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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1999
REGISTRATION NO. 333-76975
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 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.)
</TABLE>
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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)
------------------------
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. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED UNIT PRICE REGISTRATION FEE
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Common Stock, par value $1.00
per share..................... 42,000,000 $15.313* $643,146,000* $178,794.59*+
7.125% Noncumulative,
Convertible Preferred Stock,
1998 Series A, par value $1.00
per share..................... 1,219,000 $ 25.00** $ 30,475,000** $ 8,472.05**+
7.25% Noncumulative Monthly
Income Preferred Stock, 1999
Series B, par value $1.00 per
share......................... 2,001,000 $ 25.00*** $ 50,025,000*** $ 13,906.95***
</TABLE>
* Estimated pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities
Act of 1933, as amended, based upon the average of the high and low prices
for shares of common stock of Westernbank Puerto Rico as reported on the
Nasdaq Stock Market's National Market Tier and calculated as of April 22,
1999.
** Estimated pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities
Act, based upon the average of the high and low prices for shares of Series
A Preferred Stock of Westernbank Puerto Rico as reported on the
over-the-counter market and calculated as of April 22, 1999.
*** Estimated pursuant to Rule 457(f)(2) and Rule 457(a) under the Securities
Act, based upon a bona fide estimate of the trading price for shares of
Series B Preferred Stock of Westernbank Puerto Rico once trading commences
on the Nasdaq Stock Market's National Market Tier. These shares were sold by
Westernbank Puerto Rico for a price of $25.00 per share on May 28, 1999, in
an offering exempt from registration under Section 3(a)(2) of the Securities
Act, but have not been released for trading by the underwriters for that
offering.
+ Previously paid.
------------------------
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)
</TABLE>
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42,000,000 SHARES OF COMMON STOCK; 1,219,000 SHARES OF 7.125%
NON-CUMULATIVE, CONVERTIBLE PREFERRED STOCK, 1998 SERIES A; AND
2,001,000 SHARES OF 7.25% NONCUMULATIVE MONTHLY INCOME
PREFERRED STOCK, 1999 SERIES B
------------------------
DEAR WESTERNBANK STOCKHOLDER:
You are cordially invited to attend the annual meeting of stockholders of
Westernbank Puerto Rico to be held at 1:30 p.m. on July 15, 1999 at Best Western
Mayaguez Resort & Casino, located at Road 104, Km. 0.3, Mayaguez, Puerto Rico.
At the annual meeting, you will be asked to vote on a bank holding company
formation for Westernbank. If you approve this proposal at the annual meeting, W
Holding Company will become the holding company for Westernbank. Each existing
share of Westernbank's common stock and preferred stock will be converted into a
similar interest in the new holding company in a reorganization transaction. The
bank holding company formation will not change your equity or voting interest in
our operations relative to other stockholders.
If you hold common stock, you also will be asked to vote on:
- the election of three directors for three-year terms
- approval of the Westernbank 1999 Stock Option Plans
- an increase in Westernbank's authorized capital
- ratification of Deloitte & Touche LLP as independent auditors for
1999.
Westernbank's common stock currently is traded on the Nasdaq Stock Market's
National Market Tier under the symbol WBPR, and its series B preferred stock
currently is traded on the National Market Tier under the symbol WBPRO. The
holding company has applied to change the listing of Westernbank's common stock
and its series B preferred stock to the holding company's common stock and its
series B preferred stock under the same symbols.
PLEASE READ THE RISK FACTORS ON PAGE 8 BEFORE COMPLETING YOUR PROXY CARD.
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.
The separate votes of at least three-fourths of Westernbank's outstanding
common stock, and two-thirds of the total number of shares of Westernbank's
outstanding preferred stock, with both series voting together as a class, are
required to approve the reorganization. CONSEQUENTLY, 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.
