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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 2000
REGISTRATION NO. 333-36354
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WESTCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 6035 51-0308535
(STATE OR OTHER JURISDICTION OF PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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23 PASTEUR
IRVINE, CALIFORNIA 92618-3816
(949) 727-1002
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JOY SCHAEFER
PRESIDENT
WESTCORP
23 PASTEUR
IRVINE, CALIFORNIA 92618-3816
(949) 727-1002
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
ANDREW E. KATZ, ESQ.
MITCHELL, SILBERBERG & KNUPP LLP
11377 WEST OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90064-1683
(310) 312-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE(1)
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Common Stock, $1.00 par
value........................ 5,319,469 Shares $10.50 $55,854,424.00 $14,745.57
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Subscription Warrants.......... 26,597,343 Warrants (2) (2) None
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(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based
on the estimated offering price. The registration fee has been previously
filed.
(2) No separate consideration will be received for the subscription warrants.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
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PROSPECTUS
DATED AS OF MAY 23, 2000
SUBJECT TO COMPLETION
5,319,469 SHARES
[WESTCORP LOGO]
COMMON STOCK
ISSUABLE UPON EXERCISE OF SUBSCRIPTION RIGHTS
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We are offering to our existing shareholders the right to purchase
5,319,469 shares of common stock in this rights offering. Our common stock
trades on the New York Stock Exchange under the symbol "WES."
- You will receive one right for each share of our common stock which you
own on the record day of May 25, 2000. For each 5.0 rights which you
exercise, you will be able to purchase one share of our common stock at a
price of $10.50 per share. This is your "Basic Subscription Right."
- If you fully exercise your Basic Subscription Right, you may elect to
purchase additional shares of common stock to the extent available on a
pro rata basis with other stockholders making that election. This is your
"Oversubscription Right."
- We will not issue fractional rights or fractional shares, and we will not
pay cash in place of rights or fractional shares. These rights are
transferable and are expected to trade on the New York Stock Exchange
under the symbol "WES Rt". If the number of rights which you own on the
record date would result, when exercised, in your receipt of fractional
shares, the number of shares which you will be able to purchase will be
rounded down to the next whole number. You may seek to transfer any
rights which you own which are not sufficient to purchase a whole share
of common stock.
- The rights are exercisable beginning on the date of this prospectus and
continuing until 5:00 p.m., Eastern Daylight Time, on June 15, 2000,
which date and time are the "expiration date," unless we extend this
offering. If you want to participate in this rights offering, you must
submit your subscription documents to us before the expiration date, in
the manner described in this prospectus.
- Subscriptions are irrevocable once we receive them, unless we amend this
offering.
- Stockholders who do not participate in this rights offering will continue
to own the same number of shares of our common stock, but will own a
smaller percentage of the total number of shares outstanding to the
extent that other stockholders participate in this rights offering.
- Ernest S. Rady, our Chairman, is the beneficial owner of approximately
66% of our common stock. Mr. Rady has informed us that he will exercise
his Basic Subscription Right and that he expects to also exercise his
Oversubscription Right.
- In addition, we are making a contribution of up to $5.0 million to our
Employee Stock Ownership and Salary Savings Plan to enable the Plan and
its participants to exercise their subscription rights.
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Per Share Total
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Offering price: $ 10.50 $55,854,424.00
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THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 12 TO READ
ABOUT RISKS THAT YOU SHOULD CONSIDER CAREFULLY BEFORE BUYING SHARES OF OUR
COMMON STOCK.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AUTHORITY OR AGENCY.
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THE DATE OF THIS PROSPECTUS IS MAY , 2000.
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TABLE OF CONTENTS
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Prospectus Summary.................. 1
Westcorp.......................... 1
Our Company.................... 1
Automobile Lending
Operations................ 1
Bank Operations.............. 2
The History of Westcorp........ 3
Market and Competition......... 4
Our Business Strategy.......... 5
Our Address.................... 6
The Offering...................... 7
Summary Financial Data............ 10
Risk Factors........................ 12
Risks Related to the Offering..... 12
Risks Related to Us............... 13
Risks Related to Factors Outside
Our Control.................... 17
Use of Proceeds..................... 20
Dividend Policy..................... 20
The Offering........................ 20
The Rights..................... 20
Basic Subscription Right....... 21
Oversubscription Right......... 21
Subscription Price............. 22
Expiration Time and Date....... 22
Principal Stockholders......... 22
Subscription Procedures........ 22
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Subscription Payments.......... 24
Notice of Guaranteed
Delivery..................... 24
No Revocation.................. 25
Method of Transferring
Rights....................... 25
Procedures for DTC
Participants................. 26
Subscription Agent............. 26
Determination of the
Subscription Price........... 26
Foreign Stockholders;
Stockholders with APO or FPO
Addresses.................... 26
Regulatory Limitation.......... 27
Withdrawal of this Offering.... 27
Issuance of the Common Stock... 27
No Board Recommendation........ 27
No Effect on Stock Options or
Bonus Interests.............. 27
Shares of Common Stock Outstanding
After the Offering................ 27
Certain Federal Income Tax
Consequences...................... 28
Legal Matters....................... 29
Experts............................. 29
Forward-Looking Statements.......... 29
Where You Can Find More
Information....................... 30
Incorporation by Reference.......... 30
Material Changes.................... 31
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PROSPECTUS SUMMARY
This summary highlights certain information found in greater detail
elsewhere in this prospectus. In addition to this summary, we urge you to read
the entire prospectus carefully, especially the risks of investing in our common
stock discussed under "Risk Factors," before deciding to invest in shares of our
common stock.
WESTCORP
OUR COMPANY
Westcorp is a diversified financial services holding company that provides
automobile lending services through its second tier subsidiary, WFS Financial
Inc ("WFS") and provides retail and commercial banking services through its
wholly owned subsidiary, Western Financial Bank (the "Bank"). The Bank currently
owns 82% of the capital stock of WFS.
AUTOMOBILE LENDING OPERATIONS
We are one of the nation's largest independent automobile finance companies
with 27 years of experience in the automobile finance industry. We originate,
service and securitize new and used automobile installment contracts, which are
generated through our relationships with over 8,500 franchised and independent
automobile dealers in 43 states. We originated $3.3 billion of automobile
contracts during 1999 and serviced a portfolio of $5.4 billion of automobile
contracts at December 31, 1999.
We provide service to dealers through our nationwide network of business
development representatives. Our business development representatives provide
dealers with a single contact to whom they can sell most of their automobile
contracts. Unlike many of our competitors, we offer programs for both prime and
non-prime borrowers. Approximately 70% of our contract originations are with
borrowers who have strong credit histories, otherwise known as prime borrowers,
and approximately 30% or our contracts are with borrowers who have overcome past
credit difficulties, otherwise known as non-prime borrowers. We do not offer
programs for borrowers who are currently experiencing or recently have
experienced credit difficulties, otherwise known as sub-prime borrowers.
We underwrite contracts through a credit approval process that is supported
and controlled by a centralized, automated front-end system. This system
incorporates proprietary credit scoring models and industry credit scoring
models and tools, which enhance our credit analysts' abilities to tailor each
contract's pricing and structure to maximize risk-adjusted returns. Our
underwriters earn incentives based on the profitability rather than the volume
of the contracts that they purchase.
We structure our business to minimize operating costs while providing high
quality service to our dealers. Those aspects of our business that require a
local market presence are performed on a decentralized basis in our 45 offices.
All other operations are centralized.
We fund our purchases of contracts with deposits raised at the Bank which
are insured by the Federal Deposit Insurance Corporation ("FDIC"). We securitize
the contracts we have purchased on a regular basis. Since 1985, we have
securitized over $15 billion of automobile contracts in 47 public offerings of
asset-backed securities, making us the fourth largest issuer of such securities
in the nation. We anticipate that we will continue to securitize contracts in
transactions recorded as either secured financings or as sales. We believe that
the relationship maintained between WFS and the Bank provides us a competitive
advantage relative to other independent automobile finance companies
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by providing a significant source of liquidity at a low cost and by allowing us
the ability to enter the automobile asset-backed securities market on an
opportunistic basis.
To improve our long-term profitability, we restructured our automobile
lending operations in 1998. As a result, we incurred a net loss of $14.7 million
in 1998 due to higher credit losses and a $15.0 million charge related to the
restructuring. The higher credit losses were due to purchasing a higher
percentage of non-prime contracts during 1996 and 1997, as well as servicing
disruptions created by our restructuring. As part of this restructuring, we
merged our prime and non-prime operations and offices, changed our purchasing
strategy to emphasize prime contracts, eliminated unprofitable dealer
relationships, implemented new underwriting and servicing technology, closed 96
underperforming offices and reduced our number of employees ("associates") by
approximately 20%.
As a result of this restructuring, we have:
- returned to profitability, realizing record net income of $52.6 million
in 1999;
- increased operating cash flows from automobile lending operations from
$13.6 million in 1997, to $16.4 million in 1998 and to $110 million in
1999;
- increased automobile contract originations from $2.3 billion in 1997, to
$2.7 billion in 1998 and to $3.3 billion in 1999;
- increased prime contract originations from 54% in 1997, to 68% in 1998
and to 69% in 1999;
- improved the percentage of applications funded to applications received
from 13% for the first quarter of 1998 to 19% for the fourth quarter of
1999;
- lowered automobile lending operating expenses as a percentage of average
serviced contracts from 5.0% in 1997, to 4.1% in 1998 and to 3.6% in
1999; and
- reduced automobile net chargeoffs as a percentage of average serviced
contracts from 3.0% in 1997 and 3.4% in 1998 to 2.1% in 1999.
BANK OPERATIONS
The Bank's primary focus is to generate diverse, low-cost funds to provide
the liquidity needed to fund automobile contracts. We have the ability to raise
significant amounts of liquidity by attracting both short-term and long-term
deposits from the general public, commercial enterprises and institutions by
offering a variety of accounts and rates. These funds are generated through our
retail and commercial banking divisions. We may also raise funds by obtaining
advances from the Federal Home Loan Bank ("FHLB"), selling securities under
agreements to repurchase and utilizing other borrowings.
Our retail banking division serves the needs of individuals and small
businesses by offering a broad range of products, such as demand deposit
accounts, money market accounts, certificates of deposits and other investment
services through 25 retail branches located throughout California. Our
commercial banking division focuses on small and medium-sized businesses in
southern California, offering loans, lines of credit and trade finance services,
as well as account analysis, cash management and other commercial depository
services in order to attract low-cost commercial deposits. We also employ the
liquidity generated by the retail and commercial banking divisions by investing
in mortgage-backed securities ("MBS") to generate additional net interest
margin, to manage interest rate risk, to provide another source of liquidity
through repurchase agreements, to support community reinvestment and housing
finance and to meet regulatory requirements.
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During 1998 and into 1999, we determined that our mortgage banking
activities no longer met our long-term profit goals and strategic objectives. As
a result, we closed our prime mortgage lending operations and sold $28.9 million
in mortgage servicing rights in the fourth quarter of 1998 and incurred a $3.0
million restructuring charge. During the third quarter of 1999, we completed the
sale of our sub-prime mortgage lending operations and sold the remaining $1.0
billion of mortgage servicing rights that we held. During the fourth quarter of
1999, we closed our loan servicing department and entered into an agreement to
sell the rights to service our remaining owned portfolio, thereby completing our
mortgage banking exit strategy. At December 31, 1999, we owned $598 million in
single-family and multi-family mortgage loans that were originated through
previous mortgage lending activities.
THE HISTORY OF WESTCORP
Western Thrift & Loan Association, a California-licensed thrift and loan
association was founded in 1972. In 1973, Western Thrift Financial Corporation
was formed as the holding company for Western Thrift & Loan Association. Western
Thrift Financial Corporation later changed its name to Westcorp. In 1982,
Westcorp acquired Evergreen Savings and Loan Association, a California-licensed
savings and loan association, which became a wholly owned subsidiary of
Westcorp. The activities of Western Thrift & Loan Association and Evergreen
Savings and Loan Association were merged together in 1982, and Evergreen Savings
and Loan Association's name was changed ultimately to Western Financial Bank.
Western Thrift & Loan Association was involved in automobile finance
activities from its incorporation until its merger with Evergreen Savings and
Loan Association. At such time, the automobile finance activities of Western
Thrift & Loan Association were continued by the Bank. In 1988, Westcorp
Financial Services, Inc. was incorporated as a wholly owned consumer finance
subsidiary of the Bank to provide non-prime automobile finance services, a
market not serviced by the Bank's automobile finance division.
In 1995, the Bank transferred its automobile finance division to Westcorp
Financial Services and changed its name to WFS Financial Inc. In connection with
that acquisition, the Bank transferred to WFS all assets relating to its
automobile finance division, including the contracts held on balance sheet and
all interests of the Bank in the excess spread payable from outstanding
securitization transactions. The Bank also transferred all of the outstanding
stock of WFS Financial Auto Loans, Inc., ("WFAL"), and WFS Financial Auto Loans
2, Inc., ("WFAL2"), the securitization entities of the Bank, thereby making
these companies subsidiaries of WFS. In 1995, WFS sold approximately 20% of its
shares in a public offering.
