<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 23, 1999
REGISTRATION NO. 333-90463
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
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 jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
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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. EDUARDO J. ARIAS, ESQ.
Elias, Matz, Tiernan & Herrick L.L.P. Pietrantoni Mendez & Alvarez LLP
734 15th Street, N.W. Suite 1901--Popular Center
Washington, D.C. 20005 Hato Rey, Puerto Rico 00918
(202) 347-0300 (787) 274-1212
</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 B Preferred Stock.................................... $55,000,000 $15,290(2)
</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.
(2) Previously paid.
--------------------------
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.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION DECLARES
OUR REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 23, 1999
PROSPECTUS
1,200,000 SHARES
[LOGO]
% NONCUMULATIVE PERPETUAL MONTHLY INCOME
PREFERRED STOCK, SERIES B
PRICE TO PUBLIC: $25 PER SHARE
We are offering to the public 1,200,000 shares of our % Noncumulative
Perpetual Monthly Income Preferred Stock, Series B. The Series B Preferred Stock
has the following characteristics:
- Annual dividends of $ per share, payable monthly, if declared by the
board of directors. Missed dividends never have to be paid.
- Redeemable at our option beginning on , 2004.
- No mandatory redemption or stated maturity.
There is currently no public market for the Series B Preferred Stock. We
have applied for listing of the Series B Preferred Stock on the Nasdaq National
Market under the symbol "RGFCO."
INVESTING IN THE SERIES B PREFERRED STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public Offering Price....................................... $25.00 $30,000,000
Underwriting Discounts...................................... $ $
Proceeds to R&G Financial Corporation....................... $ $
</TABLE>
We have granted the underwriters an over-allotment option to purchase up to
180,000 additional shares of Series B Preferred Stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF ANYONE'S INVESTMENT IN THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OBLIGATIONS OF ANY
BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
SANTANDER SECURITIES MERRILL LYNCH & CO.
FRIEDMAN BILLINGS RAMSEY
The date of this prospectus is , 1999
<PAGE>
[MAP]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 5
Forward Looking Statements.................................. 12
Use of Proceeds............................................. 13
Capitalization.............................................. 13
Selected Consolidated Financial and Other Data.............. 14
Description of Series B Preferred Stock..................... 16
Description of Capital Stock................................ 22
Taxation.................................................... 25
Underwriting................................................ 33
Where You Can Find More Information......................... 35
Legal Matters............................................... 35
Independent Accountants..................................... 36
</TABLE>
------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION INCORPORATED BY
REFERENCE OR CONTAINED IN THIS PROSPECTUS. WE HAVE NOT, AND THE UNDERWRITERS
HAVE NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION.
THIS PROSPECTUS IS NOT AN OFFER TO SELL, NOR IS IT SEEKING AN OFFER TO BUY, THE
SERIES B PREFERRED STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
THE INFORMATION IN THIS PROSPECTUS IS COMPLETE AND ACCURATE AS OF THE DATE ON
THE FRONT COVER, BUT THE INFORMATION MAY HAVE CHANGED SINCE THAT DATE.
i
<PAGE>
SUMMARY
THE ITEMS IN THE FOLLOWING SUMMARY ARE DESCRIBED IN MORE DETAIL LATER IN
THIS PROSPECTUS. THIS SUMMARY PROVIDES AN OVERVIEW OF SELECTED INFORMATION AND
DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER. YOU SHOULD ALSO READ
THE MORE DETAILED INFORMATION SET OUT IN THIS PROSPECTUS OR INCORPORATED HEREIN
BY REFERENCE. IN THIS PROSPECTUS, REFERENCES TO "WE" AND "OUR" ARE TO R&G
FINANCIAL CORPORATION.
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED........................... 1,200,000 shares of Series B Preferred Stock;
1,380,000 shares if the underwriters'
over-allotment option is exercised in full.
OFFERING PRICE............................... $25 per share.
UNDERWRITERS................................. Santander Securities Corporation of Puerto
Rico, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Friedman Billings Ramsey.
USE OF PROCEEDS.............................. We are raising funds in this offering
primarily to support further growth in the
businesses of R&G Mortgage and R-G Premier
Bank, our principal operating subsidiaries.
We expect to retain up to $5.0 million of the
net proceeds for general corporate purposes
and contribute the balance of the net
proceeds to the Bank. The net proceeds
contributed to the Bank will increase the
Bank's regulatory capital, which will
facilitate its ability to increase deposits
and borrowings to fund additional
investments.
DIVIDENDS.................................... For each share of Series B Preferred Stock
you own, you will be entitled to receive a
noncumulative preferential cash dividend when
and if declared by our board of directors.
This dividend will be payable monthly in
arrears commencing on , 1999 and on the
first day of each calendar month thereafter,
at the fixed annual dividend rate of % of
the $25 liquidation preference per share.
VOTING RIGHTS................................ As a holder of the Series B Preferred Stock,
except as required by applicable law or in
the limited circumstances described herein,
you will not have voting rights.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
LIQUIDATION PREFERENCE....................... In the event of our liquidation, you will be
entitled to receive for each share of
Series B Preferred Stock, a liquidation
preference of $25 plus any accrued and unpaid
dividends for the then current monthly
dividend period, subject to certain
limitations.
REDEMPTION................................... We may redeem the Series B Preferred Stock
after , 2004, in whole or in part from
time to time, at our option, upon not less
than 30 nor more than 60 days' notice by
mail, at the redemption prices set forth
herein, plus any accrued and unpaid dividends
for the then current monthly dividend period
to the date fixed for redemption, subject to
our receiving any required prior regulatory
approvals. The Series B Preferred Stock is
not subject to any sinking fund or similar
obligation.
CONVERSION; EXCHANGE......................... The Series B Preferred Stock is not
convertible into or exchangeable for any of
our other securities.
PREEMPTIVE RIGHTS............................ As a holder of the Series B Preferred Stock,
you will have no preemptive rights to
purchase any of our securities.
LISTING ON THE NASDAQ NATIONAL MARKET........ We have applied for listing of the Series B
Preferred Stock on the Nasdaq National Market
under the symbol "RGFCO."
</TABLE>
2
<PAGE>
R&G FINANCIAL CORPORATION
We are 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"). We were organized under Puerto Rico
law in March 1996. R&G Mortgage was organized in 1972 and the predecessor of the
Bank was organized in 1983. In July 1996, we 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 our Chairman of the Board and Chief
Executive Officer, Mr. Victor J. Galan, in exchange for shares of our Class A
common stock. In August 1996, we conducted an underwritten initial public
offering of our Class B common stock. In December 1996, we acquired the
remaining 11.9% ownership interest in the common stock of the Bank. At
September 30, 1999, we had total consolidated assets of $2.7 billion, total
consolidated borrowings of $1.1 billion, total consolidated deposits of
$1.3 billion, and total consolidated stockholders' equity of $245.4 million.
In October 1999, we entered the United States market with the acquisition by
the Bank of Continental Capital Corp. ("Continental"), a Long Island, New
York-based mortgage banking company. With our acquisition of Continental, we
plan to expand our operations in the United States, concentrating initially in
New York and then into other markets to the extent that we are presented with
appropriate expansion opportunities. In addition to considering other mortgage
banking companies, we will also seek to acquire a financial institution in the
United States to take advantage of the same synergies between our operations as
we have experienced in Puerto Rico.
We compete for business in Puerto Rico by providing a wide range of
financial services to residents of all of Puerto Rico's major cities through our
branch offices and mortgage banking facilities at 26 locations. 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, 1998, R&G Mortgage originated approximately 27.9% 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 246.5% since December 31, 1991 and, at September 30,
1999, R&G Mortgage serviced approximately 100,440 accounts with an aggregate
loan balance of $5.4 billion. The Bank's asset size, which amounted to
$2.1 billion at September 30, 1999, has increased by $2.0 billion since R&G
Mortgage became affiliated with the Bank in February 1990, while the branch
office network has increased from two to 21 offices. Total loan originations by
the Bank during the nine months ended September 30, 1999 and the years ended
December 31, 1998, 1997 and 1996 amounted to $226.7 million, $129.1 million,
$89.0 million and $122.8 million, respectively.
We have generally sought to achieve long-term financial strength and
profitability by increasing the amount and stability of our net interest income
and non-interest income. We have sought to implement this strategy by
(1) establishing and emphasizing the growth of our mortgage banking activities,
including growing our loan servicing operation; (2) expanding our retail banking
franchise in order to achieve increased market presence and to increase core
deposits; (3) enhancing our net interest income by increasing our loans held for
investment, particularly single-family residential loans; (4) developing new
business relationships through an increased emphasis on commercial real estate
and commercial business lending; (5) diversifying our retail products and
services, including an increase in consumer loan originations (such as credit
cards); (6) meeting the banking needs of our customers through, among other
things, the offering of trust and investment services; and (7) controlled growth
and the pursuit of a variety of acquisition opportunities when appropriate.
We are subject to regulation and supervision by the Board of Governors of
the Federal Reserve System and are subject to various reporting and other
requirements of the SEC.
3
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
You should read the summary financial information presented below together
with our consolidated financial statements and notes which are incorporated by
reference into this prospectus and with our historical financial information
included under "Selected Consolidated Financial and Other Data" beginning on
page 14 of this prospectus. At September 30, 1999, R&G Mortgage and the Bank had
total assets of $694.6 million and $2.1 billion, respectively, before
consolidation. Per share information takes into account prior stock splits and
dividends.
The return on average assets ratio is computed by dividing net income by
average total assets for the period. The return on average equity ratio is
computed by dividing net income by average stockholders' equity for the period.
Both ratios have been computed using month-end averages. The ratios for the
nine-month periods ended September 30, 1999 and 1998 are presented on an
annualized basis.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net income........................... $ 33,077 $ 23,988 $ 34,034 $ 23,497 $ 13,200 $ 10,449 $ 5,452
Diluted earnings per common share.... $ 1.03 $ 0.82 $ 1.12 $ 0.81 $ 0.59 $ 0.56 $ 0.29
BALANCE SHEET DATA:
Total assets......................... $2,653,747 $1,830,030 $2,044,782 $1,510,746 $1,037,798 $ 853,206 $ 622,499
Stockholders' equity................. $ 245,419 $ 213,420 $ 221,162 $ 138,054 $ 115,633 $ 66,385 $ 55,970
OPERATING DATA:
Mortgage loans originated and
purchased.......................... $1,184,844 $ 887,280 $1,237,415 $ 758,486 $ 480,525 $ 327,107 $ 501,187
Loan servicing portfolio............. $5,434,588 $3,564,920 $4,827,798 $3,000,888 $2,550,169 $2,298,200 $2,114,743
SELECTED RATIOS:
Return on average assets............. 1.93% 1.92% 1.95% 1.85% 1.38% 1.47% 0.91%
Return on average common equity...... 22.01% 21.11% 21.32% 18.69% 15.54% 17.08% 10.34%
</TABLE>
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth our consolidated ratios of earnings to fixed
charges and preferred stock dividends for the respective periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings to fixed charges and preferred
stock dividends:
Including interest on deposits............ 1.51x 1.54x 1.53x 1.52x 1.42x 1.50x 1.23x
Excluding interest on deposits............ 2.01x 1.98x 2.00x 2.11x 2.06x 2.48x 1.58x
</TABLE>
For purposes of computing the ratios of earnings to fixed charges and
preferred stock dividends, 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 and preferred stock
dividends represent total interest expense, including and excluding interest on
deposits, as applicable, as well as the amount of pre-tax earnings required to
pay dividends on our Series A Preferred Stock, together with a reasonable
approximation of the interest component of rental expense. We issued our
Series A Preferred Stock in August 1998.
