Filed
Pursuant to Rule 424(b)(5)
Registration No. 333-149204
MERGER
PROPOSED YOUR VOTE IS VERY IMPORTANT
Dear Stockholder:
On January 11, 2008 Countrywide Financial Corporation and
Bank of America Corporation announced a business combination in
which Countrywide would merge with a subsidiary of Bank of
America. If the merger is completed, you will have a right to
receive 0.1822 of a share of Bank of America common stock for
each share of Countrywide common stock you hold immediately
prior to the merger.
The value of the merger consideration will fluctuate with the
market price of Bank of America common stock. The following
table shows the closing sale prices of Bank of America common
stock and Countrywide common stock as reported on the New York
Stock Exchange on January 9, 2008, the last trading day
before the publication of press reports regarding a potential
merger, and on May 27, 2008, the last practicable trading
day before the distribution of this document. This table also
shows the implied value of the merger consideration proposed for
each share of Countrywide common stock, which we calculated by
multiplying the closing price of Bank of America common stock on
those dates by 0.1822, the exchange ratio.
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Implied Value of One
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Bank of America
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Countrywide
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Share of Countrywide
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Common Stock
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Common Stock
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Common Stock
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At January 9, 2008
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$
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38.74
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$
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5.12
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$
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7.06
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At May 27, 2008
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$
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34.17
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$
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4.59
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$
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6.23
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The market prices of both Bank of America common stock and
Countrywide common stock will fluctuate before the merger. You
should obtain current stock price quotations for Bank of America
common stock and Countrywide common stock. Bank of America
common stock is quoted on the NYSE under the symbol
BAC. Countrywide common stock is quoted on the NYSE
under the symbol CFC.
We cannot complete the merger unless Countrywides common
stockholders approve and adopt the merger agreement. Countrywide
will hold a special meeting of its stockholders to vote on this
merger proposal at the Learning Center Auditorium at
Countrywides corporate headquarters located at 4500 Park
Granada, Calabasas, California 91302 at 9:00 a.m., local time,
on June 25, 2008. Your vote is important. Regardless
of whether you plan to attend the special stockholders
meeting, please take the time to vote your shares in accordance
with the instructions contained in this document. Failing to
vote will have the same effect as voting against the merger.
The Countrywide board of directors unanimously recommends
that Countrywide stockholders vote FOR approval and adoption of
the merger agreement.
This document describes the special meeting, the merger, the
documents related to the merger and other related matters.
Please carefully read this entire document, including Risk
Factors beginning on page 17 for a discussion of the
risks relating to the proposed merger. You also can obtain
information about our companies from documents that each of us
has filed with the Securities and Exchange Commission.
ANGELO R. MOZILO
Chairman and Chief Executive Officer
Countrywide Financial Corporation
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved the Bank of
America common stock to be issued under this document or
determined if this document is accurate or adequate. Any
representation to the contrary is a criminal offense.
The date of this document is May 28, 2008, and it is first
being mailed or otherwise delivered to Countrywide stockholders
on or about May 28, 2008.
COUNTRYWIDE
FINANCIAL CORPORATION
4500 Park Granada
Calabasas, California 91302
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
Countrywide Financial Corporation will hold a special meeting of
stockholders at the Learning Center Auditorium at
Countrywides corporate headquarters located at 4500 Park
Granada, Calabasas, California 91302 at 9:00 a.m., local
time, on June 25, 2008 to consider and vote upon the
following matters:
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a proposal to approve and adopt the Agreement and Plan of
Merger, dated as of January 11, 2008, by and among
Countrywide Financial Corporation, Bank of America Corporation
and Red Oak Merger Corporation, as such agreement may be amended
from time to time; and
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a proposal to approve the adjournment of the special meeting, if
necessary, to solicit additional proxies, in the event that
there are not sufficient votes at the time of the special
meeting to approve and adopt the merger agreement.
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The Countrywide board of directors has fixed the close of
business on April 28, 2008 as the record date for the
special meeting. Only Countrywide stockholders of record at that
time are entitled to notice of, and to vote at, the special
meeting, or any adjournment or postponement of the special
meeting. In order for the merger to be approved, the holders of
at least a majority of the Countrywide shares outstanding and
entitled to vote thereon must vote in favor of approval and
adoption of the merger agreement.
Regardless of whether you plan to attend the special meeting,
please submit your proxy with voting instructions. Please vote
as soon as possible. If you hold stock in your name as a
stockholder of record, please complete, sign, date and return
the accompanying proxy card in the enclosed self-addressed,
stamped envelope. If you hold your stock in street
name through a bank or broker, please direct your bank or
broker to vote in accordance with the instructions you have
received from your bank or broker. This will not prevent you
from voting in person, but it will help to secure a quorum and
avoid added solicitation costs. Any holder of Countrywide common
stock who is present at the special meeting may vote in person
instead of by proxy, thereby canceling any previous proxy. In
any event, a proxy may be revoked in writing at any time before
the special meeting in the manner described in the accompanying
document.
The Countrywide board of directors has unanimously approved
the merger and the merger agreement and unanimously recommends
that Countrywide stockholders vote FOR approval and
adoption of the merger agreement.
BY ORDER OF THE BOARD OF DIRECTORS,
Susan E. Bow
Secretary
May 28, 2008
YOUR VOTE IS IMPORTANT. PLEASE VOTE YOUR SHARES PROMPTLY,
REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING.
REFERENCES
TO ADDITIONAL INFORMATION
This document incorporates important business and financial
information about Bank of America and Countrywide from documents
that are not included in or delivered with this document. You
can obtain documents incorporated by reference in this document,
other than certain exhibits to those documents, by requesting
them in writing or by telephone from the appropriate company at
the following addresses:
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Bank of America Corporation
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28255
Attention: Investor Relations
Telephone:
(704) 386-5681
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Countrywide Financial Corporation
4500 Park Granada
Calabasas, California 91302
Attention: Investor Relations
Telephone: (818) 225-3550
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You will not be charged for any of these documents that you
request. Countrywide stockholders requesting documents should do
so by June 18, 2008 in order to receive them before the
special meeting.
See Where You Can Find More Information on
page 81.
TABLE OF
CONTENTS
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Page
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1
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3
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10
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12
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15
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16
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17
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21
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21
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21
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25
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29
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31
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43
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43
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46
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50
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59
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59
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59
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60
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61
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61
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62
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64
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66
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66
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68
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68
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68
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69
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70
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71
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71
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i
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Page
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71
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72
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73
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73
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73
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74
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79
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80
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80
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80
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80
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80
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81
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APPENDICES
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APPENDIX A
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Agreement and Plan of Merger, dated as of January 11, 2008,
by and among Countrywide Financial Corporation, Bank of America
Corporation and Red Oak Merger Corporation
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A-1
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APPENDIX B
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Opinion of Goldman, Sachs & Co.
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B-1
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APPENDIX C
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Opinion of Sandler ONeill & Partners, L.P.
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C-1
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ii
QUESTIONS
AND ANSWERS ABOUT VOTING PROCEDURES FOR THE SPECIAL
MEETING
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Q: |
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What do I need to do now? |
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A: |
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After you have carefully read this document and have decided how
you wish to vote your shares, please vote your shares promptly.
If you hold stock in your name as a stockholder of record, you
must complete, sign, date and mail your proxy card in the
enclosed postage paid return envelope as soon as possible. If
you hold your stock in street name through a bank or
broker, you must direct your bank or broker to vote in
accordance with the instructions you have received from your
bank or broker. Submitting your proxy card or directing your
bank or broker to vote your shares will ensure that your shares
are represented and voted at the special meeting. |
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Why is my vote important? |
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If you do not vote by proxy or vote in person at the special
meeting, it will be more difficult for us to obtain the
necessary quorum to hold our special meeting. In addition, your
failure to vote, by proxy or in person, will have the same
effect as a vote against approval and adoption of the merger
agreement. The merger agreement must be approved and adopted by
the holders of a majority of the outstanding shares of
Countrywide common stock entitled to vote at the special
meeting. The Countrywide board of directors unanimously
recommends that you vote to approve and adopt the merger
agreement. |
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If my shares of common stock are held in street name by my
broker, will my broker automatically vote my shares for me? |
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No. Your broker cannot vote your shares
without instructions from you. You should instruct your broker
as to how to vote your shares, following the directions your
broker provides to you. Please check the voting form used by
your broker. |
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What if I abstain from voting or fail to instruct my
broker? |
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If you abstain from voting, the abstention will be counted
toward a quorum at the special meeting, but it will have the
same effect as a vote against approval and adoption of the
merger agreement. |
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Can I attend the special meeting and vote my shares in
person? |
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Yes. All stockholders, including stockholders
of record and stockholders who hold their shares through banks,
brokers, nominees or any other holder of record, are invited to
attend the special meeting. Holders of record of Countrywide
common stock can vote in person at the special meeting. If you
are not a stockholder of record, you must obtain a proxy,
executed in your favor, from the record holder of your shares,
such as a broker, bank or other nominee, to be able to vote in
person at the special meeting. If you plan to attend the special
meeting, you must hold your shares in your own name or have a
letter from the record holder of your shares confirming your
ownership and you must bring a form of personal photo
identification with you in order to be admitted. We reserve the
right to refuse admittance to anyone without proper proof of
share ownership or without proper photo identification. |
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Can I change my vote? |
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Yes. You may revoke any proxy at any time
before it is voted by signing and returning a proxy card with a
later date, delivering a written revocation letter to the
Secretary of Countrywide, or by attending the special meeting in
person, notifying the Secretary and voting by ballot at the
special meeting. The Countrywide Secretarys mailing
address is 4500 Park Granada, MS: CH-11B, Calabasas, California
91302. |
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Any common stockholder entitled to vote in person at the special
meeting may vote in person regardless of whether a proxy has
been previously given, but the mere presence (without notifying
the Secretary of Countrywide) of a stockholder at the special
meeting will not constitute revocation of a previously given
proxy. |
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If I am a Countrywide stockholder, should I send in my
Countrywide stock certificates now? |
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No. You should not send in your Countrywide
stock certificates at this time. After the merger, Bank of
America will send you instructions for exchanging Countrywide
stock certificates for the merger consideration. Unless
Countrywide stockholders specifically request to receive Bank of
America stock certificates, the shares of Bank of America stock
they receive in the merger will be issued in book-entry form. |
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When do you expect to complete the merger? |
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We expect to complete the merger during the third quarter of
2008. However, we cannot assure you when or if the merger will
occur. We must first obtain the approval of Countrywide
stockholders at the special meeting and the necessary regulatory
approvals. |
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Whom should I call with questions? |
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Countrywide stockholders should call Innisfree M&A
Incorporated, Countrywides proxy solicitor, toll-free at
(877) 750-9499 with any questions about the merger and
related transactions. |
2
SUMMARY
This summary highlights material information from this
document. It may not contain all of the information that is
important to you. We urge you to carefully read the entire
document and the other documents to which we refer in order to
fully understand the merger and the related transactions. See
Where You Can Find More Information on page 81.
Each item in this summary refers to the page of this document on
which that subject is discussed in more detail.
In the
Merger, Countrywide Stockholders Will Have a Right to Receive
0.1822 of a Share of Bank of America Common Stock per Share of
Countrywide Common Stock (page 59)
We are proposing the merger of Countrywide with and into Red Oak
Merger Corporation, sometimes referred to in this document as
Merger Sub, which is a wholly-owned subsidiary of Bank of
America. If the merger is completed, Merger Sub will survive as
a consolidated subsidiary of Bank of America under the name
Countrywide Financial Corporation and you will have
the right to receive 0.1822 of a share of Bank of America common
stock for each share of Countrywide common stock you hold
immediately prior to the merger. Bank of America will not issue
any fractional shares of Bank of America common stock in the
merger. Countrywide stockholders who would otherwise be entitled
to a fractional share of Bank of America common stock will
instead receive an amount in cash based on the average of the
closing sale prices of Bank of America common stock on the five
trading days immediately prior to the date on which the merger
is completed.
Example: If you hold 110 shares of Countrywide common
stock, you will have a right to receive 20 shares of Bank
of America common stock and a cash payment instead of the
0.042 shares of Bank of America common stock that you
otherwise would have received (i.e., 110 shares x 0.1822 =
20.042 shares).
What
Holders of Countrywide Stock Options and Other Equity-Based
Awards Will Receive (page 59)
When we complete the merger, Countrywide stock options, stock
appreciation rights, restricted share units and deferred equity
units that are outstanding immediately before completion of the
merger will become stock options, stock appreciation rights,
restricted share units and deferred equity units on shares of
Bank of America common stock (taking into account any
accelerated vesting or other rights provided by the terms of the
stock options, stock appreciation rights, restricted share units
and deferred equity units). The number of common shares subject
to these stock options, stock appreciation rights, restricted
share units and deferred equity units, and the exercise price of
the Countrywide stock options, will be adjusted based on the
exchange ratio of 0.1822.
Upon the completion of the merger, each Countrywide restricted
share outstanding immediately before completion of the merger
will be converted into the right to receive the merger
consideration (with the same terms as the Countrywide restricted
shares, including transfer restrictions on the stock
consideration to the extent the shares do not vest and transfer
restrictions do not lapse upon completion of the merger).
The
Merger Is Intended to Be Tax-Free to Countrywide Stockholders as
to the Shares of Bank of America Common Stock They Receive
(page 72)
The merger is intended to qualify as a reorganization for
U.S. federal income tax purposes, and it is a condition to
our respective obligations to complete the merger that each of
Bank of America and Countrywide receive a legal opinion to that
effect. In addition, in connection with the mailing of this
document, each of Bank of America and Countrywide has received a
legal opinion, from Cleary Gottlieb Steen & Hamilton LLP
and Wachtell, Lipton, Rosen & Katz, respectively, to the
same effect as the opinions described above. Accordingly, the
merger will generally be tax-free to you as to the shares of
Bank of America common stock you receive in the merger, except
for any gain or loss that may result from the receipt of cash
instead of fractional shares of Bank of America common stock
that you would otherwise be entitled to receive.
The federal income tax consequences described above may not
apply to all holders of Countrywide common stock. Your tax
consequences will depend on your individual situation.
Accordingly, we strongly urge
3
you to consult your tax advisor for a full understanding of
the particular tax consequences of the merger to you.
Comparative
Market Prices and Share Information (pages 15 and
79)
Bank of America common stock is quoted on the NYSE under the
symbol BAC. Countrywide common stock is quoted on
the NYSE under the symbol CFC. The following table
shows the closing sale prices of Bank of America common stock
and Countrywide common stock as reported on the NYSE on
January 9, 2008, the last trading day before the
publication of press reports regarding a potential merger, on
January 10, 2008, the last trading day before we announced
the merger, and on May 27, 2008, the last practicable
trading day before the distribution of this document. This table
also shows the implied value of the merger consideration
proposed for each share of Countrywide common stock, which we
calculated by multiplying the closing price of Bank of America
common stock on those dates by the exchange ratio of 0.1822.
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Implied Value of
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One Share of
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Bank of America
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Countrywide
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Countrywide
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Common Stock
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Common Stock
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Common Stock
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At January 9, 2008
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$
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38.74
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$
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5.12
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$
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7.06
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At January 10, 2008
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$
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39.30
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$
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7.75
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$
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7.16
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At May 27, 2008
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$
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34.17
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$
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4.59
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$
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6.23
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The market price of Bank of America common stock and
Countrywide common stock will fluctuate prior to the merger. You
should obtain current market quotations for the shares.
At May 27, 2008, the implied value of the merger
consideration for each share of Countrywide common stock was
$6.23, which is less than the book value per Countrywide share
at December 31, 2007 of $21.88. In reaching its conclusion
to approve the merger and the agreement and recommend that
Countrywide stockholders vote FOR approval and
adoption of the merger agreement, the Countrywide board of
directors was aware that the merger consideration per share in
the transaction was substantially less than the net book value
per share of Countrywide common stock as of September 30,
2007. See The Merger Background of the
Merger beginning on page 25 and The
Merger Countrywides Reasons for the Merger;
Recommendation of the Countrywide Board of Directors
beginning on page 29.
Goldman,
Sachs & Co. and Sandler ONeill &
Partners, L.P. Have Each Provided an Opinion to the Countrywide
Board of Directors Regarding the Merger Consideration
(page 31)
On January 10, 2008, each of Goldman, Sachs &
Co., or Goldman Sachs, and Sandler ONeill &
Partners L.P., or Sandler ONeill, rendered its opinion to
the board of directors of Countrywide that as of the date of the
opinion, and based upon and subject to the factors and
assumptions set forth in the opinion, the exchange ratio of
0.1822 shares of Bank of America common stock to be
received in respect of each share of Countrywide common stock
pursuant to the merger agreement was fair from a financial point
of view to the holders of Countrywide common stock. The full
text of the written opinions of Goldman Sachs and Sandler
ONeill, which set forth the assumptions made, procedures
followed, matters considered and limitations on the review
undertaken in connection with each opinion, are attached to this
document as Appendix B and Appendix C, respectively.
Goldman Sachs and Sandler ONeill provided their
respective opinions for the information and assistance of the
Countrywide board of directors in connection with its
consideration of the merger. Neither Goldman Sachs opinion
nor Sandler ONeills opinion is a recommendation as
to how any holder of Countrywide common stock should vote with
respect to the merger or any other matter. Pursuant to an
engagement letter dated January 10, 2008 between
Countrywide and Goldman Sachs, Goldman Sachs is entitled to
receive a fee of $12,750,000, of which $3,000,000 became payable
upon execution of the merger agreement and the balance of which
is contingent upon consummation of the merger. Pursuant to an
engagement letter dated January 9, 2008 between Countrywide
and Sandler ONeill, Sandler ONeill is entitled to
receive a fee of $12,250,000, of which $2,000,000 became payable
upon execution of the merger agreement, $1,000,000 became
payable when Sandler ONeill delivered its opinion to the
Countrywide board of directors and the balance of which is
contingent upon consummation of the merger.
4
The
Countrywide Board of Directors Unanimously Recommends that
Countrywide Stockholders Vote FOR Approval and
Adoption of the Merger Agreement (page 29)
The Countrywide board of directors believes that the merger is
in the best interests of Countrywide and its stockholders and
has unanimously approved the merger and the merger agreement.
The Countrywide board of directors unanimously recommends that
Countrywide stockholders vote FOR approval and
adoption of the merger agreement.
Countrywides
Officers and Directors Have Financial Interests in the Merger
That Differ From Your Interests (page 50)
Countrywides executive officers and directors have
financial interests in the merger that are different from, or in
addition to, their interests as Countrywide stockholders. The
independent members of Countrywides board of directors
were aware of and considered these interests, among other
matters, in evaluating and negotiating the merger agreement and
the merger, and in recommending to the stockholders that the
merger agreement be approved and adopted.
Messrs. Mozilo and Sambol are parties to employment
agreements and the other executive officers of Countrywide are
covered by Countrywides Change in Control Severance Plan,
each of which provides severance and other benefits in the case
of qualifying terminations of employment in connection with a
change in control, including completion of the merger; however,
in connection with the merger, Mr. Mozilo has waived his
right to receive his cash severance and pro rata bonus payments
under his employment agreement and consulting fees and benefits
under a related consulting agreement upon termination of his
employment following completion of the merger. Assuming that the
merger is completed on July 1, 2008 and the executive
experiences a qualifying termination of employment immediately
thereafter, the amount of cash severance that would be payable
to each of Messrs. Mozilo, Sambol, Sieracki, Kripalani,
Garcia, Gissinger and each of Countrywides eight other
executive officers (as a group), respectively, is approximately
$0, $15 million, $6.7 million, $13.7 million,
$9 million, $7.2 million and $29.6 million, and the
value of continued benefits to be provided to each of
Messrs. Mozilo, Sambol, Sieracki, Kripalani, Garcia,
Gissinger and each of Countrywides eight other executive
officers (as a group) respectively, is approximately $106,084,
$46,493, $135,380, $206,596, $228,367, $210,494 and $1,402,083.
In addition, in connection with entry into the merger agreement
and a retention program previously implemented for other
employees, Countrywide approved the grant of retention awards to
David Sambol, Eric P. Sieracki, Ranjit M. Kripalani and Carlos
M. Garcia, which consists of a retention incentive payment in
respect of their annual bonus awards for Countrywides 2007
fiscal year and cash-settled restricted stock units.
The Countrywide equity compensation plans and award agreements
generally provide for the vesting of stock-based awards upon
completion of the merger. Assuming that the merger is completed
on July 1, 2008, the aggregate cash value of the
stock-based awards based on the closing price of Bank of
Americas common stock as of May 27, 2008 (which
amounts include the value of the retention awards described
above and attribute no value to any unvested stock options and
stock appreciation rights (SARs) other than
Mr. Mozilos SARs with an exercise price of $6.22,
since all such other options and SARs are underwater based on
the May 27, 2008 closing price of Bank of Americas
common stock) that are held by each of Messrs. Mozilo,
Sambol, Sieracki, Kripalani, Garcia, Gissinger and each of
Countrywides eight other executive officers (as a group),
respectively, and that would vest solely due to the completion
of the merger is approximately $6,482,705, $11,693,871,
$1,161,458, $795,843, $1,061,104, $1,061,104 and $3,971,301 (of
which approximately $2,086,419, $927,298, $695,475 and $927,298
is attributable to the cash-settled restricted stock units
granted to Messrs. Sambol, Sieracki, Kripalani and Garcia,
respectively, in connection with Countrywides retention
program). Pursuant to the terms of Countrywides
supplemental executive retirement plan and certain other
non-qualified deferred compensation arrangements, the benefits
thereunder will vest
and/or
payment may be accelerated in connection with the merger.
In addition, assuming that the merger is completed on
July 1, 2008 and the executive experiences a qualifying
termination of employment immediately thereafter, the aggregate
value of the cash severance and other severance benefits and the
equity awards (other than those that would vest solely due to
the completion
5
of the merger as described in the prior paragraph) based on the
closing price of Bank of Americas common stock as of
May 27, 2008 that would vest or be payable to each of
Messrs. Mozilo, Sambol, Sieracki, Kripalani, Garcia,
Gissinger and each of Countrywides eight other executive
officers (as a group), respectively, is approximately $106,084,
$15,023,993, $8,815,990, $15,426,929, $11,251,044, $9,437,619
and $39,057,434.
Executive officers and directors of Countrywide also have rights
to indemnification and directors and officers
liability insurance that will survive completion of the merger.
Please see The Merger Countrywides
Officers and Directors Have Financial Interests in the
Merger beginning on page 50 for information about
these financial interests. In addition, if the merger is
consummated, plaintiffs in pending shareholder actions against
certain Countrywide officers and directors may lose standing to
assert derivative claims on behalf of Countrywide because the
plaintiffs will no longer be stockholders of Countrywide. See
The Merger Litigation Relating to the
Merger on page 46.
As discussed in more detail beginning on page 56,
Mr. Sambol has entered into a new retention agreement with
Merger Sub that will supersede his Countrywide employment
agreement upon completion of the merger. As a result,
Mr. Sambol will not receive any payments or benefits under
his current employment agreement following completion of the
merger. On May 28, 2008 Bank of America announced that
Mr. Sambol will retire after assisting with the transition
and closing of the merger. His termination of employment will be
treated as a termination without cause and he will be eligible
to receive the payments and benefits under his retention
agreement. In addition, certain of the executive officers
(including Mr. Gissinger) have entered into new retention
agreements with Merger Sub that replace their right to
participate in Countrywides Change in Control Severance
Plan.
Holders
of Countrywide Common Stock Do Not Have Appraisal Rights
(page 44)
Appraisal rights are statutory rights that, if applicable under
law, enable stockholders to dissent from an extraordinary
transaction, such as a merger, and to demand that the
corporation pay the fair value for their shares as determined by
a court in a judicial proceeding instead of receiving the
consideration offered to stockholders in connection with the
extraordinary transaction. Appraisal rights are not available in
all circumstances, and exceptions to these rights are provided
under the Delaware General Corporation Law. As a result of one
of these exceptions, the holders of Countrywide common stock are
not entitled to appraisal rights in the merger.
Conditions
That Must Be Satisfied or Waived for the Merger to Occur
(page 68)
Currently, we expect to complete the merger during the third
quarter of 2008. As more fully described in this document and in
the merger agreement, the completion of the merger depends on a
number of conditions being satisfied or, where legally
permissible, waived. These conditions include, among others,
approval and adoption of the merger agreement by Countrywide
stockholders, the receipt of all required regulatory approvals
(including approval by the Board of Governors of the Federal
Reserve System) without a condition or a restriction that would
have a material adverse effect on Countrywide or Bank of America
measured relative to Countrywide, the filing by Countrywide of
its annual report on
Form 10-K
for the year ended December 31, 2007 including an
unqualified audit opinion regarding the related consolidated
financial statements and the receipt of legal opinions by each
company regarding the tax treatment of the merger.
We cannot be certain when, or if, the conditions to the merger
will be satisfied or waived, or that the merger will be
completed.
Termination
of the Merger Agreement (page 69)
We may mutually agree to terminate the merger agreement before
completing the merger, even after stockholder approval, as long
as the termination is approved by each of our boards of
directors.
In addition, either of us may decide to terminate the merger
agreement, even after stockholder approval,
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if a governmental entity issues a non-appealable final order
prohibiting the merger;
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6
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|
if a governmental entity which must grant a regulatory approval
as a condition to the merger denies such approval of the merger
and such action has become final and non-appealable;
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|
if the other party breaches the merger agreement in a way that
would entitle the party seeking to terminate the agreement not
to consummate the merger, subject to the right of the breaching
party to cure the breach within 30 days following written
notice (unless it is not possible due to the nature or timing of
the breach for the breaching party to cure the breach);
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if the merger has not been completed by January 11, 2009,
unless the reason the merger has not been completed by that date
is a breach of the merger agreement by the company seeking to
terminate the merger agreement; or
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|
if the other party has committed a substantial, bad faith breach
of its obligations to restructure the transaction for the
purpose of resubmitting a merger proposal for approval in the
event Countrywide stockholder approval is not obtained in the
first instance.
|
Bank of America may terminate the merger agreement if the
Countrywide board withdraws or adversely changes its
recommendation of the merger or recommends a competing takeover
proposal to acquire Countrywide, or if Countrywide breaches its
agreement not to solicit other offers or fails to hold the
special meeting for the purpose of approving and adopting the
merger agreement.
Termination
Fee (page 70)
Countrywide would be obligated to pay Bank of America a
$160 million termination fee if:
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Bank of America terminates the merger agreement because:
|
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|
Countrywides board of directors (1) fails to
recommend the merger to Countrywide stockholders,
(2) withdraws or adversely changes its recommendation of
the merger, (3) recommends a competing takeover proposal to
acquire Countrywide or (4) fails to recommend that
Countrywide stockholders reject a tender offer or exchange offer
that constitutes a competing takeover proposal within a
specified period of time; or
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Countrywide materially breaches its agreement not to solicit
other offers or its obligation to hold a meeting of Countrywide
stockholders for the purpose of approving and adopting the
merger agreement; or
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the following circumstances occur:
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(1) Bank of America terminates the merger agreement as a
result of a knowing or intentional breach by Countrywide in a
way that would entitle Bank of America not to consummate the
merger or because of a substantial, bad faith breach by
Countrywide of its obligation to use reasonable best efforts to
restructure the transaction for the purpose of resubmitting a
merger proposal for approval in the event Countrywide
stockholder approval is not obtained in the first instance or
(2) either party terminates the merger agreement because
the transaction has not been completed by January 11, 2009
and the merger agreement has not been approved and adopted by
Countrywide stockholders;
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prior to any termination described in the bullet immediately
above, a competing takeover proposal is received by Countrywide
or publicly announced and not irrevocably withdrawn; and
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Countrywide enters a definitive agreement regarding, or
completes, a competing takeover proposal within twelve months of
termination.
|
Regulatory
Approvals Required for the Merger (page 44)
We have agreed to use our reasonable best efforts to obtain all
regulatory approvals required to complete the transactions
contemplated by the merger agreement. These approvals include
approval from or notices to the Federal Reserve Board, state
mortgage banking and insurance authorities, and various other
federal, state and foreign regulatory authorities. Bank of
America and Countrywide have completed, or will complete, the
7
filing of applications and notifications to obtain the required
regulatory approvals. In obtaining the required regulatory
approvals, Bank of America is not required to agree to any
restriction or condition that would have a material adverse
effect on Countrywide or Bank of America, measured on a scale
relative to Countrywide.
Although we do not know of any reason why we cannot obtain these
regulatory approvals in a timely manner, we cannot be certain
when or if we will obtain them.
Board of
Directors and Management of Bank of America following Completion
of the Merger (page 43)
The directors of Countrywide and its subsidiaries will resign as
of the effective time of the merger. The composition of Bank of
Americas board of directors and management is not
anticipated to change in connection with the completion of the
merger.
The
Rights of Countrywide Stockholders will Change as a Result of
the Merger (page 74)
The rights of Countrywide stockholders will change as a result
of the merger due to differences in Bank of Americas and
Countrywides governing documents. This document contains
descriptions of stockholder rights under each of the Bank of
America and Countrywide governing documents, and describes the
material differences between them.
Countrywide
will Hold its Special Meeting on June 25, 2008
(page 21)
The special meeting will be held on June 25, 2008, at
9:00 a.m., local time, at the Learning Center Auditorium at
Countrywides corporate headquarters located at
4500 Park Granada, Calabasas, California 91302. At the
special meeting, Countrywide stockholders will be asked to:
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approve and adopt the merger agreement; and
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|
approve the adjournment of the special meeting, if necessary, to
solicit additional proxies, in the event that there are not
sufficient votes at the time of the special meeting to approve
and adopt the merger agreement.
|
Record Date. Only holders of record at the
close of business on April 28, 2008 will be entitled to
vote at the special meeting. Each share of Countrywide common
stock is entitled to one vote. As of the record date of
April 28, 2008, there were 583,343,240 shares of
Countrywide common stock entitled to vote at the special meeting.
Required Vote. To approve and adopt the merger
agreement, the holders of a majority of the outstanding shares
of Countrywide common stock entitled to vote must vote in favor
of approving and adopting the merger agreement. Because approval
is based on the affirmative vote of a majority of shares
outstanding, a Countrywide stockholders failure to vote or
an abstention will have the same effect as a vote against
approval and adoption of the merger agreement.
Approval of any necessary adjournment of the special meeting may
be obtained by the affirmative vote of the holders of a majority
of the shares present in person or by proxy, even if less than a
quorum. Because approval of such adjournment is based on the
affirmative vote of a majority of shares present in person or by
proxy, abstentions will have the same effect as a vote against
this proposal.
As of the record date, directors and executive officers of
Countrywide and their affiliates had the right to
vote 2,758,909 shares of Countrywide common stock, or
0.5% of the outstanding Countrywide common stock entitled to be
voted at the special meeting. We currently expect that each of
these individuals will vote their shares of Countrywide common
stock in favor of the proposals to be presented at the special
meeting. At that date, directors and executive officers of Bank
of America and their affiliates did not have the right to vote
any shares of Countrywide common stock entitled to be voted at
the special meeting.
8
Information
about the Companies (page 24)
Bank
of America Corporation
Bank of America Corporation is a Delaware corporation, a bank
holding company and a financial holding company under
U.S. federal law. Bank of America is one of the
worlds largest financial institutions, serving individual
consumers, small and middle market businesses and large
corporations with a full range of banking, investing, asset
management and other financial and risk-management products and
services. The company provides unmatched convenience in the
United States, serving more than 59 million consumer and
small business relationships with more than 6,100 retail banking
offices, nearly 19,000 ATMs and award-winning online banking
with more than 23 million active users. Bank of America is
the No. 1 overall Small Business Administration (SBA)
lender in the United States and the No. 1 SBA lender to
minority-owned small businesses. The company serves clients in
175 countries and has relationships with 99 percent of the
U.S. Fortune 500 companies and 80 percent of the
Fortune Global 500. Bank of America Corporation common stock
(NYSE: BAC) is listed on the New York Stock Exchange. As of
December 31, 2007, Bank of America had total consolidated
assets of approximately $1.7 trillion, total consolidated
deposits of approximately $805 billion and total
consolidated stockholders equity of approximately
$147 billion. The principal executive offices of Bank of
America are located in the Bank of America Corporate Center,
100 N. Tryon Street, Charlotte, North Carolina 28255,
and its telephone number is
(704) 386-5681.
Additional information about Bank of America and its
subsidiaries is included in documents incorporated by reference
in this document. See Where You Can Find More
Information on page 81.
Red
Oak Merger Corporation
Red Oak Merger Corporation, a wholly-owned subsidiary of Bank of
America, was formed solely for the purpose of consummating the
merger. Red Oak Merger Corporation has not carried on any
activities to date, except for activities incidental to its
formation and activities undertaken in connection with the
transactions contemplated by the merger agreement. The principal
executive offices of Red Oak Merger Corporation are located in
the Bank of America Corporate Center, 100 N. Tryon
Street, Charlotte, North Carolina, and its telephone number is
(704) 386-5681.
Countrywide
Financial Corporation
Countrywide Financial Corporation is a Delaware corporation and
holding company. Founded in 1969, Countrywide is a diversified
financial services provider, which, through its subsidiaries, is
engaged in mortgage lending and other real estate
finance-related businesses, including mortgage banking, banking
and mortgage warehouse lending, dealing in securities and
insurance underwriting. Through this family of companies,
Countrywide originates, purchases, securitizes, sells, and
services residential and commercial loans; provides loan closing
services such as credit reports, appraisals and flood
determinations; offers banking services which include depository
and home loan products; conducts fixed income securities
underwriting and trading activities; provides property, life and
casualty insurance; and manages a captive mortgage reinsurance
company. Countrywide common stock (NYSE: CFC) is listed on the
New York Stock Exchange and is a member of the S&P 500,
Forbes 2000, and Fortune 500. The principal executive offices of
Countrywide are located at 4500 Park Granada, Calabasas,
California 91302, and its telephone number is
(818) 225-3000.
Additional information about Countrywide and its subsidiaries is
included in documents incorporated by reference in this
document. See Where You Can Find More Information on
page 81.
9
SELECTED
CONSOLIDATED HISTORICAL FINANCIAL DATA OF BANK OF
AMERICA
Set forth below are highlights derived from Bank of
Americas audited consolidated financial data as of and for
the years ended December 31, 2003 through 2007 and Bank of
Americas unaudited consolidated financial data as of and
for the three months ended March 31, 2008. The results of
operations for the three months ended March 31, 2008 are
not necessarily indicative of the results of operations for the
full year or any other interim period. Bank of America
management prepared the unaudited information on the same basis
as it prepared Bank of Americas audited consolidated
financial statements. In the opinion of Bank of America
management, this information reflects all adjustments,
consisting of only normal recurring adjustments, necessary for a
fair presentation of this data for those dates. You should read
this information in conjunction with Bank of Americas
consolidated financial statements and related notes included in
Bank of Americas Annual Report on
Form 10-K
for the year ended December 31, 2007 and Bank of
Americas Quarterly Report on Form 10-Q for the quarter
ended March 31, 2008, which are incorporated by reference
in this document and from which this information is derived. See
Where You Can Find More Information on page 81.
Bank of
America Summary of Consolidated Financial
Data
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|
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|
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Three Months Ended
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March 31,
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Years Ended December 31,
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2008
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|
2007
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|
2007
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|
2006
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|
|
2005
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|
2004
|
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|
2003
|
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(Dollars in millions, except per share information)
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|
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|
|
Income statement
|
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|
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|
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|
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|
|
|
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|
Net interest income
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|
$
|
9,991
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|
|
$
|
8,268
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|
|
$
|
34,433
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|
|
$
|
34,591
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|
|
$
|
30,737
|
|
|
$
|
27,960
|
|
|
$
|
20,505
|
|
Noninterest income
|
|
|
7,012
|
|
|
|
9,887
|
|
|
|
31,886
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|
|
|
37,989
|
|
|
|
26,438
|
|
|
|
22,729
|
|
|
|
18,270
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|
Total revenue, net of interest expense
|
|
|
17,003
|
|
|
|
18,155
|
|
|
|
66,319
|
|
|
|
72,580
|
|
|
|
57,175
|
|
|
|
50,689
|
|
|
|
38,775
|
|
Provision for credit losses
|
|
|
6,010
|
|
|
|
1,235
|
|
|
|
8,385
|
|
|
|
5,010
|
|
|
|
4,014
|
|
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|
2,769
|
|
|
|
2,839
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|
Noninterest expense, before merger and restructuring charges
|
|
|
9,025
|
|
|
|
8,986
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|
|
|
36,600
|
|
|
|
34,792
|
|
|
|
28,269
|
|
|
|
26,394
|
|
|
|
20,155
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|
Merger and restructuring charges
|
|
|
170
|
|
|
|
111
|
|
|
|
410
|
|
|
|
805
|
|
|
|
412
|
|
|
|
618
|
|
|
|
|
|
Income before income taxes
|
|
|
1,798
|
|
|
|
7,823
|
|
|
|
20,924
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|
|
|
31,973
|
|
|
|
24,480
|
|
|
|
20,908
|
|
|
|
15,781
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|
Income tax expense
|
|
|
588
|
|
|
|
2,568
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|
|
|
5,942
|
|
|
|
10,840
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|
|
|
8,015
|
|
|
|
6,961
|
|
|
|
5,019
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|
Net income
|
|
|
1,210
|
|
|
|
5,255
|
|
|
|
14,982
|
|
|
|
21,133
|
|
|
|
16,465
|
|
|
|
13,947
|
|
|
|
10,762
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|
Average common shares issued and outstanding (in thousands)
|
|
|
4,427,823
|
|
|
|
4,432,664
|
|
|
|
4,423,579
|
|
|
|
4,526,637
|
|
|
|
4,008,688
|
|
|
|
3,758,507
|
|
|
|
2,973,407
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|
Average diluted common shares issued and outstanding (in
thousands)
|
|
|
4,461,201
|
|
|
|
4,497,028
|
|
|
|
4,480,254
|
|
|
|
4,595,896
|
|
|
|
4,068,140
|
|
|
|
3,823,943
|
|
|
|
3,030,356
|
|
Performance ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.28
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%
|
|
|
1.40
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%
|
|
|
0.94
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%
|
|
|
1.44
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%
|
|
|
1.30
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%
|
|
|
1.34
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%
|
|
|
1.44
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%
|
Return on average common shareholders equity
|
|
|
2.90
|
|
|
|
16.16
|
|
|
|
11.08
|
|
|
|
16.27
|
|
|
|
16.51
|
|
|
|
16.47
|
|
|
|
21.50
|
|
Total ending equity to total ending assets
|
|
|
9.00
|
|
|
|
8.98
|
|
|
|
8.56
|
|
|
|
9.27
|
|
|
|
7.86
|
|
|
|
9.03
|
|
|
|
6.76
|
|
Total average equity to total average assets
|
|
|
8.77
|
|
|
|
8.78
|
|
|
|
8.53
|
|
|
|
8.90
|
|
|
|
7.86
|
|
|
|
8.12
|
|
|
|
6.69
|
|
Dividend payout
|
|
|
N/M
|
|
|
|
48.02
|
|
|
|
72.26
|
|
|
|
45.66
|
|
|
|
46.61
|
|
|
|
46.31
|
|
|
|
39.76
|
|
Per common share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
$
|
0.23
|
|
|
$
|
1.18
|
|
|
$
|
3.35
|
|
|
$
|
4.66
|
|
|
$
|
4.10
|
|
|
$
|
3.71
|
|
|
$
|
3.62
|
|
Diluted earnings
|
|
|
0.23
|
|
|
|
1.16
|
|
|
|
3.30
|
|
|
|
4.59
|
|
|
|
4.04
|
|
|
|
3.64
|
|
|
|
3.55
|
|
Dividends paid
|
|
|
0.64
|
|
|
|
0.56
|
|
|
|
2.40
|
|
|
|
2.12
|
|
|
|
1.90
|
|
|
|
1.70
|
|
|
|
1.44
|
|
Book value
|
|
|
31.22
|
|
|
|
29.74
|
|
|
|
32.09
|
|
|
|
29.70
|
|
|
|
25.32
|
|
|
|
24.70
|
|
|
|
16.86
|
|
Market price per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing
|
|
$
|
37.91
|
|
|
$
|
51.02
|
|
|
$
|
41.26
|
|
|
$
|
53.39
|
|
|
$
|
46.15
|
|
|
$
|
46.99
|
|
|
$
|
40.22
|
|
High closing
|
|
|
45.03
|
|
|
|
54.05
|
|
|
|
54.05
|
|
|
|
54.90
|
|
|
|
47.08
|
|
|
|
47.44
|
|
|
|
41.77
|
|
Low closing
|
|
|
35.31
|
|
|
|
49.46
|
|
|
|
41.10
|
|
|
|
43.09
|
|
|
|
41.57
|
|
|
|
38.96
|
|
|
|
32.82
|
|
Market capitalization
|
|
$
|
168,806
|
|
|
$
|
226,481
|
|
|
$
|
183,107
|
|
|
$
|
238,021
|
|
|
$
|
184,586
|
|
|
$
|
190,147
|
|
|
$
|
115,926
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in millions, except per share information)
|
|
|
|
|
|
Average balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
$
|
875,661
|
|
|
$
|
714,042
|
|
|
$
|
776,154
|
|
|
$
|
652,417
|
|
|
$
|
537,218
|
|
|
$
|
472,617
|
|
|
$
|
356,220
|
|
Total assets
|
|
|
1,764,927
|
|
|
|
1,521,418
|
|
|
|
1,602,073
|
|
|
|
1,466,681
|
|
|
|
1,269,892
|
|
|
|
1,044,631
|
|
|
|
749,104
|
|
Total deposits
|
|
|
787,623
|
|
|
|
686,704
|
|
|
|
717,182
|
|
|
|
672,995
|
|
|
|
632,432
|
|
|
|
551,559
|
|
|
|
406,233
|
|
Long-term debt
|
|
|
198,463
|
|
|
|
148,627
|
|
|
|
169,855
|
|
|
|
130,124
|
|
|
|
97,709
|
|
|
|
92,303
|
|
|
|
67,077
|
|
Common shareholders equity
|
|
|
141,456
|
|
|
|
130,737
|
|
|
|
133,555
|
|
|
|
129,773
|
|
|
|
99,590
|
|
|
|
84,584
|
|
|
|
50,035
|
|
Total shareholders equity
|
|
|
154,728
|
|
|
|
133,588
|
|
|
|
136,662
|
|
|
|
130,463
|
|
|
|
99,861
|
|
|
|
84,815
|
|
|
|
50,091
|
|
Asset Quality
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses(1)
|
|
$
|
15,398
|
|
|
$
|
9,106
|
|
|
$
|
12,106
|
|
|
$
|
9,413
|
|
|
$
|
8,440
|
|
|
$
|
9,028
|
|
|
$
|
6,579
|
|
Nonperforming assets measured at historical cost
|
|
|
7,827
|
|
|
|
2,059
|
|
|
|
5,948
|
|
|
|
1,856
|
|
|
|
1,603
|
|
|
|
2,455
|
|
|
|
3,021
|
|
Allowance for loan and lease losses as a percentage of total
loans and leases outstanding measured at historical cost(2)
|
|
|
1.71
|
%
|
|
|
1.21
|
%
|
|
|
1.33
|
%
|
|
|
1.28
|
%
|
|
|
1.40
|
%
|
|
|
1.65
|
%
|
|
|
1.66
|
%
|
Allowance for loan and lease losses as a percentage of total
nonperforming loans and leases measured at historical cost
|
|
|
203
|
|
|
|
443
|
|
|
|
207
|
|
|
|
505
|
|
|
|
532
|
|
|
|
390
|
|
|
|
215
|
|
Net charge-offs
|
|
$
|
2,715
|
|
|
$
|
1,427
|
|
|
$
|
6,480
|
|
|
$
|
4,539
|
|
|
$
|
4,562
|
|
|
$
|
3,113
|
|
|
$
|
3,106
|
|
Net charge-offs as a percentage of average loans and leases
outstanding measured at historical cost(2)
|
|
|
1.25
|
%
|
|
|
0.81
|
%
|
|
|
0.84
|
%
|
|
|
0.70
|
%
|
|
|
0.85
|
%
|
|
|
0.66
|
%
|
|
|
0.87
|
%
|
Nonperforming loans and leases as a percentage of total loans
and leases outstanding measured at historical cost(2)
|
|
|
0.84
|
|
|
|
0.27
|
|
|
|
0.64
|
|
|
|
0.25
|
|
|
|
0.26
|
|
|
|
0.42
|
|
|
|
0.77
|
|
Nonperforming assets as a percentage of total loans, leases and
foreclosed properties(2)
|
|
|
0.90
|
|
|
|
0.29
|
|
|
|
0.68
|
|
|
|
0.26
|
|
|
|
0.28
|
|
|
|
0.47
|
|
|
|
0.81
|
|
Ratio of the allowance for loan and lease losses at December 31
to net charge-offs
|
|
|
1.36
|
|
|
|
1.51
|
|
|
|
1.79
|
|
|
|
1.99
|
|
|
|
1.76
|
|
|
|
2.77
|
|
|
|
1.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital ratios (period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1
|
|
|
7.51
|
%
|
|
|
8.57
|
%
|
|
|
6.87
|
%
|
|
|
8.64
|
%
|
|
|
8.25
|
%
|
|
|
8.20
|
%
|
|
|
8.02
|
%
|
Total
|
|
|
11.71
|
|
|
|
11.94
|
|
|
|
11.02
|
|
|
|
11.88
|
|
|
|
11.08
|
|
|
|
11.73
|
|
|
|
12.05
|
|
Tier 1 Leverage
|
|
|
5.61
|
|
|
|
6.25
|
|
|
|
5.04
|
|
|
|
6.36
|
|
|
|
5.91
|
|
|
|
5.89
|
|
|
|
5.86
|
|
|
|
|
(1)
|
|
Includes the allowance for loan and
lease losses, and the reserve for unfunded lending commitments.
|
|
(2)
|
|
Ratios do not include loans
measured at fair value in accordance with SFAS 159 at and
for the year ended December 31, 2007. Loans measured at
fair value were $4.59 billion at December 31, 2007.
|
11
SELECTED
CONSOLIDATED HISTORICAL FINANCIAL DATA OF COUNTRYWIDE
Set forth below are highlights derived from Countrywides
audited consolidated financial data as of and for the years
ended December 31, 2003 through 2007 and Countrywides
unaudited consolidated financial data as of and for the three
months ended March 31, 2008. The results of operations for
the three months ended March 31, 2008 are not necessarily
indicative of the results of operations for the full year or any
other interim period. The unaudited information was prepared on
the same basis as Countrywides audited consolidated
financial statements. In the opinion of Countrywide management,
this information reflects all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation
of this data for those dates. You should read this information
in conjunction with Countrywides consolidated financial
statements and related notes incorporated by reference within
Countrywides Annual Report on
Form 10-K
for the year ended December 31, 2007 and Countrywides
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008, which are
incorporated by reference in this document and from which this
information is derived. See Where You Can Find More
Information on page 81.
Countrywide
Financial Corporation Summary of Consolidated
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
(dollar amounts in thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of loans and securities
|
|
$
|
289,311
|
|
|
$
|
1,234,104
|
|
|
$
|
2,434,723
|
|
|
$
|
5,681,847
|
|
|
$
|
4,861,780
|
|
|
$
|
4,842,082
|
|
|
$
|
5,887,436
|
|
Net interest (expense) income after provision for loan losses
|
|
|
(770,032
|
)
|
|
|
578,975
|
|
|
|
587,882
|
|
|
|
2,688,514
|
|
|
|
2,237,935
|
|
|
|
1,965,541
|
|
|
|
1,359,390
|
|
Net loan servicing fees and other income (loss) from MSRs and
retained interests
|
|
|
455,457
|
|
|
|
98,251
|
|
|
|
909,749
|
|
|
|
1,300,655
|
|
|
|
1,493,167
|
|
|
|
465,650
|
|
|
|
(463,050
|
)
|
Net insurance premiums earned
|
|
|
488,829
|
|
|
|
334,177
|
|
|
|
1,523,534
|
|
|
|
1,171,433
|
|
|
|
953,647
|
|
|
|
782,685
|
|
|
|
732,816
|
|
Other
|
|
|
215,309
|
|
|
|
160,269
|
|
|
|
605,549
|
|
|
|
574,679
|
|
|
|
470,179
|
|
|
|
510,669
|
|
|
|
462,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
678,874
|
|
|
|
2,405,776
|
|
|
|
6,061,437
|
|
|
|
11,417,128
|
|
|
|
10,016,708
|
|
|
|
8,566,627
|
|
|
|
7,978,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
1,053,985
|
|
|
|
1,075,408
|
|
|
|
4,165,023
|
|
|
|
4,373,985
|
|
|
|
3,615,483
|
|
|
|
3,137,045
|
|
|
|
2,590,936
|
|
Occupancy and other office
|
|
|
242,779
|
|
|
|
264,213
|
|
|
|
1,126,226
|
|
|
|
1,030,164
|
|
|
|
879,680
|
|
|
|
643,378
|
|
|
|
525,192
|
|
Insurance claims
|
|
|
355,651
|
|
|
|
57,305
|
|
|
|
525,045
|
|
|
|
449,138
|
|
|
|
441,584
|
|
|
|
390,203
|
|
|
|
360,046
|
|
Advertising and promotion
|
|
|
73,260
|
|
|
|
70,017
|
|
|
|
321,766
|
|
|
|
260,652
|
|
|
|
229,183
|
|
|
|
171,585
|
|
|
|
103,902
|
|
Other
|
|
|
445,426
|
|
|
|
238,038
|
|
|
|
1,233,651
|
|
|
|
969,054
|
|
|
|
703,012
|
|
|
|
628,543
|
|
|
|
552,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,171,101
|
|
|
|
1,704,981
|
|
|
|
7,371,711
|
|
|
|
7,082,993
|
|
|
|
5,868,942
|
|
|
|
4,970,754
|
|
|
|
4,132,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income taxes
|
|
|
(1,492,227
|
)
|
|
|
700,795
|
|
|
|
(1,310,274
|
)
|
|
|
4,334,135
|
|
|
|
4,147,766
|
|
|
|
3,595,873
|
|
|
|
3,845,772
|
|
(Benefit) provision for income taxes
|
|
|
(599,174
|
)
|
|
|
266,814
|
|
|
|
(606,736
|
)
|
|
|
1,659,289
|
|
|
|
1,619,676
|
|
|
|
1,398,299
|
|
|
|
1,472,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(893,053
|
)
|
|
$
|
433,981
|
|
|
$
|
(703,538
|
)
|
|
$
|
2,674,846
|
|
|
$
|
2,528,090
|
|
|
$
|
2,197,574
|
|
|
$
|
2,372,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
(dollar amounts in thousands, except per share data)
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.60
|
)
|
|
$
|
0.74
|
|
|
$
|
(2.03
|
)
|
|
$
|
4.42
|
|
|
$
|
4.28
|
|
|
$
|
3.90
|
|
|
$
|
4.44
|
|
Diluted
|
|
$
|
(1.60
|
)
|
|
$
|
0.72
|
|
|
$
|
(2.03
|
)
|
|
$
|
4.30
|
|
|
$
|
4.11
|
|
|
$
|
3.63
|
|
|
$
|
4.18
|
|
Cash dividends declared
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.60
|
|
|
$
|
0.60
|
|
|
$
|
0.59
|
|
|
$
|
0.37
|
|
|
$
|
0.15
|
|
Stock price at end of period
|
|
$
|
5.50
|
|
|
$
|
33.64
|
|
|
$
|
8.94
|
|
|
$
|
42.45
|
|
|
$
|
34.19
|
|
|
$
|
37.01
|
|
|
$
|
25.28
|
|
Selected Financial Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized return on average assets
|
|
|
(1.65
|
)%
|
|
|
0.76
|
%
|
|
|
(0.30
|
)%
|
|
|
1.28
|
%
|
|
|
1.46
|
%
|
|
|
1.80
|
%
|
|
|
2.65
|
%
|
Annualized return on average equity
|
|
|
(23.65
|
)%
|
|
|
11.53
|
%
|
|
|
(4.57
|
)%
|
|
|
18.81
|
%
|
|
|
22.67
|
%
|
|
|
23.53
|
%
|
|
|
34.25
|
%
|
Dividend payout ratio
|
|
|
N/M
|
|
|
|
20.35
|
%
|
|
|
N/M
|
|
|
|
13.49
|
%
|
|
|
13.81
|
%
|
|
|
9.53
|
%
|
|
|
3.39
|
%
|
Selected Operating Data (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing portfolio(1)
|
|
$
|
1,484,157
|
|
|
$
|
1,351,598
|
|
|
$
|
1,476,203
|
|
|
$
|
1,298,394
|
|
|
$
|
1,111,090
|
|
|
$
|
838,322
|
|
|
$
|
644,855
|
|
Volume of loans originated
|
|
$
|
73,089
|
|
|
$
|
116,975
|
|
|
$
|
415,634
|
|
|
$
|
468,172
|
|
|
$
|
499,301
|
|
|
$
|
363,364
|
|
|
$
|
434,864
|
|
Volume of Mortgage Banking loans sold
|
|
$
|
61,417
|
|
|
$
|
108,599
|
|
|
$
|
375,937
|
|
|
$
|
403,035
|
|
|
$
|
411,848
|
|
|
$
|
326,313
|
|
|
$
|
374,245
|
|
|
|
|
(1) |
|
Includes warehoused loans and loans under subservicing
agreements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
(dollar amounts in thousands, except per share data)
|
|
|
Selected Balance Sheet Data at End of Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held for sale
|
|
$
|
15,653,390
|
|
|
$
|
32,282,579
|
|
|
$
|
11,681,274
|
|
|
$
|
31,272,630
|
|
|
$
|
36,808,185
|
|
|
$
|
37,347,326
|
|
|
$
|
24,103,625
|
|
Held for investment
|
|
|
95,264,500
|
|
|
|
75,087,330
|
|
|
|
98,000,713
|
|
|
|
78,019,994
|
|
|
|
69,865,447
|
|
|
|
39,661,191
|
|
|
|
26,375,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,917,890
|
|
|
|
107,369,909
|
|
|
|
109,681,987
|
|
|
|
109,292,624
|
|
|
|
106,673,632
|
|
|
|
77,008,517
|
|
|
|
50,479,583
|
|
Securities purchased under agreements to resell, securities
borrowed and federal funds sold
|
|
|
7,786,346
|
|
|
|
28,851,069
|
|
|
|
9,640,879
|
|
|
|
27,269,897
|
|
|
|
23,317,361
|
|
|
|
13,456,448
|
|
|
|
10,448,102
|
|
Investments in other financial instruments
|
|
|
20,903,537
|
|
|
|
18,678,412
|
|
|
|
25,817,659
|
|
|
|
11,886,481
|
|
|
|
10,790,088
|
|
|
|
8,901,112
|
|
|
|
12,271,995
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
(dollar amounts in thousands, except per share data)
|
|
|
Mortgage servicing rights, at estimated fair value
|
|
|
17,154,574
|
|
|
|
17,441,860
|
|
|
|
18,958,180
|
|
|
|
16,172,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,610,839
|
|
|
|
8,729,929
|
|
|
|
6,863,625
|
|
Other assets
|
|
|
42,255,446
|
|
|
|
34,842,068
|
|
|
|
44,268,219
|
|
|
|
34,442,194
|
|
|
|
21,222,813
|
|
|
|
19,466,597
|
|
|
|
17,539,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
199,017,793
|
|
|
$
|
207,183,318
|
|
|
$
|
208,366,924
|
|
|
$
|
199,063,260
|
|
|
$
|
174,614,733
|
|
|
$
|
127,562,603
|
|
|
$
|
97,602,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit liabilities
|
|
$
|
63,293,392
|
|
|
$
|
57,525,061
|
|
|
$
|
60,200,599
|
|
|
$
|
55,578,682
|
|
|
$
|
39,438,916
|
|
|
$
|
20,013,208
|
|
|
$
|
9,327,671
|
|
Securities sold under agreements to repurchase
|
|
|
17,862,890
|
|
|
|
44,085,743
|
|
|
|
18,218,162
|
|
|
|
42,113,501
|
|
|
|
34,153,205
|
|
|
|
20,465,123
|
|
|
|
32,013,412
|
|
Notes payable
|
|
|
87,651,431
|
|
|
|
74,322,902
|
|
|
|
97,227,413
|
|
|
|
71,487,584
|
|
|
|
76,187,886
|
|
|
|
66,613,671
|
|
|
|
39,948,461
|
|
Other liabilities
|
|
|
17,055,024
|
|
|
|
16,431,163
|
|
|
|
18,064,879
|
|
|
|
15,565,647
|
|
|
|
12,018,866
|
|
|
|
10,160,525
|
|
|
|
8,228,195
|
|
Shareholders equity
|
|
|
13,155,056
|
|
|
|
14,818,449
|
|
|
|
14,655,871
|
|
|
|
14,317,846
|
|
|
|
12,815,860
|
|
|
|
10,310,076
|
|
|
|
8,084,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
199,017,793
|
|
|
$
|
207,183,318
|
|
|
$
|
208,366,924
|
|
|
$
|
199,063,260
|
|
|
$
|
174,614,733
|
|
|
$
|
127,562,603
|
|
|
$
|
97,602,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Financial Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equity to average assets
|
|
|
6.96
|
%
|
|
|
6.58
|
%
|
|
|
6.60
|
%
|
|
|
6.82
|
%
|
|
|
6.45
|
%
|
|
|
7.66
|
%
|
|
|
7.74
|
%
|
MSR capitalization ratio at period end
|
|
|
1.26
|
%
|
|
|
1.40
|
%
|
|
|
1.40
|
%
|
|
|
1.38
|
%
|
|
|
1.29
|
%
|
|
|
1.15
|
%
|
|
|
1.18
|
%
|
Tier 1 leverage (core) capital ratio(1)
|
|
|
7.7
|
%
|
|
|
8.1
|
%
|
|
|
7.2
|
%
|
|
|
6.9
|
%
|
|
|
6.3
|
%
|
|
|
7.8
|
%
|
|
|
8.3
|
%
|
Tier 1 risk-based capital ratio(1)
|
|
|
12.2
|
%
|
|
|
13.0
|
%
|
|
|
11.8
|
%
|
|
|
11.6
|
%
|
|
|
10.7
|
%
|
|
|
11.1
|
%
|
|
|
12.8
|
%
|
Total risk-based capital ratio(1)
|
|
|
13.4
|
%
|
|
|
13.5
|
%
|
|
|
14.4
|
%
|
|
|
12.8
|
%
|
|
|
11.7
|
%
|
|
|
11.7
|
%
|
|
|
13.7
|
%
|
|
|
|
(1) |
|
The 2007 capital ratios reflect the conversion of Countrywide
Banks charter from a national bank to a federal savings
bank. Accordingly, the ratios for 2007 are for Countrywide Bank
calculated using OTS guidelines and the ratios for the prior
periods are calculated for Countrywide Financial Corporation in
compliance with the guidelines of the Board of Governors of the
Federal Reserve Bank. |
14
COMPARATIVE
PER SHARE DATA
The following table sets forth for Bank of America common stock
and Countrywide common stock certain historical, pro forma and
pro forma-equivalent per share financial information. In
accordance with requirements of the Securities and Exchange
Commission, which we refer to as the SEC, the pro forma and pro
forma-equivalent per share information gives effect to the
merger as if the merger had been effective on the dates
presented, in the case of the book value data, and as if the
merger had become effective on January 1, 2007, in the case
of the net income and dividends declared data. The pro forma
data in the tables assume that the merger is accounted for using
the purchase method of accounting and represents a current
estimate based on available information of the combined
companys results of operations. The pro forma financial
adjustments record the assets and liabilities of Countrywide at
their estimated fair values and are subject to adjustment as
additional information becomes available and as additional
analyses are performed. See Accounting Treatment on
page 70. The information in the following table is based
on, and should be read together with, the historical financial
information that we have presented in our prior filings with the
SEC. See Where You Can Find More Information on
page 81.
We anticipate that the merger will provide the combined company
with financial benefits that include reduced operating expenses
and revenue enhancement opportunities. The pro forma
information, while helpful in illustrating the financial
characteristics of the combined company under one set of
assumptions, does not reflect the impact of possible business
model changes as a result of current market conditions which may
impact revenues, expense efficiencies, asset dispositions and
share repurchases, among other factors, that may result as a
consequence of the merger and, accordingly, 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 these
periods. The Comparative Per Share Data Table for the three
months ended March 30, 2008 and the year ended
December 31, 2007 combines the historical income per share
data of Bank of America and subsidiaries and Countrywide and
subsidiaries giving effect to the merger as if the merger had
become effective on January 1, 2007, using the purchase
method of accounting. Upon completion of the merger, the
operating results of Countrywide will be reflected in the
consolidated financial statements of Bank of America on a
prospective basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
Bank of
|
|
|
Countrywide
|
|
|
|
|
|
Equivalent
|
|
|
|
America
|
|
|
Financial
|
|
|
Pro Forma
|
|
|
CFC
|
|
|
|
Historical
|
|
|
Corporation
|
|
|
Combined(1)
|
|
|
Share(2)
|
|
|
Income (loss) from continuing operations for the year ended
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.35
|
|
|
$
|
(2.03
|
)
|
|
$
|
3.04
|
|
|
$
|
0.55
|
|
Diluted
|
|
|
3.30
|
|
|
|
(2.03
|
)
|
|
|
3.00
|
|
|
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations for the three months
ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.23
|
|
|
|
(1.60
|
)
|
|
|
(0.09
|
)
|
|
|
(0.02
|
)
|
Diluted
|
|
|
0.23
|
|
|
|
(1.60
|
)
|
|
|
(0.09
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007
|
|
|
2.40
|
|
|
|
0.60
|
|
|
|
2.40
|
|
|
|
0.44
|
|
For the three months ended March 31, 2008
|
|
|
0.64
|
|
|
|
0.15
|
|
|
|
0.64
|
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
32.09
|
|
|
|
21.88
|
|
|
|
32.24
|
|
|
|
5.87
|
|
As of March 31, 2008
|
|
|
31.22
|
|
|
|
19.21
|
|
|
|
31.39
|
|
|
|
5.72
|
|
|
|
|
(1) |
|
Does not reflect the impact of business model changes as a
result of current market conditions which may impact revenues,
expense efficiencies, asset dispositions and share repurchases,
among other factors, that may result as a consequence of the
merger and, accordingly, does not attempt to predict or suggest
future results. |
|
(2) |
|
Reflects Countrywide shares at the exchange ratio of 0.1822. |
15
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This document contains or incorporates by reference a number of
forward-looking statements, including statements about the
financial conditions, results of operations, earnings outlook
and prospects of Bank of America, Countrywide and the potential
combined company and may include statements for the period
following the completion of the merger. You can find many of
these statements by looking for words such as plan,
believe, expect, intend,
anticipate, estimate,
project, potential, possible
or other similar expressions.
The forward-looking statements involve certain risks and
uncertainties. The ability of either Bank of America or
Countrywide to predict results or the actual effects of its
plans and strategies, or those of the combined company, is
subject to inherent uncertainty. Factors that may cause actual
results or earnings to differ materially from such
forward-looking statements include those set forth on
page 17 under Risk Factors, as well as,
among others, the following:
|
|
|
|
|
those discussed and identified in public filings with the SEC
made by Bank of America or Countrywide;
|
|
|
|
completion of the merger is dependent on, among other things,
receipt of stockholder and regulatory approvals, the timing of
which cannot be predicted with precision and which may not be
received at all;
|
|
|
|
the merger may be more expensive to complete than anticipated,
including as a result of unexpected factors or events;
|
|
|
|
the integration of Countrywides business and operations
with those of Bank of America may take longer than anticipated,
may be more costly than anticipated and may have unanticipated
adverse results relating to Countrywides or Bank of
Americas existing businesses;
|
|
|
|
the anticipated cost savings and other synergies of the merger
may take longer to be realized or may not be achieved in their
entirety, and attrition in key client, partner and other
relationships relating to the merger may be greater than
expected; and
|
|
|
|
decisions to downsize, sell or close units or otherwise change
the business mix of either company.
|
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. You are cautioned not to place undue
reliance on these statements, which speak only as of the date of
this document or the date of any document incorporated by
reference in this document.
All subsequent written and oral forward-looking statements
concerning the merger or other matters addressed in this
document and attributable to Bank of America or Countrywide or
any person acting on their behalf are expressly qualified in
their entirety by the cautionary statements contained or
referred to in this document. Except to the extent required by
applicable law or regulation, Bank of America and Countrywide
undertake no obligation to update these forward-looking
statements to reflect events or circumstances after the date of
this document or to reflect the occurrence of unanticipated
events.
16
RISK
FACTORS
Because
the market price of Bank of America common stock will fluctuate,
Countrywide stockholders cannot be sure of the market value of
the merger consideration they will receive.
