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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1999
REGISTRATION NO. 333-76975
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
W HOLDING COMPANY, INC.
(IN ORGANIZATION)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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COMMONWEALTH OF PUERTO RICO 6712 NOT YET APPLIED FOR
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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19 WEST MCKINLEY STREET, MAYAGUEZ, PUERTO RICO 00680
(787) 834-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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FREDDY MALDONADO
CHIEF FINANCIAL OFFICER
W HOLDING COMPANY, INC.
19 WEST MCKINLEY STREET
MAYAGUEZ, PUERTO RICO 00680
(787) 834-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
STUART G. STEIN, ESQ.
HOGAN & HARTSON L.L.P.
555 13TH STREET, N.W.
WASHINGTON, D.C. 20004
(202) 637-8575
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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WESTERNBANK PUERTO RICO W HOLDING COMPANY, INC.
19 WEST MCKINLEY STREET 19 WEST MCKINLEY STREET
MAYAGUEZ, PUERTO RICO MAYAGUEZ, PUERTO RICO
00680 00680
(Proxy Statement) (Prospectus)
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REORGANIZATION PROPOSED -- YOUR VOTE IS VERY IMPORTANT
------------------------
DEAR WESTERNBANK STOCKHOLDER:
The Westernbank Board of Directors has approved a reorganization into a
bank holding company structure. The bank holding company formation will not
change your equity or voting interest in our operations relative to other
stockholders. In the proposed reorganization, each of Westernbank's 42,000,000
outstanding shares of common stock, 1,219,000 outstanding shares of series A
preferred stock, and 2,001,000 outstanding shares of series B preferred stock
will convert into an equal interest in W Holding Company. We have structured the
reorganization to be tax free to stockholders. The reorganization will be
considered by stockholders at Westernbank's annual meeting, as described in the
accompanying notice of proxy.
PLEASE READ THE RISK FACTORS ON PAGE 9 BEFORE COMPLETING YOUR PROXY CARD.
PLEASE ATTEND THE ANNUAL MEETING, TO BE HELD AT 1:30 P.M. ON JULY 29, 1999
AT THE BEST WESTERN MAYAGUEZ RESORT AND CASINO, LOCATED AT ROAD 104, KM 0.3,
MAYAGUEZ, PUERTO RICO.
Very truly yours,
Frank C. Stipes
Chairman of the Board,
Chief Executive Officer and
President
W HOLDING COMPANY'S STOCK HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, OR THE OFFICE OF THE COMMISSIONER OF FINANCIAL
INSTITUTIONS OF PUERTO RICO, NOR HAS ANY OF THESE INSTITUTIONS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
W Holding Company's securities are not savings accounts or deposits and are
neither insured nor guaranteed by Westernbank, the U.S. Government, the Federal
Deposit Insurance Corporation or any other governmental agency. The securities
are subject to investment risk and may lose value.
This proxy statement/prospectus is being mailed to shareholders on or about
June , 1999. The date of this proxy statement/prospectus is June , 1999.
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WESTERNBANK PUERTO RICO
19 WEST MCKINLEY STREET
MAYAGUEZ, PUERTO RICO 00680
(787) 834-8000
NOTICE OF ANNUAL MEETING
TO BE HELD ON JULY 29, 1999
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of
Westernbank Puerto Rico will be held at Best Western Mayaguez Resort & Casino,
located at Road 104, Km. 0.3, Mayaguez, Puerto Rico, on July 29, 1999 at 1:30
p.m., for the following purposes:
(1) to consider a proposal to approve the reorganization of Westernbank
into a bank holding company form of ownership by approving a plan of
merger and reorganization, through which
- Westernbank will become a subsidiary of a newly formed bank holding
company called W Holding Company, Inc.;
- each outstanding share of Westernbank common stock will be converted into
one share of common stock of the holding company;
- each outstanding share of Westernbank series A preferred stock will be
converted into one share of series A preferred stock of the holding
company; and
- each outstanding share of Westernbank series B preferred stock will be
converted into one share of series B preferred stock of the holding
company (Proposal 1);
(2) to elect three directors for a term of three years or until their
successors have been elected and qualified (Proposal 2);
(3) to approve Westernbank's 1999 Stock Option Plans (Proposal 3);
(4) to consider the proposed increase in the number of shares of common
stock that Westernbank is authorized to issue from 75,000,000 to
300,000,000 and the proposed increase in the number of shares of
preferred stock that Westernbank is authorized to issue from 5,000,000
to 20,000,000 (Proposal 4);
(5) to ratify the appointment of Deloitte & Touche LLP as Westernbank's
independent auditors for 1999 (Proposal 5); and
(6) to transact any other business that properly comes before the annual
meeting or any adjournment of the meeting.
If you held shares of Westernbank's common stock at the close of business
on May 31, 1999, you are entitled to notice of the annual meeting and to vote on
all matters that properly come before the meeting, including the reorganization.
If you held shares of Westernbank's series A preferred stock or series B
preferred stock at the close of business on that day, you are entitled to notice
of the annual meeting and to vote on the reorganization.
Under the Puerto Rico Banking Law, any stockholder of a bank involved in a
transaction like the reorganization may object to the consideration offered to
the stockholder in exchange for the stockholder's shares. If you object and
attempt to seek other consideration for your shares, you must strictly follow
the procedures outlined in section 15(i) of the Puerto Rico Banking Law. A copy
of that section is attached as Appendix C to the proxy statement/prospectus. If
you wish to object and do not follow the requirements of that section carefully,
your right to seek other consideration may be invalidated.
The separate votes of at least three-fourths of Westernbank's issued and
outstanding common stock and two-thirds of Westernbank's issued and outstanding
preferred stock, with both series voting together as a class, are required to
approve the reorganization. Consequently, the required vote of Westernbank's
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common stockholders, series A preferred stockholders and series B preferred
stockholders is based on the total number of shares of Westernbank's common
stock, series A preferred stock and series B preferred stock issued and
outstanding, and not on the number of shares which are actually voted. NOT
RETURNING A PROXY CARD, NOT VOTING IN PERSON AT THE ANNUAL MEETING OR ABSTAINING
FROM VOTING WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE REORGANIZATION.
THEREFORE, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL
MEETING REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO BE PRESENT AT THE
ANNUAL MEETING, WE URGE YOU TO COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS MEETING YOU MAY VOTE IN
PERSON OR BY YOUR PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN
PERSON AT ANY TIME PRIOR TO THE TIME IT IS EXERCISED AS DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
By Order of the Board of Directors
Angel Luis Rosas
Secretary
Mayaguez, Puerto Rico
June , 1999
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE HOLDING COMPANY
REORGANIZATION............................................ 5
SUMMARY..................................................... 6
RISK FACTORS................................................ 9
Applicable laws and regulations restrict both the ability of
Westernbank to pay dividends to the holding company, and
the ability of the holding company to pay dividends to
you....................................................... 9
Westernbank's directors and executive officers own a large
amount of its stock and accordingly have significant
control of its management and affairs, which they could
exercise against your best interests...................... 9
Provisions of the holding company's charter and applicable
law may prevent a change in control....................... 9
FORWARD LOOKING STATEMENTS.................................. 10
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION....... 11
THE ANNUAL MEETING.......................................... 12
PROPOSED REORGANIZATION INTO A BANK HOLDING COMPANY......... 14
Parties to the Reorganization............................... 14
Description of the Proposed Reorganization.................. 14
Reasons for the Reorganization.............................. 15
Recommendation of Westernbank's Board of Directors.......... 15
Treatment of Stock Certificates............................. 16
Conditions That Must be Satisfied Before the Reorganization
Can Occur................................................. 16
Differences in Stockholder Rights as a Result of the
Reorganization............................................ 17
Tax Consequences of the Reorganization...................... 19
Accounting Treatment of the Reorganization.................. 20
Regulatory Approvals........................................ 21
Right of Dissenting Stockholders............................ 22
1999 Qualified Stock Option Plan and 1999 Qualified Stock
Option Plan............................................... 22
Termination or Amendment of the Plan of Merger and
Reorganization............................................ 22
Market Price of Westernbank's Capital Stock and Dividends... 23
Management.................................................. 24
ADDITIONAL INFORMATION ABOUT WESTERNBANK.................... 24
ADDITIONAL INFORMATION ABOUT THE HOLDING COMPANY............ 28
Description of the Holding Company's Capital Stock.......... 28
ADDITIONAL INFORMATION ABOUT INTERIM BANK................... 40
SUPERVISION AND REGULATION.................................. 41
BENEFICIAL OWNERSHIP OF SECURITIES.......................... 49
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTORS AND
DIRECTORS WHOSE TERMS CONTINUE............................ 51
PERFORMANCE OF WESTERNBANK COMMON STOCK..................... 60
APPROVAL OF WESTERNBANK 1999 STOCK OPTION PLANS............. 61
PROPOSED INCREASE IN AUTHORIZED CAPITAL STOCK OF
WESTERNBANK............................................... 64
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS......... 65
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WHERE YOU CAN FIND MORE INFORMATION......................... 66
INFORMATION INCORPORATED BY REFERENCE....................... 66
FINANCIAL STATEMENTS........................................ 67
ANNUAL REPORT............................................... 67
ADJOURNMENT OF STOCKHOLDER MEETING.......................... 67
STOCKHOLDER PROPOSALS....................................... 67
OTHER MATTERS............................................... 68
LEGAL MATTERS............................................... 68
Appendix A -- Amended and Restated Plan of Merger and
Reorganization............................................
Appendix B -- W Holding Company's Certificate of
Incorporation and Amended and
Restated By-laws..........................................
Appendix C -- Section 15(i) of the Puerto Rico Banking
Law.......................................................
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QUESTIONS AND ANSWERS ABOUT THE HOLDING COMPANY REORGANIZATION
Q: WHY IS WESTERNBANK PROPOSING TO REORGANIZE INTO A HOLDING COMPANY STRUCTURE?
A: Westernbank's board of directors believes that a holding company can create
greater stockholder value than can a bank. Unlike banks, a holding company
can grow by providing services which are "closely related to banking," such
as providing full or discount brokerage services and acting as a fiduciary,
investment or financial advisor. Also, if the proposed reorganization is
approved, the holding company will be permitted to acquire banks located and
operating outside Puerto Rico, thereby reducing the geographic risks
currently part of Westernbank's operations. For more information, please see
the section of this proxy statement/prospectus captioned "Proposed
Reorganization into a Bank Holding Company -- Reasons for the Reorganization"
on page 15.
Q: WHERE AND WHEN IS THE STOCKHOLDERS' MEETING?
A: The annual meeting will be held at Best Western Mayaguez Resort & Casino,
located at Road 104, Km. 0.3, Mayaguez, Puerto Rico on July 29, 1999, at 1:30
p.m.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign, date and
return it as soon as possible. If you sign and send in your proxy and do not
indicate how you want to vote, your proxy will be voted in favor of the
reorganization. Not returning your proxy, not voting at the annual meeting or
abstaining from voting has the effect of voting against the reorganization.
If you hold Westernbank common stock you can choose to attend the annual
meeting and vote your shares in person instead of returning your completed
proxy card. If you do return a proxy card, you may change your vote at any
time up to the time of the vote by following the directions on page 13.
Q: IF MY SHARES ARE HELD IN STREET NAME BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions to your
broker on how you want your shares voted.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the reorganization takes place, you will receive instructions on
how to exchange your Westernbank certificates for holding company
certificates.
Q: WHAT WILL WESTERNBANK'S STOCKHOLDERS RECEIVE IN THE REORGANIZATION?
A: In the reorganization, (1) each outstanding share of Westernbank common stock
will be converted into one share of common stock of the holding company; (2)
each outstanding share of Westernbank series A preferred stock will be
converted into one share of series A preferred stock of the holding company;
and (3) each outstanding share of Westernbank series B preferred stock will
be converted into one share of the holding company's series B preferred
stock.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: Before the reorganization takes place, Westernbank expects to continue to pay
regular semi-annual cash dividends on its common stock, currently $.08. After
the reorganization, any dividends will be paid when and as declared by the
board of directors of the holding company. You should note that the holding
company's ability to pay dividends to you will depend largely on the amount
and frequency of dividends paid to it by Westernbank. The holding company
will continue to pay dividends on its preferred stock on the same terms as
Westernbank paid dividends on its preferred stock. For more information,
please see the section of this proxy statement/prospectus captioned "Proposed
Reorganization into a Bank Holding Company -- Differences in Stockholder
Rights as a Result of the Reorganization" on page 17.
Q: WHEN DO YOU EXPECT THE REORGANIZATION TO TAKE PLACE?
A: We expect the reorganization to take place sometime in the third quarter of
1999, as soon as practicable after the annual meeting and the receipt of all
required regulatory approvals.
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SUMMARY
Before you vote, you should give careful consideration to all of the
information contained in or incorporated by reference into this document.
THE REORGANIZATION
PARTIES TO AND STRUCTURE OF THE REORGANIZATION
Three parties will engage in the reorganization:
- Westernbank;
- W Holding Company, Inc., a wholly owned subsidiary of Westernbank formed
to serve as a bank holding company after the reorganization; and
- Western Interim Bank, a Puerto Rico bank to be formed as a wholly owned
subsidiary of W Holding Company.
In the reorganization, the interim bank will merge into Westernbank and after
the merger will continue the business of Westernbank as a wholly owned
subsidiary of the holding company. For more information, please see the section
of this proxy statement/prospectus captioned "Proposed Reorganization into a
Bank Holding Company -- Description of the Proposed Reorganization" on page 14.
EFFECT OF THE REORGANIZATION
Immediately after the reorganization takes place, and assuming there are no
dissenters, (1) the holding company will have outstanding the same number of
shares of common stock and preferred stock, of each series, that Westernbank had
issued and outstanding immediately prior to the reorganization, and (2) you will
hold the same number of shares of the holding company's common stock and
preferred stock of the series that you held in Westernbank immediately prior to
the reorganization.
RECOMMENDATION OF WESTERNBANK'S BOARD OF
DIRECTORS ON THE REORGANIZATION
After careful consideration, the Westernbank board of directors has determined
that the reorganization is advisable and in the best interests of Westernbank
and its stockholders. Accordingly, the board approved the reorganization. The
Westernbank board of directors recommends that you vote FOR approval of the
reorganization.
WE WILL LIST THE HOLDING COMPANY'S STOCK ON NASDAQ TO THE SAME EXTENT
WESTERNBANK'S STOCK IS NOW LISTED
Westernbank's common stock and its series B preferred stock currently are traded
on the Nasdaq Stock Market's National Market Tier under the symbols WBPR and
WBPRO. For the reorganization to take place, the holding company's common stock
and series B preferred stock must be listed for trading on the Nasdaq Stock
Market's National Market Tier. The holding company has applied to change the
listing of Westernbank's common stock and series B preferred stock on the Nasdaq
Stock Market's National Market Tier to the holding company's common stock and
its series B preferred stock. The holding company may in the future apply to
list its series A preferred stock on the Nasdaq Stock Market's National Market
Tier. For more information, please see the section of this proxy
statement/prospectus captioned "Proposed Reorganization into a Bank Holding
Company -- Market Price of Westernbank's Capital Stock and Dividends" on page
23.
THE REORGANIZATION WILL LIKELY BE TAX-FREE TO YOU
You should not incur Puerto Rico or U.S. Federal Income Taxes as a result of
exchanging your Westernbank stock for holding company stock, but tax laws are
very complicated and special rules may apply to some stockholders.
You will not recognize gain or loss for Puerto Rico income tax purposes if you
receive shares of stock in the holding company in exchange for your shares in
Westernbank, except to the extent that you receive cash instead of fractional
shares. If you exercise dissenters rights, you will recognize gain or loss for
Puerto Rico income tax purposes. If you are a non-resident of Puerto Rico and
you exercise the offshore option, any income that you realized will not be
subject to Puerto Rico withholding and income taxes.
If you are a United States stockholder who owns less than 5% of Westernbank's
stock, based on voting power and total value, you will not recog-
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nize gain or loss for United States federal income tax purposes if you receive
shares of stock in the holding company in exchange for your shares of stock in
Westernbank, except to the extent that you receive cash instead of fractional
shares. If you are a United States stockholder and you exercise your dissenters
rights, you will recognize gain or loss for United States federal income tax
purposes. If you are a United States stockholder who owns 5% or more of
Westernbank's stock, based on voting power and value, you will recognize gain or
loss on the exchange of your Westernbank stock for holding company stock, but
you may be able to avoid current taxation if you comply with applicable
reporting requirements and you enter into a gain recognition agreement.
If you are a Puerto Rico resident individual, you will not be subject to United
States federal income tax on any gain that you recognize as a result of the
reorganization.
Westernbank intends to request a ruling from the Secretary of Treasury of Puerto
Rico concerning stockholders' Puerto Rico tax consequences of the
reorganization.
Westernbank has received an opinion of its counsel, Hogan & Hartson L.L.P.,
confirming the United States federal income tax consequences of the
reorganization summarized above.
For more information about the tax consequences of the reorganization, please
see the section of this proxy statement/prospectus captioned "Proposed
Reorganization into a Bank Holding Company -- Tax Consequences of the
Reorganization" on page 19.
THE REORGANIZATION WILL CHANGE YOUR RIGHTS AS A STOCKHOLDER
Your rights as a stockholder of the holding company will still be governed
by Puerto Rico corporate law, but will no longer be governed by Puerto Rico
banking law. This changes in applicable law will cause some changes in your
stockholder rights. The following list highlights the principal changes in your
rights as a stockholder of the holding company from your rights as a Westernbank
stockholder:
- The holding company's charter expressly provides for indemnification of
directors and officers;
- The holding company's stockholders possess no rights to call special
meetings of stockholders; and
- Your ability to approve mergers or consolidations will increase, as
holders of a simple majority of the holding company's outstanding voting
stock, rather than a three-fourths majority, will be able to approve
mergers or consolidations.
For more information, please see the section of this proxy statement/prospectus
captioned "Proposed Reorganization into a Bank Holding Company -- Differences in
Stockholder Rights as a Result of the Reorganization" on page 17.
STOCKHOLDER VOTE REQUIRED TO APPROVE THE REORGANIZATION
Approval of the proposed reorganization requires at least three-fourths of the
outstanding shares of our common stock and at least two-thirds of the
outstanding shares of our preferred stock, with both series of preferred voting
as a single class.
YOUR RIGHTS IF YOU VOTE AGAINST THE REORGANIZATION
The Banking Law of Puerto Rico will govern the rights of dissenters. If the
reorganization takes place, you will be entitled to receive payment of the value
of your shares from Westernbank if you (1) do not vote in favor of the
reorganization, (2) record with Westernbank at the time of the annual meeting,
or within twenty days after the meeting, your opposition to the reorganization
and (3) demand payment for your shares. Once the reorganization takes place, you
may petition the Court of First Instance, Superior Section of San Juan of the
Commonwealth of Puerto Rico to have the value of the your shares appraised. For
more information, please see the section of this proxy statement/prospectus
captioned "Proposed Reorganization into a Bank Holding Company -- Rights of
Dissenting Stockholders" on page 22.
COMPOSITION OF THE BOARD OF DIRECTORS OF THE HOLDING COMPANY AFTER THE
REORGANIZATION
The holding company's board of directors consists of the same persons who are
presently the directors of Westernbank. Your approval of the reorganization will
confirm those persons, including the three directors elected at the annual
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meeting, as the directors of the holding company without further action and
without changes in classes or terms.
CONDITIONS THAT MUST BE SATISFIED BEFORE THE REORGANIZATION CAN OCCUR
Westernbank will not be permitted to complete the reorganization until it
satisfies a number of conditions, including the receipt of:
- stockholder approval,
- regulatory approvals, which have been applied for, and
- rulings or opinions concerning the tax consequences of the
reorganization.
For more information, please see the section of this proxy statement/prospectus
captioned "Proposed Reorganization into a Bank Holding Company -- Conditions
That Must be Satisfied Before the Reorganization Can Occur" on page 16.
GOVERNMENT REGULATION AND SUPERVISION OF THE HOLDING COMPANY
After the reorganization, (1) the Federal Bank Holding Company Act of 1956 will
govern the holding company and the Board of Governors of the Federal Reserve
System will regulate its operations as a bank holding company, (2) Westernbank
will continue to be regulated by the Federal Deposit Insurance Corporation and
the Office of the Commissioner of Financial Institutions of Puerto Rico and (3)
the deposits of Westernbank will continue to be insured by the FDIC to the full
extent provided by law. For more information, please see the section of this
proxy statement/prospectus captioned "Supervision and Regulation" on page 41.
OTHER MATTERS TO BE VOTED ON AT THE ANNUAL MEETING
If you own Westernbank's common stock, you also will be asked to vote
- on the election of three directors for three-year terms,
- to approve Westernbank's 1999 Qualified Stock Option Plan and its 1999
Nonqualified Stock Option Plan, which we refer to as our "1999 Stock
Option Plans,"
- to approve an increase in Westernbank's authorized capital stock,
- to ratify the appointment of Deloitte & Touche LLP as Westernbank's
independent auditors for 1999, and
- on any other business as may properly come before the annual meeting or
any adjournment of the annual meeting.
Approval by Westernbank stockholders of these other annual meeting matters is
not a condition to the completion of the reorganization. Approval of the
reorganization is not a condition to approval of the other annual meeting
proposals.
The Westernbank board of directors recommends that you vote FOR the election of
each nominee as a director and each other annual meeting proposal.
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RISK FACTORS
Westernbank stockholders should consider, among other matters, the
following factors in voting for the reorganization. If completed, the
reorganization will result in holders of Westernbank common stock and preferred
stock of either series receiving corresponding shares of the holding company's
common stock and preferred stock.
APPLICABLE LAWS AND REGULATIONS RESTRICT BOTH THE ABILITY OF WESTERNBANK TO PAY
DIVIDENDS TO THE HOLDING COMPANY, AND THE ABILITY OF THE HOLDING COMPANY TO PAY
DIVIDENDS TO YOU.
Applicable banking laws restrict Westernbank's ability to pay dividends on
its capital stock. Westernbank may not pay dividends if upon payment it would
become undercapitalized under the laws and regulations enforced by the FDIC.
Westernbank also may be prevented from paying dividends if the FDIC determines
that Westernbank is operating in an unsafe or unsound condition or engaging in
an unsafe or unsound practice. The maximum amount of dividends Westernbank can
pay without prior regulatory approval is $1.88 per share.
Even if stockholders approve Westernbank's proposed reorganization into a
bank holding company structure, these restrictions on Westernbank's ability to
pay dividends will continue. Consequently, since the holding company's principal
source of income will consist initially of dividends, if any, from Westernbank,
the restrictions on Westernbank's ability to pay dividends could adversely
affect you after the reorganization. Moreover, the holding company will be
restricted in its ability to pay dividends by constraints generally imposed on
Puerto Rico corporations, and may be further restricted by minimum capital
requirements imposed by the Board of Governors of the Federal Reserve System.
See "Supervision and Regulation -- The Holding Company." The Federal Reserve
Board issued a policy statement that provides that insured banks and bank
holding companies should generally pay dividends only out of current operating
earnings.
WESTERNBANK'S DIRECTORS AND EXECUTIVE OFFICERS OWN A LARGE AMOUNT OF ITS STOCK
AND ACCORDINGLY HAVE SIGNIFICANT CONTROL OF ITS MANAGEMENT AND AFFAIRS, WHICH
THEY COULD EXERCISE AGAINST YOUR BEST INTERESTS.
As of the May 31, 1999 record date, the directors and executive officers of
Westernbank beneficially own approximately 36.1% of our outstanding common
stock. As a result of this percentage ownership, our directors and executive
officers as a group can exercise significant control over our management and
affairs, including the election of directors and the determination of all other
matters requiring stockholder approval. Acting as a group, they will retain the
power to block business combinations in accordance with the charter documents of
both Westernbank and the holding company. Accordingly, this concentration of
ownership may have the effect of delaying or preventing a change of control of
our company that may be in your best interests.
PROVISIONS OF THE HOLDING COMPANY'S CHARTER AND APPLICABLE LAW MAY PREVENT A
CHANGE IN CONTROL.
In addition, provisions of the charter documents of the holding company, as
well as United States federal banking law, could make it more difficult for a
third party to acquire us after the reorganization, even if doing so would
provide our stockholders with a "premium" to prevailing market prices or
otherwise be beneficial to our stockholders. These provisions in the charter
documents include:
- a staggered board of directors;
- an increase in the amount of preferred stock which the holding company's
board of directors can issue without stockholder approval:
- a provision which prohibits stockholders from calling special meetings of
the holding company's stockholders;
- advance notice procedures for nomination of directors and for stockholder
proposals; and
- super-majority board or shareholder approval for change of control.
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In addition, the prior approval of the FDIC or the Federal Reserve Board
and the Puerto Rico Commissioner must be obtained prior to the occurrence of a
change in control.
FORWARD LOOKING STATEMENTS
No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this proxy
statement/prospectus in connection with the solicitation of proxies by
Westernbank or the offering of W Holding Company, Inc. common stock or preferred
stock being made. You should not rely on any other information or representation
as having been authorized by Westernbank or W Holding Company, Inc. This proxy
statement/prospectus does not constitute (1) an offer to sell, or a solicitation
of an offer to purchase, any of W Holding Company, Inc.'s common stock or
preferred stock offered by this proxy statement/prospectus, or (2) the
solicitation of a proxy, in any jurisdiction in which it is unlawful to make
that kind of an offer or solicitation. Neither the delivery of this proxy
statement/prospectus nor any distribution of W Holding Company, Inc.'s common
stock or preferred stock offered by this proxy statement/prospectus will, under
any circumstances, create an implication that there has been no change in the
affairs of Westernbank or W Holding Company, Inc. or the information in this
document or the documents or reports incorporated by reference into this
document since the date of this proxy statement/prospectus.
10
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The following table shows selected financial data for each of the years in
the five-year period ended December 31, 1998, and for the quarters ended March
31, 1999 and March 31, 1998. This financial data is derived from, should be read
together with, and is qualified by reference to, the more detailed information
contained in Westernbank's Annual Reports on Form 10-K for each of the five
years ended December 31, 1998, and Westernbank's Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1999 and March 31, 1998, and Notes thereto, as
each may be amended, incorporated by reference into this proxy
statement/prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
-------------------------- ---------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets............... $2,822,202 $1,831,308 $2,481,176 $1,555,799 $1,284,697 $1,039,449 $861,292
Loans, net and mortgage
loans held for sale...... 1,550,015 978,350 1,361,297 784,795 623,621 501,201 444,826
Deposits................... 1,895,010 1,187,944 1,690,529 1,043,405 908,536 735,628 675,057
Borrowings(a).............. 749,747 520,574 621,325 393,750 282,192 226,325 122,498
Stockholders' equity....... 158,979 106,103 154,282 102,235 83,136 67,658 56,490
AT OR FOR THE THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEARS ENDED DECEMBER 31,
-------------------------- ---------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
EARNINGS
Total interest income...... $ 49,415 $ 32,712 $ 157,446 $ 113,528 $ 93,416 $ 74,243 $ 55,591
Total interest expense..... (27,164) (17,178) (84,308) (57,198) (45,805) (35,528) (24,296)
---------- ---------- ---------- ---------- ---------- ---------- --------
Net interest income........ 22,251 15,534 73,138 56,330 47,611 38,715 31,295
Provision for loan
losses................... (1,500) (1,100) (6,000) (2,700) -- (3,000) (1,210)
Other income............... 3,175 3,415 10,154 9,979 6,747 5,277 2,907
Operating expenses......... (12,556) (9,966) (41,705) (35,012) (32,460)(b) (25,744) (19,812)
Income taxes............... (2,355) (1,414) (6,892) (5,693) (4,850) (3,219) (2,549)
---------- ---------- ---------- ---------- ---------- ---------- --------
Net income................. $ 9,015 $ 6,469 $ 28,695 $ 22,904 $ 17,048 $ 12,029 $ 10,631
========== ========== ========== ========== ========== ========== ========
Net income attributable to
common stockholders...... $ 8,472 $ 6,469 $ 27,604 $ 22,904 $ 17,048 $ 12,029 $ 10,631
========== ========== ========== ========== ========== ========== ========
RATIOS AND PER SHARE
AMOUNTS:
Return on average
assets(c)................ 1.36%(d) 1.53%(d) 1.42% 1.61% 1.47% 1.27% 1.36%
Return on average common
stockholders'
equity(c)................ 26.86(d) 24.84(d) 24.42 24.71 22.61 19.38 19.94
Operating expenses to total
assets................... 1.78(d) 2.18(d) 1.68 2.25 2.53 2.48 2.30
Average interest rate
spread................... 3.50(d) 3.91(d) 3.74 4.09 4.01 4.18 4.28
Earnings per common
share(e)
Basic.................... $ 0.20 $ 0.15 $ 0.66 $ 0.54 $ 0.42 $ 0.29 $ 0.25
Diluted.................. 0.20 0.15 0.66 0.54 0.41 0.28 0.24
Cash dividends declared per
common share(e).......... -- -- 0.12 0.09 0.08 0.03 0.03
Total capital to
risk-weighted assets..... 11.41% 11.29% 11.74% 12.80% 12.20% 12.14% 11.96%
Tier I capital to
risk-weighted assets..... 10.47 10.17 10.61 11.69 11.08 11.02 10.83
Tier I capital to total
average assets........... 5.98 6.16 6.37 6.56 6.24 6.39 6.02
Average equity to average
assets(c)................ 5.91 6.15 6.35 6.53 6.49 6.53 6.84
Book value per common
share(e)................. $ 3.06 $ 2.52 $ 2.94 $ 2.42 $ 1.97 $ 1.71 $ 1.46
</TABLE>
- ---------------
(a) Includes securities sold under agreements to repurchase, term notes and
advances from the Federal Home Loan Bank.
(b) Includes a $3.3 million special assessment paid to the FDIC for deposit
insurance in 1996.
(c) Averages are computed by using beginning and end of period balances.
(d) Annualized.
(e) After effect of stock splits and stock dividends.
11
<PAGE> 14
THE ANNUAL MEETING
MATTERS TO BE VOTED ON AT THE ANNUAL MEETING
At the annual meeting, you will be asked to vote on the amended and
restated plan of merger and reorganization, dated as of June 15, 1999, among
Westernbank, W Holding Company, Inc. and Western Interim Bank. We organized W
Holding Company as a new Puerto Rico corporation to become the holding company
for Westernbank. We are organizing Western Interim Bank as a new bank as part of
the holding company reorganization process. Through the merger of Westernbank
and the interim bank, (1) each outstanding share of common stock of Westernbank
will be converted into one share of common stock of the holding company and (2)
each outstanding share of each series of preferred stock of Westernbank will be
converted into one share of the corresponding series of preferred stock of the
holding company.
At the annual meeting, holders of Westernbank common stock also will be
asked to vote on
- the election of three directors for three-year terms
- approval of Westernbank's 1999 Stock Option Plans
- an increase in the number of authorized shares of Westernbank common
stock from 75,000,000 to 300,000,000 shares and an increase in the number
of authorized shares of Westernbank preferred stock from 5,000,000 to
20,000,000 shares
- ratification of the appointment of Deloitte & Touche LLP as Westernbank's
independent auditors for 1999
- any other business as may properly come before the annual meeting or any
adjournment of the annual meeting. Except for procedural matters related
to the conduct of the annual meeting, Westernbank management is not aware
of any other matters which could come before the annual meeting.
WHO IS ELIGIBLE TO VOTE
If you held Westernbank common stock or Westernbank preferred stock at the
close of business on May 31, 1999 you are entitled to vote at the annual
meeting. On May 31, 1999, there were 42,000,000 shares of Westernbank common
stock, 1,219,000 shares of Westernbank series A preferred stock and 1,740,000
shares of Westernbank series B preferred stock outstanding. On that day, there
were 676 holders of record of common stock, 13 holders of record of series A
preferred stock, and six holders of record of series B preferred stock. Each
share of common stock is entitled to one vote on each matter properly presented
at the annual meeting. Each share of preferred stock is entitled to one vote on
the proposed reorganization.
QUORUM; REQUIRED VOTE
At least a majority of the total number of shares of common stock entitled
to vote must attend the annual meeting, in person or by proxy, to constitute a
quorum for matters to be voted upon by the common stockholders. We will count
shares that abstain and broker non-votes as present for purposes of determining
the presence of a quorum. If we have not obtained sufficient votes for a quorum,
the annual meeting may be adjourned or postponed to permit us to further solicit
proxies.
We will count neither abstentions nor broker non-votes in tabulations for
voting for directors. We will count abstentions in tabulations of the votes cast
for purposes of determining whether a proposal other than election of directors
has been approved. Broker non-votes will not be counted for purposes of
determining the number of votes cast for any proposal.
12
<PAGE> 15
As to the election of directors, the proxy card being provided by the board
of directors enables a common stockholder to vote for the election of the
nominees proposed by the board, or to withhold authority to vote for one or more
of the nominees being proposed.
In connection with the (1) reorganization, (2) approval of the 1999 Stock
Option Plans, (3) increase in authorized capital stock and (4) ratification of
our independent auditors, a stockholder may vote FOR, AGAINST or ABSTAIN by
checking the appropriate box.
At least three-fourths of Westernbank's outstanding common stock and
two-thirds of the total number of outstanding shares of Westernbank's preferred
stock, with both series voting together as a single class, must approve the plan
of merger and reorganization. To elect directors, under applicable Puerto Rico
laws and Westernbank's restated certificate of incorporation and by-laws,
holders of a majority of Westernbank's outstanding shares of common stock must
vote in favor of the nominees. Holders of a majority of the outstanding shares
of Westernbank common stock must vote to (A) approve the 1999 Stock Option Plans
and (B) ratify the appointment of our independent auditors. Holders of at least
two-thirds of Westernbank's outstanding common stock must vote to approve the
proposed increase in Westernbank's authorized capital stock. Consequently, the
required vote of Westernbank's common stockholders and preferred stockholders is
based on the total number of shares of Westernbank's common stock and preferred
stock of each series then issued and not on the number of shares which are
actually voted. NOT RETURNING A PROXY CARD, NOT VOTING IN PERSON AT THE ANNUAL
MEETING OR ABSTAINING FROM VOTING WILL HAVE THE SAME EFFECT AS VOTING AGAINST
THE PLAN OF MERGER AND REORGANIZATION.
REVOCABILITY OF PROXIES
The proxies solicited pursuant to this proxy statement/prospectus, if
properly signed and returned to Westernbank and not revoked prior to their use,
will be voted in accordance with the instructions contained in the proxies.
EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED ON THE PROXY CARD WILL BE VOTED
FOR THE REORGANIZATION, FOR THE THREE DIRECTOR NOMINEES, FOR APPROVAL OF THE
1999 STOCK OPTION PLANS, FOR THE INCREASE IN AUTHORIZED CAPITAL STOCK, AND FOR
THE RATIFICATION OF OUR AUDITORS. Any stockholder who submits a proxy card may
revoke it at any time before it is exercised by (1) filing with Mr. Angel Luis
Rosas, Secretary, Westernbank, Box 1180, Mayaguez, Puerto Rico 00681, a written
notice of revocation, (2) submitting a duly executed proxy card bearing a later
date or (3) appearing at the annual meeting and giving the Secretary notice of
his or her intention to vote in person.
Proxies solicited pursuant to this proxy statement will be returned to the
proxy solicitors or Westernbank's transfer agent, and will be tabulated by
inspectors of election designated by the board of directors of Westernbank who
will not be employed by, or be directors of, Westernbank. After the final
adjournment of the annual meeting, the proxies will be returned to the board of
directors of Westernbank for safekeeping. Proxies solicited pursuant to this
proxy statement may be used only at the annual meeting and any adjournment of
the meeting and will not be used for any other meetings.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
Westernbank may solicit proxies for the annual meeting from stockholders
personally or by telephone or telegram without receiving additional compensation
for these activities. Westernbank will bear the cost of soliciting proxies. In
addition, Westernbank has retained Morrow & Co., Inc., a proxy solicitation
firm, to assist in proxy solicitation for the annual meeting. Westernbank will
pay a fee to that firm of $6,000 plus reasonable out-of-pocket expenses.
Westernbank will also make arrangements with brokerage firms and other
custodians, nominees and fiduciaries to send proxy materials to their principals
and will reimburse those parties for their expenses in doing so.
13
<PAGE> 16
PROPOSED REORGANIZATION
INTO A BANK HOLDING COMPANY
(PROPOSAL 1)
The reorganization will be accomplished pursuant to the amended and
restated plan of merger and reorganization dated as of June 15, 1999. We have
attached a copy of the amended and restated plan of merger and reorganization to
this proxy statement/prospectus as Appendix A and incorporate the plan by
reference into this proxy statement/prospectus. We urge you to read the entire
plan of merger and reorganization.
PARTIES TO THE REORGANIZATION
Westernbank Puerto Rico --Westernbank Puerto Rico, a publicly owned full
service commercial bank chartered under the laws of the Commonwealth of Puerto
Rico, provides a wide range of financial services for retail and institutional
clients. Its principal executive offices are located at 19 West McKinley Street,
Mayaguez, Puerto Rico 00680 and its telephone number is (787) 834-8000.
Westernbank operates under the regulations of the FDIC and the Office of the
Commissioner of Financial Institutions of Puerto Rico. Westernbank's deposits
are insured by the FDIC to the full extent provided by law.
W Holding Company, Inc. --W Holding Company, Inc. is a corporation formed
under the laws of the Commonwealth of Puerto Rico in February 1999 as a wholly
owned subsidiary of Westernbank to serve as a bank holding company after the
reorganization. The holding company has no prior operating history. Its
principal executive offices are located at 19 West McKinley Street, Mayaguez,
Puerto Rico 00680 and its telephone number is (787) 834-8000.
Western Interim Bank --Western Interim Bank will be established as a
commercial bank chartered under the laws of the Commonwealth of Puerto Rico and
a wholly owned subsidiary of the holding company. Western Interim Bank will be
formed solely to facilitate the reorganization. Its principal executive offices
will be located at 19 West McKinley Street, Mayaguez, Puerto Rico 00680 and its
telephone number will be (787) 834-8000.
DESCRIPTION OF THE PROPOSED REORGANIZATION
If Westernbank's stockholders approve the reorganization and all of the
other conditions set forth in the plan of merger and reorganization are
satisfied, interim bank will be merged into Westernbank, with Westernbank as the
surviving entity. On the effective date of the reorganization, other than
dissenting shares, (1) each share of Westernbank's common stock that is
outstanding immediately prior to the reorganization, (2) each share of
Westernbank's series A preferred stock that is outstanding immediately prior to
the reorganization, and (3) each share of Westernbank's series B preferred stock
that is outstanding immediately prior to the reorganization, will automatically
by operation of law be exchanged for one share of the holding company's
corresponding (1) common stock, (2) series A preferred stock, or (3) series B
preferred stock, as the case may be.
After the reorganization, the former holders of Westernbank's outstanding
common stock and preferred stock who do not exercise dissenters' rights will
hold all of the outstanding shares of the holding company's common stock and
preferred stock and the holding company will own all of Westernbank's
outstanding capital stock.
After the reorganization, Westernbank will continue its existing business
and operations as a wholly owned subsidiary of the holding company and the
consolidated (1) capitalization, (2) assets, (3) liabilities, (4) income and (5)
financial statements of the holding company immediately following the
reorganization will be substantially the same as those of Westernbank
immediately prior to the reorganization. The restated certificate of
incorporation and the by-laws of Westernbank will continue in effect, and will
not be affected in any material manner by the reorganization. Westernbank will
continue to use the name "Westernbank Puerto Rico."
14
<PAGE> 17
The board of directors of Westernbank and the holding company believe that
the reorganization is in the best interests of Westernbank's stockholders for
the reasons described below in the subsection captioned "Reasons for the
Reorganization." The boards of directors of Westernbank and the holding company
have approved the plan of merger and reorganization and the plan will be
approved by the board of directors of the interim bank upon its formation. If
Westernbank's stockholders approve the plan of merger and reorganization and the
other conditions described below under "Conditions That Must Occur Before the
Reorganization Can Occur" are satisfied, the reorganization will become
effective upon the filing of the plan of merger and reorganization with the
Secretary of State of the Commonwealth of Puerto Rico.
