UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
SANTANDER BANCORP
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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|_| 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO] Santander BanCorp
207 Ponce de Leon Avenue
San Juan, Puerto Rico 00918
March 24, 2005
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend the 2005
Annual Meeting of Stockholders of Santander BanCorp. The meeting will be held on
April 28, 2005 at 10:00 a.m. at the Bankers Club, 209 Munoz Rivera 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 28, 2005
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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 2005 will be held at 10:00 a.m.
on Thursday, April 28, 2005, at the Bankers Club located at 209 Munoz Rivera
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 approve the Corporation's 2005 Employee Stock Option Plan;
(3) To ratify the appointment of Deloitte & Touche LLP as the
Corporation's independent registered public accounting firm
for the year ending December 31, 2005;
(4) 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 18, 2005 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 24, 2005
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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 MAY REVOKE IN
WRITING OR IN PERSON ANY PROXY GIVEN AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
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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 28, 2005
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 28, 2005 at the Bankers Club located at 209 Munoz Rivera
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, 2004,
duly audited by Deloitte & Touche LLP, as independent registered public
accounting firm. 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 24, 2005.
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
Mellon Investor Services, LLC 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
$5,000, 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.
1
VOTING SECURITIES AND VOTE REQUIRED FOR APPROVAL
The only outstanding voting securities of the Corporation are shares of
its Common Stock. Each stockholder of record at the close of business on March
18, 2005 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 46,639,104 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 18, 2005, 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
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Banco Santander Central Hispano, S.A. ("SCH") 41,337,688(1) 88.63%
Ciudad Grupo Santander
Boadilla del Monte
Madrid, Spain 28660
(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.......................................... 14,531 *
Victor Arbulu.............................................. -- --
Maria Calero............................................... 10,563 *
Carlos Capacete............................................ -- --
Roberto Cordova.......................................... -- --
Stephen A. Ferriss......................................... -- --
Carlos M. Garcia.......................................... 58,000 *
Vicente Gregorio.......................................... -- --
Roberto H. Valentin...................................... 3,769 *
Bartolome Velez.......................................... -- --
Jesus M. Zabalza.......................................... -- --
Total Shares owned by Directors, Nominees and
Executive Officers, as a group.............................. 85,184 *
* Less than one percent (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 2004 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 on a timely basis the
required forms, except for one late form filed by Maria Calero relating to the
purchase of 1,500 shares.
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.
Under the New York Stock Exchange ("NYSE") listing standards, a
"controlled company" is a company of which more than 50% of the voting power is
held by an individual, a group or another company. The Board of Directors has
determined that the Corporation is a "controlled company" within the meaning of
the NYSE listing standards. The basis for the Board of Director's determination
that the Corporation is a "controlled company" is SCH's ownership of
approximately 88.63% of the Corporation's voting power. As a "controlled
company," the Corporation is exempt from the certain listing standards of NYSE.
Specifically, the Corporation is not required to have: (a) a board of directors
comprised of a majority of independent directors; (b) a Compensation Committee
comprised of independent directors; or (c) director nominees selected, or
recommended for selection by the Board of Directors, by a majority of the
independent directors or a nominating committee comprised of independent
directors. The Corporation, however, is not exempt from the requirements to have
an Audit Committee comprised of at least three independent directors and to hold
regularly scheduled meetings in which only the independent directors are
present. The Board of Directors has made the determination that Mr. Victor
Arbulu, Mr. Vicente Gregorio, Mr. Stephen A. Ferriss and Mr. Roberto H. Valentin
are independent 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 B
Name Occupation Age Director Since
---- ---------- --- --------------
Jose R. Gonzalez President & Chief Executive Officer of the 50 2000
Corporation
Roberto H. Valentin Private Investor 64 2000
Carlos M. Garcia Senior Executive Vice President & 33 2002
Chief Operating Officer of the Corporation
3
The term of the following directors does not expire at the Annual Meeting.
The table below contains information of said directors.
CLASS C (Term Expires in One Year)
Gonzalo de las Heras Chairman of the Board of the Corporation 64 2000
Executive Vice President SCH
North American Division
Vicente Gregorio Consultant 53 2003
Jesus M. Zabalza Managing Director 46 2002
Latin America Division SCH
CLASS A (Term Expires in Two Years)
Maria Calero Executive Vice President 52 2001
Chief Accounting Officer of the Corporation
Victor Arbulu Consultant 63 2002
Stephen A. Ferriss Private Investor 59 2003
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 18, 2005.
Director Age Director Since
- -------- --- --------------
Gonzalo de las Heras....................... Director and Chairman 64 2000
Jose R. Gonzalez........................... Director and Vice Chairman 50 2000
Victor Arbulu.............................. Director 63 2002
Maria Calero............................... Director 52 2000
Stephen A. Ferriss......................... Director 59 2003
Carlos M. Garcia........................... Director 33 2002
Vicente Gregorio........................... Director 53 2003
Roberto H. Valentin........................ Director 64 2000
Jesus M. Zabalza........................... Director 46 2002
4
Executive Officers Age Officer Since:
- ------------------ --- --------------
Jose R. Gonzalez .......................... President & 50 2001
Chief Executive Officer
Carlos M. Garcia........................... Senior Executive Vice President 33 2002
Chief Operating Officer
Maria Calero .............................. Executive Vice President 52 1999
Chief Accounting Officer
Roberto Cordova............................ Executive Vice President 45 2003
Commercial Banking
Juan Davila................................ Executive Vice President 36 2003
Chief Risk Officer
Bartolome Velez............................ Executive Vice President 52 2003
Retail Banking
Carlos Capacete............................ Managing Director 50 2004
Santander Securities Corporation
Sinesio Diaz............................... President 47 2001
Santander Mortgage Corporation
Jorge M. Garcia............................ President & Chief Executive Officer 38 2003
Santander Insurance Agency, Inc.
Jesus Mendez............................... President 49 2003
Santander Asset Management
First Senior Vice President
Trust Officer
Jose Alvarez............................... First Senior Vice President 48 2004
Operations
Ivonna Pacheco............................. First Senior Vice President 39 2000
Human Resources
Laura Vazquez.............................. First Senior Vice President 46 2001
Comptroller
Diego Begara............................... Senior Vice President 36 2004
Internal Audit
Enrique R. Ubarri, Esq..................... Secretary, General Counsel 33 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 Executive Vice
President 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. He served as a 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 the Institute of International Bankers, and a
Director of both The Spanish Institute and the Spain-US Chamber of Commerce.
5
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 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 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 Masters 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.
6
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., Senior Associate at Spectrum Finance
Network, Inc. and director of Caribbean Petroleum Corporation and Packers
Provision Co. of Puerto Rico, Inc. 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 its 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 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
Corporate and Middle Market on February 2003 and then he was appointed Director
of Wholesale Banking on January 2004. 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. 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.
Bartolome Velez joined the Corporation on July 2003 and currently serves
as Executive Vice President and Director of Retail Banking. Mr. Velez previously
served for over fifteen years in Citibank in various positions, which included
Global Liaison for Consumer and Commercial Credit of Citigroup, Inc. in
Baltimore, Maryland. From 1999 to 2002, Mr. Velez worked at Citibank, N.A. in
Panama City, Panama as Senior Country Business Credit Manager and from 1998 to
1999, also at Citibank, N.A. in Monterey, Mexico as Credit Policy Director in
the Global Consumer Bank Division. From 1980 to 1987, Mr. Velez worked at
Congress Credit in San Juan, Puerto Rico as credit director. Mr. Velez holds a
B.A. in Accounting from the University of Puerto Rico and completed the
Continued Education Program at Wharton Business School.
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.
Jesus Mendez joined the Corporation in January 2004 when he was appointed
as President of Santander Asset Management and First Senior Vice-President and
Trust Officer of Santander Trust, a division of the Bank. Prior to joining
Santander, Mr. Mendez served as Director of Operations of Santander Securities
Corporation since 1996. Prior to joining Santander Securities Corporation, Mr.
Mendez served as Chief Financial Officer and Managing Director of BP Capital
Markets from 1995 to 1996. He also worked at First Boston (Puerto Rico, Inc.) as
Vice-president from 1985 to 1995. From 1981 to 1995 he was Senior Auditor for
Deloitte and Touche. Mr. Mendez also held the position of Assistant Bank
Examiner from 1979-1980 at the Federal Deposit Insurance Corporation in New York
City. Mr. Mendez has a B.A. in Business Administration graduating Cum Laude in
1979 from the University of Puerto Rico. He is a Certified Public Accountant
since 1982. In the year 2002 he was elected President of the Securities Industry
Association of Puerto Rico and is a member of the American Institute of Public
Accountants and of the Puerto Rico Society of Certified Public Accountants.
Jose Alvarez joined the Corporation as First Senior Vice President and
Director of Operations and Information Technology in 2004. Since 1979, Mr.
Alvarez has held various responsibilities within Grupo Santander such as
Director of Operations for the America's Division in Madrid, Spain, Project
Coordinator for the implementation of the Euro, International Coordinator of
Management Information Technology for Latin-American branches. In the past, he
also held positions as Systems Director of Banco Santander in New York, and
International Branches Coordinator for the implementation of the information and
software systems for the New York, Hong Kong, and Frankfurt branches of Banco
Santander. Prior to this, in Frankfurt, Germany, he held various
responsibilities as Operations Manager, Systems Analyst, and Systems Director
for their Bank of America Visa International Division. Mr. Alvarez has a
Bachelor's Degree in Business Administration with a concentration in Information
Systems and is a graduate of the Werner von Siemens and the Frankfurt Chamber of
Commerce.
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.
8
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.
Diego Begara joined the Corporation in 2004 as Internal Audit Director for
the Corporation. Prior to his employment with the Corporation, Mr. Begara served
as Internal Audit Director for Grupo Santander Venezuela from 2002 to 2003 and
in Peru from 2001 to 2002. Mr. Begara previously worked at the Internal Audit
Division of Grupo Santander in Spain where he held various positions as Manager
and Chief of Staff of several projects that included credit risk audits,
corporate client appraisals for the Banco Santander, Banesto, and Banco Central
Hispano. In the International scope, Mr. Begara has undertaken credit portfolio
analysis for investment decisions and conducted due diligence processes on
behalf of Grupo Santander. Mr. Begara has a Bachelor's Degree in Economic and
Business Sciences from the Colegio Universitario de Estudios Financieros (CUNEF)
of the Universidad Complutense de Madrid with a concentration in Auditing.
