Case 1:05-cv LAP Document Filed 05/27/08 Page 1 of x : : : : : : : ----x STIPULATION AND AGREEMENT OF SETTLEMENT

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1 Case 1:05-cv LAP Document Filed 05/27/08 Page 1 of 97 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK IN RE R&G FINANCIAL CORPORATION SECURITIES LITIGATION This Document relates to: All Actions ----x : : : : : : : ----x ECF CASE MASTER FILE NO. 05 Civ (JES) STIPULATION AND AGREEMENT OF SETTLEMENT This Stipulation and Agreement of Settlement (the Stipulation ) is submitted pursuant to Rule 23 of the Federal Rules of Civil Procedure. Subject to the approval of the Court, this Stipulation is entered into between and among Lead Plaintiffs, City of Philadelphia Board of Pensions and Retirement and General Retirement System of the City of Detroit, which are Lead Plaintiffs in the above-captioned consolidated class action (the Consolidated Action ) on behalf of themselves and the Class (as hereinafter defined) and defendants R&G Financial Corporation ( R&G ); Victor J. Galán, Joseph R. Sandoval, Ramón Prats, Benigno R. Fernandez, Gilberto Rivera-Arreaga and Ileana M. Colon-Carlo (the Individual Defendants ); and PricewaterhouseCoopers LLP ( PwC, and together with R&G and the Individual Defendants, the Defendants, and together with the Lead Plaintiffs, the Settling Parties ), by and through their respective counsel. The Settlement is intended to settle all claims against the Defendants. This Settlement does not settle the pending shareholder derivative actions that were consolidated under the caption In re R&G Financial Corp. Derivative Litigation, Case No. 1:05-CV-5547-JES by Order entered July 13, 2005.

2 Case 1:05-cv LAP Document Filed 05/27/08 Page 2 of 97 WHEREAS: A. All terms with initial capitalization not otherwise defined herein shall have the meanings ascribed to them in paragraph 1 herein. B. On April 25, 2005, R&G issued a press release announcing that it would revise the methodology used in valuing residual interests retained in securitization transactions and would restate its financial statements for the period January 1, 2003 to December 31, C. On July 27, 2005, R&G issued a Current Report on Form 8-K announcing that it would restate its interim and audited consolidated financial statements for the year ended December 31, D. PwC served as R&G s independent outside auditor at all relevant times, and provided auditing and accounting services to the Company, which included the issuance of auditor s reports on R&G s financial statements for the fiscal years 2002, 2003 and PwC s auditor s reports were included in the Company s Annual Reports on Forms 10-K for the fiscal years 2002, 2003 and E. Beginning on April 27, 2005, various actions were commenced in the United States District Court for the Southern District of New York and the United States District Court for the District of Puerto Rico (the Securities Class Actions ). The complaints in those actions alleged, inter alia, that certain of the defendants violated Section 10(b) of the Securities Exchange Act of 1934 ( Exchange Act ) and Rule 10b-5 thereunder, and Section 20(a) of the Exchange Act, and claimed that R&G had fraudulently misstated its financial statements by improperly accounting for certain loan sale transactions. 2

3 Case 1:05-cv LAP Document Filed 05/27/08 Page 3 of 97 F. On July 26, 2005, the Court entered an Order consolidating the Securities Class Actions into the Consolidated Action, appointing Lead Plaintiffs as lead plaintiffs in the Consolidated Action, and ordering that Lead Plaintiffs were to file an amended complaint. G. On February 27, 2007, Lead Plaintiffs filed a Consolidated Amended Class Action Complaint (the Amended Complaint ) which again asserted claims against R&G, and individual defendants Galán, Sandoval and Prats under Section 10(b) and Rule 10b-5 of the Exchange Act and Section 20(a) of the Exchange Act, and for the first time asserted claims against PwC under Section 10(b) and Rule 10b-5 and against defendants Fernandez, Rivera- Arreaga and Colon-Carlo (who are members of the Audit Committee of R&G s board of directors) under Section 20(a). The Amended Complaint alleged, among other things, that R&G s valuation methodology, accounting treatment and/or financial reporting of (i) mortgage loan transfers that were initially recorded as sales but subsequently recharacterized as secured borrowings (the Recharacterized Mortgage Loan Transfers ), and (ii) the retained interests initially recognized in connection with the Recharacterized Mortgage Loan Transfers violated GAAP, and that R&G s misclassification of the Recharacterized Mortgage Loan Transfers constituted a fraudulent misrepresentation designed to artificially inflate R&G s earnings and stock price. The Amended Complaint also alleged that PwC s 2002, 2003 and 2004 auditor s reports were materially false and misleading. H. On May 4, 2007, R&G, the Individual Defendants and PwC filed motions to dismiss the Amended Complaint, which were fully briefed by July 16, The Court entered orders denying the motions to dismiss on September 7 and October 19, I. On October 29 and 30, 2007, Lead Plaintiffs and R&G, through counsel, voluntarily participated in a mediation with retired United States District Court Judge Nicholas 3

4 Case 1:05-cv LAP Document Filed 05/27/08 Page 4 of 97 H. Politan in an effort to settle this action as to all defendants except PwC. No settlement was reached during those two days of mediation sessions. J. On November 2, 2007, R&G issued the Company s restatement of its financial statements for 2002, 2003 and 2004 and selected additional data as required by Item 301 of Regulation S-K and Industry Guide 3 as described in the Amended Annual Report on Form 10K/A filed by R&G (the Restatement ). PwC issued an auditor s report on the restated financial statements. K. In the weeks subsequent to the Restatement, Lead Plaintiffs and R&G conducted additional settlement negotiations through Judge Politan, pursuant to which Lead Plaintiffs and R&G reached an agreement in principle to settle the Consolidated Action as against R&G and the Individual Defendants on the terms set forth herein. L. R&G has received commitments from certain of the Individual Defendants and from the Company s insurance carriers to make certain financial contributions toward the Settlement. M. On March 27, 2008, Lead Plaintiffs and PwC, through counsel, voluntarily participated in a mediation with Judge Politan, resulting in the Lead Plaintiffs and PwC reaching an agreement in principle to settle the Consolidated Action as against PwC on the terms set forth herein. N. Each of the Defendants denies any wrongdoing whatsoever, and this Stipulation shall in no event be construed or deemed to be evidence of or an admission or concession on the part of any of the Defendants with respect to any claim or of any fault or liability or wrongdoing or damage whatsoever, or any infirmity in the defenses that the Defendants have, or could have asserted. Defendants expressly deny that Plaintiffs have asserted a valid claim as to them and 4

5 Case 1:05-cv LAP Document Filed 05/27/08 Page 5 of 97 deny any and all allegations of fault, liability, wrongdoing, or damages whatsoever. The Settling Parties recognize, however, that the litigation has been filed by Lead Plaintiffs and defended by the Defendants in good faith and with adequate basis in fact under Federal Rule of Civil Procedure 11, that the litigation is being voluntarily settled after advice of counsel, and that the terms of the Settlement are fair, adequate and reasonable. This Stipulation shall not be construed or deemed to be a concession by Lead Plaintiffs of any infirmity in the claims asserted in the Consolidated Action. O. Lead Counsel have conducted an investigation relating to the claims and the underlying events and transactions alleged in the Amended Complaint. Lead Counsel have analyzed the evidence adduced during their investigation and have researched the applicable law with respect to the claims of Lead Plaintiffs and the Class against the Defendants and the potential defenses thereto. P. Based upon their investigation, Lead Counsel have concluded that the terms and conditions of this Stipulation are fair, reasonable and adequate to Lead Plaintiffs and the Class, and in their best interests, and have agreed to settle the claims raised in the Consolidated Action pursuant to the terms and provisions of this Stipulation, after considering (a) the substantial benefits that Lead Plaintiffs and the members of the Class will receive from resolution of the Consolidated Action as against the Defendants, (b) the attendant risks of litigation, and (c) the desirability of permitting the Settlement to be consummated as provided by the terms of this Stipulation. NOW THEREFORE, without any admission or concession on the part of Lead Plaintiffs of any lack of merit of the Consolidated Action whatsoever, and without any admission or concession of any liability or wrongdoing or lack of merit in the defenses whatsoever by the 5

6 Case 1:05-cv LAP Document Filed 05/27/08 Page 6 of 97 Defendants, it is hereby STIPULATED AND AGREED, by and among Lead Plaintiffs, R&G, the Individual Defendants and PwC, through their respective attorneys, subject to approval of the Court pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, in consideration of the benefits flowing to the parties hereto from the Settlement, that all Settled Claims as against the Released Parties and all Released Parties Claims shall be compromised, settled, released and dismissed with prejudice, upon and subject to the following terms and conditions: DEFINITIONS 1. As used in this Stipulation, the following terms shall have the following meanings: (a) Amended Complaint means the Consolidated Amended Class Action Complaint filed by Lead Plaintiffs in the Consolidated Action, on or about February 27, (b) Authorized Claimant means a Class Member who submits a timely and valid Proof of Claim Form to the Claims Administrator, in accordance with the requirements established by the Court, that is approved for payment from the Net Settlement Fund. (c) Claim means a completed and signed Proof of Claim Form submitted to the Claims Administrator in accordance with the instructions on the Proof of Claim Form. (d) Claim Form or Proof of Claim Form means the form, substantially in the form attached hereto as Exhibit 2 to Exhibit A, that a Claimant or Class Member must complete should that Claimant or Class Member seek to share in a distribution of the Net Settlement Fund. (e) Claimant means a person or entity that submits a Claim Form to the Claims Administrator seeking to share in the proceeds of the Settlement Fund. 6

7 Case 1:05-cv LAP Document Filed 05/27/08 Page 7 of 97 (f) Claims Administrator means the firm of Heffler, Radetich & Saitta LLP which shall administer the Settlement. (g) Class means, for the purposes of this Settlement only, all persons and entities who purchased or otherwise acquired publicly traded securities of R&G between January 21, 2003 and November 2, 2007, inclusive, and who, based on conduct that was or could have been asserted in the Consolidated Action, were injured thereby. Excluded from the Class are (a) the Defendants named in the Amended Complaint; (b) members of the immediate families of the Individual Defendants; (c) the subsidiaries and affiliates of the Defendants; (d) any person or entity who is a partner, officer, director, or controlling person of R&G (including any of its subsidiaries or affiliates) or of any Defendant; (e) any entity in which any Defendant has a controlling interest; (f) the Defendants directors and officers liability insurance carriers; and (g) the legal representatives, heirs, successors and assigns of any such excluded party. Also excluded from the Class are any persons who exclude themselves by filing a request for exclusion in accordance with the requirements set forth in the Notice. (h) Class Distribution Order means an order entered by the Court authorizing and directing that the Net Settlement Fund be distributed, in whole or in part, to Authorized Claimants. (i) Class Member means a person or entity that is a member of the Class and does not exclude himself, herself or itself by filing a request for exclusion in accordance with the requirements set forth in the Notice. (j) Class Period means, for the purposes of this Settlement only, the period between January 21, 2003 and November 2, 2007, inclusive. 7

8 Case 1:05-cv LAP Document Filed 05/27/08 Page 8 of 97 (k) Consolidated Derivative Action means the consolidated derivative action pending in this Court under the caption In re R&G Financial Corp. Derivative Litigation, Case No. 1:05-CV-5547-JES. (l) Court means the United States District Court for the Southern District of New York. (m) Effective Date means the date on which all the following shall have occurred: (a) the Court has entered the Preliminary Approval Order; (b) the Court has approved the Settlement, following notice to the Class and a hearing, as prescribed by Rule 23 of the Federal Rules of Civil Procedure; and (c) the Court has entered the Judgment, substantively in the form annexed hereto as Exhibit B, which has become Final. (n) Escrow Account means an account maintained at RBS Citizens, N.A. to hold the Settlement Fund, which account shall be under the exclusive control of Lead Counsel. (o) (p) Escrow Agent means RBS Citizens, N.A. Escrow Agreement means the agreement among Lead Counsel and the Escrow Agent setting forth the terms under which the Escrow Agent shall maintain the Escrow Account. (q) Final when referring to an order or judgment means: (i) that the time for appeal or appellate review of the order or judgment has expired; or (ii) if there has been an appeal, (a) that the appeal has been decided without causing a material change in the order or judgment; or (b) that the order or judgment has been upheld on appeal and is no longer subject to appellate review by further appeal or writ of certiorari. (r) Individual Defendants means Victor J. Galán, Joseph R. Sandoval, Ramón Prats, Benigno R. Fernandez, Gilberto Rivera-Arreaga and Ileana M. Colon-Carlo. 8

9 Case 1:05-cv LAP Document Filed 05/27/08 Page 9 of 97 (s) Individual Defendants Counsel means Simpson Thacher & Bartlett LLP; Thacher Proffitt & Wood and Milbank Tweed Hadley & McCloy LLP. (t) Judgment means the final judgment, substantially in the form attached hereto as Exhibit B, to be entered pursuant to Rule 54(b) of the Federal Rules of Civil Procedure approving the Settlement. (u) Lead Counsel means the law firms of Bernstein Litowitz Berger & Grossmann LLP and Barrack, Rodos & Bacine. (v) Lead Plaintiffs means, together, the City of Philadelphia Board of Pensions and Retirement and General Retirement System of the City of Detroit. (w) Litigation Expenses means the costs and expenses incurred by Plaintiffs Counsel in connection with commencing and prosecuting the Consolidated Action, for which Lead Counsel intend to apply to the Court for reimbursement from the Settlement Fund. (x) Net Settlement Fund means the Settlement Fund less: (i) any Taxes; (ii) any Notice and Administration Costs; (iii) any Litigation Expenses awarded by the Court; and (iv) any attorney fees awarded by the Court. (y) Notice means the Notice of Pendency of Class Action and Proposed Settlements, Settlement Fairness Hearing and Motion for Attorney Fees and Reimbursement of Litigation Expenses, substantially in the form attached hereto as Exhibit 1 to Exhibit A, which is to be sent to members of the Class. (z) Notice and Administration Costs means the costs, fees and expenses that are incurred by the Claims Administrator and Lead Counsel in connection with (i) providing notice to the Class; and (ii) administering the Claims process. 9

10 Case 1:05-cv LAP Document Filed 05/27/08 Page 10 of 97 (aa) Plaintiffs Counsel means Lead Counsel and all other counsel who, at the direction and under the supervision of Lead Counsel, represent Class Members in the Consolidated Action. (bb) Plan of Allocation means the proposed plan of allocation of the Net Settlement Fund set forth in the Notice. (cc) Preliminary Approval Order means the order, substantially in the form attached hereto as Exhibit A, to be entered by the Court preliminarily approving the Settlements and directing notice be provided to the Class. (dd) Publication Notice means the Summary Notice of Proposed Settlements, Settlement Fairness Hearing and Motion for Attorney Fees and Reimbursement of Litigation Expenses, substantially in the form attached hereto as Exhibit 3 to Exhibit A, to be published as set forth in the Preliminary Approval Order. (ee) PwC means PricewaterhouseCoopers LLP. (ff) PwC s Counsel means the law firm of Orrick, Herrington & Sutcliffe LLP. (gg) PwC Settlement means the settlement with PwC contemplated by this Stipulation. (hh) R&G or the Company means R&G Financial Corporation. (ii) (jj) R&G s Counsel means the law firm of Sullivan & Cromwell LLP. R&G Settlement means the settlement with R&G contemplated by this Stipulation. (kk) Released Parties means PwC, the member firms of PricewaterhouseCoopers International Limited, R&G and any and all of their respective present 10

11 Case 1:05-cv LAP Document Filed 05/27/08 Page 11 of 97 or former officers, directors, agents, employees, attorneys, stockholders, advisors, insurers, representatives, trustees, spouses, heirs, executors, administrators, parents and officers and directors thereof, affiliates and officers and directors thereof, subsidiaries and officers and directors thereof, general and limited partners, principals, and successors and assigns, and each of the Individual Defendants, and their respective present and former spouses, heirs, agents, employees, attorneys, advisors, insurers, representatives, executors, administrators, successors and assigns. (ll) Released Parties Claims means any and all claims, rights or causes of action or liabilities whatsoever, whether based on federal, state, Commonwealth of Puerto Rico, local, statutory or common law or any other law, rule or regulation, including both known claims and Unknown Claims, that have been or could have been asserted in the Consolidated Action or any forum by the Released Parties or any of them or the successors and assigns of any of them against any of the Lead Plaintiffs, Class Members or their attorneys, which arise out of or relate in any way to the institution, prosecution, or settlement of the Consolidated Action (except for claims to enforce the Settlements). (mm) Settled Claims means any and all claims, rights or causes of action or liabilities whatsoever, whether known claims or Unknown Claims, whether arising under or based on federal, state, Commonwealth of Puerto Rico, local, statutory or common law, foreign law, or any other law, rule or regulation, whether directly, representatively, derivatively, individually or in any other capacity, that Lead Plaintiffs or any member of the Class (a) asserted against the Released Parties in the Consolidated Action, or (b) could have asserted against the Released Parties in any forum that relate to, arise out of or are based upon the allegations, transactions, facts, matters or occurrences, representations or omissions involved, set forth, or 11

12 Case 1:05-cv LAP Document Filed 05/27/08 Page 12 of 97 referred to in the Consolidated Action or that relate to or arise out of the purchase or sale of shares of the Company s common stock during the Class Period, including but not limited to all claims relating to (a) PwC s professional services, including but not limited to audit engagements, performed for the Company in connection with its 2002, 2003 or 2004 financial reporting and any of PwC s opinions in connection therewith; (b) the Company s announcement on April 25, 2005 that it would restate its financial statements for the period January 1, 2003 to December 31, 2004, (c) the Company s announcement on July 27, 2005 that it would restate its interim and audited consolidated financial statements for the year ended December 31, 2002, (d) the Restatement (including without limitation the audit committee investigation, the results of which are reflected therein, and any weaknesses in internal controls or remediation of such weaknesses), (e) the alleged conversation between Mr. Galán and outside counsel referenced in the Restatement, and/or (f) the Company s valuation methodology, accounting treatment and/or financial reporting of (i) the Recharacterized Mortgage Loan Transfers and (ii) the retained interests initially recognized in connection with the Recharacterized Mortgage Loan Transfer. Settled Claims does not include any claims asserted in the Consolidated Derivative Action. (nn) Settlements means, collectively, the R&G Settlement and the PwC Settlement. (oo) Settlement Fund means the sum of fifty-one million dollars ($51,000,000) as follows: (1) thirty-nine million dollars ($39,000,000) in cash to be paid or caused to be paid by R&G into the Escrow Account, and any and all interest earned thereon; and (2) twelve million dollars ($12,000,000) in cash to be paid or caused to be paid by PwC into the Escrow Account, and any and all interest earned thereon. 12

