<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
R&G FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Puerto Rico 66-0532217
(State or other juris- (I.R.S. Employer
diction of incorporation Identification No.)
or organization)
</TABLE>
280 Jesus T. Pinero Avenue
Hato Rey, San Juan, Puerto Rico 00918
(787) 758-2424
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
Victor J. Galan
Chairman of the Board and Chief Executive Officer
R&G Financial Corporation
280 Jesus T. Pinero Avenue
Hato Rey, San Juan, Puerto Rico 00918
(787) 758-2424
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
with copies to:
<TABLE>
<S> <C>
NORMAN B. ANTIN, ESQ. JAVIER D. FERRER, ESQ.
JEFFREY D. HAAS, ESQ. PIETRANTONI MENDEZ & ALVAREZ
Elias, Matz, Tiernan & Herrick L.L.P. Suite 1901--Popular Center
734 15th Street, N.W. Hato Rey, Puerto Rico 00918
Washington, D.C. 20005 (787) 274-1212
(202) 347-0300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective. If the only
securities being registered on this Form are being offered pursuant to dividend
or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Series A Preferred Stock................................................................ $45,000,000 $13,275
</TABLE>
(1) Pursuant to Rule 457(o) under the Securities Act of 1933, as amended, the
proposed maximum aggregate offering price is estimated solely for purposes
of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 7, 1998
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD, NOR MAY
OFFERS TO BUY BE ACCEPTED, PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
1,600,000 SHARES
R&G FINANCIAL CORPORATION
% NONCUMULATIVE PERPETUAL MONTHLY INCOME
PREFERRED STOCK, SERIES A
($25 LIQUIDATION PREFERENCE PER SHARE)
This Prospectus relates to 1,600,000 shares of % Noncumulative Perpetual
Monthly Income Preferred Stock, Series A (the "Series A Preferred Stock"), which
is being offered by R&G Financial Corporation (the "Company" or "R&G
Financial"), a Puerto Rico corporation (the "Offering").
The Series A Preferred Stock will entitle holders to receive, when, as and
if declared by the Board of Directors of the Company or a duly authorized
committee thereof, out of funds legally available therefor, a noncumulative
preferential cash dividend, at a rate per annum of % of the $25 liquidation
preference per share, accruing from August , 1998 and payable monthly in
arrears on the first day of each calendar month commencing on October 1, 1998.
See "Description of Series A Preferred Stock--Dividend Rights."
The Series A Preferred Stock is not redeemable prior to October 1, 2003. On
or after that date, the shares of Series A Preferred Stock will be redeemable in
whole or in part from time to time at the option of the Company at the
redemption prices set forth herein, subject to prior approval of the Board of
Governors of the Federal Reserve System ("Federal Reserve Board ") if required
by applicable law, plus accrued and unpaid dividends for the then current
monthly dividend period to the date fixed for redemption. See "Description of
Series A Preferred Stock--Redemption at the Option of the Company."
In the event of liquidation of the Company, holders of Series A Preferred
Stock will be entitled to receive for each share of Series A Preferred Stock a
liquidation preference of $25 plus accrued and unpaid dividends for the then
current monthly dividend period, subject to the limitations described under
"Description of Series A Preferred Stock--Liquidation Preference."
The Series A Preferred Stock will not be convertible into or exchangeable
for any other securities of the Company. Holders of shares of Series A Preferred
Stock will have no right to require the Company to redeem or repurchase any such
shares, and such shares are not subject to any sinking fund or similar
obligation. Holders of the Series A Preferred Stock will have no preemptive
rights to purchase any securities of the Company.
There has been no public market for the Series A Preferred Stock prior to
this Offering. The Company has applied to list the Series A Preferred Stock on
the Nasdaq National Market under the symbol "RGFCP." See "Risk Factors -- No
Prior Market."
SEE "RISK FACTORS" BEGINNING ON PAGE 7, FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SHARES OF
SERIES A PREFERRED STOCK OFFERED HEREBY.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NEITHER INSURED
NOR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY
OTHER GOVERNMENTAL AGENCY AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR BY THE OFFICE OF THE COMMISSIONER OF
FINANCIAL INSTITUTIONS OF PUERTO RICO (THE "OCFI"), NOR HAS THE COMMISSION OR
THE OCFI PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO PUBLIC(1) UNDERWRITING DISCOUNT(2) COMPANY(3)(4)
<S> <C> <C> <C>
Per Share of Series A Preferred
Stock................................. $25 $ $
Total(3)(4)............................ $40,000,000 $ $
</TABLE>
(1) Plus accrued dividends, if any, from the date of original issuance.
(2) The Company has agreed to indemnify the Underwriters (as defined) against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(3) Before deducting estimated expenses of $325,000 payable by the Company.
(4) The Company has granted to the Underwriters a 30-day option to purchase, on
the same terms set forth herein, up to 200,000 additional shares of Series A
Preferred Stock solely to cover over-allotments, if any. If the option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company would be $ , $ and $ ,
respectively. See "Underwriting."
The shares of Series A Preferred Stock are offered by the Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them and subject to
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify the offer made hereby without notice and to reject orders in whole or
in part. It is expected that delivery of the shares of Series A Preferred Stock
will be made in New York, New York on or about , 1998.
SANTANDER SECURITIES MERRILL LYNCH & CO.
The date of this Prospectus is , 1998
<PAGE>
[ Map ]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE SERIES A PREFERRED STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL
MARKET, OR OTHERWISE. SUCH STABILlZlNG, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME. SEE "UNDERWRITING."
i
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION CONTAINED IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information................................................................ ii
Incorporation of Certain Documents by Reference...................................... iii
Forward Looking Statements........................................................... iii
Prospectus Summary................................................................... 1
Selected Consolidated Financial and Other Data....................................... 5
Risk Factors......................................................................... 7
Use of Proceeds...................................................................... 14
Ratios of Earnings to Fixed Charges.................................................. 15
Capitalization....................................................................... 16
Description of Series A Preferred Stock.............................................. 17
Description of Capital Stock......................................................... 24
Taxation............................................................................. 27
Underwriting......................................................................... 34
Legal Matters........................................................................ 35
Independent Accountants.............................................................. 35
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Reports,
proxy material and other information concerning the Company can be inspected and
copied at the office of the Commission located at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 or at its regional offices, located at Suite 1400,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661 and Suite
1300, Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Series A Preferred Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement or the
exhibits thereto. For further information, reference is made to such
Registration Statement and exhibits. Statements made in this Prospectus as to
the content of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the copy of the applicable document, each such statement being qualified in all
respects by such reference, which may be inspected and copied in the manner and
at the sources described above.
Reports and other information concerning the Company may also be inspected
at the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
ii
<PAGE>
The Company is an electronic filer under the EDGAR (Electronic Data
Gathering, Analysis and Retrieval) system maintained by the Commission. The
Commission maintains a Web site (http:// www.sec.gov) on the Internet that
contains reports, proxy statements, information statements and other information
filed electronically by the Company with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1997, as
amended by Form 10K/A dated August 7, 1998;
2. Quarterly Reports on Form 10-Q for the quarters ended March 31 and June
30, 1998; and
3. Current Report on Form 8-K dated March 19, 1998.
All documents filed by the Company subsequent to the date of this Prospectus
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to
the termination of the Offering made hereby shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein will be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is, or
is deemed to be, incorporated by reference herein modifies or supersedes any
such statement. Any such statement so modified or superseded will not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of such person, a copy of any of the foregoing documents incorporated
herein by reference (other than the exhibits to such documents unless such
exhibits are specifically incorporated by reference into such documents).
Written or telephone requests should be directed to R&G Financial Corporation,
280 Jesus T. Pinero Avenue, Hato Rey, San Juan, Puerto Rico 00918, Attention:
Sonya Colon (telephone no. (787) 758-2424).
FORWARD LOOKING STATEMENTS
Certain of the statements contained in this Prospectus and the documents
incorporated herein by reference may be considered forward-looking statements,
including, without limitation, the forward-looking statements identified as such
in this Prospectus and variations in the foregoing statements whenever they
appear in this Prospectus and the documents incorporated herein by reference.
Forward-looking statements are made based upon management's current expectations
and belief concerning future developments and their potential effects upon the
Company. There can be no assurance that future developments affecting the
Company will be those anticipated by management. There are certain important
factors that could cause actual results to differ materially from estimates or
expectations discussed in such forward-looking statements including, without
limitation, the matters discussed in "Risk Factors."
iii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) INCLUDED ELSEWHERE IN THIS PROSPECTUS
OR INCORPORATED BY REFERENCE HEREIN. EACH PROSPECTIVE INVESTOR IS URGED TO READ
THIS PROSPECTUS IN ITS ENTIRETY, INCLUDING THE "RISK FACTORS" BEGINNING ON PAGE
7.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ 1,600,000 shares of Series A Preferred Stock (1,800,000
shares if the Underwriters' over-allotment option is
exercised in full).
Offering Price.................... $25 per share.
Underwriters...................... Santander Securities Corporation of Puerto Rico and
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Use of Proceeds................... The net proceeds to the Company from the sale of the
shares of Series A Preferred Stock offered hereby will
be $ million ($ million, if the
Underwriters' over-allotment option is exercised in
full) after deducting the underwriting discounts and
estimated Offering expenses payable by the Company. The
Company is raising funds in the Offering primarily to
support further growth in the businesses of R&G Mortgage
and the Bank. The Company expects to contribute
approximately 60% of the net proceeds to R&G Mortgage
and 40% of the net proceeds to the Bank. R&G Mortgage
intends to use the proceeds received initially to pay
down its warehousing lines. Subsequently, R&G Mortgage
intends to utilize the capital to support additional
borrowings, which may facilitate the acquisition of
additional mortgage servicing rights and an increase in
mortgage originations. The Bank intends to use the
proceeds received to initially pay down Federal Home
Loan Bank ("FHLB") of New York advances. The net
proceeds will enhance the Bank's regulatory capital,
which will, in the future, facilitate the ability to
increase deposits and borrowings to fund additional
investments. See "Use of Proceeds."
Dividends......................... Dividends on the Series A Preferred Stock are
noncumulative and, when, as and if declared by the Board
of Directors or a duly authorized committee thereof,
will be payable monthly in arrears commencing on October
1, 1998 and payable on the first day of each calendar
month thereafter, at the fixed annual dividend rate of
% of the $25 liquidation preference per share. See
"Description of Series A Preferred Stock--Dividend
Rights."
Voting Rights..................... In general and except as required by applicable law or
as described herein, the holders of the Series A
Preferred Stock will not have voting rights. See
"Description of Series A Preferred Stock--Voting
Rights."
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Liquidation Preference............ $25 per share of Series A Preferred Stock, plus accrued
and unpaid dividends for the then current monthly
dividend period, subject to certain limitations. See
"Description of Series A Preferred Stock--Liquidation
Preference."
Redemption........................ Shares of Series A Preferred Stock are not redeemable
prior to October 1, 2003. On or after that date, the
shares of Series A Preferred Stock will be redeemable in
whole or in part from time to time at the option of the
Company, upon not less than 30 nor more than 60 days'
notice by mail, at the redemption prices set forth
herein, subject to prior approval of the Federal Reserve
Board, if required by applicable law, plus accrued and
unpaid dividends for the then current monthly dividend
period to the date fixed for redemption. The Series A
Preferred Stock is not subject to any sinking fund or
similar obligation. See "Description of Series A
Preferred Stock--Redemption at the Option of the
Company."
Conversion; Exchange.............. The Series A Preferred Stock will not be convertible
into or exchangeable for any other securities of the
Company.
Preemptive Rights................. Holders of the Series A Preferred Stock will have no
preemptive rights to purchase any securities of the
Company. See "Description of Series A Preferred
Stock--No Preemptive Rights."
Listing on the Nasdaq National The Company has filed an application to list the Series
Market.......................... A Preferred Stock on the NASDAQ National Market under
the symbol "RGFCP."
Risk Factors...................... For a discussion of certain factors that should be
considered carefully by prospective purchasers of the
Series A Preferred Stock, see "Risk Factors."
</TABLE>
THE COMPANY
GENERAL. R&G Financial is the holding company for R&G Mortgage Corp., a
Puerto Rico mortgage banking company ("R&G Mortgage"), and R-G Premier Bank of
Puerto Rico, a Puerto Rico-chartered commercial bank (the "Bank"). The Company
was organized under Puerto Rico law in March 1996. In July 1996, the Company
acquired the 88.1% ownership interest in the common stock of the Bank and the
100% ownership interest in the common stock of R&G Mortgage held by the
Company's Chairman of the Board and Chief Executive Officer, Mr. Victor J.
Galan, in exchange for shares of Class A common stock of the Company. In August
1996, the Company conducted an underwritten public offering of Class B common
stock. In December 1996, the Company acquired the remaining 11.9% ownership
interest in the common stock of the Bank. At June 30, 1998, the Company had
total consolidated assets of $1.8 billion, total consolidated borrowings of
$779.3 million, total consolidated deposits of $820.9 million, and total
consolidated stockholders' equity of $152.1 million. After taking into
consideration an 80% stock dividend paid in September 1997 and a two-for-one
stock split paid in June 1998, as of June 30, 1998, the Company had 18,440,556
Class A shares of common stock outstanding, all of which were owned by Mr.
Galan, and 9,848,948 publicly held Class B shares of common stock outstanding.
Mr. Galan originally organized R&G Mortgage in 1972. In February 1990, R&G
Mortgage acquired a 74.7% interest in a two branch federal savings and loan
association with total assets of $52.9 million, which was re-named R&G Federal
Savings Bank. Recognizing the complementary operational aspects and cross
2
<PAGE>
selling opportunities that are inherent in operating both a mortgage bank and a
banking institution, during 1990 Mr. Galan integrated both the Bank's and R&G
Mortgage's operations. Embarking on a retail branch expansion strategy, the Bank
in 1993 acquired a two branch savings and loan association with total assets of
$78.6 million and, in June 1995, acquired from a commercial bank $77.2 million
in deposits and, after consolidation, six branch offices. In November 1994, the
Bank converted to a Puerto Rico-chartered commercial bank and took its present
name.
R&G Financial competes for business in Puerto Rico by providing a wide range
of financial services to residents of all of Puerto Rico's major cities through
its branch offices and mortgage banking facilities. The operations of both R&G
Mortgage and the Bank have expanded substantially during the 1990's, due in
large part to R&G Mortgage's emergence as a leading originator of loans secured
by single-family residential properties in Puerto Rico. During the year ended
December 31, 1997, R&G Mortgage originated approximately 28.4% of all
single-family residential loans originated in Puerto Rico, which has resulted in
significant growth in its servicing portfolio as well as facilitated rapid
expansion of the Bank's franchise and operations. R&G Mortgage's servicing
portfolio has increased by 116.5% since December 31, 1991 and, at June 30, 1998,
R&G Mortgage serviced approximately 61,400 accounts with an aggregate loan
balance of $3.4 billion. The Bank's asset size, which amounted to $1.2 billion
at June 30, 1998, has increased by $1.16 billion since R&G Mortgage became
affiliated with the Company in February 1990, while the branch office network
has increased from two to 18 offices. On July 31, 1998, the Bank acquired a one
branch savings institution in Fajardo, Puerto Rico. See "Recent Development."
R&G Financial has generally sought to achieve long-term financial strength
and profitability by increasing the amount and stability of its net interest
income and non-interest income. R&G Financial has sought to implement this
strategy by (i) establishing and emphasizing the growth of its mortgage banking
activities, including growing its loan servicing operation; (ii) expanding its
retail banking franchise in order to achieve increased market presence and to
increase core deposits; (iii) enhancing R&G Financial's net interest income by
increasing R&G Financial's loans held for investment, particularly single-family
residential loans; (iv) developing new business relationships through an
increased emphasis on commercial real estate and commercial business lending;
(v) diversifying R&G Financial's retail products and services, including an
increase in consumer loan originations (such as credit cards); (vi) meeting the
banking needs of its customers through, among other things, the offering of
trust and investment services; and (vii) controlled growth and the pursuit of a
variety of acquisition opportunities when appropriate.
The Company is subject to regulation and supervision by the Federal Reserve
Board and is subject to various reporting and other requirements of the
Commission.
R&G MORTGAGE. R&G Mortgage was originally organized in 1972. R&G Mortgage
is engaged primarily in the business of originating first and second mortgage
loans on single-family residential properties secured by real estate which are
either insured by the Federal Housing Administration ("FHA") or guaranteed by
the Veterans Administration ("VA"). To a lesser extent, R&G Mortgage is also
engaged in the origination of subprime--credit quality--residential mortgage
loans through a wholly owned subsidiary ("Champion Mortgage Corporation") which
commenced operations in October 1997. Pursuant to agreements entered into
between R&G Mortgage and the Bank, non-conforming conventional single-family
residential loans and consumer loans secured by real estate are also originated
by R&G Mortgage for portfolio retention by the Bank. The Bank retains the
non-conforming conventional single-family residential loans because these loans
generally do not satisfy resale guidelines of purchasers in the secondary
mortgage market, primarily because of size or other underwriting technicalities
at the time of origination. During the six months ended June 30, 1998 and the
years ended December 31, 1997, 1996 and 1995, R&G Mortgage originated a total of
$436.5 million, $598.2 million, $448.1 million and $322.7 million of loans,
respectively. These aggregate originations include loans originated by R&G
Mortgage directly for the Bank of $225.3 million, $285.8 million, $211.3 million
and $156.3 million during such respective periods, or 51.6%, 47.8%, 47.2% and
48.4%, respectively, of total originations.
3
<PAGE>
R&G Mortgage pools FHA/VA loans into mortgage-backed securities which are
guaranteed by the Government National Mortgage Association ("GNMA"), which
securities are sold to securities broker dealers and other investors in Puerto
Rico. Conventional loans may either be sold directly to agencies such as the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC") or to private investors, or may be pooled into
FNMA or FHLMC mortgage-backed securities which are generally sold to investors.
During the six months ended June 30, 1998 and the years ended December 31, 1997,
1996 and 1995, R&G Mortgage sold $243.4 million, $246.1 million, $244.8 million
and $195.6 million of loans, respectively, which includes loans securitized and
sold but does not include loans originated for the Bank. R&G Mortgage generally
retains the servicing function with respect to the loans which have been
securitized and sold. R&G Mortgage is subject to regulation and examination by
the FHA, FNMA, FHLMC, GNMA, VA, the U.S. Department of Housing and Urban
Development ("HUD") and the OCFI.
R-G PREMIER BANK. The Bank's principal business consists of attracting
deposits from the general public and tax-advantaged funds from eligible Puerto
Rico corporations and using such deposits, together with funds obtained from
other sources, to originate (through R&G Mortgage) and purchase loans secured
primarily by residential real estate in Puerto Rico, and to purchase
mortgage-backed and other securities. To a lesser extent but with increasing
emphasis over the past few years, the Bank also originates consumer loans,
commercial business loans and loans secured by commercial real estate. Such
loans offer higher yields, are generally for shorter terms and facilitate the
Bank's provision of a full range of financial services to its customers. The
Bank also offers trust services through its Trust Department. Total loan
originations by the Bank during the six months ended June 30, 1998 and the years
ended December 31, 1997, 1996 and 1995 amounted to $54.6 million, $89.0 million,
$122.8 million and $124.6 million, respectively. The Bank's deposits are insured
by the FDIC and it is regulated and examined by the FDIC as its primary federal
regulatory agency as well as by the OCFI.
RECENT DEVELOPMENT. On July 31, 1998, the Company completed its acquisition
of Fajardo Federal Savings Bank ("Fajardo Federal"), which was merged into the
Bank. Fajardo Federal conducted business from its executive office and one
full-service branch office, both of which are located in Fajardo, Puerto Rico.
Fajardo Federal was primarily engaged in attracting deposits from the general
public and using those funds to originate loans secured by single-family
residences located in Puerto Rico and to a lesser extent, consumer and other
loans. At December 31, 1997, Fajardo Federal had total assets of $29.6 million,
total liabilities of $26.1 million, including deposits of $22.0 million, and
stockholders' equity of $3.5 million.
4
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(Dollars in Thousands, Except Per Share Data)
The following tables set forth certain consolidated financial and other data
of the Company at the dates and for the periods indicated. For additional
financial information about the Company, reference is made to the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and related notes included
in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998 and the Annual Report on Form 10-K for the year ended December 31, 1997,
each of which is incorporated by reference herein. See "Incorporation of Certain
Documents by Reference." The consolidated financial information for the
six-month periods ended June 30, 1998 and 1997 are derived from unaudited
consolidated financial statements, which, in the opinion of management, include
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the results for such periods. Results for the six-month
period ended June 30, 1998 are not necessarily indicative of the results for the
full year.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED
JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets(1)......................... $1,774,935 $1,268,130 $1,510,746 $1,037,798 $ 853,206 $ 622,499 $ 538,069
Loans receivable, net................... 944,403 719,803 765,059 603,751 473,841 301,614 216,620
Mortgage loans held for sale............ 90,339 31,246 46,885 54,450 21,318 22,021 174,221
Mortgage-backed and investment
securities held for trading........... 445,723 238,706 401,039 110,267 113,809 124,522 --
Mortgage-backed securities available
for sale.............................. 43,645 46,760 46,004 50,841 61,008 13,300 10,241
Mortgage-backed securities held to
maturity.............................. 31,124 35,563 33,326 37,900 41,731 84,122 39,122
Investment securities available for
sale.................................. 76,765 61,897 75,863 30,973 3,280 1,878 --
Investment securities held to
maturity.............................. 6,263 5,374 10,693 5,270 2,046 2,182 4,957
Servicing asset
Cash and cash equivalents(2)............ 62,278 79,186 68,366 98,856 104,195 45,622 66,958
Deposits................................ 820,919 674,021 722,418 615,567 518,187 380,148 312,151
Securities sold under agreements to
repurchase............................ 425,069 198,317 382,283 97,444 98,483 108,922 --
Notes payable........................... 217,790 164,812 159,304 126,842 81,130 45,815 133,913
Other borrowings(3)..................... 136,400 90,578 86,359 65,463 67,315 18,092 14,479
Subordinated notes...................... -- 3,250 3,250 3,250 3,250 3,250 3,071
Stockholders' equity.................... 152,123 124,699 138,054 115,633 66,385 55,970 49,531
Stockholders' equity per share(4)....... 5.38 4.41 4.88 4.08 3.55 2.99 2.65
SELECTED INCOME STATEMENT DATA:
Revenues:
Net interest income................... $ 20,798 $ 16,644 $ 36,530 $ 28,923 $ 21,273 $ 19,137 $ 14,253
Provision for loan losses............. (3,000) (2,945) (6,370) (4,258) (950) -- --
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision
for loan losses..................... 17,798 13,699 30,160 24,665 20,323 19,137 14,253
Loan administration and servicing
fees................................ 7,520 6,843 13,214 13,029 11,030 11,046 9,326
Net gain on sale of investments
available for sale.................. 149 25 107 642 -- -- 394
Net gain (loss) on sale of loans and
servicing........................... 15,053 11,291 24,033 11,709 8,384 (2,899) 29,026
Other(5).............................. 2,671 1,852 3,751 3,872 4,028 1,667 1,179
--------- --------- --------- --------- --------- --------- ---------
Total revenue....................... 43,191 33,710 71,265 53,917 43,765 28,951 54,178
--------- --------- --------- --------- --------- --------- ---------
Expenses:
Compensation and benefits............. 7,770 6,576 13,653 10,794 8,284 5,252 8,590
Occupancy expenses.................... 3,991 3,619 7,131 5,531 4,711 4,488 3,395
SAIF special assessment............... -- -- -- 2,508 -- -- --
General and administrative expenses... 10,700 8,329 18,252 15,424 13,731 13,269 14,561
--------- --------- --------- --------- --------- --------- ---------
Total expenses...................... 22,461 18,524 39,036 34,257 26,726 23,009 26,546
--------- --------- --------- --------- --------- --------- ---------
Income before minority interest in the
Bank and income taxes................. 20,730 15,186 32,229 19,660 17,039 5,942 27,632
Minority interest in the Bank's
earnings.............................. -- -- -- 538 743 500 812
Income taxes............................ 5,279 4,773 8,732 5,922 5,847 856 9,633
Cumulative effect of change in
accounting principle.................. -- -- -- -- -- 866 --
--------- --------- --------- --------- --------- --------- ---------
Net income.............................. $ 15,451 $ 10,413 $ 23,497 $ 13,200 $ 10,449 $ 5,452 $ 17,187
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic earnings per share(4)............. $ 0.55 $ 0.37 $ 0.83 $ 0.60 $ 0.56 $ 0.29 $ 0.92
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Diluted earnings per share(4)........... $ 0.53 $ 0.36 $ 0.81 $ 0.59 $ 0.56 $ 0.29 $ 0.92
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED
JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
SELECTED OPERATING DATA(6):
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS AND OTHER DATA:
Mortgage loans originated(7)............ $ 406,670 $ 266,196 $ 545,960 $ 426,874 $ 306,775 $ 488,071 $ 834,680
Mortgage loans purchased
Loan servicing portfolio................ 3,395,032 2,687,934 3,000,888 2,550,169 2,298,200 2,114,743 2,000,530
Return on average assets................ 1.91% 1.83% 1.85% 1.38% 1.47% 0.91% 4.07%
Return on average equity................ 21.32 17.38 18.69 15.54 17.08 10.34 41.98
Equity to assets at end of period....... 8.57 9.83 9.13 11.14 7.78 8.94 9.21
Interest rate spread(8)................. 2.61 2.87 2.88 3.00 2.93 3.24 3.66
Net interest margin(8).................. 2.84 3.20 3.12 3.24 3.26 3.48 3.92
Average interest-earning assets to
average interest-bearing
liabilities........................... 104.62 106.50 104.61 104.60 106.50 105.60 106.08
Total other expenses to average total
assets................................ 2.78 3.26 3.08 3.59 3.80 3.84 6.29
Full-service Bank offices(9)............ 18 15 15 15 14 8 8
R&G Mortgage offices(10)................ 18 18 18 16 13 13 14
Cash dividends declared per share(4).... .052 0.21 .065 .069 -- -- --
ASSET QUALITY RATIOS(11):
Non-performing loans to total loans
at end of period...................... 3.50% 2.98% 3.89% 3.09% 2.18% 1.84% 2.24%
Non-performing assets to total assets
at end of period...................... 2.06 1.86 2.12 1.90 1.32 1.04 1.07
Allowance for loan losses to total loans
at end of period...................... 0.70 0.61 0.87 0.55 0.72 0.92 1.34
Allowance for loan losses to total non-
performing loans at end of period..... 19.86 20.43 22.34 17.64 33.19 50.10 59.87
COMPANY REGULATORY CAPITAL RATIOS(12):
Tier 1 risk-based capital ratio......... 11.42% 12.63% 13.10% 13.91% 10.53% 11.03% N/A
Total risk-based capital ratio.......... 12.44 13.47 14.00 14.79 11.66 13.59 N/A
Tier 1 leverage capital ratio........... 6.83 7.65 7.34 8.45 6.25 5.95 N/A
</TABLE>
- ------------------------
(1) At June 30, 1998, R&G Mortgage and the Bank had total assets of $561.1
million and $1.2 billion, respectively, before consolidation.