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
While the Corporation strongly encourages its directors to attend all
Stockholders Annual or Special Meetings it has not adopted a formal policy that
all directors must attend the Annual Stockholders Meeting. All members of the
Board of Directors attended the Annual Meeting of Stockholders held on April 29,
2004, except for Mr. Gonzalo de las Heras and Mr. Jesus M. Zabalza, who were
duly excused prior to the meeting.
Since the Corporation qualifies as a "controlled company", as described
above, the Corporation does not have a Board of Directors consisting of a
majority of independent directors. The Board of Directors of the Corporation and
of the Bank held 5 and 12 meetings, respectively, during the year ended December
31, 2004. The Corporation and the Bank have various standing committees as
described below, in addition to other management committees. All the directors
attended more than 75% of the aggregate of the meetings of the Board of
Directors of the Corporation held during year 2004.
The Corporation's Board of Directors has two standing committees, the
Audit Committee and the Compensation and Nomination Committee. During 2004 the
Corporation's Special Committee created in 2003 for the evaluation of the
transaction whereby the Corporation acquired Santander Securities Corporation
(SSC), the Corporation's broker dealer subsidiary met on two occasions. 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 Board of Directors 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, overseeing the internal controls and procedures, and compliance
with applicable laws and regulations. The Committee meets with the Corporation's
and its subsidiaries' independent registered public accounting firm to approve
the scope of the audit, review their report on the examination of the
Corporation's consolidated financial statements, internal controls and other
reports. Also, the Committee oversees the internal audit function, including
approval of the internal audit plan
9
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 H. Valentin. Mr. Diego Begara,
Senior Vice President and Internal Audit Director of the Corporation, presented
audit reports to the Committee during 2004. 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 independence requirements under SEC rules and
the listing standards of the NYSE. In determining independence, the Board of
Directors has affirmatively determined whether directors have a "material
relationship" with the Corporation. When assessing the materiality of a
director's relationship with the Corporation, the Board of Directors considers
all relevant facts and circumstances, not merely from the director's standpoint,
but also from that of the persons or organizations with which the director has
an affiliation, and the frequency and regularity of the services, whether the
services are being carried out at arm's length in the ordinary course of
business and whether the services are being provided substantially on the same
terms to the Corporation as those prevailing at the time from unrelated third
parties for comparable transactions. Material Relationships may include (a) not
being an employee of, or having an immediate family member who is a present or
former executive officer of, the Corporation; (b) not personally receiving or
having a family member who receives more than $100,000 per year in direct
compensation from the Corporation other than director and committee fees and
pension or other forms of deferred compensation for prior service; (c) not being
employed, or having an immediate family member employed, as an executive officer
of another company where any current executive officer of the Corporation serves
in that company's compensation committee; (d) not being employed by or
affiliated with, or having as immediate family member employed by or affiliated
with, a present or former internal or external auditor of the Corporation within
the three previous years; or (e) not being a director who is an executive
officer or employee or whose immediate family member is an executive officer of
a company that makes payments to or receives payments from the Corporation for
property or services in an amount which exceeds the greater of $1,000,000, or 2%
of the Corporation's or the other company's gross revenues.
The Audit Committee met 21 times during the year ended December 31, 2004.
None of the members of the committee are officers or employees of the
Corporation or the Bank.
Executive Sessions of Independent Directors
Executive sessions of the independent members of the Board of Directors
are held concurrently with each regularly scheduled meeting of the Audit
Committee. Mr. Vicente Gregorio, Chairman of the Audit Committee, presides over
executive sessions of the independent directors.
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 written a charter, which is attached as Exhibit A.
The Compensation Committee annually reviews and approves corporate goals
and objectives relevant to the compensation of the Corporation's Chief Executive
Officer and President, evaluates 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 also reviews and approves 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
10
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. 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. Messrs. de las Heras and Zabalza are
employees of SCH, which owns approximately 88.63% of the outstanding shares of
the Corporation's Common Stock. The Compensation Committee met twice during
2004.
Compensation Committee Interlock and Insider Participation
Neither of Messrs. de Las Heras, Zabalza and Arbulu is or has been an
employee of the Corporation or its subsidiaries. None of the executive officers
of the Corporation served as a director, executive officer or compensation
committee member of any other entity which had an executive officer who served
as a compensation committee member or director of the Corporation at any time
during 2004.
Special Committee
The Board of Directors of the Corporation appointed a Special Committee to
evaluate the transaction for the purchase of SSC in 2003. The members of the
Special Committee were Messrs. Victor Arbulu, Stephen A. Ferriss, Vicente
Gregorio, and Roberto H. 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
twice during the year ended December 31, 2004. The Committee dissolved on May
19, 2004.
11
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 $250,000; (b) Regional Credit Committee approves loans up to $1,000,000;
(c) Credit Administration Committee approves loans up to $8,000,000; (d)
Management Credit Committee approves secured loans up to $30,000,000; (e) the
Board of Directors' Credit Committee must approve secured loans in excess of
$30,000,000.
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 once 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 H.
Valentin. Mr. Jose Santoni, Senior Vice President, Credit Administration of the
Bank attends meetings of the Committee to discuss Middle Market loans and Mr.
Irving Rivera attends meetings of the Committee to discuss Wholesale Banking
loans. The Credit Committee met eleven times during the year ended December 31,
2004.
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 H. Valentin, and Carlos M. Garcia. The Trust Officer
also attends meetings of the Trust Committee. The Trust Committee met twice
during the year ended December 31, 2004.
COMPENSATION OF DIRECTORS AND OFFICERS
Compensation of Directors
From January 1 to July 22, 2004, 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.
The Compensation and Nomination Committee recommended to the Board of Directors
a modification of the compensation of directors on July 22, 2004. The Board of
Directors approved the modification to the directors fees such that directors
received a fee of $1,000 for each meeting of the Board of Directors of the
Corporation and the Bank, when said Board of Directors were held on the same
date, the Credit Committee meeting and the Trust Committee meeting remained at
$500, the Audit Committee meeting also remained at $1,500 and the monthly
allowance was reduced to $1,000. In the event that any Board of Directors or
committee meeting was held on the same date, directors would receive a maximum
of $1,000 of compensation for said date. The Board of Directors also approved
that the directors were to be included in the medical plan of the Corporation.
The Corporation has always compensated directors who are not officers of
the Corporation or SCH for their attendance at Board of Directors meetings or
committee meetings.
12
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 the BCH Pension Plan up to November 30, 1996. In
fiscal year 2003 there was no contribution to the Retirement Plan. During fiscal
year 2004 the total contribution to the Retirement Plan by the Bank amounted to
$216,909 and $1,685,362 for the BCH Pension Plan.
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, 2004, of a participant at age 65.
Annual Basic Salary Years of Service
=================== =======================================================================================
10 15 20 25 30
============== =============== ============ ============== ===============
$400,000 $21,375 $32,063 $42,750 $53,438 $64,125
$300,000 $21,375 $32,063 $42,750 $53,438 $64,125
$200,000 $21,250 $31,875 $42,500 $53,125 $63,750
$100,000 $10,250 $15,375 $20,500 $25,625 $30,750
13
No executive officer of the five highest paid key policymaking Executive
Officers benefited from the Retirement Plan during the year ended December 31,
2004.
The 2004 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:
12/31/2004 Estimated Years of Service
Annual Basic Salary at Age 65
------------------- --------------------------
Jose R. Gonzalez $625,000 18
Roberto Cordova $250,000 21
Bartolome Velez $250,000 15
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 of 1994,
as amended, the "Puerto Rico Code," which is similar to Section 401-K of the
Code. Employees from Banco Santander, Santander Mortgage, and Santander
Insurance 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 for the year ended December 31, 2004 amounted to $500,000.
Santander Securities has a deferred arrangement profit sharing 1165(e)
plan, which became effective January 1, 1997. Employees from Santander
Securities and Santander Asset Management benefit from the Savings Plan. Under
this plan, Santander Securities makes contributions to match 50% of employees'
allowable contributions as defined under the Internal Revenue Code of Puerto
Rico. In addition, the plan provides for Santander Securities contributions
based on compensation of eligible employees, as defined. Santander Securities
contributions to the plan amounted to $410,984 in 2004. The Company's
contribution becomes 100% vested once the employee attains five years of service
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 special program was 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 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
14
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 2004 was $35,925. The
prospective premium for 2005 is $36,000. The annual payments for the remaining
years decline as participants fulfill the total premium costs to maintain the
cash values.
Employee Agreements, Termination of Employment and Change in Control
Arrangements
Mr. Gonzalez, Mr. Garcia, Mr. Velez and Mr. Cordova have each entered into
employment agreements with the Bank.
On March 16, 2004 the Board of Directors of the Corporation approved Mr.
Gonzalez' new employment agreement which is retroactive to January 1, 2005 and
expires on January 1, 2007. Under the agreement, he is entitled to receive an
annual base salary of $650,000 for 2005 and $700,000 for 2006 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) $1,250,000; or (ii) the gross salary pending to be
received by Mr. Gonzalez from the day of termination of the agreement to January
1, 2007. In the event that Mr. Gonzalez' agreement is not renewed or extended
upon the expiration of said agreement on January 1, 2007, as it may be agreed
upon by the parties, the Bank shall pay Mr. Gonzalez the amount of $1,250,000 as
his termination of employment with the Bank. If there is a change of control of
the Bank, which shall mean any event whereby SCH reduces its ownership in the
outstanding shares of the Corporation or the Bank to less than 50%, and SCH does
not provide Mr. Gonzalez with employment in a similar position, Mr. Gonzalez
shall be entitled to receive the greater of: (i) $1,250,000; or (ii) the gross
salary pending to be received by Mr. Gonzalez from the day of termination of the
agreement to January 1, 2007. The compensation payable upon termination of
employment of Mr. Gonzalez shall not be cumulative. 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 or securities
industry in Puerto Rico for a period of twelve (12) months. Mr. Gonzalez'
agreement also contains confidentiality provisions.
On March 16, 2004 the Board of Directors of the Corporation approved Mr.