REASONS FOR THE REORGANIZATION
Westernbank's board of directors proposed the reorganization to permit
greater flexibility to Westernbank in meeting the financial needs of its
customers and to provide a vehicle for growth and potential geographic
diversification. Generally, Puerto Rico banks are not permitted to own or
operate other banks or to engage in any business other than banking. Bank
holding companies, by contrast, are permitted to acquire and operate more than
one bank and to engage in activities closely related to banking, including:
- making or servicing loans,
- providing discount and full service brokerage services, and
- acting as a fiduciary, investment or financial advisor.
Bank holding companies may also establish or acquire companies engaged in
activities closely related to banking with operations and offices located in
Puerto Rico and outside the island as well. For more examples of the types of
activities closely related to banking in which bank holding companies are
permitted to engage, please see the section of this proxy statement/prospectus
captioned "Supervision and Regulation" below. While the holding company is not
presently engaged in negotiations and there are no current arrangements or
agreements for the acquisition of other banks or companies engaged in activities
closely related to banking, Westernbank's board of directors believes that the
possibility of making these types of acquisitions represents a potentially
attractive growth possibility.
Westernbank's board of directors also believes that the holding company may
provide additional funding sources for Westernbank, as well as better access to
diverse money and capital markets. For instance, the holding company, unlike
Westernbank, will be permitted to raise capital by borrowing funds and by
issuing debt securities. Any capital raised by the holding company could then be
invested as capital in Westernbank. However, the holding company has no present
plan or intention to borrow funds or issue debt. Additionally, Westernbank's
board of directors believes that a bank holding company will be in a better
position to respond to the competitive environment in which Westernbank is
operating, characterized in larger part by the activities of bank holding
companies in Puerto Rico as well as nationally. In general, the board of
directors of Westernbank believes that operating as a bank holding company will
serve the interests of the banking public and the stockholders of Westernbank by
improving the capability for service in a highly competitive environment.
RECOMMENDATION OF WESTERNBANK'S BOARD OF DIRECTORS
After careful consideration, the Westernbank board of directors has
determined that the reorganization is advisable and in the best interests of
Westernbank and its stockholders and has approved the plan of merger and
reorganization and the transactions contemplated by the plan of merger and
reorganization. The Westernbank board of directors recommends that you vote FOR
approval of the plan of merger and reorganization.
15
<PAGE> 18
TREATMENT OF STOCK CERTIFICATES
After the reorganization, the former holders of Westernbank's common stock,
series A preferred stock and series B preferred stock who do not exercise
dissenters' rights will be entitled to exchange their Westernbank stock
certificates for new certificates evidencing the same number of shares of
holding company common stock, series A preferred stock or series B preferred
stock, as the case may be. Until so exchanged, Westernbank stock certificates
will, for all purposes, represent the same number of holding company shares as
the number of Westernbank shares previously represented, and the holders of
Westernbank certificates who do not exercise dissenters' rights will have all of
the rights of holders of the holding company's shares.
After the reorganization takes place, instructions concerning the exchange
of stock certificates will be sent to all holders of record as of the effective
date of the reorganization. The Bank of New York, the transfer agent for
Westernbank's common stock and each series of preferred stock, will act in the
same capacity for the holding company's common stock and each series of
preferred stock.
CONDITIONS THAT MUST BE SATISFIED BEFORE THE REORGANIZATION CAN OCCUR
The following conditions must be satisfied before the reorganization can
occur:
- three-fourths of the issued and outstanding shares of Westernbank common
stock, and two-thirds of the issued and outstanding shares of
Westernbank's preferred stock, with both series voting together as a
single class, must approve the reorganization;
- the holding company, as the holder of all of the outstanding stock of the
interim bank, must approve the reorganization;
- Westernbank, as the holder of all of the outstanding stock of the holding
company, must approve the reorganization;
- W Holding Company must receive the approval of the Board of Governors of
the Federal Reserve System to become a bank holding company;
- W Holding Company must receive the approval of the Office of the
Commissioner of Financial Institutions of Puerto Rico to acquire control
of Westernbank, Western Interim Bank must receive the Commissioner's
approval for a bank charter, and Westernbank must receive the
Commissioner's approval to merge with Western Interim Bank;
- Westernbank must receive the approval of the FDIC to merge with Western
Interim Bank;
- All regulatory approvals, or waiver or exemption from any required
regulatory approval, and satisfaction of all other requirements required
by law which are necessary to complete the reorganization must be
obtained, and all statutory waiting periods must be terminated or expire,
without the imposition of any condition or requirements that would
materially and adversely affect the operations or business prospects of
the holding company or Westernbank following the effective date so as to
render inadvisable the completion of the reorganization;
- Westernbank must receive a ruling from the Secretary of the Treasury of
Puerto Rico or an opinion letter from Jose Vila, counsel to Westernbank,
regarding the Puerto Rico income tax consequences of the reorganization;
- Westernbank must receive an opinion letter from Hogan & Hartson L.L.P.,
counsel to Westernbank, regarding the United States income tax
consequences of the reorganization; and
- the holding company's common stock and series B preferred stock each must
be approved for quotation on the Nasdaq Stock Market's National Market
Tier.
16
<PAGE> 19
DIFFERENCES IN STOCKHOLDER RIGHTS AS A RESULT OF THE REORGANIZATION
If the reorganization takes place, Westernbank's stockholders will become
stockholders of the holding company, a Puerto Rico corporation. Accordingly,
their rights will be governed by the General Corporations Law of the
Commonwealth of Puerto Rico and the certificate of incorporation and by-laws of
the holding company. The rights of holders of holding company stock will no
longer be governed by the Puerto Rico Banking Law. This change of governing law,
as well as from distinctions between Westernbank's restated certificate of
incorporation and by-laws and the holding company's certificate of incorporation
and by-laws, will produce some differences in your stockholder rights. The
following discussion summarizes the material differences in stockholder rights
that will arise as a result of the reorganization. The certificate of
incorporation and by-laws of the holding company are attached to this proxy
statement/prospectus at Appendix B. We urge all stockholders to read these
documents.
Payment of Dividends. Westernbank's ability to pay dividends on its common
stock is restricted by applicable banking laws. You should note, though, that
after the reorganization, the holding company's principal source of income
initially will consist of dividends, if any, from Westernbank, and the existing
restrictions on Westernbank's ability to pay dividends will continue in effect.
The holding company will not be similarly restricted on its ability to pay
dividends. Restrictions generally imposed on Puerto Rico corporations will,
however, be imposed on the holding company. Under Puerto Rico corporate law,
dividends may be paid out only from the holding company's net assets in excess
of capital or in the absence of such excess, from its net earnings for such
fiscal year and/or the preceding fiscal year. The holding company's ability to
pay dividends also may be restricted by minimum capital requirements imposed by
the Board of Governors of the Federal Reserve System. Furthermore, the Board of
Governors has issued a policy statement that provides that insured banks and
bank holding companies should generally pay dividends only out of current
operating earnings.
Indemnification. Westernbank's restated certificate of incorporation and
by-laws do not currently authorize the indemnification of directors and
officers. The Banking Law of Puerto Rico, however, exempts directors of a bank
from personal liability for their acts as directors of a bank, provided the
directors comply with applicable laws, the bank's governing corporate documents,
and any stockholder resolutions. Moreover, the Banking Law permits Westernbank
to indemnify any director, official, employee or agent of the bank unless that
person is being fined for violating a provision of the Banking Law.
Under Puerto Rico corporate law, the holding company's directors and
officers are liable if they knowingly cause to be published or give out any
false written statement or report with respect to any important matter regarding
the business or condition of the company. The holding company's certificate of
incorporation requires the holding company to indemnify any director, officer,
employee or agent of the holding company for liability and for the expenses
incurred in defending against such liability arising from actions taken in
respect of his or her position if (1) the actions were taken in good faith and
in a manner that he or she reasonably believed to be in or not opposed to the
best interests of the holding company, or (2) with respect to a criminal
proceeding, if he or she had no reasonable cause to believe that his or her
action was unlawful. Under some circumstances, the holding company may also
advance amounts to cover the expenses of litigation. The holding company's
certificate of incorporation also contains provisions eliminating the personal
liability of directors of the holding company for monetary damages to the
fullest extent permitted by Puerto Rico corporate law.
Special Meetings of the Stockholders. Under Westernbank's restated
certificate of incorporation and by-laws, a special meeting of stockholders may
be called by (1) the President or (2) the Board of Directors if either is of the
opinion that such a meeting is necessary, or (3) by the request of stockholders
representing 20% of the paid-in capital entitled to vote at the meeting. The
holding company's certificate of incorporation and by-laws provide that a
special meeting of stockholders may be called only by the President or the board
of directors of the holding company.
Stockholder Approval of Mergers and Consolidations. Westernbank's restated
certificate of incorporation requires three-fourths of the outstanding voting
capital stock to approve a merger or consolidation.
17
<PAGE> 20
Under Puerto Rico corporate law, the holding company can accomplish a merger or
consolidation or a transfer of all its assets with approval of the holders of a
simple majority of the issued and outstanding voting stock. Neither the holding
company's certificate of incorporation or by-laws provide for a higher voting
requirement than Puerto Rico corporate law.
Amendment of Charter and Bylaws. The holding company will be able to amend
its charter and by-laws more easily than may Westernbank. Under its certificate
of incorporation, Westernbank must obtain approval of holders of at least
two-thirds of its outstanding voting capital stock before it can amend its
restated certificate of incorporation to (1) increase its authorized capital
stock, (2) change the location of its principal office, (3) extend its term of
existence or (4) dissolve. By contrast, the holding company's charter and Puerto
Rico corporate law generally provide that the holding company may amend its
charter if the amendment is approved by the vote of the majority of its entire
capital stock entitled to vote.
The holding company may amend its by-laws more easily than may Westernbank
because the holding company's by-laws may be amended by the board of directors
by the affirmative vote of a majority of the directors present at a meeting at
which a quorum is present. By contrast, Westernbank must obtain approval of
holders of a majority of its outstanding shares of common stock to amend its
by-laws.
The charter of the holding company, like Westernbank's restated charter,
also requires the affirmative vote of the holders of at least two-thirds, or
such higher amount as required by law, of the aggregate liquidation preference
associated with any series of the holding company's preferred stock in
connection with amendments affecting the terms and preferences of the series of
preferred stock or any parity stock.
Notice of Stockholders Meeting. The Banking Law requires that (1) notice
of the annual meeting be provided to stockholders of Westernbank at least thirty
days before the annual meeting, setting forth the hour, date and place of the
meeting, and (2) that the notice be published twice a week for the two
consecutive weeks before the date of the meeting in two newspapers of general
circulation in Puerto Rico. Westernbank's by-laws require that the notice be
published for four consecutive weeks. Westernbank's restated certificate of
incorporation requires that notices of special meetings of stockholders contain
the same information as notices of regular annual meetings of stockholders, as
well as information in connection with the reasons for the call to the meeting
and in connection with the different matters to be considered and voted upon at
the meeting. By contrast, Puerto Rico corporate law and the holding company's
certificate of incorporation require that notice be sent to stockholders at
least 10 days, but not more than 60 days, prior to the date for a stockholder
meeting. Neither Puerto Rico corporate law nor the holding company's certificate
of incorporation requires that notices for a stockholders' meeting be published
in newspapers.
Board Committees. Westernbank's by-laws provide that Westernbank's board
of directors may, by resolution adopted by a majority of the full board, from
time to time appoint any number of committees composed of not less than three
directors. Puerto Rico corporate law and the holding company's by-laws provide
that the holding company's board of directors may, by resolution adopted by a
majority of the board of directors, designate one or more committees, each one
of which shall be composed of one or more directors.
New Business at Annual Meetings. Westernbank's by-laws provide that any
new business to be taken up by a stockholder at an annual meeting must be stated
in writing and filed with the Secretary of Westernbank at least 150 days prior
to the annual meeting. The holding company's by-laws require that a stockholder
give notice at least 120 days prior to the annual meeting, and further require
that the stockholder include (1) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (2) the name and address, as they appear on the
holding company's books, of the stockholder proposing such business, (3) the
class and number of shares of holding company which are beneficially owned by
the stockholder, and (4) any material interest of the stockholder in such
business.
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<PAGE> 21
TAX CONSEQUENCES OF THE REORGANIZATION
Puerto Rico Tax Consequences of the Reorganization
Westernbank intends to file a ruling request with the Secretary of Treasury
of Puerto Rico requesting the following rulings, among others, in connection
with the reorganization:
(1) that the reorganization, including the creation of the interim bank
and the merger of the interim bank into Westernbank, will be treated
as a tax-free reorganization under sections 1112(g)(1)(A) and
1112(g)(2)(C) of the Puerto Rico Internal Revenue Code.
(2) each of Westernbank, the interim bank and the holding company shall
constitute a "party to a reorganization" for purposes of section
1112(g)(3);
(3) that under sections 1112(b)(3), 1112(b)(4) and 1112(o), no gain or
loss will be recognized by Westernbank, the interim bank, the holding
company, or by Westernbank's stockholders upon the exchange of shares
of (A) Westernbank's common stock for the holding company's common
stock, (B) Westernbank's series A preferred stock for the holding
company's series A preferred stock, and (C) Westernbank's series B
preferred stock for the holding company's series B preferred stock;
(4) that under section 1114(a)(7), (X) the basis of the holding company
common stock received by each stockholder of Westernbank will be the
same as the basis of the shares of Westernbank's common stock held by
such stockholder immediately before the reorganization; (Y) the basis
of the holding company's series A preferred stock received by each
stockholder of Westernbank will be the same as the basis of the
shares of Westernbank's series A preferred stock held by such
stockholder immediately before the reorganization, and (Z) the basis
of the holding company's series B preferred stock received by each
stockholder of Westernbank will be the same as the basis of the
shares of Westernbank's series B preferred stock held by such
stockholder immediately before the reorganization;
(5) that under section 1112(b)(2), (X) the holding period of the holding
company common stock received by each stockholder of Westernbank will
include the holding period of the shares of Westernbank's common
stock held by such stockholder immediately prior to the
reorganization, (Y) the holding period of the holding company's
series A preferred stock received by each stockholder of Westernbank
will include the holding period of the shares of Westernbank's series
A preferred stock held by such stockholder immediately before the
reorganization, and (Z) the holding period of the holding company's
series B preferred stock received by each stockholder of Westernbank
will include the holding period of the shares of Westernbank's series
B preferred stock held by such stockholder immediately before the
reorganization;
(6) that under section 1112(a), Westernbank stockholders who exercise
their rights as dissenters will have to recognize gain or loss on the
exchange of shares of stock for cash equal to the difference between
the amount of cash received and the adjusted basis of their
Westernbank stock surrendered in the exchange;
(7) under sections 1123(e)(2), 1147(g) and 1150, non-resident dissenting
shareholders will be subject to income tax withholding at a rate of
20% if a citizen of the United States, 25% if a citizen of a foreign
country, or 29% if a foreign corporation, of the total amount of cash
to be paid in the exchange; and
(8) before and after the reorganization, Westernbank will constitute one
and the same taxpayer with the same tax attributes.
Westernbank cannot assure you that the Secretary of the Treasury of Puerto
Rico will issue the rulings as requested by Westernbank. The reorganization
cannot take place unless Westernbank receives a ruling from the Secretary of the
Treasury of Puerto Rico or an opinion letter from Jose Vila, counsel to
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<PAGE> 22
Westernbank, regarding the Puerto Rico income tax consequences of the
reorganization. Unlike a ruling, an opinion of counsel is not binding on the
Secretary of the Treasury of Puerto Rico. The Secretary of the Treasury of
Puerto Rico could disagree with conclusions reached in the opinion. If a
disagreement were to arise, the Secretary of the Treasury of Puerto Rico might
prevail in a judicial or administrative proceeding.
United States Tax Consequences of the Reorganization
Westernbank has received an opinion of its counsel, Hogan & Hartson L.L.P.,
that:
(1) the exchange by Westernbank's stockholders, other than United States
stockholders who own 5% or more of the total voting power or the total
value of Westernbank's common stock, of Westernbank's common stock and
preferred stock, respectively, for the holding company's common stock
and preferred stock will not be a taxable transaction for purposes of
the United States Internal Revenue Code; and
(2) United States stockholders who own 5% or more of the total voting power
or the total value of Westernbank's common stock and who are Puerto
Rico resident individuals for the entire taxable year in which the
reorganization occurs will be able to exclude from gross income for
federal income tax purposes any gain from the exchange of Westernbank's
common stock for the holding company common stock.
The opinion of Hogan & Hartson L.L.P. is based on the United States
Internal Revenue Code, the U.S. Treasury regulations promulgated under the
United States Internal Revenue Code and related administrative interpretations
and judicial decisions, all as in effect as of the effective time of the
reorganization, on the assumption that the reorganization takes place as
described in the plan of reorganization, and on factual representations provided
to Hogan & Hartson L.L.P. by Westernbank. Unlike private rulings, an opinion of
counsel is not binding on the IRS and the IRS could disagree with conclusions
reached in the opinion. If the IRS does disagree with the conclusion reached in
the opinion, the IRS might prevail in a judicial or administrative proceeding.
United States stockholders who are not Puerto Rico resident individuals and
who own 5% or more of the total voting power or the total value of Westernbank's
outstanding shares before the reorganization may not be subject to current
taxation under United States income tax laws if they comply with the reporting
requirement in section 6038B of the United States Internal Revenue Code and
enter into a gain recognition agreement with the IRS. Pursuant to such gain
recognition agreement, the 5% or more stockholder would have to file an amended
income tax return to recognize gain if the holding company were to dispose of
Westernbank within a certain period of time. The term of the gain recognition
agreement would be five years, if United States stockholders own less than 50%
of the total voting power and the total value of the stock, or ten years, if
United States stockholders own more than 50% of the total voting power and the
total value of the stock. If a stockholder does not comply with these
requirements, the stockholder will recognize gain on the reorganization and
incur a penalty of 25% of the gain recognized.
EACH WESTERNBANK STOCKHOLDER SHOULD CONSULT ITS TAX COUNSEL AS TO THE
SPECIFIC FEDERAL AND STATE TAX CONSEQUENCES OF THE REORGANIZATION, IF ANY, TO
THAT STOCKHOLDER. GAIN OR LOSS FOR UNITED STATES INCOME TAX PURPOSES MAY BE
RECOGNIZED IN THE CASE OF ANY WESTERNBANK STOCKHOLDER WHO RECEIVES PAYMENT IN
CASH FOR THE VALUE OF SHARES AS A RESULT OF THE EXERCISE OF RIGHTS AS A
DISSENTING STOCKHOLDER.
ACCOUNTING TREATMENT OF THE REORGANIZATION
Westernbank will account for the reorganization at historical cost, in a
manner similar to that in a "pooling-of-interests" transaction. Because the
pooling-of-interests method records the assets and liabilities of the merged
companies on a historical cost basis, no new intangible assets, including
goodwill, will be recorded as a result of the reorganization.
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<PAGE> 23
The reorganization will not affect the capitalization of Westernbank,
except to the extent of Westernbank expenses incurred to complete the
reorganization and any sums required to satisfy any dissenters' rights.
Westernbank estimates its expenses in connection with the reorganization to be
$350,000.
REGULATORY APPROVALS
For the reorganization to occur, the holding company and Westernbank must
receive approvals from the Office of the Commissioner of Financial Institutions
of Puerto Rico and the FDIC. In this section, we refer to these approvals as the
required regulatory approvals. In addition, the holding company must file a
notice with the Board of Governors of the Federal Reserve System.
An application has been submitted to the Office of the Commissioner for
approval to establish the interim bank and to merge the interim bank into
Westernbank, and the holding company has applied to the Office of the
Commissioner to acquire the shares of Westernbank in the reorganization. In
reviewing these applications, the Office of the Commissioner will consider,
among other things, the financial and managerial resources of Westernbank, the
effect of the reorganization on depositors, creditors and stockholders of
Westernbank, and the public interest.
Westernbank also has filed with the FDIC an application for approval of the
merger of Westernbank and the interim bank. We refer to that merger in this
section as the bank merger. The bank merger is subject to the approval of the
FDIC under the federal Bank Merger Act and related FDIC regulations. The FDIC
will consider several factors when reviewing the bank merger, including the
competitive effects of the transaction, the managerial and financial resources
and future prospects of the existing and resulting institutions, and the effect
of the transaction on the convenience and needs of the communities to be served.
The Community Reinvestment Act of 1977 also requires that the FDIC, in deciding
whether to approve the bank merger, assess the record of performance of
Westernbank in meeting the credit needs of the communities it serves, including
low and moderate income neighborhoods.
Westernbank currently has a satisfactory Community Reinvestment Act rating
from the FDIC. The FDIC regulations provide for publication of notice and an
opportunity for public comment on the bank merger application. The regulations
also authorize the FDIC to hold an informal meeting or grant a request for a
hearing on an application if the FDIC determines that a meeting or hearing is
warranted. The regulations provide that the FDIC generally will grant a hearing
request only if it determines that written submissions would be insufficient or
that a hearing otherwise would be in the public interest. As part of the review
process, the FDIC may receive protests and adverse comments from community
groups and others. The receipt by the FDIC of comments on the application, or a
decision to hold a meeting or hearing, could prolong the period during which the
bank merger is under review by the FDIC. As of the date of this proxy
statement/prospectus, Westernbank is not aware of any protests, adverse comments
or requests for a meeting or hearing filed with the FDIC concerning the bank
merger. The bank merger may not take place for a period of 15 to 30 days
following FDIC approval, during which time the United States Department of
Justice has authority to challenge the bank merger on antitrust grounds. The
precise length of the period will be determined by the FDIC in consultation with
the United States Department of Justice.
The holding company also filed a notice with the Board of Governors of the
Federal Reserve System to become a bank holding company under the Bank Holding
Company Act of 1956. The Federal Reserve Board has approved the notice.
Neither the holding company nor Westernbank is aware of any other
governmental approvals or actions that are required for the reorganization to
take place that are not described above. If any other approval or action is
required, Westernbank and the holding company presently contemplate that they
would seek the approval or take the required action.
The reorganization cannot take place without the required regulatory
approvals which we have not received yet. We do not know whether or when we will
receive these approvals.
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<PAGE> 24
RIGHTS OF DISSENTING STOCKHOLDERS
Under the Banking Law of Puerto Rico, Westernbank's stockholders who object
to the reorganization may demand payment of the value of their shares of
Westernbank's capital stock instead of receiving holding company stock. A
description of the rights of appraisal that are available to dissenters is
attached to this proxy statement/prospectus as Appendix C.
A dissenting stockholder electing to make a demand for an appraisal must:
- not vote in favor of the plan of merger and reorganization;
- record his or her opposition to the reorganization at the time of the
annual meeting or within 20 days after the date of the annual meeting;
and
- demand payment for his or her shares.
Voting against the plan reorganization will not by itself satisfy the
requirement that a dissenter record his opposition to the reorganization.
Rather, in order to record opposition to the reorganization, a stockholder must
provide a separate written notice to Westernbank, 19 West McKinley Street,
Mayaguez, Puerto Rico 00680; Attn.: Freddy Maldonado. Failure to vote against
the plan of merger and reorganization will not constitute a waiver of a
stockholder's dissenter's rights. If the reorganization takes place, the
stockholder may, within 60 days after the effective date of the reorganization
and upon 10 days written notice to Westernbank, petition the Court of First
Instance, Superior Section of San Juan of the Commonwealth of Puerto Rico for
the appointment of an appraiser who will estimate and determine the value of the
stockholder's shares. Stockholders who timely record their opposition to the
reorganization will not be notified of the effective date of the reorganization.
Upon due appointment and the completion of the valuation, the appraiser will
deliver to Westernbank, and to the stockholder upon demand, a copy of the
appraiser's report. All expenses incurred in determining the value of the shares
will be payable by Westernbank. Westernbank will pay the determined value set
forth in the report and the stockholder will cease to be a stockholder of
Westernbank or to have any interest in Westernbank.
1999 QUALIFIED STOCK OPTION PLAN AND 1999 NONQUALIFIED STOCK OPTION PLAN
At the annual meeting, the common stockholders of Westernbank will be asked
to approve Westernbank's 1999 Qualified Stock Option Plan and 1999 Nonqualified
Stock Option Plan. We refer to these two plans as the "1999 Stock Option Plans."
For more information about the 1999 Stock Option Plans, please see the section
of this proxy statement/prospectus captioned "Approval of the 1999 Stock Option
Plans" on page 60. If the 1999 Stock Option Plans are approved at the Annual
Meeting, then once the holding company reorganization is complete, holding
company common stock will be issued instead of Westernbank common stock pursuant
to the 1999 Stock Option Plans. Amendments to the 1999 Stock Option Plans to
provide for this substitution will take effect as of the effective date of the
reorganization. The approval of the plan of merger and reorganization also will
constitute stockholder approval of amendments to the 1999 Stock Option Plans
providing for the future use of holding company common stock instead of
Westernbank common stock under that plan.
TERMINATION OR AMENDMENT OF THE PLAN OF MERGER AND REORGANIZATION
Termination. Each of the boards of directors of Westernbank, the holding
company or the interim bank may terminate the plan of merger and reorganization
at any time by written notice if it believes that:
- the number of shares of Westernbank common stock and/or either series of
Westernbank preferred stock that voted against approval of the plan of
merger and reorganization or that have sought dissenter's rights is great
enough that the consummation of the merger is inadvisable, in the sole
opinion of the board of directors;
- any action, suit, proceeding, or claim is commenced or threatened or any
claim is made that could make completion of the merger, in the sole
opinion of the board of directors, inadvisable;
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<PAGE> 25
- it is likely that a regulatory approval, in the sole opinion of the board
of directors, will not be obtained, or if obtained, has or will contain
or impose a condition or requirement that would materially and adversely
affect the operations or business prospects of the holding company or
Westernbank following the effective date so as to render inadvisable the
completion of the merger; or
- any other reason exists that makes completion of the merger in the sole
opinion of the board of directors, inadvisable.
If the board of directors of Westernbank, the holding company or the interim
bank makes that determination, the plan of merger and reorganization will be
deemed void. There will be no liability under or on account of the termination
on the part of the parties, or the directors, officers, employees, agents or
stockholders of any of them, except that Westernbank will pay the fees and
expenses incurred by the parties in connection with the transactions
contemplated in the reorganization. Completion of the merger of the interim bank
into Westernbank may be deferred by the board of directors of Westernbank for a
reasonable period of time if Westernbank's board of directors determines, in its
sole discretion, that the deferral would be in the best interest of Westernbank
and the stockholders of Westernbank.
Amendment. The plan of merger and reorganization may be amended by
Westernbank, the interim bank and the holding company, by action taken by or on
behalf of their respective boards of directors at any time before or after
approval of the plan of merger and reorganization by their stockholders.
However, after the stockholders of Westernbank, the interim bank or the holding
company have approved the plan of merger and reorganization, no amendment,
modification or waiver can affect the consideration to be received by any party
or its stockholders.
MARKET PRICE OF WESTERNBANK'S CAPITAL STOCK AND DIVIDENDS
Westernbank's common stock is traded on the Nasdaq Stock Market's National
Market Tier under the trading symbol WBPR. The table below shows the range of
high and low sales prices of Westernbank's common stock on the Nasdaq Stock
Market's National Market Tier as reported by Nasdaq for the dates specified and
the dividends per share paid for the periods indicated. The numbers shown give
effect to all stock splits which occurred during the periods presented.
<TABLE>
<CAPTION>
HIGH AND LOW
SALES PRICES CASH
WESTERNBANK DIVIDENDS
COMMON STOCK PAID
--------------- ---------
HIGH LOW
------ ------
<S> <C> <C> <C>
Quarter Ended:
March 31, 1997......................................... $ 9.38 $ 7.07 --
June 30, 1997.......................................... 9.44 7.63 $0.045
September 30, 1997..................................... 9.25 7.63 --
December 31, 1997...................................... 12.38 9.13 0.045
March 31, 1998......................................... 15.38 15.00 --
June 30, 1998.......................................... 17.00 16.53 --
September 30, 1998..................................... 14.88 14.25 0.060
December 31, 1998...................................... 16.13 15.50 0.060
March 31, 1999......................................... 16.81 13.13 --
June 30, 1999 (through June , 1999)..................
====== ====== ======
</TABLE>
- ---------------
On May 31, 1999, there were 676 holders of record of Westernbank's common
stock. On June , 1999, the most recent practicable date before the printing of
this proxy statement/prospectus, the high and low sales prices per share of
Westernbank's common stock on the Nasdaq Stock Market's National Market Tier
were $ and $ , respectively.
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The holding company has applied to change the listing of Westernbank's
common stock on the Nasdaq Stock Market's National Market Tier to the holding
company's common stock and to change the listing of Westernbank's series B
preferred stock on the National Market Tier to the holding company's series B
preferred. If these applications are approved, the trading symbols for the
holding company's common stock and series B preferred stock will be WBPR and
WBPRO, the same symbols as are currently used by Westernbank.
At the present time, Westernbank owns all of the holding company's capital
stock, and there is no market for the holding company's capital stock.
The holding company intends to follow Westernbank's policy of declaring and
paying a cash dividend semi-annually. The declaration and payment of future
dividends by the holding company on its common stock will depend upon its
earnings and financial condition and upon other factors that are not presently
determinable. After the reorganization takes place, the holding company
initially will obtain the funds needed for payment of its dividends and expenses
from Westernbank, chiefly in the form of dividends. Westernbank's ability to pay
dividends may be restricted by federal banking law and the regulations of the
FDIC and the banking law of Puerto Rico. For more information, please see the
section of this proxy statement/prospectus captioned "Proposed Reorganization
into a Bank Holding Company -- Differences in Stockholder Rights -- Payment of
Dividends."
MANAGEMENT
After the reorganization takes place, the initial directors of the holding
company will be the current directors of Westernbank. Approval of the
reorganization by the holders of Westernbank's common stock and preferred stock
will be deemed to be a confirmation by the holding company's stockholders of
those persons as the directors of the holding company without further action and
without changes in classes or terms.
Several officers of Westernbank will hold similar positions with the
holding company. The names of these officers and their titles are shown below.
After the reorganization takes place, these officers will continue to be
officers of the holding company.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Frank C. Stipes......................... Chairman of the Board, Chief Executive
Officer and President
Freddy Maldonado........................ Chief Financial Officer and Vice
President of Finance and Investment
Pedro R. Dominguez...................... First Vice President
Angel Luis Rosas........................ Secretary of the Board
</TABLE>
ADDITIONAL INFORMATION ABOUT WESTERNBANK
Westernbank is a Puerto Rico-chartered commercial bank, headquartered in
Mayaguez, Puerto Rico. Its deposits are insured by the FDIC. Originally founded
as a mutual savings and loan association in 1958, Westernbank has operated as a
full service commercial bank since 1994, offering a broad range of banking
products throughout Puerto Rico. As of the date of this proxy
statement/prospectus, Westernbank operates 36 branches, including 26 in western
Puerto Rico, 4 in northeastern Puerto Rico, 3 in southern Puerto Rico, and 3 in
the San Juan metropolitan area.
Historically, Westernbank's banking operations have focused on southwestern
Puerto Rico, with its operations primarily in the western region. Westernbank
has experienced substantial growth, with total assets increasing from $698.7
million at December 31, 1993 to $2.8 billion at March 31, 1999, and total
deposits increasing from $455.9 million at December 31, 1993 to $1.9 billion at
March 31, 1999. Westernbank's earnings during that period increased from $8.0
million for the year ended December 31, 1993 to $28.7 million for the year ended
December 31, 1998. Westernbank had net income of $9.0 million
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<PAGE> 27
for the quarter ended March 31, 1999. Since the beginning of 1993 through the
date of this proxy statement/prospectus, Westernbank has declared $17.2 million
of dividends to stockholders, and total stockholders' equity has increased from
$50.2 million at December 31, 1993 to $159.0 million at March 31, 1999.
Westernbank plans to open new branches in the more developed metropolitan
area of Puerto Rico including San Juan, Bayamon, Carolina, Guaynabo and Caguas.
Westernbank believes that the potential for continued growth in these new market
areas is significant. For example, Westernbank opened two branches at year-end
1997 -- one in San Juan and one in Caguas, and in mid 1998 opened one in
Bayamon. In the year ended December 31, 1998, Westernbank originated $258.0
million of loans through customer relationships at these three new branches. In
addition, these three new branches had $127.0 million of customer deposits at
March 31, 1999.
Westernbank's interest earning assets are comprised primarily of loans and
investment and mortgage-related securities. At March 31, 1999, loans, net, were
$1.6 billion and investment securities held to maturity were $1.1 billion. This
compares to $1.4 billion and $871.8 million at December 31, 1998. Westernbank's
loan portfolio consists primarily of real estate loans, including, at March 31,
1999:
- gross one- to four-family residential loans, which we term "gross single
family residential loans," of $524.7 million, or 33.5% of total loans,
- commercial real estate loans of $560.2 million, or 35.8% of total loans,
and
- construction and land acquisition loans of $88.7 million, or 5.7% of
total loans.
These numbers compare to gross single family residential loans of $398.2
million, commercial real estate loans of $518.9 million and construction and
land acquisition loans of $78.7 million at December 31, 1998. Other loans of
Westernbank, which totaled $399.3 million and $381.7 million at March 31, 1999
and December 31, 1998, consist of (1) commercial loans, (2) deposit loans and
(3) installment loans, including (A) second mortgage, (B) auto, (C) credit card
and (D) other consumer loans. At March 31, 1999, non-accrual loans totaled $6.7
million, and Westernbank's total allowance for loan losses was $16.1 million, or
1.03% of gross loans and 240.0% of non-accrual assets at that date.
Westernbank originates both fixed and adjustable rate gross single family
residential loans. Generally, these loans are secured by a first mortgage over
the borrower's real property and are payable in monthly installments for a term
up to 40 years.
Westernbank's commercial business loans may involve greater risks for
Westernbank than other types of lending because they are often based on varying
forms of collateral and repayment often depends on the success of the commercial
venture. Commercial loans originated by Westernbank are principally
collateralized by property dedicated to wholesale, retail and rental business
activities, and may be secured or unsecured, with negotiable terms.
Westernbank originates fixed-rate commercial loans for the construction,
acquisition and refinancing of commercial properties. Commercial real estate
loans may also involve greater risk because payment depends, in large part, on
sufficient income from the properties securing the loans to cover operating
expenses and debt service.
Westernbank also makes real estate construction loans subject to firm
permanent financing commitments. Land acquisition and construction loans may
involve greater risks because the borrower may not be able to carry the cost of
undeveloped land. Evaluating and monitoring these types of loans is more
difficult than with residential real estate loans, which also increases risk.
The disbursement of principal based on progress, even though the ultimate
completion market value may not be attainable during the construction process,
also may increase risks from these loans.
Westernbank offers different types of consumer loans to provide a full
range of financial services to its customers, including various types of secured
and unsecured consumer loans, with varying amortization schedules. In addition,
Westernbank makes fixed-rate, residential second mortgage loans. Westernbank
also
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<PAGE> 28
offers VISA and Master Cards to its customers. Consumer loans may involve
greater risk because adverse changes in borrowers' incomes and employment after
funding of the loans may impact their abilities to repay the loans. In
connection with all consumer and second mortgage loans originated, Westernbank's
underwriting standards include a determination of the applicant's payment
history on other debts and an assessment of his ability to meet existing
obligations and payments on the proposed loan.
Westernbank's investment and mortgage related securities portfolio held to
maturity, which totaled $1.1 billion at March 31, 1999 and $871.8 million at
December 31, 1998, consist primarily of U.S. and Puerto Rico government or
agency securities, as well as mortgage-backed securities, consisting mostly of
certificates from (1) Fannie Mae, (2) Federal Home Loan Mortgage Corporation and
(3) Government National Mortgage Corporation.
Deposits in Westernbank are insured to the maximum extent provided by law
by the FDIC. Westernbank is a member of the Federal Home Loan Bank System. The
FDIC and the Office of the Commissioner of Financial Institutions of Puerto Rico
may examine and regulate Westernbank's operations. Westernbank's operations are
also governed by (1) the regulations of the Puerto Rico Financial Board with
respect to the use of rates and fees charged on some loans to individuals, and
(2) the regulations of the Puerto Rico Treasury Department.
Westernbank's executive offices are located at 19 West McKinley Street,
Mayaguez, Puerto Rico; its telephone number is (787) 834-8000; its internet
e-mail address is [email protected]; and its home page on the internet World
Wide Web is at: http//www.wbpr.com.
MARKET AREA AND COMPETITION
Westernbank provides its services in, and derives its earnings from, Puerto
Rico. Westernbank's primary market areas are the western, southwestern and
southern areas of Puerto Rico. Westernbank has 29 branch offices in its primary
market area, 4 in the metropolitan San Juan area and 3 in northeastern Puerto
Rico. As of December 31, 1998, Westernbank was the third largest commercial bank
headquartered in Puerto Rico.
As of December 31, 1998, according to the Puerto Rico Department of Labor,
the average unemployment rate for the year was 13.3%. Puerto Rico has
experienced slow but steady growth in population and average income in recent
years. The principal businesses in Westernbank's primary market area are
farming, clothing manufacturing, pharmaceutical manufacturing, light industries,
including electronic equipment, and tuna and rum processing. Tuna industries in
the area have experienced a significant decrease in operations since 1990 as a
result of competitive market conditions from foreign countries. Management does
not expect this situation to have an adverse effect on Westernbank's results of
operations.
Westernbank competes mainly with other commercial banks in attracting and
retaining savings deposits and in making real estate and commercial loans. There
are 14 other banks, including affiliates of banks headquartered in the United
States, Canada and Spain operating in Puerto Rico. Westernbank is in direct
competition in loan origination with these banks in its primary market area.
Westernbank encounters intense competition in attracting and retaining
deposits and in its consumer and commercial lending. Westernbank competes for
loans with other financial institutions, some of which are larger and have
available resources greater than those of Westernbank. In addition, Westernbank
competes with (1) brokerage firms with retail operations, (2) credit unions, (3)
cooperatives, (4) small loan companies, (5) mortgage banks and (6) savings
institutions in Puerto Rico. Westernbank may not be able to continue to increase
its deposit base or originate loans in the manner or on the terms on which it
has done so in the past.
Management believes that Westernbank has been able to compete effectively
for deposits and loans by:
- offering a variety of transaction account products and loans with
competitive features,
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<PAGE> 29
- pricing its products at competitive interest rates,
- offering convenient branch locations, and
- emphasizing the quality of its service.
Westernbank's ability to originate loans depends primarily on the rates and
fees charged and the service it provides to its borrowers in making prompt
determinations as to whether it will fund particular loan requests.
BRANCHES AND OFFICES
As of March 31, 1999, Westernbank owned one main office premises and 19
other premises for branches and other operations. In addition, as of March 31,
1999, Westernbank leased in Puerto Rico 34 premises for branches and other
operations. All these premises are located in Puerto Rico. Management believes
that Westernbank's properties are well maintained and are suitable for
Westernbank's business as presently conducted.
PRINCIPAL SHAREHOLDERS OF WESTERNBANK
For information in connection with the beneficial ownership of the capital
stock of Westernbank please refer to the "Beneficial Ownership of Securities"
section of this proxy statement/prospectus.
YEAR 2000 READINESS DISCLOSURE STATEMENT
Westernbank has been preparing for the year 2000 problem since 1992, when
it purchased its new in-house computer software systems. Westernbank's software
employs the Julian Calendar, thereby resolving the year 2000 problem for the
bulk of Westernbank's internal systems. The remaining process involves modifying
or replacing select hardware and software maintained by Westernbank, and
communicating with external service providers to ensure that they are taking
appropriate actions to remedy their own year 2000 problems. To date, Westernbank
has obtained certifications of year 2000 compliance from vendors related to
Westernbank's investment, payroll and disbursement systems. As of March 31,
1999, Westernbank's year 2000 compliance project had been completed as follows:
awareness stage --100%; assessment stage --100%; remediation stage --100%,
validation/testing stage --95%; and implementation stage --95%. Westernbank's
management expects to have substantially all of the system and application
changes completed by June 30, 1999, and believes its level of preparedness is
appropriate.
Westernbank has also been active in communicating with significant
borrowers as to the borrowers' year 2000 compliance. Westernbank has solicited
information from all borrowers to whom Westernbank has made loans in excess of
$500,000. Substantially all of these borrowers, including all borrowers of over
$5.0 million, have confirmed that their operations are or will be year 2000
compliant. As a result, Westernbank believes that its reasonable worst-case
scenario involves defaults by smaller borrowers as a result of these borrowers'
year 2000 systems failures. Westernbank's management considers it unlikely that
any defaults of this nature could, in the aggregate, have a material adverse
effect on Westernbank's business, financial condition or results of operations.
