingly, these analyses
and estimates are inherently subject to substantial uncertainty.
In addition, as described above, the opinion of Merrill Lynch
was one of several factors taken into consideration by
Wachovia’s board of directors in making its determination
to approve the merger and the issuance of shares of Wachovia
common stock in the merger. Consequently, Merrill Lynch’s
analyses as described below should not be viewed as
determinative of the decision of Wachovia’s board of
directors with respect to the fairness from a financial point of
view of the merger consideration to be paid by Wachovia.
In arriving at its opinion, Merrill Lynch, among other things:
•
reviewed certain publicly available business and financial
information relating to Golden West and Wachovia that Merrill
Lynch deemed to be relevant;
•
reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets,
liabilities and prospects of Golden West and Wachovia, as well
as the amount and timing of the cost savings and related
expenses and synergies expected to result from the merger, which
herein is referred to as the expected synergies, furnished to
Merrill Lynch by Golden West and Wachovia;
•
conducted discussions with members of senior management and
representatives of Golden West and Wachovia concerning the
matters described in the preceding two bullet points, as well as
the business and prospects before and after giving effect to the
merger and the expected synergies;
•
reviewed the market prices and valuation multiples for Golden
West’s common stock and Wachovia’s common stock and
compared them with those of certain publicly traded companies
that Merrill Lynch deemed to be relevant;
•
reviewed the results of operations of Golden West and Wachovia
and compared them with those of certain publicly traded
companies that Merrill Lynch deemed to be relevant;
•
compared the proposed financial terms of the merger with the
financial terms of certain other transactions that Merrill Lynch
deemed to be relevant;
•
participated in certain discussions among representatives of
Golden West and Wachovia and their financial and legal advisors;
•
reviewed the potential pro forma impact of the merger;
•
reviewed a draft dated May 6, 2006 of the merger agreement;
•
reviewed a draft dated May 6, 2006 of the voting and
support agreement between Wachovia and certain shareholders of
Golden West (as to the terms of which Merrill Lynch expressed no
opinion); and
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 its opinion, 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 that was publicly available. Merrill Lynch did not
assume any responsibility for independently verifying such
information and did not undertake any independent evaluation or
appraisal of any of the assets or liabilities of Golden West or
Wachovia and it was not furnished with any such evaluation or
appraisal, nor did it evaluate the solvency or fair value of
Golden West or Wachovia under any state or federal laws relating
to bankruptcy, insolvency or similar matters. In addition,
Merrill Lynch did not assume any obligation to conduct any
physical inspection of the properties or facilities of Golden
West or Wachovia. With respect to the financial forecast
information and the expected synergies furnished to or discussed
with Merrill Lynch by Golden West or Wachovia, Merrill Lynch
assumed that they had been reasonably prepared and reflected the
best currently available estimates and judgment of the
management of Golden West or Wachovia as to the expected future
financial performance of Golden West or Wachovia, as the case
may be, and the expected synergies. Merrill Lynch further
assumed that the merger would qualify as a tax-free
reorganization for U.S. federal income tax purposes.
Merrill Lynch also assumed that the final form of the merger
agreement and each voting agreement would be substantially
similar to the last draft reviewed by it.
Merrill Lynch’s opinion is necessarily based upon market,
economic and other conditions as they existed and could be
evaluated on, and on the information made available to Merrill
Lynch as of, May 7, 2006. Merrill Lynch further 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 amendments or modifications, would be imposed that will have
a material adverse effect on the contemplated benefits of the
merger.
In connection with the preparation of its opinion, Merrill Lynch
was not authorized by Wachovia or the board of directors of
Wachovia to solicit, nor did Merrill Lynch solicit, third party
indications of interest for the acquisition of all or any part
of Wachovia.
Pursuant to a letter agreement between Wachovia and Merrill
Lynch, dated as of May 1, 2006, Wachovia agreed to pay
Merrill Lynch for financial advisory services rendered through
the closing of the merger (i) a fee of $3 million upon
execution of the merger agreement and (ii) a fee of
$20 million upon merger completion. Wachovia also agreed,
among other things, to reimburse Merrill Lynch for certain
expenses incurred in connection with the services provided by
Merrill Lynch and to indemnify Merrill Lynch and certain related
persons and entities for certain liabilities, including
liabilities under the U.S. federal securities laws, related
to or arising out of its engagement.
Merrill Lynch has in the past provided financial advisory and
financing services to Wachovia and Golden West and may continue
to do so. Merrill Lynch has received, and may receive, fees for
the rendering of such services. In addition, in the ordinary
course of its business, Merrill Lynch may actively trade the
common stock and other securities of Golden West as well as the
common stock of Wachovia and other securities of Wachovia, for
its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in
such securities.
Merrill Lynch’s opinion is addressed to Wachovia’s
board of directors and addresses only the fairness, from a
financial point of view, of the merger consideration to be paid
by Wachovia pursuant to the merger. The opinion does not address
the merits of the underlying decision of Wachovia to engage in
the merger and does not constitute, nor should it be construed
as, a recommendation to any shareholder of Wachovia as to how
that shareholder should vote with respect to the merger or any
matter related thereto. In addition, the opinion of Merrill
Lynch does not address and Merrill Lynch was not asked to
address, the fairness to, or any other consideration of, the
holders of any class of securities, creditors or other
constituencies of Wachovia. Merrill Lynch did not express any
opinion as to the prices at which the common stock of Wachovia
will trade following the announcement or consummation of the
merger.
The following is a summary of the material financial analyses
that Merrill Lynch performed in connection with its opinion to
Wachovia’s board of directors dated May 7, 2006.
The financial analyses summarized below include information
presented in tabular format. In order to understand fully the
financial analyses performed by Merrill Lynch, the tables must
be read together with the accompanying text of each summary. The
tables alone do not constitute a complete description of the
financial analyses, and if viewed in isolation could create a
misleading or incomplete view of the financial analyses
performed by Merrill Lynch. To the extent the following
quantitative information reflects market data, except as
otherwise indicated, Merrill Lynch based this information on
market data as they existed prior to May 7, 2006. This
information, therefore, does not necessarily reflect current or
future market conditions.
Calculation of Transaction Value. Merrill
Lynch reviewed the terms of the merger. The merger consideration
had an implied total offer value of $81.07 per share of Golden
West common stock based upon the closing price of Wachovia
common stock of $59.39 on May 5, 2006. Merrill Lynch noted
that Golden West shareholders will receive the equivalent of
1.051 shares of Wachovia common stock (i.e., 1.365
times 77%) and the equivalent of $18.65 in cash (i.e.,
$81.07 times 23%) for each share of Golden West common stock.
Merrill Lynch also noted that the transaction had an implied
aggregate total value of approximately $25.5 billion as of
May 5, 2006.
Comparable Companies Analysis. Merrill Lynch
reviewed and compared selected financial information and trading
statistics of Golden West and Wachovia to the publicly available
corresponding data for the 16 largest banks and thrifts in the
U.S., which includes the following companies:
•
Citigroup, Inc.
•
Bank of America Corporation
•
JPMorgan Chase & Co.
•
Wells Fargo & Company
•
Wachovia Corporation*
•
U.S. Bancorp
•
Washington Mutual, Inc.
•
SunTrust Banks, Inc.
•
BB&T Corporation
•
National City Corporation
•
Fifth Third Bancorp
•
Golden West Financial Corporation*
•
PNC Financial Services Group, Inc.
•
Regions Financial Corporation
•
KeyCorp
•
M&T Bank Corporation
*
Financial data used on a pre-merger
basis.
The following table compares selected financial information and
trading statistics of Golden West and Wachovia with
corresponding mean data for the above listed comparable
companies, which data is based on financial data at or for the
period ending March 31, 2006, earnings per share estimates
and projected earnings per share growth rates from First Call
and market prices as of May 5, 2006. First Call is a
recognized data
service that monitors and publishes compilations of earnings
estimates by selected research analysts regarding companies of
interest to institutional investors.
Price/2007
Price/Book
Price/Tangible
Dividend
EPS
Estimated EPS
Value
Book Value
Yield
Growth Rate
Golden West
11.56
x
2.41
x
2.41
x
0.45
%
12
%
Comparable Companies for Golden
West(1)
12.03
x
2.05
x
3.43
x
3.48
%
9
%
Wachovia
11.40
x
1.92
x
3.85
x
3.43
%
10
%
Comparable Companies for
Wachovia(2)
12.04
x
2.09
x
3.34
x
3.28
%
10
%
(1)
Excludes Golden West.
(2)
Excludes Wachovia.
No company used in the comparable company analyses described
above is identical to Golden West, Wachovia, or the pro forma
combined company, as the case may be. Accordingly, an analysis
of the results of the foregoing necessarily involves complex
considerations and judgments concerning financial and operating
characteristics and other factors that could affect the merger,
public trading or other values of the companies to which they
are being compared. Mathematical analyses, such as determining
the mean or median, are not of themselves meaningful methods of
using comparable company data.
Comparable Merger and Acquisition Transactions and Implied
Transaction Pricing Multiples. Merrill Lynch also
reviewed the implied transaction pricing multiples in the
following nine selected merger and acquisition transactions
involving companies in the banking and financial services
industry announced since May 7, 2001 with transaction
values greater than $5.0 billion.
Acquiror
Target
Bank of America Corporation
FleetBoston Financial Corporation
Capital One Financial Corporation
North Fork Bancorporation, Inc.
Wachovia Corporation
SouthTrust Corporation
Royal Bank of Scotland
Charter One Financial, Inc.
SunTrust Banks, Inc.
National Commerce Financial
Corporation
North Fork Bancorporation,
Inc.
GreenPoint Financial Corp.
Citigroup, Inc.
Golden State Bancorp Inc.
Capital One Financial Corporation
Hibernia Corporation
Washington Mutual, Inc.
Dime Bancorp, Incorporated
For these selected merger and acquisition transactions, Merrill
Lynch used publicly available information to determine:
•
the multiples of the transaction price per share to both the
book value per share and the tangible book value per share using
the acquired companies’ most recent financial reports at
the time of announcement of the transactions;
•
the multiples of the transaction price per share to the last
twelve months and forward consensus earnings estimates per share
at the time of announcement;
•
the implied tangible book premium to total deposits and to core
deposits; and
•
the premium per share paid by the acquiror compared to the share
price of the target company prevailing 30 days prior to the
announcement of those transactions.
The average values of these multiples and premiums were then
compared to those calculated for the merger. Merrill Lynch
considered these selected merger and acquisition transactions to
be reasonably similar, but not identical, to the merger. A
complete analysis involves complex considerations and judgment
concerning
differences in the selected merger and acquisition transactions
and other factors that could affect the premiums paid in such
comparable transactions to which the merger is being compared.
Mathematical analysis (such as determining the average) is not
by itself a meaningful method of using selected merger and
acquisition transaction data.
The following table compares the foregoing calculations for the
merger and the average of the foregoing calculations for the
selected merger and acquisition transactions.
Comparable Merger
Wachovia/
and Acquisition
Golden West
Transactions
Implied Transaction Value as of
Multiple of:
Book Value
2
.77x
2
.65x
Tangible Book Value
2
.77x
3
.81x
Last Twelve Months EPS ($4.90)
16
.54x
17
.16x
Forward Year EPS ($6.10)
13
.29x
14
.32x
Tangible Premium as a %
of:
Total Deposits
26
.7%
28
.7%
Core Deposits
36
.6%
33
.5%
Implied Market
Premium
15
.0%(1
)
27
.1%
(1)
Represents premium paid relative to
Golden West closing stock price on May 5, 2006.
Discounted Dividend Analysis—Golden
West. Merrill Lynch performed a discounted
dividend analysis to estimate a range of present values per
share of Golden West common stock. The valuation range was
determined by adding (i) the present value of Golden
West’s earnings available for dividends, net of earnings
necessary to maintain Golden West’s tangible common equity
to tangible assets ratio at 4.5% (which Wachovia management
deemed to be a more appropriate level of capitalization than
Golden West’s current levels) through December 31,2011, and (ii) the present value of the “terminal
value” of Golden West common stock. In calculating the
terminal value of Golden West common stock, Merrill Lynch
applied multiples ranging from 11.0x to 13.0x to year 2012
forecasted cash earnings. The dividend stream and terminal value
were then discounted back to May 5, 2006 using discount
rates ranging from 12.0% to 14.0%, which are rates Merrill Lynch
viewed as the appropriate range for a company with Golden
West’s risk characteristics.
In performing this analysis, Merrill Lynch used the First Call
consensus earnings per share estimate for Golden West for 2007.
After 2007, earnings per share were assumed to increase annually
at 12%, the First Call consensus projected earnings growth rate
for Golden West. This analysis also assumed $87 million in
pre-tax synergies, of which approximately 50% are projected to
be realized in 2007 and 100% in 2008, and a $480 million
pre-tax restructuring charge. The analysis assumed annual
balance sheet growth rate of 10% for Golden West.
Based on the foregoing criteria and assumptions, Merrill Lynch
determined that the stand-alone present value of the Golden West
common stock ranged from $75.59 to $92.15 per share.
Discounted Dividend
Analysis—Wachovia. Merrill Lynch performed a
discounted dividend analysis to estimate a range of present
values per share of Wachovia common stock. The valuation range
was determined by adding (i) the present value of
Wachovia’s earnings available for dividends, net of
earnings necessary to maintain Wachovia’s tangible common
equity to tangible assets ratio at 4.8% (based on its ratio as
of March 31, 2006) through December 31, 2011, and
(ii) the present value of the “terminal value” of
Wachovia common stock. In calculating the terminal value of
Wachovia common stock, Merrill Lynch applied multiples ranging
from 11.0x to 13.0x to year 2012 forecasted cash earnings. The
dividend stream and terminal value were then discounted back to
May 5, 2006 using discount rates ranging from 12.0% to
14.0%, which are rates Merrill Lynch viewed as the appropriate
range for a company with Wachovia’s risk characteristics.
In performing this analysis, Merrill Lynch used the First Call
consensus earnings per share estimate for Wachovia for 2007.
After 2007, earnings per share were assumed to increase annually
at 10%, the First Call
consensus projected earnings growth rate for Wachovia. The
analysis assumed an annual balance sheet growth rate of 5% for
Wachovia.
Based on the foregoing criteria and assumptions, Merrill Lynch
determined that the stand-alone present value of the Wachovia
common stock ranged from $57.78 to $71.35 per share.
Discounted Dividend Analysis—Pro Forma
Wachovia. Merrill Lynch performed a pro forma
discounted dividend analysis to estimate a range of present
values per share of Wachovia common stock to reflect the impact
of the merger with Golden West. The valuation range was
determined by adding (i) the present value of pro forma
Wachovia’s earnings available for dividends, net of
earnings necessary to maintain pro forma Wachovia’s
tangible common equity to tangible assets ratio at 4.7% (blended
based on a 4.8% ratio for Wachovia and 4.5% ratio for Golden
West) through December 31, 2011, and (ii) the present
value of the “terminal value” of pro forma Wachovia
common stock. In calculating the terminal value of pro forma
Wachovia’s common stock, Merrill Lynch applied multiples
ranging from 11.0x to 13.0x to year 2012 forecasted cash
earnings. The dividend stream and terminal value were then
discounted back to May 5, 2006 using discount rates ranging
from 12.0% to 14.0%, which are rates Merrill Lynch viewed as the
appropriate range for a company with Wachovia’s risk
characteristics on a pro forma basis.
In performing this analysis, Merrill Lynch used the First Call
consensus earnings per share estimate for Wachovia and Golden
West for 2007. After 2007, earnings per share were assumed to
increase annually at 10% for Wachovia and 12% for Golden West,
their respective First Call consensus projected earnings growth
rates. The analysis assumed an annual balance sheet growth rate
of 5% for pro forma Wachovia.
Based on the foregoing criteria and assumptions, Merrill Lynch
determined that the present value of the Wachovia common stock,
pro forma for the merger, ranged from $58.58 to $72.61 per
share.
Pro Forma Financial Impact. Based on the
equivalent merger consideration of 1.051 shares of Wachovia
common stock (i.e., 1.365 times 77%) and $18.65 in cash
(i.e., $81.07 times 23%) for each share of Golden West
common stock, Merrill Lynch analyzed the pro forma per share
financial impact of the merger on Wachovia’s cash earnings
per share and GAAP earnings per share. This analysis was based
on the First Call consensus earnings per share estimates for
Golden West and Wachovia for 2007. After 2007, earnings per
share were assumed to increase annually at 10% for Wachovia and
12% for Golden West, their respective First Call consensus
projected earnings growth rates. The analysis assumed pre-tax
cost synergies of $87 million, of which approximately 50%
were projected to be realized in 2007 and 100% in 2008. In
addition, the analysis used pro forma Wachovia’s projected
balance sheet at the closing of the transaction, as determined
by Wachovia’s management. In analyzing the pro forma
financial impact of the merger, Merrill Lynch also assumed that
there would be a one-time, pre-tax restructuring charge of
$480 million. The analysis assumed no incremental share
repurchases in 2007 or 2008 and estimated repurchases of
$600 million in 2009.
Based on these assumptions, the merger would be dilutive to
Wachovia’s cash earnings per share (combined net income
applicable to common shareholders before merger-related and
restructuring expenses, intangible amortization and preferred
dividends) by $0.03 in 2007 and accretive to Wachovia’s
cash earnings per share by $0.01 in 2008 and $0.05 in 2009.
Also, based on these assumptions, the merger would be dilutive
to Wachovia’s operating earnings per share (combined net
income applicable to common shareholders before merger-related
and restructuring expenses and preferred dividends) by $0.11 in
2007, $0.07 in 2008 and $0.01 in 2009.
General
In conducting its analyses and arriving at its opinions, Merrill
Lynch utilized a variety of generally accepted valuation
methods. The analyses were prepared for the purpose of enabling
Merrill Lynch to provide its opinion to the Wachovia board of
directors as to the fairness, from a financial point of view, to
Wachovia of the merger consideration to be paid by Wachovia
pursuant to the merger and do not purport to be appraisals or
necessarily to reflect the prices at which businesses or
securities actually may be sold, which are inherently subject to
uncertainty. In connection with its analyses, Merrill Lynch
made, and was provided by the management of Golden West and
Wachovia management with, numerous assumptions with respect to
industry
performance, general business and economic conditions and other
matters, many of which are beyond the control of Merrill Lynch,
Wachovia or Golden West. Analyses based on estimates or
forecasts of future results are not necessarily indicative of
actual past or future values or results, which may be
significantly more or less favorable than suggested by such
analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond
the control of Golden West, Wachovia or their respective
advisors, neither Wachovia nor Merrill Lynch nor any other
person assumes responsibility if future results or actual values
are materially different from these forecasts or assumptions.
Wachovia retained Merrill Lynch based upon Merrill Lynch’s
experience and expertise. Merrill Lynch is an internationally
recognized investment banking and advisory firm. Merrill Lynch,
as part of its investment banking business, is regularly engaged
in the valuation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and
other purposes.
The terms of the merger were determined through negotiations
between Golden West and Wachovia and were approved by the board
of directors of Wachovia. Although Merrill Lynch provided advice
to Wachovia during the course of these negotiations, the
decision to enter into the merger was solely that of
Wachovia’s board of directors. As described above, the
opinion and presentation of Merrill Lynch to Wachovia’s
board of directors was only one of a number of factors taken
into consideration by Wachovia’s board of directors in
making its determination to approve and adopt the merger
agreement and the transactions contemplated by the merger
agreement, including the merger. Merrill Lynch’s opinion
was provided to Wachovia’s board of directors to assist it
in connection with its consideration of the merger and does not
constitute a recommendation to any shareholder as to how to vote
or take any other action with respect to the merger. Merrill
Lynch’s opinion does not in any manner address the prices
at which shares of Wachovia’s common stock will trade after
the announcement or merger completion.
Golden West engaged Lehman Brothers to act as its financial
advisor in connection with the merger and render its opinion
with respect to the fairness, from a financial point of view, to
Golden West’s shareholders of the consideration to be
offered to those shareholders in the merger.
On May 7, 2006, Lehman Brothers delivered its oral opinion
to the Golden West board of directors that as of that date, and
based upon and subject to certain matters stated in that
opinion, the merger consideration to be offered to Golden
West’s shareholders in the merger was fair, from a
financial point of view, to Golden West’s shareholders.
Lehman Brothers subsequently confirmed the oral opinion by
delivery of its written opinion dated May 7, 2006.
The full text of Lehman Brothers’ opinion is attached as
Appendix C to this joint proxy statement-prospectus.
The opinion outlines the procedures followed, assumptions made,
matters considered and qualifications and limitations on the
review undertaken by Lehman Brothers in rendering its opinion.
The description of the opinion set forth below is qualified in
its entirety by reference to the full text of the opinion.
Lehman Brothers urges Golden West shareholders to read the
entire opinion carefully in connection with their consideration
of the proposed merger. Lehman Brothers has consented to the
inclusion in this joint proxy statement-prospectus of its
opinion and to the reference to it in this joint proxy
statement-prospectus.
Lehman Brothers’ opinion was provided for the information
and assistance of the Golden West board of directors in
connection with its evaluation of the merger consideration to be
offered to Golden West shareholders. Lehman Brothers’
opinion does not address any other aspect of the transaction and
is not intended to be and does not constitute a recommendation
to any shareholder of Golden West as to how that shareholder
should vote with respect to the merger or any related matter.
Lehman Brothers was not requested to opine as to, and Lehman
Brothers’ opinion does not address, Golden West’s
underlying business decision to proceed with or effect the
merger, nor does Lehman Brothers’ opinion address the
relative merits of the merger with Wachovia compared to any
other business strategies or alternatives that might be
available to Golden West.
In arriving at its opinion, Lehman Brothers reviewed and
analyzed:
•
the merger agreement and the specific terms of the proposed
merger;
•
publicly available information concerning Golden West that
Lehman Brothers believed to be relevant to its analysis,
including Golden West’s earnings press release for the
quarter ended March 31, 2006 and Golden West’s Annual
Report on
Form 10-K
for the fiscal year ended December 31, 2005;
•
publicly available information concerning Wachovia that Lehman
Brothers believed to be relevant to its analysis, including
Wachovia’s earnings press release for the quarter ended
March 31, 2006, Wachovia’s Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006 and Wachovia’s
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005;
•
financial and operating information with respect to the
business, operations and prospects of Golden West furnished to
Lehman Brothers by Golden West;
•
financial and operating information with respect to the
business, operations and prospects of Wachovia furnished to
Lehman Brothers by Wachovia;
•
the trading histories of Golden West’s and Wachovia’s
common stock from May 5, 2001 to May 5, 2006 and a
comparison of those trading histories with each other and with
the trading histories of other companies that Lehman Brothers
deemed relevant and with the trading histories of certain market
indices, including the S&P 500 index, the Lehman
Brothers’ Bank Index and the Lehman Brothers’ Thrift
Index;
•
a comparison of the historical financial results and present
financial condition of Golden West with those of other companies
that Lehman Brothers deemed relevant;
•
a comparison of the historical financial results and present
financial condition of Wachovia with those of other companies
that Lehman Brothers deemed relevant;
•
the potential pro forma impact of the merger on the future
financial performance of Wachovia, including the potential
effect on Wachovia’s pro forma earnings per share and the
cost savings which the managements of Golden West and Wachovia
expect to achieve from the merger;
•
the relative financial contributions of Golden West and Wachovia
to the current and future financial performance of the combined
company on a pro forma basis (including cost savings);
•
independent research analysts’ estimates of the future
financial performance of Golden West and Wachovia published by
I/B/E/S;
•
the amount of annual dividends historically paid by
Wachovia; and
•
a comparison of the financial terms of the merger with the
financial terms of certain other transactions that Lehman
Brothers deemed relevant.
In addition, Lehman Brothers had discussions with the
managements of Golden West and Wachovia concerning their
respective businesses, operations, assets, liabilities,
financial condition and prospects, the cost savings and the
other strategic benefits expected by the managements of Golden
West and Wachovia to result from a combination of the businesses
of Golden West and Wachovia, and undertook such other studies,
analyses and investigations as Lehman Brothers deemed
appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied
upon the accuracy and completeness of the financial and other
information used by Lehman Brothers without assuming any
responsibility for independent verification of such information
and further relied upon the assurances of the managements of
Golden West and Wachovia that they are not aware of any facts or
circumstances that would make such information inaccurate or
misleading. In arriving at its opinion, upon advice of Golden
West, Lehman Brothers assumed that the estimates of third-party
research analysts published by I/B/E/S were a reasonable basis
to evaluate the future financial performance of Golden West and
Wachovia and that the performance of Golden West and Wachovia
would not differ materially from such estimates. With respect to
the cost savings estimated
by the managements of Golden West and Wachovia to result from
the merger, Lehman Brothers has assumed that such cost savings
will be realized substantially in accordance with such
estimates. In arriving at its opinion, Lehman Brothers did not
conduct a physical inspection of the properties and facilities
of Golden West or Wachovia and did not make or obtain any
evaluations or appraisals of the assets or liabilities of Golden
West or Wachovia. In addition, Lehman Brothers is not an expert
in the evaluation of loan portfolios or allowances for loan
losses and, upon advice of Golden West, Lehman Brothers assumed
that the respective current allowances for loan losses of Golden
West and Wachovia will be, in each case, in the aggregate
adequate to cover all such losses. Upon advice of Golden West
and its legal and accounting advisors, Lehman Brothers assumed
that the merger will qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code and
therefore as a tax-free transaction to the shareholders of
Golden West with respect to their receipt of Wachovia common
stock in the merger. Lehman Brothers’ opinion necessarily
was based upon market, economic and other conditions as they
existed on, and could be evaluated as of, the date of such
opinion.
Lehman Brothers expressed no opinion as to the prices at which
shares of Wachovia common stock would trade at any time
following merger completion. Lehman Brothers’ opinion
should not be viewed as providing any assurance that the market
value of the shares of Wachovia common stock to be held by the
shareholders of Golden West after merger completion will be in
excess of the market value of such shares at any time prior to
the announcement or merger completion.
At the May 7, 2006 meeting of the Golden West board of
directors, Lehman Brothers made a presentation of certain
financial analyses of the proposed merger.
The following is a summary of the material valuation, financial
and comparative analyses in the presentation that was delivered
to the Golden West board of directors by Lehman Brothers.
Some of the summaries of financial analyses include information
presented in tabular format. In order to fully understand the
financial analyses performed by Lehman Brothers, the tables must
be read together with the accompanying text of each summary. The
tables alone do not constitute a complete description of the
financial analyses, including the methodologies and assumptions
underlying the analyses, and if viewed in isolation could create
a misleading or incomplete view of the financial analysis
performed by Lehman Brothers.
Transaction Pricing Multiples. Lehman Brothers
noted the merger consideration provided for in the merger
agreement had an implied transaction value to Golden West
shareholders of $81.07 per share of Golden West common
stock based upon the closing price of Wachovia’s common
stock of $59.39 on Friday, May 5, 2006 (the last trading
day prior to the Golden West board meeting on Sunday,
May 7, 2006). Lehman Brothers calculated the implied
transaction value as a premium to Golden West’s closing
price per share of common stock on May 5, 2006 (one
business day prior to the announcement of the transaction) and
to Golden West’s closing price per share of common stock on
April 5, 2006 (one month prior to May 5, 2006).
Lehman Brothers also calculated the implied transaction value as
a multiple of Golden West’s book value and tangible book
value at March 31, 2006 and as a multiple of Golden
West’s estimated earnings for 2006 (based on consensus
I/B/E/S earnings estimates for Golden West as of May 5,2006). Lehman Brothers also calculated the implied premium to
core deposits (total deposits minus all certificates of deposit
with face values in excess of $100,000), based on the difference
between the implied transaction value and Golden West’s
tangible book value at March 31, 2006 divided by Golden
West’s total core deposits at March 31, 2006.
Comparable Transactions Analysis. Lehman
Brothers compared the foregoing calculations to similar
calculations for selected depository institution acquisitions
announced since January 1, 1999 that were valued in excess
of $5 billion. The following transactions were reviewed by
Lehman Brothers (in each case, the first named company was the
acquirer and the second named company was the acquired company):
Capital One Financial Corporation / North Fork Bancorporation,
Inc.;
Wachovia Corporation / SouthTrust Corporation;
Royal Bank of Scotland, Plc / Charter One Financial, Inc.;
North Fork Bancorporation, Inc. / GreenPoint Financial
Corporation;
Citigroup, Inc. / Golden State Bancorp, Inc.;
Washington Mutual, Inc. / Dime Bancorp, Inc.; and
HSBC Holdings, Plc / Republic of New York Corporation
Lehman Brothers considered these selected merger transactions to
be reasonably similar, but not identical, to the merger. A
complete analysis involves complex considerations and
qualitative judgments concerning differences in the selected
merger transactions and other factors that could affect the
premiums paid in those comparable transactions to which the
merger is being compared; mathematical analysis (such as
determining the mean or the median) is not in itself a
meaningful method of using selected merger transaction data.
For the selected merger transactions listed above, Lehman
Brothers used publicly available financial information including
information obtained from the online databases of SNL Financial,
a recognized data service that collects, standardizes and
disseminates relevant corporate, financial, market and mergers
and acquisitions data for companies in the industries it covers.
Lehman Brothers used this financial information to determine:
•
the multiple of the transaction price per share to the
current-year consensus earnings estimates per share at the time
of announcement;
•
the multiple of the transaction price per share to the book
value per share using the acquired companies’ most recent
financial reports at the time of announcement of the
transactions;
•
the multiple of the transaction price per share to the tangible
book value per share using the acquired companies’ most
recent financial reports at the time of announcement of the
transactions;
•
the implied premium to core deposits (total deposits minus all
certificates of deposit with face values in excess of
$100,000); and
•
the premiums per share paid by the acquirer compared to the
share price of the target company prevailing one day prior to,
and one month prior to, the announcement of those transactions.
Premium and
Multiples to Golden
West Implied by the
Mean Comparable
Merger
Transactions
Implied Transaction Value as a
Multiple of:
Current Year EPS Estimate
15.3
x
15.2
x
Book Value
2.77
x
2.67
x
Tangible Book Value
2.77
x
3.73
x
Implied Core Deposit Premium
36.5
%
31.0
%
Implied Transaction Value as a
Premium to:
Closing Price—Day Prior to
Announcement
15.0
%
13.2
%
Closing Price—One Month Prior
to Announcement
18.2
%
24.8
%
This analysis suggested an implied value range of approximately
$78 to $86 per share of Golden West common stock.
Comparable Companies Analysis for Golden
West. Lehman Brothers analyzed the public market
statistics of certain comparable companies to Golden West and
examined various trading statistics and
information relating to those companies. As part of this
comparable companies analysis, Lehman Brothers examined market
multiples and premium data for each company including:
•
the multiple of market price per share to median estimated 2006
earnings per share;
•
the multiple of market price per share to median estimated 2007
earnings per share;
•
the multiple of market price per share to book value per share;
•
the multiple of market price per share to tangible book value
per share; and
•
the premium of tangible book value to core deposits (total
deposits minus all certificates of deposit with face values in
excess of $100,000), based on the difference between the current
market capitalization and tangible book value, divided by core
deposits.
The estimated 2006 and 2007 earnings per share were obtained
from I/B/E/S and the remaining information was obtained from (or
in certain cases estimated based on) publicly available
financial information for the period ended March 31, 2006
or the most recent quarter available. The stock price data used
for this analysis was the closing price for the selected
companies on May 5, 2006.
Lehman Brothers selected the companies below because their
businesses and operating profiles are reasonably similar to
those of Golden West. No comparable company identified below is
identical to Golden West. A complete analysis involves complex
considerations and qualitative judgments concerning differences
in financial and operating characteristics of the comparable
companies and other factors that could affect the public trading
values of those comparable companies; mathematical analysis
(such as determining the mean or the median) is not in itself a
meaningful method of using selected company data.
In choosing comparable companies to analyze, Lehman Brothers
selected the following comparable companies:
Bank of America Corporation;
Wells Fargo & Company;
Washington Mutual, Inc.;
SunTrust Banks, Inc.;
Countrywide Financial Corporation;
BB&T Corporation;
National City Corporation;
Fifth Third Bancorp; and
Regions Financial Corporation.
The following table summarizes the results from the comparable
companies analysis:
Golden West
Peers(1)
5/05/06 Closing Price to:
2006 EPS Estimate
13.3
x
12.6
x
2007 EPS Estimate
11.6
x
11.5
x
Book Value per share
2.41
x
1.94
x
Tangible Book Value per share
2.41
x
3.05
x
Core Deposit
Premium(2)
28.2
%
23.0
%
(1)
Based on mean values.
(2)
Core deposits calculated as total
deposits minus all certificates of deposit with face values in
excess of $100,000.
This analysis suggested an implied value range of approximately
$65 to $71 per share of Golden West common stock and an implied
acquisition value of $77 to $85 per share of Golden West
common stock (based on a 20% implied acquisition premium).
Comparable Companies Analysis for
Wachovia. Lehman Brothers analyzed the public
market statistics of certain comparable companies to Wachovia
and examined various trading statistics and information relating
to those companies. As part of this comparable companies
analysis, Lehman Brothers examined market multiples and premium
data for each company including:
•
the multiple of market price per share to median estimated 2006
earnings per share;
•
the multiple of market price per share to median estimated 2007
earnings per share;
•
the multiple of market price per share to book value per share;
•
the multiple of market price per share to tangible book value
per share; and
•
the premium of tangible book value to core deposits (total
deposits minus all certificates of deposit with face values in
excess of $100,000), based on the difference between the current
market capitalization and tangible book value, divided by core
deposits.
The estimated 2006 and 2007 earnings per share were obtained
from I/B/E/S and the remaining information was obtained from (or
in certain cases estimated based on) publicly available
financial information for the period ended March 31, 2006
or the most recent quarter available. The stock price data used
for this analysis was the closing price for the selected
companies on May 5, 2006.
Lehman Brothers selected the companies below because their
businesses and operating profiles are reasonably similar to
those of Wachovia. No comparable company identified below is
identical to Wachovia. A complete analysis involves complex
considerations and qualitative judgments concerning differences
in financial and operating characteristics of the comparable
companies and other factors that could affect the public trading
values of those comparable companies; mathematical analysis
(such as determining the mean or the median) is not in itself a
meaningful method of using selected company data.
In choosing comparable companies to analyze, Lehman Brothers
selected the following comparable companies:
Citigroup, Inc.;
Bank of America Corporation;
JPMorgan Chase & Co.;
Wells Fargo & Company;
U.S. Bancorp;
SunTrust Banks, Inc.;
BB&T Corporation;
National City Corporation;
Fifth Third Bancorp;
PNC Financial Services Group, Inc.; and
KeyCorp.
The following table summarizes the results from the comparable
companies analysis:
Wachovia
Peers(1)
5/05/06 Closing Price to:
2006 EPS Estimate
12.6
x
13.0
x
2007 EPS Estimate
11.4
x
11.8
x
Book Value per share
1.92
x
2.13
x
Tangible Book Value per share
3.85
x
3.48
x
Core Deposit
Premium(2)
23.0
%
26.1
%
(1)
Based on mean values.
(2)
Core deposits calculated as total
deposits minus all certificates of deposit with face values in
excess of $100,000.
This analysis suggested an implied value range of approximately
$59 to $65 per share of Wachovia common stock.
Discounted Cash Flow Analysis of Golden
West. Lehman Brothers performed a discounted cash
flow analysis to estimate a range of the present values per
share of Golden West common stock, assuming I/B/E/S earnings
estimates for 2006 and 2007 of $5.31 and $6.10 per share,
respectively, and the I/B/E/S long-term growth rate of 12%
thereafter. The valuation range was determined by adding
(1) the present value of Golden West’s dividendable
earnings, net of earnings necessary to maintain a constant
tangible common equity to tangible assets ratio for Golden West
of 6.0% (a customary tangible common equity ratio for
well-capitalized banking institutions comparable to Golden
West), from December 31, 2006 through December 31,2011 and (2) the present value of the “terminal
value” of Golden West common stock. In calculating the
terminal value of Golden West common stock, Lehman Brothers
applied multiples ranging from 11.5x to 13.5x to 2012 forecasted
earnings. The free cash flow stream and the terminal value were
then discounted back to May 5, 2006, using discount rates
ranging from 12.0% to 14.0%, which range Lehman Brothers viewed
as appropriate for a company with Golden West’s risk
characteristics. For purposes of modeling the cash flows, Lehman
Brothers assumed a range of cost savings (tax effected at 38%)
up to $75 million, realized as follows: 50% in 2007 and
100% in 2008 and thereafter.
This analysis suggested an implied standalone value range of $75
to $80 per share of Golden West common stock and an implied
acquisition value range of approximately $78 to $83 per
share of Golden West common stock.
Discounted Cash Flow Analysis of
Wachovia. Lehman Brothers performed a discounted
cash flow analysis to estimate a range of the present values per
share of Wachovia common stock, assuming I/B/E/S earnings
estimates for 2006, 2007 and 2008 of $4.71, $5.21 and
$5.68 per share, respectively, and the I/B/E/S long-term
growth rate of 10% thereafter. The valuation range was
determined by adding (1) the present value of
Wachovia’s dividendable earnings, net of earnings necessary
to maintain a constant tangible common equity to tangible assets
ratio for Wachovia of 5.0% (a customary tangible common equity
ratio for well-capitalized banking institutions comparable to
Wachovia), from June 30, 2006 through December 31,2010 and (2) the present value of the “terminal
value” of Wachovia common stock. In calculating the
terminal value of Wachovia common stock, Lehman Brothers applied
multiples ranging from 11.5x to 13.5x to 2011 forecasted
earnings. The free cash flow stream and the terminal value were
then discounted back to May 5, 2006, using discount rates
ranging from 12.0% to 14.0%, which range Lehman Brothers viewed
as appropriate for a company with Wachovia’s risk
characteristics.
This analysis suggested an implied standalone value range of $60
to $65 per share of Wachovia common stock.
In connection with the review of the merger by the Golden West
board of directors, Lehman Brothers performed a variety of
financial and comparable analyses for purposes of rendering its
opinion. The above summary of these analyses, while describing
the material analyses performed by Lehman Brothers, does not
purport to be a complete description of the analyses performed
by Lehman Brothers in arriving at its opinion. The preparation
of a fairness opinion is a complex process and is not
susceptible to partial analysis or summary description. In
arriving at its opinion, Lehman Brothers considered the results
of all of its analyses as a whole and did not attribute any
particular weight to any analysis or factor considered by Lehman
Brothers. Furthermore, Lehman Brothers believes that the summary
provided and the analyses described above must be considered as
a whole and that selecting any portion of Lehman Brothers’
analyses, without considering all of them, would create an
incomplete view of the process underlying Lehman Brothers’
analysis and opinion. As a result, the ranges of valuations
resulting from any particular analysis or combination of
analyses described above were merely utilized to create points
of reference for analytical purposes and should not be taken to
be the view of Lehman Brothers with respect to the actual value
of Golden West, Wachovia or the combined company following the
merger.
In performing its analyses, Lehman Brothers made numerous
assumptions with respect to industry performance, general
business and economic conditions and other matters, many of
which are beyond the control of Lehman Brothers, Golden West or
Wachovia. Any estimates contained in the analyses of Lehman
Brothers are not necessarily indicative of future results or
actual values, which may be significantly more or less favorable
than those suggested by those estimates. The analyses performed
were prepared solely as part of
the analysis by Lehman Brothers of the fairness to Golden
West’s shareholders of the consideration to be offered to
those shareholders in the merger, from a financial point of
view, and were prepared in connection with the delivery by
Lehman Brothers of its opinion to the Golden West board of
directors. The analyses do not purport to be appraisals or to
reflect the prices at which the shares of Wachovia common stock
will trade following the announcement or merger completion.
The consideration to be offered to Golden West shareholders in
the merger and other terms of the merger were determined through
arms’-length negotiations between Golden West and Wachovia
and were approved by the Golden West board of directors. Lehman
Brothers provided advice to Golden West during those
negotiations. However, Lehman Brothers did not recommend any
specific price per share or other form of consideration to
Golden West or that any specific price per share or other form
of consideration constituted the only appropriate consideration
for the merger. The opinion of Lehman Brothers was one of many
factors taken into consideration by the Golden West board of
directors in making its determination to approve the merger. The
analyses of Lehman Brothers summarized above should not be
viewed as determinative of the opinion of the Golden West board
of directors with respect to the value of Golden West or
Wachovia or of whether the Golden West board of directors would
have been willing to agree to a different price per share or
other forms of consideration.
The Golden West board of directors selected Lehman Brothers as
its financial advisor because of Lehman Brothers’
reputation as an internationally recognized investment banking
and advisory firm with substantial experience in transactions
similar to the merger and because Lehman Brothers is familiar
with Golden West and its business. As part of its investment
banking and financial advisory business, Lehman Brothers is
continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes.
Lehman Brothers provides a full range of financial advisory and
securities services. Lehman Brothers has provided financial
advisory, investment banking and other financing services for
Golden West and Wachovia in the past and has received customary
fees for those services. Lehman Brothers may also provide such
services to Golden West or Wachovia in the future for which it
would expect to receive fees. In the ordinary course of its
business, Lehman Brothers may actively trade in the securities
of Golden West or Wachovia for its own account or for the
accounts of its customers and, accordingly, may at any time hold
or short positions in those securities.
Pursuant to an engagement letter between Golden West and Lehman
Brothers, Golden West agreed to pay a fee, the substantial
portion of which is payable upon merger completion. Golden West
paid Lehman Brothers a fee of $2.5 million when the merger
was publicly announced and has agreed to pay Lehman Brothers an
additional fee of $15.5 million contingent on the closing
of the merger. Golden West also agreed to reimburse Lehman
Brothers for its reasonable out of pocket expenses incurred in
connection with the engagement and to indemnify Lehman Brothers
and its related parties from and against certain liabilities,
including liabilities under the federal securities laws.
The following discussion describes the material provisions of
the merger agreement and the voting agreements. We urge you to
read the merger agreement and the form of voting agreement,
which are attached as Appendix A and incorporated by
reference into this document, carefully and in their entirety.
This summary may not contain all of the information about the
merger agreement that is important to you. You are encouraged to
carefully read the merger agreement in its entirety. The merger
agreement has been included to provide you with information
regarding its terms. It is not intended to provide any other
factual information about Wachovia or Golden West.
The representations and warranties described below and
included in the merger agreement were made by each of Wachovia
and Golden West to the other. These representations and
warranties were made as of specific dates and are subject to
important exceptions, limitations and supplemental information
contained in the confidential disclosure letters provided by
each of Wachovia and Golden West to the other in connection with
the signing of the merger agreement, including a contractual
standard of materiality different from that generally applicable
under federal securities laws. In addition, the representations
and warranties may have been included in the merger agreement
for the purpose of allocating risk between Wachovia and Golden
West, rather than to establish matters as facts. Accordingly,
you should not rely on the representations and warranties in the
merger agreement as characterizations of the actual state of
facts about Wachovia or Golden West, and you should read the
information provided elsewhere in this joint proxy
statement-prospectus and in the documents incorporated by
reference into this joint proxy statement-prospectus for
information regarding Wachovia and Golden West and their
respective businesses. See “Where You Can Find More
Information”.
Subject to the terms and conditions of the merger agreement, and
in accordance with North Carolina and Delaware law, at merger
completion, Golden West will merge with and into the merger
subsidiary, a wholly-owned subsidiary of Wachovia. The merger
subsidiary will be the surviving corporation and will continue
its corporate existence under the laws of North Carolina as a
wholly-owned subsidiary of Wachovia. When the merger is
completed, the separate corporate existence of Golden West will
terminate. The merger subsidiary’s articles of
incorporation will be the articles of incorporation of the
combined company, and the merger subsidiary’s by-laws will
be the by-laws of the combined company. See “Comparison of
Shareholder Rights”. After merger completion, former Golden
West shareholders will own approximately 17% of the outstanding
common stock of Wachovia and current Wachovia shareholders will
own approximately 83% of the outstanding common stock of
Wachovia.
When the merger is completed, two current members of Golden
West’s board of directors will be appointed to
Wachovia’s board of directors. The members of
Wachovia’s board of directors at merger completion will
serve as directors until their respective successors are duly
elected and qualified in accordance with Wachovia’s
articles of incorporation, Wachovia’s by-laws and
applicable law. Non-employee members of Golden West’s board
of directors who are added to Wachovia’s board of directors
will receive customary fees from Wachovia for being a director
in accordance with Wachovia’s current policy.
Wachovia’s current policy provides for an annual retainer
of $70,000 for non-employee directors and an annual contribution
to the Deferred Compensation Plan for Non-Employee Directors
common stock equivalent account of $150,000. If more than six
board or committee meetings are held in an annual period,
directors receive an additional $2,000 for each board meeting
attended and $1,500 for each committee meeting attended. The
chair of each committee receives an annual fee of $15,000,
except for the chair of the Audit Committee and Wachovia’s
Lead Independent Director who each receive an annual fee of
$25,000.
Wachovia’s current Chairman, President and Chief Executive
Officer, G. Kennedy Thompson, will continue to be a member of
Wachovia’s board of directors, as well as its Chairman,
President and Chief Executive Officer.
Wachovia Common Stock. Each share of Wachovia common
and preferred stock outstanding at the time of the merger will
remain outstanding and those shares will be unaffected by the
merger.
Golden West Common Stock. In the merger, Golden West
shareholders have the right to receive, with respect to 77% of
their shares of Golden West common stock, 1.365 shares of
Wachovia common stock for each such share (with the appropriate
number of attached stock purchase rights under Wachovia’s
shareholder rights plan) and, with respect to the remaining 23%
of their shares of Golden West common stock, $81.07 for each
such share. This is equivalent to the right to receive
approximately 1.051 shares of Wachovia common stock and
approximately $18.65 in cash for each share of Golden West
common stock. See “Description of Wachovia Capital
Stock—Shareholder Protection Rights Plan” for a
description of the stock purchase rights under Wachovia’s
shareholder rights plan. This exchange ratio for the stock
portion of the consideration is subject to customary and
proportionate adjustments in the event of stock splits, reverse
stock splits or similar events with respect to Wachovia common
stock before the merger is completed.
For example, if you own 100 shares of Golden West common
stock immediately prior to the merger, when the proposed merger
is completed, you will receive:
•
105 Wachovia common shares;
•
$1,864.61 in cash; and
•
for the fractional Wachovia common share, cash equal to 0.105
(the remaining fractional interest in a Wachovia common share)
multiplied by the average of the NYSE closing price per Wachovia
common share on the 10 trading days before the merger completion
date.
Wachovia Stock Options. Each employee option to
acquire Wachovia common stock that is outstanding and
unexercised immediately prior to merger completion will continue
on the same terms and conditions in effect immediately prior to
merger completion.
Golden West Stock Options. Each employee option to
acquire Golden West common stock outstanding and unexercised
immediately prior to merger completion will vest in full at the
time of the merger (to the extent unvested) and be converted
into an option to purchase Wachovia common stock, with the
following adjustments:
•
the number of shares of Wachovia common stock subject to the new
option will equal the product of the number of shares of Golden
West common stock subject to the original option multiplied by
1.365 (rounded down to the nearest whole share); and
•
the exercise price per share of Wachovia common stock subject to
the new option will equal the quotient of the exercise price
under the original option divided by 1.365 (rounded up to the
nearest cent).
This 1.365 exchange ratio is the same ratio for converting
Golden West shares into Wachovia shares in the merger. This
1.365 ratio is subject to customary and proportionate
adjustments in the event of stock splits, reverse stock splits
or similar events before the merger is completed. Wachovia
agreed in the merger agreement that each unvested option to
purchase Golden West common stock will vest in full at the time
of the merger. The duration and other terms of each converted
option will be substantially the same as the original Golden
West option, except that options will be generally exercisable
for up to 120 days after termination of employment or for
the remainder of the original option term, whichever is shorter.
Options that are incentive stock options under the Internal
Revenue Code will be adjusted in the manner prescribed by the
Internal Revenue Code.
Wachovia will take the corporate actions that are necessary to
reserve a sufficient number of shares of its common stock for
issuance upon exercise of the new options. In addition, it will
file appropriate registration statements with the SEC to
register the shares of its common stock underlying the new
options.
Fixed Exchange Ratio Considerations. Because the
exchange ratio with respect to the number of shares of Wachovia
common stock to be issued as merger consideration is fixed and
because the market price of Wachovia common stock will
fluctuate, the market value of the Wachovia common stock that
Golden West shareholders will receive in the merger may increase
or decrease both before and after the merger. However, the cash
payment that holders of Golden West common stock will receive as
merger consideration will not change. Based on the closing price
of Wachovia common stock on May 5, 2006, the last trading
day before we announced the execution of the merger agreement,
approximately 77% of the value of the merger consideration was
composed of Wachovia common stock and approximately 23% of the
value of the merger consideration was composed of cash. The
percentage of this allocation will fluctuate prior to the merger
as the price of Wachovia common stock fluctuates.
Fixed exchange ratios, with no “collars”, are
frequently used in mergers involving financial institutions.
Such exchange ratios fix the percentage ownership of the parties
in the combined company at the time the merger agreement is
signed and symmetrically allocate the risks associated with
movements in the price of the issuer’s stock. The use of a
fixed exchange ratio is intended to capture the relative
contribution of each company based on fundamental financial
factors. In this respect, fixed exchange ratios reflect the
intention to share risk and rewards generally presumed in
stock-for-stock
merger transactions such as our proposed merger.
