SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
R&G Financial Corporation
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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 Registrant)
Payment of Filing fee (Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
<PAGE>
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing party:
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4) Date filed:
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<PAGE>
March 31, 1998
Dear Stockholder,
You are cordially invited to attend the Annual Meeting of Stockholders
of R&G Financial Corporation (the "Company"). The meeting will be held at R-G
Plaza, Board of Directors' Conference Room, 280 Jesus T. Pinero Avenue, Hato
Rey, San Juan, Puerto Rico 00918, on Thursday, April 23, 1997 at 10:00 a.m. The
matters to be considered by stockholders at the Annual Meeting are described in
the accompanying materials.
It is very important that you be represented at the Annual Meeting
regardless of the number of shares you own or whether you are able to attend the
meeting in person. We urge you to mark, sign, and date your proxy card today and
return it in the envelope provided, even if you plan to attend the Annual
Meeting. This will not prevent you from voting in person, but will ensure that
your vote is counted if you are unable to attend.
Your continued support of and interest in R&G Financial Corporation are
sincerely appreciated.
Very truly yours,
/s/Victor J. Galan
------------------
Victor J. Galan
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
R&G FINANCIAL CORPORATION
R-G Plaza
280 Jesus T. Pinero Avenue
Hato Rey, San Juan, Puerto Rico 00918
(787) 758-2424
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On April 23, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of R&G
Financial Corporation (the "Company"), will be held at R-G Plaza, Board of
Directors' Conference Room, 280 Jesus T. Pinero Avenue, Hato Rey, San Juan,
Puerto Rico 00918, on Thursday, April 23, 1998, at 10:00 a.m., for the following
purposes, all of which are more completely set forth in the accompanying Proxy
Statement:
(1) To elect four (4) directors for a three-year term or until their
successors are elected and qualified;
(2) To amend the Certificate of Incorporation of the Company to
increase the authorized number of shares of Common Stock of the
Company from 25,000,000 to 60,000,000;
(3) To ratify the appointment by the Board of Directors of Price
Waterhouse as the Company's independent auditors for the fiscal
year ending December 31, 1998; and
(4) To transact such other business as may properly come before the
meeting or any adjournment thereof. Management is not aware of
any other such business which may properly come before the
meeting.
The Board of Directors has fixed March 23, 1998 as the voting record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting. Only those stockholders of record as of the close of
business on that date will be entitled to vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Victor J. Galan
------------------
Victor J. Galan
Chairman of the Board, President
and Chief Executive Officer
San Juan, Puerto Rico
March 31, 1998
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YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING
OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
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<PAGE>
R&G FINANCIAL CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
April 23, 1998
This Proxy Statement is furnished to the holder of Class A common stock,
$0.01 par value per share ("Class A Shares"), and holders of Class B common
stock, $.01 par value per share ("Class B Shares") (collectively, the "Common
Stock"), of R&G Financial Corporation (the "Company"), the holding company for
R-G Premier Bank of Puerto Rico (the "Bank") and R&G Mortgage Corporation ("R&G
Mortgage"). Proxies are being solicited on behalf of the Board of Directors of
the Company to be used at the Annual Meeting of Stockholders ("Annual Meeting")
to be held at R-G Plaza, Board of Directors' Conference Room, 280 Jesus T.
Pinero Avenue, Hato Rey, San Juan, Puerto Rico 00918, on Thursday, April 23,
1998 at 10:00 a.m., for the purposes set forth in the Notice of Annual Meeting
of Stockholders. This Proxy Statement is first being mailed to stockholders on
or about March 31, 1998.
The proxy solicited hereby, if properly signed and returned to the
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted FOR the nominees for director described herein, FOR
amendment of the Company's Certificate of Incorporation to increase to
60,000,000 the authorized number of shares of Common Stock of the Company; FOR
ratification of the appointment of Price Waterhouse as the Bank's independent
auditors for 1998 and upon the transaction of such other business as may
properly come before the meeting in accordance with the best judgment of the
persons appointed as proxies. Any stockholder giving a proxy has the power to
revoke it at any time before it is exercised by (i) filing with the Secretary of
the Company written notice thereof (Secretary, R&G Financial Corporation, R-G
Plaza, 280 Jesus T. Pinero Avenue, Hato Rey, San Juan, Puerto Rico 00918); (ii)
submitting a duly-executed proxy bearing a later date; or (iii) appearing at the
Annual Meeting and giving the Secretary notice of his or her intention to vote
in person. Proxies solicited hereby may be exercised only at the Annual Meeting
and any adjournment thereof and will not be used for any other meeting.
VOTING
Only stockholders of record at the close of business on March 23, 1998
("Voting Record Date") will be entitled to vote at the Annual Meeting. On the
Voting Record Date, there were 9,220,278 shares of Class A Shares outstanding,
4,924,474 shares of Class B Shares outstanding,
<PAGE>
or collectively, 14,144,752 shares of Common Stock outstanding, and the Company
had no other class of equity securities outstanding. The holder of Class A
Shares, the Chairman, President and Chief Executive Officer of the Company, is
entitled to two votes per share and the holders of Class B Shares are entitled
to one vote per share at the Annual Meeting on all matters properly presented at
the meeting. The Chairman of the Board, President and Chief Executive Officer,
who through his holdings of Class A Shares controls 65.19% of the outstanding
Common Stock, has indicated his intention to vote his shares "FOR" the election
of directors, the amendment of the Certificate of Incorporation as described
herein and ratification of the Board of Directors' selection of Price Waterhouse
as the Company's independent auditor for 1998. Accordingly, the proposals
presented for consideration by the stockholders at this Annual Meeting are
expected to be approved as presented.
Directors are elected by a plurality of the votes cast with a quorum
present. The three persons who receive the greatest number of votes of the
holders of Common Stock represented in person or by proxy at the Annual Meeting
will be elected directors of the Company. Abstentions are considered in
determining the presence of a quorum and will not affect the vote required for
the election of directors. The affirmative vote of the holders of a majority of
the total votes entitled to vote generally in the election of directors is
required to amend the Certificate of Incorporation. The affirmative vote of the
holders of a majority of the total votes present in persons or by proxy required
as to ratify the appointment of the independent auditors. Abstentions will not
be counted as votes cast, and will have no effect on the voting of the
appointment of the Company's independent auditors but will be equivalent to a
"no" vote in connection with the proposal to amend the Company's Certificate of
Incorporation. Under rules applicable to broker-dealers, all of the proposals
for consideration at the Annual Meeting are considered "discretionary" items
upon which brokerage firms may vote in their discretion on behalf of their
clients if such clients have not furnished voting instructions except for the
proposal to amend the Certificate of Incorporation to increase the number of
Class A Shares. Thus, only the proposal to amend the Certificate of
Incorporation is considered "non-discretionary" and for which there will be
"broker non-votes" at the Annual Meeting, which will have the same effect as a
vote against the proposal.
