SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
[x] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
----------
Santander BanCorp
(Name of Registrant as Specified in its Charter)
----------
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[SANTANDER BANCORP LOGO]
- --------------------------------------------------------------------------------
207 Ponce de Leon Avenue
San Juan, Puerto Rico 00918
March 26, 2004
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend the 2004
Annual Meeting of Stockholders of Santander BanCorp. The meeting will be held on
April 29, 2004 at 10:00 a.m. at the Seventh Floor of Santander Tower II located
at 221 Ponce de Leon Avenue, San Juan, Puerto Rico. The formal notice and proxy
statement for this meeting are attached to this letter.
It is important that you sign, date and return your proxy as soon as possible,
even if you currently plan to attend the Annual Meeting. You may still attend
the Annual Meeting and vote in person, if you desire, but returning your proxy
card will assure that your vote is counted if you are unable to attend. Your
vote, regardless of the number of shares you own, is important.
I thank you for your cooperation.
Sincerely,
/s/ Jose R. Gonzalez
Jose R. Gonzalez
President & Chief Executive Officer
SANTANDER BANCORP
207 PONCE DE LEON AVENUE
SAN JUAN, PUERTO RICO 00918
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, APRIL 29, 2004
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To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Santander
BanCorp (the "Meeting") for the year 2004 will be held at 10:00 a.m. on
Thursday, April 29, 2004, at the Seventh Floor of Santander Tower II located at
221 Ponce de Leon Avenue, San Juan, Puerto Rico, to consider and act upon the
following matters:
(1) To elect three (3) directors for a three-year term;
(2) To ratify the appointment of Deloitte & Touche LLP as the
Corporation's independent accountants for year 2004;
(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 19, 2004 are
entitled to notice of and vote at the Meeting.
By Order of the Board of Directors,
/s/ Enrique R. Ubarri Baragano
Enrique R. Ubarri Baragano, Esq.
Secretary
San Juan, Puerto Rico
March 26, 2004
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IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU
OWN. EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE
MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY. YOU IN WRITING OR IN
PERSON MAY REVOKE ANY PROXY GIVEN AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
- --------------------------------------------------------------------------------
SANTANDER BANCORP
207 Ponce de Leon Avenue
San Juan, Puerto Rico 00918
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PROXY STATEMENT
For the Annual Meeting of Stockholders
To be held on Thursday, April 29, 2004
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Santander BanCorp (the "Corporation") of Proxies to be
voted at the Annual Meeting of Stockholders (the "Meeting") to be held at 10:00
a.m. on Thursday, April 29, 2004 at the Seventh Floor of Santander Tower II
located at 221 Ponce de Leon Avenue, San Juan, Puerto Rico and any adjournment
thereof. Enclosed with this Proxy Statement is the Annual Report to
stockholders, including the consolidated financial statements of the Corporation
for the year ended December 31, 2003, duly audited by Deloitte & Touche LLP, as
independent public accountants. This 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 26, 2004.
All shares represented by each properly signed and returned proxy card in
the accompanying form, unless revoked, will be voted at the meeting in
accordance with stockholder's instructions indicated on the proxy card. If no
instructions are marked on the proxy card, the shares will be voted in favor of
the proposals described in this Proxy Statement. A stockholder may revoke the
accompanying proxy at any time before it is voted; either by delivering a
subsequent duly executed proxy or other written notice of revocation to the
President or Secretary of the Corporation at its above address or by attending
the Annual Meeting and voting 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. 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 Corporation will pay the cost of the solicitation of proxies, including
preparing and mailing the Notice of Annual Meeting, this Proxy Statement and the
proxy card. The Corporation has retained the services of Chase Mellon
Shareholders Services, 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 $4,000,
plus reimbursement of all out-of-pocket expenses. Brokerage house and other
nominees, fiduciaries and custodians who are holders of record of shares of the
Corporation's Common Stock, $2.50 par value per share (the "Common Stock"), will
be requested to forward proxy soliciting material to the beneficial owners of
such shares and will be reimbursed by the Corporation for their expenses in
connection therewith at customary and reasonable rates. In addition to
solicitation by mail, directors, officers and employees of the Corporation may
solicit proxies by telephone, facsimile transmission or other personal contact,
for which services such persons will receive no additional compensation.
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VOTING SECURITIES AND VOTE REQUIRED FOR APPROVAL
The only outstanding voting securities of the Corporation are shares of its
Common Stock, par value $2.50 per share. Each stockholder of record at the close
of business on March 19, 2004 is entitled to notice of and vote at the Annual
Meeting and any adjournment or adjournments thereof. On that date, excluding
shares held as treasury stock, there were 42,398,954 shares of Common Stock
outstanding, with each share entitled to one vote. The presence, in person or by
proxy, of a simple majority of the shares entitled to vote will constitute
quorum for the Annual Meeting. Abstention from voting, which may be specific on
all matters except the election of directors, will be considered shares present
and entitled to vote on all matters and, accordingly, will have the same effect
as a vote against a matter. Broker non-votes are included in the determination
of the number of shares present and voting: however, they are not counted for
purposes of determining the number of votes cast with respect to a particular
proposal. Accordingly, broker non-votes are not counted as votes for or against
a particular proposal.
PRINCIPAL HOLDERS OF CAPITAL STOCK
The following sets forth information known to the Corporation as to the
persons or entities, which as of March 19, 2004, by themselves or as a group, as
the term is defined by section 13(d)(3) of the Securities Exchange Act of 1934,
are the beneficial owners of 5% or more of the issued and outstanding common
stock of the Corporation in circulation. All information concerning persons who
may be beneficial owners of 5% or more of the stock is derived from Schedule
13(D) or 13(G) statements filed and notified to the Corporation.
BENEFICIAL OWNERS OF 5% OR MORE:
NAME NUMBER OF SHARES PERCENTAGE
-------------------------------------------------------------------------
Banco Santander Central Hispano, S.A.
Paseo de Pereda 9-12
Santander, Spain 37,589,756(1) 88.66%
(1) Includes shares of common stock owned by its subsidiaries.
BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS OR NOMINEES:
The following table sets forth information with regards to the total number
of shares of the Corporation's common stock beneficially owned by each current
member of the Board of Directors and each nominee to the Board of Directors and
each current executive officer and by all current directors and executive
officers as a group. Information regarding the beneficial ownership by executive
officers and directors is derived from information submitted by such executive
officers and directors.
PERCENTAGE OF
AMOUNT OF BENEFICIAL OUTSTANDING VOTING
OWNERSHIP SECURITIES
-------------------- ------------------
Gonzalo de las Heras.................................... - -
Jose R. Gonzalez........................................ 12,210 *
Victor Arbulu........................................... - -
Maria Calero............................................ 8,885 *
Carlos Capacete......................................... - -
Roberto Cordova......................................... - -
Stephen A. Ferriss...................................... - -
Carlos M. Garcia........................................ 50,000 *
Vicente Gregorio........................................ - -
Rafael F. Saldana....................................... - -
Roberto H. Valentin..................................... 3,427 *
Jesus Zabalza........................................... - -
Total Shares owned by Directors, Nominees and
Executive Officers, as a group.......................... 74,522 *
* Less than 1%
2
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of Forms 3, 4 and 5 and amendments thereto furnished to
the Corporation with respect to its 2003 fiscal year, pursuant to Section 16(a)
of the Securities Exchange Act of 1934, the Corporation has no knowledge that
any person subject to Section 16(a) has failed to file the required forms.
MATTERS TO BE VOTED UPON BY THE STOCKHOLDERS
PROPOSAL ONE: ELECTION OF DIRECTORS
BOARD OF DIRECTORS
The Corporation's By-laws give the Board the power to set, by resolution of
an absolute majority of the board of directors, the number of directors at no
less than five nor more than eleven and always an odd number. The Board has
fixed the number of directors at nine. The Corporation currently has nine
directors. Article Fifth of the Corporation's Articles of Incorporation and of
Section 2 of Article II the Corporation's By-Laws establishes the structure of
election of members of the Board of Directors with three classes of directors.
It provides that the Board of Directors shall be divided into three classes as
nearly equal in number as possible and that the members of each class shall be
elected for a term of three years and until their successors are elected and
qualified.
Regular meetings of the Board of Directors are held at least quarterly.
Special Board meetings are held when called by or at the request of the
Chairman, the President or one third of the directors.
The following are directors of the Corporation whose term expires at the
Annual Meeting. The table below contains information regarding the nominees for
election as directors.
CLASS A
Name Occupation Age Director Since
---- ---------- --- --------------
Maria Calero Executive Vice President 51 2001
Chief Accounting Officer of the Corporation
Victor Arbulu Consultant 62 2002
Stephen A. Ferriss Private Investor 58 2003
The term of the following directors does not expire at the Annual Meeting.
The table below contains information of said directors.
CLASS B (TERM EXPIRES IN ONE YEAR)
Jose R. Gonzalez President & Chief Executive Officer of the 49 2000
Corporation
Roberto H. Valentin Private Investor 63 2000
Carlos M. Garcia Senior Executive Vice President & 32 2002
Chief Operating Officer of the Corporation
CLASS C (TERM EXPIRES IN TWO YEARS)
Gonzalo de las Heras Chairman of the Board of the Corporation 63 2000
Managing Director
North American Division SCH
Vicente Gregorio Consultant 52 2003
Jesus Zabalza Managing Director 45 2002
Latin America Division SCH
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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).
There are no cumulative voting rights for the election of directors. In the
absence of contrary instructions, it is the intention of the persons named in
the accompanying proxy card to vote for the nominees listed thereby. In the
event that any nominee becomes unavailable for any reason, which the Board does
not anticipate, the proxies will be voted for the election of the person, if
any, who is designated by the Board to replace the nominee.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE PROPOSAL TO ELECT THE NOMINEES FOR DIRECTORS NAMED HEREIN. THE VOTE OF
THE HOLDERS OF THE MAJORITY OF THE TOTAL VOTES ELIGIBLE TO BE CAST AT THE ANNUAL
MEETING IS REQUIRED FOR THE APPROVAL OF THIS PROPOSAL.
OFFICERS
The Corporation's executive officers are appointed by the Board of
Directors and hold office at its discretion. Listed below are the Corporation's
directors and executive officers, their respective positions and certain
biographical information as of March 19, 2004.
DIRECTOR OF THE
DIRECTOR AGE CORPORATION SINCE
- -------- --- -----------------
Gonzalo de las Heras............ Director and Chairman 63 2000
Jose R. Gonzalez................ Director and Vice Chairman 49 2000
Victor Arbulu................... Director 62 2002
Maria Calero.................... Director 51 2000
Stephen A. Ferriss.............. Director 58 2003
Carlos M. Garcia................ Director 32 2002
Vicente Gregorio................ Director 52 2003
Roberto H. Valentin............. Director 63 2000
Jesus M. Zabalza................ Director 45 2002
4
OFFICER OF THE
EXECUTIVE OFFICERS AGE CORPORATION SINCE:
- ------------------ --- ------------------
Jose R. Gonzalez ............... President & 49 2001
Chief Executive Officer
Carlos M. Garcia................ Senior Executive Vice President 32 2002
Chief Operating Officer
Maria Calero.................... Executive Vice President 51 1999
Chief Accounting Officer
Roberto Cordova................. Executive Vice President 44 2003
Commercial Banking
Juan Davila..................... Executive Vice President 35 2003
Chief Risk Officer
Rafael Saldana.................. Executive Vice President 46 2001
Retail Banking
Carlos Capacete................. Managing Director 49 2004
Santander Securities Corporation
Sinesio Diaz.................... President 46 2001
Santander Mortgage Corporation
Jorge Garcia.................... President & Chief Executive Officer 37 2003
Santander Insurance Agency, Inc.
Ivonna Pacheco.................. First Senior Vice President 38 2000
Human Resources
Ramon Sanchez................... First Senior Vice President 34 2000
Internal Audit
Patricio Silva.................. First Senior Vice President 48 2003
Operations
Laura Vazquez................... First Senior Vice President 45 2001
Comptroller
Enrique R. Ubarri, Esq.......... Secretary, General Counsel 32 2000
and Senior Vice President -
Compliance and Legal
DIRECTORS OF THE CORPORATION
GONZALO DE LAS HERAS has served as Chairman of the Board of Directors of
the Corporation and the Bank since October 2002. Prior to his appointment as
Chairman of the Board, Mr. de las Heras held a position as Director of the Bank
since June 1998 and Director of the Corporation since May 2000. Mr. de las
Heras, joined Banco Santander in 1990. He currently serves as Managing Director
of Banco Santander Central Hispano, supervising its North American business. He
is Chairman of Banco Santander International, Miami; Santander Trust & Bank
(Bahamas) Limited, and Banco Santander (Suisse). Prior to that, Mr. de las Heras
held various positions at J.P. Morgan, lastly as Senior Vice President and
Managing Director of First Fidelity Bancorporation until its merger with First
Union. Mr. de las Heras has a law degree from the University of Madrid and as a
Del Amo Scholar pursued postgraduate studies in Business Administration and
Economics at the University of Southern California. From 1993 to 1997, Mr. de
las Heras served on the New York State Banking Board. He is Chairman of the
Foreign Policy Association, a Trustee and past Chairman of both the Orpheus
Chamber Orchestra and the Institute of International Bankers, and a Director of
both The Spanish Institute and the Spain-US Chamber of Commerce.