13 Case 1:05-cv LAP Document Filed 05/27/08 Page 13 of 97 (pp) Settlement Hearing means the hearing set by the Court under Rule 23(e)(1)(c) of the Federal Rules of Civil Procedure to consider approval of the Settlement. (qq) Settling Parties means the Defendants and Lead Plaintiffs, on behalf of themselves and the Class Members. (rr) Taxes means: (i) all federal, state and/or local taxes of any kind on any income earned by the Settlement Fund; and (ii) the reasonable expenses and costs incurred by Lead Counsel in connection with determining the amount of, and paying, any taxes owed by the Settlement Fund (including, without limitation, reasonable expenses of tax attorneys and accountants). (ss) Unknown Claims means any and all Settled Claims that any Lead Plaintiff or Class Member does not know or suspect to exist in his, her or its favor at the time of the release of the Released Parties, and any Released Parties Claims that any Released Party does not know or suspect to exist in his, her or its favor, which if known by him, her or it might have affected his, her or its decision(s) with respect to the Settlement. With respect to any and all Settled Claims and Released Parties Claims, the parties stipulate and agree that upon the Effective Date, the Lead Plaintiffs and the Released Parties shall expressly waive, and each Class Member shall be deemed to have waived, and by operation of the Judgment shall have expressly waived, any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, that is similar, comparable, or equivalent to Cal. Civ. Code 1542, which provides: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. 13

14 Case 1:05-cv LAP Document Filed 05/27/08 Page 14 of 97 Lead Plaintiffs and the Released Parties acknowledge, and Class Members by operation of law shall be deemed to have acknowledged, that the inclusion of Unknown Claims in the definition of Settled Claims and Released Parties Claims was separately bargained for and was a key element of the Settlement. CLASS CERTIFICATION 2. Solely for purposes of the Settlement and for no other purpose, Defendants stipulate and agree to: (a) certification of the Consolidated Action as a class action pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on behalf of the Class; (b) appointment of Lead Plaintiffs as Class Representatives; and (c) appointment of Lead Counsel as Class Counsel pursuant to Rule 23(g) of the Federal Rules of Civil Procedure. Lead Plaintiffs and Defendants will move jointly for entry of the Preliminary Approval Order, which will certify the Consolidated Action to proceed as a class action solely for purposes of the Settlement and for no other purpose. RELEASE OF CLAIMS 3. The obligations incurred pursuant to this Stipulation shall be in full and final disposition of the Consolidated Action as against PwC, R&G and the Individual Defendants, and shall fully and finally release any and all Settled Claims as against all Released Parties and shall also release Lead Plaintiffs and the Class from any and all Released Parties Claims. 4. Pursuant to the Judgment, upon the Effective Date, Lead Plaintiffs and members of the Class on behalf of themselves, their heirs, executors, administrators, predecessors, successors and assigns, shall be deemed by operation of law to have released, waived, discharged and dismissed each and every Settled Claim, and shall forever be enjoined from prosecuting any or all Settled Claims, against any Released Party. 14

15 Case 1:05-cv LAP Document Filed 05/27/08 Page 15 of Pursuant to the Judgment, upon the Effective Date, PwC, R&G and the Individual Defendants and each of the other Released Parties, on behalf of themselves, their heirs, executors, administrators, predecessors, successors and assigns, shall be deemed by operation of law to have released, waived, discharged and dismissed each and every of the Released Parties Claims, and shall forever be enjoined from prosecuting any or all of the Released Parties Claims, against Lead Plaintiffs, the Class Members and their counsel. 6. The Settling Parties will request that the Court, as part of the Judgment, enter a bar order in accordance with the Private Securities Litigation Reform Act of 1995 (the PSLRA ) that will discharge the Released Parties from any and all claims for contribution by any person or entity, whether arising under state, federal, Commonwealth of Puerto Rico, local, statutory or common law, foreign law, or any other law, rule or regulation, based upon, arising out of, relating to, or in connection with the Settled Claims. To the full extent provided by the PSLRA, the bar order will bar all claims for contribution: (a) against the Released Parties; and (b) by the Released Parties against any person or entity other than any person or entity whose liability to the Class has been extinguished pursuant to this Stipulation and the Judgment. THE SETTLEMENT CONSIDERATION 7. In consideration of the Settlement of the Settled Claims against R&G, the Individual Defendants and the other Released Parties (other than PwC and its Released Parties), R&G shall pay or cause to be paid thirty-nine million dollars ($39,000,000) in cash, such amount to be deposited into the Escrow Account no later than five (5) days after notice of entry of the Preliminary Approval Order. 8. In consideration of the Settlement of the Settled Claims against PwC and the other Released Parties (other than R&G, the Individual Defendants and their Released Parties), PwC 15

16 Case 1:05-cv LAP Document Filed 05/27/08 Page 16 of 97 shall pay or cause to be paid twelve million dollars ($12,000,000) in cash, such amount to be deposited into the Escrow Account no later than fourteen (14) days after notice of entry of the Preliminary Approval Order. 9. R&G acknowledges that Lead Plaintiffs participated in discussions with the Company concerning changes to the Company s corporate governance policies and procedures, and that R&G considered Lead Plaintiffs input in agreeing to certain corporate governance changes in connection with the Company s separate settlement of the Consolidated Derivative Action. USE OF SETTLEMENT FUND 10. The Settlement Fund shall be used to pay: (i) first, any Taxes, (ii) next, any Notice and Administration Costs, (iii) next, any Litigation Expenses awarded by the Court; and (iv) any attorney fees awarded by the Court. The balance remaining in the Settlement Fund shall be distributed to Authorized Claimants as provided below. 11. The Net Settlement Fund shall be distributed to Authorized Claimants as provided herein. Except as provided herein or pursuant to orders of the Court, the Net Settlement Fund shall remain in the Escrow Account prior to the Effective Date. All funds held by the Escrow Agent shall be deemed to be in the custody of the Court and shall remain subject to the jurisdiction of the Court until such time as the funds shall be distributed or returned pursuant to the terms of this Stipulation and/or further order of the Court. The Escrow Agent shall invest any funds in the Escrow Account in United States Treasury Bills (or a mutual fund invested solely in such instruments) and shall collect and reinvest all interest accrued thereon, except that any residual cash balances of less than $100,000 may be invested in money market mutual funds comprised exclusively of investments secured by the full faith and credit of the United States. 16

17 Case 1:05-cv LAP Document Filed 05/27/08 Page 17 of The parties hereto agree that the Settlement Fund is intended to be a Qualified Settlement Fund within the meaning of Treasury Regulation 1.468B-1 and that Lead Counsel, as administrator of the Settlement Fund within the meaning of Treasury Regulation 1.468B- 2(k)(3), shall be solely responsible for filing or causing to be filed all informational and other tax returns as may be necessary or appropriate (including, without limitation, the returns described in Treasury Regulation 1.468B-2(k)) for the Settlement Fund. Such returns shall be consistent with this paragraph and in all events shall reflect that all taxes on the income earned on the Settlement Fund shall be paid out of the Settlement Fund as provided by paragraph [12] below. Lead Counsel shall also be solely responsible for causing payment to be made from the Settlement Fund of any Taxes owed with respect to the Settlement Fund. Upon written request, R&G and PwC will provide promptly to Lead Counsel the statement described in Treasury Regulation 1.468B-3(e). Lead Counsel, as administrator of the Settlement Fund within the meaning of Treasury Regulation 1.468B-2(k)(3), shall timely make such elections as are necessary or advisable to carry out this paragraph, including, as necessary, making a relation back election, as described in Treasury Regulation 1.468B-1(j), to cause the Qualified Settlement Fund to come into existence at the earliest allowable date, and shall take or cause to be taken all actions as may be necessary or appropriate in connection therewith. 13. All Taxes shall be paid out of the Settlement Fund, and shall be timely paid by the Escrow Agent pursuant to the disbursement instructions to be set forth in the Escrow Agreement, and without prior Order of the Court. Any tax returns prepared for the Settlement Fund (as well as the election set forth therein) shall be consistent with the previous paragraph and in all events shall reflect that all Taxes (including any interest or penalties) on the income earned by the Settlement Fund shall be paid out of the Settlement Fund as provided herein. The Settlement 17

18 Case 1:05-cv LAP Document Filed 05/27/08 Page 18 of 97 Fund shall indemnify and hold all Released Parties harmless for any Taxes and related expenses of any kind whatsoever (including without limitation, taxes payable by reason of any such indemnification), if any, payable by R&G or PwC by reason of any income earned on the Settlement Fund. R&G and PwC shall notify the Escrow Agent promptly if either of them receives any notice of any claim for Taxes relating to the Settlement Fund. 14. This is not a claims-made settlement. Upon the occurrence of the Effective Date, neither R&G, the Individual Defendants, PwC nor any person or entity who or which paid any portion of the Settlement Fund on their behalf shall have any right to the return of the Settlement Fund or any portion thereof irrespective of the number of Claims filed, the collective amount of losses of Authorized Claimants, the percentage of recovery of losses, or the amounts to be paid to Authorized Claimants from the Net Settlement Fund. 15. The Claims Administrator shall discharge its duties under Lead Counsel s supervision and subject to the jurisdiction of the Court. Except as otherwise provided herein, the Released Parties shall have no responsibility whatsoever for the administration of the Settlement, and shall have no liability whatsoever to any person, including, but not limited to, the Class Members, in connection with any such administration. Lead Counsel shall cause the Claims Administrator to mail the Notice and Proof of Claim to those members of the Class at the address of each such person as set forth in the records of R&G or its transfer agent(s), or who otherwise may be identified through further reasonable effort. Lead Counsel will cause to be published the Publication Notice pursuant to the terms of the Preliminary Approval Order or whatever other form or manner might be ordered by the Court. For the purpose of identifying and providing notice to the Class, within five (5) days of the date of entry of the Preliminary Approval Order, R&G shall provide or cause to be provided to the Claims Administrator (at no cost to the 18

19 Case 1:05-cv LAP Document Filed 05/27/08 Page 19 of 97 Settlement Fund, Lead Plaintiff s Counsel or the Claims Administrator) its security holder lists (consisting of security holder names and addresses), in electronic form. 16. Lead Counsel may pay from the Settlement Fund, without further approval from Defendants or further order of the Court, all reasonable Notice and Administration Costs actually incurred. Such costs and expenses shall include, without limitation, the actual costs of publication, printing and mailing the Notice, reimbursements to nominee owners for forwarding the Notice to their beneficial owners, the administrative expenses incurred and fees charged by the Claims Administrator in connection with providing Notice and processing the submitted claims, and the fees, if any, of the Escrow Agent. In the event that the Settlement is terminated pursuant to the terms of this Stipulation, all Notice and Administration Costs reasonably paid or reasonably incurred, including any related fees, shall not be returned or repaid to R&G, the Individual Defendants, PwC or to any person or entity who or which paid any portion of the Settlement Fund on their behalf. ATTORNEY FEES AND LITIGATION EXPENSES 17. Lead Counsel will apply to the Court for a collective award of attorney fees to Plaintiffs Counsel not to exceed 22.5% of the Settlement Fund. Lead Counsel also will apply to the Court for reimbursement of Litigation Expenses. Neither PwC, R&G, nor any other Released Party, shall take any position with respect to Lead Counsel s application or award of attorney fees and/or Litigation Expenses, provided such application is consistent with the terms of this Stipulation and Agreement. Such matters are not the subject of any agreement between Defendants and Lead Plaintiffs other than what is set forth in this Stipulation. 18. Any attorney fees and Litigation Expenses that are awarded by the Court shall be paid to Lead Counsel, with the Court s approval, immediately upon award, notwithstanding the 19

20 Case 1:05-cv LAP Document Filed 05/27/08 Page 20 of 97 existence of any timely filed objections thereto, or potential for appeal therefrom, or collateral attack on the Settlement or any part thereof, subject to Lead Counsel s obligation to make appropriate refunds or repayments to the Settlement Fund, plus accrued interest at the same net rate as is earned by the Settlement Fund, if the Settlements or either of them, are terminated pursuant to the terms of this Stipulation or if, as a result of any appeal or further proceedings on remand, or successful collateral attack, the award of attorney fees and/or Litigation Expenses is reduced or reversed. Lead Counsel shall make the appropriate refund or repayment in full no later than five (5) business days after receiving from R&G s Counsel, any of the Individual Defendants Counsel or PwC s Counsel or from a court of appropriate jurisdiction notice of the termination of the Settlements or either of them or notice of any reduction of the award of attorney fees and/or Litigation Expenses. An award of attorney fees and/or Litigation Expenses is not a necessary term of this Stipulation and is not a condition of this Stipulation. Lead Plaintiffs and Lead Counsel may not cancel or terminate the Stipulation or the Settlements or otherwise based on this Court s or any appellate court s ruling with respect to attorney fees and/or Litigation Expenses. CLAIMS ADMINISTRATOR 19. The Claims Administrator shall administer the process of receiving, reviewing and approving or denying claims under Lead Counsel s supervision and subject to the jurisdiction of the Court. Other than R&G s obligation to provide its shareholder transfer records, as provided herein, none of the Defendants shall have any responsibility whatsoever for the administration of the Settlement or the claims process and shall have no liability whatsoever to any person, including, but not limited to, Lead Plaintiffs, Class Members or Lead Counsel in 20

21 Case 1:05-cv LAP Document Filed 05/27/08 Page 21 of 97 connection with such administration. R&G s Counsel and PwC s Counsel shall cooperate in the administration of the Settlements to the extent reasonably necessary to effectuate their terms. 20. The Claims Administrator shall receive Claims and determine first, whether the Claim is a valid Claim, in whole or part, and second, each Authorized Claimant s pro rata share of the Net Settlement Fund based upon each Authorized Claimant s Loss Amount compared to the total Loss Amounts of all Authorized Claimants (as set forth in the Plan of Allocation set forth in the Notice attached hereto as Exhibit 1 to Exhibit A, or in such other plan of allocation as the Court approves). 21. The Plan of Allocation proposed in the Notice is not a necessary term of this Stipulation and it is not a condition of this Stipulation that any particular plan of allocation be approved by the Court. Lead Plaintiffs and Lead Counsel may not cancel or terminate the Stipulation or the Settlements based on this Court s or any appellate court s ruling with respect to the Plan of Allocation or any plan of allocation in this Consolidated Action. Neither R&G, PwC, the Individual Defendants, nor any other Released Party, shall have any responsibility or liability whatsoever for allocation of the Net Settlement Fund. 22. Any Class Member who does not submit a valid Claim Form will not be entitled to receive any distribution from the Net Settlement Fund but will otherwise be bound by all of the terms of this Stipulation and Settlement, including the terms of the Judgment to be entered in the Consolidated Action and the releases provided for herein, and will be permanently barred and enjoined from bringing any action, claim, or other proceeding of any kind against any Released Party concerning any Settled Claim. 23. Lead Counsel shall be responsible for supervising the administration of the Settlement and disbursement of the Net Settlement Fund. Neither R&G, PwC, the Individual 21

22 Case 1:05-cv LAP Document Filed 05/27/08 Page 22 of 97 Defendants, nor any other Released Party, shall have any liability, obligation or responsibility whatsoever for the administration of the Settlements or disbursement of the Net Settlement Fund. Neither R&G, PwC, the Individual Defendants, nor any other Released Party, shall be permitted to review, contest or object to any Claim Form or any decision of the Claims Administrator or Lead Counsel with respect to accepting or rejecting any Claim Form or Claim for payment by a Class Member. Lead Counsel shall have the right, but not the obligation, to waive what they deem to be formal or technical defects in any Claim Forms submitted in the interests of achieving substantial justice. 24. For purposes of determining the extent, if any, to which a Class Member shall be entitled to be treated as an Authorized Claimant, the following conditions shall apply: a. Each Class Member shall be required to submit a Claim Form, substantially in the form attached hereto as Exhibit 2 to Exhibit A, supported by such documents as are designated therein, including proof of the Claimant s loss, or such other documents or proof as the Claims Administrator or Lead Counsel, in their discretion, may deem acceptable; b. All Claim Forms must be submitted by the date set by the Court in the Preliminary Approval Order and specified in the Notice, unless such deadline is extended by Order of the Court. Any Class Member who fails to submit a Claim Form by such date shall be forever barred from receiving any distribution from the Net Settlement Fund or payment pursuant to this Stipulation (unless, by Order of the Court, late-filed Claim Forms are accepted), but shall in all other respects be bound by all of the terms of this Stipulation and the Settlement, including the terms of the Judgment and the releases provided for herein, and will be permanently barred and enjoined from bringing any action, claim or other proceeding of any kind against any Released Party concerning any Settled Claim. A Claim Form shall be deemed 22

23 Case 1:05-cv LAP Document Filed 05/27/08 Page 23 of 97 to be submitted when posted, if received with a postmark indicated on the envelope and if mailed by first-class mail and addressed in accordance with the instructions thereon. c. Each Claim Form shall be submitted to and reviewed by the Claims Administrator, under the supervision of Lead Counsel, who shall determine in accordance with this Stipulation the extent, if any, to which each Claim shall be allowed, subject to review by the Court pursuant to subparagraph (e) below; d. Claim Forms that do not meet the submission requirements may be rejected. Prior to rejecting a Claim in whole or in part, the Claims Administrator shall communicate with the Claimant in writing, to give the Claimant the chance to remedy any curable deficiencies in the Claim Form submitted. The Claims Administrator, under supervision of Lead Counsel, shall notify, in a timely fashion and in writing, all Claimants whose Claim the Claims Administrator proposes to reject in whole or in part, setting forth the reasons therefor, and shall indicate in such notice that the Claimant whose claim is to be rejected has the right to a review by the Court if the Claimant so desires and complies with the requirements of subparagraph (e) below; e. If any Claimant whose claim has been rejected in whole or in part desires to contest such rejection, the Claimant must, within twenty (20) days after the date of mailing of the notice required in subparagraph (d) above, serve upon the Claims Administrator a notice and statement of reasons indicating the Claimant s grounds for contesting the rejection along with any supporting documentation, and requesting a review thereof by the Court. If a dispute concerning a Claim cannot be otherwise resolved, Lead Counsel shall thereafter present the request for review to the Court; and 23