Upon completion of the merger, each share of Countrywide common
stock will be converted into merger consideration consisting of
0.1822 of a share of Bank of America common stock. The market
value of the merger consideration may vary from the closing
price of Bank of America common stock on the date we announced
the merger, on the date that this document was mailed to
Countrywide stockholders, on the date of the special meeting of
the Countrywide stockholders and on the date we complete the
merger and thereafter. Any change in the market price of Bank of
America common stock prior to completion of the merger will
affect the market value of the merger consideration that
Countrywide stockholders will receive upon completion of the
merger. Accordingly, at the time of the special meeting,
Countrywide stockholders will not know or be able to calculate
the market value of the merger consideration they would receive
upon completion of the merger. Neither company is permitted to
terminate the merger agreement or resolicit the vote of
Countrywide stockholders solely because of changes in the market
prices of either companys stock. There will be no
adjustment to the merger consideration for changes in the market
price of either shares of Bank of America common stock or shares
of Countrywide common stock. Stock price changes may result from
a variety of factors, including general market and economic
conditions, changes in our respective businesses, operations and
prospects, and regulatory considerations. Many of these factors
are beyond our control. You should obtain current market
quotations for shares of Bank of America common stock and for
shares of Countrywide common stock.
We may
fail to realize all of the anticipated benefits of the
merger.
The success of the merger will depend, in part, on our ability
to realize the anticipated benefits and cost savings from
combining the businesses of Bank of America and Countrywide.
However, to realize these anticipated benefits and cost savings,
we must successfully combine the businesses of Bank of America
and Countrywide. If we are not able to achieve these objectives,
the anticipated benefits and cost savings of the merger may not
be realized fully or at all or may take longer to realize than
expected.
Bank of America and Countrywide have operated and, until the
completion of the merger, will continue to operate,
independently. It is possible that the integration process could
result in the loss of key employees, the disruption of each
companys ongoing businesses or inconsistencies in
standards, controls, procedures and policies that adversely
affect our ability to maintain relationships with clients,
customers, depositors and employees or to achieve the
anticipated benefits of the merger. Integration efforts between
the two companies will also divert management attention and
resources. These integration matters could have an adverse
effect on each of Countrywide and Bank of America during such
transition period.
The
market price of Bank of America common stock after the merger
may be affected by factors different from those affecting the
shares of Countrywide or Bank of America
currently.
The businesses of Bank of America and Countrywide differ in
important respects and, accordingly, the results of operations
of the combined company and the market price of the combined
companys shares of common stock may be affected by factors
different from those currently affecting the independent results
of operations of Bank of America and Countrywide. For a
discussion of the businesses of Bank of America and Countrywide
and of certain factors to consider in connection with those
businesses, see the documents incorporated by reference in this
document and referred to under Where You Can Find More
Information beginning on page 81.
Countrywide
stockholders will have a reduced ownership and voting interest
after the merger and will exercise less influence over
management.
Countrywides stockholders currently have the right to vote
in the election of the board of directors of Countrywide and on
other matters affecting Countrywide. When the merger occurs,
each Countrywide
17
stockholder that receives shares of Bank of America common stock
will become a stockholder of Bank of America with a percentage
ownership of the combined organization that is much smaller than
the stockholders percentage ownership of Countrywide. It
is expected that the former stockholders of Countrywide as a
group will own less than 3% of the outstanding shares of Bank of
America immediately after the merger. Because of this,
Countrywides stockholders will have less influence on the
management and policies of Bank of America than they now have on
the management and policies of Countrywide.
The
opinions obtained by Countrywide from its financial advisors
will not reflect changes in circumstances between signing the
merger agreement and the merger.
Countrywide has not obtained updated opinions as of the date of
this document from its financial advisors. Changes in the
operations and prospects of Bank of America or Countrywide,
general market and economic conditions and other factors that
may be beyond the control of Bank of America and Countrywide,
and on which each financial advisors opinion was based,
may significantly alter the value of Bank of America or
Countrywide or the prices of shares of Bank of America common
stock or Countrywide common stock by the time the merger is
completed. Neither opinion speaks as of the time the merger will
be completed or as of any date other than the date of such
opinion. Because Countrywide currently does not anticipate
asking either of its financial advisors to update its opinion,
neither opinion will address the fairness of the merger
consideration from a financial point of view at the time the
merger is completed. The Countrywide board of directors
recommendation that Countrywide stockholders vote
FOR approval and adoption of the merger agreement,
however, is as of the date of this document. For a description
of the opinions that Countrywide received from its financial
advisors, please refer to The Merger Opinions
of Countrywides Financial Advisors beginning on
page 31. For a description of the other factors considered
by Countrywides board of directors in determining to
approve the merger, please refer to The Merger
Countrywides Reasons for the Merger; Recommendation of the
Countrywide Board of Directors beginning on page 29.
The
merger agreement limits Countrywides ability to pursue
alternatives to the merger.
The merger agreement contains no shop provisions
that, subject to limited exceptions, limit Countrywides
ability to discuss, facilitate or commit to competing
third-party proposals to acquire all or a significant part of
the company, as well as a termination fee that is payable by
Countrywide under certain circumstances. These provisions might
discourage a potential competing acquiror that might have an
interest in acquiring all or a significant part of Countrywide
from considering or proposing that acquisition even if it were
prepared to pay consideration with a higher per share market
price than that proposed in the merger, or might result in a
potential competing acquirors proposing to pay a lower per
share price to acquire Countrywide than it might otherwise have
proposed to pay.
The
merger is subject to the receipt of consents and approvals from
government entities that may impose conditions that could have
an adverse effect on Bank of America.
Before the merger may be completed, various approvals or
consents must be obtained from the Federal Reserve Board and
various domestic and foreign bank regulatory, antitrust,
insurance and other authorities. These governmental entities,
including the Federal Reserve Board, may impose conditions on
the completion of the merger or require changes to the terms of
the merger. Although Bank of America and Countrywide do not
currently expect that any such conditions or changes would be
imposed, there can be no assurance that they will not be, and
such conditions or changes could have the effect of delaying
completion of the merger or imposing additional costs on or
limiting the revenues of Bank of America following the merger,
any of which might have a material adverse effect on Bank of
America following the merger. Bank of America is not obligated
to complete the merger if the regulatory approvals received in
connection with the completion of the merger include any
conditions or restrictions that, in the aggregate, would
reasonably be expected to have a material adverse effect on
Countrywide or Bank of America, measured relative to
Countrywide, but Bank of America could choose to waive this
condition.
18
The
10% national deposit cap may restrict Bank of Americas
ability to make additional bank acquisitions in the U.S. in the
future.
Federal banking law contains provisions that limit the ability
of the Federal Reserve Board to approve an application by a bank
holding company to acquire domestic banks located outside of the
acquirors home state without regard to state law if the
acquisition would result in the combined company holding more
than 10% of the deposits held by insured depository institutions
in the United States. Bank of Americas home state is North
Carolina. While the percentage of Bank of Americas
deposits will change from time to time, we expect that it will
hold a percentage of deposits that approaches the 10% limit.
While this limit does not impede Bank of Americas ability
to grow by attracting additional deposits from new or existing
customers, by acquiring thrifts, such as Countrywide, or by
other transactions that do not involve the acquisition of a
domestic bank located outside of North Carolina, unless it is
repealed or modified, or unless a transaction can be structured
appropriately to comply with its application, the national
deposit cap will restrict the ability of Bank of America to
acquire additional domestic banks located outside of North
Carolina that would result in Bank of America holding deposits
in excess of the 10% limit. Repeal or modification of the
national deposit cap would require an act of Congress. It is the
responsibility of the Federal Reserve Board as part of its
application approval process to determine if an acquisition
would or would not surpass the 10% national limit.
Bank
of America, Countrywide and Countrywides directors and
officers are named parties to a number of actions relating to
the merger.
A number of actions are pending in California and Delaware state
and federal courts relating to the merger. These include
derivative actions against current and former Countrywide
directors and officers, and class-action complaints on behalf of
a putative Countrywide shareholder class against
Countrywides current directors and Bank of America.
Depending on the outcome, these actions could have adverse
financial effects or cause reputational harm to Bank of America.
In addition, if the merger is consummated, plaintiffs in the
pending derivative actions against current and former
Countrywide directors and officers may lose standing to assert
derivative claims on behalf of Countrywide because the
plaintiffs will no longer be stockholders of Countrywide. See
The Merger Litigation Relating to the
Merger on page 46.
Countrywide
officers and directors have financial interests in the merger
that differ from the interests of Countrywide
stockholders.
Countrywides executive officers and directors have
financial interests in the merger that are different from, or in
addition to, their interests as Countrywide stockholders. The
independent members of Countrywides board of directors
were aware of and considered these interests, among other
matters, in evaluating and negotiating the merger agreement and
the merger, and in recommending to the stockholders that the
merger agreement be approved and adopted.
Messrs. Mozilo and Sambol are parties to employment
agreements and the other executive officers of Countrywide are
covered by Countrywides Change in Control Severance Plan,
each of which provides severance and other benefits in the case
of qualifying terminations of employment in connection with a
change in control, including completion of the merger; however,
in connection with the merger, Mr. Mozilo has waived his
right to receive his cash severance and pro rata bonus payments
under his employment agreement and consulting fees and benefits
under a related consulting agreement upon termination of his
employment following completion of the merger. Assuming that the
merger is completed on July 1, 2008 and the executive
experiences a qualifying termination of employment immediately
thereafter, the amount of cash severance that would be payable
to each of Messrs. Mozilo, Sambol, Sieracki, Kripalani,
Garcia, Gissinger and each of Countrywides eight other
executive officers (as a group), respectively, is approximately
$0, $15 million, $6.7 million, $13.7 million,
$9 million, $7.2 million and $29.6 million, and
the value of continued benefits to be provided to each of
Messrs. Mozilo, Sambol, Sieracki, Kripalani, Garcia,
Gissinger and each of Countrywides eight other executive
officers (as a group) respectively, is approximately $106,084,
$46,493, $135,380, $206,596, $228,367, $210,494 and $1,402,083.
In addition, in connection with entry into the merger agreement
and a retention program previously implemented for other
employees, Countrywide approved the grant of retention awards to
David Sambol, Eric P. Sieracki, Ranjit M. Kripalani and
Carlos M. Garcia, which
19
consists of a retention incentive payment in respect of their
annual bonus awards for Countrywides 2007 fiscal year and
cash-settled restricted stock units.
The Countrywide equity compensation plans and award agreements
generally provide for the vesting of stock-based awards upon
completion of the merger. Assuming that the merger is completed
on July 1, 2008, the aggregate cash value of the
stock-based awards based on the closing price of Bank of
Americas common stock as of May 27, 2008 (which
amounts include the value of the retention awards described
above and attribute no value to any unvested stock options and
SARs other than Mr. Mozilos SARs with an exercise
price of $6.22, since all such other options and SARs are
underwater based on the May 27, 2008 closing price of Bank
of Americas common stock) that are held by each of
Messrs. Mozilo, Sambol, Sieracki, Kripalani, Garcia,
Gissinger and each of Countrywides eight other executive
officers (as a group), respectively, and that would vest solely
due to the completion of the merger is approximately $6,482,705,
$11,693,871, $1,161,458, $795,843, $1,061,104, $1,061,104 and
$3,971,301 (of which approximately $2,086,419, $927,298,
$695,475 and $927,298 is attributable to the cash-settled
restricted stock units granted to Messrs. Sambol, Sieracki,
Kripalani and Garcia, respectively, in connection with
Countrywides retention program). Pursuant to the terms of
Countrywides supplemental executive retirement plan and
certain other non-qualified deferred compensation arrangements,
the benefits thereunder will vest
and/or
payment may be accelerated in connection with the merger.
In addition, assuming that the merger is completed on
July 1, 2008 and the executive experiences a qualifying
termination of employment immediately thereafter, the aggregate
value of the cash severance and other severance benefits and the
equity awards (other than those that would vest solely due to
the completion of the merger as described in the prior
paragraph) based on the closing price of Bank of Americas
common stock as of May 27, 2008, that would vest or be
payable to each of Messrs. Mozilo, Sambol, Sieracki,
Kripalani, Garcia, Gissinger and each of Countrywides
eight other executive officers (as a group), respectively, is
approximately $106,084, $15,023,993, $8,815,990, $15,426,929,
$11,251,044, $9,437,619 and $39,057,434.
Executive officers and directors of Countrywide also have rights
to indemnification and directors and officers
liability insurance that will survive completion of the merger.
Please see The Merger Countrywides
Officers and Directors Have Financial Interests in the
Merger beginning on page 50 for information about
these financial interests. In addition, if the merger is
consummated, plaintiffs in pending shareholder actions against
certain Countrywide officers and directors may lose standing to
assert derivative claims on behalf of Countrywide because the
plaintiffs will no longer be stockholders of Countrywide. See
The Merger Litigation Relating to the
Merger on page 46.
As discussed in more detail beginning on page 56,
Mr. Sambol has entered into a new retention agreement with
Merger Sub that will supersede his Countrywide employment
agreement upon completion of the merger. As a result,
Mr. Sambol will not receive any payments or benefits under
his current employment agreement following completion of the
merger. On May 28, 2008 Bank of America announced that
Mr. Sambol will retire after assisting with the transition
and closing of the merger. His termination of employment will be
treated as a termination without cause and he will be eligible
to receive the payments and benefits under his retention
agreement. In addition, certain of the executive officers
(including Mr. Gissinger) have entered into new retention
agreements with Merger Sub that replace their right to
participate in Countrywides Change in Control Severance
Plan.
The
shares of Bank of America common stock to be received by
Countrywide stockholders as a result of the merger will have
different rights from the shares of Countrywide common
stock.
Upon completion of the merger, Countrywide stockholders will
become Bank of America stockholders and their rights as
stockholders will be governed by the certificate of
incorporation and bylaws of Bank of America. The rights
associated with Countrywide common stock are different from the
rights associated with Bank of America common stock. Please see
Comparison of Stockholders Rights beginning on
page 74 for a discussion of the different rights associated
with Bank of America common stock.
20
THE
COUNTRYWIDE SPECIAL MEETING
This section contains information about the special meeting of
Countrywide stockholders that has been called to consider and
approve and adopt the merger agreement.
Together with this document, we are also sending you a notice of
the special meeting and a form of proxy that is solicited by the
Countrywide board of directors. The special meeting will be held
on June 25, 2008 at 9:00 a.m., local time, at the
Learning Center Auditorium at Countrywides corporate
headquarters located at 4500 Park Granada, Calabasas,
California 91302.
Matters
to Be Considered
The purpose of the special meeting is to vote on a proposal for
approval and adoption of the merger agreement.
You also will be asked to vote upon a proposal to approve the
adjournment of the special meeting, if necessary, to solicit
additional proxies in the event that there are not sufficient
votes at the time of the special meeting to approve and adopt
the merger agreement.
Proxies
Each copy of this document mailed to holders of Countrywide
common stock is accompanied by a form of proxy with instructions
for voting. If you hold stock in your name as a stockholder of
record, you should complete and return the proxy card
accompanying this document to ensure that your vote is counted
at the special meeting, or at any adjournment or postponement of
the special meeting, regardless of whether you plan to attend
the special meeting.
If you hold your stock in street name through a bank
or broker, you must direct your bank or broker to vote in
accordance with the instructions you have received from your
bank or broker.
If you hold stock in your name as a stockholder of record, you
may revoke any proxy at any time before it is voted by signing
and returning a proxy card with a later date, delivering a
written revocation letter to Countrywides Secretary, or by
attending the special meeting in person, notifying the
Secretary, and voting by ballot at the special meeting.
Any stockholder entitled to vote in person at the special
meeting may vote in person regardless of whether a proxy has
been previously given, but the mere presence (without notifying
the Secretary) of a stockholder at the special meeting will not
constitute revocation of a previously given proxy.
Written notices of revocation and other communications about
revoking your proxy should be addressed to:
Countrywide Financial Corporation
4500 Park Granada
MS: CH-11B
Calabasas, California 91302
Secretary
If your shares are held in street name by a bank or
broker, you should follow the instructions of your bank or
broker regarding the revocation of proxies.
All shares represented by valid proxies that we receive through
this solicitation, and that are not revoked, will be voted in
accordance with your instructions on the proxy card. If you make
no specification on your proxy card as to how you want your
shares voted before signing and returning it, your proxy will be
voted FOR approval and adoption of the merger
agreement and FOR approval of the proposal to
adjourn the special meeting, if necessary, to solicit additional
proxies in the event that there are not sufficient votes at the
time of the special meeting to approve and adopt the merger
agreement. According to the Countrywide amended and restated
bylaws, business to be conducted at a special meeting of
stockholders may only be brought before the meeting by means of
Countrywides notice of the meeting or otherwise properly
brought
21
before the meeting by or at the direction of the Countrywide
board of directors. No matters other than the matters described
in this document are anticipated to be presented for action at
the special meeting or at any adjournment or postponement of the
special meeting.
Countrywide stockholders should not send Countrywide
stock certificates with their proxy cards. After the merger is
completed, holders of Countrywide common stock will be mailed a
transmittal form with instructions on how to exchange their
Countrywide stock certificates for the merger consideration.
Solicitation
of Proxies
Countrywide will bear the entire cost of soliciting proxies from
you. In addition to solicitation of proxies by mail, Countrywide
will request that banks, brokers, and other record holders send
proxies and proxy material to the beneficial owners of
Countrywide common stock and secure their voting instructions.
Countrywide will reimburse the record holders for their
reasonable expenses in taking those actions. Countrywide has
also made arrangements with Innisfree M&A Incorporated to
assist it in soliciting proxies and has agreed to pay them
$100,000 plus an additional $50,000 if the merger agreement is
adopted and approved by Countrywide stockholders, plus
reasonable expenses for these services. If necessary,
Countrywide may use several of its regular employees, who will
not be specially compensated, to solicit proxies from
Countrywide stockholders, either personally or by telephone,
facsimile, letter or other electronic means.
Record
Date
The close of business on April 28, 2008 has been fixed as
the record date for determining the Countrywide stockholders
entitled to receive notice of and to vote at the special
meeting. At that time, 583,343,240 shares of Countrywide
common stock were outstanding, held by approximately 1,847
holders of record.
Voting
Rights and Vote Required
The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of Countrywide common stock
entitled to vote is necessary to constitute a quorum at the
special meeting. Abstentions will be counted for the purpose of
determining whether a quorum is present.
Approval and adoption of the merger agreement requires the
affirmative vote of the holders of a majority of the outstanding
shares of Countrywide common stock entitled to vote at the
special meeting. You are entitled to one vote for each share of
Countrywide common stock you held as of the record date. Holders
of shares of Countrywide preferred stock are not entitled to
vote on the merger or otherwise at the special meeting.
Because the affirmative vote of the holders of a majority of the
outstanding shares of Countrywide common stock entitled to vote
at the special meeting is needed for us to proceed with the
merger, the failure to vote by proxy or in person will have the
same effect as a vote against the merger. Abstentions also will
have the same effect as a vote against the merger.
Accordingly, the Countrywide board of directors urges
Countrywide stockholders to promptly vote by completing, dating,
and signing the accompanying proxy card and to return it
promptly in the enclosed postage-paid envelope, or, if you hold
your stock in street name through a bank or broker,
by following the voting instructions of your bank or broker.
Approval of the proposal to adjourn or postpone the meeting, if
necessary, for the purpose of soliciting additional proxies
requires the affirmative vote of the holders of a majority of
the shares entitled to vote and present in person or by proxy,
even if less than a quorum. Because approval of this proposal
requires the affirmative vote of a majority of shares present in
person or by proxy, abstentions will have the same effect as a
vote against this proposal.
Stockholders will vote at the meeting by ballot. Votes cast at
the meeting, in person or by proxy, will be tallied by
Countrywides transfer agent.
22
As of the record date:
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|
|
|
|
Directors and executive officers of Countrywide, and their
affiliates, had the right to vote 2,758,909 shares of
Countrywide common stock, or 0.5% of the outstanding Countrywide
common stock at that date. We currently expect that each of
these individuals will vote their shares of Countrywide common
stock in favor of the proposals to be presented at the special
meeting.
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Directors and executive officers of Bank of America, and their
affiliates, did not have the right to vote any shares of
Countrywide common stock.
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Recommendation
of the Countrywide Board of Directors
The Countrywide board of directors has unanimously approved and
adopted the merger agreement and the transactions it
contemplates, including the merger. The Countrywide board of
directors determined that the merger, merger agreement and the
transactions contemplated by the merger agreement are advisable
and in the best interests of Countrywide and its stockholders
and unanimously recommends that you vote FOR
approval and adoption of the merger agreement. See The
Merger Countrywides Reasons for the Merger;
Recommendation of the Countrywide Board of Directors on
page 29 for a more detailed discussion of the Countrywide
board of directors recommendation.
Attending
the Meeting
All holders of Countrywide common stock, including stockholders
of record and stockholders who hold their shares through banks,
brokers, nominees or any other holder of record, are invited to
attend the special meeting. Stockholders of record can vote in
person at the special meeting. If you are not a stockholder of
record, you must obtain a proxy executed in your favor, from the
record holder of your shares, such as a broker, bank or other
nominee, to be able to vote in person at the special meeting. If
you plan to attend the special meeting, you must hold your
shares in your own name or have a letter from the record holder
of your shares confirming your ownership and you must bring a
form of personal photo identification with you in order to be
admitted. We reserve the right to refuse admittance to anyone
without proper proof of share ownership and without proper photo
identification.
23
INFORMATION
ABOUT THE COMPANIES
Bank of
America Corporation
Bank of America Corporation is a Delaware corporation, a bank
holding company and a financial holding company under
U.S. federal law. Bank of America is one of the
worlds largest financial institutions, serving individual
consumers, small and middle market businesses and large
corporations with a full range of banking, investing, asset
management and other financial and risk-management products and
services. The company provides unmatched convenience in the
United States, serving more than 59 million consumer and
small business relationships with more than 6,100 retail banking
offices, nearly 19,000 ATMs and award-winning online banking
with more than 23 million active users. Bank of America is
the No. 1 overall Small Business Administration (SBA)
lender in the United States and the No. 1 SBA lender to
minority-owned small businesses. The company serves clients in
175 countries and has relationships with 99 percent of the
U.S. Fortune 500 companies and 80 percent of the
Fortune Global 500. Bank of America Corporation common stock
(NYSE: BAC) is listed on the New York Stock Exchange. As of
December 31, 2007, Bank of America had total consolidated
assets of approximately $1.7 trillion, total consolidated
deposits of approximately $805 billion and total
consolidated stockholders equity of approximately
$147 billion. The principal executive offices of Bank of
America are located in the Bank of America Corporate Center,
100 N. Tryon Street, Charlotte, North Carolina 28255,
and its telephone number is
(704) 386-5681.
Additional information about Bank of America and its
subsidiaries is included in documents incorporated by reference
in this document. See Where You Can Find More
Information on page 81.
Red Oak
Merger Corporation
Red Oak Merger Corporation, a wholly-owned subsidiary of Bank of
America, was formed solely for the purpose of consummating the
merger. Red Oak Merger Corporation has not carried on any
activities to date, except for activities incidental to its
formation and activities undertaken in connection with the
transactions contemplated by the merger agreement. The principal
executive offices of Red Oak Merger Corporation are located in
the Bank of America Corporate Center, 100 N. Tryon
Street, Charlotte, North Carolina, and its telephone number is
(704) 386-5681.
Countrywide
Financial Corporation
Countrywide Financial Corporation is a Delaware corporation and
holding company. Founded in 1969, Countrywide is a diversified
financial services provider, which, through its subsidiaries, is
engaged in mortgage lending and other real estate
finance-related businesses, including mortgage banking, banking
and mortgage warehouse lending, dealing in securities and
insurance underwriting. Through this family of companies,
Countrywide originates, purchases, securitizes, sells, and
services residential and commercial loans; provides loan closing
services such as credit reports, appraisals and flood
determinations; offers banking services which include depository
and home loan products; conducts fixed income securities
underwriting and trading activities; provides property, life and
casualty insurance; and manages a captive mortgage reinsurance
company. Countrywide common stock (NYSE: CFC) is listed on the
New York Stock Exchange and is a member of the S&P 500,
Forbes 2000, and Fortune 500. The principal executive offices of
Countrywide are located at 4500 Park Granada, Calabasas,
California 91302, and its telephone number is
(818) 225-3000.
Additional information about Countrywide and its subsidiaries is
included in documents incorporated by reference in this
document. See Where You Can Find More Information on
page 81.
24
THE
MERGER
Background
of the Merger
Countrywides board of directors has from time to time in
recent years engaged with senior management in strategic
reviews, and considered ways to enhance the companys
performance and prospects in light of market, economic,
regulatory, competitive and other factors. These reviews have
included consideration of potential transactions with other
financial institutions that would further its strategic
objectives, and the potential benefits and risks of those
transactions.
Countrywide and Bank of America have for many years had a number
of significant commercial relationships, including the provision
by Bank of America of financing to Countrywide in the ordinary
course of business. As a result of these relationships, the
companies and their senior managements have become well known to
one another. Discussions between Countrywide and Bank of
Americas senior managements in recent years have from time
to time included informal discussion of the possible strategic
advantages of potential strategic transactions and joint
ventures. Each of these discussions, however, remained
exploratory and none led to any transaction.
During 2007, softening residential housing markets, increasing
delinquency and default rates and increasingly volatile and
constrained secondary credit markets began affecting the
mortgage industry generally. Although these issues first
appeared in the subprime mortgage market, the issues grew in
significance and expanded into the prime mortgage market, with
attendant impacts on Countrywides operations, credit costs
and portfolio of retained mortgage loans and related interests.
One of the significant negative developments for Countrywide in
early August was the disruption in the market for the sale of
non-conforming loans (i.e., those that cannot be
sold to housing-related government agencies and government
sponsored entities such as Fannie Mae and Freddie Mac) and
related mortgage-backed securities. As a result of this
development and in light of the ensuing severe downturn in the
short term and unsecured lending markets, Countrywides
board of directors began considering a range of options to
enhance its liquidity and capital positions, and to address the
broader downturn in the mortgage banking environment and the
impact on Countrywides business and operations. Given the
roles of capital and liquidity as key drivers of the mortgage
banking business, and given the increased capital needs
resulting from the companys need to retain non-conforming
loans on its balance sheet as a result of the severe disruptions
in the secondary mortgage market, Countrywides board and
management determined to address liquidity and capital concerns
promptly. As part of its efforts to help address the capital and
liquidity concerns and maintain the confidence of
Countrywides stockholders, business counterparties,
employees, rating agencies and regulators, the company took a
number of steps in August 2007, including drawing on a
previously unutilized $11.5 billion credit facility,
obtaining a $2 billion investment by Bank of America in the
form of a non-voting convertible preferred security, and
accelerating the migration of its mortgage production operations
into Countrywide Bank, FSB.
Countrywides board of directors continued to meet
frequently with senior management after its August actions, and
the board and its management worked with their advisors, to
consider the various implications of the economic and market
environment and their impact on Countrywides business,
assets and liabilities, competitive position, legal and
regulatory status, and prospects, among other things. During
this time the Countrywide board of directors determined to take
and began implementing several significant additional strategic
actions to address continued constrained credit conditions and
declining asset values and the resulting challenging operating
conditions for the company. Among these additional actions were
the modification of Countrywides product guidelines in
view of the limited opportunities to sell mortgages (including
ceasing originations of subprime loans not eligible for sale or
securitization under programs supported by government agencies
and government sponsored entities) and workforce reductions.
Countrywides board of directors and senior management
continued to monitor the challenging economic, competitive,
legal and regulatory conditions in the mortgage industry
generally and at Countrywide specifically. The board and
management, together with their advisors, also worked during
this period to evaluate additional possible operational and
other strategic and financial measures to mitigate the various
challenges and risks facing Countrywide, including the
possibility of further capital raising
and/or
possible strategic transactions with other financial
institutions. Other possible transactions considered during this
period included the possibility of an investment
25
by a financial buyer such as a private equity firm, although the
Countrywide board of directors did not consider this to be a
viable option as it would not resolve Countrywides capital
or liquidity concerns.
Beginning in November 2007, with the preliminary approval of the
Countrywide board of directors, Countrywide and Bank of America
agreed that it would be worthwhile to engage in discussions
regarding a potential transaction, including a potential merger,
and the parties entered into a confidentiality agreement.
Thereafter, representatives of Countrywide and Bank of America
commenced discussions regarding their companies and market
conditions, the complementary aspects of their businesses and
the potential benefits of a strategic combination of Countrywide
and Bank of America, including the general potential for cost
and revenue related synergies, and Bank of America employees and
advisors commenced extensive due diligence investigations of
Countrywide, its business, operations, financial condition and
prospects. Based on these discussions Countrywide and Bank of
America began initial discussions regarding potential indicative
terms for a transaction. These discussions remained preliminary.
Countrywide also continued during this period to consider and
work with its advisors regarding other alternatives, including
the potential to conduct further private or public capital
raising activities or financial or balance sheet restructuring
initiatives. No company other than Bank of America performed any
due diligence investigation of Countrywide with respect to a
potential merger during this time period. At a meeting on
December 28, 2007, as a framework to discuss a potential
transaction, a Bank of America representative provided
Countrywide representatives with a preliminary illustrative
transaction scenario reflecting a 10% premium to
Countrywides December 26, 2007 closing share price,
which implied an exchange ratio of 0.2353 shares of Bank of
America common stock per outstanding share of Countrywide common
stock, or $9.96 per share. Later at that same meeting, the
Countrywide representatives informed the Bank of America
representatives for the first time that Countrywide had just
learned that continuing deterioration in real estate market
conditions had triggered certain provisions in various home
equity loan securitizations that could have a negative impact on
Countrywides financial condition. In response, the Bank of
America representatives indicated that Bank of America needed to
undertake due diligence on this issue before proceeding further.
Senior management of Countrywide regularly apprised the board of
directors of the discussions that were taking place with Bank of
America, as well as the impact on Countrywide and its business,
operations and financial condition of continued challenging
market and economic conditions. In early January, Countrywide
management discussed with Bank of America and reported to the
Countrywide board of directors that its general business
conditions were coming under continued pressure as a result of
various factors, including continued worsening credit
performance, continued difficulty raising funds at acceptable
costs, origination volume declines, declining residential real
estate prices, and anticipated adverse movements in credit costs
and in mortgage loan and related asset valuations, which were
putting increasing pressure on Countrywides financial
condition and would, in managements estimation, likely
result in a loss for the fourth quarter of 2007. Countrywide
management reported a continued worsening of the legal,
political and regulatory environment for the mortgage banking
industry generally and Countrywide as a leading
participant in the industry specifically. It was
also noted that market perceptions regarding Countrywides
capital, liquidity and business prospects were exacerbating the
stress on the companys business and operations by making
it more difficult to engage counterparties in important ordinary
course transactions on reasonable terms, such as financing and
hedging transactions. These adverse conditions also raised the
potential for negative action by Countrywides regulators
and the rating agencies, including the possibility of a
downgrade to below an investment grade rating if Countrywide
were to report a loss for the fourth quarter of 2007. In
addition, the companys stock continued to decline in
December and January, which increased the cost and the potential
dilutive effect on current stockholders of raising additional
equity capital, thereby making further capital raising
activities significantly less attractive as a potential
strategic option for Countrywide.
At a meeting of the Countrywide board of directors held on
January 4, 2008, representatives of Countrywide senior
management and the boards advisors discussed the
conversations between senior management of Countrywide and Bank
of America to bring the full board of directors up to date on
those discussions and other recent developments at Countrywide,
including those discussed in the preceding paragraph. There was
a strong consensus among the Countrywide directors that pursuing
a transaction with Bank of America would be an attractive
strategic and financial transaction for Countrywide in light of
the
26
deteriorating conditions and the increasingly severe business,
operating, legal, political and regulatory environment in which
Countrywide was operating, and it was noted that a transaction
with Bank of America would help to provide stability to
Countrywide.
At the January 4 meeting, representatives of Sandler
ONeill, which the board of directors of Countrywide had
previously retained as financial advisor to the board in
connection with its consideration of strategic alternatives,
discussed financial matters relating to Countrywide, the general
and mortgage banking environment, the preliminary illustrative
transaction scenario presented by Bank of America at the
December 28, 2007 meeting, and the boards future
consideration of a potential transaction, representatives of
Wachtell, Lipton, Rosen & Katz discussed the
boards legal duties in connection with any such
consideration of a possible transaction, and representatives of
Promontory Financial Group, Countrywides regulatory
consultants, reported on the status of regulatory matters.
Included in the discussion of regulatory matters was a report on
the potential impact of the issues and challenges facing the
mortgage industry generally and Countrywide specifically and on
the views of the federal banking regulators, including the
potential for regulatory actions if the regulators were to
determine that conditions generally or at Countrywide
specifically warranted intervention. The board of directors
discussed that the risk of adverse regulatory action was
increasing as credit market disruptions continued and worsened.
Also discussed generally was the possible reaction of federal
regulators to a transaction with Bank of America, the regulatory
approvals required in connection with a potential transaction
(as described under Regulatory
Approvals) and the likelihood such approvals would be
obtained. Following questions and discussions among the
participants at the meeting, the Countrywide board of directors
authorized and directed Countrywides senior management and
outside legal and financial advisors to continue discussions
with Bank of America and work towards a transaction that could
be presented to the board of directors for its review and
consideration.
Following this meeting and continuing through the following
week, Bank of America and Countrywide and their outside counsel
began discussions and the drafting of a merger agreement and
related transaction documents. In addition, during this period,
Countrywide performed customary reverse due
diligence of Bank of America. In connection with this due
diligence, Bank of America made available to Countrywide and its
financial advisors information regarding Bank of Americas
expectations for its fourth quarter 2007 results.
Representatives of Countrywide had advised Bank of America by
this time of the nature of Countrywides potential exposure
relating to certain home equity loan securitizations, and the
parties continued discussions on the material terms of a
proposed transaction. During the course of these discussions,
and as discussed below in more detail, Countrywide experienced
rapidly declining business and operating conditions, as well as
significant trading price declines as rumors of a rating agency
downgrade and Countrywides possible bankruptcy circulated
in the market. As described below, these rumors and
Countrywides declining stock price significantly
exacerbated already challenging conditions and significantly
increased the likelihood that any capital-raising transaction
would be on terms that would be highly unfavorable to
Countrywides existing stockholders. On January 8,
during a call initiated by Countrywide, representatives of Bank
of America indicated a willingness to work toward entering into
a transaction in which Bank of America would combine with
Countrywide for consideration of 0.1822 shares of Bank of
America common stock per outstanding share of Countrywide common
stock, which, while less than in the prior preliminary
discussions in December, reflected the significant declines in
operating conditions in the mortgage industry generally and for
Countrywide specifically (including the home equity loan
securitization issue) and the results of Bank of Americas
ongoing due diligence. Countrywide and Bank of America
thereafter continued discussions of the material terms of a
potential transaction, and during the course of such discussions
Bank of America reiterated that the 0.1822 exchange ratio was a
firm price and that Bank of America was prepared to pursue a
merger on that basis. Following discussions that continued
through January 8 and 9, 2008, Bank of America and
Countrywide ultimately agreed to an all-stock transaction with a
0.1822 exchange ratio, among other significant terms. At this
time the parties determined to hold board meetings on
January 10, 2008 for each partys board to consider
the approval of such a transaction.
On the morning of January 10, 2008, the board of directors
of Bank of America met and approved the proposed transaction.
27
Also on January 10, 2008, the board of directors of
Countrywide met to consider the proposed transaction. Management
discussed with the Countrywide board of directors the continued
challenging operating environment, noting that since the prior
board meeting on January 4 the conditions discussed with the
board had continued to deteriorate even further. Among other
things, the board discussed the further and precipitous drop in
Countrywides stock price that had occurred earlier in the
week following bankruptcy rumors and other adverse publicity.
The new market rumors and the falling stock price further
increased concerns among counterparties of Countrywide, which in
turn resulted in further limitations in important trading
related credit extensions, threatened the retention of retail
and other deposits at Countrywide Bank, and also further
diminished the attractiveness of equity capital raising
activities as a potential strategic option. Management then
reviewed with the board the background of discussions with Bank
of America and the progress of negotiations, and reported on
Countrywides due diligence investigations of Bank of
America. While management had previously anticipated that the
fourth quarter of 2007 would be profitable, it had become
apparent during the days preceding the meeting that due to
changed market conditions adjustments relating to credit-related
valuations would be necessary and that as a result the company
would most likely experience a loss for the quarter. The board
discussed that a credit downgrade would be likely in the event
the company reported a fourth quarter loss and that additional
adverse consequences, including adverse regulatory actions,
could follow. The board also discussed the possibility that such
consequences would further exacerbate the stress on
Countrywides business and operations and the adverse
market perceptions about its capital, liquidity and business
prospects.
On or about January 8, 2008, Goldman Sachs was retained as
financial advisor to Countrywide in connection with the proposed
merger, having acted as its financial advisor in connection with
the August 2007 Bank of America investment and having continued
to work with the company thereafter with respect to potential
strategic and financial considerations. Goldman Sachs and
Sandler ONeill reviewed with the Countrywide board of
directors the financial terms of the proposed transaction, and
financial information regarding Bank of America, Countrywide and
the transaction. In connection with the deliberation by the
Countrywide board of directors, each of Goldman Sachs and
Sandler ONeill rendered to the Countrywide board of
directors its oral opinion (subsequently confirmed in writing),
as described under Opinions of
Countrywides Financial Advisors, that, as of the
date of their opinions, and based upon and subject to the
factors and assumptions set forth in their opinions, the
exchange ratio of 0.1822 shares of Bank of America common
stock to be received in respect of each share of Countrywide
common stock pursuant to the merger agreement was fair from a
financial point of view to Countrywides stockholders.
Representatives of Wachtell, Lipton discussed with the
Countrywide board of directors the legal standards applicable to
its decisions and actions with respect to its evaluation of the
proposed transaction, and reviewed the legal terms of the merger
agreement and the related agreements. Representatives of
Wachtell, Lipton also discussed with the Countrywide board of
directors the stockholder and regulatory approvals that would be
required to complete the transaction, and the possible timeframe
for receiving such approvals, and reviewed with the board of
directors a set of draft resolutions relating to the proposed
transaction. In addition, representatives of Promontory
Financial Group provided an updated report on the status of
regulatory matters that had been discussed at the January 4
meeting.
Following these discussions, and extensive review and discussion
among the members of the Countrywide board of directors,
including consideration of the factors described under
Countrywides Reasons for the Merger;
Recommendation of the Countrywide Board of Directors, the
Countrywide board of directors unanimously determined that the
merger and the other transactions contemplated by the merger
agreement are advisable and in the best interests of Countrywide
and its stockholders, and the Countrywide directors voted
unanimously to approve the merger and to approve and adopt the
merger agreement.
During the remainder of the day on January 10, 2008, the
parties and their respective legal counsel worked to finalize
the merger agreement and related materials. Thereafter the
parties executed the merger agreement. The transaction was
announced on the morning of January 11, 2008.
28
Countrywides
Reasons for the Merger; Recommendation of the Countrywide Board
of Directors
The Countrywide board of directors consulted with Countrywide
management, as well as its legal and financial advisors, in its
evaluation of the merger. In reaching its conclusion to approve
and adopt the merger agreement and in determining that the
merger is advisable and in the best interests of Countrywide and
its stockholders, the Countrywide board considered a number of
factors, including the following material factors:
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its understanding of Countrywides business, operations,
financial condition, earnings, and prospects as discussed above
under Background of the Merger and below under
Opinions of Countrywides Financial Advisors
(including factors such as worsening credit performance,
continued funding limitations, declining mortgage originations,
residential real estate price pressures, adverse movements in
mortgage loan and related asset valuations), and potential
strategic alternatives, and of Bank of Americas business,
operations, financial condition, earnings and prospects;
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the current and prospective environment in which Countrywide
operates, which reflects challenging and uncertain mortgage
industry conditions that the board of directors expected to
continue in the near future, including:
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highly constrained credit markets, including in particular
greatly diminished availability of liquidity in the secondary
mortgage markets;
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increased level and rate of delinquency and default rates for
mortgage loans;
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lack of readily available sources of secured and unsecured
financing and resulting liquidity at historical and reasonable
cost levels;
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continued softening real estate markets and generally declining
residential real estate values;
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lower levels of mortgage origination volumes;
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uncertain and volatile valuations of mortgage loans and related
assets; and
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generally uncertain national and local economic conditions;
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as well as the competitive environment for financial
institutions generally, the trend toward consolidation in the
financial services industry generally and the consumer finance
and the mortgage industry in particular, and the potential
effects of these factors on Countrywide and the potential
effects of these and other factors on Countrywide relative to
Bank of America;
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the relative strength of Bank of Americas (and the future
combined companys) capital position, funding capabilities
and liquidity as compared to Countrywide, and the ability of the
substantially larger and more diversified Bank of America (and
combined company) to weather continued economic and mortgage
market weakness and further crises that might develop;
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the all stock and fixed exchange ratio aspects of the merger
consideration, which would allow Countrywide stockholders to
participate in a portion of any improvement in the Countrywide
business and synergies resulting from the merger, and the value
to Countrywide stockholders represented by that consideration;
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the reports to Countrywides board of directors concerning
the operations, financial condition and prospects of Bank of
America and the expected financial impact of the merger on the
combined company, including pro forma assets, earnings, deposits
and regulatory capital ratios;
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the fact that Bank of America is one of the largest financial
institutions in the world, and the board of directors
belief that its substantial capital resources will provide
strong support for Countrywides existing operations, as
well as possible future growth;
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the fact that the complementary nature of the respective
businesses, customer bases, products and skills of Countrywide
and Bank of America are expected to result in opportunities to
obtain synergies;
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the scale, scope, strength and diversity of operations, product
lines and delivery systems that could be achieved by combining
Countrywide and Bank of America;
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the need to obtain stockholder and regulatory approvals to
complete the merger, and the likelihood that such approvals will
be obtained;
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the Countrywide boards understanding of Bank of
Americas prior track record and expertise in successfully
completing and integrating substantial acquisitions;
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the historical and current market prices of Bank of America
common stock and Countrywide common stock as well as comparative
valuation analyses for the two companies;
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the terms of the merger agreement, including the provisions
imposing restrictions on Countrywide from soliciting or pursuing
alternative transactions and the termination fee of
$160 million that Countrywide would be required to pay if
the transaction agreement were terminated under certain
circumstances, which could limit the willingness of a third
party to propose a competing business combination transaction
with Countrywide;
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the fact that Bank of America has the right, pursuant to the
August 2007 $2 billion preferred stock investment agreement
with Countrywide, to match the terms of any third party proposal
to acquire Countrywide, which could limit the willingness of a
third party to propose a competing business combination
transaction with Countrywide;
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the expected tax treatment of the merger and of the receipt by
Countrywide stockholders of the merger consideration;
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the financial presentation of Goldman Sachs and Sandler
ONeill, including their respective opinions dated
January 10, 2008, to the Countrywide board of directors to
the effect that, as of the date of the opinions, and based upon
and subject to the factors and assumptions set forth in the
opinions, the exchange ratio of 0.1822 shares of Bank of
America common stock to be received in respect of each share of
Countrywide common stock pursuant to the merger agreement was
fair from a financial point of view to Countrywides
stockholders. See Opinions of
Countrywides Financial Advisors. As noted in
Risk Factors The Opinions obtained by
Countrywide from its financial advisors will not reflect changes
in circumstances between signing the merger agreement and the
merger, Countrywide does not currently anticipate asking
either of its financial advisors to update its opinion; however,
the Countrywide board of directors recommendation that
Countrywide stockholders vote FOR approval and
adoption of the merger agreement is as of the date of this
document;
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the potential impact of the transaction on Countrywide employees
and other key constituencies;
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the challenges of integrating Countrywides businesses,
operations and workforce with those of Bank of America, and the
risks associated with achieving anticipated cost savings and
other synergies; and
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the fact that Countrywide directors and executive officers have
interests in the merger that are in addition to their interests
as Countrywide stockholders. See
Countrywides Directors and Officers Have
Financial Interests in the Merger.
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The foregoing discussion of the information and factors
considered by the Countrywide board of directors is not
exhaustive, but includes the material factors considered by the
Countrywide board of directors. In view of the wide variety of
factors considered by the Countrywide board of directors in
connection with its evaluation of the merger and the complexity
of these matters, the Countrywide board of directors did not
consider it practical to, nor did it attempt to, quantify, rank
or otherwise assign relative weights to the specific factors
that it considered in reaching its decision. In reaching its
decision to approve and adopt the merger agreement and recommend
its approval and adoption by Countrywide stockholders, the
Countrywide board of directors was aware that the merger
consideration per share in the transaction was substantially
less than the net book value per share of Countrywide common
stock as of September 30, 2007. In light of all of the
other factors considered by the board and described under
Background of the Merger and above in
this section, in particular the challenging and uncertain
mortgage industry conditions that the Countrywide board of
30
directors expected to continue, and the resulting uncertain and
volatile valuations of mortgage loans and related assets and
expected fourth quarter losses, as well as the resurgence of
rumors concerning a potential bankruptcy filing or ratings
downgrade and their potentially debilitating effects on the
ongoing business, the board did not consider net book value to
be a material indicator of the value of Countrywide common stock
in the current context. The Countrywide board of directors
considered the opinions and analyses of Goldman Sachs and
Sandler ONeill taken as a whole, and in doing so was aware
that, for example, with respect to the precedent transactions
analysis described under Opinion of
Countrywides Financial Advisors Precedent
Transactions Analysis, certain of the multiples and ratios
calculated for Countrywide and the proposed merger did not fall
within the ranges derived for the selected transactions, and
determined that the Goldman Sachs and Sandler ONeill
opinions and analyses overall supported its decision to approve
and adopt the merger agreement and recommend the merger to the
Countrywide stockholders. The Countrywide board of directors
evaluated the factors described above, including by asking
questions of Countrywide management and Countrywide legal and
financial advisors, and reached consensus that the merger was
advisable and in the best interests of Countrywide and
Countrywide stockholders. In considering the factors described
above, individual members of the Countrywide board of directors
may have given different weights to different factors.
The Countrywide board of directors determined that the merger,
the merger agreement and the transactions contemplated by the
merger agreement are advisable and in the best interests of
Countrywide and its stockholders. Accordingly, the Countrywide
board of directors unanimously approved the merger and approved
and adopted the merger agreement and unanimously recommends that
Countrywide stockholders vote FOR approval and
adoption of the merger agreement.
Opinions
of Countrywides Financial Advisors
Goldman Sachs. On January 10, 2008,
Goldman Sachs rendered its opinion to the board of directors of
Countrywide that as of the date of the opinion, and based upon
and subject to the factors and assumptions set forth in the
opinion, the exchange ratio of 0.1822 shares of Bank of
America common stock to be received in respect of each share of
Countrywide common stock pursuant to the merger agreement was
fair from a financial point of view to the holders of
Countrywide common stock.
The full text of the written opinion of Goldman Sachs, dated
January 10, 2008, which sets forth the assumptions made,
procedures followed, matters considered and limitations on the
review undertaken in connection with the opinion, is attached to
this document as Appendix B. Goldman Sachs provided
its opinion for the information and assistance of the
Countrywide board of directors in connection with its
consideration of the transaction contemplated by the merger
agreement. Goldman Sachs opinion is not a recommendation
as to how any holder of Countrywide common stock should vote
with respect to the merger or any other matter.
In connection with rendering the opinion described above and
performing its related financial analyses, Goldman Sachs
reviewed, among other things:
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the merger agreement;
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annual reports to stockholders and annual reports on Form
10-K of
Countrywide and Bank of America for the five years ended
December 31, 2006;
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certain interim reports to stockholders and Quarterly Reports on
Form 10-Q
of Countrywide and Bank of America;
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certain other communications from Countrywide and Bank of
America to their respective stockholders;
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certain publicly available research analyst reports for
Countrywide and Bank of America; and
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certain internal financial analyses and forecasts regarding
Countrywide prepared by its management, including certain
projected cash flows, including from equity issuances, and
certain analyses of Countrywides sources of liquidity and
its capital adequacy.
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Goldman Sachs held discussions with members of the senior
managements of Countrywide and Bank of America regarding their
assessment of the strategic rationale for, and the potential
benefits of, the transaction contemplated by the merger
agreement. Goldman Sachs also held discussions with members of
the senior management of Countrywide regarding the past and
current business operations, financial condition and future
prospects of Countrywide, including their views of the risks and
uncertainties of achieving future results. In that regard,
Goldman Sachs was informed by members of the senior management
of Countrywide that Countrywide had been negatively affected by
and continued to have exposure to a number of risks, including
deteriorating credit performance of its portfolio assets,
significant reductions in the scope of its capital markets
business and declining values of portions of its loan and
residual interest portfolios. Countrywide advised Goldman Sachs
that these exposures had negatively affected recent financial
results and that there was a material risk that they would
impact Countrywide in the future, which could lead to further
ratings downgrades or regulatory actions, or both, which would
substantially impair the operations of Countrywide. In addition,
members of the senior management of Countrywide advised Goldman
Sachs that Countrywide had limited access to the capital markets
and that a failure to raise additional capital in the amounts
and at the prices assumed by the forecasts for Countrywide would
have a material negative effect on the ability of Countrywide to
achieve the forecasts as contemplated.
The management of Bank of America did not make available to
Goldman Sachs its forecasts of the future financial performance
of Bank of America. With the consent of Countrywide, Goldman
Sachs review of Bank of America was limited to
publicly-available information and a discussion with the senior
management of Bank of America regarding the past and current
business operations, financial condition and future prospects of
Bank of America, which included a discussion of publicly
available estimates issued by certain research analysts with
respect to Bank of America.
In addition, Goldman Sachs reviewed the reported price and
trading activity for the Countrywide common stock and Bank of
America common stock, compared certain financial and stock
market information for Countrywide and Bank of America with
similar information for certain other companies the securities
of which are publicly-traded, reviewed the financial terms of
certain recent business combinations in the banking industry
specifically and in other industries generally and performed
such other studies and analyses, and considered such other
factors, as it considered appropriate.
Goldman Sachs relied upon and assumed, without assuming any
responsibility for independent verification, the accuracy and
completeness of all of the financial, legal, regulatory, tax,
accounting and other information provided to, discussed with or
reviewed by it. Goldman Sachs did not review individual credit
files, nor did it make an independent evaluation or appraisal of
the assets and liabilities (including any derivative claims
brought on Countrywides behalf against its officers or
directors, or any contingent, derivative or off-balance-sheet
assets and liabilities) of Countrywide, Bank of America or any
of their respective subsidiaries, and Goldman Sachs was not
furnished with any such evaluation or appraisal. Goldman Sachs
is not an expert in the evaluation of loan and lease portfolios
for purposes of assessing the adequacy of the allowances for
losses with respect thereto and, accordingly, with the consent
of Countrywide, Goldman Sachs assumed, with respect to Bank of
America, that such allowances are in the aggregate adequate to
cover such losses. Goldman Sachs also assumed that all
governmental, regulatory or other consents and approvals
necessary for the consummation of the merger will be obtained
without any adverse effect on Countrywide or Bank of America or
on the expected benefits of the transaction contemplated by the
merger agreement in any way meaningful to its analysis. Goldman
Sachs opinion does not address any legal, regulatory, tax
or accounting matters.
Goldman Sachs opinion does not address the underlying
business decision of Countrywide to engage in the transaction
contemplated by the merger agreement, or the relative merits of
the transaction contemplated by the merger agreement as compared
to any strategic alternatives that may be available to
Countrywide. Goldman Sachs was not requested to solicit, and did
not solicit, interest from other parties with respect to an
acquisition of, or other business combination with, Countrywide
or any other alternative transaction. Goldman Sachs noted that,
pursuant to the terms of the private placement of
Countrywides 7.25% Series B Non-voting Convertible
Preferred Stock to Bank of America in August 2007, Bank of
America has the right to match third party proposals to acquire
Countrywide. Goldman Sachs opinion addresses only the
fairness from a financial
32
point of view, as of the date of the opinion, of the exchange
ratio pursuant to the merger agreement. Goldman Sachs did not
express any view on, and its opinion does not address, any other
term or aspect of the merger agreement or the transaction
contemplated by the merger agreement, including, without
limitation, the fairness of the transaction contemplated by the
merger agreement to, or any consideration received in connection
therewith by, the holders of any other class of securities,
creditors, or other constituencies of Countrywide or Bank of
America, nor as to the fairness of the amount or nature of any
compensation to be paid or payable to any of the officers,
directors or employees of Countrywide or Bank of America, or
class of such persons in connection with the transaction
contemplated by the merger agreement, whether relative to the
exchange ratio pursuant to the merger agreement or otherwise. In
addition, Goldman Sachs did not express any opinion as to the
prices at which shares of Bank of America common stock will
trade at any time. Goldman Sachs opinion is necessarily
based on economic, monetary, market and other conditions as in
effect on, and the information made available to it as of, the
date of the opinion, including the recent dislocation in the
mortgage market in particular and credit markets generally and
the related uncertainty and risk regarding the extent and
duration of this dislocation. Goldman Sachs assumed no
responsibility for updating, revising or reaffirming its opinion
based on circumstances, developments or events occurring after
the date of its opinion. Goldman Sachs opinion was
approved by a fairness committee of Goldman Sachs.
Goldman Sachs and its affiliates are engaged in investment
banking and financial advisory services, securities trading,
investment management, principal investment, financial planning,
benefits counseling, risk management, hedging, financing,
brokerage activities and other financial and non-financial
activities and services for various persons and entities. In the
ordinary course of these activities and services, Goldman Sachs
and its affiliates may at any time make or hold long or short
positions and investments, as well as actively trade or effect
transactions, in the equity, debt and other securities (or
related derivative securities) and financial instruments
(including bank loans and other obligations) of Countrywide,
Bank of America and any of their respective affiliates or any
currency or commodity that may be involved in the transaction
contemplated by the merger agreement for their own account and
for the accounts of their customers.
Goldman Sachs is acting as financial advisor to Countrywide in
connection with the transaction contemplated by the merger
agreement. In addition, Goldman Sachs has provided, and is
currently providing, certain investment banking and other
financial services to Countrywide and its affiliates, including
having acted as dealer in various of Countrywides
unsecured and secured commercial paper programs, as lead or
joint bookrunner or co-manager with respect to multiple public
offerings of Countrywides Medium Term Notes and Global
Medium Term Notes, as financial advisor to Countrywide from May
2004 to May 2007, as co-manager with respect to a private
placement of Countrywides Subordinated Notes (aggregate
principal amount of $1,300,000,000) in November 2006, as
financial advisor with respect to a private placement of
Countrywides 7.25% Series B Non-voting Convertible
Preferred Stock (aggregate principal amount of $2,000,000,000)
to Bank of America in August 2007, and as a participant in
certain of Countrywides commercial paper backup facilities
which were drawn on August 16, 2007 (aggregate principal
amount of $11,500,000,000, of which $400,000,000 was funded by
one of Goldman Sachs affiliates). During the past two
years, Goldman Sachs and its affiliates have received aggregate
fees from Countrywide and its affiliates for services unrelated
to the transaction of approximately $7 million. Goldman
Sachs also acted as financial advisor to Bank of America in
connection with its merger with FleetBoston Financial
Corporation in April 2004. Goldman Sachs also may provide
investment banking and other financial services to Countrywide,
Bank of America and their respective affiliates in the future in
connection with which it may receive compensation. Affiliates of
Goldman Sachs also have co-invested with affiliates of Bank of
America from time to time and may do so in the future.
Countrywide selected Goldman Sachs as its financial advisor
because it is an internationally recognized investment banking
firm that has substantial experience in transactions similar to
the merger. Pursuant to a letter agreement, dated
January 10, 2008, Countrywide engaged Goldman Sachs to act
as its financial advisor in connection with the possible
transaction with Bank of America. Pursuant to this letter
agreement, Goldman Sachs is entitled to receive a fee of
$12,750,000, of which $3,000,000 became payable upon execution
of the merger agreement and the balance of which is contingent
upon consummation of the merger. Countrywide has also agreed to
reimburse Goldman Sachs for its reasonable expenses, including
attorneys fees and
33
disbursements, and to indemnify Goldman Sachs against various
liabilities, including certain liabilities under the federal
securities laws.
Sandler ONeill. Pursuant to a letter
agreement dated January 9, 2008, Countrywide engaged
Sandler ONeill to act as its financial advisor in
connection with a possible transaction with Bank of America.
Pursuant to this letter agreement, Sandler ONeill is
entitled to receive a fee of $12,250,000, of which $2,000,000
became payable upon execution of the merger agreement,
$1,000,000 became payable when Sandler ONeill delivered
its opinion to the Countrywide board of directors and the
balance of which is contingent upon consummation of the merger.
For the past two years, Sandler ONeill received an
aggregate of approximately $556,000 in fees for services
performed for Countrywide and its affiliates. Sandler
ONeill is a nationally recognized investment banking firm
whose principal business specialty is financial institutions. In
the ordinary course of its investment banking business, Sandler
ONeill is regularly engaged in the valuation of financial
institutions and their securities in connection with mergers and
acquisitions and other corporate transactions.
Sandler ONeill acted as financial advisor to Countrywide
in connection with the proposed merger and participated in
certain of the negotiations leading to the merger agreement. At
the January 10, 2008 meeting at which Countrywides
board considered and approved the merger agreement, Sandler
ONeill delivered to the board its oral opinion,
subsequently confirmed in writing that, as of such date, the
merger consideration was fair to Countrywides stockholders
from a financial point of view. The full text of Sandler
ONeills opinion is attached to this document as
Appendix C. The opinion outlines the procedures
followed, assumptions made, matters considered and
qualifications and limitations on the review undertaken by
Sandler ONeill in rendering its opinion. The description
of the opinion set forth below is qualified in its entirety by
reference to the opinion. Countrywide stockholders are urged to
read the entire opinion carefully in connection with their
consideration of the proposed merger.
Sandler ONeills opinion speaks only as of the date
of the opinion. The opinion is directed to Countrywides
board and speaks only to the fairness from a financial point of
view of the merger consideration to Countrywides
stockholders. It does not address the underlying business
decision of Countrywide to engage in the merger or any other
aspect of the merger and is not a recommendation to any
Countrywide stockholder as to how such stockholder should vote
at the special meeting with respect to the merger or any other
matter.
In connection with rendering its January 10, 2008 opinion,
Sandler ONeill reviewed and considered, among other things:
|
|
|
|
|
the merger agreement;
|
|
|
|
certain publicly available financial statements and other
historical financial information of Countrywide that Sandler
ONeill deemed relevant;
|
|
|
|
certain publicly available financial statements and other
historical financial information of Bank of America that Sandler
ONeill deemed relevant;
|
|
|
|
consensus earnings per share estimates for Countrywide for the
years ending December 31, 2007 and 2008 as published by
Institutional Brokerage Estimate Systems (IBES) and
reviewed with management of Countrywide;
|
|
|
|
internal financial projections for Countrywide for the years
ending December 31, 2007 through 2012 as prepared by and
discussed with senior management of Countrywide;
|
|
|
|
consensus earnings per share estimates for Bank of America for
the years ending December 31, 2007 and 2008 and an
estimated long-term growth rate as published by IBES and
reviewed with senior management of Bank of America;
|
|
|
|
the pro forma financial impact of the merger on Bank of America
based on assumptions relating to transaction expenses, purchase
accounting adjustments and cost savings as determined by the
senior management of Bank of America;
|
34
|
|
|
|
|
the publicly reported historical price and trading activity for
Countrywides and Bank of Americas common stock,
including a comparison of certain financial and stock market
information for Countrywide and Bank of America with similar
publicly available information for certain other companies the
securities of which are publicly traded;
|
|
|
|
the financial terms of certain recent business combinations in
the financial services industry, to the extent publicly
available;
|
|
|
|
the current market environment generally and the banking
environment in particular; and
|
|
|
|
such other information, financial studies, analyses and
investigations and financial, economic and market criteria as
Sandler ONeill considered relevant.
|
Sandler ONeill also discussed with certain members of
senior management of Countrywide the business, financial
condition, results of operations and prospects of Countrywide,
including certain operating, liquidity, regulatory and other
financial matters. Sandler ONeill also held similar
discussions with certain members of senior management of Bank of
America regarding the business, financial condition, results of
operations and prospects of Bank of America.
In performing its review, Sandler ONeill relied upon the
accuracy and completeness of all of the financial and other
information that was available to it from public sources, that
was provided by Countrywide and Bank of America or their
respective representatives or that was otherwise reviewed by
Sandler ONeill and assumed such accuracy and completeness
for purposes of rendering its opinion. Sandler ONeill
further relied on the assurances of management of Countrywide
and Bank of America that they were not aware of any facts or
circumstances that would make any of such information inaccurate
or misleading. Sandler ONeill was not asked to undertake,
and did not undertake, an independent verification of any of
such information and Sandler ONeill did not assume any
responsibility or liability for the accuracy or completeness
thereof. Sandler ONeill did not make an independent
evaluation or appraisal of the specific assets (including any
derivative claims brought on Countrywides behalf against
its officers and directors), the collateral securing assets or
the liabilities (contingent or otherwise) of Countrywide or Bank
of America or any of their subsidiaries, or the collectibility
of any such assets, nor was Sandler ONeill furnished with
any such evaluations or appraisals.
Sandler ONeill did not make an independent evaluation of
the adequacy of the allowance for loan losses of Countrywide or
Bank of America, nor did Sandler ONeill review any
individual credit files relating to Countrywide or Bank of
America. Sandler ONeill assumed, with Countrywides
consent, that the respective allowances for loan losses for both
Countrywide and Bank of America were adequate to cover such
losses and will be adequate on a pro forma basis for the
combined entity.
Sandler ONeills opinion was necessarily based upon
financial, economic, market and other conditions as they existed
on, and could be evaluated as of, the date of its opinion.
Sandler ONeill assumed, in all respects material to its
analysis that each party to the merger agreement would perform
all of the material covenants required to be performed by such
party under such agreements and that the conditions precedent in
the merger agreement had not been waived. Sandler ONeill
also assumed that there had been no material change in
Countrywides and Bank of Americas assets, financial
condition, results of operations, business or prospects since
the date of the last financial statements made available to
them, that Countrywide and Bank of America would remain as going
concerns for all periods relevant to its analyses, and that the
merger would qualify as a tax-free reorganization for federal
income tax purposes. Sandler ONeills opinion was
approved by Sandler ONeills fairness opinion
committee. Sandler ONeill expressed no opinion as to the
fairness of the amount or nature of the compensation to be
received in the merger by Countrywides officers, directors
or employees or class of such persons, relative to the
compensation to be received in the merger by any other
stockholders of Countrywide. Sandler ONeill expressed no
opinion as to the legal, accounting, and tax advice Countrywide
received relating to the merger agreement and the transactions
contemplated by the merger agreement.
With respect to anticipated transaction costs, estimates of
purchase accounting adjustments and expected cost savings and
other information prepared by
and/or
reviewed with the senior management of Bank of America and used
by Sandler ONeill in its analyses, Bank of Americas
management confirmed to Sandler ONeill that they reflected
the best currently available estimates and judgments of such
management with
35
respect thereto, and Sandler ONeill assumed that such
performances would be achieved. Sandler ONeill expressed
no opinion as to such estimates and projections or the
assumptions on which they were based. Those estimates and
projections, as well as the other estimates used by Sandler
ONeill in its analysis, were based on numerous variables
and assumptions which are inherently uncertain and, accordingly,
actual results could vary materially from those set forth in
such projections.
Financial Analyses of Goldman Sachs and Sandler
ONeill. The following is a summary of the
material financial analyses prepared by Goldman Sachs and
Sandler ONeill in connection with rendering the opinions
described above. The following summary, however, does not
purport to be a complete description of the financial analyses
performed by Goldman Sachs or Sandler ONeill, nor does the
order of analyses described represent relative importance or
weight given to those analyses by Goldman Sachs or Sandler
ONeill. Some of the summaries of the financial analyses
include information presented in tabular format. The tables must
be read together with the full text of each summary and are
alone not a complete description of the financial analyses.
Except as otherwise noted, the following quantitative
information, to the extent that it is based on market data, is
based on market data as it existed on or before January 9,
2008, and is not necessarily indicative of current market
conditions.
Situation
Overview
Goldman Sachs and Sandler ONeill reviewed, based on
discussions with Countrywide, certain sources of significant
financial and operational distress on Countrywide over recent
periods, including:
|
|
|
|
|
significantly worsening credit performance
|
|
|
|
deteriorating conditions in the mortgage market
|
|
|
|
limited access to short term and unsecured sources of funding
|
|
|
|
declining Prime, Alt-A and Subprime originations
|
|
|
|
declining home price forecasts
|
Goldman Sachs and Sandler ONeill also reviewed, based on
discussions with Countrywide, certain events that contributed to
an 89% decline from the historical high trading price of
Countrywide common stock, including:
|
|
|
|
|
earnings shortfalls and subsequent reductions in management
guidance, resulting in a reduction of analyst earnings
estimates, price targets and ratings
|
|
|
|
Countrywides inability to issue commercial paper,
resulting in Countrywides drawing down on its
$11.5 billion credit facility on August 16, 2007,
credit ratings downgrades by all three rating agencies on
August 16, 2007 and by S&P on October 26, 2007,
and the issuance of negative outlooks by rating agencies in
October and November of 2007
|
|
|
|
significant incremental loan loss provisions and negative
marks-to-market with the potential for continuing value loss in
Countrywides balance sheet
|
|
|
|
increased liquidity constraints and higher funding costs
|
|
|
|
heightened litigation risk, the risk of additional negative
rating agency action and insolvency rumors
|
In addition, Goldman Sachs and Sandler ONeill reviewed
numerous interrelated challenges identified by Countrywide that
could cumulatively result in financial distress to Countrywide,
including financial, liquidity and operational constraints,
material risk of a ratings downgrade to non-investment grade,
increased regulatory pressure, limited access to capital,
litigation exposure, and general capital markets disruption. In
view of these challenges and the several risks facing
Countrywide, as well as the concern that these adverse events
and others described above in Background of the
Merger could continue and worsen, Countrywide management
prepared for purposes of the financial analyses a set of
illustrative projections for Countrywide for the years ending
December 31, 2008 through 2013 that assumed a stress case
scenario in which certain of these risks were in fact realized.