JOSE R. GONZALEZ has served as President, Chief Executive Officer and Vice
Chairman of the Board of Directors of the Corporation since October 2002. Prior
to his appointment as President and Chief Executive Officer of the Corporation,
Mr. Gonzalez served as Senior Executive Vice President and Chief Financial
Officer of Santander BanCorp from July 2001 and as Director of the Corporation
since 2000. From 1996 to July 2001, Mr. Gonzalez served as President and Chief
Executive Officer of Santander Securities Corporation ("SSC"), a securities
broker-dealer since August 1996. From 1995 to 1996, Mr. Gonzalez was Vice
President and Chief Financial Officer of MOVA Pharmaceutical Corporation, a
privately held pharmaceutical manufacturing company based in Caguas, Puerto
Rico. Prior to this, Mr. Gonzalez was at Credit Suisse First Boston, a
securities broker-dealer, from 1983 to
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1986 as a Vice President of Investment Banking, and from 1989 to 1995 as
President of the Puerto Rico operations of the firm. From 1986 to 1989, Mr.
Gonzalez was President and Chief Executive Officer of the Government Development
Bank for Puerto Rico. Mr. Gonzalez is a member of the Board of Trustees of the
University of Puerto Rico and was elected as a member of the Board of Directors
of the Federal Home Loan Bank of New York in January 2004. Mr. Gonzalez received
a B.A. in Economics from Yale University in 1976, and MBA and Juris Doctor
degrees from Harvard University in 1980.
VICTOR ARBULU CROUSILLAT became a Director of the Corporation on October
2002. He has worked for J.P. Morgan for nearly 25 years in various positions in
Europe, North America and South America. He was a Managing Director of J.P.
Morgan, member of its European management committee and Chief Executive Officer
for Spain and Portugal from 1988 until 1998. Prior to joining J.P. Morgan, Mr.
Arbulu worked as an officer of the Interamerican Development Bank in Washington,
D.C., and also as a financial consultant and in management positions of
industrial companies in Spain and Latin America. Mr. Arbulu holds a degree in
Mechanical and Electrical Engineering from the Universidad Nacional de
Ingenieria in Lima, Peru and a Masters of Business Administration from the
Escuela para Graduados (ESAN) in Lima, Peru.
MARIA CALERO has served as Director of the Corporation since February 2001.
Ms. Calero was named Executive Vice President and Chief Accounting Officer in
January 2001. Ms. Calero was appointed Director of the Board of Directors of the
Bank in May 2000. From April 1996 to December 2000, Ms. Calero held the position
of First Senior Vice President - Compliance and Legal Department. From April
1995 until April 1996, Ms. Calero held the title of Senior Vice President -
Compliance Department and since November 1998 has been in charge of the
Corporation's Investor Relations. Prior to her employment at the Bank in April
1995, she held the position of Senior Vice President, Administration/Finance at
Santander National Bank from November 1992 to March 1995, having served
previously as a private consultant to those institutions on accounting and
regulatory matters. Ms. Calero also worked for Deloitte, Haskins & Sells in the
San Juan Office from August 1975 to August 1985; as Audit Manager, Savings &
Loans Industry, from June 1980 to August 1985. Ms. Calero is a member of the
American Institute of Certified Public Accountants, the Puerto Rico Society of
Certified Public Accountants, and the Florida Institute of Certified Public
Accountants.
STEPHEN A. FERRISS was named Director of the Corporation in May 2003. Mr.
Ferriss is a private investor who previously served as President and Chief
Executive Officer of Santander Central Hispano Investment Securities, Inc. in
New York. Prior to that appointment, from 1987 to 1999 Mr. Ferriss served in
various positions at Bankers Trust, which include Managing Director and Partner
within Bankers Trust's Global Investment Bank in London, England and New York.
He also served as Managing Director for Bankers Trust Emerging Markets (Eastern
Europe, Middle East, and Africa) in London. Prior to joining Bankers Trust, Mr.
Ferriss served for 17 years at Bank of America in various positions, which
include tenure as Senior Vice President managing the Spain and Portugal
operations for the bank in Madrid, Spain. Mr. Ferriss is also a member of the
North American Advisory Board of Proudfoot Consulting. Mr. Ferriss has a B.A.
degree from Columbia College and a Master's of International Affairs from
Columbia University.
CARLOS M. GARCIA was named Director of the Corporation in April 2002. Mr.
Garcia was appointed Senior Executive Vice President and Chief Operating Officer
of the Corporation and the Bank in January 2004. He also serves as President and
Chief Executive Officer of SSC. Mr. Garcia joined SSC in 1997 as Director of its
Investment Banking Department and the Bank in October 2003 as Executive Vice
President - Wholesale Banking. Prior to joining Santander, Mr. Garcia was Vice
President of Investment Banking at Popular Securities, Inc. and from 1993 to
1995 Mr. Garcia worked for Credit Suisse First Boston Corporation. Mr. Garcia
holds a dual degree in Business from the Wharton School and in Comparative
Literature from the College of Arts and Sciences of the University of
Pennsylvania.
VICENTE GREGORIO was named Director of the Corporation and the Bank on
March 2003. Mr. Gregorio is a Certified Public Accountant, business consultant,
Chairman of VRC Business Services, Inc. and director of Caribbean Petroleum
Corporation. Prior to these, Mr. Gregorio held various positions in Arthur
Andersen LLP from 1973 to 2002. From 1987 to August 2002, Mr. Gregorio served as
Managing Partner of the San Juan Office of Arthur Andersen LLP and also headed
the Assurance and Business Advisory Group. While at Arthur Andersen LLP, Mr.
Gregorio provided services to a number of financial institutions, including, the
Corporation and the Bank. Mr. Gregorio holds a Bachelor Degree in Business
Administration with honors from the University of Puerto Rico. He is
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a member of the Puerto Rico Society of Certified Public Accountants and the
American Institute of Certified Public Accountants.
ROBERTO H. VALENTIN has been a Director of the Corporation since May 2000
and Director of the Bank since April 1992. Mr. Valentin is an industrial
engineer, a private investor and has served as Chairman and President of the
following firms: Puerto Rico Box Corporation, Eric's Products, Inc., VIE
Development Corp, Dianissa Development Corp., RHV Investment Co., Desarrolladora
Roosevelt, Inc. and Costa Corcega, S. E. He has served as a member of the Board
of Directors of Rio Mar Development and Country Club, Rotary International,
Inc., and Rotary Foundation Inc. and as a member of the Board of Trustees of
Universidad del Sagrado Corazon. Mr. Valentin currently serves as a member of
the Board of Directors of the Puerto Rico Industrial Development Company.
JESUS M. ZABALZA became a Director of the Corporation in October 2002. Mr.
Zabalza currently serves as Managing Director of Banco Santander Central
Hispano, S.A responsible for Latin America since July 2002. Prior to joining
Banco Santander Central Hispano, S.A., Mr. Zabalza held various positions at La
Caixa- ("Caja de Ahorros y Pensiones de Barcelona") where he directed from 1996
to 2002 the retail-banking sector for Madrid and related areas. Prior to joining
La Caixa, Mr. Zabalza worked at Caja Postal as Managing Director and also served
as Managing Director of the Banco Hipotecario y Caja Postal from 1992 to 1996.
From 1982 to 1992, Mr. Zabalza held several positions at Banco de Vizcaya,
including Director of Commercial Banking, Director of Central Services and
Director of Area. Mr. Zabalza holds an Industrial Engineer degree.
EXECUTIVE OFFICERS OF THE CORPORATION (Other than Directors of the Corporation)
The following information sets forth the names of the executive officers
(the "Executive Officers") of the Corporation including their business
experience 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.
ROBERTO CORDOVA was named Executive Vice President and Director of
Commercial and Wholesale Banking on February 2003 and January 2004,
respectively. Prior to joining the Corporation, Mr. Cordova served as Senior
Vice President responsible for Corporate and Commercial Banking at Scotiabank
Puerto Rico where he worked for 18 years in various positions within the Bank.
Mr. Cordova also served as Vice President for Shields Title Company in the
general management of the title insurance company. Mr. Cordova holds a
Bachelor's and Master's degrees in Finance from Saint Louis University and a
Juris Doctor from the School of Law at Interamerican University of Puerto Rico
where he graduated Magna Cum Laude.
JUAN DAVILA was appointed Executive Vice President and Chief Risk Officer
on June 2003. Prior to his employment with the Corporation, Mr. Davila was the
Commercial Director and principal liaison between Winterthur and Credit Suisse
in Spain from 2001 to 2003. Mr. Davila also served for Banesto from 1994 to 2001
as Regional Risk Director of Branch and Small Business Administration. Mr.
Davila holds a Bachelor's Degree in Business Administration from Middlesex
University of London and a Master in Economics and Business Management from
ICADE in Spain.
RAFAEL F. SALDANA joined the Corporation on February 2003 and currently
serves as Executive Vice President and Director of Commercial Banking. Mr.
Saldana previously served as Director of Commercial Banking, Marketing and
Strategic Planning of the Bank from 1990 to 1996. Prior to returning to the
Corporation, Mr. Saldana served as Chief Marketing Officer-Hispanic Markets at
Capital One in Tampa, Florida. From 1999 to 2001 Mr. Saldana worked as Vice
President Corporate Marketing and General Manager for Hispanic Business at
Fingerhut/Federated Department Stores in Minnetonka, MN. From 1998 to 1999, Mr.
Saldana was Senior Vice President at Fleet Financial Group in Boston, MA,
heading Delivery Planning and Channel Management at the Retail Distribution
Group. Prior to joining Fleet Financial, he was Senior Vice President and Group
Executive for Wachovia Corporation, Winston-Salem, NC responsible for consumer
products, electronic banking, and channel management. Mr. Saldana earned a
Bachelor of Arts degree with a concentration in Economics from the University of
Puerto Rico and a Masters in Business Administration from the J.L. Kellogg
Graduate School of Management at Northwestern University, Evanston, IL.
7
CARLOS CAPACETE joined the Corporation in December 2003 as a result of the
acquisition by the Corporation of SSC. Mr. Capacete joined SSC in April 2003 as
Managing Director and Branch Manager, responsible for overseeing the Investment
Banking, Sales, Capital Markets, Marketing and Research departments. Prior to
joining SSC, Mr. Capacete worked for UBS PaineWebber for over sixteen years
where he was responsible for the capital markets area from 1995 until 2003.
Before 1995, he was in charge of the institutional trading desk from 1987 until
1995. From 1985 until 1987, he worked as Vice President of Institutional Sales
for Drexel Burnham Lambert Puerto Rico where he managed accounts of financial
institutions, insurance companies, and government. He worked for Banco Comercial
de Mayaguez from 1983 until 1985 where he served in various capacities, the last
one as Head of Investments. Mr. Capacete is a Certified Public Accountant and
holds a BS degree from Jacksonville University, where he graduated in 1978.
SINESIO DIAZ has served as President of Santander Mortgage Corporation, a
subsidiary of the Bank, since May 2001 and as officer of the Corporation since
August 2001. Prior to his employment with Santander Mortgage Corporation, Mr.
Diaz held various positions in Citibank, N.A.- Puerto Rico, including
Vice-president of Mortgage Banking and as manager of Corporate Banking. Before
joining Citibank, N.A., Mr. Diaz served as financial director for Unisys
Corporation. He also worked at several financial institutions in Puerto Rico,
including Banco Credito y Ahorro Ponceno and Bayamon Federal Savings. Mr. Diaz
has a B.A. and a Master's in Business Administration from Loyola University.
JORGE M. GARCIA has served as President and Chief Executive Officer of
Santander Insurance Agency, Inc. since June 2000. Mr. Garcia also serves as
Treasurer and Director of the Board of Director of Santander Insurance Agency,
Inc. Prior to joining the Corporation, Mr. Garcia served from 1996 to 2000 as
Resident Vice President of Citibank, NA responsible for the insurance business.
From 1988 to 1996, Mr. Garcia held various positions at National Insurance
Group. Mr. Garcia holds a Bachelor Degree in Business Administration and
Insurance from the Universidad del Sagrado Corazon and a Diploma of Risk
Management and Insurance from The College of Insurance of New York.
IVONNA PACHECO has served as First Senior Vice President of the Corporation
in charge of the Human Resources Department since March 2001. Ms. Pacheco began
at the Bank in 1990 as Manager of the Total Quality Program, becoming in 1995
Assistant Vice President of the Telephone Banking Department. On November 2000,
Ms. Pacheco was appointed Director of Human Resources. Prior to her employment
at the Bank, Ms. Pacheco served as Organizational Development Consultant for
Banco Popular de Puerto Rico. She is a licensed psychologist with a Ph.D. in
Industrial Organizational Psychology.
RAMON SANCHEZ has served as First Senior Vice President-Internal Audit
Department of the Bank since June 2000. From 1994 until 2000, Mr. Sanchez worked
for the SCH Audit Department and held the title of Senior Auditor for the last
two years. During that period he did the internal audit review of several banks
of the SCH Group in Latin America. He received a Juris Doctor in 1994 from the
University of Salamanca and completed his education with practical training in
Banco Santander, London, in the Accounting Department and in Banco Santander,
New York in the Investment Division.
PATRICIO SILVA has served as First Senior Vice President, Director of
Operations and Information Technology since August 2003. Prior to joining the
Corporation, Mr. Silva served as Special Projects Manager for the Santander
Group Latin America Division from 2001 to 2002. From 1996 to 2001, Mr. Silva
served as Information Systems Manager for Banco Santander Chile and prior to
that experience he served as Assistant Information Systems Manager for five
years in that institution. Before joining Banco Santander Chile, Mr. Silva
worked at OPTIMISA, S.A. as a project development manager from 1987 to 1990.
From 1979 to 1987, Mr. Silva served in various positions at the University of
Chile. Mr. Silva has a degree in Civil Engineering from the University of Chile
and an additional degree in Civil Engineering, also from the University of
Chile.
