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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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ORIENTAL FINANCIAL GROUP INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the 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)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(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):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials:
/ / 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
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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ORIENTAL FINANCIAL GROUP INC.
Hato Rey Tower
Suite 503
268 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
(787) 766-1986
NOTICE OF ANNUAL MEETING
To Be Held on October 21, 1997
TO THE STOCKHOLDERS OF ORIENTAL FINANCIAL GROUP INC.:
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of Oriental
Financial Group Inc. (the "Corporation") will be held at Conference Room 9-A,
McConnell Valdes offices, 270 Munoz Rivera Avenue, Ninth Floor, Hato Rey, Puerto
Rico, on October 21, 1997 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 three directors to three-year terms expiring with the 2000 Annual
Meeting or until their successors have been elected and qualified;
(2) To consider and approve the adoption of the Oriental Bank and Trust 1996
Incentive Stock Option Plan, which plan would, upon approval, reserve for
issuance 630,000 shares of the Corporation's common stock, $1.00 par value
per share, or approximately 8.0% of the Corporation's issued and
outstanding common stock as of the voting record date of September 15, 1997
for issuance pursuant to the terms thereof;
(3) To ratify the appointment of Price Waterhouse as the Corporation's
independent auditors for the year ending June 30, 1998; and
(4) To transact such other business as may properly come before the Annual
Meeting or at any adjournment thereof. Except with respect to procedural
matters incident to the conduct of the Annual Meeting, management at
present knows of no other business to be brought before the Annual Meeting.
Information relating to the above matters is set forth in the attached
Proxy Statement. Stockholders of record at the close of business on September
15, 1997 are entitled to notice of and to vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Jose E. Fernandez
Chairman
September 21, 1997
San Juan, Puerto Rico
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 THIS MEETING,
YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY. ANY PROXY GIVEN MAY BE REVOKED
BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
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ORIENTAL FINANCIAL GROUP INC.
HATO REY TOWER
SUITE 503
268 MUNOZ RIVERA AVENUE
HATO REY, PUERTO RICO 00918
---------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, OCTOBER 21, 1997
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Oriental Financial Group Inc. (the "Corporation") of
proxies to be voted at the Annual Meeting of Stockholders of the Corporation to
be held on Tuesday, October 21, 1997 (the "Annual Meeting") at 10:00 a.m. at
Conference Room 9-A, McConnell Valdes offices, 270 Munoz Rivera Avenue, Ninth
Floor, Hato Rey, Puerto Rico and at any adjournment thereof for the purposes set
forth in the Notice of Annual Meeting. The approximate date on which this Proxy
Statement is expected to be mailed to stockholders is on or about September 21,
1997.
Each proxy solicited hereby, if properly signed and returned to the
Corporation 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 matters described below. 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 Corporation written notice thereof
(addressed to: Secretary, Oriental Financial Group Inc., Hato Rey Tower, Suite
503, 268 Munoz Rivera Avenue, Hato Rey, Puerto Rico 00918), (ii) submitting a
duly executed proxy bearing a later date, or (iii) by 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.
Each proxy solicited hereby also confers discretionary authority on the
Board of Directors of the Corporation to vote the proxy with respect to the
approval of the minutes of the last meeting of stockholders, the election of any
person as director if any nominee is unable to serve or for good cause will not
serve, matters incident to the conduct of the meeting, and upon such other
matters as may properly come before the Annual Meeting. Except with respect to
procedural matters incident to the conduct of the Annual Meeting, management is
not aware of any business that may properly come before the Annual Meeting other
than those matters described in this Proxy Statement. However, if any other
matters should properly come before the Annual Meeting, it is intended that
proxies solicited hereby will be voted with respect to those other matters in
accordance with the judgment of the persons voting the proxies.
SOLICITATION OF PROXIES
The cost of solicitation of proxies will be borne by the Corporation. The
Corporation has retained the services of American Stock Transfer and Trust
Company, which also acts as the Corporation's Transfer Agent, to assist the
Corporation in the solicitation of proxies for this Annual Meeting. The fee to
be paid to such proxy solicitation firm should not exceed $1,500, plus
reimbursement of all out-of-pocket expenses. The Corporation will reimburse
brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy material to the beneficial owners of
the Corporation's common stock, $1.00 par value per share (the "Common Stock").
In addition to solicitations by mail, directors, officers and employees of the
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Corporation and the Corporation's subsidiaries may solicit proxies personally,
by telephone or otherwise without additional compensation.
VOTING STOCK OUTSTANDING
AND VOTE REQUIRED FOR APPROVAL
Only stockholders of record at the close of business on September 15, 1997
(the "Voting Record Date") will be entitled to vote at the Annual Meeting. On
the Voting Record Date, there were 8,005,347 shares of Common Stock issued and
outstanding (including 81,200 shares of Common Stock held by the Corporation as
treasury shares), and the Corporation had no other class of equity securities
outstanding. The total number of shares of Common Stock eligible to cast votes
at the Annual Meeting is 7,924,147.
The presence, either in person or by proxy, of at least a majority of the
issued and outstanding shares of Common Stock entitled to vote is necessary to
constitute a quorum at the Annual Meeting. For purposes of determining quorum,
abstentions and broker non-votes will be treated as shares that are present and
entitled to vote. A broker non-vote results when a broker or nominee has
expressly indicated that it does not have discretionary authority to vote on a
particular matter. Action with respect to Proposal 1: Election of Directors
shall be taken by a plurality of the total votes present in person or
represented by proxy at the Annual Meeting and entitled to vote. Therefore,
abstentions and broker non-votes will not have an effect on the election of
directors of the Corporation. Action with respect to Proposal 2: Adoption of
Bank's 1996 Incentive Stock Option Plan shall be taken by the affirmative vote
of a majority of the total votes of the shares eligible to be cast in person or
by proxy at the Annual Meeting. Action with respect to Proposal 3:
Ratification of Appointment of Independent Auditors shall be taken by a majority
of the total votes present in person or represented by proxy at the Annual
Meeting and entitled to vote. Therefore, as to Proposals 2 and 3 abstentions
and broker non-votes will have the same effect as a vote against the proposals.
Other than with respect to Proposal 1: Election of Directors in which
shareholders of the Corporation have the right to cumulate votes as described
below, each share of Common Stock shall be entitled to one vote for the other
proposals to be considered at the Annual Meeting.
PROPOSAL 1: ELECTION OF DIRECTORS
The by-laws of the Corporation provide that the Corporation's Board of
Directors shall consist of such number of directors as shall be fixed from time
to time by resolution of the Board of Directors. The number of directors as
established by resolution of the Board of Directors is presently seven
directors. The by-laws of the Corporation also provide that the Board of
Directors shall be divided into three classes as nearly equal in number as
possible. The members of each class are to be elected for a term of three years
and until their successors are elected and qualified. One class of directors is
to be elected annually.
Other than Mr. Jose E. Fernandez's employment agreement with Oriental Bank
and Trust (the "Bank"), a wholly owned subsidiary of the Corporation, which
requires the Board of Directors of the Corporation to nominate him for election
as a director of the Corporation, there are no arrangements or understandings
between the Corporation and any person pursuant to which such person has been
elected a director, and no director is related to any other director or
executive officer of the Corporation by blood, marriage or adoption (excluding
those that are more remote than first cousin).
In order to have the classes of directors as nearly equal in number as
possible, Messrs. Jose E. Fernandez, Efrain Archilla and Julian Inclan have been
nominated as directors for three-year terms expiring in 2000.
Unless otherwise directed, each proxy executed and returned by a
stockholder will be distributed equally between the three nominees designated by
the Board of Directors or in such other fashion as will most likely ensure
election of the nominees. See "Cumulative Voting in the Election of Directors"
below.
If any person named as a nominee should be unable or unwilling to stand for
election at the time of the Annual Meeting, the proxies will nominate and vote
for a replacement nominee or nominees recommended by the
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Board of Directors. At this time, the Board of Directors knows of no reason why
any of the nominees listed below may not be able to serve as a director if
elected.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" PROPOSAL 1 TO ELECT THE THREE NOMINEES NAMED HEREIN.
CUMULATIVE VOTING IN THE ELECTION OF DIRECTORS
Pursuant to the by-laws of the Corporation, holders of Common Stock have
the right to cumulate their votes at annual meetings in which more than one
director is being elected. Cumulative voting entitles each common stockholder
to a number of votes equal to the number of shares of Common Stock held
multiplied by the number of directors to be elected. A common stockholder may
cast all or any number of such votes for one nominee or distribute them among
any two or more nominees as the stockholder may deem fit. Thus, for example,
for the election of the three directors being considered at this Annual Meeting,
a stockholder owning 1,000 shares of Common Stock is entitled to 3,000 votes,
and may distribute such votes equally among the nominees for election, cast them
for the election of only one of such nominees, or otherwise distribute them as
the stockholder may deem fit.
In the absence of any express indication that the shares to be voted should
be cumulated in a particular fashion, the votes represented by executed proxies
will be distributed equally among the three nominees designated by the Board of
Directors or in such other fashion as will most likely ensure election of the
nominees.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to the Common Stock
beneficially owned, as of the Voting Record Date, by the only persons or
entities known to the Corporation to be the beneficial owners of 5% or more of
Common Stock.
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP AS PERCENT OF
BENEFICIAL OWNER OF SEPTEMBER 15, 1997(1) COMMON STOCK
- ------------------- -------------------------- ------------
Jose E. Fernandez 1,434,474(2) 18.1%
1717 Lilas San Francisco
San Juan, Puerto Rico 00927
Merrill Lynch & Co., Inc. 501,600(3) 6.3%
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
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(1) Based upon filings made pursuant to the Securities Exchange Act of 1934, as
amended ("Exchange Act") and information furnished by the respective
individuals and entities.
(2) The amount set forth in the table for Mr. Fernandez includes 42,750 shares
that may be received upon the exercise of stock options. While Mr.
Fernandez may be deemed to beneficially own the 42,750 shares subject to
options that may be exercised within 60 days of the Voting Record Date for
purposes of the Exchange Act, as a result of his having elected to receive
qualified stock options pursuant to the Bank's 1988 Stock Option Plan,
under Puerto Rico law the aggregate fair market value of shares
(determined as of the time of grant) for which Mr. Fernandez may exercise
stock options for the first time in any calendar year cannot exceed
$100,000. See "Executive Compensation - 1988 Stock Option Plan". Also
includes 4,189 shares owned by Mr. Fernandez's spouse and 750 shares owned
by Mr. Fernandez's youngest son.
(3) Information obtained from the Form 11-A dated February 12, 1997. Merrill
Lynch & Co., Inc. is the parent holding company of Merrill Lynch Group,
Inc. ("Group"), which in turn is the parent holding company of Princeton
Services, Inc. ("PSI"). PSI is the general partner of Merrill Lynch Asset
Management, L.P. ("MLAM"), an investment adviser. MLAM may be deemed to be
the beneficial owner of 501,600 shares of Common Stock as a result of
acting as an investment advisor to several investment companies and private
accounts. One investment company, Merrill Lynch Global Allocation Fund,
Inc. ("Fund") is the beneficial owner of 441,600 shares. Merrill Lynch &
Co., Inc., Group, PSI, MLAM and Fund all disclaim beneficial ownership of
these shares in the Form 11-A dated February 12, 1997.