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR,
CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
Election of Directors
The Board of Directors is divided into three classes, each of which
contains approximately one-third of the Board. The directors are elected by the
stockholders of the Company for staggered three year terms, or until their
successors are elected and qualified. Stockholders of the Company are not
permitted to cumulate their votes for the election of directors.
No director or executive officer of the Company is related to any other
director or executive officer of the Company by blood, marriage or adoption,
except for Victor J. Galan, the
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<PAGE>
Chairman of the Board, President and Chief Executive Officer of the Company, who
is the father of Victor L. Galan, another director of the Company. Each of the
nominees currently serve as a director of the Company.
Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted for the election of the nominees for director listed
below. If the person or persons named as nominee should be unable or unwilling
to stand for election at the time of the Annual Meeting, the proxies will
nominate and vote for one or more replacement nominees recommended by the Board
of Directors. At this time, the Board of Directors knows of no reason why the
nominees listed below may not be able to serve as directors if elected.
The following tables present information concerning the nominees for
director of the Company and each director whose term continues.
<TABLE>
<CAPTION>
Nominees for Director for Three-Year Term Expiring in 2001
Director
Name Age(1) Since(2)
---- ------ --------
<S> <C> <C>
Ana M. Armendariz 65 1990
Victor L. Galan 34 1995
Benigno Fernandez 57 1996
Pedro L. Ramirez 55 1990
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE ELECTION OF THE ABOVE NOMINEES FOR DIRECTOR.
<TABLE>
<CAPTION>
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
Directors Whose Terms Expire in 1999
Name Age(1) Since(2)
---- ------ --------
<S> <C> <C>
Victor J. Galan 64 1990
Ramon Prats 48 1990
Enrique Umpierre-Suarez 56 1996
Eduardo McCormack 69 1990
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Directors Whose Terms Expire in 2000
Director
Name Age(1) Since(2)
---- ------ --------
<S> <C> <C>
Juan J. Diaz 52 1990
Gilberto Rivera-Arreaga 48 1996
Laureno Carus Abarca 68 1983
</TABLE>
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(1) As of February 28, 1998.
(2) Includes service as a director of the Bank or its predecessor.
Information concerning the principal occupation of each nominee for
director of the Company and members of the Board continuing in office during the
past five years is set forth below.
Victor J. Galan. Mr. Galan is Chairman of the Board, President and Chief
Executive Officer of the Company, positions he has held since the Company's
incorporation in March 1996. Mr. Galan is the founder and Chairman of the Board
of R&G Mortgage, a position he has held since 1972. Mr. Galan served as Chief
Executive Officer of R&G Mortgage from its inception until November 1994. In
connection with the conversion of the Bank from a federal savings bank to a
Puerto Rico commercial bank, in accordance with requirements of the Office of
the Commissioner of Financial Institutions of Puerto Rico ("OCFI"), Mr. Galan
turned over day to day responsibility for R&G Mortgage to Ramon Prats, Executive
Vice President. Mr. Galan is also the Chairman of the Board, President and Chief
Executive Officer of the Bank, a position he has held since the Bank was first
acquired by R&G Mortgage in February 1990.
Ana M. Armendariz. Ms. Armendariz has been Treasurer of the Company
since April 1996 and Senior Vice President and Controller of R&G Mortgage since
January 1984.
Ramon Prats. Mr. Prats has been the Vice Chairman of the Board of
Directors of the Company since April 1996 and a director of R&G Mortgage since
April 1985. Mr. Prats has been Executive Vice President of R&G Mortgage since
February 1980 and has held the same position with the Company since its
inception. Mr. Prats also currently serves as Vice Chairman of the Board of
Directors of the Bank, a position he has held since February 1990.
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<PAGE>
Juan J. Diaz. Mr. Diaz has been a director of the Company since April
1996, a director of R&G Mortgage since June 1996 and a director of the Bank
since 1990. Mr. Diaz has served as Senior Vice President, Servicing Department
of R&G Mortgage since April 1984.
Enrique Umpierre-Suarez. Mr. Umpierre-Suarez has been a director of the
Company and its Secretary since April 1996 and a director of the Bank since
January 1996. Mr. Umpierre-Suarez has also served as Secretary of the Bank since
April 1996. Mr. Umpierre-Suarez is an attorney in private practice in Hato Rey,
Puerto Rico and is also engaged in the private practice of engineering in Hato
Rey, Puerto Rico.
Victor L. Galan. Mr. Galan has been a director of the Company since
April 1996, a director of R&G Mortgage since June 1996 and a director of the
Bank since 1995. Mr. Galan has been the Vice President of Branch Administration
of R& G Mortgage since June 1997, and previously was the Marketing Manager and
Vice President of R&G Mortgage from February 1996 to June 1997. Mr. Galan, the
son of Victor J. Galan, the Chairman of the Board, President and Chief Executive
Officer of the Company, has been associated with R&G Mortgage since 1982, having
served as Branch Manager at various locations since 1992. Mr. Galan served as
Marketing Officer in charge of telemarketing in 1991 and his responsibilities
prior thereto included work in the Accounting, Data Processing and Closing
Departments.
Pedro Ramirez. Mr. Ramirez has been a director of the Company since
April 1996, a director of R&G Mortgage since June 1996 and a director of the
Bank since 1990. Mr. Ramirez has been President and Chief Executive Officer of
Empresas Nativas, Inc., a real estate development company, in Hato Rey, Puerto
Rico, since 1983. Mr. Ramirez also currently serves as Vice President of
Inverdec, Inc., a real estate development company in Hato Rey, Puerto Rico, a
position he has held since April 1992, and has been the Managing Partner of
Ramirez & Co., S.E., a real estate development company located in Hato Rey since
April 1986. Additionally, Mr. Ramirez is the former President and currently
serves as a member of the board of directors of Home & Property Insurance
Company, an insurance company located in Hato Rey, Puerto Rico.
Laureno Carus Abarca. Mr. Carus has been a director of the Company since
April 1996, a director of R&G Mortgage since June 1996 and a director of the
Bank (and its predecessor) since 1983. Mr. Carus has been the Chairman of the
Board of Alonso and Carus Iron Works, Inc., in Catano, Puerto Rico, which is
engaged in the production and fabrication of metal products and in the
construction of commercial buildings, since September 1977 and he has been with
the firm since 1960. Mr. Carus has also been President of Petroleum Chemical
Corp., a petroleum processing corporation in Catano, Puerto Rico, since April
1994.
Eduardo McCormack. Mr. McCormack has been a director of the Company
since April 1996, a director of R&G Mortgage since June 1996 and a director of
the Bank since 1990. Mr. McCormack is recently retired. During 1994 and 1995, he
served as a consultant to Bacardi Corporation, a rum manufacturer based in
Catano, Puerto Rico. Prior thereto, Mr. McCormack was a Vice President of
Bacardi Corporation from 1981 to 1993.
5
<PAGE>
Gilberto Rivera-Arreaga. Mr. Rivera-Arreaga has been a director of the
Company since April 1996 and a director of R&G Mortgage and the Bank since June
1996. Mr. Rivera-Arreaga has been Executive Director and Vice President of
Administration of the National College of Business & Technology, Inc., an
educational center in Bayamon, Puerto Rico, since 1993. Prior thereto, Mr.