(2) Comprised of cash and due from banks, securities purchased under agreements
to resell, time deposits with other banks and federal funds sold, all of
which had original maturities of 90 days or less.
(3) Comprised of long-term debt, advances from the FHLB of New York, federal
funds purchased and other secured borrowings.
(4) Per share information for all periods presented takes into consideration a
2-for-1 stock split paid in June 1998 and an 80% stock dividend paid in
September 1997.
(5) Comprised of change in provision for cost in excess of market value of loans
available for sale, net gain on trading account, and other miscellaneous
revenue sources, including service charges, fees and other income.
(6) With the exception of end of period ratios, all ratios for R&G Mortgage are
based on the average of month end balances while all ratios for the Bank are
based on average daily balances.
(7) Represents total originations by R&G Mortgage for the Bank as well as loans
originated by R&G Mortgage and sold to third parties.
(8) Interest rate spread represents the difference between the Company's
weighted average yield on interest-earning assets and the weighted average
rate on interest-bearing liabilities. Net interest margin represents net
interest income as a percent of average interest-earning assets.
(9) Does not include a one branch savings institution in Fajardo which was
acquired in July 1998.
(10) Includes 11 R&G Mortgage banking facilities which are located in the Bank's
offices.
(11) Non-performing loans consist of non-accrual loans and non-performing assets
consist of non-performing loans and real estate acquired by foreclosure or
deed-in-lieu thereof.
(12) All of such ratios were in compliance with the applicable requirements of
the FDIC. Prior to 1994, the Bank operated as a savings and loan
association. As such, the Bank was subject to the capital ratios of the
Office of Thrift Supervision and not those of the FDIC and was at all times
in capital compliance therewith.
6
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF SERIES A PREFERRED STOCK OFFERED HEREBY SHOULD
CAREFULLY CONSIDER ALL OF THE INFORMATION IN THIS PROSPECTUS INCLUDING THE RISK
FACTORS SET FORTH BELOW.
PAYMENT OF DIVIDENDS
Dividends on the Series A Preferred Stock are payable when, as and if
declared by the Board of Directors of the Company, out of funds legally
available therefor. Dividends on the Series A Preferred Stock are noncumulative.
To the extent that funds are not legally available for the payment of dividends
for any monthly dividend period or that such dividends are not declared with
respect to any monthly dividend period, the holders of the Series A Preferred
Stock shall have no right to receive a dividend in respect of such monthly
dividend period. The Company intends to pay monthly dividends at the stated
annual rate if allowable under legal and regulatory guidelines. However, no
assurances can be made that the Company will be able to or will decide to
declare and pay such dividends. The Series A Preferred Stock may be redeemed by
the Company without a dividend on such Series A Preferred Stock ever having been
declared or paid.
The Company is a holding company with no significant business operations of
its own. The Company's only significant asset is all of the common stock of R&G
Mortgage and the Bank. The Company's only source of cash to pay dividends on the
Series A Preferred Stock will consist of distributions from R&G Mortgage and the
Bank. There can be no assurance that the earnings from R&G Mortgage and the Bank
will be sufficient to make distributions to the Company to enable it to pay
dividends on the Series A Preferred Stock or, in the case of the Bank, that such
distributions will be permitted by applicable banking laws and regulations.
The ability of the Bank to pay dividends is restricted by the Puerto Rico
Banking Act of 1933, as amended (the "Banking Law"), by the Federal Deposit
Insurance Act and by FDIC regulations. In general terms, the Banking Law
provides that when the expenditures of a bank are greater than its receipts, the
excess of expenditures over receipts shall be charged against the undistributed
profits of the bank and the balance, if any, shall be charged against the
required reserve fund of the bank. If there is no sufficient reserve fund to
cover such balance in whole or in part, the outstanding amount shall be charged
against the bank's capital account. The Banking Law provides that until said
capital has been restored to its original amount and the reserve fund is
restored to twenty percent (20%) of the original capital of the bank, the bank
may not declare any dividends. In general terms, the Federal Deposit Insurance
Act and FDIC regulations restrict the payment of dividends when a bank is
undercapitalized, when the bank has failed to pay FDIC insurance assessments, or
when there are safety and soundness concerns regarding such bank. Under
applicable federal regulatory capital guidelines, at June 30, 1998, the Bank was
considered "well capitalized," with leverage and Tier 1 risk-based capital of
6.83% and 11.42% of adjusted total assets, respectively, compared to a 4.0%
minimum requirement, and its total risk-based capital amounted to 12.44%
compared to an 8.0% minimum requirement. In addition, the capital being raised
in the Offering will be treated as Tier 1 capital under applicable federal
regulatory capital guidelines. Management of the Company further believes that
no supervisory or safety and soundness concerns have been raised by its primary
regulators with respects to its operations.
NO PRIOR MARKET
Prior to the Offering, there has been no public market for the Company's
Series A Preferred Stock. The Company has applied to list the Series A Preferred
Stock on the Nasdaq National Market under the symbol "RGFCP." However, there can
be no assurance that an established and liquid trading market for the Series A
Preferred Stock will develop, that it will continue if it does develop, or that
after the completion of the Offering, the Series A Preferred Stock will trade at
or above the Price to Public set forth on the cover of this Prospectus.
7
<PAGE>
POTENTIAL EFFECTS OF CHANGES IN INTEREST RATES ON R&G MORTGAGE AND THE BANK
GENERAL. Changes in interest rates can have a variety of effects on the
Company's business. In particular, changes in interest rates affect the volume
of mortgage loan originations, the interest rate spread on loans held for sale,
the amount of gain on sale of loans, the value of R&G Mortgage's loan servicing
portfolio and the Bank's net interest income. A substantial increase in interest
rates could affect the volume of the Company's loan originations for both the
Bank and third parties by reducing the demand for mortgages for home purchases,
as well as the demand for refinancings of existing mortgages. A substantial
decrease in interest rates will generally increase the demand for mortgages. To
the extent that interest rates in future periods were to increase substantially,
the Company would expect overall originations to decline. A decrease in the
volume of the Company's mortgage originations could result in a decrease in the
amount of R&G Mortgage's mortgage origination income and portfolio generated net
interest income to the Bank. During the six months ended June 30, 1998 and the
years ended December 31, 1997, 1996 and 1995, R&G Mortgage originated an
aggregate of $436.5 million, $598.2 million, $448.1 million and $322.7 million
of loans, respectively, which includes loans originated for the Bank.
EFFECT ON MORTGAGE LOAN ORIGINATIONS. The profitability to R&G Mortgage of
its mortgage loan originations is in part a function of the difference between
long-term interest rates, which is the rate at which R&G Mortgage originates
mortgage loans for third parties, and short-term interest rates, which is the
rate at which R&G Mortgage finances such loans until they are sold. Generally,
short-term interest rates are lower than long-term interest rates and R&G
Mortgage benefits from the difference, or the spread, during the time the
mortgage loans are held by R&G Mortgage pending sale. A decrease in this spread
would have a negative effect on R&G Mortgage's net interest income and
profitability, and there can be no assurance that the spread will not decrease.
R&G Mortgage attempts to limit its exposure to this interest rate risk through
the sale of substantially all loans within 180 days of origination. During the
six months ended June 30, 1998 and the years ended December 31, 1997, 1996 and
1995, R&G Mortgage sold $243.4 million, $246.1 million, $244.8 million and
$195.6 million of loans, respectively, which includes loans securitized and sold
but does not include loans originated by R&G Mortgage on behalf of the Bank.
Loans which are originated by R&G Mortgage for the Bank's loan portfolio, in
contrast, are funded by the Bank through deposits and various longer-term
borrowing sources.
PIPELINE RISK. A mortgage-banking company is also exposed to interest rate
risk from the time the interest rate on the customer's mortgage loan application
is established through the time the mortgage loan closes, and until the time the
company commits to sell the mortgage loan. In order to limit the Company's
exposure to interest rate risk through the time the mortgage loan closes, the
Company generally does not permit the borrower to lock-in an interest rate until
the actual closing date or immediately prior to such date. Moreover, in order to
limit the Company's exposure to interest rate risk through the time the loan is
sold or committed to be sold, the Company may, depending upon market conditions,
enter into forward commitments to sell a portion of its mortgage loans to
investors for delivery at a future time. At June 30, 1998, the Company had $49.3
million of pre-existing commitments by third-party investors to purchase
mortgage loans. To the extent that the Company originates or commits to
originate loans without pre-existing commitments by investors to purchase such
loans or is not otherwise hedged against changes in interest rates ("unhedged
loans"), the Company will be subject to the risk of gains or losses through
adjustments to the carrying value of loans held for sale or on the actual sale
of such loans (the value of unhedged loans fluctuates inversely with changes in
interest rates).
EFFECT ON LOAN SERVICING PORTFOLIO. The market value of and income from the
Company's loan servicing portfolio may also be affected by interest rate
fluctuations. Specifically, a decrease in interest rates relative to the average
interest rate of mortgage loans in the Company's loan servicing portfolio could
cause an increase in the rate at which outstanding loans are prepaid (through
borrower refinancing or otherwise), reducing the period of time during which the
Company would earn servicing income with respect to such loans. Prepayments
generally decrease the amount of the Company's future loan servicing
8
<PAGE>
income which, in turn, decreases the value of the Company's loan servicing
portfolio. Further, an increase in prepayment rates may accelerate the
amortization of any capitalized servicing or excess servicing carried on the
Company's balance sheet. Conversely, the market value of and income from the
Company's loan servicing portfolio may be positively affected as mortgage
interest rates increase. At June 30, 1998, the Company was servicing
approximately 61,400 loans which had an aggregate loan balance of $3.4 billion.
At June 30, 1998, the Company had capitalized $28.6 million of mortgage
servicing rights. During the six months ended June 30, 1998 and the years ended
December 31, 1997, 1996 and 1995, the Company recognized amortization
adjustments (including any impairment adjustments) of $1.3 million, $1.8
million, $1.2 million and $1.5 million, respectively, with respect to its
capitalized mortgage servicing rights. Such amortization adjustments have and
will continue to have a significant effect on the results of operations of the
Company.
EFFECT ON NET INTEREST INCOME. The operations of the Company in general and
the Bank in particular are also substantially dependent on net interest income,
which is the difference between the interest income earned on interest-earning
assets and the interest expense paid on interest-bearing liabilities. Because
the Company's interest-earning assets have longer effective maturities than its
interest-bearing liabilities, the yield on the Company's interest-earning assets
generally will adjust more slowly than the cost of its interest-bearing
liabilities and, as a result the Company's net interest income and the value of
its securities portfolio generally would be adversely affected by increases in
interest rates and positively affected by comparable declines in interest rates.
At June 30, 1998, the Company's interest-bearing liabilities which were
estimated to mature or reprice within one year exceeded the Company's interest-
earning assets with the same characteristics by $442.9 million or 24.9% of total
assets.
EFFECT ON INTEREST-EARNING ASSETS. In addition to affecting net interest
income, changes in interest rates also can affect the value of the Company's
interest-earning assets, which are comprised of fixed and adjustable-rate
instruments. Generally, the value of fixed-rate instruments declines when
interest rates rise and, conversely, increases when interest rates fall. At June
30, 1998, $445.7 million or 73.9% of the Company's mortgage-backed and
investment securities were classified as held for trading and $120.4 million or
20.0% of such mortgage-backed and investment securities were classified as
available for sale. Securities classified as held for trading are reported at
fair value, with unrealized gains and losses included in earnings, while
securities classified as available for sale are reported at fair value with
unrealized gains and losses excluded from earnings and reported net of taxes as
a separate component of stockholders' equity.
ASSET AND LIABILITY MANAGEMENT. The Company has sought to reduce the
vulnerability of its operations to changes in interest rates by managing the
nature and composition of its rate sensitive assets and rate sensitive
liabilities. In general, the Company's goal in managing its interest rate risk
is to match, to the extent possible, the repricing or maturities of its
interest-earning assets to its interest-bearing liabilities. The Company
attempts to manage its exposure to interest rate risk internally through balance
sheet restructuring (generally either attracting longer-term funds such as
certificates of deposit or borrowings or holding mortgage-backed derivative
securities resulting from the Company's prior securitization activities) and
externally through the use of interest rate swaps, options and/or futures.
AVAILABILITY OF FUNDING SOURCES
The Company's business requires continuous access to various funding
sources. While the Bank is able to fund loans originated for it by R&G Mortgage
through deposits which are primarily generated through its network of branch
offices as well as through longer-term borrowings from the FHLB of New York and
other alternative sources, R&G Mortgage's business is significantly dependent
upon short-term borrowings under warehousing lines. At June 30, 1998, R&G
Mortgage was authorized to borrow under its warehousing lines up to an aggregate
of $141.0 million. An aggregate of $133.7 million was outstanding under such
warehousing lines as of such date. Certain of these warehousing lines of credit
require R&G
9
<PAGE>
Mortgage to maintain minimum levels of net worth and debt service and limit the
amount of indebtedness and dividends R&G Mortgage may declare.
In addition, at June 30, 1998, the Bank had access to $441.2 million in
advances from the FHLB of New York, of which $121.4 million was outstanding as
of such date. The FHLB of New York has also issued $51.3 million in standby
letters of credit which secure outstanding notes payable and certain
certificates of deposit. The Bank maintains qualifying collateral (consisting of
first mortgage loans and securities) which amounted to $190.0 million as of June
30, 1998, to secure repayment of its FHLB of New York advances and letters of
credit. The Bank maintains collateral with the FHLB of New York in excess of
applicable requirements in order to facilitate additional future borrowings by
the Bank. To a lesser extent, the Bank also utilizes as a low-cost source of
borrowing notes which are invested in eligible activities which provide tax
advantages under Puerto Rico law and Section 936 of the U.S. Internal Revenue
Code of 1986, as amended (the "Code"). (See "--Economic Conditions in Puerto
Rico and Repeal of Section 936 Benefits.") At June 30, 1998, the Company had
$84.1 million of such notes
While the Company expects to have continued access to credit from the
foregoing sources of funds, there can be no assurance that such financing
sources will continue to be available or will be available on favorable terms.
In the event that R&G Mortgage's warehousing lines of credit were reduced or
eliminated and R&G Mortgage were not able to replace such lines on a
cost-effective basis, R&G Mortgage would be forced to curtail or cease its
mortgage origination business, which would have a material adverse effect on the
Company's operations and financial condition. Although R&G Mortgage could also
potentially access borrowings from the Bank, any such borrowings would be
subject to and limited by provisions of Sections 23A and 23B of the Federal
Reserve Act, which sections impose restrictions on transactions between the Bank
and any affiliate thereof (which includes R&G Mortgage).
DELINQUENCY, FORECLOSURE AND OTHER CREDIT RISKS
DEFAULT AND RECOURSE RISK TO R&G MORTGAGE. From the time that R&G Mortgage
funds the mortgage loans it originates for third parties to the time it sells
them (typically approximately 30 to 180 days), R&G Mortgage is generally at risk
for any mortgage loan defaults. Once R&G Mortgage sells the mortgage loans it
originates, the risk of loss from mortgage loan defaults and foreclosures passes
to the purchaser or insurer of the mortgage loans. However, in the ordinary
course of business, R&G Mortgage makes certain representations and warranties to
the purchasers and insurers of mortgage loans. If a mortgage loan defaults and
there has been a breach of these representations or warranties, R&G Mortgage may
become liable for the unpaid principal and interest on the defaulted mortgage
loan. In such a case, which would primarily arise as the result of fraudulent
misrepresentations made to R&G Mortgage in the loan origination process, R&G
Mortgage may be required to repurchase the mortgage loan and bear any subsequent
loss on the mortgage loan. In addition, with respect to the non-conventional
mortgage loans originated by R&G Mortgage for the Bank, which loans generally
are subsequently securitized by R&G Mortgage and sold on behalf of the Bank, R&G
Mortgage occasionally provides recourse in the event of mortgage loan defaults
and/or foreclosures or certain documentation deficiencies. At June 30, 1998,
there were $379.7 million of loans subject to such recourse provisions. During
the six months ended June 30, 1998 and the years ended December 31, 1997, 1996
and 1995, losses incurred by R&G Mortgage with respect to the recourse
provisions were insignificant.
DEFAULT RISK TO THE BANK. In addition, the Bank is subject to the risk of
loss from mortgage loan defaults and foreclosures with respect to the loans
originated for its portfolio by R&G Mortgage. All of the loans originated for
the Bank's portfolio are based on its Board approved written underwriting policy
and procedures. Notwithstanding the care with which loans are originated,
industry experience indicates that a portion of the Bank's loans will become
delinquent and a portion of the loans will require partial or entire charge off.
Regardless of the underwriting criteria utilized by the Bank, losses may be
experienced as a result of various factors beyond the Bank's control, including,
among others, changes in market conditions
10
<PAGE>
affecting the value of collateral and problems affecting the credit of the
borrower. Due to the concentration of loans in Puerto Rico, adverse economic
conditions in Puerto Rico could result in a decrease in the value of the Bank's
collateral. Although loan delinquencies have historically been higher in Puerto
Rico than generally in the United States, loan charge-off's have historically
been lower than in the United States.
The Bank establishes provisions for loan losses, which are charged to
operations, in order to maintain the allowance for loan losses at a level which
is deemed to be appropriate by management based upon an assessment of prior loss
experience, the volume and type of lending being conducted by the Bank, industry
standards, past due loans, economic conditions in the Bank's market area
generally and other factors related to the collectibility of the Bank's loan
portfolio. The Bank's allowance for loan losses amounted to $6.7 million and
$6.8 million at June 30, 1998 and December 31, 1997, respectively, which
constituted 19.86% and 22.34% of the Bank's non-performing loans as of such
respective dates. Total charge-offs to the Bank's allowance for loan losses
amounted to $3.2 million and $5.4 million for the six months ended June 30, 1998
and the year ended December 31, 1997, respectively. Although management utilizes
its best judgment in providing for loan losses, there can be no assurance that
the Bank will not have to increase its provisions for loan losses in the future
as a result of future increases in non-performing loans or for other reasons.
Any such increases in the Bank's provisions for loan losses or any loan losses
in excess of the Bank's provisions with respect thereto could have an adverse
affect on the Company's future financial condition and/or results of operations.
SERVICING RISK TO R&G MORTGAGE. R&G Mortgage is also affected by mortgage
loan delinquencies and defaults on mortgage loans that it services. Under
certain types of servicing contracts, the servicer must forward all or part of
the scheduled payments to the owner of the mortgage loan, even when mortgage
loan payments are delinquent. Also, to protect their liens on mortgaged
properties, owners of mortgage loans usually require the servicer to advance
mortgage and hazard insurance and tax payments on schedule even though
sufficient escrow funds may not be available. The servicer will ultimately be
reimbursed by the mortgage owner or from liquidation proceeds for payments
advanced that the servicer is unable to recover from the mortgagor. However, in
the interim, the servicer must absorb the cost of funds advanced during the time
the advance is outstanding. Further, the servicer must bear the increased costs
of attempting to collect on delinquent and defaulted mortgage loans. Although
these increased costs are somewhat ameliorated through the receipt of late fees
and the reimbursement of certain direct expenses out of foreclosure proceeds,
management believes that increased delinquencies and defaults generally increase
the costs of the servicing function. In addition, if a default is not cured, the
mortgage loan will be repaid as a result of foreclosure proceedings. As a
consequence, R&G Mortgage is required to forego servicing income from the time
such loan becomes delinquent, and into the future. During the six months ended
June 30, 1998 and the years ended December 31, 1997, 1996 and 1995, R&G Mortgage
wrote-off $168,000, $189,000, $323,000 and $230,000, respectively, of expenses
which it was unable to recover with respect to its loan servicing operations.
COMPOSITION OF THE BANK'S LOAN PORTFOLIO
The loans in the Bank's loan portfolio are predominantly secured by real
estate, all of which is located in Puerto Rico. Therefore, conditions in the
Puerto Rico real estate market will strongly influence the level of the Bank's
non-performing loans and its results of operations. Real estate values are
affected by, among other things, changes in general or local economic
conditions, changes in governmental rules or policies, the availability of loans
to potential purchasers and acts of nature. Although the Bank's underwriting
standards are intended to protect the Company against adverse real estate
trends, declines in the Puerto Rico real estate market could negatively impact
the value of the collateral securing the Bank's loans and its results of
operations.
11
<PAGE>
PARTICIPATION IN FEDERAL PROGRAMS
R&G Mortgage's ability to generate funds by sales of mortgage loans or
mortgage-backed securities is largely dependent upon the continuation of
programs administered by FNMA, FHLMC and GNMA, which facilitate the issuance of
such securities, as well as R&G Mortgage's continued eligibility to participate
in such programs. In addition, part of R&G Mortgage's business is dependent upon
the continuation of various programs administered by the FHA, which insures
mortgage loans, and the VA, which partially guarantees mortgage loans and the
Farmers Home Administration, which guarantees mortgage loans.
Although R&G Mortgage is not aware of any such proposed actions,
discontinuation of, or significant reduction in, the operation of such programs
could have a material adverse effect on R&G Mortgage's operations. R&G Mortgage
expects that it will continue to remain eligible to participate in such programs
but any significant impairment of such eligibility could also materially
adversely affect its operations.
The products offered under the foregoing programs may be changed from time
to time by the sponsor. The profitability of specific products may vary
depending on a number of factors, including administrative costs to R&G Mortgage
of originating such products.