24 Case 1:05-cv LAP Document Filed 05/27/08 Page 24 of 97 f. The administrative determinations of the Claims Administrator accepting and rejecting Claims shall be presented to the Court, on notice to R&G s Counsel and PwC s Counsel, for approval by the Court in the Class Distribution Order. 25. Each Claimant shall be deemed to have submitted to the jurisdiction of the Court with respect to the Claimant s Claim, and the Claim will be subject to investigation and discovery under the Federal Rules of Civil Procedure, provided that such investigation and discovery shall be limited to that Claimant s status as a Class Member and the validity and amount of the Claimant s Claim. No discovery shall be allowed on the merits of this Consolidated Action or this Settlement in connection with the processing of Claim Forms. 26. Lead Counsel will apply to the Court, on notice to all Defendants, for a Class Distribution Order: (i) approving the Claims Administrator s administrative determinations concerning the acceptance and rejection of the Claims submitted; (ii) approving payment of any administration fees and expenses associated with the administration of the Settlements from the Escrow Account, and (iii) if the Effective Date has occurred, directing payment of the Net Settlement Fund to Authorized Claimants from the Escrow Account. 27. Payment pursuant to the Class Distribution Order shall be final and conclusive against all Class Members. All Class Members whose Claims are not approved by the Court shall be barred from participating in distributions from the Net Settlement Fund, but otherwise shall be bound by all of the terms of this Stipulation and the Settlements, including the terms of the Judgment to be entered in this Consolidated Action and the releases provided for therein, and will be permanently barred and enjoined from bringing any action against any and all Released Parties concerning any and all of the Settled Claims. 24

25 Case 1:05-cv LAP Document Filed 05/27/08 Page 25 of All proceedings with respect to the administration, processing and determination of Claims and the determination of all controversies relating thereto, including disputed questions of law and fact with respect to the validity of Claims, shall be subject to the jurisdiction of the Court. TERMS OF THE JUDGMENT 29. If the Settlements contemplated by this Stipulation are approved by the Court, Lead Counsel, R&G s Counsel and PwC s Counsel shall request that the Court enter a Judgment, substantially in the form annexed hereto as Exhibit B, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure. WAIVER OR TERMINATION 30. Within thirty (30) days of: (a) the Court s declining to enter the Preliminary Approval Order in any material respect; (b) the Court s refusal to approve this Stipulation or any material part of it; (c) the Court s declining to enter the Judgment in any material respect; or (d) the date upon which the Judgment is modified or reversed in any material respect by the Court of Appeals or the Supreme Court, R&G, the Individual Defendants and Lead Plaintiffs each shall have the right to terminate the R&G Settlement and this Stipulation, and PwC and Lead Plaintiffs each shall have the right to terminate the PwC Settlement and this Stipulation, by providing written notice to the other of an election to do so. However, any decision with respect to an application for attorney fees or Litigation Expenses, or with respect to any plan of allocation, shall not be considered material to the Settlements and shall not be grounds for termination. 31. In addition, R&G and the Individual Defendants shall have the option to terminate the R&G Settlement and this Stipulation, and PwC shall have the option to terminate the PwC Settlement and this Stipulation each in the event that Class Members who collectively purchased 25

26 Case 1:05-cv LAP Document Filed 05/27/08 Page 26 of 97 in excess of 5% of the maximum number of outstanding shares of R&G common stock during the Class Period properly elect to exclude themselves from the Class in accordance with the requirements for requesting exclusion provided in the Notice. Lead Counsel, R&G s Counsel, the Individual Defendants Counsel and PwC s Counsel shall request jointly that the deadline for submitting exclusions from the Class be at least ten (10) business days prior to the Settlement Hearing. Copies of all requests for exclusion from the Class received by the Claims Administrator (or other person designated to receive exclusion requests) shall be provided to R&G s Counsel, the Individual Defendants Counsel and PwC s Counsel no later than five (5) business days prior to the Settlement Hearing. If the 5% threshold is reached, R&G, the Individual Defendants and PwC shall have until 5:00 p.m. EST of the third business day before the Settlement Hearing to inform Lead Counsel, in writing, that R&G or one or more of the Individual Defendants elects to exercise its option to terminate the R&G Settlement or that PwC elects to exercise its option to terminate the PwC Settlement. Lead Counsel shall have the right to communicate with the holders of such shares and, if a sufficient number of them withdraw in writing their requests for exclusion such that the total number of shares purchased during the Class Period represented by the remaining opt outs represents less than 5% of the maximum number of outstanding shares of R&G common stock during the Class Period, the notice of termination shall be deemed withdrawn. 32. Except as otherwise provided herein, in the event either the R&G Settlement or the PwC Settlement is terminated, those Settlements shall be without prejudice, and none of their terms shall be effective or enforceable and the facts of the Settlements shall not be admissible in any trial of this Action, and the Settling Parties shall be deemed to have reverted to their respective status in this Consolidated Action immediately prior to February 29, 2008 (for the 26

27 Case 1:05-cv LAP Document Filed 05/27/08 Page 27 of 97 R&G Settlement) and March 27, 2008 (for the PwC Settlement) and, except as otherwise expressly provided, the parties shall proceed in all respects as if this Stipulation and any related orders had not been entered, and any portion of the Settlement consideration previously paid or caused to be paid by R&G or PwC, including, but not limited to, any funds disbursed in payment of Litigation Expenses and attorney fees, together with any interest earned or appreciation thereon, less any Taxes paid or due with respect to such income, and less Notice and Administration Costs actually incurred and paid or payable, shall be returned to R&G or PwC, as appropriate, within fourteen (14) business days after written notification of such event by R&G or PwC to the Escrow Agent, with a copy of such notice to Lead Counsel, pursuant to the terms of the Escrow Agreement. NO ADMISSION OF WRONGDOING 33. This Stipulation, whether or not consummated, and any proceedings taken pursuant to it: a. shall not be offered or received against any of the Released Parties as evidence of, or construed as, or deemed to be evidence of any presumption, concession, or admission by any of the Released Parties with respect to the truth of any fact alleged by Lead Plaintiffs or the validity of any claim that was or could have been asserted against any of the Released Parties in this Consolidated Action or in any litigation, or of any liability, negligence, fault, or other wrongdoing of any kind of any of the Released Parties; b. shall not be offered or received against any of the Released Parties as evidence of a presumption, concession or admission of any fault, misrepresentation or omission with respect to any statement or written document approved or made by any of the Released 27

28 Case 1:05-cv LAP Document Filed 05/27/08 Page 28 of 97 Parties, or against the Lead Plaintiffs or any Class Members as evidence of any infirmity in the claims of Lead Plaintiffs or the other Class Members; c. shall not be offered or received against any of the Released Parties, or against the Lead Plaintiffs or any other Class Members, as evidence of a presumption, concession or admission with respect to any liability, negligence, fault or wrongdoing of any kind, or in any way referred to for any other reason as against any of the Released Parties, in any other civil, criminal or administrative action or proceeding, other than such proceedings as may be necessary to effectuate the provisions of this Stipulation; provided, however, that if this Stipulation is approved by the Court, PwC, R&G or the Individual Defendants or any other Released Party may refer to it to effectuate the protection from liability granted them hereunder; d. shall not be construed against any of the Released Parties, Lead Plaintiffs or any other Class Members as an admission, concession, or presumption that the consideration to be given hereunder represents the amount which could be or would have been recovered after trial; e. shall not be construed against Lead Plaintiffs or any other Class Members as an admission, concession, or presumption that any of their claims are without merit or that damages recoverable under the Amended Complaint would not have exceeded the Settlement amount; and f. shall not be construed as or received in evidence as an admission, concession or presumption that class certification is appropriate in this Consolidated Action, except for purposes of this Settlement. 28

29 Case 1:05-cv LAP Document Filed 05/27/08 Page 29 of 97 MISCELLANEOUS PROVISIONS 34. All of the exhibits attached hereto are hereby incorporated by reference as though fully set forth herein. 35. R&G warrants that, as to the payments made by or on behalf of it, at the time of such payment that R&G made or caused to be made pursuant to paragraph 7 above, R&G was not insolvent, nor did nor will the payment required to be made by or on behalf of R&G render R&G insolvent, within the meaning of and/or for the purposes of the United States Bankruptcy Code, including 101 and 547 thereof. This representation is made by R&G and not by R&G s Counsel. 36. PwC warrants that, as to the payments made by or on behalf of it, at the time of such payment that PwC made or caused to be made pursuant to paragraph 7 above, PwC was not insolvent, nor did nor will the payment required to be made by or on behalf of PwC render PwC insolvent, within the meaning of and/or for the purposes of the United States Bankruptcy Code, including 101 and 547 thereof. This representation is made by PwC and not by PwC s Counsel. 37. If a case is commenced in respect of R&G (or any Individual Defendant or insurer contributing funds to the Settlement Fund on behalf of R&G) or PwC (or any person or entity contributing funds to the Settlement Fund on behalf of PwC) under Title 11 of the United States Code (Bankruptcy), or a trustee, receiver, conservator, or other fiduciary is appointed under any similar law, and in the event of the entry of a final order of a court of competent jurisdiction determining the transfer of money to the Settlement Fund or any portion thereof by or on behalf of R&G or PwC to be a preference, voidable transfer, fraudulent transfer or similar transaction and any portion thereof is required to be returned, and such amount is not promptly deposited to 29

30 Case 1:05-cv LAP Document Filed 05/27/08 Page 30 of 97 the Settlement Fund by others, then, at the election of Lead Counsel, the parties shall jointly move the Court to vacate and set aside the releases given and the Judgment entered in favor of R&G, PwC and the other Released Parties pursuant to this Stipulation, which releases and Judgment shall be null and void, and the parties shall be restored to their respective positions in the litigation immediately prior to February 29, 2008 (for the R&G Settlement) or March 27, 2008 (for the PwC Settlement), and any cash amounts in the Settlement Fund shall be returned as provided in paragraph 32 above. 38. The Settling Parties intend this Settlement to be a final and complete resolution of all disputes asserted or which could be asserted by the Lead Plaintiffs, any other Class Members and their attorneys against all Released Parties with respect to all Settled Claims. Accordingly, Lead Plaintiffs and Defendants agree not to assert in any forum that this Consolidated Action was brought by Lead Plaintiffs or defended by Defendants in bad faith or without a reasonable basis. The parties hereto shall assert no claims of any violation of Rule 11 of the Federal Rules of Civil Procedure relating to the prosecution, defense, or settlement of this Consolidated Action. The Settling Parties agree that the amount paid and the other terms of this Settlements were negotiated at arm s-length in good faith by the parties, including a mediation conducted by a professional mediator, and reflect a settlement that was reached voluntarily after consultation with experienced legal counsel. 39. While retaining its right to deny that the claims asserted in the Consolidated Action were meritorious, Defendants in any statement made to any media representative (whether or not for attribution) will not deny that the Consolidated Action was commenced and prosecuted in good faith and is being settled voluntarily after consultation with competent legal counsel. In all events, Lead Plaintiffs and Defendants shall refrain from any accusations of 30

31 Case 1:05-cv LAP Document Filed 05/27/08 Page 31 of 97 wrongful or actionable conduct by either party concerning the prosecution and resolution of the Consolidated Action, and shall not otherwise suggest that the Settlements constitute an admission of any claim or defense alleged. 40. This Stipulation may not be modified or amended, nor may any of its provisions be waived except by a writing signed by all signatories hereto or their successors-in-interest. 41. The headings herein are used for the purpose of convenience only and are not meant to have legal effect. 42. The administration and consummation of this Settlements as embodied in this Stipulation shall be under the authority of the Court, and the Court shall retain jurisdiction for the purpose of entering orders providing for awards of attorney fees and Litigation Expenses to Lead Counsel and enforcing the terms of this Stipulation. 43. The waiver by one party of any breach of this Stipulation by any other party shall not be deemed a waiver of any other prior or subsequent breach of this Stipulation. 44. This Stipulation and its exhibits constitute the entire agreement among the parties hereto concerning this Settlements, and no representations, warranties, or inducements have been made by any party hereto concerning this Stipulation and its exhibits other than those contained and memorialized in such documents. 45. This Stipulation may be executed in one or more original and/or faxed counterparts. All executed counterparts and each of them shall be deemed to be one and the same instrument provided that counsel for the signatories of this Stipulation shall exchange among themselves original signed counterparts. 46. This Stipulation shall be binding upon, and inure to the benefit of, the successors and assigns of the parties hereto. 31

32 Case 1:05-cv LAP Document Filed 05/27/08 Page 32 of The construction, interpretation, operation, effect and validity of this Stipulation, and all documents necessary to effectuate it, shall be governed by the internal laws of the State of New York without regard to conflicts of laws, except to the extent that federal law requires that federal law govern. 48. This Stipulation shall not be construed more strictly against one party than another merely by virtue of the fact that it, or any part of it, may have been prepared by counsel for one of the parties, it being recognized that it is the result of arm s-length negotiations between the parties and all parties have contributed substantially and materially to the preparation of this Stipulation. 49. All counsel and any other person executing this Stipulation and any of the exhibits hereto, or any related Settlement documents, warrant and represent that they have the full authority to do so and that they have the authority to take appropriate action required or permitted to be taken pursuant to the Stipulation to effectuate its terms. 50. Lead Counsel, R&G s Counsel and PwC s Counsel agree to cooperate fully with one another in seeking Court approval of the Preliminary Approval Order, the Stipulation and this Settlements, and to use best efforts to promptly agree upon and execute all such other documentation as may be reasonably required to obtain final approval by the Court of the Settlements. 51. If either party is required to give notice to the other party under this Stipulation, such notice shall be in writing and shall be deemed to have been duly given upon receipt of hand delivery or facsimile transmission with confirmation of receipt. Notice shall be provided as follows: If to Lead Counsel: Bernstein Litowitz Berger & Grossmann LLP 1285 Avenue of the Americas 32

33 Case 1:05-cv LAP Document Filed 05/27/08 Page 33 of 97 New York, New York Telephone: (212) Facsimile: (212) Attn: Steven B. Singer, Esq. Barrack, Rodos & Bacine 3300 Two Commerce Square 2001 Market Street Philadelphia, PA Telephone: (215) Facsimile: (215) Attn: M. Richard Komins, Esq. If to R&G: If to Galán: If to Prats: If to Sandoval: If to Fernandez, Colon-Carlo or Rivera-Arreaga Sullivan & Cromwell LLP 125 Broad Street New York, New York Telephone: (212) Facsimile: (212) Attn: Maite Aquino, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York Telephone: (212) Facsimile: (212) Attn: Mark J. Stein, Esq. Thacher Proffitt & Wood Two World Financial Center New York, New York Telephone: (212) Facsimile: (212) Attn: Patrick J. Smith, Esq. Milbank Tweed Hadley & McCloyLLP One Chase Manhattan Plaza New York, New York Telephone: (212) Facsimile: (212) Attn: George S. Canellos, Esq. Sullivan & Cromwell (see above) with copies to: DLA Piper US LLP 33

34 Case 1:05-cv LAP Document Filed 05/27/08 Page 34 of Avenue of the Americas New York, New York Telephone: (212) Facsimile: (212) Attn: John J. Clarke, Jr., Esq. If to PwC: Orrick, Herrington & Sutcliffe LLP th StreetN.W. Washington, D.C Telephone: (202) Facsimile: (202) Attn: Diana L. Weiss, Esq. DATED: New York, New York May 21, 2008 BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP BARRACK, RODOS & BACINE By: / By Max W. Berger Leonard Barrack Steven B. Singer M. Richard Komins Eric T. Kanefsky Jeffrey Barrack Jeremy Robinson Lisa Lamb 1285 Avenue of the Americas 3300 Two Commerce Square New York, New York Market Street Telephone: (212) Philadelphia, PA Facsimile: (212) Telephone: (215) Facsimile: (215) Lead Counsel for Lead Plaintiffs and the Class 34

35 Case 1:05-cv LAP Document Filed 05/27/08 Page 35 of 97 SULLIVAN & CROMWELL LLP By: Maite Aquino 125 Broad Street New York, New York Telephone: (212) Facsimile; (212) Counsel for Defendants R&G Financial Corporation, Benigno Fernandez, Ileana Colon-Carlo and Gilberto Rivera-Arreaga SIMPSON THACHER & BARTLETT LLP ORRICK, IIERRINGTON & SUTCLIFFE LLP By L Diana L. Weiss (DW-01 50) James A. Meyers (JM-523 1), pro hac vice Meredith Moss (MM-7937) 1152 l5th Street NW Washington, D.C Telephone: (202) Facsimile: (202) Counsel for Defendant PricewaterhouseCoopers LLP THACHER PROFFI11 & WOOD Mark J. Stein Patrick J. Smith 425 Lexington Avenue New York, New York (212) Two World Financial Center New York, New York (212) Attorneys for Victor J. Galin Attorneys for Ramón Prats MILBANK TWEED HADLEY & McCLOY LLP George S. Canellos One Chase Manhattan Plaza New York, New York (212) Attorneys for Joseph it Sandoval 35

36 Case 1:05-cv LAP Document Filed 05/27/08 Page 36 of 97 SULLIVAN & CROMWELL LLP Maite Aquino 125 Broad Street New York, New York Telephone: (212) Facsimile: (212) Counsel for Defendants R&G Financial Corporation, Benigno Fernandez, Ileana Colon-Carlo and Gilberto Rivera-Arreaga SIMPSON TIL&CHER & BARTLETT LLP ORRICK, HERRINGTON & SUTCLIFFE LLP By: Diana L. Weiss (DW-0 150) James A. Meyers (JM-523 1), pro hac vice Meredith Moss (MM-7937) 1152 l5th Street NW Washington, D.C Telephone: (202) Facsimile: (202) Counsel for Defendant PricewaterhouseCoopers LLP THACHER PROFFITT & WOOD Mark J. Stein Patrick J. Smith 425 Lexington Avenue Two World Financial Center New York, New York New York, New York (212) (212) Attorneys for Victor J. Galán Attorneys for Ramón Prats MILBANK TWEED HADLEY & McCLOY LLP Un George S. Canellos One Chase Manhattan Plaza New York, New York (212) Attorneys for Joseph R. Sandoval 35