Rivera-Arreaga engaged in the private practice of law in Bayamon, Puerto Rico.
Benigno R. Fernandez. Mr. Fernandez has been a director of the Company
since April 1996 and a director of R&G Mortgage and the Bank since June 1996.
Mr. Fernandez is Senior Partner of Fernandez, Perez Villarini & Co., a certified
public accounting firm in Hato Rey, Puerto Rico. Mr. Fernandez has been a
certified public accountant since 1969.
The Bank. Information concerning the principal occupation of the
director of the Bank (who does not also serve as a director of the Company and
R&G Mortgage) during the past five years is set forth below.
Jeanne Ubinas. Ms. Ubinas, a director of the Bank (and its predecessor)
since 1983, engages in the private practice of radio therapeutic medicine with
Radiation Oncology Center, Inc., in Hato Rey, Puerto Rico, and has been a
radiation therapist since 1963.
R&G Mortgage. Information concerning the principal occupation of the
director of R&G Mortgage (who does not also serve as a director of the Company
and the Bank) during the past five years is set forth below.
Nelida Galan. Ms. Galan is the wife of Victor J. Galan, the Chairman of
the Board, President and Chief Executive Officer of the Company. Ms. Galan has
served as Treasurer of R&G Mortgage since it was organized.
Stockholder Nominations
Section 4.15 of the Company's Bylaws governs nominations for election to
the Board of Directors and requires all such nominations, other than those made
by the Board or a committee thereof, to be made at a meeting of stockholders
called for the election of directors, and only by a stockholder who has complied
with the notice provisions in that section. Stockholder nominations must be made
pursuant to timely notice in writing to the Secretary of the Company. To be
timely, a stockholder's notice must be delivered to, or mailed and received at,
the principal executive offices of the Company not later than 90 days prior to
the anniversary date of the mailing of proxy materials by the Company in
connection with the immediately preceding annual meeting of stockholders of the
Company, which was December 12, 1997. No such proposals were received. Each
written notice of a stockholder nomination is required to set forth certain
information specified in the Bylaws.
6
<PAGE>
Board of Directors Meetings and Committees
Regular meetings and special meetings of the Board of Directors of the
Company are held as necessary to adequately conduct the Company's business.
During the fiscal year ended December 31, 1997, the Board of Directors met eight
times. No director attended fewer than 75% of the total number of Board meetings
or committee meetings on which he or she served in fiscal 1997 except Mr.
McCormack, who attended four meetings of the Board of Directors. The Company has
established an Audit and Compliance Committee, comprised of Messrs. Ramirez
(Chairman), Rivera-Arreaga and Fernandez. The Audit and Compliance Committee is
responsible for reviewing the reports of the independent auditors and internal
auditors, and generally overseeing compliance with internal policies and
procedures. The Company also has an Executive Committee, consisting of Messrs.
Victor J. Galan (Chairman), Prats (Vice Chairman), McCormack and Victor L.
Galan. Additionally, the Board of Directors acts as its own nominating committee
with respect to nominating individuals to serve on its Board of Directors.
Regular and special meetings of the Board of Directors of R&G Mortgage
may be called and held at any time as necessary. During the year ended December
31, 1997, the Board of Directors of R&G Mortgage held 12 meetings. No incumbent
director attended fewer than 75% of the aggregate of the total number of Board
meetings held during the period he or she served as a director.
Regular meetings of the Board of Directors of the Bank are held monthly
and special meetings may be called at any time as necessary. During the year
ended December 31, 1997, the Board of Directors of the Bank held 13 meetings. No
incumbent director attended fewer than 75% of the aggregate of the total number
of Board meetings held during the period he or she served as a director and the
total number of meetings held by committees of the Board of Directors on which
he or she served in fiscal 1997, except Mr. Diaz, who attended six meetings of
the Board of Directors.
Executive Officers Who Are Not Directors
Set forth below is information concerning executive officers of the
Company and the Bank who do not serve on the Board of Directors of the Company,
R&G Mortgage or the Bank. There are no additional executive officers of R&G
Mortgage who do not serve on the Board of the Company, R&G Mortgage or the Bank.
Each executive officer is elected by the Board of Directors and serves until
their successor is elected and qualified. No executive officer set forth below
is related to any director or other executive officer of the Company, R&G
Mortgage or the Bank by blood, marriage or adoption, and there are no
arrangements or understandings between a director of the Company, R&G Mortgage
or the Bank and any other person pursuant to which such person was elected an
executive officer.
Joseph R. Sandoval. Mr. Sandoval joined the Company as its Chief
Financial Officer in January 1997. Prior thereto, Mr. Sandoval was an accountant
with Price Waterhouse in San Juan,
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<PAGE>
Puerto Rico from August 1987 to January 1997 and had attained the position of
Senior Manager with such firm.
Jose L. Ortiz. Mr. Ortiz has been Vice President - Finance of the Bank
since September 1990. Prior thereto, Mr. Ortiz was Vice President - Accounting
Department of Caguas Federal Savings Bank in Hato Rey, Puerto Rico from May 1985
to September 1990.
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Voting Record Date, certain
information as to the Common Stock beneficially owned by (i) each person or
entity, including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), who or which was
known to the Company to be the beneficial owner of more than 5% of the issued
and outstanding Common Stock, (ii) certain directors and executive officers of
the Company, R&G Mortgage and the Bank, and (iii) all directors and executive
officers of the Company, R&G Mortgage and the Bank as a group.
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<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
Name of Beneficial of Beneficial
Owner or Number of Ownership as of Percent of
Persons in Group February 28, 1998(1) Common Stock(2)
---------------- -------------------- ---------------
<S> <C> <C>
Wellington Management Company, L.L.P. 314,940(3) 2.23%
75 State Street
Boston, Massachusetts 02109
Thomson, Horstmann & Bryant, Inc. 376,720(4) 2.66%
Park 80 West, Plaza Two
Saddle Brook, New Jersey 07663
Friedman, Billings, Ramsey Group, Inc. 227,775(5) 1.61%
1001 19th Street North
Arlington, Virginia 22209
The Company's Directors and Officers
Victor J. Galan 9,220,278(6)(7) 65.19%
Ana M. Armendariz 8,478(8) *
Ramon Prats 77,227(8) **
Juan J. Diaz 7,575(8) *
Victor L. Galan 2,178 *
Enrique Umpierre-Suarez 13,834 *
Pedro Ramirez 16,420 *
Laureno Carus Abarca 20,455 *
Eduardo McCormack 24,655(9) *
Gilberto Rivera-Arreaga 2,178 *
Benigno R. Fernandez 2,307 *
Additional R&G Mortgage Officers
Roberto Cordova 1,800(8) *
Mario Ruiz 1,800(8) *
Additional Bank Director
Jeanne Ubinas 19,602(10) *
All Directors and Officers of the
Company, R&G Mortgage and
the Bank as a group (16 persons) 9,418,787(11) 66.59%
</TABLE>
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* Represents less than 1% of the outstanding Class B Shares.