Very truly yours,
Frank C. Stipes
Chairman of the Board,
Chief Executive Officer and
President
This proxy statement/prospectus is being mailed to shareholders on or about
June 10, 1999. The date of this proxy statement/prospectus is , 1999.
<PAGE> 3
WESTERNBANK PUERTO RICO
19 WEST MCKINLEY STREET
MAYAGUEZ, PUERTO RICO 00680
(787) 834-8000
NOTICE OF ANNUAL MEETING
TO BE HELD ON JULY 15, 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 15, 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
<PAGE> 4
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 10, 1999
2
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TABLE OF CONTENTS
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PAGE
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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 Proposed Reorganization...................... 14
Reasons for the Reorganization.............................. 15
Recommendation of Westernbank's Board of Directors.......... 15
Treatment of Stock Certificates............................. 15
Conditions That Must be Satisfied Before the Reorganization
Can Occur................................................. 16
Differences in Stockholder Rights as a Result of the
Reorganization............................................ 16
Tax Consequences of the Reorganization...................... 18
Accounting Treatment of the Reorganization.................. 20
Regulatory Approvals........................................ 20
Right of Dissenting Stockholders............................ 21
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............ 27
Description of the Holding Company's Capital Stock.......... 27
DESCRIPTION OF SERIES B PREFERRED STOCK..................... 35
ADDITIONAL INFORMATION ABOUT INTERIM BANK................... 39
SUPERVISION AND REGULATION.................................. 40
BENEFICIAL OWNERSHIP OF SECURITIES.......................... 48
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTORS AND
DIRECTORS WHOSE TERMS CONTINUE............................ 50
PERFORMANCE OF WESTERNBANK COMMON STOCK..................... 59
APPROVAL OF WESTERNBANK 1999 STOCK OPTION PLANS............. 60
PROPOSED INCREASE IN AUTHORIZED CAPITAL STOCK OF
WESTERNBANK............................................... 63
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RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS......... 64
WHERE YOU CAN FIND MORE INFORMATION......................... 64
INFORMATION INCORPORATED BY REFERENCE....................... 65
FINANCIAL STATEMENTS........................................ 66
ANNUAL REPORT............................................... 66
ADJOURNMENT OF STOCKHOLDER MEETING.......................... 66
STOCKHOLDER PROPOSALS....................................... 66
OTHER MATTERS............................................... 67
LEGAL MATTERS............................................... 67
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 and Westernbank's Restated Certificate of
Incorporation and By-laws.................................
Appendix C -- Section 15(i) of the Puerto Rico Banking
Law.......................................................
Appendix D -- Westernbank Properties........................
</TABLE>
4
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE HOLDING COMPANY REORGANIZATION
Q: WHY IS WESTERNBANK PROPOSING TO REORGANIZE INTO A HOLDING COMPANY STRUCTURE?
A: Under the holding company structure, Westernbank will become the subsidiary
of a newly formed Puerto Rico corporation. The board of directors believes
that the reorganization will give Westernbank greater flexibility in
continuing those services it presently provides to its customers and in
responding in the future to changing market conditions and the changing needs
of the community. Furthermore, Westernbank's board of directors believes the
reorganization into a holding company would provide a vehicle for growth and
potential geographic diversification. 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: 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 .
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.
Q: WHEN DO YOU EXPECT THE REORGANIZATION TO TAKE PLACE?
A: In addition to the approval of Westernbank's stockholders, we must obtain a
number of regulatory approvals. We expect the reorganization to take place as
soon as practicable after the annual meeting and the receipt of all
regulatory approvals, sometime in the third quarter of 1999.
5
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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 ANNUAL MEETING
TIME AND LOCATION OF THE ANNUAL MEETING
The annual meeting will be held at Best Western Mayaguez Resort & Casino,
located at Road 104, Km. 0.3, Mayaguez, Puerto Rico on July 15, 1999, at 1:30
p.m.