YEAR 2000 COMPLIANCE PROGRAMS
The Year 2000 issue is a potential computer programming problem that may
affect many electronic data processing systems. In order to minimize the length
of data fields, most computer programs eliminated the first two digits in the
year date field. This problem could affect date-sensitive calculations that
treat "00" as the year 1900, rather than 2000. This anomaly could result in
miscalculations when processing critical date-sensitive information after
December 31, 1999.
The Company has adopted a plan to address Year 2000 data processing issues.
The plan includes the assessment of all internal systems, programs and data
processing applications as well as those provided to the Company by third-party
vendors. The Company's goal is to have all systems and applications compliant by
late 1998. The Company has preliminarily estimated that its costs related to its
Year 2000 project will amount to $300,000. Costs incurred in 1997 relating to
updating the Company's computer application systems in preparation for the Year
2000 issue were insignificant. The Company expects to continue to incur cost
related to this project through the year 1999. The Company estimates that costs
associated with upgrading or modifying existing internal use software for the
Year 2000 should be minimal. Most of such costs are related to purchase of
hardware (primarily desktop computers) to replace existing equipment, most of
which has been fully depreciated. The Company does not believe that the cost of
addressing the Year 2000 issues is a material event or uncertainty that would
cause reported financial information not to be necessarily indicative of future
operating results or financial condition, and the costs or the consequences of
incomplete or untimely resolution of its Year 2000 issues does not represent a
known material event or uncertainty that is reasonably likely to affect its
future financial results, or cause its reported financial information not to be
necessarily indicative of future operating results or future financial
condition.
DEPENDENCE ON KEY INDIVIDUAL
While the Company in recent years has strengthened its management team, the
success of the Company and its subsidiaries, R&G Mortgage and the Bank, has
historically been dependent on Victor J. Galan, the co-founder and Chairman of
the Board of R&G Mortgage and the Chairman of the Board and Chief Executive
Officer of the Bank. The Company's future success may also depend, to a great
extent, upon the services of Mr. Galan, the Company's Chairman of the Board and
Chief Executive Officer. The Company believes that the prolonged unavailability
or the unexpected loss of the services of Mr. Galan could have a material
adverse effect upon the Company, as attracting a suitable replacement may
involve significant time and/or expense. Although the Company maintains key man
life insurance policies
12
<PAGE>
aggregating $1.8 million on Mr. Galan, all of such policies have been assigned
as collateral pursuant to certain outstanding warehousing lines of credit.
FACTORS RELATING TO REGULATION
The Company, as a Puerto Rico chartered bank holding company, the Bank, as a
Puerto Rico chartered and federally insured commercial bank, and R&G Mortgage,
as a Puerto Rico licensed mortgage banking company,, are each subject to
extensive federal and Puerto Rico governmental supervision and regulation. There
are laws and regulations which govern transactions between the Company, R&G
Mortgage and the Bank. The operations of R&G Mortgage are subject to various
laws and regulations that, among other things, establish licensing requirements,
regulate credit granting activities, establish maximum interest rates and
insurance coverages, require specific disclosures to customers, govern secured
transactions, and establish collection, repossession and claims handling
procedures and other trade practices. The Bank is subject to extensive federal
and Puerto Rico supervision and regulation, which is primarily for the
protection of depositors. The Bank is required to maintain reserves against
deposits, and there are restrictions on the types and amounts of loans that may
be granted and the interest that may be charged thereon, and limitations on the
types of other investments that may be made and the types of services that may
be offered. In addition, federal and Puerto Rico regulatory authorities have the
power in certain circumstances to limit transactions between the Company and its
affiliates, to limit the Bank's growth, to prohibit or limit the payment of
dividends from the Bank to the Company and to require the Bank to maintain
capital ratios in accordance with regulatory requirements.
HOLDING COMPANY STRUCTURE
The Company is a bank holding company subject to the supervision and
regulation of the Federal Reserve Board as a result of its ownership of the
Bank. Under the Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial strength to any subsidiary bank and to commit
resources to support each such subsidiary bank. This support may be required at
times when, absent such policy, the bank holding company might not otherwise
provide such support. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment. In addition, any loans by a bank
holding company to any of its subsidiary banks must be subordinated in right of
payment to deposits and to certain other indebtedness of such subsidiary bank.
The Bank is currently the only depository institution subsidiary of the Company.
To date, the Company has not entered into any agreement with a federal
regulatory agency to maintain the capital of the Bank nor has it made any loans
to the Bank.
Because the Company is a holding company, its right to participate in the
assets of any subsidiary upon the latter's liquidation or reorganization will be
subject to the prior claims of the subsidiary's creditors (including depositors
in the case of the Bank) except to the extent that the Company may itself be a
creditor with recognized claims against the subsidiary.
ECONOMIC CONDITIONS IN PUERTO RICO AND REPEAL OF SECTION 936 TAX BENEFITS
The Company's business activities and credit exposure are concentrated with
customers in Puerto Rico. Accordingly, the Company's financial condition and
results of operations are dependent to a significant extent upon the economic
conditions prevailing from time to time in Puerto Rico. Any significant adverse
economic developments in Puerto Rico could result in a downturn in loan
originations, an increase in the level of nonperforming assets and a reduction
in the value of the Company's loans, real estate owned and mortgage servicing
portfolio.
Section 936 of the Code ("Section 936") has historically provided incentives
for U.S. corporations to invest in Puerto Rico by granting a credit to
qualifying corporations ("936 Corporations") against a portion
13
<PAGE>
of the U.S. income tax payable from the active conduct of a trade or business in
Puerto Rico and 100% of certain qualifying investment income derived in Puerto
Rico. Section 936 helped to create a pool of lower-cost funds in Puerto Rico
that the Company historically used to fund a portion of its banking activities.
The Small Business Job Protection Act of 1996 (the "Act") provided for the
elimination of the special U.S. federal income tax benefits available under
Section 936 for 936 Corporations. The Act repealed Section 936, subject to a
ten-year grandfather rule for 936 Corporations that were engaged in the active
conduct of a trade or business on October 13, 1995. During the grandfather
period, the amount of income that will benefit from the credit available under
Section 936 derived from the active conduct of a trade or business will be
subject to varying caps. The credit available for qualifying investment income
under Section 936 was not made subject to the grandfather rule and was
eliminated effective for taxable years beginning after December 31, 1995 except
where such investment income was received or accrued prior to July 1, 1996.
While the long-term impact of the repeal of Section 936 on the Puerto Rico
economy cannot be determined at this time, the repeal of Section 936 could have
an adverse effect on the general economic condition of Puerto Rico by reducing
incentives for investment in Puerto Rico. Any such adverse effect on the general
economy of Puerto Rico could lead to an increase in loan delinquencies, a
reduction in the level of residential construction and a decrease in the demand
for consumer, mortgage and commercial loans. The elimination of the credit for
investment income has resulted in a decrease in the amount of funds invested in
the Puerto Rico financial market by 936 Corporations. The adverse effect of any
such increase has been ameliorated by a general decline in interest rates since
the repeal of Section 936.
COMPETITION
The market for financial services in Puerto Rico is characterized by growing
competition and increasing pressure on net interest margins and the level of
mortgage originations. The Company competes across a broad spectrum of financial
services with other Puerto Rico, U.S. and foreign banks, and with Puerto Rico
credit unions, finance companies and mortgage banking companies. Given the level
of competition in Puerto Rico, there can be no assurance that net interest
margins will continue at present levels. The Puerto Rico banking and mortgage
banking industries have experienced increased competition in recent years, which
has led to, among other things, consolidation within such industries.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Series A
Preferred Stock offered hereby will be $ million ($ million, if the
Underwriters' over-allotment option is exercised in full) after deducting the
underwriting discounts and estimated Offering expenses payable by the Company.
See "Underwriting."
The Company is raising funds in the Offering primarily to support further
growth in the businesses of R&G Mortgage and the Bank. The Company expects to
contribute approximately 60% of the net proceeds to R&G Mortgage and 40% of the
net proceeds to the Bank. R&G Mortgage intends to use the proceeds received
initially to pay down its warehousing lines. Subsequently, R^&G Mortgage intends
to utilize the capital to support additional borrowings, which may facilitate
the acquisition of additional mortgage servicing rights and an increase in
mortgage originations. The Bank intends to use the proceeds received to
initially pay down FHLB of New York advances. The net proceeds will increase the
Bank's regulatory capital, which will in the future facilitate the ability to
increase deposits and borrowings to fund additional investments.
14
<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's consolidated ratios of earnings
to fixed charges for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings to Fixed Charges(1):
Including interest on deposits....................... 1.55x 1.56x 1.52x 1.42x 1.50x 1.23x 2.67x
Excluding interest on deposits....................... 2.02x 2.37x 2.11x 2.06x 2.48x 1.58x 5.70x
</TABLE>
- ------------------------
(1) The Company had no preferred stock outstanding during the periods shown.
For purposes of computing the ratios of earnings to fixed charges, earnings
represent income from continuing operations before income taxes, extraordinary
items and cumulative effect of a change in accounting principle plus fixed
charges. Fixed charges represent total interest expense, including and excluding
interest on deposits, as applicable, as well as a reasonable approximation of
the interest component of rental expense.
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1998 and as adjusted to reflect the issuance of 1,600,000
shares of Series A Preferred Stock pursuant to the Offering at an assumed Price
to Public and receipt by the Company of the net proceeds therefrom, as if the
sale of the Series A Preferred Stock had been consummated on June 30, 1998. See
"Use of Proceeds." The table does not give effect to any exercise of the
over-allotment option granted to the Underwriters.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -------------
<CAPTION>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Borrowings (1)........................................................................ $ 779,258 $
---------- -----
---------- -----
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized; none outstanding and
1,600,000 Series A Preferred Stock, as adjusted..................................... $ -- $
Common stock, $.01 par value:
Class A shares, 40,000,000 shares authorized; 18,440,556 shares issued and
outstanding....................................................................... 184
Class B Shares, 20,000,000 shares authorized, 9,848,948 issued and outstanding...... 99
Additional paid-in capital............................................................ 38,194
Retained earnings..................................................................... 110,113
Capital reserves of the Bank.......................................................... 2,215
Accumulated other comprehensive income................................................ 1,318
---------- -----
Total stockholders' equity.......................................................... 152,123
---------- -----
---------- -----
Total capitalization................................................................ $ 931,381 $
---------- -----
---------- -----
Common stockholders' equity per share................................................. $ 5.38 $
---------- -----
---------- -----
</TABLE>
- ------------------------
(1) Includes securities sold under agreements to repurchase, notes payable and
other borrowings.
16
<PAGE>
DESCRIPTION OF SERIES A PREFERRED STOCK
GENERAL
The following summary sets forth the material terms and provisions of the
Series A Preferred Stock and is qualified in its entirety by reference to the
terms and provisions of the Company's Certificate of Incorporation, as amended
by a resolution of the Board of Directors relating to and authorizing the Series
A Preferred Stock (the "Authorizing Resolution").
The Series A Preferred Stock constitutes an authorized series of Company
preferred stock. Company preferred stock may be issued from time to time in one
or more series with such rights, preferences and limitations as are determined
by the Company's Board of Directors. The Board of Directors has authorized the
Company to issue the Series A Preferred Stock offered hereby, with the
designations, dividend rights, redemption and other provisions as set forth in
resolutions providing for the issuance thereof adopted by the Board of
Directors, and as described generally below.
When issued, the Series A Preferred Stock will be validly issued, fully paid
and non-assessable. The holders of the Preferred Stock will have no preemptive
rights with respect to any shares of the capital stock of the Company or any
other securities of the Company convertible into or carrying rights or options
to purchase any such shares. The Series A Preferred Stock will not be subject to
any sinking fund or other obligation of the Company for their repurchase or
retirement.
DIVIDEND RIGHTS
Holders of record of the Series A Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors of the Company, or a
duly authorized committee thereof, out of funds legally available therefor,
noncumulative cash dividends at the annual rate per share of % of the $25
liquidation preference per share, or $ per share per month, with each
aggregate payment made to each record holder of the Series A Preferred Stock
being rounded to the next lowest cent. Dividends on the Series A Preferred Stock
will accrue from August , 1998 and will be payable monthly in arrears in
United States dollars commencing on October 1, 1998, and for each monthly
dividend period commencing on the first day of each month thereafter, and ending
on and including the day next preceding the first day of the next Dividend
Period (each, a "Dividend Period") to the holders of record of the Series A
Preferred Stock as they appear on the books of the Company on the second
Business Day (as defined below) immediately preceding the relevant Dividend
Payment Date (as defined below). Dividends so declared will be payable on the
first day of each month commencing on October 1, 1998 (each, a "Dividend Payment
Date"). When a Dividend Payment Date falls on a day that is not a Business Day,
the dividend will be paid on the next Business Day, without any interest or
accumulation on payment in respect of any such delay. A "Business Day" is a day
on which the Nasdaq National Market is open for trading and which is not a
Saturday, Sunday or other day on which the banks in the Commonwealth of Puerto
Rico or New York City are authorized or obligated by law to close. The amount of
dividends payable per share of Series A Preferred Stock for each Dividend Period
shall be computed on the basis of twelve 30-day months and a 360-day year. The
amount of dividends payable for any period shorter than a full month dividend
period will be computed on the basis of the actual number of days elapsed in
such period.
Holders of Series A Preferred Stock will not participate in dividends, if
any, declared and paid on the Common Stock of the Company. Except as described
herein, holders of the Series A Preferred Stock will have no other right to
participate in the profits of the Company or to receive dividends.
If the Board of Directors of the Company or an authorized committee thereof
does not declare a dividend on the Series A Preferred Stock for a Dividend
Period, then holders of the Series A Preferred Stock will have no right to
receive a dividend for that Dividend Period, and the Company will have no
obligations to pay the dividend accrued for that Dividend Period, whether or not
dividends are declared for any subsequent Dividend Period.
17
<PAGE>
When dividends are not paid in full on the Series A Preferred Stock and on
any other shares of preferred stock of the Company ranking on a parity as to the
payment of dividends with the Series A Preferred Stock, all dividends declared
upon the Series A Preferred Stock and any such other shares of preferred stock
will be declared PRO RATA so that the amount of dividends declared per share on
the Series A Preferred Stock and any such other shares of preferred stock will
in all cases bear to each other the same ratio that the liquidation preference
per share of the Series Preferred Stock and any such other preferred stock bear
to each other.
So long as any shares of the Series A Preferred Stock remain outstanding,
unless the full dividends on all outstanding shares of Series A Preferred Stock
have been declared and paid or set apart for payment for the current Dividend
Period and have been paid for all Dividend Periods for which dividends were
declared and not paid, (i) no dividend (other than a dividend in Common Stock or
in any other stock of the Company ranking junior to the Series A Preferred Stock
as to dividends or distribution of assets upon liquidation, dissolution or
winding up) may be declared and paid, or set apart for payment, or other
distribution declared or made, on the Common Stock or on any other stock ranking
junior to or on a parity with the Series A Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, and (ii) no
shares of Common Stock or shares of any other stock of the Company ranking
junior to or on a parity with Series A Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, will be
redeemed, purchased or otherwise acquired for any consideration by the Company
or any subsidiary of the Company (nor may any moneys be paid to or made
available for a sinking or other fund for the redemption, purchase or other
acquisition of any shares of any such stock), other than by conversion into or
exchange for Common Stock or any other stock of the Company ranking junior to
the Series A Preferred Stock as to dividends or distribution of assets upon
liquidation, dissolution or winding up.
CONVERSION; EXCHANGE
The Series A Preferred Stock will not be convertible into, or exchangeable
for any other securities of the Company.
REDEMPTION AT THE OPTION OF THE COMPANY
The shares of the Series A Preferred Stock are not redeemable prior to
October 1, 2003. On or after that date, the shares of Series A Preferred Stock
will be redeemable in whole or in part from time to time at the option of the
Company, upon not less than 30 nor more than 60 days' notice by mail, at the
redemption prices set forth in the table below, during the twelve-month periods
beginning on October 1 of the years set forth below, subject to prior approval
of the Federal Reserve Board, if required by applicable law, plus accrued and
unpaid dividends for the then current monthly dividend period to the date fixed
for redemption.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------ ---------------------
<S> <C>
2003.................................................................... $
2004....................................................................
2005....................................................................
2006 and thereafter..................................................... 25.00
</TABLE>
In no event shall the Company redeem less than all the outstanding Series A
Preferred Stock, unless dividends for the then-current Dividend Period to the
date fixed for redemption for such series shall have been declared and paid or
set apart for payment on all outstanding Series A Preferred Stock, provided
however, that the foregoing provisions will not prevent, if otherwise permitted,
the purchase or acquisition by the Company of Series A Preferred Stock pursuant
to a tender or exchange offer made on the same terms to holders of all the
outstanding Series A Preferred Stock and mailed to the holders of record of all
such outstanding shares at such holders' address as the same appear on the books
of the Company; and
18
<PAGE>
provided, further, that if some, but less than all, of the Series A Preferred
Stock are to be purchased or otherwise acquired by the Company, the Series A
Preferred Stock so tendered will be purchased or otherwise acquired by the
Company on a PRO RATA basis (with adjustments to eliminate fractions) according
to the number of such shares tendered by each holder so tendering Series A
Preferred Stock for such purchase or exchange.
In the event that less than all of the outstanding shares of the Series A
Preferred Stock are to be redeemed in any redemption at the option of the
Company, the total number of shares to be redeemed in such redemption shall be
determined by the Board of Directors and the shares to be redeemed shall be
allocated PRO RATA or by lot as may be determined by the Board of Directors or
by such other method as the Board of Directors may approve and deem equitable,
including any method to conform to any rule or regulation of any national or
regional stock exchange or automated quotation system upon which the shares of
the Series A Preferred Stock may at the time be listed or eligible for
quotation.
The Company may redeem the Series A Preferred Stock without ever having
declared or paid a dividend on such stock.
Notice of any proposed redemption shall be given by the Company by mailing a
copy of such notice to the holders of record of the shares of Series A Preferred
Stock to be redeemed, at their address of record, not more than 60 nor less than
30 days prior to the redemption date. The notice of redemption to each holder of
shares of Series A Preferred Stock shall specify the number of shares of Series
A Preferred Stock to be redeemed, the redemption date and the redemption price
payable to such holder upon redemption and shall state that from and after said
date dividends thereon will cease to accrue. If less than all the shares owned
by a holder are then to be redeemed at the option of the Company, the notice
shall also specify the number of shares of Series A Preferred Stock which are to
be redeemed and the numbers of the certificates representing such shares. Any
notice which is mailed as herein provided shall be conclusively presumed to have
been duly given, whether or not the stockholder receives such notice. Failure to
duly give such notice by mail, or any defect in such notice, to the holders of
any stock designated for redemption shall not affect the validity of the
proceedings for the redemption of any other shares of Series A Preferred Stock.
Notice having been mailed as aforesaid, from and after the redemption date
(unless default be made in the payment of the redemption price for any shares to
be redeemed), all dividends on the shares of Series A Preferred Stock called for
redemption shall cease to accrue and all rights of the holders of such shares as
stockholders of the Company by reason of the ownership of such shares (except
the right to receive the redemption price, on presentation and surrender of the
respective certificates representing the redeemed shares) shall cease on the
redemption date, and such shares shall not after the redemption date be deemed
to be outstanding. In case less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued without cost to the
holder thereof representing the unredeemed shares, if requested by such
shareholder.
At its option, the Company may, on or prior to the redemption date,
irrevocably deposit with a paying agent (a "Paying Agent"), having surplus and
undivided profits aggregating at least $50 million, funds necessary for such
redemption in trust, with irrevocable instructions and authorization that such
funds be applied to the redemption of the shares of Series A Preferred Stock
called for redemption upon surrender of certificates for such shares (properly
endorsed or assigned for transfer). If notice of redemption shall have been
mailed and such deposit is made and the funds so deposited are made immediately
available to the holders of the shares of the Series A Preferred Stock to be
redeemed, the Company shall thereupon be released and discharged (subject to the
provisions described in the next paragraph) from any obligation to make payment
of the amount payable upon redemption of the shares of the Series A Preferred
Stock to be redeemed. Notwithstanding that any certificates for such shares
shall not have been surrendered for cancellation, the shares represented thereby
shall no longer be deemed to be outstanding. Thereupon, the holders of such
shares shall look only to the Paying Agent for such payment. Thereafter, all
rights of the holders of such shares as holders of Series A Preferred Stock
(except the right to receive the redemption price, but without interest) will
cease.
19
<PAGE>
Any funds remaining unclaimed at the end of two years from and after the
redemption date in respect of which such funds were deposited shall be returned
to the Company forthwith and thereafter the holders of shares of the Series A
Preferred Stock called for redemption with respect to which such funds were
deposited shall look only to the Company for the payment of the redemption price
thereof. Any interest accrued on any funds deposited with the Paying Agent shall
belong to the Company and shall be paid to it from time to time on demand.
Any shares of the Series A Preferred Stock which shall at any time have been
redeemed shall, after such redemption, have the status of authorized but
unissued shares of preferred stock, without designation as to series, until such
shares are once more designated as part of a particular series by the Board of
Directors.
VOTING RIGHTS
Except as indicated herein, or except as required by applicable law, the
holders of the Series A Preferred Stock will not be entitled to receive notice
of or attend or vote at any meeting of stockholders of the Company.
If a Voting Event (as defined below) occurs, the holders of outstanding
shares of the Series A Preferred Stock, together with the holders of shares of
any one or more other series of preferred stock entitled to vote for the
election of directors in the event of any failure to pay dividends, acting as a
single class, will be entitled, by written notice to the Company given by the
holders of a majority in liquidation preference of such shares or by ordinary
resolution passed by the holders of a majority in liquidation preference of such
shares present in person or by proxy at a separate special meeting of such
holders convened for the purpose, to appoint two additional members of the Board
of Directors of the Company, to remove any such member so appointed by them from
office and to appoint another person in place of such member. Not later than 30
days after a Voting Event occurs, if written notice by a majority of the holders
of such shares has not been given as provided for in the preceding sentence, the
Board of Directors or an authorized committee thereof will convene a separate
special meeting for the above purpose. If the Board of Directors or such
authorized committee fails to convene such meeting within such 30-day period,
the holders of 10% of the outstanding shares of the Series A Preferred Stock and
of any such other securities will be entitled to convene such meeting. The
provisions of the Certificate of Incorporation and By-laws of the Company
relating to the convening and conduct of general meetings of stockholders will
apply with respect to any such separate special meeting. Any member of the Board
of Directors so appointed shall vacate office if, following the event which gave
rise to such appointment, the Company shall have resumed the payment of
dividends in full on the Series A Preferred Stock and each such other series of
stock for twelve consecutive monthly Dividend Periods. The Certificate of
Incorporation of the Company provides for a minimum of 5 members of the Board of
Directors and a maximum of 15 members. As of the date of this Prospectus, the
Company's Board of Directors had 13 members.
A "Voting Event" will be deemed to have occurred in the event that dividends
payable on any share or shares of Series A Preferred Stock shall not be declared
and paid at the stated rate for the equivalent of eighteen full monthly Dividend
Periods (whether or not consecutive). A Voting Event will be deemed to have been
terminated when dividends have been paid regularly for twelve consecutive
monthly Dividend Periods, subject always to the revesting of the right of
holders of the Series A Preferred Stock voting as a class with the holders of
any other preferred stock to elect two directors as provided herein in the event
of any future failure on the part of the Company to pay dividends at the stated
rate for any eighteen full monthly Dividend Periods (whether or not
consecutive).
Any variation or abrogation of the rights, preferences and privileges of the
Series A Preferred Stock by way of amendment of the Certificate of Incorporation
or otherwise (including, without limitation, the authorization or issuance of
any shares of the Company ranking, as to dividend rights or rights on
liquidation, winding up and dissolution, senior to the Series A Preferred Stock)
shall not be effective
20
<PAGE>
(unless otherwise required by applicable law) except with the consent in writing
of the holders of at least two-thirds of the outstanding shares of the Series A
Preferred Stock or with the sanction of a special resolution passed at a
separate special meeting by the holders of at least two-thirds of the
outstanding shares of the Series A Preferred Stock. Notwithstanding the
foregoing, the Company may, without the consent or sanction of the holders of
Series A Preferred Stock, authorize and issue shares of the Company ranking as
to dividend rights and rights on liquidation, winding up or dissolution, on a
parity with or junior to the Series A Preferred Stock.
No vote of the holders of the Series A Preferred Stock will be required for
the Company to redeem or purchase and cancel the Series A Preferred Stock in
accordance with the Certificate of Incorporation and the Authorizing Resolution.