The key assumptions under this scenario included limited growth
in the originations
36
market and diminishing market share for Countrywide, severe
declines in housing price appreciation, increasing credit costs
for 2008 and 2009, a below investment grade rating for 2008 and
2009 and the loss of all uninsured deposits. For purposes of the
Goldman Sachs and Sandler ONeill financial analysis, it
was further assumed that, in the absence of a transaction with
Bank of America, Countrywide would require additional capital
and the analysis assumed a $1.5 billion common stock rights
offering completed at the beginning of 2008 at a fifty percent
discount to the then current Countrywide price per share of
$5.12. The rights offering assumption was included in the
analysis because Countrywide management was of the view that, in
the absence of the transaction with Bank of America, it would
likely be necessary for Countrywide to raise additional capital
in order to maintain its business and that, as noted, any such
capital-raising transaction would be on terms that would be
highly unfavorable to Countrywides existing shareholders.
This internal stress case, dated January 9, 2008, which was
prepared prior to the public announcement of the merger and has
not been updated to take into account subsequent developments,
was not prepared with a view towards public dissemination, was
prepared in connection with the financial analyses and should
not be viewed as indicative of actual future results. We refer
to this scenario in this document as the Stress
Case. Goldman Sachs and Sandler ONeill utilized the
Stress Case in their analyses, including those described below
under Discounted Cash Flow
Analysis Countrywide, because of the view of
management and the board of directors of Countrywide that
neither the publicly available analyst estimates nor
managements prior estimates fully reflected the rapidly
changing state of the market and continuing significant
uncertainty and disruption in the mortgage industry generally
and in Countrywides operations specifically, including the
significant worsening of conditions that accelerated in January
of 2008. Among other things, these prior estimates generally
reflected the assumption that Countrywides fourth quarter
of 2007 would be profitable and that Countrywide would continue
to retain its investment-grade ratings. By January 10,
2008, however, management had concluded (and the board of
directors was advised) that, due to continuing deterioration in
real estate market and other conditions, Countrywide would
likely experience a loss for the fourth quarter of 2007 and
that, in the absence of a transaction with Bank of America,
there was a substantial likelihood that Countrywide would suffer
one or more rating agency downgrades to
non-investment-grade status. The Stress Case also
took into consideration the fact that certain of the risks
discussed above, such as the risk of a ratings agency downgrade
to non-investment-grade status, could, if realized,
trigger the realization of other risks, such as a significant
worsening of funding costs, the loss of uninsured deposits and
the need to engage in a likely capital raising transaction
involving substantial dilution to shareholders. The Stress Case
was intended to reflect, based on the various assumptions listed
above, the anticipated adverse impact on the mortgage industry
and financial markets generally, and Countrywides
operations specifically, which, if realized, would result in
adverse business, legal and regulatory conditions and negatively
impacted financial results.
Transaction
Multiples Analysis
Based upon the exchange ratio and the $38.74 closing market
price of Bank of America common stock on January 9, 2008,
Goldman Sachs and Sandler ONeill calculated that each
share of Countrywide common stock would be converted into Bank
of America common stock with an implied market value of $7.06,
representing a premium of 37.9% to the closing price of $5.12 of
Countrywide common stock on January 9, 2008. Goldman Sachs
and Sandler ONeill also calculated the following multiples
and percentage resulting from the implied value of the merger
consideration:
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|
|
|
implied price as a multiple of Countrywides estimated
earnings per share, or EPS, for 2007, 2008 and 2009 based on
median IBES estimates;
|
|
|
|
implied price as a multiple of Countrywides estimated EPS
for 2007 based on the actual earnings for the first three
quarters of 2007 and managements estimated EPS for the
fourth quarter of 2007;
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|
|
|
implied price as a multiple of the Stress Case 2008 and 2009
EPS; and
|
|
|
|
implied price as a percentage of Countrywides tangible
common equity as of September 30, 2007.
|
37
The results of these analyses are summarized as follows:
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|
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|
|
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|
|
Price as
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|
|
|
Amount
|
|
|
Multiple/Percentage
|
|
|
2007 Estimated EPS
|
|
|
|
|
|
|
|
|
IBES
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|
$
|
(1.12
|
)
|
|
|
NM
|
|
Management
|
|
$
|
(1.35
|
)
|
|
|
NM
|
|
2008 Estimated EPS
|
|
|
|
|
|
|
|
|
IBES
|
|
$
|
1.55
|
|
|
|
4.6
|
x
|
Stress Case
|
|
$
|
(0.76
|
)
|
|
|
NM
|
|
2009 Estimated EPS
|
|
|
|
|
|
|
|
|
IBES
|
|
$
|
2.64
|
|
|
|
2.7
|
x
|
Stress Case
|
|
$
|
0.73
|
|
|
|
9.7
|
x
|
Tangible Common Equity
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
$
|
22.87
|
|
|
|
31
|
%
|
Total
Return Analysis Countrywide
Goldman Sachs and Sandler ONeill reviewed the total
returns (including reinvestment of dividends) of Countrywide
common stock, the Standard & Poors 500 Index and
the common stock of the following selected banks for each of the
periods beginning June 30, 2007, September 30, 2007,
December 9, 2007 and January 2, 2008:
|
|
|
|
|
Washington Mutual, Inc.
|
|
|
|
Thornburg Mortgage, Inc.
|
|
|
|
PHH Corporation
|
|
|
|
Downey Financial Corp.
|
|
|
|
IndyMac Bancorp, Inc.
|
|
|
|
Flagstar Bancorp, Inc.
|
Although none of the selected banks is directly comparable to
Countrywide, the banks included were chosen because they are
publicly traded companies with operations that, for purposes of
analysis, may be considered similar to certain operations of
Countrywide.
The results of these analyses are summarized as follows:
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|
|
|
|
|
|
|
|
|
|
|
Countrywide
|
|
|
S&P 500 Index
|
|
|
Range of Selected Banks
|
|
Total Return Since
|
|
|
|
|
|
|
|
|
|
|
6/30/2007
|
|
|
(85.7
|
)%
|
|
|
(5.3
|
)%
|
|
(83.2)% - (47.4)%
|
9/30/2007
|
|
|
(72.8
|
)%
|
|
|
(7.2
|
)%
|
|
(79.7)% - (29.9)%
|
12/9/2007
|
|
|
(55.6
|
)%
|
|
|
(6.2
|
)%
|
|
(44.0)% - (20.4)%
|
1/2/2008
|
|
|
(43.1
|
)%
|
|
|
(2.6
|
)%
|
|
(27.5)% - (4.0)%
|
Selected
Companies Analysis Countrywide
Goldman Sachs and Sandler ONeill reviewed and compared
certain financial information for Countrywide to corresponding
financial information, ratios and public market multiples for
the selected banks described under the Total Return
Analysis Countrywide above.
The multiples and ratios of the selected banks were based on
market data as of January 9, 2008, financial data as of or
for the period ended September 30, 2007 with no adjustments
made for pending acquisitions and information obtained from SNL
Financial. The multiples and ratios of Countrywide were
calculated using both
38
median IBES estimates and the Stress Case estimates. With
respect to the selected banks and Countrywide, Goldman Sachs and
Sandler ONeill calculated:
|
|
|
|
|
price as a percentage of tangible book value;
|
|
|
|
price as a multiple of median IBES and Stress Case EPS for 2008
and 2009;
|
|
|
|
price as a percentage of 52-week high and low share prices;
|
|
|
|
dividend yield;
|
|
|
|
the ratio of tangible equity to tangible assets (referred to as
TE/TA);
|
|
|
|
return on average equity for the last twelve months (referred to
as LTM ROAE);
|
|
|
|
return on average assets for the last twelve months (referred to
as LTM ROAA); and
|
|
|
|
net interest margin for the last twelve months (referred to as
LTM NIM).
|
The results of these analyses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Countrywide
|
|
|
Selected Banks
|
|
|
|
IBES
|
|
|
Stress Case
|
|
|
Range
|
|
Median
|
|
|
Price as % of Tangible Book Value
|
|
|
23
|
%
|
|
|
23
|
%
|
|
21% - 87%
|
|
|
57
|
%
|
Price/Estimated 08 EPS
|
|
|
3.3
|
x
|
|
|
NM
|
|
|
7.9x - 15.7x
|
|
|
9.6
|
x
|
Price/Estimated 09 EPS
|
|
|
1.9
|
x
|
|
|
7.0
|
x
|
|
3.7x - 13.9x
|
|
|
8.1
|
x
|
Price as % of 52-Week High
|
|
|
11.3
|
%
|
|
|
11.3
|
%
|
|
10.7% - 52.1%
|
|
|
32.6
|
%
|
Price as % of 52-Week Low
|
|
|
115.6
|
%
|
|
|
115.6
|
%
|
|
106.3% - 119.0%
|
|
|
113.2
|
%
|
Dividend Yield
|
|
|
11.72
|
%
|
|
|
0.00
|
%
|
|
0.00% - 21.28%
|
|
|
4.17
|
%
|
TE/TA
|
|
|
7.29
|
%
|
|
|
7.29
|
%
|
|
4.40% - 14.21%
|
|
|
5.57
|
%
|
LTM ROAE
|
|
|
2.3
|
%
|
|
|
2.3
|
%
|
|
(35.2)% - 11.5%
|
|
|
(0.9
|
)%
|
LTM ROAA
|
|
|
0.16
|
%
|
|
|
0.16
|
%
|
|
(1.64)% - 0.87%
|
|
|
(0.05
|
)%
|
LTM NIM
|
|
|
1.62
|
%
|
|
|
1.62
|
%
|
|
(3.20)% - 3.10%
|
|
|
1.60
|
%
|
Precedent
Transactions Analysis
Goldman Sachs and Sandler ONeill analyzed certain publicly
available financial information relating to 12 selected
transactions involving the acquisition of mortgage lenders
announced during the period from May 2005 through June 2007. The
following is a list of those specified transactions:
Acquiror / Seller
|
|
|
|
|
Lone Star Funds / Accredited Home Lenders
|
|
|
C-BASS / Fieldstone Investment Corp.
|
|
|
Barclays PLC / EquiFirst Corporation
|
|
|
Merrill Lynch & Co. / First Franklin
|
|
|
Morgan Stanley / Saxon Capital Inc.
|
|
|
Deutsche Bank AG / MortgageIT Holdings Inc.
|
|
|
RAIT Investment Trust / Taberna Realty Finance Trust
|
|
|
Accredited Home Lenders / Aames Investment Corp.
|
|
|
Fortress Investment Group LLC / Centex Corp.
|
|
|
Wachovia Corp. / AmNet Mortgage Inc.
|
|
|
Popular Inc. /
E-LOAN Inc.
|
|
|
New Century Financial Corp. / RBC Mortgage Company
|
While none of the transactions included in the precedent
transactions analysis are directly comparable to the proposed
merger, Goldman Sachs and Sandler ONeill selected these
transactions because each of the target companies in the
selected transactions were involved in the mortgage lending
business.
39
For the selected transactions, Goldman Sachs and Sandler
ONeill reviewed, to the extent available:
|
|
|
|
|
the multiple of the implied transaction price to the estimated
earnings of the target for the fiscal year following the year in
which the transaction was announced (FY1);
|
|
|
|
the ratios of the implied transaction price to each of the
stated common equity and the tangible common equity of the
target, in each case based on the last publicly available
financial statements of the target available prior to the
announcement of the transaction; and
|
|
|
|
the premium represented by the implied transaction price to the
closing price per share of common stock of the target one
trading day prior to the announcement of the transaction.
|
The results of these analyses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Median
|
|
|
Low
|
|
|
Price/FY1 Earnings
|
|
|
18.5
|
x
|
|
|
10.4
|
x
|
|
|
8.0
|
x
|
Price/Stated Common Equity
|
|
|
312
|
%
|
|
|
112
|
%
|
|
|
44
|
%
|
Price/Tangible Common Equity
|
|
|
313
|
%
|
|
|
123
|
%
|
|
|
44
|
%
|
Premium (discount)/Market (1 day prior to announcement)
|
|
|
47.1
|
%
|
|
|
5.4
|
%
|
|
|
(14.6
|
)%
|
Discounted
Cash Flow Analysis Countrywide
Goldman Sachs and Sandler ONeill performed two
illustrative discounted cash flow analyses to determine ranges
of implied present values per share of Countrywide common stock.
The illustrative terminal values were based upon multiples of
share price to Stress Case earnings for 2009 and 2013,
respectively. Goldman Sachs and Sandler ONeill used
discount rates ranging from 14% to 18%, reflecting estimates of
Countrywides weighted average cost of equity, Stress Case
forecasts of Countrywide earnings per share, and terminal
forward earnings multiples ranging from 4.0x to 9.0x.
Goldman Sachs and Sandler ONeill assumed that the
conversion price of Countrywides 7.25% Series B
Non-voting Convertible Preferred Stock would be reduced to
$13.47 per share as a result of the rights offering described
under Situation Overview above. These
analyses resulted in a range of implied present value per share
of Countrywide common stock of $1.37 to $5.08 based on Stress
Case earnings for 2009, and a range of $3.07 to $9.06 based on
Stress Case earnings for 2013.
Using the same set of discount rates, terminal multiples and
earnings, but assuming an issuance of Countrywide 10.0%
convertible preferred stock with an aggregate principal amount
of $1.5 billion and an assumed conversion price of $5.12
per share rather than the rights offering assumption described
under Situation Overview, Goldman Sachs
and Sandler ONeill performed similar illustrative
discounted cash flow analyses to determine ranges of implied
present values per share of Countrywide common stock. In
calculating the implied present values per share of Countrywide
common stock, Goldman Sachs and Sandler ONeill took into
account the number of shares of common stock into which the
newly issued convertible preferred stock described above would
be convertible when the implied value per share was above $5.12.
These analyses resulted in a range of implied present value per
share of Countrywide common stock of $0.57 to $6.79 based on
Stress Case earnings for 2009, and a range of $4.10 to $12.11
based on Stress Case earnings for 2013.
Selected
Companies Analysis Bank of America
Goldman Sachs and Sandler ONeill reviewed and compared
certain financial information for Bank of America to
corresponding financial information, ratios and public market
multiples for the following publicly traded banks:
|
|
|
|
|
Citigroup Inc.
|
|
|
|
JPMorgan Chase & Co.
|
|
|
|
Wells Fargo & Co.
|
|
|
|
Wachovia Corp.
|
|
|
|
U.S. Bancorp
|
40
Although none of the selected banks is directly comparable to
Bank of America, the banks included were chosen because they are
publicly traded companies with operations that, for purposes of
analysis, may be considered similar to certain operations of
Bank of America.
The multiples and ratios of Bank of America and the selected
banks were based on market data as of January 9, 2008,
financial data as of or for the period ended September 30,
2007 with no adjustments made for pending acquisitions and
information obtained from SNL Financial. With respect to the
selected banks and Bank of America, Goldman Sachs and Sandler
ONeill calculated:
|
|
|
|
|
price as a percentage of the tangible book value;
|
|
|
|
price as a multiple of median IBES estimated earnings per share
for 2007, 2008 and 2009;
|
|
|
|
price as a percentage of 52-week high and low share prices;
|
|
|
|
dividend yield;
|
|
|
|
ratio of tangible equity to tangible assets (referred to as
TE/TA);
|
|
|
|
return on average equity for the last twelve months (referred to
as LTM ROAE);
|
|
|
|
the return on average assets for the last twelve months
(referred to as LTM ROAA);
|
|
|
|
net interest margin for the last twelve months (referred to as
LTM NIM); and
|
|
|
|
last twelve month efficiency ratio (referred to as LTM
Efficiency).
|
The results of these analyses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of
|
|
|
Selected Banks
|
|
|
|
America
|
|
|
Range
|
|
Median
|
|
|
Price as % of Tangible Book Value
|
|
|
272
|
%
|
|
176% - 477%
|
|
|
223
|
%
|
Price/Estimated 07 EPS
|
|
|
11.1
|
x
|
|
9.0x - 18.0x
|
|
|
11.3
|
x
|
Price/Estimated 08 EPS
|
|
|
8.7
|
x
|
|
7.4x - 10.5x
|
|
|
8.9
|
x
|
Price/Estimated 09 EPS
|
|
|
7.9
|
x
|
|
6.8x - 9.8x
|
|
|
8.1
|
x
|
Price as % of 52-Week High
|
|
|
71.5
|
%
|
|
49.5% - 78.8%
|
|
|
71.2
|
%
|
Price as % of 52-Week Low
|
|
|
103.5
|
%
|
|
103.7% - 105.4%
|
|
|
104.5
|
%
|
Dividend Yield
|
|
|
6.61
|
%
|
|
3.78% - 7.86%
|
|
|
5.86
|
%
|
TE/TA
|
|
|
4.42
|
%
|
|
3.38% - 6.55%
|
|
|
4.94
|
%
|
LTM ROAE
|
|
|
14.9
|
%
|
|
12.3% - 21.8%
|
|
|
15.2
|
%
|
LTM ROAA
|
|
|
1.30
|
%
|
|
0.90% - 2.07%
|
|
|
1.21
|
%
|
LTM NIM
|
|
|
2.64
|
%
|
|
2.38% - 4.82%
|
|
|
3.00
|
%
|
LTM Efficiency
|
|
|
50.4
|
%
|
|
43.9% - 65.8%
|
|
|
58.2
|
%
|
Total
Return Analysis Bank of America
Goldman Sachs and Sandler ONeill reviewed the total
returns (including reinvestment of dividends) of the Bank of
America common stock, the Standard & Poors Bank
Index and the common stock of the five selected banks described
under the Selected Companies Analysis Bank of
America above for each of the one, three and five-year
periods ending January 9, 2008. Goldman Sachs and Sandler
ONeill also reviewed the total returns (including
reinvestment of cash dividends) of the Bank of America common
stock and the common stock of the selected banks for the
10 year period ending January 9, 2008.
41
The results of these analyses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of
|
|
|
|
|
|
Median of
|
|
|
|
America
|
|
|
S&P Bank Index
|
|
|
Selected Banks
|
|
|
Total Return
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
(24.6
|
)%
|
|
|
(40.5
|
)%
|
|
|
(22.7
|
)%
|
3 Years
|
|
|
(2.0
|
)%
|
|
|
(35.1
|
)%
|
|
|
(5.9
|
)%
|
5 Years
|
|
|
33.4
|
%
|
|
|
(17.2
|
)%
|
|
|
30.1
|
%
|
10 Years
|
|
|
83.4
|
%
|
|
|
|
|
|
|
59.6
|
%
|
Discounted
Cash Flow Analysis Bank of America
Goldman Sachs and Sandler ONeill performed an illustrative
discounted cash flow analysis to determine a range of implied
present values per share of Bank of America common stock. The
illustrative terminal values were based upon multiples of share
price to estimated earnings for 2013. Goldman Sachs and Sandler
ONeill used discount rates ranging from 9% to 12%,
reflecting estimates of Bank of Americas weighted average
cost of equity, forecasts of Bank of America earnings per share
based on median IBES estimates for 2008, grown by the median
IBES long-term growth rate of 7.5% thereafter, a ratio of
tangible common equity to tangible assets of 4.3%, a dividend
payout ratio of 46.0% and terminal earnings multiples ranging
from 8.0x to 13.0x. This analysis resulted in a range of implied
present value of $42.60 to $68.79 per share of Bank of America
common stock (which, based on the exchange ratio in the merger
of 0.1822, would result in a range of implied present value of
the merger consideration of approximately $7.76 to $12.53 per
share of Countrywide common stock).
Using the same set of projections, Goldman Sachs and Sandler
ONeill performed a sensitivity analysis to analyze the
effect of a decrease in Bank of Americas 2013 earnings by
5% to 25% assuming a constant terminal multiple of 10.1x. This
analysis resulted in a range of implied present value of $41.06
to $56.78 per share of Bank of America common stock (which,
based on the exchange ratio in the merger of 0.1822 per share of
Countrywide, would result in a range of implied present value of
the merger consideration of approximately $7.48 to $10.35 per
share of Countrywide common stock).
Pro
Forma Analysis
Goldman Sachs and Sandler ONeill prepared an illustrative
pro forma analysis of the potential financial impact of the
merger on Bank of America assuming a closing date of
July 1, 2008 and using the estimated cost savings synergies
and restructuring charges expected by Bank of America management
to result from the merger as well as earnings estimates for
Countrywide on a standalone basis prepared by Bank of America
management, taking into account an assumed issuance of
$2.0 billion of preferred stock with an effective dividend
of 6.5% on an after-tax basis and an assumed annual dividend for
Bank of America of $2.56 per share. This analysis indicated that
the merger would be neutral to slightly dilutive to Bank of
America in 2008 and accretive in 2009.
The preparation of a fairness opinion is a complex process
involving subjective judgments as to the most appropriate and
relevant methods of financial analysis and the application of
those methods to the particular circumstances and is not
necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the
summary set forth above, without considering the analyses as a
whole, could create an incomplete view of the process underlying
the opinions of Goldman Sachs and Sandler ONeill. In
arriving at their fairness determinations, Goldman Sachs and
Sandler ONeill considered the results of all the analyses
and did not attribute any particular weight to any factor or
analysis considered by it. For example, with respect to the
precedent transactions analysis described above, Goldman Sachs
and Sandler ONeill noted that certain of the multiples and
ratios calculated for Countrywide and the proposed merger did
not fall within the ranges derived for the selected
transactions. They also noted, however, that the selected
transactions were announced prior to the severe disruptions in
the mortgage and capital markets beginning in August 2007, that
a number of the precedent transactions did not have
publicly-available multiples and that certain of the other
merger ratios were within the ranges of the precedent
transactions. Goldman Sachs and Sandler ONeill made their
determinations as to fairness on the basis of their experience
and professional judgment after considering the
42
results of all the analyses. No company or transaction used in
the above analyses as a comparison is directly comparable to
Countrywide, Bank of America or the contemplated merger.
Goldman Sachs and Sandler ONeill prepared these analyses
for the purposes of providing their opinions to the Countrywide
board of directors as to the fairness from a financial point of
view to the holders of Countrywide common stock of the exchange
ratio of 0.1822 shares of Bank of America common stock to
be received for each share of Countrywide common stock pursuant
to the merger agreement. These analyses do not purport to be
appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Accordingly, these analyses
do not necessarily reflect the value of Countrywides
common stock or Bank of Americas common stock or the
prices at which Countrywides or Bank of Americas
common stock may be sold at any time. Analyses based upon
forecasts of future results are not necessarily indicative of
actual future results, which may be significantly more or less
favorable than suggested by these analyses. Because these
analyses are inherently subject to uncertainty, being based upon
numerous factors or events, including industry performance,
business and economic conditions and various other matters,
beyond the control of the parties or their respective advisors,
none of Countrywide, Bank of America, Goldman Sachs, Sandler
ONeill or any other person assumes responsibility if
future results are materially different from those forecast.
As described above, the opinions of Goldman Sachs and Sandler
ONeill to the Countrywide board of directors were two of a
number of factors taken into consideration by the Countrywide
board of directors in making its determination to approve the
merger agreement and should not be viewed as determinative of
the decision of Countrywides board or management with
respect to the merger. The foregoing summary does not purport to
be a complete description of the analyses performed by Goldman
Sachs and Sandler ONeill in connection with the opinions
and is qualified in its entirety by reference to the written
opinions of Goldman Sachs and Sandler ONeill attached as
Appendix B and Appendix C to this document,
respectively.
The merger consideration was determined through arms-length
negotiations between Countrywide and Bank of America and was
approved by Countrywides board of directors. Goldman Sachs
and Sandler ONeill provided advice to Countrywide during
these negotiations. Goldman Sachs and Sandler ONeill did
not, however, recommend any specific amount of consideration to
Countrywide or its board of directors or that any specific
amount of consideration constituted the only appropriate
consideration for the merger.
The forward-looking financial information regarding Countrywide
described above, including the Stress Case numbers, was prepared
by Countrywide management and is the responsibility of
Countrywide management. Neither Countrywides nor Bank of
Americas independent auditors have compiled, examined, or
performed any procedures with respect to this forward-looking
financial information, nor have they expressed any opinion or
any other form of assurance with respect thereto.
Bank of
Americas Reasons for the Merger
Bank of Americas reasons for entering into the merger
agreement include:
|
|
|
|
|
Bank of Americas understanding of the current environment
in the financial services business, including the current
outlook for the mortgage industry;
|
|
|
|
Bank of Americas assessment of Countrywides
business, assets, liability and business relationships;
|
|
|
|
the unique opportunity presented to gain Countrywides
scale and management expertise in the mortgage industry; and
|
|
|
|
the opportunity to acquire Countrywides mortgage
technology platform, including its extensive retail, wholesale
and correspondent networks.
|
Board of
Directors and Management of Bank of America Following Completion
of the Merger
Upon completion of the merger, the current directors and
officers of Bank of America are expected to continue in their
current positions. Information about the current Bank of America
directors and executive officers can be found in the documents
listed under the heading Bank of America SEC Filings
in the section entitled Where You Can Find More
Information on page 81.
43
Public
Trading Markets
Bank of America common stock trades on the NYSE under the symbol
BAC. Bank of America common stock is also listed on
the London Stock Exchange, and certain shares are listed on the
Tokyo Stock Exchange. Countrywide common stock trades on the
NYSE under the symbol CFC. Upon completion of the
merger, Countrywide common stock will be delisted from the NYSE
and deregistered under the Securities Exchange Act of 1934, as
amended. The newly issued Bank of America common stock issuable
pursuant to the merger agreement will be listed on the NYSE.
The shares of Bank of America common stock to be issued in
connection with the merger will be freely transferable under the
Securities Act of 1933, as amended, which we refer to as the
Securities Act, except for shares issued to any stockholder who
may be deemed to be an affiliate of Countrywide.
Bank of
Americas Dividend Policy
Bank of America currently pays a quarterly dividend of $0.64 per
share. The Bank of America board of directors may change this
dividend policy at any time, and the payment of dividends by
financial holding companies is generally subject to legal and
regulatory limitations.
Countrywide
Stockholders Do Not Have Dissenters Appraisal Rights in
the Merger
Appraisal rights are statutory rights that, if applicable under
law, enable stockholders to dissent from an extraordinary
transaction, such as a merger, and to demand that the
corporation pay the fair value for their shares as determined by
a court in a judicial proceeding instead of receiving the
consideration offered to stockholders in connection with the
extraordinary transaction. Appraisal rights are not available in
all circumstances, and exceptions to these rights are provided
under the Delaware General Corporation Law. As a result of one
of these exceptions, the holders of Countrywide common stock are
not entitled to appraisal rights in the merger.
Regulatory
Approvals Required for the Merger
Bank of America and Countrywide have each agreed to use
reasonable best efforts to obtain all regulatory approvals
required to complete the transactions contemplated by the merger
agreement. These approvals include approvals from the Federal
Reserve Board, state mortgage banking and insurance authorities,
and various other federal, state and foreign regulatory
authorities. Bank of America and Countrywide have completed, or
will complete, the filing of applications and notifications to
obtain the required regulatory approvals.
Federal Reserve Board. The merger is subject
to approval by the Federal Reserve Board pursuant to
Section 4 of the Bank Holding Company Act of 1956. Bank of
America filed the required notification with the Federal Reserve
Board for approval of the merger on February 15, 2008.
In order to approve the merger, the Federal Reserve Board must
determine that the merger 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 Bank of America and
Countrywide, the effect of the proposal on competition in the
relevant markets, the record of the insured depository
institution subsidiaries of Bank of America and Countrywide
under the Community Reinvestment Act and other public interest
factors. Each of the depository institution subsidiaries of Bank
of America and Countrywide has received either an outstanding or
a satisfactory rating in its most recent Community Reinvestment
Act performance evaluation from its federal regulator. The
Federal Reserve Boards review of these factors affects
both its decision on the merger and the timing of that decision,
as well as any conditions that might be imposed.
The Federal Reserve Board furnished a copy of the notification
for approval of the merger to the Office of Thrift Supervision,
which has 30 days to submit its views and recommendations
to the Federal Reserve
44
Board. A copy of the notice also was provided to the United
States Department of Justice, or DOJ, and the
Federal Trade Commission, or FTC, which will review
the merger for adverse effects on competition. 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 Bank of America 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. The
Federal Reserve Board published notification in the Federal
Register on March 3, 2008. The Federal Reserve Board
held public hearings on the notification submitted by Bank of
America for approval of the merger in Chicago on April 22,
2008 and in Los Angeles on April
28-29, 2008.
Any hearing, meeting or comments provided by third parties could
prolong the period during which the notification is under review
by the Federal Reserve Board.
Department of Justice, Federal Trade Commission and Other
Antitrust Authorities. Because the merger
involves activities that are not subject to review by the
Federal Reserve Board under Section 4 of the Bank Holding
Company Act, it is partially subject to the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, or the HSR Act.
The HSR Act and related rules prohibit the completion of
transactions such as the merger unless the parties notify the
FTC and the DOJ in advance. Bank of America and Countrywide
filed the requisite HSR Act notification forms on
February 25, 2008. The HSR Act further provides that a
transaction or portion of a transaction that is notifiable under
the Act, such as the merger, may not be consummated until the
expiration of a 30
calendar-day
waiting period, or the early termination of that waiting period,
following the parties filing of their respective HSR Act
notification forms. If the DOJ or the FTC issues a Request for
Additional Information and Documentary Material prior to the
expiration of the waiting period, the parties must observe a
second
30-day
waiting period, which would begin to run only after both parties
have substantially complied with the request for information,
unless the waiting period is terminated earlier or extended with
the consent of the parties.
At any time before or after the acquisition is completed, either
the DOJ or FTC could take action under the antitrust laws in
opposition to the merger, including seeking to enjoin the
acquisition or seeking divestiture of substantial assets of Bank
of America or Countrywide or their subsidiaries. Private parties
also may seek to take legal action under the antitrust laws
under some circumstances. Based upon an examination of
information available relating to the businesses in which the
companies are engaged, Bank of America and Countrywide believe
that the completion of the merger will not violate
U.S. antitrust laws. However, Bank of America and
Countrywide can give no assurance that a challenge to the merger
on antitrust grounds will not be made, or, if such a challenge
is made, that Bank of America and Countrywide will prevail.
In addition, the merger may be reviewed by the state attorneys
general in the various states in which Bank of America and
Countrywide operate. While Bank of America and Countrywide
believe there are substantial arguments to the contrary, these
authorities may claim that there is authority, under the
applicable state and federal antitrust laws and regulations, to
investigate
and/or
disapprove the merger under the circumstances and based upon the
review set forth in applicable state laws and regulations. There
can be no assurance that one or more state attorneys general
will not attempt to file an antitrust action to challenge the
merger.
Other Requisite Approvals, Notices and
Consents. Notifications
and/or
applications requesting approval must be submitted to various
state regulatory authorities and self-regulatory organizations
in connection with the change in control of certain businesses
that are controlled by Countrywide. Notifications
and/or
applications requesting approval must be submitted to certain
state mortgage banking and insurance authorities in connection
with the change in control of Countrywides licensed
mortgage and insurance businesses. In addition, the change in
control of Countrywides registered broker-dealer
subsidiaries is subject to review by the Financial Industry
Regulatory Authority, or FINRA. Bank of America and
Countrywide have filed and submitted, or will shortly file and
submit, all applications and notices required to be submitted to
obtain these approvals and provide these notices.
Certain Foreign Approvals. Approvals also will
be required from, and notices must be submitted to, certain
foreign regulatory authorities in connection with the merger and
the change in ownership of certain businesses that are
controlled by Countrywide abroad. Bank of America and
Countrywide have filed, or will
45
shortly file, all applications and notices required to be
submitted to obtain these approvals and any other approvals that
may be required to complete the merger.
Timing. We cannot assure you that all of the
regulatory approvals described above will be obtained and, if
obtained, we cannot assure you as to the timing of any
approvals, our ability to obtain the approvals on satisfactory
terms or the absence of any litigation challenging such
approvals. We also cannot assure you that the DOJ, the FTC or
any state attorney general will not attempt to challenge the
merger on antitrust grounds, and, if such a challenge is made,
we cannot assure you as to its result.
Bank of America and Countrywide believe that the merger does not
raise substantial antitrust or other significant regulatory
concerns and that they will be able to obtain all requisite
regulatory approvals on a timely basis without the imposition of
any condition that would have a material adverse effect on Bank
of America or Countrywide. The parties obligation to
complete the merger is conditioned upon the receipt of all
required regulatory approvals. Bank of America is not required
to agree to conditions or restrictions that would have a
material adverse effect on either Countrywide or Bank of
America, measured on a scale relative to Countrywide.
We are not aware of any material governmental approvals or
actions that are required for completion of the merger other
than those described above. It is presently contemplated that if
any such additional governmental approvals or actions are
required, those approvals or actions will be sought. There can
be no assurance, however, that any additional approvals or
actions will be obtained.
Litigation
Relating to the Merger
Several actions are pending in Delaware and California state and
federal courts relating to the merger. Three such actions were
filed in Delaware Chancery Court. On February 19, the
Delaware Chancery Court consolidated those actions, and on
February 25, lead plaintiffs filed a consolidated verified
class action complaint against Countrywide, its directors, and
Bank of America on behalf of a putative Countrywide stockholder
class (the Consolidated Delaware Action). In re
Countrywide Corp. Sholders Litig., Consol. C.A.
No. 3464-VCN
(Del. Ch.). The complaint in the Consolidated Delaware Action
alleges that Countrywides directors breached their
fiduciary duties of loyalty, good faith, due care, and candor in
agreeing to the merger. Specifically, it alleges that the
directors have discouraged competing bids by (i) granting
Bank of America in connection with its $2 billion
investment in a Countrywide non-voting convertible preferred
security the right to match any acquisition offers for
Countrywide, and (ii) agreeing to pay Bank of America
$160 million if the merger were not to close in certain
circumstances. It also alleges that the merger price is
inadequate because (i) Countrywides financial
condition and general market conditions have allegedly improved
since the merger agreement was executed, and (ii) it
allegedly does not include the value (estimated by plaintiffs to
be worth approximately $2 billion) of pending derivative
claims against current and former Countrywide directors and
officers (described below), the mergers synergies, and the
mergers alleged benefit to Bank of America of allowing it
to hold more than 10% of U.S. banking deposits nationwide.
Plaintiffs allege that the directors agreed to the inadequate
price to receive (a) indemnification that would allegedly
protect them from liability on the existing derivative claims,
and (b) allegedly large severance payments.
The complaint in the Consolidated Delaware Action also alleges
that the directors filed a false and misleading
S-4
registration statement on February 13, 2008 (the
Preliminary
S-4),
that allegedly does not disclose (1) the Countrywide
directors view as to whether Bank of Americas August
2007 investment in Countrywide affected the market for potential
bidders; (2) the Countrywide directors view on their
potential liability in the pending derivative litigation;
(3) that the fairness opinions that Countrywides
financial advisors provided to Countrywides board are
allegedly outdated because of Countrywides improving
financial condition and improving market conditions generally;
(4) that the fairness opinions allegedly do not consider
the derivative claims value, the mergers synergies,
or the positive developments in the mortgage market since
January 10, 2008; (5) whether Countrywides
financial advisors performed a premiums analysis or
precedent transaction analysis based on
comparable-company transactions, which would allegedly show the
merger considerations inadequacy, as opposed to their
allegedly misleading transactions multiple analysis,
which calculated the transaction premium based on
Countrywides stock price when it was allegedly severely
46
depressed by anonymous bankruptcy rumors; and
(6) Countrywide managements projections (other than
the stress case scenario) on which its financial
advisors relied, specifically whether management prepared or
gave (or why it did not prepare or give) its advisors any
base-case or upside projections against
which to evaluate the merger considerations fairness. In
that regard, the complaint alleges that the Preliminary
S-4 failed
to disclose that the fairness opinions are largely based on
unduly pessimistic stress case projections for
Countrywide and does not present the range of values that would
result from the use of a more optimistic set of projections. The
complaint alleges that Countrywides financial advisors
wrongfully used the stress case projections to
justify their fairness opinions to Countrywides board.
Plaintiffs seek (w) to require Countrywides directors
to undertake a process that will maximize stockholder value,
(x) to enjoin the Countrywide stockholders vote on
the merger until that process is completed and complete
disclosure is made, (y) unspecified damages caused by the
defendants alleged conduct, and (z) payment of
reasonable attorneys fees and expenses.
On February 25, 2008, the plaintiffs in the Consolidated
Delaware Action filed a motion for expedited proceedings. On
February 29, the Delaware Chancery Court entered a
scheduling order agreed upon by the parties that provides for
expedited discovery and briefing and a hearing on
plaintiffs motion for a preliminary injunction on
May 20, 2008. On April 2, the court entered an amended
scheduling order agreed upon by the parties rescheduling the
hearing on plaintiffs motion for a preliminary injunction
for June 5, 2008.
On May 13, 2008, the plaintiffs filed a motion to
preliminarily enjoin the Countrywide shareholders vote on
the merger until Countrywide and Bank of America make additional
disclosures that plaintiffs contend are necessary to remedy the
S-4s
allegedly false and misleading statements, including, among
other things, additional disclosures concerning the Background
of the Merger and the Opinions of the Financial Advisors.
On May 27, 2008, the parties executed a Memorandum of
Understanding (MOU) that contains the terms on which
they agreed in principle to settle the Consolidated Delaware
Action. Under the terms of the MOU, the defendants agreed to
make additional disclosures in this document as set forth in
The Merger Background of the Merger and
Opinions of Countrywides Financial Advisors,
and the plaintiffs agreed to withdraw their motion for a
preliminary injunction. The parties also jointly agreed to
prepare and present for the Courts approval a formal
stipulation of settlement that would, among other things,
(i) request for settlement purposes the conditional
certification of the Consolidated Delaware Action as a class
action on behalf of all Countrywide common stockholders from
August 21, 2007 through the mergers consummation, and
(ii) provide for the dismissal with prejudice of the
Consolidated Delaware Action. The stipulation would further
provide for the release of, among other things, all claims that
the plaintiffs asserted or could have asserted against the
defendants relating to the merger or the August 2007 investment
agreement, but the release would exclude federal securities and
ERISA claims not related to the merger or the August 2007
investment agreement, as well as the derivative claims brought
on Countrywides behalf in (i) In re Countrywide
Fin. Corp. Deriv. Litig., Lead Case
No. 07-CV-06923-MRP
(MANx) (C.D. Cal.); (ii) In re Countrywide Fin. Corp.
Sholder Deriv. Litig., Lead Case No. BC375275
(Cal. Super. Ct.); and (iii) In re Countrywide Fin.
Corp. Deriv. Litig., Case
No. 07-cv-00372
(D. Del.), to the extent the claims in subpart (iii) are
not related to the merger, the August 2007 investment agreement,
this document, or any related disclosures. The parties further
agreed in the MOU that (i) they will more fully describe
the proposed settlement terms in a court-approved notice of
settlement that will be distributed to the proposed class
members; (ii) the settlement is not to be construed as an
admission of any matter; and (iii) any award of
plaintiffs counsels fees and expenses shall be
determined by the Court or by the parties agreement,
subject to the Courts approval. The settlement reflected
in the MOU is conditioned upon the Courts approval of the
formal stipulation of settlement and its entry of a final order
and judgment dismissing the Consolidated Delaware Action with
prejudice.
Five actions relating to the merger are pending in California
state and federal courts. First, on February 15, 2008, the
lead Countrywide stockholder plaintiffs in an existing
derivative action against current and former Countrywide
directors and officers filed an amended complaint in the
U.S. District Court for the Central District of California
(the California Federal Court) that asserts both
derivative and
class-action
claims. The derivative claims against Angelo R. Mozilo, David
Sambol, Jeffrey M. Cunningham, Robert J. Donato, Martin R.
Melone, Robert T. Parry, Oscar P. Robertson, Keith P. Russell,
Harley W. Snyder, Henry G. Cisneros,
47
Michael E. Dougherty, Stanford L. Kurland, Carlos M. Garcia and
Eric P. Sieracki allege (i) breaches of their fiduciary
duties, (ii) gross mismanagement, (iii) corporate
waste, (iv) insider trading under Cal. Corp. Code
§ 25402 and Section 20A of the Securities
Exchange Act of 1934 (the Exchange Act),
(v) aiding and abetting breaches of fiduciary duty,
(vi) violations of Exchange Act Section 10(b) and
Rule 10b-5,
(vii) violations of Exchange Act Section 20(a) as
controlling persons, and (viii) violations of
Exchange Act Section 14(a) and
Rule 14a-9
for making allegedly false or misleading proxy-statement
disclosures. The claims on behalf of a putative Countrywide
stockholder class against Countrywides current directors
and Bank of America allege that (a) the directors breached
their fiduciary duties in agreeing to the merger and made false
or misleading disclosures in the registration statement of which
this document is a part; and (b) Bank of America aided and
abetted the Countrywide directors breaches of fiduciary
duty. In re Countrywide Fin. Corp. Deriv. Litig., Lead
Case
No. 07-CV-06923 -
MRP (C.D. Cal.) (the Arkansas Teachers Action).
Specifically, the complaint in the Arkansas Teachers Action
alleges that the directors agreed to the merger at an inadequate
price because they would allegedly receive indemnification from
liability on plaintiffs existing derivative claims. The
derivative claims, in turn, are based on the directors
alleged mismanagement and sales of their Countrywide shares. In
that regard, plaintiffs allege that the Countrywide defendants
(i) allowed Countrywide to shift its lending practices to
include subprime loans, without making adequate loan-loss
reserves; (ii) inadequately controlled Countrywides
underwriting and credit-risk-exposure policies and practices;
(iii) allowed Countrywide to file financial statements that
were artificially inflated by understated loan-loss reserves,
overstated loan-asset valuations, and ineffective hedges against
mortgage-rate volatility that affected the value of
Countrywides mortgage-servicing rights and loans held for
sale; (iv) compensated Mozilo and other senior executives
disproportionately to Countrywides performance;
(v) permitted defendant Mozilo to alter his
10b5-1 plan
that allowed him to sell his Countrywide shares; (vi) sold
approximately $850 million of their Countrywide shares
based on material, nonpublic information about
Countrywides deteriorating financial condition; and
(vii) initiated a share-repurchase program under which
several defendants sold their shares to Countrywide at
artificially inflated prices. Plaintiffs allege that the
consideration in the merger agreement does not incorporate the
value to Countrywide of these derivative claims against its
current and former officers and directors, and that neither
Countrywides current directors nor its financial advisors
considered the derivative claims value (if any) in,
respectively, determining whether to approve the merger or
forming their opinions regarding the fairness of the exchange
ratio in the merger. Plaintiffs also allege that the merger
would extinguish the derivative claims. Accordingly, plaintiffs
request that the Court place the derivative claims in a
constructive trust for the benefit of Countrywides
stockholders, or in the alternative, assign the claims to
Countrywides stockholders or enjoin the proposed merger
and stockholder vote until the claims are resolved.
Plaintiffs in the Arkansas Teachers Action also allege that
Countrywides directors were conflicted when they approved
the merger, which, plaintiffs assert, offers no
premium to Countrywide stockholders. Plaintiffs allege
that these conflicts include the alleged benefit to Countrywide
directors, upon completion of the merger, from the potential
extinguishment of the derivative claims against them and from
their receipt of millions in
change-in-control
premiums.
In addition, plaintiffs
class-action
claims in the Arkansas Teachers Action allege that the
Countrywide board breached its fiduciary duties by agreeing to
the following terms in the merger agreement that allegedly
discourage competing bids: (i) a no-shop clause
that allegedly prevents Countrywide from soliciting other bids,
(ii) a no-talk clause that allegedly prevents
Countrywide from negotiating or discussing any competing
proposals, (iii) a provision that requires Countrywide to
submit the merger agreement to its stockholders vote, and
(iv) a termination-fee provision that requires Countrywide
to pay Bank of America $160 million if the merger were not
to close in certain circumstances. Plaintiffs also allege that
the registration statement of which this document is a part is
misleading because it allegedly does not disclose that
(a) the mergers exchange ratio is based on
Countrywides value after its share price fell following
the disclosure of the Countrywide defendants alleged
misconduct; (b) Countrywide did not provide its financial
advisors with information to value the derivative claims; and
(c) the merger consideration is artificially low because
Countrywides directors and Bank of America have
attempted to structure a transaction that they hope will not
just deprive Lead Plaintiffs of standing to
prosecute the claims, but to eliminate the Individual
Defendants liability on those
48
claims entirely. In addition to the relief described above
regarding the merger and the derivative claims, the complaint
also seeks (1) disgorgement of the Countrywide
defendants stock-sale proceeds in an unspecified amount
but including more than $848 million from sales between
2004 and 2008; (2) restitution of the Countrywide
defendants compensation obtained from their alleged
wrongful conduct, in an unspecified amount but including
compensation under Countrywides 2005 Annual Incentive Plan
and 2006 Equity Incentive Plan; (3) rescission of the 2005
Annual Incentive Plan and 2006 Equity Incentive Plan;
(4) disgorgement of the director defendants
2005-2007
compensation in an unspecified amount; (5) cancellation of
the
2005-2007
stockholder votes electing the director defendants; and
(6) payment of reasonable attorneys fees and expenses.
On February 15, 2008, plaintiffs in the Arkansas Teachers
Action moved for expedited discovery and for a constructive
trust and preliminary injunction or, in the alternative a trial
on their claims in advance of the completion of the proposed
merger. In their motion, plaintiffs asked the California Federal
Court to place their derivative claims in a constructive trust
for the benefit of Countrywide and its current stockholders. On
February 28, the defendants in the Arkansas Teachers Action
cross-moved to enforce the mandatory stay provision under the
Private Securities Litigation Reform Act of 1995
(PSLRA) and, in addition, to stay the merger-related
claims in favor of the Consolidated Delaware Action. The
California Federal Court held a hearing on plaintiffs
motion and defendants cross-motion on March 20, 2008.
On March 28, 2008, the California Federal Court issued an
order (1) staying the merger-related class action claims in
the Arkansas Teachers Action in favor of the Consolidated
Delaware Action; (2) denying plaintiffs motion for
constructive trust and preliminary injunction; and
(3) denying plaintiffs motion for expedited
discovery, concluding that the PSLRA mandates a stay of
discovery in the Arkansas Teachers Action pending resolution of
defendants motion to dismiss.
In addition, on March 14, 2008, the Countrywide defendants
in the Arkansas Teachers Action moved to dismiss all of the
derivative claims against them for failure to comply with
Delaware demand requirements and failure to state a cause of
action. On May 14, 2008, the U.S. District Court for
the Central District of California granted in part and denied in
part that motion. Specifically, the court excused the demand
requirement with respect to all derivative claims except the
claim for corporate waste based on the Countrywide boards
approval of compensation paid to Angelo Mozilo during the time
period alleged in the complaint. The court also denied the
motion to dismiss the derivative claims for failure to state a
claim or plead fraud with particularity under Rule 9(b) and
the Private Securities Litigation Reform Act, except that it
dismissed (i) all claims against defendants Dougherty and
Snyder, and (ii) the insider-trading claim under Cal. Corp.
Code § 25402 against all defendants.
As noted, there are four additional actions pending in
California against Countrywides directors and Bank of
America relating to the merger. First, the Countrywide
stockholder plaintiffs in another existing derivative action,
In re Countrywide Fin. Corp. Sholder Deriv. Litig.,
Lead Case No. BC375275 (the Garber Action),
pending in the Superior Court of California (Los Angeles County)
(the California State Court), which asserted
derivative claims similar to those asserted in the Arkansas
Teachers Action, amended their complaint on January 11 to add
class claims relating to the merger similar to those set forth
in the Arkansas Teachers Action and the Consolidated Delaware
Action. On January 22, 2008, with all defendants
consent, Bank of America removed the Garber Action to the
California Federal Court, which then remanded the Garber Action
to the California State Court on February 22. On
February 28, the plaintiffs in the Garber Action made an ex
parte application to the California State Court seeking
expedited discovery and a prompt injunction hearing and trial.
On February 28, the California State Court ordered that
discovery commence and tentatively scheduled a trial and
injunction hearing in the Garber Action for June 9, 2008,
without prejudice to defendants moving for a stay. On
March 4, 2008, defendants in the Garber Action moved for a
stay of the derivative claims in favor of the parallel
derivative claims in the Arkansas Teachers Action and for a stay
of the class claims in favor of the Consolidated Delaware
Action. At a hearing on March 17, the California State
Court issued its tentative ruling granting defendants
motion for a stay. At a hearing on March 26, the California
State Court reiterated its tentative ruling granting
defendants motion for a stay. On April 15, plaintiffs
informed the California State Court that they would submit to
its tentative ruling granting a stay.
49
The remaining three merger-related actions assert exclusively
claims relating to the merger: Adams, et al. v. Mozilo,
et al.,
No. CV-08-00236
(MRP) (C.D. Cal.); Feder, et al. v. Cunningham, et
al.,
No. CV-08-00287
(MRP) (C.D. Cal.); and Snyder, et al. v. Countrywide
Fin. Corp., et al., No. BC 383840 (Superior Court of
California, Los Angeles County). These three actions were filed
between January 11 and January 14, 2008. All three actions
(i) assert claims on behalf of a putative Countrywide
stockholder class, (ii) challenge the merger as a breach of
the Countrywide directors fiduciary duties of care, good
faith, candor, and loyalty, and (iii) claim that Bank of
America aided and abetted the Countrywide directors
breaches of fiduciary duty. On January 15 and 16, with all
defendants consent, Bank of America removed each of these
actions from the California State Court to the California
Federal Court. Plaintiffs in the Adams and Feder
cases subsequently consented to removal. On March 14,
2008, the California Federal Court remanded the Snyder
case to the California State Court. Plaintiffs in
Adams, Feder, and Snyder subsequently
agreed to stays of their actions in favor of the Consolidated
Delaware Action.
We believe that the plaintiffs complaints are available
from the courts in which the complaints have been filed and, in
certain cases, on the website of Bernstein Litowitz Berger
& Grossman LLP, a plaintiffs law firm. Countrywide
and Bank of America believe that all of these actions are
without merit and intend to contest them vigorously. Upon
consummation of the merger, the plaintiffs who have asserted
derivative claims on behalf of Countrywide may lose standing to
assert such claims on behalf of Countrywide because they will no
longer be shareholders of Countrywide.
Countrywides
Officers and Directors Have Financial Interests in the
Merger
In considering the recommendation of the Countrywide board of
directors that you vote to approve and adopt the merger
agreement, you should be aware that some of Countrywides
executive officers and directors have financial interests in the
merger that are different from, or in addition to, those of
Countrywides stockholders generally. The independent
members of Countrywides board of directors were aware of
and considered these interests, among other matters, in
evaluating and negotiating the merger agreement and the merger,
and in recommending to the stockholders that the merger
agreement be approved and adopted. For purposes of all of the
Countrywide agreements and plans described below, the completion
of the transactions contemplated by the merger agreement will
constitute a change in control.
Retention Arrangements. In connection with
entry into the merger agreement and a retention program
previously implemented for other employees, Countrywide approved
the grant of retention awards to David Sambol, Eric P. Sieracki,
Ranjit M. Kripalani and Carlos M. Garcia who, along with
Mr. Mozilo and Mr. Gissinger, are or were
Countrywides named executive officers at the time that
versions of this Registration Statement were filed. Each of
Messrs. Sambol, Sieracki, Kripalani and Garcia received a
retention incentive payment on March 14, 2008 in respect of
their annual bonus awards for Countrywides 2007 fiscal
year, and on February 1, 2008 were granted a cash-settled
restricted stock unit award. These restricted stock units will
vest as to 50% of the units granted on February 1, 2009,
and 25% of the units granted on each of February 1, 2010
and February 1, 2011 and will otherwise have terms that are
consistent with the cash-settled restricted stock units granted
by Countrywide to certain employees in November 2007, including
accelerated vesting in full on a change in control. Set forth
below are the amount of the retention incentive payment and
number of restricted stock units in respect of Countrywide
common stock applicable to each of the four executive officers:
|
|
|
|
|
|
|
|
|
|
|
Retention
|
|
|
|
|
|
|
Incentive
|
|
|
Restricted
|
|
Name
|
|
Payments
|
|
|
Stock Units
|
|
|
David Sambol
|
|
$
|
1,935,000
|
|
|
|
335,126
|
|
Eric P. Sieracki
|
|
$
|
1,500,000
|
|
|
|
148,945
|
|
Ranjit M. Kripalani
|
|
$
|
2,500,000
|
|
|
|
111,709
|
|
Carlos M. Garcia
|
|
$
|
1,450,000
|
|
|
|
148,945
|
|
For purposes of calculating severance benefits under
Mr. Sambols employment agreement with Countrywide
and, with respect to Messrs. Sieracki, Kripalani and
Garcia, under Countrywides Change in Control Severance
Plan, the retention incentive payments will be deemed the
bonus
and/or
incentive award with
50
respect to Countrywides 2007 fiscal year.
Mr. Gissinger was not granted any retention awards in
connection with entry into the merger agreement. Rather,
Mr. Gissinger participated in the initial phase of the
retention program in November 2007 since he was not a named
executive officer at that time. Pursuant to the retention
program, Countrywide granted Mr. Gissinger 148,945
cash-settled restricted stock units (which are included in his
total restricted stock unit award numbers described below) and a
cash retention payment of $1,250,000, which was paid to
Mr. Gissinger on March 14, 2008.
Equity Compensation Awards and Deferred Equity
Units. The merger agreement provides that, upon
completion of the merger, each then outstanding Countrywide
stock option, stock appreciation right, restricted stock unit
and deferred equity unit will be converted into a Bank of
America stock option, stock appreciation right, restricted stock
unit and deferred equity unit, respectively. In addition, upon
completion of the merger, each then outstanding Countrywide
restricted share will be converted into the right to receive the
merger consideration (with the same terms as the Countrywide
restricted shares, including transfer restrictions on stock
consideration to the extent the Countrywide restricted shares do
not vest and transfer restrictions do not lapse on the change in
control). With limited exceptions, the terms of
Countrywides equity compensation plans and the applicable
award agreements provide that upon a change in control of
Countrywide unvested stock options, stock appreciation rights,
restricted stock units, deferred equity units and shares of
restricted stock will vest in full. Based on Countrywide equity
compensation holdings as of April 1, 2008, and assuming a
closing date of July 1, 2008, upon completion of the
merger, (1) the number of unvested stock options and stock
appreciation rights to acquire shares of Countrywide common
stock (at exercise prices ranging from $32.73 to $38.58 and,
with respect to 2,358,491 of Mr. Mozilos stock
appreciation rights, with an exercise price of $6.22) held by
each of Messrs. Mozilo, Sambol, Sieracki, Kripalani,
Garcia, Gissinger, the eight other Countrywide executive
officers (as a group), and the seven non-employee directors (as
a group), that would vest are 3,203,088, 608,308, 130,986,
95,491, 130,986, 117,232, 480,969 and 0, respectively;
(2) the number of unvested restricted stock units in
respect of shares of Countrywide common stock held by each of
Messrs. Mozilo, Sambol, Sieracki, Kripalani, Garcia,
Gissinger and the eight other Countrywide executive officers (as
a group), and the seven non-employee directors (as a group) that
would vest upon completion of the merger are 1,039,082,
1,878,300, 186,556, 127,830, 170,437, 170,437, 622,059 and 0,
respectively, and the number that would not vest upon completion
of the merger, but would vest upon a subsequent qualifying
termination of employment (or otherwise in accordance with the
terms of the restricted stock unit grant) are 0, 0, 321,544,
241,158, 321,544, 321,544, 1,288,108 and 0, respectively;
(3) the number of shares of deferred equity units held by
each of Messrs. Mozilo, Sambol, Sieracki, Kripalani,
Garcia, Gissinger, the eight other Countrywide executive
officers (as a group) and the seven non-employee directors (as a
group), that would vest are 0, 0, 0, 0, 0, 0, 0 and 106,107,
respectively; and (4) the number of shares of restricted
Countrywide common stock held by each of Messrs. Mozilo,
Sambol, Sieracki, Kripalani, Garcia, Gissinger, the eight other
Countrywide executive officers (as a group) and the seven
non-employee directors (as a group), that would vest and become
free of restrictions are 0, 0, 0, 0, 0, 0, 15,822 and 141,476,
respectively.
Employment Agreements. Countrywide has
previously entered into employment agreements with each of
Angelo R. Mozilo and David Sambol.
Mozilo Employment Agreement Waiver of Cash
Severance and Other Payments. Pursuant to a
letter agreement entered into with Countrywide on
January 25, 2008 (the waiver letter),
Mr. Mozilo agreed to waive his entitlement to the cash
severance and pro rata bonus payments described below upon a
qualifying termination of his employment following completion of
the merger. Such cash payments would have equaled approximately
$36.4 million.
Mr. Mozilos employment agreement provides for the
payment of certain severance benefits in the event of a
termination of his employment by Countrywide without
cause (as defined in the agreement) or by
Mr. Mozilo for good reason (as defined in the
agreement, which includes a termination by Mr. Mozilo for
any reason during the two-year period following a change in
control), in either case following a change in control of
Countrywide or during a six-month protected period prior to a
change in control. In the event of a qualifying termination as
described above, Mr. Mozilo would be entitled to receive a
lump sum cash severance payment equal to three times the sum of
(1) his base salary and (2) the greater of
(A) the average bonus payable to him for the two fiscal
years preceding the year in which termination occurs and
(B) the bonus paid
51
to him for the fiscal year preceding the change in control. In
addition, upon a termination of his employment without cause or
for good reason (whether or not in connection with a change in
control), Mr. Mozilo would be entitled to receive a
pro-rata portion of any annual incentive bonus that became
earned based on Countrywides performance for the year in
which the termination occurred. As noted above, pursuant to the
waiver letter, Mr. Mozilo waived his right to receive the
cash severance and pro rata bonus payments if he experiences a
qualifying termination following completion of the merger.
Under the terms of Mr. Mozilos employment agreement,
upon a termination of his employment without cause or for good
reason (whether or not in connection with a change in control),
Mr. Mozilo is still entitled to receive (1) full
vesting of any outstanding performance-based restricted stock
units and stock appreciation rights granted as part of his
annual equity awards (which are more fully described below and
which vest, in any event, upon a change in control),
(2) continued coverage for Mr. Mozilo and his family
under Countrywides health and life insurance plans for up
to three years and (3) pro-rata vesting of the outstanding
restricted stock units granted to Mr. Mozilo under his
employment agreement in connection with his agreement to remain
Countrywides Chief Executive Officer (which restricted
stock units vest, in any event, on a pro-rata basis upon a
change in control). Assuming that the merger is completed on
July 1, 2008 and Mr. Mozilo experiences a qualifying
termination of employment immediately thereafter, the value of
the continued health and life benefits to be provided to
Mr. Mozilo and his family is approximately $21,084.
In the event that Mr. Mozilo becomes subject to the excise
tax under Section 4999 of the Internal Revenue Code of
1986, as amended (the Code), his employment
agreement generally provides for an additional payment to him
such that he will be placed in the same after-tax position as if
no such excise tax had been imposed, unless the payments exceed
the limit on parachute payments by less than the greater of 10%
or $100,000, in which case Mr. Mozilos payments and
benefits will be reduced to the minimum extent necessary so that
no portion of the payments are subject to the excise tax.
Pursuant to his employment agreement, upon termination of his
employment for any reason other than for cause,
Mr. Mozilo and his spouse are entitled to medical coverage
for each of their respective lives (which, when combined with
Medicare coverage, will be substantially similar to the coverage
provided prior to termination of Mr. Mozilos
employment). Assuming that the merger is completed on
July 1, 2008 and Mr. Mozilo experiences a qualifying
termination of employment immediately thereafter, the value of
the continued medical benefits to be provided to Mr. Mozilo
and his spouse is approximately $85,000.
In addition, Mr. Mozilos employment agreement
subjects him to an ongoing confidentiality obligation and a
24-month
post-employment (or, if later,
post-directorship)
non-solicitation and non-interference covenant with respect to
Countrywides employees, customers and material business
relationships. Assuming that the merger is completed on
July 1, 2008 and Mr. Mozilo experiences a qualifying
termination of employment immediately thereafter, the aggregate
value of the cash severance and other benefits that would be
payable to Mr. Mozilo is approximately $106,084. Assuming
the merger is completed on July 1, 2008, the aggregate cash
value of the stock-based awards held by Mr. Mozilo that
would vest upon completion of the merger, based on the closing
price of Bank of Americas common stock as of May 27,
2008 (which amount attributes no value to unvested stock options
and SARs other than those SARs with an exercise price of $6.22,
since all such other options and SARs are underwater based on
the May 27, 2008 closing price of Bank of Americas
common stock), is approximately $6,482,705.
Mozilo Consulting Agreement
Waiver. Mr. Mozilos employment
agreement provides that, pursuant to a consulting agreement by
and between Mr. Mozilo and Countrywide, following his
termination of employment and service as the non-executive
chairman, he would serve as a consultant to Countrywide until
February 28, 2011 and receive during such period consulting
fees of $400,000 and perquisites (consisting of office space and
secretarial support, use of Countrywides private jet for
business purposes, financial consulting services and payment of
country club dues). Pursuant to the waiver letter,
Mr. Mozilo and Countrywide agreed that the consulting
agreement will be terminated in connection with the merger.
Accordingly, upon his termination of employment and service as a
director following the consummation of the merger,
Mr. Mozilo will not be entitled to receive the consulting
fees and perquisites provided under the consulting agreement and
will not be required to serve as a consultant to Countrywide.
52
Sambol Employment Agreement. Under the terms
of Mr. Sambols employment agreement, in the event of
a termination of Mr. Sambols employment by
Countrywide without cause or by Mr. Sambol for
good reason (as each term is defined in the
agreement), in either case following a change in control of
Countrywide, Mr. Sambol will become entitled to certain
payments and benefits under the agreement. In the event of a
qualifying termination as described above, Mr. Sambol will
be entitled to receive a lump sum cash severance payment equal
to three times the sum of (1) his base salary and
(2) the greater of (A) the average bonus payable to
him for the two fiscal years preceding the year in which
termination occurs and (B) the bonus paid to him for the
fiscal year preceding the change in control. Mr. Sambol is
also entitled to receive full vesting of any outstanding
performance-based restricted stock units and stock appreciation
rights granted as part of his annual equity awards (which are
more fully described below and which vest, in any event, upon a
change in control) and continued coverage under
Countrywides health and life insurance plans for a period
of up to three years. Assuming that the merger is completed on
July 1, 2008 and Mr. Sambol experiences a qualifying
termination of employment immediately thereafter, the amount of
cash severance that would be payable to Mr. Sambol is
approximately $15 million and the value of the continued
health and life benefits to be provided to Mr. Sambol is
approximately $46,493. Assuming that the merger is completed on
July 1, 2008 and Mr. Sambol experiences a qualifying
termination of employment immediately thereafter, the aggregate
value of the cash severance and other severance benefits that
would be payable to Mr. Sambol is approximately
$15,023,993. Assuming the merger is completed on July 1,
2008, the aggregate cash value of the stock-based awards held by
Mr. Sambol that would vest upon completion of the merger,
based on the closing price of Bank of Americas common
stock as of May 27, 2008 (which amount includes the value
of his retention award and attributes no value to any unvested
stock options and SARs, since all such options and SARs are
underwater based on the May 27, 2008 closing price of Bank
of Americas common stock), is approximately $11,693,871.
In the event that Mr. Sambol becomes subject to the excise
tax under Section 4999 of the Code, his employment
agreement generally provides for an additional payment to him
such that he will be placed in the same after-tax position as if
no such excise tax had been imposed, unless the payments exceed
the limit on parachute payments by less than the greater of 10%
or $100,000, in which case Mr. Sambols payments and
benefits will be reduced to the minimum extent necessary so that
no portion of the payments are subject to the excise tax.
Countrywide may condition the payment of termination amounts and
benefits to Mr. Sambol upon his delivery of a full release
of claims in form and substance satisfactory to the board of
directors of Countrywide. In addition, pursuant to his
employment agreement, Mr. Sambol is subject to an ongoing
confidentiality obligation, a
12-month
post-employment non-competition covenant and a
12-month
post-employment non-solicitation covenant with respect to
Countrywides employees and customers.