On February 15, 2000, WFS completed a follow-on offering of 2,350,000
shares of common stock at a price of $15.00 per share. On March 14, 2000,
underwriters for the follow-on offering exercised their over allotment option to
purchase 300,000 additional shares bringing total net proceeds raised by WFS to
approximately $37.9 million. The Bank purchased 1,000,000 shares of the total
2,650,000 shares issued by WFS. The primary purpose of the offering was to
provide WFS with additional capital to fund growth, to increase the amount of
contracts which can be acquired and held prior to sale in the asset-backed
securities market, and to provide working capital for general corporate
purposes. After the follow-on offering, the Bank owns approximately 82% of WFS'
shares.
The Bank is subject to examination and comprehensive regulation by the
Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance
Corporation ("FDIC"). It is further subject to certain regulations of the Board
of Governors of the Federal Reserve System which governs reserves required to be
maintained against deposits and other matters. The Bank is also a member of the
FHLB of San Francisco, one of twelve regional banks for federally insured
savings and loan
3
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associations and banks comprising the FHLB System. The FHLB System is under the
supervision of the Federal Housing Finance Board. WFS and certain other
subsidiaries of the Bank are further regulated in part by various departments or
commissions of the states in which they do business. Federal statutes and
regulations primarily define the types of loans that the Bank and its subsidiary
may originate.
MARKET AND COMPETITION
We believe that the automobile finance industry is the second largest
consumer finance industry in the United States with over $635 billion of loan
and lease originations during 1999. The industry is generally segmented
according to the type of car sold, new versus used, and the credit
characteristics of the borrower, prime, non-prime or sub-prime. Based upon
industry data, we believe that during 1999, prime, non-prime and sub-prime loan
originations in the United States were $341 billion, $105 billion and $86
billion, respectively. The U.S. captive automobile finance companies, General
Motors Acceptance Corporation, Ford Motor Credit Company and Chrysler Credit
Corporation account for up to approximately 30% of the automobile finance
market. We believe that the balance of the market is highly fragmented and that
no other market participant has greater than a 1% market share. Other market
participants include the captive automobile finance companies of other
manufacturers, banks, credit unions, independent automobile finance companies
and other financial institutions.
Our dealer servicing and underwriting capabilities enable us to compete
effectively in the automobile finance market. Our ability to compete
successfully depends largely upon our strong personal relationships with dealers
and their willingness to offer to us those contracts that meet our underwriting
criteria. Our relationship is fostered by the promptness with which we process
and fund contracts as well as the flexibility and scope of the programs we
offer. We purchase the full spectrum of prime and non-prime contracts secured by
both new and used vehicles.
The competition for contracts available within the prime and non-prime
credit quality contract spectrum is more intense when the rate of automobile
sales declines. Although we have experienced consistent growth for many years,
we can give no assurance that we will continue to do so. Several of our
competitors have greater financial resources than we have and may have a
significantly lower cost of funds. Many of these competitors also have
longstanding relationships with automobile dealers and may offer dealers or
their customers other forms of financing or services not provided by us. The
finance company that provides floor planning for the dealer's inventory is also
ordinarily one of the dealer's primary sources of financings for automobile
sales. We do not currently provide financing on dealers' inventories. We must
also compete with dealer interest rate subsidy programs offered by the captive
automobile finance companies. However, frequently those programs are limited to
certain models or to certain loan terms which may not be attractive to many new
automobile purchasers. Also, these programs are rarely offered on used vehicles.
Competition in the retail banking business comes primarily from commercial
banks, credit unions, savings and loan associations, mutual funds, and from the
corporate and government securities markets. Many of the nation's largest
savings and loan associations and other depository institutions are
headquartered or have branches in California. We compete for deposits primarily
on the basis of interest rates paid and the quality of service provided to our
customers. We do not rely on any individual, group or entity for a material
portion of our deposits.
Competition in the commercial banking business comes primarily from other
commercial banks that maintain a presence in Southern California. In general,
many commercial banks are more sizable institutions with larger lending
capacities and depository services. We have differentiated ourselves by
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providing high quality service, local relationship management, prompt credit
decisions, and competitive rates on both loans and depository products.
OUR BUSINESS STRATEGY
Our business objective is to maximize long-term profitability by
efficiently purchasing and servicing prime and non-prime credit quality
automobile contracts that generate strong and consistent risk-adjusted returns.
We believe we will be able to achieve this objective by employing our business
strategies:
- produce measured growth in automobile contract originations;
- leverage technology to improve our business;
- effectively price automobile contracts relative to risk; and
- utilize the diverse funding sources of the Bank.
PRODUCE MEASURED GROWTH IN AUTOMOBILE CONTRACT ORIGINATIONS
Over the past five years, we have experienced a compounded annual growth
rate in automobile contract purchases in excess of 26%.
We provide a high degree of personalized service to our dealership base by
marketing, underwriting and purchasing contracts on a local level. Our focus is
to provide each dealer superior service by providing a single source of contact
to meet the dealer's prime and non-prime financing needs. We believe that the
level of our service surpasses that of our competitors by making our business
development representatives available any time a dealer is open, making prompt
credit decisions, negotiating credit decisions within available programs by
providing structural alternatives and funding promptly.
Growth of originations will be primarily through increased dealer
penetration. We intend to increase contract purchases from our current dealer
base as well as develop new dealer relationships. Prior to 1995, we originated
contracts in seven, primarily western states. Subsequently, we increased our
geographic penetration to 36 additional states. Although our presence is well
established throughout the country, we believe that we still have opportunities
to build market share, especially in those states which we entered since 1994.
In addition, we have improved our dealer education and delivery systems in order
to increase the ratio of contracts purchased to the amount of applications
reviewed from a dealer, thereby improving the efficiency of our dealer
relationships. We are also seeking to increase contract purchases through new
dealer programs targeting high volume, multiple location dealers. These programs
focus on creating relationships with dealers to achieve higher contract
originations and improved efficiencies. We also originate loans directly from
consumers on a limited basis. Additionally, we continue to explore other
distribution channels including the Internet and are piloting different
dealer-centric approaches to determine the most effective Internet strategies.
LEVERAGE TECHNOLOGY TO IMPROVE OUR BUSINESS
We are focused on leveraging technology to improve all aspects of our
business. Over the past three years, we have implemented technology and
streamlined operations to improve credit quality, enhance and manage growth and
improve operating efficiency. We plan to realize additional benefits with
ongoing investments in the future.
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Key technological initiatives implemented to date include our:
- new automated front-end origination system which calculates borrower
ratios, maintains lending parameters and approval limits, accepts
electronic applications and directs applications to the appropriate
credit analyst, all of which have reduced the cost of receiving,
underwriting and funding automobile contracts;
- custom designed proprietary scoring models that rank in order the risk of
loss occurring on a particular automobile contract;
- new collection system platform utilizing new hardware and software to
improve our ability to queue according to the level of risk, monitor
collector performance and track delinquent automobile accounts;
- centralized and upgraded borrower services department which includes
remittance processing, interactive voice response technology and direct
debit services; and
- centralized imaging system that provides for the electronic retention and
retrieval of account records.
We are currently developing behavioral scoring models to enhance both the
efficiency and effectiveness of our collection processes. We are also developing
a second generation data warehouse to enhance our ability to maximize our
profitability by dealer, and we are developing an on-line, Internet-based credit
application to further enhance our growth.
EFFECTIVELY PRICE AUTOMOBILE CONTRACTS RELATIVE TO RISK
Quality underwriting and servicing are essential to effectively assess and
price for risk and to maximize risk-adjusted returns. We rely on a combination
of credit scoring models, system controlled underwriting policies and the
judgment of our trained credit analysts to make risk-based credit decisions. We
use credit scoring to differentiate applicants and to rank order credit risk in
terms of expected default probability. Based upon this statistical assessment of
credit risk, the underwriter is able to appropriately tailor contract pricing
and structure.
To achieve the return anticipated at origination, we have developed a
disciplined servicing process for the early identification and cure of
delinquent contracts and for loss mitigation. In addition, we provide credit and
profitability incentives to our associates to make decisions consistent with our
underwriting policies by offering bonuses based both on individual and
office-wide performance.
UTILIZE THE DIVERSE FUNDING SOURCES OF THE BANK
The Bank provides diverse, low-cost funds through its retail and commercial
banking divisions as well as its ability to obtain advances from the FHLB, sell
securities under agreements to repurchase and to utilize other borrowing
sources. These significant and diverse sources of funds provide liquidity at a
low cost to fund our automobile contract purchases and allow us to
opportunistically enter the automobile asset-backed securities market.
OUR ADDRESS
Our principal executive office and mailing address is 23 Pasteur, Irvine,
California 92618-3816, and our telephone number is (949) 727-1002. Our website
address is http://www.westcorpinc.com. The information contained in our website
does not constitute part of this prospectus.
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THE OFFERING
The Offering............... We are offering to sell 5,319,469 shares of our
common stock upon the exercise of subscription
rights.
Record Date................ May 25, 2000.
Subscription price......... $10.50 per share.
Basic Subscription Right... We are granting each person who was a record holder
of our common stock on the Record Date one right
for each share of common stock held on that date.
To exercise the Basic Subscription Right, you must
deliver 5.0 rights for each share of common stock
you subscribe for. There is no minimum amount of
shares you must purchase using your Basic
Subscription Rights, but you may not purchase
fractional shares. You will receive a Subscription
Warrant evidencing your subscription rights.
When determining the number of shares we will
issue, divide the number of subscription rights you
own, whether distributed to you by us or otherwise
acquired by you, by 5.0 and round down to the
nearest whole number. For example, if you own 118
subscription rights, you may subscribe for 23
shares (118 subscription rights / 5.0 = 23.6,
rounded down to 23 shares, the nearest whole
number).
Oversubscription Right..... If you fully exercise your Basic Subscription
Rights by subscribing for the maximum number of
whole shares you may purchase based upon the number
of Basic Subscription Rights you own, and other
shareholders do not fully exercise their Basic
Subscription Rights, you may elect to purchase
additional shares of common stock. We cannot assure
you that any additional shares of common stock will
be available for purchase. Any amounts tendered by
you not used to purchase additional shares will be
promptly refunded to you, without interest.
If shares of common stock are available for
purchase pursuant to the Oversubscription Rights,
but the number of shares is not sufficient to
satisfy in full all oversubscriptions received by
us, the number of shares available will be
allocated on a pro rata basis based upon the number
of Basic Subscription Rights exercised by each
person seeking to oversubscribe as of the
Expiration Date of the offering.
Expiration Date............ The rights will expire on June 15, 2000 at 5:00
p.m., Eastern Daylight Time, unless we decide, in
our sole discretion, to extend the Expiration Date.
Termination................ We may cancel the Offering at any time, in which
case we will return your subscription payment to
you, without interest.
Exercising your rights..... Your rights will be evidenced by a Subscription
Warrant which will be distributed to stockholders
of record on the Record Date. You may exercise your
rights by properly completing and signing the
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<PAGE> 11
Subscription Warrant and returning it, with full
payment for the shares you are subscribing for, to
the Subscription Agent by the Expiration Date. You
may elect to exercise your Basic Subscription
Rights in whole or in part, and if you exercise
your Basic Subscription Rights in full, your
Oversubscription Rights. See "The Rights
Offering--Subscription Payments" for details about
delivery and payment. Rights not exercised by the
Expiration Date will be null and void after the
Expiration Date.
You will receive all shares you subscribe for
pursuant to your Basic Subscription Rights. If your
oversubscription is not completely filled, we will
send you a check for all shares we were unable to
allocate to you. No interest will be paid on
returned subscription funds.
YOUR SUBSCRIPTION IS IRREVOCABLE AFTER YOU SUBMIT
THE SUBSCRIPTION DOCUMENTS.
Transferability of
rights..................... Your subscription rights are transferable and we
expect that they will trade on the New York Stock
Exchange under the symbol "WES Rt" until the close
of business on the last trading day prior to the
Expiration Date. You may request that the
Subscription Agent attempt to sell your rights for
you. The Subscription Agent must receive your
Subscription Warrant by 11:00 a.m., Eastern
Daylight time, on the third trading day before the
Expiration Date if you are seeking to sell your
rights. We can give you no assurance that the
Subscription Agent will be able to sell your rights
or the price at which they will be sold.
Subscription procedures.... You may exercise your Basic Subscription Rights
and, if you elect to do so as well, your
Oversubscription Rights by properly completing and
signing the Subscription Warrant which accompanies
this prospectus. You must then return the completed
and signed Subscription Warrant with full payment
for the total number of shares you are subscribing
for to ChaseMellon Shareholder Services, our
Subscription Agent. Your payment may be by bank
certified check, cashier's check or wire transfer.
Subscription Agent......... ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Ridgefield Park, New Jersey
Attention: Reorganization Department
Information Agent.......... ChaseMellon Shareholder Services, L.L.C.
44 Wall Street
New York, New York 10005
Stock certificates......... Certificates representing shares of common stock
will be delivered to subscribers with respect to
the exercise of Basic Subscription Rights within
two business days after the Expiration Date. We
will deliver certificates representing shares of
common stock allocated with respect to the exercise
of Oversubscription Rights within ten business days
following the Expiration Date.