The Company will cause a notice of any meeting at which holders of Series A
Preferred Stock are entitled to vote to be mailed to each record holder of the
Series A Preferred Stock. Each such notice will include a statement setting
forth (i) the date of such meeting, (ii) a description of any resolution to be
proposed for adoption at such meeting on which such holders are entitled to vote
and (iii) instructions for deliveries of proxies.
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of shares of Series A Preferred Stock
will be entitled to receive out of assets of the Company available for
distribution to stockholders, before any distribution of the assets is made to
the holders of shares of the Common Stock or on any other class or series of
stock of the Company ranking junior to the Series A Preferred Stock as to such a
distribution, an amount equal to $25 per share, plus an amount equal to
dividends declared and unpaid for the then current Dividend Period (without
accumulation of accrued and unpaid dividends for prior Dividend Periods) to the
date fixed for payment of such distribution.
If, upon any voluntary or involuntary liquidation, dissolution or winding up
of the Company, the assets of the Company are insufficient to make the full
liquidation payment on the Series A Preferred Stock and liquidating payments on
any other class or series of stock of the Company ranking on a parity with the
Series A Preferred Stock as to any such distribution, then such assets will be
distributed among the holders of the Series A Preferred Stock and such other
class or series of parity stock ratably in proportion to the respective full
preferential amounts to which they are entitled.
After any liquidating payments, the holders of the Series A Preferred Stock
will be entitled to no other payments. A consolidation or merger of the Company
with or into any other corporation or corporations or the sale, lease or
conveyance, whether for cash, shares of stock, securities or properties, of all
or substantially all the assets of the Company will not be regarded as a
liquidation, dissolution or winding up of the Company.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Series A Preferred Stock is
American Stock Transfer & Trust Co., New York, New York, or any successor
thereto (the "Registrar and Transfer Agent").
The transfer of a share of Series A Preferred Stock may be registered upon
the surrender of the certificate evidencing the Series A Preferred Stock to be
transferred, together with the form of transfer endorsed on it duly completed
and executed, at the office of the Registrar and Transfer Agent.
Registration of transfers of Series A Preferred Stock will be effected
without charge by or on behalf of the Company, but upon payment (or the giving
of such indemnity as the Registrar and Transfer Agent may require) in respect of
any tax or other governmental charges which may be imposed in relation to it.
21
<PAGE>
The Company will not be required to register the transfer of Series A
Preferred Stock after such Series A Preferred Stock has been called for
redemption.
REPLACEMENT OF LOST CERTIFICATES
If any certificate for a Series A Preferred Stock is mutilated or alleged to
have been lost, stolen or destroyed, a new certificate representing the same
share may be issued to the holder upon request subject to delivery of the old
certificate or (if alleged to have been lost, stolen or destroyed) compliance
with such conditions as to evidence, indemnity and the payment of out-of-pocket
expenses of the Company in connection with the request as the Board of Directors
of the Company may determine.
NO PREEMPTIVE RIGHTS
Holders of the Series A Preferred Stock will have no preemptive rights to
purchase any securities of the Company.
NO REPURCHASE AT THE OPTION OF THE HOLDERS
Holders of the Series A Preferred Stock will have no right to require the
Company to redeem or repurchase any shares of Series A Preferred Stock, and the
shares of Series A Preferred Stock are not subject to any sinking fund or
similar obligation.
22
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
R&G Financial is authorized to issue 70,000,000 shares of capital stock, of
which 60,000,000 are shares of Common Stock, par value $0.01 per share, and
10,000,000 are shares of preferred stock, par value $0.01 per share. The
Company's Common Stock is divided into 40,000,000 Class A Shares, of which as of
June 30, 1998 18,440,556 were owned by Mr. Victor J. Galan, the Company's
Chairman of the Board and Chief Executive Officer, and 20,000,000 Class B
Shares, of which 9,848,948 Class B Shares were outstanding and held by members
of the general public. The Common Stock of the Company does not represent
non-withdrawable capital, is not an account of an insurable type, and is not
insured by the FDIC.
COMMON STOCK
GENERAL. The Common Stock of the Company has been duly authorized, validly
issued, fully paid and non-assessable. The shares of Common Stock of the Company
are not redeemable and the holders thereof have no preemptive or subscription
rights to purchase any securities of the Company. Upon liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to
receive pro rata the assets of the Company which are legally available for
distribution, after payment of all debts and other liabilities. There is no
cumulative voting. Therefore, the holders of a majority of the shares of Common
Stock voted in an election of directors can elect all of the directors then
standing for election.
VOTING RIGHTS. The holders of Common Stock of R&G Financial possess
exclusive voting rights in the Company. They elect R&G Financial's Board of
Directors and act on such other matters as are required to be presented to them
under Puerto Rico law or the Company's Certificate of Incorporation or as are
otherwise presented to them by the Board of Directors.
Except for matters where applicable law requires the approval of one or both
classes of Common Stock voting as separate classes, holders of Class A Shares
and Class B Shares generally vote as a single class on all matters submitted to
a vote of the shareholders, including the election of directors. Holders of
Class A Shares are entitled to two votes per share and holders of Class B Shares
are entitled to one vote per share. A majority of the shares entitled to vote,
represented in person or by proxy, constitutes a quorum at a meeting of
shareholders. If a quorum is present, the affirmative vote of a majority of the
shares entitled to vote on the matter is the act of the shareholders unless
otherwise provided by law. Under Puerto Rico law, the affirmative vote of the
holders of a majority of the outstanding Class B Shares would be required to
approve, among other matters, an adverse change in the powers, preferences or
special rights of the Class B Shares.
CONVERSION RIGHTS. Each record holder of Class A Shares shall be entitled
at any time and from time to time to convert any or all of its Class A Shares
held by such holder into Class B Shares at the rate of one Class B Share for
each Class A Share so converted. The Class B Shares shall not carry any
conversion rights and are otherwise not convertible into Class A Shares.
DIVIDENDS. The Company has paid regular quarterly cash dividends on the
Common Stock since the quarter ended December 1996. Declarations of dividends by
the Board of Directors depends upon a number of factors. The declaration and
payment of dividends on the Common Stock is subject to a quarterly review by the
Board of Directors of the Company. The timing and amount of dividends, if any,
is dependent upon the Company's results of operations and financial condition
and on the ability of the Company to receive dividends from its subsidiary
companies. Holders of Class A Shares and Class B Shares are entitled to share
ratably, as a single class, in dividends paid on the Common Stock (except that
if dividends are declared which are payable in Class A Shares or Class B Shares,
dividends shall be declared which are payable at the same rate in each such
class of stock and the dividends payable in Class A Shares shall be payable to
the holders of that class of stock and the dividends payable in Class B Shares
shall be payable to the holders of that class of stock).
23
<PAGE>
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
R&G Mortgage and/or the Bank, the Company, as the sole holder of the capital
stock of R&G Mortgage and the Bank, would be entitled to receive, after payment
or provision for payment of all debts and liabilities of R&G Mortgage and/or the
Bank (including, in the case of the Bank, all deposit accounts and accrued
interest thereon), all assets of R&G Mortgage and/or the Bank available for
distribution. In the event of any liquidation, dissolution or winding up of R&G
Financial, the holders of its Common Stock would be entitled to receive, after
payment or provision for payment of all its debts and liabilities, all of the
assets of the Company available for distribution. The Series A Preferred Stock
will have a priority over the holders of the Common Stock in the event of
liquidation or dissolution. See "Description of Series A Preferred Stock --
Liquidation Preference." If other classes of preferred stock are issued in the
future, the holders thereof may have a priority over the holders of the Common
Stock in the event of liquidation or dissolution.
PREEMPTIVE RIGHTS. Holders of the Common Stock of the Company are not
entitled to preemptive rights with respect to any shares which may be issued in
the future. The Common Stock is not subject to redemption.
PREFERRED STOCK
Prior to the Offering, none of the shares of the Company's authorized
preferred stock has been issued. Such stock may be issued with such preferences
and designations as the Board of Directors may from time to time determine. The
Board of Directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights as it may deem appropriate
in the circumstances. For information with respect to the Offering of the Series
A Preferred Stock and the terms of the Series A Preferred Stock, see "Prospectus
Summary--The Offering" and "Description of Series A Preferred Stock,"
respectively.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS. A
number of provisions of the Company's Certificate of Incorporation and Bylaws
deal with matters of corporate governance and certain rights of stockholders.
The following discussion is a general summary of certain provisions of the
Company's Certificate of Incorporation and Bylaws which might be deemed to have
a potential "anti-takeover" effect. Reference should be made in each case to
such Certificate of Incorporation and Bylaws. See " Available Information."
BOARD OF DIRECTORS. The Certificate of Incorporation of the Company contain
provisions relating to the Board of Directors and provide, among other things,
that the Board of Directors shall be divided into three classes as nearly equal
in number as possible with the term of office of one class expiring each year.
Cumulative voting in the election of directors is prohibited. Directors may be
removed with or without cause at a duly constituted meeting of stockholders
called expressly for that purpose. Any vacancy occurring in the Board of
Directors for any reason (including an increase in the number of authorized
directors) may be filled by the affirmative vote of a majority of the Directors
then in office, though less than a quorum of the Board, or by the sole remaining
director, and a director appointed to fill a vacancy shall serve for the
remainder of the term to which the director has been elected, and until his
successor has been elected and qualified.
The Bylaws govern nominations for election to the Board, and provide that
nominations for election to the Board of Directors may be made by the nominating
committee of the Board of Directors or by a stockholder eligible to vote at an
annual meeting of stockholders who has complied with specified notice
requirements. Written notice of a stockholder nomination must be delivered to,
or mailed to and received at, the Company's principal executive offices not
later than ninety days prior to the anniversary date of the mailing of proxy
materials by the Company in connection with the immediately preceding annual
meeting
24
<PAGE>
and, with respect to an election to be held at a special meeting of
stockholders, no later than the close of business on the tenth day following the
date on which notice of such meeting is first given to stockholders.
LIMITATION OF LIABILITY. The Company's Certificate of Incorporation
provides that the personal liability of directors and officers of the Company
for monetary damages shall be limited to the fullest extent permitted by the
General Corporation Law of the Commonwealth of Puerto Rico ("Puerto Rico
Corporate Law").
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The Company's
Certificate of Incorporation provides that the Company shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, except actions by
or in right of the Company, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Company against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the fullest extent authorized by Puerto Rico Corporate Law, provided that the
Company shall not be liable for any amounts which may be due to any person in
connection with a settlement of any action, suit or proceeding effected without
its prior written consent or any action, suit or proceeding initiated by any
person seeking indemnification without its prior written consent. The Company's
Certificate of Incorporation also provides that reasonable expenses incurred by
a director, officer, employee or agent of the Company in defending any civil,
criminal, suit or proceeding described above may be paid by the Company in
advance of the final disposition of such action, suit or proceeding.
SPECIAL MEETINGS OF STOCKHOLDERS AND STOCKHOLDER PROPOSALS. The Company's
Bylaws provide that special meetings of the Company's stockholders, for any
purpose or purposes, may be called by the Chairman of the Board, the President
or by the affirmative vote of a majority of the Board of Directors then in
office. Only such business as shall have been properly brought before an annual
meeting of stockholders shall be conducted at the annual meeting. In order to be
properly brought before an annual meeting, business must either be brought
before the meeting by or at the direction of the Board of Directors or otherwise
by a stockholder who has given timely notice thereof (along with specified
information) in writing to the Company. For stockholder proposals to be included
in the Company's proxy materials, the stockholder must comply with all the
timing and informational requirements of Rule 14a-8 of the Exchange Act. With
respect to stockholder proposals to be considered at the annual meeting of
stockholders but not included in the Company's proxy materials, the
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not later than 90 days prior to the
anniversary date of the mailing of proxy materials by the Company in connection
with the immediately preceding annual meeting.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. The Company's
Certificate of Incorporation generally provide that any amendment of the
Certificate must be first approved by a majority of the Board of Directors and,
to the extent required by law, then by the holders of a majority of the shares
of the Company entitled to vote in an election of directors, except that the
approval of 75% of the shares of the Company entitled to vote in an election of
directors is required for any amendment to Articles VII (directors), VIII
(bylaws), IX (limitation on liability of directors and officers) and X
(amendment), unless any such proposed amendment is approved by a vote of 662/
rds of the Board of Directors then in office. The Company's Bylaws may be
amended by the Board or by the stockholders. Such action by the stockholders
requires the affirmative vote of the holders of a majority of the shares of the
Company entitled to vote generally in an election of directors, except that the
approval of 75% of the shares of the Company entitled to vote generally in an
election of directors is required for any amendment to the Bylaws which is
inconsistent with Articles VII, VIII, IX and X of the Certificate and which is
not approved by the affirmative vote of 662/ rds of the Board of Directors then
in office.
25
<PAGE>
OTHER RESTRICTIONS ON ACQUISITION OF THE COMPANY. Under the Change in Bank
Control Act ("CIBCA"), a notice must be submitted to the Federal Reserve Board
if any person, or group acting in concert, seeks to acquire 10% or more of the
Company's shares of Common Stock outstanding, unless the Federal Reserve Board
finds that the acquisition will not result in a change in control of the
Company. Under the CIBCA, the Federal Reserve Board has 60 days within which to
act on such notices, taking into consideration certain factors, including the
financial and managerial resources of the acquiror, the convenience and needs of
the communities served by the Company and the Bank, and the anti-trust effects
of the acquisition. Under the BHCA, any company would be required to obtain
prior approval from the Federal Reserve Board before it may obtain control of
the Company. Control generally is defined to mean the beneficial ownership of
25% or more of any class of voting securities of the Company.
TAXATION
GENERAL
The following is a summary of the material Puerto Rico tax and United States
federal income tax considerations relating to the purchase, ownership and
disposition of Series A Preferred Stock. This summary does not purport to be a
comprehensive description of all the tax considerations that may be relevant to
a decision to purchase Series A Preferred Stock and does not describe any tax
consequences arising under the laws of any state, locality or taxing
jurisdiction other than Puerto Rico and the United States.
This summary is based on the tax laws of Puerto Rico and the United States
as in effect on the date of this Prospectus, as well as regulations,
administrative pronouncements and judicial decisions available on or before such
date and now in effect. All of the foregoing are subject to change, which change
could apply retroactively and could affect the continued validity of this
summary.
Prospective purchasers of Series A Preferred Stock should consult their own
tax advisors as to the Puerto Rico, United States or other tax consequences of
the purchase, ownership and disposition of Series A Preferred Stock, including
the application to their particular situations of the tax considerations
discussed below, as well as the application of any state, local, foreign or
other tax.
PUERTO RICO TAXATION
The following is a summary of certain Puerto Rico tax considerations
relating to the purchase, ownership and disposition of Series A Preferred Stock.
The discussion is based on Puerto Rico tax laws, regulations, and judicial and
administrative interpretations, all as of the date hereof, all of which are
subject to change (with possible retroactive effect). This discussion does not
purport to cover all aspects of Puerto Rico taxation that may be relevant to a
purchaser of Series A Preferred Stock in light of such purchaser's particular
circumstances, or to purchasers subject to special rules of taxation, such as
life insurance companies, special partnerships, Subchapter N corporations,
registered investment companies, and certain pension trusts. Persons considering
the purchase of Series A Preferred Stock should consult their own tax advisors
with regard to the application of the Puerto Rico tax laws to their particular
situations, as well as any tax consequences arising under the laws of any other
jurisdiction.
For purposes of the discussion below, a "Puerto Rico corporation" is a
corporation organized under the laws of Puerto Rico and a "foreign corporation"
is a corporation organized under the laws of a jurisdiction other than Puerto
Rico.
INCOME TAXATION
TAXATION OF DIVIDENDS. Distributions of cash or other property made by the
Company with respect to Series A Preferred Stock will be treated as dividends to
the extent that the Company has current or accumulated earnings and profits. To
the extent that a distribution exceeds the Company's current and
26
<PAGE>
accumulated earnings and profits, the distribution will be treated as a return
of capital and will be applied against and reduce the adjusted tax basis of the
Series A Preferred Stock in the hands of the holder. The excess of any such
distribution over such adjusted tax basis will be treated as gain on the sale or
exchange of such Series A Preferred Stock and will be subject to income tax as
described below.
The following discussion regarding the income taxation of dividends on
Series A Preferred Stock assumes that such dividends will constitute income from
sources within Puerto Rico. Generally, a dividend declared by a Puerto Rico
corporation will constitute income from sources within Puerto Rico unless the
corporation derives less than 20% of its gross income from sources within Puerto
Rico for the three taxable years preceding the year of the declaration. The
Company has represented that it has derived more than 20% of its gross income
from Puerto Rico sources on an annual basis since its incorporation in 1996.
INDIVIDUAL RESIDENTS OF PUERTO RICO AND PUERTO RICO CORPORATIONS. In
general, individuals who are residents of Puerto Rico will be subject to a 10%
income tax on dividends paid with respect to Series A Preferred Stock. Puerto
Rico corporations will be subject to income tax on dividends paid with respect
to Series A Preferred Stock at the normal corporate income tax rates, subject to
the dividend received deduction discussed below.
In the case of an individual, 10% of the amount of the dividend is generally
required to be withheld by the Company. An individual may elect for such
withholding not to apply, and in such case he or she will be required to include
the amount of the dividend as ordinary income and will be subject to income tax
thereon at the normal income tax rates, which may be up to 33%.
In the case of a Puerto Rico corporation, no withholding will be imposed on
dividends paid with respect to Series A Preferred Stock. Such dividends will be
taxed at the normal corporate income tax rates, but such corporations will be
entitled to claim a dividend received deduction in computing their income tax
liability. The deduction will be equal to 85% of the dividend received, but the
deduction may not exceed 85% of the corporation's net taxable income. Based on
the applicable maximum Puerto Rico normal corporate income tax rate of 39%, the
maximum effective income tax rate on such dividends will be 5.85% after
accounting for the dividend received deduction.
As a practical matter, dividends with respect to Series A Preferred Stock
held in "street name" through foreign financial institutions or other securities
intermediaries not engaged in trade or business in Puerto Rico will generally be
subject to the 10% withholding tax imposed on foreign corporations or
partnerships. See "--Foreign Corporations." Accordingly, individuals resident of
Puerto Rico who desire to file an election out of the applicable 10% withholding
tax should have their shares of Series A Preferred Stock issued and registered
in their own name. Similarly, Puerto Rico corporations and partnerships that own
any shares of Series A Preferred Stock should have such shares issued and
registered in their own name in order to ensure that no withholding is made on
dividends thereon.
UNITED STATES CITIZENS NOT RESIDENTS OF PUERTO RICO. Dividends paid with
respect to Series A Preferred Stock to a United States citizen who is not a
resident of Puerto Rico will be subject to a 10% withholding tax on the amount
of the dividend. Such an individual may elect to include the dividends as
ordinary income and pay income tax thereon at the normal rates, which may be up
to 33%. Notwithstanding the making of such an election, a 10% withholding tax
will be required on the amount of the dividend unless the individual timely
files with the Company a withholding exemption certificate to the effect that
such individual's gross income from sources within Puerto Rico during the
taxable year does not exceed $1,300 if single or $3,000 if married. Withholding
exemption certificates will only be accepted from individuals who have the
shares of Series A Preferred Stock registered in their names. Individuals who
hold shares of Series A Preferred Stock in "street name" will not be eligible to
file withholding exemption certificates.
INDIVIDUALS NOT CITIZENS OF THE UNITED STATES AND NOT RESIDENTS OF PUERTO
RICO. Dividends paid with respect to Series A Preferred Stock to any individual
who is not a citizen of the United States and who is not a resident of Puerto
Rico will generally be subject to the 10% withholding tax.
27
<PAGE>
FOREIGN CORPORATIONS. The income taxation of dividends paid with respect to
the Series A Preferred Stock to a foreign corporation will depend on whether or
not the corporation is engaged in a trade or business in Puerto Rico in the
taxable year of its receipt of the dividends.
A foreign corporation that is engaged in a trade or business in Puerto Rico
will be subject to the normal corporate income tax rates applicable to domestic
corporations on their net income that is effectively connected with the trade or
business in Puerto Rico. This income will include net income from sources within
Puerto Rico and certain items of net income from sources outside Puerto Rico
that are effectively connected with the trade or business in Puerto Rico. Net
income from sources within Puerto Rico will include dividends with respect to
Series A Preferred Stock. A foreign corporation that is engaged in a trade or
business in Puerto Rico will be entitled to claim the 85% dividend received
deduction discussed above in connection with Puerto Rico corporations.
In general, foreign corporations that are engaged in a trade or business in
Puerto Rico are also subject to a 10% branch profits tax. However, dividends
with respect to Series A Preferred Stock received by such corporations will be
excluded from the computation of the branch profits tax liability of such
corporations.
A foreign corporation that is not engaged in a trade or business in Puerto
Rico will be subject to a 10% withholding tax on dividends received on the
Series A Preferred Stock.
PARTNERSHIPS. Partnerships are generally taxed in the same manner as
corporations. Accordingly, the preceding discussion with respect to corporations
is equally applicable in the case of most partnerships.
TAXATION OF GAINS UPON SALES OR EXCHANGES (NOT INCLUDING REDEMPTIONS). The
sale or exchange of Series A Preferred Stock will give rise to gain or loss
equal to the difference between the amount realized on the sale or exchange and
the tax basis of the Series A Preferred Stock in the hands of the holder. Such
gain or loss will be capital gain or loss if the Series A Preferred Stock is
held as a capital asset by the holder and will be long-term capital gain or loss
if the stockholders' holding period with respect to the Series A Preferred Stock
exceeds six months.
INDIVIDUAL RESIDENTS OF PUERTO RICO AND PUERTO RICO CORPORATIONS. Gain on
the sale or exchange of Series A Preferred Stock by an individual resident of
Puerto Rico or a Puerto Rico corporation will generally be required to be
recognized as gross income and will be subject to income tax. If the stockholder
is an individual and the gain is a long-term capital gain, the gain will be
taxable at a maximum rate of 20%. If the stockholder is a Puerto Rico
corporation and the gain is a long-term capital gain, the gain will be taxable
at a maximum rate of 25%.
UNITED STATES CITIZENS NOT RESIDENTS OF PUERTO RICO. A United States
citizen who is not a resident of Puerto Rico will not be subject to income tax
on the sale or exchange of Series A Preferred Stock if the gain resulting
therefrom does not constitute income from sources within Puerto Rico. Generally,
gain on the sale or exchange of Series A Preferred Stock will be considered to
be income from sources outside Puerto Rico if all rights, title and interest in
or to the Series A Preferred Stock are transferred outside Puerto Rico, and if
the delivery or surrender of the instruments that evidence the Series A
Preferred Stock is made to an office of a paying or exchange agent located
outside Puerto Rico. If the gain resulting from any such sale or exchange
constitutes income from sources within Puerto Rico, an amount equal to 20% of
the gain will be withheld at the source; if such gain constitutes a long term
capital gain, it will be subject to a tax at a maximum rate of 20%.
INDIVIDUALS NOT CITIZENS OF THE UNITED STATES AND NOT RESIDENTS OF PUERTO
RICO. An individual who is not a citizen of the United States and who is not a
resident of Puerto Rico will be subject to the rules described under "--United
States Citizens Not Residents of Puerto Rico"; provided, however, that if the
gain resulting from the sale or exchange of Series A Preferred Stock constitutes
income from sources within Puerto Rico, an amount equal to 25% of the gain will
be withheld at the source; and provided
28
<PAGE>
further, that if the gain resulting from such sale or exchange represents a net
capital gain, the individual will be subject to tax on such gain at a rate of
29%.
FOREIGN CORPORATIONS. A foreign corporation that is engaged in a trade or
business in Puerto Rico will generally be subject to a maximum corporate income
tax rate of 25% on any long-term capital gain realized on the sale or exchange
of Series A Preferred Stock if such gain is (i) from sources within Puerto Rico
or (ii) from sources outside Puerto Rico and effectively connected with a trade
or business in Puerto Rico.
In general, foreign corporations that are engaged in a trade or business in
Puerto Rico will also be subject to a 10% branch profits tax. In the computation
of this tax, any gain realized by such corporations on the sale or exchange of
Series A Preferred Stock will be taken into account. However, a deduction will
be allowed in such computation for any income tax paid on the gain realized on
such sale or exchange.
