SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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[X] Definitive Proxy Statement
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[ ] Soliciting Material Pursuant to Rule 14a-12
POPULAR, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
POPULAR, INC.
P.O. BOX 362708
SAN JUAN, PUERTO RICO 00936-2708
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, APRIL 30, 2004
----------------------------
To the Stockholders of Popular, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Popular, Inc. (the "Meeting") for the year 2004 will be held at 9:00 a.m. on
Friday, April 30, 2004, on the third floor of the Centro Europa Building, in
Santurce, Puerto Rico, to consider and act upon the following matters:
(1) To elect three (3) directors assigned to "Class 2" of Popular, Inc.
(the "Corporation") for a three-year term,
(2) To elect a director to fill a vacancy as a "Class 3" director and
reassign a director from "Class 1" to "Class 3," and thereby cause
"Class 3" to have the same number of directors as the other two
classes,
(3) To ratify the selection of the Corporation's independent auditors
for 2004,
(4) To amend Article Fifth of the Restated Articles of Incorporation to
increase the authorized number of shares of common stock, par value
$6 ("Common Stock"), from 180,000,000 to 470,000,000,
(5) To amend Article Fifth of the Restated Articles of Incorporation to
increase the authorized number of shares of preferred stock without par
value ("Preferred Stock") from 10,000,000 to 30,000,000,
(6) To amend Article Eighth of the Restated Articles of Incorporation
to eliminate the requirement that the total number of directors shall
always be an odd number;
(7) To approve the Corporation's 2004 Omnibus Incentive Plan; and
(8) To transact any and all other business as may be properly brought
before the Meeting or any adjournments thereof. Management at present
knows of no other business to be brought before the Meeting.
Stockholders of record at the close of business on March 11, 2004, are
entitled to notice of and to vote at the Meeting.
You are cordially invited to attend the Meeting. Whether you plan to
attend or not, please sign and return the enclosed proxy so that the Corporation
may be assured of the presence of a quorum at the Meeting. A postage-paid
envelope is enclosed for your convenience. REMEMBER THAT YOU CAN VOTE BY
TELEPHONE OR BY INTERNET; FOR FURTHER DETAILS PLEASE REFER TO THE ENCLOSED PROXY
CARD.
San Juan, Puerto Rico, March 17, 2004.
By Order of the Board of Directors,
SAMUEL T. CESPEDES
Secretary
CONTENTS
About the Meeting 3
Principal Stockholders 5
Shares Beneficially Owned by Directors and Executive Officers of the Corporation 6
Section 16 (a) Beneficial Ownership Reporting Compliance 7
Board of Directors and Committees 7
Proposal 1: Election of Directors for a three-year term 7
Proposal 2: Election of Directors for a one-year term 8
Nominees for Election as Directors 9
Board of Directors Independence 12
Shareholders Communication with the Board 12
Standing Committees 12
Audit Committee Report 14
Audit Committee Financial Expert 15
Compensation of Directors 15
Executive Officers 16
Family Relationships 19
Proposal 3: Ratification of Selection of Auditors 20
Disclosure of Auditor's Fees 20
Proposal 4 & 5: Amendment to the Article Fifth of the Restated Articles of Incorporation 21
Proposal 6: Amendment to the Article Eighth of the Restated Articles of Incorporation 23
Proposal 7: Approval of the Corporation's 2004 Omnibus Incentive Plan 24
Executive Compensation Program- Report of the Compensation
Committee on Executive Compensation 30
Executive Compensation 32
Summary Compensation Table 32
Stock Option Plan 33
Profit Sharing, Benefit Restoration, Retirement Plans and Savings and Stock Plans 35
Popular, Inc. Performance Graph 38
Incorporation by Reference 38
Proposal of Security Holders to be Presented at the 2005 Annual Meeting of Stockholders 38
Annex A 39
Annex B 41
Annex C 43
Annex D 47
Annex E 52
Annex F 54
Annex G 55
2
ABOUT THE MEETING
WHO IS SOLICITING MY VOTE?
The Board of Directors of the Corporation (the "Board") is soliciting your vote
at the Meeting.
WHAT WILL I BE VOTING ON?
During 2004, the Board will be subject to several modifications in
response to corporate policy and strengthened corporate governance.
First, as a result of the Board's existing policy, which provides that
no person shall be nominated for reelection as director if during the term to be
served such person would attain 72 years of age, two directors will not be
nominated for reelection at the Meeting. In addition, one director has requested
an early retirement from the Board, and will retire one year before his term as
director expires. This director would not have been nominated for reelection in
2005 under the Board policy regarding attainment of 72 years of age during the
term to be served.
Second, following the Corporation's desire to strengthen its corporate
governance, two directors who are also employees of the Corporation will resign
from the Board effective the date of the Meeting.
As a result of the changes described above, the Board's three classes
will not be as nearly equal in number as possible, as provided in the
Corporation's Articles of Incorporation. Therefore, the Board is proposing
the nomination of two directors for election for a one-year term. One of these
nominees is a director who will be reclassified from a "Class 1" to a "Class 3"
director. If the stockholders approve the proposals regarding the election of
directors, the Board will be divided in three classes of equal number of
directors.
The Corporation's stockholders will be voting on:
- Election of directors (see pages 7 and 8).
- Ratification of PricewaterhouseCoopers LLP as the
Corporation's auditors for 2004 (see page 20).
- Amendment to Article Fifth of Restated Articles of
Incorporation to increase the authorized number of shares of
common and preferred stock (see page 21).
- Amendment to Article Eighth of Restated Articles of
Incorporation to eliminate the requirement that the total
number of directors shall always be an odd number (see page
23).
- Approval of the Corporation's 2004 Omnibus Incentive Plan (see
page 24).
HOW MANY VOTES DO I HAVE?
You will have one vote for every share of the Corporation Common Stock you owned
on March 11, 2004 (the record date).
HOW MANY VOTES CAN ALL STOCKHOLDERS CAST?
One vote for each of Popular, Inc.'s 132,999,351 shares of Common Stock that
were outstanding on the record date. The shares covered by any proxy that is
properly executed and received by management before 9:00 a.m. on the day of the
Meeting will be voted.
HOW MANY VOTES MUST BE PRESENT TO HOLD THE MEETING?
A majority of the votes that can be cast. Votes cast by proxy or in person at
the Meeting will be counted by the persons appointed by the Corporation as
members of the vote-counting committee for the Meeting. We urge you to vote by
proxy even if you plan to attend the Meeting, so that we will know as soon as
possible that enough votes will be present for us to hold the Meeting.
HOW DO I VOTE?
You can vote either in person at the Meeting or by proxy without attending the
Meeting.
To vote by proxy, you must either
- Fill out the enclosed Proxy Card, date and sign it, and return
it in the enclosed postage-paid envelope,
- Vote by telephone (instructions are on the Proxy Card, as
authorized by the Puerto Rico Corporation Law and the Bylaws
of the Corporation), or
- Vote by Internet (instructions are on the Proxy Card, as
authorized by the Puerto Rico Corporation Law and the Bylaws
of the Corporation).
If you want to vote in person at the Meeting, and you hold your Common Stock
through a securities broker (that is, in street name), you must obtain a proxy
from your broker and bring that proxy to the Meeting.
In addition to solicitation by mail, management may participate in the
solicitation of proxies by telephone, personal interviews or otherwise. The
Board has engaged the firm of Georgeson & Company, Inc. to aid in the
solicitation of proxies. The cost of solicitation will be borne by the
Corporation and is estimated at $6,500.
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To avoid delays in ballot taking and counting, and in order to assure that your
proxy is voted in accordance with your wishes, compliance with the following
instructions is respectfully requested: upon signing a proxy as attorney,
executor, administrator, trustee, guardian, authorized officer of a corporation,
or on behalf of a minor, please give full title. If shares are in the names of
more than one recordholder, all recordholders should sign.
CAN I CHANGE MY VOTE?
Yes. Just send in a new Proxy Card with a later date, or cast a new vote by
telephone or Internet, or send a written notice of revocation to the President
or Secretary of Popular, Inc., P.O. Box 362708, San Juan, Puerto Rico
00936-2708, delivered before the proxy is exercised. If you attend the Meeting
and want to vote in person, you can request that your previously submitted proxy
not be used.
HOW WILL ABSTENTIONS AND BROKER NON-VOTES BE TREATED?
For purposes of determining a quorum, the members of the vote-counting committee
will treat abstentions and brokers non-votes as shares that are present and
entitled to vote. A broker non-vote results when a broker or nominee has
expressly indicated in the proxy that it does not have discretionary authority
to vote on a particular matter. As to the election of directors, the Proxy Card
being provided by the Board enables stockholders to vote for the election of the
nominees proposed by the Board, or to withhold authority to vote for one or more
of the nominees being proposed. The election of directors, approval of the
Corporation's 2004 Omnibus Incentive Plan and the ratification of independent
auditors will be acted upon a majority of the votes cast. Therefore, abstentions
and brokers non-votes will not have an effect on the election of directors of
the Corporation, and the approval of the Corporation's 2004 Omnibus Incentive
Plan or the ratification of independent auditors. As to the proposals to amend
Article Fifth of the Restated Articles of Incorporation, the affirmative vote of
the holders of a majority of the outstanding shares is required. As to the
proposal to amend Article Eighth of the Restated Articles of Incorporation, a
vote of two-thirds of the outstanding shares is required. Therefore, abstentions
and broker non-votes will have the same effect as a vote against the proposals
to amend the Restated Articles of Incorporation.
COULD OTHER MATTERS BE DECIDED AT THE MEETING?
The Board does not intend to present any business at the Meeting other than that
described in the Notice of Meeting. The Board at this time knows of no other
matters, which may come before the Meeting. However, if any new matter requiring
the vote of the stockholders is properly presented before the Meeting, proxies
may be voted with respect thereto in accordance with the best judgment of
Proxyholders, under the discretionary power granted by stockholders to their
proxies in connection with general matters.
WHAT HAPPENS IF THE MEETING IS POSTPONED OR ADJOURNED?
Your proxy will still be good and may be voted at the postponed or adjourned
Meeting. You will still be able to change or revoke your proxy until it is
voted.
WHAT SHOULD I RECEIVE?
By now you should have received the Corporation's Annual Report, including the
financial statements for the year ended December 31, 2003, duly certified by
PricewaterhouseCoopers LLP as independent public accountants. The Proxy
Statement, the enclosed Annual Report, the Notice of Annual Meeting of
Stockholders and the form of proxy are being sent to stockholders on or about
March 17, 2004.
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PRINCIPAL STOCKHOLDERS
Following is the information, to the extent known by the persons on
whose behalf this solicitation is made, with respect to any person (including
any "group" as that term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) who is known to the Corporation to be the beneficial
owner of more than five percent (5%) of the Corporation's voting securities.
AMOUNT AND NATURE PERCENT
OF BENEFICIAL OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS (1)
Common State Farm Mutual Automobile Insurance
Company-One State Farm Plaza, Bloomington,
IL 61701 8,790,024(2) 6.6091
-------------------------
(1) Based on 132,999,351 shares of Common Stock outstanding as of
March 1, 2004.
(2) On February 2, 2004 State Farm Mutual Automobile Insurance Company
("State Farm") and affiliated entities filed a joint statement on
Schedule 13-G with the Securities and Exchange Commission reflecting
their holdings as of December 31, 2003. According to said statement,
State Farm and its affiliates might be deemed to constitute a "group"
within the meaning of Section 13(d)(3) of the Securities Exchange Act
of 1934. State Farm and its affiliates could also be deemed to be the
beneficial owners of 8,790,024 shares of the Corporation. However,
State Farm and each such affiliate disclaim beneficial ownership as to
all shares as to which each such person has no right to receive the
proceeds of sale of the shares, and also disclaim that they constitute
a "group".
5
SHARES BENEFICIALLY OWNED BY DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION
The Corporation encourages its executive officers ("Executive
Officers") to attain an investment position in the Corporation's stock equal to
their annual salary. The following table sets forth information concerning the
beneficial ownership of the Corporation's Common Stock as of February 27, 2004
for each director of the Corporation and each named executive officer listed in
the Summary Compensation Table and the number of shares beneficially owned by
all directors and executive officers of the Corporation as a group:
COMMON STOCK
AMOUNT AND NATURE PERCENT OF
NAME OF BENEFICIAL OWNERSHIP CLASS (1)
Juan J. Bermudez ......................... 588,651 (2) .4426
Jose B. Carrion Jr. ...................... 1,014,549 (3) .7628
Richard L. Carrion ....................... 1,124,612 (4) .8456
David H. Chafey Jr. ...................... 102,139 .0768
Antonio Luis Ferre ....................... 2,917,556 (5) 2.1937
Maria Luisa Ferre ........................ 3,124,267 (6) 2.3491
Hector R. Gonzalez ....................... 967,306 .7273
Jorge A. Junquera ........................ 120,525 (7) .0906
Manuel Morales Jr. ....................... 550,795 (8) .4141
Francisco M. Rexach Jr. .................. 219,181 (9) .1648
Frederic V. Salerno. ..................... 1,000 .0008
Felix J. Serralles Jr. ................... 429,660 (10) .3231
Jose R. Vizcarrondo ...................... 26,720 (11) .0201
Julio E. Vizcarrondo Jr. ................. 1,309,958 (12) .9849
Maria I. Burckhart ....................... 68,063 .0512
Carlos Colino ............................ 2,883 .0022
Roberto R. Herencia ...................... 20,000 .0150
Tere Loubriel ............................ 14,677 .0110
Emilio Pinero ............................ 40,541 .0305
Brunilda Santos .......................... 8,365 .0063
Carlos J. Vazquez ........................ 108,535 (13) .0816
Felix M. Villamil ........................ 5,325 .0040
All Directors and Executive Officers
of the Corporation as a group
(21 persons) ........................... 9,622,934 7.2353
(1) For purposes of this table, "beneficial ownership" is determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
pursuant to which a person or group of persons is deemed to have
"beneficial ownership" of a security if that person has the right to
acquire beneficial ownership of such security within 60 days. As of
March 1, 2004, there were 132,999,351 shares of Common Stock
outstanding.
(2) Excludes 15,897 shares owned by his wife, as to which Mr. Bermudez
disclaims beneficial ownership.
(3) Mr. Carrion Jr. owns 708,558 shares, has voting power over 524 shares
owned by his daughter and has voting and investment power over 292,606
shares owned by Collosa Corporation which he owns. Excludes 15,808
shares owned by his wife to which he disclaims beneficial ownership.
Junior Investment Corporation owns 4,434,846 shares of the Corporation.
Mr. Carrion Jr. owns .29% of the shares of said corporation.
(4) Mr. Carrion owns 304,725 shares and also has indirect investment power
over 25,493 shares owned by his children and 1,000 shares owned by his
wife. Junior Investment Corporation owns 4,434,846 shares of the
Corporation. Mr. Carrion owns 17.89% of the shares of said corporation.
(5) Mr. Ferre has direct or indirect investment and voting power over
2,917,556 shares of the Corporation. Mr. Ferre owns 4,473 shares and
has indirect investment and voting power over 3,200 shares owned by
South Management, Inc. and 400 shares owned by his wife. Mr. Ferre owns
51% of Ferre Investment Fund, Inc., which owns 1,483,484 shares of the
Corporation. Ferre Investment Fund, Inc. in turn owns 90% of El Dia,
Inc., which owns 1,425,978 shares of the Corporation.
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(6) Mrs. Ferre has direct or indirect investment and voting power over
3,124,267 shares of the Corporation. Mrs. Ferre owns 2,775 shares of
the Corporation and has indirect investment and voting power over
1,483,484 shares owned by Ferre Investment Fund, Inc., 210,600 shares
owned by The Luis A. Ferre Foundation, and 1,430 shares owned by RANFE,
Inc. Ferre Investment Fund, Inc., in turn owns 90% of El Dia, Inc.,
which owns 1,425,978 shares of the Corporation.
(7) Mr. Junquera owns 110,525 shares and has indirect investment power over
10,000 shares owned by his son and daughter.
(8) Mr. Morales owns 125,795 shares and has voting power over 425,000
shares owned by his parents, as their attorney-in-fact.
(9) Mr. Rexach owns 104,381 shares and has indirect voting power over
95,800 shares owned by his mother, as her attorney-in-fact, and over
19,000 shares held by Capital Assets, Inc. as President and
shareholder.
(10) Mr. Serralles owns 226,752 shares, and has indirect voting power over
10,292 shares owned by his wife. Mr. Serralles owns 100% of the shares
of Capitanejo, Inc. and Fao Investments, Inc., which own 117,020 and
5,596 shares, respectively, of the Corporation and has indirect
ownership of 70,000 shares owned by Destileria Serralles, Inc.
(11) Mr. Vizcarrondo owns 26,720 shares and disclaims beneficial ownership
over 146,507 shares owned by DMI Pension Trust, where he serves as
trustee and member of the investment committee.
(12) Mr. Vizcarrondo Jr. owns 211,658 shares and has indirect voting power
over 212,045 shares owned by his wife. His wife owns 18.18% of the
shares of Junior Investment Corporation, which owns 4,434,846 shares of
the Corporation. Mr. Vizcarrondo Jr. has indirect voting and investment
power over 1,471 shares held in trust by Vicar Enterprises, Inc. for
the benefit of his children, for which he disclaims beneficial
ownership. Mr. Vizcarrondo Jr. also disclaims beneficial ownership over
146,507 shares owned by DMI Pension Trust, where he serves as trustee
and member of the investment committee. There are 120,000 shares
belonging to the estate of Mr. Julio Vizcarrondo, Sr., over which Mr.
Vizcarrondo Jr. has investment power, but disclaims beneficial
ownership, except for 80,000 shares which Mr. Vizcarrondo Jr. will
inherit once the estate is divided and distributed.
(13) Mr. Vazquez owns 14,736 shares and has investment authority over 93,799
shares held by various family members.
***
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Corporation's directors and executive officers to file with the
Securities and Exchange Commission (SEC) reports of ownership and changes in
ownership of Common Stock of the Corporation. Officers and directors are
required by SEC regulation to furnish the Corporation with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such reports furnished to the
Corporation or written representations that no other reports were required, the
Corporation believes that, with respect to 2003, all filing requirements
applicable to its officers and directors were satisfied.
***
BOARD OF DIRECTORS AND COMMITTEES;
PROPOSAL 1: ELECTION OF DIRECTORS FOR A THREE-YEAR TERM
The Certificate of Incorporation and the Bylaws of the Corporation
establish a classified Board pursuant to which the Board is divided into three
classes as nearly equal in number as possible, with each class having at least
three members and with the term of office of one class expiring each year. Each
director serves for a term ending on the date of the third Meeting of
stockholders following the Meeting at which such director was elected or until
his successor has been elected and qualified.
At the Meeting, three (3) directors assigned to "Class 2" are to be
elected to serve until the 2007 Annual Meeting of Stockholders or until their
respective successors shall have been elected and qualified. Except as provided
in the second proposal, the remaining eight directors of the Corporation will
serve as directors, as follows: until the 2005 Annual Meeting of Stockholders of
the Corporation, in the case of those three directors assigned to "Class 3", and
until the 2006 Annual Meeting of Stockholders, in the case of those five
directors assigned to "Class 1", or in each case until their successors are
elected and qualified.
The policy of the Board, as set forth in a resolution
adopted on January 8, 1991, provides that no person shall be nominated for
election or reelection as director
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of the Board if at the date of the Meeting or during the term to be served such
person attains 72 years of age. Messrs. Hector R. Gonzalez and Julio E.
Vizcarrondo Jr. would attain 72 years of age during the term to be served. In
accordance with Board policy, Messrs. Gonzalez and Vizcarrondo will not be
nominated for reelection as directors.
The persons named as proxies in the accompanying Form of Proxy have
advised the Corporation that, unless otherwise instructed, they intend to vote
at the Meeting the shares covered by the proxies FOR the election of the five
nominees named below, and that if any one or more of such nominees should become
unavailable for election they intend to vote such shares FOR the election of
such substitute nominees as the Board may propose. The Corporation
has no knowledge that any nominee will become unavailable for election.
The Board met on a monthly basis during 2003. All directors attended
75% or more to the meetings of the Board and the committees of the Board on
which such directors served.
The Corporation's policy encourages directors to attend the
Corporation's annual meeting of stockholders. All the Corporation's directors
attended the last annual meeting of stockholders.
***
PROPOSAL 2: ELECTION OF DIRECTORS FOR A ONE-YEAR TERM
Effective April 30, 2004, two inside directors, Messrs. David H. Chafey
Jr. and Jorge A. Junquera, have elected to resign from the Board. In addition,
Mr. Antonio Luis Ferre, Vice Chairman of the Board, has elected to retire from
the Board and will resign effective April 30, 2004, after 20 years of service.
Mr. Ferre's term was due to expire in 2005, and he would not have been nominated
for reelection due to the Corporation's director retirement policy regarding
attainment of 72 years of age during the term to be served. As a result of the
resignations described above, the Board's three classes will not be as nearly
equal in number as possible, as provided in the Corporation's Articles of
Incorporation.
In order to have a Board divided in three classes as nearly equal in
number as possible, the Board proposes the election of two directors, Frederic
V. Salerno and Maria Luisa Ferre, as directors assigned to "Class 3" for a
one-year term. If Proposal 2 is approved, Mr. Salerno, who has been a director
of the Corporation since April 2003, will be re-assigned from a "Class 1"
director to a "Class 3" director, and each of the Board's classes will be
composed of three directors. Ms. Ferre who has been director of the Bank since
April 2000 will also become a director of the Corporation.
Information relating to principal occupation, business experience and
directorship during the past five (5) years (including positions held with the
Corporation or Banco Popular de Puerto Rico (the "Bank")), age and the period
during which each director has served is set forth below.
8
PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
NAME AND AGE AND DIRECTORSHIPS
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NOMINEES FOR ELECTION AS
CLASS 2 DIRECTORS
(TERMS EXPIRING IN 2007)
JOSE B. CARRION JR.: (67 YEARS)
- President of Collosa Corporation.
- Former President and Chief Executive
Officer ("CEO") of Barros & Carrion from
1992 to 1999.
- Director of the Bank since April 2000.
- Director of the Corporation since 2001.
MANUEL MORALES JR.: (58 YEARS)
- President of Parkview Realty, Inc., the
Atrium Office Center, Inc., HQ Business
Center P.R., Inc. and ExecuTrain of Puerto
Rico.
- Honorary General Consul of Japan in San
Juan, Puerto Rico.
- Member of the Board of Trustees of the
Caribbean Environmental Development
Institute and of Fundacion Angel Ramos,
Inc.
- Member of the Board of Directors of
Consular Corps College of the USA.
- Member of the Board of Trustees of
Fundacion Banco Popular, Inc.
- Chairman of the Audit Committee of the
Corporation until May 2003.
- Director of the Bank.
- Director of the Corporation since 1990.
JOSE R. VIZCARRONDO: (42 YEARS)
- Civil Engineer.
- Vice president and partner of Desarrollos
Metropolitanos, S.E., VMV Enterprises
Corporation, Resort Builders, S.E. and
Metropolitan Builders, S.E. All these
firms are dedicated to the development and
construction of residential, commercial,
industrial and institutional projects in
Puerto Rico.
- Member of the Board of Directors of the
Puerto Rico Chapter of the Associated
General Contractors of America from 1997
to present.
- President of the Puerto Rico Chapter of
the Associated General Contractors of
America until 2001.
- Member of the Construction Industry
Advisory Council to the Governor of
Puerto Rico until 2002.
- Member of the Private Industry Advisory
Council to the President of the Government
Development Bank until 2001.
- Member of the Board of Directors of the
not-for-profit organization Hogar Cuna San
Cristobal Foundation since 2002.
- Member of the Board of Directors of Puerto
Rico Home Builders Association since 2002.
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PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
NAME AND AGE AND DIRECTORSHIPS
--------------------------------------------------------------------------------
NOMINEES FOR ELECTION AS
CLASS 3 DIRECTORS
(TERMS EXPIRING IN 2005)
MARIA LUISA FERRE: (40 YEARS)
- President of Grupo Ferre Rangel, Ferre
Investment Fund and Asset Growth Fund (a
venture capital fund).
- Member of the Board of Directors of El
Nuevo Dia, Inc. and Editorial Primera
Hora Inc. (Puerto Rico newspapers), El
Nuevo Dia Orlando, and VIU Media (an
outdoor media company).
- President and Trustee of The Luis A. Ferre
Foundation (a not-for-profit organization)
- Vice President of the Ferre Rangel
Foundation (a philanthropic entity).
- Director of the Bank since April 2000.
FREDERIC V. SALERNO: (60 YEARS)
- Vice Chairman and Chief Financial Officer
of Verizon Communications, Inc. until
September 2002.
- Director of Avnet, Inc., Dun & Bradstreet
Corporation, Lynch Interactive
Corporation, and Heidrick & Struggles
International, Inc. (registered public
companies) until February 2004.
- Director of Akamai Technologies, Inc.,
Bear Stearns & Co., Inc., Consolidated
Edison, Inc., Viacom, Inc. and Gabelli
Asset Management, Inc. (registered public
companies).
- Chairman of the Audit Committee of the
Corporation since May 2003.
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PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
NAME AND AGE AND DIRECTORSHIPS
---------------------------------------------------------------------------------------------------------------------------------
CLASS 1 DIRECTORS
(TERMS EXPIRING IN 2006)
JUAN J. BERMUDEZ: (66 YEARS)
- Electrical Engineer.
- Partner of Bermudez and Longo, S.E., Decemcor, S.E., Unicenter, S.E.,
and PCME Commercial, S.E.
- Principal Stockholder and Director of BL Management, Corp., PCME Develop-
ment, Corp., G.S.P. Corp., Unimanagement Corp., LBB Properties, Inc., Homes
Unlimited Corp. and PS4 Corp.
- Chairman of the Trust Committee of the Bank.
- Director of the Bank.
- Director of the Corporation since 1990.
RICHARD L. CARRION: (51 YEARS)
- Chairman, President and Chief Executive Officer (CEO) of the Corporation and the
Bank.
- Chairman of Popular International Bank, Inc., Popular North America, Inc., Banco
Popular North America, Popular Cash Express, Inc., Banco Popular, National
Association and Popular FS, LLC.
- Chairman of the Board of Trustees of Fundacion Banco Popular, Inc.
- Member of the International Olympic Committee since 1990. Chairman of the
International Olympic Committee's Finance Commission and the TV & Internet Rights
Commission since January 2002.
- President of the Puerto Rico Olympic Trust and Member of the Puerto Rico Olympic
Committee.
- Member of the Board of Trustees of the Puerto Rico Committee for Economic
Development.
- Member of the Board of Directors, the Benefits & Human Resources Committee and the
Public Policy Committee of Verizon Communications, Inc. (a registered public
company).
- Member of the Board of Directors of Telecomunicaciones de Puerto Rico, Inc.(TELPRI)
- Member of the Board of Directors, the Audit Committee, and of the Compensation and
Benefits Committee of Wyeth (a registered public company).
- Director of Equity One, Inc., Popular Finance, Inc., Popular Auto, Inc., Popular
Mortgage, Inc., Popular Securities, Inc., Popular Insurance, Inc. and GM Group,
Inc.
- Director of the Corporation since 1990.
FRANCISCO M. REXACH JR.: (66 YEARS)
- President of Capital Assets, Inc. and Rexach Consulting Group.
- Chairman of Chamaleon Fitness Systems, Inc.
- Chairman of the Compensation Committee of the Corporation.
- Director of the Bank, Popular International Bank, Inc., Popular North America,
Inc., Banco Popular North America, Popular Cash Express, Inc. and Equity One, Inc.
- Director of the Corporation since 1990.
CLASS 3 DIRECTOR
(TERM EXPIRING IN 2005)
FELIX J. SERRALLES JR.: (69 YEARS)
- President and Chief Executive Officer of Destileria Serralles, Inc.,
manufacturers and distributors of distilled spirits, and of its affiliate
Mercedita Leasing, Inc.
- Director of the Bank.
- Director of the Corporation since 1984.
11
BOARD OF DIRECTORS INDEPENDENCE
The Board has determined that Messrs. Manuel Morales, Jr., Juan J.
Bermudez, Francisco M. Rexach, Jr., Frederic V. Salerno, Antonio Luis Ferre,
Hector R. Gonzalez and Felix J. Seralles Jr. have no material relationship with
the Corporation and are independent under the standards of the NASDAQ Stock
Market, Inc. ("NASDAQ"). Effective April 30, 2004, two non-independent
directors, Messrs. David H. Chafey Jr. and Jorge A. Junquera, will resign from
the Board. Mrs. Maria Luisa Ferre is expected to satisfy NASDAQ's independence
standards if elected as "Class 3" director.
