POPULAR, INC.
P.O. BOX 362708
SAN JUAN, PUERTO RICO 00936-2708
------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, APRIL 30, 2002
------------
To the Stockholders of Popular, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Popular, Inc. (the "Meeting") for the year 2002 will be held at 10:30 a.m. on
Tuesday, April 30, 2002, on the third floor of the Centro Europa Building, in
Santurce, Puerto Rico, to consider and act upon the following matters:
(1) To elect three (3) directors of Popular, Inc. (the "Corporation" )
for a three-year term,
(2) To ratify the selection of the Corporation's independent auditors
for 2002;
(3) To transact any and all other business as may be properly brought
before the Meeting or any adjournments thereof. Management at present
knows of no other business to be brought before the Meeting.
Stockholders of record at the close of business on March 11, 2002, are
entitled to notice of and to vote at the Meeting.
You are cordially invited to attend the Meeting. Whether you plan to
attend or not, please sign and return the enclosed proxy so that the Corporation
may be assured of the presence of a quorum at the Meeting. A postage-paid
envelope is enclosed for your convenience. REMEMBER THAT YOU CAN VOTE BY
TELEPHONE OR BY INTERNET; FOR FURTHER DETAILS PLEASE REFER TO THE ENCLOSED PROXY
CARD.
San Juan, Puerto Rico, March 18, 2002.
By Order of the Board of Directors,
SAMUEL T. CESPEDES
Secretary
CONTENTS
About the Meeting 3
Principal Stockholders 4
Shares Beneficially Owned by Directors, Nominees
and Executive Officers of the Corporation and its
Principal Subsidiaries 5
Section 16(a) Beneficial Ownership Reporting Compliance 6
Board of Directors and Committees 6
Proposal 1: Election of Directors 6
Nominees for Election as Directors 7
Standing Committees 10
Audit Committee Report 11
Compensation of Directors 12
Executive Officers 12
Family Relationships 15
Proposal 2: Ratification of Selection of Auditors 15
Executive Compensation Program -- Report of the Bank's Human
Resources and Compensation Committee
on Executive Compensation 16
Executive Compensation 17
Summary Compensation Table 17
Incentive Plans 18
Profit Sharing, Benefit Restoration, Deferred Compensation
and Retirement Plans 19
Performance Graph 21
Proposal of Security Holders to be Presented at the 2003 Annual
Meeting of Stockholders 22
2
ABOUT THE MEETING
WHO IS SOLICITING MY VOTE?
The board of directors of the Corporation is soliciting your vote at the 2002
annual meeting of Popular, Inc.'s stockholders.
WHAT WILL I BE VOTING ON?
- Election of directors (see page 6)
- Ratification of PricewaterhouseCoopers LLP as the
Corporation's auditors for 2002 (see page 15)
HOW MANY VOTES DO I HAVE?
You will have one vote for every share of the Corporation common stock (the
"common stock") you owned on March 11, 2002 (the record date).
HOW MANY VOTES CAN ALL STOCKHOLDERS CAST?
One vote for each of Popular, Inc. 136,475,530 shares of common stock that were
outstanding on the record date. The shares covered by any proxy that is
properly executed and received by management before 10:30 a.m. on the day of
the Meeting will be voted.
HOW MANY VOTES MUST BE PRESENT TO HOLD THE MEETING?
A majority of the votes that can be cast. Votes cast by proxy or in person at
the meeting will be counted by the persons appointed by the Corporation as
members of the vote-counting committee for the meeting. We urge you to vote by
proxy even if you plan to attend the annual meeting, so that we will know as
soon as possible that enough votes will be present for us to hold the meeting.
HOW DO I VOTE?
You can vote either in person at the meeting or by proxy without attending the
annual meeting.
To vote by proxy, you must either
- Fill out the enclosed proxy card, date and sign it, and
return it in the enclosed postage-paid envelope,
- Vote by telephone (instructions are on the Proxy Card, as
authorized by the Puerto Rico Corporation Law and the Bylaws
of the Corporation), or
- Vote by Internet (instructions are on the Proxy Card, as
authorized by the Puerto Rico Corporation Law and the Bylaws
of the Corporation).
If you want to vote in person at the annual meeting, and you hold your common
stock through a securities broker (that is, in street name), you must obtain a
proxy from your broker and bring that proxy to the meeting.
In addition to solicitation by mail, management may participate in the
solicitation of Proxies by telephone, personal interviews or otherwise. The
Board of Directors has engaged the firm of Georgeson & Company Inc. to aid in
the solicitation of Proxies. The cost of solicitation will be borne by the
Corporation and is estimated at $6,500.
To avoid delays in ballot taking and counting, and in order to assure that your
Proxy is voted in accordance with your wishes, compliance with the following
instructions is respectfully requested: upon signing a Proxy as attorney,
executor, administrator, trustee, guardian, authorized officer of a
corporation, or on behalf of a minor, please give full title. If shares are in
the names of more than one recordholder, all should sign.
CAN I CHANGE MY VOTE?
Yes. Just send in a new proxy card with a later date, or cast a new vote by
telephone or Internet, or send a written notice of revocation to the President
or Secretary of Popular, Inc., P.O. Box 362708, San Juan, Puerto Rico
00936-2708, delivered before the proxy is exercised. If you attend the annual
meeting and want to vote in person, you can request that your previously
submitted proxy not be used.
HOW WILL ABSTENTIONS AND BROKER NON-VOTES BE TREATED?
For purposes of determining a quorum, the members of the vote-counting
committee will treat abstentions and brokers non-votes as shares that are
present and entitled to vote. A broker non-vote results when a broker or
nominee has expressly indicated in the proxy that it does not have
discretionary authority to vote on a particular matter. As to the election of
directors, the Proxy Card being provided by the Board of Directors enables a
stockholders to vote for the election of the nominees proposed by the Board, or
to withhold authority to vote for one or more of the nominees being proposed.
The election of directors and the ratification of independent auditors will be
acted upon a majority of the vote cast. Therefore, abstentions and brokers
non-votes will not have an effect on the election of directors of the
Corporation, neither on the ratification of independent auditors.
3
COULD OTHER MATTERS BE DECIDED AT THE ANNUAL MEETING?
The Board of Directors does not intend to present any business at the Meeting
other than that described in the Notice of Meeting. The Board of Directors at
this time knows of no other matters, which may come before the Meeting.
However, if any new matter requiring the vote of the stockholders are properly
presented before the Meeting, proxies may be voted with respect thereto in
accordance with the best judgment of Proxyholders, under the discretionary
power granted by stockholders to their proxies in connection with general
matters.
WHAT HAPPENS IF THE MEETING IS POSTPONED OR ADJOURNED?
Your proxy will still be good and may be voted at the postponed or adjourned
meeting. You will still be able to change or revoke your proxy until it is
voted.
WHAT SHOULD I RECEIVE?
By now you should have received the Corporation's Annual Report, including the
financial statements for the year ended December 31, 2001, duly certified by
PricewaterhouseCoopers LLP as independent public accountants. The Proxy
Statement, the enclosed Annual Report, the Notice of Annual Meeting of
Stockholders and the form of proxy are being sent to stockholders on or about
March 18, 2002.
* * *
PRINCIPAL STOCKHOLDERS
Following is the information, to the extent known by the persons on
whose behalf this solicitation is made, with respect to any person (including
any "group" as that term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) who is known to the Corporation to be the beneficial
owner of more than five percent (5%) of the Corporation's voting securities.
Amount and nature Percent
of beneficial of
Title of Class Name and address of beneficial owner ownership(1) Class(2)
- -------------- ------------------------------------ ----------------- --------
Common Banco Popular de Puerto Rico (the "Bank")
as Trustee for the Banco Popular de Puerto
Rico Retirement Plan 5,672,860
The Bank as Trustee for the Profit Sharing Plan
for the Employees of Banco Popular de Puerto
Rico (the "Profit Sharing Plan") 5,320,208
----------
10,993,068(3) 8.0550
Common State Farm Mutual Automobile Insurance
Company 8,778,424(4) 6.4322
- ---------------
(1) As of February 28, 2002.
(2) Based on 136,475,530 shares of common stock outstanding.
(3) The Bank, as Trustee, of both Plans has sole voting and investment
power over the common stock held by the Plan. The Bank, as Plan
Administrator, administers the Plans through the Administrative
Committee.