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<PAGE> 12
Federal income tax
consequences............. Your receipt or exercise of subscription rights
should not be treated as a taxable event for United
States federal income tax purposes. The purchase or
sale of subscription rights may result in a taxable
gain or loss. Please see "Certain Federal Income
Tax Consequences."
Questions.................. If you have any questions about the rights
offering, including questions about subscription
procedures and requests for additional copies of
this prospectus or other documents, please contact
the Information Agent, ChaseMellon Shareholder
Services, at (888) 232-7873.
Risk Factors............... An investment in shares of our common stock
involves a high degree of risk. Please see "Risk
Factors."
Use of proceeds............ The net proceeds of the offering will be used by us
for general corporate purposes and in particular to
finance our growth in automobile contracts
purchased.
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<PAGE> 13
SUMMARY FINANCIAL DATA
The following table presents summary audited financial data for the years
ended December 31, 1999, 1998, 1997, 1996 and 1995. Since the information in
this table is only a summary and does not provide all of the information
contained in our financial statements, including the related notes, you should
read "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements incorporated herein by
reference.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF OPERATIONS
Interest income.................. $ 297,616 $ 272,142 $ 270,532 $ 242,388 $ 222,093
Interest expense................. 152,285 161,331 161,070 139,194 139,279
----------- ----------- ----------- ----------- -----------
Net interest income......... 145,331 110,811 109,462 103,194 82,814
Provision for credit losses...... 38,400 18,960 12,851 13,571 11,470
----------- ----------- ----------- ----------- -----------
Net interest income after
provision for credit
losses.................... 106,931 91,851 96,611 89,623 71,344
Noninterest income............... 210,006 133,438 222,853 187,964 107,951
Noninterest expense(1)........... 218,461 253,532 246,269 210,346 117,724
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes
and extraordinary item......... 98,476 (28,243) 73,195 67,241 61,571
Income tax (benefit)............. 41,460 (11,330) 31,287 28,095 25,235
----------- ----------- ----------- ----------- -----------
Income (loss) before minority
interest....................... 57,016 (16,913) 41,908 39,146 36,336
Minority interest in earnings
(loss) of subsidiaries......... 6,522 (2,216) 5,120 7,349 2,908
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item............. 50,494 (14,697) 36,788 31,797 33,428
Extraordinary gain from early
extinguishment of debt (net of
income tax of $1,546).......... 2,132
----------- ----------- ----------- ----------- -----------
Net income (loss)................ $ 52,626 $ (14,697) $ 36,788 $ 31,797 $ 33,428
=========== =========== =========== =========== ===========
OTHER SELECTED FINANCIAL DATA
Book value per share(2).......... $ 13.26 $ 12.43 $ 13.27 $ 12.23 $ 11.54
Weighted average number of shares
and common share
equivalents--diluted........... 26,505,128 26,305,117 26,351,144 26,199,537 25,917,018
Income (loss) before
extraordinary item............. $ 1.91 $ (0.56) $ 1.40 $ 1.21 $ 1.29
Extraordinary item............... 0.08
----------- ----------- ----------- ----------- -----------
Net income (loss) per share--
diluted(2)..................... $ 1.99 $ (0.56) $ 1.40 $ 1.21 $ 1.29
=========== =========== =========== =========== ===========
Dividends per share(2)........... $ 0.20 $ 0.25 $ 0.40 $ 0.39 $ 0.34
Dividend payout ratio............ 12.6% N/A 28.6% 32.2% 26.4%
</TABLE>
- ------------------------------
(1) Includes $18.0 million in restructuring charges in 1998.
(2) Reflects 5% stock dividends in 1995 and 1996.
10
<PAGE> 14
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF FINANCIAL CONDITION
Assets:
Cash and other assets............... $ 722,496 $ 734,213 $ 707,362 $ 515,161 $ 331,604
Loans:
Consumer(1)...................... 1,516,395 932,962 294,101 290,501 343,027
Mortgage(2)...................... 598,088 1,006,937 1,536,942 1,433,050 1,404,190
Commercial(2).................... 67,141 52,934 37,375 7,661
Mortgage-backed securities.......... 1,431,376 980,044 941,448 849,548 852,552
Investments and time deposits....... 163,278 125,730 248,815 239,124 291,564
---------- ---------- ---------- ---------- ----------
Total assets................... $4,498,774 $3,832,820 $3,766,043 $3,335,045 $3,222,937
========== ========== ========== ========== ==========
Liabilities:
Deposits............................ $2,212,309 $2,178,735 $2,000,896 $1,873,942 $1,753,475
FHLB advances and other
borrowings....................... 960,005 440,924 563,922 569,357 655,100
Amounts held on behalf of trustee... 687,274 528,092 488,653 393,449 341,693
Other liabilities................... 59,140 94,311 95,088 47,058 48,605
---------- ---------- ---------- ---------- ----------
Total liabilities.............. 3,918,728 3,242,062 3,148,559 2,883,806 2,798,873
Subordinated debentures............. 199,298 239,856 239,195 104,917 104,360
Minority interest in equity of
subsidiaries..................... 28,030 21,857 29,538 28,392 21,965
Shareholders' equity................ 352,718 329,045 348,751 317,930 297,739
---------- ---------- ---------- ---------- ----------
Total liabilities and
shareholders' equity........ $4,498,774 $3,832,820 $3,766,043 $3,335,045 $3,222,937
========== ========== ========== ========== ==========
OTHER SELECTED FINANCIAL DATA
Average assets........................ $3,952,360 $3,859,202 $3,682,781 $3,233,713 $2,837,292
Return on average assets.............. 1.33% (0.38)% 1.00% 0.98% 1.18%
Average shareholders' equity.......... $ 341,179 $ 329,250 $ 329,250 $ 308,305 $ 213,311
Return on average shareholders'
equity.............................. 15.42% (4.46)% 11.17% 10.31% 13.51%
Equity to assets ratio................ 7.84% 8.58% 9.26% 9.53% 9.24%
Originations:
Consumer loans................... $3,355,732 $2,680,341 $2,337,359 $2,157,556 $1,556,296
Mortgage loans................... 276,936 2,754,398 2,331,506 1,259,716 491,274
Commercial loans................. 237,316 124,259 71,399 8,632
---------- ---------- ---------- ---------- ----------
Total originations............. $3,869,984 $5,558,998 $4,740,264 $3,425,904 $2,047,570
========== ========== ========== ========== ==========
Interest rate spread.................. 3.61% 2.89% 2.65% 2.86% 2.44%
</TABLE>
- ------------------------------
(1) Net of unearned discounts.
(2) Net of undisbursed loan proceeds.
11
<PAGE> 15
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock. Our business, operating
results and financial condition could be adversely affected by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you could lose all or part of your investment. You should
also refer to the other information set forth in this prospectus, including our
consolidated financial statements and the related notes incorporated herein by
reference.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. These statements may be identified by the use of words such
as "expects," "anticipates," "intends," and "plans" and similar expressions. Our
actual results could differ materially from those discussed in these statements.
Factors that could contribute to such differences include, but are not limited
to, those discussed below and elsewhere in this prospectus.
RISK RELATED TO THE OFFERING
IF YOU DO NOT EXERCISE YOUR FULL BASIC SUBSCRIPTION RIGHTS, YOUR PERCENTAGE
OWNERSHIP AND VOTING RIGHTS OF WESTCORP WILL DECREASE.
If you choose not to exercise your Basic Subscription Rights in full, your
relative ownership interest in Westcorp will be diluted to the extent others
exercise their subscription rights. Your voting rights and percentage interest
in any of Westcorp's net earnings may also be diluted if you do not exercise
your rights. We are unable to determine the number of shares, if any, that will
be sold in the offering.
THE OFFERING PRICE WAS DETERMINED BY OUR BOARD OF DIRECTORS AND BEARS NO
RELATIONSHIP TO THE VALUE OF OUR ASSETS, FINANCIAL CONDITION OR OTHER
ESTABLISHED CRITERIA FOR VALUE. OUR COMMON STOCK MAY TRADE AT PRICES ABOVE OR
BELOW THIS PRICE.
Our Board of Directors determined the offering price after considering a
number of factors including:
- current market price of our stock;
- book value of our stock;
- past operations;
- cash flows;
- earnings;
- our overall financial condition; and
- our future prospects.
The Board of Directors did not assign weighting to any one factor in
setting the offering price. After the date of this prospectus, our common stock
may trade at prices above or below the offering price.
12
<PAGE> 16
YOU MAY NOT REVOKE YOUR SUBSCRIPTION EXERCISE AND COULD BE COMMITTED TO BUY
SHARES ABOVE THE PREVAILING MARKET PRICE.
The public trading market price of our common stock may decline before the
subscription rights expire. If you exercise your subscription rights and,
afterwards, the public trading market price of our common stock decreases below
$10.50, then you will have committed to buy shares of common stock at a price
above the prevailing market price. Once you have exercised you subscription
rights, you may not revoke your exercise unless we amend the offering. Moreover,
you may be unable to sell your shares of common stock at a price equal to or
greater than the offering price.
BECAUSE WE MAY TERMINATE THE OFFERING AT ANY TIME, YOUR PARTICIPATION IN THE
OFFERING IS NOT ASSURED.
Once you exercise your subscription rights, you may not revoke the exercise
for any reason unless we amend the offering. We may terminate the offering at
any time. If we decide to terminate the offering, we will not have any
obligation with respect to the subscription rights except to return, without
interest, any subscription payments.
RISKS RELATED TO US
THE OWNERSHIP OF OUR COMMON STOCK IS CONCENTRATED, WHICH MAY RESULT IN CONFLICTS
OF INTEREST AND ACTIONS THAT ARE NOT IN THE BEST INTERESTS OF OTHER
STOCKHOLDERS.
Ernest S. Rady is the founder, the Chairman of the Board of Directors and
the Chief Executive Officer of Westcorp. Mr. Rady is also the Chairman of the
Board of Directors of the Bank and WFS. Mr. Rady is the beneficial owner of
approximately 66% of the outstanding shares of common stock of Westcorp and will
be able to exercise significant control over our company. In addition, Mr. Rady
has advised us that he intends to exercise the Basic Subscription Rights
controlled by him in full and will also oversubscribe. The exact number of
shares he and the entities he controls will be able to purchase pursuant to
Oversubscription Rights cannot be determined at this time.
Accordingly, the common stock ownership of Mr. Rady will enable him to
elect all of our directors and effectively control the vote on all matters
submitted to a vote of our stockholders, including mergers, sales of all or
substantially all of our assets and "going private" transactions. Because of the
significant block of common stock controlled by Mr. Rady, decisions may be made
that, while in the best interest of Mr. Rady, may not be in the best interest of
other stockholders.
THE AVAILABILITY OF OUR FINANCING SOURCES MAY DEPEND ON FACTORS OUTSIDE OF OUR
CONTROL.
We depend on a significant amount of financing to operate our business. We
employ a business strategy to utilize diverse funding sources to fund our
operations. These sources include raising both short-term and long-term deposits
from the general public, commercial enterprise and institution by offering a
variety of accounts and rates through our retail and commercial banking
operations. In addition, we raise funds though the collection of principal and
interest from loans, automobile asset-backed securities, commercial paper,
advances from the FHLB, repurchase agreements, subordinated debentures and other
borrowings. The sources used vary depending on such factors as rates paid,
maturities, and the impact on capital. In addition, the Bank, as a member of the
FHLB, is required to maintain a specified ratio of cash, short-term United
States government and other qualifying securities to net withdrawable accounts
and borrowings payable in a year or less. The required liquidity ratio is
currently 4%.
13
<PAGE> 17
The availability of these financing sources may depend on factors outside
of our control, including regulatory issues such as the capital requirements of
the Bank, debt ratings, competition, a market for automobile asset-backed
securities and our ability to receive financings from other financial
institutions. If we were unable to raise the necessary financing to run our
business, we would have to curtail our loan origination activities, which would
have a material adverse effect on our financial position, liquidity and results
of operations.
WE MAY NOT BE ABLE TO GENERATE SUFFICIENT OPERATING CASH FLOWS TO RUN OUR
BUSINESS.
Our business requires substantial operating cash flows. Operating cash
requirements include amounts paid to dealers for acquisition of automobile
contracts, expenses incurred in connection with the securitization of automobile
contracts, capital expenditures for new technologies and ongoing operating
costs. Our primary source of operating cash comes from the excess cash flows
received from securitization trusts and loans held on the balance sheet. The
timing and amount of excess cash flow from loans varies based on a number of
factors, including but not limited to:
- the rates of loan delinquencies, defaults and net losses;
- how quickly and at what price repossessed vehicles can be resold or real
estate can be foreclosed and sold;
- ages of the loans in the portfolio; and
- levels of voluntary prepayments.
Any adverse change in these factors could reduce or eliminate excess cash flows
to us. Although we currently have positive operating cash flows, we cannot
assure you that we will continue to generate positive cash flows in the future
which could have a material adverse effect on our financial position, liquidity
and results of operations.
CHANGES IN OUR SECURITIZATION PROGRAM COULD ADVERSELY AFFECT OUR LIQUIDITY AND
EARNINGS.