The Corporation has a majority of independent directors. During 2003,
the independent directors met in executive sessions three times. After
conducting a self-assessment in December 2003, the Board agreed that the
"independent directors" would meet in executive sessions after each Board
meeting. The independent directors have met after every Board meeting held in
2004. Currently, there is no lead director and the independent directors
designate, on a rotational basis, who will preside at each executive session.
***
SHAREHOLDERS COMMUNICATION WITH THE BOARD
Any shareholder who desires to contact the Board or any of its members
may do so by writing to: Popular, Inc., Board of Directors (751), P.O. Box
362708, San Juan, PR 00936-2708. Alternatively, a shareholder may contact the
Corporation's Audit Committee or any of its members telephonically by calling
the toll-free number (866) 737-6813 or electronically through
www.ethicspoint.com. Communications received by the Audit Committee that are not
related to accounting or auditing matters, may be discretionally forwarded by
the Audit Committee or any of its members to other committees of the Board or
the Corporation's management for review.
***
STANDING COMMITTEES
The Board has standing Audit, Risk Management, Corporate Governance and
Nominating, and Compensation Committees.
COMPENSATION COMMITTEE
The Compensation Committee shall consist of three or more members of
the Board, each of whom the Board has determined has no material relationship
with the Corporation and each of whom is otherwise "independent" under NASDAQ's
rules. The Compensation Committee held three meetings during the fiscal year
ended December 31, 2003 and two meetings in the first quarter of 2004. The
purpose of the Compensation Committee is to discharge the Board's
responsibilities (subject to review by the full Board) relating to compensation
of the Corporation's senior executives and to produce an annual report on
executive compensation for inclusion in the Corporation's proxy statement, in
accordance with the rules and regulations of the SEC.
The duties and responsibilities of the Compensation Committee include,
among others, the following:
- consult with senior management to establish the Corporation's
general compensation philosophy and oversee the development and implementation
of compensation programs;
- review and approve the corporate goals and objectives relevant
to the compensation of the CEO;
- evaluate the performance of the CEO in light of those goals
and objectives;
- set the CEO's compensation level based on this evaluation;
- review and approve compensation programs applicable to
executive officers of the Corporation; and
- make recommendations to the Board with respect to the
Corporation's incentive compensation plans and equity-based plans, oversee the
activities of the individuals and committees responsible for administering these
plans and discharge any responsibilities imposed on the Committee by any of
these plans.
The Charter of the Compensation Committee is included in this document
as Annex A.
The Compensation Committee is composed of Francisco M. Rexach Jr., Juan
J. Bermudez, Hector R. Gonzalez and Felix J. Serralles Jr. None of the members
of the Committee are officers or employees of the Corporation or any of its
subsidiaries.
12
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
The Corporate Governance and Nominating Committee consists of three or
more members of the Board, each of whom the Board has determined has no material
relationship with the Corporation and each of whom is otherwise "independent"
under NASDAQ's rules. The Corporate Governance and Nominating Committee held
four meetings during the fiscal year ended December 31, 2003 and two meetings in
the first quarter of 2004. Mr. Jose B. Carrion Jr. resigned from the Committee
in February 11, 2004 after it was determined that, in accordance with the NASDAQ
rules, he did not qualify as an "independent director."
The purpose of the Corporate Governance and Nominating Committee is as
follows:
- identify and recommend individuals to the Board for nomination
as members of the Board and its committees;
- identify and recommend individuals to the Board for nomination
as CEO and Chairman of the Corporation;
- promote the effective functioning of the Board and its
committees; and
- develop and recommend to the Board a set of corporate
governance principles applicable to the Corporation, and to review these
principles at least once a year.
Under the Corporate Governance Guidelines, the Board should, based on
the recommendations of the Corporate Governance and Nominating Committee, select
new nominees for the position of independent director considering the following
criteria:
- Personal qualities and characteristics, accomplishments and
reputation in the business community;
- Current knowledge and contacts in the communities in which the
Corporation does business and in the Corporation's industry or other industries
relevant to the Corporation's business;
- Ability and willingness to commit adequate time to Board and
committee matters;
- The fit of the individual's skills and personality with those
of other directors and potential directors in building a Board that is
effective, collegial and responsive to the needs of the Corporation; and
- Diversity of viewpoints, background, experience and other
demographics.
The Corporate Governance and Nominating Committee will consider
nominees recommended by shareholders. There are no differences in the manner in
which the Corporate Governance and Nominating Committee evaluates nominees for
director based on whether the nominee is recommended by a shareholder. The
Corporate Governance and Nominating Committee did not receive any
recommendation from shareholders for the Meeting.
Shareholders who wish to submit nominees for director for consideration
by the Corporate Governance and Nominating Committee for election at the
Corporation's 2005 annual meeting of shareholders may do so by submitting in
writing such nominees' names and a brief description of the nominees' judgment,
skills, diversity, and experiences with businesses and other organizations to
the Secretary of the Board of Directors at Popular, Inc., 209 Munoz Rivera
Avenue, Hato Rey, Puerto Rico, 00918, prior to November 1, 2004.
At its December 10, 2003 and February 11, 2004 meetings, the Corporate
Governance and Nominating Committee approved the nominations of Jose R.
Vizcarrondo and Maria Luisa Ferre for inclusion as Class 2 and Class 3
directors, respectively, in the Corporation's 2004 Proxy Card. Both nominees
approved for inclusion in the Proxy Card were recommended by the Corporation's
CEO.
On December 11, 2002, the Corporation adopted a Code of Business
Conduct and Ethics (the "Code" ) with rules to be followed by the Corporation's
employees, officers (including the Chief Executive Officer, Chief Financial
Officer and Comptroller) and directors in order to achieve a conduct that
reflects the Corporation's ethical principles. Certain portions of the Code deal
with activities of directors, particularly with respect to transactions in the
securities of the Corporation and potential conflicts of interest. Directors,
executive officers and employees should be familiar with the Code and consult
with the Corporation's General Counsel or the appropriate Human Resources
Division in the event of any issues. During 2003, the Corporation's General
Counsel did not receive any request from directors or executive officers for
waivers under the provisions of the Code. The Code is included as an exhibit on
the Corporation's Annual Report on Form 10-K and is available at the
Corporation's website, www.popularinc.com.
The Corporate Governance and Nominating Committee Charter and the
Corporate Governance Guidelines are included in this document as Annex B and C,
respectively, and are also available on the Corporation's website,
www.popularinc.com.
The Corporate Governance and Nominating Committee is composed of Juan
J. Bermudez, Francisco M. Rexach Jr., Felix J. Serralles Jr. and Frederic V.
Salerno.
13
AUDIT COMMITTEE REPORT
AUDIT COMMITTEE
The Audit Committee shall consist of at least three members of the
Board. The members of the Audit Committee shall each have been determined by the
Board to be "independent" as required by NASDAQ's listing standards. Currently,
the Audit Committee is comprised of four outside directors. The Audit Committee
held nine meetings during the fiscal year ended December 31, 2003.
The Audit Committee's primary purpose is to assist the Board in its
oversight of the accounting and financial reporting processes of the
Corporation, as well as the oversight of the audits of the financial statements
of the Corporation. The Committee operates pursuant to a Charter that was last
amended and restated by the Board on January 16, 2004 and is included in this
document as Annex D.
In the performance of its oversight function, the Committee has
considered and discussed the audited financial statements of the Corporation for
the fiscal year ended December 31, 2003 with management and
PricewaterhouseCoopers LLP, the Corporation's independent accountants. The Audit
Committee has also discussed with the independent auditors the matters required
to be discussed by Statement on Auditing Standards No. 61, as amended,
Communication with Audit Committees. Finally, the Committee has received the
written disclosures and the letter from PricewaterhouseCoopers LLP required by
Independence Standards Board Standard No. 1, as amended, Independence Discussion
with Audit Committees, has considered whether the provision of non-audit
services by the independent auditors to the Corporation is compatible with
maintaining the auditors' independence, and has discussed with the independent
auditors the auditors' independence from the Corporation and its management.
These considerations and discussions, however, do not assure that the audit of
the Corporation's financial statements has been carried out in accordance with
generally accepted auditing standards, that the financial statements are
presented in accordance with generally accepted accounting principles or that
the Company's auditors are in fact "independent."
As set forth in the Charter, the management of the Corporation is
responsible for the preparation, presentation and integrity of the Corporation's
financial statements. Furthermore, management and the Internal Audit Division
are responsible for maintaining appropriate accounting and financial reporting
principles and policies, and internal controls and procedures that provide for
compliance with accounting standards and applicable laws and regulations.
PricewaterhouseCoopers LLP, the Corporation's independent public accountants,
are responsible for auditing the Corporation's financial statements and
expressing an opinion as to their conformity with generally accepted accounting
principles in the United States of America.
The members of the Audit Committee are not engaged professionally in
the practice of auditing or accounting and are not employees of the Corporation.
The Corporation's management is responsible for its accounting, financial
management and internal controls. As such, it is not the duty or responsibility
of the Audit Committee or its members to conduct "field work" or other types of
auditing or accounting reviews or procedures to set auditor independence
standards.
Based on the Audit Committee's consideration of the audited financial
statements and the discussions referred to above with management and the
independent auditors, and subject to the limitations on the role and
responsibilities of the Audit Committee set forth in the Charter and those
discussed above, the Committee recommended to the Board that the Corporation's
audited financial statements be included in the Corporation's Annual Report on
Form 10-K for the year ended December 31, 2003 for filing with the SEC.
Submitted by:
Frederic V. Salerno (Chairman)
Hector R. Gonzalez
Francisco M. Rexach Jr.
Felix J. Serralles Jr.
14
AUDIT COMMITTEE FINANCIAL EXPERT
The Board has determined that Frederic V. Salerno is an audit committee
financial expert as defined by Item 401(h) of Regulation S-K of the Securities
Exchange Act of 1934, as amended, and is independent within the meaning of Item
7(d)(3)(iv) of Schedule 14A of the Securities Exchange Act of 1934. For a brief
listing of Mr. Salerno's relevant experience, please refer to the Board of
Directors and Committees Section.
COMPENSATION OF DIRECTORS
Since March 7, 2001, outside directors of the Corporation and the Bank
became eligible to receive stock options pursuant to the 2001 Stock Option Plan
(the "2001 Option Plan"). The 2001 Option Plan award is made quarterly on
February, May, August and November of each year. The amount of stock options
granted is equal to the quotient (rounded to the nearest whole share) of (x)
6,250 and (y) the value of the option based on the closing price of the Common
Stock of the Corporation on the date granted. Option values on the grant dates
were determined by using the Black-Scholes Option Valuation Model. Each director
has been granted options to purchase the shares of stock of the Corporation. The
options granted shall, subject to early vesting provision of the 2001 Option
Plan, become exercisable, with respect to 20% of the shares on each anniversary
of the date of grant and remain exercisable until the 10th anniversary of the
grant.
In addition, directors receive $1,000 for attending each Board meeting
and $500 for attending each committee meeting. Directors who are employees of
the Corporation do not receive fees for attending Board and committee meetings.
15
EXECUTIVE OFFICERS
The following information sets forth the names of the Executive Officers
of the Corporation including their age, business experience and directorships
during the past five (5) years and the period during which each such person has
served as an Executive Officer of the Corporation or the Bank.
BUSINESS EXPERIENCE
NAME AND AGE AND DIRECTORSHIPS
------------ -----------------
RICHARD L. CARRION: (51 YEARS)
- Chairman of the Board since 1993.
- President and CEO of the Corporation since 1990.
- For information about principal occupation, business experience
and directorships during the past five years please refer to
the Board of Directors and Committees section.
JORGE A. JUNQUERA: (55 YEARS)
- Senior Executive Vice President of the Corporation since 1990.
- Chief Financial Officer of the Corporation and the Bank.
- Supervisor of the Financial Management Group.
- Supervisor of the U.S. Operations from January 1996 to December
2001.
- Supervisor of the Caribbean and Latin America Expansion Group
since January 1996.
- President and Director of Popular International Bank, Inc. and
Popular North America, Inc. since January 1996.
- Chairman of the Board of Popular Securities, Inc.
- Director of the Bank until April 2000 and from 2001 to present.
- President of Banco Popular North America until December 2001.
- Director of Puerto Rico Tourism Company until April 2000.
- President of Hotel Development Co. until April 2000.
- Director of PRISMA: El Exploratorio Inc. until April 2000.
- Director of YMCA since 1988.
- President of Banco Popular, National Association.
- Director of Equity One, Inc., Popular Cash Express, Inc.,
Popular FS, LLC, Popular Leasing USA, Inc. and of Banco Popular
North America.
- Director of Banco Hipotecario Dominicano and Consorcio de Tarjetas Dominicanas, S.A.
- Director of New America Alliance (a registered public company)
and Virtual, Inc. (an Internet company).
- Director of La Familia Catolica por la Familia en las Americas
since 2001.
- Director of King's College since 2003.
- Director of the Corporation until April 2004.
DAVID H. CHAFEY JR.: (50 YEARS)
- Senior Executive Vice President of the Corporation since 1990.
- Supervisor of the Bank's Retail Banking Group since January
1996.
- Senior Executive Vice President of Popular International Bank,
Inc. and Popular North America, Inc.
- Chairman of the Board of Popular Finance, Inc.
- Chairman and President of Puerto Rico Investors Tax-Free Fund,
Inc. I, II, III, IV, V, VI, of Puerto Rico Tax-Free Target
Maturity Fund, Inc. I and II and of Puerto Rico Investors
Flexible Allocation Fund since January 1999.
16
BUSINESS EXPERIENCE
(CONT.) NAME AND AGE AND DIRECTORSHIPS
-------------------- -----------------
DAVID H. CHAFEY JR.: (50 YEARS)
- Member of the San Jorge Children's Research Foundation, Inc.
- President of the Puerto Rico Bankers Association until October
2002.
- Director of Visa International for the Caribbean and Latin
America.
- Director of Equity One, Inc. and Banco Popular North America
until December 1999.
- Director of Grupo Guayacan, Inc.
- Director of the Bank, Popular Mortgage, Inc., Popular Auto,
Inc., GM Group, Inc., Banco Popular, National Association,
Popular Insurance, Inc. and Popular Securities, Inc.
- Director of the Corporation until April 2004.
MARIA I. BURCKHART: (55 YEARS)
- Executive Vice President of the Corporation since 1990.
- Supervisor of the Administration Group.
- Executive Vice President of Popular International Bank, Inc.
and Popular North America, Inc.
- Member of the Board of Trustees of Fundacion Banco Popular,
Inc. since 1990.
- Member of the Board of Directors of Fundacion Ana G. Mendez,
since 1992.
- Member of the Board of Directors of the Puerto Rico Community
Foundation from 1993 through 2002.
- Member of the Board of Directors of the Bankers Club since
1998.
- Member of the Board of Trustees of the Puerto Rico Museum of
Art since 2000.
- Member of the Board of Trustees of the University of Puerto
Rico School of Architecture since 2003.
CARLOS COLINO: (57 YEARS)
- Executive Vice President of the Corporation since 2002.
- Chairman and Chief Executive Officer of GM Group, Inc., a
subsidiary of the Corporation, since August 2002.
- Chief Executive Officer of E-Global, provider of payment system
and electronic banking, from February 1998 through July 2002.
ROBERTO R. HERENCIA: (44 YEARS)
- Executive Vice President of the Corporation since 1997.
- President and Director of Banco Popular North America since
December 2001.
- Head of the Corporation's U.S. business expansion.
- Director of Popular International Bank, Inc., Popular North
America, Inc., Popular Cash Express, Inc., Banco Popular,
National Association, Equity One, Inc., Popular Leasing USA,
Inc. and Popular FS, LLC.
- Chairman of the Board of Directors of Popular Insurance Agency
USA, Inc.
- Member of the Board of Directors of The ServiceMaster Company
(a registered public company).
17
BUSINESS EXPERIENCE
NAME AND AGE AND DIRECTORSHIPS
------------ -----------------
TERE LOUBRIEL: (51 YEARS)
- Executive Vice President of the Corporation since 2001.
- Director of Human Resources since April 2000.
- Year 2000 Office Manager of the Corporation from December 1997
to 2000.
- Director of the Puerto Rico Society of Certified Public
Accountants since February 2004.
EMILIO E. PINERO: (55 YEARS)
- Executive Vice President of the Corporation since 1990.
- Supervisor of the Commercial Banking Group.
- Director of Popular Mortgage, Inc. and Popular Auto, Inc.
- Executive Vice President of Popular International Bank, Inc.
and Popular North America, Inc.
- Member of the Board of Trustees of Fundacion Luis Munoz Marin
and of the Puerto Rico Society of Certified Public Accountants
Foundation.
- Director of Sapientis, Inc.
BRUNILDA SANTOS DE ALVAREZ: (45 YEARS)
- Executive Vice President of the Corporation since 2001.
- General Counsel of the Corporation since 1997.
- Senior Vice President from March 1996 until January 2001.
- Secretary of the Board of Directors of Popular International
Bank, Inc., Banco Popular North America, GM Group, Inc.,
Popular Cash Express, Inc., Banco Popular, National
Association, Popular Insurance, Inc., Popular Securities, Inc.,
Levitt Mortgage Corporation, Popular Insurance Agency USA,
Inc., Popular Auto, Inc., Popular Finance, Inc., Popular
Mortgage, Inc., Equity One, Inc., Popular North America, Inc.,
Popular RE , Inc. and Popular FS, LLC.
- Secretary of the Board of Directors of Puerto Rico Investors
Tax Free Fund, Inc. I, II, III, IV, V, VI, of Puerto Rico Tax
Free Target Maturity Fund, Inc. I and II, and of Puerto Rico
Investors Flexible Allocation Fund, Inc.
- Assistant Secretary of the Board of Directors of the
Corporation and the Bank since May 1994.
- Member of the Board of Regents, Colegio Puertorriqueno de Ninas
since June 2002.
CARLOS J. VAZQUEZ: (45 YEARS)
- Executive Vice President of the Corporation since 1997.
- Supervisor of the Corporation's Risk Management Group.
- Director of Popular Securities, Inc. and Popular RE, Inc.
- Director of the Puerto Rico Community Foundation and Teatro de
la Opera, Inc.
FELIX M. VILLAMIL: (42 YEARS)
- Executive Vice President of the Corporation since 2002.
- Supervisor of the Operations Group since April 2002.
- Supervisor of the Bank's Ponce Region from April 2001 until
December 2001.
- Supervisor of the Credit Risk Management Division of the Bank
from 1997 through March 2001.
SAMUEL T. CESPEDES: (67 YEARS)
- Secretary of the Board of Directors of the Corporation and the
Bank since 1991.
- Attorney-at-Law.
- Senior Counsel of the law firm McConnell Valdes.
- Secretary of the Board of Directors of Puerto Rico Medical
Defense Mutual Insurance Company.
18
FAMILY RELATIONSHIPS
Mr. Richard L. Carrion, Chairman of the Board and President and CEO of
the Corporation and the Bank, is the uncle of Mr. Jose R. Vizcarrondo, nominee
for Director of the Corporation.
***
OTHER RELATIONSHIPS, TRANSACTIONS AND EVENTS
During 2003 the Corporation engaged, in the ordinary course of
business, the legal services of the law firm McConnell Valdes, of which Mr.
Samuel T. Cespedes, Secretary of the Board of Directors of the Corporation and
the Bank, is a Senior Counsel. The amount of fees paid to McConnell Valdes for
fiscal year 2003 amounted to $620,076. The Corporation also engaged, in the
ordinary course of business, the legal services of Pietrantoni, Mendez &
Alvarez, LLP of which Mr. Ignacio Alvarez and Mr. Antonio Santos, husband and
brother, respectively, of Mrs. Brunilda Santos de Alvarez, Executive Officer of
the Corporation, are partners. The amount of fees paid to Pietrantoni, Mendez &
Alvarez for fiscal year 2003 amounted to $881,286.
The Bank has had loan transactions with the Corporation's directors and
officers, and with their associates, and proposes to continue such transactions
in the ordinary course of its business, on substantially the same terms,
including interest rates and collateral, as those prevailing for comparable loan
transactions with other people and subject to the provisions of the Banking Act
of the Commonwealth of Puerto Rico, the Sarbanes-Oxley Act and other applicable
federal laws and regulations. The extensions of credit have not involved and do
not currently involve more than normal risks of collectibility or present other
unfavorable features.
On August 25, 2000, the Corporation acquired 19.99% of Mediawire
Communications, Inc.'s ("Mediawire") common stock for $800,000. On June 30,
2003, the Corporation liquidated its participation in Mediawire and the Bank
acquired 100% of Mediawire's assets for $3,152,000. Subsequently, officers and
employees of Mediawire became Bank employees, creating a new division called
Technology Research Division. Mr. Manuel A. Morales, son of Manuel Morales Jr.,
a director of the Corporation, owned 26% of Mediawire. The Bank used the
discounted cash flow method and a market comparables analysis to determine the
purchase price of Mediawire's assets. Mr. Manuel Morales Jr. did not have any
direct or indirect interest on Mediawire.
During 2003, Carrion, Laffitte & Casellas, Inc. earned commissions of
$1,694,515 for the institutional insurance business of the Corporation and its
subsidiaries. Jose B. Carrion, III, son of Jose B. Carrion Jr., a director of
the Corporation, is a significant shareholder of Carrion, Laffitte & Casellas,
Inc. Jose B. Carrion Jr. does not have any direct or indirect interest in
Carrion, Laffitte & Casellas, Inc.
Mr. Jose R. Vizcarrondo who is nominated for election as director, is
an officer and partner of Metropolitan Builders, S.E., a special partnership
under the laws of the Commonwealth of Puerto Rico. Metropolitan Builders, S.E.
has been awarded approximately $52,000,000 in contracts related to two Bank
construction projects. The award of these contracts was determined by
competitive bids. During 2003, Metropolitan Builders, S. E. invoiced
approximately $22,000,000 in relation to these projects.
Mrs. Maria Luisa Ferre has a material interest in Virtual, Inc., a
company where the Corporation has invested $1,826,166. In addition, the
Corporation has invested $4,002,333 and $1,500,000 in Guayacan Private Equity
Fund Limited Partnership and Venture Capital Fund, Inc., respectively. Mrs.
Ferre's husband is the president of the two companies that are the
administrators of these funds, Advent Morro Equity Partners and Venture
Management, Inc., respectively. In 2003, the Bank paid rent of $27,534 to CV
Plaza S.E., a special partnership controlled by the Ferre Rangel Family.
In 2003, the Bank made a contribution of $3,683,137 to Fundacion Banco
Popular, Inc. (the "Fundacion"), a Puerto Rico not-for-profit corporation
created to improve the Puerto Ricans' quality of life. The Fundacion is the
Bank's philanthropic arm and provides a scholarship fund for employees'
children, and supports education and community development projects. Richard L.
Carrion (Chairman, CEO and President of the Corporation), Manuel Morales Jr.
(Director of the Corporation), and Maria I. Burckhart (Executive Officer of the
Corporation) are members of the Board of Trustees of the Fundacion. The Bank
appoints five of nine members of the Board of Trustees. The remaining four
trustees are appointed by the Fundacion. The Bank also provides significant
human and operational resources to support the activities of the Fundacion.
The Bank and its employees (through voluntary personal donations) are
the main source of funds of the Fundacion.
19
PROPOSAL 3: RATIFICATION OF SELECTION OF AUDITORS
The Board intends to retain the services of PricewaterhouseCoopers LLP
as the independent public auditors of the Corporation for the year 2004.
PricewaterhouseCoopers LLP has served as independent public auditors of the Bank
since 1971 and of the Corporation since May 1991, when it was appointed by the
Board.
Neither the Corporation's Certificate of Incorporation nor its By-Laws
requires that the shareholders ratify the selection of PricewaterhouseCoopers
LLP as our independent auditors. We are doing so because we believe it is a
matter of good corporate practice. If the shareholders do not ratify the
selection, the Board and the Audit Committee will reconsider whether or not to
retain PricewaterhouseCoopers LLP, but may retain such independent auditors.
Even if the selection is ratified, the Board and the Audit Committee in their
discretion may change the appointment at any time during the year if they
determine that such change would be in the best interest of the Corporation and
its shareholders.
Representatives of PricewaterhouseCoopers LLP will attend the Meeting
and will be available to respond to any appropriate questions that may arise;
they will also have the opportunity to make a statement if they so desire.
The selection of PricewaterhouseCoopers LLP as the Corporation's
auditors must be ratified by a majority of the votes cast at the Meeting.
The Board recommends that you vote FOR ratification of
PricewaterhouseCoopers LLP as the Corporation's independent auditors for 2004.
***
DISCLOSURE OF AUDITORS' FEES
The following is a description of the fees billed to the Corporation by
PricewaterhouseCoopers LLP for the years ended December 31, 2003 and 2002:
AUDIT FEES
The aggregate fees billed by PricewaterhouseCoopers LLP for the audit
of the Corporation's annual financial statements for the years ended December
31, 2003 and 2002 and for the reviews of the financial statements included in
the Corporation's quarterly reports on Form 10-Q were $1,746,988 and $1,308,398,
respectively.
AUDIT-RELATED FEES
The aggregate fees billed by PricewaterhouseCoopers LLP to the
Corporation for the years ended December 31, 2003 and 2002 for audit-related
services were $647,300 and $317,661, respectively. Audit related fees generally
include fees for assurance services such as audits of pension plans, compliance
related to servicing of assets, assistance with securitizations and SAS 70
reports.
TAX FEES
The aggregate fees billed by PricewaterhouseCoopers LLP to the
Corporation for the years ended December 31, 2003 and 2002 for tax related
services were $358,166 and $455,557, respectively. These fees are associated
with tax return preparation and tax consulting services.
ALL OTHER FEES
The aggregate fees billed by PricewaterhouseCoopers LLP to the
Corporation for the years ended December 31, 2003 and 2002 for services not
included above were $385,000 and $81,500, respectively. All other fees include
mainly consulting services related to regulatory compliance matters.
The Audit Committee has established controls and procedures that
require the pre-approval of all audit and permissible non-audit services
provided by PricewaterhouseCoopers LLP or another firm. The Audit Committee may
delegate to one or more of its members the authority to pre-approve any audit or
permissible non-audit services. Under the pre-approval controls and procedures,
audit services for the Corporation are negotiated annually. In the event that
any additional audit services not included in the annual negotiation or
permissible non-audit services are required by the Corporation, a proposed
engagement letter should be obtained from the auditor and evaluated by the Audit
Committee or the member(s) of the Audit Committee with authority to pre-approve
auditor services. Any decisions to pre-approve such audit and non-audit services
and fees shall be reported to the full Audit Committee at its next regular
meeting. The Audit Committee has considered that the provision of the services
covered by this paragraph is compatible with maintaining the independence of the
independent public auditors of the Corporation. During 2003 all auditors fees
were pre-approved by the Audit Committee or the Board.
20
RESTATED ARTICLES OF INCORPORATION
PROPOSAL 4. AMENDMENT TO THE ARTICLE FIFTH OF THE RESTATED ARTICLES OF
INCORPORATION
The Board recommends the amendment of Article Fifth of the
Corporation's Restated Articles of Incorporation in the manner shown in Annex E
hereto. The proposed text of Article Fifth set forth in Annex E assumes
shareholder approval of this proposal and the proposal to increase the
authorized shares of Preferred Stock. The proposed Amendment to Article Fifth
would change the number of authorized shares of the Corporation's Common Stock
from one-hundred and eighty million (180,000,000) shares to four hundred and
seventy million (470,000,000) shares. This change would be effective upon the
date of filing the Amendment to the Restated Articles with the Department of
State in the Commonwealth of Puerto Rico.
The Board believes that it is in the best interest of the Corporation
and its shareholders that the Corporation have a sufficient number of authorized
but unissued shares of Common Stock available for possible use in future
acquisition and expansion opportunities that may arise, for general corporate
needs such as future stock dividends or stock splits, and for other proper
purposes within the limitations of the law, as determined by the Board. The
Corporation has no current plans to use its authorized but unissued shares of
Common Stock for any particular purpose. Such shares would be available for
issuance without further action by the shareholders, except as otherwise limited
by applicable law.