Garcia's new employment agreement which is retroactive to January 1, 2005 and
expires on January 1, 2007. Under the agreement, he is entitled to receive an
annual base salary of $525,000 for 2005 and $550,000 for 2006 and incentive
compensation in accordance with the Performance Bonus Plan, which is
administered by the Compensation Committee. If Mr. Garcia's employment is
terminated by the Bank for other than just cause, Mr. Garcia is entitled to
receive the greater of: (i) $1,000,000; or (ii) the gross salary pending to be
received by Mr. Garcia from the day of termination of the agreement to January
1, 2007. In the event that Mr. Garcia' agreement is not renewed or extended upon
the expiration of said agreement on January 1, 2007, as it may be agreed upon by
the parties, the Bank shall pay Mr. Garcia the amount of $1,000,000 as his
termination of employment with the Bank. If there is a change of control of the
Bank, which shall mean any event whereby SCH reduces its ownership in the
outstanding shares of the Corporation to less than 50%, and SCH does not provide
Mr. Garcia with employment in a similar position, Mr. Garcia shall be entitled
to receive the greater of: (i) $1,000,000; or (ii) the gross salary pending to
be received by Mr. Garcia from the day of termination of the agreement to
January 1, 2007. The compensation payable upon termination of employment of Mr.
Garcia shall not be cumulative. Upon expiration of the agreement and the
parties' failure to renew the same, Mr. Garcia shall not provide professional
services to any other company in the banking or securities industry in Puerto
Rico for a period of six (6) months. This non-competition clause of the
agreement shall be inapplicable in the event of termination of the agreement as
a result of a change in control. Mr. Garcia's agreement also contains
confidentiality provisions.
Mr. Cordova's employment agreement entitled him to receive an annual base
salary of $225,000, which has been increased to $250,000, and incentive
compensation in accordance with the Performance Bonus Plan, which is
administered by the Compensation Committee. 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
15
long as he remains 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 in 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
indemnity 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. Velez' agreement entitles him 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. Velez received $50,000 as an engagement bonus, which he
would have to return to the Bank in the event he terminated his employment
voluntarily during the first year of the agreement; in the event he terminated
his employment voluntarily during the second year of the agreement he would have
to return 50% of the engagement bonus to the Bank. 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. Mr. Velez 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. Velez' employment is terminated
by the Bank for other than cause, as defined in the agreement, Mr. Velez is
entitled to receive the greater of: (i) $250,000; or (ii) the indemnity 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, Mr. Velez shall receive the aforementioned
compensation as if he would have been terminated. Mr. Velez' agreement also
contains confidentiality provisions.
Annual Compensation
The table in the following page sets forth the annual compensation for the
Corporation's Chief Executive Officer and the Bank's five other most highly
compensated executive officers for the years ended December 31, 2004, 2003 and
2002.
16
SUMMARY COMPENSATION TABLE
Annual Compensation All Other
Year Salary Bonus (1) Other (2) Compensation Total
Jose R. Gonzalez .......... 2004 $625,000 $682,083 - - $1,307,083
President & CEO 2003 $550,000 $445,833 - $995,833
2002 $497,499 $310,183 - - $807,682
Carlos M. Garcia.......... 2004 $500,000 $601,607 - - $1,101,607
Senior Executive Vice 2003 $381,461 $445,667 - - $827,128
President & COO
2002 $200,000 $335,200 - - $535,200
Jesus Mendez.............. 2004 $212,000 $262,576 - - $474,576
First Senior Vice 2003 $187,200 $215,600 - - $402,800
President, President
Santander Asset Management
2002 $180,000 $185,000 - - $365,000
Roberto Cordova ........... 2004 $250,000 $194,750 - - $444,750
Executive Vice President 2003 $190,385 $272,500(3) - $462,885
2002 - - - - -
Carlos J. Capacete......... 2004 $200,000 $238,400 - - $438,400
Executive Officer, Managing 2003 $121,154 $301,000 - $57,143(4) $479,297
Director & COO-SSC
2002 - - - - -
Bartolome Velez(5)..... 2004 $250,000 $131,000 - - $381,000
Executive Vice President 2003 $120,784(6) $62,500 - $50,000(7) $233,284
2002 - - - - -
(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. Cordova received a signing bonus of $125,000 in February 2003, which
is included as part of the bonus.
(4) Mr. Capacete received this amount upon commencement of his employment with
SSC.
(5) Mr. Velez became an officer of the Corporation in November 2004.
(6) Mr. Velez joined the Corporation on July 1, 2003.
(7) Mr. Velez received this amount upon commencement of his employment with
the Bank.
17
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, Executive Officers
of the Corporation and Presidents of 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 2004, the Compensation Committee took into
account the Corporation's financial results in fiscal 2003 and 2004. Mr.
Gonzalez had been granted an annual base salary, commencing April 30, 2002, of
$550,000 and such salary was increased on November 18, 2004 to $625,000
retroactively to the month of January 2004.
The Compensation Committee evaluates the Chief Executive Officer and
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, the Managing Director of SSC, the
President of Santander Mortgage Corporation, the President of Santander Asset
Management and the President of SIA (the "Executive Officers"). 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.
18
With respect to the base salary received by Senior Executive Vice
President and Chief Operating Officer, Mr. Garcia in fiscal 2004, the
Compensation Committee took into account his' efforts into the Corporation's
financial results in fiscal 2003 and 2004, as well as the integration of
Santander Securities Corporation into the operations of the Corporation. Mr.
Garcia had been granted an annual base salary of $458,000, of which $250,000 was
paid by the Bank from January 1, 2004 to December 31, 2004 and $208,000 were
paid by Santander Securities Corporation. On November 18, 2004, Mr. Garcia's
salary was increased to $500,000, of which $292,000 shall be paid by the Bank
and $208,000 shall be paid by Santander Securities Corporation retroactively to
the month of January 2004.
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 Chief Executive Officer
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 M. 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 18, 2004. The Charter was amended
and reviewed by the Audit Committee on March 18, 2004. A copy of such Charter
was reproduced as Exhibit B to the proxy statement circulated to shareholders in
connection to the 2004 Annual Meeting of Stockholders and is available on our
website at www.santandernet.com.
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
registered public accounting firm of the Corporation is responsible
19
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 and the effectiveness of the Corporation's internal controls
over financial reporting.
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 registered public
accountants. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles and policies, and 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, 2004 with management and the independent
registered public accountants; and management's assessment of the effectiveness
of the Corporation's internal control and the independent registered public
accounting firm's report on internal control over financial reporting. The Audit
Committee has also discussed with the independent registered public accountants,
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 registered public
accounting firm to the Corporation is compatible with maintaining their
independence, and has discussed with the independent registered public
accounting firm its independence from the Corporation and its management.
Based on the Audit Committee's review of the audited financial statements,
management's assessment of the effectiveness of internal controls over financial
reporting and the independent registered public accounting firm's report
thereon. and the discussions referred to above with management and the
independent registered public accounting firm 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, 2004
for filing with the Securities and Exchange Commission.
Submitted by:
Mr. Victor Arbulu Director
Mr. Vicente Gregorio Director
Mr. Stephen A. Ferriss Director
Mr. Roberto H. 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 audits and other services provided by
Deloitte & Touche LLP ("D&T") for the fiscal years ended December 31, 2004 and
2003.
20
Audit Fees
The aggregate "Audit Fees" paid or accrued by the Corporation for
professional services 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, 2004 and 2003, the audit of the effectiveness of the
Corporation's internal control over financial reporting as of December 31, 2004,
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:
2004 2003
-------------- --------------
Audit Fees $1,010,170 $368,229
Audit-Related Fees $105,050 $153,597
Tax Fees - -
All Other Fees - -
-------------- --------------
Total $1,115,220 $521,826
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
The Bank has had loan transactions with the Corporation's directors and
officers, and proposes to continue such transactions in the ordinary course of
its business, on substantially the same terms, including interest rates and
collateral, as those prevailing for comparable loan transactions with other
people. The extensions of credit have not involved and do not currently involve
more than normal risks of collectibility or present other unfavorable features.
21
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, 2004, 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.
[PERFORMANCE CHART]
[The Following table was depicted as a line chartin the printed material.]