Our business depends on our ability to aggregate and sell automobile
contracts in the form of publicly offered asset-backed securities. These sales
generate cash proceeds that allow us to repay amounts borrowed and to purchase
additional contracts. In addition, the sale of contracts to a securitization
trust in preparation for securitization, may create an accounting gain on sale
that forms a material part of our reported earnings for each quarter. Changes in
our asset-backed securities program could materially adversely affect our
earnings or ability to purchase and resell automobile contracts on a timely
basis. Such changes could include a:
- change in the securitization structure which results in gain on sale not
being recognized;
- delay in the completion of a planned securitization;
- negative market perception of us; and
- failure of the contracts we intend to sell to conform to insurance
company and rating agency requirements.
If we are unable to use a securitization program, we may have to curtail
our automobile contract purchasing activities, which would have a material
adverse effect on our financial position, liquidity and results of operations
and may cause our market price to drop.
14
<PAGE> 18
WE DEPEND ON OUR CREDIT ENHANCEMENTS TO MAINTAIN FAVORABLE INTEREST RATES AND
CASH REQUIREMENTS FOR OUR AUTOMOBILE ASSET-BACKED SECURITIZATION TRANSACTIONS.
To date, all of our automobile asset-backed securitization transactions
have used credit enhancement in the form of financial guaranty insurance
policies issued by Financial Security Assurance Inc. ("FSA"). These insurance
policies are currently one of the most effective and least capital intensive
forms of credit enhancement. We use this credit enhancement to achieve "AAA/
Aaa" ratings on our securitizations, which reduces the overall costs of a
transaction relative to alternative forms of financing available to us. FSA is
not required to insure our securitizations and we cannot assure you that it will
continue to do so or that our future securitizations will be similarly rated.
Likewise, we are not required to use financial guaranty insurance policies
issued by FSA or any other form of credit enhancement in connection with our
securitizations. A downgrading of FSA's credit rating, FSA's withdrawal of
credit enhancement or the lack of availability of reinsurance or other
alternative credit enhancements could result in higher interest costs for our
future securitizations and/or larger initial cash deposit requirements if we are
unable to obtain similar policies on similar terms. These events could have a
material adverse effect on our financial position, liquidity and results of
operations.
IF WE LOSE OUR REINVESTMENT CONTRACT RELATIONSHIP OR IF OUR REINVESTMENT
CONTRACTS ARE NO LONGER DEEMED ELIGIBLE INVESTMENTS, WE MAY NOT BE ABLE TO
OBTAIN COMPARABLE FINANCING.
We have access to the cash flows of the automobile contracts sold to the
securitization trust in each of the outstanding securitization transactions,
including the cash held in each spread account, through a series of agreements
into which, the Bank, WFS, and WFAL2, and other parties have entered. We are
permitted to use that cash as we determine, including in the ordinary business
activities of originating contracts.
In each securitization transaction, the securitization agreements require
that all cash flows of the relevant trust and the associated spread accounts be
invested in an eligible investment. The Bank and WFAL2 have entered into a
reinvestment contract in connection with each securitization transaction, which
is deemed to be an eligible investment under the relevant securitization
agreements.
A limited portion of the funds invested in reinvestment contracts may be
used by WFAL2 and the balance may be used by the Bank. The Bank makes its
portion of the invested funds available to WFS through a reinvestment contract.
Under the reinvestment contract with WFS and the Bank, WFS receives access to
all of the cash available to the Bank under each trust reinvestment contract.
WFS is obligated to repay to the Bank an amount equal to the cash it used, when
needed by the Bank, to meet its obligations under the individual trust
reinvestment contracts. With the portion of the cash available to WFAL2 under
the individual trust reinvestment contracts, WFAL2 purchases contracts from WFS
according to the terms of sale and servicing agreements entered into with WFS.
If the reinvestment contracts were no longer deemed an eligible investment,
which determination could be made by either of the securitization rating
agencies or FSA in their sole discretion, we would no longer have the ability to
use this cash in the ordinary course of business and would need to obtain
alternative financing, which may only be available on less attractive terms. If
we were unable to obtain additional financing, we may have to curtail our
contract purchasing activities, which would also have a material adverse effect
on our financial position, liquidity and results of operations.
PREPAYMENTS AND LOSSES MAY HAVE A MATERIAL EFFECT ON THE VALUE OF OUR RETAINED
INTEREST IN SECURITIZED ASSETS.
We may sell automobile contracts to a grantor or owner trust in a manner
which requires that we account for the transaction as a sale. This gain on sale
is not an actual amount of cash received,
15
<PAGE> 19
but rather an asset which represents the expected future earnings we will
receive based upon the amount of interest we expect to receive from our
borrowers less the interest we expect to pay our investors in the
securitization. The benefit of this difference is then reduced by the servicing
and guarantor fees we must pay as well as the prepayment and credit losses
expected to occur on the contracts in the trust. We make assumptions about
prepayment rates and credit losses based upon our historical experience and
other factors. The resulting gain on sale asset is called retained interest in
securitized assets, or RISA. The RISA is amortized on a monthly basis over the
life of the securitization. We reevaluate the assumptions we use to calculate
the RISA every quarter. We adjust those assumptions and the RISA to the extent
our actual experience with the performance of the contracts in a securitization
trusts deviates from the experience we initially anticipated. If actual
prepayment and credit loss rates are higher than the assumptions we initially
used, we must write-down the value of the RISA. If the write-down is large
enough, it will have a material adverse effect on our earnings and capital.
A LOSS OF CONTRACTUAL SERVICING RIGHTS COULD HAVE A MATERIAL EFFECT ON OUR
BUSINESS.
As servicer of all our securitized automobile contracts, we are entitled to
receive contractual servicing fees. Contractual servicing fees are earned at
rates ranging from 1.0% to 1.25% per annum on the outstanding balance of
contracts securitized. FSA, as guarantor, can terminate our right to act as
servicer upon the occurrence of events defined in the pooling and servicing
agreements for securitized contracts such as our bankruptcy or material breach
of warranties or covenants. Any loss of such servicing rights could have a
material adverse effect on our financial position, liquidity and results of
operations.
WE EXPECT OUR OPERATING RESULTS TO CONTINUE TO FLUCTUATE WHICH MAY ADVERSELY
IMPACT OUR BUSINESS AND OUR STOCKHOLDERS.
Our results of operations have fluctuated in the past and are expected to
fluctuate in the future principally as a result of the timing, size, pricing and
structure of our automobile asset-backed securitization transactions. Other
factors that could affect our quarterly earnings include but are not limited to:
- variations in the volume of loans originated, which historically tends to
be lower in the first and fourth quarters of the year;
- interest rate spreads;
- the effectiveness of our hedging strategies;
- credit losses, which historically tend to be higher in the first and
fourth quarters of the year;
- operating costs; and
- whether a automobile asset-backed securitization transaction is treated
as a sale or a financing.
FAILURE TO IMPLEMENT OUR BUSINESS STRATEGY COULD ADVERSELY AFFECT OUR
OPERATIONS.
Our financial position and results of operations depend on our ability to
execute our business strategy, which includes the following key elements:
- producing measured growth in contract originations;
- leveraging technology to improve our business;
16
<PAGE> 20
- effectively pricing contracts relative to risk; and
- utilize the diverse funding sources of the Bank.
Our failure or inability to execute any element of our business strategy could
materially adversely affect our financial position, liquidity and results of
operations.
WE HAVE BROAD DISCRETION IN HOW WE USE THE PROCEEDS FROM THIS OFFERING AND MAY
USE THEM IN WAYS WITH WHICH YOU DISAGREE.
We have not allocated specific amounts of the net proceeds to any
particular growth plans. Accordingly, our management will have significant
flexibility in applying the net proceeds of this offering. The failure of
management to use such funds effectively could have a material adverse effect on
our financial position, liquidity and results of operations.
RISKS RELATED TO FACTORS OUTSIDE OUR CONTROL
INTEREST RATE FLUCTUATIONS CAN HARM OUR PROFITABILITY.
Our profitability is largely determined by the difference between the
effective rate of interest earned on loans and MBS purchased by us and the
interest paid on our deposits and other funding sources as well as the interest
rate paid on notes and certificates issued in automobile asset-backed
securitization transactions. Several factors affect our ability to manage
interest rate risk. Our interest bearing assets may have different maturity and
repricing characteristics than our interest bearing liabilities. To protect
against changes in interest rates, we utilize various financial instruments to
hedge our portfolios. We cannot assure you, however, that our hedging strategy
will consistently or completely offset adverse changes in interest rates or that
we will not sustain losses on hedging transactions. In addition, in a rising
interest rate environment we may not be able to increase rates charged to our
borrowers fast enough to compensate for an increase in the interest rates we
pay.
ECONOMIC SLOWDOWNS OR RECESSIONS MAY AFFECT OUR BUSINESS.
Periods of economic slowdown or recession, whether general, regional or
industry-related, may increase the default probability on our loan portfolios.
These periods may also be accompanied by decreased demand for the products we
offer and could reduce business for us. Decreased consumer demand for our loan
products may also contributes to a decline in the value of assets securing such
products, which weakens collateral coverage and increases the possibility of
losses in the event of a default. We cannot assure you that we could remain
profitable under any such conditions or that such conditions will not result in
such severe reductions in the cash flows available to us to permit us to remain
current on our current financings.
ADVERSE CHANGES IN USED CAR PRICES MAY HARM OUR BUSINESS.
Significant increases in the inventory of used automobiles may depress the
prices at which we can sell our inventory of repossessed vehicles or may delay
sales. Factors that may affect the level of used car inventory include consumer
preferences, leasing programs offered by captive finance companies and
seasonality. In addition, average used car prices have fluctuated in the past,
and any softening in the future of the used car market could cause our recovery
rate on repossessed vehicles to decline below current levels. Lower recovery
rates would increase the level of credit losses incurred by us that would, in
turn, lower the amount of cash flows received.
17
<PAGE> 21
WE MAY BE UNABLE TO SUCCESSFULLY COMPETE IN OUR INDUSTRY.
The auto finance business is highly competitive. We compete with captive
auto finance companies owned by major automobile manufacturers, banks, credit
unions, savings associations and independent consumer finance companies that
conduct business in the geographic regions in which we operate. Many of these
competitors have greater financial and marketing resources than us.
Additionally, on occasion the captive finance companies provide financing on
terms significantly more favorable to auto purchasers than we can offer. For
example, the captive finance companies can offer special low interest loan
programs as incentives to purchasers of selected models of automobiles
manufactured by their respective parent manufacturers.
Many of our competitors also have long standing relationships with
automobile dealers and may offer dealers or their customers other forms of
financing, including dealer floor plan financing and leasing, which we do not
provide. Providers of automobile financing have traditionally competed on the
basis of interest rate charged, the quality of credit accepted, the flexibility
of loan terms offered and the quality of service provided to dealers and
customers. In seeking to establish ourself as one of the principal financing
sources of the dealers we serve, we compete predominately on the basis of our
high level of dealer service and strong dealer relationships and by offering
flexible loan terms.
Competition in the retail banking business comes primarily from commercial
banks, credit unions, savings and loan associations, mutual funds, and corporate
and government securities. Many of the nation's largest savings and loan
associations and other depository institutions are headquartered or have
branches in California. We compete for deposits primarily on the basis of
interest rates paid and the quality of service provided to our customers. We do
not rely on any individual, group or entity for a material portion of our
deposits.
Competition in the commercial banking business comes primarily from other
commercial banks that maintain a presence in southern California. In general,
many commercial banks are more sizable institutions with larger lending
capacities and depository services. We have differentiated ourselves by
providing high quality service, local relationship management, prompt credit
decisions, and competitive rates on both loans and depository products. We
cannot assure you that we will be able to compete successfully in these markets
or against these competitors.
LEGAL AND REGULATORY REQUIREMENTS MAY RESTRICT OUR ABILITY TO DO BUSINESS.
The Bank is subject to inspection and regulation by the Office of Thrift
Supervision, the primary federal banking agency responsible for the supervision
and regulation of the Bank. The most significant impact of such regulation and
supervision is that absent approval by the OTS, we are precluded from holding,
on balance sheet, consumer loans, including contracts, in an aggregate principal
balance in excess of 30% of the total consolidated assets of the Bank. The
limitation is increased to 35% of the Bank's consolidated assets if all of the
consumer loans in excess of the 30% limit are obtained by us or the Bank and its
other subsidiaries directly from consumers. Our securitization activities,
however, enable us to remove contracts that are securitized from the Bank's
balance sheet for regulatory purposes. As a result, those securitized contracts
are not included in the calculation of the percentage of the Bank's consolidated
assets subject to either the 30% or 35% limitation on consumer loans.
We are also subject to numerous federal and state consumer protection laws
and regulations, which, among other things may affect:
- the interest rates, fees and other charges which we may impose;
- the terms and conditions of the loans;
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<PAGE> 22
- the disclosures which must be made to obligors; and
- the collection, repossession and foreclosure rights with respect to
delinquent obligors.
The extent and nature of such laws and regulations vary from state to
state. We believe that we are in compliance in all material respects with all
such applicable laws. Prospective changes in such laws or the enactment of new
laws may have an adverse effect on our business or the results of our
operations.
ADVERSE OUTCOMES OF LITIGATION AGAINST US COULD HAVE A MATERIAL EFFECT UPON OUR
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.