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The number of outstanding shares of Common Stock owned beneficially by each
director and executive officer of the Corporation as of September 15, 1997 is as
follows:
AMOUNT AND NATURE OF
--------------------
NAME BENEFICIAL OWNERSHIP(1) PERCENTAGE OF
- ---- ----------------------- -------------
AS OF SEPTEMBER 15, 1997 COMMON STOCK(2)
-------------------------- ---------------
DIRECTORS
Dr. Pablo I. Altieri 60,548 --
Efrain Archilla 1,999 --
Jose E. Fernandez(3) 1,434,474 18.1%
Julian Inclan 26,815 --
Diego Perdomo, CPA 125,549 1.6%
Alberto Richa Angelini 12,746 --
Emilio Rodriguez, Jr. 42,295 --
EXECUTIVE OFFICERS
Eli E. Diaz 7,531 --
Roberto Fernandez, CPA 33,867 --
Jose Rafael Fernandez(4) 14,560 --
George Joyner(5) 10,409 --
Andres Morgado, CPA(6) 47,430 --
Andres Muniz(7) 11,660 --
Ricardo Ramos, CPA(8) 50,344 --
Dennis Soto(9) 130,647 1.6%
(1) Based on information furnished by the respective individuals. Under
applicable regulations, shares are deemed to be beneficially owned by a
person if he or she directly or indirectly has or shares the power to vote
or dispose of the shares, whether or not he or she has any economic
interest in the shares. Unless otherwise indicated, the named beneficial
owner has sole voting and dispositive power with respect to the shares,
subject in the case of those directors who are married to the community
property laws of the Commonwealth of Puerto Rico. Under applicable
regulations, a person is deemed to have beneficial ownership of any shares
of Common Stock which he or she has a right to acquire within 60 days,
including pursuant to the exercise of outstanding stock options, and to all
shares subject to options or other rights of acquisition acquired in
connection with or as a participant in any transaction involving a change
of control. Shares of Common Stock which are subject to stock options or
other rights of acquisition are deemed to be outstanding for the purpose of
computing the percentage of outstanding Common Stock owned by such person
or group but are not deemed outstanding for the purpose of computing the
percentage of Common Stock owned by any other person or group.
(2) Unless otherwise indicated, each of the persons named in the table
beneficially holds less than 1% of the issued and outstanding Common Stock
of the Corporation.
(3) The amount set forth in the table for Mr. Fernandez includes 42,750 shares
that may be received upon the exercise of stock options. While Mr.
Fernandez may be deemed to beneficially own the 42,750 shares subject to
options that may be exercised within 60 days of the Voting Record Date for
purposes of the Exchange Act, as a result of his having elected to receive
qualified stock options pursuant to the Bank's 1988 Stock Option Plan,
under Puerto Rico law the aggregate fair market value of shares (determined
as of the time of grant) for which Mr. Fernandez may exercise stock options
for the first time in any calendar year cannot exceed $100,000. See
"Executive Compensation - 1988 Stock Option Plan". Also includes 4,189
shares owned by Mr. Fernandez's spouse and 750 owned by his youngest son.
(4) The amount set forth in the table for Mr. Jose Rafael Fernandez includes
options to purchase 2,850 additional shares of Common Stock that are
exercisable within 60 days of the Voting Record Date.
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(5) The amount set forth in the table for Mr. Joyner includes options to
purchase 7,999 additional shares of Common Stock that are exercisable
within 60 days of the Voting Record Date.
(6) The amount set forth in the table for Mr. Morgado includes options to
purchase 270 additional shares of Common Stock that are exercisable within
60 days of the Voting Record Date.
(7) The amount set forth in the table for Mr. Muniz includes options to
purchase 600 additional shares of Common Stock that are exercisable within
60 days of the Voting Record Date.
(8) The amount set forth in the table for Mr. Ramos includes options to
purchase 1,500 additional shares of Common Stock that are exercisable
within 60 days of the Voting Record Date.
(9) The amount set forth in the table for Mr. Soto includes options to purchase
3,173 additional shares of common stock of the Corporation that are
exercisable within 60 days of the Voting Record Date.
As of the Voting Record Date, all directors, nominees for director and
executive officers of the Corporation as a group (15 persons) beneficially owned
1,951,732 shares or approximately 24.6% of the outstanding Common Stock,
excluding outstanding stock options. If Mr. Fernandez purchased all 42,750
shares subject to outstanding options and the executive officers exercised their
options to purchase 16,392 shares of Common Stock, which options may be
exercised within 60 days of the Voting Record Date, the directors, nominees for
directors and officers as a group would beneficially own 2,010,874 shares or
approximately 25.2% of the then issued and outstanding Common Stock.
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR,
DIRECTORS WHOSE TERMS CONTINUE AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to each nominee and
director whose term continues.
NOMINEES FOR TERM THAT EXPIRES IN 2000
JOSE E. FERNANDEZ (Age 54)----Director since 1988 (including terms as
Director of the Bank). Chairman of the Board of the Bank since December 1,
1988 and President and Chief Executive Officer of the Bank since September
1, 1988 and Chairman of the Board and President and Chief Executive Officer
of the Corporation since June 1996. He was President and Chief Executive
Officer of Drexel Burnham Lambert Puerto Rico Incorporated and Senior Vice
President of Drexel Burnham Lambert Incorporated in San Juan, Puerto Rico
from October 1984 to April 1988. He was President and Chief Executive
Officer of A.G. Becker Puerto Rico from 1978 to September 1984, and Vice
President-Associate Manager of Prudential Bache Securities from 1965 to
1978. Mr. Fernandez also serves as member of the Board of Trustees and
the International Advisory Council of the University of Notre Dame. He
also serves as a member of the Board of Trustees of Sacred Heart University
in San Juan, Puerto Rico.
EFRAIN ARCHILLA (Age 44)----Director since 1991 (including terms as
Director of the Bank). He is President and General Manager of WYQE-FM,
Radio Yunque 93 in Naguabo and Fajardo, Puerto Rico since 1993, and
President of Eastern Pagecom Systems, Inc. in Humacao, Puerto Rico since
1989. He is an Operations Consultant of WALO-AM Radio Oriental, Inc. and
Ochoa Broadcasting Corp. since 1993, and was General Manager of WALO Radio
Station from 1973 to 1994 and Vice President and Treasurer of Ochoa
Broadcasting Corp. from September 1975 to 1994. He also serves as
President of the Eastern Region Arts and Culture Foundation since September
1992 and served as President for 1995 of the Humacao Rotary Club. He has
also served as President of the Humacao Chapter of the Puerto Rico Chamber
of Commerce since 1992. All of the above enterprises are located in
Humacao, Puerto Rico (except as noted).
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JULIAN INCLAN (Age 49)----Director since 1995 (including terms as Director
of the Bank). President of American Paper Corporation (distributor of fine
papers, office supplies and graphic art supplies) in San Juan, Puerto Rico
since September 1994. He has served as Managing General Partner of
Calibre, S.E. (a real estate investment company) since 1991, and as
President of Inclan Realty (a real estate development company) in San Juan,
Puerto Rico since 1991. He is also the President of Inmac Corporation (a
leasing and investment company that is currently inactive) in San Juan,
Puerto Rico since 1989, and from 1978 to 1982 he served as Vice President
and General Manager of St. Regis Paper and Bag, a division of Puerto Rican
Cement Co., Inc. (a publicly traded company), in San Juan, Puerto Rico.
DIRECTORS WHOSE TERM EXPIRES IN 1998
EMILIO RODRIGUEZ, JR. (Age 49)----Director since 1992 (including terms as
Director of the Bank). President of Almacenes Rodriguez, Inc. in Santurce,
Puerto Rico since May 1973. He has also served as Secretary of the Board
of Directors of E&C Computers, Inc. in San Juan, Puerto Rico since 1982.
ALBERTO RICHA ANGELINI (Age 57)----Director since 1990 (including terms as
Director of the Bank). He has been working as a consulting engineer for
Resort Builders, S.E. (a construction company) in Isla Verde, Puerto Rico
since February 1996. He served as Executive Vice President and Chief
Operating Officer of Rexach Construction Company, Inc. in San Juan, Puerto
Rico from April 1990 to February 1996, and as Executive Vice President -
Administration of the same company from 1984 to April 1990. He is a member
of the Board of Directors and past President of the Associated General
Contractors of America, Puerto Rico Chapter.
DIRECTORS WHOSE TERM EXPIRES IN 1999
DR. PABLO I. ALTIERI (Age 53)----Director since 1990 (including terms as
Director of the Bank). He is a cardiologist with a private practice in
Humacao, Puerto Rico for more than the past five years. He is presently a
professor at the University of Puerto Rico Medical School. He is also a
member of the Board of Directors of Corporacion para el Desarrollo
Tecnologico de Recursos Tropicales de Puerto Rico (charitable organization)
located in San Juan, Puerto Rico and a member of the Board of Directors of
Casa Roig Foundation (charitable organization) located in Humacao, Puerto
Rico.
DIEGO PERDOMO, CPA (Age 63)----Director since 1996 (including terms as
Director of the Bank). He is a public accountant and has been a partner of
Diego Perdomo & Company (a public accounting firm) since 1968.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following information is supplied with respect to executive officers of
the Corporation who do not serve on the Corporation's Board of Directors. There
are no arrangements or understandings pursuant to which any of the executive
officers was selected as an officer, and no executive officer is related to any
other director or executive officer of the Corporation by blood, marriage or
adoption (excluding those that are more remote than first cousin).
ELI E. DIAZ (AGE 51)--Senior Vice President of the Corporation since June
1996. Senior Vice President of Branch Administration and Consumer Loans of
the Bank since May 1995. He was Vice President of Branch Administration
and Consumer Loans of the Bank from May 1993 to May 1995. Previously was a
private consultant to financial enterprises from March 1988 to May 1993 and
President and Chairman of the Board of Pioneer Finance Corporation, San
Juan, Puerto Rico from July 1987 to 1992; Senior Vice President of Caguas
Central Federal Savings, San Juan, Puerto Rico, from March 1985 to February
1988; Vice President of Citicorp Acceptance Corporation in Los
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Angeles, California from October 1982 to February 1985, and Vice President
of Citibank N.A., San Juan, Puerto Rico, from April 1979 to October 1982.
ROBERTO FERNANDEZ, CPA (AGE 35)--Senior Vice President of the Corporation
since June 1996. Senior Vice President of Loan Administration of the Bank
since May 1995. He was Vice President of Loan Administration and Servicing
of the Bank from November 1992 to May 1995; Vice President of Banking
Operations of the Bank from May 1992 to November 1992; and Vice President
and Comptroller of the Bank from March 1989 to August 1992. Previously was
Manager Financial Consulting of Arthur Andersen & Co., San Juan, Puerto
Rico from April 1988 to March 1989; Vice President, Comptroller and
Compliance Officer of Drexel Burnham Lambert Puerto Rico, Inc., San Juan,
Puerto Rico from April 1985 to April 1988; and Auditor, Arthur Andersen &
Co., San Juan, Puerto Rico from December 1982 to April 1985.
JOSE RAFAEL FERNANDEZ (AGE 34) - Senior Vice President of the Corporation
since February 1997. Senior Vice President and Principal of Oriental
Financial Services Corp., the Bank's brokerage subsidiary, since February
1997. He was Vice President of Sales and Marketing of Oriental Finance
Services Corp. from 1993 to February 1997. He joined the Bank in 1991 as
Assistant Vice President of the Treasury Department and during 1992 was in
charge of the Bank's sales and marketing efforts for the Individual
Retirement Account Products. Before joining the Bank in 1991, he worked in
New York and Buenos Aires, Argentina for the investment department of The
Chase Manhattan Bank.