MATTERS TO BE VOTED ON AT THE ANNUAL MEETING
You will be asked to vote on the proposed reorganization by which W Holding
Company, Inc. will become the holding company for Westernbank.
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.
WHO IS ELIGIBLE TO VOTE
If you held Westernbank common stock or preferred stock at the close of business
on May 31, 1999 you are entitled to vote at the annual meeting. You may cast one
vote for each share of common stock you held then on each matter properly
presented at the annual meeting. You may cast one vote for each share of
preferred stock you held then only on the proposed holding company
reorganization.
VOTE REQUIRED ON EACH MATTER CONSIDERED
- Under Westernbank's restated certificate of incorporation and by-laws,
holders of at least three-fourths of the outstanding shares of our common
stock and two-thirds of the outstanding shares of our preferred stock,
with both series voting together as a single class, must approve the
reorganization.
- Under applicable Puerto Rico law and Westernbank's restated certificate
of incorporation and by-laws, holders of common stock will elect
directors by the vote of a majority of the outstanding shares of common
stock.
- Holders of a majority of the outstanding shares of common stock must (1)
approve the 1999 Stock Option Plans and (2) ratify the appointment of our
independent auditors.
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
6
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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.
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 16.
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 recognize 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
7
<PAGE> 10
income tax on any gain that you recognize as a result of the reorganization.
The holding company has requested a ruling from the Secretary of Treasury of
Puerto Rico concerning stockholders' Puerto Rico tax consequences of the
reorganization.
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 18.
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 40.
COMPOSITION OF THE BOARD OF DIRECTORS OF THE HOLDING COMPANY
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
meeting, as the directors of the holding company without further action and
without changes in classes or terms.
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.
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 21.
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.
8
<PAGE> 11
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.
United States federal and Puerto Rico banking law 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.
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 "Regulatory Matters -- Holding Company Regulation." 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.
9
<PAGE> 12
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 , 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 and 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 holders of record of common stock, holders of record of series A
preferred stock, and 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 , 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 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. 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 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 issuing "capital securities."
Any capital raised by the holding company could then be invested as capital in
Westernbank. 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.
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.
15
<PAGE> 18
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 , 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.
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 and the restated certificate of
incorporation and by-laws of Westernbank are attached to this proxy
statement/prospectus at Appendix B. We urge all stockholders to read these
documents.
16
<PAGE> 19
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. 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.
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<PAGE> 20
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 also require that a
stockholder give notice at least 150 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.
TAX CONSEQUENCES OF THE REORGANIZATION
Puerto Rico Tax Consequences of the Reorganization
Westernbank filed a ruling request with the Secretary of Treasury of Puerto
Rico on , 1999 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
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<PAGE> 21
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 , counsel to
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
Consummation of the reorganization is expressly conditioned upon the
receipt by the Bank of either a favorable ruling from the United States Internal
Revenue Service or an opinion of counsel with respect to United States federal
income taxation to the effect that:
(1) the exchange by Westernbank's stockholders, other than United States
stockholders who own 5% or more of both the total voting power and the
total value of Westernbank's common stock, of Westernbank's common
stock and preferred stock, respectively, for the holding company's
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<PAGE> 22
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 both the total voting
power and 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.
No private ruling has been requested from the United States Internal
Revenue Service with respect to the proposed reorganization. Instead,
Westernbank has received an opinion of its counsel, Hogan & Hartson L.L.P.,
which has been filed with the SEC as an exhibit to the Registration Statement of
which this proxy statement/prospectus is a part. 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
representations provided to Hogan & Hartson L.L.P. by Westernbank that relate to
the satisfaction of specific requirements to a reorganization within the meaning
of Section 368(a) of the United States Internal Revenue Code. 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 both the total voting power and the total value of
Westernbank's 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.
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.
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<PAGE> 23
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.
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;
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<PAGE> 24
- 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.