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY READ THE FOLLOWING RISK FACTORS BEFORE YOU DECIDE TO
BUY ANY SERIES B PREFERRED STOCK. YOU SHOULD ALSO CONSIDER THE OTHER INFORMATION
IN THIS PROSPECTUS AND THE DOCUMENTS THAT ARE INCORPORATED BY REFERENCE.
WE ARE NOT OBLIGATED TO MAKE PAYMENTS ON THE SERIES B PREFERRED STOCK IF OUR
BOARD OF DIRECTORS FAILS TO DECLARE DIVIDENDS.
Dividends on the Series B Preferred Stock are payable when, as and if
declared by our Board of Directors, out of funds legally available therefor.
Dividends on the Series B 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, you will have no right to receive a dividend in respect
of such monthly dividend period. We intend to pay monthly dividends at the
stated annual rate if allowable under legal and regulatory guidelines. However,
we can give no assurances that we will be able to or will decide to declare and
pay such dividends. We may redeem the Series B Preferred Stock without a
dividend on such Series B Preferred Stock ever having been declared or paid.
PAYMENT OF DIVIDENDS ON THE SERIES B PREFERRED STOCK IS DEPENDENT ON OUR
SUBSIDIARIES MAKING PAYMENTS TO US AS WELL AS TO OUR COMPLIANCE WITH REGULATORY
REQUIREMENTS.
We are a holding company with no significant business operations of our own.
Our only significant asset is all of the common stock of R&G Mortgage and the
Bank. Our only source of cash to pay dividends on the Series B 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 us to enable us to pay dividends on the Series B 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, by
the Federal Deposit Insurance Act and by Federal Deposit Insurance Corporation
("FDIC") regulation.
THERE MAY BE NO ACTIVE OR LIQUID MARKET FOR THE SERIES B PREFERRED STOCK.
Prior to this offering, there has been no public market for our Series B
Preferred Stock. We have applied for listing of the Series B Preferred Stock on
the Nasdaq National Market under the symbol "RGFCO." However, there can be no
assurance that an established and liquid trading market for the Series B
Preferred Stock will develop, that it will continue if it does develop, or that
after the completion of this offering, the Series B Preferred Stock will trade
at or above the public offering price set forth on the cover of this prospectus.
Our Series A Preferred Stock issued by us in August 1998 are quoted on the
Nasdaq National Market under the symbol "RGFCP."
CHANGES IN INTEREST RATES COULD AFFECT OUR OVERALL PROFITABILITY.
Changes in interest rates can have a variety of effects on our 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 our 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, we would expect overall
originations to decline. A decrease in the volume of our mortgage originations
could result in a decrease in the amount of R&G
5
<PAGE>
Mortgage's mortgage origination income and portfolio generated net interest
income to the Bank. During the nine months ended September 30, 1999 and the
years ended December 31, 1998, 1997 and 1996, R&G Mortgage originated an
aggregate of $792.7 million, $914.1 million, $598.2 million and $448.1 million
of loans, respectively, which includes loans originated for the Bank.
CHANGES IN INTEREST RATES COULD ALSO AFFECT THE PROFITABILITY OF 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. 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 nine months ended September 30, 1999 and the years ended
December 31, 1998, 1997 and 1996, R&G Mortgage sold $544.4 million,
$493.0 million, $246.1 million and $244.8 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.
CHANGES IN INTEREST RATES AFFECT OUR GAIN ON SALE OF MORTGAGE LOANS.
R&G Mortgage 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 R&G Mortgage commits to
sell the mortgage loan. In order to limit our exposure to interest rate risk
through the time the mortgage loan closes, we generally do 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 our exposure to
interest rate risk through the time the loan is sold or committed to be sold, we
may, depending upon market conditions, enter into forward commitments to sell a
portion of our mortgage loans to investors for delivery at a future time. At
September 30, 1999, we had $86.6 million of pre-existing commitments by
third-party investors to purchase mortgage loans. To the extent that we
originate or commit to originate loans without pre-existing commitments by
investors to purchase such loans or to the extent such loans are not otherwise
hedged against changes in interest rates ("unhedged loans"), we 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).
CHANGES IN INTEREST RATES COULD AFFECT THE SIZE AND PROFITABILITY OF OUR LOAN
SERVICING PORTFOLIO.
The market value of and income from our 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 our loan
servicing portfolio could cause an increase in the rate at which outstanding
loans are prepaid, reducing the period of time during which we would earn
servicing income with respect to such loans. Prepayments generally decrease the
amount of our future loan servicing income which, in turn, decreases the value
of our loan servicing portfolio. Further, an increase in prepayment rates may
accelerate the amortization of any capitalized servicing or excess servicing
carried on our balance sheet. On the other hand, the market value of and income
from our loan servicing portfolio may be positively affected as mortgage
interest rates increase. At September 30, 1999, we were servicing approximately
100,440 loans which had an aggregate loan balance of $5.4 billion. At
September 30, 1999, we had capitalized $71.4 million of mortgage servicing
rights. During the nine
6
<PAGE>
months ended September 30, 1999 and the years ended December 31, 1998, 1997 and
1996, we recognized amortization adjustments (including any impairment
adjustments) of $5.2 million, $3.0 million, $1.8 million and $1.2 million,
respectively, with respect to our capitalized mortgage servicing rights. Such
amortization adjustments have and will continue to have a significant effect on
our results of operations.
CHANGES IN INTEREST RATES COULD AFFECT OUR NET INTEREST INCOME AND THE VALUE OF
OUR INTEREST-EARNING ASSETS.
Our operations 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 our interest-earning assets have longer
effective maturities than our interest-bearing liabilities, the yield on our
interest-earning assets generally will adjust more slowly than the cost of our
interest-bearing liabilities. As a result, our net interest income and the value
of our securities portfolio generally would be adversely affected by increases
in interest rates and positively affected by comparable declines in interest
rates. At September 30, 1999, our interest-bearing liabilities which were
estimated to mature or reprice within one year exceeded our interest-earning
assets with the same characteristics by $443.9 million or 16.7% of total assets.
In addition to affecting net interest income, changes in interest rates also
can affect the value of our 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 increases when interest rates
fall. At September 30, 1999, $50.2 million or 5.1% of our mortgage-backed and
investment securities were classified as held for trading and $908.8 million or
91.9% 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 in
other comprehensive income, a separate component of stockholders' equity.
OUR ORIGINATION BUSINESS WOULD BE ADVERSELY AFFECTED IF WE CANNOT MAINTAIN
ACCESS TO STABLE FUNDING SOURCES.
Our 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 Federal Home Loan Bank ("FHLB")
of New York and other alternative sources, R&G Mortgage's business is
significantly dependent upon short-term borrowings under warehousing lines. At
September 30, 1999, R&G Mortgage was authorized to borrow under its warehousing
lines up to an aggregate of $180.0 million. An aggregate of $37.5 million was
outstanding under such warehousing lines as of such date. Certain of these
warehousing lines of credit require R&G Mortgage to maintain minimum levels of
net worth and debt service and limit the amount of indebtedness R&G Mortgage may
incur and the amount of dividends it may declare.
In addition, at September 30, 1999, the Bank had access to $677.7 million in
advances from the FHLB of New York, of which $273.5 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 (principally
in the form of first mortgage loans and securities) which amounted to
$445.5 million as of September 30, 1999, 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.
7
<PAGE>
While we expect 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 our 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 impose restrictions on
transactions between the Bank and its affiliates, including R&G Mortgage.
R&G MORTGAGE IS SUBJECT TO DEFAULT AND RECOURSE RISK IN CONNECTION WITH ITS LOAN
ORIGINATION PROCESS.
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 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 September 30, 1999, there were $627.8 million of
loans subject to such recourse provisions. During the nine months ended
September 30, 1999, and the years ended December 31, 1998, 1997 and 1996, losses
incurred by R&G Mortgage with respect to such recourse provisions were
insignificant.
THE BANK IS SUBJECT TO DEFAULT RISK IN CONNECTION WITH ITS LOAN ORIGINATION
PROCESS.
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 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, general economic conditions in the Bank's market area
and other factors related to the collectibility of the Bank's loan portfolio.
The Bank's allowance for loan losses amounted to $9.0 million and $8.1 million
at September 30, 1999 and December 31, 1998, respectively, which constituted
17.26% and 17.92% of the Bank's non-performing loans as of such
8
<PAGE>
respective dates. Total charge-offs to the Bank's allowance for loan losses
amounted to $3.0 million and $6.0 million for the nine months ended
September 30, 1999 and the year ended December 31, 1998, respectively. Although
our 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 our future financial condition and/or
results of operations.
THE BANK'S EXPOSURE TO CREDIT RISK IS INCREASING AS A CONSEQUENCE OF THE
INCREASE IN ITS COMMERCIAL BANKING ACTIVITIES.
We have recently increased our emphasis on residential construction,
commercial real estate and commercial business lending. As we increase our focus
on commercial lending, an increase in our credit risk is likely to occur. We
generally charge higher interest rates on commercial and residential
construction loans than we do on permanent residential mortgage loans, because
we expect higher loan losses. Generally, commercial and construction loans are
considered to be riskier than permanent residential mortgage loans because they
have larger balances to a single borrower or group of related borrowers. In
addition, the borrower's ability to repay a commercial loan depends on the
successful operation of the business or the property securing the loan. If we
experience loan losses that are higher than our allowance for loan losses, our
profits and financial condition could be adversely affected.
R&G MORTGAGE IS SUBJECT TO RISKS IN SERVICING LOANS FOR OTHERS.
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, our 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 nine months ended September 30, 1999 and the years ended
December 31, 1998, 1997 and 1996, R&G Mortgage wrote-off $35,000, $286,000,
$189,000 and $323,000, respectively, of expenses which it was unable to recover
with respect to its loan servicing operations.
R&G MORTGAGE'S BUSINESS IS DEPENDENT ON THE EXISTENCE OF, AND ITS PARTICIPATION
IN, FEDERAL PROGRAMS WHICH FACILITATE THE SALES OF MORTGAGE LOANS AND
MORTGAGE-BACKED SECURITIES.