We are involved in and will likely continue to be a party to litigation. As
a result of the consumer-oriented nature of the industry in which we operate and
uncertainties with respect to the application of various laws and regulations in
some circumstances, industry participants are named from time to time as
defendants in litigation, including class action suits, involving alleged
violations of federal and state consumer lending or other similar laws and
regulations. A significant judgment against us in connection with any litigation
could have a material adverse effect on our financial condition and results of
operations. In addition, a decision that a material number of contracts
purchased by us involved violations of applicable lending laws by automobile
dealers could materially adversely affect our financial condition and results of
operations.
WE EXPECT OUR STOCK PRICE TO CONTINUE TO FLUCTUATE.
The market price of our common stock has fluctuated in the past and is
likely to fluctuate in the future. In addition, the securities markets have
experienced significant price and volume fluctuations and the market prices of
the securities of finance-related companies including automobile finance
companies, have been especially volatile. Such fluctuations can result from:
- quarterly variations in operating results;
- changes in analysts' estimates;
- short-selling of our common stock;
- events affecting other companies that investors deem to be comparable to
us;
- fluctuations in interest rates;
- factors which have the effect of increasing, or which investors believe
may have the effect of increasing, our cost of funds; or
- general economic trends and conditions.
Investors may be unable to resell their shares of our common stock at or
above the offering price. In the past, companies that have experienced
volatility in the market price of their stock have been subject to securities
class action litigation.
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<PAGE> 23
USE OF PROCEEDS
We expect to receive net proceeds from the sale of 5,319,469 shares of
common stock offered by us pursuant to this rights offering of approximately
$55.7 million, assuming that all shares offered are purchased, after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses payable by us based upon the offering price of $10.50 per share. The
purpose of the offering is to provide us with additional capital for general
corporate purposes and in particular to fund our growth, including increasing
the amount of automobile contracts we can acquire and hold prior to a sale or
financing transaction in the asset-backed securities market.
DIVIDEND POLICY
We paid cash dividends of $0.20, $0.25 and $0.40 per share for the years
ended December 31, 1999, 1998 and 1997, respectively. On December 17, 1999, we
declared a cash dividend of $0.05 per share for shareholders of record as of
January 14, 2000, which dividend was paid on January 28, 2000. On February 15,
2000, we declared a cash dividend of $0.05 per share for shareholders of record
as of April 27, 2000, with a payable date of May 11, 2000. On May 2, 2000, we
declared a cash dividend of $0.10 per share for shareholders of record as of
July 3, 2000, with a payable date of July 17, 2000. We cannot assure you that
our dividend policy will not change in the future.
THE OFFERING
THE RIGHTS
We are offering our stockholders the right to subscribe for and purchase
5,319,469 shares of common stock at $10.50 per share. Only those stockholders
who own common stock on the Record Date will receive subscription rights
directly from us to purchase stock in the rights offering. The subscription
rights are transferable and any person who acquires subscription rights before
the Expiration Date may exercise these subscription rights. You are a record
holder for this purpose only if your name is registered as a stockholder with
our transfer agent, ChaseMellon Shareholder Services, L.L.C., as of the Record
Date.
We are distributing to each person who was a record holder of our common
stock on the Record Date one right for each share of common stock held on that
date. You must deliver 5.0 rights for each share of common stock for which you
subscribe. There is no minimum amount of shares you must purchase using your
Basic Subscription Rights, but you may not purchase fractional shares. We are
distributing a Subscription Warrant evidencing your subscription rights with
this prospectus to stockholders of record as of the Record Date. If you execute
a Subscription Warrant you agree that your exercise of the rights will be on the
terms and subject to the conditions specified in this prospectus.
When determining the number of shares we will issue to you, divide the
number of subscription rights you own, whether distributed to you by us or
otherwise acquired by you, by 5.0 and round down to the nearest whole number.
For example, if you own 118 subscription rights, you may subscribe for 23 shares
(118 subscription rights / 5.0 = 23.6, rounded down to 23 shares, the nearest
whole number). We will not pay cash for or issue fractional rights. You may not
divide a Subscription Warrant in such a way as to permit you to receive a
greater number of rights than you are otherwise entitled to receive. However, a
depository, bank, trust company or securities broker or dealer holding shares of
our common stock for more than one beneficial owner on the Record Date, may,
upon proper showing to the Subscription Agent, exchange its Subscription Warrant
to obtain
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<PAGE> 24
several Subscription Warrants for the number of rights to which all such
beneficial owners in the aggregate would have been entitled had each beneficial
owner been a holder of record on the Record Date.
BASIC SUBSCRIPTION RIGHT
You may subscribe to purchase one share of our common stock for every 5.0
rights you hold. You may combine rights you have received from us as a
stockholder on the Record Date with rights you have acquired from other
stockholders, but you must have at least 5.0 rights for each share of our common
stock for which you are subscribing.
OVERSUBSCRIPTION RIGHT
If you fully exercise your Basic Subscription Right with respect to all the
rights you hold, you may subscribe for additional shares of our common stock.
This Oversubscription Right will be available to the extent that other rights
holders do not exercise their Basic Subscription Right in full. If you wish to
exercise your Oversubscription Right, you must specify the maximum number of
additional shares you want to purchase, and you must submit the full
subscription price for those shares to the Subscription Agent. If you wish to
exercise your Oversubscription Right, you must do so at the same time you fully
exercise your Basic Subscription Right.
If we receive subscriptions, including oversubscriptions, for more than the
5,319,469 shares offered hereby, then we will allocate the available shares as
follows:
- first, subscribing rights holders who exercise their Basic Subscription
Rights, in whole or in part, will receive the shares to which they have
subscribed, and
- second, subscribing rights holders who exercise their Oversubscription
Rights, will receive shares in proportion to the number of shares each
such holder has purchased pursuant to their Basic Subscription Rights,
subject to the elimination of fractional shares. If you are not allocated
the full amount of shares that you subscribed for pursuant to your
Oversubscription Right, you will receive a refund (without interest) of
the subscription price that you delivered for those shares of our common
stock that are not allocated to you. The Subscription Agent will mail
refunds after the expiration of the offering.
For purposes of determining whether you have exercised your Basic
Subscription Right in full, only Basic Subscription Rights held by you in the
same capacity will be considered. For example, if you hold shares of our common
stock as an individual and you exercise your Basic Subscription Right in full
with respect to those shares, you may exercise your Oversubscription Right with
respect to those shares, even if you do not exercise your Basic Subscription
Right with respect to shares held jointly with your spouse or shares in a
retirement account.
In order to exercise the Oversubscription Right, banks, brokers and other
nominee rights holders who exercise the Oversubscription Right on behalf of
beneficial owners must certify to the Subscription Agent and to us with respect
to each beneficial owner:
(1) the number of shares held on the Record Date;
(2) the number of rights exercised pursuant to the Basic Subscription
Right;
(3) that the holder has exercised its Basic Subscription Right in
full; and
(4) the number of shares subscribed for pursuant to the
Oversubscription Right.
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<PAGE> 25
SUBSCRIPTION PRICE
The subscription price is $10.50 per share, payable in cash.
EXPIRATION TIME AND DATE
This offering will expire at 5:00 p.m., Eastern Daylight Time, on June 15,
2000, unless we extend the offering. After the expiration of the offering, all
unexercised rights will be null and void. We will notify you of any extension of
the expiration by issuing a press release. We will not be obligated to honor any
purported exercise of rights which the Subscription Agent received after the
expiration of the offering, regardless of when you sent the documents relating
to that exercise, unless you used the guaranteed delivery procedures described
below.
PRINCIPAL STOCKHOLDERS
As of May 4, 2000, Ernest S. Rady, our Chairman, beneficially owned
approximately 66% of the outstanding common stock, and will thus receive rights
to subscribe for 17,724,513 shares in this offering. Mr. Rady has informed us
that he will exercise his Basic Subscription Right and that he expects to also
exercise his Oversubscription Right, although Mr. Rady has not committed to
oversubscribe for all shares not otherwise subscribed for by other stockholders.
Depending upon the number of shares purchased by others, upon the completion of
this offering Mr. Rady will beneficially own not less than 66 percent of our
outstanding common stock.
As of May 4, 2000, our Employee Stock Ownership and Salary Savings Plan
(the "Plan") was the record owner of 1,396,967 shares of our Common Stock. Our
Board of Directors has determined to make a contribution to the Plan of up to
$5.0 million to enable the Plan and its participants to exercise their
subscription rights.
SUBSCRIPTION PROCEDURES
In order to exercise rights, you must:
(1) complete and sign your Subscription Warrant (with any signatures
guaranteed if required, as described below); and
(2) deliver the completed and signed Subscription Warrant, together
with payment in full of the subscription price for each share for which you
subscribe (See "--Subscription Payments") to the Subscription Agent before
the expiration of the offering, unless delivery of the Subscription Warrant
is effected pursuant to the guaranteed delivery procedures described below.
If you do not indicate the number of shares to be subscribed for on your
Subscription Warrant or guarantee notice (as applicable), or if you indicate a
number of shares that does not agree with the aggregate subscription price
payment you delivered, you will be deemed to have subscribed for the maximum
number of whole shares that may be subscribed for, under both the Basic
Subscription Right and the Oversubscription Right for the aggregate purchase
price you delivered.
If you subscribe for fewer than all of the shares represented by your
Subscription Warrant you will generally be able to:
(1) direct the Subscription Agent to attempt to sell your remaining
rights; or
(2) receive from the Subscription Agent a new Subscription Warrant
representing your unused rights. See "--Method of Transferring Rights"
below.
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Your signature on each Subscription Warrant you deliver must be guaranteed
by a bank, broker, dealer, credit union, national securities exchange,
registered securities association, clearing agency or savings association,
unless:
(1) the shares to be issued are to be issued to the registered holder
of the rights, as indicated on the Subscription Warrant; or
(2) the Subscription Warrant is submitted for the account of a member
firm of a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States exercising
for your account.
If you hold shares of our common stock for the account of others, you
should contact the respective beneficial owners of those shares as soon as
possible to receive their investment decision and to obtain instructions and
certifications with respect to their rights. If you are so instructed by a
beneficial owner, you should complete the appropriate Subscription Warrant and,
should the beneficial holder wish to exercise the Oversubscription Right, the
related nominee holder certification, a form of which is included in the
instructions distributed with the Subscription Warrants. You should submit these
to the Subscription Agent with the proper payment.
If you are a beneficial owner whose shares of our common stock are held for
your account by another, you should give your instructions regarding your
investment decision as to the rights attached to those shares to that holder.
You should carefully read the instructions accompanying the Subscription
Warrant and follow them closely. You should send your Subscription Warrant, with
any payment, to the Subscription Agent. Do not send your Subscription Warrants
to us.
The method of delivery of the Subscription Warrant and the payment of the
subscription price to the Subscription Agent is at your election and risk. If
you send your Subscription Warrant and payments by mail, they should be sent by
registered mail, properly insured. You should also allow sufficient time to
ensure delivery to the Subscription Agent and clearance of payment prior to the
expiration time.
We will determine all questions concerning the timeliness, validity, form
and eligibility of any exercise of rights, which determinations will be final
and binding. In our sole discretion, we may waive any defect or irregularity, or
permit a defect or irregularity to be corrected, or reject the purported
exercise of any right because of any defect or irregularity. Neither the
Subscription Agent nor we are under any duty to notify you of any such defect or
irregularity, and will not be held liable for any failure to notify you of any
such defect or irregularity. We also reserve the right to reject any exercise if
it is not in accordance with the terms of this offering, not in proper form or
if it could be deemed unlawful or materially burdensome. See "--Regulatory
Limitation" below.
You should direct any questions or requests for assistance concerning the
method of exercising rights, or requests for additional copies of this
prospectus supplement and the accompanying prospectus, the instructions or the
notice of guaranteed delivery, to ChaseMellon Shareholder Services, L.L.C., at
44 Wall Street, 7th Floor, New York, New York 10005 (telephone: banks and
brokers (917) 320-6270, collect; all others (888) 232-7873).
If you do not exercise your rights prior to 5:00 p.m. Eastern Daylight Time
on the Expiration Date, they will expire and be null and void.
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<PAGE> 27
SUBSCRIPTION PAYMENTS
You must pay for all shares you subscribe for by:
(1) check or bank draft drawn upon a United States bank, or postal,
telegraphic or express money order, payable to ChaseMellon Shareholder
Services, L.L.C. as Subscription Agent; or
(2) by wire transfer of funds to the account which the Subscription
Agent maintains for this purpose at the Chase Manhattan Bank, New York, NY,
ABA No. 021-000-21, Attention: ChaseMellon Shareholder Services, Reorg. A/C
323-133703 WESTCORP, Attn: Evelyn O'Connor, telephone number (201)
296-4515.
The subscription price will be considered received by the Subscription
Agent only upon:
(1) clearance of an uncertified check;
(2) receipt by the Subscription Agent of a certified or cashier's
check or bank draft drawn upon a United States bank or of a postal,
telegraphic or express money order; or
(3) receipt of funds wired to the Subscription Agent's account
designated above.