To minimize the risks of lending to borrowers who are not year 2000 compliant,
Westernbank considers year 2000 compliance in underwriting loan applications in
excess of $500,000.
Westernbank's management estimates that the total cumulative cost of its
year 2000 compliance project will be approximately $300,000. This estimate
includes both internal and external personnel costs related to modifying
necessary systems, as well as purchasing or leasing, as needed, select hardware
and software. Any hardware or software Westernbank purchases in connection with
its year 2000 compliance project will be capitalized in accordance with
Westernbank's normal policy. Westernbank expenses personnel and other costs as
they are incurred. At March 31, 1999, Westernbank had incurred approximately
$88,000.
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<PAGE> 30
ADDITIONAL INFORMATION ABOUT THE HOLDING COMPANY
The holding company was incorporated on February 17, 1999 in Puerto Rico as
a wholly owned subsidiary of Westernbank to serve as a bank holding company in
the reorganization. The holding company has no prior operating history. Its
principal office is located at 19 West McKinley Street, Mayaguez, Puerto Rico,
and its telephone number is (787) 834-8000.
The holding company is authorized to issue 300,000,000 shares of common
stock, par value $1.00 per share, and 20,000,000 shares of preferred stock, par
value $1.00 per share. Westernbank currently owns 1,000 shares of the holding
company's common stock, which will constitute all of the issued and outstanding
capital stock of the holding company immediately prior to the reorganization. On
the effective date of the reorganization, all of the stock held by Westernbank
will be canceled.
Immediately before the reorganization takes place, the holding company will
own the original issue of 1,000 shares of the interim bank's common stock. On
the effective date of the reorganization, each of those shares held by the
holding company will be converted into 1,000 shares of Westernbank's common
stock and the holding company will own all of the outstanding capital stock of
Westernbank.
DESCRIPTION OF THE HOLDING COMPANY'S CAPITAL STOCK
The following summary of the terms of the capital stock of the holding
company does not purport to be complete and is subject in all respects to the
applicable provisions of the laws of Puerto Rico and the certificate of
incorporation and by-laws of the holding company which are attached to this
proxy statement/prospectus at Appendix B.
Holding Company Common Stock. The holders of the holding company's common
stock are entitled to one vote for each share held of record on all matters
submitted to a vote of stockholders. Each share of holding company common stock
has the same relative rights as, and is identical in all respects to, each other
share of holding company common stock. The holding company's board of directors
can issue preferred stock with voting and conversion rights which could
adversely affect the voting power of the common stockholders without stockholder
approval. See "Holding Company Preferred Stock" below.
If the holding company is liquidated or dissolved or distributes all of its
assets, and after the preferential rights of holders of the holding company's
preferred stock are satisfied, the holders of holding company common stock will
share ratably in the assets of the holding company legally available for
distribution. The holding company common stock:
- is not redeemable;
- is not convertible for other shares of the holding company's capital
stock;
- is not subject to a sinking fund; and
- does not have any preemptive rights to subscribe for other shares issued
by the holding company.
The holders of holding company common stock are entitled to receive
dividends on an equal per share basis when, as and if declared by the board of
directors out of funds legally available. The shares of holding company common
stock to be issued as part of the reorganization when issued will be duly
authorized, validly issued, fully paid and nonassessable. Westernbank's transfer
agent, The Bank of New York, will act as transfer agent, registrar and dividend
disbursement agent for the holding company's common stock.
Holding Company Preferred Stock. The holding company's certificate of
incorporation authorizes its board of directors to provide, when it deems
necessary, for the issuance of preferred stock in one or more series. The
holding company's board of directors may establish by resolution the terms of
any newly created series of preferred stock. Terms that may be established
include:
(1) the designation of the series;
(2) the dividend rate of the series, including
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<PAGE> 31
- the conditions and dates on which the dividends will be payable,
- the preference or relation which the dividends will bear to the
dividends payable on any other class or classes of capital stock of
the holding company, and
- whether the dividends will be cumulative or non-cumulative;
(3) whether the shares of the series will be redeemable by the holding
company, and if so, on what terms and conditions;
(4) the terms and amount of any sinking fund provided for the purchase or
redemption of the shares of the series;
(5) whether the shares of the series will be convertible and if so, the
terms of conversion;
(6) the extent, if any, to which the holders of the shares will be entitled
to vote, provided, however, that the terms may not entitle any holder
of any series to more than ten votes for each share;
(7) the restrictions and conditions, if any, upon the issue or re-issue of
any additional preferred stock ranking evenly with or senior to the
shares as to dividends or upon dissolution; and
(8) the rights of the holders of shares upon dissolution, or distribution
of the assets of the holding company, which may be different in the
case of a voluntary dissolution.
The holders of holding company common stock may be adversely affected by
future issuances of holding company preferred stock, since preferred stock
issued in the future may be designated with special rights or preferences
superior to those of the holding company's common stock as to dividends,
liquidation rights and voting rights. For example, the holding company's board
of directors could designate a new class of preferred stock with a separate
class right to approve a merger or sale of substantially all the assets of the
holding company or other matters. Consequently, the issuance of preferred stock
may have the effect of delaying or preventing a change in control of the holding
company. See "Risk Factors -- Provisions of the holding company's charter and
applicable law may prevent a change in control."
Holding Company Series A Preferred Stock.
General. In June 1998, Westernbank issued 1,219,000 shares of 7.125%
Non-Cumulative, Convertible Preferred Stock, 1998 Series A, liquidation
preference $25 per share. The holding company is authorized to and, upon the
effective time of the reorganization, will issue 1,219,000 shares of the holding
company's 7.125% Non-Cumulative, Convertible Preferred Stock, Series A,
liquidation preference $25 per share, with identical rights and preferences to
Westernbank's series A preferred stock.
When issued, the series A preferred stock will be validly issued, fully
paid and non-assessable. The holders of the series A preferred stock will have
no preemptive rights. The terms of the series A preferred stock do not provide
for any sinking fund or other obligation of the holding company for their
repurchase or retirement.
Westernbank's transfer agent, The Bank of New York, will act as transfer
agent, conversion agent, registrar and dividend disbursement agent for the
holding company's series A preferred stock.
Dividends. If properly declared by the board of directors of the holding
company, holders of series A preferred stock will receive non-cumulative cash
dividends at the annual rate of 7.125% of the $25 liquidation preference, or
$1.78125 per share per year. If declared, dividends will be payable monthly in
arrears on the 15th day of each month at that annual rate. Dividends in each
dividend period will accrue from the first day of the period, whether or not
declared or paid for the prior dividend period. The first monthly dividends
payable after the original date of issuance will accrue from the original date
of issuance. Each declared monthly dividend will be payable to holders of record
as they appear on the stock register of the holding company at the close of
business on the record dates, which will be not more than 45 days before the
payment dates. The board of directors of the holding company will set the record
dates. The amount of monthly dividends paid for any monthly dividend period will
be computed on the basis of a
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<PAGE> 32
360-day year consisting of twelve 30-day months. The amount of dividends payable
for any period shorter than a full monthly dividend period will be computed on
the basis of the actual number of days elapsed in the period.
The right of holders of series A preferred stock to receive monthly
dividends is not cumulative. Accordingly, if the board of directors of the
holding company does not declare a monthly dividend for a dividend period, then
holders of the series A preferred stock will have no right to receive a monthly
dividend for that period. The holding company will have no obligation to pay a
monthly dividend for that period, or to pay any interest on the amount of any
unpaid monthly dividends, whether or not dividends are declared and paid for any
future period with respect to the series A preferred stock, the series B
preferred stock or the holding company's common stock.
If (1) all monthly dividends due and payable for each of the 12 previous
monthly dividend periods, or the fewer number of dividend periods as there
actually are, have not been declared and paid, or declared and a sum sufficient
for their payment has not been set apart for their payment, or (2) the holding
company has defaulted on the payment of the redemption price of any series A
preferred stock called for redemption,
- no dividends may be declared or paid or set aside for payment on the
holding company's common stock or any other capital stock of the holding
company ranking junior to the series A preferred stock as to dividends or
amounts upon liquidation;
- no other distribution shall be declared or made or set aside for payment
on the holding company's common stock or any other capital stock of the
holding company ranking junior to the series A preferred stock as to
dividends or amounts upon liquidation;
- no shares of common stock or any other capital stock of the holding
company ranking junior to the series A preferred stock as to dividends or
amounts upon liquidation may be redeemed, purchased or otherwise acquired
for any consideration; and
- no monies may be paid to or made available for a sinking fund for the
redemption of any junior stock by the holding company, except by
conversion into or exchange for other capital stock of the holding
company ranking junior to the series A preferred stock as to dividends
and amounts upon liquidation.
When dividends on the series A preferred stock or any one or more series of
the holding company's preferred stock ranking on a parity with the series A
preferred stock as to dividends or the distribution of assets upon liquidation
are not paid in full, or a sum sufficient for their full payment is not set
apart, all dividends declared upon the series A preferred stock and any parity
stock will be declared on an equal basis so that (1) the amount of monthly
dividends on the series A preferred stock and (2) dividends upon the other
series of capital stock in all cases bear to each other the same ratio that (A)
full monthly dividends on the series A preferred stock, for the then-current
dividend period, which will not include any accumulation in respect of unpaid
monthly dividends for prior dividend periods, and (B) full dividends, including
required or permitted accumulations, if any, on any other series of capital
stock, bear to each other.
Unless otherwise required by any applicable laws and regulations, each
monthly dividend payment will be made by U.S. Dollar check drawn on a bank in
New York, New York or San Juan, Puerto Rico and mailed to the record holder at
the holder's address as it appears on the register for the series A preferred
stock.
For a discussion of potential regulatory limitations on the holding
company's ability to pay dividends, please see the sections of this proxy
statement/prospectus captioned "Risk Factors -- Applicable laws and regulations
restrict the ability of Westernbank to pay dividends to the holding company, and
the ability of the holding company to pay dividends to you" and "Supervision and
Regulation."
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Conversion. At any time on or after 90 days after the original date of
issuance, unless previously redeemed, any holder of record of the series A
preferred stock may elect to convert a share of series A preferred stock held
into .995 shares of holding company common stock, calculated as to each
conversion to the nearest 1/100th of a share. The per share conversion ratio
equates to a price of $25.126 per share of holding company common stock. The
conversion ratio per share of series A preferred stock may be adjusted from time
to time if:
1. The holding company issues common stock as a dividend or distribution on
its outstanding shares of common stock;
2. The holding company subdivides its common stock;
3. The holding company issues to holders of its common stock rights or
warrants to subscribe for common stock at less than the then-current
market price;
4. The holding company distributes to holders of its common stock (A) any
shares of its capital stock, other than common stock, (B) evidences of
indebtedness or assets, excluding cash dividends or distributions paid
from retained earnings, or (C) rights or warrants to subscribe for
securities of the holding company other than those described above;
5. The holding company makes distribution consisting exclusively of cash
excluding
- any cash portion of distributions referred to in (4) above, or
- cash distributed upon a merger or consolidation that results in a (1)
reclassification, (2) change, (3) conversion, (4) exchange or (5)
cancellation of outstanding shares of holding company common stock,
to all or substantially all holders of holding company common stock in an
aggregate amount that, combined with (X) all other all-cash distributions made
within the then preceding 12 months for which no adjustment has been made, and
(Y) any cash in the fair market value of other consideration paid or payable in
respect of any tender or exchange offer by the holding company or any of its
subsidiaries for common stock of the holding company concluded within the
preceding 12 months for which no adjustment has been made, exceeds 15% of the
holding company's market capitalization, on the record date of the distribution;
and
6. The holding company completes a tender or exchange offer made by the
holding company or any of its subsidiaries for common stock of the
holding company that involves aggregate consideration that, together
with
- any cash and other consideration payable in a tender or exchange offer
by the holding company or any of its subsidiaries for holding company
common stock expiring within the 12 months preceding the expiration of
the tender or exchange offer for which no adjustment has been made, and
- the aggregate amount of any and all-cash distributions referred to in
(5) above to all holders of common stock of the holding company within
the 12 months preceding the expiration of the tender or exchange offer
for which no adjustments have been made,
exceeds 15% of the holding company's market capitalization on the expiration of
the tender offer.
No adjustments in the conversion ratio will be required, however, unless
the adjustment would require a change of at least one percent in the conversion
ratio. Each adjustment of less than one percent in the conversion ratio will be
carried forward and taken into account in any subsequent adjustment. The
adjustment will be made not later than the time as may be required in order to
preserve the tax-free nature of a distribution to the holders of shares of
holding company common stock. The holding company will be entitled to make any
reductions in the conversion ratio, in addition to those required by the
provisions described above, as it in its discretion may determine to be
advisable to ensure that stock related distributions which may be made by the
holding company to its stockholders will not be taxable.
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<PAGE> 34
The right to convert a share of the series A preferred stock called for
redemption will terminate at the close of business on the fifth business day
immediately before the date fixed for redemption for such share, unless the
holding company fails to pay the applicable redemption price. The holding
company will not issue fractional shares of holding company common stock will be
issued upon conversion of series A preferred stock. Any fractional interest
resulting from a conversion of a share of series A preferred stock will be paid
in cash based on the closing price of the holding company common stock on the
trading day immediately preceding the day of conversion.
Conversion of series A preferred stock will be effected by the converting
holder surrendering certificates evidencing shares being converted, together
with a proper assignment of the certificates to the holding company or in blank,
to the office or agency to be maintained by the holding company for that
purpose. In case fewer than all the shares represented by any certificate are
converted, a new certificate will be issued representing the unconverted shares
without cost.
If (1) any reclassification or change of outstanding shares of holding
company common stock occurs, other than a change in par value, or as a result of
a subdivision or combination, or (2) the holding company consolidates with, or
merges into, any other entity that results in any (A)
- reclassification,
- change,
- conversion,
- exchange, or
- cancellation
of outstanding shares of holding company common stock or (B) any sale or
transfer of all or substantially all of the assets of the holding company, each
holder of series A preferred stock then outstanding will have the right to
convert its series A preferred stock into the kind and amount of securities,
cash and other property that the holder would have been entitled to receive if
the holder had held the holding company common stock issuable upon the
conversion of the series A preferred stock immediately before the
reclassification, change, consolidation, merger, sale or transfer.
If the holding company completes any consolidation or merger or similar
business combination, as a result of which the outstanding shares of holding
company common stock are exchanged for or changed, reclassified or converted
into stock, securities or cash or any other property, or any combination, the
series A preferred stock will be assumed by and become preferred stock of the
successor or resulting corporation, having as much as possible, the same terms
and preferences that the series A preferred stock had immediately before the
transaction. After any similar transaction each share of series A preferred
stock will be convertible as described above into the nature and kind of
consideration receivable by a holder of the number of shares of holding company
common stock into which the series A preferred stock could have been converted
immediately before the transaction.
If because of the structure of the transaction, however, a holder of
holding company common stock is required to make an election with respect to the
nature and kind of consideration to be received in such transaction, which
election cannot practicably be made by the holder of the series A preferred
stock, then the series A preferred stock, as a result of the transaction and on
the same terms as apply to the holders of holding company common stock, will be
converted into or exchanged for the aggregate amount of consideration of the
nature and kind receivable by a holder of the number of shares of holding
company common stock into which the series A preferred stock could have been
converted immediately before the transaction if the holder of holding company
common stock failed to exercise any rights of election. The rights of the series
A preferred stock as preferred stock of the successor or resulting corporation
will successively be adjusted after any similar transaction on the same terms as
the terms of the Series A preferred stock would have been adjusted before the
transaction. The holding company will not consummate any merger, consolidation
or similar transaction unless all then outstanding series A preferred stock will
be assumed and authorized by the successor or resulting corporation as provided
above.
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Upon conversion of series A preferred stock, no monthly dividends will be
due or payable for any period unless previously declared, but not yet paid.
Voting Rights. Except as expressly required by applicable law, or except
as indicated below, the holders of the series A preferred stock will not be
entitled to receive notice of, or attend or vote at, any meeting of the
stockholders of the holding company.
If at the time of any annual meeting of the holding company's stockholders
for the election of directors, the holding company has failed to pay or declare
and set aside for payment a monthly dividend on the series A preferred stock for
each of the 18 preceding monthly dividend periods, the number of directors then
constituting the board of directors of the holding company will be increased by
one, if not already increased by one due to a default in preference dividends.
At the annual meeting the holders of the series A preferred stock, along with
the holders of any other series of holding company preferred stock which may
have voting rights due to the holding company's failure to pay dividends, will
be entitled to elect an additional director to serve on the holding company's
board of directors. The director elected by the holders of the series A
preferred stock and any other series of holding company preferred stock will
continue to serve as director until the earlier of (1) the full term for which
he or she shall have been elected, or (2) the payment of 12 consecutive monthly
dividends on the series A preferred stock.
Unless the vote or consent of the holders of a greater number of shares is
then required by law, the affirmative vote or consent of the holders of at least
two-thirds of the outstanding shares of the series A preferred stock and of the
shares of any parity stock at the time outstanding will be necessary for
authorizing, effecting or validating any variation or abrogation of the terms of
the series A preferred stock or any other series of parity stock.
Notwithstanding the foregoing, the holding company may, without the consent or
sanction of the holders of series A preferred stock, authorize or issue shares
of the holding company ranking, as to dividend rights and rights on liquidation,
winding up and dissolution, on a parity with or junior to the series A preferred
stock.
Unless the vote or consent of the holders of a greater number of shares is
then required by law, the affirmative vote or consent of the holders of at least
two-thirds of the outstanding shares of the series A preferred stock and any
other series of parity stock at the time outstanding, given in person or by
proxy, either in writing or by a vote at a meeting called for the purpose at
which the holders of series A preferred stock and any other series of parity
stock will vote together as a single class without regard to series, will be
necessary to (1) create, (2) authorize, (3) issue, (4) reclassify any authorized
stock of the holding company into, or (5) create, (6) authorize or (7) issue any
obligation or security convertible into or evidencing a right to purchase, any
shares of any class of stock of the holding company ranking prior to both the
series A preferred stock and any other series of parity stock. The holding
company's certificate of incorporation may, however, be amended to increase the
number of authorized shares of holding company preferred stock without the vote
of the holders of holding company preferred stock, including the series A
preferred stock.
No vote of the holders of the series A preferred stock and any other series
of parity stock will be required for the holding company to redeem or purchase
and cancel the series A preferred stock in accordance with the certificate of
incorporation of the holding company.
Redemption. The series A preferred stock will be redeemable on or after
July 1, 2002 at the option of the holding company, in whole or in part, at any
time or from time to time on not less than 30 nor more than 60 days' notice by
mail, at the following redemption prices, if redeemed during the 12-month
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<PAGE> 36
period beginning July 1 of the years indicated below, plus the accrued and
unpaid dividends, if any, for the then-current dividend period to the date of
redemption:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2002........................................................ $26.00
2003........................................................ $25.75
2004........................................................ $25.50
2005........................................................ $25.25
2006 and thereafter......................................... $25.00
</TABLE>
If less than all of the outstanding shares of the series A preferred stock
are to be redeemed at the option of the holding company, the total number of
shares to be redeemed in the redemption will be determined by the board of
directors of the holding company and the shares to be redeemed will be allocated
equally or by lot as may be determined by the board of directors of the holding
company or by any other method as the board of directors of the holding company
may approve and deem fair and appropriate. The board of directors may select any
method to conform to any rule or regulation of any national or regional stock
exchange or automated quotation system upon which the shares of the series A
preferred stock may at the time be listed or eligible for quotation; provided
that, the shares of a holder must be redeemable in full unless the holding
company obtains a ruling from the Puerto Rico Treasury Department or an opinion
from reputable counsel knowledgeable in Puerto Rico income tax matters to the
effect that the redemption in part of the holder's shares is not equivalent to a
dividend under Puerto Rico law.
Notice of any redemption will be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days before the date fixed for
redemption to each holder of record of the series A preferred stock to be
redeemed, at the addresses appearing on the stock books of the holding company.
Notice so mailed will be conclusively presumed to have been duly given whether
or not actually received, and failure to duly give notice by mail, or any defect
in notice, to the holders of any shares designated for redemption will not
affect the validity of the proceedings for the redemption of any other shares of
series A preferred stock. Any notice will state: (1) the date fixed for
redemption; (2) the redemption price; (3) the number of shares of series A
preferred stock to be redeemed and, if less than all the shares held by a holder
are to be redeemed, the number of shares to be so redeemed from the holder; (4)
the place where certificates for the shares are to be surrendered for payment of
the redemption price; and (5) that after the date fixed for redemption the
shares to be redeemed will not accrue dividends. If the notice is mailed
properly, and if on or before the date fixed for redemption funds sufficient to
redeem the shares called for redemption are set aside by the holding company in
trust for the account of the holders of the shares to be redeemed, then, whether
or not any certificate for shares called for redemption has been surrendered for
cancellation, on and after the date fixed for redemption (A) the shares
represented and so called for redemption will be deemed to be no longer
outstanding, (B) dividends on those shares will cease to accrue, and (C) all
rights of the holders of those shares as stockholders of the holding company
will cease, except the right to receive the redemption price, without interest,
upon surrender of the certificate representing those shares. Upon surrender in
accordance with the notice of the certificate for any shares so redeemed, the
holders of record of those shares will be entitled to receive the redemption
price, without interest. If fewer than all the shares represented by any
certificate are redeemed, a new certificate will be issued representing the
unredeemed shares without cost to the holder.
At its option, the holding company may, on or before the date fixed for
redemption, irrevocably deposit the aggregate amount payable upon redemption of
the shares of the series A preferred stock to be redeemed with a bank or trust
company designated by the holding company. The depository selected must have (1)
its principal office in New York, New York, San Juan, Puerto Rico, or any other
city in which the holding company at that time maintains a transfer agent with
respect to its capital stock, and (2) a combined capital surplus, as shown by
its latest published statement, of at least $50,000,000. The money deposited by
the holding company will be held in trust by the depository for payment to the
holders of the series A preferred stock to be redeemed. If the holding company
makes the deposit and the funds so
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<PAGE> 37
deposited are made immediately available to the holders of the series A
preferred stock to be redeemed, the holding company will be released and
discharged, except as described in the provisions described in the next
paragraph, from any obligation to make payment of the amount payable upon
redemption of the series A preferred stock to be redeemed, and the holders of
those shares may look only to the depository for payment.
Any funds remaining unclaimed at the end of two years from and after the
date fixed for redemption in respect of which such funds were deposited will be
returned to the holding company and the holders of the series A preferred stock
called for redemption with respect to which the funds were deposited may look
only to the holding company for the payment of the redemption price. Any
interest accrued on any funds deposited with the depository will belong to the
holding company and will be paid to it from time to time on demand.
Any of the series A preferred stock which will at any time have been
redeemed will, after the redemption, have the status of authorized but unissued
preferred shares, without designation as to series, until the shares are once
more designated as part of a particular series by the board of directors of the
holding company.
The redemption of the series A preferred stock will require the prior
approval of the Board of Governors of the Federal Reserve System.
Rights Upon Liquidation. If any voluntary or involuntary liquidation of
the holding company occurs, the holders of the series A preferred stock at the
time outstanding will be entitled to receive out of assets of the holding
company available for distribution to stockholders, before any distribution of
assets is made to holders of holding company common stock or any other class of
stock ranking junior to the series A preferred stock upon liquidation, (1)
liquidating distributions in the amount of $25 per share of series A preferred
stock, plus (2) the accrued and unpaid dividends, if any, for the then-current
dividend period to the date of payment.
After payment of the full amount of the liquidating distributions to which
they are entitled, the holders of series A preferred stock will have no right or
claim to any of the remaining assets of the holding company. If, upon any
voluntary or involuntary liquidation, the available assets of the holding
company are insufficient to pay the amount of the liquidation distributions on
all outstanding shares of series A preferred stock and the corresponding amounts
payable on all shares of parity stock as to the distribution of assets upon
liquidation, then the holders of the series A preferred stock and such other
classes or series of parity stock will share equally in any distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be entitled.
For these purposes, neither (1) the consolidation or merger of the holding
company with or into any other entity, nor (2) the sale, lease or conveyance of
all or substantially all of the property or business of the holding company,
will be deemed to constitute a liquidation of the holding company.
Rank. The series A preferred stock will, with respect to dividend rights
and rights on liquidation, rank (1) senior to all classes of holding company
common stock and to all other equity securities issued by the holding company,
the terms of which specifically provide that those equity securities will rank
junior to the series A preferred stock, or to all series of holding company
preferred stock in general; (2) on a parity with all parity stock; and (3)
junior to all equity securities issued by the holding company, the terms of
which specifically provide that those equity securities will rank senior to the
series A preferred stock, or to all series of holding company preferred stock in
general. For this purpose, the term "equity securities" does not include debt
securities convertible into or exchangeable for equity securities.
The holding company may not issue shares of the holding company ranking, as
to dividend rights or rights on liquidation, senior to the series A preferred
stock except with the consent of the holders of at least two-thirds of the
outstanding shares of the series A preferred stock and any series of parity
stock at the time outstanding. See "Voting Rights" above.
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Holding Company Series B Preferred Stock
General. In May 1999, Westernbank issued 1,740,000 shares of 7.25%
Noncumulative Monthly Income Preferred Stock, 1999 Series B, liquidation
preference $25 per share. On June 2, 1999, Westernbank issued an additional
261,000 shares of this series B preferred stock. The holding company is
authorized to and, at the effective time of the reorganization, will issue
2,001,000 shares of the holding company's 7.25% Noncumulative Monthly Income
Preferred Stock, Series B, liquidation preference $25 per share, with identical
rights and preferences to Westernbank's series B preferred stock.
When issued, the series B preferred stock will be validly issued, fully
paid and non-assessable. The holders of the series B preferred stock will have
no preemptive rights. The terms of the series B preferred stock do not provide
for any sinking fund or other obligation of the holding company for repurchase
or retirement.
Westernbank's transfer agent, The Bank of New York, will act as transfer
agent, registrar and dividend disbursement agent for the series B preferred
stock of the holding company.
Dividends. If properly declared by the board of directors of the holding
company, holders of series B preferred stock will receive noncumulative cash
dividends at the annual rate per share of 7.25% of the $25 liquidation
preference, equivalent to $1.8125 per share per year. If declared, dividends
will be payable in arrears on the 15th day of each month at that annual rate.
Dividends in each dividend period will accrue from the first day of the period,
whether or not declared or paid for the prior dividend period. The first monthly
dividends payable after the date of issuance will accrue from the original date
of issuance. Each declared monthly dividend will be payable to holders of record
as they appear on the stock register of the holding company at the close of
business on the record dates, which will not be more than 45 days before the
payment dates. The board of directors of the holding company will set the record
dates. Dividends (1) for any period other than a full dividend period, will be
computed on the basis of a 360-day year consisting of twelve 30-day months and
(2) for each full dividend period, will be computed by dividing the annual
dividend rate by 12.
The right of holders of series B preferred stock to receive dividends is
not cumulative. Accordingly, if the board of directors fails to declare a
monthly dividend for a dividend period, then holders of the series B preferred
stock will have no right to receive a monthly dividend for that period. The
holding company will have no obligation to pay a dividend for that period, or to
pay any interest on the amount of any unpaid monthly dividends, whether or not
dividends are declared and paid for any future period with respect to the series
A preferred stock, the series B preferred stock or the common stock.
If (1) all dividends due and payable upon the series B preferred stock for
each of the 12 previous monthly dividend periods, or the fewer number of
dividend periods as there actually are, have not been declared and paid, or
declared and a sum sufficient for their payment has not been set apart for their
payment, or (2) the holding company has defaulted on the payment of the
redemption price of any series B preferred stock called for redemption,
- no dividends will be declared or paid or set aside for payment on the
holding company's common stock or any other capital stock of the
holding company ranking junior to the series B preferred stock as to
dividends or amounts upon liquidation;
- no other distribution will be declared or made or set aside for
payment upon the common stock or any other capital stock of the
holding company ranking junior to the series B preferred stock as to
dividends or amounts upon liquidation;
- no shares of common stock or any other capital stock of the holding
company ranking junior to the series B preferred stock as to dividends
or amounts upon liquidation may be redeemed, purchased or otherwise
acquired for any consideration; and
- no monies may be paid to or made available for a sinking fund for the
redemption of any junior stock by the holding company, except by
conversion into or exchange for other capital stock of the holding
company ranking junior to the series B preferred stock as to dividends
and amounts upon liquidation.
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When dividends on the series B preferred stock or any one or more series of
the holding company's preferred stock ranking on a parity with the series B
preferred stock as to dividends or the distribution of assets upon liquidation
are not paid in full or a sum sufficient for their full payment is not set
apart, all dividends declared upon the series B preferred stock and any parity
stock will be declared on an equal basis so that (1) the amount of monthly
dividends on the series B preferred stock and (2) dividends upon the other
series of capital stock in all cases bear to each other the same ratio that (A)
full monthly dividends on the series B preferred stock, for the then-current
dividend period, which will not include any accumulation in respect of unpaid
dividends for prior dividend periods, and (B) full dividends, including required
or permitted accumulations, if any, on the parity stock, bear to each other.
Unless otherwise required by any applicable laws and regulations, each
monthly dividend payment will be made by U.S. Dollar check drawn on a bank in
New York, New York or San Juan, Puerto Rico and mailed to the record holder at
the holder's address as it appears on the register for the series B preferred
stock.
For a discussion of potential regulatory limitations on the holding
company's ability to pay dividends, please see the sections of this proxy
statement/prospectus captioned "Risk Factors -- Applicable laws and regulations
restrict both the ability of Westernbank to pay dividends to the holding
company, and the ability of the holding company to pay dividends to you" and
"Supervision and Regulation."
Voting Rights. Except as expressly required by applicable law, or except
as indicated below, the holders of the series B preferred stock will not be
entitled to receive notice of, or attend or vote at, any meeting of the
stockholders of the holding company.
If at the time of any annual meeting of the holding company's stockholders
for the election of directors, the holding company has failed to pay or declare
and set aside for payment a monthly dividend on the series B preferred stock for
each of the 18 preceding monthly dividend periods, the number of directors then
constituting the board of directors of the holding company will be increased by
one, if not already increased by one due to a default in preference dividends.
At the annual meeting the holders of the series B preferred stock, along with
the holders of any other series of the holding company's preferred stock which
may have voting rights due to the holding company's failure to pay dividends,
will be entitled to elect an additional director to serve on the holding
company's board of directors. The director elected by the holders of the series
B preferred stock and any other series of the holding company's preferred stock
will continue to serve as director until the earlier of (1) the full term for
which he or she has been elected, or (2) the payment of 12 consecutive monthly
dividends on the series B preferred stock.
Unless the vote or consent of the holders of a greater number of shares is
then required by law, the affirmative vote or consent of the holders of at least
two-thirds of the series B preferred stock and of the shares of any parity stock
at the time outstanding will be necessary for authorizing, effecting or
validating any variation or abrogation of the terms of the series B preferred
stock or any other series of parity stock. Notwithstanding the foregoing, the
holding company may, without the consent or sanction of the holders of series B
preferred stock, authorize or issue shares of the holding company ranking, as to
dividend rights and rights on liquidation, winding up and dissolution, on a
parity with or junior to the series B preferred stock.
Unless the vote or consent of the holders of a greater number of shares is
then required by law, the affirmative vote or consent of the holders of at least
two-thirds of the series B preferred stock and any other series of parity stock
at the time outstanding will be necessary to (1) create, (2) authorize, (3)
issue, (4) reclassify any authorized stock of the holding company into, or (5)
create, (6) authorize or (7) issue any obligation or security convertible into
or evidencing a right to purchase, any shares of any class of stock of the
holding company ranking prior to both the series B preferred stock and any other
series of parity stock. The holding company's Certificate of Incorporation may
be amended to increase the number of authorized shares of the holding company's
preferred stock without the vote of the holders of the holding company's
preferred stock, including the series B preferred stock.
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No vote of the holders of the series B preferred stock and any other series
of parity stock will be required for the holding company to redeem or purchase
and cancel the series B preferred stock in accordance with the Certificate of
Incorporation of the holding company.
No Maturity Date or Mandatory Redemption. The series B preferred stock
will not mature on a specified date and is not under any mandatory redemption,
sinking fund or similar obligation. Holders will have no right to require the
holding company to repurchase or redeem any shares of series B preferred stock.
Redemption. The series B preferred stock will be redeemable, in whole or
in part, after May 28, 2004, at the option of the holding company, at any time
or from time to time on not less than 30 nor more than 60 days' notice by mail,
at the following redemption prices, if redeemed during the 12-month period
beginning May 28 of the years indicated below, plus the accrued and unpaid
dividends, if any, for the then-current dividend period to the date of
redemption:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2004........................................................ $26.00
2005........................................................ 25.50
2006 and thereafter......................................... 25.00
</TABLE>
If less than all of the outstanding shares of the series B preferred stock
are to be redeemed at the option of the holding company, the total number of
shares to be redeemed in the redemption will be determined by the board of
directors and the shares to be redeemed will be allocated equally or by lot as
may be determined by the board of directors or by another method as the board of
directors may approve and deem fair and appropriate. The board of directors may
select any method to conform to any rule or regulation of any national or
regional stock exchange or automated quotation system upon which the shares of
the series B preferred stock may at the time be listed or eligible for
quotation; provided that, the shares of a holder must be redeemable in full
unless the holding company obtains a ruling from the Puerto Rico Treasury
Department or an opinion from reputable counsel knowledgeable in Puerto Rico
income tax matters to the effect that the redemption in part of the holder's
shares is not equivalent to a dividend under Puerto Rico law.
Notice of any redemption will be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the date fixed
for redemption to each holder of record of the series B preferred stock to be
redeemed, at the respective addresses appearing on the stock register of the
holding company. Notice so mailed will be conclusively presumed to have been
duly given whether or not actually received, and failure to duly give notice by
mail, or any defect in such notice, to the holders of any shares designated for
redemption will not affect the validity of the proceedings for the redemption of
any other shares of series B preferred stock. Any notice will state: (1) the
date fixed for redemption; (2) the redemption price; (3) the number of shares of
series B preferred stock to be redeemed and, if less than all the shares held by
the holder are to be redeemed, the number of shares to be so redeemed from the
holder; (4) the place where certificates for the shares are to be surrendered
for payment of the redemption price; and (5) that after the date fixed for
redemption the shares to be redeemed will not accrue dividends. If the notice is
mailed properly, and if on or before the date fixed for redemption funds
sufficient to redeem the shares called for redemption are set aside by the
holding company in trust for the account of the holders of the shares to be
redeemed, then, whether or not any certificate for shares called for redemption
has been surrendered for cancellation, on and after the date fixed for
redemption (A) the shares represented so called for redemption will be deemed to
be no longer outstanding, (B) dividends on those shares will cease to accrue,
and (C) all rights of the holders of those shares as stockholders of the holding
company will cease, except the right to receive the redemption price, without
interest, upon surrender of the certificate representing those shares. Upon
surrender in accordance with the notice of the certificate for any shares so
redeemed, the holders of record of those shares will be entitled to receive the
redemption price, without interest. If fewer than all the shares represented by
any certificate are redeemed, a new certificate will be issued representing the
unredeemed shares without cost to the holder.
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At its option, the holding company may, on or before the date fixed for
redemption, irrevocably deposit the aggregate amount payable upon redemption of
the shares of the series B preferred stock to be redeemed with a bank or trust
company designated by the holding company. The depository selected must have (1)
its principal office in New York, New York, San Juan, Puerto Rico, or any other
city in which the holding company at that time maintains a transfer agent with
respect to its capital stock, and (2) a combined capital surplus, as shown by
its latest published statement, of at least $50,000,000. The money deposited
will be held in trust by the depository for payment to the holders of the series
B preferred stock to be redeemed. If the holding company makes the deposit and
the funds so deposited are made immediately available to the holders of the
series B preferred stock to be redeemed, the holding company will be released
and discharged, except as described in the next paragraph, from any obligation
to make payment of the amount payable upon redemption of the series B preferred
stock to be redeemed, and the holders of the shares shall look only to the
depository for payment.
Any funds remaining unclaimed at the end of two years from and after the
date fixed for redemption in respect of which funds were deposited will be
returned to the holding company and the holders of the series B preferred stock
called for redemption with respect to which the funds were deposited must look
only to the holding company for the payment of the redemption price. Any
interest accrued on any funds deposited with the depository will belong to the
holding company and will be paid to it from time to time on demand.
Any of the shares of series B preferred stock which will at any time have
been redeemed will, after the redemption, have the status of authorized but
unissued preferred shares, without designation as to series, until the shares
are once more designated as part of a particular series by the board of
directors.
The redemption of the series B preferred stock will require the prior
approval of the Federal Reserve Board.
Rights Upon Liquidation. If any voluntary or involuntary liquidation of
the holding company occurs, the holders of the series B preferred stock at the
time outstanding will be entitled to receive out of assets of the holding
company available for distribution to stockholders, before any distribution of
assets is made to holders of common stock or any other class of stock ranking
junior to the series B preferred stock upon liquidation, (1) liquidating
distributions in the amount of $25 per share of series B preferred stock, plus
(2) the accrued and unpaid dividends, if any, for the then-current dividend
period to the date of liquidation.
After payment of the full amount of the liquidating distributions to which
they are entitled, the holders of series B preferred stock will have no right or
claim to any of the remaining assets of the holding company. If, upon any
voluntary or involuntary liquidation, the available assets of the holding
company are insufficient to pay the amount of the liquidation distributions on
all outstanding shares of series B preferred stock and the corresponding amounts
payable on all shares of parity stock, then the holders of the series B
preferred stock and the other classes or series of parity stock will share
equally in any distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be entitled.
For these purposes, neither (1) the consolidation or merger of the holding
company with or into any other entity, nor (2) the sale, lease or conveyance of
all or substantially all of the property or business of the holding company,
will not be deemed to constitute a liquidation of the holding company.
Rank. The series B preferred stock will, with respect to dividend rights
and rights on liquidation, rank (1) senior to all classes of common stock and to
all other equity securities issued by the holding company, the terms of which
specifically provide that those equity securities will rank junior to the series
B preferred stock, or to all series of the holding company's preferred stock in
general; (2) on a parity with all parity stock; and (3) junior to all equity
securities issued by the holding company, the terms of which specifically
provide that those equity securities will rank senior to the series B preferred
stock. For this purpose, the term "equity securities" does not include debt
securities convertible into or exchangeable for equity securities.
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The holding company may not issue shares of ranking, as to dividend rights
or rights on liquidation, senior to the series B preferred stock except with the
consent of the holders of at least two-thirds of the series B preferred stock
and any series of parity stock at the time outstanding. See "Voting Rights"
above.
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
Several provisions of the holding company's certificate of incorporation
and by-laws may discourage unilateral tender offers or other attempts to take
over and acquire the business of the holding company. The following summarizes
those provisions of the holding company's certificate of incorporation and
by-laws which might have a potential "anti-takeover" effect. You should refer in
each case to the holding company's certificate of incorporation and by-laws
which are attached to this proxy statement/prospectus at Appendix B.
Classified Board of Directors. The holding company's certificate of
incorporation provides that the holding company's board of directors shall be
divided into three classes of approximately equal numbers of directors, with the
term of office of one class expiring each year. This provision will provide a
greater likelihood of continuity, knowledge and experience on the holding
company's board of directors because at any one time, one third of the board of
directors would be in its second year of service and one third of the board of
directors would be in its third year of service. In addition, this provision
would cause any person who may attempt to take over the holding company to have
to deal with the current board of directors because even if that person acquires
a majority of the outstanding voting shares of the holding company, that person
would be unable to change the majority of the board of directors at any one
annual meeting.
Vacancies on the Board of Directors. The holding company's certificate of
incorporation and by-laws provide that any vacancy occurring in the board of
directors, including an increase in the number of authorized directors, may be
filled by the affirmative vote of a majority of the directors then in office,
though less than a quorum of the board of directors. A director elected to fill
a vacancy will serve for the remainder of the term to which the director has
been elected and until the director's successor has been elected and qualified.