LAURA VAZQUEZ has served as First Senior Vice President and Comptroller
since September 2001 and prior to that as Senior Vice President and Deputy
Comptroller. Ms. Vazquez has been with the Bank since 1989. From 1986 to 1989
Ms. Vazquez worked for Arthur Andersen & Co. as Senior Auditor. Ms. Vazquez
holds a Bachelor's Degree in Economics from Boston University and a Master's
Degree in Professional Accounting from the University of Miami. Ms. Vazquez is a
member of the American Institute of Certified Public Accountants and the Puerto
Rico Society of Certified Public Accountants.
8
ENRIQUE R. UBARRI, ESQ. has served as Senior Vice President - Corporate
Compliance and Legal Division since October 2000 and as Corporate Secretary
since February 2001. Mr. Ubarri was formerly with the firm Fiddler Gonzalez &
Rodriguez, LLP. Mr. Ubarri has a Bachelor's Degree from Boston University in
Political Science with a minor in Economics, a Juris Doctor degree from the
Interamerican University School of Law and holds a Master's degree in Securities
and Financial Regulation from Georgetown University Law Center and a Master's
degree in Banking Law from the Morin Center at Boston University. Mr. Ubarri
also holds a Master's in Business Administration (MBA) from the Wallace Carroll
Graduate School of Management at Boston College with a concentration in the
management of financial institutions.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Corporation and of the Bank held 8 and 14
meetings, respectively, during the year ended December 31, 2003. The Corporation
and the Bank have various standing committees as described below, in addition to
other management committees. Mr. Zabalza and Mr. Arbulu attended fewer than 75%
of the aggregate of the meetings of the Board of Directors of the Corporation
held during year 2003.
The Corporation strongly encourages its directors to attend all
Stockholders Annual or Special Meetings. All members of the Board of Directors
attended the Annual Meeting of Stockholders held on April 30, 2003, except for
Mr. Gonzalo de las Heras, Mr. Victor Arbulu, Mr. Jesus Zabalza, Mr. Adolfo Lagos
and Mr. Victor Barallat, who were duly excused prior to the meeting.
The Corporation's Board of Directors has two standing committees, the Audit
Committee and the Compensation and Nomination Committee. During 2003 the
Corporation also created a Special Committee for the evaluation of the
transaction whereby the Corporation acquired SSC, the Corporation's broker
dealer subsidiary. The Bank's Board of Directors has two outstanding committees:
(i) the Credit Committee; and (ii) the Trust Committee. Information regarding
the Audit Committee, Compensation and Nomination Committee, Special Committee,
Credit Committee and Trust Committee follows:
AUDIT COMMITTEE
The Audit Committee is a committee of the Corporation and serves also as
the audit committee for the Bank and its subsidiaries. The functions of the
Audit Committee include reviewing the accounting principles and practices
employed by the Corporation and its subsidiaries, oversight of the internal
controls and procedures, and compliance with applicable laws and regulations.
The Committee meets with the Corporation's and its subsidiaries' public
independent accountants to approve the scope of the audit, review their report
on the examination of the Corporation's consolidated financial statements and
other reports, and their comments on the system of internal controls. Also, the
Committee oversees the internal audit function, including approval of the
internal audit plan and reports prepared by the Internal Audit Department on
their examinations of the operating and business units and other special
examinations.
The members of the Audit Committee are Mr. Victor Arbulu, Mr. Vicente
Gregorio, Mr. Stephen A. Ferriss and Mr. Roberto Valentin. Mr. Ramon Sanchez,
First Senior Vice President and Internal Audit Director of the Corporation,
presented audit reports to the Committee during 2003. The Board of Directors has
determined that Mr. Gregorio, Mr. Arbulu and Mr. Ferriss are all "audit
committee financial experts" as defined under U.S. Securities and Exchange
Commission (the "SEC") rules. The Board of Directors has made the determination
that all the members of the Audit Committee satisfy the applicable independence
requirements as applicable under SEC rules and the current and transitional
listing standards of the New York Stock Exchange ("NYSE"), as such requirements
are interpreted by the Board of Directors in its business judgment. The Board of
Directors will reassess the independence of all members of the Audit Committee
when transitional rules of the NYSE expire in November 2004. The Audit Committee
met 21 times during the year ended December 31, 2003. None of the members of the
committee are officers or employees of the Corporation or the Bank.
9
COMPENSATION AND NOMINATION COMMITTEE
The Compensation and Nomination Committee (the "Compensation Committee")
has been established to carry out the Board of Directors' overall responsibility
relating to executive compensation and support and advise the Board on the
composition of the Board and executive management of the Corporation. The
Compensation Committee has a Charter, which is attached as EXHIBIT A.
The Committee shall annually review and approve corporate goals and
objectives relevant to the compensation of the Corporation's Chief Executive
Officer and President, evaluate the CEO's performance in light of those goals
and objectives, and set the CEO's compensation level based on this evaluation.
The Compensation Committee shall also review and approve executive officer
compensation, including salary and bonus compensation levels; deferred
compensation; executive perquisites; severance arrangements; change-in-control
benefits and other forms of executive officer compensation.
Among the duties of the Compensation Committee in connection with its
nominating functions are to recommend to the Board of Directors the candidates
that can fill vacancies in the Board of Directors, establish and periodically
review the qualifications of the candidates to be nominated or appointed to the
Board of Directors, and recommend to the Board of Directors candidates to occupy
the position of executive officers of the Corporation. The nomination process
followed by the Compensation Committee in connection with its nominating power
takes into consideration the following criteria:
o Potential candidates recommended by stockholders will receive the same
consideration as potential candidates recommended otherwise. The
information of the potential candidates recommended by a stockholder
must be sent to the attention of the Secretary of the Board of
Directors of the Corporation.
o The Compensation Committee's duties are to ensure that the Board of
directors has the plans, procedures, and resources needed to identify,
recruit, and retain directors. The Compensation Committee will
identify the individuals who, in their judgment, are best qualified to
serve in the Board of Directors and will present their recommendations
to the Board of Directors for nominations at the Annual Stockholder's
Meeting. This Committee will also make recommendations to fill any
vacancies in the Board that might arise from time to time.
o The Compensation Committee develops qualifying criteria for the
directors of the Board and is responsible for seeking, interviewing,
and selecting those that, in their judgment, are best qualified, and
make the appropriate recommendations to the Board. Throughout this
process, the Committee may verify that the selected individuals
demonstrate the following specific qualities or skills: (a) experience
or relevant knowledge, (b) time availability and commitment, (c) good
reputation, (d) analytical thinking, (e) ability to work as a team,
(f) kinship with other members of the Board and management, and (g)
independent judgment. In addition, the Compensation Committee may
include other requirements which it may deem necessary to strengthen
the Corporation.
o The Compensation Committee has the authority to hire and terminate the
services of any professional third party search firm to identify
potential candidates for the position of director and executive
officers.
The Compensation Committee is composed of Messrs. de Las Heras, Zabalza and
Arbulu, neither of whom are or have been employees of the Corporation or the
Bank. The Board of Directors has made the determination that Mr. Arbulu
satisfies the applicable independence requirements as currently defined under
the listing standards of the NYSE, as such requirements are interpreted by the
Board of Directors in its business judgment. Messrs. de las Heras and Zabalza
are employees of SCH, which owns approximately 88.66% of the outstanding shares
of the Corporation's Common Stock. The Compensation Committee met once during
2003.
10
SPECIAL COMMITTEE
The Board of Directors of the Corporation appointed a Special Committee to
evaluate the transaction for the purchase of SSC. The members of the Special
Committee were Messrs. Victor Arbulu, Stephen Ferriss, Vicente Gregorio, and
Roberto Valentin, all independent directors of the Board of Directors of the
Corporation. The members of the Committee evaluated the transaction whereby the
Corporation acquired all of the common stock of SSC for a purchase price of $62
million from Administracion de Bancos Latinoamericanos Santander, S.L., a
wholly-owned subsidiary of SCH. The Special Committee met 8 times during the
year ended December 31, 2003.
COMMITTEES OF THE BOARD OF DIRECTORS OF THE BANK
CREDIT COMMITTEE
The Board of Directors of the Bank, through the implementation of the
Bank's Loan Policy, has established various management credit committees to
monitor and review the bank's lending function. These committees review,
evaluate, approve, or reject loan applications in accordance with the lending
authority specified hereinafter: a) Small Loan Credit Committee approves loans
up to $1,000,000; b) Regional Credit Committee approves loans up to $3,000,000;
c) Credit Administration Committee approves loans up to $8,000,000; d)
Management Credit Committee approves secured loans up to $15,000,000, unsecured
loans up to $5,000,000 and loans secured by personal guaranty up to $2,000,000;
e) the Board of Directors' Credit Committee must approve secured loans in excess
of $15,000,000, unsecured loans in excess of $7,000,000 and loans secured by
personal guaranty in excess of $2,000,000.
Lending authority includes any and all extensions of credit for the total
outstanding debt to the Bank from the borrower, co-signers, and related
interests. The credit facilities approval process excludes residential loan
mortgage balances and consumer loans. Loan approval requires unanimous consent
and each committee meets at least twice a week. All applications for loans to
principal stockholders, Directors, Officers, and their related interests, must
be submitted for review and approval to the Board of Directors and, if approved,
must be made on the same terms and conditions as for any other Bank customer.
The members of the Board who are also members of the Bank's Credit
Committee are Messrs. Vicente Gregorio, Jose R. Gonzalez and Roberto Valentin.
Mr. Irving Rivera is Senior Vice President, Credit Administration of the Bank
and also attends meetings of the Committee. The Credit Committee met 13 times
during the year ended December 31, 2003.
TRUST COMMITTEE
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. Vicente
Gregorio, Roberto Valentin, and Carlos Garcia. The Trust Officer also attends
meetings of the Trust Committee. The Trust Committee met 8 times during the year
ended December 31, 2003.
COMPENSATION OF DIRECTORS AND OFFICERS
COMPENSATION OF DIRECTORS
During fiscal year 2003, directors received a fee of $1,000 for each
meeting of the Board of Directors of the Corporation attended and $500 for each
meeting of the Bank, $500 for each Credit Committee meeting attended and for
each Trust Committee meeting attended, $1,500 for each Audit Committee Meeting,
$1,500 for each Special Committee and a monthly allowance of $3,000. Only
directors who are not officers of the Corporation or SCH receive fees for
attendance at Board of Directors meetings or committee meetings.
11
INDEMNIFICATION OF DIRECTORS
At the Annual Meeting of Stockholders of the Corporation held May 1, 2000,
the Board of Directors of the Corporation expressly authorized the Corporation
to enter into indemnification agreements with Directors of the Corporation in
order to indemnify them in their capacity as directors of the Corporation in
accordance with Article 4.08 of the General Corporations Law of Puerto Rico. To
the extent permitted by federal laws, under said section the Corporation: (i) is
authorized to indemnify each director of the Corporation for amounts paid in
expenses, judgments, fines and settlements in connection with any action arising
from his position as Director of the Corporation if such Director acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the Corporation and with respect to any criminal action or
proceeding had no reasonable cause to believe his conduct was unlawful; and (ii)
may indemnify each Director of the Corporation for the expenses incurred in
defending against liability arising from action taken in respect of his position
if such actions were taken in good faith and in a manner reasonably believed to
be in or not opposed to the Corporation's best interest and may advance to any
Director the costs associated with any such action upon receipt of an
undertaking by or on behalf of the Director to repay such amount if it is
ultimately determined such Director is not entitled to indemnification from the
Corporation.
COMPENSATION OF EXECUTIVE OFFICERS
PENSION PLAN
The Bank has a qualified defined benefit retirement plan that provides all
eligible employees (including executive officers) with retirement benefits (the
"Retirement Plan"). Employees of the Corporation benefit from the Retirement
Plan. Corporation employees are eligible to participate in the Retirement Plan
after attaining 21 years of age and completing one year of service. A
participant will receive a year of credited service for each plan year in which
he or she is credited with 1,000 or more hours of service. The compensation
basis used for plan formula is basic monthly earnings and is subject to the
limitations under U.S. Internal Revenue Code (the "Code"). The normal retirement
age under the plan is 65 years of age; early retirement age is at 55 years of
age and 15 years of service. At early retirement, benefits are subject to
actuarial reduction. The Retirement Plan complies with the Employees Retirement
Income Security Act of 1974 (ERISA) and pension costs are funded according to
ERISA's minimum funding standards. Former employees of Banco Central Hispano -
Puerto Rico ("BCH") who are now employed by the Bank participate in the Bank
Retirement Plan effective January 1, 1997. Benefits accrued for years of service
with BCH are provided through BCH Pension Plan up to November 30, 1996. In
fiscal years 2001 and 2002, the total contribution to the Retirement Plan by the
Bank amounted to $1,200,000 in each year. During fiscal year 2003 there was no
contribution to the Retirement Plan by the Bank.
Executives of the Bank that receive compensation from SCH do not
participate in the Retirement Plan.
PENSION PLAN TABLE
The following table sets forth the estimated annual benefits that would
become payable under the Retirement Plan based upon certain assumptions as to
annual basic salary levels and years of service. The amount payable in this
table are not necessarily representative of amounts that may actually become
payable under the Retirement Plan. The amounts represent the annual benefits
upon retirement on December 31, 2003, of a participant at age 65.
