<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-119c) or Rule 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 14a6(i)(11)
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:
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(4) Date Filed:
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<PAGE>
PRELIMINARY PROXY MATERIALS
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 26, 1998
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 Monday, October 26, 1998 at 10:00 a.m. for the following purposes, all
of which are more completely set forth in the accompanying Proxy Statement:
(1) To elect two directors to three-year terms expiring with the 2001 Annual
Meeting or until their successors have been elected and qualified;
(2) To consider and approve the adoption of the Oriental Financial Group 1998
Incentive Stock Option Plan, which plan would, upon approval, reserve for
issuance 750,000 shares of the Corporation's common stock par value $1.00
per share, or approximately 5.7% of the Corporation's issued and
outstanding common stock as of the voting record date of September 10, 1998
(taking into consideration the effect of a four-for-three stock split that
is payable on October 15, 1998 to stockholders of record as of
September 30, 1998), for issuance pursuant to the terms thereof;
(3) To amend Article Fourth of the Certificate of Incorporation of the
Corporation to increase the authorized number of shares of common stock,
par value $1.00 per share, from 20,000,000 to 40,000,000;
(4) To ratify the appointment of Pricewaterhouse Coopers LLP as the
Corporation's independent auditors for the fiscal year ending June 30,
1999; and
(5) 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
10, 1998 are entitled to notice of and to vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Jose E. Fernandez
Chairman
September 26, 1998
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.
<PAGE>
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 MONDAY, OCTOBER 26, 1998
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 Monday, October 26, 1998 (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 26, 1998.
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 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 10, 1998
(the "Voting Record Date") will be entitled to vote at the Annual Meeting. On
the Voting Record Date, there were 10,154,358 shares of Common Stock issued and
outstanding (including 271,700 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 9,882,658.
<PAGE>
-3-
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 Corporation's 1998 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: Amendment to Article Fourth of
the Certificate of Incorporation 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 4:
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, 3 and 4
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. Emilio Rodriguez, Jr. and Alberto Richa Angelini have been
nominated as directors for three-year terms expiring in 2001.
Unless otherwise directed, each proxy executed and returned by a
stockholder will be distributed equally between the two 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 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.
<PAGE>
-4-
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" PROPOSAL 1 TO ELECT THE TWO 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 two directors being
considered at this Annual Meeting, a stockholder owning 1,000 shares of
Common Stock is entitled to 2,000 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 two 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 person or
entity known to the Corporation to be the beneficial owner of 5% or more of
Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP AS PERCENT OF
BENEFICIAL OWNER OF SEPTEMBER 10, 1998(1) COMMON STOCK
- ---------------- ------------------------ ------------
<S> <C> <C>
Jose E. Fernandez 1,891,925(2) 18.9%
1717 Lilas San Francisco
San Juan, Puerto Rico 00927
</TABLE>
- ------------------------
(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 112,948 shares
that may be received upon the exercise of stock options. While
Mr. Fernandez may be deemed to beneficially own the 112,948 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 stock option plans of the
Bank, 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". The
amount also includes 4,000 shares owned by Mr. Fernandez's spouse, 1,000
shares owned by Mr. Fernandez's youngest son, 1,734 shares owned by
Mr. Fernandez through the Bank's 401K Plan (as such term is defined herein)
and 228 shares owned indirectly through commingled investment funds.
The number of outstanding shares of Common Stock owned beneficially by the
directors, named executive officers (as such term is defined herein) and other
executive officers of the Corporation as of September 10, 1998 is as follows:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP(1) PERCENTAGE OF
- ---- AS OF SEPTEMBER 10, 1998 COMMON STOCK(2)
------------------------ ---------------
<S> <C> <C>
DIRECTORS
Dr. Pablo I. Altieri(3) 79,178 --
Efrain Archilla 2,498 --
Jose E. Fernandez(4) 1,891,925 18.9%
Julian Inclan(5) 36,664 --
</TABLE>
<PAGE>
-5-
<TABLE>
<S> <C> <C>
Diego Perdomo, CPA(6) 157,073 1.6%
Alberto Richa Angelini(7) 12,446 --
Emilio Rodriguez, Jr.(8) 53,615 --
EXECUTIVE OFFICERS
Eli E. Diaz 12,393 --
Jose Rafael Fernandez(9) 21,321 --
George Joyner(10) 16,867 --
Andres Morgado, CPA(11) 59,875 --
Andres Muniz(12) 16,206 --
Ricardo Ramos, CPA(13) 57,548 --
Dennis Soto(14) 131,718 1.3%
Rafael Valladares, CPA 2,400 --
</TABLE>
- ------------------------
(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. Altieri includes 138 shares owned
indirectly through a commingled investment fund.