** Represents 1.56% of the outstanding Class B Shares.
9
<PAGE>
(1) Based upon filings made pursuant to the Exchange Act and information
furnished by the respective individuals. Under regulations promulgated
pursuant to the Exchange Act, shares are deemed to be beneficially
owned by a person if he or she directly or indirectly has or shares (i)
voting power, which includes the power to vote or to direct the voting
of the shares, or (ii) investment power, which includes the power to
dispose or to direct the disposition of the shares. Unless otherwise
indicated, the named beneficial owner has sole voting and dispositive
power with respect to the shares.
(2) As of February 28, 1998, there were 4,924,474 Class B Shares and
9,220,278 Class A Shares of the Company issued and outstanding, all of
which Class A Shares are owned by Victor J. Galan, the Chairman of the
Board, President and Chief Executive Officer of the Company, for an
aggregate of 14,144,752 shares of the Company's Common Stock issued and
outstanding as of such date. The Class B Shares are registered under
the Exchange Act and are traded on the Nasdaq Stock Market. The Class A
Shares have not been registered under the Exchange Act but are
exchangeable into an equal number of Class B Shares.
(3) Information obtained from a Schedule 13G dated January 17, 1998.
Wellington Management Company L.L.P. ("WMC") is a Massachusetts general
partnership and registered investment adviser. WMC is the beneficial
owner of 314,940 or 6.4% of the Class B Shares as a result of acting as
an investment advisor to several general and limited partnerships.
(4) Information obtained from a Schedule 13G dated January 29, 1998.
Thomson Horstmann ("TH") is a New York Corporation and registered
investment advisor. TH is the beneficial owner of 7.65% of the
outstanding Class B Shares.
(5) Information obtained from a Schedule 13G dated February 17, 1998 filed
by Friedman, Billings, Ramsey, Group, Inc. ("FBR") and Eric F.
Billings, Emanual J. Friedman and W. Russell Ramsey. FBR is the
beneficial owner of ___% of the outstanding Class B Shares.
(6) Represents Class A Shares.
(7) The holder of Class A Shares, Mr. Victor J. Galan, the Chairman,
President and Chief Executive Officer of the Company, is entitled to
two votes per share and the holders of Class B Shares are entitled to
one vote per share at the Annual Meeting on all matters properly
presented at the meeting. As a result of such voting entitlement, Mr.
Galan holds
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<PAGE>
78.92% of the voting power of the aggregate issued and outstanding
shares of the Company's Common Stock as of February 28, 1998.
(8) Includes the following number of shares which may be acquired upon the
exercise of vested stock options exercisable within 60 days:
Ana M. Armendariz 6,300
Ramon Prats 36,000
Juan J. Diaz 5,400
Mario Ruiz 1,800
Roberto Cordova 1,800
(9) Includes 7,020 Class B Shares held jointly with Mr. McCormack's wife.
(10) Includes 7,840 Class B Shares held by Radiation Oncology Center, Inc.,
a corporation of which Ms. Ubinas is the beneficial owner of more than
10% of its outstanding stock, and 130 Class B Shares held by a trust of
which Ms. Ubinas is a trustee.
(11) Includes 9,220,278 Class A Shares owned by Victor J. Galan. All other
shares are Class B Shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers,
directors and persons who own more than 10% of the Company's capital stock to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission and the National Association of Securities Dealers, Inc.
Officers, directors and greater than 10% stockholders are required by regulation
to furnish the Company with copies of all forms they file pursuant to Section
16(a) of the Exchange Act. The Company knows of no person who owns 10% or more
of the Company's capital stock other than Victor J. Galan, the Chairman of the
Board, President and Chief Executive Officer of the Company, and Wellington
Management Company. See "Beneficial Ownership of Common Stock By Certain
Beneficial Owners and Management."
Based solely on review of the copies of such forms furnished to the
Company, or written representations from its officers and directors, the Company
believes that during, and with respect to, fiscal 1997, the Company's officers
and directors complied in all respects with the reporting requirements
promulgated under Section 16(a) of the 1934 Act, with the exception of Messrs.
McCormack, Carus-Abarca and Umpierre-Suarez who filed four, one and one reports
late, respectively, for the purchase of Common Stock.
11
<PAGE>
MANAGEMENT COMPENSATION
Executive Compensation
Summary Compensation Table. The following table includes individual
compensation information with respect to the Chairman of the Board, President
and Chief Executive Officer of the Company and the other most highly compensated
officers of the Company and its subsidiaries whose total compensation exceeded
$100,000 for services rendered in all capacities during the fiscal year ended
December 31, 1997. Except as set forth in the footnotes to the table, the
compensation expense shown below was incurred by the subsidiary (R&G Mortgage or
the Bank) for whom the executive officer is employed.
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
----------------------- --------------------------
Securities
Restricted Underlying
Stock Options/ All Other
Name and Principal Position Year Salary(1) Bonus Awards(2) SARs(3) Compensation(4)
- --------------------------- ---- --------- ----- --------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Victor J. Galan, 1997 $216,759(5) $200,400 -- -- $2,777
Chairman, President and Chief 1996 216,759 200,200 -- -- 2,564
Executive Officer of the Company; 1995 193,087 200,000 -- -- 1,874
Chairman, R&G Mortgage; Chairman,
President and Chief Executive Officer of
the Bank
Ramon Prats 1997 $225,494 $500,000 $ -- -- $2,934
Executive Vice President, R&G Mortgage; Vice 1996 196,684 350,200 290,000 180,000 2,377
Chairman, the Bank (6) 1995 185,000 300,000 -- -- 2,414
Juan J. Diaz, 1997 $130,854 $155,123 -- -- $2,812
Senior Vice President, R&G Mortgage 1996 104,000 153,000 -- 27,000 2,427
1995 98,261 127,975 -- -- 1,562
Mario Ruiz, 1997 $152,000 $60,000 -- -- $1,012
Senior Vice President, R&G Mortgage 1996 79,492 50,000 -- 9,000 1,129
1995 58,119 35,000 -- -- 776
Roberto Cordova, 1997 $ 99,685 $ 60,000 -- -- $1,037
Senior Vice President, R&G Mortgage 1996 88,494 50,000 -- 9,000 493
</TABLE>
- ----------------------
(1) Does not include amounts attributable to miscellaneous benefits
received by the named officers. The costs to the Company of providing
such benefits to the named officers during the years ended December 31,
1997, 1996 and 1995 did not exceed the lesser of $50,000 or 10% of the
total of annual salary and bonus reported.
(2) Represents the grant of 36,000 restricted Class B Shares to Mr. Prats
as of the date of the Company's initial public offering based upon the
initial offering price (as adjusted for the Company's 80% stock
dividend paid in 1997), which shares had a fair market value of
$693,000 at December 31, 1997.
