Retail Brokerage Company Formation Agreement

EXHIBIT 10.20


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RETAIL BROKERAGE COMPANY FORMATION AGREEMENT


by and between


WACHOVIA CORPORATION


and


PRUDENTIAL FINANCIAL, INC.


DATED AS OF FEBRUARY 19, 2003


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TABLE OF CONTENTS


PAGE


ARTICLE 1 DEFINITIONS.......................................................................................1
Section 1.1 Defined Terms..........................................................................1


ARTICLE 2 FORMATION OF VENTURE; CLOSING; RELATED TRANSACTIONS..............................................34
Section 2.1 Formation of Company..................................................................34
Section 2.2 Transactions Prior to the Closing.....................................................34
Section 2.3 Time and Place of the Closing.........................................................35
Section 2.4 Deliveries and Other Actions at the Closing...........................................35
Section 2.5 Post-Closing Adjustments..............................................................37


ARTICLE 3 BANK CHANNEL ARRANGEMENTS........................................................................40
Section 3.1 The Bank Channel......................................................................40
Section 3.2 Support for the Prudential Banks......................................................41
Section 3.3 Wachovia Research Activities..........................................................41


ARTICLE 4 REPRESENTATIONS AND WARRANTIES...................................................................42
Section 4.1 Representations and Warranties of Wachovia............................................42
Section 4.2 Representations and Warranties of Prudential..........................................57


ARTICLE 5 CERTAIN INTERIM AND OTHER COVENANTS..............................................................74
Section 5.1 Conduct of Business Prior to Closing..................................................74
Section 5.2 Access to Information.................................................................77
Section 5.3 Consents; Conditions; Further Assurances..............................................78
Section 5.4 Certain Contracts and IP..............................................................80
Section 5.5 Sufficiency of Assets.................................................................81
Section 5.6 Transfer Taxes........................................................................83
Section 5.7 Tax Sharing Agreements................................................................83
Section 5.8 Taxes.................................................................................83
Section 5.9 Real Estate Matters...................................................................86
Section 5.10 Wachovia Reorganization...............................................................86


ARTICLE 6 CONDITIONS TO CLOSING............................................................................86
Section 6.1 Conditions to Wachovia's Obligations..................................................86
Section 6.2 Conditions to Prudential's Obligations................................................88


ARTICLE 7 INDEMNIFICATION..................................................................................90
Section 7.1 Survival of Representations and Warranties............................................90
Section 7.2 Indemnification.......................................................................90
Section 7.3 Limitations on Amounts................................................................91
Section 7.4 Other Indemnification Provisions......................................................92
Section 7.5 Procedures............................................................................92
Section 7.6 Procedures for Third Party Claims.....................................................93
Section 7.7 Mutual Assistance.....................................................................97


ARTICLE 8 FURTHER AGREEMENTS...............................................................................97


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PAGE
Section 8.1 No Commitments........................................................................97
Section 8.2 Confidentiality after the Closing.....................................................97
Section 8.3 Non-Competition; Non-Solicit..........................................................99
Section 8.4 Employee Matters.....................................................................105
Section 8.5 Certain Contributed Businesses.......................................................119
Section 8.6 Further Assurances...................................................................120
Section 8.7 Hedge Fund Distribution..............................................................120


ARTICLE 9 CERTAIN COVENANTS AND AGREEMENTS REGARDING MEMBERSHIP INTERESTS.................................120
Section 9.1 Restrictions on Transfer; Permitted Transferees......................................120
Section 9.2 Right of First Refusal; Tag Along Right..............................................121
Section 9.3 Prudential Put/Wachovia Call.........................................................124
Section 9.4 Preliminary Valuation Procedures for Discretionary Put/Call..........................130
Section 9.5 Further Assurances; Timing...........................................................131


ARTICLE 10 TERM AND TERMINATION...........................................................................131
Section 10.1 Termination Prior to Closing.........................................................131
Section 10.2 Termination After Closing............................................................132
Section 10.3 Effect of Termination................................................................132


ARTICLE 11 FAIR MARKET VALUE..............................................................................133
Section 11.1 Appraised Value of the Company and Acquired Retail Brokerage Business................133
Section 11.2 Other Appraised Values...............................................................134
Section 11.3 Access to Information................................................................135
Section 11.4 Process..............................................................................135