In order to record opposition to the reorganization, a stockholder must
provide 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;
- 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
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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 --
====== ====== ======
</TABLE>
- ---------------
On , 1999 (the most recent practicable date prior to the
printing of this proxy statement/prospectus), there were holders of
record of Westernbank's common stock, 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. On , 1999 (the date
prior to the announcement of the proposed reorganization), 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.
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.
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<PAGE> 26
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 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
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<PAGE> 27
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,
- commercial real estate loans of $560.2 million, and
- construction and land acquisition loans of $88.7 million.
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'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.
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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,
- 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. For a list of the properties
owned and leased by Westernbank, see Appendix D to this proxy
statement/prospectus.
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.
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<PAGE> 29
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 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> 30
- 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> 31
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 the tax treatment of distributions to stockholders,
please see the sections of this proxy statement/prospectus captioned "Taxation,"
"Puerto Rico Taxation," and "United States Taxation." 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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<PAGE> 32
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> 33
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> 35
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> 36
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 the tax treatment of distributions to stockholders,
please see the sections of this proxy statement/prospectus captioned "Taxation,"
"Puerto Rico Taxation," and "United States Taxation." 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.
43
<PAGE> 46
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.
44
<PAGE> 47
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
45
<PAGE> 48
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;
46
<PAGE> 49
- "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.
47
<PAGE> 50
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
48
<PAGE> 51
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.
49
<PAGE> 52
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.
50
<PAGE> 53
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.
51
<PAGE> 54
(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>
52
<PAGE> 55
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.
53
<PAGE> 56
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.
54
<PAGE> 57
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.
55
<PAGE> 58
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
56
<PAGE> 59
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-
57
<PAGE> 60
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>
58
<PAGE> 61
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>
12/31/93 100.0 100.0 100.0
12/30/94 138.5 97.8 99.6
12/29/95 278.8 138.3 148.4
12/31/96 613.4 170.0 195.9
12/31/97 1344.7 208.6 328.0
12/31/98 1804.5 293.2 324.9
</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.
59
<PAGE> 62
APPROVAL OF WESTERNBANK 1999 STOCK OPTION PLANS
(PROPOSAL THREE)
In 1999, the Westernbank board of directors adopted 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 shareholder
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 shareholder 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
shareholders' interests in the enhancement of shareholder 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 ________ shares of
common stock can be granted. Options for up to ________ 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
60
<PAGE> 63
- 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 from
1999, 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 shareholders 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 shareholders within one year of the date
of adoption. No grants will be made pursuant to the 1999 Plans unless and until
such 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
61
<PAGE> 64
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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<PAGE> 65
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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<PAGE> 66
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.
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
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<PAGE> 67
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:
<TABLE>
<S> <C> <C>
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
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 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.
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<PAGE> 68
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 WRITTEN 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, AND THE LIST OF EXHIBITS TO THAT REPORT THAT ARE
REQUIRED TO BE FILED WITH THE FDIC UNDER THE SECURITIES EXCHANGE ACT OF 1934. A
written request should be sent to Mr. Angel Luis Rosas, Secretary, Westernbank,
Box 1180, Mayaguez, Puerto Rico 00681. The Form 10-K is not part of 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 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 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
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<PAGE> 69
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.
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 federal and Puerto Rico tax matters will be passed upon by ,
.
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<PAGE> 70
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
- ------- -------
<S> <C>
2.1 Amended and Restated Plan of Merger, dated as of June ,
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.*
8.2 Form of opinion of Jose Villa as to certain Puerto Rico tax
matters.*
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).*
23.2 Consent of Jose Villa.*
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> 71
(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
II-2
<PAGE> 72
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> 73
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 7, 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 7, 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> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- -------
<S> <C>
2.1 Amended and Restated Plan of Merger, dated as of June ,
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.*
8.2 Form of opinion of Jose Villa as to certain Puerto Rico tax
matters.*
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).*
23.2 Consent of Jose Villa.*
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.