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<PAGE>
(3) Represents the grant of options to purchase Class B Shares to the
respective employee, as adjusted for the Company's 80% stock dividend
paid in 1997. See "- Stock Option Plan."
(4) Represents the employers' contribution on behalf of the employee to the
Profit Sharing Plan. See "- Profit Sharing Plan."
(5) Mr. Galan was paid a salary of $175,000 and $41,759 from R&G Mortgage
and the Bank, respectively, and a bonus of $200,200 and $200 from R&G
Mortgage and the Bank, respectively, in fiscal 1997.
(6) Mr. Prats' day to day services are conducted on behalf of, and he is
compensated by, R&G Mortgage.
(7) Mr. Ruiz was paid a salary of $138,000 and a bonus of $60,000 by R&G
Mortgage and was paid $14,000 by the Bank as consulting fees for
services to the Bank's trust department.
Bonuses are paid by R&G Mortgage and the Bank based upon determinations
by senior management of each company, which determinations are influenced by the
profitability of the enterprise for the year in question. The bonuses of
managers of the R&G Mortgage branches are based in part on loan production
levels, while the bonuses for Bank branch managers are based in part on the
level of deposits, loan production and new accounts. The bonuses of Vice
Presidents and Department Managers are based in part on the final results of the
entity's operations and business generated during the year. The Board of
Directors of R&G Mortgage determine the bonuses for the President and Executive
Vice President, which are based on profitability of that company's operations.
13
<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth, with respect to the executive officers
named in the Summary Compensation Table, information with respect to the
aggregate amount of options exercised during the last fiscal year, any value
realized thereon, the number of unexercised options at the end of the fiscal
year (exercisable and unexercisable) and the value with respect thereto.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Underlying In-The-Money
Shares Unexercised Options/SARs at Options/SARs
Acquired Fiscal Year End (1) at Fiscal Year End(2)
on Value ------------------------------ --------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Victor Galan -- -- -- -- -- --
Ramon Prats -- -- 36,000 144,000 $403,200 $1,612,800
Juan J. Diaz -- -- 5,400 21,600 60,480 241,920
Mario Ruiz -- -- 1,800 7,200 20,160 80,640
Roberto Cordova -- -- 1,800 7,200 20,160 80,640
</TABLE>
- ---------------
(1) Share amounts have been adjusted for the Company's 80% stock dividend
paid in 1997.
(2) Based upon a closing market price for the Company's Class B Shares as
of December 31, 1997 of $19.25.
Compensation of Directors
Members of the Board of Directors of the Company and R&G Mortgage who
are not also executive officers of such companies receive fees of $350 per Board
meeting attended and $300 per committee meeting attended. Executive officers of
the Company and R&G Mortgage who also serve on the Board of Directors are not
compensated for serving on the Board of Directors or committees thereof.
During fiscal 1997, members of the Board of Directors of the Bank
received fees of $350 per meeting attended. Executive officers of the Bank who
also serve on the Board of Directors are not compensated for their services on
the Board of Directors or committees thereof. Non-officer members of the Board
of Directors of the Bank serving on committees received additional compensation
in the amount of $300 per committee meeting attended in fiscal 1997, except for
members of the Internal Loan Review Committee, who each received $350 per
committee meeting attended in fiscal 1997.
Benefits
Stock Option Plan. The Company maintains a Stock Option Plan which was
adopted by the Company's stockholder prior to the 1996 initial public offering.
The Stock Option Plan is
14
<PAGE>
designed to attract and retain qualified personnel in key positions, provide
officers and key employees with a proprietary interest in the Company as an
incentive to contribute to the success of the Company and reward key employees
for outstanding performance and the attainment of targeted goals. An amount of
Common Stock equal to 10% of the aggregate number of Class B Shares sold in the
Company's initial public offering (434,700 shares, as adjusted for the Company's
80% stock dividend paid in 1997) were authorized under the Stock Option Plan,
which may be filled by authorized but unissued shares, treasury shares or shares
purchased by the Company on the open market or from private sources. The Stock
Option Plan provides for the grant of stock options and stock appreciation
rights (collectively "Awards"). Awards are available for grant to key employees
of the Company and any subsidiaries. In connection with the Company's initial
public offering, the Company awarded options for 360,000 shares to 28 employees
of R&G Mortgage and the Bank, including stock options for 180,000 and 27,000
shares to Ramon Prats and Juan J. Diaz, respectively, in each case as adjusted
for the Company's 80% stock dividend paid in 1997.
Profit Sharing Plan. Effective January 1, 1993, R-G Mortgage and the
Bank adopted the R&G Mortgage Corporation and R-G Federal Savings Bank Profit
Sharing Plan (the "Plan"), which is intended to comply with the Internal Revenue
Code of 1986, as amended (the "Code"), the Employee Retirement Income Security
Act of 1974, and the Puerto Rico Income Tax Act of 1954. All employees of R&G
Mortgage and the Bank are eligible to participate in the Plan except, among
others, for those employees who are non-resident aliens. Eligible employees may
enter the Plan on January 1, April 1, July 1, and October 1 following attaining
age 21 and completing one year of service. Under the Plan, a separate account is
established for each participating employee and R&G Mortgage and the Bank may
make discretionary contributions to the Plan which are allocated to employees'
accounts. Employees may also contribute to the Plan by making salary reductions
up to 10% of annual compensation for the year. Such contributions defer the
employee's earning up to a maximum of $7,000 in each plan year. In 1996, R&G
Mortgage and the Bank each matched an employee's contribution to the Plan up to
62.5% of the first 5% of an employee's compensation as follows: 12.5% when an
employee has 0 to 5 years of service, 25% when an employee has 6 to 10 years of
service, 39.5% when an employee has 11 to 15 years of service, 50% when an
employee has 16 to 20 years of service, and 62.5% when an employee has 21 or
more years of service. Employees' contributions to the Plan are immediately
vested, and employees become 100% vested in employer contributions upon the
completion of 5 years of service. All funds contributed to the Plan are held in
a trust fund. R&G Mortgage and the Bank direct the investment of matching and
discretionary contributions and employees direct the investment of elective
contributions and rollover contributions. Contributions may be directed into
four separate funds: a fixed income fund investing in insurance annuity
contracts, the Fidelity Growth Fund, the Fidelity Growth & Income Fund, and the
Fidelity S & P 500 Index Fund. Distributions from the Plan are made upon
termination of service, death, or disability in a lump sum or installment
payments. The normal retirement age under the Plan is age 65.
Transactions With Certain Related Persons
The operations of R&G Mortgage and the Bank are linked to a material
extent by a series of ancillary agreements which govern the significant
affiliated transactions between the two
15
<PAGE>
companies (the "Affiliated Transaction Agreements"). These agreements have been
prepared with a view to compliance with Sections 23A and 23B of the Federal
Reserve Act, which require that the terms and conditions of transactions between
a financial institution and an affiliate be on terms which are substantially the
same, or at least as favorable to the financial institution, as those prevailing
for comparable transactions with or involving other non-affiliated companies.