Amendment of Certificate of Incorporation and Bylaws. The certificate of
incorporation of the holding company requires the affirmative vote of the
holders of at least two-thirds, or such higher amount as required by law, of the
shares of each series of the holding company's preferred stock in connection
with amendments affecting the terms and preferences of the series or any parity
stock. Puerto Rico corporate law provides that a corporation may amend its
certificate of incorporation if the amendment is approved by the vote of the
majority of its entire capital stock entitled to vote and is filed with the
Department of State of the Commonwealth of Puerto Rico. The holding company's
certificate of incorporation and by-laws provide that the holding company's
by-laws may be amended by the board of directors or at any annual or special
meeting of stockholders in the manner provided in Puerto Rico corporate law.
Under Puerto Rico corporate law and the holding company's certificate of
incorporation and by-laws, this would require a majority of the directors
present at which a quorum is present or a majority of the outstanding shares of
voting capital stock present by person or proxy if a quorum is present.
For restrictions on acquisitions of the holding company imposed by law or
regulation, please see the section of this proxy statement/prospectus captioned
"Supervision and Regulation -- Acquisition of the Holding Company," below.
ADDITIONAL INFORMATION ABOUT INTERIM BANK
The interim bank will be organized as a Puerto Rico banking corporation
solely to facilitate the reorganization. The interim bank will be a
non-operating bank and will be merged into Westernbank as a result of the
reorganization. Its principal office will be the principal office of
Westernbank, located at 19 West McKinley Street, Mayaguez, Puerto Rico 00680,
and its phone number will be (787) 834-8000.
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The interim bank will be authorized to issue 5,000 shares of common stock,
par value $5,000 per share. Immediately before the reorganization takes place,
the holding company will own all outstanding shares of the interim bank's common
stock. On the effective date of the reorganization, each of those shares held by
the holding company will be converted into shares of Westernbank's common stock
and the holding company will own all of the outstanding capital stock of
Westernbank.
SUPERVISION AND REGULATION
GENERAL
Westernbank is a Puerto Rico-chartered commercial bank, and its deposit
accounts are insured up to applicable limits by the FDIC. Westernbank is subject
to extensive regulation by the Office of the Commissioner of Financial
Institutions of Puerto Rico, as its chartering agency, and the Federal Deposit
Insurance Corporation. After the reorganization, Westernbank will continue to be
a Puerto Rico-chartered commercial bank with deposits insured by the FDIC, and
will continue to be subject to extensive regulation by the Office of the
Commissioner and the FDIC. The discussion that follows of the regulations that
currently apply to Westernbank will apply to the same extent to Westernbank
after the reorganization.
Westernbank must file reports with the Office of the Commissioner and the
FDIC concerning its activities and financial condition, and it must obtain
regulatory approval prior to entering into certain transactions, such as mergers
with, or acquisitions of, other depository institutions and opening or acquiring
branch offices. The Office of the Commissioner and the FDIC conduct periodic
examinations to assess Westernbank's compliance with various regulatory
requirements. This regulation and supervision is intended primarily for the
protection of the deposit insurance funds and depositors. The regulatory
authorities have extensive discretion in the exercise of their supervisory and
enforcement activities, including the setting of policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. The holding company, as a bank holding company, will
also be required to file reports with, and otherwise comply with, the rules and
regulations of the Federal Reserve and the Office of the Commissioner and with
the rules and regulations of the Securities and Exchange Commission under the
federal securities laws. Compliance with these additional regulations will
impose additional costs on the holding company which are not currently borne by
Westernbank. Any change in the laws governing Westernbank or the holding
company, whether by a bank regulatory agency or through legislation, could have
a material adverse impact on Westernbank and the holding company and their
operations and stockholders.
The following is a summary of the laws and regulations that are applicable
to Westernbank and the holding company. This summary is not a complete
description of such laws and regulations or of all such laws and regulations.
The operations of Westernbank and the holding company may be affected by
legislative and regulatory changes as well as by changes in the policies of
various regulatory authorities.
THE HOLDING COMPANY
Federal Regulation. Following the completion of the reorganization, the
holding company will be subject to examination, regulation and periodic
reporting under the Bank Holding Company Act of 1956, as amended, as
administered by the Board of Governors of the Federal Reserve System.
The Federal Reserve Board has adopted capital adequacy guidelines for bank
holding companies on a consolidated basis substantially similar to those of the
FDIC applicable to Westernbank. See the section of this proxy
statement/prospectus captioned "Federal Regulation of Westernbank -- Capital
Requirements," below. After the reorganization, the holding company's risk-based
and leverage ratios will exceed these minimum capital requirements. A bank
holding company's ability to pay dividends to its stockholders and expand its
line of business through the acquisition of new banking subsidiaries can be
restricted if its capital falls below levels established by the Federal Reserve
guidelines. In addition, any bank holding company whose capital falls below
levels specified in the guidelines can be required to implement a plan to
increase capital.
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Prior approval of the Federal Reserve Board will be required for the
holding company to acquire direct or indirect ownership or control of any voting
securities of any bank or bank holding company if, after giving effect to such
acquisition, it would, directly or indirectly, own or control more than 5% of
any class of voting shares of such bank or bank holding company. The holding
company also will be required to obtain the prior approval of the Federal
Reserve Board to acquire all, or substantially all, of the assets of any bank or
bank holding company.
In addition, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of any company engaged in,
non-banking activities unless such activities have been found by the Federal
Reserve Board to be closely related to banking or managing or controlling banks.
Some of the principal activities that the Federal Reserve Board has determined
by regulation to be closely related to banking are:
- making or servicing loans;
- performing certain data processing services;
- providing discount and full service brokerage services;
- acting as fiduciary, investment or financial advisor;
- leasing personal or real property;
- making investments in corporations or projects designed primarily to
promote community welfare; and
- acquiring a savings and loan association.
The holding company will be required to give the Federal Reserve Board
prior written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, will be equal to 10% or more of the holding
company's consolidated net worth. The Federal Reserve Board may disapprove any
purchase or redemption if it determines that the proposal would constitute an
unsafe and unsound practice, or would violate any law, regulation, order or
directive of the Federal Reserve Board, or any condition imposed by, or written
agreement with, the Federal Reserve Board. Such notice and approval is not
required for a bank holding company that would be treated as "well capitalized"
under applicable regulations of the Federal Reserve Board, that has received a
composite "1" or "2" rating at its most recent bank holding company inspection
by the Federal Reserve Board, and that is not the subject of any unresolved
supervisory issues. Notwithstanding the foregoing, any redemption of the holding
company's series A preferred stock or series B preferred stock will require the
prior approval of the Federal Reserve Board.
The Federal Reserve Board is empowered to initiate cease and desist
proceedings and other supervisory actions for violations of the Bank Holding
Company Act, or the regulations, orders, conditions or agreements of or with the
Federal Reserve Board.
The status of the holding company as a registered bank holding company
under the Bank Holding Company Act does not exempt it from certain federal and
state laws and regulations applicable to corporations generally, including,
without limitation, certain provisions of the federal securities laws.
WESTERNBANK
Puerto Rico Banking Law. As a commercial bank organized under the laws of
the Commonwealth, Westernbank is subject to supervision, examination and
regulation by the Office of the Commissioner pursuant to the Puerto Rico Banking
Act of 1933, as amended. That law governs the incorporation and organization,
and contains provisions on the rights and responsibilities of directors,
officers and stockholders, and the corporate powers, savings, lending, capital
and investment requirements and other activities of Westernbank. The Office of
the Commissioner has extensive rulemaking power and
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administrative discretion under the Banking Law. The Office of the
Commissioner's office normally examines Westernbank once every year.
Section 27 of the Banking Law requires that at least 10% of the yearly net
income of Westernbank be credited annually to a reserve fund. This must be done
every year until the reserve fund is equal to the total paid-in capital for
common stock and preferred stock. At the end of its most recent fiscal year,
Westernbank had an adequate reserve fund established.
Section 27 of the Banking Law also provides that when the expenditures of a
bank are greater than the receipts, the excess is charged against the
undistributed profits of the bank, and the balance, if any, is charged against
and reduces the reserve fund. If there is no reserve fund sufficient to cover
the entire amount, the excess amount is charged against the capital account and
no dividend can be declared until the capital has been restored to its original
amount and the reserve fund to 20% of the original capital.
Section 16 of the Banking Law requires every bank to maintain a legal
reserve in an amount established by the Office of the Commissioner through
regulation, but in no case may the required reserve exceed 30% of demand
liabilities, except deposits of the U.S. Government, the Commonwealth of Puerto
Rico and its municipalities secured by actual collateral. A regulation of the
Office of the Commissioner requires a reserve of at least 20% of the bank's
demand liabilities, except deposits of the U.S. Government, the Commonwealth of
Puerto Rico and its municipalities. At March 31, 1999, Westernbank had a legal
reserve of 102.0%.
Section 17 of the Banking Law provides that Westernbank may not make loans
to, nor accept the guarantee of, any one person, firm, partnership or
corporation, in a total amount in excess of 15% of the paid-in capital in common
stock and preferred stock, the reserve fund of Westernbank and all other
components considered by the Office of the Commissioner. As of March 31, 1999,
the legal lending limit for Westernbank under this provision was approximately
$19.9 million. If such loans are secured by collateral worth at least 25% or
more than the amount of the loan, the aggregate maximum amount may reach one
third of the paid-in capital of Westernbank plus its reserve fund. There are no
restrictions under Section 17 on the amount of loans which are wholly secured by
bonds, securities and other evidences of indebtedness of the Government of the
United States or the Commonwealth of Puerto Rico, or by current debt bonds, not
in default, of municipalities or instrumentalities of the Commonwealth of Puerto
Rico. The Office of the Commissioner has, through regulation, interpreted the
lending limits provision of the Banking Law to permit commercial banks to
additionally take into consideration up to 50% of the bank's retained earnings
in the calculation of the bank's lending limit if the bank is well capitalized.
Section 30 of the Banking Law provides that the Office of the Commissioner
can place a Puerto Rico bank into receivership, and liquidate the bank, if
deemed necessary, if the Office of the Commissioner, as a result of an
examination made or a report rendered by an examiner, finds that the bank is not
in sound financial condition to continue doing business, or that its affairs are
conducted in such a manner that the public or the persons and entities having
funds or securities under its custody are in danger of being defrauded.
Furthermore, section 31 of the Banking Law provides that the Office of the
Commissioner may appoint a receiver and dissolve and liquidate a Puerto Rico
bank if the bank refuses to submit its books, documents and affairs for the
inspection of an examiner, or if it appears that the bank's certificate of
incorporation or any related law has been violated. Section 37 of the Banking
Law provides that a Puerto Rico bank must be dissolved if it loses 100% of its
capital.
The Financial Board, which is a part of the Office of the Commissioner, but
also includes as its members the Secretary of the Treasury, the Secretary of
Commerce, the Secretary of Consumer Affairs, the Chairman of the Planning Board,
and the President of the Government Development Bank for Puerto Rico, has the
authority to regulate the maximum interest rates and finance charges that may be
charged on loans to individuals and unincorporated businesses in the
Commonwealth of Puerto Rico. In February 1992 and again in November 1997, the
Financial Board approved regulations which provide that the applicable interest
rate on loans to individuals and unincorporated businesses is to be determined
by free competition.
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The Financial Board also has authority to regulate the maximum finance
charges on retail installment sales contracts, including credit card purchases,
which are currently set at 21%. There is no maximum rate set for installment
sales contracts involving motor vehicles, commercial, agricultural and
industrial equipment, commercial electric appliances, and insurance premiums.
Section 12 of the Banking Law requires the prior approval of the Office of
the Commissioner to obtain control of any bank organized under the Banking Law.
The Banking Law requires that in any transfer of voting and outstanding capital
stock of any bank organized under the laws of Puerto Rico to any person or
entity that, upon the transfer, will become the owner, directly or indirectly,
of more than 5% of the voting and outstanding capital stock of the bank, the
parties to the transfer must inform the Office of the Commissioner of the
proposed transfer at least 60 days prior to the date such transfer is to occur.
The transfer requires the approval of the Office of the Commissioner if it
results in a change of control of the bank. For the purposes of section 12 of
the Banking Law, the term "control" means the power to, directly or indirectly,
direct or influence decisively the administration or the operations of the bank.
Federal Regulation of Westernbank.
Capital Requirements. The FDIC has adopted risk-based minimum capital
regulations for insured state nonmember banks, such as Westernbank. The
regulations establish a systematic analytical framework that makes regulatory
capital requirements more sensitive to differences in risk profiles among
insured depository institutions. Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet commitments to four
risk-weighted categories ranging from 0% to 100%, with higher levels of capital
required for the categories perceived as representing greater risk. State
nonmember banks must maintain a minimum ratio of qualifying total capital to
risk-weighted assets of 8.0%, and a minimum ratio of Tier 1 capital to
risk-weighted assets of 4.0%. Tier 1 capital includes common equity, certain
noncumulative perpetual preferred stock and minority interests in equity
accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets. Total capital consists of Tier 1 capital plus supplementary
capital which includes, among other items, cumulative perpetual and long-term,
limited-life, preferred stock, mandatory convertible securities, certain hybrid
capital instruments, term-subordinated debt and the allowance for loan and lease
losses, subject to certain limitations, less required deductions. In addition,
insured state nonmember banks must maintain a ratio of Tier 1 capital to average
total assets of at least 3% to 5%, depending on the bank's supervisory rating.
The FDIC may establish higher capital requirements for a particular bank if
the FDIC determines that a bank's capital is, or may become, inadequate in view
of its particular circumstances. Individual minimum capital requirements may be
appropriate if a bank is receiving special supervisory attention, has a high
degree of exposure to interest rate risk or poses other safety and soundness
concerns. Westernbank currently is not subject to any individually imposed
minimum capital requirements.
Failure to meet capital guidelines could subject Westernbank to a variety
of enforcement actions, including issuance of a capital directive, the
termination of deposit insurance, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon banks that fail to meet
applicable capital requirements under the FDIC's prompt corrective action
regulations.
The FDIC assesses Westernbank's exposure to declines in the economic value
of the bank's capital due to changes in interest rates when assessing the bank's
capital adequacy. Under such a risk assessment, examiners will evaluate
Westernbank's capital for interest rate risk on a case-by-case basis, with
consideration of both quantitative and qualitative factors. Applicable
considerations include the quality of the bank's interest rate risk management
process, the overall financial condition of the bank and the level of other
risks at the bank for which capital is needed. Institutions with significant
interest rate risk may be required to hold additional capital.
44
<PAGE> 47
The following table shows Westernbank's capital ratios at March 31, 1999.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ------------------
ACTUAL MINIMUM
----------------- ---------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ------ --------- ------ --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets).............. $174,536 11.41% $122,326 8% $152,908 10%
Tier I Capital
(to Risk Weighted Assets).............. $158,464 10.47% $ 60,520 4% $ 90,780 6%
Tier I Capital
(to Average Assets).................... $158,464 5.98% $ 79,461 3% $132,434 5%
</TABLE>
As the preceding table shows, Westernbank exceeded the minimum capital
adequacy requirements at the date indicated.
Activity Restrictions on State-Chartered Banks. Section 24 of the Federal
Deposit Insurance Act generally limits the activities and investments of
state-chartered insured banks and their subsidiaries to those permissible for
federally chartered national banks and their subsidiaries, unless such
activities and investments are specifically exempted by law or the FDIC
determines that such activity or investment would pose no significant risk to
the Bank Insurance Fund.
Before making a new investment or engaging in a new activity not
permissible for a national bank or otherwise permissible under section 24 or the
FDIC regulations, an insured bank must file a notice or application with the
FDIC to make such investment or engage in such activity. The FDIC will not
approve the activity unless the bank meets its minimum capital requirements and
the FDIC determines that the activity does not present a significant risk to the
insurance funds. The FDIC has by regulation determined that certain real estate
investment and securities underwriting activities do not present a significant
risk to the insurance funds provided they are conducted in accordance with the
regulations. The FDIC recently adopted a streamlined notice process for use by
well run, well capitalized institutions seeking permission to engage in such
activities, and simplified limitations applicable to the activities.
Enforcement. The FDIC has extensive enforcement authority over
Westernbank. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease and desist orders and to
remove directors and officers. In general, these enforcement actions may be
initiated in response to violations of laws and regulations and to unsafe or
unsound practices.
The FDIC is required, with certain exceptions, to appoint a receiver or
conservator for an insured state bank if that bank is "critically
undercapitalized." For this purpose, "critically undercapitalized" means having
a ratio of tangible equity to total assets that is equal to or less than 2%. See
"Prompt Corrective Action" below. The FDIC may also appoint a conservator or
receiver for a state bank on the basis of the institution's financial condition
or upon the occurrence of certain events, including:
- insolvency;
- substantial loss of assets or earnings through violations of law or
unsafe or unsound practices;
- existence of an unsafe or unsound condition to transact business;
- likelihood that a bank will be unable to meet the demands of its
depositors or to pay its obligations in the normal course of business;
and
- insufficient capital.
In the event of any such appointment, it is likely that the stockholders of the
institution would not receive anything for their interests in the institution
and such interests ultimately would be terminated.
45
<PAGE> 48
Deposit Insurance. Westernbank does not now, but may in the future be
required to, pay semiannual insurance premiums for its FDIC deposit insurance.
The FDIC implements a risk-based deposit insurance assessment system. Deposit
insurance assessment rates currently are within a range of $0.00 to $0.27 per
$100 of insured deposits, depending on the assessment risk classification
assigned to each institution. Under current FDIC assessment guidelines,
Westernbank expects that it will not incur any FDIC deposit insurance
assessments for the first half of 1999. However, the deposit insurance
assessments imposed by the FDIC are subject to change.
Westernbank must pay assessments for the payment on the bonds issued in the
late 1980's to recapitalize the former Federal Savings and Loan Insurance
Corporation. The annual rate of assessments for the payments on the bonds for
the semi-annual period beginning on January 1, 1999 was 1.22 basis points for
Bank Insurance Fund-assessable deposits and 6.1 basis points for Savings
Association Insurance Fund-assessable deposits. Savings Association Insurance
Fund-assessable deposits represent 91.4% of Westernbank's total deposits.
FDIC insurance on deposits may be terminated by the FDIC, after notice and
hearing, upon a finding by the FDIC that the insured bank has engaged or is
engaging in unsafe or unsound practices, or is in an unsafe or unsound condition
to continue operations as an insured bank, or has violated any applicable law,
regulation, rule or order of, or condition imposed by or written agreement
entered into with the FDIC.
Transactions with Affiliates of the Bank. Transactions between Westernbank
and any of its affiliates, including the holding company, are governed by
sections 23A and 23B of the Federal Reserve Act. An affiliate of a bank is any
company or entity that controls, is controlled by or is under common control
with the bank. Generally, sections 23A and 23B (1) limit the extent to which a
bank or its subsidiaries may engage in "covered transactions" with any one
affiliate to an amount equal to 10% of the bank's capital stock and surplus, and
limit such transactions with all affiliates to an amount equal to 20% of such
capital stock and surplus, and (2) require that all such transactions be on
terms that are consistent with safe and sound banking practices. The term
"covered transaction" includes the making of loans, purchase of or investment in
securities issued by the affiliate, purchase of assets, issuance of guarantees
and other similar types of transactions. Most loans by a bank to any of its
affiliates must be secured by collateral in amounts ranging from 100 to 130
percent of the loan amount, depending on the nature of the collateral. In
addition, any covered transaction by a bank with an affiliate and any sale of
assets or provision of services to an affiliate must be on terms that are
substantially the same, or at least as favorable, to the bank as those
prevailing at the time for comparable transactions with nonaffiliated companies.
Loans to Insiders. A bank's loans to its "insiders," including its
executive officers, directors, and any owner of 10% or more of its stock, and to
the "insider's related interests," are conditioned and limited by sections 22(g)
and 22(h) of the Federal Reserve Act and the Federal Reserve's Regulation O.
Under these restrictions, the aggregate amount of the loans to any insider and
the insider's related interests may not exceed the loans-to-one-borrower limit
applicable to national banks. All loans by a bank to all insiders and insider's
related interests in the aggregate may not exceed a bank's unimpaired capital
and unimpaired surplus. Regulation O also requires that any proposed loan to an
insider or an insider's related interest be approved in advance by a majority of
the board of directors of a bank, with any interested director not participating
in the voting, if such loan, when aggregated with any existing loans to that
insider and the insider's related interests, would exceed either (a) $500,000 or
(b) the greater of $25,000 or 5% of a bank's unimpaired capital and surplus. The
loans must be made on substantially the same terms as, and follow credit
underwriting procedures that are not less stringent than, those that are
prevailing at the time for comparable transactions with other persons, with some
exceptions. In addition, loans to an executive officer, with some exceptions,
may not exceed the lesser of (a) $100,000 or (b) the greater of $25,000 or 2.5%
of a bank's unimpaired capital and surplus.
Community Reinvestment Act. Under the Community Reinvestment Act of 1997,
as implemented by FDIC regulations, a bank has an obligation to help meet the
credit needs of its entire community, including low-and moderate-income
neighborhoods. The Community Reinvestment Act requires the FDIC
46
<PAGE> 49
to assess the bank's record of meeting the credit needs of its community and to
take such record into account in its evaluation of certain applications by the
bank.
The FDIC rates an institution based on its actual performance in meeting
community needs. The evaluation system focuses on a lending test, an investment
test, and a service test. In its most recent examination for Community
Reinvestment Act performance, Westernbank received a satisfactory rating from
the FDIC.
Safety and Soundness Standards. Westernbank is subject to certain FDIC
standards designed to maintain the safety and soundness of individual banks and
the banking system. The FDIC has prescribed safety and soundness guidelines
relating to:
- internal controls, information systems and internal audit systems;
- loan documentation;
- credit underwriting;
- interest rate exposure;
- asset growth and quality;
- earnings; and
- compensation and benefit standards for officers, directors, employees and
principal stockholders.
The guidelines are intended to set out standards that the FDIC will use to
identify and address problems at banks before capital becomes impaired. Banks
are required to, among other things, establish and maintain a system to identify
problem assets and prevent deterioration of those assets in a manner
commensurate with their size and the nature and scope of their operations.
Furthermore, banks must establish and maintain a system to evaluate and monitor
earnings and ensure that earnings are sufficient to maintain adequate capital
and reserves in a manner commensurate with their size and the nature and scope
of their operation.
A bank not meeting one or more of the safety and soundness guidelines may
be required to file a compliance plan with the FDIC. If a bank were to fail to
submit an acceptable compliance plan or fail in any material respect to
implement an accepted compliance plan within the time allowed by the FDIC, the
bank would be required to correct the deficiency and the FDIC would also be
authorized to:
- restrict asset growth;
- require the bank to increase its ratio of tangible equity to assets;
- restrict the rates of interest that the bank may pay; or
- take any other action that would better carry out the purpose of the
corrective action.
Westernbank believes it complies with all such safety and soundness guidelines
as of the date of this proxy statement/prospectus.
The FDIC periodically conducts examinations of insured banks and, based
upon evaluations, may require a revaluation of assets of an insured bank and may
require the establishment of specific reserves in amounts equal to the
difference between such revaluation and the book value of the assets.
Prompt Corrective Action. Under the FDIC's prompt corrective action
regulations, insured institutions will be considered
- "well capitalized" if the institution has a total risk-based capital
ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, and a leverage ratio of 5% or greater, provided that the
institution is not subject to an order, written agreement, capital
directive or prompt corrective action directive to meet and maintain a
specified capital level for any capital measure;
47
<PAGE> 50
- "adequately capitalized" if the institution has a total risk-based
capital ratio of 8% or greater, a Tier 1 risk based capital ratio of 4%
or greater and a leverage ratio of 4% or greater, or 3% or greater if the
institution has the highest supervisory rating in its most recent report
of examination and is not experiencing or anticipating significant
growth;
- "undercapitalized" if the institution has a total risk-based capital
ratio that is less than 8%, or a Tier 1 risk-based ratio of less than 4%
and a leverage ratio that is less than 4%, or 3% if the institution has
the highest supervisory rating in its most recent report of examination
and is not experiencing or anticipating significant growth;
- "significantly undercapitalized" if the institution has a total
risk-based capital ratio that is less than 6%, Tier 1 risk-based capital
ratio of less than 3% or a leverage ratio that is less than 3%; and
- "critically undercapitalized" if the institution has a ratio of tangible
equity to total assets that is equal to or less than 2%.
Under certain circumstances, the FDIC can reclassify a well capitalized
institution as adequately capitalized and may require an adequately capitalized
institution or an undercapitalized institution to comply with supervisory
actions as if it were in the next lower category. The FDIC may not, however,
reclassify a significantly undercapitalized institution as critically
undercapitalized. At March 31, 1999, Westernbank was classified as a "well
capitalized" institution.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to the FDIC. An undercapitalized institution
also is generally prohibited from increasing its average total assets, making
acquisitions, establishing any branches, or engaging in any new line of
business, except in accordance with an accepted capital restoration plan or with
the approval of the FDIC. In addition, the FDIC may take any other action that
it determines will better carry out the purpose of prompt corrective action
initiatives.
Dividend Restrictions. Westernbank is not permitted to pay dividends if,
as the result of the payment, it would become undercapitalized, as defined in
the prompt corrective action regulations of the FDIC. In addition, if
Westernbank becomes "undercapitalized" under "prompt corrective action"
initiatives, payment of dividends would be prohibited without the prior approval
of the FDIC. Westernbank also could be subject to these dividend restrictions if
the FDIC determines that Westernbank is in an unsafe or unsound condition or
engaging in an unsafe or unsound practice.
ACQUISITION OF THE HOLDING COMPANY
Puerto Rico Change in Bank Control Restrictions. No person or company may
acquire direct or indirect control of the holding company without first
obtaining the prior approval of the Office of the Commissioner. Control is
defined to mean the power to, directly or indirectly, direct or decisively
influence the management or the operations of the holding company. Control is
presumed to exist if a person or entity, or group acting in concert, would
become the owner, directly or indirectly, of more than 5% of the voting stock of
the holding company as a result of the transfer of voting stock, and such
person, entity or group did not own more than 5% of the voting stock prior to
the transfer. In reviewing an application for a change in control, the Office of
the Commissioner will consider, among other things, the experience, integrity
and financial resources of the party seeking control, the effect of the transfer
of control on depositors, creditors and stockholders of the holding company, and
the public interest.
Federal Restrictions. Under the federal Change in Bank Control Act, a
notice must be submitted to the Federal Reserve Board if any person or entity,
or group acting in concert, seeks to acquire 10% or more of the holding
company's shares of common stock. Under the Change in Bank Control Act, the
Federal Reserve Board takes into consideration certain factors, including the
financial and managerial resources of the acquirer, the convenience and needs of
the communities served by the holding company and Westernbank, and the
competitive effects of the acquisition.
48
<PAGE> 51
Under the Bank Holding Company Act, any company would be required to obtain
prior approval from the Federal Reserve Board before it could acquire "control"
of the holding company within the meaning of the Bank Holding Company Act.
Control generally is defined for these purposes to mean the ownership, control
or power to vote 25% or more of any class of voting securities of the holding
company, the ability to control in any manner the election of a majority of the
holding company's directors, or to otherwise have the power to exercise a
controlling influence over the management or policies of the holding company.
FEDERAL HOME LOAN BANK SYSTEM
Westernbank is a member of the Federal Home Loan Bank System. The Federal
Home Loan Bank System provides a central credit facility available to member
institutions. Westernbank, as a member of the Federal Home Loan Bank of New
York, is required to acquire and hold shares of capital stock in that Federal
Home Loan Bank in an amount equal to the greater of 1.0% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each year, 5% of its
Federal Home Loan Bank advances outstanding, or one per cent of thirty per cent
of total assets. At March 31, 1999, Westernbank owned $9.4 million of Federal
Home Loan Bank common stock.
Advances from and securities sold under agreements to repurchase with the
Federal Home Loan Bank of New York are secured by a member's shares of stock in
the Federal Home Loan Bank of New York, certain types of mortgages and other
assets. Interest rates charged for advances vary depending upon maturity and
cost of funds to the Federal Home Loan Bank of New York. As of March 31, 1999,
Westernbank had $116.0 million of outstanding advances from the Federal Home
Loan Bank of New York.
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth information known to Westernbank as to any
persons or entities which as of March 1, 1999, by themselves or as a group, as
the term is defined by section 13(d)(3) of the Securities Exchange Act of 1934,
are the beneficial owners of 5% or more of the issued and outstanding common
stock of Westernbank.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY
OWNED AS OF MARCH 1, 1999
---------------------------
NAME ADDRESS AMOUNT(1) PERCENTAGE
---- ------- ---------- ----------
<S> <C> <C> <C>
Frank C. Stipes, Esq. Westernbank 2,292,686(2) 5.44%
Chairman of the Board, 19 West McKinley Street
Chief Executive Officer and Mayaguez, Puerto Rico 00680
President
Ileana G. Carr, Honorary Westernbank 5,696,180(3) 13.56%
Directress 19 West McKinley Street
Mayaguez, Puerto Rico 00680
Fredeswinda G. Frontera Westernbank 4,885,836(4) 11.61%
Directress 19 West McKinley Street
Mayaguez, Puerto Rico 00680
Directors and executive officers Westernbank 15,222,896 36.08%
19 West McKinley Street
Mayaguez, Puerto Rico 00680
</TABLE>
Notes:
(1) Based upon information provided by the respective beneficial owners and
filings with the Federal Deposit Insurance Corporation made pursuant to the
Securities Exchange Act of 1934, as amended. Beneficial ownership is direct
except as otherwise indicated by footnote. In accordance with
49
<PAGE> 52
Rule 13d-3 of the Securities Exchange Act of 1934, as amended, a person is
deemed to be the beneficial owner of a security if he or she has or shares
voting power or investment power with respect to such security or has the
right to acquire such ownership within 60 days. Unless otherwise indicated,
all persons have sole voting and investment powers as to all shares
reported.
(2) Includes 119,400 shares of common stock receivable upon conversion of
120,000 shares of Westernbank's series A preferred stock owned by Mr.
Stipes. Also includes 3,100 shares of common stock owned by Mr. Stipes'
daughter.
(3) Includes 83,200 shares owned by Mrs. Carr's husband.
(4) Includes 156,952 shares owned by Mrs. Frontera's spouse and children and
55,720 shares receivable upon conversion of 56,000 shares of series A
preferred stock owned by Mrs. Frontera.
50
<PAGE> 53
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTORS AND
DIRECTORS WHOSE TERMS CONTINUE
ELECTION OF DIRECTORS
Westernbank's by-laws presently provide for seven directors, with the board
of directors divided into three classes as nearly equal in number as possible.
The members of each class are to be elected for a term of three years and until
their successors are elected and qualified. One class is elected each year on a
rotating basis.
THE NOMINEES
UNLESS OTHERWISE DIRECTED, EACH PROXY EXECUTED AND RETURNED BY A
STOCKHOLDER WILL BE VOTED FOR THE ELECTION OF ALL OF THE NOMINEES LISTED BELOW.
If any nominee is unable or unwilling to stand for election at the time of the
annual meeting, the proxies will nominate and vote for the replacement nominee
or nominees recommended by the board of directors. At this time, the board of
directors knows of no reason why any of the persons listed below may not be able
to serve as a director if elected.
NOMINEES FOR TERMS EXPIRING IN 2002
(PROPOSAL 2)
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY
PRINCIPAL OWNED AS OF
OCCUPATION MARCH 1, 1999(1)
DURING THE DIRECTOR -----------------------
NAME AGE PAST FIVE YEARS SINCE AMOUNT PERCENTAGE
---- --- --------------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cesar A. Ruiz 64 Retired Banker 1972 17,300 *
Fredeswinda G. Frontera 66 Retired Psychologist 1981 4,885,836(2) 11.61%
Cornelius Tamboer 55 Industrial Contractor/Prota 1989 1,626,030(3) 3.87%
Construction, S.E.
</TABLE>
- ---------------
* Represents less than 1% of the outstanding common stock.
Notes:
(1) The number of shares beneficially owned by each director and nominee is
based upon information provided by such persons. All directors and nominees
have sole voting and investment powers as to shares reported, unless
otherwise indicated.
(2) Includes 156,952 shares owned by Mrs. Frontera's spouse and children and
55,720 shares receivable upon conversion of 56,000 shares of series A
preferred stock owned by Mrs. Frontera.
(3) This amount includes 707,480 shares of common stock of Westernbank owned by
Prota Construction, S. E., of which Mr. Tamboer is the holder of 100%
interest and has full voting power, and 10,000 shares of common stock of
Westernbank owned by Tamrio, Inc., of which Mr. Tamboer is the holder of 50%
interest and has shared voting power.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
ABOVE NOMINEES AS DIRECTORS.
51
<PAGE> 54
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
WHOSE TERMS EXPIRE IN 2001
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY
PRINCIPAL OWNED AS OF
OCCUPATION MARCH 1, 1999(1)
DURING THE DIRECTOR ---------------------
NAME AGE PAST FIVE YEARS SINCE AMOUNT PERCENTAGE
---- --- ---------------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Pedro R. Dominguez 54 First Vice President-- 1992 125,000 *
Southern Region
of Westernbank
Fidel Pino Cros 66 Civil Engineer and 1984 28,012 *
Developer
</TABLE>
- ---------------
* Represents less than 1% of the outstanding common stock.
Notes:
(1) The number of shares beneficially owned by each director and nominee is
based upon information provided by such persons. All directors and nominees
have sole voting and investment powers as to shares reported, unless
otherwise indicated.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
WHOSE TERMS EXPIRE IN 2000
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY
PRINCIPAL OWNED AS OF
OCCUPATION MARCH 1, 1999(1)
DURING THE DIRECTOR -----------------------
NAME AGE PAST FIVE YEARS SINCE AMOUNT PERCENTAGE
---- --- ------------------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Frank C. Stipes, Esq. 43 Chairman of the Board, 1990 2,292,686(2) 5.17%
Chief Executive Officer
and President of
Westernbank
Angel Luis Rosas, CPA 64 Certified Public 1990 36,580(3) *
Accountant, Private
Investor, Former
President of Puerto Rico
Housing Bank and
Finance Authority,
Developer, Former
Commissioner of
Financial Institutions;
Professor and Former
Dean of Business
Administration at the
University of Puerto
Rico
</TABLE>
- ---------------
* Represents less than 1% of the outstanding common stock.
Notes:
(1) The number of shares beneficially owned by each director and nominee is
based upon information provided by such persons. All directors and nominees
have sole voting and investment powers as to shares reported, unless
otherwise indicated.
(2) Includes 119,400 shares of common stock receivable upon conversion of
120,000 shares of Westernbank's series A preferred stock owned by Mr.
Stipes. Also includes 3,100 shares of common stock owned by Mr. Stipes'
daughter.
52
<PAGE> 55
(3) Includes 3,980 shares receivable upon conversion of 4,000 shares of series A
preferred stock owned by Mr. Rosas.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Westernbank's executive compensation program is administered by the board
of directors composed of the non-employee directors, along with Mr. Frank C.
Stipes, Chairman of the Board, Chief Executive Officer and President, who
recused himself from participating in the decision process relative to his own
compensation. None of these non-employee directors nor Mr. Stipes have any
interlocking or other relationship that would call into question their
independence. The executive compensation is aligned and administered to support
the Westernbank's position in the community.
REPORT ON EXECUTIVE COMPENSATION
Under rules established by the FDIC, banks are required to provide certain
data and information in regard to the compensation and benefits provided to the
bank's Chairman and Chief Executive Officer and the four other most highly
compensated executive officers earning $100,000 and over. The disclosure
requirements for these five individuals include the use of tables and a report
explaining the rationale and considerations that led to fundamental executive
compensation decisions affecting those individuals.
At present, Westernbank's executive compensation program is comprised of
salary, one month of salary as Christmas bonus and other employee benefits
typically offered to executives. Westernbank also grants a special performance
bonus to certain executive officers, including Mr. Frank C. Stipes, Chairman of
the Board, Chief Executive Officer and President. This bonus is granted after an
assessment of Westernbank's performance is made for the year, both individually
and compared to its peer group, which includes among other factors, return on
average assets, return on average equity, stock price behavior and Westernbank's
regulatory classification. As with the rest of the named executive officers, Mr.
Stipes's 1998 performance bonus was based on Westernbank's performance over that
period, evidenced by (1) an increase in total assets of 59.5%, (2) a 62.02%
increase in total deposits, and (3) a 21.10% increase in common stockholders'
equity. Westernbank's return on average assets was 1.42% for 1998, and its
return on average equity was 24.42% over the same period. With regard to
compensation affecting Mr. Stipes the non-employee members of the board of
directors act as the approving body, with Mr. Stipes not participating in the
decision process. Mr. Stipes's salary is revisable periodically based on market
average for such responsibilities and Westernbank's net income, delinquency
ratio, stability and soundness of operations. For this purpose the Westernbank
board reviews applicable information for comparable positions in financial
institutions of similar size and operating conditions in Puerto Rico. Presently,
salary revisions for all executive officers and employees, including Mr. Stipes,
are made every eighteen months.
<TABLE>
<S> <C> <C>
FRANK C. STIPES, ESQ. FREDESWINDA G. FRONTERA CESAR A. RUIZ
Chairman of the Board, Chief Directress Director
Executive Officer and President
FIDEL PINO CROS CORNELIUS TAMBOER ANGEL LUIS ROSAS
Director Director Director
</TABLE>
53
<PAGE> 56
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER
ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION COMPENSATION(5)
--------------------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Frank C. Stipes, Esq.,............. 1998 $178,500(1) $516,667 $ -- $23,275
Chairman of the Board, 1997 180,000(1) 366,667 -- 8,243
Chief Executive Officer 1996 189,167(1) 174,500 -- 11,681
and President
Freddy Maldonado,.................. 1998 135,000(1) 252,500 $ -- 22,107
Chief Financial Officer, 1997 135,000(1) 212,500 -- 8,498
Vice President of Finance 1996 122,939(1) 162,500 -- 10,820
and Investment
Pedro R. Dominguez,................ 1998 89,000(1) 220,417 42,494(3) 18,381
First Vice President -- 1997 89,000(1) 185,417 42,494(3) 5,760
Southern Region 1996 87,234(1) 135,417 36,142(3) 9,628
Alfredo Padilla,................... 1998 114,000(1) 29,500 23,752(4)
Vice President of 1997 114,000(1) 24,500 23,693(4) 18,401
Administration 1996 92,077 15,000 18,209(4) 1,110
Miguel E. Romeu,................... 1998 116,769 31,000 -- --
Vice President
Chief Retail Banking Officer
</TABLE>
Notes:
(1) Includes amounts deferred by the individual pursuant to Westernbank's
1165(e) plan, described below.
(2) Includes a special performance bonus granted at year end and the Christmas
Bonus that is granted under Puerto Rico legislation. Westernbank has
normally granted one month of salary as Christmas Bonus.
(3) Includes $12,000, $12,000 and $9,692 allowance attributable to business
relationships and representation expenses, and $24,000, $24,000 and $19,000
living allowance in 1998, 1997 and 1996, respectively.
(4) Includes $18,000, $18,000 and $13,500 allowance attributable to business
relationships and representation expenses in 1998, 1997 and 1996,
respectively. Also includes for 1996 $4,709 attributable to use of
automobile owned by Westernbank.
(5) Represents employer contribution corresponding to the named person for
Westernbank's profit sharing/1165(e) plan. The referred plan covers
substantially all employees and provides for retirement and disability
benefits.
WESTERNBANK STOCK OPTION GRANTS
Westernbank had no outstanding stock options as of December 31, 1998. No
stock options were granted during 1998. All of Westernbank's previously
outstanding stock option grants were exercised during the year ended December
31, 1996 or before.
At the annual meeting, the common stockholders of Westernbank will be asked
to approve Westernbank's 1999 Stock Option Plans. For more information about the
1999 Stock Option Plans, please see the section of this proxy
statement/prospectus captioned "Approval of the 1999 Stock Option Plans" below.
54
<PAGE> 57
WESTERNBANK BOARD MEETINGS, COMMITTEES AND COMPENSATION
The board of directors of Westernbank meets once each month. In addition,
the board has several committees, including those described below. No director
of Westernbank attended less than 75% of the aggregate of the total number of
board meetings held during calendar year 1998 and the total number of meetings
held by committees on which he or she served during this year. All members of
the board of directors annually receive fees from Westernbank, except for
directors who are also officers of Westernbank or who are receiving benefits
from any retirement plan. For 1998, except as described below, each eligible
director received fees amounting to $15,000.00 which were paid in monthly
installments of $1,250.00.