(4) The amount set forth in the table for Mr. Fernandez includes 112,948 shares
that may be received upon the exercise of stock options. While
Mr. Fernandez may be deemed to beneficially own the 112,948 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 stock option plans of the
Bank, 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". This
amount also includes 4,000 shares owned by Mr. Fernandez's spouse,
1,000 shares owned by Mr. Fernandez's youngest son, 1,734 shares owned by
Mr. Fernandez through the Bank's 401K Plan and 228 shares owned indirectly
through commingled investment funds.
(5) The amount set forth in the table for Mr. Inclan includes 138 shares owned
indirectly through a commingled investment fund.
(6) The amount set forth in the table for Mr. Perdomo includes 138 shares owned
indirectly through a commingled investment fund.
(7) The amount set forth in the table for Mr. Richa Angelini includes
128 shares owned indirectly through a commingled investment fund.
(8) The amount set forth in the table for Mr. Rodriguez includes 138 shares
owned indirectly through a commingled investment fund.
(9) The amount set forth in the table for Mr. Jose Rafael Fernandez includes
4,196 shares of Common Stock owned through the Bank's 401K Plan.
(10) The amount set forth in the table for Mr. Joyner includes 617 shares of
Common Stock owned through the Bank's 401K Plan.
(11) The amount set forth in the table for Mr. Morgado includes 3,029 shares of
Common Stock owned through the Bank's 401K Plan.
(12) The amount set forth in the table for Mr. Muniz includes 1,306 shares of
Common Stock owned through the Bank's 401K Plan.
(13) The amount set forth in the table for Mr. Ramos includes 493 shares of
Common Stock owned through the Bank's 401K Plan.
(14) The amount set forth in the table for Mr. Soto includes 714 shares of
Common Stock owned through the Bank's 401K Plan and options to purchase
750 additional shares of Common Stock that are exercisable within 60 days
of the Voting Record Date.
As of the Voting Record Date, all directors, nominees for director, named
executive officers and other executive officers of the Corporation as a group
(15 persons) beneficially owned 2,438,037 shares or approximately
<PAGE>
-6-
24.7% of the outstanding Common Stock, excluding outstanding stock options.
If Mr. Fernandez purchased all 112,948 shares subject to outstanding options
and Mr. Soto exercised his options to purchase 750 shares of Common Stock,
which options may be exercised within 60 days of the Voting Record Date, the
directors, nominees for director, named executive officers and other
executive officers as a group would beneficially own 2,551,735 shares or
approximately 25.5% 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 2001
EMILIO RODRIGUEZ, JR. (Age 50)--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 58)--Director since 1990 (including terms as
Director of the Bank). He has been Director of Development for Empresas
Fonalledas in San Juan, Puerto Rico since February 1998. He worked as a
consulting engineer for Resort Builders, S.E. (a construction company) in
Isla Verde, Puerto Rico from February 1996 to February 1998. 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 54)--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 64)--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) in San Juan, Puerto Rico
since 1968.
DIRECTORS WHOSE TERM EXPIRES IN 2000
JOSE E. FERNANDEZ (Age 55)--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 45)--Director since 1991 (including terms as
Director of the Bank). He is President and General Manager of WYQE-FM,
Radio Yunque 93 FM in Naguabo and Fajardo, Puerto Rico since 1994. 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
<PAGE>
-7-
and Vice President and Treasurer of Ochoa Broadcasting Corp. and Radio
Oriental, Inc. from September 1975 to December 1994. He also served as
President of the Puerto Rico Broadcasters Association from 1988 until
1992, and currently is the organization's Vice President, President of
the Puerto Rico Numismatic Society from 1983 to 1984, President of the
Eastern Region Arts and Culture Foundation and the Humacao Chapter of
the Puerto Rico Chamber of Commerce in 1992, and President of the Humacao
Rotary Club in 1995, among others. Mr. Archilla continues to be an
active member of all those organizations and enterprises, all of which
are located in Humacao, Puerto Rico, except as noted.
JULIAN INCLAN (Age 50)--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.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following information is supplied with respect to the named executive
officers and other 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 52)--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 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.
JOSE RAFAEL FERNANDEZ (AGE 35)--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 Financial
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. He was recently appointed member of the Board of
Trustees of the Sacred Heart University in San Juan, Puerto Rico.
GEORGE JOYNER (AGE 41)--Senior Vice President of the Corporation since June
1996. Senior Vice President of Oriental Mortgage Corporation, the Bank's
mortgage subsidiary, since January 1998. Senior Vice President of Mortgage
Origination 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.
<PAGE>
-8-
ANDRES MORGADO, CPA (AGE 39)--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. Mr. Morgado is a
certified financial planner and personal financial specialist. He is also
a member of the American Institute of Certified Financial Planners and the
International Society of Financial Planners.
ANDRES MUNIZ, (AGE 42)--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)--Former Senior Vice President of the
Corporation from June 1996 to June 1998. Former Senior Vice President of
Finance of the Bank from May 1995 to June 1998. 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.