Wachovia and Golden West believe that a fixed exchange ratio is
appropriate in view of the long-term strategic purposes of the
merger, including the goal to combine our companies into a
platform that creates an opportunity for continued strong
earnings growth. While a fixed exchange ratio exposes the
recipient shareholders to a decline in nominal value if the
price of the issuer’s stock falls in the period between
announcement and closing, it also recognizes that
Wachovia’s ultimate value will not be determined by
movements in each party’s stock price between announcement
and closing, but by Wachovia’s performance over time.
Wachovia and Golden West believe that concerns about short-term
market fluctuations generally should not outweigh judgments
about longer-term value.
Exchange Procedures. At merger completion, Wachovia
will deposit with an exchange agent, which will be American
Stock Transfer & Trust Company, or another bank or
trust company reasonably acceptable to each of Wachovia and
Golden West, (1) certificates or, at Wachovia’s
option, evidence of shares in book entry form, representing the
shares of Wachovia common stock to be issued under the merger
agreement and (2) sufficient cash to make the equivalent
$18.65 per share cash payment (i.e., $81.07 times
23%) as well as cash to be paid instead of any fractional shares
of Wachovia common stock to be issued under the merger agreement.
Promptly after merger completion, Wachovia will mail a
transmittal letter to Golden West shareholders. The transmittal
letter will contain instructions about the surrender of Golden
West common stock certificates for statements indicating book
entry ownership of Wachovia common stock, the equivalent $18.65
per share cash payment (i.e., $81.07 times 23%) and any
cash to be paid instead of fractional shares of Wachovia common
stock. Golden West shareholders may request in the transmittal
letter to receive a Wachovia stock certificate instead of a
statement indicating book entry ownership of Wachovia common
stock.
Golden West common stock certificates should not be returned
with the enclosed proxy card. They should not be forwarded to
the exchange agent unless and until you receive a transmittal
letter following merger completion.
If, after May 7, 2006 and prior to the date the merger
closes, any holder of record of Golden West common stock
transfers, in one or more transactions, a number of shares of
Golden West common stock to one or more “charitable
organizations” (as defined in Section 170(c) of the
Internal Revenue Code), such that the aggregate number of shares
transferred represents more than 0.1% of the issued and
outstanding shares of Golden West common stock as of May 7,2006, then such transferor and transferee may jointly and
irrevocably elect on the transmittal letter that the transferor
and transferee are to be treated as though they were a single
holder of record for the purposes of receiving shares of
Wachovia common stock and the per share cash payment and any
cash to be paid instead of fractional shares of Wachovia common
stock, for their shares of
Golden West common stock. The transferor and transferee may
specify in the transmittal letter the manner in which the
aggregate shares of Wachovia common stock and the aggregate cash
payment shall be allocated between the transferor and transferee.
Golden West common stock certificates presented for transfer
after merger completion will be canceled and exchanged for, in
addition to the equivalent $18.65 per share cash payment
(i.e., $81.07 times 23%), statements indicating book
entry ownership of Wachovia common stock or, if requested by a
Golden West shareholder in the transmittal letter, stock
certificates representing the applicable number of shares of
Wachovia common stock. Any Golden West shareholder requesting
that shares of Wachovia common stock be issued in a name other
than that in which the certificate being surrendered is
registered will have to pay to the exchange agent in advance any
transfer taxes that may be owed.
After the merger, there will be no transfers of shares of Golden
West common stock on the stock transfer books of Golden West or
the surviving corporation.
All shares of Wachovia common stock into which shares of Golden
West common stock are converted on the merger completion date
will be deemed issued as of that date. After that date, former
Golden West shareholders of record will be entitled to vote, at
any meeting of Wachovia shareholders having a record date on or
after the merger completion date, the number of whole shares of
Wachovia common stock into which their shares of Golden West
common stock have been converted, regardless of whether they
have surrendered their Golden West stock certificates. Wachovia
dividends having a record date on or after the merger completion
date will include dividends on Wachovia common stock issued to
Golden West shareholders in the merger. However, no dividend or
other distribution payable to the holders of record of Wachovia
common stock after the merger completion date will be
distributed to the holder of any Golden West common stock
certificates until that holder physically surrenders all of his
or her Golden West common stock certificates as described above.
Promptly after surrender, statements indicating book entry
ownership of Wachovia common stock or, if requested by a Golden
West shareholder in the transmittal letter, stock certificates
to which that holder is entitled, all undelivered dividends and
other distributions, the equivalent $18.65 per share cash
payment (i.e., $81.07 times 23%) and cash to be paid
instead of any fractional shares of Wachovia common stock, if
applicable, will be delivered to that holder, in each case
without interest.
No Fractional Shares Will Be Issued. Wachovia
will not issue fractional shares of Wachovia common stock in the
merger. There will be no dividends or voting rights with respect
to any fractional common shares. For each fractional share of
common stock that would otherwise be issued, Wachovia will pay
cash in an amount equal to the fraction of a whole share that
would otherwise have been issued, multiplied by the average
closing sale price of Wachovia common stock on the NYSE for the
ten NYSE trading days immediately preceding the date the merger
is completed. No interest will be paid or accrued on the cash.
None of Wachovia, Golden West or any other person will be liable
to any former holder of Golden West common stock for any amount
properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
Lost, Stolen or Destroyed Golden West Common Stock
Certificates. Golden West shareholders who have lost a
certificate representing Golden West common stock, or whose
certificate has been stolen or destroyed, will be issued the
Wachovia common stock payable under the merger agreement once
such shareholder posts a bond in a customary amount to protect
against any claim that may be made against Wachovia about
ownership of the lost, stolen or destroyed certificate.
No Transfer by Wachovia Shareholders
Required. Wachovia shareholders will not be required to
exchange certificates representing their shares of Wachovia
common stock or otherwise take any action after merger
completion. Wachovia shareholders do not need to submit share
certificates for Wachovia common stock to Wachovia, Golden West,
the exchange agent or to any other person in connection with the
merger.
For a description of Wachovia common stock and a description of
the differences between the rights of Golden West shareholders
and Wachovia shareholders, see “Description of Wachovia
Capital Stock” and “Comparison of Shareholder
Rights”.
The effective time of the merger will be the time set forth in
the legal documents that we will file with the Secretaries of
State of the States of North Carolina and Delaware on the date
the merger is completed. We plan to complete the merger on the
third business day after the satisfaction or waiver, where
waiver is legally permissible, of the last remaining condition
to the merger unless we agree to another date or time. See
“—Conditions to Completion of the Merger”.
We anticipate that we will complete the merger during the fiscal
quarter ending December 31, 2006. However, completion could
be delayed if there is a delay in obtaining the necessary
regulatory approvals or for other reasons. There can be no
assurances as to if or when these approvals will be obtained or
as to whether or when the merger will be completed. If we do not
complete the merger by March 31, 2007, either party may
terminate the merger agreement without penalty unless the
failure to complete the merger by this date is due to the
failure of the party seeking to terminate the merger agreement
to perform or observe its obligations under the merger
agreement. See “—Conditions to Completion of the
Merger” and “—Regulatory Approvals Required for
the Merger”. In some cases, Golden West’s obligation
to pay Wachovia the $995 million termination fee upon the
occurrence of specified events may continue for a period of time
after termination of the merger agreement. The termination fee
is described under “—Termination Fee”.
agreements, instruments, judgments, orders or other obligations
of each party;
•
governmental approvals;
•
regulatory investigations and orders;
•
each party’s status under applicable federal banking
regulations;
•
each party’s financial statements and filings with the SEC;
•
the absence of any liabilities outside the ordinary course of
business, any material changes in each party’s business,
and any events which would have a material adverse effect since
December 31, 2005;
•
the absence of undisclosed legal proceedings and injunctions
since December 31, 2005;
•
the filing and accuracy of each party’s tax returns, and
the tax treatment of the merger;
•
each party’s employee benefit plans and related matters;
•
each party’s compliance with applicable law;
•
the validity of, and the absence of material defaults under,
each party’s material contracts;
the inapplicability to the merger of state anti-takeover laws
and the anti-takeover provisions in each party’s respective
articles/certificate of incorporation and by-laws;
•
each party’s relationships with financial advisors;
•
each party’s compliance with the Sarbanes-Oxley Act of 2002;
•
labor law matters; and
•
environmental law matters.
Wachovia also represented to Golden West as to:
•
having sufficient funds to pay the equivalent $18.65 per
share cash payment (i.e., $81.07 times 23%) on the date
the merger is completed;
•
the corporate organization and existence of the merger
subsidiary, the wholly-owned subsidiary of Wachovia into which
Golden West will merge;
•
the merger subsidiary’s capitalization;
•
the merger subsidiary’s conduct of business; and
•
the merger subsidiary’s authority to enter into the merger
agreement and make it valid and binding.
Golden West has agreed, except as expressly contemplated by the
merger agreement or as disclosed prior to the signing of the
merger agreement, that it will not and will cause each of its
subsidiaries not to, and will not agree to, without
Wachovia’s consent:
•
conduct its business other than in the ordinary and usual course;
•
fail to use reasonable best efforts to preserve intact its
business organizations, assets and other rights, and its
existing relations with customers, and other parties;
•
take any action reasonably likely to impair materially its
ability to perform its obligations under the merger agreement or
complete the transactions described in those documents;
•
enter into any new material line of business or change its
material banking and operating policies;
•
adjust, split, combine, redeem, reclassify, purchase or
otherwise acquire any of its own stock;
•
declare or pay any dividend or distribution on any shares of its
stock, other than:
•
regular quarterly dividends on its common stock at the same rate
paid by it in the fiscal quarter immediately preceding signing
of the merger agreement, and
•
dividends paid by any of its wholly-owned subsidiaries to it or
any of its wholly-owned subsidiaries;
•
with limited exceptions, permit any additional shares of stock
to become subject to new grants of rights to acquire stock;
•
issue, sell, or dispose of or encumber or pledge, or authorize
or propose the creation of, any additional shares of capital
stock;
•
sell, transfer, mortgage, encumber or otherwise dispose of or
discontinue any assets, deposits, business or properties, except
in a nonmaterial transaction in the ordinary course of business
consistent with past practice;
•
acquire the assets, business, deposits or properties of any
other entity in an amount that is material to Golden West except
in various specified transactions in the ordinary course of
business consistent with past practice;
knowingly take, or knowingly omit to take, any action that is
reasonably likely to impede the merger from qualifying as a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, or any action that is reasonably likely
to result in any of the conditions to the merger not being
satisfied in a timely manner, except as may be required by
applicable law or regulation;
change its accounting principles, practices or methods, except
as required by GAAP or applicable regulatory accounting
requirements;
•
enter into, amend, modify or renew any employment agreements or
grant salary increases or employee benefit increases except as
required by applicable law, to satisfy previously existing and
disclosed contractual obligations or for certain changes that
are in the ordinary course of business consistent with past
practice; or
•
enter into, establish, adopt or amend any employee benefit
plans, except as required by applicable law, to satisfy
previously existing and disclosed contractual obligations or for
any amendments that do not increase benefits or administrative
costs.
Wachovia has agreed, except as expressly contemplated by the
merger agreement or as disclosed prior to signing the merger
agreement, that it will not, and will not agree to, without
Golden West’s consent:
•
knowingly take, or knowingly omit to take, any action that is
reasonably likely to impede the merger from qualifying as a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, or any action that is reasonably likely
to result in any of the conditions to the merger not being
satisfied in a timely manner, except as may be required by
applicable law or regulation; or
•
amend its articles of incorporation or by-laws in a manner that
would materially and adversely affect the rights and privileges
of holders of Wachovia’s common stock or prevent or
materially delay completion of the transactions described in the
merger agreement.
In addition, Wachovia may repurchase shares of its common stock
in accordance with applicable legal guidelines. The actual
amount of shares repurchased will depend on various factors,
including: market conditions; legal limitations and
considerations affecting the amount and timing of repurchase
activity; the company’s capital position; internal capital
generation; and alternative potential investment opportunities.
Federal law prohibits Wachovia and Golden West from purchasing
shares of Wachovia common stock from the date this joint proxy
statement-prospectus is first mailed to shareholders until
completion of the Golden West special meeting of shareholders.
From January 1, 2006 to July 21, 2006, Wachovia has
repurchased approximately 66.1 million shares of Wachovia
common stock, and approximately 18.5 million of such repurchases
have occurred since May 7, 2006, the day we announced the
execution of the merger agreement. All such repurchases were
conducted in accordance with applicable laws, including
Rule 10b-18
of the Exchange Act. From January 1, 2006 to July 21,2006, Golden West has not repurchased any shares of Golden West
common stock or any shares of Wachovia common stock.
Golden West has agreed that it will not initiate, solicit,
encourage or knowingly facilitate inquiries or proposals with
respect to, or engage in any negotiations concerning, or provide
any confidential or nonpublic information or data to, or have
any discussions with, any person relating to, any acquisition
proposal.
However, if Golden West receives an unsolicited acquisition
proposal and Golden West’s board concludes in good faith
that it constitutes a superior proposal or would reasonably be
likely to result in a superior proposal, Golden West may furnish
nonpublic information and participate in negotiations or
discussions to the extent that its board concludes in good faith
(after considering the advice of outside counsel) that failure
to take those actions would violate its fiduciary duties. Before
providing any nonpublic information, Golden West must enter into
a confidentiality agreement with the third party no less
favorable to it than the confidentiality agreement entered into
by it with Wachovia. While Golden West has the right to enter
into negotiations regarding a superior proposal under the
foregoing circumstances, the merger agreement does not allow
Golden
West to terminate the merger agreement solely because it has
received a superior proposal or entered into such negotiations.
For purposes of the merger agreement, the terms
“acquisition proposal” and “superior
proposal” have the following meanings:
•
The term “acquisition proposal” means, other than the
transactions contemplated by the merger agreement:
•
a tender or exchange offer to acquire more than 15% of the
voting power in Golden West or any of its significant
subsidiaries;
•
a proposal for a merger, consolidation or other business
combination involving Golden West or any of its significant
subsidiaries; or
•
any other proposal to acquire more than 15% of the voting power
in, or more than 15% of the business, assets or deposits of,
Golden West or any of its significant subsidiaries.
•
The term “superior proposal” means a written
acquisition proposal (substituting “25%” for
“15%” in the first and third bullet points above)
which the Golden West board concludes in good faith to be more
favorable from a financial point of view to its shareholders
than the Wachovia merger after:
•
receiving the advice of its financial advisors;
•
taking into account the likelihood and timing of completion of
the proposed transaction; and
•
taking into account legal, financial, regulatory and other
aspects of such proposal.
Golden West has agreed to cease immediately any activities,
negotiations or discussions conducted before the date of the
merger agreement with any other persons with respect to
acquisition proposals and to use reasonable best efforts to
enforce any confidentiality or similar agreement relating to
such acquisition proposals. Golden West has also agreed to
notify Wachovia within one business day of receiving any
acquisition proposal and the substance of the proposal.
In addition, both Wachovia and Golden West have agreed to use
all reasonable best efforts to obtain the required approvals
from our respective shareholders. However, if Golden West’s
board determines in good faith (after consultation with outside
counsel) because of receipt of an acquisition proposal after the
date of the merger agreement that the Golden West board
concludes in good faith constitutes a superior proposal, that to
continue to recommend the merger agreement to its shareholders
would violate its fiduciary duties, it may submit the plan of
merger without recommendation and communicate the basis for its
lack of recommendation to its shareholders. Golden West agreed
that before taking such action with respect to an acquisition
proposal, it will give Wachovia at least five business days to
respond to the proposal and will consider any amendment or
modification to the merger agreement proposed by Wachovia.
In addition to the agreements we have described above, we have
also agreed in the merger agreement to take several other
actions, such as:
•
to use all reasonable best efforts to complete the merger;
•
in the case of Wachovia, to execute supplemental indentures and
other instruments required to assume Golden West’s
outstanding debt, guarantees and other securities;
•
subject to applicable law, to cooperate with each other and to
prepare promptly and file all necessary documentation to obtain
all required permits, consents, approvals and authorizations of
third parties and governmental entities, including this joint
proxy statement-prospectus and the registration statement for
the Wachovia common stock to be issued in the merger;
•
in the case of Golden West, to use reasonable best efforts to
cause each of its affiliate shareholders to deliver to Wachovia
and Golden West a written agreement restricting the ability of
such person to sell
or otherwise dispose of any Wachovia common stock or Golden West
common stock held by that person other than in compliance with
federal securities laws;
•
to provide each other with information concerning our business
and to give each other access to our books, records, properties
and personnel and to cause our subsidiaries to do the same;
•
to keep any non-public information of the other party
confidential;
•
to cooperate on shareholder and employee communications and
press releases;
•
to convene meetings of our respective shareholders as soon as
practicable to consider and vote on the proposed merger;
•
not to take any actions that would cause the transactions
contemplated by the merger agreement to be subject to any
takeover laws or takeover provisions of our articles/certificate
of incorporation or by-laws;
•
to give notice to the other party of any fact, event or
circumstance that is reasonably likely, individually or in the
aggregate, to result in any material adverse effect or that
would cause or constitute a material breach of any of our
respective representations, warranties, covenants or agreements
in the merger agreement;
•
in the case of Wachovia, upon merger completion, to indemnify
and hold harmless all past and present officers, directors and
employees of Golden West and its subsidiaries to the same extent
they are indemnified or have the right to advancement of
expenses under Golden West’s or its subsidiaries’
certificate, by-laws and indemnification agreements and to the
fullest extent permitted by law;
•
in the case of Wachovia, to use reasonable best efforts to
provide directors’ and officers’ liability insurance
for a period of six years after merger completion to the present
and former directors and officers of Golden West or any of its
subsidiaries;
•
in the case of Wachovia, to continue providing benefits coverage
to employees of Golden West that is substantially similar, in
the aggregate, to the benefits coverage currently provided by
Golden West until the benefits transition date when such
employees become participants in replacement Wachovia benefit
arrangements;
•
in the case of Wachovia, following the benefits transition date,
to provide employees from Golden West who become employees of
Wachovia with employee benefit coverage substantially similar to
those provided to similarly situated Wachovia employees;
•
in the case of Golden West, to make modifications to its loan,
litigation and real estate valuation policies that we may
mutually agree upon;
•
to consult each other with respect to the character, amount and
timing of restructuring charges to be taken by each of us in
connection with the transactions contemplated by the merger
agreement, and to take such charges in accordance with GAAP;
•
in the case of Golden West, it may amend supplemental employee
retirement agreements with certain of its employees, and may
also enter into agreements with certain of its employees to
provide for “gross-up” payments to such employees to
the extent they become subject to excise taxes pursuant to
Section 4999 of the Internal Revenue Code; provided that
such payments shall not exceed $20 million in the
aggregate; and
•
in the case of Wachovia, to provide a supplemental severance
pool of $50 million to be allocated by Mr. and
Mrs. Sandler (or his or her designees), in their sole
discretion but subject to applicable law, to former Golden West
employees (other than Mr. and Mrs. Sandler) who
terminate employment with Wachovia within two years of merger
completion.
See also “—Interests of Certain Persons in the
Merger”.
Wachovia’s and Golden West’s obligations to complete
the merger are subject to the satisfaction or written waiver,
where permissible, of a number of conditions including the
following:
•
the applicable shareholder approvals of each company being
obtained;
•
the Wachovia common stock that is to be issued in the merger
must be approved for listing on the NYSE (including shares to be
issued following exercise of the Golden West employee stock
options assumed by Wachovia) and the registration statement
filed with the SEC with this document must be effective;
•
the required regulatory approvals must be obtained (and any
waiting periods required by law must expire) without any
conditions that would reasonably be expected to have a material
adverse effect on the combined company, except that no
conditions that are reasonably consistent with the regulations
or published guidelines as in effect as of May 7, 2006 (or
recent practice prior to May 7, 2006 in connection with
comparable transactions) shall be deemed to have, or reasonably
be expected to have, a material adverse effect;
•
there must be no government action or other legal restraint or
prohibition preventing merger completion;
•
Wachovia must receive an opinion of Sullivan & Cromwell
LLP and Golden West must receive an opinion of Wachtell, Lipton,
Rosen & Katz, each dated as of the date the merger is
completed, that, on the basis of facts, representations and
assumptions set forth in each of these opinions, (1) the
merger will be treated as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and
(2) Wachovia, the merger subsidiary and Golden West will
each be a party to that reorganization within the meaning of
Section 368(b) of the Internal Revenue Code; and
•
the representations and warranties of each party to the merger
agreement must be true and correct, except as would not or would
not reasonably be likely to have a material adverse effect, as
defined in the merger agreement, and the other party to the
merger agreement must have performed in all material respects
all obligations required to be performed by it under the merger
agreement.
No assurance can be provided as to if, or when, the required
regulatory approvals necessary to complete the merger will be
obtained, or whether all of the other conditions to the merger
will be satisfied or waived by the party permitted to do so. As
discussed below, if the merger is not completed on or before
March 31, 2007, either Wachovia or Golden West may
terminate the merger agreement, unless the failure to complete
the merger by that date is due to the failure of the party
seeking to terminate the merger agreement to perform or observe
its covenants and agreements set forth in the merger agreement.
The merger agreement may be terminated at any time before or
after the plan of merger is approved by Wachovia and Golden West
shareholders:
•
by our mutual consent;
•
by either of us if any governmental entity that must grant a
regulatory approval has denied approval of the merger by final
and nonappealable action, but not by a party whose action or
inaction caused or materially contributed to such denial;
•
by either of us if the merger is not completed on or before
March 31, 2007, but not by a party whose action or inaction
caused such delay;
•
by either of us if the other party is in a continuing breach of
a representation, warranty or covenant contained in the merger
agreement, after 60 days’ written notice to the
breaching party, as long as that breach would also allow the
non-breaching party not to complete the merger;
by either of us if the other party’s board of directors
submits the merger agreement or plan of merger to its
shareholders without a recommendation for approval or with
special and materially adverse qualifications on the approval,
or if the other party’s board otherwise withdraws or
materially and adversely modifies its recommendation for
approval or discloses an intention to do so; or
•
by Wachovia (but not by Golden West) if Golden West’s board
recommends an acquisition proposal other than the merger, or if
Golden West’s board negotiates or authorizes negotiations
with a third party regarding an acquisition proposal other than
the merger and those negotiations continue for at least 20
business days, except that negotiations will not include the
request and receipt of information from any person that submits
an acquisition proposal, or discussions regarding such
information for the sole purpose of ascertaining the terms of
the acquisition proposal.
The failure of either Golden West or Wachovia to obtain the
shareholder vote required for the merger will not by itself give
either company the right to terminate the merger agreement. As
long as no other termination event has occurred, both companies
will remain obligated to continue to use their reasonable best
efforts to complete the merger until March 31, 2007, which,
depending on the timing of the failed meeting, could include
calling additional shareholders’ meetings. During this
period the Golden West board of directors cannot recommend or
pursue any other mergers or business combination transactions
unless certain steps have been followed and it is required by
the directors’ fiduciary duties. Any decision by the Golden
West board of directors to withdraw or adversely modify its
recommendation of the merger, or recommend an acquisition
proposal other than the merger, or negotiate or authorize
negotiations with a third party regarding an acquisition
proposal other than the merger will not give Golden West the
right to terminate the merger agreement.
There are certain circumstances in which Golden West will be
required to pay Wachovia a termination fee of $995 million.
This payment is required in the event that:
•
(A) a bona fide competing acquisition proposal for Golden
West has been announced and not withdrawn before the Golden West
shareholder vote, (B) the Golden West shareholders do not
approve the plan of merger contained in the merger agreement at
the Golden West shareholders’ meeting, (C) Wachovia or
Golden West terminates the merger agreement because the merger
is not completed by March 31, 2007, or Wachovia terminates
the merger agreement because the Golden West board submits the
merger agreement to its shareholders without a recommendation
for approval or with special and materially adverse conditions
on such approval, and (D) within 18 months of the date
of termination, an acquisition proposal for Golden West is
completed or an agreement for such acquisition proposal is
executed; or
•
(A) a bona fide acquisition proposal for Golden West has
been announced and not withdrawn, (B) following the
announcement of such acquisition proposal, Golden West has
breached its representations, warranties or covenants under the
merger agreement (in a way that is uncured for 60 days and
that would enable Wachovia not to complete the merger),
(C) Wachovia terminates the merger agreement because of a
breach or because Golden West has held negotiations concerning
an acquisition proposal which are not discontinued within 20
business days or either Wachovia or Golden West terminates the
merger agreement because the merger is not completed by
March 31, 2007, and (D) within 18 months of the
date of termination of the merger agreement, an acquisition
proposal for Golden West is completed or an agreement for such
acquisition proposal is executed,
with the termination fee payable within 5 business days of the
acquisition proposal for Golden West being completed or an
agreement for such proposal is executed.
In addition, the termination fee is payable in the event that:
•
(A) a bona fide acquisition proposal for Golden West has
been announced and not withdrawn, (B) following the
announcement of such acquisition proposal, Golden West has
willfully and materially breached its covenants to use
reasonable best efforts to complete the merger, to recommend
the merger to shareholders, to cooperate in making all required
SEC and regulatory filings or not to solicit an acquisition
proposal, and (C) Wachovia terminates the merger agreement
because Golden West breaches its representations or covenants
(and such breach is uncured for 60 days) or because Golden
West has held negotiations concerning an acquisition proposal
which are not discontinued within 20 business days or either
Wachovia or Golden West terminates the merger agreement because
the merger is not completed by March 31, 2007; or
•
Wachovia terminates the merger agreement because the Golden West
board recommends to its shareholders a competing proposal for
Golden West,
with the termination fee payable on the business day immediately
following the date of termination of the merger agreement.
At any time before merger completion, either of us may, to the
extent legally allowed, waive in writing compliance by the other
with any provision contained in the merger agreement. Subject to
compliance with applicable law, we may amend the merger
agreement by a written agreement at any time before or after
Wachovia or Golden West receive shareholder approval, except
that after the Wachovia shareholders or Golden West shareholders
have given their approval, there may not be any amendment of the
merger agreement that would require the merger to be resubmitted
to Wachovia shareholders or Golden West shareholders.
Wachovia may also change the structure of the merger, as long as
any change does not change the amount or type of consideration
to be received by Golden West shareholders and the holders of
employee options to purchase Golden West common stock, does not
materially delay the timing of merger completion, does not
adversely affect the tax consequences of the merger to Golden
West shareholders and does not cause any of the conditions to
complete the merger to be incapable of being satisfied.
As an inducement to and a condition of Wachovia’s
willingness to enter into the merger agreement, each of
Mr. Sandler, Mrs. Sandler and Mr. Osher, solely
in their respective capacity as a shareholder of Golden West,
entered into a voting agreement. The voting agreements provide,
among other things, that the shares of Golden West common stock
beneficially owned by each of them on May 7, 2006, which
represent an aggregate of approximately 13.5% of the Golden West
shares outstanding as of the record date, will be voted in favor
of the merger agreement and the Wachovia merger at the Golden
West special meeting.
In the voting agreement, each of Mr. Sandler,
Mrs. Sandler and Mr. Osher also agreed that they would
not vote the shares subject to the voting agreement in favor of
any other merger or acquisition transaction other than the
Wachovia merger and that they would not sell or transfer the
shares subject to the voting agreement except to a charitable
organization that also agrees to be bound by the terms of the
voting agreement. They also agreed not to directly or indirectly
solicit any proposals or inquiries for an acquisition
transaction with Golden West or its subsidiaries other than the
Wachovia merger. The voting agreements each terminate on the
earlier to occur of the merger agreement termination or merger
completion.
A copy of the form of voting agreement is attached to the merger
agreement and is set forth in Appendix A of this
joint proxy statement-prospectus. Shareholders are urged to read
the form of voting agreement in its entirety.
We have agreed to use all reasonable best efforts to obtain the
regulatory approvals required for the merger. We refer to these
approvals, along with the expiration of any statutory waiting
periods related to these approvals, as the requisite regulatory
approvals. These include approval from the Federal Reserve Board
and various federal or state regulatory authorities. We have
either filed or intend to complete the filing promptly after the
date of this joint proxy statement-prospectus of applications
and notifications to obtain the requisite regulatory approvals.
The merger cannot proceed in the absence of the requisite
regulatory approvals. We
cannot assure you as to whether or when the requisite regulatory
approvals will be obtained, and, if obtained, we cannot assure
you as to the date of receipt of any of these approvals, the
terms thereof or the absence of any litigation challenging them.
Likewise, we cannot assure you that the DOJ or a state attorney
general will not attempt to challenge the merger on antitrust
grounds, or, if such a challenge is made, as to the result of
that challenge.
We are not aware of any other material governmental approvals or
actions that are required prior to merger completion other than
those described below. We presently contemplate that if any
additional governmental approvals or actions are required, these
approvals or actions will be sought. However, we cannot assure
you that any of these additional approvals or actions will be
obtained.
Federal Reserve Board. The merger is subject to
approval by the Federal Reserve Board under the Bank Holding
Company Act. Wachovia filed the notification to acquire Golden
West on July 7, 2006.
The Federal Reserve Board is prohibited from approving any
transaction under the applicable statutes unless the transaction
can reasonably be expected to produce benefits to the public
that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition,
conflicts of interest, or unsound banking practices. As part of
its evaluation of a proposal under these public interest
factors, the Federal Reserve Board reviews the financial and
managerial resources of the companies involved, the effect of
the proposal on competition in the relevant markets, the record
of the relevant insured depository institutions under the
Community Reinvestment Act and other public interest factors.
The review of these factors relates to both the decision on the
notification and the timing of that decision, as well as any
conditions that might be imposed.
In reviewing the financial and managerial resources of Wachovia
and Golden West and their subsidiary banks, we expect that the
Federal Reserve Board will review the overall capital and safety
and soundness standards established by the Federal Deposit
Insurance Corporation Improvement Act of 1991, as amended, and
the regulations issued under that statute, as well as legal and
regulatory compliance matters. With respect to the effect of the
merger on competition, Wachovia and Golden West have taken a
divestiture requirement into account in planning for the merger,
and although there can be no assurances, we believe that any
divestitures will not have a material negative effect on the
combined company. Under Federal Reserve Board policy, the merger
cannot be completed until there is an executed definitive
agreement for the divestitures, if any are required. Under the
Community Reinvestment Act of 1977, as amended, the Federal
Reserve Board will take into account our records of performance
in meeting the credit needs of the communities, including low-
and moderate-income neighborhoods, served by our companies. Each
of our banking subsidiaries has received either an outstanding
or a satisfactory rating in its most recent Community
Reinvestment Act examinations from its federal regulator with
respect to this criterion.
The Federal Reserve Board will furnish notice and a copy of the
notification for approval of the merger to the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation and any
appropriate state regulatory authorities. These agencies have
30 days to submit their views and recommendations to the
Federal Reserve Board. The Federal Reserve Board is required to
hold a public hearing in the event it receives a written
recommendation of disapproval of the notification from any of
these agencies within this
30-day
period. Furthermore, the Bank Holding Company Act and Federal
Reserve Board regulations require published notice of, and the
opportunity for public comment on, the notification submitted by
Wachovia for approval of the merger, and authorize the Federal
Reserve Board to hold a public hearing or meeting if the Federal
Reserve Board determines that a hearing or meeting would be
appropriate. Any hearing or meeting or comments provided by
third parties could prolong the period during which the
notification is under review by the Federal Reserve Board.
If the DOJ were to commence an antitrust action, that action
would stay the effectiveness of Federal Reserve Board approval
of the merger unless a court specifically orders otherwise. In
reviewing the merger, the DOJ could analyze the merger’s
effect on competition differently than the Federal Reserve
Board, and thus it is possible that the DOJ could reach a
different conclusion than the Federal Reserve Board regarding
the merger’s effects on competition. A determination by the
DOJ not to object to the merger may not prevent the filing of
antitrust actions by private persons or state attorneys general.
Other Regulatory Authorities. Applications or
notifications have been or are being filed with various state
and/or
foreign regulatory authorities and self-regulatory organizations
in connection with acquisitions or changes in control of
subsidiaries of Golden West, including broker-dealers and
insurance subsidiaries, that may be deemed to result from the
merger. In addition, the merger may be reviewed by the attorneys
general in the various states in which Wachovia and Golden West
own banking subsidiaries. These authorities may be empowered
under the applicable state laws and regulations to investigate
or disapprove the merger under the circumstances and based upon
the review provided for in applicable state laws and regulations.
The following summary describes the anticipated material
U.S. federal income tax consequences of the merger to
holders of Golden West common stock. This discussion addresses
only those Golden West shareholders that hold their Golden West
common stock as a capital asset within the meaning of
Section 1221 of the Internal Revenue Code and does not
address all the U.S. federal income tax consequences that
may be relevant to particular Golden West shareholders in light
of their individual circumstances or to Golden West shareholders
that are subject to special rules, such as:
•
financial institutions,
•
investors in pass-through entities,
•
insurance companies,
•
tax-exempt organizations,
•
dealers in securities or currencies,
•
traders in securities that elect to use a mark to market method
of accounting,
•
persons that hold Golden West common stock as part of a
straddle, hedge, constructive sale or conversion transaction,
•
persons who are not citizens or residents of the United
States, and
•
shareholders who acquired their shares of Golden West common
stock through the exercise of an employee stock option or
otherwise as compensation.
The following summary is based upon the Internal Revenue Code,
its legislative history, existing and proposed regulations
thereunder and published rulings and decisions, all as currently
in effect as of the date hereof, and all of which are subject to
change, possibly with retroactive effect. Tax considerations
under state, local and foreign laws, or federal laws other than
those pertaining to the income tax, are not addressed in this
document. Determining the actual tax consequences of the merger
to you may be complex. They will depend on your specific
situation and on factors that are not within our control. You
should consult with your own tax advisor as to the tax
consequences of the merger in your particular circumstances,
including the applicability and effect of the alternative
minimum tax and any state, local or foreign and other tax laws
and of changes in those laws.
Tax Consequences of the Merger Generally. Merger
completion is conditioned on, among other things, the receipt by
each of Golden West and Wachovia of tax opinions from Wachtell,
Lipton, Rosen & Katz and Sullivan & Cromwell
LLP, respectively, that for U.S. federal income tax
purposes (i) the merger will be treated as a reorganization
within the meaning of Section 368(a) of the Internal
Revenue Code, and (ii) Wachovia, the merger subsidiary and
Golden West will each be a party to that reorganization within
the meaning of Section 368(b) of the Internal Revenue Code.
These opinions will be based on certain assumptions and on
representation letters provided by Golden West, the merger
subsidiary and Wachovia to be delivered at the time of closing.
Neither of these tax opinions will be binding on the Internal
Revenue Service. Neither Wachovia nor Golden West intends to
request any ruling from the Internal Revenue Service as to the
U.S. federal income tax consequences of the merger.
If the merger qualifies for U.S. federal income tax
purposes as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, the material
U.S. tax consequences of the merger will be as follows:
•
no gain or loss will be recognized by Wachovia, the merger
subsidiary or Golden West as a result of the merger;
•
gain (but not loss) will be recognized by shareholders of Golden
West who receive shares of Wachovia common stock and cash in
exchange for shares of Golden West common stock pursuant to the
merger, in an amount equal to the lesser of (i) the amount
by which the sum of the fair market value of the Wachovia common
stock and cash received by a shareholder of Golden West exceeds
such shareholder’s basis in its Golden West common stock,
and (ii) the amount of cash received by such shareholder of
Golden West (except with respect to any cash received instead of
fractional share interests in Wachovia common stock, which is
discussed below under “—Cash Received Instead of a
Fractional Share of Wachovia Common Stock”);
•
the aggregate basis of the Wachovia common stock received in the
merger will be the same as the aggregate basis of the Golden
West common stock for which it is exchanged, decreased by the
amount of cash received in the merger and decreased by any basis
attributable to fractional share interests in Wachovia common
stock for which cash is received, and increased by the amount of
gain recognized on the exchange (regardless of whether such gain
is classified as capital gain or as ordinary dividend income, as
discussed below under “—Additional
Considerations—Recharacterization of Gain as a
Dividend”); and
•
the holding period of Wachovia common stock received in exchange
for shares of Golden West common stock will include the holding
period of the Golden West common stock for which it is exchanged.
If Golden West shareholders acquired different blocks of Golden
West common stock at different times or at different prices, any
gain or loss will be determined separately with respect to each
block of Golden West common stock, and the cash and shares of
Wachovia common stock received will be allocated pro rata to
each such block of stock.
Taxation of Capital Gain. Except as described under
“—Additional Considerations—Recharacterization of
Gain as a Dividend” below, gain that Golden West
shareholders recognize in connection with the merger generally
will constitute capital gain and will constitute long-term
capital gain if such shareholders have held (or are treated as
having held) their Golden West common stock for more than one
year as of the date of the merger. For Golden West shareholders
that are non-corporate holders of Golden West common stock,
long-term capital gain generally will be taxed at a maximum
U.S. federal income tax rate of 15%.
Additional Considerations—Recharacterization of Gain as
a Dividend. All or part of the gain that a particular
Golden West shareholder recognizes could be treated as dividend
income rather than capital gain if (i) such Golden West
shareholder is a significant shareholder of Wachovia or
(ii) such Golden West shareholder’s percentage
ownership, taking into account constructive ownership rules, in
Wachovia after the merger is not meaningfully reduced from what
its percentage ownership would have been if it had received
solely shares of Wachovia common stock rather than a combination
of cash and shares of Wachovia common stock in the merger. This
could happen, for example, because of ownership of additional
shares of Wachovia common stock by such Golden West shareholder,
ownership of shares of Wachovia common stock by a person related
to such Golden West shareholder or a share repurchase by
Wachovia from other holders of Wachovia common stock. The IRS
has indicated in rulings that any reduction in the interest of a
minority shareholder that owns a small number of shares in a
publicly and widely held corporation and that exercises no
control over corporate affairs would result in capital gain as
opposed to dividend treatment. Because the possibility of
dividend treatment depends primarily upon such Golden West
shareholder’s particular circumstances, including the
application of certain constructive ownership rules, Golden West
shareholders should consult their own tax advisor regarding the
potential tax consequences of the merger to them.
Cash Received Instead of a Fractional Share of Wachovia
Common Stock. A Golden West shareholder who receives
cash instead of a fractional share of Wachovia common stock will
be treated as having received the fractional share pursuant to
the merger and then as having exchanged the fractional share for
cash in a redemption by Wachovia. As a result, a Golden West
shareholder will generally recognize gain or loss equal to the
difference between the amount of cash received and the basis in
his or her fractional share interest as set forth above. This
gain or loss will generally be capital gain or loss, and will be
long-term capital gain or loss if, as of the effective date of
the merger, the holding period for such shares is greater than
one year. The deductibility of capital losses is subject to
limitations.
We urge you to consult with your own tax advisors about the
particular tax consequences of the merger to you, including the
effects of U.S. federal, state or local, or foreign and
other tax laws.
Backup Withholding and Information
Reporting. Payments of cash to a holder of Golden West
common stock pursuant to the merger may, under certain
circumstances, be subject to information reporting and backup
withholding unless the holder provides proof of an applicable
exemption or furnishes its taxpayer identification number, and
otherwise complies with all applicable requirements of the
backup withholding rules. Any amounts withheld from payments to
a holder under the backup withholding rules are not additional
tax and will be allowed as a refund or credit against the
holder’s U.S. federal income tax liability, provided
the required information is timely furnished to the Internal
Revenue Service.
Wachovia will treat the merger as a purchase by Wachovia of
Golden West under GAAP. Under the purchase method of accounting,
the assets and liabilities of the company not surviving a merger
are, as of merger completion, recorded at their respective fair
values and added to those of the surviving company. Financial
statements of the surviving company issued after merger
completion reflect these values, but are not restated
retroactively to reflect the historical financial position or
results of operations of the company not surviving.
All unaudited pro forma financial information contained in this
joint proxy statement-prospectus has been prepared using the
purchase method to account for the merger. See “Wachovia
and Golden West Unaudited Pro Forma Condensed Combined Financial
Information”. The final allocation of the purchase price
will be determined after the merger is completed and after
completion of a thorough analysis to determine the fair values
of Golden West’s tangible and identifiable intangible
assets and liabilities. In addition, estimates related to
restructuring and merger-related charges are subject to final
decisions related to combining the companies. Accordingly, the
final purchase accounting adjustments, restructuring and
merger-related charges may be materially different from the
unaudited pro forma adjustments presented in this document. Any
decrease in the net fair value of the assets and liabilities of
Golden West as compared to the information shown in this
document will have the effect of increasing the amount of the
purchase price allocable to goodwill.
Wachovia has agreed to use all reasonable best efforts to list
the Wachovia common stock to be issued in the merger on the NYSE
(including shares to be issued following exercise of the Golden
West employee stock options assumed by Wachovia). It is a
condition to merger completion that those shares be approved for
listing on the NYSE, subject to official notice of issuance.
Following the merger, Wachovia expects that its common stock
will continue to trade on the NYSE under the symbol
“WB”.
The merger agreement provides that each party will pay its own
expenses in connection with the merger and the transactions
contemplated by the merger agreement. However, Wachovia and
Golden West will divide equally the payment of all printing
costs, filing fees and registration fees paid to the SEC in
connection with the filing of this document and the payment of
all fees paid for filings with governmental authorities.
Before the merger, Golden West will coordinate with Wachovia the
declaration and payment of regular quarterly cash dividends on
Golden West common stock with the intent that Golden West
shareholders will not receive more than one dividend, or fail to
receive one dividend, for any single quarter.
After the merger, Wachovia’s dividend policy will continue
for the combined company, but this policy is subject to change
at any time. Wachovia paid a dividend of $0.51 per share of
Wachovia common stock in the second quarter of 2006, and Golden
West has declared a dividend of $0.08 per share of Golden
West common stock to be paid in the third quarter of 2006. For
comparison, based on the equivalent 1.051 exchange ratio
(i.e., 1.365 times 77%) and Wachovia’s current
quarterly dividend rate of $0.51 per share, following the
merger, holders of Golden West common stock would receive a
quarterly dividend equivalent to $0.536 per share of Golden
West common stock equivalent (i.e., 1.051 times $0.51).
All dividends on Wachovia common stock will be payable when, as
and if declared by its board of directors out of funds legally
available for the payment of dividends by a North Carolina
corporation. All dividends are also subject to certain legal
limitations under federal banking law.
For further information, please see “Price Range of Common
Stock and Dividends”.
Some of Golden West’s directors and executive officers have
interests in the merger other than their interests as Golden
West shareholders. The Golden West and Wachovia boards were
aware of these different interests and considered them, among
other matters, in adopting the merger agreement and the
transactions it contemplates.
Wachovia Board Positions. When the merger is
completed, two current members of Golden West’s board of
directors will be appointed to Wachovia’s board of
directors. Non-employee members of Golden West’s board of
directors who are added to Wachovia’s board of directors
will receive customary fees from Wachovia for being a director
in accordance with Wachovia’s current policy. See
“Wachovia Board Composition”.
Indemnification and Insurance. The merger agreement
provides that, upon merger completion, Wachovia will, to the
fullest extent permitted by law, indemnify, defend and hold
harmless all present and former directors, officers and
employees of Golden West and its subsidiaries against all costs
and liabilities arising out of actions or omissions occurring at
or before merger completion to the same extent as directors,
officers and employees of Golden West and its subsidiaries are
indemnified or have the right to advancement of expenses under
Golden West’s or its subsidiaries’ certificate of
incorporation and by-laws, any indemnification agreements of
Golden West or its subsidiaries and to the fullest extent
permitted by law.
The merger agreement also provides that for a period of six
years after merger completion, Wachovia will provide
director’s and officer’s liability insurance for the
present and former officers and directors of Golden West with
respect to claims arising from facts or events occurring before
the merger is completed. This director’s and officer’s
liability insurance will contain at least the same coverage and
amounts, and terms and conditions no less advantageous, as
coverage provided by Wachovia in recent, comparable financial
institution acquisitions.
Golden West Stock Options. Employees, including
executive officers, of Golden West have received, from time to
time, grants of stock options under Golden West’s
applicable stock option plans. Under the terms of certain of
these plans, upon a change of control of Golden West, any and
all stock options granted under the plan terminate immediately
prior to the change of control unless the merger agreement
provides that they would continue past the change of control.
The merger agreement provides that the Golden West stock options
will become converted in the merger into stock options to
purchase Wachovia common stock. Each converted option will vest
in full upon merger completion. In connection with the merger,
Wachovia agreed that Golden West could amend the Golden West
stock options to provide an exercise period generally of
120 days following an optionee’s termination of
employment or such shorter period of time as would not violate
the provisions of Section 409A of the Internal Revenue Code and
the regulations thereunder (not to exceed the original stated
term). As of the date of this joint proxy statement-prospectus,
Golden West executive officers
held options to acquire an aggregate of 2,641,950 shares
of Golden West common stock at a weighted average exercise price
of $24.72. Non-employee directors of Golden West have not
received, and do not own, Golden West stock options.
Golden West Supplemental Employee Retirement
Agreements. Golden West is party to supplemental
employee retirement agreements with certain employees, including
executive officers. Wachovia will assume the obligations of
those agreements following the merger. In the merger agreement,
Wachovia agreed that Golden West may amend the supplemental
employee retirement agreements to provide that (i) the
vesting schedule will change so that what took five years to
vest previously will vest in two years under the amended
agreements, (ii) all unvested benefits will vest on the
date on which the employee dies or is disabled, and
(iii) all unvested benefits will vest if, during the
four-year period after the merger completion date, employment is
terminated (A) by the employer for a reason other than for
cause or (B) by the employee for good reason, and to comply
with Section 409A of the Internal Revenue Code and the
regulations thereunder.
Tax Gross-Ups. Wachovia also agreed that Golden West
could enter into agreements with individuals deemed to be
“disqualified individuals” within the meaning of
Section 280G of the Internal Revenue Code, to provide
additional payments to make such individuals whole on an
after-tax basis from any taxes imposed on them by reason of
Sections 280G and 4999 of the Internal Revenue Code;
provided that the total additional payments under any
gross-up
agreements will not be more than $20 million.
Senior Executive Officers of Golden West. The senior
executive officers of Golden West, referred to by Golden West as
its Office of the Chairman, consist of Herbert M. Sandler and
Marion O. Sandler (Chairman and Chief Executive Officers),
Russell W. Kettell (President and Chief Financial Officer), and
James T. Judd (Senior Executive Vice President). Mr. and
Mrs. Sandler are the largest individual shareholders of
Golden West, and Messrs. Kettell and Judd are also
shareholders of Golden West. The members of the Office of the
Chairman do not have any employment agreements or other
arrangements with Golden West that would entitle them to
severance payments or additional benefits upon a change of
control of Golden West. Mr. and Mrs. Sandler do not
participate in the supplemental employee retirement agreements
extended by Golden West to some of its key employees.
Messrs. Kettell and Judd do participate in these
supplemental employee retirement agreements, but the benefits to
them under their respective agreements have already fully
vested, and the merger will not result in them receiving any
additional consideration from Golden West beyond that to which
they have already become entitled.
The members of the Office of the Chairman all own stock options
in Golden West. As described elsewhere in this joint proxy
statement-prospectus, the stock options to purchase shares of
Golden West common stock owned by Golden West employees,
including members of the Office of the Chairman, will become
fully vested upon merger completion. As of July 11, 2006:
•
Mr. and Mrs. Sandler each had 655,000 options outstanding,
555,000 of which were already fully vested and the remainder of
which would vest before or upon merger completion;
•
Mr. Kettell had 628,800 options outstanding, 478,800 of
which were already fully vested and the remainder of which would
vest before or upon merger completion; and
•
Mr. Judd had 150,000 options outstanding, all of which
would vest before or upon merger completion.
The target 2006 annual cash compensation (base salary plus
bonus) for Mr. Sandler, Mrs. Sandler and Mr. Judd
is expected to be $1.59 million, $1.59 million and
$940,000, respectively. If completion of the merger were to
occur before year-end, as expected, these officers would not
have an opportunity to earn their incentive bonus, and as a
result, Wachovia has agreed in the merger agreement that Golden
West has the discretion to adjust the salary-bonus mixture of
the total compensation for these executives. However in no event
will this salary-bonus adjustment cause Mr. or Mrs. Sandler
or Mr. Judd to earn total cash compensation from Golden
West in excess of their target cash compensation.
Supplemental Severance Pool. Upon merger completion,
Wachovia will establish and fund a supplemental cash severance
pool in the aggregate amount of $50 million. This
supplemental pool is in addition to the benefits provided under
the Wachovia Corporation Severance Pay Plan to be provided to
former Golden West
employees. Mr. and Mrs. Sandler (or his or her
designees) will each have access to the supplemental pool for a
two-year period following the merger completion date to allocate
supplemental severance pay to former Golden West employees
(other than Mr. and Mrs. Sandler), with such
supplemental severance pay allocations to be in the amounts, at
the times and otherwise upon terms they determine (subject to
compliance with applicable law).
The shares of Wachovia common stock that Golden West
shareholders will own following the merger have been registered
under the Securities Act. As a result, these Wachovia shares may
be traded freely and without restriction by you if you are not
deemed to be an affiliate of Wachovia, Golden West or the
combined company under the Securities Act. An
“affiliate” of Wachovia, Golden West or the combined
company, as defined by the rules under the Securities Act, is a
person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common
control with, Wachovia, Golden West or the combined company, as
the case may be. Persons that are affiliates of Wachovia or
Golden West at the time the merger is submitted for vote of the
Golden West shareholders or of the combined company following
merger completion may not sell their shares of Wachovia common
stock acquired in the merger except pursuant to an effective
registration statement under the Securities Act or an applicable
exemption from the registration requirements of the Securities
Act, including Rules 144 and 145 under the Securities Act.
Affiliates generally include directors, executive officers and
beneficial owners of 10% or more of any class of capital stock.