(4) On January 25, 2002 State Farm Mutual Automobile Insurance Company
("State Farm") and affiliated entities filed a joint statement on
Schedule 13-G with the Securities and Exchange Commission reflecting
their holdings as of December 31, 2001. According to said statement,
State Farm and its affiliates might be deemed to constitute a "group"
within the meaning of Section 13(d)(3) of the Securities Exchange Act
of 1934. State Farm and its affiliates could also be deemed to be the
beneficial owners of 8,778,424 shares of the Corporation. However,
State Farm and each such affiliate disclaim beneficial ownership as to
all shares as to which each such person has no right to receive the
proceeds of sale of the shares, and also disclaim that they constitute
a "group".
4
SHARES BENEFICIALLY OWNED BY DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS OF THE
CORPORATION AND ITS PRINCIPAL SUBSIDIARIES
Following is the information, as of February 28, 2002, as to equity
securities of the Corporation beneficially owned by all current directors,
nominees, the most highly compensated Executive Officers of the Corporation and
its principal subsidiaries listed on page 17 who are not directors and the
total owned by directors, nominees and all Executive Officers of the
Corporation and such principal subsidiaries as a group:
COMMON STOCK
TITLE AMOUNT AND NATURE PERCENT OF
NAME OF CLASS OF BENEFICIAL OWNERSHIP CLASS(1)
---- -------- ----------------------- ----------
Juan J. Bermudez........................ Common 502,185 (2) .3680
Francisco J. Carreras................... Common 16,374 .0120
Jose B. Carrion Jr. .................... Common 1,014,453 (3) .7433
Richard L. Carrion...................... Common 1,119,122 (4) .8200
David H. Chafey Jr. .................... Common 95,166 .0697
Antonio Luis Ferre...................... Common 2,916,567 (5) 2.1371
Hector R. Gonzalez...................... Common 836,702 (6) .6131
Jorge A. Junquera....................... Common 72,335 (7) .0530
Manuel Morales Jr. ..................... Common 540,594 (8) .3961
Alberto M. Paracchini................... Common 114,446 (9) .0839
Francisco M. Rexach Jr. ................ Common 214,697 (10) .1573
Felix J. Serralles Jr. ................. Common 429,660 (11) .3148
Julio E. Vizcarrondo Jr. ............... Common 1,272,429 (12) .9323
Roberto R. Herencia..................... Common 13,306 .0097
Larry B. Kesler......................... Common 48,394 .0355
Carlos J. Vazquez....................... Common 106,788 (13) .0782
Silvio J. Lopez......................... Common 2,875 .0021
Guillermo L. Martinez................... Common 2,206,975 (14) 1.6171
Kenneth McGrath......................... Common 8,769 .0064
Cameron E. Williams..................... Common 663 .0055
All Directors and Executive Officers
of the Corporation and its
subsidiaries as a group
(25 persons)....................... Common 11,732,379 8.5967
- ---------------
(1) Based on 136,475,530 shares of common stock outstanding.
(2) Excludes 12,443 shares owned by his wife, as to which Mr. Bermudez
disclaims beneficial ownership.
(3) Mr. Carrion Jr. owns 708,522 shares, has voting power over 487 shares
owned by his daughter and has voting and investment power over 292,606
shares owned by Collosa Corporation which he owns. Excludes 15,808
shares owned by his wife to which he disclaims beneficial ownership.
Junior Investment Corporation owns 4,426,846 shares of the Corporation.
Mr. Carrion Jr. owns .29% of the shares of said corporation.
(4) Mr. Carrion owns 302,355 shares and also has indirect investment power
over 24,804 shares owned by his children. Junior Investment
Corporation owns 4,426,846 shares of the Corporation. Mr. Carrion owns
17.89% of the shares of said corporation.
(5) Mr. Ferre has direct or indirect investment and voting power over
2,916,567 shares of the Corporation. Mr. Ferre owns 3,505 shares and
has indirect investment and voting power over 3,200 shares owned by
South Management, Inc. and 400 shares owned by his wife. Mr. Ferre
owns 51% of Ferre Investment Fund, Inc.,
5
which owns 1,477,854 shares of the Corporation. Ferre Investment
Fund, Inc. in turn owns 90% of El Dia, Inc., which owns 1,431,608
shares of the Corporation.
(6) Mr. Gonzalez owns 807,350 shares and has voting and investment power
over 29,352 shares of the Corporation owned by Ventek Group, Inc. of
which he has control.
(7) Mr. Junquera owns 67,295 shares and has indirect investment power
over 218 shares owned by his wife and over 4,822 shares owned by his
son and daughter.
(8) Mr. Morales owns 125,594 shares and has voting power over 415,000
shares owned by his parents, as their attorney-in-fact.
(9) Excludes 1,264 shares owned by his wife, as to which Mr. Paracchini
disclaims beneficial ownership.
(10) Mr. Rexach owns 99,897 shares and has indirect voting power over
95,800 shares owned by his mother, as her attorney-in-fact, and over
19,000 shares held by Capital Assets, Inc. as President and
shareholder.
(11) Mr. Serralles owns 226,752 shares, and has indirect voting power over
10,292 shares owned by his wife. Mr. Serralles owns 100% of the shares
of Capitanejo, Inc. and Fao Investments, Inc., which own 117,020 and
5,596 shares, respectively, of the Corporation and has indirect
ownership of 70,000 shares owned by Destileria Serralles, Inc.
(12) Mr. Vizcarrondo owns 203,052 shares and has indirect voting power over
184,576 shares owned by his wife. Mr. Vizcarrondo's wife owns 18.18% of
the shares of Junior Investment Corporation, which owns 4,426,846
shares of the Corporation. Mr. Vizcarrondo has indirect voting and
investment power over 1,334 shares held in trust by Vicar Enterprises,
Inc. for the benefit of his children, for which he disclaims beneficial
ownership. Mr. Vizcarrondo also disclaims beneficial ownership over
131,278 shares owned by DMI Pension Trust, where he serves as trustee
and member of the investment committee. There are 120,000 shares
belonging to the estate of Mr. Julio Vizcarrondo, Sr., over which Mr.
Vizcarrondo Jr. has investment power, but disclaims beneficial
ownership, except for 80,000 shares which Mr. Vizcarrondo Jr. will
inherit once the estate is divided and distributed.
(13) Mr. Vazquez owns 13,003 shares and has investment authority over 93,785
shares held by various family members.
(14) Mr. Martinez owns 1,137,250 shares and has investment and voting power
over 1,069,725 shares owned by family members and various corporations.
* * *
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Corporation's directors and executive officers to file with the
Securities and Exchange Commission (SEC) reports of ownership and changes in
ownership of common stock of the Corporation. Officers and directors are
required by SEC regulation to furnish the Corporation with copies of all
Section 16(a) forms they file.
Based solely on a review of the copies of such reports furnished to
the Corporation or written representations that no other reports were required,
the Corporation believes that, with respect to 2001, all filing requirements
applicable to its officers and directors were complied with except for one
report, covering one transaction, filed late by Mr. Jorge A. Junquera director
of the Corporation.
BOARD OF DIRECTORS AND COMMITTEES;
PROPOSAL 1: ELECTION OF DIRECTORS
The Certificate of Incorporation and the Bylaws of the Corporation
establish a classified Board of Directors pursuant to which the Board of
Directors is divided into three classes as nearly equal in number as possible,
with each class having at least three members and with the term of office of
one class expiring each year. Each director serves for a term ending on the
date of the third annual meeting of stockholders following the annual meeting
at which such director was elected or until his successor has been elected and
qualified.
At the Meeting, three (3) directors assigned to "Class 3" are to be
elected to serve until the 2005 Annual Meeting of Stockholders or until their
respective successors shall have been elected and qualified. The remaining
eight directors of the Corporation will serve as directors, as follows: until
the 2003 Annual Meeting of Stockholders of the Corporation, in the case of
those four directors assigned to "Class 1", and until the 2004 Annual Meeting
of Stockholders, in the case of those four directors assigned to "Class 2", or
in each case until their successors are elected and qualified.
6
The policy of the Board of Directors, as set forth in a resolution
adopted on January 8, 1991, provides that no person shall be nominated for
election or reelection as director of the Board if, at the date of the Annual
Meeting of Stockholders or during the term to be served, such person would
attain seventy two (72) years of age. Messrs. Francisco J. Carreras and Alberto
M. Paracchini would attain seventy two (72) years of age during the term to be
served. In accordance, with Board policy, Messrs. Carreras and Paracchini will
not be nominated for reelection as directors.
The people named as proxies in the accompanying Form of Proxy have
advised the Corporation that, unless otherwise instructed, they intend to vote
at the Meeting the shares covered by the proxies FOR the election of the three
nominees named below, and that if any one or more of such nominees should become
unavailable for election they intend to vote such shares FOR the election of
such substitute nominees as the Board of Directors may propose. The Corporation
has no knowledge that any nominee will become unavailable for election.