DENNIS SOTO, (AGE 61)--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.
RAFAEL VALLADARES, CPA (AGE 41)--Senior Vice President-Controller of the
Corporation and the Bank since June 1998. Previously was Senior Vice
President-Controller of PonceBank in Ponce, Puerto Rico from February 1985
to June 1998. Senior Auditor of Deloitte and Touche (formerly Deloitte,
Haskins and Sells) from 1978 to 1984. Mr. Valladares is also a certified
public accountant.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Corporation held 10 meetings during the
fiscal year ended June 30, 1998. The Board of Directors of the Bank held 14
meetings during the fiscal year ended June 30, 1998. The Corporation and the
Bank have a standing audit committee and the Bank has standing compensation,
credit, trust and real estate committees as described below. During fiscal
year 1998, directors received a fee of $500 for each Board of Directors
meeting attended and $200 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
1998 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
<PAGE>
-9-
Internal Audit Manager of the Bank. The Audit Committee met 4 times during
the fiscal year ended June 30, 1998.
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 various stock option plans of the Bank 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 2 times during the
fiscal year ended June 30, 1998.
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 and executive officers of the Bank.
Those loan applications 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, 1998.
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 22 times during the
fiscal year ended June 30, 1998.
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 Committee are
Messrs. Jose E. Fernandez, Pablo Altieri, Emilio Rodriguez, Jr., Jose Rafael
Fernandez, Andres Morgado, Ruben Rodriguez, Robert Van Kirk, and Ms. Angeles
Torres-Sanchez. Mr. 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. Robert Van
Kirk is Of Counsel at the Law Firm McConnell Valdes. The Trust Committee met
8 times during fiscal year ended June 30, 1998.
The Board of Directors 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, the four most highly
paid executive officers of the Corporation or its subsidiaries who were serving
as executive officers at the end of the fiscal year ended June 30, 1998 and one
former executive officer of the Corporation who served as executive officer
during a period of the fiscal year ended June 30, 1998 (the "named executive
officers").
<PAGE>
-10-
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)*
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jose E. Fernandez 1998 310,000 345,000 34,000
President and Chief 1997 290,000 320,000 34,000
Executive Officer 1996 275,000 320,000 30,000
Andres Morgado 1998 98,600 120,000 30,000
Senior Vice President 1997 82,300 85,000 30,000
and Trust Officer 1996 76,000 80,000 30,000
George Joyner 1998 95,900 95,000 30,000
Senior Vice President 1997 93,000 90,000 30,000
Mortgage and Leasing 1996 87,000 85,000 30,000
Eli E. Diaz 1998 86,800 95,000 29,000
Senior Vice President 1997 84,000 85,000 28,000
Branch Administration and 1996 84,000 65,000 28,000
Consumer Loans
Jose Rafael Fernandez 1998 78,750 90,000 27,000
Senior Vice President 1997 76,000 77,000 24,000
and Principal of Oriental 1996 67,750 75,000 22,000
Financial Services
Ricardo Ramos 1998 100,700 120,000 30,000
Former Senior Vice President 1997 93,000 90,000 30,000
Finance and Administration 1996 88,500 85,000 30,000
</TABLE>
- --------------------
* 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 were 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 Bank'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 grants: (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, 1998, 26 key
employees, including executive officers, were participating 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, the Bank's Board of Directors 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 during the fiscal year ended June 30, 1998.
1996 STOCK OPTION PLAN
The Board of Directors of the Bank adopted the Oriental Bank and Trust
1996 Incentive Stock Option Plan (the "1996 Plan") in order 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 stockholders of the Corporation approved the 1996 Plan at the 1997
Annual Meeting of Stockholders.
Two kinds of options, evidenced by two plans, are contained in the 1996
Plan and are available for grants: (i) qualified incentive 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 (ii)
compensatory incentive stock options (Part II). The 1996 Plan is being
administered by the Bank's Compensation Committee (the "1996 Plan
Administrators"), who 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 shall be subject. In the case of all of the options
that have been granted to date under the 1996 Plan, the 1996 Plan
Administrators established as a restriction to the vesting of such options
that the Bank have certain minimum amounts of "consolidated net income" by
the end of a certain time period. For example, in the case of options
granted in November 1996 to a total of 75 officers and other employees of the
Bank, the 1996 Plan Administrators
<PAGE>
-12-
established a requirement that such options would only be exercisable if the
Bank's consolidated net income for the fiscal year ending June 30, 1999
equals or exceeds $25,000,000. Said requirement may be waived by the 1996
Plan Administrators in their sole discretion, but only if the Bank's
"consolidated net income" for such fiscal year equals at least 90% of the
minimum stated amount.
All options granted under the 1996 Plan and all rights thereunder expire
on the date determined by the 1996 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. 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 at the time 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
1996 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 1996 Plan Administrators. One or more
options may 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 granted) of 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.