Funds paid by uncertified personal check may take several business days to
clear. Accordingly, if you wish to pay the subscription price by uncertified
personal check, you should make payment sufficiently in advance of the
expiration date to ensure its receipt and clearance by that time. To avoid
disappointment caused by a failure of your subscription due to your payment not
clearing prior to the Expiration Date, we urge you to consider payment by means
of certified or cashier's check, money order or wire transfer of funds.
NOTICE OF GUARANTEED DELIVERY
If you wish to exercise rights, but you will not be able to get your
Subscription Warrant to the Subscription Agent prior to the expiration of the
offering, you may nevertheless exercise the rights if:
(1) before the expiration of the offering, the Subscription Agent
receives:
(a) payment for each share you subscribe for pursuant to your Basic
Subscription Right and, if applicable, your Oversubscription Right and
(b) a guarantee notice from a member firm of a registered national
securities exchange or a member of the National Association of
Securities Dealers, Inc. or from a commercial bank or trust company
having an office or correspondent in the United States, guaranteeing the
delivery to the Subscription Agent of the Subscription Warrant
evidencing the rights to be exercised within three NYSE trading days
following the date of that notice; and
(2) within this three NYSE trading day period, the Subscription Agent
receives the properly completed Subscription Warrant with any signatures
guaranteed as required.
You may deliver the guarantee notice referred to above to the Subscription
Agent in the same manner as you would deliver Subscription Warrant. Eligible
institutions may deliver the notice of guaranteed delivery by telegram or
facsimile transmission (telecopier no. (201) 296-4293). To confirm facsimile
deliveries, please call (201) 496-4860. You should refer to the form titled
"Notice of Guaranteed Delivery," which is provided with the "Instructions as to
Use of Subscription Warrants" distributed with the Subscription Warrant for the
information and representations required in the guarantee notice.
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<PAGE> 28
NO REVOCATION
Once you have exercised your Basic Subscription Right and, if you so elect,
your Oversubscription Right, you may not revoke that exercise.
METHOD OF TRANSFERRING RIGHTS
We anticipate that the rights will trade on the NYSE under the symbol "WES
Rt" and may be purchased and sold through usual investment channels until the
close of business on the last trading day prior to the Expiration Date.
You may transfer all of the rights evidenced by a single Subscription
Warrant by endorsing the Subscription Warrant for transfer in accordance with
the accompanying instructions. You may transfer a portion of the rights
evidenced by a single Subscription Warrant, but not fractional rights, by
delivering to the Subscription Agent a Subscription Warrant properly endorsed
for transfer, with instructions to register that portion of the rights indicated
in the name of the transferee and to issue to it a new Subscription Warrant
evidencing the transferred rights. In that event, a new Subscription Warrant
evidencing the balance of the rights will be issued to you or, if you so
instruct, to an additional transferee, or will be sold by the Subscription Agent
in the manner described below upon your instructions.
You may also sell any of the rights evidenced by a Subscription Warrant
through the Subscription Agent by delivering to it the Subscription Warrant
properly executed for sale by the Subscription Agent. If you wish to have the
Subscription Agent sell only a portion of the rights evidenced by a single
Subscription Warrant, you should instruct the Subscription Agent regarding the
action to be taken with respect to the rights that you do not want to be sold.
The Subscription Agent must receive your order to sell rights at or prior to
11:00 a.m., Eastern Daylight time, on the third trading day before the
Expiration Date. Promptly following the Expiration Date, the Subscription Agent
will send you a check for the net proceeds from the sale of any rights sold on
your behalf. If the Subscription Agent is able to sell any rights, the sale
price will be the weighted average sale price of all rights sold by the
Subscription Agent, less expenses. The Subscription Agent's obligation to
execute orders is subject to its ability to find buyers, and if it cannot fill
all sale orders, sale proceeds will be prorated based on the number of rights
each holder has asked the Subscription Agent to sell. If any of your rights
cannot be sold by the Subscription Agent by 5:00 p.m., Eastern Daylight time, on
the third trading day before the Expiration Date, they will be returned to you
promptly by mail.
You should take into account that transfers, particularly those requiring
the issuance of new Subscription Warrants, can take several business days.
Neither we nor the Subscription Agent will have any liability if Subscription
Warrants or any other required documents are not received in time for exercise
or sale prior to the Expiration Date.
You will be issued a new Subscription Warrant upon the partial exercise or
sale of rights only if the Subscription Agent receives a properly endorsed
Subscription Warrant before 5:00 p.m., Eastern Daylight time, on the third
trading day before the Expiration Date. Unless you make other arrangements with
the Subscription Agent, a new Subscription Warrant issued after 5:00 p.m.,
Eastern Daylight time, on the fifth business day before the expiration of the
offering will be held for pick-up at the Subscription Agent's hand delivery
address. You assume all risk associated with the delivery of newly issued
Subscription Warrants.
You are responsible for all commissions, fees and other expenses, including
brokerage commissions and transfer taxes, incurred in connection with the
purchase, sale or exercise of rights.
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<PAGE> 29
PROCEDURES FOR DTC PARTICIPANTS
We anticipate that the rights will be eligible for transfer, and the
exercise of the Basic Subscription Right and the Oversubscription Right may be
effected through the facilities of The Depository Trust Company ("DTC").
SUBSCRIPTION AGENT
The Subscription Agent is ChaseMellon Shareholder Services, L.L.C. The
Subscription Agent's address, to which you must make any required deliveries,
is:
<TABLE>
<S> <C> <C>
If by mail: If by hand: If by overnight courier:
ChaseMellon ChaseMellon ChaseMellon
Shareholder Services, Shareholder Services, L.L.C. Shareholder Services, L.L.C.
L.L.C. 120 Broadway, 13th Floor 85 Challenger Road-
Post Office Box 3301 New York, NY 10271 Mail Drop-Reorg
South Hackensack, NJ 07606 Attn: Reorganization Ridgefield Park, NJ 07660
Attn: Reorganization Department Attn: Reorganization Department
Department
</TABLE>
Facsimiles to the Subscription Agent should be sent to (201) 296-4293. If
you send a facsimile to the Subscription Agent, you should confirm that your
facsimile has been received by contacting the Subscription Agent. The telephone
number to confirm receipt of facsimiles is (201) 496-4860.
We will pay the fees and expense of the Subscription Agent (except for fees
and expenses relating to the sale of rights by the Subscription Agent), and have
agreed to indemnify the Subscription Agent against certain liabilities that it
may incur in connection with this offering.
DETERMINATION OF THE SUBSCRIPTION PRICE
Our Board of Directors determined the subscription price on May 23, 2000.
The subscription price represents a discount of $1.625 from the closing market
price of a share of the common stock on the date the price was determined. The
last reported sales price of the common stock on the NYSE on May 23, 2000 was
$12.125 per share. In setting the subscription price, the Board of Directors
considered, among other things, the factors set forth above under "Risks Related
to the Offering--The offering price was determined by our Board of Directors and
bears no relationship to the value of our assets, financial condition, or other
established criteria for value." Our common stock may trade at prices above or
below this price.
FOREIGN STOCKHOLDERS; STOCKHOLDERS WITH APO OR FPO ADDRESSES
If you are a holder of record and your address is outside the United
States, or if you have an APO or FPO address, a Subscription Warrant will not be
mailed to you, but rather will be held by the Subscription Agent for your
account. To exercise the rights, you must notify the Subscription Agent prior to
11:00 a.m., Eastern Daylight time, on the second trading day before the
Expiration Date, at which time, if no contrary instructions have been received,
the Subscription Agent will try to sell the rights. If your rights can be sold,
the Subscription Agent will send you a check for the proceeds (based on the
weighted average price of all rights sold by the Subscription Agent and less
expenses) by mail. If the Subscription Agent does not know your address or
cannot contact you, it will hold the proceeds from sale of your rights in a
non-interest bearing account. Any amount remaining unclaimed on the second
anniversary of the date of this prospectus will be turned over to us.
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<PAGE> 30
REGULATORY LIMITATION
We will not be required to issue shares pursuant to this offering to anyone
who, in our opinion, would be required to obtain prior clearance or approval
from any state or federal regulatory authorities to own or control such shares
if such clearance or approval has not been obtained at the expiration of this
offering.
WITHDRAWAL OF THIS OFFERING
We reserve the right to withdraw this offering for any reason and at any
time prior to 5:00 p.m. Pacific Daylight Time on the Expiration Date, in which
event we will cause all funds received to be returned without interest.
ISSUANCE OF THE COMMON STOCK
The Subscription Agent will issue to you certificates representing shares
purchased in this offering as soon as practicable after the Expiration Date. The
Subscription Agent will retain all funds delivered to it in payment of the
subscription price until such certificates are issued. If you are allocated less
than all the shares for which you subscribed, the Subscription Agent will return
excess funds to you, without interest, as soon as practicable after the
Expiration Date. You will have no rights as a stockholder with respect to shares
subscribed for until the certificates are issued.
NO BOARD RECOMMENDATION
In making any investment decision to exercise or transfer rights, you must
consider your own best interests. None of the members of the Board of Directors
makes any recommendation as to whether you should exercise or transfer your
rights.
NO EFFECT ON STOCK OPTIONS OR BONUS INTERESTS
No adjustments will be made in connection with the rights offering to any
options or bonus interests issued by us under our stock incentive plans or our
senior management bonus plan or to the number of shares reserved for issuance
under any of our stock incentive plans.
SHARES OF COMMON STOCK OUTSTANDING AFTER THE OFFERING
Assuming we issue all of the 5,319,469 shares of common stock being offered
by this prospectus, we will then have approximately 31,916,812 shares of common
stock issued and outstanding. This would represent a 20% increase in the number
of outstanding shares of our common stock. If you are an existing stockholder
and you do not exercise your subscription rights, the percentage of common stock
that you hold will be significantly decreased after the offering.
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<PAGE> 31
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This section discusses certain federal income tax consequences of the
rights offering to:
- beneficial owners of common stock upon distribution of the rights,
- holders of rights upon the exercise of rights, and
- holders of rights upon the disposition of the rights.
This discussion is based on the Internal Revenue Code of 1986, as amended, the
Treasury regulations thereunder, judicial authority, and current administrative
rulings and practice, all of which are subject to change.
This discussion is limited to U.S. taxpayers who hold our common stock and
will hold the rights and any shares acquired upon the exercise of rights as
capital assets. This discussion does not include any tax consequences under
state, local and foreign law. You should consult with your own tax advisor
concerning you own tax situation or special tax considerations that may apply to
you, including without limitation foreign, state and local laws that may apply.
No Gain on Receipt of Rights. As an owner of common stock you will not
recognize taxable income as a result of our distribution of the rights to you.
Basis and Holding Period of Rights. Your tax basis in the rights
distributed to you by us will be zero, unless (1) you sell or exercise the
rights, and (2) either:
- the fair market value of the rights on the date of distribution is 15% or
more of the fair market value on that date of our common stock your
already own, in which case you will be required to allocate a portion of
your basis in the shares of our common stock you already own to the
rights we are distributing to you, based upon the relative fair market
value of the rights and common stock on the date of distribution, or
- you elect under Section 307 of the Internal Revenue Code of 1986, as
amended, to allocate a portion of your basis in the shares of our common
stock you already own to the rights we are distributing to you, based
upon the relative fair market value of the rights and common stock on the
date of distribution.
Your holding period with respect to the rights we are distributing to you
will include your holding period for the common stock with respect to which the
rights were distributed.
Exercise of Rights. You will not recognize any gain or loss upon the
exercise of rights. Your basis in the shares you acquire through your exercise
of the rights will be equal to the sum of the subscription price you pay for
such shares and your basis in those rights (if any). The holding period for the
shares you acquire through your exercise of the rights will begin on the day
following the date of acquisition. Upon a subsequent sale of those shares you
will recognize capital gain or loss equal to the difference between the amount
you receive upon that sale and your basis in those shares. The capital gain or
loss you recognize will be long-term or short-term, depending on whether the
shares have been held for more than one year.
Sale of Rights. If you sell the rights you will recognize capital gain or
loss equal to the difference between the sale proceeds and the basis (if any) in
the rights sold. The capital gain or loss you recognize will be long-term or
short term depending on whether your holding period for the rights is more than
one year.
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<PAGE> 32
Expiration of Rights. If the rights we are distributing to you as a holder
of our common stock expire unexercised, you will not recognize any gain or loss,
and no adjustment will be made to the basis of the common stock you own.
Purchasers of Rights. If you acquire rights by purchase, your tax basis in
such rights will be equal to the purchase price paid for those rights, and your
holding period for such rights will commence on the day following the date of
their purchase. If you purchased rights and they expire unexercised, you will
recognize a loss equal to your tax basis in the rights. Any loss recognized on
the expiration of the rights acquired by purchase will be a capital loss if the
common stock would be a capital asset in your hands.
Backup Withholding. If you sell rights and receive payments, you may be
subject to backup withholding at the rate of 31% on the payments received,
unless (1) you are a corporation or are otherwise exempt and demonstrate the
basis for the exemption if so required, or (2) provide a correct taxpayer
identification number and certify under penalties of perjury that your taxpayer
identification number is correct and that you are not subject to backup
withholding. Any amount withheld under these rules will be credited against your
federal income tax liability.