SBP PRSI Benchmark
SBP Equity PRSI Index Small Cap Comm Banks Index
Date Last Px Equivalent Last Px Equivalent Last Px Equivalent
12/31/03 22.14 100.00 14,637.32 100.00 546.35 100.00
01/02/04 22.33 100.86 14,646.87 100.07 542.80 99.35
01/05/04 22.94 103.61 14,547.27 99.38 542.12 99.23
01/06/04 22.86 103.29 14,549.55 99.40 537.44 98.37
01/07/04 23.23 104.93 14,663.46 100.18 543.28 99.44
01/08/04 23.64 106.78 14,700.27 100.43 543.76 99.53
01/09/04 23.65 106.82 14,782.48 100.99 539.09 98.67
01/12/04 23.85 107.76 14,835.73 101.36 541.86 99.18
01/13/04 24.09 108.83 14,924.04 101.96 542.24 99.25
01/14/04 24.09 108.83 15,006.63 102.52 544.04 99.58
01/15/04 23.71 107.10 15,168.44 103.63 546.05 99.95
01/16/04 23.97 108.30 15,320.92 104.67 544.72 99.70
01/20/04 24.18 109.24 15,379.49 105.07 551.71 100.98
01/21/04 24.36 110.06 15,412.89 105.30 553.02 101.22
01/22/04 24.05 108.62 15,403.37 105.23 544.55 99.67
01/23/04 23.73 107.19 15,374.43 105.04 551.60 100.96
01/26/04 25.45 114.99 15,607.05 106.63 558.66 102.25
01/27/04 25.50 115.19 15,315.04 104.63 555.44 101.66
01/28/04 25.23 113.96 15,028.69 102.67 551.24 100.90
01/29/04 24.86 112.32 14,914.10 101.89 549.89 100.65
01/30/04 24.95 112.73 14,958.60 102.19 549.56 100.59
02/02/04 24.86 112.32 15,068.77 102.95 549.77 100.63
02/03/04 24.86 112.32 15,080.10 103.03 550.80 100.81
02/04/04 24.55 110.88 14,906.17 101.84 539.32 98.71
02/05/04 24.36 110.06 14,966.69 102.25 543.21 99.43
02/06/04 24.44 110.39 15,208.27 103.90 555.70 101.71
02/09/04 24.29 109.73 15,172.00 103.65 553.81 101.37
02/10/04 24.47 110.55 15,350.62 104.87 563.39 103.12
02/11/04 24.55 110.88 15,332.22 104.75 564.46 103.31
02/12/04 24.77 111.91 15,273.93 104.35 558.85 102.29
02/13/04 24.81 112.07 15,383.25 105.10 552.36 101.10
02/17/04 24.65 111.38 15,371.47 105.02 562.12 102.89
02/18/04 25.23 113.96 15,430.00 105.42 559.54 102.41
02/19/04 25.25 114.05 15,416.99 105.33 556.27 101.82
02/20/04 25.18 113.76 15,382.64 105.09 558.42 102.21
02/23/04 25.23 113.96 15,309.87 104.59 554.70 101.53
02/24/04 24.12 108.95 15,131.54 103.38 554.67 101.52
02/25/04 23.95 108.21 15,307.49 104.58 562.54 102.96
02/26/04 23.71 107.10 15,348.21 104.86 564.74 103.37
02/27/04 24.04 108.58 15,377.99 105.06 565.56 103.52
03/01/04 23.64 106.78 15,383.23 105.10 569.53 104.24
03/02/04 24.29 109.73 15,297.64 104.51 563.81 103.20
03/03/04 24.29 109.73 15,244.97 104.15 565.90 103.58
03/04/04 24.22 109.40 15,288.80 104.45 569.18 104.18
03/05/04 24.55 110.88 15,547.98 106.22 571.44 104.59
03/08/04 24.34 109.94 15,418.03 105.33 565.01 103.42
03/09/04 25.45 114.99 15,370.34 105.01 563.79 103.19
03/10/04 24.95 112.73 15,314.92 104.63 558.31 102.19
03/11/04 24.76 111.87 15,068.31 102.94 552.31 101.09
03/12/04 25.18 113.76 15,241.43 104.13 561.01 102.68
03/15/04 25.15 113.59 15,030.20 102.68 546.51 100.03
03/16/04 24.92 112.57 15,085.52 103.06 550.69 100.79
03/17/04 25.09 113.35 15,182.52 103.72 560.33 102.56
03/18/04 24.89 112.44 15,077.02 103.00 555.65 101.70
03/19/04 24.69 111.54 15,054.76 102.85 552.77 101.18
03/22/04 24.59 111.09 14,897.26 101.78 547.12 100.14
03/23/04 24.86 112.32 15,004.07 102.51 548.94 100.47
03/24/04 24.62 111.21 14,962.38 102.22 545.13 99.78
03/25/04 24.47 110.55 15,024.18 102.64 552.50 101.13
03/26/04 24.75 111.83 15,125.85 103.34 549.48 100.57
03/29/04 25.17 113.72 15,367.26 104.99 556.42 101.84
03/30/04 25.44 114.91 15,316.06 104.64 559.97 102.49
03/31/04 25.00 112.94 15,313.78 104.62 563.20 103.08
04/01/04 25.05 113.14 15,434.38 105.45 566.62 103.71
04/02/04 25.36 114.58 15,309.87 104.59 567.86 103.94
04/05/04 25.91 117.04 15,130.19 103.37 567.68 103.90
04/06/04 25.53 115.32 15,260.26 104.26 565.58 103.52
04/07/04 26.32 118.89 15,340.20 104.80 568.83 104.11
04/08/04 25.82 116.63 15,258.44 104.24 563.39 103.12
04/12/04 26.25 118.60 15,264.57 104.29 567.76 103.92
04/13/04 25.82 116.63 14,922.46 101.95 552.60 101.14
04/14/04 25.17 113.72 14,447.18 98.70 542.75 99.34
04/15/04 25.25 114.09 14,450.26 98.72 537.40 98.36
04/16/04 25.50 115.19 14,581.80 99.62 541.64 99.14
04/19/04 25.27 114.17 14,520.11 99.20 542.29 99.26
04/20/04 25.12 113.47 14,297.50 97.68 536.42 98.18
04/21/04 25.36 114.58 14,327.88 97.89 541.31 99.08
04/22/04 26.64 120.33 14,582.30 99.62 550.08 100.68
04/23/04 27.41 123.82 14,664.77 100.19 549.29 100.54
04/26/04 27.91 126.08 14,656.84 100.13 544.79 99.71
04/27/04 28.41 128.34 14,730.45 100.64 547.08 100.13
04/28/04 27.16 122.71 14,465.49 98.83 538.18 98.50
04/29/04 27.30 123.33 14,419.39 98.51 535.05 97.93
04/30/04 27.29 123.29 14,528.96 99.26 537.28 98.34
05/03/04 27.27 123.20 14,525.62 99.24 539.24 98.70
05/04/04 27.31 123.37 14,566.72 99.52 543.33 99.45
05/05/04 27.45 123.98 14,541.23 99.34 547.08 100.13
05/06/04 26.75 120.86 14,555.13 99.44 541.80 99.17
05/07/04 26.28 118.73 14,094.00 96.29 527.99 96.64
05/10/04 25.82 116.63 13,782.15 94.16 522.10 95.56
05/11/04 25.41 114.78 13,848.68 94.61 527.60 96.57
05/12/04 24.55 110.88 13,832.23 94.50 528.97 96.82
05/13/04 24.55 110.92 14,250.80 97.36 528.85 96.80
05/14/04 24.07 108.75 14,183.88 96.90 529.31 96.88
05/17/04 23.95 108.17 14,057.27 96.04 522.30 95.60
05/18/04 23.91 108.01 14,134.92 96.57 529.81 96.97
05/19/04 24.15 109.12 14,117.25 96.45 526.60 96.39
05/20/04 24.27 109.65 14,181.55 96.89 528.40 96.71
05/21/04 24.50 110.68 14,165.03 96.77 534.21 97.78
05/24/04 24.87 112.36 14,173.27 96.83 535.92 98.09
05/25/04 26.23 118.48 14,451.59 98.73 545.02 99.76
05/26/04 26.05 117.66 14,619.80 99.88 553.06 101.23
05/27/04 25.87 116.88 14,657.61 100.14 553.03 101.22
05/28/04 25.82 116.63 14,662.30 100.17 555.65 101.70
06/01/04 26.11 117.95 14,658.92 100.15 553.14 101.24
06/02/04 26.05 117.66 14,634.50 99.98 558.13 102.16
06/03/04 25.84 116.71 14,482.45 98.94 549.32 100.54
06/04/04 25.72 116.18 14,683.41 100.31 554.80 101.55
06/07/04 25.97 117.33 14,926.35 101.97 561.54 102.78
06/08/04 26.09 117.86 14,875.03 101.62 560.79 102.64
06/09/04 25.67 115.98 14,706.99 100.48 554.97 101.58
06/10/04 25.83 116.67 14,682.05 100.31 555.59 101.69
06/14/04 24.64 111.29 14,452.19 98.74 548.79 100.45
06/15/04 24.27 109.65 14,602.66 99.76 553.87 101.38
06/16/04 24.19 109.28 14,609.48 99.81 555.89 101.75
06/17/04 23.06 104.19 14,658.22 100.14 557.62 102.06
06/18/04 22.85 103.24 14,545.37 99.37 559.74 102.45
06/21/04 22.60 102.09 14,587.19 99.66 560.33 102.56
06/22/04 21.66 97.86 14,559.87 99.47 564.58 103.34
06/23/04 22.14 100.00 14,642.61 100.04 568.57 104.07
06/24/04 22.62 102.18 14,708.06 100.48 566.40 103.67
06/25/04 22.00 99.38 14,681.32 100.30 566.42 103.67
06/28/04 22.15 100.08 14,722.17 100.58 568.52 104.06
06/29/04 22.35 100.94 14,628.88 99.94 572.31 104.75
06/30/04 22.47 101.52 14,776.58 100.95 573.55 104.98
07/01/04 22.09 99.79 14,679.99 100.29 566.51 103.69
07/02/04 22.04 99.55 14,798.93 101.10 571.18 104.54
07/06/04 21.82 98.56 14,852.55 101.47 565.93 103.58
07/07/04 22.15 100.04 14,864.15 101.55 567.60 103.89
07/08/04 22.08 99.75 14,694.21 100.39 563.04 103.05
07/09/04 22.09 99.79 14,665.44 100.19 563.20 103.08
07/12/04 22.18 100.21 14,880.80 101.66 567.94 103.95
07/13/04 22.89 103.41 14,942.30 102.08 568.61 104.07
07/14/04 23.21 104.85 15,036.28 102.73 566.39 103.67
07/15/04 23.70 107.06 14,946.82 102.11 567.73 103.91
07/16/04 23.80 107.52 15,145.93 103.47 568.89 104.13
07/19/04 23.76 107.33 15,217.85 103.97 572.69 104.82
07/20/04 24.05 108.64 15,281.45 104.40 576.15 105.45
07/21/04 23.80 107.52 15,144.16 103.46 564.21 103.27
07/22/04 23.70 107.06 15,179.52 103.70 559.34 102.38
07/23/04 24.15 109.10 15,168.05 103.63 555.70 101.71
07/26/04 23.85 107.74 15,185.31 103.74 554.53 101.50
07/27/04 23.75 107.29 15,278.83 104.38 563.25 103.09
07/28/04 23.48 106.07 15,326.10 104.71 558.46 102.22
07/29/04 22.65 102.32 15,525.06 106.06 564.07 103.24
07/30/04 23.00 103.90 15,637.02 106.83 564.68 103.35
08/02/04 22.84 103.18 15,686.03 107.16 566.78 103.74
08/03/04 22.45 101.42 15,587.39 106.49 561.97 102.86
08/04/04 22.21 100.33 15,632.46 106.80 565.47 103.50
08/05/04 22.50 101.64 15,539.30 106.16 558.16 102.16
08/06/04 22.78 102.91 15,571.95 106.39 551.71 100.98
08/09/04 22.08 99.75 15,407.12 105.26 550.38 100.74
08/10/04 22.24 100.47 15,666.14 107.03 558.19 102.17
08/11/04 22.25 100.51 15,661.22 107.00 562.35 102.93
08/12/04 22.10 99.84 15,607.31 106.63 554.85 101.56
08/13/04 22.50 101.64 15,686.63 107.17 557.10 101.97
08/16/04 22.51 101.69 15,799.69 107.94 566.10 103.61
08/17/04 22.10 99.84 15,844.57 108.25 567.07 103.79
08/18/04 22.80 103.00 16,126.36 110.17 575.12 105.27
08/19/04 22.94 103.63 16,127.57 110.18 572.71 104.82
08/20/04 23.01 103.95 16,300.56 111.36 580.52 106.25
08/23/04 24.20 109.32 16,294.09 111.32 575.21 105.28
08/24/04 24.80 112.03 16,367.25 111.82 580.66 106.28
08/25/04 24.61 111.17 16,446.32 112.36 584.64 107.01
08/26/04 24.66 111.40 16,482.53 112.61 583.44 106.79
08/27/04 24.88 112.39 16,493.23 112.68 585.90 107.24
08/30/04 24.60 111.13 16,392.01 111.99 583.09 106.72
08/31/04 24.33 109.91 16,473.52 112.54 585.66 107.20