A foreign corporation that is not engaged in a trade or business in Puerto
Rico will generally be subject to a corporate income tax rate of 29% on any
capital gain realized on the sale or exchange of Series A Preferred Stock if
such gain is from sources within Puerto Rico. Gain on the sale or exchange of
Series A Preferred Stock will generally not be considered to be from sources
within Puerto Rico if all rights, title and interest in or to the Series A
Preferred Stock are transferred outside Puerto Rico, and if the delivery or
surrender of the instruments that evidence the Series A Preferred Stock is made
to an office of a paying or exchanged agent located outside Puerto Rico. If the
gain resulting from any such sale or exchange constitutes income from sources
within Puerto Rico, an amount equal to 25% of the gain will be withheld at the
source. In the case of such foreign corporation, no income tax will apply if the
sale or exchange of Series A Preferred Stock produces income from sources
outside Puerto Rico.
PARTNERSHIPS. Partnerships are generally taxed as corporations.
Accordingly, the discussion with respect to corporations is equally applicable
to most partnerships.
TAXATION OF REDEMPTIONS. The following discussion regarding redemptions of
Series A Preferred Stock assumes that any redemption of Series A Preferred Stock
will terminate all of the particular holder's interest in the Company.
The redemption of Series A Preferred Stock will generally generate gain or
loss that will be measured as provided above under "--Taxation of Gains upon
Sales or Exchanges (Not including Redemptions)" for a sale or exchange of Series
A Preferred Stock. Gain on the redemption of Series A Preferred Stock will
generally be recognized and will be subject to income tax. If the stockholder of
the Series A Preferred Stock is an individual resident of Puerto Rico and the
gain is a long-term capital gain, the gain will be taxable at a maximum rate of
20%. If the stockholder is a domestic corporation and the gain is a long-term
capital gain, the gain will be taxable at a maximum rate of 25%.
ESTATE AND GIFT TAXATION
The transfer of Series A Preferred Stock by inheritance or gift by an
individual who is a resident of Puerto Rico at the time of his or her death or
at the time of the gift will not be subject to estate and gift tax if the
individual is a citizen of the United States who acquired his or her citizenship
solely by reason of birth or residence in Puerto Rico.
MUNICIPAL LICENSE TAXATION
Individuals and corporations that are not engaged in a trade or business in
Puerto Rico, will not be subject to municipal license tax with respect to
dividends paid with respect to Series A Preferred Stock or with respect to any
gain realized on the sale, exchange or redemption of such stock.
A corporation that is engaged in a trade or business in Puerto Rico will be
subject to municipal license tax with respect to dividends paid with respect to
Series A Preferred Stock and with respect to gain realized
29
<PAGE>
on the sale, exchange or redemption of such stock if such dividends or gain are
attributable to such trade or business. The municipal license tax is imposed on
the volume of business of the taxpayer, and the tax rates range from a maximum
of 1.5% for financial businesses to a maximum of 0.5% for other businesses.
PROPERTY TAXATION
The Series A Preferred Stock will not be subject to Puerto Rico property
tax.
UNITED STATES TAXATION
The following is a summary of certain United States federal income tax
consequences of the ownership and disposition of the Series A Preferred Stock by
U.S. Holders, as defined below. This summary is based on the Code, existing and
proposed regulations of the U.S. Department of the Treasury promulgated
thereunder ("Treasury Regulations "), administrative pronouncements and judicial
decisions, all of which are subject to change (possibly with retroactive
effect). This summary deals only with Series A Preferred Stock held by initial
purchasers as capital assets within the meaning of Section 1221 of the Code. It
does not discuss all of the tax consequences that may be relevant to a purchaser
in light of such person's particular circumstances or to purchasers subject to
special rules, such as life insurance companies, tax-exempt entities, dealers in
securities, financial institutions, persons who hold Series A Preferred Stock as
part of an integrated investment (including a straddle) or to persons whose
functional currency is not the U.S. dollar or who owns 10% or more of the voting
stock of the Company. Persons considering the purchase of Series A Preferred
Stock should consult their own tax advisors with regard to the application of
the United States federal income tax laws to their particular situations as well
as any tax consequences arising under the laws of any state, local, foreign or
other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of Series A
Preferred Stock that does not own 10% or more of the voting stock of the Company
and is, for United States federal income tax purposes, (i) a citizen or resident
of the United States, (ii) a corporation organized under the laws of the United
States or of any political subdivision thereof, or (iii) an estate or trust the
income of which is subject to United States federal income taxation regardless
of its source. The term "U.S. Holder" does not include individual Puerto Rico
residents who are not citizens or residents of the United States nor does it
include corporations organized under the laws of Puerto Rico. As used herein,
the term "Puerto Rico U.S. Holder" means an individual U.S. Holder who is a bona
fide resident of Puerto Rico during the entire taxable year (or, in certain
cases, a portion thereof).
OWNERSHIP AND DISPOSITION OF SERIES A PREFERRED STOCK
TAXATION OF DIVIDENDS. Subject to the discussion under "--Passive Foreign
Investment Company Rules" below, distributions made with respect to the Series A
Preferred Stock, including the amount of any Puerto Rico taxes withheld
therefrom, will be includable in the gross income of a U.S. Holder (other than a
Puerto Rico U.S. Holder) as foreign source dividend income to the extent such
distributions are paid out of current or accumulated earnings and profits of the
Company as determined for United States federal income tax purposes. Such
dividends will not be eligible for the dividends received deduction generally
allowed to U.S. Holders that are corporations. To the extent, if any, that the
amount of any distribution by the Company exceeds the Bank's current and
accumulated earnings and profits as determined under United States federal
income tax principles, it will be treated first as a tax-free return of the U.S.
Holder's tax basis in the Series A Preferred Stock and thereafter as capital
gain. Certain pro rata distributions of Series A Preferred Stock by the Company
to all Company stockholders may not be subject to United States federal income
tax.
Subject to certain conditions and limitations, any Puerto Rico tax withheld
by the Company in accordance with Puerto Rico law will be eligible for credit
against the U.S. Holder's United States federal income tax liability. See
"Puerto Rico Taxation--Ownership and Disposition of Series A Preferred Stock--
30
<PAGE>
Taxation of Dividends" above. For purposes of calculating a U.S. Holder's United
States foreign tax credit limitation, dividends distributed by the Company will
generally constitute foreign source "passive income" or, in the case of certain
U.S. Holders (those predominantly engaged in the active conduct of a banking,
financing or similar business), "financial services income."
In general, and subject to the discussion under "--Passive Foreign
Investment Company Rules" below, distributions made by the Company with respect
to the Series A Preferred Stock to a Puerto Rico U.S. Holder will not be
includable in such stockholder's gross income and will be exempt from United
States federal income taxation. In addition, for United States federal income
tax purposes, no deduction or credit will be allowed that is allocable to or
chargeable against amounts so excluded from such Puerto Rico U.S. Holder's gross
income.
TAXATION OF CAPITAL GAINS. A U.S. Holder (other than a Puerto Rico U.S.
Holder) will recognize gain or loss on the sale or other disposition of Series A
Preferred Stock in an amount equal to the difference between the U.S. Holder's
adjusted tax basis in the Series A Preferred Stock and the U.S. dollar amount
realized on the sale or other disposition. Subject to the discussion under
"--Passive Foreign Investment Company Rules" below, such gain or loss will be
capital gain or loss. U.S. Holders should consult their own tax advisors
concerning the treatment of capital gains and losses.
Gain recognized by a U.S. Holder on the sale or other disposition of Series
A Preferred Stock generally will be treated as United States source income.
In general, and subject to the discussion under "--Passive Foreign
Investment Company Rules" below, gain from the sale or exchange of the Series A
Preferred Stock by a Puerto Rico U.S. Holder will not be includable in such
stockholder's gross income and will be exempt from United States federal income
taxation and no deduction or credit will be allowed that is allocable to or
chargeable against amounts so excluded from such Puerto Rico U.S. Holder's gross
income.
BACKUP WITHHOLDING. Certain noncorporate U.S. Holders may be subject to
backup withholding at the rate of 31% on dividends paid or the proceeds of a
sale, exchange or redemption of Series A Preferred Stock. Generally, backup
withholding applies only when the taxpayer fails to furnish or certify a proper
taxpayer identification number or when the payor is notified by the Internal
Revenue Service that the taxpayer has failed to report payments of interest and
dividends properly. U.S. Holders should consult their own tax advisors regarding
their qualification for exemption from backup withholding and the procedure for
obtaining any applicable exemption.
PASSIVE FOREIGN INVESTMENT COMPANY RULES
The Code provides special rules regarding certain distributions received by
U.S. Persons with respect to, and sales and other dispositions (including
pledges) of, stock of a Passive Foreign Investment Company ("PFIC").
Based upon certain proposed Treasury Regulations under PFIC provisions of
the Code (the "Proposed Regulations"), the Company believes that it has not been
a PFIC for any of its prior taxable years and expects to conduct its affairs in
such a manner so that it will not meet the criteria to be considered a PFIC in
the foreseeable future. If, contrary to the Bank's expectation, the Series A
Preferred Stock were considered to be shares of a PFIC for any fiscal year, a
U.S. Holder would generally be subject to special rules (regardless of whether
the Company remains a PFIC) with respect to (a) any "excess distribution" by the
Company to the U.S. Holder (generally, any distributions received by the U.S.
Holder on the Series A Preferred Stock in a taxable year that are greater than
125% of the average annual distributions received by the U.S. Holder in the
three preceding taxable years, or the U.S. Holder's holding period for the
Series A Preferred Stock if shorter) and (b) any gain realized on the sale,
pledge or other disposition of Series A Preferred Stock. Under these rules, (i)
the excess distribution or gain would be allocated ratably over the U.S.
Holder's holding period for the Series A Preferred Stock, (ii) the amount
allocated to the
31
<PAGE>
current taxable year and any taxable year prior to the first taxable year in
which the Company is a PFIC would be taxed as ordinary income, and (iii) the
amount allocated to each of the other taxable years would be subject to tax at
the highest rate of tax in effect for the applicable class of taxpayer for that
year, and an interest charge for the deemed deferral benefit would be imposed
with respect to the resulting tax attributable to each such year. As an
alternative to these rules, if the Company were a PFIC and effective for taxable
years of U.S. Holders beginning after December 31, 1997, U.S. Holders may, in
certain circumstances, elect a mark-to-market treatment with respect to their
Series A Preferred Stock, provided that the Series A Preferred Stock will
constitute "marketable stock" for purposes of these rules. Guidance on what may
constitute "marketable stock" is not yet available from the United States
Department of Treasury.
In general, the Proposed Regulations provide that an individual who is a
bona fide resident of Puerto Rico would be subject to the rule described in
(iii) above only to the extent that any excess distribution or gain is allocated
to a taxable year during which the individual was not a bona fide resident of
Puerto Rico during the entire taxable year (or, in certain cases, a portion
thereof).
Under current law, if the Company is a PFIC in any year, a U.S. Holder who
beneficially owns Series A Preferred Stock during such year must make an annual
return on IRS Form 8621 that describes any distributions received from the
Company and any gain realized on the disposition of Series A Preferred Stock.
32
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below (the "Underwriters"), for which Santander Securities
Corporation of Puerto Rico ("Santander Securities") and Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") are acting as representatives, and
each of such Underwriters has severally agreed to purchase from the Company, the
respective number of shares of Series A Preferred Stock set forth opposite its
name below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Santander Securities Corporation of Puerto Rico................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................................................
-----------------
Total...................................................................................... 1,600,000
-----------------
-----------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the Company is
obligated to sell, and the Underwriters are committed to take and pay for, all
of the shares of Series A Preferred Stock offered hereby, if any are purchased.
The Underwriters propose to offer the Series A Preferred Stock to the public
at the Price to Public set forth on the cover page of this Prospectus, and to
certain selected securities dealers at such Price to Public less a concession
not to exceed $ per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Series A Preferred Stock are released
for sale to the public, the Price to Public and other selling terms may from
time to time be changed by the Underwriters.
The Company has granted the Underwriters an option exercisable for 30 days
from the date of this Prospectus to purchase up to an aggregate of 200,000
additional shares of Series A Preferred Stock, solely to cover over-allotments,
if any, at the initial Price to Public, less the underwriting discounts as set
forth on the cover page of this Prospectus. If the Underwriters exercise this
option, then each of the Underwriters will have a firm commitment, subject to
certain conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment as indicated in the table above. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of Series A Preferred Stock offered
hereby.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities arising under the Securities Act, or to
contribute to payments that the Underwriters may be required to make in respect
thereof.
Santander Securities and Merrill Lynch may from time to time perform
services for the Company and its affiliates in the ordinary course of business.
The Company has applied to list the Series A Preferred Stock on the Nasdaq
National Market under the symbol "RGFCP." The Underwriters have advised the
Company that they intend to make a market in the Series A Preferred Stock. The
Underwriters will have no obligation to make a market in the Series A Preferred
Stock, however, and may cease market making activities, if commenced, at any
time.
33
<PAGE>
LEGAL MATTERS
The validity of the Series A Preferred Stock will be passed upon for the
Company by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C. The validity
of the Series A Preferred Stock will be passed upon as to matters of Puerto Rico
law for the Company by McConnell Valdes, San Juan, Puerto Rico. Elias, Matz,
Tiernan & Herrick L.L.P will rely as to all matters of the laws of the
Commonwealth of Puerto Rico upon the opinion of McConnell Valdes. The discussion
of Puerto Rico and U.S. tax issues arising in connection with the Series A
Preferred Stock has been provided by McConnell Valdes, San Juan, Puerto Rico and
by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C., respectively. As of
the date of this Prospectus, certain members of Elias, Matz, Tiernan & Herrick
L.L.P. owned in the aggregate approximately Class B Shares of the Company's
Common Stock. Certain legal matters will be passed upon for the Underwriters by
Pietrantoni Mendez & Alvarez, San Juan, Puerto Rico.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, have been audited by PricewaterhouseCoopers LLP, independent
accountants, as stated in their report which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
34
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 13,275
Nasdaq listing fee................................................ 33,750
NASD filing fee................................................... 5,000*
Legal fees and expenses........................................... 150,000*
Accounting fees and expenses...................................... 50,000*
Printing.......................................................... 50,000*
Miscellaneous expenses............................................ 22,975*
---------
Total........................................................... $ 325,000*
---------
---------
</TABLE>
- ------------------------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VI of the Registrant's Bylaws provide as follows:
6.1 INDEMNIFICATION.
(a) The Company shall indemnify, to the fullest extent authorized by the
General Corporation Law of the Commonwealth of Puerto Rico, any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by reason
of the fact that he is or was a director, officer, employee, or agent of the
Company, or is or was serving at the written request of the Company as a
director, officer, employer or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a matter he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful,
provided that the Company shall not be liable for any amounts which may be due
to any person in connection with a settlement of any action, suit or proceeding
effected without its prior written consent or any action, suit or proceeding
initiated by any person seeking indemnification hereunder without its prior
written consent. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, that such person had reasonable cause to believe that his
conduct was unlawful.
(b) The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent of
the Company, or is or was serving at the written request of the Company as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for
II-1
<PAGE>
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expense which such court shall deem
proper.
(c) To the extent that a director, officer, employee, or agent of the
Company has been successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in Section 6.1(a) or Section 6.1(b) of this
Article VI, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under Section 6.1(a) or Section 6.1(b) of this
Article VI (unless ordered by a court) shall be made by the Company only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth therein. Such determination
shall be made (a) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (b) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (c) by the stockholders.
(e) The Company shall not be liable for any amounts which may be due to any
person in connection with a settlement of any action, suit or proceeding
initiated by any person seeking indemnification under this Article VI without
its prior written consent.
6.2 ADVANCEMENT OF EXPENSES. Reasonable expenses (including attorneys'
fees) incurred in defending a civil or criminal action, suit or proceeding
described in Section 6.1 may be paid by the Company in advance of the final
disposition of such action, suit or proceeding as authorized by the Board of
Directors in the specific case upon receipt of an undertaking by or on behalf of
the director or officer to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Company as authorized in
this Article VI.
6.3 OTHER RIGHTS AND REMEDIES. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any statute, by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to actions
in their official capacity and as to actions in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
6.4 INSURANCE. By action of its Board of Directors, notwithstanding any
interest of the directors in the action, the Company may purchase and maintain
insurance, in such amounts as the Board of Directors deems appropriate, on
behalf of any person who is or was a director, officer, employee or agent of the
Company, or is or was serving at the written request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Company would have the power or would be required to
indemnify him against such liability under the provisions of this Article VI or
of the General Corporation Law of the Commonwealth of Puerto Rico, or of the
laws of any other State or political dependency of the United States or foreign
country as may be applicable.
6.5 MODIFICATION. The duties of the Company to indemnify and to advance
expenses to a director, officer, employee or agent provided in this Article VI
shall be in the nature of a contract between the Company and each such person,
and no amendment or repeal of any provision of this Article VI shall
II-2
<PAGE>
alter, to the detriment of such person, the right of such person to the advance
of expenses or indemnification related to a claim based on an act or failure to
act which took place prior to such amendment or repeal.
An unofficial English translation of Article 4.08 of the General Corporation
Law of 1996 of the Commonwealth of Puerto Rico provides:
A. A corporation may indemnify any person who is or was a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that said person was or is a director, officer employee, or agent of the
corporation, or was or is serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnification may include expenses
reasonably incurred, including attorneys' fees, awards or judgments, fines and
amounts paid in settlement of such action, suit or proceeding, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any legal action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith or in a manner which he reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, that the person did not have reasonable cause to believe that his
conduct was unlawful.
B. A corporation may indemnify any person who is or was a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to protect the interests of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The indemnification may include expenses reasonably incurred,
including attorneys' fees, in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in, and not opposed to, the best interests of the corporation. No
indemnification shall be made in respect of any claim, matter or issue as to
which such person shall have been adjudged to be liable to the corporation
unless, upon application therefor, the court in which such action or suit was
brought shall determine that, despite the adjudication of liability and in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to be indemnified for such expenses which such court shall deem proper,
and only to the extent to which said court shall determine.
C. To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections A and B or in defense of
any claim, matter or issue related thereto, he shall be indemnified against
expenses reasonably incurred by him (including attorneys' fees) by reason of
such action, suit or proceeding.
D. Any indemnification under subsections A and B (except that ordered by a
court) shall be made by the corporation, only as authorized in the specific
case, upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections A and B of this article.
Such determination shall be made:
1. by the board of directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding, even
if said directors constitute less than a quorum; or
2. if there shall not be any such directors, or if such directors shall
so determine by an independent legal counsel in a written opinion to such
effect; or
3. by the stockholders.
II-3
<PAGE>
E. Prior to the final disposition of such action, suit or proceeding, the
corporation may pay in advance expenses incurred by an officer or director
defending a civil or criminal action, suit or proceeding. Upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to such
indemnification by the corporation, as authorized in this Article. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems convenient.
F. The indemnification and advancement of expenses provided by this Article
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement (of expenses) may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to actions in their official capacity and as to actions in another capacity
while holding such office.
G. Every corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article.
H. For purposes of this Article, "the corporation" shall be deemed to
include, in addition to the resulting corporations, any corporation which is a
party to any consolidation or merger that is absorbed in a consolidation or
merger which, if its separate legal existence had continued, would have had the
power and authority to indemnify its directors, officers, and employees or
agents. So that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer or employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate legal existence had continued.
I. For purposes of this Article, the term "other enterprises" shall include
employee benefit plans. The term "fines" shall include any taxes assessed on a
person with respect to any benefit or employee plan. The term "serving at the
request of the corporation" shall include any service as a director, officer,
employee, or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee, or agent with respect to an
employee pension plan, its participants, or beneficiaries. A person who acted in
good faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee pension plan shall further be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Article.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.0 Form of Underwriting Agreement
3.0 Form of Certificate of Resolutions designating the terms of the Series A Preferred Stock
4.1* Form of Common Stock Certificate of R&G Financial
4.2 Form of Series A Preferred Stock Certificate of R&G Financial
5.0 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: legality of Series A Preferred Stock issuance
5.1 Opinion of McConnell Valdes re: legality of Series A Preferred Stock issuance (as to matters of
Puerto Rico Law)
8.0 Opinion of McConnell Valdes re: certain Puerto Rico income tax consequences
8.1 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: certain federal income tax consequenses
12.0 Computation of Ratio of Earnings to Fixed Charges
23.1.1 Consent of Elias, Matz; Tiernan & Herrick L.L.P. (included in Exhibit 5.0 and 8.1)
23.1.2 Consent of McConnell Valdes (included in 5.1 and 8.0)
23.2 Consent of PricewaterhouseCoopers LLP
24.0 Power of Attorney (included in Signature Page of this Registration Statement)
27.0** Financial Data Schedule
</TABLE>
- ------------------------
* Incorporated by reference to the Form S-1 Registration Statement (Reg. No.
333-06245), filed by R&G Financial with the Commission on June 18, 1996, as
amended.
** Incorporated by reference to the Form 10-Q for the quarter ended June 30,
1998 (File No. 000-21137) filed by R&G Financial with the Commission on
August 7, 1998.
(b) Financial Statement Schedules.
No financial statement schedules are filed because the required information
is not applicable or is included in the consolidated financial statements or
related notes.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to
II-5
<PAGE>
ITEM 17. UNDERTAKINGS (CONTINUED)
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described
under Item 15 above, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Juan, Commonwealth of Puerto Rico on the 3rd day
of August 1998.