Mr. Cesar Ruiz, a director of Westernbank, only receives a $350.00 fee per
board of directors meeting attended. During 1998 he received board of directors
fees amounting to $4,200.00, corresponding to 12 board of directors meetings
attended.
Mr. Angel Luis Rosas, a director of Westernbank, in addition to the
director fee, receives $1,000 per month as consultant and advisor and $500 per
month for car allowance. During 1998 Mr. Rosas received $18,000.00 corresponding
to those services.
In addition to fees for attendance at board and committee meetings,
directors who are not employees of Westernbank are eligible for health and
insurance benefits.
The board of directors of Westernbank has no formal nominating or
compensating committees. The full board of directors performs the functions
normally corresponding to those committees.
Westernbank's executive committee is authorized to exercise all the
authority of the board of directors in the management of Westernbank between
board meetings. The members of the executive committee are Messrs. Frank C.
Stipes, Cesar A. Ruiz, Cornelius Tamboer and Angel Luis Rosas. The executive
committee holds periodical meetings as required.
Westernbank's audit committee consist solely of outside directors. The
audit committee reviews independent auditors reports, regulatory examination
reports and internal audit reports. The members of the audit committee are Mrs.
Fredeswinda G. Frontera, Messrs. Angel Luis Rosas, Cornelius Tamboer and Fidel
Pino Cros. The audit committee meets once each month.
The mortgage credit committee approves all residential and commercial
mortgage loans originated by Westernbank up to $1,000,000. All of such loans in
excess of $1,000,000 are reviewed by the full board of directors. The members of
the mortgage credit committee are Mrs. Mayra Neris Vega and Messrs. Frank C.
Stipes and Fidel Pino Cros. The committee holds weekly meetings or as frequent
as necessary.
Westernbank's investment committee is responsible for Westernbank's
asset/liability oversight. Through policies designed to manage the flow of funds
and the use and pricing of such funds, the investment committee supervises the
Department's responsibility of maintaining an acceptable interest rate spread,
while assuring that Westernbank complies with all applicable investment and
liquidity requirements. The investment committee is composed of the entire board
of directors and the Chief Financial Officer, Mr. Freddy Maldonado. The
investment committee meets once each month.
Westernbank's commercial credit committee is responsible for Westernbank's
commercial lending policies and procedures. It also approves loans from $250,000
to $1,000,000. Loans in excess of $1,000,000 are reviewed by the full board of
directors. The members of the commercial credit committee are Messrs. Frank C.
Stipes, Fidel Pino Cros, Angel Luis Rosas, Cornelius Tamboer, Pedro R.
Dominguez, Miguel Aran, Jose E. Rivera, Alfredo Pagan, Christian Jetter and
Ricardo Cortina. The commercial credit committee meets every week or as frequent
as necessary.
The community reinvestment act committee oversees the planning of products
and services offered to the community, specially those aimed to serve low and
moderate income families. The community reinvestment act committee members are
Messrs. Frank C. Stipes, Fidel Pino Cros, Angel Luis Rosas, Edwin Torres, Jose
E. Rivera, Roberto Caro and Mrs. Mayra Neris Vega.
55
<PAGE> 58
WESTERNBANK SEVERANCE PAYMENT AGREEMENTS
On June 28, 1996, Westernbank entered into two-year severance payment
agreements with Messrs. Alfredo Padilla, Alfredo Pagan, Freddy Maldonado and
Pedro R. Dominguez. On each anniversary of the date of commencement of the
agreements, the term of employment is automatically extended for an additional
one-year period unless written notice from Westernbank is received not less than
60 days prior to an anniversary date advising the other party that the agreement
shall not be further extended.
The severance payment agreements provide for severance payments in
connection with an involuntary termination after a change in control or a
voluntary termination of employment where for good reason, subsequent to a
change in control of Westernbank, any of the recipients is assigned duties
inconsistent with his position, duties, responsibilities and status.
For purposes of the severance payment agreements, "good reason" includes a
material reduction in the position, status, authority, duties, responsibilities,
compensation, perquisites, conditions of employment, or location of employment
of the employee from those that existed before the change in control. Unless
Westernbank within ten working days of the date of such notice of resignation,
rejects the employee statement that the "good reason" exists, the employee is
conclusively deemed to have voluntarily resigned with "good reason." If
Westernbank rejects the employee's statement that "good reason" exists, the
dispute is required to be resolved by arbitration under the Commercial
Arbitration Rules of the American Arbitration Association, and Westernbank will
have the burden of proving that the rejection of the employee's statement was
proper.
For the purposes of the severance payment agreements, a change in control
is deemed to occur if:
- 33% or more of ownership control, power to vote or beneficial ownership
of any class of voting securities of Westernbank is acquired by any
person, either directly or indirectly or acting through one or more other
persons;
- any person (other than any person named as a proxy in connection with any
solicitation on behalf of the board of directors of Westernbank) holds
revocable or irrevocable proxies as to election or removal to three or
more directors of Westernbank, for 33% or more of the total voting shares
of Westernbank;
- any person has received all applicable regulatory approvals to acquire
control of Westernbank;
- any person has commenced a cash tender or exchange offer, or entered into
an agreement or received an option, to acquire beneficial ownership of
33% or more of the total number of voting shares of Westernbank, whether
or not any requisite regulatory for such acquisition has been received,
provided that a change in control will not be deemed to have occurred
under this clause unless the board of directors of Westernbank has made a
determination that such action constitutes or will constitute a change in
control; or
- as a result of or in connection with, any cash tender or exchange offer,
merger or any other business combination, sale of assets or contested
election or any combination of the foregoing transactions, (a) the
persons who were directors of Westernbank before such transaction shall
cease to constitute at least a majority of the board of its successor or
(b) the persons who were stockholders of Westernbank immediately before
such transaction do not own more than 50% of the outstanding voting stock
of Westernbank or its successor immediately after such transaction.
If employment were terminated under such circumstances following a change
in control, or for "good reason," the following amounts would be payable to
Messrs. Maldonado, Padilla, Dominguez and Pagan, respectively: $448,500,
$394,680; $373,750; and $225,924. The special compensation to be received for
termination of employment in connection with a change in control pursuant to
these severance payment agreements may not exceed in any event $500,000 for each
recipient.
56
<PAGE> 59
WESTERNBANK HEALTH AND INSURANCE BENEFITS
Westernbank's full-time officers and employees are provided
hospitalization, major medical, and long-term disability insurance.
Westernbank's directors are provided hospitalization and major medical coverage.
Westernbank pays a substantial part of the premiums for these coverages. Because
of the increased costs of health insurance, plan participants are required to
make a contribution to share the insurance premium cost. All insurance coverage
under these plans is provided under group plans on generally the same basis to
all full-time employees. In addition, Westernbank maintains term life insurance,
which provides benefits to all employees who have completed three or more months
full-time employment with Westernbank. The terms of Westernbank's policy provide
benefits for Westernbank's president and vice presidents equal to four times the
employee's annual base earnings, excluding overtime pay or bonuses. The benefit
for other exempt employees is 3.5 times the employee's annual base earnings and
three times employees' annual base earnings for all other employees. Westernbank
also maintains a policy of hazard travel insurance for each employee who is vice
president or higher.
PENSION AND RETIREMENT PLAN FOR EMPLOYEES OF WESTERNBANK
Westernbank maintained a qualified, non-contributory, defined benefit
retirement plan until June 30, 1993, which covered substantially all employees,
including officers. The pension plan was self-administered with the retention of
professional services. The trustees of the pension plan were Messrs. Frank C.
Stipes, Chairman of the Board, Chief Executive Officer and President, and Freddy
Maldonado, Chief Financial Officer and Vice President of Finance and Investment.
Effective June 30, 1993, the accrual of benefits for participants of the
pension plan was frozen. The June 30, 1993 accrued benefit will be guaranteed
and payable with at least 120 monthly payments guaranteed, as of the normal
retirement date of each participant as a minimum pension. At the time the
pension plan was frozen, Messrs. Frank C. Stipes and Pedro R. Dominguez had 4
years 9 months and 3 years 9 months of service, respectively.
Westernbank terminated the pension plan during 1998, following the standard
form of termination. Annuities were purchased for retired employees that were
receiving their monthly pension benefit and for those active and inactive
employees that selected this option. Remaining assets were distributed in lump
sum payments, rollovers to Individual Retirement Accounts and transfers to
Westernbank's 1165(e) Plan, described below.
AMENDED RETIREMENT PLAN FOR DIRECTORS OF WESTERNBANK
In January 1988, Westernbank established a retirement plan for directors of
Westernbank who were not executive officers of Westernbank. This plan was
substantially amended in February 24, 1989, to limit the pension benefits to
directors who were founders of Westernbank who at that time had attained the age
of 50 years and had served for twenty five consecutive years on the board of
directors. As of the date of the amendment only the following three founder
directors qualified for retirement benefits under the amended retirement plan:
Mr. Luis A. Rechani Agrait, 86, Mr. Juan E. Vilella, 88, and Mr. Jesus M.
Guzman, 71. By approving the amendment the other directors that were not
executive officers waived and renounced their pension benefits under the
retirement plan.
Pursuant to the amended retirement plan, 30 days after his or her
resignation or termination as a director, a participating director was entitled
to a monthly pension benefit for the remainder of his or her life, and if he or
she shall die prior to the end of his or her tenth year of retirement, his or
her heirs shall continue to receive fifty percent of the pension benefit which
otherwise would have been payable until the end of the tenth year following the
director's retirement. In July 1989, Messrs. Jesus Guzman and Luis A. Rechani
Agrait retired from the Westernbank board of directors and commenced receiving
retirement benefits under the retirement plan. In June 1992, Mr. Juan E. Vilella
retired from the board of directors and commenced receiving retirement benefits
under the retirement plan. Messrs. Luis A. Rechani Agrait and Juan E. Vilella
died during 1994. Their heirs continue to receive fifty percent of their pension
benefit
57
<PAGE> 60
until the end of the tenth year following the director's retirement. The
retirement plan was unfunded as of December 31, 1998.
PROFIT SHARING/1165(e) PLAN FOR EMPLOYEES OF WESTERNBANK
Westernbank maintains a non-contributory profit sharing plan which covers
substantially all employees and which provides for retirement and disability
benefits. The profit sharing plan is self-administered with the retention of
professional administrative services. All the contributions to the profit
sharing plan, which are held in trust, are commingled and invested on a pooled
basis. The trustees of the profit sharing plan are Messrs. Frank C. Stipes,
Chairman of the Board, Chief Executive Officer and President, Freddy Maldonado,
Chief Financial Officer and Vice President of Finance and Investment and Pedro
R. Dominguez, First Vice President -- Southern Region. The shares of common of
Westernbank held by Mr. Frank C. Stipes are set forth above under the caption
"Members of the Board of Directors Continuing in Office Whose Terms Expire in
2000." Mr. Freddy Maldonado owns 470,672 shares of Westernbank common stock in
his personal capacity and Mr. Pedro R. Dominguez owns 125,000 shares of
Westernbank common stock in his personal capacity.
Participants in the profit sharing plan will be vested upon completing five
years of service with Westernbank, with no vesting prior to such time. The
profit sharing plan complies with amendments to the Age Discrimination in
Employment Act of 1987 that mandate the elimination of provisions that require
the retirement of employees at any age. Provisions in the profit sharing plan
allow withdrawals after five years, provided certain substantial conditions or
restrictions are met.
Westernbank contributes each fiscal year to the profit sharing plan out of
its current or accumulated after-tax net profit such amount as determined by the
board of directors of Westernbank. Notwithstanding the foregoing, however,
Westernbank's contribution for any fiscal year may not exceed the maximum amount
allowable as a deduction to Westernbank under the provisions of section 23(p)-2
of the Puerto Rico Income Tax Act of 1954, as amended, or as replaced from time
to time. All contributions by Westernbank are required to be made in cash or in
such property as is acceptable to the trustees.
As of each anniversary date, the profit sharing contribution and any
previously unallocated forfeitures of employer profit sharing contributions is
allocated to the account of each participant who is eligible to share in the
same ratio that such participant's credited points for the calendar year bear to
the total credited points of all such participants for such year. On each
anniversary date, the credited points for each participant is determined on the
basis of the following schedule:
<TABLE>
<CAPTION>
FOR EACH FULL AND
FRACTIONAL $100 OF TOTAL
FOR EACH COMPLETE YEAR OF COMPENSATION PAID TO THE
YEARS OF SERVICE SERVICE PARTICIPANT IN THE CALENDAR YEAR
- ---------------- ------------------------- --------------------------------
<S> <C> <C>
0-5 2 1
6 or more 3 1
</TABLE>
For purposes of eligibility, a year of service means a 12-month period,
beginning on the date of hire, during which employees are paid, or entitled to
payment, for 1,000 or more hours of employment. If they do not meet the 1,000
hours requirement in the first 12 months after their date of hire, they will be
credited with a year of service for any plan year which begins after their date
of hire during which they are credited with 1,000 or more hours.
A year of service, for purposes of vesting, means a plan year during which
employees were credited for 1,000 or more hours.
A total of $608,485 was distributed to certain participants in the profit
sharing plan in 1998. Westernbank contributed $570,004 to the profit sharing
plan in 1998.
Effective January 1, 1995, Westernbank added to its profit sharing plan a
defined contribution plan under Section 1165(e) of the Puerto Rico Treasury
Department Internal Revenue Code, covering all full-
58
<PAGE> 61
time employees of Westernbank who have one year of service and are twenty-one or
older. Westernbank is required to give each prospective eligible employee
written notice of his or her eligibility to participate in the defined
contribution plan in sufficient time to enable the prospective eligible employee
to submit an application for participation in the defined contribution plan
prior to the quarter in which he or she first become an eligible employee. Under
the provisions of the defined contribution plan, participants may contribute
each year from 2% to 10% of their compensation after deducting social security,
up to a specific maximum established by law. Westernbank contributes 50 percent
of the first 6 percent of base compensation that a participant contributes to
the defined contribution plan. Participants are immediately vested in their
contributions plus actual earnings thereon. Westernbank's contributions plus
actual earnings thereon are 100 percent vested after five years of credited
service. In case of death and disability, a participant will be 100 percent
vested regardless of the number of years of credited service. Westernbank's
contribution for the year ended December 31, 1998 was $133,147.
INDEBTEDNESS OF MANAGEMENT OF WESTERNBANK
The FDIC requires that any credit extended by Westernbank to its executive
officers, directors and to the extent otherwise permitted, principal
stockholders, or any related interest of the foregoing, must be (1) on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions by Westernbank with
non-affiliated parties and (2) not involve more than the normal risk of
repayment or present other unfavorable features.
Westernbank's conflict of interest policy is consistent with this
legislation, and states that only a first mortgage is permitted to be executed
by Westernbank members over their primary residence. Home equity second
mortgages will not be permitted. No officer, director or employee may have with
Westernbank any other type of loan or indebtedness, except for a credit card,
unless these are fully cash collateralized.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires that
Westernbank's directors and executive officers, and persons who own more than
ten-percent of a registered class of Westernbank's equity securities, file with
the Federal Deposit Insurance Corporation, initial reports of ownership and
reports of changes in ownership of Westernbank common stock and other equity
securities of Westernbank. Officers, directors and greater than ten-percent
stockholders are required by the Federal Deposit Insurance Corporation
regulation to furnish Westernbank with copies of all Section 16(a) forms they
file.
The table below shows the officers and directors of Westernbank who during
1998 inadvertently filed the following number of overdue Section 16(a) reports
covering the following number of transactions in Westernbank securities:
<TABLE>
<CAPTION>
NAME LATE REPORTS TRANSACTIONS
---- ------------ ------------
<S> <C> <C>
Angel Luis Rosas 1 1
Cornelius Tamboer 1 2
Cesar A. Ruiz 1 1
</TABLE>
59
<PAGE> 62
PERFORMANCE OF WESTERNBANK COMMON STOCK
The following graph compares the total cumulative returns (including
reinvestment of dividends) of $100 invested on December 31, 1993 in (a)
Westernbank common stock (b) the Nasdaq Stock Market (US Companies) and (c)
Nasdaq Bank Stocks.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR WESTERNBANK PUERTO RICO
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
NASDAQ STOCK
WESTERNBANK MARKET (US NASDAQ BANK
PUERTO RICO COMPANIES) STOCKS
<S> <C> <C> <C>
12/31/93 100.00 100.00 100.00
12/30/94 138.50 97.80 99.60
12/29/95 278.80 138.30 148.40
12/31/96 613.40 170.00 195.90
12/31/97 1344.70 208.60 328.00
12/31/98 1804.50 293.20 324.90
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
---------------------------------------------------------------
INDEX 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97 12/31/98
----- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Westernbank Puerto Rico................ 100.0 138.5 278.8 613.4 1,344.7 1,804.5
Nasdaq Stock Market (US Companies)..... 100.0 97.8 138.3 170.0 208.6 293.2
Nasdaq Bank Stocks..................... 100.0 99.6 148.4 195.9 328.0 324.9
SIC 6020-6029, 6710-6719 US &
Foreign..............................
</TABLE>
Notes:
(a) The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
(b) The indexes are reweighted daily, using the market capitalization on the
previous trading day.
(c) If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
(d) The index level for all series was set to $100.00 on 12/31/93.
60
<PAGE> 63
APPROVAL OF WESTERNBANK 1999 STOCK OPTION PLANS
(PROPOSAL THREE)
In June 1999, the Westernbank board of directors approved and ratified the
1999 Qualified Stock Option Plan, or the "1999 Qualified Option Plan," and the
1999 Nonqualified Stock Option Plan, or the "1999 Nonqualified Plan," for the
benefit of employees of Westernbank and its subsidiaries. Westernbank refers to
the two plans collectively as the "1999 Plans." The 1999 Plans require
stockholder approval at the Annual Meeting.
The board of directors of Westernbank believes that stock options and other
forms of equity-based incentive compensation are important to attract and to
encourage the continued service of key officers by facilitating their
acquisition of a stock interest in Westernbank.
The 1999 Plans require approval by the holders of at least a majority of
the outstanding shares of common stock. By submitting the 1999 Qualified Option
Plan for stockholder approval at the Annual Meeting, Westernbank intends to
comply with the plan requirements pertaining to options meeting the standards as
"qualifying stock options" for Puerto Rico income tax purposes. See "Puerto Rico
Income Tax Consequences" below.
Presently, the board intends to grant options only to key officers of
Westernbank.
PURPOSES OF THE 1999 PLANS
The board of directors endorses the position that stock ownership by
management and stock-based plans are beneficial in aligning management's and
stockholders' interests in the enhancement of stockholder value. The purposes of
the 1999 Plans are to enhance performance and to encourage the ownership of
Westernbank's common stock.
DESCRIPTION OF THE 1999 PLANS
The 1999 Qualified Option Plan provides for the grant of qualifying
options, as defined below, to employees of Westernbank and its subsidiaries. The
1999 Nonqualified Plan provides for the grant of non-qualified options, as
defined below, to such individuals. In other respects, the 1999 Plans are
substantially identical, except as discussed below. Directors who are not
employees of Westernbank or any of its subsidiaries are not eligible to receive
options under either of the 1999 Plans.
The 1999 Plans can be administered by the board, or a committee appointed
by the board, in either case the "Plan Administrators," who are given absolute
discretion to select the persons to whom rights will be granted and determine
the number of rights to be granted to each. With the consent of an optionee, the
Plan Administrator may cancel an outstanding option and grant a new option
having a lower exercise price or other terms more or less favorable to the
optionee, so long as the new option satisfies all of the of the relevant 1999
Plan.
Under the 1999 Qualified Option Plan, options for up to 4,200,000 shares of
common stock can be granted. Options for up to 4,200,000 shares of common stock,
reduced by any shares issued under the 1999 Qualified Option Plan, can be
granted under the 1999 Nonqualified Plan. If an option granted under one of the
1999 Plans expires, terminates, or is terminated or canceled for any reason
before it is exercised in full, the shares that were subject to the option will
be available for future options granted under the applicable Plan. Westernbank
will adjust the number and kinds, for example, stock of the holding company
after the reorganization or stock of an acquirer, of shares subject to the 1999
Plans, and the number, kinds, and per share exercise price of shares subject to
the unexercised portion of options granted before any increase, decrease or
other change in the outstanding shares of common stock, by reason of any of the
following:
- merger
- consolidation
61
<PAGE> 64
- reorganization
- recapitalization
- reclassification
- stock split-up
- combination of shares
- exchange of shares
- stock dividend
- other distribution payable in capital stock
- other increase or decrease in such shares without receipt of
consideration by Westernbank
Any such adjustment in an outstanding option, however, will be made without
a change in the total price applicable to the unexercised portion of the option
but with a corresponding adjustment in the per share option price.
The 1999 Plans will remain in effect for a term of 10 years, unless sooner
terminated in accordance with their terms. The Board may terminate or amend in
any respect the 1999 Plans except that without approval of stockholders no
amendment may change the maximum number of shares that may be issued under the
1999 Plans or change the class of eligible employees.
The 1999 Plans must be approved by stockholders within one year of the date
of adoption. No grants will be made pursuant to the 1999 Plans unless and until
stockholder approval is obtained.
OPTIONS UNDER THE 1999 PLANS
One or more options may be granted under the 1999 Plans to any eligible
person, provided that under the 1999 Qualifying Plan, in any calendar year, the
aggregate fair market value at the time the options are granted of the stock for
which qualifying options first become exercisable in a year by each eligible
individual may not exceed $100,000. As described below, the tax treatment
differs substantially with respect to qualified and non-qualified options.
A qualifying option is defined as an option granted to an employee in
connection with his or her employment to purchase stock that satisfies certain
conditions. A qualifying option must be granted pursuant to a plan specifying
the aggregate number of shares to be issued and the employees or class of
employees eligible to receive such options. A non-qualifying option is an option
that does not meet the conditions specified in the Puerto Rico tax code for
qualified options.
The exercise price of options granted under the 1999 Plans may not be less
than the greater of the book value or the fair market value of the stock at the
date of the grant and no option may be granted more than 10 years from the date
of adoption of the 1999 Plans. Options granted under the 1999 Plans will be
dilutive of existing stockholders' ownership and share amounts because the
prices to be paid for shares issued under the Plans will be less than the market
values of the stock at the times the options are exercised. No option may be
exercised after 10 years from the date it is granted, or 10 years and one day,
for a non-qualifying option. Qualifying options are not transferable, except at
death by will or by the laws of descent and distribution. An optionee can
transfer non-qualifying options at death by will or the laws of descent and
distribution or during his or her lifetime by gift to certain family members.
Options are exercisable during the period specified in each option
agreement, although no expiration date will be later than the tenth anniversary
of the date on which the option was granted, or one day after such tenth
anniversary for a non-qualifying option. The 1999 Plans do not specify any
minimum vesting requirements for options, but such provisions may be included in
option agreements. Except as otherwise provided in an option agreement, if an
optionee's employment or service terminates because the optionee is "disabled,"
as defined in the plans, or if he or she dies while employed by or in the
service of
62
<PAGE> 65
Westernbank or a subsidiary, all options previously granted would become vested
and immediately exercisable. In the case of death, the person or persons to whom
the optionee's rights under the option pass by will or by the laws of descent
and distribution will have one year to exercise the options, unless otherwise
specified in the specific option agreement. If the employment or service of an
optionee terminates for any other reason, his or her options will be exercisable
for three months following termination of employment to the extent exercisable
on the date of termination, unless otherwise provided in the option agreement.
In no event, however, will the exercise period extend beyond the original
expiration date of the option.
Payment for shares purchased under the 1999 Plans may be made either in
cash or by exchanging shares of common stock of Westernbank with a fair market
value of up to not less than the total option price plus cash for any
difference. The 1999 Plans also permit "cashless" exercises of options through a
broker reasonably acceptable to Westernbank.
Upon any dissolution or liquidation of Westernbank, or upon a
reorganization, merger or consolidation in which Westernbank is not the
surviving bank, or upon the sale of all or substantially all of the property of
Westernbank to another bank, or upon any transaction, including a merger or
reorganization in which Westernbank is the surviving bank, approved by the Board
that results in any person or entity owning 50 percent or more of the total
combined voting power of all classes of stock of Westernbank, the 1999 Plans and
the options issued thereunder will terminate, unless provision is made in
connection with such transaction for the continuation of the plans, the
assumption of the options or both, or for the substitution for such options of
new options covering the stock of a successor employer or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of shares and
the per share exercise price. In the event of such termination, all outstanding
options shall be exercisable in full during such period immediately before the
occurrence of such termination as the board of directors in its discretion shall
determine.
The granting of an option does not confer upon the optionee any right to
remain in the employ or service of Westernbank. The optionee will have no
dividend or voting rights to the shares until the exercise price has been paid
in full upon exercise.
PUERTO RICO INCOME TAX CONSEQUENCES
The income tax treatment of qualifying options and non-qualifying options
is substantially different. As regards qualifying options, an optionee will not
recognize income at the time the option is granted or at the time the option is
exercised. When an optionee sells or otherwise disposes, in a taxable
transaction, of shares of stock received pursuant to the exercise of a
qualifying option, he or she will recognize capital gain or loss, measured by
the difference between the exercise price and the amount realized.
In order for an optionee to receive this favorable tax treatment, he or she
must, with the exceptions noted below with respect to death or disability, be an
employee of the entity granting the option, or of a parent or subsidiary of such
entity, at all times within the period beginning on the date of the grant and
ending on a date within three months before the date of exercise. In the case of
an optionee who is disabled, as defined by the Puerto Rico Internal Revenue Code
of 1994, the three-month period for exercise following termination of employment
is extended to one year. If the estate of a deceased optionee exercises a
qualifying option, the three-month period is waived altogether.
If the optionee qualifies for the favorable tax treatment described above,
Westernbank will not be entitled to any deduction with respect to the option for
Puerto Rico income tax purposes.
With respect to non-qualifying options, so long as the option is
nontransferable and does not have an ascertainable fair market value, the
optionee will not realize taxable income when the option is granted. Upon
exercise, the difference between the fair market value on the date of exercise
or, if the optionee is subject to certain restrictions at the time of exercise,
when such restrictions expire, unless the optionee makes a special tax election
within 30 days following exercise and the option exercise price will be treated
as compensation income. If Westernbank satisfies applicable information
reporting requirements, it will be
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entitled to a deduction for Puerto Rico income tax purposes in the same amount.
On a subsequent sale or exchange of the shares acquired pursuant to the exercise
of the non-qualifying option, the optionee may have taxable gain or loss,
measured by the difference between the amount realized on the disposition and
the tax basis of such shares. Tax basis will, in general, be the amount paid for
the shares plus the amount treated as compensation income at the time the
optionee acquires the shares or when applicable restrictions have lapsed.
Generally, if an optionee tenders to Westernbank shares of stock in payment
of the exercise price of an option, the transaction will be viewed as a tax-free
exchange of such shares and the rules summarized above generally will apply with
respect to the tax treatment of the exercise transaction except that the basis
of a number of shares equal to the number of shares exchanged will be determined
by reference to the basis of such exchanged shares.
The foregoing is a brief summary of the principal Puerto Rico income tax
consequences of awards under the 1999 Plans. Recipients of options should
consult with their own personal tax advisors with respect to such grants and
transactions in stock acquired under the 1999 Plans.
REQUIRED VOTE
The affirmative vote of the holders of at least a majority of the
outstanding voting shares at the Annual Meeting is required for approval of this
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTIONS OF THE 1999 QUALIFIED
STOCK OPTION PLAN
AND THE 1999 NONQUALIFIED STOCK OPTION PLAN
PROPOSED INCREASE IN AUTHORIZED CAPITAL STOCK OF WESTERNBANK
(PROPOSAL 4)
Under Westernbank's restated certificate of incorporation, Westernbank is
authorized to issue 75,000,000 shares of common stock and 5,000,000 shares of
preferred stock. This proposal would increase the number of shares of common
stock that Westernbank is authorized to issue from 75,000,000 to 300,000,000
shares and increase the number of shares of preferred stock that Westernbank is
authorized to issue from 5,000,000 to 20,000,000 shares. The board of directors
has determined that this proposal is advisable and in the best interests of
Westernbank and its shareholders and recommends that the holders of Westernbank
common stock vote to approve this proposal. If this proposal is approved, the
holding company also will have authorized 300,000,000 shares of common stock and
20,000,000 shares of preferred stock. If the reorganization is approved but this
proposal is not approved, the holding company will amend its capitalization
prior to the reorganization to provide for the authority to issue 75,000,000
shares of common stock and 5,000,000 shares of preferred stock.
On the May 31, 1999 record date, there were (1) 42,000,000 shares of
Westernbank common stock, (2) 1,219,000 shares of Westernbank series A preferred
stock, and (3) 1,740,000 shares of Westernbank series B preferred stock
outstanding. In addition, if the 1999 Plans are approved, an additional
4,200,000 shares of Westernbank common stock will be reserved for issuance upon
the exercise of stock options.
If holders of at least two-thirds of Westernbank's common stock approve
this proposal, Westernbank and, if the holding company reorganization is
completed, the holding company will have 258,000,000 additional shares of common
stock and 16,780,000 additional shares of preferred stock authorized and
available for issuance, based on the number of shares of the holding company's
common stock and preferred stock issued in the reorganization. Although
Westernbank has no specific plans to issue shares of common stock or preferred
stock except as otherwise disclosed in this proxy statement/prospectus, the
board of directors believes that the increase in the authorized number of shares
of capital stock is necessary to provide a sufficient number of shares available
for future use in (1) raising additional capital through public offerings or
private placements, (2) possible future mergers or acquisitions, (3) possible
stock dividends or splits and (4) employee option or stock ownership plans.
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The authorization of additional shares of common stock under this proposal
will have no dilutive effect upon the proportionate voting power of the present
Westernbank stockholders. However, to the extent that shares are subsequently
issued to persons other than present shareholders and/or in proportions other
than the proportion that presently exists, the issuance could have a substantial
dilutive effect on present stockholders with respect to voting rights, book
value and earnings per share. The board of directors has concluded, however,
that the potential benefits of this provision outweigh the possible
disadvantages.
The unissued and unreserved shares of common stock and preferred stock will
be available for any proper corporate purpose, as authorized by the board of
directors, without further approval by the stockholders, except as otherwise
required by law or the rules of The Nasdaq Stock Market, Inc. Stockholders do
not have any preemptive or other rights to purchase additional shares of capital
stock. Further issuances of additional shares of common stock or securities
convertible into common stock, therefore, may have a dilutive effect on holders
of common stock.
Westernbank's certificate of incorporation authorizes the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by its board of directors. Accordingly, the
board of directors is empowered, without shareholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
common stock. The issuance of preferred stock could discourage, delay or prevent
a change in control and also may have the effect of discouraging a third party
from making a tender offer or otherwise attempting to obtain control even though
such a transaction might be economically beneficial to the stockholders. As a
result, the possible issuance of additional preferred stock could entrench
existing management. The board of directors has concluded, however, that the
potential benefits of this provision outweigh the possible disadvantages.
THE BOARD OF DIRECTORS OF WESTERNBANK RECOMMENDS A VOTE FOR
APPROVAL OF THE INCREASE IN THE AUTHORIZED CAPITAL STOCK OF THE HOLDING COMPANY.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL 5)
The board of directors has appointed Deloitte & Touche LLP as independent
auditors of Westernbank for the year ending December 31, 1999, subject to
stockholder approval of the appointment at the annual meeting. Deloitte & Touche
LLP has served as Westernbank's independent auditors for each of the fiscal
years ended 1985 through 1998. Westernbank has been advised by Deloitte & Touche
LLP that neither Deloitte & Touche LLP nor any of its associates has any
relationship with Westernbank other than the usual relationship that exists
between independent certified public accountants and clients. Deloitte & Touche
LLP will have representatives at the annual meeting who will have an opportunity
to make a statement, if they so desire, and who will be available to respond to
appropriate questions. Assuming the presence of a quorum at the annual meeting,
the affirmative vote of a majority of the total votes eligible to be cast by the
holders of common stock at the annual meeting is required to approve the
ratification of the appointment of Deloitte & Touche LLP. Unless otherwise
indicated, properly executed proxies will be voted FOR the proposed
ratification. No determination has been made as to what action the board of
directors would take if the stockholders do not ratify the appointment of
Deloitte & Touche LLP.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR 1999.
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WHERE YOU CAN FIND MORE INFORMATION
Westernbank is subject to the information reporting requirements of the
Securities Exchange Act of 1934 and, in accordance with that law, files reports,
proxy statements and other information with the FDIC. Reports, proxy statements
and other information filed by Westernbank can be inspected and copied at the
public reference facilities maintained by the FDIC at 550 17th Street N. W.,
Washington, D.C. 20429. Also, copies of these documents may be obtained by
writing to the Registration, Disclosure and Securities Operations Unit of the
FDIC at 550 17th Street, Rm. F-6043, Washington, D.C. 20429, by calling (202)
898-8913 or by fax at (202) 898-3909. Westernbank's common stock is listed on
the Nasdaq Stock Market's National Market Tier under the trading symbol WBPR,
and its series B preferred stock is listed on the National Market Tier under the
symbol WBPRO.
The holding company will not be subject to the information requirements of
the Securities Exchange Act of 1934 until after the reorganization takes place.
After the reorganization takes place, the holding company's common stock and
series B preferred stock will be listed for trading on the Nasdaq Stock Market's
National Market Tier, the holding company will be subject to the information
requirements of the Securities Exchange Act of 1934 and the holding company will
file reports, proxy statements and other information with the Securities and
Exchange Commission. At that time, the common stock, series A preferred stock
and series B preferred stock of Westernbank will be withdrawn from listing and
registration under the Securities Exchange Act of 1934.
W Holding has filed a registration statement on Form S-4 relating to the
reorganization with the SEC. This proxy statement/prospectus does not contain
all of the information included in the registration statement. We have omitted
parts of the registration statement in accordance with the rules and regulations
of the SEC. For the further information, we refer you to the registration
statement on Form S-4, including its exhibits. Statements contained in this
proxy statement/prospectus about the provisions or contents of any agreement or
other document are not necessarily complete. If SEC rules and regulations
require that any agreement or document be filed as an exhibit to the
registration statement, please see the filed copy of the agreement or document
for a complete description of these matters. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of each document.
After the reorganization, W Holding will file annual, quarterly and special
reports, proxy statements and other information with the SEC. You may read and
copy materials filed with the SEC, including the registration statement, at the
following SEC public reference rooms:
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450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. W Holding's SEC filings will also be available to the public on
the SEC's Web Site at http:/www.sec.gov.
INFORMATION INCORPORATED BY REFERENCE
Westernbank incorporates the following documents by reference into this
proxy statement/prospectus:
- Westernbank's Annual Report on Form 10-K for the year ended December 31,
1998, as amended
- Westernbank's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999
- Westernbank's Registration Statement on Form 8-A relating to
Westernbank's common stock
- Westernbank's Registration Statement on Form 8-A relating to
Westernbank's preferred stock, as amended.
Any statement contained in a document incorporated by reference into this
proxy statement/prospectus will be deemed to be modified or superseded for all
purposes to the extent that a statement
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contained in this proxy statement/prospectus or in any other subsequently filed
document which is also incorporated by reference modifies or replaces such
statement. Any statement so modified or superseded will not be deemed, except as
so modified or superseded, to constitute a part of this proxy statement/
prospectus.
If you call or write to us, we will send to you without charge a copy of
any or all of the documents described above, other than exhibits to those
documents that are not incorporated by reference into such documents. To request
documents, call or write to Mr. Angel Luis Rosas, Secretary, W Holding Company,
Inc., 19 West McKinley Street, Mayaguez, Puerto Rico 00680, telephone (787)
834-8000.
FINANCIAL STATEMENTS
A copy of Westernbank's Annual Report to Stockholders containing financial
statements for the fiscal year ended December 31, 1998 prepared in accordance
with generally accepted accounting principles accompanies this proxy
statement/prospectus.
ANNUAL REPORT
A copy of Westernbank's Annual Report to Stockholders for the year ended
December 31, 1998 accompanies this proxy statement/prospectus. The Annual Report
is not part of the proxy solicitation materials.
IF WE RECEIVE A REQUEST, WE WILL FURNISH TO ANY STOCKHOLDER, WITHOUT
CHARGE, A COPY OF WESTERNBANK'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998, AS AMENDED, AND WESTERNBANK'S QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999, AND THE LIST OF EXHIBITS TO THOSE REPORTS
THAT ARE REQUIRED TO BE FILED WITH THE FDIC UNDER THE SECURITIES EXCHANGE ACT OF
1934. To request a copy of the Form 10-K, call or write to Mr. Angel Luis Rosas,
Secretary, Westernbank, Box 1180, Mayaguez, Puerto Rico 00681, telephone (787)
834-8000. The Form 10-K and the Form 10-Q are incorporated by reference into the
proxy solicitation materials.
Our Annual Report on Form 10-K also constitutes the Annual Disclosure
Statement required by Part 350.4 of the FDIC rules.
ADJOURNMENT OF STOCKHOLDER MEETING
The holders of Westernbank's common stock and series A preferred stock will
be asked to approve, if necessary, the adjournment of the annual meeting to
solicit further votes in favor of the reorganization and the other matters to be
voted upon at the annual meeting. If you vote against the reorganization or the
other matters to be voted upon at the annual meeting, your proxy may not be used
by management to vote in favor of an adjournment pursuant to its discretionary
authority.
STOCKHOLDER PROPOSALS
If the reorganization is not completed, any nomination for election of a
person to serve as a director or other proposal that a stockholder wishes to
have presented at the next annual meeting of Westernbank, to be held on May 25,
2000, must be received at our main office, Box 1180, Mayaguez, Puerto Rico
00681, not later than January 25, 2000, for proposals that a stockholder wishes
to have included in next years proxy statement and set forth in the form of
proxy. If a proposal that a stockholder wishes to have included in next year's
proxy statement and set forth in the form of proxy is received by January 25,
2000 and is in compliance with all of the requirements of Section 335.211 of the
FDIC regulations, it will be included in the proxy statement and set forth in
the form of proxy issued for the next annual meeting of stockholders. We urge
you to send all proposals of this kind by certified mail, return receipt
requested.
If the reorganization is completed, you will no longer be a stockholder of
Westernbank but you will be a stockholder of the holding company. If the
reorganization is completed, Westernbank will request to be
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de-registered with the FDIC as a reporting company under the Securities Exchange
Act of 1934 and therefore will not be subject to FDIC Regulation 335. However,
the new holding company will become registered with the SEC as a reporting
company under the Securities Exchange Act of 1934. Therefore, any proposal that
a stockholder of the holding company wishes to have presented at the first
annual meeting of the holding company, which will be held on May 25, 2000, must
be received at the main office of the holding company not later than January 25,
2000, for proposals that a stockholder wishes to have included in next years
proxy statement and set forth in the form of proxy for the holding company. If a
proposal that a stockholder wishes to have included in next year's proxy
statement and set forth in the form of proxy is received by January 25, 2000 and
is in compliance with all the requirements of Rule 14a-8 of the SEC it will be
included in the proxy statement and set forth in the form of proxy issued for
the first annual meeting of stockholders of the holding company. We urge you to
send all proposals of this kind by certified mail, return receipt requested, to
the attention of the Secretary, W Holding Company, Inc., Box 1180, Mayaguez,
Puerto Rico 00681. For more information about the information that must be
included in your proposal, please refer to the by-laws of the holding company
which are attached to this proxy statement/prospectus at Appendix B.
The proxy being solicited hereby provides discretionary authority to vote
on any matter if Westernbank did not receive notice of the matter 45 days before
the date of this proxy statement/ prospectus. Westernbank has not received any
such notices.
OTHER MATTERS
As of the date of this proxy statement/prospectus, management is not aware
of any business to come before the annual meeting other than the matters that
are described in this proxy statement/prospectus. However, if any other matters
properly come before the annual meeting, we intend that the proxies solicited by
this proxy statement/prospectus will be voted on those other matters in
accordance with the judgment of the persons voting the proxies.
The annual meeting will be presided over by Mr. Frank C. Stipes, the
Chairman of the Board, Chief Executive Officer and President of Westernbank. He
will conduct the proceedings in accordance with Robert's Rules of Order as
required by Westernbank's by-laws.
LEGAL MATTERS
The validity of the holding company stock to be issued in the
reorganization will be passed upon by Hogan & Hartson L.L.P., Washington, D.C.
