dated September 5, 2007 (the Agreement) by and between Westernbank
Puerto Rico, a bank organized and existing under the laws of the Commonwealth of Puerto Rico (the
Company), W Holding Company, Inc., a corporation organized and existing under the laws of the
Commonwealth of Puerto Rico and the financial holding company of the Company (the Holding
Company), and Carlos Dávila (the Executive).
WHEREAS, the Company wishes to retain the services of the Executive for and on behalf of the
WHEREAS, the Boards of Directors of the Company have approved and authorized the execution of
this Agreement with the Executive, which Agreement will become effective on the date of
commencement of employment of the Executive;
WHEREAS, the Compensation Committee of the Board of Directors of the Holding Company has
approved the granting to the Executive an amount of options to purchase common stock of the Holding
Company provided in Section 6(d) herein, as partial consideration for entering into this Agreement,
which options will become effective on the date of execution of this Agreement;
WHEREAS, the parties desire to enter into this Agreement setting forth the terms and
conditions of employment relationship of the Company and the Executive;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements
herein the parties agree as follows:
1. Employment. The Company agrees to employ the Executive and the Executive agrees to the
employment by the Company for the period stated in Paragraph 4 hereof and subject to the other
terms and conditions herein provided. Executives employment with the Company will commence on
October 1, 2007.
2. Position and Responsibilities. The Company hereby employs the Executive as its Executive
Vice President and Chief Retail Banking Officer and shall carry out and render to the Company such
services as are customarily performed by persons holding a similar position. The Executive shall
also perform such other related duties as he may from time to time be reasonably directed,
including, but not limited to, performing duties for the Company, the Holding Company and other
subsidiaries of the Company and the Holding Company. The Executive shall report to the Chief
Operating Officer of the Company. In his absence, to the President and Chief Executive Officer of
the Company. Notwithstanding the foregoing, the Boards of Directors of the Company may delegate or
assign tasks to the Executive.
3. Duties. During the period of employment hereunder, and except for illness, vacation
periods, and authorized leaves of absence, the Executive shall devote his business time, attention,
skill, and efforts to the faithful performance of his duties as provided herein as is customary for
an executive holding a similar position in a financial institution of comparable size.
The Executive agrees that, during the term of his employment hereunder, except with the
expressed consent of the Board of Directors of the Company, he will not, directly or indirectly,
engage or participate, become director of, or render advisory or other services for, or in
connection with, or become interested in, or make any financial investment in any firm,
corporation, business entity or business enterprise that directly competes with the Company, the
Holding Company or their subsidiaries; provided, however, that the Executive shall not thereby be
precluded or prohibited from owning passive investments, including investments in the securities of
other financial institutions so long as such ownership does not require him to devote any time to
the business or activities of any such firm, corporation, business entity or enterprise.
4. Term. The initial term of employment under this Agreement shall be for a period of one (1)
year, commencing on the date of commencement of employment and terminating on the first anniversary
thereof. On each anniversary of the date of commencement of this Agreement, the term of the
employment hereunder shall automatically be extended for an additional one (1) year period beyond
the then effective expiration date, unless either party receives written notice, not less than
ninety (90) days prior to the anniversary date, advising the other party that this Agreement shall
not be further extended. Any such written notice shall not affect any prior extensions of the term
of employment hereunder.
5. Standards. The Executive shall perform his duties and responsibilities under this Agreement
in accordance with such reasonable standards as established from time to time by the Board of
Directors and/or management of the Company and conveyed in writing to the Executive.
Notwithstanding anything to the contrary, nothing in this Agreement will be interpreted in any
manner which would tend to limit or interfere with the authority or oversight duties and discretion
of the Boards of Directors of the Company to establish adequate guidelines for the effective
management of the Company.
6. Compensation and Reimbursement of Expenses
The Company agrees to pay the Executive during the term of this Agreement a base salary of
$375,000 a year.
(b) Christmas Bonus
Subject to the approval of the Board of Directors of the Company on a yearly basis, the
Executive may receive a yearly Christmas bonus equal to one month of the Executives salary.
During 2007, such Christmas bonus, to the extent approved by the Board of Directors, shall be
prorated based on the number of days that the Executive was employed by the Company.