If additional shares of Common Stock are issued by the Corporation, it
may potentially have an anti-takeover effect by making it more difficult to
obtain shareholders' approval of various actions, such as a merger. Also, the
issuance of additional shares of Common Stock may have a dilutive effect on
earnings per share and equity, and may have a dilutive effect on the voting
power of existing shareholders if the preferential rights provided in Article
Sixth are not applicable. The terms of any Common Stock issuance will be
determined by the Board, will depend upon the reason for the issuance and
largely on market conditions and other factors existing at the time. The
increase in authorized shares of Common Stock has not been proposed in
connection with any anti-takeover related purpose and the Board and management
have no knowledge of any current efforts by anyone to obtain control of the
Corporation or to effect large accumulations of the Corporation's Common Stock.
The resolution attached to this proxy as Annex E will be submitted for
adoption at the Meeting. The affirmative vote of a majority of the holders of
shares of Common Stock of the Corporation is necessary to adopt the proposed
amendment in accordance with the terms of Article Fifth of the Restated Articles
of Incorporation. Proxies will be voted for the resolutions unless otherwise
instructed by the stockholders. Abstentions and shares not voted by brokers and
other entities holding shares on behalf of beneficial owners will have the same
effect as votes cast against the proposed Amendment. The Board has declared the
desirability of the adoption of this amendment and recommends a vote FOR the
resolution.
***
RESTATED ARTICLES OF INCORPORATION
PROPOSAL 5. AMENDMENT TO THE ARTICLE FIFTH OF THE RESTATED ARTICLES OF
INCORPORATION
The Board recommends the amendment of Article Fifth of the
Corporation's Restated Articles of Incorporation in the manner shown in Annex E
hereto. The proposed text of Article Fifth set forth in Annex E assumes
shareholder approval of this proposal and the proposal to increase the
authorized shares of Common Stock. The proposed Amendment to Article Fifth would
increase the number of authorized shares of the Corporation's Preferred Stock,
from ten million (10,000,000) shares to thirty million (30,000,000) shares. This
change would be effective upon the date of filing the Amendment to the Restated
Articles with the Department of State in the Commonwealth of Puerto Rico.
The Board believes that the proposed increase in the number of
authorized shares of Preferred Stock is necessary to maintain a balanced capital
structure for the Corporation and allow for possible use in future acquisition
and expansion opportunities that may arise, for general corporate needs, and for
other proper purposes within the limitations of the law, as determined by the
Board. The Corporation has no current plans to use its authorized but unissued
shares of Preferred Stock for any particular purpose. Such shares would be
available for issuance without further action by the shareholders, except as
otherwise limited by applicable law.
The availability of the shares of Preferred Stock for issuance, without
the delay and expense of obtaining the approval of shareholders at a special
meeting, will afford the Corporation greater flexibility and efficiency in
acting upon proposed transactions. The Corporation has no plans to issue
additional shares of Preferred Stock in the immediate future. The shares of
Preferred Stock may be issued in one or more series from time to time for such
corporate purposes and consideration as the Board may approve and no further
vote
21
of shareholders of the Corporation will be required except as may be required by
applicable law or by any rule of a securities exchange or automated quotation
system applicable to the Corporation. The Board will have broad discretion with
respect to designating and establishing the terms of each series of Preferred
Stock prior to its issuance. The Board may provide for each series:
- voting rights, if any,
- the number of shares constituting the series,
- the dividend rate of such series, the condition and dates in
which such dividends shall bear to the dividends payable on any other class or
classes or on any other series of any class or classes of capital stock of the
Corporation, and whether such dividends shall be cumulative or non-cumulative,
- whether the shares of such series shall be subject to
redemption by the Corporation, and, if made subject to redemption, the times,
prices and other terms and conditions of such redemption,
- the rights of holders of the shares of such series upon the
dissolution of, or upon the distribution of assets of the Corporation, which
rights may be different in case of a voluntary dissolution than in the case of
involuntary dissolution,
- sinking fund provisions, if any, for the redemption or
purchase of shares,
- the terms and conditions, if any, on which shares may be
converted into or exchanged for shares of Common Stock or other capital stock or
securities of the Corporation, and
- any other rights and preferences of the shares, to the full
extent now or hereafter permitted by the laws of the Commonwealth of Puerto
Rico.
All shares of Preferred Stock which may be redeemed or retired by
sinking fund payment, repurchased by the Corporation or converted into Common
Stock, shall have the status of authorized and unissued shares of Preferred
Stock and may be reissued by the Board as shares of the same or any other
series, unless otherwise provided with respect to any series in the resolution
of the Board creating such series.
Ownership of shares of Preferred Stock will not entitle the holder
thereof to any preemptive rights to subscribe for or purchase any additional
securities issued by the Corporation.
Upon the issuance of any series of Preferred Stock, the holders of
shares of such series will have certain preferences over the holders of
outstanding shares of Common Stock, depending upon the specific terms of such
series designated by the Board. For example, the provisions of a particular
series of Preferred Stock could prohibit the declaration and payment of
dividends on the Common Stock until full dividends on all outstanding shares of
such series for all past periods and for the current dividend period shall have
been declared and paid by the Corporation or the Corporation shall have set
apart a sum sufficient for such payment. In addition, to the extent that
Preferred Stock is made convertible into Common Stock, such conversion would
result in dilution of the voting power and equity interest of holders of Common
Stock.
In the event of any dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of each series of the
then outstanding Preferred Stock will be entitled to receive the amount fixed
for such purpose by the Board together with all accumulated and unpaid
dividends. Depending upon the consideration paid for any series of Preferred
Stock and the liquidation preference of such series, the issuance thereof could
result in a reduction in the assets available for distribution to the holders of
Common Stock in the event of the liquidation of the Corporation.
The outstanding shares of any series of Preferred Stock, or any part
thereof, which are by their terms redeemable, may be redeemed at any time at the
option of the Corporation, subject to and in accordance with such terms and
conditions as may be designated by the Board in creating such series. Subject to
the terms and conditions established by the Board in creating the various series
of Preferred Stock, the Corporation may redeem all or any part of the shares of
any series of Preferred Stock without redeeming all or any part of the shares of
any other series.
Preferred Stock could be issued to delay or defeat a change in control
of the Corporation and, accordingly, under certain circumstances, could
discourage transactions that might otherwise have a favorable effect on the
price of the Common Stock. The Corporation does not currently expect to use the
Preferred Stock for this purpose and the increase in authorized shares of
Preferred Stock has not been proposed in connection with any anti-takeover
related purpose.
The resolution attached to this proxy as Annex E will be submitted for
adoption at the Annual Stockholders meeting. The affirmative vote of a majority
of the holders of shares of Common Stock of the Corporation is necessary to
adopt the proposed amendment in accordance with the terms of Article Fifth of
the Restated Articles of Incorporation. Proxies will be voted for the
resolutions unless otherwise instructed by the shareholders. Abstentions and
shares not voted by brokers and other entities holding shares on behalf of
beneficial owners will have the same effect as votes cast against the proposed
Amendment. The Board of Directors has declared the desirability of the adoption
of this amendment and recommends a vote FOR the resolution.
22
RESTATED ARTICLES OF INCORPORATION
PROPOSAL 6. AMENDMENT TO THE ARTICLE EIGHTH OF THE RESTATED ARTICLES OF
INCORPORATION
The Board recommends the amendment of Article Eighth of the
Corporation's Restated Articles of Incorporation in the manner shown in Annex F.
Section 1 of Article Eighth provides that the Board shall be composed of such
number of directors as are established from time to time by the Board and
approved by an absolute majority of directors; provided, however, that the total
number of directors shall always be an odd number of not less than nine (9) nor
more than twenty-five (25). The proposed Amendment to Article Eighth would
eliminate the requirement that the total number of directors shall always be an
odd number. This change would be effective upon the date of filing the Amendment
to the Restated Articles with the Department of State in the Commonwealth of
Puerto Rico.
The purpose of the odd number requirement for the total number of
directors is to facilitate the determination of a majority of votes whenever a
matter is reviewed and voted upon by the directors. The Board believes that this
requirement is related to a procedural matter that should be properly addressed
in the Corporation's By-Laws.
The resolution attached to this proxy as Annex F will be submitted for
adoption at the Meeting. The affirmative vote of two-thirds of the holders of
shares of Common Stock of the Corporation is necessary to adopt the proposed
amendment. Abstentions and shares not voted by brokers and other entities
holding shares on behalf of beneficial owners will have the same effect as votes
cast against the proposed amendment. Abstentions and shares not voted by brokers
and other entities holding shares on behalf of beneficial owners will have the
same effect as votes cast against the proposed amendment. The Board has declared
the desirability of the adoption of this amendment and recommends a vote FOR the
resolution.
23
PROPOSAL 7: APPROVAL OF THE CORPORATION'S 2004 OMNIBUS INCENTIVE PLAN
On February 24, 2004, the Board of the Corporation formally adopted the
new Popular, Inc. Omnibus Incentive Plan (the "Omnibus Plan"), subject to
shareholder approval. The Omnibus Plan provides for equity-based compensation
incentives through the grant of stock options, stock appreciation rights,
restricted stock, restricted stock units and dividend equivalents, as well as
cash and equity-based performance awards.
The Corporation currently has in effect the Popular, Inc. 2001
Option Plan, which provides for the grant of stock options. In the event the
Omnibus Plan is approved by the requisite vote of shareholders, no further
awards will be made under the 2001 Option Plan, although outstanding awards
under the 2001 Option Plan will continue in accordance with their terms.
OVERVIEW
The purpose of the Omnibus Plan is to provide flexibility to the
Corporation and its affiliates to attract, retain and motivate their officers,
executives and other key employees through the grant of awards and to adjust the
Corporation's compensation practices to the best compensation practice and
corporate governance trends as they develop from time to time. The Omnibus Plan
is further intended to help retain and align the interests of the nonemployee
members of the Board of the Corporation and its affiliates with the
Corporation's shareholders. Awards under the Omnibus Plan (each, an "Award") are
intended to be based upon the recipient's individual performance, level of
responsibility and potential to make significant contributions to the
Corporation. Generally, the Omnibus Plan will terminate as of (a) the date when
no more shares of Common Stock are available for issuance under the Omnibus
Plan, or, if earlier, (b) the date the Omnibus Plan is terminated by the Board.
ADMINISTRATION
The Compensation Committee of the Board, or such other committee as the
Board may designate (the "Committee"), shall administer the Omnibus Plan. The
Committee shall consist of two or more members, each of whom shall be a
"nonemployee director" within the meaning of Rule 16b-3 under the Exchange Act,
an "outside director" within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code") and an "independent director"
under the NASDAQ's rules.
The Committee has full authority to interpret and administer the
Omnibus Plan in order to carry out its provisions and purposes. The Committee
has the authority to determine those persons eligible to receive Awards and to
establish the terms and conditions of any Awards. The Committee may delegate,
subject to such terms or conditions or guidelines as it shall determine, to any
employee or group of employees any portion of its authority and powers with
respect to Awards to officers of the Corporation or any subsidiary who are not
subject to the reporting requirements under Section 16(a) of the Exchange Act
("Executive Officers"). Only the Committee or the Board may exercise authority
in respect of Awards granted to Executive Officers.
The Committee may condition the grant of any Award on entering into a
written agreement containing covenants not to compete, not to solicit the
Corporation's employees and customers and not to disclose confidential
information.
ELIGIBILITY
Awards may be made to any individual who is an employee (including each
officer) of the Corporation or any affiliate and to any nonemployee director of
the Corporation or an affiliate.
TYPES OF AWARDS
The Omnibus Plan provides for grants of incentive stock options
("ISOs") qualifying for special tax treatment under Code Section 422, qualified
stock options ("QSOs") qualifying for special tax treatment under Section 1046
of the Puerto Rico Internal Revenue Code of 1994, as amended (the "Puerto Rico
Code"), nonstatutory stock options ("Nonstatutory Options," and together with
ISOs and QSOs, "Options"), stock appreciation rights ("SARs"), restricted stock
units ("Restricted Units"), restricted stock ("Restricted Stock"), dividend
equivalents ("Dividend Equivalents"), long-term performance units ("Long-Term
Performance Units"), performance shares ("Performance Shares") and annual
incentive awards ("Annual Incentive Awards"), whether granted singly, in
combination or in tandem, pursuant to which Common Stock or cash may be
delivered to the Award recipient.
SHARES SUBJECT TO THE OMNIBUS PLAN; OTHER LIMITATIONS OF AWARDS
The maximum number of shares of Common Stock issuable under the Omnibus
Plan shall be 5,000,000. To the extent that any shares of Common Stock subject
to an Award are not issued because the Award expires without having been
exercised, is cancelled, terminated, forfeited or is settled without issuance of
Common Stock (including, but not limited to, shares tendered to exercise
outstanding Options, shares tendered or withheld for taxes on Awards or shares
issued in connection with a Restricted Stock or Restricted Unit Award that are
subsequently forfeited), such shares will be available again for grants of
Awards under the Omnibus Plan. The
24
shares to be delivered under the Omnibus Plan may consist, in whole or in part,
of Common Stock purchased by the Corporation for the purpose of such Awards,
treasury Common Stock or authorized but unissued Common Stock not reserved for
any other purpose.
The Omnibus Plan has limits that apply to individual and aggregate
Awards, designed in part to comply with the requirements of Code Section 162(m)
governing the deductibility of compensation paid to executive officers of a
publicly-traded company. In order to satisfy these requirements, shareholders
must approve any "performance-based plan," that sets maximum limits on the
amount of any award granted to a particular executive. For all participants who
are "covered employees" within the meaning of Code Section 162(m) and are
eligible to receive Annual Incentive Awards under this Omnibus Plan (the
"Covered Employees"), the maximum amount of such Annual Incentive Awards that
may be paid or made available to any such individuals in any year may not exceed
one-half of one percent (0.5%) of Adjusted Net Income ("Covered Employees Annual
Incentive Award Pool"). For purposes of the Omnibus Plan, "Adjusted Net Income"
means the Corporation's net income applicable to common stockholders as it
appears on the income statement of the Corporation prepared in accordance with
generally accepted accounting principles, excluding the effects of (i)
extraordinary, unusual and/or non-recurring items of gain or loss, including but
not limited to, restructuring or restructuring-related charges, (ii) gains or
losses on the disposition of a business, (iii) changes in tax or accounting
regulations or laws, (iv) the effect of a merger or acquisition, all of which
are identified in the Corporation's audited financial statements or the
Corporation's annual report to stockholders, or (v) those other items determined
by the Committee.
OPTIONS
Options entitle the recipient to purchase shares of Common Stock at the
exercise price specified by the Committee in the recipient's Option agreement.
The Omnibus Plan permits the grant of both ISOs, QSOs and Nonstatutory Options.
The Committee will generally determine the terms and conditions of all Options
granted; provided, however, that, generally, Options must be granted with an
exercise price at least equal to the fair market value of a share of Common
Stock on the date of grant. Options shall not be exercisable for more than 10
years after the date of grant (except in the event of death) and no Option that
is intended to be an ISO or a QSO may be granted after the tenth anniversary of
the date the Omnibus Plan was approved by the Board. Options will become
exercisable as determined by the Committee at the time of grant, and the
Committee may establish performance-based criteria for the exercisability of any
Option. For purposes of the Omnibus Plan, "fair market value" generally means,
on any given date, the price of the last trade in the Common Stock on such date
on the Nasdaq National Market (or if not listed on the Nasdaq National Market,
on such other recognized quotation system on which trading prices of the Common
Stock are then quoted). If there are no trades on the relevant date, the "fair
market value" for that date means the closing price on the immediately preceding
date on which Common Stock transactions were reported.
The Committee does not have the power or authority to reduce the
exercise price of any outstanding Option or to grant any new Options in
substitution for or upon the cancellation of Options previously granted.
STOCK APPRECIATION RIGHTS (SARs)
A SAR is a contractual right granted to the participant to receive,
either in cash or Common Stock, an amount equal to the appreciation of one share
of Common Stock from the date of grant. SARs may be granted as freestanding
Awards, or in tandem with other types of grants. Unless the Committee otherwise
determines, the terms and conditions applicable to (i) SARs granted in tandem
with Options will be substantially identical to the terms and conditions
applicable to the tandem Options, and (ii) freestanding SARs will be
substantially identical to the terms and conditions that would have been
applicable were the grant of the SARS a grant of Options. SARS that are granted
in tandem with an Option may only be exercised upon surrender of the right to
exercise such Option for an equivalent number of shares. The Committee may cap
any SAR payable in cash.
RESTRICTED STOCK, RESTRICTED UNITS AND DIVIDEND EQUIVALENTS
The Omnibus Plan provides for the grant of Restricted Stock, Restricted
Units and Dividend Equivalents, which are converted to shares of Common Stock
upon the lapse of restrictions. The Committee may, in its discretion, pay the
value of Restricted Units and Dividend Equivalents in Common Stock, cash or a
combination of both.
A share of Restricted Stock is a share of Common Stock that is subject
to certain transfer restrictions and forfeiture provisions for a period of time
as specified by the Committee in the recipient's Award agreement. A Restricted
Unit is an unfunded, unsecured right (which is subject to forfeiture and
transfer restrictions) to receive a share of Common Stock at the end of a period
of time specified by the Committee in the recipient's Award agreement. A
Dividend Equivalent represents an unfunded and unsecured promise to pay an
amount equal to all or any portion of the regular cash dividends that would be
paid on a specified number of shares of Common Stock if such shares were owned
by the Award recipient. Dividend Equivalents may be granted in connection with a
grant of Restricted Units, Options and/or SARs.
The restrictions on Restricted Stock and Restricted Units will lapse on
such date as is determined by the Committee at the date of grant.
25
Generally, a participant will, subject to any restrictions and
conditions specified by the Committee, have all the rights of a shareholder with
respect to shares of Restricted Stock, including but not limited to, the right
to vote and the right to receive dividends. A participant will not have the
rights of a shareholder with respect to Restricted Units or Dividend
Equivalents.
ANNUAL INCENTIVE AWARDS
At the discretion of the Committee, Awards with a performance cycle of
one year or less may be made to participants and, unless determined otherwise by
the Committee, shall be paid in cash based on achievement of specified
performance goals.
LONG-TERM PERFORMANCE UNIT AWARDS
At the discretion of the Committee, Long-Term Performance Unit Awards,
payable in cash, may be made to participants. Performance cycles are generally
multiple years, where performance may be measured by objective criteria other
than the appreciation or depreciation of Common Stock value.
PERFORMANCE SHARES
The Committee also has the discretion to grant "Performance Share
Awards," which are Awards of units denominated in Common Stock. The number of
such units is determined over the performance period based on the satisfaction
of performance goals. Performance Share Awards are payable in Common Stock.
TREATMENT OF AWARDS ON TERMINATION OF EMPLOYMENT OR SERVICE AS A NONEMPLOYEE
DIRECTOR
Under the Omnibus Plan, generally, unless the Committee determines
otherwise as of the date of a grant of any Award or thereafter, Awards are
treated as follows upon a participant's termination of employment or service as
a nonemployee director.
Resignation. If a participant voluntarily terminates employment from the
Corporation or any subsidiary:
- Options/SARs (including associated Dividend Equivalents): All
outstanding Options, SARs and associated Dividend Equivalents
granted but not yet exercised by the participant are forfeited
as of the date of such resignation, and are not thereafter
exercisable or payable, unless otherwise determined by the
Committee;
- Restricted Stock/Restricted Units (including associated
Dividend Equivalents): All Restricted Stock, Restricted Units
and associated Dividend Equivalents credited to such
participant are forfeited, unless otherwise determined by the
Committee;
- Annual Incentive Awards: If such termination occurs before
authorization of the payment of an Annual Incentive Award,
all rights to such amounts are forfeited, unless
otherwise determined by the Committee; and
- Long-Term Performance Unit Awards/Performance Share Awards:
All Long-Term Performance Unit Awards and Performance Share
Awards credited to such participant are forfeited, unless
otherwise determined by the Committee.
Termination for Cause. If a participant's employment is terminated for "cause":
- Options/SARs (including associated Dividend Equivalents):
Outstanding Options, SARS and associated Dividend Equivalents
are forfeited at the time of such termination, and the
Committee may require that the participant disgorge any
profit, gain or benefit from any Award exercised up to 12
months prior to the participant's termination;
- Restricted Stock/Restricted Units (including associated
Dividend Equivalents): All such Awards are forfeited at the
time of such termination, and the Committee may require that
the participant disgorge any profit, gain or benefit from any
such Award where the restrictions had lapsed up to 12 months
prior to the participant's termination;
- Annual Incentive Awards: All rights to an Annual Incentive
Award are forfeited; and
- Long-Term Performance Unit Awards/Performance Share Awards:
Any outstanding Long-Term Performance Units or Performance
Share Awards are forfeited, and the Committee may require that
the participant disgorge any profit, gain or benefit from any
Award paid to such participant up to 12 months prior to the
participant's termination.
For purposes of the Omnibus Plan, "cause" includes dishonesty, fraud or
misrepresentation; inability to obtain or retain appropriate licenses; violation
of any rule or regulation of any regulatory or self-regulatory agency or of any
policy of the Corporation or any affiliate; commission of a crime; breach of a
written covenant or agreement not to misuse property or information; or any act
or omission detrimental to the conduct of the Corporation's or any affiliate's
business in any way.
26
Approved Retirement. If a participant's employment terminates by reason of
"Approved Retirement":
- Options/SARs (including associated Dividend Equivalents): All
outstanding Options, SARs and associated Dividend Equivalents
shall become immediately exercisable in full and may be
exercised by the participant at any time prior to the
expiration of the term of the Options or within five years (or
such shorter period as determined by the Committee at the time
of grant) following the participant's Approved Retirement,
whichever period is shorter;
- Restricted Stock/Restricted Units (including associated
Dividend Equivalents): Any restrictions will lapse as to
outstanding Restricted Stock and Restricted Units and
associated Dividend Equivalents would be paid;
- Annual Incentive Awards: Such participant will receive a
prorated Annual Incentive Award based on actual achievement of
the performance goals for such performance cycle; and
- Long-Term Performance Unit Awards/Performance Share Awards:
Such participant will receive a prorated Award payment of such
participant's Long-Term Performance Unit Awards and
Performance Share Awards based on actual achievement of the
performance goals for such performance cycle.
For purposes of the Omnibus Plan, "Approved Retirement" generally means
termination of a participant's employment, other than for "cause": (i) on or
after the normal retirement date or any early retirement date established under
any defined benefit pension plan maintained by the Corporation or an affiliate
and in which the participant participates, or (ii) on or after attaining age 55
and completing such period of service as the Committee shall determine from time
to time, when the participant does not participate in any such defined benefit
pension plan maintained by the Corporation or an affiliate.
Termination of Service as a Nonemployee Director. If a participant who is a
nonemployee director terminates his or her service as a director of the
Corporation or any subsidiary for reasons other than for "cause":
- Options/SARs (including associated Dividend Equivalents): All
outstanding Options, SARs and associated Dividend Equivalents
shall become immediately exercisable in full and may be
exercised by the participant at any time prior to the
expiration of the term of the Options; and
- Restricted Stock/Restricted Units (including associated
Dividend Equivalents): Any restrictions will lapse as to
outstanding Restricted Stock and Restricted Units and
associated Dividend Equivalents would be paid.
Death or Disability. The Omnibus Plan also has default provisions for the
treatment of Awards following termination of a participant's employment due to
death or disability.
Termination for Other Reasons. If a participant's employment terminates for any
reason other than resignation, termination for cause, approved retirement, death
or disability, outstanding Awards are treated in the same manner as in the case
of a resignation except that Options/SARs and associated Dividend Equivalents
that are exercisable on the date of such termination may be exercised at any
time prior to the expiration date of the term of the Options or the 90th day
following termination of employment, whichever period is shorter; and, in the
case of Long-Term Performance Unit Awards/Performance Share Awards, a prorated
payment of the participant's Long-Term Performance Unit Award and Performance
Share Award will be made as if the target performance goals for the performance
cycle had been achieved.
NON-TRANSFERABILITY OF AWARDS
Generally, no Awards granted under the Omnibus Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution.
ADJUSTMENT IN CAPITALIZATION
If an "adjustment event" occurs, the Committee, in its discretion,
shall adjust appropriately (a) the aggregate number of shares of Common Stock
available for Awards, (b) the aggregate limitations on the number of shares that
may be awarded as a particular type of Award or that may be awarded to any
particular participant in any particular period, and (c) the aggregate number of
shares subject to outstanding Awards and the respective exercise prices or base
prices applicable to outstanding Awards. For purposes of the Omnibus Plan,
"adjustment event" means any stock dividend, stock split or share combination
of, or extraordinary cash dividend on, the Common Stock or recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination,
dissolution, liquidation, exchange of shares, warrants or rights offering to
purchase Common Stock at a price substantially below fair market value, or other
similar event affecting the Common Stock. To the extent deemed equitable and
appropriate by the Committee, and subject to any required action by the
Corporation's shareholders, with respect to any "adjustment event" that is a
merger, consolidation, reorganization, liquidation, dissolution or similar
transaction, any Award granted under the Omnibus Plan shall be deemed to pertain
to the securities and other property, including cash, which a holder of the
number of shares of Common Stock covered by the Award would have been entitled
to receive in connection with such an "adjustment event."
27
Any shares of stock or cash or other property received with respect to any
Restricted Stock Award or Restricted Unit Award as a result of any adjustment
event or any distribution of property shall (except in the case of a change of
control or as otherwise provided by the Committee) be subject to the same terms,
conditions and restrictions as are applicable to such shares of Restricted Stock
or Restricted Units.
CHANGE OF CONTROL
Upon the occurrence of a change of control of the Corporation, each
outstanding Option and SAR shall become fully exercisable and all restrictions
on outstanding Restricted Stock and Restricted Units shall lapse. In addition,
any Long-Term Performance Unit Awards and Performance Share Awards outstanding
will be paid in full at target. Such payments shall be made within 30 days of
the change of control, and the participants may opt to receive such payments in
cash. The Committee may, in its discretion, provide for cancellation of each
Option, SAR, Restricted Stock and Restricted Stock Unit in exchange for a cash
payment per share based upon the change of control price. This change of control
price is the highest share price offered in conjunction with any transaction
resulting in a change of control (or, if there is no such price, the highest
trading price during the 30 days preceding the change of control event).
Notwithstanding the forgoing, no acceleration of vesting or exercisability,
cancellation, cash payment or other settlement shall occur with respect to any
Option, SAR, Restricted Stock, Restricted Unit, Long-Term Performance Unit Award
or Performance Share Award if the Committee reasonably determines in good faith
prior to the change of control that such Awards will be honored or assumed or
equitable replacement awards will be made by a successor employer immediately
following the change of control and that such Awards will vest and payments will
be made if a participant is involuntarily terminated without cause.
For purposes of the Omnibus Plan, "change of control" shall be deemed
to have occurred if: (i) any "person" (within the meaning of Section 3(a)(9) of
the Exchange Act) other than by the Corporation, its subsidiaries or any
employee benefit plan of the Corporation or its subsidiaries acquires direct or
indirect ownership of 50% or more of the combined voting power of the then
outstanding securities of the Corporation as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or otherwise; or
(ii) the shareholders of the Corporation approve (A) any consolidation or merger
of the Corporation in which the Corporation is not the surviving corporation
(other than a merger of the Corporation in which the holders of Common Stock
immediately prior to the merger have the same or substantially the same
proportionate ownership of the surviving corporation immediately after the
merger), or (B) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, of the assets
of the Corporation to an entity which is not a wholly-owned subsidiary of the
Corporation.
AMENDMENT
The Board may, at any time amend, modify, suspend or
terminate the Omnibus Plan, in whole or in part, without notice to or the
consent of any participant or employee; provided, however, that any amendment
which would (i) increase the number of shares available for issuance under the
Omnibus Plan, (ii) lower the minimum exercise price at which an Option (or the
base price at which a SAR may be granted), (iii) change the individual Award
limits or (iv) require shareholder approval under NASDAQ rules, shall be subject
to the approval of the Corporation's shareholders. No amendment, modification or
termination of the Omnibus Plan may in any manner adversely affect any Award
theretofore granted under the Omnibus Plan, without the consent of the
participant. However, for purposes of this provision, any payments made in
accordance with the change of control provision described above, other
accelerations of payments under the Omnibus Plan, or any decision by the
Committee to limit participation or other features of the Omnibus Plan
prospectively will not be deemed, an "adverse amendment" of the Omnibus Plan.
NO LIMITATION ON COMPENSATION; SCOPE OF LIABILITIES
Nothing in the Omnibus Plan limits the right of the Corporation to
establish other plans if and to the extent permitted by applicable law. The
liability of the Corporation, its subsidiaries and affiliates under the Omnibus
Plan is limited to the obligations expressly set forth in the Omnibus Plan.