As discussed below, upon completion of the merger,
Mr. Sambols employment agreement will be superseded
by a new retention agreement with the Merger Sub. The retention
agreement will provide Mr. Sambol with a retention account
that becomes vested and payable over two years in lieu of cash
severance payments Mr. Sambol would have been entitled to
receive under his employment agreement in the event of certain
qualifying terminations following a change in control of
Countrywide. The retention agreement will also provide certain
other benefits in the event of certain qualifying terminations
consistent with those provided under his current employment
agreement. As a result, Mr. Sambol will not receive any
payments or benefits under his current employment agreement
following completion of the merger. On May 28, 2008 Bank of
America announced that Mr. Sambol will retire after
assisting with the transition and closing of the merger. His
termination of employment will be treated as a termination
without cause and he will be eligible to receive the payments
and benefits under his retention agreement.
Mr. Sambols retention agreement is discussed in more
detail below in Arrangements with Bank of
America.
Change in Control Severance
Plan. Countrywides twelve other executive
officers, including Messrs. Sieracki, Kripalani, Garcia and
Gissinger, are not party to employment agreements with
Countrywide, but are covered by Countrywides Change in
Control Severance Plan. Pursuant to the Change in Control
Severance Plan, if, during the
24-month
period following a change in control, Countrywide terminates an
eligible executives employment without cause
or the executive resigns for good reason (as each
term is
53
defined in the Plan), the executive will be entitled to receive
cash severance payments equal to three times the sum of
(1) the executives annual base salary and
(2) the higher of (A) the average annualized bonus
paid to the executive during the two fiscal years preceding the
year of the executives termination of employment or
(B) the most recent annual bonus paid to the executive
prior to the change in control. Assuming that the merger is
completed on July 1, 2008 and the executive experiences a
qualifying termination of employment immediately thereafter, the
amount of cash severance that would be payable to each of
Messrs. Sieracki, Kripalani, Garcia and Gissinger and the
eight other executive officers (as a group), respectively, is
approximately $6.7 million, $13.7 million,
$9 million, $7.2 million and $29.6 million. Upon
a qualifying termination, the executive will also be entitled to
certain benefits, including the continuation of health care
benefits, outplacement and financial planning services, and
service credit (or the value thereof) under certain company
retirement plans, in each case for three years. Assuming that
the merger is completed on July 1, 2008 and the executive
experiences a qualifying termination of employment immediately
thereafter, the value of continued benefits to be provided to
each of Messrs. Sieracki, Kripalani, Garcia and Gissinger
and each of Countrywides eight other executive officers
(as a group) respectively, is approximately $135,380, $206,596,
$228,367, $210,494 and $1,402,083.
Assuming that the merger is completed on July 1, 2008 and
the executive experiences a qualifying termination of employment
immediately thereafter, the aggregate value of the cash
severance and other severance benefits and the equity awards
(other than those that would vest solely due to the completion
of the merger as described in the next sentence) based on the
closing price of Bank of Americas common stock as of
May 27, 2008 that would vest or be payable to each of
Messrs. Sieracki, Kripalani, Garcia, Gissinger and each of
Countrywides eight other executive officers (as a group),
respectively, is approximately $8,815,990, $15,426,929,
$11,251,044, $9,437,619 and $39,057,434. Assuming the merger is
completed on July 1, 2008, the aggregate cash value of the
stock-based awards held by each of Messrs. Sieracki,
Kripalani, Garcia, Gissinger and each of Countrywides
eight other executive officers (as a group), respectively, that
would vest solely due to the completion of the merger, based on
the closing price of Bank of Americas common stock as of
May 27, 2008 (which amount includes the value of the
retention awards and attributes no value to any unvested stock
options and SARs, since all such options and SARs are underwater
based on the May 27, 2008 closing price of Bank of
Americas common stock), is approximately $1,161,458,
$795,843, $1,061,104, $1,061,104 and $3,971,301.
In addition, in the event that any of the executive officers
becomes subject to the excise tax under Section 4999 of the
Code, the Plan generally provides for an additional payment to
the executive officer such that he or she will be placed in the
same after-tax position as if no such excise tax had been
imposed, unless the executive officers payments exceed the
limit on parachute payments by less than the greater of 10% or
$100,000, in which case payments and benefits will be reduced to
the minimum extent necessary so that no portion of the payments
are subject to the excise tax.
Nonqualified Deferred Compensation and Supplemental
Retirement Plans. Countrywide maintains the
following nonqualified deferred compensation and supplemental
retirement plans in which its executive officers are eligible to
participate: the Countrywide Financial Corporation Supplemental
Executive Retirement Plan, the Countrywide Financial Corporation
Executive Contribution Account Plan, the Countrywide Financial
Corporation Amended and Restated Deferred Compensation Plan and
the Countrywide Financial Corporation Supplemental Savings and
Investment Deferred Compensation Plan.
Pursuant to the terms of the Supplemental Executive Retirement
Plan, participants vest in, and are entitled to a lump sum
distribution of, their accounts within 60 days following
the consummation of a change in control. Four executive
officers, including Mr. Mozilo, are fully vested in their
benefits under this plan, although the merger may result in the
acceleration of the payment of their benefits. Six executive
officers, including Messrs. Sambol, Sieracki and Garcia,
will both vest in and be paid their benefits under this plan as
a result of the merger. Four executive officers, including
Messrs. Kripalani and Gissinger, do not participate in this
plan.
Pursuant to the terms of the Executive Contribution Account
Plan, participants vest in full in their benefits upon
consummation of a change in control. Four executive officers,
including Messrs. Kripalani and Gissinger,
54
will vest in their benefits under the Executive Contribution
Account Plan as a result of the merger. None of the other
executive officers, including Messrs. Mozilo, Sambol,
Sieracki and Garcia, participate in this plan.
Pursuant to the terms of the Amended and Restated Deferred
Compensation Plan, participants vest in full in their benefits
upon consummation of a change in control. Six executive
officers, including Messrs. Mozilo and Gissinger, are fully
vested in their benefits under this plan, and, accordingly the
merger will not result in the accelerated vesting of their
benefits. Five executive officers, including
Messrs. Sambol, Sieracki and Garcia, will vest in their
company matching contributions under this plan as a result of
the merger. None of Countrywides other executive officers,
including Mr. Kripalani, participate in this plan.
Pursuant to the terms of the Supplemental Savings and Investment
Deferred Compensation Plan, participants vest in full in their
company contribution accounts upon a termination of their
employment without cause during the two-year period
following a change in control. Messrs. Mozilo, Sambol,
Sieracki, Kripalani, Garcia and Gissinger do not participate in
this plan. Only one executive officer participates in this plan,
and he is fully vested in his benefits under this plan.
Senior Management Incentive Plan. Countrywide
maintains the Countrywide Financial Corporation Senior
Management Incentive Plan in which six of Countrywides
executive officers, but none of its named executive officers,
participate. Participants in the Senior Management Incentive
Plan are eligible to receive annual cash and restricted stock
bonus awards. Pursuant to the terms of this plan, in the event
of a change in control, (1) earned but unpaid awards for
the calendar year preceding the year of such change in control
(the Guaranteed Payment Year) must be paid within
ten days of the change in control (due to the expected timing of
the merger, this provision is not relevant), (2) earned but
unpaid awards for the calendar year in which the change in
control occurs must be paid no later than the last day of the
month during which Countrywide historically pays awards and must
be at least equal to the award paid to the participant for the
Guaranteed Payment Year (participants must be employed as of the
end of the calendar year in which the change in control occurs
to receive payment) and (3) in the event a participant is
eligible for a benefit under the Change in Control Severance
Plan prior to the end of the calendar year in which the change
in control occurs, the participant is entitled to a pro-rata
cash award based on the award earned by the participant for the
Guaranteed Payment Year, payable within ten days of termination
of the participants employment. Assuming that the merger
is completed on July 1, 2008 and the applicable executive
experiences a qualifying termination of employment entitling him
or her to benefits under the Change in Control Severance Plan
immediately thereafter, the pro-rata bonus (based upon the
bonuses earned by the executives for 2007) that would be
payable to the six executive officers who participate in the
plan, as a group, is $1,106,500.
Director Charitable Matching
Program. Countrywide maintains the Countrywide
Financial Corporation Directors Charitable Award Program
in which its current and former directors are eligible to
participate (the program was frozen to new participants in June
2007). Pursuant to this program, Countrywide contributes
$200,000 to the charity or charities of a directors choice
for each year of his service with Countrywide (up to
$1 million in total per director). A director fully vests
in his or her benefit under the program (i.e., is deemed to have
completed five years of service) upon a change in control, and
the program becomes irrevocable for all participating directors
(and former vested directors) upon such change in control.
Messrs. Melone and Russell will vest in the remaining 20%
of their benefit (i.e., an additional $200,000 donation on their
behalf) and Mr. Parry will vest in the remaining 40% of his
benefit (i.e., an additional $400,000 donation on his behalf) as
a result of the merger. All other current directors are already
fully vested in their benefits under this program.
Protection of Countrywide Directors and Officers Against
Claims. Bank of America has agreed to cause the
surviving corporation in the merger to indemnify and hold
harmless each present and former director and officer of
Countrywide from liability for matters arising at or prior to
the completion of the merger to the fullest extent provided by
applicable law. Bank of America also has agreed that it will
maintain in place existing indemnification and exculpation
rights in favor of Countrywide directors, officers and employees
for six years after the merger and that it will maintain
Countrywides current policy of directors and
officers liability insurance coverage, or an equivalent
replacement policy for the benefit of Countrywide directors and
officers, for six years following completion of the merger,
except that Bank of America is not required to
55
incur annual premium expense greater than 250% of
Countrywides current annual directors and
officers liability insurance premium.
Arrangements with Bank of America. Merger Sub
and Mr. Sambol have entered into a retention agreement
regarding the terms of his employment following completion of
the merger to supersede and replace his current employment
agreement with Countrywide. In addition, certain other executive
officers including Mr. Gissinger have entered into new
retention agreements with Merger Sub that replace their right to
participate in Countrywides Change in Control Severance
Plan. As of the date hereof, other than with respect to the
retention agreements with Merger Sub, no discussions have
occurred between members of Countrywides current
management and representatives of Bank of America, although
certain other members of Countrywides management team may
enter into these types of arrangements with Bank of America. Any
new arrangements are currently expected to be entered into on or
prior to completion of the merger and would not become effective
until after the merger is completed.
Sambol Retention Agreement. Mr. Sambol
has entered into a retention agreement with the Merger Sub that
becomes effective upon the completion of the merger. The
retention agreement will supersede and replace
Mr. Sambols current employment agreement with
Countrywide, and will provide for post-closing compensation
arrangements, including a retention account and limited
severance benefits.
The retention agreement sets forth the key components of
Mr. Sambols 2008 compensation, which compares to the
compensation provided under his current employment agreement as
follows:
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Current Employment
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Feature
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Retention Agreement
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Agreement
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Annual base salary
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$500,000
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$1,400,000
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Annual incentive award
(target)
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$4,000,000
A portion of this award may be delivered as a restricted stock
award
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$3,870,000
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Annual equity award
(target)
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150,000 options with respect to Bank of America common stock; a
portion of the stock options may be granted as restricted stock,
based on a conversion methodology
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$9,000,000; 50% provided as restricted stock units and 50% as
stock appreciation rights
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The actual annual incentive award and stock option award under
the retention agreement will be determined following the end of
2008 based on a review of Mr. Sambols performance,
and could be more or less than the target level based on that
review. Mr. Sambols annual equity awards will be
subject to the same terms and conditions, including vesting
conditions, applicable to similarly situated Bank of America
senior managers.
The retention agreement provides Mr. Sambol with certain
fringe benefits while he remains employed, but not beyond
December 31, 2009, which is the end of the term under his
current employment agreement. These fringe benefits, which are
the same fringe benefits provided for under his current
employment agreement, include use of a company-provided car (or
car allowance), country club dues and financial consulting
services. In addition, under his current employment agreement
and a Countrywide security policy, Mr. Sambol currently has
access to use of a company-provided aircraft for both business
and personal travel. Under the retention agreement, he would
continue to have access to a company-provided aircraft for such
purposes while he remains employed, but not beyond
December 31, 2009; however, the number of hours available
for personal use would be limited.
The retention agreement provides for the establishment of an
unfunded retention account for Mr. Sambol in the amount of
$20 million. The retention account replaces the cash
severance payments otherwise provided for under
Mr. Sambols current agreement for certain qualifying
terminations following a change in control of Countrywide. The
retention account becomes vested and payable to Mr. Sambol
in two equal installments on each of the first and second
anniversaries of the completion of the merger, with interest
credited each month through the date of vesting at a rate based
on one year treasury bill yields. Any unvested portion of the
56
account will be immediately vested and paid in case of
termination of employment due to death or disability. If
Mr. Sambols employment is terminated without
cause or if he resigns for good reason,
any unvested portion of the account will continue to vest and be
paid pursuant to the two-year vesting schedule, provided that he
complies with certain covenants not to compete, not to solicit
customers or employees and to preserve the confidentiality of
certain company information. Any unvested portion of the account
will be immediately forfeited in case of any other termination
of employment, including a termination for cause or
resignation without good reason.
In addition, upon completion of the merger, Mr. Sambol will
receive a one-time restricted stock unit award from Bank of
America with a grant date value of $8 million, vesting in
three equal annual installments beginning on the first
anniversary of the closing date. Any unvested portion of the
award will be immediately vested and paid in case of termination
of employment due to death or disability. If
Mr. Sambols employment is terminated without
cause or if he resigns for good reason,
any unvested portion of the award will continue to vest and be
paid pursuant to the three-year vesting schedule, provided that
he complies with certain covenants not to compete, not to
solicit customers or employees and to preserve the
confidentiality of certain company information. Any unvested
portion of the award will be immediately forfeited in case of
any other termination of employment, including a termination for
cause or resignation without good reason.
Mr. Sambols current employment agreement includes the
right to continuation of certain life and health insurance
benefits for up to three years following termination of
employment, if, on or before December 31, 2009, his
employment is terminated without cause or he resigns
for good reason. The retention agreement continues
to provide for this benefit.
For purposes of the retention agreement, cause is
the same definition as in his current employment agreement, but
good reason is limited to a post-merger reduction in
base salary or annual incentive/equity award opportunity, an
office relocation or an adverse change in title. This replaces
the definition of good reason in his current
employment agreement, which is a much broader definition that
would likely have been triggered following the merger.
In addition, Mr. Sambol will be entitled to receive a gross
up payment for excess parachute payments under terms
identical to those provided in his current employment agreement.
In the event that Mr. Sambol becomes subject to the excise
tax under Section 4999 of the Code, Bank of America will
make an additional payment to him such that he will be placed in
the same after-tax position as if no such excise tax had been
imposed, unless the payments exceed the limit on parachute
payments by less than the greater of 10% or $100,000. In such
case, Mr. Sambols payments and benefits will be
reduced to the minimum extent necessary so that no portion of
the payments are subject to the excise tax.
Bank of America may condition the payment of termination amounts
and benefits to Mr. Sambol upon his delivery of a full
release of claims in form in general use by Bank of America on
the date of termination. In addition, pursuant to his retention
agreement, Mr. Sambol is subject to an ongoing
confidentiality obligation and a
12-month
post-employment non-solicitation covenant with respect to Bank
of Americas employees.
Mr. Sambol will retire after assisting with the transition
and the completion of the merger. This will be treated as a
termination without cause under
Mr. Sambols retention agreement, and as a result he
will be eligible to receive the payments and benefits described
above.
Other Retention Agreements. Four other
executive officers, including Mr. Gissinger, have entered
into new retention agreements with Merger Sub that replace their
right to participate in the Change in Control Severance Plan.
In order to encourage post-closing retention of the executive
officers and to remove incentives under the Change in Control
Severance Plan for them to terminate employment following
completion of the merger, these retention agreements provide for
the establishment of an unfunded retention account for each
executive officer in an amount equal to 125% of the cash
severance payments that otherwise would have been provided for
the executive officer under the Change in Control Severance Plan
had the executive officer experienced a qualifying termination
immediately after completion of the merger. The retention
account becomes vested and payable to the executive officer in
two equal installments on each of the first and second
anniversaries of the
57
completion of the merger, with interest credited each month
through the date of vesting at a rate based on one year treasury
bill yields. Any unvested portion of the account will be
immediately vested and paid in case of termination of employment
due to death or disability, if employment is terminated without
cause or if the executive resigns for good
reason. Any unvested portion of the account will be
immediately forfeited in case of a termination for
cause or resignation without good reason.
The Change in Control Severance Plan currently provides for
certain benefits upon a termination without cause or
resignation for good reason, including continuation
of health care benefits, outplacement and financial planning
services and service credit (or value thereof) under certain
company retirement plans, in each case for three years. Each
retention agreement continues to provide for these benefits.
For purposes of the retention agreement, cause is
the same definition as in the Change in Control Severance Plan,
but good reason is limited to a post-merger
reduction in base salary or total compensation target or an
office relocation. This replaces the definition of good
reason currently in the Change in Control Severance Plan,
which is a broader definition that would more easily have been
triggered following the merger.
In addition, each executive officer will be entitled to receive
a gross up payment for excess parachute payments
under terms identical to those provided in the Change in Control
Severance Plan. In the event that the executive officer becomes
subject to the excise tax under Section 4999 of the Code,
Bank of America will make an additional payment to him such that
he will be placed in the same after-tax position as if no such
excise tax had been imposed, unless the payments exceed the
limit on parachute payments by less than the greater of 10% or
$100,000. In such case, the executive officers payments
and benefits will be reduced to the minimum extent necessary so
that no portion of the payments are subject to the excise tax.
Bank of America may condition the payment of termination amounts
and benefits to each executive officer upon the executive
officers delivery of a full release of claims in form in
general use by Bank of America on the date of termination.
We have also entered into retention arrangements with three
other executive officers pursuant to which we have preserved
their right to receive the cash severance and benefits payable
pursuant to the Change in Control Severance Plan substantially
under the circumstances set forth in that Plan although there
may be variation in the timing of the payment, and agreed to pay
each of these three executives an additional cash retention
bonus of up to 25% of the cash severance payment he or she is
eligible to receive under the Change in Control Severance Plan
if he or she remains employed by us for a specified period
following the closing of the merger.
The cash retention amounts payable to the executive officers (as
a group, excluding Mr. Gissinger) under all the retention
agreements as of the date hereof would be approximately
$27,731,394 and the cash retention amount payable to
Mr. Gissinger under his retention agreement would be
approximately $9,031,600.
After the date hereof, we may enter into similar retention
arrangements with other executive officers of Countrywide,
although there may be variation in the payment dates and terms
and conditions to receipt of payment. In addition, we have
offered certain executive officers (and may offer other
executive officers) a minimum guaranteed bonus for 2008 (if the
executive officer remains employed for the full year), a pro
rata bonus payment on termination without cause in 2008 or 2009,
and/or the
opportunity to be eligible for a discretionary cash performance
bonus in 2009.
Shareholder Derivative Claims. If the merger
is consummated, plaintiffs in pending shareholder actions
against certain Countrywide officers and directors may lose
standing to assert derivative claims on behalf of Countrywide
because the plaintiffs will no longer be stockholders of
Countrywide. See Litigation Relating to the
Merger on page 46.
58
THE
MERGER AGREEMENT
The following describes certain aspects of the merger,
including material provisions of the merger agreement. The
following description of the merger agreement is subject to, and
qualified in its entirety by reference to, the merger agreement,
which is attached to this document as Appendix A and is
incorporated by reference in this document. We urge you to read
the merger agreement carefully and in its entirety, as it is the
legal document governing this merger.
Terms of
the Merger
Each of the Countrywide board of directors and the Bank of
America board of directors has approved the merger agreement,
which provides for the merger of Countrywide with and into
Merger Sub. Merger Sub will be the surviving corporation in the
merger and will remain a wholly-owned subsidiary of Bank of
America. Each share of Countrywide common stock issued and
outstanding immediately prior to the completion of the merger,
except for specified shares of Countrywide common stock held by
Countrywide and Bank of America, will be converted into the
right to receive 0.1822 of a share of Bank of America common
stock. If the number of shares of common stock of Bank of
America changes before the merger is completed because of a
reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, or other similar
event, then an appropriate and proportionate adjustment will be
made to the number of shares of Bank of America common stock
into which each share of Countrywide common stock will be
converted.
Bank of America will not issue any fractional shares of Bank of
America common stock in the merger. Instead, a Countrywide
stockholder who otherwise would have received a fraction of a
share of Bank of America common stock will receive an amount in
cash rounded to the nearest cent. This cash amount will be
determined by multiplying the fraction of a share of Bank of
America common stock to which the holder would otherwise be
entitled by the average closing price of Bank of America common
stock over the five trading days immediately prior to the date
on which the merger is completed.
At the effective time of the merger, the Merger Sub certificate
of incorporation will be amended to provide that the name of the
surviving corporation will be Countrywide Financial Corporation
and, as so amended, will be the certificate of incorporation of
the surviving corporation after completion of the merger. The
merger agreement provides that Bank of America may change the
structure of the merger if consented to by Countrywide (but
Countrywides consent cannot be unreasonably withheld or
delayed). No such change will alter the amount or kind of merger
consideration to be provided under the merger agreement,
adversely affect the tax treatment of Countrywides
stockholders as a result of receiving the merger consideration
or the tax treatment of the parties to the merger agreement, or
materially impede or delay completion of the merger. Bank of
America and Countrywide have agreed that Merger Sub shall not be
converted into a Delaware limited liability company, as had
originally been contemplated by the merger agreement.
Treatment
of Countrywide Stock Options and Other Equity-Based
Awards
Each outstanding option to acquire Countrywide common stock
granted under Countrywides stock incentive plans will be
converted automatically at the effective time of the merger into
an option to purchase Bank of America common stock and will
continue to be governed by the terms of the Countrywide stock
plan and related grant agreements under which it was granted
(taking into account any accelerated vesting or other rights,
such as the right to surrender for cash, provided by the terms
of the options), except that:
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the number of shares of Bank of America common stock subject to
each converted Bank of America stock option will be equal to the
product of the number of shares of Countrywide common stock
previously subject to the Countrywide stock option and 0.1822,
rounded down to the nearest whole share; and
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the exercise price per share of Bank of America common stock
subject to each converted Bank of America stock option will be
equal to the exercise price for each share of Countrywide common
stock previously subject to the Countrywide stock option divided
by 0.1822, rounded up to the nearest cent.
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59
Stock appreciation rights in respect of Countrywide common stock
outstanding immediately prior to the merger will be converted
automatically at the effective time of the merger into stock
appreciation rights in respect of shares of Bank of America
common stock (taking into account any accelerated vesting or
other rights, such as the right to surrender for cash, provided
by the terms of the stock appreciation rights), except that:
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the number of whole shares of Bank of America common stock
subject to each converted stock appreciation right will be equal
to the product of the number of shares of Countrywide common
stock previously subject to the Countrywide stock appreciation
right and 0.1822, rounded down to the nearest whole
share; and
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the base price per share of Bank of America common stock subject
to each converted Bank of America stock appreciation right will
be equal to the base price base price for each share of
Countrywide common stock previously subject to the stock
appreciation right divided by 0.1822, rounded up to the nearest
cent.
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Each outstanding restricted share of Countrywide common stock
will be converted automatically at the effective time of the
merger into the right to receive the merger consideration, on
the same terms and conditions as applied to the restricted share
immediately prior to the effective time of the merger (including
transfer restrictions on the stock consideration to the extent
the shares do not vest and transfer restrictions do not lapse on
the completion of the merger).
Restricted share units in respect of Countrywide common stock
outstanding immediately prior to the merger will be converted
automatically at the effective time of the merger into
restricted share units in respect of shares of Bank of America
common stock (taking into account any accelerated vesting
provided by the terms of the restricted share units). The number
of shares of Bank of America common stock subject to each
converted restricted share unit will be equal to the product of
the number of shares of Countrywide common stock previously
subject to the Countrywide restricted share unit and 0.1822,
rounded to the nearest whole share. The Bank of America
restricted share units will be payable or distributable in
accordance with the terms of the agreement, plan or arrangement
relating to the restricted share units.
Countrywide deferred equity units, which are amounts denominated
in Countrywide common stock and held in participant accounts
pursuant to certain of Countrywides deferred compensation
plans, will be converted automatically at the effective time of
the merger into deferred equity units in respect of shares of
Bank of America common stock (taking into account any
accelerated vesting provided by the terms of the deferred equity
units). The number of shares of Bank of America common stock
subject to each converted deferred equity unit will be equal to
the product of the number of shares of Countrywide common stock
in which the Countrywide deferred equity unit was previously
denominated and 0.1822, rounded to the nearest whole share. The
deferred equity units will be payable or distributable in
accordance with the terms of the Countrywide deferred
compensation plans applicable to the deferred equity units.
The employee stock purchase plan portion of Countrywides
Global Stock Plan will be terminated prior to the effective time
of the merger in accordance with the terms of the plan. Options
to acquire Countrywide common stock under the UK ShareSave
Scheme of Countrywides Global Stock Plan will be treated
in accordance with the terms of the plan, and if required
pursuant to the terms of the plan, will be converted into the
right to receive shares of Bank of America common stock in the
same manner as described above for Countrywide stock options, or
as otherwise required by applicable law.
Bank of America has agreed to reserve additional shares of Bank
of America common stock to satisfy its obligations under the
converted stock options and other equity-based awards and file a
registration statement with the SEC on an appropriate form to
the extent necessary to register Bank of America common stock
subject to the converted stock options and other equity-based
awards.
Treatment
of Countrywide Indebtedness
As of December 31, 2007, Countrywide had outstanding
indebtedness of approximately $97.23 billion. This amount
includes revolving credit facilities with an aggregate principal
balance of approximately
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$11.48 billion, which Bank of America expects will be
repaid upon closing of the merger. The amount also includes FHLB
advances to Countrywide Bank of approximately
$47.68 billion, which Bank of America expects will remain
outstanding until repaid by Countrywide Bank.
As part of its integration planning in connection with the
merger, Bank of America is currently evaluating alternatives for
the disposition of the remaining Countrywide indebtedness,
including the possibility of redeeming, assuming or guaranteeing
some or all of this debt, or allowing it to remain outstanding
as obligations of Countrywide (and not Bank of America). Bank of
America has made no determination in this regard, and there is
no assurance that any of such debt would be redeemed, assumed or
guaranteed. The portion of Countrywides debt that does not
comprise debt under its revolving credit facilities or FHLB
advances would represent approximately 2.4% of Bank of
Americas total liabilities as of December 31, 2007.
Closing
and Effective Time of the Merger
The merger will be completed only if all of the following occur:
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the merger agreement is approved and adopted by Countrywide
stockholders;
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we obtain all required governmental and regulatory consents and
approvals without a condition or restriction that would have a
material adverse effect on either Countrywide or Bank of
America, measured on a scale relative to Countrywide; and
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all other conditions to the merger discussed in this document
and the merger agreement are either satisfied or waived.
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The merger will become effective when a certificate of merger is
filed with the Secretary of State of the State of Delaware.
However, we may agree to a later time for completion of the
merger and specify that time in the certificate of merger in
accordance with Delaware law. In the merger agreement, we have
agreed to cause the completion of the merger to occur no later
than the fifth business day following the satisfaction or waiver
of the last of the conditions specified in the merger agreement,
or on another mutually agreed date. If these conditions are
satisfied or waived during the two weeks immediately prior to
the end of a fiscal quarter of Bank of America, then Bank of
America may postpone the closing until the first full week after
the end of that quarter. It currently is anticipated that the
effective time of the merger will occur during the third quarter
of 2008, but we cannot guarantee when or if the merger will be
completed.
Conversion
of Shares; Exchange of Certificates
The conversion of Countrywide common stock into the right to
receive the merger consideration will occur automatically at the
effective time of the merger. As soon as reasonably practicable
after completion of the merger, the exchange agent will exchange
certificates representing shares of Countrywide common stock for
merger consideration to be received pursuant to the terms of the
merger agreement. Prior to the completion of the merger, Bank of
America will select a bank or trust company subsidiary of Bank
of America or another bank or trust company reasonably
acceptable to Countrywide to be the exchange agent, who will
exchange certificates for the merger consideration and perform
other duties as explained in the merger agreement.
Letter
of Transmittal
Soon after the completion of the merger, the exchange agent will
mail a letter of transmittal to each holder of a Countrywide
common stock certificate at the effective time of the merger.
This mailing will contain instructions on how to surrender
Countrywide common stock certificates in exchange for statements
indicating book-entry ownership of Bank of America common stock
and a check in the amount of cash to be paid instead of
fractional shares. If a holder of a Countrywide common stock
certificate makes a special request, however, Bank of America
will issue to the requesting holder a Bank of America stock
certificate in lieu of book-entry shares. When you deliver your
Countrywide stock certificates to the exchange agent along with
a properly executed letter of transmittal and any other required
documents, your Countrywide stock certificates will be cancelled
and you will receive statements indicating book-entry ownership
of Bank of America common stock, or, if requested, stock
certificates representing the number of full shares of Bank of
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America common stock to which you are entitled under the merger
agreement. You also will receive a cash payment for any
fractional shares of Bank of America common stock that would
have been otherwise issuable to you as a result of the merger.
Holders of Countrywide common stock should not submit their
Countrywide stock certificates for exchange until they receive
the transmittal instructions and a form of letter of transmittal
from the exchange agent.
If a certificate for Countrywide common stock has been lost,
stolen or destroyed, the exchange agent will issue the
consideration properly payable under the merger agreement upon
receipt of appropriate evidence as to that loss, theft or
destruction and appropriate and customary indemnification.
After completion of the merger, there will be no further
transfers on the stock transfer books of Countrywide, except as
required to settle trades executed prior to completion of the
merger.
Withholding
The exchange agent will be entitled to deduct and withhold from
the cash in lieu of fractional shares payable to any Countrywide
stockholder the amounts it is required to deduct and withhold
under any federal, state, local or foreign tax law. If the
exchange agent withholds any amounts, these amounts will be
treated for all purposes of the merger as having been paid to
the stockholders from whom they were withheld.
Dividends
and Distributions
Until Countrywide common stock certificates are surrendered for
exchange, any dividends or other distributions declared after
the effective time with respect to Bank of America common stock
into which shares of Countrywide common stock may have been
converted will accrue but will not be paid. Bank of America will
pay to former Countrywide stockholders any unpaid dividends or
other distributions, without interest, only after they have duly
surrendered their Countrywide stock certificates.
Prior to the effective time of the merger, Countrywide and its
subsidiaries may not declare or pay any dividend or distribution
on its capital stock or repurchase any shares of its capital
stock, other than:
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regular quarterly cash dividends on Countrywide common stock at
a rate not to exceed $0.15 per share of Countrywide common stock
with record dates and payment dates consistent with the prior
year;
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dividends on Countrywides Series B Preferred Stock,
which is held by a subsidiary of Bank of America;
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dividends paid by any subsidiary of Countrywide to Countrywide
or to any of its wholly-owned subsidiaries; and
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the acceptance of shares of Countrywide common stock in payment
of the exercise of a stock option or stock appreciation rights
or the vesting of restricted shares of Countrywide common stock
granted under a Countrywide stock plan or deferred equity unit
plan, in each case in accordance with past practice.
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Countrywide and Bank of America have agreed to coordinate
declaration of dividends so that holders of Countrywide common
stock will not receive two dividends, or fail to receive one
dividend, for any quarter with respect to their Countrywide
common stock and any Bank of America common stock any holder
receives in the merger.
Representations
and Warranties
The merger agreement contains customary representations and
warranties of Countrywide and Bank of America relating to their
respective businesses. With the exception of certain
representations that must be true and correct in all material
respects (or, in the case of specific representations and
warranties regarding the capitalization of Countrywide, true and
correct except to a de minimis extent), no representation or
warranty will be deemed untrue, inaccurate or incorrect as a
consequence of the existence or absence of any fact,
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circumstance or event unless that fact, circumstance or event,
individually or when taken together with all other facts,
circumstances or events, has had or would reasonably be expected
to have a material adverse effect on the company making the
representation. In determining whether a material adverse effect
has occurred or would reasonably be expected to occur, the
parties will disregard any effects resulting from
(1) changes in generally accepted accounting principles or
regulatory accounting requirements applicable generally to
companies in the industries in which the relevant party and its
subsidiaries operate (except to the extent that the effects of
such a change are disproportionately adverse to such party as
compared to other companies in such industries),
(2) changes in laws, rules or regulations of general
applicability to companies in the industries in which the
relevant party and its subsidiaries operate (except to the
extent that the effects of such a change are disproportionately
adverse to the party as compared to other companies in such
industries), (3) actions or omissions taken with the prior
written consent of the other party, (4) changes in global
or national political conditions or in general economic or
market conditions generally affecting other companies in the
industries in which the relevant party and its subsidiaries
operate, or (5) public disclosure of the merger. The
representations and warranties in the merger agreement do not
survive the effective time of the merger.
Each of Bank of America and Countrywide has made representations
and warranties to the other regarding, among other things:
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corporate matters, including due organization and qualification;
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capitalization;
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authority relative to execution and delivery of the merger
agreement and the absence of conflicts with, or violations of,
organizational documents or other obligations as a result of the
merger;
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required governmental filings and consents;
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the timely filing of reports with governmental entities, and the
absence of investigations by regulatory agencies;
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financial statements, internal controls and accounting;
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brokers fees payable in connection with the merger;
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the absence of material adverse changes;
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legal proceedings;
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taxes and tax returns;
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compliance with applicable laws;
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tax treatment of the merger; and
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the accuracy of information supplied for inclusion in this
document and other similar documents.
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In addition, Countrywide has made other representations and
warranties about itself to Bank of America as to:
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employee matters, including employee benefit plans;
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material contracts;
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risk management instruments and derivatives;
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investment securities and commodities;
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warehouse loan portfolios;
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real property and intellectual property;
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environmental liabilities;
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mortgage banking operations and securitizations;
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insurance operations;
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the inapplicability of state takeover laws and
Countrywides stockholder rights agreement;
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interested party transactions; and
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the receipt of financial advisors opinions.
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The representations and warranties described above and included
in the merger agreement were made by each of Bank of America and
Countrywide to the other. These representations and warranties
were made as of specific dates, may be subject to important
qualifications and limitations agreed to by Bank of America and
Countrywide in connection with negotiating the terms of the
merger agreement, and may have been included in the merger
agreement for the purpose of allocating risk between Bank of
America and Countrywide rather than to establish matters as
facts. The merger agreement is described in, and included as an
appendix to, this document only to provide you with information
regarding its terms and conditions, and not to provide any other
factual information regarding Countrywide, Bank of America or
their respective businesses. Accordingly, the representations
and warranties and other provisions of the merger agreement
should not be read alone, but instead should be read only in
conjunction with the information provided elsewhere in this
document and in the documents incorporated by reference into
this document. See Where You Can Find More
Information on page 81.
Covenants
and Agreements
Each of Countrywide and Bank of America has undertaken customary
covenants that place restrictions on it and its subsidiaries
until the effective time of the merger. In general, each of Bank
of America and Countrywide agreed to (1) conduct its
business in the ordinary course in all material respects,
(2) use reasonable best efforts to maintain and preserve
intact its business organization and advantageous business
relationships, including retaining the services of key officers
and employees, and (3) take no action that is intended to
or would reasonably be expected to adversely affect or
materially delay its ability to obtain any necessary regulatory
approvals, perform its covenants or complete the merger.
Countrywide further agrees that, with certain exceptions and
except with Bank of Americas prior written consent,
Countrywide will not, and will not permit any of its
subsidiaries to, among other things, undertake the following
extraordinary actions:
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incur indebtedness or in any way assume the indebtedness of
another person, except in the ordinary course of business;
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adjust, split, combine or reclassify any of its capital stock;
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make, declare or pay any dividends or other distributions on any
shares of its capital stock, except as set forth above in
Conversion of Shares; Exchange of
Certificates Dividends and Distributions (Bank
of America has agreed to allow Countrywide to repurchase shares
of Countrywide common stock in connection with the issuance of
shares under Countrywides stock incentive and deferred
equity unit plans);
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issue or grant shares, stock options or other equity-based
awards outside the parameters set forth in the merger agreement;
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except as (a) required under applicable law or the terms of
any Countrywide benefit plan, (b) for increases in annual
base salary in the ordinary course of business, consistent with
past practice and not exceeding four percent in the aggregate,
and (c) for promotions (other than for promotions to senior
managing director or above) in the ordinary course of business
consistent with past practice, (1) increase the
compensation or benefits of any current or former directors,
officers or employees; (2) pay any current or former
directors, officers or employees any amounts not required by
existing plans or agreements; (3) establish or terminate
any employee benefit or compensation plan or agreement;
(4) accelerate the vesting of certain benefits under any of
Countrywides employee benefit plans; or (5) hire
employees in the position of senior vice president or above (or,
in certain cases, regional vice president or above) or terminate
(other than for cause) the employment of employees in the
position of executive vice president or above;
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other than in the ordinary course of business, sell, transfer,
pledge, lease, license, mortgage, encumber or otherwise dispose
of any material assets or properties or cancel, release or
assign any material indebtedness;
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enter into any new line of business or change in any material
respect its lending, investment, underwriting, risk and asset
liability management and other banking, operating,
securitization and servicing policies other than as required by
applicable law;
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transfer ownership or grant rights to its material intellectual
property, except for certain grants of licenses in the ordinary
course of business;
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make any material investment either by purchase of securities,
capital contributions, property transfers or purchase of
property or assets;
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take any action or knowingly fail to take any action, which
action or failure to act is reasonably likely to prevent the
merger from qualifying as a reorganization for federal income
tax purposes;
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amend any governing documents, take any action to exempt another
person from any applicable takeover law or defensive charter or
terminate, amend or waive any provisions of any confidentiality
or standstill agreements in place with third parties;
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restructure or materially change its investment securities
portfolio or its gap position;
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materially change its existing policies and procedures
concerning mortgage loan operations;
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amend or knowingly violate certain material contracts or enter
into any obligation that would impose material restrictions on
the business of Countrywide, its subsidiaries or its affiliates;
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commence or settle any material claim;
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take or willfully fail to take any action that is intended, or
may be reasonably expected, to cause any of the conditions to
the merger to fail to be satisfied;
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implement or adopt any change in its tax accounting or financial
accounting principles, practices or methods, except as required
by applicable law, generally accepted accounting principles or
regulatory guidelines;
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file or amend any tax return other than in the ordinary course
of business, make or change any material tax election or settle
or compromise any material tax liability; or
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agree to take or adopt any resolutions by the board of directors
in support of any of the actions prohibited by the preceding
bullets.
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Bank of America agrees that, except with Countrywides
prior written consent, Bank of America will not, among other
things, undertake the following extraordinary actions:
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amend any governing documents in a manner that would adversely
affect Countrywide or its stockholders or the transactions
contemplated by the merger agreement;
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take any action or knowingly fail to take any action reasonably
likely to prevent the merger from qualifying as a reorganization
for federal income tax purposes;
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take any action or willfully fail to take any action that is
intended, or may be reasonably expected, to result in any of the
conditions to the merger failing to be satisfied;
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take any action that would reasonably be expected to prevent,
materially impede or materially delay completion of the
merger; or
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agree to take or adopt any resolutions by the board of directors
in support of any of the actions prohibited by the preceding
bullets.
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The merger agreement also contains covenants relating to the
preparation of this document and the holding of the special
meeting of Countrywide stockholders, access to information of
the other company and public announcements with respect to the
transactions contemplated by the merger agreement.
In addition, Countrywide has agreed to consult with Bank of
America regarding certain tax planning matters.
Reasonable
Best Efforts of Countrywide to Obtain the Required Stockholder
Vote
Countrywide has agreed to hold a meeting of its stockholders as
soon as is reasonably practicable for the purpose of obtaining
stockholder approval and adoption of the merger agreement.
Countrywide will use its reasonable best efforts to obtain such
approval and adoption. The merger agreement requires Countrywide
to submit the merger agreement to a stockholder vote even if its
board of directors no longer recommends approval and adoption of
the merger agreement.
Countrywide and Bank of America have also agreed in good faith
to use their reasonable best efforts to negotiate a
restructuring of the merger if Countrywides stockholders
do not approve and adopt the merger agreement at the special
meeting and to resubmit the transaction to Countrywides
stockholders for approval and adoption. However, in any
restructuring neither party has any obligation to change the
amount or kind of the merger consideration or the tax treatment
of the merger in a manner adverse to that party or its
stockholders.
Agreement
Not to Solicit Other Offers
Countrywide also has agreed that it, its subsidiaries and their
officers, directors, employees, agents and representatives will
not, directly or indirectly:
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initiate, solicit, encourage or facilitate any inquiries or
proposals for any Alternative Proposal (as defined
below); or
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participate in any discussions or negotiations, or enter into
any agreement, regarding any Alternative Transaction
(as defined below).
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However, prior to the special meeting, Countrywide may consider
and participate in discussions and negotiations with respect to
a bona fide Alternative Proposal if (1) it has first
entered into a confidentiality agreement with the party
proposing the Alternative Proposal on terms substantially
similar to Countrywides confidentiality agreement with
Bank of America and (2) the Countrywide board of directors
determines reasonably in good faith (after consultation with
outside legal counsel) that failure to take these actions would
cause the board to violate its fiduciary duties to Countrywide
stockholders under applicable law.
Countrywide has agreed:
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to cease any existing discussions or negotiations with respect
to any Alternative Proposal, and to use reasonable best efforts
to cause all persons other than Bank of America who have been
furnished with confidential information in connection with an
Alternative Proposal within the 12 months prior to the date
of the merger agreement to return or destroy such information;
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to notify Bank of America promptly (but no later than
24 hours) after it receives any Alternative Proposal, or
any material change to any Alternative Proposal, or any request
for nonpublic information relating to Countrywide or any of its
subsidiaries, and to provide Bank of America with relevant
information regarding the Alternative Proposal or
request; and
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to keep Bank of America fully informed, on a current basis, of
any material changes in the status and any material changes in
the terms of any such Alternative Proposal.
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As used in the merger agreement, an Alternative
Proposal means any inquiry or proposal, including any
indication of an intention to make a proposal, regarding any
merger, share exchange, consolidation, sale of assets, sale of
shares of capital stock (including by way of a tender offer) or
similar transactions involving Countrywide or any of its
subsidiaries that, if completed, would constitute an Alternative
Transaction.
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As used in the merger agreement, Alternative
Transaction means any of the following:
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a transaction in which any person or group (other than Bank of
America or its affiliates), directly or indirectly, acquires or
would acquire more than 15% of the outstanding shares of
Countrywide or any of its subsidiaries or outstanding voting
power or of any new series or new class of Countrywide preferred
stock that would be entitled to a class or series vote with
respect to a merger with Countrywide or any of its subsidiaries,
whether from Countrywide or pursuant to a tender offer or
exchange offer or otherwise;
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a merger, share exchange, consolidation or other business
combination involving Countrywide or any of its subsidiaries
(other than the merger being described here);
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any transaction in which any person or group (other than Bank of
America or its affiliates) acquires or would acquire control of
assets (including, for this purpose, the outstanding equity
securities of subsidiaries of Countrywide and securities of the
entity surviving any merger or business combination including
any of Countrywides subsidiaries) of Countrywide or any of
its subsidiaries representing more than 15% of the fair market
value of all the assets, net revenues or net income of
Countrywide and its subsidiaries, taken as a whole, immediately
prior to such transaction; or
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any other consolidation, business combination, recapitalization
or similar transaction involving Countrywide or any of its
subsidiaries, other than the transactions contemplated by the
merger agreement.
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The Countrywide board of directors has adopted a resolution
recommending that the Countrywide stockholders approve and adopt
the merger agreement. Under the merger agreement, the
Countrywide board of directors may not (1) withdraw, modify
or qualify, or propose publicly to withdraw, modify or qualify,
its recommendation, (2) take any public action or make any
public statement in connection with the meeting of Countrywide
stockholders that is inconsistent with its recommendation, or
(3) approve or recommend, or publicly propose to approve or
recommend, or fail to recommend against, any Alternative
Proposal. Any of these actions is referred to as a Change
of Recommendation.
However, the Countrywide board of directors may make a Change of
Recommendation if:
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it receives an unsolicited Alternative Proposal that constitutes
a Superior Proposal (as defined below) and that Superior
Proposal has not been withdrawn;
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Countrywide has not materially breached its agreement not to
solicit other offers or its agreement to use reasonable best
efforts to obtain stockholder approval of the merger;
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after consultation with outside counsel, it reasonably
determines in good faith that the failure to make the Change of
Recommendation would cause the board to violate its fiduciary
duties to Countrywide stockholders under applicable law;
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Countrywide provides five business days notice to Bank of
America of the boards intention to make a Change of
Recommendation (and an additional two business days notice
of any subsequent change to the Alternative Proposal described
in such notice); and
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during that five (or two) business day period Countrywide
negotiates in good faith with Bank of America to adjust the
terms of the merger agreement so that the Alternative Proposal
would no longer constitute a Superior Proposal.
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As used in the merger agreement, Superior Proposal
means any third party proposal to acquire all of
Countrywides equity or assets that Countrywides
board of directors determines in good faith, after consultation
with its financial advisor and outside counsel, would be more
favorable, from a financial point of view, to the Countrywide
stockholders than the transactions contemplated by the merger
agreement and is reasonably capable of being completed.
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Employee
Matters
Bank of America has agreed to maintain employee benefit plans
and compensation opportunities for employees of Countrywide and
its subsidiaries that are substantially comparable, in the
aggregate, to those made available to employees of Bank of
America and its subsidiaries. Initially, Bank of America may
satisfy these obligations by providing continued coverage to
these employees under Countrywides and its
subsidiaries existing plans and compensation
opportunities. Employees of Countrywide and its subsidiaries who
are eligible to participate in Countrywides change in
control severance plan and whose employment is terminated within
two years after completion of the merger are entitled to receive
payments and benefits under the plan.
In addition, Bank of America has agreed, to the extent any
Countrywide employee becomes eligible to participate in Bank of
America benefit plans following the merger:
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generally to recognize each employees service with
Countrywide prior to the completion of the merger for purposes
of eligibility, participation, vesting credits and, except under
defined benefit pension plans (with certain exceptions), benefit
accruals, in each case under the Bank of America plans to the
same extent such service was recognized under comparable
Countrywide plans prior to completion of the merger; and
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to use reasonable best efforts to waive any exclusion for
pre-existing conditions or eligibility waiting periods under any
Bank of America health, dental, vision or other welfare plans,
to the extent such limitation would have been waived or
satisfied under a corresponding Countrywide plan in which such
employee participated, and recognize any health, dental or
vision expenses incurred in the year in which the merger closes
(or, if later, the year in which such employee is first eligible
to participate) for purposes of applicable deductible and annual
out-of-pocket expense requirements under any health, dental or
vision plan of Bank of America.
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Bank of America has agreed to honor specified Countrywide
employment and change of control agreements and deferred
compensation plans and agreements in accordance with the terms
thereof. Bank of America has the right to amend or terminate
Countrywide benefit plans to the extent permitted under the
terms of such plans, and has no obligation to continue the
employment of any Countrywide employee for any period following
the merger.
Indemnification
and Insurance
The merger agreement requires the current rights of the
directors and officers of Countrywide and its subsidiaries to
indemnification under these entities organizational
documents and other disclosed agreements to continue in effect
for six years after completion of the merger. The merger
agreement also provides that, upon completion of the merger,
Bank of America will cause the surviving corporation to
indemnify and hold harmless, and provide advancement of expenses
to, all past and present officers and directors of Countrywide
and its subsidiaries against all losses or liabilities incurred
in their capacities as such to the fullest extent permitted by
applicable laws.
The merger agreement requires Bank of America to maintain for a
period of six years after completion of the merger
Countrywides current directors and officers
liability insurance policy, or policies of at least the same
coverage and amount and containing terms and conditions that are
not less advantageous than the current policy, with respect to
acts or omissions occurring prior to the effective time of the
merger, except that Bank of America is not required to incur an
annual premium expense greater than 250% of Countrywides
current annual directors and officers liability
insurance premium.
Conditions
to Complete the Merger
Our respective obligations to complete the merger are subject to
the fulfillment or waiver of certain conditions, including:
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the approval and adoption of the merger agreement by Countrywide
stockholders;
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the approval of the listing of the Bank of America common stock
to be issued in the merger on the NYSE, subject to official
notice of issuance;
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the effectiveness of the registration statement of which this
document is a part with respect to the Bank of America common
stock to be issued in the merger under the Securities Act and
the absence of any stop order or proceedings initiated or
threatened by the SEC for that purpose; and
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the absence of any order, decree or injunction by any court or
other governmental entity or other law that prohibits or makes
illegal completion of the transactions contemplated by the
merger agreement.
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Each of Bank of Americas and Countrywides
obligations to complete the merger is also separately subject to
the satisfaction or waiver of a number of conditions including:
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the receipt by each of Bank of America and Countrywide of a
legal opinion with respect to certain federal income tax
consequences of the merger;
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the receipt and effectiveness of all governmental and other
approvals, registrations and consents, and the expiration of all
related waiting periods required to complete the merger (in the
case of the condition to Bank of Americas obligation to
complete the merger, without any conditions or restrictions that
would have a material adverse effect on either Countrywide or
Bank of America, measured on a scale relative to
Countrywide); and
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the truth and correctness of the representations and warranties
of the other party in the merger agreement, subject to the
materiality standard provided in the merger agreement, and the
performance by the other party in all material respects of its
obligations under the merger agreement and the receipt of
certificates from the other party to that effect.
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In addition, Bank of Americas obligation to complete the
merger is subject to the condition that Countrywides
annual report on
Form 10-K
for the year ended December 31, 2007 has been filed and
includes an unqualified opinion of KPMG LLP (or another
reasonably acceptable independent registered accounting firm)
regarding Countrywides consolidated financial statements,
and that such opinion has not been withdrawn or otherwise
qualified.
We cannot provide assurance as to when or if all of the
conditions to the merger can or will be satisfied or waived by
the appropriate party. As of the date of this document, we have
no reason to believe that any of these conditions will not be
satisfied.
Termination
of the Merger Agreement
The merger agreement can be terminated at any time prior to
completion by mutual consent if authorized by each of our boards
of directors, or by either party in the following circumstances:
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if any of the required regulatory approvals are denied or
completion of the merger has been prohibited or made illegal by
a court or other governmental entity (and the denial or
prohibition is final and nonappealable);
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if the merger has not been completed by January 11, 2009,
unless the failure to complete the merger by that date is due to
the terminating partys failure to abide by the merger
agreement;
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if there is a breach by the other party that would cause the
failure of the closing conditions described above, unless the
breach is capable of being, and is, cured within 30 days of
notice of the breach; or
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if the other party has committed a substantial, bad faith breach
of its obligation to use reasonable best efforts to negotiate a
restructuring of the merger and to resubmit the transaction to
Countrywides stockholders for approval, if Countrywide
stockholders fail to approve and adopt the merger agreement.
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In addition, Bank of America may terminate the merger agreement
if:
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Countrywides board of directors (1) fails to
recommend the approval and adoption of the merger agreement by
Countrywide stockholders, (2) makes any Change of
Recommendation, (3) approves or
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recommends any Alternative Proposal or publicly proposes to do
so, or (4) fails to recommend that the Countrywide
stockholders reject any tender offer or exchange offer that
constitutes an Alternative Transaction within the statutorily
provided time for making such a recommendation; or
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Countrywide materially breaches its agreement not to solicit
other offers or its obligation to hold a meeting of Countrywide
stockholders for the purpose of approving and adopting the
merger agreement.
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Effect of
Termination
If the merger agreement is terminated, it will become void, and
there will be no liability on the part of Bank of America or
Countrywide, except that (1) both Bank of America and
Countrywide will remain liable for any knowing breach of the
merger agreement and (2) designated provisions of the
merger agreement will survive the termination, including those
relating to the payment of fees and expenses (including the
termination fee), the confidential treatment of information and
publicity restrictions.
Expenses
and Fees
In general, each of Bank of America and Countrywide will be
responsible for all expenses incurred by it in connection with
the negotiation and completion of the transactions contemplated
by the merger agreement. However, the costs and expenses of
printing and mailing this document, and all filing and other
fees paid to the SEC in connection with the merger, shall be
borne equally by Countrywide and Bank of America.
Countrywide also would be obligated to pay Bank of America a
$160 million termination fee if:
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Bank of America terminates the merger agreement because:
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Countrywides board of directors (1) fails to
recommend the merger to Countrywide stockholders, (2) makes
any Change of Recommendation or (3) fails to recommend that
Countrywide stockholders reject any tender offer or exchange
offer that constitutes an Alternative Transaction within the
statutorily provided time for making such a
recommendation; or
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Countrywide materially breaches its agreement not to solicit
other offers or its obligation to hold a meeting of Countrywide
stockholders for the purpose of approving and adopting the
merger agreement; or
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the following circumstances occur:
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(1) Bank of America terminates the merger agreement as a
result of a knowing or intentional breach by Countrywide that
would cause the failure of the closing conditions described
above, (2) Bank of America terminates the merger agreement
as a result of Countrywides substantial, bad faith breach
of its obligation to use reasonable best efforts to negotiate a
restructuring of the merger and resubmit the transaction to
Countrywide stockholders if Countrywide stockholders fail to
approve and adopt the merger agreement or (3) either party
terminates the merger agreement because the transaction has not
been completed by January 11, 2009 and the merger agreement
has not been approved and adopted by Countrywide stockholders;
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prior to any termination described in the bullet immediately
above, an Alternative Proposal is received by Countrywide or
publicly announced and not irrevocably withdrawn; and
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Countrywide enters a definitive agreement regarding, or
completes, an Alternative Transaction within twelve months of
termination.
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For this purpose, an Alternative Transaction has the
meaning described above in Agreement Not to
Solicit Other Offers, except that (1) references to
25% are changed to 50%, and (2) references to any merger,
share exchange, consolidation, recapitalization or any other
similar transaction involving Countrywide or its subsidiaries
refer only to transactions to which Countrywide is a party and
in which Countrywide stockholders would not hold at least
662/3%
of the total voting power of the surviving company or its public
parent corporation.
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Amendment,
Waiver and Extension of the Merger Agreement
Subject to applicable law, the parties may amend the merger
agreement by action taken or authorized by their boards of
directors or by written agreement. However, after any approval
of the merger agreement by the Countrywide stockholders, there
may not be, without further approval of those stockholders, any
amendment of the merger agreement that requires further approval
under applicable law.
At any time prior to the completion of the merger, each of us,
by action taken or authorized by our respective boards of
directors, to the extent legally allowed, may:
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extend the time for the performance of any of the obligations or
other acts of the other party;
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waive any inaccuracies in the representations and warranties of
the other party; or
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waive compliance by the other party with any of the other
agreements or conditions contained in the merger agreement.
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ACCOUNTING
TREATMENT
The merger will be accounted for as a purchase, as
that term is used under generally accepted accounting
principles, for accounting and financial reporting purposes.
Under purchase accounting, the assets (including identifiable
intangible assets) and liabilities (including executory
contracts and other commitments) of Countrywide as of the
effective time of the merger will be recorded at their
respective fair values and added to those of Bank of America.
Any excess of purchase price over the fair values is recorded as
goodwill. Financial statements of Bank of America issued after
the merger would reflect these fair values and would not be
restated retroactively to reflect the historical financial
position or results of operations of Countrywide.
FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER
The following general discussion sets forth the anticipated
material United States federal income tax consequences of the
merger to U.S. holders (as defined below) of Countrywide
common stock that exchange their shares of Countrywide common
stock for shares of Bank of America common stock in the merger.
This discussion does not address any tax consequences arising
under the laws of any state, local or foreign jurisdiction, or
under any United States federal laws other than those pertaining
to income tax. This discussion is based upon the Internal
Revenue Code of 1986, as amended, or the Code, the
regulations promulgated under the Code and court and
administrative rulings and decisions, all as in effect on the
date of this document. These laws may change, possibly
retroactively, and any change could affect the accuracy of the
statements and conclusions set forth in this discussion.
This discussion addresses only those Countrywide stockholders
that hold their shares of Countrywide common stock as a capital
asset within the meaning of Section 1221 of the Code.
Further, this discussion does not address all aspects of United
States federal income taxation that may be relevant to you in
light of your particular circumstances or that may be applicable
to you if you are subject to special treatment under the United
States federal income tax laws, including if you are:
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a financial institution;
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a tax-exempt organization;
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an S corporation or other pass-through entity (or an
investor in an S corporation or other pass-through entity);
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an insurance company;
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a mutual fund;
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a dealer or broker in stocks and securities, or currencies;
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a trader in securities that elects mark-to-market treatment;
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a holder of Countrywide common stock subject to the alternative
minimum tax provisions of the Code;
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a holder of Countrywide common stock that received Countrywide
common stock through the exercise of an employee stock option,
through a tax qualified retirement plan or otherwise as
compensation;
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a person that is not a U.S. holder (as defined below);
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a person that has a functional currency other than the
U.S. dollar;
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a holder of Countrywide common stock that holds Countrywide
common stock as part of a hedge, straddle, constructive sale,
conversion or other integrated transaction; or
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United States expatriates.
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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,
foreign or other tax laws and of changes in those laws.
For purposes of this discussion, the term
U.S. holder means a beneficial owner of
Countrywide common stock that is for United States federal
income tax purposes (i) an individual citizen or resident
of the United States, (ii) a corporation organized in or
under the laws of the United States or any state thereof or the
District of Columbia or (iii) otherwise subject to
U.S. federal income taxation on a net income basis in
respect of the Countrywide common stock.
The United States federal income tax consequences to a partner
in an entity or arrangement treated as a partnership, for United
States federal income tax purposes, that holds Countrywide
common stock generally will depend on the status of the partner
and the activities of the partnership. Partners in a partnership
holding Countrywide common stock should consult their own tax
advisors.
Tax
Consequences of the Merger Generally
The parties intend for the merger to qualify as a reorganization
for United States federal income tax purposes. It is a condition
to Bank of Americas obligation to complete the merger that
Bank of America receive an opinion from Cleary Gottlieb
Steen & Hamilton LLP, dated the closing date of the
merger, substantially to the effect that the merger will be
treated as a reorganization within the meaning of
Section 368(a) of the Code. It is a condition to
Countrywides obligation to complete the merger that
Countrywide receive an opinion from Wachtell, Lipton,
Rosen & Katz, dated the closing date of the merger,
substantially to the effect that the merger will be treated as a
reorganization within the meaning of Section 368(a) of the
Code. In addition, in connection with the mailing of this
document, each of Bank of America and Countrywide has received a
legal opinion, from Cleary Gottlieb Steen & Hamilton
LLP and Wachtell, Lipton, Rosen & Katz, respectively,
to the same effect as the opinions described above. These
opinions are and will be based on representation letters
provided by Bank of America and Countrywide and on customary
factual assumptions. None of the opinions described above will
be binding on the Internal Revenue Service. Bank of America and
Countrywide have not sought and will not seek any ruling from
the Internal Revenue Service regarding any matters relating to
the merger, and as a result, there can be no assurance that the
Internal Revenue Service will not assert, or that a court would
not sustain, a position contrary to any of the conclusions set
forth below.
Accordingly, as a result of the merger being treated as a
reorganization within the meaning of Section 368(a) of the
Code, upon exchanging your Countrywide common stock for Bank of
America common stock, you will generally not recognize gain or
loss, except with respect to cash received instead of fractional
shares of Bank of America common stock (as discussed below). The
aggregate tax basis in the shares of Bank of America common
stock that you receive in the merger, including any fractional
share interests deemed received and redeemed as described below,
will equal your aggregate adjusted tax basis in the Countrywide
common stock you surrender. Your holding period for the shares
of Bank of America common stock that you receive in the merger
(including a fractional share interest deemed received and
redeemed as described below)
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will include your holding period for the shares of Countrywide
common stock that you surrender in the exchange.
Cash
Instead of a Fractional Share
If you receive cash instead of a fractional share of Bank of
America common stock, you will be treated as having received the
fractional share of Bank of America common stock pursuant to the
merger and then as having exchanged the fractional share of Bank
of America common stock for cash in a redemption by Bank of
America. As a result, assuming that the redemption of a
fractional share of Bank of America common stock is treated as a
sale or exchange and not as a dividend, you generally will
recognize gain or loss equal to the difference between the
amount of cash received and the basis in its fractional share of
Bank of America common stock as set forth above. This gain or
loss generally will 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 the shares (including the
holding period of Countrywide common stock surrendered therefor)
is greater than one year. The deductibility of capital losses is
subject to limitations.
Backup
Withholding
If you are a non-corporate holder of Countrywide common stock
you may be subject to information reporting and backup
withholding (currently at a rate of 28%) on any cash payments
you receive. You generally will not be subject to backup
withholding, however, if you:
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furnish a correct taxpayer identification number, certify that
you are not subject to backup withholding on the substitute
Form W-9
or successor form included in the election form/letter of
transmittal you will receive and otherwise comply with all the
applicable requirements of the backup withholding rules; or
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provide proof that you are otherwise exempt from backup
withholding.
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Any amounts withheld under the backup withholding rules will
generally be allowed as a refund or credit against your United
States federal income tax liability, provided you timely furnish
the required information to the Internal Revenue Service.
Reporting
Requirements
If you receive shares of Bank of America common stock as a
result of the merger, you will be required to retain records
pertaining to the merger and you will be required to file with
your United States federal income tax return for the year in
which the merger takes place a statement setting forth certain
facts relating to the merger.
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COMPARISON
OF STOCKHOLDERS RIGHTS
Bank of America and Countrywide are both incorporated under
Delaware law. Any differences, therefore, between the rights of
Bank of America stockholders and the rights of Countrywide
stockholders result solely from differences in the
companies respective certificates of incorporation and
bylaws. Upon completion of the merger, you will exchange your
shares of Countrywide common stock for shares of Bank of America
common stock, and as a Bank of America stockholder your rights
will be governed by the Bank of America certificate of
incorporation and the Bank of America bylaws.
The following is a summary of the material differences between
the rights of holders of Bank of America common stock and the
rights of holders of Countrywide common stock, but does not
purport to be a complete description of those differences. The
Bank of America certificate of incorporation, the Countrywide
certificate of incorporation and the Bank of America and
Countrywide bylaws are subject to amendment in accordance with
their terms. Copies of the governing corporate instruments are
available, without charge, to any person, including any
beneficial owner to whom this document is delivered, by
following the instructions listed under Where You Can Find
More Information on page 81.
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Countrywide
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Bank of America
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AUTHORIZED CAPITAL STOCK
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Authorized Shares
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Countrywide is authorized under its certificate of incorporation
to issue 1,001,500,000 shares, consisting of
1,000,000,000 shares of common stock, par value $0.05 per
share, and 1,500,000 shares of preferred stock, par value
$0.05 per share.
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Bank of America is authorized under its certificate of
incorporation to issue 7,600,000,000 shares, consisting of
7,500,000,000 shares of common stock, par value $0.01 per
share, and 100,000,000 shares of preferred stock, par value
$0.01 per share.
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Preferred Stock
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Countrywides certificate of incorporation provides that
shares of preferred stock may be issued from time to time in one
or more series by the board of directors. The board can fix
preferences, limitations and relative rights of each series of
preferred stock. The rights of preferred stockholders may
supersede the rights of common stockholders. Currently,
(1) 250,000 shares are authorized as Countrywide
Series A Participating Preferred Stock and
(2) 20,000 shares are authorized as Series B
Preferred Stock.
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Bank of Americas certificate of incorporation provides
that shares of preferred stock may be issued from time to time
in one or more series by the board of directors. The board can
fix the preferences, limitations and relative rights of each
series of preferred stock. The rights of preferred stockholders
may supersede the rights of common stockholders. Currently,
(1) 3,000,000 shares are authorized as Bank of America
ESOP Convertible Preferred Stock, Series C,
(2) 35,045 shares are authorized as Bank of America
Cumulative Redeemable Preferred Stock, Series B,
(3) 20,000,000 shares are authorized as Bank of
America $2.50 Cumulative Convertible Preferred Stock,
Series BB, (4) 85,100 shares are authorized as
Bank of America Floating Rate Non-Cumulative Preferred Stock,
Series E, (5) 34,500 shares are authorized as
Bank of America 6.204% Non-Cumulative Series D Preferred
Stock, (6) 7,001 shares are authorized as Bank of
America Floating Rate Non-Cumulative Preferred Stock,
Series F, (7) 8,501 shares are authorized as Bank
of America Adjustable Rate Non-Cumulative Preferred Stock,
Series G, (8) 25,300 shares are authorized as
Bank of America 6.625% Non-Cumulative Preferred Stock,
Series I, (9) 41,400 shares are authorized as
Bank of America 7.25% Non-Cumulative Preferred Stock,
Series J, (10) 240,000 shares are authorized as
Bank of America Fixed-to-Floating Rate Non-Cumulative Preferred
Stock, Series K, (11) 6,900,000 shares are
designated as Bank of America 7.25% Non-Cumulative Perpetual
Convertible Preferred Stock, Series L, (12) 124,200
shares are authorized as Bank of America 8.20% Non-Cumulative
Preferred Stock, Series H and (13) 160,000 shares are
authorized as Bank of America Fixed-to-Floating Rate
Non-Cumulative Preferred Stock, Series M.
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Countrywide
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Bank of America
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AMENDMENT TO THE CERTIFICATE OF
INCORPORATION
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Under the Delaware General Corporation Law, an amendment to the
certificate of incorporation requires (1) the approval of
the board of directors, (2) the approval of the holders of
a majority of the outstanding stock entitled to vote upon the
proposed amendment, and (3) the approval of the holders of
a majority of the outstanding stock of each class entitled to
vote thereon as a class.