The table below provides information regarding the options granted to the
Corporation's named executive officers during the fiscal year ended June 30,
1998 under the 1996 Plan:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUES
AT ASSUMED ANNUAL RATES OF
STOCK APPRECIATION
---------------------------
OPTIONS PERCENT OF TOTAL BASE EXPIRATION
NAME GRANTED OPTIONS GRANTED PRICE DATE 50% 10%
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Eli E. Diaz 10,000 3.8% $22.50 July 2007 $141,501 $358,592
Jose E. Fernandez 10,000 3.8% $22.50 July 2007 $141,501 $358,592
Jose R. Fernandez 10,000 3.8% $22.50 July 2007 $141,501 $358,592
George Joyner 10,000 3.8% $22.50 July 2007 $141,501 $358,592
Andres Morgado 10,000 3.8% $22.50 July 2007 $141,501 $358,592
</TABLE>
The table below provides additional information regarding option exercises
and unexercised option holdings for the Corporation's named executive officers
during the fiscal year ended June 30, 1998.
<PAGE>
-13-
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SAR'S AT OPTIONS/SAR'S AT
FISCAL YEAR END FISCAL YEAR END
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE (#) UNEXERCISABLE ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eli E. Diaz 9,375 348,398 0/33,125 0/765,984
Jose E. Fernandez 43,797 1,236,541 112,948/152,365 3,551,518/4,295,734
Jose R. Fernandez 6,750 213,572 0/26,000 0/534,450
George Joyner 12,050 324,675 0/36,749 0/836,129
Andres Morgado 5,333 162,141 0/27,125 0/576,834
Ricardo Ramos 16,610 504,704 0/0 0/0
</TABLE>
EMPLOYMENT AGREEMENTS
In September 1996, the Bank and Mr. Jose E. Fernandez entered into an
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 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
<PAGE>
-14-
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, 1998,
he would have been entitled to a severance payment of approximately $2,067,000.
If Mr. Fernandez had terminated his employment for good reason as of June 30,
1998, he would have been entitled to a severance payment of approximately
$1,378,000. 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 $8,000,
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 1998 the Bank
contributed to the 401K Plan 4,186 shares of Common Stock valued at $144,300 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
$810, 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 1998 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. 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, 1998 between the Bank and certain directors
and executive officers of the Corporation and the Bank 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 the Bank and persons related to or affiliated with such
persons is non-performing.
<PAGE>
-15-
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.
PERFORMANCE GRAPH
The stock performance graph below compares the cumulative total
shareholder return of the Corporation's Common Stock from June 30, 1993 to
June 30, 1998 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 PROXY STATEMENT COMPARATIVELY SHOWS THE VALUE OF
$100 INVESTED ON JUNE 30, 1993 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:
<TABLE>
<CAPTION>
ORIENTAL FINANCIAL S&P 500 S&P FINANCIAL
<S> <C> <C> <C>
6/30/93 100 100 100
6/30/94 169 101 101
6/30/95 180 128 121
6/30/96 231 161 162
6/30/97 423 217 247
6/30/98 701 282 343]
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
<PAGE>
-16-
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 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 1998, 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.
PROPOSAL 2: ADOPTION OF CORPORATION'S 1998 STOCK OPTION PLAN
GENERAL
The Board of Directors of the Corporation adopted on August 18, 1998 the
Oriental Financial Group 1998 Incentive Stock Option Plan (the "1998 Plan"),
which is designed to help attract and retain qualified selected officers and
other key personnel of the Corporation and any subsidiary thereof and provide
such officers and key personnel with an additional incentive to contribute to
the success of the Corporation and any subsidiary thereof. The 1998 Plan
provides for the grant of stock options to officers, directors and other
full-time, key employees of the Corporation or any subsidiary thereof. The
1998 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 1998 Plan will satisfy certain
New York Stock Exchange market listing and Puerto Rico tax requirements.
An aggregate of 750,000 shares of Common Stock has been reserved for
future issuance under the 1998 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 750,000
shares of Common Stock represent approximately 5.7% of the Corporation's
issued and outstanding common stock as of the Voting Record Date (taking into
consideration the effect of a four-for-three stock split that is payable on
October 15, 1998 to stockholders of record as of September 30, 1998). The
1998 Plan shall remain in effect for a term of ten (10) years from the date
of adoption by the Corporation's Board of Directors unless sooner terminated
in accordance with the provisions of the 1998 Plan. No options may be
granted after the date of termination of the 1998 Plan, but such termination
will not affect the rights or obligations of persons holding options granted
under the 1998 Plan prior to its termination.