LEGAL MATTERS
Certain legal matters with respect to the authorization and issuance of the
common stock offered hereby will be passed upon for us by Mitchell, Silberberg &
Knupp LLP, Los Angeles, California.
EXPERTS
The Consolidated Financial Statements of Westcorp and Subsidiaries at
December 31, 1999 and 1998 and for each of the three years in the period ending
December 31, 1999 incorporated herein by reference in this prospectus have been
incorporated in reliance on the report of Ernst & Young LLP, independent
auditors given upon the authority of that firm as experts in accounting and
auditing.
FORWARD-LOOKING STATEMENTS
Included in the Prospectus Summary and elsewhere in this prospectus are
several "forward-looking statements." Forward-looking statements are those which
use words such as "believe," "expect," "anticipate," "intend," "plan," "may,"
"will," "should," "estimate," "continue," or other comparable expressions. These
words indicate future events and trends. Forward-looking statements are our
current views with respect to future events and financial performance. These
forward-looking statements are subject to many risks and uncertainties that
could cause actual results to differ significantly from historical results or
from those anticipated by us. The most significant risks and uncertainties we
face are:
- the level of chargeoffs, as an increase in the level of chargeoffs will
decrease our earnings;
- the ability to originate new loans in a sufficient amount to reach our
needs, as a decrease in the amount of loans we originate will decrease
our earnings;
- a decrease in the difference between the average interest rate we receive
on the loans we originate and the rate of interest we must pay to fund
our cost of originating those loans, as a decrease will reduce our
earnings;
- the continued availability of sources of funding for our operations, as a
reduction in the availability of funding will reduce our ability to
originate loans;
29
<PAGE> 33
- the level of operating costs, as an increase in those costs will reduce
our net earnings;
- a change in general economic conditions; and
- while we will perform the acts necessary to cause certain events to
occur, final performance is subject to the affirmative acts of
independent third parties over whom we have no control.
There are other risks and uncertainties we face, including the effect of
changes in general economic conditions and the effect of new laws, regulations
and court decisions and those described under the caption "Risk Factors." You
are cautioned not to place undue reliance on our forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act of 1933 with respect to the common stock offered hereby. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits and schedules relating to the registration statement. You may read and
copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Our SEC filings are also
available to the public from the SEC's website at http://www.sec.gov.
INCORPORATION BY REFERENCE
The following documents, all of which were previously filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934 are hereby incorporated by reference in this prospectus:
- our Annual Report on Form 10-K for the year ended December 31, 1999;
- our definitive Proxy Statement for our annual meeting to be held on May
23, 2000; and
- our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
All other reports and documents filed by us after the date of this
prospectus pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange
Act of 1934 prior to the termination of the offering of the common stock covered
by this prospectus are also incorporated by reference in this prospectus and are
considered to be part of this prospectus from the date those documents are
filed.
If any statement contained in a document incorporated by reference herein
conflicts with or is modified by a statement contained in this prospectus or in
any other subsequently filed document that is incorporated by reference into
this prospectus, the statement made at the latest point in time should control.
Any previous statements that have been subsequently altered should therefore not
be considered to be a part of this prospectus. We will provide a copy of any or
all of the documents referred to above that have been or may be incorporated by
reference in this prospectus to any person to whom a copy of this prospectus has
been delivered free of charge upon request. Exhibits to such documents will not
be provided unless the exhibits are specifically incorporated by reference into
the information that the prospectus incorporates. Written requests for copies of
any documents incorporated by reference should be directed to Guy Du Bose, Esq.,
General Counsel, Westcorp, 23 Pasteur Road, Irvine, California 92618 (telephone
949-727-1002).
30
<PAGE> 34
MATERIAL CHANGES
There have been no material changes in our affairs which have occurred
since the filing of our Form 10-K which have not been fully disclosed in a
subsequently filed Form 10-Q.
31
<PAGE> 35
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[Westcorp Logo]
5,319,469 SHARES
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
MAY , 2000
- --------------------------------------------------------------------------------
You may rely on the information contained in this prospectus. Westcorp has not
authorized anyone to provide prospective investors with different or additional
information. This prospectus is not an offer to sell nor is it seeking an offer
to buy these securities in any jurisdiction where the offer or sale is not
permitted. The information contained in this prospectus is correct only as of
the date of this prospectus, regardless of the time of the delivery of this
prospectus or any sale of these securities.
- --------------------------------------------------------------------------------
<PAGE> 36
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee............................................ $ 16,852
Printing, Engraving and Mailing............................. 75,000
Legal Fees.................................................. 50,000
Fees of Registrar and Transfer Agent........................ 25,000
Fees of Subscription Agent.................................. 25,000
Miscellaneous Fees.......................................... 8,148
--------
Total..................................................... $200,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 204 of the California General Corporation Law permits a corporation
to eliminate or limit a director's personal liability to the corporation for
breach of the director's duties to the corporation or its stockholders with
certain exceptions.
The exceptions include intentional misconduct or knowing misconduct, acts
or omissions not done in good faith, transactions from which a director derived
an improper personal benefit, reckless acts, acts or omissions showing an
unexcused pattern of inattention, transactions between the corporation and a
director or between corporations having interrelated directors and improper
distributions, loans and guarantees. Section 204 does not apply to officers in
their capacities as such, even if they are also directors.
Section 317 of the California General Corporation Law authorizes a
corporation, in its discretion, to indemnify its directors, officers, employees
and other agents in terms broad enough to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses)
imposed. The Articles of Incorporation and Bylaws of Westcorp provide for
indemnification of agents to the fullest extent permitted by law.
Section 317 further permits a corporation to purchase and maintain
insurance on behalf of its agents. Westcorp currently maintains officers' and
directors' liability insurance for its officers and directors and for the
officers and directors of its subsidiaries with policy limits of $20,000,000.
The coverage is composed of a primary insurance policy with limits of $10
million and an excess insurance policy with limits of $10 million. The aggregate
deductible is $500,000.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
3.1 Certificate of Incorporation*
3.2 Bylaws*
4 Specimen Westcorp Common Stock Certificate*
4.1 Indenture dated as of June 17, 1993 issued by Western
Financial Bank, formerly Western Financial Savings Bank,
F.S.B., with respect to $125,000,000 in aggregate principal
amount of 8.5% Subordinated Capital Debentures due 2003*
4.2 Indenture dated as of June 25, 1998 issued by Western
Financial Bank, formerly Western Financial Savings Bank,
F.S.B., with respect to $150,000,000 in aggregate principal
amount of 8.875% Subordinated Capital Debentures due 2007*
4.3 Form of Subscription Warrant*
</TABLE>
II-1
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
5 Opinion of Mitchell, Silberberg & Knupp LLP with respect to
legality*
10.1 Westcorp Incentive Stock Option Plan*
10.2 Westcorp, Inc. Employee Stock Ownership and Salary Savings
Plan*
10.3 Westcorp 1991 Stock Option Plan*
10.4 1985 Executive Deferral Plan*
10.5 1988 Executive Deferral Plan II*
10.6 1992 Executive Deferral Plan III*
10.7 Transfer Agreement between WFS Financial Inc. and Western
Financial Bank, F.S.B., dated May 1, 1995*
10.8 Promissory Note of WFS Financial Inc. in favor of Western
Financial Bank, F.S.B., dated May 1, 1995*
10.9 Revolving Line of Credit Agreement between WFS Financial
Inc. and Western Financial Bank, dated June 15, 1999*
10.9.1 Amendment No. 1, dated as of August 1, 1999, to the
Revolving Line of Credit Agreement between WFS Financial
Inc. and Western Financial Bank*
10.10 Tax Sharing Agreement between WFS Financial Inc. and Western
Financial Banks, F.S.B., dated January 1, 1994*
10.11 Master Reinvestment Contract between WFS Financial Inc. and
Western Financial Bank, F.S.B., dated May 1, 1995*
10.12 Amendment No. 1, dated as of June 1, 1995, to the Restated
Master Reinvestment Reimbursement Agreement*
10.13 Amended and Restated Master Collateral Assignment Agreement,
dated as of November 1, 1998*
10.14 Form of WFS Financial Inc. Dealer Agreement*
10.15 Form of WFS Financial Inc. Loan Application*
10.16 Westcorp Employee Stock Ownership and Salary Savings Plan*
10.16.1 Amendment No. 1, dated as of December 1998, to Westcorp
Employee Stock Ownership and Salary Savings Plan*
10.16.2 Amendment No. 2, dated as of January 1, 1999, to Westcorp
Employee Stock Ownership and Salary Savings Plan*
10.16.3 Amendment No. 3, dated as of June 1, 1999, to Westcorp
Employee Stock Ownership and Salary Savings Plan*
10.17 Amended and Restated WFS 1996 Incentive Stock Option Plan,
dated January 1, 1997*
10.18 Promissory Note of WFS Financial Inc. in favor of Western
Financial Bank, F.S.B., dated August 1, 1997*
10.18.1 Amendment No. 1, dated February 23, 1999, to the Promissory
Note of WFS Financial Inc. in favor of Western Financial
Bank*
10.18.2 Amendment No. 2, dated July 30, 1999, to the Promissory Note
of WFS Financial Inc. in favor of Western Financial Bank*
10.19 Investment Agreement between WFS Financial Inc. and Western
Financial Bank, F.S.B., dated January 1, 1996*
10.20 Management Services Agreement between WFS Financial Inc. and
Western Financial Bank, F.S.B., dated January 1, 1997*
10.21 Employment Agreement*
10.22 Third Amended and Restated Master Collateral Assignment
Agreement
23.1 Consent of Ernst & Young LLP*
23.2 Consent of Mitchell, Silberberg & Knupp LLP (included in
Exhibit 5)*
24 Power of Attorney (on page II-5)*
</TABLE>
II-2
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
99.1 Form of Subscription Agreement between Westcorp and
ChaseMellon Shareholder Services, L.L.C.*
99.2 Form of Information Agent Agreement between Westcorp and
ChaseMellon Shareholder Services, L.L.C.*
99.3 Form of Instructions as to use of the Subscription Warrant*
99.4 Form of Notice of Guaranteed Delivery*
99.5 Form of Letter to Stockholders of Record*
99.6 Form of Letter from Brokers or Other Nominees to Beneficial
Owners of Common Stock*
99.7 Form of Instructions by Beneficial Owners to Brokers or
Other Nominees*
99.8 Form of Press Announcement of Filing Registration Statement*
99.9 Form of letter to Dealers and Other Nominees*
99.10 Form of Instructions to Participants
</TABLE>
- -------------------------
* Previously filed.
II-3
<PAGE> 39
ITEM 17. UNDERTAKINGS.
The undersigned hereby undertakes as follows:
(i) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant 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, the
registrant 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 Act and will be governed by the final
adjudication of such issue.
(ii) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(iii) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus 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.
(iv) For purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant'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.
(v) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement 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
(vi) That, for purposes of determining any liability under the
Securities Act of 1933, each 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 the
initial bona fide offering thereof.
(vii) To remove from registration by means of a post-effective
amendment any of the securities being registered hereby which remain unsold
at the termination of the offering.
(viii) To supplement the prospectus, after expiration of the
subscription period, to set forth the results of the subscription offer,
the transactions, if any, of the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, if any, and the terms of any subsequent reoffering thereof.
If any public offering of the securities is to be made by the underwriters
on terms differing from those set forth on the cover of the prospectus, a
post-effective amendment will be filed to set forth the terms of that
offering.
II-4
<PAGE> 40
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Irvine, State of California, on May 23, 2000.