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The Countrywide certificate of incorporation additionally
requires a vote of the holders of at least two-thirds
(662/3%)
of the voting power of all of the shares of Countrywide stock
entitled to vote in the election of directors, voting together
as a single class when the amendment pertains to (1) the
requirements for amendments to the Countrywide certificate of
incorporation or bylaws, (2) the classification of the
Countrywide board of directors and removal and replacement of
directors, (3) the prohibition on stockholder action by
written consent and (4) the provisions described below
under Purchases of Stock from Certain
Persons unless such amendment has been approved by
two-thirds of the entire Countrywide board of directors and a
majority of Countrywides continuing directors, which are
those directors who became members of the board of directors
before any stockholder who beneficially owns 10% or more of the
outstanding shares of Countrywide stock first became a 10%
stockholder.
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The Bank of America certificate of incorporation does not
contain any provisions altering the standards for amendment.
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AMENDMENT TO THE BYLAWS
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Under the Delaware General Corporation Law, bylaws may be
adopted, amended or repealed by the stockholders entitled to
vote, and by the board of directors if the corporations
certificate of incorporation confers the power to adopt, amend
or repeal the corporations bylaws upon the directors.
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The Countrywide certificate of incorporation confers the power
to adopt, amend or repeal the Countrywide bylaws upon the
Countrywide board of directors and by a vote of the holders of
at least two-thirds of Countrywide voting stock, unless such
amendment has been approved by two-thirds of the entire
Countrywide board of directors and a majority of
Countrywides continuing directors, which are those
directors who became members of the board of directors before
any stockholder who beneficially owns 10% or more of the
outstanding shares of Countrywide stock first became a 10%
stockholder.
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The Bank of America certificate of incorporation confers the
power to adopt, amend or repeal the Bank of America bylaws upon
the Bank of America board of directors, subject to the power of
the Bank of America stockholders to alter or repeal any bylaws
adopted by the Bank of America board of directors.
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SPECIAL MEETINGS OF STOCKHOLDERS
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The Countrywide bylaws provide that a special meeting of
stockholders may be called for any purpose by the chairman of
the board of directors or the chief executive officer, or upon
the written request of a majority of the board of directors.
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The Bank of America bylaws provide that a special meeting of
stockholders may be called for any purpose by the board of
directors, the chairman of the board of directors, the chief
executive officer or the president, or the secretary acting
under instructions of any of the foregoing or upon the written
request of the record holders and at least 25% of Bank of
Americas outstanding common stock.
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Countrywide
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Bank of America
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STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
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The Countrywide certificate of incorporation prohibits
stockholder action by written consent.
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The Bank of America certificate of incorporation permits
stockholders to act by written consent only if consents are
signed by all stockholders entitled to vote on such action.
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STOCKHOLDER PROPOSALS AND NOMINATIONS
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The Countrywide bylaws specify that nominations of individuals for election as directors may be made by or at the direction of a majority of the Countrywide board of directors or by any Countrywide stockholder of record entitled to vote at the annual meeting at which the election will take place who complies with the requisite notice procedure. The notice procedure requires that a stockholder
s nomination of a candidate for election as a director must be delivered to, or mailed and received at, the Countrywide principal executive offices not less than 60 nor more than 90 days prior to the date of the scheduled annual meeting, regardless of postponements, deferrals, or adjournments of the meeting to a later date except that where less than 70 days public notice of the date
of the current annual meeting is given, notice must be delivered not later than the 10th day following the date on which notice was mailed or public disclosure of the meeting date was made, whichever is earlier. The notice must include certain information concerning the stockholder and the nominee.
The Countrywide bylaws specify that stockholder proposals may be made by or at the direction
of a majority of the Countrywide board of directors or by any Countrywide stockholder who complies with the requisite notice procedure. The notice procedure requires that a stockholders notice must be delivered to, or mailed and received at, the Countrywide principal executive offices not less than 120 days prior to the date of the proxy statement sent to stockholders for the preceding year
s annual meeting except that where the date of the current annual meeting was changed by more than 30 days from the date of the preceding years meeting or there was no meeting in the preceding year, notice must be received a reasonable time before the annual meeting proxy solicitation is made. The notice must include certain information concerning the stockholder and the matter the stockholder
proposes to bring before the meeting. A stockholder may only submit one proposal.
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The Bank of America bylaws specify that nominations of
individuals for election as directors and stockholder proposals
may be made pursuant to Bank of Americas notice of
meeting, by or at the direction of the Bank of America board of
directors or by any holder of Bank of America stock entitled to
vote on the election of directors who complies with the
requisite notice procedure. The notice procedure requires that
a stockholders proposal or nomination of an individual for
election as a director must be received by the secretary of Bank
of America not later than the close of business on the
75th day nor earlier than the close of business on the
120th day prior to the first anniversary of the date Bank
of America commenced mailing its proxy materials for the
preceding years annual meeting except that where the date
of the current annual meeting differs significantly from the
preceding years meeting, notice must be delivered not
earlier than the 120th day prior to the meeting and not
later than the 75th day before the meeting or the
10th day following public announcement of the meeting. In
the event of a special meeting of Bank of America stockholders
at which directors are to be elected, any Bank of America
stockholder entitled to vote may nominate an individual for
election as director if the stockholders notice is
received by the secretary of Bank of America not later than the
close of business on the 15th day following the day on
which notice of the meeting is first mailed to Bank of America
stockholders. The notice must include certain information
concerning the stockholder, the matter the stockholder proposes
to bring before the meeting and, in the case of a nomination for
director, the nominee.
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Countrywide
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Bank of America
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With respect to the 2009 and subsequent annual meetings of
stockholders, the notice procedures for any nominations of
individuals for election of directors or any stockholder
proposals require a stockholder to provide notice of a candidate
or a stockholder proposal, as the case may be, to be delivered
to, or mailed and received at, the Countrywide principal
executive offices not less than 90 days nor more than
120 days prior to the date of the first anniversary of the
immediately preceding years annual meeting of
stockholders, except that where the date of the current annual
meeting differs more than 30 days before or more than
60 days after such anniversary date, notice by the
stockholder must be received (a) not earlier than the close
of business on the 120th day prior to such annual meeting
and (b) not later than the close of business on the later
of (i) the 90th day prior to such annual meeting or
(ii) the 10th day following the day on which public
announcement of the date of such meeting of stockholders was
first made.
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|
BOARD OF DIRECTORS
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Number of Directors
|
The Countrywide bylaws provide that the Countrywide board of
directors is to consist of not less than three nor more than 15
members, which number may be fixed from time to time by the
Countrywide board of directors. Currently, the number of members
of the Countrywide board of directors is nine.
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|
The Bank of America bylaws provide that the Bank of America
board of directors is to consist of not less than five nor more
than 30 members, which number may be changed from time to time
within such range by the Bank of America board of directors.
Currently, the number of members of the Bank of America board of
directors is 16.
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Classification
|
The Countrywide certificate of incorporation provides that the
Countrywide board of directors will be divided into three
classes, of equal size to the extent possible. Each class serves
for a term of three years, subject to a directors earlier
death, resignation or removal.
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|
The Bank of America certificate of incorporation and the Bank of
America bylaws do not provide for classification of the Bank of
America board of directors.
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Removal
|
Countrywide stockholders may remove any Countrywide director
only for cause and only upon an affirmative vote of the holders
of two-thirds of the Countrywide voting stock.
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|
Bank of America stockholders may remove one or all of the Bank
of America directors with or without cause upon an affirmative
vote of the holders of a majority of the Bank of America voting
stock.
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|
Special Meetings of the Board
|
Special meetings of the Countrywide board of directors may be
called by the chairperson of the board, the chief executive
officer or the president, or the secretary upon the written
request of a majority of the board.
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|
Special meetings of the Bank of America board of directors may
be called by the chairman of the board, the chief executive
officer, the president, or the secretary acting under
instructions from any of the foregoing persons, or upon the
request of any three directors.
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77
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|
Countrywide
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|
Bank of America
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|
STOCKHOLDER RIGHTS PLAN
|
Countrywide currently has a stockholder rights plan in effect,
pursuant to which each share of Countrywides common stock
includes an attached preferred stock purchase right. The rights
have certain anti-takeover effects. The rights will cause
substantial dilution to any person or group that attempts to
acquire a 15% share of the voting power of Countrywide without
Countrywides approval. Because the Countrywide board of
directors can redeem the rights or approve an acquisition offer,
the rights generally should not interfere with any merger or
other business combination approved by the board of directors.
The Countrywide board of directors may amend the terms of the
rights in any manner prior to the time the rights are
triggered.
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|
Bank of America currently does not have a stockholder rights plan in effect, but under Delaware law the Bank of America board of directors could adopt such a plan without stockholder approval.
The Bank of America board of directors has adopted a policy of requiring stockholder approval prior to the adoption of any stockholder rights plan.
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|
In connection with the execution of the merger agreement,
Countrywide and American Stock Transfer &
Trust Company, as rights agent, entered into an amendment
to the stockholder rights agreement, pursuant to which neither
Bank of America nor its affiliates will be deemed to be an
acquiring person as a result of the execution and delivery of
the merger agreement, the consummation of the merger, or the
consummation of the transactions contemplated by the merger
agreement. Pursuant to the amendment, the execution of the
merger agreement, the consummation of the merger, and the
consummation of the transactions contemplated by the merger
agreement will be deemed not to trigger the issuance or exercise
of the rights. In addition, pursuant to the amendment, the
stockholder rights agreement and the rights thereof will expire
upon consummation of the merger.
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PURCHASES OF STOCK FROM CERTAIN PERSONS
|
The Countrywide certificate of incorporation limits
Countrywides power to purchase shares of Countrywide
voting stock from a five percent (or greater) holder at a price
exceeding their fair market value, unless the holder has held
its shares at least two years or the purchase is approved by
holders of a majority of those voting shares (unless applicable
law requires a greater vote) without the vote of that holder.
Voting stock for this purpose is defined as capital stock that
has the right to vote generally on matters relating to
Countrywide and any security that is convertible into that stock.
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|
The Bank of America certificate of incorporation and the Bank of
America bylaws do not limit Bank of Americas power to
purchase shares of Bank of America stock from any person.
|
78
COMPARATIVE
MARKET PRICES AND DIVIDENDS
Each of Bank of America common stock and Countrywide common
stock is listed on the NYSE, among other stock exchanges. The
following table sets forth the high and low sales prices of
shares of Bank of America common stock and Countrywide common
stock as reported on the NYSE, and the quarterly cash dividends
declared per share for the periods indicated.
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Bank of America Common Stock
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|
Countrywide Common Stock
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High
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Low
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|
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Dividend
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High
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Low
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Dividend
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2006
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|
|
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|
|
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|
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First Quarter
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$
|
47.24
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|
$
|
42.92
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|
$
|
0.50
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|
$
|
37.23
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$
|
31.86
|
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|
$
|
0.15
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Second Quarter
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50.50
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|
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|
45.26
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|
|
|
0.50
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|
|
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43.67
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|
|
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35.93
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|
|
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0.15
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Third Quarter
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54.00
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|
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47.59
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|
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0.56
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|
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39.99
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|
32.20
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|
|
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0.15
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Fourth Quarter
|
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55.08
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|
51.32
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|
0.56
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|
|
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43.10
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34.50
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|
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|
0.15
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2007
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
First Quarter
|
|
|
54.21
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|
|
|
48.36
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|
|
|
0.56
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|
|
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45.26
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|
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33.13
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|
|
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0.15
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Second Quarter
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52.20
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|
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|
48.55
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|
|
|
0.56
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|
|
|
42.24
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|
|
|
32.32
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|
|
|
0.15
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|
Third Quarter
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52.78
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|
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|
46.52
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|
|
|
0.64
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|
|
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37.52
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15.00
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|
|
|
0.15
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Fourth Quarter
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52.96
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40.61
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|
|
0.64
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20.53
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|
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8.21
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|
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0.15
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2008
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|
|
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First Quarter
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45.08
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|
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33.12
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|
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0.64
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9.27
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3.95
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|
|
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0.15
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|
Second Quarter (through May 27, 2008)
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41.50
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|
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33.71
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|
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|
0.64
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|
|
|
6.48
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|
|
|
4.50
|
|
|
|
0.15
|
|
On January 9, 2008, the last full trading day before the
publication of press reports regarding a potential merger, the
high and low sales prices of shares of Bank of America common
stock as reported on the New York Stock Exchange were
$38.79 and $37.42, respectively. On January 10, 2008, the
last full trading day before the public announcement of the
merger agreement, the high and low sales prices of shares of
Bank of America common stock as reported on the New York Stock
Exchange were $39.81 and $37.90, respectively. On May 27,
2008, the last full trading day before the date of this
document, the high and low sale prices of shares of Bank of
America common stock as reported on the New York Stock Exchange
were $34.35 and $33.71, respectively.
On January 9, 2008, the last full trading day before the
publication of press reports regarding a potential merger, the
high and low sales prices of shares of Countrywide common stock
as reported on the New York Stock Exchange were $5.80 and $4.43,
respectively. On January 10, 2008, the last full trading
day before the public announcement of the merger agreement, the
high and low sales prices of shares of Countrywide common stock
as reported on the New York Stock Exchange were $8.91 and $4.82,
respectively. On May 27, 2008, the last full trading day
before the date of this document, the high and low sale prices
of shares of Countrywide common stock as reported on the New
York Stock Exchange were $4.68 and $4.54, respectively.
As of May 22, 2008, the last date prior to printing this
document for which it was practicable to obtain this
information, there were approximately 261,847 registered holders
of Bank of America common stock and approximately
1,852 registered holders of Countrywide common stock.
Bank of America stockholders and Countrywide stockholders are
advised to obtain current market quotations for Bank of America
common stock and Countrywide common stock. The market price of
Bank of America common stock and Countrywide common stock will
fluctuate between the date of this document and the completion
of the merger. No assurance can be given concerning the market
price of Bank of America common stock or Countrywide common
stock before or after the effective date of the merger.
79
LEGAL
MATTERS
The validity of the Bank of America common stock to be issued in
connection with the merger will be passed upon for Bank of
America by Timothy J. Mayopoulos, Executive Vice President and
General Counsel of Bank of America. Cleary Gottlieb
Steen & Hamilton LLP on behalf of Bank of America, and
Wachtell, Lipton, Rosen & Katz on behalf of
Countrywide, will pass upon certain legal matters to the effect
that the merger will constitute a tax-free
reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
EXPERTS
The financial statements and managements assessment of the
effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal
Control over Financial Reporting) incorporated in this document
by reference to the Annual Report on
Form 10-K
of Bank of America Corporation for the year ended
December 31, 2007 have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, an independent
registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements and financial statement
schedules of Countrywide Financial Corporation and subsidiaries
as of December 31, 2007 and 2006, and for each of the years
in the three-year period ended December 31, 2007, and
managements assessment of the effectiveness of internal
control over financial reporting as of December 31, 2007,
have been incorporated by reference herein in reliance upon the
reports of KPMG LLP, independent registered public accounting
firm, as set forth in their reports thereon appearing in the
Annual Report on
Form 10-K
of Countrywide Financial Corporation for the year ended
December 31, 2007 and incorporated by reference herein, and
upon the authority of said firm as experts in accounting and
auditing. KPMG LLPs report on the aforementioned financial
statements and schedules refers to the adoption of Statement of
Financial Accounting Standards (SFAS) No. 123R,
Share-Based Payment; SFAS No. 156, Accounting for
Servicing of Financial Assets, an amendment of SFAS
No. 140 and SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans.
OTHER
MATTERS
According to the Countrywide amended and restated bylaws,
business to be conducted at a special meeting of stockholders
may only be brought before the meeting pursuant to a notice of
meeting or otherwise properly brought before the meeting by or
at the direction of the Countrywide board of directors. No
matters other than the matters described in this document are
anticipated to be presented for action at the special meeting or
at any adjournment or postponement of the special meeting.
Countrywide
2008 Annual Meeting
Countrywide will hold a 2008 annual meeting of stockholders only
if the merger is not completed. If it is determined that the
merger will not be completed as contemplated by the merger
agreement, Countrywide will provide notice of the date fixed for
the annual meeting, as well as the deadline for submitting
stockholder proposals for such meeting and to have stockholder
proposals included in Countrywides proxy statement.
STOCKHOLDERS
SHARING AN ADDRESS
Only one copy of this document is being delivered to multiple
stockholders of Countrywide sharing an address unless
Countrywide has previously received contrary instructions from
one or more of such stockholders. On written or oral request to
the Secretary of Countrywide at 4500 Park Granada, Calabasas,
California 91302,
(818) 225-3000,
Countrywide will deliver promptly a separate copy of this
document to a stockholder at a shared address to which a single
copy of the document was delivered. Stockholders sharing an
address who wish, in the future, to receive separate copies or a
single copy of Countrywides proxy statements and annual
reports should provide written or oral notice to the Secretary
of Countrywide at the address and telephone number set forth
above.
80
WHERE YOU
CAN FIND MORE INFORMATION
Bank of America has filed with the SEC a registration statement
under the Securities Act that registers the distribution to
Countrywide stockholders of the shares of Bank of America common
stock to be issued in connection with the merger. The
registration statement, including the attached exhibits and
schedules, contains additional relevant information about Bank
of America and Bank of America stock. The rules and regulations
of the SEC allow us to omit certain information included in the
registration statement from this document.
You may read and copy this information at the Public Reference
Room of the SEC at 100 F Street, NE, Room 1580,
Washington, D.C. 20549. You may obtain information on the
operation of the SECs Public Reference Room by calling the
SEC at
1-800-SEC-0330.
The SEC also maintains an internet website that contains
reports, proxy statements and other information about issuers,
like Bank of America and Countrywide, who file electronically
with the SEC. The address of the site is
http://www.sec.gov.
The reports and other information filed by Bank of America with
the SEC are also available at Bank of Americas website at
http://www.bankofamerica.com.
The reports and other information filed by Countrywide with the
SEC are also available at Countrywides website at
http://www.countrywide.com.
We have included the web addresses of the SEC, Bank of America,
and Countrywide as inactive textual references only. Except as
specifically incorporated by reference into this document,
information on those web sites is not part of this document.
The SEC allows Bank of America and Countrywide to incorporate by
reference information in this document. This means that Bank of
America and Countrywide 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 Bank of America and Countrywide previously filed with
the SEC. They contain important information about the companies
and their financial condition.
|
|
|
Bank of America SEC Filings
|
|
|
(SEC File No. 001-06523; CIK No. 0000070858)
|
|
Period or Date Filed
|
|
Annual Report on
Form 10-K
|
|
Year ended December 31, 2007
|
Current Reports on
Form 8-K
The description of Bank of America common stock set forth in a
registration statement filed pursuant to Section 12 of the
Exchange Act and any amendment or report filed for the purpose
of updating those descriptions.
|
|
January 11, January 22, January 29,
January 30, April 15, April 21, May 1 and
May 23, 2008 (other than the portions of those documents
not deemed to be filed)
|
|
|
|
Countrywide SEC Filings
|
|
|
(SEC File No. 001-12331-01; CIK No. 0000025191)
|
|
Period or Date Filed
|
|
Annual Report on
Form 10-K
|
|
Year ended December 31, 2007, as amended by the Annual Report on
Form 10-K/A filed on April 24, 2008
|
Current Reports on
Form 8-K
|
|
January 9, January 11, January 17,
January 30, January 31, February 15,
March 13, April 3, and April 30, 2008 (other than
the portions of those documents not deemed to be filed)
|
In addition, Bank of America and Countrywide also incorporate by
reference additional documents that either company files with
the SEC under Sections 13(a), 13(c), 14 and 15(d) of the
Securities Exchange Act of 1934, as amended, between the date of
this document and the date of the Countrywide special meeting.
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.
81
Bank of America has supplied all information contained or
incorporated by reference in this document relating to Bank of
America, as well as all pro forma financial information, and
Countrywide has supplied all information relating to Countrywide.
Documents incorporated by reference are available from Bank of
America and Countrywide 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:
|
|
|
Bank of America Corporation
|
|
Countrywide Financial Corporation
|
|
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28255
Investor Relations
Telephone:
(704) 386-5681
|
|
Countrywide Financial Corporation
4500 Park Granada
Calabasas, California 91302
Attention: Investor Relations
Telephone: (818) 225-3550
|
Countrywide stockholders requesting documents should do so
by June 18, 2008 to receive them before the special
meeting. You will not be charged for any of these documents
that you request. If you request any incorporated documents from
Bank of America or Countrywide, Countrywide will mail them to
you by first class mail, or another equally prompt means, within
one business day after it receives your request.
Neither Bank of America nor Countrywide has 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 have been incorporated in 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 contains a description of the representations
and warranties that each of Bank of America and Countrywide made
to the other in the merger agreement. Representations and
warranties made by Bank of America, Countrywide and other
applicable parties are also set forth in contracts and other
documents (including the merger agreement) that are attached or
filed as exhibits to this document or are incorporated by
reference into this document. These representations and
warranties were made as of specific dates, may be subject to
important qualifications and limitations agreed to between the
parties in connection with negotiating the terms of the merger
agreement, and may have been included in the agreement for the
purpose of allocating risk between the parties rather than to
establish matters as facts. These materials are included or
incorporated by reference only to provide you with information
regarding the terms and conditions of the agreements, and not to
provide any other factual information regarding Countrywide,
Bank of America or their respective businesses. Accordingly, the
representations and warranties and other provisions of the
merger agreement should not be read alone, but instead should be
read only in conjunction with the other information provided
elsewhere in this document or incorporated by reference into
this document.
82
APPENDIX A
AGREEMENT
AND PLAN OF MERGER
by and among
COUNTRYWIDE
FINANCIAL CORPORATION,
BANK OF
AMERICA CORPORATION
and
RED OAK
MERGER CORPORATION
DATED AS OF
JANUARY 11, 2008
TABLE OF
CONTENTS
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Page
|
|
Article I
|
|
THE MERGER
|
|
|
A-1
|
|
1.1
|
|
The Merger
|
|
|
A-1
|
|
1.2
|
|
Effective Time
|
|
|
A-1
|
|
1.3
|
|
Effects of the Merger
|
|
|
A-1
|
|
1.4
|
|
Conversion of Stock and LLC Interests
|
|
|
A-2
|
|
1.5
|
|
Stock Options and Other Stock-Based Awards; ESPP
|
|
|
A-2
|
|
1.6
|
|
Certificate of Formation and Limited Liability Company Agreement
of the Surviving Company
|
|
|
A-4
|
|
1.7
|
|
Directors and Officers
|
|
|
A-4
|
|
1.8
|
|
Tax Consequences
|
|
|
A-5
|
|
|
|
|
|
|
|
|
Article II
|
|
DELIVERY OF MERGER CONSIDERATION
|
|
|
A-5
|
|
2.1
|
|
Exchange Agent
|
|
|
A-5
|
|
2.2
|
|
Deposit of Merger Consideration
|
|
|
A-5
|
|
2.3
|
|
Delivery of Merger Consideration
|
|
|
A-5
|
|
|
|
|
|
|
|
|
Article III
|
|
REPRESENTATIONS AND WARRANTIES OF COMPANY
|
|
|
A-7
|
|
3.1
|
|
Corporate Organization
|
|
|
A-7
|
|
3.2
|
|
Capitalization
|
|
|
A-8
|
|
3.3
|
|
Authority; No Violation
|
|
|
A-9
|
|
3.4
|
|
Consents and Approvals
|
|
|
A-9
|
|
3.5
|
|
Reports; Regulatory Matters
|
|
|
A-10
|
|
3.6
|
|
Financial Statements
|
|
|
A-11
|
|
3.7
|
|
Brokers Fees
|
|
|
A-12
|
|
3.8
|
|
Absence of Certain Changes or Events
|
|
|
A-12
|
|
3.9
|
|
Legal Proceedings
|
|
|
A-13
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|
3.10
|
|
Taxes and Tax Returns
|
|
|
A-13
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|
3.11
|
|
Employee Matters
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|
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A-14
|
|
3.12
|
|
Compliance with Applicable Law
|
|
|
A-18
|
|
3.13
|
|
Certain Contracts
|
|
|
A-18
|
|
3.14
|
|
Risk Management Instruments
|
|
|
A-19
|
|
3.15
|
|
Investment Securities and Commodities
|
|
|
A-19
|
|
3.16
|
|
Warehouse Loan Portfolio
|
|
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A-19
|
|
3.17
|
|
Property
|
|
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A-20
|
|
3.18
|
|
Intellectual Property
|
|
|
A-20
|
|
3.19
|
|
Environmental Liability
|
|
|
A-23
|
|
3.20
|
|
Mortgage Banking Business
|
|
|
A-23
|
|
3.21
|
|
Securitization Matters
|
|
|
A-29
|
|
3.22
|
|
Insurance Matters
|
|
|
A-32
|
|
3.23
|
|
State Takeover Laws
|
|
|
A-34
|
|
3.24
|
|
Rights Agreement
|
|
|
A-34
|
|
3.25
|
|
Interested Party Transactions
|
|
|
A-34
|
|
3.26
|
|
Reorganization; Approvals
|
|
|
A-34
|
|
3.27
|
|
Opinion
|
|
|
A-34
|
|
3.28
|
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Company Information
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A-34
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|
A-i
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Page
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Article IV
|
|
REPRESENTATIONS AND WARRANTIES OF PARENT
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A-35
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4.1
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Corporate Organization
|
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|
A-35
|
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4.2
|
|
Capitalization
|
|
|
A-35
|
|
4.3
|
|
Authority; No Violation
|
|
|
A-36
|
|
4.4
|
|
Consents and Approvals
|
|
|
A-36
|
|
4.5
|
|
Reports; Regulatory Matters
|
|
|
A-37
|
|
4.6
|
|
Financial Statements
|
|
|
A-38
|
|
4.7
|
|
Brokers Fees
|
|
|
A-39
|
|
4.8
|
|
Absence of Certain Changes or Events
|
|
|
A-39
|
|
4.9
|
|
Legal Proceedings
|
|
|
A-39
|
|
4.10
|
|
Taxes and Tax Returns
|
|
|
A-39
|
|
4.11
|
|
Compliance with Applicable Law
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|
|
A-39
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|
4.12
|
|
Reorganization; Approvals
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|
|
A-39
|
|
4.13
|
|
Parent Information
|
|
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A-39
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Article V
|
|
COVENANTS RELATING TO CONDUCT OF BUSINESS
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A-40
|
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5.1
|
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Conduct of Businesses Prior to the Effective Time
|
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|
A-40
|
|
5.2
|
|
Company Forbearances
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|
A-40
|
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5.3
|
|
Parent Forbearances
|
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A-42
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|
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|
|
|
Article VI
|
|
ADDITIONAL AGREEMENTS
|
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|
A-42
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|
6.1
|
|
Regulatory Matters
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|
A-42
|
|
6.2
|
|
Access to Information
|
|
|
A-43
|
|
6.3
|
|
Stockholder Approval
|
|
|
A-43
|
|
6.4
|
|
Affiliates
|
|
|
A-44
|
|
6.5
|
|
NYSE Listing
|
|
|
A-44
|
|
6.6
|
|
Employee Matters
|
|
|
A-44
|
|
6.7
|
|
Indemnification; Directors and Officers Insurance
|
|
|
A-45
|
|
6.8
|
|
Additional Agreements
|
|
|
A-46
|
|
6.9
|
|
Advice of Changes
|
|
|
A-46
|
|
6.10
|
|
Exemption from Liability Under Section 16(b)
|
|
|
A-46
|
|
6.11
|
|
No Solicitation
|
|
|
A-46
|
|
6.12
|
|
Restructuring Efforts
|
|
|
A-48
|
|
6.13
|
|
Dividends
|
|
|
A-49
|
|
6.14
|
|
Tax Matters
|
|
|
A-49
|
|
|
|
|
|
|
|
|
Article VII
|
|
CONDITIONS PRECEDENT
|
|
|
A-49
|
|
7.1
|
|
Conditions to Each Partys Obligation To Effect the
Merger
|
|
|
A-49
|
|
7.2
|
|
Conditions to Obligations of Parent
|
|
|
A-49
|
|
7.3
|
|
Conditions to Obligations of Company
|
|
|
A-50
|
|
|
|
|
|
|
|
|
Article VIII
|
|
TERMINATION AND AMENDMENT
|
|
|
A-51
|
|
8.1
|
|
Termination
|
|
|
A-51
|
|
8.2
|
|
Effect of Termination
|
|
|
A-51
|
|
8.3
|
|
Fees and Expenses
|
|
|
A-52
|
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8.4
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Termination Fee
|
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|
A-52
|
|
A-ii
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Page
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8.5
|
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Amendment
|
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A-52
|
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8.6
|
|
Extension; Waiver
|
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|
A-52
|
|
|
|
|
|
|
|
|
Article IX
|
|
GENERAL PROVISIONS
|
|
|
A-53
|
|
9.1
|
|
Closing
|
|
|
A-53
|
|
9.2
|
|
Standard
|
|
|
A-53
|
|
9.3
|
|
Nonsurvival of Representations, Warranties and Agreements
|
|
|
A-53
|
|
9.4
|
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Notices
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|
|
A-54
|
|
9.5
|
|
Interpretation
|
|
|
A-55
|
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9.6
|
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Counterparts
|
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|
A-55
|
|
9.7
|
|
Entire Agreement
|
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|
A-55
|
|
9.8
|
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Governing Law; Jurisdiction
|
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|
A-55
|
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9.9
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Publicity
|
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|
A-55
|
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9.10
|
|
Assignment; Third Party Beneficiaries
|
|
|
A-55
|
|
Exhibit A
Form of Affiliate Letter
A-iii
INDEX OF
DEFINED TERMS
|
|
|
|
|
Section
|
|
409A Authorities
|
|
3.11(k)
|
Adjusted Option
|
|
1.5(a)
|
Advances
|
|
3.20(a)
|
Agency(ies)
|
|
3.20(a)
|
Agreement
|
|
Preamble
|
AJCA
|
|
3.11(k)
|
Alternative Proposal
|
|
6.11(a)
|
Alternative Transaction
|
|
6.11(a)
|
Applicable Requirements
|
|
3.20(a)
|
Bankruptcy and Equity Exception
|
|
3.3(a)
|
BHC Act
|
|
3.4
|
BHCA Application
|
|
3.4
|
Certificate
|
|
1.4(d)
|
Certificate Insurer
|
|
3.20(a)
|
Certificate of Merger
|
|
1.2
|
Change of Recommendation
|
|
6.11(d)
|
Change of Recommendation Notice
|
|
6.11(d)(iv)
|
Claim
|
|
6.7(a)
|
Closing
|
|
9.1
|
Closing Date
|
|
9.1
|
Code
|
|
Recitals
|
Collateral Certificate
|
|
3.20(a)
|
Collateral Certificate Pool
|
|
3.20(a)
|
Company
|
|
Preamble
|
Company Benefit Plans
|
|
3.11(a)
|
Company By-laws
|
|
3.1(b)
|
Company Capitalization Date
|
|
3.2(a)
|
Company Certificate
|
|
3.1(b)
|
Company Common Stock
|
|
1.4(b)
|
Company Contract
|
|
3.13(a)
|
Company Disclosure Schedule
|
|
Art. III
|
Company IP
|
|
3.18(a)
|
Company Options
|
|
1.5(a)
|
Company Preferred Stock
|
|
3.2(a)
|
Company Regulatory Agreement
|
|
3.5(b)
|
Company Requisite Regulatory Approvals
|
|
7.3(d)
|
Company Restricted Shares
|
|
1.5(b)
|
Company RSUs
|
|
1.5(c)
|
Company SEC Reports
|
|
3.5(b)
|
Company Securitization Documents
|
|
3.21(m)
|
Company Securitization Interests
|
|
3.21(m)
|
Company Securitization Trust
|
|
3.21(m)
|
Company Sponsored Asset Securitization Transaction
|
|
3.21(j)
|
Company Stock Plans
|
|
1.5(a)
|
Confidentiality Agreements
|
|
6.2(b)
|
Convertible Note Agreement
|
|
4.2(a)
|
Controlled Group Liability
|
|
3.11(d)
|
A-iv
|
|
|
|
|
Section
|
|
Copyrights
|
|
3.18(a)
|
Covered Employees
|
|
6.6(a)
|
Custodial Account
|
|
3.20(a)
|
Custodial File
|
|
3.20(a)
|
Customer Information
|
|
3.18(a)
|
Derivative Transactions
|
|
3.14(a)
|
DGCL
|
|
1.1(a)
|
DLLCA
|
|
1.1(a)
|
DPC Common Shares
|
|
1.4(b)
|
Effective Time
|
|
1.2
|
Employees
|
|
5.3(c)
|
Environmental Laws
|
|
5.2(c)
|
Environmental Laws
|
|
3.19
|
ERISA
|
|
3.11(a)
|
ERISA Affiliate
|
|
3.11(d)
|
Exchange Act
|
|
3.5(c)
|
Exchange Agent
|
|
2.1
|
Exchange Agent Agreement
|
|
2.1
|
Exchange Fund
|
|
2.2
|
Exchange Ratio
|
|
1.4(c)
|
FDIC
|
|
3.1(d)
|
Federal Reserve Board
|
|
3.4
|
FHA
|
|
3.20(a)
|
FHLBA
|
|
3.1(d)
|
FHLMC
|
|
3.20(a)
|
FNMA
|
|
3.20(a)
|
Foreclosure
|
|
3.20(a)
|
Form S-4
|
|
3.4
|
GAAP
|
|
3.1(c)
|
GNMA
|
|
3.20(a)
|
Governmental Entity
|
|
3.4
|
HUD
|
|
3.20(a)
|
Home Owners Loan Act
|
|
3.1(a)
|
HSR Act
|
|
3.4
|
Indemnified Parties
|
|
6.7(a)
|
Insurance Amount
|
|
6.7(c)
|
Insurance Contracts
|
|
3.22(d)
|
Insurance Department
|
|
3.5(a)
|
Insurance Subsidiary
|
|
3.22(a)
|
Insurer
|
|
3.20(a)
|
Intellectual Property
|
|
3.18(a)
|
Investment Commitment
|
|
3.20(a)
|
Investor
|
|
3.20(a)
|
IRS
|
|
3.10(a)
|
Leased Properties
|
|
3.16
|
Letter of Transmittal
|
|
2.3(a)
|
License Agreement
|
|
3.18(a)
|
Licensed Company IP
|
|
3.18(a)
|
A-v
|
|
|
|
|
Section
|
|
Liens
|
|
3.2(b)
|
Loans
|
|
3.20(a)
|
Loans Held for Sale
|
|
3.20(a)
|
Master Servicing
|
|
3.20(a)
|
Master Servicing Agreement
|
|
3.20(a)
|
Material Adverse Effect
|
|
3.8(a)
|
Materially Burdensome Regulatory Condition
|
|
6.1(b)
|
Merger
|
|
Recitals
|
Merger Consideration
|
|
1.4(c)
|
Merger Sub
|
|
Preamble
|
Merger Sub Preferred Stock
|
|
1.4(e)
|
Mortgage
|
|
3.20(a)
|
Mortgage Loan Documents
|
|
3.20(a)
|
Mortgage Note
|
|
3.20(a)
|
Mortgage Pool
|
|
3.20(a)
|
Mortgaged Property
|
|
3.20(a)
|
Mortgagor
|
|
3.20(a)
|
Nonqualified Deferred Compensation Plan
|
|
3.11(k)
|
NYSE
|
|
2.3(f)
|
Open Source Software
|
|
3.18(a)
|
Owned Company IP
|
|
3.18(a)
|
Originator
|
|
3.20(a)
|
Other Regulatory Approvals
|
|
3.4
|
OTS
|
|
3.1(a)
|
Owned Properties
|
|
3.16
|
Paid Off Loan
|
|
3.20(a)
|
Permitted Encumbrances
|
|
3.17
|
Parent
|
|
Preamble
|
Parent Bylaws
|
|
4.1(a)
|
Parent Capitalization Date
|
|
4.2(a)
|
Parent Certificate
|
|
4.1(a)
|
Parent Closing Price
|
|
1.5(a)
|
Parent Common Stock
|
|
1.4(c)
|
Parent Disclosure Schedule
|
|
Art. IV
|
Parent Preferred Stock
|
|
4.2(a)
|
Parent Regulatory Agreement
|
|
4.5(b)
|
Parent Requisite Regulatory Approvals
|
|
7.2(d)
|
Parent Restricted Share Right
|
|
1.5(b)
|
Parent RSU
|
|
1.5(c)
|
Parent SEC Reports
|
|
4.5(c)
|
Parent Stock Plans
|
|
4.2(a)
|
Patents
|
|
3.18(a)
|
PBGC
|
|
3.11(d)
|
Pipeline Loan
|
|
3.20(a)
|
PMI Reinsurance Agreements
|
|
3.22(k)
|
Policies, Practices and Procedures
|
|
3.15(b)
|
Portfolio Loans
|
|
3.20(a)
|
Previously Disposed of Loans
|
|
3.20(a)
|
A-vi
|
|
|
|
|
Section
|
|
Prior Servicer
|
|
3.20(a)
|
Private Investors
|
|
3.20(a)
|
Producer
|
|
3.22(f)
|
Proxy Statement
|
|
3.4
|
Real Property
|
|
3.16
|
Recourse
|
|
3.20(a)
|
Regulatory Agencies
|
|
3.5(a)
|
Reinsurance Contracts
|
|
3.22(g)
|
REMIC
|
|
3.20(a)
|
REO
|
|
3.20(a)
|
Restrictive Covenant
|
|
3.18(a)
|
Retained Interest
|
|
3.21(m)
|
Rights
|
|
3.2(a)
|
Rights Agreement
|
|
3.2(a)
|
Sarbanes-Oxley Act
|
|
3.5(b)
|
SAP
|
|
3.22(b)
|
SBA
|
|
3.4
|
SEC
|
|
3.4
|
Securities Act
|
|
3.2(a)
|
Securitization Disclosure Documents
|
|
3.21(j)
|
Seller and Servicing Guides
|
|
3.20(a)
|
Series B Preferred Stock
|
|
1.4(e)
|
Serviced Loan
|
|
3.20(a)
|
Servicer
|
|
3.20(a)
|
Servicer Default
|
|
3.21(m)
|
Servicer Default or Termination
|
|
3.21(c)
|
Servicing
|
|
3.20(a)
|
Servicing Agreements
|
|
3.20(a)
|
Servicing Compensation
|
|
3.20(a)
|
Software
|
|
3.18(a)
|
SRO
|
|
3.4
|
State Agency
|
|
3.20(a)
|
Statutory Statements
|
|
3.22(b)
|
Subsidiary
|
|
3.1(c)
|
Superior Proposal
|
|
6.11(d)(v)
|
Surviving Company
|
|
Recitals
|
Takeover Statutes
|
|
3.23
|
Tax(es)
|
|
3.10(b)
|
Tax Return
|
|
3.10(c)
|
Termination Fee
|
|
8.4(a)(i)
|
Trademarks
|
|
3.18(a)
|
Trade Secrets
|
|
3.18(a)
|
Trust Account Common Shares
|
|
1.4(b)
|
VA
|
|
3.20(a)
|
VA Loans
|
|
3.20(a)
|
Voting Debt
|
|
3.2(a)
|
Warehouse Loans
|
|
3.16(a)
|
WARN
|
|
3.11(n)
|
A-vii
AGREEMENT
AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 11, 2008
(this Agreement), among Countrywide Financial
Corporation, a Delaware corporation
(Company), Bank of America Corporation, a
Delaware corporation (Parent), and Red Oak
Merger Corporation, a Delaware corporation and wholly-owned
subsidiary of Parent (Merger Sub).
W I T N E S
S E T H:
WHEREAS, the Boards of Directors of Company, Parent and Merger
Sub have determined that it is in the best interests of their
respective companies and their stockholders to consummate the
strategic business combination transaction provided for in this
Agreement in which Company will, on the terms and subject to the
conditions set forth in this Agreement, merge with and into,
Merger Sub (the Merger), with Merger Sub as
the surviving company in the Merger (sometimes referred to in
such capacity as the Surviving Company);
WHEREAS, prior to the Merger, Merger Sub shall be converted into
a Delaware limited liability company;
WHEREAS, for federal income Tax purposes, it is the intent of
the parties hereto that the Merger shall qualify as a
reorganization under the provisions of
Section 368(a) of the Internal Revenue Code of 1986, as
amended (the Code), and this Agreement is
intended to be and is adopted as a plan of
reorganization for purposes of Sections 354 and 361
of the Code; and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also
to prescribe certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained in this
Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. (a) Subject to the
terms and conditions of this Agreement, in accordance with the
Delaware General Corporation Law (the DGCL)
and the Delaware Limited Liability Company Act (the
DLLCA), at the Effective Time, Company shall
merge with and into Merger Sub. Merger Sub shall be the
Surviving Company in the Merger and shall continue its existence
as a limited liability company under the laws of the State of
Delaware. As of the Effective Time, the separate corporate
existence of Company shall cease.
(b) Parent may at any time change the method of effecting
the combination (including by providing for the merger of
Company and a wholly-owned subsidiary of Parent other than
Merger Sub) if and to the extent requested by Parent and
consented to by Company (such consent not to be unreasonably
withheld or delayed); provided, however, that no
such change shall (i) alter or change the amount or kind of
the Merger Consideration provided for in this Agreement,
(ii) adversely affect the Tax treatment of Companys
stockholders as a result of receiving the Merger Consideration
or the Tax treatment of either party pursuant to this Agreement
or (iii) materially impede or delay consummation of the
transactions contemplated by this Agreement.
1.2 Effective Time. The Merger shall
become effective as set forth in the certificate of merger (the
Certificate of Merger) that shall be filed
with the Secretary of State of the State of Delaware on the
Closing Date. The term Effective Time shall
be the date and time when the Merger becomes effective as set
forth in the Certificate of Merger.
1.3 Effects of the Merger. At and after
the Effective Time, the Merger shall have the effects set forth
in the DGCL and DLLCA.
A-1
1.4 Conversion of Stock and LLC
Interests. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger
Sub, Company or the holder of any of the following securities:
(a) All limited liability company interests of Merger Sub
issued and outstanding immediately prior to the Effective Time
shall remain issued and outstanding and shall not be affected by
the Merger.
(b) All shares of common stock, par value $0.05 per share,
of Company issued and outstanding immediately prior to the
Effective Time (the Company Common Stock)
that are owned by Company, Parent or any wholly-owned subsidiary
of Company or Parent (other than shares of Company Common Stock
held in trust accounts, managed accounts, mutual funds and the
like, or otherwise held in a fiduciary or agency capacity, that
are beneficially owned by third parties (any such shares,
Trust Account Common Shares) and other
than shares of Company Common Stock held, directly or
indirectly, by Company or Parent in respect of a debt previously
contracted (any such shares, DPC Common
Shares)) shall be cancelled and shall cease to exist
and no stock of Parent or other consideration shall be delivered
in exchange therefor.
(c) Subject to Section 1.4(f), each share of the
Company Common Stock, except for shares of Company Common Stock
owned by Company, Parent or any wholly-owned subsidiary of
Company or Parent (other than Trust Account Common Shares
and DPC Common Shares), shall be converted, in accordance with
the procedures set forth in Article II, into the right to
receive 0.1822 (the Exchange Ratio) of a
share of common stock, par value $0.01 per share, of Parent
(Parent Common Stock) (the Merger
Consideration).
(d) All of the shares of Company Common Stock converted
into the right to receive the Merger Consideration pursuant to
this Article I shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist as of the
Effective Time, and each certificate previously representing any
such shares of Company Common Stock (each, a
Certificate) shall thereafter represent only
the right to receive the Merger Consideration
and/or cash
in lieu of fractional shares into which the shares of Company
Common Stock represented by such Certificate have been converted
pursuant to this Section 1.4 and Section 2.3(f), as
well as any dividends to which holders of Company Common Stock
become entitled in accordance with Section 2.3(c).
(e) Each share of 7.25% Series B Non-Voting
Convertible Preferred Stock, par value $0.05 per share, of
Company (the Series B Preferred Stock)
issued and outstanding immediately prior to the Effective Time
shall be cancelled and shall cease to exist and no stock of
Parent or other consideration shall be delivered in exchange
therefor.
(f) If, between the date of this Agreement and the
Effective Time, the outstanding shares of Parent Common Stock
shall have been increased, decreased, changed into or exchanged
for a different number or kind of shares or securities as a
result of a reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split, or other
similar change in capitalization, an appropriate and
proportionate adjustment shall be made to the Merger
Consideration.
1.5 Stock Options and Other Stock-Based Awards;
ESPP.
(a) As of the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, each
option to purchase shares of Company Common Stock granted under
the Amended and Restated 1993 Stock Option Plan, as amended, the
2000 Equity Incentive Plan and the 2006 Equity Incentive Plan
(collectively, the Company Stock Plans) that
is outstanding immediately prior to the Effective Time
(collectively, the Company Options) shall be
converted into an option (an Adjusted Option)
to purchase, on the same terms and conditions as applied to each
such Company Option immediately prior to the Effective Time
(taking into account any accelerated vesting or other rights,
such as the right to surrender for cash, with respect to such
Company Options in accordance with the terms thereof), the
number of whole shares of Parent Common Stock that is equal to
the number of shares of Company Common Stock subject to such
Company Option immediately prior to the Effective Time
multiplied by the Exchange Ratio (rounded down to the nearest
whole share), at an exercise price per share of Parent Common
Stock (rounded up to the nearest whole penny) equal to the
exercise price for each such share of Company Common Stock
subject to such Company Option immediately prior to the
Effective Time divided by the Exchange Ratio provided,
further, that, in the case of any Company Option to which
Section 421 of the Code applies as of the Effective Time
(after taking
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into account the effect of any accelerated vesting thereof) by
reason of its qualification under Section 422 of the Code,
the exercise price, the number of shares of Parent Common Stock
subject to such option and the terms and conditions of exercise
of such option shall be determined in a manner consistent with
the requirements of Section 424(a) of the Code.
(b) As of the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, each
stock appreciation right with respect to shares of Company
Common Stock granted under a Company Stock Plan that is
outstanding immediately prior to the Effective Time
(collectively, the Company SARs) shall be
converted into a stock appreciation right (an Adjusted
SAR) with respect to, on the same terms and conditions
as applied to each such Company SAR immediately prior to the
Effective Time (taking into account any accelerated vesting or
other rights, such as the right to surrender for cash, with
respect to such Company SARs in accordance with the terms
thereof), the number of whole shares of Parent Common Stock that
is equal to the number of shares of Company Common Stock with
respect to which such Company SAR is subject to immediately
prior to the Effective Time multiplied by the Exchange Ratio
(rounded down to the nearest whole share), at a base price per
share of Parent Common Stock (rounded up to the nearest whole
penny) equal to the base price for each such share of Company
Common Stock subject to such Company SAR immediately prior to
the Effective Time divided by the Exchange Ratio.
(c) As of the Effective Time, each restricted share of
Company Common Stock granted under a Company Stock Plan that is
outstanding immediately prior to the Effective Time
(collectively, the Company Restricted Shares)
shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to
receive (the Parent Restricted Share Right),
on the same terms and conditions as applied to each such Company
Restricted Share immediately prior to the Effective Time
(including the same transfer restrictions taking into account
any accelerated vesting of such Company Restricted Share in
accordance with the terms thereof), the Merger Consideration;
provided, however, that, upon the lapsing of
restrictions with respect to each such Parent Restricted Share
Right in accordance with the terms applicable to the
corresponding Company Restricted Share immediately prior to the
Effective Time, Parent shall be entitled to deduct and withhold
such amounts as may be required to be deducted and withheld
under the Code and any applicable state or local Tax law with
respect to the lapsing of such restrictions.
(d) As of the Effective Time, each restricted share unit
with respect to shares of Company Common Stock granted under a
Company Stock Plan that is outstanding immediately prior to the
Effective Time (collectively, the Company
RSUs) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into a
restricted share unit, on the same terms and conditions as
applied to each such Company RSU immediately prior to the
Effective Time (taking into account any accelerated vesting of
such Company RSU in accordance with the terms thereof), with
respect to the number of shares of Parent Common Stock that is
equal to the number of shares of Company Common Stock subject to
the Company RSU immediately prior to the Effective Time
multiplied by the Exchange Ratio (rounded to the nearest whole
share) (a Parent RSU) The obligations in
respect of the Parent RSUs shall be payable or distributable in
accordance with the terms of the agreement, plan or arrangement
relating to such Parent RSUs.
(e) As of the Effective Time, all amounts denominated in
Company Common Stock and held in participant accounts
(collectively, the Company Deferred Equity
Units) either pursuant to Companys 2003
Non-Employee Directors Fee Plan, Companys 2004
Executive Equity Deferral Program or pursuant to any other
nonqualified deferred compensation program or any individual
deferred compensation agreements (collectively, the
Company Deferred Equity Unit Plans) shall, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted into deferred equity units, on the
same terms and conditions as applied to such Company Deferred
Equity Units immediately prior to the Effective Time (taking
into account any accelerated vesting of such Company Deferred
Equity Units in accordance with the terms thereof), with respect
to the number of shares of Parent Common Stock that is equal to
the number of shares of Company Common Stock in which such
Company Deferred Equity Units are denominated immediately prior
to the Effective Time multiplied by the Exchange Ratio (rounded
to the nearest whole share) (a Parent Deferred Equity
Unit). The obligations in respect of the Parent
Deferred Equity Units shall be payable or distributable in
accordance with the terms of the Company Deferred Equity Unit
Plan relating to such Parent Deferred Equity Units.
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(f) As of the Effective Time, Parent shall assume the
obligations and succeed to the rights of Company under the
Company Stock Plans with respect to the Company Options (as
converted into Adjusted Options), the Company SARs (as converted
into Adjusted SARs), the Company RSUs (as converted into Parent
RSUs), the Company Deferred Equity Units (as converted into
Parent Deferred Equity Units) and Company Restricted Shares (as
converted into Parent Restricted Share Rights). Company and
Parent agree that prior to the Effective Time each of the
Company Stock Plans shall be amended, to the extent possible
without requiring stockholder approval of such amendments,
(i) if and to the extent necessary and practicable, to
reflect the transactions contemplated by this Agreement,
including the conversion of the Company Options, Company SARs,
Company Restricted Shares and Company RSUs pursuant to
paragraphs (a), (b), (c), (d) and (e) above and the
substitution of Parent for Company thereunder to the extent
appropriate to effectuate the assumption of such Company Stock
Plans by Parent, (ii) to preclude any automatic or
formulaic grant of options, restricted shares or other awards
thereunder on or after the Effective Time (other than with
respect to the dividend reinvestment feature of any such plan),
and (iii) to the extent requested by Parent in a timely
manner and subject to compliance with applicable law and the
terms of the plan, to terminate any or all Company Stock Plans
effective immediately prior to the Effective Time (other than
with respect to outstanding awards thereunder). From and after
the Effective Time, all references to Company (other than any
references relating to a Change in Control of
Company) in each Company Stock Plan and in each agreement
evidencing any award of Company Options, Company SARs, Company
Restricted Shares, Company RSUs or Company Deferred Equity Units
shall be deemed to refer to Parent, unless Parent determines
otherwise.
(g) Parent shall take all action necessary or appropriate
to have available for issuance or transfer a sufficient number
of shares of Parent Common Stock for delivery upon exercise of
the Adjusted Options or the Adjusted SARs or settlement of the
Parent RSUs or Parent Deferred Equity Units. All of the
conversions and adjustments made pursuant to this
Section 1.5, including without limitation, the
determination of the number of shares of Parent Common Stock
subject to any award and the exercise price of the Adjusted
Options or base price of the Adjusted SARs, shall be made in a
manner consistent with the requirements of Section 409A of
the Code. Promptly after the Effective Time, Parent shall
prepare and file with the SEC a post-effective amendment
converting the
Form S-4
to a
Form S-8
(or file such other appropriate form) registering a number of
shares of Parent Common Stock necessary to fulfill Parents
obligations under this paragraph (g).
(h) Company shall, prior to the Effective Time, take all
actions necessary to terminate the employee stock purchase plan
portion of Companys Global Stock Plan (such portion, the
Company ESPP) effective as of the Effective
Time and all outstanding rights thereunder at the Effective
Time. The offering period in effect as of immediately prior to
the Effective Time shall end in accordance with the terms of the
Company ESPP and each participant in the Company ESPP will be
credited with the number of share(s) of Company Common Stock
purchased for his or her account(s) under the Company ESPP in
respect of the applicable offering period in accordance with the
terms of the Company ESPP. The options to acquire Company Common
Stock under the UK ShareSave Scheme of Companys Global
Stock Plan (the Company SAYE) shall be treated in
accordance with Section 6 of the Company SAYE and, to the
extent required thereunder to remain outstanding following the
Effective Time and converted into the right to receive shares of
Parent Common Stock in the same manner as provided in
Section 1.5(a) or as otherwise required by applicable law.
1.6 Certificate of Formation and Limited Liability
Company Agreement of the Surviving Company. At
the Effective Time, the certificate of formation of Merger Sub
shall, by virtue of the Merger, be amended and restated in its
entirety to read as the certificate of formation of Merger Sub
in effect immediately prior to the Effective Time, except that
Item 1 thereof shall read as follows: The name of the
limited liability company is Countrywide Financial LLC,
and as so amended, shall be the certificate of formation of the
Surviving Company until thereafter amended in accordance with
applicable law. The limited liability company agreement of
Merger Sub, as in effect immediately prior to the Effective
Time, shall be the limited liability company agreement of the
Surviving Company until thereafter amended in accordance with
applicable law and the terms of such limited liability company
agreement.
1.7 Directors and Officers. The directors
of Company and its Subsidiaries immediately prior to the
Effective Time shall submit their resignations to be effective
as of the Effective Time. The directors, if any, and officers of
Merger Sub shall, from and after the Effective Time, become the
directors and officers,
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respectively, of the Surviving Company until their successors
shall have been duly elected, appointed or qualified or until
their earlier death, resignation or removal in accordance with
the limited liability company agreement of the Surviving Company.
1.8 Tax Consequences. It is intended that
the Merger shall constitute a reorganization within
the meaning of Section 368(a) of the Code, and that this
Agreement shall constitute a plan of reorganization
for purposes of Sections 354 and 361 of the Code.
ARTICLE II
DELIVERY OF
MERGER CONSIDERATION
2.1 Exchange Agent. Prior to the
Effective Time Parent shall appoint a bank or trust company
Subsidiary of Parent or another bank or trust company reasonably
acceptable to Company, or Parents transfer agent, pursuant
to an agreement (the Exchange Agent
Agreement) to act as exchange agent (the
Exchange Agent) hereunder.
2.2 Deposit of Merger Consideration. At
or prior to the Effective Time, Parent shall (i) authorize
the Exchange Agent to issue an aggregate number of shares of
Parent Common Stock equal to the aggregate Merger Consideration,
and (ii) deposit, or cause to be deposited with, the
Exchange Agent, to the extent then determinable, any cash
payable in lieu of fractional shares pursuant to
Section 2.3(f) (the Exchange Fund).
2.3 Delivery of Merger Consideration.
(a) As soon as reasonably practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of
Certificate(s) which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock whose
shares were converted into the right to receive the Merger
Consideration pursuant to Section 1.4 and any cash in lieu
of fractional shares of Parent Common Stock to be issued or paid
in consideration therefor (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk
of loss and title to Certificate(s) shall pass, only upon
delivery of Certificate(s) (or affidavits of loss in lieu of
such Certificates)) to the Exchange Agent and shall be
substantially in such form and have such other provisions as
shall be prescribed by the Exchange Agent Agreement (the
Letter of Transmittal) and
(ii) instructions for use in surrendering Certificate(s) in
exchange for the Merger Consideration, any cash in lieu of
fractional shares of Parent Common Stock to be issued or paid in
consideration therefor and any dividends or distributions to
which such holder is entitled pursuant to Section 2.3(c).
(b) Upon surrender to the Exchange Agent of its Certificate
or Certificates, accompanied by a properly completed Letter of
Transmittal, a holder of Company Common Stock will be entitled
to receive promptly after the Effective Time the Merger
Consideration and any cash in lieu of fractional shares of
Parent Common Stock to be issued or paid in consideration
therefor in respect of the shares of Company Common Stock
represented by its Certificate or Certificates. Until so
surrendered, each such Certificate shall represent after the
Effective Time, for all purposes, only the right to receive,
without interest, the Merger Consideration and any cash in lieu
of fractional shares of Parent Common Stock to be issued or paid
in consideration therefor upon surrender of such Certificate in
accordance with, and any dividends or distributions to which
such holder is entitled pursuant to, this Article II.
(c) No dividends or other distributions with respect to
Parent Common Stock shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby, in each case unless and until
the surrender of such Certificate in accordance with this
Article II. Subject to the effect of applicable abandoned
property, escheat or similar laws, following surrender of any
such Certificate in accordance with this Article II, the
record holder thereof shall be entitled to receive, without
interest, (i) the amount of dividends or other
distributions with a record date after the Effective Time
theretofore payable with respect to the whole shares of Parent
Common Stock represented by such Certificate and not paid
and/or
(ii) at the appropriate payment date, the amount of
dividends or other distributions payable with respect to shares
of Parent Common Stock represented by such Certificate with a
record date after the Effective Time (but before
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such surrender date) and with a payment date subsequent to the
issuance of the Parent Common Stock issuable with respect to
such Certificate.
(d) In the event of a transfer of ownership of a
Certificate representing Company Common Stock that is not
registered in the stock transfer records of Company, the
fractional shares of Parent Common Stock and cash in lieu of
fractional shares of Parent Common Stock comprising the Merger
Consideration shall be issued or paid in exchange therefor to a
person other than the person in whose name the Certificate so
surrendered is registered if the Certificate formerly
representing such Company Common Stock shall be properly
endorsed or otherwise be in proper form for transfer and the
person requesting such payment or issuance shall pay any
transfer or other similar Taxes required by reason of the
payment or issuance to a person other than the registered holder
of the Certificate or establish to the satisfaction of Parent
that the Tax has been paid or is not applicable. The Exchange
Agent (or, subsequent to the earlier of (x) the one-year
anniversary of the Effective Time and (y) the expiration or
termination of the Exchange Agent Agreement, Parent) shall be
entitled to deduct and withhold from any cash in lieu of
fractional shares of Parent Common Stock otherwise payable
pursuant to this Agreement to any holder of Company Common Stock
such amounts as the Exchange Agent or Parent, as the case may
be, is required to deduct and withhold under the Code, or any
provision of state, local or foreign Tax law, with respect to
the making of such payment. To the extent the amounts are so
withheld by the Exchange Agent or Parent, as the case may be,
and timely paid over to the appropriate Governmental Entity,
such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of shares of Company
Common Stock in respect of whom such deduction and withholding
was made by the Exchange Agent or Parent, as the case may be.
(e) After the Effective Time, there shall be no transfers
on the stock transfer books of Company of the shares of Company
Common Stock that were issued and outstanding immediately prior
to the Effective Time other than to settle transfers of Company
Common Stock that occurred prior to the Effective Time. If,
after the Effective Time, Certificates representing such shares
are presented for transfer to the Exchange Agent, they shall be
cancelled and exchanged for the Merger Consideration and any
cash in lieu of fractional shares of Parent Common Stock to be
issued or paid in consideration therefor in accordance with the
procedures set forth in this Article II.
(f) Notwithstanding anything to the contrary contained in
this Agreement, no fractional shares of Parent Common Stock
shall be issued upon the surrender of Certificates for exchange,
no dividend or distribution with respect to Parent Common Stock
shall be payable on or with respect to any fractional share, and
such fractional share interests shall not entitle the owner
thereof to vote or to any other rights of a stockholder of
Parent. In lieu of the issuance of any such fractional share,
Parent shall pay to each former stockholder of Company who
otherwise would be entitled to receive such fractional share an
amount in cash (rounded to the nearest cent) determined by
multiplying (i) the average, rounded to the nearest one ten
thousandth, of the closing sale prices of Parent Common Stock on
the New York Stock Exchange (the NYSE) as
reported by The Wall Street Journal for the five trading days
immediately preceding the date of the Effective Time by
(ii) the fraction of a share (after taking into account all
shares of Company Common Stock held by such holder at the
Effective Time and rounded to the nearest thousandth when
expressed in decimal form) of Parent Common Stock to which such
holder would otherwise be entitled to receive pursuant to
Section 1.4.
(g) Any portion of the Exchange Fund that remains unclaimed
by the stockholders of Company as of the first anniversary of
the Effective Time may be paid to Parent. In such event, any
former stockholders of Company who have not theretofore complied
with this Article II shall thereafter look only to Parent
with respect to the Merger Consideration, any cash in lieu of
any fractional shares and any unpaid dividends and distributions
on the Parent Common Stock deliverable in respect of each share
of Company Common Stock such stockholder holds as determined
pursuant to this Agreement, in each case, without any interest
thereon. Notwithstanding the foregoing, none of Parent, the
Surviving Company, the Exchange Agent or any other person shall
be liable to any former holder of shares of Company Common Stock
for any amount delivered in good faith to a public official
pursuant to applicable abandoned property, escheat or similar
laws.
(h) In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen
or destroyed and, if reasonably required
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by Parent or the Exchange Agent, the posting by such person of a
bond in such amount as Parent may determine is reasonably
necessary as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliverable in respect
thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF COMPANY
Except as disclosed in the disclosure schedule (the
Company Disclosure Schedule) delivered by
Company to Parent prior to the execution of this Agreement
(which schedule sets 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 this
Article III, or to one or more of Companys covenants
contained herein, provided, however, that
disclosure in any section of such schedule shall apply only to
the indicated Section of this Agreement except to the extent
that it is reasonably apparent on the face of such disclosure
that such disclosure is relevant to another Section of this
Agreement, provided, further, that notwithstanding
anything in this Agreement to the contrary, (i) no such
item is required to be set forth in such schedule as an
exception to a representation or warranty if its absence would
not result in the related representation or warranty being
deemed untrue or incorrect under the standard established by
Section 9.2 and (ii) the mere inclusion of an item in
such schedule as an exception to a representation or warranty
shall not be deemed an admission that such item represents a
material exception or material fact, event or circumstance or
that such item has had or would be reasonably likely to have a
Material Adverse Effect (as defined in Section 3.8) on
Company), Company hereby represents and warrants to Parent as
follows:
3.1 Corporate Organization.
(a) Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware. Company has the requisite corporate power and
authority to own or lease all of its properties and assets and
to carry on its business as it is now being conducted, and is
duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the
character or location of the properties and assets owned or
leased by it makes such licensing or qualification necessary.
Company is duly registered with the Office of Thrift Supervision
(OTS) as a savings and loan holding company
under the Home Owners Loan Act of 1933, as amended (the
Home Owners Loan Act).
(b) True, complete and correct copies of the Restated
Certificate of Incorporation of Company (the Company
Certificate), and the Amended and Restated Bylaws of
Company (the Company Bylaws), as in effect as
of the date of this Agreement, have previously been made
available to Parent.
(c) Each Subsidiary of Company (i) is duly
incorporated or duly formed, as applicable to each such
Subsidiary, and validly existing and in good standing under the
laws of its jurisdiction of organization, (ii) has the
requisite corporate power and authority or other power and
authority to own or lease all of its properties and assets and
to carry on its business as it is now being conducted and
(iii) is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it
or the character or location of the properties and assets owned
or leased by it makes such licensing or qualification necessary.
The certificates of incorporation, by-laws and similar governing
documents of each Subsidiary of Company, copies of which have
previously been made available to Parent, are true, complete and
correct copies of such documents as of the date of this
Agreement. As used in this Agreement, the word
Subsidiary, when used with respect to either
party, means any bank, corporation, partnership, limited
liability company or other organization, whether incorporated or
unincorporated, that is consolidated with such party for
financial reporting purposes under U.S. generally accepted
accounting principles (GAAP).
(d) The deposit accounts of Countrywide Bank, fsb are
insured by the Federal Deposit Insurance Corporation (the
FDIC) through the Deposit Insurance Fund to
the fullest extent permitted by law, and all premiums and
assessments required to be paid in connection therewith have
been paid when due. Countrywide Bank, fsb is a member in good
standing of the Federal Home Loan Bank of Atlanta (the
FHLBA).
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(e) The minute books of Company previously made available
to Parent contain true, complete and correct records of all
meetings and other corporate actions held or taken since
January 1, 2005 of its stockholders and Board of Directors
(including committees of its Board of Directors).