TAX IMPLICATIONS FOR CERTAIN AWARDS
The following is a brief description of the Puerto Rico and U.S.
federal income tax consequences generally arising with respect to the grant of
Options and SARs under the Omnibus Plan.
Puerto Rico Code. A recipient of a QSO does not recognize income at the time of
the grant of an option. In addition, no income is recognized at the time a QSO
is exercised. On a subsequent sale or exchange of the shares acquired pursuant
to the exercise of a QSO, the optionee may have taxable long-term or short-term
capital gain or loss, depending on whether the shares were held for more than
six months, measured by the difference between the amount realized on the
disposition of such shares on his or her tax basis in such shares. Tax basis
will, in general, be the amount paid for the shares. The Corporation will not be
entitled to a business expense deduction in respect of the grant of the option,
the exercise thereof or the disposition of the shares.
With respect to a Nonstatutory Option, a recipient of a
28
Nonstatutory Option does not recognize income at the time of grant of the
Nonstatutory Option. The difference between the fair market value of the shares
of stock on the date of exercise and the stock option exercise price generally
will be treated as compensation income upon exercise, and the Corporation will
be entitled to a deduction in the amount of income so recognized by the
optionee. Upon a subsequent disposition of the shares, the difference between
the amount received by the optionee and the fair market value of the shares of
stock on the option exercise date will be treated as long or short-term capital
gain or loss, depending on whether the shares were held for more than six
months.
SARs will not result in taxable income to the recipient or a tax
deduction for the Corporation at the time of grant. The exercise of SARs will
generally result in compensation in the amount of the cash payment taxable as
ordinary income to the employee. The Corporation may generally claim a tax
deduction in the amount of any cash paid.
Federal Tax Consequences. The Corporation and most of its operating subsidiaries
are organized under the laws of the Commonwealth of Puerto Rico and, at the
present time, most of them are not directly engaged in any trade or business in
the United States (the "Non-U.S. Taxpayers"). Accordingly, the Non-U.S.
Taxpayers are subject generally to a flat 30% federal income tax on their fixed
or determinable, annual or periodic income, if any, from sources within the
United States. The Non-U.S. Taxpayers would only be entitled to claim deductions
in computing their U.S. income tax liability to the extent such deductions were
directly related to any income effectively connected with the conduct of a trade
or business in the United States. Because the Non-U.S. Taxpayers are not engaged
in the conduct of a trade or business in the United States, the limitations
imposed by Section 162(m) of the Code for compensation to certain highly paid
executives should not limit the tax deductions available to the Non-U.S.
Taxpayers under the Omnibus Plan.
The Corporation's subsidiaries organized under the laws of the United
States or a state of the United States and some of the Corporation's
subsidiaries organized under the laws of the Commonwealth of Puerto Rico that
are engaged in trade or business in the United States (the "U.S. Taxpayers")
generally will be entitled to a tax deduction equal to the amount recognized as
ordinary income by the recipient in connection with the exercise of a
Nonstatutory Option or SAR. The U.S. Taxpayers generally are not entitled to a
tax deduction with respect to any amount that represents a capital gain to a
recipient or that represents compensation in excess of $1 million paid to
"covered employees" that is not "qualified performance based compensation" under
Section 162(m) of the Code. Accordingly, the U.S. Taxpayers will not be entitled
to any tax deduction with respect to an ISO if the recipient holds the shares
for the ISO holding periods prior to dispositions of the shares and may not be
entitled to any deduction with respect to certain Options or SARs that may be
exercised by or granted to "covered employees."
For purposes of the discussion below, some of the QSOs granted under
the Omnibus Plan may also be treated as ISOs for purposes of Sections 421 and
422 of the Code.
Residents of Puerto Rico, Recipients of Options or SARs who are
residents of Puerto Rico during the entire taxable year and perform services for
the Corporation or its subsidiaries in Puerto Rico, will not have any gross
income for federal income tax purposes either in respect of (1) the grant or the
exercise of Options or (2) the grant of, or the receipt of cash payments upon
exercise of, SARs.
Non-Residents of Puerto Rico and Residents of Puerto Rico who Perform
Services Outside Puerto Rico. In general, an optionee who is a non-resident of
Puerto Rico or a resident of Puerto Rico who performs services outside Puerto
Rico, will not recognize taxable income upon grant or exercise of an ISO and the
Corporation and its subsidiaries will not be entitled to any business expense
deduction with respect to the grant or exercise of an ISO. However, upon the
exercise of an ISO, the excess of the fair market value on the date of exercise
of the shares received over the exercise price of the shares will be treated as
an adjustment to alternative minimum taxable income. In order for the exercise
of an ISO to qualify for the foregoing tax treatment, the optionee generally
must be an employee of the Corporation or its subsidiaries (within the meaning
of Section 422 of the Code) from the date the ISO is granted through the date
three months before the date of exercise.
If the optionee has held the shares acquired upon exercise of an ISO
for at least two years after the date of grant and for at least one year after
the date of exercise, upon disposition of the shares by the optionee, the
difference, if any, between the sales price of the shares and the exercise price
of the Option will be treated as long-term capital gain or loss. If the optionee
does not satisfy these holding period requirements, the optionee will recognize
ordinary income at the time of the disposition of the shares, generally in an
amount equal to excess of the fair market value of the shares at the time the
Option was exercised over the exercise price of the Option. The balance of the
gain realized, if any, will be long-term or short-term capital gain, depending
upon whether or not the shares were sold more than one year after the Option was
exercised. If the optionee sells the shares prior to the satisfaction of the
holding period requirements but at a price below the fair market value of the
shares at the time the Option was exercised, the amount of ordinary income will
be limited to the amount realized on the sale over the exercise price of the
Option. Subject to (1) any limitations imposed by Section 162(m) of the Code for
federal income tax purposes, (2) the
29
employee including such compensation in income and (3) certain reporting
requirements, the Corporation and its subsidiaries will be allowed a business
expense deduction to the extent the optionee recognized ordinary income. Upon
any subsequent sale of the shares, the optionee will have taxable gain or loss,
measured by the difference between the amount realized on the disposition and
the tax basis of the shares (generally, the amount paid for the shares plus the
amount treated as ordinary income at the time the Option was exercised).
In general, an optionee who is a non-resident of Puerto Rico or a
resident of Puerto Rico who performs services outside of Puerto Rico, to whom a
Nonstatutory Option is granted will recognize no income at the time of the grant
of the Option. Upon exercise of a Nonstatutory Option, an optionee will
recognize ordinary income in an amount equal to the excess of the fair market
value of the shares on the date of exercise over the exercise price of the
Option (or, if the optionee is subject to restrictions imposed by Section 16(b)
of the Securities Exchange Act of 1934, upon the lapse of those restrictions,
unless the optionee makes a special election within 30 days after exercise to
have income determined without regard to the restrictions). Subject to (1) any
limitations imposed Section 162(m) of the Code for federal income tax purposes,
(2) the employee including such compensation in income and (3) certain reporting
requirements, the Corporation will be entitled to a tax deduction in the same
amount. Upon a subsequent sale of the shares, the optionee will have taxable
gain or loss, measured by the difference between the amount realized on the
disposition and the tax basis of the shares (generally, the amount paid for the
shares plus the amount treated as ordinary income at the time the Option was
exercised).
Upon exercise of a SAR, an optionee who is a non-resident of Puerto
Rico or a resident of Puerto Rico who performs services outside Puerto Rico will
recognize ordinary income in an amount equal to the cash received on the
exercise date. If it complies with applicable withholding requirements, the
Corporation and its subsidiaries will be entitled to a business expense
deduction in the same amount and at the same time as the optionee recognizes
ordinary income.
Under the Omnibus Plan, upon the occurrence of certain "change in
control" transactions involving the Corporation, all options then outstanding
under the Omnibus Plan become immediately exercisable. Under certain
circumstances, compensation payments attributable to such Options may be treated
as "parachute payments" under the Code, in which case a portion of such payments
may be nondeductible to the Corporation for federal income tax purposes and the
recipient may be subject to a 20% excise tax under the Code.
OTHER INFORMATION
On March 1, 2004, the closing price of the Common Stock was $44.89.
The full text of the Omnibus Plan is included as Annex G to this Proxy
Statement.
The Board recommends that shareholders vote FOR the approval of the
Omnibus Plan.
***
EXECUTIVE COMPENSATION PROGRAM
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
OVERVIEW
The Compensation Committee shall consist of at least three members of
the Board, each of whom the Board has determined has no material relationship
with the Corporation and each of whom is otherwise "independent" under the
NASDAQ's rule. The Compensation Committee endeavors to keep abreast of
competitive compensation practices with regard to salaries, incentive
compensation and supplemental programs in order to assist the Corporation in
attracting and retaining the most qualified executive officers whose
contributions and experience help the Corporation sustain growth, thereby
enhancing shareholders' value. They also oversee the general human resources and
compensation practices of the Corporation.
The Compensation Committee evaluates and recommends to the Board the
Corporation's compensation policy for the Chairman of the Board, President and
CEO and the Executive Officers. The Compensation Committee considers, among
other factors, competitive pay practices for developing a stronger relationship
between executive compensation and the Corporation's long-term performance. The
executive compensation program for principal officers of the Corporation's
subsidiaries is set according to the industry and geographical area in which
each operates and is approved by the Board of each respective subsidiary.
30
CHAIRMAN OF THE BOARD, PRESIDENT AND CEO
COMPENSATION FOR THE CEO
On an annual basis, Mr. Carrion submits to the Compensation Committee a
plan setting forth both quantitative and qualitative goals for the fiscal year,
and objectives for the medium and long-term. In evaluating and setting
compensation, the Compensation Committee considers the Corporation's performance
with respect to the goals set forth in the plan. Therefore, the Compensation
Committee evaluates Mr. Carrion's performance by taking into consideration the
growth of the organization, implementation of a diversification strategy,
achievement of financial goals, improvements to the product and service delivery
system and development of human resources. The weight and significance accorded
to these factors is subjective in nature.
For the past four years Mr. Richard L. Carrion's compensation package
has been below the levels at comparable banking organizations for their chief
executive officers. This reflects his decision to permanently defer increases in
salaries, including corresponding short and long-term incentives, during the
three (3) year period that the Corporation was under the Written Agreement with
the Federal Reserve Bank of New York and the one (1) year period under the
Deferred Prosecution Agreement with the Department of Justice, the Federal
Reserve Bank of New York and the Treasury Department's Financial Crime
Enforcement Network. The Written Agreement was terminated on January 16, 2003
and the Deferred Prosecution Agreement was dismissed on January 16, 2004. The
Corporation has met all the standards and parameters set forth in them.
Accordingly, as proposed by the Compensation Committee and accepted by Mr.
Carrion, Mr. Carrion's compensation has been revised effective February 2004.
Effective February 2004, Mr. Carrion's salary was raised to $800,000.
He will participate in a short-term incentive plan with a target of 200% of
salary, half in cash and half in equity of the Corporation, if all objectives
are met. In addition, he will participate in a long-term incentive plan also
paid in equity of the Corporation. This long-term plan provides for a target of
100% of salary to be deferred until retirement. These incentive plans will link
the CEO's pay very closely to the Corporation's performance and with the
stockholder's long-term interests. Mr. Carrion already holds an important
ownership in the Corporation, as indicated in the Beneficial Ownership Section
of this Proxy Statement. The Board believes that after these changes Mr.
Carrion's compensation more clearly approximates peer executives.
The Board has made it a requirement, for security reasons, that Mr.
Carrion uses the corporate aircraft even when traveling on personal business.
For 2003, Mr. Carrion reimbursed the Corporation the amount of $54,341.31 for
his personal use of the corporate aircraft. The amount reimbursed to the
Corporation was valued on the basis of incremental cost to the Corporation using
the IRS formula (Reg. 1.61-21(g)) that is based on the Standard Industry Fare
Level (SIFL) flight mileage rates, a terminal charge and the weight of the
aircraft.
The CEO's responsibilities require frequent travel to New York. For
this purpose the Corporation has had an apartment since 1987 that the CEO uses
primarily for business related trips. The cost of the apartment to the
Corporation represents approximately $36,000 per year. Except for special
security arrangements, Mr. Carrion's other benefits are comparable to the
regular benefits available to all of the Corporation's Senior Executive
Officers.
COMPENSATION OF EXECUTIVE OFFICERS
The group of Executive Officers is composed of two Senior Executive
Vice Presidents and eight Executive Vice Presidents of the Corporation (the
"Executive Officers") all of whom participate in an Annual and Long-Term
Incentive Plan. The President and CEO recommends the salary increases and the
bonuses to be awarded to the Executive Officers pursuant to the incentive plans.
The Executive Officers participate in an annual incentive program based
on financial results of the Corporation, individual business results, service
quality and individual performance. The Plan is designed to encourage the
achievement of short-term financial goals and to increase shareholder value. The
first incentive component is a cash bonus. The second component is a deferred
long-term incentive awarded in stock options of the Corporation.
COMPENSATION COMMITTEE
Francisco M. Rexach Jr. (Chairman)
Hector R. Gonzalez
Juan J. Bermudez
Felix J. Serralles Jr.
31
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the Executive Officers
of the Corporation.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION INCENTIVE LONG-TERM
PAYMENTS COMPENSATION
FISCAL AND ALL OTHER ANNUAL STOCK OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY(a) BONUS(b) COMPENSATION (c) TOTAL GRANTED (#) (f)
Richard L. Carrion.................. 2003 $ 540,000(d) $ 57,774(d) $ 39,139 $ 636,913 -(d)
Chairman, 2002 540,000(d) 62,170(d) 43,540 645,710 -(d)
President and CEO 2001 540,000(d) 53,824(d) 35,199 629,023 -(d)
David H. Chafey Jr. ................ 2003 500,000 763,785 36,536 1,300,321 38,654
Senior Executive Vice President 2002 500,000 678,054 40,611 1,218,665 39,098
of the Corporation 2001 493,550 236,254 32,515 762,319 25,301
Jorge A. Junquera................... 2003 440,000 663,389 32,632 1,136,021 34,016
Senior Executive Vice President 2002 440,000 614,346 36,218 1,090,564 34,406
of the Corporation 2001 436,754 208,101 29,234 674,089 22,265
Maria I. Burckhart.................. 2003 278,213 413,887 20,886 712,986 21,508
Executive Vice President 2002 278,213 363,400 23,153 664,766 21,755
of the Corporation 2001 278,213 131,687 18,856 428,756 14,078
Carlos Colino (e)................... 2003 450,000 641,370 107,922 1,199,292 34,789
Executive Vice President 2002 187,500 9,375 42,860 239,735 -
of the Corporation
Roberto R. Herencia................. 2003 400,000 511,396 462,529 1,373,925 30,923
Executive Vice President 2002 400,000 566,411 31,289 997,700 31,278
of the Corporation 2001 400,000 203,170 27,110 630,280 20,241
Tere Loubriel...................... 2003 225,000 339,276 16,891 581,167 17,394
Executive Vice President 2002 225,000 300,695 18,725 544,420 17,594
of the Corporation 2001 214,842 105,963 14,561 335,366 11,386
Emilio Pinero....................... 2003 255,736 385,646 19,198 660,580 19,770
Executive Vice President 2002 255,736 339,237 21,389 616,362 19,997
of the Corporation 2001 255,736 121,129 17,333 394,198 12,941
Brunilda Santos de Alvarez.......... 2003 225,000 339,211 16,891 581,102 17,394
Executive Vice President 2002 225,000 318,630 18,725 562,355 17,594
of the Corporation 2001 211,837 105,724 14,357 331,918 11,386
Carlos J. Vazquez................. 2003 375,000 557,782 28,152 960,934 28,991
Executive Vice President 2002 375,000 519,733 31,208 925,941 29,323
of the Corporation 2001 368,613 177,042 24,983 570,638 18,976
Felix M. Villamil(e)................ 2003 205,000 405,648 15,390 626,038 21,260
Executive Vice President 2002 170,000 225,456 14,148 409,604 13,293
of the Corporation
32
(a) Salaries before deductions.
(b) For the Senior Management Committee these payments include a Christmas
bonus, the cash portion payable under the Profit Sharing Plan of the
Bank and the amount awarded under the Annual Management Incentive
Compensation Plan.
(c) For the Executive Officers of Popular, Inc. the amount includes the
deferred portion under the Profit Sharing Plan of the Bank, amounts
accrued under the Benefit Restoration Plan, the amount from the Profit
Sharing deferred and allocated to Savings and Stock Plan and the Bank's
matching contribution to Savings and Stock Plan. For Mr. Herencia the
amount includes a special bonus payment of $400,000 and a car allowance
reimbursement of $34,500. For Mr. Colino the amount includes a housing
allowance of $89,500.
(d) Mr. Carrion has declined salary increases, incentive payments and stock
options while the Bank was operating under a Written Agreement with the
Federal Reserve Bank of New York, which Agreement was terminated on
January 16, 2003. He has also declined salary increases, incentive
payments and stock options during the one year term of the Deferred
Prosecution Agreement entered into with the Department of Justice on
January 16, 2003. For more information regarding the compensation of
Mr. Richard L. Carrion, please refer to the Compensation of the CEO
section of the Report of the Compensation Committee on Executive
Compensation.
(e) Mr. Villamil and Mr. Colino were appointed Executive Officers in March
and August 2002, respectively.
(f) Includes options granted on January 16, 2004 for fiscal 2003
performance.
The following table sets forth information as of December 31, 2003 regarding
securities issued to directors and eligible employees under the 2001 Option
Plan.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding securities
Plan Category of outstanding options outstanding options reflected in first column)
---------------------------------------------------------------------------------------------------------------------
Equity compensation
plans approved
by security holders 889,294 $31.75 4,110,706
Equity compensation
plans not approved by
security holders None - None
---------------------------------------------------------------------------------------------------------------------
Total 889,294 $31.75 4,110,706
=====================================================================================================================
***
STOCK OPTION PLAN
The 2001 Option Plan is intended to provide the Corporation and its
subsidiaries with an effective means to attract and retain highly qualified
personnel as well as to provide additional incentive to employees and directors
who provide services to the Corporation and its subsidiaries.
Any employee or director of the Corporation or of any of its
subsidiaries is eligible to participate in the 2001 Option Plan. The selection
of individuals eligible to participate is within the discretion of the Board or
the Compensation Committee.
The 2001 Option Plan provides for the grant of stock options that are
intended to qualify as "qualified stock options"("QSOs") under Section 1046 of
the Puerto Rico Internal Revenue Code of 1994, as amended (the "Puerto Rico
Code"), as "incentive stock options" ("ISOs") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") or "non-statutory stock options"
("NSOs"). At the time of the original grant of NSOs, the Board or the Committee,
may also authorize the grant of reload options, which shall be NSOs for such
number of shares of Common Stock as were used by the Participant to pay the
purchase price upon the exercise of previously granted
33
options, and the withholding taxes applicable to NSOs exercises, but are still
subject to other terms set forth in the 2001 Option Plan.
The shares of Common Stock for which options may be granted may consist
of either authorized but unissued shares of Common Stock or shares of Common
Stock which have been issued and which shall have been heretofore or hereafter
reacquired by the Corporation.
***
STOCK OPTION GRANT TABLE
The following table shows options grants to the covered executive based
on 2003 performance. All 2003 stock option grants were made under the 2001
Option Plan. The value of the stock options depends upon a long-term increase in
the market price of the Common Stock. A benefit is perceived only if the stock
price does increase. Options vest in cumulative installments of 20% per year
over a five-year period and remain exercisable until the 10th anniversary of the
grant.
Option values on the grant dates were determined by using the
Black-Scholes Option Valuation Model. The model assumes that future dividends
increase at a rate equal to the historical compound average growth rate during
the past six years, the stock price volatility, and the exercise of all options
on the final day of their 10 year terms.
NUMBER OF
SECURITIES PERCENT OF TOTAL GRANT
UNDERLYING OPTIONS EXERCISE DATE
OPTIONS GRANTED PRICE EXPIRATION PRESENT
NAME GRANTED(a) TO EMPLOYEES ($ PER SHARE) DATE VALUE (b)
Richard L. Carrion........ -0- -- -0- -- -0-
David H. Chafey Jr........ 38,654 8.06% $48.10 1/16/2014 $446,300
Jorge A. Junquera......... 34,016 7.09% 48.10 1/16/2014 392,744
Maria I. Burckhart........ 21,508 4.48% 48.10 1/16/2014 248,333
Carlos Colino............. 34,789 7.25% 48.10 1/16/2014 401,670
Roberto R. Herencia....... 30,923 6.45% 48.10 1/16/2014 357,040
Tere Loubriel............. 17,394 3.63% 48.10 1/16/2014 200,835
Emilio Pifero............. 19,770 4.12% 48.10 1/16/2014 228,270
Brunilda Santos........... 17,394 3.63% 48.10 1/16/2014 200,835
Carlos J. Vazquez......... 28,991 6.04% 48.10 1/16/2014 334,725
Felix M. Villamil......... 21,260 4.43% 48.10 1/16/2014 245,465
(a) Represents options granted on January 16, 2004 for fiscal 2003 performance.
(b) The estimates were calculated in accordance with the regulations of the SEC,
which are not intended to predict the Corporation's Common Stock price.
34
The following table sets forth certain information regarding individual
exercises of stock options during 2003 by each of the named Executive Officers.
FISCAL YEAR-END OPTION VALUES
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END
-------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Richard L. Carrion ................... -0- -0- -0- -0-
David H. Chafey Jr. .................. 5,060 59,339 $87,841 $ 946,323
Jorge A. Junquera .................... 4,453 52,218 77,300 832,762
Maria I. Burckhart ................... 2,816 33,017 48,876 526,554
Carlos Colino ........................ - - - -
Roberto R. Herencia .................. 4,048 47,471 70,273 757,055
Tere Loubriel ........................ 2,277 26,703 39,530 425,851
Emilio Pinero ........................ 2,588 30,350 44,929 484,013
Brunilda Santos ...................... 2,277 26,703 39,530 425,851
Carlos J. Vazquez .................... 3,795 44,504 65,881 709,738
Felix M. Villamil .................... 1,379 18,807 23,931 298,007
PROFIT SHARING PLAN OF THE BANK
All officers and regular monthly salaried employees of the Bank are
active participants in the Bank's Profit Sharing Plan, as of the first day of
the calendar month following the completion of three months of service.
Under this plan, the Board of Directors of the Bank determines the
Bank's annual contribution based on the profits of the Bank for the year. The
amount allocated to each officer or employee is based on his or her earned
salary for the year. The total amount contributed for the year 2003 was
$19,924,599. Of the total awarded 40% is deferred under the Profit Sharing Plan,
10% under the Savings & Stock Plan and the remainder 50% is paid in cash.
BENEFIT RESTORATION PLAN OF THE BANK
The Internal Revenue Service (IRS) set a limit of $200,000 as the
amount of compensation that may be considered in calculating future retirement
payments from tax qualified retirement plans. This limit applies to the Bank's
Retirement Plan and Profit Sharing.
The Board has adopted three "Benefit Restoration Plans" for those
employees whose annual compensation is higher than the established limit. These
plans will provide those benefits that cannot be accrued under the Bank's
Retirement and Profit Sharing Plan, which are qualified plans under the Employee
Retirement Income Security Act ("ERISA"). Benefits under the Benefit Restoration
Plans shall be equal to the account balance that would be provided under the
Profit Sharing Plan and to the benefits that would have been accrued under the
Retirement Plan.
Therefore, the Benefit Restoration Plans do not offer credit for years
of service not actually worked, preferential benefit formulas or accelerated
vesting of pension benefits. The restoration benefits of employees who are
residents of Puerto Rico are funded through two irrevocable trusts, while the
restoration benefits of all other employees are unfunded.
RETIREMENT PLAN OF THE BANK
The Bank has a non-contributory, defined benefit Retirement Plan
covering substantially all regular monthly employees. Monthly salaried employees
are eligible to participate in the Plan following the completion of one year of
service and attaining 21 years of age. Pension costs are funded in accordance
with minimum funding standards under ERISA.
The basis for the Retirement Plan formula is total compensation, which
includes Christmas bonus, incentives, overtime, differentials, profit sharing
cash bonuses and any other compensation received by the employees. Benefits are
paid on the basis of a straight life annuity plus supplemental death benefits
and are not reduced for Social Security or other payments received by the
participants.
35
Normal retirement age at the Bank is a combination of years of age and
completed years of service totaling 75. Early retirement is at 55 years of age
with 10 years of service. Employees with 30 years of service or more are
provided with a retirement benefit of 40% of total compensation. Benefits are
reduced only if the employees retire before age 55. Benefits are subject to the
U.S. Internal Revenue Code limits on compensation and benefits.
The following table sets forth the estimated annual benefits that would
become payable under the Retirement Plan and the Benefit Restoration Plan based
upon certain assumptions as to total compensation levels and years of service.
The amounts shown in this table are not necessarily representative of
amounts that may actually become payable under the plans. The amounts represent
the benefits upon retirement on December 31, 2003, of a participant at age 65.
TOTAL
COMPENSATION ESTIMATED ANNUAL BENEFITS / YEARS OF SERVICE
------------------------------------------------------------------------------------------
15 20 25 30 35
$1,400,000 $256,000 $357,000 $459,000 $560,000 $560,000
1,300,000 237,000 332,000 426,000 520,000 520,000
1,200,000 219,000 306,000 393,000 480,000 480,000
1,100,000 201,000 281,000 360,000 440,000 440,000
1,000,000 183,000 255,000 328,000 400,000 400,000
900,000 164,000 230,000 295,000 360,000 360,000
800,000 146,000 204,000 262,000 320,000 320,000
700,000 128,000 179,000 229,000 280,000 280,000
600,000 110,000 153,000 197,000 240,000 240,000
500,000 91,000 128,000 164,000 200,000 200,000
400,000 73,000 102,000 131,000 160,000 160,000
300,000 55,000 77,000 98,000 120,000 120,000
The 2003 total compensation and estimated years of service at age 65
for the policy-making Executive Officers of the Corporation are as follows:
ESTIMATED
2003 YEARS OF
TOTAL SERVICE
COMPENSATION AT AGE 65
Richard L. Carrion $ 637,000 41.5
David H. Chafey Jr. 1,300,000 38.5
Jorge A. Junquera 1,136,000 42.3
Maria I. Burckhart 713,000 33.7
Carlos Colino 1,199,000 9.3
Roberto R. Herencia 1,374,000 33.7
Tere Loubriel 581,000 39.8
Emilio Pinero 661,000 43.2
Brunilda Santos 581,000 32.8
Carlos J. Vazquez 961,000 26.5
Felix M. Villamil 626,000 36.2
36
BANCO POPULAR DE PUERTO RICO SAVINGS AND STOCK PLAN
The Bank has adopted a Savings & Stock Plan covering employees of the Bank in
Puerto Rico. All regular salaried employees of the Bank are eligible to
participate in the Savings & Stock Plan following the completion of three months
of service.
The Bank may contribute a discretionary amount based on the profits of the Bank
for the year, which is allocated to each officer or employee based on his or her
basic salary for the year, as determined by the Board of Directors of the Bank.
The Savings & Stock Plan allows employees to voluntarily elect to defer a
predetermined percentage not to exceed 10% of their pre-tax total compensation.
The Savings & Stock Plan also allows employees to voluntarily elect to
contribute a predetermined percentage not to exceed 10% of their after-tax total
cash compensation. Both contribution levels are subject to maximum contribution
limits as determined by applicable laws. Employees will be fully vested after
five years of service.
The Bank will match 50% of the pre-tax amount contributed by the participant and
invested in the Corporation's Common Stock, up to a maximum participant
contribution determined by the Board each year. For the year 2003, the maximum
participant's contribution subject to employer match was 2% of participant's
annual base salary.
RETIREMENT PLAN OF BANCO POPULAR NORTH AMERICA
Banco Popular North America has a non-contributory, defined benefit
retirement plan covering substantially all regular monthly employees. Monthly
salaried employees are eligible to participate in the retirement plan following
the completion of one year of service and attaining 21 years of age. Pension
costs are funded in accordance with minimum funding standards under ERISA.
The basis for the retirement plan formula are years of service and
average final compensation. Benefits are paid on the basis of a single life
annuity and are not reduced (offset) for Social Security or other payments
received by the participants.
Normal retirement occurs when the participant reaches age 65 and has
five years of credited service. Participants can enjoy actuarially adjusted
early retirement benefits at age 55 with 10 years of service. This retirement
plan is qualified under section 401(a) of the Internal Revenue Code.