The 1998 Plan will be administered by the Corporation's Compensation
Committee (the "1998 Plan Administrators"), which will be a committee of
three members of the Corporation's Board of Directors, none of the members of
which will be an officer or full-time employee of the Corporation or any
subsidiary thereof. The 1998 Plan Administrators are given absolute
discretion under the 1998 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. Two kinds of options, evidenced by two separate plans, are
contained in the 1998 Plan and are available for grants: (i) qualified
incentive options (Part I), and (ii) compensatory incentive options (Part
II). It is contemplated that the 1998 Plan will be used by the Corporation
to grant options during the fiscal years 2000 to 2003.
DESCRIPTION OF THE 1998 PLAN
The following description of the 1998 Plan is a summary of its terms and
is qualified in its entirety by reference to the 1998 Plan, a copy of which
is attached hereto as APPENDIX A.
STOCK OPTIONS. One or more options may be granted under the 1998 Plan
to any eligible person provided that in any calendar year the aggregate fair
market value (determined as of the time the option is 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 1998 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
<PAGE>
-17-
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 1998 Plan and all rights thereunder expire
on the date determined by the 1998 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 1998 Plan shall
become vested and exercisable at the rate determined by the 1998 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 1998 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 1998 Plan shall be as determined by the 1998 Plan
Administrators at the time of the grant. Each option granted under the 1998
Plan shall be exercisable in one or more installments during its term, and
the right to exercise may be cumulative as determined by the 1998 Plan
Administrators. Payment for shares purchased upon the exercise of options
under the 1998 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 1998 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
Corporation or any subsidiary thereof; provided that the 1998 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 Corporation or
any subsidiary thereof. If an optionee becomes disabled while employed by
(or as a director of) the Corporation or any subsidiary thereof, the 1998
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 Corporation or any 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 Corporation or any 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 Corporation or
in the event of certain "changes in control" of the Corporation, all options
granted under the 1998 Plan shall become immediately exercisable
notwithstanding any existing installment limitation.
Options granted under the 1998 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 1998 Plan Administrators may at any time amend or
otherwise revise the terms of the 1998 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 1998 Plan, (ii)
change the minimum purchase price for shares to be sold upon the exercise of
options granted under Part I of the 1998 Plan; (iii) increase the maximum
term established under the 1998 Plan for any option; and (iv) permit the
granting of an option to any person other than as provided in the 1998 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 1998 Plan are intended to qualify as such) does 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,
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be the amount paid for the shares by the optionee. The Corporation 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 Corporation 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 1998 Plan
currently requires any charge against earnings under generally accepted
accounting principles. In certain circumstances, shares issuable pursuant to
outstanding options under the 1998 Plan might be considered outstanding for
purposes of calculating earnings per share.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 2.
PROPOSAL 3: AMENDMENT TO ARTICLE FOURTH OF CERTIFICATE
OF INCORPORATION
The Board of Directors recommends the amendment of Article Fourth of the
Corporation's Certificate of Incorporation in the manner shown in APPENDIX B
hereto. The proposed amendment to Article Fourth would change the number of
authorized shares of the Corporation's Common Stock, par value $1.00 per
share, from twenty million (20,000,000) to forty million (40,000,000) shares.
This change would be effective upon the date of filing of the Amendment to
the Certificate of Incorporation with the Department of State of the
Commonwealth of Puerto Rico.
The Board of Directors believes that it is in the best interest of the
Corporation and its stockholders that the Corporation have a sufficient
number of authorized but unissued shares of Common Stock available for
possible use in future acquisition and expansion opportunities that may
arise, for general corporate needs such as future stock dividends or stock
splits and for issuance in connection with existing and future stock option
plans, and for other proper purposes within the limitations of the law, as
determined by the Board of Directors. The Corporation has no current plans
to use its authorized but unissued shares of Common Stock, par value $1.00
per share, for any particular purpose. Such shares would be available for
issuance without further action by the shareholders, except as otherwise
limited by applicable law.
If additional shares of Common Stock are issued by the Corporation, it
may potentially have an anti-takeover effect by making it more difficult to
obtain shareholders' approval of various actions, such as a merger. Also,
the issuance of additional shares of Common Stock may have a dilutive effect
on earnings per share and equity, and may have a dilutive effect on the
voting power of existing shareholders given that there are no preemptive
rights. The terms of any Common Stock issuance will be determined by the
Corporation's Board of Directors, and will depend upon the reason for the
issuance and largely on market conditions and other factors existing at the
time. The increase in authorized shares of Common Stock has not been
proposed in connection with any anti-takeover related purpose and the Board
of Directors and management have no knowledge of any current efforts by
anyone to obtain control of the Corporation or to effect large accumulations
of the Corporation's Common Stock.
The resolutions attached to this Proxy Statement as APPENDIX B will be
submitted for adoption at the Annual Meeting of Shareholders. The affirmative
vote of a majority of the holders of shares of Common Stock, par value $1.00 per
share, of the Corporation is necessary to adopt the proposed amendment to
Article Fourth of the Certificate of Incorporation. Proxies will be voted for
the resolutions unless otherwise instructed by the
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stockholders. Abstentions and shares not voted by brokers and other entities
holding shares on behalf of beneficial owners will have the same effect as
votes cast against the proposed Amendment.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 3.
PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Corporation has appointed Pricewaterhouse
Coopers LLP as independent auditors of the Corporation for the fiscal year
ending June 30, 1999, 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 Pricewaterhouse Coopers LLP
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.
Pricewaterhouse Coopers LLP 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 4.
STOCKHOLDER PROPOSALS
Stockholder's proposals intended to be presented at the 1999 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 30, 1999 for inclusion in the Corporation's Proxy
Statement and Form of Proxy relating to the 1999 Annual Meeting of
Stockholders and in order to be considered at such 1999 Annual Meeting.
ANNUAL REPORTS
A copy of the Corporation's Annual Report to Stockholders for the year
ended June 30, 1998 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, 1998, 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 26, 1998
<PAGE>
APPENDIX A
ORIENTAL FINANCIAL GROUP
1998 INCENTIVE STOCK OPTION PLAN
1. PURPOSE. The Oriental Financial Group 1998 Incentive Stock Option
Plan (the "1998 Plan") is intended to secure for Oriental Financial Group
Inc. (the "Corporation"), its subsidiaries and its stockholders, the benefits
arising from ownership of the Corporation's common stock, par value $1.00 per
share (the "Common Stock"), by those selected officers and other key
employees of the Corporation and its subsidiaries who will be responsible for
its future growth. The 1998 Plan is designed to help attract and retain
superior personnel for positions of substantial responsibility with the
Corporation and its subsidiaries, and to provide these key employees with an
additional incentive to contribute to the success of the Corporation and its
subsidiaries.
2. ELEMENTS OF THE 1998 PLAN. In order to maintain flexibility in the
award of stock benefits, the 1998 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 1998 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 1998 PLAN
ARTICLE 1. ADMINISTRATION. The 1998 Plan shall be administered by a
committee appointed by the Board of Directors of the Corporation, none of the
members of which shall be a full-time officer or employee of the Corporation
or any of its subsidiaries. The committee, when acting to administer the
1998 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 Corporation or its subsidiaries, shall be liable
for any action or determination made in good faith with respect to the 1998
Plan or to any option granted thereunder.
ARTICLE 2. AUTHORITY OF PLAN ADMINISTRATORS. Subject to the other
provisions of this 1998 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 1998 Plan; (b) to define the terms used
herein; (c) to prescribe, amend, and rescind rules and regulations relating
to the 1998 Plan; (d) to determine the employees to whom options shall be
granted under the 1998 Plan; (e) to determine the time or times at which
options shall be granted under the 1998 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 1998 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 1998 Plan; and (i) to make any other
determinations necessary or advisable for the administration of the 1998 Plan
and do everything necessary or appropriate to administer the 1998 Plan. All
decisions, determinations, and interpretations made by the Plan
Administrators shall be binding and conclusive on all participants in the
1998 Plan and on their legal representatives, heirs and beneficiaries.
ARTICLE 3. MAXIMUM NUMBER OF SHARES SUBJECT TO THE 1998 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
750,000 shares. If any of the options granted under this 1998 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 1998 Plan.
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ARTICLE 4. ELIGIBILITY AND PARTICIPATION. Regular full-time employees
of the Corporation or of 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 1998
Plan.
ARTICLE 5. EFFECTIVE DATE AND TERM OF 1998 PLAN. The 1998 Plan shall
become effective upon its adoption by the Board of Directors of the
Corporation, and shall be subsequently submitted to the stockholders of the
Corporation 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 1998 Plan by the Corporation's Board of Directors; provided,
however, that options may be granted under this 1998 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 1998 Plan shall continue in effect for a term of 10 years
unless sooner terminated in accordance with the provisions hereof.
ARTICLE 6. ADJUSTMENTS. If the shares of Common Stock of the
Corporation 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 1998 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 1998 PLAN. The 1998 Plan shall
terminate no later than 10 years from the date of its adoption by the Board
of Directors, or the date such 1998 Plan is approved by the stockholders,
whichever is earlier. No options shall be granted under the 1998 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 1998 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 1998 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 1998 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 1998 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
Corporation pursuant to a merger, consolidation, separation, reorganization,
liquidation, or other transaction, where persons that were stockholders of the
Corporation 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 of such
transaction, and such acquiring or surviving entity assumes the Corporation's
obligations under options granted pursuant to the 1998 Plan, then all references
in the 1998 Plan to the Corporation, or to shares of common stock of the
Corporation, 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 1998 Plan, no employee
shall have any of the rights or privileges of a stockholder of the Corporation
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
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A-3
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 Corporation,
during the term of this 1998 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 1998 Plan. In addition, the Corporation will
from time to time, as is necessary to accomplish the purposes of this 1998
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 Corporation to obtain from any regulatory
agency having jurisdiction the authority deemed by the Corporation's counsel
to be necessary to the lawful issuance and sale of any shares of its stock
hereunder shall relieve the Corporation 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 1998 Plan is subject to the condition that if at any time the Corporation
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 Corporation.