The Affiliated Transaction Agreements include a Master Purchase,
Servicing and Collections Agreement (the "Master Purchase Agreement"), a Master
Custodian Agreement, a Master Production Agreement, a Securitization Agreement
and a Data Processing Computer Service Agreement (the "Data Processing
Agreement"). In accordance with applicable regulations, the terms of these
agreements were negotiated at arm's length on the basis that they are
substantially the same, or at least as favorable to the Bank, as those
prevailing for comparable transactions with, or involving, other nonaffiliated
companies.
Pursuant to the Master Production Agreement, the Bank, on a monthly
basis, determines its loan production targets and goals (the "Loan Production
Goals") and R&G Mortgage assists the Bank to reach its Loan Production Goals by,
among other things: (i) advertising, promoting and marketing to the general
public; (ii) interviewing prospective borrowers and initial processing of loan
applications, consistent with the Bank's underwriting guidelines and Loan
Production Goals previously established; and (iii) providing personnel and
facilities with respect to the execution of any loan agreement approved by the
Bank. In exchange for these services, the Bank remits to R&G Mortgage a
percentage of the processing or originating fees charged to the borrowers under
loan agreements, as set forth in the agreements.
The Master Purchase Agreement provides for the sale by the Bank to R&G
Mortgage of the servicing rights to all first and second mortgage loans secured
by residential properties which become part of the Bank's loan portfolio. The
Master Purchase Agreement further provides that R&G Mortgage will service all
other loans held in the Bank's loan portfolio (including single-family
residential loans retained by the Bank and certain commercial real estate
loans), although R&G Mortgage does not actually acquire such servicing rights.
The Master Purchase Agreement further provides that R&G Mortgage exclusively
will service such loans and that the Bank will process payments of such loans,
all according to a fee schedule.
Under the Securitization Agreement, R&G Mortgage renders securitization
services with respect to the pooling of some of the Bank's mortgage loans into
mortgage-backed securities. With respect to securitization services rendered,
the Bank pays a securitization fee of 25 basis points. The Master Custodian
Agreement provides that the Bank shall be the custodial agent for R&G Mortgage
of certain documentation related to the issuance by R&G Mortgage of Government
National Mortgage Association ("GNMA"), Federal National Mortgage Association
("FNMA") or Federal Home Loan Mortgage Corporation ("FHLMC") mortgage-backed
certificates. In consideration of these services, the Bank receives a fee for
each mortgage note included in a mortgage-backed certificate per year for which
it acts as custodian, as set forth in the agreement.
In addition to the affiliated transactions described above, R&G
Mortgage and the Bank are also subject to a Data Processing Agreement, pursuant
to which the Bank provides data
16
<PAGE>
processing services to R&G Mortgage with respect to the loan origination and
loan administration of its servicing portfolio. The Bank charges R&G Mortgage a
monthly fee for each R&G Mortgage computer that is linked to the Bank's main
frame computer. R&G Mortgage assumed all of the expenses associated with
modifying the Bank's existing computer programs, the design of the mortgage loan
processing system and for installation of telephone lines, communications
hardware and additional equipment.
R&G Mortgage presently subleases space at eight branch offices of the
Bank where it operates mortgage centers. The activities of the mortgage center
include interviewing prospective borrowers for loans secured by first mortgages
or second mortgages on residential real estate and home equity loans, processing
the initial application for such loans, referring such loan applications to R&G
Mortgage and/or the Bank, and accepting and processing the documentation
necessary to underwrite such mortgage loans. No other lending or banking
activity is conducted by R&G Mortgage on the premises of the Bank. R&G Mortgage
pays the Bank a monthly rental payment, which is based on a pro rata portion of
the main lease obligation.
During the year ended December 31, 1997, VIG Leasing, S.E., a Puerto
Rico real estate partnership which is 95.8% owned by the family of Victor J.
Galan, the Company's Chairman of the Board, President and Chief Executive
Officer, received lease payments from R&G Mortgage and the Bank on properties
owned of $688,920 and $542,544, respectively. R&G Mortgage and the Bank believe
that the lease terms are on terms substantially the same as they would have
negotiated with a non-affiliated party.
Under applicable federal law, loans or extensions of credit to
executive officers and directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with the general public and must not involve more than
the normal risk of repayment or present other unfavorable features.
The Bank's policy provides that all loans made by the Bank to its
directors and officers are made in the ordinary course of business, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons. The
Bank's policy provides that such loans may not involve more than the normal risk
of collectibility or present other unfavorable features. As of December 31,
1997, mortgage and consumer loans to directors and executive officers of the
Bank in excess of $60,000 aggregated approximately $386,581 or 0.3% of the
Company's consolidated stockholders' equity as of such date. All such loans were
made by the Bank in accordance with the aforementioned policy.
In July 1995, R&G Mortgage made a $900,000 construction loan to a real
estate development company owned by Pedro Ramirez, a director of the Company,
R&G Mortgage and the Bank. The loan had an outstanding balance of $682,388 at
December 31, 1997 and an interest rate of 2% over the prime rate. The loan was
repaid in January 1998, except for $20,000 related to the last phase of the
construction project.
During the year ended December 31, 1997, Enrique Umpierre-Suarez, a
director and Secretary of each of the Company and the Bank, each provided legal
services to borrowers of the Bank and R&G Mortgage in connection with the
closing of consumer and commercial loans.
17
<PAGE>
During the year ended December 31, 1997, Mr. Umpierre-Suarez received $275,260
in fees for such legal services, all of which were paid for by customers of the
Bank and R&G Mortgage in connection with loan closings.
During the year ended December 31, 1997, R&G Mortgage referred
customers requiring hazard insurance in connection with their mortgage
transactions to Home & Property Insurance Company, an insurance company which
was previously owned by the wife of Pedro Ramirez, a director of the Company,
R&G Mortgage and the Bank. Each customer has the ability to seek insurance
coverage required from an alternative acceptable insurance company of his
choice. During the year ended December 31, 1997, Home & Property Insurance
Company received $873,786 in premiums for writing hazard insurance policies for
the R&G Mortgage's customers. In 1997, Mrs. Ramirez sold her 100% equity in Home
& Property Insurance Company, but remains as an employee of the Agency until the
purchase price is paid in full.
R&G Mortgage originates first mortgage loans secured by single-family
residential properties which are either insured by the Federal Housing
Administration ("FHA") or guaranteed by the Veterans' Administration ("VA"). R&G
Mortgage pools such FHA/VA loans into mortgage-backed securities which are
guaranteed by the GNMA, which securities are sold to securities broker dealers
and other investors. During the year ended December 31, 1997, R&G Mortgage sold
approximately $200,000 of such GNMA securities to Ramon Prats, the Vice Chairman
of the Board and Executive Vice President of the Company, director and Executive
Vice President of R&G Mortgage and Vice Chairman of the Board of Directors of
the Bank, approximately $375,000 of GNMA securities to Juan J. Diaz, a director
of the Company, R&G Mortgage and the Bank, and Senior Vice President of Loan
Administration of R&G Mortgage, and approximately $425,000 of GNMA securities to
Enrique Umpierre-Suarez, a director and Secretary of each of the Company and the
Bank.