STOCK PLAN OF BANCO POPULAR NORTH AMERICA
Banco Popular North America has adopted a defined contribution plan
("401(k) Plan") covering all employees. All regular monthly salaried employees
are eligible to participate in the 401(k) Plan following the completion of 30
days of service.
The 401(k) Plan also allows employees to voluntarily elect to defer a
predetermined percentage not to exceed 10% of their pre-tax base compensation up
to a maximum amount as determined by the applicable tax laws. Banco Popular
North America will match 50% (100% if the participant elect to invest his (her)
contribution in the Corporation's Common Stock) of the amount contributed by a
participant up to a maximum of six percent (6%) of the participant's annual base
salary.
37
POPULAR, INC. PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return during
the measurement period with the cumulative total return, assuming reinvestment
of dividends, of the NASDAQ Stock Market Index and the NASDAQ Bank Composite
Index.
The cumulative total shareholder return was obtained by dividing (i)
the cumulative amount of dividends per share, assuming dividend reinvestment
since the measurement point, December 31, 1998 plus (ii) the change in the per
share price since the measurement date, by the share price at the measurement
date.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
TOTAL RETURN AS OF DECEMBER 31
(DECEMBER 31, 1998-100)
[COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN LINE CHART]
INCORPORATION BY REFERENCE
The Annual Report on Form 10-K and audited financial statements,
certain supplemental financial information, Management Discussion and Analysis
of Financial Condition and Results of Operations, and Quantitative and
Qualitative Disclosures about Market Risk included in the Corporation's Annual
Report to Stockholders for the year ended December 31, 2003, are incorporated by
reference herein. In addition, all documents filed by the Corporation pursuant
to Section 13(a) of the Securities Exchange Act of 1934 subsequent to the date
of this Proxy Statement and prior to the Annual Meeting shall be deemed to be
incorporated by reference herein.
***
PROPOSALS OF SECURITY HOLDERS TO BE PRESENTED AT THE 2005 ANNUAL MEETING OF
STOCKHOLDERS
Stockholders' proposals intended to be presented at the 2005 Annual
Meeting of Stockholders must be received by the Board's Secretary, at its
principal executive offices, 209 Munoz Rivera Ave., San Juan, Puerto Rico,
00918, no later than November 1, 2004 for inclusion in the Corporation's Proxy
Statement and Form of Proxy relating to the 2005 Annual Meeting of Stockholders.
San Juan, Puerto Rico, March 17, 2004
RICHARD L. CARRION SAMUEL T. CESPEDES
Chairman of the Board, President Secretary
and Chief Executive Officer
YOU MAY REQUEST A COPY, FREE OF CHARGE, OF THE REPORT ON FORM 10-K OR ANY OTHER
DOCUMENT INCORPORATED BY REFERENCE AND FILED WITH THE SEC THROUGH OUR WEBSITE,
www.popularinc.com OR BY CALLING (787) 765-9800 OR WRITING TO AMILCAR JORDAN,
ESQ., SENIOR VICE PRESIDENT, BANCO POPULAR DE PUERTO RICO, PO BOX 362708, SAN
JUAN, PR 00936-2708.
38
ANNEX A
COMPENSATION COMMITTEE CHARTER
PURPOSE OF COMMITTEE
The purpose of the Compensation Committee (the "Committee") of the
Board of Directors (the "Board") of Popular, Inc. (the "Corporation") is to
discharge the Board's responsibilities (subject to review by the full Board)
relating to compensation of the Corporation's Chief Executive Officer and all
other Executive Officers and to produce an annual report on executive
compensation for inclusion in the Corporation's proxy statement, in accordance
with the rules and regulations of the Securities and Exchange Commission (the
"SEC").
COMMITTEE MEMBERSHIP
The Committee will consist of three or more members of the Board, each
of whom the Board has determined has no material relationship with the
Corporation and each of whom is otherwise "independent" under the rules of The
NASDAQ Stock Market, Inc.
The Board will appoint the members of the Committee. Members will serve
at the pleasure of the Board and for such term or terms as the Board may
determine.
COMMITTEE STRUCTURE AND OPERATIONS
The Committee will designate one member of the Committee as its chair.
In the event of a tie vote on any issue, the chair's vote will decide the issue.
The Committee will meet in person or telephonically at least three times a year
at a time and place determined by the Committee chair, with further meetings to
occur, or actions to be taken by unanimous written consent, when deemed
necessary or desirable by the Committee or its chair.
The Committee may invite such members of management to its meetings as
it may deem desirable or appropriate, consistent with the maintenance of the
confidentiality of compensation discussions. The Corporation's Chief Executive
Officer ("CEO") should not attend any meeting where the CEO's performance or
compensation are discussed, unless specifically invited by the Committee.
COMMITTEE DUTIES AND RESPONSIBILITIES
The following are the duties and responsibilities of the Committee:
1. In consultation with senior management, to establish
the Corporation's general compensation philosophy,
and oversee the development and implementation of
compensation programs.
2. To review and approve corporate goals and objectives
relevant to the compensation of the CEO, evaluate the
performance of the CEO in light of those goals and
objectives, and set the CEO's compensation level
based on this evaluation. In determining the
long-term incentive component of CEO compensation,
the Committee will consider, among other factors, the
Corporation's performance relative to other major
companies in the banking and financial services
industries, as measured by standards such as net
income and its growth over prior periods and
shareholder return, the level of compensation paid to
CEOs at comparable companies, the level of the CEO's
individual contribution to the performance of the
Corporation, the incentive awards given to the CEO in
past years and the CEO's compensation as a percentage
of the Corporation's net income.
3. To review and approve compensation programs
applicable to the executive officers of the
Corporation.
4. To make recommendations to the Board with respect to
the Corporation's incentive compensation plans and
equity-based plans, including the 2001 Stock Option
Plan and the Profit Sharing, Annual Incentive,
Long-Term Incentive and Benefit Restoration Plans,
oversee the activities of the individuals and
committees responsible for administering these plans,
and discharge any responsibilities imposed on the
Committee by any of these plans.
5. In consultation with management, to oversee
compliance with federal and state laws and
regulations as they affect compensation matters.
6. To review and approve any severance or similar
termination payments proposed to be made to any
current or former executive officer of the
Corporation.
39
7. To prepare and issue the evaluations and reports
required under "Committee Reports" below.
8. To handle any other duties or responsibilities
expressly delegated to the Committee by the Board
from time to time relating to the Corporation's
compensation programs.
DELEGATION TO SUBCOMMITTEE
The Committee may, in its discretion, delegate all or a portion of its
duties and responsibilities to a subcommittee consisting solely of members of
the Committee.
COMMITTEE REPORTS
The Committee will produce the following reports and provide them to
the Board.
1. An annual Report of the Compensation Committee on
Executive Compensation for inclusion in the
Corporation's annual proxy statement in accordance
with applicable SEC rules and regulations.
2. An annual performance evaluation of the Committee,
which evaluation must compare the performance of the
Committee with the requirements of this charter. The
performance evaluation should also recommend to the
Board any improvements to this charter deemed
necessary or desirable by the Committee. The
performance evaluation by the Committee may be
conducted in any manner that the Committee deems
appropriate. The report to the Board may take the
form of an oral report by the chair of the Committee
or any other member of the Committee designated by
the Committee to make this report.
3. A summary of the actions taken at each Committee
meeting, which will be presented to the Board at the
next Board meeting.
RESOURCES AND AUTHORITY OF THE COMMITTEE
The Committee will have the resources and authority appropriate to
discharge its duties and responsibilities, including the authority to select,
retain, terminate, and approve the fees and other retention terms of special
counsel or other experts or consultants, as it deems appropriate, without
seeking approval of the Board or management. With respect to compensation
consultants retained to assist in the evaluation of CEO or senior executive
compensation, this authority will be vested solely in the Committee.
40
ANNEX B
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE CHARTER
PURPOSE OF COMMITTEE
The purpose of the Corporate Governance and Nominating Committee (the
"Committee") of the Board of Directors (the "Board") of Popular, Inc.
("Popular") is (a) to identify and recommend individuals to the Board for
nomination as members of the Board and its committees, (b) to identify and
recommend individuals to the Board for nomination as Chief Executive Officer and
Chairman of Popular, (c) to promote the effective functioning of the Board and
its committees, and (d) to develop and recommend to the Board a set of corporate
governance principles applicable to Popular.
COMMITTEE MEMBERSHIP
The Committee will consist of three or more members of the Board, each
of whom the Board has determined has no material relationship with Popular and
each of whom is otherwise "independent" under the rules of The NASDAQ Stock
Market, Inc.
The Board will appoint the members of the Committee. Members will serve
at the pleasure of the Board and for such term or terms as the Board may
determine. Members will have experience with board of director's nominations or
corporate governance matters.
COMMITTEE STRUCTURE AND OPERATIONS
The Committee will designate one member of the Committee as its chair.
In the event of a tie vote on any issue, the chair's vote will decide the issue.
The Committee will meet in person or telephonically at least four times a year
at a time and place determined by the Committee chair, with further meetings to
occur, or actions to be taken by unanimous written consent, when deemed
necessary or desirable by the Committee or its chair.
COMMITTEE DUTIES AND RESPONSIBILITIES
The following are the duties and responsibilities of the Committee:
NOMINATIONS:
1. To make recommendations to the Board from time to
time as to changes that the Committee believes to be
desirable to the size of the Board or any committee
thereof.
2. To identify individuals believed to be qualified to
become Board members, and to recommend to the Board
the nominees to stand for election as directors at
the annual meeting of stockholders or, if applicable,
at a special meeting of stockholders. In the case of
a vacancy in the office of a director (including a
vacancy created by an increase in the size of the
Board), the Committee will recommend to the Board an
individual to fill such vacancy either through
appointment by the Board or through election by
stockholders. In nominating candidates, the Committee
will take into consideration such factors, as it
deems appropriate. These factors may include
judgment, skill, diversity, experience with
businesses and other organizations that the Committee
deems relevant, the interplay of the candidate's
experience with the experience of other Board
members, and the extent to which the candidate would
be a desirable addition to the Board and any
committees of the Board. The Committee may consider
candidates proposed by management, but is not
required to do so.
3. To develop and recommend to the Board standards to be
applied in making determinations as to the absence of
material relationships between Popular and a
director.
4. In the case of a director nominee to fill a Board
vacancy created by an increase in the size of the
Board, make a recommendation to the Board as to the
class of directors in which the individual should
serve.
41
5. To identify Board members qualified to fill vacancies
on any committee of the Board (including the
Committee) and to recommend that the Board appoint
the identified member or members to the respective
committee. In nominating a candidate for committee
membership, the Committee will take into
consideration the factors set forth in the charter of
the committee, if any, as well as any other factors
it deems appropriate, including, without limitation,
the consistency of the candidate's experience with
the goals of the committee and the interplay of the
candidate's experience with the experience of other
committee members.
6. Establish procedures for the Committee to exercise
oversight of the evaluation of the Board and
management.
CORPORATE GOVERNANCE:
1. To conduct an annual performance evaluation of the
Board and, if necessary, to recommend to the Board
changes in its structure and procedures.
2. To review annually the charter and annual performance
evaluation of each committee of the Board and, if
necessary, to recommend to the Board changes in the
duties and responsibilities of the committees, or the
dissolution of committees or creation of additional
committees.
3. To review periodically Popular's Restated Articles of
Incorporation and Bylaws and, if necessary, to
recommend to the Board changes thereto in respect of
good corporate governance.
4. To review annually Popular's Corporate Governance
Guidelines and Code of Business Conduct and Ethics
and, if necessary, to recommend to the Board changes
thereto in respect of good corporate governance.
5. To address any requests by a director or executive
officer to waive a provision of Popular's Code of
Business Conduct and Ethics, including any requests
with respect to an actual or potential conflict of
interest.
6. To evaluate the procedures and communication plans
for stockholder meetings to ensure that the required
information on Popular is adequately presented and
that the meeting promotes effective communication
between Popular and its stockholders.
7. To consider stockholder proposals intended to be
included in any proxy statement of Popular for its
annual meeting of stockholders.
DELEGATION TO SUBCOMMITTEE
The Committee may, in its discretion, delegate all or a portion of its
duties and responsibilities to a subcommittee of the Committee.
PERFORMANCE EVALUATION AND OTHER REPORTS
The Committee will produce and provide to the Board an annual
performance evaluation of the Committee, which evaluation will compare the
performance of the Committee with the requirements of this charter. The
performance evaluation should also recommend to the Board any improvements to
the Committee's charter deemed necessary or desirable by the Committee. The
performance evaluation by the Committee may be conducted in any manner that the
Committee deems appropriate. The report to the Board may take the form of an
oral report by the chair of the Committee or any other member of the Committee
designated by the Committee to make this report.
The Committee will also produce a summary of the actions taken at each
Committee meeting and will present the summary to the Board at the next Board
meeting.
RESOURCES AND AUTHORITY OF THE COMMITTEE
The Committee will have the resources and authority appropriate to
discharge its duties and responsibilities, including the authority to select,
retain, terminate, and approve the fees and other retention terms of special
counsel or other experts or consultants, as it deems appropriate, without
seeking approval of the Board or management. With respect to consultants or
search firms used to identify director candidates, this authority will be vested
solely in the Committee.
42
ANNEX C
CORPORATE GOVERNANCE GUIDELINES
I. INTRODUCTION
The Board of Directors of Popular, Inc. ("Popular"), acting on the
recommendation of its Corporate Governance and Nominating Committee, has
developed and adopted this set of corporate governance principles (the
"Guidelines") to promote the functioning of the Board and its committees, to
protect and enhance stockholder value and to set forth a common set of
expectations as to how the Board, its various committees, individual directors
and management should perform their functions. These Guidelines are designed
with Popular's current business operations, ownership, capital structure and
economic conditions in mind and will continue to evolve with changing
circumstances.
II. ROLES OF BOARD AND MANAGEMENT
The roles of the Board and management are related, but distinct.
Management proposes Popular's strategy to the Board for approval. Management
also implements Popular's strategy in the day-to-day operation of its business,
reporting regularly to the Board on significant events, issues and risks that
may materially affect Popular's business or financial performance.
The Board's function is oversight. The Board oversees, directly or
through committees, the performance of Popular's business and management. The
Board reviews and approves Popular's business strategy and oversees management's
implementation of that strategy.
III. BOARD COMPOSITION
The composition of the Board should balance the following goals:
- The size of the Board should facilitate substantive
discussions of the whole Board in which each director
can participate meaningfully;
- The composition of the Board should encompass a broad
range of skills, expertise, industry knowledge,
diversity of opinion and contacts relevant to
Popular's business;
- A majority of the Board will consist of directors who
the Board has determined have no material
relationship with Popular and who are otherwise
"independent" under the rules of The NASDAQ Stock
Market, Inc.
IV. SELECTION OF CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
The Board should be free to select its Chairman and Popular's Chief
Executive Officer in the manner it considers in the best interests of Popular at
any given point in time. Therefore, the Board does not have a policy on whether
the roles of Chairman and CEO should be separate or combined and, if they are to
be separate, whether the Chairman should be selected from the non-executive
directors or be an employee.
V. SELECTION OF DIRECTORS
A. Nominations. The Board is responsible for selecting the
nominees for election to Popular's Board of Directors by the
stockholders. Popular's Corporate Governance and Nominating
Committee is responsible for recommending to the Board a slate
of directors or one or more nominees to fill vacancies
occurring between annual meetings of stockholders.
B. Criteria. The Board should, based on the recommendations of
the Corporate Governance and Nominating Committee, select new
nominees for the position of independent director considering
the following criteria:
- Personal qualities and characteristics,
accomplishments and reputation in the business
community;
- Current knowledge and contacts in the communities in
which Popular does business and in Popular's industry
or other industries relevant to Popular's business;
- Ability and willingness to commit adequate time to
Board and committee matters;
- The fit of the individual's skills and personality
with those of other directors and potential directors
in building a Board that is effective, collegial and
responsive to the needs of Popular; and
- Diversity of viewpoints, background, experience and
other demographics.
C. Invitation. The invitation to join the Board should be
extended by the Board via the Chairman of the Board and CEO of
Popular, together with an independent director, when deemed
appropriate.
D. Orientation and Continuing Education. Management, working with
the Board, will provide an orientation process for new
directors, including background material on Popular, its
business plan and its risk profile, and meetings with
43
senior management. Periodically, management will prepare
additional educational sessions for all directors on matters
relevant to Popular, its business plan and risk profile in
accordance with applicable rules of The NASDAQ Stock Market,
Inc.
VI. ELECTION TERM
The Board does not believe it should establish term limits.
VII. RETIREMENT OF DIRECTORS
A director who would attain age 72 at the time of the election or
during the term to be served may not stand for re-election.
VIII. BOARD MEETINGS
The Board currently plans at least eight meetings, with further
meetings to occur (or action to be taken by unanimous written consent) at the
discretion of the Board. The meetings may consist of committee meetings and the
Board meeting.
The agenda for each Board meeting will be distributed by the Office of
the Corporate Secretary. Any director is free to offer agenda items for
consideration by the Board. Management will seek to provide to all directors an
agenda and appropriate materials approximately one week in advance of meetings,
although the Board recognizes that this timing will not always be consistent
with the timing of transactions and the operations of the business and that in
certain cases it may not be practicable.
Materials presented to the Board or its committees should be as concise
as possible, while still providing the desired information needed for the
directors to make an informed judgment. As a general rule, presentations on
specific subjects should be sent to the Board members in advance so that Board
meeting time may be conserved and discussion time focused on questions that the
Board has about the material. As the need arises, presentations may be made
orally at meetings.
IX. EXECUTIVE SESSIONS
To ensure free and open discussion and communication among the
independent directors, the independent directors will meet regularly in
executive sessions, with no members of management present. These executive
sessions should be held with sufficient regularity that no negative inference
attaches to the calling of an executive session. The independent directors will
designate the independent director who will preside at each executive sessions,
and those designations should be rotated. There should be no lead director.
X. THE COMMITTEES OF THE BOARD
Popular will have at least the following committees: Audit Committee,
Risk Management Committee, Compensation Committee and the Corporate Governance
and Nominating Committee. Each of the Audit, Compensation and Corporate
Governance and Nominating Committees must have a written charter in accordance
with the rules of The NASDAQ Stock Market, Inc.
All directors, whether members of a committee or not, are invited to
make suggestions to a committee chair for additions to the agenda of the chair's
committee or to request that an item from a committee agenda be considered by
the Board. The chair of each committee will give a periodic report of the
committee's activities to the Board.
Each of the Corporate Governance and Nominating Committee, the Audit
Committee and the Compensation Committee will be composed of at least three
directors who the Board has determined have no material relationship with
Popular and who are otherwise "independent" under the rules of The NASDAQ Stock
Market, Inc., applicable law and SEC rules. The required qualifications for the
members of each committee are specified in the committee's charter. A director
may serve on more than one committee for which the director qualifies.
XI. BOARD RESPONSIBILITIES
A. Strategy. The Board reviews and approves management's proposed
strategy for Popular and monitors implementation of Popular's
strategic plans on an ongoing basis.
B. Operating Plans and Budgets. The Board oversees Popular's
annual operating plans, reviews the annual budgets presented
by management and monitors the implementation of the annual
plans.
C. Self-evaluation. The Board evaluates its own performance
annually, as described below under "Evaluating Board
Performance," based on the report and recommendations of its
Corporate Governance and Nominating Committee.
44
In connection with this evaluation, the Board should actively
seek means of improving its performance. Each committee should
also evaluate its performance annually.
D. Management Succession. At least annually, the Board will
review and concur in a management succession plan, developed
by the CEO, to ensure that future selections are appropriately
considered. The principal components of this plan, which the
CEO will report at least annually to the Board, are (1) a
proposed plan for emergency CEO succession, (2) a proposed
plan for CEO succession in the ordinary course of business and
(3) the CEO's plan for management succession for the other
policy-making officers of Popular. The succession plan should
include an assessment of the experience, performance, skills
and planned career paths for possible candidates within the
senior management team.
E. Evaluating and Approving Salary for the CEO. The Board, acting
through the Compensation Committee, evaluates the performance
of the CEO and Popular against Popular's strategic and
financial goals, and approves the compensation level of the
CEO.
F. Evaluating and Approving the Compensation of Management. The
Board, acting through the Compensation Committee, evaluates
and approves the proposals of the CEO for overall compensation
policies applicable to executive officers.
G. Board Compensation. The Board will conduct a review at least
once every three years of the components and amount of Board
compensation in relation to other similarly situated
companies. As part of a director's total compensation and to
create a direct linkage with corporate performance, the Board
believes that a meaningful portion of a director's
compensation should be provided and held in stock options or
other equity-based compensation. Board compensation should be
consistent with market practices but should not be set at a
level that would call into question the Board's objectivity.
H. Reviewing and Approving Significant Transactions. Board
approval of a particular transaction may be appropriate
because of several factors, including:
- Legal or regulatory requirements;
- The materiality of the transaction to Popular's
financial performance, risk profile or businesses;
- The terms of the transaction;
- Other factors, such as entry into a new business or a
variation from Popular's strategic plan.
Whenever Board approval is not required, the CEO will review and
approve those transactions or, where appropriate, delegate the review and
approval of those transactions that implement Popular's strategic plan in the
day-to-day operation of its business, reporting regularly to the Board or its
committees on significant events, issues and risks that may materially affect
Popular's financial performance or risk profile.
XII. EXPECTATIONS OF DIRECTORS
The business and affairs of Popular are managed by or under the
direction of the Board in accordance with all applicable laws. In performing
their duties, the primary responsibility of the directors is to exercise their
business judgment in the best interests of all stockholders of Popular. The
Board has developed a number of specific expectations of directors to promote
the discharge of this responsibility and the efficient conduct of the Board's
business.
A. Commitment and Attendance. The SEC requires disclosure of the
failure of any director to attend 75% of the meetings of the
Board and the committees on which the director serves. All
directors should make every effort to attend meetings of the
Board and meetings of committees of which they are members.
Members may occasionally attend by telephone or
videoconference to mitigate unavoidable scheduling conflicts.
B. Participation in Meetings. Each director should be
sufficiently familiar with the business of Popular, including
its financial statements, capital structure, risks and the
competition it faces, to facilitate active and effective
participation in the deliberations of the Board and of each
committee on which the director serves. Upon request,
management will make appropriate personnel available to answer
any questions a director may have about any aspect of
Popular's business. Directors should also review the materials
provided by management and advisors in advance of the meetings
of the Board and its committees and should arrive prepared to
discuss the issues presented. Directors are entitled to rely
on the work of management and professional advisors as
discussed below under "Reliance on Management and Outside
Advice".
C. Loyalty and Ethics. In their roles as directors, all directors
owe their primary duty of loyalty to Popular and its
stockholders. This duty of loyalty mandates that the best
interests of Popular take precedence over any interests
possessed by a director. To prevent inadvertent conflicts of
interest or even the appearance of a conflict of interest,
directors should disclose all other business relationships
with Popular and should excuse themselves from
45
discussions and decisions affecting those relationships.
Popular intends to conduct its business in accordance with the
highest legal and ethical standards and has adopted a Code of
Business Conduct and Ethics (the "Code"). Certain portions of
the Code deal with activities of directors, particularly with
respect to transactions in the securities of Popular and
potential conflicts of interest. Directors should be familiar
with the Code and should consult with Popular's General
Counsel in the event of any issues.
D. Changes in Responsibility. Directors whose employment or other
outside responsibilities change substantially from those held
when they were elected to the Board should inform the Board,
providing an opportunity to consider the desirability of their
continued service on the Board.
E. Other Directorships. Popular values the experience directors
bring from other boards on which they serve, but recognizes
that those boards may also present demands on a director's
time and availability and may present conflicts or legal
issues. Directors who also serve as CEO's or in equivalent
positions should not serve on more than two boards of public
companies in addition to Popular, Inc.'s board, and other
directors should not serve on more than four other boards of
public companies in addition to the Popular Inc.'s Board.
Current positions in excess of these limits may be maintained
unless the Board determines that doing so would impair the
director's service on the Popular Inc.'s board.
F. Contact with Management. All directors are invited to contact
the CEO at any time to discuss any aspect of Popular's
business. Directors also have complete access to other members
of management. The Board expects that there will be frequent
opportunities for directors to meet with the CEO and other
members of management in Board and committee meetings and in
other formal or informal settings.
Further, the Board encourages management to, from time to
time, bring managers into Board meetings who: (a) can provide
additional insight into the items being discussed because of
personal involvement and substantial knowledge in those areas,
and/or (b) are managers with future potential that the senior
management believes should be given exposure to the Board.
G. Contact with Other Constituencies. It is important that
Popular speak to constituencies other than management and the
Board with a single voice, and that management serve as the
primary spokesperson. If a situation arises in which it seems
necessary for an individual director to make or participate in
communications to one of these constituencies, the director
should consult with the CEO.
H. Confidentiality. The proceedings and deliberations of the
Board and its committees are strictly confidential. Each
director has a fiduciary obligation to maintain the
confidentiality of all information received in connection with
his or her service as a director.
I. Contact About Strategic Transactions. It is important for
Popular to have the opportunity to evaluate and communicate in
an orderly way with respect to any potential strategic
transaction. Therefore, any director who is approached by a
third party about such a transaction should refrain from
discussing it and refer the contact promptly to the CEO.
XIII. EVALUATING BOARD PERFORMANCE
The Board, acting through the Corporate Governance and Nominating
Committee, should conduct a self-evaluation at least annually to determine
whether it is functioning effectively. The Corporate Governance and Nominating
Committee should periodically consider the mix of skills and experience that
directors bring to the Board to assess whether the Board has the necessary tools
to perform its oversight function effectively.
Each committee of the Board should conduct a self-evaluation at least
annually and report the results to the Board, acting through the Corporate
Governance and Nominating Committee. Each committee's evaluation must compare
the performance of the committee with the requirements of its written charter,
if any.
XIV. RELIANCE ON MANAGEMENT AND OUTSIDE ADVICE
In performing its functions, the Board is entitled to rely on the
advice, reports and opinions of management, counsel, accountants, auditors and
other expert advisors. The Board has the authority to retain and approve the
fees and retention terms of its outside advisors.
46
ANNEX D
AUDIT COMMITTEE CHARTER
ARTICLE 1 - ORGANIZATION
The Board of Directors (the "Board") of Popular, Inc. (the
"Corporation") has established an Audit Committee to undertake the
responsibilities and perform the tasks set forth in this Charter.
ARTICLE 2 - COMPOSITION
The Audit Committee shall be comprised of at least three directors,
each of whom is (i) "independent" under the Sarbanes-Oxley Act of 2002, and the
rules promulgated thereunder, and the rules of The NASDAQ Stock Market, Inc.
("NASDAQ"), (ii) does not accept any consulting, advisory or other compensatory
fee from the Corporation other than in his or her capacity as a member of the
Board or any committee of the Board, and (iii) is not an "affiliate" of the
Corporation or any subsidiary of the Corporation, as such term is defined in
Rule 10A-3 under the Securities Exchange Act of 1934, as amended. The Board
shall also determine that each member of the Audit Committee is able to read and
understand financial statements at the time of the member's appointment to the
Audit Committee and that at least one member of the Audit Committee has past
employment experience in finance or accounting, requisite professional
certification in accounting, or other comparable experience or background which
results in the member's financial sophistication.
The Board shall designate as president of the Audit Committee one of
its members, who shall preside over the meetings of the Committee and shall
inform the Board of the actions taken by the Committee. In the event of a
vacancy or an absence in the Audit Committee, the Board may designate any member
of the Board as substitute, provided such person complies with the requisites
established herein.
ARTICLE 3 - PURPOSE
The purpose of the Audit Committee is (a) to assist the Board in its
oversight of:
1. the Corporation's accounting and financial reporting
principles and policies, and internal audit controls
and procedures;
2. the Corporation's financial statements and the
independent audit thereof;
3. the outside auditors' qualifications, independence
and performance; and
4. the Corporation's compliance with legal and
regulatory requirements in relation to the accounting
and financial reporting processes of the Corporation
and the audits of the financial statements of the
Corporation;" and (b) to prepare the report required
to be prepared by the Audit Committee pursuant to the
rules of the SEC for inclusion in the Corporation's
annual report.
In fulfilling their responsibilities hereunder, it is recognized that
members of the Audit Committee are not employees of the Corporation and are not,
and do not represent themselves to be, performing the functions of accountants
or auditors. As such, it is not the duty or responsibility of the Audit
Committee or its members to conduct "field work" or other types of auditing or
accounting reviews or procedures or to set auditor independence standards.