This joint proxy statement-prospectus does not cover any resale
of Wachovia common stock received in the merger by any person
that may be deemed to be an affiliate of Golden West, Wachovia
or the combined company.
Under applicable North Carolina law, holders of Wachovia capital
stock are not entitled to any appraisal rights in connection
with the merger.
Pursuant to Section 262 of the Delaware General Corporation
Law, or Section 262, holders of shares of Golden West
common stock who do not wish to accept the merger consideration
may dissent from the merger and elect to have the fair value of
their shares of Golden West common stock (exclusive of any
element of value arising from the accomplishment or expectation
of the merger) judicially determined and paid in cash, together
with a fair rate of interest, if any. A Golden West shareholder
may only exercise these appraisal rights by strictly complying
with Section 262.
The following is a brief summary of the statutory procedures to
be followed by holders of Golden West common stock in order to
dissent from the merger and perfect appraisal rights under the
DGCL. This summary is not intended to be complete, and is
qualified in its entirety by reference to the full text of
Section 262, the text of which is attached as
Appendix D to this joint proxy statement-prospectus.
Any holder of Golden West common stock seeking to exercise its
right to dissent from the merger and demand appraisal of its
shares of Golden West common stock, or wishing to preserve its
right to do so, should carefully review Section 262 and is
urged to consult a legal advisor.
All references in Section 262 and in this summary to a
“shareholder” are to the record holder of shares of
Golden West common stock as to which appraisal rights are
asserted. A person having a beneficial interest in shares of
Golden West common stock held of record in the name of another
person, such as a broker or nominee, must act promptly to cause
the record holder to follow properly the steps summarized below
and in a timely manner to perfect appraisal rights.
Under Section 262, if a proposed merger is to be submitted
for approval at a meeting of shareholders, as in the case of
Golden West’s special meeting, Golden West must, not less
than 20 days prior to the special meeting, notify each of
its shareholders entitled to appraisal rights that these
appraisal rights are available and include in the notice a copy
of Section 262. This joint proxy statement-prospectus
constitutes notice to the Golden West shareholders and
Section 262 is attached as Appendix D to this
joint proxy statement-prospectus.
A Golden West shareholder wishing to exercise the right to
demand appraisal under Section 262 must satisfy each of the
following conditions. The shareholder must:
•
deliver a written demand for appraisal of its shares to Golden
West before the taking of the vote with respect to the merger
agreement at the special meeting. This demand will be sufficient
if it reasonably informs Golden West of the shareholder’s
identity and that the shareholder intends thereby to demand the
appraisal of its shares. A proxy or vote against the merger will
not constitute such a demand. The written demand for appraisal
must be in addition to and separate from any proxy the
shareholder delivers or vote the shareholder casts in person;
•
not vote in favor of the merger agreement (voting against,
abstaining from voting or not voting at all will satisfy this
requirement). A vote in favor of the merger agreement, in person
or by proxy, or the return of a signed proxy that does not
contain voting instructions will, unless revoked, constitute a
waiver of the shareholder’s appraisal rights and will
nullify any previously filed written demand for
appraisal; and
•
continue to hold its shares of Golden West common stock from the
date of making the demand through merger completion.
All written demands for appraisal should be mailed or delivered
to:
To be effective, a demand for appraisal rights must be executed
by or for the shareholder of record who held such shares of
Golden West common stock on the date of making the demand, and
who continuously holds such shares through the merger completion
date, fully and correctly, as such shareholder’s name
appears on the stock certificates.
If the shares of Golden West common stock are owned of record by
a person in a fiduciary capacity, such as a trustee, guardian or
custodian, the demand should be executed in that capacity. If
the shares are owned of record by more than one person as in a
joint tenancy or tenancy in common, the demand should be
executed by or on behalf of all of the owners. An authorized
agent, including an agent for two or more joint owners, may
execute a demand for appraisal on behalf of a shareholder;
however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the
agent is acting as agent for such owner or owners. A record
holder, such as a broker, who holds shares as nominee for
several beneficial owners may exercise appraisal rights with
respect to the shares held for one or more beneficial owners
while not exercising these rights with respect to the shares
held for one or more other beneficial owners. In that case, the
written demand should set forth the number of shares as to which
appraisal is sought, and where no number of shares is expressly
mentioned the demand will be presumed to cover all shares held
in the name of the record owner.
Shareholders who hold their shares of Golden West common stock
in brokerage accounts or other nominee forms and who wish to
exercise appraisal rights are urged to consult with their
brokers to determine appropriate procedures for making a demand
for appraisal.
Within 10 days after the date the merger is completed, the
merger subsidiary, as successor to Golden West, will give
written notice that the merger has become effective to each
shareholder who satisfied the requirements of Section 262
and has not voted in favor of adopting the merger agreement.
Within 120 days after the date the merger is completed, the
merger subsidiary, as successor to Golden West, or any
shareholder who has complied with Section 262 and who is
otherwise entitled to appraisal rights, may file a petition in
the Delaware Court of Chancery, or the Court of Chancery,
demanding a determination of the value of the Golden West common
stock held by all the dissenting shareholders entitled to
appraisal rights. Any dissenting shareholder desiring to file a
petition is advised to file on a timely basis unless the
dissenting shareholder receives notice that another shareholder
of Golden West has already filed a petition. The failure to file
a petition timely could nullify any previous written demand for
appraisal. Notwithstanding the foregoing, at any time within
60 days after the date the merger is completed, any
shareholder shall have the right to withdraw its demand for
appraisal and to accept the merger consideration. Any attempt to
withdraw made more than 60 days after the effectiveness of
the merger will require the written approval of the merger
subsidiary and no appraisal proceeding before the Court of
Chancery as to any shareholder will be dismissed without the
approval of the Court of Chancery, which approval may be
conditioned upon any terms the Court of Chancery deems just. If
the merger subsidiary does not approve a shareholder’s
request to withdraw a demand for appraisal when the approval is
required or if the Court of Chancery does not approve the
dismissal of an appraisal proceeding, the shareholder would be
entitled to receive only the appraised value determined in any
such appraisal proceeding. This value could be higher or lower
than, or the same as, the value of the merger consideration.
Within 120 days after the date the merger is completed, any
shareholder who has complied with Section 262 to that point
in time shall be entitled to receive from the merger subsidiary,
upon written request, a statement setting forth the aggregate
number of shares of Golden West common stock not voted in favor
of the merger agreement and with respect to which demands for
appraisal have been received and the aggregate number of holders
of such shares. Each written statement shall be mailed within
10 days after the shareholder’s written request for
such statement is received by the merger subsidiary or within
10 days after expiration of the period for delivery of
demands for appraisal under Section 262, whichever is later.
If a petition for appraisal is duly filed by a shareholder and a
copy thereof is delivered to the merger subsidiary, the merger
subsidiary shall within 20 days file with the office of the
Register in Chancery a duly verified list containing the names
and addresses of all shareholders who have demanded payment for
their shares and with whom agreement as to the value of their
shares has not been reached by the merger subsidiary. After
notice to shareholders, the Court of Chancery is empowered to
conduct a hearing on the petition to determine those
shareholders who have complied with Section 262 and who
have become entitled to appraisal rights. The Court of Chancery
may require the shareholders who demanded appraisal for their
shares and who hold stock represented by certificates to submit
their stock certificates to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings,
and if any shareholder fails to comply with such direction, the
Court of Chancery may dismiss the proceedings as to such
shareholder.
After determining which shareholders are entitled to an
appraisal, the Court of Chancery will appraise the shares,
determining their fair value exclusive of any element of value
arising from the accomplishment or expectation of the merger,
together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining fair
value and, if applicable, a fair rate of interest, the Court of
Chancery is to take into account all relevant factors, including
the rate of interest which the merger subsidiary would have had
to pay to borrow money during the pendency of the proceeding.
The Court of Chancery will direct the payment of the fair value
of the shares, together with interest, if any, by the merger
subsidiary to the shareholders entitled thereto. Interest may be
simple or compound, as the Court may direct.
The costs of the proceedings may be determined by the Court of
Chancery and taxed upon the parties as the Court of Chancery
deems equitable in the circumstances. However, costs do not
include attorneys’ or expert witness fees. Upon application
of a shareholder, the Court of Chancery may order that all or a
portion of the expenses incurred by any shareholder in
connection with the appraisal proceeding be charged pro rata
against the value of all of the shares entitled to appraisal.
These expenses may include, without limitation, reasonable
attorneys’ fees and the fees and expenses of experts.
Failure to strictly follow the steps required by
Section 262 for perfecting appraisal rights may result in
the loss of appraisal rights, in which event dissenting Golden
West shareholders will be entitled to receive the merger
consideration with respect to their dissenting shares. In view
of the complexity of the provisions of Section 262, any
shareholder considering exercising its appraisal rights under
the Section 262 is urged to consult its own legal advisor.
Wachovia common stock is listed on the NYSE and traded under the
symbol “WB”. The following table shows the high and
low reported closing sales prices per share of Wachovia common
stock on the NYSE composite transactions reporting system, and
the quarterly cash dividends declared per share of Wachovia
common stock for the periods indicated.
Past price performance is not necessarily indicative of likely
future performance. Because market prices of Wachovia common
stock will fluctuate, you are urged to obtain current market
prices for shares of Wachovia common stock.
Wachovia may repurchase shares of its common stock and Golden
West common stock, in accordance with applicable legal
guidelines. The actual amount of shares repurchased will depend
on various factors, including: market conditions; legal
limitations and considerations affecting the amount and timing
of repurchase activity; the company’s capital position;
internal capital generation; and alternative potential
investment opportunities. Federal law prohibits Wachovia and
Golden West from purchasing shares of Wachovia common stock from
the date this joint proxy statement-prospectus is first mailed
to shareholders until completion of the Golden West special
meeting of shareholders. From January 1, 2006 to
July 21, 2006, Wachovia repurchased approximately
66.1 million shares of Wachovia common stock, and
approximately 18.5 million of such repurchases have
occurred since May 7, 2006, the day we announced the
execution of the merger agreement. All such repurchases were
conducted in accordance with applicable laws, including
Rule 10b-18
of the Exchange Act. From January 1, 2006 to July 21,2006, Golden West has not repurchased any shares of Golden West
common stock or any shares of Wachovia common stock.
Golden West common stock is listed on the NYSE and traded under
the symbol “GDW”. The following table shows the high
and low reported closing sales prices per share of Golden West
common stock on the NYSE, and the quarterly cash dividends
declared per share of Golden West common stock for the periods
indicated.
Past price performance is not necessarily indicative of likely
future performance. Because market prices of Golden West common
stock will fluctuate, you are urged to obtain current market
prices for shares of Golden West common stock.
After the merger, Wachovia currently expects to pay (when, as
and if declared by Wachovia’s board of directors out of
funds legally available) regular quarterly cash dividends of
$0.51 per share, in accordance with Wachovia’s current
practice. The timing and amount of future dividends paid by
corporations, including Wachovia and Golden West, is subject to
determination by the applicable board of directors in its
discretion and will depend upon earnings, cash requirements and
the financial condition of the respective companies and their
subsidiaries, applicable government regulations and other
factors deemed relevant by the applicable company’s board
of directors. Various United States federal and state laws limit
the ability of affiliate banks to pay dividends to Wachovia and
Golden West and the same laws will apply to the combined company
following the merger. The merger agreement restricts the cash
dividends that may be paid on Golden West common stock pending
merger completion. See “The Merger Agreement—Conduct
of Business Pending the Merger”. The declaration and
payment of dividends pending the merger is set forth in the
merger agreement. See “The Merger
Agreement—Dividends”.
Moreover, following the merger, the combined company will be
subject to limitations on dividend capacity arising out of
federal banking laws, other laws and debt instruments. See
“Description of Wachovia Capital Stock”.
Wachovia was incorporated under the laws of North Carolina in
1967 and is registered as a financial holding company and a bank
holding company under the Bank Holding Company Act. Prior to our
merger in September 2001 with the former Wachovia Corporation,
Wachovia’s name was “First Union Corporation”.
Wachovia provides a wide range of commercial and retail banking
and trust services through full-service banking offices in
Alabama, California, Connecticut, Delaware, Florida, Georgia,
Maryland, New Jersey, New York, North Carolina, Pennsylvania,
South Carolina, Tennessee, Texas, Virginia and
Washington, D.C. Wachovia also provides various other
financial services, including asset and wealth management,
mortgage banking, credit card, investment banking, investment
advisory, home equity lending, asset-based lending, leasing,
insurance, international and securities brokerage services
through its subsidiaries.
Wachovia’s principal executive offices are located at One
Wachovia Center, Charlotte, North Carolina
28288-0013,
and our telephone number is
(704) 374-6565.
Since the 1985 Supreme Court decision upholding regional
interstate banking legislation, Wachovia has concentrated its
efforts on building a large, diversified financial services
organization, primarily doing business in the eastern region of
the United States. Since November 1985, Wachovia has completed
over 100 banking-related acquisitions.
Wachovia continually evaluates its operations and organizational
structures to ensure they are closely aligned with its goal of
maximizing performance in core business lines. When consistent
with overall business strategy, Wachovia may consider the
disposition of certain assets, branches, subsidiaries or lines
of business. While acquisitions are no longer a primary business
activity, Wachovia continues to explore routinely acquisition
opportunities, particularly in areas that would complement core
business lines, and frequently conducts due diligence activities
in connection with possible acquisitions. As a result,
acquisition discussions and, in some cases, negotiations
frequently take place and future acquisitions involving cash,
debt or equity securities can be expected.
Golden West is a savings and loan holding company, the principal
business of which is the operation of a savings bank business
through its wholly-owned federally chartered savings bank
subsidiary, World Savings Bank, FSB. World Savings Bank has a
wholly-owned subsidiary, World Savings Bank, FSB (Texas) that is
also a federally chartered savings bank. Golden West also has
two subsidiaries, Atlas Advisers, Inc. and Atlas Securities,
Inc., that provide advisory and distribution services to Atlas
Funds, a registered investment company offering 17 no-load
mutual funds.
Headquartered in Oakland, California, Golden West has one of the
most extensive thrift branch systems in the country, with 285
savings branches in 10 states and lending operations in
39 states. Golden West had a total of 10,495 full-time
and 1,109 permanent part-time employees at December 31,2005. Golden West was incorporated under the laws of Delaware in
1959.
At March 31, 2006, Golden West’s consolidated total
assets were approximately $127.6 billion, its consolidated
total deposits were approximately $61.6 billion and its
consolidated total shareholders’ equity was approximately
$9.0 billion.
The principal office of Golden West is located at 1901 Harrison
Street, Oakland, California94612, telephone number
(510) 446-3420.
As a result of the merger, Golden West shareholders will
receive shares of Wachovia common stock. Your rights as
shareholders of Wachovia will be governed by North Carolina law
and the articles of incorporation and by-laws of Wachovia. The
following description of the material terms of Wachovia’s
capital stock, including the common stock to be issued in the
merger, reflects the anticipated state of affairs upon merger
completion. We urge you to read the applicable provisions of
North Carolina law, Wachovia’s articles of incorporation
and by-laws and federal law governing bank holding companies
carefully and in their entirety.
Wachovia is authorized to issue up to 3 billion shares of
common stock, par value
$3.331/3
per share.
Voting and Other Rights. Subject to the rights of
any holders of any class of preferred stock outstanding, holders
of Wachovia common stock will be entitled to one vote per share,
and, in general, a majority of votes cast with respect to a
matter will be sufficient to authorize action upon routine
matters. Directors are to be elected by a plurality of the votes
cast, and Wachovia shareholders do not have the right to
cumulate their votes in the election of directors. In February
2006, Wachovia’s board of directors amended its Corporate
Governance Guidelines to provide for a new policy requiring
directors who receive more votes “withheld” from their
election than “for” their election at a meeting of
shareholders to tender their resignation.
No Preemptive or Conversion Rights. Wachovia common
stock does not entitle its holders to any preemptive rights,
subscription rights or conversion rights.
Assets upon Dissolution. In the event of
liquidation, holders of Wachovia common stock would be entitled
to receive proportionately any assets legally available for
distribution to Wachovia shareholders with respect to shares
held by them, subject to any prior rights of any Wachovia
preferred stock then outstanding.
Distributions. Subject to the rights of holders of
any class of preferred stock outstanding, holders of Wachovia
common stock will be entitled to receive the dividends or
distributions that the Wachovia board of directors may declare
out of funds legally available for these payments. The payment
of distributions by Wachovia will be subject to the restrictions
of North Carolina law applicable to the declaration of
distributions by a corporation. Under North Carolina law, a
corporation may not make a distribution if as a result of the
distribution the company would not be able to pay its debts, or
would not be able to satisfy any preferential rights preferred
shareholders would have if the company were to be dissolved at
the time of the distribution.
Pursuant to an indenture between Wachovia and Wilmington Trust
Company, as trustee, under which some Wachovia junior
subordinated debt securities were issued, Wachovia agreed that
it generally will not pay any dividends on, or acquire or make a
liquidation payment with respect to, any of Wachovia’s
capital stock, including Wachovia common stock, Wachovia
preferred stock and Wachovia class A preferred stock if, at
any time, there is a default under the indenture or a related
Wachovia guarantee or Wachovia has deferred interest payments on
the securities issued under the indenture. In connection with a
corporate reorganization of a Wachovia subsidiary, The Money
Store LLC, Wachovia agreed that it could declare or pay a
dividend on Wachovia common stock only after quarterly
distributions of an estimated $1.8 million have been paid
in full on The Money Store LLC preferred units for each
quarterly period occurring prior to the proposed common stock
cash dividend.
As a bank holding company, Wachovia’s ability to pay
distributions will be affected by the ability of its banking
subsidiaries to pay dividends. The ability of these banking
subsidiaries, as well as Wachovia, to pay dividends in the
future currently is, and could be further, influenced by bank
regulatory requirements and capital guidelines.
Restrictions on Ownership. The Bank Holding Company
Act generally prohibits any company that is not engaged in
banking activities and activities that are permissible for a
bank holding company or a financial holding company from
acquiring control of Wachovia. Control is generally defined as
ownership of 25% or more of the voting stock or other exercise
of a controlling influence. In addition, any existing bank
holding company would require the prior approval of the Federal
Reserve Board before acquiring 5% or more of the
voting stock of Wachovia. In addition, the Change in Bank
Control Act of 1978, as amended, prohibits a person or group of
persons from acquiring “control” of a bank holding
company unless the Federal Reserve Board has been notified and
has not objected to the transaction. Under a rebuttable
presumption established by the Federal Reserve Board, the
acquisition of 10% or more of a class of voting stock of a bank
holding company with a class of securities registered under
Section 12 of the Exchange Act, such as Wachovia, would,
under the circumstances set forth in the presumption, constitute
acquisition of control of the bank holding company.
Antitakeover Provisions. Wachovia’s articles
and by-laws contain various provisions which may discourage or
delay attempts to gain control of Wachovia. Wachovia’s
articles include provisions:
•
classifying the board of directors into three classes, each
class to serve for three years, with one class elected annually;
•
authorizing the board of directors to fix the size of the board
between nine and 30 directors;
•
authorizing directors to fill vacancies on the board occurring
between annual shareholder meetings, except that vacancies
resulting from a director’s removal by a shareholder vote
may only be filled by a shareholder vote;
•
providing that directors may be removed only for a valid reason
and only by majority vote of shares entitled to vote in electing
directors, voting as a single class;
•
authorizing only the board of directors, Wachovia’s
Chairman or President to call a special meeting of shareholders,
except for special meetings called under special circumstances
for classes or series of stock ranking superior to common
stock; and
•
requiring an 80% shareholder vote by holders entitled to vote in
electing directors, voting as a single class, to alter any of
the above provisions.
Wachovia’s by-laws include specific conditions governing
the conduct of business at annual shareholders’ meetings
and the nominations of persons for election as Wachovia
directors at annual shareholders’ meetings.
General. Wachovia is authorized to issue up to
10 million shares of preferred stock, no par value, and
40 million shares of class A preferred stock, no par
value. Wachovia’s board of directors are authorized to
issue preferred stock and class A preferred stock in one or
more series, to fix the number of shares in each series, and to
determine dividend rates, liquidation prices, liquidation rights
of holders, redemption, conversion and voting rights and other
series terms. All shares of each series of Wachovia preferred
stock must be of equal rank and have the same powers,
preferences and rights and are subject to the same
qualifications, limitations and restrictions, except with
respect to dividend rights, redemption prices, liquidation
amounts, terms of conversion or exchange and voting rights.
Shares of Wachovia class A preferred stock rank prior to
Wachovia common stock and on a parity with or junior to (but not
prior to) Wachovia preferred stock or any series thereof, in
respect of the right to receive dividends
and/or the
right to receive payments out of the net assets of Wachovia upon
any involuntary or voluntary liquidation, dissolution or winding
up of Wachovia. Subject to the foregoing, the terms of any
particular series of Wachovia class A preferred stock may
vary as to priority.
In connection with Wachovia’s merger in 2001 with the
former Wachovia Corporation, it issued approximately
97 million shares of Dividend Equalization Preferred
Shares, or DEPs, out of an authorized 500 million DEPs, no
par value. The DEPs were authorized to be issued solely in
connection with that merger and are not available for future
issuance.
Ranking Upon Dividend Declaration and Upon Liquidation or
Dissolution. With regard to the receipt of dividends,
the DEPs rank junior to any class or series of preferred stock
established by Wachovia’s board of
directors and rank equally with Wachovia’s common stock.
With regard to distributions upon liquidation or dissolution of
Wachovia, the DEPs rank junior to any class or series of
preferred stock established by Wachovia’s board of
directors after September 1, 2001 and rank senior to the
common stock for the $0.01 liquidation preference described
below.
Cancellation. DEPs that are redeemed, purchased or
otherwise acquired by Wachovia or any of its subsidiaries will
be cancelled and may not be reissued.
Dividends. Following payment of Wachovia’s
fourth quarter dividend in December 2003, holders of the DEPs
are no longer entitled to receive future dividend payments. This
is because Wachovia paid in excess of $1.20 per share in
dividends in the aggregate over the preceding four quarters.
Assets Upon Dissolution. In the event of
liquidation, holders of DEPs will be entitled to receive, before
any distribution is made to the holders of common stock or any
other junior stock, but after any distribution to any class or
series of preferred stock established by Wachovia’s board
of directors after September 1, 2001, an amount equal to
$0.01 per DEP, together with any accrued and unpaid
dividends (whether or not earned or declared). The holders of
DEPs will have no other right or claim to any of the remaining
assets of Wachovia.
Redemption, Conversion and Exchange. The DEPs are
not convertible or exchangeable. The DEPs may be redeemed, at
Wachovia’s option and with 30 to 60 days prior notice,
after December 31, 2021, for an amount equal to
$0.01 per DEP, together with any accrued and unpaid
dividends.
Voting Rights. Holders of DEPs will not have voting
rights, except those required by applicable law.
Wachovia has a shareholder protection rights plan that could
discourage unwanted or hostile takeover attempts that are not
approved by Wachovia’s board. The rights plan allows
holders of Wachovia common stock to purchase shares in either
Wachovia or an acquiror at a discount to market value in
response to specified takeover events that are not approved in
advance by Wachovia’s board. The rights plan is expected to
continue in effect after the merger as Wachovia’s rights
plan.
The Rights. On December 19, 2000,
Wachovia’s board declared a dividend of one preferred share
purchase right for each Wachovia common share outstanding. The
rights currently trade with, and are inseparable from, the
common stock.
Exercise Price. Each right allows its holder to
purchase from Wachovia one one-hundredth of a Wachovia
participating class A preferred share for $105. This
portion of a preferred share will give the shareholder
approximately the same dividend, voting and liquidation rights
as would one share of common stock.
Exercisability. The rights will not be exercisable
until:
•
10 days after a public announcement by Wachovia that a
person or group has obtained beneficial ownership of 10% or more
of Wachovia’s outstanding common stock; or
•
10 business days after a person or group begins a tender or
exchange offer that, if completed, would result in that person
or group becoming the beneficial owner of 10% or more of
Wachovia’s outstanding common stock.
The date when the rights become exercisable is referred to in
the rights plan as the “separation time”. After that
date, the rights will be evidenced by rights certificates that
Wachovia will mail to all eligible holders of common stock. A
person or member of a group that has obtained beneficial
ownership of 10% or more of Wachovia’s outstanding common
stock may not exercise any rights even after the separation time.
Consequences of a Person or Group Becoming an Acquiring
Person. A person or group that acquires beneficial
ownership of 10% or more of Wachovia’s outstanding common
stock is called an “acquiring person”.
Flip In. Once Wachovia publicly announces that a
person has acquired 10% or more of its outstanding common stock,
Wachovia can allow for rights holders, other than the acquiring
person, to buy
$210 worth of its common stock for $105. This is called a
“flip-in”. Alternatively, Wachovia’s board may
elect to exchange 2 shares of Wachovia common stock
for each right, other than rights owned by the acquiring person,
thus terminating the rights.
Flip Over. If, after a person or group becomes an
acquiring person, Wachovia merges or consolidates with another
entity, or if 50% or more of Wachovia’s consolidated assets
or earning power are sold, all holders of rights, other than the
acquiring person, may purchase shares of the acquiring company
at half their market value.
Wachovia’s board may elect to terminate the rights at any
time before a flip-in occurs. Otherwise, the rights are
currently scheduled to terminate in 2010.
The rights will not prevent a takeover of Wachovia. However, the
rights may cause a substantial dilution to a person or group
that acquires 10% or more of our common stock unless
Wachovia’s board first terminates the rights. Nevertheless,
the rights should not interfere with a transaction that is in
Wachovia’s and its shareholders’ best interests
because the rights can be terminated by the board before that
transaction is completed.
The complete terms of the rights are contained in the
Shareholder Protection Rights Agreement. The foregoing
description of the rights and the rights agreement is qualified
in its entirety by reference to the agreement. A copy of the
rights agreement can be obtained upon written request to
Wachovia Bank, National Association, 301 South College
Street, Charlotte, North
Carolina 28288-0206.
The rights of Wachovia shareholders are governed by the North
Carolina Business Corporation Act, or NCBCA, Wachovia’s
articles of incorporation and by-laws. The rights of Golden West
shareholders are governed by the Delaware General Corporation
Law, or DGCL, Golden West’s certificate of incorporation
and by-laws. After the merger, the rights of Golden West’s
and Wachovia’s shareholders will be governed by the NCBCA
and Wachovia’s articles of incorporation and by-laws. The
following discussion summarizes the material differences between
the rights of Golden West shareholders and the rights of
Wachovia shareholders. We urge you to read Wachovia’s
articles of incorporation, Wachovia’s by-laws, Golden
West’s certificate of incorporation, Golden West’s
by-laws, the NCBCA and the DGCL carefully and in their
entirety.
Wachovia. Wachovia’s articles of incorporation
authorize it to issue up to 3 billion shares of common
stock, par value
$3.331/3
per share, 10 million shares of preferred stock, no-par
value per share, 40 million shares of class A
preferred stock, no-par value per share, and 500 million
DEPs. As of July 11, 2006, there were
1,588,703,209 shares of Wachovia common stock issued and
outstanding, no shares of preferred stock outstanding, and
approximately 96 million shares of DEPs outstanding. See
“Description of Wachovia Capital Stock”.
Golden West. The authorized capital stock of Golden
West consists of 600 million shares of common stock, par
value $0.10 per share, and 20 million shares of
preferred stock, par value $1.00 per share. As of
July 11, 2006, there were 308,969,449 shares of Golden
West common stock issued and outstanding, and no shares of
Golden West preferred stock were outstanding.
Wachovia. Wachovia’s articles of incorporation
provide for Wachovia’s board to consist of not less than
9 nor more than 30 directors. The exact number is
fixed by Wachovia’s board from time to time. After merger
completion, Wachovia’s board of directors will appoint two
additional directors from the current members of Golden
West’s board of directors to Wachovia’s board.
Golden West. Golden West’s by-laws provide for
Golden West’s board to consist of nine directors. This
number may be changed by Golden West’s board of directors
or a majority of Golden West shareholders. The number of
directors of Golden West is currently fixed at nine.
Wachovia. Wachovia’s articles of incorporation
provide that Wachovia’s board is divided into three classes
of directors as nearly equal in number as possible, with each
class being elected to a staggered three-year term. Accordingly,
control of the board of directors of Wachovia cannot be changed
in one year; at least two annual meetings must be held before a
majority of the board of directors may be changed. Holders of
shares of Wachovia common stock do not have the right to
cumulate their votes in the election of directors.
Wachovia’s board will propose at Wachovia’s 2007
annual meeting of shareholders, and recommend for approval,
amendments to Wachovia’s articles of incorporation to
declassify Wachovia’s board of directors. If adopted at the
2007 annual meeting of shareholders, Wachovia directors would
stand for election annually, beginning at Wachovia’s 2008
annual meeting of shareholders. Approval of the amendments to
Wachovia’s articles of incorporation to declassify the
board would require the affirmative vote of at least 80% of
Wachovia’s outstanding shares of common stock.
Golden West. The board of directors of Golden West
is classified into three classes of directors. Each director
serves for a three year term. At each annual shareholders’
meeting, one-third of the board of directors is elected. As a
result, similar to Wachovia, control of the board of directors
of Golden West cannot be changed in one year. A holder of shares
of Golden West common stock has the right to cumulate their
votes in the election of directors and can give one candidate a
number of votes equal to the number of directors to be
elected, multiplied by the number of votes to which that
holder’s shares are entitled, or to distribute votes on the
same principle among as many candidates as the holder wants.
Wachovia. Under NCBCA
Section 55-8-08,
the shareholders may remove one or more directors with or
without cause unless the articles of incorporation provide that
the directors may be removed only for cause. Except for
directors elected under specified circumstances by holders of
any stock class or series having a dividend or liquidation
preference over Wachovia common stock, Wachovia directors may be
removed only for cause and only by a majority vote of the shares
then entitled to vote in the election of directors, voting
together as a single class.
Golden West. The DGCL and Golden West’s
restated certificate of incorporation provide that no director
may be removed from office, by vote or other action by
shareholders or otherwise, except for cause. This removal
requires the affirmative vote of Golden West shareholders who
hold at least a majority of the voting power of Golden
West’s issued and outstanding capital stock that is
entitled to vote for the election of directors.
Wachovia. Under Wachovia’s articles of
incorporation, any vacancy occurring in Wachovia’s board
shall be filled by a majority of the remaining directors unless
the vacancy is a result of the director’s removal by a vote
of the shareholders. In that case, the vacancy may be filled by
a shareholder vote at the same meeting.
Golden West. Any vacancies on Golden West’s
board of directors created by the death, resignation,
retirement, or removal of a director, or the creation of a new
directorship, may be filled only by a majority vote of the
directors remaining in the class in which such vacancy occurs or
by the sole remaining director of that class if one such
director remains, or by the majority vote of the members of the
remaining classes if no such director remains. Shareholders
shall have no right to take action to fill such vacancies. The
new director will serve for the remainder of the unexpired term
of the class of director to which the director has been elected.
Wachovia. Wachovia’s by-laws establish
procedures that shareholders must follow to nominate persons for
election to Wachovia’s board. The shareholder making the
nomination must deliver written notice to Wachovia’s
Secretary between 60 and 90 days before the annual meeting
at which directors will be elected. However, if less than
70 days notice is given of the meeting date, that written
notice by the shareholder must be delivered by the tenth day
after the day on which the meeting date notice was given. Notice
will be deemed to have been given more than 70 days prior
to the meeting if the meeting is called on the third Tuesday of
April. The nomination notice must set forth certain information
about the person to be nominated similar to information required
for disclosure in proxy solicitations for director election
pursuant to Exchange Act Regulation 14A, and must also
include the nominee’s written consent to being nominated
and to serving as a director if elected. The nomination notice
must also set forth certain information about the person
submitting the notice, including the shareholder’s name and
address and the class and number of Wachovia shares that the
shareholder owns of record or beneficially. The meeting chairman
may, if the facts warrant, determine that a nomination was not
made in accordance with Wachovia’s by-law provisions, and
the defective nomination will be disregarded. These procedures
do not apply to any director nominated under specified
circumstances by holders of any stock class or series having a
dividend or liquidation preference over Wachovia common stock.
Golden West. Under Golden West’s by-laws, at
any annual or special meeting of shareholders, persons nominated
for election as directors by shareholders shall be considered
only if advance notice thereof has been timely given and such
nominations are otherwise proper for consideration under
applicable law and Golden West’s restated certificate of
incorporation and by-laws. Notice of the name of any person to
be nominated by any shareholder for election as a director of
Golden West at any meeting of shareholders shall be delivered to
Golden West’s secretary at its principal executive office
not less than 90 nor more than 120 days prior to the
date of the meeting; provided, however, that if the date of the
meeting is first publicly announced or disclosed (in a public
filing or otherwise) less than 70 days prior to the date of
the meeting, such advance notice shall be given not more than
ten days after such date is first so announced or disclosed.
Public notice shall be deemed to have been given more than
70 days in advance of the annual meeting if Golden West
shall have previously disclosed, in its by-laws or otherwise,
that the annual meeting in each year is to be held on a
determinable date or week, unless and until Golden West’s
board determines to hold the meeting on a different date or week.
Any shareholder who gives notice of any such director nomination
shall deliver therewith (i) the text of the proposal to be
presented, (ii) a brief written statement of the reasons
why such shareholder favors the proposal, (iii) such
shareholder’s name and address, (iv) the number and
class of all shares of each class of Golden West’s stock
beneficially owned by such shareholder, and the length of time
those shares have been held, and (v) any material interest
of such shareholder in the proposal (other than as a
shareholder). If a shareholder delivers a notice on behalf of
one or more other beneficial owners, the notice shall also
include the information in items (iii), (iv) and
(v) above with respect to each beneficial owner in the
shareholder group.
Any Golden West shareholder desiring to nominate any person for
election as a director shall also deliver with such notice a
statement in writing setting forth (i) the name, age,
business address, residence, and principal occupation or
employment of the person to be nominated, (ii) the number
and class of all shares of each class of Golden West stock
“beneficially owned” (as defined by applicable
Exchange Act regulation) by such person, and the length of time
those shares have been held, (iii) the information
regarding such person that is required to be disclosed in
solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act, and
required by paragraphs (a), (e) and (f) of
Item 401 of
Regulation S-K
adopted by the SEC, (iv) whether such person would satisfy
the independence standards of the New York Stock Exchange and
other applicable regulations, (v) whether such person has
any affiliation or arrangement with the shareholder or
shareholder group making the nomination, and (vi) such
person’s signed consent to serve as a director of Golden
West if elected.
The person presiding at the meeting, in addition to making any
other determinations that may be appropriate to the conduct of
the meeting, shall determine whether such notice has been duly
given and shall direct that nominees not be considered if such
notice has not been given.
In order to include information with respect to a director
nomination in the proxy statement and form of proxy for an
annual meeting, shareholders must also provide notice as
required by the rules and regulations promulgated under the
Exchange Act.
Wachovia. North Carolina has two anti-takeover
statutes, The North Carolina Shareholder Protection Act and The
North Carolina Control Share Acquisition Act. These statutes
restrict business combinations with, and the accumulation of
shares of voting stock of, certain North Carolina corporations.
In accordance with the provisions of these statutes, Wachovia
elected not to be covered by the restrictions imposed by these
statutes. As a result, these statutes do not apply to Wachovia.
In addition, North Carolina has a Tender Offer Disclosure Act,
which contains certain prohibitions against deceptive practices
in connection with making a tender offer and also contains a
filing requirement with the North Carolina Secretary of State
that has been held unenforceable as to its
30-day
waiting period.
Golden West. Under the DGCL, a corporation is
prohibited from engaging in any business combination with an
interested shareholder or any entity if the transaction is
caused by the interested shareholder for a period of three years
from the date on which the shareholder first becomes an
interested shareholder. There is an exception to the three-year
waiting period requirement if:
•
prior to the shareholder becoming an interested shareholder, the
board of directors approves the business combination or the
transaction in which the shareholder became an interested
shareholder;
upon the completion of the transaction in which the shareholder
became an interested shareholder, the interested shareholder
owns at least 85% of the voting stock of the corporation other
than shares held by directors who are also officers and certain
employee stock plans; or
•
the business combination is approved by the board of directors
and by the affirmative vote of
662/3%
of the outstanding voting stock not owned by the interested
shareholder at a meeting.
The DGCL defines the term “business combination” to
include transactions such as mergers, consolidations or
transfers of 10% or more of the assets of the corporation. The
DGCL defines the term “interested shareholder”
generally as any person who (together with affiliates and
associates) owns (or in certain cases, within the past three
years did own) 15% or more of the outstanding voting stock of
the corporation. A corporation can expressly elect not to be
governed by the DGCL’s business combination provisions in
its certificate of incorporation or bylaws, but Golden West has
not done so.
Golden West’s certificate of incorporation requires the
vote of the holders of 70% of the voting power of the
outstanding voting securities of Golden West to approve a
transaction or a series of transactions with an “interested
shareholder” that would result in Golden West being merged
into or with another corporation or securities of Golden West
being issued in a transaction that would permit control of
Golden West to pass to another entity, or similar transactions
having the same effect. An exception exists in cases in which
either certain price criteria and procedural requirements are
satisfied or the transaction is recommended to the shareholders
by a majority of the members of Golden West’s board of
directors who are unaffiliated with the interested shareholder
and who were directors before the interested shareholder became
an interested shareholder. Golden West’s certificate of
incorporation defines the term “interested
shareholder” generally as a person who is the beneficial
owner, directly or indirectly, of 10% or more of Golden
West’s common stock.
Wachovia. Wachovia has a shareholder protection
rights plan, which will be in effect for the combined company
after the merger. This plan is described above in the section
entitled “Description of Wachovia Capital
Stock—Shareholder Protection Rights Plan”.
Golden West. Golden West does not have a shareholder
protection rights plan.
Wachovia. A special meeting of shareholders may be
called for any purpose only by Wachovia’s board, by
Wachovia’s chairman of the board or by Wachovia’s
president.
Golden West. A special meeting of shareholders may
be called for any purpose only by Golden West’s board or by
Golden West’s chairman of the board.
Wachovia. Wachovia’s by-laws establish
procedures a shareholder must follow to submit a proposal for a
Wachovia shareholder vote at an annual shareholders’
meeting. The shareholder making the proposal must deliver
written notice to Wachovia’s Secretary between 60 and
90 days prior to the meeting. However, if less than
70 days’ notice of the meeting is given, that written
notice by the shareholder must be so delivered not later than
the tenth day after the day on which such meeting date notice
was given. Notice will be deemed to have been given more than
70 days prior to the meeting if the meeting is called on
the third Tuesday of April. The shareholder proposal notice must
set forth:
•
a brief description of the proposal and the reasons for its
submission;
•
the name and address of the shareholder, as they appear on
Wachovia’s books;
•
the classes and number of Wachovia shares the shareholder
owns; and
•
any material interest of the shareholder in that proposal other
than the holder’s interest as a Wachovia shareholder.
The meeting chairman may, if the facts warrant, determine that
any proposal was not properly submitted in accordance with
Wachovia’s by-laws, and the defective proposal will not be
submitted to the meeting for a shareholder vote.
Golden West. Golden West’s by-laws contain
specific provisions relating to shareholder proposals. These are
described above under “—Nomination of Director
Candidates by Shareholders”.
Wachovia. Wachovia’s by-laws provide that
Wachovia must notify shareholders between 10 and 60 days
before any annual or special meeting of the date, time and place
of the meeting. Wachovia must briefly describe the purpose or
purposes of a special meeting or where otherwise required by law.
Golden West. Golden West’s by-laws provide that
Golden West must notify shareholders no less than 10 days
before any annual or special meeting of the time and place of
the meeting and, in the case of a special meeting, shall state
briefly the purposes thereof.
Wachovia. The NCBCA contains specific provisions
relating to indemnification of directors and officers of North
Carolina corporations. In general, the statute provides that:
•
a corporation must indemnify a director or officer who is wholly
successful in his defense of a proceeding to which he is a party
because of his status as a director or officer, unless limited
by the articles of incorporation, and
•
a corporation may indemnify a director or officer if he is not
wholly successful in that defense, if it is determined as
provided in the statute that the director or officer meets a
certain standard of conduct, provided that when a director or
officer is liable to the corporation, the corporation may not
indemnify him.
The statute also permits a director or officer of a corporation
who is a party to a proceeding to apply to the courts for
indemnification unless the articles of incorporation provide
otherwise, and the court may order indemnification under certain
circumstances set forth in the statute. The statute further
provides that a corporation may in its articles of incorporation
or by-laws or by contract or resolution provide indemnification
in addition to that provided by the statute, subject to certain
conditions set forth in the statute. The NCBCA does not permit
eliminating liability with respect to:
•
acts or omissions that the director at the time of the breach
knew or believed were clearly in conflict with the best
interests of the corporation;
•
any liability for unlawful distributions;
•
any transaction from which the director derived an improper
personal benefit; or
•
acts or omissions occurring prior to the date the provisions
became effective.
Wachovia’s by-laws provide for the indemnification of
Wachovia’s directors and executive officers by Wachovia
against liabilities arising out of their status as directors or
executive officers, excluding any liability relating to
activities which were, at the time taken, known or believed by
such person to be clearly in conflict with the best interests of
Wachovia. Wachovia’s articles of incorporation eliminate
personal liability of each Wachovia director to the fullest
extent the NCBCA permits.
Golden West. Under the DGCL, a Delaware corporation
may indemnify directors, officers, employees and other
representatives from liability if the person acted in good faith
and in a manner reasonably believed by the person to be in or
not opposed to the best interests of the corporation, and, in
any criminal actions, if the person had no reason to believe his
action was unlawful. In the case of an action by or on behalf of
a corporation, indemnification may not be made if the person
seeking indemnification is found liable, unless the court in
which the action was brought determines the person is fairly and
reasonably entitled to
indemnification. The indemnification provisions of the DGCL
require indemnification of a director or officer who has been
successful on the merits in defense of any action, suit or
proceeding that he was a party to by reason of the fact that he
is or was a director or officer of the corporation. The
indemnification authorized by the DGCL is not exclusive and is
in addition to any other rights granted under the certificate of
incorporation or by-laws of the corporation or to any agreement
with the corporation. Golden West’s certificate of
incorporation and by-laws provide that Golden West shall
indemnify its directors, officers, employees and other
representatives to the fullest extent permitted by law.
Golden West’s certificate of incorporation provides that a
Golden West director shall not be personally liable to Golden
West or its shareholders for monetary damages for breach of a
fiduciary duty as a director, except for liability:
•
for any breach of the director’s duty of loyalty to Golden
West or its shareholders;
•
for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
•
under Section 174 of the DGCL which involves unlawful
payments of dividends or unlawful stock purchases or
redemptions; or
•
for any transaction from which the director derived an improper
personal benefit.
Golden West has also entered into indemnification agreements
with respect to its directors and certain of its officers.
Wachovia. Under North Carolina law, an amendment to
the articles of incorporation generally requires the board to
recommend the amendment, and either a majority of all shares
entitled to vote thereon or a majority of the votes cast
thereon, to approve the amendment, depending on the
amendment’s nature. In accordance with North Carolina law,
Wachovia’s board may condition the proposed
amendment’s submission on any basis. Under certain
circumstances, the affirmative vote of holders of at least
two-thirds, or in some cases a majority, of the outstanding
Wachovia preferred stock or Wachovia class A preferred
stock is needed to approve an amendment to the articles of
incorporation. In addition, amendments to provisions of
Wachovia’s articles of incorporation or Wachovia’s
by-laws related to the maximum and minimum number of directors,
or the authority to call special shareholders’ meetings,
require the approval of not less than 80% of the outstanding
Wachovia shares entitled to vote in the election of directors,
voting together as a single class. An amendment to
Wachovia’s by-laws generally requires either the
shareholders or Wachovia’s board to approve the amendment.
Wachovia’s board generally may not amend any by-law the
shareholders approve, in addition to the other restrictions
against the board amending the by-laws.
Golden West. Under the DGCL, Golden West’s
board must propose an amendment to Golden West’s
certificate of incorporation, and Golden West’s
shareholders must approve the amendment by a majority of
outstanding shares entitled to vote. Golden West’s
certificate of incorporation provides that it may be amended in
the manner Delaware law prescribes, provided that holders of 70%
of the then-outstanding shares of Golden West capital stock must
approve amendments to certain provisions of Golden West’s
certificate of incorporation relating to business combinations,
the number of directors, and the classified board of directors.
Golden West’s by-laws may be amended by Golden West’s
board or by Golden West’s shareholders.
On May 9, 2006, a purported shareholder class action
lawsuit captioned David Burnett v. Golden West Financial
Corporation et al. was filed in the Superior Court of
the State of California, County of Alameda. This lawsuit
generally alleges a breach of fiduciary duties against all of
Golden West’s directors on the basis of the merger as
proposed and structural flaws in the process leading to the
merger agreement with Wachovia, and an abdication of
directors’ fiduciary duties as a result of entry into the
voting agreements. The lawsuit also alleges a claim of unjust
enrichment against all of Golden West’s directors on the
basis of the benefits the directors will allegedly receive upon
merger completion. The complaint seeks equitable relief:
(i) declaring the merger agreement to have been entered
into in breach of the fiduciary duties of the individual
defendants, and therefore unlawful and unenforceable;
(ii) rescinding, to the extent already implemented, the
merger or any of the terms thereof; (iii) requiring the
defendants to pay the dividend declared on May 4, 2006;
(iv) imposing a constructive trust in favor of the
plaintiff and the class on the alleged millions of dollars of
stock, options and
change-of-control
payments to be provided to certain of the individual defendants
in connection with the merger pending trial; (v) enjoining
the defendants, their agents, employees and all persons acting
in concert with them from completing the merger, unless and
until the defendants provide Golden West shareholders with an
offer that is fair and equitable; (vi) directing the
individual defendants to exercise their fiduciary duties to
obtain a transaction which is in the best interests of Golden
West’s shareholders and implement a process for the sale of
Golden West designed to ensure that the highest price possible
is obtained; and (vii) awarding the plaintiff the costs and
disbursements of the action, including reasonable
attorneys’ and experts’ fees. Golden West believes
that the claims are without merit and intends to vigorously
defend itself against them.
On May 12, 2006, a purported shareholder class action
lawsuit captioned Morton Smith Trust v. Golden West
Financial Corporation et al., was filed in the Superior
Court of the State of California, County of Alameda. This
lawsuit generally alleges a breach of fiduciary duties against
all of Golden West’s directors on the basis of the manner
in which the merger has been proposed and structural flaws in
the process which result in terms preferential to Wachovia and a
subversion of the interests of Golden West shareholders. The
complaint seeks equitable relief: (i) declaring the merger
agreement to have been entered into in breach of the fiduciary
duties of the individual defendants, and therefore unlawful and
unenforceable; (ii) enjoining the defendants, their agents,
employees and all persons acting in concert with them from
completing the merger, unless and until Golden West adopts and
implements a procedure or process to obtain the highest possible
price for shareholders; (iii) directing the individual
defendants to exercise their fiduciary duties to obtain a
transaction which is in the best interests of Golden West’s
shareholders; (iv) rescinding, to the extent already
implemented, the merger or any of the terms thereof;
(v) imposing a constructive trust in favor of the plaintiff
upon any benefits improperly received by defendants as a result
of their wrongful conduct; and (vi) awarding the plaintiff
the costs and disbursements of the action, including reasonable
attorneys’ and experts’ fees. Golden West believes
that the claims are without merit and intends to vigorously
defend itself against them.
The parties to the Burnett and Morton Smith Trust
actions have stipulated to the consolidation of the two actions
in the Superior Court of the State of California, County of
Alameda.
Wachovia currently maintains the Wachovia Corporation 2003 Stock
Incentive Plan, which we refer to as the Stock Incentive Plan.
Under the Stock Incentive Plan, Wachovia initially reserved
130 million shares of Wachovia common stock (plus any
shares that were subject to an award under prior plans which
award is forfeited, cancelled, terminated, expires or lapses for
any reason) for issuance to key employees in the form of stock
options and restricted stock awards, performance shares and
other incentive awards. A significant portion of Wachovia’s
annual stock grants are issued to its investment banking and
capital management executives in lieu of cash compensation.
The Stock Incentive Plan was adopted by Wachovia’s
shareholders at the 2003 annual meeting of shareholders. At the
time of adoption in 2003, Wachovia believed the Stock Incentive
Plan provided adequate shares to sustain anticipated stock award
grants through 2008. However, since that time, Wachovia has
completed significant acquisitions and/or merger transactions
with Prudential Securities, SouthTrust Corporation, Palmer &
Cay, AmNet Mortgage Inc. and Westcorp, and is seeking
shareholder approval of the proposed merger with Golden West.
Despite the increase in Wachovia’s employee population as a
result of these transactions, Wachovia has not increased the
aggregate number of shares of common stock available for
issuance under the plan since the time of its original approval
by shareholders. In addition, Wachovia has not carried over any
shares available for issuance from any of the stock plans
sponsored by these companies, including approximately
25 million shares currently available for issuance under
Golden West’s active stock plans.
Due to Wachovia’s recent and anticipated growth, including
the impact that the merger with Golden West will have on the
aggregate number of Wachovia common shares available for
issuance under the plan, Wachovia believes it is necessary to
amend the Stock Incentive Plan to provide for additional shares
of Wachovia common stock subject to grant under the plan. In
addition, by increasing the number of shares of common stock
available under the Stock Incentive Plan, Wachovia proposes to
extend the term of the plan from 2008 until 2011. Therefore, the
Management Resources & Compensation Committee of
Wachovia’s board of directors, or the Compensation
Committee, has adopted and recommended that Wachovia’s
board of directors adopt, subject to shareholder approval, an
amendment and restatement of the Stock Incentive Plan to
increase the number of shares of Wachovia common stock subject
to the plan by an additional 50 million shares and to
extend the term of the Stock Incentive Plan from April 23,2008 until April 19, 2011. Except where noted below, all
other aspects of the Stock Incentive Plan remain unchanged.