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,
9
<PAGE>
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.
IF OUR COMPUTER SYSTEMS DO NOT PROPERLY WORK ON JANUARY 1, 2000, OUR BUSINESS
OPERATIONS COULD BE DISRUPTED.
The Year 2000 issue is the result of computer programs being able to use
only two digits rather than four to define the applicable year. Thus,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations,
causing disruptions of operations, including, among others, a temporary
inability to process deposit and loan transactions, effect financings or engage
in normal business activities. We have established programs to prepare our
computer systems and applications for the Year 2000 and we are utilizing both
internal and external resources to identify, correct and test our systems for
Year 2000 compliance.
We have completed the assessment of our computer hardware, software programs
and data processing applications, including those provided by third party
vendors. We have received revised programs from our third party vendors that
have been modified to address the Year 2000 issue for the principal applications
used in our mortgage banking and banking businesses. We completed the testing
and implementation of these revised programs and applications during the fourth
quarter of 1998, ascertaining that they adequately deal with the Year 2000
issue. Our main computer, used principally in banking and mortgage banking
operations, is Year 2000 compliant, meaning that it can properly process and
calculate date-related information after January 1, 2000. We are currently in
the process of replacing other equipment, primarily desktop computers that are
not Year 2000 compliant. We have also developed a "Business Resumption
Contingency Plan" in order to ensure continuity of daily operations after
December 31, 1999 in the event that a given application which has been duly
tested and implemented does not function adequately after such date.
We do not anticipate that the Year 2000 issue will have a material adverse
effect on our financial condition or result of operations. However, Year 2000
issues suffered by third party providers of basic services, such as telephone,
waste, sewer and electricity, could have an adverse impact on our daily
operations. We will attempt to deal with any disruption of such basic services
caused by Year 2000 issues with our existing business interruption contingency
plans. Under such contingency plans, most of our branch offices are presently
equipped with power plants and/or generators.
We estimate that the cost of addressing the Year 2000 issue will be
approximately $300,000, most of which has been incurred. Most of such costs are
directly related to the cost of replacing existing equipment, primarily desktop
computers, which have been fully depreciated on our financial statements.
CHANGES IN STATUTES AND REGULATIONS COULD ADVERSELY AFFECT US.
We, 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 R&G Mortgage, the Bank and us.
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
10
<PAGE>
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 us and our affiliates, to limit the Bank's growth, to prohibit or limit
the payment of dividends from the Bank to us and to require the Bank to maintain
capital ratios in accordance with regulatory requirements. Any change in such
regulation, whether by our regulators or as a result of legislation subsequently
enacted by the Congress of the United States or the Puerto Rico legislature,
could have a substantial impact on our operations.
We are a bank holding company subject to the supervision and regulation of
the Federal Reserve Board as a result of our 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. Moreover, because we are a holding company, our right to participate in
the assets of any subsidiary upon its 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 we may ourselves be a
creditor with recognized claims against the subsidiary.
OUR BUSINESS IS CONCENTRATED IN PUERTO RICO, AND ADVERSE CONDITIONS IN PUERTO
RICO COULD NEGATIVELY IMPACT OUR OPERATIONS.
Our business activities and credit exposure are concentrated with customers
in Puerto Rico. Accordingly, our 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 our loans,
real estate owned and mortgage servicing portfolio.
COMPETITION WITH OTHER FINANCIAL INSTITUTIONS COULD ADVERSELY AFFECT OUR
PROFITABILITY.
We face substantial competition in originating loans and in attracting
deposits. This competition in originating loans comes principally from other
U.S., Puerto Rico and foreign banks, mortgage banking companies, consumer
finance companies, insurance companies and other institutional lenders and
purchasers of loans. In attracting deposits, we compete with insured depository
institutions such as banks, savings institutions and credit unions, as well as
institutions offering uninsured investment alternatives including money market
funds. These competitors may offer higher interest rates than we do, which could
result in either our attracting fewer deposits or in our being required to
increase our rates in order to attract deposits. Increased deposit competition
could increase our cost of funds and adversely affect our ability to generate
the funds necessary for our lending operations, thereby adversely affecting our
results of operations. A number of institutions with which we compete have
significantly greater assets, capital and other resources. In addition, many of
our competitors are not subject to the same extensive federal regulation that
governs our business. As a result, many of our competitors have advantages over
us in conducting certain businesses and providing certain services.
11
<PAGE>
FORWARD LOOKING STATEMENTS
This prospectus contains and incorporates by reference certain forward
looking statements regarding our financial condition, results of operations and
business. These statements are not historical facts and include statements about
our
- confidence,
- strategies about earnings,
- new and existing programs and products,
- relationships,
- opportunities,
- technology, and
- market conditions.
You may identify these statements by looking for
- forward-looking terminology, like "expect," "believe" or "anticipate;"
- expressions of confidence like "strong" or "on-going;" or
- similar statements or variations of those terms.
These forward-looking statements involve certain risks and uncertainties.
Actual results may differ materially from the results the forward-looking
statements contemplate because of, among others, the following possibilities:
- competitive pressure in the banking and financial services industry
increases significantly;
- changes occur in the interest rate environment;
- our Year 2000 compliance program does not effectively address Year 2000
computer problems; and
- general economic conditions, particularly within Puerto Rico, are less
favorable than expected.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of Series B Preferred
Stock is expected to be $ ($ if the underwriters' over-allotment
option is exercised in full) after deducting the underwriting discounts and our
estimated offering expenses. See "Underwriting."
We are raising funds in this offering primarily to support further growth in
the businesses of R&G Mortgage and the Bank. We expect to retain up to
$5.0 million of the net proceeds for general corporate purposes and contribute
the balance of the net proceeds to the Bank. The net proceeds contributed to the
Bank will increase the Bank's regulatory capital, which will facilitate its
ability to increase deposits and borrowings to fund additional investments.
CAPITALIZATION
The following table sets forth our unaudited consolidated capitalization at
September 30, 1999, and as adjusted to reflect the issuance of 1,200,000 shares
of Series B Preferred Stock offered by this prospectus and the application of
the net proceeds therefrom, as if the sale of the Series B Preferred Stock had
been consummated on September 30, 1999. The table does not give effect to any
exercise of the over-allotment option granted to the underwriters.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------
ACTUAL AS ADJUSTED
----------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Borrowings (1).............................................. $1,097,011 $1,097,011
========== ==========
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized:
2,000,000 Series A Preferred Stock, actual................ $ 50,000 $ 50,000
1,200,000 Series B Preferred Stock, as adjusted........... -- 30,000
Common stock, $.01 par value:
Class A shares, 40,000,000 shares authorized; 18,440,556
shares issued and outstanding........................... 184 184
Class B Shares, 30,000,000 shares authorized, 10,217,731
shares issued and outstanding and as adjusted........... 102 102
Additional paid-in capital.................................. 41,833 41,833
Retained earnings........................................... 151,651 151,651
Capital reserves of the Bank................................ 3,548 3,548
Accumulated other comprehensive income...................... (1,899) (1,899)
---------- ----------
Total stockholders' equity................................ 245,419 275,419
---------- ----------
Total capitalization...................................... $1,342,430 $1,372,430
========== ==========
Common stockholders' equity per share....................... $ 6.82 $ 6.82
========== ==========
</TABLE>
- ------------------------
(1) Includes securities sold under agreements to repurchase, notes payable and
other borrowings.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial and other data below should be read in
connection with the financial information included in our Annual Report on
Form 10-K/A for the year ended December 31, 1998 and our Quarterly Report on
Form 10-Q for the nine months ended September 30, 1999. See "Where You Can Find
More Information." The consolidated financial information for the nine-month
periods ended September 30, 1999 and 1998 are derived from our unaudited
consolidated financial statements, which, in the opinion of our management,
include all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of the results for such periods. Results for the
nine-month period ended September 30, 1999 are not necessarily indicative of our
results for the full year.