09/01/04 24.17 109.19 16,551.69 113.08 587.38 107.51
09/02/04 24.07 108.73 16,585.41 113.31 590.98 108.17
09/03/04 24.12 108.96 16,674.14 113.92 590.87 108.15
09/07/04 24.26 109.59 16,923.51 115.62 598.98 109.63
09/08/04 24.10 108.87 17,002.92 116.16 594.76 108.86
09/09/04 24.28 109.68 17,052.13 116.50 601.06 110.01
09/10/04 24.46 110.50 17,361.36 118.61 603.32 110.43
09/13/04 24.97 112.80 17,475.64 119.39 604.36 110.62
09/14/04 25.11 113.43 17,455.80 119.26 602.73 110.32
09/15/04 25.02 113.03 17,417.43 118.99 600.47 109.91
09/16/04 25.09 113.34 17,553.19 119.92 602.22 110.23
09/17/04 25.00 112.94 17,470.47 119.36 599.10 109.65
09/20/04 24.53 110.81 17,469.96 119.35 593.09 108.55
09/21/04 24.42 110.32 17,623.43 120.40 595.14 108.93
09/22/04 24.42 110.32 17,452.19 119.23 582.58 106.63
09/23/04 24.44 110.41 17,351.91 118.55 580.69 106.29
09/24/04 24.39 110.18 17,340.84 118.47 580.05 106.17
09/27/04 24.53 110.81 17,115.04 116.93 572.07 104.71
09/28/04 24.49 110.63 17,345.48 118.50 578.70 105.92
09/29/04 25.00 112.94 17,429.86 119.08 585.01 107.08
09/30/04 25.00 112.94 17,508.19 119.61 583.53 106.81
10/01/04 25.30 114.29 17,635.35 120.48 594.22 108.76
10/04/04 25.39 114.70 17,718.17 121.05 595.59 109.01
10/05/04 25.46 115.01 17,580.89 120.11 591.66 108.29
10/06/04 25.50 115.19 17,850.94 121.95 597.85 109.43
10/07/04 25.29 114.25 17,666.22 120.69 589.15 107.83
10/08/04 25.41 114.79 17,675.83 120.76 585.41 107.15
10/11/04 25.45 114.97 17,645.48 120.55 590.77 108.13
10/12/04 25.70 116.10 17,720.17 121.06 591.95 108.35
10/13/04 25.20 113.84 17,465.00 119.32 587.80 107.59
10/14/04 25.17 113.70 17,176.03 117.34 579.84 106.13
10/15/04 25.57 115.51 17,399.46 118.87 588.30 107.68
10/18/04 25.35 114.52 17,270.14 117.99 590.39 108.06
10/19/04 25.44 114.92 17,266.92 117.97 591.47 108.26
10/20/04 25.62 115.74 17,030.12 116.35 589.88 107.97
10/21/04 25.41 114.79 16,991.66 116.08 598.52 109.55
10/22/04 24.82 112.12 16,856.16 115.16 595.17 108.94
10/25/04 25.47 115.06 16,914.72 115.56 604.32 110.61
10/26/04 25.47 115.06 17,242.23 117.80 614.45 112.46
10/27/04 25.90 117.00 17,311.05 118.27 623.26 114.08
10/28/04 26.80 121.07 17,720.23 121.06 621.64 113.78
10/29/04 27.90 126.04 17,879.11 122.15 621.57 113.77
11/01/04 27.94 126.22 17,883.23 122.18 621.02 113.67
11/02/04 27.64 124.86 17,892.70 122.24 622.13 113.87
11/03/04 27.55 124.46 18,115.49 123.76 633.38 115.93
11/04/04 27.90 126.04 18,386.25 125.61 639.48 117.05
11/05/04 28.15 127.17 18,457.71 126.10 640.01 117.14
11/08/04 28.76 129.92 18,574.66 126.90 637.23 116.63
11/09/04 28.70 129.65 18,619.67 127.21 640.49 117.23
11/10/04 27.40 123.78 18,665.60 127.52 639.78 117.10
11/11/04 26.99 121.93 18,892.01 129.07 647.64 118.54
11/12/04 27.97 126.35 19,002.39 129.82 652.09 119.35
11/15/04 27.50 124.23 19,042.28 130.09 652.77 119.48
11/16/04 27.42 123.87 18,951.03 129.47 641.16 117.35
11/17/04 27.10 122.42 19,021.54 129.95 644.02 117.88
11/18/04 27.14 122.60 18,958.39 129.52 642.22 117.55
11/19/04 26.76 120.89 18,768.75 128.23 632.49 115.77
11/22/04 26.90 121.52 18,929.78 129.33 643.40 117.76
11/23/04 27.25 123.10 19,055.86 130.19 646.50 118.33
11/24/04 27.30 123.33 19,080.90 130.36 648.46 118.69
11/26/04 27.50 124.23 19,064.70 130.25 648.92 118.77
11/29/04 27.38 123.69 19,004.25 129.83 652.06 119.35
11/30/04 27.10 122.42 19,126.46 130.67 655.69 120.01
12/01/04 27.87 125.90 19,496.02 133.19 668.17 122.30
12/02/04 28.23 127.53 19,554.89 133.60 666.45 121.98
12/03/04 28.51 128.79 19,362.96 132.28 657.71 120.38
12/06/04 28.65 129.42 19,408.74 132.60 653.80 119.67
12/07/04 28.59 129.15 19,033.46 130.03 636.70 116.54
12/08/04 28.48 128.66 18,909.24 129.19 640.07 117.15
12/09/04 28.59 129.15 19,009.16 129.87 638.25 116.82
12/10/04 28.61 129.24 19,108.51 130.55 640.99 117.32
12/13/04 28.44 128.48 19,217.90 131.29 646.84 118.39
12/14/04 28.49 128.70 19,367.99 132.32 649.53 118.89
12/15/04 28.60 129.20 19,466.32 132.99 652.06 119.35
12/16/04 28.23 127.53 19,503.04 133.24 644.05 117.88
12/17/04 28.60 129.20 19,452.40 132.90 642.11 117.53
12/20/04 28.50 128.75 19,474.41 133.05 640.48 117.23
12/21/04 29.00 131.01 19,607.17 133.95 650.14 119.00
12/22/04 29.32 132.45 19,647.22 134.23 651.44 119.23
12/23/04 29.65 133.94 19,730.98 134.80 651.46 119.24
12/27/04 29.70 134.17 19,693.08 134.54 643.92 117.86
12/28/04 30.24 136.61 20,045.43 136.95 652.62 119.45
12/29/04 30.45 137.56 20,031.47 136.85 650.36 119.04
12/30/04 30.17 136.29 20,136.63 137.57 648.93 118.78
12/31/04 30.16 136.25 20,207.81 138.06 649.94 118.96
22
PROPOSAL TWO: 2005 EMPLOYEE STOCK OPTION PLAN
Introduction
On March 16, 2005, the Board of Directors adopted, subject to shareholder
approval, the 2005 Employee Stock Option Plan (the "2005 Option Plan"). The
principal features of the 2005 Option Plan are summarized below. The summary is
qualified by the complete text of the 2005 Option Plan, a copy of which is
attached as Exhibit B to this Proxy Statement.
Purpose
The 2005 Option Plan is intended to provide the Corporation and its
subsidiaries with an effective means to attract and retain highly qualified
personnel as well as to provide additional incentive to employees who provide
services to the Corporation and its subsidiaries.
Administration of Plan
The 2005 Option Plan provides that it will be administered by a committee
(the "Committee") consisting of at least two directors appointed by the Board,
each of whom is a "Non-Employee Director" within the meaning of Rule 16b-3
promulgated under the Exchange Act. The Committee has general authority to
administer the plan, including the authority to determine the form of the option
agreements to be used under the plan, and the terms and conditions to be
included in such option agreements, subject to the ratification of the Board of
Directors if such limitation is imposed by the Board of Directors.
Number of Authorized Shares
Under the 2005 Option Plan, 500,000 shares of Common Stock, subject to
adjustment for stock splits, recapitalizations and similar events, will be
available for use. The shares are to be made available from authorized but
un-issued shares of Common Stock or treasury stock.
Eligibility
Any employee of the Corporation (including officers and directors who are
also employees), or of any of its subsidiaries, is eligible to participate in
the 2005 Option Plan. The selection of individuals eligible to participate is
within the discretion of the Committee. Since the selection of participants and
awards granted will be within the discretion of the Committee it is not possible
to state the number of officers and other employees that will participate in the
Plan or the amount and value of awards to be granted to such persons under the
2005 Option Plan.
Awards Under the 2005 Option Plan
The 2005 Option Plan provides for the grant of stock options that are
intended to qualify as "qualified stock options" ("QSOs") under Section 1046 of
the Puerto Rico Code, and as "incentive stock options" under Section 422 of the
Code ("ISOs"), or "non-statutory stock options" ("NSOs"). The Committee will
designate in its discretion those employees of the Corporation and its
subsidiaries who may participate in the 2005 Option Plan. Employees who are also
directors are entitled to participate in the 2005 Option Plan.
The exercise price with respect to options to be granted under the 2005
Option Plan will be determined by the Committee at the time of grant. Under the
2005 Option Plan, the option exercise price may not be less than 100% of the
fair market value of the Common Stock on the date of grant. Fair market value is
defined as the closing price of the Common Stock on the date of grant as
reported on the New York Stock Exchange (or the principal national securities
exchange on which the shares of Common Stock trade) or, if no price is reported
on such day, then on the next preceding day on which such price was reported.
Payments for shares upon exercise of stock options may be made either in cash
or, with the consent of the Committee, by exchanging shares of Common Stock at
their fair market value, or a combination of both.
23
No person may receive an ISO if, at the time of grant, such person (a "10%
Holder") owns, directly or indirectly, more than 10% of the total combined
voting power of all classes of stock of the Corporation unless the option price
is at least 110% of the fair market value of the Common Stock and such option is
not exercisable more than five years after its date of grant. There is also a
$100,000 limit on the value of stock determined at the time of grant of a QSO or
an ISO that may become exercisable for the first time in any calendar year.
The maximum option term is ten years from the date of grant, except for
10% Holders in the case of ISOs, in which case the maximum term is five years.
Options shall be exercisable solely as provided in the respective employee's
option contract. No option may be granted more than 10 years after the effective
date of the 2005 Option Plan.