Annual Basic Salary Years of Service
- ------------------- ----------------
10 15 20 25 30
-------- -------- -------- -------- --------
$ 400,000 $ 20,787 $ 31,187 $ 41,574 $ 51,974 $ 62,361
$ 300,000 $ 20,787 $ 31,187 $ 41,574 $ 51,974 $ 62,361
$ 200,000 $ 20,715 $ 31,067 $ 41,418 $ 51,770 $ 62,133
$ 100,000 $ 10,251 $ 15,371 $ 20,502 $ 25,622 $ 30,753
No executive officer of the five highest paid key policymaking Executive
Officers benefited from the Retirement Plan during the year ended December 31,
2003.
12
The 2003 annual basic salary and estimated years of service at age 65 of
the only three executive officers of the five highest paid key policy making
Executive Officers that benefit from the Retirement Plan are as follows:
12/31/2003 Estimated Years of Service
Annual Basic Salary at Age 65
------------------- --------------------------
Jose R. Gonzalez $550,000 23
Rafael F. Saldana $250,000 22
Roberto Cordova $225,000 21
The basis for the Retirement Plan formula is annual basic salary received
by the employees. Benefits are paid on the basis of a straight life annuity plus
supplemental death benefits and are not reduced for social security or other
retirement benefits received by participants.
EMPLOYEES SAVINGS PLAN
The Bank has a Defined Contribution Savings Plan (the "Savings Plan")
pursuant to section 1165 (e) of the Puerto Rico Internal Revenue Code (the
"Puerto Rico Code"), which is similar to section 401-K of the U.S. Tax Code.
Employees of the Corporation benefit from the Savings Plan. The Plan complies
with ERISA and is qualified under the Puerto Rico Code. Bank employees are
eligible to participate in the Savings Plan after completing six (6) months of
service and there is no minimum age requirement to participate. Participating
employees may contribute from 1% to 10% of their annual compensation or $8,000,
which ever is lower. Bank contributions to the Savings Plan are discretionary.
The Bank contributions to the Savings Plan during fiscal year 2003 amounted to
$490,000.
PERFORMANCE BONUS PLAN
At the beginning of each calendar year, the President of the Corporation
meets with each executive officer to discuss and determine such executive
officer's goals for the upcoming fiscal year. By the year's end, the President
evaluates to what extent each executive officer has achieved the previously
established goals. Once this determination is made, and taking into
consideration any special project assigned to the executive officer and the
overall performance of the Bank, a performance bonus for the year is established
and approved by the Compensation Committee, either in an aggregate amount or by
specific executive officer.
KEY EXECUTIVE PLAN
This is a special program implemented in 1990 to secure the services of
certain key officers. The design follows the established parameters of a BOLI
Program or Bank Owned Life Insurance Plan, also known in the past as a "Key Man"
plan. This is a non-qualified plan and it is exempt from ERISA regulations.
The Bank has acquired life insurance policies with an accumulated cash
value feature for ten officers (including one executive officer). The Bank is
the owner and beneficiary of the policy proceeds at all times. If the employee
terminates its employment with the Bank, the policy is redeemed for the
accumulated cash values. In the event of death of the participant, the Bank
receives full payment of insurance coverage and pays the benefit agreed to the
participant's beneficiaries. The balance will compensate the Bank for the loss
of the executive and for the recuperation of premiums paid. The benefit is paid
in ten years drawing one tenth from the cash value in order to maintain the life
insurance policy active and to recuperate premiums paid. The accumulated cash
values are reflected in the Bank's balance sheet as part of its assets. The only
executive officer that benefits from this Key Man Plan is Laura Vazquez.
The total future premium payment is approximately $300,000 on a declining
balance of annual premium payments. The annual premium for 2003 was $36,000. The
prospective premium for 2004 is $40,000. The annual payments for the remaining
years decline as participants fulfill the total premium costs to maintain the
cash values.
13
EMPLOYEE AGREEMENTS
Mr. Gonzalez, Mr. Saldana and Mr. Cordova have each entered into employment
agreements with the Bank. Mr. Garcia has employment agreements with the Bank and
SSC.
Under Mr. Gonzalez' agreement, he is entitled to receive an annual base
salary of $550,000 and incentive compensation in accordance with the Performance
Bonus Plan, which is administered by the Compensation Committee. If Mr.
Gonzalez' employment is terminated by the Bank for other than just cause, Mr.
Gonzalez' is entitled to receive the greater of: (i) $700,000; or (ii) the gross
salary pending to be received by Mr. Gonzalez from the day of termination of the
agreement to April 30, 2005. In the event that Mr. Gonzalez' agreement is not
renewed upon the expiration of said agreement on April 30, 2005, the Bank shall
pay Mr. Gonzalez the amount of $700,000 as his termination of employment with
the Bank. Upon expiration of the agreement by the Bank and the failure to renew
the same, Mr. Gonzalez shall not provide professional services to any other
company in the Banking Industry in Puerto Rico for a period of six (6) months.
Mr. Gonzalez agreement also contains confidentiality provisions.
Mr. Saldana's agreement establishes that he is entitled to receive an
annual base salary of $250,000 and incentive compensation in accordance with the
Performance Bonus Plan, which is administered by the Compensation Committee. In
addition to the annual base salary, Mr. Saldana received $25,000 as a special
bonus. In the event his employment with the Bank was terminated during the first
year of employment, he would have to return the $25,000 to the Bank. In the
event that Mr. Saldana terminates voluntarily his employment with the Bank
during the second year, he would have to return 50% of the special bonus to the
Bank. Mr. Saldana shall also participate in the benefit plans established by the
Bank and he shall also benefit of the Christmas Bonus and Performance Bonus
provided by the Bank. If Mr. Saldana's employment is terminated by the Bank for
other than cause, as defined in the agreement, Mr. Saldana is entitled to
receive the greater of: (i) $250,000; or (ii) the indemnization provided in
accordance with Puerto Rico Public Act Number 80 of May 30, 1976, as amended, or
when the determination is made under a federal or Commonwealth of Puerto Rico
authority. In the event that the Bank has a "change of control", as said term is
defined under the agreement, during the first year of the agreement, Mr. Saldana
shall receive the aforementioned compensation as if he would have been
terminated. Mr. Saldana's agreement also contains confidentiality provisions.
Mr. Cordova's agreement entitles him to receive an annual base salary of
$225,000 and incentive compensation in accordance with the Performance Bonus
Plan, which is administered by the Compensation Committee. In addition to the
annual base salary, Mr. Cordova was to receive $25,000 as a special bonus. In
the event his employment with the Bank would have been terminated during the
first year of employment, he would have had to return the $25,000 to the Bank;
if employment is to be terminated during his second year of employment with the
Bank, he will have to return 50% of said bonus. Furthermore, Mr. Cordova has the
right to receive an additional bonus of $250,000 payable as described herein as
long as he would remain employed with the Bank at the time of payment. Upon
execution of the agreement, Mr. Cordova received $100,000 of the additional
bonus and on March 1, 2004, Mr. Cordova received $50,000 of the additional
bonus. The remaining $100,000 shall be payable by the Bank on two payments of
$50,000 each on March 1, 2005 and March 1, 2006. In the event that Mr. Cordova
would have terminated voluntarily his employment with the Bank during the first
year, he would have had to return 100% of the paid amount of the additional
bonus to the Bank. In the event he voluntarily terminates his employment with
the Bank during the second, third or fourth year, he shall return 50% of the
entire paid amount of the additional bonus to the Bank. Mr. Cordova shall also
participate in the benefit plans established by the Bank and he shall also
benefit of the Christmas Bonus and Performance Bonus provided by the Bank. If
Mr. Cordova's employment is terminated by the Bank for other than cause, as
defined in the agreement, Mr. Cordova is entitled to receive the greater of: (i)
$225,000; or (ii) the indemnization provided in accordance with Puerto Rico
Public Act Number 80 of May 30, 1976, as amended, or when the determination is
made under a federal or Commonwealth of Puerto Rico authority. In the event that
the Bank has a "change of control", as said term is defined under the agreement,
during the first year of the agreement, Mr. Cordova shall receive the
aforementioned compensation as if he would have been terminated. Mr. Cordova's
agreement also contains confidentiality provisions.
Mr. Garcia's agreement with the Bank provides him with an annual base
salary of $150,000 from October 14, 2002 to December 31, 2003 and an annual base
salary of $250,000 from January 1, 2004 to December 31, 2004 and a guaranteed
minimum annual bonus of $100,000 for 2003 and $200,000 for 2004. In addition to
the annual base salary, Mr. Garcia would not participate in the benefit plans
established by the Bank, but he would continue
14
participating in the benefit plans afforded to SSC employees. However, Mr.
Garcia has the option of terminating his participation on the benefit plans of
SSC and he could elect to participate in the benefit plans of the Bank. Mr.
Garcia would also benefit of the Christmas Bonus and Performance Bonus provided
by the Bank. If Mr. Garcia's employment is terminated by the Bank for other than
cause, as defined in the agreement, Mr. Garcia is entitled to receive the
greater of: (i) $250,000; or (ii) the indemnization provided in accordance with
Puerto Rico Public Act Number 80 of May 30, 1976, as amended, or when the
determination is made under a federal or Commonwealth of Puerto Rico authority.
Mr. Garcia's agreement also contains confidentiality provisions.
Moreover, Mr. Garcia's agreement with SSC provides him with an annual base
salary of $200,000, subject to annual revisions by SSC. Mr. Garcia is eligible
for the participation in a bonus pool for employees of SSC, which participation
is based on the performance of Mr. Garcia and the net revenues of SSC as a
whole. SSC also provides Mr. Garcia with health and other insurance coverage,
and he is also eligible to participate in SSC's 1165(e) profit sharing plan. If
Mr. Garcia's employment with SSC is terminated with or without cause, he will be
entitled to be compensated for one year's salary and the amount shall be equal
to the highest total compensation during the previous three years of employment
with SSC. Mr. Garcia's agreement with SSC also contains confidentiality
provisions and a non-compete clause, which includes a prohibition of soliciting
clients or prospective clients of SSC.
ANNUAL COMPENSATION
The following table sets forth the annual compensation for the
Corporation's Chief Executive Officer and the Bank's four other most highly
compensated executive officers for the years ended December 31, 2003, 2002 and
2001.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------- ALL OTHER
YEAR SALARY BONUS (1) OTHER (2) COMPENSATION TOTAL
---- --------- ---------- --------- ------------ ---------
Jose R. Gonzalez ..................... 2003 $ 550,000 $ 445,833 - $ 995,833
President & CEO 2002 $ 497,499 $ 310,183 - - $ 807,682
2001 $ 416,372(3) $ 250,000 - - $ 666,372
Carlos M. Garcia ..................... 2003 $ 381,461 $ 445,667 - - $ 827,128
Senior Executive Vice President & COO 2002 $ 200,000 $ 335,200 - - $ 535,200
2001 $ 165,002 $ 290,200 - - $ 455,202
Carlos J. Capacete(4) ................ 2003 $ 121,154 $ 301,000 - $ 57,143(5) $ 479,297
Executive Officer, Managing Director & 2002 - - - - -
COO-SSC 2001 - - - - -
Roberto Cordova (6) .................. 2003 $ 190,385 $ 272,500(7) - $ 462,885
Executive Vice President 2002 - - - - -
2001 - - - - -
Rafael F. Saldana(8) ................. 2003 $ 223,558(9) $ 183,751(10) - $ 48,750(11) $ 456,059
Executive Vice President 2002 - - - - -
2001 - - - - -
(1) Includes Performance Bonus and Christmas bonus earned during the respective
years.
(2) Does not include the value of perquisites and other personal benefits
because the aggregate amount of such benefits does not exceed the lesser of
$50,000 or 10% of the total annual salary and bonus of any named officer.
(3) Mr. Gonzalez received $131,253 from Santander Securities Corporation as part
of his salary.
(4) Mr. Capacete became an officer of the Corporation as a result of the
acquisition of the operations of SSC by the Corporation on December 30, 2003.
(5) Mr. Capacete received this amount upon entering SSC.
(6) Mr. Cordova became an officer of the Corporation in February 2003.
(7) Mr. Cordova received a signing bonus of $125,000 in February 2003, which is
included as part of the bonus.
(8) Mr. Saldana became an officer of the Corporation in February 2003.
(9) Includes $107,932 that was received by Mr. Saldana as deferred compensation.
(10) Includes $9,376 that was received by Mr. Saldana as a Christmas bonus that
was included as deferred compensation.
(11) Amount disbursed by the Corporation as relocation expenses for Mr. Saldana.
15
REPORT OF THE COMPENSATION AND NOMINATION COMMITTEE
GENERAL POLICY
The Corporation's Compensation Committee of the Board of Directors
evaluates the compensation policy for the President and CEO, and Executive
Officers of the Corporation and its subsidiaries. The Compensation Committee as
a whole considers among other factors, competitive pay practices for developing
a stronger relationship between executive compensation and the Corporation and
its subsidiaries' long-term performance. Management is kept appraised of such
competitive pay practices by independent consultants who conduct periodical
analysis of executive compensation of a peer group of financial institutions
similar in size and scope. The group used by the Board of Directors for
comparison purposes is reviewed in light of industry developments, and
significant mergers/acquisitions, to ensure that it is consistent with the
Corporation's size and focus. The peer group currently consists of regional
banking organizations with a retail banking emphasis.
The Corporation's executive compensation program is linked to performance.
To this end, the Corporation has developed a compensation strategy that ties a
significant portion of executive compensation to the Corporation's success in
meeting each executive's performance goals. The overall objectives of this
strategy are to attract and retain the best possible executive talent and to
provide compensation levels that recognize individual contributions as well as
overall business results. The Compensation Committee reviews the Corporation's
overall executive compensation program in comparison to the Corporation's
executive compensation, corporate performance and to other companies of similar
size. The annual compensation reviews permit an evaluation of the link between
the Corporation's performance and its executive compensation in the context of
the compensation programs of other companies. The Compensation Committee
determines the compensation of corporate executives selected by the Board of
Directors, including the individuals whose compensation is detailed in this
proxy statement.