This proposal relates to approval of the Amended and Restated
Wachovia Corporation 2003 Stock Incentive Plan, or the Amended
Plan. The following description of the Amended Plan is a summary
and does not purport to be fully descriptive. The summary is
subject, in all respects, to the terms of the Amended Plan,
which is attached as Appendix E to this joint proxy
statement-prospectus. Information with respect to Executive
Compensation regarding this proposal may be found in
Wachovia’s proxy statement for its 2006 annual meeting of
shareholders filed with the SEC on March 13, 2006.
Information under the caption “Executive Compensation”
beginning on page 22 of such 2006 proxy statement is
incorporated herein by reference. Please see “Where You Can
Find More Information”.
This proposal is being presented to shareholders for approval
both due to NYSE rules and due to certain federal tax laws,
including the Omnibus Budget Reconciliation Act of 1993 and the
applicable regulations promulgated by the Internal Revenue
Service, known as OBRA, in order to preserve federal income tax
deductions with respect to certain executive compensation
payable under the Amended Plan.
In the event the proposal to approve the Amended Plan is not
approved by Wachovia shareholders, Wachovia will continue to use
the Stock Incentive Plan, which will continue in full force and
effect.
Under OBRA, the allowable federal income tax deduction by a
publicly held corporation for compensation paid with respect to
the CEO and the four other most highly compensated executive
officers of that corporation serving as such at the end of the
corporation’s fiscal year is limited to no more than
$1,000,000 per year per officer. Certain types of
compensation, including performance-based compensation, are
generally
excluded from this deduction limit. By approving the Amended
Plan, Wachovia shareholders will be approving, among other
things, the performance measures, eligibility requirements and
limits on stock and cash awards that may be made pursuant to the
Amended Plan.
The primary purposes of the Amended Plan are to:
•
help align employees’ long-term financial interests with
those of shareholders;
•
reinforce a performance-oriented culture and strategy;
•
reward employees for increasing Wachovia’s common stock
price over time;
•
provide significant and sustaining motivation to officers and
key employees to achieve specific goals which are aligned with
shareholders’ interests; and
•
attract, retain and motivate employees.
The Amended Plan, like the Stock Incentive Plan, authorizes the
Compensation Committee to further these purposes by providing
for the grant of stock options, stock appreciation rights, and
other stock awards (including restricted stock and performance
awards) to selected employees, and cash incentive awards to
Wachovia’s executive officers, any of which may be granted
singly, in tandem or in combination with other awards as the
Compensation Committee may determine.
As of July 21, 2006, the closing sale price of Wachovia
common stock on the NYSE was $53.84.
Plan
Features and Grant Practices That Protect Shareholder
Interests
The Amended Plan includes a number of key governance features
intended to protect the interests of shareholders and foster
Wachovia’s
pay-for-performance
culture, including:
•
The additional shares requested, 50 million, reflects a
moderate increase of 2.6% of Wachovia’s pro forma
1.913 billion common shares outstanding upon completion of
the merger with Golden West. As noted above, Wachovia will not
be carrying forward the 25 million shares currently
available under Golden West’s stock plans (which would be
converted into approximately 34.1 million shares based on
the 1.365 exchange ratio in the proposed merger).
•
The Amended Plan, like the Stock Incentive Plan, expressly
prohibits the direct or indirect re-pricing of stock options or
SARs as well as the repurchase of underwater options for cash
without shareholder approval.
•
The Amended Plan will continue to limit the aggregate number of
shares subject to full-value stock awards. Going forward, the
number of shares available for future full-value grants on a
one-share basis will be 43.9 million, which includes the
additional 20 million shares reserved. In the event
Wachovia elects to issue a higher number of full-value stock
awards, those awards will reduce the aggregate number of shares
available under the Amended Plan on a 5:1 basis.
•
The Amended Plan excludes features often referred to as
“liberal share counting” provisions by institutional
investors such as:
•
the “net” counting of options
and/or stock
settled SARs,
•
the “reissuance” of shares tendered or surrendered to
pay the exercise price of options or the tax obligations for
awards, or
•
using proceeds from the exercise of stock options to purchase
shares on the open market to add to the aggregate number of
shares available for issuance under the plan.
Under the Stock Incentive Plan, shares tendered or surrendered
to pay the exercise price of options or the tax withholding
obligations for awards could be reissued although no such shares
have been added back to or included in the available share
reserve under the plan.
The Amended Plan, like the Stock Incentive Plan, does not permit
the issuance of discounted stock options or reload options.
•
The Amended Plan requires stock options, SARs and restricted
shares to have a minimum
3-year
vesting schedule unless the awards are performance-based. Under
the Stock Incentive Plan, stock options and SARs were not
subject to a minimum vesting schedule.
•
The Amended Plan does not allow for the issuance of dividend
equivalents on stock options or SARs and none of Wachovia’s
outstanding options have dividend equivalent rights.
•
The Amended Plan does not provide for the transferability of
awards for cash or other consideration. Transferability is
limited to transfers by will and the laws of descent and
distribution.
•
The Amended Plan, like the Stock Incentive Plan, does not
provide for loans to exercise stock options.
Wachovia also understands the importance that many shareholders
have placed on controlling the annual share usage, or run rate,
from equity-based awards to participants. Therefore, to ensure
alignment with our shareholders’ interests, and assuming
approval of the Amended Plan by Wachovia’s shareholders,
Wachovia’s board of directors intends to establish a
general run-rate limit for new grants of approximately 1.5% of
Wachovia common shares outstanding per year.
Further, to address the issue of the differences in value
between options and full-value grants, and assuming approval of
the Amended Plan by Wachovia’s shareholders,
Wachovia’s board of directors commits that for fiscal years
2007 through 2009, the average annual run rate for new grants
will not exceed 2.46% of Wachovia common shares outstanding,
which is the average run rate plus one standard deviation for
our GICS industry group based on Institutional Shareholder
Services guidelines for the 2006 proxy season. Under this
calculation, awards other than options or SARs will count as
four shares in the calculation.
In addition to the positive plan features above, the Amended
Plan will also be subject to several of Wachovia’s
compensation policies and practices that are designed to
materially align the interests of management with those of
Wachovia’s shareholders and to protect shareholder
interests.
•
Wachovia’s common stock ownership policy for members of the
board of directors and its executive officers requires its
executive officers, including members of the Operating
Committee, to own shares of common stock having a value equal to
five times base salary in the case of the CEO and Chairman, and
four times base salary for all other executive officers.
•
In addition, all of these executives are required to retain
ownership of at least 75% of any common stock acquired by them
through Wachovia stock compensation plans, after taxes and
transaction costs.
•
In 2005, Wachovia expanded its stock ownership policy to the
level of management that reports directly to its executive
officers, requiring that they own shares of common stock having
a value equal to two times base salary, and providing three
years to meet this requirement.
•
Wachovia anticipates that, subject to applicable law and
regulation, it will continue to maintain a general policy of
repurchasing a number of shares of Wachovia common stock at
least equal to the number of shares of Wachovia common stock
issued under the Amended Plan and under other Wachovia stock
option plans to minimize the impact of those issuances on the
percentage ownership of the outstanding shares of common stock
held by the then-existing shareholders of Wachovia.
Shares Available
Under the Stock Incentive Plan as originally adopted, the
aggregate number of shares of common stock that may be issued
could not exceed 130 million shares. As of
July 11, 2006, there is estimated to be remaining under the
Stock Incentive Plan approximately 65.8 million shares of
Wachovia common stock available for awards. The following awards
may be granted under the Amended Plan but will not be included
in calculating the share limitation mentioned above:
•
dividends or dividend equivalents paid in cash in connection
with outstanding awards;
awards which by their terms may be settled only in cash;
•
shares and any awards that are granted through the assumption
of, or in substitution for, outstanding awards previously
granted to employees as the result of a merger, consolidation,
or acquisition of the employing company pursuant to which it is
merged with Wachovia or becomes a subsidiary of Wachovia;
•
any shares that were subject to an award under the Stock
Incentive Plan or other Wachovia stock plans; and which award is
forfeited, cancelled, terminated, expired or lapsed without
settlement.
The Amended Plan differs from the Stock Incentive Plan in that
the Stock Incentive Plan provided that any shares surrendered by
or withheld from a participant to pay the option price for an
option or to satisfy any tax withholding requirement in
connection with the exercise or vesting of an award would also
be available for issuance. To date, no shares have been added
back to the pool of shares available under the Stock Incentive
Plan pursuant to that provision. This provision has been
eliminated in the Amended Plan.
In the event of any change in the outstanding shares of Wachovia
common stock that occurs by reason of a stock dividend, stock
split, recapitalization, merger, consolidation, combination,
exchange of shares or other similar corporate change, the
aggregate number of shares of common stock subject to each
outstanding award under the Amended Plan, and its stated option
price, and the number of shares available for issuance under the
Amended Plan, will be appropriately adjusted. In such event,
appropriate adjustments will also be made in the number and type
of shares subject to any awards then outstanding under the
Amended Plan. In addition, in the event of a change of control
of Wachovia, each outstanding award granted under the Amended
Plan will become immediately exercisable
and/or fully
vested and nonforfeitable, as the case may be, unless the
Compensation Committee provides otherwise.
Under the Amended Plan, all of the foregoing provisions would
continue to apply except that there would be added an additional
50 million shares of Wachovia common stock available for
awards.
Limitations
on Awards
The Stock Incentive Plan and the Amended Plan permit the
following awards, all of which are described in more detail
below:
•
stock options, which can be in the form of incentive stock
options, called ISOs, or non-qualified stock options, called
NQSOs;
•
stock appreciation rights, called SARs;
•
“full-value” awards, which can be in the form of
•
restricted stock awards, called RSAs;
•
restricted stock units, called RSUs;
•
performance stock awards;
•
performance stock units; or
•
other awards based on or with a value tied to shares of Wachovia
common stock; and
•
Operating Committee Incentive Awards (as defined below).
The Stock Incentive Plan and the Amended Plan place important
limits on the types of awards that can be made which, in effect,
emphasizes awards in the form of stock options and restricted
shares to better motivate and retain key employees:
•
If the Amended Plan is approved, there will be approximately
115.8 million shares remaining available for issuance under
the Amended Plan.
•
The aggregate number of shares that may be represented by
options and SARs granted to any single individual in any year
shall not exceed 1,500,000 under the Amended Plan.
The aggregate number of shares that may be represented by awards
made in the form of ISOs shall not exceed 25,000,000 shares
under the Amended Plan.
•
The aggregate number of stock awards that may be awarded as
full-value awards under the Amended Plan shall be approximately
43.9 million, a significant portion of which are expected
to be awarded as a portion of the annual incentive compensation
for key employees in certain business units. This number
includes 20 million additional shares under the Amended
Plan. Under the Amended Plan, any additional grants of
full-value awards beyond this limit would be counted at a 5:1
premium factor against the remaining available shares under the
Amended Plan (that is, for each full-value share granted, an
additional four shares will be cancelled from the plan).
•
The value of stock awards (based on the fair market value on the
grant date) and Operating Committee Incentive Awards, in the
aggregate, which may be awarded to any individual Operating
Committee Participant, as defined below, in a year shall not
exceed 0.5% of Wachovia’s adjusted net income applicable to
the prior plan year.
The Amended Plan differs from the Stock Incentive Plan in that
the Stock Incentive Plan contained provisions that separately
addressed stock awards intended to be used in lieu of cash
compensation. Specifically, the Stock Incentive Plan included
the following limitations:
•
the aggregate number of shares that may be represented by stock
awards could not exceed 25,000,000 shares; provided,
however, that this limitation did not apply to
•
stock awards which were performance stock awards or performance
unit awards and were earned solely on the basis of the
achievement of performance goals; or
•
any RSAs or RSUs described in the next bullet point
below; and
•
20,000,000 shares were reserved for the exclusive use as
grants of RSAs or RSUs to participants as a portion of their
annual incentive compensation under Wachovia’s applicable
incentive compensation plans which pay a portion of annual
incentive compensation in shares (or any similar plan or program
as determined by the Compensation Committee), of which
participant contributions were required to be at least 80% of
the fair market value of the underlying shares.
These provisions were deleted from the Amended Plan to simplify
the administration of the plan and to address changes in the
marketplace for equity compensation.
Eligibility
and Participation; Administration
Participants in the Stock Incentive Plan and the Amended Plan
will be officers and other key employees who are in a position
to contribute materially to Wachovia’s continued growth and
development and to its long-term financial success. Wachovia
anticipates that its current executive officers will receive
awards under the Amended Plan in such amounts and at such times
as the Compensation Committee may determine. Approximately
20,000 officers and other key employees, including ten executive
officers who are Operating Committee Participants, are currently
eligible to participate in the Stock Incentive Plan.
The Compensation Committee is responsible for administering the
Stock Incentive Plan and the Amended Plan. The Compensation
Committee is authorized to interpret the Amended Plan,
prescribe, amend and rescind rules and regulations relating to
the Amended Plan, provide for conditions deemed necessary or
advisable to protect Wachovia’s interests, and make all
other determinations necessary or advisable for administering
the Amended Plan, to the extent consistent with the Amended
Plan’s provisions. The Compensation Committee may delegate
to one or more Wachovia officers the authority to carry out some
or all of its responsibilities, to the extent consistent with
applicable law.
In order to foster and promote achievement of the Amended
Plan’s purposes or to comply with provisions of laws in
other countries where Wachovia operates or has employees, the
Compensation Committee, in its sole discretion, shall have the
power and authority to (i) determine which employees
employed outside the United States are eligible or required to
participate in the Amended Plan, (ii) modify the terms and
conditions of any awards made to such employees, and
(iii) establish sub-plans, modify option exercise and other
terms and procedures to the extent such actions may be necessary
or advisable.
The Compensation Committee may alter, amend, suspend or
discontinue the Amended Plan or any agreements thereunder to the
extent permitted by law. However, other than changes due to
previously described adjustments, approval of Wachovia
shareholders is necessary to increase the number of shares
available for awards, reduce or decrease the price of an
outstanding option or SAR, cancel any outstanding stock options
or SARs for the purpose of replacing or regranting such options
or SARs with an exercise price that is less than the original
exercise price, repurchase underwater options or SARS for cash,
or other amendments as may otherwise be required by applicable
law, rule or regulation.
Options
and SARs
Options granted under the Amended Plan will be exercisable at
such times and subject to such restrictions and conditions as
the Compensation Committee in each instance approves, which need
not be the same for all participants. An award of options or
SARs that vests solely on the basis of the passage of time
(e.g., not on the basis of any performance standards) will not
vest more quickly than ratably over the three-year period from
the grant date. However, those options and SARs will vest
earlier upon the occurrence of a change of control unless the
Compensation Committee determines otherwise. Both ISOs and NQSOs
may be granted under the Amended Plan. The exercise price of
options and SARs cannot be lower than the fair market value of
the shares of Wachovia common stock on the date the option or
SAR is granted. Each option or SAR will expire at such time as
the Compensation Committee determines at the time it is granted
but no option or SAR may be exercisable later than the tenth
anniversary date of its grant. ISOs to purchase no more than
$100,000 of common stock (measured as of the date of grant of
the option) may vest as to each participant in each calendar
year (taking into account all ISOs granted pursuant to any
Wachovia stock plan).
The option price upon exercise of any option is payable to
Wachovia in full by methods the Compensation Committee
designates, including, but not limited to:
•
in cash or its equivalent;
•
by tendering or withholding shares of common stock having a fair
market value at the time of exercise equal to the total option
price; or
•
by a combination of the foregoing.
Unless the Compensation Committee determines otherwise or as
prohibited by applicable law, options may also be exercised by a
“cashless exercise” where the participant gives
irrevocable instructions to a broker to promptly deliver to
Wachovia the amount of sale proceeds from the shares covered by
the option exercised, together with any withholding taxes due to
Wachovia. The proceeds from any cash payments upon option
exercise are added to Wachovia’s general funds and used for
general corporate purposes.
The Amended Plan also permits the award of SARs. An SAR
represents a right to receive a payment in cash, shares of
common stock or a combination of both, equal to the excess of
the fair market value of a specified number of shares of common
stock on the date the SAR is exercised over an amount which is
no less than the fair market value of the shares of common stock
on the date of grant. As of the date hereof, Wachovia has not
granted any SARs under the Stock Incentive Plan.
Each participant’s award agreement will state the extent,
if any, to which the participant may exercise an option or SAR
following termination of employment. Such provisions will be
determined in the discretion of the Compensation Committee, will
be included in the award agreement entered into with
participants, need not be uniform among all options or SARs
issued pursuant to the Amended Plan, and may reflect
distinctions based on the reasons for termination of employment.
The Stock Incentive Plan provided for the grant of stock options
with a “restoration feature”. This allowed an
additional grant of shares to replace shares tendered at the
time of exercise. Wachovia did not grant any stock options
having this feature under the Stock Incentive Plan. This feature
has been removed from the Amended Plan.
Stock
Awards
The Amended Plan provides for the grant of stock awards made in
shares or denominated in units equivalent in value to shares, as
well as other awards based on or with a value tied to shares of
Wachovia
common stock. Typically stock awards will be in the form of
RSAs, RSUs, performance stock awards and performance unit
awards. The Compensation Committee may impose such restrictions
on any stock awards granted under the Amended Plan as it may
deem advisable, including, without limitation, continuous
service requirements
and/or
achievement of performance goals, which need not be the same for
all participants. A stock award of RSAs or RSUs that vests
solely on the basis of the passage of time (e.g., not on the
basis of any performance standards) will not vest more quickly
than ratably over the three-year period from the grant date.
However, those RSAs or RSUs will vest earlier upon the
occurrence of a change of control unless the Compensation
Committee determines otherwise. During the period of
restriction, participants holding RSAs granted under the Amended
Plan may exercise full voting rights with respect to those
shares and are entitled to receive all dividends and other
distributions paid with respect to those shares. Participants
awarded RSUs may also be entitled to receive “dividend
equivalents” and other distributions paid with respect to
shares on which the units are based. RSUs and performance unit
awards may be settled in cash, shares of Wachovia common stock,
or a combination of both upon vesting.
Each participant’s award agreement will state the extent,
if any, to which the participant may receive unvested stock
awards following termination of employment. Such provisions will
be determined in the discretion of the Compensation Committee,
will be included in the award agreement entered into with
participants, need not be uniform among all stock awards issued
pursuant to the Amended Plan, and may reflect distinctions based
on the reasons for termination of employment.
Operating
Committee Incentive Awards
As with the Stock Incentive Plan, the Amended Plan also has a
feature providing for annual cash incentive compensation awards,
or Operating Committee Incentive Awards, to designated members
of Wachovia’s Operating Committee, or Operating Committee
Participants. Not all of Wachovia’s Operating Committee
members will be recipients of Operating Committee Incentive
Awards. The Amended Plan gives the Compensation Committee the
authority to grant cash incentive compensation to Operating
Committee Participants based on the attainment of one or more
specific performance goals applicable to Wachovia, a particular
business unit, individual performance or a combination of the
foregoing. For consistency of application, Wachovia believes it
is important for the Operating Committee’s cash incentive
and stock compensation awards to be subject to the same
performance goals.
Under the Amended Plan, at the time performance goals are
established for a plan year, the Compensation Committee will
establish an incentive award for such year for each Operating
Committee Participant. The actual cash award, based on the
attainment of the applicable performance goals, may be expressed
as dollars, as a multiple of salary or on a formula basis,
subject to the Compensation Committee’s ability to reduce
or eliminate the incentive award in its discretion.
Transferability
No ISOs granted under the Amended Plan may be sold, transferred,
pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Except
as permitted by the Compensation Committee, NQSOs, SARs and,
during the applicable period of restriction, stock awards, may
not be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated, other than by will or by the laws of
descent and distribution. Unless the Compensation Committee
determines otherwise with respect to any awards other than those
designated as ISOs, all rights granted to a participant under
the Amended Plan shall be exercisable during their lifetime only
by such participant. No ISOs, NQSOs, SARs or stock awards may be
transferred for consideration. Upon the death of a participant,
their personal representative or beneficiary may exercise the
rights under the Amended Plan.
Effective
Date
If approved by the shareholders, the Amended Plan will be
effective upon shareholder approval. If the Amended Plan is not
approved by shareholders at the special meeting, the Stock
Incentive Plan will continue in full force and effect until
April 23, 2008.
ISOs. ISOs granted under the Amended Plan will
be subject to the applicable provisions of the Internal Revenue
Code, including Section 422. If shares of common stock are
issued to an optionee upon the exercise of an ISO, and if no
“disqualifying disposition” of such shares is made by
the optionee within one year after the exercise of the ISO or
within two years after the date the ISO was granted (whichever
is later), then:
•
no income will be recognized by the optionee at the time
of the grant of the ISO;
•
no income, for regular income tax purposes, will be recognized
by the optionee at the date of exercise;
•
upon sale of the shares of common stock acquired by exercise of
the ISO, any amount realized in excess of the option price will
be taxed to the optionee, for regular income tax purposes, as a
capital gain (at varying rates depending upon the
optionee’s holding period in the shares and income level)
and any loss sustained will be a capital loss; and
•
no deduction will be allowed to Wachovia for federal income tax
purposes.
However, the excess of the fair market value of the shares
received upon exercise of the ISO over the option price for such
shares will generally constitute an item of adjustment in
computing the optionee’s alternative minimum taxable income
for the year of exercise. Thus, certain optionees may increase
their federal income tax liability as a result of the exercise
of an ISO under the alternative minimum tax rules of the
Internal Revenue Code.
If a “disqualifying disposition” of shares acquired by
exercise of an ISO is made, the optionee will recognize taxable
ordinary income at that time in an amount equal to the lesser of
(i) the excess of the fair market value of the shares
purchased at the time of exercise over the option price, or
(ii) the excess of the amount realized on disposition over
the option price, and Wachovia will be entitled to a federal
income tax deduction equal to such amount at that time. The
amount of any gain in excess of the amount taxable as ordinary
income will be taxable as capital gain at that time to the
holder (at varying rates depending upon such holder’s
holding period in the shares and income level), for which
Wachovia will not be entitled to a federal tax deduction.
NQSOs. An optionee will not be taxed at the
time a NQSO is granted. In general, an employee exercising a
NQSO will recognize ordinary income equal to the excess of the
fair market value on the exercise date of the stock purchased
over the option price. Upon subsequent disposition of the stock
purchased, the difference between the amount realized and the
fair market value of the stock on the exercise date will
constitute capital gain or loss. Wachovia will not recognize
income, gain or loss upon the granting of a NQSO. Upon the
exercise of such an option, Wachovia is entitled to an income
tax deduction equal to the amount of ordinary income recognized
by the employee.
SARs. An employee will not be taxed at the
time an SAR is granted. Upon exercise of an SAR, the optionee
will recognize ordinary income in an amount equal to the cash or
the fair market value of the stock received on the exercise date
(or, if an optionee exercising an SAR for shares of common stock
is subject to certain restrictions, upon lapse of those
restrictions, unless the optionee makes a special tax election
under Section 83(b) of the Code to have the income
recognized at the time of transfer). Wachovia generally will be
entitled to a deduction in the same amount and at the same time
as the optionee recognizes ordinary income.
RSAs and Performance Stock Awards. In general,
a participant who has received RSAs or performance stock awards,
and who has not made an election under Section 83(b) of the
Internal Revenue Code to be taxed upon receipt, will include in
gross income as compensation income an amount equal to the fair
market value of the RSAs or performance stock awards at the
earlier of the first time the rights of the employee are
transferable or the restrictions lapse. Wachovia is entitled to
a deduction at the time that the employee is required to
recognize income, subject to the limitations set forth below.
RSUs and Performance Unit Awards. A
participant who is awarded RSUs or performance unit awards will
not recognize income and Wachovia will not be allowed a
deduction at the time the award is made. When a participant
receives payment for RSUs or performance unit awards in shares
of common stock or cash, the fair market value of the shares or
the amount of the cash received will be ordinary income to the
participant and will be allowed as a deduction for federal
income tax purposes to Wachovia. However, if any shares of
common stock used to pay out earned RSUs or performance unit
awards are non-transferable and there is a substantial risk that
such shares will be forfeited (for example, because the
Compensation Committee conditions those shares on the
performance of future services), the taxable event is deferred
until either the risk of forfeiture or the restriction on
transferability lapses. In this case, the participant may be
able to make an election under Section 83(b) of the
Internal Revenue Code to be taxed upon receipt. Wachovia is
entitled to a corresponding deduction at the time the ordinary
income is recognized by the participant.
OBRA. Under OBRA, the allowable federal income
tax deduction by a publicly held corporation for compensation
paid with respect to the chief executive officer and the four
other most highly compensated executive officers of that
corporation serving as such at the end of that
corporation’s fiscal year, the Actual OBRA Officers, is
limited to no more than $1,000,000 per year per officer,
the OBRA Limitation. Under OBRA, this limitation on
deductibility is subject to certain exemptions, including an
exemption relating to performance-based compensation that is
payable:
•
solely on account of the achievement of one or more performance
goals established by a compensation committee consisting
exclusively of two or more outside directors;
•
under a plan the material terms of which are approved by the
shareholders before payment is made; and
•
solely upon certification by the compensation committee that the
performance goals and other material conditions precedent to the
payment have been satisfied.
The Amended Plan is structured so that compensation paid to
Actual OBRA Officers is intended to qualify for this
performance-based exception to the extent practicable to do so.
The Amended Plan provides that each year the Compensation
Committee will determine Wachovia’s executive officers
whose compensation may be subject to the OBRA Limitation, or the
Expected OBRA Officers, and a performance goal or goals that
Wachovia will need to attain in order to permit stock awards and
Operating Committee Incentive Awards to be granted to the
Expected OBRA Officers. The performance criteria that may be
used by the Compensation Committee in granting awards contingent
on performance goals for Expected OBRA Officers consist of
earnings or earnings growth (including earnings per share);
economic profit, shareholder value added or economic value
added; return on equity, assets or investment; revenues;
expenses; stock price or total shareholder return; market share;
charge-offs;
and/or
reductions in non-performing assets. The performance goals may
include non-financial measures as the Compensation Committee may
determine including employee satisfaction, employee retention or
customer satisfaction. The performance goals may be particular
to an employee, or the division, department, branch, line of
business, subsidiary or other unit in which the employee works,
or may be based on Wachovia’s performance generally. The
performance goals may include or exclude extraordinary items, as
determined by the Compensation Committee. The Compensation
Committee may select one criterion or multiple criteria for
establishing and measuring the performance goals.
In February 2006, the Compensation Committee identified the
Expected OBRA Officers for 2006 and a performance goal that
Wachovia will need to attain in 2006 (a return on tangible
common shareholders’ equity of 20%) in order to permit
stock awards granted to the Expected OBRA Officers in 2006 under
the Stock Incentive Plan, if any, not to become forfeited. In
addition, the Compensation Committee determined that the grant
of stock awards in 2007 combined with the payment in 2007 of
Operating Committee Incentive Awards for fiscal year 2006
performance under the Plan to each of the Expected OBRA Officers
will be 0.5% of adjusted net income for 2006. The Compensation
Committee has discretion to eliminate, or reduce the size of,
those awards, based on factors it deems appropriate. An
executive officer not designated as an Expected OBRA Officer
prior to the beginning of the year for which performance stock
awards are granted may thereafter become an Actual OBRA Officer
during the period of the grant, in which case Wachovia may not
be able to deduct all or a portion of the compensation payable
to that executive officer with respect to stock awards granted
to that executive officer. Shareholder approval of the Amended
Plan will not alter or affect the aforementioned performance
goals.
The Compensation Committee may also grant awards under the
Amended Plan that are not based on the performance criteria
specified above, in which case the compensation paid under such
awards to Actual OBRA Officers may not be deductible. The
Compensation Committee, however, may not grant cash or stock
awards
in lieu of performance stock awards or Operating Committee
Incentive Awards that are not granted because of the failure to
meet the performance goals specified for a particular year.
New Plan
Benefits
As described above, the size and types of awards under the
Amended Plan, if it is approved by the shareholders, will be
determined by the Compensation Committee in its discretion. No
awards have been made under the Amended Plan since its amendment
and restatement. The Compensation Committee does not contemplate
making any significant awards under the Amended Plan until 2007
and, therefore, the amount of any awards under the Amended Plan
is not yet determinable. The following table sets forth the
number of options and the number of RSAs which were granted
under the Stock Incentive Plan in 2006 to the individuals who
were “named officers” in Wachovia’s 2006 proxy
statement and the other groups indicated.
Additional
Information Regarding Wachovia’s Equity Compensation
Plans
Wachovia maintains several equity compensation plans.
Wachovia’s current primary plan is the Stock Incentive
Plan, which is used for stock awards to Wachovia’s
executive officers as well as other key employees. Wachovia
shareholders approved the Stock Incentive Plan at the 2003
annual shareholders’ meeting. The Stock Incentive Plan is
the only plan Wachovia currently uses to make stock compensation
awards. Prior to adopting the Stock Incentive Plan, Wachovia
utilized some equity compensation plans that were approved by
Wachovia shareholders and some equity compensation plans that
were not required to be approved by Wachovia shareholders. One
such plan, named the Wachovia Stock Plan and referred to herein
as the Legacy Wachovia Stock Plan, was approved by shareholders
of the former Wachovia Corporation in 1994. See “Material
Features of Stock Plans Not Approved by Shareholders” below.
The following table gives information as of December 31,2005 with respect to shares of Wachovia common stock that may be
issued under existing stock incentive plans. The table does not
include information with respect to shares subject to
outstanding options granted under certain stock incentive plans
assumed by Wachovia in connection with mergers and acquisitions
of companies that originally granted those options. Footnote
(5) to the table indicates the total number of shares of
Wachovia common stock issuable upon the exercise of options
under the assumed plans as of December 31, 2005, and the
weighted average exercise price of those options. No additional
options may be granted under those assumed plans.
Equity
Compensation Plan Information
(a)
(b)
(c)
Number of securities
remaining available
for future issuance
Number of securities
Weighted-average
under equity
to be issued upon
exercise price
compensation plans
exercise of outstanding
of outstanding
(excluding securities
options, warrants
options, warrants
reflected in
Plan category
and rights
and rights
column (a))(1)
Equity compensation plans approved
by shareholders(2)
90,531,312
$
41.38
83,588,454
(3)
Equity compensation plans not
approved by shareholders(4)
10,192,861
$
35.96
0
Total
100,724,173
$
40.83
83,588,454
(1)
Following adoption of the Stock Incentive Plan, Wachovia has not
and will not issue any future awards from any stock compensation
plans other than the Stock Incentive Plan. The Stock Incentive
Plan contains a provision that enables Wachovia to make new
stock awards under the Stock Incentive Plan equal to the number
of forfeited, cancelled, terminated, expired or lapsed stock
awards granted under any Wachovia stock plan. For purposes of
completing this table, Wachovia has assumed that none of such
forfeitures, cancellations, terminations, expirations or lapses
will occur. The securities remaining available for future
issuance set forth in column (c) under the Stock Incentive
Plan may be in the form of
•
stock options,
•
stock appreciation rights, or
•
stock awards, including restricted stock awards, restricted
stock units, performance stock awards, performance stock units
or other awards based on or with a value tied to, shares of
Wachovia common stock.
(2)
Consists of (A) the Stock Incentive Plan which is currently
in effect, and (B) Wachovia’s 1998 Stock Incentive
Plan, 1996 Master Stock Compensation Plan and 1992 Master Stock
Compensation Plan, each of which was approved by shareholders;
however, following adoption of the Stock Incentive Plan,
Wachovia cannot make new stock awards under these other plans.
As of December 31, 2005, a total of 45,398,913 shares
of Wachovia common stock were issuable upon the exercise of
outstanding options
under the plans set forth in (B) of the preceding sentence
and the weighted average exercise price of those outstanding
options is $39.31 per share.
(3)
Represents only shares available for issuance under the Stock
Incentive Plan.
(4)
Consists of the 2001 Stock Incentive Plan, the Employee
Retention Stock Plan and the Legacy Wachovia Stock Plan, each
discussed below under “Material Features of Stock Plans Not
Approved by Shareholders”.
(5)
The table does not include information for stock incentive plans
Wachovia assumed in connection with mergers and acquisitions of
the companies that originally established those plans, except
for the Legacy Wachovia Stock Plan. As of December 31,2005, a total of 33,145,623 shares of common stock were
issuable upon exercise of outstanding options under those
assumed plans. The weighted average exercise price of those
outstanding options is $32.11 per share. No additional
options may be granted under those assumed plans or will be
granted under the Golden West plans following the completion of
the merger.
Upon consummation of the merger with Golden West, Wachovia is
expected to issue approximately 324 million shares of
Wachovia common stock. This will increase the post merger shares
of Wachovia common stock outstanding to approximately
1.913 billion.
As of July 11, 2006, the following shares are outstanding
and available for future award under all Wachovia equity plans,
without regard to the proposed amendments in the Amended Plan:
•
There are approximately 133.6 million stock options
outstanding with a weighted-average exercise price of $40.78 per
share and a weighted-average remaining term of approximately
5.9 years.
•
There are approximately 14.5 million unvested shares or
restricted stock or restricted stock units.
•
There are approximately 65.8 million shares available for
future grant under the plan, of which no more than
23.9 million shares can be issued as full-value awards. If
the Amended Plan is approved, the reserve will increase by
50 million shares to 115.8 million shares, of which no
more than 43.9 million shares can be issued as full-value
awards on a one-share basis.
Material
Features of Stock Plans Not Approved by Shareholders
The following is a brief summary of Wachovia’s stock
compensation plans that have not been approved by shareholders.
Those plans are the 2001 Stock Incentive Plan, the Employee
Retention Stock Plan and the Legacy Wachovia Stock Plan.
Wachovia issued stock awards under these plans prior to adoption
of the Stock Incentive Plan. Wachovia will not issue any future
stock awards from any of these plans. The Compensation Committee
administers all of these plans and has authority to make all
decisions regarding these plans. These plans share the same
general features, except as may be set forth in more detail
below.
General. The plans provide for the grant of
options and stock awards, including restricted stock awards, to
non-executive officer employees. The number of shares available
for previously issued but unexercised options is subject to
adjustment for any future stock dividends, splits, mergers,
combinations or other capitalization changes. In the event of a
change in control of Wachovia, all outstanding awards under the
plans will be immediately exercisable
and/or fully
vested, as the case may be. The Legacy Wachovia board and
shareholders adopted the Legacy Wachovia Stock Plan in April
1994. The Legacy Wachovia Stock Plan was further amended and
restated effective April 2002 by Wachovia following the merger
between First Union Corporation and Legacy Wachovia. First
Union’s board of directors adopted the 2001 Stock Incentive
Plan in July 2001 and adopted the Employee Retention Stock Plan
in April 2000.
Options. Each option granted under the plans
is evidenced by a written award agreement that specifies the
type of option granted, the option exercise price, the option
duration, the vesting date(s) and the number of shares of common
stock subject to the option. No option granted under the plans
has an option exercise price that is less than the fair market
value of the common stock on the option grant date. No option
will be exercisable later than the tenth anniversary date of its
grant.
Payment of the option price upon exercise may be made
(i) in cash, (ii) by tendering shares of previously
owned common stock having a fair market value at the time of
exercise equal to the total option exercise price,
(iii) cashless exercise through a broker, or (iv) by a
combination of the foregoing.
2001 Stock Incentive Plan and Employee Retention
Plan. Unless the Compensation Committee
determines otherwise, in the event the employment of a
participant is terminated by reason of death, disability or
retirement, any outstanding options will become immediately
exercisable at any time prior to the earlier of the expiration
date of the options or within three years after employment
ceases. If the employment of the participant terminates for any
other reason, unless the Compensation Committee determines
otherwise, the rights under any then outstanding and
unexercisable options will be forfeited and the rights under any
then outstanding and exercisable options will be forfeited upon
the earlier of the option expiration date or three months after
the day employment ends.
Legacy Wachovia Stock Plan. Unless the
Compensation Committee determines otherwise, in the event the
employment of a participant is terminated by reason of
displacement, death, disability or retirement, any outstanding
options will become immediately exercisable at any time prior to
the earlier of the expiration date of the options or within a
certain period after employment ceases, depending on the date of
option grant. If the employment of the participant terminates
for any other reason, unless the Compensation Committee
determines otherwise, the rights under any then outstanding and
unexercisable options will be forfeited and the rights under any
then outstanding and exercisable options will be forfeited upon
the earlier of the option expiration date or three months after
the day employment ends.
Stock Awards. During the period of
restriction, participants holding shares of restricted stock may
exercise full voting rights and be entitled to receive all
dividends and other distributions paid with respect to those
shares while they are so held. If any such dividends or
distributions are paid in shares of common stock, the shares
will be subject to the same restrictions on transferability as
the shares of restricted stock with respect to which they were
paid. Under the Legacy Wachovia Stock Plan, if the stock awards
are in the form of restricted stock units, the participant will
not have voting rights with respect to those restricted units
and may receive dividend equivalent rights if provided in the
applicable award agreement.
2001 Stock Incentive Plan and Employee Retention
Plan. Unless the Compensation Committee
determines otherwise, in the event that a participant terminates
employment because of normal retirement, death or disability,
any remaining period of restriction applicable to the stock
award will terminate automatically. Unless the Compensation
Committee determines otherwise, if the employment of a
participant terminates for any reason other than death,
disability or normal retirement, then any stock awards subject
to restrictions on the date of such termination will
automatically be forfeited on the day employment terminates;
provided, however, if employment terminates due to early
retirement or any involuntary termination by Wachovia, the
Compensation Committee may, in its sole discretion, waive the
automatic forfeiture of any or all such stock awards
and/or may
add such new restrictions to such stock awards as it deems
appropriate.
Legacy Wachovia Stock Plan. Unless the
Compensation Committee determines otherwise, in the event that a
participant terminates employment because of displacement,
retirement, death or disability, any remaining period of
restriction applicable to the stock award terminates
automatically. Unless the Compensation Committee determines
otherwise, if the employment of a participant terminates for any
reason other than death, disability or normal retirement, then
any stock awards subject to restrictions on the date of such
termination will automatically be forfeited on the day
employment terminates; provided, however, if employment
terminates due to early retirement or any involuntary
termination by Wachovia, the Compensation Committee may, in its
sole discretion, waive the automatic forfeiture of any or all
such stock awards
and/or may
add such new restrictions to such stock awards as it deems
appropriate. Except as may otherwise be provided in the Legacy
Wachovia Stock Plan or as the Compensation Committee otherwise
determines, in the event that a participant terminates
employment with Wachovia for any reason other than as set forth
above, or for any reason provided for in the terms of the grant,
then any shares of restricted stock still subject to
restrictions at the date of such termination shall automatically
be forfeited.
SARs. The Employee Retention Stock Plan and
the Legacy Wachovia Stock Plan provided for awards of stock
appreciation rights, or SARs, to participants. An SAR represents
a right to receive a payment in cash, common stock, or a
combination of both, equal to the excess of the fair market
value of a specified number of shares of common stock on the
date the SAR is exercised over an amount equal to the fair
market value on the date the SAR was granted (or the option
exercise price for SARs granted in tandem with an option). Each
SAR grant is evidenced by an award agreement specifying the SAR
exercise price, duration, the number of shares of common stock
subject to the SAR, and whether the SAR is granted in tandem
with an option or is freestanding. SARs granted in tandem with
an option may be exercised for all or part of the shares subject
to the related option but only to the extent that the related
option is then exercisable.
If the employment of a participant terminates by reason of
displacement, death, disability or normal retirement, any then
outstanding SARs granted to the participant will become
immediately exercisable. Unless the Compensation Committee
determines otherwise, any such outstanding SARs will be
forfeited on the expiration date of the SARs or within a certain
period after employment terminates, depending on the date of
grant. Unless the Compensation Committee determines otherwise,
if a participant’s employment terminates for any reason
other than displacement, death, disability or normal retirement,
(i) any then outstanding but unexercisable SARs granted to
the participant will be forfeited, and (ii) any then
outstanding and exercisable SARs granted to the participant will
be forfeited on the expiration date of the SARs or three months
after employment terminates, whichever period is shorter.
The validity of the Wachovia common stock to be issued in
connection with the merger has been passed upon for Wachovia by
Ross E. Jeffries, Jr., Senior Vice President and Deputy
General Counsel of Wachovia. Mr. Jeffries owns shares of
Wachovia common stock and has options to purchase additional
shares of Wachovia common stock.
Certain matters related to the United States federal income tax
consequences of the merger have been passed upon for Wachovia
and Golden West by Sullivan & Cromwell LLP and
Wachtell, Lipton, Rosen & Katz, respectively.
Sullivan & Cromwell LLP regularly performs legal
services for Wachovia, and certain members of
Sullivan & Cromwell LLP performing legal services for
Wachovia own shares of Wachovia’s common stock representing
less than 1% of Wachovia’s outstanding common stock.
The consolidated balance sheets of Wachovia Corporation as of
December 31, 2005 and 2004, and the related consolidated
statements of income, changes in stockholders’ equity and
cash flows for each of the years in the three-year period ended
December 31, 2005, and management’s assessment of the
effectiveness of internal control over financial reporting as of
December 31, 2005, included in Wachovia’s 2005 Annual
Report which is incorporated by reference in Wachovia’s
Annual Report on
Form 10-K
for the year ended December 31, 2005, and incorporated by
reference herein, have been incorporated by reference herein in
reliance upon the reports of KPMG LLP, independent registered
public accounting firm, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Golden West Financial
Corporation and subsidiaries and management’s report on the
effectiveness of internal control over financial reporting
incorporated in this joint proxy statement-prospectus by
reference from the Annual Report of Golden West Financial
Corporation on
Form 10-K
for the year ended December 31, 2005 have been audited by
Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated
in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
If the merger is completed, Golden West shareholders will become
shareholders of Wachovia. Shareholder proposals intended to be
included in Wachovia’s proxy statement and voted on at
Wachovia’s regularly scheduled 2007 Annual Meeting of
Shareholders must be received at Wachovia’s offices at One
Wachovia Center, Charlotte, North Carolina
28288-0013,
Attention: Corporate Secretary, on or before November 13,2006. Applicable SEC rules and regulations govern the submission
of shareholder proposals and our consideration of them for
inclusion in next year’s proxy statement and form of proxy.
Pursuant to Wachovia’s by-laws, in order for any business
not included in the proxy statement for the 2007 Annual Meeting
of Shareholders to be brought before the meeting by a
shareholder entitled to vote at the meeting, the shareholder
must give timely written notice of that business to
Wachovia’s Corporate Secretary. That meeting is scheduled
to be held on April 17, 2007, and to be timely, the notice
must not be received any earlier than January 18, 2007
(90 days prior to April 18, 2007, the first
anniversary of Wachovia’s 2006 annual meeting date), nor
any later than February 17, 2007 (60 days prior to
April 18, 2007). If the date of the meeting is advanced by
more than 30 days or delayed by more than 60 days from
April 18, 2007, the notice must be received no earlier than
the 90th day prior to the 2007 annual meeting and not later
than either the 60th day prior to the 2007 annual meeting
or the tenth day after public disclosure of the actual meeting
date, whichever is later. The notice must contain the
information required by our by-laws. A proxy may confer
discretionary authority to vote on any matter at a meeting if we
do not receive notice of the matter within the time-frames
described above. A copy of our by-laws is available upon request
to: Wachovia Corporation, 301 South College Street,
Charlotte, North Carolina
28288-0013,
Attention: Corporate Secretary. The Chairman of the meeting may
exclude matters that are not properly presented in accordance
with these requirements.
Golden
West
If the merger occurs, there will be no Golden West annual
meeting of shareholders for 2007. In that case, shareholder
proposals must be submitted to Wachovia’s Corporate
Secretary in accordance with the procedures described above. In
case the merger is not completed, according to Golden
West’s by-laws, Golden West will provide notice of the
annual meeting not less than 10 days before the date of the
meeting. In order to be considered for inclusion in the proxy
statement and proxy for Golden West’s 2007 annual meeting
of shareholders, if it is held at all, shareholder proposals
would need to be received by the Secretary of Golden West no
later than November 10, 2006. In order for any business not
included in the proxy statement and proxy for Golden West’s
2007 annual meeting of shareholders to be brought before the
meeting, if held, by a shareholder entitled to vote at the
meeting, the shareholder must give written notice of that
business to Golden West’s Secretary no later than
January 24, 2007. Applicable SEC rules and regulations
govern the submission of shareholder proposals and our
consideration of them, both for inclusion in next year’s
proxy statement and for bringing such business before the
meeting.
As of the date of this joint proxy statement-prospectus,
Wachovia’s board and Golden West’s board know of no
matters that will be presented for consideration at either of
their special meetings other than as described in this joint
proxy statement-prospectus. Wachovia and Golden West
shareholders may, however, be asked to vote on a proposal to
adjourn or postpone their respective special meeting. Wachovia
and Golden West could use any adjournment or postponement of
their special meeting for the purpose, among others, of allowing
more time to solicit votes to approve the issuance of shares of
Wachovia common stock as consideration in the merger or to
approve and adopt the plan of merger, respectively. If any other
matters properly come before either of the Wachovia or Golden
West special meetings, or any adjournments or postponements of
these meetings, and are voted upon, the enclosed proxies will be
deemed to confer discretionary authority on the individuals that
they name as proxies to vote the shares represented by these
proxies as to any of these
matters. The individuals named as proxies intend to vote or not
to vote in accordance with the recommendation of the respective
managements of Wachovia and Golden West. However, proxies that
indicate a vote against approval of the issuance of shares of
Wachovia common stock as consideration in the merger or the
approval and adoption of the plan of merger will not be voted in
favor of any adjournment or postponement of the relevant special
meeting to solicit additional proxies to approve those proposals.
Wachovia has filed a registration statement with the SEC under
the Securities Act that registers the distribution to Golden
West shareholders of the shares of common stock of Wachovia to
be issued in the merger. The registration statement, including
the attached exhibits and schedules, contains additional
relevant information about Wachovia, Golden West and the
combined company and the common stock of these companies. The
rules and regulations of the SEC allow us to omit some
information included in the registration statement from this
document.
In addition, Wachovia (File
No. 1-10000)
and Golden West (File
No. 1-4629)
file reports, proxy statements and other information with the
SEC under the Exchange Act. You may read and copy this
information at the Public Reference Room of the SEC, 100 F
Street, N.E., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by
calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet world wide web site that
contains reports, proxy statements and other information about
issuers, like Wachovia and Golden West, that file electronically
with the SEC. The address of that site is
http://www.sec.gov. Wachovia’s address on the world
wide web is http://www.wachovia.com, and Golden
West’s address is http://www.gdw.com. The
information on our web sites is not a part of this document.
You can also inspect reports, proxy statements and other
information about Wachovia and Golden West at the offices of the
NYSE, 20 Broad Street, New York, New York10005.
The SEC allows Wachovia and Golden West to “incorporate by
reference” information into this document. This means that
the companies can disclose important information to you by
referring you to another document filed separately with the SEC.
The information incorporated by reference is considered to be a
part of this document, except for any information that is
superseded by information that is included directly in this
document.
This document incorporates by reference the documents listed
below that Wachovia and Golden West have previously filed with
the SEC (other than the portions of those documents not deemed
to be filed). They contain important information about our
companies and their financial condition.
The description of Wachovia common
stock set forth in the registration statement on
Form 8-A12B
filed pursuant to Section 12 of the Exchange Act, including
any amendment or report filed with the SEC for the purpose of
updating this description
The description of the rights
agreement, contained in a registration statement on
Form 8-A
filed pursuant to Section 12 of the Exchange Act, including
any amendment or report filed with the SEC for the purpose of
updating this description.
The description of Golden West
common stock set forth in the registration statement on
Form 8-A12B
filed pursuant to Section 12 of the Exchange Act, including
any amendment or report filed with the SEC for the purpose of
updating this description.
Wachovia and Golden West incorporate by reference additional
documents that either company may file with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
between the date of this document and the dates of their
respective special meetings (other than the portions of those
documents not deemed to be filed). These documents include
periodic reports, such as Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
as well as proxy statements.
Wachovia has supplied all information contained or incorporated
by reference in this document relating to Wachovia, as well as
all pro forma financial information, and Golden West has
supplied all such information relating to Golden West.
You can obtain any of the documents incorporated by reference in
this document through Wachovia or Golden West, as the case may
be, or from the SEC through the SEC’s Internet world wide
web site at the address described above. Documents incorporated
by reference are available from the companies without charge,
excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this
document. You can obtain documents incorporated by reference in
this document by requesting them in writing or by telephone from
the appropriate company at the following addresses:
If you would like to request documents, please do so by
August 24, 2006 to receive them before the Wachovia special
meeting and the Golden West special meeting. If
you request any incorporated documents from us, we will mail
them to you by first class mail, or another equally prompt
means, within one business day after we receive your request.
We have not authorized anyone to give any information or make
any representation about the merger or our companies that is
different from, or in addition to, that contained in this
document or in any of the materials that we have incorporated
into this document. Therefore, if anyone does give you
information of this sort, you should not rely on it. If you are
in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities
offered by this document or the solicitation of proxies is
unlawful, or if you are a person to whom it is unlawful to
direct these types of activities, then the offer presented in
this document does not extend to you. The information contained
in this document speaks only as of the date of this document
unless the information specifically indicates that another date
applies.
