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EXHIBIT 1
STOCK OPTION AGREEMENT dated as of May 8, 1998, by and between XXXXXX X. XXXXX
("Xxxxx") and XXXXX XXXXX ("Xxxxx").
WHEREAS, Xxxxx is the principal shareholder of R&G FINANCIAL
CORPORATION, a Puerto Rico corporation (the "Company") and has determined that
it would be to his advantage and best interests as shareholder of the Company to
grant the Option provided for herein to Prats as an inducement for him to remain
in the service of the Company and as an incentive for his increased efforts
during such service;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained the parties hereto do hereby agree as follows:
ARTICLE I
Definitions
Whenever the following terms are used in this Agreement they shall have
the meaning specified below unless the context clearly indicates the contrary.
"Applicable Shares" shall have the meaning set forth in Section 3.3(b).
"Change of Control" shall be deemed to have occurred on any date
following the date of this Agreement on which any Person, other than Xxxxx or
any entity the sole beneficial owner of which is Xxxxx, becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Securities Exchange Act
of 1934), directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the combined voting power of the Company's then
outstanding securities, whether this has occurred by stock purchase, merger, or
otherwise.
"Class A Common Stock" means the Class A Common Stock, $.01 par value,
of the Company.
"Class B Common Stock" means the Class B Common Stock, $.01 par value,
of the Company.
"Common Stock" means the Class A Common Stock and the Class B Common
Stock.
"Company" means R&G Financial Corporation, a Puerto Rico corporation,
and, except to the extent Xxxxx exercises his rights under Section 2.4(b), the
surviving entity in any merger on consolidation involving the Company.
"Disabled" and "Disability" mean the inability of Prats to perform his
duties and responsibilities to the Company by reason of a physical or mental
disability or infirmity (i) for a continuous period of twelve (12) months or
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(ii) at such earlier time as Prats or his legal representative submits
satisfactory medical evidence that he has a physical or mental disability or
infirmity which will likely prevent him from returning to the performance of his
work duties for twelve months or longer. The date of such disability shall be on
the last day of such twelve-month period or the day on which Prats submits such
satisfactory medical evidence, as the case may be.
"Employee" means, with respect to Prats, his employment by the Company
or any of its subsidiaries as a director, officer or employee.
"Estate" means, with respect to Prats, the respective executors,
administrators, testamentary trustees, heirs, legatees or beneficiaries of Prats
to whom the rights granted by Prats herein shall inure upon Prats' death, by
will or the laws of descent and distribution.
"Exercise Price" shall have the meaning set forth in Section 2.2.
"Expiration Date" shall have the meaning set forth in Section 3.3(b).
"Xxxxx Stock Disposition" shall have the meaning set forth in Section
3.1(a)(ii).
"Option" means the option to purchase the Option Shares as provided in
this Agreement.
"Option Date" means the date of grant of the Option.
"Option Shares" means the 180,000 Shares (such number subject to the
adjustments provided for in Section 2.4, "Adjustments in Option") to be sold by
Xxxxx to Xxxxx pursuant to the exercise of the Option.
"Person" means any individual, corporation, partnership, trust,
unincorporated organization or government or political department or agency
thereof or other entity.
"Put Price" shall have the meaning set forth in Section 2.1(b).
"Reorganization" shall have the meaning set forth in Section 2.4(b).
"Retirement" means, with respect to Prats, Prats's retirement as an
Employee of the Company (or any of its subsidiaries) on or after reaching age
65.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, and all rules and
regulations promulgated thereunder.
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"Shares" means shares of Class B Common Stock.
"Vested Shares" shall have the meaning set forth in Section 3.1(a)(ii).
ARTICLE II
Grant of Option
Section 2.1 Grant of Option. (a) In consideration of Prats's services
to the Company and the benefit that Xxxxx will derive as a shareholder of the
Company from those services, on the date hereof, Xxxxx hereby grants to Prats
the Option to purchase up to 180,000 Shares (such number subject to adjustment
as provided in Section 2.4, and as so modified, the "Option Shares") from Xxxxx
upon the terms and conditions set forth in this Agreement and Xxxxx agrees that
upon exercise of any part of the Option that may become exercisable as provided
herein, Xxxxx shall convert at his sole expense a number of Shares of Class A
Common Stock owned by him into Shares as is necessary for Xxxxx to perform his
obligations hereunder. The rights granted to Prats hereunder shall inure to the
benefit of, and may be exercised by, the Estate in accordance with the
provisions of this Agreement.