Information relating to principal occupation, business experience and
directorship during the past five (5) years (including position held with the
Corporation or the Bank), age and the period during which each director has
served is set forth below.
The Board of Directors of the Corporation met on a monthly basis during
2001. All directors except Messrs. Antonio Luis Ferre and Felix J. Serralles Jr.
attended 75% or more to the meetings of the Board of Directors and the
committees of the Board of Directors on which such directors served.
* * *
NOMINEES FOR ELECTION AS DIRECTORS
CLASS 3 DIRECTORS
(TERMS EXPIRING IN 2005)
<Table>
<Caption>
PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
NAME AND AGE AND DIRECTORSHIPS
- ----------------------------------------- ----------------------------------------------------------------------
DAVID H. CHAFFEY JR.: (48 YEARS) -- Supervisor of the Bank's Retail Banking Group since January 1996.
-- Senior Executive Vice President since October 1995.
-- Senior executive Vice President of Popular International Bank, Inc. and
Popular North America, Inc.
-- Chairman of the Board of Popular Finance, Inc.
-- Chairman and President of Puerto Rico Investors Tax-Free Fund, Inc. I,
II, III, IV, V, VI, of Puerto Rico Tax-Free Target Maturity Fund, Inc. I
and II and of Puerto Rico Investors Flexible Allocation Fund since
January 1999.
-- Member of the San Jorge Children's Research Foundation, Inc.
-- President of the Puerto Rico Bankers Association.
-- Director of Visa International for the Caribbean and Latin America.
-- Director of Equity One, Inc. and Banco Popular North America until
December 1999.
-- Director of Group Guayacan, Inc.
-- Chairman of the Board of Puerto Rico Telephone Authority from 1993
through 1997.
-- Director of the Bank, Popular Mortgage, Inc., Popular Auto, Inc., GM Group,
Inc., Banco Popular, National Association, Popular Insurance, Inc. and
Popular Securities, Inc.
-- Director of the Corporation since 1996.
ANTONIO LUIS FERRE: (68 YEARS) -- Chairman of the Board of Puerto Rican Cement Co., Inc. (a registered
public company), manufacturers of cement and allied products, until
May 2001.
-- Chairman of the Board and Editor of El Dia, Inc. and of Primera Hora,
newspaper publishing companies.
-- President of Advanced Graphic Printing, a commercial printing company.
</Table>
7
<Table>
<Caption>
PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
(CONT.) NAME AND AGE AND DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------------------
ANTONIO LUIS FERRE: (68 YEARS)
- Chairman of the Board of Virtual, Inc., an internet company.
- Vice Chairman of the Board of Directors of the Corporation.
- Vice Chairman of the Board of Directors of the Bank from 1991 to 2001.
- Director of the Corporation since 1984.
FELIX J. SERRALLES JR.: (67 YEARS)
- President and Chief Executive Officer of Destileria Serralles, Inc., manufacturers
and distributors of distilled spirits, and of its affiliate Mercedita Leasing, Inc.
- Director of the Bank, Popular International Bank, Inc., Popular North America,
Inc., Banco Popular North America, Popular Cash Express, Inc. and Equity One, Inc.
CLASS 2 DIRECTORS
(TERMS EXPIRING IN 2004)
JOSE B. CARRION JR.: (65 YEARS)
- President of Collosa Corporation.
- Former President and Chief Executive Officer ("CEO") of Barros & Carrion from 1992
to 1999.
- Director of the Bank since April 2000.
- Director of the Corporation since 2001.
HECTOR R. GONZALEZ: (68 YEARS)
- President and Chief Executive officer of TPC Communications of PR, Inc., TPC Cable
Media, Inc., TelePonce Cable TV, Inc. and Telecell Systems, Inc. owners and
operators of cable television systems.
- General Partner of Ventek Group, Inc., and investor in broadband and
telecommunications related businesses.
- Director of the Bank, Popular Finance, Inc., Popular Mortgage, Inc., Popular Auto,
Inc. and Popular Securities, Inc.
- Director of the Corporation since 1984.
MANUEL MORALES JR.: (56 YEARS)
- President of Parkview Realty, Inc., the Atrium Office Center, Inc., HQ Business
Center P.R., Inc. and ExecuTrain of Puerto Rico.
- Honorary General Consul of Japan in San Juan, Puerto Rico.
- Member of the Board of Trustees of Sacred Hearth University in San Juan, Puerto
Rico, of the Caribbean Environmental Development Institute and of Fundacion Angel
Ramos, Inc.
- Member of the National Advisory Council-United States Small Business
Administration.
- Member of the Board of Trustees of Fundacion Banco Popular, Inc.
- Chairman of the Audit Committee of the Corporation and the Bank.
- Director of the Bank.
- Director of the Corporation since 1990.
JULIO E. VIZCARRONDO JR.: (67 YEARS)
- Civil Engineer.
</Table>
8
<Table>
<Caption>
PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
(CONT.) NAME AND AGE AND DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------------------
JULIO E. VIZCARRONDO JR.: (67 YEARS)
- President, Partner and Chief Executive Officer of Desarrollos Metropolitanos,
S.E., VMV Enterprises Corp., Resort Builders, S.E., Metropolitan Builders, S.E.,
Institutional Builders, S.E., Omega-Vistamar, S.E. and MH Office Building Corp.,
corporations engaged in the development and construction of residential,
commercial, industrial and institutional projects in Puerto Rico.
- Chairman of the Commercial Credit Committee of the Bank.
- Director of the Bank, Popular International Bank, Inc., Popular North America,
Inc., Banco Popular North America, Popular Cash Express, Inc. and Equity One, Inc.
- Director of the Corporation since 1990.
CLASS 1 DIRECTORS
(TERMS EXPIRING IN 2003)
JUAN J. BERMUDEZ: (64 YEARS)
- Electrical Engineer.
- Partner of Bermudez and Longo, S.E., Decemcor, S.E., Unicenter, S.E. Unigardens,
S.E., Clearview, S.E., Placid Park, S.E. and PCME Commercials, S.E.
- Principal Stockholder and Director of BL Management, Corp., PCME Development,
Corp., G.S.P. Corp., Unimanagement Corp., LBB Properties, Inc. and Homes Unlimited
Corp.
- Chairman of the Trust Committee of the Bank.
- Director of the Bank, Popular Securities, Inc., Popular Auto, Inc., Popular
Finance, Inc. and Popular Mortgage, Inc.
- Director of the Corporation since 1990.
RICHARD L. CARRION: (49 YEARS)
- Chairman, President and CEO of the Corporation and the Bank and CEO of Banco
Popular North America.
- Chairman of Popular International Bank, Inc., Popular North America, Inc., Banco
Popular North America, Popular Cash Express, Inc., Banco Popular, National
Association and Popular FS, LLC.
- Chairman of the Board of Trustees of Fundacion Banco Popular, Inc.
- Member of the International Olympic Committee.
- President of the Puerto Rico Olympic Trust and member of the Puerto Rico Olympic
Committee.
- Member of the Board of Trustees of the Puerto Rico Committee for Economic
Development.
- Member of the Board of Directors, the Benefits & Human Resources Committee and the
Public Policy Committee of Verizon Communications (a registered public company).
- Member of the Board of Directors and Compensation and Benefits Committee of
American Home Products Corporation (a registered public company).
- Member of the Board of Directors of Telecomunicaciones de Puerto Rico, Inc.
(TELPRI).
- Former Chairman and President of Puerto Rico Investors Tax-Free Fund, Inc. I, II,
III, IV, V (1994 to December 1998) and of Puerto Rico Tax-Free Target Maturity
Fund, Inc. I (1996 to December 1998) and II (1997 to December 1998).
- Former Chairman and President of Puerto Rico Investors Flexible Allocation Fund
(December 1998 to January 1999).
</Table>
9
<Table>
<Caption>
(cont.) Name and Age Principal Occupation, Business Experience and Directorships
- --------------------------------------------------------------------------------------------------------------------------
RICHARD L. CARRION: (49 years)
- Former Member of the Board of the National Museum of American History,
Smithsonian Institution (November 1997 to December 1998).
- Director of Equity One, Inc., Popular Finance, Inc., Popular Auto, Inc.,
Popular Mortgage, Inc., Popular Securities, Inc., Popular Insurance, Inc.
and GM Group, Inc.
- Director of the Corporation since 1990.