GEORGE JOYNER (AGE 40)--Senior Vice President of the Corporation since June
1996. Senior Vice President of Mortgage and Leasing of the Bank since May
1995. He was Vice President of Mortgage Operations of the Bank from July
1994 to May 1995. Previously he was the President of Santander Mortgage
Corporation, San Juan, Puerto Rico, from 1992 to July 1994; Vice President
of Citibank, N.A. in the areas of structured and corporate finance from
1989 to 1992; and First Vice President of the Corporate and Municipal
Finance Group at Drexel Burnham Lambert Puerto Rico, Inc. before that.
ANDRES MORGADO, CPA (AGE 38)--Senior Vice President of the Corporation
since June 1996. Senior Vice President and Trust Officer of the Bank since
May 1995. He was Vice President and Trust Officer of the Bank from
February 1990 to May 1995. Previously was Chief Operating Officer and
Trust Officer of Commercial Trust Company, Inc., San Juan, Puerto Rico from
June 1988 to February 1990; Vice President Investments of Drexel Burnham
Lambert Puerto Rico, Inc., San Juan, Puerto Rico from April 1987 to June
1988; and Tax Manager, Deloitte & Touche (formerly Deloitte, Haskins &
Sells), San Juan, Puerto Rico, from 1979 to April 1987.
ANDRES MUNIZ, (AGE 41) - Senior Vice President of the Corporation since
February 1997. Senior Vice President of Communications of the Bank since
February 1997. He was Vice President of Marketing of the Bank from 1993 to
January 1997. Before joining the Bank in 1993, he was Senior Account
Executive at De La Cruz and Associates (an advertising firm) in San Juan,
Puerto Rico from 1988 to 1993; Account Executive at Merced, Benitez and
Machin (an advertising firm) in San Juan, Puerto Rico from 1987 to 1988;
Marketing Manager at Caribbean Restaurants (local Burger King franchisee)
in San Juan, Puerto Rico from 1985 to 1987; and Promotion Manager at
Colgate Palmolive in San Juan, Puerto Rico from 1982 to 1985.
RICARDO RAMOS, CPA (AGE 40)--Senior Vice President of the Corporation since
June 1996. Senior Vice President of Finance of the Bank since May 1995.
He was Vice President of Investments of the Bank from August 1992 to May
1995. Previously was Vice President of Citibank, N.A. from April 1991 to
July 1992; Senior Vice President of Lehman Brothers Puerto Rico, Inc. in
San Juan, Puerto Rico from October 1990 to March 1991; and Senior Vice
President of Drexel Burnham Lambert Puerto Rico, Inc. in San Juan, Puerto
Rico from September 1985 to September 1990.
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DENNIS SOTO, (AGE 60)--Senior Vice President of the Corporation since June
1996. Senior Vice President of the Bank since July 1995. He was Vice
President of the Bank and Regional Manager (Western Region) from September
1992 to June 1995. He was Vice President-Investments of the Bank from
February 1990 to August 1992 and Vice President-Branch Administration of
the Bank from January 1989 to January 1990. He was a private financial
consultant from September 1988 to January 1989 and Senior Vice
President-936 Trader of Drexel Burnham Lambert Puerto Rico, Inc., San Juan,
Puerto Rico from May 1982 to May 1988.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Corporation held 6 meetings during the fiscal
year ended June 30, 1997. The Board of Directors of the Bank held 13 meetings
during the fiscal year ended June 30, 1997. The Corporation and the Bank have a
standing audit committee and the Bank has standing compensation, credit,
management information system steering (MIS), trust and real estate committees
as described below. During fiscal year 1997, directors received a fee of $800
for each Board of Directors meeting attended and $250 for each committee meeting
attended. Only directors who are not officers of the Corporation or the Bank
receive fees for attendance at Board of Directors meetings or committee
meetings. No director attended fewer than 75% of the aggregate of the meetings
of the Board of Directors of the Corporation and the Bank held during fiscal
year 1997 and the total number of meetings held by all committees of the Board
of Directors on which he served during the year.
The Audit Committee reviews the reports of the Corporation's and Bank's
independent auditors, the internal audit procedures and internal data
processing controls. The members of the Audit Committee are Messrs. Diego
Perdomo, Alberto Richa Angelini, Efrain Archilla and Juan Ramon Calderon. Mr.
Calderon is Internal Audit Manager of the Bank. The Audit Committee met 4 times
during the fiscal year ended June 30, 1997.
The Compensation Committee reviews and evaluates on a yearly basis the
salary increases and bonuses of all of the Bank's executive officers and makes
recommendations to the Bank's Board of Directors. The Compensation Committee
also administers the 1988 Stock Option Plan and the 1996 Stock Option Plan and
is given absolute discretion under the plans to select the persons to whom
options will be granted and to determine the number of shares subject to each
option. The members of the Compensation Committee are Messrs. Alberto Richa
Angelini, Emilio Rodriguez and Julian Inclan. The Compensation Committee met
one time during the fiscal year ended June 30, 1997.
The Credit Committee establishes the credit policies of the Bank and
reviews all applications for consumer non-mortgage loans in excess of $25,000,
first mortgage loans in excess of $250,000, second mortgage loans in excess of
$50,000, leases and financing of insurance premiums in excess of $50,000, auto
leases up to $75,000, equipment leases up to $50,000 and all commercial loans.
Loans in excess of $500,000 must also be approved by the full Board of
Directors. The committee also considers all unsecured loan applications
submitted by directors, officers and employees of the Bank up to $20,000. Those
loan applications in excess of $20,000 are presented to the full Board of
Directors with a recommendation of the Credit Committee. The members of the
Credit Committee, are Messrs. Jose E. Fernandez, George Joyner, Juan D. Berrios,
Juan Agosto Alicea and Ildefonso Rodriguez. Mr. George Joyner is a Senior Vice
President of the Bank, Mr. Juan D. Berrios is a Vice President of the Bank, Mr.
Juan Agosto Alicea is a consultant for the Bank and Mr. Ildefonso Rodriguez is a
Manager of the Bank. The Credit Committee met 31 times during the fiscal year
ended June 30, 1997.
The Real Estate Committee reviews and establishes policies of the Bank
regarding investment in real estate, including real estate acquired pursuant to
foreclosure. The members of the Real Estate Committee are Mr. Richa Angelini,
Mr. Julio Garcia, Facilities Manager of the Bank, and Mr. Fernando Agrait, who
is a consultant for the Bank. The Real Estate Committee met 29 times during the
fiscal year ended June 30, 1997.
The Trust Committee reviews and approves the activities of the Bank's Trust
Department. The Trust Committee also reviews internal controls and audit
reports of trust operations. The members of the Trust
<PAGE>
-10-
Committee are Messrs. Jose E. Fernandez, Pablo Altieri, Emilio Rodriguez, Jr.,
Ricardo Muniz, Jose Rafael Fernandez, Andres Morgado, Ruben Rodriguez, Robert
Van Kirk, and Ms. Angeles Torres-Sanchez. Messrs. Andres Morgado is a Senior
Vice President of the Bank, Mr. Jose Rafael Fernandez is a Senior Vice President
of the Bank, Mr. Ruben Rodriguez is Trust Operations Manager of the Bank, and
Ms. Angeles Torres-Sanchez is an Assistant Trust Officer of the Bank. Mr.
Ricardo Muniz is a Partner at the Law Firm Axtmayer, Adsuar, Muniz & Goyco and
Mr. Robert Van Kirk is Of Counsel at the Law Firm McConnell Valdes. The Trust
Committee met 10 times during fiscal year ended June 30, 1997.
The Board does not have a standing nominating committee. Nominations are
made by the Board of Directors. Although the Board of Directors will consider
nominees recommended by stockholders, it has not actively solicited
recommendations for nominees from stockholders nor has it established procedures
for this purpose. Article I, Section 13 of the Corporation's Bylaws provides
that stockholders entitled to vote for the election of directors may name
nominees for election to the Board of Directors. Any such nominations must be
submitted to the Secretary of the Corporation in writing at least five days
prior to the Annual Meeting. The Corporation is not required to include
nominations of stockholders in its Proxy Statement; however, if such a
nomination is properly made, ballots will be provided for use by stockholders at
the Annual Meeting bearing the name of such nominee or nominees.
EXECUTIVE COMPENSATION
The summary compensation table set forth below discloses compensation for
the Corporation's President and Chief Executive Officer and the four most highly
paid executive officers of the Corporation or its subsidiaries who worked with
the Corporation or such subsidiaries, during any period of the fiscal year ended
June 30, 1997 (the "named executive officers").
SUMMARY COMPENSATION TABLE
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)*
- --------------------------------------------------------------------------------
Jose E. Fernandez 1997 290,000 320,000 34,000
President and Chief 1996 275,000 320,000 30,000
Executive Officer 1995 237,500 280,000 30,000
Ricardo Ramos 1997 93,000 90,000 30,000
Senior Vice 1996 88,500 85,000 30,000
President 1995 83,500 75,000 30,000
Finance and
Administration
George Joyner 1997 93,000 90,000 30,000
Senior Vice 1996 87,000 85,000 30,000
President 1995 83,000 60,000 30,000
Mortgage and Leasing
Eli E. Diaz 1997 84,000 85,000 28,000
Senior Vice 1996 84,000 65,000 28,000
President 1995 82,000 45,000 24,000
Branch
Administration and
Consumer Loans
Roberto Fernandez 1997 81,000 87,000 26,000
Senior Vice 1996 77,250 82,000 26,000
President 1995 73,500 70,000 24,000
Loan Administration
- --------------------
* Consists of a car allowance.
<PAGE>
-11-
1988 STOCK OPTION PLAN
As a performance incentive and to encourage ownership of its common stock
(or that of the Corporation), the Board of Directors of the Bank adopted the
1988 Stock Option Plan (the "1988 Plan") for the benefit of officers, directors
and other selected key employees of the Bank who are deemed to be responsible
for the future growth of the Bank. The 1988 Plan was adopted by the Board of
Directors of the Bank in order to enable the Bank to take advantage of tax
benefits conferred by new tax legislation in Puerto Rico. The Corporation's
previous program was adopted prior to the enactment of such legislation. The
stockholders of the Bank approved the 1988 Plan at the 1988 Annual Meeting of
Stockholders.
Two kinds of options, evidenced by two plans, are contained in the 1988
Plan and are available for grant: (i) qualified stock options (Part I) that are
intended to qualify as "qualified options" under Section 1046 of the Puerto Rico
Internal Revenue Code of 1994, as amended, and if specifically so designated, as
"incentive stock options" under Section 422A of the Internal Revenue Code of
1986, as amended, and (ii) compensatory stock options (Part II). The 1988 Plan
is administered by the Bank's Compensation Committee (the "Plan
Administrators"), who are given absolute discretion under the Plan to select the
persons to whom options will be granted and to determine the number of shares
subject to each option. As of June 30, 1997, 38 key employees, including
executive officers, were eligible to participate in the 1988 Plan. The 1988
Plan was to remain in effect for 10 years unless sooner terminated in accordance
with the provisions of the 1988 Plan. In connection with its adoption of the
Bank's 1996 Incentive Stock Option Plan, which plan is described in more detail
below under "Proposal 2-Adoption of Bank's 1996 Incentive Stock Option Plan,"
the Bank's Board of Directors has terminated the Bank's 1988 Plan and no
additional options will be granted thereunder. Such termination does not alter
or impair the rights or obligations of employees holding outstanding options
granted under the 1988 Plan prior to its termination.