This document, including information included or incorporated by
reference into this document, contains forward-looking
statements with respect to the financial condition, results of
operations and business of Wachovia and Golden West and,
assuming the completion of the merger, a combined Wachovia and
Golden West. Such statements include, but are not limited to,
statements relating to:
•
synergies (including cost savings), and accretion/dilution to
reported earnings expected to be realized from the merger;
•
business opportunities and strategies potentially available to
the combined company;
•
merger-related and restructuring charges expected to be incurred;
•
management, operations and policies of Wachovia after the
merger; and
•
statements preceded by, followed by or that include the words
“believes,”“expects,”“anticipates,”“intends,”“estimates,”“should” or similar expressions.
These forward-looking statements involve some risks and
uncertainties. Factors that may cause actual results to differ
materially from those contemplated by these forward-looking
statements include, among other things, the following
possibilities:
•
the risk that the businesses of Wachovia and Golden West will
not be integrated successfully or such integration may be more
difficult, time-consuming or costly than expected;
•
expected revenue synergies and cost savings from the merger may
not be fully realized or realized within the expected time frame;
•
revenues following the merger may be lower than expected;
•
deposit attrition, operating costs, customer loss and business
disruption following the merger, including, without limitation,
difficulties in maintaining relationships with employees, may be
greater than expected;
•
the ability to obtain governmental approvals of the merger on
the proposed terms and schedule;
•
the failure of Wachovia and Golden West shareholders to approve
the merger;
•
competitive pressures among depository and other financial
institutions may increase significantly and have an effect on
pricing, spending, third-party relationships and revenues;
•
the strength of the United States economy in general and the
strength of the local economies in which Wachovia will conduct
operations may be different than expected, resulting in, among
other things, a deterioration in credit quality or a reduced
demand for credit, including the resultant effect on
Wachovia’s loan portfolio and allowance for loan losses;
changes in the United States and foreign legal and regulatory
framework;
•
unanticipated regulatory or judicial proceedings or rulings;
•
the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the Board
of Governors of the Federal Reserve System;
•
potential or actual litigation;
•
inflation, interest rate, market and monetary fluctuations;
•
the risk that management’s assumptions and estimates used
in applying critical accounting policies prove unreliable,
inaccurate or not predictive of actual results;
•
the risk that the design of the company’s disclosure
controls and procedures or internal controls prove inadequate,
or are circumvented, thereby causing losses or errors in
information or a delay in the detection of fraud;
•
adverse conditions in the stock market, the public debt market
and other capital markets both domestically and abroad
(including changes in interest rate conditions) and the impact
of such conditions on Wachovia’s capital markets and asset
management activities; and
•
the impact on Wachovia’s or Golden West’s businesses,
as well as on the risks set forth above, of various domestic or
international military or terrorist activities or conflicts.
Because these forward-looking statements are subject to
assumptions and uncertainties, actual results may differ
materially from those expressed or implied by these
forward-looking statements, and the factors that will determine
these results are beyond Wachovia’s or Golden West’s
ability to control or predict.
We caution you not to place undue reliance on the
forward-looking statements, which speak only as of the date of
this joint proxy statement-prospectus, in the case of
forward-looking statements contained in this joint proxy
statement-prospectus, or the dates of the documents incorporated
by reference in this joint proxy statement-prospectus, in the
case of forward-looking statements made in those incorporated
documents.
Except to the extent required by applicable law or regulation,
Wachovia and Golden West undertake no obligation to update these
forward-looking statements to reflect events or circumstances
after the date of this joint proxy statement-prospectus or to
reflect the occurrence of unanticipated events.
For additional information about factors that could cause actual
results to differ materially from those described in the
forward-looking statements, please see the reports that Wachovia
and Golden West have filed with the SEC under “Where You
Can Find More Information”.
All subsequent written or oral forward-looking statements
concerning the merger or other matters addressed in this joint
proxy statement-prospectus and attributable to Wachovia or
Golden West or any person acting on their behalf are expressly
qualified in their entirety by the cautionary statements
contained or referred to in this section.
Neither Wachovia’s nor Golden West’s independent
registered public accounting firms have compiled, examined or
otherwise applied procedures to the prospective financial
information presented herein and, accordingly, do not express an
opinion or any other form of assurance on such information or
its achievability.
The following unaudited pro forma condensed combined financial
information and explanatory notes are presented to show the
impact of the merger on our companies’ historical financial
positions and results of operations under the purchase method of
accounting. Under this method of accounting, the assets and
liabilities of the company not surviving the merger are, as of
the effective date of the merger, recorded at their respective
fair values and added to those of the surviving corporation. The
unaudited pro forma condensed combined financial information
combines the historical financial information of Wachovia and
Golden West as of and for the three months ended March 31,2006, and for the year ended December 31, 2005. The
unaudited pro forma condensed combined balance sheet at
March 31, 2006, assumes the merger was completed on that
date. The unaudited pro forma condensed combined statements of
income give effect to the merger as if the merger had been
completed at the beginning of each period presented.
The merger provides for the right of each Golden West
shareholder to receive (A) a number of shares of Wachovia
common stock equal to the product of (i) 1.365 times
(ii) 77% times (iii) the number of shares of Golden
West common stock held by such holder of record, and (B) an
amount in cash equal to the product of (i) $81.07 times
(ii) 23% times (iii) the number of shares of Golden
West common stock held by such holder of record, based on the
number of shares of Golden West common stock held by such holder
on the record date. The unaudited pro forma condensed combined
financial information is based on, and derived from, and should
be read in conjunction with the historical consolidated
financial statements and the related notes of both Wachovia and
Golden West, which are incorporated in this document by
reference. See “Where You Can Find More Information.”
The unaudited pro forma condensed combined financial information
is presented for illustrative purposes only and is not
necessarily indicative of the operating results that would have
occurred or financial position if the merger had been completed
during the period or as of the date for which the pro forma data
are presented, nor is it necessarily indicative of future
operating results or financial position of the combined company.
The merger will be accounted for using the purchase method of
accounting, and accordingly, the assets and liabilities of
Golden West will be recorded at their respective fair values on
the date the merger is completed. The shares of Wachovia common
stock issued to effect the merger will be recorded at $55.69 per
share which is based on the weighted average of Wachovia’s
closing prices per share for a period beginning two trading days
before the announcement of the merger and ending two trading
days after the merger announcement (which includes the day of
announcement).
The pro forma financial information includes estimated
adjustments to record certain assets and liabilities of Golden
West at their respective fair values. The pro forma adjustments
included herein are subject to updates as additional information
becomes available and as additional analyses are performed.
Certain other assets and liabilities of Golden West, principally
loans and borrowings, will also be subject to adjustment at
their respective fair values. Pending more detailed analyses, no
pro forma adjustments are included herein for these assets and
liabilities. Additionally, pending further analyses, no pro
forma adjustments have been included to reflect the treatment of
Golden West’s allowance relating to nonperforming loans.
We expect to realize increased revenue and reduced operating
expenses following the merger which are not reflected in this
pro forma financial information. No assurance can be given with
respect to the ultimate level of such increased revenue and
reduced operating expenses.
The final allocation of the purchase price will be determined
after the merger is completed and after thorough analyses to
determine the fair values of Golden West’s tangible and
identifiable intangible assets and liabilities as of the date
the merger is completed. Any change in the fair value of the net
assets of Golden West will change the amount of the purchase
price allocable to goodwill. Additionally, changes to Golden
West’s equity, including dividends and net income from
April 1, 2006, through the date the merger is completed,
will also change the amount of goodwill recorded. The final
adjustments may be materially different from the unaudited pro
forma adjustments presented herein.
The goodwill recorded in connection with the merger is not
subject to amortization and none is deductible for tax purposes.
The customer relationships and deposit base intangibles will be
amortized over their estimated economic life using an
accelerated method. Any additional intangibles that are
identified in connection with the merger will be amortized in
accordance with the provisions of SFAS No. 142, such
that any with an indefinite life will not be subject to
amortization, and any with a finite economic life will be
amortized over the estimated useful life.
Wachovia is in the process of determining the appropriate
methodology to allocate the goodwill, and customer relationships
and deposit base intangibles to reportable segments, which
include the General Bank, Capital Management, Wealth Management,
and the Corporate and Investment Bank, and expects to complete
the analysis by December 31, 2006.
NOTE 2:
PRO FORMA
FINANCIAL INFORMATION
The pro forma financial information for the merger is included
as of and for the three months ended March 31, 2006, and
for the year ended December 31, 2005. The pro forma
adjustments in the pro forma financial statements reflect the
right of each Golden West shareholder to receive (A) a
number of shares of Wachovia common stock equal to the product
of (i) 1.365 times (ii) 77% times (iii) the
number of shares of Golden West common stock held by such holder
of record, and (B) an amount in cash equal to the product
of (i) $81.07 times (ii) 23% times (iii) the
number of shares of Golden West common stock held by such holder
NOTES TO
WACHOVIA AND GOLDEN WEST UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL
INFORMATION — (Continued)
of record, based on the number of shares of Golden West common
stock that were outstanding at March 31, 2006. Based on
these assumptions, the cash component of the merger
consideration is approximately $5.8 billion in the
aggregate. The unaudited pro forma financial information
presented in the pro forma financial statements is not
necessarily indicative of the results of operations in future
periods or the future financial position of Wachovia.
The pro forma balance sheet adjustments reflect the addition of
325 million shares of Wachovia common stock with an
aggregate par value of $1.1 billion, an increase in paid-in
capital of $17.1 billion for the excess of the fair value
of the shares over the par value, and goodwill, customer
relationships and deposit base premium of $14.2 billion,
$925 million and $924 million, respectively. Also
included in the pro forma balance sheet adjustments is an
increase in other liabilities of $838 million, which
includes exit cost purchase accounting accruals of
$192 million and deferred income taxes of
$646 million. Wachovia has estimated a tangible capital to
tangible asset ratio of 4.5% immediately following the merger.
In estimating such ratio following the merger, Wachovia expects
that Golden West will have approximately $3.7 billion to
$4.1 billion of excess capital immediately prior to the
time of the merger. Such excess capital will be utilized to pay
a part of the cash component of the merger consideration
discussed above. While Wachovia has assumed such excess capital
will be available upon the merger, Wachovia has not assumed that
the excess capital will be in the form of cash necessary to pay
the cash component of the merger consideration. Therefore, the
pro forma balance sheet adjustments reflect an increase in
long-term debt of $5.8 billion related to funding the cash
component to be paid to each Golden West shareholder.
The pro forma income statement adjustments for the year ended
December 31, 2005, include certain reclassifications to
Golden West’s prior year financial statements to conform to
current year presentation. Specifically, prepayment fees and
late charges related to Golden West’s loan portfolio were
reclassified from fees and other income to interest income. As a
result of these reclassifications, interest income increased by
$317 million and fee and other income decreased by
$317 million. These reclassifications had no effect on
income from continuing operations.
When the merger is completed, Golden West stock options will be
exchanged for stock options of Wachovia with the number of
options and the option price adjusted for the 1.365 exchange
ratio. Unvested Golden West stock options at the time the merger
is completed will be accelerated to vest at the time the merger
is completed. Vested employee stock options issued by Wachovia
in exchange for options held by employees of Golden West are
considered part of the purchase price, and accordingly, the
purchase price includes an estimated fair value of employee
stock options of $421 million.
The fair value of Wachovia options that will be issued in
exchange for Golden West options was estimated by using the
greater of the intrinsic value or the Black-Scholes option
pricing model with market assumptions. Option pricing models
require the use of highly subjective assumptions, including
expected stock price volatility, which if changed can materially
affect fair value estimates. The more significant assumptions
used in estimating the fair value of the Wachovia stock options
to be issued in exchange for Golden West stock options include a
risk-free interest rate of 4.99% to 5.06%, a dividend yield of
3.66%, volatility of the Golden West’s common stock of
18.87% and a weighted average expected life of 4.0 years to
7.0 years.
The exit cost liabilities assumed in the merger consist
principally of personnel-related costs which include involuntary
termination benefits for employees severed in connection with
the merger as well as relocation costs for continuing employees,
costs to cancel contracts that will provide no future benefit to
Wachovia and occupancy-related costs representing the present
value of future lease payments of lease cancellation penalties
for space vacated in connection with the merger. The
$192 million includes only those costs associated with the
company not surviving the merger.
NOTES TO
WACHOVIA AND GOLDEN WEST UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL
INFORMATION — (Continued)
NOTE 3:
PURCHASE
PRICE AND GOODWILL
The computation of the purchase price, the allocation of the
purchase price to the net assets of Golden West based on fair
values estimated at March 31, 2006, the estimated customer
relationships intangible, the basis for determining the amount
of deposit base premium allocated to the purchase price and the
resulting amount of goodwill follows.
NOTES TO
WACHOVIA AND GOLDEN WEST UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL
INFORMATION — (Continued)
NOTE 5:
PRO FORMA
CONSOLIDATED STATEMENTS OF INCOME ADJUSTMENTS
The following pro forma adjustments related to the unaudited pro
forma combined condensed statements of income reflect interest
expense at an estimated current annual rate of 6% related to the
cash payment of $5.8 billion to the holders of Golden West
common stock and amortization on a ten-year
sum-of-the-years’
digits method for the customer relationships and deposit base
intangibles.
Three Months
Year
Ended
Ended
March 31,
December 31,
(In millions)
2006
2005
Interest income adjustment
Interest income
$
—
317
Total interest income adjustment
—
317
Fee and other income adjustment
Fee and other income
—
(317
)
Total fee and other income
adjustment
—
(317
)
Interest expense adjustment
Interest expense
86
344
Total interest expense adjustment
86
344
Other noninterest expense
adjustment
Other intangible amortization
84
336
Total noninterest expense
adjustment
84
336
Reduction in income from
continuing operations before income taxes
(170
)
(680
)
Income tax adjustment
Interest expense
86
344
Other intangible amortization
84
336
Total
(170
)
(680
)
Income tax rate
0.39
%
0.39
Total income tax adjustment
(66
)
(265
)
Reduction in income from
continuing operations
$
(104
)
(415
)
NOTE 6:
OTHER
BUSINESS COMBINATIONS
On March 1, 2006, Wachovia completed the merger with
Westcorp and WFS Financial Inc (“WFS”), a
California-based auto loan originator business. The terms of
this transaction called for Wachovia to
exchange 1.2749 shares of Wachovia common stock for
each share of Westcorp common stock and 1.4661 shares of
Wachovia common stock for each share of WFS common stock. Based
on the weighted average of Wachovia’s closing prices per
share for a period beginning two trading days before the
announcement of the merger and ending two trading days after the
merger announcement of $49.60 (which includes the day of
announcement), the transaction was valued at $3.8 billion.
Wachovia recorded preliminary fair value and exit cost purchase
accounting adjustments of $282 million along with dealer
relationships and deposit base intangibles of $405 million.
Based on Westcorp tangible stockholders’ equity of
$1.9 billion, this resulted in preliminary goodwill of
$1.6 billion at March 31, 2006. Westcorp reported
assets of $17.0 billion and net income of $257 million
as of and for the year ended December 31, 2005.
Wachovia’s historical financial information for the three
months ended March 31, 2006, includes this acquisition as
of and for the one month ended March 31, 2006, and the pro
forma consolidated financial statements presented herein are not
adjusted for this acquisition on a pro forma basis.
At various times during the periods presented herein, Wachovia
has also acquired in the aggregate immaterial businesses or
portions of businesses which are included only from each date of
completion.
AGREEMENT AND PLAN OF MERGER, dated May 7, 2006 (this
“Agreement”), among Wachovia Corporation, a
North Carolina corporation (“Wachovia”), Burr
Financial Corporation, a North Carolina corporation and a wholly
owned subsidiary of Wachovia (“Merger Sub”),
and Golden West Financial Corporation, a Delaware corporation
(“Golden West”).
RECITALS
A. The Proposed Transaction. The parties
intend to effect a strategic business combination through the
merger of Golden West with and into Merger Sub (the
“Merger”), with Merger Sub the surviving
corporation (the “Surviving Corporation”).
B. Board Determinations. The respective
boards of directors of Wachovia, Merger Sub and Golden West have
each determined that the Merger and the other transactions
contemplated hereby are consistent with, and will further, their
respective business strategies and goals, and are in the best
interests of their respective stockholders and, therefore, have
approved the Merger, this Agreement and the plan of merger
contained in this Agreement.
C. Approval of Stockholder of Merger
Sub. Wachovia, as the sole stockholder of Merger
Sub, has approved this Agreement, the Merger and the other
transactions contemplated hereby.
D. Intended Tax Treatment. The parties
intend the Merger to be treated as a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as
amended (the “Code”), and the rules and
regulations thereunder, and intend for this Agreement to
constitute a “plan of reorganization” within the
meaning of the Code.
E. Voting Agreements. As an inducement to
and condition of Wachovia’s willingness to enter into this
Agreement, each of Herbert M. Sandler, Marion O. Sandler and
Bernard A. Osher (each of whom is a member of the Golden West
Board) will enter (each in his or her capacity as a stockholder
of Golden West) into voting and support agreements (each, a
“Voting Agreement”), the form of which is
attached as Annex 1. The Voting
Agreements will be entered immediately prior to the execution
and delivery of this Agreement.
NOW, THEREFORE, in
consideration of the premises, and of the mutual
representations, warranties, covenants and agreements contained
in this Agreement, Wachovia, Merger Sub and Golden West agree as
follows:
ARTICLE I
Definitions;
Interpretation
1.01. Definitions. This Agreement
uses the following definitions:
“Acquisition Proposal” means a tender or
exchange offer to acquire more than 15% of the voting power in
Golden West or any of its Significant Subsidiaries, a proposal
for a merger, consolidation or other business combination
involving Golden West or any of its Significant Subsidiaries or
any other proposal or offer to acquire in any manner more than
15% of the voting power in, or more than 15% of the business,
assets or deposits of, Golden West or any of its Significant
Subsidiaries, other than the transactions contemplated hereby
and other than any sale of whole loans and securitizations in
the ordinary course; provided, however, that for
purposes of Section 8.03(a), references in this definition
to “more than 15%” shall be deemed to be references to
“25% or more”.
“Agreement” has the meaning assigned in the
Preamble.
“Articles of Merger” has the meaning assigned
in Section 2.03.
“BCA” means the Business Corporation Act of the
State of North Carolina.
“Benefit Arrangement”means, with respect to
each of Wachovia and Golden West, each of the following
(a) under which any Employee or any of its current or
former directors has any present or future right to
benefits, (b) that is sponsored or maintained by it or its
Subsidiaries, or (c) under which it or its Subsidiaries has
had or has any present or future liability to any Employee or
any of its current or former directors: each “employee
benefit plan” (within the meaning of Section 3(3) of
ERISA) and each stock purchase, stock option, severance,
employment,
change-in-control,
fringe benefit, bonus, incentive, deferred compensation, paid
time off benefits and other employee benefit plan, agreement,
program, policy or other arrangement (with respect to any of
preceding, whether or not subject to ERISA).
“Benefits Transition Date” has the meaning
assigned in Section 6.12(a).
“BHC Act” means the Bank Holding Company Act of
1956.
“Cash Amount” has the meaning assigned in
Section 3.01.
“Cash Consideration” has the meaning assigned
in Section 3.01.
“Certificate of Merger” has the meaning
assigned in Section 2.03.
“Closing” has the meaning assigned in
Section 2.02.
“Closing Date” has the meaning assigned in
Section 2.02.
“Code” has the meaning assigned in the Recitals.
“Confidentiality Agreement” has the meaning
assigned in Section 6.05(b).
“Constituent Documents” means the charter or
articles or certificate of incorporation and by-laws of a
corporation or banking organization, the certificate of
partnership and partnership agreement of a general or limited
partnership, the certificate of formation and limited liability
company agreement of a limited liability company, the trust
agreement of a trust and the comparable documents of other
entities.
“Costs” has the meaning assigned in
Section 6.11(a).
“Covered Employees” has the meaning assigned in
Section 6.12(a).
“Disclosure Schedule” has the meaning assigned
in Section 5.01.
“Dissenting Shareholder” has the meaning
assigned in Section 3.07.
“Dissenting Shares” means shares of Golden West
Common Stock the holders of which have perfected and not
withdrawn or lost their right to dissent with respect to such
shares under Section 262 of the GCL.
“Effective Time” has the meaning assigned in
Section 2.03.
“Employees” means current and former employees
of each of Wachovia and Golden West, as the context requires.
“Environmental Laws” means the statutes, rules,
regulations, ordinances, codes, orders, decrees, and any other
laws (including common law) of any foreign, federal, state,
local, and any other governmental authority, regulating,
relating to or imposing liability or standards of conduct
concerning pollution, or protection of human health and safety
or of the environment, as in effect on or prior to the date of
this Agreement.
“ERISA” means the Employee Retirement Income
Security Act of 1974.
“ERISA Affiliate” has the meaning assigned in
Section 5.03(m).
“Exchange Act” means the Securities Exchange
Act of 1934 and the rules and regulations thereunder.
“Exchange Agent” has the meaning assigned in
Section 3.04(a).
“Exchange Fund” has the meaning assigned in
Section 3.04(a).
“Exchange Ratio” has the meaning assigned in
Section 3.01.
“GAAP” means United States generally accepted
accounting principles.
“GCL” means the General Corporation Law of the
State of Delaware.
“Golden West” has the meaning assigned in the
preamble to this Agreement.
“Golden West Affiliate” has the meaning
assigned in Section 6.07.
“Golden West Board” means the Board of
Directors of Golden West.
“Golden West Common Stock” means the common
stock, par value $.10 per share, of Golden West.
“Golden West Director Appointees” has the
meaning assigned in Section 2.07.
“Golden West Insiders” means those officers and
directors of Golden West subject to the reporting requirements
of Section 16(a) of the Exchange Act and who are listed in
the Section 16 Information.
“Golden West Meeting” has the meaning assigned
in Section 6.02(c).
“Golden West Preferred Stock” means the
preferred stock, par value $1.00 per share, of Golden West.
“Golden West Stock Option” has the meaning
assigned in Section 3.10(a).
“Golden West Stock Plans” means (a) Golden
West’s 1996 Stock Option Plan, as amended and restated as
of February 2, 1996 and as further amended as of
May 2, 2001 and (b) Golden West’s 2005 Stock
Incentive Plan.
“Governmental Authority” means any court,
administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, or any
industry self-regulatory authority.
“HOLA” means the Home Owners’
Loan Act.
“HSR Act” means the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules and
regulations thereunder.
“Indemnified Party” has the meaning assigned in
Section 6.11(a).
“Joint Proxy Statement” has the meaning
assigned in Section 6.03(a).
“Lien” means any charge, mortgage, pledge,
security interest, restriction, claim, lien, or encumbrance.
“Market Price” means the average of the last
reported sale prices of Wachovia Common Stock, as reported by
the NYSE Composite Transactions Reporting System (as reported in
The Wall Street Journal or, if not reported therein, in
another authoritative source), for the last ten NYSE trading
days preceding the Closing Date.
“Material Adverse Effect” means, with respect
to Wachovia or Golden West, any effect that
(a) has a material adverse effect on the financial
condition, results of operations or business of Wachovia and its
Subsidiaries, taken as a whole, or Golden West and its
Subsidiaries, taken as a whole, respectively, excluding (with
respect to each of clause (1), (3) and (5), only to
the extent that the effect of a change on it is not
disproportionate to the effect of such change on comparable
U.S. banking organizations) the impact of (1) changes
in banking and other laws of general applicability or changes in
the interpretation thereof by Governmental Authorities,
(2) changes in GAAP or regulatory accounting requirements
applicable to U.S. banking organizations generally,
(3) changes in prevailing interest rates or other general
economic or market conditions affecting U.S. banking
organizations generally, (4) actions or omissions of a
party to this Agreement required by this Agreement or taken with
the prior written consent of the other party to this Agreement
in contemplation of the transactions contemplated hereby,
(5) changes in global or national political conditions
(including the outbreak of war or acts of terrorism) or due to
natural disasters, and (6) to the extent consistent with
GAAP, any modifications or changes to valuation policies or
practices, or restructuring charges, in each case taken with the
prior approval of Wachovia or Golden West, as the case may be,
in connection with the Merger; or
(b) would materially impair the ability of Wachovia or
Golden West, respectively, to perform its obligations under this
Agreement or to consummate the transactions contemplated hereby
on a timely basis.
“Materials of Environmental Concern” means any
hazardous or toxic substances, materials, wastes, pollutants, or
contaminants, including without limitation those defined or
regulated as such under any Environmental Law, and any other
substance the presence of which may give rise to liability under
Environmental Law.
“Merger” has the meaning assigned in the
Recitals.
“Merger Consideration” has the meaning assigned
in Section 3.01.
“Merger Sub” has the meaning assigned in the
preamble to this Agreement.
“Merger Sub Common Stock” means the common
stock, par value $0.01 share, of Merger Sub.
“New Certificates” has the meaning assigned in
Section 3.04(a).
“New Option” has the meaning assigned in
Section 3.10(a).
“NYSE” means the New York Stock Exchange.
“Old Certificates” has the meaning assigned in
Section 3.04(a).
“Other Persons” has the meaning assigned in
Section 6.06(a).
“OTS” means the Office of Thrift Supervision.
“party” means Wachovia, Merger Sub or Golden
West.
“Pension Plan” has the meaning assigned in
Section 5.03(m).
“person” is to be interpreted broadly to
include any individual, savings association, bank, trust
company, corporation, limited liability company, partnership,
association, joint-stock company, business trust or
unincorporated organization.
“Previously Disclosed” means information set
forth by a party in the applicable paragraph of its Disclosure
Schedule, or in another paragraph of its Disclosure Schedule (so
long as it is reasonably clear from the context that the
disclosure in such other paragraph of its Disclosure Schedule is
also applicable to the section of this Agreement in question).
“Registration Statement” has the meaning
assigned in Section 6.03(a).
“Regulatory Filings” has the meaning assigned
in Section 5.03(h).
“Representatives” means, with respect to any
person, such person’s directors, officers, employees, legal
or financial advisors or any representatives of such legal or
financial advisors.
“Requisite Regulatory Approvals” has the
meaning assigned in Section 6.10(a).
“Rights” means, with respect to any person,
securities or obligations convertible into or exercisable or
exchangeable for, or giving any other person any right to
subscribe for or acquire, or any options, calls or commitments
relating to, or any stock appreciation right or other instrument
the value of which is determined in whole or in part by
reference to the market price or value of, shares of capital
stock of such first person.
“Sarbanes-Oxley Act” means the Sarbanes-Oxley
Act of 2002 and the rules and regulations thereunder.
“SEC” means the United States Securities and
Exchange Commission.
“Secretary of State (Del)” means the Secretary
of State of the State of Delaware.
“Secretary of State (NC)” means the Secretary
of State of the State of North Carolina.
“Section 16 Information” means information
regarding the Golden West Insiders, including the number of
shares of Golden West Common Stock held or to be held by a
Golden West Insider expected to be exchanged for Wachovia Common
Stock in the Merger, and the number and description of the
options to purchase shares of Golden West Common Stock held by a
Golden West Insider and expected to be converted into options to
purchase shares of Wachovia Common Stock in connection with the
Merger.
“Securities Act” means the Securities Act of
1933 and the rules and regulations thereunder.
“Stock Consideration” has the meaning assigned
in Section 3.01.
“Subsidiary” and “Significant
Subsidiary” have the meanings ascribed to those terms
in
Rule 1-02
of
Regulation S-X
promulgated by the SEC.
“Superior Proposal” means a bona fide
written Acquisition Proposal which the Golden West Board
concludes in good faith to be more favorable from a financial
point of view to its shareholders than the Merger and the other
transactions contemplated hereby, (1) after receiving the
advice of its financial advisors (which shall be a nationally
recognized investment banking firm), (2) after taking into
account the likelihood and timing of consummation of the
proposed transaction on the terms set forth therein (as compared
to, and with due regard for, the terms herein) and
(3) after taking into account all legal (with the advice of
outside counsel), financial (including the financing terms of
any such proposal), regulatory (including the advice of outside
counsel regarding the potential for regulatory approval of any
such proposal) and other aspects of such proposal and any other
relevant factors permitted under applicable law; provided
that for purposes of the definition of “Superior
Proposal”, the references to “more than 15%” in
the definition of Acquisition Proposal shall be deemed to be
references to “25% or more”.
“Surviving Corporation” has the meaning
assigned in the Recitals.
“Takeover Laws” has the meaning assigned in
Section 5.03(p).
“Takeover Provisions” has the meaning assigned
in Section 5.03(p).
“Tax” and “Taxes” means all
federal, state, local or foreign taxes, charges, fees, levies or
other assessments, however denominated, including, without
limitation, all net income, gross income, gains, gross receipts,
sales, use, ad valorem, goods and services, capital, production,
transfer, franchise, windfall profits, license, withholding,
payroll, employment, disability, employer health, excise,
estimated, severance, stamp, occupation, property,
environmental, unemployment or other taxes, custom duties, fees,
assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority.
“Tax Returns” means any return, amended return
or other report (including elections, declarations, disclosures,
schedules, estimates and information returns) required to be
filed with any taxing authority with respect to any Tax.
“Voting Agreements” has the meaning assigned in
the Recitals.
“Wachovia” has the meaning assigned in the
preamble to this Agreement.
“Wachovia Board” means the Board of Directors
of Wachovia.
“Wachovia Common Stock” means the common stock,
par value $3.33 per share, of Wachovia.
“Wachovia DRIP” means the Wachovia Dividend
Reinvestment and Stock Purchase Plan.
“Wachovia Meeting” has the meaning assigned in
Section 6.02(c).
“Wachovia Preferred Stock” means, collectively,
the Preferred Stock, no-par value, the Class A Preferred
Stock, no-par value, and the Dividend Equalization Preferred
shares, no-par value, of Wachovia.
“Wachovia Rights” means rights to purchase
shares of Wachovia Stock issued under the Wachovia Rights
Agreement.
“Wachovia Stock Plans” means the Wachovia 2003
Stock Incentive Plan, the Wachovia 2001 Stock Incentive Plan,
the Wachovia Employee Retention Stock Plan, the Wachovia Stock
Plan, the Wachovia 1998 Stock Incentive Plan, the Wachovia 1996
Master Stock Compensation Plan and the Wachovia 1992 Master
Stock Compensation Plan, as amended.
1.02. Interpretation. (a) In
this Agreement, except as context may otherwise require,
references:
(1) to the Preamble, Recitals, Sections, Annexes or
Schedules are to the Preamble to, a Recital or Section of, or
Annex or Schedule to, this Agreement;
(2) to this Agreement are to this Agreement, and the
Annexes and Schedules to it, taken as a whole;
(3) to any agreement (including this Agreement and the
Voting Agreements as executed and delivered), contract, statute
or regulation are to the agreement, contract, statute or
regulation as amended, modified, supplemented, restated or
replaced from time to time (in the case of an agreement or
contract, to the extent permitted by the terms thereof); and to
any section of any statute or regulation include any successor
to the section;
(4) to the “transactions contemplated hereby”
includes the transactions provided for in this Agreement and the
Annexes to it; and
(5) to any Governmental Authority include any successor to
that Governmental Authority; and
(6) to the date of this Agreement or the date hereof are to
May 7, 2006.
(b) The table of contents and article and section headings
are for reference purposes only and do not limit or otherwise
affect any of the substance of this Agreement.
(c) The words “include,”“includes” or
“including” are to be deemed followed by the words
“without limitation.”
(d) The words “herein”, “hereof” or
“hereunder”, and similar terms are to be deemed to
refer to this Agreement as a whole and not to any specific
Section.
(e) This Agreement is the product of negotiation by the
parties, having the assistance of counsel and other advisers.
The parties intend that this Agreement not be construed more
strictly with regard to one party than with regard to the other.
(f) No provision of this Agreement is to be construed to
require, directly or indirectly, any person to take any action,
or omit to take any action, to the extent such action or
omission would violate applicable law (including statutory and
common law), rule or regulation.
ARTICLE II
The
Merger
2.01. The Merger. Upon the terms
and subject to the conditions set forth in this Agreement,
Golden West will merge with and into Merger Sub at the Effective
Time. At the Effective Time, the separate corporate existence of
Golden West will terminate. Merger Sub will be the Surviving
Corporation, and will continue its corporate existence under the
laws of the State of North Carolina.
2.02. Closing. The closing of the
Merger (the “Closing”) will take place in the
offices of Sullivan & Cromwell LLP, 125 Broad Street,
New York, New York, at 10:00 a.m. on the third business day
(unless the parties agree to another time or date) after
satisfaction or waiver of the conditions set forth in
Article VII, other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions (the “Closing
Date”).
2.03. Effective Time. Subject to
the provisions of this Agreement, in connection with the
Closing, Golden West and Merger Sub will duly execute and
deliver (1) articles of merger (the “Articles of
Merger”) to the Secretary of State (NC) for filing
under
Section 55-11-05
of the BCA and (2) a certificate of merger (the
“Certificate of Merger”) to the Secretary of
State (Del) for filing under Section 252 of the GCL. The
parties will make all other filings or recordings required under
the BCA and the GCL, and the Merger will become effective when
the Articles of Merger are filed in the office of the Secretary
of State (NC) and the Certificate of Merger is filed in the
office of the Secretary of State (Del), or at such later date or
time as Wachovia and Golden West agree and specify in the
Articles of Merger and the Certificate of Merger (the time the
Merger becomes effective being the “Effective
Time”).
2.04. Effects of the Merger. The
Merger will have the effects prescribed by the BCA, the GCL and
other applicable law.
2.05. Constituent
Documents. (a) The certificate of
incorporation of Merger Sub, as in effect immediately before the
Effective Time, will be the articles of incorporation of the
Surviving Corporation as of the Effective Time.
(b) The by-laws of Merger Sub, as in effect immediately
before the Effective Time, will be the by-laws of the Surviving
Corporation as of the Effective Time.
2.06. Golden West Board of
Directors. The board of directors of the
Surviving Corporation shall consist of the members of the Merger
Sub board of directors immediately before the Effective Time.
2.07. Wachovia Board. Wachovia
agrees to cause two current members of the Golden West Board
designated by Golden West and reasonably acceptable to Wachovia
(the “Golden West Director Appointees”) to be
appointed to the Wachovia Board immediately after the Effective
Time.
ARTICLE III
Consideration;
Exchange Procedures
3.01. Consideration. At the
Effective Time, by virtue of the Merger and without any action
on the part of the holder of any shares of Golden West Stock and
subject to Sections 3.04(c) and 3.05, the shares of Golden
West Common Stock issued and outstanding immediately prior to
the Effective Time, with respect to each holder of record of
such shares, will be converted into the right to receive:
(1) a number of fully paid and nonassessable shares of
Wachovia Common Stock (and the requisite number of Wachovia
Rights issued and attached to such shares under the Wachovia
Rights Agreement) equal to the product of (i) 1.365 (the
“Exchange Ratio”), multiplied by (ii) the
number of shares of Golden West Common Stock held by such holder
of record, multiplied by (iii) 77 percent (such
product, the “Stock Consideration”); and
(2) an amount in cash equal to the product of
(i) $81.07 (the “Cash Amount”), multiplied
by (ii) the number of shares of Golden West Common Stock
held by such holder of record, multiplied by
(iii) 23 percent (such product, the “Cash
Consideration” and, together with the Stock
Consideration, the “Merger Consideration”).
Notwithstanding anything in this Section 3.01 to the
contrary, at the Effective Time and by virtue of the Merger,
each share of Golden West Common Stock beneficially owned by
Wachovia (other than shares held in a trust, fiduciary, or
nominee capacity or as a result of debts previously contracted)
or held in Golden West’s treasury will be canceled and no
shares of Wachovia Stock and no Wachovia Rights or other
consideration will be issued or paid in exchange therefor.
3.02. Cancellation of Shares. At
the Effective Time, the shares of Golden West Common Stock will
no longer be outstanding and will automatically be canceled and
will cease to exist. Certificates that represented Golden West
Common Stock before the Effective Time will be deemed for all
purposes to represent the number of shares of Wachovia Common
Stock or cash into which they were converted pursuant to
Section 3.01, and, as contemplated by the Wachovia Rights
Agreement, attached Wachovia Rights.
3.03. Rights as Shareholders; Stock
Transfers. At the Effective Time, holders of
Golden West Common Stock will cease to be, and will have no
rights as, shareholders of Golden West, other than rights to
(a) receive any then unpaid dividend or other distribution
with respect to such Golden West Common Stock having a record
date before the Effective Time and (b) receive the Merger
Consideration provided under this Article III. After the
Effective Time, there will be no transfers of shares of Golden
West Common Stock on the stock transfer books of Golden West or
the Surviving Corporation, and shares of Golden West Common
Stock presented to the Surviving Corporation for any reason will
be canceled and exchanged in accordance with this
Article III.
3.04. Exchange
Procedures. (a) As of the Effective Time,
Wachovia will deposit with Wachovia’s transfer agent or
with a depository or trust institution of recognized standing
selected by Wachovia and reasonably satisfactory to Golden West
(in such capacity, the “Exchange Agent”), for
the benefit of the holders of certificates formerly representing
shares of Golden West Common Stock (“Old
Certificates”), (1) certificates or, at
Wachovia’s option, evidence of shares in book entry form,
representing the number of shares of Wachovia Common Stock
(“New Certificates”) issuable to holders of Old
Certificates under this Article III, (2) the aggregate
Cash Consideration payable to holders of Old Certificates under
this Article III and (3) cash payable pursuant to
Section 3.05 (the “Exchange Fund”).
(b) Promptly after the Effective Time, Wachovia will send
or cause to be sent to each person who was a recordholder of
Golden West Common Stock immediately before the Effective Time
transmittal materials, in form reasonably acceptable to Golden
West, for exchanging Old Certificates. Upon surrender of an Old
Certificate for cancellation to the Exchange Agent together with
the transmittal materials, duly executed, and such other
documents as the Exchange Agent may reasonably require
(including customary indemnity if any of such certificates are
lost, stolen, or destroyed), the holder of such Old Certificate
shall be entitled to receive in exchange therefor a certificate
representing that number of New Certificates which such holder
has the right to receive in respect of the Old Certificates
surrendered pursuant to the provisions of this Article III
(after taking into account all shares of Golden West Common
Stock then held by such holder) and any check in respect of the
Cash Consideration payable to the holder of such Old
Certificates, dividends or distributions or for fractional
shares that the shareholder will be entitled to receive, and the
Old Certificates so surrendered shall forthwith be cancelled. No
interest will be paid on any such cash or other consideration
deliverable pursuant to this Article III.
(c) If, on or after the date of this Agreement and prior to
the Closing Date, any holder of record (or group of related
holders of record) of shares of Golden West Common Stock (a
“Transferor”) transfers or conveys, in one or
more transactions, a number of shares of Golden West Common
Stock to one or more charitable organizations (as defined in
Section 170(c) of the Code) (each, a
“Transferee” and together, the
“Transferees”) such that the aggregate number
of shares of Golden West Common Stock so transferred or conveyed
by the Transferor to the Transferees represents more than
0.1 percent of the issued and outstanding shares of Golden
West Common Stock as of the date of this Agreement, then the
Transferor and the Transferees may jointly and irrevocably elect
by providing written notice to Wachovia of such
election (and proper provision shall be made on the
transmittal materials to give effect to such election) that the
Transferor and the Transferees be treated as though they were a
single holder of record for purposes of Section 3.01 and
may designate in such written notice to Wachovia and the
transmittal materials the manner in which the aggregate Stock
Consideration and aggregate Cash Consideration that the
Transferor and Transferees are entitled to receive under this
Article III shall be allocated, and distributed by the
Exchange Agent, among the Transferor and Transferees.
(d) None of Wachovia, Golden West or the Exchange Agent
will be liable to any former holder of Golden West Common Stock
for any shares of Wachovia Common Stock (or dividends or
distributions with respect thereto) or cash from the Exchange
Fund properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(e) Each of Wachovia and the Surviving Corporation shall be
entitled to deduct and withhold, or cause the Exchange Agent to
deduct and withhold, from the consideration otherwise payable
pursuant to this Agreement to any holder of Golden West Common
Stock such amounts as it may be required to deduct and withhold
with respect to the making of such payment under the Code, or
any provision of state, local or foreign Tax law. To the extent
that amounts are so withheld by the Wachovia, the Surviving
Corporation, or
the Exchange Agent, as the case may be, the withheld amounts
shall be treated for all purposes of this Agreement as having
been paid to the holders of Golden West Common Stock in respect
of which the deduction and withholding was made by Wachovia, the
Surviving Corporation or the Exchange Agent, as the case may be.
3.05. Fractional
Shares. Notwithstanding any other provision
hereof, no fractional shares of Wachovia Common Stock and no
certificates or scrip therefor, or other evidence of ownership
thereof, will be issued in the Merger; instead, Wachovia will
pay to each holder of Golden West Common Stock who would
otherwise be entitled to a fractional share of Wachovia Common
Stock (after taking into account all Old Certificates delivered
by such holder) an amount in cash (without interest) determined
by multiplying such fraction of a share of Wachovia Common Stock
by the Market Price.
3.06. Anti-Dilution Adjustments. If
Wachovia changes (or the Wachovia Board sets a related record
date that will occur before the Effective Time for a change in)
the number or kind of shares of Wachovia Common Stock
outstanding by way of a stock split, stock dividend,
recapitalization, reclassification, reorganization or similar
transaction, then the Exchange Ratio and the Cash Amount will be
adjusted proportionately to account for such change.
3.07. Dissenting
Shareholders. (a) Each Dissenting Share
shall not be converted into or represent a right to receive
Merger Consideration hereunder, and the holder thereof shall be
entitled only to such rights as are granted by Section 262
of the GCL. Golden West shall give Wachovia prompt notice upon
receipt by the Golden West of any demand for payment pursuant to
Section 262 of the GCL and of withdrawals of such notice
and any other instruments provided pursuant to applicable law
(any stockholder duly making such demand being hereinafter
called a “Dissenting Shareholder”), and
Wachovia shall have the right to participate in all negotiations
and proceedings with respect to any such demands. Any payments
made in respect of Dissenting Shares shall be made by Wachovia.
(b) If any Dissenting Shareholder shall effectively
withdraw or lose (through failure to perfect or otherwise) his
or her right to dissent under Section 262 of the GCL at or
prior to the Effective Time, such holder’s shares of Golden
West Common Stock shall be converted into a right to receive the
Merger Consideration in accordance with the applicable
provisions of this Agreement.
3.08. Effect on Merger Sub Common
Stock. Each share of Merger Sub Common Stock
outstanding immediately prior to the Effective Time will remain
outstanding.
3.09. Effect on Wachovia
Stock. Each share of Wachovia Stock outstanding
immediately prior to the Effective Time will remain outstanding.
3.10. Stock Options. (a) At
the Effective Time, by virtue of the Merger and without any
action on the part of any holder of any outstanding option to
purchase shares of Golden West Common Stock under the Golden
West Stock Plans and any other Benefit Arrangement, whether
vested or unvested, exercisable or unexercisable (each, a
“Golden West Stock Option”), each Golden West
Stock Option that is outstanding and unexercised immediately
prior thereto shall immediately and fully vest and be deemed to
constitute an option (a “New Option”) to
purchase, on the same terms and conditions as were applicable
under the terms of the stock option plan under which the Golden
West Stock Option was granted and the applicable award agreement
thereunder (taking into account the accelerated vesting provided
in this Section 3.10 and the amendments to the Golden West
Stock Options as Previously Disclosed), such number of shares of
Wachovia Common Stock and at such an exercise price per share
determined as follows:
(1) Number of Shares. The number of
shares of Wachovia Common Stock subject to a New Option shall be
equal to the product of (A) the number of shares of Golden
West Common Stock purchasable upon exercise of the Golden West
Stock Option and (B) the Exchange Ratio, the product being
rounded down to the nearest whole share; and
(2) Exercise Price. The exercise price
per share of Wachovia Common Stock purchasable upon exercise of
a New Option shall be equal to (A) the exercise price per
share of Golden West Common
Stock under the Golden West Stock Option divided by (B) the
Exchange Ratio, the quotient being rounded up to the nearest
cent.
For the avoidance of doubt, the foregoing adjustments shall be
effected in a manner consistent with Section 424(a) of the
Code.
(b) Before the Effective Time, Golden West, or its Board of
Directors or an appropriate committee thereof, shall take all
action necessary on its part to give effect to the provisions of
Section 3.10(a) and shall take such other actions
reasonably requested by Wachovia to give effect to the
foregoing. Before the Effective Time, Wachovia shall take all
corporate action necessary to reserve for future issuance a
sufficient additional number of shares of Wachovia Common Stock
to provide for the satisfaction of its obligations with respect
to the New Options. As soon as practicable, but in no event
later than the Effective Time, Wachovia shall file a
registration statement on
Form S-8
(or any successor or other appropriate form) with respect to the
Wachovia Common Stock issuable upon exercise of the New Options
and shall maintain the effectiveness of such registration
statement (and to maintain the current status of the prospectus
or prospectuses contained therein) for so long as such New
Options remain outstanding.
ARTICLE IV
Conduct
of Business Pending the Merger
4.01. Forebearances of Golden
West. Golden West agrees that from the date
hereof until the Effective Time, except as expressly
contemplated by this Agreement or as Previously Disclosed,
without the prior written consent of Wachovia (which consent
will not be unreasonably withheld or delayed), it will not, and
will cause each of its Subsidiaries not to:
(a) Ordinary Course. Conduct its business
and the business of its Subsidiaries other than in the ordinary
and usual course or fail to use reasonable best efforts to
preserve intact its business organizations and assets and
maintain its rights, franchises and authorizations and their
existing relations with customers, suppliers, employees and
business associates, or take any action reasonably likely to
materially impair its ability to perform its obligations under
this Agreement or to consummate the transactions contemplated
hereby.
(b) Operations. Enter into any new
material line of business or change its material lending,
investment, underwriting, risk and asset liability management
and other material banking and operating policies, except as
required by applicable law, regulation or policies imposed by
any Governmental Authority.
(c) Capital Stock. Other than pursuant to
Rights Previously Disclosed and outstanding on the date of this
Agreement, (1) issue, sell or otherwise permit to become
outstanding, or dispose of or encumber or pledge, or authorize
or propose the creation of, any additional shares of its stock,
or (2) permit any additional shares of its stock to become
subject to new grants, except issuances of employee or director
stock options or other stock-based employee Rights in the
ordinary course of business consistent with past practice.
(d) Dividends, Distributions,
Repurchases. (1) Make, declare, pay or set
aside for payment any dividend on or in respect of, or declare
or make any distribution on any shares of its stock (other
than (A) dividends from its wholly owned Subsidiaries
to it or another of its wholly owned Subsidiaries or
(B) regular quarterly dividends on its common stock,
provided that any such dividend shall be at a rate equal to the
rate paid by it during the fiscal quarter immediately preceding
the date hereof, or required dividends on preferred stock or
(2) directly or indirectly adjust, split, combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its
stock.
(e) Dispositions. Sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of
its assets, deposits, business or properties, except for sales,
transfers, mortgages, encumbrances or other dispositions or
discontinuances in the ordinary course of business consistent
with past practice (which shall be deemed to include asset
sales, including sales of whole loans and securitizations, in
the ordinary course) and in a transaction that, together with
other such transactions, is not material to it and its
Subsidiaries, taken as a whole.
(f) Acquisitions. Acquire (other than by
way of foreclosures or acquisitions of control in a fiduciary or
similar capacity or in satisfaction of debts previously
contracted in good faith or otherwise in the ordinary and usual
course of business consistent with past practice) all or any
portion of the assets, business, deposits or properties of any
other entity in an amount that is material to Golden West.
(g) Constituent Documents. Amend its
Constituent Documents or the Constituent Documents (or similar
governing documents) of any of its Significant Subsidiaries.
(h) Accounting Methods. Implement or
adopt any change in its financial or regulatory accounting
principles, practices or methods or change any actuarial or
other assumptions used to calculate funding obligations with
respect to any Benefit Arrangement, other than (with prior
notice to Wachovia) as may be required by GAAP or applicable
regulatory accounting requirements.
(i) Adverse Actions. Notwithstanding
anything herein to the contrary, (1) knowingly take, or
knowingly omit to take, any action that would, or is reasonably
likely to, prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the
Code or (2) knowingly take, or knowingly omit to take, any
action that is reasonably likely to result in any of the
conditions to the Merger set forth in Article VII not being
satisfied in a timely manner, except (with prior notice to
Wachovia) as may be required by applicable law or regulation.
(j) Compensation and Benefits. Grant any
salary or wage increase or increase any employee benefit,
including incentive or bonus payments (or, with respect to any
of the preceding, communicate any intention to take such
action), except (1) to make changes that are
required by applicable law, (2) to satisfy Previously
Disclosed contractual obligations existing as of the date
hereof, (3) for merit-based or annual salary increases in
the ordinary course of business and in accordance with past
practice, but not to exceed in the aggregate 5% of the aggregate
annual salaries of the employees of Golden West and its
Subsidiaries, taken as a whole, or (4) for employment
arrangements for, or grants of awards to, newly hired employees
in the ordinary and usual course of business consistent with
past practice.
(k) Benefit Plans. Enter into, establish,
adopt, amend, modify (including by way of interpretation) or
renew any Benefit Arrangement, or any trust agreement (or
similar arrangement) related thereto, in respect of any
director, officer or employee, take any action to accelerate the
vesting or exercisability of Golden West Stock Options or other
compensation or benefits payable under any Benefit Arrangement,
fund or in any other way secure the payment of compensation or
benefits under any Benefit Arrangement, change the manner in
which contributions to any Benefit Arrangement are made or
determined, or add any new participants to or increase the
principal sum of any non-qualified retirement plans (or, with
respect to any of the preceding, communicate any intention to
take such action), except (1) as may be required by
applicable law, (2) to satisfy Previously Disclosed
contractual obligations existing as of the date hereof or
(3) amendments that do not increase benefits or result in
increased administrative costs.