JORGE A. JUNQUERA: (53 years)
- Chief Financial Officer of the Corporation and the Bank.
- Supervisor of the Financial Management Group.
- Supervisor of the U.S. Operations from January 1996 to December 2001.
Supervisor of the Caribbean and Latin American Group since January 1996.
- Senior Executive Vice President since October 1995.
- President and Director of Popular International Bank, Inc. and Popular
North America, Inc. since January 1996.
- Chairman of the Board of Popular Securities, Inc.
- Director of Popular Mortgage, Inc., Popular Finance, Inc. and Popular
Auto, Inc. until December 1998
- Director of the Bank until April 2000.
- President of Banco Popular North America until December 2001.
- President of Puerto Rico Tourism Company until February 1997 and
Director until April 2000.
- President of Hotel Development Co. until April 2000.
- Director of PRISMA: El Exploratorio Inc. until April 2000.
- Director of YMCA since 1988.
- President of Banco Popular, National Association.
- Director of Equity One, Inc., Popular Cash Express, Inc.,
Popular FS, LLC, and of Banco Popular North America.
- Director of Banco Hipotecario Dominicano and Contado, S.A.
- Director of New America Alliance (a registered public company)
and Virtual, Inc. (a registered public company).
- Director of La Familia Catolica por la Familia en las Americas
since 2001.
- Director of the Corporation since 1990.
FRANCISO M. REXACH JR.: (64 years)
- President of Capital Assets, Inc. and of Rexach Consulting Group.
- Chairman of Chamaleon Fitness Systems, Inc.
- President of Ready Mix Concrete Inc., a subsidiary of Puerto Rican
Cement Co., Inc. (a registered public company) until September 1997.
- Chairman of the Human Resources and Compensation Committee of the Bank.
- Director of the Bank, Popular International Bank, Inc., Popular North
America, Inc., Banco Popular North America, Popular Cash Express, Inc.
and Equity One, Inc.
- Director of the Corporation since 1990.
</Table>
* * *
STANDING COMMITTEES
The Corporation's Board of Directors (the "Board") has standing Audit
and Risk Management Committees. The Board of Directors of the Bank, the
principal subsidiary of the Corporation, has a standing Human Resources and
Compensation Committee that may review compensation matters for the
Corporation. Nominations are made by the Board.
10
AUDIT COMMITTEE REPORT
AUDIT COMMITTEE
The Audit Committee consists of six directors of the Corporation. The
Audit Committee members during 2001 were Juan J. Bermudez, Hector R. Gonzalez,
Manuel Morales Jr., Alberto M. Paracchini, Francisco M. Rexach Jr. and Felix
J. Serralles Jr. The Board of Directors, in its business judgment, has
determined that each of the members of the Audit Committee is "independent" as
required by applicable listing rules of the National Association of Securities
Dealers. The Audit Committee held six meetings during the fiscal year ended
December 31, 2001.
The role of the Audit Committee is to assist the Board in its
oversight of the Corporation's financial reporting process. The Committee
operates pursuant to a Charter that was last amended and restated by the Board
on March 13, 2002.
In the performance of its oversight function, the Committee has
considered and discussed the audited financial statements of the Corporation
for the fiscal year ended December 31, 2001 with management and
PricewaterhouseCoopers LLP, the Corporation's independent accountants. The
Audit Committee has also discussed with the independent accountants the matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committee), as currently in effect. Finally, the
Committee has received the written disclosure and the letter from
PricewaterhouseCoopers LLP required by Independence Standards Board Standard
No. 1 (Independence Discussion with Audit Committees), as currently in effect,
has considered whether the provision of non-audit services by the independent
accountants to the Corporation is compatible with maintaining the accountants'
independence, and has discussed with the independent accountants the
accountants' independence from the Corporation and its management. These
considerations and discussions, however, do no assure that the audit of the
Corporation's financial statements has been carried out in accordance with
generally accepted auditing standards, that the financial statements are
presented in accordance with generally accepted accounting principles or that
the Company's auditors are in fact "independent."
As set forth in the Charter, management of the Corporation and the
Internal Auditing Division are responsible for the preparation, presentation
and integrity of the Corporation's financial statements, the Corporation's
accounting and financial reporting principles, and internal controls and
procedures designed to assure compliance with accounting standards and
applicable laws and regulations. PricewaterhouseCoopers LLP, the Corporation's
independent public accountants, are responsible for auditing the Corporation's
financial statements and expressing an opinion as to their conformity with
generally accepted accounting principles in the United States of America.
The members of the Audit Committee are not engaged professionally in
the practice of auditing or accounting, are not experts in the fields of
accounting or auditing, including matters relating to the determination of the
independence of outside auditors, and are not full-time employees of the
Corporation. The Corporation's management is responsible for its accounting,
financial management and internal controls. Moreover, the Committee relies on
and makes no independent verification of the facts presented to it and
representations made by management and the independent accountants.
Accordingly, the Audit Committee's oversight does not provide an independent
basis to determine that management has maintained appropriate accounting and
financial reporting principles and policies or internal controls and procedures
designed to assure compliance with accounting standards and applicable laws and
regulations.
Based on the Audit Committee's consideration of the audited financial
statements and the discussions referred to above with management and the
independent accountants and subject to the limitations on the role and
responsibilities of the Audit Committee set forth in the Charter and those
discussed above, the Committee recommended to the Board that the Corporation's
audited financial statements be included in the Corporation's Annual Report on
Form 10-K for the year ended December 31, 2001 for filing with the SEC.
Submitted by:
Juan J. Bermudez Alberto M. Paracchini
Hector R. Gonzalez Francisco M. Rexach Jr.
Manuel Morales Jr. Felix J. Serralles Jr.
HUMAN RESOURCES AND COMPENSATION COMMITTEE
The functions of the Human Resources and Compensation Committee
include reviewing the compensation and benefits of management and employees,
reviewing the policies related to the performance and compensation of
management and employees, and reviewing the long-range planning for executive
development and succession. The Committee held three meetings during the
fiscal year ended December 31, 2001.
The Committee members during 2001 were: Francisco J. Carreras, Maria
Luisa Ferre, Hector R. Gonzalez, Alberto M. Paracchini, Francisco M. Rexach Jr.
and J. Adalberto Roig Jr. None of the members of the Committee are officers or
employees of the Corporation or any of its subsidiaries.
11
COMPENSATION OF DIRECTORS
On February 15, 2001 the Corporation suspended the Stock Deferment Plan
it had maintained for directors who are not employees of the Corporation. In
lieu thereof, on March 7, 2001 outside directors of the Corporation and the Bank
became eligible to receive stock options pursuant to the 2001 Stock Option Plan
(the "2001 Option Plan''). The 2001 Stock Option Plan award is made quarterly on
February, May, August and November of each year. The amount of stock options
granted is equal to the quotient (rounded to the nearest whole share) of (x)
6,250 and (y) the value of the option based on the closing price of the common
stock of the Corporation of the date granted. Option values on the grant dates
were determined by using the Black-Scholes Option Valuation Model. Each director
has been granted options to purchase the shares of stock of the Corporation at
the exercise price specified in the table below pursuant to the terms of the
Plan. Subsequent grants are expected to be made quarterly. The options granted
shall, subject to early vesting provision of the Plan, become exercisable, with
respect to 20% of the shares on each anniversary of the date of grant and remain
exercisable until the 10th anniversary of the grant.
In addition, directors receive $1,000 for attending each Board meeting
and $500 for attending each committee meeting. Directors who are employees of
the Corporation do not receive fees for attending Board and committee meetings.
<Table>
<Caption>
Options Total Options Grant
Granted to Granted to All Date (a)
Date of Each Individual Directors as Options Date of Present
Grant Director a Group Price Expiration Value
-------- --------------- -------------- ------- ---------- --------
05/09/2001 524 8,384 $30.56 05/09/2011 $7,441
08/08/2001 470 7,520 $34.87 08/08/2011 7,616
11/07/2001 657 10,512 $29.55 11/07/2011 9,022
</Table>
- ----------
a) The estimates were calculated in accordance with the regulations
of the Securities and Exchange Commission, which are not intended to predict
the Corporation's common stock price.
* * *
EXECUTIVE OFFICERS
The following information sets forth the names of the executive
officers (the "Executive Officers") of the Corporation including their age,
business experience and directorships during the past five (5) years and the
period during which each such person has served as an Executive Officer of the
Corporation or the Bank.
<Table>
<Caption>
BUSINESS EXPERIENCE
NAME AND AGE AND DIRECTORSHIPS
- ----------------------------------------- ----------------------------------------------------------------------
RICHARD L. CARRION: (49 YEARS) -- Chairman, President and CEO of the Corporation.