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets(1)........................ $2,653,747 $1,830,030 $2,044,782 $1,510,746 $1,037,798 $ 853,206 $ 622,499
Loans receivable, net.................. 1,370,661 926,799 1,073,668 765,059 603,751 473,841 301,614
Mortgage loans held for sale........... 71,600 163,536 117,126 46,885 54,450 21,318 22,021
Mortgage-backed and investment
securities held for trading.......... 50,232 468,770 450,546 401,039 110,267 113,809 124,522
Mortgage-backed securities available
for sale............................. 684,518 42,319 95,040 46,004 50,841 61,008 13,300
Mortgage-backed securities held to
maturity............................. 24,112 29,451 28,255 33,326 37,900 41,731 84,122
Investment securities available for
sale................................. 224,236 46,527 59,502 75,863 30,973 3,280 1,878
Investment securities held to
maturity............................. 5,939 6,340 6,344 10,693 5,270 2,046 2,182
Servicing asset........................ 71,419 32,989 58,221 21,213 12,595 8,210 4,418
Cash and cash equivalents(2)........... 76,117 62,280 103,728 68,366 98,856 104,195 45,622
Deposits............................... 1,270,212 875,492 1,007,297 722,418 615,567 518,187 380,148
Securities sold under agreements to
repurchase........................... 672,882 440,238 471,422 433,134 97,444 98,483 108,922
Notes payable.......................... 140,629 167,388 191,748 108,453 126,842 81,130 45,815
Other borrowings(3).................... 283,500 101,700 121,000 86,359 65,463 67,315 18,092
Subordinated notes..................... -- -- -- 3,250 3,250 3,250 3,250
Stockholders' equity................... 245,419 213,420 221,162 138,054 115,633 66,385 55,970
Stockholders' equity per common
share(4)............................. 6.82 5.72 5.99 4.88 4.09 3.55 3.00
SELECTED INCOME STATEMENT DATA:
Revenues:
Net interest income.................. $ 41,566 $ 32,534 $ 43,973 $ 36,530 $ 28,923 $ 21,273 $ 19,137
Provision for loan losses............ (3,400) (4,500) (6,600) (6,370) (4,258) (950) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses.................... 38,166 28,034 37,373 30,160 24,665 20,323 19,137
Loan administration and servicing
fees............................... 18,914 11,220 15,987 13,214 13,029 11,030 11,046
Net gain (loss) on sale of
loans (5).......................... 28,475 24,287 34,956 23,286 12,285 8,384 (2,899)
Other(6)............................. 5,009 4,059 5,527 4,605 3,938 4,028 1,667
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues..................... 90,564 67,600 93,843 71,265 53,917 43,765 28,951
---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses:
Compensation and benefits............ 16,414 11,951 17,095 13,653 10,794 8,284 5,252
Occupancy expenses................... 7,994 6,200 8,987 7,131 5,531 4,711 4,488
SAIF special assessment.............. -- -- -- -- 2,508 -- --
General and administrative
expenses........................... 23,529 16,372 22,687 18,252 15,424 13,731 13,269
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses..................... 47,937 34,523 48,769 39,036 34,257 26,726 23,009
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before minority interest in the
Bank and income taxes................ 42,627 33,077 45,074 32,229 19,660 17,039 5,942
Minority interest in the Bank's
earnings............................. -- -- -- -- 538 743 500
Income taxes........................... 9,550 9,089 11,040 8,732 5,922 5,847 856
Cumulative effect of change in
accounting principle................. -- -- -- -- -- -- 866
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............................. 33,077 23,988 34,034 23,497 13,200 10,449 5,452
---------- ---------- ---------- ---------- ---------- ---------- ----------
Less: Dividends on preferred stock..... (2,775) (308) (1,233) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income available to common
stockholders......................... $ 30,302 $ 23,680 $ 32,801 $ 23,497 $ 13,200 $ 10,449 $ 5,452
========== ========== ========== ========== ========== ========== ==========
Basic earnings per common share(4)..... $ 1.06 $ 0.85 $ 1.15 $ 0.83 $ 0.60 $ 0.56 $ 0.29
========== ========== ========== ========== ========== ========== ==========
Diluted earnings per common share(4)... $ 1.03 $ 0.82 $ 1.12 $ 0.81 $ 0.59 $ 0.56 $ 0.29
========== ========== ========== ========== ========== ========== ==========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA(7):
PERFORMANCE RATIOS AND OTHER DATA:
Mortgage loans originated and
purchased............................ $1,184,844 $ 887,280 $1,237,415 $ 758,486 $ 480,525 $ 327,107 $ 501,187
Loan servicing portfolio............... 5,434,588 3,564,920 4,827,798 3,000,888 2,550,169 2,298,200 2,114,743
Return on average assets............... 1.93% 1.92% 1.95% 1.85% 1.38% 1.47% 0.91%
Return on average common equity........ 22.01 21.11 21.32 18.69 15.54 17.08 10.34
Equity to assets at end of period...... 9.25 11.66 10.82 9.13 11.14 7.78 8.94
Interest rate spread(8)................ 2.42 2.56 2.43 2.88 3.00 2.93 3.24
Net interest margin(8)................. 2.68 2.80 2.72 3.12 3.24 3.26 3.48
Average interest-earning assets to
average interest-bearing
liabilities.......................... 105.49 104.60 105.93 104.61 104.60 106.50 105.60
Total other expenses to average total
assets............................... 2.10 2.07 2.80 3.08 3.59 3.80 3.84
Full-service Bank offices (9).......... 21 18 20 15 15 14 8
R&G Mortgage offices(10)............... 26 21 23 19 16 13 13
Cash dividends declared per common
share(4)............................. .107 .081 .111 .065 .069 -- --
ASSET QUALITY RATIOS(11):
Non-performing loans to total loans at
end of period........................ 3.68% 4.47% 4.08% 3.89% 3.09% 2.18% 1.84%
Non-performing assets to total assets
at end of period..................... 2.13 2.52 2.41 2.12 1.90 1.32 1.04
Allowance for loan losses to total
loans at end of period............... 0.64 0.78 0.74 0.87 0.55 0.72 0.92
Allowance for loan losses to total non-
performing loans at end of period.... 17.26 17.48 17.92 22.34 17.64 33.19 50.10
Net charge-offs to average loans
outstanding.......................... 0.18 0.44 0.55 0.40 0.75 0.08 0.05
BANK REGULATORY CAPITAL RATIOS(12):
Tier 1 risk-based capital ratio........ 11.82% 15.47% 13.41% 13.10% 13.91% 10.53% 11.03%
Total risk-based capital ratio......... 12.67 16.60 14.46 14.00 14.79 11.66 13.59
Tier 1 leverage capital ratio.......... 6.66 9.01 8.04 7.34 8.45 6.25 5.95
</TABLE>
- ------------------------------
(1) At September 30, 1999, R&G Mortgage and the Bank had total assets of
$694.6 million and $2.1 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 Federal Home Loan Bank of New
York, federal funds purchased and other secured borrowings.
(4) Per share information for all periods presented takes into consideration
prior stock splits and dividends.
(5) Includes a $2.9 million gain on the sale of servicing rights during 1994.
(6) Comprised of change in provision for cost in excess of market value of loans
available for sale and other miscellaneous revenue sources, including
service charges, fees and other income.
(7) 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.
(8) Interest rate spread represents the difference between our 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 branch in San Juan which was opened in October 1999.
(10) As of September 30, 1999, includes 4 branches of Champion Mortgage. As of
such date, also includes 15 R&G Mortgage banking facilities which are
located within 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.
15
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DESCRIPTION OF SERIES B PREFERRED STOCK
GENERAL
The following summary sets forth the material terms and provisions of the
Series B Preferred Stock and is qualified in its entirety by reference to the
terms and provisions of our Certificate of Incorporation, as amended by a
resolution of our Board of Directors which relates to and authorizes the
Series B Preferred Stock (the "Authorizing Resolution").
The Series B Preferred Stock constitutes an authorized series of our
preferred stock. We may issue preferred stock from time to time in one or more
series with such rights, preferences and limitations as are determined by our
Board of Directors. Our Board of Directors has authorized us to issue the
Series B Preferred Stock offered hereby, with the designations, dividend rights,
redemption and other provisions set forth in the Authorizing Resolution and as
described generally below.
When issued, the Series B Preferred Stock will be validly issued, fully paid
and non-assessable. You, as a holder of the Series B Preferred Stock, will have
no preemptive rights with respect to any shares of our capital stock or any of
our other securities which are convertible into or carrying rights or options to
purchase any such shares. The Series B Preferred Stock will not be subject to
any sinking fund and there exists no other obligation on our part for their
repurchase or retirement.
In August 1998, we issued $50,000,000 of 7.40% Noncumulative Perpetual
Monthly Income Preferred Stock, Series A ($25 liquidation preference per share)
(the "Series A Preferred Stock"). The Series B Preferred Stock offered by this
prospectus ranks equal (or PARI PASSU) with the Series A Preferred Stock as to
payments of dividends and as to any preferences on our voluntary or involuntary
liquidation, dissolution or winding up.
DIVIDEND RIGHTS
As a holder of record of the Series B Preferred Stock, you shall be entitled
to receive, when, as and if declared by our Board of Directors, 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 being rounded to the next lowest cent. Dividends on the
Series B Preferred Stock will accrue from their date of issuance and will be
payable monthly in arrears in United States dollars commencing on ,
1999, 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"). Such payments will
be made to the holders of record of the Series B Preferred Stock as they appear
on our books 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 , 1999
(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 B 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.
As a holder of Series B Preferred Stock, you will not participate in
dividends, if any, declared and paid on our Common Stock. Except as described
herein, as a holder of the Series B Preferred Stock, you will have no other
right to participate in our profits or to receive dividends.
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If our Board of Directors or an authorized committee thereof does not
declare a dividend on the Series B Preferred Stock for a Dividend Period, then
you will have no right to receive a dividend for that Dividend Period, and we
will have no obligations to pay the dividend accrued for that Dividend Period,
whether or not dividends are declared for any subsequent Dividend Period.
When dividends are not paid in full on the Series B Preferred Stock and on
any other shares of our preferred stock ranking on a parity as to the payment of
dividends with the Series B Preferred Stock, such as the Series A Preferred
Stock, all dividends declared upon the Series B Preferred Stock and any such
other shares of preferred stock, such as the Series A Preferred Stock, will be
declared PRO RATA, so that the amount of dividends declared per share on the
Series B 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 B Preferred Stock and any such other preferred stock bear to
each other.
So long as any shares of the Series B Preferred Stock remain outstanding,
unless the full dividends on all outstanding shares of Series B 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, (1) no dividend (other than a dividend in Common Stock or
in any other stock of our company ranking junior to the Series B 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 B Preferred Stock (such as the
Series A Preferred Stock) as to dividends or distribution of assets upon
liquidation, dissolution or winding up, and (2) no shares of Common Stock or
shares of any other stock of our company ranking junior to or on a parity with
Series B Preferred Stock (such as 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 by us or any of
our subsidiaries (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 our company ranking junior to or on a parity with the
Series B Preferred Stock as to dividends or distribution of assets upon
liquidation, dissolution or winding up.
CONVERSION; EXCHANGE
The Series B Preferred Stock will not be convertible into, or exchangeable
for any other securities of our company.
REDEMPTION AT OUR OPTION
The shares of the Series B Preferred Stock are not redeemable prior to
, 2004. On or after that date, the shares of Series B Preferred Stock will
be redeemable in whole or in part from time to time at our option, 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 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>
2004........................................................ $
2005........................................................
2006 and thereafter......................................... 25.00
</TABLE>
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In no event shall we redeem less than all the outstanding Series B 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 B Preferred Stock, provided however, that
the foregoing provisions will not prevent, if otherwise permitted, the purchase
or acquisition by us of Series B Preferred Stock pursuant to a tender or
exchange offer made on the same terms to holders of all the outstanding
Series B Preferred Stock and mailed to the holders of record of all such
outstanding shares at such holders' address as the same appear on our books; and
provided, further, that if some, but less than all, of the Series B Preferred
Stock are to be purchased or otherwise acquired by us, the Series B Preferred
Stock so tendered will be purchased or otherwise acquired by us on a PRO RATA
basis (with adjustments to eliminate fractions) according to the number of such
shares tendered by each holder so tendering Series B Preferred Stock for such
purchase or exchange.
In the event that less than all of the outstanding shares of the Series B
Preferred Stock are to be redeemed in any redemption at our option, the total
number of shares to be redeemed in such redemption shall be determined by our
Board of Directors and the shares to be redeemed shall be allocated PRO RATA or
by lot as may be determined by our Board of Directors or by such other method as
our 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 B Preferred Stock
may at the time be listed or eligible for quotation.
We may redeem the Series B Preferred Stock without ever having declared or
paid a dividend on such stock.
Notice of any proposed redemption shall be given by us by mailing a copy of
such notice to the holders of record of the shares of Series B 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 B Preferred Stock shall specify the number of shares of
Series B 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 our option, the notice shall also
specify the number of shares of Series B 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 B 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 B Preferred Stock called for
redemption shall cease to accrue and all rights of the holders of such shares as
our stockholders 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 our option, we 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 B 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 B Preferred Stock to be redeemed, we
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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 B 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 B Preferred Stock (except the right to receive
the redemption price, but without interest) will cease.
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 us and thereafter the holders of shares of the Series B Preferred Stock
called for redemption with respect to which such funds were deposited shall look
only to us for the payment of the redemption price thereof. Any interest accrued
on any funds deposited with the Paying Agent shall belong to us and shall be
paid to us from time to time on demand.
Any shares of the Series B 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 our Board of
Directors.
VOTING RIGHTS
As a holder of the Series B Preferred Stock, you will not be entitled to
receive notice of or attend or vote at any meeting of our stockholders, except
as indicated herein, or except as required by applicable law.