The option price per share for both qualified and compensatory stock
options granted under the 1988 Plan may not be less than the fair market value
of the Common Stock on the date of the grant; provided, however, that if any
employee owns on the date an option is granted more than 10% of the combined
voting power of all classes of stock of the Corporation, the purchase price for
shares acquired pursuant to the exercise of the option shall not be less than
110% of the fair market value of the Common Stock on the date the option is
granted. No option may be exercised after 10 years from the date of grant and
all options are immediately exercisable upon a change of control of the
Corporation. Under the terms of the 1988 Plan, the aggregate fair market value
(determined as of the time of the grant) of stock for which any employee may
exercise stock options for the first time in any calendar year under all
incentive and qualified stock option plans of the Corporation cannot exceed
$100,000.
No stock options were granted to any of the Corporation's named executive
officers (or to any other officer or employee of the Corporation or the Bank)
under the 1988 Plan. As described in more detail below under "Proposal
2-Adoption of Bank's 1996 Incentive Stock Option Plan," stock options have been
granted to a number of Bank employees (including the Corporation's named
executive officers) under the Bank's 1996 Incentive Stock Option Plan, which
stock options are contingent on approval of such plan by the Corporation's
stockholders in this Annual Meeting.
The table below provides additional information regarding option exercises
and unexercised option holdings for the Corporation's named executive officers.
<PAGE>
-12-
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SAR'S AT OPTIONS/SAR'S AT
FISCAL YEAR END FISCAL YEAR END
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE (#) UNEXERCISABLE ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eli E. Diaz 7,500 122,813 8,400/ 180,300/
9,600 193,200
Jose E. Fernandez 28,181 412,738 42,750/ 886,635/
200,250 4,021,942
Roberto Fernandez 3,472 64,516 3,137/ 70,891/
4,834 94,110
George Joyner 0 0 5,800/ 99,847/
23,199 399,387
Ricardo Ramos 16,285 266,1971 11,145/ 268,885/
9,215 190,003
</TABLE>
EMPLOYMENT AGREEMENTS
In September 1996, the Bank and Mr. Jose E. Fernandez entered into a new
employment agreement for a term of three years. The employment agreement
provides for an increase in salary to $290,000 for fiscal year 1997, and further
increases to $310,000 for fiscal year 1998 and to $325,000 for fiscal year 1999,
and an annual automobile and expense allowance of $34,000. The employment
agreement also provides that, during its term, the Board of Directors will
nominate and recommend to the stockholders the election of Mr. Fernandez as a
director at any election of directors in which his term as a director will
expire. The employment agreement also provides that the Bank grant to Mr.
Fernandez options to purchase 30,000 shares of common stock. The stock options
may be exercised by Mr. Fernandez during a period commencing on the first
anniversary and ending on the tenth anniversary of the employment agreement.
Notwithstanding the above limitations, the stock options will become immediately
exercisable if Mr. Fernandez dies or is disabled or if there occurs a "change of
control" of the Bank.
The employment agreement is terminable by the Bank for just cause at any
time. The employment agreement also provides for severance payments and other
benefits if there occurs a "change of control" of the Bank or in the event of
involuntary termination of employment in connection with any "change in control"
of the Bank, as defined therein. The term "change in control" is defined to
include any of the following: (1) a change in control as defined in 12 U.S.C.
Section 1817(j) and 12 C.F.R. Section 303.4, or (2) a change in control that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934; or (3)
during any period of two consecutive years during the term of the employment
agreement, individuals who at the beginning of such period constitute the Board
of Directors cease for any reason to constitute at least a majority thereof,
unless the election of each director who was not a director at the beginning of
such period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the beginning
of the period.
The employment agreement also provides that Mr. Fernandez may terminate his
employment for "good reason." Good reason includes (i) failure by the Bank to
comply with any material provision of the
<PAGE>
-13-
employment agreement, which failure has not been cured within 10 days after
notice thereof has been given by Mr. Fernandez to the Bank and (ii) any
purported termination of Mr. Fernandez's employment which is not effected
pursuant to a notice of termination satisfying certain requirements set forth in
the employment agreement.
If Mr. Fernandez is terminated other than for just cause and in connection
with or within two years of a change in control, the severance payments from the
Bank would be equal to: (1) the aggregate annual compensation paid or payable to
Mr. Fernandez (includes salary, bonus, car allowance and the value of any other
benefits provided to Mr. Fernandez) during the year in which the termination
occurs multiplied by (2) 3.00. The severance payment is to be made in a lump
sum on or before the fifth day following the date of termination. If Mr.
Fernandez terminated his employment for good reason, the severance payments from
the Bank would be equal to: (1) the aggregate annual compensation paid or
payable to Mr. Fernandez (includes salary, bonus, car allowance and the value of
any other benefits provided to Mr. Fernandez) during the year in which the
termination occurs multiplied by (2) 2.00. The severance payment is to be made
in a lump sum on or before the fifth day following the date of termination. If
Mr. Fernandez had been terminated for other than just cause as of June 30, 1997,
he would have been entitled to a severance payment of approximately $1,932,000.
If Mr. Fernandez had terminated his employment for good reason as of June 30,
1997, he would have been entitled to a severance payment of approximately
$1,288,000. The employment agreement does not contain any provision restricting
Mr. Fernandez's right to compete against the Bank upon termination of
employment.
401K PLAN
Effective during fiscal 1995 the Bank merged the Oriental Bank and Trust
Defined Benefit Pension Plan (the "Pension Plan") into the Oriental Bank and
Trust Cash or Deferred Arrangement Profit Sharing Plan (the "401K Plan"), which
was adopted during fiscal 1992. Because of the merger and in accordance with
ERISA requirements, the Pension Plan participants were one hundred percent
(100%) vested with respect to their accrued benefits. An actuarial valuation
was made of the assets of the Pension Plan together with an actuarial
determination of the vested benefits of each of the Pension Plan participants at
that time.
The Pension Plan participants were given the option to either receive a
distribution of the value of their vested benefits or to rollover or transfer
the value of their vested benefit to an individual account under the 401K Plan.
The 401K Plan was amended to cover the Pension Plan participants and to accept
rollovers or transfers of the vested benefits of the Pension Plan participants.
The 401K Plan covers all employees of the Bank. Contributions made through
payroll deductions not in excess of 10% of annual base salary or $7,500,
whichever is less, may be accumulated per year as before-tax savings. The Bank
contributes 80 cents for each dollar contributed by an employee up to $832. The
Bank's matching contribution is invested in the Corporation's Common Stock. The
401K Plan became effective on January 1, 1992. During fiscal 1997 the Bank
contributed to the 401K Plan 4,312 shares of Common Stock valued at $122,000 at
the time of the contribution.
CERTAIN TRANSACTIONS
On July 1, 1995, Mr. Jose E. Fernandez leased an automobile from the Bank
pursuant to the terms of an open-end lease. The automobile subject to the lease
is valued at $33,140. The lease provides for monthly payments of $847, has a
stated residual value of $9,900 and an implied interest rate of 12.06%. On
March 4, 1997, Mr. Jose E. Fernandez leased an automobile from the Bank pursuant
to a closed-end lease. The automobile subject to the lease is valued at
$31,000. The lease provides for monthly payments of $943, has a stated residual
of $17,400 and an implied interest rate of 11.95%. Management believes that the
leases were made on substantially the same terms, including interest rates, as
those prevailing at the time for comparable transactions with other persons.
During fiscal year 1997 the Bank engaged the legal services of the law firm
of McConnell Valdes of which Mr. Carlos O. Souffront, Secretary of the Board of
Directors of the Corporation and the Bank, is a partner.
<PAGE>
-14-
The amount of fees paid to McConnell Valdes did not exceed 5% of the law firm's
revenues for its last fiscal year.
Certain transactions, involving loans and deposits were transacted during
the year ended June 30, 1997 between the Bank and certain directors and
executive officers of the Corporation and persons related to or affiliated with
such persons. All such transactions were made in the ordinary course of
business on substantially the same terms, including interest rates, collateral
and repayment terms, that prevailed at the time for comparable transactions with
other persons and did not involve more than the normal risk of uncollectability
or present other unfavorable features. At present none of the loans to
executive officers or directors of the Corporation and persons related to or
affiliated with such persons is non-performing.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of the Bank evaluates
the performance of management, reviews the compensation levels of members of
management and evaluates and reviews all aspects of compensation for the Bank's
executive officers.
In evaluating the performance and compensation of all of the executive
officers, the Compensation Committee of the Board of Directors of the Bank
reviews available peer group information for comparable financial institutions
in Puerto Rico and the United States and assesses the performance in accordance
with the overall attainment of the Bank's goals for such fiscal year, which are
set forth in the Bank's three-year business plan that is updated and approved by
the Bank's Board of Directors every fiscal year.
Mr. Jose E. Fernandez, who serves as President, Chief Executive Officer and
Chairman of the Board of the Corporation and the Bank, negotiated the terms of
his employment agreement with the Bank at arm's length with the Board of
Directors. The current terms of Mr. Fernandez's employment, including his
compensation arrangements, are described elsewhere in this Proxy Statement under
"Executive Compensation-Employment Agreement". Mr. Fernandez compensation under
his employment agreement was determined under comparable terms with the
compensation policy described above which takes into consideration the
achievement of the Bank's goals and available peer group information.
Submitted by the Compensation Committee:
Julian Inclan
Alberto Richa Angelini
Emilio Rodriguez
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee has served as an officer
or employee of the Corporation or of a subsidiary of the Corporation.
<PAGE>
-15-
PERFORMANCE GRAPH
The stock performance graph below compares the cumulative total shareholder
return of the Corporation's Common Stock from June 30, 1992 to June 30, 1997
with the cumulative total return of the S & P 500 Market Index and the S & P
Financial Index. The S & P 500 Market Index is a broad index which includes a
wide variety of issuers and industries representatives of a cross section of the
market. The S & P Financial Index is an index which includes a wide array of
financial institutions (or financial institution holding companies) comparable
to the Corporation:
[The graph included in the definitive proxy statement comparatively shows the
value of $100 invested on June 30, 1992 in the stock of the Corporation or an
index, including the reinvestment of dividends, as of fiscal years ending on
June 30. The numbers shown in graph are as follows:
Oriental Financial S&P 500 S&P Financial
6/30/92 100 100 100
6/30/93 202 114 130
6/30/94 342 115 131
6/30/95 363 145 158
6/30/96 466 183 211
6/30/97 853 247 321]
<PAGE>
-16-
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Corporation is required to identify any director, executive officer or
person who owns more than ten percent of the Common Stock who failed to timely
file with the Securities and Exchange Commission (or with the Federal Deposit
Insurance Corporation with respect to period of time prior to the effective date
of the holding company reorganization) a required report under Section 16(a) of
the Securities Exchange Act of 1934. Based solely on the review of such forms
furnished to the Corporation, or written representations from its executive
officers and directors, the Corporation believes that during and with respect
to, fiscal year 1997, the Corporation's directors, executive officers and
persons who own more than ten percent of the Common Stock complied in all
respects with the reporting requirements promulgated under Section 16(a) of the
Exchange Act, other than one report, covering one transaction, which was filed
late by Mr. Eli E. Diaz.