-- Executive Officer of the Corporation since 1990.
-- For information about principal occupation, business experience and
directorships during the past five years please refer to the
Board of Directors section.
JORGE A. JUNQUERA: (53 YEARS) -- Senior Executive Vice President of the Corporation.
-- Executive Officer of the Corporation since 1990.
-- For information about principal occupation, business experience and
directorships during the past five years please refer to the
Board of Directors section.
DAVID H. CHAFEY JR.: (48 YEARS) -- Senior Executive Vice President of the Corporation.
-- Executive Officer of the Corporation since 1990.
-- For information about principal occupation, business experience and
directorships during the past five years please refer to the
Board of Directors section.
</Table>
12
<Table>
<Caption>
BUSINESS EXPERIENCE
NAME AND AGE AND DIRECTORSHIPS
- ----------------------------------------------------------------------------------------------------------------------------------
MARIA ISABEL P. DE BURCKHART: (53 YEARS)
- Executive Vice President of the Corporation.
- Executive Officer of the Corporation since 1990.
- Supervisor of the Administration Group.
- Executive Vice President of the Bank since January 1990.
- Executive Vice President of Popular International Bank, Inc. and Popular North
America, Inc.
- Member of the Board of Trustees of Fundacion Banco Popular, Inc.
- Member of the Board of Directors of Fundacion Ana G. Mendez and of Puerto Rico
Community Foundation.
- Secretary of the Board of Directors of the Bankers Club since 1998.
- Member of the Board of Directors of the Puerto Rico Convention Bureau from
1993 through October 1998.
ROBERTO R. HERENCIA: (42 YEARS)
- Executive Vice President of the Corporation.
- Executive Officer of the Corporation since 1997.
- Head of the Corporation's U.S. business expansion.
- President and Director of Banco Popular North America.
- Executive Vice President of the Bank since January 1997.
- Director of Popular International Bank, Inc., Popular North America, Inc.
Popular Cash Express, Inc., Banco Popular, National Association, Equity One, Inc.
and Popular FS, LLC.
- Chairman of the Board of Directors of Popular Insurance Agency USA, Inc.
- Senior Vice President from December 1991 to December 1996.
LARRY B. KESLER: (64 YEARS)
- Executive Vice President of the Corporation.
- Executive Officer of the Corporation since 1990.
- Supervisor of the Consumer Credit Group and the Virgin Islands Region.
- Executive Vice President of the Bank since January 1990.
- Chairman of the Board of Directors of Equity One, Inc., Popular Auto, Inc., Popular
Mortgage, Inc. and Popular Insurance, Inc.
- Executive Vice President of Popular International Bank, Inc. and Popular North
America, Inc.
- Director of Popular Finance, Inc, Banco Popular, National Association and
Popular FS, LLC.
TERE LOUBRIEL: (49 YEARS)
- Executive Vice President of the Corporation since February 2001.
- Director of Human Resources since April 2000.
- Year 2000 Office Manager of the Corporation from December 1997 to 2000.
- Quality Office Manager of the Corporation from November 1995 to 1997.
- General Auditor of the Bank from December 1989 to 1995.
HUMBERTO MARTIN; (56 YEARS)
- Executive Vice President of the Corporation.
- Executive Officer of the Corporation since 1986.
- Supervisor of the Operations Group.
- Executive Vice President of the Bank since November 1986.
</Table>
13
<Table>
BUSINESS EXPERIENCE
(CONT.) NAME AND AGE AND DIRECTORSHIP
- ---------------------------------------------------------------------------------------------------------------------------
HUMBERTO MARTIN: (56 YEARS)
- Executive Vice President of Popular International Bank, Inc. and Popular North
America, Inc.
- Director of GM Group, Inc.
EMILIO E. PINERO: (53 YEARS)
- Executive Vice President of the Corporation
- Executive Officer of the Corporation since 1990.
- Supervisor of the Commercial Banking Group.
- Executive Vice President of the Bank since January 1990.
- Director of Popular Mortgage, Inc. and Popular Auto, Inc.
- Executive Vice President of Popular International Bank, Inc. and Popular North
America, Inc.
- Member of the Board of Trustee of America Red Cross, Fundacion Luis
- Munoz Marin, Fundacion del Colegio de CPA de Puerto Rico and Jane Stern
Community Library Foundation.
- Member of the Board of Directors of Warforce Investment Act.
BRUNILDA SANTOS DE ALVAREZ: (43 YEARS)
- Executive Vice President of the Corporation since February 2001.
- Senior Vice President from March 1996 until January 2001.
- General Counsel of the Corporation since 1997.
- Secretary of the Board of Directors of Popular International Bank, Inc., Banco
Popular North America, GM Group, Inc., Popular Cash Express, Inc., Banco Popular,
National Association, Popular Insurance, Inc. Popular Securities, Inc., NEWCO
Mortgage Holding Corporation (Levitt), Popular Insurance Agency USA, Inc.,
Popular Mortgage, Inc. and Popular North America, Inc.
- Secretary of the Board of Directors of Puerto Rico Investor Tax Free Fund, Inc.
I, II, III, IV, V, VI, of Puerto Rico Tax Free Target Maturity Fund, Inc. I and II,
and of Puerto Rico Investors Flexible Allocation Fund, Inc.
- Assistant Secretary of the Board of Directors of the Corporation and the Bank
since May 1994
- Assistant Secretary of the Board of Directors of Equity One, Inc., Popular
Auto, Inc. and Popular Finance, Inc.
CARLOS J. VAZQUEZ: (43 YEARS)
- Executive Vice President of the Corporation.
- Executive Officer of the Corporation since 1997.
- Supervisor of the Corporation's Risk Management Group.
- Executive Vice President of the Bank since March 1997.
- Director of Popular Securities, Inc.
- President of J.P. Morgan Venezuela, S.A. from 1995 to 1997.
- Vice President of J.P. Morgan & Co. Inc., Morgan Guaranty Trust Co. of N.Y.,
J.P. Morgan Securities Ltd. and J.P. Morgan Securities, Inc. from 1982 to 1997.
FELIX VILLAMIL: (40 YEARS)
- Executive Vice President of the Corporation since April 2002.
- Supervisor of the Operations Group since April 2002.
- Supervisor of the Bank's Ponce Region from April 2001 until December 2001.
- Supervisor of the Credit Risk Management Division of the Bank from 1997
through March 2001.
- General Auditor of the Bank from 1995 to 1997.
</Table>
14
<Table>
<Caption>
BUSINESS EXPERIENCE
NAME AND AGE AND DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------------------
SAMUEL T. CESPEDES: (65 YEARS)
- Secretary of the Board of Directors.
- Attorney-at-Law.
- Proprietary partner of the law firm McConnell Valdes.
- Secretary of the Board of Directors of the Corporation and the Bank since 1991.
- Secretary of the Board of Directors of Popular Auto, Inc. and Popular Finance, Inc.
</Table>
* * *
FAMILY RELATIONSHIPS
Mr. Richard L. Carrion, Chairman of the Board, President and CEO of the
Corporation and the Bank, is brother-in-law of Mr. Julio E. Vizcarrondo Jr. and
first cousin of Mr. Jose B. Carrion Jr.
OTHER RELATIONSHIPS, TRANSACTIONS AND EVENTS
During 2001 the Bank engaged the legal services of the law firm of
McConnell Valdes of which Mr. Samuel T. Cespedes, 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 firms' revenues for its last
full fiscal year. The Corporation also engaged, in the ordinary course of
business the legal services of Pietrantoni, Mendez & Alvarez, LLP of which Mr.
Ignacio Alvarez and Mr. Antonio Santos, husband and brother, respectively, of
Mrs. Brunilda Santos de Alvarez, Executive Officer of the Corporation since
February 2001, are partners. The amount of fees paid to Pietrantoni, Mendez &
Alvarez did not exceed 5% of the law firm's revenues for its last fiscal year.
The Bank has had loan transactions with the Corporation's directors
and officers, and with their associates, and proposes to continue such
transactions in the ordinary course of its business, on substantially the same
terms as those prevailing for comparable loan transactions with other people
and subject to the provisions of the Banking Act of the Commonwealth of Puerto
Rico and the applicable federal laws and regulations. The extensions of credit
have not involved and do not currently involve more than normal risks of
collectibility or other unfavorable features.
* * *
PROPOSAL 2: RATIFICATION OF SELECTION OF AUDITORS
The Board intends to retain the services of PricewaterhouseCoopers
LLP as the independent public accountants of the Corporation for the year 2002.