(l) Taxes. Make or change any material
Tax elections, change or consent to any material change in its
or its Subsidiaries’ method of accounting for Tax purposes
(except as required by applicable Tax law), settle or compromise
any material Tax liability, claim or assessment, or file any
material amended Tax Return.
(m) Commitments. Enter into any contract
with respect to, or otherwise agree or commit to do, any of the
foregoing.
4.02. Forebearances of
Wachovia. Wachovia agrees that from the date
hereof until the Effective Time, except as expressly
contemplated by this Agreement or as Previously Disclosed,
without the prior written consent of Golden West, it will not,
and will cause each of its Subsidiaries not to:
(a) Constituent Documents. Amend its
Constituent Documents in a manner that would materially and
adversely affect the rights and privileges of holders of
Wachovia Common Stock or prevent or materially impede or
materially delay consummation of the transactions contemplated
hereby.
(b) Adverse Actions. Notwithstanding
anything herein to the contrary, (1) knowingly take, or
knowingly omit to take, any action that would, or is reasonably
likely to, prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the
Code or (2) knowingly take, or knowingly
omit to take, any action that is reasonably likely to result in
any of the conditions to the Merger set forth in
Article VII not being satisfied in a timely manner, except
(with prior notice to Golden West) as may be required by
applicable law or regulation.
(c) Commitments. Enter into any contract
with respect to, or otherwise agree or commit to do, any of the
foregoing.
Notwithstanding anything in paragraphs (a), (b) or
(c) of this Section 4.02 to the contrary, Wachovia may
make dispositions and acquisitions and agree to issue capital
stock in connection therewith, provided that such actions do not
present a material risk that the Closing Date will be delayed or
that the Requisite Regulatory Approvals will be materially more
difficult to obtain.
4.03. Coordination of
Dividends. Until the Effective Time, Golden West
will coordinate with Wachovia regarding the declaration of any
dividends or other distributions with respect to Golden West
Common Stock and the related record dates and payment dates, it
being intended that Golden West shareholders will not receive
more than one dividend, or fail to receive one dividend, for any
single calendar quarter on their shares of Golden West Common
Stock (including any shares of Wachovia Common Stock received in
exchange therefor in the Merger).
ARTICLE V
Representations
and Warranties
5.01. Disclosure Schedules. Before
entry into this Agreement, Wachovia delivered to Golden West a
schedule and Golden West delivered to Wachovia a schedule
(respectively, each schedule a “Disclosure
Schedule”), setting forth, among other things, items
the disclosure of which is necessary or appropriate either in
response to an express disclosure requirement contained in a
provision hereof or as an exception to one or more
representations or warranties contained in Section 5.03 or
to one or more of its covenants contained in Article IV;
provided that the inclusion of an item in a Disclosure
Schedule as an exception to a representation or warranty will
not by itself be deemed an admission by a party that such item
is material or was required to be disclosed therein.
5.02. Standard. For all purposes of
this Agreement, no representation or warranty of Golden West or
Wachovia contained in Section 5.03 or 5.04 (other than the
representations and warranties contained in Section 5.03(b)
and 5.03(c), which shall be true in all material respects) will
be deemed untrue, and no party will be deemed to have breached a
representation or warranty, as a consequence of the existence of
any fact, event or circumstance unless such fact, circumstance
or event, individually or taken together with all other facts,
events or circumstances inconsistent with any representation or
warranty contained in Section 5.03 or 5.04, has had or is
reasonably likely to have a Material Adverse Effect with respect
to Golden West or Wachovia, as the case may be.
5.03. Representations and
Warranties. Except as Previously Disclosed or as
set forth in its Regulatory Filings filed or furnished with the
SEC on or after January 1, 2003 and prior to the date of
this Agreement, Golden West represents and warrants to Wachovia,
and Wachovia hereby represents and warrants to Golden West, to
the extent applicable, as follows:
(a) Organization, Standing and
Authority. It is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation. It is duly qualified to do
business and is in good standing in all jurisdictions where its
ownership or leasing of property or assets or its conduct of
business requires it to be so qualified.
(b) Golden West Stock. In the case of
Golden West:
The authorized capital stock of Golden West consists of
600,000,000 shares of Golden West Common Stock and
20,000,000 shares of Golden West Preferred Stock. As of the
date of this Agreement, no more than 309,000,000 shares of
Golden West Common Stock and no shares of Golden West Preferred
Stock were outstanding. As of the date of this Agreement, no
more than 34,600,000 shares of Golden West Common
Stock were reserved for issuance under the Golden West Stock
Plans (of which no more than 9,600,000 shares were reserved
for issuance in respect of awards outstanding as of such date).
The outstanding shares of Golden West Common Stock have been
duly authorized and are validly issued and outstanding, fully
paid and nonassessable, and subject to no preemptive rights (and
were not issued in violation of any preemptive rights). Except
for shares issuable pursuant to the Golden West Stock Plans, as
of the date of this Agreement, there are no shares of Golden
West Stock reserved for issuance, Golden West does not have any
Rights outstanding with respect to Golden West Stock, and Golden
West does not have any commitment to authorize, issue or sell
any Golden West Stock or Rights, except pursuant to this
Agreement, outstanding Golden West Stock Options and the Golden
West Stock Plans. As of the date of this Agreement, Golden West
has no commitment to redeem, repurchase or otherwise acquire, or
to register with the SEC, any shares of Golden West Stock.
(c) Wachovia Stock. In the case of
Wachovia:
The authorized capital stock of Wachovia consists of
3,000,000,000 shares of Wachovia Common Stock and
550,000,000 shares of Wachovia Preferred Stock. As of the
date of this Agreement, no more than 1,625,000,000 shares
of Wachovia Common Stock and 97,000,000 shares of Wachovia
Dividend Equalization Preferred Stock were outstanding. As of
March 31, 2006, no more than 140,000,000 shares of
Wachovia Common Stock were subject to Wachovia Stock Options
granted under the Wachovia Stock Plans. As of March 31,2006, there were no more than 66,000,000 shares of Wachovia
Common Stock reserved for issuance under the Wachovia Stock
Plans. The outstanding shares of Wachovia Common Stock have been
duly authorized and are validly issued and outstanding, fully
paid and nonassessable, and subject to no preemptive rights (and
were not issued in violation of any preemptive rights). The
shares of Wachovia Common Stock (together with the Wachovia
Rights) to be issued in the Merger have been duly authorized
and, if and when issued in the Merger, will be fully paid and
nonassessable. Except as set forth above, as of the date of this
Agreement, there are no shares of Wachovia Stock reserved for
issuance, Wachovia does not have any Rights issued or
outstanding with respect to Wachovia Stock, and Wachovia does
not have any commitment to authorize, issue or sell any Wachovia
Stock or Rights, except pursuant to this Agreement, outstanding
Wachovia Stock Options, the Wachovia Stock Plans, the Wachovia
Rights Agreement and the Wachovia DRIP. As of the date of this
Agreement, Wachovia has no commitment to redeem, repurchase or
otherwise acquire, or to register with the SEC, any shares of
Wachovia Stock.
(d) Significant Subsidiaries. (1)
(A) It owns, directly or indirectly, all the outstanding
equity securities of each of its Significant Subsidiaries free
and clear of any Liens, (B) no equity securities of any of
its Significant Subsidiaries are or may become required to be
issued (other than to it or its wholly owned Subsidiaries) by
reason of any Right or otherwise, (C) there are no
contracts, commitments, understandings or arrangements by which
any of such Significant Subsidiaries is or may be bound to sell
or otherwise transfer any equity securities of any such
Significant Subsidiaries (other than to it or its wholly-owned
Subsidiaries), (D) there are no contracts, commitments,
understandings, or arrangements relating to its rights to vote
or to dispose of such securities, (E) all the equity
securities of each Significant Subsidiary held by it or its
Subsidiaries have been duly authorized and are validly issued
and outstanding, fully paid and nonassessable (except as
provided in 12 U.S.C. § 55 or comparable OTS or
state laws in the case of banking Subsidiaries), and
(F) each Significant Subsidiary that is a bank or savings
association is an “insured bank” as defined in the
Federal Deposit Insurance Act and applicable regulations
thereunder.
(2) Each of its Significant Subsidiaries has been duly
organized and is validly existing in good standing under the
laws of the jurisdiction of its organization, and is duly
qualified to do business and in good standing in all
jurisdictions where its ownership or leasing of property or its
conduct of business requires it to be so qualified.
(e) Power. It and each of its
Subsidiaries has the corporate (or comparable) power and
authority to carry on its business as it is now being conducted
and to own all its properties and assets; and it has the
corporate (or comparable) power and authority to execute,
deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby.
(f) Authority. It has duly authorized,
executed and delivered this Agreement and has taken all
corporate action necessary in order to execute and deliver this
Agreement. Subject only to receipt of the requisite
affirmative vote (1) to approve the issuance of Wachovia
Common Stock required by this Agreement, by the holders of a
majority of the shares of Wachovia Common Stock voted and
(2) to approve the plan of merger contained in this
Agreement by the holders of a majority of the outstanding shares
of Golden West Common Stock, as the case may be, this Agreement
and the transactions contemplated hereby have been authorized by
all corporate action necessary on its respective part. This
Agreement is its valid and legally binding obligation,
enforceable in accordance with its terms (except as enforcement
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).
(g) Regulatory Approvals; No
Defaults. (1) No consents or approvals of,
or filings or registrations with, any Governmental Authority or
with any third party are required to be made or obtained by it
or any of its Subsidiaries in connection with the execution,
delivery or performance by it of this Agreement or to consummate
the Merger, except for (A) filings of applications and
notices with, receipt of approvals or nonobjections from, and
expiration of related waiting periods required by foreign,
federal and state banking authorities, including applications
and notices under the BHC Act, the Bank Merger Act, HOLA and the
Federal Reserve Act, (B) filing of notices, and expiration
of the related waiting period, under the HSR Act,
(C) filings of applications and notices with, and receipt
of approvals or nonobjections from, the SEC and state securities
authorities, the National Association of Securities Dealers,
Inc., applicable securities exchanges and self-regulatory
organizations, the Small Business Administration and state
insurance authorities, (D) filing of the Registration
Statement and Joint Proxy Statement with the SEC, and
declaration by the SEC of the Registration Statement’s
effectiveness under the Securities Act, (E) receipt of the
applicable shareholder approvals described in
Section 5.03(f), (F) the filing of the Articles of
Merger and Certificate of Merger, and (G) such filings with
applicable securities exchanges to obtain the authorizations for
listing contemplated by this Agreement.
(2) Subject to receipt of the consents and approvals
referred to in the preceding paragraph, and the expiration of
related waiting periods, and required filings under federal and
state securities laws, the execution, delivery and performance
of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (A) constitute a
breach or violation of, or a default under, or give rise to any
Lien or any acceleration of remedies, penalty, increase in
material benefit payable or right of termination under, any law,
rule or regulation or any judgment, decree, order, governmental
permit or license, or agreement, indenture or instrument of it
or of any of its Subsidiaries or to which it or any of its
Subsidiaries or properties is subject or bound,
(B) constitute a breach or violation of, or a default
under, its Constituent Documents or (C) require any consent
or approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license, agreement,
indenture or instrument.
(3) As of the date of this Agreement, it is not aware of
any reason why the necessary regulatory approvals and consents
will not be received in order to permit consummation of the
Merger on a timely basis.
(h) Financial Reports and Regulatory Filings; Material
Adverse Effect. (1) Its Annual Reports on
Form 10-K
for the fiscal years ended December 31, 2003, 2004 and
2005, and all other reports, registration statements, definitive
proxy statements or information statements filed by it or any of
its Subsidiaries subsequent to December 31, 2002 under the
Securities Act, or under Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act, in the form filed (collectively, its
“Regulatory Filings”) with the SEC as of the
date filed, (A) complied in all material respects as to
form with the applicable requirements under the Securities Act
or the Exchange Act, as the case may be, and (B) did not
contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading; and each of the
statements of financial position contained in or incorporated by
reference into any such Regulatory Filing (including the related
notes and schedules) fairly presented in all material respects
its financial position and that of its Subsidiaries as of the
date of such statement, and each of the statements of income and
changes in shareholders’ equity and cash flows or
equivalent statements in such Regulatory Filings (including any
related notes and schedules thereto) fairly presented in all
material respects, the results of operations, changes in
shareholders’ equity and changes in cash flows, as the case
may be, of it and its Subsidiaries for the periods to which
those statements relate, in each case in accordance with GAAP
consistently applied during the periods involved, except in each
case as
may be noted therein, and subject to normal year-end audit
adjustments and as permitted by
Form 10-Q
in the case of unaudited statements.
(2) Since December 31, 2005, it and its Subsidiaries
have not incurred any liability other than in the ordinary
course of business consistent with past practice.
(3) Since December 31, 2005, (A) it and its
Subsidiaries have conducted their respective businesses in the
ordinary and usual course consistent with past practice
(excluding the incurrence of expenses related to this Agreement
and the transactions contemplated hereby) and (B) no event
has occurred or circumstance arisen that, individually or taken
together with all other facts, circumstances and events
(described in any paragraph of Section 5.03 or otherwise),
has had or is reasonably likely to have a Material Adverse
Effect with respect to it.
(i) Litigation. Except as set forth in
its Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005 (without giving
effect to any amendment filed after the date of this Agreement),
there is no suit, action, investigation or proceeding pending
or, to its knowledge, threatened against or affecting it or any
of its Subsidiaries (and it is not aware of any basis for any
such suit, action or proceeding), nor is there any judgment,
decree, injunction, rule or order of any governmental entity or
arbitration outstanding against it or any of its Subsidiaries.
(j) Regulatory Matters. Except as set
forth in its Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005 (without giving
effect to any amendment filed after the date of this Agreement),
neither it nor any of its Subsidiaries is subject to, or has
been advised that it is reasonably likely to become subject to,
any special procedures or restrictions related to expansion
imposed by any written order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment
letter or similar submission to, or extraordinary supervisory
letter from, or adopted any extraordinary board resolutions at
the request of, any Governmental Authority charged with the
supervision or regulation of financial institutions or issuers
of securities or engaged in the insurance of deposits or the
supervision or regulation of it or any of its Subsidiaries. In
the case of Wachovia, it is a “financial holding
company”, as defined in Section 2(p) of the BHC Act,
and is not subject to an agreement under Section 4(m) of
such Act. In the case of Golden West, (i) it is a savings
and loan holding company duly registered under HOLA and
(ii) the activities conducted by it and its Subsidiaries
are permissible for a savings and loan company under
Section 10(c)(2) of HOLA.
(k) Compliance with Laws. Except as set
forth in its Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005 (without giving
effect to any amendment filed after the date of this Agreement),
it and each of its Subsidiaries:
(1) conducts its business in compliance with all applicable
federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable
thereto or to the employees conducting such businesses;
(2) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and
registrations with, all Governmental Authorities that are
required in order to permit them to own or lease their
properties and to conduct their businesses as presently
conducted; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect
and, to its knowledge, no suspension or cancellation of any of
them is threatened;
(3) has received, since December 31, 2002, no written
notification from any Governmental Authority (A) asserting
that it or any of its Subsidiaries is not in compliance with any
of the statutes, regulations or ordinances which such
Governmental Authority enforces or (B) threatening to
revoke any license, franchise, permit or governmental
authorization; and
(4) is in compliance with all applicable listing standards,
of the NYSE.
(5) has no reason to believe that any facts or
circumstances exist, which would cause it or any of its
Subsidiaries to be deemed (i) to be operating in violation
in any material respect of the Bank Secrecy Act, the Patriot
Act, any order issued with respect to anti-money laundering by
the U.S. Department of the Treasury’s Office of
Foreign Assets Control, or any other applicable anti-money
laundering statute,
rule or regulation; or (ii) not to be in satisfactory
compliance in any material respect with the applicable privacy
and customer information requirements contained in any federal
and state privacy laws and regulations, including, without
limitation, in Title V of the Gramm-Leach-Bliley Act of
1999 and the regulations promulgated thereunder, as well as the
provisions of the applicable information security program
adopted pursuant to 12 C.F.R Part 40.
(l) Material Contracts;
Defaults. (1) Except for those agreements
and other documents filed as exhibits to its Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, neither it nor
any of its Subsidiaries is a party to, bound by or subject to
any agreement, contract, arrangement, commitment or
understanding (whether written or oral) (A) that is a
“material contract” within the meaning of
Item 601(b)(10) of the SEC’s
Regulation S-K,
(B) that purports to restrict the conduct of any line of
business by it or any of its Subsidiaries or its or their
ability to compete in any line of business or (C) with
respect to employment of an officer, director or consultant.
(2) Neither it nor any of its Subsidiaries is in default
under any material contract, agreement, commitment, arrangement,
lease, insurance policy or other instrument to which it is a
party, by which its respective assets, business, or operations
may be bound or affected, or under which it or its respective
assets, business, or operations receives benefits, and there has
not occurred any event that, with the lapse of time or the
giving of notice or both, would constitute such a default.
(m) Employee Benefit Plans. (1) All
of its Benefit Arrangements are Previously Disclosed, other than
those Benefit Arrangements that are not material. True and
complete copies of all Benefit Arrangements, including, but not
limited to, any trust instruments and insurance contracts
forming a part of any Benefit Arrangements, and all amendments
thereto, have been made available to the other party.
(2) All of its Benefit Arrangements, other than
“multiemployer plans” within the meaning of
Section 3(37) of ERISA, are in compliance with ERISA, the
Code and other applicable laws. Each of its Benefit Arrangements
which is an “employee pension benefit plan” within the
meaning of Section 3(2) of ERISA (“Pension
Plan”), and which is intended to be qualified under
Section 401(a) of the Code, has received a favorable
determination letter from the Internal Revenue Service covering
all tax law changes prior to the Economic Growth and Tax Relief
Reconciliation Act of 2001 or has applied to the IRS for such
letter within the applicable remedial amendment period under
Section 401(b) of the Code, and it is not aware of any
circumstances reasonably likely to result in the loss of
qualification of any such Pension Plan under Section 401(a)
of the Code. Each Benefit Arrangement which is intended to be
part of a voluntary employees’ beneficiary association
within the meaning of Section 501(c)(9) of the Code has
(A) received an opinion letter from the Internal Revenue
Service recognizing its exempt status under
Section 501(c)(9) of the Code and (B) filed a timely
notice with the Internal Revenue Service pursuant to
Section 505(c) of the Code, and it is not aware of
circumstances likely to result in the loss of the exempt status
of such Benefit Arrangement under Section 501(c)(9) of the
Code. There is no pending or, to its knowledge, threatened
litigation (other than routine claims for benefits in the
ordinary course of business) relating to its Benefit
Arrangements. Neither it nor any of its Subsidiaries has engaged
in a transaction with respect to any of its Benefit Arrangements
that, assuming the taxable period of such transaction expired as
of the date hereof, could subject it or any of its Subsidiaries
to a tax or penalty imposed by either Section 4975 of the
Code or Section 502(i) of ERISA. Neither it nor any of its
Subsidiaries has incurred or reasonably expects to incur a tax
or penalty imposed by Section 4980F of the Code or
Section 502 of ERISA or any liability under
Section 4071 of ERISA.
(3) No liability under Subtitle C or D of Title IV of
ERISA has been or is reasonably expected to be incurred by it or
any of its Subsidiaries with respect to any ongoing, frozen or
terminated “single-employer plan”, within the meaning
of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any
entity which is considered one employer with it under
Section 4001 of ERISA or Section 414 of the Code (an
“ERISA Affiliate”). None of it, any of its
Subsidiaries or any of its ERISA Affiliates has contributed to a
“multiemployer plan”, within the meaning of
Section 3(37) of ERISA, at any time within the last six
years. No notice of a “reportable event”, within the
meaning of Section 4043 of ERISA for which the
30-day
reporting requirement has not been waived, other than pursuant
to Pension Benefit Guaranty Corporation Reg.
Section 4043.66, has been required to be filed for any of
its Pension Plans
or by any of its ERISA Affiliates within the
12-month
period ending on the date hereof. No notices have been required
to be sent to participants and beneficiaries or the Pension
Benefit Guaranty Corporation under Section 302 or 4011 of
ERISA or Section 412 of the Code.
(4) All contributions required to be made under the terms
of any of its Benefit Arrangements have been timely made or have
been reflected on its consolidated financial statements included
in its Regulatory Filings. None of its Pension Plans or any
single-employer plan of any of its ERISA Affiliates has an
“accumulated funding deficiency” (whether or not
waived) within the meaning of Section 412 of the Code or
Section 302 of ERISA and none of its ERISA Affiliates has
an outstanding funding waiver. Neither any Pension Plan nor any
single-employer plan of any of its ERISA Affiliates has been
required to file information pursuant to Section 4010 of
ERISA for the current or most recently completed plan year. It
is not reasonably anticipated that required minimum
contributions to any Pension Plan under Section 412 of the
Code will be increased by application of Section 412(l) of
the Code. Neither it nor any of its Subsidiaries has provided,
or is required to provide, security to any of its Pension Plans
or to any single-employer plan of any of its ERISA Affiliates
pursuant to Section 401(a)(29) of the Code.
(5) Under each Pension Plan which is a single-employer
plan, as of the last day of the most recent plan year ended
prior to the date hereof, the actuarially determined present
value of all “benefit liabilities”, within the meaning
of Section 4001(a)(16) of ERISA (as determined on the basis
of the actuarial assumptions contained in such Pension
Plan’s most recent actuarial valuation), did not exceed the
then current value of the assets of such Pension Plan, and there
has been no change in the financial condition of such Pension
Plan since the last day of the most recent plan year.
(6) Neither it nor any of its Subsidiaries has any
obligations for retiree health and life benefits under any
Benefit Arrangement or collective bargaining agreement. Either
it or its Subsidiaries may amend or terminate any such plan at
any time without incurring any liability thereunder other than
in respect of claims incurred prior to such amendment or
termination.
(7) There has been no amendment to, announcement by it or
any of its subsidiaries relating to, or change in employee
participation or coverage under, any Benefit Arrangement which
would increase the expense of maintaining such Benefit
Arrangement above the level of the expense incurred therefor for
the most recent fiscal year. Neither its execution of this
Agreement, the performance of its obligations hereunder, the
consummation of the transactions contemplated hereby, the
termination of the employment of any of its employees within a
specified time of the Effective Time nor shareholder approval of
the transactions covered by this Agreement, will (A) limit
its right, in its sole discretion, to administer or amend in any
respect or terminate any of its Benefit Arrangements or any
related trust, (B) entitle any of its employees or any
employees of its Subsidiaries to severance pay or any increase
in severance pay, or (C) accelerate the time of payment or
vesting or trigger any payment or funding (through a grantor
trust or otherwise) of compensation or benefits under, increase
the amount payable or trigger any other material obligation
pursuant to, any of its Benefit Arrangements. Without limiting
the foregoing, as a result of the consummation of the
transactions contemplated hereby (including as a result of the
termination of the employment of any of its employees within a
specified time of the Effective Time) neither it nor any of its
Subsidiaries will be obligated to make a payment to an
individual that would be a “parachute payment” to a
“disqualified individual” as those terms are defined
in Section 280G of the Code, without regard to whether such
payment is reasonable compensation for personal services
performed or to be performed in the future.
(8) No additional Tax under Section 409A(a)(1)(B) of
the Code has been or is reasonably expected to be incurred by a
participant in a nonqualified deferred compensation plan (within
the meaning of Section 409(A)(d)(1) of the Code) of it or
any of its Subsidiaries.
(n) Taxes. (1) All Tax Returns that
are required to be filed (taking into account any extensions of
time within which to file) by or with respect to it and its
Subsidiaries have been duly, timely and accurately filed,
(2) all Taxes shown to be due on the Tax Returns referred
to in clause (1) have been paid in full, except with
respect to matters contested in good faith and for which
adequate reserves have been established in accordance with GAAP,
(3) all Taxes that it or any of its Subsidiaries is
obligated to withhold from amounts owing to any employee,
creditor or third party have been paid over to the proper
Governmental Authority in a timely
manner, to the extent due and payable, and (4) no
extensions or waivers of statutes of limitation have been given
by or requested in writing with respect to any of its
U.S. federal income taxes or those of its Subsidiaries. It
has made provision in accordance with GAAP, in the financial
statements included in the Regulatory Filings filed before the
date hereof, for all Taxes that accrued on or before the end of
the most recent period covered by its Regulatory Filings filed
before the date hereof. As of the date hereof, neither it nor
any of its Subsidiaries has any reason to believe that any
conditions exist that could reasonably be expected to prevent or
impede the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code. No Liens for Taxes
exist with respect to any of its assets or properties or those
of its Subsidiaries, except for statutory Liens for Taxes not
yet due and payable or that are being contested in good faith
and reserved for in accordance with GAAP. Neither it nor any of
its Subsidiaries has been a party to any distribution occurring
during the two-year period prior to the date of this Agreement
in which the parties to such distribution treated the
distribution as one to which Section 355 of the Code
applied, except for distributions occurring among members of the
same group of affiliated corporations filing a consolidated
federal income tax return.
(o) Books and Records. Its books and
records and those of its Subsidiaries have been fully, properly
and accurately maintained in all material respects, and there
are no material inaccuracies or discrepancies of any kind
contained or reflected therein.
(p) Takeover Laws and Provisions. It has
taken all action required to be taken by it in order to exempt
this Agreement and the transactions contemplated hereby from,
and this Agreement and the transactions contemplated hereby are
exempt from, the requirements of any “moratorium,”“control share,”“fair price,”“affiliate transaction,”“business
combination” or other antitakeover laws and regulations of
any state (collectively, “Takeover Laws”),
including Section 203 of the GCL and Articles 9 and 9A
of the BCA. It has taken all action required to be taken by it
in order to make this Agreement and the transactions
contemplated hereby comply with, and this Agreement and the
transactions contemplated hereby do comply with, the
requirements of any Articles, Sections or provisions of its
Constituent Documents concerning “business
combination,”“fair price,”“voting
requirement,”“constituency requirement” or other
related provisions (collectively, “Takeover
Provisions”). In the case of Golden West, the approval
of the Merger and this Agreement by the Golden West Board
exempts this Agreement and the transactions contemplated hereby
from Article Eighth of Golden West’s Restated
Certificate of Incorporation.
(q) Financial Advisors. None of it, its
Subsidiaries or any of their officers, directors or employees
has employed any broker or finder or incurred any liability for
any brokerage fees, commissions or finder’s fees in
connection with the transactions contemplated herein, except
that, in connection with this Agreement, Wachovia has retained
Merrill Lynch & Co. as its financial advisor, and
Golden West has retained Lehman Brothers Inc. as its financial
advisor, the arrangements with which have been disclosed to
Wachovia prior to the date hereof. As of the date of this
Agreement, (1) Golden West has received an opinion of
Lehman Brothers Inc., issued to the Golden West Board, to the
effect that, as of the date of the opinion, the Merger
Consideration is fair from a financial point of view to holders
of Golden West Common Stock, and (2) Wachovia has received
an opinion of Merrill Lynch & Co., issued to the
Wachovia Board, to the effect that, as of the date of the
opinion, the Merger Consideration is fair from a financial point
of view to Wachovia.
(r) Sarbanes-Oxley Act. It is in
compliance with the provisions, including Section 404, of
the Sarbanes-Oxley Act, and the certifications provided and to
be provided pursuant to Sections 302 and 906 thereof are
accurate.
(s) Labor Matters. Neither it nor any of
its Subsidiaries is a party to, or is bound by, any collective
bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is
it or any of its subsidiaries the subject of a proceeding
asserting that it or any such subsidiary has committed an unfair
labor practice (within the meaning of the National Labor
Relations Act) or seeking to compel it or such subsidiary to
bargain with any labor organization as to wages and conditions
of employment, nor is there any strike or other labor dispute
involving it or any of its subsidiaries, pending or, to the best
of its knowledge, threatened, nor it is aware, as of the date of
this Agreement, of any activity involving it or any
of its subsidiaries’ employees seeking to certify a
collective bargaining unit or engaging in any other organization
activity.
(t) Environmental Matters. There are no
proceedings, claims, actions, or investigations of any kind,
pending or threatened, in any court, agency, or other
governmental authority or in any arbitral body, arising under
any Environmental Law; there is no reasonable basis for any such
proceeding, claim, action or investigation; there are no
agreements, orders, judgments or decrees by or with any court,
regulatory agency or other governmental authority, imposing
liability or obligation under or in respect of any Environmental
Law; there are and have been no Materials of Environmental
Concern or other conditions at any property (owned, operated, or
otherwise used by, or the subject of a security interest on
behalf of, it or any of its subsidiaries); and there are no
reasonably anticipated future events, conditions, circumstances,
practices, plans, or legal requirements that could give rise to
obligations or liabilities under any Environmental Law.
(u) Aggregate Cash
Consideration. Wachovia has, or will have as of
the Effective Time, available to it sufficient funds to pay the
aggregate Cash Consideration.
5.04. Merger Sub. Wachovia
represents and warrants to Golden West as follows:
(a) Organization, Standing and
Authority. Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation.
(b) Capital Stock. The authorized capital
stock of Merger Sub consists of 1,000 shares of common
stock, par value $0.01 per share, of which 100 shares
are outstanding and held of record by Wachovia.
(c) Business. Merger Sub has conducted no
business other than activities incidental to its organization
and the consummation of the transactions contemplated by this
Agreement.
(d) Authority. Merger Sub has duly
authorized, executed and delivered this Agreement, and this
Agreement and the transaction contemplated hereby have been
authorized by all corporate action necessary on Merger
Sub’s part. This Agreement is Merger Sub’s valid and
legally binding obligation, enforceable in accordance with its
terms (except as enforcement 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).
ARTICLE VI
Covenants
6.01. Reasonable Best
Efforts. (a) Subject to the terms and
conditions of this Agreement, Wachovia and Golden West will use
reasonable best efforts to take, or cause to be taken, in good
faith, all actions, and to do, or cause to be done, all things
necessary, proper or desirable, or advisable under applicable
laws, so as to permit consummation of the Merger as promptly as
practicable and otherwise to enable consummation of the
transactions contemplated hereby, and each will cooperate fully
with, and furnish information to, the other party to that end.
(b) Wachovia will execute and deliver, or cause to be
executed and delivered, by or on behalf of the Surviving
Corporation, at or prior to the Effective Time, one or more
supplemental indentures and other instruments required for the
due assumption of Golden West’s outstanding debt,
guarantees, securities, and (to the extent informed of such
requirement by Golden West) other agreements to the extent
required by the terms of such debt, guarantees, securities or
other agreements.
6.02. Shareholder
Approvals. (a) The Golden West Board
approved this Agreement and the plan of merger it contains and
adopted resolutions recommending as of the date hereof to Golden
West’s shareholders approval and adoption of the plan of
merger contained in this Agreement and any other matters
required to be approved or adopted in order to effect the Merger
and other transactions contemplated hereby.
(b) The Wachovia Board approved this Agreement and the
transactions contemplated hereby and adopted resolutions
recommending as of the date hereof to Wachovia’s
shareholders the approval of the issuance of
shares of Wachovia Common Stock necessary to effect the Merger
and any other matters required to be approved or adopted in
order to effect the Merger and other transactions contemplated
hereby.
(c) The Wachovia Board and Golden West Board each will
submit to its shareholders all matters required to be approved
or adopted by shareholders in order to carry out the intentions
of this Agreement. In furtherance of that obligation, Wachovia
and Golden West each will take, in accordance with applicable
law and its respective Constituent Documents, all action
necessary to convene a meeting of its shareholders (including
any adjournment or postponement, the “Wachovia
Meeting” and the “Golden West
Meeting”, respectively), as promptly as practicable, to
consider and vote upon such matters. The Wachovia Board and
Golden West Board each will use all reasonable best efforts to
obtain from their respective shareholders a vote approving the
transactions contemplated by this Agreement, including a
recommendation that its respective shareholders vote in favor of
(i) in the case of Golden West, approval and adoption of
this Agreement and the plan of merger contained herein and
(2) in the case of Wachovia, approval of the issuance of
the Wachovia Common Stock required for consummation of the
Merger. However, if the Golden West Board, after consultation
with outside counsel, determines in good faith that, because of
the receipt after the date of this Agreement by Golden West of
an Acquisition Proposal that the Golden West Board concludes in
good faith constitutes a Superior Proposal, it would result in a
violation of its fiduciary duties under applicable law to
continue to recommend the plan of merger set forth in this
Agreement, then in submitting the plan of merger to the Golden
West Meeting, the Golden West Board may submit the plan of
merger to its shareholders without recommendation (although the
resolutions adopting this Agreement as of the date hereof,
described in Section 6.02(a), may not be rescinded or
amended), in which event the Golden West Board may communicate
the basis for its lack of a recommendation to the shareholders
in the Joint Proxy Statement or an appropriate amendment or
supplement thereto to the extent required by law; provided
that the Golden West Board may not take any actions under
this sentence until after giving Wachovia at least 5 business
days to respond to any such Acquisition Proposal (and after
giving Wachovia notice of the latest material terms, conditions
and third party in the Acquisition Proposal) and then taking
into account any amendment or modification to this Agreement
proposed by Wachovia.
6.03. SEC
Filings. (a) Wachovia and Golden West will
cooperate in ensuring that all filings required under SEC
Rules 165, 425 and
14a-12 are
timely and properly made. Wachovia also will prepare a
registration statement on
Form S-4
or other applicable form (the “Registration
Statement”) to be filed by Wachovia with the SEC in
connection with the issuance of Wachovia Common Stock in the
Merger, and the parties will jointly prepare the joint proxy
statement and prospectus and other proxy solicitation materials
of Wachovia and Golden West constituting a part thereof (the
“Joint Proxy Statement”) and all related
documents. Each party will cooperate, and will cause its
Subsidiaries to cooperate, with the other party, its counsel and
its accountants, in the preparation of the Registration
Statement and the Joint Proxy Statement, and, provided that both
parties and their respective Subsidiaries have cooperated as
required above, Wachovia and Golden West agree to file the
Registration Statement, including the Joint Proxy Statement in
preliminary form, with the SEC as promptly as reasonably
practicable. Each of Wachovia and Golden West will use all
reasonable best efforts to cause the Registration Statement to
be declared effective under the Securities Act as promptly as
reasonably practicable after filing thereof and to maintain the
effectiveness of such Registration Statement until the Effective
Time. Wachovia shall file the opinion of Wachtell, Lipton,
Rosen & Katz described in Section 7.01(f) with the
SEC as an exhibit to a post-effective amendment to the
Registration Statement. Each party shall cooperate and provide
the other party with a reasonable opportunity to review and
comment on any amendment or supplement to the Joint Proxy
Statement and the Registration Statement prior to filing such
with the SEC, and each party will provide the other party with a
copy of all such filings with the SEC. Wachovia also agrees to
use reasonable best efforts to obtain all necessary state
securities law or “Blue Sky” permits and approvals
required to carry out the transactions contemplated hereby. Each
party agrees to furnish for inclusion in the Registration
Statement and the Proxy Statement all information concerning it,
its Subsidiaries, officers, directors and shareholders as may be
required by applicable law in connection with the foregoing.
(b) Wachovia and Golden West each agrees, as to itself and
its Subsidiaries, that none of the information supplied or to be
supplied by it for inclusion or incorporation by reference in
(1) the Registration Statement
will, at the time the Registration Statement and each amendment
or supplement thereto, if any, becomes effective under the
Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and
(2) the Joint Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to shareholders
and at the time of the Wachovia Meeting or the Golden West
Meeting, as the case may be, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in
the light of the circumstances under which such statement was
made, not misleading. Wachovia and Golden West each further
agrees that if it becomes aware that any information furnished
by it would cause any of the statements in the Joint Proxy
Statement or the Registration Statement to be false or
misleading with respect to any material fact, or to omit to
state any material fact necessary to make the statements therein
not false or misleading, to promptly inform the other party
thereof and to take appropriate steps to correct the Joint Proxy
Statement or the Registration Statement.
(c) Wachovia will advise Golden West, promptly after
Wachovia 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 Wachovia Common Stock for
offering or sale in any jurisdiction, of 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.
6.04. Press Releases. Wachovia and
Golden West will consult with each other before issuing any
press release, written and broadly disseminated employee
communication or other written shareholder communication with
respect to the Merger or this Agreement and will not issue any
such communication or make any such public statement without the
prior consent of the other party, which will not be unreasonably
withheld or delayed; provided that a party may, without
the prior consent of the other party (but after prior
consultation, to the extent practicable in the circumstances),
issue such communication or make such public statement as may be
required by applicable law or securities exchange rules.
Wachovia and Golden West will cooperate to develop all public
communications and make appropriate members of management
available at presentations related to the transactions
contemplated hereby as reasonably requested by the other party.
6.05. Access;
Information. (a) Each of Wachovia and Golden
West agrees that upon reasonable notice and subject to
applicable laws relating to the exchange of information, it will
(and will cause its Subsidiaries to) afford the other party, and
the other party’s officers, employees, counsel, accountants
and other authorized Representatives, such access during normal
business hours throughout the period before the Effective Time
to the books, records (including, without limitation, Tax
Returns and work papers of independent auditors), properties,
personnel and to such other information as the other party may
reasonably request and, during such period, it will furnish
promptly to the other party (1) a copy of each report,
schedule and other document filed by it pursuant to the
requirements of federal or state securities or banking laws, and
(2) all other information concerning the business,
properties and personnel of it as the other may reasonably
request. Neither Wachovia nor Golden West will be required to
afford access or disclose information that would jeopardize
attorney-client privilege or contravene any binding agreement
with any third party. The parties will make appropriate
substitute arrangements in circumstances where the previous
sentence applies.
(b) Each party will hold any information which is nonpublic
and confidential to the extent required by, and in accordance,
with the Confidentiality Agreement between Wachovia and Golden
West (the “Confidentiality Agreement”).
(c) No investigation by one party of the business and
affairs of the other, pursuant to this Section 6.05 or
otherwise, will affect or be deemed to modify or waive any
representation, warranty, covenant or agreement in this
Agreement, or the conditions to such other party’s
obligation to consummate the transactions contemplated hereby.
6.06. Acquisition
Proposals. (a) Golden West will not, and
will cause its Subsidiaries and its and its Subsidiaries’
officers, directors, agents, advisors and affiliates not to,
initiate, solicit, encourage or knowingly facilitate inquiries
or proposals with respect to, or engage in any negotiations
concerning, or provide any confidential or nonpublic information
or data to, or have any discussions with, any person relating
to, any Acquisition Proposal; provided that, in the event
Golden West receives an unsolicited bona fide Acquisition
Proposal, from a Person other than Wachovia or an Other Person
(as defined below), after the execution of this Agreement, and
the Golden West Board concludes in good faith that such
Acquisition Proposal constitutes a Superior Proposal or would
reasonably be likely to result in a Superior Proposal and, after
considering the advice of outside counsel, that failure to take
such actions would result in a violation of the directors’
fiduciary duties under applicable law, Golden West may, and may
permit its Subsidiaries and its and its Subsidiaries’
Representatives to, furnish or cause to be furnished nonpublic
information and participate in such negotiations or discussions;
provided that prior to providing any nonpublic
information permitted to be provided pursuant to the foregoing
proviso, it shall have entered into a confidentiality agreement
with such third party on terms no less favorable to it than the
Confidentiality Agreement. Golden West will immediately cease
and cause to be terminated any activities, discussions or
negotiations conducted before the date of this Agreement with
any persons other than Wachovia (“Other
Persons”) with respect to any Acquisition Proposal and
will use its reasonable best efforts to enforce any
confidentiality or similar agreement relating to an Acquisition
Proposal. Golden West will promptly (within one business day)
advise Wachovia following receipt of any Acquisition Proposal
and the substance thereof (including the identity of the person
making such Acquisition Proposal), and will keep Wachovia
apprised of any related developments, discussions and
negotiations (including the material terms and conditions of the
Acquisition Proposal) on a current basis.
(b) Nothing contained in this Agreement shall prevent
Golden West or the Golden West Board from complying with
Rule 14d-9
and
Rule 14e-2
under the Exchange Act with respect to an Acquisition Proposal,
provided that such Rules will in no way eliminate or
modify the effect that any action pursuant to such Rules would
otherwise have under this Agreement.
6.07. Affiliate Agreements. Not
later than the 15th day before the mailing of the Joint
Proxy Statement, Golden West will deliver to Wachovia a schedule
of each person that, to the best of its knowledge, is or is
reasonably likely to be, as of the date of the Golden West
Meeting, deemed to be an “affiliate” of Golden West
(each, a “Golden West Affiliate”) as that term
is used in Rule 145 under the Securities Act. Golden West
will use its reasonable best efforts to cause each person who
may be deemed to be a Golden West Affiliate to execute and
deliver to Wachovia and Golden West on or before the date of
mailing of the Joint Proxy Statement an agreement in
substantially the form attached hereto as Annex 2.
6.08. Takeover Laws and
Provisions. No party will take any action that
would cause the transactions contemplated hereby to be subject
to requirements imposed by any Takeover Law and each of them
will take all necessary steps within its control to exempt (or
ensure the continued exemption of) those transactions from, or
if necessary challenge the validity or applicability of, any
applicable Takeover Law, as now or hereafter in effect. No party
will take any action that would cause the transactions
contemplated hereby not to comply with any Takeover Provisions
and each of them will take all necessary steps within its
control to make those transactions comply with (or continue to
comply with) the Takeover Provisions.
6.09. Exchange Listing. Wachovia
will use all reasonable best efforts to cause the shares of
Wachovia Common Stock to be issued in the Merger and shares
reserved for issuance pursuant to Section 3.07 hereof to be
approved for listing on the NYSE, subject to official notice of
issuance, as promptly as practicable, and in any event before
the Effective Time.
6.10. Regulatory
Applications. (a) Wachovia and Golden West
and their respective Subsidiaries will cooperate and use all
reasonable best efforts to prepare as promptly as possible all
documentation, to effect all filings and to obtain all permits,
consents, approvals and authorizations of all third parties and
Governmental Authorities necessary to consummate the
transactions contemplated hereby (the “Requisite
Regulatory Approvals”), and will make all necessary
filings in respect of those Requisite Regulatory Approvals as
soon as practicable. Each of Wachovia and Golden West will have
the right to review in advance, and to the extent practicable
each will consult with the other, in each case subject to
applicable laws relating to the exchange of information, with
respect to all written information submitted to any third party
or any Governmental Authority in connection with the Requisite
Regulatory Approvals. In exercising the foregoing right, each of
the parties will act reasonably and as promptly as practicable.
Each party agrees that it will consult with the other party with
respect to obtaining all material permits, consents, approvals
and authorizations of all third parties and Governmental
Authorities necessary or advisable to consummate the
transactions contemplated
hereby and each party will keep the other party appraised of the
status of material matters relating to completion of the
transactions contemplated hereby.
(b) Wachovia and Golden West will, upon request, furnish
the other party with all information concerning itself, its
Subsidiaries, directors, officers and shareholders and such
other matters as may be reasonably necessary or advisable in
connection with any filing, notice or application made by or on
behalf of such other party or any of its Subsidiaries with or to
any third party or Governmental Authority in connection with the
transactions contemplated hereby.
6.11. Indemnification. (a) Following
the Effective Time, Wachovia will indemnify, defend and hold
harmless the present and former directors, officers and
employees of Golden West and its Subsidiaries (each, an
“Indemnified Party”) against all costs or
expenses (including reasonable attorneys’ fees), judgments,
fines, losses, claims, damages, liabilities and settlement
amounts (collectively, “Costs”) as incurred, in
connection with any claim, action (whether threatened, pending
or contemplated), suit, proceeding or investigation, whether
arising before or after the Effective Time and whether civil,
criminal, administrative or investigative, arising out of or
pertaining to matters existing or actions or omissions occurring
at or before the Effective Time (including the transactions
contemplated hereby), (and shall advance expenses as incurred to
the fullest extent permitted under applicable law provided the
Indemnified Party to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately
determined that such Indemnified Party is not entitled to
indemnification) (1) without limitation of clause (2),
to the same extent as such persons are indemnified or have the
right to advancement of expenses pursuant to the Constituent
Documents and indemnification agreements, if any, in effect on
the date of this Agreement with Golden West and its
Subsidiaries, and (2) to the fullest extent permitted by
law.
(b) For a period of six years following the Effective Time,
Wachovia will obtain and maintain director’s and
officer’s liability insurance that serves to reimburse, and
covers, the present and former officers and directors of Golden
West or any of their respective Subsidiaries (determined as of
the Effective Time) (as opposed to Golden West or such
Subsidiary) with respect to claims against such directors and
officers arising from facts or events occurring before the
Effective Time (including the transactions contemplated hereby),
which insurance will contain at least the same coverage and
amounts, and contain terms and conditions no less advantageous
to the Indemnified Party, as that coverage provided under the
director’s and officer’s liability insurance that
Wachovia obtained for directors and officers of other financial
institutions that Wachovia acquired in recent, comparable merger
transactions (taking into account the relative market
capitalizations of Golden West as compared to such other
financial institutions); provided that officers and
directors of Golden West or any Subsidiary may be required to
make application and provide customary representations and
warranties to Wachovia’s insurance carrier for the purpose
of obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification
under Section 6.11(a), upon learning of any claim, action,
suit, proceeding or investigation described above, will promptly
notify Wachovia; provided that failure so to notify will
not affect the obligations of Wachovia under
Section 6.12(a) unless and only to the extent that Wachovia
is actually and materially prejudiced as a consequence.
(d) If Wachovia or any of its successors or assigns
consolidates with or merges into any other entity and is not the
continuing or surviving entity of such consolidation or merger
or transfers all or substantially all of its assets to any other
entity, then and in each case, Wachovia will cause proper
provision to be made so that the successors and assigns of
Wachovia will assume the obligations set forth in this
Section 6.11.
(e) The provisions of this Section 6.11 shall survive
the Effective Time and are intended to be for the benefit of,
and will be enforceable by, each Indemnified Party and his or
her heirs and Representatives.
6.12. Employee
Matters. (a) From the Effective Time through
the date that Wachovia determines to generally transition Golden
West’s benefit arrangements (such date being referred to
herein as the “Benefits Transition Date”),
Wachovia shall provide the employees of Golden West and its
Subsidiaries as of the Effective Time (the “Covered
Employees”) with employee benefits and compensation
plans, programs and arrangements that are substantially similar,
in the aggregate, to the employee benefits and compensation
plans, programs and arrangements provided by Golden West or its
Subsidiaries, as the case may be, to such
employees immediately prior to the Effective Time. From and
after the Benefits Transition Date, Wachovia shall provide the
Covered Employees with employee benefits and compensation plans,
programs and arrangements that are substantially similar to
those provided to similarly situated employees of Wachovia and
its Subsidiaries. Notwithstanding anything contained herein to
the contrary, a Covered Employee whose employment is terminated
by Wachovia other than for Cause (as defined in
Schedule 4.01(j)), disability or death or who terminates
employment for Good Reason (as defined in
Schedule 4.01(j)), during the period commencing at the
Effective Time and ending on the second anniversary thereof,
shall be entitled to receive the severance payments and benefits
under the Wachovia Severance Pay Plan as in effect on the date
hereof and Previously Disclosed to Golden West and as such plan
may be amended from time to time (the “Wachovia
Severance Plan”). The Wachovia Severance Plan will not
be amended to reduce benefits to Covered Employees until after
the second anniversary of the Effective Time unless an amendment
is necessary to comply with Section 409A of the Code.
Following the date hereof and prior to the Effective Time,
Wachovia and Golden West shall cooperate in good faith to agree
to the appropriate job categorization of the Covered Employees
for purposes of the Wachovia Severance Plan, taking into account
their compensation, authority, seniority, duties and any other
factors deemed relevant.
(b) From and after the Benefits Transition Date, Wachovia
shall (1) provide all Covered Employees with service credit
for purposes of eligibility, participation, vesting and levels
of benefits (but not for benefit accruals under any defined
benefit pension plan), under any employee benefit or
compensation plan, program or arrangement adopted, maintained or
contributed to by Wachovia or any of its Subsidiaries in which
Covered Employees are eligible to participate, for all actual
periods of employment with Golden West or any of its
Subsidiaries (or their predecessor entities) prior to the
Effective Time to the extent such actual periods of employment
are credited by Golden West for purposes of a comparable plan in
which the applicable Covered Employee participated immediately
prior to the Effective Time and (2) cause any pre-existing
conditions, limitations, eligibility waiting periods or required
physical examinations under any welfare benefit plans of
Wachovia or any of its Subsidiaries to be waived with respect to
the Covered Employees and their eligible dependents, to the
extent waived under the corresponding plan (for a comparable
level of coverage) in which the applicable Covered Employee
participated immediately prior to the Effective Time. If the
Benefits Transition Date with respect to Golden West’s
medical
and/or
dental benefit plans for Covered Employees occurs in the middle
of a plan year, then Covered Employees and their dependents who
are then participating in a deductible-based medical
and/or
dental plan sponsored by Golden West will be given credit for
deductibles and eligible
out-of-pocket
expenses incurred towards deductibles and
out-of-pocket
maximums during the portion of the plan year preceding the
Benefits Transition Date in a comparable deductible-based
medical
and/or
dental plan of Wachovia or any of its Subsidiaries for the
Wachovia benefit plan year that begins with or includes the
Benefits Transition Date.