3.2 Capitalization. (a) The
authorized capital stock of Company consists of
1,000,000,000 shares of Company Common Stock, par value
$0.05 per share, of which, as of December 31, 2007 (the
Company Capitalization Date),
578,919,834 shares, including all Company Restricted
Shares, were issued and outstanding, and 1,500,000 shares
of preferred stock, par value $0.05 per share (the
Company Preferred Stock), of which, as of the
Company Capitalization Date, (i) 250,000 shares were
designated as Series A Participating Preferred Stock, none
of which were outstanding, and (ii) 20,000 shares were
designated, issued and outstanding as Series B Preferred
Stock. As of the Company Capitalization Date, no shares of
Company Common Stock or Company Preferred Stock were reserved
for issuance except for (u) 49,693,066 shares of
Company Common Stock reserved for issuance in connection with
Company Options and Company SARs under the Company Stock Plans
that are outstanding as of the Company Capitalization Date,
(v) 1,056,172 shares of Company Common Stock reserved
for issuance upon settlement of the Company RSUs and Company
Deferred Equity Units that are outstanding as of the Company
Capitalization Date, (w) 111,111,111 shares of Company
Common Stock reserved for issuance upon conversion of the
Series B Preferred Stock, (x) 72,300,000 shares
of Company Common Stock reserved for issuance upon conversion of
Companys Series A and Series B floating rate
convertible debentures, (y) 26,601,024 shares of
Company Common Stock reserved for issuance under Companys
dividend reinvestment plan and 401(k) plan and
(z) 250,000 shares of Series A Participating
Preferred Stock reserved for issuance in accordance with the
Amended and Restated Rights Agreement, dated as of
November 27, 2001, as amended, between Company and American
Stock Transfer & Trust Company, as Rights Agent
(the Rights Agreement), pursuant to which
Company has issued rights to purchase Series A
Participating Preferred Stock (Rights). All
of the issued and outstanding shares of Company Common Stock
have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. As of the date of
this Agreement, no bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which
shareholders of Company may vote (Voting
Debt) are issued or outstanding. As of the date of
this Agreement, except pursuant to this Agreement, including
with respect to the Company Stock Plans as set forth herein, the
Certificate of Designation of the Series B Preferred Stock,
and the Rights Agreement, Company does not have and is not bound
by any outstanding subscriptions, options, warrants, calls,
rights, commitments or agreements of any character calling for
the purchase or issuance of, or the payment of any amount based
on, any shares of Company Common Stock, Company Preferred Stock,
Voting Debt or any other equity securities of Company or any
securities representing the right to purchase or otherwise
receive any shares of Company Common Stock, Company Preferred
Stock, Voting Debt or other equity securities of Company. As of
the date of this Agreement, except as provided in the
Certificate of Designation of the Series B Preferred Stock,
there are no contractual obligations of Company or any of its
Subsidiaries (I) to repurchase, redeem or otherwise acquire
any shares of capital stock of Company or any equity security of
Company or its Subsidiaries or any securities representing the
right to purchase or otherwise receive any shares of capital
stock or any other equity security of Company or its
Subsidiaries or (II) pursuant to which Company or any of
its Subsidiaries is or could be required to register shares of
Company capital stock or other securities under the Securities
Act of 1933, as amended (the Securities Act).
(b) Company has provided Parent with a true, complete and
correct list of the aggregate number of shares of Company Common
Stock issuable upon the exercise of each Company Option and
Company SAR and settlement of each Company RSU and Company
Deferred Equity Unit granted under the Company Stock Plans that
were outstanding as of the Company Capitalization Date and the
exercise price for each such Company Option and Company SAR.
Other than the Company Options, Company SARs, Company Restricted
Shares, Company RSUs and Company Deferred Equity Units that are
outstanding as of the Company Capitalization Date, no other
equity-based awards are outstanding as of the Company
Capitalization Date. Since the Company Capitalization Date
through the date hereof, Company has not (A) issued or
repurchased any shares of Company Common Stock, Company
Preferred Stock, Voting Debt or other equity securities of
Company, other than the issuance of shares of Company Common
Stock in connection with the exercise of Company Options or
Company SARs or settlement of the Company RSUs or Company
Deferred Equity Units granted
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under the Company Stock Plans or Company Deferred Equity Unit
Plans that were outstanding on the Company Capitalization Date
or (B) issued or awarded any options, stock appreciation
rights, restricted shares, restricted stock units, deferred
equity units, awards based on the value of Company capital stock
or any other equity-based awards under any of the Company Stock
Plans.
(c) Except for any director qualifying shares, all of the
issued and outstanding shares of capital stock or other equity
ownership interests of each Subsidiary of Company are owned by
Company, directly or indirectly, free and clear of any liens,
pledges, charges, claims and security interests and similar
encumbrances (Liens), and all of such shares
or equity ownership interests are duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive
rights. No Subsidiary of Company has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments
or agreements of any character calling for the purchase or
issuance of any shares of capital stock or any other equity
security of such Subsidiary or any securities representing the
right to purchase or otherwise receive any shares of capital
stock or any other equity security of such Subsidiary.
3.3 Authority; No
Violation. (a) Company has full corporate
power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly, validly and
unanimously approved by the Board of Directors of Company. The
Board of Directors of Company has determined unanimously that
this Agreement is advisable and in the best interests of Company
and its stockholders and has directed that this Agreement be
submitted to Companys stockholders for approval and
adoption at a duly held meeting of such stockholders and has
adopted a resolution to the foregoing effect. Except for the
approval and adoption of this Agreement by the affirmative vote
of the holders of a majority of the outstanding shares of
Company Common Stock entitled to vote at such meeting, no other
corporate proceedings on the part of Company are necessary to
approve this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by Company and (assuming due
authorization, execution and delivery by Parent and Merger Sub)
constitutes the valid and binding obligation of Company,
enforceable against Company in accordance with its terms (except
as may be limited by bankruptcy, insolvency, fraudulent
transfer, moratorium, reorganization or similar laws of general
applicability relating to or affecting the rights of creditors
generally and subject to general principles of equity (the
Bankruptcy and Equity Exception)).
(b) Neither the execution and delivery of this Agreement by
Company nor the consummation by Company of the transactions
contemplated hereby, nor compliance by Company with any of the
terms or provisions of this Agreement, will (i) violate any
provision of the Company Certificate or Company Bylaws or
(ii) assuming that the consents, approvals and filings
referred to in Section 3.4 are duly obtained
and/or made,
(A) violate any law, judgment, order, injunction or decree
applicable to Company, any of its Subsidiaries or any of their
respective properties or assets or (B) violate, conflict
with, result in a breach of any provision of or the loss of any
benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default)
under, result in the termination of or a right of termination or
cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective
properties or assets of Company or any of its Subsidiaries
under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease,
franchise, permit, Company Securitization Document, agreement,
by-law or other instrument or obligation to which Company or any
of its Subsidiaries is a party or by which any of them or any of
their respective properties or assets is bound.
3.4 Consents and Approvals. Except for
(i) the filing of an application (the BHCA
Application) with the Board of Governors of the
Federal Reserve System (the Federal Reserve
Board) under Section 4 of the Bank Holding
Company Act of 1956, as amended (the BHC Act)
and approval of such application, (ii) the filing of any
required applications, filings or notices with any foreign,
federal or state banking, consumer finance, mortgage banking,
insurance or other regulatory, self-regulatory or enforcement
authorities or any courts, administrative agencies or
commissions or other governmental authorities or
instrumentalities (each a Governmental
Entity) and approval of or non-objection to such
applications, filings and notices (the Other Regulatory
Approvals), (iii) the filing with the Securities
and Exchange Commission (the SEC) of a Proxy
Statement in definitive form relating to the meeting of
Companys stockholders to be held in connection with
A-9
this Agreement and the transactions contemplated by this
Agreement (the Proxy Statement) and of a
registration statement on
Form S-4
(the
Form S-4)
in which the Proxy Statement will be included as a prospectus,
and declaration of effectiveness of the
Form S-4
and the filing and effectiveness of the registration statement
contemplated by Section 1.5(e), (iv) the filing of the
Certificate of Merger with the Secretary of State of the State
of Delaware pursuant to the DGCL, (v) any notices to or
filings with the Small Business Administration (the
SBA), (vi) any consents, authorizations,
approvals, filings or exemptions in connection with compliance
with the rules and regulations of any applicable industry
self-regulatory organization (SRO), and the
rules of the NYSE, (vii) any notices or filings under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act) and (viii) such filings and approvals as are
required to be made or obtained under the securities or
Blue Sky laws of various states in connection with
the issuance of the shares of Parent Common Stock pursuant to
this Agreement and approval of listing of such Parent Common
Stock on the NYSE, no consents or approvals of or filings or
registrations with any Governmental Entity are necessary in
connection with the consummation by Company of the Merger and
the other transactions contemplated by this Agreement. No
consents or approvals of or filings or registrations with any
Governmental Entity are necessary in connection with the
execution and delivery by Company of this Agreement.
3.5 Reports; Regulatory Matters.
(a) Company and each of its Subsidiaries have timely filed
all reports, registrations, statements and certifications,
together with any amendments required to be made with respect
thereto, that they were required to file since January 1,
2005 with (i) the OTS, (ii) the Federal Reserve Board,
(iii) the FDIC, (iv) the Office of the Comptroller of
the Currency, (v) the NYSE, (vi) any state consumer
finance or mortgage banking regulatory authority or other
Agency, (vii) any state agency charged with the regulation
of the business of insurance (an Insurance
Department), (viii) the SEC, (ix) any
foreign regulatory authority and (x) any SRO (collectively,
and together with applicable insurance regulatory authorities,
Regulatory Agencies) and with each other
applicable Governmental Entity, and all other reports and
statements required to be filed by them since January 1,
2005, including any report or statement required to be filed
pursuant to the laws, rules or regulations of the United States,
any state, any foreign entity, or any Regulatory Agency or other
Governmental Entity, and have paid all fees and assessments due
and payable in connection therewith. Except for normal
examinations conducted by a Regulatory Agency or other
Governmental Entity in the ordinary course of the business of
Company and its Subsidiaries, no Regulatory Agency or other
Governmental Entity has initiated since January 1, 2005 or
has pending any proceeding, enforcement action or, to the
knowledge of Company, investigation into the business,
disclosures or operations of Company or any of its Subsidiaries.
Since January 1, 2005, no Regulatory Agency or other
Governmental Entity has resolved any proceeding, enforcement
action or, to the knowledge of Company, investigation into the
business, disclosures or operations of Company or any of its
Subsidiaries. There is no unresolved, or, to Companys
knowledge, threatened criticism, comment, exception or stop
order by any Regulatory Agency or other Governmental Entity with
respect to any report or statement relating to any examinations
or inspections of Company or any of its Subsidiaries. Since
January 1, 2005, there have been no formal or informal
inquiries by, or disagreements or disputes with, any Regulatory
Agency or other Governmental Entity with respect to the
business, operations, policies or procedures of Company or any
of its Subsidiaries (other than normal examinations conducted by
a Regulatory Agency or other Governmental Entity in
Companys ordinary course of business).
(b) Neither Company nor any of its Subsidiaries is subject
to any
cease-and-desist
or other order or enforcement action issued by, or is a party to
any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or
similar undertaking to, or is subject to any order or directive
by, or has been ordered to pay any civil money penalty by, or
has been since January 1, 2005 a recipient of any
supervisory letter from, or since January 1, 2005 has
adopted any policies, procedures or board resolutions at the
request or suggestion of, any Regulatory Agency or other
Governmental Entity that currently restricts in any material
respect the conduct of its business (or to Companys
knowledge that, upon consummation of the Merger, would restrict
in any material respect the conduct of the business of Parent or
any of its Subsidiaries), or that in any material manner relates
to its capital adequacy, its ability to pay dividends, its
credit, risk management or compliance policies, its internal
controls, its management or its business, other than those of
general application that apply to similarly situated savings and
loan holding
A-10
companies or their Subsidiaries (each item in this sentence, a
Company Regulatory Agreement), nor has
Company or any of its Subsidiaries been advised since
January 1, 2005 by any Regulatory Agency or other
Governmental Entity that it is considering issuing, initiating,
ordering, or requesting any such Company Regulatory Agreement.
To the knowledge of Company, there has not been any event or
occurrence since January 1, 2005 that would result in a
determination that Countrywide Bank, fsb is not well
capitalized as a matter of U.S. federal banking law.
(c) Company has previously made available to Parent an
accurate and complete copy of each (i) final registration
statement, prospectus, report, schedule and definitive proxy
statement filed with or furnished to the SEC by Company or any
of its Subsidiaries pursuant to the Securities Act or the
Securities Exchange Act of 1934, as amended (the
Exchange Act) since January 1, 2005 (the
Company SEC Reports) and prior to the date of
this Agreement and (ii) communication mailed by Company to
its stockholders since January 1, 2005 and prior to the
date of this Agreement. No such Company SEC Report or
communication, at the time filed, furnished or communicated
(and, in the case of registration statements and proxy
statements, on the dates of effectiveness and the dates of the
relevant meetings, respectively), contained any untrue statement
of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances in which
they were made, not misleading, except that information as of a
later date (but before the date of this Agreement) shall be
deemed to modify information as of an earlier date. As of their
respective dates, all Company SEC Reports complied as to form in
all material respects with the published rules and regulations
of the SEC with respect thereto. Each current Subsidiary of
Company that has filed since January 1, 2005 a
Form S-3
registration statement with the SEC meets the requirements for
the use of
Form S-3,
and no event has occurred that would reasonably be expected to
result in
Form S-3
eligibility requirements no longer being satisfied by any such
Subsidiary. No executive officer of Company has failed in any
respect to make the certifications required of him or her under
Section 302 or 906 of the Sarbanes-Oxley Act of 2002 (the
Sarbanes-Oxley Act).
3.6 Financial Statements.
(a) The financial statements of Company and its
Subsidiaries included (or incorporated by reference) in the
Company SEC Reports (including the related notes, where
applicable) (i) have been prepared from, and are in
accordance with, the books and records of Company and its
Subsidiaries, (ii) fairly present in all material respects
the consolidated results of operations, cash flows, changes in
stockholders equity and consolidated financial position of
Company and its Subsidiaries for the respective fiscal periods
or as of the respective dates therein set forth (subject in the
case of unaudited statements to recurring year-end audit
adjustments normal in nature and amount), (iii) complied as
to form, as of their respective dates of filing with the SEC, in
all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with
respect thereto, and (iv) have been prepared in accordance
with GAAP consistently applied during the periods involved,
except, in each case, as indicated in such statements or in the
notes thereto. The books and records of Company and its
Subsidiaries have been, and are being, maintained in all
material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only
actual transactions. KPMG LLP has not resigned or been dismissed
as independent public accountants of Company as a result of or
in connection with any disagreements with Company on a matter of
accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
(b) Neither Company nor any of its Subsidiaries has any
material liability or obligation of any nature whatsoever
(whether absolute, accrued, contingent, determined, determinable
or otherwise and whether due or to become due), except for
(i) those liabilities that are reflected or reserved
against on the consolidated balance sheet of Company included in
its Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 2007 (including
any notes thereto) and (ii) liabilities incurred in the
ordinary course of business consistent with past practice since
September 30, 2007 or in connection with this Agreement and
the transactions contemplated hereby.
(c) The records, systems, controls, data and information of
Company and its Subsidiaries are recorded, stored, maintained
and operated under means (including any electronic, mechanical
or photographic process, whether computerized or not) that are
under the exclusive ownership and direct control of Company or
its
A-11
Subsidiaries or accountants (including all means of access
thereto and therefrom), except for any non-exclusive ownership
and non-direct control that would not reasonably be expected to
have a material adverse effect on the system of internal
accounting controls described below in this Section 3.6(c).
Company (x) has implemented and maintains disclosure
controls and procedures (as defined in
Rule 13a-15(e)
of the Exchange Act) to ensure that material information
relating to Company, including its consolidated Subsidiaries, is
made known to the chief executive officer and the chief
financial officer of Company by others within those entities,
and (y) has disclosed, based on its most recent evaluation
prior to the date hereof, to Companys outside auditors and
the audit committee of Companys Board of Directors
(i) any significant deficiencies and material weaknesses in
the design or operation of internal controls over financial
reporting (as defined in
Rule 13a-15(f)
of the Exchange Act) which are reasonably likely to adversely
affect Companys ability to record, process, summarize and
report financial information and (ii) any fraud, whether or
not material, that involves management or other employees who
have a significant role in Companys internal controls over
financial reporting. These disclosures were made in writing by
management to Companys auditors and audit committee, a
copy of which has previously been made available to Parent. As
of the date hereof, there is no reason to believe that
Companys outside auditors, chief executive officer and
chief financial officer will not be able to give the
certifications and attestations required pursuant to the rules
and regulations adopted pursuant to Section 404 of the
Sarbanes-Oxley Act, without qualification, when next due.
(d) Since December 31, 2006, (i) neither Company
nor any of its Subsidiaries nor, to the knowledge of Company,
any director, officer, employee, auditor, accountant or
representative of Company or any of its Subsidiaries has
received or otherwise had or obtained knowledge of any material
complaint, allegation, assertion or claim, whether written or
oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of Company or any of its
Subsidiaries or their respective internal accounting controls,
including any material complaint, allegation, assertion or claim
that Company or any of its Subsidiaries has engaged in
questionable accounting or auditing practices, and (ii) no
attorney representing Company or any of its Subsidiaries,
whether or not employed by Company or any of its Subsidiaries,
has reported evidence of a material violation of securities
laws, breach of fiduciary duty or similar violation by Company
or any of its officers, directors, employees or agents to the
Board of Directors of Company or any committee thereof or to any
director or officer of Company.
3.7 Brokers Fees. Neither Company
nor any of its Subsidiaries nor any of their respective
officers, directors, employees or agents has utilized any
broker, finder or financial advisor or incurred any liability
for any brokers fees, commissions or finders fees in
connection with the Merger or any other transactions
contemplated by this Agreement, other than as set forth on
Section 3.7 of the Company Disclosure Schedule and pursuant
to letter agreements, true, complete and correct copies of which
have been previously delivered to Parent.
3.8 Absence of Certain Changes or
Events. (a) Since September 30, 2007,
no event or events have occurred that have had or would
reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect on Company. As used in this
Agreement, the term Material Adverse Effect
means, with respect to Parent or Company, as the case may be, a
material adverse effect on (i) the financial condition,
results of operations or business of such party and its
Subsidiaries taken as a whole (provided, however,
that, with respect to this clause (i), a Material
Adverse Effect shall not be deemed to include effects
to the extent resulting from (A) changes, after the date
hereof, in GAAP or regulatory accounting requirements applicable
generally to companies in the industries in which such party and
its Subsidiaries operate, (B) changes, after the date
hereof, in laws, rules or regulations of general applicability
to companies in the industries in which such party and its
Subsidiaries operate, (C) actions or omissions taken with
the prior written consent of the other party, (D) changes,
after the date hereof, in global or national political
conditions or general economic or market conditions generally
affecting other companies in the industries in which such party
and its Subsidiaries operate or (E) the public disclosure
of this Agreement or the transactions contemplated hereby,
except, with respect to clauses (A) and (B), to the extent
that the effects of such change are disproportionately adverse
to the financial condition, results of operations or business of
such party and its Subsidiaries, taken as a whole, as compared
to other companies in the industry in which such party and its
Subsidiaries operate) or (ii) the ability of such party to
timely consummate the transactions contemplated by this
Agreement.
A-12
(b) Since September 30, 2007 through and including the
date of this Agreement, Company and its Subsidiaries have
carried on their respective businesses in all material respects
in the ordinary course of business consistent with their past
practice.
(c) Since September 30, 2007, neither Company nor any
of its Subsidiaries has (i) except for (A) normal
increases for or payments to employees (other than officers
subject to the reporting requirements of Section 16(a) of
the Exchange Act (the Executive Officers)) made in
the ordinary course of business consistent with past practice or
(B) as required by applicable law or contractual
obligations existing as of the date hereof, increased the wages,
salaries, compensation, pension, or other fringe benefits or
perquisites payable to any Executive Officer or other employee
or director from the amount thereof in effect as of
September 30, 2007, granted any severance or termination
pay, entered into any contract to make or grant any severance or
termination pay (in each case, except as required under the
terms of agreements or severance plans listed on
Section 3.11 of the Company Disclosure Schedule, as in
effect as of the date hereof ), or paid any bonus other than the
customary year-end bonuses in amounts consistent with past
practice, (ii) granted any options to purchase shares of
Company Common Stock, any restricted shares of Company Common
Stock or any right to acquire any shares of its capital stock,
or any right to payment based on the value of Companys
capital stock, to any Executive Officer or other employee or
director other than grants to employees (other than Executive
Officers) made in the ordinary course of business consistent
with past practice under the Company Stock Plans,
(iii) changed any financial accounting methods, principles
or practices of Company or its Subsidiaries affecting its
assets, liabilities or businesses, including any reserving,
renewal or residual method, practice or policy,
(iv) suffered any strike, work stoppage, slow-down, or
other labor disturbance, or (v) except for publicly
disclosed ordinary dividends on the Company Common Stock or
Series B Preferred Stock and except for distributions by
wholly-owned Subsidiaries of Company to Company or another
wholly-owned Subsidiary of Company, made or declared any
distribution in cash or kind to its stockholder or repurchased
any shares of its capital stock or other equity interests.
3.9 Legal Proceedings. (a) Neither
Company nor any of its Subsidiaries is a party to any, and there
are no pending or, to the best of Companys knowledge,
threatened, legal, administrative, arbitral or other
proceedings, claims, actions, suits or governmental or
regulatory investigations of any nature against Company or any
of its Subsidiaries or to which any of their assets are subject.
(b) There is no judgment, settlement agreement, order,
injunction, decree or regulatory restriction (other than those
of general application that apply to similarly situated savings
and loan holding companies or their Subsidiaries) imposed upon
Company, any of its Subsidiaries or the assets of Company or any
of its Subsidiaries (or that, upon consummation of the Merger,
would apply to Parent or any of its Subsidiaries).
3.10 Taxes and Tax Returns.
(a) Each of Company and its Subsidiaries has duly and
timely filed (including all applicable extensions) all material
Tax Returns required to be filed by it on or prior to the date
of this Agreement (all such Tax Returns being accurate and
complete in all material respects), has paid all Taxes shown
thereon as arising and has duly paid or made provision for the
payment of all material Taxes that have been incurred or are due
or claimed to be due from it by federal, state, foreign or local
taxing authorities other than Taxes that are not yet delinquent
or are being contested in good faith, have not been finally
determined and have been adequately reserved against under GAAP.
The federal, California and New York state income Tax returns of
Company and its Subsidiaries have been examined by the Internal
Revenue Service (the IRS) or other relevant
taxing authority for all years to and including the years ending
December 2004, December 2001 and February 2001, respectively,
and any liability with respect thereto has been satisfied or any
liability with respect to deficiencies asserted as a result of
such examination is covered by reserves that are adequate under
GAAP. There are no material disputes pending, or written claims
asserted, for Taxes or assessments upon Company or any of its
Subsidiaries for which Company does not have reserves that are
adequate under GAAP. Neither Company nor any of its Subsidiaries
is a party to or is bound by any Tax sharing, allocation or
indemnification agreement or arrangement (other than such an
agreement or arrangement exclusively between or among Company
and its Subsidiaries). Within the past five years (or otherwise
as part of a plan (or series of related
transactions) within the meaning of Section 355(e) of
the Code of which the Merger is also a part), neither Company
nor
A-13
any of its Subsidiaries has been a distributing
corporation or a controlled corporation in a
distribution intended to qualify under Section 355(a) of
the Code. Neither Company nor any of its Subsidiaries is
required to include in income any adjustment pursuant to
Section 481(a) of the Code, no such adjustment has been
proposed by the IRS and no pending request for permission to
change any accounting method has been submitted by Company or
any of its Subsidiaries. The aggregate balance of the reserve
for bad debts described in any provision under state or local
laws and regulations similar to Section 593(g)(2)(A)(ii) of
the Code of Company and its Subsidiaries is not greater than
$1,000,000. Neither Company nor any of its Subsidiaries has
participated in a listed transaction within the
meaning of Treasury
Regulation Section 1.6011-4(b)(2).
(b) As used in this Agreement, the term
Tax or Taxes means
(i) all federal, state, local, and foreign income, excise,
gross receipts, gross income, ad valorem, profits,
gains, property, capital, sales, transfer, use, payroll,
employment, severance, withholding, duties, intangibles,
franchise, backup withholding, value added and other taxes,
charges, levies or like assessments together with all penalties
and additions to tax and interest thereon and (ii) any
liability for Taxes described in clause (i) above under
Treasury
Regulation Section 1.1502-6
(or any similar provision of state, local or foreign law).
(c) As used in this Agreement, the term Tax
Return means a report, return or other information
(including any amendments) required to be supplied to a
governmental entity with respect to Taxes including, where
permitted or required, combined or consolidated returns for any
group of entities that includes Company or any of its
Subsidiaries.
(d) Company and its Subsidiaries have complied in all
material respects with all applicable laws relating to the
payment and withholding of Taxes (including withholding of Taxes
pursuant to Sections 1441, 1442 and 3402 of the Code or any
comparable provision of any state, local or foreign laws) and
have, within the time and in the manner prescribed by applicable
law, withheld from and paid over all amounts required to be so
withheld and paid over under applicable laws.
3.11 Employee Matters.
(a) Section 3.11 of the Company Disclosure Schedule
sets forth a true, complete and correct list of each
employee benefit plan as defined in
Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended (ERISA), whether or not
subject to ERISA, and each employment, consulting, bonus,
incentive or deferred compensation, vacation, stock option or
other equity-based, severance, termination, retention, change of
control, profit-sharing, fringe benefit or other similar plan,
program, agreement or commitment, whether written or unwritten,
for the benefit of any employee, former employee, director or
former director of Company or any of its Subsidiaries entered
into, maintained or contributed to by Company or any of its
Subsidiaries or to which Company or any of its Subsidiaries is
obligated to contribute, or with respect to which Company or any
of its Subsidiaries has any liability, direct or indirect,
contingent or otherwise (including any liability arising out of
an indemnification, guarantee, hold harmless or similar
agreement) or otherwise providing benefits to any current,
former or future employee, officer or director of Company or any
of its Subsidiaries or to any beneficiary or dependant thereof
(such plans, programs, agreements and commitments, herein
referred to as the Company Benefit Plans).
(b) With respect to each Company Benefit Plan, Company has
made available to Parent true, complete and correct copies of
the following (as applicable): (i) the written document
evidencing such Company Benefit Plan or, with respect to any
such plan that is not in writing, a written description of the
material terms thereof; (ii) the summary plan description;
(iii) the most recent annual report, financial statement
and/or
actuarial report; (iv) the most recent determination letter
from the IRS; (v) the most recent Form 5500 required
to have been filed with the IRS, including all schedules
thereto; (vi) any related trust agreements, insurance
contracts or documents of any other funding arrangements;
(vii) any notices to or from the IRS or any office or
representative of the Department of Labor relating to any
compliance issues in respect of any such Company Benefit Plan;
(viii) all amendments, modifications or material
supplements to any Company Benefit Plan; and (ix) documents
evidencing any discrimination or coverage tests performed during
the last plan year. Except as specifically provided in the
foregoing documents made available to Parent, there are no
amendments to any Company Benefit Plan that have been adopted or
approved nor has Company or any of its Subsidiaries taken
substantial steps to make any such amendments or to adopt or
approve any new Company Benefit Plan.
A-14
(c) With respect to each of the Company Benefit Plans, no
event has occurred and there exists no condition or set of
circumstances in connection with which Company or any of its
Subsidiaries would be subject to any liability that,
individually or in the aggregate, would reasonably be expected
to result in a Material Adverse Effect on Company. Company and
each of its Subsidiaries have operated and administered each
Company Benefit Plan in compliance with all applicable laws and
the terms of each such plan. The terms of each Company Benefit
Plan are in compliance with all applicable laws. Each Company
Benefit Plan that is intended to be qualified under
Section 401
and/or 409
of the Code has received a favorable determination letter from
the IRS to such effect and, to the knowledge of Company, no
fact, circumstance or event has occurred or exists since the
date of such determination letter that would reasonably be
expected to adversely affect the qualified status of any such
Company Benefit Plan. There are no pending or, to the knowledge
of Company, threatened or anticipated claims by, on behalf of or
against any of the Company Benefit Plans, any fiduciaries of
such Company Benefit Plan (with respect to whom Company has an
indemnification obligation) with respect to their duties to any
Company Benefit Plan, or against the assets of such Company
Benefit Plan or any trust maintained in connection with such
Company Benefit Plan (other than routine claims for benefits).
All contributions, premiums and other payments required to be
made with respect to any Company Benefit Plan have been made on
or before their due dates under applicable law and the terms of
such Company Benefit Plan, and with respect to any such
contributions, premiums or other payments required to be made
with respect to any Company Benefit Plan that are not yet due,
to the extent required by GAAP, adequate reserves are reflected
on the consolidated balance sheet of Company included in the
Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 2007 (including
any notes thereto) or liability therefor was incurred in the
ordinary course of business consistent with past practice since
September 30, 2007. There is not now, and to the knowledge
of Company there are no existing circumstances that would
reasonably be expected to give rise to, any requirement for the
posting of security with respect to a Company Benefit Plan or
the imposition of any pledge, lien, security interest or
encumbrance on the assets of Company or any of its Subsidiaries
or any of their respective ERISA Affiliates (as defined below)
under ERISA or the Code, or similar laws of foreign
jurisdictions. No excess contributions have been
made that would be non-deductible or that would subject Company
or any of its Subsidiaries to the excise tax imposed under
Section 4972 of the Code. To the extent any Company Benefit
Plan provides benefits in the form of, or permits investment in,
securities of Company or any of its Subsidiaries, the interests
in such Company Benefit Plan are subject to a current, effective
registration statement under the Securities Act, or are subject
to an exemption from registration and the requirements of such
exemption have been satisfied, and the participants in such plan
have been provided a current prospectus to the extent required
by applicable law.
(d) Neither Company nor any of its Subsidiaries nor any
trade or business, whether or not incorporated, that, together
with Company or any of its Subsidiaries would be deemed to be a
single employer within the meaning of
Section 4001(b) of ERISA (an ERISA
Affiliate), maintains or contributes to, or during the
five-year period prior to the date hereof has maintained or
contributed to, (x) any employee benefit plan
within the meaning of Section 3(3) of ERISA that is subject
to Section 412 of the Code or Section 302 or
Title IV of ERISA or (y) a multiemployer
plan within the meaning of Section 3(37) and
4001(a)(3) of ERISA or a multiple employer plan
within the meaning of Sections 4063/4064 of ERISA or
Section 413(c) of the Code. Neither Company nor any of its
Subsidiaries has incurred, either directly or indirectly
(including as a result of any indemnification or joint and
several liability obligation), any liability pursuant to
Title I or IV of ERISA other than plan funding
obligations in the ordinary course and Pension Benefit Guaranty
Corporation (PBGC) premiums (including any
Controlled Group Liability as a result of its relationship with
an ERISA Affiliate) or the penalty Tax, excise Tax or joint and
several liability provisions of the Code relating to employee
benefit plans, whether contingent or otherwise, including
pursuant to any non-exempt prohibited transactions
as such term is defined in Section 406 of ERISA or
Section 4975 of the Code, and no event, transaction, fact
or condition exists that presents a risk to Company or any ERISA
Affiliate of Company of incurring any such liability, or after
the Effective Time, to Parent or any of its Affiliates, in each
case, with respect to the Company Benefit Plans. No Company
Benefit Plan has an accumulated funding deficiency
(whether or not waived) within the meaning of Section 412
of the Code or Section 302 of ERISA. With respect to each
Company Benefit Plan that is a multiemployer plan,
no complete or partial withdrawal from such plan has been made
by Company or any of its Subsidiaries, or by any other person,
that would reasonably
A-15
be expected to result in any material liability to Company or
any of its Subsidiaries, whether such liability is contingent or
otherwise, and if Company or any of its Subsidiaries were to
withdraw from any such Company Benefit Plan, such withdrawal
would not result in any material liability to Company or any of
its Subsidiaries. During the five-year period prior to the date
hereof, with respect to any Company Benefit Plan subject to
Title IV or Section 302 of ERISA or Section 412
or 4971 of the Code (i) there has not been a partial
termination, and (ii) none of the following events has
occurred: (x) the filing of a notice of intent to
terminate, (y) the treatment of an amendment to such a
Company Benefit Plan as a termination under Section 4041 of
ERISA or (z) the commencement of proceedings by the PBGC to
terminate such a Company Benefit Plan and (iii) there has
been no reportable event within the meaning of
Section 4043 of ERISA and the regulations and
interpretations thereunder which required a notice to the PBGC
which has not been fully and accurately reported in a timely
fashion, as required, or which, whether or not reported, would
constitute grounds for the PBGC to institute involuntary
termination proceedings with respect to any Company Benefit Plan
that is subject to Title IV of ERISA. Controlled
Group Liability means any and all liabilities
(i) under Title IV of ERISA, (ii) under
Section 302 of ERISA, (iii) under Sections 412
and 4971 of the Code, (iv) resulting from a violation of
the continuation coverage requirements of Section 601 et
seq. of ERISA and Section 4980B of the Code or the group
health plan requirements of Sections 601 et seq. of the
Code and Section 601 et seq. of ERISA and (v) under
corresponding or similar provisions of foreign laws or
regulations.
(e) With respect to each Company Benefit Plan that is
subject to Title IV or Section 302 of ERISA or
Section 412 or 4971 of the Code, 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 did not exceed the then current value of assets of such
Company Benefit Plan or, if such liabilities did exceed such
assets, the amount thereof was properly reflected on the
financial statements of Company or its applicable Subsidiary
previously filed with the SEC. With respect to each Company
Benefit Plan for which financial statements are required there
has been no material adverse change in the financial status of
such Company Benefit Plan since the date of the most recent
financial statements provided to Parent by Company.
(f) No Company Benefit Plan is under audit or is the
subject of an investigation by the IRS, the Department of Labor,
the PBGC, the SEC or any other Governmental Entity, nor is any
such audit or investigation pending or, to Companys
knowledge, threatened.
(g) Neither the execution or delivery of this Agreement nor
the consummation of the transactions contemplated by this
Agreement will, either alone or in conjunction with any other
event, (i) result in any payment or benefit becoming due or
payable, or required to be provided, to any director, employee
or independent contractor of Company or any of its Subsidiaries,
(ii) increase the amount or value of any benefit or
compensation otherwise payable or required to be provided to any
such director, employee or independent contractor,
(iii) result in the acceleration of the time of payment,
vesting or funding of any such benefit or compensation,
(iv) result in any amount failing to be deductible by
reason of Section 280G of the Code or (v) result in
any limitation on the right of Company or any of its
Subsidiaries to amend, merge, terminate or receive a reversion
of assets from any Company Benefit Plan or related trust. No
Company Benefit Plan provides for the reimbursement of excise
Taxes under Section 4999 of the Code or any income Taxes
under the Code.
(h) No payment made or to be made in respect of any
employee or former employee of Company or any of its
Subsidiaries is reasonably expected to be nondeductible by
reason of Section 162(m) of the Code.
(i) Neither Company nor any of its Subsidiaries has any
liability with respect to an obligation to provide
post-employment welfare benefits (whether or not insured) with
respect to any person beyond their retirement or other
termination of service, other than coverage mandated by
Section 4980B of the Code or applicable state or local law.
(j) With respect to the employees of Company and its
Subsidiaries, all social security payments, including payments
to any public pension scheme, compulsory retirement insurance,
unemployment insurance, compulsory long term care insurance,
compulsory occupational disability insurance, and compulsory
health and safety insurance required to be made have been timely
and properly made.
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(k) Each Company Benefit Plan that is a nonqualified
deferred compensation plan within the meaning of
Section 409A(d)(1) of the Code (a Nonqualified
Deferred Compensation Plan) and any award thereunder,
in each case that is subject to Section 409A of the Code
has been operated in compliance in all material respects with
Section 409A of the Code since January 1, 2005, based
upon a good faith, reasonable interpretation of
(A) Section 409A of the Code and (B)(1) the proposed
and final Treasury Regulations issued thereunder and
(2) Internal Revenue Service Notice
2005-1, all
subsequent Internal Revenue Service Notices and other interim
guidance on Section 409A of the Code and (clauses (A)
and (B), together, the 409A Authorities). No
Company Benefit Plan that would be a Nonqualified Deferred
Compensation Plan subject to Section 409A of the Code but
for the effective date provisions that are applicable to
Section 409A of the Code, as set forth in
Section 885(d) of the American Jobs Creation Act of 2004,
as amended (the AJCA), has been
materially modified within the meaning of
Section 885(d)(2)(B) of the AJCA after October 3,
2004, based upon a good faith reasonable interpretation of the
AJCA and the 409A Authorities. No assets set aside for the
payment of benefits under any Nonqualified Deferred Compensation
Plan are held outside of the United States, except to the extent
that substantially all of the services to which such benefits
are attributable have been performed in the jurisdiction in
which such assets are held. To the extent any Nonqualified
Deferred Compensation Plan provides for earnings with respect to
deferred amounts that are measured other than by reference to a
fixed rate of return, the interests in such Nonqualified
Deferred Compensation Plan are subject to a current, effective
registration statement under the Securities Act or are subject
to an exemption from registration and the requirements of such
exemption have been satisfied.
(l) All Company Options have been granted in compliance
with the terms of the applicable Company Benefit Plans, with
applicable law, and with the applicable provisions of the
Company Certificate and Company Bylaws as in effect at the
applicable time, and all such Company Options are accurately
disclosed as required under applicable law in the Company SEC
Reports, including the financial statements contained therein or
attached thereto (if amended or superseded by a filing with the
SEC made prior to the date of this Agreement, as so amended or
superseded). In addition, Company has not issued any Company
Options or Company SARs pertaining to shares of Company Common
Stock under any Company Benefit Plan with an exercise price that
is less than the fair market value of the underlying
shares on the date of grant, as determined for financial
accounting purposes under GAAP.
(m) Neither Company nor any of its Subsidiaries is a party
to or bound by any labor or collective bargaining agreement and
there are no organizational campaigns, petitions or other
activities or proceedings of any labor union, workers
council or labor organization seeking recognition of a
collective bargaining unit with respect to, or otherwise
attempting to represent, any of the employees of Company or any
of its Subsidiaries or compel Company or any of its Subsidiaries
to bargain with any such labor union, works council or labor
organization. There are no labor related controversies, strikes,
slowdowns, walkouts or other work stoppages pending or, to the
knowledge of Company, threatened and neither Company nor any of
its Subsidiaries has experienced any such labor related
controversy, strike, slowdown, walkout or other work stoppage
within the past three years. Neither Company nor any of its
Subsidiaries is a party to, or otherwise bound by, any consent
decree with, or citation by, any Governmental Entity relating to
employees or employment practices. Each of Company and its
Subsidiaries are in compliance with all applicable laws relating
to labor, employment, termination of employment or similar
matters, including but not limited to laws relating to
discrimination, disability, labor relations, hours of work,
payment of wages and overtime wages, pay equity, immigration,
workers compensation, working conditions, employee scheduling,
occupational safety and health, family and medical leave, and
employee terminations, and have not engaged in any unfair labor
practices or similar prohibited practices. Except as would not
result in any material liability to Company or any of its
Subsidiaries, there are no complaints, lawsuits, arbitrations,
administrative proceedings, or other proceedings of any nature
pending or, to the knowledge of Company, threatened against
Company or any of its Subsidiaries brought by or on behalf of
any applicant for employment, any current or former employee,
any person alleging to be a current or former employee, any
class of the foregoing, or any Governmental Entity, relating to
any such law or regulation, or alleging breach of any express or
implied contract of employment, wrongful termination of
employment, or alleging any other discriminatory, wrongful or
tortious conduct in connection with the employment relationship.
Company has made available to Parent a copy of all written
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policies and procedures related to Companys and its
Subsidiaries employees and a written description of all
material unwritten policies and procedures related to
Companys and its Subsidiaries employees.
(n) Within the last six months, neither Company nor any of
its Subsidiaries has incurred any liability or obligation which
remains unsatisfied under the Worker Adjustment and Retraining
Notification Act (WARN) or any similar state
or local laws regarding the termination or layoff of employees.
(o) No material penalties have been imposed on Company, any
Subsidiary, any Company Benefit Plan, or any employee, officer,
director, administrator or agent thereof under
Sections 1176 or 1177 of the Health Insurance Portability
and Accountability Act of 1996, as amended.
(p) Neither Company nor any of its Subsidiaries has taken
any action to take corrective action or make a filing under any
voluntary correction program of the IRS, Department of Labor or
any other Governmental Entity with respect to any Company
Benefit Plan, and neither Company nor any of its Subsidiaries
has any knowledge of any material plan defect that would qualify
for correction under any such program.
3.12 Compliance with Applicable
Law. (a) Company and each of its
Subsidiaries hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their
respective businesses under and pursuant to each, and have
complied in all respects with and are not in default in any
respect under any, law applicable to Company or any of its
Subsidiaries.
(b) Company and each of its Subsidiaries has properly
administered all accounts for which it acts as a fiduciary,
including accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian, conservator or
investment advisor, in accordance with the terms of the
governing documents and applicable law. None of Company, any of
its Subsidiaries, or any director, officer or employee of
Company or of any of its Subsidiaries has committed any breach
of trust or fiduciary duty with respect to any such fiduciary
account and the accountings for each such fiduciary account are
true and correct and accurately reflect the assets of such
fiduciary account.
3.13 Certain Contracts. (a) Neither
Company nor any of its Subsidiaries is a party to or bound by
any contract, arrangement, commitment or understanding (whether
written or oral) (i) with respect to the employment of any
directors, Executive Officers, employees or consultants, other
than in the ordinary course of business consistent with past
practice, (ii) which, upon execution of this Agreement or
consummation or stockholder approval of the transactions
contemplated by this Agreement will (either alone or upon the
occurrence of any additional acts or events) result in any
payment or benefits (whether of severance pay or otherwise)
becoming due from Parent, Company, the Surviving Company, or any
of their respective Subsidiaries to any Executive Officer or
employee of Company or any of its Subsidiaries, (iii) that
is a material contract (as such term is defined in
Item 601(b)(10) of
Regulation S-K
of the SEC) to be performed after the date of this Agreement
that has not been filed or incorporated by reference in the
Company SEC Reports filed prior to the date hereof,
(iv) that materially restricts the conduct of any line of
business by Company or any of its Subsidiaries or, to the
knowledge of Company, upon consummation of the Merger will
materially restrict the ability of Parent, the Surviving Company
or any of their respective Subsidiaries to engage in any line of
business, (v) that obligates Company or any of its
Subsidiaries to conduct business on an exclusive or preferential
basis with any third party or upon consummation of the Merger
will obligate Parent, the Surviving Company or any of their
respective Subsidiaries to conduct business with any third party
on an exclusive or preferential basis, (vi) that requires
Company or any of its Subsidiaries to repurchase or indemnify
with respect to a material portion of Previously Disposed of
Loans, (vii) with or to a labor union or guild (including
any collective bargaining agreement) or (viii) including
any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the execution of this
Agreement, the occurrence of any stockholder approval or the
consummation of any of the transactions contemplated by this
Agreement, or the value of any of the benefits of which will be
calculated on the basis of or affected by any of the
transactions contemplated by this Agreement. Each contract,
arrangement, commitment or understanding of the type described
in this Section 3.13(a), whether or not set forth in the
Company Disclosure Schedule, is referred to as an
Company Contract.
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(b) (i) Each Company Contract is valid and binding on
Company or its applicable Subsidiary, enforceable against it in
accordance with its terms (subject to the Bankruptcy and Equity
Exception), and is in full force and effect, (ii) Company
and each of its Subsidiaries and, to Companys knowledge,
each other party thereto has duly performed all obligations
required to be performed by it to date under each Company
Contract and (iii) no event or condition exists that
constitutes or, after notice or lapse of time or both, will
constitute, a breach, violation or default on the part of
Company or any of its Subsidiaries or, to Companys
knowledge, any other party thereto under any such Company
Contract. There are no disputes pending or, to Companys
knowledge, threatened with respect to any Company Contract.
3.14 Risk Management
Instruments. (a) Derivative
Transactions means any swap transaction, option,
warrant, forward purchase or sale transaction, futures
transaction, cap transaction, floor transaction or collar
transaction relating to one or more currencies, commodities,
bonds, equity securities, loans, servicing rights, interest
rates, prices, values, or other financial or non-financial
assets, credit-related events or conditions or any indexes, or
any other similar transaction or combination of any of these
transactions, including collateralized mortgage obligations or
other similar instruments or any debt or equity instruments
evidencing or embedding any such types of transactions, and any
related credit support, collateral or other similar arrangements
related to such transactions; provided that, for the
avoidance of doubt, the term Derivative
Transactions shall not include any Company Option.
(b) All Derivative Transactions, whether entered into for
the account of Company or any of its Subsidiaries or for the
account of a customer of Company or any of its Subsidiaries,
were entered into in the ordinary course of business consistent
with past practice and in accordance with prudent banking
practice and applicable laws, rules, regulations and policies of
any Regulatory Authority and in accordance with the investment,
securities, commodities, risk management and other policies,
practices and procedures employed by Company and its
Subsidiaries, and with counterparties believed at the time to be
financially responsible and able to understand (either alone or
in consultation with their advisers) and to bear the risks of
such Derivative Transactions. All of such Derivative
Transactions are valid and binding obligations of Company or one
of its Subsidiaries enforceable against it in accordance with
their terms (subject to the Bankruptcy and Equity Exception),
and are in full force and effect. Company and its Subsidiaries
and, to Companys knowledge, all other parties thereto have
duly performed their obligations under the Derivative
Transactions to the extent that such obligations to perform have
accrued and, to Companys knowledge, there are no breaches,
violations or defaults or allegations or assertions of such by
any party thereunder.
3.15 Investment Securities and
Commodities. (a) Except as would not
reasonably be expected to have a Material Adverse Effect on
Company, each of Company and its Subsidiaries has good title to
all securities and commodities owned by it (except those sold
under repurchase agreements or held in any fiduciary or agency
capacity), free and clear of any Liens, except to the extent
such securities or commodities are pledged in the ordinary
course of business to secure obligations of Company or its
Subsidiaries. Such securities and commodities are valued on the
books of Company in accordance with GAAP in all material
respects.
(b) Company and its Subsidiaries and their respective
businesses employ investment, securities, commodities, risk
management and other policies, practices and procedures (the
Policies, Practices and Procedures) which
Company believes are prudent and reasonable in the context of
such businesses. Prior to the date hereof, Company has made
available to Parent in writing the material Policies, Practices
and Procedures.
3.16 Warehouse Loan Portfolio.
(a) Section 3.16(a) of the Company Disclosure Schedule
sets forth the aggregate outstanding principal amount, as of
December 31, 2007, of all loan agreements, notes or
borrowing arrangements payable to Company or its Subsidiaries
other than Loans (as defined in Section 3.20)
(collectively, Warehouse Loans).
(b) Section 3.16(b) of the Company Disclosure Schedule
sets forth all Warehouse Loans outstanding as of
December 31, 2007 that were designated as of such date by
Company as Special Mention, Substandard,
Doubtful, Loss, or words of similar
import, together with the principal amount of each such
Warehouse Loan and the amount of specific reserves with respect
to each such Warehouse Loan.
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3.17 Property. Company or one of its
Subsidiaries (a) has good and marketable title to all the
properties and assets reflected in the latest audited balance
sheet included in such Company SEC Reports as being owned by
Company or one of its Subsidiaries or acquired after the date
thereof (except properties sold or otherwise disposed of since
the date thereof in the ordinary course of business) (the
Owned Properties), free and clear of all
Liens of any nature whatsoever, except (i) statutory Liens
securing payments not yet due, (ii) Liens for real property
Taxes not yet due and payable, (iii) easements, rights of
way, and other similar encumbrances that do not materially
affect the use of the properties or assets subject thereto or
affected thereby or otherwise materially impair business
operations at such properties and (iv) such imperfections
or irregularities of title or Liens as do not materially affect
the use of the properties or assets subject thereto or affected
thereby or otherwise materially impair business operations at
such properties (collectively, Permitted
Encumbrances), and (b) is the lessee of all
leasehold estates reflected in the latest audited financial
statements included in such Company SEC Reports or acquired
after the date thereof (except for leases that have expired by
their terms since the date thereof) (the Leased
Properties and, collectively with the Owned
Properties, the Real Property), free and
clear of all Liens of any nature whatsoever, except for
Permitted Encumbrances, and is in possession of the properties
purported to be leased thereunder, and each such lease is valid
without default thereunder by the lessee or, to Companys
knowledge, the lessor. The Real Property is in material
compliance with all applicable zoning laws and building codes,
and the buildings and improvements located on the Real Property
are in good operating condition and in a state of good working
order, ordinary wear and tear excepted. There are no pending or,
to the knowledge of Company, threatened condemnation proceedings
against the Real Property. Company and its Subsidiaries are in
compliance with all applicable health and safety related
requirements for the Real Property, including those under the
Americans with Disabilities Act of 1990 and the Occupational
Health and Safety Act of 1970. Company and its Subsidiaries own
and have good and valid title to, or have valid rights to use,
all material tangible personal property used by them in
connection with the conduct of their businesses, in each case,
free and clear of all Liens, other than Permitted Encumbrances.
3.18 Intellectual Property.
(a) Definitions. For purposes of this
Agreement, the following terms shall have the meanings assigned
below:
Company IP means all Intellectual Property
owned, used, held for use or exploited by Company or any of its
Subsidiaries.
Customer Information means information and
data, whether proprietary or not, relating to customers, clients
of customers or end-users.
Intellectual Property means collectively, all
intellectual property and other similar proprietary rights in
any jurisdiction throughout the world, whether owned, used or
held for use under license, whether registered or unregistered,
including such rights in and to: (i) trademarks, service
marks, brand names, certification marks, trade dress, logos,
trade names and corporate names and other indications of origin,
and the goodwill associated with any of the foregoing
(collectively, Trademarks); (ii) patents
and patent applications, and any and all divisions,
continuations,
continuations-in-part,
reissues, continuing patent applications, provisional patent
applications, re-examinations, and extensions thereof, any
counterparts claiming priority therefrom, utility models,
patents of importation/confirmation, certificates of invention,
certificates of registration and like rights (collectively,
Patents), and inventions, invention
disclosures, discoveries and improvements, whether or not
patentable; (iii) trade secrets (including, those trade
secrets defined in the Uniform Trade Secrets Act and under
corresponding foreign statutory law and common law), business,
technical and know-how information, non-public information, and
confidential information and rights to limit the use or
disclosure thereof by any person (collectively, Trade
Secrets); (iv) all works of authorship (whether
copyrightable or not), copyrights and proprietary rights in
copyrighted works including writings, other works of authorship,
and databases (or other collections of information, data, works
or other materials) (collectively,
Copyrights); (v) software, including
data files, source code, object code, firmware, mask works,
application programming interfaces, computerized databases and
other software-related specifications and documentation
(collectively, Software); (vi) designs
and industrial designs; (vii) Internet domain names;
(viii) rights of publicity and
A-20
other rights to use the names and likeness of individuals;
(ix) moral rights; and (x) claims, causes of action
and defenses relating to the past, present and future
enforcement of any of the foregoing; in each case of (i) to
(ix) above, including any registrations of, applications to
register, and renewals and extensions of, any of the foregoing
with or by any Governmental Entity in any jurisdiction.
License Agreement means any legally binding
contract, whether written or oral, and any amendments thereto
(including license agreements, sub-license agreements, research
agreements, development agreements, distribution agreements,
consent to use agreements, customer or client contracts,
coexistence, non assertion or settlement agreements), pursuant
to which any interest in, or any right to use or exploit any
Intellectual Property has been granted.
Licensed Company IP means the Intellectual
Property owned by a third party that Company or any of its
Subsidiaries has a right to use or exploit by virtue of a
License Agreement.
Open Source Software means any Software that
is subject to the terms of any license agreement in a manner
that requires that such Software, or other Software incorporated
into, derived from or distributed with such Software, be
(i) disclosed or distributed in source code form;
(ii) licensed for the purpose of making derivative works;
or (iii) redistributable at no charge. Without limiting the
foregoing, any Software that is subject to the terms of any of
the licenses certified by the Open Source Initiative and listed
on its website (www.opensource.org) is Open Source Software.
Owned Company IP means the Intellectual
Property that is owned by Company or any of its Subsidiaries.
(b) Company and its Subsidiaries collectively own all
right, title and interest in, or have the valid right to use,
all of the Company IP, free and clear of any Liens, and there
are no obligations to, covenants to or restrictions from third
parties affecting Companys or its applicable
Subsidiarys use, enforcement, transfer or licensing of the
Owned Company IP.
(c) The Owned Company IP and Licensed Company IP constitute
all the Intellectual Property necessary and sufficient to
conduct the businesses of Company and its Subsidiaries as they
are currently conducted, as they have been conducted since
December 31, 2006.
(d) The Owned Company IP and, to the knowledge of Company,
Licensed Company IP, are valid, subsisting and enforceable.
Company and each of its Subsidiaries have complied with and are
in compliance with all laws (including marking requirements and
payment of all applicable fees) with respect to any such
Intellectual Property that is issued, granted or registered by
or with any Governmental Entity or for which an application
therefor has been filed with any Governmental Entity, and all
registrations of Owned Company IP are currently in good standing
and subsisting.
(e) Neither Company nor any of its Subsidiaries has
infringed, misappropriated or otherwise violated any
Intellectual Property of any third party. There is no action,
suit, claim, investigation, arbitration or any other proceeding
pending or, to the knowledge of Company, threatened,
(i) asserting that (A) any use or exploitation of any
of the Company IP by Company or any of its Subsidiaries, or
(B) the conduct of the businesses of Company and its
Subsidiaries as they are currently conducted or have been
conducted since December 31, 2001; in each case, infringes
upon, misappropriates or otherwise violates the Intellectual
Property of any third party; or (ii) asserting the
invalidity, misuse or unenforceability of any item of Owned
Company IP, or challenging the right to use or ownership by
Company or its applicable Subsidiary of such item, and there are
no grounds for any such claim or challenge. There is no
outstanding order, judgment, writ, stipulation, award,
injunction, decree, arbitration award or finding of any
Governmental Entity by or with any Governmental Entity relating
to Intellectual Property by which Company or any of its
Subsidiaries is bound.
(f) No Owned Company IP or Licensed Company IP is being
used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such
Intellectual Property. To the knowledge of Company, no third
party has infringed, misappropriated or otherwise violated any
Owned Company IP, and there are no facts that would reasonably
be expected to result in any such infringement, misappropriation
or other violation. Neither Company nor any of its Subsidiaries
has given any warranty or indemnification in
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connection with any Company IP to any third party, except for
warranties or indemnities given in the ordinary course of
business.
(g) Company and each of its Subsidiaries have taken all
reasonable actions to maintain and protect each item of Owned
Company IP and no loss of Owned Company IP is pending,
reasonably foreseeable or threatened. Without limiting the
foregoing, Company and each of its Subsidiaries have taken all
reasonable security measures to protect the secrecy,
confidentiality and value of all Company IP. The Trade Secrets
of Company and its Subsidiaries have not been disclosed to any
third party other than under such confidentiality agreements or
other confidentiality obligations. All former and current
employees, consultants and contractors of Company or any of its
Subsidiaries who contribute or have contributed to the creation
or development of any Company IP have executed written
instruments with Company or such Subsidiary that assign to
Company or such Subsidiary all rights, title and interest in and
to any such contributions that Company or such Subsidiary does
not already own by operation of law. No current or former
employee, officer, director, stockholder, consultant or
independent contractor has any valid right, claim or interest in
or with respect to any Owned Company IP. No inventor listed on
Companys or its Subsidiaries Patents is under any
obligation to assign its rights in such Patents to a former
employer, person, or entity, nor is the validity of any of
Companys or its Subsidiaries Patents affected by the
prior employment of any such inventor. Neither Company nor any
of its Subsidiaries has developed jointly with any third party
any Intellectual Property with respect to which such third party
has any rights, and all Owned Company IP is solely owned by
Company or one of its Subsidiaries.
(h) No material License Agreement pursuant to which Company
or any of its Subsidiaries is entitled to use any Licensed
Company IP may be unilaterally terminated by any third party
which is a party to such License Agreements as a result of the
consummation of the transactions provided for herein. Neither
Company, nor its Subsidiaries, nor, to the knowledge of Company,
any third party, is in default under any material License
Agreement to which Company or any of its Subsidiaries is a party.
(i) Companys and its Subsidiaries collection,
storage, use and dissemination of Customer Information and any
personally identifiable information are and have been in
material compliance with all applicable laws relating to
privacy, data security and data protection, and all applicable
privacy policies and terms of use or other contractual
obligations. All use, exploitation and disclosure by Company and
its Subsidiaries of Customer Information and any personally
identifiable information owned by a third party has been
pursuant to the terms of a License Agreement or another written
agreement with such third party, or is otherwise lawful. Company
and each of its Subsidiaries have reasonable security and data
protections in place, consistent with general industry
practices, with respect to Customer Information and personally
identifiable information, and there has been no material breach
thereof or loss of data since December 31, 2005.
(j) To the knowledge of Company, the Software included in
the Company IP, and the hardware and information technology
systems currently used by Company and its Subsidiaries, are
sufficient in all material respects for the purposes for which
they are used in the businesses of Company and its Subsidiaries.
To the knowledge of Company, the Software included in the
Company IP does not contain any computer code or any other
mechanisms which may (i) disrupt, disable, erase or harm in
any way such Softwares operation, or cause such Software
to damage or corrupt any data, hardware, storage media,
programs, equipment or communications, or (ii) permit any
third party to access such Software without authorization. No
source code for any Software included in Owned Company IP has
been delivered, licensed or made available to any escrow agent
or other third party and neither Company nor any of its
Subsidiaries has any current duty or obligation to deliver,
license or make available such source code to any escrow agent
or other third party.
(k) No Owned Company IP contains or is derived from Open
Source Software and no Software that contains or is derived from
Open Source Software has been distributed or licensed by Company
or any of its Subsidiaries to third parties.
(l) No License Agreement that is binding upon Company or
any of its Subsidiaries contains any provision that would
restrict or otherwise impair the freedom of operation of Company
or such Subsidiaries, whether prior to or after the Closing
Date, including by means of any non-compete provision or
most favored customer or preferred pricing
provisions (each, a Restrictive Covenant).
Without limiting the foregoing, by
A-22
virtue of any obligations entered into by Company or any of its
Subsidiaries, the consummation of the transactions contemplated
hereunder will not result in Parent or any of its Affiliates
(i) being bound by any Restrictive Covenant or
(ii) granting any rights or licenses to any Intellectual
Property of Parent or any of its Affiliates to any third party
(including by means of a covenant not to sue or cross-license).
The consummation of the transactions contemplated by this
Agreement (including the Merger) will not alter, impair or
extinguish any rights in Company IP.
(m) Section 3.18(m)(i) of the Company Disclosure
Schedule sets forth a complete and correct list of the following
categories of Owned Company IP: (i) Patents, Patent
applications and invention disclosures, (ii) registered and
applied for Trademarks and material unregistered Trademarks,
(iii) registered and applied for Copyrights and
(iv) domain names; in each case listing, as applicable
(A) the name of the current owner of record, (B) the
application
and/or
registration number and (C) the filing date
and/or issue
date. Except as disclosed on Section 3.18(m)(iii) of the
Company Disclosure Schedule, neither Company nor any of its
Subsidiaries has granted exclusively to any third party any
rights under any Company IP.
3.19 Environmental Liability. There are
no legal, administrative, arbitral or other proceedings, claims,
actions, causes of action or notices with respect to any
environmental, health or safety matters or any private or
governmental environmental, health or safety investigations or
remediation activities of any nature, whether relating to the
Real Property, the Mortgaged Property or otherwise, seeking to
impose, or that are reasonably likely to result in, any
liability or obligation of Company or any of its Subsidiaries
arising under common law or under any local, state or federal
environmental, health or safety statute, regulation, ordinance,
or other requirement of any Governmental Entity, including the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, and any similar state laws
(Environmental Laws), pending or threatened
against Company or any of its Subsidiaries. To the knowledge of
Company, there is no reasonable basis for, or circumstances that
are reasonably likely to give rise to, any such proceeding,
claim, action, cause of action, notice, investigation, or
remediation activities that would result in any such liability
or obligation of Company or any of its Subsidiaries. Neither
Company nor any of its Subsidiaries is subject to any agreement,
order, judgment, decree, letter or memorandum by or with any
Governmental Entity or third party imposing any liability or
obligation with respect to any of the foregoing. Company, its
Subsidiaries, and the activities, operations and conditions on
the Real Property have complied with all applicable
Environmental Laws.
3.20 Mortgage Banking Business.
(a) Definitions. For purposes of this
Section 3.20, the following terms shall have the following
meanings:
Advances means, with respect to Company, any
of its Subsidiaries or the Servicing Agreements, the moneys that
have been advanced by Company or any of its Subsidiaries on or
before the Closing Date from its funds in connection with its
servicing of the Loans in accordance with Applicable
Requirements.
Agency or Agencies means FHA, VA, HUD, a
State Agency, FNMA, FHLMC, FHLBA or GNMA, as applicable.
Applicable Requirements means and includes,
as of the time of reference, with respect to the origination of
the Pipeline Loans, or the origination, purchase, sale and
servicing of the Loans, or handling of REO, or the Servicing
Agreements, all of the following (in each case to the extent
applicable to any particular Pipeline Loan, Loan, REO or
Servicing Agreement): (i) all contractual obligations of
Company and its Subsidiaries, including with respect to any
Servicing under any Servicing Agreement, Master Servicing
Agreement, Mortgage Note, Mortgage and other Mortgage Loan
Document or any commitment or other contractual obligation
relating to a Pipeline Loan, (ii) all applicable
underwriting, servicing and other guidelines of Company or any
of its Subsidiaries as incorporated in the Seller and Servicing
Guides, (iii) all laws applicable to Company or any of its
Subsidiaries, (iv) all other applicable requirements and
guidelines of each governmental agency, board, commission,
instrumentality and other governmental or quasi-governmental
body or office having jurisdiction, including those of any
applicable Agency, Investor or Insurer and (v) all other
applicable judicial and administrative judgments, orders,
stipulations, awards, writs and injunctions.
A-23
Certificate Insurer means a provider of an
insurance policy insuring against certain specified losses or
shortfalls with respect to Collateral Certificates or Collateral
Certificate Pools.
Collateral Certificate means a security
directly or indirectly based on and backed by a Mortgage Pool,
which security has been pledged, granted or sold to secure or
support payments on specific asset-backed securities that are
administered pursuant to a Servicing Agreement, including any
Company Securitization Interests.
Collateral Certificate Pool means a group of
Collateral Certificates that have been pledged, granted or sold
to secure or support payments on specific asset-backed
securities that are administered pursuant to a specific
Servicing Agreement.
Custodial Account means all funds held or
directly controlled by Company or any of its Subsidiaries with
respect to any Loan or any Collateral Certificate or any
Collateral Certificate Pool, including all principal and
interest funds and any other funds due Investors, buydown funds,
suspense funds, funds for the payment of taxes, assessments,
insurance premiums, ground rents and similar charges, funds from
hazard insurance loss drafts and other mortgage escrow and
impound amounts (including interest thereon for the benefit of
Mortgagors, if applicable).
Custodial File means, with respect to a Loan,
all of the documents that must be maintained on file with a
document custodian, Investor, trustee or other designated agent
under Applicable Requirements.
FHA means the Federal Housing Administration
of HUD or any successor thereto.
FHLMC means the Federal Home Loan Mortgage
Corporation or any successor thereto.
FNMA means the Federal National Mortgage
Association or any successor thereto.
Foreclosure means the process culminating in
the acquisition of title to a mortgaged property in a
foreclosure sale or by a deed in lieu of foreclosure or pursuant
to any other comparable procedure allowed under Applicable
Requirements.
GNMA means the Government National Mortgage
Association or any successor thereto.
HUD means the Department of Housing and Urban
Development.
Insurer means a person who (i) insures
or guarantees all or any portion of the risk of loss on any
Loan, including, without limitation, any Agency and any provider
of private mortgage insurance, standard hazard insurance, flood
insurance, earthquake insurance or title insurance with respect
to any Loan or related Mortgaged Property, (ii) provides
any fidelity bond, direct surety bond, letter of credit, other
credit enhancement instrument or errors and omissions policy or
(iii) is a Certificate Insurer.
Investment Commitment means the optional or
mandatory commitment of Company or any of its Subsidiaries to
sell to any person, and a person to purchase from Company or any
of its Subsidiaries, a Loan Held for Sale or an interest in a
Loan Held for Sale owned or to be acquired by Company or any of
its Subsidiaries.
Investor means, with respect to the Mortgage
Servicing Portfolio, any Agency or Private Investor who owns or
holds Loans, Collateral Certificates or Collateral Certificate
Pools master serviced, serviced or subserviced by Company or any
of its Subsidiaries, pursuant to a Servicing Agreement including
a holder of mortgage-backed securities, mortgage pass-through
certificates, participation certificates or similar securities,
including any securitization trustee acting on behalf of such
holder.
Loans means Loans Held for Sale, Serviced
Loans, Previously Disposed of Loans, Paid-Off Loans and
Portfolio Loans.
Loans Held for Sale means a mortgage loan
owned by Company or any of its Subsidiaries, including a
mortgage loan that has closed but not funded, and that is
intended to be sold to an Investor in the ordinary course.