If an employee's employment with the Corporation or a subsidiary
terminates by reason of death, his or her stock options, whether or not then
exercisable, may be exercised by the employee or by the estate, heir or legatee
of the employee within one year after such termination of employment (but not
later than the date the options would otherwise expire). If the employee's
employment terminates for any reason other than death, stock options held by
such employee terminate on the date of such termination (but not later than the
date the option would otherwise expire). The Committee, in its discretion, may
extend an option's termination period if the employee's employment terminates
due to disability, retirement in accordance with the Corporation's retirement
plan or because the employee's employing subsidiary ceases to be a subsidiary of
the Corporation.
Options are not transferable, except by will or applicable laws of descent
and distribution.
Change in Control
Under the 2005 Option Plan, upon the occurrence of certain "change of
control" transactions involving the Corporation, all options then outstanding
under the 2005 Option Plan become immediately exercisable.
Amendments and Termination
The Corporation's Board of Directors may suspend, amend, modify or
terminate the 2005 Option Plan, without shareholder approval, except to the
extent required by the Puerto Rico Code or the Code to permit the granting of
QSOs and ISOs under the 2005 Option Plan or by the rules of any securities
exchanges or automated quotation system on which the shares of Common Stock of
the Corporation trade. If the Board of Directors voluntarily submits a proposed
amendment, supplement, modification or termination for stockholder approval,
such submission will not require any further amendments, supplements or
terminations (whether or not relating to the same provision or subject matter)
to be similarly submitted for stockholder approval.
Unless previously terminated, the 2005 Option Plan will terminate on March
16, 2015, the tenth anniversary of the effective date of the 2005 Option Plan.
Options may not be granted under the 2005 Option Plan after such date. Awards
granted prior to a termination of the 2005 Option Plan shall continue in
accordance with their terms following such termination. No amendment,
suspension, modification or termination of the 2005 Option Plan shall adversely
affect the rights of an employee in awards previously granted without such
employee's consent.
Tax Withholding
The Committee may require payment, or withhold payments made by the 2005
Option Plan, in order to satisfy applicable withholding tax requirements.
Tax Consequences
Puerto Rico Code. A recipient of a QSO does not recognize income at the
time of the grant of an option. In addition, no income is recognized at the time
a QSO is exercised. On a subsequent sale or exchange of the shares acquired
pursuant to the exercise of a QSO, the optionee may have taxable long-term or
short-term capital gain or loss, depending on whether the shares were held for
more than six months, measured by the difference between the amount realized on
the disposition of such shares and his or her tax basis in such shares. Tax
basis will, in general,
24
be the amount paid for the shares. The Corporation will not be entitled to a
business expense deduction in respect of the grant of the option, the exercise
thereof or the disposition of the shares.
With respect to a NSO, a recipient of a NSO does not recognize income at
the time of grant of the NSO. The difference between the fair market value of
the shares of stock on the date of exercise and the stock option exercise price
generally will be treated as compensation income upon exercise, and the
Corporation will be entitled to a deduction in the amount of income so
recognized by the optionee. Upon a subsequent disposition of the shares, the
difference between the amount received by the optionee and the fair market value
of the shares of stock on the option exercise date will be treated as long or
short-term capital gain or loss, depending on whether the shares were held for
more than six months.
Federal Tax Consequences. The Corporation is organized under the laws of
the Commonwealth of Puerto Rico and, at the present time, it is not engaged in
any trade or business in the United States. Accordingly, it is subject generally
to a flat 30% federal income tax on its fixed or determinable, annual or
periodic income, if any, from sources within the United States. The Corporation
would only be entitled to claim deductions in computing its U.S. income tax
liability to the extent such deductions were directly related to any income
effectively connected with the conduct of a trade or business in the United
States. Because the Corporation is a Puerto Rico corporation, it is not required
to pay federal income taxes on its trade or business income except for any
income related to the conduct of a trade or business in the United States, the
limitations imposed by Section 162(m) of the Code for compensation to certain
highly paid executives should not limit the tax deductions available to the
Corporation in connection with the 2005 Option Plan. For purposes of the
discussion below, some of the QSOs granted under the 2005 Option Plan may also
be treated as ISOs for purposes of Sections 421 and 422 of the Code.
Residents of Puerto Rico. Recipients of stock options who are residents of
Puerto Rico during the entire taxable year and perform services for the
Corporation or its subsidiaries in Puerto Rico, will not have any gross income
for federal income tax purposes in respect of the grant or the exercise of stock
options.
Non-Residents of Puerto Rico and Residents of Puerto Rico who Perform
Services Outside of Puerto Rico. In general, an optionee, who is a non-resident
of Puerto Rico or a resident of Puerto Rico who performs services outside Puerto
Rico, will not recognize taxable income upon grant or exercise of an ISO and the
Corporation and its subsidiaries will not be entitled to any business expense
deduction with respect to the grant or exercise of an ISO. However, upon the
exercise of an ISO, the excess of the fair market value on the date of exercise
of the shares received over the exercise price of the shares will be treated as
an adjustment to alternative minimum taxable income. In order for the exercise
of an ISO to qualify for the foregoing tax treatment, the optionee generally
must be an employee of the Corporation or its subsidiaries (within the meaning
of Section 422 of the Code) from the date the ISO is granted through the date
three months before the date of exercise.
If the optionee has held the shares acquired upon exercise of an ISO for
at least two years after the date of grant and for at least one year after the
date of exercise, upon disposition of the shares by the optionee, the
difference, if any, between the sales price of the shares and the exercise price
of the option will be treated as long-term capital gain or loss. If the optionee
does not satisfy these holding period requirements, the optionee will recognize
ordinary income at the time of the disposition of the shares, generally in an
amount equal to excess of the fair market value of the shares at the time the
option was exercised over the exercise price of the option. The balance of the
gain realized, if any, will be long-term or short-term capital gain, depending
upon whether or not the shares were sold more than one year after the option was
exercised. If the optionee sells the shares prior to the satisfaction of the
holding period requirements but at a price below the fair market value of the
shares at the time the option was exercised, the amount of ordinary income will
be limited to the amount realized on the sale over the exercise price of the
option. Subject to any limitations imposed by Section 162(m) of the Code for
federal income tax purposes, the employee including such compensation in income
and certain reporting requirements, the Corporation and its subsidiaries will be
allowed a business expense deduction to the extent the optionee recognized
ordinary income. Upon any subsequent sale of the shares, the optionee will have
taxable gain or loss, measured by the difference between the amount realized on
the disposition and the tax basis of the shares (generally, the amount paid for
the shares plus the amount treated as ordinary income at the time the option was
exercised).
25
In general, an optionee, who is a non-resident of Puerto Rico or a
resident of Puerto Rico who performs services outside of Puerto Rico, to whom an
NSO is granted will recognize no income at the time of the grant of the option.
Upon exercise of an NSO, an optionee will recognize ordinary income in an amount
equal to the excess of the fair market value of the shares on the date of
exercise over the exercise price of the option (or, if the optionee is subject
to restrictions imposed by Section 16(b) of the Exchange Act, upon the lapse of
those restrictions, unless the optionee makes a special election within 30 days
after exercise to have income determined without regard to the restrictions).
Subject to any limitations imposed Section 162(m) of the Code for federal income
tax purpose, the employee including such compensation in income and certain
reporting requirements, the Corporation will be entitled to a tax deduction in
the same amount. Upon a subsequent sale of the shares, the optionee will have
taxable gain or loss, measured by the difference between the amount realized on
the disposition and the tax basis of the shares (generally, the amount paid for
the shares plus the amount treated as ordinary income at the time the option was
exercised).
Under the 2005 Option Plan, upon the occurrence of certain "change in
control" transactions involving the Corporation, all options then outstanding
under the 2005 Option Plan become immediately exercisable. Under certain
circumstances, compensation payments attributable to such options may be treated
as "parachute payments" under the Code, in which case a portion of such payments
may be nondeductible to the Corporation for federal income tax purposes and the
recipient may be subject to a 20% excise tax under the Code.
Vote Required and Recommendation
The affirmative vote of the majority of the votes present in person or by
proxy by stockholders entitled to vote at the Annual Meeting is required to
approve the 2005 Option Plan. Therefore, abstentions shall have the effect of a
vote against the proposal. Broker-non-votes will have no effect on the proposal.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" THE PROPOSAL TO APPROVE THE 2005 EMPLOYEE STOCK OPTION PLAN. 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.
PROPOSAL THREE: INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2005
and management's assessment of the effectiveness of internal control over
financial reporting as of December 31, 2005. D&T audited our consolidated
financial statements for the fiscal years ended December 31, 2003 and 2004 and
management's assessment of the effectiveness of internal control over financial
reporting as of December 31, 2004. 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 registered public accountants 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 REGISTERED PUBLIC
ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005. 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 2006
ANNUAL MEETING OF STOCKHOLDERS
Stockholders' proposals intended to be presented at the 2006 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, 2005 for inclusion in the
Corporation's Proxy
26
Statement and Form of Proxy relating to the 2006 Annual Meeting of Stockholders.
If a Stockholder who otherwise desires to bring a proposal before the 2006
Annual Meeting of Stockholders does not notify the Corporation of its intent to
do so or before February 10, 2006, then the proposal will be untimely, and the
proxies will be able to vote on the proposal in their discretion.
COMMUNICATION WITH DIRECTORS
The Corporation has established procedures for stockholders or other
interested parties to communicate directly with the Board of Directors. Such
parties may 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 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, 2004 and
management's assessment of the effectiveness of internal control over financial
reporting as of December 31, 2004, duly certified by D&T as independent
registered public accountants 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 24, 2005. By Order of the Board of Directors
/s/ Enrique R. Ubarri Baragano
Enrique R. Ubarri Baragano, Esq.
Secretary
27
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28
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.
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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).
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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 February 17, 2005
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Exhibit B
SANTANDER BANCORP
2005 EMPLOYEE STOCK OPTION PLAN
Effective March 16, 2005
SECTION 1. Introduction
1.1 Purpose.
The purposes of the Santander BanCorp 2005 Employee Stock Option
Plan (the "Plan") is to provide Santander BanCorp (the "Corporation") and
its subsidiaries with an effective means to attract and retain highly
qualified personnel as well as to provide additional incentive to
employees who provide services to the Corporation and its subsidiaries.
The Plan is expected to contribute to the attainment of these objectives
by offering selected employees the opportunity to acquire stock ownership
interests in the Corporation.
1.2 Consideration to Corporation for Issuance of Options: Agreements by
Employees.
Each Employee by signing and accepting an Option Contract will, if
the Committee so requires, agree to remain employed by the Corporation or
a Subsidiary for a specified period of time, and the consideration to the
Corporation for the issuance of Options will be any such employment
agreements as well as the benefits to the Corporation from the added
incentive to the Employee of increased proprietorship in the Corporation.