(c) Performance Bonus
The annual performance bonus payable to the Executive shall be based on certain predetermined
parameters to be based on, among other things, the Companys overall achievement of the business
objectives and in connection with the areas of endeavor assigned to the Executive. The Company and
the Executive shall establish by mutual agreement, within 30 days, said parameters. The annual
performance bonus shall be from any amount up to $500,000 if the Executive reaches the
predetermined parameters. Any amount in excess of $500,000 must be approved by the Board of
Directors of the Company. The performance bonus, and the predetermined parameters, shall be
revised by the Company and the Executive each year, within 30 days from the anniversary of this
(d) Initial Stock Options
In consideration for entering into this Employment Agreement
, the Holding Company hereby
grants the Executive options to purchase 200,000 shares of the common stock of the Holding Company
(the Initial Stock Options) with a strike price equal to the closing price of the common stock of
the Holding Company on the date of execution of this Agreement, rounded to the closest quarter
points up (0.25); provided, however, that the strike price shall not be less than $3.00. The
aforementioned grant of the Initial Stock Options shall be subject to all the applicable terms and
conditions of the Companys Stock Option Plan, which are incorporated by reference herein. The
Initial Stock Options shall be subject to a five-year vesting schedule (20% of the Initial Stock
Options shall vest each year on each anniversary of the Executives employment hereunder).
However, in the event of a change in control, all options become fully vested.
The Company shall provide the Executive with a company owned automobile. Such automobile will
be furnished in accordance with the existing Companys executive automobile policy and applicable
administrative guidelines as approved by the Board of Directors of the Company. The insurance,
maintenance and repair expenses of the automobile shall be paid by the Company. The cost of the
automobile to the Company is not to exceed $75,000.
(f) Relocation Expenses and Other Related Expenses
The relocation and moving expenses of the Executive from the United States to Puerto
Rico shall be paid by the Company. The Companys obligation for the relocation and other related
expenses shall be limited to $25,000.
(g) Reimbursement of Expenses
Not less frequently than monthly, the Company shall pay or reimburse the Executive for all
reasonable travel and other expenses incurred by the Executive in the performance of his duties
under this Agreement, subject to the administrative practices of the Company and such reasonable
documentation as may be established by the Company.
7. Participation in Benefit Plans. The payment and benefits provided in this Agreement are
independent and separate of any payment and benefits to which the Executive may be or may become
entitled to under any other present or future group employee benefit plan or insurance programs of
the Company for which senior executives of the Company are or shall become eligible, and the
Executive shall be eligible to receive all benefits and entitlements for which said senior
executives are eligible under every such plan or program.
8. Voluntary Absences; Vacations and Sick Leave. The Executive shall be entitled, without
loss of pay, to absent himself voluntarily for reasonable periods of time from the performance of
his duties and responsibilities under this Agreement. All such voluntary absences shall count
either as paid vacation time or sick leave, unless otherwise provided by the Board of Directors.
The Executive shall be entitled to an annual paid vacation of twenty-one (21) working days per
every twelve (12) month period, or such longer periods as the Board of Directors may approve, which
vacations shall be scheduled by the Executive with the prior approval of the President and Chief
Executive Officer, taking into account the needs of the Company. The Executive may accumulate
unused paid vacation time from a twelve (12) month period to the next; provided that such
accumulation shall not exceed forty-two (42) working days of unused vacation time from prior twelve
(12) month periods. The Executive shall be entitled to up to twelve (12) non-cumulative working
days of paid sick leave for each twelve (12) month period or such longer non-cumulative working
days as the Board of Directors may approve. Upon termination of employment with or without cause,
or for any reason, the Company shall pay all accrued and unused vacation at the highest rate of
salary earned by the Executive, during his tenure.
9. Benefits Payable Upon Disability or Death. The Company shall, at all times, maintain in
effect disability and death benefits insurance for the benefit of the Executive in an amount at
least equal to that maintained for executives of similar rank and which will not be less than that
maintained by the Company for all senior officers and employees.
10. Termination of Employment.
(a) Without cause: (i) The Board of Directors may, without cause, terminate the
employment under this Agreement at any time, by giving sixty (60) days written notice to the
Executive or giving the Executive 90 day notice of non-renewal of this agreement pursuant to
Section 4. In such event, the Executive, if requested by the Board of Directors, shall continue to
render his services, and shall be paid his regular salary up to the date of termination. In
addition, the Executive shall be paid at the date of termination a lump sum severance payment equal
to $375,000 plus the reasonable moving, relocation and other related expenses of the Executive
moving back to the United States, if applicable, as provided in Section 6(f) (the Severance
Payment), not to exceed $25,000. The Severance Payment shall be paid upon the execution of a
mutually agreeable separation and release agreement by the parties hereto.