The function of the Audit Committee is to act in an oversight capacity.
The management of the Corporation is responsible for the preparation,
presentation and integrity of the Corporation's financial statements and for the
effectiveness of internal control over financial reporting. Furthermore,
management and the Internal Audit Division are responsible for maintaining
appropriate accounting and financial reporting principles and policies, and
internal controls and procedures that provide for compliance with accounting
standards and applicable laws and regulations. Management and the Internal Audit
Division are responsible for examining and evaluating the adequacy and
effectiveness of the systems of internal control of the Corporation and its
subsidiaries to ensure (i) the reliability, integrity and reporting of
information; (ii) compliance with the Corporation's policies, plans and
procedures, as well as laws and regulations; (iii) the safekeeping of assets;
and (iv) the economical and efficient use of resources. The outside auditors are
responsible for planning and carrying out a proper audit of the Corporation's
annual financial statements, reviewing the Corporation's quarterly financial
statements prior to the filing of each quarterly report on Form 10-Q, annually
auditing management's assessment of the effectiveness of internal control over
financial reporting (commencing in the fiscal year ending December 31, 2004),
and other procedures.
The Audit Committee, in its capacity as a Committee of the Board of
Directors, shall be directly responsible for the outside auditors, who in turn
shall be accountable to the Audit Committee. The outside auditors shall annually
submit to the Audit
47
Committee a formal written statement of the fees billed for each of the
following categories of services rendered by the outside auditors: (i) the audit
of the Corporation's annual financial statements and the reviews of the
financial statements included in the Corporation's Quarterly Reports on Form
10-Q; or services that are normally provided by the outside auditors in
connection with statutory and regulatory filings or engagements; (ii) assurance
and related services not included in clause (i) that are reasonably related to
the performance of the audit or review of the Corporation's financial
statements, in aggregate and by each service; (iii) tax compliance, tax advice
and tax planning services, in the aggregate and by each service; and (iv) all
other products and services rendered by the outside auditors, in the aggregate
and by each service.
ARTICLE 4 - DUTIES AND RESPONSIBILITIES
To carry out its purposes, the Audit Committee shall have the following
duties and responsibilities:
1. With respect to the outside auditor:
(i) to annually appoint - or replace if necessary -
compensate, retain and oversee the work of any
outside auditor engaged for the purpose of preparing
or issuing an audit report or performing other audit,
review or attest service for the Corporation or any
of its subsidiaries, including sole authority to
approve all audit fees and terms;
(ii) to resolve disagreements between management and the
outside auditors regarding financial reporting;
(iii) to determine the fees to be paid to the outside
auditors for audit and non-audit services;
(iv) to ensure that the outside auditors prepare and
deliver annually a Statement as to Independence (it
being understood that the outside auditors are
responsible for the accuracy and completeness of this
Statement) addressing each non-audit service provided
to the Corporation and the matters set forth in
Independence Standards Board Standard No. 1, and to
discuss with the outside auditors any relationships
or services disclosed in this Statement that may
affect the quality of audit services or the
objectivity and independence of the Corporation's
outside auditors;
(v) to pre-approve, or adopt procedures to pre-approve,
all auditing and non-auditing services, to be
provided by the outside auditors and to consider
whether the outside auditors' provision of non-audit
services to the Corporation is compatible with
maintaining the independence of the outside auditors.
The Audit Committee may, in its discretion, delegate
to one or more of its members the authority to
pre-approve any audit or non-audit services to be
performed by the outside auditors, provided that any
such approvals are presented to the Audit Committee
at its next scheduled meeting;
(vi) to obtain from the outside auditors in connection
with any audit a timely report relating to the
Corporation's annual audited financial statements
describing (i) all critical accounting policies and
practices to be used; (ii) all alternative treatments
of financial information within GAAP that have been
discussed with management officials of the
Corporation, ramifications of the use of such
alternative disclosures and treatments, and the
treatment preferred by the outside auditors and
management; and (iii) any other material written
communications between the outside auditors and the
management of the Corporation, such as any
"management" letter or schedule of unadjusted
differences;
(vii) to review and evaluate the qualifications,
performance and independence of the lead partner of
the outside auditors;
(viii) to discuss with management the timing and process for
implementing the rotation of the lead audit partner,
the concurring partner, and any other active audit
engagement team partner, and consider whether there
should be a regular rotation of the audit firm
itself;
(ix) to take into account the opinions of management and
the Internal Audit Division in assessing the outside
auditors' qualifications, performance and
independence.
2. With respect to the Internal Audit Division:
(i) to review the appointment and replacement of the
General Auditor;
(ii) to review and ratify the annual evaluation and salary
recommendation of the General Auditor as recommended
by the Director of Risk Management; and
(iii) to advise the General Auditor that he or she is
expected to provide to the Audit Committee summaries
of and, as appropriate, the significant reports to
management prepared by the Internal Audit Division
and management's responses thereto.
3. With respect to accounting principles and policies, financial
reporting and internal control over financial reporting:
48
(i) to advise management, the Internal Audit Division and
the outside auditors that they are expected to
provide to the Audit Committee a timely analysis of
significant issues and practices relating to
accounting principles and policies, financial
reporting and internal control over financial
reporting;
(ii) to consider any reports or communications (and
management's and/or the Internal Audit Division's
responses thereto) submitted to the Audit Committee
by the outside auditors required by or referred to in
SAS 61 (as codified by AU Section 380), as it may be
modified or supplemented, including reports and
communications related to:
- deficiencies, including significant
deficiencies or material weaknesses, in
internal control identified during the audit
or other matters relating to internal
control over financial reporting;
- consideration of fraud in a financial
statement audit;
- detection of illegal acts;
- the outside auditor's responsibility under
generally accepted auditing standards;
- any restrictions on audit scope;
- significant accounting policies;
- significant issues discussed with the
national office respecting auditing or
accounting issues presented by the
engagement;
- management judgments and accounting
estimates and assumptions;
- any accounting adjustments arising from the
audit including those that were noted or
proposed by the outside auditor but were
"passed" (as immaterial or otherwise);
- the responsibility of the outside auditor
for other information in documents
containing audited financial statements;
- disagreements with management;
- consultation by management with other
accountants;
- major issues discussed with management prior
to retention of the outside auditor;
- difficulties encountered with management in
performing the audit;
- the outside auditor's judgments about the
quality of the entity's accounting
principles; and
- reviews of interim financial information,
including the quarterly financial
statements, conducted by the outside
auditor;
(iii) to establish procedures for:
- the receipt, retention, and treatment of
complaints received by the Corporation
regarding accounting, internal accounting
controls, or auditing matters; and
- the confidential, anonymous submission by
employees of the Corporation of concerns
regarding questionable accounting or
auditing matters.
(iv) to meet with management, the General Auditor and the
outside auditors:
- to discuss the scope of the annual audit;
- to discuss the audited financial statements
and quarterly financial statements,
including the Corporation's disclosures
under "Management's Discussion and Analysis
of Financial Condition and Results of
Operations";
- to discuss any significant matters arising
from any audit, report or communication
referred to in this Charter, whether raised
by management, the Internal Audit Division
or the outside auditors, relating to the
Corporation's financial statements;
- to review the form of opinion the outside
auditors propose to render to the Board and
shareholders;
- to discuss, as appropriate: (a) any major
issues regarding accounting principles and
financial statement presentations, including
any significant changes in the Corporation's
selection or application of accounting
principles, and major issues as to the
adequacy of the Corporation's internal
controls and any special audit steps adopted
in light of material control deficiencies;
(b) analyses prepared by management or the
outside auditors setting forth significant
financial reporting issues and judgments
made in
49
connection with the preparation of the
financial statements, including analyses of
the effects of alternative GAAP methods on
the financial statements; and (c) the effect
of regulatory and accounting initiatives, as
well as off-balance sheet structures, on the
financial statements of the Corporation;
- to inquire whether the financial statements
fairly present, in all material respects,
the financial condition, results of
operations and cash flows of the Corporation
as of and for the periods presented;
(v) to inquire of the Corporation's chief executive
officer and chief financial officer as to the
existence of any significant deficiencies in the
design or operation of internal controls that could
adversely affect the Corporation's ability to record,
process, summarize and report financial data, any
material weaknesses in internal controls, and any
fraud, whether or not material, that involves
management or other employees who have a significant
role in the Corporation's internal controls;
(vi) to obtain from the outside auditors assurance that
the audit was conducted in a manner consistent with
Section 10A of the Securities Exchange Act of 1934,
as amended, which sets forth certain procedures to be
followed in any audit of financial statements
required under the Securities Exchange Act of 1934;
(vii) approve all related party transactions;
(viii) to discuss with the Corporation's General Counsel any
significant legal matters that may have a material
effect on the financial statements and the
Corporation's compliance policies, including material
notices to or inquiries received from governmental
agencies; and
(ix) to review and discuss any reports concerning material
violations submitted to it by Corporation attorneys
or outside counsel pursuant to the SEC attorney
professional responsibility rules (17 C.F.R. Part
205) or otherwise.
4. With respect to reporting and recommendations:
(i) to prepare any report or other disclosures, including
any recommendation of the Audit Committee, required
by the rules of the Securities and Exchange
Commission to be included in the Corporation's annual
proxy statement;
(ii) to review this Charter at least annually and
recommend any changes to the Board; and
(iii) to report its activities to the Board on a regular
basis and to make such recommendations with respect
to the above and other matters as the Audit Committee
may deem necessary or appropriate.
ARTICLE 5 - RESOURCES AND AUTHORITY OF THE AUDIT COMMITTEE
The Audit Committee shall have the resources and authority appropriate
to discharge its responsibilities, including the authority to engage outside
auditors for special audits, reviews and other procedures and to retain
independent counsel and other experts or consultants, without seeking approval
of the Board or management, and to determine the compensation to be paid by the
Corporation to such auditors, counsel, experts or consultants.
The Corporation shall provide for appropriate funding, as determined by
the Audit Committee, in its capacity as a committee of the Board, for payment
of:
1. Compensation to the outside auditors and any other public
accounting firm engaged for the purpose of preparing of
issuing an audit report or performing other audit review or
attest services for the Corporation;
2. Compensation of any advisers employed by the Audit Committee;
and
3. Ordinary administrative expenses of the Audit Committee that
are necessary or appropriate in carrying out its duties.
ARTICLE 6 - TERM IN OFFICE
The members of the Audit Committee shall be appointed by the Board
based on nominations recommended by the Corporation's Corporate Governance and
Nominating Committee, and shall hold office from the time of designation until
the next annual meeting of stockholders of the Corporation. The Board may,
however, extend such period for one or all designated members.
ARTICLE 7 - MEETINGS
The Committee will meet at least one (1) time every three (3) months,
or more frequently if circumstances dictate, to discuss any or all the matters
set forth in Article 4, or any other topics deemed necessary. In addition to
such meetings, the Audit Committee should meet separately at least annually with
management, the General Auditor and the outside auditors to discuss any matters
that the Audit Committee or any of these persons or firms believe should be
discussed privately,
50
including the annual audited financial statements. The Audit Committee may
request any officer or employee of the Corporation or the Corporation's outside
counsel or outside auditors to attend a meeting of the Audit Committee or to
meet with any members of, or consultants to, the Audit Committee. Members of the
Audit Committee may participate in a meeting of the Audit Committee by means of
a conference call or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
ARTICLE 8 - SECRETARY
The Committee will designate a Secretary among its members. The
Secretary may delegate his (her) functions to any officer of the Corporation
sole designated by the Secretary. The Secretary, or the person so designated,
will notify the members of the Committee of the place, date, and time of the
meetings of the Committee on a timely basis, as well as prepare and submit the
agenda, reports and documents required for each meeting of the Committee.
ARTICLE 9 - MINUTES OF THE MEETINGS
The Secretary or his (her) designee will prepare accurate minutes of
each meeting of the Committee, indicating which members of the Committee were
present, and summarizing the decisions, recommendations and agreements reached.
The President of the Committee will submit the minutes and the attachments
considered necessary to the Board at their next meeting for their review and
ratification.
ARTICLE 10 - QUORUM AND COMMITTEE DECISIONS
A quorum shall consist of the majority of the members of the Committee.
The decisions of the Committee shall be adopted by an affirmative vote of the
majority of the members present at the meeting in which the decision is
considered. In the event of a tie, the decision will be submitted to the Board
in their next meeting and no action will be taken until the Board makes a
decision.
ARTICLE 11 -AMENDMENTS
This Charter can be amended by means of an express resolution of the
Board.
ARTICLE 12 - EFFECTIVE DATE
This Charter will be effective immediately after its approval by the
Board. The Secretary of the Board will certify it with his (her) signature and
the Corporate seal, indicating the date it was approved.
51
ANNEX E
PROPOSED AMENDMENT TO THE ARTICLE FIFTH OF THERE STATED ARTICLES OF
INCORPORATION
RESOLVED, that Article Fifth of the Restated Articles of Incorporation
of the Corporation be, and it hereby is, amended in its entirety to read as
follows:
"FIFTH: The minimum amount of capital with which the Corporation shall
commence business shall be $1,000.
The total number of shares of all classes of capital stock
that the Corporation shall have authority to issue, upon resolutions approved by
the Board of Directors from time to time, is five hundred million shares
(500,000,000), of which four hundred seventy million shares (470,000,000) shall
be shares of Common Stock of the par value of $6, per shares (hereinafter called
"Common Stock"), and thirty million (30,000,000) shall be shares of Preferred
Stock without par value (hereinafter called "Preferred Stock").
The amount of the authorized capital stock of any class or
classes of stock may be increased or decreased by the affirmative vote of the
holders of a majority of the stock of the Corporation entitled to vote.
The designations and the powers, preferences and rights, and
the qualifications, limitations or restrictions thereof, of the Preferred Stock
shall be as follows:
(1) The Board of Directors is expressly authorized at any
time, and from time to time, to provide for the issuance of shares of Preferred
Stock in one or more series, and with such voting powers, full or limited but
not to exceed one vote per share, or without voting powers, and with such
designations, preferences, and relative participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as shall be
expressed in the resolution or resolutions providing for the issue thereof
adopted by the Board of Directors and as are not otherwise expressed in this
Certificate of Incorporation or any amendment thereto, including (but without
limiting the generality of the foregoing) the following:
(a) the designation of such series;
(b) the purchase price that the Corporation shall
receive for each share of such series;
(c) the dividend rate of such series, the conditions
and dates upon which such dividends shall be payable, the preference or relation
that such dividends shall bear to the dividends payable on any other class or
classes or on any other series of any class or classes of capital stock of the
Corporation, and whether such dividends shall be cumulative or noncumulative;
(d) whether the shares of such series shall be
subject to redemption by the Corporation, and, if made subject to such
redemption, the times, prices and other terms and conditions of such redemption;
(e) the terms and amounts of any sinking fund
provided for the purchase or redemption of the shares of such series;
(f) whether the shares of such series shall be
convertible into or exchangeable for shares of any other class of classes or of
any other series of any class or classes of capital stock of the Corporation,
and, if provision be made for conversion or exchange, the times, prices, rates,
adjustments and other terms and conditions of such conversion or exchange;
(g) the extent, if any, to which the holders of the
shares of such series shall be entitled to vote as a class or otherwise with
respect to the election of directors or otherwise;
(h) the restrictions and conditions, if any, upon the
reissue of any additional Preferred Stock ranking on a
52
parity with or prior to such shares as to dividends or upon dissolution;
(i) the rights of the holders of the shares of such
series upon the dissolution of, or upon the distribution of assets of, the
Corporation, which rights may be different in the case of a voluntary
dissolution than in the case of an involuntary dissolution.
(2) Except as otherwise required by law and except for such voting
powers with respect to the election of directors or other matters as may be
stated in the resolutions of the Board of Directors creating any series of
Preferred Stock, the holders of any such series shall have no voting power
whatsoever.
RESOLVED FURTHER, that the proper officers of the Corporation be, and
hereby are, authorized and directed to take all actions, execute all
instruments, and make all payments that are necessary or desirable, at their
discretion, to make effective the foregoing amendment to the Restated Articles
of Incorporation of the Corporation, including without limitation on filing a
certificate of such amendment with the Secretary of State of the Commonwealth of
Puerto Rico."
53
ANNEX F
PROPOSED AMENDMENT TO THE ARTICLE EIGHTH OF THE RESTATED ARTICLES OF
INCORPORATION
RESOLVED, that Article Eighth of the Restated Articles of Incorporation
of the Corporation be, and hereby is, amended in its entirety to read as
follows:
EIGHT: (1) The Board shall be composed of such number of directors as
are established from time to time by the Board of Directors and approved by an
absolute majority of directors; provided, however, that the total number of
directors shall always be not less than nine (9) nor more than twenty-five (25).
The Board of Directors shall be divided into three classes as nearly equal in
number as possible, with each class having at least three members and with the
term of office of one class expiring each year. Each director shall serve for a
term ending on the date of the third annual meeting of stockholders following
the annual meeting at which such director was elected; provided, however, that
each initial director in Class 1 shall hold office until the annual meeting of
stockholders in 1991; each initial director in Class 2 shall hold office until
the annual meeting of stockholders in 1992; and each initial director in Class 3
shall hold office until the annual meeting of stockholders in 1993. Except as
provided in this Article Eighth, a director shall be elected by the affirmative
vote of a majority of the shares of the class of stock represented at the annual
meeting of stockholders for which the director stands for election and entitled
to elect such director.
(2) Any vacancies in the Board of Directors, by reason of an increase
in the number of directors or otherwise, shall be filled solely by the Board of
Directors, by majority vote of the directors then in office, thought less than a
quorum, but any such director so elected shall hold office only until the next
succeeding annual meeting of stockholders. At such annual meeting, such director
shall be elected and qualified in the class in which such director is assigned
to hold office for the term or remainder of the term of such class. Directors
shall continue in office until others are chosen and qualified in their stead.
When the number of directors is changed, any newly created directorships or any
decrease in directorships shall be so assigned among the classes by a majority
of the directors then in office, though less than a quorum, so as to make all
classes as nearly equal in number as possible. To the extent of any inequality
within the limits of foregoing, the class of directorships shall be the class or
classes then having the last date or the later dates for the expiration of its
or their terms. No decrease in the number of directors shall shorten the term of
any incumbent director.
(3) Any director may be removed from office as a director but only for
cause by the affirmative vote of the holders of two-third (2/3) of the combined
voting power of the then outstanding shares of stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class.
The Board of Directors may, by resolution passed by a majority of the
whole board, designate one or more committees, each committee to consist of two
or more of the directors of the Corporation, which to the extent provided in the
resolution or in the by-laws of the Corporation, shall have and may exercise the
powers of the Boards of Directors (other than the power to remove or elect
officers) in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
stated in the by-laws of the Corporation or as may be determined from time to
time by resolution adopted by the Board of Directors.
The Board of Directors may from time to time, in the manner provided
for in the by-laws of the Corporation, hold its regular or extraordinary
meetings outside of Puerto Rico.
RESOLVED FURTHER, that the proper officers of the Corporation be, and
hereby are, authorized and directed to take all actions, execute all
instruments, and make all payments that are necessary or desirable, at their
discretion, to make effective the foregoing amendment to the Restated Articles
of Incorporation of the Corporation, including without limitation, filing a
certificate of such amendment with the Secretary of State of the Commonwealth of
Puerto Rico.
54
2004 OMNIBUS INCENTIVE PLAN ANNEX G
ARTICLE I
PURPOSE
The Corporation has previously adopted the Popular, Inc., 2001 Stock
Option Plan (the "Stock Option Plan"), which was intended to provide
equity-based compensation incentives through the grant of stock options.
Effective upon the adoption of the "Popular, Inc. 2004 Omnibus Incentive Plan"
(the "Plan") by shareholders of Popular, Inc. (the "Corporation",) the Plan will
replace and supersede the Stock Option Plan. All outstanding award grants under
the Stock Option Plan shall continue in full force and effect, subject to their
original terms, after the Plan replaces and supersedes the Stock Option Plan
under the terms and conditions noted above.
The purpose of the Plan is to provide flexibility to the Corporation
and its Affiliates (as herein below defined) to attract, retain and motivate
their officers, executives and other key employees through the grant of awards
and to adjust its compensation practices to the best compensations practices and
corporate governance trends as they develop from time to time. The Plan is
further intended to help retain and align the interests of the non-employee
members of the Board of Directors of the Corporation and its Affiliates with the
Corporation's shareholders.
ARTICLE II
DEFINITIONS
2.1
Definitions. Whenever used herein, the following terms shall have the respective
meanings set forth below:
Adjusted Net Income. "Adjusted Net Income" means the
Corporation's consolidated net income applicable to common stockholders
as it appears on an income statement of the Company prepared in
accordance with generally accepted accounting principles, excluding the
effects of Extraordinary Items.
Adjustment Event. "Adjustment Event" means any stock dividend,
stock split or share combination of, or extraordinary cash dividend on,
the Common Stock or recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, dissolution,
liquidation, exchange of shares, warrants or rights offering to
purchase Common Stock at a price substantially below Fair Market Value,
or other similar event affecting the Common Stock of the Corporation.
Affiliate. "Affiliate" means any corporation or other form of
entity of which the Corporation owns, from time to time, directly or
indirectly, 50% or more of the total combined voting power of all
classes of stock or other equity interests.
Alternative Awards. "Alternative Awards" shall have the
meaning set forth in Section 10.3.
Annual Incentive Awards. "Annual Incentive Awards" means an
Award made pursuant to Article IX of the Plan with a Performance Cycle
of one year or less.
Approved Retirement. "Approved Retirement" means, in the case
of a Participant who is a common law employee of the Corporation or an
Affiliate, termination of a Participant's employment (i) on or after
the normal retirement date or any early retirement date established
under any defined benefit pension plan maintained by the Corporation or
an Affiliate and in which the Participant participates or (ii) on or
after attaining age 55 and completing such period of service as the
Committee shall determine from time to time, to the extent the
Participant does not participate in any such defined benefit pension
plan maintained by the Corporation or an Affiliate. Notwithstanding the
foregoing, the term "Approved Retirement" shall not apply to any
Participant whose employment with the Corporation or an Affiliate has
been terminated for Cause, whether or not such individual is deemed to
be retirement
55
eligible or is receiving retirement benefits under any defined benefit pension
plan maintained by the Corporation or an Affiliate and in which the Participant
participates or would otherwise satisfy the criteria set forth by the Committee
as noted in the preceding sentence.
Award. An "Award" means the award of an Annual Incentive Award, a
Long-Term Performance Unit Award, an Option, a SAR, Restricted Stock, Restricted
Unit or Performance Share, including any associated Dividend Equivalents, under
the Plan.
Beneficial Owner. "Beneficial Owner" means any "person," as such term
is used in Section 13(d) of the Act, who, directly or indirectly, has or shares
the right to vote, dispose of, or otherwise has "beneficial ownership" of such
securities (within the meaning of Rule 13d-3 and Rule 13d-5 under the Act),
including pursuant to any agreement, arrangement or understanding (whether or
not in writing).
Board. "Board" means the Board of Directors of the Corporation.
Cause. "Cause" means, with respect to a Participant, any of the
following (as determined by the Committee in its sole discretion): (i)
dishonesty, fraud or misrepresentation; (ii) inability to obtain or retain
appropriate licenses; (iii) violation of any rule or regulation of any
regulatory agency or self-regulatory agency; (iv) violation of any policy or
rule of the Corporation or any Affiliate; (v) commission of a crime; (vi) breach
by a Participant of any written covenant or agreement with the Corporation or
any Affiliate not to disclose or misuse any information pertaining to, or misuse
any property of, the Corporation or any Affiliate, or (vii) any act or omission
detrimental to the conduct of the business of the Corporation or any Affiliate
in any way.
Change of Control. A "Change of Control" shall be deemed to have
occurred if:
(i) any Person acquires direct or indirect ownership of 50%
or more of the combined voting power of the then outstanding securities
of the Corporation as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise; or
(ii) the shareholders of the Corporation approve (A) any
consolidation or merger of the Corporation in which the Corporation is
not the surviving corporation (other than a merger of the Corporation
in which the holders of Common Stock immediately prior to the merger
have the same or substantially the same proportionate ownership of the
surviving corporation immediately after the merger), or (B) any sale,
lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of
the Corporation to an entity which is not a wholly-owned subsidiary of
the Corporation.
Change of Control Price. "Change of Control Price" means the highest
price per share of Common Stock paid in conjunction with any transaction
resulting in a Change of Control (as determined in good faith by the Committee
if any part of the offered price is payable other than in cash).
Committee. "Committee" means the Compensation Committee of the Board or
such other committee of the Board as the Board shall designate from time to
time, which committee shall consist of two or more members, each of whom shall
be a "Non Employee Director" within the meaning of Rule 16b-3, as promulgated
under the Exchange Act, an "outside director" within the meaning of section
162(m) of the U.S. Code, and an "independent director" under the rules of
NASDAQ, or any successors thereto.
56
Common Stock. "Common Stock" means the common stock of the Corporation,
par value $6.00 per share.
Corporate Event. "Corporate Event" means a merger, consolidation,
recapitalization or reorganization, share exchange, division, sale, plan of
complete liquidation or dissolution, or other disposition of all or
substantially all of the assets of the Corporation, which has been approved by
the shareholders of the Corporation.
Corporation. "Corporation" means Popular, Inc., a Puerto Rico
Corporation, and any successor thereto.
Covered Employees. "Covered Employees" are any Executive Officers or
other Eligible Individuals who are "covered employees" within the meaning of
U.S. Code section 162(m).
Disability. "Disability" means with respect to any Participant,
long-term disability as defined under the welfare benefit plan maintained by
either the Corporation or an Affiliate and in which the Participant participates
and from which the Participant is receiving a long-term disability benefit.
Dividends. "Dividends" means the regular cash dividends paid by the
Corporation upon one share of Common Stock from time to time.
Dividend Equivalents. "Dividend Equivalents" means an amount equal to
the regular cash dividends paid by the Corporation upon one share of Common
Stock in connection with the grant of Restricted Units, Performance Shares,
Options, and/or SARs awarded to a Participant in accordance with Article VIII of
the Plan.
Effective Date. "Effective Date" generally means the first date upon
which the Plan shall become effective, which will be the date the Plan has been
both (a) approved by the Board on February 24. 2004 and (b) approved by a
majority of the votes cast at a duly held stockholders' meeting (currently
scheduled for April 30, 2004) at which the requisite quorum, as set forth in the
Corporation's Certificate of Incorporation, of outstanding voting stock of the
Corporation is, either in person or by proxy, present and voting on the Plan.
However, for purposes of any Option grant that is an ISO, the term "Effective
Date" shall mean solely the adoption of the Plan by the Board.
Eligible Individual. For purposes of this Plan only, "Eligible
Individual" means (i) any individual who is a common law employee (including
each officer or employee who is a member of the Board) of the Corporation or any
such Affiliate, and (ii) any Non- employee Director.
Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
Executive Officer. "Executive Officer" means each person who is an
officer of the Corporation or any Affiliate and who is subject to the reporting
requirements under Section 16(a) of the Exchange Act.
Extraordinary Items. "Extraordinary Items" means (i) extraordinary,
unusual and/or non-recurring items of gain or loss, including but not limited
to, restructuring or restructuring-related charges, (ii) gains or losses on the
disposition of a business, (iii) changes in tax or accounting regulations or
laws, (iv) the effect of a merger or acquisition, all of which are identified in
the Corporation's audited financial statements or the Corporation's annual
report to stockholders, or (v) those other items determined by the Committee.
Fair Market Value. "Fair Market Value" means, on any date, the price of
the last trade, in the Common Stock on such date on the NASDAQ National Market
System or, if at the relevant time, the Common Stock is not listed to trade on
the NASDAQ National Market System, on such other recognized quotation system on
which the trading prices of the Common Stock are then quoted (the "Applicable
Exchange"). In the event that (i) there are no Common Stock transactions on the
Applicable Exchange on any relevant date, Fair Market Value for such date shall
mean the closing price on the immediately preceding date on which Common Stock
transactions were so reported and (ii) the Applicable Exchange adopts a trading
policy permitting trades after 5 P.M. Eastern Standard Time ("EST"), Fair Market
Value shall mean the last trade, regular way, reported on or before 5 P.M. EST
(or such earlier or later time as the Committee may establish from time to
time).
57
ISO. "ISO" means an Option that is an "incentive stock option" within
the meaning of U.S. Code section 422.