Westcorp
By: /s/ ERNEST S. RADY
------------------------------------
Ernest S. Rady
Chairman of the Board
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Westcorp, do hereby
constitute and appoint each of Joy Schaefer, Lee A. Whatcott and Guy Du Bose or
any of them acting alone, our true and lawful attorney-in-fact and agent, each
with full power to sign for us or any of us in our names and in any and all
capacities, any and all amendments (including post-effective amendments) to this
registration statement, or any related registration statements that is to be
effective upon filing pursuant to Rule 426(b) under the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto and other documents
required in connection therewith, and any of them with full power to do any and
all acts and things in our names and in any and all capacities, which such
attorneys-in-fact and agents, or any of them, may deem necessary or advisable to
enable Westcorp to comply with the Securities Act of 1933, as amended, and any
rules, regulations, and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, and we hereby do ratify and
confirm all that the such attorneys-in-fact and agents, or either of them, shall
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <C> <S>
/s/ ERNEST S. RADY Chairman of the Board May 23, 2000
- -----------------------------------------------------
Ernest S. Rady
/s/ JUDITH M. BARDWICK Director May 23, 2000
- -----------------------------------------------------
Judith M. Bardwick
/s/ ROBERT T. BARNUM Director May 23, 2000
- -----------------------------------------------------
Robert T. Barnum
/s/ STANLEY E. FOSTER Director May 23, 2000
- -----------------------------------------------------
Stanley E. Foster
</TABLE>
II-5
<PAGE> 41
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <C> <S>
/s/ HOWARD C. REESE Director May 23, 2000
- -----------------------------------------------------
Howard C. Reese
/s/ CHARLES E. SCRIBNER Director May 23, 2000
- -----------------------------------------------------
Charles E. Scribner
/s/ LEE A. WHATCOTT Executive Vice President May 23, 2000
- ----------------------------------------------------- (Principal Financial and
Lee A. Whatcott Accounting Officer) and Chief
Financial Officer
</TABLE>
II-6
<PAGE> 42
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ------------
<S> <C> <C>
3.1 Certificate of Incorporation*
3.2 Bylaws*
4 Specimen Westcorp Common Stock Certificate*
4.1 Indenture dated as of June 17, 1993 issued by Western
Financial Bank, formerly Western Financial Savings Bank,
F.S.B., with respect to $125,000,000 in aggregate principal
amount of 8.5% Subordinated Capital Debentures due 2003*
4.2 Indenture dated as of June 25, 1998 issued by Western
Financial Bank, formerly Western Financial Savings Bank,
F.S.B., with respect to $150,000,000 in aggregate principal
amount of 8.875% Subordinated Capital Debentures due 2007*
4.3 Form of Subscription Warrant*
5 Opinion of Mitchell, Silberberg & Knupp LLP with respect to
legality*
10.1 Westcorp Incentive Stock Option Plan*
10.2 Westcorp, Inc. Employee Stock Ownership and Salary Savings
Plan*
10.3 Westcorp 1991 Stock Option Plan*
10.4 1985 Executive Deferral Plan*
10.5 1988 Executive Deferral Plan II*
10.6 1992 Executive Deferral Plan III*
10.7 Transfer Agreement between WFS Financial Inc. and Western
Financial Bank, F.S.B., dated May 1, 1995*
10.8 Promissory Note of WFS Financial Inc. in favor of Western
Financial Bank, F.S.B., dated May 1, 1995*
10.9 Revolving Line of Credit Agreement between WFS Financial
Inc. and Western Financial Bank, dated June 15, 1999*
10.9.1 Amendment No. 1, dated as of August 1, 1999, to the
Revolving Line of Credit Agreement between WFS Financial
Inc. and Western Financial Bank*
10.10 Tax Sharing Agreement between WFS Financial Inc. and Western
Financial Banks, F.S.B., dated January 1, 1994*
10.11 Master Reinvestment Contract between WFS Financial Inc. and
Western Financial Bank, F.S.B., dated May 1, 1995*
10.12 Amendment No. 1, dated as of June 1, 1995, to the Restated
Master Reinvestment Reimbursement Agreement*
10.13 Amended and Restated Master Collateral Assignment Agreement,
dated as of November 1, 1998*
10.14 Form of WFS Financial Inc. Dealer Agreement*
10.15 Form of WFS Financial Inc. Loan Application*
10.16 Westcorp Employee Stock Ownership and Salary Savings Plan*
10.16.1 Amendment No. 1, dated as of December 1998, to Westcorp
Employee Stock Ownership and Salary Savings Plan*
10.16.2 Amendment No. 2, dated as of January 1, 1999, to Westcorp
Employee Stock Ownership and Salary Savings Plan*
10.16.3 Amendment No. 3, dated as of June 1, 1999, to Westcorp
Employee Stock Ownership and Salary Savings Plan*
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ------------
<S> <C> <C>
10.17 Amended and Restated WFS 1996 Incentive Stock Option Plan,
dated January 1, 1997*
10.18 Promissory Note of WFS Financial Inc. in favor of Western
Financial Bank, F.S.B., dated August 1, 1997*
10.18.1 Amendment No. 1, dated February 23, 1999, to the Promissory
Note of WFS Financial Inc. in favor of Western Financial
Bank*
10.18.2 Amendment No. 2, dated July 30, 1999, to the Promissory Note
of WFS Financial Inc. in favor of Western Financial Bank*
10.19 Investment Agreement between WFS Financial Inc. and Western
Financial Bank, F.S.B., dated January 1, 1996*
10.20 Management Services Agreement between WFS Financial Inc. and
Western Financial Bank, F.S.B., dated January 1, 1997*
10.21 Employment Agreement*
10.22 Third Amended and Restated Master Collateral Assignment
Agreement
23.1 Consent of Ernst & Young LLP*
23.2 Consent of Mitchell, Silberberg & Knupp LLP (included in
Exhibit 5)*
24 Power of Attorney (on page II-5)*
99.1 Form of Subscription Agreement between Westcorp and
ChaseMellon Shareholder Services, L.L.C.*
99.2 Form of Information Agent Agreement between Westcorp and
ChaseMellon Shareholder Services, L.L.C.*
99.3 Form of Instructions as to use of the Subscription Warrant*
99.4 Form of Notice of Guaranteed Delivery*
99.5 Form of Letter to Stockholders of Record*
99.6 Form of Letter from Brokers or Other Nominees to Beneficial
Owners of Common Stock*
99.7 Form of Instructions by Beneficial Owners to Brokers or
Other Nominees*
99.8 Form of Press Announcement of Filing Registration Statement*
99.9 Form of letter to Dealers and Other Nominees*
99.10 Form of Instructions to Participants
</TABLE>
- -------------------------
* Previously filed.
<PAGE> 1
EXHIBIT 99.10
FREQUENTLY-ASKED QUESTIONS REGARDING
THE RIGHTS OFFERING AND THE
WESTCORP EMPLOYEE STOCK OWNERSHIP PLAN
AND SALARY SAVINGS PLAN
ESOP ACCOUNTS
Q-1. I understand that Westcorp is making a $5 million contribution to the
ESOP in anticipation of the rights offering.
A-1. Yes, Westcorp is making a cash contribution of approximately $5
million which will immediately be used to purchase shares of Westcorp Common
Stock in the rights offering for ESOP accounts.
Q-2. How will the contribution to the ESOP be allocated?
A-2. As set out in the Plan, the Administrative Committee has determined
that the contribution will be allocated as of the last day of the Plan Year.
This also means that in order to receive an allocation of the ESOP contribution
for your ESOP account, you must be employed on December 31, 2000, the last day
of the Plan Year, and you must also have completed 1,000 hours of service during
the current Plan Year.
Q-3. Who will decide whether or not to exercise the rights to acquire
additional Westcorp Common Stock with respect to the shares held in the ESOP
Plan accounts?
A-3. The Administrative Committee has the authority to determine whether or
not to exercise those rights and it has determined to exercise these rights in
full (see Q&A-1).
401(K) ACCOUNTS
Q-4. May I increase my salary deferral contributions in anticipation of the
rights offering?
A-4. Yes, you may increase the amount of your salary deferral contribution,
but only subject to full compliance with the rules and limitations that have
been adopted by the Administrative Committee and subject to the limits imposed
by the IRS on the maximum amount that can be deferred in any one Plan Year. If
you are able to increase your contribution and you do so, you will be able to
purchase more shares of Westcorp Common Stock as a result.
Q-5. I don't have enough cash in my 401(k) accounts in the Plan to purchase
all of the shares of Westcorp Common Stock available under the rights offering.
May I buy the rights from the Plan that are allocated to my 401(k) account so I
can acquire all of the shares of Westcorp Common Stock available?
A-5. No, you may not. Under the tax law, any sale or exchange between the
Plan and yourself is a prohibited transaction which would result in your being
liable for excise taxes.
Q-6. Could I lend some money to my 401(k) accounts in the Plan that could
used to exercise the rights?
A-6. No, a loan from you to the Plan is also a prohibited transaction.
1
<PAGE> 2
Q-7. Can I direct the plan administrator to sell my investments in other
securities held in my 401(k) accounts and to use the proceeds to pay for shares
of Westcorp Common Stock that I want to purchase under the rights offering?
A-7. Yes you can, subject to the normal rules and procedures adopted by the
Administrative Committee regarding the sale of investments. To sell any
investments you must contact Robert Berthel, CNA Trust, at 714-437-4356 and
advise him that the funds resulting from the sale of the other investment are to
be placed into the Rights Offering Investment Account. You may also sell other
investments using the CNA Trust Voice Response Unit, by calling 800-274-8798 or
over the Internet through WWW.CNATRUST.COM. You will need to have your PIN and
Social Security numbers with you if you use either of these two methods. In
either event, be sure to indicated that the proceeds of the sale of the other
investment is to be placed into the Rights Offering Investment Account.
Q-8. Can I take a loan out from the Plan and use the loan proceeds to pay
for the shares of Westcorp Common Stock I want to acquire?
A-8. The Plan only permits you to take a loan from your Plan accounts if
you have an immediate and heavy financial need. Wanting to purchase Westcorp
Common Stock does not satisfy that requirement.
Q-9. May I sell the rights allocated to my 401(k) accounts under the Plan?
A-9. Yes, you may attempt to sell the rights allocated to your 401(k)
accounts under the Plan through CNA Trust, the trustee of the Plan. You will do
so by completing Form 3 on the back of the Subscription Warrant and returning it
to CNA Trust, Attention: Robert Berthel, 3080 South Bristol Street, 2nd Floor,
Costa Mesa, California 92626. If you have any questions about how you complete
the form or returning the form, please call Robert Berthel at 714-437-4356. As
trading of the rights will end on the New York Stock Exchange at the close of
its business on June 14, 2000, it is very important that you complete and return
your Subscription Warrant to CNA Trust as quickly as possible if you are
electing to attempt to sell your rights. Please understand that we cannot give
you any assurance that you will be able to sell your rights or what the price
will be.
Q-10. Who will decide whether or not to exercise the rights to acquire
additional shares of Westcorp Common Stock for my 401(k) accounts under the
Plan?
A-10. You will direct the Plan whether or not it should exercise the
rights allocated to your 401(k) accounts to acquire additional shares of
Westcorp Common Stock.
Q-11. How will I know how many rights have been allocated to me?
A-11. You will receive a form of Subscription Warrant about a week after
the May 25, 2000 Record Date along with Instructions As To Use of Westcorp
Subscription Warrant, a copy of the Prospectus and other related papers. The
form of Subscription Warrant will show on its face how may rights you may
exercise as your Basic Subscription Right.
Q-12. Will I be able to direct the Plan whether or not it should exercise
the rights allocated to my 401(k) accounts if I am less than fully vested in any
of my accounts under the Plan?
A-12. Yes, even though you are not fully vested in your benefits, you will
have the sole power to determine whether or not you want to exercise any or all
of the rights allocated to you.
Q-13. If I want to exercise the rights allocated to my 401(k) accounts,
and I have either cash available in my 401(k) accounts or other investments in
those accounts which can be sold to create the necessary cash, how do I exercise
those rights?
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A-13. You should carefully read and follow the instructions for exercise
contained in the document you receive entitled Instructions As To Use of
Westcorp Subscription Warrant, but with this very important distinction: Mail or
deliver your fully completed Subscription Warrant to CNA Trust, Attention:
Robert Berthel, 3080 South Bristol Street, 2nd Floor, Costa Mesa, California
92626, and NOT to ChaseMellon Shareholder Services. Basically, you will
completely fill in Form 1 on the reverse of the Subscription Warrant and will
return the completed Subscription Warrant to CNA Trust by not later than June
, 2000. You must also insure that sufficient funds to complete the purchase of
the shares of Westcorp Common Stock you are seeking to purchase are in the
Rights Offering Investment Account at CNA Trust. The Rights Offering Investment
Account is a special investment account being established at CNA Trust for
401(k) accounts for the rights offering. You may transfer cash into this account
from any other 401(k) cash investment account you have, or may sell other
investments to create the cash for that purpose (See Q&A-7).
Q-14. If I fully exercise the Basic Subscription Right allocated to my
401(k) accounts, may I also subscribe for additional shares under the
Oversubscription Right?
A-14. Yes, provided of course, that you have fully exercised the Basic
Subscription Right allocated to your 401(k) accounts and that you have
additional cash available in your 401(k) accounts to fund the purchase of all of
the additional shares which you seek to purchase under the Oversubscription
Right. You will exercise the Oversubscription Right by completely filling in
Form 1 on the reverse of the Subscription Warrant at the same time you exercise
your Basic Subscription Right.
Q-15. Will I be able to purchase as many additional shares of Westcorp
Common Stock as I want?
A-15. Your ability to purchase additional shares of Westcorp Common Stock
under the Oversubscription Right will be subject to the number of additional
shares other holders of rights seek to purchase. You will get all of the Basic
Subscription Right shares you seek to purchase and will share on a pro rata
basis with others who seek to oversubscribe. Any funds you send in to purchase
shares under the Oversubscription Right which are not used to purchase shares
will be returned to your 401(k) accounts for reinvestment by you.
Q-16. If I change my mind after I have completed the Subscription Warrant
and sent it to CNA Trust, can I change my mind?
A-16. No. Once you submit a completed Subscription Warrant your decision is
essentially irreversible, even if the price of Westcorp Common Stock on the New
York Stock Exchange should decrease below the Rights Offering subscription
price. Details about when you can change your mind are set out in the
prospectus.
Q-17. When is the absolute last date for me to deliver my completed
Subscription Warrant to CNA Trust so that I can be assured that I will be able
to acquire the shares of Westcorp Common Stock I want to purchase?
A-17. In order to give CNA Trust the time it needs to complete the
necessary paperwork and to forward information to the Subscription Agent before
the Rights Offering Terminates on June 15, 2000, your completed documents must
be delivered to CNA Trust by the close of business, June , 2000. If you are
mailing your completed Subscription Warrant, please allow sufficient time for
mail delays.
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