If a Voting Event (as defined below) occurs, the holders of outstanding
shares of the Series B 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 (such as the
Series A Preferred Stock), acting as a single class, will be entitled, by
written notice to us 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 our Board of Directors, 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, our Board of Directors or an authorized
committee thereof will convene a separate special meeting for the above purpose.
If our 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 B Preferred Stock and of any such other securities will be
entitled to convene such meeting. The provisions of our Certificate of
Incorporation and Bylaws relating to the convening and conduct of general
meetings of stockholders will apply with respect to any such separate special
meeting. Any member of our Board of Directors so appointed shall vacate office
if, following the event which gave rise to such appointment, we shall have
resumed the payment of dividends in full on the Series B Preferred Stock and
each such other series of stock for twelve consecutive monthly Dividend Periods.
Our Certificate of Incorporation provides for a minimum of 5 members of our
Board of Directors and a maximum of 15 members. As of the date of this
prospectus, our Board of Directors had 13 members.
A "Voting Event" will be deemed to have occurred in the event that dividends
payable on any share of Series B 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 B Preferred Stock
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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 our part 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 B Preferred Stock by way of amendment of our Certificate of Incorporation
or otherwise (including, without limitation, the authorization or issuance of
any of our shares ranking, as to dividend rights or rights on liquidation,
winding up and dissolution, senior to the Series B 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 B 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 B Preferred Stock. Notwithstanding the
foregoing, we may, without the consent or sanction of the holders of Series B
Preferred Stock, authorize and issue shares of our stock ranking as to dividend
rights and rights on liquidation, winding up or dissolution, on a parity with or
junior to the Series B Preferred Stock. The Series B Preferred Stock constitutes
parity stock with respect to our Series A Preferred Stock.
No vote of the holders of the Series B Preferred Stock will be required for
us to redeem or purchase and cancel the Series B Preferred Stock in accordance
with our Certificate of Incorporation and the Authorizing Resolution.
We will cause a notice of any meeting at which holders of Series B Preferred
Stock are entitled to vote to be mailed to each record holder of the Series B
Preferred Stock. Each such notice will include a statement setting forth
(1) the date of such meeting, (2) a description of any resolution to be proposed
for adoption at such meeting on which such holders are entitled to vote and
(3) instructions for deliveries of proxies.
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of our company, the holders of shares of Series B Preferred Stock
will be entitled to receive out of our assets available for distribution to
stockholders, before any distribution of such assets is made to the holders of
shares of our Common Stock or on any other class or series of our stock ranking
junior to the Series B Preferred Stock as to such a distribution, an amount
equal to $25 per share, plus an amount equal to dividends accrued 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 our company, our assets are insufficient to make the full liquidation payment
on the Series B Preferred Stock and liquidating payments on any other class or
series of our stock ranking on a parity with the Series B Preferred Stock as to
any such distribution, including the Series A Preferred Stock, then such assets
will be distributed among the holders of the Series B 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 B Preferred Stock
will be entitled to no other payments. A consolidation or merger of our 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 of our assets will not be regarded as a liquidation,
dissolution or winding up of our company.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Series B Preferred Stock is
American Stock Transfer & Trust Co., New York, New York, or any successor
thereto (the "Registrar and Transfer Agent").
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The transfer of a share of Series B Preferred Stock may be registered upon
the surrender of the certificate evidencing the Series B 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 B Preferred Stock will be effected
without charge by or on behalf of us, 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.
We will not be required to register the transfer of Series B Preferred Stock
after such Series B Preferred Stock has been called for redemption.
REPLACEMENT OF LOST CERTIFICATES
If any certificate for a Series B 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 our
out-of-pocket expenses in connection with the request as our Board of Directors
may determine.
NO PREEMPTIVE RIGHTS
As a holder of the Series B Preferred Stock, you will have no preemptive
rights to purchase any securities of our company.
NO REPURCHASE AT THE OPTION OF THE HOLDERS
As a holder of the Series B Preferred Stock, you will have no right to
require us to redeem or repurchase any shares of Series B Preferred Stock, and
the shares of Series B Preferred Stock are not subject to any sinking fund or
similar obligation.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
We are authorized to issue 80,000,000 shares of capital stock, of which
70,000,000 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. Our Common Stock is
divided into 40,000,000 Class A Shares, of which as of September 30, 1999,
18,440,556 were owned by Mr. Victor J. Galan, our Chairman of the Board and
Chief Executive Officer, and 30,000,000 Class B Shares, of which as of such
date, 10,217,731 Class B Shares were outstanding and held by members of the
general public. Our Common Stock does not represent non-withdrawable capital, is
not an account of an insurable type, and is not insured by the FDIC.
COMMON STOCK
GENERAL. Our Common Stock has been duly authorized, validly issued, fully
paid and non-assessable. Our shares of Common Stock are not redeemable and the
holders thereof have no preemptive or subscription rights to purchase any
securities of our company. Upon our liquidation, dissolution or winding up, the
holders of our Common Stock are entitled to receive, pro rata, our assets which
are legally available for distribution, after payment of all debts and other
liabilities and liquidation distributions due to holders of our preferred stock.
There is no cumulative voting. Therefore, subject to the right of the holders of
our preferred stock to elect directors under certain circumstances, the holders
of shares representing a plurality of the votes present in person or represented
by proxy at the meeting and entitled to vote in an election of directors can
elect all of the directors of our company then standing for election.
VOTING RIGHTS. Subject to the rights of the holders of our preferred stock
to elect directors under certain circumstances and except to the extent required
by law, the holders of our Common Stock possess exclusive voting rights in our
company. They elect our Board of Directors and act on such other matters as are
required to be presented to them under Puerto Rico law or our Certificate of
Incorporation or as are otherwise presented to them by our 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 votes eligible to be cast,
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
votes present in person or by proxy at the meeting 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 the 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. We have paid regular quarterly cash dividends on the Common
Stock since the quarter ended December 1996. Declarations of dividends by our
Board of Directors depends upon a number of factors. The declaration and payment
of dividends on our Common Stock is subject to a quarterly review by our Board
of Directors. The timing and amount of dividends, if any, is dependent upon our
results of operations and financial condition and on our ability to receive
dividends from our subsidiary companies. Holders of Class A Shares and Class B
Shares are entitled to share ratably, as a single class, in dividends paid on
our 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
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that class of stock and the dividends payable in Class B Shares shall be payable
to the holders of that class of stock).
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
R&G Mortgage and/or the Bank, we, 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 our liquidation, dissolution or winding up, the holders of our
Common Stock would be entitled to receive, after payment or provision for
payment of all our debts and liabilities and liquidation distributions due to
holders of our preferred stock, all of our assets available for distribution.
The Series A Preferred Stock and the Series B Preferred Stock will have a
priority over the holders of our Common Stock in the event of our liquidation or
dissolution. 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 our Common Stock are not entitled to
preemptive rights with respect to any shares which may be issued in the future.
Our Common Stock is not subject to redemption.
PREFERRED STOCK
Prior to this offering, we had issued 2,000,000 shares of our Series A
Preferred Stock, which stock ranks PARI PASSU with respect to the Series B
Preferred Stock. Except with respect to the dividend rate and redemption and
maturity dates, the Series A Preferred Stock has terms which are substantially
the same as the terms of the Series B Preferred Stock. We may issue other series
of preferred stock with such preferences and designations as our Board of
Directors may from time to time determine. Our Board of Directors can, without
stockholder approval, issue preferred stock with voting, dividend, liquidation
and conversion rights as it may deem appropriate under the circumstances.
RESTRICTIONS ON ACQUISITION OF OUR COMPANY
RESTRICTIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS. A number of
provisions of our 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 our 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 "Where You Can Find More
Information."
BOARD OF DIRECTORS. Our Certificate of Incorporation contains provisions
relating to our Board of Directors and provides, among other things, that our
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 our 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 being replaced had been elected, and until his successor has been
elected and qualified.
Our Bylaws govern nominations for election to our 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, our principal executive offices not later than
ninety days prior to the anniversary date of the mailing of our proxy materials
in connection with the immediately preceding
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annual meeting 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. Our Certificate of Incorporation provides that the
personal liability of our directors and officers 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. Our Bylaws
provide that we 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 of our 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 our company, or is or was serving at our written
request as a director, officer, employee or agent of another corporation or
other enterprise, 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 we 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 our prior written consent or
any action, suit or proceeding initiated by any person seeking indemnification
without our prior written consent. Our Bylaws also provide that reasonable
expenses incurred by a director, officer, employee or agent of our company in
defending any civil, criminal, suit or proceeding described above may be paid by
us in advance of the final disposition of such action, suit or proceeding.
SPECIAL MEETINGS OF STOCKHOLDERS AND STOCKHOLDER PROPOSALS. Our Bylaws
provide that special meetings of our 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 our 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 our Board of Directors or otherwise by a stockholder who has
given us timely notice thereof (along with specified information) in writing.
For stockholder proposals to be included in our proxy materials, the stockholder
must comply with all the timing and informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"). With respect to stockholder
proposals to be considered at the annual meeting of stockholders but not
included in our proxy materials, the stockholder's notice must be delivered to
or mailed and received at our principal executive offices not later than
90 days prior to the anniversary date of the mailing of our proxy materials in
connection with the immediately preceding annual meeting.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Our Certificate of
Incorporation generally provides that any amendment of the Certificate must be
first approved by a majority of our Board of Directors and, to the extent
required by law, then by the holders of a majority of the votes eligible to be
cast in an election of directors, except that the approval of shares
representing 75% of the votes eligible to be cast in an election of directors,
as well as such additional vote of the preferred stock as may be required by the
provisions of any series thereof, is required for any amendment concerning our
directors, bylaws, limitation on liability of directors and officers and
amendments, unless any such proposed amendment is approved by a vote of
two-thirds of our Board of Directors then in office. Our 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 votes eligible to be
cast generally in an election of directors, except that the approval of shares
representing 75% of the votes eligible to be cast generally in an election of
directors is required for any amendment to the Bylaws which is inconsistent with
the provisions in our Certificate of Incorporation which address the foregoing
provisions and which are not approved by the affirmative vote of two-thirds of
our Board of Directors then in office.
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OTHER RESTRICTIONS ON ACQUISITION OF OUR 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 our
shares of Common Stock outstanding, unless the Federal Reserve Board finds that
the acquisition will not result in a change in control of our 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 Bank and us, and the antitrust effects of the
acquisition. Under the Bank Holding Company Act, any company would be required
to obtain prior approval from the Federal Reserve Board before it may obtain
control of our company. Control generally is defined to mean the beneficial
ownership of 25% or more of any class of our voting securities. Under the Puerto
Rico Banking Act, a notice must be submitted to the Office of the Commissioner
of Financial Institutions ("OCFI") not less than 60 days prior to the
consummation of any transfer of our stock if, after such transfer, the
transferee (including any group acting in concert) will own more than 5% of our
outstanding voting stock. Such transfer will require the approval of the OCFI if
it will result in a change of control of our company. A transfer will be
presumed to result in a change of control if, as a result of such transfer, a
person or group that did not own more than 5% of our outstanding voting stock
prior to such transfer owns more than 5% of such stock. In acting upon any such
request for approval, the OCFI must take into consideration factors such as the
experience and moral and financial responsibility of the transferee, its impact
on the operations of the Bank, whether the change of control threatens the
interest of the Bank's depositors, creditors or shareholders and any public
interest considerations.