A-24
Master Servicing means master servicing
services in respect of Collateral Certificates, Collateral
Certificate Pools or Loans, consisting principally of one or
more of the following functions (or a portion thereof):
(i) the supervision and oversight of the performance by
servicers of their obligations under servicing agreements, but
not otherwise having the contractual responsibility to the
Investor to collect payments from or enforce the Mortgage Loan
Documents against individual Mortgagors, except perhaps in the
event the servicer is terminated; (ii) causing Loans to be
serviced in the event a servicer is terminated until a
replacement servicer is retained; (iii) the calculation of
payments due to owners of mortgage-backed securities,
asset-backed securities, participation certificates or other
similar securities or Loans; (iv) the transmittal of
payments related to Loans, Collateral Certificates or Collateral
Certificate Pools to the Investor; (v) the transmittal or
payment of Advances; (vi) the preparation of reports to
Investors, Tax authorities and the SEC; and (vii) if
applicable, the compliance with REMIC or other relevant Tax
requirements. For purposes of this Agreement, Master Servicing
does not include Servicing where the master servicer either
delegates its duties to a subservicer or servicer and has
responsibility to the Investor for the acts, errors or omissions
of such subservicer or servicer or otherwise has responsibility
to the Investor for the primary servicing of the Loans with
respect to the Mortgagors.
Master Servicing Agreement means an agreement
pursuant to which Company or any of its Subsidiaries provides
Master Servicing (including any rights to master servicing fees).
Mortgage means with respect to a Loan, a
mortgage, deed of trust or other security instrument creating a
lien upon real property and any other property described therein
which secures a Mortgage Note, together with any assignment,
reinstatement, extension, endorsement or modification thereof.
Mortgage Loan Documents means the Custodial
File and all other documents relating to Loans required to
document and service the Loans in accordance with Applicable
Requirements, whether on hard copy, microfiche or its equivalent
or in electronic format and, to the extent required by
Applicable Requirements, credit and closing packages and
disclosures.
Mortgage Note means, with respect to a Loan,
a promissory note or notes, or other evidence of indebtedness,
with respect to such Loan secured by a mortgage or mortgages,
together with any assignment, reinstatement, extension,
endorsement or modification thereof.
Mortgage Pool means a group of mortgage loans
that have been pledged, granted or sold to secure or support
payments on specific mortgage-backed securities or specific
participation certificates, including Collateral Certificates
and Collateral Certificate Pools.
Mortgage Servicing Portfolio means the
portfolio of Loans, Collateral Certificates and the Collateral
Certificate Pools serviced or to be serviced by Company or any
of its Subsidiaries pursuant to Servicing Agreements.
Mortgaged Property means the real property
and improvements that secure a Mortgage Note and that are
subject to a Mortgage.
Mortgagor means the obligor(s) on a Mortgage
Note.
Originator means, with respect to any Loan,
the person or persons that (i) took the relevant
Mortgagors loan application, (ii) processed the
relevant Mortgagors loan application or (iii) closed
and/or
funded such Loan.
Paid Off Loan means a mortgage loan or any
other type of loan that, at any time, has been owned
and/or
serviced (including, without limitation, master servicing and
subservicing) by Company or any of its Subsidiaries (including
any predecessor in interest) and has been paid off, foreclosed,
or otherwise liquidated.
Pipeline Loans means applications in process
for mortgage loans to be made by Company or any of its
Subsidiaries, whether or not registered or designated as price
protected on Companys mortgage loan origination system
and, in either case, that have not closed or been funded.
Portfolio Loan means a residential mortgage
loan owned by Company or any Subsidiary or REO owned by Company
or any Subsidiary which is not a Loan Held for Sale.
A-25
Previously Disposed of Loans means mortgage
loans or any other type of loans or loan servicing rights that,
as of any time, Company or any of its Subsidiaries or any
predecessor in interest of Company or any of its Subsidiaries
owned and subsequently sold, transferred, conveyed or assigned
and for which Company or any of its Subsidiaries retains a
contingent liability to third parties for failure to originate,
service, sell, securitize, or otherwise handle such loans or
servicing rights in accordance with the then current Applicable
Requirements, including, without limitation, the obligation to
repurchase or indemnify the purchaser pursuant to the applicable
loan or servicing purchase agreement.
Prior Servicer means any person that was a
master servicer, servicer or subservicer of any Loan before
Company, any Subsidiary or the current Servicer, as applicable,
became the master servicer, servicer or subservicer of such Loan.
Private Investors means Company, any of its
Subsidiaries or any person other than the Agencies who owns
Loans master serviced, serviced or subserviced by Company of any
of its Subsidiaries pursuant to a Master Servicing Agreement or
Servicing Agreement.
Recourse means any arrangement pursuant to
which Company or any of its Subsidiaries bears the risk to
(i) an Investor or (i) a purchaser of Previously
Disposed of Loans of any part of the ultimate credit losses
incurred in connection with a default under or Foreclosure of a
Loan, except insofar as such risk of loss is based upon
(A) a breach by Company or any of its Subsidiaries of any
of their contractual representations, warranties or covenants or
(B) expenses, such as legal fees, in excess of the
reimbursement limits, if any, set forth in the Applicable
Requirements. The parties acknowledge that no Recourse results
from or arises under (x) the Applicable Requirements
pertaining to GNMA or (y) with respect to any Master
Servicing Agreement, losses as to which the responsibility or
liability of Company or any of its Subsidiaries is limited to
customary special hazard, bankruptcy and fraud coverages, the
amount of which coverages is established by nationally
recognized rating agencies in connection with rated series of
mortgage pass-through certificates, participation certificates,
mortgage backed securities or other similar securities.
REMIC means a real estate mortgage
investment conduit within the meaning of Section 860D
of the Code.
REO means any property acquired in the
conduct of Companys or any of its Subsidiaries
mortgage servicing business as a result of any Foreclosure or
any other method in satisfaction of indebtedness (whether for
Companys or any of its Subsidiaries own account or
on behalf of an Investor or Insurer).
Seller and Servicing Guides means the
(i) seller and servicer guides utilized by the Agencies and
other Investors to which Company or any of its Subsidiaries have
sold residential mortgage loans
and/or for
which Company or any of its Subsidiaries services residential
mortgage loans and (ii) the manuals, guidelines and related
employee reference materials utilized by Company or any of its
Subsidiaries to govern its relationships with mortgage brokers,
correspondent and wholesale sellers of loans or under which
loans originated directly by Company or any of its Subsidiaries
is made.
Serviced Loan means any mortgage loan with
respect to which Company or any of its Subsidiaries owns or
provides the Servicing.
Servicer means the person responsible for
performing the master servicing, servicing or subservicing
functions in connection with a Serviced Loan.
Servicing means mortgage loan servicing and
subservicing rights and obligations including one or more of the
following functions (or a portion thereof): (i) the
administration and collection of payments for the reduction of
principal
and/or the
application of interest on a mortgage loan; (ii) the
collection of payments on account of taxes and insurance;
(iii) the remittance of appropriate portions of collected
payments; (iv) the provision of full escrow administration;
(v) the pursuit of Foreclosure and alternate remedies
against a related Mortgaged Property; (vi) the
administration and liquidation of REO; (vii) the right to
receive the Servicing Compensation and any ancillary fees
arising from or connected to the Serviced Loans, earnings on and
other benefits of the related Custodial Accounts and any other
related accounts maintained by Company or any of its
Subsidiaries pursuant to Applicable Requirements;
(viii) any other obligation relating to servicing of
A-26
mortgage loans, Collateral Certificates or Collateral
Certificate Pools required under any Servicing Agreement not
otherwise described in the foregoing clauses; (ix) the
right to exercise any clean up calls; (x) the performance
of administrative functions relating to any of the foregoing;
and (xi) the provision of Master Servicing and, in each
case, all rights, powers and privileges incident to any of the
foregoing, and expressly includes the related Custodial
Accounts, the Mortgage Loan Documents and the right to enter
into arrangements with third parties that generate ancillary
fees and benefits with respect to the Serviced Loans.
Servicing Agreements mean agreements,
including Master Servicing Agreements, pursuant to which Company
or any of its Subsidiaries provides Servicing in connection with
Serviced Loans.
Servicing Compensation means any servicing
fees and any excess servicing compensation which Company or any
of its Subsidiaries is entitled to receive pursuant to any
Servicing Agreement.
State Agency means any state agency or other
state entity with authority to regulate the mortgage-related
activities of Company or any of its Subsidiaries or to determine
the investment or servicing requirements with regard to mortgage
loan origination, purchasing, servicing, master servicing or
certificate administration performed by Company or any of its
Subsidiaries.
VA means the Department of Veterans Affairs
or any successor thereto.
VA Loans means mortgage loans that are
guaranteed or are eligible to be guaranteed by the VA.
(b) Without limiting the generality of
Section 3.12(a), one or more of Company and its
Subsidiaries is approved by and is in good standing: (i) as
a non-supervised mortgagee by HUD to originate and service
Title II FHA mortgage loans; (ii) as a GNMA I
and II Issuer by GNMA; (iii) by the VA to originate VA
Loans; and (iv) as a seller/servicer by FNMA, FHLMC and
FHLBA to originate and service residential mortgage loans.
(c) The Advances are valid and subsisting amounts owing to
Company and its applicable Subsidiary, were made in accordance
with Applicable Requirements and are carried on the books of
Company or the applicable Subsidiary at values determined in
accordance with GAAP, and are not subject to setoffs or claims
arising from acts or omissions of Company or any of its
Subsidiaries. No Investor has claimed any defense, offset or
counterclaim to repayment of any Advance that is pending.
(d) None of the Loans, Collateral Certificates, Collateral
Certificate Pools, or Servicing Agreements provides for Recourse
to Company or any of its Subsidiaries.
(e) With respect to each Loan and, if and to the extent
specified, each Pipeline Loan (provided, for purposes of this
Section 3.20(e), notwithstanding anything else to the
contrary in this Agreement, the Investor, if any, for any Loans
Held for Sale shall be the Investor that is party to the
applicable Investment Commitment and the representations and
warranties pertaining to Previously Disposed of Loans and Paid
Off Loans shall be limited to
Sections 3.20(e)(i)-(iv):
(i) Each Loan was originated in accordance with Applicable
Requirements. Each Loan (other than a Portfolio Loan),
Collateral Certificate or Collateral Certificate Pool in the
Mortgage Servicing Portfolio was eligible in all material
respects for sale to, insurance by, or pooling to back
securities issued or guaranteed by, the applicable Investor or
Insurer upon such sale, issuance of insurance or pooling, except
for Serviced Loans, Collateral Certificates or Collateral
Certificate Pools as to which the ineligibility for such sale,
issuance of insurance or pooling would not be the contractual or
legal responsibility of Company or any of its Subsidiaries under
Applicable Requirements. Each Loan Held for Sale allocated to a
particular Investor in accordance with the standard secondary
market practices of Company is eligible in all material respects
for sale under an Investment Commitment. Each Loan Held for Sale
not allocated to a particular Investor in accordance with the
foregoing sentence would be otherwise eligible for sale in all
material respects under an Investment Commitment upon allocation
to an Investor. There exists no fact or circumstance that would
entitle the applicable Insurer or Investor to (A) demand
from Company or any of its Subsidiaries either repurchase of any
Serviced Loan or Previously Disposed of Loan or any Collateral
Certificate or Collateral Certificate Pool or indemnification
for losses or refuse to purchase a Loan Held for Sale,
(B) impose on Company or any of its Subsidiaries sanctions,
penalties or special
A-27
requirements in respect of any Loan or (C) rescind any
insurance policy or reduce insurance benefits in respect of any
Loan which would result in a breach of any obligation of Company
or any of its Subsidiaries under any agreement. Each Pipeline
Loan complies in all material respects with Applicable
Requirements for the stage of processing that it has achieved
based on the Investor or Insurer program, if applicable, under
which Company or its applicable Subsidiary originated the
Pipeline Loan.
(ii) Each Loan is evidenced by a Mortgage Note and is duly
secured by a valid first lien or subordinated lien on the
related Mortgaged Property, in each case, on such forms and with
such terms as comply with all Applicable Requirements. Each
Mortgage Note and the related Mortgage is genuine and each is
the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency and similar laws affecting generally the enforcement
of creditors rights and the discretion of a court to grant
specific performance. No Loan (including Paid Off Loans and
Previously Disposed of Loans) is subject to any rights of
rescission, set-off, counterclaim or defense, including the
defense of usury, nor will the operation of any of the terms of
the Mortgage Note or the Mortgage, or the exercise of any right
thereunder, render either the Mortgage Note or the Mortgage
unenforceable by Company or any of its Subsidiaries, in whole or
in part, or subject to any right of rescission (except any Loans
Held for Sale which are closed but not funded), set-off,
counterclaim or defense, including the defense of usury, and no
such right of rescission, set-off, counterclaim, or defense has
been asserted with respect thereto. For purposes of this
Section 3.20(e)(ii), references to Mortgage Notes shall be
deemed to include mortgage notes in respect of REO and Paid-Off
Loans.
(iii) Company and each of its Subsidiaries (in their
respective capacities as Servicer or otherwise) and, to the
knowledge of Company, each Originator and Prior Servicer have
complied, and each Loan complied and comply, in all material
respects with the Applicable Requirements including the federal
Fair Housing Act, federal Equal Credit Opportunity Act and
Regulation B, federal Fair Credit Reporting Act, federal
Truth in Lending Act and Regulation Z, National Flood
Insurance Act of 1968, federal Flood Disaster Protection Act of
1973, federal Real Estate Settlement Procedures Act and
Regulation X, federal Fair Debt Collection Practices Act,
federal Home Mortgage Disclosure Act and applicable state
consumer credit and usury laws.
(iv) There has been no material fraudulent action on the
part of the Originator or parties acting on behalf of the
Originator in connection with the origination of any Loan or
Pipeline Loan or the application of any insurance proceeds with
respect to a Loan or the Mortgaged Property for which Company or
any of its Subsidiaries is responsible to the applicable
Investor or Insurer or otherwise bears the risk of loss.
(v) Each material Servicing Agreement is valid and binding
on Company or its applicable Subsidiary, enforceable against it
in accordance with its terms (subject to the Bankruptcy and
Equity Exception), and is in full force and effect without
notice by the applicable Investor of termination thereof.
Company and each of its Subsidiaries and, to Companys
knowledge, each other party thereto has duly performed all
obligations required to be performed by it to date under each
material Servicing Agreement. No event or condition exists that
constitutes or, after notice or lapse of time or both, will
constitute, a breach, violation or default on the part of
Company or any of its Subsidiaries or, to Companys
knowledge, any other party thereto under any such material
Servicing Agreement. There are no disputes pending or, to
Companys knowledge, threatened with respect to any
material Servicing Agreement. The Servicing of the Loans,
Collateral Certificates and Collateral Certificate Pools
complies in all material respects with all Applicable
Requirements.
(vi) The custodial files relating to all Mortgage Pools
have been initially certified, finally certified
and/or
recertified if required by the applicable Servicing Agreement
and otherwise in accordance in all material respects with
Applicable Requirements.
(vii) All Custodial Accounts required to be maintained by
Company or any of its Subsidiaries have been established and
continuously maintained in accordance with Applicable
Requirements in all material respects. Subject to and in
accordance with the Applicable Requirements pertaining generally
to the type, size, rating or capitalization of depository
institutions qualified to hold such balances, Company has the
A-28
right and power to determine the financial institution in which
the Custodial Accounts are held. All Mortgage Loan Documents
required to be obtained and maintained by Company or any of its
Subsidiaries have been obtained and continuously maintained in
accordance with Applicable Requirements in all material respects.
(viii) Except for customary industry standards for
indemnification and repurchase remedies in connection with
agreements for the sale or servicing of mortgage loans, none of
Company or any of its Subsidiaries is now nor has been, since
January 1, 2005, subject to any material fine, suspension,
settlement or other agreement or administrative agreement or
sanction by, or any obligation to indemnify, an Agency, an
Insurer or an Investor, relating to the origination, sale or
servicing of mortgage loans.
(ix) No Loan is a High Cost Loan or
Covered Loan, as applicable, under either the
Home Ownership Equity Protection Act or a similar state or local
anti-predatory lending Law, including, without limitation, as
such terms are defined in the then current Standard &
Poors
LEVELS®
Glossary of Terms which is now Version 5.7 Revised,
Appendix E, and no mortgage Loan originated on or after
October 1, 2002 through March 6, 2003 is governed by
the Georgia Fair Lending Act.
(f) Company or one of its Subsidiaries is the sole owner of
the Loans Held for Sale, Portfolio Loans, and Servicing, free
and clear of any Liens, other than Liens in favor of
Companys or its Subsidiaries lenders pursuant to
financing arrangements, except to the extent any Loan Held for
Sale or Portfolio Loan is prepaid in full or subject to a
completed Foreclosure action (or non judicial proceeding or deed
in lieu of Foreclosure) in which case Company or one of its
Subsidiaries shall be the sole owner of the real property
securing such foreclosed loan or shall have received the
proceeds of such action to which Company or its Subsidiaries was
entitled, in each case free and clear of any Liens.
3.21 Securitization Matters.
(a) Each of Company and its applicable Subsidiaries and, to
the knowledge of Company, each other party thereto has performed
in all material respects the obligations to be performed by it
under each of the Company Securitization Documents, including
any required filing of any financing statements, continuation
statements or amendments under the Uniform Commercial Code of
each applicable jurisdiction with the appropriate filing offices.
(b) Each of the Company Securitization Interests, each
series of certificates or other securities issued by any Company
Securitization Trust and each of the Company Securitization
Documents to which Company, any of its Subsidiaries, or any
Company Securitization Trust, as the case may be, is a party, is
in full force and effect and is a valid, binding and enforceable
obligation of Company, such Subsidiary or any Company
Securitization Trust, as the case may be, and, to the knowledge
of Company, of the other parties thereto, subject to the
Bankruptcy and Equity Exception. Each Company Securitization
Interest (including, without limitation, each Retained Interest)
is fully paid and subject to no further assessment or
obligation, other than required servicing or master servicing
advances in transactions for which Company or any of its
Subsidiaries serves as servicer or master servicer.
(c) All Company Securitization Documents required to be
qualified under the Trust Indenture Act of 1939, as
amended, have been so qualified and no Company Securitization
Trust is required to be registered under the Investment Company
Act of 1940, as amended. The sale of all securities issued by
any Company Securitization Trust was either duly registered
under, or exempt from the registration requirements of, the
Securities Act.
(d) Since January 1, 2005, on a consolidated basis,
Company has properly accounted for the sale of all Loans under
GAAP, including Statement of Financial Accounting Standards
No. 140, and including in respect of the reporting of
income arising from the sale of such Loans.
(e) On a consolidated basis, Company is not required to
consolidate any variable interest entity under GAAP, including
FIN 46 and FIN 46R, as in effect as of the date hereof
in connection with any transaction related to a Company
Securitization Trust.
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(f) Since January 1, 2005, neither Company nor any of
its Subsidiaries has owned any security issued by a Company
Securitization Trust that includes an embedded derivative under
GAAP.
(g) Company or its applicable Subsidiary has made all
reasonably necessary plans and preparations in order to comply
in a timely manner with all requirements of Regulation AB
promulgated by the SEC.
(h) All reports required to be filed since January 1,
2005 with the SEC or any other Governmental Entity in connection
with any Company Sponsored Asset Securitization Transaction
complied as to form in all material respects with the published
rules and regulations of the SEC or such other Governmental
Entity with respect thereto. No person has failed in any respect
to make the certifications required of him or her under
Section 302 of the Sarbanes-Oxley Act with respect to such
reports. All assessments and attestations regarding servicing
compliance required to be delivered or filed by Company or any
of its Subsidiaries have been timely and accurately filed, and
no material instances of noncompliance have been identified in
such assessments or attestations. Since December 31, 2006,
neither Company nor any of its Subsidiaries nor, to the
knowledge of Company, any director, officer, employee, auditor,
accountant or representative of Company or any of its
Subsidiaries has received or otherwise had or obtained knowledge
of any material complaint, allegation, assertion or claim,
whether written or oral, regarding the accounting or auditing
practices, procedures, methodologies or methods of any Company
Securitization Trust or their respective internal accounting
controls, including any material complaint, allegation,
assertion or claim that any Company Securitization Trust has
engaged in questionable accounting or auditing practices, and no
attorney representing Company, any of its Subsidiaries, or any
Company Securitization Trust, whether or not employed by Company
or any of its Subsidiaries, has reported evidence of a material
violation of securities laws, breach of fiduciary duty or
similar violation by Company, any of its Subsidiaries, or any
Company Securitization Trust or any of their respective
officers, directors, employees, or agents to the Board of
Directors of Company or any committee thereof or to any director
or officer of Company or any other authorized person.
(i) No event or condition exists which does now or with
either notice or the passage of time would constitute a default,
event of default, early redemption event, payout event, early
amortization event or other similar event under any Company
Securitization Document. No Adverse Development has occurred and
is continuing in connection with any Company Sponsored Asset
Securitization Transaction. No event or condition exists which
constitutes a Servicer Default or other similar event permitting
the termination of the servicer under any of the Company
Securitization Documents (a Servicer Default or
Termination). The consummation of the transactions
contemplated hereby (including the Merger) shall not cause the
occurrence of any Adverse Development or Servicer Default or
Termination. Each Subsidiary of Company which acts as a
servicer, master servicer or trustee and, to the knowledge of
Company, each other party which acts as servicer, master
servicer or trustee under the Company Securitization Documents
has properly administered all accounts in accordance with the
terms of the governing documents, prudent banking practices and
applicable law and the accountings for each such account are
true and correct and accurately reflect the assets of such
account. Company and each applicable Subsidiary has timely made
all required advances in all transactions for which it serves as
servicer or master servicer or is otherwise required to make
advances.
(j) No registration statement, prospectus, preliminary
prospectus, free writing prospectus, term sheet, computational
materials, preliminary private placement memorandum, private
placement memorandum or other offering document, or any report
or schedule filed with or furnished to the SEC or any other
Governmental Entity, or any amendments or supplements to any of
the foregoing (collectively, Securitization Disclosure
Documents), utilized in connection with the offering
of securities in any loan or other asset securitization
transaction in which Company or any of its Subsidiaries was an
issuer, sponsor or depositor (each, a Company Sponsored
Asset Securitization Transaction), and no disclosure
concerning Company, any of its Subsidiaries, or any assets or
business operations of either provided to any other party in
connection with the offering of securities in any loan or other
asset securitization transaction in which Company, any of its
Subsidiaries or any such other party was a servicer or seller or
otherwise had disclosure obligations, as of its effective date
(in the case of a registration statement) or its issue date (in
the case of any other such document) and as of the date on which
Company or any of its Subsidiaries agreed to sell any such
security, contained any untrue statement of any material fact or
omitted to state any material fact required to be stated therein
or
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necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(k) Section 3.21(k) of the Company Disclosure Schedule
sets forth a true and correct list as of the date hereof of all
outstanding Company Sponsored Asset Securitization Transactions,
and for each such transaction, any associated retained
instruments and any other forms of recourse or other direct or
indirect exposures retained by Company and its Subsidiaries, and
includes the principal amount as of the most current reporting
date prior to the date hereof for each security listed thereon.
No Company Sponsored Asset Securitization Transaction has a
clean up call feature that is triggered at a level greater than
10% of the remaining collateral balance.
(l) To the knowledge of Company, the issuer of any security
issued in any Company Sponsored Asset Securitization
Transaction, and all such securities, meet the requirements for,
and are entitled to, the Tax characterization or Tax treatment
for federal, state or local income or franchise Tax purposes
described in the related Securitization Disclosure Documents.
Neither Company nor any of its Subsidiaries nor, to the
knowledge of Company, any trustee, master servicer, servicer or
issuer with respect to any Company Sponsored Asset
Securitization Transaction, has taken or failed to take any
action which action or failure to act might adversely affect the
intended Tax characterization or Tax treatment for federal,
state or local income or franchise Tax purposes of the issuer or
any securities issued in any such Company Sponsored Asset
Securitization Transaction. All federal, state and local income
or franchise Tax and information returns and reports required to
be filed by the issuer, master servicer, servicer or trustee
relating to any Company Sponsored Asset Securitization
Transactions, and all Tax elections required to be made in
connection therewith, have been properly and timely filed or
made and are correct in all material respects.
(m) For purposes of this Agreement, the following terms
shall have the meanings assigned below:
Adverse Development means any event or
condition which is or with either notice or the passage of time
would (i) constitute a breach, default, event of default,
early redemption event, payout event, early amortization event
or other similar event under any Company Securitization Document
or (ii) trigger any requirement under any Company
Securitization Document to (x) fund an increase in any form
of internal credit enhancement, external credit enhancement,
spread account or similar account (other than with respect to
spread accounts that have already been funded), (y) draw on
any such internal or external credit enhancement or account
under the terms of any Company Securitization Document or
(z) otherwise increase any otherwise required credit
enhancement required under the Company Securitization Documents.
Company Securitization Documents includes
each security issued by any Company Securitization Trust, and
each loan sale agreement, pooling and servicing agreement,
indenture, bond insurance agreement (and related policy), pool
insurance agreement (and related policy), guarantee, swap or
derivative contract, prospectus, offering circular, underwriting
agreement, purchase agreement and each other material agreement
related to any such security and each supplement, terms or
pricing agreement or other agreement relating to the foregoing
and each document required to be delivered in connection
therewith.
Company Securitization Interests means any
securities, any Retained Interest, any reserve account, cash
collateral account, other residual or servicing interest or
other ongoing obligations (in each case whether or not
certificated) owned by Company or any of its Subsidiaries
created pursuant to or associated with any Company
Securitization Document.
Company Securitization Trust means any trust
or other special purpose vehicle created by Company.
Retained Interest means any interest retained
by Company or any of its Subsidiaries pursuant to the Company
Securitization Documents.
Servicer Default means a servicer or master
servicer default or similar event, as specified in the relevant
pooling and servicing agreement, indenture or other Company
Securitization Document, as the case may be.
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(n) For purposes of this Section 3.21 and
Section 3.5(c), Subsidiary shall include any
Subsidiary of Company and, if and to the extent not otherwise
included, also include each issuer, sponsor
and/or
depositor in each Company Sponsored Asset Securitization
Transaction.
3.22 Insurance Matters.
(a) Each Subsidiary of Company that conducts the business
of insurance or reinsurance (each, an Insurance
Subsidiary) is (i) duly licensed or authorized as
an insurance company in its jurisdiction of incorporation;
(ii) duly licensed, authorized or otherwise eligible to
transact the business of insurance in each other jurisdiction
where it is required to be so licensed, authorized or eligible;
and (iii) duly licensed, authorized or eligible in its
jurisdiction of incorporation and each other applicable
jurisdiction to write each line of insurance reported as being
written in the Statutory Statements. Each jurisdiction in which
any Insurance Subsidiary is licensed, authorized or eligible is
set forth in Section 3.22(a) of the Company Disclosure
Schedule. There is no proceeding or investigation pending or, to
the knowledge of Company, threatened which would reasonably be
expected to lead to the revocation, amendment, failure to renew,
limitation, suspension or restriction of any license,
authorization or eligibility of any Insurance Subsidiary to
transact the business of insurance.
(b) Each statement, together with all exhibits and
schedules thereto, and all actuarial opinions, affirmations and
certifications required in connection therewith, and all
required supplemental materials, filed by each Insurance
Subsidiary with any Insurance Department since January 1,
2005 (the Statutory Statements) was prepared
in conformity with the statutory accounting practices prescribed
or permitted by the Insurance Department of the applicable state
of domicile and applied on a consistent basis
(SAP). Each such Statutory Statement presents
fairly, in all material respects and in conformity with SAP, the
statutory financial condition of such Insurance Subsidiary on
the respective date of the Statutory Statement, the results of
operations, changes in capital and surplus and cash flow of such
Insurance Subsidiary for each of the applicable reporting
periods, and was correct and complete when filed. No
deficiencies or violations have been asserted in writing (or, to
the knowledge of Company, orally) by any Insurance Department
with respect to any such Statutory Statement which have not been
cured or otherwise resolved to the satisfaction of such
Insurance Department. Section 3.22(b) of the Company
Disclosure Schedule sets forth a complete list of permitted
practices under SAP that are used in any of the Statutory
Statements of any Insurance Subsidiary.
(c) The aggregate reserves for claims, losses (including
incurred but not reported losses), loss adjustment expenses
(whether allocated or unallocated) and unearned premium, as
reflected in each of the Statutory Statements, (A) were
determined in accordance with presently accepted actuarial
standards consistently applied (except as otherwise noted in the
financial statements and notes thereto included in such
financial statements); (B) are fairly stated in accordance
with sound actuarial principles; (C) were computed on the
basis of methodologies consistent in all material respects with
those used in computing the corresponding reserves in the prior
fiscal years (except as otherwise noted in the financial
statements and notes thereto included in such financial
statements) and (D) include provisions for all actuarial
reserves and related items reasonably required to be established
in accordance with applicable laws.
(d) All policies, binders, slips, certificates, and other
agreements of insurance issued or distributed by any Insurance
Subsidiary in any jurisdiction (Insurance
Contracts) have been issued or distributed, to the
extent required by law, on forms filed with and approved by all
applicable Insurance Departments, or not objected to by any such
Insurance Department within any period provided for objection,
and all such forms comply with applicable laws. All premium
rates with respect to the Insurance Contracts, to the extent
required by law, have been filed with and approved by all
applicable Insurance Departments or were not objected to by any
such Insurance Department within any period provided for
objection. All such premium rates comply with applicable laws
and are within the amount permitted by such laws.
(e) All underwriting, management and administration
agreements entered into by any Insurance Subsidiary are, to the
extent required by law, in forms acceptable to all applicable
Insurance Departments or have been filed with and approved by
all applicable Insurance Departments or were not objected to by
any such Insurance Department within any period provided for
objection.
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(f) All advertising, promotional, sales and solicitation
materials and all product illustrations used by any Insurance
Subsidiary or any agent, broker, intermediary, manager or
producer employed or engaged by any Insurance Subsidiary (each,
a Producer) of any Insurance Subsidiary are
in compliance with applicable laws.
(g) Each reinsurance contract, treaty or arrangement
(including any facultative agreements, indemnity agreements, or
other agreements involving cession or assumption of reinsurance,
coinsurance, excess insurance, or retrocessions and any
terminated or expired reinsurance contract, treaty or agreement
under which there remains any outstanding material liability)
(Reinsurance Contracts) to which any
Insurance Subsidiary is a party or by which any Insurance
Subsidiary is bound or subject is a valid and binding obligation
of the parties thereto, is in full force and effect, and is
enforceable in accordance with its terms. Neither any Insurance
Subsidiary nor, to the knowledge of Company, any other party
thereto is in default with regard to any such Reinsurance
Contract. There are no disputes pending or, to the knowledge of
Company, threatened with respect to any such Reinsurance
Contract.
(h) Each Insurance Subsidiary is entitled under applicable
law to take full credit in its Statutory Statements for all
amounts recoverable by it pursuant to any Reinsurance Contract,
and all such amounts recoverable have been properly recorded in
the books and records of account of Company and its Insurance
Subsidiaries and are properly reflected in the Statutory
Statements. To Companys knowledge, all such amounts
recoverable by Company or any of its Insurance Subsidiaries are
fully collectible in due course. Neither Company nor any of its
Insurance Subsidiaries has received notice that any other party
to any Reinsurance Contract intends not to perform fully under
any such Reinsurance Contract, and, to Companys knowledge,
the financial condition of each party to each Reinsurance
Contract pursuant to which any Insurance Subsidiary has ceded
any premiums is not impaired to the extent that a default
thereunder could reasonably be anticipated.
(i) Since January 1, 2005, no rating agency has
imposed conditions (financial or otherwise) on retaining any
currently held rating assigned to any Insurance Subsidiary or
stated to Company that it is considering lowering any rating
assigned to any Insurance Subsidiary or placing any Insurance
Subsidiary on an under review status. As of the date
of this Agreement, each Insurance Subsidiary has the
A.M. Best rating set forth in Section 3.22(i) of the
Company Disclosure Schedule.
(j) No single Producer generated more than ten percent
(10%) of the aggregate gross written premium of any Insurance
Subsidiary during the year ended December 31, 2007. To
Companys knowledge, no Producer is engaged in, or has been
engaged in, any pattern or practice of noncompliance with
applicable laws regarding such Producers authority to
engage in the type of insurance activities in which such
Producer is engaged, including laws requiring such Producer to
be duly licensed. To Companys knowledge, there is no
dispute pending or threatened against Company or any Insurance
Subsidiary by any Producer who individually accounted for more
than five percent (5%) of the aggregate gross written premiums
of any Insurance Subsidiary during the year ended
December 31, 2007.
(k) PMI Reinsurance Agreements means all
reinsurance agreements, treaties, trust agreements and other
agreements, and all amendments to any of the foregoing, relating
to any reinsurance assumed by any Insurance Subsidiary (on an
indemnity reinsurance basis or otherwise) of private mortgage
insurance written directly by any insurance company. Each PMI
Reinsurance Agreement is a valid and binding obligation of the
parties thereto, is in full force and effect, and is enforceable
in accordance with its terms. Neither any Insurance Subsidiary
nor, to the knowledge of Company, any other party thereto is in
default with regard to any PMI Reinsurance Agreement. There are
no material disputes pending or, to the knowledge of Company,
threatened with respect to any PMI Reinsurance Agreement.
(l) The maximum liability of Company and any Insurance
Subsidiary under any PMI Reinsurance Agreement is limited to the
amount of funds held in trust under such PMI Reinsurance
Agreement at such time as Company or such Insurance Subsidiary
may elect not to deposit additional funds in such trust. Each
Insurance Subsidiary has an absolute, unrestricted right to
elect not to deposit additional funds in any trust established
pursuant to any PMI Reinsurance Agreement, which election may be
exercised at any time at the sole discretion of such Insurance
Subsidiary.
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(m) As of the date of this Agreement, each trust
established pursuant to any PMI Reinsurance Agreement is fully
funded as required by such PMI Reinsurance Agreement. Neither
Company nor any Insurance Subsidiary has received any written or
oral notice, statement or other communication from any person
alleging or referencing any insufficiency in any such trust,
demanding further deposit in any such trust, or demanding
payment of any benefits under any PMI Reinsurance Agreement, and
none of Company, the Insurance Subsidiaries or the cedents under
any Reinsurance Agreement has withdrawn at any time any funds
from any trust related to any of the PMI Reinsurance Agreements.
Each Insurance Subsidiary that is a party to any PMI Reinsurance
Agreement has performed or received, on no less than an annual
basis, reconciliations of each trust account established
pursuant such PMI Reinsurance Agreement. Each Insurance
Subsidiary that is a party to any PMI Reinsurance Agreement has
received all reports and other information requested or due from
the trustee(s) of each trust established pursuant to such PMI
Reinsurance Agreement and from the cedents under any such PMI
Reinsurance Agreement. Each Insurance Subsidiary that is a party
to any PMI Reinsurance Agreement has performed at least annual
audits of the reinsurance programs established in connection
with such PMI Reinsurance Agreements and of the cedents under
such PMI Reinsurance Agreements. No Insurance Subsidiary that is
a party to any PMI Reinsurance Agreement has transferred or
ceded, in whole or in part, to any person any insurance risk
assumed by such Insurance Subsidiary under such PMI Reinsurance
Agreement. The reinsurance programs established in connection
with the PMI Reinsurance Agreements are not, and have not been,
in violation of applicable laws and such reinsurance programs
have not been the subject of sanctions, fines or penalties of
any kind imposed by any Governmental Entity. To the knowledge of
Company, since January 1, 2005, the reinsurance programs
established in connection with the PMI Reinsurance Agreements
are not, and have not been, the subject of any charges or
allegations of any kind of any violation of applicable laws.
3.23 State Takeover Laws. The Board of
Directors of Company has unanimously approved this Agreement and
the transactions contemplated hereby as required to render
inapplicable to this Agreement and such transactions the
restrictions on business combinations set forth in
Section 203 of the DGCL or any other
moratorium, control share, fair
price, takeover or interested
stockholder law (any such laws, Takeover
Statutes).
3.24 Rights Agreement. Company or the
Board of Directors of Company, as the case may be, has
(a) taken all necessary actions so that the execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in a
Distribution Date (as defined in the Rights
Agreement) or result in Parent being an Acquiring
Person (as defined in the Rights Agreement) and
(b) amended the Rights Agreement to (i) render it
inapplicable to this Agreement and the transactions contemplated
hereby and (ii) provide that the Final Expiration
Date (as defined in the Rights Agreement) shall occur
immediately prior to the Closing.
3.25 Interested Party
Transactions. Except as set forth in the Company
SEC Documents or Section 3.25 of the Company Disclosure
Schedule, no event has occurred since December 31, 2006
that would be required to be reported by Company pursuant to
Item 404(a) of
Regulation S-K
promulgated by the SEC.
3.26 Reorganization; Approvals. As of the
date of this Agreement, Company (a) is not aware of any
fact or circumstance that could reasonably be expected to
prevent the Merger from qualifying as a
reorganization within the meaning of
Section 368(a) of the Code, and (b) knows of no reason
why all regulatory approvals from any Governmental Entity
required for the consummation of the transactions contemplated
by this Agreement should not be obtained on a timely basis.
3.27 Opinion. The Board of Directors of
Company has received the opinions of each of Goldman,
Sachs & Co. and Sandler ONeill &
Partners, L.P., respectively, to the effect that, as of the date
hereof, and based upon and subject to the factors and
assumptions set forth therein, the Merger Consideration is fair
from a financial point of view to the holders of Company Common
Stock.
3.28 Company Information. The information
relating to Company and its Subsidiaries that is provided by
Company or its representatives for inclusion in the Proxy
Statement and
Form S-4,
or in any application, notification or other document filed with
any other Regulatory Agency or other Governmental Entity in
connection with the transactions contemplated by this Agreement,
will not contain any untrue statement of a
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material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances in which
they are made, not misleading. The portions of the Proxy
Statement relating to Company and its Subsidiaries and other
portions within the reasonable control of Company and its
Subsidiaries will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations
thereunder.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF PARENT
Except as disclosed in the disclosure schedule (the
Parent Disclosure Schedule) delivered by
Parent to Company prior to the execution of this Agreement
(which schedule sets 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 this Article IV,
or to one or more of Parents covenants contained herein,
provided, however, that disclosure in any section
of such schedule shall apply only to the indicated Section of
this Agreement except to the extent that it is reasonably
apparent on the face of such disclosure that such disclosure is
relevant to another Section of this Agreement, provided,
however, that notwithstanding anything in this Agreement
to the contrary, (i) no such item is required to be set
forth in such schedule as an exception to a representation or
warranty if its absence would not result in the related
representation or warranty being deemed untrue or incorrect
under the standard established by Section 9.2, and
(ii) the mere inclusion of an item in such schedule as an
exception to a representation or warranty shall not be deemed an
admission that such item represents a material exception or
material fact, event or circumstance or that such item has had
or would be reasonably likely to have a Material Adverse Effect
on Parent), Parent hereby represents and warrants to Company as
follows:
4.1 Corporate Organization. (a) Each
of Parent and Merger Sub is a corporation or limited liability
company duly incorporated or organized, validly existing and in
good standing under the laws of the State of Delaware. Each of
Parent and Merger Sub has the requisite corporate or limited
liability company power and authority to own or lease all of its
properties and assets and to carry on its business as it is now
being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing
or qualification necessary. Parent is duly registered as a bank
holding company under the BHC Act and is a financial holding
company pursuant to Section 4(1) of the BHC Act and meets
the applicable requirements for qualification as such. True,
complete and correct copies of the Amended and Restated
Certificate of Incorporation, as amended (the Parent
Certificate), and Bylaws of Parent (the
Parent Bylaws), as in effect as of the date
of this Agreement, have previously been made available to
Company.
(b) Each Subsidiary of Parent (i) is duly incorporated
or duly formed, as applicable to each such Subsidiary, and
validly existing and in good standing under the laws of its
jurisdiction of organization, (ii) has the requisite
corporate power and authority or other power and authority to
own or lease all of its properties and assets and to carry on
its business as it is now being conducted and (iii) is duly
qualified to do business in each jurisdiction in which the
nature of the business conducted by it or the character or
location of the properties and assets owned or leased by it
makes such licensing or qualification necessary.
4.2 Capitalization. The authorized
capital stock of Parent consists of 7,500,000,000 shares of
Parent Common Stock, of which, as of December 31, 2007 (the
Parent Capitalization Date),
4,437,885,419 shares were issued and outstanding, and
100,000,000 shares of preferred stock, $0.01 par value
(the Parent Preferred Stock), of which, as of
the Parent Capitalization Date, (i) 3,000,000 shares
were authorized as ESOP Convertible Preferred Stock,
Series C, none of which were issued and outstanding,
(ii) 35,045 shares were authorized as Cumulative
Redeemable Preferred Stock, Series B, 7,667 of which were
issued and outstanding, (iii) 20,000,000 shares were
authorized as $2.50 Cumulative Convertible Preferred Stock,
Series BB, none of which were issued and outstanding,
(iv) 85,100 shares were authorized as Floating Rate
Non-Cumulative Preferred Stock, Series E, of which and
issued 81,000 shares were issued and outstanding,
(v) 34,500 shares were authorized as 6.204%
Non-Cumulative Series D Preferred Stock, of which 33,000
were issued and outstanding, (vi) 7,001 were authorized as
Floating Rate Non-Cumulative Preferred Stock, Series F,
none of
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which were issued and outstanding, (vii) 8,501 were
authorized as Adjustable Rate Non-Cumulative Preferred Stock,
Series G, none of which were issued and outstanding,
(viii) 25,300 were authorized as 6.625% Non-Cumulative
Preferred Stock, Series I, 22,000 of which were issued and
outstanding, and (ix) 41,400 were authorized as 7.25%
Non-Cumulative Preferred Stock, Series J, 41,400 of which
were issued and outstanding. As of the Parent Capitalization
Date, no shares of Parent Common Stock were held in
Parents treasury. As of the Parent Capitalization Date, no
shares of Parent Common Stock or Parent Preferred Stock were
reserved for issuance, except for
(i) 383,878,759 shares of Parent Common Stock reserved
for issuance upon exercise of options issued pursuant to
employee and director stock plans of Parent or a Subsidiary of
Parent in effect as of the date of this Agreement (the
Parent Stock Plans) and
(ii) 159,954 shares of Parent Common Stock reserved
for issuance pursuant to a convertible note agreement (the
Convertible Note Agreement). All of the
issued and outstanding shares of Parent Common Stock have been
duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. As of the date of
this Agreement, no Voting Debt of Parent is issued or
outstanding. As of the Parent Capitalization Date, except
pursuant to this Agreement, the Parent Stock Plans, the
Convertible Note Agreement, Parents dividend reinvestment
plan and stock repurchase plans entered into by Parent from time
to time, Parent does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, rights,
commitments or agreements of any character calling for the
purchase or issuance of any shares of Parent Common Stock,
Parent Preferred Stock, Voting Debt of Parent or any other
equity securities of Parent or any securities representing the
right to purchase or otherwise receive any shares of Parent
Common Stock, Parent Preferred Stock, Voting Debt of Parent or
other equity securities of Parent. The shares of Parent Common
Stock to be issued pursuant to the Merger will be duly
authorized and validly issued and, at the Effective Time, all
such shares will be fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the
ownership thereof.
4.3 Authority; No
Violation. (a) Each of Parent and Merger Sub
has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly and validly approved by the Boards of Directors of Parent
and Merger Sub (by the unanimous vote of all directors present)
and no other corporate proceedings on the part of Parent or
Merger Sub are necessary to approve this Agreement or to
consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by each of
Parent and Merger Sub and (assuming due authorization, execution
and delivery by Company) constitutes the valid and binding
obligation of each of Parent and Merger Sub, enforceable against
each of Parent and Merger Sub in accordance with its terms
(subject to the Bankruptcy and Equity Exception).
(b) Neither the execution and delivery of this Agreement by
Parent or Merger Sub, nor the consummation by Parent or Merger
Sub of the transactions contemplated hereby, nor compliance by
Parent or Merger Sub with any of the terms or provisions of this
Agreement, will (i) violate any provision of the Parent
Certificate or the Parent Bylaws or the certificate of
incorporation or bylaws of Merger Sub, or (ii) assuming
that the consents, approvals and filings referred to in
Section 4.4 are duly obtained
and/or made,
(A) violate any law, judgment, order, injunction or decree
applicable to Parent, any of its Subsidiaries or any of their
respective properties or assets or (B) violate, conflict
with, result in a breach of any provision of or the loss of any
benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default)
under, result in the termination of or a right of termination or
cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective
properties or assets of Parent or any of its Subsidiaries under,
any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Parent or any of its
Subsidiaries is a party or by which any of them or any of their
respective properties or assets is bound.
4.4 Consents and Approvals. Except for
(i) the filing of the BHCA Application and approval of such
application, (ii) the Other Regulatory Approvals,
(iii) the filing with the SEC of the Proxy Statement and
the filing and declaration of effectiveness of the
Form S-4
and the filing and effectiveness of the registration statement
contemplated by Section 1.5(e), (iv) the filing of the
Certificate of Merger with the Secretary of
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State of the State of Delaware pursuant to the DGCL,
(v) any notices to or filings with the SBA, (vi) any
consents, authorizations, approvals, filings or exemptions in
connection with compliance with the rules and regulations of any
applicable SRO, and the rules of the NYSE, (vii) any
notices or filings under the HSR Act, and (viii) such
filings and approvals as are required to be made or obtained
under the securities or Blue Sky laws of various
states in connection with the issuance of the shares of Parent
Common Stock pursuant to this Agreement and approval of listing
of such Parent Common Stock on the NYSE, no consents or
approvals of or filings or registrations with any Governmental
Entity are necessary in connection with the consummation by
Parent or Merger Sub of the Merger and the other transactions
contemplated by this Agreement. No consents or approvals of or
filings or registrations with any Governmental Entity are
necessary in connection with the execution and delivery by
Parent or Merger Sub of this Agreement.
4.5 Reports; Regulatory Matters.
(a) Parent and each of its Subsidiaries have timely filed
all reports, registration statements, proxy statements and other
materials, together with any amendments required to be made with
respect thereto, that they were required to file since
January 1, 2005 with the Regulatory Agencies and each other
applicable Governmental Entity, and all other reports and
statements required to be filed by them since January 1,
2005, including any report or statement required to be filed
pursuant to the laws, rules or regulations of the United States,
any state, any foreign entity, or any Regulatory Agency or other
Governmental Entity, and have paid all fees and assessments due
and payable in connection therewith. Except for normal
examinations conducted by a Regulatory Agency or other
Governmental Entity in the ordinary course of the business of
Parent and its Subsidiaries, no Regulatory Agency or other
Governmental Entity has initiated since January 1, 2005 or
has pending any proceeding, enforcement action or, to the
knowledge of Parent, investigation into the business,
disclosures or operations of Parent or any of its Subsidiaries.
Since January 1, 2005, no Regulatory Agency or other
Governmental Entity has resolved any proceeding, enforcement
action or, to the knowledge of Parent, investigation into the
business, disclosures or operations of Parent or any of its
Subsidiaries. There is no unresolved violation, criticism,
comment or exception by any Regulatory Agency or other
Governmental Entity with respect to any report or statement
relating to any examinations or inspections of Parent or any of
its Subsidiaries. Since January 1, 2005 there has been no
formal or informal inquiries by, or disagreements or disputes
with, any Regulatory Agency or other Governmental Entity with
respect to the business, operations, policies or procedures of
Parent or any of its Subsidiaries (other than normal
examinations conducted by a Regulatory Agency or other
Governmental Entity in Parents ordinary course of
business).
(b) Neither Parent nor any of its Subsidiaries is subject
to any
cease-and-desist
or other order or enforcement action issued by, or is a party to
any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or
similar undertaking to, or is subject to any order or directive
by, or has been since January 1, 2005 a recipient of any
supervisory letter from, or has been ordered to pay any civil
money penalty by, or since January 1, 2005 has adopted any
policies, procedures or board resolutions at the request or
suggestion of, any Regulatory Agency or other Governmental
Entity that currently restricts in any material respect the
conduct of its business or that in any material manner relates
to its capital adequacy, its ability to pay dividends, its
credit, risk management or compliance policies, its internal
controls, its management or its business, other than those of
general application that apply to bank holding companies or
their Subsidiaries (each, a Parent Regulatory
Agreement), nor has Parent or any of its Subsidiaries
been advised since January 1, 2005 by any Regulatory Agency
or other Governmental Entity that it is considering issuing,
initiating, ordering or requesting any such Parent Regulatory
Agreement.
(c) Parent has previously made available to Company an
accurate and complete copy of each (i) final registration
statement, prospectus, report, schedule and definitive proxy
statement filed with or furnished to the SEC by Parent pursuant
to the Securities Act or the Exchange Act since January 1,
2005 (the Parent SEC Reports) and prior to
the date of this Agreement and (ii) communication mailed by
Parent to its stockholders since January 1, 2005 and prior
to the date of this Agreement. No such Parent SEC Report or
communication, at the time filed, furnished or communicated
(and, in the case of registration statements and proxy
statements, on the dates of effectiveness and the dates of the
relevant meetings, respectively), contained any untrue statement
of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances in which
they were made, not
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misleading, except that information as of a later date (but
before the date of this Agreement) shall be deemed to modify
information as of an earlier date. As of their respective dates,
all Parent SEC Reports complied as to form in all material
respects with the published rules and regulations of the SEC
with respect thereto. No executive officer of Parent has failed
in any respect to make the certifications required of him or her
under Section 302 or 906 of the Sarbanes-Oxley Act.
4.6 Financial Statements.
(a) The financial statements of Parent and its Subsidiaries
included (or incorporated by reference) in the Parent SEC
Reports (including the related notes, where applicable)
(i) have been prepared from, and are in accordance with,
the books and records of Parent and its Subsidiaries;
(ii) fairly present in all material respects the
consolidated results of operations, cash flows, changes in
stockholders equity and consolidated financial position of
Parent and its Subsidiaries for the respective fiscal periods or
as of the respective dates therein set forth (subject in the
case of unaudited statements to recurring year-end audit
adjustments normal in nature and amount); (iii) complied as
to form, as of their respective dates of filing with the SEC, in
all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with
respect thereto; and (iv) have been prepared in accordance
with GAAP consistently applied during the periods involved,
except, in each case, as indicated in such statements or in the
notes thereto. The books and records of Parent and its
Subsidiaries have been, and are being, maintained in all
material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only
actual transactions. PricewaterhouseCoopers LLP has not resigned
or been dismissed as independent public accountants of Parent as
a result of or in connection with any disagreements with Parent
on a matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
(b) Neither Parent nor any of its Subsidiaries has any
material liability or obligation of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether
due or to become due), except for those liabilities that are
reflected or reserved against on the consolidated balance sheet
of Parent included in its Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2007
(including any notes thereto) and for liabilities incurred in
the ordinary course of business consistent with past practice
since September 30, 2007 or in connection with this
Agreement and the transactions contemplated hereby.
(c) The records, systems, controls, data and information of
Parent and its Subsidiaries are recorded, stored, maintained and
operated under means (including any electronic, mechanical or
photographic process, whether computerized or not) that are
under the exclusive ownership and direct control of Parent or
its Subsidiaries or accountants (including all means of access
thereto and therefrom), except for any non-exclusive ownership
and non-direct control that would not reasonably be expected to
have a material adverse effect on the system of internal
accounting controls described below in this Section 4.6(c).
Parent (x) has implemented and maintains disclosure
controls and procedures (as defined in
Rule 13a-15(e)
of the Exchange Act) to ensure that material information
relating to Parent, including its consolidated Subsidiaries, is
made known to the chief executive officer and the chief
financial officer of Parent by others within those entities, and
(y) has disclosed, based on its most recent evaluation
prior to the date hereof, to Parents outside auditors and
the audit committee of Parents Board of Directors
(i) any significant deficiencies and material weaknesses in
the design or operation of internal controls over financial
reporting (as defined in
Rule 13a-15(f)
of the Exchange Act) which are reasonably likely to adversely
affect Parents ability to record, process, summarize and
report financial information and (ii) any fraud, whether or
not material, that involves management or other employees who
have a significant role in Parents internal controls over
financial reporting. These disclosures were made in writing by
management to Parents auditors and audit committee, a copy
of which has previously been made available to Company. As of
the date hereof, there is no reason to believe that
Parents outside auditors, chief executive officer and
chief financial officer will not be able to give the
certifications and attestations required pursuant to the rules
and regulations adopted pursuant to Section 404 of the
Sarbanes-Oxley Act, without qualification, when next due.
(d) Since December 31, 2006, (x) neither Parent
nor any of its Subsidiaries nor, to the knowledge of the
officers of Parent, any director, officer, employee, auditor,
accountant or representative of Parent or any of its
Subsidiaries has received or otherwise had or obtained knowledge
of any material complaint, allegation,
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assertion or claim, whether written or oral, regarding the
accounting or auditing practices, procedures, methodologies or
methods of Parent or any of its Subsidiaries or their respective
internal accounting controls, including any material complaint,
allegation, assertion or claim that Parent or any of its
Subsidiaries has engaged in questionable accounting or auditing
practices, and (y) no attorney representing Parent or any
of its Subsidiaries, whether or not employed by Parent or any of
its Subsidiaries, has reported evidence of a material violation
of securities laws, breach of fiduciary duty or similar
violation by Parent or any of its officers, directors, employees
or agents to the Board of Directors of Parent or any committee
thereof or to any director or officer of Parent.
4.7 Brokers Fees. Neither Parent
nor any of its Subsidiaries nor any of their respective officers
or directors has employed any broker or finder or incurred any
liability for any brokers fees, commissions or
finders fees in connection with the Merger or related
transactions contemplated by this Agreement, other than as set
forth on Section 4.7 of the Parent Disclosure Schedule.
4.8 Absence of Certain Changes or
Events. Since September 30, 2007, no event
or events have occurred that have had or would reasonably be
expected to have a Material Adverse Effect on Parent.
(a) Since September 30, 2007 through and including the
date of this Agreement, Parent and its Subsidiaries have carried
on their respective businesses in all material respects in the
ordinary course of business consistent with their past practice.
4.9 Legal Proceedings. (a) Neither
Parent nor any of its Subsidiaries is a party to any, and there
are no pending or, to the best of Parents knowledge,
threatened, legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory
investigations of any nature against Parent or any of its
Subsidiaries or to which any of their assets are subject.
(b) There is no judgment, order, injunction, decree or
regulatory restriction (other than those of general application
that apply to similarly situated bank holding companies or their
Subsidiaries) imposed upon Parent, any of its Subsidiaries or
the assets of Parent or any of its Subsidiaries.
4.10 Taxes and Tax Returns. Each of
Parent and its Subsidiaries has duly and timely filed (including
all applicable extensions) all material Tax Returns required to
be filed by it on or prior to the date of this Agreement (all
such returns being accurate and complete in all material
respects), has paid all Taxes shown thereon as arising and has
duly paid or made provision for the payment of all material
Taxes that have been incurred or are due or claimed to be due
from it by federal, state, foreign or local taxing authorities
other than Taxes that are not yet delinquent or are being
contested in good faith, have not been finally determined and
have been adequately reserved against. There are no material
disputes pending, or claims asserted, for Taxes or assessments
upon Parent or any of its Subsidiaries for which Parent does not
have reserves that are adequate under GAAP.
4.11 Compliance with Applicable
Law. Parent and each of its Subsidiaries hold all
licenses, franchises, permits and authorizations necessary for
the lawful conduct of their respective businesses under and
pursuant to each, and have complied in all respects with and are
not in default in any respect under any, law applicable to
Parent or any of its Subsidiaries.
4.12 Reorganization; Approvals. As of the
date of this Agreement, Parent (a) is not aware of any fact
or circumstance that could reasonably be expected to prevent the
Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code, and
(b) knows of no reason why all regulatory approvals from
any Governmental Entity required for the consummation of the
transactions contemplated by this Agreement should not be
obtained on a timely basis.
4.13 Parent Information. The information
relating to Parent and its Subsidiaries that is provided by
Parent or its representatives for inclusion in the Proxy
Statement and the
Form S-4,
or in any application, notification or other document filed with
any other Regulatory Agency or other Governmental Entity in
connection with the transactions contemplated by this Agreement,
will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
therein, in light of the circumstances in which they are made,
not misleading. The portions of the Proxy Statement relating to
Parent
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and its Subsidiaries and other portions within the reasonable
control of Parent and its Subsidiaries will comply in all
material respects with the provisions of the Exchange Act and
the rules and regulations thereunder. The
Form S-4
will comply in all material respects with the provisions of the
Securities Act and the rules and regulations thereunder.
ARTICLE V
COVENANTS
RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective
Time. Except as expressly contemplated by or
permitted by this Agreement or with the prior written consent of
the other party, during the period from the date of this
Agreement to the Effective Time, each of Company and Parent
shall, and shall cause each of its respective Subsidiaries to,
(a) conduct its business in the ordinary course in all
material respects, (b) use reasonable best efforts to
maintain and preserve intact its business organization and
advantageous business relationships and retain the services of
its key officers and key employees and (c) take no action
that is intended to or would reasonably be expected to adversely
affect or materially delay the ability of Company, Parent or
Merger Sub to obtain any necessary approvals of any Regulatory
Agency or other Governmental Entity required for the
transactions contemplated hereby or to perform its covenants and
agreements under this Agreement or to consummate the
transactions contemplated hereby or thereby.
5.2 Company Forbearances. During the
period from the date of this Agreement to the Effective Time,
except as set forth in Section 5.2 of the Company
Disclosure Schedule and except as expressly contemplated or
permitted by this Agreement, Company shall not, and shall not
permit any of its Subsidiaries to, without the prior written
consent of Parent:
(a) other than in the ordinary course of business
consistent with past practice, incur any indebtedness for
borrowed money, assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any
other individual, corporation or other entity, or make any loan
or advance or capital contribution to, or investment in, any
person (it being understood and agreed that incurrence of
indebtedness in the ordinary course of business consistent with
past practice shall include the creation of deposit liabilities,
purchases of Federal funds, FHLBA advances, securitizations,
sales of certificates of deposit and entering into repurchase
agreements, in each case in the ordinary course of business
consistent with past practice);
(b) (i) adjust, split, combine or reclassify any
of its capital stock;
(ii) make, declare or pay any dividend, or make any other
distribution on, or directly or indirectly redeem, purchase or
otherwise acquire, any shares of its capital stock or any
securities or obligations convertible (whether currently
convertible or convertible only after the passage of time or the
occurrence of certain events) into or exchangeable for any
shares of its capital stock (except (A) for regular
quarterly cash dividends on the Company Common Stock at a rate
not in excess of $0.15 per share with record dates and payment
dates consistent with the prior year, (B) dividends on the
Series B Preferred Stock, (C) dividends paid by any of
the Subsidiaries of Company to Company or to any of its
wholly-owned Subsidiaries, and (D) the acceptance of shares
of Company Common Stock in payment of the exercise price or
withholding Taxes incurred by any employee or director in
connection with the exercise of stock options or stock
appreciation rights or the vesting of restricted shares of (or
settlement of other equity-based awards in respect of) Company
Common Stock granted under a Company Stock Plan or Company
Deferred Equity Unit Plan, in each case in accordance with past
practice and the terms of the applicable Company Stock Plan and
related award agreements or Company Deferred Equity Unit Plan);
(iii) grant any stock options, stock appreciation rights,
restricted shares, restricted stock units, deferred equity
units, awards based on the value of Companys capital stock
or other equity-based award with respect to shares of Company
Common Stock under any of the Company Stock Plans or otherwise,
or grant any individual, corporation or other entity any right
to acquire any shares of its capital stock; or
(iv) issue any additional shares of capital stock or other
securities, except pursuant to the exercise of stock options or
stock appreciation rights or the settlement of other
equity-based awards granted under a
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Company Stock Plan or Company Deferred Equity Unit Plan that are
outstanding as of the date of this Agreement;
(c) except (A) as required under applicable law or the
terms of any Company Benefit Plan existing as of the date
hereof, (B) for increases in annual base salary at times
and in amounts in the ordinary course of business consistent
with past practice, which shall not exceed 4% in the aggregate
(on an annualized basis) and (C) for promotions (other than
promotions to senior managing director or above) at times in the
ordinary course of business consistent with past practice,
(i) increase in any manner the compensation or benefits of
any of the current or former directors, officers or employees of
Company or its Subsidiaries (collectively,
Employees), (ii) pay any amounts to
Employees not required by any current plan or agreement (other
than base salary in the ordinary course of business) to any
Employee, (iii) become a party to, establish, amend,
commence participation in, terminate or commit itself to the
adoption of any stock option plan or other stock-based
compensation plan, compensation (including any employee
co-investment fund), severance, pension, retirement,
profit-sharing, welfare benefit, or other employee benefit plan
or agreement or employment agreement with or for the benefit of
any Employee (or newly hired employees), (iv) accelerate
the vesting of any stock-based compensation or other long-term
incentive compensation under any Company Benefit Plans, or (v)
(x) hire employees in the position of senior vice president
or above (or with respect to the retail products divisions in
the position of regional vice president or above) or
(y) terminate the employment of any employee in the
position of executive vice president or above (other than due to
terminations for cause);
(d) sell, transfer, pledge, lease, license, mortgage,
encumber or otherwise dispose of any material amount of its
properties or assets (including pursuant to securitizations) to
any individual, corporation or other entity other than a
Subsidiary or cancel, release or assign any material amount of
indebtedness to any such person or any claims held by any such
person, in each case other than in the ordinary course of
business consistent with past practice or pursuant to contracts
in force at the date of this Agreement;
(e) enter into any new line of business or change in any
material respect its lending, investment, underwriting, risk and
asset liability management and other banking, operating,
securitization and servicing policies, except as required by
applicable law, regulation or policies imposed by any
Governmental Entity;
(f) transfer ownership, or grant any license or other
rights, to any person or entity of or in respect of any material
Company IP, other than grants of non-exclusive licenses pursuant
to License Agreements entered into in the ordinary course of
business consistent with past practice;
(g) make any material investment either by purchase of
stock or securities, contributions to capital, property
transfers, or purchase of any property or assets of any other
individual, corporation or other entity;
(h) take any action, or knowingly fail to take any action,
which action or failure to act is reasonably likely to prevent
the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code;
(i) amend its charter or bylaws, or otherwise take any
action to exempt any person or entity (other than Parent or its
Subsidiaries) or any action taken by any person or entity from
any Takeover Statute or similarly restrictive provisions of its
organizational documents or terminate, amend or waive any
provisions of any confidentiality or standstill agreements in
place with any third parties;
(j) other than in prior consultation with Parent,
restructure or materially change its investment securities
portfolio or its gap position, through purchases, sales or
otherwise, or the manner in which the portfolio is classified or
reported;
(k) change in any material respect the policies, practices
and procedures governing Mortgage Loan operations of Company and
its Subsidiaries, including the policies, practices and
procedures governing credit and collection matters, related to
the solicitation, origination, maintenance and servicing of
Mortgage Loans;
(l) (i) amend or otherwise modify, except in the
ordinary course of business, or knowingly violate in any
material respect the terms of, any Company Contract, or
(ii) create, renew or amend any agreement or contract or,
except as may be required by applicable law, other binding
obligation of Company or its Subsidiaries containing
(A) any material restriction on the ability of Company or
its Subsidiaries to conduct its business as
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it is presently being conducted or (B) any material
restriction on the ability of Company or its affiliates to
engage in any type of activity or business;
(m) commence or settle any material claim, action or
proceeding;
(n) take any action or willfully fail to take any action
that is intended or may reasonably be expected to result in any
of the conditions to the Merger set forth in Article VII
not being satisfied;
(o) implement or adopt any change in its Tax accounting or
financial accounting principles, practices or methods, other
than as may be required by applicable law, GAAP or regulatory
guidelines;
(p) file or amend any Tax Return other than in the ordinary
course of business, make or change any material Tax election, or
settle or compromise any material Tax liability; or
(q) agree to take, make any commitment to take, or adopt
any resolutions of its board of directors in support of, any of
the actions prohibited by this Section 5.2.
5.3 Parent Forbearances. Except as
expressly permitted by this Agreement or with the prior written
consent of Company, during the period from the date of this
Agreement to the Effective Time, Parent shall not, and shall not
permit any of its Subsidiaries to, (a) amend, repeal or
otherwise modify any provision of the Parent Certificate or the
Parent Bylaws in a manner that would adversely affect Company,
the stockholders of Company or the transactions contemplated by
this Agreement; (b) take any action, or knowingly fail to
take any action, which action or failure to act is reasonably
likely to prevent the Merger from qualifying as a
reorganization within the meaning of
Section 368(a) of the Code; (c) take any action or
willfully fail to take any action that is intended or may
reasonably be expected to result in any of the conditions to the
Merger set forth in Article VII not being satisfied;
(d) take any action that would be reasonably expected to
prevent, materially impede or materially delay the consummation
of the transactions contemplated by this Agreement; or
(e) agree to take, make any commitment to take, or adopt
any resolutions of its board of directors in support of, any of
the actions prohibited by this Section 5.3.
ARTICLE VI
ADDITIONAL
AGREEMENTS
6.1 Regulatory Matters. (a) Parent
and Company shall promptly prepare and file with the SEC the
Form S-4,
in which the Proxy Statement will be included as a prospectus.