(b) In the event that any part or all of the Option granted
under this Agreement shall have become exercisable pursuant and subject to
Section 3.1(a)(ii) as a result of a Xxxxx Stock Disposition:
(i) Prats or his Estate, as the case may be, shall have the
right, in lieu of exercising such portion of the Option as may be then
exercisable, to elect by notice to Xxxxx to require Xxxxx to purchase
from Prats some or all of the portion of the Option that became
exercisable as a result of such sale or transfer by Xxxxx, at a price
(the "Put Price(1)") equal to:
(A) the product of (x) the number of Option Shares with
respect to which the Option is being sold to Xxxxx times (y)
the remainder of (i) the price per share at which Xxxxx sold
or disposed of his Common Stock, minus (ii) the Exercise
Price, less
(B) the pro-rata portion of the costs incurred by Xxxxx in
connection with such sale or transfer; and
(ii) in the case of a sale for value to a non-affiliate of
Xxxxx of all of Xxxxx'x shares, Xxxxx shall have the right to purchase
from Prats the Option, with respect to all Option Shares, at a price
equal to the Put Price.
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Section 2.2 Exercise Price. The purchase price of the Shares covered by
the Option shall be $8.06 per Share, without commission or other charge. Such
purchase price, as it may be adjusted from time to time as provided in Section
2.4, is referred to herein as the "Exercise Price".
Section 2.3 Consideration to Xxxxx. In consideration of the granting of
this Option by Xxxxx, Prats agrees to render faithful and efficient service to
the Company with such duties and responsibilities as the Company shall from time
to time prescribe.
Section 2.4 Adjustments in Option. The number of Option Shares and the
Exercise Price are subject to the following adjustments in the event of
specified changes in the capital structure of the Company before the Expiration
Date (as hereinafter defined):
(a) In the event of any stock split, extraordinary dividend,
combination, exchange, reclassification, distribution of a dividend
payable in stock, or the like, the number of Option Shares and the
Exercise Price shall be adjusted proportionally by Xxxxx in good faith.
(b) In the event of a reorganization, recapitalization,
merger, consolidation or liquidation of the Company (each such event, a
"Reorganization"), Xxxxx shall have the right to provide that the
Option shall (i) be canceled in exchange for payment of securities or
property, or any combination thereof, with a value per Option Share
determined in good faith by Xxxxx to be equal to the remainder of (1)
the value that Xxxxx received in respect of each Option Share as a
result of the Reorganization, minus (2) the Exercise Price or (ii) be
converted into options to receive securities, property or any
combination thereof, with a value determined in good faith by Xxxxx to
be equal to the value that Xxxxx received in respect of the Option
Shares, at such exercise price as Xxxxx in his discretion may deem
appropriate in good faith.
ARTICLE III
Period of Exercisability
Section 3.1 Commencement of Exercisability. (a) The Option granted
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(1) Schedule A sets forth an example of the method described in Section
2.1(b) for calculating the Put Price in a hypothetical situation
involving a Xxxxx Stock Disposition, and is incorporated by reference
hereto for illustration purposes only.
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under this Agreement shall become exercisable as follows:
(i) in full with respect to all of the Option Shares upon the
occurrence of (1) a Change of Control or (2) the death, Disability or
Retirement of Prats;
(ii) upon the occurrence of any other sale or other
disposition of Common Stock of the Company by Xxxxx (a "Xxxxx Stock
Disposition"), solely with respect to a number of Option Shares equal
to the product of (1) the total number of Option Shares covered by the
Option at the time of such sale or other disposition multiplied by (2)
the quotient of (x) the number of Common Stock sold or disposed of by
Xxxxx divided by (y) the total number of Common Stock owned by Xxxxx
prior to such sale or other disposition (excluding the Option Shares
covered by the Option at the time)(2);
(iii) provided that none of the events contemplated in
paragraphs (i) and (ii) above shall have occurred, the Option may be
exercised with respect to such number of Option Shares as provided
below (such number of Shares to be herein referred to as the "Vested
Shares"):
(A) beginning on the first anniversary date of the date of
execution of this Agreement, the Option may be exercised to a
maximum of one-sixth (1/6th) of the total number of Option
Shares;
(B) beginning on the second anniversary date of the date of
execution of this Agreement, the Option may be exercised to a
maximum of one-third (1/3rd) of the total number of Option
Shares;
(C) beginning on the third anniversary date of the date of
execution of this Agreement, the Option may be exercised to a
maximum of one-half (1/2) of the total number of Option
Shares;
(D) beginning on the fourth anniversary date of the date of
execution of this Agreement, the Option may be exercised to a
maximum of two-thirds (2/3) of the total number of Option
Shares;
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(2) Schedule A sets forth an example of the method described herein for
calculating the number of Option Shares that may be acquired by Prats
pursuant to Section 3.1(a)(ii) in the event of a hypothetical Xxxxx
Stock Disposition, and is incorporated by reference hereto for
illustration purposes only.