In reviewing the individual performance of the executives whose
compensation is detailed in this proxy statement, other than Jose R. Gonzalez
(the Corporation's Chief Executive Officer), the Compensation Committee takes
into account the views of Mr. Gonzalez. The key elements of the Corporation's
executive compensation program consist of base salary and annual bonus. The
Compensation Committee's policies with respect to each of these elements,
including the basis for the compensation awarded to Mr. Gonzalez, are discussed
below. The Compensation Committee also takes into account the full compensation
package afforded by the Corporation to the individual.
THE PRESIDENT & CHIEF EXECUTIVE OFFICER
On an annual basis the Chief Executive Officer and President submits to the
Corporation's Board of Directors a plan setting forth both quantitative and
intangible goals applicable to each year and long-term goals. Evaluations are
made against the goals set forth in the plan. With respect to the base salary
received by Mr. Gonzalez in fiscal 2003, the Compensation Committee took into
account the Corporation's financial results in fiscal 2002. Mr. Gonzalez had
been granted an annual base salary, commencing April 30, 2002, of $550,000 and
such salary was not increased during the year ended December 31, 2003.
The Compensation Committee evaluates the President'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 and
the weight assigned to each factor determining compensation adjustments cannot
be quantified.
BASE SALARIES OF EXECUTIVE OFFICERS
The group of Executive Officers is composed of one Senior Executive Vice
President, four Executive Vice Presidents, four First Senior Vice Presidents,
two Senior Vice Presidents, the Managing Director of SSC, the President of
Santander Mortgage Corporation, and the President of SIA. The President and CEO
recommends to the Board of Directors of the Corporation, for their approval, the
salary increases and the bonuses to be awarded to the Executive Officers
pursuant to the incentive plans.
16
Base salaries for executive officers are initially determined by evaluating
the responsibilities of the position held and the experience of the individual,
and by reference to the competitive marketplace for executive talent, including
a comparison to base salaries for comparable positions at other companies.
Annual salary adjustments are determined by evaluating the performance of the
Corporation and of each executive officer, and also taking into account new
responsibilities. The Compensation Committee exercises judgment and discretion
in the information it reviews and the analysis it considers, and where
appropriate, also considers non-financial performance measures. These include
increases in market share, financial strength, regulator reviews, efficiency
gains, improvements in services and improvements in relations with customers and
employees.
The salary increase program allows discretionary salary increases based on
individual performance. It provides the President and CEO the opportunity to
recognize changes in individual responsibilities and performance levels.
ANNUAL BONUS
The Corporation's Chief Executive Officer and President and the Executive
Officers are eligible for annual cash bonuses under the terms of the
Corporation's Officer Performance Bonus Plan. Under such Plan, the Compensation
Committee exercises judgment and discretion in the information it reviews and
the analysis it considers, and where appropriate, also considers non-financial
performance measures in order to provide executive officers with an annual
bonus.
CONCLUSION
Through the programs described above, a significant portion of the
Corporation's executive compensation is linked directly to individual and
corporate performance. The Compensation Committee intends to continue the policy
of linking executive compensation to corporate performance, recognizing that the
volatility of the business cycle from time to time may result in an imbalance
for a particular period.
Submitted by
Mr. Victor Arbulu
Mr. Gonzalo de las Heras
Mr. Jesus Zabalza
REPORT OF THE AUDIT COMMITTEE
The Audit Committee operates pursuant to a Charter that was adopted by the
Board of Directors of the Corporation on March 20, 2003. The Charter was amended
and reviewed by the Audit Committee on March 18, 2004. A copy of such Charter is
attached to this Proxy Statement as EXHIBIT B.
The role of the Audit Committee is to assist the Corporation's Board of
Directors in its oversight of the Corporation's financial reporting process and
the Corporation's internal and external audit processes. As set forth in the
Charter, management of the Corporation is responsible for the preparation,
presentation and integrity of the Corporation's financial statements, and for
maintaining appropriate accounting and financial reporting principles and
policies and internal controls and procedures designed to achieve compliance
with accounting standards and applicable laws and regulations. The independent
auditors of the Corporation are responsible for auditing the Corporation's
financial statements and expressing an opinion as to their conformity with
accounting principles generally accepted in the United States of America.
The members of the Audit Committee are not employees of the Corporation.
All members of the Audit Committee are financially literate, but generally are
not, and do not represent themselves to be, 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. However, at least one member of the audit committee shall
have accounting or related financial management expertise, as the Board of
Directors interprets such qualification in its business judgment. Moreover, as
set forth in the Charter, the Audit Committee relies on and makes no independent
verification of the financial and other information presented to it or
representations made by management or the independent auditors. Accordingly, the
Audit Committee's oversight
17
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 achieve compliance
with accounting standards and applicable laws and regulations.
In the performance of its oversight function, the Audit Committee has
reviewed and discussed the audited financial statements of the Corporation for
the fiscal year ended December 31, 2003 with management and the independent
auditors. The Audit Committee has also discussed with the independent auditors
the matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees), as currently modified or supplemented.
The Audit Committee has obtained a report from the independent auditor that
addresses certain matters related to quality, quality control, and independence,
as required by the NYSE listing standards. Finally, the Audit Committee has
received the written disclosures and the letter from Deloitte & Touche LLP
required by Independence Standards Board Standard No. 1 (Independence Discussion
with Audit Committees), as currently modified or supplemented, 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.
Based on the Audit Committee's review 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
Audit Committee recommended to the Board of Directors that the Corporation's
audited financial statements be included in the Corporation's Annual Report on
Form 10-K for the year ended December 31, 2003 for filing with the Securities
and Exchange Commission.
Submitted by:
Victor Arbulu Director
Vicente Gregorio Director
Stephen A. Ferriss Director
Roberto Valentin Director
DISCLOSURE OF AUDIT FEES
The following is a description of the fees paid or accrued by the
Corporation and its subsidiaries for the audit and other services provided by
Deloitte & Touche LLP ("D&T") for the fiscal years ended December 31, 2003 and
2002.
AUDIT FEES
The aggregate "Audit Fees", paid or accrued by the Corporation for
professional services(1) rendered by D&T in connection with the audits of the
Corporation's annual consolidated financial statements as of and for the fiscal
years ended December 31, 2003 and 2002, and for the reviews of the consolidated
financial statements included in the Corporation's quarterly report on Form
10-Q, the "Audit Related Fees", the "Tax Fees" and "All Other Fees" are
summarized in the following table:
2003 2002
--------- ---------
Audit Fees(2) $ 368,229 $ 387,827
Audit-Related Fees(3) $ 153,597 $ 205,735
Tax Fees - -
All Other Fees(4) - $ 38,500
--------- ---------
Total $ 521,826 $ 632,062
- ----------
(1) From January 1, 2002 to June 28, 2002, Andersen provided audit services that
amounted to $92,518 in audit fees and $31,619 in audit related fees.
(2) Fees for audit services billed in 2003 and 2002 consisted of: (i) Audit of
the Corporation's annual financial statements; (ii) reviews of the Corporation's
quarterly financial statements.
(3) Fees for audit-related services billed in 2003 and 2002 consisted of (i)
Financial accounting and reporting consultations; (ii) Sarbanes-Oxley Act,
Section 404 advisory services; (iii) Agreed-upon procedures engagements.
(4) Fees for all other services billed in 2003 and 2002 consisted of permitted
non-audit services, which include Goodwill valuation services required by SFAS
142, which were provided by D&T in 2002 prior to their appointment as the
Corporation's independent public auditors.
18
In considering the nature of the services provided by D&T, the Audit
Committee determined that such services are compatible with the provision of
independent audit services. The Audit Committee discussed these services with
D&T and the Corporation's management to determine that they are permitted under
the rules and regulations concerning auditor independence promulgated by the SEC
to implement the Sarbanes-Oxley Act of 2002, as well as the American Institute
of Certified Public Accountants.
PRE-APPROVAL POLICY AND PROCEDURES
All auditing services and non-audit services must be pre-approved by the
Audit Committee. Pre-approval is waived for non-audit services if: (1) the
aggregate dollar value of such services does not exceed $10,000; (2) such
services were not recognized by the Corporation at the time of the engagement to
be non-audit services; and (3) such services are promptly brought to the
attention of and approved by the Audit Committee prior to the completion of the
audit. All audit and non-audit services were pre-approved by the Audit
Committee. The Chairman must update the Audit Committee at the next regularly
scheduled meeting of any services that were granted specific pre-approval.
TRANSACTIONS WITH RELATED PARTIES
Various affiliates of the Corporation purchase certain technical assistance
from the Bank. Fees related to such technical assistance amounted to $3.0
million and $2.6 million for the years ended December 31, 2002 and 2003,
respectively. The Bank also purchases certain technical assistance, related to
EDP processing and use of systems software, from affiliates which amounted to
$8.5 million in 2003 and $0.6 million in 2002. Furthermore, in the ordinary
course of business, the Bank extends loans to officers and directors of the
Corporation and their related parties that do not involve more than the normal
risk of collectibillity. The Bank's management believes that each of these
transactions, as well as the transactions described below, is consummated on
normal business terms (including interest rates and collateral, with respect to
loans) not less beneficial to the Bank than terms that would have been offered
to or by unaffiliated third parties in similar circumstances.
From time to time, in the normal course of business, the Bank enters into
certain transactions with affiliates for the leasing of real estate. For such
rents, the Bank receives fees similar to those prevailing in the market.
Currently, the Bank leases office space and received rent during 2003 from
Santander Overseas Bank, Inc. totaling $64,569 and from Universia Puerto Rico,
Inc. totaling $32,447.
From time to time, the Bank sells certain non-performing loans to CREFISA,
an affiliate of the Bank, at net book value for disposition purposes. During
2003 there was one sale of non-performing loans to CREFISA amounting
$12,397,173.
On December 30, 2003, the Corporation closed the transaction whereby it
acquired SSC from Administracion de Bancos Latinoamericanos Santander, S.L., a
wholly owned subsidiary of SCH. The Corporation acquired all of the common stock
of SSC for a purchase price of $62 million. The acquisition was accretive to the
Corporation's earnings per share.
During September 2003, the Bank irrevocably transferred and assigned to
CREFISA the Bank's operational software known as the ALTAIR system (the "ALTAIR
Software"), a software platform common to other entities of the Santander Group
for $43,300,000. Subsequently, CREFISA licensed the ALTAIR Software to the Bank
for a maintenance fee of $256,346.86 per month during each year inclusive of all
amounts equal to any taxes paid or payable by CREFISA for a period of 5 years.
During December 2003, the Bank completed the sale to a Trust which was
created by the Bank and administered by U.S. Bank as trustee, of a $19,100,000
loan made to Puerto Rico Industrial Investment Corporation for the construction
of certain industrial facilities leased to Stryker Puerto Rico Limited. The
Trust issued certificates that evidenced undivided interests in the Trust. The
certificates were totally acquired by First Puerto Rico Target Maturity Income
Opportunity Fund I, a closed end mutual fund managed by Santander Asset
Management, a wholly owned subsidiary of SSC.
19
Historically, SCH has contributed approximately 25% to 30% of the salaries
of certain expatriate officers. For 2003, SCH contributed to the salaries of
former Executive Officer, Agustin Segui, Executive Vice President and of First
Senior Vice President and Director of the Audit Department, Mr. Ramon Sanchez.
SCH and its affiliates had an aggregate of $124.4 million on deposit with
the Bank as of December 31, 2003.