Long-Term Performance Unit Award. A "Long-Term Performance Unit Award"
means an Award made pursuant to Article IX of the Plan, which are units valued
by reference to Common Stock, the number or value of such units which may be
adjusted over a Performance Cycle based on the satisfaction of Performance
Goals.
Nonemployee Director. "Nonemployee Director" means a member of the
Board of Directors of the Corporation or an Affiliate who is not a common law
employee of the Corporation or any Affiliate.
Nonstatutory Stock Option. "Nonstatutory Stock Option" means an Option
that is not an ISO or a QSO.
Option (including ISOs, QSOs and Nonstatutory Stock Options). "Option"
means the right to purchase Common Stock at a stated price for a specified
period of time. For purposes of the Plan, an Option may be either (i) an ISO,
(ii) a QSO or (iii) a Nonstatutory Stock Option.
P.R. Code. "P.R. Code" means the Puerto Rico Internal Revenue Code of
1994, as amended, including, for these purposes, any regulations promulgated by
the Puerto Rico Department of the Treasury with respect to the provisions of the
P.R Code, and any successor thereto.
Participant. "Participant" shall have the meaning set forth in Article
III of the Plan.
Performance Cycle. "Performance Cycle" means the period selected by the
Committee during which the performance of the Corporation or any Affiliate or
unit thereof or any individual is measured for the purpose of determining the
extent to which an Award subject to Performance Goals has been earned.
Performance Goals. "Performance Goals" means the objectives for the
Corporation, any Affiliate or business unit thereof, or an Eligible Individual
that may be established by the Committee for a Performance Cycle with respect to
any performance based Awards contingently granted under the Plan.
Performance Shares. "Performance Shares" means an Award made pursuant
to Article IX of the Plan, which are units denominated in Common Stock, the
number of such units which may be adjusted over a Performance Cycle based upon
the satisfaction of Performance Goals.
Person. "Person" means any person (within the meaning of Section
3(a)(9) of the Exchange Act), including any group (within the meaning of Rule
13d-5(b) under the Exchange Act), but excluding the Corporation, any Affiliate
or any employee benefit plan sponsored or maintained by the Corporation or any
Affiliate.
Plan Year. "Plan Year" means a period of twelve months commencing on
January 1st and ending on the next December 31st.
QSO. "QSO" means an Option that is a "qualified stock option" within
the meaning of P.R. Code section 1046.
Restricted Period. "Restricted Period" means the period of time during
which Restricted Units or shares of Restricted Stock are subject to forfeiture
or restrictions on transfer (if applicable) pursuant to Article VIII of the
Plan.
Restricted Stock. "Restricted Stock" means Common Stock awarded to a
Participant pursuant to the Plan that is subject to forfeiture and restrictions
on transferability in accordance with Article VIII of the Plan.
Restricted Unit. "Restricted Unit" means a Participant's right to
receive, pursuant to this Plan, one share of Common Stock at the end of a
specified period of time, which right is subject to forfeiture in accordance
with Article VIII of the Plan.
58
SAR. "SAR" means a stock appreciation right granted under
Article VII in respect of one or more shares of Common Stock that
entitles the holder thereof to receive, in cash or Common Stock, at the
discretion of the Committee (which discretion may be exercised at or
after grant, including after exercise of the SAR), an amount per share
of Common Stock equal to the excess, if any, of the Fair Market Value
on the date the SAR is exercised over the Fair Market Value on the date
the SAR is granted.
U.S. Code. "U.S. Code" means the U.S. Internal Revenue Code of
1986, as amended, including, for these purposes, any regulations
promulgated by the Internal Revenue Service with respect to the
provisions of the U.S. Code ("Treasury Regulations"), and any successor
thereto.
2.2
Gender and Number. Except when otherwise indicated by the context, words in the
masculine gender used in the Plan shall include the feminine gender, the
singular shall include the plural, and the plural shall include the singular.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1
Participants. Participants in the Plan shall be those Eligible Individuals
designated by the affirmative action of the Committee (or its delegate) to
participate in the Plan.
3.2
Types of Awards. The Committee (or its delegate) may grant any or all of the
Awards specified herein to any particular Participant (subject to the applicable
limitations set forth in the Plan). Any Award may be made for one (1) year or
multiple years without regard to whether any other type of Award is made for the
same year or years.
ARTICLE IV
POWERS OF THE COMMITTEE
4.1
Power to Grant. The Committee shall have the authority, subject to the terms of
the Plan, to determine those Eligible Individuals to whom Awards shall be
granted and the terms and conditions of any and all Awards including, but not
limited to:
(a) the number of shares of Common Stock to be covered by each
Award;
(b) the time or times at which Awards shall be granted;
(c) the terms and provisions of the instruments by which Options
may be evidenced, including the designation of Options as
ISOs, QSOs or Nonstatutory Stock Options;
(d) the determination of the period of time during which
restrictions on Restricted Stock or Restricted Units shall
remain in effect;
(e) the establishment and administration of any Performance Goals
applicable to Awards granted under the Plan;
(f) the determination of Participants' Long Term Performance Unit
Awards or Performance Share Awards, including any Performance
Goals and Performance Cycles;
(g) the development and implementation of specific stock-based
programs for the Corporation and its Affiliates that are
consistent with the intent and specific terms of the framework
created by this Plan; and
(h) the right of a Participant to defer receipt of payment of an
Award, including the establishment of a trust to hold the
amounts payable pursuant to an Award, including, but not
limited to shares of Common Stock.
59
Appropriate officers of the Corporation or any Affiliate may suggest to the
Committee the Eligible Individuals who should receive Awards, which the
Committee may accept or reject in its sole discretion. The Committee shall
determine the terms and conditions of each Award at the time of grant. The
Committee may establish different terms and conditions for different
Participants and for the same Participant for each Award such Participant may
receive, whether or not granted at different times.
4.2 Administration.
(a) Rules, Interpretations and Determinations. The Committee
shall administer the Plan. Any Award granted by the Committee under the
Plan may be subject to such conditions, not inconsistent with the terms
of the Plan, as the Committee shall determine. The Committee shall have
full authority to interpret and administer the Plan, to establish,
amend, and rescind rules and regulations relating to the Plan, to
provide for conditions deemed necessary or advisable to protect the
interests of the Corporation, to construe the respective Award
agreements and to make all other determinations necessary or advisable
for the administration and interpretation of the Plan in order to carry
out its provisions and purposes. Determinations, interpretations, or
other actions made or taken by the Committee shall be final, binding,
and conclusive for all purposes and upon all persons.
The Committee's determinations under the Plan (including the
determination of the Eligible Individuals to receive Awards, the form,
amount and timing of such Awards, the terms and provisions of such
Awards and the agreements hereunder) may vary, and need not be uniform,
whether or not any such Eligible Individuals could be deemed to be
similarly situated.
(b) Agents and Expenses. The Committee may appoint agents
(who may be officers or employees of the Corporation) to assist in the
administration of the Plan and may grant authority to such persons to
execute agreements or other documents on its behalf. All expenses
incurred in the administration of the Plan, including, without
limitation, for the engagement of any counsel, consultant or agent,
shall be paid by the Corporation. Any proceeds received by the
Corporation in connection with any Award will be used for general
corporate purposes.
(c) Delegation of Authority. Notwithstanding anything
else contained in the Plan to the contrary herein, the Committee may
delegate, subject to such terms or conditions or guidelines as it shall
determine, to any employee of the Corporation or any group of employees
of the Corporation or its affiliates any portion of its authority and
powers under the Plan with respect to Participants who are not
Executive Officers. Only the Committee may select, grant, administer,
or exercise any other discretionary authority under the Plan in respect
of Awards granted to such Participants who are Executive Officers.
4.3 Newly Eligible Participants. The Committee shall be entitled
to make such rules, determinations and adjustments, as it deems appropriate with
respect to any Participant who becomes eligible to receive a performance-based
Award after the commencement of a Performance Cycle.
4.4 Restrictive Covenants and Other Conditions. Without limiting
the generality of the foregoing, the Committee may condition the grant of any
Award under the Plan upon the Participant to whom such Award would be granted
agreeing in writing to certain conditions in addition to the provisions
regarding exercisability of the Award (such as restrictions on the ability to
transfer the underlying shares of Common Stock) or covenants in favor of the
Corporation and/or one or more Affiliates (including, without limitation,
covenants not to compete, not to solicit employees and customers and not to
disclose confidential information) that may have effect during or following the
termination of the Participant's employment with the Corporation and its
Affiliates and before or after the Award has been exercised, including, without
limitation, the requirement that the Participant disgorge any profit, gain or
other benefit received in respect of the exercise of the Award prior to any
breach of any such covenant by the Participant.
4.5 Performance Based Compensation Interpretations; Limitations on
Discretion. Notwithstanding anything
60
contained in the Plan to the contrary, to the extent the Committee has required
upon grant that any Annual Incentive Award, Long-Term Performance Unit Award,
Performance Share, Restricted Unit or Restricted Stock must qualify as "other
performance based compensation" within the meaning of Section 162(m)(4)(C) of
the U.S. Code, the Committee shall (a) specify and approve the specific terms of
any Performance Goals with respect to such Awards in writing no later than
ninety (90) days from the commencement of the Performance Cycle to which the
Performance Goal or Goals relate, and (b) not be entitled to exercise any
subsequent discretion otherwise authorized under the Plan (such as the right to
authorize payout at a level above that dictated by the achievement of the
relevant Performance Goals) with respect to such Award if the ability to
exercise discretion (as opposed to the exercise of such discretion) would cause
such Award to fail to qualify as other performance based compensation.
4.6 Indemnification. No member of the Committee, nor any officer
or employee of the Corporation acting on behalf of the Committee, shall be
personally liable for any action, determination or interpretation taken or made
in good faith with respect to the Plan and all members of the Committee and each
and any officer or employee of the Corporation acting on their behalf, to the
extent permitted by law, shall be entitled to full indemnification,
reimbursement and protection by the Corporation in respect of any such action,
determination or interpretation. In the performance of its functions under the
Plan, the Committee and any officer or employee of the Corporation acting on
their behalf, shall be entitled to rely upon information and advice furnished
to them by the Corporation's officers, accountants, counsel and any other party
they deem necessary, and no member of the Committee, nor any officer or employee
of the Corporation acting on behalf of the Committee, shall be liable for any
action taken or not taken in reliance upon any such advice.
ARTICLE V
COMMON STOCK SUBJECT TO PLAN; OTHER LIMITATIONS
5.1 Plan Limits. (a) Shares Available for Awards: Subject to the
provisions of Section 5.4, the number of shares of Common Stock issuable under
the Plan for Awards shall be 5,000,000.
(b) The shares to be delivered under the Plan may
consist, in whole or in part, of Common Stock purchased by the
Corporation for such purpose, treasury Common Stock or authorized but
unissued Common Stock, not reserved for any other purpose.
5.2 Individual Performance-Based Limitations: Subject to the
provisions of Section 5.4, to the extent that any Annual Incentive, Long-Term
Performance Unit, Restricted Stock, Restricted Unit and Performance Share Awards
to a Participant are intended to satisfy the requirements of U.S. Code section
162(m)(4)(C) as "other performance based compensation," the maximum aggregate
amount of such Award(s) paid or otherwise made available to such Participant
shall not exceed one-half of one percent (0.5%) of Adjusted Net Income for the
most recently reported year ending December 31st prior to the year such Award or
Awards is or are paid or otherwise made available.
5.3 Cancelled, Terminated, or Forfeited Awards. Should an Award
under this Plan for any reason expire without having been exercised, be
cancelled, repurchased by the Corporation, terminated or forfeited or otherwise
settled without the issuance of any Common Stock (including, but not limited to,
shares tendered to exercise outstanding Options, shares tendered or withheld for
taxes on Awards or shares issued in connection with a Restricted Stock Award
that is subsequently forfeited), any such shares of Common Stock subject to such
Award shall again be available for grants of Awards under the Plan.
5.4 Adjustment in Capitalization. In the event of any Adjustment
Event, (a) the aggregate number of shares of Common Stock available for Awards
under Section 5.1, (b) the aggregate limitations on the number of shares that
may be awarded as a particular type of Award or that may be awarded to any
particular Participant in any particular period under Section 5.2 and (c) the
aggregate number of shares subject to outstanding Awards and the respective
exercise prices or base prices applicable to outstanding Awards shall be
appropriately adjusted by the Committee, in its discretion, with respect to such
Adjustment Event, and the Committee's determination shall be conclusive. To the
extent deemed equitable and appropriate by the Committee and subject to any
required action by shareholders of the Corporation, in any Adjustment Event that
is a merger, consolidation, reorganization, liquidation, dissolution or similar
transaction, any Award granted under the Plan shall be deemed to pertain to the
securities and other property, including cash, to which a holder of the number
of shares of Common Stock covered by the Award would have been entitled to
receive in connection with such Adjustment Event.
61
Any shares of stock (whether Common Stock, shares of stock into which shares of
Common Stock are converted or for which shares of Common Stock are exchanged or
shares of stock distributed with respect to Common Stock) or cash or other
property received with respect to any award of Restricted Stock or Restricted
Units granted under the Plan as a result of any Adjustment Event or any
distribution of property shall, except as provided in Article X or as otherwise
provided by the Committee, be subject to the same terms and conditions,
including restrictions on transfer, as are applicable to such shares of
Restricted Stock or Restricted Units and any stock certificate(s) representing
or evidencing any shares of stock so received shall be legended in such manner
as the Corporation deems appropriate.
ARTICLE VI
STOCK OPTIONS
6.1 Grant of Options. Subject to the provisions of Section 5.1,
Options may be granted to Participants at such time or times as shall be
determined by the Committee. Options granted under the Plan may be of three
types: (i) ISOs, (ii) QSOs and (iii) Nonstatutory Stock Options. Except as
otherwise provided herein, the Committee shall have complete discretion in
determining the Number of Options, if any, to be granted to a Participant,
except that ISOs and QSOs may only be granted to Eligible Individuals who
satisfy the requirements for eligibility set forth under U.S. Code section 424
and P.R. Code section 1046, respectively. The date of grant of an Option under
the Plan will be the date on which the Option is awarded by the Committee or, if
so determined by the Committee, the date on which occurs any event (including,
but not limited to, the completion of an individual or corporate Performance
Goal) the occurrence of which is an express condition precedent to the grant of
the Option. Subject to Section 5.4, the Committee shall determine the number of
Options, if any, to be granted to the Participant. Each Option grant shall be
evidenced by an Option agreement (in electronic or written form) that shall
specify the type of Option granted, the exercise price, the duration of the
Option, the number of shares of Common Stock to which the Option pertains, and
such other terms and conditions as the Committee shall determine which are not
inconsistent with the provisions of the Plan. Options may be granted in tandem
with SARs (as described in more detail in Article VII), and/or with associated
Dividend Equivalents (as described in more detail in Article VIII).
6.2 Exercise Price; No Repricing or Substitution of Options.
Nonstatutory Stock Options and QSOs and ISOs granted pursuant to the Plan shall
have an exercise price no less than the Fair Market Value of a share of Common
Stock on the date the Option is granted. Except as a result of any Adjustment
Event, the Committee shall not have the power or authority to reduce, whether
through amendment or otherwise, the exercise price of any outstanding Option nor
to grant any new Options or other Awards in substitution for or upon the
cancellation of Options previously granted which shall have the effect of
reducing the exercise price of any outstanding Option.
6.3 Exercise of Options. Each Option granted pursuant to the Plan
shall become exercisable as determined by the committee at the time of grant;
provided that the Committee may establish performance-based criteria for
exercisability of any Option. Subject to the provisions of this Article VI, once
any portion of any Option has become exercisable it shall remain exercisable for
its remaining term. Once exercisable, an Option may be exercised from time to
time, in whole or in part, up to the total number of shares of Common Stock with
respect to which it is then exercisable. The Committee shall determine the term
of each Option granted, but, except as expressly provided below, in no event
shall any such Option be exercisable for more than 10 years after the date on
which it is granted.
6.4 Payment. The Committee shall establish procedures governing
the exercise of Options. No shares shall be delivered pursuant to any exercise
of an Option unless arrangements satisfactory to the Committee have been made to
assure full payment of the exercise price therefore. Without limiting the
generality of the foregoing, payment of the exercise price may be made: (a) in
cash or its equivalent; (b) by exchanging shares of Common Stock (which are not
the subject of any pledge or other security interest) owned by the person
exercising the Option (through actual tender or by attestation); (c) with the
approval of the Board or the Committee, by authorizing the Corporation, Popular
Securities, Inc. or a broker-dealer
62
approved by the Corporation, to sell, on behalf of the Participant, the
appropriate number of shares of Common Stock otherwise issuable to the
Participant upon exercise of an Option; (d) with the approval of the Board or
the Committee and at the election of the Participant, by withholding from those
shares of Common Stock that would otherwise be obtained upon exercise of the
Option a number of shares having a Fair Market Value equal to the exercise
price; (e) by any combination of the foregoing; or (f) by other means that the
Board or the Committee deems appropriate; provided that the combined value of
all cash and cash equivalents paid and the Fair Market Value of any such shares
of Common Stock so tendered to the Corporation, valued as of the date of such
tender, is at least equal to such exercise price. The Corporation may not make a
loan to a Participant to facilitate such Participant's exercise of any of his or
her Options or payment of taxes.
6.5 ISOs and QSOs. Notwithstanding anything in the Plan to the
contrary, no Option that is intended to be an ISO or a QSO may be granted after
the tenth anniversary of the Effective Date of the Plan. Except as may otherwise
be provided for under the provisions of Article X of the Plan, no term of this
Plan relating to ISOs or QSOs shall be interpreted, amended or altered, nor
shall any discretion or authority granted under the Plan be so exercised, so as
to disqualify the ISO, QSO or the Plan under Section 422 of the U.S. Code, or
P.R. Code section 1046, respectively, or without the consent of any Participant
affected thereby, to disqualify any ISO or QSO under such section 422 or section
1046.
6.6 Termination of Employment or Service as a Nonemployee
Director. Unless otherwise determined by the Committee at or following the time
of grant, the following provisions of the Plan shall apply in the event of the
Participant's termination of employment or service as a Nonemployee Director:
(a) Due to Death. In the event a Participant's employment
terminates by reason of death, any Options granted to such Participant
shall become immediately exercisable in full and may be exercised by
the Participant's estate or as may otherwise be provided for in
accordance with the requirements of Section 12.2, at any time prior to
the earlier to occur of the (i) expiration of the term of the Options
or (ii) such date as the Committee shall determine at the time of
grant; provided, however, that Nonstatutory Stock Options shall be
deemed to be amended to provide that they are exercisable for not less
than one (1) year after a Participant's death even if such period
exceeds the expiration of the term of the original grant of such
Nonstatutory Stock Options.
(b) Due to Disability. In the event a Participant's
employment is terminated by his or her employer by reason of
Disability, any Options granted to such Participant shall become
immediately exercisable in full and may be exercised by the Participant
(or, in the event of the Participant's death after termination of
employment when the Option is exercisable pursuant to its terms, by the
Participant's designated beneficiary, and if none is named, by the
person determined in accordance with the requirements of Section 12.2),
at any time prior to the expiration date of the term of the Options or
within such period as the Committee shall determine at the time of
grant following the Participant's termination of employment, whichever
period is shorter.
(c) Due to Approved Retirement. In the event a
Participant's employment terminates by reason of Approved Retirement,
any Options granted to such Participant which are then outstanding
shall become immediately exercisable in full and may be exercised by
the Participant (or, in the event of the Participant's death after
termination of employment when the Option is exercisable pursuant to
its terms, by the Participant's estate or as otherwise may be provided
for in accordance with Section 12.2), at any time prior to the
expiration date of the term of the Options or within five (5) years (or
such shorter period as the Committee shall determine at the time of
grant) following the Participant's Approved Retirement, whichever
period is shorter.
(d) Due to Cause. In the event a Participant's employment
is terminated by the Corporation or any Affiliate for Cause, any
Options granted to such Participant that are then not yet exercised
shall be forfeited at the time of such termination and shall not be
exercisable thereafter and the Committee may, consistent with Section
4.5 of the Plan, require that such Participant disgorge any profit,
gain or other benefit received in respect of the exercise of any such
Award for a period of up to twelve (12) months prior to the
Participant's termination of employment for Cause. For purposes of this
Section 6.6, in the event a Participant's employment is terminated by
the Corporation or any Affiliate for Cause, the provisions of this
Section 6.6(d) will apply notwithstanding any assertion (by the
Participant or otherwise) of a termination of employment for any other
reason enumerated under this Section.
63
(e) Due to Resignation. Unless otherwise determined by
the Committee, in the event a Participant's employment ends as a result
of such Participant's resignation from the Corporation or any
Affiliate, any Options granted to such Participant that are then not
yet exercised shall be forfeited at the time of such termination and
shall not be exercisable thereafter.
(f) Due to Any Other Reason. In the event the employment
of the Participant shall terminate for any reason other than one
described in Section 6.6 (a) through (e), any Options granted to such
Participant which are exercisable at the date of the Participant's
termination of employment may be exercised by the Participant (or, in
the event of the Participant's death after termination of employment
when the Option is exercisable pursuant to its terms, by the
Participant's estate or as may otherwise be provided for in accordance
with the requirements of Section 12.2) at any time prior to the
expiration of the term of the Options or the ninetieth (90th) day
following the Participant's termination of employment, whichever period
is shorter, and any Options that are not exercisable at the time of
termination of employment shall be forfeited at the time of such
termination and not be exercisable thereafter.
(g) Termination of Service as a Nonemployee Director. If
a Nonemployee Director shall terminate his service as a director for
reasons other than removal for cause, any Options granted to such
Participant shall become immediately exercisable in full and may be
exercised by the Participant (or the Participant's estate, as the case
may be) at any time before the expiration of the term of the Option.
ARTICLE VII
STOCK APPRECIATION RIGHTS (SARs)
7.1 Grant of SARs. SARs may be granted to any Participants, all
Participants or any class of Participants at such time or times as shall be
determined by the Committee. SARs may be granted in tandem with an Option, on a
freestanding basis, not related to any other Award, and/or with associated
Dividend Equivalents. A grant of a SAR shall be evidenced in writing, whether as
part of the agreement governing the terms of the Option, if any, to which such
SARs relate or pursuant to a separate written agreement with respect to
freestanding SARs, in each case containing such provisions not inconsistent with
the Plan as the Committee shall approve.
7.2 Terms and Conditions of SARs. Notwithstanding the provisions
of Section 7.1, unless the Committee shall otherwise determine the terms and
conditions (including, without limitation, the exercise period of the SAR, the
vesting schedule applicable thereto and the impact of any termination of service
on the Participant's rights with respect to the SAR) applicable with respect to
(i) SARs granted in tandem with an Option shall be substantially identical (to
the extent possible taking into account the differences related to the character
of the SAR) to the terms and conditions applicable to the tandem Options and
(ii) freestanding SARs shall be substantially identical (to the extent possible
taking into account the differences related to the character of the SAR) to the
terms and conditions that would have been applicable under Section 6 were the
grant of the SARs a grant of an Option (including, but not limited to, the
application of Section 6.6).
7.3 Exercise of Tandem SARs. SARs that are granted in tandem with
an Option may only be exercised upon the surrender of the right to exercise such
Option for an equivalent number of shares and may be exercised only with respect
to the shares of Stock for which the related Award is then exercisable.
7.4 Payment of SAR Amount. Upon exercise of a SAR, the holder
shall be entitled to receive payment, in cash, in shares of Common Stock or in a
combination thereof, as determined by the Committee, of an amount determined by
multiplying:
(a) the excess, if any, of the Fair Market Value of a
share of Stock at the date of exercise over the Fair Market Value of a
share of Common Stock on the date of grant, by
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(b) the number of shares of Common Stock with respect to
which the SARs are then being exercised; provided, however, that at the time of
grant with respect to any SAR payable in cash, the Committee may establish, in
its sole discretion, a maximum amount per share which will be payable upon the
exercise of such SAR.
ARTICLE VIII
RESTRICTED STOCK, RESTRICTED UNITS AND DIVIDEND EQUIVALENTS
8.1 Grant of Restricted Stock and Restricted Units. The Committee,
in its sole discretion, may make Awards to Participants of Restricted Stock or
Restricted Units. Any Award made hereunder of Restricted Stock or Restricted
Units shall be subject to the terms and conditions of the Plan and to any other
terms and conditions not inconsistent with the Plan (including, but not limited
to, requiring the Participant to pay the Corporation an amount equal to the par
value per share for each share of Restricted Stock awarded) as shall be
prescribed by the Committee in its sole discretion, either at the time of grant
or thereafter. As determined by the Committee, with respect to an Award of
Restricted Stock, the Corporation shall either (i) transfer or issue to each
Participant to whom an award of Restricted Stock has been made the number of
shares of Restricted Stock specified by the Committee or (ii) hold such shares
of Restricted Stock for the benefit of the Participant for the Restricted
Period. In the case of an Award of Restricted Units, no shares of Common Stock
shall be issued at the time an Award is made, and the Company shall not be
required to set aside a fund for the payment of such Award. Dividends or
Dividends Equivalents (if connected with the grant of Restricted Units) may be
subject to the same terms and conditions as the underlying Award of Restricted
Stock or Restricted Units.
8.2 Grant, Terms and Conditions of Dividend Equivalents. The
Committee, in its sole discretion, may make Awards to Participants of Dividend
Equivalents in connection with the grant of Restricted Units, Options, SARs
and/or Performance Shares. Unless the Committee shall otherwise determine, the
terms and conditions (including, without limitation, the vesting schedule
applicable thereto and the impact of any termination of service on the
Participant's rights with respect to the Dividend Equivalent) shall be
substantially identical (to the extent possible taking into account the
differences related to the character of the Dividend Equivalent) to the terms
and conditions applicable to the associated Award.
8.3 Restrictions On Transferability. Shares of Restricted Stock
may not be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered by the Participant during the Restricted Period, except as
hereinafter provided. Notwithstanding the foregoing, the Committee may permit
(on such terms and conditions as it shall establish) shares of Restricted Stock
and Restricted Units to be transferred during the Restricted Periods pursuant to
Section 12.1, provided that any shares of Restricted Stock or Restricted Units
so transferred shall remain subject to the provisions of this Article VIII.
8.4 Rights as a Shareholder. Except for the restrictions set forth
herein and unless otherwise determined by the Committee, the Participant shall
have all the rights of a shareholder with respect to such shares of Restricted
Stock, including but not limited to, the right to vote and the
right to receive dividends. A Participant shall not have any right, in respect
of Restricted Units or Dividend Equivalents awarded pursuant to the Plan, to
vote on any matter submitted to the Corporation's stockholders until such time
as the shares of Common Stock attributable to such Restricted Units (and, if
applicable, Dividend Equivalents) have been issued.
8.5 Restricted Period. The Restricted Period shall commence upon
the date of grant by the Committee and shall lapse with respect to the shares of
Restricted Stock or Restricted Units on such date as determined by the Committee
at the date an Award of Restricted Stock or Restricted Units (including any
Dividend Equivalents issued) is made to the Participant by the Committee, unless
sooner terminated as otherwise provided herein.
8.6 Legending or Equivalent. To the extent that certificates are
issued to a Participant in respect of shares of Restricted Stock awarded under
the Plan (or in the event that such Restricted Stock are held electronically),
such shares shall be registered in the name of the Participant and shall have
such legends (or account restrictions) reflecting the restrictions of such
Awards in such manner as the Committee may deem appropriate.
8.7 Termination of Employment or Service as a Nonemployee
Director. Unless the Committee shall otherwise
65
determine at or subsequent to the date of grant:
(a) Due to Death. In the event a Participant's employment
terminates by reason of death, the Restricted Period will lapse as to
the entire portion of the shares of Restricted Stock and/or Restricted
Units (including any associated Dividend Equivalents) transferred or
issued to such Participant under the Plan.
(b) Due to Disability. In the event a Participant's
employment terminates by reason of Disability, the Restricted Period
will lapse as to the entire portion of the shares of Restricted Stock
and/or Restricted Units (including any associated Dividend Equivalents)
transferred or issued to such Participant under the Plan.
(c) Due to Approved Retirement. In the event a
Participant's employment terminates by reason of Approved Retirement,
the Restricted Period will lapse as to the entire portion of the shares
of Restricted Stock and/or Restricted Units transferred or issued to
such Participant under the Plan (including any associated Dividend
Equivalents).