Executive Committee Interlocks and Insider Participation
The Executive Committee of the Company's Board of Directors reviews the
compensation and benefits for the Company's employees and recommends to the
Board adjustments in such compensation. During fiscal 1997, the members of the
Executive Committee were Messrs. Victor J. Galan (Chairman), Prats (Vice
Chairman), McCormack, and Victor L. Galan. Mr. Victor J. Galan does not
participate in the Committee's consideration of his own compensation.
The report of the Executive Committee with respect to compensation for
the President and Chief Executive Officer and all other executive officers for
the fiscal year ended December 31, 1997 is set forth below:
18
<PAGE>
Report of the Executive Committee on Executive Compensation
The purpose of the Committee is to assist the Board of Directors of the
Company and its subsidiaries in attracting and retaining qualified, competent
management; motivating executives to achieve a range of performance goals
consistent with a business plan approved by the Board of Directors of the
Company; and insuring that the financial costs of current or proposed
compensation and benefit programs are reasonable and consistent with industry
standards, management performance and shareholders' interest.
The Committee considered the following criteria in recommending to the
Board the compensation of the Chief Executive Officer as well as the approval of
compensation of other executive officers of the Company and its subsidiaries:
1. The overall financial, market and competitive performance of
the Company and its subsidiaries during the fiscal year under
consideration after adjusting for economic conditions
occurring during the year.
2. The level of and/or increases in return on assets and return
on equity without encouraging short-term profitability through
unreasonable risk-taking or a deterioration of long-term asset
quality.
3. Consideration of individual as well as combined measures of
progress of the Company and its subsidiaries including the
quality of the loan portfolio, the level of the changes in
capital ratios, the overall growth of the Bank and R&G
Mortgage, the improvement in market share, the improvement in
book value per share, the improvement in earnings per share,
the level of non-performing loans and real estate owned,
efficiency ratio levels as compared to peer groups and other
objectives as may be established by the Board of Directors of
the Company.
4. The individual commitment of the Chief Executive Officer
relative to overall management efficiency, inspirational
leadership, professional involvement, civic activities and the
maintenance of corporate stature enhancing the image of the
Company and it subsidiaries in their market place.
5. The compensation and benefit levels of comparable positions to
peer group institutions within the financial services
industry, and similar asset and operating characteristics with
a concentration on those institutions operating in Puerto
Rico.
The compensation arrangements and recommendations of the Committee
include a base salary and a bonus component if the Executive's performance is
judged to warrant such a bonus.
The base compensation of Victor J. Galan, President and Chief Executive
Officer of the Company and the Bank, was established at $217,000 on January 1,
1997. This level of compensation represented the same compensation as the Chief
Executive Officer's previous base compensation in 1996. Mr. Galan's compensation
level, determined consistent with the before mentioned criteria, was based on an
examination of four peer group comparisons relative to salary
19
<PAGE>
and bonus compensation for Chief Executive Officers. Mr. Galan's performance is
measured by the profit, capital position, asset quality and the low ratio of
operating expenses of the Company, the Bank and R&G Mortgage, as well as the
other measures of executive compensation so noted in determining his specific
compensation. Mr. Galan was given a bonus of $200,400 for his service during
1997 based on his overall performance including his added effort and time
expended in managing the institution during its first full year as a public
company as well as other activities which ensued during the course of the year.
With respect to the other executive officers of the Company and its
subsidiaries, the Committee considered salary and bonus recommendations prepared
by the Chief Executive Officer to establish 1997 compensation. The salary
adjustment recommendation and bonus was based on the Company's overall
performance in the past year as well as an analysis of competitive compensation
levels necessary to maintain and attract quality personnel.
Following extensive review and approval by the Committee, all issues
pertaining to executive compensation were submitted to the full Board of
Directors for their approval. Mr. Victor J. Galan does not participate in the
review of his compensation.
EXECUTIVE COMMITTEE
Victor J. Galan, Chairman
Ramon Prats, Vice Chairman
Eduardo McCormack
Victor L. Galan
20
<PAGE>
Performance Graph
The following graph compares the cumulative total return on the Class B
Shares over a measurement period since the Company's offering and issuance of
Class B Shares in August 1996 with (i) the cumulative total return on the stocks
included in the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") Total Return Index (for United States companies) and (ii)
the cumulative total return on the stocks included in the Nasdaq Total Return
Index for Financial Stocks (for United States and foreign companies). All of
these cumulative returns are computed assuming the reinvestment of dividends at
the frequency with which dividends were paid during the period.
[GRAPHIC-GRAPH PLOTTED TO POINTS LISTED BELOW]
The above graph represents $100 invested in the Company's initial
public offering of the Class B Shares on August 22, 1996 at $8.05 per share (as
adjusted for the 1997 80% stock dividend). The Class B Shares commenced trading
on the Nasdaq Stock Market on August 22, 1996.
21
<PAGE>
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
At the Annual Meeting, stockholders will be asked to consider and
approve a proposal to amend the Company's Certificate of Incorporation to
increase the number of shares of Common Stock from 25,000,000 shares to
60,000,000 shares. The amendment would increase the number of shares designated
as Class A Shares from 10,000,000 to 40,000,000 and the number of shares
designated as Class B Shares from 15,000,000 to 20,000,000. Such amendment was
unanimously approved by the Board of Directors of the Company on January 29,
1998.
Discussion of the Proposed Amendment
The Company's Certificate of Incorporation currently authorizes
35,000,000 shares of capital stock, consisting of 25,000,000 shares of Common
Stock and 10,000,000 shares of preferred stock, par value $.01 per share
("Preferred Stock"). Of the 25,000,000 shares of authorized Common Stock,
10,000,000 shares are designated as Class A Shares and 15,000,000 shares are
designated as Class B Shares. The proposed amendment to the Certificate of
Incorporation would increase the number of shares of authorized capital stock by
35,000,000 shares, from 35,000,000 shares to 70,000,000 shares, the number of
shares of Common Stock designated as Class A Shares from 10,000,000 shares to
40,000,000 and the number of shares designated as Class B Shares from 15,000,000
to 20,000,000. If the amendment is authorized, the first two sentences of
Article Four of the Company's Certificate of Incorporation would be amended to
read as follows:
The total number of shares of all classes which the
Corporation shall have the authority to issue is SEVENTY MILLION
(70,000,000) shares, consisting of FORTY MILLION (40,000,000) shares of
Class A Common Stock, par value $.01 per share (hereinafter called the
"Class A Common Stock), TWENTY MILLION (20,000,000) shares of Class B
Common Stock, par value $.01 per share (hereinafter called the "Class B
Common Stock") and TEN MILLION (10,000,000) shares of Preferred Stock,
par value $.01 per share (hereinafter called the "Preferred Stock"). As
used herein the terms "Common Stock" shall include Class A Common Stock
and Class B Common Stock.