THE CORPORATION'S COMMON STOCK
The stock performance graph presented below compares the cumulative total
stockholder return of the Common Stock of Santander BanCorp (SBP) from January
1, 2003 to December 31, 2003, with the cumulative total return of the Small Cap
Commercial Banks (S6CBNK) and the Puerto Rico Stock Index (PRSI). The graph
represents the performance of $100 invested on January 1, 2003 at $13.06 per
share. The Board of Directors of the Bank acknowledges that the market price of
the Common Stock is influenced by many factors and the Bank's performance is
only one of those. The stock price shown in the graph is not necessarily
indicative of future performance.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
DATE SBP PRSI S6CBNK
-------- ------ ------ ------
01/02/03 100.00 100.00 100.00
01/03/03 100.08 100.01 99.22
01/06/03 101.68 101.56 101.39
01/07/03 100.00 101.04 100.47
01/08/03 98.47 99.90 99.27
01/09/03 99.39 100.90 99.87
01/10/03 98.93 100.84 99.76
01/13/03 99.69 101.52 100.33
01/14/03 102.30 101.67 100.58
01/15/03 98.77 100.05 99.09
01/16/03 97.93 99.51 99.33
01/17/03 94.95 98.41 98.81
01/21/03 95.33 98.26 98.32
01/22/03 94.10 98.44 97.58
01/23/03 96.09 98.66 97.81
01/24/03 98.77 97.50 95.99
01/27/03 100.31 97.91 95.66
01/28/03 101.45 98.32 96.48
01/29/03 104.21 98.78 96.78
01/30/03 103.60 97.14 95.93
01/31/03 105.67 99.82 97.64
02/03/03 104.44 100.11 97.18
02/04/03 104.44 98.49 96.97
02/05/03 104.59 97.95 96.12
02/06/03 103.75 97.08 96.20
02/07/03 102.37 96.45 94.98
02/10/03 103.06 97.49 96.19
02/11/03 102.14 97.22 95.31
02/12/03 102.30 97.08 94.86
02/13/03 102.76 97.18 95.72
02/14/03 105.59 99.31 96.93
02/18/03 106.05 99.53 97.31
02/19/03 104.75 100.01 96.88
02/20/03 103.14 99.67 96.46
02/21/03 103.14 100.76 98.09
02/24/03 103.14 100.22 95.91
02/25/03 104.13 101.13 97.03
02/26/03 104.52 100.48 95.49
02/27/03 106.05 102.28 96.84
02/28/03 103.37 102.47 96.65
03/03/03 103.75 102.21 96.67
03/04/03 104.90 101.55 96.31
03/05/03 105.44 102.31 96.71
03/06/03 106.51 101.75 95.59
03/07/03 106.51 101.74 96.26
03/10/03 105.13 100.39 94.08
03/11/03 106.81 100.40 93.88
03/12/03 107.12 99.82 92.75
03/13/03 107.58 102.16 94.71
03/14/03 107.35 101.50 94.41
03/17/03 107.20 102.98 96.57
03/18/03 107.04 103.58 96.12
03/19/03 107.12 104.01 96.88
03/20/03 107.12 104.42 97.51
03/21/03 106.20 105.47 98.94
03/24/03 105.67 103.59 97.05
03/25/03 104.90 104.51 97.65
03/26/03 104.13 104.60 96.81
03/27/03 104.13 104.24 96.71
03/28/03 102.99 105.85 97.28
03/31/03 102.30 105.23 96.16
04/01/03 103.75 107.64 97.41
04/02/03 103.22 108.49 98.67
04/03/03 102.60 108.59 97.86
04/04/03 102.60 108.82 98.32
04/07/03 104.13 108.67 98.54
04/08/03 104.52 108.43 98.90
04/09/03 102.22 107.24 98.20
04/10/03 102.14 107.75 98.66
04/11/03 101.84 108.14 98.33
04/14/03 107.27 110.71 99.75
04/15/03 105.97 111.38 100.34
04/16/03 106.51 111.32 99.24
04/17/03 106.51 111.83 100.42
04/21/03 107.96 112.54 100.72
04/22/03 109.04 113.07 102.62
04/23/03 112.17 114.44 103.88
04/24/03 111.03 112.93 102.63
04/25/03 109.57 113.30 101.86
04/28/03 110.26 114.49 103.55
04/29/03 110.11 115.13 103.41
04/30/03 109.49 116.18 104.00
05/01/03 107.58 116.08 103.70
05/02/03 109.04 117.48 105.46
05/05/03 106.81 117.97 105.33
05/06/03 106.97 119.42 106.51
05/07/03 107.73 118.54 106.32
05/08/03 108.19 118.28 105.48
05/09/03 108.35 118.16 106.34
05/12/03 110.64 117.61 106.32
05/13/03 110.41 119.30 106.48
05/14/03 110.80 118.76 105.66
05/15/03 110.72 115.72 105.59
05/16/03 109.88 116.30 103.42
05/19/03 110.80 115.18 102.10
05/20/03 110.49 114.18 102.70
05/21/03 110.87 114.13 102.55
05/22/03 110.80 115.45 102.18
05/23/03 110.41 115.97 102.70
05/27/03 110.18 117.12 103.80
05/28/03 111.03 117.15 104.93
05/29/03 113.71 117.33 105.05
05/30/03 113.94 120.02 107.29
06/02/03 114.78 120.30 106.90
06/03/03 114.09 120.93 107.15
06/04/03 115.24 122.51 108.15
06/05/03 116.77 123.64 108.76
06/06/03 114.09 123.14 107.69
06/09/03 113.86 121.34 105.89
06/10/03 113.55 122.88 107.31
06/11/03 111.10 122.84 108.03
06/12/03 110.41 123.41 108.19
06/13/03 108.27 122.49 107.01
06/16/03 112.25 123.60 108.26
06/17/03 115.62 123.36 107.65
06/18/03 116.00 122.84 107.23
06/19/03 115.77 120.29 105.68
06/20/03 115.77 120.70 105.95
06/23/03 115.39 118.58 104.50
06/24/03 117.99 118.41 104.82
06/25/03 122.51 118.83 104.88
06/26/03 122.51 120.37 106.24
06/27/03 126.49 120.38 106.24
06/30/03 125.27 120.31 105.92
07/01/03 123.35 121.48 106.39
07/02/03 130.17 124.62 108.06
07/03/03 132.16 124.57 107.31
07/07/03 132.85 125.29 109.44
07/08/03 134.76 125.81 110.46
07/09/03 136.68 123.48 109.97
07/10/03 137.44 122.79 108.64
07/11/03 137.83 124.55 109.81
07/14/03 136.75 126.59 111.68
07/15/03 133.46 124.89 111.35
07/16/03 135.30 124.42 111.38
07/17/03 132.47 123.02 109.55
07/18/03 129.79 124.17 111.07
07/21/03 127.11 124.62 110.16
07/22/03 127.03 124.85 111.07
07/23/03 127.03 124.93 111.77
07/24/03 127.11 124.09 111.97
07/25/03 128.56 124.47 112.75
07/28/03 130.17 125.16 112.41
07/29/03 129.02 125.00 112.21
07/30/03 128.25 123.81 113.65
07/31/03 128.25 122.17 113.86
08/01/03 128.41 118.32 111.02
08/04/03 129.40 117.17 110.66
08/05/03 130.17 117.37 110.63
08/06/03 130.17 118.84 110.77
08/07/03 130.93 119.15 111.31
08/08/03 133.23 119.60 111.76
08/11/03 134.99 119.77 112.17
08/12/03 136.83 119.89 113.28
08/13/03 137.83 117.96 113.31
08/14/03 141.65 118.57 114.25
08/15/03 140.12 118.66 114.13
08/18/03 142.57 118.47 115.34
08/19/03 145.41 119.73 116.36
08/20/03 144.10 120.07 116.89
08/21/03 145.87 120.70 117.74
08/22/03 138.97 118.01 114.71
08/25/03 138.90 117.66 114.70
08/26/03 139.43 118.32 115.55
08/27/03 140.81 118.37 114.87
08/28/03 146.25 119.93 116.02
08/29/03 146.09 120.10 116.26
09/02/03 147.78 120.85 117.74
09/03/03 147.09 122.93 117.97
09/04/03 145.48 123.84 118.17
09/05/03 145.94 124.17 117.20
09/08/03 145.48 125.56 117.92
09/09/03 148.09 124.42 116.75
09/10/03 150.46 121.58 114.34
09/11/03 147.78 122.78 115.47
09/12/03 147.40 123.59 116.29
09/15/03 143.49 125.16 116.02
09/16/03 145.48 126.96 117.19
09/17/03 147.47 127.31 116.86
09/18/03 151.84 130.39 118.13
09/19/03 151.91 130.76 117.62
09/22/03 152.76 129.42 116.44
09/23/03 153.14 128.84 117.20
09/24/03 154.29 127.14 115.91
09/25/03 152.53 126.47 113.98
09/26/03 151.99 125.65 112.88
09/29/03 147.40 126.17 114.24
09/30/03 143.72 126.23 113.49
10/01/03 147.01 127.51 116.51
10/02/03 146.94 128.74 116.59
10/03/03 151.30 129.35 117.85
10/06/03 152.76 130.48 118.72
10/07/03 153.14 131.47 119.23
10/08/03 150.69 131.01 118.45
10/09/03 152.99 131.17 119.69
10/10/03 152.30 131.66 119.49
10/13/03 151.99 132.84 120.86
10/14/03 152.99 133.92 121.61
10/15/03 152.99 134.27 120.36
10/16/03 151.45 134.92 120.24
10/17/03 150.00 134.98 119.47
10/20/03 153.14 136.00 119.28
10/21/03 156.20 136.79 119.38
10/22/03 160.18 137.22 117.61
10/23/03 170.75 137.72 117.09
10/24/03 172.28 138.18 116.20
10/27/03 178.56 140.29 118.53
10/28/03 184.61 142.54 120.54
10/29/03 195.25 143.34 121.23
10/30/03 190.20 143.45 121.01
10/31/03 190.96 143.50 121.11
11/03/03 187.98 146.24 124.12
11/04/03 188.74 146.96 124.13
11/05/03 190.66 147.47 124.17
11/06/03 192.19 147.19 125.22
11/07/03 196.40 148.95 125.09
11/10/03 196.86 147.37 123.61
11/11/03 194.26 146.51 122.93
11/12/03 201.38 148.41 125.00
11/13/03 198.47 149.53 125.29
11/14/03 195.25 148.18 124.01
11/17/03 195.10 148.61 123.64
11/18/03 198.77 147.81 122.55
11/19/03 199.00 147.90 123.53
11/20/03 192.19 147.21 123.49
11/21/03 187.98 147.24 123.83
11/24/03 190.89 148.56 126.24
11/25/03 182.62 151.34 127.64
11/26/03 186.22 152.52 128.01
11/28/03 188.06 152.67 127.77
12/01/03 187.67 153.83 129.51
12/02/03 192.80 154.00 129.67
12/03/03 186.60 153.08 127.84
12/04/03 192.50 153.20 128.24
12/05/03 191.81 153.08 127.22
12/08/03 191.81 153.76 128.31
12/09/03 191.35 151.07 126.27
12/10/03 188.90 147.15 124.73
12/11/03 185.30 149.52 126.81
12/12/03 185.60 150.59 127.55
12/15/03 178.64 148.18 125.19
12/16/03 179.56 149.16 125.42
12/17/03 181.55 150.63 126.05
12/18/03 184.46 150.36 126.38
12/19/03 184.92 149.07 126.78
12/22/03 186.29 149.12 127.09
12/23/03 186.83 149.97 128.23
12/24/03 186.83 149.80 127.01
12/26/03 186.83 149.93 127.59
12/29/03 190.28 151.41 129.17
12/30/03 190.51 151.71 130.24
12/31/03 186.45 150.34 127.78
20
PROPOSAL TWO: INDEPENDENT PUBLIC ACCOUNTANTS
As previously disclosed, on June 28, 2002, the Corporation dismissed Arthur
Andersen LLP ("Andersen") as the Corporation's independent public accountants
and appointed Deloitte & Touche LLP ("D&T") as the Corporation's new independent
public accountants. The decision to dismiss Andersen and to retain D&T was
recommended by the Audit Committee and approved by the Board of Directors.
Andersen's reports on our consolidated financial statements for each of the
years ended December 31, 2001 and 2000 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles.
During the years ended December 31, 2001 and 2000, and the subsequent
interim period through June 28, 2002, there were no disagreements between the
Corporation and Andersen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to Andersen's satisfaction, would have caused
them to make reference to the subject matter of the disagreement in connection
with their report.
None of the reportable events described in Item 304(a)(1)(v) of Regulation
S-K occurred during the years ended December 31, 2001 and 2000 or during the
subsequent interim period through June 28, 2002.
The Corporation provided Andersen with a copy of the foregoing disclosures.
A copy of Andersen's letter, dated June 26, 2002, stating their agreement with
such statements is attached as Exhibit 16.1 to our Current Report on Form 8-K
dated June 28, 2002 filed with the Securities and Exchange Commission.
During the years ended December 31, 2001 and 2000, and the subsequent
interim period through June 28, 2002, the Corporation engaged D&T for the
valuation of the goodwill of the Corporation in accordance with SFAS 142. D&T
completed their engagement for the valuation prior to their appointment as the
Corporation's independent public accountants on June 28, 2002.
Subject to ratification by the stockholders at the annual meeting, the
Audit Committee of the Board of Directors has appointed D&T to audit our
consolidated financial statements for the fiscal year ending December 31, 2004.
D&T audited our consolidated financial statements for the fiscal years ended
December 31, 2002 and 2003. Representatives of D&T will be present at the annual
meeting and have the opportunity to make a statement if they so desire, and will
also be available to respond to appropriate questions.
If the stockholders do not ratify the appointment of D&T, the selection of
our independent auditors will be reconsidered by the Audit Committee.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" RATIFICATION OF THE APPOINTMENT OF D&T AS INDEPENDENT ACCOUNTANTS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2004. THE VOTE OF THE HOLDERS OF THE MAJORITY OF
THE TOTAL VOTES ELIGIBLE TO BE CAST AT THE ANNUAL MEETING IS REQUIRED FOR THE
APPROVAL OF THIS PROPOSAL.
PROPOSALS OF SECURITY HOLDERS TO BE PRESENTED AT THE 2004
ANNUAL MEETING OF STOCKHOLDERS
Stockholders' proposals intended to be presented at the 2005 Annual Meeting
of Stockholders must be received by the Corporate Secretary, at its principal
executive offices, Santander BanCorp, 207 Ponce de Leon Avenue, San Juan, Puerto
Rico, 00918, not later than November 24, 2004 for inclusion in the Corporation's
Proxy Statement and Form of Proxy relating to the 2004 Annual Meeting of
Stockholders. If a Stockholder who otherwise desires to bring a proposal before
the 2005 Annual Meeting of Stockholders does not notify the Corporation of its
intent to do so or before February 10, 2005, then the proposal will be untimely,
and the proxies will be able to vote on the proposal in their discretion.
21
COMMUNICATION WITH DIRECTORS
The Corporation has established procedures for stockholders or other
interested parties to communicate directly with the Board of Directors. Such
parties can contact the Board of Directors by mail at: Santander BanCorp,
Investor Relations, Attention: Mr. Gonzalo de las Heras, Chairman of the Board,
P.O. Box 362589, San Juan, P.R. 00936-2589. All communications made by this
means will be received by the Chairman of the Board.