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(E) beginning on the fifth anniversary date of the date of
execution of this Agreement, the Option may be exercised to a
maximum of five-sixths (5/6ths) of the total number of Option
Shares;
(F) beginning on the sixth anniversary date of the date of
execution of this Agreement, the Option may be exercised to
all of the total number of Option Shares;
provided, however, that, notwithstanding anything herein to the contrary, in the
event of (I) a Change of Control, all of the Option Shares shall become Vested
Shares and the Option may be exercised in full with respect to all of the Option
Shares, and in the event of (II) a Xxxxx Stock Disposition, then the appropriate
number of Option Shares, as determined pursuant to clause (ii) of this paragraph
(a) (which shall include, first, any Vested Shares, and if the number of Vested
Shares is not sufficient to accommodate the number of Option Shares that may be
acquired in the event of a Xxxxx Stock Disposition, such additional number of
Option Shares as shall be necessary) shall become Vested Shares and the Option
may be exercised solely with respect to such number of the Option Shares;
provided, further, that Prats agrees that, at Xxxxx'x discretion and as notified
by Xxxxx to Prats in writing, the Option shall not be exercisable with respect
to any Option Shares not then acquired by Prats and such remaining Option Shares
shall become subject to the condition that Prats remain and continue as an
Employee for a minimum period of up to two years from the date of such Change of
Control or Xxxxx Stock Disposition, and the Option shall then become exercisable
in full with respect to the remaining Option Shares upon the lapse of said
two-year period if Prats shall have remained as an Employee throughout said
period.
(b) Notwithstanding anything contained herein to the contrary,
the Option shall not be exercisable, no issuance or transfer of Option Shares
may be made to Prats, and any attempt to exercise the Option or to transfer any
Option Shares to Prats shall be void and of no effect, unless and until (i) a
registration statement under the Securities Act has been duly filed and declared
effective pertaining to any or all of the Option Shares, and the Option Shares
have been duly qualified under applicable state securities or "blue sky" laws or
(ii) Xxxxx, in his sole discretion, determines that such registration or
qualification is not required as a result or the availability of an exemption
from registration or qualification under such laws.
(c) Without limiting the foregoing, if at any time Xxxxx shall
determine, in his sole discretion, that the listing, registration or
qualification of any or all of the Option Shares under any state, Xxxxxx Xxxx xx
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Xxxxxx Xxxxxx law or on any securities exchange or the consent or approval of
any governmental regulatory body is desirable as a condition of, or in
connection with, delivery or purchase of Option Shares, the Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to Xxxxx.
(d) Anything to the contrary in this Agreement
notwithstanding, no Shares shall be delivered upon the exercise of an Option or
otherwise transferred, if Xxxxx, in his sole discretion, shall deem it necessary
or advisable to delay such delivery in order to ensure compliance with
applicable United States, Puerto Rico and state securities laws.
Section 3.2 Duration of Exercisability. The Option, once it becomes
exercisable pursuant to Section 3.1(a), shall remain exercisable until it
becomes unexercisable under Section 3.3 hereof. In addition, if any portion or
all of the Option is canceled according to this Agreement, then such portion or
all of the Option shall not be exercisable.