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 the Series B Preferred Stock. This summary is not a comprehensive
description of all the tax considerations that may be relevant to a decision to
purchase the Series B 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
Internal Revenue Code of 1986, as amended (the "Code"), as in effect on the date
of this Prospectus, as well as regulations, including existing and proposed
regulations of the U.S. Department of the Treasury ("Treasury 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 the Series B 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 the Series B Preferred Stock,
including the application to their particular situations of the tax
considerations discussed below, such as life insurance companies, special
partnerships, Subchapter N corporations (under Puerto Rico law), registered
investment companies, certain pension trusts, tax-exempt entities, dealers in
securities, financial institutions, persons who hold Series B 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 own 10% or more of our voting
stock, 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 B Preferred Stock.
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.
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INCOME TAXATION
TAXATION OF DIVIDENDS. Distributions of cash or other property made by us
with respect to the Series B Preferred Stock will be treated as dividends to the
extent that we have current or accumulated earnings and profits. To the extent
that a distribution exceeds our current and 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 B 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 B Preferred
Stock and will be subject to income tax as described below.
This discussion regarding the income taxation of dividends on Series B
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. We have
represented that we have derived more than 20% of our gross income from Puerto
Rico sources on an annual basis since our 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 B Preferred Stock. Puerto
Rico corporations will be subject to income tax on dividends paid with respect
to Series B 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 us. 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 B 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 B 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% income tax
and applicable withholding tax should have their shares of Series B Preferred
Stock issued and registered in their own name. Similarly, Puerto Rico
corporations and partnerships that own any shares of Series B 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 B Preferred Stock to a United States citizen who is not a
resident of Puerto Rico will be subject to a 10% income tax on the amount of the
dividend which will be withheld by us. Such an individual may elect for the 10%
income tax and withholding not to apply, and in that case he or she will be
required 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 separate 10% withholding tax will be required on the amount of
the dividend unless the individual timely files with us a withholding
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<PAGE>
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 B Preferred Stock
registered in their names. Individuals who hold shares of Series B 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 B 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% income tax and will be withheld by us.
FOREIGN CORPORATIONS. The income taxation of dividends paid with respect to
the Series B 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 Puerto
Rico corporations on their net income that is effectively connected with the
conduct of a 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 conduct of a
trade or business in Puerto Rico. Net income from sources within Puerto Rico
will include dividends with respect to Series B 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 B 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 B 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 B 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 B Preferred Stock in the hands of the holder. Such
gain or loss will be capital gain or loss if the Series B 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 B Preferred Stock
exceeds six months.
INDIVIDUAL RESIDENTS OF PUERTO RICO AND PUERTO RICO CORPORATIONS. Gain on
the sale or exchange of Series B 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 B 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 B Preferred Stock will be considered to be income
from sources
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<PAGE>
outside Puerto Rico if all rights, title and interest in or to the Series B
Preferred Stock are transferred outside Puerto Rico, and if the delivery or
surrender of the instruments that evidence the Series B Preferred Stock is made
to an office of a paying or exchange agent located outside Puerto Rico. If the
income resulting from any such sale or exchange constitutes income from sources
within Puerto Rico, an amount equal to 20% of the payments made as part of the
purchase price will be withheld at the source and may be credited against the
stockholder's Puerto Rico income tax liability; 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
income resulting from the sale or exchange of Series B Preferred Stock
constitutes income from sources within Puerto Rico, an amount equal to 25% of
the payments made as part of the purchase price will be withheld at the source
and may be credited against the stockholder's Puerto Rico income tax liability;
and provided 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 B 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 B 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 B Preferred Stock if
such gain is from sources within Puerto Rico. Gain on the sale or exchange of
Series B 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 B
Preferred Stock are transferred outside Puerto Rico, and if the delivery or
surrender of the instruments that evidence the Series B Preferred Stock is made
to an office of a paying or exchanged agent located outside Puerto Rico. If the
income resulting from any such sale or exchange constitutes income from sources
within Puerto Rico, an amount equal to 25% of the payments made as part of the
purchase price will be withheld at the source and may be credited against the
stockholder's Puerto Rico income tax liability. In the case of such foreign
corporation, no income tax will apply if the sale or exchange of Series B
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. A redemption of shares of Series B Preferred Stock
for cash will be treated as a distribution taxable as a dividend to the extent
of our current or accumulated earnings and profits if the redemption is
essentially equivalent to a dividend. Under regulations issued by the Department
of the Treasury of Puerto Rico (a) a redemption of stock that completely
terminates a shareholder's interest in a corporation does not constitute a
dividend, and (b) certain pro rata redemptions among all the shareholder's will
be treated as a dividend. In situations not described by these regulations, the
Department of the Treasury of Puerto Rico will generally follow principles
applied by United States courts and the United States Internal Revenue Service
under the Code, as amended to date, in determining whether a distribution is
essentially equivalent to a dividend. The
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<PAGE>
Department of the Treasury of Puerto Rico, however, is not bound by such
principles and is free to adopt a different rule.
If the redemption of Series B Preferred Stock is not treated as a dividend,
it 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 B Preferred Stock. Gain on the redemption of
Series B Preferred Stock will generally be recognized and will be subject to
income tax. If the stockholder of the Series B 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 Puerto Rico
corporation and the gain is a long-term capital gain, the gain will be taxable
at a maximum rate of 25%. This discussion assumes that any redemption of
Series B Preferred Stock will terminate all of the particular holder's interest
in our company.
If the stockholder of the Series B Preferred Stock is an individual who is
not a resident of Puerto Rico or a foreign corporation or a foreign partnership,
any gain realized by the holder on the redemption of the Series B Preferred
Stock that is not taxable as a dividend may be subject to Puerto Rico income tax
if the gain constitutes income from sources within Puerto Rico or is effectively
connected with a trade or business connected by the holder in Puerto Rico. The
Puerto Rico income tax law does not provide clear rules in this area. As a
result thereof, these prospective shareholders should be aware that gain
realized from a redemption of the Series B Preferred Stock may be treated as
income from sources within Puerto Rico or income effectively connected with a
trade or business in Puerto Rico and subject to income tax and withholding of
tax at the source accordingly.
ESTATE AND GIFT TAXATION
The transfer of Series B 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. Other individuals should
consult their own tax advisors in order to determine the appropriate treatment
for Puerto Rico estate and gift tax purposes of the transfer of the Series B
Preferred Stock by death or gift.
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 B Preferred Stock or with respect to any
gain realized on the sale, exchange or redemption of such stock.
A corporation or partnership 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 B Preferred Stock and with respect to gain realized
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 B Preferred Stock will not be subject to Puerto Rico property
tax.
UNITED STATES TAXATION
This summary deals only with Series B Preferred Stock held by initial
purchasers as capital assets within the meaning of Section 1221 of the Code. As
used herein, the term "U.S. Holder" means a beneficial owner of Series B
Preferred Stock that does not own 10% or more of our voting stock and
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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, (iii) a corporation organized under the laws of the United States or of
any political subdivision thereof, or (iv) 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 B PREFERRED STOCK
TAXATION OF DIVIDENDS. Under the source of income rules of the Code,
dividends on the Series B Preferred Stock will constitute gross income from
sources outside the United States if less than 25% of our gross income on an
ongoing basis is effectively connected with a trade or business in the United
States. We do not, nor do we expect in the future, to have 25% or more of our
gross income effectively connected with a trade or business in the United
States. Accordingly, dividends on the Series B Preferred Stock distributed by us
will constitute gross income from sources outside the United States so long as
we continue to meet the gross income tax described herein.
Subject to the discussion under "--Passive Foreign Investment Company Rules"
below, distributions made with respect to the Series B 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 our current or accumulated earnings and profits 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 us
exceeds our 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 B Preferred Stock
and thereafter as capital gain.
Subject to certain conditions and limitations, any Puerto Rico tax withheld
by us in accordance with Puerto Rico law will be eligible for credit against the
U.S. Holder's United States federal income tax liability. For purposes of
calculating a U.S. Holder's United States foreign tax credit limitation,
dividends distributed by us 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), foreign source
"financial services income."
In general, and subject to the discussion under "--Passive Foreign
Investment Company Rules" below, distributions made by us with respect to the
Series B 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.
Generally, distributions of dividends made by us with respect to the
Series B Preferred Stock to a Puerto Rico corporation will not, in the hands of
the Puerto Rico corporation, be subject to United States income tax if the
dividends are not effectively connected with a United States trade or business
of the Puerto Rico corporation and the Puerto Rico corporation is not treated as
a United States corporation for purposes of Code. The Code provides special
rules for Puerto Rico corporations that are "controlled foreign corporation,"
"personal holding companies," "foreign personal holding companies" or "passive
foreign investment companies."
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 B Preferred Stock in an amount equal to the
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difference between the U.S. Holder's adjusted tax basis in the Series B
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 B 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 B
Preferred Stock, including redemptions treated as sales or exchanges of the
Series B Preferred Stock under the Code, 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. Redemptions of the Series B Preferred Stock that are
not treated as sales or exchanges under the Code will generally be subject to
income tax as dividends.
Generally, any gain derived by a Puerto Rico corporation from the sale or
exchange of the Series B Preferred Stock will not, in the hands of the Puerto
Rico corporation, be subject to United States income tax if the gain is not
effectively connected with a United States trade or business of the Puerto Rico
corporation and the Puerto Rico corporation is not treated as a United States
corporation for purposes of the Code. The Code provides special rules for Puerto
Rico corporations that are "controlled foreign corporations," "personal holding
companies," "foreign personal holding companies" or "passive foreign investment
companies." Redemptions of the Series B Preferred Stock that are not treated as
sales or exchanges under the Code will generally be subject to income tax under
the Code as dividends.
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 B 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. Holders with respect to, and sales and other dispositions (including
pledges) of, stock of a Passive Foreign Investment Company ("PFIC").