CODE OF ETHICS
The Corporation has adopted a Code of Ethics within the meaning of Item
406(b) of Regulation S-K of the Securities Exchange Act of 1934. This Code
applies to the President & Chief Executive Officer, Chief Operating Officer, the
Chief Accounting Officer, and other executive officers of the Corporation and
its subsidiaries in order to achieve a conduct that reflects the Corporation's
ethical principles. The Corporation has posted a copy of the code on its website
at the internet address: http://www.santandernet.com. Copies of the Code may be
obtained free of charge from the Corporation's website at the above internet
address.
ANNUAL REPORT AND OTHER MATTERS
Enclosed with this Proxy Statement is the Corporation's Annual Report to
Stockholders including the Annual Report on Form 10-K and the consolidated
financial statements of the Corporation for the year ended December 31, 2003,
duly certified by Deloitte & Touche LLP as independent public auditors of the
Corporation. Such Annual Report to stockholders is not a part of these proxy
solicitation materials.
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 name of more than one record holder, all should sign.
Whether or not you plan to attend the Meeting, it is very important that
your shares be represented and voted in the Meeting. Accordingly, you are urged
to properly complete, sign, date and return your Proxy Card.
San Juan, Puerto Rico, March 26, 2004. By Order of the Board of Directors
/s/ Enrique R. Ubarri Baragano
Enrique R. Ubarri Baragano, Esq.
Secretary
22
Please -----
Mark Here | |
for Address | |
Change or -----
Comments
SEE REVERSE SIDE
1. To elect three (3) directors for a three-year term, ending on April 2007-
Nominees: 01 Victor Arbulu 02 Maria Calero, 03 Stephen Ferris
VOTE GRANTED, except
VOTE GRANTED VOTE WITHHELD for the following
FOR all nominees FOR all nominees nominee(s)
---- ---- ----
| | | | | |
| | | | | |
---- ---- ----
(insert in the space provided below the names of those nominees for whom you do
not wish to vote)
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FOR AGAINST ABSTAIN
2. To ratify the appointment of Deloitte & Touche LLP
as the Company's independent accountants for fiscal [ ] [ ] [ ]
year 2004;
3. AT THEIR DISCRETION, the proxies are authorized to vote upon such other
business as may properly come before the Meeting. This proxy, when properly
executed, will be voted in the manner directed herein by the undersigned
stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ITEM 1
and 2. Please refer to instructions below.
Consenting to receive all future annual meeting materials and
shareholder communications electronically is simple and fast! Enroll
today at www.melloninvestor.com/ISD for secure online access to your
proxy materials, statements, tax documents and other important
shareholder correspondence.
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN UNITED STATES,
PUERTO RICO OR U.S. VIRGIN ISLANDS.
Signature _____________________ Signature _____________________ Date __________
Please sign exactly as your name appears hereon. When shares are held by joint
tenants or by tenants in common, each holder should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, the president or other authorized officer should sign
under the full corporate name and the position of such authorized officer should
appear below the signature. If a partnership, please sign in partnership name by
authorized person.
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^ FOLD AND DETACH HERE ^
SANTANDER BANCORP
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Mr. Roberto H. Valentin and Mr. Carlos M.
Garcia as Proxies, each with the power to appoint his/her substitute, and
authorizes them to represent and to vote as designated on the reverse side all
the shares of common stock of Santander BanCorp held on record by the
undersigned on March 19, 2004, at the Annual Meeting of Shareholders to be held
at the 7th Floor of Santander Tower II, located at 221 Ponce de Leon Avenue, San
Juan, Puerto Rico, on Thursday, April 29, 2004, at 10:00 a.m. or at any
adjournments thereof, as follows:
(Continued on reverse side)
- --------------------------------------------------------------------------------
Address Change/Comments (Mark the corresponding box on the reverse side)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
ANNUAL MEETING
OF
SANTANDER BANCORP
-----------------------------------
Thursday, April 29, 2004
10:00 a.m.
San Juan, Puerto Rico
[GRAPHIC OF MAP]
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PARKING AVAILABLE AT BANCO SANTANDER PUERTO RICO,
207 PONCE DE LEON AVENUE.
EXHIBIT A
COMPENSATION AND NOMINATION COMMITTEE CHARTER
A. PURPOSE
The purpose of the Compensation and Nomination Committee (the "Committee")
shall be to carry out the Board of Directors' overall responsibility relating to
executive compensation and support and advise the Board on the composition of
the Board and executive management of Santander BanCorp.
This Charter sets out the specific responsibilities delegated by the Board
of Directors to the Committee and details the manner in which the Committee will
operate.
B. STRUCTURE AND MEMBERSHIP
1. NUMBER. The Committee of the Board of Directors of Santander BanCorp shall
consist of a minimum of three (3) directors.
2. INDEPENDENCE. Except as otherwise permitted by the applicable rules of the
New York Stock Exchange, each member of the Committee shall be an
"independent director" as defined by the applicable rules of the New York
Stock Exchange.
3. REMOVAL. The Board of Directors may remove members of the Committee from
such committee, with or without cause, by a majority vote of the Board of
Directors.
4. CHAIR. Unless the Board of Directors elects a Chair of the Committee, the
Committee shall elect a Chair by majority vote.
5. COMPENSATION. The compensation of Committee members shall be as determined
by the Board of Directors.
C. AUTHORITY AND RESPONSIBILITIES
GENERAL
The Committee shall discharge its responsibilities, and shall assess the
information provided by Santander BanCorp's management, in accordance with its
business judgment.
COMPENSATION MATTERS
1. CEO COMPENSATION. The Committee shall annually review and approve
corporate goals and objectives relevant to the compensation of
Santander BanCorp's Chief Executive Officer (the "CEO"), evaluate the
CEO's performance in light of those goals and objectives, and set the
CEO's compensation level based on this evaluation.
2. EXECUTIVE OFFICER COMPENSATION. The Committee shall review and approve
executive officer (including CEO) compensation, including salary and
bonus compensation levels; deferred compensation; executive
perquisites; severance arrangements; change-in-control benefits and
other forms of executive officer compensation. The Committee shall
meet without the presence of executive officers when approving CEO
compensation but may, in its discretion, invite the CEO to be present
during approval of other executive officer compensation.
A-1
3. INCENTIVE COMPENSATION. The Committee shall review Santander BanCorp's
incentive compensation plans and recommend changes in such plans to
the board as needed. The Committee shall have and shall exercise all
the authority of the Board of Directors with respect to the
administration of such plans.
4. DIRECTOR COMPENSATION. The Committee shall periodically review and
make recommendations to the Board of Directors with respect to
director compensation.
5. COMMITTEE REPORT ON EXECUTIVE COMPENSATION. The Committee shall
prepare for inclusion where necessary in a proxy or information
statement of Santander Bancorp relating to an annual meeting of
security holders at which directors are to be elected (or special
meeting or written consents in lieu of such meeting).
6. CONSULTANTS, COUNSEL AND ADVISORS. The Committee shall have authority
to retain such compensation consultants, outside counsel and other
advisors as the committee may deem appropriate in its sole discretion.
The Committee shall have sole authority to approve related fees and
retention terms.
7. ADDITIONAL POWERS. The Committee shall take such other action with
respect to compensation matters as may be delegated from time to time
by the Board of Directors.
NOMINATION MATTERS
1. APPOINTMENTS. The Committee shall establish a formal and transparent
procedure for the selection and appointment of new directors to the
Board and "executive officers" of Santander BanCorp, as such term is
defined in 12 C.F.R. 215.2.
2. SUCCESSION. The Committee shall regularly review the succession plans
in place for membership of the Board and executive management of
Santander BanCorp to ensure that an appropriate balance of skills,
experience and expertise are maintained.
3. PROCEDURES. The Committee shall institute internal procedures for
evaluating the performance of the Board, the directors, the Board
committees and executive management.
4. COMMITMENT OF DIRECTORS. The Committee shall review the time
commitment required from a non-executive director and whether
non-employee directors are meeting this requirement.
5. FULFILLMENT OF RESPONSIBILITIES. The Committee shall take all
reasonable steps to ensure that all individuals nominated for
appointment to the Board as a non-employee director, expressly
acknowledge, prior to their election, that they are able to fulfil the
responsibilities and duties expected of them.
D. PROCEDURES AND ADMINISTRATION
1. MEETINGS. The Committee shall meet as often as it deems necessary in
order to perform its responsibilities. The Committee may also act by
unanimous written consent in lieu of a meeting. A quorum shall
comprise of two (2) members. The Committee shall keep such records of
its meetings as it shall deem appropriate.
2. SUBCOMMITTEES. The Committee may form and delegate authority to one or
more subcommittees as it deems appropriate from time to time under the
circumstances (including (a) a subcommittee consisting of a single
member and (b) a subcommittee consisting of at least two members, each
of whom qualifies as a "non-employee director" as such term is defined
from time to time in Rule 16b-3 promulgated under the Exchange Act,
and an "outside director" as such term is defined from time to time in
Section 162(m) of the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder).
A-2
3. REPORTS TO BOARD. The Committee shall report its actions and any
recommendations to the Board after each Committee meeting and shall
conduct and present to the Board an annual performance evaluation of
the Committee.
4. CHARTER. The Committee shall periodically review and reassess the
adequacy of this Charter and recommend any proposed changes to the
Board of Directors for approval.
5. CONSULTING ARRANGEMENTS. The Committee shall have the authority to
retain and terminate any compensation consultant to be used to assist
in the evaluation of executive officer compensation and shall have
authority to approve the consultant's fees and other retention terms.
The Committee shall also have authority to commission compensation
surveys or studies as the need arises. The Committee is empowered,
without further action by the Board of Directors, to cause Santander
BanCorp to pay the compensation of such consultants as established by
the Committee.
6. INDEPENDENT ADVISORS. The Committee shall have the authority, without
further action by the Board of Directors, to engage such independent
legal, accounting and other advisors as it deems necessary to carry
out its responsibilities. Such independent advisors may be the regular
advisors to Santander BanCorp. The Committee is empowered, without
further action by the Board of Directors, to cause Santander BanCorp
to pay the compensation of such advisors as established by the
Committee.
7. INVESTIGATIONS. The Committee shall have the authority to conduct or
authorize investigations into any matters within the scope of its
responsibilities as it shall deem appropriate, including the authority
to request any officer, employee or advisor of the Santander BanCorp
to meet with the Committee or any advisors engaged by the Committee.
This Charter will be effective immediately after its approval by the Board.
The Secretary of the Board will certify it with his (her) signature and the
corporate seal, indicating the date it was approved.
Approved by the Committee Members and the Board of Directors
Revised as of March 18, 2004
A-3
EXHIBIT B
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee of the Board of Directors (the "Committee") of
Santander Bancorp and its subsidiaries (collectively, the "Corporation") shall
represent and assist the full Board of Directors (the "Board") in discharging
its oversight responsibility regarding: (1) the Corporation's accounting
principles and financial reporting practices and policies, and disclosure
controls and system of internal controls and procedures; (2) the Corporation's
financial statements and the independent audit thereof; (3) the Corporation's
compliance with legal and regulatory requirements; (4) the performance of the
Corporation's internal audit department (the "Internal Audit Department") and
independent public accountants ("IPA").
The Committee shall also act as an overseer of: (a) the Corporation's
management ("Management") discharge of its responsibility for the preparation,
presentation and integrity of the Corporation's financial statements, (b)
Management's responsibility for maintaining appropriate accounting and financial
reporting principles and policies, and internal controls and procedures designed
to assure compliance with accounting standards and applicable laws and
regulations, (c) the Internal Audit Department's responsibility for examining
and evaluating the adequacy and effectiveness of the Corporation's and its
subsidiaries' internal control systems to ensure (i) the reliability and
integrity of information, (ii) compliance with the Corporation's policies, plans
and procedures, as well as laws and regulations, and (iii) the safekeeping of
assets; and (d) the Corporation's disclosure controls system and internal
controls system, which Management and the Board have established, regarding
finance, accounting, legal compliance and ethics.
The Committee shall be charged with evaluating the IPA's qualifications,
performance and independence.
The Committee shall cause to be prepared any report or other disclosure,
including any report of the Committee, required by the rules of the Securities
and Exchange Commission ("SEC") to be included in the Corporation's annual proxy
statement or other periodic reports or disclosures.
The Committee shall establish procedures for and continually monitor: the
receipt, retention and treatment of complaints received by or from employees
(including confidential anonymous submission by employees) and shareholders
regarding accounting controls, auditing matters, or any other relevant matter
that may result in damage or liability to the Corporation.
AUTHORITY
The Committee shall have the resources and authority appropriate to
discharge its responsibilities, including the authority to engage outside
auditors for the annual audit, special audits, reviews and other procedures and,
as appropriate, to obtain advice and assistance from special counsels and other
experts or consultants without seeking approval of the full Board or Management.
The Corporation shall provide appropriate funding, as determined by the
Committee, for compensation to the IPA and to any advisors that the Committee
chooses to engage.
The Committee may request any officer or employee of the Corporation or the
Corporation's outside counsel or outside auditors to attend any meeting of the
Committee or to meet with any members of, or consultants to, the Committee.
The Committee may determine whether to allow any internal or external
attorneys to practice before the SEC on behalf of the Corporation. Should the
Committee elect to do so, the Committee shall have the authority to: (a) verify
or ascertain if such attorneys comply with the professional standards set forth
by the SEC; and (b) verify or ascertain that the Corporation's attorneys have
reported evidence of material violations of securities law or breach
B-1
of fiduciary duty or similar violation by the Corporation or any agent thereof
to the chief legal counsel, the Corporation's Chief Executive Officer ("CEO")
and the Committee (if necessary actions have not otherwise been taken).