(c) From and after the Effective Time, Wachovia will assume
and honor all accrued obligations to, and contractual rights of,
current and former employees of Golden West and its Subsidiaries
under the Golden West Benefit Arrangements (as they may be
amended in accordance with Sections 4.01(j) and 4.01(k)
hereof, and including any additional arrangements permitted
thereby), and take all actions necessary to effectuate the
agreements set forth on Schedule 6.12(c) hereof. If
Wachovia or any of its successors or assigns consolidates with
or merges into any other entity and is not the continuing or
surviving entity of such consolidation or merger or transfers
all or substantially all of its assets to any other entity, then
and in each case, Wachovia will cause proper provision to be
made so that the successors and assigns of Wachovia will assume
the obligations set forth in this Section 6.12.
6.13. Notification of Certain
Matters. Wachovia and Golden West will give
prompt notice to the other of any fact, event or circumstance
known to it that (a) is reasonably likely, individually or
taken together with all other facts, events and circumstances
known to it, to result in any Material Adverse Effect with
respect to it or (b) would cause or constitute a material
breach of any of its representations, warranties, covenants or
agreements contained herein that reasonably could be expected to
give rise, individually or in the aggregate, to the failure of a
condition in Article VII.
6.14. Exemption from Liability Under
Section 16(b). Assuming that Golden West
delivers to Wachovia the Section 16 Information in a timely
and accurate manner before the Effective Time, the Wachovia
Board,
or a committee of “non-employee directors” thereof (as
such term is defined for purposes of
Rule 16b-3(d)
under the Exchange Act), will reasonably promptly thereafter and
in any event before the Effective Time adopt a resolution
providing that the receipt by the Golden West Insiders of
Wachovia Common Stock in exchange for shares of Golden West
Common Stock, and of options to purchase shares of Wachovia
Common Stock upon conversion of options to purchase shares of
Golden West Common Stock, in each case pursuant to the
transactions contemplated hereby and to the extent such
securities are listed in the Section 16 Information, are
approved by the Wachovia Board or by such committee thereof, and
are intended to be exempt from liability pursuant to
Section 16(b) under the Exchange Act, such that any such
receipt will be so exempt.
6.15. Certain Modifications; Restructuring
Charges. Golden West and Wachovia shall consult
with respect to their loan, litigation and real estate valuation
policies and practices (including loan classifications and
levels of reserves) and Golden West shall make such
modifications or changes to its policies and practices, if any,
and at such date prior to the Effective Time, as may be mutually
agreed upon. Golden West and Wachovia shall also consult with
respect to the character, amount and timing of restructuring
charges to be taken by each of them in connection with the
transactions contemplated hereby and shall take such charges in
accordance with GAAP, as may be mutually agreed upon;
provided, however, that Golden West shall not be
obligated to take any such charges pursuant to this
Section 6.15 unless and until Wachovia irrevocably
acknowledges to Golden West in writing that all conditions to
Wachovia’s obligations to consummate the Merger under
Article VII have been satisfied or, where legally
permitted, waived. No party’s representations, warranties
and covenants contained in this Agreement shall be deemed to be
untrue or breached in any respect for any purpose as a
consequence of any modifications or changes to such policies and
practices which may be undertaken on account of this
Section 6.15.
ARTICLE VII
Conditions
to the Merger
7.01. Conditions to Each Party’s Obligation
to Effect the Merger. The respective obligation
of Wachovia, Merger Sub and Golden West to consummate the Merger
is subject to the fulfillment or written waiver by Wachovia,
Merger Sub and Golden West before the Effective Time of each of
the following conditions:
(a) Shareholder Approvals. The requisite
votes of the shareholders of Wachovia and Golden West shall have
each been received.
(b) Regulatory Approvals. All Requisite
Regulatory Approvals (1) shall have been obtained and shall
remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired and (2) shall
not have imposed a condition on such approval that would
reasonably be expected, after the Effective Time, to have a
Material Adverse Effect on the Surviving Corporation and its
Subsidiaries, taken as a whole; provided, however, that
no conditions that are reasonably consistent with the
regulations or published guidelines as in effect as of the date
of this Agreement (or recent practice prior to the date of this
Agreement in connection with comparable transactions) of a
Governmental Authority shall be deemed to have, or be reasonably
be expected to have, such a Material Adverse Effect.
(c) No Injunction. No Governmental
Authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation,
judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and precludes
consummation of the Merger.
(d) Registration Statement. The
Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and be in
effect and no proceedings for that purpose shall have been
initiated by the SEC and not withdrawn.
(e) NYSE Listing. The shares of Wachovia
Common Stock to be issued in the Merger and shares reserved for
issuance pursuant to Section 3.07 hereof shall have been
approved for listing on the NYSE, subject to official notice of
issuance.
(f) Opinions of Tax Counsel. Wachovia
shall have received an opinion of Sullivan & Cromwell
LLP, and Golden West shall have received an opinion of Wachtell,
Lipton, Rosen & Katz, each dated the Closing Date and
based on facts, representations and assumptions set forth or
described in each such opinion, to the effect that (1) the
Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code and (2) Wachovia, Merger
Sub and Golden West will each be a party to that reorganization
within the meaning of Section 368(b) of the Code. In
rendering such opinions, Sullivan & Cromwell LLP and
Wachtell, Lipton, Rosen & Katz each will be entitled to
receive and rely upon customary certificates and representations
of officers of Wachovia, Merger Sub and Golden West.
7.02. Conditions to Golden West’s
Obligation. Golden West’s obligation to
consummate the Merger is also subject to the fulfillment or
written waiver by Golden West before the Effective Time of each
of the following conditions:
(a) Wachovia’s and Merger Sub’s
Representations and Warranties. The
representations and warranties of Wachovia and Merger Sub in
this Agreement shall be true and correct as of the date of this
Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date
as though made on and as of the Closing Date subject to the
standard set forth in Section 5.02; and Golden West shall
have received a certificate, dated the Closing Date, signed on
behalf of Wachovia by the Chief Executive Officer or Chief
Financial Officer of Wachovia to that effect.
(b) Performance of Wachovia’s and Merger Sub’s
Obligations. Each of Wachovia and Merger Sub
shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or before
the Effective Time; and Golden West shall have received a
certificate, dated the Closing Date, signed on behalf of
Wachovia by the Chief Executive Officer or Chief Financial
Officer of Wachovia to that effect.
7.03. Conditions to Wachovia’s and Merger
Sub’s Obligation. Each of Wachovia’s
obligation and Merger Sub’s obligation to consummate the
Merger is also subject to the fulfillment, or written waiver by
Wachovia, before the Effective Time of each of the following
conditions:
(a) Golden West’s Representations and
Warranties. The representations and warranties of
Golden West in this Agreement shall be true and correct as of
the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date
subject to the standard set forth in Section 5.02; and
Wachovia shall have received a certificate, dated the Closing
Date, signed on behalf of Golden West by the Chief Executive
Officer or Chief Financial Officer of Golden West to that effect.
(b) Performance of Golden West’s
Obligations. Golden West shall have performed in
all material respects all obligations required to be performed
by it under this Agreement at or before the Effective Time; and
Wachovia shall have received a certificate, dated the Closing
Date, signed on behalf of Golden West by the Chief Executive
Officer or Chief Financial Officer of Golden West to that effect.
ARTICLE VIII
Termination
8.01. Termination. This Agreement
may be terminated, and the Merger may be abandoned, at any time
before the Effective Time, by Wachovia or (except as otherwise
provided below) Golden West:
(a) Mutual Agreement. With the mutual
agreement of the other party.
(b) Breach. Upon 60 days’ prior
written notice of termination, if there has occurred and is
continuing: (1) a breach by the other party of any
representation or warranty contained herein, or (2) a
breach by the other party of any of the covenants or agreements
in this Agreement; provided that such breach (under
either clause (1) or (2)) would entitle the non-breaching
party not to consummate the Merger under Article VII.
(c) Adverse Action. If (i) the other
party’s board of directors submits this Agreement (or the
plan of merger contained herein) to its shareholders without a
recommendation for approval or with special and materially
adverse conditions on or qualifications of such approval;
(ii) such board of directors otherwise
withdraws or materially and adversely modifies (or publicly
discloses its intention to withdraw or materially and adversely
modify) its recommendation referred to in Section 6.02 or
(iii) in the case solely of Wachovia, the Golden West Board
recommends to its shareholders an Acquisition Proposal other
than the Merger; or (iv) solely in the case of Wachovia, if
the Golden West Board negotiates or authorizes the conduct of
negotiations (and twenty business days have elapsed without such
negotiations being discontinued) with a third party (it being
understood and agreed that “negotiate” shall not be
deemed to include the request and receipt of information from,
any person that submits an Acquisition Proposal or discussions
regarding such information for the sole purpose of ascertaining
the terms of such Acquisition Proposal) regarding an Acquisition
Proposal other than the Merger.
(d) Delay. If the Effective Time has not
occurred by the close of business on March 31, 2007;
provided that the right to terminate this Agreement under
this Section 8.01(d) shall not be available to any party
whose failure to comply with any provision of this Agreement has
been the cause of, or materially contributed to, the failure of
the Effective Time to occur on or before such date.
(e) Denial of Regulatory Approval. If the
approval of any Governmental Authority required for consummation
of the Merger and the other transactions contemplated hereby is
denied by final, nonappealable action of such Governmental
Authority; provided that the right to terminate this
Agreement under this Section 8.01(e) shall not be available
to any party whose failure to comply with any provision of this
Agreement has been the cause of, or materially contributed to,
such action.
8.02. Effect of Termination and
Abandonment. If this Agreement is terminated and
the Merger is abandoned, no party will have any liability or
further obligation under this Agreement, except that termination
will not relieve a party from liability for any willful breach
by it of this Agreement and except that Section 6.05(b),
this Section 8.02, Section 8.03 and Article IX
will survive termination of this Agreement.
8.03. Termination
Fee. (a) Golden West shall pay to Wachovia,
by wire transfer of immediately available funds, $995,000,000
(the “Termination Fee”) as follows:
(1) In the event that (A) either Wachovia or Golden
West shall terminate this Agreement pursuant to
Section 8.01(d) or if Wachovia shall terminate this
Agreement pursuant to Section 8.01(c)(i) or 8.01(c)(ii),
and (B) the requisite vote of the Golden West shareholders
under Section 7.01(a) shall not have been obtained after a
vote of the Golden West shareholders has been taken and
completed at the Golden West Meeting, and (C) at any time
after the date of this Agreement and prior to such vote, a
bona fide Acquisition Proposal with respect to
Golden West shall have been made public and not withdrawn or
abandoned, and (D) within 18 months from the date of
such termination, an Acquisition Proposal with respect to Golden
West is consummated or a definitive agreement is entered into by
Golden West with respect to an Acquisition Proposal with respect
to Golden West, then Golden West shall pay to Wachovia the
Termination Fee within five business days after the date of the
event described in clause (D).
(2) In the event that (A) Wachovia shall terminate
this Agreement pursuant to Section 8.01(b) or
Section 8.01(c)(iv) or either of Wachovia or Golden West
shall terminate this Agreement pursuant to Section 8.01(d),
and (B) at any time after the date of this Agreement and
prior to such termination, a bona fide Acquisition
Proposal with respect to Golden West shall have been made public
and not withdrawn or abandoned, and (C) following the
announcement of such Acquisition Proposal, Golden West shall
have breached any of its representations, warranties, covenants
or agreements set forth in this Agreement, then Golden West
shall pay to Wachovia the Termination Fee (x) if such
breach was other than one described in the succeeding
clause (y) of this sentence, and only if an
Acquisition Proposal with respect to Golden West is consummated
or a definitive agreement is entered into by Golden West with
respect to an Acquisition Proposal with respect to Golden West
within 18 months from the date of such termination, within
five business days after such Acquisition Proposal is
consummated or such agreement is entered into by Golden West, or
(y) if such breach was a willful and material breach of
Section 6.01(a), 6.02(c), 6.03(a), 6.06(a), 6.08 or
6.10(a), on the business day immediately following such
termination.
(3) In the event that Wachovia shall terminate this
Agreement pursuant to Section 8.01(c)(iii), then Golden
West shall pay the Termination Fee on the business day
immediately following such termination.
(b) Golden West acknowledges that the agreements contained
in this Section 8.03 are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, Wachovia would not enter into this Agreement.
In the event that Golden West fails to pay when due any amounts
payable under this Section 8.03, then (i) Golden West
shall reimburse Wachovia for all costs and expenses (including
disbursements and reasonable fees of counsel) incurred in
connection with the collection of such overdue amount, and
(ii) Golden West shall pay to Wachovia interest on such
overdue amount (for the period commencing as of the date that
such overdue amount was originally required to be paid and
ending on the date that such overdue amount is actually paid in
full) at a rate per annum equal to three percent (3%) over the
“prime rate” (as announced by Citibank, N.A.) in
effect on the date that such overdue amount was originally
required to be paid.
(c) In no event shall Golden West be obligated to pay more
than one Termination Fee.
ARTICLE IX
Miscellaneous
9.01. Survival. The
representations, warranties, agreements and covenants contained
in this Agreement will not survive the Effective Time (other
than Section 2.07, Article III,
Sections 6.05(b), 6.11 and 6.12 and this Article IX).
9.02. Waiver; Amendment. Before the
Effective Time, any provision of this Agreement may be
(a) waived by the party benefited by the provision, but
only in writing, or (b) amended or modified at any time,
but only by a written agreement executed in the same manner as
this Agreement, except to the extent that any such amendment
would violate North Carolina or Delaware law or require
resubmission of this Agreement or the plan of merger contained
herein to the shareholders of Wachovia or Golden West.
9.03. Counterparts. This Agreement
may be executed by facsimile and in one or more counterparts,
each of which will be deemed to constitute an original.
9.04. Governing Law. This Agreement
is governed by, and will be interpreted in accordance with, the
laws of the State of North Carolina applicable to contracts made
and to be performed entirely within that State. EACH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
9.05. Expenses. Except as set forth
in Section 8.03, each party will bear all expenses incurred
by it in connection with this Agreement and the transactions
contemplated hereby, except that Wachovia and Golden West will
each bear and pay one-half of the following expenses:
(a) the costs (excluding the fees and disbursements of
counsel, financial advisors and accountants) incurred in
connection with the preparation (including copying and printing
and distributing) of the Registration Statement, the Joint Proxy
Statement and applications to Governmental Authorities for the
approval of the Merger and (b) all listing, filing or
registration fees, including, without limitation, fees paid for
filing the Registration Statement with the SEC, filing fees for
the HSR Act notices and any other fees paid for filings with
Governmental Authorities.
9.06. Notices. All notices,
requests and other communications given or made under this
Agreement must be in writing and will be deemed given when
personally delivered, facsimile transmitted (with confirmation)
or mailed by registered or certified mail (return receipt
requested) to the persons and addresses set forth below or such
other place as such party may specify by notice.
9.07. Entire Understanding; No Third Party
Beneficiaries. This Agreement represents the
entire understanding of Wachovia and Golden West regarding the
transactions contemplated hereby and supersede any and all other
oral or written agreements previously made or purported to be
made, other than the Confidentiality Agreement, which will
survive the execution and delivery of this Agreement and will
not impair the rights of a party to make a response or propose
amendments or modifications as contemplated by the final proviso
to Section 6.02(c)). No representation, warranty,
inducement, promise, understanding or condition not set forth in
this Agreement has been made or relied on by any party in
entering into this Agreement. Except for Section 6.11,
which is intended to benefit the Indemnified Parties to the
extent stated, nothing expressed or implied in this Agreement is
intended to confer any rights, remedies, obligations or
liabilities upon any person other than Wachovia, Merger Sub and
Golden West.
9.08. Severability. If any
provision of this Agreement or the application thereof to any
person or circumstance is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining
provisions, or the application of such provision to persons or
circumstances other than those as to which it has been held
invalid or unenforceable, will remain in full force and effect
and will in no way be affected, impaired or invalidated thereby,
so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination, the parties will
negotiate in good faith in an effort to agree upon a suitable
and equitable substitute provision to effect the original intent
of the parties.
9.09. Alternative
Structure. Notwithstanding anything to the
contrary contained in this Agreement or the Confidentiality
Agreement, before the Effective Time, Wachovia may revise the
structure of the Merger or otherwise revise the method of
effecting the Merger and related transactions, provided
that (1) such revision does not alter or change the kind or
amount of consideration to be delivered to the shareholders of
Golden West and the holders of Golden West Stock Options,
(2) such revision does not adversely affect the tax
consequences to the shareholders of Golden West, (3) such
revised structure or method does not materially delay
consummation of the transactions contemplated by this Agreement
in relation to the structure contemplated herein, and
(4) such revision does not, and is not reasonably likely
to, otherwise cause any of the conditions set forth in
Article VII not to be capable of being fulfilled (unless
duly waived by the party entitled to the benefits thereof). This
Agreement and any related documents will be appropriately
amended in order to reflect any such revised structure or method.
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.
VOTING AND SUPPORT AGREEMENT, dated as of May 7, 2006 (this
“Agreement”), by and between Wachovia
Corporation, a North Carolina corporation
(“Wachovia”), and [Herbert M.
Sandler][Marion O. Sandler][Bernard A.
Osher], solely in [his] [her]
individual capacity as beneficial owner of Shares (the
“Shareholder”). Capitalized terms used but not
defined herein shall have the meanings given to such terms in
the Merger Agreement (as such term is defined below).
W I T N E
S S E T H :
WHEREAS, Golden West Financial Corporation (“Golden
West”) and Wachovia are, immediately after the
execution and delivery of this Agreement, entering into an
Agreement and Plan of Merger, dated the date hereof (the
“Merger Agreement”), pursuant to which Golden
West will merge with and into a subsidiary of Wachovia (the
“Merger”);
WHEREAS, as of the date hereof, the Shareholder is [an
officer and] [Note: Bracketed language should be deleted for
Bernard Osher since he is only a director of Golden West] a
member of Golden West’s board of directors and is the
beneficial owner of the shares of Golden West Common Stock and
options to purchase shares of Golden West Common Stock listed on
the signature page hereto (the “Existing
Shares” and, together with any shares of Golden West
Common Stock, options to purchase shares of Golden West Common
Stock or other voting capital stock of Golden West acquired by
the Shareholder after the date hereof, the
“Shares”); and
WHEREAS, certain other significant shareholders of Golden West
who are officers and members of Golden West’s board of
directors (the “Other Shareholders”) are, as of
the date hereof, entering into with Wachovia agreements similar
to this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained
herein, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
Voting
1.1 Agreement to Vote. The
Shareholder agrees that, from and after the date hereof and
until the date on which this Agreement is terminated pursuant to
Section 4.1, at the Golden West Meeting or any other
meeting of the shareholders of Golden West, however called, or
in connection with any written consent of the shareholders of
Golden West, relating to any proposed action by the shareholders
of Golden West with respect to the matters set forth in
Section 1.1(b) below, the Shareholder shall:
(a) appear at each such meeting or otherwise cause the
Shares owned beneficially or of record by the Shareholder to be
counted as present thereat for purposes of calculating a
quorum; and
(b) vote (or cause to be voted), in person or by proxy, or
deliver a written consent (or cause a consent to be delivered)
covering, all the Shares owned by the Shareholder, and any other
voting securities of Golden West (whenever acquired), that are
owned beneficially or of record by the Shareholder or as to
which [he][she] has, directly or
indirectly, the right to vote or direct the voting, (i) in
favor of adoption of the Merger Agreement and any other action
of Golden West’s shareholders requested in furtherance
thereof and (ii) against any action or agreement submitted
for approval of the shareholders of Golden West that would
reasonably be expected to result in a breach of any covenant,
representation or warranty or any other obligation or agreement
of Golden West contained in the Merger Agreement or of the
Shareholder contained in this Agreement; and (iii) against
any Acquisition Proposal or any other action, agreement or
transaction submitted for approval to the shareholders of Golden
West that the Shareholder would reasonably expect is intended,
or could reasonably be expected, to materially impede, interfere
or be inconsistent with, delay, postpone, discourage or
materially
and adversely affect the Merger or this Agreement; provided,
however, that the parties acknowledge that this Agreement is
entered into by the Shareholder solely in
his/her
capacity as beneficial owner of the Shares and that nothing in
this Agreement, including without limitation
Section 3.1(d), shall prevent the Shareholder from
discharging
his/her
fiduciary duties as a member of the board of directors of Golden
West.
1.2 No Inconsistent Agreements. The
Shareholder hereby covenants and agrees that, except for actions
taken in furtherance of this Agreement, the Shareholder
(a) has not entered, and shall not enter at any time while
this Agreement remains in effect, into any voting agreement or
voting trust with respect to the Shares owned beneficially or of
record by the Shareholder and (b) has not granted, and
shall not grant at any time while this Agreement remains in
effect, a proxy, a consent or power of attorney with respect to
the Shares owned beneficially or of record by the Shareholder.
1.3 Proxy. The Shareholder hereby
grants to Wachovia a proxy to vote the Shares owned beneficially
and of record by the Shareholder as indicated in
Section 1.1 above (which proxy shall be limited to the
matters set forth in Section 1.1). The Shareholder intends
that such proxy will be irrevocable and coupled with an interest
and the Shareholder will take such further action or execute
such other instruments as may be necessary to effectuate the
intent of this proxy. Such proxy will expire automatically and
without further action by the parties upon termination of this
Agreement.
ARTICLE II
Representations
and Warranties
2.1 Representations and Warranties of the
Shareholder. The Shareholder hereby represents
and warrants to Wachovia as follows:
(a) Authorization; Validity of Agreement; Necessary
Action. This Agreement has been duly executed and
delivered by the Shareholder and, assuming this Agreement
constitutes a valid and binding obligation of Wachovia,
constitutes a valid and binding obligation of the Shareholder,
enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting
creditors’ rights generally and to general equity
principles).
(b) Ownership. As of the date hereof, the
number of shares of Golden West Common Stock beneficially owned
by the Shareholder is listed on the signature page hereof. The
Existing Shares listed on the signature page hereof are, and any
additional shares of Golden West Common Stock and any additional
options to purchase shares of Golden West Common Stock acquired
by the Shareholder after the date hereof and prior to the
Effective Time will be, owned beneficially by the Shareholder.
As of the date hereof, the Existing Shares listed on the
signature page hereof constitute all of the shares of Golden
West Common Stock held of record, beneficially owned by or for
which voting power or disposition power is held or shared by the
Shareholder or any of the Shareholder’s affiliates. The
Shareholder has and, except with respect to Existing Shares
transferred in accordance with Section 3.1(a) hereof, will
have at all times through the Effective Time, individually or
together with one or more Other Shareholders, sole voting power,
sole power of disposition, sole power to issue instructions with
respect to the matters set forth in Article I or
Section 3.1 hereof, and sole power to agree to all of the
matters set forth in this Agreement, in each case with respect
to all of the Existing Shares and with respect to all of the
Shares at the Effective Time, with no limitations,
qualifications or restrictions on such rights, subject to
applicable federal securities laws and the terms of this
Agreement. The Shareholder has good title to the Existing Shares
listed on the signature page hereof, free and clear of any Liens
and, except with respect to Existing Shares transferred in
accordance with Section 3.1(a) hereof, the Shareholder will
have good title to such Existing Shares and any additional
shares of Golden West Common Stock and options to purchase
shares of Golden West Common Stock acquired by the Shareholder
after the date hereof and prior to the Effective Time, free and
clear of any Liens.
(c) No Violation. The execution and
delivery of this Agreement by the Shareholder does not, and the
performance by the Shareholder of
his/her
obligations under this Agreement will not, (i) to
his/her
knowledge, conflict with or violate any law, ordinance or
regulation of any Governmental or Regulatory Authority
applicable to the Shareholder or by which any of
his/her
assets or properties is bound or (ii) conflict with,
result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or require payment
under, or result in the creation of any Lien on the properties
or assets of the Shareholder pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the
Shareholder is a party or by which the Shareholder or any of
his/her
assets or properties is bound, except for any of the foregoing
as could not reasonably be expected, either individually or in
the aggregate, to materially impair the ability of the
Shareholder to perform
his/her
obligations hereunder or to consummate the transactions
contemplated hereby on a timely basis.
ARTICLE III
Other
Covenants
3.1 Further Agreements of
Shareholder. (a) The Shareholder hereby
agrees, while this Agreement is in effect, and except as
expressly contemplated hereby, not to sell, transfer, pledge,
encumber, assign, distribute, gift or otherwise dispose of
(collectively, a “Transfer”), except for gifts
consistent in amounts and terms with past practices, or enforce
or permit the execution of the provisions of any redemption,
share purchase or sale, recapitalization or other agreement with
Golden West or any other person with respect to the Shares or
enter into any contract, option or other arrangement or
understanding with respect to any Transfer (whether by actual
disposition or effective economic disposition due to hedging,
cash settlement or otherwise) of, any of the Existing Shares,
any additional shares of Golden West Common Stock and options to
purchase shares of Golden West Common Stock acquired
beneficially or of record by the Shareholder after the date
hereof, or any interest therein; provided, however, that, the
Shareholder may Transfer all or any portion of the Existing
Shares to one or more charitable organizations described in
Section 170(c) of the Code (each a “Charitable
Organization”) (1) at any time after the
shareholders of Golden West approve the Merger in accordance
with applicable law or (2) if, prior to such Transfer,
(i) the Shareholder provides to Wachovia prior written
notice at least 5 days prior to the date of such Transfer
of the Charitable Organization to which the Existing Shares
shall be Transferred and the number of Existing Shares to be so
Transferred and (iii) the Charitable Organization agrees in
writing, in a manner reasonably acceptable in form and substance
to Wachovia, to accept such Existing Shares subject to the terms
and conditions of this Agreement (including, without limitation,
the voting obligations hereunder) and such proxy and to be bound
by the terms and conditions of this Agreement and such proxy.
Any Charitable Organization that is a permitted transferee of
Existing Shares in accordance with the foregoing sentence may
further Transfer the Existing Shares to any Person who agrees in
writing, in a manner reasonably acceptable in form and substance
to Wachovia, to accept such Existing Shares subject to the terms
and conditions of this Agreement and to be bound by the terms
and conditions of this Agreement and who provides to Wachovia
prior written notice at least 5 days prior to the date of
such Transfer of the Charitable Organization to which the
Existing Shares shall be Transferred and the number of Existing
Shares to be so Transferred.
(b) In case of a stock dividend or distribution, or any
change in Golden West Common Stock by reason of any stock
dividend or distribution, split-up, recapitalization,
combination, exchange of shares or the like, the term
“Shares” shall be deemed to refer to and include the
Shares as well as all such stock dividends and distributions and
any securities into which or for which any or all of the Shares
may be changed or exchanged or which are received in such
transaction.
(c) The Shareholder agrees, while this Agreement is in
effect, to notify Wachovia promptly in writing of (i) the
number of any additional shares of Golden West Common Stock, any
additional options to purchase shares of Golden West Common
Stock or other securities of Golden West acquired by the
Shareholder, if any, after the date hereof and (ii) with
respect to the subject matter contemplated by
Section 3.1(d), any such inquiries or proposals which are
received by, any such information which is requested from, or
any such negotiations or discussions which are sought to be
initiated or continued with, the Shareholder.
(d) The Shareholder agrees, while this Agreement is in
effect, not to, nor to permit any investment banker, financial
adviser, attorney, accountant or other representative or agent
of the Shareholder to, directly or indirectly,
(i) initiate, solicit or encourage, directly or indirectly,
any inquiries or the making of any proposal
to acquire the Shares or (ii) engage in any negotiations
concerning, or provide any confidential information or data to,
or have any discussions with, any person relating to any
proposal to acquire the Shares, or otherwise facilitate any
efforts or attempt to make or implement any proposal to acquire
the Shares. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the
preceding sentence by an investment banker, financial advisor,
attorney, accountant or other representative or agent of the
Shareholder shall be deemed to be a violation of this
Section 3.1(d) by the Shareholder.
(e) The Shareholder agrees, while this Agreement is in
effect, not to (i) take, agree or commit to take any action
that would make any representation and warranty of the
Shareholder, as applicable, contained in this Agreement
inaccurate in any respect as of any time during the term of this
Agreement or (ii) agree or commit to take any action
necessary to prevent any such representation or warranty from
being inaccurate in any respect at any such time.
ARTICLE IV
Miscellaneous
4.1 Termination. This Agreement
shall terminate upon the earlier to occur of (a) the
Effective Time and (b) the date and time of termination of
the Merger Agreement by either or both of Wachovia and Golden
West pursuant to Section 8.01 of the Merger Agreement. Upon
such termination, no party shall have any further obligations or
liabilities hereunder; provided, however, such termination shall
not relieve any party from liability for any willful breach of
this Agreement prior to such termination.
4.2 Further Assurances. From time
to time, at the other party’s request and without further
consideration, each party shall execute and deliver such
additional documents and take all such further action as may be
reasonably necessary or desirable to consummate the transactions
contemplated by this Agreement.
4.3 No
Ownership Interest. Nothing contained in
this Agreement shall be deemed to vest in Wachovia any direct or
indirect ownership or incidence of ownership of or with respect
to any Shares. All rights, ownership and economic benefits of
and relating to the Shares shall remain vested in and belong to
the Shareholder, and Wachovia shall have no authority to manage,
direct, superintend, restrict, regulate, govern or administer
any of the policies or operations of Golden West or exercise any
power or authority to direct the Shareholder in the voting of
any of the Shares, except as otherwise provided herein.
4.4 Notices. All notices and other
communications hereunder shall be in writing and shall be deemed
given if delivered personally, telecopied (with confirmation) or
delivered by an overnight courier (with confirmation) to the
parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
4.5 Interpretation. The words
“hereof,”“herein” and “hereunder”
and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular
provision of this Agreement, and section references are to this
Agreement unless otherwise specified. Whenever the words
“include,”“includes” or
“including” are used in this Agreement, they shall be
deemed to be followed by the words “without
limitation.” Whenever “knowledge” is used in this
Agreement, it shall be deemed to mean the actual knowledge of
the Shareholder. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
4.6 Counterparts. This Agreement
may be executed in one or more counterparts, all of which shall
be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being
understood that both parties need not sign the same counterpart.
4.7 Entire Agreement. This
Agreement (together with the Merger Agreement, to the extent
referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter
hereof.
4.8 Governing Law. This Agreement
shall be governed by, and construed in accordance with, the laws
of the State of North Carolina without regard to any applicable
principles of conflicts of law.
4.9 Amendment. This Agreement may
not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
4.10 Enforcement. The parties agree
that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance
with their specific terms. It is accordingly agreed that the
parties shall be entitled to seek specific performance of the
terms hereof, this being in addition to any other remedy to
which they are entitled at law or in equity. Each of the parties
further agrees to waive any requirements for the securing or
posting of any bond in connection with obtaining any such
equitable relief.
4.11 Severability. Any term or
provision of this Agreement that is determined by a court of
competent jurisdiction to be invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to
the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and
provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction, and if any provision of
this Agreement is determined to be so broad as to be
unenforceable, the provision shall be interpreted to be only so
broad as is enforceable, in all cases so long as neither the
economic nor legal substance of the transactions contemplated
hereby is affected in any manner materially adverse to any party
or its shareholders or limited partners. Upon any such
determination, the parties shall negotiate in good faith in an
effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
4.12 Assignment; Third Party
Beneficiaries. Neither this Agreement nor any of
the rights, interests or obligations of any party hereunder
shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent
of the other party; provided, that any Charitable Organization
that receives Existing Shares in a Transfer in accordance with
Section 3.1(a), and any transferee of such Charitable
Organization in a Transfer in accordance with
Section 3.1(a), shall become subject to the terms and
conditions of this Agreement upon delivery of the documents
contemplated by Section 3.1(a). Subject to the preceding
sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their
respective successors and permitted assigns. This Agreement is
not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
IN WITNESS WHEREOF, the parties hereto have signed or
have caused this Agreement to be signed by their respective
officers or other authorized persons thereunto duly authorized
as of the date first written above.
IN WITNESS WHEREOF, the Shareholder has executed this Agreement
as of the date first written above. The next subsequent page of
this Agreement, which contains details of the number of Shares
owned beneficially and of record by the Shareholder and the
Shareholder’s address for notices, is hereby incorporated
in this signature page by reference.
[Herbert M. Sandler] [Marion O. Sandler]
[Bernard A. Osher], individually
Indirectly (28,380,543), of
which (a) 27,795,895 shares are held in a trust
for the benefit of Herbert M. Sandler and Marion O. Sandler
where Herbert M. Sandler and Marion O. Sandler are
co-trustees, (b) 579,248 shares are held in a
trust for the benefit of others where Herbert M. Sandler and
Marion O. Sandler are co-trustees
and (c) 5,400 shares are held in a trust for the
benefit of others where Herbert M. Sandler is trustee.
Shares Subject to Options to
Purchase Common Stock (655,000).
Address for notices:
Herbert M. Sandler
c/o Golden West Financial Corporation
1901 Harrison Street Oakland, California94612
Fax:
(510) 893-9207
with a copy to:
Wachtell, Lipton, Rosen &
Katz
51 West
52nd Street New York, New York10019
Attention: Edward D. Herlihy, Esq. and
Lawrence S. Makow, Esq.
Fax:
(212) 403-2000
Indirectly (30,494,813), of
which (a) 27,795,895 shares are held in a trust
for the benefit of Herbert M. Sandler and Marion O. Sandler
where Herbert M. Sandler and Marion O. Sandler are
co-trustees, (b) 579,248 shares are held in a
trust for the benefit of others where Herbert M. Sandler and
Marion O. Sandler are co-trustees
and (c) 2,119,670 shares are held in a trust for
the benefit of others where Marion O. Sandler is trustee
Shares Subject to Options to
Purchase Common Stock (655,000).
Address for notices:
Marion O. Sandler
c/o Golden West Financial Corporation
1901 Harrison Street Oakland, California94612
Fax:
(510) 893-9207
with a copy to:
Wachtell, Lipton, Rosen &
Katz
51 West
52nd Street New York, New York10019
Attention: Edward D. Herlihy, Esq. and
Lawrence S. Makow, Esq.
Fax:
(212) 403-2000
Wachtell, Lipton, Rosen &
Katz
51 West
52nd Street New York, New York10019
Attention: Edward D. Herlihy, Esq. and
Lawrence S. Makow, Esq.
Fax:
(212) 403-2000
I have been advised that I may be deemed to be an
“affiliate” of Golden West Financial Corporation
(“Golden West”), as that term is defined for
purposes of Rule 145 promulgated by the Securities and
Exchange Commission (the “SEC”) under the
Securities Act of 1933, as amended (the “Securities
Act”). I understand that pursuant to the terms of the
Agreement and Plan of Merger, dated as of May 7, 2006 (as
amended or modified from time to time, the “Merger
Agreement”), among Wachovia Corporation
(“Wachovia”), Burr Financial Corporation
(“Merger Sub”) and Golden West, Golden West
plans to merge with and into Merger Sub (the
“Merger”). Capitalized terms used herein and
not otherwise defined shall have the meanings assigned to them
in the Merger Agreement.
I further understand that as a result of the Merger, I may
receive common stock of Wachovia (the “Wachovia Common
Stock”) in exchange for shares of common stock of
Golden West (the “Golden West Common Stock”),
or as a result of the exercise of Golden West Stock Options or
similar Rights.
I have carefully read this letter and reviewed the Merger
Agreement and discussed their requirements and other applicable
limitations upon my ability to sell, transfer, or otherwise
dispose of Wachovia Common Stock and Golden West Common Stock,
to the extent I felt necessary, with my counsel or counsel for
Golden West.
I represent, warrant and covenant with and to Wachovia that in
the event I receive any Wachovia Common Stock as a result of the
Merger:
1. I will not make any sale, transfer, or other disposition
of such Wachovia Common Stock unless (a) such sale,
transfer or other disposition has been registered under the
Securities Act, (b) such sale, transfer or other
disposition is made in conformity with the provisions of
Rule 145 under the Securities Act, or (c) in the
opinion of counsel in form and substance reasonably satisfactory
to Wachovia, or under a “no-action” letter obtained by
me from the staff of the SEC, such sale, transfer or other
disposition will not violate or is otherwise exempt from
registration under the Securities Act.
2. I understand that, except as provided in the Merger
Agreement, Wachovia is under no obligation to register the sale,
transfer or other disposition of shares of Wachovia Common Stock
by me or on my behalf under the Securities Act or to take any
other action necessary in order to make compliance with an
exemption from such registration available, except the
obligation to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended, as more
fully described below.
3. I understand that stop transfer instructions will be
given to Wachovia’s transfer agent with respect to the
shares of Wachovia Common Stock issued to me as a result of the
Merger and that there will be placed on the certificates for
such shares, or any substitutions therefor, a legend stating in
substance:
“The shares represented by this certificate were issued in
a transaction to which Rule 145 under the Securities Act of
1933, as amended, applies. The shares represented by this
certificate may be transferred only in accordance with the terms
of a letter agreement between the registered holder hereof and
Wachovia Corporation, a copy of which agreement is on file at
the principal offices of Wachovia Corporation.”
4. I understand that, unless transfer by me of the Wachovia
Common Stock issued to me as a result of the Merger has been
registered under the Securities Act or such transfer is made in
conformity with the provisions of Rule 145(d) under the
Securities Act, Wachovia reserves the right, in its sole
discretion, to place the following legend on the certificates
issued to my transferee:
“The shares represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired
from a person who received such shares in a transaction to which
Rule 145 under the Securities Act of 1933 applies. The
shares have been acquired by the holder not with a view to, or
for resale in connection with, any distribution thereof within
the meaning of the Securities Act of 1933 and may not be
offered, sold, pledged or otherwise transferred except in
accordance with an exemption from the registration requirements
of the Securities Act of 1933.”
I understand and agree that the legends set forth in
paragraph 3 or 4 above, as the case may be, will be removed
by delivery of substitute certificates without such legend if I
deliver to Wachovia (a) a copy of a “no-action”
letter from the staff of the SEC, or an opinion of counsel in
form and substance reasonably satisfactory to Wachovia, to the
effect that such legend is not required for purposes of the
Securities Act, or (b) evidence or representations
reasonably satisfactory to Wachovia that Wachovia Common Stock
represented by such certificates is being or has been sold in
conformity with the provisions of Rule 145(d) under the
Securities Act or pursuant to an effective registration under
the Securities Act.
By its acceptance hereof, Wachovia agrees, for a period of two
years after the Effective Time, that it, as the Surviving
Corporation, will file on a timely basis all reports required to
be filed by it pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, so that the public
information provisions of Rule 144(c) promulgated under the
Securities Act are satisfied and the resale provisions of
Rule 145(d)(1) and (2) promulgated under the
Securities Act are therefore available to me in the event I
desire to transfer any Wachovia Common Stock issued to me in the
Merger.
By signing this letter agreement, without limiting or abrogating
the agreements that I have made as set forth above, I do not
admit that I am an “affiliate” of Golden West within
the meaning of the Securities Act or the rules and regulations
promulgated thereunder, and I do not waive any right that I may
have to object to any assertion that I am an affiliate.
It is understood and agreed that this letter agreement shall
terminate and be of no further force and effect if the Merger
Agreement is terminated in accordance with its terms. It is also
understood and agreed that this letter agreement shall terminate
and be of no further force and effect and the stop transfer
instructions set forth in paragraph 3 above shall be lifted
and the legends set forth in 3 and 4 above shall be removed
forthwith from the certificate or certificates representing my
shares of Wachovia Common Stock (A) upon the of delivery by
the undersigned to Wachovia of a copy of a letter from the staff
of the SEC, an opinion of counsel in form and substance
reasonably satisfactory to Wachovia, or other evidence
reasonably satisfactory to Wachovia, to the effect that a
transfer of my shares of Wachovia Common Stock will not violate
the Securities Act or any of the rules and regulations of the
SEC thereunder, (B) if one year (or such other period as
may be required by Rule 145(d)(2) under the Securities Act
or any successor thereto) shall have elapsed from the Closing
Date and the provisions of such Rule are then available to me;
or (C) if two years (or such other period as may be
required by Rule 145(d)(3) under the Securities Act or any
successor thereto) shall have elapsed from the Closing Date and
the provisions of such Rule are then available to me.
This letter agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina. This
letter agreement shall terminate if and when the Merger
Agreement is terminated according to its terms.
Golden West Financial Corporation (the “Company”),
Wachovia Corporation (the “Acquiror”) and Burr
Financial Corporation, a wholly owned subsidiary of the Acquiror
(the “Acquisition Sub”) propose to enter into an
Agreement and Plan of Merger (the “Agreement”)
pursuant to which the Company will be merged with and into the
Acquisition Sub in a transaction (the “Merger”) in
which each issued and outstanding share of the Company’s
common stock, par value $0.10 per share (the “Company
Shares”), other than Company Shares beneficially owned by
the Acquiror and Company Shares held in the treasury of the
Company, or that are held by any stockholder who properly
demands appraisal rights for such Company Shares in accordance
with Delaware law, will be converted into the right to receive
(a) 1.051 shares of common stock of the Acquiror, par
value
$3.331/3
per share (the “Acquiror Shares”) (the “Stock
Consideration”) and (b) $18.65 in cash (the “Cash
Consideration” and together with the Stock Consideration,
the “Merger Consideration”).
You have asked us whether, in our opinion, the Merger
Consideration to be paid by the Acquiror pursuant to the Merger
is fair from a financial point of view to the Acquiror.
In arriving at the opinion set forth below, we have, among other
things:
(1)
Reviewed certain publicly available business and financial
information relating to the Company and the Acquiror that we
deemed to be relevant;
(2)
Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets,
liabilities and prospects of the Company and the Acquiror, as
well as the amount and timing of the cost savings and related
expenses and synergies expected to result from the Merger (the
“Expected Synergies”) furnished to us by the Company
and the Acquiror;
(3)
Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning the
matters described in clauses 1 and 2 above, as well as
their respective businesses and prospects before and after
giving effect to the Merger and the Expected Synergies;
(4)
Reviewed the market prices and valuation multiples for the
Company Shares and the Acquiror Shares and compared them with
those of certain publicly traded companies that we deemed to be
relevant;
(5)
Reviewed the results of operations of the Company and the
Acquiror and compared them with those of certain publicly traded
companies that we deemed to be relevant;
(6)
Compared the proposed financial terms of the Merger with the
financial terms of certain other transactions that we deemed to
be relevant;
(7)
Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their
financial and legal advisors;
(8)
Reviewed the potential pro forma impact of the Merger;
(9)
Reviewed a draft dated May 6, 2006 of the Agreement;
(10)
Reviewed a draft dated May 6, 2006 of the Voting and
Support Agreement between the Acquiror and certain stockholders
of the Company (as to the terms of which we express no opinion);
and
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 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 any
responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the
assets or liabilities of the Company or the Acquiror or been
furnished with any such evaluation or appraisal, nor have we
evaluated the solvency or fair value of the Company or the
Acquiror under any state or federal laws relating to bankruptcy,
insolvency or similar matters. In addition, we have not assumed
any obligation to conduct any physical inspection of the
properties or facilities of the Company or the Acquiror. With
respect to the financial forecast information and the Expected
Synergies furnished to or discussed with us by the Company or
the Acquiror, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and
judgment of the Company’s or the Acquiror’s management
as to the expected future financial performance of the Company
or the Acquiror, as the case may be, and the Expected Synergies.
We have further assumed that the Merger will qualify as a
tax-free reorganization for U.S. federal income tax purposes. We
have also assumed that the final form of the Agreement and each
ancillary agreement, as listed above, will be substantially
similar to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated on, and on the
information made available to us as of, the date hereof. We have
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 amendments or modifications, will be imposed
that will have a material adverse effect on the contemplated
benefits of the Merger.
In connection with the preparation of this opinion, we have not
been authorized by the Acquiror or the Board of Directors to
solicit, nor have we solicited, third party indications of
interest for the acquisition of all or any part of the Acquiror.
We are acting as financial advisor to the Acquiror in connection
with the Merger and will receive a fee from the Acquiror for our
services, a significant portion of which is contingent upon the
consummation of the Merger. In addition, the Acquiror has agreed
to indemnify us for certain liabilities arising out of our
engagement. We have, in the past, provided financial advisory
and financing services to the Acquiror and the Company and may
continue to do so and have received, and may receive, fees for
the rendering of such services. In addition, in the ordinary
course of our business, we may actively trade the Company Shares
and other securities of the Company, as well as the Acquiror
Shares and other securities of the Acquiror, for our own account
and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of
Directors of the Acquiror. Our opinion does not address the
merits of the underlying decision by the Acquiror to engage in
the Merger and does not constitute a recommendation to any
shareholder of the Acquiror as to how such shareholder should
vote on the proposed Merger or any matter related thereto. In
addition, you have not asked us to address, and this opinion
does not address, the fairness to, or any other consideration
of, the holders of any class of securities, creditors or other
constituencies of the Acquiror. We are not expressing any
opinion herein as to the prices at which the Acquiror 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 of the date hereof, the Merger Consideration to
be paid by the Acquiror pursuant to the Merger is fair from a
financial point of view to the Acquiror.
We understand that Golden West Financial Corporation, a Delaware
corporation (the “Company”), proposes to enter into an
Agreement and Plan of Merger (the “Agreement”) with
Wachovia Corporation, a North Carolina corporation
(“Wachovia”), and Burr Financial Corporation, a North
Carolina corporation and a wholly owned subsidiary of Wachovia
(“Merger Sub”), pursuant to which the Company would be
merged with and into Merger Sub, with Merger Sub as the
surviving corporation (the “Proposed Transaction”). We
further understand that, upon the effectiveness of the Proposed
Transaction, each stockholder of record of the Company will
receive, in exchange for the shares of Company common stock
owned by such stockholder, the following (collectively, the
“Consideration”): (1) a number of shares of
Wachovia common stock (together with the rights attached
thereto) equal to the product of (i) 1.3650, multiplied by
(ii) the number of shares of Company common stock owned by
such stockholder, multiplied by (iii) 77%, and (2) an
amount in cash equal to the product of (i) $81.07,
multiplied by (ii) the number of shares of Company common
stock owned by such stockholder, multiplied by (iii) 23%;
provided that cash will be paid in lieu of any fraction of a
share of Wachovia common stock that otherwise would be issued to
such stockholder. The terms and conditions of the Proposed
Transaction are set forth in more detail in the Agreement.
We have been requested by the Board of Directors of the Company
to render our opinion with respect to the fairness, from a
financial point of view, to the Company’s stockholders of
the Consideration to be offered to such stockholders in the
Proposed Transaction. We have not been requested to opine as to,
and our opinion does not in any manner address, the
Company’s underlying business decision to proceed with or
effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) a
draft dated May 7, 2006 of the Agreement and the specific
terms of the Proposed Transaction; (2) publicly available
information concerning the Company that we believe to be
relevant to our analysis, including the Company’s earnings
press release for the quarter ended March 31, 2006 and the
Company’s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005;
(3) publicly available information concerning Wachovia that
we believe to be relevant to our analysis, including
Wachovia’s earnings press release for the quarter ended
March 31, 2006, Wachovia’s Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006 and Wachovia’s
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005;
(4) financial and operating information with respect to the
business, operations and prospects of the Company furnished to
us by the Company; (5) financial and operating information
with respect to the business, operations and prospects of
Wachovia furnished to us by Wachovia; (6) the trading
histories of the Company’s and Wachovia’s common stock
from May 5, 2001 to May 5, 2006 and a comparison of
those trading histories with each other and with the trading
histories of other companies that we deemed relevant and with
the trading histories of certain market indices, including the
S&P 500 index, the Lehman Brothers’ Bank Index and the
Lehman Brothers’ Thrift Index; (7) a comparison of the
historical financial results and present financial condition of
the Company with those of other companies that we deemed
relevant; (8) a comparison of the historical financial
results and present financial condition of Wachovia with those
of other companies that we deemed relevant; (9) the
potential pro forma impact of the Proposed Transaction on the
future financial performance of Wachovia, including the
potential effect on Wachovia’s pro forma earnings per share
and the cost savings which the managements of the Company and
Wachovia expect to achieve from the Proposed Transaction
(the “Expected Savings”);
(10) the relative financial contributions of the Company
and Wachovia to the current and future financial performance of
the combined company on a pro forma basis (including the
Expected Savings); (11) independent research analysts’
estimates of the future financial performance of the Company and
Wachovia published by I/B/E/S; (12) the amount of annual
dividends historically paid by Wachovia; and (13) a
comparison of the financial terms of the Proposed Transaction
with the financial terms of certain other transactions that we
deemed relevant. In addition, we have (i) had discussions
with the managements of the Company and Wachovia concerning
their respective businesses, operations, assets, liabilities,
financial condition and prospects, the Expected Savings and the
other strategic benefits expected by the managements of the
Company and Wachovia to result from a combination of the
businesses of the Company and Wachovia, and (ii) undertaken
such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information
used by us without assuming any responsibility for independent
verification of such information and have further relied upon
the assurances of the managements of the Company and Wachovia
that they are not aware of any facts or circumstances that would
make such information inaccurate or misleading. In arriving at
our opinion, upon advice of the Company, we have assumed that
the estimates of third-party research analysts published by
I/B/E/S are a reasonable basis to evaluate the future financial
performance of the Company and Wachovia and that the performance
of the Company and Wachovia shall not differ materially from
such estimates. With respect to the Expected Savings estimated
by the managements of the Company and Wachovia to result from
the Proposed Transaction, we have assumed that such Expected
Savings will be realized substantially in accordance with such
estimates. In arriving at our opinion, we have not conducted a
physical inspection of the properties and facilities of the
Company or Wachovia and have not made or obtained any
evaluations or appraisals of the assets or liabilities of the
Company or Wachovia. In addition, upon advice of the Company, we
have assumed that the respective current allowances for loan
losses of the Company and Wachovia will be, in each case, in the
aggregate adequate to cover all such losses. Upon advice of the
Company and its legal and accounting advisors, we have assumed
that the Proposed Transaction will qualify as a reorganization
within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and therefore as a tax-free
transaction to the stockholders of the Company with respect to
their receipt of Wachovia common stock in the Proposed
Transaction. Our opinion necessarily is based upon market,
economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
In addition, we express no opinion as to the prices at which
shares of Wachovia common stock will trade at any time following
the announcement of the Proposed Transaction or the consummation
of the Proposed Transaction. This opinion should not be viewed
as providing any assurance that the market value of the shares
of Wachovia common stock to be held by the stockholders of the
Company after the consummation of the Proposed Transaction will
be in excess of the market value of the shares of Company common
stock owned by such stockholders at any time prior to
announcement or consummation of the Proposed Transaction.