PROPOSAL 2: ADOPTION OF BANK'S 1996 STOCK OPTION PLAN
GENERAL
The Board of Directors of the Bank adopted on November 25, 1996 the
Oriental Bank and Trust 1996 Incentive Stock Option Plan, as subsequently
amended (the "1996 Plan"), which is designed to help attract and retain
qualified selected officers and other key personnel of the Bank and any parent
or subsidiary thereof and provide such officers and key personnel with an
additional incentive to contribute to the success of the Bank. The 1996 Plan
provides for the grant of stock options to officers, directors and other
full-time, key employees of the Bank or any parent or subsidiary thereof. The
1996 Plan shall become effective upon its approval by the majority of the total
votes eligible to be cast at this Annual Meeting by the stockholders of the
Corporation. Stockholder approval of the 1996 Plan will satisfy certain New
York Stock Exchange market listing and Puerto Rico tax requirements.
An aggregate of 630,000 shares of Common Stock has been reserved for
future issuance under the 1996 Plan pursuant to the exercise of stock options,
subject to modification or adjustment to reflect changes in the Corporation's
capitalization as, for example, in the case of a merger, consolidation,
reorganization, stock dividend or stock split. The 1996 Plan shall remain in
effect for a term of ten (10) years from the date of adoption by the Bank's
Board of Directors unless sooner terminated in accordance with the provisions of
the 1996 Plan. No options may be granted after the date of termination of the
1996 Plan, but such termination will not affect the rights or obligations of
persons holding options granted under the 1996 Plan prior to its termination.
The 1996 Plan is being administered by the Bank's Compensation Committee
(the "1996 Plan Administrators"), which is a committee of three members of the
Bank's Board of Directors, none of the members of which is an officer or
full-time employee of the Bank. The Plan Administrators are given absolute
discretion under the 1996 Plan to, among other things, select the persons to
whom options shall be granted and to determine the number of shares subject to
each option and determine and establish in each case the conditions and
restrictions, if any, to which the grant and/or exercise of the options shall be
subject. As is described in more detail below under "Options Granted," in the
case of those options granted to date under the 1996 Plan, the Plan
Administrators established as a restriction to the vesting of such options that
the Bank must have a certain minimum amount of "consolidated net income"
($25,000,000) for the fiscal year ending June 30, 1999. Two kinds of options,
evidenced by two separate plans, are contained in the 1996 Plan and are
available for grants: (i) qualified incentive options (Part I), and (ii)
compensatory incentive options (Part II).
DESCRIPTION OF THE 1996 PLAN
The following description of the 1996 Plan is a summary of its terms and is
qualified in its entirety by reference to the 1996 Plan, a copy of which is
attached hereto as APPENDIX A.
STOCK OPTIONS. One or more options may be granted under the 1996 Plan to
any eligible person provided that in any calendar year the aggregate fair market
value (determined as of the time the option is
<PAGE>
-17-
granted) of the Common Stock for which qualified incentive options are
exercisable for the first time by an eligible person during any calendar year
may not exceed $100,000. Options subject to the foregoing limitation are being
granted pursuant to Part I of the 1996 Plan and are intended to constitute
"qualified incentive options" under Section 1046 of the Puerto Rico Internal
Revenue Code of 1994, as amended (the "Puerto Rico Code"). Additional
non-qualified options, which are not subject to the foregoing limitation, may be
granted under Part II of the Plan and such options constitute "compensatory
incentive options."
All options granted under the 1996 Plan and all rights thereunder expire on
the date determined by the Plan Administrators at the time of the grant, but in
no event shall options granted expire later than ten (10) years from the date of
the grant. All options granted under the 1996 Plan shall become vested and
exercisable at the rate determined by the Plan Administrators when making an
award.
The purchase price for shares of Common Stock acquired pursuant to an
exercise, in whole or in part, of any "qualified incentive option" granted under
Part I of the 1996 Plan shall not be less than the fair market value of the
shares of Common Stock on the date of the grant of the option. The purchase
price for shares of Common Stock acquired pursuant to an exercise, in whole or
in part, of any "compensatory incentive option" granted under Part II of the
1996 Plan shall be as determined by the Plan Administrators at the time of the
grant. Each option granted under the 1996 Plan shall be exercisable in one or
more installments during its term, and the right to exercise may be cumulative
as determined by the Plan Administrators. Payment for shares purchased upon
the exercise of options under the 1996 Plan must be made in full at the time of
exercise and may be made either in cash, by certified or cashier's check or, if
permitted by the Board of Directors, shares of Common Stock, or by a combination
of cash, check or shares of Common Stock; provided, that the form(s) of payment
allowed to the optionee shall be established by the Plan Administrators when the
option is granted.
Each stock option shall be exercisable at any time on or after it vests in
accordance with the terms thereof and is exercisable until its expiration or the
time when the optionee ceases to be a director or employee of the Bank or any
parent or subsidiary thereof; provided that the Plan Administrators may, at the
time an option is granted, in their discretion, allow such option to be
exercised (if it had vested) up to three months following the date of cessation
as director or employee of the Bank or any parent or subsidiary thereof. If an
optionee becomes disabled while employed by (or as a director of) the Bank or
any parent or subsidiary thereof, the Plan Administrators, in their discretion,
may allow the option to be exercised, to the extent exercisable at the time of
cessation as director or employee of the Bank or any parent or subsidiary
thereof, at any time within one year after the date of cessation due to
disability. If an optionee dies while employed by (or as a director of) the
Bank or any parent or subsidiary thereof, such option shall expire within one
year after the date of death unless it expires sooner by its terms. During such
year or shorter period, such option may be exercised by the person or persons to
whom the optionee's rights under the option shall pass by will or the laws of
descent, but only if the option was vested at the time of death. In the event
of the disposition of substantially all of the assets or stock of the Bank or in
the event of certain "changes in control" of the Bank, all options granted under
the 1996 Plan shall become immediately exercisable notwithstanding any existing
installment limitation.
Options granted under the 1996 Plan may not be sold, pledged, assigned or
transferred by the optionee in any manner other than by will or the laws of
descent and may be exercised during the lifetime of an optionee only by such
person.
AMENDMENTS. The Plan Administrators may at any time amend or otherwise
revise the terms of the 1996 Plan, including the form and substance of the
options to be granted thereunder; provided, that no amendment or revision shall
(i) increase the number of the maximum aggregate number of shares to be sold
pursuant to options exercised under the 1996 Plan, (ii) change the minimum
purchase price for shares to be sold upon the exercise of options granted under
Part I of the 1996 Plan; (iii) increase the maximum term established under the
1996 Plan for any option; and (iv) permit the granting of an option to any
person other than as provided in the 1996 Plan.
TAX CONSEQUENCES. A recipient of a "qualified incentive option" within the
meaning of Section 1046 of the Puerto Rico Code (options granted pursuant to
Part I of the 1996 Plan are intended to qualify as such) does
<PAGE>
-18-
not recognize income at the time of the grant of an option, provided that the
market value of the stock at the time of the grant does not exceed the option
price. In addition, no income is recognized at the time a "qualified incentive
option" is exercised. On a subsequent sale or exchange of the shares acquired
pursuant to the exercise of a "qualified incentive option," the optionee may
have taxable gain or loss, measured by the difference between the amount
realized on the disposition of such shares and his or her tax basis in such
shares. Tax basis will, in general, be the amount paid for the shares by the
optionee. The Bank will not be entitled to a business expense deduction in
respect of the grant of the option or the exercise thereof.
With respect to the "compensatory incentive options" granted under Part II
of the Plan, the difference between the fair market value of the stock on the
date of exercise and the option exercise price generally will be treated as
compensation income upon exercise, and the Bank will be entitled to a deduction
in the amount of income recognized by the optionee. Upon a subsequent
disposition of the stock, the difference between the amount received by the
optionee and the fair market value on the option exercise date will be treated
as long-term or short-term capital gain or loss, depending on whether the shares
were held for six months or more.
The above description of tax consequences under Puerto Rico law is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations and
their application may vary in individual circumstances.
ACCOUNTING TREATMENT. Neither the grant nor the exercise of a "qualified
incentive option" or a "compensatory incentive option" under the 1996 Plan
currently requires any charge against earnings under generally accepted
accounting principles. In certain circumstances, shares issuable pursuant to
outstanding options under the 1996 Plan might be considered outstanding for
purposes of calculating earnings per share.
OPTIONS GRANTED. The Plan Administrators, upon the adoption of the 1996
Plan by the Bank's Board of Directors and in accordance with the terms of 1996
Plan, granted during fiscal year 1997 a total of 211,000 options to a total of
75 officers and other employees of the Bank. Said options are contingent upon
approval of the 1996 Plan by the Corporation's stockholders at this Annual
Meeting and may not be exercised prior to such approval. Said options will be
exercisable only if the Bank's "consolidated net income" for the fiscal year
ending on June 30, 1999 equals or exceeds $25,000,000. "Consolidated net
income" means the Bank's consolidated net income after income taxes, as shown on
the Bank's audited financial statements for the fiscal year in question. Said
requirement may be waived by the Plan Administrators in their sole discretion,
but only if the Bank's "consolidated net income" for the previously stated
fiscal year equals at least 90% of the stated minimum amount. In addition, the
options become exercisable in installments commencing on January 2, 2000.
The table below provides information regarding the options granted to the
Bank's named executive officers during the fiscal year ended June 30, 1997 under
the 1996 Plan:
<TABLE>
<CAPTION>
PERCENT OF TOTAL POTENTIAL REALIZABLE VALUES
OPTIONS OPTIONS GRANTED BASE EXPIRATION AT ASSUMED ANNUAL RATES OF
NAME GRANTED EMPLOYEES PRICE DATE STOCK APPRECIATION OF:
---- ------- --------- ----- ---- ----------------------
5% 10%
<S> <C> <C> <C> <C> <C> <C>
Eli E. Diaz 8,000 3.8% $18.50 Nov. 2006 $93,040 $ 235,840
Roberto Fernandez 8,000 3.8% $18.50 Nov. 2006 93,040 235,840
George Joyner 8,000 3.8% $18.50 Nov. 2006 93,040 235,840
Ricardo Ramos 6,000 2.8% $18.50 Nov. 2006 69,780 176,880
</TABLE>
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 2.
<PAGE>
-19-
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Corporation has appointed Price Waterhouse as
independent auditors of the Corporation for the fiscal year ending June 30,
1998, and has further directed that the selection of such auditors be submitted
for ratification by the stockholders at the Annual Meeting. The Corporation has
been advised by Price Waterhouse that neither that firm nor any of its
associates has any relationship with the Corporation or its subsidiaries other
than the usual relationship that exists between independent certified public
accountants and clients.
Price Waterhouse will have a representative at the Annual Meeting who will
have an opportunity to make a statement, if he or she so desires, and who will
be available to respond to appropriate questions.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 3.
STOCKHOLDER PROPOSALS
Stockholder's proposals intended to be presented at the 1998 Annual Meeting
of Stockholders must be set forth in writing and received by the Secretary of
the Corporation, at its principal executive offices located at Hato Rey Tower,
Suite 503, 268 Munoz Rivera Avenue, Hato Rey, Puerto Rico 00918, no later than
May 25, 1998 for inclusion in the Corporation's Proxy Statement and Form of
Proxy relating to the 1998 Annual Meeting of Stockholders.