37 Case 1:05-cv LAP Document Filed 05/27/08 Page 37 of 97 SULLIVAN & CROMWELL LLP By: Maite Aquino 125 Broad Street New York, New York Telephone: (212) Facsimile: (212) Counsel for Defendants R&G Financial Corporation, Benigno Fernandez, Ileana Colon-Carlo and Gilberto Rivera-Arreaga SIMPSON THACHER & BARTLETT LLP ORRICK, HERRINGTON & SUTCLIFFE LLP By: Diana L. Weiss (DW-01 50) James A. Meyers (JM-523 1), pro hac vice Meredith Moss (MM-7937) 1152 l5th Street NW Washington, D.C Telephone: (202) Facsimile: (202) Counsel for Defendant PricewaterhouseCoopers LLP THACHER PROFFITT & WOOD Mark J. Stein LOW Patrick J. Smith 425 Lexington Avenue Two World Financial Center New York, New York New York, New York (212) (212) Attorneys for Victor J. Galin Attorneys for Ramón Prats MILBANK TWEED HADLEY & McCLOY LLP By: A~t-tv_~ "K. Georg&S. Canellos One Chase Manhattan Plaza New York, New York (212) Attorneys for Joseph R. Sandoval 35

38 Case 1:05-cv LAP Document Filed 05/27/08 Page 38 of 97 SULLIVAN & CROMWELL LLP By: Maite Aquino 125 Broad Street New York, New York Telephone: (212) Facsimile: (212) Counsel for Defendants R&G Financial Corporation, Benigno Fernandez, Ileana Colon-Carlo and Gilberto Rivera-Arreaga ORRICK, HERRINGTON & SUTCLIFFE LLP By: Diana L. Weiss (DW-0150) James A. Meyers (JM-523 1), pro hac vice Meredith Moss (MM-7937) 1152 l5th Street NW Washington, D.C Telephone: (202) Facsimile: (202) Counsel for Defendant PricewaterhouseCoopers LLP SIMPSON TIIACHER & BARTLETT LLP 2 "' Mark J.5t Andrew S. Amer THACHER PROFFITT & WOOD LOW Patrick J. Smith Two World Financial Center 425 Lexington Avenue New York, New York New York, New York (212) (212) Attorneys for Ramón Prats Attorneys for Victor J. Galán MILBANK TWEED HADLEY & McCLOY LLP In George S. Canellos One Chase Manhattan Plaza New York, New York (212) Attorneys for Joseph R. Sandoval 35

39 Case 1:05-cv LAP Document Filed 05/27/08 Page 39 of 97 EXHIBIT A

40 Case 1:05-cv LAP Document Filed 05/27/08 Page 40 of 97 EXHIBIT A UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK IN RE R&G FINANCIAL CORPORATION SECURITIES LITIGATION This Document relates to: All Actions ----x : : : : : : : ----x ECF CASE MASTER FILE NO. 05 Civ (JES) ORDER PRELIMINARILY APPROVING SETTLEMENT AND SETTING SETTLEMENT HEARING WHEREAS: A. Lead Plaintiffs and defendants R&G Financial Corporation ( R&G ) Victor J. Galán, Joseph R. Sandoval, Ramón Prats, Benigno R. Fernandez, Gilberto Rivera-Arreaga and Ileana M. Colon-Carlo (the Individual Defendants ); and PricewaterhouseCoopers LLP ( PwC ) have entered into a Stipulation and Agreement of Settlement dated as of May, 2008 (the Stipulation ) in full and final settlement of each and every Settled Claim against R&G, the Individual Defendants, PwC and the other Released Parties, the terms of which are set forth in the Stipulation (the Settlements ). B. Lead Plaintiffs, R&G, the Individual Defendants and PwC have moved, pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, for an Order preliminarily approving the Settlement in accordance with the terms of the Stipulation and providing for notice to the Class; and C. The Court having read and considered the Stipulation and exhibits thereto, including the proposed (i) Notice to the Class; (ii) Claim Form; and (iii) Judgment, and finding that substantial and sufficient grounds exist for entering this Order NOW, THEREFORE, IT IS HEREBY ORDERED:

41 Case 1:05-cv LAP Document Filed 05/27/08 Page 41 of 97 Stipulation. 1. The Court, for purposes of this Order, adopts all defined terms as set forth in the 2. The Court hereby certifies the Action to proceed as a class action for purposes of the Settlement only, pursuant to Rule 23(a) and Rule 23(b)(3) of the Federal Rules of Civil Procedure, on behalf of all persons and entities who purchased or otherwise acquired publicly traded securities of R&G between January 21, 2003 and November 2, 2007, inclusive, and who, based on conduct asserted in the Consolidated Action, were injured thereby. Excluded from the Class are (a) the Defendants named in the Amended Complaint; (b) members of the immediate families of the Individual Defendants; (c) the subsidiaries and affiliates of the Defendants; (d) any person or entity who is a partner, officer, director, or controlling person of R&G (including any of its subsidiaries or affiliates) or of any Defendant; (e) any entity in which any Defendant has a controlling interest; (f) the Defendants directors and officers liability insurance carriers; and (g) the legal representatives, heirs, successors and assigns of any such excluded party. Also excluded from the Class are any putative Class Members who exclude themselves by filing a request for exclusion in accordance with the requirements set forth in the Notice. 3. The Court finds, for the purposes of the Settlements only, that the prerequisites for a class action under Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure have been satisfied in that: (a) the number of Class Members is so numerous that joinder of all members thereof is impracticable; (b) there are questions of law and fact common to the Class; (c) the claims of the named representatives are typical of the claims of the Class they seek to represent; (d) Lead Plaintiffs and Lead Counsel have and will fairly and adequately represent the interests of the Class; (e) the questions of law and fact common to the members of the Class predominate 2

42 Case 1:05-cv LAP Document Filed 05/27/08 Page 42 of 97 over any questions affecting only individual members of the Class; and (f) a class action is superior to other available methods for the fair and efficient adjudication of the controversy. 4. The Court hereby finds and concludes that pursuant to Rule 23 of the Federal Rules of Civil Procedure, and for the purposes of the Settlements only, Lead Plaintiffs City of Philadelphia Board of Pensions and Retirement and General Retirement System of the City of Detroit are adequate class representatives and certifies them as class representatives for the Class. 5. The Court preliminarily approves the Settlements on the terms set forth in the Stipulation, subject to further consideration at the Settlement Hearing to be held before this Court on, 2008, at :.m., at the United States District Court for the Southern District of New York, 500 Pearl Street, New York, New York 10007, (the Settlement Hearing ) to determine: (a) whether this Consolidated Action should be finally certified, for settlement purposes, as a class action under Rules 23(a) and (b) of the Federal Rules of Civil Procedure; (b) whether the proposed Settlements on the terms and conditions provided for in the Stipulation are fair, reasonable and adequate and should be approved by the Court; (c) whether the Settled Claims against the Released Parties should be dismissed with prejudice as set forth in the Stipulation; (d) whether the proposed Plan of Allocation for the proceeds of the Settlements is fair and reasonable, and should be approved by the Court; and 3

43 Case 1:05-cv LAP Document Filed 05/27/08 Page 43 of 97 (e) whether the application by Lead Counsel for an award of attorney fees and reimbursement of Litigation Expenses incurred should be approved. 6. The Court reserves the right to approve the R&G Settlement, the PwC Settlement and/or the Plan of Allocation with or without modification and with or without further notice of any kind. The Court further reserves the right to enter its Judgment approving the Stipulation and dismissing the Settled Claims against the Released Parties with prejudice regardless of whether it has approved the Plan of Allocation or awarded attorney fees and Litigation Expenses. 7. The Court approves the form, substance and requirements of the Notice of Pendency of Class Action and Proposed Settlements, Settlement Fairness Hearing and Motion for Attorney Fees and Reimbursement of Litigation Expenses (the Notice ); the Summary Notice of Proposed Settlements, Settlement Fairness Hearing and Motion for Attorney Fees and Reimbursement of Litigation Expenses ( Publication Notice ) (together the Settlement Notices ); and the Proof of Claim and Release ( Claim Form ), and finds that the procedures established for publication, mailing and distribution of such Settlement Notices and the Claim Form substantially in the manner and form set forth in [8 and 9] of this Order constitute the best notice practicable under the circumstances and are in full compliance with the notice requirements of due process, Rule 23 of the Federal Rules of Civil Procedure and Section 21D(a)(7) of the Securities Exchange Act of 1934, 15 U.S.C. 78u-4(a)(7), as amended by the Private Securities Litigation Reform Act of Lead Counsel shall cause the Notice and the Claim Form, substantially in the forms annexed hereto as Exhibits 1 and 2, respectively, to be mailed, by first class mail, postage prepaid, on or before fourteen (14) business days after this Order is entered, to all Class 4

44 Case 1:05-cv LAP Document Filed 05/27/08 Page 44 of 97 Members at the address of each such person, as set forth in the records of R&G or its transfer agent or who otherwise may be identified through reasonable effort. Within five (5) business days from the date of this Preliminary Approval Order, R&G or its transfer agent shall provide the Claims Administrator with its stock transfer records (consisting of shareholder names and addresses), in electronic form, for providing notice to the Class. R&G shall bear all costs or expenses associated with providing the Claims Administrator with such stock transfer records. Lead Counsel shall, at or before the Settlement Hearing, file with the Court proof of mailing of the Notice and Claim Form. 9. Lead Counsel shall cause the Publication Notice, substantially in the form annexed hereto as Exhibit 3, to be published once each in the national edition of The Wall Street Journal and over the PR Newswire within 10 business days of the mailing of the Notice. Lead Counsel shall, at or before the Settlement Hearing, file with the Court proof of publication of the Publication Notice. 10. To effectuate the provision of notice provided for in paragraph 7 hereof, Lead Counsel or their agents shall lease and maintain a post office box of adequate size for the return of Claim Forms. All Notices to the Class shall designate said post office box as the return address for the purposes designated in the Notices. Lead Counsel or their agents shall be responsible for the receipt of all responses from the Class and, until further order of the Court, shall preserve all entries of appearance, Claim Forms, and all other written communications from Class Members, nominees or any other person or entity in response to the Notices. 11. Lead Counsel shall use reasonable efforts to give notice to nominee owners such as brokerage firms and other persons or entities who purchased or otherwise acquired R&G 5

45 Case 1:05-cv LAP Document Filed 05/27/08 Page 45 of 97 securities during the Class Period as record owners but not as beneficial owners. Such nominees who hold or held R&G common stock for beneficial owners who are Class Members are directed to send a copy of the Notice and the Claim Form to the beneficial owner of the shares postmarked no more than fourteen (14) days from the date of the Notice, or to provide the names and addresses of such persons no later than fourteen (14) days from the date of the Notice to the Claims Administrator at: R&G Financial Corporation Securities Litigation, c/o Heffler, Radetich & Saitta LLP, P.O. Box, Philadelphia, PA 19012, who shall promptly send a copy of the Notice and Claim Form to such beneficial owners. Upon full compliance with this Order, such nominees may seek reimbursement of their reasonable expenses actually incurred in complying with this Order by providing the Claims Administrator with proper documentation supporting the expenses for which reimbursement is sought. Such properly documented expenses incurred by nominees in compliance with the terms of this Order shall be paid from the Settlement Fund. 12. The Court approves the selection of Heffler, Radetich & Saitta LLP by Lead Counsel as the Claims Administrator. Lead Counsel may pay from the Settlement Fund, without further approval from R&G or PwC or further order of the Court, all reasonable Notice and Administration Costs actually incurred. Such costs and expenses shall include, without limitation, the actual costs of publication, printing and mailing the Notice, reimbursements to nominee owners for forwarding the Notice to their beneficial owners, the administrative expenses incurred and fees charged by the Claims Administrator in connection with providing Notice and processing the submitted claims, and the fees, if any, of the Escrow Agent. 6

46 Case 1:05-cv LAP Document Filed 05/27/08 Page 46 of Lead Counsel or their agents are authorized and directed to prepare any tax returns required to be filed for the Escrow Account and to cause any Taxes due and owing to be paid from the Escrow Account without further Order of the Court. 14. Lead Counsel shall submit their papers in support of final approval of the Settlement, the Plan of Allocation, and the application for attorney fees and reimbursement of Litigation Expenses by no later than twenty-one (21) days before the Settlement Hearing and reply papers, if any, to any objections filed pursuant to paragraph 17 hereof shall be submitted at least five (5) days prior to the Settlement Hearing. 15. Class Members shall be bound by all determinations and judgments in this Action, whether favorable or unfavorable, unless such persons request exclusion from the Class in a timely and proper manner, as hereinafter provided. A Class Member wishing to make such request shall mail the request in written form by first class mail to the address designated in the Notice, postmarked no later than fourteen (14) days prior to the Settlement Hearing. Such request for exclusion shall clearly indicate the name, address and telephone number of the person seeking exclusion, that the sender requests to be excluded from the Class in the R&G Financial Corporation Securities Litigation, and must be signed by such person. Such persons requesting exclusion are also directed to state: the date(s), price(s), and number(s) of shares of all purchases, acquisitions, and sales of R&G publicly traded securities during the Class Period. The request for exclusion shall not be effective unless it provides the required information and is made within the time stated above, or the exclusion is otherwise accepted by the Court. 16. Class Members requesting exclusion from the Class shall not be entitled to receive any payment out of the Net Settlement Fund as described in the Stipulation and Notice 7

47 Case 1:05-cv LAP Document Filed 05/27/08 Page 47 of Any member of the Class who has not requested exclusion from the Class may appear at the Settlement Hearing to show cause why the proposed Settlements should not be approved as fair, reasonable and adequate; why a judgment should not be entered thereon; why the Plan of Allocation should not be approved as fair and reasonable; or why Lead Counsel s application for an award of attorney fees and reimbursement of Litigation Expenses should not be granted, provided, however, that no member of the Class shall be heard or entitled to contest the approval of the terms and conditions of the proposed Settlements, the Judgment to be entered approving the same, the Plan of Allocation or the attorney fees and reimbursement of Litigation Expenses requested, unless no later than fourteen (14) days before the Settlement Hearing, such Class Member has served by hand or by overnight delivery written objections setting forth the basis therefore, and copies of any supporting papers and briefs (which must contain proof of all purchases of R&G publicly traded securities during the Class Period), upon each of the following: Steven B. Singer, Esq., Bernstein Litowitz Berger & Grossmann LLP, 1285 Avenue of the Americas, New York, New York 10019, and M. Richard Komins, Esq., Barrack, Rodos & Bacine, 3300 Two Commerce Square, 2001 Market Street, Philadelphia, PA 19103, on behalf of Lead Plaintiffs; Maite Aquino, Esq., Sullivan & Cromwell LLP, 125 Broad Street, New York, New York 10004, on behalf of R&G; Mark J. Stein, Esq. Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York New York, 10017; and Diana L. Weiss, Esq., Orrick, Herrington & Sutcliffe LLP, th Street N.W., Washington, D.C , on behalf of PwC, and has filed said objections, papers and briefs, showing due proof of service upon Lead Counsel, R&G s Counsel and PwC s Counsel, with the Clerk of the United States District Court for the Southern District of New York, 500 Pearl Street, New York, New York Persons who intend to object to the Settlements and/or Lead Counsel s application for an award of attorney fees and 8

48 Case 1:05-cv LAP Document Filed 05/27/08 Page 48 of 97 Litigation Expenses, and desire to present evidence at the Settlement Hearing must include in their written objections the identity of any witnesses they may call to testify and exhibits they intend to introduce into evidence at the Settlement Hearing. 18. Any Class Member who does not object in the manner prescribed above shall be deemed to have waived such objection and shall forever be foreclosed from making any objection to the fairness, adequacy or reasonableness of the Settlements, the Judgment to be entered approving the Settlements, the fairness and reasonableness of the Plan of Allocation, or the attorney fees and reimbursement of Litigation Expenses requested. 19. In order to be entitled to participate in the Settlements, in the event the Settlements are effected in accordance with all of the terms and conditions set forth in the Stipulation, each Class Member shall take the following actions and be subject to the following conditions: (a) A properly executed Claim Form, substantially in the form attached hereto as Exhibit 2, must be submitted to the Claims Administrator, at the Post Office Box indicated in the Notice, postmarked no later than 120 days from the date this Preliminary Approval Order is signed. Such deadline may be further extended by Court Order. Each Claim Form shall be deemed to have been submitted when postmarked (if properly addressed and mailed by first class mail, postage prepaid) provided such Claim Form is actually received prior to the motion for an Order of the Court approving distribution of the Net Settlement Fund. Any Claim Form submitted in any other manner shall be deemed to have been submitted when it was actually received at the address designated in the Notice. 9

49 Case 1:05-cv LAP Document Filed 05/27/08 Page 49 of 97 (b) The Claim Form submitted by each Class Member must satisfy the following conditions: (i) it must be properly completed, signed and submitted in a timely manner in accordance with the provisions of the preceding subparagraph; (ii) it must be accompanied by adequate supporting documentation for the transactions reported therein, in the form of broker confirmation slips, broker account statements, an authorized statement from the broker containing the transactional information found in a broker confirmation slip, or such other documentation as is deemed adequate by Lead Counsel or the Claims Administrator; (iii) if the person executing the Claim Form is acting in a representative capacity, a certification of his or her current authority to act on behalf of the Class Member must be included in the Claim Form; and (iv) the Claim Form must be complete and contain no material deletions or modifications of any of the printed matter contained therein, and must be signed under penalty of perjury. (c) As part of the Claim Form, each Class Member shall submit to the jurisdiction of the Court with respect to the Claim submitted. 20. The Court expressly reserves the right to adjourn the Settlement Hearing, or any adjournment thereof, without any further notice to Class Members other than an announcement at the Settlement Hearing, or any adjournment thereof, and to approve the Stipulation and/or the Plan of Allocation with modification approved by the parties to the Stipulation without further notice to Class Members. 21. Neither R&G, R&G s Counsel, Individual Defendants, Individual Defendants respective counsel, PwC nor PwC s Counsel shall have any responsibility whatsoever for the Plan of Allocation nor for any application for attorney fees or reimbursement of Litigation 10