Nothing in the Plan or in any Option Contract shall confer on any
individual any right to continue employed by the Corporation or any of its
Subsidiaries or limit the right of the Corporation or any of its
Subsidiaries to terminate Employment of an Employee at any time, with or
without cause.
1.3 Plan Subject to Ratification by Shareholders.
The Plan shall become effective upon adoption by the Board of
Directors, provided that the Plan is approved, within one year following
its adoption by the Board of Directors, by a vote of the holders of a
majority of the shares of Common Stock entitled to vote and present in
person or by proxy at a duly held shareholders' meeting. No Option under
the Plan may be granted more than 10 years after the earlier of the date
the Plan is adopted or the date the Plan is approved by the shareholders
of the Corporation, without further approval by the shareholders of the
Corporation.
1.4 Limitations on Number of Shares Issuable Under the Plan.
Subject to the following provisions of this Section 1.4, the
aggregate number of shares of Common Stock which may be issued under the
Plan shall be limited to 500,000. The shares of Common Stock for which
Options may be granted may consist of either authorized but un-issued
shares of Common Stock or shares of Common Stock which have been issued
and which shall have been heretofore or hereafter reacquired by the
Corporation. The total number of shares subject to Options authorized
under the Plan shall be subject to increase or decrease in order to give
effect to the adjustment provisions of Section 3.2 hereof or any amendment
adopted as provided in Section 4.2 hereof. If any Option granted under the
Plan shall expire, terminate or be cancelled for any reason without having
been exercised in full, the corresponding number of non-purchased shares
shall again be available for purposes of the Plan.
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1.5 Definitions.
The following terms shall have the meanings set forth below:
1.5.1 Board or Board of Directors. The Board of Directors of the
Corporation.
1.5.2 Committee. The committee or committees as shall be appointed
by the Board of Directors to administer the Plan pursuant to
the provisions of Section 4.1 hereof.
1.5.3 Common Stock. The Corporation's presently authorized common
stock, par value $2.50 per share, except as this definition
may be modified pursuant to the provisions of Section 3.2
hereof.
1.5.4 Disability. Complete and permanent inability by reason of
illness or accident to perform the duties of the occupation
in which an Employee was employed when such disability
commenced.
1.5.5 Employee. Any salaried officer or common law employee of the
Corporation or any Subsidiary, or both, including any
salaried officer or employee who is a member of the Board of
Directors of the Corporation.
1.5.6 Employment. The rendering of services by an Employee for the
Corporation, or for any Subsidiary, or both. Whether
military, government or public service shall constitute
termination of employment for purposes of this Plan or any
Option granted hereunder shall be determined in each case by
the Committee in its sole discretion.
1.5.7 Fair Market Value. The closing price of the Common Stock
reported on the New York Stock Exchange on the date as of
which such value is being determined or, if no price is
reported on such day, then on the next preceding day on which
such price was reported, or, if at any time the Common Stock
shall not be reported on the New York Stock Exchange, the
Committee shall determine the fair market value on the basis
of available prices for such Common Stock or in such manner
as may be authorized by applicable regulations under the PRC
and the IRC.
1.5.8 Incentive Stock Option. An option to purchase Common Stock
granted by the Corporation to an Employee under the Plan
which satisfies the requirements of Section 422 of the IRC.
1.5.9 IRC. The Internal Revenue Code of 1986, as amended.
1.5.10 Qualified Stock Option. An option to purchase Common Stock
granted by the Corporation to an Employee under the Plan
which satisfies the requirements of Section 1046 of the PRC.
1.5.11 No statutory Stock Option. An option to purchase Common Stock
granted by the Corporation to an Employee under the Plan
which does not satisfy the requirements of Section 1046 of
the PRC or Section 422 of the IRC.
1.5.12 Option. A Qualified Stock Option, an Incentive Stock Option
or a No statutory Stock Option.
1.5.13 Option Expiration Date. The date on which an Option becomes
non-exercisable by reason of the lapse of time or when a No
statutory Stock Option otherwise becomes non-exercisable.
1.5.14 PRC. The Puerto Rico Internal Revenue Code of 1994, as
amended.
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1.5.15 Subsidiary. Any corporation in an unbroken chain of
corporations beginning with the Corporation if, at the time
an Option is granted, each of the corporations other than the
Corporation owns stock possessing 50% or more of the total
combined voting power of all classes of stock of one of the
other corporations in such chain.
1.5.16 The use of the singular shall also include within its meaning
the plural or vice versa.
SECTION 2. Stock Options
2.1 Grant and Exercise of Options.
2.1.1 Grant. The Committee on behalf of the Corporation may grant
Options to purchase Common Stock to Employees selected by it
in its discretion. The Committee may not grant options to
purchase Common Stock under the Plan after March 16, 2015.
2.1.2 Option Contracts. Options shall be evidenced by agreements
("Option Contracts") in such form as the Committee shall
approve containing such terms and conditions, including the
period of their exercise, whether in installments or
otherwise, as shall be contained therein, which need not be
the same for all Options.
2.1.3 Option Price. The purchase price per share of Common Stock
under each Option shall be not less than 100 percent of the
Fair Market Value per share of such Common Stock on the date
the Option is granted, as determined by the Committee. The
purchase price may be subject to adjustment in accordance
with the provisions of Section 3.2 hereof.
2.1.4 Term of Option. The term during which each Option granted
under the Plan may be exercised shall not exceed a period of
ten years from the date of its grant.
2.1.5 Exercise of Options. Each Option granted to an Employee shall
become exercisable as, and subject to the conditions,
provided in the Option Contract. Any part of an Option that
has become exercisable shall remain exercisable until it has
been exercised in full or it terminates or expires pursuant
to the terms of the Plan or the applicable Option Contract.
2.1.6 Options Nontransferable. Options granted under the Plan shall
by their terms be nontransferable by the Employee otherwise
than by will or the laws of descent and distribution, and,
during the lifetime of the Employee, shall be exercisable
only by the Employee. No transfer of an Option by an Employee
by will or by the laws of descent and distribution shall be
effective to bind the Corporation unless the Corporation
shall have been furnished with written notice thereof and a
copy of the will and/or such other evidence as the Committee
may determine necessary to establish the validity of the
transfer.
2.1.7 Payment. Each Option shall be exercised by delivery of a
written notice to the Corporation stating the number of whole
shares of Common Stock as to which the Option is being
exercised and accompanied by payment therefor. No shares
shall be issued on the exercise of an Option unless paid for
in full at the time of purchase. Payment for shares purchased
upon the exercise of an Option shall be made in cash or, with
the approval of the Committee, in Common Stock valued at the
then Fair Market Value thereof as determined by the
Committee, or by a combination of cash and Common Stock.
Neither the Corporation nor any Subsidiary may directly or
indirectly lend money to any individual for the purpose of
assisting such individual to acquire or to carry shares
issued upon the exercise of Options granted under the Plan.
No Employee shall have any rights as a shareholder with
respect to any share of Common Stock covered by an Option
unless and until such individual shall have become the holder
of record of such share, and except as otherwise permitted by
Section 3.2 hereof, no adjustment shall be made for
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dividends (ordinary or extraordinary, whether in cash,
securities or other property or distributions or other rights)
in respect of such share for which the record date is prior to
the date on which such individual shall have become the holder
of record thereof.
2.1.8 Investment Purpose. At the time of any exercise of any
Option, the Corporation may, if it shall deem it necessary or
desirable for any reason, require the holder of the Option to
represent in writing to the Corporation that it is the
intention of such holder to acquire the shares of Common
Stock being acquired for investment only and not with a view
to the distribution thereof. In such event no shares of
Common Stock shall be issued to such holder unless and until
the Corporation is satisfied with the correctness of such
representation.
2.2 Qualified Stock Options and Incentive Stock Options.
In addition to meeting the requirements of Section 2.1, each
Qualified Stock Option shall be subject to the requirements of (a) and
each Incentive Stock Option shall be subject to the requirements of (a),
(b) and (c) of this Section 2.2.
2.2.1 Annual Limitation of Options Which May Be Considered
Qualified Stock Options and/or Incentive Stock Options.
Anything else in the Plan notwithstanding, if and to the
extent that the provisions of Section 1046 of the PRC and/or
Section 422 of the IRC shall so require, the aggregate Fair
Market Value (determined as of the time the Option is
granted) of the shares with respect to which Qualified Stock
Options and/or Incentive Stock Options are exercisable for
the first time by any Employee during any calendar year
(under the Plan and any other plans of the Corporation and
its Subsidiaries) shall not exceed $100,000.
2.2.2 Incentive Stock Options Granted to Ten Percent Shareholders.
Notwithstanding anything to the contrary contained in this
Plan, an Incentive Stock Option may not be granted to an
Employee who owns, directly or indirectly, stock possessing
more than 10 percent of the total combined voting power of
all classes of stock of the Corporation or any Subsidiary
unless, at the time such Incentive Stock Option is granted,
the exercise price of such Incentive Stock Option is at least
110 percent of the Fair Market Value of the Common Stock
subject to the Incentive Stock Option, and such Incentive
Stock Option, by its terms, is not exercisable after the
expiration of five (5) years from the date of grant of such
Incentive Stock Option.
2.2.3 Notice. An Employee shall give prompt notice to the
Corporation of any disposition of shares acquired upon
exercise of an Incentive Stock Option if such disposition
occurs within either two years after grant or one year after
the receipt of such shares by the Employee.
2.3 Voluntary Surrender and Cancellation of No statutory Stock Options.
The Committee may grant to one or more holders of No statutory Stock
Options, in exchange for the voluntary surrender and cancellation of such
No statutory Stock Options, new Options having different Option prices
than the No statutory Stock Option prices provided in the No statutory
Stock Options so surrendered and cancelled and containing such other terms
and conditions as the Committee may deem appropriate.
35
SECTION 3. Provisions Relating to Plan Participation
3.1 Termination of Employment and Death.
3.1.1 Termination of Options Following Termination of Employment,
Discharge or Retirement. Unless earlier terminated in
accordance with its terms, an Option shall terminate upon the
occurrence of any of the following:
3.1.1.1 voluntary termination of Employment by the Employee,
with or without the consent of the Corporation, or
3.1.1.2 termination of Employment by the Corporation or any
of its Subsidiaries, with or without cause, or
3.1.1.3 termination of Employment because of Disability,
retirement pursuant to the Corporation's retirement
plans or because the employing subsidiary ceased to
be a Subsidiary of the Corporation and the Employee
does not, prior thereto or contemporaneously
therewith, become an Employee of the Corporation or
of another Subsidiary;
provided, that with regard to terminations of Employment pursuant to clause
(iii), the termination of the Option may be extended for a period determined by
the Committee if prior to such termination the Committee in its discretion shall
determine that the Option should continue for such additional period or as
otherwise provided in the Option Contract.