(d) Due to Cause. In the event a Participant's employment
is terminated by the Corporation or any Affiliate for Cause, any
Restricted Stock or Restricted Units (including any associated Dividend
Equivalents) granted to such Participant shall be forfeited at the time
of such termination, and the Committee may, consistent with Section 4.5
of the Plan, require that such Participant disgorge any profit, gain or
other benefit received in respect of the lapse of restrictions on any
prior grant of Restricted Stock or Restricted Units (including any
Dividend Equivalents) for a period of up to twelve (12) months prior to
the Participant's termination of employment for Cause. For purposes of
this Section 8.7, in the event a Participant's employment is terminated
by the Corporation or any Affiliate for Cause, the provisions of this
Section 8.7(d) will apply notwithstanding any assertion (by the
Participant or otherwise) of a termination of employment for any other
reason enumerated under this Section.
(e) Due to Resignation. Unless otherwise determined by
the Committee, in the event a Participant's employment ends as a result
of such Participant's resignation from the Corporation or any
Affiliate, any Restricted Stock granted to such Participant and all
Restricted Units (including any associated Dividend Equivalents)
credited to such Participant shall be forfeited upon the Participant's
termination of employment.
(f) Due to Any Other Reason. In the event a Participant's
employment is terminated by the Corporation or any Affiliate for any
other reason during the applicable vesting period, the Participant (or
the Participant's estate or beneficiaries, if the participant
subsequently dies) shall receive a payment calculated in the following
manner: (i) the number of shares of Restricted Stock or Restricted
Units granted will be reduced by multiplying the grant by a fraction,
the numerator of which is the number of full months in the applicable
vesting period during which the Participant was an active employee and
the denominator of which is the number of months in the applicable
vesting period (with a partial month worked shall be counted as a full
month if the Participant is an active employee for 15 days or more in
that month); and (ii) the resulting reduced number of Restricted Stock
or Restricted Units shall be considered vested and payment of such
pro-rated Awards is to be made to the Participant (or beneficiaries or
estate, if the Participant subsequently dies) as soon as practicable
after the Participant's termination of employment.
(g) Termination of Service as a Nonemployee Director. In
the event a Participant's service as a Nonemployee Director shall
terminate for reasons other than removal for cause, the Restriction
Period will lapse as to the entire portion of the shares of Restricted
Stock and/or Restricted Units (including any associated Dividend
Equivalents) transferred or issued to such Participant under the Plan.
8.8 Issuance of New Certificate or Equivalent: Settlement of
Restricted Units and Dividend Equivalents. Upon the lapse of the Restricted
Period with respect to any shares of Restricted Stock, such shares shall no
longer be subject to the restrictions imposed under Section 8.3 and the
Corporation shall issue or have issued new share certificates (or remove any
such restrictions that may have been established electronically) without the
legend or equivalent described in Section 8.6 in exchange for those previously
issued. Upon the lapse of the Restricted Period with respect to any Restricted
Units, the Corporation shall deliver to the Participant, or the Participant's
beneficiary or estate, as provided in Section 12.2, one share
66
of Common Stock for each Restricted Unit as to which restrictions have lapsed
and any Dividend Equivalents credited with respect to any Restricted Units, and
any interest thereon. The Committee may, in its sole discretion, elect to pay
cash or part cash and part Common Stock in lieu of delivering only Common Stock
and/or Dividend Equivalents. If a cash payment is made in lieu of delivering
Common Stock for the Restricted Units, the amount of such cash payment for each
share of Common Stock to which a Participant is entitled shall be equal to the
Fair Market Value of the Common Stock on the date on which the Restricted Period
lapsed with respect to the related Restricted Unit.
ARTICLE IX
ANNUAL INCENTIVE AWARDS,
LONG-TERM PERFORMANCE UNIT AWARDS
AND PERFORMANCE SHARE AWARDS
9.1 Annual Incentive Awards.
(a) General Description. At the direction of the
Committee, Annual Incentive Awards may be made to Participants and,
unless determined otherwise by the Committee at or after the date of
grant, shall be paid in cash.
(b) Requirements for Covered Employees. For any Covered
Employees and to the extent the Committee intends to comply with the
requirements for performance-based Awards described generally under
U.S. Code section 162(m), the Committee must certify, prior to payment
of any such amounts, that any applicable Performance Goals and/or other
requirements have been satisfied, and that such amounts are consistent
with the limits provided under Section 5.2(b).
(c) Payment of Annual Incentive Awards. Unless the
Committee determines otherwise either at grant or thereafter, in the
event a Participant terminates employment before the end of an annual
Performance Cycle due to death, Disability, or Approved Retirement,
such Participant, or his or her estate, shall be eligible to receive a
prorated Annual Incentive Award based on (a) in the case of death or
Disability, full achievement of the Participant's Performance Goals for
such Performance Cycle, and (b) in the case of Approved Retirement, the
actual achievement of the Performance Goals for such Performance Cycle,
in each case prorated for the portion of the Performance Cycle
completed before the Participant's termination of employment. If a
Participant terminates employment before payment of an Annual Incentive
Award is authorized by the Committee for any reason other than death,
Disability or Approved Retirement, the Participant shall forfeit all
rights to such Annual Incentive Award unless otherwise determined by
the Committee.
9.2 Long-Term Performance Unit Awards.
(a) General Description. At the discretion of the
Committee, grants of Long-Term Performance Unit Awards may be made to
Participants.
(b) Requirements for Covered Employees. For any Covered
Employees and to the extent the Committee intends to comply with the
requirements for performance-based Awards described generally under
U.S. Code section 162(m), the Committee must certify, prior to payment
of any such amounts, that any applicable Performance Goals and/or other
requirements have been satisfied, and that such amounts paid are
consistent with the limits provided under Section 5.2(b).
(c) Payment of Long-Term Performance Unit Awards.
Long-Term Performance Unit Awards shall be payable in cash, Common
Stock, or a combination of cash and Common Stock at the discretion of
the Committee. Unless the Committee shall otherwise determine at or
subsequent to the date of grant:
(i) Due to Death. In the event a Participant's
employment terminates by reason of death during the applicable
Performance Cycle, the Participant's estate or beneficiaries
will receive a lump sum payment as soon as practicable of such
Long-Term Performance Unit Award, calculated as if the target
value or equivalent value for each Unit had, in fact, been
achieved.
67
(ii) Due to Disability. In the event a
Participant's employment terminates by reason of Disability
during the applicable Performance Cycle, the Participant (or
the Participant's estate or beneficiaries, if the Participant
subsequently dies) will receive a lump sum payment as soon as
practicable of such Long-Term Performance Unit Award,
calculated as if the target value or equivalent value for each
Unit had, in fact, been achieved.
(iii) Due to Approved Retirement. In the event a
Participant's employment terminates by reason of Approved
Retirement during the applicable Performance Cycle, the
Participant (or the Participant's estate or beneficiaries, if
the Participant subsequently dies) shall receive a payment
calculated in the following manner: (i) the number of
Long-Term Performance Units granted will be reduced by
multiplying the grant by a fraction, the numerator of which is
the number of full months in the Performance Cycle during
which the Participant was an active employee and the
denominator of which is the number of months in the
Performance Cycle (with a partial month worked shall be
counted as a full month if the Participant is an active
employee for 15 days or more in that month); and (ii) the
resulting reduced number of Long-Term Performance Units shall
be considered vested and payment made to the Participant in a
lump sum as soon as practicable after the completion of the
respective Performance Cycle and the final valuation of such
Units is determined.
(iv) Due to Cause. In the event a Participant's employment
is terminated by the Corporation or any Affiliate for Cause, any
outstanding Long-Term Performance Unit Awards shall be cancelled and
the Committee may, consistent with Section 4.5 of the Plan, require
that such Participant disgorge any profit, gain or other benefit
received in respect of the payment of any prior Long-Term Performance
Unit Awards received within a period of twelve (12) months prior to the
Participant's termination of employment for Cause. For purposes of this
Section 9.2(c)(iv), in the event a Participant's employment is
terminated by the Corporation or any Affiliate for Cause, the
provisions of this Section 9.2(c)(iv) will apply notwithstanding any
assertion (by the Participant or otherwise) of a termination of
employment for any other reason enumerated under this Section.
(v) Due to Resignation. Unless otherwise determined by
the Committee, in the event a Participant's employment ends as a result
of such Participant's resignation from the Corporation or any
Affiliate, any Long-Term Performance Units credited to such Participant
shall be forfeited upon the Participant's termination of employment.
(vi) Due to Any Other Reason. In the event a Participant's
employment is terminated by the Corporation or any Affiliate for any
other reason during the applicable Performance Cycle, the Participant
(or the Participant's estate Participant (or the Participant's estate
or beneficiaries, if the Participant subsequently dies) shall receive a
payment calculated in the following manner: (i) the number of Long-Term
Performance Units granted will be reduced by multiplying the grant by a
fraction, the numerator of which is the number of full months in the
Performance Cycle during which the Participant was an active employee
and the denominator of which is the number of months in the Performance
Cycle (with a partial month worked shall be counted as a full month if
the Participant is an active employee for 15 days or more in that
month); and (ii) the resulting reduced number of Long-Term Performance
Units shall be considered vested and payment made to the Participant of
a lump sum payment as soon as practicable of such pro-rated Long-Term
Performance Unit Award, calculated as if the target value or equivalent
value for each Unit had, in fact, been achieved.
9.3 Performance Shares.
(a) General Description. At the discretion of the
Committee, grants of Performance Share Awards may be made to
Participants.
(b) Requirements for Covered Employees. For any Covered
Employees and to the extent the Committee intends to comply with the
requirements for performance-based Awards described generally under
U.S. Code section 162(m), the Committee must certify, prior to payment
of any such amounts, that any applicable Performance Goals and/or other
requirements have been satisfied, and that such amounts paid are
consistent with the limits provided under Section 5.2(b).
68
(c) Payment of Performance Share Awards. Performance
Share Awards shall be payable in Common Stock. Unless the Committee
shall otherwise determine at or subsequent to the date of grant:
(i) Due to Death. In the event a Participant's
employment terminates by reason of death during the applicable
Performance Cycle, the Participant's estate or beneficiaries
will receive a lump sum payment as soon as practicable of such
Performance Share Award, calculated as if the target number of
Performance Shares had, in fact, been earned.
(ii) Due to Disability. In the event a
Participant's employment terminates by reason of Disability
during the applicable Performance Cycle, the Participant (or
the Participant's estate or beneficiaries, if the Participant
subsequently dies) will receive a lump sum payment as soon as
practicable of such Performance Share Award, calculated as if
the target number of Performance Shares had, in fact, been
earned.
(iii) Due to Approved Retirement. In the event a
Participant's employment terminates by reason of Approved
Retirement during the applicable Performance Cycle, the
Participant (or the Participant's estate or beneficiaries, if
the Participant subsequently dies) shall receive a payment
calculated in the following manner: (i) the number of
Performance Shares granted will be reduced by multiplying the
grant by a fraction, the numerator of which is the number of
full months in the Performance Cycle during which the
Participant was an active employee and the denominator of
which is the number of months in the Performance Cycle (with a
partial month worked shall be counted as a full month if the
Participant is an active employee for 15 days or more in that
month); and (ii) the resulting reduced number of Performance
Shares shall be considered vested and payment made to the
Participant in a lump sum as soon as practicable after the
completion of the respective Performance Cycle and the final
number of Performance Shares has been determined.
(iv) Due to Cause. In the event a Participant's
employment is terminated by the Corporation or any Affiliate
for Cause, any outstanding Performance Share Awards shall be
cancelled and the Committee may, consistent with Section 4.5
of the Plan, require that such Participant disgorge any
profit, gain or other benefit received in respect of the
payment of any prior Performance Share Awards received within
a period of twelve (12) months prior to the Participant's
termination of employment for Cause. For purposes of this
Section 9.3(c)(iv), in the event a Participant's employment is
terminated by the Corporation or any Affiliate for Cause, the
provisions of this Section 9.3(c)(iv) will apply
notwithstanding any assertion (by the Participant or
otherwise) of a termination of employment for any other reason
enumerated under this Section.
(v) Due to Resignation. Unless otherwise
determined by the Committee, in the event a Participant's
employment ends as a result of such Participant's resignation
from the Corporation or any Affiliate, any Performance Share
Awards credited to such Participant shall be forfeited upon
the Participant's termination of employment.
(vi) Due to Any Other Reason. In the event a
Participant's employment is terminated by the Corporation or
an Affiliate for any other reason during the applicable
Performance Cycle, the Participant (or the Participant's
estate or beneficiaries, if the Participant subsequently dies)
shall receive a payment calculated in the following manner:
(i) the number of Performance Shares granted will be reduced
by multiplying the grant by a fraction, the numerator of which
is the number of full months in the Performance Cycle during
which the Participant was an active employee and the
denominator of which is the number of months in the
Performance Cycle (with a partial month worked shall be
counted as a full month if the Participant is an active
employee for 15 days or more in that month); and (ii) the
resulting reduced number of Performance Shares shall be
considered vested and payment made to the Participant of a
lump sum payment as soon as practicable of such pro-rated
Performance Share Award, calculated as if the target number of
Performance Shares had, in fact, been earned.
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ARTICLE X
CHANGE OF CONTROL
10.1 Accelerated Vesting and Payment of Awards. Subject to the
provisions of Section 10.3, in the event of a Change of Control each Option and
SAR then outstanding shall be fully exercisable regardless of the exercise
schedule otherwise applicable to such Option and/or SAR, and the Restricted
Period shall lapse as to each share of Restricted Stock and each Restricted Unit
then outstanding. In connection with such a Change of Control, the Committee
may, in its discretion, provide that each Option, SAR, Restricted Stock and/or
Restricted Unit shall, upon the occurrence of such Change of Control, be
cancelled in exchange for a payment per share/unit (the "Settlement Payment") in
an amount based on the Change of Control Price. Such Settlement Payment shall be
in the form of cash.
10.2 Long Term Performance Unit Awards and Performance Share
Awards. Subject to the provisions of Section 10.3, in the event of a Change of
Control, (a) any outstanding Long Term Performance Unit Awards or Performance
Share Awards relating to Performance Cycles ending prior to the Change of
Control which have been earned but not paid shall become immediately payable,
(b) all then-in-progress Performance Cycles for Long Term Performance Unit
Awards or Performance Share Awards that are outstanding shall end, and all
Participants shall be deemed to have earned an award equal to the Participant's
target award opportunity for the Performance Cycle in question, and (c) the
Corporation shall pay all such Long Term Performance Unit Awards and Performance
Share Awards as a Settlement Payment within thirty (30) days of such Change of
Control, based on the Change of Control Price. Such Settlement Payment shall be
in cash.
10.3 Alternative Awards. Notwithstanding Section 10.1 or 10.2, no
cancellation, acceleration of exercisability, vesting, cash settlement or other
payment shall occur with respect to any Option, SAR, Restricted Stock,
Restricted Unit, Long-Term Performance Unit and/or Performance Share if the
Committee reasonably determines in good faith prior to the occurrence of a
Change of Control that such Option, SAR, Restricted Stock, Restricted Unit,
Long-Term Performance Unit and/or Performance Share shall be honored or assumed,
or new rights substituted therefore (such honored, assumed or substituted award
hereinafter called an "Alternative Award"), by a Participant's employer (or the
parent or an affiliate of such employer) immediately following the Change of
Control; provided that any such Alternative Award must:
(a) be based on stock that is traded on an established
securities market;
(b) provide such Participant with rights and entitlements
substantially equivalent to or better than the rights, terms and
conditions applicable under such Option, SAR, Restricted Stock,
Restricted Unit, Long-Term Performance Unit and/or Performance Share,
including, but not limited to, an identical or better exercise or
vesting schedules;
(c) have substantially equivalent value to such Option,
SAR, Restricted Stock, Restricted Unit, Long-Term Performance Unit
and/or Performance Share (determined at the time of the Change in
Control); and
(d) have terms and conditions which provide that in the
event that the Participant's employment is involuntarily terminated for
any reason other than for Cause, all of such Participant's Options,
SARs, Restricted Stock, Long-Term Performance Units and/or Performance
Shares shall be deemed immediately and fully exercisable and/or all
restrictions shall lapse, and shall be settled for a payment per each
share of stock subject to the Alternative Award in cash, in immediately
transferable, publicly traded securities, or in a combination thereof,
in an amount equal to (i) the Fair Market Value of such stock on the
date of the Participant's termination (with respect to any Restricted
Stock and/or Restricted Units, (ii) the excess of the Fair Market Value
of such stock on the date of the Participant's termination over the
corresponding exercise or base price per share, if any (with respect to
any Option and/or SARs), or (iii) the Participant's target award
opportunity for the Performance Cycle in question (with respect to any
Long-Term Performance Units or Performance Shares).
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ARTICLE XI
AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN
11.1 General. The Board may, at any time and from time to time
amend, modify, suspend, or terminate this Plan, in whole or in part, without
notice to or the consent of any participant or employee; provided, however, that
any amendment which would (i) increase the number of shares available for
issuance under the Plan, (ii) lower the minimum exercise price at which an
Option (or the base price at which a SAR) may be granted or (iii) change the
individual Award limits or (iv) require shareholder approval under NASDAQ rules
or the rules of any other exchange where the Common Stock may then be traded,
shall be subject to the approval of the Corporation's shareholders. No
amendment, modification or termination of the Plan shall in any manner adversely
affect any Award theretofore granted under the Plan, without the consent of the
Participant, provided, however, that
(a) any change pursuant to, and in accordance with the
requirements of, Article X;
(b) any acceleration of payments of amounts accrued under the Plan
by action of the Committee or by operation of the Plan's terms; or (c) any
decision by the Committee to limit participation (or other features of the Plan)
prospectively under the Plan shall not be deemed to violate this provision.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Transferability of Awards. No Awards granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution. No
transfer of an Award by will or by the laws of descent and distribution shall be
effective to bind the Corporation unless the Corporation shall have been
furnished with written notice thereof and a copy of the will and/or such other
evidence as the Board of Directors or the Committee may determine necessary to
establish the validity of the transfer.
12.2 Treatment of Any Outstanding Rights or Features Upon
Participant's Death. Any Awards, rights or features remaining unexercised or
unpaid at the Participant's death shall be paid to, or exercised by, the
Participant's estate except where otherwise provided by law, or when done in
accordance with other methods (including a beneficiary designation process) put
in place by the Committee or a duly appointed designee from time to time. Except
as otherwise provided herein, nothing in this Plan is intended or may be
construed to give any person other than Participants any options, rights or
remedies under this Plan.
12.3 Deferral of Payment. The Committee may, in the Award agreement
or otherwise, permit a Participant to elect, upon such terms and conditions as
the Committee may establish, to defer receipt of shares of Common Stock that
would otherwise be issued upon exercise or vesting of an Award. Notwithstanding
anything else contained herein to the contrary, deferrals shall not be permitted
hereunder in a way that will result in the Corporation or any Affiliate being
required to recognize a financial accounting charge due to such deferral that is
substantially greater than the charge, if any, that was associated with the
underlying Award.
12.4 Awards In Substitution for Awards Granted By Other Companies.
Awards may be granted under the Plan from time to time as replacements for
awards (including, but not limited to, options, common stock, restricted stock,
performance shares or performance units) held by employees of other companies
who become Employees of the Corporation or of any Affiliate as a result of a
merger or consolidation of the employing Corporation with the Corporation, or
such Affiliate, or the acquisition by the Corporation or an Affiliate of all or
a portion of the assets of the employing Corporation. Shares issued in
connection with such substitute Awards shall not reduce the number of shares of
Common Stock issuable under Section 5.1 of the Plan.
12.5 No Guarantee of Employment or Participation. The existence of
the Plan shall not be deemed to constitute a contract of employment between the
Corporation or any affiliate and any Eligible Individual or Participant, nor
shall it constitute a right to remain in the employ of the Corporation or any
affiliate. The terms or existence of this Plan, as in effect at any time or from
time to time, or any Award granted under the Plan, shall not interfere with or
limit in any way the right of the Corporation or any Affiliate to terminate any
Participant's employment at any time, nor confer upon any Participant any right
to continue in the employ of the Corporation or any Affiliate of the
Corporation. Each employee of the Corporation or
71
any Affiliate remains at will. Except to the extent expressly selected by the
Committee to be a Participant, no person (whether or not an Eligible Individual
or a Participant) shall at any time have a right to be selected for (or
additional) participation in the Plan, despite having previously participated in
an incentive or bonus plan of the Corporation or an Affiliate.
12.6 Tax Withholding. The Corporation or an Affiliate shall have
the right and power to deduct from all payments or distributions hereunder, or
require a Participant to remit to the Corporation promptly upon notification of
the amount due, an amount (which may include shares of Common Stock) to satisfy
any Puerto Rico, federal, state, local or foreign taxes or other obligations
required by law to be withheld with respect thereto with respect to any Award.
The Corporation may defer payments of cash or issuance or delivery of Common
Stock until such withholding requirements are satisfied. The Committee may, in
its discretion, permit a Participant to elect, subject to such conditions as the
Committee shall impose, (a) to have shares of Common Stock otherwise issuable
under the Plan withheld by the Corporation or (b) to deliver to the Corporation
previously acquired shares of Common Stock (through actual tender or
attestation), in either case for the greatest number of whole shares having a
Fair Market Value on the date immediately preceding the date of exercise not in
excess of the amount required to satisfy the withholding tax obligations.
12.7 Tax Offset Payments. The Committee shall have the authority at
the time of any award under this Plan or anytime thereafter to make Tax Offset
Payments to assist Participants in paying income taxes incurred as a result of
their participation in this Plan. The Tax Offset Payments shall be determined by
multiplying a percentage established by the Committee by all or a portion (as
the Board or the Committee shall determine) of the taxable income recognized by
a Participant upon (i) the exercise of a Nonstatutory Stock Option, or (ii) the
disposition of shares received upon exercise of a QSO or an ISO. The percentage
shall be established, from time to time, by the Committee at that rate which the
Committee, in its sole discretion, determines to be appropriate and in the best
interests of the Corporation to assist Participants in paying income taxes
incurred as a result of the events described in the preceding sentence. Tax
Offset Payments shall be subject to the restrictions on transferability
applicable to Options set forth in Section 12.1.
12.8 No Limitation on Compensation; Scope of Liabilities. Nothing
in the Plan shall be construed to limit the right of the Corporation to
establish other plans if and to the extent permitted by applicable law. The
liability of the Corporation, or any Affiliate under this Plan is limited to the
obligations expressly set forth in the Plan, and no term or provision of this
Plan may be construed to impose any further or additional duties, obligations,
or costs on the Corporation or any affiliate thereof or the Committee not
expressly set forth in the Plan.
12.9 Requirements of Law. The granting of Awards and the issuance
of shares of Common Stock shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
12.10 Term of Plan. The Plan shall be effective upon the Effective
Date. The Plan shall terminate on the earlier of (a) the termination of the Plan
pursuant to Article XI, or (b) when no more shares are available for issuance of
Awards under the Plan.
12.11 Governing Law. The Plan, and all agreements hereunder, shall
be construed in accordance with and governed by the laws of the Commonwealth of
Puerto Rico without regard to principles of conflict of laws.
12.12 Securities Law Compliance. Instruments evidencing Awards may
contain such other provisions, not inconsistent with the Plan, as the Committee
deems advisable, including a requirement that the Participant represent to the
Corporation in writing, when an Award is granted or when he receives shares with
respect to such Award (or at such other time as the Committee deems appropriate)
that he is accepting such Award, or receiving or acquiring such shares (unless
they are then covered by a Securities Act of 1933 registration statement), for
his own account for investment only and with no present intention to transfer,
sell or otherwise dispose of such shares except such disposition by a legal
representative as shall be required by will or the laws of any jurisdiction in
winding up the estate of the Participant. Such shares shall be transferable, or
may be sold or otherwise disposed of only if the proposed transfer, sale or
other disposition shall be permissible pursuant to the Plan and if, in the
opinion of counsel satisfactory to the Corporation, such transfer, sale or other
disposition at such time will be in compliance with applicable securities laws.
72
12.13 No Impact On Benefits. Except as may otherwise be specifically
provided for under any employee benefit plan, policy or program provision to the
contrary, Awards shall not be treated as compensation for purposes of
calculating an Eligible Individual's right under any such plan, policy or
program.
12.14 No Constraint on Corporate Action. Except as provided in
Article XI, nothing contained in this Plan shall be construed to prevent the
Corporation, or any affiliate, from taking any corporate action (including, but
not limited to, the Corporation's right or power to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer
all or any part of its business or assets) which is deemed by it to be
appropriate, or in its best interest, whether or not such action would have an
adverse effect on this Plan, or any Awards made under this Plan. No employee,
beneficiary, or other person, shall have any claim against the Corporation or
any of its Affiliates, as a result of any such action.
12.15 Captions. The headings and captions appearing herein are
inserted only as a matter of convenience. They do not define, limit, construe,
or describe the scope or intent of the provisions of the Plan.
73
POPULAR, INC.
IF YOU WISH TO VOTE BY TELEPHONE, INTERNET OR MAIL, PLEASE READ THE INSTRUCTIONS
BELOW.
Popular, Inc. encourages you to take advantage of the convenient ways to vote
for matters to be covered at the 2004 Annual Meeting of Stockholders. Please
take the opportunity to use one of the three voting methods outlined below to
cast your ballot.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the meeting date. Have your proxy card in hand
when you call and follow the simple instructions the Vote Voice provides you.
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic
delivery of information up until 11:59 P.M. Eastern Time the day before the
meeting date. Have your proxy card in hand when you access the web site and
follow the instructions to obtain your records and to create an electronic
voting instruction form.
VOTE BY MAIL
Please mark, sign, date and return this card promptly using the enclosed postage
prepaid envelope. No postage is required if mailed in the United States, Puerto
Rico or the U.S. Virgin Islands.
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
PLEASE SIGN AS YOUR NAME APPEARS ON THIS FORM.
IF SHARES ARE HELD JOINTLY, ALL OWNERS SHOULD SIGN.
(Vea al dorso texto en espanol)
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
PROXY
POPULAR, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, APRIL 30, 2004
To the Stockholders of Popular, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Popular, Inc.
(the "Meeting") for the year 2004 will be held at 9:00 a.m. on Friday, April 30,
2004, on the third floor of the Cento Europa Building, in Santurce, Puerto
Rico, to consider and act upon the following matters:
(1) To elect three (3) directors of Popular, Inc. (the "Corporation") for a
three-year term:
FOR WITHHOLD FOR ALL To withhold authority to vote, mark "For All Except"
ALL ALL EXCEPT and write the nominee's number on the line below.
1) Jose B. Carrion Jr. [ ] [ ] [ ]
2) Manuel Morales Jr.
3) Jose R. Vizcarrondo ----------------------------------------------------
(2) To elect two (2) directors of the Corporation for a one-year term:
4) Maria Luisa Ferre
5) Frederic V. Salerno
For Against Abstain
(3) To ratify the selection of the Corporation's independent auditors for
2004; [ ] [ ] [ ]
(4) To amend Article Fifth of the Restated Articles of Incorporation to
increase the authorized number of shares of common stock, par value $6,
from 180,000,000 to 470,000,000; [ ] [ ] [ ]
(5) To amend Article Fifth of the Restated Articles of Incorporation to
increase the authorized number of shares of preferred stock without par
value from 10,000,000 to 30,000,000; [ ] [ ] [ ]
(6) To amend Article Eighth of the Restated Articles of Incorporation to
eliminate the requirement that the total number of directors shall
always be an odd number and; [ ] [ ] [ ]
(7) To approve the Corporation's 2004 Omnibus Incentive Plan. [ ] [ ] [ ]
Stockholders of record at the close of business on March 11, 2004, are entitled
to notice of and to vote at the Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" ITEMS 1, 2, 3, 4, 5, 6 AND 7 ABOVE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Richard L. Carrion, Jorge A. Junquera and David
H. Chafey Jr. or any one or more of them as Proxies, each with the power to
appoint his substitute, and authorizes them to represent and to vote as
designated above all the shares of common stock of Popular, Inc. held of record
by the undersigned on March 11, 2004, at the Annual Meeting of Stockholders to
be held at the Centro Europa Building, 1492 Ponce de Leon Avenue, 3rd Floor, San
Juan, Puerto Rico, on April 30, 2004, at 9:00 a.m. or at any adjournments
thereof. The Proxies are further authorized to vote such shares upon any other
business that may properly come before the meeting or any adjournments thereof.
Please indicate if you wish to view meeting materials electronically via the
Internet rather than receiving a hardcopy, please note that you will continue
to receive a proxy card for voting purposes. Yes [ ] No [ ]
---------------------------------- ---- ----------------------- ----
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date