ANNUAL REPORTS
A copy of the Corporation's Annual Report to Stockholders for the year
ended June 30, 1997 accompanies this Proxy Statement. Such Annual Report is not
a part of the proxy solicitation materials.
UPON RECEIPT OF A WRITTEN REQUEST, THE CORPORATION WILL FURNISH TO ANY
STOCKHOLDER WITHOUT CHARGE A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997, AND A LIST OF THE EXHIBITS THERETO
REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
EXCHANGE ACT. SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO ANDRES MUNIZ, ORIENTAL
FINANCIAL GROUP INC., HATO REY TOWER, SUITE 503, 268 MUNOZ RIVERA AVENUE, HATO
REY, PUERTO RICO 00918. THE FORM 10-K IS NOT PART OF THE PROXY SOLICITATION
MATERIALS.
BY ORDER OF THE BOARD OF DIRECTORS
Jose E. Fernandez
Chairman
September 21, 1997
<PAGE>
APPENDIX A
ORIENTAL BANK AND TRUST
AMENDED AND RESTATED
1996 INCENTIVE STOCK OPTION PLAN
1. PURPOSE. The Oriental Bank and Trust 1996 Incentive Stock Option Plan
(the "1996 Plan") is intended to secure for Oriental Bank and Trust (the
"Bank"), its affiliates and its stockholders, the benefits arising from
ownership of the Bank's common stock, par value $1.00 per share (the "Common
Stock"), by those selected officers and other key employees of the Bank and its
affiliates who will be responsible for its future growth. The 1996 Plan is
designed to help attract and retain superior personnel for positions of
substantial responsibility with the Bank, and to provide key employees with an
additional incentive to contribute to the success of the Bank.
2. ELEMENTS OF THE 1996 PLAN. In order to maintain flexibility in the
award of stock benefits, the 1996 Plan is comprised of two parts. The first
part is the Qualified Incentive Stock Option Plan (the "Qualified Plan") and the
second part is the Compensatory Incentive Stock Option Plan (the "Compensatory
Plan"). Copies of the Qualified Plan and Compensatory Plan are attached hereto
and form part hereof as Part I and Part II, respectively, and are collectively
referred to herein as the "Plans". The grant of an option under one of the
Plans shall not be construed to prohibit the grant of an option under the other
Plan.
3. APPLICABILITY OF GENERAL PROVISIONS. Unless any Plan specifically
indicates to the contrary, both Plans shall be subject to the General Provisions
of the 1996 Plan set forth below.
4. ADMINISTRATION OF THE PLANS. The Plans shall be administered,
construed, governed and amended in accordance with their respective terms.
GENERAL PROVISIONS OF THE 1996 PLAN
ARTICLE 1. ADMINISTRATION. The 1996 Plan shall be administered by a
committee appointed by the Board of Directors of the Bank, none of the members
of which shall be a full-time officer or employee of the Bank. The committee,
when acting to administer the 1996 Plan, is referred to as the "Plan
Administrators". Any action of the Plan Administrators shall be taken by
majority vote or the unanimous written consent of the Plan Administrators. No
Plan Administrators or member of the Board of Directors of the Bank, its parent
or subsidiaries, shall be liable for any action or determination made in good
faith with respect to the 1996 Plan or to any option granted thereunder.
<PAGE>
-2-
ARTICLE 2. AUTHORITY OF PLAN ADMINISTRATORS. Subject to the other
provisions of this 1996 Plan, and with a view to effecting its purpose, the Plan
Administrators shall have sole authority in their absolute discretion: (a) to
construe and interpret the 1996 Plan; (b) to define the terms used herein; (c)
to prescribe, amend, and rescind rules and regulations relating to the 1996
Plan; (d) to determine the employees to whom options shall be granted under the
1996 Plan; (e) to determine the time or times at which options shall be granted
under the 1996 Plan; (f) to determine and establish in each case the conditions
and restrictions, if any, to which the grant and/or exercise of the options
shall be subject; (g) to determine the number of shares subject to any option
under the 1996 Plan, as well as the exercise price and the duration of each
option, and any other terms and conditions of options; (h) to amend or terminate
the 1996 Plan; and (i) to make any other determinations necessary or advisable
for the administration of the 1996 Plan and do everything necessary or
appropriate to administer the 1996 Plan. All decisions, determinations, and
interpretations made by the Plan Administrators shall be binding and conclusive
on all participants in the 1996 Plan and on their legal representatives, heirs
and beneficiaries.
ARTICLE 3. MAXIMUM NUMBER OF SHARES SUBJECT TO THE 1996 PLAN. The maximum
aggregate number of shares of Common Stock available pursuant to the Plans,
subject to adjustment as provided in Article 6 hereof, shall be 630,000 shares.
If any of the options granted under this 1996 Plan expire or terminate for any
reason before they have been exercised in full, the unpurchased shares subject
to those expired or terminated options shall again be available for the purposes
of the 1996 Plan.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION. Regular full-time employees of
the Bank or of any parent or any subsidiary thereof, including officers, whether
or not directors and directors of any of such corporations, shall be eligible
for selection by the Plan Administrators to participate in the 1996 Plan.
ARTICLE 5. EFFECTIVE DATE AND TERM OF 1996 PLAN. The 1996 Plan shall
become effective upon its adoption by the Board of Directors of the Bank, and
shall be subsequently submitted to the stockholders of the Bank for approval by
a majority of the total votes eligible to be cast at a meeting of stockholders,
which vote shall be taken within 12 months of adoption of the 1996 Plan by the
Bank's Board of Directors; provided, however, that options may be granted under
this 1996 Plan prior to obtaining stockholder approval thereof, but any such
options shall be contingent upon such stockholder approval being obtained and
may not be exercised prior to such approval. The 1996 Plan shall continue in
effect for a term of 10 years unless sooner terminated in accordance with the
provisions hereof.
<PAGE>
-3-
ARTICLE 6. ADJUSTMENTS. If the shares of Common Stock of the Bank as a
whole are increased, decreased, changed into or exchanged for a different number
or kind of shares or securities through merger, consolidation, combination,
exchange of shares, other reorganization, recapitalization, reclassification,
stock dividend, stock split or reverse stock split, an appropriate and
proportionate adjustment shall be made in the maximum number and kind of shares
as to which options may be granted under this 1996 Plan. A corresponding
adjustment changing the number or kind of shares allocated to unexercised
options or portions thereof, which shall have been granted prior to any such
change, shall likewise be made. Any such adjustment in outstanding options
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of the option, but with a corresponding adjustment in the
price for each share or other unit of any security covered by the option. In
making any adjustment pursuant to this Article 6, any fractional shares shall be
disregarded.
ARTICLE 7. TERMINATION AND AMENDMENT OF 1996 PLAN. The 1996 Plan shall
terminate no later than 10 years from the date of its adoption by the Board of
Directors, or the date such 1996 Plan is approved by the stockholders, whichever
is earlier. No options shall be granted under the 1996 Plan after the date of
termination. Subject to the limitation contained in Article 8 of the General
Provisions, the Plan Administrators may at any time amend or revise the terms of
the 1996 Plan, including the form and substance of the option agreements to be
used hereunder; provided that no amendment or revision shall (a) increase the
maximum aggregate number of shares that may be sold pursuant to options granted
under this 1996 Plan, except as permitted under Article 6 of the General
Provisions; (b) change the minimum purchase price for shares under Section 4 of
the Plans; (c) increase the maximum term established under the Plan for any
option; or (d) permit the granting of an option to anyone other than as provided
in Article 4 of the General Provisions.
ARTICLE 8. PRIOR RIGHTS AND OBLIGATIONS. No amendment, suspension or
termination of the 1996 Plan shall, without the consent of the employee who has
received an option, alter or impair any of said employee's rights or obligations
under any option granted under the 1996 Plan prior to such amendment, suspension
or termination.
ARTICLE 9. REORGANIZATIONS AND OTHER TRANSFERS. In the event of an
acquisition of all or substantially all of the assets or stock of the Bank
pursuant to a merger, consolidation, separation, reorganization, liquidation, or
other transaction, where persons that were stockholders of the Bank immediately
before the transaction own fifty percent or more of the total combined voting
power of all classes of stock entitled to vote of the acquiring or surviving
entity immediately after the consummation
<PAGE>
-4-
of such transaction, and such acquiring or surviving entity assumes the Bank's
obligations under options granted pursuant to the 1996 Plan, then all references
in the 1996 Plan to the Bank, or to shares of common stock of the Bank, shall
apply to such acquiring or surviving entity and to shares of common stock of
such acquiring or surviving entity.
ARTICLE 10. PRIVILEGES OF STOCK OWNERSHIP. Notwithstanding the exercise
of any options granted pursuant to the terms of this 1996 Plan, no employee
shall have any of the rights or privileges of a stockholder of the Bank in
respect of any shares of stock issuable upon the exercise of his or her options
until certificates representing the shares have been issued and delivered. No
shares shall be required to be issued and delivered upon exercise of any option
unless and until all of the requirements of law and of all regulatory agencies
having jurisdiction over the issuance and delivery of the securities shall have
been fully complied with. No adjustment shall be made for dividends or any
other distributions for which the record date is prior to the date on which such
stock certificate is issued.
ARTICLE 11. RESERVATION OF SHARES OF COMMON STOCK. The Bank, during the
term of this 1996 Plan, will at all times reserve and keep available such number
of shares of its Common Stock as shall be sufficient to satisfy the requirements
of the 1996 Plan. In addition, the Bank will from time to time, as is necessary
to accomplish the purposes of this 1996 Plan, seek to obtain from any regulatory
agency having jurisdiction any requisite authority in order to issue and sell
shares of Common Stock hereunder. The inability of the Bank to obtain from any
regulatory agency having jurisdiction the authority deemed by the Bank's counsel
to be necessary to the lawful issuance and sale of any shares of its stock
hereunder shall relieve the Bank of any liability in respect of the non-issuance
or sale of the stock as to which the requisite authority shall not have been
obtained.
ARTICLE 12. TAX WITHHOLDING. The exercise of any option granted under the
1996 Plan is subject to the condition that if at any time the Bank shall
determine, in its discretion, that the satisfaction of withholding tax or other
withholding liabilities under any state, federal or Puerto Rico law is necessary
or desirable as a condition of, or in any connection with, such exercise or the
delivery or purchase of shares pursuant thereto, then in such event, the
exercise of the option shall not be effective unless such withholding tax or
other withholding liabilities shall have been satisfied in a manner acceptable
to the Bank.
ARTICLE 13. EMPLOYMENT. Nothing in the 1996 Plan or in any option shall
confer upon any eligible employee any right to continued employment by the Bank,
or by its parent or subsidiary corporations, or limit in any way the right of
the Bank or its
<PAGE>
-5-
parent or subsidiary corporation at any time to terminate or alter the terms of
that employment.