ARTICLE 13. EMPLOYMENT. Nothing in the 1998 Plan or in any option
shall confer upon any eligible employee any right to continued employment by
the Corporation or any of its subsidiaries, or limit in any way the right of
the Corporation or its subsidiaries 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 Corporation by permitting the
Corporation to grant options to purchase shares of its Common Stock to
selected directors, officers and other full-time, key employees of the
Corporation or of any subsidiary thereof. This Qualified Plan is designed to
help attract and retain superior personnel for positions of responsibility
with the Corporation and its subsidiaries, and to provide key employees with
an additional incentive to contribute to the success of the Corporation and
its subsidiaries. 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 Corporation's 1998 Plan. Unless any
provision herein indicates to the contrary, this Qualified Plan shall be
subject to the General Provisions of the 1998 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 1998 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
Common Stock on that
<PAGE>
A-4
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
Corporation. 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 Corporation or of any
subsidiary thereof, during any calendar year (under the terms of this
Qualified Plan and other qualified stock option plans of the Corporation and
any 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 Corporation 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 Corporation or its stockholders enter into an agreement to
dispose of all or substantially all of the assets or stock of the Corporation
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 Corporation 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
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 1998
Plan. In the event the transaction contemplated by the agreement referred to
in this Section 7 is not consummated, but rather is terminated, canceled 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 Corporation or a threatened
change in control of the Corporation as determined by a vote of not less than
a majority of the Board of Directors of the Corporation, 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 Corporation 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 Corporation, the full Board of Directors of
the Corporation 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 Corporation at its principal office by
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A-5
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
Corporation.
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 Corporation with respect
to such compliance. 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 Corporation, 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 Corporation, or any subsidiary of the
Corporation, 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 1998 Plan or in any option
granted thereunder shall confer upon any Optionee any right to continued
employment by the Corporation, or any of its subsidiaries, or limit in any
way the right of the Corporation or any of its subsidiaries 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 Corporation, or
any 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
Corporation, or any subsidiary 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 the grant of an option, if
an Optionee dies while acting as a director or employed by the Corporation,
or any subsidiary 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.
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A-6
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
1998 Plan.
PART II.
COMPENSATORY INCENTIVE STOCK OPTION PLAN
SECTION 1. PURPOSE. The purpose of this Compensatory Plan is to permit
the Corporation to grant options to purchase shares of its Common Stock to
selected directors, officers and other full-time, key employees of the
Corporation or of any subsidiary or affiliate thereof. The Compensatory Plan
is designed to help attract and retain superior personnel for positions of
substantial responsibility with the Corporation and its subsidiaries or
affiliates, if any, and to provide key employees with an additional incentive
to contribute to the success of the Corporation. 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 Corporation's 1998 Plan. Unless any
provision herein indicates to the contrary, this Compensatory Plan shall be
subject to the General Provisions of the 1998 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.
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 1998 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 Corporation 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
Corporation or its stockholders enter into an agreement to dispose of all or
substantially all of the assets or stock of the Corporation 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 Corporation
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 1998 Plan. In the event the
transaction contemplated by the agreement referred to in this Section 6 is
not consummated, but rather is terminated, canceled 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 Corporation, or a threatened
change in control of the Corporation as determined by a vote
<PAGE>
A-7
of not less than a majority of the Board of Directors of the Corporation, 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 Corporation 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
Corporation, the full Board of Directors of the Corporation 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 Corporation 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
Corporation.
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 Corporation 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 Corporation, 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.
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 Corporation, or 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 1998 Plan or in any option granted
thereunder shall confer upon any Optionee any right to continued employment
by the Corporation or any subsidiary or other affiliate thereof, or limit in
any way the right of the Corporation or any 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 Corporation or any of its subsidiaries or 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 Corporation, or any subsidiary or 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.
<PAGE>
A-8
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 Corporation or any
of its subsidiaries or 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
qit 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 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 1998 Plan.
<PAGE>
APPENDIX B
PROPOSED AMENDMENT TO ARTICLE FOURTH
OF CERTIFICATE OF INCORPORATION
RESOLVED, that Article Fourth of the Certificate of Incorporation of
Oriental Financial Group Inc. (the "Corporation") be, and it hereby is, amended
in its entirety so that it reads as follows:
"FOURTH: The authorized capital of the Corporation shall be FORTY FIVE
MILLION DOLLARS ($45,000,000) represented by FORTY MILLION (40,000,000)
shares of common stock, $1.00 par value per share, and FIVE MILLION
(5,000,000) shares of preferred stock, $1.00 par value per share. The shares
may be issued by the Corporation from time to time as authorized by the Board
of Directors without the further approval of shareholders, except to the
extent that such approval is required by governing law, rule or regulation.