3.1.2 Options Exercisable within One Year After Death. If the
holder of an Option shall die during the term of an Option,
the holder or the legal representatives shall be entitled to
exercise the Option in whole or in part, to the extent then
unexercised, at any time within one year following the death
of the Employee, but in no event after the Option Expiration
Date, and only to the extent that the Employee was entitled
to exercise the Option on the date of his death.
3.2 Adjustments Upon Changes in Capitalization; Change of Control;
Dissolution.
3.2.1 Subject to any required action by the shareholders of the
Corporation, each of (i) the number of shares of Common Stock
covered by each outstanding Option, (ii) the number of shares
Common Stock which have been authorized for issuance under
the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or
expiration of an Option, (iii) the price per share of Common
Stock covered by each such outstanding Option, and (iv) the
maximum number of shares with respect to which Options may be
granted to any Employee, shall be proportionately adjusted
for any increase or decrease in the number of issued shares
of Common Stock resulting from a stock split or the payment
of a stock dividend with respect to the Common Stock or any
other increase or decrease in the number of shares of Common
Stock effected without receipt of consideration by the
Corporation; provided, however, that (a) each such adjustment
with respect to an Incentive Stock Option or Qualified Stock
Option shall comply with the rules of Section 424(a) of the
IRC (or any successor provision) and an applicable provision
of the PRC and (b) in no event shall any adjustment be made
which would render any Qualified Stock Option granted
hereunder other than a "qualified option" under Section 1046
of the PRC or any Incentive Stock Options other than an
"incentive stock option" as defined in Section 422 of the
IRC; and provided further, however, that conversion of any
convertible securities of the Corporation shall not be deemed
to have been "effected without receipt of consideration."
Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance
by the Corporation of shares of stock of any class, or
securities convertible into shares of
36
stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of
shares of Common Stock subject to an Option.
3.2.2 If: (1) Any person (as defined for purposes of Section 13(d)
and 14(d) of the Exchange Act, but excluding Administracion
de Bancos Latinoamericanos Santander, S.L., any direct or
indirect subsidiary of Banco Santander Central Hispano, S.A.,
the Corporation and any of its wholly-owned subsidiaries)
acquires direct or indirect ownership of 50% or more of the
combined voting power of the then outstanding securities of
the Corporation as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases or
otherwise; or (2) the shareholders of the Corporation approve
(A) any consolidation or merger of the Corporation in which
the Corporation is not the surviving corporation (other than
a merger of the Corporation in which the holders of Common
Stock immediately prior to the merger have the same or
substantially the same proportionate ownership of the
surviving corporation immediately after the merger), or (B)
any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets of the Corporation to an
entity which is not a wholly-owned subsidiary of the
Corporation, then the exercising of each Option outstanding
under the Plan shall be automatically accelerated so that
each Option shall, immediately prior to the specified
effective date of any of the foregoing transactions, become
fully exercisable with respect to the total number of shares
subject to such Option and may be exercisable for all or any
portion of such Shares. Upon the consummation of any of such
transactions, all outstanding Options under the Plan shall,
to the extent not previously exercised, terminate and cease
to be outstanding.
3.2.3 In the event of the proposed dissolution or liquidation of
the Corporation, all outstanding Options will terminate
immediately prior to the consummation of such proposed
action, unless otherwise provided by the Committee.
SECTION 4. Administration
4.1 Independent Committee to Administer the Plan.
4.1.1 Composition and Functions of Committee. A Committee
consisting of at least two Non-Employee Directors (as such
term is defined in Rule 16b-3 of the Securities and Exchange
Commission) shall be appointed by the Board of Directors and
will have, subject to the express provisions of the Plan,
general authority to administer the Plan, to grant Options
thereunder, subject to the ratification of the Board of
Directors if such limitation is imposed by the Board of
Directors, and to perform such other functions as may be
assigned to it by the Board of Directors in connection with
the Plan, including, among other things, determining the form
of Option Contracts to be issued under the Plan and the terms
and conditions to be included in such Option Contracts and
adopting from time to time such rules and regulations as it
may deem appropriate for the proper administration of the
Plan. The Committee may also make such determinations under,
and such interpretations of, and take such steps in
connection with, the Plan, the rules and regulations or
Options granted thereunder as it may deem necessary or
advisable. The Committee may, in its discretion or in
accordance with a direction from the Board of Directors,
waive any provisions of any Option Contract, provided such
waiver is not inconsistent with the terms of the Plan as then
in effect.
4.1.2 Authorization of Actions Taken by the Committee and Board of
Directors. Vacancies in the Committee shall be filled by the
Board of Directors. The Committee may act by a majority of
its members either at a meeting or in writing without a
meeting. All questions arising under the Plan or under the
rules and regulations or under the Option Contracts, whether
such questions involve interpretation thereof or otherwise,
shall be determined by the Committee and its determination,
unless disapproved by the Board of Directors, shall be
conclusive and binding in all cases. To the extent that any
such action
37
would not adversely affect the status of Qualified Stock
Options and Incentive Stock Options under the PRC and IRC,
respectively, all matters provided in the Plan, in the Option
Contracts, or in such rules and regulations to be determined
or performed by the Committee may be determined or performed
by the entire Board of Directors. No member of the Board of
Directors or of the Committee shall be liable for any action
taken or any determination made in good faith with respect to
the Plan or any Option Contract.
4.1.3 Findings of the Board of Directors and Committee are
Conclusive. Each determination, interpretation, or other
action made or taken pursuant to the provisions of this Plan
by the Board of Directors or the Committee shall be final and
shall be binding and conclusive for all purposes and upon all
persons, including, without limitation thereto, the
Corporation, the shareholders, the Committee and each of the
members thereof, and the Employee of the Corporation, and
their respective successors in interest.
4.2 Amendment and Discontinuance of the Plan.
The Board of Directors may at any time amend, modify, suspend or
terminate the Plan, without shareholder approval, except to the extent
required by the PRC or the IRC to permit the granting of Qualified Stock
Options or Incentive Stock Options, or by the rules of any securities
exchange or automated quotation system on which the shares of Common Stock
of the Corporation trade at such time, provided, that no change shall be
made which will have a material adverse effect upon any Option previously
granted unless the consent of the affected Employee is obtained.
4.3 Compliance with Law and Other Conditions.
(a) Options. Any exercise by an Employee of an Option shall be made
only in compliance with any applicable rule or regulation of the
Securities and Exchange Commission exempting such exercise from the
operation of Section 16(b) of the Securities Exchange Act of 1934 and any
other applicable law, rule, regulation or other provision that may
hereafter relate to the exercise of Options under the Federal securities
laws.
(b) Generally. No shares of Common Stock shall be issued pursuant to
the exercise of any Option granted under the Plan prior to the compliance
by the Corporation to the satisfaction of its counsel with any applicable
laws and with any applicable regulations of any securities exchange on
which such shares are listed.
4.4 Withholding Taxes.
Whenever shares of Common Stock are to be issued pursuant to the
Plan, the Corporation shall have the right to require that there be
remitted to the Corporation an amount sufficient to satisfy all applicable
federal, state, Commonwealth and local withholding tax requirements prior
to the delivery of any certificate or certificates for such shares. The
Corporation reserves the right to satisfy the applicable federal, state,
Commonwealth and local withholding tax requirements through the retention
of shares of Common Stock otherwise transferable upon exercise of an
Option. Such withheld amounts shall meet the Federal securities laws
requirements set forth in Section 4.3, Subsection (a), hereof. Whenever
payments are to be made in cash, such payments shall be net of an amount
sufficient to satisfy federal, state, Commonwealth and local withholding
tax requirements and authorized deductions.
4.5 Use of Proceeds and Funding.
(a) Use of Proceeds. The proceeds from the sale of Common Stock
pursuant to Options granted under the Plan shall constitute general funds
of the Corporation and may be used for its corporate purposes as the
Corporation may determine.
(b) Funding. No provision of the Plan shall require or permit the
Corporation, for the purpose of satisfying any obligations under the Plan,
to purchase assets or place any assets in a trust or
38
other entity to which contributions are made or otherwise to segregate any
assets, nor shall the Corporation maintain separate bank accounts, books,
records or other evidence of the existence of a segregated or separately
maintained or administered fund for such purposes. Employees shall have no
rights under the Plan other than as unsecured general creditors of the
Corporation, except that insofar as they may have become entitled to
payment of additional compensation by performance of services, they shall
have the same rights as other employees under general law. This Subsection
shall not prevent the Corporation from purchasing its Common Stock for the
purpose of meeting its requirements to issue Common Stock pursuant to the
Plan.
4.6 Other.
To the extent applicable, this Plan is intended to permit the
issuance of Qualified Stock Options in accordance with the provisions of
Section 1046 of the PRC and Incentive Stock Options in accordance with
Section 422 of the IRC. This Plan may be modified or amended at any time,
both prospectively and retroactively, and in such manner as to affect
Qualified Stock Options or Incentive Stock Options previously granted, if
such amendment or modification is necessary for this Plan and the
Qualified Stock Options or Incentive Stock Options granted hereunder to
qualify under said provisions of the PRC and the IRC.
39
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 2008-
Nominees: 01 Jose R. Gonzalez 02 Roberto H. Valentin, 03 Carlos M. Garcia
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)
________________________________________________________________________________
FOR AGAINST ABSTAIN
2. To approve the corporation's 2005 Employee Stock |_| |_| |_|
Option Plan:
FOR AGAINST ABSTAIN
3. To ratify the appointment of Deloitte & Touche |_| |_| |_|
LLP as the Company's independent accountants for
fiscal year 2005;
4. 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" ITEMS 1, 2 AND 3. Please refer to instructions below.
Choose MLink(SM) for fast, easy and secure
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materials, investment plan statements, tax
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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.
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
SANTANDER BANCORP
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Mr. Vincente Gregorio and Ms. Maria Calero
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
18, 2005, at the Annual Meeting of Shareholders to be held at the Bankers Club
of Puerto Rico, Room A, 208 Munoz Rivera Avenue, Hato Rey, Puerto Rico, on April
28, 2005, 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 28, 2005
10:00 a.m.
San Juan, Puerto Rico
SBP Annual Share Holders Meeting
[MAP OMITTED]
PARKING FEES WILL BE PAID BY SANTANDER BANCORP.