<TABLE>
<S> <C> <C>
R&G FINANCIAL CORPORATION
BY: /S/ VICTOR J. GALAN
-----------------------------------------
Victor J. Galan
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each of the directors and/or officers of
R&G Financial Corporation whose signature appears below hereby appoints Victor
J. Galan, as his or her attorney-in-fact to sign in his or her name and behalf,
in any and all capacities stated below and to file with the Securities and
Exchange Commission any and all amendments, including post-effective amendments,
to this Registration Statement on Form S-3, making such changes in the
Registration Statement as appropriate, and generally to do all such things in
their behalf in their capacities as directors and/or officers to enable R&G
Financial Corporation to comply with the provisions of the Securities Act of
1933, and all requirements of the Securities and Exchange Commission.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ VICTOR J. GALAN Chairman of the Board, August 3, 1998
- ------------------------------ President and Chief
Victor J. Galan Executive Officer
(principal executive
officer)
/s/ ANA M. ARMENDARIZ Director and Treasurer August 3, 1998
- ------------------------------
Ana M. Armendariz
/s/ RAMON PRATS Executive Vice President August 3, 1998
- ------------------------------ and Director
Ramon Prats
/s/ ENRIQUE UMPIERRE-SUAREZ Director and Secretary August 3, 1998
- ------------------------------
Enrique Umpierre-Suarez
/s/ VICTOR L. GALAN FUNDORA Director August 3, 1998
- ------------------------------
Victor L. Galan Fundora
/s/ JUAN J. DIAZ Director August 3, 1998
- ------------------------------
Juan J. Diaz
/s/ PEDRO RAMIREZ Director August 3, 1998
- ------------------------------
Pedro Ramirez
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ LAURENO CARUS ABARCA Director August 3, 1998
- ------------------------------
Laureno Carus Abarca
/s/ EDUARDO MCCORMACK Director August 3, 1998
- ------------------------------
Eduardo McCormack
/s/ GILBERTO RIVERA-ARREAGA Director August 3, 1998
- ------------------------------
Gilberto Rivera-Arreaga
/s/ BENIGNO R. FERNANDEZ Director August 3, 1998
- ------------------------------
Benigno R. Fernandez
/s/ JOSEPH R. SANDOVAL Vice President and Chief August 3, 1998
- ------------------------------ Financial Officer
Joseph R. Sandoval (Principal accounting
officer)
/s/ ILEANA M. COLON-CARLO Director August 3, 1998
- ------------------------------
Ileana M. Colon-Carlo
/s/ ROBERTO GORBEA Director August 3, 1998
- ------------------------------
Roberto Gorbea
</TABLE>
II-8
<PAGE>
Exhibit 1.0
DRAFT of August 1, 1998
For Discussion Purposes Only
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
R&G FINANCIAL CORPORATION
A Puerto Rico Corporation
1,600,000 Shares
of
__% Noncumulative Perpetual Monthly Income Preferred Stock, Series A
($25 liquidation preference per share)
UNDERWRITING AGREEMENT
Dated: August __, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
UNDERWRITING AGREEMENT............................................................................................2
SECTION 1. Representations and Warranties...............................................................4
(a) Representations and Warranties by the Company..........................................4
(b) Officer's Certificates................................................................13
SECTION 2. Sale and Delivery to Underwriters; Closing............................................13
(a) Initial Securities....................................................................13
(b) Option Securities.....................................................................13
(c) Payment...............................................................................13
(d) Denominations; Registration...........................................................14
SECTION 3. Covenants of the Company..............................................................14
(a) Compliance with Securities Regulations and Commission Requests........................14
(b) Filing of Amendments..................................................................15
(c) Delivery of Registration Statements...................................................15
(d) Delivery of Prospectuses..............................................................15
(e) Continued Compliance with Securities Laws.............................................15
(f) Blue Sky Qualifications...............................................................16
(g) Rule 158..............................................................................16
(h) Use of Proceeds.......................................................................16
(i) Listing...............................................................................16
(j) Restriction on Sale of Securities.....................................................17
(k) Reporting Requirements................................................................17
(l) Compliance with Undertakings..........................................................17
(m) Additional Information................................................................17
SECTION 4. Payment of Expenses...................................................................17
(a) Expenses..............................................................................17
(b) Termination of Agreement..............................................................18
SECTION 5. Conditions of Underwriters' Obligations...............................................18
(a) Effectiveness of Registration Statement...............................................18
(b) Opinion of Counsel for Company........................................................18
(c) Opinion of Counsel for Underwriters...................................................18
(e) Officers' Certificate.................................................................19
(e) Accountant's Comfort Letter...........................................................19
(f) Bring-down Comfort Letter.............................................................19
(g) Approval of Listing...................................................................19
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(h) No Objection..........................................................................19
(i) Conditions to Purchase of Option Securities...........................................19
(j) Additional Documents..................................................................20
(k) Termination of Agreement..............................................................20
SECTION 6. Indemnification.......................................................................21
(a) Indemnification of Underwriters.......................................................21
(b) Indemnification of Company, Directors and Officers....................................21
(c) Actions against Parties; Notification.................................................22
(d) Settlement without Consent if Failure to Reimburse....................................22
SECTION 7. Contribution..........................................................................23
SECTION 8. Representations, Warranties and Agreements to Survive Delivery........................24
SECTION 9 Termination of Agreement..............................................................24
(a) Termination; General..................................................................24
(b) Liabilities...........................................................................24
SECTION 10. Default by One or More of the Underwriters............................................25
SECTION 11. Notices...............................................................................25
SECTION 12. Parties...............................................................................26
SECTION 13. Governing Law And Time................................................................26
SECTION 14. Effect of Headings....................................................................26
SECTION 15 Counterparts..........................................................................26
SCHEDULES
Schedule A - List of Underwriters....................................................Sch A-1
Schedule B - Pricing Information.....................................................Sch B-1
EXHIBITS
Exhibit A - List of Subsidiaries........................................................A-1
Exhibit B - Form of Opinion of Elias, Matz, Tiernan & Herrick L.L.P. ...................B-1
Exhibit C - Form of Opinion of McConnell Valdes, Puerto Rico counsel
to the Company............................................................C-1
</TABLE>
ii
<PAGE>
R&G FINANCIAL CORPORATION
(A Puerto Rico Corporation)
1,600,000 Shares
of
__% Noncumulative Perpetual Monthly Income Preferred Stock, Series A
($25 liquidation preference per share)
UNDERWRITING AGREEMENT
August __, 1998
Santander Securities Corporation
of Puerto Rico
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
as Representatives of the Several Underwriters
c/o Santander Securities Corporation of Puerto Rico
Torre Santander
221 Avenida Ponce de Leon, Suite 500
San Juan, Puerto Rico 00917-1825
Ladies and Gentlemen:
R&G FINANCIAL CORPORATION, a Puerto Rico corporation (the "Company"),
confirms its agreement with Santander Securities Corporation of Puerto Rico
("Santander Securities"), Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Santander Securities and Merrill Lynch are acting as
representatives (in such capacity, the "Representatives"), with respect to the
issue and sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares of the Company's
__% Noncumulative Perpetual Monthly Income Preferred Stock, Series A ($25
liquidation preference per share) set forth in said Schedule A, and with respect
to the grant by the Company to the Underwriters, acting severally and not
jointly, of the option described in Section 2(b) hereof to purchase all or any
part of 200,000 additional shares of such preferred stock to cover
1
<PAGE>
over-allotments, if any. The aforesaid 1,600,000 shares of preferred stock (the
"Initial Securities") to be purchased by the Underwriters and all or any part of
the 200,000 shares of preferred stock subject to the option described in Section
2(b) hereof (the "Option Securities") are hereinafter called, collectively, the
"Securities".
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333- ) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus. Promptly after
execution and delivery of this Agreement, the Company will prepare and file a
prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the
rules and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act
Regulations. The information included in such prospectus that was omitted from
such registration statement at the time it became effective but that is deemed
to be part of such registration statement at the time it became effective
pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A
Information". Each prospectus used before such registration statement became
effective, and any prospectus that omitted, as applicable, the Rule 430A
Information that was used after such effectiveness and prior to the execution
and delivery of this Agreement, is herein called a "preliminary prospectus."
Such registration statement, including the exhibits thereto, the documents
incorporated therein by reference and schedules thereto at the time it became
effective and including the Rule 430A Information is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final prospectus in
the form first furnished to the Underwriters for use in connection with the
offering of the Securities is herein called the "Prospectus." For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each Underwriter,
as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule
2
<PAGE>
462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any Option Securities
are purchased, at the Date of Delivery), the Registration Statement,
the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations and
did not and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. Neither the
Prospectus nor any amendments or supplements thereto, at the time the
Prospectus or any such amendment or supplement was issued and at the
Closing Time (and, if any Option Securities are purchased, at the Date
of Delivery), included or will include an untrue statement of a
material fact or omitted or will omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through the
Representatives expressly for use in the Registration Statement or
Prospectus.
Each preliminary prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
There are no contracts or other documents required to be filed
as exhibits to the Registration Statement by the 1933 Act or the 1933
Act Regulations that have not been so filed. The documents which are
incorporated by reference in any preliminary prospectus or the
Prospectus or from which information is so incorporated by reference,
when they became effective or were filed with the Commission, as the
case may be, complied in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations or the 1934 Act (as herein
defined) and the rules and regulations thereunder, as applicable, and
did not, when such documents were so filed, contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and any documents so filed and incorporated by reference
subsequent to the effective date of the Registration Statement shall,
when they are filed with the Commission, conform in all
3
<PAGE>
material respects with the requirements of the 1933 Act and the 1933
Act Regulations and the 1934 Act and the rules and regulations
thereunder, as applicable.
(ii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The consolidated financial
statements of the Company included or incorporated by reference in the
Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, in the most recent preliminary prospectus), together with
the related schedules and notes, present fairly the financial position
of the Company and its Subsidiaries at the dates indicated and the
consolidated statement of operations, stockholders' equity and cash
flows of the Company and its Subsidiaries for the periods specified;
said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Registration Statement present
fairly in accordance with GAAP the information required to be stated
therein. The selected financial data and the summary financial
information included in the Prospectus present fairly the information
shown and have been compiled on a basis consistent with that of the
audited financial statements included or incorporated by reference in
the Registration Statement.
(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one
enterprise, and (C) except for regular quarterly dividends on the
Company's Class A Common Stock, par value $.01 per share (the "Class A
Common Stock") and for regular quarterly dividends on the Company's
Class B Common Stock, par value $.01 per share (the "Class B Common
Stock"; and collectively with the Class A Common Stock, the "Common
Stock") in the amounts per share that are consistent with past
practice, since December 31, 1997 there has been no dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock.
(v) Good Standing of Company. The Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the Commonwealth of Puerto Rico with full corporate
power and authority to own, lease and operate its properties and
conduct its business as described in the Prospectus and to enter into
and perform its obligations under this Agreement; and the Company is
duly qualified to transact business as a foreign corporation and is in
good standing under the laws of each jurisdiction in which the
4
<PAGE>
conduct of its business or ownership or leasing of its properties
requires such qualification and where the failure to be so qualified
would, individually or in the aggregate, have a material adverse effect
on the business, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole. The Company is
registered as a bank holding company under the Bank Holding Company Act
of 1956 (the "BHCA") in good standing with the Board of Governors of
the Federal Reserve System (the "Federal Reserve").
(vi) Subsidiaries. The only subsidiaries of the Company (each
a "Subsidiary and collectively the "Subsidiaries") are those listed on
Exhibit A hereto. Except as set forth in the Prospectus (or if the
Prospectus is not in existence, in the most recent preliminary
prospectus) or as required in connection with the exercise of its
rights as a creditor, or pursuant to a bona fide collateral pledge
arrangement, neither the Company nor any Subsidiary owns, nor at the
Closing Time or the Date of Delivery (if any Option Securities are
purchased), will own an interest in any corporation, partnership,
trust, joint venture or other business entity. Each Subsidiary has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction in which it is chartered or
organized, with full corporate power and authority to own, lease and
operate its properties and conduct its business as described in the
Prospectus, and is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each jurisdiction
in which the conduct of its business or ownership or leasing of its
properties requires such qualification and where the failure to be so
qualified would, individually or in the aggregate, have a material
adverse effect on the business, financial condition or results or
operations of the Company and its Subsidiaries, taken as a whole.
Except as otherwise disclosed in the Registration Statement, all of the
issued and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights
of any securityholder of such Subsidiary.
(vii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, described therein and the issuance of the
Securities pursuant to this Agreement). The shares of issued and
outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company. The description of the securities of the
Company in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent preliminary prospectus)
is, and at the Closing Time and, if later, as of each Date of Delivery,
will be, complete and accurate in all respects.
5
<PAGE>
(viii) Authorization of Agreement. This Agreement has been
duly authorized, executed and delivered by the Company.
(ix) Authorization and Description of Common Stock. The Common
Stock of the Company conforms to all statements relating thereto
contained in the Prospectus and such description conforms to the rights
set forth in the instruments defining the same.
(x) Authorization and Description of Securities. The
Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement, and, when issued and delivered
by the Company pursuant to this Agreement against payment of the
consideration set forth herein will be validly issued and fully paid
and non-assessable shares of capital stock of the Company; the
Securities conform to the statements relating thereto contained in the
Prospectus and such description conforms to the rights set forth in the
instruments defining the same; no holder of the Securities will be
subject to personal liability solely by reason of being such a holder;
and the issuance of the Securities is not subject to the preemptive or
other similar rights of any security holder of the Company.
(xi) Absence of Defaults and Conflicts. Neither the Company
nor any of its Subsidiaries is in violation of its charter or by-laws
or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which it or any of them may be bound, or to which any
of the property or assets of the Company or any Subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein and in the Registration Statement
(including the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described in the Prospectus
under the caption "Use of Proceeds") and compliance by the Company with
its obligations hereunder have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
Subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or by-laws of
the Company or any Subsidiary or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their assets,
properties or operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require
6
<PAGE>
the repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any Subsidiary.
(xii) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any Subsidiary exists or, to the knowledge
of the Company, is imminent. Neither the Company nor any Subsidiary is
a party to a collective bargaining agreement.
(xiii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any Subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of the
transactions contemplated in this Agreement or the performance by the
Company of its obligations hereunder; the aggregate of all pending
legal or governmental proceedings to which the Company or any
Subsidiary is a party or of which any of their respective property or
assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material
Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectus (or if the Prospectus is not in existence,
in the most recent preliminary prospectus) or to be filed as exhibits
thereto which have not been so described and filed as required.
(xv) Possession of Intellectual Property. The Company and its
Subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its Subsidiaries has received any actual notice or is
otherwise aware of any infringement of or conflict with asserted rights
of others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
Subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its
7
<PAGE>
obligations hereunder, in connection with the offering, issuance or
sale of the Securities hereunder or the consummation of the
transactions contemplated by this Agreement, except such as have been
already obtained or as may be required under the 1933 Act or the 1933
Act Regulations, state securities laws or the bylaws and rules of the
National Association of Securities Dealers, Inc. (the "NASD") in
connection with the purchase and distribution by the Underwriters of
the Securities to be sold hereby.
(xvii) Possession of Licenses and Permits. The Company and its
Subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them, except
where the lack of such Governmental Licenses would not, singly or in
the aggregate, have a Material Adverse Effect; the Company and its
Subsidiaries are in compliance with the terms and conditions of all
such Governmental Licenses, except where the failure so to comply would
not, singly or in the aggregate, have a Material Adverse Effect; all of
the Governmental Licenses are valid and in full force and effect,
except when the invalidity of such Governmental Licenses or the failure
of such Governmental Licenses to be in full force and effect would not
have a Material Adverse Effect; and neither the Company nor any of its
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(xviii) Title to Property. The Company and its Subsidiaries
have good and marketable title to all real property owned by the
Company and its Subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectus or (b) do not,
singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company or any of its Subsidiaries; and all of
the leases and subleases material to the business of the Company and
its Subsidiaries, considered as one enterprise, and under which the
Company or any of its Subsidiaries holds properties described in the
Prospectus, are in full force and effect, and neither the Company nor
any Subsidiary has any notice of any material claim of any sort that
has been asserted by anyone adverse to the rights of the Company or any
Subsidiary under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or such Subsidiary
to the continued possession of the leased or subleased premises under
any such lease or sublease.
(xix) Compliance with Cuba Act. The Company has complied with,
and is and will be in compliance with, the provisions of that certain
Florida act relating to disclosure of doing business with Cuba,
codified as Section 517.075 of the Florida statutes, and the rules and
regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
8
<PAGE>
(xx) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xxi) Form S-3. The Company meets the requirements for use of
Form S-3 under the 1933 Act Regulations.
(xxii) Environmental Laws. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its Subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its Subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or, to the knowledge of the Company,
threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental
Law against the Company or any of its Subsidiaries and (D) there are no
events or circumstances known to the Company that might reasonably be
expected to form the basis of an order for clean-up or remediation, or
an action, suit or proceeding by any private party or governmental body
or agency, against or affecting the Company or any of its Subsidiaries
relating to Hazardous Materials or any Environmental Laws.
(xxiii) Registration Rights. There are no persons with
registration rights or other similar rights to have any securities
included in the offering described in the Registration Statement.
(xxiv) Stop Orders. No court, supervisory or regulatory
authority or arbitrator has, by order or otherwise, prohibited or
suspended, or, to the knowledge of the Company, threatened to prohibit
or suspend, the use of the Prospectus.
(xxv) Internal Accounting Controls. The Company maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorization, (ii) transactions
9
<PAGE>
are recorded as necessary to permit preparation of financial statements
in conformity with GAAP and to maintain accountability for assets,
(iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xxvi) No Material Changes. Except as set forth in the
Registration Statement and Prospectus (or, if the Prospectus is not in
existence, the most recent preliminary prospectus), subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus and prior to Closing Time and, if later,
each Date of Delivery, (i) there has not been, and will not have been,
any material adverse change in the business, properties, financial
condition, net worth or results of operations of the Company and its
Subsidiaries considered as one enterprise, (ii) neither the Company nor
any of its Subsidiaries has entered into, or will have entered into any
material transactions other than pursuant to this Agreement, and (iii)
the Company has not, and will not have, paid or declared any dividends
or other distributions of any kind on any class of its capital stock,
except for the payment or declaration of quarterly dividends, on the
Company's Common Stock in the ordinary course of its business.
(xxvii) No Material Misstatements. No statement,
representation, or warranty made by the Company in this Agreement or
made in any certificate or document required by this Agreement to be
delivered to the Representatives was or will be, when made, inaccurate,
untrue or incorrect in any material respect.
(xxviii) No Manipulation. Neither the Company nor any of its
directors, officers or affiliates has taken, nor will he, she or it
take, directly or indirectly, any action designed, or which might
reasonably be expected in the future, to cause or result in, under the
Act or otherwise, or which has constituted, stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities or otherwise.
(xxix) Approval for Listing. The Securities have been approved
for quotation on the Nasdaq National Market, subject only to notice of
issuance.
(xxx) Unlawful Payments. Neither the Company nor any of its
Subsidiaries nor, to the Company's best knowledge, any employee or
agent of the Company or any Subsidiary has made any payment of funds of
the Company or any Subsidiary or received or retained any funds of the
Company or any Subsidiary in violation of any law, rule or regulation
which payment, receipt or retention of funds is of a character required
to be disclosed in the Prospectus (or, if the Prospectus is not in
existence, in the most recent preliminary prospectus).
(xxxi) Taxes. Each of the Company and its Subsidiaries has
filed all foreign, federal, Puerto Rico and local tax returns that are
required to be filed or has requested extensions
10
<PAGE>
thereof and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any
of the foregoing is due and payable.
(xxxii) R-G Premier. The deposit accounts of R-G Premier Bank
of Puerto Rico, a Subsidiary of the Company (the "Bank") are insured by
the Savings Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation ("FDIC") to the legal maximum, and no proceeding
for the termination or revocation of such insurance is pending or
threatened. The Bank is a member in good standing of the Federal Home
Loan Bank of New York.
(xxxiii) Regulatory Directives. None of the Company, each of
its Subsidiaries, their affiliates, or any of their respective
directors or officers is subject to any order or directive of, or party
to any agreement with, any regulatory agency having jurisdiction with
respect to its business or operations except as disclosed in the
Prospectus (or if the Prospectus is not in existence, in the most
recent preliminary prospectus).
(b) Officer's Certificates. Any certificate signed by any officer of
the Company or an of its Subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to the Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional 200,000 shares of the Company's
__% Noncumulative Perpetual Monthly Income Preferred Stock, Series A ($25
liquidation preference per share) at the price per share set forth in Schedule
B. The option hereby granted will expire 30 days after the date hereof and may
be exercised in whole or in part from time to time only for the purpose of
covering over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Representatives to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for such Option Securities. Any such time and date of delivery (a "Date
of Delivery") shall be determined by the Representatives, but shall not be later
than seven full business days after the exercise of said option, nor in any
event prior to the Closing Time, as hereinafter defined. If the option is
exercised
11
<PAGE>
as to all or any portion of the Option Securities, each of the Underwriters,
acting severally and not jointly, will purchase that proportion of the total
number of Option Securities then being purchased which the number of Initial
Securities set forth in Schedule A opposite the name of such Underwriter bears
to the total number of Initial Securities, subject in each case to such
adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Pietrantoni Mendez & Alvarez, counsel to the Underwriters, Suite 1901, Popular
Center Building, San Juan, Puerto Rico 00918, or at such other place as shall be
agreed upon by the Representatives and the Company, at 9:00 A.M. (Eastern time)
on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on
any given date) business day after the date hereof (unless postponed in
accordance with the provisions of Section 10), or such other time not later than
ten business days after such date as shall be agreed upon by the Representatives
and the Company (such time and date of payment and delivery being herein called
"Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company, on each Date of Delivery as specified in the notice from the
Representatives to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them, duly endorsed for
transfer. It is understood that each Underwriter has authorized the
Representatives, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for the Initial Securities and the Option
Securities, if any, which it has agreed to purchase. The Representatives,
individually and not as representatives of the Underwriters, may (but shall not
be obligated to) make payment of the purchase price for the Initial Securities
and the Option Securities, if any, to be purchased by any Underwriter whose
funds have not been received by the Closing Time or the relevant Date of
Delivery, as the case may be, but such payment shall not relieve such
Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in definitive form and in
such denominations and registered in such names as the Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
Securities and the Option Securities, if any, will be made available for
examination and packaging by the Representatives in San Juan, Puerto Rico not
later than 10:00 A.M. (Eastern time) on the second business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
12
<PAGE>
SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A, and will notify the Representatives
immediately, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement shall become
effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) Filing of Amendments. The Company will give the
Representatives notice of its intention to file or prepare any
amendment to the Registration Statement (including any filing under
Rule 462(b)) or of any amendment, supplement or revision to either the
prospectus included in the Registration Statement at the time it became
effective or to the Prospectus, and will furnish the Representatives
with copies of any such documents a reasonable amount of time prior to
such proposed filing or use, as the case may be, and will not file or
use any such document to which the Representatives or counsel for the
Underwriters shall object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein) and
signed copies of all consents and certificates of experts, and will
also deliver to the Representatives, without charge, a conformed copy
of the Registration Statement as originally filed and of each amendment
thereto (without exhibits) for each of the Underwriters. The copies of
the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
13
<PAGE>
(d) Delivery of Prospectuses. The Company has delivered to
each Underwriter, without charge, as many copies of each preliminary
prospectus as such Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Company will furnish to each Underwriter, without charge,
during the period when the Prospectus is required to be delivered under
the 1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"),
such number of copies of the Prospectus (as amended or supplemented) as
such Underwriter may reasonably request. The Prospectus and any
amendments or supplements thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated in this Agreement and in the Prospectus. If at any time
when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the
opinion of counsel for the Underwriters or for the Company, to amend
the Registration Statement or amend or supplement the Prospectus in
order that the Prospectus will not include any untrue statements of a
material fact or omit to state a material fact necessary in order to
make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or
if it shall be necessary, in the opinion of such counsel, at any such
time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or
the 1933 Act Regulations, the Company will promptly prepare and file
with the Commission, subject to Section 3(b), such amendment or
supplement as may be necessary to correct such statement or omission or
to make the Registration Statement or the Prospectus comply with such
requirements, and the Company will furnish to the Underwriters such
number of copies of such amendment or supplement as the Underwriters
may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions as the Representatives may
designate and to maintain such qualifications in effect for a period of
not less than one year from the effective date of the Registration
Statement and any Rule 462(b) Registration Statement; provided,
however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or
as a dealer in securities in any jurisdiction in which it is not so
qualified or to subject itself to taxation in respect of doing business
in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the
Company will file such statements and reports as may be required by the
laws of such jurisdiction to continue such qualification in effect for
a period of not less than one year from the date of the Registration
Statement and any Rule 462(b) Registration Statement.
14
<PAGE>
(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectus under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect
and maintain the quotation of the Securities on the Nasdaq National
Market and will file with the Nasdaq National Market all documents and
notices required by the Nasdaq National Market of companies that have
securities that are traded in the over-the-counter market and
quotations for which are reported by the Nasdaq National Market.
(j) Restriction on Sale of Securities. During a period from
the date of the Prospectus to and including the Closing Time, the
Company will not, without the prior written consent of each
Underwriter, offer, sell, contract to sell or otherwise dispose of any
shares of preferred stock of the Company or of any warrants or similar
rights to purchase shares of preferred stock of the Company (other than
the Securities).
(k) Reporting Requirements. The Company, during the period
when the Prospectus is required to be delivered under the 1933 Act or
the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission
thereunder.
(l) Compliance with Undertakings. The Company will comply with
all the provisions of all undertakings contained in the Registration
Statement.
(m) Additional Information. During the period of five years
commencing on the date the Registration Statement is declared effective
by the Commission, the Company will furnish to the Representatives and
each other Underwriter who may so request copies of such financial
statements and other periodic and special reports as the Company may
from time to time distribute generally to the holders of any class of
its capital stock, and will furnish to the Representatives and each
other Underwriter who may so request a copy of each annual or other
report it shall be required to file with the Commission.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will
pay all expenses incident to the performance of its obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation,
printing and delivery to the Underwriters of this Agreement, any Agreement
among Underwriters and such other documents as may be required in connection
with the offering, purchase, sale, issuance or delivery of the
15
<PAGE>
Securities, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the Underwriters, including any stock or other transfer taxes
and any stamp or other duties payable upon the sale, issuance or delivery of the
Securities to the Underwriters, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 3(d) hereof,
including filing fees and the reasonable fees and disbursements of counsel in
connection therewith, (vi) the printing and delivery to the Underwriters of
copies of each preliminary prospectus and any amendments or supplements thereto,
(vii) the fees and expenses of any transfer agent or registrar for the
Securities, and (viii) the filing fees incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with the review by
the NASD of the terms of the sale of the Securities and the fees and expenses
incurred in connection with the inclusion of the Securities in the Nasdaq
National Market. Except as provided in Sections 6 and 7 and subparagraph (b)
below, the Company will reimburse the Underwriters for all of their costs and
expenses, including fees and disbursements of their counsel, stock transfer
taxes payable on resale of any of the Securities by them and any advertising
expenses connected with any offers they may make.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations
of the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any Subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued
under the 1933 Act or proceedings therefor initiated or threatened by
the Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel to the Underwriters. A prospectus containing
the Rule 430A Information shall have been filed with the Commission in
accordance with Rule 424(b) (or a post-effective amendment providing
such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A).