ARTICLE 12 MISCELLANEOUS..................................................................................135
Section 12.1 Expenses.............................................................................135
Section 12.2 Publicity............................................................................136
Section 12.3 Amendment or Modification............................................................136
Section 12.4 Waiver...............................................................................136
Section 12.5 Entire Agreement.....................................................................137
Section 12.6 Third-Party Beneficiaries............................................................137
Section 12.7 Non-Assignability; Binding Effect....................................................137
Section 12.8 Severability.........................................................................137
Section 12.9 Injunctive Relief....................................................................137
Section 12.10 GOVERNING LAW........................................................................138
Section 12.11 Submission to Jurisdiction...........................................................138
Section 12.12 Alternative Dispute Resolution.......................................................138
Section 12.13 WAIVER OF JURY TRIAL.................................................................140
Section 12.14 Notices..............................................................................140
Section 12.15 Counterparts.........................................................................141
Section 12.16 Interpretation.......................................................................141


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SCHEDULES


Schedule Description - -------- ----------- Schedule 1.1(a) Wachovia Contributed Subsidiaries


Schedule 1.1(b) Prudential Contributed Subsidiaries


Schedule 1.1(c) Wachovia Contributed Leased Real Property


Schedule 1.1(d) Prudential Contributed Leased Real Property


Schedule 1.1(e)(i) One Time Costs for Contributed Businesses


Schedule 1.1(e)(ii) One Time Costs for Acquired Retail Brokerage Business


Schedule 1.1(f) Financial Statements of the Wachovia Contributed Business


Schedule 1.1(g) Financial Statements of the Prudential Contributed Business


Schedule 1.1(h) Wachovia Knowledge


Schedule 1.1(i) Prudential Knowledge


Schedule 1.1(j) Specified Wachovia Securities Officers


Schedule 1.1(k) Wachovia Contributed Assets


Schedule 1.1(l) Prudential Contributed Assets


Schedule 1.1(m) Wachovia Contributed Real Property


Schedule 1.1(n) Prudential Contributed Real Property


Schedule 1.1(o) Wachovia Contributed IP


Schedule 1.1(p) Prudential Contributed IP


Schedule 1.1(q) Wachovia Excluded Liabilities


Schedule 1.1(r) Prudential Excluded Liabilities


Schedule 1.1(s) Wachovia Contributed Liabilities


Schedule 1.1(t) Prudential Contributed Liabilities


Schedule 1.1(u) Wachovia Contributed Liabilities Relating to Employee Matters


Schedule 1.1(v) Prudential Contributed Liabilities Relating to Employee Matters


Schedule 1.1(w) Wachovia Excluded Assets


Schedule 1.1(x) Prudential Excluded Assets


Schedule 1.1(y) Certain Benefits Information


Schedule 1.1(z) Cost Basis Price


Schedule 2.2(a) Wachovia Reorganization


Schedule 2.2(b) Prudential Pre-Closing Conversion


Schedule 2.5(a)(i) Wachovia GAAP Exceptions


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Schedule 2.5(a)(ii) Prudential GAAP Exceptions


Schedule 3.1(b) Referral Fees


Schedule 3.3 Wachovia Research Activities


Schedule 4.1(e) Wachovia Governmental Approvals and Third Party Approvals


Schedule 4.1(f) Wachovia Undisclosed Liabilities


Schedule 4.1(h) Wachovia Liens


Schedule 4.1(i) Wachovia Contracts


Schedule 4.1(j)(i) Wachovia Claims


Schedule 4.1(j)(ii) Wachovia Orders


Schedule 4.1(k)(i) Wachovia Compliance with Laws


Schedule 4.1(k)(ii) Wachovia Permits


Schedule 4.1(k)(viii) Wachovia Memberships


Schedule 4.1(k)(ix) Wachovia Licenses and Registrations


Schedule 4.1(l) Wachovia Taxes


Schedule 4.1(m)(i) Wachovia Contributed Business Plans


Schedule 4.1(m)(iii)(B) Wachovia Benefit Plan Claims


Schedule 4.1(m)(iii)(E) Wachovia Retiree Welfare Plans


Schedule 4.1(o) Wachovia Intellectual Property Claims


Schedule 4.1(r) Wachovia Affiliate Transactions


Schedule 4.2(b) Prudential Contributed Subsidiaries


Schedule 4.2(d) Prudential Conflicts


Schedule 4.2(e) Prudential Governmental Approvals and Third Party Approvals


Schedule 4.2(f) Prudential Undisclosed Liabilities


Schedule 4.2(h) Prudential Liens


Schedule 4.2(i) Prudential Contracts


Schedule 4.2(j)(i) Prudential Claims


Schedule 4.2(j)(ii) Prudential Orders


Schedule 4.2(k)(i) Prudential Compliance with Laws


Schedule 4.2(k)(ii) Prudential Permits


Schedule 4.2(k)(viii) Prudential Memberships


Schedule 4.2(k)(ix) Prudential Licenses and Registrations


Schedule 4.2(l) Prudential Taxes


Schedule 4.2(m)(i)(A) Prudential Contributed Business Plans


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Schedule 4.2(m)(i)(B) Prudential Communication of Intent to Modify Benefit Plan