PricewaterhouseCoopers LLP (former Price Waterhouse) served as independent
public accountants of the Bank since 1971 and of the Corporation since May
1991, when it was appointed by the Board.
Neither our certificate of incorporation nor by-laws requires that the
shareholders ratify the selection of PricewaterhouseCoopers LLP as our
independent auditors. We are doing so because we believe it is a matter of good
corporate practice. If the shareholders do not ratify the selection, the Board
of Directors and the Audit Committee will reconsider whether or not to retain
PricewaterhouseCoopers LLP, but may retain such independent auditors. Even if
the selection is ratified, the Board of Directors and the Audit Committee in
their discretion may change the appointment at any time during the year if they
determine that such change would be in the best interests of the Corporation and
its shareholders.
Representatives of PricewaterhouseCoopers LLP will attend the Meeting
and will be available to respond to any appropriate questions that may arise;
they will also have the opportunity to make a statement if they so desire.
The selection of PricewaterhouseCoopers LLP as the Corporation's
auditors must be ratified by a majority of the votes cast at the Meeting.
The Board recommends that you vote FOR ratification of PricewaterhouseCoopers
LLP as the Corporation's independent auditors for 2002.
DISCLOSURE OF AUDITORS FEES
The following is a description of the fees billed to the Corporation
by PricewaterhouseCoopers LLP during the year ended December 31, 2001:
AUDIT FEES
The aggregate fees billed by PricewaterhouseCoopers LLP, the
Corporation's independent public accountants for the
15
year ended December 31, 2001, for professional services rendered for the audit
of the Corporation's annual financial statements for the fiscal year and for
the reviews of the financial statements included in the Corporation's quarterly
report on Form 10-Q for that fiscal year were $1,059,193.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed to the Corporation for the year ended
December 31, 2001 by PricewaterhouseCoopers LLP for professional services
rendered for information technology services relating to financial information
systems design and implementation.
ALL OTHER FEES
The aggregate fees billed for services rendered to the Corporation by
PricewaterhouseCoopers LLP, other than the services described above under
"Audit Fees" and "Financial Information Systems Design and Implementation
Fees," for the year ended December 31, 2001 were $750,083. This amount includes
other audit and assurance services fees of $420,803, advisory services to
Equity One, Inc. in the amount of $100,000 and tax related services of
$229,280. The Audit Committee has considered that the provision of the services
covered by this paragraph is compatible with maintaining the independence of
the independent public accountants of the Corporation.
***
EXECUTIVE COMPENSATION PROGRAM
REPORT OF THE BANK'S HUMAN RESOURCES AND COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION
OVERVIEW
The Bank's Human Resources and Compensation Committee (the "Human
Resources Committee") consists of six non-employee directors of the Bank. The
Committee endeavors to keep abreast of competitive compensation practices with
regard to salaries, incentive compensation and supplemental programs in order
to assist the Corporation in attracting and retaining the most qualified
executive officers whose contributions and experiences help the Corporation
sustain growth, thereby enhancing shareholders' value. They also oversee the
general human resources and compensation practices of the Corporation.
The Human Resources Committee evaluates and recommends to the Board
the Corporation's compensation policy for the Chairman of the Board, President
and CEO and the Executive Officers. They consider, among other factors,
competitive pay practices for developing a stronger relationship between
executive compensation and the Bank's long-term performance. The executive
compensation program for principal officers of the Corporation's subsidiaries
is set according to the industry and geographical area in which each operates
and is approved by the Board of Directors of each respective subsidiary.
CHAIRMAN OF THE BOARD, PRESIDENT AND CEO AND EXECUTIVE OFFICERS
On an annual basis, Mr. Carrion submits to the Human Resources
Committee a plan setting forth both quantitative and qualitative goals for the
fiscal year, and objectives for the medium and long-term. In evaluating and
setting compensation the Human Resources Committee considers the Corporation's
performance with respect to the goals set forth in the plan. Therefore, the
Human Resources Committee evaluates Mr. Carrion's performance by taking into
consideration the growth of the organization, implementation of a
diversification strategy, achievement of financial goals, improvements to the
product and service delivery system and development of human resources. The
weight and significance accorded to these factors is subjective in nature.
The group of Executive Officers is composed of two Senior Executive
Vice Presidents of the Corporation and eight Executive Vice Presidents of the
Corporation (the "Executive Officers") all of whom participate in the Profit
Sharing, Annual Incentive and Long-Term Incentive Plans of the Bank. The
President and CEO sets the salary increases and the bonuses to be awarded to
the Executive Officers pursuant to the incentive plans. Mr. Humberto Martin,
Executive Vice President, decided to retire effective March 31, 2002 and Mr.
Felix Villamil was appointed as his successor.
Mr. Carrion and the Executive Officers participate in an annual
incentive program based on financial results of the Corporation, designed to
encourage the achievement of short-term financial goals and to increase
shareholder value. For the 2002 Plan other factors will be considered when
determining the short and long-term incentives such as: individual business
results, service quality and individual performance. The first incentive
component is a cash bonus. The second component is a deferred long-term
incentive awarded in stock options of Popular, Inc.
Based on the financial results achieved by the Corporation, the
incentive payment in cash was 37.36% of base salary and 43.68% of base salary
was awarded in Popular's Inc.'s stock options. Mr. Carrion recommended to the
Human Resources Committee that it consider both his short-term and long-term
incentive on a future date (See Note (d) of the Summary Compensation Table).
All members of the Human Resources Committee accepted this proposal.
16
The Corporation has a company aircraft for the use of CEO, Directors,
Senior Executive Vice Presidents and Executive Vice Presidents. As stated in
the corporate guidelines for use of this transportation service if the CEO or
any executive or director designated by him uses the company aircraft for
personal purposes those persons or executives accompanying him shall pay to the
Corporation an amount equivalent to a commercial first class airfare to the
destination where they are traveling.
HUMAN RESOURCES AND COMPENSATION COMMITTEE
Francisco M. Rexach Jr (Chairman)
Francisco J. Carreras
Maria Luisa Ferre
Hector R. Gonzalez
Alberto M. Paracchini
J. Adalberto Roig Jr.
* * *
EXECUTIVE COMPENSATION
The following tables sets forth all cash compensation paid by the
Corporation or its principal subsidiaries to the highest paid Executive
Officers of the Corporation and the most highly compensated principal officers
of the principal subsidiaries.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
ANNUAL COMPENSATION INCENTIVE
----------------------------- LONG-TERM
PAYMENTS COMPENSATION
FISCAL AND ALL OTHER ANNUAL STOCK OPTIONS
NAME AND PARTICIPANT POSITION YEAR SALARY(A) BONUS(B) COMPENSATION(C) TOTAL GRANTED (#)
- ----------------------------- ------ --------- ---------- ---------------- -------- -------------
Richard L. Carrion............................. 2001 $540,000(d) $ 53,824(d) $35,199 $629,023 -0-(d)
Chairman, 2000 540,000(d) 60,912(d) 42,069 642,981
President and CEO 1999 540,000(d) 72,164(d) 53,327 665,491
David H. Chafey Jr............................. 2001 493,550 236,254 32,515 762,319 25,301
Senior Executive Vice President 2000 466,999 121,631 37,021 625,651
of the Corporation 1999 412,920 209,480 41,638 664,038
Jorge A. Junquera.............................. 2001 436,754 208,101 29,234 674,089 22,265
Senior Executive Vice President 2000 430,790 111,293 34,548 576,631
of the Corporation 1999 401,760 203,866 40,752 646,378
Roberto R. Herencia............................ 2001 400,000 203,170 27,110 630,280 20,241
Executive Vice President 2000 258,484 67,745 20,029 346,258
of the Corporation 1999 238,411 120,894 23,476 382,781
Larry B. Kesler................................ 2001 383,396 188,333 25,985 597,714 20,241
Executive Vice President 2000 304,575 79,239 24,643 408,457
of the Corporation 1999 271,317 137,646 27,521 436,484
Carlos J. Vazquez.............................. 2001 368,613 177,042 24,983 570,638 18,976
Executive Vice President 2000 342,514 88,833 27,713 459,060
of the Corporation 1999 309,742 157,075 31,418 498,235
Cameron E. Williams............................ 2001 270,971 1,257,000(b) 47,750 1,575,721 -0-
President of Equity One, Inc. 2000 272,983 165,000 22,000 459,983
(a wholly-owned subsidiary 1999 250,000 150,000 62,000 462,000
of Popular North America, Inc.)