(b) Opinion of Counsel for Company. At Closing Time, the
Representatives shall have received the favorable opinions, dated as of
Closing Time of Elias, Matz, Tiernan & Herrick L.L.P. as counsel for
the Company and of McConnell Valdes, as Puerto Rico counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters to the
16
<PAGE>
effect set forth in Exhibits B and C hereto and to such further effect
as counsel to the Underwriters may reasonably request.
(c) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time of Pietrantoni Mendez & Alvarez, counsel for the
Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters with respect to the issuance and
sale to the Securities and other related matters as the Underwriters
may reasonably require. Such counsel may also state that, insofar as
such opinion involves factual matters, they have relied, to the extent
they deem proper, upon certificates of officers of the Company and its
Subsidiaries and certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of
which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business, and the Representatives shall have
received a certificate of the President or a Vice President of the
Company and of the chief financial or chief accounting officer of the
Company, dated as of Closing Time, to the effect that (i) there has
been no Material Adverse Effect, (ii) the representations and
warranties in Section 1(a) hereof are true and correct with the same
force and effect as though expressly made at and as of the Closing
Time, (iii) the Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to
Closing Time, and (iv) no stop order or similar proceeding suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or are
contemplated by the Commission.
(e) Accountant's Comfort Letter. At the time of the execution
of this Agreement, the Representatives shall have received from Price
Waterhouse Coopers LLP a letter dated such date, in form and substance
satisfactory to the Representatives, together with signed or reproduced
copies of such letter for each of the Underwriters containing
statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(f) Bring-down Comfort Letter. At Closing Time, the
Representatives shall have received from Price Waterhouse Coopers LLP a
letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (e) of
this Section, except that the specified date referred to shall be a
date not more than three business days prior to Closing Time.
17
<PAGE>
(g) Approval of Listing. At Closing Time, the Securities shall
have been approved for inclusion in the Nasdaq National Market, subject
only to official notice of issuance.
(h) No Objection. The NASD shall have confirmed that it has
not raised any objection with respect to the fairness and
reasonableness of the underwriting terms and arrangements.
(i) Conditions to Purchase of Option Securities. In the
event that the Underwriters exercise their option provided in
Section 2(b) hereof to purchase all or any portion of the
Option Securities, the representations and warranties of the
Company contained herein and the statements in any
certificates furnished by the Company or any subsidiary of the
Company hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the
Representatives shall have received:
Officers' Certificate. A certificate, dated such Date
of Delivery, of the President or a Vice President of the
Company and of the chief financial or chief accounting officer
of the Company confirming that the certificate delivered at
the Closing Time pursuant to Section 5(d) hereof remains true
and correct as of such Date of Delivery.
Opinion of Counsel for the Company. The favorable
opinion of Elias, Matz, Tiernan & Herrick L.L.P. and McConnell
Valdes, counsel for the Company, each in form and substance
satisfactory to counsel for the Underwriters, dated such Date
of Delivery, relating to the Option Securities to be purchased
on such Date of Delivery and otherwise to the same effect as
the opinion required by Section 5(b) hereof.
Opinion of Counsel for Underwriters. The favorable
opinion of Pietrantoni Mendez & Alvarez, counsel for the
Underwriters, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by
Section 5(c) hereof.
Bring-down Comfort Letter. A letter from Price
Waterhouse Coopers LLP, in form and substance satisfactory to
the Representative(s) and dated such Date of Delivery,
substantially in the same form and substance as the letter
furnished to the Representatives pursuant to Section 5(f)
hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more
than five days prior to such Date of Delivery.
(j) Additional Documents. At Closing Time and at each Date of
Delivery counsel for the Underwriters shall have been furnished with
such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
herein contemplated, or in order to evidence the accuracy of any of the
18
<PAGE>
representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company
in connection with the issuance and sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
(k) Termination of Agreement. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of Option Securities on a Date of Delivery which is after the
Closing Time, the obligations of the several Underwriters to purchase
the relevant Option Securities, may be terminated by the
Representatives by notice to the Company at any time at or prior to
Closing Time, and such termination shall be without liability of any
party to any other party except as provided in Section 4 and except
that Sections 1, 6, 7 and 8 shall survive any such termination and
remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the
Rule 430A Information or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in
any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel chosen by
Santander Securities), reasonably incurred in investigating, preparing
or defending against any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any
claim
19
<PAGE>
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through the Representatives expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information, or
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information, or
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through the Representatives expressly for use
in the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Sections 6(a) above,
counsel to the indemnified parties shall be selected by Santander Securities,
and, in the case of parties indemnified pursuant to Section 6(b) above, counsel
to the indemnified parties shall be selected by the Company. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto),
20
<PAGE>
unless such settlement, compromise or consent (i) includes an unconditional
release of each indemnified party from all liability arising out of such
litigation, investigation, proceeding or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Sections 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims,
damages and expenses incurred by such indemnified party, as incurred, (i) in
such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other hand from
the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause 7(i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause 7(i) above but also the relative fault of the
Company on the one hand and of the Underwriters on the other hand in
connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, bear to the aggregate initial
public offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
21
<PAGE>
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in investigating, preparing or
defending against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue or alleged untrue statement or omission or alleged
omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Securities set forth opposite their respective names
in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company and its Subsidiaries
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter or
controlling person, or by or on behalf of the Company and shall survive delivery
of the Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate
this Agreement, by notice to the Company, at any time at or prior to Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the Prospectus,
any material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one
22
<PAGE>
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the Nasdaq National Market, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by the
order of the Commission, the NASD or any other governmental authority or (iv) if
a banking moratorium has been declared by Federal, New York or Puerto Rican
authorities.
(b) Liabilities. If this Agreement is terminated pursuant to
this Section, such termination shall be without liability of any party to any
other party except as provided in Section 4 hereof, and provided further that
Sections 1, 6, 7 and 8 shall survive such termination and remain in full force
and effect.
SECTION 10. Default by One or More of the Underwriters. If one or
more of the Underwriters shall fail or refuse at Closing Time or at a Date of
Delivery to purchase the Securities which it or they are obligated to purchase
under this Agreement (the "Defaulted Securities"), the Representatives shall
have the right, within 24 hours thereafter, to make arrangements for one or more
of the non-defaulting Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date and arrangements satisfactory
to the remaining Underwriters and the Company for the purchase of such shares
are not made within 36 hours of such default, this Agreement, or with respect to
any Date of Delivery which occurs after the Closing Time, the obligation of the
Underwriters to purchase and of the Company to sell the Option Securities to be
purchased and sold on such Date of Delivery, shall terminate without liability
on the part of any non-defaulting Underwriter or the Company.
23
<PAGE>
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the Representatives or the Company shall have the
right to postpone Closing Time or the relevant Date of Delivery, as the case may
be, for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at Santander Securities
Corporation of Puerto Rico, Torre Santander, 221 Avenida Ponce de Leon, Suite
500, San Juan, Puerto Rico 00917-1825, Attention: Director of Investment Banking
and at North Tower, World Financial Center, New York, New York, 10281-1201,
Attention: Jose Falgas; and notices to the Company shall be directed to the
Company at 280 Jesus T. Pinero Avenue, San Juan, Puerto Rico 00918, Attention:
President.
SECTION 12. Parties. This Agreement shall inure to the benefit of and
be binding upon the Underwriters, the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Underwriters
and the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters and the Company and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any Underwriter shall be deemed to
be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
24
<PAGE>
SECTION 15. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the Underwriters and the Company in accordance with its terms.
Very truly yours,
R&G FINANCIAL CORPORATION
By: _____________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
SANTANDER SECURITIES CORPORATION
OF PUERTO RICO
By: ____________________________
Name:
Title:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:_____________________________
Name:
Title:
25
<PAGE>
For themselves and as Representatives of the other Underwriters named
in Schedule A hereto.
26
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Underwriters Securities
------------ ----------
<S> <C>
Santander Securities Corporation of Puerto Rico ..........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .................................................................
---------
Total .............................................................. 1,600,000
---------
---------
</TABLE>
<PAGE>
SCHEDULE B
R & G FINANCIAL CORPORATION
1,600,00 Shares
__% Noncumulative Perpetual Monthly Income Preferred Stock,
Series A
($25 liquidation preference per share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $25.00.
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $__________, being an amount equal to the initial
public offering price set forth above less $_______ per share; provided that the
purchase price per share for any Option Securities purchased upon the exercise
of the over-allotment option described in Section 2(b) shall be reduced by an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option Securities.
3. The dividend rate on the Securities will be __% per annum of their
liquidation preference.
4. The Securities will be subject to redemption at the option of the
Company commencing on October 1, 2003 at declining prices, as described in the
Prospectus.
<PAGE>
EXHIBIT A
LIST OF SUBSIDIARIES
1. R&G Mortgage Corporation
2. R-G Premier Bank of Puerto Rico
3. Champion Mortgage Corporation
<PAGE>
EXHIBIT B
FORM OF OPINION OF
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
AS COMPANY COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(c)
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the Commonwealth of
Puerto Rico.
(ii) The Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so
to qualify or to be in good standing would not result in a Material Adverse
Effect.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus in the column entitled "Actual"
under the caption "Capitalization" (except for subsequent issuances, if
any, pursuant to the Underwriting Agreement or pursuant to reservations,
agreements or employee benefit plans referred to in the Prospectus or
pursuant to the exercise of convertible securities or options referred to
in the Prospectus); the shares of issued and outstanding capital stock of
the Company have been duly authorized and validly issued and are fully paid
and non-assessable; and none of the outstanding shares of capital stock of
the Company was issued in violation of the preemptive or other similar
rights of any securityholder of the Company.
(v) The Securities have been duly authorized for issuance and sale
to the Underwriters pursuant to the Underwriting Agreement and, when issued
and delivered by the Company pursuant to the Underwriting Agreement against
payment of the consideration set forth in the Underwriting Agreement, will
be validly issued and fully paid and non-assessable; no holder of the
Securities is or will be subject to personal liability by reason of being
such a holder; the Securities conform to the provisions of the certificate
of designation of the Company creating the Securities (the "Certificate of
Designation"); and the relative rights, preferences, interests and powers
of the Securities are as set forth in the Certificate of Designation
relating thereto, and all such provisions are valid under the laws of the
Commonwealth of Puerto Rico.
<PAGE>
(vi) The issuance of the Securities is not subject to the
preemptive or other similar rights of any securityholder of the Company.
(vii) Each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
Commonwealth of Puerto Rico, has corporate power and authority to own,
lease and operate its properties and to conduct its business as described
in the Prospectus and is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so
to qualify or to be in good standing would not result in a Material Adverse
Effect; except as otherwise disclosed in the Registration Statement, all of
the issued and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and, to the
best of our knowledge, is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; none of the outstanding shares of
capital stock of any Subsidiary was issued in violation of the preemptive
or similar rights of any securityholder of such Subsidiary.
(viii) The Company has full legal right, power, and authority to
enter into the Underwriting Agreement and to consummate the transactions
provided for therein; the Underwriting Agreement, assuming due
authorization, execution and delivery by each other party thereto, is a
valid and binding agreement of the Company, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws now or
hereafter in effect relating to or affecting creditors' rights generally or
by general principles of equity relating to the availability of remedies
and except as rights to indemnity and contribution may be limited by
federal or state securities laws or the public policy underlying such laws.
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b); and, to the
best of our knowledge, no stop order suspending the effectiveness of the
Registration Statement, or any amendment thereto and no order directed at
any document incorporated by reference in the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the 1933 Act and
no proceedings for that purpose have been instituted or are pending or
threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information, the Prospectus and each
amendment or supplement to the Registration Statement and Prospectus as of
their respective effective or issue dates (other than the financial
statements and supporting schedules included therein or omitted therefrom,
as to which we need express no opinion) complied as to form in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
B-2
<PAGE>
(xi) The Registration Statement and the Prospectus as of its date
including the documents incorporated therein by reference, appeared on
their face to be appropriately responsive, in all material respects (other
than the financial statements, schedules and other financial data contained
therein, as to which we do not express any opinion), with the requirements
of the 1933 Act and the 1933 Act Regulations.
(xii) The form of certificate used to evidence the Securities
complies in all material respects with all applicable statutory
requirements, with any applicable requirements of the articles of
incorporation and by-laws of the Company and the requirements of the Nasdaq
National Market. The Securities have been duly authorized for quotation on
the Nasdaq National Market.
(xiii) To the best of our knowledge after reasonable investigation,
there is not pending or threatened any action, suit, proceeding, inquiry or
investigation, to which the Company or any Subsidiary is a party, or to
which the property of the Company or any Subsidiary is subject, before or
brought by any court or governmental agency or body, domestic or foreign,
of a character required to be disclosed in the Registration Statement or
the Prospectus which is not so disclosed therein, which might reasonably be
expected to result in a Material Adverse Effect, or which might reasonably
be expected to materially and adversely affect the properties or assets
thereof or the consummation of the transactions contemplated in the
Underwriting Agreement or the performance by the Company of its obligations
thereunder; nor is the Company or any Subsidiary presently required under
any order, judgment or decree to make any claim in order to avoid any such
violation or default.
(xiv) The information in the Prospectus under "Risk Factors--Payment
of Dividends", "Risk Factors--Holding Company Structure", "Description of
Series A Preferred Stock", "Description of Capital Stock", "Taxation-United
States Taxation" and in the Registration Statement under Item 15, to the
extent that it constitutes matters of law, summaries of legal matters, the
Company's articles of incorporation and bylaws or legal proceedings, or
legal conclusions, has been reviewed by us and is correct in all material
respects.
(xv) To the best of our knowledge, there are no statutes or
regulations that are required to be described in the Prospectus that are
not described as required.
(xvi) All descriptions in the Registration Statement of contracts
and other documents to which the Company or its Subsidiaries are a party
are accurate in all material respects; to the best of our knowledge, there
are no franchises, contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments required to be described or referred to
in the Registration Statement or to be filed as exhibits thereto other than
those described or referred to therein or filed or incorporated by
reference as exhibits thereto, and the descriptions thereof or references
thereto are correct in all material respects and fairly
B-3
<PAGE>
represent in all material respects the information required by the 1933 Act
and the 1933 Act Regulations.
(xvii) To the best of our knowledge, neither the Company nor any
Subsidiary is in violation of its articles of incorporation or by-laws and
no default by the Company or any Subsidiary exists in the due performance
or observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease
or other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectus or filed or incorporated by
reference as an exhibit to the Registration Statement.
(xviii) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign (other than under the
1933 Act and the 1933 Act Regulations, which have been obtained, the filing
of the Certificate of Designation with the Puerto Rico Department of State
which has been made, or as may be required under the securities or blue sky
laws of the various states, as to which we need express no opinion) is
necessary or required in connection with the due authorization, execution
and delivery of the Underwriting Agreement or for the offering, issuance,
sale or delivery of the Securities.
(xix) The execution, delivery and performance of the Underwriting
Agreement and the consummation of the transactions contemplated in the
Underwriting Agreement and in the Registration Statement (including the
issuance and sale of the Securities and the use of the proceeds from the
sale of the Securities as described in the Prospectus under the caption
"Use of Proceeds") and compliance by the Company with its obligations under
the Underwriting Agreement do not and will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a
breach of, or default or Repayment Event (as defined in Section 1(a)(xi) of
the Underwriting Agreement) under or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the
Company or any Subsidiary pursuant to any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or any other agreement
or instrument, known to us, to which the Company or any Subsidiary is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any Subsidiary is subject (except for
such conflicts, breaches or defaults or liens, charges or encumbrances that
would not have a Material Adverse Effect), nor will such action result in
any violation of the provisions of the articles of incorporation or by-laws
of the Company or any Subsidiary, or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any Subsidiary or any of their
respective properties, assets or operations.
B-4
<PAGE>
(xx) To the best of our knowledge, there are no persons with
registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise registered
by the Company under the 1933 Act.
(xxi) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
1940 Act.
(xxii) The deposit accounts of the Bank are insured by the FDIC to
the legal maximum, and to our knowledge no proceeding for the termination
or revocation of such insurance is pending or threatened. The Bank is a
member in good standing of the Federal Home Loan Bank of New York.
(xxiii) To the best of our knowledge, none of the Company, its
Subsidiaries, their affiliates, or any of their respective directors or
officers is subject to any order or directive of, or party to any agreement
with, any regulatory agency having jurisdiction with respect to its
business or operations except as disclosed in the Registration Statement or
the Prospectus.
(xxiv) To the best of our knowledge after reasonable investigation,
the conduct of the respective businesses of the Company and its
Subsidiaries is not in violation of any federal, state or local statute,
administrative regulation or other law, which violation is likely to have a
material adverse effect on the Company and its Subsidiaries taken as a
whole; and the Company and its Subsidiaries have obtained all licenses as
are necessary or required for the ownership, leasing and operation of their
respective properties and the conduct of their businesses as presently
conducted.
Nothing has come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the documents
incorporated therein by reference and the Rule 430A Information (except for
financial statements and schedules and other financial data included therein or
omitted therefrom, as to which we need make no statement), at the time such
Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or that the Prospectus or any amendment or supplement thereto (except for
financial statements and schedules and other financial data included therein or
omitted therefrom, as to which we need make no statement), at the time the
Prospectus was issued, at the time any such amended or supplemented prospectus
was issued or at the Closing Time, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of the laws of the Commonwealth of Puerto Rico, upon
the opinion of the McConnell Valdes, special local counsel to the Company (which
opinion shall be dated and furnished to the Representatives at
B-5
<PAGE>
the Closing Time, shall be satisfactory in form and substance to counsel for the
Underwriters and shall expressly state that the Underwriters may rely on such
opinion as if it were addressed to them), provided that Elias, Matz, Tiernan &
Herrick L.L.P. shall state in their opinion that they believe that they and the
Underwriters are justified in relying upon such opinion of local counsel, and
(B), as to matters of fact (but not as to legal conclusions), to the extent they
deem proper, on certificates of responsible officers of the Company and public
officials. Such opinion shall not state that it is to be governed or qualified
by, or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
B-6
<PAGE>
EXHIBIT C
FORM OF OPINION OF
MCCONNELL VALDES
AS PUERTO RICO COUNSEL TO THE COMPANY
TO BE DELIVERED PURSUANT TO
SECTION 5(c)
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the Commonwealth of
Puerto Rico.
(ii) The Securities have been duly authorized for issuance and sale
to the Underwriters pursuant to the Underwriting Agreement and, when issued
and delivered by the Company pursuant to the Underwriting Agreement against
payment of the consideration set forth in the Underwriting Agreement, will
be validly issued and fully paid and non-assessable; no holder of the
Securities is or will be subject to personal liability by reason of being
such a holder; the Securities conform to the provisions of the certificate
of designation of the Company creating the Securities (the "Certificate of
Designation"); and the relative rights, preferences, interests and powers
of the Securities are as set forth in the Certificate of Designation
relating thereto, and all such provisions are valid under the laws of the
Commonwealth of Puerto Rico.
(iii) Each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
Commonwealth of Puerto Rico; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of
each Subsidiary has been duly authorized and validly issued, is fully paid
and non-assessable and, to the best of our knowledge, is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of any Subsidiary was issued in
violation of the preemptive or similar rights of any securityholder of such
Subsidiary.
(iv) The form of certificate used to evidence the Securities
complies in all material respects with all applicable Commonwealth of
Puerto Rico statutory requirements, with any applicable requirements of the
articles of incorporation and by-laws of the Company.
(v) The information in the Prospectus under "Taxation-Puerto Rico
Taxation" and in the Registration Statement under Item 15, to the extent
that it constitutes matters of law, summaries of legal matters, the
Company's articles of incorporation and bylaws or legal proceedings, or
legal conclusions, has been reviewed by us and is correct in all material
respects.
<PAGE>
Exhibit 3.0
Certificate of Resolution
Establishing and Designating the Series
and Fixing and Determining the
Relative Rights and Preferences of the
Noncumulative Perpetual Monthly Income
Preferred Stock, Series A
($25 Liquidation Preference Per Share) of
R&G Financial Corporation
I, Enrique Umpierre-Suarez, the duly appointed Secretary of R&G
Financial Corporation (the "Corporation"), a corporation organized and
existing under the laws of the Commonwealth of Puerto Rico, hereby certify
that the following resolutions were duly adopted by the Board of Directors of
the Corporation pursuant to authority conferred by the Corporation's
Certificate of Incorporation, as amended (the "Certificate of Incorporation"),
at a meeting thereof duly held on August __, 1998, and by the Pricing Committee
of the Board of Directors, pursuant to authority conferred by the Board of
Directors, at a meeting thereof duly held on August 3, 1998:
RESOLVED, that pursuant to the authority expressly vested in the
Board of Directors of the Corporation by Article IV of its Certificate
of Incorporation, the Board of Directors hereby authorizes the issuance
of up to 1,800,000 shares of its preferred stock, par value $0.01,
liquidation preference $25.00 per share to be designated as R&G
Financial Corporation Noncumulative Perpetual Monthly Income Preferred
Stock, Series A (the "Series A Preferred Stock").
The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of
the shares of the Series A Preferred Stock are as follows:
1. Dividend Rights
(a) Holders of record of Series A Preferred Stock shall be entitled
to receive noncumulative cash dividends payable monthly in arrears
for each month at the Dividend Rate (as hereinafter defined) as
applicable, when and as and if declared by the Board of Directors, or
a duly authorized committee thereof, out of funds legally available
therefor. Dividends on the Series A Preferred Stock will accrue from
their date of issuance and will be payable monthly in arrears in
United States dollars commencing on October 1st 1998, and for each
monthly dividend period commencing on the first day of each month
thereafter, and ending on and including the day next preceding the
first day of the next Dividend Period (each, a "Dividend Period") to
the holder of record of the Series A Preferred Stock as they appear on
the books of the Corporation on the second business day (as defined
below), immediately preceding the relevant Dividend Payment Date (as
defined below). Dividends so declared will be payable on the first
day of each month commencing on October 1,
1
<PAGE>
1998 (each, a "Dividend Payment Date"). The amount of dividends
payable per share of Series A Preferred Stock for each Dividend Period
shall be computed on the basis of twelve 30-day months and a 360-day
year. The amount of dividends payable for any period shorter than a
full month dividend period will be computed on the basis of the actual
number of days elapsed in such period.
(b) Holders of Series A Preferred Stock will not participate in
dividends, if any, declared and paid on the common stock of the
Corporation (the "Common Stock"). Except as descried herein, holders of
the Series A Preferred Stock will have no other right to participate in
the profits of the Corporation or to receive dividends. The right of
holders of Series A Preferred Stock to receive dividends is
noncumulative.
(c) If the Board of Directors of the Corporation or an authorized
committee thereof does not declare a dividend on the Series A
Preferred Stock for a Dividend Period, then holders of the Series A
Preferred Stock will have no right to receive a dividend for that
Dividend Period, and the Corporation will have no obligations to pay
the dividend accrued for that Dividend Period, whether or not
dividends are declared for any subsequent Dividend Period.
(d) When dividends which are not paid in full on the Series A
Preferred Stock and on any other shares of preferred stock of the
Corporation ranking on a parity as to the payment of dividends with
the Series A Preferred Stock, all dividends declared upon the Series A
Preferred Stock and any such other shares of preferred stock will be
declared pro rata so that the amount of dividends declared per share
on the Series A Preferred Stock and any such other shares of preferred
stock will in all cases bear to each other the same ratio that the
liquidation preference per share of the Series A Preferred Stock and
any such other preferred stock bear to each other.
(e) So long as any shares of the Series A Preferred Stock remain
outstanding, unless the full dividends on all outstanding shares of
Series A Preferred Stock have been declared and paid or set apart for
payment for the current Dividend Period and have been paid for all
Dividend Periods for which dividends were declared and not paid,
(i) no dividend (other than a dividend in Common Stock or in any other
stock of the Corporation ranking junior to the Series A Preferred Stock
as to dividends or distribution of assets upon liquidation, dissolution
or winding up) may be declared and paid, or set apart for payment, or
other distribution declared or made, on the Common Stock or on any
other stock ranking junior to or on a parity with the Series A
Preferred Stock as to dividends or distribution of assets upon
liquidation, dissolution or winding up and (ii) no shares of Common
Stock or shares of any other stock of the Corporation ranking junior
to or on a parity with the Series A Preferred Stock as to dividends
or distribution of assets upon liquidation, dissolution or winding
up, will be redeemed, purchased or otherwise acquired for any
consideration
2
<PAGE>
by the Corporation or any subsidiary of the Corporation (nor may any
moneys be paid to or made available for a sinking or other fund for the
redemption, purchase or other acquisition of any shares of any such
stock), other than by conversion into or exchange for Common Stock or
any other stock of the Corporation ranking junior to the Series A
Preferred Stock as to dividends or distribution of assets upon
liquidation, dissolution or winding up.