Certain United States federal tax matters will be passed upon by Hogan & Hartson
L.L.P., Washington, D.C.
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APPENDIX A
AMENDED AND RESTATED
PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
WESTERNBANK PUERTO RICO,
WESTERN INTERIM BANK,
AND
W HOLDING COMPANY, INC.
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
Section 1.01. Definitions................................ 1
ARTICLE II
THE MERGER
Section 2.01. Merger..................................... 2
Section 2.02. Conversion................................. 2
Section 2.03. Certificates After the Effective Date...... 3
Section 2.04. Stock Options.............................. 3
Section 2.05. Effects of the Merger...................... 3
ARTICLE III
UNDERTAKINGS
Section 3.01. Bank Stockholder Approval.................. 4
Section 3.02. Holdings Stockholder Approval.............. 5
Section 3.03. Other Stockholder Approval................. 5
Section 3.04. Regulatory Approvals....................... 5
Section 3.05. Securities Matters......................... 5
Section 3.06. Other Undertakings......................... 5
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01. Conditions Precedent to the Merger......... 6
Section 4.02. Effective Date............................. 6
ARTICLE V
TERMINATION AND DEFERRAL
Section 5.01. Termination of the Merger.................. 6
Section 5.02. Deferral of Effective Date................. 7
ARTICLE VI
APPRAISAL RIGHTS
Section 6.01. Dissenters' Rights......................... 7
ARTICLE VII
MISCELLANEOUS
Section 7.01. Governing Law.............................. 7
Section 7.02. Amendment.................................. 7
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AMENDED AND RESTATED
PLAN OF MERGER AND REORGANIZATION
This AMENDED AND RESTATED PLAN OF MERGER AND REORGANIZATION (this "Plan"),
dated as of June 15, 1999, is entered into by and among WESTERNBANK PUERTO RICO,
a commercial bank organized under the laws of the Commonwealth of Puerto Rico
(the "Bank"), and, upon organization, WESTERN INTERIM BANK, an interim
commercial bank organized under the laws of the Commonwealth of Puerto Rico for
the sole purpose of consummating the transactions provided for herein (the
"Interim Bank"), and, upon organization, W HOLDING COMPANY, INC., a corporation
organized under the laws of the Commonwealth of Puerto Rico ("Holding").
WHEREAS, the Bank is a commercial bank duly organized and validly existing
under the Banking Law of the Commonwealth, 7 L.P.R.A.sec. 1-204a, (the "Banking
Law"), with its principal office and place of business at 19 West McKinley
Street, Mayaguez, Puerto Rico, with an authorized capital stock consisting of
(i) 75,000,000 shares of common stock, par value $1.00 per share, of which
42,080,309 shares were issued and outstanding as of January 29, 1999 and (ii)
5,000,000 shares of preferred stock, par value $1.00 per share, of which (A)
1,219,000 shares have been designated Bank Series A Preferred Shares, and (B)
2,001,000 of which have been designated Bank Series B Preferred Shares, all of
which Bank Preferred Shares were issued and outstanding as of June 14, 1999;
WHEREAS, the Interim Bank will be chartered as a commercial bank duly
organized and validly existing under the Banking Law, with its principal office
at the same address as that of Bank, with an authorized capital stock consisting
of 5,000 shares of common stock, par value $5,000.00 per share, up to 1,000
shares of which will be issued prior to the consummation of the transactions
described herein to be held by Holding (except for any shares that may be
required to be held by the directors of the Interim Bank as directors'
qualifying shares); and
WHEREAS, Holding is a general business corporation organized under the laws
of the Commonwealth, with its principal office at the same address as that of
Bank, and having an authorized capital stock consisting of 300,000,000 shares of
common stock, par value $1.00 per share and 20,000,000 shares of preferred
stock, par value $1.00 per share, of which 1,219,000 shares will be designated
as Holding Series A Preferred Shares and 2,001,000 shares will be designated as
Holding Series B Preferred Shares; and
WHEREAS, the Bank, the Interim Bank and Holding desire to establish a bank
holding company structure and in order to implement that desire, the Boards of
Directors of the Bank, the Interim Bank and Holding have each respectively
agreed to a merger of the Interim Bank with and into the Bank (the "Merger") and
the issuance of Holding Common Shares and Holding Preferred Shares, as
hereinafter defined, as consideration for value received by Holding in the
Merger in the form of capital stock of the Continuing Bank, as hereafter
defined;
NOW, THEREFORE, in consideration of the mutual agreements herein and other
valuable consideration, the Bank, the Interim Bank and Holding hereby make this
Plan and prescribe the terms and conditions of the Merger and the mode of
carrying it into effect, including the rights and obligations of the parties in
connection therewith, as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. The following terms, as used herein, have the
following respective meanings:
"Bank" means Westernbank Puerto Rico prior to the Effective Date and
the Continuing Bank on and after the Effective Date.
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"Bank Common Shares" means the shares of common stock of the Bank, par
value $1.00 per share.
"Bank Preferred Shares" means the Bank Series A Preferred Shares and
the Bank Series B Preferred Shares.
"Bank Series A Preferred Shares" means the shares of 7.125%
Non-Cumulative, Convertible Preferred Stock, 1998 Series A, liquidation
preference $25.00 per share, par value $1.00 per share.
"Bank Series B Preferred Shares" means the shares of 7.25%
Noncumulative Monthly Income Preferred Stock, 1999 Series B, liquidation
preference $25.00 per share, par value $1.00 per share.
"Commissioner" means the Commissioner of Financial Institutions of the
Commonwealth.
"Commonwealth" means the Commonwealth of Puerto Rico.
"Continuing Bank" means Westernbank Puerto Rico, the surviving bank in
the Merger, on and after the Effective Date.
"Dissenting Shares" shall have the meaning set forth in Section 6.01.
"Effective Date" shall have the meaning set forth in Section 4.02.
"FDIC" means the Federal Deposit Insurance Corporation.
"Holding" means W Holding Company, Inc., a general business
corporation organized under the laws of the Commonwealth.
"Holding Common Shares" means the shares of common stock of Holding,
par value $1.00 per share.
"Holding Preferred Shares" means the Holding Series A Preferred Shares
and the Holding Series B Preferred Shares.
"Holding Series A Preferred Shares" means the shares of the 7.125%
Non-Cumulative, Convertible Preferred Stock, Series A, liquidation
preference $25.00 per share, par value $1.00 per share, of Holding.
"Holding Series B Preferred Shares" means the shares of 7.25%
Noncumulative Monthly Income Preferred Stock, 1999 Series B, liquidation
preference $25.00 per share, par value $1.00 per share, of Holding.
"Interim Bank" means Western Interim Bank, a commercial bank to be
organized under the laws of the Commonwealth for the sole purpose of
consummating the transactions provided for herein.
"Merger" shall have the meaning set forth in the Recitals hereto.
"Prospectus" shall have the meaning set forth in Section 3.04(b).
"Proxy Statement" shall have the meaning set forth in Section 3.04(a).
ARTICLE II
THE MERGER
Section 2.01. Merger. On the Effective Date, the Interim Bank shall be
merged with and into the Bank, and the Bank shall be the surviving entity and
receive into itself the Interim Bank pursuant to the provisions of, and with the
effects provided in, Section 15 of the Banking Law.
Section 2.02. Conversion. Upon the Effective Date:
(a) Each Bank Common Share issued and outstanding immediately prior to
the Effective Date shall, without any further action on the part of the
Bank, Holding, or any other person, constitute and
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be converted into and there shall be allocated to the record holder thereof
a Holding Common Share, and each Bank Preferred Share issued and
outstanding immediately prior to the Effective Date shall, without any
further action on the part of the Bank, Holding, or any other person,
constitute and be converted into and there shall be allocated to the record
holder thereof a Holding Preferred Share of the corresponding series.
(i) Such conversion and allocation shall not in any way preclude or
prevent any holder of Bank Common Shares and/or Bank Preferred Shares
from exercising his or her statutory right to dissent from the Merger
and to receive from the Continuing Bank payment of the value of his or
her Bank Common Shares and/or Bank Preferred Shares and such other
rights and benefits as are provided by law.
(ii) On the Effective Date, each outstanding certificate, which
theretofore had represented Bank Common Shares, shall henceforward be
deemed for all corporate purposes as evidence of the ownership of an
equal number of Holding Common Shares into which the Bank Common Shares
have been so converted, and each outstanding certificate, which
theretofore had represented Bank Preferred Shares, shall henceforward be
deemed for all corporate purposes as evidence of the ownership of an
equal number of Holding Preferred Shares of the applicable series into
which the corresponding Bank Preferred Shares have been so converted
(b) Each share of common stock of the Interim Bank issued and
outstanding on the Effective Date shall without any further action on the
part of the Bank, the Interim Bank, Holding, or any other person constitute
and be converted into and there shall be allocated to Holding the same
number and type of shares of common stock and preferred stock of the
Continuing Bank as Westernbank had issued and outstanding immediately prior
to the Effective Date.
Section 2.03. Certificates After the Effective Date. At any time after
the Effective Date, any holder of one or more of the certificates that prior to
the Effective Date had represented Bank Common Shares or Bank Preferred Shares,
of either series, may surrender such certificate or certificates in proper form
to Holding or to its transfer agent and receive in exchange therefor a
certificate bearing the name and representing an identical number of Holding
Common Shares or Holding Preferred Shares of the corresponding series, as the
case may be.
Section 2.04. Stock Options. On the Effective Date, each outstanding
option to purchase Bank Common Shares under the Bank's stock option plans will
be assumed by Holding. Each such option will be exercisable in accordance with
its existing terms for the same number of Holding Common Shares as the number of
Bank Common Shares subject to such option. Holding and the Bank shall make
appropriate amendments to the existing stock option plans to reflect the
adoption of those plans as the stock option plans of Holding without adverse
effect upon the options outstanding under the existing stock option plans.
Section 2.05. Effects of the Merger. Upon the Effective Date:
(a) The name of the Continuing Bank shall be "Westernbank Puerto
Rico."
(b) The restated charter of the Bank immediately prior to the
Effective Date shall be the restated charter of the Continuing Bank. The
by-laws of the Continuing Bank shall be the by-laws of the Bank immediately
prior to the Effective Date.
(c) The authorized capital stock of the Continuing Bank initially
shall be identical to the authorized capital stock of the Bank immediately
prior to the Effective Date. The Continuing Bank shall have outstanding
those numbers of shares of common stock, series A preferred stock and
shares of series B preferred stock as are equivalent to the numbers of Bank
Common Shares, Bank Series A Preferred Shares and Bank Series B Preferred
Shares outstanding immediately prior to the Effective Date.
(d) The main office, principal place of business, officers and other
personnel of the Continuing Bank shall be the same as the main office,
principal place of business, officers and other personnel of the Bank
immediately prior to the Effective Date.
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(e) The Continuing Bank shall thenceforth enjoy all the rights,
privileges and franchises and shall be subject to all the restrictions,
obligations and duties of the Bank and the Interim Bank, except for the
alterations provided herein.
(f) Each and all of the property, shares, rights, franchises, powers
and privileges of the Bank and the Interim Bank shall become the property
of the Continuing Bank, and the Continuing Bank shall have, as regards such
property, shares, rights, franchises, powers and privileges, the same
rights as the Interim Bank and the Bank each possessed.
(g) The Continuing Bank shall assume each and every obligation of the
Bank and the Interim Bank and shall have all the obligations and shall be
liable for all debts and the fulfillment of all contracts and obligations
of the Bank and the Interim Bank, just as they were prior to the Effective
Date. Any reference to the Bank or the Interim Bank in any contract, will
or document, whether executed or taking effect before or after the Merger,
shall be considered a reference to the Continuing Bank if not inconsistent
with the other provision of the contract, will or document. The
stockholders of the Bank and the Interim Bank shall continue to be subject
to the same obligations, claims and demands as existed against them, if
any, on or before the Effective Date.
(h) All suits, actions or other proceedings pending in any court on
the Effective Date shall continue to their termination just as if the
Merger had not taken place.
(i) The initial directors of the Continuing Bank shall consist of the
directors of the Bank immediately prior to the Effective Date (the names
and addresses of the seven current directors of the Bank as of the date
hereof are listed in Appendix I attached hereto), which directors shall
hold office in the Continuing Bank, unless sooner removed or disqualified,
until the end of their terms to which they have been elected at the Bank,
as set forth in Appendix I and until their successors are elected or are
appointed in accordance with the by-laws of the Continuing Bank and have
qualified.
(j) All deposit accounts of the Bank immediately prior to the
Effective Date shall be and will remain deposits in the Continuing Bank
without change in their respective terms, interest rates, maturities,
minimum required balances or withdrawal rates. At the Effective Date, the
Continuing Bank will continue to issue deposit accounts on the same basis
as the Bank immediately prior to the Effective Date.
ARTICLE III
UNDERTAKINGS
Section 3.01. Bank Stockholder Approval. The Bank undertakes to submit
the Plan for consideration to its stockholders at a meeting called for this
purpose pursuant to Section 15(c) of the Banking Law, or in any other manner
permitted by law. Without limiting the preceding sentence, the Bank agrees
(unless such action is not required by law):
(a) To send to the post-office address of each of the holders of
issued and outstanding Bank Common Shares and Bank Preferred Shares a
written notice of such meeting not less than thirty days prior to the date
fixed for the meeting. The notice shall specify the hour, date, place and
purpose of the meeting at which this Plan will be considered.
(b) To hold a vote of the stockholders at said meeting, in which each
Bank Common Share shall entitle each holder thereof to one vote to be cast
by the stockholder in person or by proxy and in which each Bank Preferred
Share shall entitle each holder thereof to vote in person or by proxy
proportionately based upon the liquidation preference associated with such
Bank Preferred Share.
(c) To cause its secretary to certify under the seal of the Bank that
(i) the Plan has been approved by the vote of the directors of the Bank,
(ii) the Plan has been approved by the votes of at least three-fourths
( 3/4) of the Bank Common Shares and (iii) the Plan has been approved by
the votes of at least two-thirds ( 2/3) of the aggregate liquidation
preference associated with the Bank
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<PAGE> 77
Preferred Shares, with both series of Bank Preferred Shares voting together
as a single class, if the Plan has been so approved.
(d) To submit the Plan as certified pursuant to subsection (c) of this
Section 3.01, with a certification under seal by the Secretary of Interim
Bank as to the approval of the Plan by Holding as sole stockholder of
Interim Bank, to the Commissioner for his approval or disapproval.
Section 3.02. Holding Stockholder Approval. The Bank will vote all of its
shares of common stock of Holding in favor of approval of the Plan acting by
written consent.
Section 3.03. Interim Bank Stockholder Approval. Holding will vote all of
its shares of common stock of the Interim Bank in favor of the approval of the
Plan acting by written consent.
Section 3.04. Regulatory Approvals. Each of the Bank, the Interim Bank
and Holding shall (i) proceed expeditiously and cooperate fully in determining
which filings are required to be made prior to the Effective Date with, and
which consents, approvals, permits or authorizations are required to be obtained
prior to the Effective Date from, governmental or regulatory authorities of the
Commonwealth and the United States (collectively, the "Regulatory Approvals") in
connection with the execution and delivery of the Plan and the consummation of
the transactions contemplated hereby; and (ii) timely make all such filings and
timely seek all Regulatory Approvals; and (iii) take all other action and do all
things necessary or appropriate to consummate and make effective all
transactions contemplated by this Plan as soon as possible.
Section 3.05. Securities Law Matters.
(a) The Bank undertakes to prepare and file promptly a proxy statement
(the "Proxy Statement") which complies with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder by the FDIC and which complies with all applicable
federal, state and Puerto Rico law requirements for the purpose of
submitting the Plan to its stockholders for approval.
(b) Holding and the Bank undertake to prepare a Prospectus (the
"Prospectus") related to the Holding Common Shares and Holding Preferred
Shares which complies with the requirements of the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder by the
Securities and Exchange Commission, which shall be distributed to the
stockholders of the Bank.
(c) Holding and the Bank shall each provide promptly to the other such
information concerning its business and financial condition, and affairs
and prospects as may be required or appropriate for inclusion in the
Prospectus or the Proxy Statement and shall cause their counsel and
auditors to cooperate in the preparation of the Prospectus and the Proxy
Statement.
(d) The Bank undertakes to distribute the Proxy Statement and the
Prospectus to its stockholders in accordance with applicable federal and
state law requirements.
Section 3.06. Other Undertakings.
(a) If the requisite approval of this Plan is obtained at the meeting
of the Bank's stockholders referred to in Section 3.01, thereafter and
until the Effective Date, the Bank shall issue certificates for Bank Common
Shares and Bank Preferred Shares, whether upon transfer or otherwise, only
if such certificates bear a legend, the form of which shall be approved by
the board of directors of the Bank, indicating that this Plan has been
approved and that shares of stock evidenced by such certificates are
subject to consummation of this Plan.
(b) If at any time (whether before or after the Effective Date), the
Bank or the Continuing Bank considers that any further assignment,
conveyance or assurance in law is necessary or desirable to vest, perfect
or confirm of record in the Continuing Bank the title to any property or
rights of the Bank or the Interim Bank, or otherwise to carry out the
provisions hereof, the Bank and the Interim Bank hereby undertake through
their proper officers and directors to execute and deliver immediately any
and all proper deed, assignment and assurance, and to do all things
necessary or proper to vest,
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perfect or confirm title to such property or right in the Continuing Bank
and otherwise to carry out the provisions hereof.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01. Conditions Precedent to the Merger. The consummation of the
Merger is subject to the satisfaction of the following conditions:
(a) The votes of at least (i) three-fourths ( 3/4) of the issued and
outstanding Bank Common Shares and (ii) two-thirds ( 2/3) of the aggregate
liquidation preference associated with the issued and outstanding Bank
Preferred Shares, with both series of Bank Preferred Shares voting together
as a single class, shall have been cast, in person or by proxy, in favor of
this Plan at a meeting of the Bank's stockholders called pursuant to
Section 3.01.
(b) All Regulatory Approvals (or waiver or exemption therefrom) and
satisfaction of all other requirements prescribed by law which are
necessary to the consummation of the transactions contemplated by the Plan
shall have been obtained, and all statutory waiting periods shall have
expired, without the imposition of any condition or requirements that would
materially and adversely affect the operations or business prospects of
Holding or the Continuing Bank following the Effective Date so as to render
inadvisable the consummation of such transaction, as provided by Section
5.01(c) hereof.
(c) The Bank shall have received a ruling or rulings from the
appropriate tax authorities and/or an opinion letter from tax counsel to
the Bank, satisfactory to the Bank in form and substance, with respect to
the Puerto Rico and United States income tax consequences of the Merger.
(d) The Holding Common Shares and the Holding Series B Preferred
Shares shall have been approved for quotation on the Nasdaq Stock Market's
National Market Tier.
Section 4.02. Effective Date. The Bank, the Interim Bank and Holding
shall use their best efforts to cause the Merger to become effective on a date
as soon as practicable after each condition precedent listed in Section 4.01
shall have been satisfied. The Merger shall become effective at the time this
Plan is properly approved and filed in accordance with the Banking Law (the
"Effective Date").
ARTICLE V
TERMINATION AND DEFERRAL
Section 5.01. Termination of the Merger. Prior to the Effective Date, the
Plan may be terminated at any time by written notice by either the Bank or the
Interim Bank or Holding to the other parties hereto that its board of directors
is of the opinion that:
(a) The number of Bank Common Shares and/or Bank Preferred Shares that
voted against approval of the Plan or the number with respect to which
demand for payment of shares has been made is such that the consummation of
the Merger is inadvisable, in the sole opinion of such board of directors.
(b) Any action, suit, proceeding, or claim is commenced or threatened
or any claim is made that could make consummation of the Merger, in the
sole opinion of such board of directors, inadvisable;
(c) It is likely that a Regulatory Approval, in the sole opinion of
such board of directors, will not be obtained, or if obtained, has or will
contain or impose a condition or requirement that would materially and
adversely affect the operations or business prospects of Holding or the
Continuing Bank following the Effective Date so as to render inadvisable
the consummation of the Merger.
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<PAGE> 79
(d) Any other reason exists that makes consummation of the Merger in
the sole opinion of such board of directors, inadvisable.
Upon such determination, the Plan shall be deemed void, and there shall be
no liability hereunder or on account of such termination on the part of the
Bank, the Interim Bank, Holding, or the directors, officers, employees, agents
or stockholders or any of them, except that in such event the Bank will pay the
fees and expenses incurred by itself, the Interim Bank and Holding in connection
with the transactions contemplated herein.
Section 5.02. Deferral of Effective Date. Consummation of the Merger
herein provided may be deferred by the board of directors of the Bank for a
reasonable period of time if the Bank's board of directors determines, in its
sole discretion, that such deferral would be in the best interest of the Bank
and the stockholders of the Bank.
ARTICLE VI
APPRAISAL RIGHTS
Section 6.01. Dissenters' Rights. Any stockholder of the Bank who
complies with all applicable provisions of law, including without limitation
Section 15(i) of the Banking Law, shall be entitled to receive the value of the
Bank Common Shares and/or Bank Preferred Shares held by such stockholder as
provided by Section 15(i) of the Banking Law, provided that:
(a) Any Bank Common Shares and/or Bank Preferred Shares held by a
holder who has demanded appraisal of such holder's shares and, as of the
Effective Date, has neither effectively withdrawn nor lost such holder's
right to such appraisal (the "Dissenting Shares") shall not be converted in
the manner set forth in Section 2.02, but the holder thereof shall only be
entitled to such rights as are granted by the Banking Law.
(b) Notwithstanding the provisions of subparagraph (a) of this Section
6.01, if any holder of Dissenting Shares shall effectively withdraw or lose
(through failure to perfect or otherwise) such holder's right to appraisal,
then, as of the Effective Date or the occurrence of such event, whichever
later occurs, such Dissenting Shares shall automatically be converted as
provided in Section 2.02.
ARTICLE VII
MISCELLANEOUS
Section 7.01. Governing Law. The Plan shall be governed by and construed
in accordance with the laws of the Commonwealth.
Section 7.02. Amendment. The Plan and the Appendix hereto may be amended
by the parties hereto, by action taken by or on behalf of their respective Board
of Directors at any time before or after approval by the stockholders of the
parties; provided, however that after such approval, no amendment, modification
or waiver shall affect the consideration to be received by any party or their
respective stockholders. Any such amendment, modification or waiver must be by
an instrument in writing and signed on behalf of each of the parties.
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<PAGE> 80
IN WITNESS WHEREOF, the Bank, the Interim Bank and Holding have caused this
Plan to be executed in multiple copies, by their duly authorized officers, and
have caused their corporate seals to be hereto affixed, as of the date first
above written.
WESTERNBANK PUERTO RICO
By: /s/ FRANK C. STIPES
------------------------------------
Name: Frank C. Stipes
Title: President
[SEAL]
8
<PAGE> 81
WESTERN INTERIM BANK
By:
-----------------------------------
Name:
---------------------------------
Title: President
Executed as of ________________, 1999
[SEAL]
9
<PAGE> 82
W HOLDING COMPANY, INC.
By: /s/ FRANK C. STIPES
------------------------------------
Name: Frank C. Stipes
Title: President
Executed as of June 15 , 1999
[SEAL]
10
<PAGE> 83
APPENDIX I
DIRECTORS OF THE BANK
<TABLE>
<CAPTION>
NAMES AND ADDRESSES OF DIRECTORS TERMS ENDING
- -------------------------------- ------------
<S> <C>
Fidel Pino Cros 2001
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Pedro R. Dominguez 2001
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Fredeswinda G. Frontera 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Angel Luis Rosas 2000
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Cesar A. Ruiz 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Frank C. Stipes 2000
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Cornelius Tamboer 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
</TABLE>
<PAGE> 84
APPENDIX B
CERTIFICATE OF INCORPORATION
OF
W HOLDING COMPANY, INC.
FIRST
The name of this corporation is "W Holding Company, Inc." (hereinafter
"Holding").
SECOND
The principal office of Holding, which is also its postal and physical
address, shall be located at 19 W. McKinley Street, Mayaguez, Puerto Rico 00680.
Holding will serve as its Resident Agent, at this same address.
THIRD
The term of existence of Holding is perpetual.
FOURTH
The purpose of Holding is to engage, for profit, in any lawful acts or
businesses for which corporations may be organized under the General
Corporations Law of the Commonwealth of Puerto Rico, as amended from time to
time (hereinafter, as so amended, the "Corporations Law").
FIFTH
The business and activities of Holding shall be under the authority of a
Board of Directors composed of the number of directors fixed from time to time
by resolution of an absolute majority of the Board of Directors, provided that
the number of directors shall be an odd number and not less than five (5) nor
more than nine (9). The Board of Directors shall be divided into three classes
of approximately equal numbers of directors. The members of each class shall be
elected by Holding's stockholders at the annual meeting for three-year terms and
shall remain in office until their successors have been duly elected and
qualified. A majority of the directors holding office shall constitute a quorum
at meetings of the Board of Directors.
The directors shall have such qualifications, shall be subject to such
responsibilities, shall comply with such requirements and shall hold office
pursuant to the provisions of the Corporations Law and the By-laws of Holding.
Any vacancy in the Board of Directors may be filled by a majority of the
votes of the directors then holding office. A director elected to fill a vacancy
so created shall be elected to serve the term of such directorship and until a
successor has been duly elected and sworn in their office.
Upon the filing of this Certificate of Incorporation at the Department of
State of the Commonwealth of Puerto Rico, the following persons, having the
indicated mailing addresses, shall serve as the initial directors of Holding,
which directors shall hold office, unless sooner removed or disqualified, until
the end
<PAGE> 85
of their terms at the annual meeting of Holding in the year indicated below and
until their successors are elected or are appointed.
<TABLE>
<CAPTION>
NAMES AND ADDRESSES OF DIRECTORS TERMS ENDING
- -------------------------------- ------------
<S> <C>
Fidel Pino Cros 2001
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Pedro R. Dominguez 2001
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Fredeswinda G. Frontera 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Angel Luis Rosas 2000
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Cesar A. Ruiz 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Frank C. Stipes 2000
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Cornelius Tamboer 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
</TABLE>
The personal liability of the directors of Holding in cases of monetary
claims for damages resulting from the breach of the fiduciary duties as director
is eliminated, provided that this provision does not eliminate or limit the
liability of the director for: (i) any breach of the duty of loyalty of the
director to Holding or its stockholders; (ii) acts or omissions not in good
faith, or which involve intentional misconduct or knowing violations of law;
(iii) unlawful payments of dividends or purchase and redemption of stock; or
(iv) any transaction where the director derives an improper personal benefit.
SIXTH
The authorized capital stock of Holding shall be THREE HUNDRED TWENTY
MILLION DOLLARS ($320,000,000) represented by THREE HUNDRED MILLION
(300,000,000) shares of common stock, $1.00 par value per share (the "Common
Stock"), and TWENTY MILLION (20,000,000) shares of preferred stock, $1.00 par
value per share ("Preferred Stock"). The shares may be issued by Holding from
time to time as authorized by the Board of Directors without the further
approval of stockholders, except as otherwise provided in this Article SIXTH or
to the extent that such approval is required by governing law, rule or
regulation.
The holders of Common Stock and Preferred Stock shall be entitled to
dividends at the rate and on the conditions and terms which shall be stated in
the resolutions providing for the issuance of such stock and adopted by the
Board of Directors pursuant to the Corporations Law. When dividends have been
paid on the Preferred Stock in accordance with the preferences to which they are
entitled, or when such dividends have been declared and set aside for payment,
then dividends may be paid on the Common Stock from the remaining assets of
Holding which are available for the payment of dividends, pursuant to provisions
of the Corporations Law.
The holders of the Preferred Stock shall have, upon dissolution of Holding,
or upon any distribution of its assets, the rights stated in the resolutions
providing for the issue of such stock and adopted by the Board of Directors
pursuant to the Corporations Law.
The Board of Directors is expressly authorized to provide, when it deems
necessary, for the issuance of shares of Preferred Stock in one or more series,
with such voting powers, full or limited, but not to
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<PAGE> 86
exceed ten votes per share, or without voting powers; and with such
designations, powers, preferences, rights, qualifications, limitations or
restrictions thereof, as shall be expressed in the resolution or resolutions of
the Board of Directors, authorizing such issuance, including (but without
limiting the generality of the foregoing) the following:
(a) the designation of such series;
(b) the dividend rate of such series, the conditions and dates upon
which the dividends shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any other class or classes
of capital stock of Holding, and whether such dividends shall be cumulative
or non-cumulative;
(c) whether the shares of such series shall be subject to redemption
by Holding, and if made subject to such redemption, the terms and
conditions of such redemption;
(d) the terms and amount of any sinking fund provided for the purchase
or redemption of the shares of such series;
(e) whether the shares of such series shall be convertible and if
provision be made for conversion, the terms of such conversion;
(f) the extent, if any, to which the holders of such shares shall be
entitled to vote; provided, however, that in no event, shall any holder of
any series of preferred stock be entitled to more than ten votes for each
such share;
(g) the restrictions and conditions, if any, upon the issue or
re-issue of any additional preferred stock ranking on a parity with or
prior to such shares as to dividends or upon dissolution; and
(h) the rights of the holders of such shares upon dissolution of, or
upon distribution of assets of Holding, which rights may be different in
the case of a voluntary dissolution.
SEVENTH
The Board of Directors has approved the issuance of shares of its 7.125%
Non-Cumulative, Convertible Preferred Stock, Series A, liquidation preference
$25.00 per share, par value $1.00 per share, which shall have the same terms and
preferences as the 7.125% Non-Cumulative, Convertible Preferred Stock, 1998
Series A, liquidation preference $25.00 per share, par value $1.00 per share,
previously issued by Westernbank Puerto Rico, with only such changes as
necessary to reflect the change in issuer. The Board of Directors of Holding has
fixed the powers, preferences, rights, and qualifications, limitations and
restrictions as follows:
1. DESIGNATION; RANKING.
(a) The designation of such series of Preferred Stock shall be "7.125%
Non-Cumulative, Convertible Preferred Stock, Series A" (hereinafter referred to
as "Series A Preferred Stock"), and the number of shares constituting such
series shall be 1,219,000, which number may be increased (but not above the
total number of shares of Preferred Stock) or decreased (but not below the
number of shares of Series A Preferred Stock then outstanding) from time to time
by the Board of Directors.
(b) The Series A Preferred Stock will, with respect to dividend rights and
rights on liquidation, rank (i) senior to all classes of the Common Stock and to
all other equity securities issued by Holding the terms of which specifically
provide that such equity securities will rank junior to the Series A Preferred
Stock (or to all series of Preferred Stock in general) as to dividends and the
distribution of assets upon liquidation (the Common Stock, together with such
other equity securities, being hereinafter referred to as "Junior Stock"); (ii)
on a parity with all equity securities issued by Holding the terms of which
specifically provide that such equity securities will rank on a parity to the
Series A Preferred Stock (or to all series of Preferred Stock in general) as to
dividends or the distribution of assets upon liquidation ("Parity Stock"); and
(iii) junior to all equity securities issued by Holding the terms of which
specifically
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<PAGE> 87
provide that such equity securities will rank senior to the Series A Preferred
Stock (or to all series of Preferred Stock in general) as to dividends or the
distribution of assets upon liquidation. For this purpose, the term "equity
securities" does not include debt securities convertible into or exchangeable
for equity securities.
(c) Holding may not issue capital stock of Holding ranking, as to dividend
rights or rights on liquidation, senior to the Series A Preferred Stock except
with the consent of the holders of at least two-thirds of the aggregate
liquidation preference of the Series A Preferred Stock and any series of Parity
Stock at the time outstanding.
2. DIVIDEND RIGHTS.
(a) The holders of Series A Preferred Stock shall be entitled to receive
when, as and if declared by the Board of Directors of Holding, out of assets of
Holding legally available therefor, cash dividends, accruing from the date of
original issuance (the "Issue Date") at the annual rate per share of 7.125% of
the liquidation preference of $25 per share (equivalent to $ 1.78125 per share
per annum), (the "Dividends"), payable, when, as and if declared by the Board of
Directors, monthly in arrears on the 15th day of each month (each monthly period
ending on any such date being hereinafter referred to as a "dividend period"),
at such annual rate. Dividends in each dividend period shall accrue from the
first day of such period, whether or not declared or paid for the prior dividend
period (except that the first Dividends payable after the Issue Date shall
accrue from the Issue Date). Each declared Dividend shall be payable to holders
of record as they appear at the close of business on the stock register of
Holding on such record dates, not exceeding 45 days preceding the payment dates
thereof, as shall be fixed by the Board of Directors of Holding. The amount of
Dividends paid for any monthly dividend period will be computed on the basis of
twelve 30-day months and a 360-day year. The amount of Dividends payable for any
period shorter than a full monthly dividend period will be computed on the basis
of the actual number of days elapsed in such period.
(b) Dividends shall be non-cumulative. Holding is not obligated or required
to declare or pay Dividends, even if it has funds available for the payment of
such dividends. If the Board of Directors of Holding or an authorized committee
thereof does not declare a Dividend payable on a dividend payment date, then the
holders of such Series A Preferred Stock shall have no right to receive a
Dividend in respect of the dividend period ending on such dividend payment date
and Holding will have no obligation to pay a Dividend accrued for such dividend
period or to pay any interest thereon, whether or not dividends on such Series A
Preferred Stock or the Common Stock are declared for any future dividend period.
(c) If all Dividends due and payable for each of the twelve previous
monthly dividend periods (or such fewer dividend periods as there actually are)
shall not have been declared and paid, or declared and a sum sufficient for the
payment thereof shall not have been set apart for such payments, or Holding has
defaulted on the payment of the redemption price of any Series A Preferred Stock
called for redemption, no dividends shall be declared or paid or set aside for
payment and no other distribution shall be declared or made or set aside for
payment upon the Junior Stock, nor shall any Junior Stock be redeemed, purchased
or otherwise acquired for any consideration (or any monies to be paid to or made
available for a sinking fund for the redemption of any such stock) by Holding
(except by conversion into or exchange for other Junior Stock).
(d) When Dividends and dividends upon any Parity Stock are not paid in full
(or a sum sufficient for such full payment is not set apart), all Dividends and
dividends upon any Parity Stock shall be declared pro rata so that the amount of
dividends declared upon such series of capital stock shall in all cases bear to
each other the same ratio that full Dividends for the then-current dividend
period (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods) and full dividends, including required or permitted
accumulations, if any, on such Parity Stock, bear to each other.
(e) Subject to any applicable laws and regulations, each Dividend payment
will be made by U.S. dollar check drawn on a bank in New York, New York or San
Juan, Puerto Rico and mailed to the
4
<PAGE> 88
record holder thereof at such holder's address as it appears on the register for
such Series A Preferred Stock.
3. CONVERSION RIGHTS.
(a) At any time on or after 90 days after the Issue Date, unless previously
redeemed, any holder of record of the Series A Preferred Stock may convert, at
its option, any outstanding share of the Series A Preferred Stock owned by such
holder into .995 shares (subject to adjustment upon certain events) of fully
paid and non-assessable Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) for each share of Series A Preferred Stock. The
right to convert a share of the Series A Preferred Stock called for redemption
will terminate at the close of business on the fifth Business Day immediately
prior to the date fixed for redemption (the "Redemption Date") for such share,
unless Holding fails to pay the applicable redemption price. The conversion
ratio per share of Series A Preferred Stock is subject to adjustment upon
certain events, including (a) the issuance of Common Stock as a dividend or
distribution with respect to the outstanding Common Stock, (b) subdivisions of
the Common Stock, (c) the issuance to holders of Common Stock of rights or
warrants to subscribe for Common Stock at less than the then-current market
price, (d) the distribution to holders of Common Stock of any shares of capital
stock of Holding (other than Common Stock) or evidences of indebtedness or
assets (excluding cash dividends or distributions paid from retained earnings),
or rights or warrants to subscribe for securities of Holding other than those
described above, (e) any distribution consisting exclusively of cash (excluding
any cash portion of distributions referred to in (d) above, or cash distributed
upon a merger or consolidation to which the third succeeding paragraph applies)
to all or substantially all holders of Common Stock in an aggregate amount that,
combined together with (i) all other such all-cash distributions made within the
then preceding 12 months in respect of which no adjustment has been made and
(ii) any cash and the fair market value of other consideration paid or payable
in respect of any tender or exchange offer by Holding or any of its subsidiaries
for Common Stock concluded within the preceding 12 months in respect of which no
adjustment has been made, exceeds 15% of Holding's market capitalization
(defined as being the product of the then current market price of the Common
Stock times the number of shares of Common Stock then outstanding) on the record
date of such distribution, and (f) the completion of a tender or exchange offer
made by Holding or any of its subsidiaries for Common Stock that involves an
aggregate consideration that, together with (i) any cash and other consideration
payable in a tender or exchange offer by Holding or any of its subsidiaries for
Common Stock expiring within the 12 months preceding the expiration of such
tender or exchange offer in respect of which no adjustment has been made and
(ii) the aggregate amount of any such all-cash distributions referred to in (e)
above to all holders of Common Stock within the 12 months preceding the
expiration of such tender or exchange offer in respect of which no adjustments
have been made, exceeds 15% of Holding's market capitalization on the expiration
of such tender offer. No adjustments in the conversion ratio will be required,
however, unless the adjustment would require a change of at least one percent in
the conversion ratio. Each adjustment of less than one percent in the conversion
ratio will be carried forward and taken into account in any subsequent
adjustment. The adjustment will be made not later than such time as may be
required in order to preserve the tax-free nature of a distribution to the
holders of shares of Common Stock. Holding will be entitled to make such
reductions in the conversion ratio, in addition to those required by the
provisions described above, as it in its discretion may determine to be
advisable in order that certain stock related distributions which may be made by
Holding to its stockholders will not be taxable.
In items (a) and (b) above in this Section 3(a), the conversion ratio per
share of Series A Preferred Stock in effect immediately prior to such actions
shall be adjusted so that the holders of any shares of Series A Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common Stock or other capital stock of Holding that they would have
owned or been entitled to receive immediately following such actions had such
shares of Series A Preferred Stock been converted immediately prior to the
occurrence of such events. An adjustment made pursuant to this paragraph shall
become effective immediately after the record date, in the case of a dividend or
distribution, or immediately after the effective date, in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this paragraph, the holders of any shares of Series A Preferred
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<PAGE> 89
Stock thereafter surrendered for conversion shall become entitled to receive
shares of two or more classes of capital stock or shares of Common Stock and
other capital stock of Holding, the Board of Directors (whose determination
shall be conclusive) shall determine the allocation of the adjusted conversion
ratio between or among of such shares of capital stock or shares of Common Stock
and other capital stock.
In item (c) above in this Section 3(a), the holders of any shares of Series
A Preferred Stock shall be entitled to receive such rights, warrants or options
to subscribe for or purchase shares of Common Stock that they would have
received or been entitled to receive if such shares of Series A Preferred Stock
had been converted into shares of Common Stock immediately prior to the issuance
of such rights, warrants or options. Such computation shall be made successively
whenever any such rights, warrants or options are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, warrants or options. In
determining whether any rights, warrants or options entitle the holders to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at less than such current market price, there shall be taken into
account any consideration received by Holding for such rights, warrants or
options (and for such convertible securities), and the value of such
consideration, if other than cash, shall be determined by the Board of Directors
(whose determination shall be conclusive). If at the end of the period during
which such rights, warrants or options are exercisable not all such rights,
warrants or options shall have been exercised, the rights, warrants or options
that the holders of Series A Preferred Stock were entitled to receive shall be
adjusted based on the number of additional shares of Common Stock actually
issued.
In item (d) above in this Section 3(a), the holders of any shares of Series
A Preferred Stock shall be entitled to receive such shares of capital stock,
evidences of indebtedness or assets, and such rights, warrants or options to
subscribe for or purchase capital stock of Holding, that they would have
received or been entitled to receive if such shares of Series A Preferred Stock
had been converted into shares of Common Stock immediately prior to the issuance
of such shares of capital stock, evidences of indebtedness or assets, and such
rights, warrants or options to subscribe for or purchase capital stock of
Holding.
In items (e) and (f) above in this Section 3(a), each holder of shares of
Series A Preferred Stock who converts such shares into shares of Common Stock
will be entitled to receive upon such conversion, in addition to the shares of
Common Stock, such additional consideration such stockholder would have received
had such shares of Series A Preferred Stock been converted into shares of Common
Stock immediately prior to the record date of such distributions described in
items (e) and (f) above in this Section 3(a).