PART I
QUALIFIED INCENTIVE STOCK OPTION PLAN
SECTION 1. PURPOSE. The purpose of this Qualified Plan is to promote the
growth and general prosperity of the Bank by permitting the Bank to grant
options to purchase shares of its Common Stock to selected directors, officers
and other full-time, key employees of the Bank or of any parent or subsidiary
thereof. This Qualified Plan is designed to help attract and retain superior
personnel for positions of responsibility with the Bank and its subsidiaries or
parent company, if any, and to provide key employees with an additional
incentive to contribute to the success of the Bank. Options granted pursuant to
this Qualified Plan are intended to constitute "qualified stock options"
pursuant to Section 1046 of the Puerto Rico Internal Revenue Code of 1994, as
amended (the "PRIRC"). This Qualified Plan is Part I of the Bank's 1996 Plan.
Unless any provision herein indicates to the contrary, this Qualified Plan shall
be subject to the General Provisions of the 1996 Plan.
SECTION 2. OPTION TERMS AND CONDITIONS. The terms and conditions of
options granted under the Qualified Plan may differ from one another as the Plan
Administrators shall, in their discretion, determine, as long as all options
granted under the Qualified Plan satisfy the requirements thereof.
SECTION 3. DURATION OF OPTIONS. Each option and all rights thereunder
granted pursuant to the terms of the Qualified Plan shall expire on the date
determined by the Plan Administrators, but in no event shall any option granted
under the Qualified Plan expire later than 10 years from the date on which the
option is granted. In addition, each option shall be subject to early
termination as provided in the 1996 Plan.
SECTION 4. PURCHASE PRICE. The purchase price for shares acquired
pursuant to the exercise, in whole or in part, of any option granted under the
Qualified Plan shall not be less than the fair market value of the shares on the
date of the grant of the option. Fair market value shall be determined by the
Plan Administrators on the basis of such factors as they deem appropriate;
provided, however, that fair market value shall be determined without regard to
any restriction other than a restriction which, by its terms, will never lapse;
and further provided, that if at the time the determination of fair market value
is made, those shares are admitted to trading on a national securities exchange
for which sale prices are regularly reported, the fair market value of those
shares shall not be less than the mean of the high and low asked or closing
sales prices reported for the
<PAGE>
-6-
Common Stock on that exchange on the day or most recent trading day preceding
the date on which the option is granted; provided, further, that if at the time
the determination of fair market value is made, those shares are not admitted to
trading on a national securities exchange, the value of such shares may not be
determined to be less than their book value per share, calculated pursuant to
the financial statements for the immediately preceding year of the Bank or any
parent or subsidiary corporation which authorized such options. For purposes of
this Section 4, the term "national securities exchange" shall include the
National Association of Securities Dealers Automated Quotation System and the
over-the-counter market.
SECTION 5. MAXIMUM AMOUNT OF EXERCISABLE OPTIONS IN ANY CALENDAR YEAR.
The aggregate fair market value (determined as of the time the option is
granted) of the Common Stock with respect to which stock options may be
exercisable for the first time by any employee of the Bank, or of any parent or
subsidiary thereof, during any calendar year (under the terms of this Qualified
Plan and other qualified stock option plans of the Bank and any parent or
subsidiary corporation that meet the requirements of Section 1046 of the PRIRC)
shall not exceed $100,000.
SECTION 6. EXERCISE OF OPTIONS. Each option shall be exercisable in one
or more installments during its term, and the right to exercise may be
cumulative as determined by the Plan Administrators. No option may be exercised
for a fraction of a share of Common Stock. The purchase price of any shares
purchased shall be paid in full in cash or by certified or cashier's check
payable to the order of the Bank or by shares of Common Stock, if permitted by
the Plan Administrators, or by a combination of cash, check or shares of Common
Stock, at the time of exercise of the option; provided that the form(s) of
payment allowed the employee shall be established when the option is granted.
If any portion of the purchase price is paid in shares of Common Stock, those
shares shall be tendered at their then fair market value as determined by the
Plan Administrators in accordance with Section 4 of this Qualified Plan.
SECTION 7. ACCELERATION OF RIGHT OF EXERCISE OF INSTALLMENTS.
Notwithstanding the first sentence of Section 6 of this Qualified Plan, in the
event the Bank or its stockholders enter into an agreement to dispose of all or
substantially all of the assets or stock of the Bank by means of a sale, merger
or other reorganization, liquidation, or otherwise, any option granted pursuant
to the terms of the Qualified Plan shall become immediately exercisable with
respect to the full number of shares subject to that option during the period
commencing as of the date of the agreement to dispose of all or substantially
all of the assets or stock of the Bank and ending when the disposition of assets
or stock contemplated by that agreement is consummated or the option is
otherwise terminated in accordance with its
<PAGE>
-7-
provisions or the provisions of this Qualified Plan, whichever occurs first;
provided, however, that no option shall be immediately exercisable under this
Section 7 if the transaction meets the requirements of Article 9 of the General
Provisions of the 1996 Plan. In the event the transaction contemplated by the
agreement referred to in this Section 7 is not consummated, but rather is
terminated, cancelled or expires, the options granted pursuant to the Qualified
Plan shall thereafter be treated as if that agreement had never been entered
into.
Notwithstanding the first sentence of Section 6 of this Qualified
Plan, in the event of a change in control of the Bank or a threatened change in
control of the Bank as determined by a vote of not less than a majority of the
Board of Directors of the Bank, all options granted prior to such change in
control or threatened change of control shall become immediately exercisable.
The term "control" for purposes of this Section 7 shall refer to the acquisition
of twenty-five percent or more of the voting securities of the Bank by any
person or by persons acting as a group within the meaning of Section 13(d) of
the Securities Exchange Act of 1934; provided, however, that for purposes of
this Qualified Plan, no change in control or threatened change in control shall
be deemed to have occurred if prior to the acquisition of, or offer to acquire,
twenty-five percent or more of the voting securities of the Bank, the full Board
of Directors of the Bank shall have adopted by not less than a two-thirds vote a
resolution specifically approving such acquisition or offer. The term "person"
for purposes of this Section 7 refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
SECTION 8. WRITTEN NOTICE REQUIRED. Any option granted pursuant to the
terms of the Qualified Plan shall be exercised when written notice of that
exercise has been given to the Bank at its principal office by the person
entitled to exercise the option and full payment for the shares with respect to
which the option is exercised has been received by the Bank.
SECTION 9. COMPLIANCE WITH SECURITIES LAWS. Shares of Common Stock shall
not be issued with respect to any option granted under the Qualified Plan unless
the exercise of that option and the issuance and delivery of those shares
pursuant to that exercise shall comply with all relevant provisions of Puerto
Rico, state and federal law including, without limitation, the Securities Act of
1933, as amended, the rules and regulations promulgated thereunder, the
requirements of any stock exchange upon which the shares may then be listed, the
Puerto Rico Uniform Securities Act of 1963, as amended, and the rules and
regulations promulgated thereunder, and shall be further subject to the approval
of counsel for the Bank with respect to such compliance.
<PAGE>
-8-
The Plan Administrators may also require an employee to whom an option has been
granted under the Qualified Plan ("Optionee") to furnish evidence satisfactory
to the Bank, including a written and signed representation letter and consent to
be bound by any transfer restriction imposed by law, legend, condition or
otherwise, that the shares are being purchased only for investment and without
any present intention to sell or distribute the shares in violation of any
state, federal or Puerto Rico law, rule or regulation. Further, each Optionee
shall consent to the imposition of a legend on the shares of Common Stock
subject to his or her option restricting their transferability as may be
required by law or by this Section 9.
SECTION 10. EMPLOYMENT OF OPTIONEE. Each Optionee, if requested by the
Plan Administrators when the option is granted, must agree in writing as a
condition of receiving his or her option, that he or she will remain in the
employ of, or as a director of, the Bank, or any parent or subsidiary
corporation of the Bank, as the case may be, following the date of the granting
of that option for a period specified by the Plan Administrators, which period
shall in no event exceed three years. Nothing in the 1996 Plan or in any option
granted thereunder shall confer upon any Optionee any right to continued
employment by the Bank, or any of its parent or subsidiary corporations, or
limit in any way the right of the Bank or any of its parent or subsidiary
corporations at any time to terminate or alter the terms of that employment.
SECTION 11. OPTION RIGHTS UPON TERMINATION OF EMPLOYMENT. If an Optionee
ceases as a director of, or to be employed by, the Bank, or any parent or
subsidiary thereof, for any reason other than death or disability, his or her
option shall immediately terminate; provided, however, that the Plan
Administrators may, at the time an option is granted, in their discretion, allow
such option to be exercised (to the extent exercisable on the date of
termination of employment) at any time within three months after the date of
termination of employment, unless either the option or the Qualified Plan
otherwise provides for earlier termination.
SECTION 12. OPTION RIGHTS UPON DISABILITY. If an optionee becomes
disabled (as such term is defined in the PRIRC or the regulations thereunder or,
in the absence of such a definition therein, in Section 22(e)(3) of the U.S.
Internal Revenue Code of 1986, (the "Code")) while employed by the Bank, or any
parent or subsidiary corporation thereof, the option may be exercised, to the
extent exercisable on the date of termination of employment, at any time within
one year after the date of termination of employment due to disability, unless
either the option or the Qualified Plan otherwise provides for earlier
termination.
SECTION 13. OPTION RIGHTS UPON DEATH OF OPTIONEE. Except as otherwise
limited by the Plan Administrators at the time of
<PAGE>
-9-
the grant of an option, if an Optionee dies while acting as a director or
employed by the Bank, or any parent or subsidiary corporation thereof, or within
three months after ceasing to be an employee or director thereof, his or her
option shall expire one year after the date of death unless by its term it
expires sooner. During this one year or shorter period, the option may be
exercised, to the extent that it remains unexercised on the date of death, by
the person or persons to whom the Optionee's rights under the option shall pass
by will or by the laws of descent and distribution, but only to the extent that
the Optionee is entitled to exercise the option at the date of death.
SECTION 14. OPTIONS NOT TRANSFERABLE. Options granted pursuant to the
terms of the Qualified Plan may not be sold, pledged, assigned or transferred by
the Optionee in any manner otherwise than by will or the laws of descent or
distribution and may be exercised during the lifetime of an Optionee only by
that Optionee.
SECTION 15. ADJUSTMENTS TO NUMBER AND PURCHASE PRICE OF OPTIONED SHARES.
All options granted pursuant to the terms of this Qualified Plan shall be
adjusted in the manner prescribed by Article 6 of the General Provisions of the
1996 Plan.
PART II
COMPENSATORY INCENTIVE STOCK OPTION PLAN
SECTION 1. PURPOSE. The purpose of this Compensatory Plan is to permit
the Bank to grant options to purchase shares of its Common Stock to selected
directors, officers and other full-time, key employees of the Bank or of any
parent, subsidiary or other affiliate thereof. The Compensatory Plan is
designed to help attract and retain superior personnel for positions of
substantial responsibility with the Bank and its subsidiaries, parent company or
other affiliates, if any, and to provide key employees with an additional
incentive to contribute to the success of the Bank. Options granted pursuant to
this Compensatory Plan shall be clearly and specifically designated as not being
"qualified stock options", as defined in Section 1046 of the PRIRC. This
Compensatory Plan is Part II of the Bank's 1996 Plan. Unless any provision
herein indicates to the contrary, this Compensatory Plan shall be subject to the
General Provisions of the 1996 plan.
SECTION 2. OPTION TERMS AND CONDITIONS. The terms and conditions of
options granted under this Compensatory Plan may differ from one another as the
Plan Administrators shall, in their discretion, determine as long as all options
granted under the Compensatory Plan satisfy the requirements of the Compensatory
Plan.