Section 3.3 Expiration of Option. (a) Except as otherwise provided in
this Section, in the event that Prats's employment with the Company terminates
for any reason other than death, Disability or Retirement, (i) if and to the
extent that the Option is already exercisable with respect to any or all of the
Option Shares at the time of such termination pursuant to Section 3.1(a), then
the Option may be exercised within 30 days after such termination and shall
expire and cease to be exercisable after such 30-day period; provided, however,
that in the event of the death of Prats within such 30-day period, the Option
may be exercised by the Estate at any time within 180 days after Prats's death
and shall expire and cease to be exercisable after such 180-day period; and (ii)
to the extent that the Option is not exercisable at the time of such
termination, then the Option shall expire at the time of such termination.
(b) In the event that the Option becomes exercisable solely
pursuant to clauses (i) and (ii) of Section 3.1(a) with respect to any or all of
the Option Shares (the "Applicable Shares"), it may be exercised at any time and
from time to time with respect to some or all of such Applicable Shares until
5:00 p.m. San Xxxx time on the first anniversary (the "Expiration Date") of the
event that makes the Option exercisable, at which time the Option shall expire
and cease to be exercisable with respect to such Applicable Shares; provided,
however, that in the case of the Vested Shares (with respect to which the Option
becomes exercisable pursuant to the lapse of time in accordance with Section
3.1(a)(iii)), the Option shall expire with respect to any Vested Shares with
respect to which Prats shall not have exercised the Option on the earlier of (i)
the first anniversary of the occurrence of an Expiration Date as provided above,
or (ii) in accordance with paragraph (a) of this Section 3.3.
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Section 3.4 Non-transferability of Option. The Option or any portion
thereof shall not be transferable (by operation of law or otherwise) by Prats
(or his Estate) except pursuant to a transfer upon the death of Prats to his
Estate by will or the laws of descent and distribution.
ARTICLE IV
Exercise of Options
Section 4.1 Manner of Exercise. The Option, or any exercisable portion
thereof, may be exercised by Prats or, upon his death, his Estate solely by
delivery to Xxxxx of the following (prior to the time when the Option or such
portion becomes unexercisable under Section 3.3 hereof):
(a) notice substantially in the form of Exhibit I signed by
Prats or his legal representative or the representative of his Estate,
stating that the Option or a portion thereof is thereby exercised;
(b) full payment in cash or by certified check for the Option
Shares with respect to which such Option or portion thereof is
exercised; and
(c) in the event the Option or a portion thereof shall be
exercised by Prats' legal representative or the representative of the
Estate of Prats, upon his death, evidence satisfactory to Xxxxx of the
right of the representative of the Estate to exercise the Option.
Section 4.2 Conditions to Issuance of Stock Certificates. The Shares
deliverable upon the exercise of the Option shall be fully paid and
non-assessable. Xxxxx shall not be required to endorse or convey any certificate
or certificates for Shares purchased upon the exercise of the Option or a
portion thereof until 7 business days following fulfillment of all the following
conditions:
(a) (i) the completion of any registration or other
qualification of such Shares under any United States, Puerto Rico or
state securities laws or under rulings or regulations of the SEC or of
any other governmental regulatory body or (ii) the completion of any
acts (including, without limitation, the placement of legends of the
face of any stock certificate representing the Shares) to meet any
requirements for an exemption from registration or qualification of the
Shares under any United States, Puerto Rico or state law, which Xxxxx
shall, in his absolute discretion, deem necessary or advisable; and
(b) the obtaining of any approval or other clearance from any
United States, Puerto Rico or state governmental agency or stock
exchanges which the Board of Directors of the Company shall, in its
absolute discretion, determine to be necessary or advisable.
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ARTICLE V
Other Provisions
Section 5.1 Applicable Law. The laws of the Commonwealth of Puerto Rico
shall govern the interpretation, validity and performance of the terms of this
Agreement, without regard to its principles of conflicts of law.
Section 5.2 Severability. The invalidity, illegality or
unenforceability of one or more of the provisions of this Agreement in any
jurisdiction shall not affect the validity, legality or enforceability of the
remainder of this Agreement in such jurisdiction or the validity, legality or
enforceability of this Agreement, including any such provision, in any other
jurisdiction, it being intended that all rights and obligations of the parties
hereunder shall be enforceable to the fullest extent permitted by law.
Section 5.3 Headings. The headings and captions contained herein are
for convenience of reference only and shall not control or affect the meaning or
construction of any provision hereof.