Schedule 4.2(m)(iii)(C) Prudential Multiemployer/Multiple-Employer Plans


Schedule 4.2(m)(iii)(E) Prudential Retiree Welfare Plans


Schedule 4.2(m)(iii)(F) Prudential Acceleration of Payments or Funding of Prudential
Contributed Business Plans


Schedule 4.2(m)(iv) Foreign Prudential Plans


Schedule 4.2(o) Prudential Intellectual Property Claims


Schedule 4.2(r) Prudential Affiliate Transactions


Schedule 5.1 Conduct of Business Prior to the Closing


Schedule 5.1(b)(vii)(D) Prudential Equity Awards to be Granted


Schedule 5.1(b)(vii)(G) Certain Wachovia Benefit Plans to be Amended


Schedule 5.4(b) Small Contracts


Schedule 5.9(a) Prudential Excluded Businesses Leased Real Property


Schedule 5.9(b) Prudential Excluded Leased Real Property


Schedule 6.1(d) Required Prudential Consents


Schedule 6.2(d) Required Wachovia Consents


Schedule 8.2(g) Disclosure Protocol


Schedule 8.4(a)(i)-1 Wachovia Eligible Individuals


Schedule 8.4(a)(i)-2 Prudential Eligible Individuals


Schedule 8.4(c)(iii) Certain Prudential Individuals


Schedule 8.4(f)(i) Prudential MasterShare Programs


Schedule 8.4(f)(ii) Prudential Nonqualified Plans


Schedule 8.4(f)(iv) Prudential Equity Awards


Schedule 9.3(f) Registration Rights


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EXHIBITS


Exhibit Description - ------ ----------- Exhibit A Form of Certificate of Formation


Exhibit B Form of Amended and Restated Limited Liability Company Agreement


Exhibit C Form of Wachovia/Company Master Agreement


Exhibit D Form of Prudential/Company Interim Agreement


Exhibit E Form of Product Agreement


Exhibit F Form of Wachovia Intellectual Property License Agreement


Exhibit G Form of Prudential Intellectual Property License Agreement


Exhibit H Form of Prudential Note


Exhibit I Form of Guarantee


Exhibit J Form of Company/Prudential Interim Agreement


Exhibit K Form of Company/Wachovia Letter Agreement


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RETAIL BROKERAGE COMPANY FORMATION AGREEMENT


THIS RETAIL BROKERAGE COMPANY FORMATION AGREEMENT (this "Agreement") is made as of February 19, 2003, by and between WACHOVIA CORPORATION, a North Carolina corporation ("Wachovia"), and PRUDENTIAL FINANCIAL, INC., a New Jersey corporation ("Prudential") (hereinafter, each of which may be called a "Party" and may collectively be called the "Parties").


RECITALS


A. Wachovia, primarily through the Wachovia Contributed Subsidiaries (defined terms used in these recitals being used as defined in Section 1.1), is engaged in the Wachovia Contributed Business, and Prudential, primarily through Subsidiaries, is engaged in the Prudential Contributed Business.


B. The Parties desire to contribute their respective Contributed Businesses to a Delaware limited liability company to be formed pursuant to Section 2.1 (such entity and any successor thereof, the "Company").


C. The Parties desire to enter into this Agreement to set forth the terms and conditions for the formation and operation of the Company and the terms of ownership of their respective Interests therein.


ARTICLE 1


DEFINITIONS


Section 1.1 Defined Terms. In this Agreement, except where the context otherwise requires:


"Accounts Payable" means all accounts and notes payable arising from
the Contributed Businesses, including those of the type reflected on the
balance sheet included in either the Financial Statements of the Wachovia
Contributed Business or the Financial Statements of the Prudential
Contributed Business as payable to customers, vendors, and others,
including but not limited to book overdrafts, dividend and interest
payable, amounts due to fund companies for shares purchased, amounts due to
banks for cleared CRA account checks, accrued sales contests, accrued
branch manager meeting expenses, accrued regulatory fees, accrued clearance
charges, accrued statement expenses, and accrued telecommunications
expenses.


"Accounts Receivable" means all accounts and notes receivable arising
from the Contributed Businesses, including those of the type reflected on
the balance sheet included in either the Financial Statements of the
Wachovia Contributed Business or the Financial Statements of the Prudential
Contributed Business as due from customers, brokers, dealers, clearing
organizations and others, including but not limited to amounts due
resulting from failures to deliver, securities borrowing transactions and


correspondent clearance transactions, dividends and interest receivable,
deposits in transit and amounts due from fund companies for sold or
liquidated shares and similar assets.


"Acquired Retail Brokerage Business" has the meaning set forth in
Section 8.3(b).


"Acquisition Representative" has the meaning set forth in Section
8.3(d).