Based upon certain proposed United States Treasury Regulations under PFIC
provisions of the Code (the "Proposed Regulations"), we believe that we have not
been a PFIC for any of our prior taxable years and expect to conduct our affairs
in such a manner so that we will not meet the criteria to be considered a PFIC
in the foreseeable future. If, contrary to our expectation, the Series B
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
we remain a PFIC) with respect to (a) any "excess distribution" by us to the
U.S. Holder (generally, any distributions received by the U.S. Holder on the
Series B 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 B Preferred
Stock if shorter) and (b) any gain realized on the sale, pledge or other
disposition of Series B 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 B Preferred Stock, (ii) the amount allocated to the
current taxable year and any taxable year prior to the first taxable year
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in which we are 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 we were a PFIC and effective for taxable years
beginning after December 31, 1997, U.S. Holders may, in certain circumstances,
elect a mark-to-market treatment with respect to their Series B Preferred Stock,
provided that the Series B 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 we are a PFIC in any year, a U.S. Holder who
beneficially owns Series B Preferred Stock during such year must make an annual
return on IRS Form 8621 that describes any distributions received from us and
any gain realized on the disposition of Series B Preferred Stock.
ESTATE GIFT TAXATION
The transfers of Series B 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 gift will not be subject to United States federal estate 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. Other
individuals should consult their own tax advisors in order to determine the
appropriate treatment for United States federal estate and gift tax purposes of
the transfer of the Series B Preferred Stock by death or gift.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), we have agreed to sell to each of the
underwriters named below, for which Santander Securities Corporation of Puerto
Rico ("Santander Securities"), Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Friedman Billings Ramsey ("FBR") are acting
as representatives, and each of such underwriters has severally agreed to
purchase from us, the respective number of shares of Series B Preferred Stock
set forth opposite its name below. The table does not include the 180,000 shares
of Series B Preferred Stock subject to the over-allotment option discussed
below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Santander Securities Corporation of Puerto Rico.............
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Friedman Billings Ramsey....................................
---------
Total..................................................... 1,200,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, we are
obligated to sell, and the underwriters are committed to take and pay for, all
of the shares of Series B Preferred Stock offered hereby, if any are purchased.
The underwriters propose to offer the Series B Preferred Stock to the public
at the public offering price set forth on the cover page of this prospectus, and
to certain selected securities dealers at the public offering price 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 B Preferred Stock are released
for sale to the public, the public offering price and other selling terms may
from time to time be changed by the underwriters.
We have granted the underwriters an option exercisable for 30 days from the
date of this prospectus to purchase up to an aggregate of 180,000 additional
shares of Series B Preferred Stock, solely to cover over-allotments, if any, at
the initial public offering price, 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 B Preferred Stock offered
hereby.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us as well as the proceeds
received by us from the offering, before deducting expenses. The amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase up to an additional 180,000 shares.
<TABLE>
<CAPTION>
TOTAL, ASSUMING
FULL EXERCISE OF
OVER-ALLOTMENT
PER SHARE TOTAL OPTION
--------- ----------- ----------------
<S> <C> <C> <C>
Public Offering Price................................... $25.00 $30,000,000 $34,500,000
Underwriting Discount................................... $ $ $
Proceeds to R&G Financial Corporation................... $ $ $
</TABLE>
In connection with this offering, certain underwriters may engage in passive
market making transactions on the Nasdaq Stock Market's National Market System
immediately prior to the commencement of sales in this offering, in accordance
with Rule 103 of Regulation M. Passive market making consists of displaying bids
on the Nasdaq Stock Market limited by the bid prices and effect in response to
order flow. Net purchases by a passive market maker on each day are limited to a
specified
33
<PAGE>
percentage of the passive market maker's average daily trading volume in the
Series B Preferred Stock during a specified period and must be discontinued when
that limit is reached. Passive market making may stabilize the market price of
the Series B Preferred Stock at a level above that which might otherwise prevail
and, if commenced, may be discontinued at any time.
Until the distribution of the Series B Preferred Stock is completed, rules
of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for and purchase the Series B Preferred Stock. As an
exception to these rules, the underwriters may engage in certain transactions
that stabilize the price of the Series B Preferred Stock. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Series B Preferred Stock.
If the underwriters create a short position in the Series B Preferred Stock
in connection with the offering, I.E., if the underwriters sell more shares of
Series B Preferred Stock than are set forth on the cover page of this
prospectus, they may reduce that short position by purchasing shares of
Series B Preferred Stock in the open market. The underwriters may also elect to
reduce any short position by purchasing all or part of the over-allotment option
described above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of these purchases.
We estimate that the total expense of this offering, excluding underwriting
discounts and commissions, will be $275,000.
We have 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, Merrill Lynch and FBR have provided from time to time,
and expect to provide in the future, investment banking services to us and our
affiliates for which Santander Securities, Merrill Lynch and FBR have received
or will receive customary fees and commissions.
We have applied for listing of the Series B Preferred Stock on the Nasdaq
National Market under the symbol "RGFCO." We have been advised by the
underwriters that they intend to make a market in the Series B Preferred Stock.
The underwriters will have no obligation to make a market in the Series B
Preferred Stock, however, and may cease market making activities, if commenced,
at any time.
34
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Our SEC
filings are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any documents we file with the
SEC at its public reference facilities at 450 Fifth Street, NW, Washington, DC
20549, 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You
can also obtain copies of the documents at prescribed rates by writing to the
Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference facilities. Our SEC filings are also available
at the office of the Nasdaq National Market. For further information on
obtaining copies of our public filings at the Nasdaq National Market, you should
call (212) 656-5060.
We have filed with the SEC a registration statement on Form S-3 (together
with all amendments thereto, the "registration statement"), of which this
prospectus is a part, under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Series B Preferred Stock, which is
discussed in this prospectus. This prospectus does not contain all of the
information set forth in the registration statement, certain portions of which
have been omitted as permitted by the rules and regulations of the SEC. For
further information with respect to us and the Series B Preferred Stock,
reference is made to the registration statement, including its exhibits. The
registration statement may be inspected without charge at the principal office
of the SEC in Washington, D.C., and copies of all or part of it may be obtained
from the SEC upon payment of the prescribed fees.
We "incorporate by reference" into this prospectus the information we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus and information that we file subsequently
with the SEC will automatically update this prospectus. We incorporate by
reference the documents listed below and any filings we make with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act, after the initial
filing of the registration statement that contains this prospectus and prior to
the time that we sell all the securities offered by this prospectus:
- Annual Report on Form 10-K for the year ended December 31, 1998, as
amended by Form 10-K/A dated November 5, 1999.
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999, as
amended by Form 10-Q/A dated November 5, 1999, June 30, 1999, as amended
by Form 10-Q/A dated November 5, 1999, and September 30, 1999.
- Current Report on Form 8-K dated November 19, 1999.
You may request a copy of these filings (other than an exhibit to a filing
unless that exhibit is specifically incorporated by reference into that filing)
at no cost, by writing to or telephoning us at the following address: 280 Jesus
T. Pinero Avenue, Hato Rey, San Juan, Puerto Rico 00918, Attention: Corporate
Secretary, telephone (787) 758-2424.
LEGAL MATTERS
The validity of the Series B Preferred Stock will be passed upon for us by
Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C. The validity of the
Series B Preferred Stock will be passed upon as to matters of Puerto Rico law
for us 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 B 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
35
<PAGE>
prospectus, certain members of Elias, Matz, Tiernan & Herrick L.L.P. owned in
the aggregate approximately 22,543 Class B Shares of our Common Stock. Certain
legal matters will be passed upon for the underwriters by Pietrantoni Mendez &
Alvarez LLP, San Juan, Puerto Rico.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements incorporated in this prospectus by
reference from our Annual Report on Form 10-K/A for the year ended December 31,
1998, 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.
36
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,200,000 SHARES
[LOGO]
% NONCUMULATIVE PERPETUAL
MONTHLY INCOME
PREFERRED STOCK, SERIES B
($25 LIQUIDATION PREFERENCE PER SHARE)
---------------------
PROSPECTUS
---------------------
SANTANDER SECURITIES
MERRILL LYNCH & CO.
FRIEDMAN BILLINGS RAMSEY
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 15,290
Nasdaq listing fee.......................................... 40,000*
NASD filing fee............................................. 5,500
Legal fees and expenses..................................... 100,000*
Accounting fees and expenses................................ 50,000*
Printing.................................................... 50,000*
Miscellaneous expenses 14,210*
--------
Total..................................................... $275,000*
========
</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 our prior written consent or any action, suit or proceeding
initiated by any person seeking indemnification hereunder without our prior
written consent. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or our
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 our 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 negligence or misconduct in the performance of his duty to the Company
II-1
<PAGE>
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 our 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
our 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 our 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 our Board of Directors, notwithstanding any
interest of the directors in the action, the Company may purchase and maintain
insurance, in such amounts as our 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 alter, to
the detriment of such person, the right of such person to the advance of
II-2
<PAGE>
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 our 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 our 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
II-3
<PAGE>
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.
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 our 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 our 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
- ----------- -------
<S> <C>
1 Form of Underwriting Agreement
3* Form of Certificate of Resolutions designating the terms of
the Series B Preferred Stock
4.1** Form of Common Stock Certificate of R&G Financial
4.2* Form of Series B Preferred Stock Certificate of R&G
Financial
5* Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re:
legality of Series B Preferred Stock issuance
5.1* Opinion of McConnell Valdes re: legality of Series B
Preferred Stock issuance (as to matters of Puerto Rico Law)
8* 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 consequences
12* Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
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 Exhibit 5.1 and
8.0)
23.2 Consent of PricewaterhouseCoopers LLP
24.0* Power of Attorney (included in Signature Page of the
Registration Statement)
27.0*** Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
** 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
September 30, 1999 (File No. 000-21137) filed by R&G Financial with the
Commission on November 5, 1999.
(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.
II-5
<PAGE>
(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
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 our 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 Pre-Effective
Amendment No. 1 to the 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 22nd day of November 1999.
<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
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ VICTOR J. GALAN Chairman of the Board, President
------------------------------------ and Chief Executive Officer November 22, 1999
Victor J. Galan (principal executive officer)
Senior Vice President and Chief
/s/ JOSEPH R. SANDOVAL Financial Officer (Principal
------------------------------------ financial and accounting November 22, 1999
Joseph R. Sandoval officer)
/s/ ANA M. ARMENDARIZ*
------------------------------------ Director and Treasurer November 22, 1999
Ana M. Armendariz
/s/ RAMON PRATS*
------------------------------------ Executive Vice President and November 22, 1999
Ramon Prats Director
/s/ ENRIQUE UMPIERRE-SUAREZ*
------------------------------------ Director and Secretary November 22, 1999
Enrique Umpierre-Suarez
/s/ VICTOR L. GALAN FUNDORA*
------------------------------------ Director November 22, 1999
Victor L. Galan Fundora
/s/ JUAN J. DIAZ*
------------------------------------ Director November 22, 1999
Juan J. Diaz
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ PEDRO RAMIREZ*
------------------------------------ Director November 22, 1999
Pedro Ramirez
/s/ LAURENO CARUS ABARCA*
------------------------------------ Director November 22, 1999
Laureno Carus Abarca
/s/ EDUARDO MCCORMACK*
------------------------------------ Director November 22, 1999
Eduardo McCormack
/s/ GILBERTO RIVERA-ARREAGA*
------------------------------------ Director November 22, 1999
Gilberto Rivera-Arreaga
/s/ BENIGNO R. FERNANDEZ*
------------------------------------ Director November 22, 1999
Benigno R. Fernandez
/s/ ILEANA M. COLON*
------------------------------------ Director November 22, 1999
Ileana M. Colon
/s/ ROBERTO GORBEA*
------------------------------------ Director November 22, 1999
Roberto Gorbea
</TABLE>
- ------------------------
*By Victor J. Galan pursuant to Power of Attorney dated November 5, 1999.