Each of Parent and Company shall use its reasonable best efforts
to have the
Form S-4
declared effective under the Securities Act as promptly as
practicable after such filing, and Company shall thereafter mail
or deliver the Proxy Statement to its stockholders. Parent shall
also use its reasonable best efforts to obtain all necessary
state securities law or Blue Sky permits and
approvals required to carry out the transactions contemplated by
this Agreement, and Company shall furnish all information
concerning Company and the holders of Company Common Stock as
may be reasonably requested in connection with any such action.
(b) The parties shall cooperate with each other and use
their respective reasonable best efforts to promptly prepare and
file all necessary documentation, to effect all applications,
notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals and authorizations
of all third parties (including any unions, works councils or
other labor organizations) and Governmental Entities that are
necessary or advisable to consummate the transactions
contemplated by this Agreement (including the Merger), and to
comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such third parties
or Governmental Entities. Company and Parent shall have the
right to review in advance, and, to the extent practicable, each
will consult the other on, in each case subject to applicable
laws relating to the confidentiality of information, all the
information relating to Company or Parent, as the case may be,
and any of their respective Subsidiaries, that appear in any
filing made with, or written materials submitted to, any third
party or any Governmental Entity in connection with the
transactions contemplated by this Agreement. In exercising the
foregoing right, each of the parties shall act reasonably and as
promptly as practicable. The parties shall consult with each
other with respect to the obtaining of all permits, consents,
approvals and authorizations of all third parties and
Governmental Entities necessary or
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advisable to consummate the transactions contemplated by this
Agreement and each party will keep the other apprised of the
status of matters relating to completion of the transactions
contemplated by this Agreement. Notwithstanding the foregoing,
nothing contained herein shall be deemed to require Parent to
take any action, or commit to take any action, or agree to any
condition or restriction, in connection with obtaining the
foregoing permits, consents, approvals and authorizations of
third parties or Governmental Entities, that would reasonably be
expected to have a material adverse effect (measured on a scale
relative to Company) on either Parent or Company (a
Materially Burdensome Regulatory Condition).
(c) Each of Parent and Company shall, upon request, furnish
to the other all information concerning itself, its
Subsidiaries, directors, officers and stockholders and such
other matters as may be reasonably necessary or advisable in
connection with the Proxy Statement, the
Form S-4
or any other statement, filing, notice or application made by or
on behalf of Parent, Company or any of their respective
Subsidiaries to any Governmental Entity in connection with the
Merger and the other transactions contemplated by this Agreement.
(d) Each of Parent and Company shall promptly advise the
other upon receiving any communication from any Governmental
Entity the consent or approval of which is required for
consummation of the transactions contemplated by this Agreement
that causes such party to believe that there is a reasonable
likelihood that any Parent Requisite Regulatory Approval or
Company Requisite Regulatory Approval, respectively, will not be
obtained or that the receipt of any such approval may be
materially delayed.
6.2 Access to Information. (a) Upon
reasonable notice and subject to applicable laws relating to the
confidentiality of information, each of Company and Parent
shall, and shall cause each of its Subsidiaries to, afford to
the officers, employees, accountants, counsel, advisors, agents
and other representatives of the other party, reasonable access,
during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts,
commitments and records, and, during such period, such party
shall, and shall cause its Subsidiaries to, make available to
the other party (i) a copy of each report, schedule,
registration statement and other document filed or received by
it during such period pursuant to the requirements of federal
securities laws or federal or state banking or insurance laws
(other than reports or documents that such party is not
permitted to disclose under applicable law) and (ii) all
other information concerning its business, properties and
personnel as the other party may reasonably request (in the case
of a request by Company, information concerning Parent that is
reasonably related to the prospective value of Parent Common
Stock or to Parents ability to consummate the transactions
contemplated hereby). Neither Company nor Parent, nor any of
their Subsidiaries, shall be required to provide access to or to
disclose information where such access or disclosure would
jeopardize the attorney-client privilege of such party or its
Subsidiaries or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties shall make
appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding
sentence apply.
(b) All information and materials provided pursuant to this
Agreement shall be subject to the provisions of the
Confidentiality Agreements entered into between the parties as
of November 12, 2007 and as of January 10, 2008 (the
Confidentiality Agreements).
(c) No investigation by a party hereto or its
representatives shall affect the representations and warranties
of the other party set forth in this Agreement.
6.3 Stockholder Approval. Company shall
call a meeting of its stockholders to be held as soon as
reasonably practicable for the purpose of obtaining the
requisite stockholder approval required in connection with the
Merger, on substantially the terms and conditions set forth in
this Agreement, and shall use its reasonable best efforts to
cause such meeting to occur as soon as reasonably practicable.
The Board of Directors of Company shall use its reasonable best
efforts to obtain from its stockholders the stockholder vote
approving the Merger, on substantially the terms and conditions
set forth in this Agreement, required to consummate the
transactions contemplated by this Agreement. Company shall
submit this Agreement to its stockholders at the stockholder
meeting even if its Board of Directors shall have withdrawn,
modified or qualified its recommendation. The Board of Directors
of Company has adopted resolutions approving the
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Merger, on substantially the terms and conditions set forth in
this Agreement, and directing that the Merger, on such terms and
conditions, be submitted to Companys stockholders for
their consideration.
6.4 Affiliates. Company shall use its
reasonable best efforts to cause each director, executive
officer and other person who is an affiliate (for
purposes of Rule 145 under the Securities Act) of Company
to deliver to Parent, as soon as practicable after the date of
this Agreement, and prior to the date of the meeting of Company
stockholders to be held pursuant to Section 6.3, a written
agreement, in the form of Exhibit A.
6.5 NYSE Listing. Parent shall cause the
shares of Parent Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of
issuance, prior to the Effective Time.
6.6 Employee Matters. (a) Following
the Closing Date, Parent shall maintain or cause to be
maintained employee benefit plans and compensation opportunities
for the benefit of employees (as a group) who are actively
employed by Company and its Subsidiaries on the Closing Date
(Covered Employees) that provide employee
benefits and compensation opportunities which, in the aggregate,
are substantially comparable to the employee benefits and
compensation opportunities that are generally made available to
similarly situated employees of Parent or its Subsidiaries
(other than Company and its Subsidiaries), as applicable;
provided, that in no event shall any Covered Employee be
eligible to participate in any closed or frozen plan of Parent
or its Subsidiaries; provided, further, that until
such time as Parent shall cause Covered Employees to participate
in the benefit plans and compensation opportunities that are
made available to similarly situated employees of Parent or its
Subsidiaries (other than Company and its Subsidiaries), a
Covered Employees continued participation in employee
benefit plans and compensation opportunities of Company and its
Subsidiaries shall be deemed to satisfy the foregoing provisions
of this sentence (it being understood that participation in the
Parent plans may commence at different times with respect to
each Parent plan). Notwithstanding anything contained herein to
the contrary, from and after the Effective Time, a Covered
Employee who is eligible to participate in the Company Change in
Control Severance Plan (the Company Severance
Plan) and who is terminated 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 Company Severance Plan (without
amendment to the Company Severance Plan during such two year
period following the Effective Time).
(b) To the extent that a Covered Employee becomes eligible
to participate in an employee benefit plan maintained by Parent
or any of its Subsidiaries (other than Company or its
Subsidiaries), Parent shall cause such employee benefit plan to
(i) recognize the service of such Covered Employee with
Company or its Subsidiaries (or their predecessor entities) for
purposes of eligibility, participation, vesting and, except
under defined benefit pension plans (other than as provided in
the last sentence of this Section 6.6(b)), benefit accrual
under such employee benefit plan of Parent or any of its
Subsidiaries, to the same extent such service was recognized
immediately prior to the Effective Time under a comparable
Company Benefit Plan in which such Covered Employee was eligible
to participate immediately prior to the Effective Time or, if
there is no such comparable benefit plan, to the same extent
such service was recognized under the Company 401(k) Savings and
Investment Plan immediately prior to the Effective Time;
provided that such recognition of service shall not operate to
duplicate any benefits of a Covered Employee with respect to the
same period of service, and (ii) with respect to any
health, dental, vision plan or other welfare of Parent or any of
its Subsidiaries (other than Company and its Subsidiaries) in
which any Covered Employee is eligible to participate for the
plan year in which such Covered Employee is first eligible to
participate, use its reasonable best efforts to (x) cause
any pre-existing condition limitations or eligibility waiting
periods under such Parent or Subsidiary plan to be waived with
respect to such Covered Employee to the extent such limitation
would have been waived or satisfied under the Company Benefit
Plan in which such Covered Employee participated immediately
prior to the Effective Time, and (y) recognize any health,
dental or vision expenses incurred by such Covered Employee in
the year that includes the Closing Date (or, if later, the year
in which such Covered Employee is first eligible to participate)
for purposes of any applicable deductible and annual
out-of-pocket expense requirements under any such health, dental
or vision plan of Parent or any of its Subsidiaries. For
purposes of any cash balance pension plan maintained or
contributed to by Parent or any of its Subsidiaries in which
Covered Employees become eligible to participate following the
Effective Time, the Covered Employees level of benefit
accruals under any such plans (for periods of service following
the date on which the
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Covered Employees commence participation in such plans) shall be
determined based on the Covered Employees credited service
prior to the Effective Time (as determined under Companys
tax qualified retirement plans immediately prior to the
Effective Time) and with the Surviving Company following the
Effective Time.
(c) From and after the Effective Time, Parent shall, or
shall cause its Subsidiaries to, honor, in accordance with the
terms thereof as in effect as of the date hereof or as may be
amended after the date hereof with the prior written consent of
Parent, each employment agreement and change in control
agreement listed on Section 3.11 of the Company Disclosure
Schedule and the obligations of Company and its Subsidiaries as
of the Effective Time under each deferred compensation plan or
agreement listed on Section 3.11 of the Company Disclosure
Schedule.
(d) Nothing in this Section 6.6 shall be construed to
limit the right of Parent or any of its Subsidiaries (including,
following the Closing Date, Company and its Subsidiaries) to
amend or terminate any Company Benefit Plan or other employee
benefit plan, to the extent such amendment or termination is
permitted by the terms of the applicable plan, nor shall
anything in this Section 6.6 be construed to require the
Parent or any of its Subsidiaries (including, following the
Closing Date, Company and its Subsidiaries) to retain the
employment of any particular Covered Employee for any fixed
period of time following the Closing Date.
(e) Without limiting the generality of Section 9.10,
the provisions of this Section 6.6 are solely for the
benefit of the parties to this Agreement, and no current or
former employee, director or independent contractor or any other
individual associated therewith shall be regarded for any
purpose as a third-party beneficiary of the Agreement, and
nothing herein shall be construed as an amendment to any Company
Benefit Plan or other employee benefit plan for any purpose.
6.7 Indemnification; Directors and Officers
Insurance.
(a) In the event of any threatened or actual claim, action,
suit, proceeding or investigation, whether civil, criminal or
administrative (a Claim), including any such
Claim in which any individual who is now, or has been at any
time prior to the date of this Agreement, or who becomes prior
to the Effective Time, a director or officer of Company or any
of its Subsidiaries or who is or was serving at the request of
Company or any of its Subsidiaries as a director or officer of
another person (the Indemnified Parties), is,
or is threatened to be, made a party based in whole or in part
on, or arising in whole or in part out of, or pertaining to
(i) the fact that he or she is or was a director or officer
of Company or any of its Subsidiaries prior to the Effective
Time or (ii) this Agreement or any of the transactions
contemplated by this Agreement, whether asserted or arising
before or after the Effective Time, the parties shall cooperate
and use their best efforts to defend against and respond
thereto. All rights to indemnification and exculpation from
liabilities for acts or omissions occurring at or prior to the
Effective Time now existing in favor of any Indemnified Party as
provided in their respective certificates or articles of
incorporation or by-laws (or comparable organizational
documents), and any existing indemnification agreements set
forth in Section 6.7 of the Company Disclosure Schedule,
shall survive the Merger and shall continue in full force and
effect in accordance with their terms, and shall not be amended,
repealed or otherwise modified for a period of six years after
the Effective Time in any manner that would adversely affect the
rights thereunder of such individuals for acts or omissions
occurring at or prior to the Effective Time or taken at the
request of Parent pursuant to Section 6.8 hereof, it being
understood that nothing in this sentence shall require any
amendment to the certificate of incorporation or by-laws of the
Surviving Company.
(b) From and after the Effective Time, Parent shall cause
the Surviving Company to, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless, and provide
advancement of expenses to, each Indemnified Party against all
losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement of or in
connection with any Claim based in whole or in part on or
arising in whole or in part out of the fact that such person is
or was a director or officer of Company or any of its
Subsidiaries, and pertaining to any matter existing or
occurring, or any acts or omissions occurring, at or prior to
the Effective Time, whether asserted or claimed prior to, or at
or after, the Effective Time (including matters, acts or
omissions occurring in connection with the approval of this
Agreement and the consummation of the transactions contemplated
hereby) or taken at the request of Parent pursuant to
Section 6.8 hereof.
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(c) Parent shall cause the individuals serving as officers
and directors of Company or any of its Subsidiaries immediately
prior to the Effective Time to be covered for a period of six
years from the Effective Time by the directors and
officers liability insurance policy maintained by Company
(provided that Parent may substitute therefor policies of at
least the same coverage and amounts containing terms and
conditions that are not less advantageous than such policy) with
respect to acts or omissions occurring prior to the Effective
Time that were committed by such officers and directors in their
capacity as such; provided that in no event shall Parent be
required to expend annually in the aggregate an amount in excess
of 250% of the annual premiums currently paid by Company (which
current amount is set forth in Section 6.7 of the Company
Disclosure Schedule) for such insurance (the Insurance
Amount), and provided further that if Parent is unable
to maintain such policy (or such substitute policy) as a result
of the preceding proviso, Parent shall obtain as much comparable
insurance as is available for the Insurance Amount.
(d) The provisions of this Section 6.7 shall survive
the Effective Time and are intended to be for the benefit of,
and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
6.8 Additional Agreements. In case at any
time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement (including
any merger between a Subsidiary of Parent, on the one hand, and
a Subsidiary of Company, on the other) or to vest the Surviving
Company with full title to all properties, assets, rights,
approvals, immunities and franchises of either party to the
Merger, the proper officers and directors of each party and
their respective Subsidiaries shall, at Parents sole
expense, take all such necessary action as may be reasonably
requested by Parent.
6.9 Advice of Changes. Each of Parent and
Company shall promptly advise the other of any change or event
(i) having or reasonably likely to have a Material Adverse
Effect on it or (ii) that it believes would or would be
reasonably likely to cause or constitute a material breach of
any of its representations, warranties or covenants contained in
this Agreement; provided, however, that no such
notification shall affect the representations, warranties,
covenants or agreements of the parties (or remedies with respect
thereto) or the conditions to the obligations of the parties
under this Agreement; and provided further that a
failure to comply with this Section 6.9 shall not
constitute a breach of this Agreement or the failure of any
condition set forth in Article VII to be satisfied unless
the underlying Material Adverse Effect or material breach would
independently result in the failure of a condition set forth in
Article VII to be satisfied.
6.10 Exemption from Liability Under
Section 16(b). Prior to the Effective Time,
Parent and Company shall each take all such steps as may be
necessary or appropriate to cause any disposition of shares of
Company Common Stock or conversion of any derivative securities
in respect of such shares of Company Common Stock in connection
with the consummation of the transactions contemplated by this
Agreement to be exempt under
Rule 16b-3
promulgated under the Exchange Act, including any such actions
specified in the No-Action Letter dated January 12, 1999,
issued by the SEC to Skadden, Arps, Slate, Meagher &
Flom, LLP.
6.11 No Solicitation.
(a) None of Company, its Subsidiaries or any officer,
director, employee, agent or representative (including any
investment banker, financial advisor, attorney, accountant or
other representative) of Company or any of its Subsidiaries
shall directly or indirectly (i) solicit, initiate,
encourage, facilitate (including by way of furnishing
information) or take any other action designed to facilitate any
inquiries or proposals regarding any merger, share exchange,
consolidation, sale of assets, sale of shares of capital stock
(including by way of a tender offer) or similar transactions
involving Company or any of its Subsidiaries that, if
consummated, would constitute an Alternative Transaction (any of
the foregoing inquiries or proposals, including the indication
of any intention to propose any of the foregoing, being referred
to herein as an Alternative Proposal),
(ii) participate in any discussions or negotiations
regarding an Alternative Transaction or (iii) enter into
any agreement regarding any Alternative Transaction.
Notwithstanding the foregoing, the Board of Directors of Company
shall be permitted, prior to the meeting of Company stockholders
to be held pursuant to Section 6.3, and subject to
compliance with the other terms of this Section 6.11 and to
first entering into a confidentiality agreement with the person
proposing such Alternative Proposal on terms substantially
similar to, and no less favorable to Company than, those
contained in the Confidentiality Agreement dated
November 12, 2007, to consider and participate in
discussions and negotiations with respect to a bona fide
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Alternative Proposal received by Company, if and only to the
extent that and so long as the Board of Directors of Company
reasonably determines in good faith (after consultation with
outside legal counsel) that failure to do so would cause it to
violate its fiduciary duties to Company stockholders under
applicable law.
As used in this Agreement, Alternative
Transaction means any of (i) a transaction
pursuant to which any person (or group of persons) (other than
Parent or its affiliates), directly or indirectly, acquires or
would acquire more than 15% of the outstanding shares of Company
or any of its Subsidiaries or outstanding voting power or of any
new series or new class of preferred stock that would be
entitled to a class or series vote with respect to a merger with
Company or any of its Subsidiaries, whether from Company or
pursuant to a tender offer or exchange offer or otherwise,
(ii) a merger, share exchange, consolidation or other
business combination involving Company or any of its
Subsidiaries (other than the Merger), (iii) any transaction
pursuant to which any person (or group of persons) (other than
Parent or its affiliates) acquires or would acquire control of
assets (including for this purpose the outstanding equity
securities of subsidiaries of Company and securities of the
entity surviving any merger or business combination including
any of Companys Subsidiaries) of Company or any of its
Subsidiaries representing more than 15% of the fair market value
of all the assets, net revenues or net income of Company and its
Subsidiaries, taken as a whole, immediately prior to such
transaction, or (iv) any other consolidation, business
combination, recapitalization or similar transaction involving
Company or any of its Subsidiaries other than the transactions
contemplated by this Agreement; provided that, for purposes of
Section 8.4, (A) each reference to 25% in
clauses (i) and (iii) shall be deemed to be a
reference to 50% and (B) any transaction
contemplated by clauses (ii) or (iv) shall be limited
to transactions to which Company is a party and in which the
stockholders of Company immediately prior to the consummation
thereof would not hold at least
662/3%
of the total voting power of the surviving company in such
transaction or of its publicly traded parent corporation.
(b) Company shall notify Parent promptly (but in no event
later than 24 hours) after receipt of any Alternative
Proposal, or any material modification of or material amendment
to any Alternative Proposal, or any request for nonpublic
information relating to Company or any of its Subsidiaries or
for access to the properties, books or records of Company or any
of its Subsidiaries, other than any such request that does not
relate to and would not reasonably be expected to lead to, an
Alternative Proposal. Such notice to Parent shall be made orally
and in writing, and shall indicate the identity of the person
making the Alternative Proposal or intending to make or
considering making an Alternative Proposal or requesting
non-public information or access to the books and records of
Company or any of its Subsidiaries, and a copy (if in writing)
and summary of the material terms of any such Alternative
Proposal or modification or amendment to an Alternative
Proposal. Company shall keep Parent fully informed, on a current
basis, of any material changes in the status and any material
changes or modifications in the terms of any such Alternative
Proposal, indication or request. Company shall also provide
Parent 24 hours written notice before it enters into any
discussions or negotiations concerning any Alternative Proposal
in accordance with Section 6.11(a).
(c) Company and its Subsidiaries shall immediately cease
and cause to be terminated any existing discussions or
negotiations with any persons (other than Parent) conducted
heretofore with respect to any of the foregoing, and shall use
reasonable best efforts to cause all persons other than Parent
who have been furnished confidential information regarding
Company in connection with the solicitation of or discussions
regarding an Alternative Proposal within the 12 months
prior to the date hereof promptly to return or destroy such
information. Company agrees not to, and to cause its
Subsidiaries not to, release any third party from the
confidentiality and standstill provisions of any agreement to
which Company or its Subsidiaries is or may become a party, and
shall immediately take all steps necessary to terminate any
approval that may have been heretofore given under any such
provisions authorizing any person to make an Alternative
Proposal. Neither Company nor the Board of Directors of Company
shall approve or take any action to render inapplicable to any
Alternative Proposal or Alternative Transaction Section 203
of the DGCL or any similar Takeover Statutes.
(d) Except as expressly permitted by this
Section 6.11(d), neither the Board of Directors of Company
nor any committee thereof shall (i) withdraw, modify or
qualify, or propose publicly to withdraw, modify or qualify, the
recommendation by the Board of Directors of Company of this
Agreement
and/or the
Merger to Companys stockholders, (ii) take any public
action or make any public statement in connection with the
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meeting of Company stockholder to be held pursuant to
Section 6.3 inconsistent with such recommendation or
(iii) approve or recommend, or publicly propose to approve
or recommend, or fail to recommend against, any Alternative
Proposal (any of the actions described in clauses (i),
(ii) or (iii), a Change of
Recommendation). Notwithstanding the foregoing, the
Board of Directors of Company may make a Change of
Recommendation, if, and only if, each of the following
conditions is satisfied:
(i) it receives a Alternative Proposal not solicited in
breach of this Section 6.11 that constitutes a Superior
Proposal and such Superior Proposal has not been withdrawn;
(ii) Company has not breached in any material respect any
of the provisions set forth in Section 6.3 or this
Section 6.11;
(iii) it reasonably determines in good faith (after
consultation with outside legal counsel), that in light of a
Superior Proposal the failure to effect such Change of
Recommendation would cause it to violate its fiduciary duties to
Company stockholders under applicable law;
(iv) Parent has received written notice from Company (a
Change of Recommendation Notice) at least
five business days prior to such Change of Recommendation, which
notice shall (1) state expressly that Company has received
a Alternative Proposal which the Board of Directors of Company
has determined is a Superior Proposal and that Company intends
to effect a Change of Recommendation and the manner in which it
intends or may intend to do so and (2) include the identity
of the person making such Alternative Proposal and a copy (if in
writing) and summary of material terms of such Alternative
Proposal; provided that any material amendment to the
terms of such Alternative Proposal shall require a Change of
Recommendation Notice and at least two business days prior to
such Change of Recommendation; and
(v) during any such notice period, Company and its advisors
has negotiated in good faith with Parent to make adjustments in
the terms and conditions of this Agreement such that such
Alternative Proposal would no longer constitute a Superior
Proposal.
As used in this Agreement, Superior Proposal
means any proposal made by a third party (A) to acquire,
directly or indirectly, for consideration consisting of cash
and/or
securities, 100% of the outstanding shares of Company Common
Stock or 100% of the assets, net revenues or net income of
Company and its Subsidiaries, taken as a whole and
(B) which is otherwise on terms which the Board of
Directors of Company determines in its reasonable good faith
judgment (after consultation with its financial advisor and
outside legal counsel), taking into account, among other things,
all legal, financial, regulatory and other aspects of the
proposal and the person making the proposal, that the proposal,
(i) if consummated would result in a transaction that is
more favorable, from a financial point of view, to
Companys stockholders than the Merger and the other
transactions contemplated hereby and (ii) is reasonably
capable of being completed, including to the extent required,
financing which is then committed or which, in the good faith
judgment of the Board of Directors of Company, is reasonably
capable of being obtained by such third party.
(e) Company shall ensure that the officers, directors and
all employees, agents and representatives (including any
investment bankers, financial advisors, attorneys, accountants
or other representatives) of Company or its Subsidiaries are
aware of the restrictions described in this Section 6.11 as
reasonably necessary to avoid violations thereof. It is
understood that any violation of the restrictions set forth in
this Section 6.11 by any officer, director, employee, agent
or representative (including any investment banker, financial
advisor, attorney, accountant or other representative) of
Company or its Subsidiaries shall be deemed to be a breach of
this Section 6.11 by Company.
(f) Nothing contained in this Section 6.11 shall
prohibit Company or its Subsidiaries from taking and disclosing
to its stockholders a position required by
Rule 14e-2(a)
or
Rule 14d-9
promulgated under the Exchange Act.
6.12 Restructuring Efforts. If Company
shall have failed to obtain the requisite vote or votes of its
stockholders for the consummation of the transactions
contemplated by this Agreement at a duly held meeting of its
stockholders or at any adjournment or postponement thereof,
then, unless this Agreement shall have been
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terminated pursuant to its terms, each of the parties shall in
good faith use its reasonable best efforts to negotiate a
restructuring of the transaction provided for herein (it being
understood that neither party shall have any obligation to alter
or change the amount or kind of the Merger Consideration, or the
Tax treatment of the Merger, in a manner adverse to such party
or its stockholders) and to resubmit the transaction to
Companys stockholders for approval, with the timing of
such resubmission to be determined at the reasonable request of
Parent.
6.13 Dividends. After the date of this
Agreement, each of Parent and Company shall coordinate with the
other regarding the declaration of any dividends in respect of
Parent Common Stock and Company Common Stock and the record
dates and payment dates relating thereto, it being the intention
of the parties that holders of Company Common Stock shall not
receive two dividends, or fail to receive one dividend, for any
quarter with respect to their shares of Company Common Stock and
any shares of Parent Common Stock any such holder receives in
exchange therefor in the Merger.
6.14 Tax Matters. Company shall consult
with Parent (including in connection with the preparation of
Companys 2007 federal income Tax return) regarding
Companys utilization of Tax losses and any issues that
could reasonably be expected to give rise to creation of or
increase in net operating loss carryforwards, and
shall, in Companys reasonable discretion, take account of
Parents views on such matters to the extent reasonably
feasible.
ARTICLE VII
CONDITIONS
PRECEDENT
7.1 Conditions to Each Partys Obligation To Effect
the Merger. The respective obligations of the
parties to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. This Agreement,
on substantially the terms and conditions set forth in this
Agreement, shall have been approved and adopted by the requisite
affirmative vote of the holders of Company Common Stock entitled
to vote thereon.
(b) NYSE Listing. The shares of Parent
Common Stock to be issued to the holders of Company Common Stock
upon consummation of the Merger shall have been authorized for
listing on the NYSE, subject to official notice of issuance.
(c) Form S-4. The
Form S-4
shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the
Form S-4
shall have been issued and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
(d) No Injunctions or Restraints;
Illegality. No order, injunction or decree issued
by any court or agency of competent jurisdiction or other law
preventing or making illegal the consummation of the Merger or
any of the other transactions contemplated by this Agreement
shall be in effect.
7.2 Conditions to Obligations of
Parent. The obligation of Parent and Merger Sub
to effect the Merger is also subject to the satisfaction, or
waiver by Parent, at or prior to the Effective Time, of the
following conditions:
(a) Representations and
Warranties. Subject to the standard set forth in
Section 9.2, the representations and warranties of Company
set forth in this Agreement shall be true and correct as of the
date of this Agreement and as of the Effective Time as though
made on and as of the Effective Time (except that
representations and warranties that by their terms speak
specifically as of the date of this Agreement or another date
shall be true and correct as of such date); and Parent shall
have received a certificate signed on behalf of Company by the
Chief Executive Officer or the Chief Financial Officer of
Company to the foregoing effect.
(b) Performance of Obligations of
Company. Company shall have performed in all
material respects all obligations required to be performed by it
under this Agreement at or prior to the Effective Time; and
Parent
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shall have received a certificate signed on behalf of Company by
the Chief Executive Officer or the Chief Financial Officer of
Company to such effect.
(c) Federal Tax Opinion. Parent shall
have received the opinion of its counsel, Cleary Gottlieb
Steen & Hamilton LLP, in form and substance reasonably
satisfactory to Parent, dated the Closing Date, substantially to
the effect that, on the basis of facts, representations and
assumptions set forth in such opinion that are consistent with
the state of facts existing at the Effective Time, the Merger
will be treated as a reorganization within the meaning of
Section 368(a) of the Code. In rendering such opinion,
counsel may require and rely upon customary representations
contained in certificates of officers of Company and Parent.
(d) Regulatory Approvals. All regulatory
approvals set forth in Section 4.4 required to consummate
the transactions contemplated by this Agreement, including the
Merger, shall have been obtained and shall remain in full force
and effect and all statutory waiting periods in respect thereof
shall have expired (all such approvals and the expiration of all
such waiting periods being referred as the Parent
Requisite Regulatory Approvals), and no such
regulatory approval shall have resulted in the imposition of any
Materially Burdensome Regulatory Condition.
(e) Annual Report; Audit Opinion. Company
shall have filed with the SEC its Annual Report on
Form 10-K
for the year ended December 31, 2007, which Annual Report
shall have included an unqualified opinion of KPMG LLP (or
another independent registered accounting firm reasonably
acceptable to Parent) regarding the consolidated financial
statements of Company contained in such Annual Report, and KPMG
LLP (or such other accounting firm) shall not have subsequently
withdrawn or qualified such opinion.
7.3 Conditions to Obligations of
Company. The obligation of Company to effect the
Merger is also subject to the satisfaction or waiver by Company
at or prior to the Effective Time of the following conditions:
(a) Representations and
Warranties. Subject to the standard set forth in
Section 9.2, the representations and warranties of Parent
set forth in this Agreement shall be true and correct as of the
date of this Agreement and as of the Effective Time as though
made on and as of the Effective Time (except that
representations and warranties that by their terms speak
specifically as of the date of this Agreement or another date
shall be true and correct as of such date); and Company shall
have received a certificate signed on behalf of Parent by the
Chief Executive Officer or the Chief Financial Officer of Parent
to the foregoing effect.
(b) Performance of Obligations of
Parent. Parent shall have performed in all
material respects all obligations required to be performed by it
under this Agreement at or prior to the Effective Time, and
Company shall have received a certificate signed on behalf of
Parent by the Chief Executive Officer or the Chief Financial
Officer of Parent to such effect.
(c) Federal Tax Opinion. Company shall
have received the opinion of its counsel, Wachtell, Lipton,
Rosen & Katz, in form and substance reasonably
satisfactory to Company, dated the Closing Date, substantially
to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion that are consistent with
the state of facts existing at the Effective Time, the Merger
will be treated as a reorganization within the meaning of
Section 368(a) of the Code. In rendering such opinion,
counsel may require and rely upon customary representations
contained in certificates of officers of Company and Parent.
(d) Regulatory Approvals. All regulatory
approvals set forth in Section 3.4 required to consummate
the transactions contemplated by this Agreement, including the
Merger, shall have been obtained and shall remain in full force
and effect and all statutory waiting periods in respect thereof
shall have expired (all such approvals and the expiration of all
such waiting periods being referred as the Company
Requisite Regulatory Approvals).
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ARTICLE VIII
TERMINATION
AND AMENDMENT
8.1 Termination. This Agreement may be
terminated at any time prior to the Effective Time, whether
before or after approval of the matters presented in connection
with the Merger by the stockholders of Company:
(a) by mutual consent of Company and Parent in a written
instrument authorized by the Boards of Directors of Company and
Parent;
(b) by either Company or Parent, if any Governmental Entity
that must grant a Parent Requisite Regulatory Approval or a
Company Requisite Regulatory Approval has denied approval of the
Merger and such denial has become final and nonappealable or any
Governmental Entity of competent jurisdiction shall have issued
a final and nonappealable order, injunction or decree
permanently enjoining or otherwise prohibiting or making illegal
the consummation of the transactions contemplated by this
Agreement;
(c) by either Company or Parent, if the Merger shall not
have been consummated on or before the first anniversary of the
date of this Agreement unless the failure of the Closing to
occur by such date shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the
covenants and agreements of such party set forth in this
Agreement;
(d) by either Company or Parent (provided that the
terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained
herein), if there shall have been a breach of any of the
covenants or agreements or any of the representations or
warranties set forth in this Agreement on the part of Company,
in the case of a termination by Parent, or Parent or Merger Sub,
in the case of a termination by Company, which breach, either
individually or in the aggregate, would result in, if occurring
or continuing on the Closing Date, the failure of the conditions
set forth in Section 7.2 or 7.3, as the case may be, and
which is not cured within 30 days following written notice
to the party committing such breach or by its nature or timing
cannot be cured within such time period;
(e) by Parent, if (i) the Board of Directors of
Company shall have (A) failed to recommend in the Proxy
Statement the approval and adoption of this Agreement,
(B) made any Change of Recommendation, (C) approved or
recommended, or publicly proposed to approve or recommend, any
Alternative Proposal, whether or not permitted by the terms
hereof or (D) failed to recommend to Companys
stockholders that they reject any tender offer or exchange offer
that constitutes an Alternative Transaction within the ten
business day period specified in
Rule 14e-2(a)
of the Exchange Act, (ii) Company shall have breached its
obligations under Section 6.11 in any material respect
adverse to Parent or (iii) Company shall have breached its
obligations under Section 6.3 in any material respect by
failing to call, convene and hold a meeting of its stockholders
in accordance with Section 6.3; or
(f) by either Company or Parent, if its Board of Directors
determines in good faith that the other party has substantially
engaged in bad faith in breach of its obligations under
Section 6.12.
The party desiring to terminate this Agreement pursuant to
clause (b), (c), (d), (e) or (f) of this
Section 8.1 shall give written notice of such termination
to the other party in accordance with Section 9.4,
specifying the provision or provisions hereof pursuant to which
such termination is effected.
8.2 Effect of Termination. In the event
of termination of this Agreement by either Company or Parent as
provided in Section 8.1, this Agreement shall forthwith
become void and have no effect, and none of Company, Parent, any
of their respective Subsidiaries or any of the officers or
directors of any of them shall have any liability of any nature
whatsoever under this Agreement, or in connection with the
transactions contemplated by this Agreement, except that
(i) Sections 6.2(b), 8.2, 8.3, 8.4, 9.3, 9.4, 9.5,
9.6, 9.7, 9.8, 9.9 and 9.10 shall survive any termination of
this Agreement, and (ii) neither Company nor Parent shall
be relieved or released from any liabilities or damages arising
out of its knowing breach of any provision of this Agreement.
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8.3 Fees and Expenses. Except with
respect to costs and expenses of printing and mailing the Proxy
Statement and all filing and other fees paid to the SEC in
connection with the Merger, which shall be borne equally by
Company and Parent, all fees and expenses incurred in connection
with the Merger, this Agreement, and the transactions
contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is
consummated.
8.4 Termination Fee.
(a) If:
(i) this Agreement is terminated by Parent pursuant to
Section 8.1(e), then Company shall pay Parent, by wire transfer
of immediately available funds, an amount equal to
$160 million (the Termination Fee) on
the second Business Day following such termination; or
(ii) (A) this Agreement is terminated by
(1) Parent pursuant to Section 8.1(d) if the breach
giving rise to such termination was knowing or intentional,
(2) Parent pursuant to Section 8.1(f), or
(3) either Parent or Company pursuant to Section 8.1(c) and
prior to the date of termination this Agreement shall not have
been adopted and approved by the requisite affirmative vote of
the holders of Company Common Stock, and
(B) in any such case, an Alternative Proposal shall have
been publicly announced or otherwise communicated or made known
to the senior management or Board of Directors of Company (or
any person shall have publicly announced, communicated or made
known an intention, whether or not conditional, to make an
Alternative Proposal) at any time after the date of this
Agreement and prior to the date of the termination and shall not
have been irrevocably withdrawn prior to the date of such
termination, then if within 12 months after such
termination, Company or any of its Subsidiaries enters into a
definitive agreement with respect to, or consummates, an
Alternative Transaction, then Company shall pay Parent, by wire
transfer of immediately available funds, the Termination Fee on
the date of such execution or consummation.
(b) Company acknowledges that the agreements contained in
this Section 8.4 are an integral part of the transactions
contemplated by this Agreement, and that, without these
agreements, Parent would not enter into this Agreement. In the
event that Company fails to pay when due any amounts payable
under this Section 8.4, then (i) Company shall
reimburse Parent for all reasonable costs and expenses
(including disbursements and reasonable fees of counsel)
incurred in connection with the collection of such overdue
amount, and (ii) Company shall pay to Parent 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 Bank of America,
N.A.) in effect on the date that such overdue amount was
originally required to be paid.
8.5 Amendment. This Agreement may be
amended by the parties, by action taken or authorized by their
respective Boards of Directors, at any time before or after
approval of the matters presented in connection with Merger by
the stockholders of Company; provided, however,
that after any approval of the transactions contemplated by this
Agreement by the stockholders of Company, there may not be,
without further approval of such stockholders, any amendment of
this Agreement that requires further approval under applicable
law. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties.
8.6 Extension; Waiver. At any time prior
to the Effective Time, the parties, by action taken or
authorized by their respective Board of Directors, may, to the
extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracies in the representations
and warranties contained in this Agreement or (c) waive
compliance with any of the agreements or conditions contained in
this Agreement. Any agreement on the part of a party to any such
A-52
extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance
with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
ARTICLE IX
GENERAL
PROVISIONS
9.1 Closing. On the terms and subject to
the conditions set forth in this Agreement, the closing of the
Merger (the Closing) shall take place at
10:00 a.m. on a date and at a place to be specified by the
parties, which date shall be no later than five business days
after the satisfaction or waiver (subject to applicable law) of
the latest to occur of the conditions set forth in
Article VII (other than those conditions that by their
nature are to be satisfied or waived at the Closing), unless
extended by mutual agreement of the parties (the
Closing Date). If the conditions set forth in
Article VII are satisfied or waived during the two weeks
immediately prior to the end of a fiscal quarter of Parent, then
Parent may postpone the Closing until the first full week after
the end of that fiscal quarter.
9.2 Standard. No representation or
warranty of Company contained in Article III or of Parent
contained in Article IV shall be deemed untrue, inaccurate
or incorrect for any purpose under this Agreement, and no party
hereto shall be deemed to have breached a representation or
warranty for any purpose under this Agreement, in any case as a
consequence of the existence or absence of any fact,
circumstance or event unless such fact, circumstance or event,
individually or when taken together with all other facts,
circumstances or events inconsistent with any representations or
warranties contained in Article III, in the case of
Company, or Article IV, in the case of Parent, has had or
would reasonably be expected to have a Material Adverse Effect
with respect to Company or Parent, respectively (disregarding
for purposes of this Section 9.2 all qualifications or
limitations set forth in any representations or warranties as to
materiality, Material Adverse Effect and
words of similar import). Notwithstanding the immediately
preceding sentence, the representations and warranties contained
in (x) Section 3.2(a) shall be deemed untrue and
incorrect if not true and correct except to a de minimis extent
(relative to Section 3.2(a) taken as a whole),
(y) Sections 3.2(b), 3.3(a), 3.3(b)(i), 3.7 and 3.27,
in the case of Company, and Sections 4.2, 4.3(a), 4.3(b)(i)
and 4.7, in the case of Parent, shall be deemed untrue and
incorrect if not true and correct in all material respects and
(z) Section 3.8(a), in the case of Company, and
Section 4.8(a), in the case of Parent, shall be deemed
untrue and incorrect if not true and correct in all respects.
9.3 Nonsurvival of Representations, Warranties and
Agreements. None of the representations,
warranties, covenants and agreements set forth in this Agreement
or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for Section 6.7 and for
those other covenants and agreements contained in this Agreement
that by their terms apply or are to be performed in whole or in
part after the Effective Time.
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9.4 Notices. All notices and other
communications in connection with this Agreement shall be in
writing and shall be deemed given if delivered personally, sent
via facsimile (with confirmation), mailed by registered or
certified mail (return receipt requested) or delivered by an
express 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):
(a) if to Company, to:
Countrywide Financial Corporation
4500 Park Granada
Calabasas, CA 91302
Attention: Sandor E. Samuels
Fax:
(818) 225-4055
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
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Attention:
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Edward D. Herlihy
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Craig M. Wasserman
Nicholas G. Demmo
Fax:
(212) 403-2000
and
(b) if to Parent, to:
Bank of America Corporation
Bank of America Corporate Center
100 North Tryon Street
Charlotte, NC 28255
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Attention:
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Timothy J. Mayopoulos,
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Executive Vice President and General Counsel
Facsimile:
(704) 370-3515
with a copy to:
Cleary Gottlieb Steen & Hamilton LLP
2000 Pennsylvania Avenue, NW
Washington, DC 20006
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Attention:
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John C. Murphy, Jr.
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Derek M. Bush
Fax:
(202) 974-1999
and
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, NY 10006
Benet J. OReilly
Fax:
(212) 225-3999
A-54
9.5 Interpretation. When a reference is
made in this Agreement to Articles, Sections, Exhibits or
Schedules, such reference shall be to a Article or Section of or
Exhibit or Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
Whenever the words include, includes or
including are used in this Agreement, they shall be
deemed to be followed by the words without
limitation. The Company Disclosure Schedule and the Parent
Disclosure Schedule, as well as all other schedules and all
exhibits hereto, shall be deemed part of this Agreement and
included in any reference to this Agreement. This Agreement
shall not be interpreted or construed to require any person to
take any action, or fail to take any action, if to do so would
violate any applicable law.
9.6 Counterparts. This Agreement may be
executed in two or more counterparts, all of which shall be
considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and
delivered to the other party, it being understood that each
party need not sign the same counterpart.
9.7 Entire Agreement. This Agreement
(including the documents and the instruments referred to in this
Agreement), together with the Confidentiality Agreements,
constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between
the parties with respect to the subject matter of this
Agreement, other than the Confidentiality Agreements.
9.8 Governing Law; Jurisdiction. This
Agreement shall be governed and construed in accordance with the
internal laws of the State of Delaware applicable to contracts
made and wholly-performed within such state, without regard to
any applicable conflicts of law principles. The parties hereto
agree that any suit, action or proceeding brought by either
party to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the
transactions contemplated hereby shall be brought in any federal
or state court located in the State of Delaware. Each of the
parties hereto submits to the jurisdiction of any such court in
any suit, action or proceeding seeking to enforce any provision
of, or based on any matter arising out of, or in connection
with, this Agreement or the transactions contemplated hereby and
hereby irrevocably waives the benefit of jurisdiction derived
from present or future domicile or otherwise in such action or
proceeding. Each party hereto irrevocably waives, to the fullest
extent permitted by law, any objection that it may now or
hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit,
action or proceeding brought in any such court has been brought
in an inconvenient forum.
9.9 Publicity. Neither Company nor Parent
shall, and neither Company nor Parent shall permit any of its
Subsidiaries to, issue or cause the publication of any press
release or other public announcement with respect to, or
otherwise make any public statement concerning, the transactions
contemplated by this Agreement without the prior consent (which
consent shall not be unreasonably withheld) of Parent, in the
case of a proposed announcement or statement by Company, or
Company, in the case of a proposed announcement or statement by
Parent; provided, however, that either party may,
without the prior consent of the other party (but after prior
consultation with the other party to the extent practicable
under the circumstances) issue or cause the publication of any
press release or other public announcement to the extent
required by law or by the rules and regulations of the NYSE.
9.10 Assignment; Third Party
Beneficiaries. Neither this Agreement nor any of
the rights, interests or obligations under this Agreement shall
be assigned by either of the parties (whether by operation of
law or otherwise) without the prior written consent of the other
party. Subject to the preceding sentence, this Agreement shall
be binding upon, inure to the benefit of and be enforceable by
each of the parties and their respective successors and assigns.
Except as otherwise specifically provided in Section 6.7,
this Agreement (including the documents and instruments referred
to in this Agreement) is not intended to and does not confer
upon any person other than the parties hereto any rights or
remedies under this Agreement.
Remainder
of Page Intentionally Left Blank
A-55
IN WITNESS WHEREOF, Company, Parent and Merger Sub have caused
this Agreement to be executed by their respective officers
thereunto duly authorized as of the date first above written.
COUNTRYWIDE FINANCIAL CORPORATION
Name: Angelo R. Mozilo
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Title:
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Chairman and Chief Executive Officer
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BANK OF AMERICA CORPORATION
Name: Joe L. Price
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Title:
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Chief Financial Officer
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RED OAK MERGER CORPORATION
Name: Joe L. Price
Signature
Page to Agreement and Plan of Merger
A-56
Exhibit A
Form of
Affiliate Letter
Bank of America Corporation
100 South Tryon Street
Charlotte, North Carolina 28255
Ladies and
Gentlemen:
I have been advised that as of the date hereof I may be deemed
to be an affiliate of Countrywide Financial
Corporation, a Delaware corporation
(Company), as the term
affiliate is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the Rules
and Regulations (the Rules and Regulations)
of the Securities and Exchange Commission (the
SEC) under the Securities Act of 1933, as
amended (the Securities Act). I have been
further advised that pursuant to the terms of the Agreement and
Plan of Merger dated as of January 10, 2008 (the
Merger Agreement), among Bank of America
Corporation, a Delaware corporation (Parent),
Red Oak Merger Corporation, a Delaware corporation and wholly
owned subsidiary of Parent (Merger Sub) and
Company, Company shall be merged with and into Merger Sub (the
Merger). All terms used in this letter but
not defined herein shall have the meanings ascribed thereto in
the Merger Agreement.
I represent, warrant and covenant to Parent that in the event I
receive any Parent Common Stock as a result of the Merger:
(a) I shall not make any sale, transfer or other
disposition of Parent Common Stock in violation of the
Securities Act or the Rules and Regulations.
(b) I have carefully read this letter and the Merger
Agreement and discussed its requirements and other applicable
limitations upon my ability to sell, transfer or otherwise
dispose of Parent Common Stock to the extent I believed
necessary with my counsel or counsel for Company.
(c) I have been advised that the issuance of Parent Common
Stock to me pursuant to the Merger will be registered with the
Commission under the Securities Act on a Registration Statement
on
Form S-4.
However, I have also been advised that, since at the time the
Merger will be submitted for a vote of the stockholders of
Company I may be deemed to have been an affiliate of Company and
the distribution by me of Parent Common Stock has not been
registered under the Securities Act, I may not sell, transfer or
otherwise dispose of Parent Common Stock issued to me in the
Merger unless (i) such sale, transfer or other disposition
has been registered under the Securities Act, (ii) such
sale, transfer or other disposition is made in conformity with
the volume and other limitations of Rule 145 promulgated by
the Commission under the Securities Act, or (iii) in the
opinion of counsel reasonably acceptable to Parent, such sale,
transfer or other disposition is otherwise exempt from
registration under the Securities Act.
(d) I understand that Parent is under no obligation to
register the sale, transfer or other disposition of Parent
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.
(e) I also understand that stop transfer instructions will
be given to Parents transfer agents with respect to Parent
Common Stock and that there will be placed on the certificates
for Parent Common Stock issued to me, or any substitutions
therefor, a legend stating in substance:
The securities represented by this certificate have been
issued in a transaction to which Rule 145 promulgated under the
Securities Act of 1933 applies and may only be sold or otherwise
transferred in compliance with the requirements of Rule 145
or pursuant to a registration statement under said act or an
exemption from such registration.
A-57
(f) I also understand that unless the transfer by me of my
Parent Common Stock has been registered under the Securities Act
or is a sale made in conformity with the provisions of
Rule 145, Parent reserves the right to put 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 promulgated 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 sold, pledged or otherwise transferred except in
accordance with an exemption from the registration requirements
of the Securities Act of 1933.
It is understood and agreed that the legends set forth above
shall be removed by delivery of substitute certificates without
such legend,
and/or the
issuance of a letter to Parents transfer agent removing
such stop transfer instructions, and the above restrictions on
sale will cease to apply, if (A) 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 (B) 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; or (C) I shall have delivered to Parent (i) a
copy of a letter from the staff of the SEC, or an opinion of
counsel in form and substance reasonably satisfactory to Parent,
or other evidence reasonably satisfactory to Parent, to the
effect that such legend
and/or stop
transfer instructions are not required for purposes of the
Securities Act or (ii) reasonably satisfactory evidence or
representations that the securities represented by such
certificates are being or have been transferred in a transaction
made in conformity with the provisions of Rule 145 under
the Securities Act or pursuant to an effective registration
under the Securities Act.
I recognize and agree that the foregoing provisions also apply
to (i) my spouse, (ii) any relative of mine or my
spouse occupying my home, (iii) any trust or estate in
which I, my spouse or any such relative owns at least 10%
beneficial interest or of which any of us serves as trustee,
executor or in any similar capacity and (iv) any corporate
or other organization in which I, my spouse or any such
relative owns at least 10% of any class of equity securities or
of the equity interest.
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.
Execution of this letter agreement should not be construed as an
admission on my part that I am an affiliate
of Company as described in the first paragraph of this letter or
as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
Very truly yours,
Name:
Accepted this [ ] day of
[ ],
2008
BANK OF AMERICA CORPORATION
Name:
Title:
A-58
APPENDIX B
Goldman,
Sachs & Co. 85 Broad Street New
York, New York 10004
Tel:
212-902-1000
PERSONAL AND
CONFIDENTIAL
January 10, 2008
Board of Directors
Countrywide
Financial Corporation
4500 Park Granada
Calabasas,
California 91302
Gentlemen:
You have requested
our opinion as to the fairness from a financial point of view to
the holders of the outstanding shares of common stock, par value
$0.05 per share (the Shares), of Countrywide
Financial Corporation (the Company) of the exchange
ratio of 0.1822 shares of common stock, par value $0.01 per
share (the Bank of America Common Stock), of Bank of
America Corporation (Bank of America) to be received
for each Share (the Exchange Ratio) pursuant to the
Agreement and Plan of Merger, dated as of January 10, 2008
(the Agreement), by and among Bank of America, Red
Oak Merger Corporation, a wholly owned subsidiary of Bank of
America, and the Company.
Goldman,
Sachs & Co. and its affiliates are engaged in
investment banking and financial advisory services, securities
trading, investment management, principal investment, financial
planning, benefits counseling, risk management, hedging,
financing, brokerage activities and other financial and
non-financial activities and services for various persons and
entities. In the ordinary course of these activities and
services, Goldman, Sachs & Co. and its affiliates may
at any time make or hold long or short positions and
investments, as well as actively trade or effect transactions,
in the equity, debt and other securities (or related derivative
securities) and financial instruments (including bank loans and
other obligations) of the Company, Bank of America and any of
their respective affiliates or any currency or commodity that
may be involved in the transaction contemplated by the Agreement
(the Transaction) for their own account and for the
accounts of their customers. We have acted as financial advisor
to the Company in connection with, and have participated in
certain of the negotiations leading to, the Transaction. We
expect to receive fees for our services in connection with the
Transaction, a portion of which is contingent upon consummation
of the Transaction, and the Company has agreed to reimburse our
expenses and indemnify us against certain liabilities arising
out of our engagement. In addition, we have provided, and are
currently providing, certain investment banking and other
financial services to the Company and its affiliates, including
having acted as (i) dealer in various of the Companys
unsecured and secured commercial paper programs, (ii) lead
or joint bookrunner or co-manager with respect to multiple
public offerings of the Companys Medium Term Notes and
Global Medium Term Notes, (iii) financial advisor to the
Company from May 2004 to May 2007, (iv) co-manager with
respect to a private placement of the Companys
Subordinated Notes (aggregate principal amount of
$1,300,000,000) in November 2006, (v) financial advisor
with respect to a private placement of the Companys 7.25%
Series B Non-voting Convertible Preferred Stock (aggregate
principal amount of $2,000,000,000) to Bank of America in August
2007, and (vi) as a participant in certain of the
Companys commercial paper backup facilities which were
drawn on August 15, 2007 (aggregate principal amount of
$11,500,000,000, of which $400,000,000 was funded by one of our
affiliates). We also may provide investment banking and other
financial services to the Company, Bank of America and their
respective affiliates in the future. In connection with the
above-described services we have received, and may receive,
compensation. Affiliates of Goldman, Sachs &
B-1
Board of Directors
Countrywide
Financial Corporation
January 10, 2008
Page Two
Co. also have
co-invested with affiliates of Bank of America from time to time
and may do so in the future.
In connection with
this opinion, we have reviewed, among other things, the
Agreement; annual reports to stockholders and Annual Reports on
Form 10-K
of the Company and Bank of America for the five years ended
December 31, 2006; certain interim reports to stockholders
and Quarterly Reports on
Form 10-Q
of the Company and Bank of America; certain other communications
from the Company and Bank of America to their respective
stockholders; certain publicly available research analyst
reports for the Company and Bank of America; and certain
internal financial analyses and forecasts for the Company
prepared by its management (the Forecasts),
including certain projected cash flows, including from equity
issuances, and certain analyses of the Companys sources of
liquidity and its capital adequacy. We have also held
discussions with members of the senior managements of the
Company and Bank of America regarding their assessment of the
strategic rationale for, and the potential benefits of, the
Transaction. We have held discussions with members of the senior
management of the Company regarding the past and current
business operations, financial condition and future prospects of
the Company, including their views of the risks and
uncertainties of achieving the Forecasts in the amounts and time
periods contemplated thereby. In that regard, we have been
informed by members of the senior management of the Company that
the Company has been negatively affected by and continues to
have exposure to a number of risks, including deteriorating
credit performance of its portfolio assets, significant
reductions in the scope of its capital markets business and
declining values of portions of its loan and residual interest
portfolios. You have advised us that these exposures have
negatively affected recent financial results and that there is a
material risk that they will impact the Company in the future,
which could lead to further ratings downgrades or regulatory
actions, or both, either of which would substantially impair the
operations of the Company. In addition, members of the senior
management of the Company have advised us that the Company has
limited access to the capital markets and that a failure to
raise additional capital in the amounts and at the prices
assumed by the Forecasts would have a material negative effect
on the ability of the Company to achieve the Forecasts as
contemplated. As you are aware, the management of Bank of
America did not make available to us its forecasts of the future
financial performance of Bank of America. With your consent, our
review of Bank of America was limited to publicly-available
information and a discussion with the senior management of Bank
of America regarding the past and current business operations,
financial condition and future prospects of Bank of America,
which included a discussion of publicly available estimates
issued by certain research analysts with respect to Bank of
America. In addition, we have reviewed the reported price and
trading activity for the Shares and Bank of America Common
Stock, compared certain financial and stock market information
for the Company and Bank of America with similar information for
certain other companies the securities of which are
publicly-traded, reviewed the financial terms of certain recent
business combinations in the banking industry specifically and
in other industries generally and performed such other studies
and analyses, and considered such other factors, as we
considered appropriate.
For purposes of
rendering this opinion, we have relied upon and assumed, without
assuming any responsibility for independent verification, the
accuracy and completeness of all of the financial, legal,
regulatory, tax, accounting and other information provided to,
discussed with or reviewed by us. In addition, we have not
reviewed individual credit files nor have we made an independent
evaluation or appraisal of the assets and liabilities (including
any contingent, derivative or off-balance-sheet assets and
liabilities) of the Company, Bank of America or any of their
respective subsidiaries and we have not been furnished with any
such evaluation or appraisal. We are not experts in the
evaluation of loan and lease portfolios for purposes of
assessing the adequacy of the allowances for losses with respect
thereto and, accordingly, with your consent, we have assumed,
with respect to Bank of America, that
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Board of Directors
Countrywide
Financial Corporation
January 10, 2008
Page Three
such allowances are
in the aggregate adequate to cover such losses. We also have
assumed that all governmental, regulatory or other consents and
approvals necessary for the consummation of the Transaction will
be obtained without any adverse effect on the Company or Bank of
America or on the expected benefits of the Transaction in any
way meaningful to our analysis. Our opinion does not address any
legal, regulatory, tax or accounting matters.
Our opinion does not
address the underlying business decision of the Company to
engage in the Transaction, or the relative merits of the
Transaction as compared to any strategic alternatives that may
be available to the Company. We were not requested to solicit,
and did not solicit, interest from other parties with respect to
an acquisition of, or other business combination with, the
Company or any other alternative transaction. We note that,
pursuant to the terms of the private placement of the
Companys 7.25% Series B Non-voting Convertible
Preferred Stock to Bank of America in August 2007, Bank of
America has the right to match third party proposals to acquire
the Company. This opinion addresses only the fairness from a
financial point of view, as of the date hereof, of the Exchange
Ratio pursuant to the Agreement. We do not express any view on,
and our opinion does not address, any other term or aspect of
the Agreement or Transaction, including, without limitation, the
fairness of the Transaction to, or any consideration received in
connection therewith by, the holders of any other class of
securities, creditors, or other constituencies of the Company or
Bank of America; nor as to the fairness of the amount or nature
of any compensation to be paid or payable to any of the
officers, directors or employees of the Company or Bank of
America, or class of such persons in connection with the
Transaction, whether relative to the Exchange Ratio pursuant to
the Agreement or otherwise. We are not expressing any opinion as
to the prices at which shares of Bank of America Common Stock
will trade at any time. Our opinion is necessarily based on
economic, monetary, market and other conditions as in effect on,
and the information made available to us as of, the date hereof,
including the recent dislocation in the mortgage market in
particular and credit markets generally and the related
uncertainty and risk regarding the extent and duration of this
dislocation. We assume no responsibility for updating, revising
or reaffirming this opinion based on circumstances, developments
or events occurring after the date hereof. Our advisory services
and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the
Company in connection with its consideration of the Transaction
and such opinion does not constitute a recommendation as to how
any holder of Shares should vote with respect to such
Transaction or any other matter. This opinion has been approved
by a fairness committee of Goldman, Sachs & Co.
Based upon and
subject to the foregoing, it is our opinion that, as of the date
hereof, the Exchange Ratio pursuant to the Agreement is fair
from a financial point of view to the holders of Shares.
Very truly yours,
(GOLDMAN,
SACHS & CO.)
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APPENDIX C
January 10, 2008
Board of Directors
Countrywide Financial Corporation
4500 Park Granada
Calabasas, CA 91302
Ladies and Gentlemen:
Countrywide Financial Corporation (Countrywide),
Bank of America Corporation (Bank of America) and
Red Oak Merger Corporation, a wholly-owned subsidiary of Bank of
America (Merger Sub) have entered into an Agreement
and Plan of Merger, dated as of January 10, 2008 (the
Agreement), pursuant to which Countrywide will be
merged with and into Merger Sub with Merger Sub as the surviving
entity (the Merger). Under the terms of the
Agreement, upon consummation of the Merger, each share of
Countrywide common stock, par value $0.05 per share, issued and
outstanding immediately prior to the Merger (the
Countrywide Common Stock), except for certain shares
as specified in the Agreement, will be converted into the right
to receive 0.1822 (the Exchange Ratio) of a share of
common stock, par value $0.01 per share of Bank of America (the
Bank of America Common Stock). The terms and
conditions of the Merger are more fully set forth in the
Agreement. Capitalized terms not defined in this opinion have
the meanings given them in the Agreement. You have requested our
opinion as to the fairness, from a financial point of view, of
the Exchange Ratio to the holders of Countrywide Common Stock.
Sandler ONeill & Partners, L.P., as part of its
investment banking business, is regularly engaged in the
valuation of financial institutions and their securities in
connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed,
among other things: (i) the Agreement; (ii) certain
publicly available financial statements and other historical
financial information of Countrywide that we deemed relevant;
(iii) certain publicly available financial statements and
other historical financial information of Bank of America that
we deemed relevant; (iv) consensus earnings per share
estimates for Countrywide for the years ending December 31,
2007 and 2008 as published by I/B/E/S and reviewed with
management of Countrywide; (v) internal financial
projections for Countrywide for the years ending
December 31, 2007 through 2012 as prepared by and discussed
with senior management of Countrywide; (vi) consensus
earnings per share estimates for Bank of America for the years
ending December 31, 2007 and 2008 and an estimated
long-term growth rate as published by I/B/E/S and reviewed with
senior management of Bank of America; (vii) the pro forma
financial impact of the Merger on Bank of America, based on
assumptions relating to transaction expenses, purchase
accounting adjustments, cost savings and other synergies as
determined by the senior management of Bank of America;
(viii) the publicly reported historical price and trading
activity for Countrywides and Bank of Americas
common stock, including a comparison of certain financial and
stock market information for Countrywide and Bank of America
with similar publicly available information for certain other
companies the securities of which are publicly traded;
(ix) to the extent publicly available, the financial terms
of certain recent business combinations in the financial
services industry; (x) the current market environment
generally and the banking environment in particular; and
(xi) such other information, financial studies, analyses
and investigations and financial, economic and market criteria
as we considered relevant. We also discussed with certain
members of senior management of Countrywide the business,
financial condition, results of operations and prospects of
Countrywide, including certain operating, liquidity, regulatory
and other financial matters. We also held similar discussions
with certain members of senior management of Bank of America
regarding the business, financial condition, results of
operations and prospects of Bank of America.
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Page 2 of 3
January 10, 2008
Board of Directors
Countrywide Financial Corporation
In performing our review, we have relied upon the accuracy and
completeness of all of the financial and other information that
was available to us from public sources, that was provided to us
by Countrywide and Bank of America or their respective
representatives or that was otherwise reviewed by us and have
assumed such accuracy and completeness for purposes of rendering
this opinion. We have further relied on the assurances of
management of Countrywide and Bank of America that they are not
aware of any facts or circumstances that would make any of such
information inaccurate or misleading. We have not been asked to
and have not undertaken an independent verification of any of
such information and we do not assume any responsibility or
liability for the accuracy or completeness thereof. We did not
make an independent evaluation or appraisal of the specific
assets, the collateral securing assets or the liabilities
(contingent or otherwise) of Country wide or Bank of America or
any of their subsidiaries, or the collectibility of any such
assets, nor have we been furnished with any such evaluations or
appraisals.
We did not make an independent evaluation of the adequacy of the
allowance for loan losses of Countrywide or Bank of America nor
have we reviewed any individual credit files relating to
Countrywide or Bank of America. We have assumed, with your
consent, that the respective allowances for loan losses for both
Countrywide and Bank of America are adequate to cover such
losses and will be adequate on a pro forma basis for the
combined entity.
With respect to anticipated transaction costs, purchase
accounting adjustments, expected cost savings and other
synergies and other information prepared by
and/or
reviewed with the management of Bank of America and used by
Sandler ONeill in its analyses, Bank of Americas
management confirmed to us that they reflected the best
currently available estimates and judgments of such management
with respect thereto and we assumed that such performances would
be achieved. We express no opinion as to such financial
projections or the assumptions on which they are based. We have
also assumed that there has been no material change in
Countrywides and Bank of Americas assets, financial
condition, results of operations, business or prospects since
the date of the most recent financial statements made available
to us. We have assumed in all respects material to our analysis
that Countrywide and Bank of America will remain as going
concerns for all periods relevant to our analyses, that each
party to the Agreement will perform all of the material
covenants required to be performed by such party under the
Agreement, that the conditions precedent in the Agreement are
not waived and that the Merger will qualify as a tax-free
reorganization for federal income tax purposes. We express no
opinion as to any of the legal, accounting and tax matters
relating to the Merger and the other transactions contemplated
by the Agreement.
Our opinion is necessarily based on financial, economic, market
and other conditions as in effect on, and the information made
available to us as of, the date hereof. Events occurring after
the date hereof could materially affect this opinion. We have
not undertaken to update, revise, reaffirm or withdraw this
opinion or otherwise comment upon events occurring after the
date hereof. We are expressing no opinion herein as to what the
value of Bank of Americas common stock will be when issued
to Countrywide shareholders pursuant to the Agreement or the
prices at which Countrywides or Bank of Americas
common stock may trade at any time.
We have acted as financial advisor to the Board of Directors of
Countrywide in connection with the Merger and will receive a fee
for our services, a substantial portion of which is contingent
upon consummation of the Merger. We will also receive a fee for
rendering this opinion. Countrywide has also agreed to indemnify
us against certain liabilities arising out of our engagement.
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Page 3 of 3
January 10, 2008
Board of Directors
Countrywide Financial Corporation
In the ordinary course of our business as a broker-dealer, we
may purchase securities from and sell securities to Countrywide
and Bank of America and their affiliates. We may also actively
trade the equity or debt securities of Countrywide and Bank of
America or their affiliates for our own account and for the
accounts of our customers and, accordingly, may at any time hold
a long or short position in such securities.
Our opinion is directed to the Board of Directors of Countrywide
in connection with its consideration of the Merger and does not
constitute a recommendation to any shareholder of Countrywide as
to how such shareholder should vote at any meeting of
shareholders called to consider and vote upon the Merger. Our
opinion is directed only to the fairness, from a financial point
of view, of the Exchange Ratio to holders of Countrywide Common
Stock and does not address the underlying business decision of
Countrywide to engage in the Merger, the relative merits of the
Merger as compared to any other alternative business strategies
that might exist for Countrywide or the effect of any other
transaction in which Countrywide might engage. Our opinion is
not to be quoted or referred to, in whole or in part, in a
registration statement, prospectus, proxy statement or in any
other document, nor shall this opinion be used for any other
purposes, without Sandler ONeills prior written
consent, which will not be unreasonably withheld. This Opinion
has been approved by Sandler ONeills fairness
opinion committee. We do not express any opinion as to the
fairness of the amount or nature of the compensation to be
received in the Merger by the companys officers,
directors, or employees, or class of such persons, relative to
the compensation to be received in the Merger by any other
shareholders of the company.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Exchange Ratio is fair to the holders
of Countrywides Common Stock from a financial point of
view.
Very truly yours,
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