COMPOSITION
The Committee shall be comprised only of three or more members of the Board
who are independent directors. Each member shall not be an officer or employee
of the Corporation, its subsidiaries or affiliates, shall not have any
relationship which, in the opinion of the Board, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director.
The members of the Committee shall be financially literate.
At least one member of the Committee must be a "financial expert," as such
term is defined by the SEC pursuant to rules promulgated under Section 407 of
the Sarbanes Oxley Act of 2002, as amended (the "SOA"). The members of the
Committee shall satisfy the applicable requirements under the rules of the New
York Stock Exchange and the SEC, as such requirements are interpreted by the
full Board in its business judgment. The Corporation must disclose the name of
the Committee's financial expert and whether such expert is independent of
Management.
The Board shall designate the members of the Committee and a chairperson of
the Committee from among its members, who shall preside over the meetings of the
Committee and shall inform the Board of the actions taken by the Committee. In
the event of a vacancy or an absence in the Committee, the Board may designate
any member of the Board as a substitute, provided such person complies with the
requisites established herein.
MEETINGS
The Committee will meet at least once per month or more frequently if
circumstances dictate to discuss the matters set forth in the Duties and
Responsibilities section of this Charter. Members of the Committee may
participate in meetings of the Committee by means of a conference call or
similar communications equipment whereby all persons participating in the
meeting can converse with each other.
The Committee will designate a Secretary from among its members. The
Secretary may delegate his (her) functions to any officer of the Corporation
designated by the Secretary. The Secretary, or the person so designated, will
notify the members of the Committee of the place, date and time of the meetings
of the Committee on a timely basis, as well as prepare and submit the agenda,
reports and documents required for each meeting of the Committee.
The Secretary or his (her) designee will prepare accurate minutes of each
meeting of the Committee, indicating which members of the Committee were
present, and summarizing the decisions, recommendations and agreements reached.
The Chairperson of the Committee will submit the minutes and the attachments
considered necessary to the Board for their review and ratification.
The members of the Committee shall hold office from the time of designation
until the next election of directors at the annual meeting of stockholders of
the Corporation. The Board may, however, extend such period for any or all
designated members who continue to meet the requirements for membership in the
Committee.
A quorum shall consist of the majority of the members of the Committee. The
decisions of the Committee shall be adopted by an affirmative vote of the
majority of the members participating in the meeting in which the decision is
considered. In the event of a tie, the matter will be submitted to the Board for
its consideration at their next meeting and no action will be taken until the
Board makes a decision on such matter.
As part of its efforts to foster open communication, the Committee should
meet periodically with Management, the director of the internal auditing
function and the IPA, in separate executive sessions, to discuss any matters
that the Committee or each of these groups believe should be discussed
privately. In addition, the Committee shall meet quarterly with the IPA and
Management to discuss the annual audited financial statements
B-2
and quarterly financial statements, including the Corporation's disclosure
contained therein under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" ("MD&A").
DUTIES AND RESPONSIBILITIES
In fulfilling their responsibilities hereunder, it is recognized that
members of the Committee are not employees of the Corporation. It is not the
duty or responsibility of the Committee or its members to conduct "field work"
or other types of auditing or accounting reviews or procedures or to set auditor
independence standards. Each member of the Committee shall be entitled to rely
on: (i) the integrity of those persons and organizations within and outside the
Corporation from which it receives information; (ii) the accuracy of the
financial and other information provided to the Committee by such persons or
organizations absent actual knowledge to the contrary (which shall be promptly
reported to the Board); and (iii) all representations made by Management as to
any information technology, internal audit and other non-audit services provided
by the IPA to the Corporation.
The Committee will carry out the following responsibilities:
FINANCIAL STATEMENTS
o Advise Management, the Internal Audit Department and the IPA that they are
expected to provide to the Committee a timely analysis of significant
financial reporting issues and practices. The Committee shall review these
analyses with regard to: (a) critical accounting policies and practices,
alternative treatments of financial information within GAAP (including
their ramifications and the methods preferred by the IPA), and any other
material communication between the IPA and Management (including management
letters and schedules of unadjusted differences); (b) Management's
responsibilities for establishing and maintaining an adequate internal
control structure and procedures for financial reporting; and (c)
assessment, as of the end of the most recent fiscal year of the
Corporation, of the effectiveness of the internal control structure and
procedures of the Corporation for financial reporting.
o Ascertain that Management has reviewed the MD&A to ensure information
presented is consistent with the financial statements, related footnote
disclosures and the accounting records of the Corporation.
o Discuss with Management and the IPA the audited financial statements.
o Discuss significant changes to the Corporation's accounting principles,
policies, controls, procedures and practices proposed or contemplated by
the IPA, the Internal Audit Department or Management.
o Review quarterly press releases and ascertain the absence of misleading
information or omission of material facts prior to issuance.
o Review periodic reports (10Q, 10K, 8K, proxy, etc.).
o Discuss the schedule of unadjusted differences and Management's actions
with respect to such schedule and any other material written communication
between the IPA and Management.
INTERNAL CONTROL
o Meet with the Corporation's [chief accounting officer ("CAO") and chief
operations officer ("COO") at least twice per year.
o Establish a prohibition of cross hiring (e.g. any individual who was
employed by an IPA and participated in an audit of the Corporation within
the last 12 months cannot be hired as the CEO, CAO, COO or comptroller).
B-3
o Ensure that the CAO, COO and CEO certification's process is adequate and
appropriate to the needs and commercial complexity of the Corporation, and
is comprehensively documented. Consider having an independent third party
assess the process. Consider whether additional documentation is required
for certification to be completed.
o Evaluate the current state of reporting on internal controls to evaluate
whether any changes are necessary.
INTERNAL AUDIT
o Review the appointment, replacement, reassignment or dismissal of the
Director of the Internal Audit Department (the "DIA"). Advice the DIA that
he or she is expected to provide to the Committee summaries of and, as
appropriate, the significant reports to Management prepared by the Internal
Audit Department and Management's responses thereto. Instruct internal
auditors that they (in conjunction with the IPA) are ultimately accountable
to the Board through the Committee.
o Review activities, organizational structure and qualifications of the
internal audit function.
o Annually, review and recommend changes (if any) to the Internal Audit
Department's charter.
o Periodically review with the DIA any significant difficulties,
disagreements with Management or scope restrictions encountered in the
course of the function's work.
o Periodically review with the IPA the budget, staffing and responsibilities
of the Internal Audit Department.
EXTERNAL AUDIT
o The IPA shall annually submit to the Committee a formal written statement
delineating all relationship between the IPA and the Corporation
("Statement as to Independence") addressing each non-audit service provided
to the Corporation and the matters set forth in Independence Standards
Board Standard No. 1.
o Pre-approve all audit and non-audit services performed by the IPA in excess
of $10,000 and periodically (not less frequently than annually) review all
audit and non-audit services performed for the Corporation by the IPA. The
IPA shall annually submit to the Corporation a formal written statement of
the fees billed for services rendered. The following categories shall be
included: (i) the audit of the Corporation's annual financial statements
for the most recent fiscal year, and the reviews of the financial
statements included in the Corporation's Quarterly Reports on Form 10-Q for
that fiscal year; (ii) fees for audit related services, such as due
diligence related to mergers and acquisitions, financial accounting and
reporting consultation, information systems services, SOA advisory
services, internal control services, agreed upon procedures; (iii) tax
services; and (iv) all other services rendered by the IPA for the most
recent fiscal year, in the aggregate and by each service.
o Require that Management provide a list of payments made to the IPA or any
other accounting firm for services other than financial statement audits.
With regard to such services, the Committee must (i) assess whether such
services can be provided by the IPA prospectively, (ii) assess which "no
conflict" suppliers can perform such services prospectively, and (iii)
communicate to Management which services must be discontinued in compliance
with the SOA. Information regarding fees paid to the IPA shall be
segregated into the four categories discussed above.
o The Committee shall be directly responsible for the appointment,
compensation and oversight of the work of the IPA. In this regard the
Committee shall appoint, retain, compensate, evaluate and terminate, when
appropriate, the IPA, which shall report directly to the Committee.
B-4
o Ensure that the IPA prepare and deliver annually a Statement as to
Independence (it being understood that the IPA are responsible for the
accuracy and completeness of such Statement). Discuss with the IPA any
relationships or services disclosed in such Statement that may affect the
objectivity and independence of the IPA, taking into consideration the
opinion of Management and the Internal Audit Department.
o Consider, if applicable, whether the IPA's provision of (a) information
technology consulting services relating to financial information systems
design and implementation and (b) other non-audit services to the
Corporation is compatible with maintaining the independence of the IPA.
o Instruct the IPA that they are ultimately accountable to the Board through
the Committee.
o Consider all reports or communications (and Management's and/or the
Internal Audit Department's responses thereto) submitted to the Committee
by the IPA required by or referred to in SAS 61 (Codification of Statements
on Auditing Standards, AU Section 380), as the same may be modified or
supplemented.
o Discuss restrictions on scope of the IPA's activities or access to
requested information.
o Discuss any significant matters arising from any audit, report or
communication referred, whether raised by Management, the Internal Audit
Department or the IPA, relating to the Corporation's financial statements.
o Review the form of opinion the IPA propose to render to the Board and
shareholders.
o Obtain from the IPA assurance that the audit was conducted in a manner
consistent with Section 10A of the Securities Exchange Act of 1934, as
amended, which sets forth certain procedures to be followed in any audit of
financial statements required under the Securities Exchange Act of 1934.
o Confirm that the external auditor has registered with the Public Company
Accounting Oversight Board (the "PCAOB"). Have the external auditor
confirm, quarterly, that they are in compliance with the rules and
regulations of, and are in good standing with the PCAOB.
o Document the policy of rotation of the lead audit partner every five years,
or as required by applicable regulation, and ascertain that the engagement
team has complied with this policy.
o Evaluate whether there is excessive or extravagant entertaining by
Management of IPA or vice-versa.
o Set clear hiring policies, compliant with governing laws or regulations,
for employees or former employees of the IPA.
o At least annually, obtain and review a report by the IPA describing:
o the IPA's internal quality control procedures;
o any material issues raised by the most recent internal
quality-control review, peer review, or by any inquiry or
investigation by governmental or professional authorities, within
the preceding five years, respecting one or more independent
audits carried out by the IPA, and any steps taken to deal with
any such issues; and
o all relationships between the IPA and the Corporation.
B-5
ETHICAL COMPLIANCE, LEGAL COMPLIANCE, AND RISK MANAGEMENT
o Review the Corporation's code of ethics to determine compliance with SOA's
requirement relating to code of ethics for senior financial officers, and
that all senior financial officers have acknowledged receipt and having
read the code of ethics.
o Discuss with the Corporation's General Counsel, or if required by the
Committee with independent counsel of its selection, any significant legal
matters that may have a material effect on the financial statements of the
Corporation and the Corporation's compliance policies, including material
notices to or inquiries received from governmental agencies.
o Review Management's monitoring of the Corporation's compliance with the
Corporation's Code of Ethics, and ensure that Management has the proper
review system in place to ensure that Corporation's financial statements,
reports and other financial information disseminated to governmental
organizations and the public satisfy legal requirements.
o Review, with the Corporation's counsel, legal compliance matters including
corporate securities trading policies.
o Discuss policies with respect to risk assessment and risk management. Such
discussions should include the Corporation's major financial and accounting
risk exposures and the steps Management has undertaken to control them.
REPORTING RESPONSIBILITIES
o Report its activities to the Board on a regular basis and make such
recommendations with respect to the above and other matters, as the
Committee may deem necessary or appropriate.
o Review this Charter at least annually and recommend to the Board any
changes warranted by new laws and regulations or as the Committee deems
appropriate.
OTHER RESPONSIBILITIES
o Review, on a quarterly basis, transactions in the Corporation's securities
by the Corporation's pension plans and by executives of the Corporation to
ensure that none occurred during designated blackout periods. Ensure
trustees are aware of blackout periods.
o Review, annually, the procedure for related party transactions and
conflicts of interest (or potential conflicts of interest) to be reported
to the Board.
o Review and approve, on a quarterly basis, all related party transactions
for compliance with established policies and procedures.
o Review with the IPA, the Internal Audit Department and Management the
extent to which changes or improvements in financial or accounting
practices, as approved by the Committee, have been implemented. (This
review should be conducted at an appropriate time subsequent to
implementation of changes or improvements, as decided by the Committee.)
o Prepare the report that the SEC requires be included in the Corporation's
annual proxy statement.
o Annually, perform a self-assessment relative to the Committee's purpose,
duties and responsibilities outlined herein.
o Perform any other activities consistent with this Charter, the
Corporation's by-laws and applicable law, as the Committee or the Board
deems necessary or appropriate.
B-6
o Work with Management to determine if current employee loan policies and
procedures are in compliance with SOA. Adjust procedures as required to
ascertain compliance with current regulations.
o Ensure that adequate insurance arrangements are in place for identified
risks, in accordance with usual commercial practice.
o Review regular updates on accounting and corporate governance developments
with an objective perspective of their impact to the Corporation and the
Committee.
o Review the types of information presented to analysts and rating agencies
to ascertain the absence of misleading information or omission of material
facts.
This Charter may be amended by means of an express resolution of the Board.
This Charter will be effective immediately after its approval by the Board.
The Secretary of the Board will certify it with his (her) signature and the
corporate seal, indicating the date it was approved.
Approved by the Audit Committee Members and the Board of Directors
Revised as of March 15, 2004
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