Notwithstanding anything in this section to the contrary, with respect to
any rights, warrants or options, if such rights, warrants or options are only
exercisable upon the occurrence of certain triggering events, then for purposes
of this section such rights, warrants or options shall not be deemed issued or
distributed until such triggering events occur and such rights, warrants or
options become exercisable.
(b) No fractional shares of Common Stock will be issued upon conversion of
Series A Preferred Stock. Any fractional interest in a share of Common Stock
resulting from a conversion of a share of Series A Preferred Stock will be paid
in cash based on the closing price of Common Stock on the trading day
immediately preceding the day of conversion.
(c) Conversion of Series A Preferred Stock will be effected by surrendering
certificates evidencing such shares, together with a proper assignment of the
certificates to Holding or in blank, to the office or agency to be maintained by
Holding for that purpose. In case fewer than all the shares represented by any
such certificate are converted, a new certificate shall be issued representing
the unconverted shares without cost to the holder thereof.
(d) In case of any reclassification or change of outstanding shares of
Common Stock (other than a change in par value, or as a result of a subdivision
or combination), or in case of any consolidation of Holding with, or merger of
Holding with or into, any other entity that results in a reclassification,
change, conversion, exchange or cancellation of outstanding shares of Common
Stock or any sale or transfer of all
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<PAGE> 90
or substantially all of the assets of Holding, each holder of Series A Preferred
Stock then outstanding will have the right thereafter to convert its Series A
Preferred Stock into the kind and amount of securities, cash and other property
that the holder would have been entitled to receive if the holder had held the
Common Stock issuable upon the conversion of the Series A Preferred Stock
immediately prior to such reclassification, change, consolidation, merger, sale
or transfer.
(e) In the event that Holding consummates any consolidation or merger or
similar business combination, pursuant to which the outstanding shares of Common
Stock are by operation of law exchanged solely for or changed, reclassified or
converted into stock, securities or cash or any other property, or any
combination thereof, the Series A Preferred Stock will, in connection with such
consolidation, merger or similar business combination, be assumed by and become
preferred stock of such successor or resulting corporation, having in respect of
such corporation, insofar as possible, the same powers, preferences and relative
rights, and the qualifications, limitations or restrictions thereon, that the
Series A Preferred Stock had immediately prior to such transaction, except that
after such transaction each share of Series A Preferred Stock will be
convertible on the terms and conditions described above, into the nature and
kind of consideration so receivable by a holder of the number of shares of
Common Stock into which such Series A Preferred Stock could have been converted
immediately prior to such transaction. If by virtue of the structure of such
transaction, however, a holder of Common Stock is required to make an election
with respect to the nature and kind of consideration to be received in such
transaction, which election cannot practicably be made by the holder of the
Series A Preferred Stock, then the Series A Preferred Stock, by virtue of such
transaction and on the same terms as apply to the holders of Common Stock, will
be converted into or exchanged for the aggregate amount of stock, securities,
cash or other property (payable in kind) receivable by a holder of the number of
shares of Common Stock into which such Series A Preferred Stock could have been
converted immediately prior to such transaction if the holder of Common Stock
failed to exercise any rights of election. The rights of the Series A Preferred
Stock as preferred stock of the successor or resulting corporation will
successively be subject to adjustment after any such transaction as nearly
equivalent as practicable to the adjustments in existence prior to such
transaction. Holding will not consummate any such merger, consolidation or
similar transaction unless all then outstanding Series A Preferred Stock will be
assumed and authorized by the successor or resulting corporation as provided
above.
(f) Upon the conversion of Series A Preferred Stock, no dividends thereon
will be due or payable for any period unless previously declared, but not yet
paid.
4. LIQUIDATION PREFERENCES.
(a) In the event of any liquidation of Holding, whether voluntary or
involuntary, the holders of Series A Preferred Stock shall be entitled to
receive out of the assets of Holding available for distribution to shareholders
an amount equal to $25 per share, plus accrued and unpaid dividends, if any, for
the then-current monthly dividend period to the date of payment, and no more
(the "Liquidation Preference"), before any distribution shall be made to the
holders of Junior Stock. After payment of the full amount of such liquidating
distributions, the holders of Series A Preferred Stock will not be entitled to
any further participation in any distribution of the remaining assets of
Holding.
(b) In the event that the assets of Holding available for distribution to
shareholders upon any liquidation of Holding, whether voluntary or involuntary,
shall be insufficient to pay in full the amounts payable with respect to the
Series A Preferred Stock and any Parity Stock, the holders of Series A Preferred
Stock and Parity Stock shall share ratably in any distribution of assets of
Holding in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
(c) The merger or consolidation of Holding with or into any other entity,
the merger or consolidation of any other entity with or into Holding, or the
sale, lease or conveyance of all or substantially all of the property or
business of Holding, shall not be deemed to constitute a liquidation of Holding
within the meaning of this Section 4.
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<PAGE> 91
5. REDEMPTION
(a) Holders of the Series A Preferred Stock will have no right to require
Holding to redeem or repurchase the Series A Preferred Stock, and such shares
are not subject to any sinking fund or similar obligation.
(b) The Series A Preferred Stock will not be redeemable prior to July 1,
2002. On or after such date, the Series A Preferred Stock will be redeemable at
the option of Holding, in whole or in part, at any time or from time to time, at
the option of Holding upon not less than 30 nor more than 60 days' notice by
mail, at the redemption prices set forth below, during the 12-month periods
beginning on July 1 of the years set forth below, plus accrued and unpaid
dividends, if any, for the then-current dividend period to the date fixed for
redemption.
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
2002................................................ $26.00
2003................................................ $25.75
2004................................................ $25.50
2005................................................ $25.25
2006 and thereafter................................. $25.00
</TABLE>
(c) If less than all of the outstanding shares of the Series A Preferred
Stock are to be redeemed at the option of Holding, the total number of shares to
be redeemed in such redemption shall be determined by the Board of Directors and
the shares to be redeemed shall be allocated pro rata or by lot as may be
determined by the Board of Directors or by such other method as the Board of
Directors may approve and deem fair and appropriate, including any method to
conform to any rule or regulation of any national or regional stock exchange or
automated quotation system upon which the shares of the Series A Preferred Stock
may at the time be listed or eligible for quotation; provided that, the shares
of a holder must be redeemable in full unless Holding obtains a ruling from the
Puerto Rico Treasury Department or an opinion from reputable counsel
knowledgeable in Puerto Rico income tax matters to the effect that the
redemption in part of the holder's shares is not equivalent to a dividend under
Puerto Rico law.
(d) Notice of any redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the date fixed
for redemption to each holder of record of the Series A Preferred Stock to be
redeemed, at their respective addresses appearing on the stock books of Holding.
Notice so mailed shall be conclusively presumed to have been duly given whether
or not actually received, and failure to duly give such notice by mail, or any
defect in such notice, to the holders of any shares designated for redemption
shall not affect the validity of the proceedings for the redemption of any other
shares of Series A Preferred Stock. Such notice shall state: (i) the Redemption
Date; (ii) the redemption price; (iii) the number of shares of Series A
Preferred Stock to be redeemed and, if less than all the shares held by such
holder are to be redeemed, the number of such shares to be so redeemed from such
holder; (iv) the place where certificates for such shares are to be surrendered
for payment of the redemption price; and (v) that after such Redemption Date the
shares to be redeemed shall not accrue dividends. If such notice is mailed as
aforesaid, and if on or before the Redemption Date funds sufficient to redeem
the shares called for redemption are set aside by Holding in trust for the
account of the holders of the shares to be redeemed, notwithstanding the fact
that any certificate for shares called for redemption shall not have been
surrendered for cancellation, on and after the Redemption Date the shares
represented thereby so called for redemption shall be deemed to be no longer
outstanding, dividends thereon shall cease to accrue, and all rights of the
holders of such shares as stockholders of Holding shall cease, except the right
to receive the redemption price, without interest, upon surrender of the
certificate representing such shares. Upon surrender in accordance with the
aforesaid notice of the certificate for any shares so redeemed (duly endorsed or
accompanied by appropriate instruments of transfer, if so required by Holding in
such notice), the holders of record of such shares shall be entitled to receive
the redemption price, without interest. In case fewer than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without cost to the holder thereof.
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<PAGE> 92
(e) At its option, Holding may, on or prior to the Redemption Date,
irrevocably deposit the aggregate amount payable upon redemption of the shares
of the Series A Preferred Stock to be redeemed with a bank or trust bank
designated by Holding having its principal office in New York, New York, San
Juan, Puerto Rico, or any other city in which Holding shall at that time
maintain a transfer agent with respect to its capital stock, and having a
combined capital surplus (as shown by its latest published statement) of at
least $50,000,000 (hereinafter referred to as the "Depository"), to be held in
trust by the Depository for payment to the holders of the Series A Preferred
Stock to be redeemed. If such deposit is made and the funds so deposited are
made immediately available to the holders of the Series A Preferred Stock to be
redeemed, Holding shall thereupon be released and discharged (subject to the
provisions described in the next paragraph) from any obligation to make payment
of the amount payable upon redemption of the Series A Preferred Stock to be
redeemed, and the holders of such shares shall look only to the Depository for
such payment.
(f) Any funds remaining unclaimed at the end of two years from and after
the Redemption Date in respect of which such funds were deposited shall be
returned to Holding forthwith and thereafter the holders of the Series A
Preferred Stock called for redemption with respect to which such funds were
deposited shall look only to Holding for the payment of the redemption price
thereof. Any interest accrued on any funds deposited with the Depository shall
belong to Holding and shall be paid to it from time to time on demand. Any of
the Series A Preferred Stock which shall at any time have been redeemed shall,
after such redemption, have the status of authorized but unissued preferred
shares, without designation as to series, until such shares are once more
designated as part of a particular series by the Board of Directors.
6. VOTING RIGHTS.
(a) Except as expressly required by applicable law, or except as indicated
below, the holders of the Series A Preferred Stock will not be entitled to
receive notice of or attend or vote at any meeting of the stockholders of
Holding.
(b) If at the time of any annual meeting of Holding's stockholders for the
election of directors, Holding has failed to pay or declare and set aside for
payment a monthly Dividend for each of the 18 preceding monthly dividend
periods, the number of directors then constituting the Board of Directors of
Holding shall be increased by one (if not already increased by one due to a
default in preference dividends), and at such annual meeting the holders of the
Series A Preferred Stock, along with the holders of any other series of
Preferred Stock which may have voting rights due to Holding's failure to pay
dividends, will be entitled to elect such additional director to serve on
Holding's Board of Directors. Such director elected by the holders of the Series
A Preferred Stock and any other Preferred Stock shall continue to serve as
director until the earlier of (i) the full term for which he or she shall have
been elected or (ii) the payment of 12 monthly Dividends.
(c) Unless the vote or consent of the holders of a greater number of shares
shall then be required by law, the affirmative vote or consent of the holders of
at least two-thirds of the aggregate liquidation preference of the Series A
Preferred Stock and of the shares of any Parity Stock at the time outstanding,
given in person or by proxy, either in writing or by a vote at a meeting called
for the purpose at which the holders of Series A Preferred Stock and any such
other series of Parity Stock shall vote together as a single class without
regard to series, shall be necessary for authorizing, effecting or validating
any variation or abrogation of the powers, preferences, rights, privileges,
qualifications, limitations and restrictions of the Series A Preferred Stock or
any such other series of Parity Stock by way of amendment, alteration or repeal
of any of the provisions of the Certificate of Incorporation of Holding, or of
any amendment or supplement thereto, or otherwise (including any certificate of
amendment or any similar document relating to any series of Preferred Stock).
Notwithstanding the foregoing, Holding may, without the consent or sanction of
the holders of Series A Preferred Stock, authorize or issue capital stock of
Holding ranking, as to dividend rights and rights on liquidation, winding up and
dissolution, on a parity with or junior to the Series A Preferred Stock.
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<PAGE> 93
(d) Unless the vote or consent of the holders of a greater number of shares
shall then be required by law, the affirmative vote or consent of the holders of
at least two-thirds of the aggregate liquidation preference of the Series A
Preferred Stock and any other series of Parity Stock at the time outstanding,
given in person or by proxy, either in writing or by a vote at a meeting called
for the purpose at which the holders of Series A Preferred Stock and any such
other series of Parity Stock shall vote together as a single class without
regard to series, shall be necessary to create, authorize or issue, or
reclassify any authorized capital stock of Holding into, or create, authorize or
issue any obligation or security convertible into or evidencing a right to
purchase, any shares of any class of stock of Holding ranking prior to both the
Series A Preferred Stock and any other series of Parity Stock. Subject to the
foregoing, Holding's Certificate of Incorporation may be amended to increase the
number of authorized shares of Preferred Stock without the vote of the holders
of Preferred Stock, including the Series A Preferred Stock. No vote of the
holders of the Series A Preferred Stock and any other series of Parity Stock
will be required for Holding to redeem or purchase and cancel the Series A
Preferred Stock in accordance with the Holding's Certificate of Incorporation.
7. RE-ACQUIRED SHARES. Series A Preferred Stock redeemed, or otherwise
purchased or acquired by Holding shall be restored to the status of authorized
but unissued shares of Preferred Stock without designation as to series.
EIGHTH
The holders of Common and Preferred Stock of Holding shall not have any
preemptive or preferential right of subscription to or purchase of any shares,
nor to any obligations convertible into any shares of Holding; whether now or
hereafter authorized, except as the Board of Directors, in its discretion, may
from time to time determine and at such price as the Board of Directors may from
time to time fix.
NINTH
Holding shall hold at least one annual meeting of stockholders each year,
at such place and date prescribed by the By-laws of Holding. Special meetings
may be called only by the President and Board of Directors.
The annual meeting shall be convened by mailing a notice to each
stockholder at least ten (10) days, but no more than sixty (60) days prior to
the date for the meeting.
Notices of special meetings of stockholders shall contain the same
information as notices of annual meetings of stockholders, but they shall also
contain information in connection with the reasons for the call to the meeting
and in connection with the different matters to be considered and voted upon at
the meeting. Notices prepared in accordance with these provisions shall be
required in order to hold a valid stockholders' meeting, and dispensing
therewith shall be excused only by the written consent of the stockholders.
TENTH
In order to be valid and unless a higher vote is required by applicable law
or this Certificate of Incorporation, such resolutions as may be adopted at
stockholders meetings shall be approved by the majority of the outstanding
shares of voting capital stock present or represented by proxy if a quorum is
present.
ELEVENTH
Holding shall indemnify any person who was or is a party or is threatened
to be made a party to any imminent, pending or resolved action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of Holding) by reason of the fact that he is or was
a
10
<PAGE> 94
director, officer, employee or agent of Holding, or is or was serving at the
request of Holding as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or any other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if it is formally determined by the Board of
Directors, or other committee or entity empowered to make such determination,
that he acted in good faith and in a manner he reasonably deemed consistent with
and not opposed to the best interests of Holding, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith nor in a manner which he reasonably believed to be consistent
with or not opposed to the best interests of Holding and, with respect to any
criminal action or proceeding, the person did not have reasonable cause to
believe that his conduct was unlawful.
Holding shall indemnify any person who was or is a party or is threatened
to be made a party to any imminent, pending or resolved action, suit or
proceeding by or in the right of Holding to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
Holding, or is or was serving at the request of Holding as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
any other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if it is formally determined by the Board of Directors, or other
committee or entity empowered to make such determination, that he acted in good
faith and in a manner he reasonably deemed consistent with or not opposed to the
best interests of Holding, except that no indemnification shall be made in
respect of any claim, matter or controversy as to which such person shall have
been determined to be liable to Holding unless and only to the extent that the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
To the extent that a director, officer, employee or agent of Holding has
prevailed on the merits or otherwise in defense of any action, suit or
proceeding referred to in paragraphs 1 or 2 of this Article ELEVENTH, or in
defense of any claim, matter or controversy relating thereto, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Any indemnification under paragraphs 1 or 2 of this Article ELEVENTH
(unless ordered by a court) shall be made by Holding only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable norms of conduct set forth in those paragraphs. Such determination
shall be made (a) by a majority vote of the directors who were not parties to
such action, suit or proceeding, even if the directors constitute less than a
quorum, or (b) if there are no such directors of if such directors so determine,
by independent legal counsel in a written opinion, or (c) by the stockholders.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by Holding in advance of the final resolution of such
action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it is ultimately determined
that he is not entitled to be indemnified by Holding as authorized in this
Article ELEVENTH.
The indemnification provided by this Article ELEVENTH shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any statute, by-law, agreement, vote of uninvolved stockholders,
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
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<PAGE> 95
Holding may purchase and maintain insurance, in such amounts as the Board
of Directors deems appropriate, in the name of any person who is or was a
director, officer, employee or agent of Holding, or is or was serving at the
request of Holding as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or any other enterprise, against
any liability asserted against him or incurred by him in any such capacity, or
arising out of his status as such, whether or not Holding has the power to
indemnify him against such liability pursuant to this Article ELEVENTH and
applicable law.
For purposes of this Article ELEVENTH, Holding includes any constituent
corporation of a consolidation or merger which is absorbed in a consolidation or
merger, which, if it had continued its independent legal existence, would have
had the power and the authority to compensate its officers, directors, employees
and agents.
TWELFTH
This Certificate of Incorporation may be amended in the manner provided for
herein and in the Corporations Law.
The By-laws of Holding may be amended, altered or modified or new by-laws
may be adopted by the Board of Directors or at any annual or special meeting of
stockholders in accordance with applicable provisions of the Corporations Law.
Calls for meetings of stockholders shall clearly describe any and all
amendments to the Certificate of Incorporation or the By-laws to be considered
and voted upon at the meetings, but it shall not be necessary to include in any
such calls the wording of the amendments or the new text of the paragraph or
section, it being sufficient to designate therein the amendments by the number
of the paragraph or the section intended to be amended.
THIRTEENTH
The name and the postal and physical address of the sole incorporator are
as follows:
<TABLE>
<S> <C>
NAME: POSTAL AND PHYSICAL ADDRESS:
Frank C. Stipes 19 W. McKinley Street
Mayaguez, Puerto Rico 00680
</TABLE>
I, the undersigned being the sole incorporator hereinbefore named for the
purposes of executing this Certificate of Incorporation pursuant to the
Corporations Law, hereby swear that the statements contained herein are true.
Given at Mayaguez, Puerto Rico, this 3rd day of February, 1999.
/s/ FRANK C. STIPES
--------------------------------------
Frank C. Stipes
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AMENDED AND RESTATED
BY-LAWS
OF
W HOLDING COMPANY, INC.
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
stockholders shall be held at the principal office of W Holding Company, Inc.
("Holding") or at such other place as the Board of Directors may determine.
Section 2. Annual Meetings. A meeting of the stockholders of Holding for
the election of directors and for the transaction of any other business of
Holding shall be held annually within 150 days after the end of Holding's fiscal
year on the fourth Thursday of May, if not a legal holiday, and if a legal
holiday, then on the next day following which is not a legal holiday, at 1:30
p.m., or at such other date and time within such 150-day period as the Board of
Directors may determine.
Section 3. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, may be called at any time by the Board of Directors or
the person or persons authorized by the Certificate of Incorporation of Holding.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with procedures determined by the Chairman of the Board
or a majority of the directors, and in accordance with applicable law. The Board
of Directors shall designate, when present, either the Chairman of the Board or
President to preside at such meetings.
Section 5. Notice of Meetings. Notice of meetings of stockholders shall
be mailed to each stockholder of Holding at least ten (10) but not more than
sixty (60) days prior to the date for each such meeting.
Section 6. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, the Board of Directors shall fix in advance a date as the record date
for any such determination of stockholders. Such date in any case shall be not
more than sixty (60) days prior to the date on which the particular action,
requiring such determination of stockholders, is to be taken and in the case of
a stockholder meeting, not less than ten (10) days prior to the meeting. When a
determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in this Section 6, such determination shall apply to
any adjournment thereof:
Section 7. Voting List. At least ten (10) days before each meeting of the
stockholders, the officer or agent having charge of the stock transfer books for
shares of Holding shall make a complete list of the stockholders entitled to
vote at such meeting, or any adjournment thereof, arranging in alphabetical
order the stockholders list including the number of shares held by each. This
list of stockholders shall be kept on file at the principal office of Holding
and shall be subject to inspection by any stockholder at any time during usual
business hours for a period of ten (10) days prior to such meeting. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any stockholder during the entire time of
the meeting. The original stock transfer book shall constitute prima facie
evidence of the stockholders entitled to examine such list or transfer books or
to vote an any meeting of stockholders.
Section 8. Quorum. One third of the outstanding shares represented in
person or by proxy shall constitute a quorum at a meeting of stockholders. If
less than a quorum is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice;
provided that the date of the adjourned meeting shall not be less than eight (8)
days after the date for which the first meeting was called. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been at the meeting as originally notified.
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The stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 9. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the stockholders or, in the absence of such direction, as
determined by the proxy holder designated by the Board of Directors. Proxies
must be filed with the Secretary of Holding. No proxy shall be valid after
eleven (11) months from the date of its execution except for a proxy coupled
with an interest.
Section 10. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
by-laws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
executor, guardian or conservator may be voted by him, either in person or by
proxy, without a transfer of such shares in his name, upon presentation of the
appropriate supporting legal documents. Shares standing in the name of a trustee
may be voted by him, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him without a transfer of such shares into his
name. Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority to do so is
contained in an appropriate order of the court or other public authority by
which such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Section 11. Cumulative Voting. Stockholders shall not be entitled to
cumulate their votes for the election of directors.
Section 12. Inspector of Election. In advance of any meeting of
stockholders, the Board of Directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three. Any
such appointment shall not be altered at the meeting. If inspectors of election
are not so appointed, the Chairman of the Board or the President may, and at the
request of not fewer than ten percent (10%) of the votes represented at the
meeting shall, make such appointment at the meeting. If appointed at the
meeting, the majority of the votes present shall determine whether one or three
inspectors are to be appointed. In case any person appointed as inspector fails
to appear or fails or refuses to act, the vacancy may be filled by appointment
by the Board of Directors in advance of the meeting, or at the meeting by the
Chairman of the Board or the President.
The duties of such inspectors shall include: determining the number of
shares of stock and the voting power of each share, the shares of stock
represented at the meeting, the existence of a quorum, and the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes or consents; and
determining the result; and such acts as may be proper to conduct the election
or vote with fairness to all stockholders.
Section 13. Nominees. Only persons who are nominated in accordance with
the procedures set forth in this Section 13 shall be eligible for election as
directors. The Board of Directors shall act as a nominating committee for
selecting nominees for election as directors. Nominations of persons for
election to the Board of Directors may be made at a meeting of stockholders by
or at the direction of the Board of Directors or by any stockholder entitled to
vote for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 13. Such nominations, other than those made
by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of Holding. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of Holding at least one hundred and twenty (120)
days prior to the annual
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<PAGE> 98
meeting. Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or reelection as a director,
(i) the name, age, business address and residence address of such person, (ii)
the principal occupation or employment of such person, (iii) the class and
number of shares of Holding which are beneficially owned by such person, and
(iv) any other information relating to such person that is required to be
disclosed in solicitations or proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including without limitation such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (b) as to the stockholder giving notice (i) the name
and address, as they appear on Holding's books, of such stockholder and (ii) the
class and number of shares of Holding which are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of Holding that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. No person shall be eligible for
election as a director of Holding unless nominated in accordance with the
procedures set forth in this Section 13. The chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with procedures prescribed in the by-laws, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 14. Business at Annual Meeting. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of Holding. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive offices of Holding at least
one hundred and twenty (120) days prior to the annual meeting. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (a) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the name and address, as
they appear on Holding's books, of the stockholder proposing such business, (c)
the class and number of shares of Holding which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Notwithstanding anything in these by-laws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 14. The chairman of an annual meeting shall, if the facts
warrant, determine and declare to the annual meeting that a matter of business
was not properly brought before the meeting in accordance with the provisions of
this Section 14, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of Holding shall be
under the direction of the Board of Directors. The Board of Directors shall
annually elect a Chairman of the Board and a President from among its members
and shall designate, when present, either the Chairman of the Board or the
President to preside at its meetings.
Section 2. Number and Term. The Board of Directors shall consist of such
number of directors as established from time to time by resolution of the Board
of Directors approved by an absolute majority of directors; provided that the
total number of directors shall be an odd number and not less than five nor more
than nine. The Board of Directors shall be divided into three classes as nearly
equal in number as possible. The members of each class shall be elected for a
term of three years and until their successors are elected and qualified. One
class shall be elected by ballot annually.
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<PAGE> 99
Section 3. Regular Meetings. Regular meetings of the Board of Directors
shall be held within or outside the Commonwealth of Puerto Rico.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board or the President
or two-thirds of the directors.
Section 5. Notice. Written notice of any special meeting shall be given
to each director at least two (2) days prior to the meeting if delivered
personally or by fax or telegram or at least five (5) days prior to the meeting
if delivered by mail at the address at which the director is most likely to be
reached. Such notice shall be deemed to be delivered when deposited in the U.S.
mail so addressed, with postage thereon prepaid if mailed or when delivered to
the telegraph company if sent by telegram. Any director may waive notice of any
meeting by a writing filed with the Secretary. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
Section 6. Quorum. A majority of the directors shall constitute a quorum
for the transaction of business at any meeting of the Board of Directors, but if
less than such majority is present at a meeting, a majority of the directors
present may adjourn the meeting from time to time. Notice of any adjourned
meeting shall be given in the same manner as prescribed by Section 5 of this
Article II.
Section 7. Manner of Acting. The vote of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by applicable laws or
regulations or by the Certificate of Incorporation of Holding or these By-laws.
Section 8. Actions without Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, give their written consent to such action and the
written consent shall be stored in the minutes of meetings of the Board of
Directors or committees, as the case may be.
Section 9. Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of a telephone conference, or other
medium of communication, by which all of the persons who participate in the
meeting hear each other simultaneously. Participation of the Board in this
manner shall constitute presence in person at such meeting.
Section 10. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the principal office of Holding addressed
to the Chairman of the Board or the President. Unless otherwise specified
therein, such resignation shall take effect upon receipt thereof by the Chairman
of the Board or the President.
Section 11. Vacancies. Any vacancy occurring in the Board of Directors,
including newly created directorship, may be filled by the affirmative vote of a
majority of the remaining directors. A director elected to fill a vacancy so
created shall be elected to serve the full term of such directorship and until a
successor has been duly elected and sworn in their office.
Section 12. Compensation. No director shall be entitled to any salary as
such; but the Board of Directors may fix, from time to time, a reasonable fee to
be paid to each director for his or her services in attending meetings of the
Board of Directors or of any authorized committee. The Board of Directors may
also provide that such compensation, as it deems reasonable, shall be paid to
any or all of its members for services rendered to Holding other than attendance
at meetings of the Board of Directors or its committees.
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<PAGE> 100
ARTICLE III
COMMITTEES
Section 1. Appointment. The Board of Directors, by resolution adopted by
a majority of the Board of Directors, may designate one or more committees, each
one of which shall be composed of one or more directors of Holding. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member in any meeting of
the committee. In the absence or disqualification of a member of the committee,
the member or members present at any meeting and not disqualified from voting,
whether or not these members constitute quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. To the extent authorized by the resolution of the
Board of Directors, such committees shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs of Holding,
including the power to order the stamping of the corporate seal on all documents
which so require it. Notwithstanding the foregoing, such committees shall not
have the power to: remove or elect officers; amend the Certificate of
Incorporation (except that a committee may, to the extent authorized by a
resolution of the Board of Directors providing for the issue of shares or stock,
fix the designations and any of the preferences or rights or such shares
relating to dividends, redemption, dissolution, any distribution of the assets
of the corporation or the conversion or exchange of such shares for shares of
any class or classes, or any other series of the same or another class of stock
of Holding, or fix the number of stock of any series or authorize the increase
or decrease in the number of shares of any series); adopt an agreement of merger
or consolidation; make recommendations to the stockholders regarding the sale,
lease or exchange of all or a substantial portion of the property or assets of
Holding; approve resolutions which recommend a dissolution or which recommend a
revocation of a dissolution, or which amend the by-laws of Holding; and unless
the resolution for the creation of a committee, the By-laws or the Certificate
of Incorporation so provides, such committee shall not have the power to declare
dividends, authorize the issuance of capital stock or adopt an agreement of
merger. Such committees shall have such name or names which from time to time
the Board of Directors shall determine by resolution.
Section 2. Minutes, Reports. Minutes shall be kept of all meetings of the
committees. The minutes of each meeting, together with such reports in writing
as may be required to fully explain any business or transactions, shall be
submitted to the Board of Directors at the next regular session after each
meeting. The Board of Directors shall approve or disapprove the minutes and/or
reports and record such action in the minutes of the meeting.
Section 3. Appointment, Term of Office. Members of the committees shall
be appointed by the Board for such term as the Board may determine, and all
members of the committees shall serve at the pleasure of the Board.
Section 4. Quorum. A majority of the members of any committee shall
constitute a quorum. A majority of the votes cast shall decide every question or
matter submitted to a committee.
Section 5. Ex Officio Members. The Chairman and the President, and any
officer acting in the absence of the President, shall be ex officio members of
all the committees.
ARTICLE IV
OFFICERS
Section 1. Positions. The officers of Holding shall be a President, one
or more Vice Presidents, a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors. The Board of Directors may also designate the
Chairman of the Board as an officer. The President shall be the Chief Executive
Officer, unless the Board of Directors unanimously designates the Chairman of
the Board or another executive officer as the Chief Executive Officer. The
President shall be a director of Holding. The offices of the Secretary and the
Treasurer may be held by the same person and a Vice President may also be either
the Secretary or the Treasurer. The Board of Directors may designate one or more
Vice
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Presidents as Executive Vice Presidents or Senior Vice Presidents. The Board of
Directors may also elect or authorize the appointment of such other officers as
the business of Holding may require. The Secretary shall record all minutes of
all meetings of the stockholders of Holding and of the Board of Directors in a
book which shall be kept for such purpose. The officers shall have such
authority and perform such duties as the Board of Directors may from time to
time authorize or determine. In the absence of action by the Board of Directors,
the officers shall have such powers and duties as generally pertain to their
respective offices.
Section 2. Election and Term of Office. The officers of Holding shall be
elected annually at the first meeting of the Board of Directors held after the
annual meeting of the stockholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until a successor has been duly elected and qualified
or until the officer's death, resignation or removal in the manner hereinafter
provided. Election or appointment of an officer, employee or agent shall not of
itself create contractual rights. The Board of Directors may authorize Holding
to enter into an employment contract with any officer in accordance with
regulations of the Board and applicable law; but no such contract shall impair
the right of the Board of Directors to remove any officer at any time in
accordance with Section 3 of this Article IV.
Section 3. Removal. Any officer may be removed by the Board of Directors
whenever, in its judgment, the best interests of Holding will be served thereby,
but such removal, other than for cause, shall be without prejudice to the
contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
from time to time by the Board of Directors.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Transfer. Shares of stock shall be transferable on the books
of Holding, and a transfer book shall be kept in which all transfers of stock
shall be recorded.
Section 2. Stock Certificates. Certificates of stock shall bear the
signature of the Chairman, the President or any Vice President (which may be
engraved, printed or impressed), and shall be signed manually or by facsimile
process by the Secretary or an Assistant Secretary, or any other officer
appointed by the Board of Directors for that purpose, to be known as an
Authorized Officer, and the seal of Holding shall be engraved thereon. Each
certificate shall recite on its face that the stock represented thereby is
transferable on the books of Holding only upon being properly endorsed.
Section 3. Owner of Record, Attachment, Pledge. Shares of stock are
transferable by all means recognized by law if there is no attachment levied
against them under competent authority, but as long as the transfer is not
signed and recorded in the transfer books of Holding, Holding shall be entitled
to consider as owner thereof the party who appears as such in said books.
Section 4. Lost or Destroyed Stock Certificates. In the event any
certificate of stock shall be lost or destroyed, a new certificate may be issued
in its place upon receiving such proof of loss and such bond of indemnity
therefore as may be satisfactory to management.
Section 5. Transfer Agent. The Board of Directors may designate any
person, whether or not an officer of Holding, as stock transfer agent or
registrar of Holding with respect to stock certificates or other securities
issued by Holding.
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ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of Holding shall end on the 31st
day of December of each year.
Section 2. Dividends. The Board of Directors may from time to time
declare, and Holding may pay dividends in cash or in shares of the capital stock
of Holding, in the manner and upon the terms and conditions provided by
applicable laws and regulations and Holding's Certificate of Incorporation.
Section 3. Conflict with New Laws. The provisions of these By-laws in
conflict with any and all new statutes shall become superseded to the extent
inconsistent with all new statutes without affecting the validity of the
remaining provision hereof.
Section 4. Amendments. These By-laws may be amended, altered, or modified
and new by-laws may be adopted by the Board of Directors or at any annual or
special meeting of stockholders in accordance with applicable provisions of law
and Holding's Certificate of Incorporation.
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APPENDIX C
SECTION 15(i) OF THE PUERTO RICO BANKING LAW
If any bank stockholder who does not vote in favor of said merger or
consolidation agreement makes known his/her opposition to said merger or
consolidation at the board meeting, or in a term of twenty (20) days therefrom,
and demands payment of his/her shares, and if said merger or consolidation takes
place, in that case said stockholder, within the term of sixty (60) days after
the merger or consolidation may petition the Court of First Instance, San Juan
Superior Part, and upon a written ten (10)-day notice to said corporation prior
to the filing of said request, to appoint one (1) appraiser to assess and
determine the value of his/her shares and the Court shall proceed to verify said
appointment and designate the date and place where the appraisers shall first
meet, and shall give them such instructions as to the procedure to be followed
as the Court may deem pertinent, specifying the date and manner that the value
of said shares shall be paid to said stockholder. The appraisers shall meet on
the date and at the place designated, and after taking oath, shall proceed to
perform the duties imposed on them by the Court, and assess and determine the
value of the aforesaid shares, and shall deliver a copy of their report to the
corporation and another to the stockholder, should he/she require it. All
expenses incurred in determining the value of said shares shall be chargeable to
the corporation. When the latter has paid the value of the said shares, as fixed
by the appraisers, said shares shall be canceled and the stockholder shall cease
to be a stockholder of the corporation or to have any interest therein, and the
corporation may dispose of said shares for its own benefit. In case of
emergencies, when the merger or consolidation is necessary for the best
protection of the interests of the depositors and the bank, if the merger or
consolidation is approved by the votes of the holders of two thirds ( 2/3) of
the outstanding voting stock, and after such a merger or consolidation agreement
has been submitted for the consideration of the Commissioner, and thereby
approved, the stockholders who did not approve the merger shall be in all
respects subject to and bound by such a merger or consolidation. The
Commissioner shall, certify in these cases, that the merger was made due to an
emergency, and that, in his/her judgment, the same will be beneficial to the
public interest. If the Commissioner does not approve the merger or
consolidation agreement made because of an emergency, he/she shall, within the
term of ninety (90) days, service notice of his/her determination by certified
mail on the banks interested in the agreement. The determination of the
Commissioner disapproving a merger or consolidation agreement made because of an
emergency shall be conclusive and not subject to review.
<PAGE> 104
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to the provisions of the Fifth and Eleventh Articles of W
Holdings' Certificate of Incorporation.
W Holding is a Puerto Rico corporation subject to the applicable
indemnification provisions of the General Corporation Law of Puerto Rico.
The foregoing indemnity and insurance provisions have the effect of
reducing directors' and officers' exposure to personal liability for actions
taken in connection with their respective positions.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of W
Holding pursuant to the foregoing provisions, or otherwise, W Holding has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by W Holding of
expenses incurred or paid by a director, officer or controlling person of W
Holding in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, W Holding will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- -------
<C> <S>
2.1 Amended and Restated Plan of Merger, dated as of June 15,
1999, by and among Westernbank Puerto Rico, Western Interim
Bank and W Holding Company.
3.1 Certificate of Incorporation.+
3.2 Bylaws.+
5 Opinion of Hogan & Hartson L.L.P. as to the validity of the
securities registered hereunder, including the consent of
that firm.
8.1 Form of opinion of Hogan & Hartson L.L.P. as to certain
United States tax matters, including consent of that firm.
10.1 Form of 1999 Qualified Stock Option Plan.+
10.2 Form of 1999 Nonqualified Stock Option Plan.+
23.1 Consent of Hogan & Hartson L.L.P. (included as part of
Exhibit 5 and Exhibit 8).
24 Power of attorney (incorporated by reference from signature
page).+
99.1 Form of proxy card.
99.2 Representation Letter of officers of Westernbank Puerto Rico
and W Holding Company, Inc. in connection with financial
statement requirements in filings involving the formation of
a one-bank holding company.+
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
II-1
<PAGE> 105
(b) Not required.
(c) Not required.
ITEM 22. UNDERTAKINGS.
(a) W Holding hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) (sec. 230.424(b) of this chapter) if, in
the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of the Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) W Holding hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of W Holding's
annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) W Holding hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning
of Rule 145(c), W Holding undertakes that such reoffering prospectus
will contain the information called for by the applicable registration
form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other
Items of the applicable form.
(d) W Holding undertakes that every prospectus (i) that is filed pursuant
to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and
is used in connection with an offering of securities subject to Rule
415 (sec. 230.415 of this chapter), will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of
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<PAGE> 106
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(e) The undertaking concerning indemnification is included as part of the
response to Item 20.
(f) W Holding hereby undertakes to respond to requests for information that
is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained
in documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(g) W Holding hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE> 107
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mayaguez, Puerto Rico, on
June 22, 1999.
W Holding Company, Inc.
By: /s/ FRANK C. STIPES
------------------------------------
Frank C. Stipes, Chairman of the
Board,
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 22, 1999.
<TABLE>
<CAPTION>
NAME: TITLE:
----- ------
<S> <C>
/s/ FRANK C. STIPES Chairman of the Board, Chief Executive Officer and
- ----------------------------------------------------- President
Frank C. Stipes
* Director
- -----------------------------------------------------
Angel L. Rosas
* Director
- -----------------------------------------------------
Cesar A. Ruiz
* Director
- -----------------------------------------------------
Pedro R. Dominguez
* Director
- -----------------------------------------------------
Fidel Pino Cros
* Director
- -----------------------------------------------------
Cornelius Tamboer
* Directress
- -----------------------------------------------------
Fredeswinda G. Frontera
/s/ FREDDY MALDONADO Chief Financial Officer and Vice President of Finance
- ----------------------------------------------------- and Investment (Principal Finance and Account
Freddy Maldonado Officer)
*Pursuant to Power of Attorney
By: /s/ FREDDY MALDONADO
- -----------------------------------------------------
Freddy Maldonado
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- -------
<C> <S>
2.1 Amended and Restated Plan of Merger, dated as of June 15,
1999, by and among Westernbank Puerto Rico, Western Interim
Bank and W Holding Company.
3.1 Certificate of Incorporation.+
3.2 Bylaws.+
5 Opinion of Hogan & Hartson L.L.P. as to the validity of the
securities registered hereunder, including the consent of
that firm.
8.1 Form of opinion of Hogan & Hartson L.L.P. as to certain
United States tax matters, including consent of that firm.
10.1 Form of 1999 Qualified Stock Option Plan.+
10.2 Form of 1999 Nonqualified Stock Option Plan.+
23.1 Consent of Hogan & Hartson L.L.P. (included as part of
Exhibit 5 and Exhibit 8).