Silvio J. Lopez................................ 2001 183,333 692,325(b) 5,500 881,158 -0-
President of Popular Mortgage, Inc. 2000 171,667 84,200 5,150 261,017
(a wholly-owned subsidiary 1999 155,000 68,600 4,650 228,250
of the Bank)
Guillermo L. Martinez(e)....................... 2001 457,072 258,335 20,683 736,090 -0-
President of the Board of Directors 2000 425,770 242,714 33,872 702,356
and Chief Executive Officer of GM
Group, Inc. (a wholly-owned subsidiary
of the Corporation)
Kenneth McGrath................................ 2001 197,500 320,200 84,000 601,700 5,763
President of Popular Securities, Inc. 2000 188,333 140,200 81,815 410,348
(a wholly-owned subsidiary 1999 180,000 224,200 75,000 479,200
of the Corporation)
</Table>
17
(a) Salaries before deductions.
(b) For the Senior Management Committee these payments include a Christmas
bonus, the cash portion payable under the Profit Sharing Plan of the Bank
and the amount awarded under the Annual Management Incentive Compensation
Plan. For the subsidiaries' presidents the amount includes a Christmas
Bonus, (if any) and performance bonus. For Mr. Cameron E. Williams and Mr.
Silvio J. Lopez the amount also includes the amount awarded under the Three
Year Long-Term Incentive Plan.
(c) For the Executive Officers of Popular, Inc. the amount includes deferred
portion under the Profit Sharing Plan of the Bank, amounts accrued under the
Benefit Restoration Plan, the amount from the Profit Sharing deferred and
allocated to Stock Plan and the Bank's matching contribution to Stock Plan.
For Mr. McGrath, amount includes company-matching contribution to 1165(e)
plan and a deferred performance bonus. For Mr. Williams, the amount includes
401(k) matching and deferred compensation under Supplementary Executive
Retirement Plan. For Mr. Martinez, amount includes matching contribution to
an 1165(e) plan and deferred portion of profit sharing plan. For Mr. Lopez,
amount includes matching contribution to an 1165(e) plan.
(d) Mr. Carrion declined salary increases, incentive payments and stock options
while the Bank is operating under a Written Agreement with the Federal
Reserve Bank of New York. The Bank is in full compliance with the Written
Agreement.
(e) Information presented for 2001, 2000 and 1999, except for Mr. Guillermo L.
Martinez, President of the Board of Directors and Chief Executive Officer of
GM Group, Inc., a wholly owned subsidiary acquired by the Corporation during
1999.
* * *
LONG-TERM INCENTIVE PLAN
On April 23, 2001, the 2001 Stock Option Plan was approved and the
1999-2001 and 2000-2002 Long-Term Incentive Plans were suspended. No further
awards under these plans were made.
STOCK OPTION PLAN
The 2001 Stock Option Plan is intended to provide the Corporation and
its subsidiaries with an effective means to attract and retain highly qualified
personnel as well as to provide additional incentive to employees and directors
who provide services to the Corporation and its subsidiaries.
Any employee or director of the Corporation or of any of its
subsidiaries, is eligible to participate in the 2001 Option Plan. The selection
of individuals eligible to participate is within the discretion of the Board of
Directors, or the Human Resources Committee.
The 2001 Option Plan provides for the grant of stock options that are
intended to qualify as "qualified stock options" ("QSOs") under Section 1046 of
the Puerto Rico Internal Revenue Code of 1994, as amended (the "Puerto Rico
Code"), as "incentive stock options" ("ISOs") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") or "non-statutory stock options"
("NSOs"). At the time of the original grant of NSOs, the Board of Directors or
the Committee, may also authorize the grant of reload options, which shall be
NSOs for such number of shares of common stock as were used by the Participant
to pay the purchase price upon the exercise of previously granted options, and
the withholding taxes applicable to a NSOs exercises, but are still subject to
other terms set forth in the 2001 Option Plan. All options granted in 2002 were
QSOs.
STOCK OPTION GRANT TABLE
The following table shows options grants to the covered executives,
based on 2001 performance. All 2001 stock option grants were made under the 2001
Stock Option Plan. The value of the stock options depends upon a long-term
increase in the market price of the common stock. A benefit is perceived only if
the stock price does increase. Options vest in cumulative installments of 20%
per year over a five-year period and remain exercisable until the 10th
anniversary of the grant.
Option values on the grant dates were determined by using the
Black-Scholes Option Valuation Model. The model assumes that future dividends
increase at a rate equal to the historical compound average growth rate during
the past six years, the stock price volatility, and the exercise of all options
on the final day of their 10 year terms.
18
<Table>
<Caption>
Percent of Total Grant
Options Exercise Date
Options Granted price Expiration Present
Name Granted to Employees ($ per share) Date Value(a)
- --- ------- ---------------- ------------- ---------- --------
David H. Chafey Jr. ................. 25,301 6.61% $28.84 2/14/2012 $339,077
Jorge A. Junquera ................... 22,265 5.81% 28.84 2/14/2012 298,388
Roberto R. Herencia ................. 20,241 5.28% 28.84 2/14/2012 271,261
Larry B. Kesler ..................... 20,241 5.28% 28.84 2/14/2012 271,261
Carlos J. Vazquez ................... 18,976 4.95% 28.84 2/14/2012 254,308
Kenneth W. McGrath .................. 5,763 1.50% 28.84 2/14/2012 77,239
</Table>
(a) The estimates were calculated in accordance with the regulations of the
Securities and Exchange Commission, which are not intended to predict the
Corporation's common stock price.
***
PROFIT SHARING PLAN OF THE BANK
All officers and regular monthly salaried employees of the Bank are
active participants in the Bank's Profit Sharing Plan, as of the first day of
the calendar month following the completion of three months of service.
Under this plan, the Board of Directors determines the Bank's annual
contribution based on the profits of the Bank for the year. The amount
allocated to each officer or employee is based on his or her earned salary for
the year. The total amount contributed for the year 2001 was $15,850,446. Of
the total awarded 40% is deferred under the Profit Sharing Plan, 10% under the
Savings & Stock Plan and the remainder 50% is paid in cash. However, since 1998
each officer and employee may elect to increase his (her) contribution to the
Savings & Stock Plan up to 15%; as a result of this election 39% was deferred
under the Profit Sharing Plan and 11% under the Savings & Stock Plan.
BENEFIT RESTORATION PLAN OF THE BANK
The Internal Revenue Service (IRS) set a limit of $170,000 as the
amount of compensation that may be considered in calculating future retirement
payments from qualified pension plans. This limit applies to the Bank's
Retirement Plan and Profit Sharing.
The Board of Directors has approved a "Benefit Restoration Plan" for
those officers whose annual compensation is higher than the established limit.
This plan will provide those benefits that cannot be accrued under the Bank's
Retirement and Profit Sharing Plan, which are qualified plans under the
Employee Retirement Income Security Act ("ERISA"). Benefits under the Benefit
Restoration Plan shall be equal to the account balance that would be provided
under the Profit Sharing Plan and to the benefits that would have been accrued
under the Retirement Plan. The Plan was unfunded during plan year 2001. This
Plan was modified during 2001 in order to comply with Section 1165(e) of the
Puerto Rico Internal Revenue Code of 1994 to be qualified under local law.
Also, a Rabbi Trust has been established to fund benefits accrued by employees
working mainly in the United States.
RETIREMENT PLAN OF THE BANK
The Bank has a non-contributory, defined benefit Retirement Plan
covering substantially all regular monthly employees. Monthly salaried
employees are eligible to participate in the Plan following the completion of
one year of service and 21 years of age. Pension costs are funded in accordance
with minimum funding standards under ERISA.
The basis for the Retirement Plan formula is total compensation, which
includes Christmas Bonus, incentives, overtime, differentials, Profit Sharing
cash bonuses and any other compensation received by the employee. Benefits are
paid on the basis of a straight life annuity plus supplemental death benefits
and are not reduced for Social Security or other payments received by the
participants.
19
Normal retirement age at the Bank is a combination of years of age and
completed years of service totaling 75. Early retirement is at 55 years of age
with 10 years of service. Employees with 30 years of service or more are
provided with a retirement benefit of 40% of total compensation. Benefits are
reduced only if the employees retires before age 55. Benefits are subject to
the U.S. Internal Revenue Code limits on compensation and benefits.
The following table sets forth the estimated annual benefits that
would become payable under the Retirement Plan and the Benefit Restoration Plan
based upon certain assumptions as to total compensation levels and years of
service. The amounts shown in this table are not necessarily representative of
amounts that may actually become payable under the plans. The amounts represent
the benefit upon retirement on December 31, 2001, of a participant at age 65.