Based upon and subject to the foregoing, we are of the opinion
as of the date hereof that, from a financial point of view, the
Consideration to be offered to the Company’s stockholders
in the Proposed Transaction is fair to such stockholders.
We have acted as financial advisor to the Company in connection
with the Proposed Transaction and will receive a fee for our
services, a portion of which is payable upon delivery of this
opinion and the remainder of which is contingent upon the
consummation of the Proposed Transaction. In addition, the
Company has agreed to indemnify us for certain liabilities that
may arise out of the rendering of this opinion. We also have
performed various investment banking services for the Company
and Wachovia in the past and have received customary fees for
such services. In the ordinary course of our business, we may
actively trade in the
securities of the Company and Wachovia 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.
This opinion is for the use and benefit of the Board of
Directors of the Company and is rendered to the Board of
Directors in connection with its consideration of the Proposed
Transaction. This opinion is not intended to be and does not
constitute a recommendation to any stockholder of the Company as
to how such stockholder should vote with respect to the Proposed
Transaction.
APPRAISAL RIGHTS. (a) Any stockholder of
a corporation of this State who holds shares of stock on the
date of the making of a demand pursuant to
subsection (d) of this section with respect to such
shares, who continuously holds such shares through the effective
date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to § 228 of this
title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholder’s shares of stock
under the circumstances described in subsections (b) and
(c) of this section. As used in this section, the word
“stockholder” means a holder of record of stock in a
stock corporation and also a member of record of a nonstock
corporation; the words “stock” and “share”
mean and include what is ordinarily meant by those words and
also membership or membership interest of a member of a
non-stock corporation; and the words “depository
receipt” mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or
fractions thereof, solely of stock of a corporation, which stock
is deposited with the depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to
§ 251 (other than a merger effected pursuant to
§ 251(g) of this title), § 252,
§ 254, § 257, § 258,
§ 263 or § 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of
§ 251 of this title.
(2) Notwithstanding paragraph (1) of this
subsection, appraisal rights under this section shall be
available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
§ 251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 253 of
this title is not owned by the parent corporation immediately
prior to the merger, appraisal rights shall be available for the
shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as
a result of an amendment to its certificate of incorporation,
any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or
all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder’s
shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for
appraisal of such stockholder’s shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholder’s
shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
§ 228 or § 253 of this title, then either a
constituent corporation before the effective date of the merger
or consolidation or the surviving or resulting corporation
within 10 days thereafter shall notify each of the holders
of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the
merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation
the appraisal of such holder’s shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder’s shares. If
such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of
the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has demanded
appraisal of such holder’s shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix,
in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the
merger or consolidation, the surviving or resulting corporation
or any stockholder who has complied with subsections
(a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within
60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw
such stockholder’s demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days
after such stockholder’s written request for such a
statement is received by the surviving or resulting corporation
or within 10 days after expiration of the period for
delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after
such service file in the office of the Register in Chancery in
which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the
time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1
or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining
their fair value exclusive of any element of value arising from
the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest,
the Court may consider all relevant factors, including the rate
of interest which the surviving or resulting corporation would
have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit
discovery or other pretrial proceedings and may proceed to trial
upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section
and who has submitted such stockholder’s certificates of
stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case
of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Court’s decree may be enforced as other
decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this
State or of any state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney’s fees
and the fees and expenses of experts, to be charged pro rata
against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights
as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholder’s demand for an
appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the
merger or consolidation as provided in
subsection (e) of this section or thereafter with the
written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms
as the Court deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
Wachovia Corporation, a North Carolina corporation
(“Wachovia”), established, effective as of
April 22, 2003, an incentive compensation plan, known as
the “WACHOVIA CORPORATION 2003 STOCK INCENTIVE PLAN”
(the “Plan”).
The purposes of the Plan are to (a) help align the
long-term financial interests of Participants with those of
stockholders; (b) reinforce a performance-oriented
culture/strategy; (c) incent and reward employees for
increasing Wachovia’s common stock price over time;
(d) motivate, attract and retain the services of
Participants upon whose judgment, interest and special effort
the successful conduct of Wachovia’s operations are
dependent; (e) provide for a direct relationship between
annual performance results and executive compensation; and
(f) focus performance on the achievement of short-term
objectives consistent with the overall long-term strategic
objectives of Wachovia.
2.
EFFECTIVE
DATE AND DURATION OF THE PLAN
The Plan became effective on April 22, 2003. The Plan has
been amended and restated effective August 31, 2006,
subject to its approval by the stockholders of Wachovia, and
shall remain in effect, subject to the right of the Committee to
amend or terminate the Plan at any time pursuant to the terms
hereof, until all Shares subject to it shall have been purchased
or acquired according to the Plan’s provisions. In no event
may an Award be granted under the Plan after April 19,2011. After the date on which the Plan initially became
effective, no additional stock awards have been, nor will be,
granted under the Prior Plans.
3.
DEFINITIONS
(a) “1934 Act” means the Securities Exchange
Act of 1934, as amended, including the rules and regulations
promulgated thereunder.
(b) “Adjusted Net Income” shall mean the
Corporation’s consolidated net income applicable to common
stockholders as it appears on an income statement of the
Corporation, prepared in accordance with generally accepted
accounting principles, excluding the effects of Extraordinary
Items.
(c) “Award” means, individually or collectively,
an Option (including an ISO or an NQSO), SAR, Stock Award,
Operating Committee Incentive Award, any other award made
pursuant to the terms of the Plan, or any combination thereof.
(d) “Award Agreement” means an agreement entered
into by the Corporation and a Participant setting forth the
terms and provisions applicable to Awards.
(e) “Beneficial Owner” or “Beneficial
Ownership” shall have the meaning ascribed to such term in
Rule 13d-3
of the General Rules and Regulations under the 1934 Act.
(f) “Board” means the Board of Directors of
Wachovia.
(g) “Change of Control” means
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
1934 Act) (a “Person”) of beneficial ownership
(within the meaning of
Rule 13d-3
promulgated under the 1934 Act) of 25% or more of either
(A) the then outstanding Shares (the “Outstanding
Wachovia Common Stock”) or (B) the combined voting
power of the then outstanding voting securities of Wachovia
entitled to vote generally in the election of directors (the
“Outstanding Wachovia Voting Securities”); provided,
however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change of Control:
(1) any acquisition directly from the Corporation,
(2) any acquisition by the Corporation, (3) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or (4) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (A), (B) and (C) of
subsection (iii) of this definition; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by
Wachovia’s stockholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement
of Wachovia in which such person is named as a nominee for
director, without written objection to such nomination) shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or contests by or on behalf of a Person
other than the Board; or
(iii) Consummation of a reorganization, merger, share
exchange or consolidation or sale or other disposition of all or
substantially all of the assets of the Corporation (a
“Business Combination”), in each case, unless,
following such Business Combination, (A) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Wachovia
Common Stock and Outstanding Wachovia Voting Securities
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power
of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result
of such transaction owns the Corporation or all or substantially
all of the Corporation’s assets either directly or through
one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business
Combination of the Outstanding Wachovia Common Stock and
Outstanding Wachovia Voting Securities, as the case may be,
(B) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or
related trust) of the Corporation or such corporation resulting
from the Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business
Combination and (C) at least a majority of the members of
the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board
immediately prior to the time of the execution of the initial
agreement, or of the action of the Board, providing for such
Business Combination; or
(iv) Approval by the stockholders of Wachovia of a complete
liquidation or dissolution of the Corporation.
(h) “Code” means the Internal Revenue Code of
1986, as amended (or any successor thereto), including any rules
and regulations promulgated thereunder.
(i) “Committee” means the Management
Resources & Compensation Committee of the Board or such
other committee as is appointed by the Board to administer the
Plan.
(j) “Corporation” means (i) Wachovia and any
entity that is directly or indirectly controlled by Wachovia, or
(ii) any entity in which Wachovia has a significant equity
interest, as determined by the Committee.
(k) “Date of Termination of Employment” means,
with respect to an Employee who is terminating employment with
the Corporation, (i) the last day such Employee performs
actual services for the Corporation as an Employee,
(ii) the 91st day of a bona fide leave of absence when
such Employee’s right to continue employment with the
Corporation is not guaranteed by law or contract or, if later,
on the date that such legal or contractual guarantee lapses,
(iii) the date that such Employee is deemed to have a
Disability, or (iv) the date of such Employee’s death,
as applicable.
(l) “Disability”, with respect to an Employee,
means having received long-term disability benefits under the
Corporation’s Long-Term Disability Plan (or successor
thereto) for a period of 12 consecutive months.
(m) “Employee” means an employee of the
Corporation.
(n) “Extraordinary Items” means
(i) extraordinary, unusual
and/or
non-recurring items of gain or loss, including but not limited
to, restructuring or restructuring-related charges,
(ii) gains or losses on the disposition of a business,
(iii) changes in tax or accounting regulations or laws, or
(iv) the effect of a merger or acquisition, all of which
are identified in the Corporation’s audited financial
statements or the Corporation’s annual report to
stockholders.
(o) “Fair Market Value” means the closing sales
price of the Shares on the New York Stock Exchange Composite
Tape on the valuation date, or, if there were no sales on the
valuation date, the closing sales price on the New York Stock
Exchange Composite Tape on the first trading day before such
valuation date.
(p) “ISO” means an Option to purchase Shares
granted under Section 7(a) herein, which is designated as
an ISO and which is intended to meet the requirements of
Section 422 of the Code.
(q) “NQSO” means an Option to purchase Shares
granted under Section 7(a) herein, and which does not or is
not intended to meet the requirements of Section 422 of the
Code.
(r) “Operating Committee Participant” means, for
a Plan Year, a Participant who is one of the group of executive
officers of the Corporation serving on its Operating Committee
and designated in writing by the Committee as a participant in
the Operating Committee Incentive Award program under
Sections 9 and 10 herein.
(s) “Operating Committee Incentive Award” means,
for a Plan Year, a cash incentive award payable to an Operating
Committee Participant as determined pursuant to Sections 9
and 10 herein.
(t) “Option” means an ISO or an NQSO.
(u) “Option Price” means the price at which a
Share may be purchased by a Participant pursuant to an Option.
(v) “Participant” means an Employee of the
Corporation who has been granted an Award under the Plan.
(w) “Performance-Based Exception” means the
performance-based exception set forth in Code
Section 162(m)(4)(C) from the deductibility limitations of
Code Section 162(m).
(x) “Performance Goals” means one or more
objective performance measures or goals established by the
Committee in its sole discretion prior to March 31 of each
year or otherwise in accordance with Section 162(m) of the
Code and related regulations.
Such Performance Goals shall be based on one or more of the
following criteria: earnings or earnings growth (including but
not limited to earnings per share or net income); economic
profit, stockholder value added or economic value added; return
on equity, assets or investment; revenues; expenses; stock price
or total stockholder return; market share; charge-offs;
and/or
reductions in non-performing assets. Such Performance Goals may
include objective non-financial measures as the Committee may
determine, including employee satisfaction, employee retention
or customer satisfaction. Such Performance Goals may be
particular to a Participant or the division, department, branch,
line of business, subsidiary or other unit in which the
Participant works, or may be based on the performance of the
Corporation generally or relative to industry or competitor
performance, as determined by the Committee. Such Performance
Goals may include or exclude some or all Extraordinary Items, as
determined by the Committee in its sole discretion.
(y) “Performance Stock Award” means a Stock Award
granted to a Participant that entitles the Participant to a
payment in the form of Shares upon the attainment of Performance
Goals and such other terms and conditions specified by the
Committee.
(z) “Performance Unit Award” means a Stock Award
granted to a Participant that entitles the Participant to a
payment in the form of cash upon the attainment of Performance
Goals and such other terms and conditions specified by the
Committee.
(aa) “Period of Restriction” means the period
during which the vesting
and/or
transfer of Options, SARs or Stock Awards is limited in some
way, and the Shares or units subject to such Options, SARs or
Stock Awards, as applicable, are subject to a substantial risk
of forfeiture, as provided in Section 7 herein.
(bb) “Plan” is defined in Section 1 herein.
(cc) “Plan Year” means a twelve-month period
beginning with January 1 of each year.
(dd) “Prior Plans” means all stock incentive
compensation plans of the Corporation as of April 22, 2003,
including but not limited to, the Corporation’s 1998 Stock
Incentive Plan, the Corporation’s 2001 Stock Incentive
Plan, the Corporation’s Stock Plan, the Corporation’s
Employee Retention Stock Plan, and the Corporation’s 1999
Employee Stock Plan.
(ee) “Retirement” means termination of a
Participant’s employment upon satisfaction of the
requirements for either a normal or early retirement under the
terms of Wachovia’s pension plan, or any successor plan
thereto applicable to the Participant, or such other definition
as the Committee may from time to time designate in the
applicable Award Agreement.
(ff) “RSA” means a Stock Award granted to a
Participant pursuant to Section 7(c) herein which contains
restrictions on vesting
and/or
transfer of the Shares subject to such Stock Award.
(gg) “RSU” means a Stock Award granted to a
Participant pursuant to Section 7(c) herein and which is
settled (i) by the delivery of one Share for each RSU,
(ii) in cash in an amount equal to the Fair Market Value of
one Share for each RSU, or (iii) in a combination of cash
and Shares, all as specified in the applicable Award Agreement.
The Award of an RSU represents the promise of the Corporation to
deliver Shares, cash or a combination thereof, as applicable, at
the end of the Period of Restriction (or such later date as
provided by the Award Agreement) in accordance with and subject
to the terms and conditions of the applicable Award Agreement,
and is not intended to constitute a transfer of
“property” within the meaning of Section 83 of
the Code.
(hh) “SAR” means an Award, granted alone or in
connection with a related Option, designated as an SAR, pursuant
to the terms of Section 7(b) herein.
(ii) “Shares” means the common stock of Wachovia,
par value
$3.331/3
per share.
(jj) “Stock Award” shall represent an Award
granted under Section 7(c) herein made in Shares or
denominated in units equivalent in value to Shares or any other
Award based on or related to Shares, including, but not limited
to, an RSA, an RSU, a Performance Stock Award or a Performance
Unit Award.
(kk) “Wachovia” is defined in Section 1
herein.
4.
PLAN
ADMINISTRATION
(a) The Committee. The
Committee shall be responsible for administering the Plan. If
considered appropriate by the Board in light of applicable laws,
rules, or regulations, the Committee shall be comprised of two
or more non-employee members of the Board each of whom is a
“Non-Employee Director” within the meaning of
Rule 16b-3
under the 1934 Act and an “Outside Director”
within the meaning of Section 162(m) of the Code. Any
action taken with respect to Operating Committee Participants
for purpose of meeting the Performance-Based Exception shall be
taken by the Committee only if all of the members of the
Committee are “outside directors” within the meaning
of Code Section 162(m), or as may otherwise be permitted
pursuant to Section 162(m) of the Code.
(b) Committee
Authority. The Committee may at any time
alter, amend, suspend, terminate or discontinue the Plan or any
or all Awards or agreements granted under the Plan to the extent
permitted by law, rule or regulation; provided, that such
amendment or termination shall not, without the consent of the
recipient of an Award, adversely affect the rights of the
recipient with respect to an Award previously granted. Except as
limited by law, or by the Articles of Incorporation or By-laws
of Wachovia, and subject to the provisions herein, the Committee
shall have full and exclusive power to interpret the Plan and to
adopt such rules, regulations, and guidelines for carrying out
the Plan as it may deem necessary or proper, all of which powers
shall be executed in the best interests of the Corporation and
in keeping with the provisions and objectives of the Plan.
These powers include, but are not limited to (i) selecting
Award recipients and the extent of their participation;
(ii) establishing Award terms and conditions;
(iii) adopting procedures and regulations governing Awards;
and (iv) making all other determinations necessary or
advisable for the administration of the Plan. In addition,
except as otherwise provided herein, in Wachovia’s Articles
of Incorporation or By-laws, or pursuant to applicable law, the
Committee shall have authority, in its sole discretion, to
accelerate the date that any Award which was not otherwise
exercisable or vested shall become exercisable or vested in
whole or in part, extend or modify the period during which an
Award may be exercised or vested in whole or in part,
and/or
modify the other terms and conditions of exercise or vesting of
an Award, in each case without any obligation to accelerate such
date with respect to any other Awards granted to any
Participant. All determinations, interpretations or other
actions taken or made by the Committee pursuant to the
provisions of the Plan shall be final, binding and conclusive on
all persons interested herein.
The Committee may delegate to one or more officers of the
Corporation the authority to carry out some or all of its
responsibilities, provided that the Committee may not delegate
its authority and powers in any way which would be inconsistent
with the requirements of applicable law, rule or regulation. The
Committee may at any time rescind the authority delegated to any
such officers.
Except for adjustments made pursuant to Section 6(c), in no
event shall the Committee have the right, without stockholder
approval, to (i) reduce or decrease the Option Price for an
outstanding Option or SAR, (ii) cancel an outstanding
Option or SAR for the purpose of replacing or regranting such
Option or SAR with an Option Price or SAR exercise price, as
applicable, that is less than the original Option Price or SAR
exercise price of the Option or SAR, as applicable, or otherwise
reduce the Option Price or SAR exercise price,
(iii) increase the number of Shares available for issuance
in accordance with Section 6 of the Plan, or (iv) make
other Plan amendments or modifications without stockholder
approval where such approval is required by applicable law, rule
or regulation.
No member of the Committee shall be liable for any action or
determination with respect to the Plan, and the members shall be
entitled to indemnification and reimbursement in the manner
provided in Wachovia’s Articles of Incorporation. In the
performance of its functions under the Plan, the Committee shall
be entitled to rely upon information and advice furnished by the
Corporation’s officers, accountants, counsel and any other
party the Committee deems necessary, and no member of the
Committee shall be liable for any action taken or not taken in
reliance upon any such advice.
5.
PARTICIPATION
The Employees who shall be eligible to receive Awards under the
Plan shall be officers or other selected employees of the
Corporation as the Committee shall approve from time to time.
In the event of a change in a Participant’s duties and
responsibilities, or a transfer of the Participant to a
different position, the Committee may terminate any Award
granted to such Participant or reduce the number of Shares
subject thereto commensurate with the transfer or change in
responsibility, as determined by the Committee in its discretion.
Notwithstanding any provision of the Plan to the contrary, in
order to foster and promote achievement of the purposes of the
Plan or to comply with provisions of laws in other countries in
which the Corporation operates or has employees, the Committee,
in its sole discretion, shall have the power and authority to
(i) determine which Employees (if any) employed outside the
United States are eligible or required to participate in the
Plan, (ii) modify the terms and conditions of any Awards
made to such Employees, and (iii) establish subplans,
modify Option exercise and other terms and procedures to the
extent such actions may be necessary or advisable.
(a) Shares Available for
Awards. Subject to the provisions of this
Section 6 (including without limitation Section 6(c)),
the aggregate number of Shares that may be issued to
Participants pursuant to Awards granted under the Plan shall not
exceed the sum of (i) 130,000,000 Shares, plus
(ii) any Shares that were subject to an award under the
Prior Plans which award is forfeited, cancelled, terminated,
expires or lapses for any reason, plus (iii) effective upon
stockholder approval at the 2006 Special Meeting of
Stockholders, an additional 50,000,000 Shares.
(b) Shares not applied to
limitations. The following will not be
applied to the Share limitations of Section 6(a) above:
(i) dividends or dividend equivalents paid in cash in
connection with outstanding Awards, (ii) Awards which by
their terms may be settled only in cash, (iii) Shares and
any Awards that are granted through the assumption of, or in
substitution for, outstanding awards previously granted as the
result of a merger, consolidation, or acquisition of the
employing company pursuant to which it is merged with the
Corporation or becomes a direct or indirect subsidiary of the
Corporation, and (iv) any Shares subject to an Award under
the Plan which Award is forfeited, cancelled, terminated,
expires or lapses for any reason. However, the total number of
shares subject to an Option or SAR settled in stock will be
counted against the share limits described in
subparagraph (a). Until August 31, 2006, if a
Participant tenders previously owned Shares or has the
Corporation withhold Shares in satisfaction of any tax
withholding requirement or payment of such Option Price in
connection with the exercise, vesting or earning of an Award,
such Shares shall again be available for further Awards under
the Plan. However, no such Shares tendered or withheld have been
added back to the remaining available Shares under
Section 6(a). From and after August 31, 2006, Shares
tendered or withheld in satisfaction of any tax withholding
requirement or payment of such Option Price will no longer
become available again for Award under the Plan.
(c) Adjustments. In the
event of any stock dividend, stock split, combination or
exchange of equity securities, merger, consolidation,
recapitalization, divestiture or other distribution (other than
ordinary cash dividends) of assets to stockholders, or any other
change affecting Shares or Share price, such proportionate
adjustments, if any, to reflect such change shall be made with
respect to the limitations on the numbers of Shares that may be
issued and represented by Awards under the Plan; provided,
however, that any fractional shares resulting from any such
adjustment shall be eliminated. Options granted pursuant to the
Plan and described as ISOs shall not be adjusted in a manner
that causes the Options to fail to continue to qualify as ISOs
without the Participant’s consent.
The Shares subject to the provisions of the Plan shall be shares
of authorized but unissued Shares.
(d) Award Limitations.
Notwithstanding any provision herein to the contrary, the
following limitations shall apply to Awards granted under the
Plan, in each case subject to adjustment pursuant to
Section 6(c):
(i) the aggregate number of Shares that may be represented
by Options and SARs granted to any single Participant in any
Plan Year under Section 7 of the Plan shall not exceed
1,500,000 Shares (whether such Options and SARs may be
settled in Shares, cash or any combination of Shares and cash);
(ii) the aggregate number of Shares that may be represented
by Awards made in the form of ISOs shall not exceed
25,000,000 Shares;
(iii) after August 31, 2006, the aggregate number of
Shares that may be represented by Stock Awards on a
share-for-share basis shall not exceed 65,000,000 Shares,
which includes the 25,000,000 Shares initially reserved for
such Awards under the Plan and the 20,000,000 Shares reserved
for the exclusive use of grants of RSAs or RSUs in lieu of
annual incentive cash compensation under the Plan;
provided, however, that in the event the full
number of Shares under this subparagraph (iii) have
been used, Wachovia may grant additional Stock Awards from the
remaining available Shares for grants under Section 6(a)
with each such Share of Stock Award counting as five
(5) Shares against such remaining available Shares under
Section 6(a).
(iv) the value of Stock Awards (based on the Fair Market
Value on the date the Award is granted) and Operating Committee
Incentive Awards, in the aggregate, which may be awarded to any
individual Operating Committee Participant in a Plan Year shall
not exceed 0.5% of the Corporation’s Adjusted Net Income
applicable to the prior Plan Year.
7.
AWARDS
UNDER THE PLAN
The types of Awards set forth in this Article 7 may be
granted under the Plan, singly, in combination or in tandem as
the Committee may determine.
(a) Options.
(i) Grant. An Option shall
represent a right to purchase a specified number of Shares at a
stated Option Price during a specified time, not to exceed ten
years from the date of grant, as determined by the Committee.
The Option Price per Share for each Option shall not be less
than 100% of the Fair Market Value on the date of grant. An
Option may be in the form of an ISO that is consistent with the
applicable terms, conditions, and limitations established by the
Code and the Committee. Each Option grant shall be evidenced by
an Award Agreement that shall specify the Option Price, the
duration of the Option, the number of Shares to which the Option
pertains, and such other provisions as the Committee shall
determine. The Award Agreement also shall specify whether the
Option is intended to be an ISO or an NQSO. Options granted
under this Section 7(a) shall be exercisable at such times
and be subject to such restrictions and conditions as the
Committee shall in each instance approve and which shall be set
forth in the applicable Award Agreement, which need not be the
same for each grant or for each Participant. Upon satisfaction
of the applicable conditions to exercisability specified in the
terms and conditions of the Award as set forth in the Award
Agreement, the Participant shall be entitled to exercise the
Option in whole or in part and to receive, upon satisfaction or
payment of the Option Price in the manner contemplated in this
Section 7(a), the number of Shares in respect of which the
Option shall have been exercised. Each Option shall expire at
such time as the Committee shall determine at the time of grant;
provided, however, that no Option shall be exercisable later
than the tenth anniversary date of its grant.
(ii) Limitation on Vesting. An
Option that vests solely on the basis of the passage of time
(e.g., not on the basis of any performance standards) shall not
vest more quickly than ratably over the three-year period from
the grant date beginning on the first anniversary of the Option.
Notwithstanding the foregoing, such Option may vest sooner as
provided in Section 7(a)(iv), Section 13 or in
connection with establishing the terms and conditions of
employment of a Participant necessary for the recruitment
thereof or as the result of a business combination or
acquisition by the Corporation.
(iii) Exercise. Options shall be
exercised by the delivery of a written notice of exercise to the
Corporation, setting forth the number of Shares with respect to
which the Option is to be exercised, accompanied by full payment
for the Shares. The Shares covered by an Option may be purchased
by methods designated by the Committee in accordance with
applicable law, in its discretion, including, but not limited to
(A) a cash payment or its equivalent; (B) tendering
Shares owned by the Participant, valued at the Fair Market Value
at the date of exercise; or (C) any combination of the
above. Unless the Committee determines otherwise or as
prohibited by applicable law, Options may also be exercised by
delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker to promptly deliver to the
Corporation the amount of sale proceeds from the Shares covered
by the Option exercised, together with any withholding taxes due
to the Corporation. As soon as practicable after receipt of a
written notification of exercise and full payment, the
Corporation shall deliver to the Participant Share certificates
in an appropriate amount based upon the number of Shares
purchased under the Option.
(iv) Termination. Each
Participant’s Award Agreement shall set forth the extent to
which the Participant shall have the right to exercise an Option
following termination of the Participant’s employment with
the Corporation. Such provisions shall be determined in the sole
discretion of the
Committee, shall be included in the Award Agreement entered into
with Participants, need not be uniform among all Options issued
pursuant to this Section 7(a), and may reflect distinctions
based on the reasons for termination of employment.
(v) ISOs. In the case of any
outstanding Options granted to a Participant that are ISOs, the
tax treatment prescribed under Section 422 of the Code
shall not be available if such Options are not exercised
(A) within three months after the Date of Termination of
Employment unless such termination is due to death or
Disability, or (B) within one year after the Date of
Termination of Employment due to Disability. If a
Participant’s employment is terminated due to death, the
tax treatment prescribed under Section 422 of the Code
shall be available if the Participant was either an Employee on
the date of death or an Employee within the three-month period
prior to the date of death.
(b) SARs.
(i) Grant. An SAR shall represent
a right to receive a payment in cash, Shares, or a combination
thereof, equal to the excess of the Fair Market Value of a
specified number of Shares on the date the SAR is exercised over
an amount (the SAR exercise price) which shall be no less than
the Fair Market Value on the date the SAR was granted (or the
Option Price for SARs granted in tandem with an Option), as set
forth in the applicable Award Agreement. Each SAR grant shall be
evidenced by an Award Agreement that shall specify the SAR
exercise price, the duration of the SAR, the number of Shares to
which the SAR pertains, whether the SAR is granted in tandem
with the grant of an Option or is freestanding, and such other
provisions as the Committee shall determine. SARs granted under
this Section 7(b) shall be exercisable at such times and be
subject to such restrictions and conditions as the Committee
shall in each instance approve and which shall be set forth in
the applicable Award Agreement, which need not be the same for
each grant or for each Participant. Each SAR shall expire at
such time as the Committee shall determine at the time of grant;
provided, however, that no SAR shall be exercisable later than
the tenth anniversary date of its grant.
(ii) Limitation on Vesting. An SAR
that vests solely on the basis of the passage of time (e.g., not
on the basis of any performance standards) shall not vest more
quickly than ratably over the three-year period from the grant
date beginning on the first anniversary of the SAR.
Notwithstanding the foregoing, such SAR may vest sooner as
provided in Section 7(b)(iv), Section 13 or in
connection with establishing the terms and conditions of
employment of a Participant necessary for the recruitment
thereof or as the result of a business combination or
acquisition by the Corporation.
(iii) Exercise. SARs shall be
exercised by the delivery of a written notice of exercise to the
Corporation, setting forth the number of Shares with respect to
which the SAR is to be exercised. The date of exercise of the
SAR shall be the date on which the Corporation shall have
received notice from the Participant of the exercise of such
SAR. SARs granted in tandem with the grant of an Option may be
exercised for all or part of the Shares subject to the related
Option upon the surrender of the right to exercise the
equivalent portion of the related Option. SARs granted in tandem
with the grant of an Option may be exercised only with respect
to the Shares for which its related Option is then exercisable.
With respect to SARs granted in tandem with an ISO,
(A) such SAR will expire no later than the expiration of
the underlying ISO, (B) the value of the payout with
respect to such SAR may be for no more than 100% of the
difference between the Option Price of the underlying ISO and
the Fair Market Value of the Shares subject to the underlying
ISO at the time such SAR is exercised, and (C) such SAR may
be exercised only when the Fair Market Value of the Shares
subject to the underlying ISO exceeds the Option Price of the
ISO. SARs granted independently from the grant of an Option may
be exercised upon the terms and conditions contained in the
applicable Award Agreement. In the event the SAR shall be
payable in Shares, a certificate for the Shares acquired upon
exercise of an SAR shall be issued in the name of the
Participant as soon as practicable following receipt of notice
of exercise. No fractional Shares will be issuable
upon exercise of the SAR and, unless provided in the applicable
Award Agreement, the Participant will receive cash in lieu of
fractional Shares.
(iv) Termination. Each
Participant’s Award Agreement shall set forth the extent to
which the Participant shall have the right to exercise an SAR
following termination of the Participant’s employment with
the Corporation. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award
Agreement entered into with Participants, need not be uniform
among all SARs issued pursuant to this Section 7(b), and
may reflect distinctions based on the reasons for termination of
employment.
(c) Stock Awards.
(i) Grant. All or any part of any
Stock Award may be subject to such conditions and restrictions
as may be established by the Committee, and set forth in the
applicable Award Agreement, which may include, but are not
limited to, continuous service with the Corporation, a
requirement that a Participant pay a stipulated purchase price
for each Stock Award, the achievement of specific Performance
Goals,
and/or
applicable securities laws restrictions. During the applicable
Period of Restriction, (A) Participants holding RSAs may
exercise full voting rights with respect to such Shares,
(B) Participants holding RSUs shall have no voting rights
with respect to such RSUs, (C) Participants holding RSAs
shall be entitled to receive all dividends and other
distributions paid with respect to such Shares while they are so
restricted, and (D) Participants holding RSUs shall have no
dividend rights with respect to Shares subject to such RSUs
other than as the Committee provides pursuant to Section 8
herein. With respect to (C) above, if any such dividends or
distributions are paid in Shares, such Shares shall be subject
to the same restrictions on transferability as the RSAs with
respect to which they are paid.
(ii) Limitation on Vesting. A
Stock Award of RSAs or RSUs that vests solely on the basis of
the passage of time (e.g., not on the basis of any performance
standards) shall not vest more quickly than ratably over the
three-year period from the grant date beginning on the first
anniversary of the Stock Award. Notwithstanding the foregoing,
such Stock Award may vest sooner as provided in
Section 7(c)(iii), Section 13 or in connection with
establishing the terms and conditions of employment of a
Participant necessary for the recruitment thereof or as the
result of a business combination or acquisition by the
Corporation. Notwithstanding the satisfaction of any Performance
Goals, the number of Shares issued under a Performance Stock
Award or the amount of cash to be paid under a Performance Unit
Award may be adjusted by the Committee in its sole discretion;
provided, however, the Committee may not increase the number of
Shares issued or cash paid, as applicable, under a Performance
Stock Award or Performance Unit Award, as applicable, to a
Participant who is an Operating Committee Participant.
(iii) Termination. Each
Participant’s Award Agreement shall set forth the extent to
which the Participant shall have the right to receive unvested
Stock Awards following termination of the Participant’s
employment with the Corporation. Such provisions shall be
determined in the sole discretion of the Committee, shall be
included in the Award Agreement entered into with Participants,
need not be uniform among all Stock Awards issued pursuant to
this Section 7(c), and may reflect distinctions based on
the reasons for termination of employment.
8.
DIVIDENDS
AND DIVIDEND EQUIVALENTS
The Committee may, in its sole discretion, provide that the
Stock Awards (other than RSAs) granted under Section 7(c)
of the Plan earn dividends or dividend equivalents. Such
dividends or dividend equivalents may be paid currently or may
be credited to a Participant’s account. Any crediting of
dividends or dividend equivalents may be subject to such
restrictions and conditions as the Committee may establish,
including reinvestment in additional Shares or Share
equivalents. Options and SARs are not eligible for dividend
equivalents.
(a) Setting of Individual Award
Opportunities. At the time Performance
Goals are established for a Plan Year pursuant to
Section 10 herein, the Committee also may establish an
Operating Committee Incentive Award for such Plan Year for each
Participant who is an Operating Committee Participant
and/or the
group of Participants who are Operating Committee Participants.
This Operating Committee Incentive Award shall be based on the
achievement of one or more of the stated Performance Goals, and
may be expressed in dollars, as a multiple of salary or on a
formula basis.
(b) Operating Committee Incentive
Awards. Operating Committee Incentive
Awards determined under the Plan for a Plan Year shall be paid
to Operating Committee Participants at the time specified by the
Committee when the Performance Goals are established, provided
that:
(i) no such payment shall be made unless and until the
Committee, based on the Corporation’s reported financial
results for such Plan Year (as prepared and reviewed by the
Corporation’s independent public accountants), has
certified in writing the extent to which the applicable
Performance Goals for such Plan Year have been satisfied, and
the Committee has made its decisions regarding whether it will
exercise its discretion to reduce any incentive award as
referred in Section 10;
(ii) the Committee may specify that a portion of the
Operating Committee Incentive Award for any given Plan Year
shall be paid on a deferred basis, based on such award payment
rules as the Committee may establish for such Plan Year;
(iii) the Committee may require that Operating Committee
Participants must still be employed as of the end of such Plan
Year or such later date that is identified in order to be
eligible to receive any Award; and
(iv) the Committee may, subject to Section 9(b)(i) of
the Plan, adopt such forfeiture, pro-ration or other rules as it
deems appropriate regarding the effect of certain events on the
actual incentive awarded including, but not limited to, an
Operating Committee Participant’s death, Disability,
Retirement, voluntary or other termination or a Change of
Control.
10.
PERFORMANCE
GOALS
For each Plan Year, the Committee shall establish Performance
Goals for each Participant who is an Operating Committee
Participant
and/or the
group of Participants who are Operating Committee Participants.
For Participants who are Operating Committee Participants, RSAs,
RSUs, Performance Stock Awards, Performance Unit Awards, and
Operating Committee Incentive Awards, and any other Awards as
determined by the Committee to be subject to Performance Goals,
may be awarded or may vest, as applicable, only upon attainment
of the Performance Goals pertaining to the applicable Operating
Committee Participant, as determined by the Committee. The
Committee may not in any event increase the amount of actual
incentive awards payable under the Plan to an Operating
Committee Participant upon the attainment of a Performance Goal.
The Committee, in all cases, shall have the sole and absolute
discretion, based on such factors as it deems appropriate, to
eliminate, or reduce the size of, the actual incentive award
otherwise payable to any Operating Committee Participant. No
Awards to Operating Committee Participants which are subject to
Performance Goals may be made or may vest, as applicable, until
the Committee, based on the Corporation’s reported
financial results for such Plan Year (as prepared and reviewed
by the Corporation’s independent public accountants) has
certified in writing the extent to which the applicable
Performance Goals for such Plan Year have been satisfied.
It is intended that amounts payable to Participants under the
Plan who are Operating Committee Participants shall constitute
“qualified performance-based compensation” within the
meaning of U.S. Treasury
Regulation 1.162-27(e),
and, to the maximum extent possible, the Plan and the terms of
any Awards hereunder shall be so interpreted and construed.
Payment of Awards may be in the form of cash, Shares, other
Awards, or combinations thereof as the Committee shall
determine, and with such restrictions as it may impose. The
Committee may defer a Participant’s vesting of RSAs,
Performance Stock Awards or Options and may also require or
permit a Participant to defer such Participant’s receipt or
issuance of Shares from Options or RSUs or Performance Unit
Awards or the settlement of Awards in cash under such rules and
procedures as it may establish under the Plan. It also may, in
its discretion, provide that deferred settlements of Awards
include the payment or crediting of earnings on deferred
amounts. In addition, the Committee may stipulate in an Award
Agreement, either at the time of grant or by subsequent
amendment, that a payment or portion of a payment of an Award be
delayed in the event that Section 162(m) of the Code (or
any successor or similar provision of the Code affecting tax
deductibility) would disallow a tax deduction by the Corporation
for all or a portion of such payment. The period of any such
delay in payment shall be until the payment, or portion thereof,
is tax deductible, or such earlier date as the Committee shall
determine.
12.
TRANSFERABILITY
(a) ISOs. No ISO granted under the
Plan may be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated, other than by will or by the laws of
descent and distribution. No ISO may be transferred for
consideration. Further, all ISOs granted to a Participant under
the Plan shall be exercisable during his or her lifetime only by
such Participant. The foregoing shall also apply to all SARs
granted in tandem with an ISO.
(b) NQSOs and SARs. Except as
otherwise provided in a Participant’s Award Agreement, no
NQSO or SAR (other than SARs granted in tandem with an ISO,
which shall be subject to Section 12(a)) granted under the
Plan may be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated, other than by will or by the laws of
descent and distribution. No NQSO or SAR may be transferred for
consideration. Further, except as otherwise provided in a
Participant’s Award Agreement, all NQSOs and SARs granted
to a Participant under the Plan shall be exercisable during his
or her lifetime only by such Participant.
(c) Stock Awards. Stock Awards
granted under the Plan may not be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated until the end of
the applicable Period of Restriction established by the
Committee and specified in the applicable Award Agreement, or
upon earlier satisfaction of any other conditions, as specified
by the Committee in its sole discretion and set forth in the
applicable Award Agreement. All rights with respect to a Stock
Award granted to a Participant under the Plan shall be available
during his or her lifetime only to such Participant.
13.
CHANGE OF
CONTROL
Unless the Committee determines otherwise, in the event of any
Change of Control, all outstanding Options and SARs shall become
vested and exercisable; all restrictions on RSAs and RSUs shall
lapse; all Performance Goals shall be deemed achieved at target
levels and all other terms and conditions related thereto shall
be deemed to be met; all Performance Stock Awards shall be
delivered; all Performance Unit Awards and RSUs shall be paid
out as promptly as practicable; all Operating Committee
Incentive Awards shall be paid out based on the
Corporation’s Adjusted Net Income of the immediately
preceding year or such other method of payment as may be
determined by the Committee at the time of award or thereafter;
and all other Awards shall be delivered or paid.
14.
AWARD
AGREEMENTS
Each Award under the Plan shall be evidenced by an Award
Agreement setting forth the terms, conditions, and limitations
for each Award, the provisions applicable in the event the
Participant’s employment terminates, and the
Corporation’s authority unilaterally or bilaterally to
amend, modify, suspend, cancel or rescind any Award. The
Committee need not require the execution of any such agreement
by the recipient, in which case acceptance of the Award by the
respective Participant shall constitute agreement by the
Participant to the terms and conditions of the Awards.
The Corporation shall have the right to deduct from any
settlement of an Award made under the Plan, including the
delivery of Shares, or require the payment of, a sufficient
amount to cover withholding of any federal, state or local or
other governmental taxes or charges required by law or such
greater amount of withholding as the Committee shall determine
from time to time and as permitted or required by applicable
rules and regulations, or to take such other action as may be
necessary to satisfy any such withholding obligations. If the
Committee permits or requires Shares to be used to satisfy
required tax withholding, such Shares shall be valued at the
Fair Market Value as of the tax recognition date for such Award
or such other date as may be required by applicable law, rule or
regulation. The Corporation shall have the right to effect
income, social security and medicare tax withholding and
reporting as may be required under applicable law upon the
disposition by an Employee of Shares acquired upon the exercise
of an Option qualifying as an ISO at the time of exercise. The
Corporation shall collect any required withholding from
“other earnings” of the employee. In the absence of
“other earnings” sufficient to satisfy such
withholding, the employee shall remit such amounts required to
satisfy such withholding obligations to the Corporation within
10 business days of any such notice and request for payment.
16.
OTHER
BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically determined by the Committee,
settlements of Awards received by Participants under the Plan
shall not be deemed a part of a Participant’s regular,
recurring compensation for purposes of calculating payments or
benefits from the Corporation’s benefit plans or severance
program. Further, the Corporation may adopt other compensation
programs, plans or arrangements as it deems appropriate or
necessary.
17.
UNFUNDED
PLAN
Unless otherwise determined by the Committee, the Plan shall be
unfunded and shall not create (or be construed to create) a
trust or a separate fund or funds. The Plan shall not establish
any fiduciary relationship between the Corporation and any
Participant or other person. To the extent any person holds any
rights by virtue of an Award granted under the Plan, such rights
shall constitute general unsecured liabilities of the
Corporation and shall not confer upon any Participant any right,
title, or interest in any assets of the Corporation.
18.
REGULATORY
APPROVALS
The implementation of the Plan, the granting of any Award under
the Plan, and the issuance of Shares or the payment of cash or
any other benefit upon the exercise or settlement of any Award
shall be subject to the Corporation’s compliance with all
applicable laws, rules and regulations, including but not
limited to procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the
Awards granted under it, or the Shares issued or cash or other
benefit paid pursuant to it.
19.
RIGHTS AS
A STOCKHOLDER
Except as provided in the Plan, a Participant shall have no
rights as a stockholder with respect to Shares covered by an
Award until the date the Participant or his nominee is the
holder of record. No adjustment will be made for dividends or
other rights for which the record date is prior to such date,
except as provided in Section 6(c).
20.
NO RIGHT
OR OBLIGATION OF FUTURE EMPLOYMENT OR AWARDS
No person shall have any claim or right to be granted an Award,
and the grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ or service of
the Corporation or to participate in any other compensation or
benefit plan, program or arrangement of the Corporation. Except
as otherwise provided in the Plan, an Award Agreement or as
determined by the Committee, all rights of a Participant with
respect to an Award shall terminate upon the termination of the
Participant’s employment. In
addition, the Corporation expressly reserves the right at any
time to dismiss a Participant free from any liability or any
claim under the Plan, except as provided herein or in any
agreement entered into hereunder.
21.
GOVERNING
LAW
The Plan and all agreements entered into under the Plan shall be
construed in accordance with and governed by the laws of the
State of North Carolina, without regard to the principles of
conflicts of laws. Unless otherwise provided for by an Award
Agreement, in the event of any conflict between the terms of the
Plan and the terms of an Award Agreement, the terms of the Plan
shall govern. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.
22.
SUCCESSORS
AND ASSIGNS
The Plan and any applicable Award Agreement entered into under
the Plan shall be binding on all successors and assigns of a
Participant, including, without limitation, the estate of such
Participant and the executor, administrator or trustee of such
estate, or any receiver or trustee in bankruptcy or
representative of the Participant’s creditors.
23.
INDEMNIFICATION
Each person who is or shall have been a member of the Committee
or of the Board shall be indemnified and held harmless by the
Corporation against and from any loss, cost, liability or
expense that may be imposed upon or reasonably incurred by him
in connection with or resulting from any claim, action, suit or
proceeding to which he may be a party or in which he may be
involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in
settlement thereof, with the Corporation’s approval, or
paid by him in satisfaction of any judgment in any such action,
suit or proceeding against him, provided he shall give the
Corporation an opportunity, at its own expense, to handle and
defend the same before he undertakes to handle and defend it on
his own behalf. The foregoing right of indemnification shall not
be exclusive of any other rights of indemnification to which
such persons may be entitled under Wachovia’s Articles of
Incorporation or Bylaws, as a matter of law, or otherwise, or
any power that the Corporation may have to indemnify them or
hold them harmless.
24.
APPLICATION
OF FUNDS
The proceeds received by the Corporation from the issuance of
Shares pursuant to the exercise of Options will be used for
general corporate purposes.
25.
BENEFICIARY
DESIGNATION
The Committee may, in its sole discretion, as set forth in the
applicable Award Agreement, permit a Participant to designate in
writing a person or persons as beneficiary, who shall be
entitled to receive settlement of Awards to which the
Participant is otherwise entitled in the event of the
Participant’s death. In the absence of such designation by
a Participant, and in the event of the Participant’s death,
the estate of the Participant shall be treated as beneficiary
for purposes of the Plan, unless the Committee otherwise
determines.
VOTE
BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting
instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time the
day before the cut-off date or meeting date. Have
your proxy card in hand when you access the web
site and follow the instructions to obtain your
records and to create an electronic voting
instruction form.
VOTE
BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your
voting instructions up until 11:59 P.M. Eastern
Time the day before the cut-off date or meeting
date. Have your proxy card in hand when you call
and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it
in the postage-paid envelope we have provided or
return it to Golden West Financial Corporation,
c/o ADP, 51 Mercedes Way, Edgewood, NY11717.
If you vote by phone or via the Internet, you do not
need to mail in your proxy card.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
GOLDW1
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
GOLDEN WEST FINANCIAL CORPORATION
The Board of Directors unanimously recommends a vote “FOR” approval of the Agreement and Plan
of Merger.
For
Against
Abstain
1.
APPROVAL OF THE AGREEMENT AND PLAN OF MERGER, dated as of May 7, 2006, pursuant to which
Golden West Financial Corporation will merge with and into a wholly-owned subsidiary of
Wachovia Corporation.
o
o
o
2.
To vote on any other matters that may properly come before the special meeting or any
adjournment or postponement of the special meeting according to the best judgment and
discretion of the person voting the proxy.
Please date and sign below exactly as your name or names appear(s) on this proxy. If more than one
name appears, all should sign. Joint owners should each sign personally. Corporate proxies should
be signed in full corporate name by an authorized officer and attested. Persons signing in a
fiduciary capacity should indicate their full names in such
capacity.
Yes
No
Please indicate if you plan to attend
the Special Meeting in person.
GOLDEN WEST FINANCIAL CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 31, 2006
To the Shareholders of Golden West Financial Corporation:
A special meeting of shareholders of Golden West Financial Corporation, a Delaware
corporation, is being held on August 31, 2006, at 10:00 a. m., Pacific time, on the fourth floor of
Golden West’s headquarters at 1901 Harrison Street, Oakland, California, for the following
purposes:
•
To consider and vote on the proposal to approve and adopt the plan of merger contained in the
Agreement and Plan of Merger, dated as of May 7, 2006, pursuant to which Golden West will merge
with and into a wholly-owned subsidiary of Wachovia Corporation, as more fully described in the
attached joint proxy statement-prospectus.
•
To transact any other business as may properly come before the special meeting or any
adjournment or postponement of the special meeting.
The close of business on July 11, 2006 is the record date for determining those shareholders
entitled to notice of and to vote at the special meeting and any adjournments or postponements of
the special meeting. Only Golden West common shareholders of record at the close of business on
that date are entitled to notice of, and to vote at, the special meeting and any adjournments or
postponements of the special meeting. In order to approve and adopt the plan of merger, the holders
of a majority of the outstanding shares of Golden West common stock entitled to vote must vote in
favor of the proposal. Abstentions and broker non-votes will have the same effect as votes against
approval and adoption of the plan of merger. If you wish to attend the special meeting and your
shares are held in the name of a broker, trust, bank or other nominee, you must bring with you a
proxy or letter from the broker, trustee, bank or nominee to confirm your beneficial ownership of
the shares.
Whether or not you plan to attend the special meeting in person, please vote your proxy by
telephone or through the Internet, as described on the enclosed proxy card, or complete, date, sign
and return the enclosed proxy card in the enclosed envelope. The enclosed envelope requires no
postage if mailed in the United States. If you attend the special meeting, you may vote in person
if you wish, even if you have previously returned your proxy card or voted by telephone or through
the Internet.
Golden West’s board of directors unanimously recommends that you vote “FOR” approval
and adoption of the plan of merger.
GOLDEN WEST
FINANCIAL CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Russell W. Kettell, Michael Roster and Herbert M.
Sandler, or any of them, each with power of substitution, as proxies of the undersigned to
attend the Special Meeting of Stockholders of Golden West Financial Corporation (the
“Company”), to be held on August 31, 2006, and any adjournments or postponements thereof,
and to vote the number of shares of Common Stock of the Company which the undersigned
would be entitled to vote if personally present on the matters stated on the reverse side.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH INSTRUCTIONS GIVEN. IN THE ABSENCE OF SUCH
INSTRUCTIONS, THIS PROXY WILL BE VOTED FOR THE APPROVAL OF THE AGREEMENT AND PLAN OF
MERGER.
Stockholders are Urged to Complete, Sign and Return This Proxy Promptly in the Enclosed Envelope.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
Dates Referenced Herein and Documents Incorporated by Reference