"Advisers Act" means the Investment Advisers Act of 1940, as amended,
and the rules and regulations promulgated thereunder.


"Affiliate" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control
with such other Person, including but not limited to such Person's
Subsidiaries; and "control" (including, with correlative meanings, the
terms "controlled by" and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by
contract or otherwise. Unless otherwise specifically stated, the term
"Affiliate" does not include: (x) the Company Entities when used with
respect to any Party, any Wachovia Entity, or any Prudential Entity, and
(y) the Wachovia Entities or the Prudential Entities when used with respect
to any Company Entity. "Affiliated" and "Affiliation" shall have a
correlative meaning.


"Agreement" has the meaning set forth in the preamble hereto.


"Annual Bonus Plans" has the meaning set forth in Section 8.4(f).


"Appraised Company" has the meaning set forth in the definition of
Appraised Value.


"Appraised Value" means, with respect to an Acquired Retail Brokerage
Business or the Company, as the case may be (either, an "Appraised
Company"), the value that a Person (such Person, an "Appraiser") valuing
the common equity of the Appraised Company (or if the Appraised Company is
a division or other unincorporated unit of another company, the net fair
value of the assets and liabilities of such division or other unit)
pursuant to this Agreement has determined such Appraised Company would have
in the public markets if such Appraised Company were a public company, for
which purpose the Appraiser:


(i) shall assume the following: (A) the valuation is based on the
Appraised Company and its Subsidiaries taken as a whole, (B) the Appraised
Company will remain independent and have the continued ownership by such
Appraised Company of its Subsidiaries and (C) the Appraised Company's then
existing contractual relationships (including, in the case of the Company,
the then-existing Bank Channel arrangements, such as those relating to
pricing, referrals and exclusivity) shall remain in full force and effect
and continue unchanged;


(ii) shall take into account other factors relevant to such valuation,
including (A) the prospects of the Appraised Company and its Subsidiaries,
(B) the value of the


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estimated future earnings of the Appraised Company and its Subsidiaries,
(C) the size of the Appraised Company and its Subsidiaries, (D) the equity
and tangible equity of the Appraised Company and its Subsidiaries as
disclosed in its most recent consolidated financial statements, (E) the
public market trading values of comparable companies, (F) the business mix
of the Appraised Company relative to comparable companies, and (G) such
other factors as the Appraiser deems relevant; and


(iii) shall exclude any discounts to such valuation due solely to the
illiquid nature of an investment in such Appraised Company or any discount
relating solely to the fact that the Appraised Company is not a public
company, if any;


provided that in determining the Appraised Value of the Company (but not
any Acquired Retail Brokerage Business) for purposes of determining any
Put/Call Price calculated by reference to "Appraised Value" (but not for
purposes of determining the Appraised Value of the Company pursuant to
Article 3 of the LLC Agreement), the Appraiser shall not include any
minority discounts but instead shall include a control premium reflecting
the premium over the public trading value that the Appraiser determines
would likely be applicable in the event of a sale of 100% of the common
equity of the Company, assuming a willing buyer and a willing seller and
taking into account (A) premiums over public market prices in precedent
transactions of comparable size in the broker-dealer industry, the
financial services industry and recent precedent transactions outside of
the financial services industry where considered by the Appraiser to be
relevant, (B) multiples of future earnings, equity and tangible equity paid
in precedent transactions in the broker-dealer industry and (C) such other
factors as the Appraiser deems relevant; provided, further, that the
Appraised Value of the Company shall in no event be less than the Tangible
Book Value of the Company; and provided, further, that in no event shall
the Appraised Value of an Acquired Retail Brokerage Business exceed the
purchase price paid therefor by the applicable Party and its Affiliates
(exclusive of related One Time Costs payable by the Parties or any Members
pursuant to the Transaction Documents), it being understood that where the
Acquired Retail Brokerage Business was acquired in connection with the
acquisition of other assets, operations or entities, to determine the
purchase price of the Acquired Retail Brokerage Business for purposes of
this proviso, the Appraiser shall allocate the purchase price paid for the
entire acquisition among such acquired assets, operations or entities based
on their respective Appraised Values as determined for this purpose by the
Appraiser.


"Appraiser" has the meaning set forth in the definition of "Appraised
Value."


"Assignable Employees" has the meaning set forth in Section 4.2(m).


"Associate Options" has the meaning set forth in Section 8.4(f).


"Average Stock Price" means with respect to any shares of Wachovia
Common Stock as of any date, the average of the closing prices of such
shares on the NYSE (or such other principal stock exchange or automated
quotation system on which such shares are then traded) during the 10
trading day period ending on the trading day immediately preceding such
date.


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"Bank Channel" means all activities conducted by Wachovia's Investment
Services Group (or any corresponding successor group) and, af ...