All of the Class A Shares are currently held by Victor J. Galan, the
Chairman, President and Chief Executive Officer of the Company. The holders of
Class A Shares are generally entitled to two votes per share at matters
presented to a vote of the stockholders compared to one vote per share for
holders of the Class B Shares. As a result of the 80% stock dividend paid by the
Company on the Common Stock in 1997, there are currently 9,220,278 shares Common
Stock designated as Class A Shares outstanding. Thus, there are only 779,722
Class A Shares remaining that are authorized which may be issued in the future.
There are 4,924,474 Class B Shares currently outstanding and, thus, only
10,075,526 Class B Shares authorized for future issuance.
22
<PAGE>
The Board of Directors of the Company has determined that the number of
shares of authorized Common Stock should be increased to provide the Company
with the flexibility to conduct the Company's future operations, including the
issuance, distribution or exchange of shares of Common Stock for stock
dividends, acquisitions, financings and employee stock benefit plans.
Specifically, additional Class A Shares are needed in the event that the Company
declares additional stock dividends or stock splits on the Common Stock. While
there may be a sufficient number of Class B Shares authorized for the near term,
both the Class A Shares and the Class B Shares participate equally in any
dividends or splits on the Common Stock and there is an insufficient number of
Class A Shares authorized. The Board of Directors currently has no specific
plans to declare a stock dividend or stock split on the Common Stock or to issue
additional shares of Common Stock.
Holders of Common Stock do not have preemptive rights to subscribe to
additional securities that may be issued by the Company, which means that
current Class B stockholders do not have a prior right to purchase any new issue
of capital stock of the Company in order to maintain their proportionate
ownership. Stockholders who desire to maintain their interests may be able to do
so through normal market purchases, however.
The Board of Directors of the Company unanimously recommends that
stockholders of the Company vote "FOR" approval of adoption of the proposal to
amend the Certificate of Incorporation to increase the number of authorized
shares of Common Stock.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed Price Waterhouse,
independent certified public accountants, to perform the audit of the Company's
financial statements for the year ending December 31, 1998, and further directed
that the selection of auditors be submitted for ratification by the stockholders
at the Annual Meeting.
The Company has been advised by Price Waterhouse that neither that firm
nor any of its associates has any relationship with the Company or its
subsidiaries other than the usual relationship that exists between independent
certified public accountants and clients. Price Waterhouse will have one or more
representatives at the Annual Meeting who will have an opportunity to make a
statement, if they so desire, and who will be available to respond to
appropriate questions.
The Board of Directors recommends that you vote FOR the ratification of
the appointment of Price Waterhouse as independent auditors for the fiscal year
ending December 31, 1998.
23
<PAGE>
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have included in the proxy
materials of the Company relating to the next annual meeting of stockholders of
the Company, which currently is scheduled to be held in April 1998, must be
received at the principal executive offices of the Company, R-G Plaza, 280 Jesus
T. Pinero Avenue, Hato Rey, San Juan, Puerto Rico 00918, Attention: Enrique
Umpierre-Suarez, Secretary, no later than ___________, 1998.
Stockholder proposals which are not submitted for inclusion in the
Company's proxy materials pursuant to Rule 14a-8 under the Exchange Act may be
brought before an annual meeting pursuant to Article II, Section 2.14. of the
Company's Bylaws, which provides that business at an annual meeting of
stockholders must be (a) properly brought before the meeting by or at the
direction of the Board of Directors, or (b) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice must be delivered to, or mailed and received at, the
principal executive offices of the Company not later than 90 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders of
the Company. No such proposals were received. Such stockholder's notice is
required to set forth certain information specified in the Articles.
ANNUAL REPORTS
A copy of the Company's Annual Report to Stockholders for the year
ended December 31, 1997 accompanies this Proxy Statement. Such annual report is
not part of the proxy solicitation materials.
Upon receipt of a written request, the Company will furnish to any
stockholder without charge a copy of the Company's Annual Report on Form 10-K
for fiscal 1996 required to be filed under the Exchange Act. Such written
requests should be directed to Secretary, R&G Financial Corporation, R-G Plaza,
280 Jesus T. Pinero Avenue, Hato Rey, San Juan, Puerto Rico 99018. The Form 10-K
is not part of the proxy solicitation materials.
OTHER MATTERS
The cost of the solicitation of proxies will be borne by the Company.
The Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending the proxy
materials to the beneficial owners of the Company's Common Stock. In addition to
solicitations by mail, directors, officers and employees of the Company may
solicit proxies personally or by telephone without additional compensation.
24
<PAGE>
REVOCABLE PROXY
R&G FINANCIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF R&G
FINANCIAL CORPORATION ("COMPANY") FOR USE AT THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 23, 1998 AND AT ANY ADJOURNMENT THEREOF.
The undersigned, being a stockholder of the Company as of March 23, 1998,
hereby authorizes the Board of Directors of the Company or any successors
thereto as proxies with full powers of substitution, to represent the
undersigned at the Annual Meeting of Stockholders of the Company to be held at
R-G Plaza, Board of Directors' Conference Room, 280 Jesus T. Pinero Avenue, Hato
Rey, San Juan, Puerto Rico 00918, on Thursday, April 23, 1998 at 10:00 a.m., and
at any adjournment of said meeting, and thereat to act with respect to all votes
that the undersigned would be entitled to cast, if then personally present, as
follows:
1. ELECTION OF DIRECTORS
Nominees for a three-year term: Anna M. Armendariz, Victor L. Galan,
Benigno Fernandez and Pedro L. Ramirez
[ ] FOR [ ] WITHHOLD
AUTHORITY
NOTE: To withhold authority to vote for an individual nominee,
strike a line through that nominee's name. Unless
authority to vote for all of the foregoing nominees is
withheld, this Proxy will be deemed to confer authority
to vote for each nominee whose name is not struck.
2. PROPOSAL to amend the Certificate of Incorporation of the Company to increase
the authorized number of shares of Common Stock of the Company from
25,000,000 to 60,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
3. PROPOSAL to ratify the appointment by the Board of Directors of Price
Waterhouse as the Company's independent auditors for the fiscal year ending
December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
SHARES OF THE COMPANY'S COMMON STOCK WILL BE VOTED AS SPECIFIED. IF
RETURNED BUT NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION
OF THE BOARD OF DIRECTORS' NOMINEES TO THE BOARD OF DIRECTORS, FOR THE PROPOSAL
TO AMEND THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF CLASS A
SHARES, FOR RATIFICATION OF THE COMPANY'S INDEPENDENT AUDITORS AND OTHERWISE AT
THE DISCRETION OF THE PROXIES. YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO
THE TIME IT IS VOTED AT THE ANNUAL MEETING.
Dated:_____________________________
___________________________________
Signature of Shareholder
___________________________________
Signature of Shareholder
NOTE: Please sign this exactly as your name(s)
appear(s) on this proxy. When signing in
a representative capacity, please give full
title. When shares are held jointly, only
one holder need sign.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