<Table>
<Caption>
TOTAL
COMPENSATION ESTIMATED ANNUAL BENEFITS/YEARS OF SERVICE
- ------------ ---------------------------------------------------------
15 20 25 30 35
-------- -------- -------- -------- --------
$800,000 $146,000 $204,000 $262,000 $320,000 $320,000
700,000 128,000 179,000 229,000 280,000 280,000
600,000 110,000 153,000 197,000 240,000 240,000
500,000 91,000 128,000 164,000 200,000 200,000
400,000 73,000 102,000 131,000 160,000 160,000
300,000 55,000 77,000 98,000 120,000 120,000
</Table>
The 2001 total compensation and estimated years of service at age 65
for the highest paid key policy-making Executive Officers of the Corporation are
as follows.
<Table>
<Caption>
Estimated
2001 Years of
Total Service
Compensation At Age 65
------------ ---------
Richard L. Carrion ............. $629,000 41.6
David H. Chafey Jr. ............ 762,000 39.8
Jorge A. Junquera .............. 674,000 41.5
Roberto R. Herencia ............ 630,000 33.7
Larry B. Kesler ................ 598,000 16.5
Carlos J. Vazquez .............. 571,000 26.4
</Table>
DEFERRED COMPENSATION PLAN OF POPULAR SECURITIES, INC.
Popular Securities, Inc. maintains a non-qualified deferred
compensation plan under which a selected group of highly compensated employees
of Popular Securities, Inc. are required to defer a portion of their incentive
performance bonus. The amount deferred and interest credits are paid to
participants as follows: (a) 50% on or before January 31 of the second fiscal
year following the fiscal year for which such amounts were contributed and (b)
50% on or before January 31 of the third fiscal year following the fiscal year
for which such amounts were contributed.
RETIREMENT PLAN OF BANCO POPULAR NORTH AMERICA
Banco Popular North America has a non-contributory, defined benefit
Retirement Plan covering substantially all regular monthly employees. Monthly
salaried employees are eligible to participate in the plan following the
completion of one year of service and attained 21 years of age. Pension costs
are funded in accordance with minimum funding standards under ERISA.
The bases for the Retirement Plan formula are years of service and
average final compensation. Benefits are paid on the basis of a single life
annuity and are not reduced (offset) for Social Security or other payments
received by the participants.
20
Normal retirement is when the participant reaches age 65 and has five
years of credited service. Participants can enjoy actuarially adjusted early
retirement benefits at age 55 with 10 years of service. This plan is qualified
under section 401(a) of the Internal Revenue Code.
DEFERRED COMPENSATION PLAN OF EQUITY ONE, INC.
Equity One, Inc. adopted a deferred compensation plan designed to provide
a post retirement benefit to several key executives. Equity One, Inc. purchases
flexible, variable life insurance policies for each participant and names
itself as beneficiary. The cash surrender values of the policies are expected
to pay benefits to the participants upon their retirement. Should the
participant terminate their employment prior to retirement, they are entitled
to their vested portion of their account.
* * *
POPULAR INC.
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return during
the measurement period with the cumulative total return, assuming reinvestment
of dividends, of the National Association of Securities Dealers automated
Quotation System (NASDAQ) Stock Market Index and the NASDAQ Bank Composite
Index.
The cumulative total shareholder return was obtained by dividing (i) the
cumulative amount of dividends per share, assuming dividend reinvestment, since
the measurement point, December 31, 1996 plus (ii) the change in the per share
price since the measurement date, by the share price at the measurement date.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
TOTAL RETURN AS OF DECEMBER 31
(DECEMBER 31, 1996=100)
[GRAPH]
<Table>
<Caption>
BASE
COMPANY/INDEX PERIOD 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
- ------------- ------ -------- -------- -------- -------- -------- --------
POPULAR, INC. 16.875 100.00 146.67 201.48 165.56 155.93 172.33
NASDAQ BANKS COMPOSITE 453.81 100.00 141.06 147.02 124.57 142.38 138.90
NASDAQ STOCK MARKET 580.39 100.00 122.39 171.64 319.03 193.75 152.56
</Table>
21
PROPOSALS OF SECURITIES HOLDERS TO BE PRESENTED AT THE 2003 ANNUAL
MEETING OF STOCKHOLDERS
Stockholders' proposals intended to be presented at the 2003 Annual
Meeting of Stockholders must be received by the Corporation's Secretary, at its
principal executive offices, Popular Center Building, San Juan, Puerto Rico,
00918, not later than November 29, 2002 for inclusion in the Corporation's
Proxy Statement and Form of Proxy relating to the 2003 Annual Meeting of
Stockholders.
San Juan, Puerto Rico, March 18, 2002
RICHARD L. CARRION SAMUEL T. CESPEDES
Chairman of the Board, President Secretary
and Chief Executive Officer
YOU MAY REQUEST A COPY OF THE REPORT ON FORM 10K FILED WITH THE SEC BY CALLING
(787) 765-9800 OR WRITING TO AMILCAR JORDAN, SENIOR VICE PRESIDENT, BANCO
POPULAR DE PUERTO RICO, PO BOX 362708, SAN JUAN, PR 00936-2708
22
[POPULAR LOGO]
23
[LOGO] POPULAR, INC. IF YOU WISH TO VOTE BY TELEPHONE, INTERNET OR MAIL,
PLEASE READ THE INSTRUCTIONS BELOW.
C/O BANCO POPULAR Popular, Inc. encourages you to take advantage of the
DE PUERTO RICO convenient ways to vote your shares for matters to
TRUST DIVISION be covered at the 2002 Annual Meeting of Stockholders.
P.O. BOX 362708 Please take the opportunity to use one of the three
SAN JUAN, PR 00936-2708 voting methods outlined below to cast your ballot.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting
instructions up until 11:59 P.M. Eastern Time the day
before the cut-off date or meeting date. Have your
proxy card in hand when you call. You will be
prompted to enter your 12-digit Control Number which
is located below and then follow the simple
instructions the Vote Voice provides you.
VOTE BY INTERNET - www.proxyvote.com
-----------------
Use the Internet to transmit your voting instructions
and for electronic delivery of information up until
11:59 P.M. Eastern Time the day before the cut-off
date or meeting date. Have your proxy card in hand
when you access the web site. You will be prompted to
enter your 12-digit Control Number which is located
below to obtain your records and to create an
electronic voting instruction form.
VOTE BY MAIL
Please mark, sign, date and return this card promptly
using the enclosed postage prepaid envelope; No
postage is required if mailed in the United States,
Puerto Rico or the U.S. Virgin Islands.
KEEP THIS
PORTION FOR
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: POPULA YOUR RECORDS
- --------------------------------------------------------------------------------
[LOGO] POPULAR, INC. PROXY DETACH AND
RETURN THIS
PORTION ONLY
The Board recommends a vote for:
1. ELECTION OF THE FOLLOWING NOMINEES: FOR WITHHOLD FOR ALL TO WITHHOLD AUTHORITY TO VOTE, MARK "FOR ALL EXCEPT"
1) DAVID H. CHAFEY JR. ALL ALL EXCEPT AND WRITE THE NOMINEE'S NUMBER ON THE LINE BELOW.
2) ANTONIO LUIS FERRE
3) FELIX J. SERRALLES JR. [ ] [ ] [ ] ______________________________________________________
2. TO RATIFY THE SELECTION OF THE FOR AGAINST ABSTAIN
CORPORATIONS'S INDEPENDENT AUDITORS
FOR 2002 [ ] [ ] [ ]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Richard L. Carrion, Jorge A. Junquera and David H. Chafey Jr. or any one or more of them as
Proxies, each with the power to appoint his substitute, and authorizes them to represent and to vote as designated above all the
shares of common stock of Popular, Inc. held of record by the undersigned on March 11, 2002, at the Annual Meeting of Shareholders
to be held at the Centro Europa Building, 1492 Ponce de Leon Avenue, 3rd Floor, San Juan, Puerto Rico, on April 30, 2002, at 10:30
a.m. or at any adjournments thereof. The Proxies are further authorized to vote such shares upon any other business that may
properly come before the meeting or any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED "FOR" ITEMS 1 AND 2 ABOVE.
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
PLEASE SIGN AS YOUR NAME APPEARS ON THIS FORM. IF
SHARES ARE HELD JOINTLY, ALL OWNERS SHOULD SIGN.
(VEA AL DORSO TEXTO EN ESPANOL)
- ------------------------------------------------ -----------------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date