<PAGE>
-10-
SECTION 3. DURATION OF OPTIONS. Each option and all rights thereunder
granted pursuant to the terms of this Compensatory Plan shall expire on the date
determined by the Plan Administrators, but in no event shall any option granted
under the Compensatory Plan expire later than 10 years from the date on which
the option is granted. In addition, each option may be subject to early
termination as provided in the 1996 Plan.
SECTION 4. PURCHASE PRICE. The purchase price for shares acquired
pursuant to the exercise, in whole or in part, of any option granted under the
Compensatory Plan shall be as determined by the Plan Administrators at the time
of grant on the basis of such factors as they deem appropriate.
SECTION 5. EXERCISE OF OPTIONS. Each option shall be exercisable in one
or more installments during its term and the right to exercise may be cumulative
as determined by the Plan Administrators. No options may be exercised for a
fraction of a share of Common stock. The purchase price of any shares purchased
shall be paid in full in cash or by certified or cashier's check payable to the
order of the Bank or by shares of Common Stock, if permitted by the Plan
Administrators, or by a combination of cash, check or shares of Common Stock, at
the time of exercise of the option. If any portion of the purchase price is
paid in shares of Common Stock, those shares shall be tendered at their then
fair market value.
SECTION 6. ACCELERATION OF RIGHT OF EXERCISE OF INSTALLMENTS.
Notwithstanding any other provision of this Compensatory Plan, if the Bank or
its stockholders enter into an agreement to dispose of all or substantially all
of the assets or stock of the Bank by means of a sale, merger or other
reorganization, liquidation, or otherwise, any option granted pursuant to the
terms of this Compensatory Plan shall become immediately exercisable with
respect to the full number of shares subject to that option during the period
commencing as of the date of the agreement to dispose of all or substantially
all of the assets or stock of the Bank and ending when the disposition of assets
or stock contemplated by that agreement is consummated, or the option is
otherwise terminated in accordance with its provisions or the provisions of this
Compensatory Plan, whichever occurs first; provided, however, that no option
shall be immediately exercisable under this Section 6 if the transaction meets
the requirements of Article 9 of the General Provisions of the 1996 Plan. In
the event the transaction contemplated by the agreement referred to in this
Section 6 is not consummated, but rather is terminated, cancelled or expires,
the options granted pursuant to this Compensatory Plan shall thereafter be
treated as if that agreement had never been entered into.
Notwithstanding the first sentence of Section 5 of this Compensatory
Plan, in the event of a change in control of the
<PAGE>
-11-
Bank, or a threatened change in control of the Bank as determined by a vote of
not less than a majority of the Board of Directors of the Bank, all options
granted prior to such change in control or threatened change in control shall
become immediately exercisable. The term "control" for purposes of this Section
7 shall refer to the acquisition of twenty-five percent or more of the voting
securities of the Bank by any person or by persons acting as a group within the
meaning of Section 13(d) of the Securities Exchange Act of 1934; provided,
however, that for purposes of this Compensatory Plan, no change in control or
threatened change in control shall be deemed to have occurred if prior to the
acquisition of, or offer to acquire, twenty-five percent or more of the voting
securities of the Bank, the full Board of Directors of the Bank shall have
adopted by not less than a two-thirds vote a resolution specifically approving
such acquisition or offer. The term "person" for purposes of this Section 6
refers to an individual or a corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization or
any other form of entity not specifically listed herein.
SECTION 7. WRITTEN NOTICE REQUIRED. Any option granted pursuant to the
terms of this Compensatory Plan shall be exercised when written notice of that
exercise has been given to the Bank at its principal office by the person
entitled to exercise the option and full payment for the shares with respect to
which the option is exercised has been received by the Bank.
SECTION 8. COMPLIANCE WITH SECURITIES LAWS. Shares of Common Stock shall
not be issued with respect to any option granted under the Compensatory Plan
unless the exercise of that option and the issuance and delivery of the shares
pursuant thereto shall comply with all relevant provisions of Puerto Rico,
state, federal and Puerto Rico law, including, without limitation, the
Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, the Puerto Rico Uniform Securities Act of 1963, as amended, the
rules and regulations promulgated thereunder and the requirements of any stock
exchange upon which the approval of counsel for the Bank with respect to such
compliance. The Plan Administrators may also require an employee to whom an
option has been granted ("Optionee") to furnish evidence satisfactory to the
Bank, including a written and signed representation letter and consent to be
bound by any transfer restrictions imposed by law, legend, condition or
otherwise, that the shares are being purchased only for investment purposes and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule or regulation. Further, each Optionee shall
consent to the imposition of a legend on the shares of Common Stock subject to
his or her option restricting their transferability as may be required by law or
by this Section 8.
<PAGE>
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SECTION 9. EMPLOYMENT OF OPTIONEE. Each Optionee, if requested by the
Plan Administrators, must agree in writing as a condition of the granting of his
or her option, to remain in the employment of the Bank, or its parent or any of
its subsidiaries or affiliates following the date of the granting of that option
for a period specified by the Plan Administrators, which period shall in no
event exceed three years. Nothing in the 1996 Plan or in any option granted
thereunder shall confer upon any Optionee any right to continued employment by
the Bank or any parent, subsidiary or other affiliate thereof, or limit in any
way the right of the Bank or any parent, subsidiary or other affiliate thereof,
at any time to terminate or alter the terms of that employment.
SECTION 10. OPTION RIGHTS UPON TERMINATION OF EMPLOYMENT. If any Optionee
under this Compensatory Plan ceases to be a director of, or employed by, the
Bank, its parent, or any of its subsidiaries or other affiliates, for any reason
other than disability or death, his or her option shall immediately terminate;
provided, however, that the Plan Administrators may, in their discretion, allow
the option to be exercised, to the extent exercisable on the date of termination
of appointment as a director or employment, at any time within three months
after the date of termination of appointment as a director or employment, unless
either the option or this Compensatory plan otherwise provides for earlier
termination.
SECTION 11. OPTION RIGHTS UPON DISABILITY. If an Optionee becomes
disabled (as such term is defined in the PRIRC or the regulations thereunder or,
in the absence of such a definition therein, in Section 22(e)(3) of the Code)
while employed by, the Bank, or any parent, subsidiary or other affiliate
thereof, the Plan Administrators, in their discretion, may allow the option to
be exercised, to the extent exercisable on the date of termination of
employment, at any time within one year after the date of termination of
employment due to disability, unless either the option or this Compensatory Plan
otherwise provides for earlier termination.
SECTION 12. OPTION RIGHTS UPON DEATH OF OPTIONEE. Except as otherwise
limited by the Plan Administrators at the time of the grant of an option, if an
Optionee dies while a director of, or employed by, the Bank, its parent, or any
of its subsidiaries or other affiliates, his or her option shall expire one year
after the date of death unless by its terms it expires sooner. During this one
year or shorter period, the option may be exercised, to the extent that it
remains unexercised on the date of death, by the person or persons to whom the
Optionee's rights under the option shall pass by will or by the laws of descent
and distribution, but only o the extent that the Optionee is entitled to
exercise the option at the date of death.
<PAGE>
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SECTION 13. OPTIONS NOT TRANSFERABLE. Options granted pursuant to the
terms of this Compensatory Plan may not be sold, pledged, assigned or
transferred by the Optionee in any manner otherwise than by will or the laws of
descent or distribution and may be exercised during the lifetime of an Optionee
only by that Optionee.
SECTION 14. ADJUSTMENTS TO NUMBER AND PURCHASE PRICE OF OPTIONED SHARES.
All options granted pursuant to the terms of this Compensatory Plan shall be
adjusted in the manner prescribed by Article 6 of the General Provisions of the
1996 Plan.
<PAGE>
ORIENTAL FINANCIAL GROUP INC. REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ORIENTAL FINANCIAL GROUP INC. FOR USE ONLY AT THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON OCTOBER 21, 1997 AND ANY ADJOURNMENT
THEREOF.
The undersigned, being a stockholder of the Oriental Financial Group Inc.
(the "Corporation"), hereby authorizes the Board of Directors or any successors
in their respective positions, as proxies with full powers of substitution, to
represent the undersigned at the Annual Meeting of Stockholders of the
Corporation to be held at Conference Room 9-A, McConnell Valdes offices, 270
Munoz Rivera Avenue, 9th Floor, Hato Rey, Puerto Rico, on Tuesday, October 21,
1997 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
FOR all nominees listed WITHHOLD AUTHORITY
/ / below (except as marked / / to vote for all nominees
to the contrary below) listed below
To serve until the 2000 Annual Meeting: Mr. Jose E. Fernandez, Mr. Efrain
Archilla and Julian Inclan.
(INSTRUCTIONS: To withhold authority to vote or to cumulate the votes for one
or more of the above nominee(s), write the name of the nominee(s) and the manner
in which such votes shall be cumulated in the space provided below.)
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2. PROPOSAL TO CONSIDER AND APPROVE THE ADOPTION OF THE ORIENTAL BANK AND
TRUST 1996 INCENTIVE STOCK OPTION PLAN, WHICH PLAN WOULD, UPON APPROVAL,
RESERVE FOR ISSUANCE 630,000 SHARES, OR APPROXIMATELY 8.0% OF THE
CORPORATION'S ISSUED AND OUTSTANDING COMMON STOCK AS OF THE VOTING RECORD
DATE OF SEPTEMBER 15, 1997, FOR ISSUANCE PURSUANT TO THE TERMS THEREOF.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICE WATERHOUSE AS THE CORPORATION'S
INDEPENDENT AUDITORS FOR FISCAL 1998.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
In their discretion, the proxies are authorized to vote the proxy with
respect to the approval of the minutes of the last meeting of stockholders, the
election of any person as director if any nominee is unable to serve or for good
cause will not serve, matters incident to the conduct of the Annual Meeting or
such other business as may properly come before the meeting. Except with
respect to procedural matters incident to the conduct of the Annual Meeting,
management at present knows of no other business to be brought before the Annual
Meeting.
SHARES OF COMMON STOCK OF THE CORPORATION WILL BE VOTED AS SPECIFIED. IN
THE ABSENCE OF ANY EXPRESS INDICATION THAT THE SHARES TO BE VOTED SHOULD BE
CUMULATED IN A PARTICULAR FASHION, THE VOTES REPRESENTED BY EXECUTED PROXIES
WILL BE DISTRIBUTED EQUALLY AMONG THE THREE NOMINEES DESIGNATED BY THE BOARD OF
DIRECTORS OR IN SUCH OTHER MANNER AS WILL MOST LIKELY ENSURE THE ELECTION OF THE
NOMINEES. IF NO SPECIFICATION IS MADE ABOVE, SHARES WILL BE VOTED FOR THE
ELECTION OF THE NOMINEES IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3. THIS PROXY
CANNOT BE VOTED FOR ANY PERSON WHO IS NOT A NOMINEE OF THE BOARD OF DIRECTORS OF
THE CORPORATION.
<PAGE>
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The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders of Oriental Financial Group Inc. called for October 21, 1997 and
a Proxy Statement for the Annual Meeting prior to the signing of this proxy.
Date: , 1997
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Signatures
Please sign exactly as your name(s) appear(s)
on this proxy. When signing in a
representative capacity, please give title.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN
THIS PROXY CARD USING THE ENCLOSED ENVELOPE.