(ii) The Executive may, without cause, terminate the Agreement by giving sixty (60) days
written notice to the Board of Directors. In such event, the Executive shall continue to render
his services and shall be paid his regular salary up to the date of termination, but shall not
receive the Severance Payment; provided, however, that the Executive shall be entitled to the
Severance Payment if the Executive terminates this Agreement because the Executive has been demoted
from his position as Executive Vice President and Chief Retail Banking Officer of the Company
during the term of this Agreement. To the extent payable, the Severance Payment shall be paid upon
the execution of a mutually agreeable separation and release agreement by the parties hereto.
(b) With Cause: The Board of Directors may, at any time, terminate this Agreement
for cause. In such event, the Executive shall not be entitled to receive any further compensation
from the effective date of notice of termination and shall not receive the Severance Payment; but
shall receive the accrued benefits and reimbursement business expenses to such date. The notice of
termination shall be in writing, shall set forth the date of delivery to the Executive, and the
effect of termination shall not be retroactive to a date prior to delivery of such notice. For the
purpose of this Agreement, termination for cause shall include any act or omission on the part of
the Executive which involves personal dishonesty, willful misconduct, material breach of fiduciary
duty, a material violation of any law, rule or regulation relating to the banking industry or a
material breach of any provision of this Agreement, such as the willful and continued failure of
the Executive to perform the duties herein set forth. No act or failure to act on the Executives
part shall be considered willful unless done, or omitted to be done, not in good faith and
without reasonable belief that his action or omission was in the best interest of the Company. For
purposes of this paragraph, any act or omission to act on the part of the Executive in reliance
upon an opinion of counsel, outside auditor or advisor to the Company or to the Executive shall not
be deemed to be willful or without reasonable belief that the act or omission to act was in the
best interest of the Company.
(c) If the Executive is suspended and/or prohibited from participating in the conduct of the
Companys affairs by a notice or order served under Section 8(e)(3), (e)(4) or (g)(1) of the
Federal Deposit Insurance Act, 12 USC 1818(e)(3), (e)(4) and (g)(1), or any other similar provision
of state or federal law now in place or enacted in the future, the Companys obligations under this
Agreement shall be suspended as of the date that
notice of such suspension and/or prohibition is received by the Company, unless such prohibition
and/or suspension is stayed by appropriate proceedings. If after a hearing is held and upon
judicial review, the notice or order suspending and/or prohibiting the Executive from participating
in the affairs of the Company is confirmed, then this Agreement shall be terminated with cause. If
the charges in the notice or order are dismissed, the Company shall: (i) pay the Executive all the
compensation withheld while the contractual obligations were suspended, and (ii) reinstate, in
whole or in part, any of the obligations which were suspended.
11. Change in Control Agreement; Signing Bonus. On the date of the Executives commencement
of employment, the Executive, the Company and the Holding Company shall enter into a Payment
Agreement in the Event of a Change in Control that will entitle the Executive lump sum cash payment
up to $1,500,000 if there is a change in control of the Company and/or the Holding Company. A
signing bonus has also been agreed in the amount of $175,000.00. For accounting purposes only this
amount will be distributed within a 24 month period. The terms and conditions of the Payment
Agreement in the Event of a Change in Control shall be the same as those set forth on comparable
agreements entered into by the Company and the Holding Company with comparable senior executives.
12. Withholding. All payments required to be made by the Company hereunder to the Executive
shall be subject to the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine should be withheld pursuant to any applicable
law or regulation.
13. Confidentiality; Injunctive Relief. Recognizing that the knowledge and information about,
or relationships with, the business associates, customers, clients, and agents of the Company, the
Holding Company and their affiliated companies and the business methods, systems, plans, and
policies of the Company, the Holding Company and their affiliated companies which the Executive
will receive, obtain, or establish as an employee of the Company or otherwise are valuable and
unique assets of the Company and/or the Holding Company, as applicable, the Executive agrees that,
during the continuance of this Agreement and thereafter, he shall not (otherwise than pursuant to
his duties hereunder) disclose without the written consent of the Company, the Confidential
Information or any material or substantial, confidential, or proprietary know-how, data, or
information pertaining to the Company, or its business, personnel, or plans, to any person, firm,
corporation, or other entity, for any reason or purpose whatsoever. The Executive acknowledges and
agrees that all memoranda, notes, records, and other documents made or compiled by the Executive or
made available to the Executive concerning the Companys business or the Holding Companys business
shall be the exclusive property of the Company and/or the Holding Company, as applicable, and shall
be delivered by the Executive to the Company and/or the Holding Company, as applicable, upon
expiration or termination of this Agreement or at any other time upon the request of the Company
and/or the Holding Company.