50 Case 1:05-cv LAP Document Filed 05/27/08 Page 50 of 97 Expenses submitted by Lead Counsel, and such matters will be considered separately from the fairness, reasonableness and adequacy of the Settlements. 22. Neither the Stipulation, nor any of its terms or provisions, nor any of the negotiations or proceedings connected with it, shall be construed as an admission or concession by the Released Parties of the truth of any of the allegations in the Securities Class Actions, or of any liability, fault, or wrongdoing of any kind on the part of any of the Released Parties, or by the Lead Plaintiffs of any lack of merit to the claims asserted in the Securities Class Actions 23. The passage of title and ownership of the Settlement Fund to the Escrow Agent in accordance with the terms and obligations of the Stipulation is approved. No person that is not a Settlement Class Member or Lead Counsel shall have any right to any portion of, or any rights in the distribution of, the Settlement Fund unless otherwise ordered by the Court or otherwise provided in the Stipulation. 24. All funds held in the Escrow Account shall be deemed and considered to be in custodia legis and shall remain subject to the jurisdiction of the Court until such time as such funds shall be distributed pursuant to the Stipulation and/or further order of the Court. 25. If the Settlements are not approved or consummated for any reason whatsoever, the Settlements and all proceedings had in connection therewith shall be without prejudice to the status quo ante rights of the parties to the Stipulation, except as otherwise set forth therein. 26. The administration of the proposed Settlements and the determination of all disputed questions of law and fact with respect to the validity of any Claim or right of any person 11

51 Case 1:05-cv LAP Document Filed 05/27/08 Page 51 of 97 to participate in the distribution of the Net Settlement Fund shall be under the authority of this Court. 27. Pending final determination of whether the Settlements should be approved, Lead Plaintiffs and all Class Members, and each of them, and anyone who acts or purports to act on their behalf, shall not institute, commence or prosecute any action which asserts Settled Claims against any Released Parties. 28. The Court retains exclusive jurisdiction over the Action to consider all further matters arising out of or connected with the Settlements. Dated: New York, New York, 2008 HONORABLE JOHN E. SPRIZZO UNITED STATES DISTRICT JUDGE 12

52 Case 1:05-cv LAP Document Filed 05/27/08 Page 52 of 97 EXHIBIT A-1

53 Case 1:05-cv LAP Document Filed 05/27/08 Page 53 of 97 EXHIBIT A-1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK IN RE R&G FINANCIAL CORPORATION SECURITIES LITIGATION This Document relates to: All Actions ----x : ECF CASE : MASTER FILE NO. : 05 Civ (JES) ----x NOTICE OF PENDENCY OF CLASS ACTION AND PROPOSED SETTLEMENTS, SETTLEMENT FAIRNESS HEARING AND MOTION FOR ATTORNEY FEES AND REIMBURSEMENT OF LITIGATION EXPENSES NOTICE OF PENDENCY OF CLASS ACTION: If you purchased or otherwise acquired publicly traded securities of R&G Financial Corporation ( R&G or the Company ) between January 21, 2003 and November 2, 2007, inclusive, and were injured thereby, please be advised that your rights may be affected by a class action lawsuit pending in this Court (the Action ). A Federal Court authorized this Notice. This is not a solicitation from a lawyer. NOTICE OF SETTLEMENTS: Please also be advised that the Court-appointed Lead Plaintiffs, City of Philadelphia Board of Pensions and Retirement and General Retirement System of the City of Detroit ( Lead Plaintiffs ), have reached two proposed settlements of the Action that will resolve all claims of Lead Plaintiffs and the Class (as defined in 1 below) against all defendants. One settlement will resolve the Class s claims against R&G and certain of its present and/or former officers and directors (the R&G Settlement ), and the other settlement will resolve all of the Class s claims against PricewaterhouseCoopers LLP ( PwC ), R&G s independent outside auditor (the PwC Settlement and together with the R&G Settlement, the Settlements ), each as described below. This Notice explains important rights you may have, including your possible receipt of cash from the Settlements. Your legal rights will be affected whether or not you act. Also enclosed is a proof of claim and release form (the Claim Form ) that you must complete and submit postmarked no later than, 2008 to participate in the Settlements. Please read this Notice carefully! 1. Statement of Plaintiff Recovery: This Notice relates to two proposed settlements of a class action lawsuit filed against R&G; Victor J. Galán, Joseph R. Sandoval, Ramón Prats, Benigno R. Fernandez, Gilberto Rivera-Arreaga and Ileana M. Colon-Carlo (collectively, the Individual Defendants ); and PwC. Subject to Court approval, Lead Plaintiffs, on behalf of all persons and entities who purchased or otherwise acquired publicly traded securities of R&G between January 21, 2003 and November 2, 2007, inclusive (the Class Period ), and who, based on conduct asserted in the Action, were injured thereby (the Class ), have agreed to settle all claims based on the purchase or acquisition of publicly traded securities of R&G that were or could have been asserted against (i) R&G and the Individual Defendants in the Action in exchange for a settlement payment of $39,000,000 in cash, and (ii) PwC in the Action in exchange for a settlement payment of $12,000,000 in cash. The combined amount of $51,000,000 is referred to herein as the Settlement Fund. The Net Settlement Fund (the Settlement Fund plus all interest earned thereon less taxes, notice and administration costs and attorney fees and litigation expenses awarded to counsel representing Lead Plaintiffs) will be distributed in accordance with a plan of allocation (the Plan of Allocation ) that is described in this Notice. Lead Plaintiffs damages expert estimates that approximately 58.7 million shares of R&G common stock may have been affected by the conduct at issue in the Action. Thus, assuming that the owners of all affected shares elect to participate, the average per share recovery from the Settlement Fund would be approximately $0.87 per affected share, before the deduction of attorney fees, costs and expenses, as approved by the Court. The Settlements resolve the Class s claims against all defendants. 2. Reasons for the Settlements: In light of the amount of the Settlements and the immediacy of recovery to the Class, Lead Plaintiffs believe that each of the proposed Settlements is fair, reasonable and adequate, and in the best interests of the Class. Lead Plaintiffs believe that the R&G Settlement and the PwC Settlement each provide a substantial benefit now, namely $39,000,000 in cash and $12,000,000 in cash, respectively, less the various deductions described in this Notice, as compared to the risk that all or some of the

54 Case 1:05-cv LAP Document Filed 05/27/08 Page 54 of 97 2 claims in the Action could have been dismissed in response to R&G s, the Individual Defendants and PwC s anticipated motions for summary judgment, or that a similar, smaller, or no recovery would be achieved after motions for summary judgment, a trial and/or appeals, possibly years in the future, in which R&G, the Individual Defendants and PwC would have the opportunity to assert substantial defenses to the claims asserted against them. The benefit also must be compared to the risk that, even if Lead Plaintiffs and the Class successfully obtained a substantial judgment (after years of additional litigation and appeals), at least certain of the defendants may not be able to pay an amount significantly greater than the value of the Settlement Fund. R&G, the Individual Defendants and PwC deny the claims asserted against them in the Action or that they have engaged in any wrongdoing, violation of law or breach of duty, and the Settlements may not be construed as an admission of wrongdoing by R&G, the Individual Defendants or PwC. R&G, the Individual Defendants and PwC have agreed to the respective Settlements in order to eliminate the burden, expense and risk of continued litigation. 3. Statement of Average Amount of Damages Per Share: The parties do not agree on the average amount of damages per share that would be recoverable if Lead Plaintiffs were to prevail on the claims asserted against R&G, the Individual Defendants and PwC. R&G, the Individual Defendants and PwC deny that any shares were damaged as Lead Plaintiffs have alleged. In addition, R&G, the Individual Defendants and PwC were prepared to attempt to establish that the price of R&G s common stock was not inflated as the result of any allegedly false or misleading public statements by R&G, the Individual Defendants or PwC, and that the decline in the price of R&G s common stock alleged in the Action was not the result of the disclosure of information that allegedly had been wrongfully withheld by R&G, the Individual Defendants or PwC. 4. Statement of Attorney fees and Expenses Sought: Lead Counsel (as defined in paragraph 7 below) intends to apply for an award of attorney fees in an amount not to exceed 22.5% of the Settlement Fund net of Court-approved litigation expenses. In addition, Lead Counsel also intends to apply for reimbursement of litigation expenses paid or incurred in connection with the prosecution and resolution of the claims against R&G, the Individual Defendants and PwC, in an amount not to exceed $425,000, which may include the reasonable costs and expenses (including lost wages) of Lead Plaintiffs directly related to the representation of the Class. If the Court (as defined in paragraph 6 below) approves Lead Counsel s fee and expense application, the average cost per affected share will be approximately $ Identification of Attorneys Representatives: Any questions regarding the Settlements should be directed to Lead Counsel: Steven B. Singer, Bernstein Litowitz Berger & Grossmann LLP, 1285 Avenue of the Americas, New York, NY 10019, (800) , or Leonard Barrack, Barrack, Rodos & Bacine, 3300 Two Commerce Square, 2001 Market Street, Philadelphia, PA 19103, (215) , YOUR LEGAL RIGHTS AND OPTIONS IN THE SETTLEMENTS: SUBMIT A CLAIM FORM POSTMARKED NO LATER THAN, 2008 The only way to get a payment. EXCLUDE YOURSELF FROM THE CLASS Get no payment. This is the only option that allows you to POSTMARKED NO LATER THAN ever be part of any other lawsuit against R&G, the Individual, 2008 Defendants or PwC with respect to the claims in this case. OBJECT NO LATER THAN, 2008 GO TO THE HEARING ON, 2008 AT.M. AND FILE A NOTICE OF INTENTION TO APPEAR NO LATER THAN, 2008 DO NOTHING Write to the Court and explain why you do not like the Settlements. Ask to speak in Court about the fairness of the Settlements. Get no payment. Give up your rights. WHAT THIS NOTICE CONTAINS Why Did I Get This Notice? What Is This Case About? What Has Happened So Far? How Do I Know If I Am Part Of The Class And The Settlements? What Recovery Do The Settlements Provide? Why Are There Settlements? What Led Up To The Settlements? Why Have R&G and PwC Agreed To The Settlements? What Are The Lead Plaintiffs Reasons For The Settlements? Page 3 Page 4 Page 5 Page 5 Page 5 Page 5 Page 5 Page 6

55 Case 1:05-cv LAP Document Filed 05/27/08 Page 55 of 97 3 What Might Happen If There Were No Settlements? How Much Will My Payment Be? What Rights Am I Giving Up By Agreeing To The Settlements? What Payment Are The Attorneys For The Class Seeking? How Will The Lawyers Be Paid? How Do I Participate In The Settlements? What Do I Need To Do? What If I Do Not Want To Be A Part Of The Class And The Settlements? How Do I Exclude Myself? When And Where Will The Court Decide Whether To Approve The Settlements? Do I Have To Come To The Hearing? May I Speak At The Hearing If I Don t Like The Settlements? What If I Bought Shares On Someone Else s Behalf? Can I See The Court File? Whom Should I Contact If I Have Questions? Page 6 Page 6 Page 10 Page 11 Page 11 Page 11 Page 12 Page 13 Page 13 WHY DID I GET THIS NOTICE? 6. This Notice is being sent to you pursuant to Orders of the United States District Court for the Southern District of New York (the Court ) because you may have purchased or otherwise acquired R&G publicly traded securities during the Class Period. The Court has directed us to send you this Notice because, as a potential Class Member, you have a right to know about your options prior to the trial or settlement of this case. Additionally, you have the right to understand how a class action lawsuit may generally affect your legal rights. If the Court approves the Settlements, after any objections and appeals are resolved, the claims administrator selected by Lead Plaintiffs and approved by the Court will make payments pursuant to the Settlements. 7. In a class action lawsuit, the Court selects one or more people, known as class representatives, to sue on behalf of all people with similar claims, commonly known as the class or the class members. By Order dated July 26, 2005, the Court appointed City of Philadelphia Board of Pensions and Retirement and General Retirement System of the City of Detroit to serve as Lead Plaintiffs under a federal law relating to lawsuits such as this one, and approved the selection by Lead Plaintiffs of the law firms of Bernstein Litowitz Berger & Grossmann LLP and Barrack, Rodos & Bacine ( Lead Counsel ) to serve as Lead Counsel in the Action. A class action is a type of lawsuit in which the claims of a number of individuals are resolved together, thus providing the class members with both consistency and efficiency. Once the class is certified, the Court must resolve all issues on behalf of the class members, except for those, if any, who choose to exclude themselves from the class. (For more information on excluding yourself from the Class, please read What If I Do Not Want To Be A Part Of The Class And The Settlements? How Do I Exclude Myself? located further below.) 8. The Court in charge of this case is the United States District Court for the Southern District of New York, and the case is known as In re R&G Financial Corporation Securities Litigation. The Judge presiding over this case is the Honorable John E. Sprizzo, United States District Judge. The people who are suing are called plaintiffs, and those who are being sued are called defendants. In this case, the plaintiffs are referred to as Lead Plaintiffs, on behalf of themselves and the Class, and Defendants are R&G, the Individual Defendants and PwC. 9. This Notice explains the lawsuit, the Settlements, your legal rights, what benefits are available, who is eligible for them, and how to get them. The purpose of this Notice is to inform you of this case, that it is a class action, how you might be affected and how to exclude yourself from the Class if that is your preference. It also is being sent to inform you of the terms of the proposed Settlements, and of a hearing to be held by the Court to consider the fairness, reasonableness, and adequacy of the proposed Settlements, the fairness and reasonableness of the Plan of Allocation, and the application by Lead Counsel for attorney fees and reimbursement of litigation expenses, and interest thereon (the Settlement Hearing ). 10. The Settlement Hearing will be held on at.m., before the Honorable John E. Sprizzo, at the United States District Court for the Southern District of New York, 500 Pearl Street, New York, New York to determine: (i) (ii) (iii) (iv) (v) whether this Action should be finally certified, for settlement purposes, as a class action under Rules 23(a) and (b) of the Federal Rules of Civil Procedure; whether each of the proposed R&G Settlement and the proposed PwC Settlement on the terms and conditions provided for in the Stipulation is fair, reasonable and adequate and should be approved by the Court; whether the claims against R&G, the Individual Defendants and PwC should be dismissed with prejudice as set forth in the Stipulation; whether the proposed Plan of Allocation for the proceeds of the Settlements is fair and reasonable, and should be approved by the Court; and whether the application by Lead Counsel for an award of attorney fees and reimbursement of Litigation Expenses incurred should be approved. 11. This Notice does not express any opinion by the Court concerning the merits of any claim in the Action, and the Court still has to decide whether to approve the Settlements. If the Court approves the Settlements, payments will be made after appeals, if any, are resolved, and after the completion of all claims processing. Please be patient.

56 Case 1:05-cv LAP Document Filed 05/27/08 Page 56 of 97 4 WHAT IS THIS CASE ABOUT? WHAT HAS HAPPENED SO FAR? 12. During the Class Period, R&G was a Puerto Rico-chartered, financial holding company that, through its wholly-owned subsidiaries, was engaged in banking, mortgage banking, broker-dealer and insurance activities, with operations in Puerto Rico and the continental United States. The Company was engaged in providing a full range of banking services in Puerto Rico and in the Orlando and Tampa/St. Petersburg, Florida markets. 13. On April 25, 2005, R&G issued a press release announcing that it would revise the methodology used in valuing residual interests retained in connection with its purported sales of mortgage loans to other financial institutions, and would restate its financial statements for the period January 1, 2003 to December 31, On July 27, 2005, R&G announced that it would restate its interim and audited consolidated financial statements for the year ended December 31, PwC served as R&G s independent outside auditor at all relevant times, and provided auditing and accounting services to the Company, which included the issuance of auditor s reports on R&G s financial statements for the fiscal years 2002, 2003 and PwC s auditor s reports were included in the Company s Annual Reports on Forms 10-K for the fiscal years 2002, 2003 and Beginning on April 27, 2005, various actions were commenced in the United States District Court for the Southern District of New York and the United States District Court for the District of Puerto Rico (the Securities Class Actions ). The complaints in those actions alleged, inter alia, that certain of the defendants violated Section 10(b) of the Securities Exchange Act of 1934 ( Exchange Act ) and Rule 10b-5 thereunder, and Section 20(a) of the Exchange Act, and claimed that R&G had fraudulently misstated its financial statements by using an incorrect valuation methodology for certain securitization transactions. 17. On July 26, 2005, the Court entered an Order consolidating the Securities Class Actions into the Consolidated Action, appointing Lead Plaintiffs as lead plaintiffs in the Consolidated Action, and ordering that Lead Plaintiffs were to file an amended complaint. 18. On February 27, 2007, Lead Plaintiffs filed a Consolidated Amended Class Action Complaint (the Amended Complaint ) which again asserted claims against R&G, individual defendants Galán, Sandoval and Prats under Section 10(b) and Rule 10b-5 of the Exchange Act, and against the Individual Defendants under Section 20(a) of the Exchange Act, and for the first time asserted claims against PwC under Section 10(b) and Rule 10b-5 and against defendants Fernandez, Rivera-Arreaga and Colon-Carlo (who are members of the Audit Committee of R&G s board of directors) under Section 20(a). The Amended Complaint alleged, among other things, that R&G s valuation methodology, accounting treatment and/or financial reporting of (i) mortgage loan transfers that were initially recorded as sales but subsequently recharacterized as secured borrowings (the Recharacterized Mortgage Loan Transfers ); and (ii) the retained interests initially recognized in connection with the Recharacterized Mortgage Loan Transfers violated GAAP, and that R&G s misclassification of the Recharacterized Mortgage Loan Transfers constituted a fraudulent misrepresentation designed to artificially inflate R&G s earnings and stock price. The Amended Complaint also alleged that PwC s unqualified auditor s reports were materially false and misleading. 19. Lead Counsel conducted an extensive factual and legal investigation relating to the claims and the underlying events and transactions alleged in the Amended Complaint. Lead Counsel analyzed the evidence adduced during their investigation and researched the applicable law with respect to the claims of Lead Plaintiffs and the Class against R&G, the Individual Defendants and PwC and the potential defenses thereto. 20. On May 4, 2007, R&G, the Individual Defendants and PwC filed motions to dismiss the Amended Complaint, which were fully briefed by July 16, The Court entered orders denying the motions to dismiss on September, 7 and October 19, On October 29 and 30, 2007, Lead Plaintiffs and R&G, through counsel, voluntarily mediated with assistance of retired United States District Court Judge Nicholas H. Politan in an effort to resolve the claims against R&G. No settlement was reached during those two days of mediation sessions. 22. On November 2, 2007, R&G issued the Company s restatement of its financial statements for 2002, 2003 and 2004 and selected additional data as required by Item 301 of Regulation S-K and Industry Guide 3 as described in the Amended Annual Report on Form 10K/A filed by R&G (the Restatement ). PwC issued an auditor s report on the restated 2002, 2003 and 2004 financial statements. 23. In the weeks subsequent to the Restatement, Lead Plaintiffs and R&G conducted additional settlement negotiations through Judge Politan, pursuant to which Lead Plaintiffs reached an agreement in principle to settle the Consolidated Action as against R&G and to release the claims that the Class asserted against R&G and the Individual Defendants. The terms of the R&G Settlement are set forth in the Stipulation and Agreement of Settlement with (the Stipulation ) on file in this case. 24. On March 27, 2008, Lead Plaintiffs and PwC, through counsel, voluntarily mediated with assistance of Judge Politan, pursuant to which the Lead Plaintiffs and PwC reached an agreement in principle to settle the Consolidated Action as against PwC. The terms of the PwC Settlement are set forth in the Stipulation on file in this case.