Section 5.4 Notices. All notices and other communications provided for
herein shall be dated and in writing and shall be deemed to have been duly given
when delivered, if delivered personally or sent by registered or certified mail,
return receipt requested, postage prepaid and when received if delivered
otherwise, to the party to whom it is directed as follows:
If to Xxxxx at: R&G Plaza
000 Xxxxx X. Xxxxxx Xxxxxx
Xxxx Xxx, Xxxxxx Xxxx 00000
If to Prats at: R&G Plaza
280 Xxxxx X. Xxxxxx Avenue
Hato Rey, Puerto Rico 00918
Prats or Xxxxx may change the address to which notices, statements, instructions
or other documents are to be sent to such party by written notice to the other
party in accordance herewith. Any notice which is required to be given to
Prats's Estate shall be given to the executor, administrator, or other
representative of Prats's Estate if such representative has previously informed
Xxxxx of his status and address by written notice in accordance herewith.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
/s/ XXXXXX X. XXXXX
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XXXXXX X. XXXXX
/s/ XXXXX XXXXX
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XXXXX XXXXX
EXHIBIT I
FORM OF NOTICE OF EXERCISE
Xx. Xxxxxx X. Xxxxx
R&G Xxxxx
000 Xxxxx Xxxxxx Xxxxxx
Xxxx Xxx, Xxxxxx Xxxx 00000
Dear Xxxxxx:
Reference is hereby made to Section 4.1(a) of that certain Stock Option
Agreement (the "Stock Option Agreement") dated as of ___________ __, 1997
between you and Xxxxx Xxxxx. All capitalized terms not defined herein shall have
the meanings set forth next to those terms in the Stock Option Agreement.
The option to purchase ________ Option Shares pursuant to and according
to the terms of the Stock Option Agreement is hereby exercised. Enclosed please
find payment [in cash][by certified check] for the full amount of the
aforementioned Option Shares.
[In the event the option is exercised by a person other than Prats add:
In addition, enclosed is evidence of my right to exercise the Option on behalf
of [Prats][the Estate].]
Sincerely yours,
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SCHEDULE A
to Stock Option Agreement
by and between Xxxxxx X. Xxxxx
and Xxxxx Xxxxx dated as of
May 8, 1998
1. Calculation of number of Option Shares under Section 3.1(a)(ii):
The following example of the calculation of the number of Option Shares
which may be acquired by Prats in the event of a Xxxxx Stock Disposition,
pursuant to Section 3.1(a)(ii) of the Stock Option Agreement, is intended for
illustration purposes only:
Relevant assumptions:
Let A = number of Option Shares covered by the Option at the
time: 180,000
Let B = number of shares sold or disposed of by Xxxxx in the
Xxxxx Stock Disposition: 2,350,070 (or 25% of total))
Let C = total number of Common Stock owned by Xxxxx prior to
the Xxxxx Stock Disposition: 9,220,278
The formula for determining the number of Option Shares with respect to which
the Option shall become exercisable (or OS) is the following:
OS = A x B / [C - A]
Thus, in the foregoing example,
OS = 180,000 x 2,350,070 / [9,220,278 - 180,000]
OS = 180,000 x 2,350,070 / 9,040,278
OS = 46,791
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SCHEDULE A (continued)
2. Determination of Put Price under Section 2.1(b):
The following example of the calculation of the Put Price at which
Prats may sell the 46,791 Option Shares to Xxxxx in the event of a Xxxxx Stock
Disposition, pursuant to Section 2.1(b) of the Stock Option Agreement, is
intended for illustration purposes only:
Relevant assumptions:
Same as above; and further assume the following:
Let E = the Exercise Price: $8.06
Let S = the price per share at which Xxxxx sold his Shares: $25
Let X = the total expenses incurred by Xxxxx in connection with the Xxxxx
Stock Disposition: $50,000; therefore, the pro rata share attributable
to Prats (or "XP") would be equal to $50,000 times 46,791 divided by
2,350,070, equal to $995.52.
The formula for determining the Put Price is the following:
Put Price = [OS x (S - E)] - XP
Thus, in the foregoing example:
Put Price = [46,791 x ($25- $8.06)] - $995.52
Put Price = $792,639.54 - $995.52 = $ 791,644.02
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