24 Power of attorney (incorporated by reference from signature
page).+
99.1 Form of proxy card.
99.2 Representation Letter of officers of Westernbank Puerto Rico
and W Holding Company, Inc. in connection with financial
statement requirements in filings involving the formation of
a one-bank holding company.+
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
APPENDIX A
AMENDED AND RESTATED
PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
WESTERNBANK PUERTO RICO,
WESTERN INTERIM BANK,
AND
W HOLDING COMPANY, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS
Section 1.01. Definitions................................ 1
ARTICLE II
THE MERGER
Section 2.01. Merger..................................... 2
Section 2.02. Conversion................................. 2
Section 2.03. Certificates After the Effective Date...... 3
Section 2.04. Stock Options.............................. 3
Section 2.05. Effects of the Merger...................... 3
ARTICLE III
UNDERTAKINGS
Section 3.01. Bank Stockholder Approval.................. 4
Section 3.02. Holdings Stockholder Approval.............. 5
Section 3.03. Other Stockholder Approval................. 5
Section 3.04. Regulatory Approvals....................... 5
Section 3.05. Securities Matters......................... 5
Section 3.06. Other Undertakings......................... 5
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01. Conditions Precedent to the Merger......... 6
Section 4.02. Effective Date............................. 6
ARTICLE V
TERMINATION AND DEFERRAL
Section 5.01. Termination of the Merger.................. 6
Section 5.02. Deferral of Effective Date................. 7
ARTICLE VI
APPRAISAL RIGHTS
Section 6.01. Dissenters' Rights......................... 7
ARTICLE VII
MISCELLANEOUS
Section 7.01. Governing Law.............................. 7
Section 7.02. Amendment.................................. 7
</TABLE>
i
<PAGE> 3
AMENDED AND RESTATED
PLAN OF MERGER AND REORGANIZATION
This AMENDED AND RESTATED PLAN OF MERGER AND REORGANIZATION (this "Plan"),
dated as of June 15, 1999, is entered into by and among WESTERNBANK PUERTO RICO,
a commercial bank organized under the laws of the Commonwealth of Puerto Rico
(the "Bank"), and, upon organization, WESTERN INTERIM BANK, an interim
commercial bank organized under the laws of the Commonwealth of Puerto Rico for
the sole purpose of consummating the transactions provided for herein (the
"Interim Bank"), and, upon organization, W HOLDING COMPANY, INC., a corporation
organized under the laws of the Commonwealth of Puerto Rico ("Holding").
WHEREAS, the Bank is a commercial bank duly organized and validly existing
under the Banking Law of the Commonwealth, 7 L.P.R.A.sec. 1-204a, (the "Banking
Law"), with its principal office and place of business at 19 West McKinley
Street, Mayaguez, Puerto Rico, with an authorized capital stock consisting of
(i) 75,000,000 shares of common stock, par value $1.00 per share, of which
42,080,309 shares were issued and outstanding as of January 29, 1999 and (ii)
5,000,000 shares of preferred stock, par value $1.00 per share, of which (A)
1,219,000 shares have been designated Bank Series A Preferred Shares, and (B)
2,001,000 of which have been designated Bank Series B Preferred Shares, all of
which Bank Preferred Shares were issued and outstanding as of June 14, 1999;
WHEREAS, the Interim Bank will be chartered as a commercial bank duly
organized and validly existing under the Banking Law, with its principal office
at the same address as that of Bank, with an authorized capital stock consisting
of 5,000 shares of common stock, par value $5,000.00 per share, up to 1,000
shares of which will be issued prior to the consummation of the transactions
described herein to be held by Holding (except for any shares that may be
required to be held by the directors of the Interim Bank as directors'
qualifying shares); and
WHEREAS, Holding is a general business corporation organized under the laws
of the Commonwealth, with its principal office at the same address as that of
Bank, and having an authorized capital stock consisting of 300,000,000 shares of
common stock, par value $1.00 per share and 20,000,000 shares of preferred
stock, par value $1.00 per share, of which 1,219,000 shares will be designated
as Holding Series A Preferred Shares and 2,001,000 shares will be designated as
Holding Series B Preferred Shares; and
WHEREAS, the Bank, the Interim Bank and Holding desire to establish a bank
holding company structure and in order to implement that desire, the Boards of
Directors of the Bank, the Interim Bank and Holding have each respectively
agreed to a merger of the Interim Bank with and into the Bank (the "Merger") and
the issuance of Holding Common Shares and Holding Preferred Shares, as
hereinafter defined, as consideration for value received by Holding in the
Merger in the form of capital stock of the Continuing Bank, as hereafter
defined;
NOW, THEREFORE, in consideration of the mutual agreements herein and other
valuable consideration, the Bank, the Interim Bank and Holding hereby make this
Plan and prescribe the terms and conditions of the Merger and the mode of
carrying it into effect, including the rights and obligations of the parties in
connection therewith, as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. The following terms, as used herein, have the
following respective meanings:
"Bank" means Westernbank Puerto Rico prior to the Effective Date and
the Continuing Bank on and after the Effective Date.
<PAGE> 4
"Bank Common Shares" means the shares of common stock of the Bank, par
value $1.00 per share.
"Bank Preferred Shares" means the Bank Series A Preferred Shares and
the Bank Series B Preferred Shares.
"Bank Series A Preferred Shares" means the shares of 7.125%
Non-Cumulative, Convertible Preferred Stock, 1998 Series A, liquidation
preference $25.00 per share, par value $1.00 per share.
"Bank Series B Preferred Shares" means the shares of 7.25%
Noncumulative Monthly Income Preferred Stock, 1999 Series B, liquidation
preference $25.00 per share, par value $1.00 per share.
"Commissioner" means the Commissioner of Financial Institutions of the
Commonwealth.
"Commonwealth" means the Commonwealth of Puerto Rico.
"Continuing Bank" means Westernbank Puerto Rico, the surviving bank in
the Merger, on and after the Effective Date.
"Dissenting Shares" shall have the meaning set forth in Section 6.01.
"Effective Date" shall have the meaning set forth in Section 4.02.
"FDIC" means the Federal Deposit Insurance Corporation.
"Holding" means W Holding Company, Inc., a general business
corporation organized under the laws of the Commonwealth.
"Holding Common Shares" means the shares of common stock of Holding,
par value $1.00 per share.
"Holding Preferred Shares" means the Holding Series A Preferred Shares
and the Holding Series B Preferred Shares.
"Holding Series A Preferred Shares" means the shares of the 7.125%
Non-Cumulative, Convertible Preferred Stock, Series A, liquidation
preference $25.00 per share, par value $1.00 per share, of Holding.
"Holding Series B Preferred Shares" means the shares of 7.25%
Noncumulative Monthly Income Preferred Stock, 1999 Series B, liquidation
preference $25.00 per share, par value $1.00 per share, of Holding.
"Interim Bank" means Western Interim Bank, a commercial bank to be
organized under the laws of the Commonwealth for the sole purpose of
consummating the transactions provided for herein.
"Merger" shall have the meaning set forth in the Recitals hereto.
"Prospectus" shall have the meaning set forth in Section 3.04(b).
"Proxy Statement" shall have the meaning set forth in Section 3.04(a).
ARTICLE II
THE MERGER
Section 2.01. Merger. On the Effective Date, the Interim Bank shall be
merged with and into the Bank, and the Bank shall be the surviving entity and
receive into itself the Interim Bank pursuant to the provisions of, and with the
effects provided in, Section 15 of the Banking Law.
Section 2.02. Conversion. Upon the Effective Date:
(a) Each Bank Common Share issued and outstanding immediately prior to
the Effective Date shall, without any further action on the part of the
Bank, Holding, or any other person, constitute and
2
<PAGE> 5
be converted into and there shall be allocated to the record holder thereof
a Holding Common Share, and each Bank Preferred Share issued and
outstanding immediately prior to the Effective Date shall, without any
further action on the part of the Bank, Holding, or any other person,
constitute and be converted into and there shall be allocated to the record
holder thereof a Holding Preferred Share of the corresponding series.
(i) Such conversion and allocation shall not in any way preclude or
prevent any holder of Bank Common Shares and/or Bank Preferred Shares
from exercising his or her statutory right to dissent from the Merger
and to receive from the Continuing Bank payment of the value of his or
her Bank Common Shares and/or Bank Preferred Shares and such other
rights and benefits as are provided by law.
(ii) On the Effective Date, each outstanding certificate, which
theretofore had represented Bank Common Shares, shall henceforward be
deemed for all corporate purposes as evidence of the ownership of an
equal number of Holding Common Shares into which the Bank Common Shares
have been so converted, and each outstanding certificate, which
theretofore had represented Bank Preferred Shares, shall henceforward be
deemed for all corporate purposes as evidence of the ownership of an
equal number of Holding Preferred Shares of the applicable series into
which the corresponding Bank Preferred Shares have been so converted
(b) Each share of common stock of the Interim Bank issued and
outstanding on the Effective Date shall without any further action on the
part of the Bank, the Interim Bank, Holding, or any other person constitute
and be converted into and there shall be allocated to Holding the same
number and type of shares of common stock and preferred stock of the
Continuing Bank as Westernbank had issued and outstanding immediately prior
to the Effective Date.
Section 2.03. Certificates After the Effective Date. At any time after
the Effective Date, any holder of one or more of the certificates that prior to
the Effective Date had represented Bank Common Shares or Bank Preferred Shares,
of either series, may surrender such certificate or certificates in proper form
to Holding or to its transfer agent and receive in exchange therefor a
certificate bearing the name and representing an identical number of Holding
Common Shares or Holding Preferred Shares of the corresponding series, as the
case may be.
Section 2.04. Stock Options. On the Effective Date, each outstanding
option to purchase Bank Common Shares under the Bank's stock option plans will
be assumed by Holding. Each such option will be exercisable in accordance with
its existing terms for the same number of Holding Common Shares as the number of
Bank Common Shares subject to such option. Holding and the Bank shall make
appropriate amendments to the existing stock option plans to reflect the
adoption of those plans as the stock option plans of Holding without adverse
effect upon the options outstanding under the existing stock option plans.
Section 2.05. Effects of the Merger. Upon the Effective Date:
(a) The name of the Continuing Bank shall be "Westernbank Puerto
Rico."
(b) The restated charter of the Bank immediately prior to the
Effective Date shall be the restated charter of the Continuing Bank. The
by-laws of the Continuing Bank shall be the by-laws of the Bank immediately
prior to the Effective Date.
(c) The authorized capital stock of the Continuing Bank initially
shall be identical to the authorized capital stock of the Bank immediately
prior to the Effective Date. The Continuing Bank shall have outstanding
those numbers of shares of common stock, series A preferred stock and
shares of series B preferred stock as are equivalent to the numbers of Bank
Common Shares, Bank Series A Preferred Shares and Bank Series B Preferred
Shares outstanding immediately prior to the Effective Date.
(d) The main office, principal place of business, officers and other
personnel of the Continuing Bank shall be the same as the main office,
principal place of business, officers and other personnel of the Bank
immediately prior to the Effective Date.
3
<PAGE> 6
(e) The Continuing Bank shall thenceforth enjoy all the rights,
privileges and franchises and shall be subject to all the restrictions,
obligations and duties of the Bank and the Interim Bank, except for the
alterations provided herein.
(f) Each and all of the property, shares, rights, franchises, powers
and privileges of the Bank and the Interim Bank shall become the property
of the Continuing Bank, and the Continuing Bank shall have, as regards such
property, shares, rights, franchises, powers and privileges, the same
rights as the Interim Bank and the Bank each possessed.
(g) The Continuing Bank shall assume each and every obligation of the
Bank and the Interim Bank and shall have all the obligations and shall be
liable for all debts and the fulfillment of all contracts and obligations
of the Bank and the Interim Bank, just as they were prior to the Effective
Date. Any reference to the Bank or the Interim Bank in any contract, will
or document, whether executed or taking effect before or after the Merger,
shall be considered a reference to the Continuing Bank if not inconsistent
with the other provision of the contract, will or document. The
stockholders of the Bank and the Interim Bank shall continue to be subject
to the same obligations, claims and demands as existed against them, if
any, on or before the Effective Date.
(h) All suits, actions or other proceedings pending in any court on
the Effective Date shall continue to their termination just as if the
Merger had not taken place.
(i) The initial directors of the Continuing Bank shall consist of the
directors of the Bank immediately prior to the Effective Date (the names
and addresses of the seven current directors of the Bank as of the date
hereof are listed in Appendix I attached hereto), which directors shall
hold office in the Continuing Bank, unless sooner removed or disqualified,
until the end of their terms to which they have been elected at the Bank,
as set forth in Appendix I and until their successors are elected or are
appointed in accordance with the by-laws of the Continuing Bank and have
qualified.
(j) All deposit accounts of the Bank immediately prior to the
Effective Date shall be and will remain deposits in the Continuing Bank
without change in their respective terms, interest rates, maturities,
minimum required balances or withdrawal rates. At the Effective Date, the
Continuing Bank will continue to issue deposit accounts on the same basis
as the Bank immediately prior to the Effective Date.
ARTICLE III
UNDERTAKINGS
Section 3.01. Bank Stockholder Approval. The Bank undertakes to submit
the Plan for consideration to its stockholders at a meeting called for this
purpose pursuant to Section 15(c) of the Banking Law, or in any other manner
permitted by law. Without limiting the preceding sentence, the Bank agrees
(unless such action is not required by law):
(a) To send to the post-office address of each of the holders of
issued and outstanding Bank Common Shares and Bank Preferred Shares a
written notice of such meeting not less than thirty days prior to the date
fixed for the meeting. The notice shall specify the hour, date, place and
purpose of the meeting at which this Plan will be considered.
(b) To hold a vote of the stockholders at said meeting, in which each
Bank Common Share shall entitle each holder thereof to one vote to be cast
by the stockholder in person or by proxy and in which each Bank Preferred
Share shall entitle each holder thereof to vote in person or by proxy
proportionately based upon the liquidation preference associated with such
Bank Preferred Share.
(c) To cause its secretary to certify under the seal of the Bank that
(i) the Plan has been approved by the vote of the directors of the Bank,
(ii) the Plan has been approved by the votes of at least three-fourths
( 3/4) of the Bank Common Shares and (iii) the Plan has been approved by
the votes of at least two-thirds ( 2/3) of the aggregate liquidation
preference associated with the Bank
4
<PAGE> 7
Preferred Shares, with both series of Bank Preferred Shares voting together
as a single class, if the Plan has been so approved.
(d) To submit the Plan as certified pursuant to subsection (c) of this
Section 3.01, with a certification under seal by the Secretary of Interim
Bank as to the approval of the Plan by Holding as sole stockholder of
Interim Bank, to the Commissioner for his approval or disapproval.
Section 3.02. Holding Stockholder Approval. The Bank will vote all of its
shares of common stock of Holding in favor of approval of the Plan acting by
written consent.
Section 3.03. Interim Bank Stockholder Approval. Holding will vote all of
its shares of common stock of the Interim Bank in favor of the approval of the
Plan acting by written consent.
Section 3.04. Regulatory Approvals. Each of the Bank, the Interim Bank
and Holding shall (i) proceed expeditiously and cooperate fully in determining
which filings are required to be made prior to the Effective Date with, and
which consents, approvals, permits or authorizations are required to be obtained
prior to the Effective Date from, governmental or regulatory authorities of the
Commonwealth and the United States (collectively, the "Regulatory Approvals") in
connection with the execution and delivery of the Plan and the consummation of
the transactions contemplated hereby; and (ii) timely make all such filings and
timely seek all Regulatory Approvals; and (iii) take all other action and do all
things necessary or appropriate to consummate and make effective all
transactions contemplated by this Plan as soon as possible.
Section 3.05. Securities Law Matters.
(a) The Bank undertakes to prepare and file promptly a proxy statement
(the "Proxy Statement") which complies with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder by the FDIC and which complies with all applicable
federal, state and Puerto Rico law requirements for the purpose of
submitting the Plan to its stockholders for approval.
(b) Holding and the Bank undertake to prepare a Prospectus (the
"Prospectus") related to the Holding Common Shares and Holding Preferred
Shares which complies with the requirements of the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder by the
Securities and Exchange Commission, which shall be distributed to the
stockholders of the Bank.
(c) Holding and the Bank shall each provide promptly to the other such
information concerning its business and financial condition, and affairs
and prospects as may be required or appropriate for inclusion in the
Prospectus or the Proxy Statement and shall cause their counsel and
auditors to cooperate in the preparation of the Prospectus and the Proxy
Statement.
(d) The Bank undertakes to distribute the Proxy Statement and the
Prospectus to its stockholders in accordance with applicable federal and
state law requirements.
Section 3.06. Other Undertakings.
(a) If the requisite approval of this Plan is obtained at the meeting
of the Bank's stockholders referred to in Section 3.01, thereafter and
until the Effective Date, the Bank shall issue certificates for Bank Common
Shares and Bank Preferred Shares, whether upon transfer or otherwise, only
if such certificates bear a legend, the form of which shall be approved by
the board of directors of the Bank, indicating that this Plan has been
approved and that shares of stock evidenced by such certificates are
subject to consummation of this Plan.
(b) If at any time (whether before or after the Effective Date), the
Bank or the Continuing Bank considers that any further assignment,
conveyance or assurance in law is necessary or desirable to vest, perfect
or confirm of record in the Continuing Bank the title to any property or
rights of the Bank or the Interim Bank, or otherwise to carry out the
provisions hereof, the Bank and the Interim Bank hereby undertake through
their proper officers and directors to execute and deliver immediately any
and all proper deed, assignment and assurance, and to do all things
necessary or proper to vest,
5
<PAGE> 8
perfect or confirm title to such property or right in the Continuing Bank
and otherwise to carry out the provisions hereof.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01. Conditions Precedent to the Merger. The consummation of the
Merger is subject to the satisfaction of the following conditions:
(a) The votes of at least (i) three-fourths ( 3/4) of the issued and
outstanding Bank Common Shares and (ii) two-thirds ( 2/3) of the aggregate
liquidation preference associated with the issued and outstanding Bank
Preferred Shares, with both series of Bank Preferred Shares voting together
as a single class, shall have been cast, in person or by proxy, in favor of
this Plan at a meeting of the Bank's stockholders called pursuant to
Section 3.01.
(b) All Regulatory Approvals (or waiver or exemption therefrom) and
satisfaction of all other requirements prescribed by law which are
necessary to the consummation of the transactions contemplated by the Plan
shall have been obtained, and all statutory waiting periods shall have
expired, without the imposition of any condition or requirements that would
materially and adversely affect the operations or business prospects of
Holding or the Continuing Bank following the Effective Date so as to render
inadvisable the consummation of such transaction, as provided by Section
5.01(c) hereof.
(c) The Bank shall have received a ruling or rulings from the
appropriate tax authorities and/or an opinion letter from tax counsel to
the Bank, satisfactory to the Bank in form and substance, with respect to
the Puerto Rico and United States income tax consequences of the Merger.
(d) The Holding Common Shares and the Holding Series B Preferred
Shares shall have been approved for quotation on the Nasdaq Stock Market's
National Market Tier.
Section 4.02. Effective Date. The Bank, the Interim Bank and Holding
shall use their best efforts to cause the Merger to become effective on a date
as soon as practicable after each condition precedent listed in Section 4.01
shall have been satisfied. The Merger shall become effective at the time this
Plan is properly approved and filed in accordance with the Banking Law (the
"Effective Date").
ARTICLE V
TERMINATION AND DEFERRAL
Section 5.01. Termination of the Merger. Prior to the Effective Date, the
Plan may be terminated at any time by written notice by either the Bank or the
Interim Bank or Holding to the other parties hereto that its board of directors
is of the opinion that:
(a) The number of Bank Common Shares and/or Bank Preferred Shares that
voted against approval of the Plan or the number with respect to which
demand for payment of shares has been made is such that the consummation of
the Merger is inadvisable, in the sole opinion of such board of directors.
(b) Any action, suit, proceeding, or claim is commenced or threatened
or any claim is made that could make consummation of the Merger, in the
sole opinion of such board of directors, inadvisable;
(c) It is likely that a Regulatory Approval, in the sole opinion of
such board of directors, will not be obtained, or if obtained, has or will
contain or impose a condition or requirement that would materially and
adversely affect the operations or business prospects of Holding or the
Continuing Bank following the Effective Date so as to render inadvisable
the consummation of the Merger.
6
<PAGE> 9
(d) Any other reason exists that makes consummation of the Merger in
the sole opinion of such board of directors, inadvisable.
Upon such determination, the Plan shall be deemed void, and there shall be
no liability hereunder or on account of such termination on the part of the
Bank, the Interim Bank, Holding, or the directors, officers, employees, agents
or stockholders or any of them, except that in such event the Bank will pay the
fees and expenses incurred by itself, the Interim Bank and Holding in connection
with the transactions contemplated herein.
Section 5.02. Deferral of Effective Date. Consummation of the Merger
herein provided may be deferred by the board of directors of the Bank for a
reasonable period of time if the Bank's board of directors determines, in its
sole discretion, that such deferral would be in the best interest of the Bank
and the stockholders of the Bank.
ARTICLE VI
APPRAISAL RIGHTS
Section 6.01. Dissenters' Rights. Any stockholder of the Bank who
complies with all applicable provisions of law, including without limitation
Section 15(i) of the Banking Law, shall be entitled to receive the value of the
Bank Common Shares and/or Bank Preferred Shares held by such stockholder as
provided by Section 15(i) of the Banking Law, provided that:
(a) Any Bank Common Shares and/or Bank Preferred Shares held by a
holder who has demanded appraisal of such holder's shares and, as of the
Effective Date, has neither effectively withdrawn nor lost such holder's
right to such appraisal (the "Dissenting Shares") shall not be converted in
the manner set forth in Section 2.02, but the holder thereof shall only be
entitled to such rights as are granted by the Banking Law.
(b) Notwithstanding the provisions of subparagraph (a) of this Section
6.01, if any holder of Dissenting Shares shall effectively withdraw or lose
(through failure to perfect or otherwise) such holder's right to appraisal,
then, as of the Effective Date or the occurrence of such event, whichever
later occurs, such Dissenting Shares shall automatically be converted as
provided in Section 2.02.
ARTICLE VII
MISCELLANEOUS
Section 7.01. Governing Law. The Plan shall be governed by and construed
in accordance with the laws of the Commonwealth.
Section 7.02. Amendment. The Plan and the Appendix hereto may be amended
by the parties hereto, by action taken by or on behalf of their respective Board
of Directors at any time before or after approval by the stockholders of the
parties; provided, however that after such approval, no amendment, modification
or waiver shall affect the consideration to be received by any party or their
respective stockholders. Any such amendment, modification or waiver must be by
an instrument in writing and signed on behalf of each of the parties.
7
<PAGE> 10
IN WITNESS WHEREOF, the Bank, the Interim Bank and Holding have caused this
Plan to be executed in multiple copies, by their duly authorized officers, and
have caused their corporate seals to be hereto affixed, as of the date first
above written.
WESTERNBANK PUERTO RICO
By: /s/ FRANK C. STIPES
------------------------------------
Name: Frank C. Stipes
Title: President
[SEAL]
8
<PAGE> 11
WESTERN INTERIM BANK
By:
-----------------------------------
Name:
---------------------------------
Title: President
Executed as of ________________, 1999
[SEAL]
9
<PAGE> 12
W HOLDING COMPANY, INC.
By: /s/ FRANK C. STIPES
------------------------------------
Name: Frank C. Stipes
Title: President
Executed as of June 15 , 1999
[SEAL]
10
<PAGE> 13
APPENDIX I
DIRECTORS OF THE BANK
<TABLE>
<CAPTION>
NAMES AND ADDRESSES OF DIRECTORS TERMS ENDING
- -------------------------------- ------------
<S> <C>
Fidel Pino Cros 2001
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Pedro R. Dominguez 2001
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Fredeswinda G. Frontera 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Angel Luis Rosas 2000
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Cesar A. Ruiz 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Frank C. Stipes 2000
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
Cornelius Tamboer 1999
19 W. McKinley Street
Mayaguez, Puerto Rico 00680
</TABLE>
<PAGE> 1
Exhibit 5
[LETTERHEAD OF HOGAN & HARTSON L.L.P.]
June 22, 1999
Board of Directors
W Holding Company, Inc.
19 West McKinley Street
Mayaguez, Puerto Rico 00680
Ladies and Gentlemen:
We are acting as special counsel to W Holding Company, Inc., a Puerto
Rico corporation (the "Company"), in connection with its registration statement
on Form S-4 (SEC File No. 333-76975) (the "Registration Statement"), as filed
with the Securities and Exchange Commission (the "Commission"), relating to the
Company's proposed public offering of up to 42,000,000 shares of its common
stock, 1,219,000 shares of its 7.125% Non-Cumulative, Convertible Preferred
Stock, 1998 Series A, and 2,001,000 shares of its 7.25% Noncumulative Monthly
Income Preferred Stock, 1999 Series B (collectively, the "Shares"), in exchange
for the 42,000,000 issued and outstanding shares of common stock, 1,219,000
issued and outstanding shares of 7.125% Non-Cumulative, Convertible Preferred
Stock, 1998 Series A, and 2,001,000 issued and outstanding shares of 7.25%
Noncumulative Monthly Income Preferred Stock, 1999 Series B, of Westernbank
Puerto Rico ("Westernbank") (the "Westernbank Shares"). The Company's offer will
be made pursuant to the terms of the proxy statement/prospectus (the
"Prospectus") making up part of the Registration Statement, in accordance with
the Amended and Restated Plan of Merger and Reorganization (the "Plan") dated as
of June 15, 1999 by and among the Company, Westernbank and Western Interim Bank.
This opinion letter is furnished to you at your request to enable you to fulfill
the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. Section
229.601(b)(5), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. Executed copy of the Registration Statement, as amended.
2. The Prospectus.
<PAGE> 2
Board of Directors
W Holding Company, Inc.
June 22, 1999
Page 2
3. The Certificate of Incorporation of the Company, as certified
by the Secretary of the Company on the date hereof as then
being complete, accurate and in effect.
4. The Amended and Restated Bylaws of the Company, as certified
by the Secretary of the Company on the date hereof as then
being complete, accurate and in effect.
5. Certain resolutions of the Board of Directors of the Company
(the "Board") authorizing, among other things, the
execution and delivery of the Plan and the offer, issuance and
sale of the Shares and arrangements in connection therewith,
as certified by the Secretary of the Company on the date
hereof as being complete, accurate and in effect.
6. Executed copy of the Plan.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity of
all original documents and the conformity to authentic original documents of all
documents submitted to us as copies (including telecopies). This opinion letter
is given, and all statements herein are made, in the context of the foregoing.
This opinion letter is based as to matters of law solely on applicable
provisions of the corporate law of Puerto Rico. We express no opinion as to any
other laws, statutes, ordinances, rules or regulations.
Based upon, subject to and limited by the foregoing, we are of the
opinion that, assuming (i) stockholders of Westernbank approve the Plan by the
required votes as described in the Prospectus, (ii) the filing of a Certificate
of Corporate Resolution designating the terms and preferences of the Company's
Series B preferred stock prior to the closing of the reorganization, and (iii)
delivery of the Shares by the Company upon receipt of the Westernbank Shares as
specified in the Plan, the Shares will be validly issued, fully paid and
nonassessable.
This opinion has been prepared for your use in connection with the
Registration Statement and speaks as of the date hereof. We assume no obligation
to advise you of any changes in the foregoing subsequent to the delivery of this
opinion letter.
<PAGE> 3
Board of Directors
W Holding Company, Inc.
June 22, 1999
Page 3
We hereby consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement. In giving this consent, we do not thereby admit
that we are an "expert" within the meaning of the Securities Act of 1933, as
amended.
Very truly yours,
/s/ HOGAN & HARTSON L.L.P.
HOGAN & HARTSON L.L.P.
<PAGE> 1
EXHIBIT 8.1
[Form of Tax Opinion]
________ __, 1999
Board of Directors
Westernbank Puerto Rico
19 West McKinley Street
Mayaguez, Puerto Rico 00680
Gentlemen/Ladies:
This opinion is being delivered to you in accordance with Section
4.01(c) of the Plan of Merger and Reorganization (the "Agreement"), dated as of
February 3, 1999, by and among Westernbank Puerto Rico (the "Bank"), a
commercial bank organized under the laws of the Commonwealth of Puerto Rico, and
W Holding Company, Inc. ("Holding"), a corporation organized under the laws of
the Commonwealth of Puerto Rico and a wholly owned subsidiary of the Bank, and,
upon organization, Western Interim Bank ("Interim Bank"), an interim commercial
bank organized as a wholly owned subsidiary of Holding under the laws of the
Commonwealth of Puerto Rico for the sole purpose of consummating the
transactions provided for in the Agreement. Pursuant to the Agreement, Interim
Bank will be merged with and into the Bank (the "Merger").
In connection with the preparation of this opinion, we have examined
and with your consent relied upon (without any independent investigation or
review thereof) the following documents (including all exhibits and schedules
thereto): (1) the Agreement; (2) the Registration Statement on Form S-4 filed
with the Securities and Exchange Commission (the "Registration Statement"),
including the Proxy Statement/Prospectus of the Bank; (3) representations and
certifications made to us by the Bank and Holding (attached hereto as Exhibit
A); (4) such other instruments and documents related to the formation,
organization and operation of the Bank, Holding and Interim Bank or to the
consummation of the Merger and the transactions contemplated thereby as we have
deemed necessary or appropriate. 1/
- -------------
1/ All capitalized terms used herein and not otherwise defined shall have the
same meaning as they have in the Agreement. All section references, unless
<PAGE> 2
Westernbank Puerto Rico
________ __ 1999
Page 2
The Proposed Transaction
Based solely upon our review of the documents set forth above, and upon
such information as the Bank, Holding and Interim Bank have provided to us
(which we have not attempted to verify in any respect), and in reliance upon
such documents and information, we understand that the proposed transaction and
the relevant facts with respect thereto are as follows:
The Bank is a publicly owned full service commercial bank that provides
a wide range of financial services for retail and institutional clients. Holding
is a corporation formed to serve as a bank holding company after the merger and,
therefore, has no prior operating history. Interim Bank will be established as a
commercial bank solely for the purpose of accomplishing the Merger described
below.
Because it is believed that a holding company structure will permit
greater flexibility to the Bank in meeting the financial needs of its customers
and will provide a vehicle for growth and potential diversification, it is
proposed that pursuant to the Agreement and the laws of the Commonwealth of
Puerto Rico, Interim Bank merge with and into the Bank. Interim Bank's separate
corporate existence will cease and the Bank will be the surviving entity (the
"Continuing Bank"). As the Continuing Bank, the Bank will succeed to all of the
assets and liabilities of Interim Bank under Section 15 of the Banking Law.
By virtue of the Merger, each Bank Common Share issued and outstanding
immediately prior to the Effective Date will be converted into a Holding Common
Share, each Bank Series A Preferred Share issued and outstanding immediately
prior to the Effective Date will converted into a Holding Series A Preferred
Share and each share of Bank's series B preferred stock ("Bank Series B
Preferred Shares") issued and outstanding immediately prior to the Effective
Date will be converted into a share of Holding series B preferred stock
("Holding Series B Preferred Shares"). On the Effective Date, each outstanding
option to purchase Bank Common Shares under the Bank's stock option plans will
be assumed by Holding. Holders of Dissenting Shares will be entitled to receive
the value of the Bank Common Shares and/or Bank Series A Preferred Shares and/or
Holding Series B Preferred Shares held by such stockholders as provided by
Section
- --------------------------------------------------------------------------------
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
<PAGE> 3
Westernbank Puerto Rico
________ __ 1999
Page 3
15(i) of the Banking Law. No fractional shares or cash in lieu of
fractional shares will be issued in the Merger.
Assumptions and Representations
In connection with rendering this opinion, we have assumed or obtained
representations (and, with your consent, are relying thereon, without any
independent investigation or review thereof, although we are not aware of any
material facts or circumstances contrary to or inconsistent therewith) that:
1. All information contained in each of the documents we have examined
and relied upon in connection with the preparation of this opinion is accurate
and completely describes all material facts relevant to our opinion, all copies
are accurate and all signatures are genuine. We have also assumed that there has
been (or will be by the Effective Time of the Merger) due execution and delivery
of all documents where due execution and delivery are prerequisites to the
effectiveness thereof.
2. The Merger will be consummated in accordance with the applicable law
of the Commonwealth of Puerto Rico.
3. All representations made in the exhibits hereto are true, correct,
and complete in all material respects. Any representation or statement made "to
the best of knowledge" or similarly qualified is correct without such
qualification.
4. The Merger will be consummated in accordance with the Agreement and
as described in the Proxy Statement/Prospectus (including satisfaction of all
covenants and conditions to the obligations of the parties without amendment or
waiver thereof); each of the Bank, Holding and Interim Bank will comply with all
reporting obligations with respect to the Merger required under the Code and the
Treasury Regulations thereunder; and the Agreement and all other documents and
instruments referred to therein or in the Proxy Statement/Prospectus are valid
and binding in accordance with their terms.
Opinion - Federal Income Tax Consequences
Based upon and subject to the assumptions and qualifications set forth
herein, it is our opinion that for Federal income tax purposes Holding will be
treated as a "corporation" within the meaning of Section 367(a) of the Code and
thus that the Merger will qualify as a "reorganization" within the meaning of
Section 368(a) of the Code with respect to the exchange by holders of Bank
Common
<PAGE> 4
Westernbank Puerto Rico
________ __ 1999
Page 4
Shares, Bank Series A Preferred Shares and Bank Series B Preferred Shares,
respectively, other than United States stockholders who own 5 percent or more of
the total voting power or the total value of the Bank's Common Shares, for
Holding Common Shares, Holding Series A Preferred Shares and Holding Series B
Preferred Shares. United States stockholders who own 5 percent or more of the
total voting power or the total value of the Bank Common Shares and who are
Puerto Rico resident individuals for the entire taxable year in which the Merger
occurs will be able to exclude from gross income for federal income tax purposes
any gain from the exchange of the Bank Common Shares for Holding Common Shares.
United States stockholders who are not Puerto Rico resident individuals and who
own 5 percent or more of the total voting power or the total value of Bank
Common Shares, Bank Series A Preferred Shares and Bank Series B Preferred Shares
before the Merger may not be subject to current taxation under United States
income tax laws if they comply with the reporting requirement in Section 6038 of
the Code and enter into a gain recognition agreement with the Internal Revenue
Service (the "IRS").
In addition to the assumptions set forth above, this opinion is subject
to the exceptions, limitations and qualifications set forth below:
1. This opinion represents and is based upon our best judgment
regarding the application of relevant current provisions of the Code and
interpretations of the foregoing as expressed in existing court decisions,
administrative determinations (including the practices and procedures of the IRS
in issuing private letter rulings, which are not binding on the IRS except with
respect to the taxpayer that receives such a ruling) and published rulings and
procedures all as of the date hereof. An opinion of counsel merely represents
counsel's best judgment with respect to the probable outcome on the merits and
is not binding on the Internal Revenue Service or the courts. There can be no
assurance that positions contrary to our opinions will not be taken by the IRS,
or that a court considering the issues would not hold contrary to such opinions.
The Bank has not requested a ruling from the IRS (and no ruling will be sought)
as to any of the federal income tax consequences addressed in this opinion.
Furthermore, no assurance can be given that future legislative, judicial or
administrative changes, on either a prospective or retroactive basis, would not
adversely affect the accuracy of the opinion expressed herein. Nevertheless, we
undertake no responsibility to advise you of any new developments in the law or
in the application or interpretation of the federal income tax laws.
<PAGE> 5
Westernbank Puerto Rico
________ __ 1999
Page 5
2. This letter addresses only the specific tax opinions set forth
above. This letter does not address any other federal, state, local or foreign
tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger).
3. Our opinion is intended to address only the United States federal
income tax consequences to holders of Bank Common Shares, Bank Series A
Preferred Shares and Bank Series B Preferred Shares and is not intended to
address (nor may it be relied upon for) the tax consequences to the Bank,
Holding or Interim Bank. We express no opinion regarding, among other things,
the tax consequences of the Merger (including the opinion set forth above) as
applied to specific stockholders of the Bank that may be relevant to particular
classes of the Bank's shareholders, such as dealers in securities, corporate
shareholders subject to the alternative minimum tax, and holders of shares
acquired upon exercise of stock options or in other compensatory transactions.
4. Our opinion set forth herein is based upon the description of the
contemplated transactions as set forth above in the section captioned "The
Proposed Transaction," the Agreement and the Proxy Statement/Prospectus. If the
actual facts relating to any aspect of the transactions differ from this
description in any material respect, our opinion may become inapplicable. No
opinion is expressed as to any transaction other than those set forth in the
section captioned "The Proposed Transaction," the Agreement and the Proxy
Statement/Prospectus or to any transaction whatsoever, including the Merger, if
all the transactions described in the section captioned "The Proposed
Transaction," the Agreement and the Proxy Statement/Prospectus are not
consummated in accordance with the terms of the section captioned "The Proposed
Transaction," the Agreement and the Proxy Statement/Prospectus and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
This opinion is provided to the Bank only, and without our prior
consent, may not be relied upon, used, circulated, quoted or otherwise referred
to in any manner by any person, firm, governmental authority or entity
whatsoever other than reliance thereon by the holders of Bank Common Shares,
Bank Series A Preferred Shares and Bank Series B Preferred Shares.
Notwithstanding the prior sentence, we hereby consent to the use of the opinion
letter as an exhibit to the
<PAGE> 6
Westernbank Puerto Rico
________ __ 1999
Page 6
Registration Statement and to the use of our name in the Registration Statement.
In giving the consent, we do not thereby admit that we are an "expert" within
the meaning of the Securities Act of 1933, as amended.
Sincerely yours,
HOGAN & HARTSON L.L.P.
<PAGE> 1
Exhibit 99.1
WESTERNBANK PUERTO RICO
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING TO BE HELD ON JULY ______, 1999
The undersigned, being a stockholder of Westernbank Puerto Rico (the
"Company"), hereby appoints Frank C. Slipes and Freddy Maldonado, or either of
them, with full power of substitution in each, as proxies and hereby authorizes
such proxies, or either of them, to represent the undersigned at the Annual
Meeting of Stockholders of the Company to be held at 1:30 p.m. on July __, 1999
at Best Western Mayaguez Resort & Casino, located at Road 104, Km 0.3,
Mayaguez, Puerto Rico, and at any adjournment of said meeting, and thereat to
act with respect to all votes that the undersigned would be entitled to cast,
if then personally present, in accordance with the following instructions. The
undersigned stockholder hereby revokes any proxy or proxies heretofore given.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE
BOX, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT
VOTE YOUR PREFERENCES UNLESS YOU SIGN AND RETURN THIS CARD.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SIDE
<PAGE> 2
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE STOCKHOLDER. IF NO DIRECTION IS OTHERWISE MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1, FOR THE NOMINEES LISTED IN PROPOSAL 2, FOR PROPOSALS 3, 4, AND
5, AND IN THE DISCRETION OF THE NAMED PROXIES AS TO ANY OTHER MATTERS PROPERLY
PRESENTED AT THE MEETING. THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
VOTED BY DELIVERY TO THE SECRETARY OF THE COMPANY OF EITHER A WRITTEN
REVOCATION OF THE PROXY OR A DULY EXECUTED PROXY BEARING A LATER DATE, OR BY
APPEARING AT THE ANNUAL MEETING AND VOTING IN PERSON.
<TABLE>
<S> <C> <C>
1. To approve the proposed reorganization 2. To elect the following
into a bank holding company in which W nominees to the Board of
Holding Company, Inc. will become the Directors. Nominees:
holding company for Westernbank. Cesar A. Ruiz, Fredeswinda
G. Frontera and Cornelius
Tamboer.
WITHHOLD TO VOTE FOR ALL
FOR [ X ] AGAINST [ X ] ABSTAIN [ X ] FOR ALL [ X ] AUTHORITY TO [ X ] NOMINEES [ X ]
NOMINEES VOTE FOR ALL EXCEPT AS ---------------
NOMINEES INDICATED ON THE
LINE AT RIGHT
3. To approve Westernbank's 1999 4. To approve Westernbank's 5. To ratify the appointment of
Stock Option Plans proposed increase in Deloitte and Touche LLP, as
authorized capital stock. independent auditors of the
Company for the fiscal year
ending December 31, 1999.
FOR [ X ] AGAINST [ X ] ABSTAIN [ X ] FOR [ X ] AGAINST [ X ] ABSTAIN [ X ] FOR [ X ] AGAINST [ X ] ABSTAIN [ X ]
MARK HERE FOR ADDRESS
CHANGE AND NOTE AT LEFT [ X ]
</TABLE>
THIS IS YOUR PROXY. YOUR VOTE IS IMPORTANT.
Please sign exactly as your name appears hereon.
Joint owners should each sign. When signing as
attorney, executor, administrator, trustee, or
guardian, please give full title as such.
Signature: Date:
----------------- ---------------
Signature: Date:
----------------- ---------------
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. [ X ]
REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING OF STOCKHOLDERS,
PLEASE EXECUTE YOUR PROXY PROMPTLY AND RETURN IT IN THE ENCLOSED ENVELOPE.