57 Case 1:05-cv LAP Document Filed 05/27/08 Page 57 of 97 5 HOW DO I KNOW IF I AM PART OF THE CLASS AND THE SETTLEMENTS? 25. You are a Member of the Class if you purchased or otherwise acquired publicly traded securities of R&G between January 21, 2003 and November 2, 2007, inclusive, and based on conduct asserted in the Action, were injured thereby. Excluded from the Class are (a) the Defendants named in the Amended Complaint; (b) members of the immediate families of the Individual Defendants; (c) the subsidiaries and affiliates of the Defendants; (d) any person or entity who is a partner, officer, director, or controlling person of R&G (including any of its subsidiaries or affiliates) or of any Defendant; (e) any entity in which any Defendant has a controlling interest; (f) the Defendants directors and officers liability insurance carriers; and (g) the legal representatives, heirs, successors and assigns of any such excluded party. You also are excluded from the Class if you timely request exclusion from the Class pursuant to this Notice (see What If I Do Not Want To Participate In The Class And The Settlements? How Do I Exclude Myself, below). If you are a Class Member, you are subject to the Settlements whether or not you submit a Claim Form, unless you timely request to be excluded. RECEIPT OF THIS NOTICE DOES NOT NECESSARILY MEAN THAT YOU ARE A CLASS MEMBER OR ARE ENTITLED TO RECEIVE PROCEEDS FROM THE SETTLEMENTS. IF YOU WISH TO PARTICIPATE IN THE SETTLEMENTS, YOU MUST SUBMIT THE ENCLOSED CLAIM FORM POSTMARKED NO LATER THAN, WHAT RECOVERY DO THE SETTLEMENTS PROVIDE? 26. The Settlements provide for a recovery of $51,000,000 in cash ( i.e., $39,000,000 from the R&G Settlement and $12,000,000 from the PwC Settlement), which has been deposited into an interest-bearing escrow account under the control of Lead Counsel. R&G has also agreed to enact certain corporate governance changes described in Appendix A attached hereto. Lead Counsel s fees, expenses and costs with interest thereon, to the extent allowed by the Court, as well as taxes, notification costs and administration costs, will be deducted from the Settlement Fund, and the balance will be distributed to the Class. The amount of any recovery will depend on a number of factors, including when and for what price Class Members purchased and/or sold their R&G publicly traded securities and the total number of such securities for which timely and valid Claim Forms are submitted by Class Members ( Authorized Claimants ) (see How Much Will My Payment Be, below). 27. Lead Plaintiffs damages expert estimates that approximately 58.7 million shares of the Company s common stock were traded during the Class Period and may have been damaged by the conduct at issue in the Amended Complaint. Thus, assuming that the owners of all damaged shares elect to participate, the average per share recovery from the Settlement Fund would be approximately $0.87 per affected share before deduction of attorney s fees, costs and expenses as approved by the Court. WHY ARE THERE SETTLEMENTS? 28. Under the proposed Settlements, the Court will not decide in favor of either Lead Plaintiffs, R&G, the Individual Defendants or PwC. By agreeing to the Settlements, Lead Plaintiffs, R&G, the Individual Defendants and PwC avoid the costs of further litigation and the risks of a trial, and the Class Members are compensated. 29. In light of the amount of the Settlements, and the immediacy of recovery to the Class, Lead Plaintiffs and Lead Counsel believe that each of the proposed Settlements is fair, reasonable and adequate, and in the best interests of Class Members. Lead Plaintiffs believe that the R&G Settlement and the PwC Settlement each provide a substantial benefit, namely $39,000,000 in cash and $12,000,000 in cash, respectively, less the various deductions described in this Notice, as compared to the risk that all or some of the claims in the Action could have been dismissed in response to R&G s, the Individual Defendants or PwC s anticipated motions for summary judgment, or the risk that a similar, smaller, or no recovery would be achieved after motions for summary judgment, a trial, and appeals, possibly years in the future, in which R&G, the Individual Defendants and PwC would have the opportunity to assert substantial defenses to the claims asserted against them. The benefit also must be compared to the risk that, even if Lead Plaintiffs and the Class successfully obtained a substantial judgment (after years of additional litigation and appeals), at least certain of the defendants may not be able to pay an amount significantly greater than the value of the Settlement Fund. WHAT LED UP TO THE SETTLEMENTS? 30. The Settlements resulted from over 2 1/2 years of litigation and extensive arm s-length mediated negotiations among Lead Plaintiffs, Lead Counsel and counsel for R&G and PwC. Several settlement discussions took place, including discussions before an experienced mediator, which ultimately resulted in separate agreements to settle the claims asserted in this Action against (i) R&G and the Individual Defendants, and (ii) PwC. WHY HAVE R&G AND PWC AGREED TO THE SETTLEMENTS? 31. R&G, the Individual Defendants and PwC deny that they have engaged in any wrongdoing, violated any law or breached any duty, and deny that the claims asserted against then in the Amended Complaint have any merit. R&G, the Individual Defendants and

58 Case 1:05-cv LAP Document Filed 05/27/08 Page 58 of 97 6 PwC believe that they have substantial defenses to all of those claims. However, R&G, the Individual Defendants and PwC consider it desirable, and in their respective best interests, that the claims against R&G, the Individual Defendants and PwC be dismissed on the terms set forth in the Stipulation to avoid further expense and protracted litigation, taking into account the uncertainty and risks inherent in any litigation. The Settlements are not evidence of, an admission of, or a concession by R&G, the Individual Defendants or PwC, or any of its partners or principals, of any fault or liability whatsoever, or any infirmity in any defenses they have asserted or intended to assert in the Action. WHAT ARE THE LEAD PLAINTIFFS REASONS FOR THE SETTLEMENTS? 32. Lead Plaintiffs and Lead Counsel believe that the claims asserted against R&G, the Individual Defendants and PwC have merit. However, they recognize the expense and length of continued proceedings necessary to pursue their claims against R&G, the Individual Defendants and PwC through trial and appeals. Lead Plaintiffs and Lead Counsel also have taken into account the possibility that the claims asserted in the Amended Complaint might have been dismissed in response to R&G s, the Individual Defendants and PwC s anticipated motions for summary judgment, and have considered issues that would have been decided by a jury in the event of a trial of the Action, including whether R&G, the Individual Defendants and PwC acted with an intent to mislead investors, whether the alleged misrepresentations or omissions were material to investors, whether all of Class Members losses were caused by the alleged misrepresentations or omissions, and the amount of any damages. Lead Plaintiffs and Lead Counsel also have considered the uncertain outcome and trial risk in complex lawsuits like this one and that, even if they were successful, at least certain defendants may not have been able to pay an amount significantly larger than the Settlement Fund. Lead Plaintiffs believe that a recovery now will provide an immediate benefit to Class Members, which is superior to the risk and delay of proceeding with the Action. Considering these issues, and balancing them against the certain and substantial benefits that the Class will receive as a result of the Settlements, Lead Plaintiffs and Lead Counsel determined that the R&G Settlement and PwC Settlement described herein are fair, reasonable and adequate, and that it is in the best interests of the Class to settle the claims against R&G, the Individual Defendants and PwC on the terms set forth in the Stipulation and this Notice. WHAT MIGHT HAPPEN IF THERE WERE NO SETTLEMENTS? 33. If there were no Settlements and Lead Plaintiffs failed to establish any essential legal or factual element of their claims, neither Lead Plaintiffs nor the Class would recover anything from R&G, the Individual Defendants or PwC. Also, if R&G, the Individual Defendants and PwC were successful in proving any of their defenses, the Class likely would recover substantially less than the amount provided in the Settlements, or nothing at all. HOW MUCH WILL MY PAYMENT BE? THE PROPOSED PLAN OF ALLOCATION: GENERAL PROVISIONS 34. R&G has agreed to pay Thirty-Nine Million Dollars ($39,000,000) in cash, and PwC has agreed to pay Twelve Million Dollars ($12,000,000) in cash. 35. After approval of the Settlements by the Court and upon satisfaction of the other conditions to the Settlements, the Net Settlement Fund will be distributed to Authorized Claimants in accordance with the Plan of Allocation described below. 36. The Settlement Fund will be distributed as follows: (i) To pay all federal, state and local taxes on any income earned by the Settlement Fund and to pay the reasonable costs incurred in connection with determining the amount of, and paying, taxes owed by the Settlement Fund (including reasonable expenses of tax attorneys and accountants); (ii) To pay costs and expenses in connection with providing Notice to Class Members and administering the Settlements on behalf of Class Members; (iii) To reimburse Lead Counsel for, and to pay, costs and expenses incurred by Lead Counsel in connection with, commencing and prosecuting the Action, with interest thereon, if and to the extent allowed by the Court; (iv) To pay Lead Counsel s attorney fees, to the extent allowed by the Court; and (v) Subject to Orders of the Court granting approval of the Settlements and the Plan of Allocation (or such other allocation plan as the Court may approve) becoming final (meaning that the time for appeal or appellate review of the Order granting final approval has expired, or if the Order is appealed, that appeal is either decided without causing a material change in the Orders or upheld on appeal and no longer subject to appellate review by further appeal or writ of certiorari) the balance of the Net Settlement Fund shall be distributed to Authorized Claimants in accordance with the Plan of Allocation. 37. There will be no distribution of the Net Settlement Fund until a plan of allocation is finally approved, and the time for any petition for rehearing, appeal or review, whether by certiorari or otherwise, has expired. 38. Neither R&G nor PwC is entitled to get back any portion of the Settlement Fund once the Court s Orders approving the Settlements become final. Moreover, R&G, the Individual Defendants and PwC have no liability, obligation or responsibility for the administration of the Settlements or disbursement of the Net Settlement Fund or the Plan of Allocation.

59 Case 1:05-cv LAP Document Filed 05/27/08 Page 59 of Approval of the Settlements is independent from approval of the Plan of Allocation. Any determination with respect to the Plan of Allocation will not affect the Settlements, if approved. 40. Only those Class Members who purchased or otherwise acquired R&G publicly traded securities during the Class Period AND WERE INJURED AS A RESULT OF SUCH PURCHASES OR ACQUISITIONS, will be eligible to share in the distribution of the Net Settlement Fund. Each person wishing to participate in the distribution must timely submit a valid Claim Form and all required documentation postmarked no later than, 2008 to the address set forth in the Claim Form that accompanies this Notice. Unless otherwise ordered by the Court, any Class Member who fails to submit a Claim Form postmarked no later than, 2008 shall be forever barred from receiving payments pursuant to the Settlements set forth in the Stipulation but will in all other respects be subject to the provisions of the Stipulation, including the terms of any Judgment entered and releases given. This means that each Class Member releases the Settled Claims (as defined in paragraph 54 below) against the Released Parties (as defined in paragraph 55 below) and is enjoined and prohibited from filing, prosecuting, or pursuing any of the Settled Claims against any of the Released Parties regardless of whether or not such Class Member submits a Claim Form. 41. The Court has reserved jurisdiction to allow, disallow, or adjust on equitable grounds the Claim of any Class Member. The Court also reserves the right to modify the Plan of Allocation without further notice to Class Members. Payment pursuant to the Plan of Allocation approved by the Court shall be conclusive against all Authorized Claimants. No person shall have any claim against Lead Plaintiffs, Lead Counsel or the Claims Administrator or other agent designated by Lead Counsel based on the distributions made substantially in accordance with the Stipulation and the Settlements contained therein, the Plan of Allocation, or further orders of the Court. THE PROPOSED PLAN OF ALLOCATION: CALCULATION OF LOSS AMOUNT 42. A Loss Amount will be calculated for each purchase or acquisition of R&G common stock that is listed in the Claim Form, and for which adequate documentation is provided. The calculation of the Loss Amount will depend upon several factors, including when the shares of R&G common stock were purchased or otherwise acquired and whether they were held until the conclusion of the Class Period or sold during the Class Period, and if so, when they were sold. 43. Information Required on the Claim Form : Each Claim Form must indicate each Authorized Claimant s position in R&G common stock as of the close of trading on January 21, 2003, the day before the first day of the Class Period, and the closing position in R&G common stock as of the close of trading on February 1, 2008, ninety days after the last day of the Class Period. Each Claim Form also must list all transactions in R&G common stock, including all purchases and sales, made during the Class Period. BASIS FOR CALCULATION OF LOSS AMOUNT 44. The objective of the Plan of Allocation is to distribute the settlement proceeds equitably to those Class Members who suffered economic losses as a result of the alleged fraud, as opposed to losses caused by market, industry or other non-fraud related Company specific factors. The Plan of Allocation reflects Lead Plaintiffs damages expert s analysis undertaken to that end, including a review of publicly available information regarding R&G and statistical comparisons of the price movements of R&G s common stock with the price performance of relevant market and industry indices during the Class Period. 45. Recognized Losses are based on the level of alleged artificial inflation in the price of R&G s common stock at the time of purchase. However, in order to have compensable damages under the federal securities laws, the disclosure of the allegedly misrepresented information must be the cause of the decline in the price of the securities. In this case, Lead Plaintiffs allege that R&G, the Individual Defendants and PwC made false statements and omitted material facts between January 21, 2003 and November 2, 2007 regarding the Company s growth and viability, which had the effect of artificially inflating R&G s stock price. R&G denies all such allegations. 46. In order to have recoverable damages, disclosure of the alleged misrepresentations about the Company s growth and viability must be the cause of the decline in the price of the security. SPECIFIC LOSS AMOUNTS 47. Specific Loss Amounts will be calculated as follows: A. For shares of R&G common stock purchased between January 21, 2003 and March 15, 2005: And sold between January 21, 2003 and March 15, 2005, the Recognized Loss shall be zero. 2. And sold between March 16, 2005 and April 25, 2005, the Recognized Loss shall be the lesser of $0.885 per share, or the difference between the purchase price per share and the sales price per share for each share sold. And sold between April 26, 2005 and July 26, 2005, the Recognized Loss shall be the lesser of $8.613 per share, or the difference between the purchase price per share and the sales price per share for each share sold. 4. And sold between July 27, 2005 and October 25, 2005, the Recognized Loss shall be the lesser of $ per share, or the difference between the purchase price per share and the sales price per share for each share sold. And sold between October 26, 2005 and February 12, 2007, the Recognized Loss shall be the lesser of $ per share, or the difference between the purchase price per share and the sales price per share for each share sold.

60 Case 1:05-cv LAP Document Filed 05/27/08 Page 60 of And sold between February 13, 2007 and November 2, 2007, the Recognized Loss shall be the lesser of $ per share, or the difference between the purchase price per share and the sales price per share for each share sold. 7. And retained at the end of trading on February 1, 2008, the Recognized Loss shall be the lesser of $ per share, or the difference between the purchase price per share and $ And sold between November 5, 2007 and February 1, 2008, the Recognized Loss shall be the lesser of (i) $ per share; (ii) the difference between the purchase price per share and the sales price per share for each share sold; or (iii) the difference between the purchase price per share and the average closing price of R&G common stock between November 5, 2007 and the date of sale. 2 B. For shares of common stock purchased between March 16, 2005 and April 25, 2005: 1. And sold between March 16, 2005 and April 25, 2005, the Recognized Loss shall be zero. 2. And sold between April 26, 2005 and July 26, 2005, the Recognized Loss shall be the lesser of $7.728 per share, or the difference between the purchase price per share and the sales price per share for each share sold. 3. And sold between July 27, 2005 and October 25, 2005, the Recognized Loss shall be the lesser of $9.163 per share, or the difference between the purchase price per share and the sales price per share for each share sold. 4. And sold between October 26, 2005 and February 12, 2007, the Recognized Loss shall be the lesser of $ per share, or the difference between the purchase price per share and the sales price per share for each share sold. 5. And sold between February 13, 2007 and November 2, 2007, the Recognized Loss shall be the lesser of $ per share, or the difference between the purchase price per share and the sales price per share for each share sold. 6. And retained at the end of trading on February 1, 2008, the Recognized Loss shall be the lesser of $ per share, or the difference between the purchase price per share and $ And sold between November 5, 2007 and February 1, 2008, the Recognized Loss shall be the lesser of (i) $ per share; (ii) the difference between the purchase price per share and the sales price per share for each share sold; or (iii) the difference between the purchase price per share and the average closing price of R&G common stock between November 5, 2007 and the date of sale. C. For shares of common stock purchased between April 26, 2005 and July 26, 2005: a. And sold between April 26, 2005 and July 26, 2005, the Recognized Loss shall be zero. b. And sold between July 27, 2005 and October 25, 2005, the Recognized Loss shall be the lesser of 50% of $1.434 per share, or the difference between the purchase price per share and the sales price per share for each share sold. c. And sold between October 26, 2005 and February 12, 2007, the Recognized Loss shall be the lesser of 50% of $2.755 per share, or the difference between the purchase price per share and the sales price per share for each share sold. d. And sold between February 13, 2007 and November 2, 2007, the Recognized Loss shall be the lesser of 50% of $4.795 per share, or the difference between the purchase price per share and the sales price per share for each share sold. 1 Pursuant to Section 21(D)(e)(1) of the Private Securities Litigation Reform Act of 1995, "in any private action arising under this title in which the plaintiff seeks to establish damages by reference to the market price of a security, the award of damages to the plaintiff shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the subject security and the mean trading price of that security during the 90-day period beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated." $0.986 was the mean (average) daily closing trading price of R&G Financial Corporation common stock during the 90-day period beginning on November 5, 2007 and ending on February 1, Pursuant to Section 21(D)(e)(2) of the Private Securities Litigation Reform Act of 1995, "in any private action arising under this title in which the plaintiff seeks to establish damages by reference to the market price of a security, if the plaintiff sells or repurchases the subject security prior to the expiration of the 90-day period described in paragraph (1), the plaintiff s damages shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the security and the mean trading price of the security during the period beginning immediately after dissemination of information correcting the misstatement or omission and ending on the date on which the plaintiff sells or repurchases the security.