The Board of Directors is expressly authorized to provide, when it deems
necessary, for the issuance of shares of preferred stock in one or more
series, with such voting powers, full or limited, but not to exceed one vote
per share, or without voting powers; and with such designations, preferences,
rights, qualifications, limitations or restrictions thereof, as shall be
expressed in the resolution or resolutions of the Board of Directors,
authorizing such issuance, including (but without limiting the generality of
the foregoing) the following:
(a) the designation of such series, the number of shares to constitute
such series and the stated value thereof if different from the par
value thereof;
(b) the dividend rate of such series, the conditions and dates upon which
the dividends shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any other class or
classes of capital stock of the Corporation, and whether such
dividends shall be cumulative or non-cumulative;
(c) whether the shares of such series shall be subject to redemption by
Corporation, and if made subject to such redemption, the terms and
conditions of such redemption;
(d) the terms and amount of any sinking fund provided for the purchase or
redemption of the shares of such series;
(e) whether the shares of such series shall be convertible and if
provision be made for conversion, the terms of such conversion;
(f) the extent, if any, to which the holders of such shares shall be
entitled to vote; provided, however, that in no event, shall any
holder of any series of preferred stock be entitled to more than one
vote for each such share;
(g) the restrictions and conditions, if any, upon the issue or re-issue
of any additional preferred stock ranking on a parity with or prior to
such shares as to dividends or upon dissolution;
(h) the rights of the holders of such shares upon dissolution of, or upon
distribution of assets of the Corporation, which rights may be
different in the case of a voluntary dissolution; and
(i) any other powers, preferences and relative, participating, optional
and other special rights, and any qualifications, limitations and
restrictions thereof.
The powers, preferences and relative, participating, optional and other
special rights, of each series of preferred stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
preferred stock shall be identical in all respects with all other shares of
such series, except that shares of any one series issued at different times
may differ as to the dates from which dividends thereon shall accrue and/or
be cumulative."
<PAGE>
B-2
RESOLVED FURTHER, that the proper officers of the Corporation be, and
hereby are, authorized and directed to take all actions, execute all
instruments, and make all payments that are necessary or desirable, at their
discretion, to make effective the foregoing amendment to Article Fourth of
the Certificate of Incorporation of the Corporation, including, without
limitation, the filing of a certificate of amendment with the Secretary of
State of the Commonwealth of Puerto Rico.
<PAGE>
PRELIMINARY PROXY MATERIALS APPENDIX
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 26, 1998 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
Monday, October 26, 1998 at 10:00 a.m., and at any adjournment of said
meeting, and thereat to act with respect to all votes that the undersigned
would be entitled to cast, if then personally present, as follows:
1. ELECTION OF DIRECTORS
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 2001 Annual Meeting: Mr. Emilio Rodriguez, Jr. and Mr.
Alberto Richa Angelini.
(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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<PAGE>
-2-
2. PROPOSAL TO CONSIDER AND APPROVE THE ADOPTION OF THE ORIENTAL FINANCIAL
GROUP 1998 INCENTIVE STOCK OPTION PLAN, WHICH PLAN WOULD, UPON APPROVAL,
RESERVE FOR ISSUANCE 750,000 SHARES OF THE CORPORATION'S COMMON STOCK, PAR
VALUE $1.00 PER SHARE, OR APPROXIMATELY 5.7% OF THE CORPORATION'S ISSUED
AND OUTSTANDING COMMON STOCK AS OF THE VOTING RECORD DATE OF SEPTEMBER 10,
1998 (TAKING INTO CONSIDERATION THE EFFECT OF A FOUR-FOR-THREE STOCK SPLIT
THAT IS PAYABLE ON OCTOBER 15, 1998 TO STOCKHOLDERS OF RECORD AS OF
SEPTEMBER 30, 1998), FOR ISSUANCE PURSUANT TO THE TERMS THEREOF.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO AMEND ARTICLE FOURTH OF THE CERTIFICATE OF INCORPORATION OF THE
CORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK,
PAR VALUE $1.00 PER SHARE, FROM 20,000,000 TO 40,000,000.
/ / FOR / / AGAINST / / ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSE COOPERS LLP AS THE
CORPORATION'S INDEPENDENT AUDITORS FOR FISCAL 1999.
/ / 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
<PAGE>
-3-
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 TWO 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, 3 AND 4. THIS PROXY
CANNOT BE VOTED FOR ANY PERSON WHO IS NOT A NOMINEE OF THE BOARD OF DIRECTORS OF
THE CORPORATION.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders of Oriental Financial Group Inc. called for October 26, 1998 and
a Proxy Statement for the Annual Meeting prior to the signing of this proxy.
Date: _________________, 1998
----------------------------------------
----------------------------------------
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.