<PAGE>
Exhibit 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
R&G FINANCIAL CORPORATION
A Puerto Rico Corporation
1,200,000 Shares
of
____% Noncumulative Perpetual Monthly Income Preferred Stock, Series B
($25 liquidation preference per share)
UNDERWRITING AGREEMENT
Dated: December __, 1999
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TABLE OF CONTENTS
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UNDERWRITING AGREEMENT............................................................................................2
SECTION 1. REPRESENTATIONS AND WARRANTIES...............................................................2
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY...................................................2
(b) OFFICER'S CERTIFICATES.........................................................................11
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING..................................................11
(a) INITIAL SECURITIES.............................................................................11
(b) OPTION SECURITIES..............................................................................11
(c) PAYMENT........................................................................................12
(d) DENOMINATIONS; REGISTRATION....................................................................12
SECTION 3. COVENANTS OF THE COMPANY....................................................................12
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS.................................13
(b) FILING OF AMENDMENTS...........................................................................13
(c) DELIVERY OF REGISTRATION STATEMENTS............................................................13
(d) DELIVERY OF PROSPECTUSES.......................................................................13
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS......................................................14
(f) BLUE SKY QUALIFICATIONS........................................................................14
(g) RULE 158.......................................................................................14
(h) USE OF PROCEEDS................................................................................15
(i) LISTING........................................................................................15
(j) RESTRICTION ON SALE OF SECURITIES..............................................................15
(k) REPORTING REQUIREMENTS.........................................................................15
(l) COMPLIANCE WITH UNDERTAKINGS...................................................................15
(m) ADDITIONAL INFORMATION.........................................................................15
SECTION 4. PAYMENT OF EXPENSES.........................................................................16
(a) EXPENSES.......................................................................................16
(b) TERMINATION OF AGREEMENT.......................................................................16
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.....................................................16
(a) EFFECTIVENESS OF REGISTRATION STATEMENT........................................................16
(b) OPINION OF COUNSEL FOR COMPANY.................................................................17
(c) OPINION OF COUNSEL FOR UNDERWRITERS............................................................17
(d) OFFICERS' CERTIFICATE..........................................................................17
(e) ACCOUNTANT'S COMFORT LETTER....................................................................17
(f) BRING-DOWN COMFORT LETTER......................................................................18
(g) APPROVAL OF LISTING............................................................................18
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(h) NO OBJECTION...................................................................................18
(i) CONDITIONS TO PURCHASE OF OPTION SECURITIES....................................................18
(j) ADDITIONAL DOCUMENTS...........................................................................19
(k) TERMINATION OF AGREEMENT.......................................................................19
SECTION 6. INDEMNIFICATION.............................................................................19
(a) INDEMNIFICATION OF UNDERWRITERS................................................................19
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS.............................................20
(c) ACTIONS AGAINST PARTIES; NOTIFICATION..........................................................20
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE.............................................21
SECTION 7. CONTRIBUTION...............................................................................21
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.............................22
SECTION 9 TERMINATION OF AGREEMENT...................................................................23
(a) TERMINATION; GENERAL...........................................................................23
(b) LIABILITIES....................................................................................23
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS.................................................23
SECTION 11. NOTICES....................................................................................24
SECTION 12. PARTIES....................................................................................24
SECTION 13. GOVERNING LAW AND TIME.....................................................................25
SECTION 14. EFFECT OF HEADINGS.........................................................................25
SECTION 15. COUNTERPARTS...............................................................................25
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SCHEDULES
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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
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R&G FINANCIAL CORPORATION
(A Puerto Rico Corporation)
1,200,000 Shares
of
___% Noncumulative Perpetual Monthly Income Preferred Stock, Series B
($25 liquidation preference per share)
UNDERWRITING AGREEMENT
December __, 1999
Santander Securities Corporation
of Puerto Rico
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Friedman, Billings, Ramsey & Co., Inc.
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"), Friedman, Billings,
Ramsey & Co., Inc. ("FBR") 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, Merrill Lynch and FBR 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 B ($25 liquidation preference per share) set forth in said Schedule B,
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 180,000 additional shares of such preferred stock
to cover over-allotments, if any. The aforesaid 1,200,000 shares of preferred
stock (the "Initial Securities") to be purchased by the Underwriters and all
or any part of the 180,000
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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. 333-90463)
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").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") which is
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectus, as the case may be.
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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 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.
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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 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 (as defined in Section 1(a)(vi)
hereof) 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
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the Company's Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), 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") and for the regular monthly dividends on
the Company's Series A Preferred Stock, since December 31, 1998,
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 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. 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. 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.
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(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 material respects.
(viii) AUTHORIZATION OF AGREEMENT. This Agreement has been
duly authorized, executed and delivered by the Company.
(ix) AUTHORIZATION AND DESCRIPTION OF COMMON STOCK. The
description of the Common Stock of the Company contained in the
Prospectus conforms in all material respects 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
description or the Securities contained in the Prospectus conforms in
all material respects 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 articles of
incorporation, 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
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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 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
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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 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 and the filing of the Certificate of
Designation and Preferences with respect to the Securities with the
Secretary of State of the Commonwealth of Puerto Rico.
(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 and
assets 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) would not, singly or in the aggregate, have a
Material Adverse Effect; 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
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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) 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").
(xx) FORM S-3. The Company meets the requirements for use
of Form S-3 under the 1933 Act Regulations.
(xxi) ENVIRONMENTAL LAWS. To the knowledge of the Company,
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 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.
(xxii) 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.
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(xxiii) 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.
(xxiv) 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 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.
(xxv) 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 or in the
ordinary course of its business, 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.
(xxvi) 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.
(xxvii) NO MANIPULATION. Neither the Company, its Subsidiaries
nor any of their respective directors or officers 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.
(xxviiii) APPROVAL FOR LISTING. The Securities have been
approved for quotation on the Nasdaq National Market, subject only to
notice of issuance.
(xxix) 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
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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).
(xxx) 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 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.
(xxxi) 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 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.
(xxxii) REGULATORY DIRECTIVES. None of the Company or its
Subsidiaries 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 any 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
180,000 shares of the Company's ____% Noncumulative Perpetual Monthly Income
Preferred Stock, Series B ($25 liquidation preference per share) at the price
per share set forth in Schedule B. The
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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 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 LLP, 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"). The Initial Securities to be purchased by
each Underwriter hereunder will be represented by one or more definitive
certificates registered in the name of Cede & Co., which will be deposited by or
on behalf of the Company with the Depository Trust Company ("DTC") or its
designated custodian.
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 or by causing DTC to credit the Securities to the account of each
Underwriter in the case of the Initial Securities. 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
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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 business day prior to the Closing
Time or the relevant Date of Delivery, as the case may be at the office of DTC
or its designated custodian.
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.
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(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.
(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 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
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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.
(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 of
30 days from the date of the Prospectus, the Company will not,
without the prior written consent of the Representatives, (i)
directly or indirectly, offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any share of the Company's
preferred stock (the "Preferred Stock") or any securities
convertible into or exercisable or exchangeable for Preferred Stock
or file any registration statement under the 1933 Act with respect
to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of
the Preferred Stock, whether any such swap or transaction described
in clause (i) or (ii) above is to be settled by delivery of
Preferred Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to the Securities to be sold
hereunder.
(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
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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 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(f) hereof, including filing fees and the 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 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, 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
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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 the 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 the Closing Time, the
Representatives shall have received the favorable opinions, dated as of
Closing Time, of Elias, Matz, Tiernan & Herrick L.L.P. as special
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 effect set forth in Exhibits
B and C hereto and to such further effect as counsel to the
Underwriters may reasonably request. Such counsels may state that,
insofar as such opinions involve 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.
(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 LLP, 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 the 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 the 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
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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 the 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, to such officers'
knowledge, 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
PricewaterhouseCoopers LLP a letter dated such date, in form and
substance reasonably 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 the Closing Time, the
Representatives shall have received from PricewaterhouseCoopers 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 five business days prior to Closing Time.
(g) APPROVAL OF LISTING. At the 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.
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OPINION OF COUNSEL FOR THE COMPANY. The favorable
opinions of Elias, Matz, Tiernan & Herrick L.L.P. and
McConnell Valdes, 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 LLP, 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
PricewaterhouseCoopers LLP, in form and substance satisfactory
to the Representatives 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 the 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
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:
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(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 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
20
<PAGE>
supplement thereto). The Company acknowledges that, for all purposes of this
Agreement, the amounts of the selling concession and reallowance set forth
under the heading "Underwriting" contained in the Prospectus constitute the
only information relating to any Underwriter furnished in writing to the
Company expressly for inclusion in the preliminary prospectus, the
Registration Statement (or any amendment thereto) 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), 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.
21
<PAGE>
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.
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.
22
<PAGE>
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 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.
23
<PAGE>
(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.
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
24
<PAGE>
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, Merrill Lynch & Co., North Tower, World
Financial Center, New York, New York, 10281-1201, Attention:____________, and
at Friedman, Billings, Ramsey & Co., Inc., Potomac Tower 1001 Nineteenth
Street North, Allington, Virginia, 22209, Attention: Robert H. Hartheimer;
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.
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.
[Signature Page Follows]
25
<PAGE>
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:
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By:
--------------------------------------
Name:
Title:
For themselves and as Representatives of the other Underwriters named
in Schedule A hereto.
26
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF
------------ SECURITIES
----------
<S> <C>
Santander Securities Corporation of Puerto Rico...........................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated........................................
Friedman, Billings, Ramsey & Co., Inc.....................................................
Total................................................................... 1,200,000
---------
---------
------------------------
------------------------
</TABLE>
<PAGE>
SCHEDULE B
R & G FINANCIAL CORPORATION
1,200,000 Shares
____% Noncumulative Perpetual Monthly Income Preferred Stock,
Series B
($25 liquidation preference per share)
1. The initial public offering price per share for the Securities 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 __________, 2004 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
4. Continental Capital Corporation
5. United Mortgage Express
A-1
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
------------------------
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated February 10, 1999 relating to the
financial statements, which appears in 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/A for the year ended December 31, 1998.
We also consent to the reference to us under the heading "Independent
Accountants" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
- --------------------------------
PricewaterhouseCoopers LLP
San Juan, Puerto Rico
November 22, 1999