61 Case 1:05-cv LAP Document Filed 05/27/08 Page 61 of 97 9 e. And retained at the end of trading on February 1, 2008, the Recognized Loss shall be the lesser of 50% of $4.910 per share, or the difference between the purchase price per share and $ f. And sold between November 5, 2007 and February 1, 2008, the Recognized Loss shall be the lesser of (i) 50% of $4.910 per share; (ii) the difference between the purchase price per share and the sales price per share for each share sold; or (iii) the difference between the purchase price per share and the average closing price of R&G common stock between November 5, 2007 and the date of sale. D. For shares of common stock purchased between July 27, 2005 and October 25, 2005: And sold between July 27, 2005 and October 25, 2005, the Recognized Loss shall be zero. 2. And sold between October 26, 2005 and February 12, 2007, the Recognized Loss shall be the lesser of 25% of $1.320 per share, or the difference between the purchase price per share and the sales price per share for each share sold. And sold between February 21, 2007 and November 2, 2007, the Recognized Loss shall be the lesser of 25% of $3.361 per share, or the difference between the purchase price per share and the sales price per share for each share sold. 4. And retained at the end of trading on February 1, 2008, the Recognized Loss shall be the lesser of 25% of $3.476 per share, or the difference between the purchase price per share and $ And sold between November 5, 2007 and February 1, 2008, the Recognized Loss shall be the lesser of (i) 25% of $3.476 per share; (ii) the difference between the purchase price per share and the sales price per share for each share sold; or (iii) the difference between the purchase price per share and the average closing price of R&G common stock between November 5, 2007 and the date of sale. E. For shares of common stock purchased between October 26, 2005 and February 12, 2007: 1. And sold between October 26, 2005 and February 12, 2007, the Recognized Loss shall be zero. 2. And sold between February 13, 2007 and November 2, 2007, the Recognized Loss shall be the lesser of 25% of $2.040 per share, or the difference between the purchase price per share and the sales price per share for each share sold. 3. And retained at the end of trading on February 1, 2008, the Recognized Loss shall be the lesser of 25% of $2.155 per share, or the difference between the purchase price per share and $ And sold between November 5, 2007 and February 1, 2008, the Recognized Loss shall be the lesser of (i) 25% of $2.155 per share; (ii) the difference between the purchase price per share and the sales price per share for each share sold; or (iii) the difference between the purchase price per share and the average closing price of R&G common stock between November 5, 2007 and the date of sale. F. For shares of common stock purchased between February 13, 2007 and November 2, 2007: And sold between February 13, 2007 and November 2, 2007, the Recognized Loss shall be zero. 2. And retained at the end of trading on February 1, 2008, the Recognized Loss shall be the lesser of 10% of $0.115 per share, or the difference between the purchase price per share and $ And sold between November 5, 2007 and February 1, 2008, the Recognized Loss shall be the lesser of (i) 10% of $0.115 per share; (ii) the difference between the purchase price per share and the sales price per share for each share sold; or (iii) the difference between the purchase price per share and the average closing price of R&G common stock between November 5, 2007 and the date of sale. GENERAL PROVISIONS 48. In the event a Class Member has more than one purchase or sale of R&G common stock during the Class Period, all purchases and sales shall be matched on a First In First Out ( FIFO ) basis, Class Period sales will be matched first against any R&G shares held at the beginning of the Class Period, and then against purchases in chronological order, beginning with the earliest purchase made during the Class Period. Purchases and sales of R&G common stock shall be deemed to have occurred on the contract or trade date as opposed to the settlement or payment date. The receipt or grant by gift, devise or operation of law of R&G common stock during the Class Period shall not be deemed a purchase or sale of such R&G shares of common stock for the calculation of an Authorized Claimant s

62 Case 1:05-cv LAP Document Filed 05/27/08 Page 62 of Recognized Loss, nor shall it be deemed an assignment of any claim relating to the purchase of such R&G shares of common stock unless specifically provided in the instrument of gift or assignment 49. To the extent a Claimant had a gain from his, her or its overall transactions in R&G common stock during the Class Period, the value of the Recognized Loss will be zero. Such claimants will in any event be bound by the Settlements. To the extent that a Claimant suffered an overall actual loss on his, her or its overall transactions in R&G common stock during the Class Period, but that loss was less than the Recognized Loss calculated above, then the Recognized Loss shall be limited to the amount of the actual loss. 50. For purposes of determining whether a Claimant had a gain from his, her or its overall transactions in R&G common stock during the Class Period or suffered a loss, the Claims Administrator shall: (i) total the amount the Claimant paid for all R&G common stock purchased or otherwise acquired during the Class Period (the Total Purchase Amount ); (ii) match any sales of R&G common stock during the Class Period first against the Claimant s opening position in the stock (the proceeds of those sales will not be considered for purposes of calculating gains or losses); (iii) total the amount received for sales of the remaining shares of R&G common stock sold during the Class Period (the Sales Proceeds ); and (iv) ascribe a $0.986 per share holding value for the number of shares of R&G common stock purchased or otherwise acquired during the Class Period and still held at the end of the Class Period ( Holding Value ). The difference between (x) the Total Purchase Amount ((i) above) and (y) the sum of the Sales Proceeds ((iii) above) and the Holding Value ((iv) above) will be deemed a Claimant s gain or loss on his, her or its overall transactions in R&G common stock during the Class Period. 51. A payment to any Authorized Claimant of less than $10 in total will not be included in the calculation and will not be distributed. 52. Distributions will be made to Authorized Claimants after all claims have been processed and after the Court has finally approved the Settlements. If any funds remain in the Net Settlement Fund by reason of un-cashed distributions or otherwise, then, after the Claims Administrator has made reasonable and diligent efforts to have Class Members who are entitled to participate in the distribution of the Net Settlement Fund cash their distributions, any balance remaining in the Net Settlement Fund one (1) year after the initial distribution of such funds shall be re-distributed to Class Members who have cashed their initial distributions and who would receive at least $10.00 from such re-distribution, after payment of any unpaid costs or fees incurred in administering the Net Settlement Fund for such redistribution. If after six months after such re-distribution any funds shall remain in the Net Settlement Fund, then such balance shall be contributed to non-sectarian, not-for-profit, 501(c)(3) organization(s) designated by Lead Counsel. WHAT RIGHTS AM I GIVING UP BY AGREEING TO THE SETTLEMENTS? 53. If the R&G Settlement is approved and the PwC Settlement is approved, the Court will enter a judgment (the Judgment ) in each instance. Each Judgment will provide that Lead Plaintiffs and all other Class Members, except those who validly and timely requested to be excluded from the Class, shall upon the Effective Date of the R&G Settlement and the PwC Settlement, respectively, be deemed to have, and by operation of each Judgment shall have, fully, finally, and forever released, waived, discharged and dismissed any and all Settled Claims (as defined below) against the Released Parties (as defined below). Each Judgment also will bar all claims for contribution or indemnification arising out of this Action by any person against the Released Parties and by any Released Party against any person. 54. Settled Claims means any and all claims, rights or causes of action or liabilities whatsoever, whether known claims or Unknown Claims (as defined in the Stipulation), whether arising under or based on federal, state, Commonwealth of Puerto Rico, local, statutory or common law or foreign law, or any other law, rule or regulation, whether directly, representatively, derivatively, individually or in any other capacity, that Lead Plaintiffs or any member of the Class (a) asserted against the Released Parties in the Consolidated Action, or (b) could have asserted against the Released Parties in any forum that relate to or arise out of or are based upon the allegations, transactions, facts, matters or occurrences, representations or omissions involved, set forth, or referred to in the Consolidated Action or that relate to or arise out of the purchase or sale of shares of the Company s common stock during the Class Period, including but not limited to all claims relating to (a) PwC s professional services, including but not limited to audit engagements, performed for the Company in connection with its 2002, 2003 or 2004 financial reporting and any of PwC s opinions in connection therewith (b) the Company s announcement on April 25, 2005 that it would restate its financial statements for the period January 1, 2003 to December 31, 2004, (c) the Company s announcement on July 27, 2005 that it would restate its interim and audited consolidated financial statements for the year ended December 31, 2002, (d) the Restatement (including without limitation the audit committee investigation, the results of which are reflected therein, and any weaknesses in internal controls or remediation of such weaknesses), (e) the alleged conversation between Mr. Galán and outside counsel referenced in the Restatement, and/or (f) the Company s valuation methodology, accounting treatment and/or financial reporting of (i) the Recharacterized Mortgage Loan Transfers, and (ii) the retained interests initially recognized in connection with the Recharacterized Mortgage Loan Transfers. Settled Claims does not include any claims asserted in the Consolidated Derivative Action,. 55. Released Parties means PwC, the member firms of PricewaterhouseCoopers International Limited, R&G, any and all of the Individual Defendants and their respective present or former officers, directors, agents, employees, attorneys, stockholders, advisors, investment bankers, commercial bankers, insurers, representatives, trustees, parents and officers and directors thereof, affiliates and officers and directors thereof, subsidiaries and officers and directors thereof, general and limited partners, principals, spouses, heirs, executors, administrators, successors and assigns The Effective Date for the R&G Settlement and the PwC Settlement will occur when the Judgment approving the each of those Settlements becomes final and not subject to appeal.

63 Case 1:05-cv LAP Document Filed 05/27/08 Page 63 of WHAT PAYMENT ARE THE ATTORNEYS FOR THE CLASS SEEKING? HOW WILL THE LAWYERS BE PAID? 57. Lead Counsel has not received any payment for their services in pursuing claims against R&G, the Individual Defendants and PwC on behalf of the Class, nor has Lead Counsel been reimbursed for their out-of-pocket expenses. At the Settlement Hearing described below, or at such other time as the Court may direct, Lead Counsel intends to apply to the Court for an award of attorney fees in an amount not to exceed 22.5% of the Settlement Fund net of Court-approved litigation expenses. The amount of fees sought by Lead Counsel in the fee application is pursuant to the terms of an agreement negotiated and entered into with Lead Plaintiffs. 58. Lead Counsel also intends to apply for reimbursement of litigation expenses in an amount not to exceed $425,000, which may include the reasonable costs and expenses (including lost wages) of Lead Plaintiffs directly related to the representation of the Class. If the application for attorney fees and reimbursement of litigation expenses is approved by the Court, the average cost per affected share would be approximately $0.20. THE COURT HAS NOT EXPRESSED ANY OPINION ON THE APPLICATION FOR ATTORNEY FEES AND REIMBURSEMENT OF LITIGATION EXPENSES. 59. The fee requested by Lead Counsel would compensate Lead Counsel for its efforts in achieving the Settlements for the benefit of the Class, and for its risk in undertaking this representation on a contingency basis. The fee requested is within the range of fees awarded under similar circumstances in litigation of this type. The Court will determine the amount of the award. HOW DO I PARTICIPATE IN THE SETTLEMENTS? WHAT DO I NEED TO DO? 60. The Court has certified this action as a class action. If you purchased or otherwise acquired R&G publicly traded securities during the period between January 21, 2003 and November 2, 2007, inclusive, and you are not excluded by the definition of the Class and do not elect to exclude yourself, then you are a Class Member, and you will be bound by the proposed Settlements provided for in the Stipulation, in the event it is approved by the Court, and you will be bound by any judgment or determination of the Court affecting the Class now and in the future. Unless otherwise provided by the Court, any Class Member who fails to submit a Claim Form postmarked no later than, 2008 shall be forever barred from receiving any payments pursuant to the Settlements set forth in the Stipulation but will in all other respects be subject to the provisions of the Stipulation, including the terms of any judgments entered and the releases given. 61. If you wish to remain a Class Member, you may be eligible to share in the proceeds of the Settlements, provided that you timely submit an acceptable Claim Form. The Claim Form must be supported by such documents as specified in the Claim Form. The Claim Form is enclosed. Extra copies of the Claim Form may be obtained from the Claims Administrator at the website noted below or downloaded from Lead Counsel s website at or The Court may disallow or adjust the Claim of any Class Member. The Court also may modify the Plan of Allocation without further notice to the Class. Payments pursuant to the Plan of Allocation, as approved by the Court, will be conclusive against all Authorized Claimants. No Person shall have any claim against Lead Plaintiffs, Lead Counsel or the Claims Administrator, or any other agent designated by Lead Counsel, based on the distributions made substantially in accordance with the Stipulation and the Settlements, the Plan of Allocation or further orders of the Court. Each Claimant shall be deemed to have submitted to the jurisdiction of the United States District Court for the Southern District of New York with respect to his, her or its Claim. 63. As a Class Member, you are represented by Lead Plaintiffs and Lead Counsel, unless you enter an appearance through counsel of your own choice at your own expense. You are not required to retain your own counsel, but if you choose to do so, such counsel must file an appearance on your behalf and must serve copies of such appearance on the attorneys listed in the section entitled, When and Where Will the Court Decide Whether to Approve the Settlements, below. 64. If you do not wish to remain a Class Member, you may exclude yourself from the Class by following the instructions in the section entitled, What If I Do Not Want To Be A Part Of The Class And The Settlements? How Do I Exclude Myself, below. 65. If you object to the Settlements or any of their terms, the proposed Plan of Allocation, or Lead Counsel s application for attorney fees and reimbursement of litigation expenses, and if you do not exclude yourself from the Class, you may present your objections by following the instructions in the section entitled, When and Where Will the Court Decide Whether to Approve the Settlements, below. WHAT IF I DO NOT WANT TO BE A PART OF THE CLASS AND THE SETTLEMENTS? HOW DO I EXCLUDE MYSELF? 66. Each Class Member will be bound by all determinations and judgments in this lawsuit, including those concerning the Settlements, whether favorable or unfavorable, unless such Class Member mails, by first class mail, a written Request for Exclusion from the Class, addressed to In re R&G Financial Corporation Securities Litigation - EXCLUSIONS, - c/o Heffler, Radetich & Saitta LLP, P.O. Box, Philadelphia, PA,19102, postmarked no later than, You will not be able to exclude yourself from the Class after that date. Each Request for Exclusion must set forth the name and address of the person or entity requesting exclusion; must state that such person requests exclusion from the Class in In re R&G Financial Corporation Securities Litigation, 05 Civ (JES) ; be signed by such person; and provide a telephone number and documentation verifying membership in the Class, including all purchases and sales of R&G publicly traded securities during the Class Period (including each date of acquisition, purchase and sale and

64 Case 1:05-cv LAP Document Filed 05/27/08 Page 64 of each price and amount paid and/or received). Requests for Exclusion will not be valid if they are not made within the time and manner stated above, unless the Requests for Exclusion are otherwise accepted by the Court. 67. If a Class Member requests to be excluded from the Class, that Class Member will not receive any benefit provided for in the Stipulation. WHEN AND WHERE WILL THE COURT DECIDE WHETHER TO APPROVE THE SETTLEMENTS? DO I HAVE TO COME TO THE HEARING? MAY I SPEAK AT THE HEARING IF I DON T LIKE THE SETTLEMENTS? If you do not wish to object to the proposed Settlements, the application for attorney fees and reimbursement of litigation expenses, and/or the proposed Plan of Allocation, you need not attend the Settlement Hearing. 68. The Settlement Hearing will be held on, 2008 at. m. before the Honorable John E. Sprizzo, at the United States District Court for the Southern District of New York, 500 Pearl Street, New York, NY The Court reserves the right to approve the R&G Settlement and the PwC Settlement at or after the Settlement Hearing with such modifications as may be consented to by the Parties to the Stipulations and without further notice to the members of the Class. 69. Any Class Member who does not request exclusion postmarked no later than, 2008 may appear at the Settlement Hearing and be heard on any of the matters to be considered at the hearing; provided, however, that no such Class Member shall be heard unless his, her or its objection or opposition is made in writing setting forth the bases therefore, and is filed, together with copies of all other papers (including proof of all purchases and sales of R&G publicly traded securities during the Class Period) and briefs, with the Clerk s Office at the United States District Court for the Southern District of New York, 500 Pearl Street, New York, NY on or before, 2008, and is sent for receipt no later than, 2008 to each of the following: Lead Counsel for the Class BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP Steven B. Singer, Esq Avenue of the Americas New York, NY BARRACK, RODOS & BACINE M. Richard Komins, Esq Two Commerce Square 2001 Market Street Philadelphia, PA Counsel for R&G SULLIVAN & CROMWELL LLP Maite Aquino, Esq. 125 Broad Street New York, NY Counsel for Victor J. Galán SIMPSON THACHER & BARTLETT LLP Mark J. Stein, Esq. 425 Lexington Avenue New York, NY Counsel for PwC ORRICK, HERRINGTON & SUTCLIFFE LLP Diana L. Weiss, Esq th Street N.W. Washington, D.C The filing must demonstrate your membership in the Class, including the number of shares of R&G publicly traded securities purchased or otherwise acquired and the number of shares sold during the Class Period and the price(s) paid and received, and must state