The provisions of this Section 13 shall survive the expiration or termination of this
Agreement or any part thereof, without regard to the reason therefore.
The Executive hereby acknowledges that the services to be rendered by him are of special,
unique, and extraordinary character and, in connection with such services he will have access to
confidential information concerning the Companys business and the Holding Companys business. By
reason of this, the Executive consents and agrees that if he violates any of the provisions of this
Agreement with respect to confidentiality, the Company and/or the Holding Company would sustain
irreparable harm and, therefore, in addition to any other remedies which the Company and/or the
Holding Company may have under this Agreement or otherwise, the Company and/or the Holding Company
will be entitled to an injunction to be issued by any court of competent jurisdiction restraining
the Executive from committing or continuing any such violation of this Agreement. The term
Confidential Information means: (1) proprietary information of the Company or the Holding
Company; (2) information marked or designated by the Company or the Holding Company as
confidential; (3) information, whether or not in written form and whether or not designated as
confidential, which is known to the Executive as treated by the Company or the Holding Company as
confidential; and (4) information provided to the Company by third parties which the Company and/or
the Holding Company is obligated to keep confidential, specifically including customer lists and
information. Confidential information does not include any information now or hereafter
voluntarily disseminated by the Company or the Holding Company to the public, or which otherwise
becomes part of the public domain through lawful means.
14. Interpretation of and Modifications to Agreement to Avoid Additional Code Section 409A
Tax. The provisions of this Agreement shall be interpreted in a manner to the maximum extent
possible to comply in good faith with Section 409A, to the extent that the parties hereto determine
that Code section 409A is applicable to any provision of this Agreement. To the extent the
Executive would be subject to the additional tax imposed on certain deferred compensation
arrangements pursuant to Code Section 409A as a result of any provision of this Agreement, the
Executive agrees to cooperate with the Company to execute any amendment to the provisions hereof
reasonably necessary to avoid the imposition of such tax but only (i) to the minimum extent
necessary to avoid application of such tax and (ii) to the extent that the Executive would not, as
a result, suffer any reduction in the amounts otherwise payable to him under this Agreement. If
the six-month delay applicable to specified employees under Code Section 409A is applicable to
any compensation payable to Executive by the Company under this Agreement or otherwise on account
of separation from service (as defined under Code Section 409A), the payment of such amounts shall
be so delayed and paid as soon as practicable, and in no event more than 15 days, after the
expiration of such six month period.
15. Notices. All notices required by this Agreement to be given by one party to the other
shall be in writing and shall be deemed to have been delivered either:
(a) When personally delivered to the Office of the Secretary of the Company or the Holding
Company at his regular corporate office, or to the Executive in person; or
(b) Five days after depositing such notice in the United States mails, certified mail with
return receipt requested and postage prepaid at:
||if to the Company or the Holding Company:
||C/O Office of the Secretary
Westernbank Puerto Rico
PO Box 1180
Mayaguez, PR 00681-1180
||If to the Executive
or to such other address as each party may designate to the other parties by notice in writing in
accordance with the terms hereof.
16. Amendments or Additions. No amendments or additions to this Agreement shall be binding
unless in writing and signed by all parties.
17. Sections Headings. The Section headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the interpretation of this
18. Severability. The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or enforceability of
the other provisions hereto.
19. Governing Law. This Agreement shall be governed by the laws of the Commonwealth of Puerto
Rico, except to the extent that such law may be preempted by applicable Federal laws and
regulations, including regulations, rules or orders issued by the Federal Deposit Insurance
Corporation and the Board of Governors of the Federal Reserve System. Venue for the litigation of
any and all matters arising under or in connection with this Agreement shall be in the Court of
First Instance, San Juan Superior Part for the Commonwealth of Puerto Rico, in the case of state
court jurisdiction, or in the U.S. District Court for the District of Puerto Rico, in the case of
federal court jurisdiction.
IN WITNESS WHEREOF
, the parties have executed this Employment Agreement
as of the date first
WESTERNBANK PUERTO RICO
||W HOLDING COMPANY, INC.
/s/ Frank C. Stipes
Name: Frank C. Stipes
/s/ Carlos Dávila