(f) When a Dividend Payment Date falls on a day that is not a Business
Day, the dividend will be paid on the next Business Day, without any
interest or accumulation on payment in respect of any such delay. A
"Business Day" is a day on which the Nasdaq National Market is open
for trading and which is not a Saturday, Sunday or other day on which
the banks in the Commonwealth of Puerto Rico or New York City are
authorized or obligated by law to close.
2. Dividend Rate
The annual dividend rate per share for the Series A Preferred Stock
shall be ____% of the $25 liquidation preference per share, or $_____
per share per month (the "Dividend Rate").
3. Conversion; Exchange
The Series A Preferred Stock will not be convertible into, or
exchangeable for any other securities of the Corporation.
4. Redemption at the Option of the Corporation
(a) The shares of the Series A Preferred Stock are not redeemable
prior to October 1, 2003. On or after such date, the shares of
Series A Preferred Stock will be redeemable in whole or in part from
time to time at the option of the Corporation, upon not less than 30
nor more than 60 days' notice, by mail, at the redemption prices set
forth in the table below, during the twelve month periods beginning
on October 1 of the years set forth below, subject to the prior
approval of the Board of Governors of the Federal Reserve System, if
required by applicable law, plus an amount equal to dividends declared
and unpaid for the then-current Dividend Period (without accumulation
of accrued and unpaid dividends for prior Dividend Periods and without
interest) to the date fixed for redemption.
<TABLE>
<CAPTION>
Year Redemption Price
- --------------------------------------- ----------------------------------
<S> <C>
2003 $
2004
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
2005
2006 and thereafter 25.00
</TABLE>
(b) In no event shall the Corporation redeem less than all of the
outstanding Series A Preferred Stock, unless dividends for the
then-current Dividend Period to the date fixed for redemption for such
series shall have been declared and paid or set apart for payment on
all outstanding Series A Preferred Stock, provided however, that the
foregoing provisions will not prevent, if otherwise permitted, the
purchase or acquisition by the Corporation of Series A Preferred Stock
pursuant to a tender or exchange offer made on the same terms to
holders of all the outstanding Series A Preferred Stock and mailed to
the holders of record of all such outstanding shares at such holders'
address as the same appear on the books of the Corporation; and
provided, further, that if some, but less than all, of the Series A
Preferred Stock are to be purchased or otherwise acquired by the
Corporation, the Series A Preferred Stock so tendered will be
purchased or otherwise acquired by the Corporation on a pro rata basis
(with adjustments to eliminate fractions) according to the number of
such shares tendered by each holder so tendering Series A Preferred
Stock for such purchase or exchange.
(c) In the event that less than all of the outstanding shares of the
Series A Preferred Stock are to be redeemed in any redemption at the
option of the Corporation, the total number of shares to be redeemed
in such redemption shall be determined by the Board of Directors and
the shares to be redeemed shall be allocated pro rata or by lot as
may be determined by the Board of Directors or by such other method
as the Board of Directors may approve and deem equitable, including
any method to conform to any rule or regulation of any national or
regional stock exchange or automated quotation system upon which the
shares of the Series A Preferred Stock may at the time be listed or
eligible for quotation.
(d) The Corporation may redeem the Series A Preferred Stock without
ever having declared or paid a dividend on such stock.
(e) Notice of any proposed redemption shall be given by the Corporation
by mailing a copy of such notice to the holders of record of the shares
of Series A Preferred Stock to be redeemed, at their address of record,
not more than 60 days nor less than 30 days prior to the redemption
date. The notice of redemption to each holder of shares of Series A
Preferred Stock shall specify the number of shares of Series A
Preferred Stock to be redeemed, the redemption date and the redemption
price payable to such holder upon redemption and shall state that from
and after said date dividends thereon will cease to accrue. If less
than all the shares owned by a holder are then to be redeemed at the
option of the Corporation, the notice shall also specify
4
<PAGE>
the number of shares of Series A Preferred Stock which are to be
redeemed and the numbers of the certificates representing such shares.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not the stockholder
receives such notice. Failure to duly give such notice by mail, or any
defect in such notice, to the holders of any stock designated for
redemption shall not affect the validity of the proceedings for the
redemption of any other shares of Series A Preferred Stock. Notice
having been mailed as aforesaid, from and after the redemption date
(unless default be made in the payment of the redemption price for any
shares to be redeemed), all dividends on the shares of Series A
Preferred Stock called for redemption shall cease to accrue and all
rights of the holders of such shares as stockholders of the
Corporation by reason of the ownership of such shares (except the
right to receive the redemption price, on presentation and surrender
of the respective certificates representing the redeemed shares)
shall cease on the redemption date, and such shares shall not after
the redemption date be deemed to be outstanding. In case less than all
the shares represented by any such certificate are redeemed, a new
certificate shall be issued without cost to the holder thereof
representing the unredeemed shares, if requested by such shareholder.
(f) At its option, the Corporation may, on or prior to the redemption
date, irrevocably deposit with a paying agent (a "Paying Agent"),
having surplus and undivided profits aggregating at least $50 million,
funds necessary for such redemption in trust, with irrevocable
instructions and authorization that such funds be applied to the
redemption of the shares of Series A Preferred Stock called for
redemption upon surrender of certificates for such shares (properly
endorsed or assigned for transfer). If notice of redemption shall have
been mailed and such deposit is made and the funds so deposited are
made immediately available to the holders of the shares of the
Series A Preferred Stock to be redeemed, the Corporation shall
thereupon be released and discharged (subject to the provisions
described in the next paragraph) from any obligation to make payment
of the amount payable upon redemption of the shares of the Series A
Preferred Stock to be redeemed. Notwithstanding that any certificates
for such shares shall not have been surrendered for cancellation,
the shares represented thereby shall no longer be deemed to be
outstanding. Thereupon, the holders of such shares shall look only to
the Paying Agent for such payment. Thereafter, all rights of the
holders of such shares as holders of Series A Preferred Stock (except
the right to receive the redemption price, but without interest) will
cease.
(g) Any funds remaining unclaimed at the end of two years from and
after the redemption date in respect of which such funds were
deposited shall be returned to the Corporation forthwith and
thereafter the holders of shares of the Series A Preferred Stock
called for redemption with respect to which such funds were deposited
shall look only to the Corporation for the payment of the redemption
price
5
<PAGE>
thereof. Any interest accrued on any funds deposited with the Paying
Agent shall belong to the Corporation and shall be paid to it from
time to time on demand.
(h) Any shares of the Series A Preferred Stock which shall at any time
have been redeemed shall, after such redemption, have the status of
authorized but unissued shares of preferred stock, without designation
as to series, until such shares are once more designated as part of a
particular series by the Board of Directors.
5. Voting Rights
(a) Except as indicated herein, or except as required by applicable
law, the holders of the Series A Preferred Stock will not be entitled
to receive notice of or attend or vote at any meeting of the
stockholders of the Corporation.
(b) If a Voting Event (as defined in the next paragraph) occurs, the
holders of outstanding shares of the Series A Preferred Stock,
together with the holders of shares of any one or more other series
of preferred stock entitled to vote for the election of directors in
the event of any failure to pay dividends, acting as a single class
will be entitled, by written notice to the Corporation given by the
holders of a majority in liquidation preference of such shares or by
ordinary resolution passed by the holders of a majority in liquidation
preference of such shares present in person or by proxy at a separate
special meeting of such holders convened for the purpose, to appoint
two additional members of the Board of Directors of the Corporation,
to remove any such member from office and to appoint another person in
place of such member. Not later than 30 days after a Voting Event
occurs, if written notice by a majority of the holders of such shares
has not been given as provided for in the preceding sentence, the
Board of Directors or an authorized committee thereof will convene a
separate special meeting for the above purpose. If the Board of
Directors or such authorized committee fails to convene such meeting
within such 30-day period, the holders of 10% of the outstanding
shares of the Series A Preferred Stock and of any such other
securities will be entitled to convene such meeting. The provisions
of the Certificate of Incorporation and the By-Laws of the Corporation
relating to the convening and conduct of general meetings of
stockholders will apply with respect to any such separate special
meeting. Any member of the Board of Directors so appointed shall
vacate office if, following the event which gave rise to such
appointment, the Corporation shall have resumed the payment of
dividends in full on the Series A Preferred Stock and each such other
series of stock for twelve consecutive monthly Dividend Periods.
(c) A "Voting Event" will be deemed to have occurred in the event that
dividends payable on any share or shares of Series A Preferred Shares
shall not be declared and paid at the stated rate for the equivalent of
eighteen full monthly Dividend Periods
6
<PAGE>
(whether or not consecutive). A Voting Event will be deemed to have
been terminated when dividends have been paid regularly for twelve
consecutive monthly Dividend Periods.
(d) Any variation or abrogation of the rights, preferences and
privileges of the Series A Preferred Stock by way of amendment of the
Certificate of Incorporation or otherwise (including, without
limitation, the authorization or issuance of any shares of the
Corporation ranking, as to dividend rights or rights on liquidation,
winding up and dissolution, senior to the Series A Preferred Stock)
shall not be effective (unless otherwise required by applicable law)
except with the consent in writing of the holders of at least
two-thirds of the outstanding shares of the Series A Preferred Stock
or with the sanction of a special resolution passed at a separate
special meeting by the holders of at least two-thirds of the
outstanding shares of the Series A Preferred Stock. Notwithstanding
the foregoing, the Corporation may, without the consent or sanction
of the holders of Series A Preferred Stock, authorize and issue shares
of the Corporation ranking as to dividend rights and rights on
liquidation, winding up or dissolution, on a parity with or junior to
the Series A Preferred Stock.
(e) No vote of the holders of the Series A Preferred Stock will be
required for the Corporation to redeem or purchase and cancel the
Series A Preferred Stock.
(f) The Corporation will cause a notice of any meeting at which holders
of Series A Preferred Stock are entitled to vote to be mailed to each
record holder of the Series A Preferred Stock. Each such notice will
include a statement setting forth (i) the date of such meeting, (ii) a
description of any resolution to be proposed for adoption at such
meeting on which such holders are entitled to vote and (iii)
instructions for deliveries of proxies.
7
<PAGE>
5. Liquidation Preference
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Series A Preferred Stock will be entitled to receive out of assets of
the Corporation available for distribution to stockholders, before any
distribution of the assets is made to the holders of shares of the
Common Stock or on any other class or series of stock of the
Corporation ranking junior to the Series A Preferred Stock as to such a
distribution, an amount equal to $25.00 per share, plus an amount equal
to dividends declared and unpaid for the then current Dividend Period
(without accumulation of accrued and unpaid dividends for prior
Dividends Periods) to the date fixed for payment of such distribution.
(b) If, upon any voluntary or involuntary liquidation, dissolution or
winding up the Corporation, the assets of the Corporation are
insufficient to make the full liquidation payment on the Series A
Preferred Stock and liquidating payments or any other class or series
of stock of the Corporation ranking on a parity with the Series A
Preferred Stock as to any such distribution, then such assets will be
distributed among the holders of the Series A Preferred Stock and such
other class or series of parity stock ratably in proportion to the
respective full preferential amounts to which they are entitled.
(c) After any liquidating payments, the holders of the Series A
Preferred Stock will be entitled to no other payments. A consolidation
or merger of the Corporation with or into any other corporation or
corporations or the sale, lease or conveyance, whether for cash, shares
of stock, securities or properties, of all or substantially all the
assets of the Corporation will not be regarded as a liquidation,
dissolution or winding up of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of the Corporation this __ day of August, 1998.
---------------------------------------
Enrique Umpierre-Suarez
Secretary
Affidavit # ______
8
<PAGE>
Sworn and subscribed before me by Enrique Umpierre-Suarez, of legal
age, married, executive, resident of ___________, Puerto Rico, in his capacity
as Secretary of the Board of Directors of R&G Financial Corporation, personally
known to me, this _____ day of August 1998, in San Juan, Puerto Rico.
NOTARY PUBLIC
9
<PAGE>
Exhibit 4.2
[FORM OF PREFERRED STOCK CERTIFICATE]
R&G FINANCIAL CORPORATION
San Juan, Puerto Rico
PREFERRED STOCK
________ SHARES CERTIFICATE NO. ______
SEE REVERSE FOR CERTAIN
DEFINITIONS AND LIMITATIONS
CUSIP No. [____________]
THIS CERTIFIES THAT ________________________________________________,
is the owner of ____________ FULLY PAID AND NON-ASSESSABLE SHARES OF ____%
NONCUMULATIVE PERPETUAL MONTHLY INCOME PREFERRED STOCK, SERIES A OF R&G
FINANCIAL CORPORATION, a corporation organized under the laws of the
Commonwealth of Puerto Rico (the "Corporation"). The shares evidenced by this
Certificate are transferable on the books of the Corporation by the holder of
record hereof, in person or by a duly authorized attorney or legal
representative, upon surrender of this Certificate properly endorsed. Such
shares are not insured by the Federal Deposit Insurance Corporation. This
Certificate and the shares represented hereby are subject to all the provisions
of the Corporation's Certificate of Incorporation and Bylaws and all amendments
thereto. This Certificate is not valid unless countersigned and registered by
the Corporation's transfer agent and registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused its facsimile seal to be affixed hereto.
Dated:
--------- CORPORATE -----------
Secretary SEAL President and Chief
Executive Officer
Countersigned and Registered:
----------------------------
Transfer Agent and Registrar
By: ----------------------------
Authorized Signature
<PAGE>
R&G FINANCIAL CORPORATION
The shares represented by this Certificate are subject to limitations
and restrictions as set forth in the Certificate of Incorporation and Bylaws of
the Corporation as from time to time amended. The Certificate of Incorporation
is on file in the office of the Secretary of State for the Commonwealth of
Puerto Rico, San Juan, Puerto Rico, and the Certificate of Incorporation and the
Bylaws are on file with the Secretary of the Corporation at the Corporation's
executive offices. The Certificate of Incorporation of the Corporation
authorizes the Corporation to issue more than one class of stock, including
classes of preferred stock, which may be issued in one or more series. The
Corporation will furnish to any stockholder upon request and without charge a
full statement of the powers, designations, preferences and relative
participating, optional or other special rights of the ___% Noncumulative
Perpetual Monthly Income Preferred Stock, Series A ($25 liquidation preference
per share) and of each other class of stock or shares which the Corporation is
authorized to issue and the qualifications, limitations or restrictions of such
preferences and or rights. Any request should be made with the Secretary of the
Corporation.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -___Custodian-___
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------
[ ]
- ------------ ------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please Print or Typewrite Name and Address including Postal Zip Code of Assignee
- --------------------------------------------------------------------------------
- -------------------------------------------------------------- Shares
of the Preferred Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- -------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated:_________
--------------------------------
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ENLARGEMENT OR ANY CHANGE WHATEVER.
- ----------------------------------------
Signature(s) must be guaranteed by a commercial
bank or trust company or a member firm of a
major stock exchange.
<PAGE>
Exhibit 5.0
Law Offices
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
12th Floor
734 15th Street, N.W.
Washington, D.C. 20005
Telephone (202) 347-0300
August 5, 1998
Board of Directors
R&G Financial Corporation
280 Jesus T. Pinero Avenue
Hato Rey, Puerto Rico 00918
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933, as
amended (the "Act"), of up to 1,800,000 shares of Noncumulative Perpetual
Monthly Income Preferred Stock, Series A ($25 liquidation preference per share)
("Series A Preferred Stock") of R&G Financial Corporation, a Puerto Rico
corporation (the "Corporation"), we have been requested to render our opinion as
your special counsel as to the validity of the Series A Preferred Stock.
In connection with this opinion, we have examined such corporate records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion. We have
relied as to all matters of fact upon written or oral representations of
certificates of officers of the Corporation and public officials, and we have
assumed the accuracy of all statements of fact therein without any independent
investigation thereof.
The opinion which we render herein is limited to those matters governed by
the federal laws of the United States as of the date hereof. We assume no
obligation to revise or supplement the opinions rendered herein should the
above-referenced laws be changed by legislative or regulatory action, judicial
decision or otherwise. We are members of the District of Columbia bar and do
not express any opinion as to the laws of any other jurisdiction. In rendering
the opinion herein, we have relied with your permission on the opinion of
McConnell Valdes of even date herewith with respect to the corporation laws of
the Commonwealth of Puerto Rico. We express no opinion as to compliance with
Puerto Rico securities or "blue sky" laws and the opinions set forth herein are
qualified in that respect.
Based on the foregoing, and subject to the assumptions, qualifications and
limitations set forth herein, as of the date hereof we are of the opinion that,
when the Registration Statement has become effective under the Act, the
certificate of resolution containing the designation of the
<PAGE>
relative rights and preferences of the Series A Preferred Stock has been duly
filed with the Department of State of the Commonwealth of Puerto Rico, and the
Series A Preferred Stock has been issued and delivered as contemplated in the
Registration Statement, the shares of the Series A Preferred Stock will have
been duly authorized and validly issued and will be fully paid and
non-assessable when delivered against payment therefor.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the heading "Legal
Matters" in the prospectus included in the Registration Statement. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Act.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK L.L.P
By: /s/ Norman B. Antin
------------------------------
Norman B. Antin, a Partner
<PAGE>
Exhibit 5.1
August 5, 1998
Board of Directors
R&G Financial Corporation
280 Jesus T. Pinero Avenue
Hato Rey, Puerto Rico 00918
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
In connection with the above-referenced registration statement on Form S-3
(the "Registration Statement") which we understand will be filed by R&G
Financial Corporation, a Puerto Rico corporation (the "Corporation"), with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Act"), for the registration under the Act of up to 1,800,000
shares of Noncumulative Perpetual Monthly Income Preferred Stock, Series A (par
value $.01 per share, $25 liquidation preference per share) (the "Series A
Preferred Stock") of the Corporation, we have been requested to render our
opinion to you as your special Puerto Rico counsel as to the validity of the
Series A Preferred Stock.
In connection with this opinion, we have examined such corporate records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion. We have
relied as to all matters of fact upon written or oral representations or
certifications of officers of the Corporation and public officials, and we have
assumed the accuracy of all statements of fact therein without any independent
investigation thereof. While we have received the portion of the prospectus
included in the Registration Statement entitled "Description of Series A
Preferred Stock" and Exhibits 3.0 and 4.2 of the Registration Statement, we
have not participated in the preparation of the Registration Statement or any
other offering materials in connection with the sale of the Series A Preferred
Stock.
The opinion which we render herein is limited to those matters governed by
the corporation laws of the Commonwealth of Puerto Rico as of the date hereof.
We assume no obligation to
<PAGE>
revise or supplement the opinions rendered herein should the above-referenced
laws be changed by legislative or regulatory action, judicial laws be changed by
legislative or regulatory action, judicial decision or otherwise. We are
members of the Puerto Rico bar and do not express any opinion as to the laws of
any other jurisdiction. We express no opinion as to compliance with Puerto Rico
securities or "blue sky" laws and the opinions set forth herein are qualified in
that respect.
Based on the foregoing, and subject to the assumptions, qualifications and
limitations set forth herein, as of the date hereof we are of the opinion that,
when the Registration Statement has become effective under the Act, the
certificate of resolution containing the designation of the relative rights and
preferences of the Series A Preferred Stock has been duly filed with the
Department of State of the Commonwealth of Puerto Rico, and the Series A
Preferred Stock has been issued and delivered as contemplated in the
Registration Statement, the shares of the Series A Preferred Stock will have
been duly authorized and validly issued and will be fully paid and
non-assessable when delivered against payment therefor.
We hereby consent to the law firm of Elias, Matz, Tiernan & Herrick relying
on this opinion solely as to matters of Puerto Rico law in the opinion they are
delivering to you in connection with the filing of the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the heading "Legal
Matters" in the prospectus forming part of the Registration Statement. In
giving such consent, we do not admit that we are within the category of persons
whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ McConnell Valdes
MCCONNELL VALDES
<PAGE>
Exhibit 8.0
[ Letterhead of McConnell Valdes ]
August 5, 1998
Board of Directors
R&G Financial Corporation
280 Jesus T. Pinero Avenue
Hato Rey, Puerto Rico 00918
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
As special Puerto Rico tax counsel to R&G Financial Corporation (the
"Issuer") in connection with the issuance by the Issuer of up to 1,800,000
shares of ___% Noncumulative Perpetual Monthly Income Preferred Stock
pursuant to the prospectus (the "Prospectus") contained in the Registration
Statement, we hereby confirm to you that our opinion set forth under the
heading "Puerto Rico Taxation" in the Prospectus, subject to the limitations
set forth therein, is an accurate discussion of the principal Puerto Rico tax
consequences to the investors who purchase the securities in the offering
described in the Prospectus.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to any reference to us under the heading "Legal
Matters" in the Prospectus. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act.
Very truly yours,
McCONNELL VALDES
By: /s/ McConnell Valdes
--------------------
<PAGE>
EXHIBIT 8.1
Law Offices
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
12th Floor
734 15th Street, N.W.
Washington, D.C. 20005
Telephone (202) 347-0300
August 5, 1998
Board of Directors
R&G Financial Corporation
280 Jesus T. Pinero Avenue
Hato Rey, Puerto Rico 00918
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933, as
amended (the "Act"), of up to 1,800,000 shares of Noncumulative Perpetual
Monthly Income Preferred Stock, Series A ($25 liquidation preference per share)
("Series A Preferred Stock") of R&G Financial Corporation, a Puerto Rico
corporation (the "Corporation"), we hereby confirm to you that the disclosure
set forth under the heading "Taxation - United States Taxation" and "-Passive
Foreign Investment Company Rules" in the prospectus included in the
Registration Statement, subject to the limitations set forth therein, is an
accurate discussion of the principal federal tax consequences to the investors
who purchase such securities in the offering described in such prospectus.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the heading "Legal
Matters" in the prospectus included in the Registration Statement. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Act.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK L.L.P
By: /s/ Norman B. Antin
---------------------------
Norman B. Antin, a Partner
<PAGE>
Exhibit 12
R&G FINANCIAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FORMULA 6/30/98 6/30/97 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
-------- ------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A Pre-Tax Net Income 20,730 15,186 32,229 19,122 16,296 5,442 26,820
======== ======== ======= ======= ======== ======== ========
Plus:
B Interest Expense-Total 37,240 26,528 60,805 44,863 32,239 23,226 15,638
C Rental Expense(1) 416 360 745 651 574 543 438
-------- -------- ------- ------- -------- -------- --------
D Fixed Charges (including interest
on deposits) B+C 37,656 26,888 61,550 45,514 32,813 23,769 16,076
E Less: Interest on Deposits 17,429 15,768 32,435 27,518 21,829 14,461 10,365
-------- -------- ------- ------- -------- -------- --------
F Fixed Charges (excluding interest
on deposits) D-E 20,227 11,120 29,115 17,996 10,984 9,308 5,711
======== ======== ======= ======= ======== ======== ========
G Earnings A+D 58,386 42,074 93,779 64,636 49,109 29,211 42,896
======== ======== ======= ======= ======== ======== ========
Historical Ratio of Earnings to Fixed Charges:
Including interest on deposits G/D 1.55 1.56 1.52 1.42 1.50 1.23 2.67
Excluding interest on deposits (G-E)/F 2.02 2.37 2.11 2.06 2.48 1.58 5.70
(1) Only portion attributable to interest:
Rental expense 1,386 1,200 2,483 2,171 1,914 1,810 1,460
Estimated Interest Factor 30% 30% 30% 30% 30% 30% 30%
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
August 5, 1998
To the Board of Directors of
R&G Financial Corporation
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated February 2, 1998, which appears on page 41 of the 1998 Annual Report to
Shareholders of R&G Financial Corporation, which is incorporated by reference
in R&G Financial Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997. We also consent to the reference to us under the heading
"Independent Accountants" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Juan, Puerto Rico