65 Case 1:05-cv LAP Document Filed 05/27/08 Page 65 of the basis for your objection to any matter before the Court. Only Class Members who have submitted their position in this manner will be entitled to be heard at the Settlement Hearing, unless the Court orders otherwise. You may file an objection without having to appear at the Settlement Hearing. Class Members who approve of the Settlements need not appear at the Settlement Hearing. 71. Attendance at the hearing is not necessary; however, persons wishing to be heard orally in opposition to the approval of the Settlements, the proposed Plan of Allocation and/or the request for attorney fees and reimbursement of litigation expenses are required to notify the above counsel in advance of the hearing. Persons who intend to object to the Settlements, the proposed Plan of Allocation and/or Lead Counsel s application for an award of attorney fees and reimbursement of litigation expenses and desire to present evidence at the Settlement Hearing must include in their written objections the identity of any witnesses they may call to testify and exhibits they intend to introduce into evidence at the Settlement Hearing. 72. The Settlement Hearing may be delayed from time to time by the Court without further written notice to the Class. If you intend to attend the Settlement Hearing, you should confirm the date and time with Lead Counsel. Unless otherwise ordered by the Court, any Class Member who does not object in the manner described herein will be deemed to have waived any objection and shall be forever foreclosed from making any objection to the proposed Settlements, the application for attorney fees and reimbursement of litigation expenses and/or the proposed Plan of Allocation. Class Members do not need to appear at the hearing or take any other action to indicate their approval. WHAT IF I BOUGHT SHARES ON SOMEONE ELSE S BEHALF? 73. If you purchased or otherwise acquired R&G publicly traded securities during the Class Period for the beneficial interest of a person or organization other than yourself, you are directed to send a copy of this Notice and the Claim Form, to the beneficial owner of the shares postmarked no later than fourteen (14) days from the date of this Notice, or to provide the names and addresses of such persons no later than fourteen (14) days from the date of this Notice to the Claims Administrator at: In re R&G Financial Corporation Securities Litigation c/o Heffler, Radetich & Saitta LLP, P.O. Box, Philadelphia, PA 19102, in which case the beneficial owner will be sent a copy of the Notice. Upon full compliance with these directions, such nominees may seek reimbursement of their documented reasonable expenses actually incurred in complying herewith by providing the Claims Administrator with proper documentation supporting the expenses for which reimbursement is sought. Copies of this Notice and the Claim Form may also be obtained from the Claims Administrator s website or calling toll-free 1-, or may be downloaded from Lead Counsel s website at or CAN I SEE THE COURT FILE? WHOM SHOULD I CONTACT IF I HAVE QUESTIONS? 74. This Notice contains only a summary of the terms of the proposed Settlements. For a more detailed statement of the matters involved in the Action, you are referred to the papers on file in the Action, including the Stipulation, which may be inspected during regular office hours at the Office of the Clerk, United States District Court for the Southern District of New York, 500 Pearl Street, New York, NY All inquiries concerning this Notice or the Claim Form should be directed to: In re R&G Financial Corporation Securities Litigation % Heffler, Radetich & Saitta LLP P.O. Box Philadelphia, PA ( ) - OR BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP Steven B. Singer, Esq Avenue of the Americas New York, NY or- BARRACK, RODOS & BACINE M. Richard Komins, Esq Two Commerce Square 2001 Market Street Philadelphia, PA 19103

66 Case 1:05-cv LAP Document Filed 05/27/08 Page 66 of Lead Counsel for the Class DO NOT CALL OR WRITE THE COURT OR THE OFFICE OF THE CLERK OF THE COURT REGARDING THIS NOTICE. Dated:, 2008 By Order of the Clerk of the Court United States District Court for the Southern District of New York

67 Case 1:05-cv LAP Document Filed 05/27/08 Page 67 of 97 EXHIBIT A-2

68 Case 1:05-cv LAP Document Filed 05/27/08 Page 68 of 97 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK EXHIBIT A-2 IN RE R&G FINANCIAL CORPORATION SECURITIES LITIGATION This Document relates to: All Actions ----x : : : : : : : ----x ECF CASE MASTER FILE NO. 05 Civ (JES) GENERAL INSTRUCTIONS PROOF OF CLAIM AND RELEASE DEADLINE FOR SUBMISSION, It is important that you completely read and understand the Notice of Pendency of Class Action and Proposed Settlements, Settlement Fairness Hearing and Motion for Attorney Fees and Reimbursement of Litigation Expenses (the Notice ) that accompanies this Proof of Claim and Release and Plan of Allocation of Net Settlement Fund included therein (the Plan of Allocation ). The Notice and Plan of Allocation describe the two proposed settlements that together will resolve this Action, how the Class Members are affected by those settlements, and the manner in which the Settlement Fund will be distributed, if the settlements and the Plan of Allocation are approved by the Court. The Notice also contains the definitions of many of the defined terms (which are indicated by initial capital letters) used in this Proof of Claim and Release. By signing and submitting the Proof of Claim and Release, you will be certifying that you have read and that you understand the Notice. 2. IN ORDER TO PARTICIPATE IN THE SETTLEMENTS, YOU MUST MAIL YOUR COMPLETED AND SIGNED PROOF OF CLAIM AND RELEASE, BY FIRST-

69 Case 1:05-cv LAP Document Filed 05/27/08 Page 69 of 97 CLASS MAIL, POSTAGE PREPAID, POSTMARKED ON OR BEFORE, 2008, ADDRESSED TO: In re R&G Financial Corporation Securities Litigation % Heffler, Radetich & Saitta LLP P.O. Box Philadelphia, PA ( ) - 3. This Proof of Claim and Release is directed to all persons who purchased or otherwise acquired publicly traded securities of R&G Financial Corporation ( R&G ) between January 21, 2003 and November 2, 2007, inclusive, and who, based on the conduct asserted in the Action, were allegedly injured thereby. Excluded from the Class are (a) the Defendants; (b) members of the families of the Individual Defendants; (c) the subsidiaries and affiliates of the Defendants; (d) any person or entity who is a partner, officer, director, or controlling person of R&G (including any of its subsidiaries or affiliates) or of any Defendant; (e) any entity in which any Defendant has a controlling interest; (f) the Defendants directors and officers liability insurance carriers; and (g) the legal representatives, heirs, successors and assigns of any such excluded party. Also excluded from the Class are any putative Class Members who exclude themselves by filing a request for exclusion in accordance with the requirements set forth in the Notice. 4. Class Member means any person who is included in the definition of the Class and who did not timely submit proper request for exclusion in accordance with the requirements set forth in the Notice. 5. Authorized Claimant means a Class Member who timely submits to the Claims Administrator a valid Proof of Claim and Release that has been allowed pursuant to the terms of the Stipulation. 2

70 Case 1:05-cv LAP Document Filed 05/27/08 Page 70 of IF YOU ARE NOT A CLASS MEMBER, OR IF YOU, OR SOMEONE ACTING ON YOUR BEHALF, FILES A REQUEST FOR EXCLUSION FROM THE CLASS, DO NOT SUBMIT A PROOF OF CLAIM AND RELEASE. YOU MAY NOT, DIRECTLY OR INDIRECTLY, PARTICIPATE IN THE SETTLEMENTS IF YOU ARE NOT A CLASS MEMBER. THUS, IF YOU FILE A REQUEST FOR EXCLUSION IN A TIMELY MANNER, ANY PROOF OF CLAIM AND RELEASE THAT YOU SUBMIT, OR WHICH MAY BE SUBMITTED ON YOUR BEHALF, WILL NOT BE ACCEPTED. 7. To recover as a Class Member, you must complete and sign this Proof of Claim and Release and mail it to the Claims Administrator on or before, If you fail to file a timely, properly addressed, and completed Proof of Claim and Release, your claim may be rejected and you may be precluded from receiving any distribution from the Net Settlement Fund. 8. Submission of this Proof of Claim and Release does not ensure that you will share in the Net Settlement Fund. Distributions from the Net Settlement Fund are governed by the Plan of Allocation approved by the Court. The proposed Plan of Allocation, which is subject to the Court s approval, is included in the Notice. 9. If you have questions concerning the Proof of Claim and Release, or need additional copies of the Proof of Claim and Release or Notice, you may contact the Claims Administrator, Heffler, Radetich & Saitta LLP, at the above address or by toll-free phone at or you can your inquiries through or download the documents from the Claims Administrator s internet web site, If you are a Class Member and you do not, or someone acting on your behalf does not, submit a timely request for exclusion from the Class, and if the Court approves the 3

71 Case 1:05-cv LAP Document Filed 05/27/08 Page 71 of 97 settlements, you will be bound by the terms of any judgments that the Court enters. You will be bound by the judgments whether or not you submit a Proof of Claim and Release. Each judgment enjoins the filing or continued prosecution of Settled Claims. Each judgment also releases the Settled Claims against the Released Parties, including those that are subject to pending lawsuits or arbitrations. 11. You are required to submit genuine and sufficient documentation for all your transactions in R&G publicly traded securities during the Class Period of January 21, 2003 through and including November 2, Documentation may be photocopies of stockbrokers confirmation slips or stockbrokers monthly statements (reflecting your opening and closing balances for the months specified on the actual claim form, and in which transactions during the Class Period occurred). IF SUCH DOCUMENTS ARE NOT IN YOUR POSSESSION, PLEASE OBTAIN COPIES OR EQUIVALENT CONTEMPORANEOUS DOCUMENTS FROM YOUR BROKER. FAILURE TO SUPPLY THIS DOCUMENTATION MAY RESULT IN REJECTION OF YOUR CLAIM. DO NOT SEND ORIGINAL STOCK CERTIFICATES. 12. The date of covering a short sale is deemed to be the date of purchase of R&G common stock. The date of a short sale is deemed to be the date of sale of R&G common stock. However, please note that short sales are not covered by the Plan of Allocation. 13. All joint purchasers must each sign this Proof of Claim and Release. 14. Agents, executors, administrators, guardians, and trustees must complete and sign the Proof of Claim and Release on behalf of persons represented by them and they must: (a) expressly state the capacity in which they are acting; 4

72 Case 1:05-cv LAP Document Filed 05/27/08 Page 72 of 97 (b) identify the name, account number, Social Security Number (or taxpayer identification number), address and telephone number of the beneficial owner of (or other person or entity on whose behalf they are acting with respect to) the R&G securities; and (c) furnish herewith evidence of their authority to bind the person or entity on whose behalf they are acting to the Proof of Claim and Release. (Authority to complete and sign a Proof of Claim and Release cannot be established by stockbrokers only demonstrating that they have discretionary authority to trade stock in another s accounts.) 15. By submitting a signed Proof of Claim and Release, you will be swearing that you: Release; or (a) (b) own(ed) the R&G securities you have listed in the Proof of Claim and are expressly authorized to act on behalf of the owner thereof. 16. By submitting a signed Proof of Claim and Release, you will be swearing to the truth of the statements contained therein and the genuineness of the documents attached thereto, subject to penalties of perjury under the laws of the United States of America. The making of false statements, or the submission of forged or fraudulent documentation, will result in the rejection of your claim and may subject you to civil liability or criminal prosecution. 5

73 Case 1:05-cv LAP Document Filed 05/27/08 Page 73 of 97 In re R&G Financial Corporation Securities Litigation PART I: CLAIMANT IDENTIFICATION / Beneficial Owner s Name (First, Middle, Last) / Joint Owner s Name Street Address City State Zip Code Foreign Province Area Code Area Code Foreign Country Telephone Number Telephone Number (Daytime) (Evening) Social Security Number or Taxpayer Identification Number Record Owner s Name (if different from beneficial owner listed above) Check appropriate box (check only one box): o Individual/Sole Proprietor 0 o Corporation 0 o IRA 0 Joint Owners Partnership Other (describe: o o Pension Plan Trust NOTE: Separate Proofs of Claim should be submitted for each separate legal entity ( e.g., a claim from Joint Owners should not include separate transactions of just one of the Joint Owners, an Individual should not combine his or her IRA transactions with transactions made solely in the Individual s name). Conversely, a single Proof of Claim should be submitted on behalf of one legal entity including all transactions made by that entity no matter how many separate accounts that entity has ( e.g., a Corporation with multiple brokerage accounts should include all transactions made in R&G securities) during the Class Period on one Proof of Claim, no matter how many accounts the transactions were made in.) 6

74 Case 1:05-cv LAP Document Filed 05/27/08 Page 74 of 97 PART II: OPENING POSITION AS OF CLOSE OF TRADING ON JANUARY 20, 2003 A. Indicate the number of shares of R&G common stock the Claimant owned at the close of business on January 20, If none, write zero or 0. If other than zero, be sure to attach the required documentation. PART III: PURCHASES B. List all purchases of R&G common stock made during the period January 21, 2003 through and including February 1, (NOTE: If you acquired your R&G common stock during this period other than by an open market purchase, please provide a complete description of the terms of the acquisition on a separate page.). Be sure to attach the required documentation. Trade Date(s) (List Chronologically) Month/Day/Year / / / / / / / / / / Number of Shares Purchased Purchase Price Per Share $ $ $ $ $ Total Purchase P rice* $ $ $ $ $ *excluding commissions, transfer taxes or other fees PART IV: SALES C. List all sales of R&G common stock made during the period January 21, 2003 through and including February 1, Be sure to attach the required documentation. Trade Date(s) (List Chronologically) Month/Day/Year / / / / Number of Shares Sold $ $ Sales Price Per Share Total Sales Price* $ $ 7

75 Case 1:05-cv LAP Document Filed 05/27/08 Page 75 of 97 Trade Date(s) (List Chronologically) Month/Day/Year / / / / / / Number of Shares Sold $ $ $ Sales Price Per Share Total Sales Price* $ $ $ *excluding commissions, transfer taxes or other fees PART V: POSITION AS OF CLOSE OF TRADING ON NOVEMBER 2, 2007 D. Indicate the number of shares of R&G common stock the Claimant owned at the close of business on February 1, 2008, the last day of the Class Period. Be sure to attach the required documentation. 8

76 Case 1:05-cv LAP Document Filed 05/27/08 Page 76 of 97 Definitions YOU MUST READ THE FOLLOWING RELEASE AND SIGN ON PAGE 11. RELEASE OF CLAIMS For the purpose of the Proof of Claim, defined terms have the following meanings. (Other defined terms have the meanings given them in the Stipulation and Agreement of Settlement dated May, 2008 (the Stipulation ). Effective Date means the date the Judgment becomes Final (as defined in 1(q) of the Stipulation). Individual Defendants means Victor J. Galán, Joseph R. Sandoval, Ramón Prats, Benigno R. Fernandez, Gilberto Rivera-Arreaga and Ileana M. Colon-Carlo. Judgment means the Order or Orders entered by the Court, if and upon approval of the settlements, dismissing the Action with prejudice and without costs (except to the extent awarded by the Court) to any Released Party, certifying the Class for settlement purposes, releasing all Settled Claims as against the Released Parties, and enjoining Class Members from instituting, continuing or prosecuting any action asserting any Settled Claims against any Released Party. PwC means PricewaterhouseCoopers LLP. R&G means R&G Financial Corporation. Released Parties means PwC, the member firms of PricewaterhouseCoopers International Limited, R&G and any and all of the Individual Defendants, their respective present or former officers, directors, agents, employees, attorneys, stockholders, advisors, investment bankers, commercial bankers, insurers, representatives, trustees, parents and officers and directors thereof, affiliates and officers and directors thereof, subsidiaries and officers and directors thereof, general and limited partners, principals, spouses, heirs, executors, administrators, successors and assigns. Settled Claims means any and all claims, rights or causes of action or liabilities whatsoever, whether known claims or Unknown Claims (as defined below), whether arising under or based on federal, state, Commonwealth of Puerto Rico, common law, foreign law or any other law, rule or regulation, whether directly, representatively, derivatively, individually or in any other capacity, that Lead Plaintiffs or any member of the Class (a) asserted against the Released Parties in the Consolidated Action, or (b) could have asserted against the Released Parties in any forum that relate to or arise out of or are based upon the allegations, transactions, facts, matters or occurrences, representations or omissions involved, set forth, or referred to in the Consolidated Action or that relate to or arise out of the purchase or sale of shares of the Company s common stock during the Class Period, including but not limited to all claims relating to (a) PwC s professional services, including but not limited to audit engagements, performed for the Company in connection with its 2002, 2003 or 2004 financial reporting and any of PwC s opinions in connection therewith; (b) the Company s announcement on April 25, 2005 that it would restate its financial statements for the period January 1, 2003 to December 31, 2004, (c) the Company s announcement on July 27, 2005 that it would restate its interim and audited consolidated financial statements for the year ended December 31, 2002, (d) the Restatement (including without limitation the audit committee investigation, the results of which are reflected therein, and any weaknesses in internal controls or remediation of such weaknesses), (e) the alleged conversation between Mr. Galán and outside counsel referenced in the Restatement, and/or (f) the Company s valuation methodology, accounting treatment and/or 9

77 Case 1:05-cv LAP Document Filed 05/27/08 Page 77 of 97 financial reporting of (i) the Recharacterized Mortgage Loan Transfers and (ii) the retained interests initially recognized in connection with the Recharacterized Mortgage Loan Transfer. Settled Claims does not include any claims asserted in the Consolidated Derivative Action. Unknown Claims means any and all Settled Claims which any Lead Plaintiff or Class Member does not know or suspect to exist in his, her or its favor at the time of the release of the Released Parties, and any Released Parties Claims which any Released Party does not know or suspect to exist in his, her or its favor, which if known by him, her or it might have affected his, her or its decision(s) with respect to the Settlements. With respect to any and all Settled Claims and Released Parties Claims, the parties stipulate and agree that upon the Effective Date, the Lead Plaintiffs and the Released Parties shall expressly waive, and each Class Member shall be deemed to have waived, and by operation of the Judgments shall have expressly waived, any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar, comparable, or equivalent to Cal. Civ. Code 1542, which provides: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. Lead Plaintiffs and the Released Parties acknowledge, and Class Members by operation of law shall be deemed to have acknowledged, that the inclusion of Unknown Claims in the definition of Settled Claims and Released Parties Claims was separately bargained for and was a key element of the Settlement. The Release I (we) understand and acknowledge that without further action by anyone, on and after the Effective Date, each Class Member, including Class Members who are parties to any other actions, arbitrations, or other proceedings against any of R&G, the Individual Defendants or FwC that are pending on the Effective Date, on behalf of themselves, their heirs, executors, administrators, successors, assigns, and any person they represent, for good and sufficient consideration, the receipt and adequacy of which are hereby acknowledged, shall be deemed to have, and by operation of law and of the Judgments shall have fully, finally, and forever released relinquished, settled and discharged all Settled Claims against each and every one of the Released Parties, including such Settled Claims as already may have been asserted in any pending actions, arbitrations, or other proceedings, and whether or not a Proof of Claim and Release is executed and delivered by, or on behalf of, such Class Member. SIGNATURE AND CERTIFICATIONS By signing and submitting this Proof of Claim and Release, the Claimant or the person who represents the Claimant certifies, as follows: 1. that the Claimant is a Class Member, as defined in the Notice; 2. that I (we) have read and understand the contents of the Notice and the Proof of Claim; 3. that I (we) are not acting for any of the Defendants, nor am I (are we) such a Defendant or otherwise excluded from the Class; 10